Parliament has enacted the Integrated Goods and Services Tax Act, 2017 to make a provision for levy and collection of tax on inter-State supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto. Section 7 of said Act relates to “Inter-State supply”. Sub-section (5) of section 7 of the said Act runs as follows:-
“(5) Supply of goods or services or both,-
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.”
In my personal opinion, out of the provisions of sub-section (5) of section 7 of the Integrated Goods and Services Tax Act, 2017, provisions, which refer to a supply of goods, or services or both which takes place in the course of inter-State trade or commerce, or in the course of import into the territory of India, are superfluous, and remaining provisions of sub-section (5) of section 7 of the said Act are beyond the Legislative powers as provided in the Constitution.
Goods and Services Tax is levied on supply of goods, or services, or both except on supply of alcoholic liquor for Human Consumption. India is a federal country. Territory of India comprises (a) the territories of the States; (b) the Union territories specified in the First Schedule; and (c) such other territories as may be acquired.
Article 245 of the Constitution is source of Legislative powers for the Parliament and the Legislature of each State. Such power of Parliament and the Legislatures of States are subjected to other provisions of the Constitution. Said Article 245 of the Constitution runs as follows:-
“245. Extent of laws made by Parliament and by the Legislatures of States.—(1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State.
(2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation.”
Article 245 of the Constitution, itself does not specify subject matter(s) with respect to which Parliament and the Legislature of a State may make laws. So far as it relates with respect to goods and services tax, Article 246A (1) of the Constitution provides that Parliament, and, subject to clause (2), the Legislature of a State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. Article 246A of the Constitution runs as follows:–
“246A. Special provision with respect to goods and services tax.—(1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.
Explanation.—The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council.”
Expression “Goods and services tax referred to in clause (5) of article 279A”, used in the explanation of Article 246A, refers to goods and services tax on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. Therefore, in view of the explanation of Article 246A of the Constitution, with respect to said goods, Article 246A shall take effect from the date as may be recommended by the Goods and Services Tax Council. So far, Goods and Services Tax Council has not recommended such date, with respect to any of the said goods. Therefore, presently, Parliament, and, the Legislatures of the States do not have power to make law with respect goods and services tax on any supply of these goods.
Clause (12A) of Article 366 of the Constitution defines expression “goods and services tax” to mean any tax on supply of goods, or services, or both except taxes on supply of alcoholic liquor for human consumption. Said clause (12A) runs as follows:–
“(12A) “goods and services tax” means any tax on supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption;”
In view of definition of expression “goods and services tax”, clauses (1) and (2) of Article 246A may be re-written as follows:–
246A. Special provision with respect to goods and services tax.—
(1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to tax on supply of goods, or services, or both except taxes on the supply of alcoholic liquor for human consumption imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to tax on supply of goods, or services, or both, except taxes on the supply of alcoholic liquor for human consumption, where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.
Here we see that expression “supply of goods, or services, or both”, does not specify the nature of supply, and the manner in which a supply is made. Therefore, expression “goods and services tax” is to be understood as tax on any kind of supply of goods, or services, or both except taxes on any kind of supply of alcoholic liquor for human consumption.
Law making powers of Parliament, and the Legislature of a State, as provided in Article 245, are subjected to provisions of the Constitution, therefore, Parliament and the Legislatures of the States can, subject to other provisions of the Constitution, exercise their law making powers under Article 246A.
Transaction of supply of goods, or services, or both has several essential ingredients. Depending on the terms and conditions of an agreement, or contract, of a supply, all ingredients of a supply may be located either at one place, or at several places. Where any of the ingredients of a supply is located inside the territory of a State, State is said to have territorial nexus with the supply. Where any of the ingredients of a supply is located inside a Union territory, or a State, such Union territory or the State, as the case may be, is said to have territorial nexus with supply. Where a Union territory or a State has territorial nexus with a supply, territory of India also has territorial nexus with the supply. In view of this, a supply of goods, or services, or both with which a State or a Union territory, or the territory of India, has territorial nexus may be any of the following supplies of goods, or services, or both, namely:-
(i) Supply of goods, or services, or both in the course of inter-State trade or commerce; or
(ii) Supply of goods, or services, or both in the course of the import of the goods, or services, or both into the territory of India; or
(iii) Supply of goods, or services, or both in the course of the export of the goods, or services, or both out of the territory of India; or
(iv) Supply of goods, or services, or both with which only one State, or one Union territory, has territorial nexus, except a supply of goods, or services, or both mentioned in any of the clauses (i), (ii) and (iii) above; or
(v) Supply of goods, or services, or both with which more than one State, or more than one Union territory, or one or more States and one or more Union territories, have territorial nexus, except a supply of goods, or services, or both mentioned in any of the clauses (i), (ii) and (iii) above.
