REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.         5302      OF 2019 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 23592 OF 2014)

THE  STATE  OF  MADHYA  PRADESH AND OTHERS

…..            APPELLANT(S)

VERSUS

LAFARGE DEALERS ASSOCIATION AND OTHERS …..        RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 460 OF 2005

CIVIL APPEAL NO. 461 OF 2005

CIVIL APPEAL NO. 7073 OF 2005

CIVIL APPEAL NO. 2343 OF 2007

CIVIL APPEAL NO.         5303                OF 2019 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO.10520 OF 2013)

CIVIL APPEAL NO.         5304                OF 2019 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 1334 OF 2014)

CIVIL APPEAL NO.         5305                OF 2019 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 10165 OF 2014)

CIVIL APPEAL NO.         5306                OF 2019 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 23297 OF 2014)

CIVIL APPEAL NO.         5308                OF 2019 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 6729 OF 2016)

A N D

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors. Page 1 of 38

CIVIL APPEAL NO.         5307                OF 2019 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 16550 OF 2016)

J U D G M E N T

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.  

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors. Page 2 of 38

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 recording  that  on

enforcement of the Reorganisation Act, two separate states viz.,

the State of Madhya Pradesh and the State of Chhattisgarh had

come into existence as postulated by the Constitution of India and

hence, benefit of the exemption or deferment of sales tax would

be restricted and confined to the boundaries/limits of the state in

which the  unit  was located and  would  not  operate  beyond the

limits of the state boundary. It was observed that any trade and

movement of goods between the two states henceforth would be

inter-state trade and not intra-state trade and the provisions of the

Reorganisation  Act  had  not  removed  and  eclipsed  this  legal

position but had a limited effect to treat the laws in operation in the

State of  Madhya Pradesh as equally  applicable to the State of

Chhattisgarh.

4. The other set of appeals arising from Special Leave Petition (Civil)

Nos.  10520  of  2013,  1334,  10165,  23297  of  2014,  6729  and

16550  of  2016  have  been  preferred  by  the  State  of  Madhya

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Pradesh and the State of Chhattisgarh impugning decisions of the

High  Court  of  Madhya  Pradesh,  which  have  in  view  of  the

pronouncement of this Court in  Commissioner of Commercial

Taxes, Ranchi and Another v. Swarn Rekha Cokes and Coals

Pvt.  Ltd.  and  Others1 taken  a  contrary  view  and  held  that

notwithstanding  the  creation  of  the  two  states,  exemption  or

deferment of tax notifications issued before the bifurcation would

continue to apply in  the new state and that  for  the purpose of

sales tax, the two states were deemed to be one because of the

legal  fiction  envisaged  vide  Sections  78  and  79  of  the

Reorganisation Act.

5. At this stage, it would be appropriate to mention that a Division

Bench of this Court  (Ashok Bhan and V.S. Sirpurkar, JJ.)  vide

order dated 12th September, 2007 had observed that certain facts

and provisions  of  law which  were  not  taken  note  of  in  Swarn

Rekha’s case (supra), had come to light and therefore they had

thought it appropriate to refer the appeals to a larger Bench for

consideration.

6. Before we deal with the rival contentions, it would be appropriate

to  notice  and  take  on  record  the  undisputed  position.  State  of

1 (2004) 6 SCC 689 Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors. Page 4 of 38

Madhya Pradesh in exercise of powers conferred under Section

12  of  the  Madhya  Pradesh  General  Sales  Tax  Act,  1958  and

Section 8(5) of the Central Sales Tax Act, 1956 (for convenience

we would refer to the two  enactments as the “Sales Tax Act” for

short),  with  a  view  to  attract  investors  and  increase  industrial

output in the State, had vide notification dated 19 th 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 Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors. Page 5 of 38

noticed  above,  the  precise  issue  before  us  is  whether  these

industrial units, which were granted exemption and were after the

bifurcation located in the reorganised State of Madhya Pradesh or

the new State of Chhattisgarh, would continue to enjoy the benefit

of exemption/deferment of tax in the other state while conducting

inter-state  transaction(s)  from the state  they are  located to  the

new State  of  Chhattisgarh or  the reorganised State  of  Madhya

Pradesh, as the case may be.

