# THE STATE OF MADHYA PRADESH AND OTHERS v. LAFARGE DEALERS ASSOCIATION AND OTHERS

- **Citation:** [2019] 18 S.C.R. 924
- **Court:** Supreme Court of India
- **Decided:** 2019-07-09
- **Case number:** Civil Appeal No. 5302 of 2019
- **Bench:** Ranjan Gogoi, S. Abdul Nazeer, Sanjiv Khanna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-state-of-madhya-pradesh-and-others-v-lafarge-dealers-association-and-others-33716
- **Pages:** 33

## Headnote

Taxation - Sales Tax - Madhya Pradesh Reorganisation Act,
2000 - ss.78, 79, 80, 85 and 86 - Bifurcation of erstwhile unified
State of Madhya Pradesh into two States, namely, a reorganised
State of Madhya Pradesh and the new State of Chhattisgarh in terms
of the Madhya Pradesh Reorganisation Act - Effect of, on exemption
or benefit of deferment of sales tax granted under Madhya Pradesh
Commercial Tax Act, 1994 read with the applicable rules - Deeming
provision envisaged in s.78 - Whether industrial units, which were
granted exemption and were after 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 - Held: No - The second part of s.78 incorporates a
deeming fiction, the effect whereof, is that the laws enacted by 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 -
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 intrastate trade and not inter-state trade between the two States - In
fact, any deeming fiction to the said effect would have fallen afoul
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and would be contrary to Art. 286 of the Constitution as it stood
before amendment on 16th September, 2016 - Madhya Pradesh
Commercial Tax Act, 1994 - Madhya Pradesh General Sales Tax
Act, 1958 - s.12 - Central Sales Tax Act, 1956 - s.8(5) - Constitution
of India - Art.286 (before amendment on 16-09-16) - Legal Fiction -
Deeming provision.
Taxation - Inter-state Sales - Reorganisation of States -
Creation of two new successor States from one State - Effect - Held:
Creation of a new State can 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 Art.3 of the Constitution - Creation of the new political State
must be given full legal effect - Constitution of India - Art.3.
Re-organization of States - Theory of continuity of laws in
new State after or post the reorganisation - Held: 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 adjustment of territories which the Parliament
undertakes and enforces u/Art. 3 - The reorganised states do not
usually start as tabula rasa, rather they are successors of the preexisting erstwhile States - 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 ano

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THE STATE OF MADHYA PRADESH AND OTHERS
v.
LAFARGE DEALERS ASSOCIATION AND OTHERS
(Civil Appeal No. 5302 of 2019)
JULY 09, 2019
[RANJAN GOGOI, CJI, S. ABDUL NAZEER AND
SANJIV KHANNA, JJ.]
Taxation - Sales Tax - Madhya Pradesh Reorganisation Act,
2000 - ss.78, 79, 80, 85 and 86 - Bifurcation of erstwhile unified
State of Madhya Pradesh into two States, namely, a reorganised
State of Madhya Pradesh and the new State of Chhattisgarh in terms
of the Madhya Pradesh Reorganisation Act - Effect of, on exemption
or benefit of deferment of sales tax granted under Madhya Pradesh
Commercial Tax Act, 1994 read with the applicable rules - Deeming
provision envisaged in s.78 - Whether industrial units, which were
granted exemption and were after 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 - Held: No - The second part of s.78 incorporates a
deeming fiction, the effect whereof, is that the laws enacted by 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 -
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 intrastate trade and not inter-state trade between the two States - In
fact, any deeming fiction to the said effect would have fallen afoul
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and would be contrary to Art. 286 of the Constitution as it stood
before amendment on 16th September, 2016 - Madhya Pradesh
Commercial Tax Act, 1994 - Madhya Pradesh General Sales Tax
Act, 1958 - s.12 - Central Sales Tax Act, 1956 - s.8(5) - Constitution
of India - Art.286 (before amendment on 16-09-16) - Legal Fiction -
Deeming provision.
Taxation - Inter-state Sales - Reorganisation of States -
Creation of two new successor States from one State - Effect - Held:
Creation of a new State can 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 Art.3 of the Constitution - Creation of the new political State
must be given full legal effect - Constitution of India - Art.3.
