Holding

The Supreme Court held that the exemption certificate was validly cancelled, the unit is liable to pay the tax amount with interest under Rule 11, and the High Court’s order was erroneous.

Issues considered

Whether cancellation of the exemption certificate after its validity period attracts the provisions of sub‑rule 10(v) of Rule 28(A).
Whether Rule 11(a) and 11(b) impose liability to pay tax, interest and penalty when the industrial unit fails to continue production for five years.
Whether the High Court erred in not considering Rule 11 while allowing the writ petition.
Whether withdrawal of the eligibility certificate under sub‑rule 8 results in deemed withdrawal of the exemption/entitlement certificate and consequent tax liability.
Whether the department may recover tax, interest and penalty for the period during which exemption was availed.

Legislation cited

Haryana General Sales Tax Rules, 1975s. 11(a), s. 11(b), s. 28(A)(10)(v), s. 28(A)(8), s. 28(A)(9)

Subjects

sales tax exemptioneligibility certificateexemption certificateRule 28ARule 11Haryanatax liabilityproduction continuitywithdrawal of certificate

Judgment

[2008) 12 S.C.R. 370

-:Y
A STATE OF HARYANA & ORS.
V.
MIS. AS. FUELS PVT. LTD. & ANR.
(Civil Appeal No. 5386 of 2002)
AUGUST 20, 2008
8
[DR. ARIJIT PASAYAT AND P. SATHASIVAM, JJ.] +
Haryana General Sales Tax Rules,. 1975: Rule
28(A)(10)(v) and (11)(a) - Industrial unit holding exemption
c or entitlement certificate - Benefit of tax exemptiQn -
Entitlement to - Held: Under sub-rule (11)(a) benefit is
available if unit continues production for at least next five
years not below the average production for preceding five
years - Otherwise it would be liable to pay the benefit availed
by it during period of exemption with interest as if no tax
D
exemption was ever availed - However, if it is able to satisfy
Deputy Excise and Taxation Commissioner that loss in
production was due to reasons beyond its control, it would "·
)"·
not be liable - On facts, non-renewal of exemption certificate
granted to the unit from 1. 7. 97 for another year and
E cancellation thereof by DETC as there was no production
since January 1997 - Unit directed to deposit tax in respect
of exemption availed with interest - Order of High Court that
cancellation of exemption certificate on expiry of the period
did not attrac,t Rule 28 (A)(1 O)(v), thus, demand not
F maintainable, not justified - High Court allowed writ petition
-~
without examining the effect of Rule 11 - In any event, it
permitted the Authorities to go before Screening Committee
to get eligibility certificate cancelled which was done, and
appeal against cancellation was dismissed. t
G
Under Rule 28 A of the Haryana General Sales Tax
~
Rules, 1975 certain industrial units were granted benefit
of sales tax exemption from 13.12.1994 to 12.12.2003
subject to fulfillment of certain conditions. Respondent-

