Case: Commnr., Commercial Taxes Ranchi  Vs. M/S Swarn Rekha Cokes &amp; Coals P.Ltd.&amp;Ors

Civil Appeal No. 7798/2002 arises out of the judgment of a Division Bench of the High Court in a writ petition filed by the respondents, namely, M/s. Swarn Rekha Cokes and Coals Pvt. Ltd. and others. The respondent claimed that it was entitled to the incentive promised in the Industrial Policy 1995 and the Notification issued pursuant thereto granting exemption from payment of sales tax on purchase of raw materials. It had fulfilled all the necessary requirements regarding registration and certification whereafter under S.O. 478 dated 22nd December 1995 and pursuant to the exemption certificate, it was entitled to purchase coal from the Bharat Coking Coal Ltd. (BCCL for short) up to 22nd December 2006 with the benefit of exemption from payment of sales tax. However, since their claim of exemption from payment of sales tax was being disputed, it was compelled to file a writ petition before the High Court of Judicature at Patna. The aforesaid writ petition was allowed by a learned Single Judge of the High Court. The Commissioner, Commercial Taxes, Ranchi, however impugned the judgment of the learned Single Judge by filing Letters Patent Appeal No. 204 of 2002. According to him after bifurcation of the erstwhile State of Bihar, the benefit of exemption from payment of sales tax on the purchase of raw materials (coal in this case) was not permissible since BCCL which supplied coal was located at Dhanbad within the Jharkhand State. The exemption granted to the respondent was limited in its application to the State of Bihar and, therefore, could not be enforced in the State of Jharkhand. According to the appellant unless and until, the State of Jharkhand granted a similar exemption, the respondent was bound to pay tax and remit the same to the State of Jharkhand. The Letters Patent Appeal was dismissed by the High Court by its judgment and order of April 2, 2002 upholding the contention of the respondent and finding them entitled to the said benefit.5. In the appeal arising out of S.L.P. (C) No. 13401 of 2003, the facts are similar and a learned Single Judge of the Patna High Court following the aforementioned judgment of the High Court in Swarn Rekha Cokes and Coals Pvt. Ltd., allowed the batch of writ petitions by his judgment and order of July 18, 2002. The said judgment of the learned Single Judge was challenged in a Letters Patent Appeal preferred by the State of Jharkhand being L.P.A. No. 102/2003. A Division Bench of the High Court dismissed the same by its order of 10th February 2003 finding no error in the judgment which followed an earlier binding precedent. The State of Jharkhand has preferred S.L.P. (c) No. 13401/2003 challenging the judgment and order of the High Court in the Letters Patent Appeal.6. Civil Appeal No. 2450/2003 has been preferred by the Associated Cement Companies Ltd. which was the writ petitioner before the High Court in CWJC No. 15620/2001. In this writ petition, the appellant-Company had prayed for quashing of an order of 20th November, 2001 passed by the Assistant Commissioner, Commercial Taxes Incharge, Patna Special Circle, Patna holding that the appellant was liable to pay sales tax after 15.11.2000 on the sale of goods earlier exempted by exemption certificate dated 20th December 1995 granted in favour of it under Section 7(3)(b) of the Bihar Finance Act 1981 in terms of the Industrial Policy of the State of Bihar for the period from 1.4.1998 to 31.03.2007. The appellant-Company had been granted such exemption in view of the fact that pursuant to the policy decision of the Government of Bihar it had expanded its cement works located at Sindri and had applied for exemption certificate on the sale of its incremental production as envisaged by the aforesaid industrial policy. Its claim had been accepted and an exemption certificate granted to it for the period from 1.4.1998 to 31.3.2007. It had been availing of the said benefit, but by the impugned order of the Assistant Commissioner, Commercial Taxes, it was held not entitled to the exemption from payment of sales tax on sale of its incremental production. Another Division Bench of the High Court noticed the earlier decision in Swarn Rekhas case, but distinguished the same on the ground that the industrial unit of the appellant was situated in the State of Jharkhand which had adapted notification granting exemption, and as such the earlier exemption notification issued by the erstwhile State of Bihar could not operate, and only the exemption notification of the State of Jharkhand was applicable in the territories comprising the State of Jharkhand.7. Civil Appeal No. 3765/2003 had been preferred by Bhagwati Coke Industries Pvt. Ltd. and others which had filed a writ petition before the High Court of Jharkhand at Ranchi for similar relief. The High Court has by its judgment and order of January 8, 2003 dismissed the writ petition holding that the statutory notifications issued pursuant to the Industrial Policy of 1995 and the notification issued under Section 7(3) being S.O. No. 478 dated 22.12.1995 provided for exemptions in the matter of payment of sales tax related only to intra-State sale transactions and not to inter-State sales. Consequently