While  "taxes on the sale or purchase of goods other than  newspapers"
is  an  entry  in  the State List, article  286  of   the  Constitution
subjects  the States' power to impose such taxes to four restrictions,
of  which two are total and two are partial.  Under clause (1) of  the
article, a State is debarred from imposing such a tax when the sale or
purchase  takes  place  outside the State or in the course  of   import
into,  or  export  from,  the  country.   With   regard  to  the  first
restriction, namely, the non-taxability of sales outside the State, an
explanation  is given in the clause that "a sale or purchase shall  be
deemed  to have taken place in the State in which goods have  actually
been  delivered  as a direct result of such sale or purchase  for  the
purpose  of  consumption  in that State".  Then, under clause   (2),  a
State is debarred from imposing the tax on inter-State sales except in
so far as Parliament may otherwise provide.  Lastly, under clause (3),
Parliament  is authorised to declare the goods which are essential  to
the  life of the community, and when such a declaration has been made,
any  law  made  by a State legislature imposing a tax on the  sale   or
purchase of those goods has to receive the President's assent in order
to be effective.

High judicial authorities have found the interpretation of the article
a  difficult  task and expressed divergent views as to the  scope  and
effect,  in particular, of the explanation in clause (1) and of clause
(2).  The majority view of the Supreme Court in the State of Bombay v.
the  United  Motors  (India)  Ltd.,  (1953)  S.C.R.    1069,  was  that
sub-clause  (a)  and  the  explanation in clause  (1)   prohibited  the
taxation of a sale involving inter-State elements by all States except
the  State  in  which  the  goods are delivered  for   the  purpose  of
consumption  therein, and further more, that clause (2) did not affect
the  power  of  that  State to tax the inter-State  sale   even  though
Parliament had not made a law removing the ban imposed by that clause.
This  resulted in dealers resident in one State being subjected to the
sales  tax  jurisdiction  and procedure of several other  States   with
which  they  had  dealings  in the normal course  of  their   business.
Two-and-a-half  years  later,  the second part of  this  decision   was
reversed  by the Supreme Court in the Bengal Immunity Company Ltd.  v.
the  State  of Bihar.  (1955) S.C.A.  1140 but here too the Court   was
not unanimous.

In pursuance of clause (3) of the article, Parliament passed an Act in
1952  declaring  a number of goods like foodstuffs of  various  kinds,
cloth,  raw  cotton, cattle feeds, iron and steel, coal, etc.,  to  be
essential  to the life of the community.  Since this declaration could
not  affect pre-existing State laws imposing sales tax on these goods,
the  result was a wide disparity from State to States, not only in the
range of exempted goods, but also in the rates applicable to them.

The  Taxation  Enquiry  Commission, after examining the  problem  with
great  care  and throughness, have made certain recommendations  which
may  be summarised as follows.  In essence, sales tax must continue to
be  a  State  source of revenue and its levy and  administration   must
substantially  pertain to the State Governments.  The sphere of  power
and responsibility of the State may, however, be said to end, and that
of  the  Union  to begin, when the sales tax of  one  State   impinges,
administratively  on  the dealers, and fiscally on the  consumers,  of
another  State.   Broadly, therefore, inter-State sales should be  the
concern of the Union, but the responsibilities pertaining to the Union
could be exercised through the State Governments, and in any case, the
revenue  should appropriately devolve on them.  Intra-State sales,  on
the  other hand, should be left to the States, but with one  important
exception.   Where, for instance, raw material produced in a State  is
important  from  the point of view of the consumer or the industry  of
another  State,  certain restrictions have to be placed on the  taxing
power  of the State Government, as otherwise it can effect an increase
in  the  cost  of the manufactured article, whether  such   manufacture
takes  place  in  the  State which produces the raw  material,   or  in
another  State which imports the material from that State.  In  either
case,  to  the extent that the finished goods are consumed in a  State
other  than the one which taxes the raw materal, the increase in  cost
on account of the tax is a matter of direct concern to the consumer of
another State.  Such cases of intra-State sales should apropriately be
brought under the full control of the Union.  These recommendations of
the  Commission  have  been  generally   accepted  by   all  the  State
Governments.

The  object  of this Bill is to give effect to the recommendations  of
the  Commission  as  regards  the   amendment  of   the  constitutional
provisions relating to sales tax.

In  clause 2, it is proposed to add a new entry 92A in the Union  List
placing  taxes on inter-State sales and purchases within the exclusive
legislative  and executive power of the Union, and to make entry 54 of
the State List "subject to the provisions" of this new entry.

In  clause  3, it is proposed to add these taxes to the list given  in
clause  (1) of article 269, so that, although they will be levied  and
collected  in accordance with an Act of Parliament, they will not form
part  of the Consolidated Fund of India, but will accrue to the States
themselves  in accordance with such principles of distribution as  may
be  formulated by Parliament by law.  A further provision is  proposed
in  article  269 expressly empowering Parliament to formulate  by  law
principles  for  determining  when a sale or purchase of  goods   takes
place in the course of inter-State trade or commerce.

It  is proposed in clause 4 to omit from clause (1) of article 286 the
explanation  which has given rise to a great deal of legal controversy
and   practical  difficulty.   In  view   of   the  centralisation   of
inter-State  sales tax proposed in clause 2 of this Bill clause (2) of
article  286 in its present form will cease to be appropriate.  In its
place  it  is proposed to insert a provision empowering Parliament  to
formulate  principles for determining when a sale or purchase of goods
takes place (a) outside a State, or (b) in the course of import of the
goods  into  the territory of India or (c) in the course of export  of
the goods out of the territory of India.

It  is further proposed to replace clause (3) of article 286 by a  new
clause  on  the lines recommended by the Taxation Enquiry  Commission.
Under this revised clause Parliament will have the power to declare by
law  the goods which are of special importance in inter-State trade or
commerce  and also to specify the restrictions and conditions to which
any  State  law (whether made before or after the  Parliamentary  law)
will  be  subject  in regard to the system of levy,  rates  and   other
incidents of the tax on the sale or purchase of those goods.

[BW DELHI;                                       MANILAL SHAH.

The 30th April, 1956.

             THE CONSTITUTION (TENTH AMENDMENT) ACT, 1961

                                        [16th August, 1961.]

An Act further to amend the Constitution of India.

BE  it  enacted by Parliament in the Twelfth Year of the  Republic  of
India as follows:-

1.   Short  title  and commencement.-(1) This Act may  be  called  the
Constitution (Tenth Amendment) Act, 1961.

(2)  It  shall  be deemed to have come into force on the 11th  day  of
August, 1961.

2.   Amendment of the First Schedule to the Constitution.-In the First
Schedule   to  the  Constitution,  under   the   heading   "THE   UNION
TERRITORIES",  after  entry 6, the following entry shall be  inserted,
namely:-

"7.  Dadra and                   The territory which immediately before
     Nagar Haveli                the eleventh day of August, 1961 was
                                comprised in Free Dadra and Nagar
                                Haveli.".

3.   Amendment of article 240.-In article 240 of the Constitution,  in
clause  (1),  after entry (b), the following entry shall be  inserted,
namely:-

"(c) Dadra and Nagar Haveli.".

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