STATE OF MADHYA PRADESH AND OTHERS  versus LAFARGE DEALERS ASSOCIATION AND OTHERS
[2019] 18 S.C.R. 924, Supreme Court of India, 2019
Outcome: Disposed off
Segment: Ratio
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THE STATE OF MADHYA PRADESH AND OTHERS
v.
LAFARGE DEALERS ASSOCIATION AND OTHERS
(Civil Appeal No. 5302 of 2019)
JULY 09, 2019
[RANJAN GOGOI, CJI, S. ABDUL NAZEER AND
SANJIV KHANNA, JJ.]
Taxation – Sales Tax – Madhya Pradesh Reorganisation Act,
2000 – ss.78, 79, 80, 85 and 86 – Bifurcation of erstwhile unified
State of Madhya Pradesh into two States, namely, a reorganised
State of Madhya Pradesh and the new State of Chhattisgarh in terms
of the Madhya Pradesh Reorganisation Act – Effect of, on exemption
or benefit of deferment of sales tax granted under Madhya Pradesh
Commercial Tax Act, 1994 read with the applicable rules – Deeming
provision envisaged in s.78 –  Whether industrial units, which were
granted exemption and were after bifurcation located in the
reorganised State of Madhya Pradesh or the new State of
Chhattisgarh, would continue to enjoy the benefit of exemption/
deferment of tax in the other State while conducting inter-State
transaction(s) from the State they are located to the new State of
Chhattisgarh or the reorganised State of Madhya Pradesh, as the
case may be – Held: No – The second part of s.78 incorporates a
deeming fiction, the effect whereof, is that the laws enacted by State
of Madhya Pradesh before the reorganisation would continue to
apply to the areas forming part of the new State of Chhattisgarh
and also the reorganised State of Madhya Pradesh, but within their
territorial confines – The
enactments or the laws in force in the
unified State of Madhya Pradesh would continue to apply to the
two States, not as one or the same enactment or law, but as two
separate enactments or laws as applicable to two different States –
On and from the appointed date of 1st November, 2000 any trade
between the State of Chhattisgarh and the State of Madhya Pradesh
and vice-versa would be inter-state trade and not intra-state trade –
The deeming fiction and the provisions of the Reorganisation Act
nowhere postulate that the trade would continue to remain intra-
state trade and not inter-state trade between the two States – In
fact, any deeming fiction to the said effect would have fallen afoul
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and would be contrary to Art. 286 of the Constitution as it stood
before amendment on 16th September, 2016 – Madhya Pradesh
Commercial Tax Act, 1994 – Madhya Pradesh General Sales Tax
Act, 1958 – s.12 – Central Sales Tax Act, 1956 – s.8(5) – Constitution
of India – Art.286 (before amendment on 16-09-16) – Legal Fiction –
Deeming provision.
Taxation – Inter-state Sales – Reorganisation of States –
Creation of two new successor States from one State – Effect – Held:
Creation of a new State can give rise to unusual situations, but this
cannot be a ground and reason to treat inter-State sales between
the two successor states as intra-State sales – This would be contrary
to the Constitution and even the Statute i.e. the Reorganisation Act
– Whenever a new State is created, there would be difficulties and,
issues would arise but these have to be dealt within the parameters
of the constitutional provisions and the law and not by negating the
mandate of the Parliament which has created the new State in terms
of Art.3 of the Constitution – Creation of the new political State
must be given full legal effect – Constitution of India – Art.3.
Re-organization of States – Theory of continuity of laws in
new State after or post the reorganisation – Held: Principle of “clean
state”, as it exists in the international law in relation to the state
succession, which means that the successor state generally does
not inherit the prior treaty obligations or rights of a
predecessor
state, is different from adjustment of territories which the Parliament
undertakes and enforces u/Art. 3 – The reorganised states do not
usually start as tabula rasa, rather they are successors of the pre-
existing erstwhile States – Reorganisation Act(s) uniformly contain
provisions which create a legal fiction to the extent that the
reorganisation of the State would not affect the applicability of laws
to all the territories included within it before and even after the
reorganisation – However, this is subject to another dictum/rule
that the existing laws as earlier applicable to the territories would
be applicable to the new State until the new State provides for
adaptation or modification of the law by way of repeal or amendment
– Madhya Pradesh Reorganisation Act, 2000 – ss. 78 and 79 –
Bihar Reorganisation Act, 2000 – ss.84 and 85 – Doctrines /
Principles – Theory of continuity of laws – Principle of “clean slate”
– Constitution of India – Art.3.
THE STATE OF MADHYA PRADESH v.
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Madhya Pradesh Reorganisation Act, 2000 – s.85 – Meaning
and effect of the primacy given to provisions of the Reorganisation
Act in terms of s.85 – Held: s.85 of the Reorganisation Act states
that provisions of the said enactment shall have effect
notwithstanding anything inconsistent contained in any other law
– Therefore, provisions of the Reorganisation Act have been given
primacy over any other law – However, this primacy is not meant to
denude and over-ride the legal effect envisaged by the Constitution
consequent to the creation of the successor State of Madhya Pradesh
and the State of Chhattisgarh (from the erstwhile unified State of
Madhya Pradesh) which would henceforth have separate
government(s) comprising of different legislature and executive.
Interpretation of Statutes – Pari materia provisions – Bihar
Reorganisation Act, 2000 – ss.84 and 85 – Bifurcation of erstwhile
unified State of Bihar into two States, namely, a reorganised State
of Bihar and the new State of Jharkhand – Effect and interpretation
of ss.84 and 85 of the Bihar Reorganisation Act which are analogous
to ss.78 and 79 of the Madhya Pradesh Reorganisation Act – Held:
The effect of ss.84 and 85 of the Bihar Reorganisation Act was to
ensure continuity of laws enacted by the unified State of Bihar in
the new State of Jharkhand which had been created by transfer of
territories which earlier formed part of the State of Bihar – Legal
fiction
created by s.84 of the Bihar Reorganisation Act – The said
fiction does not postulate and cannot be extended to imagine that
for the purpose of sale transactions or even for other purposes, the
new State did not have any political and constitutional existence as
a separate state and that till a new law was enacted, the two States
were to be treated as one political State as it was before the
reorganisation – The sale transactions which were hitherto intra-
state sales being within the unified State of Bihar, would become
inter-state transactions once the two new States had come into
existence – Madhya Pradesh Reorganisation Act, 2000 – ss.78 and
79.
Legal Fiction – Deeming provision – Purpose and objective
– Held: A deeming provision is operative for the purposes for which
it is created and the Court should be careful not to extend this fiction
beyond the legitimate field and the purposes for which the legislature
had adopted the fiction – The purpose and objective for creating
fiction must be kept in mind.
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Words and Phrases – ‘Inter-state’ trade – Meaning –
Difference between ‘intra-State’ and ‘inter-State’ sales – Held: As
per Art. 286 of the Constitution, States are not competent to enact
any legislation relating to taxation of ‘inter-state sales’ – The
expression ‘inter-state’ trade has specific legal connotation and
meaning – It refers to transfer or movement of goods from one State
to another – Taxation – Sales Tax – Constitution of India, 1950 –
Art. 286 (before amendment on 16-09-16).
