Constitution of India (hereinafter referred to as the Constitution) defines the expression ‘goods and services tax’ as any tax on supply of goods or services or both, except tax on supply of alcoholic liquor for human consumption. The Constitution provides that Legislature of each State can make goods and services tax (hereinafter referred to as GST) law for whole, or any part, of such State. At the same time, the Constitution also puts restrictions on GST law making powers of the States. The Constitution provides that States cannot make law to provide levy and collection of GST on any supply of goods or services or both where such supply takes place─
(i) in the course of inter-State trade or commerce; or
(ii) outside the State; or
(iii) in the course of import of the goods or services or both into the territory of India; or
(iv) in the course of export of the goods or services or both out of the territory of India.
Clause (2) of Article 246A of the Constitution provides that Parliament shall have exclusive power to make GST law where supply of goods or services or both where such supply takes place in the course of inter-State trade or commerce. Article 269A of the Constitution gives powers to the Parliament to make law to provide levy and collection of GST on supply of goods or services or both where such supply takes place in the course of inter-State trade or commerce, or in the course of import into the territory of India. The said Article also gives power to Parliament to make law to provide the manner in which tax collected shall be apportioned in between the Union and the States. Clause (5) of the said Article 269A gives powers to Parliament to make law to formulate principles for the purpose of determining 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 (1) of Article 286 of the Constitution provides that no law of a State shall impose or authorize imposition of tax on supply of goods or services or both where such supply takes place─
(i) outside the State; or
(ii) in the course of import of the goods or services or both into the territory of India; or
(iii) in the course of export of the goods or services or both out of the territory of India.
Clause (2) of Article 286 of the Constitution 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 import of the goods or services or both into the territory of India; or
(iii) in the course of export of the goods or services or both out of the territory of India.
Had there not been any restriction on GST law making powers of the States, every State would have been competent for making GST law to provide levy and collection of tax on all supplies of goods or services or both with which such State would have real territorial nexus (connection). Every supply of goods or services or both has certain essential ingredients, like agreement to sell, appropriation of goods to the contract, transfer of owner-ship, payment of the price, delivery of the goods and so forth, which may take place at different places. A State can be said to have territorial nexus with a sale or supply of any goods if one or more essential ingredients of sale or supply have location within the territory of that State. It is essential that territorial nexus should be real.
Article 245 of the Constitution, inter-alia, provides that subject to the provisions of the Constitution, the Legislature of a State may make laws for the whole, or any part, of the State. Therefore, a State cannot make GST law with respect to any supply of goods or services or both, if any ingredient of such supply is not found to have been located within the territory of that State. Where any goods, located in any State, are supplied in the course of export of the goods out of the territory of the India, State has territorial nexus with the supply. Similarly, where any goods are received within the territory of a State as a result of supply of goods in the course of import of the goods into the territory of the India, State has territorial nexus with the supply. Where supply of goods is made in the course of inter-State trade or commerce, State from where goods are supplied, and the State in which goods are delivered, both have territorial nexus with the sale or supply. Export and import come under international trade or commerce. Taxation on export or import of goods or services may result in distortion in international trade of the country. This requires that there should be uniform taxation policy throughout the country, with respect to international trade or commerce. For this purpose, taxation with respect to international trade or commerce is to be governed by the Union. For this reason, States have been prohibited from imposing tax on sale or supply of goods or services or both where such sale or supply of goods or services or both takes place 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. So far as it is related to levy of tax on supply of goods or services or both where such supply takes place in the course of inter-State trade or commerce, such supply involves movement of goods or services from one State to another. If power of levy of tax is given to States, State from where goods are consigned, and the State in which goods are delivered, will become free to make law for levy and collection of tax. Such a practice will be against the interests of the consumers as well as a hindrance in achieving economic unity of the country. Such practice had been adopted by several Provinces in pre-Constitution period. For these reasons, the Constitution prohibits States from imposing tax on such sales or supplies and gives powers to Parliament to make law to provide levy and collection of tax on such sale or supply of goods.
