Constitution (Sixth Amendment) Act, 1956

The Constitution (Sixth Amendment) Act, 1956 restructured India’s fiscal federal architecture on sales taxation by placing taxes on inter-State sales and purchases of goods (other than newspapers) within the Union’s exclusive legislative domain, while ensuring that the proceeds accrued to the States according to principles framed by Parliament. Complementing this redistribution of competence, the amendment also empowered Parliament to lay down uniform determining principles for when a sale or purchase occurs in inter-State trade or commerce, outside a State, or in the course of import into or export from India, and to declare certain goods as being of special importance to inter-State trade with binding constraints on State taxation. Enacted amid conflicting judicial interpretations and uneven State practices, it created the constitutional foundation for a coherent all-India regime later operationalised through central legislation.

Background and constitutional context

At commencement, Entry 54 of the State List authorised “taxes on the sale or purchase of goods other than newspapers,” while Article 286 imposed substantive limits: no State tax on sales taking place outside the State or in the course of import or export, a Parliamentary override for inter-State sales (clause (2)), and Presidential assent for taxes on goods declared essential to the life of the community (clause (3)). An Explanation to Article 286(1)(a) deemed a sale to occur in the State of actual delivery for consumption, a device intended to identify taxing situs but one that spawned disputes when transactions straddled multiple jurisdictions.
Divergent judicial readings intensified uncertainty. In State of Bombay v. United Motors (India) Ltd. the Supreme Court majority allowed the delivery State to tax transactions with inter-State elements even absent a Parliamentary law under Article 286(2), exposing dealers to multi-State tax burdens. Two-and-a-half years later, Bengal Immunity Co. v. State of Bihar overturned this aspect, but the fragmentation in doctrine and practice persisted. Meanwhile, Parliament’s 1952 declaration of “essential goods” under Article 286(3) did not uniformly displace pre-existing State taxes, producing rate dispersion and competitive distortions.
Against this backdrop, the Taxation Enquiry Commission recommended that while sales tax should remain a State revenue, inter-State sales—with administrative reach beyond a single State and fiscal incidence on consumers elsewhere—ought to be centrally regulated, with revenue devolving to States and intra-State taxation largely retained by them subject to centre-imposed limits for commodities of wider significance. The Sixth Amendment constitutionalised these recommendations.

Objectives and rationale

The amendment pursued four interlocking aims:

• Centralise competence over inter-State sales taxation to end forum shopping and overlapping claims.
• Create national principles to determine when a sale is inter-State, outside a State, or in the import/export stream, thereby reducing litigation.
• Protect the Union market by allowing Parliament to declare key commodities as specially important and to cap or condition State taxes on them.
• Retain State revenue interests by crediting the proceeds of inter-State sales taxes to States according to Parliamentary distribution norms.

Key constitutional changes

Seventh Schedule realignment

• Insertion of Entry 92A (Union List): “Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.”
• Substitution of Entry 54 (State List): “Taxes on the sale or purchase of goods other than newspapers, subject to Entry 92A of List I.”

This division lodged inter-State sales taxes squarely with the Union, while leaving intra-State sales with the States.
Article 269—levy, collection, and devolution

• Article 269(1)(g) added inter-State sales taxes to taxes levied and collected in accordance with a Parliamentary law, but assigned to the States.
• Article 269(3) authorised Parliament to formulate principles for determining when a sale or purchase is in the course of inter-State trade or commerce.

The model separated legislative control (Union) from beneficial entitlement (States), aligning administrative coherence with fiscal federalism.
Article 286—situs and special goods

• Deletion of the Explanation to Article 286(1)(a), removing the deeming rule of delivery for consumption that had complicated situs attribution.
• Substituted clauses (2) and (3):
  • Article 286(2) empowered Parliament to formulate principles for deciding when a sale occurs outside a State, in the course of import, or in the course of export.
  • Article 286(3) enabled Parliament to declare goods of special importance to inter-State trade and to impose binding restrictions and conditions on State sales taxes on those goods (covering levy system, rates, and incidents of the tax).

