The uncertainty of taxing intra-state supply of goods

July 14,2017
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N. Sriprakash, Advocate

The attempt of this Article is to  place before the reader  certain aspects relating to Tax on Supply of Goods  under the newly introduced Goods and  Services Tax laws (hereinafter referred to as the ‘GST laws’) and some  possible questions  which could arise in the future. 

Prior to 01.07.2017, State legislatures in India had the power to impose a tax on the sale or purchase of goods in exercise of the power conferred  by  Article 246(3) read with Entry 54 of List II (“State List”) of the Constitution of India, 1950 (hereinafter referred to as “the Constitution”).  That plenary power of the State Legislatures was  circumscribed  by various constitutional limitations.  One of them being Article 286(1)(a) of the Constitution.  That  Article  prohibited State  laws from imposing a tax on sale or purchase of goods when a  sale or purchase took place “outside the State”.  Parliament under Article 286(2) was also required to formulate principles for determining when a sale or purchase takes place outside the State.

In exercise of the power under Article 286(2) of the Constitution, Parliament enacted Section 4 of the Central Sales Tax Act, 1956 (hereinafter referred to as the “CST Act”).  That provision contained principles for determining when a sale or purchase takes places inside a State and therefore outside all other States.  State legislatures across India in their respective enactments also fixed the situs of their  taxable  sales  in accordance with Section 4 of the CST Act.  They could not do otherwise,  because of Article 286(1) and (2) of the Constitution.

The Constitutional restriction as above on State power of taxation and the formulation of the principles by  Parliament under Section 4 of the CST Act were intended to ensure that a single sale or purchase transaction was not taxed by multiple States on the premise that an element of such a sale or purchase transaction was present within a particular State.


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Very nice article
Aparna Nandakumar