Three type of sales or purchases of goods, viz. (i) sale or purchase of goods in the course of inter-State trade or commerce, (ii) sale or purchase of goods in the course of export of the goods out of the territory of India, and (iii) sale or purchase of goods in the course of export of the goods out of the territory of India, necessarily involve movement of goods. Such sales or purchases of goods may be understood as follows:–
(a) In case of a sale or purchase of goods in the course of inter-State trade or commerce, journey of goods starts from within the territory a State or a Union Territory, for a destination located in some other State or Union Territory. A sale or purchase of goods in the course of inter-State trade or commerce may also be effected by transfer of documents of title of goods during movement of goods from one State/ Union Territory to another State/ Union Territory.
(b) In case of a sale or purchase of goods in the course of export of the goods out of the territory of India, sale or purchase itself involves movement of goods from any place located within the territory of India for a destination located in some foreign country. A sale or purchase of goods in the course of export of the goods out of the territory of India, may also be effected by transfer of documents of title of goods after the export journey of goods commences and before the export journey of goods ends.
(c) In case of a sale or purchase of goods in the course of import of the goods into the territory of India, sale or supply of goods involves movement of goods from any place located in some foreign country for a destination located within the territory of India. A sale or purchase of goods in the course of import of the goods into the territory of India may also be effected by transfer of documents title of goods after export of goods starts and before the export journey of goods comes to an end in the Territory of India.
What is noteworthy, in respect of three types of sales of goods, referred to in the foregoing paragraph, is that their description is silent about the location of the person who makes the sale, and the location of the person to whom sale is made. Indispensable feature of sale of goods, in the course of inter-State trade or commerce, or export of goods, or import of goods, is movement of goods from one taxable territory to another taxable territory. In case of sale of goods in the course of inter-State trade or commerce, in the context of India, such territories may be two States, or two Union Territories, or a State and a Union Territory. In case of sale or purchase of goods in the course of import of the goods into the territory of India, one territory is the territory of the nation from which goods are exported for their importation in the territory of India, and second territory is territory of India in which goods are imported. In case of sale or purchase of goods in the course of export of the goods out of the territory of India, one territory is the territory of India, out of which goods are exported, and second territory is the territory of the foreign nation in which goods are imported.
So far as it is related to restriction on tax levy powers of the States on sale or purchase of goods or supply of goods where such supply takes place outside the State, before the Constitution (One Hundred and First Amendment) Act, 2016 came into force, sub-clause (a) of clause (1) of Article 286 of the Constitution had put restriction on tax levy powers of the States on sale or purchase of goods where such sale or purchase used to take place outside the State. For determining a sale or purchase of goods outside the State, clause (2) of the said Article 286 had provided that Parliament could make law to formulate principles for determining when a sale or purchase of goods could be said to have taken place outside the State. History and background of sub-clause (a) of clause (1) of Article 286 of the Constitution reveals that said provision had been enacted in the Constitution to avoid multiple taxation (on the basis of territorial nexus theory) by more than one State on a single transaction of sale or purchase of goods. Earlier to adoption of the Constitution on January 26, 1949, several States (Provinces) had, under Government of India Act, 1935, been imposing tax on single transaction of sale or purchase of goods where they (States) have territorial nexus with such sale or purchase of goods. The Constitution makers found this practice against the interests of consumers, and also a hindrance in achieving economic unity of the nation. In cases of sales or purchases of goods, in respect of which more than one State could be said to have territorial nexus with the sale or purchase of goods, sub-clause (a) of clause (1) of Article 286 was made. The provision had put restriction on tax levy powers of all States, except the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State. Clauses (1) and (2) of Article 286 of the Constitution had run as follows:–
“286. (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
Explanation. -For the purposes of sub-clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.
(2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce:
Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951.”