on coming into existence of two States, the benefit thereof could not be claimed in respect of inter-State sale transactions and, therefore, such benefits could not be claimed in respect of raw materials purchased in the State of Jharkhand for consumption in the production of finished goods in the State ofOn 25.8.2001, the State of Jharkhand announced its own industrial policy granting certain incentives to the entrepreneurs in the State of Jharkhand. However, the incentives granted under the said Industrial Policy of the State of Jharkhand did not deal with the incentives already granted under the Industrial Policy of the State of Bihar before the creation of the State of Jharkhand.15. On June 1, 2002, a Circular was issued by the Commissioner of Commercial Taxes, Jharkhand, the relevant portion whereof has been produced before us as Annexure P-7 in Civil Appeal No. 3765/2003. The relevant part of the Circular reads asGovernment Finance (Commercial Taxes) Department letter No. 1259/Ranchi, dated 1.6.02 issued by Shri Rahul Sarin, Secretary cum Commissioner Commercial Taxes, Jharkhand, Ranchi, addressed to All Joint Commissioners Commercial Taxes (Administration), All Circle Incharge.Subject: Notifications S.O. 478, 479, 480 and 481 dated 22.12.95 issued in terms of the Industrial Policy of 1995 and S.O. 57, 58, 59 and 60 dated 02.03.2000 relating to grant of exemption certificates for continuance of the incentives in the State of Jharkhand.Following clarifications were sought from the Regional Offices of the Commercial Tax Department.(i) Those industrial units in whose favour Exemption Certificates have been issued under S.O. 478, 479, 480 and 481 dated 22.12.95 in terms of the Industrial Policy, 1995 will continue to get the exemption and other benefits for the remaining period after constitution of the State of Jharkhand or not?(ii) ........(iii) .......(iv) .......This matter was under consideration before the State Government. After taking legal opinion in this matter, the State Government has taken the following decisions:-1. So far as the question No. (i) is concerned, the units mentioned therein who were granted Exemption Certificates prior to the constitution of the State of Jharkhand will continue to get the benefit in terms of the Exemption Certificates for the remaining period after constitution of the State of Jharkhand also.

Reasoning:
We shall first dealt with the submission urged on behalf of the appellant in Civil Appeal No. 7798/2002 that the High Court of Judicature at Patna had no jurisdiction to entertain the writ petition and issue a Writ of Mandamus to the State of Jharkhand. We have earlier noticed that though the State of Jharkhand was not a party in the writ petition filed before the High Court at Patna, after a learned Single Judge of the High Court allowed the writ petition and granted the relief prayed for, the Commissioner of Commercial Taxes, Ranchi, Jharkhand State preferred a Letters Patent Appeal impugning the judgment and order of the learned Single Judge. In the Letters Patent Appeal, no objection was taken to the jurisdiction of the Patna High Court to entertain the writ petition. Moreover, as submitted by Mr. Parasaran; it cannot be said that the entire cause of action was in the State of Jharkhand because the notification of the State of Bihar issued under section 7(3)(b) of the Bihar Finance Act 1981 formed the basis on which the respondents founded their claim. This, therefore, necessarily formed a part of the cause of action and the respondents had to satisfy the Court that the aforesaid notification supported their claim for exemption from payment of sales tax on the purchase of raw materials. No doubt, in these circumstances the State of Jharkhand ought to have been made a party-respondent. This, however, is of no consequence now in view of the fact that the State of Jharkhand itself sought to prefer an appeal against the order of the learned Single Judge and in fact preferred a Letters Patent Appeal and contested the claim of the respondents. It did not object to the jurisdiction of the High Court at Patna to entertain the writ petition. Since a part of the cause of action lay in the State of Bihar, it cannot be disputed that the High Court at Patna also had the jurisdiction to entertain the writ petition. The objection that the State of Jharkhand was not a party in the said writ petition is not of much significance now since the State itself preferred an appeal and contested the case of the writ petitioners. Moreover, this objection as to the jurisdiction cannot be raised in Civil Appeal No.2450/2003 since in that case the State of Bihar itself had refused to grant the benefit of exemption to the appellant therein. So far as Civil Appeal No. 3765/2003 is concerned, the judgment has been rendered by the High Court of Jharkhand at Ranchi. Since common questions arise in all these appeals, we consider it appropriate to decide the questions that arise in all these appeals, particularly, when we find that a part of the cause of action lay in the State of Bihar and consequently, the High Court at Patna had jurisdiction to entertain the writ petition and grant relief. We, therefore, reject the objection raised by the State of Jharkhand on the ground of lack of jurisdiction