8. Before we dwell into the respective contentions and elaborate our

reasons, it would be appropriate to reproduce relevant provisions

of  the  Reorganisation  Act,  viz.  Sections  2(e),  (f),  (j)  and  (k),

Sections 3, 4 and 5 and Sections 78, 79, 80, 85 and 86(1) which

are as under:

“S  ection 2 (e), (f), (j) and (k) of the Reorganisation Act

Part I PRELIMINARY

2.  Definitions.  —In  this  Act,  unless  the  context otherwise requires, —

xx xx xx

(e)  “existing  State  of  Madhya  Pradesh”  means  the State  of  Madhya  Pradesh  as  existing  immediately before the appointed day;  

(f) “law” includes any enactment, ordinance, regulation, order,  bye-law,  rule,  scheme,  notification  or  other instrument  having,  immediately  before  the  appointed

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors. Page 6 of 38

day, the force of law in the whole or in any part of the existing State of Madhya Pradesh;

xx xx xx

(j) “successor State”, in relation to the existing State of Madhya Pradesh, means the State of Madhya Pradesh or Chhattisgarh;  

(k) “transferred territory” means the territory which on the appointed day is transferred from the existing State of Madhya Pradesh to the State of Chhattisgarh;

Sections 3, 4 and 5 of the Reorganisation Act  

Part II REORGANISATION OF THE STATE OF MADHYA

PRADESH

3.  Formation of Chhattisgarh State.— On and from the appointed day, there shall be formed a new State to be known as the State of Chhattisgarh comprising the following  territories  of  the  existing  State  of  Madhya Pradesh, namely:—  

Bastar, Bilaspur, Dantewada, Dhamtari, Durg, Janjgir- Champa,  Jashpur,  Kanker,  Kawardha,  Korba,  Koriya, Mahasamund,  Raigarh,  Raipur,  Rajnandgaon  and Surguja districts, and thereupon the said territories shall cease to form part of the existing State of Madhya Pradesh.

4. State of Madhya Pradesh and territorial divisions thereof.— On and from the appointed day, the State 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

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors. Page 7 of 38

(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  appointed  day  extends  or applies, and territorial references in any such law to the State  of  Madhya  Pradesh  shall,  until  otherwise provided  by  a  competent  Legislature  or  other competent  authority  be  construed  as  meaning  the territories within the existing State of Madhya Pradesh before the appointed day.  

79.  Power  to  adapt  laws.— For  the  purpose  of facilitating  the  application  in  relation  to  the  State  of Madhya  Pradesh  or  Chhattisgarh  of  any  law  made before the appointed day, the appropriate Government may, before the expiration of two years from that day, 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.  

Explanation.  —  In  this  Section,  the  expression “appropriate Government” means as respects any law relating to a matter enumerated in the Union List, the Central Government, and as respects any other law in its application to a State, the State Government.  

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors. Page 8 of 38

80.  Power to construe laws.—  Notwithstanding that no provision or  insufficient  provision has been made under  section  79  for  the  adaptation  of  a  law  made before  the  appointed  day,  any  court,  tribunal  or authority, required or empowered to enforce such law may,  for  the  purpose  of  facilitating  its  application  in relation  to  the  State  of  Madhya  Pradesh  or Chhattisgarh, construe the law in such manner, without affecting  the  substance,  as  may  be  necessary  or proper in regard to the matter before the court, tribunal or authority.

85. Effect of provisions of the Act inconsistent with other  laws.—  The  provision  of  this  Act  shall  have effect notwithstanding anything in consistent therewith contained in any other law.  

86. Power to remove difficulties.— (1) If any difficulty arises in giving effect to the provisions of this Act, the President may, by order, do anything not in consistent with  such  provisions  which  appears  to  him  to  be necessary or expedient for the purpose of removing the difficulty:  Provided that no such order shall  be made after the expiry of  a period of  three years from the appointed day.”

9. The  Reorganisation  Act,  which  was  to  commence  from  the

appointed  day,  was  notified  by  the  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., in force immediately before the appointed

day in the whole or any part of the erstwhile or unified State of

Madhya Pradesh. The law by definition would include delegated

legislation and also the exemption notification issued under the

Sales Tax Act, and the certificate of eligibility for exemption from

tax issued under the Sales Tax Act.

10. Section 5 of the Reorganisation Act states that on and from the

appointed day, in the First Schedule to the Constitution under the

heading “THE STATES” after entry 25, entry 26 shall be inserted

by mentioning the State of Chhattisgarh which shall comprise of

the territories  specified  in  Section  3  of  the  Reorganisation  Act.

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  10 of 38

Similarly,  in  relation  to  and  in  the  case  of  Madhya  Pradesh,

necessary changes will be made in the territories forming part of

the State by excluding the territories specified in Section 3 of the

Reorganisation Act.

11. Before interpreting Sections 78 and 79 of the Reorganisation Act

which  are  in  pari  materia  to  Sections  84  and  85  of  the  Bihar

Reorganisation Act, 2000, we would like to reproduce paragraphs

26, 27, 28, 29 and 30 of  Swarn Rekha  (supra), which read as

under:

“26. The question then arises, as to what is the true meaning and import of Sections 84 and 85 of the Act?

