Sales tax exemption after State bifurcation remains confined to each successor State; inter-State transactions are not covered.

A reorganisation statute continuing pre-existing sales tax laws in successor States preserves those laws as operative law, but only within each State's territorial limits. The Supreme Court held that the deeming provisions could not be stretched to treat Madhya Pradesh and Chhattisgarh as one State for sales tax purposes after bifurcation. Movement of goods between the two States therefore constituted inter-State trade, and Article 286's constitutional distinction between intra-State and inter-State sales remained controlling. The earlier view treating such transactions as intra-State was overruled, and the exemption or deferment benefit was confined to transactions within each successor State.

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Issues: Whether sales tax exemption or deferment granted under the Madhya Pradesh sales tax regime continued, after bifurcation of the State, to apply to transactions between the reorganised State of Madhya Pradesh and the State of Chhattisgarh, and whether the reorganisation provisions preserved such benefit beyond the territorial confines of each successor State.

Analysis: The Reorganisation Act created two successor States and provided, through the provisions on territorial extent, adaptation, construction, and overriding effect, that pre-existing laws would continue in force in the successor States until modified or repealed. The legal fiction in those provisions preserved continuity of law, but did not preserve the erstwhile political unity of the undivided State for all purposes. The Court held that the deeming provision could not be extended beyond its legitimate field to treat the two successor States as one for sales-tax purposes. Once bifurcation took effect, movement of goods between the two States became inter-State trade. Article 286 continued to mark the constitutional distinction between intra-State and inter-State sales, and the reorganisation statute could not be read to negate that constitutional position. The earlier contrary view treating such transactions as still intra-State was overruled.

Conclusion: The exemption or deferment notification continued only within the territorial limits of each successor State and did not extend to inter-State transactions between the reorganised State of Madhya Pradesh and the State of Chhattisgarh. The States' appeals succeeded and the dealers' appeals failed.

Final Conclusion: Reorganisation preserved the pre-existing tax law as law in force, but not the former undivided-State character for inter-State sales; the benefit could not be claimed beyond the territorial limits of each successor State.

Ratio Decidendi: A reorganisation statute continuing pre-existing laws in successor States preserves the legal force of those laws subject to territorial adaptation, but it does not deem the successor States to remain one State for purposes governed by the Constitution's distinction between intra-State and inter-State trade.

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