H 370
STATE OF HARYANA & ORS. v. M/S. A.S. 371
FUELS PVT. LTD. & ANR.
---(
unit was granted eligibility certificate to avail sales tax A
exemption. On basis thereof, the unit was granted
exemption certificate for the period ending on 30.06.1995
which was renewed till 30.06.1996 and thereafter, till
30.06.1997. However, application for further renewal was
rejected. While processing the application, the Deputy B
Excise and Taxation Commissioner noticed that the unit
-t' was out of production since January, 1997, thus,
~
exemption certificate was also liable to be cancelled
under sub-rule 9(1) of Rule 28A of the Rules. Respondent
was issued show cause notice but it neither appeared c
nor furnished explanation. Thereafter, the DETC
cancelled the exemption certificate. In appeal, the
application for renewal was rejected and the exemption
certificate was also cancelled. The respondent was
directed to deposit tax in respect of exemption already
0
availed with interest. Aggrieved, respondent filed writ
petition. High Court held that the cancellation of
,.. exemption certificate after its validity period was over
1 on 30.6.1997 did not attract provisions of Rule 28 (A)
(10) (v); that it was not a case of cancellation of
exemption certificate because it was done after expiry E
of the period, thus, direction to deposit amount in respect
of exemption availed by it was not justified. Hence the
present appeals.
Dismissing C.A.No. 676 of 2005 and allowing C.A.No. F
5386 of 2002 and C.A.No. 5149 of 2008, the Court
HELD: 1.1 In the instant case, the High Court rightly
observed that there is scope for automatic cancellation
in view of the fact that after January, 1997 there was no
production. Sub rule (8) of the Rule 28 (A) of the Haryana G
General Sales Tax Rules, 1975 deals with the withdrawal
..._,.\-
of the eligibilify certificate. Under sub-rule 8(b) when the
eligibility certificate is withdrawn, the exemption/
entitlement certificate is also deemed to have been
withdrawn from the first day of its validity and the unit H
372 SUPREME COURT REPORTS [2008] 12 S.C.R.

A shall be liable to payment of tax, interest or penalty under
the Act as if no entitlement certificate had been ever
granted to it. [Para 9] [385, 8-D]
1.2 A bare reading of Rule 11 (a) shows that the benefit
of tax exemption/deferment under the Rule shall be
8 subject to the condition that the beneficiary/industrial unit
after having availed all the benefit shall continue its
production for at least next five years not below the
average production for the preceding five years. Clause
(b) of the sub rule shows that in case the unit violates
C any of the conditions laid down in clause (a) it shall be
liable to make in addition to the full amount of the benefit
availed of by it during the period of exemption/deferment,
payment of inter~st chargeable under the Act as if no tax
exemption/deferm\nt was ever available to it. The proviso
D is also of significance. It provides that the provisions of
clause (b) shall not come into play if the loss in production
is explained to the satisfaction of the DETC concerned
as being due to reasons beyond the control of the unit.
In other words, in case of non-continuance of production
E for next five years, the result is that it shall be deemed as
if there was no tax exemption/entitlement available to it.
The proviso permits the dealers to explain satisfactorily
to the DETC that the loss in production was because of
the reasons beyond the control of the unit. The materials
F have to be placed in this regard by the party. Thus, in
terms of clause (b) of Rule 11 if the conditions stipulated
in clause (a) are not fulfilled, it shall be deemed that
exemption/entitlement was not ever availed. [Paras 9 and
10] [385,D-G; 386,A-B; 386,D]
G 1.3 A writ petition is pending before the High Court.
As in the instant case, the writ petition filed by the
respondent has been allowed without examining effect
.of Rule 11, the order of the High Court cannot be
maintained. The High Court seems to have completely
1-1 lost sight of Rule 11(b). In any event, the High Court had

,....
'·
STATE OF HARYANA & ORS. ·v. M/S. A.S. 373
FUELS PVT. LTD. & ANR [DR ARIJIT PASAYAT, J.]
1
permitted the Authorities to go before the Screening A
Committee to get the eligibility certificate cancelled.
Undisputedly that has been done, and the appeal against
cancellation has been dismissed. Therefore, the High
Court was not justified in its view that demand cannot be
maintained. [Paras 9 and 10] [386,C-D; 386,B-C 386,D-E] B
t- CIVIL APPELLATE JURISDICTION : Civil Appeal No.
\
5386 of 2002
From the final Judgment and Order dated 4.7.2000 of
the High Court of Punjab and Haryana at Chandigarh in Civil c
Writ Petition No. 19870 of 1998
WITH
C.A. No. 5149 of 2008 and 676 of 2005
Anoop G. Chaudhary, Manjit Singh, Rupansh Purohit, TV. D
George, Rajeev Agnihotry and Praveen Kumar for the
> Appellants.
-(
J.K. Sibal, Sumesh Dhawan, Shriti Ranjan, P.N. Puri,
Nikhil Nayyar, Dayan Krishnan, Gautam Narayan, Ankit
E
Singhal, TVS Raghvendra Sreyas, Sam rat Singh and Ashwani
Kumar for the Respondents.
The Judgment of the Court was delivered by
DR. ARIJIT PASAYAT, J. 1. Leave granted in SLP (C)
No. 26523 of 2004. F
2. Challenge in these appeals is to the order of a Division
Bench of the Punjab and Haryana High Court holding that the
cancellation of exemption certificate after its validity period
was over on 30.6.1997 did not attract the provisions of clause G
(v) of sub Rule 10 of Rule 28 (A) of the Haryana General
---~ Sales Tax Rules, 1975 (hereinafter referred to as the 'Rules').
According to the High Court, it was clearly not a case of
cancellation of exemption certificate because it was done after
expiry of the period. In that view of the matter, it was held that
H
},

