Retrospective curtailment of incentive benefits under a small scale industry scheme cannot defeat earlier commitments to existing units.

The Bombay Sales Tax incentive framework for small scale units was examined where amended Section 41C sought to impose, for the first time, a ceiling linked to approved gross fixed capital investment and to curtail the incentive period. The earlier 1979 package scheme had not imposed such a ceiling, and the 1982 modification preserved commitments already made to existing units unless they opted for the revised regime. The amendment was treated as ineffective against units that had applied under the original scheme, obtained eligibility belatedly, and altered their position in reliance on that assurance, because retrospective curtailment of earned or expected benefits would be inequitable and arbitrary in that context.

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Issues: Whether the amended Section 41C of the Bombay Sales Tax Act, 1959 could be applied to small scale units that had applied under the unamended 1979 incentive scheme and whose eligibility certificates were issued belatedly, so as to curtail the incentive period and impose a ceiling linked to approved gross fixed capital investment.

Analysis: The petitions concerned small scale industrial units which had applied before the amended regime came into force and had been found entitled to incentives under the 1979 package scheme. The scheme, as originally framed, did not impose a ceiling on the cumulative incentive of such units during the full period of eligibility, and the later 1982 modification expressly preserved the commitments already made and allowed existing units to continue under the earlier scheme unless they opted otherwise. The impugned statutory amendment introduced, for the first time, a ceiling based on the approved gross fixed capital investment at the time of grant of the eligibility certificate and operated to cancel entitlement retrospectively in a manner that would affect benefits already earned or expected under the earlier commitment. The Court held that the petitioners had acted on the basis of the original assurance, that their units had not ceased to be small scale units, and that the belated imposition of this restriction after substantial irreversible steps had been taken was inequitable and arbitrary in its application to them.

Conclusion: Section 41C(1)(a)(i)(A) could not be used against the petitioners so as to curtail their incentive entitlement during the eligibility period, and the challenge succeeded to that extent.

Ratio Decidendi: Where an incentive scheme contains a clear commitment to existing units and the later statutory amendment retrospectively withdraws or curtails the promised benefit after the units have altered their position on that assurance, the amendment cannot be enforced against such units in a manner that defeats the original commitment.

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