Pre-reorganisation tax exemption survived Bihar bifurcation, with accrued benefits preserved in Jharkhand absent lawful amendment or repeal.

A pre-reorganisation sales tax exemption notification issued under the Bihar Finance Act was held to survive the creation of Jharkhand under the Bihar Re-organisation Act, because the successor-state provisions preserved existing laws unless lawfully altered, repealed or amended. The notification qualified as a continuing "law" and therefore remained operative in Jharkhand for eligible units. Territorial jurisdiction of the Patna High Court was also sustained where part of the cause of action arose from the Bihar notification and the successor State participated without pressing a jurisdictional objection. The exemption could not be denied merely because bifurcation changed the transactions' character or because a later Jharkhand industrial policy did not repeat the earlier benefit.

---

---

Issues: (i) whether the Patna High Court had jurisdiction to entertain the writ petition notwithstanding the creation of the State of Jharkhand; (ii) whether the exemption notification issued under section 7(3)(b) of the Bihar Finance Act, 1981 continued to operate in the territories of Jharkhand after the appointed day by virtue of sections 84 and 85 of the Bihar Re-organization Act, 2000; and (iii) whether the benefit of the notification could be denied on the footing that, after bifurcation, the transactions became inter-State sales or because the later Jharkhand industrial policy did not expressly repeat the earlier exemption.

Issue (i): whether the Patna High Court had jurisdiction to entertain the writ petition notwithstanding the creation of the State of Jharkhand.

Analysis: A part of the cause of action arose from the Bihar notification on which the claim for exemption was founded. The writ proceedings and the challenge to the exemption order were connected with that notification, and the State of Jharkhand itself participated in the litigation and carried the matter in appeal without pressing a jurisdictional objection. In those circumstances, territorial jurisdiction could not be denied merely because Jharkhand was also implicated in the dispute.

Conclusion: The objection to the Patna High Court's jurisdiction was rejected.

Issue (ii): whether the exemption notification issued under section 7(3)(b) of the Bihar Finance Act, 1981 continued to operate in the territories of Jharkhand after the appointed day by virtue of sections 84 and 85 of the Bihar Re-organization Act, 2000.

Analysis: Section 84 preserved laws in force immediately before the appointed day and required territorial references to Bihar to be construed with reference to the erstwhile State until altered by competent authority. Section 85 authorised adaptations or modifications but did not extinguish pre-existing laws. The notification granting sales tax exemption was a "law" within the wide definition in section 2(f) and therefore survived the bifurcation. Since no alteration, repeal, or amendment was shown within the statutory framework, the notification continued to have effect in Jharkhand.

Conclusion: The exemption notification remained operative after the creation of Jharkhand.

Issue (iii): whether the benefit of the notification could be denied on the footing that, after bifurcation, the transactions became inter-State sales or because the later Jharkhand industrial policy did not expressly repeat the earlier exemption.

Analysis: The bifurcation created a legal fiction under which pre-existing laws continued as if the erstwhile territorial references were still applicable, and the incidental consequences of that fiction had to be given full effect. The later industrial policy of Jharkhand dealt with new units and did not alter or repudiate the earlier notification. The mere change in territorial composition could not defeat accrued exemption benefits, and the notification could not be confined so as to deny relief on the label of inter-State transactions where the statute preserved the earlier legal regime.

Conclusion: The exemption could not be denied on the grounds of inter-State sales or the later policy.

Final Conclusion: The pre-existing exemption regime survived the reorganization of Bihar and continued for eligible units in Jharkhand until lawfully altered, modified, or repealed; accordingly, the assessees entitled under the earlier notification succeeded, while the revenue challenge failed to that extent.

Ratio Decidendi: A pre-reorganization statutory notification granting tax exemption continues to operate in the successor State by force of the reorganization provisions, and accrued benefits cannot be defeated merely because the former intra-State setting has become inter-State after bifurcation, unless the notification is lawfully altered, repealed, or amended.

---