Incentive scheme cancellation cannot ignore promised refunds and reimbursement while relying on inapplicable tax dues.

Retrospective cancellation of a textile incentive certificate was found unsustainable where the authority relied on alleged tax arrears without properly considering the scheme's reciprocal refund and reimbursement obligations. The cancellation turned on incorrect factual assumptions, including the effect of a stay on part of the dues and the prospective nature of registration cancellation, and it failed to account for the financial impact of unpaid scheme benefits. Central Sales Tax dues were held to be outside the cited policy basis for cancellation. The certificate was restored, and the authorities were directed to adjust the outstanding dues against the refundable and reimbursable amounts under the scheme.

---

---

Issues: (i) Whether the retrospective cancellation of the certificate of entitlement under the textile incentive scheme was justified on the ground of outstanding tax dues and alleged breach of the Gujarat Value Added Tax regime. (ii) Whether dues under the Central Sales Tax Act could be relied upon for cancellation and whether the refund and reimbursement payable under the scheme had to be taken into account while deciding the validity of cancellation.

Issue (i): Whether the retrospective cancellation of the certificate of entitlement under the textile incentive scheme was justified on the ground of outstanding tax dues and alleged breach of the Gujarat Value Added Tax regime.

Analysis: The certificate of entitlement had been granted with retrospective effect after the unit had already commenced production and had, during the interregnum, been treated as a normal dealer. The cancellation order proceeded on the basis that the petitioners had not paid the tax shown as due and had continued to violate the policy conditions. The record showed that a substantial part of the alleged dues was stayed, that the registration cancellation itself was only prospective, and that the petitioners were facing financial difficulty because refund and reimbursement due under the scheme had not been released. The impugned action ignored the reciprocal obligation of the Government under the incentive scheme and proceeded on incorrect factual assumptions.

Conclusion: The retrospective cancellation was not justified and was liable to be set aside.

Issue (ii): Whether dues under the Central Sales Tax Act could be relied upon for cancellation and whether the refund and reimbursement payable under the scheme had to be taken into account while deciding the validity of cancellation.

Analysis: The cancellation order referred to the total alleged dues, including Central Sales Tax liability, though the relevant policy conditions and the cited notification provisions concerned contravention of the Gujarat Value Added Tax Act and its rules. The Court also found that the authorities had failed to consider the refund/reimbursement payable to the petitioners under the textile policy, which exceeded or substantially met the outstanding recoverable amount. The scheme was an investment-linked incentive policy and had to be implemented in a manner that gave effect to the promised benefits rather than defeating them by a one-sided focus on tax arrears.

Conclusion: Central Sales Tax dues could not be treated as a valid basis for cancellation under the cited policy conditions, and the outstanding dues had to be adjusted against the refund/reimbursement payable under the scheme.

Final Conclusion: The petition succeeded to the extent that the cancellation order was quashed, the certificate of entitlement was restored, and the authorities were directed to work out and adjust the refund/reimbursement against the admitted outstanding dues so that the scheme could operate fairly.

Ratio Decidendi: In an investment-linked incentive scheme, the authority must consider the Government's reciprocal obligation to grant the promised refund or reimbursement before invoking breach conditions to cancel eligibility, and cancellation cannot rest on an incomplete or legally irrelevant assessment of dues.

---