In order to pave the way to levy and collection of goods and services tax (hereinafter referred to as the GST), the Constitution (One Hundred and First Amendment) Act, 2016 was enacted. Vide this amendment Act, Article 246A, Article 269A, and Article 279A were newly  added in the Constitution of India (hereinafter referred to as the Constitution). Apart from addition of new Articles in the Constitution, certain other Articles, certain entries of the Union List and the State List, of Seventh Schedule, of the Constitution were also amended. Earlier to enactment of One Hundred and First Amendment of the Constitution, Article 286 of the Constitution had provided restrictions on law making powers of the States with respect to imposition of tax on sale or purchase of goods. Before the said amendment of the Constitution, Article 286 of the Constitution had three clauses. By the said Amendment of the Constitution, clauses (1) and (2) of Article 286 were amended to make applicable to tax on supply of goods or services or both, and clause (3) of the said Article 286 was omitted. However, heading of amended Article 286 of the Constitution still runs as “Restrictions as to imposition of tax on the sale or purchase of goods“.

In my personal opinion, in absence of recommendation of Goods and Services tax Council, principles required in clause (2) of Article 286 of the Constitution could not be made by the Parliament. In absence of the principles for determining when a supply of any goods or services or both takes place outside the State, power of States for levy of GST on a supply of goods or services or both  is undefined. Certain provisions of the Integrated Goods and Services Tax Act, 2017(hereinafter referred to as the IGST Act) are not supported by the provisions of the Constitution. States have been deprived of their power of levy of GST on certain transaction of supply of goods or services or both. Expression “supply of goods, or of services, or both in the course of export of the goods or services or both out of the territory of India”, for the purpose of levy of tax, and for the purpose of zero rating has been splitted in two expressions, viz. (i) supply of goods or services or both, and (ii) export of goods or services or both. Zero rated supply provisions apply to “export of goods or services or both”. In reference to expression “sale or purchase of goods in the course of export of the goods out of the territory of India”, the Honorable Supreme Court has held that in the said expression, activity of sale or purchase of goods, and activity of “export of the goods” are so inextricably linked that they form a single transaction of sale or purchase of goods. They cannot be dissociated from each other. There are also certain other provisions, which in my personal opinion, are not proper.

For the purpose of this article, following Articles of the Constitution are relevant, namely:–

 “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.”

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.”

“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.”

270. Taxes levied and distributed between the Union and the States. (1) All taxes and duties referred to in the Union List, except the duties and taxes referred to in articles 268, 269 and 269A, respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the manner provided in clause (2).

(1A) The tax collected by the Union under clause (1) of article 246A shall also be distributed between the Union and the States in the manner provided in clause (2).

(1B) The tax levied and collected by the Union under clause (2) of article 246A and article 269A, which has been used for payment of the tax levied by the Union under clause (1) of article 246A, and the amount apportioned to the Union under clause (1) of article 269A, shall also be distributed between the Union and the States in the manner provided in clause (2).

(2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax or duty is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed in the manner provided in clause (3).

(3) In this article, “prescribed” means,—

(i) until a Finance Commission has been constituted, prescribed by the President by order, and

(ii) after a Finance Commission has been constituted, prescribed by the President by order after considering the recommendations of the Finance Commission.”

‘‘279A. (1) The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council.

(2) The Goods and Services Tax Council shall consist of the following members, namely:—

(a) the Union Finance Minister…………………… Chairperson;

(b) the Union Minister of State in charge of Revenue or Finance…………….. Member;

(c) the Minister in charge of Finance or Taxation or any other Minister nominated by each State Government………………..Members.

(3) The Members of the Goods and Services Tax Council referred to in sub-clause (c) of clause (2) shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide.

(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on—

(a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax;

(b) the goods and services that may be subjected to, or exempted from the goods and services tax;

(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;

(d) the threshold limit of turnover below which goods and services may be exempted from goods and services tax;

(e) the rates including floor rates with bands of goods and services tax;

(f) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster;

(g) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and

(h) any other matter relating to the goods and services tax, as the Council may decide.

(5) The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.

(6) While discharging the functions conferred by this article, 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.

(7) One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings.

(8) The Goods and Services Tax Council shall determine the procedure in the performance of its functions.

(9) Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely:—

(a) the vote of the Central Government shall have a weightage of onethird of the total votes cast, and

(b) the votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes cast, in that meeting.

(10) No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reason of—

(a) any vacancy in, or any defect in, the constitution of the Council; or

(b) any defect in the appointment of a person as a Member of the Council; or

(c) any procedural irregularity of the Council not affecting the merits of the case.