27. We have earlier reproduced Sections 84 and 85 of the Act. As earlier noticed, Sections 3 to 6 which form part of Part II  of the Act provide for the formation of new States to be known as the State of Jharkhand and the State of Bihar. The territories specified in Section 3 constitute  the  new  State  of  Jharkhand  and  the remaining territories fall within the territory of the State of  Bihar.  However,  Section  84  in  express  terms, provides  that  the  provisions  of  Part  II  shall  not  be deemed to have effected any change in the territories to  which  any  law  in  force  immediately  before  the appointed day extended or applied and the territorial references in any such law to the State of Bihar shall, until otherwise provided by a competent legislature or other  competent  authority,  be  construed as  meaning the territories within the existing State of Bihar before the  appointed  day.  Section  85  provides  that  for  the purpose of facilitating the application in relation to the State of Bihar or Jharkhand of any law made before the appointed  day,  the  appropriate  Government  may, before the  expiration  of  two years  from that  day,  by order, make such adaptations and modifications of the law, whether by way of repeal or amendment, as may

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  11 of 38

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  altered,  repealed or amended.  By  virtue  of  Section  84,  the  territorial references  in  any  such  law  (which  includes  the notification in question), to the State of Bihar shall be construed as meaning the territories within the existing State of Bihar before the appointed day, until otherwise provided by a competent legislature or other competent authority.  A conjoint  reading of  both these provisions makes it abundantly clear that the territorial references in any law in force immediately before the appointed day must be construed as meaning the territories within the existing State of Bihar before the appointed day. To facilitate  their  application  in  respect  of  the  State  of Bihar or Jharkhand, the appropriate Government may, before the  expiration  of  two years  from that  day,  by order, make such adaptations and modifications of the law as it may consider necessary or expedient by way of repeal or amendment. Till such law is so repealed or amended in accordance with law, it shall have effect. After  their  amendment  or  alteration,  they  shall  have effect  subject  to  the  adaptations  and  modifications made. We, therefore, find no difficulty in holding that the  notification  of  the  Government  of  Bihar  issued under Section 7(3)(b) of the Bihar Finance Act, 1981 and published in the gazette on 22-12-1995 being SO No. 478 is law as defined by Section 2(f) of the Act.

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The said notification holds the field and applies to all the territories which comprised the undivided State of Bihar. The States of Bihar and Jharkhand have been vested  with  power  to  make  such  adaptations  and modifications  of  the  law  as  they  may  consider necessary or expedient. This they can do by issuance of  order  before the expiration of  two years  from the appointed day. After the adaptations and modifications of the law, the law shall have effect as so modified or adapted  till  such  time as  a  competent  legislature  or other  competent  authority  further  alters,  repeals  or amends such law.

28.  This is not the first time that a provision such as Section 84 of the Act has come up for interpretation by this  Court.  Section  88  of  the  Punjab  Reorganisation Act, 1966 is also identically worded as Section 84 of the  Act.  That  provision  came  up  for  consideration before this Court in at least three decisions which have been brought to our notice, namely, State of Punjab v. Balbir  Singh,  Sher  Singh v.  Financial  Commr.  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 Lordships found no principle in support of the stand that administrative orders made by the  Government  of  the  erstwhile  State  automatically

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  13 of 38

lapsed and were rendered ineffective on the coming into  existence  of  the  new  successor  States.  Their Lordships further distinguished a case where there was no  change  of  sovereignty  and  there  was  merely  an adjustment  of  territories  by  the  reorganisation  of  a particular State, from a case of absorption of one State in  another  by  accession,  conquest,  merger  or integration. The same view was taken by this Court in the other two judgments referred to earlier. We are of the view that the principles laid down in  Balbir Singh case fully apply to the facts of this case having regard to the identical legislative provision and, particularly so when the  notification  in  question  is  by  definition  law and not a mere administrative order.

29.  The  next  question  which  arises  is  whether  the aforesaid notification has been altered or modified by the State  of  Jharkhand.  It  was sought  to  be argued before us that the State of Jharkhand has announced its own industrial  policy on 25-8-2001 and, therefore, the industrial policy of 1995 and the notification bearing SO No.  478 dated 22-12-1995 issued under Section 7(3)(b) of the Act will have no legal force in the State of Jharkhand. The High Court in  Swarn Rekha case has considered  this  aspect  of  the  matter  and  we  find ourselves in complete agreement with the view taken by the High Court.  There is  nothing in  the industrial policy of 2001 which alters, amends or repudiates the notification  dated  22-12-1995.  It  deals  with  new industrial units set up after 15-11-2000 and, therefore, whatever benefits or incentives are provided for in the said policy are applicable to new industrial units set up after  15-11-2000.  In  the  instant  case,  we  are concerned  with  industrial  units  set  up  before  15-11- 2000  and  which  were  found  eligible  for  grant  of exemption certificate under the industrial policy of the State of Bihar of the year 1995. Moreover, the industrial policy of the State of Jharkhand will  not apply to the units  already  existing  before  that  date.  In  these circumstances  in  the  absence  of  anything  in  the Industrial Policy, 2001 of the Government of Jharkhand or in the notification or order issued by the Government of Jharkhand, Notification No. SO No. 478 dated 22- 12-1995  must  continue  to  operate  in  the  State  of Jharkhand  and  the  appellants  or  respondents concerned, as the case may be, must be held entitled