Practice and Procedure – New Plea – Contention raised by
private parties/ assessee for the first time in Supreme Court – The
contention was not raised in the writ petition before the High Court
or even in pleadings before the Supreme Court – Supreme Court
declining to decide the contention and leaving it open to the private
parties / assessee to raise the plea before the authorities in
appropriate proceedings under the statute – Taxation – Sales Tax –
Inter-State transaction.
Disposing of the appeals, the Court
HELD:1.1. It was submitted by the two States that with
effect from the appointed day the new State of Chhattisgarh had
come into existence and hence the trade inter-se or between the
territories now forming part of the State of Chhattisgarh and the
reorganised State of Madhya Pradesh would be in the nature of
inter-state sales and not intra-state sales. They contended that
the Sales Tax Act as earlier applicable to the unified State of
Madhya Pradesh would be
applicable in the reorganised State of
Madhya Pradesh and the new State of Chhattisgarh but within
the territorial confines and limits of the two States. Accordingly,
it was contended by the two States that the units situated within
the territorial limits/boundaries of the reorganised State of Madhya
Pradesh and the new State of Chhattisgarh would continue to enjoy
benefit of exemption in respect of intra-state trade within the
particular state and not in respect of inter-state trade between
the two states. The stand taken by the State of Madhya Pradesh
and the State of Chhattisgarh is correct and merits acceptance
on consideration of the case in the context of Sections 78, 79, 80,
85 and 86 of the Madhya Pradesh Reorganisation Act, 2000.
[Paras 13 and 14][946-D-H]
THE STATE OF MADHYA PRADESH v.
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1.2. Section 78 of the Madhya Pradesh Reorganisation Act
consists of two parts. The first part states that the provisions of
the Reorganisation Act shall not be deemed to have affected any
change in the territories to which any law in force immediately
before the appointed date extends or applies. In other words,
the law in force before the appointed date, which in the present
case is 1st November, 2000, would continue to apply to the
successor or reorganised State of Madhya Pradesh as it existed
before bifurcation. This is natural and normal as the laws enacted
by the legislature and the executive of the State of Madhya
Pradesh would obviously apply to the territories forming part of
it after its reorganisation/ division. However, the second part of
Section 78 incorporates a deeming fiction when it states that
territorial references to such law in the State of Madhya Pradesh,
i.e. the laws enacted by the legislature and executive of the State
of Madhya Pradesh before bifurcation, shall until otherwise
provided by the competent legislature or other competent
authority be construed as meaning the territories within the
existing state of Madhya Pradesh before the appointed day. The
effect, thereof, is that the laws enacted by the State of Madhya
Pradesh before the reorganisation would continue to apply to the
areas forming part of the new State of Chhattisgarh and also the
reorganised State of Madhya Pradesh, but
within their territorial
confines. The enactments or the laws in force in the unified State
of Madhya Pradesh would continue to apply to the two States, not
as one or the same enactment or law, but as two separate
enactments or laws as applicable to two different States. [Para
14][947-A-F]
1.3. The deeming fiction incorporated for the purpose of
second part of Section 78 of the Madhya Pradesh Reorganisation
Act does not postulate and state that the territories which were
earlier part of the State of Madhya Pradesh but now form part of
the State of Chhattisgarh would continue to remain part of the
reorganised State of Madhya Pradesh or should be treated as
part and parcel of the other state. This is not what is postulated
in Section 78. Deeming fiction in terms of Section 78 does not
extend and include any such stipulation, either expressly or by
necessary implication. Indeed, this is not even remotely
visualised. A deeming provision is operative for the purposes for
which it is created and the Court should be careful not to extend
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this fiction beyond the legitimate field and the purposes for which
the legislature had adopted the fiction. The purpose and objective
for creating fiction must be kept in mind. In the present
enactment, the object and purpose of the deeming provision
envisaged in Section 78 of the Reorganisation Act is limited and
restricted to the enforcement of enactment/laws as they existed
in the unified State of Madhya Pradesh to the new State of
Chhattisgarh, and nothing more and beyond. [Para 15][947-G-H;
948-A-C]
1.4. Section 79 of the Madhya Pradesh Reorganisation Act
states that the appropriate Government of the reorganised State
of Madhya Pradesh and the new State of Chhattisgarh may, before
the expiration of two years from the appointed date, by an order,
as may be necessary or expedient, make such adaptations or
modifications in the earlier laws enacted in the unified State of
Madhya Pradesh by way of repeal or amendment. Thereupon,
every law shall have effect subject to the adaptations or
modifications made, until further repealed, modified or amended
by the competent legislature or other competent authority.
Explanation to the said section states that ‘appropriate
Government’ in respect of any law means the Central Government
in respect of matters enumerated in the Union List and in respect
of any law in its application to a state, the State Government.
[Para 16][948-C-E]
1.5. Section 80 of the Madhya Pradesh Reorganisation Act
relates to the construction
or interpretation of the laws made by
the State of Madhya Pradesh before the appointed date. It states
that notwithstanding that no provision or insufficient provision
has been made in terms of Section 79, the court, tribunal or
authority interpreting such laws made by the unified State of
Madhya Pradesh would construe the law in such a manner as to
facilitate its application to the successor States of Madhya Pradesh
and Chhattisgarh without effecting the substance. In other words,
the court, tribunal or authority while interpreting the laws would
go by the substance and with the objective and purpose of
facilitating the application of laws in relation to the successor
States of Madhya Pradesh and Chhattisgarh, notwithstanding the
fact that the legislature or the competent authority in relation to
the laws applicable to the States of Madhya Pradesh and
THE STATE OF MADHYA PRADESH v.
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Chhattisgarh have not passed any law before or within the
expiration period of two years from the appointed date. [Para
17][948-F-G; 949-A]
1.6. Section 85 of the Madhya Pradesh Reorganisation Act
states that the provisions of the said enactment shall have effect
notwithstanding anything inconsistent contained in any other law.
Therefore, the provisions of the Reorganisation Act have been
given primacy over any other law. However, this primacy is not
meant to denude and over-ride the legal effect envisaged by the
Constitution consequent to the creation of the successor State of
Madhya Pradesh and the State of Chhattisgarh which would
henceforth have separate government(s) comprising of different
legislature and executive. On and from the appointed date of 1st
November,2000 any trade between the State of Chhattisgarh and
the State of Madhya Pradesh and vice-versa would be inter-state
trade and not intra-state trade. The deeming fiction and the
provisions of the Reorganisation Act nowhere postulate that the
trade would continue to remain intra-state trade and not inter-
state trade between the two States. In fact, any deeming fiction
to the said effect would have fallen afoul and would be contrary to
Article 286 of the Constitution as it stood before amendment on
16th September, 2016. [Para 18][949-B-D]
1.7. As per Article 286 of the Constitution [as it stood before
amendment on 16th September, 2016], States are not
competent
to enact any legislation relating to the taxation of ‘inter-state
sales’. The expression ‘inter-state’ trade has specific legal
connotation and meaning. It refers to transfer or movement of
goods from one state to another. Such transactions,
notwithstanding that the situs of sale would necessarily be at a
fixed location, are inter-state sale or trade and not intra-state
sale or trade. Thus, when there is a movement of goods between
the two states without there being a transfer of title to the
consignor or consignee, compliance would have to be made with
the relevant laws applicable to such inter-state transactions. This
position will hold good and equally apply in respect of the inter-
state sales between the new State of Chhattisgarh and the
reorganised State of Madhya Pradesh and vice-versa. The
movement of goods from one State to another is in the nature of
inter-state sales. The fact that two separate States are formed
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after the bifurcation, which were once a single entity for the
purpose of levying sales tax, would be of no consequence so as
to disturb the legal and constitutional impact by which two
separate States were created and the legal effect of Article 286
as regards the inter-State character of inter-State transactions.