(11) The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute —

(a) between the Government of India and one or more States; or

(b) between the Government of India and any State or States on one side and one or more other States on the other side; or

(c) between two or more States, arising out of the recommendations of the Council or implementation thereof.’’.

However, amended Article 286 does not put any restrictions on law making powers of the Parliament, but it requires the Parliament to formulate principles, by law, for determining when a supply of goods or of services or both takes place outside the State, or in the course of export of goods or services or both out of, or import of the goods or services or both into, the territory of India. The said Article 286 runs as follows:–

“286. Restrictions as to imposition of tax on the sale or purchase of goods. (1) No law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or of 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.

(2) Parliament may by law formulate principles for determining when a supply of goods or of services or both in any of the ways mentioned in clause (1).”

A careful reading of above quoted provisions of the Constitution reveals that─

(a) Article 245 of the Constitution, subject to other provisions of the Constitution, gives powers to the Parliament to make law for whole or any part of the territory of India, and to the Legislature of the each States to make law for whole or any part of such State.

(b) Clause (2) of Article 246A and clause (1) of Article 269A of the Constitution give powers to the parliament to make law to provide─

(i) levy and collection of GST on a 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; and

(ii) the manner in which tax collected on two supplies of goods or services or both, referred to in clause (i) above, shall be distributed in between the Union and the States.

(c) Clause (5) of Article 269A of the Constitution gives powers to the Parliament to make law to formulate principles for 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.

(c) In respect of all supplies of goods or services or both, except 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, clause (1) of Article 246A of the Constitution gives powers to the Parliament to make law(s) with respect to GST imposed by the Union.

(d) Clause (2) of Article 286 of the Constitution gives powers to the Parliament to make law to formulate principles for determining when a supply of goods or services or both takes place─

(a) outside the State; or

(b) in the course of export of the goods or services or both out of the territory of India; or

(c) in the course of import of the goods or services or both into the territory of India.

                Here following things are noteworthy, namely:-

(1) Clause (3) of Article 1 of the Constitution runs as follows:–

“(3) The territory of India shall comprise—

(a) the territories of the States;

(b) the Union territories specified in the First Schedule; and

(c) such other territories as may be acquired.”

(2) Words “out of territory of India” have been used in clause (2) of Article 286 of the Constitution to indicate commencement of movement of goods or services or both from within the territory of India; and

(3) Words “into the territory of India” have been used in clause (2) of Article 286 of the Constitution to indicate the entry of goods or services or both into the territory of India.

If we look at clause (1A) of Article 270 of the Constitution, we find that the said Article provides that-

(i) out of the GST collected, under laws made by the Parliament under clause (1) of Article 246A, a certain percentage amount of GST collected by the Union in any State shall be assigned to such State, in accordance with provisions of clause (2) of the said Article 270; and

(ii) amount assigned to State shall not form part of the Consolidated Fund of India.

Under clause (2) of Article 246A, and Article 269A, of the Constitution, the Parliament can make GST law to provide levy and collection of GST on following 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 of the goods or services or both into the territory of India.

Clause (1) of Article 269A also gives powers to the Parliament to make law to provide the manner in which GST collected on two aforesaid supplies shall be apportioned  in between the Union and the States. Clause (1B) of Article 270 provides that out of the amount of GST apportioned to the Union in any State under Article 269A of the Constitution, a certain percentage of such apportioned amount, shall be assigned to such State in the manner provided in clause (2) of Article 270 of the Constitution.

2. In view of Article 246A (1), the parliament can make GST law(s) with respect to any supply of goods or services or both, except two supplies of goods or services or both referred to in the serial number 1 above. GST law making power of Parliament under clause (1) of Article 246A of the Constitution also includes power of levy and collection of GST on supply of goods or services or both where such supply takes place in the course of export of the goods or services or both out of the territory of India.

Manner of sharing of tax collected, by the Union with the States, under, ─

(i) clause (1) of Article 246A of the Constitution; and

(ii) clause (2) of Article 246A and Article 269A, of the Constitution,

are different, tax collected on any supply of goods or services or both under clause (1) of Article 246A cannot be included in tax collected under clause (2) of Article 246A and Article 269A, and vice-versa.

Union of India being a single territory, it would have been possible to collect GST in a single account, but clause (6) of Article 279A provides as follows:–

“(6) While discharging the functions conferred by this article, the GST Council shall be guided by the need for a harmonised structure of GST and for the development of a harmonised national market for goods and services.”