In view of provisions of clause (1) of Article 246A, read with clause (2) of said Article 246A, Legislature of a State cannot make law with respect to goods and services tax where supply of goods, or services, or both takes place in the course of inter-State trade or commerce.
Clause (1) of Article 286 of the Constitution provides that no law of a State shall impose, or authorise imposition, of a tax on supply of goods, or services, or both, where such supply takes place──
(a) outside the State; or
(b) in the course of the import of the goods, or services, or both into, or export of the goods, or services, or both out of, the territory of India.
Restrictions provided in clause (1) of Article 286 of the Constitution apply only to laws of the States. Therefore, Parliament may make goods and services tax law with respect to tax on all kinds of supplies of goods, or services, or both.
Following supplies of goods, or services, or both are mutually exclusive, namely:-
(i) supply of goods, or services, or both in the course of inter-State trade or commerce;
(ii) supply of goods, or services, or both in the course of the import of the goods, or services, or both into the territory of India; and
(iii) supply of goods, or services, or both in the course of the export of the goods, or services, or both out of the territory of India.
Clause (5) of Article 269A of the Constitution provides that Parliament may, by law, formulate principles for determining the place of supply, and when a supply of goods, or services, or both takes place in the course of inter-State trade or commerce. Clause (2) of Article 286 provides that Parliament may, by law, formulate principles for determining when a supply of goods, or services, or both takes place ──
(i) outside the State; or
(ii) in the course of the import of the goods, or services, or both into the territory of India; or
(iii) in the course of the export of the goods, or services, or both out of the territory of India.
Provisions of Article 269A of the Constitution are specific provisions with respect to goods and services tax law, that can be made by Parliament with respect to following two kinds of supplies of goods, or services, or both, namely:-
(a) Supply of goods, or services, or both in the course of inter-State trade or commerce; and
(b) Supply of goods, or services, or both in the course of import into the territory of India.
Article 269A of the Constitution runs as follows:-
269A. Levy and collection of goods and services tax in course of inter-State trade or commerce. — (1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
Explanation.—For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce.
(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.
(3) Where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India.
(4) Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.
(5) Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.”
It is noteworthy that Article 269A of the Constitution is not meant to give powers to Parliament to make law with respect to goods and services tax where supply of goods, or services, or both takes place in the course of──
(i) inter-State trade or commerce; or
(ii) the import into the territory of India (the import of the goods, or services, or both into the territory of India, as provided in sub-clause (b) of clause (1) of Article 286).
Goods and services tax law making power is already given to Parliament in Article 245 and Article 246A of the Constitution. However, such law making power of Parliament is subjected to other provisions of the Constitution. Therefore, goods and services tax law making power of Parliament, with respect to two kinds of supplies, viz. supply of goods, or services, or both in the course of inter-State trade or commerce; and supply of goods, or services, or both in the course of the import into the territory of India, is subjected to provisions of Article 269A of the Constitution.
Subject to provisions of Article 266 of the Constitution, net proceeds of all revenues received by the Government of India form part of the Consolidated Fund of India, and all revenues received by the Government of a State form part of the Consolidated Fund of the State. Where any amount of tax received by the Government of India is to be apportioned, assigned, or distributed to a State or is to be used in making payment of any tax leviable by a State, the Constitution should─
(i) have provision for such apportionment, assignment, distribution or use; and
(ii) provide that amount apportioned, assigned, distributed, or used shall not form part of the Consolidated Fund of India.
