Part XII: Finance, Property, Contracts and Suits

Article 286: Restrictions on Taxation of Goods and Services

Original Article:

(1) No law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or services or both, where such supply takes place:

• (a) Outside the State; or
• (b) In the course of import of the goods or services or both into, or export out of, the territory of India.

(2) Parliament may by law formulate principles for determining when a supply of goods or services occurs in the manner mentioned in clause (1).

Explanations:

Article 286 restricts state governments from imposing taxes on supplies of goods and services occurring outside their jurisdiction or in the course of import and export. This ensures uniformity in taxation and avoids conflicts between states, especially in inter-state and international trade scenarios.

Key Provisions:

Clause (1): Restrictions on State Taxes

States cannot impose taxes on supplies that:

• Occur outside their jurisdiction.
• Are part of international trade (imports or exports).

Clause (2): Role of Parliament

Parliament has the authority to define principles that clarify whether a supply of goods or services occurs inter-state or internationally, preventing ambiguity and ensuring cohesive tax policies.

Real-Life Example:

Inter-state commerce, such as a manufacturer in Gujarat supplying goods to a retailer in Maharashtra, falls under GST rather than state-level taxes due to Article 286. This prevents tax overlaps and simplifies trade regulations.

Amendments:

The Constitution (Sixth Amendment) Act, 1956, clarified Article 286 by redefining the scope of state taxation on inter-state trade and commerce. The amendment was crucial to preventing overlapping tax claims between states.

The Constitution (One Hundred and First Amendment) Act, 2016, revised Article 286 to align with the GST framework. The amendment replaced "sale or purchase" with "supply" to include goods and services under a single tax regime, facilitating seamless taxation across states.

Historical Significance:

Article 286 reflects the framers’ vision of a unified economic policy, minimizing inter-state trade disputes. Amendments such as the GST reform highlight India’s evolution towards a streamlined taxation system.

Debates and Deliberations:

During the Constituent Assembly debates, Dr. B.R. Ambedkar emphasized that restricting states from taxing inter-state and international trade was crucial for economic stability. Shri Mahavir Tyagi proposed limiting sales taxes to 3% to prevent excessive burdens, while Prof. Shibban Lal Saksena argued for greater clarity on revenue-sharing frameworks between states and the Union.

Concerns about revenue losses for states reliant on export taxes were addressed by ensuring states could receive compensation for such restrictions. These deliberations set the foundation for cooperative federalism in taxation.

References:

• Constitution of India: Comprehensive details on Article 286 and related provisions.
• GST Framework: Implementation details highlighting the role of Article 286 in inter-state taxation.