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A Supreme Court bench of three judges comprising of Chief Justice Ranjan Gogoi, Justice S. Abdul Nazeer and Justice Sanjiv Khanna overruling the contrary observations made in an earlier Supreme Court judgment in Commissioner of Commercial Taxes, Ranchi and Another v. Swarn Rekha Cokes and Coals Pvt. Ltd held that creation of a new political State must be given full legal effect and the inter-state sales between the two successor states cannot be treated as intra-state sales.
The issue in appeal was whether the industrial unit would continue to avail the benefit of such exemption or deferment irrespective of its location in the bifurcated states of Madhya Pradesh and Chhattisgarh. It was held that in the context of Bihar Reorganization Act, the Supreme Court in Swarn Rekha case held “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.
There is a legal fiction that reorganization of the state would not affect the applicability of the existing laws but the said fiction cannot be extended to imagine that for the purpose of sale transactions the new state would not have any political and constitutional existence as a separate state and that till a new law was enacted, the two States were to be treated as one political state. Creation of the new political State must be given full legal effect, the bench observed.
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