Article 246A of the Constitution, which gives powers to the Parliament and the Legislatures of the States to make law to provide levy and collection of goods and services tax (hereinafter referred to as the GST), runs as follows:–
“246A. (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.”.
Entry 92A of the Union List (List I) of the Seventh Schedule of the Constitution, read with Article 269 of the Constitution, gives powers to the Parliament to make law to provide levy and collection of tax on sale or purchase of goods, or consignment of goods where such sale or purchase, or consignment, of goods takes place in the course of inter-State trade or commerce. Clause (3) of the said the Said Article 269 runs as follows:–
“(3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods takes place in the course of inter-State trade or commerce.”
Clause (5) of Article 269A of the Constitution gives powers to the Parliament to make law to 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.
“(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.”.
A careful reading of clause (2) of Article 246A, clause (3) of Article 269 and clause (5) of Article 269A reveals that all these provisions commonly use following two expressions, namely:-
(i) inter-State trade or commerce; and
(ii) in the course of.
So far as it is related to “inter-State trade or commerce”, in its Second Report on Parliamentary Legislation Relating To Sales Tax, the Law Commission of India has, in reference to sale or purchase of goods in the course of inter-State trade or commerce, mentioned that movement of goods from one State to another is indispensible feature of inter-State trade or commerce. As it relates to use of expression “in the course of”, in between the expressions “sale or purchase of goods” and “inter-State trade or commerce”, on the basis of observations of the Constitution Bench of the Honorable Supreme Court in its judgment in the State of Travancore Cochin And Others vs. Shanmugha Vilas Cashew Nut Factory And Others, Judgment Dated May 08, 1953, the Law Commission had found that use of expression “in the course of”, in between the expressions “sale or purchase of goods” and “inter-State trade or commerce”, establishes integral connection between the “sale or purchase of goods”, and “inter-State trade or commerce”. In the expression “sale or purchase of goods in the course of inter-State trade or commerce”, the said two expressions “sale or purchase of goods” and “inter-State trade or commerce”, are so integrally connected that they form single transaction of sale or purchase of goods. They cannot be dissociated from each other. Since inter-State trade or commerce stands for trade or commerce which essentially involves movement of goods or services from one State to another, and therefore, in case of “sale or purchase of goods in the course of inter-State trade or commerce”, sale or purchase of goods” and “movement of goods from one State to another” cannot be dissociated. In view of these observations, the Law Commission had suggested following principles for the purpose of determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce, namely:-
“A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce, only if the sale or purchase-
(a) occasions the movement of the 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.-Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of sub–c1ause (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.”
On the basis of this report, the Parliament has enacted section 3 of the Central Sales Tax Act, 1956 as follows:–
“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.”
Here we see that the principles suggested by the Law Commission and enacted by the Parliament are independent of-
(a) situs of a sale, i.e., place where sale takes place; and
(b) location of seller or purchaser.
So far as it is related to law related to formulation of principles, required by clause (5) of Article 269A, for determining when a supply of goods or services or both takes place in the course of inter-State trade or commerce, in my personal opinion, no such law has been enacted so far. Chapter IV of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the IGST Act) relates to “Determination of Nature of Supply”. Section 7 of this chapter, has been enacted with marginal note “Inter-State supply”. It has 5 sub-sections. Each sub-section refers to in certain supplies of goods, or of services or both and in respect of such supplies, the sub-section provides that such supply shall be treated either as supply of goods or services or both in the course of inter-State trade or commerce, or to be supply of goods or services or both in the course of inter-State trade or commerce. Sub-section (5) inter-alia includes supplies which do not take place in between two States, or two Union Territories, or in between a State and a Union Territory. The said sub-section (5) of section 7 of the IGST Act runs as follows:–
“(5) Supply of goods or services or both,—
(a) when the supplier is located in India and the place of supply is outside India;
(b) to or by a Special Economic Zone developer or a Special Economic Zone unit; or
(c) in the taxable territory, not being an intra-State supply and not covered elsewhere in this section, shall be treated to be a supply of goods or services or both in the course of inter-State trade or commerce.”
Here, clause (a) may refer to an export supply; clause (b) may include an export supply, intra-State supply or an import supply. Clause (c) may refer to a supply which is made from a State or a Union Territory to a place in coastal waters or vice-versa or which may take place completely in coastal waters. Such supply may also take place in the air.
Let us have a look on sub-section (1) of section 7 of the IGST Act. The said sub-section 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.”
In this definition clause, concept of inter-State trade or commerce, i.e. physical movement of goods from one State to another, or from one Union Territory to another, or from a State to a Union Territory or vice versa, is missing.
For export of goods and import of goods, expression “sale in the course of International trade or commerce of such goods” has been used in entry 54 of the State List (List II) of the Seventh Schedule of the Constitution. In case of export, or import, of goods, goods physically move from one country to another. In the same entry, expression “sale in the course of inter-State trade or commerce of such goods” has also been used. Other place where expression “inter-State trade or commerce” has been used in the Constitution is clause (3) of Article 269. In this clause, the Parliament has been given power to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce. While exercising, these powers, the Parliament has formulated principles treating movement of goods from one State to another, or from one Union Territory to another, or from a State to a Union Territory or vice versa as indispensible feature of inter-State trade or commerce. These provisions go to show that expression “inter-State trade or commerce” has been used in the Constitution to mean the trade or commerce in which goods move from one State to another, or from one Union Territory to another, or from a State to a Union Territory or vice versa.
In view of the discussion above, in my personal opinion, certain provisions of section 7 of the IGST Act are not valid. Another point towards which I would like to draw attention of learned readers of this article is that marginal note of section 7 of the IGST Act runs as “Inter-State supply” and sub-section (1) of section 5 of the IGST Act also provides levy of integrated tax on “inter-State supplies of goods or services or both” but text of section 7 nowhere defines or uses expression “inter-State supply” or “inter-State supply of goods or services or both”. When language of section 7 is clear and unambiguous, help of marginal note (Title of section 7 as published in the Gazette Notification has been marginal note of clause 7 of the Bill passed by the Parliament) has not been required. I am not sure if tax can be levied on title or marginal note of a section even though it can be said condensed name of the section.
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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 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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