Industrial incentive eligibility cannot be denied on unsupported non-functioning findings when records show actual production and sales.

Industrial incentive eligibility could not be refused on an unsupported finding that the units were non-functioning where provisional registrations, statutory clearances, commencement of production, and tax assessments on actual sales showed operation during the relevant policy period; later closure did not defeat entitlement for the period of operation. The Court also held that the industries department had to act consistently with completed finance department assessments. By contrast, assessments made while eligibility applications were pending were not invalid merely for that reason, because no policy provision required the tax department to await certificate decisions. Relief followed only where eligibility was to be granted, through refund or adjustment of the applicable remission.

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Issues: (i) whether the refusal to grant eligibility certificates to the industrial units on the ground that they were non-functioning was sustainable; (ii) whether the assessment orders raising tax demand during pendency of the eligibility-certificate claims could stand.

Issue (i): whether the refusal to grant eligibility certificates to the industrial units on the ground that they were non-functioning was sustainable.

Analysis: The eligibility framework under the industrial policy linked incentives to units that had set up operations and commenced commercial production within the policy period. The record showed that the petitioners had obtained provisional registrations, environmental and factory clearances, commenced production, and were assessed by the tax department on sales made from the units. The later report treating the units as non-functioning could not override these contemporaneous official materials, especially when no contrary records were produced to show that the units had never operated. The Court also held that the State authorities had to act consistently, and the industries department could not take a position contrary to the finance department's completed assessments showing sales and turnover. The closure or stoppage of operations later, in the circumstances explained, did not by itself defeat the entitlement to eligibility for the period when the units were operational.

Conclusion: The refusal to grant eligibility certificates on the ground of non-functioning was not sustainable, and the petitioners were entitled to reconsideration and grant of eligibility certificates.

Issue (ii): whether the assessment orders raising tax demand during pendency of the eligibility-certificate claims could stand.

Analysis: The tax authorities proceeded on the basis that the petitioners had not produced eligibility certificates when filing returns, and the industrial policy and remission scheme did not create any exemption merely because an eligibility application was pending. For the assessment batches where only this ground was urged, no provision in the policy or scheme was shown that required the tax department to await the outcome of the eligibility process. Accordingly, those assessments did not suffer from legal infirmity on the sole ground of pendency of the certificate applications. As to the connected batch involving units later found eligible, the resulting tax consequences were directed to follow the grant of eligibility and the assessees were to receive the applicable remission by refund or adjustment for the relevant years.

Conclusion: The assessments were upheld where the only challenge was pendency of the eligibility application, while the consequential tax relief was made available in the matters where eligibility certificates were to be granted.

Final Conclusion: The writ petitions were allowed in part. The rejection of eligibility certificates was set aside and the matters were remanded for fresh consideration and grant of eligibility, while the assessments challenged solely on the ground of pending eligibility applications were rejected.

Ratio Decidendi: A State that has induced industrial investment by holding out fiscal incentives cannot deny eligibility on an inconsistent and unsupported finding of non-functioning when official records show actual operation and taxable sales, and closure after commencement does not defeat eligibility for the period of operation absent an express statutory bar.

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