of the High Court at Patna to entertain the writ petition.We have earlier reproduced Sections 84 and 85 of the Act. As earlier noticed, Sections 3 to 6 which form part of Part II of the Act provide for the formation of new States to be known as the State of Jharkhand and the State of Bihar. The territories specified in Section 3 constitute the new State of Jharkhand and the remaining territories fall within the territory of the State of Bihar. However, Section 84 in express terms, provides that the provisions of Part II shall not be deemed to have effected any change in the territories to which any law in force immediately before the appointed day extended or applied and the territorial references in any such law to the State of Bihar shall, until otherwise provided by a competent Legislature or other competent authority, be construed as meaning the territories within the existing state of Bihar before the appointed day. Section 85 provides that for the purpose of facilitating the application in relation to the State of Bihar or Jharkhand of any law made before the appointed day, the appropriate Government may, before the expiration of two years from that day, by order, make such adaptations and modifications of the law, whether by way of repeal or amendment, as may be necessary or expedient, and thereupon every such law shall have effect subject to the adaptations and modifications so made until altered, repealed or amended by a competent Legislature or other competent authority. The language in these sections is clear and unambiguous. These sections provide that the laws which were applicable to the undivided State of Bihar would continue to apply to the new States created by the Act. The laws that operated continue to operate notwithstanding the bifurcation of the erstwhile State of Bihar and creation of the new State of Jharkhand. They continue in force until and unless altered, repealed or amended. It is not disputed before us and indeed it cannot be disputed in view of the wide definition given to law in section 2(f) of the Act that the notification issued under section 7(3)(b) of the Bihar Finance Act 1981 is law within the meaning of sections 84 and 85 of the Act. Thus, the notification published in the Bihar Gazette on 22.12.1995 bearing S.O. 478 continues to operate in the State of Jharkhand till such time as it is altered, repealed or amended. By virtue of Section 84, the territorial references in any such law (which includes the notification in question), to the State of Bihar shall be construed as meaning the territories within the existing State of Bihar before the appointed day, until otherwise provided by a competent Legislature or other competent authority. A conjoint reading of both these provisions makes it abundantly clear that the territorial references in any law in force immediately before the appointed day must be construed as meaning the territories within the existing State of Bihar before the appointed day. To facilitate their application in respect of the State of Bihar or Jharkhand, the appropriate Government may, before the expiration of two years from that day, by order, make such adaptations and modifications of the law as it may consider necessary or expedient by way of repeal or amendment. Till such law is so repealed or amended in accordance with law it shall have effect. After their amendment or alteration, they shall have effect subject to the adaptations and modifications made. We, therefore, find no difficulty in holding that the notification of the Government of Bihar issued under Section 7(3)(b) of the Bihar Finance Act 1981 and published in the gazette on 22.12.1995 being S.O. No. 478 is law as defined by section 2(f) of the Act. The said notification holds the field and applies to all the territories which comprised the undivided State of Bihar. The States of Bihar and Jharkhand have been vested with power to make such adaptations and modifications of the law as they may consider necessary or expedient. This they can do by issuance of order before the expiration of two years from the appointed day. After the adaptations and modifications of the law, shall have effect as so modified or adapted till such time as a competent Legislature or other competent authority further alters, repeals or amends such law.This is not the first time that a provision such as Section 84 of the Act has come up for interpretation by this Court. Section 88 of the Punjab Re-organisation Act 1966 is also identically worded as Section 84 of the Act. That provision came up for consideration before this Court in at least three decisions which have been brought to our notice, namely, State of Punjab and others vs. Balbir Singh and others reported in (1976) 3 SCC 242 , Sher Singh and others vs. Financial Commissioner of Planning, Punjab and others reported in (1987) 2 SCC 439  and Dhayanand etc. vs. Union of India and others reported in (1996) 7 SCC 47. In the first of these cases, i.e. in State of Punjab and others vs. Balbir Singh and others (supra) this Court was concerned with an Administrative order and not a law with which we are concerned in the instant case. Section 88 of the Punjab Re-organization Act was noticed as also the definition of law under section 2(g) of that Act. Section 2(g) of that