Strict compliance with fiscal exemption conditions defeats claim where exempt goods were diverted to another unit for use.

A fiscal exemption under the original purchase tax notification was available only where the eligible unit itself used the purchased goods as raw materials, processing materials or consumable stores in its own industrial activity, and strict compliance with every condition was required. The assessee diverted exempted Naphtha and Natural Gas to another entity for electricity generation, so the declaration in Form No. 26 was breached and the exemption could not be sustained. Later amendments were treated as clarificatory and did not remove the core actual-use requirement. Promissory estoppel could not override the taxing notification, and penalty followed from the misuse of the exemption.

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Issues: (i) Whether the assessee was entitled to exemption from purchase tax under the original Entry No. 255(2) dated 05.03.1992. (ii) Whether the subsequent amendments dated 14.11.2000 and 16.01.2002 altered the basic conditions of the original exemption and affected the assessee's entitlement. (iii) Whether there was a breach of the declaration in Form No. 26. (iv) Whether the demand of purchase tax after 14.11.2000 was barred by promissory estoppel. (v) Whether penalty was leviable.

Issue (i): Whether the assessee was entitled to exemption from purchase tax under the original Entry No. 255(2) dated 05.03.1992.

Analysis: The exemption was conditioned on the eligible unit actually using the purchased goods as raw materials, processing materials or consumable stores in its own industrial activity as declared in Form No. 26. The assessee purchased Naphtha and Natural Gas on exemption but transferred them to another entity for generation of electricity instead of using them itself as required by the notification. An exemption notification must be construed strictly, and the beneficiary must satisfy all stipulated conditions.

Conclusion: The assessee was not entitled to exemption under the original Entry No. 255(2).

Issue (ii): Whether the subsequent amendments dated 14.11.2000 and 16.01.2002 altered the basic conditions of the original exemption and affected the assessee's entitlement.

Analysis: The later amendments were treated as clarificatory and, in part, expansive of the scope of use, but they did not displace the core requirement that the eligible unit actually use the goods. They did not take away any right in a manner inconsistent with the original notification, yet they also did not cure the assessee's non-compliance with the original condition.

Conclusion: The amendments did not alter the basic requirement of actual use by the eligible unit, and the assessee could not derive benefit from them.

Issue (iii): Whether there was a breach of the declaration in Form No. 26.

Analysis: Form No. 26 declared that the goods purchased would be used in the manufacture of goods by the eligible unit. The admitted transfer of the exempted inputs to another company for electricity generation showed that the declaration was not fulfilled in the manner undertaken. The diversion of goods to an ineligible unit was inconsistent with the certificate furnished to obtain exemption.

Conclusion: There was a breach of the declaration in Form No. 26.

Issue (iv): Whether the demand of purchase tax after 14.11.2000 was barred by promissory estoppel.

Analysis: Promissory estoppel could not be used to defeat the express terms of a taxing exemption, particularly where the assessee had not fulfilled the statutory conditions in the first place. Each assessment year is independent, and an erroneous earlier benefit cannot confer a continuing legal right contrary to the notification.

Conclusion: The demand was not barred by promissory estoppel.

Issue (v): Whether penalty was leviable.

Analysis: The liability to penalty followed from the assessed purchase tax where the statutory threshold was met. The conduct was treated as a deliberate misuse of the exemption by passing the goods to an ineligible unit, which justified penal consequences under the Act.

Conclusion: Penalty was leviable.

Final Conclusion: The assessee failed to satisfy the exemption conditions under the original notification, the exemption could not be sustained on the basis of subsequent amendments or promissory estoppel, and the tax demand together with penalty was restored.

Ratio Decidendi: A person claiming a fiscal exemption must strictly satisfy every condition of the exemption notification, and neither promissory estoppel nor past erroneous allowance can override the statutory terms where the declared use of exempt goods is not fulfilled.

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