Similarly, where any amount of revenue collected by a State is to be used in payment of any tax levied by the Government of India, the Constitution should──
(i) have provision for such use; and
(ii) provide that amount used shall not form part of the Consolidated Fund of the State.
Clauses (2), (3) and (4) of Article 269A of the Constitution are to be understood in this background.
It is important to be noted that Goods and Services Tax Council has been constituted under Article 279A of the Constitution to make its recommendations to the Union and the States on various matters specified in Article 279(4), and such other matters as the Council may decide. Clause (6) of said Article 279A provides that while discharging the functions conferred by said Article 269A, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonised national market for goods and services. In view of this, the Goods and Services Tax Council is bound to recommend uniform tax rates, exemptions, etc. throughout the country.
The “Statement Of Objects and Reasons” part of the Bill, introduced in the Lok Sabha for making necessary amendments in the Constitution for introducing goods and services tax in the country, inter-alia, reveals that the said Bill was introduced to remove cascading effect of taxes and to provide a common national market for goods and services.
Cascading effect of taxes can be removed by using input tax credit system of levy of tax. Under the system, recipient of goods and services is allowed credit of tax paid by him on procurement of inputs and input services.
In order to understand clauses (2), (3) and (4) of Article 269A of the Constitution, let us assume that there are three persons A, B and C. First person A is supplier of certain goods and makes supply of said goods to person B. Person B makes supply of same goods to another person C. All three persons A, B and C are registered persons for the Purpose of GST. Persons A and B are located within the same State S-1, and person C is located in another State S-
1. Person A makes supply of certain goods to person B and delivers goods to B within the State-1. Now, person B makes supply of same goods to third Person C and dispatches goods through a common carrier for delivery to person C in another State S-2. In this case, there are two transactions of supply of goods. First supply takes place in between person A and person B, and second supply takes place in between B and C. Supply by person A to person B will be a supply within the State, and supply made by person B to person C will be a supply of goods in the course of inter-State trade or commerce. On first supply, supplier will be liable for payment of goods and services tax to the Government of State S-1 as well as to the Government of India. The supplier A will charge amounts of these both taxes separately from the person B and will pay to the accounts of the State Government and the Central Government. Person B being a registered person shall be eligible for claiming credit of amount of input tax, charged from him. So far as it relates to tax on second supply, in view of provisions of clause (2) of Article 246A, the Legislature of a State has no power to make law with respect to goods and services tax where supply of goods, or services, or both takes place in the course of inter-State trade or commerce. In view of this, on the second supply, i.e. on the supply of goods in the course of inter-State trade or commerce, supplier B shall be liable for payment of tax only to the Government of India.
Tax payable to the State Government on supply of goods made by person A may be referred to as State Goods and Services Tax (in short “SGST”) and tax payable by A on such supply to the Government of India may be referred to as the Central Goods and Services Tax (in short “CGST”). Tax payable by person B on supply of goods in the course of inter-State trade or commerce may be referred to as the Integrated Goods and Services Tax (in short “IGST”). In view of this, on supply within the State A will charge amounts of SGST and CGST separately from B. On supply made by B to C, B will charge single amount of IGST from C. Where recipient of a supply is a registered person, unless the law provides otherwise, he will be eligible for claiming credit of input tax. Law requires every registered person to maintain separate accounts of input tax credit as follows:-
1. SGST related input tax credit account;
2. CGST related input tax credit account;
3. IGST related input tax credit account.
4. UTGST related input tax credit account (where tax is collected under the Union territory law.
In the above example,
(i) Person A will charge amounts of SGST and CGST from B;
(ii) Person B will be eligible for claiming credit of amount of SGST charged from him by A in the SGST related input tax credit account, and for claiming credit of amount of CGST charged from him by A in the CGST related input tax credit account;
(iii) Person B, on supply of goods to C, will charge amount of IGST;
(iv) Person C will be eligible for claiming credit of IGST charged from him by B in IGST related input tax credit account.
