Full Judgment Text
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CASE NO.:
Appeal (civil) 7798 of 2002
PETITIONER:
The Comm. of Commercial Tax, Ranchi & Another
RESPONDENT:
M/s Swarn Rekha Cokes & Coals Pvt. Ltd. & Others
DATE OF JUDGMENT: 07/05/2004
BENCH:
N.SANTOSH HEGDE & B.P. SINGH.
JUDGMENT:
JUDGMENT
WITH
CIVIL APPEAL No.2450/2003
The Associated Cement Cos. Ltd. \005 Appellant
Versus
The State of Bihar and Others \005 Respondents
WITH
CIVIL APPEAL NO. 3765/2003
Bhagwati Coke Industries
Pvt. Ltd. and Others \005 Appellants
Versus
State of Jharkhand and others \005 Respondents
WITH
Civil Appeal\005\005\005/2004@ S.L.P.(c) No.13401/2003
The State of Jharkhand \005 Appellant
Versus
M/s Shree Ram Enterprises
& Others \005 Respondents
B.P. Singh, J.
Leave granted in S.L.P. (c) No.13401 of 2003.
In this batch of appeals by special leave, common
questions of law arise for determination which for their answer
depend on the interpretation of sections 2(f), 84 and 85 of the
Bihar Re-Organization Act 2000 (Act 30 of 2000) enacted by
the Parliament (hereinafter referred to as the "said Act") which
on and from the appointed day created the new State of
Jharkhand comprising the districts specified in section 3 thereof
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which formed part of the erstwhile State of Bihar. It is
undisputed that the Central Government by Notification
published in the Official Gazette appointed the 15th of
November 2000 as the appointed day.
The core question which arises in these appeals is\027
whether on bifurcation of the existing State of Bihar, and
creation of the State of Jharkhand comprising territories which
before the appointed day comprised the territories of the State
of Bihar, the benefits flowing from the Industrial Policy 1995 of
the then State of Bihar crystallized in the Notification of the
Government of Bihar issued under section 7(3)(b) of the Bihar
Finance Act 1981 published in the Official Gazette on
22.12.1995, enures to the benefit of the beneficiaries under the
Policy and under the Notification after the appointed day. In
the cases in hand, we are primarily concerned with the benefit
of exemption from payment of sales tax on purchase of raw
materials extended to new units, and similar benefits to units,
undertaking expansion/diversification for their expanded/
diversified capacity and incremental production.
Civil Appeal No.7798/2002 arises out of the judgment of
a Division bench of the High Court in a writ petition filed by
the respondents, namely, M/s Swarn Rekha Cokes and Coals
Pvt. Ltd. and others. The respondent claimed that it was
entitled to the incentive promised in the Industrial Policy 1995
and the Notification issued pursuant thereto granting exemption
from payment of sales tax on purchase of raw materials. It had
fulfilled all the necessary requirements regarding registration
and certification whereafter under S.O. 478 dated 22nd
December 1995 and pursuant to the exemption certificate, it
was entitled to purchase coal from the Bharat Coking Coal Ltd.
(’BCCL’ for short) up to 22nd December 2006 with the benefit
of exemption from payment of sales tax. However, since their
claim of exemption from payment of sales tax was being
disputed, it was compelled to file a writ petition before the High
Court of Judicature at Patna. The aforesaid writ petition was
allowed by a learned Single Judge of the High Court. The
Commissioner, Commercial Taxes, Ranchi, however impugned
the judgment of the learned Single Judge by filing Letters
Patent Appeal No.204 of 2002. According to him after
bifurcation of the erstwhile State of Bihar, the benefit of
exemption from payment of sales tax on the purchase of raw
materials (coal in this case) was not permissible since BCCL
which supplied coal was located at Dhanbad within the
Jharkhand State. The exemption granted to the respondent was
limited in its application to the State of Bihar and, therefore,
could not be enforced in the State of Jharkhand. According to
the appellant unless and until, the State of Jharkhand granted a
similar exemption, the respondent was bound to pay tax and
remit the same to the State of Jharkhand. The Letters Patent
Appeal was dismissed by the High Court by its judgment and
order of April 2, 2002 upholding the contention of the
respondent and finding them entitled to the said benefit.