The above provision requires that total burden of tax in respect of a supply of goods or services or both throughout the country should be the same. Since,

(a) in the States, GST can be levied by the State as well as by the Union;

(b) in Union Territories and in the territorial waters of India, GST can be levied only by the Union;

(c) throughout India, tax on supply of goods or services or both where such supply takes place in the course of─

(i) inter-State trade or commerce; or

(ii) export of the goods or services or both out of the territory of India; or

(iii) import into the territory of India,

GST can only be levied by the Union, therefore, need of harmonised structure of goods and services tax requires that aggregate of tax rates to be fixed by the States, and the Union, under clause (a) above, rate of tax under clause (b),  and tax rate for each supply mentioned in clause (c) above, for supply of same goods or services, should be same. This also suggests that for the purpose of levy and collection of GST, supplies of goods or services or both which can be taxed by the Union in a State cannot be different from the supply of goods or services or both which can be taxed by the State.

Levy of GST on a supply which takes place inside a State.─

Article 246A of the Constitution provides that Legislature of each State can make GST law for such State subject to the condition that the Parliament shall have exclusive power to make GST law with respect to a supply of goods or services or both where such supply takes place in the course of inter-State trade or commerce. Clause (1) of Article 286 prohibits States from imposing GST where supply of goods or services or both takes place ─

(a) outside the State; or

(b) in the course of export of the goods, or of services, or both out of, or import of the goods or services or both into, the territory of India.

There is no other provision which prohibits States from imposing GST on any other supply. Clause (5) of Article 269A of the Constitution gives power to the Parliament, by law, to formulate principles for determining when a supply of goods or services or both takes place in the course of inter-State trade or commerce. Similar power has also given to the Parliament in clause (2) of Article 286 of the Constitution, to formulate principles by law for determining when a supply of goods or services or both takes place ─

(a) outside the State; or

(b) in the course of export of the goods, or of services, or both out of, or import of the goods or services or both into, the territory of India.

After the Parliament makes the law referred to in clause (5) of Article 269A, and clause (2) of Article 286, of the Constitution, GST law making powers of States will get fully defined. Legislature of each State can make GST law to provide levy and collection of GST on every supply of goods or services or both with which such State has real territorial nexus, but it cannot make GST law with respect to a supply of goods or services or both where such supply takes place─

(a) in the course of inter-State trade or commerce; or

(b) outside the State; or

(c) in the course of import of the goods or services or both into the territory of India; or

(d) in the course of export of the goods or services or both out of the territory of India.

Keeping in mind the concept of  harmonized structure of goods and services tax, the Union can also levy GST in a State on those supplies of goods or services or both, on which such State can levy GST.

Levy of GST on a supply which takes place inside a Union Territory.─

For the purpose of levy of tax by the Union in any Union Territory, the Parliament can, under clause (1) of Article 246A of the Constitution, make GST law to provide levy and collection of GST, in a Union Territory, on a supply of goods or services or both which has real territorial nexus with such Union Territory, but, under clause (1) of Article 246A of the Constitution, the Parliament cannot make GST law where such supply of goods or services or both takes place ─

(a) in the course of inter-State trade or commerce; or

(b) outside the Union Territory; or

(c) in the course of import of the goods or services or both into the territory of India; or

Levy of GST on a supply which takes place in the course of inter-State trade or commerce, or in the course of import of goods or services or both into the territory of India.─

Article 269A of the Constitution is specific provision and applies to a supply of goods or services or both which takes place in the course of either inter-State trade or commerce, or import of goods or services or both into the territory of India. The said Article of the Constitution also provides for apportionment of tax collected on such supplies in between the Union and the States. Tax collected on any other supply of goods or services or both cannot be included in the tax collected on these two supply. If tax is to be levied and collected on any other supply of goods or services or both, under the law which provides levy and collection of GST on a supply of goods or services or both which takes place either in the course of inter-State trade or commerce, or in the course of import of goods or services or both into the territory of India, the object can be achieved by creating legal fiction only for limited purposes of levy and collection of GST. In this case, amount of tax collected on such other supply, cannot be clubbed with tax collected on two supplies of goods or services or both referred to in Article 269A of the Constitution. For levy and collection of GST on such other supply, provisions of clause (1) of Article 246A of the Constitution shall apply and for distribution of tax collected provisions of clause (1A) of Article 270 of the Constitution shall apply. For this reason GST collected on any other supply will have to be transferred and clubbed with GST collected by the Central Government under clause (1) of Article 246A of the Constitution, in the State or the Union Territory, as the case may be, in which such amount has been collected.