Amount of input tax credit earned by a recipient of a supply may be used by the recipient for making payment of tax on supply of goods, or services, or both made by him. Where amount of input tax credit, from SGST related input tax credit account is used for making payment of SGST, the State Government which allows input tax credit also receives payment by way of input tax credit. In this case, net proceeds of revenue of the Government do not change. For such use of amount of input tax credit, no provision is required in the Constitution to provide that amount of input tax credit shall not form part of the Consolidated Fund of the State. We can say that where transferor Government and the transferee Government is same, Constitutional consent is not required. However, where Government which allows amount of input tax credit to taxpayer and the Government which accepts payment from the taxpayer by use of amount of input tax credit are one and the same, loser and gainer being same Government, constitutional consent or approval is not required. In this case, revenue of the Government remains unaffected. In following cases also revenue of the Central Government remains unaffected, namely:-
(a) where any amount of input tax credit from CGST input tax credit account is used for making payment of CGST, or IGST; and
(b) where any amount of input tax credit from IGST input tax credit account is used for making payment of the CGST, or the IGST.
In following cases, Government which allows amount of input tax credit to taxpayer and the Government which accepts payment from the taxpayer by use of amount of input tax credit remain different, namely:-
(i) where any amount of input tax credit from IGST input tax credit account is used for making payment of SGST.
(ii) where any amount of input tax credit from SGST input tax credit account is used for making payment of IGST; or
In two cases mentioned in the preceding paragraph, revenue of State Governments and the Central Government gets affected. Article 269A of the Constitution, for these two cases provides as follows:-
(1) Where an amount collected as tax levied under clause (1) of Article 269A has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India. This is a case where amount of input tax credit from IGST input tax credit account may be used for making payment of SGST.
(2) Where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1) of Article 269A, such amount shall not form part of the Consolidated Fund of the State. This is case where amount of input tax credit from SGST input tax credit account may be used for making payment of IGST.
In following cases also, the Government which allows amount of input tax credit to taxpayer and the Government which accepts payment from the taxpayer by use of amount of input tax credit remain different, namely:-
(i) where any amount of input tax credit from SGST input tax credit account is used for making payment of CGST; or
(ii) where any amount of input tax credit from CGST input tax credit account is used for making payment of SGST.
For two cases mentioned in the preceding paragraph, there is no provision in the Constitution for making payment of──
(a) CGST by using amount of input tax credit from SGST related input tax credit account; and
(b) SGST by using amount of input tax credit from CGST related input tax credit account.
Therefore, amount of input tax credit available in the CGST related input tax credit account cannot be used for making payment SGST, and amount of input tax credit available in the SGST related input tax credit account cannot be used for making payment of CGST.
The Constitution does not provide that where an amount collected as tax levied by Government of India under article 246A has been used for payment of the tax levied by a State under clause (1) of Article 246A, such amount shall not form part of the Consolidated Fund of India. The Constitution also does not provide that where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied by Government of India under Article 246A, such amount shall not form part of the Consolidated Fund of the State. In absence of such provisions, any amount of input tax credit from CGST related input tax credit account cannot be used for making payment of SGST, and any amount of input tax credit from SGST related input tax credit account cannot be used for making payment of CGST.
An unregistered person is not eligible for claiming credit of input tax. A registered person, in the circumstances specified in the GST Law, cannot claim credit of input tax. Where, in the example of three persons A, B and C taken above, person C for any reason is not entitled for claiming input tax credit, amount paid by person B to the Government of India as integrated goods and services tax (IGST) remains with the Government of India. In view of provisions of clause (1) of Article 269A of the Constitution, such amount of tax is apportioned in between the Union and the States in the manner provided in the law made by Parliament on recommendation of the Goods and Services Tax Council. Where any amount of tax collected by the Government of India has been apportioned to a State, the Government of India is required to transfer such amount to the State. Here transaction involves transfer of revenue collected by Government of India to a State Government. In these circumstances, amount transferred to a State no longer remain revenue of the Government of India and cannot be part of the Consolidated Fund of India. For this purpose, clause (2) of Article 269A runs as follows:-
“(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.”
The Integrated Goods and Services Tax Act, 2017 (13 of 2017), hereinafter referred to as the IGST Act, has been enacted by Parliament. Long Title of the said Act runs as follows:-
“An Act to make a provision for levy and collection of tax on inter-State supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto.”
