Report No. 61

Reference from the Government in April , 1973-Constitution (Sixth Amendment) Act, 1956.- The letter dated the 12th April, 1973 received from the Minister of Law, Justice and Company Affairs constitutes the third reference from the Government of India to the Law Commission relating inter alia to the scope, extent, meaning and implications of Article 286 of the Constitution; and as a matter of fact the Central Sales Tax Act, 1956 was passed on the recommendations contained in the Commission's report on the first reference.

The first reference was made shortly after the introduction of the Constitution (Tenth Amendment) Bill, 1956 in Parliament in which there was a proposal to empower Parliament to formulate by law principles inter alia for determining when a sale or purchase of goods takes place in the course of the import of the goods into, or export of the goods out of, the territory of India. This Constitution (Amendment) Bill on its enactment became the Sixth Constitution (Amendment) Act, 1956. By this amendment, a number of changes was made in the Constitution with respect to sales tax. These changes in brief were as follows:-

(1) A new entry 92A was introduced in the Union List in the Seventh Schedule to the Constitution whereby Parliament acquired exclusive power to make law with respect to "taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce;" formerly, Parliament's power to make law was confined to entry 92 of the Union List to "taxes on the sale or purchase of newspapers and on advertisements published therein". This entry 92 remains unchanged even now.

Thus by new entry 92A, Parliament's power was enlarged to cover the power to make laws with respect to taxes on the sale or purchase of goods other than newspapers in the course of inter-State trade and commerce. This amendment was in a sense in consonance with the exclusive power to Parliament to make laws with respect to "inter-State trade and commerce" specified in entry 42 of the Union List. We are not however much concerned here in this note either with the new entry 92A or with the provisions contained in Articles 301 to 307 which broadly speaking may be regarded as the commerce clauses of our Constitution.

(2) The second change was that a new entry 54 was substituted for the original entry 54 in the State List. Original entry 54 was as follows:-

"54. Taxes on the sale or purchase of goods other than newspapers."

The new entry 54 reads as follows:-

"54. Taxes on the sale or purchase of goods other than newspapers subject to the provisions of entry 92A of list 1"

The combined effect of these two changes namely, the insertion of entry 92A in List I and the amendment of entry 54 in List II as well as of the substitution of new clause (2) for the original clause in Article 286 was that a State Legislature was completely denuded of whatever power it had, to make laws with respect to taxes on the sale or purchase of goods in the course of inter-State trade or commerce by virtue of the original clause (2) of Article 286 and entry 54 of List II as it stood before the amendment of 1956.

(3) The third change brought about the Sixth Constitutional Amendment of 1956 was the insertion of a new sub-clause (g) in clause (1) of Article 269 whereby taxes on the sale or purchase of goods other than newspapers in the course of inter-State trade or commerce "shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in clause (2)" of Article 269.

(4) The fourth change made by the Sixth Amendment in 1956 was the insertion of a new clause (3) in Article 269 as follows:-

"(3) Parliament may, by law, formulate principles for determining when, a sale or purchase of goods takes place in the course of inter-State trade or commerce."

(5) In the fifth place, the Explanation to clause (1) of Article 286 was omitted as it became unnecessary in view of the provisions of new clause (2) of Article 286. The Explanation which was omitted laid down for the purposes of Article 286(1)(a), a rule that "a sale or purchase shall be deemed to have taken place in the State in which the goods have actually been delivered as a direct result of such sale or purchase for the purpose of consumption in that State, notwithstanding the fact that under the general law relating to the sale of goods, the property in the goods has by reason of such sale or purchase passed in another State." The Explanation had also given rise to a great deal of legal controversy and practical difficulty.

(6) Sixthly, for clauses (2) and (3), two new clauses (2) and (3) were substituted in Article 286 as follows:-

"(2) Parliament may by law formulate principles for determining when a sale or purchase 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 tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce, 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."