AI Drafter 
TaxTMI 
TaxTMI 
2019 (7) TMI 479
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....STICE S. ABDUL NAZEER And SANJIV KHANNA JUDGMENT SANJIV KHANNA, J. Leave granted in all the special leave petitions. 2. This judgment would dispose of the afore-captioned appeals which relate to the legal effect of bifurcation of the State of Madhya Pradesh into the successor State of Madhya Pradesh and the State of Chhattisgarh by the Madhya Pradesh Reorganisation Act, 2000 ("Reorganisation Act", for short) on exemption or benefit of deferment of sales tax granted under the Madhya Pradesh Commercial Tax Act, 1994 read with the applicable rules. The question to be answered is whether the industrial unit in the reorganised State of Madhya Pradesh and under the new State of Chhattisgarh would continue to avail the benefit of such exemption or deferment even after the bifurcation in both the states, irrespective of the location of the industrial unit which would be in one of the two states. 3. Civil Appeal Nos. 460, 461, 7073 of 2005 and 2343 of 2007 arise from the judgments of the Division Bench of the Madhya Pradesh High Court, Jabalpur Bench, upholding judgment of the learned Single Judge dismissing the Writ Petition by the manufacturer/dealer of cement inter-alia re....
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....Sales Tax Act" for short), with a view to attract investors and increase industrial output in the State, had vide notification dated 19th February, 1991 formulated a policy for grant of sales tax exemption to industrial units having fixed assets above Rs. 100 crores. Quantum of exemption from tax was to be equal to the capital investment in the fixed assets and the duration or period was 11 years from the date of commencement of commercial production or the date on which quantum of exempted tax reached the limit equivalent to the value of capital investment in the fixed assets. It is an undisputed position that private parties/assessee to the present appeals being entitled to the benefit/exemption were issued a certificate of eligibility for exemption from tax by the Directorate of Industries in the unified State of Madhya Pradesh. 7. The industrial units belonging to the private parties/assessee situated in the unified State of Madhya Pradesh after the bifurcation in terms of the Reorganisation Act would necessarily fall in the area/boundary forming a part either of the reorganised State of Madhya Pradesh or the new State of Chhattisgarh. As noticed above, the precise issue bef....
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....ate of Madhya Pradesh shall comprise the territories of the existing State of Madhya Pradesh other than those specified in section 3. 5. Amendment of the First Schedule to the Constitution.- On and from the appointed day, in the First Schedule to the Constitution, under the heading "I. THE STATES", - (a) in the paragraph relating to the territories of the State of Madhya Pradesh, after the words, brackets and figures, "the Rajasthan and Madhya Pradesh (Transfer of Territories) Act, 1959 (47 of 1959)", the following shall be added, namely: - "but excluding the territories specified in section 3 of the Madhya Pradesh Reorganisation Act, 2000."; (b) after entry 25, the following entry shall be inserted, namely: - "26. Chhattisgarh: The territories specified in section 3 of the Madhya Pradesh Reorganisation Act, 2000." Sections 78, 79, 80, 85 & 86 of the Reorganisation Act PART X LEGAL AND MISCALLANEOUS PROVISIONS 78. Territorial extent of laws.- The provisions of Part II of this Act shall not be deemed to have effected any change in the territories to which any law in force immediately before the appointe....
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....e Central Government vide Notification No. S.O. 827(E), dated 14th September, 2000 published in the Gazette of India, Extraordinary Part II sec.3(ii) with 1st November, 2000 as the appointed date. Accordingly, on 1st November, 2000 the erstwhile State of Madhya Pradesh was bifurcated and divided into the reorganised State of Madhya Pradesh and the new State of Chhattisgarh. The political map of the country underwent a change. The reorganised State of Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors. Page 9 of 38 Madhya Pradesh and the new State of Chhattisgarh were described as "successor State" vide clause (j) to Section 2 of the Reorganisation Act. The transferred territories, which were to form part of the State of Chhattisgarh, were demarcated and specified in Section 3 of the Reorganisation Act. As per Section 4, the reorganised State of Madhya Pradesh was to comprise of the existing territories other than those specified in Section 3 i.e., the territories which shall now form part of the State of Chhattisgarh. The expression "law" as defined in clause (f) to Section 2 of the Reorganisation Act included any enactment, ordinance, regulation, order, notification, etc.....
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....ay, by order, make such adaptations and modifications of the law, whether by way of repeal or amendment, as may be necessary or expedient, and thereupon every such law shall have effect subject to the adaptations and modifications so made until altered, repealed or amended by a competent legislature or other competent authority. The language in these sections is clear and unambiguous. These sections provide that the laws which were applicable to the undivided State of Bihar would continue to apply to the new States created by the Act. The laws that operated continue to operate notwithstanding the bifurcation of the erstwhile State of Bihar and creation of the new State of Jharkhand. They continue in force until and unless altered, repealed or amended. It is not disputed before us and indeed it cannot be disputed in view of the wide definition given to "law" in Section 2(f) of the Act that the notification issued under Section 7(3)(b) of the Bihar Finance Act, 1981 is law within the meaning of Sections 84 and 85 of the Act. Thus, the notification published in the Bihar Gazette on 22-12-1995 bearing SO No. 478 continues to operate in the State of Jharkhand till such time as it is alt....
