Report No. 2
Parliamentary Legislation Relating to Sales Tax
I. Preliminary
1. The Law Commission was invited to offer its suggestions for formulating principles for determining when a sale of goods takes place?
(i) outside a State;
(ii) in the course of the import of the goods into, or export of the goods out of, the territory of India;
(iii) in the course of inter-State trade or commerce.
2. At the date of the reference to the Commission, the Constitution (Tenth Amendment) Bill had been introduced in Parliament and under it Parliament was to be empowered to formulate by law principles for determining when a sale or purchase of goods takes place in any of the ways mentioned above. The Bill has since been passed by both Houses of Parliament.
3. Broadly speaking, the proposed Constitutional Amendment seeks to curtail the power of States to levy taxes on the sale or purchase of goods other than newspapers by providing that that power is to be subject to the power of the Union to levy taxes on the sale or purchase of goods other than newspapers where such sale or. purchase takes place in the coarse of inter-State trade or commerce.
The taxes levied by the Union in exercise of this added power are to be assigned to the States. The Amendment seeks to empower Parliament by law to formulate principles not only for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce but also for determining when a sale or purchase takes place in. the course of import into or export out of the territory of India or outside a particular State.
4. The proposed Constitutional Amendment closely follows the recommendations of the Taxation Enquiry Commission in this respect. Their main purpose in recommending that Parliament should have power to tax inter-State transactions and that it be empowered by law to determine the principles above mentioned was to ensure that the tax, if any, on these transactions should not exceed limits which Parliament in the interest of the country as a whole considers reasonable and that the principles laid down not having the rigidity of Constitutional provisions may be varied in accordance with the economic needs of the country from time to time. (Report of the Taxation Enquiry Commission, Vol. III, pp. 48-60, paras 7-22).
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