There had been controversies about the clause “State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State”. Controversies had arisen as to what had constituted actual delivery and consumption. By the Sixth Amendment of the Constitution, clauses (1) and (2) of Article 286 of the Constitution were also amended. After the said amendment, clauses (1) and (2) of the said Article had run as follows:–
“286. (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place—
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1).”
Parliament had, while enacting the Central Sales Tax Act, 1956, made principles in sections 3, 4 and 5 of the said Act for determining when a sale or purchase of goods takes place─
(i) in the course of inter-State trade or commerce; or
(ii) outside the State; or
(iii) in the course of import of the goods into the territory of India; or
(iv) in the course of export of the goods out the territory of India.
For the purpose of determining when a sale or purchase of goods takes place in any of the ways referred to in clauses (i) to (iv) above, the Parliament has, in Chapter II of the Central Sales Tax Act, 1956, enacted sections 3, 4 and 5 as given below.
“CHAPTER II
FORMULATION OF PRINCIPLES FOR DETERMINING WHEN A SALE OR PURCHASE OF GOODS TAKES PLACE IN THE COURSE OF INTER-STATE TRADE OR COMMERCE OR OUTSIDE A STATE OR IN THE COURSE OF IMPORT OR EXPORT
3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce.
A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase— (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another.
Explanation 1 — Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee.
Explanation 2 — Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.
4. When is a sale or purchase of goods said to take place outside a State.—
(1) Subject to the provisions contained in section 3, when a sale or purchase of goods is determined in accordance with sub-section (2) to take place inside a State, such sale or purchase shall be deemed to have taken place outside all other States.
(2) A sale or purchase of goods shall be deemed to take place inside a State, if the goods are within the State—
(a) in the case of specific or ascertained goods, at the time the contract of sale is made; and
(b) in the case of unascertained or future goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation.
Explanation — Where there is a single contract of sale or purchase of goods situated at more places than one, the provisions of this sub-section shall apply as if there were separate contracts in respect of the goods at each of such places.
5. When is a sale or purchase of goods said to take place in the course of import or export.—
(1) A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India only if the sale or purchase either occasions such export or is effected by a transfer of documents of title to the goods after the goods have crossed the customs frontiers of India.
(2) A sale or purchase of goods shall be deemed to take place in the course of the import of the goods into the territory of India only if the sale or purchase either occasions such import or is effected by a transfer of documents of title to the goods before the goods have crossed the customs frontiers of India.
(3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export.
(4) The provisions of sub-section (3) shall not apply to any sale or purchase of goods unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the exporter to whom the goods are sold in a prescribed form obtained from the prescribed authority.
(5) Notwithstanding anything contained in sub-section (1), if any designated Indian carrier purchases Aviation Turbine Fuel for the purposes of its international flight, such purchase shall be deemed to take place in the course of the export of goods out of the territory of India.
Explanation — For the purposes of this sub-section, “designated Indian carrier” means any carrier which the Central Government may, by notification in the Official Gazette, specify in this behalf.”
If we analyze necessity of restriction which prohibits States from imposing tax on sale or Purchase of goods, we find that where all ingredients of a sale or purchase are located within the territory of same State, it cannot be said that supply takes place outside the State. Only the State within the territory of which all ingredients of sale or purchase are located can make law for levy of tax. Where all ingredients of a sale or purchase of goods are located outside the territory of a particular State, State has no territorial nexus (connection) with sale or purchase, and sale or purchase of goods can be said to take place outside the State. In such circumstances, such particular State cannot make law to provide levy of tax. Problem arises when some of ingredients of a sale or purchase of goods are located in a particular State and other ingredients are located outside such State. Ingredients which are located outside the State, may be located in any State or Union Territory, or at any place located outside the territory of India. Place outside the territory of India may also be any place located in coastal waters of India.