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  14 of 38

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  also  imagine  as  real  the consequences and incidents which, if the putative state of  affairs  had  in  fact  existed,  must  inevitably  have flowed from or accompanied it. As Lord Asquith in East End Dwellings Co. Ltd. v.  Finsbury Borough Council, All  ER at p.  589 observed that  having done so, you must not cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. Section 84 bids us to imagine that despite the  division  of  the  erstwhile  State  of  Bihar  into  two States,  any  law  in  force  immediately  before  the appointed day, notwithstanding territorial references in them, shall, until otherwise provided by the competent legislature or other competent authority, be construed as meaning the territories within the existing State of Bihar  before  the  appointed  day.  In  simple  words, though the law may refer  to  the State  of  Bihar,  and though the State of Bihar has been bifurcated into two by creating the State of Jharkhand, the laws in force before the appointed day must continue to operate in the territories which formed the erstwhile State of Bihar. This, of course, is subject to amendment, alteration or repudiation  by  a  legislature  or  other  competent authority.  The  statutory  notification  relied  upon, therefore,  continues  to  operate  throughout  the

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  15 of 38

territories which earlier constituted the State of Bihar. Under Section 85, they shall continue to operate until repealed  or  amended  in  the  manner  provided.  As  a natural consequence, the entrepreneurs are entitled to the  benefits  and  incentives  provided  in  the  said notification. Having regard to the overriding provisions of  this  Act,  as  envisaged  under  Section  91,  the statutory  notifications  must  prevail  and  the  benefits flowing therefrom must accrue to the beneficiaries. We must not permit our mind to boggle by imagining that what was one State earlier has now become two and consequently  what  were intra-State  sale  transactions earlier are now inter-State sale transactions. If any law in force before the appointed day must have effect in the absence of  its modification or  repeal,  the benefit under that law must flow notwithstanding the fact that in  reality  intra-State  sale  transactions  may  have become  inter-State  sale  transactions.  Law  gives authority  to  the  State  concerned  to  bring  about  a change  in  the  state  of  affairs,  if  it  so  considers necessary or expedient by modifying or 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  relevant consideration for rejecting the writ petition. Moreover, if

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  16 of 38

this  principle  were  to  be  upheld,  it  would  result  in arbitrary results inasmuch as the entrepreneurs whose industrial units operate in the State of Bihar will get the benefit  of  exemption  from  payment  of  sales  tax  on purchase of raw materials in the State of Jharkhand, but their counterparts in the State of Jharkhand would not be entitled to such benefit. We must not lose sight of the fact that an unforeseen event may give rise to unusual  situations.  Faced  with  such  situations,  the legislature  has  to  find  appropriate  methods  and solutions to deal with them. When the State of Bihar announced its industrial policy in the year 1995, it could not  foresee  that  the  State  will  be  divided five  years later.  But  when  the  division  of  the  State  became  a reality, Parliament had to make appropriate provisions to carry on the administration in the two States. If the laws in force were to lapse on the day the division was effected,  a  chaotic  situation  would  have  emerged inasmuch  as  the  newly  created  State  would  be rendered  a  State  without  laws.  It  is,  therefore,  that provisions  like  Sections  84  and  85  of  the  Act  are enacted to maintain continuity, and at  the same time authorise the States to make such modifications and adaptations  as  are  considered  necessary  by  mere issuance of orders within two years, and thereafter by legislation  or  exercise  of  power  by  the  competent authority.  Such  provisions  have  necessarily  to  be incorporated in legislations relating to reorganisation of States.  It  is,  therefore,  appropriate  that  such legislations  must  be  construed  in  the  light  of  the unusual  situation  created  by  the  creation  of  a  new State and the object sought to be achieved.”

