Conditional tax exemption undertakings remain enforceable despite rehabilitation proceedings, with excess benefit and interest recoverable on default.

A conditional tax exemption accepted with an express repayment undertaking remained enforceable despite BIFR rehabilitation proceedings. The rehabilitation scheme did not extinguish the obligation to restore any benefit beyond the permitted exemption level, because the undertaking was expressly tied to the contingency of the Supreme Court modifying the earlier judgment. The excess exemption was therefore recoverable, and interest was also payable on the retained amount under the governing tax default and delayed-payment provisions, since continued retention after the contingency amounted to unjust enrichment. The demand raised by the tax authorities was sustained in full.

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Issues: (i) Whether the petitioner could avoid repayment of the excess tax benefit on the strength of the BIFR rehabilitation scheme and thereby escape the undertaking given under the exemption notification; (ii) Whether interest was recoverable on the excess benefit retained under the exemption and deferment arrangements.

Issue (i): Whether the petitioner could avoid repayment of the excess tax benefit on the strength of the BIFR rehabilitation scheme and thereby escape the undertaking given under the exemption notification.

Analysis: The exemption granted under the special notification was conditional and expressly linked to the outcome of the Binani Cement litigation. The undertaking bound the petitioner to repay the benefit exceeding 25% if the Supreme Court modified the High Court judgment. The rehabilitation proceedings before BIFR did not nullify that undertaking, nor did the sanctioned scheme confer an unconditional right to retain 75% exemption. The BIFR proceedings were confined to the relief already considered by the State and could not de-link the petitioner from the contingency expressly assumed in the undertaking.

Conclusion: The petitioner remained bound by the undertaking, and the excess exemption was recoverable.

Issue (ii): Whether interest was recoverable on the excess benefit retained under the exemption and deferment arrangements.

Analysis: The court held that the statutory scheme for payment of tax and default applied to the deferred amounts, and that the petitioner had enjoyed the use of money which, after the Supreme Court decision, was not lawfully retainable beyond 25%. The undertaking required repayment without loss to the revenue, attracting restitutionary consequences. Retention of the excess amount would amount to unjust enrichment, and the statutory provisions for interest on delayed payment applied to the defaulted sums.

Conclusion: Interest was recoverable on the excess amount retained by the petitioner.

Final Conclusion: The writ petitions failed in entirety, and the demand raised by the tax authorities was sustained.

Ratio Decidendi: A conditional tax exemption accepted with an express repayment undertaking remains enforceable notwithstanding rehabilitation proceedings, and where the contingency occurs, the assessee must restore the excess benefit with interest under the governing tax default provisions.

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