Cumulative quantum of benefits must reflect statutory sales tax exemptions; retrospective rule could not override the incentive scheme.

Para 2.11 of the 1988 Government Resolution required cumulative quantum of benefits to be computed by reference to the tax actually payable by a comparable unit outside the scheme under the applicable sales tax law, including any statutory exemptions. Rule 31AA was invalid to the extent it excluded those exemptions and gave retrospective effect from 1 January 1980, because it altered the incentive structure and impaired rights that had crystallised under the industrial policy. The CQB therefore had to be calculated on the basis of the tax legally payable by the outside unit, with exemptions taken into account.

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Issues: Whether the cumulative quantum of benefits under para 2.11 of the 1988 Government Resolution had to be computed by taking the tax actually payable by a unit not covered under the incentive scheme, including the exemption provisions under the sales tax law, and whether Rule 31AA of the Bombay Sales Tax Rules, 1959 was valid to the extent it required exclusion of such exemptions with retrospective effect.

Analysis: Para 2.11 of the 1988 Government Resolution required notional sales tax liability to be computed with reference to the tax payable by a unit outside the scheme at the maximum rates of tax specified under the local sales tax law. The expression did not authorise ignoring the exemption provisions contained in the sales tax law. The tax payable by a unit not covered by the scheme had first to be determined under the applicable sales tax regime, including partial or total exemptions, and that tax constituted the benchmark for calculating the cumulative quantum of benefits. Section 41B of the Bombay Sales Tax Act, 1959 did not itself prescribe a different method, but Rule 31AA, by directing exclusion of exemptions and by operating retrospectively from 1st January 1980, altered the scheme and impaired the rights on which eligible units had acted. Such retrospective alteration was repugnant to the industrial policy and could not override the entitlement flowing from the Government Resolution.

Conclusion: Rule 31AA of the Bombay Sales Tax Rules, 1959 was held invalid to the extent it required CQB to be calculated by ignoring the exemption provisions and to the extent of its retrospective application to units covered by the 1988 Scheme. The CQB had to be computed in favour of the petitioners on the basis of tax actually payable by a comparable unit outside the scheme, including the exemption provisions.

Final Conclusion: The challenge succeeded on the core issue of CQB computation, and the impugned rule was struck down only to the extent inconsistent with the 1988 incentive scheme.

Ratio Decidendi: Where an incentive scheme fixes notional tax liability by reference to tax payable under the local sales tax law, the computation must include the exemptions that the law itself permits, and a retrospective rule cannot validly take away benefits already crystallised under the governing industrial policy.

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