In the appeal arising out of S.L.P.(C) No.13401 of 2003,
the facts are similar and a learned Single Judge of the Patna
High Court following the aforementioned judgment of the High
Court in Swarn Rekha Cokes and Coals Pvt. Ltd., allowed the
batch of writ petitions by his judgment and order of July 18,
2002. The said judgment of the learned Single Judge was
challenged in a Letters Patent Appeal preferred by the State of
Jharkhand being L.P.A. No.102/2003. A Division Bench of the
High Court dismissed the same by its order of 10th February
2003 finding no error in the judgment which followed an earlier
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binding precedent. The State of Jharkhand has preferred
S.L.P.(c) No.13401/2003 challenging the judgment and order of
the High Court in the Letters Patent Appeal.
Civil Appeal No.2450/2003 has been preferred by the
Associated Cement Companies Ltd. which was the writ
petitioner before the High Court in CWJC No.15620/2001. In
this writ petition, the appellant-Company had prayed for
quashing of an order of 20th November, 2001 passed by the
Assistant Commissioner, Commercial Taxes Incharge, Patna
Special Circle, Patna holding that the appellant was liable to
pay sales tax after 15.11.2000 on the sale of goods earlier
exempted by exemption certificate dated 20th December 1995
granted in favour of it under Section 7(3)(b) of the Bihar
Finance Act 1981 in terms of the Industrial Policy of the State
of Bihar for the period from 1.4.1998 to 31.03.2007. The
appellant-Company had been granted such exemption in view
of the fact that pursuant to the policy decision of the
Government of Bihar it had expanded its cement works located
at Sindri and had applied for exemption certificate on the sale
of its incremental production as envisaged by the aforesaid
industrial policy. Its claim had been accepted and an exemption
certificate granted to it for the period from 1.4.1998 to
31.3.2007. It had been availing of the said benefit, but by the
impugned order of the Assistant Commissioner, Commercial
Taxes, it was held not entitled to the exemption from payment
of sales tax on sale of its incremental production. Another
Division Bench of the High Court noticed the earlier decision in
Swarn Rekha’s case, but distinguished the same on the ground
that the industrial unit of the appellant was situated in the State
of Jharkhand which had adapted notification granting
exemption, and as such the earlier exemption notification issued
by the erstwhile State of Bihar could not operate, and only the
exemption notification of the State of Jharkhand was applicable
in the territories comprising the State of Jharkhand.
Civil Appeal No.3765/2003 has been preferred by
Bhagwati Coke Industries Pvt. Ltd. and Others which had filed
a writ petition before the High Court of Jharkhand at Ranchi for
similar relief. The High Court has by its judgment and order of
January 8, 2003 dismissed the writ petition holding that the
statutory notifications issued pursuant to the Industrial Policy of
1995 and the notification issued under Section 7(3) being
S.O.No.478 dated 22.12.1995 provided for exemptions in the
matter of payment of sales tax related only to intra-State sale
transactions and not to inter-State sales. Consequently on
coming into existence of two States, the benefit thereof could
not be claimed in respect of inter-State sale transactions and,
therefore, such benefits could not be claimed in respect of raw
materials purchased in the State of Jharkhand for consumption
in the production of finished goods in the State of Bihar.
At the threshold, we may notice the relevant provisions
of the Act. Part II of the Act consists of only 4 sections and out
of them Sections 3 and 4 are relevant. Under Section 3, on and
from the appointed day, a new State known as the State of
Jharkhand is created. Sections 3 and 4 read as follows:-
"3. On and from the appointed day, there
shall be formed a new State to be known as the
State of Jharkhand comprising the following
territories of the existing State of Bihar, namely:\027
Bokaro, Chatra, Deogarh, Dhanbad,
Dumka, Garhwa, Giridih, Godda, Gumla,
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Hazaribagh, Kodarma, Lohardaga, Pakur,
Palamau, Ranchi, Sahebganj, Singhbhum
(East) and Singhbhum (West) districts;
and thereupon the said territories shall cease to
form part of the existing State of Bihar.