It is worth noting that all four restrictions, viz. (i) restriction on tax levy powers of the States on sale or purchase of goods where such sale or purchase takes place in the course of inter-State trade or commerce; (ii) restriction on tax levy powers of the States where sale or purchase of goods takes place outside the State, (iii) restriction on tax levy powers of the States where sale or purchase of goods takes place in the course of export of the goods out of the territory of India, and (iv) restriction on tax levy powers of the States where sale or purchase of goods takes place in the course of the import of the goods into the territory of India, are independent. Therefore, sale or purchase of goods which takes place outside the State cannot be a sale or purchase of goods which takes place in the course of inter-State trade or commerce, or export of goods out of, or import of goods into, the territory of India. Sale or purchase of goods outside the State may be a sale or purchase of goods, all ingredients of which may be located within the territory of India. Such a sale or purchase of goods may also be a sale or purchase of any goods, of which few ingredients are located within the territory of India and remaining ingredients are located outside the territory of India. State within which any of the ingredients is located has real territorial nexus with the sale or purchase of goods. Let us consider following sales of goods, namely:–
(a) sale of any goods, which at the time when contract of sale is made are located in the State of Kerala, to a foreign going ship. Contract or agreement of sale provides that goods will be delivered on board of the ship, which is located at any place in the coastal waters of India. Employee of selling person carries invoice of goods and goods with him for delivery to captain of the ship and collects payment of price of goods from the captain. Here we see that sale of goods is neither a sale of goods in the course of inter-State trade or commerce, nor a sale of goods in the course of export of the goods out of the territory of India. At the same time, State of Kerala has real territorial nexus with the sale because goods sold have been located in the State of Kerala at the time of making contract of sale, or at the time of appropriation of goods towards the contract.
(b) A foreign going ship, located in coastal waters of India, wants to sell certain empties to a person located in the State of Gujarat. Empties are available on the ship. Purchaser visits the ship, and after examining the empties enters into contract of sale. According to contract, empties are to be delivered at his godown located in the State of Gujarat. Employee of the ship carries those empties with him and delivers such empties to the purchaser at the place agreed by him. In this case, sale of empties is neither a sale of goods in the course of inter-State trade or commerce, nor a sale of goods in the course of the import of the goods into the territory of India. Nevertheless, State of Gujarat has real territorial nexus with the sale of empties.
(c) Person A is seller of old motor cars. His stock yard of old motor cars is located in State P. Another person residing in State Q visits the motor car yard of person A. Person B asks person A about details of a used motor car of specific registration number and thereafter leaves the yard. After some days, both persons meet each other in a function at a certain place which is located in State Q. There, they discuss about sale of used motor car of specific registration number. They enter into contract of sale of specified registration number. Under the contract, payment of sale price of car is to be made at business place of person A. Contract provides that payment of price will be made by person B to person A at his business place, and motor car shall be delivered by person A to person B, at business place of person A. Contract also provides that motor car will be delivered on the same day on which payment of price of motor car is made. Contract in between person A and person B is fulfilled accordingly. In this case, ─
(i) place where goods are located at the time of making contract of sale, is located in State P;
(ii) place where contract of sale is made is located in State Q;
(ii) place where payment of sale price is made is located in State P; and
(iii) place where goods are delivered to the purchaser is located in State P.
Here we see that State P, and State Q, both States have real territorial nexus with sale of motor car. State Q has territorial nexus because place where contract of sale of motor car was made has been located within the territory of State Q. State P has territorial nexus with sale of motor car, because place where motor car has been located at the time of making contract of sale, place where payment has been made, and place where motor car has been delivered, all are located within the territory of State P. Had there not been restriction from tax levy on sale of goods which takes place outside the State, State A and State B, both have been competent for imposing tax on sale of the motor car. Restriction provided in sub-clause (a) of clause (1) of Article 286 of the Constitution is meant to multiple taxation by more than one State on a single sale or purchase of goods. Principles for determining sale or purchase of goods outside the State, require specification of nature of territorial nexus, which if a State does not have with a sale or purchase of goods, sale or purchase of goods is to be treated, for such State, a sale or purchase of goods which takes place outside the State.