[Para 18][950-C-E]
1.8. Section 86 of the Madhya Pradesh Reorganisation Act
states that in case any difficulty arises in giving effect to the
provisions of the said Act, the President may, by an order, do
anything as may be necessary and expedient for removing the
difficulties. However, such order cannot be inconsistent with the
provisions of the Reorganisation Act. Proviso states that no order
shall be made after the expiry of three years from the appointed
date. [Para 19][950-F-G]
2.1. The effect of Sections 84 and 85 of the Bihar
Reorganisation Act, 2000 (which are analogous to ss.78 and 79
of the Madhya Pradesh Reorganisation Act, 2000) was to ensure
continuity of laws enacted by the unified State of Bihar in the new
State of Jharkhand which had been created by transfer of territories
which earlier formed part of the State of Bihar. These sections
incorporating a deeming fiction were to ensure that the new State
of Jharkhand would continue to be governed by the pre-existing
laws as, otherwise, there would be a disorderly and chaotic
situation where the new State would not be governed by any law.
This is the true effect of the legal fiction
created by Section 84 of
the Bihar Reorganisation Act, 2000, i.e., the reorganisation of
the state would not affect the applicability of the existing laws in
the state to all territories included within it before and even after
the reorganisation. The said fiction does not postulate and cannot
be extended to imagine that for the purpose of sale transactions
or even for other purposes, the new state did not have any political
and constitutional existence as a separate state and that till a
new law was enacted, the two States were to be treated as one
political State as it was before the reorganisation. The sale
transactions which were hitherto intra-state sales being within
the unified State of Bihar, would become inter-state transactions
once the two new States had come into existence. The provisions
do not stipulate that such transactions would continue to be
treated as intra-state transactions notwithstanding creation of the
new State. [Para 23][954-G-H; 955-A-D]
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2.2. Creation of a new State was an unforeseen event and
could give rise to unusual situations, but this cannot be a ground
and reason to treat inter-state sales between the two successor
states as intra-state sales. This would be contrary to the
Constitution and even the Statute i.e. the Reorganisation Act.
Whenever a new State is created, there would be difficulties and,
issues would arise but these have to be dealt within the
parameters of the constitutional provisions and the law and not
by negating the mandate of the Parliament which has created the
new state in terms of Article 3 of the Constitution. Creation of
the new political State must be given full legal effect. The contrary
observations and ratio recorded in paragraphs 29 and 30 in Swarn
Rekha Cokes and Coals Pvt. Ltd. case are overruled in light of the
legal position elucidated and explained above. [Para 24][955-
D-F]
Commissioner of Commercial Taxes, Ranchi and Another
v. Swarm Rekha Cokes and Coals Pvt. Ltd. (2004) 6
SCC 689 : [2004] 2 Suppl. SCR 633 – overruled.
M.P.V. Sundararamier & Co. v. State of Andhra Pradesh
and Another AIR 1958 SC 468 : [1958] SCR 1422 –
followed.
Ranjan Sinha and Another v. Ajay Kumar Vishwakarma
and Others (2017) 14 SCC 774 : [2017] 7 SCR 194
and B. S. Goraya v. U.T. of Chandigarh (2007) 6 SCC
397 : [2007] 8 SCR 458 – relied on.
Sri Peera Mohammad B. S. Mahamood Saheb v. The
State of Andhra Pradesh 1960 (11) STC 456 –
affirmed.
Case Law Reference
[2004] 2 Suppl. SCR 633
overruled
Para 4
1960 (11) STC 456
affirmed
Para 13
[2007] 8 SCR 458
relied on
Para 15
[2017] 7 SCR 194
relied on
Para 20
[1958] SCR 1422
followed
Para 21
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5302
of 2019.
From the Judgment and Order dated 16.07.2012 of the High Court
of Madhya Pradesh, Principal Seat at Jabalpur in Writ Petition No. 5308
of 2004(O).
With
Civil Appeal Nos. 461, 460, 7073 of 2005, 2343 of 2007, 5303,
5304, 5305, 5306, 5308 and 5307 of 2019.
Vivek K. Tankha, S. Ganesh, Sr. Advs., Harsh Parashar, Aman
Pandey, Bharat Sangal, Ms. Anindita Deka, Ms. Babita Kushwaha,
Navnit Kumar (for M/s. Corporate Law Group), Rohit Ghosh,
Mrs. Bina Gupta, Kshitij Vaibhav, Akshat Shrivastava, Ms. Pooja
Shrivastava, Ms. Manjeet Kirpal, Sunny Choudhary, Rahul Kaushik,
Nishanth Patil,  Mrs. Swarupama Chaturvedi, B. S. Banthia, Advs. for
the parties.
The Judgment of the Court was delivered by
SANJIV KHANNA, J.
1. Leave granted in all the special leave petitions.
2. This judgment would dispose of the afore-captioned appeals
which relate to the legal effect of bifurcation of the State of Madhya
Pradesh into the successor State of Madhya Pradesh and the State of
Chhattisgarh by the Madhya Pradesh Reorganisation Act, 2000
(“Reorganisation Act”, for short) on exemption or benefit of deferment
of sales tax granted under the Madhya Pradesh Commercial Tax Act,
1994 read with the applicable rules. The question to be answered is
whether the industrial unit in the reorganised State of Madhya Pradesh
and under the new State of Chhattisgarh would continue to avail the
benefit of such exemption or deferment even after
the bifurcation in
both the states, irrespective of the location of the industrial unit which
would be in one of the two states.
3. Civil Appeal Nos. 460, 461, 7073 of 2005 and 2343 of 2007
arise from the judgments of the Division Bench of the Madhya Pradesh
High Court, Jabalpur Bench, upholding judgment of the learned Single
Judge dismissing the Writ Petition by the manufacturer/dealer of cement
inter-alia recording that on enforcement of the Reorganisation Act, two
separate states viz., the State of Madhya Pradesh and the State of
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Chhattisgarh had come into existence as postulated by the Constitution
of India and hence, benefit of the exemption or deferment of sales tax
would be restricted and confined to the boundaries/limits of the state in
which the unit was located and would not operate beyond the limits of
the state boundary. It was observed that any trade and movement of
goods between the two states henceforth would be inter-state trade and
not intra-state trade and the provisions of the Reorganisation Act had
not removed and eclipsed this legal position but had a limited effect to
treat the laws in operation in the State of Madhya Pradesh as equally
applicable to the State of Chhattisgarh.
