Report No. 61
3.19. Effect of judgment in second Travancore case and Taxation Enquiry Commission.-
In this manner, the majority judgment in the second Travancore case defined the scope of Article 286, and narrowed down the potential width of construction which had been left open by the first case. The question of exemption in respect of import and export did not itself present much difficulty, either to the Government or to the business community during those years, but, as is well known, considerable complications were caused and uncertainties created by judicial pronouncements in respect of exemption under another head, namely, sales or purchase outside a State and sales or purchases in inter-State trade or commerce.
Because of these complications and uncertainties, the Taxation Enquiry Commission1 considered the question of inter-State trade in detail. The Commission found the dichotomy in Article 286, as it then stood, unsatisfactory, and suggested that a new dichotomy should be adopted, namely, sales in the course of inter-State trade or commerce and sales not in the course of inter-State and commerce. Taxation of inter-State sales, should be dealt, with exclusively by the Centre, so as to secure uniformity and co-ordination. That Commission further recommended that the Central legislation, which would give effect to this recommendation, should also deal with the definition of the local of sales for the purpose of defining in detail the relevant jurisdictions of the Union and the States, and the States inter-se.
Entirely irrespective of the power of the Central Government to levy a tax, the Commission said, that it was absolutely necessary that there should be a body of law which defines the circumstances in which a sale becomes taxable by a particular State and by no other. In support of the advantages of Parliamentary legislation as contrasted with the rigidity resulting from constitutional provisions, the Taxation Enquiry Commission made certain observations2. These observations were as follows:-
"We realise, of course, that the legislation itself may have to be modified from time to time in the light of new circumstances not fully provided for, or of judicial interpretation of the original provisions. Parliamentary legislation, as distinguished from constitutional provisions, will have the obvious advantage that these modifications can be made as required without undue delay or difficulty. It will not, of course, suffice to define the jurisdiction inter-se of individual States, The other important aspects of Central legislation would be the definition in adequate detail of what constitutes a sale or purchase in the course of inter-State trade or commerce.
In this matter too, the embodiment of the principles in an enactment of Parliament, and not in the Constitution itself, would have the advantage that the details of the law can, without undue rigidity, be modified to suit new facts or unforeseen circumstances. As we have stated, the Constitution itself would of course lay down the broad division of tax power between the Union and the States. The important fact would remain that all sales would fall under one or the other of these categories.
The Union, which under the scheme would, of course, derive no revenue from the taxation of inter-State sales or purchases, would be solely interested, in the legislation which it promotes, in securing, from a practical angle, the maximum possible co-ordination between different States in regard to the operation of the inter-State sales tax and the maximum possible equity in the appointment of the relevant proceeds to the States in which the goods have been physically delivered and those from which the physical despatch has taken place.
In the actual provisions of law, it will no doubt avoid the many pitfalls which have been a feature of the present constitutional provisions as they have been interpreted and implemented, and even if it does not fully succeed in doing so as the outset, the relevant legislation, as we have emphasised, can be modified at subsequent stages in conformity with the administrative and other requirements as they arise from time to time."
1. Taxation Enquiry Commission, Report (1953-54), Vol. 3, pp. 48 to 62, paras. 8 to 22.
2. Taxation Enquiry Commission, Report (1953-54), Vol. 3, pp. 58, 59, para. 20.
3.20. Having, thus, recommended that sales in the course of inter-State trade or commerce should be regulated by Central legislation, and that principles for determining when sales took place in the course of inter-State trade or commerce should be laid down by Parliamentary legislation, the Taxation Enquiry Commission recommended an amendment of the Constitution for conferring the necessary legislative powers on Parliament. Along with this recommendation, relating to inter-State trade or commerce, the Taxation Enquiry Commission recommended an amendment of Article 286, so that Parliament may, by law, also formulate principles for determining when a sale or purchase of goods takes place in the course of import or export1.
1. Taxation Enquiry Commission, Reports, (1953-54), Vol. 3, p. 56, para. 15, sub-para. C.