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SUPREME COURT OF INDIA
RANJAN GOGOI, CJI., S. ABDUL NAZEER, SANJIV KHANNA, JJ.
THE STATE OF MADHYA PRADESH AND OTHERS – APPELLANT(S)
VERSUS
LAFARGE DEALERS ASSOCIATION AND OTHERS – RESPONDENT(S)
CIVIL APPEAL NO. 5302 OF 2019 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 23592 OF 2014) 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) CIVIL APPEAL NO. 5307 OF 2019 (ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 16550 OF 2016)
Decided On : 09-07-2019
(A) Madhya Pradesh Reorganisation Act, 2000 – Sections 78, 79, 80, 85 and 86 – Madhya Pradesh Commercial Tax Act, 1994 – Section 12 – Exemption/deferment of sales tax – Court, Tribunal or authority while interpreting laws would go by substance and with objective and purpose of facilitating application of laws in relation to successor States of Madhya Pradesh and Chhattisgarh, notwithstanding fact that Legislature or competent authority in relation to laws applicable to States of Madhya Pradesh and Chhattisgarh have not passed any law before or within expiration period of two years from appointed date – Provisions of Reorganisation Act have been given primacy over any other law – However, this primacy is not meant to denude and over-ride legal effect envisaged by Constitution consequent to creation of successor State of Madhya Pradesh and State of Chhattisgarh which would henceforth have separate government(s) comprising of different legislature and executive. (Paras 17 and 18)
(B) Madhya Pradesh Commercial Tax Act, 1994 – Section 12 – Madhya Pradesh Reorganisation Act, 2000 – Sections 78, 79, 80, 85 and 86 – Constitution of India – Article 286 – Exemption/deferment of sales tax – 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 situs of sale would necessarily be at a fixed location, are inter-State sale or trade and not intra-State sale or trade – When there is a movement of goods between two States without there being a transfer of title to consignor or consignee, compliance would have to be made with relevant laws applicable to such inter-State transactions – This position will hold good and equally apply in respect of inter-State sales between new State of Chhattisgarh and reorganised State of Madhya Pradesh and vice-versa – Movement of goods from one State to another is in nature of inter-State sales – Fact that two separate States are formed after bifurcation, which were once a single entity for the purpose of levying sales tax, would be of no consequence so as to disturb legal and constitutional impact by which two separate States were created and legal effect of Article 286 as regards inter-State character of inter-State transactions – Authorities would examine whether inter-State transactions were entitled to any benefit and if so, whether private parties/assessee herein fulfil and meet requirements to claim such benefit. (Paras 18 and 25)
(C) States Reorganisation Act, 1956 – Section 2 – Reorganisation of States – Reorganised States do not usually start as tabula rasa, rather they are successors of pre-existing erstwhile States – Disorderly and chaotic situation would erupt if new State was to be created without any laws as on the date of its creation – To overcome this interregnum and vacuum, Reorganisation Act(s) uniformly contain provisions which create a legal fiction to the extent that reorganisation of State would not affect applicability of laws to all territories included within it before and even after reorganisation – However, this is subject to another dictum/rule that existing laws as earlier applicable to territories would be applicable to new State until new State provides for adaptation or modification of law by way of repeal or amendment. (Para 20)
Facts of the Case:
Appeals relate to legal effect of bifurcation of State of Madhya Pradesh into successor State of Madhya Pradesh and State of Chhattisgarh by Madhya Pradesh Reorganisation Act, 2000 on exemption or benefit of deferment of sales tax granted under Madhya Pradesh Commercial Tax Act, 1994 read with applicable rules. Question to be answered is whether industrial unit in reorganised State of Madhya Pradesh and under the new State of Chhattisgarh would continue to avail benefit of such exemption or deferment even after bifurcation in both States, irrespective of location of industrial unit which would be in one of the two States.
Findings of Court:
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 two successor States as intra-State sales. This would be contrary to 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 constitutional provisions and law and not by negating mandate of Parliament which has created new State in terms of Article 3 of Constitution.
Result : Appeals Partly allowed.
JUDGMENT
SANJIV KHANNA, J.
Leave granted in all the special leave petitions.
2. This judgment would dispose of the afore-captioned appeals which relate to the legal effect of bifurcation of the State of Madhya Pradesh into the successor State of Madhya Pradesh and the State of Chhattisgarh by the Madhya Pradesh Reorganisation Act, 2000 (“Reorganisation Act”, for short) on exemption or benefit of deferment of sales tax granted under the Madhya Pradesh Commercial Tax Act, 1994 read with the applicable rules. The question to be answered is whether the industrial unit in the reorganised State of Madhya Pradesh and under the new State of Chhattisgarh would continue to avail the benefit of such exemption or deferment even after the bifurcation in both the states, irrespective of the location of the industrial unit which would be in one of the two states.
3. Civil Appeal Nos. 460, 461, 7073 of 2005 and 2343 of 2007 arise from the judgments of the Division Bench of the Madhya Pradesh High Court, Jabalpur Bench, upholding judgment of the learned Single Judge dismissing the Writ Petition by the manufacturer/dealer of cement inter-alia 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 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 Others, (2004) 6 SCC 689 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 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 d
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