The Constitution of India provides that the Parliament may, by law, provide the manner in which goods and services tax, collected on following supplies of goods or services or both, shall be apportioned in between the Union and the States, namely:-
(i) supply of goods or services or both in the course of inter-State trade or commerce; and
(ii) supply of goods or services or both in the course of import into the territory of India.
Barring two supplies referred to above, in respect of any other supply of goods or services or both, Constitution does not provide for apportionment of goods and services tax in between the Union and the States in the manner provided by the Parliament. The Parliament, in section 17 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the IGST Act), in exercise of its powers provided in Article 269A(1) of the Constitution, has provided the manner in which integrated tax collected by the Union under the IGST Act can be apportioned in between the Union and the States. My personal opinion is that the manner, provided in the said section of the IGST Act for apportionment of integrated tax, also applies to integrated tax collected on certain other supplies of goods or services or both, which can be said neither in the course of inter-State trade or commerce, nor in the course of import into the territory of India. A certain percentage of tax collected by the Union on any supply of goods or services or both, except two supplies referred to above, can only be assigned to States in accordance with provisions of Article 270 of the Constitution. In my personal opinion, provisions of sections 5 and 7 of the IGST Act, read with provisions of section 17 of the said Act, are not in conformity with the provisions of Article 269A(1) and Article 270 of the Constitution.
In the context of our country, India, the term “inter-State trade or commerce” refers to trade or commerce in between two States, or two Union Territories, or one State and a Union Territory. 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. The expression “supply of goods or services or both in the course of inter-State trade or commerce”, can be split in following three expressions, namely:-
(a) supply of goods or services or both;
(b) in the course of; and
(c) inter-State trade or commerce.
In the expression “supply of goods or services or both in the course of inter-State trade or commerce”, use of expression “in the course of”, in between the expression “supply of goods or services or both” and expression “inter-State trade or commerce”, indicates that supply of goods or services or both and inter-State trade or commerce are so integrally connected that they cannot be dissociated from each other, the form a single transaction.
So far as it is related to supply of goods or services or both in the course of import into the territory of India, essential feature of import is movement of goods from one country to another. Import is understood as receiving any goods or services into India from a foreign country. In the expression, “supply of goods or services or both in the course of import into the territory of India”, word “import” refers to import of goods or services or both, as is evident from clause 1(b) of Article 286 of the Constitution. Clause (1) of Article 296 runs as follows:–
“286. (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.”
Therefore, expression “supply of goods or services or both in the course of import into the territory of India” can be understood to mean supply of goods or services or both in the course of import of goods or services or both into the territory of India”. Now, in following three expressions, namely:–
(i) supply of goods or services or both;
(ii) in the course of; and
(iii) import of goods or services or both into the territory of India.
Here again, in the expression “supply of goods or services or both in the course of import of goods or services or both into the territory of India”, use of expression “in the course of”, in between the expression “supply of goods or services or both” and expression “import of goods or services or both into the territory of India”, indicates that supply of goods or services or both and import of goods or services or both into the territory of India so integrally connected that they cannot be dissociated from each other, and they form a single transaction.
Here, it is noticeable that in the expression “import of goods or services or both into the territory of India”, words “into the territory of India” have been used. Territory of India has been defined in Article 1(3) of the Constitution 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.”
Words “import” and “India” have been defined in clauses (23) and (27) of section 2 of the Customs Act, 1962 as follows:–
“(23) “import”, with its grammatical variations and cognate expressions, means bringing into India from a place outside India;”
“(27) “India” includes the territorial waters of India;”
In the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act), in clause (56) of section 2 of the said Act, word “India” has been defined as follows:–
‘(56) “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters;’
Expression “import of goods” has, for the purpose of the IGST Act, been defined in clause (10) of section 2 of the IGST Act as follows:–
“(10) “import of goods” with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India;”
Here we see that for the purpose of the Customs Act, 1962 and for GST purposes, word “India” represents larger area than the “territory of India”. Therefore, a supply of goods or services or both, which takes place in the course of import into India but does not take place in the course of import into the territory of India , will not be covered under “supply of goods or services or both in the course of import of goods or services or both into the territory of India” or under “supply of goods or services or both in the course of import into the territory of India”.
Article 246A and Article 269A (1) run 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.”.