Act did not define law as widely as it has been defined under section 2(f) of the Act. This Court agreed with the High Court that the impugned administrative orders in question were not law within the meaning of section 2(g) of that Act and hence, were not saved by Section 88. However, this Court held that when there is no change of sovereignty and it is merely an adjustment of territories by reorganization of a particular State, the administrative orders made by the government of the erstwhile State continue to be in force and effective and binding on the successor States until and unless they are modified, changed or repudiated by the governments of the successor States. This Court observed that no order view is possible to be taken as that will merely bring about chaos in the administration of the new States. Their Lordships found no principle in support of the stand that administrative orders made by the Government of erstwhile State automatically lapsed and were rendered ineffective on the coming into existence of the new successor States. Their Lordships further distinguished a case where there was no change of sovereignty and there was merely an adjustment of territories by the reorganization of a particular State, from a case of absorption of one State in another by accession, conquest, merger or integration. The same view was taken by this Court in the other two judgments referred to earlier. We are of the view that the principles laid down in the Balbir Singhs case (supra) fully apply to the facts of this case having regard to the identical legislative provision and, particularly so when the notification so when the notification in question is by definition law and not a mere administrativenext question which arises is - whether the aforesaid notification has been altered or modified by the State of Jharkhand? It was sought to be argued before us that the State of Jharkhand has announced its own Industrial Policy of 25th August, 2001, and, therefore, the Industrial Policy of 1995 and the notification bearing S.O. 478 dated 22.12.1995 issued under Section 7(3)(b) of the Act will have no legal force in the State of Jharkhand. The High Court in Swarn Rekhas case has considered this aspect of the matter and we find ourselves in complete agreement with the view taken by the High Court. There is nothing in the Industrial Policy of 2001 which alters, amends or repudiates the notifications dated 22.12.1995. It deals with new Industrial Units set up after 15.11.2000 and, therefore, whatever benefits of incentives are provided for in the said policy are applicable to new industrial units set up after 15th November, 2000. In the instance case, we are concerned with industrial units set up before 15.11.2000 and which were found eligible for grant of exemption certificate under the Industrial Policy of the State of Bihar and of the year 1995. Moreover, the Industrial Policy of the State of Jharkhand will not apply to the units already existing before that date. In these circumstances in the absence of anything in the Industrial Policy 2001 of the Government of Jharkhand or in the notification or order issued by the Government of Jharkhand, the notification No. S.O. 478 dated 22.12.1995 must continue to operate in the State of Jharkhand and the concerned appellants or respondents, as the case may be, must be held entitled to the benefits and incentives envisaged by the said notification. The submission which found favour with the High Court of Jharkhand at Ranchi in Civil Appeal No.3765/2003 is that the statutory notification issued by the erstwhile State of Bihar envisaged only intra-State sale transactions and not inter-State sale transactions. With the coming into existence of two States, incentive by way of exemption from payment of sales tax, cannot be claimed in respect of transactions which can now be categorized as inter-State sale transactions. The submission overlooks the provisions of the Sections 84 and 85 of the Act, which create a legal fiction. It is well-settled that in interpreting a provision creating a legal fiction, the Court must ascertain the purpose for which the fiction is created and having done so, to assume all those facts and consequences which are incidental or inevitable corollaries to the giving effect to the fiction. When the law requires that an imaginary state of affairs should be treated as real, then unless prohibited from doing so, one must also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. As Lord Asquith in East End Dwelling Co. Ltd. vs. Finsbury Borough Council, (1951) 2 All ER 587, p. 589 (HL) observed that having done so, you must not cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. Section 84 bids us to imagine that despite the division of the erstwhile State of Bihar into two States any law in force immediately before the appointed day, notwithstanding territorial references in them, shall, until otherwise provided by the competent Legislature or other competent authority, be construed as meaning the territories within the existing State of Bihar before the appointed day. In simple words, though the law may refer to the State of Bihar, and though the State of Bihar has been bifurcated into two by creating the State of Jharkhand, the laws in force before the