4. On and from the appointed day, the State of
Bihar shall comprise the territories of the existing
State of Bihar other than those specified in section
3."
Sections 84 and 85 of the Act which are crucial for
determination of the questions involved in these appeals are
reproduced below:\027
"84. 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
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.
85. 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.’
Explanation\027In 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."
The term ’law’ has been given a wide definition under
section 2(f) of the Act which is as follows:\027
"2(f) "law" includes any enactment,
ordinance, regulation, order, bye-law, rule,
scheme, notification or other instrument having,
immediately before the appointed day, the force of
law in the whole or in any part of the existing State
of Bihar."
A few additional facts may also be noticed at this stage.
The Industrial Policy 1995 of the State of Bihar has been in
force from September 1, 1995. This was followed by
notification published in the Bihar Gazette of 22.12.1995 in
exercise of power conferred by section 7(3)(b) of the Bihar
Finance Act, 1981. The said notification has been referred to in
the various judgments as S.O.No. 478 dated 22.12.1995. By
the said notification, the Governor of Bihar was pleased to
specify that such Industrial Unit which commenced its
production between 1.9.1995 to 31.8.2000, and which had made
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an application under Form-Ka of the notification before the
Competent Authority of the Finance (Commercial Taxes)
Department, and had been granted the certificate of exemption
will be entitled for exemption from payment of sales tax on
purchase of their direct raw materials required for
manufacturing subject to the terms and conditions laid down
therein. The notification provided that the benefit of exemption
from payment of sales tax on purchase of raw materials will be
available for a period of 10 years from the date of production to
the Units situated in Class-A Districts and for a period of 8
years to those Units situated in Class-B Districts classified in
Industrial Policy 1995. Clause 14 of the notification provided
for exemption from payment of sales tax on purchase of direct
raw materials to such Industrial Units which commenced its
production on extended capacity after having undergone
expansion/diversification/modernization. The conditions which
they are required to fulfill for grant of exemption have been laid
down in clause 15 thereof.
After the State of Jharkhand came into existence with
effect from November 15, 2000, it issued a notification No.17
dated 15.12.2000. The said notification is reproduced below
for ready reference:\027
"Govt. of Jharkhand
Department of Finance (illeg.)
NOTIFICATION
Dated 15.12.2000
Ranchi, No. 17
In exercise of power under part (2) of
section 283 of the Constitution of India and under
Section 85 of the Bihar Re-organization Act, 2000
(Act No. 30 of 2000), the Governor, Jharkhand,
hereby order that the following Acts/Rules
effective immediately before 15th Nov. 2000 in
Bihar State shall be extended to the State of
Jharkhand constituted under provisions of Bihar
Re-organization Act, 2000 (Act No. 30 of 2000)
from the period of the said date and they shall be
deemed effective from dt. 15 (fifteen) November,
2000 with necessary changes.
I. (1) Bihar Finance Act, 1981 \026 Part I/Bihar
Sales Tax Rules, 1983.
(2) Bihar Advertisement Tax Act,
1981/Bihar Advertisement Tax Rules,
1983.
(3) Bihar Entertainment Tax Act, 1948/Bihar
Entertainment Tax Rules, 1984.
(4) Bihar Electricity Duty Act, 1948/Bihar
Electricity Duty Rules, 1949.
(5) Bihar’s Hotel, Luxary Goods Taxation
Act, 1988/Bihar’s Hotel, Luxary Goods
Taxation Rules, 1988.
(6) In the entry of goods for utility or sales in
Bihar Taxation Act, 1943/Taxation Rules
on the entry of goods in Bihar, 1993.
(7) Central Sales Tax (Bihar) Rules, 1957.
(8) Bihar Commerce Tax Tribunal
Regulations, 1979.
2. Legal____/ Circulars, notifications issued
under all the said Acts/Rules, (including) Central
Sales Tax Act, 1956, are hereby adopted.
3. This notification shall be deemed to be
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effective for the areas under the State of
Jharkhand with necessary changes.
