2004 (5) TMI 528 - SC - VAT and Sales Tax

Supreme Court Upholds Jurisdiction of High Court in Mandamus Case on Industrial Policy Post-Bifurcation

The Supreme Court upheld the jurisdiction of the Patna High Court to issue a writ of mandamus to the State of Jharkhand. It interpreted Sections 2(f), 84, ... Whether on bifurcation of the existing State of Bihar, and creation of the State of Jharkhand comprising territories which before the appointed day comprised the territories of the State of Bihar, the benefits flowing from the Industrial Policy 1995 of the then State of Bihar crystallized in the Notification of the Government of Bihar issued under section 7(3)(b) of the Bihar Finance Act 1981 published in the Official Gazette on 22.12.1995, enures to the benefit of the beneficiaries under the Policy and under the Notification after the appointed day? Held that:- Appeal dismissed. The benefit of exemption from payment of sales tax on purchase of raw materials in respect of new units or the benefit envisaged for units which have undertaken diversification or expansion are available to those units, if eligible under S.O. 478 dated 22.12.1995 notwithstanding the fact that the erstwhile State of Bihar has been divided into two States by creation of the new State of Jharkhand. We are also satisfied that the said S.O. 478 has not been either modified, amended or altered by the State of Jharkhand and, therefore, it must continue to operate in the State of Jharkhand till such time as it is modified, repealed or altered in the manner prescribed by Section 85 of the Act. Issues Involved:1. Jurisdiction of the Patna High Court to issue a writ of mandamus to the State of Jharkhand.2. Interpretation of Sections 2(f), 84, and 85 of the Bihar Re-Organization Act, 2000.3. Continuity of benefits under the Industrial Policy 1995 of Bihar post the creation of Jharkhand.4. Applicability of exemption from sales tax on inter-State transactions post-bifurcation.5. Validity of notifications and circulars issued by the State of Jharkhand.Issue-wise Detailed Analysis:1. Jurisdiction of the Patna High Court to issue a writ of mandamus to the State of Jharkhand:The Supreme Court addressed the objection raised regarding the jurisdiction of the Patna High Court to entertain the writ petition and issue a writ of mandamus to the State of Jharkhand. It was noted that the Commissioner of Commercial Taxes, Ranchi, Jharkhand, had preferred a Letters Patent Appeal against the judgment of the learned Single Judge of the Patna High Court and did not object to the jurisdiction. The Court concluded that since a part of the cause of action lay in the State of Bihar, the Patna High Court had jurisdiction to entertain the writ petition. The objection raised by the State of Jharkhand on the ground of lack of jurisdiction was rejected.2. Interpretation of Sections 2(f), 84, and 85 of the Bihar Re-Organization Act, 2000:Sections 84 and 85 of the Act were crucial for determining whether the benefits under the Industrial Policy 1995 of Bihar continued to apply post-bifurcation. Section 84 provides that the laws applicable to the undivided State of Bihar would continue to apply to the new States created by the Act until altered, repealed, or amended. Section 85 allows the appropriate Government to make adaptations and modifications of the law for facilitating its application in relation to the State of Bihar or Jharkhand. The Court held that the notification issued under Section 7(3)(b) of the Bihar Finance Act 1981, being S.O. 478 dated 22.12.1995, continued to operate in the State of Jharkhand until altered, repealed, or amended.3. Continuity of benefits under the Industrial Policy 1995 of Bihar post the creation of Jharkhand:The Court examined whether the benefits under the Industrial Policy 1995 of Bihar, specifically the exemption from payment of sales tax on the purchase of raw materials, continued to apply to the territories now forming part of Jharkhand. The Court concluded that the notification S.O. 478 dated 22.12.1995 continued to operate in the State of Jharkhand and the concerned parties were entitled to the benefits and incentives envisaged by the said notification. The Industrial Policy of 2001 of the Government of Jharkhand did not alter, amend, or repudiate the notification of 22.12.1995.4. Applicability of exemption from sales tax on inter-State transactions post-bifurcation:The Court addressed the contention that the statutory notification issued by the erstwhile State of Bihar envisaged only intra-State sale transactions and not inter-State sale transactions. The Court held that Sections 84 and 85 of the Act created a legal fiction, and the laws in force before the appointed day must continue to operate throughout the territories which earlier constituted the State of Bihar. Consequently, the benefits under the notification must flow despite the fact that intra-State sale transactions may have become inter-State sale transactions post-bifurcation.5. Validity of notifications and circulars issued by the State of Jharkhand:The Court considered the notifications and circulars issued by the State of Jharkhand, including the adaptation Notification of 15th December 2000 and the Circular issued by the Commissioner of Commercial Taxes, Jharkhand dated 1st June 2002. The Court concluded that the State of Jharkhand had not modified, amended, or altered the notification S.O. 478 dated 22.12.1995, and it continued to operate in the State of Jharkhand. The benefits and incentives provided in the said notification were available to the eligible units.Conclusion:The Supreme Court dismissed Civil Appeal No.7798/2002 and Civil Appeal arising out of S.L.P. (c) No. 13401/2003, while allowing Civil Appeal Nos. 2450/2003 and 3765/2003. The Court held that the benefit of exemption from payment of sales tax on the purchase of raw materials in respect of new units or units undertaking diversification or expansion continued to be available under the notification S.O. 478 dated 22.12.1995, notwithstanding the bifurcation of the erstwhile State of Bihar and the creation of the State of Jharkhand.