Article 286 of the Constitution, inter-alia, prohibits States from imposing tax on supply of goods or services or both where such supply takes place in the course of export of the goods or services or both out of the territory of India. In order to give a boost to export businesses, the policy of the Government is not to collect any GST on supply of goods or services or both where such supply takes place in the course of export of the goods or services or both out of the territory of India, and to allow refund of GST paid by the exporter while procuring inputs and input services. For this purpose, Government will require turnover of supply of goods or services or both made in the course of export of the goods or services or both, amount of input tax involved and evidence of export of goods or services or both.   For this purpose, legal fiction of following nature can be created in the law, which provides levy and collection of GST on a supply of goods or services or both which takes place in the course of either inter-State trade or commerce, or import of goods or services or both into the territory of India, namely:–

1. Levy of tax.

For the limited purposes of levy and collection of tax, legal fiction can be created for treating, a supply of any goods or services or both, which takes place in the course of export of the goods or services or both out of the territory of India, a supply of such goods or services or both in the course of inter-State trade or commerce. Thereafter, such supply should be generally and unconditionally be exempt from levy of tax by declaring it a zero rated supply.

2. For allowing exemption from tax.

Provision may run as follows:–

Notwithstanding anything contained contrary to in any other provision of this Act, no integrated tax shall be levied on a supply of any goods or services or both in the course of inter-State trade or commerce where such supply of goods or services or both is a supply of goods or services or both which has taken place in the course of export of such goods or services or both out of the territory of India.

3. For claiming input tax credit

Notwithstanding anything contained contrary to any other provision under this Act, a registered person, who has made, or who intends to make supply of any goods or services or both in the course of inter-State trade or commerce by way of supply of goods or services or both in the course of export of the goods or services or both out of the territory of India, shall be entitled for claiming input tax credit with respect to such quantity of goods, or of services, or of both as has been utilized by him in making the supply.

4. For claiming refund of unutilized amount of input tax credit

Where a registered person has made supply of any goods or services or both in the course of inter-State trade or commerce, by way of supply of goods or services or both in the course of export of the goods or services or both out of the territory of India, and has claimed input tax credit with respect to such supply of goods or services or both, he  can, subject to provisions of section 54 of the Central GST Act, 2017 and the rules made thereunder, claim refund of unutilized amount of input tax credit.

Explanation.─

For the purpose of this section, word “goods” includes, alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.

5. Security in the interest of revenue

In appropriate cases, before granting a refund, the proper officer may, in the interest of revenue, require the person claiming refund to furnish security of amount of refund.

Important:

Expression “supply of goods or services or both in the course of export of the goods or services or both out of the territory of India” has specific meaning. In the expression  activity of “supply of goods or services or both” and “export of goods or services or both” are so closely associated that they form a single transaction of supply of goods or services or both. Both activities cannot be separated from each other. Use of expression “export of goods or services or both” in clause (a) of sub-section (1) of section 16 of the Integrated GST Act, 2017 is legally invalid. Definitions of expressions “export of goods” and “export of services” are not relevant for the purpose of GST. In clause (2) of Article 286, Parliament has been given power to make principles for determining when a supply of goods or services or both takes place in the course of export of the goods or services or both out of the territory of India. Data captured by the Customs Department is relevant only for verifying claims made by the exporters.

Sub-section  (1) of section  5 of the Integrated GST Act, 2017, inter-alia provides for levy of integrated tax on the supply of goods or services or both referred to in clause (a) of section 7(5) of the Integrated GST Act, 2017. The said clause (a) 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) —

(c) —,

shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.”

Section 16 of the Integrated GST Act, 2017 relates to zero rated supply. In sub-section (1) of said section 16, following supplies have been named as zero rated supply, namely:-

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Expression “export of goods” has, in clause (5) of section 2 of the said Act, been defined  as follows:–

“(5) “export of goods” with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India;”

Expression “export of goods”, used in clause (a) of sub-section (1) of section 16 of the IGST Act, is devoid of activity of supply. Customs Law deals with “export of goods”  activity, whereas GST Law deals with activity of  “supply of goods in the course of export of the goods”. In the expression “supply of goods in the course of export of the goods”, two activities of supply of goods and export of goods are so inextricably linked that they form a single transaction.

4. Supply of goods in territorial waters.

Such supplies may be of following kinds, namely:–

(i) a supply of goods or services or both where goods or services or both are supplied from place located in a State or Union Territory for delivery to a person located at any place in territorial waters; or

(ii) a supply of goods or services or both where goods or services or both are supplied from any place located in territorial waters for delivery at any place located in any State or a Union Territory; or

(iii) a supply of goods or services or both where goods or services or both are supplied from any place located in territorial waters for delivery to a person also located in territorial waters.