374 SUPREME COURT REPORTS [2008] 12 S.C.R.

y
A the Deputy Excise and Taxation Commissioner (in short the
'DETC') was not justified in directing the respondent to deposit
an amount of Rs.40,45,324/- in respect of the exemption
availed of by it for the period up to 30th June, 1997. The High
Court did not think it necessary to examine whether sub rule
B 1O(v) of Rule 28(A) in so far as it empowers the department
to withdraw the tax exemption certificate was valid or not. --t
However, liberty was granted to the present appellants, if there
was a case for withdrawal of the eligibility certificate under
sub-rule (8) of Rule 28A of the Rules, to proceed in accordance
c with law.
3. The State of Haryana has filed the appeals in respect
of orders of the High Court in writ petition filed by the
respondent in each case. The first judgment was rendered in ~
case of M/s A.S. Fuels Pvt. Ltd. The judgment in that case
D was the primary foundation for decision in the other cases.
4. Background facts in Civil Appeal No.5386 of 2002
.(
are essentially as follows:
').--
Under Rule 28A appearing in Chapter IVA certain class
E of industrial units are entitled to exemption/deferment from
payment of tax for a specified period and subject to fulfillment
of certain conditions. The benefit of sales tax exemption was
granted for the period from 13.12.1994 to 12.12.2003.
Necessary eligibility certificate entitling the respondent to avail
F the sales tax exemption for a period of nine years was granted.
On the basis of the eligibility certificate unit was granted
exemption certification for the period ending 30th June, 1995,
The same was renewed at the first instance till 30.6.1996 and
thereafter till 30.6.1997. An application for further renewal of
the exemption certificate was filed on 31.7.1997. This was
G
rejected by order dated 15.12.1997 on the ground that the
same was not complete in certain respects and despite grant ~
of opportunities the respondent failed to furnish the necessary
documents. While processing the application for renewal, the
DETC noticed that the unit of the respondent was out of
H
STATE OF HARYANA & ORS. v. MIS. A.S. 375
FUELS PVT. LTD. & ANR. [DR. ARIJIT PASAYAT, J.]