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....of Planning and Dhayanand v. Union of India. In the first of these cases i.e. in State of Punjab v. Balbir Singh this Court was concerned with an administrative order and not a law with which we are concerned in the instant case. Section 88 of the Punjab Reorganisation Act was noticed as also the definition of law under Section 2(g) of that Act. Section 2(g) of that Act did not define law as widely as it has been defined under Section 2(f) of the Act. This Court agreed with the High Court that the impugned administrative orders in question were not law within the meaning of Section 2(g) of that Act and hence, were not saved by Section 88. However, this Court held that when there is no change of sovereignty and it is merely an adjustment of territories by reorganisation of a particular State, the administrative orders made by the Government of the erstwhile State continue to be in force and effective and binding on the successor States until and unless they are modified, changed or repudiated by the Governments of the successor States. This Court observed that no other view is possible to be taken as that will merely bring about chaos in the administration of the new States. Their L....
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....te in the State of Jharkhand and the appellants or respondents concerned, as the case may be, must be held entitled to the benefits and incentives envisaged by the said notification. The submission which found favour with the High Court of Jharkhand at Ranchi in Civil Appeal No. 3765 of 2003 is that the statutory notification issued by the erstwhile State of Bihar envisaged only intra-State sale transactions and not inter-State sale transactions. With the coming into existence of two States, incentive by way of exemption from payment of sales tax cannot be claimed in respect of transactions which can now be categorised as inter-State sale transactions. The submission overlooks the provisions of Sections 84 and 85 of the Act, which create a legal fiction. It is well settled that in interpreting a provision creating a legal fiction, the court must ascertain the purpose for which the fiction is created and having done so, to assume all those facts and consequences which are incidental or inevitable corollaries to the giving effect to the fiction. When the law requires that an imaginary state of affairs should be treated as real, then unless prohibited from doing so, one must ....
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....r amending the law or by altering, repealing or amending it by legislation. We have, therefore, no doubt that the High Court of Jharkhand at Ranchi was wrong in dismissing the writ petition on the ground that the notification of 22-12-1995 could not apply to inter-State sale transactions. 30. We have carefully considered the decisions relied upon by Shri Rakesh Dwivedi in Rattan Lal & Co. v. Assessing Authority, State of Mysore v. P.B. Hussain Kunhi & Co. and CST v. Minerva Minerals and we find that none of those decisions in any manner advances the case of the State. The decisions in those cases depended on the interpretation of the provisions of the Acts concerned which were not at all similar to the provisions with which we are concerned in the instant appeals. In Civil Appeal No. 2450 of 2003, the High Court of Patna on a similar ground has rejected the claim of the appellants. It noticed the earlier decision of the High Court, but distinguished the same on the ground that in the case in hand, the industrial unit was situated in the State of Jharkhand while the benefit was being claimed in the State of Bihar. In view of our earlier findings, this would not be a relevan....
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....ber, 2002 with effect from 1st November, 2000, the relevant portion of which reads as under: "2. The laws, as amended from time to time, specified in the Schedule to this order, which are in force in the State of Madhya Pradesh immediately before the formation of the State of Chhattisgarh, are hereby extended to and shall be in force in the State of Chhattisgarh until repealed or amended. Subject to the modifications that in all the laws for the words "Madhya Pradesh" wherever they occur the word "Chhattisgarh" shall be substituted. 3. Anything done or any action taken (including any appointment, notification, notice, order, rule, form, regulation, certificate or licence) in exercise of the powers conferred by order under the laws specified in the Schedule shall continue to be in force in the State of Chhattisgarh." The Schedule to the said Notification, it was highlighted, included the Sales Tax Act and the rules framed thereunder. Accordingly, the Adaptation of Laws Order states that subject to the modification in the form of substitution of the word "Madhya Pradesh" with the word "Chhattisgarh", "the law" would continue to apply and had remained in force and....
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....rt in Sri Peera Mohammad Mahamood Saheb v. The State of Andhra Pradesh 1960 (11) STC 456, which we would advert to at the appropriate stage. 14. Having considered the contention of the parties and in the context of Sections 78, 79, 80, 85 and 86 of the Reorganisation Act, we feel that the stand taken by the State of Madhya Pradesh and the State of Chhattisgarh is correct and merits acceptance. We have already reproduced the aforesaid provisions and partly interpreted them in paragraphs 9 and 10 and would now proceed to interpret Sections 78 and 79 of the Reorganisation Act. Section 78 of the Reorganisation Act consist of two parts. The first part states that the provisions of the Reorganisation Act shall not be deemed to have affected any change in the territories to which any law in force immediately before the appointed date extends or applies. In other words, the law in force before the appointed date, which in the present case is 1st November, 2000, would continue to apply to the successor or reorganised State of Madhya Pradesh as it existed before bifurcation. This is natural and normal as the laws enacted by the legislature and the executive of the State of Madhya Pradesh ....