Re-organization of States - Theory of continuity of laws in
new State after or post the reorganisation - Held: 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 adjustment of territories which the Parliament
undertakes and enforces u/Art. 3 - The reorganised states do not
usually start as tabula rasa, rather they are successors of the preexisting erstwhile States - 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
- Madhya Pradesh Reorganisation Act, 2000 - ss. 78 and 79 -
Bihar Reorganisation Act, 2000 - ss.84 and 85 - Doctrines /
Principles - Theory of continuity of laws - Principle of "clean slate"
- Constitution of India - Art.3.
THE STATE OF MADHYA PRADESH v.
LAFARGE DEALERS ASSOCIATION
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Madhya Pradesh Reorganisation Act, 2000 - s.85 - Meaning
and effect of the primacy given to provisions of the Reorganisation
Act in terms of s.85 - Held: s.85 of the Reorganisation Act states
that provisions of the said enactment shall have effect
notwithstanding anything inconsistent contained in any other law
- Therefore, 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 (from the erstwhile unified State of
Madhya Pradesh) which would henceforth have separate
government(s) comprising of different legislature and executive.
Interpretation of Statutes - Pari materia provisions - Bihar
Reorganisation Act, 2000 - ss.84 and 85 - Bifurcation of erstwhile
unified State of Bihar into two States, namely, a reorganised State
of Bihar and the new State of Jharkhand - Effect and interpretation
of ss.84 and 85 of the Bihar Reorganisation Act which are analogous
to ss.78 and 79 of the Madhya Pradesh Reorganisation Act - Held:
The effect of ss.84 and 85 of the Bihar Reorganisation Act was to
ensure continuity of laws enacted 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 - Legal
fiction created by s.84 of the Bihar Reorganisation Act - 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 intrastate sales being within the unified State of Bihar, would become
inter-state transactions once the two new States had come into
existence - Madhya Pradesh Reorganisation Act, 2000 - ss.78 and
79.
Legal Fiction - Deeming provision - Purpose and objective
- Held: 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.
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Words and Phrases - 'Inter-state' trade - Meaning -
Difference between 'intra-State' and 'inter-State' sales - Held: As
per Art. 286 of the Constitution, States are not competent to enact
any legislation relating to taxation of 'inter-state sales' - The
expression 'inter-state' trade has specific legal connotation and
meaning - It refers to transfer or movement of goods from one State
to another - Taxation - Sales Tax - Constitution of India, 1950 -
Art. 286 (before amendment on 16-09-16).
Practice and Procedure - New Plea - Contention raised by
private parties/ assessee for the first time in Supreme Court - The
contention was not raised in the writ petition before the High Court
or even in pleadings before the Supreme Court - Supreme Court
declining to decide the contention and leaving it open to the private
parties / assessee to raise the plea before the authorities in
appropriate proceedings under the statute - Taxation - Sales Tax -
Inter-State transaction.
Disposing of the appeals, the Court
HELD:1.1. It was submitted by the two States that with
effect from the appointed day the new State of Chhattisgarh had
come into 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. They contended that
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. Accordingly,
it was contended by the two States that 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. The stand taken by the State of Madhya Pradesh
and the State of Chhattisgarh is correct and merits acceptance
on consideration of the case in the context of Sections 78, 79, 80,
85 and 86 of the Madhya Pradesh Reorganisation Act, 2000.
[Paras 13 and 14][946-D-H]
THE STATE OF MADHYA PRADESH v.
LAFARGE DEALERS ASSOCIATION
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1.2. Section 78 of the Madhya Pradesh Reorganisation Act
consists 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. 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. [Para
14][947-A-F]
1.3. The deeming fiction incorporated for the purpose of
second part of Section 78 of the Madhya Pradesh Reorganisation
Act 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 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. A deeming provision is operative for the purposes for
which it is created and the Court should be careful not to extend
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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. [Para 15][947-G-H;
948-A-C]
1.4. Section 79 of the Madhya Pradesh 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
in respect of matters enumerated in the Union List and in respect
of any law in its application to a state, the State Government.
