Part XII: Finance, Property, Contracts and Suits

Article 269: Taxes levied and collected by the Union but assigned to the States

Original Article:

(1) Taxes on the sale or purchase of goods and taxes on the consignment of goods, except as provided in Article 269A, shall be levied and collected by the Government of India but shall be assigned to the States in the manner provided in Clause (2).

Explanation: For the purposes of this clause—

• The expression "taxes on the sale or purchase of goods" shall mean taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce;
• The expression "taxes on the consignment of goods" shall mean taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce.

(2) The net proceeds in any financial year of any such tax, except in so far as those proceeds represent proceeds attributable to Union territories, shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax is leviable in that year, and shall be distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law.

(3) Parliament may by law formulate principles for determining when a sale or purchase of goods or consignment of goods takes place in the course of inter-State trade or commerce.

Amendments:

¹ Substituted by the Constitution (Eighty-first Amendment) Act, 2000, for Clauses (1) and (2), (w.e.f. 9-6-2000).

² Modified by the Constitution (One Hundred and First Amendment) Act, 2016, aligning with the introduction of GST (w.e.f. 16-9-2016).

Explanations:

Article 269 outlines the framework for taxes that are levied and collected by the Union but assigned to the States. It primarily deals with inter-State trade and commerce, ensuring that States receive their fair share of revenue from such transactions while maintaining central oversight over the tax framework.

Clause-by-Clause Explanation:

Clause (1): Taxes on Inter-State Trade

Taxes on the sale, purchase, or consignment of goods in inter-State trade are levied and collected by the Union but assigned to the States.

Clause (2): Revenue Distribution

The net proceeds of such taxes, excluding Union territories, are assigned to the States in accordance with principles determined by Parliament.

Clause (3): Defining Inter-State Trade

Parliament has the authority to define principles for determining when a transaction qualifies as inter-State trade or commerce.

Historical Significance:

Article 269 has evolved to address the growing complexity of inter-State trade in India. Amendments like the Sixth Amendment (1956) expanded Parliament's authority to legislate principles for inter-State trade, ensuring uniformity in tax application.

Real-Life Examples:

For example, inter-State transactions involving large corporations like Reliance Industries are taxed under this Article. The proceeds from such taxes are shared with States based on principles laid down by Parliament, supporting regional development.

Additionally, industries such as e-commerce platforms like Amazon often engage in inter-State trade. The tax collected on such transactions is distributed among the States where the trade occurs.

Debates and Deliberations:

In the Constituent Assembly, Shri R. K. Sidhwa raised concerns about ensuring equitable revenue sharing, emphasizing the need to empower local governments through the allocation of tax proceeds. He argued that inter-State trade taxes should contribute to the development of regions involved in such commerce.

Dr. B.R. Ambedkar highlighted the importance of Parliament’s role in defining the framework for inter-State trade, ensuring uniformity and preventing disputes among States. He proposed measures to clarify administrative responsibilities and maintain fiscal balance between the Union and the States.

Shri Brajeshwar Prasad advocated for a centralized approach, warning against potential misuse of revenues by States. His viewpoint, however, was balanced by members who underscored the federal structure of the Constitution and the need for shared fiscal responsibility.

The Assembly ultimately agreed on a framework that provided both oversight by the Union and financial benefits to the States, reflecting the spirit of cooperative federalism.