By the order of the Governor,
Sd/-
Special Secretary"
It will be seen that by the said notification the Acts and
the Rules specified therein which were effective immediately
before 15th November, 2000 in Bihar State are extended to the
newly created State of Jharkhand and they are deemed to be
effective from November 15, 2000 with necessary changes. The
Acts include the Bihar Finance Act 1981-Part I of the Bihar
Sales Tax Rules 1983. It also includes the Central Sales Tax
(Bihar) Rules 1957. Clause (2) of the Notification adopts all
the notifications under the Rules and Acts, including the
Central Sales Tax Act 1956.
On 25.8.2001, the State of Jharkhand announced its own
industrial policy granting certain incentives to the entrepreneurs
in the State of Jharkhand. However, the incentives granted
under the said Industrial Policy of the State of Jharkhand did
not deal with the incentives already granted under the Industrial
Policy of the State of Bihar before the creation of the State of
Jharkhand.
On June 1, 2002, a Circular was issued by the
Commissioner of Commercial Taxes, Jharkhand, the relevant
portion whereof has been produced before us as Annexure P-7
in Civil Appeal No.3765/2003. The relevant part of the
Circular reads as follows:\027
"Jharkhand Government Finance (Commercial
Taxes) Department letter No.1259/Ranchi, dated
1.6.02 issued by Shri Rahul Sarin, Secretary cum
Commissioner Commercial Taxes, Jharkhand,
Ranchi, addressed to All Joint Commissioners
Commercial Taxes (Administration), All Circle
Incharge.
Subject:- Notifications S.O.478, 479, 480 and 481
dated 22.12.95 issued in terms of the Industrial
Policy of 1995 and S.O. 57, 58, 59 and 60 dated
02.03.2000 relating to grant of exemption
certificates for continuance of the incentives in the
State of Jharkhand.
Following clarifications were sought from the
Regional Offices of the Commercial Tax
Department.
(i) Those industrial units in whose favour
Exemption Certificates have been issued under S.O.
478, 479, 480 and 481 dated 22.12.95 in terms of the
Industrial Policy, 1995 will continue to get the
exemption and other benefits for the remaining
period after constitution of the State of Jharkhand or
not?
(ii) \005\005\005
(iii)\005\005\005
(iv)\005\005\005
This matter was under consideration before the State
Government. After taking legal opinion in this
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matter, the State Government has taken the
following decisions:\027
1. So far as the question no. (i) is concerned, the
units mentioned therein who were granted
Exemption Certificates prior to the constitution of
the State of Jharkhand will continue to get the
benefit in terms of the Exemption Certificates for
the remaining period after constitution of the State
of Jharkhand also.
2\005\005\005.
3\005\005\005."
Counsel appearing on behalf of the private parties have
placed considerable reliance on the adaptation Notification of
15th December 2000 as well as the Circular issued by the
Commissioner of Commercial Taxes, Jharkhand dated 1st of
June 2002 to support their contention that in fact S.O. 478 dated
22.12.1995 was adopted by the State of Jharkhand and it
became apparent that the Governor had taken a decision to
continue to grant the benefit in terms of the Exemption
Certificates for the remaining period after constitution of the
State of Jharkhand.
Shri M.L. Verma, learned senior counsel appearing on
behalf of the appellant in Civil Appeal No.7798/2002 advanced
three main submissions. He submitted, firstly, that the earlier
exemption was granted under the Industrial Policy of the
erstwhile State of Bihar. On 25.8.2001, the State of Jharkhand
had announced its own Industrial Policy for the State of
Jharkhand which did not give to the opposite party any such
exemption. Consequently, the Industrial Policy of the State of
Bihar of the year 1995 was no longer applicable and, therefore,
the exemption from payment of sales tax on purchase of raw
materials was not available to them in respect of sales tax which
had now become payable to the State of Jharkhand. Secondly,
in view of the creation of two States out of the territories
comprising the erstwhile State of Bihar, the sales really became
inter-State sales which were not covered by the earlier policy
decision which envisaged only intra-State sales. Lastly, he
submitted that in any event, a writ petition filed before the High
Court of Judicature at Patna was not maintainable and the said
Court could not issue a Writ of Mandamus to the State of
Jharkhand. Shri Verma, however, did not dispute the legal
position that in view of the definition of the term ’law’ under
section 2(f) of the Act, the exemption granted by the erstwhile
State of Bihar by issuance of notification under section 7(3)(b)
of the Bihar Finance Act 1981 must be deemed to be "law" for
the purpose of sections 84 and 85 of the Act.