Chapter IV of the IGST Act relates to “Determination of Nature of Supply”. Under the said Chapter IV, Section 7 of the IGST Act has been enacted as follows:-
“Inter-State supply.
(1) Subject to the provisions of section 10, supply of goods, where the location of the supplier and the place of supply are in-
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory,
shall be treated as a supply of goods in the course of inter-State trade or commerce.
(2) Supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-State trade or commerce.
(3) Subject to the provisions of section 12, supply of services, where the location of the supplier and the place of supply are in-
(a) two different States;
(b) two different Union territories; or
(c) a State and a Union territory,
shall be treated as a supply of services in the course of inter-State trade or commerce.
(4) Supply of services imported into the territory of India shall be treated to be a supply of services in the course of inter-State trade or commerce.
(5) Supply of goods or services or both,-
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section,
shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.”
Here we see that out of sub-sections (1) to (4) of section 7 of the IGST Act, sub-sections (1) and (3) are related with supplies of goods and services in the course of inter-State trade or commerce, and sub-sections (2) and (4) of said section 7 are related with supplies of goods and services, in the course of import into the territory of India. However, –
(i) supply of goods, or services, or both referred to in sub-section (5)(a) of section 7 of the IGST Act includes supply of goods, or services, or both in the course of the export of the goods, or services, or both out of the territory of India;
(ii) supply of goods, or services, or both referred to in sub-section (5)(b) of section 7 of the IGST Act include all kinds of supplies of goods, or services, or both made by, or to Special Economic Zone developer or Special Economic Zone unit; and
(iii) supply of goods, or services, or both referred to in sub-section (5)(c) of section 7 of the IGST Act is residuary supply of goods, or services, or both which takes place in India and where such supply is not covered under intra-State supply or under any other provisions of section 7 of the IGST Act.
We see that sub-section (5)(b) of section 7 of the IGST Act also includes certain supplies of goods, or services, or both which are already included in other provisions of said section 7 of the IGST Act.
Surprisingly, sub-section (5) of section 7 of the IGST Act does not specify the purposes for which supplies of goods, or services, or both, referred to or mentioned in clauses (a), (b) and (c) of sub-section (5) of section 7 of the IGST Act, are to be treated to be a supply of goods, or services, or both in the course of inter-State trade or commerce. In such circumstances, such supplies of goods, or services, or both are to be treated to be a supply of goods, or services, or both in the course of inter-State trade or commerce, for all purposes of the IGST Act.
Section 5 of the IGST Act is charging section of the Act. Sub-section (1) of said section 5 provides that subject to provisions of section 5(2) of the said Act, there shall be levied a tax called integrated goods and services tax on “all inter-State supplies of goods, or services, or both except on supply of alcoholic liquor for human consumption”. Section 5(2) of the said IGST Act provides that the integrated tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council. I am of the view that in section 5(1), tax should have been levied on supply of goods, or services, or both in the course of inter-State trade or commerce, and not on “all inter-State supplies”. Section 2(12) of the IGST Act defines expression “integrated tax” to mean the integrated goods and services tax levied under the said Act. Section 17 of the IGST Act relates to “Apportionment of tax and settlement of funds”. Said section 17 provides the manner in which “integrated tax” shall be apportioned in between the Union and the States. Section 18 of the IGST Act relates to “Transfer of input tax credit”. Said section 18, inter-alia, provides that on utilisation of credit of integrated tax availed under the said Act for payment of, State tax in accordance with the provisions of the respective State Goods and Services Tax Act, the amount collected as integrated tax shall stand reduced by an amount equal to the credit so utilised and shall be apportioned to the appropriate State Government and the Central Government shall transfer the amount so apportioned to the account of the appropriate State Government in such manner and within such time as may be prescribed. Goods and Services Tax Laws made by the Legislatures of the States, inter-alia, provide that input tax credit on account of State tax shall be utilised towards payment of integrated tax.
