Retrospective withdrawal of eligibility certificate revives tax, interest and penalty despite prior conversion into an interest-free loan.

Where a deferment-to-loan scheme is interwoven with the underlying exemption framework, benefit is confined to an industrial unit holding a valid eligibility certificate. Once that certificate is withdrawn for breach of conditions, the withdrawal operates retrospectively and revives liability to tax, interest and penalty from inception, even if deferred sales tax had earlier been converted into an interest-free loan and repaid through book adjustments. Interest was therefore rightly demanded and the challenge failed.

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Issues: Whether interest was leviable on the petitioner after withdrawal of the eligibility certificate and conversion of deferred sales tax into interest free loan under the State scheme.

Analysis: The Scheme for conversion of deferred sales tax into interest free loan was held to be linked with Rule 28-B of the Haryana General Sales Tax Rules, 1975 and not an independent arrangement. Benefit under the Scheme was available only to an eligible industrial unit holding the requisite certificates under the incentive framework. Once the eligibility certificate was withdrawn for breach of conditions, the withdrawal operated retrospectively and the unit became liable to tax, interest and penalty as if the exemption or deferment had never been granted. The fact that the tax component had been adjusted through inter-departmental book entries and that the loan had been repaid did not erase the statutory consequence of the withdrawal.

Conclusion: Interest was rightly demanded, and the challenge to the demand failed.

Ratio Decidendi: Where a deferment-to-loan scheme is interwoven with the underlying tax exemption rules, withdrawal of the eligibility certificate revives the unit's liability to tax, interest and penalty from inception notwithstanding prior conversion of dues into interest free loan.

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