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Report No. 30

140. Debates in the Constituent Assembly.-

Before reaching our conclusion on the subject, we wished to satisfy ourselves whether there was anything in the debates in the Constituent Assembly which might throw light. Article 264A of the draft Constitution1 was discussed in detail before the Constituent-Assembly on the 16th October, 19492. A clue to the intent of the Constitution-makers is furnished by the following observations of Dr. Ambedkar3:-

1. Article 264A corresponded to present article 286.

2. Constituent Assembly Debates 325 to 340.

3. 9 C.A.D. 326.

"Sir, as everyone knows, the sales tax has created a great deal of difficulty throughout India in the matter of freedom of trade and commerce. It has been found that the very many sales taxes which are levied by the various Provincial Governments either cut into goods which are the subject matter of imports or exports, or cut into what is called inter-State trade or commerce.

It is agreed that this kind of chaos ought not to be allowed and that while the Provinces may be free to levy the sales tax there ought to be some regulations whereby the sales tax levied by the Provinces would be confined within the legitimate limits which are intended to be covered by the sales tax. It is, therefore, felt that there ought to be some specific provision laying down certain limitations on the power of the Provinces to levy sales tax.

"The first thing that I would like to point out to the House is that there are certain provisions in this Article 264A which are merely reproductions of the different parts of the Constitution. For instance, in clause (1) of Article 264A as proposed by me, sub-clause (b) is merely a reproduction of the article contained in the Constitution, the entry in the Legislative List that taxation of imports and exports shall lie the exclusive province of the Central Government. Consequently so far as sub-clause (1)(b) is concerned there cannot be any dispute that this is in any sense an invasion of the right of the Provinces to levy a sales tax.

Similarly, sub-clause (2) is merely a reproduction of Part XA which we recently passed dealing with provisions regarding inter-State trade and commerce. Therefore so far as sub-clause (2) is concerned there is really nothing new in it. It merely says that if any sales tax is imposed it shall not be in conflict with the provisions of Part XA.

With regard to sub-clause (3) it has also been agreed that there are certain commodities which are so essential for the life of the community throughout India that they should not be subject to sales tax by the province in which they are to be found.

Therefore it was felt that if there was any such article which was essential for the life of the community throughout India, then it is necessary that, before the province concerned levies any tax upon such a commodity, the law made by the province should have the assent of the President, so that it would be possible for the President and the Central Government to see that no hardship is created by the particular levy proposed by a particular Province."

One of the Members of the Constituent Assembly1. referring to the provision proposed to the effect that the State law shall not impose a tax, etc., which takes place in the course of import of goods into, or export of the gods out of, the territory of India, made this criticism:-

1. Amiyo Kumar Ghosh, speech in the Constituent Assembly, 9 C.A.D. 333.

"Now, this gives a great loop-hole to the businessman to escape taxation. In all cases of export, there are various transactions before the commodity is actually exported from the country. But under this clause, all these transactions-the intermediate transactions which take place-are exempted from sales-tax. I could have understood the position if it was that at the point of export, that is to say, the last transaction, wherefrom it is actually exported, the sales-tax will not be realisable at that point.

But this clause as it stands means that all transactions which take place in the course of sending the goods outside the territory of India will be exempted from sales-tax. Now, how can you check the nature of these transactions? A buys a commodity saying that he will export it. But he does not export it, but sells to B, and B purchases it saying that he will export it, and in this manner the commodity passes on from one hand to other and from one Province to another without payment of any tax, and it may be that in the end it is not exported at all.

How can you check up this process? There will be a lot of difficulty and confusion, if this clause is passed as it stands. So my humble submission is that here, export and import should be clearly defined, and we must say that export means the last transaction and import means the first transaction, and only at the point of these two transactions commodities will be exempted from sales tax, and at no other point."

141. His desire for clarification was supported by another members1. In his reply to the debate, Dr. Ambedkar 2 stated, that he knew that some friends did not like the phraseology "in the course of export", etc., But he added, that the Drafting Committee had spent a great deal of time in order to choose the exact phraseology. The Drafting Committee was satisfied that the phraseology was as good as could be invented, but he stated that the Committee would further examine this particular phraseology, in order to see whether some other phraseology could not be substituted, so as to remove the criticism which had been made against this part of the article.

1. Jagat Narain Lal, 9 C.A.D. 334.

2. 9 C.A.D. 340.

142. The Drafting Committee did not, however, make any change after this debate1.

1. The Report of the Drafting Committee dated 3rd November, 1949 does not deal with this point.

Section 5 of the Central Sales Tax Act, 1956 - Taxation by the States of Sales in the Course of Import Back

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