4. The other set of appeals arising from Special Leave Petition
(Civil) Nos. 10520 of 2013, 1334, 10165, 23297 of 2014, 6729 and 16550
of 2016 have been preferred by the State of Madhya Pradesh and the
State of Chhattisgarh impugning decisions of the High Court of Madhya
Pradesh, which have in view of the pronouncement of this Court in
Commissioner of Commercial Taxes, Ranchi and Another v. Swarn
Rekha Cokes and Coals Pvt. Ltd. and Others1 taken a contrary view
and held that notwithstanding the creation of the two states, exemption
or deferment of tax notifications issued before the bifurcation would
continue to apply in the new state and that for the purpose of sales tax,
the two states were deemed to be one because of the legal fiction
envisaged
vide Sections 78 and 79 of the Reorganisation Act.
5. At this stage, it would be appropriate to mention that a Division
Bench of this Court  (Ashok Bhan and V.S. Sirpurkar, JJ.) vide order
dated 12th September, 2007 had observed that certain facts and provisions
of law which were not taken note of in Swarn Rekha’s case (supra),
had come to light and therefore they had thought it appropriate to refer
the appeals to a larger Bench for consideration.
6. Before we deal with the rival contentions, it would be
appropriate to notice and take on record the undisputed position. State
of Madhya Pradesh in exercise of powers conferred under Section 12
of the Madhya Pradesh General Sales Tax Act, 1958 and Section 8(5)
of the Central Sales Tax Act, 1956 (for convenience we would refer to
the two  enactments as the “Sales Tax Act” for short), with a view to
attract investors and increase industrial output in the State, had vide
notification dated 19th February, 1991 formulated a policy for grant of
sales tax exemption to industrial units having fixed assets above Rs. 100
1 (2004) 6 SCC 689
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crores. Quantum of exemption from tax was to be equal to the capital
investment in the fixed assets and the duration or period was 11 years
from the date of commencement of commercial production or the date
on which quantum of exempted tax reached the limit equivalent to the
value of capital investment in the fixed assets. It is an undisputed position
that private parties/assessee to the present appeals being entitled to the
benefit/exemption were issued a certificate of eligibility for exemption
from tax by the Directorate of Industries in the unified State of Madhya
Pradesh.
7. The industrial units belonging to the private parties/assessee
situated in the unified State of Madhya Pradesh after the bifurcation in
terms of the Reorganisation Act would necessarily fall in the area/
boundary forming a part either of the reorganised State of Madhya Pradesh
or the new State of Chhattisgarh. As noticed above, the precise issue
before us is whether these industrial units, which were granted exemption
and were after the bifurcation located in the reorganised State of Madhya
Pradesh or the new State of Chhattisgarh, would continue to enjoy the
benefit of exemption/deferment of tax in the other state while conducting
inter-state transaction(s) from the state they are located to the new
State of Chhattisgarh or the reorganised State of Madhya Pradesh, as
the case may be.
8. Before we dwell into the respective contentions and elaborate
our reasons, it would be
appropriate to reproduce relevant provisions of
the Reorganisation Act, viz. Sections 2(e), (f), (j) and (k), Sections 3, 4
and 5 and Sections 78, 79, 80, 85 and 86(1) which are as under:
“Section 2 (e), (f), (j) and (k) of the Reorganisation Act
Part I
PRELIMINARY
2. Definitions. —In this Act, unless the context otherwise requires,
—
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xx
(e) “existing State of Madhya Pradesh” means the State of Madhya
Pradesh as existing immediately before the appointed day;
(f) “law” includes any enactment, ordinance, regulation, order,
bye-law, rule, scheme, notification or other instrument having,
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immediately before the appointed day, the force of law in the
whole or in any part of the existing State of Madhya Pradesh;
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xx
xx
(j) “successor State”, in relation to the existing State of Madhya
Pradesh, means the State of Madhya Pradesh or Chhattisgarh;
(k) “transferred territory” means the territory which on the
appointed day is transferred from the existing State of Madhya
Pradesh to the State of Chhattisgarh;
Sections 3, 4 and 5 of the Reorganisation Act
Part II
REORGANISATION OF THE STATE OF MADHYA PRADESH
3. Formation of Chhattisgarh State.— On and from the
appointed day, there shall be formed a new State to be known as
the State of Chhattisgarh comprising the following territories of
the existing State of Madhya Pradesh, namely:—
Bastar, Bilaspur, Dantewada, Dhamtari, Durg, Janjgir-Champa,
Jashpur, Kanker, Kawardha, Korba, Koriya, Mahasamund,
Raigarh, Raipur, Rajnandgaon and Surguja districts, and thereupon
the said territories shall cease to form part of the existing State of
Madhya Pradesh.
4. State of Madhya Pradesh and territorial divisions
thereof.— On and from the appointed day, the State of Madhya
Pradesh shall comprise the territories of the existing State of
Madhya Pradesh other than those specified in section 3.
5. Amendment of the First Schedule to the Constitution.—
On and from the appointed day, in the First Schedule to the
Constitution, under the heading “I. THE STATES”, —
(a) in the
paragraph relating to the territories of the State of Madhya
Pradesh, after the words, brackets and figures, “the Rajasthan
and Madhya Pradesh (Transfer of Territories) Act, 1959 (47 of
1959)”, the following shall be added, namely: —
“but excluding the territories specified in section 3 of the Madhya
Pradesh Reorganisation Act, 2000.”;
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(b) after entry 25, the following entry shall be inserted, namely:
—
“26. Chhattisgarh: The territories specified in section 3 of the
Madhya Pradesh Reorganisation Act, 2000.”
Sections 78, 79, 80, 85 & 86 of the Reorganisation Act
PART X
LEGAL AND MISCALLANEOUS PROVISIONS
78. Territorial extent of laws.— The provisions of Part II of
this Act shall not be deemed to have effected any change in the
territories to which any law in force immediately before the
appointed day extends or applies, and territorial references in any
such law to the State of Madhya Pradesh shall, until otherwise
provided by a competent Legislature or other competent authority
be construed as meaning the territories within the existing State
of Madhya Pradesh before the appointed day.
79. Power to adapt laws.— For the purpose of facilitating the
application in relation to the State of Madhya Pradesh or
Chhattisgarh 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.
Explanation. — In this Section, the expression “appropriate
Government” means as respects any law relating to a matter
enumerated
in the Union List, the Central Government, and as
respects any other law in its application to a State, the State
Government.
80. Power to construe laws.— Notwithstanding that no provision
or insufficient provision has been made under section 79 for the
adaptation of a law made before the appointed day, any court,
tribunal or authority, required or empowered to enforce such law
may, for the purpose of facilitating its application in relation to the
State of Madhya Pradesh or Chhattisgarh, construe the law in
such manner, without affecting the substance, as may be necessary
THE STATE OF MADHYA PRADESH v. LAFARGE DEALERS
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or proper in regard to the matter before the court, tribunal or
authority.
85. Effect of provisions of the Act inconsistent with other
laws.— The provision of this Act shall have effect notwithstanding
anything in consistent therewith contained in any other law.
86. Power to remove difficulties.— (1) If any difficulty arises
in giving effect to the provisions of this Act, the President may, by
order, do anything not in consistent with such provisions which
appears to him to be necessary or expedient for the purpose of
removing the difficulty:
Provided that no such order shall be made after the expiry of a
period of three years from the appointed day.”