Shri Rakesh Dwivedi, appearing for the State of Bihar in
Civil Appeal No. 2450/2003 submitted that in this appeal
exemption was not granted from payment of sales tax on the
sale of finished goods. The benefit of exemption was granted
to tax payable on the purchase of raw materials for the
incremental production. According to him, the erstwhile State
of Bihar gave certain benefits to the new Units which were set
up in the State of Bihar or which had invested in the expansion/
diversification of existing industries, because the ultimate
benefit-direct or indirect-accrued to the State of Bihar. After
the State of Jharkhand was created, such Units, as they fell
outside the territories of State of Bihar as reconstituted, did not
provide any benefit to the State of Bihar and, therefore, there
was no justification for the State of Bihar to extend any such
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benefit of exemption to such Units. The basis of exemption
was really the premise that the Unit would continue its
manufacturing processes within the State of Bihar with all
consequential benefits both direct and indirect accruing to the
State of Bihar. That is why Industrial Policy of the Bihar
Government of the year 1995 made it a condition for grant of
exemption that the Unit existed and continued its
manufacturing processes in the State of Bihar. He referred to
the notifications and the Forms and submitted that the Scheme
postulated that the Unit existed in the State of Bihar. Once the
Unit ceased to be so located within the State of Bihar, the
notification could have no application to it.
So far as Section 84 of the Act is concerned, he
submitted that it could not be doubted that it was intended to
provide for continuity of laws to avoid a vacuum situation in
the State of Bihar. He submitted that the provision should not
be given a literal and liberal construction as advocated by the
appellant in the appeal, but the same must be construed as a part
of the overall scheme. Two States had come into existence
with their own Executive, Legislative and Judicial
establishments and each was authorized to enact its own laws
and execute them in the manner considered appropriate. He,
therefore, submitted that once it is found that the Industrial Unit
is outside the State, the State is not bound to extend to it any
benefit of exemption from payment of sales tax. Exemptions
already granted when the Unit was within the territorial limits
of the State, must cease to operate after the industrial unit fell
outside the territorial limit of the State.
He further submitted that the same Act in force in two
different States must in law be deemed to be two separate Acts
and for this he relied upon the decision of this Court in Rattan
Lal & co. & Anr. vs. The Assessing Authority & Anr. [1969
(2) SCR 544]. He also placed reliance on two other decisions of
this Court in The State of Mysore vs. P.B. Hussain Kunhi &
Co. reported in (1967) 19 STC 215 and Commissioner of Sales
Tax, Madhya Pradesh vs. Minerva Minerals reported in
(1970) 25 STC 64. He, therefore, concluded that section 84
should be given a narrower interpretation so as to sub-serve the
purpose for which it was enacted and should not be literally and
liberally construed as advocated by the appellant.
Mr. K. Parasaran, appearing on behalf of the respondent
in Civil Appeal arising out of S.L.P.(c) No. 13401/2003
submitted that the objection taken as to the jurisdiction of the
Patna High Court to issue a writ against the State of Jharkhand
was misconceived. He submitted that the notification of the
State of Bihar which was sought to be enforced in the instant
case was a part of the cause of action and, therefore, even if it
was necessary that the adjudication must be in the presence of
both the parties, they could approach either of the High Courts
for relief. It cannot be said that the entire cause of action was
solely in the State of Jharkhand. He relied upon the decision of
this Court in A.B.C. Laminart Pvt. Ltd. and Another vs. A.P.
