Actual Article
Article 286: Restrictions as to imposition of tax on the sale or purchase of goods
- No law of a State shall impose, or authorize 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.
- Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1).
- Any law of a State shall, insofar as it imposes, or authorizes the imposition of—
- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or
- (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), (c), or (d) of clause (29A) of Article 366,
be subject to such restrictions and conditions in regard to the system of levy, rates, and other incidents of the tax as Parliament may by law specify.
UPSC Notes for Article 286
Explanation:
- Inter-State and International Trade: Clause (1) restricts State laws from imposing taxes on sales or purchases of goods that occur outside the State or in the course of import/export into or out of India.
- Parliamentary Principles: Clause (2) allows Parliament to formulate principles to determine when a sale or purchase of goods is considered to occur in the scenarios mentioned in clause (1).
- Special Importance and Restrictions: Clause (3) mandates that State laws imposing taxes on goods of special importance in inter-State trade or goods falling under specific sub-clauses of Article 366(29A) must adhere to restrictions and conditions specified by Parliament.
Key Points:
- Trade Regulation: Article 286 regulates State taxation powers to ensure that inter-State and international trade is not impeded by State taxes.
- Parliamentary Authority: Parliament has the authority to define principles and impose restrictions on State taxes to maintain uniformity and fairness in taxation across the country.
- Goods of Special Importance: By declaring certain goods as of special importance, Parliament can ensure these goods are not subject to varied or excessive State taxes, promoting smooth trade.
Important Cases and Commissions Related to Article 286
Cases:
- State of Bombay vs. United Motors (1953): The Supreme Court held that sales completed in one State but involving inter-State movement of goods fall under the restrictions of Article 286.
- Bengal Immunity Co. Ltd. vs. State of Bihar (1955): The Supreme Court ruled that a State cannot levy sales tax on goods that are in the course of inter-State trade or commerce, reinforcing the principles of Article 286.
Commissions:
- Taxation Enquiry Commission: Reviewed the implications of Article 286 on State taxation and inter-State trade.
- Law Commission of India: Examined legal aspects of inter-State trade and recommended measures to harmonize tax laws with the principles of Article 286.
Important Reports Related to Article 286:
- Finance Commission Reports: Discuss the impact of inter-State and international trade restrictions on State revenues and recommend measures for compliance with Article 286.
- Reports on Goods and Services Tax (GST): Analyze the transition to GST and its alignment with the principles of Article 286, promoting a unified tax regime across India.
Previous Year Prelims Questions Related to Article 286
- (UPSC Prelims 2016) What does Article 286 of the Indian Constitution restrict?
- A. Import of goods into India
- B. State laws from imposing taxes on sales or purchases of goods outside the State or in international trade
- C. Export of goods out of India
- D. State laws from imposing taxes on services Correct Answer: B. State laws from imposing taxes on sales or purchases of goods outside the State or in international trade
- (UPSC Prelims 2018) Who has the authority to formulate principles for determining when a sale or purchase of goods takes place outside the State or in international trade as per Article 286?
- A. The President
- B. The Supreme Court
- C. The Parliament
- D. The Finance Commission Correct Answer: C. The Parliament
Previous Year Mains Questions Related to Article 286
- Mains 2016: “Discuss the significance of Article 286 in regulating State taxation powers on inter-State and international trade. How does this article promote uniformity and fairness in taxation across India?”
- Mains 2019: “Evaluate the role of Parliament in ensuring compliance with Article 286 through the formulation of principles and restrictions. What are the benefits and challenges associated with this regulatory framework?”
Additional Insights:
- Promoting Free Trade: Article 286 is crucial in promoting free trade within India and with other countries by preventing States from imposing restrictive taxes on inter-State and international transactions.
- Uniform Taxation: By empowering Parliament to regulate State taxation on inter-State and international trade, the article ensures a uniform taxation system, reducing the complexity and potential for double taxation.
Understanding Article 286 is crucial for UPSC aspirants as it provides insights into the mechanisms for regulating State taxation on inter-State and international trade, emphasizing the importance of uniformity and fairness in the taxation system. This knowledge is essential for both preliminary and main examinations, offering a comprehensive understanding of the financial provisions and their impact on trade within the Indian Constitution.