Territorial limits of tax deferment after state reorganisation prevent extension of fiscal concession by estoppel.

A pre-reorganisation tax deferment concession remained territorially confined to the successor State in which the unit was situated after bifurcation. The reorganisation statute preserved existing laws only within their pre-appointed-day territorial application, while adaptation in the successor States did not keep the concession alive across both States. Accordingly, sales from Chhattisgarh into Madhya Pradesh could not be treated as if the undivided State still existed, and the deferment claim in Madhya Pradesh failed. Promissory estoppel and legitimate expectation could not extend a fiscal concession beyond the territorial and statutory limits created by reorganisation, so the attempt to enlarge the benefit also failed.

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Issues: (i) Whether the benefit of deferment of tax granted under the pre-reorganisation notification and rules could be claimed in the successor State of Madhya Pradesh after the unit had become situated in the successor State of Chhattisgarh; (ii) whether the doctrines of promissory estoppel and legitimate expectation could be invoked to extend the tax concession beyond the territorial limits created by the reorganisation.

Issue (i): Whether the benefit of deferment of tax granted under the pre-reorganisation notification and rules could be claimed in the successor State of Madhya Pradesh after the unit had become situated in the successor State of Chhattisgarh.

Analysis: The reorganisation statute preserved existing laws under Section 78, but only within the territories to which they were applicable immediately before the appointed day. Section 79 permitted adaptation of those laws for the successor States, and Section 85 operated only where there was inconsistency with the Act itself. The Court held that the two successor States are distinct legal entities and that adaptation of the old commercial tax law in Chhattisgarh did not mean that the law, or the concession flowing from it, continued to operate in both States as though the division had not occurred. The concession remained territorially confined to the successor State in which the unit was located, and sales from Chhattisgarh into Madhya Pradesh had to be treated according to the altered territorial position.

Conclusion: The claim for deferment in Madhya Pradesh was not tenable, and the issue was decided against the appellants.

Issue (ii): Whether the doctrines of promissory estoppel and legitimate expectation could be invoked to extend the tax concession beyond the territorial limits created by the reorganisation.

Analysis: The concession had been issued for the territory governed by the undivided State and could not override the statutory consequence of bifurcation. Once the reorganisation came into force, any prior assurance or expectation had to yield to the new territorial and statutory arrangement. In fiscal matters, equitable doctrines could not be used to compel a State to grant a concession contrary to the governing statute and the territorial scheme created by the reorganisation law.

Conclusion: Neither promissory estoppel nor legitimate expectation could extend the concession to the successor State of Madhya Pradesh, and the contention failed.

Final Conclusion: The statutory scheme of reorganisation controlled the field, preserved the concession only within the appropriate successor State, and barred its extension across the new State boundary.

Ratio Decidendi: A pre-reorganisation fiscal concession continues only within the territorial limits preserved or adapted by the reorganisation statute and cannot be invoked to treat post-bifurcation inter-State transactions as intra-State sales or to enlarge the concession by estoppel.

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