Agencies, Salem reported in (1989) 2 SCC 163. He further
submitted that in any case the objection was merely academic
because it was the Commissioner of Commercial Taxes, Ranchi
of the State of Jharkhand who preferred a Letters Patent Appeal
before the High Court and never raised an objection before the
Division Bench which heard the Letters patent Appeal on the
ground of lack of jurisdiction. He further submitted that the
objection raised on the ground of inter-State sales being not
covered by the Industrial Policy of 1995 and the notification
issued pursuant thereto, was based on a complete
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misconception of Section 84 of the Act. Though Sections 3 to 8
comprised in Part II of the Act divided the territories of
erstwhile State of Bihar and constituted two separate States of
Jharkhand and Bihar, for the purpose of Section 84, they were
not to be so treated because Section 84 in explicit terms
provided that the provisions of part II shall not be deemed to
have affected any change in the territories to which any law in
force immediately before the appointed day applied until
otherwise provided by a competent Legislature or other
competent authority.
Mr. Abhishek Manu Singhvi, senior Advocate appearing
on behalf of the appellant in Civil Appeal No. 3765/2003
referred to the notifications/circulars issued by the State of
Jharkhand on 15.12.2000 and 1.6.2002 and submitted that there
was no question of the State of Jharkhand repealing the
notification either expressly or impliedly because of express
adaptation by the State of Jharkhand as envisaged under the
said notification/circular. He submitted that the State of
Jharkhand could choose to exercise its power of repeal of laws
in force which included the notification issued pursuant to the
Industrial Policy of the State of Bihar of the year 1995. Section
85 also empowered the State of Jharkhand to adapt, modify etc.
the laws, but the State chose to continue the notification and the
laws in existence without taking any action to repeal or modify
them. He relied upon two decisions of this Court in Har
Shankar and Others vs. The Dy. Excise and Taxation
Commissioner and Others reported in (1975) 1 SCC 737 and
Premji Bhai Parmar vs. Delhi Development Authority
reported in (1980) 2 SCC 129.
Mr. Mahendra R. Anand, senior advocate appearing for
the respondents in Civil Apeal No.7798/2002 adopted the
submissions advanced by Shri Parasaran. He also drew our
attention to section 91 of the Act and submitted that any
objection raised on the basis of the provisions of the Central
Sales Tax Act did not survive since Section 91 of the Act gave
the provisions of this Act overriding effect.
Mr. R.F. Nariman, senior advocate appearing on behalf
of the appellants in Civil appeal No. 2450/2003 submitted that
the factory of the appellant is situated at Sindri in the State of
Jharkhand. In effect, the State of Bihar is seeking to tax, goods
transferred from the factory to its establishment in Patna. The
sales that are affected from Patna are naturally intra-State sales
and, therefore the State of Bihar cannot be permitted to resile
from the exemption granted by it. He submitted that the
assessment of sales tax is done at Patna and these facts have not
been adverted to by the High Court while dismissing the
petition of the appellant.
We shall first dealt with the submission urged on behalf
of the appellant in Civil Appeal No.7798/2002 that the High
Court of Judicature at Patna had no jurisdiction to entertain the
writ petition and issue a Writ of Mandamus to the State of
Jharkhand. We have earlier noticed that though the State of
Jharkhand was not a party in the writ petition filed before the
High Court at Patna, after a learned Single Judge of the High
Court allowed the writ petition and granted the relief prayed
for, the Commissioner of Commercial Taxes, Ranchi,
Jharkhand State preferred a Letters Patent Appeal impugning
the judgment and order of the learned Single Judge. In the
Letters Patent Appeal, no objection was taken to the jurisdiction
of the Patna High Court to entertain the writ petition.