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....s fiction beyond the legitimate field and the purposes for which the legislature had adopted the fiction. The purpose and objective for creating fiction must be kept in mind. In the present enactment, the object and purpose of the deeming provision envisaged in Section 78 of the Reorganisation Act is limited and restricted to the enforcement of enactment/laws as they existed in the unified State of Madhya Pradesh to the new State of Chhattisgarh, and nothing more and beyond. 16. Section 79 of the Reorganisation Act states that the appropriate Government of the reorganised State of Madhya Pradesh and the new State of Chhattisgarh may, before the expiration of two years from the appointed date, by an order, as may be necessary or expedient, make such adaptations or modifications in the earlier laws enacted in the unified State of Madhya Pradesh by way of repeal or amendment. Thereupon, every law shall have effect subject to the adaptations or modifications made, until further repealed, modified or amended by the competent legislature or other competent authority. Explanation to the said section states that 'appropriate Government' in respect of any law means the Central Government....
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.... No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. (2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter- State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29-A) of Article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify." As per the said Article, states are not competent to enact any legislation relating to the taxation of 'inter-state sales', an expression which, in the context of the C....
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....as some portion of the territories forming part of the existing state would now form part of the newly formed state or get merged in a new state. In the latter case, the laws which were applicable to the territories of the reorganised state would continue to apply to the territories of the new state until the newly created state adapts or subject to its competency amends or repeals the existing and applicable laws. It was held: "36. At the cost of repetition, we may mention that under Article 3 of the Constitution, Parliament can alter, amend, amalgamate, form new States, diminish or increase area of a State. The principle of "clean slate" as applicable in international law is not applicable when reorganisation takes place under Article 3 of the Constitution. The reorganised States do not usually start as tabula rasa, rather they are successors of a pre-existing erstwhile States. Under BROA, Jharkhand was carved out of Bihar and the other separate States came into existence on 15-11-2000. If the laws in force were to lapse on the date the division was effected, a chaotic situation would have emerged inasmuch as the newly created State would be rendered a State without l....
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.... treaty obligations or rights of a predecessor state, is different from the adjustment of territories which the Parliament undertakes and enforces under Article 3. The reorganised states do not usually start as tabula rasa, rather they are successors of the pre-existing erstwhile States. Disorderly and chaotic situation would erupt if the new state was to be created without any laws as on the date of its creation. To overcome this interregnum and vacuum, the Reorganisation Act(s) uniformly contain provisions which create a legal fiction to the extent that the reorganisation of the State would not affect the applicability of laws to all the territories included within it before and even after the reorganisation. However, this is subject to another dictum/rule that the existing laws as earlier applicable to the territories would be applicable to the new state until the new state provides for adaptation or modification of the law by way of repeal or amendment. The time period provided for such adaptations and modifications is generally two years from the appointed day, i.e. the day by which the Central Government in the Official Gazette provides for the creation of the two states by t....
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....cation to sales in the State of Madras, as it would be incompetent to the Legislature of Madras to enact a law to operate in another State. But it is argued that S.53 of the Andhra State Act, 1953 on its true interpretation enacts that though for political purposes Andhra is to be regarded as a separate State, for the enforcement of laws as they stood on that date it should be deemed to be a part of the State of Madras. We do not agree with this interpretation. In our opinion, S. 53 merely provides that the laws in existence in the territories which were constituted into the State of Andhra should continue to operate as before. In fact, by an Adaptation Order issued on November 12, 1953, even the name of Andhra was substituted for Madras in the Madras General Sales Tax Act. There is no substance in this contention." 22. In the context of the above provisions of the Reorganisation Act, we would now reproduce relevant portion of the judgment of the Division Bench of High Court of Andhra Pradesh in Sri Peera Mohammad Mahamood Saheb v. The State of Andhra Pradesh (supra), which had also dealt with the situation pursuant to bifurcation of the State of Madras into the reorganised Stat....
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....titutional existence as a separate state and that till a new law was enacted, the two States were to be treated as one political State as it was before the reorganisation. The sale transactions which were hitherto intra-state sales being within the unified State of Bihar, would become inter-state transactions once the two new States had come into existence. Provisions do not stipulate that such transactions would continue to be treated as intra-state transactions notwithstanding creation of the new State. 24. With respect to reasoning given in paragraph 30 in Swarn Rekha Cokes and Coals Pvt. Ltd. (supra), we would acknowledge that creation of a new State was an unforeseen event and could give rise to unusual situations, but this cannot be a ground and reason to treat inter-state sales between the two successor states as intra-state sales. This would be contrary to the Constitution and even the Statute i.e. the Reorganisation Act. Whenever a new State is created, there would be difficulties and, issues would arise but these have to be dealt within the parameters of the constitutional provisions and the law and not by negating the mandate of the Parliament which has created the ne....