STATE OF MADHYA PRADESH AND OTHERS versus LAFARGE DEALERS ASSOCIATION AND OTHERS

Citation: [2019] 18 S.C.R. 924 · Decided: 09-07-2019 · Supreme Court of India · Bench: RANJAN GOGOI, S. ABDUL NAZEER, SANJIV KHANNA · Disposal: Disposed off

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2019] 18 S.C.R.
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 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
[2019] 18 S.C.R. 924
924
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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 pre-
existing 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 

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