Report No. 30
17. Constitutional provisions-Pre-1950 Constitution.-
It will be convenient now to deal with the constitutional provisions relating to the imposition of sales-tax, and their history. In the Government of India Act, 19351 taxes on sales were adopted as a suitable form of taxation, and were introduced into the Provincial List (List II) as Entry 48-"Taxes on the sale of goods and on advertisement". There was also an entry (Entry 45) in the Central List (List I), relating to the imposition of Excise on tobacco and other goods manufactured or produced in India.
1. Government of India Act, 1935 (26 Geo. 5, Chap. 2).
18. The incidence of, and competition between, these two entries came up for interpretation by the Federal Court in the matter of the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938,1and the Province of Madras v. Boddu Paidana & Sons, (1942) 14 FCR 90: AIR 1942 FC 33, and by the Governor-General-in-Council v. Province of Madras, 72 IA 91: AIR 1945 PC 98 (PC) In the Privy Council case, Lord Simonds explained the two taxes-Excise and tax on sales-thus:
"The two taxes, the one levied upon a manufacturer in respect of his goods and the other upon a vendor in respect of his sales may in one sense overlap. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the existing authority imposing a duty of excise finds it convenient to impose that duty at the moment when the article leaves the factory or workshop for the first time upon the occasion of its sale. But that method of collecting the tax is an incident of administration; it is not of the essence of the duty of excise which is attracted by the manufacture itself.".
1. In the matter of the Central Provinces and Berar Sales of Motor Spirit & Lubricants Taxation Act, 1938, 1939 FCR 18: AIR 1939 FC 1.
19. The two duties, thus clearly demarcated, were continued in the Indian Constitution of 1950. At the same time, the Constitution of 1950 imposed a ban on the power of the States to impose taxes on sales and purchases in the course of inter-State sales or in the course of export or import. This was in the interest of the Union of India and for preventing the States from impinging upon the Union field of foreign trade and imposing tax on sales or purchases in the course of import or export under the guise of making laws with respect to taxes on sales or purchases under Entry 54 in the State List as it then existed.
As the taxes on sale were perhaps the only variable, elastic and flexible tax within the jurisdiction of a State's power of taxation, and, therefore, a source of sizable State revenue, they were readily put into operation in all the States of India.
The Constitution of India of 1950, as originally enacted, contained two Articles-269 and 286-relating to sales tax, and one entry in List II of the Seventh Schedule-Entry 54-, relating to the power of the States to levy taxes. Article 269 gave power to the Union to levy and collect taxes which were to be assigned to the States in the manner provided in clause (2) of that article. Article 236 imposed restrictions on the imposition of taxes on the sale and purchase of goods.