'f production since January, 1997 and as such the exemption A
..,,. certificate was also liable to be cancelled under sub .rule 9(i)
of Rule 28A of the Rules. Therefore, a show cause notice was
issued on 5.12.1997 fixing the date for submission of
explanation on 15.12.1997. Respondent neither appeared nor
furnished any explanation. Therefore, the DETC cancelled the 8
exemption certificate by order dated 14.1.1998. In appeal the
t~ matter was remanded to the Prohibition Excise and Transport
Commissioner, Haryana. During assessment proceedings, it
was again found that the Industrial unit was non-functional since
-:: January, 1997 and almost the entire plant and machinery had c
been removed from the factory premises and taken to some
other places out of Haryana without any information to the
Department. Even the factory shed and other structures were
found to be dismantled and business was totally closed. By
order dated 30.6.1998 again an application for renewal was
D
rejected and the exemption certificate already granted was
cancelled by invoking sub rule 9(i) of Rule 28(A). The
... respondent was directed to deposit the tax in respect of the
-I exemption as has already been availed and also to pay the
interest. Stand of the present respondent in the writ petition
was that since the unit had remained closed on account of E
non-availability of coal which was a factor beyond its control
there was no question of any non-renewal. It was contended
that even if the cancellation of the exemption certificate was
to be upheld under sub-rule 9(i} of Rule 28 (A} the same
cannot operate retrospectively and the respondent cannot be F
-J asked to deposit the amount. This amount pertains to the
period when the industrial unit was in production.
Stand of the State, which is the appellant in this appeal,
was that since there is no production since January, 1997 the
G
exemption certificate was liable to be cancelled in terms of
· ,_ sub rule ((i) of Rule 28(~). There was no exceptional
.}- circumstances provided under which consequence could be
' availed. It was pointed out that after the eligibility certificate is
granted, the dealer is required to obtain an exemption
H
:?;;_ '

376 SUPREME COURT REPORTS [2008] 12 S.C:R. +,

A certificate which is valid up to a certain date. Thereafter the r 7
exemption certificate is required to be renewed on year to .
year basis as per the procedure provided in sub-rule (7) of "
Rule 28A. Reference was also made to sub rule (9) which
provides the circumstances under which exemption certificate
B granted was liable to be cancelled. It was therefore argued
that once the exemption certificate is cancelled it necessarily
follows that the exemption of ·tax already availed would be iI
without authority of law and was liable to be recovered.
Reference was made in this context to clause (v) of sub rule
c (10) of the Rules.
The High Court was of the view that the exemption
~
certificate has rightly been cancelled under sub-rule (9) of '
Rule 28A of the Rules. It, however, did not accept the Revenue's
stand that there. was provision for consequential action.
D Reference was made to sub rule 1O(v) of Rule 28A. On a
comparative reading of sub rules (8) & (9) it was held that if
a unit discontinues its business or closes it down for a period
of six months, action can be taken under both the provisions.
..
.',.
Under sub-rule (8) the eligibility certificate can be withdrawn
E whereas under sub rule (9) the exemption/entitlement
certificate can be cancelled. It was observed that there are no
exceptions provided in sub-rule 9(1 )(i) which is the position in
clause (ii) of sub rule 8(a). Accordingly it was held that the
cancellation of exemption/entitlement certificate can relate only
F to the year in respect of which the said certificate is still to
expire and it is only the benefit of tax exemption availed by
the dealer, for that year alone which becomes payable in lump
sum. It was held that if after the expiry of an exemption/
entitlement certificate it is found that unit had dis-continued its
business or closed it down for a period of exceeding six
G
months, the department is not without remedy. It can always
take action for withdrawal of the_..eligibility certificate as -i-.:...t
provided in sub-rule (8) of the Rule 28(A) of the Rules. The
High Court held that once the eligibility certificate has been
withdrawn, without there being any recourse to the procedure t
H

,·,
STATE OF HARYANA & ORS. v. MIS. A.S. 377
FUELS PVT. LTD. & ANR. [DR. ARIJIT PASAYAT, J.]

laid down under Rule (8) of Rule 28A of the Rules, the same A
is impermissible. It was however held that if the authorities
have a case for withdrawal of the eligibility certificate under
sub-rule (8) of Rule 28A of the Rules they shall be free to
proceed in accordance with law and nothing observed in the
judgment of the High Court shall prejudice their rights under B
that provision.
5. Learned counsel for the appellant-State submitted that
after having held that the cancellation was right, High Court
was not correct to say that it can only be withdrawn for the
period concerned. Reference is made to sub-rule (11). It C
provides that the benefit of tax exemption/deferment after it is
availed shall continue for the next five years. Sub-rule 1O(v)
deals with currency of the certificate and sub rule 11 ( 1)(b)
proviso that DETC has the authority to ask for deposit of the
amount in respect of which exemption has been availed if D
there is violation of any of the conditions stipulated.
6. Learned counsel for the respondents on the other hand
submitted that once certificate has lost its currency and the
application was made after the expiry of the period, there
could not have been any cancellation and there was also no E
question of any renewal. It is also pointed out that pursuant to
the directions of the High Court, t~e eligibility certificate has
been withdrawn by the concerned authority and the eligibility
certificate has been cancelled with effect from 27.6.2007, an
appeal has already been dismissed on 8.6.2006 and the writ F
petition was pending.