12. Relying upon the aforesaid ratio and interpretation of Sections 78

to 80, 85 and 86 of the Reorganisation Act, learned counsel for the

private parties/assessee have submitted that the Reorganisation

Act did not withdraw and negate the benefit of exemption which

was already granted in respect of the entire area forming part of

unified State of Madhya Pradesh. Provisions of the Reorganisation Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  17 of 38

Act protect and enforce the “law” which included the exemption

notification in force in the unified State of Madhya Pradesh on the

appointed day.  Reliance was placed on the Adaptation of  Laws

Order,  2000  Notification  No.  F1/17/-2000/C.Tax/V  dated  30th

November, 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 would be effective for the

balance period of 11 years or till the quantum of exemption was

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  18 of 38

reached. Further, Section 80 of the Reorganisation Act empowers

the court, tribunal or authority to enforce “the law” for the purpose

of facilitating its application to the reorganised State of Madhya

Pradesh and the new State of Chhattisgarh in a manner, without

affecting its substance, as would be necessary or proper in regard

to  the matter  before  the court,  tribunal  or  authority.  This  prime

objective must keep in mind by the Court while interpreting the

provisions.  Section  85  in  the  nature  of  a  non-obstante or

overriding clause mandates that the provisions of the Act would

have effect notwithstanding anything inconsistent contained in any

other  law.  Therefore,  the  exemption  notification  must  be

interpreted as in force in both the States i.e. the reorganised State

of Madhya Pradesh and the new State of Chhattisgarh as if the

unified State of Madhya Pradesh had not been bifurcated.  This

would be the only way to reconcile Part X of the Reorganisation

Act and give effect to the legal fiction created by Sections 78 and

79  of  the  Reorganisation  Act.  Section  78  by  incorporating  a

deeming  fiction  enures  to  the  benefit  given  to  the  private

parties/assessee was not denied and fully given effect to.  

13. The two States, on the other hand, submit that with effect from the

appointed  day  the  new  State  of  Chhattisgarh  had  come  into

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  19 of 38

existence and hence the trade inter-se or between the territories

now forming part of the State of Chhattisgarh and the reorganised

State  of  Madhya Pradesh would be in  the nature  of  inter-state

sales  and  not  intra-state  sales.  The  Sales  Tax  Act  as  earlier

applicable  to  the  unified  State  of  Madhya  Pradesh  would  be

applicable in the reorganised State of Madhya Pradesh and the

new State of Chhattisgarh but within the territorial  confines and

limits of  the two States. Therefore,  the units situated within the

territorial  limits/boundaries  of  the  reorganised  State  of  Madhya

Pradesh and  the  new State  of  Chhattisgarh  would  continue  to

enjoy benefit of exemption in respect of intra-state trade within the

particular state and not in respect of inter-state trade between the

two states. This is the exact purport and meaning behind Section

78 and 79 of the Reorganisation Act.  Reliance was placed on the

judgment of the Division Bench of the Andhra Pradesh High Court

in  Sri  Peera  Mohammad Mahamood Saheb v.  The State  of

Andhra Pradesh2, 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

2  1960 (11) STC 456  Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  20 of 38

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 would obviously apply to the territories forming

part of it after its reorganisation/division. As a result of bifurcation

some areas that were earlier part of the State of Madhya Pradesh

would now form part of the new State of Chhattisgarh,  albeit this

would not matter and affect application of the laws as they applied

prior to the appointed date to the territories that required a part of

the reorganised State of Madhya Pradesh. Section 78, no doubt

uses  the  word  ‘deemed’  but  in  fact,  the  first  part  does  not

incorporate/create any deeming fiction and rather postulates and

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  21 of 38

states  the  obvious.  However,  the  second  part  of  Section  78

incorporates  a  deeming  fiction  when  it  states  that  territorial

references to such law in the State of Madhya Pradesh, i.e. the

laws  enacted  by  the  legislature  and  executive  of  the  State  of

Madhya Pradesh before bifurcation, shall until otherwise provided

by  the  competent  legislature  or  other  competent  authority  be

construed as meaning the territories within the existing state of

Madhya Pradesh before the appointed day. The effect, thereof, is

that the laws enacted by the State of Madhya Pradesh before the

reorganisation would continue to apply to the areas forming part of

the new State of Chhattisgarh and also the reorganised State of

Madhya  Pradesh,  but  within  their  territorial  confines.  The

enactments or the laws in force in the unified State of Madhya

Pradesh would continue to apply to the two states, not as one or

the same enactment or law, but as two separate enactments or

laws as applicable to two different states.  

15. The deeming fiction incorporated for the purpose of second

part of Section 78 does not postulate and state that the territories

which were earlier part of the State of Madhya Pradesh but now

form part of the State of Chhattisgarh would continue to remain

part  of  the reorganised State of  Madhya Pradesh or should be

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  22 of 38

treated as part and parcel of the other state. This is not what is

postulated in Section 78. Deeming fiction in terms of Section 78

does not extend and include any such stipulation, either expressly

or  by  necessary  implication.  Indeed,  this  is  not  even  remotely

visualised. This Court in B. S. Goraya vs. U.T. of Chandigarh3, in

paragraphs  6  to  8  had  observed  that  a  deeming  provision  is

operative for the purposes for which it  is created and the Court

should be careful not to extend this 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

3 (2007) 6 SCC 397 Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  23 of 38

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  in  respect  of  matters  enumerated  in  the

Union List and in respect of any law in its application to a state,

the State Government.

