The Constitution Sixth Amendment Act Of 1956: Strengthening Taxation And Inter-State Sales In India's Dynamic Constitution

The Sixth Amendment of the Constitution of India, officially known as the Constitution Sixth Amendment Act of 1956, extended the exclusive legislative and executive power of the union to include taxes on inter-state sales and purchases of items other than newspapers. This amendment empowered Parliament to formulate principles for determining when a sale or purchase of goods takes place in the course of inter-state trade or commerce, as well as outside the state or in the course of the import or export of goods. Additionally, Parliament was given the authority to declare, through legislation, goods of special importance to inter-state trade or commerce, and to specify restrictions and conditions for state laws regarding the levy, rates, and other aspects of tax on the sale or purchase of goods.

The Constitution Sixth Amendment Act of 1956 specifically addressed the taxation of inter-state sales of goods, excluding newspapers. It made amendments to Article 269, Article 286, and the Seventh Schedule of the Constitution. Prior to this amendment, state governments were not allowed to impose taxes on inter-state sales and purchases, as well as the import and export of goods, unless permitted by Parliament. In cases where certain goods were deemed essential, a state law imposing a tax on their sale or purchase required the prior assent of the President. However, challenges in implementing this provision arose as the judiciary held differing views on the scope and effect of these provisions, particularly Article 286. Furthermore, the central government's declaration of certain goods as essential impacted existing state laws.

The Constitution Sixth Amendment Act brought clarity regarding the taxation on the sale and purchase of goods in inter-state sales. Although the provision, as it existed prior to the amendment, made it clear that in interstate sales or when goods are declared essential, the final decision lies with the central government, confusion arose due to court judgments and implementation difficulties. This clarity was introduced based on the recommendations made by the taxation inquiry committee. After the amendment, there was uniformity in the taxation on the sale and purchase of all essential commodities, as well as the levy, collection, and distribution of taxes between the states and the central government.

On the 3rd of May 1956, this bill was introduced in the Lok Sabha. The then Minister of Revenue and Civil Expenditure, M.C. Shah, introduced the bill. The Sixth Amendment Act amended Article 286, Article 269, and the 7th schedule of the Constitution of India. It included the insertion of Entry 92A, which dealt with taxes on interstate commerce and trade, excluding newspapers. According to the guidelines of Entry 92A in List 1, Entry 54 of the state list outlined the taxes imposed on the acquisition or sale of commodities other than newspapers. Such taxes would be imposed and collected in accordance with a law passed by Parliament, but they would not be part of India's Consolidated Fund. Instead, they would be allocated to the states based on any distribution guidelines established by that law.

Regarding the need for this amendment, we must consider that we have a federal structure of government, where there is a clear division of powers between the central and state governments. The subjects on which the central government or the state government can legislate are prescribed in Lists I, II, and III of the Seventh Schedule of the Constitution. At that time, under the prevailing law (as the current regime is different under the Goods and Services Tax, or GST), sales tax was an important source of revenue.

The Taxation Inquiry Committee at that time recognized that sales tax should remain a state subject, but sales tax on inter-state sales should come under the jurisdiction of the Union government. The central government would collect the tax through the state government, and its distribution between the Centre and the states would be determined by the law enacted by Parliament. Thus, while sales tax continued to be a state revenue source, inter-state sales became a matter for the Union government.

The bill was passed in accordance with the provisions of Article 368 of the Constitution and was ratified by the legislatures of more than half of the states specified in Parts A and B of the First Schedule through resolutions. A state is a community of persons permanently occupying a definitive territory, legally independent of external control, and possessing an organized government that creates and administers laws over all individuals within its jurisdiction. Effective and efficient governance is the expectation of every civilized society, and the government plays a crucial role as one of the four essential elements of the state, along with population, sovereignty, and territory. A state cannot exist without a government that not only provides security to the people but also looks after their basic needs and ensures their social and economic development.

The Constitution Sixth Amendment Act of 1956 stands as a testament to the dynamic nature of the Indian Constitution. With its provisions on taxation and inter-state sales, it exemplifies the Constitution's ability to adapt and evolve over time. By clarifying the roles and powers of the central and state governments, the amendment brought much-needed clarity to the taxation landscape. It also recognized the importance of effective governance in meeting the needs of the people and promoting social and economic development. As India continues on its path of progress, the Constitution remains a living document, capable of responding to the changing needs and aspirations of its citizens.

This is the fourth part of a series. The first part can be read here, the second part here and the third part here.

Author is an Advocate practicing in the High Court of Bombay.

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