Retrospective reduction of tax exemption limit barred after reliance on final eligibility certificate; refund with interest follows.

A final eligibility certificate under a tax incentive scheme could not be retrospectively reduced after the beneficiary had already exhausted the exemption and altered its commercial position. The court noted that although an erroneously granted certificate may be corrected in appropriate cases, such correction must occur within a reasonable time and before irreversible reliance is created. In the absence of fraud, misrepresentation, or a clear explanation for the alleged mistake, the amended certificate and consequential demand could not be sustained. Amounts deposited during writ proceedings under a protective arrangement were required to be refunded with simple interest at 9% per annum from the date of deposit.

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Issues: (i) Whether the authority could reduce the sales tax exemption limit fixed under a final eligibility certificate after the assessee had already exhausted the exemption and altered its commercial position; (ii) Whether the amount recovered pursuant to the impugned demand was liable to be refunded with interest.

Issue (i): Whether the authority could reduce the sales tax exemption limit fixed under a final eligibility certificate after the assessee had already exhausted the exemption and altered its commercial position.

Analysis: The exemption scheme contemplated a provisional certificate followed by a final certificate after verification. Once a final eligibility certificate was issued, the assessee was entitled to proceed on the basis that the requisite verification had been completed. Although correction of an antly granted certificate was not ruled out in every case, such action had to be taken within a reasonable time and before the beneficiary irreversibly changed position. Here, the assessee had already exhausted the exemption limit and had not collected tax from its customers. The reduction was made long thereafter, without any demonstrated fraud or misrepresentation by the assessee and without a clear explanation of the alleged mistake.

Conclusion: The reduction of the exemption limit was impermissible and the impugned amendment certificate and consequential order could not be sustained.

Issue (ii): Whether the amount recovered pursuant to the impugned demand was liable to be refunded with interest.

Analysis: The amount had been deposited during the writ proceedings under an arrangement preserving the assessee's rights, and the assessee ultimately succeeded in challenging the demand. In those circumstances, retention of the amount by the respondents would be unjustified, and interest was warranted from the date of deposit till repayment.

Conclusion: The deposited amount was directed to be refunded with simple interest at 9% per annum.

Final Conclusion: The impugned reduction in sales tax exemption was quashed, the recovery demand was set aside, and the assessee obtained consequential monetary relief by way of refund with interest.

Ratio Decidendi: A final eligibility or exemption certificate under a tax incentive scheme cannot be retrospectively curtailed after the beneficiary has acted upon it and irreversibly altered its position, unless the correction is made within a reasonable time and on a legally sustainable basis.

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