17. Section 80 relates to the construction or interpretation of the laws

made by the State of Madhya Pradesh before the appointed date.

It  states  that  notwithstanding  that  no  provision  or  insufficient

provision has been made in terms of Section 79, the court, tribunal

or authority interpreting such laws made by the unified State of

Madhya Pradesh would construe the law in such a manner as to

facilitate  its  application  to  the  successor  States  of  Madhya

Pradesh  and  Chhattisgarh  without  effecting  the  substance.  In

other words, the court, tribunal or authority while interpreting the

laws  would  go  by  the  substance  and  with  the  objective  and

purpose  of  facilitating  the  application  of  laws  in  relation  to  the

successor  States  of  Madhya  Pradesh  and  Chhattisgarh,

notwithstanding  the  fact  that  the  legislature  or  the  competent

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  24 of 38

authority in relation to the laws applicable to the States of Madhya

Pradesh and Chhattisgarh  have  not  passed  any  law before  or

within the expiration period of two years from the appointed date.  

18. Section 85 of the Reorganisation Act states that the provisions of

the  said  enactment  shall  have  effect  notwithstanding  anything

inconsistent contained in any other law. Therefore, the provisions

of the Reorganisation Act have been given primacy over any other

law. However, this primacy is not meant to denude and over-ride

the legal effect envisaged by the Constitution consequent to the

creation of the successor State of Madhya Pradesh and the State

of  Chhattisgarh  which  would  henceforth  have  separate

government(s)  comprising of  different  legislature and executive.

On and from the appointed date of 1st November,2000 any trade

between  the  State  of  Chhattisgarh  and  the  State  of  Madhya

Pradesh and vice-versa would be inter-state trade and not intra-

state  trade.  The  deeming  fiction  and  the  provisions  of  the

Reorganisation  Act  nowhere  postulate  that  the  trade  would

continue  to  remain  intra-state  trade  and  not  inter-state  trade

between the two States. In fact, any deeming fiction to the said

effect would have fallen afoul and would be contrary to Article 286,

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  25 of 38

as it stood before amendment on 16 th September, 2016 and reads

as under:

“286.  Restrictions as to imposition of tax on the sale or purchase of goods: -  

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  Constitution,  has  been

subject  matter  of  several  decisions  explaining  the  difference

between ‘intra-state’ and ‘inter-state’ sales. The expression ‘inter-

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  26 of 38

state’ trade has specific legal connotation and meaning. It refers to

transfer or movement of goods from one state to another. Such

transactions,  notwithstanding  that  the  situs  of  sale  would

necessarily be at a fixed location, are inter-state sale or trade and

not intra-state sale or trade. Thus, when there is a movement of

goods between the two states without there being a transfer of title

to the consignor or consignee, compliance would have to be made

with the relevant laws applicable to such inter-state transactions.

This position will  hold good and equally apply in respect of the

inter-state sales between the new State of Chhattisgarh and the

reorganised  State  of  Madhya  Pradesh  and  vice-versa.  The

movement of goods from one state to another is in the nature of

inter-state  sales.  The  fact  that  two  separate  states  are  formed

after  the  bifurcation,  which  were  once  a  single  entity  for  the

purpose of levying sales tax, would be of no consequence so as to

disturb the legal and constitutional impact by which two separate

States were created and the legal effect of Article 286 as regards

the inter-state character of inter-state transactions.  

19. Section  86  of  the  Reorganisation  Act  states  that  in  case  any

difficulty arises in giving effect to the provisions of the said Act, the

President may, by an order, do anything as may be necessary and

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  27 of 38

expedient  for  removing  the  difficulties.  However,  such  order

cannot be inconsistent with the provisions of the Reorganisation

Act. Proviso states that no order shall be made after the expiry of

three years from the appointed date.  

20. In Ranjan Sinha and Another v. Ajay Kumar Vishwakarma and

Others4, three Judges’ Bench of this Court have elucidated that

the Parliament, under Article 3 of the Constitution, is empowered

to form a new State by separation of territory from any State or by

uniting two or more States. Article 4 of the Constitution states that

the law made by the Parliament with reference to Article 3 may

contain  supplemental,  consequential  and  incidental  provisions.