Analysis of provisions of Article 269A of the Constitution, the Integrated Goods and Services Tax Act, 2017 and the Goods and Services Tax Laws made by the Legislature of the States, reveal that sub-section (5) of section 7 of the IGST Act makes a provision that all supplies of goods, or services, or both mentioned in sub-section (5) of section 7 of the IGST Act, except supplies of goods, or services, or both which are covered under any other sub-section of section 7 of the IGST Act, shall be treated at par with two supplies, viz. supply of goods, or services, or both in the course of inter-State trade or commerce, and supply of goods, or services, or both in the course of import into the territory of India.
Goods and services tax law making powers of Parliament, only with respect to supply of goods, or services, or both in the course of inter-State trade or commerce, and supply of goods, or services, or both in the course of import into the territory of India, are subjected to provisions of Article 269A of the Constitution. Goods and services tax law making powers of Parliament, with respect to other supplies of goods, or services, or both, are not subjected to provisions of Article 269A of the Constitution. In view of this, ──
(i) amount of tax levied and collected by the Government of India on other supplies of goods, or services, or both cannot be apportioned in between the Union and the States;
(ii) amount of tax levied and collected by the Government of India on other supplies of goods, or services, or both cannot be used for payment of tax levied by a State under clause (1) of Article 246A;
(iii) amount of tax levied and collected by a State under clause (1) of Article 246A cannot be used for making payment of tax levied on any supply of goods, or services, or both where such supply does not take place either in the course of inter-State trade or commerce, or in the course of import into the territory of India.
It is the Constitution which provides that which amounts shall, and which amounts shall not, form part of the Consolidated Fund of India, or the Consolidated Fund of the State, as the case may be. Parliament and the Legislatures of a State cannot make law to provide that which amounts shall, and which amounts shall not, form part of the Consolidated Fund of India, or the Consolidated Fund of the State. Consolidated Fund of India and Consolidated Fund of the State are governed by Article 266 of the Constitution.
In view of the discussion above, in my personal opinion that, ──
(a) enactment of sub-section (5) of section 7 of the Integrated Goods and Services Tax Act, 2017, to the extent it applies to any supply of goods, or services, or both, except a supply of goods, or services, or both which is covered under any of sub-sections (1) to (4) of said section 7 of the IGST Act, is beyond the Legislative powers of Parliament as provided in the Constitution;
(b) the Constitution does not give power to Parliament to declare any supply of goods, or services, or both which, for the purposes of Article 269A, shall be treated to be a supply of goods, or services, or both in the course of inter-State trade or commerce;
(c) clause (5) of Article 269A of the Constitution, inter-alia, provides that Parliament may, by law, make principles for determining when a supply of goods, or services, or both takes place in the course of inter-State trade or commerce. Power of Parliament to make principles for determining when a supply of goods, or services, or both takes place in the course of inter-State trade or commerce does not include power to declare that a supply of goods, or services, or both, even if such supply does not take place in the course of inter-State trade or commerce, shall be treated to be a supply of goods, or services, or both in the course of inter-State trade or commerce.
As in case of international trade or commerce, sale or supply involves movement of goods or services from one country to another, so in the case of inter-State trade or commerce, sale or supply involves movement of goods or services from one State to another. In the transaction of “supply of goods, or services in the course of inter-State trade or commerce”, two activities, viz. “supply of goods, or services, or both”, and “inter-State trade or commerce” are so inextricably linked that activity of supply of goods, or services, or both cannot be dissociated from the inter-State trade or commerce, without which supply of goods, or services, or both cannot be effectuated.
While examining sale or purchase of goods in the course of inter-State trade or commerce, the Law Commission of India, in its Second Report (Parliamentary Legislation Relating to Sales Tax), Dated July 02, 1956, has found that “movement of goods from one State to another” is essential feature of “inter-State trade or commerce”. I am of the opinion that provisions of sub-section (1) of section 7 of the IGST Act are to be analyzed in the light of views expressed by the Law Commission of India. After all most of the supplies of goods are also sales of goods, and vice-versa.
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Disclaimer: Views expressed in this article are my personal views and are meant for academic discussion. Views do not provide any legal advice. I and the publisher of the article disown any liability, arises if any, on acting upon the views expressed here.
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