Article 269A

Article 269A of the Constitution of India, inserted by the Constitution (One Hundred and First Amendment) Act, 2016, establishes the framework for the levy and collection of the Goods and Services Tax (GST) on supplies that take place in the course of inter-State trade or commerce. It represents one of the most significant constitutional reforms in the field of taxation, integrating the Indian market into a single unified system by subsuming multiple indirect taxes under one comprehensive tax regime.

Background and Constitutional Context

Prior to the introduction of GST, India had a fragmented system of indirect taxation, with separate levies imposed by the Union (such as excise duty and service tax) and by the States (such as sales tax, value added tax, and entry tax). This multiplicity of taxes often resulted in overlapping jurisdictions, cascading effects, and impediments to free trade between States.
The 101st Constitutional Amendment (2016) restructured the fiscal framework by introducing Articles 246A, 269A, and 279A, and by creating a dual model of GST. Under this model, both the Union and the States levy GST concurrently, except in the case of inter-State trade and commerce, where Article 269A vests the power of levy and collection with the Union Government.

Clause (1): Levy and Collection by the Union

Article 269A(1) provides that the Goods and Services Tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India.
The key features of this clause are:

• GST on inter-State supplies, known as Integrated GST (IGST), is levied and collected by the Union Government.
• The proceeds of IGST are shared between the Union and the States, in accordance with the formula determined by Parliament based on the recommendations of the GST Council.
• The aim is to ensure that both levels of government derive revenue from inter-State transactions while maintaining a uniform national market.

This mechanism effectively replaces the earlier system under Article 269, which governed the levy and collection of taxes on inter-State trade in goods.

Definition and Scope of “Supply”

The concept of supply under GST is broad and inclusive. For the purposes of Article 269A:

• “Supply” includes all forms of transfer, sale, exchange, barter, license, lease, or disposal made for consideration in the course of business.
• Both goods and services are covered under GST, eliminating the traditional distinction between them for taxation purposes.
• Imports into India are also treated as supplies in the course of inter-State trade or commerce, thereby attracting IGST in addition to customs duties.

This unified definition ensures comprehensive tax coverage and prevents overlaps in taxation.

Clause (2): Apportionment of Proceeds

Article 269A(2) provides that the portion of the tax apportioned to a State shall not form part of the Consolidated Fund of India.
This means that:

• The Union Government collects IGST but must apportion a part of it to the States based on the place of supply.
• The share due to the States is directly assigned to them and credited to their respective Consolidated Funds.
• The apportionment formula is determined by Parliament as per the recommendations of the GST Council.

This clause ensures fiscal equity among the States by distributing revenue according to consumption, rather than production, thus favouring consumer States over manufacturing States.

Clauses (3) and (4): Adjustment Mechanisms

Clauses (3) and (4) of Article 269A provide for cross-utilisation of taxes between the Centre and the States:

• Clause (3): Any amount collected as GST under Clause (1) and used for payment of State tax (under Article 246A) shall not form part of the Consolidated Fund of India.
• Clause (4): Similarly, any amount collected as State tax (SGST) and used for payment of IGST under Clause (1) shall not form part of the Consolidated Fund of the State.

These provisions facilitate the seamless flow of tax credits across the supply chain, ensuring that taxes are levied only on the value added at each stage of production and distribution.

Clause (5): Determination of Place of Supply

Under Clause (5), Parliament is empowered to make laws for determining when a supply of goods or services takes place in the course of inter-State trade or commerce.
This clause is vital because:

• It decides which State will receive the revenue share from a particular transaction.
• The determination of the place of supply helps identify whether a transaction qualifies as inter-State (subject to IGST) or intra-State (subject to CGST and SGST).

Accordingly, Parliament enacted the Integrated Goods and Services Tax Act, 2017 (IGST Act), which lays down detailed rules for determining the place of supply for goods and services.

Role of the GST Council

The Goods and Services Tax Council (Article 279A) plays a central role in the implementation of Article 269A. It consists of the Union Finance Minister (Chairperson), the Union Minister of State for Finance, and the Finance Ministers of all States.
The Council’s responsibilities include:

• Recommending the division of IGST between the Union and the States.
• Framing guidelines for determining inter-State transactions.
• Advising on exemptions, tax rates, and thresholds.
• Promoting uniformity and coordination in the operation of GST laws across India.

The Council embodies the principle of cooperative federalism, ensuring that both levels of government participate in policy formulation and revenue sharing.

Important Judicial Interpretations

Although GST is a relatively recent constitutional development, several judicial pronouncements have clarified its scope and functioning:

• Mohit Minerals Pvt. Ltd. v. Union of India (2022): The Supreme Court ruled that the recommendations of the GST Council are not binding on the Union and States, but have persuasive value, reinforcing the federal character of the GST framework.
• Union of India v. Association of Unified Telecom Service Providers of India (2019): Addressed issues concerning the levy of GST on inter-State supply of telecommunication services.
• State of West Bengal v. Kesoram Industries Ltd. (2004): Although predating GST, this case provided foundational principles regarding the nature of inter-State trade and taxation powers under the Constitution.

These decisions underscore the evolving nature of India’s fiscal federalism under Article 269A.

Key Features and Mechanisms

• Integrated GST (IGST): Levied by the Union on inter-State supplies, imports, and exports, and distributed between the Union and the destination State.
• Destination-Based Taxation: Revenue accrues to the State where goods or services are consumed, not where they originate.
• Uniform Tax Base: A single tax structure covers goods and services, eliminating cascading and duplication.
• Input Tax Credit Mechanism: Facilitates set-off of taxes paid at previous stages, ensuring tax efficiency.

Economic and Administrative Impact

Article 269A has transformed India’s indirect tax landscape through:

• Simplification of Tax Structure: By integrating multiple taxes into one system, it has reduced compliance complexity.
• Boost to Inter-State Trade: Removal of entry barriers and uniform taxation has improved the ease of doing business.
• Revenue Stability: The apportionment model has enhanced predictability in revenue sharing between the Union and the States.
• National Market Integration: The seamless flow of goods and services across State borders has strengthened economic unity.

Challenges and Ongoing Issues

Despite its success, Article 269A faces certain practical and structural challenges:

• Apportionment Disputes: Differences among States regarding the formula for sharing IGST revenue.
• Compliance Burden: Small and medium enterprises face administrative challenges in cross-State transactions.
• Technological Integration: Effective implementation depends heavily on the digital infrastructure of the GST Network (GSTN).
• Federal Tensions: Periodic disagreements arise between the Centre and the States over compensation and revenue distribution.

Significance in India’s Fiscal Federalism

Article 269A represents a paradigm shift in India’s approach to taxation and intergovernmental fiscal relations. It symbolises:

• The unity of the national market through uniform taxation.
• The balance of fiscal powers between the Centre and the States.
• The institutionalisation of cooperative federalism through the GST Council.
• A modern, technology-driven tax system aligned with global standards