Unit-wise assessment of exemption conditions bars clubbing expansion unit production to preserve tax benefit compliance

Exemption under Rule 28A(11)(a)(i) of the Haryana General Sales Tax Rules was conditioned on maintaining production at not less than the average level of the preceding five years, and breach attracted repayment of the tax benefit with interest. The Court held that compliance had to be assessed unit-wise; production from a separate expansion unit could not be clubbed with the original industrial unit to satisfy the condition. Clubbing was therefore impermissible, the exemption condition was violated, and the tax benefit with interest became recoverable.

---

---

Issues: Whether the production of an expansion unit could be clubbed with the original industrial unit for satisfying the condition of maintaining average production under Rule 28A(11)(a)(i) of the Haryana General Sales Tax Rules, 1975, and whether the exemption benefit could be withdrawn for breach of that condition.

Analysis: The rule made continuation of production at not less than the average level for the preceding five years a condition of the tax exemption benefit, and clause (b) attached the consequence of repayment of the tax benefit with interest on violation. The definition of eligible industrial unit and expansion was considered, but the Court held that those provisions governed eligibility for exemption and did not permit the production of two independent units to be combined for the purpose of proving compliance with the condition imposed on the beneficiary unit. The exemption was treated as unit-specific, and clubbing of production was found to be impermissible. The plea for liberal construction was rejected because the rule itself clearly prescribed the condition and the consequence of its breach.

Conclusion: Clubbing of the expansion unit's production with the original unit was not permissible. The assessee had violated Rule 28A(11)(a)(i) and was liable to repay the tax benefit with interest; the decision was in favour of the Revenue.

Final Conclusion: The High Court's judgment was set aside and the orders of the tribunal and revenue authorities were restored, resulting in revival of the demand for tax benefit and interest.

Ratio Decidendi: Where an exemption under a taxing rule is conditioned on maintaining production by a beneficiary unit, compliance must be assessed unit-wise and the production of a separate expansion unit cannot be clubbed to avoid the statutory consequence of breach.

---