(1) For any State, sale or purchase of any ascertained or specific goods, shall be treated sale or purchase outside the State if such goods, at the time contract of sale is made, are not located within the territory of such State; and
(2) For any State, sale or purchase of any unascertained or future goods, shall be treated sale or purchase outside the State if such goods, at the time of their appropriation to the contract of sale by the seller or by the buyer, whether assent of the other party is prior or subsequent to such appropriation, are not located within the territory of such State.
Where any goods are sold from any place located outside the territory of India and as a result of such sale goods are delivered in any State or Union Territory, sale outside the State may be determined on the basis of location of place of delivery of goods. For any State, if place of delivery, of goods sold from any place outside the territory of India, is not located within the territory of the said State, sale shall be deemed to take place outside that State.
Before, amendment of Article 286 of the Constitution, by the Constitution (Sixth Amendment) Act, 1956, for the purpose of determining sale or purchase of goods outside the State, Explanation of sub-clause (a) of clause (1) of the said Article has created fiction of treating a sale of goods inside a State if the goods had been actually delivered in that State as a direct result of sale or purchase for the purpose of consumption in that State. The said clause (1) of Article 286 had run as follows:–
“286. (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place─
(a) outside the State; or
(b) —
Explanation. -For the purposes of sub-clause (a), a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to sale of goods the property in the goods has by reason of such sale or purchase passed in another State.”
Article 286(1) (a) read with the Explanation caused a great deal of controversy and resulted in varying interpretations being put on that article read with the Explanation. Therefore, in the draft of the Constitution (sixth Amendment) Bill it was proposed to delete the Explanation of Article 286(1) (a) and to give powers to the Parliament for formulating principles for determining when a sale or purchase of goods takes place outside the State. It was also found that in view of provision of Article 286(1)(a) read with its explanation, States were not entitled for imposing tax on a sale of goods where any goods were sold from a coastal State (or any other State) and delivery of goods was made at any place located within the coastal waters of India. Such sales were not the sales of goods which had taken place in the course of export of goods out of the territory of India, or sales of goods which had taken place in the course of inter-State trade or commerce. Tax could not be levied by any State because, for all States, sale was found to have taken place outside the State.
As mentioned hereinbefore in this article, amendments made in the Constitution by the Constitution (One Hundred and First Amendment) Act, 2016 empowers the Parliament to make law to formulate principles for the purpose of determining ─
(a) place of supply, and when a supply of goods or services or both takes place in the course of inter-State trade or commerce; and
(b) 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.
On recommendation of the Goods and Services Tax Council (hereinafter referred to as the GST Council), Parliament has formulated principles, for the purpose of determining “place of supply”, in the Integrated Goods and Services Tax Act, 2017. Sub-clause (c) of Clause (4) of Article 279A runs as follows:-
“(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on—
(a) —
(b) —
(c) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply;”
In absence of specific mention in sub-clause (c) of clause (4) of Article 279A, the GST Council had not made its recommendation about the principles for determining when a supply of goods or services or both takes place─
(i) in the course of inter-State trade or commerce; or
(ii) outside the State; or
(iii) in the course of the import of the goods or services or both into the territory of India; or
(iv) in the course of the export of the goods or services or both out of the territory of India.
In my personal opinion, Legislature of every State can make law to provide levy and collection of tax on supply of goods, [except alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel], or services or both with which such State has real territorial nexus, except a supply of goods or services or both where such supply takes place─
(i) in the course of inter-State trade or commerce; or
(ii) outside the State; or
(iii) in the course of the import of the goods or services or both into the territory of India; or
(iv) in the course of the export of the goods or services or both out of the territory of India.
