Report No. 61

Chapter 3

Sales in The Course of Import-khosla's Case

Introductory

3.1. Scope of the Chapter.-

In this Chapter, we shall deal with a question concerning the taxation of sales in the course of import. The question is one of considerable constitutional importance. It arises from the judgment in Khosla's case, which interpreted section 5 of the Central Sales Tax Act and its relationship to Article 286(1)(b) and Article 286(2) of the Constitution. The question is a vexed one and its proper consideration and appreciation involves a study of the historical and constitutional background1, and that background must be dealt with in order to unravel the various issues turning essentially on the taxability of purchases connected with export and sales connected with import.

1. See para. 3.13, et seq, infra.

3.1A. Need for demarcation.-

We shall first deal with the constitutional aspect. Where there are two Governments operating in respect of a subject-matter-in this case, taxation-demarcation of their respective jurisdictions becomes unavoidable. Taxation of transactions relating to commodities is a major source of revenue in almost all the countries of the world, and it is also well-known that the power to tax such transactions may have to be exercised at various stages. Where this power is divided between two Governments, care has to be taken to see that the power of one Government is not so exercised as to impede the policy legitimately adopted by the other Government. Secondly, since matters concerning international trade have necessarily to be vested in the national Government, care has also to be taken to see that legislation passed by the States does not impinge upon international trade. These broad considerations have led to the inclusion in the Constitution of the relevant provisions, of which Article 286(1) is material1.

1. Paras. 3.6, 4, infra.