appointed day must continue to operate to the territories which formed the erstwhile State of Bihar. This, of course, is subject to amendment, alternation or repudiation by a Legislature or other competent authority. The statutory notification relied upon, therefore, continues to operate throughout the territories which earlier constituted the State of Bihar. Under Section 85, they shall continue to operate until repealed or amended in the manner provided. As a natural consequence, the entrepreneurs are entitled to the benefits and incentives provided in the said notification. Having regard to the overriding provisions of this Act, as envisaged under Section 91, the statutory notifications must prevail and the benefits flowing therefrom must accrue to the beneficiaries. We must not permit our mind to boggle by imagining that what was one State earlier has now become two and consequently what were intra-State sale transactions earlier are now inter-State sale transactions. If any law in force before the appointed day must have effect in the absence of its modification or repeal, the benefit under that law must flow notwithstanding the fact that in reality intra-State sale transactions may have become inter-State sale transactions. Law gives authority to the concerned State to bring about a change in the state of affairs, if it so considers necessary or expedient by modifying, or amending the law or by altering, repealing or amending it by legislation. We have, therefore, no doubt that the High Court of Jharkhand at Ranchi was wrong in dismissing the writ petition on the ground that the notification of 22.12.1995 could not apply to inter-State sale transactions.30. We have carefully considered the decisions relied upon by Shri Rakesh Dwivedi in Rattan Lal and Co. and Anr. vs. The Assessing Authority and Anr. reported in 1969(2) SCR 544, The State of Mysore vs. P.B. Hussain Kunhi and Co. reported in 1967) 19 STC 215  and Commissioner of Sales Tax, Madhya Pradesh vs. Minerva Minerals reported in (1970) 25 STC 64  and we find that one of those decisions in any manner advance the case of the State. The decisions in those cases depended on the interpretation of the provisions of the Acts concerned, which were not at all similar to the provisions with which we are concerned, in the instant appeals. In Civil Appeal No. 2450/2003, the High Court of Patna on a similar ground has rejected the claim of the appellants. It noticed the earlier decision of the High Court, but distinguished the same on the ground that in the case in hand, the Industrial Unit was situated in the State of Jharkhand while the benefit was being claimed in the State of Bihar. In view of our earlier findings, this would not be a relevant consideration for rejecting the writ petition. Moreover, if this principle were to be upheld, it would result in arbitrary results inasmuch as the entrepreneurs whose industrial units operate in the State of Bihar will get the benefit of the exemption from payment of sales tax on purchase of raw materials in the State of Jharkhand, but their counter-parts in the State of Jharkhand, would not be entitled to such benefit. We must not lose sight of the fact that an unforeseen event may give rise to unusual situations. Faced with such situations, the Legislature has to find appropriate methods and solutions to deals with them. When the State of Bihar announced its Industrial Policy in the year 1995, it could not foresee that the State will be divided five years later. But when the division of the state became a reality, the Parliament had to make appropriate provisions to carry on the administration in the two States. If the laws in force were to lapse on the day the division was effected, a chaotic situation would have emerged inasmuch as the newly created State would be rendered a State without laws. It is, therefore, that provisions like Sections 84 and 85 of the Act are enacted to maintain continuity, and at the same time authorize the States to make such modifications and adaptations as are considered necessary by mere issuance of orders within two years, and thereafter by Legislation or exercise of power by the competent authority. Such provisions have necessarily to be incorporated in legislations relating to reorganization of States. It is, therefore, appropriate that such legislations must be construed in the light of the unusual situation created by the creation of a new State and the object sought to be achieved.31. We, therefore, find ourselves in agreement with the view of the Patna High Court in Civil Appeal No. 7798/2002. We hold that the benefit of exemption from payment of sales tax on purchase of raw materials in respect of new units or the benefit envisaged for units which have undertaken diversification or expansion are available to those units, if eligible under S.O. 478 dated 22.12.1995 notwithstanding the fact that the erstwhile State of Bihar has been divided into two States by creation of the new State of Jharkhand. We are also satisfied that the said S.O. 478 has not been either modified, amended or altered by the State of Jharkhand and, therefore, it must continue to operate in the State of Jharkhand till such time as it is modified, repealed or altered in the manner prescribed by Section 85 of the Act.