It is noticeable that in the Model GST Law draft recommended by the GST Council, States had been advised to make their GST Law to provide levy and collection of tax on all intra-State supplies of goods or services or both, except on supply of alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. Clauses (64) and (65) of section 2 of the Model GST Law define “intra-State supply of goods”, and “intra-State supply of services” as follows:–
(64) “intra-State supply of goods” shall have the same meaning as assigned to it in section 8 of the Integrated Goods and Services Tax Act;
(65) “intra-State supply of services” shall have the same meaning as assigned to it in section 8 of the Integrated Goods and Services Tax Act;
So far as it is related to section 8 of the Integrated Goods and Services Tax Act, 2017, the said section 8 runs as follows:–
“8. (1) Subject to the provisions of section 10, supply of goods where the location of the supplier and the place of supply of goods are in the same State or same Union territory shall be treated as intra-State supply:
Provided that the following supply of goods shall not be treated as intra-State supply, namely:—
(i) supply of goods to or by a Special Economic Zone developer or a Special Economic Zone unit;
(ii) goods imported into the territory of India till they cross the customs frontiers of India; or
(iii) supplies made to a tourist referred to in section 15.
(2) Subject to the provisions of section 12, supply of services where the location of the supplier and the place of supply of services are in the same State or same Union territory shall be treated as intra-State supply:
Provided that the intra-State supply of services shall not include supply of services to or by a Special Economic Zone developer or a Special Economic Zone unit.
Explanation 1.—For the purposes of this Act, where a person has,—
(i) an establishment in India and any other establishment outside India;
(ii) an establishment in a State or Union territory and any other establishment outside that State or Union territory; or
(iii) an establishment in a State or Union territory and any other establishment being a business vertical registered within that State or Union territory, then such establishments shall be treated as establishments of distinct persons.
Explanation 2.—A person carrying on a business through a branch or an agency or a representational office in any territory shall be treated as having an establishment in that territory.”
Here it is noteworthy that Parliament has enacted section 8 of the Integrated Goods and Services Tax Act, 2017 for the purpose of the Union. Another Act enacted by the Parliament for the Union is “The Central Goods and Services Tax Act, 2017. This Act provides levy and collection of central goods and services tax on “intra-State supply of goods or services or both” made in a State, and “intra-State supply of goods or services or both made in Union Territory, except supply of non-GST goods. This Act provides levy and collection of tax in all States and Union Territories.
Provisos of sub-sections (1) and (2) of section 8, quoted above, exclude certain supplies of goods or services or both even if all ingredients of such supplies are located within the same State. For the purpose of the Union, such supplies have, by creating fiction, been included in “Inter-State Supply”, in section 7 of the Integrated Goods and Services Tax Act, 2017. These excluded supplies cannot be said to take place─
(i) in the course of inter-State trade or commerce; or
(ii) outside the State; or
(iii) in the course of the import of the goods or services or both into the territory of India; or
(iv) in the course of the export of the goods or services or both out of the territory of India.
For the purpose of levy of GST by the States, the Constitution gives powers to States for levy and collection of GST on these excluded supplies, even in absence of principles for determining supply of goods or services or both outside the State.
In my personal opinion,
(1) provisions of sub-section (1) of section (7) of the Integrated Goods and Services Tax Act, 2017 are not legally correct. The said provision runs as follows:-
7. (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.”
The said provision, in certain circumstances, lacks the concept of “inter-State trade or commerce”. Essential and indispensible feature of “inter-State trade or commerce” is movement of goods or services from one State to another, or from one Union Territory to another, or from a State to a Union Territory or vice versa. This concept has not only been followed in formulating principles for the purpose of determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce, but the concept has also been followed in other countries which have federal nature.
(2) Article 270 of the Constitution refers to two categories of GST Law making powers of the Union. First category of GST Laws is of those laws which may be enacted under clause (2) of Article 246A, and Article 269A, of the Constitution, and second category of GST Laws is of those Laws which may be made by the Parliament under clause (1) of Article 246A of the Constitution. Under clause (2) of Article 246A, and Article 269A, of the Constitution, the Parliament can make law with respect to following two supplies of goods or services or both, namely:-
(i) supply of goods or services or both where such supply takes place in the course of inter-State trade or commerce; and
(ii) supply of goods or services or both where such supply takes place in the course of import into the territory of India.
