Restrictions as to imposition of tax on the sale or purchase of goods

Article 286, Constitution of India 1950

(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place—

⁠Explanation.—For the purposes of sub-clause (a), 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 sale of goods the property in the goods has by reason of such sale or purchase passed in another State.

⁠(2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of any goods where such sale or purchase takes place in the course of inter-State trade or commerce:

⁠Provided that the President may by order direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951.

⁠(3) No law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent.

Draft Article 264A (Article 286 Constitution of India 1950) was debated on 16 October 1949. It was not included in the Draft Constitution of India (1948). Instead, the Chairman of the Drafting Committee proposed to insert the following as Draft Article 264A:

“Restriction as to imposition of tax on sale or purchase of goods.

‘264A. (1) No law of state shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place–

     (a) outside the State; or

    (b) in the course of the import of the goods into, or export of the goods out of the territory of India.

Explanation.–For the purposes of sub-clause (a) of this clause 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 sale of goods the property in the goods has by reason of such sale or purchase passed in another State.

(2) Except in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase at any goods where such sale or purchase takes place in the course of inter-State trade or commerce : 

Provided that the President may order by direct that any tax on the sale or purchase of goods which was being lawfully levied by the Government of any State immediately before the commencement of this Constitution shall, notwithstanding that the imposition of such tax is contrary to the provisions of this clause, continue to be levied until the thirty-first day of March, 1951.

(3) No law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent’.“

The proposed Draft Article restricted States from imposing tax on sale of goods happening outside the State or on the import/export of goods within or to India. It also allowed Parliament to make laws to stop the States from imposing tax on inter-State trade or commerce. The Draft Article also stated that laws made by the State for taxing goods that are essential for the ‘life of the community’ would only have effect if it receives President’s assent.

Certain Members argued that Draft Article 264A should not restrict the Provinces to an extent where they will not be able to carry on their nation building activities such as education. Some felt that the provision depleted the resources of the Provinces and moved amendments to change the Draft Article. These amendments however, were rejected.

The Draft Article was adopted by the Assembly on 16 October 1949.