Case: THE STATE OF MADHYA PRADESH Vs. LAFARGE DEALERS ASSOCIATION

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 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 Others  (2004) 6 SCC 689  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 12 th 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 19 th February, 1991 formulated a policy for grant of sales tax exemption to industrial units having fixed assets above Rs. 100 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.

Court's reasoning:
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 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 1 st 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 remotely visualised. This Court in B. S. Goraya vs. U.T. of Chandigarh(2007) 6 SCC 397   , 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 ofrepeal 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 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 1 st 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.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 appointedinterpreting 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 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 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.21. The Constitutional Bench judgment in M.P.V. Sundararamier & Co. v. State of Andhra Pradesh and Another AIR 1958 SC 468   , 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 thecontentions 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.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. 1 st 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 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 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).