Barring these two supplies of goods or services or both, in respect of all other supplies of goods or services or both, Parliament can make law under clause (1) of Article 246A of the Constitution. Reason of putting supplies in two different categories is because of difference in the manners in which tax collected on various supplies is to be shared with States.
(3) Clause (5) of Article 269A of the Constitution, which requires the Parliament to formulate principles for determining place of supply, requires the Parliament to formulate principles for determining place of supply where supply of goods or services or both takes place in the course of inter-State trade or commerce. Such place of supply is required for apportionment of tax collected on two supplies, viz. (i) supply of goods or services or both where such supply takes place in the course of inter-State trade or commerce; and (ii) supply of goods or services or both where such supply takes place in the course of import into the territory of India. My opinion is based on following facts, namely:-
(a) Marginal note of Article 269A of the Constitution runs as “Levy and collection of goods and services tax in course of inter-State trade or commerce.”
(b) In clause (5) of Article 269A, two expressions, viz. (i) place of supply, and (ii) when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce, have been joined by using conjunction word “and”. Therefore, expression “place of supply” is to be understood as related to “supply of goods, or of services, or both in the course of inter-State trade or commerce. First expression should take color from second expression.
(c) Place of supply is required to determine the State with which GST collected by the Union on supply of goods, or of services, or both is to be shared by the Union by way of apportionment.
(4) Sub-section (5) of section 7 of the Integrated Goods and Services Tax Act, 2017 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.
Looking into the constraints provided in Clause (1) of Article 269A, and Article 270, of the Constitution, supplies included in sub-section (5) of section 7 of the Integrated Goods and Services Tax Act, 2017 could, for the purpose of levy and collection of tax, and for apportionment of collected tax in between the Union and the States, not have been clubbed with two supplies, viz. (i) supply of goods or services or both where such supply takes place in the course of inter-State trade or commerce; and (ii) supply of goods or services or both where such supply takes place in the course of import into the territory of India.
In my personal opinion, It is desirable to─
(a) to make law to formulate principles for determining when a supply of goods or services or both takes place─
(i) in the course of inter-State trade or commerce; or
(ii) outside the State; or
(iii) in the course of import of the goods or services or both into the territory of India; or
(iv) in the course of export of the goods or services or both out of the territory of India.
(b) re-examine principles formulated for determining “place of supply” and to make required changes in existing law.
(c) make consequential changes in relevant provisions of GST Laws.
Matter of formulation of principles for determining supply of goods or services or both which takes place outside the State; or in the course of inter-State trade or commerce, or import of goods or services or both into the territory of India, or export of the goods or services or both out of the territory of India, had not specifically been included in the matters on which the GST Council was required to make its recommendations in sub-clause (c) of clause (4) of Article 279A of the Constitution. Matter is directly related to goods and services tax and law required is of essential nature. However, sub-clause (h) of clause (4) of Article 279A of the Constitution runs as follows:–
“(h) any other matter relating to the goods and services tax, as the Council may decide.”
In my opinion, the GST Council has, under clause (4) (h) of Article 279A of the Constitution, ample powers to make its recommendations on any matter which is related to goods and services tax. In such circumstances, the GST Council may be requested by the Union Government to make its recommendation about the principles to be formulated by the Parliament.
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Disclaimer: Except the quoted versions, interpretations made and all other views expressed here are my personal views and are meant only for academic discussion. Readers are advised to follow the provisions of the law and to seek opinion of their legal advisors before acting upon the views expressed here. I and the publishers of this article disown any liability on account of any loss or damage that may be caused on account of use of views expressed here.
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Dear Sir, If comission from real Estate brokerage is 15 Lac for year and tds already deducted from the comission by builder. Now while filing ITR any further income tax need to be paid? Earlier we thought that further 30% income tax need to pay but one of my friend who is an accountant told me that if TDS already deducted then income tax pay nahi karna hoga. Itr file krke 0 income tax aayega. Please suggest what will happen in actual.