Broad construction of successor State tax recovery under the States Reorganisation Act covers unassessed but payable sales tax dues.

Section 78 of the States Reorganisation Act, 1956 was construed broadly to cover sales tax dues that had become payable on the taxable sale, even if they had not yet been quantified by assessment. Arrears were not confined to assessed amounts, because liability arises when the tax event occurs and later assessment only makes the debt enforceable. The scheme of Part VII, including sections 78, 83 and 91, ties recovery rights and corresponding liability to the successor State in whose territory the place of assessment falls. The High Court's narrower reading was rejected and the matter was remitted for consideration of the remaining issues.

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Issues: Whether section 78 of the States Reorganisation Act, 1956 applied to arrears of sales tax not yet quantified by assessment and whether the assessment could be set aside on the footing that the taxing authority in the reorganised State lacked jurisdiction over the relevant turnover.

Analysis: Section 78 uses the expression "arrears of any other tax or duty" in a broad sense. The Court held that arrears are not confined to tax already quantified by assessment; tax becomes due when the taxable sale occurs, even though enforceability depends on later assessment and quantification. Reading arrears as limited to assessed amounts would create uncertainty as to which successor State is entitled to recover taxes that have become due but remain unpaid. The scheme of Part VII of the States Reorganisation Act, 1956, especially sections 78, 83 and 91, shows that the right to recover and the corresponding liability are attached to the successor State in whose territory the place of assessment is included. The High Court's narrower construction of section 78 was therefore incorrect.

Conclusion: Section 78 was held applicable to tax dues that had become payable though not yet assessed. The High Court's view was reversed and the matter was remitted for reconsideration of the remaining issues.

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