7. Rule 28(A) so far as relevant reads as follows:
"28(A) - Class of industries, period and other conditions
for exemption/deferment from payment of tax- (1) The G
industries covered under this rule shall not be entitled to
any deferment or exemption from payment of tax under
any other provisions of these rules.

xx xx xx
H
378 SUPREME COURT REPORTS [2008] 12 S.C.R.

't'
A (6)· (a) An eligible industrial unit which has been issued ..,.
/

with an eligibility certificate (hereinafter referred to as the
applicant unit), shall, within sixty days of its receipt make
an application for the grant of exemption or entitlement
certificate as the case may be, in Form S.T. 71 to the
B Deputy Excise and Taxation Commissioner of the District
in which his unit is located. The application shall be -t
I.
accompanied with an attested copy of the eligibility
certificate and other documents mentioned in the
application.
c No application shall be entertained if not received within
time. An application with incomplete or incorrect particulars
including the documents required to be attached therewith
shall be deemed as having been not made if the applicant
fails to complete it on an opportunity afforded to him in this
D behalf. On receipt of application, the Deputy Excise and
Taxation Commissioner shall ask the applicant unit seeking
benefit of :- .(.

)-
(i) tax deferment to either execute a mortgage deed in
Form S.T. 74 creating a pari-passu first charge
E alongwith financial institutions/banks on the assets
of the unit, or to furnish a bank guarantee for 15% of
the total benefit to be availed of in a year, and a
surety bond in Form S.T. 50 for the balance amount
of 85%. The mortgage deed/agreement or-bank
F guarantee shall be valid till the recovery of the entire
deferred amount of tax. The b~nk guarantee, if +
expiring early or if furnished, on annual basis shall
be renewed two months before the date of expiry
failing which the unsecured deferred tax shall become
G due for payment immediately;
~-
(ii) tax exemption, to either execute a surety bond in
Form S.T. 50 equivalent to 15% of the amount of
notional sales tax liability sought to be exempted for
a bank guarantee for that amount in a year, which
H
STATE OF HARYANA & ORS. v. MIS. A.S. 379
i"
FUELS PVT. LTD. & ANR. [DR. ARIJIT PASAYAT, J.]
... shall be valid for the period extending to five year, A
which shall be valid for the period extending to five
years after the expiry of total period of tax exemption;
(b) The Deputy Excise and Taxation Commissioner
shall after satisfying himself that the applicant
t~ unit is holding a genuine and valid eligibility B
certificate, has furnished adequate security and
that his application is in order will issue h.im the
exemption/entitlement certificate as the case
may be within thirty days of the receipt of the
application. One copy of the certificate shall be c
sent to the Director of Industries or The General
Manager, District Industries Centre as the case
may be and one copy shall be retained in the
record. The certificate issued shall he valid
unless cancelled or withdrawn from the date of D
.. commercial production or from the date of issue
of entitlement/ exemption certificate as the case
-~
may be to the 30th June next or when notion
sales tax liability first exceeds the quantum of
tax exemption/deferment fixed for the unit, E
whichever is earlier.
Note:- The agreement or the mortgage deed or the bank
guarantee, as the case may be, is an important document
and shall be entered in a register to be maintained in Form
~ S.T. 75 by the Deputy Excise and Taxation Commissioner F
concerned in his personal custody. At the time of transfer of
the charge of his office, the Deputy Excise and Taxation
Commissioner shall hand over the register as well as the
documents to his successor personally against proper
receipt and shall send a certified copy of the same to the G
~~ Excise and Taxation Commissioner by name who will
acknowledge its receipt to both the officers.
(7) (a) The exemption certificate or the entitlement
certificate as the case may be, shall be renewed
H
380 SUPREME COURT REPORTS [2008) 12 S.C.R.
"t "'-F
·.Joe
A from year to year for which the industrial unit shal!
make an application to the Deputy Excise and
Taxation Commissioner incharge of the District by
. the 31st May in Form S.T 71. The application shall
be accompanied with exemption/entitlement
B certificate, additional security as specified in sub
clauses (i) and (ii) of clause (a) of sub-rule (6) equal +
•
to fifteen per cent of the declared notional sales tax
liability of the current year and the difference between
.. the actual and the declared notional sales tax liability
c of the previous year in the case of sales tax
exemption and equivalent to-the extent of estimated
tax liability of the current year and difference between
actual and estimated tax liability of previous year in
case of tax deferment, as also other documents
mentioned in the application.
D
The Deputy Excise and Taxation Commissioner after A;