9. The Reorganisation Act, which was to commence from the
appointed day, was notified by the Central Government vide Notification
No. S.O. 827(E), dated 14th September, 2000 published in the Gazette of
India, Extraordinary Part II sec.3(ii) with 1st November, 2000 as the
appointed date. Accordingly, on 1st November, 2000 the erstwhile State
of Madhya Pradesh was bifurcated and divided into the reorganised
State of Madhya Pradesh and the new State of Chhattisgarh. The political
map of the country underwent a change. The reorganised State of Madhya
Pradesh and the new State of Chhattisgarh were described as “successor
State” vide clause (j) to Section 2 of the Reorganisation Act. The
transferred territories, which were to form part of the State of
Chhattisgarh, were
demarcated and specified in Section 3 of the
Reorganisation Act. As per Section 4, the reorganised State of Madhya
Pradesh was to comprise of the existing territories other than those
specified in Section 3 i.e., the territories which shall now form part of
the State of Chhattisgarh. The expression “law” as defined in clause (f)
to Section 2 of the Reorganisation Act included any enactment, ordinance,
regulation, order, notification, etc., in force immediately before the
appointed day in the whole or any part of the erstwhile or unified State
of Madhya Pradesh. The law by definition would include delegated
legislation and also the exemption notification issued under the Sales
Tax Act, and the certificate of eligibility for exemption from tax issued
under the Sales Tax Act.
10. Section 5 of the Reorganisation Act states that on and from
the appointed day, in the First Schedule to the Constitution under the
heading “THE STATES” after entry 25, entry 26 shall be inserted by
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mentioning the State of Chhattisgarh which shall comprise of the territories
specified in Section 3 of the Reorganisation Act. Similarly, in relation to
and in the case of Madhya Pradesh, necessary changes will be made in
the territories forming part of the State by excluding the territories specified
in Section 3 of the Reorganisation Act.
11. Before interpreting Sections 78 and 79 of the Reorganisation
Act which are in pari materia to Sections 84 and 85 of the Bihar
Reorganisation Act, 2000, we would like to reproduce paragraphs 26,
27, 28, 29 and 30 of Swarn Rekha (supra), which read as under:
“26. The question then arises, as to what is the true meaning and
import of Sections 84 and 85 of the Act?
27. 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
THE STATE OF MADHYA PRADESH v. LAFARGE DEALERS
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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 SO No. 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 SO 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, 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.
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28. 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 Reorganisation 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 v. Balbir Singh,
Sher Singh v. Financial Commr. of Planning and Dhayanand
v. Union of India. In the first of these cases i.e. in State of
Punjab v. Balbir Singh 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 Reorganisation 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 reorganisation 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 other 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 the 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 reorganisation 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 Balbir Singh case fully apply to the facts
of this case having regard to the identical legislative provision
and, particularly so when the notification in question is by definition
law and not a mere administrative order.
THE STATE OF MADHYA PRADESH v. LAFARGE DEALERS
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29. The next 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 on 25-8-2001 and,
therefore, the industrial policy of 1995 and the notification bearing
SO No. 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 Rekha 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 notification
dated 22-12-1995. It deals with new industrial units set up after
15-11-2000 and, therefore, whatever benefits or incentives are
provided for in the said policy are applicable to new industrial
units set up after 15-11-2000. In the instant 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 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, Notification No. SO No. 478 dated
22-12-1995 must continue to operate in the State of Jharkhand
and the appellants or respondents concerned, 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 of 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 categorised
as inter-State sale transactions. The submission overlooks the
provisions of 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
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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 Dwellings Co.
Ltd. v. Finsbury Borough Council, All ER at p. 589 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 in the territories which
formed the erstwhile State of Bihar. This, of course, is subject to
amendment, alteration 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 State concerned 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,
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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 & Co. v. Assessing Authority,
State of Mysore v. P.B. Hussain Kunhi & Co. and CST v.
Minerva Minerals and we find that none of those decisions in
any manner advances 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 of 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 exemption from payment
of sales tax on
purchase of raw materials in the State of Jharkhand,
but their counterparts 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 deal 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, 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 authorise 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
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authority. Such provisions have necessarily to be incorporated in
legislations relating to reorganisation 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.”
12. Relying upon the aforesaid ratio and interpretation of Sections
78 to 80, 85 and 86 of the Reorganisation Act, learned counsel for the
private parties/assessee have submitted that the Reorganisation Act did
not withdraw and negate the benefit of exemption which was already
granted in respect of the entire area forming part of unified State of
Madhya Pradesh. Provisions of the Reorganisation Act protect and
enforce the “law” which included the exemption notification in force in
the unified State of Madhya Pradesh on the appointed day. Reliance
was placed on the Adaptation of Laws Order, 2000 Notification No. F1/
17/-2000/C.Tax/V dated 30th November, 2002 with effect from 1st
November, 2000, the relevant portion of which reads as under:
“2. The laws, as amended from time to time, specified in the
Schedule to this order, which are in force in the State of Madhya
Pradesh immediately before the formation of the State of
Chhattisgarh, are hereby extended to and shall be in force in the
State of Chhattisgarh until repealed or amended.  Subject to the
modifications that in all the laws for the words “Madhya Pradesh”
wherever they occur the word “Chhattisgarh”
shall be substituted.
3. Anything done or any action taken (including any appointment,
notification, notice, order, rule, form, regulation, certificate or
licence) in exercise of the powers conferred by order under the
laws specified in the Schedule shall continue to be in force in the
State of Chhattisgarh.”
The Schedule to the said Notification, it was highlighted, included
the Sales Tax Act and the rules framed thereunder. Accordingly, the
Adaptation of Laws Order states that subject to the modification in the
form of substitution of the word “Madhya Pradesh” with the word
“Chhattisgarh”, “the law” would continue to apply and had remained in
force and would be effective for the balance period of 11 years or till the
quantum of exemption was reached. Further, Section 80 of the
Reorganisation Act empowers the court, tribunal or authority to enforce
“the law” for the purpose of facilitating its application to the reorganised
State of Madhya Pradesh and the new State of Chhattisgarh in a manner,
THE STATE OF MADHYA PRADESH v. LAFARGE DEALERS
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without affecting its substance, as would be necessary or proper in regard
to the matter before the court, tribunal or authority. This prime objective
must keep in mind by the Court while interpreting the provisions. Section
85 in the nature of a non-obstante or overriding clause mandates that
the provisions of the Act would have effect notwithstanding anything
inconsistent contained in any other law. Therefore, the exemption
notification must be interpreted as in force in both the States i.e. the
reorganised State of Madhya Pradesh and the new State of Chhattisgarh
as if the unified State of Madhya Pradesh had not been bifurcated. This
would be the only way to reconcile Part X of the Reorganisation Act
and give effect to the legal fiction created by Sections 78 and 79 of the
Reorganisation Act. Section 78 by incorporating a deeming fiction enures
to the benefit given to the private parties/assessee was not denied and
fully given effect to.
