Retrospective incentive rule changes cannot defeat exemption-based computation under an industrial package scheme.

Rule 31AA of the Maharashtra Sales Tax Rules, 1959 was treated as invalid to the extent it operated retrospectively and required computation of cumulative incentives by ignoring the exemption provisions under the 1983 Package Scheme of Incentives. The court noted that the scheme was founded on a promised method of calculating notional sales tax liability by reference to the tax actually payable outside the scheme, and that a later rule could not retrospectively alter that basis or defeat benefits on which industrial units had relied when setting up in backward areas. Section 41B was not struck down.

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Issues: Whether Rule 31AA of the Maharashtra Sales Tax Rules, 1959, to the extent it applied retrospectively and directed computation of cumulative quantum of benefits by ignoring the exemption provisions under the 1983 Package Scheme of Incentives, was valid and consistent with the scheme under which the industrial unit was established.

Analysis: The entitlement under the 1983 Scheme was founded on the promise that notional sales tax liability would be computed with reference to the tax actually payable by a unit not covered by the scheme under the local sales tax law, including the exemption provisions. The Court applied the ratio that a subsequent rule cannot, with retrospective effect, alter the agreed method of calculation so as to deprive units of benefits on which they had acted and on the basis of which the units were set up in backward areas. The later rule, to the extent it required computation by ignoring the exemption provisions, was found inconsistent with the industrial policy embodied in the scheme and unsupported by the earlier promise on which the petitioners had relied.

Conclusion: Rule 31AA was held invalid and contrary to law to the extent it operated retrospectively and required calculation of cumulative quantum of benefits by ignoring the exemption provisions under the 1983 Scheme. The challenge succeeded only to that extent, and Section 41B was not struck down.

Ratio Decidendi: A subsequently inserted rule cannot retrospectively alter the scheme-based method of computing incentives where parties have acted on the original policy and acquired vested rights under it; any such rule is bad to the extent it is repugnant to the industrial incentive policy and defeats the promised exemption-based computation.

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