making such enquiries as are necessary, and after ,._
satisfying himself that the applicant is a bonafide industrial
unit and has not misused the exemption/entitlement ~
l

E certificate, shall renew the exemption/ entitlement
certificate within 30 days of the making of the application J.
for renewal failing which the certificate shall remain valid
until the renewal is refused or the certificate otherwise
expires. The exemption/ entitlement certificate on renewal
F shall unless cancelled or withdrawn be valid from 1st of
July of the year in which the application is made if it is in +
time or otherwise from the date of application to 30th
June, next or when the eligibility certificate expires or the
cumulative. notional sales tax liability first exceeds the
quantum of tax exemption/deferment fixed for the unit,
G
whichever is earlier. ....,..._,.
>
(b) If the Deputy Excise and Taxation Commissioner
incharge of the district finds that the application for
renewal of exemption/ entitlement certificate is not in
H order or the particulars contained in the application
STATE OF HARYANA & ORS. v. M/S. A.S. 381
FUELS PVT. LTD. & ANR. [DR. ARIJIT PASAYAT, J.]

are not correct and complete or the applicant is not A
a bonafide industrial unit or has misused exemption/
entitlement certificate or has note complied with any
of th.e directions given to it by him within the specified
time; he may reject the application after giving the
applicant an opportunity of being heard. s
(c) An appeal against the order passed by the Deputy
Excise and Taxation Commissioner under clause (b)
of this sub-rule shall lie to the Excise and Taxation
Commissioner, Haryana, if preferred within thirty days
of the communication of the order appealed against. C
(8) (a) The eligibility certificate granted to an industrial
unit shall be liable to be withdrawn at any time during
its currency by the appropriate screening committee,
in the following cfrcumstances
D
(i) if it is discovered that it has been obtained by
fraud, deceit, misrepresentation, mis-statement
or concealment of material facts;
(ii) discontinuance of its business by the unit or
closing down of its business for a continuous E
period exceeding six months except in case of
fire, flood and other natural calamities, riots,
strike or lock-out which in the opinion of the
committee concerned is beyond the control of
the unit;. F
(iii) disposal or transfer by the unit of any off its
fixed assets adversely affecting its
manufacturing or production capacity:
Provided that no order of withdrawal of the eligibility G
certificate shall be made without affording a reasonable .
opportunity of being heard to the affected unit.
(b) When the .eligibility certificate is withdrawn, the
exemption/entitlement certificate shall be deemed H
382 SUPREME COURT REPORTS [2008] 12 S.C.R.