When  the  territory  of  the  existing  State  is  reorganised  by  the

Parliament under Article 3, there is no change of sovereignty and it

is only a case of adjustment of territories 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

4 (2017) 14 SCC 774 Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  28 of 38

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 laws. To avoid such situation, provisions like Sections 84 and 85 of  BROA have been enacted to maintain continuity, and at the same time authorising the States to  make  such  modifications  and  adaptations  as  are considered  necessary  by  mere  issuance  of  orders within two years, and thereafter by legislation.”

This decision had referred to several earlier enactments by

the  Parliament  under  Article  3  beginning  with  the  States

Reorganisation Act, 1956 till the Bihar Reorganisation Act, 2000

which had similar provisions under the heading ‘Territorial extent

of  laws’  and  ‘Power  to  adapt  laws’ as  in  the  present  case.

Referring to  Section 84 of  the Bihar  Reorganisation Act,  2000,

which is identically worded as Section 78 of the Reorganisation

Act, this Court in Ranjan Sinha (supra) held as under:

“29.  Section 84 contains two legal fictions, first is that the  reorganisation  of  Bihar  would  not  affect  the applicability of laws made by the State of Bihar to all

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  29 of 38

territories included in it before reorganisation and after the  reorganisation.   In  other  words,  a  law  made  by Bihar  shall  be  applicable  to  all  the  territories  of  the erstwhile State of Bihar including the territories of the State  of  Jharkhand  even  after  reorganisation.  The second fiction is that until Jharkhand provides for it by way of amendment or otherwise, territorial reference in any  law  to  the  State  of  Bihar  shall  mean  all  the territories in Bihar before reorganisation.  For instance, if Bihar had made a law as applicable to entire Bihar, it shall apply to Bihar and Jharkhand until it is amended by the new State.  The territories to which the said Act is  made applicable  would  also  include the  territories which  were  included in  Jharkhand.  Section 85  is  an enabling provision which empowers both the States to make adaptations and modification of the law by way of amendment  to  the  law  as  applicable  to  the  newly formed State.”  

While  interpreting  Section  84  and  85  of  the  Bihar

Reorganisation Act, 2000 analogous to Section 78 and 79 of the

Reorganisation Act, this Court in Ranjan Sinha (supra) had dealt

with and affirmed the underlined theory of continuity of laws in the

new  state  after  or  post  the  reorganisation  observing  that  the

principle of  “clean state”,  as it  exists in the international  law in

relation to the state succession, which means that the successor

state generally does not inherit the prior 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

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  30 of 38

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

transfer of territories from one state to another.

21. The Constitutional Bench judgment in  M.P.V. Sundararamier &

Co. v. State of Andhra Pradesh and Another5,  had examined

and  rejected  several  contentions  of  the  dealers  carrying  on

business in the city of Madras for restraining the State of Andhra

from imposing sales tax on sales effected in favour of merchants

carrying  on  business  in  the  State  of  Andhra.   One  of  the

5 AIR 1958 SC 468 Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  31 of 38

contentions raised related to the true interpretation of Section 53

of the Andhra State Act, 1953, the argument being that though for

political purposes the State of Andhra was a separate State, but

for  enforcement  of  laws  as  they  stood  on  the  date  of

division/bifurcation, the State of Andhra was deemed to be a part

of the State of Madras. This contention was rejected holding that

the States of Andhra and Madras were two separate States and

were governed by two separate though identical Acts. Accordingly,

when  the  sales  tax  enactment  as  applicable  had  provided  for

single levy on successive sales of yarn, it would have application

to sales in the State of Madras or Andhra, as the case may be,

and not in the other State or inter-state sales.  Section 53 had

provided that the laws in existence in the territories which were

constituted and had become part  of  the State of  Andhra would

continue to be governed by the laws which were enacted by the

State of Madras. In terms of Section 53, the laws enacted by the

State of Madras would continue to operate as before. It had not

stipulated that the States would continue to be one. For clarity and

convenience,  we  would  reproduce  paragraph  60  of  the  said

judgment, which reads as under:

“60. (VI) Another contention urged by the petitioners is that the levy of tax proposed to be made by the Andhra State on the sale  of  yarn by them to  dealers  in the

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  32 of 38

State of  Andhra is illegal  because under the Madras Act and the Rules made thereunder, where there are successive sales  of  yarn the tax  can be imposed at only one point, and as the Government of Madras had already imposed a tax on the sale within that State, a second levy  on  the  selfsame goods  by  the  State  of Andhra  is  unauthorised  and  that  therefore  the threatened  proceedings  for  assessment  are incompetent.  This  contention  is  clearly  untenable. When  the  Madras  Act  provides  for  a  single  levy  on successive sales of yarn, it can have only application 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 State of