13. The two States, on the other hand, submit that with effect
from the appointed day the new State of Chhattisgarh had come into
existence and hence the trade inter-se or between the territories now
forming part of the State of Chhattisgarh and the reorganised State of
Madhya Pradesh would be in the nature of inter-state sales and not
intra-state sales. The Sales Tax Act as earlier applicable to the unified
State of Madhya Pradesh would be applicable in the reorganised State
of
Madhya Pradesh and the new State of Chhattisgarh but within the
territorial confines and limits of the two States. Therefore, the units
situated within the territorial limits/boundaries of the reorganised State
of Madhya Pradesh and the new State of Chhattisgarh would continue
to enjoy benefit of exemption in respect of intra-state trade within the
particular state and not in respect of inter-state trade between the two
states. This is the exact purport and meaning behind Section 78 and 79
of the Reorganisation Act.  Reliance was placed on the judgment of the
Division Bench of the Andhra Pradesh High Court in Sri Peera
Mohammad Mahamood Saheb v. The State of Andhra Pradesh2,
which we would advert to at the appropriate stage.
14. Having considered the contention of the parties and in the
context of Sections 78, 79, 80, 85 and 86 of the Reorganisation Act, we
feel that the stand taken by the State of Madhya Pradesh and the State
of Chhattisgarh is correct and merits acceptance. We have already
reproduced the aforesaid provisions and partly interpreted them in
paragraphs 9 and 10 and would now proceed to interpret Sections 78
2 1960 (11) STC 456
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and 79 of the Reorganisation Act. Section 78 of the Reorganisation Act
consist of two parts. The first part states that the provisions of the
Reorganisation Act shall not be deemed to have affected any change in
the territories to which any law in force immediately before the appointed
date extends or applies. In other words, the law in force before the
appointed date, which in the present case is 1st November, 2000, would
continue to apply to the successor or reorganised State of Madhya
Pradesh as it existed before bifurcation. This is natural and normal as
the laws enacted by the legislature and the executive of the State of
Madhya Pradesh would obviously apply to the territories forming part of
it after its reorganisation/division. As a result of bifurcation some areas
that were earlier part of the State of Madhya Pradesh would now form
part of the new State of Chhattisgarh, albeit this would not matter and
affect application of the laws as they applied prior to the appointed date
to the territories that required a part of the reorganised State of Madhya
Pradesh. Section 78, no doubt uses the word ‘deemed’ but in fact, the
first part does not incorporate/create any deeming fiction and rather
postulates and states the obvious. However, the second part of Section
78 incorporates a deeming fiction when it states that territorial references
to such law in the State of Madhya Pradesh, i.e. the laws enacted by the
legislature and executive of the State of
Madhya Pradesh before
bifurcation, shall until otherwise provided by the competent legislature
or other competent authority be construed as meaning the territories
within the existing state of Madhya Pradesh before the appointed day.
The effect, thereof, is that the laws enacted by the State of Madhya
Pradesh before the reorganisation would continue to apply to the areas
forming part of the new State of Chhattisgarh and also the reorganised
State of Madhya Pradesh, but within their territorial confines. The
enactments or the laws in force in the unified State of Madhya Pradesh
would continue to apply to the two states, not as one or the same
enactment or law, but as two separate enactments or laws as applicable
to two different states.
15. The deeming fiction incorporated for the purpose of second
part of Section 78 does not postulate and state that the territories which
were earlier part of the State of Madhya Pradesh but now form part of
the State of Chhattisgarh would continue to remain part of the reorganised
State of Madhya Pradesh or should be treated as part and parcel of the
other state. This is not what is postulated in Section 78. Deeming fiction
in terms of Section 78 does not extend and include any such stipulation,
either expressly or by necessary implication. Indeed, this is not even
THE STATE OF MADHYA PRADESH v. LAFARGE DEALERS
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remotely visualised. This Court in B. S. Goraya vs. U.T. of
Chandigarh3, in paragraphs 6 to 8 had observed that a deeming provision
is operative for the purposes for which it is created and the Court should
be careful not to extend this fiction beyond the legitimate field and the
purposes for which the legislature had adopted the fiction. The purpose
and objective for creating fiction must be kept in mind. In the present
enactment, the object and purpose of the deeming provision envisaged
in Section 78 of the Reorganisation Act is limited and restricted to the
enforcement of enactment/laws as they existed in the unified State of
Madhya Pradesh to the new State of Chhattisgarh, and nothing more
and beyond.
16. Section 79 of the Reorganisation Act states that the appropriate
Government of the reorganised State of Madhya Pradesh and the new
State of Chhattisgarh may, before the expiration of two years from the
appointed date, by an order, as may be necessary or expedient, make
such adaptations or modifications in the earlier laws enacted in the unified
State of Madhya Pradesh by way of repeal or amendment. Thereupon,
every law shall have effect subject to the adaptations or modifications
made, until further repealed, modified or amended by the competent
legislature or other competent authority. Explanation to the said section
states that ‘appropriate Government’ in respect of any law means the
Central Government in
respect of matters enumerated in the Union List
and in respect of any law in its application to a state, the State
Government.
17. Section 80 relates to the construction or interpretation of the
laws made by the State of Madhya Pradesh before the appointed date.
It states that notwithstanding that no provision or insufficient provision
has been made in terms of Section 79, the court, tribunal or authority
interpreting such laws made by the unified State of Madhya Pradesh
would construe the law in such a manner as to facilitate its application to
the successor States of Madhya Pradesh and Chhattisgarh without
effecting the substance. In other words, the court, tribunal or authority
while interpreting the laws would go by the substance and with the
objective and purpose of facilitating the application of laws in relation to
the successor States of Madhya Pradesh and Chhattisgarh,
notwithstanding the fact that the legislature or the competent authority
in relation to the laws applicable to the States of Madhya Pradesh and
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Chhattisgarh have not passed any law before or within the expiration
period of two years from the appointed date.
18. Section 85 of the Reorganisation Act states that the provisions
of the said enactment shall have effect notwithstanding anything
inconsistent contained in any other law. Therefore, the provisions of the
Reorganisation Act have been given primacy over any other law.
However, this primacy is not meant to denude and over-ride the legal
effect envisaged by the Constitution consequent to the creation of the
successor State of Madhya Pradesh and the State of Chhattisgarh which
would henceforth have separate government(s) comprising of different
legislature and executive. On and from the appointed date of 1st
November,2000 any trade between the State of Chhattisgarh and the
State of Madhya Pradesh and vice-versa would be inter-state trade and
not intra-state trade. The deeming fiction and the provisions of the
Reorganisation Act nowhere postulate that the trade would continue to
remain intra-state trade and not inter-state trade between the two States.
In fact, any deeming fiction to the said effect would have fallen afoul
and would be contrary to Article 286, as it stood before amendment on
16th September, 2016 and reads as under:
“286. Restrictions as to imposition of tax on the sale or
purchase of goods: -
No law of a State shall impose, or authorise the imposition of, a
tax on the sale or purchase of goods where such sale or purchase
takes
place
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the
goods out of, the territory of India.
(2) Parliament may by law formulate principles for determining
when a sale or purchase of goods takes place in any of the ways
mentioned in clause (1).