A to have been withdrawn from the 1st day of its validity '"t
and the unit shall be liable to payment of tax, interest
or penalty under the Act as if no entitlement certificate
had ever been granted to_ it.
(9) The exemption/entitlement certificate granted to an
B eligible industrial unit shall be liable to be cancelled
by the Deputy Excise and Taxation Commissioner -~
concerned in the following circumstances, after
affording an opportunity of being heard to the unit:-

c (i) discontinuance of its business by the unit at
any time for a period exceeding six months or
closing down of its business during the period
of exemption/deferment.
(ii) disposal by the unit of any of its fixed assets
D mortgaged with the Government in the Excise
and Taxation Department;
(iii) failure to furnish adequate security by the unit
as ~equired under the rules; ""
r-
E (iv) failure of the unit to make payment of the >
deferred amount on the date of payment;
(v) contravention of any of the provisions of the Act
and/or the rule, or conditions of the eligibility
certificate or the exemption/ entitlement
F certificate by the unit;
(vi) when the appropriate committee, which sanctions +
eligibility certificate recommends that the
exemption /entitlement, certificate of the unit be
G cancelled for reasons to be recorded in writing.
(10) (i) The eligible industrial unit shall continue to be liabie
to file the returns in the manner prescribed under the .;.---
Act, and the rules and its failure to do so shall expose
it to penalty as provided in the Act;
H
STATE OF HARYANA & ORS. v. MIS. A.S . 383
FUELS PVT. LTD. & ANR. [DR. ARIJIT PASAYAT, J.]
..,
(ii) The assessment of an eligible industrial unit holding A
exemption/entitlement certificate shall be framed in
accordance with the provisions of the Act and Rules
framed thereunder as early as possible and shall be
completed by the 31st December, in respect of the
assessment year immediately preceding thereto and B
the additional demand so determined, if any, shall
i ~ be paid as per the provisions of the Act and the
Rules;
(iii) The State Government may _appoint special
assessing authority for framing assessment of units c
mentioned in the preceding clause;
(iv) Notwithstanding the provisions relating to payment
of tax due, according to returns, the eligible industrial
unit which has availed of the benefit of sales tax
D
deferment shall make payment of the deferred
amount after the expiry of a period of five years to
116
the extent of the amount deferred, every quarter or
-..( month, as the case may be, within the period
specified in the rules:
E
(v) On cancellation eligibility certificate or exemption/
entitlement certificate before it is due for expiry, the
entire amount of tax exempted/deferred shall become
payable immediately, in lump sum, and the provisions
relating to recovery of ·tax, interest and imposition of F
.... penalty shall be applicable in such cases .
11 (a) The benefit of tax-exemption/deferment under this
rule shall be subject to the condition that the
beneficiary/industrial unit after having availed of the
benefit:- G

----x (i) shall continue its production at least for the next
five years not below the level of average
production for the preceding five years; and
(ii) shall not make sales outside the State for next H
384 SUPREME COURT REPORTS [2008] 12 S.C.R.
l