Moreover, as submitted by Mr. Parasaran, it cannot be said that
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the entire cause of action was in the State of Jharkhand because
the notification of the State of Bihar issued under section
7(3)(b) of the Bihar Finance Act 1981 formed the basis on
which the respondents founded their claim. This, therefore,
necessarily formed a part of the cause of action and the
respondents had to satisfy the Court that the aforesaid
notification supported their claim for exemption from payment
of sales tax on the purchase of raw materials. No doubt, in
these circumstances the State of Jharkhand ought to have been
made a party-respondent. This, however, is of no consequence
now in view of the fact that the State of Jharkhand itself sought
to prefer an appeal against the order of the learned Single Judge
and in fact preferred a Letters Patent Appeal and contested the
claim of the respondents. It did not object to the jurisdiction of
the High Court at Patna to entertain the writ petition. Since a
part of the cause of action lay in the State of Bihar, it cannot be
disputed that the High Court at Patna also had the jurisdiction to
entertain the writ petition. The objection that the State of
Jharkhand was not a party in the said writ petition is not of
much significance now since the State itself preferred an appeal
and contested the case of the writ petitioners. Moreover, this
objection as to the jurisdiction cannot be raised in Civil Appeal
No.2450/2003 since in that case the State of Bihar itself had
refused to grant the benefit of exemption to the appellant
therein. So far as Civil Appeal No.3765/2003 is concerned, the
judgment has been rendered by the High Court of Jharkhand at
Ranchi. Since common questions arise in all these appeals, we
consider it appropriate to decide the questions that arise in all
these appeals, particularly, when we find that a part of the cause
of action lay in the State of Bihar and consequently, the High
Court at Patna had jurisdiction to entertain the writ petition and
grant relief. We, therefore, reject the objection raised by the
State of Jharkhand on the ground of lack of jurisdiction of the
High Court at Patna to entertain the writ petition.
The question then arises\027as to what is the true meaning
and import of sections 84 and 85 of the Act?
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
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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 S.O. 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 S.O. 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.
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 Re-organization 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 and Others vs. Balbir Singh and Others reported in
(1976) 3 SCC 242, Sher Singh and Others vs. Financial
Commissioner of Planning, Punjab and Others reported in
(1987) 2 SCC 439 and Dhayanand etc. vs. Union of India and
Others reported in (1996) 7 SCC 47. In the first of these cases,
i.e. in state of Punjab and Others vs. Balbir Singh and Others
(supra), 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 Re-organization 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
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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 reorganization 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 erstwhile State automatically 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 reorganization 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 the Balbir Singh’s case (supra) 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.
The next question which arises is\027whether 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 of 25th
August, 2001 and, therefore, the Industrial Policy of 1995 and
the notification bearing S.O. 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’s 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 15th
November, 2000. In the instance 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, the notification No. S.O. 478
dated 22.12.1995 must continue to operate in the State of
Jharkhand and the concerned appellants or respondents, as the
case may be, must be held entitled to the benefits and incentives
envisaged by the said notification. The submission which
found favour with the High Court of Jharkhand at Ranchi in
Civil appeal No.3765/2003 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 categorized 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
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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
Dwelling Co. Ltd. vs. Finsbury Borough Council, (1951) 2 All
ER 587, p. 589 (HL) 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 to
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 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
concerned State 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.
We have carefully considered the decisions relied upon
by Shri Rakesh Dwivedi in Rattan Lal and Co. and Anr. vs.
The Assessing Authority and Anr. reported in 1969 (2) SCR
544, The State of Mysore vs. P.B. Hussain Kunhi & Co.
reported in (1967) 19 STC 215 and Commissioner of Sales
Tax, Madhya Pradesh vs. Minerva Minerals reported in
(1970) 25 STC 64 and we find that none of those decisions in
any manner advance 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.2450/2003, 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
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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 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 counter-parts
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, the 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
authorize 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 reorganization 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.
We, therefore, find ourselves in agreement with the view
of the Patna High Court in Civil Appeal No. 7798/2002. We
hold that the benefit of exemption from payment of sales tax on
purchase of raw materials in respect of new units or the benefit
envisaged for units which have undertaken diversification or
expansion are available to those units, if eligible under S.O. 478
dated 22.12.1995 notwithstanding the fact that the erstwhile
State of Bihar has been divided into two States by creation of
the new State of Jharkhand. We are also satisfied that the said
S.O. 478 has not been either modified, amended or altered by
the State of Jharkhand and, therefore, it must continue to
operate in the State of Jharkhand till such time as it is modified,
repealed or altered in the manner prescribed by Section 85 of
the Act.
In the result, Civil Appeal No.7798/2002 and Civil
Appeal arising out of S.L.P. (c) No. 13401/2003 are dismissed.
Civil Appeal Nos.2450/2003 and 3765/2003 are allowed.
There shall be no order as to costs.