For the purpose of implementing goods and services tax (GST), the Constitution of India was amended vide The Constitution (One Hundred And First) Amendment Act, 2016. By the said Amendment Act, certain new Articles and certain new clauses in existing Articles were added. Certain clauses of some Articles were also amended. Certain entries of the Seventh Schedule of the Constitution were amended and some entries of List I and List II of the said Schedule were omitted. While doing so, in my opinion, certain omissions / mistakes in some of the provisions of the Constitution have crept in. These may be listed as follows:-
1. To communicate same meaning, three different expressions, “supply of goods, or of services, or both”, “supply of goods or of services or both” and “supply of goods, or services or both”, have been used in various provisions as follows:–
(i) “Supply of goods, or of services, or both” in Article 246(2), Article 269A (1) Explanation and Article 269A (5).
(ii) “supply of goods or of services or both” in Article 286(1) and Article 286(2).
(vii) “supply of goods, or services or both” in Article 366(12A).
2. About supply of goods or services or both, two different expressions have been used in explanation of Article 269A(1) and Clause 1(b) of Article 286.
(i) Clause (1)(b) of Article 286 runs as follows:
“(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.”
Here in the expression “supply of goods or of services or both, in the course of the import of the goods or services or both into the territory of India”, in between the words “import” and “into”, words “of the goods or services or both” have been used. The clause indicates import of goods or services or both into the territory of India.
Explanation of clause (1) of Article 269A runs as follows:
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.
Here, in the expression “supply of goods, or of services, or both in the course of import into the territory of India”, in between the words “import” and “into”, words “of the goods or services or both” have not been used.
3. For expression “supply of goods or services or both in the course of inter-State trade or commerce, –
(i) in Article 246A (2), words “supply of goods, or of services, or both in the course of inter-State trade or commerce” have been used.
(ii) in Article 269A (1), words “supplies in the course of inter-State trade or commerce” have been used. Here, after word supplies”, words “of goods, or of services or both” are missing.
(iii) in Article 279A (4) (c) also, expression “supplies in the course of inter-State trade or commerce” have been used.
4. Prior to One Hundred And First Amendment of the Constitution, Article 286 of the Constitution, with its marginal note, had run as follows:–
“Restrictions as to imposition of tax on the sale or purchase of goods.
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).
(3) Any law of a State shall, in so far as it imposes, or authorises the imposition of,—
(a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-clause (c) or sub-clause (d) of clause (29A) of article 366,
be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.”
Vide One Hundred and First Amendment of the Constitution, following amendments have been made in Article 286, namely:-
“13. In article 286 of the Constitution,—
(i) in clause (1),—
(A) for the words “the sale or purchase of goods where such sale or purchase takes place”, the words “the supply of goods or of services or both, where such supply takes place” shall be substituted;
(B) in sub-clause (b), for the word “goods”, at both the places where it occurs, the words “goods or services or both” shall be substituted;
(ii) in clause (2), for the words “sale or purchase of goods takes place”, the words “supply of goods or of services or both” shall be substituted;
(iii) clause (3) shall be omitted.”
After the said amendment, Article 286 of the Constitution stands 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).”
[Source: http://legislative.gov.in/sites/default/files/COI-updated-as-31072018.pdf ]
Here, we see that marginal note of the Article 286 has not been amended. It still runs as “Restrictions as to imposition of tax on the sale or purchase of goods”, whereas, amended Article is about the restrictions as to imposition of goods and services tax on the supply of goods or of services or both. Secondly, in amended clause (2), after word “both”, words “takes place” are missing. This has happened because in the amendment, words “sale or purchase of goods takes place” have incorrectly been replaced by words “supply of goods or of services or both”.
5. Prior to One Hundred And First Amendment of the Constitution, Entry 54 of State List (List II) of the Seventh Schedule of the Constitution had run as follows:–
“54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.”
Entry 92A of List I relates to tax on sale or purchase of goods where such sale or purchase takes place in the course of inter-State trade or commerce. Therefore, States had not been competent to levy on such sales or purchases of goods. Apart from this there had been Clause (1) of Article 286 which had put restriction on law making powers of the States. Clause (1) and (2) of the said Article 286 had run as follows:
“Restrictions as to imposition of tax on the sale or purchase of goods.
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).”
This Article had also put restrictions on law making powers of the States where sale or purchase of goods used to take place─
(i) outside the States; or
(ii) in the course of export of the goods out of the territory of India; or
(iii) in the course of import of the goods into the territory of India.
After the amendment, Entry 54 of List I runs as follows:–
“54. Taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, but not including sale in the course of inter-State trade or commerce or sale in the course of international trade or commerce of such goods.”
After the Constitutional amendment, States can make law to provide levy of tax on sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption where sale of such goods does not take place─
(i) in the course of inter-State trade or commerce; or
(ii) in the course of international trade or commerce.
Now provisions of amended Article 286 do not apply to sale of goods where such sale takes place outside the State. From Entry 54 of List I of the Seventh Schedule, sale of goods which takes place outside the State has not been excluded. Therefore, Legislatures of States can also make law to provide levy of tax on sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption, where sale of such goods takes place outside the State. Such transactions may be sales though agents, or branches or depots located in other States, or where a dealer brings such goods to other State and there he makes sale of such goods. This will lead to multi taxation by more than one State on single transaction of sale. Moreover, power of Parliament of formulating principles for determining when a sale takes place in the course of export of goods out of territory of India (in the course of international trade or commerce), or when a sale of goods takes place in the course of import of such goods into the territory of India, is not available. The new Entry 54 of List I has taken back us in the era which had existed before enactment of the Central Sales Tax Act, 1956.
6. Newly introduced Article 279A relates to Goods and Services Tax Council (hereinafter referred to as the GST Council), its duties and responsibilities and its functioning. Clause (4) of the said Article runs as follows:–
“(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.”
A careful reading of sub-clause (c) of above quoted clause (4) of Article 279A reveals that the GST Council shall make its recommendation to the Union and the States on “model Goods and Services Tax Laws”. I am of the opinion that such drafts could have been prepared only after going through all relevant provisions of the Constitution. The Constitution does not directly mention the supply of goods or services or both in respect of which States can make law to provide levy and collection of goods and services tax. The Constitution provides that the Legislatures of the States can make law to provide levy and collection of tax on all supplies of goods or services or both, except where such supply takes place in any of the following ways, namely:-
(i) where the supply takes place outside the State; or
(ii) where the supply takes place in the course of inter-State trade or commerce; or
(iii) where the supply takes place in the course of export of goods or services or both out of the territory of India; or
(iv) where the supply takes place in the course of import of goods or services or both into the territory of India
In clause (4) of Article 279A of the Constitution, the GST Council was specifically required to make its recommendation on principles that govern the place of supply and was not specifically required to make its recommendations about the principles for determining when a supply of goods or services takes place─
(i) outside the State; 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.
This may be reason behind not making recommendation, by the GST Council, on the principles required to be formulated in clause (5) of Article 269A and Article 286. In view of the provisions of the Constitution, recommendation of the GST Council to the States for making law to provide levy and collection of goods and services tax on intra-State supply does not seem to be in conformity of the provisions of the Constitution.
Had the GST Council not made its recommendations, on principles for determining when a supply takes place in any of the ways mentioned above, for want of specific mention of such subject in its duties, it will be necessary to include such subject in clause (4) of Article 279A of the Constitution.
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Disclaimer: Except the quoted versions, interpretation of laws and all other views expressed here are my personal views and are meant only for academic discussion. Readers are advised to obey 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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