Madras  and  the  new  State  of  Andhra.  Referring  to  identical

provisions,  it  was held  that  Section 3 of  the Andhra State  Act,

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  33 of 38

1953  states  that  the  territories  enumerated  would,  from  the

appointed date i.e. 1st October, 1953, cease to be the territories of

the State of Madras and would be the territories of the new State

of Andhra. Further, the laws in force in the territories in the State of

Andhra prior to its constitution shall  continue to remain in force

even after  its creation. Accordingly,  one of the Acts namely the

Madras General Sales Tax Act, 1939, would continue to apply to

the new State of Andhra and the word ‘Madras’ used in said Act

would be replaced/substituted by the word ‘Andhra’. To this extent,

Section 53 of the Andhra State Act which is pari materia to Section

78 of the Reorganisation Act, 2000, declares that notwithstanding

the emergence of the State of Andhra, there shall be no change in

the laws in force. This provision was made for avoiding any hiatus

and  the  same  set  of  laws,  therefore,  would  continue  to  be

operative in the States of Madras and Andhra.

23. We have quoted the relevant portions of the judgment in the case

of Swarn Rekha Cokes and Coals Pvt. Ltd. (supra) and have no

difficulty in agreeing to the dictum as enunciated in paragraphs 26,

27 and 28, but find it difficult to agree with the ratio recorded in

paragraph  29.  The  effect  of  Sections  84  and  85  of  the  Bihar

Reorganisation Act, 2000 was to ensure continuity of laws enacted

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  34 of 38

by the unified State of Bihar in the new State of Jharkhand which

had been created by transfer  of  territories which earlier  formed

part of the State of Bihar. These sections incorporating a deeming

fiction  were  to  ensure  that  the  new State  of  Jharkhand  would

continue to be governed by the pre-existing laws as, otherwise,

there would be a disorderly and chaotic situation where the new

State would not be governed by any law.  This is the true effect of

the legal fiction created by Section 84 of the Bihar Reorganisation

Act, 2000, i.e., the reorganisation of the state would not affect the

applicability  of  the  existing  laws  in  the  state  to  all  territories

included within it  before and even after  the reorganisation. The

said fiction does not postulate and cannot be extended to imagine

that  for  the  purpose  of  sale  transactions  or  even  for  other

purposes,  the  new  state  did  not  have  any  political  and

constitutional 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.

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  35 of 38

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 new state in

terms of Article 3 of the Constitution. Creation of the new political

State  must  be  given  full  legal  effect.  We  would,  therefore,

respectfully overrule the contrary observations and ratio recorded

in paragraphs 29 and 30 in Swarn Rekha Cokes and Coals Pvt.

Ltd. (supra) in light of the legal position elucidated and explained

above.  

25. In the end, we must take note of one of the submissions made by

the  private  parties/assessee  that  under  the  exemption  clauses

even the inter-state transactions were entitled to some benefits.

This contention was not raised in the writ petition or even in the Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  36 of 38

pleadings before us and has been urged and argued for the first

time. We would not like to comment and decide this contention in

vacuum and leave it open to the private parties/assessee to raise

this plea before the authorities in appropriate proceedings under

the statute. In other words, the authorities would examine whether

the inter-state transactions were entitled to any benefit and if so,

whether  the  private  parties/assessee herein  fulfil  and meet  the

requirements to claim such benefit. We have not expressed any

opinion either way on this contention. It was pointed out that in

several cases adjudication orders may have been passed and the

private parties/assessee may not have preferred appeals in view

of the writ petitions filed by them and the present proceedings. As

recorded  above,  some  of  the  private  parties/assessee  had

succeeded before the High Court. We would observe that it will be

open to the private parties/assessee to challenge the adjudication

orders in accordance with law and if required, by filing application

under Section 14 of the Limitation Act, 1963, or other applicable

provisions of  the state  enactments for  exclusion of  time during

which the proceedings have remained pending before the High

Court and this Court. In such cases, it would be appropriate for the

authorities to exclude such time period as we are overruling the

Civil Appeal arising out of SLP (C) No. 23592 of 2014 & Ors.Page  37 of 38

ratio laid down in paragraphs 29 and 30 in Swarn Rekha Cokes

and Coals Pvt. Ltd. (supra).

26. Accordingly, the appeals arising from Special Leave Petition (Civil)

Nos.  10520  of  2013,  1334,  10165,  23297  of  2014,  6729  and

16550 of 2016 preferred by the State of Madhya Pradesh and the

State of Chhattisgarh are allowed and the Civil Appeal Nos. 460,

461,  7073 of  2005 and 2343 of  2007 preferred  by  the  private

parties/assessee  are  dismissed  in  terms  of  the  aforesaid

observations, findings and directions.  

......................................CJI (RANJAN GOGOI)

......................................J. (S. ABDUL NAZEER)

......................................J. (SANJIV KHANNA)

NEW DELHI; JULY 09, 2019.

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