(3) Any law of a State shall, in so far as it imposes, or authorises
the imposition of,
(a) a tax on the sale or purchase of goods declared by Parliament
by law to be of special importance in inter-State trade or
commerce; or
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(b) a tax on the sale or purchase of goods, being a tax of the
nature referred to in sub-clause (b), sub-clause (c) or sub-clause
(d) of clause (29-A) of Article 366,
be subject to such restrictions and conditions in regard to the system
of levy, rates and other incidents of the tax as Parliament may by
law specify.”
As per the said Article, states are not competent to enact any
legislation relating to the taxation of ‘inter-state sales’, an expression
which, in the context of the Constitution, has been subject matter of
several decisions explaining the difference between ‘intra-state’ and
‘inter-state’ sales. The expression ‘inter-state’ trade has specific legal
connotation and meaning. It refers to transfer or movement of goods
from one state to another. Such transactions, notwithstanding that the
situs of sale would necessarily be at a fixed location, are inter-state sale
or trade and not intra-state sale or trade. Thus, when there is a movement
of goods between the two states without there being a transfer of title to
the consignor or consignee, compliance would have to be made with the
relevant laws applicable to such inter-state transactions. This position
will hold good and equally apply in respect of the inter-state sales between
the new State of Chhattisgarh and the reorganised State of Madhya
Pradesh and vice-versa. The movement of goods from one state to
another is in the nature of inter-state sales. The
fact that two separate
states are formed after the bifurcation, which were once a single entity
for the purpose of levying sales tax, would be of no consequence so as
to disturb the legal and constitutional impact by which two separate States
were created and the legal effect of Article 286 as regards the inter-
state character of inter-state transactions.
19. Section 86 of the Reorganisation Act states that in case any
difficulty arises in giving effect to the provisions of the said Act, the
President may, by an order, do anything as may be necessary and
expedient for removing the difficulties. However, such order cannot be
inconsistent with the provisions of the Reorganisation Act. Proviso states
that no order shall be made after the expiry of three years from the
appointed date.
20. In Ranjan Sinha and Another v. Ajay Kumar Vishwakarma
and Others4, three Judges’ Bench of this Court have elucidated that the
Parliament, under Article 3 of the Constitution, is empowered to form a
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new State by separation of territory from any State or by uniting two or
more States. Article 4 of the Constitution states that the law made by
the Parliament with reference to Article 3 may contain supplemental,
consequential and incidental provisions.  When the territory of the existing
State is reorganised by the Parliament under Article 3, there is no change
of sovereignty and it is only a case of adjustment of territories as some
portion of the territories forming part of the existing state would now
form part of the newly formed state or get merged in a new state. In the
latter case, the laws which were applicable to the territories of the
reorganised state would continue to apply to the territories of the new
state until the newly created state adapts or subject to its competency
amends or repeals the existing and applicable laws. It was held:
“36. At the cost of repetition, we may mention that under Article
3 of the Constitution, Parliament can alter, amend, amalgamate,
form new States, diminish or increase area of a State. The principle
of “clean slate” as applicable in international law is not applicable
when reorganisation takes place under Article 3 of the Constitution.
The reorganised States do not usually start as tabula rasa, rather
they are successors of a pre-existing erstwhile States. Under
BROA, Jharkhand was carved out of Bihar and the other separate
States came into existence on 15-11-2000. If the laws in force
were to lapse on the
date the division was effected, a chaotic
situation would have emerged inasmuch as the newly created
State would be rendered a State without laws. To avoid such
situation, provisions like Sections 84 and 85 of BROA have been
enacted to maintain continuity, and at the same time authorising
the States to make such modifications and adaptations as are
considered necessary by mere issuance of orders within two years,
and thereafter by legislation.”
This decision had referred to several earlier enactments by the
Parliament under Article 3 beginning with the States Reorganisation Act,
1956 till the Bihar Reorganisation Act, 2000 which had similar provisions
under the heading ‘Territorial extent of laws’ and ‘Power to adapt
laws’ as in the present case. Referring to Section 84 of the Bihar
Reorganisation Act, 2000, which is identically worded as Section 78 of
the Reorganisation Act, this Court in Ranjan Sinha (supra) held as
under:
“29. Section 84 contains two legal fictions, first is that the
reorganisation of Bihar would not affect the applicability of laws
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made by the State of Bihar to all territories included in it before
reorganisation and after the reorganisation. In other words, a law
made by Bihar shall be applicable to all the territories of the
erstwhile State of Bihar including the territories of the State of
Jharkhand even after reorganisation. The second fiction is that
until Jharkhand provides for it by way of amendment or otherwise,
territorial reference in any law to the State of Bihar shall mean all
the territories in Bihar before reorganisation. For instance, if Bihar
had made a law as applicable to entire Bihar, it shall apply to
Bihar and Jharkhand until it is amended by the new State. The
territories to which the said Act is made applicable would also
include the territories which were included in Jharkhand. Section
85 is an enabling provision which empowers both the States to
make adaptations and modification of the law by way of
amendment to the law as applicable to the newly formed State.”
While interpreting Section 84 and 85 of the Bihar Reorganisation
Act, 2000 analogous to Section 78 and 79 of the Reorganisation Act, this
Court in Ranjan Sinha (supra) had dealt with and affirmed the underlined
theory of continuity of laws in the new state after or post the reorganisation
observing that the principle of “clean slate”, as it exists in the international
law in relation to the state succession, which means that the successor
state generally does not
inherit the prior treaty obligations or rights of a
predecessor state, is different from the adjustment of territories which
the Parliament undertakes and enforces under Article 3. The reorganised
states do not usually start as tabula rasa, rather they are successors of
the pre-existing erstwhile States. Disorderly and chaotic situation would
erupt if the new state was to be created without any laws as on the date
of its creation. To overcome this interregnum and vacuum, the
Reorganisation Act(s) uniformly contain provisions which create a legal
fiction to the extent that the reorganisation of the State would not affect
the applicability of laws to all the territories included within it before and
even after the reorganisation. However, this is subject to another dictum/
rule that the existing laws as earlier applicable to the territories would be
applicable to the new state until the new state provides for adaptation or
modification of the law by way of repeal or amendment. The time period
provided for such adaptations and modifications is generally two years
from the appointed day, i.e. the day by which the Central Government in
the Official Gazette provides for the creation of the two states by transfer
of territories from one state to another.
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21. The Constitutional Bench judgment in M.P.V. Sundararamier
& Co. v. State of Andhra Pradesh and Another5, had examined and
rejected several contentions of the dealers carrying on business in the
city of Madras for restraining the State of Andhra from imposing sales
tax on sales effected in favour of merchants carrying on business in the
State of Andhra. One of the contentions raised related to the true
interpretation of Section 53 of the Andhra State Act, 1953, the argument
being that though for political purposes the State of Andhra was a separate
State, but for enforcement of laws as they stood on the date of division/
bifurcation, the State of Andhra was deemed to be a part of the State of
Madras. This contention was rejected holding that the States of Andhra
and Madras were two separate States and were governed by two separate
though identical Acts. Accordingly, when the sales tax enactment as
applicable had provided for single levy on successive sales of yarn, it
would have application to sales in the State of Madras or Andhra, as the
case may be, and not in the other State or inter-state sales. Section 53
had provided that the laws in existence in the territories which were
constituted and had become part of the State of Andhra would continue
to be governed by the laws which were enacted by the State of Madras.