[Para 16][948-C-E]
1.5. Section 80 of the Madhya Pradesh Reorganisation Act
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 authority in relation to
the laws applicable to the States of Madhya Pradesh and
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Chhattisgarh have not passed any law before or within the
expiration period of two years from the appointed date. [Para
17][948-F-G; 949-A]
1.6. Section 85 of the Madhya Pradesh 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 interstate 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 of the Constitution as it stood before amendment on
16th September, 2016. [Para 18][949-B-D]
1.7. As per Article 286 of the Constitution [as it stood before
amendment on 16th September, 2016], States are not competent
to enact any legislation relating to the taxation of 'inter-state
sales'. The expression 'inter-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 interstate 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
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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.
[Para 18][950-C-E]
1.8. Section 86 of the Madhya Pradesh 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 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. [Para 19][950-F-G]
2.1. The effect of Sections 84 and 85 of the Bihar
Reorganisation Act, 2000 (which are analogous to ss.78 and 79
of the Madhya Pradesh Reorganisation Act, 2000) was to ensure
continuity of laws enacted 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. The provisions
do not stipulate that such transactions would continue to be
treated as intra-state transactions notwithstanding creation of the
new State. [Para 23][954-G-H; 955-A-D]
THE STATE OF MADHYA PRADESH v.
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2.2. 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. The contrary
observations and ratio recorded in paragraphs 29 and 30 in Swarn
Rekha Cokes and Coals Pvt. Ltd. case are overruled in light of the
legal position elucidated and explained above. [Para 24][955D-F]
Commissioner of Commercial Taxes, Ranchi and Another
v. Swarm Rekha Cokes and Coals Pvt. Ltd. (2004) 6
SCC 689 : [2004] 2 Suppl. SCR 633 - overruled.
M.P.V. Sundararamier & Co. v. State of Andhra Pradesh
and Another AIR 1958 SC 468 : [1958] SCR 1422 -
followed.
Ranjan Sinha and Another v. Ajay Kumar Vishwakarma
and Others (2017) 14 SCC 774 : [2017] 7 SCR 194
and B. S. Goraya v. U.T. of Chandigarh (2007) 6 SCC
397 : [2007] 8 SCR 458 - relied on.
Sri Peera Mohammad B. S. Mahamood Saheb v. The
State of Andhra Pradesh 1960 (11) STC 456 - affirmed.
Case Law Reference
[2004] 2 Suppl. SCR 633
overruled
Para 4
1960 (11) STC 456
affirmed
Para 13
[2007] 8 SCR 458
relied on
Para 15
[2017] 7 SCR 194
relied on
Para 20
[1958] SCR 1422
followed
Para 21
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5302
of 2019.
From the Judgment and Order dated 16.07.2012 of the High Court
of Madhya Pradesh, Principal Seat at Jabalpur in Writ Petition No. 5308
of 2004(O).
With
Civil Appeal Nos. 461, 460, 7073 of 2005, 2343 of 2007, 5303,
5304, 5305, 5306, 5308 and 5307 of 2019.
Vivek K. Tankha, S. Ganesh, Sr. Advs., Harsh Parashar, Aman
Pandey, Bharat Sangal, Ms. Anindita Deka, Ms. Babita Kushwaha,
Navnit Kumar (for M/s. Corporate Law Group), Rohit Ghosh,
Mrs. Bina Gupta, Kshitij Vaibhav, Akshat Shrivastava, Ms. Pooja
Shrivastava, Ms. Manjeet Kirpal, Sunny Choudhary, Rahul Kaushik,
Nishanth Patil, Mrs. Swarupama Chaturvedi, B. S. Banthia, Advs. for
the parties.
The Judgment of the Court was delivered by
SANJIV KHANNA, J.
1. 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 recording that on enforcement of the Reorganisation Act, two
separate states viz., the State of Madhya Pradesh and the State of
THE STATE OF MADHYA PRADESH v.
LAFARGE DEALERS ASSOCIATION [SANJIV KHANNA, J.]
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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 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 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 19th February, 1991 formulated a policy for grant of
sales tax exemption to industrial units having fixed assets above Rs. 100
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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
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:
"Section 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,
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immediately before the appointed 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 (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.";
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(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.
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
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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 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
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mentioning the State of Chhattisgarh which shall comprise of the territories
specified in Section 3 of the Reorganisation Act. 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 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
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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 2212-1995 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. 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.
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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.