Such supplies do not fall under the category of supplies of goods or services or both which take place in the course of ─

(i) inter-State trade or commerce; or

(ii) export of the goods or services or both out of India, or out of India; or

(iii) import of the goods or services or both into the territory of India.

At the same time, supplies of goods or services or both referred to in clauses (i) and (ii) above have real territorial nexus with a State, or with a Union Territory. Therefore, such supplies can be taxed by the State, or Union Territory, for which such supply is not a supply outside the State, or Union Territory.  So far as it is related to supply of goods or services or both referred to in clause (iii) above, such supply can be taxed by the Union Government, and for this purpose, place from where goods or services or both are supplied, and the place where such goods or services or both are delivered, may be assumed in any Union Territory, and supplier, or recipient of supply may be required to obtain registration in such Union Territory.

Supply of goods or services or both in the course of inter-State trade or commerce.─

In my opinion, movement of goods or services or both from one State to another, or one Union Territory to another, or one State to a Union Territory, or vice-versa, is indispensable feature of inter-State trade or commerce. In view of this, provisions of sub-sections (1) and (3), of section 7 of the IGST Act are not proper.

Place of supply.─

Definition of expression “place of supply”, provided in the IGST Act, is being also used for ascertaining territorial nexus, and for ascertaining State for apportionment of integrated tax in between the Union and the States. Therefore, place of supply cannot be illusory or imaginary.

Supply of goods or services or both by, or to a SEZ developer or SEZ Unit.─

Clauses (b) and (c) of sub-section (5) of section 7 of the Integrated GST Act, 2017 runs as follows:–

“(5) Supply of goods or services or both,—

(a)  —

(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.”

The expression “Supply of goods or services or both by, or to a SEZ developer or SEZ Unit” may also refer to a supply of goods or services or both which may take place─

(i) in all respects within a single State or single Union Territory; or

(ii) in the course of inter-State trade or commerce; or

(iii) in the course of export of goods or services or both out of the territory of India; or

(iv) in the course of import of goods or services or both into the territory of India.

Supplies referred to in clauses (ii), (iii) and (iv) are already included in other provisions of the same section 7 of the IGST Act. A supply of goods or services or both, all ingredients of which are located within the same State or Union Territory, can never be thought a supply of goods or services or both which takes place outside the State. Clause (c) of sub-section (5) of section 7 of the IGST Act refers to any supply of goods or services or both which takes place in India but which is not covered in any other provision of sections 7, or section 8 of the IGST Act. Because such supply may or may not be a supply which takes place in the course of inter-State trade or commerce. In my opinion, fiction created in sub-section (5) of section 7 of the IGST Act, in respect of supplies of goods or services or both which are not covered under any of the sub-sections (1) to (4) of section 7 of the IGST Act, is not legally valid.

Activity of “supply of goods or services or both in the course of inter-State trade or commerce” essentially involves movement of goods or services or both from,─

(i) one State to another; or

 (ii) one Union Territory to another Union Territory; or

(iii) one State to a Union Territory; or

(iv) one Union Territory to a State.

In the expression “supply of goods or services or both in the course of inter-State trade or commerce”, course of inter-State trade or commerce starts at the moment supplier agrees for supplying goods or services or both to the recipient, or to a person nominated by the recipient and course of inter-State trade or commerce ends at the moment agreement gets completed.

I am also of the view that provisions of the Constitution are also binding on the Goods and Services Tax Council. The Goods and Services Tax Council, while giving its recommendation, for any reason, cannot deviate from the provisions of the Constitution.

In my opinion, restriction, provided in sub-clause (a) of clause (1) of Article 286 of the Constitution, that no law of a State shall impose, or authorize imposition of a tax on a supply of goods or services or both where such supply takes place outside the State, is meant to restrict levy of tax by more than one State on a single transaction of supply of goods or services or both. My this inference is based on Legislative history and background of clause (1)(a) of Article 286 of the Constitution. The Constituent Assembly had, in the interests of consumers and economic unity of the country, found levy of tax by more than one State on a single transaction of sale of goods undesirable.

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Disclaimer: Views expressed in this article are my personal views and cannot be used as legal advice. Readers are advised to consult their legal advisors before acting upon the views. They are also advised to follow the law as it exists. I and publishers of this article disown any liability towards any loss or damage, caused or suffered if any, on account of use of views expressed here.  

Author Bio

Qualification: Post Graduate
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Location: NOIDA, Uttar Pradesh, IN
Member Since: 11 Jul 2019 | Total Posts: 31
I am retired Government Servant. Prior to my retirement I had been working as Member Tribunal, Uttar Pradesh Commercial Taxes. Presently, residing in Noida, U.P. & enjoying fully my retired life. View Full Profile

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