In terms of Section 53, the laws enacted by the State of Madras would
continue to operate as before. It had not stipulated that the
States would
continue to be one. For clarity and convenience, we would reproduce
paragraph 60 of the said judgment, which reads as under:
“60. (VI) Another contention urged by the petitioners is that the
levy of tax proposed to be made by the Andhra State on the sale
of yarn by them to dealers in the State of Andhra is illegal because
under the Madras Act and the Rules made thereunder, where
there are successive sales of yarn the tax can be imposed at only
one point, and as the Government of Madras had already imposed
a tax on the sale within that State, a second levy on the selfsame
goods by the State of Andhra is unauthorised and that therefore
the threatened proceedings for assessment are incompetent. This
contention is clearly untenable. When the Madras Act provides
for a single levy on successive sales of yarn, it can have only
application to sales in the State of Madras, as it would be
incompetent to the Legislature of Madras to enact a law to operate
in another State.  But it is argued that S.53 of the Andhra State
Act, 1953 on its true interpretation enacts that though for political
5 AIR 1958 SC 468
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purposes Andhra is to be regarded as a separate State, for the
enforcement of laws as they stood on that date it should be deemed
to be a part of the State of Madras. We do not agree with this
interpretation. In our opinion, S. 53 merely provides that the laws
in existence in the territories which were constituted into the State
of Andhra should continue to operate as before. In fact, by an
Adaptation Order issued on November 12, 1953, even the name
of Andhra was substituted for Madras in the Madras General
Sales Tax Act. There is no substance in this contention.”
22. In the context of the above provisions of the Reorganisation
Act, we would now reproduce relevant portion of the judgment of the
Division Bench of High Court of Andhra Pradesh in Sri Peera
Mohammad Mahamood Saheb v. The State of Andhra Pradesh
(supra), which had also dealt with the situation pursuant to bifurcation of
the State of Madras into the reorganised State of Madras and the new
State of Andhra. Referring to identical provisions, it was held that Section
3 of the Andhra State Act, 1953 states that the territories enumerated
would, from the appointed date i.e. 1st October, 1953, cease to be the
territories of the State of Madras and would be the territories of the new
State of Andhra. Further, the laws in force in the territories in the State
of Andhra prior to its constitution shall continue to remain in force even
after its creation.
Accordingly, one of the Acts namely the Madras General
Sales Tax Act, 1939, would continue to apply to the new State of Andhra
and the word ‘Madras’ used in said Act would be replaced/substituted
by the word ‘Andhra’. To this extent, Section 53 of the Andhra State
Act which is pari materia to Section 78 of the Reorganisation Act,
2000, declares that notwithstanding the emergence of the State of Andhra,
there shall be no change in the laws in force. This provision was made
for avoiding any hiatus and the same set of laws, therefore, would continue
to be operative in the States of Madras and Andhra.
23. We have quoted the relevant portions of the judgment in the
case of Swarn Rekha Cokes and Coals Pvt. Ltd. (supra) and have no
difficulty in agreeing to the dictum as enunciated in paragraphs 26, 27
and 28, but find it difficult to agree with the ratio recorded in paragraph
29. The effect of Sections 84 and 85 of the Bihar Reorganisation Act,
2000 was to ensure continuity of laws enacted by the unified State of
Bihar in the new State of Jharkhand which had been created by transfer
of territories which earlier formed part of the State of Bihar. These
sections incorporating a deeming fiction were to ensure that the new
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State of Jharkhand would continue to be governed by the pre-existing
laws as, otherwise, there would be a disorderly and chaotic situation
where the new State would not be governed by any law.  This is the true
effect of the legal fiction created by Section 84 of the Bihar
Reorganisation Act, 2000, i.e., the reorganisation of the state would not
affect the applicability of the existing laws in the state to all territories
included within it before and even after the reorganisation. The said
fiction does not postulate and cannot be extended to imagine that for the
purpose of sale transactions or even for other purposes, the new state
did not have any political and constitutional existence as a separate state
and that till a new law was enacted, the two States were to be treated as
one political State as it was before the reorganisation. The sale
transactions which were hitherto intra-state sales being within the unified
State of Bihar, would become inter-state transactions once the two new
States had come into existence. Provisions do not stipulate that such
transactions would continue to be treated as intra-state transactions
notwithstanding creation of the new State.
24. With respect to reasoning given in paragraph 30 in Swarn
Rekha Cokes and Coals Pvt. Ltd. (supra), we would acknowledge
that creation of a new State was an unforeseen event and could give
rise to unusual situations, but this cannot be a ground and reason to treat
inter-state sales between
the two successor states as intra-state sales.
This would be contrary to the Constitution and even the Statute i.e. the
Reorganisation Act. Whenever a new State is created, there would be
difficulties and, issues would arise but these have to be dealt within the
parameters of the constitutional provisions and the law and not by negating
the mandate of the Parliament which has created the new state in terms
of Article 3 of the Constitution. Creation of the new political State must
be given full legal effect. We would, therefore, respectfully overrule the
contrary observations and ratio recorded in paragraphs 29 and 30 in
Swarn Rekha Cokes and Coals Pvt. Ltd. (supra) in light of the legal
position elucidated and explained above.
25. In the end, we must take note of one of the submissions made
by the private parties/assessee that under the exemption clauses even
the inter-state transactions were entitled to some benefits. This contention
was not raised in the writ petition or even in the pleadings before us and
has been urged and argued for the first time. We would not like to comment
and decide this contention in vacuum and leave it open to the private
parties/assessee to raise this plea before the authorities in appropriate
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proceedings under the statute. In other words, the authorities would
examine whether the inter-state transactions were entitled to any benefit
and if so, whether the private parties/assessee herein fulfil and meet the
requirements to claim such benefit. We have not expressed any opinion
either way on this contention. It was pointed out that in several cases
adjudication orders may have been passed and the private parties/assessee
may not have preferred appeals in view of the writ petitions filed by
them and the present proceedings. As recorded above, some of the private
parties/assessee had succeeded before the High Court. We would
observe that it will be open to the private parties/assessee to challenge
the adjudication orders in accordance with law and if required, by filing
application under Section 14 of the Limitation Act, 1963, or other
applicable provisions of the state enactments for exclusion of time during
which the proceedings have remained pending before the High Court
and this Court. In such cases, it would be appropriate for the authorities
to exclude such time period as we are overruling the ratio laid down in
paragraphs 29 and 30 in Swarn Rekha Cokes and Coals Pvt. Ltd.
(supra).
26. Accordingly, the appeals arising from Special Leave Petition
(Civil) Nos. 10520 of 2013, 1334, 10165, 23297, 23592 of 2014, 6729 and
16550 of 2016 preferred by the State of Madhya Pradesh and the State
of Chhattisgarh are
allowed and the Civil Appeal Nos. 460, 461, 7073 of
2005 and 2343 of 2007 preferred by the private parties/assessee are
dismissed in terms of the aforesaid observations, findings and directions.
Bibhuti Bhushan Bose
Appeals disposed of.