The Hon’ble Supreme Court, on 9th July 2019, in the matter of The State of Madhya Pradesh v. Lafarge Dealers Association and Others, pronounced that creation of a new State cannot be a ground and reason to treat inter-state sales between the two successor states as intra-state sales.
The Hon’ble Supreme Court observed that:
The expression ‘inter-state’ trade has specific legal connotation and meaning. It refers to transfer or movement of goods from one state to another. Such transactions, notwithstanding that the situs of sale would necessarily be at a fixed location, are inter-state sale or trade and not intra-state sale or trade. Thus, when there is a movement of goods between the two states without there being a transfer of title to the consignor or consignee, compliance would have to be made with the relevant laws applicable to such inter-state transactions. (Para 18)
The fact that two separate states are formed after the bifurcation, which were once a single entity for the purpose of levying sales tax, would be of no consequence so as to disturb the legal and constitutional impact by which two separate States were created and the legal effect of Article 286 as regards the inter-state character of inter-state transactions. (Para 18)
Article 4 of the Constitution states that the law made by the Parliament with reference to Article 3 may contain supplemental, consequential and incidental provisions.(Para 20)
When the territory of the existing State is reorganised by the Parliament under Article 3, there is no change of sovereignty and it is only a case of adjustment of territories as some portion of the territories forming part of the existing state would now form part of the newly formed state or get merged in a new state. In the latter case, the laws which were applicable to the territories of the reorganised state would continue to apply to the territories of the new state until the newly created state adapts or subject to its competency amends or repeals the existing and applicable laws. (Para 20)
Creation of a new State cannot be a ground and reason to treat inter-state sales between the two successor states as intra-state sales. (This inference has been drawn on the basis of Para 24)
Copy of judgement: Judgement_09-Jul-2019