“269A. (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.”
Here, we see that ─
(a) Clause (1) of Article 269A gives powers to the Parliament for making 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; and
- manner in which tax collected on supply of goods or services or both where such supply takes place in the course of inter-State trade or commerce shall be apportioned in between the Union and the States;
(b) Explanation of Clause (1) of Article 269A provides that for the purposes referred to in sub-clauses (i) and (ii) of clause (a), hereinabove, supply of goods or services or both in the course of import into the territory of India, shall be deemed a supply of goods or services or both in the course of inter-State trade or commerce. The result is that tax on supply of goods or services or both in the course of import into the territory of India shall be levied as tax is leviable on supply of goods or services or both in the course of inter-State trade or commerce, and tax collected on supply of goods or services or both in the course of import into the territory of India shall be apportioned in between the Union and the States in the manner tax collected on supply of goods or services or both in the course of inter-State trade or commerce is apportioned in between the Union and the States.
Barring two supplies of goods or services or both viz. (i) supply of goods or services or both in the course of inter-State trade or commerce; and (ii) supply of goods or services or both in the course of import into the territory of India, in respect of all other supplies of goods or services or both, the Parliament, under Article 269A of the Constitution, cannot make law either to provide for levy and collection of GST or to provide the manner for apportionment of tax collected on such other supplies, in between the Union and the States.
If we look at the provisions of the Integrated Goods and Services Tax Act, 2017, we find that-
(i) Long title of the IGST Act reveals that the said Act has been enacted to make a provision for levy and collection of tax on inter-State supply of goods or services or both;
(ii) Title of section 7 of IGST Act runs as “Inter-State supply”. Under various sub-sections of the said section 7, provisions have been made either to be treated as, or to be treated, supply of goods or services or both in the course of inter-State trade or commerce;
(iii) Many supplies referred to in various sub-sections of section 7 of the IGST Act, do not fall either in the category of supplies of goods or services or both in the course of inter-State trade or commerce, or in the category of supplies of goods or services or both in the course of import into the territory of India;
(iv) Sub-section (1) of section 5 of the IGST Act provides for levy of tax called “integrated goods and services tax” on all “inter-State supplies of goods or services or both”.
(v) Proviso of sub-section (1) of section 5 of the IGST Act provides that the integrated tax (clause (12) of section 2 of the IGST Act defines “integrated tax” to mean the integrated goods and services tax levied under the IGST Act) on “goods imported into India” shall be levied and collected under section 3 of the Customs Tariff Act, 1975. Expression “goods imported into India” is not a “supply of goods in the course of import into the territory of India”. Firstly, “goods imported into India” is not a supply of goods, and secondly, in place of words “into the territory of India”, words “into India” have been used.
(vi) Section 17 of the IGST Act relates to “Apportionment of tax and settlement of funds”. In the said section, total amount collected as tax has been divided in two categories, viz. tax collected on all inter-State supplies of goods or services or both made, and tax collected on import of goods or services or both.
(vii) Clause (2) of Article 286 provides that the Parliament may, by law, formulate the principles for determining when a supply of goods or services or both takes place in the course of import of goods or services or both into the territory of India. In absence of such a law, many anomalies have crept in the main law.
(viii) Integrated tax collected on imported goods also includes such tax on goods which do not involve supply of goods in the course of import into the territory of India.
These are few things which go to show that manner for apportionment of integrated tax also applies to integrated tax collected on certain supplies other than (i) the supply of goods or services or both in the course of inter-State trade or commerce; and (ii) the supply of goods or services or both in the course of import into the territory of India. GST collected, by the Central Government on any supply of goods or services or both other than the supply of goods or services or both where such supply 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, cannot be apportioned in between the Union and the States in the manner provided, in section 17 of the Integrated Goods and Services Tax Act, 2017, under Article 269A(1) of the Constitution. Only a certain percentage of tax collected by the Union on any supply of goods or services or both, except two supplies referred to hereinabove, can be assigned to States in accordance with provisions of Article 270 of the Constitution. The said Article 270 runs as follows:–
“270. (1) All taxes and duties referred to in the Union list, except the duties and taxes referred to in articles 268, 269 and article 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.”
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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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( Levy & Apportionment of Integrated Goods and Services Tax )
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