Exemption conditions breached by discontinuing production: residual tax adjustment could be withdrawn and tax recovered

Breach of exemption conditions by discontinuance of the unit before the eligible period caused the exemption scheme to cease to operate, so the tax otherwise payable became recoverable from the unit. The assessed sales tax liability could not be adjusted against the residual exemption limit once the basic condition of continuous production was not met. The revisional authority was competent to correct the erroneous adjustment and withdraw the benefit. The Tribunal deleted the penalty component, but the challenge to the revision and withdrawal of exemption adjustment failed.

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Issues: Whether, on breach of the exemption conditions by discontinuance of the unit before the eligible period, the Commissioner could in revision withdraw the benefit of adjusting the assessed sales tax liability against the surviving exemption limit and direct payment of tax, interest and penalty.

Analysis: The exemption scheme required the eligible unit to remain in continuous production during the eligibility period. That condition was admittedly not satisfied. Under the exemption notification, contravention of any condition caused the exemption to cease to operate and the tax that would otherwise have been payable became recoverable from the unit. In that situation, the Assessing Officer could not validly adjust the assessed sales tax liability against the residual exemption limit, because the very basis for the adjustment had ceased. The revisional authority was competent under section 67 of the Gujarat Sales Tax Act to correct the erroneous order. The Tribunal, however, deleted the penalty portion.

Conclusion: The revision was maintainable and the Commissioner's withdrawal of the exemption adjustment was upheld. The petitioners challenge failed, and the petition was dismissed.

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