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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.