r
A five year~ by way of transfer or consignment of
goods manufactured by it.
(b) In case the unit violates any of the conditions laid
down in clause (a), it shall be liable to make an
addition to the full amount of tax benefit availed of by
B it during the period of exemption/deferment payment
of inter.est chargeable under the Act as if no tax -'(-
exempfion/deferment was ever available to it:
Provided that the provisions of this clause shall not
c come into play if the loss in production is explained
to the satisfaction of the Deputy Excise anc;I Taxation
Commissioner concerned as being due to the
reasons beyond the control of the unit:
'
Provided further that a unit shall not be called upon
D to pay any sum under this clause without having been
given reasonable opportunity of b_eing heard.
ill'
8. As the scheme of Rule 28A shows that there are two
certificates provided for. One is the eligibility certificate and 'Ir
the other is the exemption certificate. Clause 4(a) deals with
E
the benefit of tax exemption or deferment to an eligible
industrial,unit holding exemption or enti!lement certificate. In
Clauses 2 G), (k) & (I) the certificates are defined:
11
0) " eligibility certificate" means a certificate granted in
F Form S.T. 72 by the appropriate Screening
Committee to an eligible industrial unit for the purpose
of grant of exemption/deferment. *
(k) II exemption certificate" means a certificate granted in
Form S.T. 73 by the Deputy Excise and Taxation
G Commissioner of the District to the eligible industrial
unit holding eligibility certificate· which entitles the .......
...,.....
unit to avail of exemption from the payment of sales
or purchase tax or both, as the case may be;
(I) II entitlement certificate" a certificate granted in Form
H
STATE OF HARYANA & ORS. v. M/S. A.S. 385
FUELS PVT. LTD. & ANR. [DR. ARIJIT PASAYAT, J.]
-(
S.T. 72 by the Deputy Excise and Taxation A
Commissioner of the district to the eligible industrial
unit holding eligibility certificate which entitles it to
get deferment of sales tax;"
9. The eligibility certificate is issued by the appropriate
screening committee while the exemption certificate and the B
-r~ entitlement certificate are issued by the DETC in Forms 73
and 72 respectively. As the High Court has rightly observed,
that there is scope for automatic cancellation in view of the
fact that after January, 1997 there was no production. Sub
rule (8) deals with the withdrawal of the eligibility certificate. c
Under sub-rule 8(b) when the eligibility certificate is withdrawn,
the exemption/entitlement certificate is also deemed to have
been withdrawn from the first day of its validity and the unit
shall be liable to payment of tax, interest or penalty under the
Act as if no entitlement certificate had been ever granted to D
-' it. The only other question which is required to be examined
is the benefit of Rule 11 (a). A bare reading of the same shows
• that the benefit of tax exemption/deferment under the Rule
_..,,
shall be subject to the condition that the beneficiary/industrial
unit after having availed all the benefit shall continue its E
production for at least next five years not below the average
production for the preceding five years. Clause (b) of the sub
rule is of considerable significance; it shows that in case the
unit violates any of the conditions laid down in clause (a) it
shall be liable to make in addition to the full amount of the F
benefit availed of by it during the period of exemption/
deferment, payment of interest chargeable under the Act as if
no tax exemption/deferment was ever available to it. The
proviso is also of significance. It provides that the provisions
of clause (b) shall not come into play if the loss in production
G
is explained to the satisfaction of the DETC concerned as
'-~ being due to reasons beyond the control of the unit. Thus
there are several conditions which are relevant; firstly there is
a requirement of continuing the production of at least next five
years; secondly consequences flowing in case of violation of
H
386 SUPREME COURT REPORTS [2008] 1-2 S.C.R.

)-
A the conditions laid down in clause (a). In other words, in case
of non-continuance of production for next five years, the result
is that it shall be deemed as if there was no tax exemption/
entitlement available to it. The proviso permits to the dealers
to explain satisfactorily to the DETC that the loss in production
B was because of the reasons beyond the control of the unit.
The materials have to be placed in this regard by the party.
--f
The High Court· seems to have completely lost sight of Rule \

11(b). In any event, we find that the High Court had permitted
the authorities to go before the Screening Committee to get
c the eligibility certificate cancelled. Undisputedly that has been
done, and the appeal against cancellation has been dismissed.
10. It ,is stated that a writ petition is pending before the
High Court. As in the instant case the writ petition filed by the
respondent has been allowed without examining effect of Rule
D 11, the order of the High Court cannot be maintained. It is to
be noted that in terms of clause (b} of Rule11 if the conditions
stipulated in clause (a) are not fulfilled, it shall be deemed that
exemption/entitlement was not ever availed. Therefore, the
..
High Court was not justified in its view that demand cannot be 1"-
E maintained. In view of the conclusions, Civil Appeal No. 676
of 2005 is without merit and is dismissed, while the other
appeals are allowed.
N.J. Civil Appeal No. 676 of 2005 dismissed
and Civil Appeal No. 5386/2002,
F Civil Appeal No. 5149 of 2008 allowed.
.