Legislative history and ratification

Introduced in the Lok Sabha on 3 May 1956 as the Constitution (Tenth Amendment) Bill, 1956, the measure was piloted by the Minister of Revenue and Civil Expenditure, M. C. Shah. Referred to a Joint Committee on 9 May and concurred by the Rajya Sabha on 16 May, the Committee reported on 23 May recommending passage without amendments. The Lok Sabha passed the Bill on 29 May 1956, adopting a formal change in its short title to the Sixth Amendment; the Rajya Sabha passed it on 31 May 1956.
As the amendment reconfigured the federal distribution of legislative power, it required State ratification under Article 368. More than half of the then States—Andhra State, Assam, Hyderabad, Madhya Bharat, Madhya Pradesh, Madras, Punjab, PEPSU, Saurashtra, Uttar Pradesh, and West Bengal—ratified. Presidential assent followed on 11 September 1956, with commencement the same day.

Judicial backdrop and the need for uniform principles

The oscillation between United Motors and Bengal Immunity highlighted the risks of relying on judge-made situs tests for multi-State transactions: dealers faced plural compliance burdens, consumers bore cascading taxes, and States engaged in defensive rate-setting to protect their bases. By empowering Parliament to codify clear connecting factors—place of contract, movement of goods, transfer of title, delivery, and their relation to import/export streams—the amendment aimed to stabilise situs rules, curb tax exportation, and reduce litigation.

Interface with subsequent legislation

The amendment’s scheme was operationalised by Parliament through the Central Sales Tax Act, 1956. That Act:

• Defined when a sale occurs in the course of inter-State trade (movement of goods across State borders pursuant to a contract, or transfer by documents of title during such movement).
• Laid down principles for sales outside a State, in the course of import, and in the course of export.
• Declared certain goods (e.g., iron and steel, coal, cotton, jute, later petroleum products, etc.) as of special importance, attaching rate ceilings and levy conditions binding on States under Article 286(3).
• Prescribed a destination-linked assignment of revenue to States, reflecting Article 269’s devolution mandate.

Decades later, the framework informed the transition to the Goods and Services Tax. While the 101st Constitutional Amendment (2016) recast entries and introduced Articles 246A and 269A, the core ideas—central control over inter-jurisdictional supplies, assignment of revenue to States, and uniform principles to determine inter-State character—trace their lineage to the Sixth Amendment’s architecture.

Economic and federal implications

Market integration and neutrality: Centralising competence over inter-State sales ensured rate discipline and process uniformity, reducing cascading effects and barriers to trade between States—an essential condition for a common national market.
Fiscal equivalence with federal devolution: By stipulating that inter-State sales taxes, though levied and collected pursuant to a central law, accrue to States, the amendment balanced administrative coherence with State fiscal autonomy. Parliament’s role was to set transparent distribution principles to avoid disputes.
Commodity-specific safeguards: The power to designate goods of special importance created a constitutional brake on potential beggar-thy-neighbour taxation by individual States—especially for basic inputs and mass-consumption goods whose price increases would spill across borders.
Litigation reduction and compliance clarity: Uniform situs rules curtailed contradictory assessments and multi-State liabilities. Businesses gained clearer nexus tests, lowering compliance costs and facilitating inter-State supply chains.

Scope and limitations

The amendment carefully preserved State primacy over intra-State sales, thereby respecting the federal compact and the States’ dependence on sales tax revenues. Its constraints on State power—for special-importance goods and inter-State transactions—were targeted and justified by externalities. Yet, the coexistence of differing purchase tax regimes, cascading in works contracts, and divergent forms and procedures meant that perfect neutrality was not achieved; those issues would only be comprehensively addressed in the later VAT and GST eras.

Significance and legacy

By inserting Entry 92A, recasting Entry 54, and re-engineering Articles 269 and 286, the Sixth Amendment delivered a constitutional blueprint for managing taxes on inter-jurisdictional trade—a recurring challenge in federations. It harmonised legislative power, locked in State revenue entitlements, and authorised nationwide standards for determining the situs of sales and the treatment of sensitive commodities. The subsequent Central Sales Tax Act, 1956 gave the framework practical effect, while later reforms drew on its core logic to advance a more integrated indirect tax system. In Indian constitutional history, the amendment stands as a pivotal measure that reconciled economic integration with fiscal federalism, stabilising the legal environment for commerce across State lines and laying durable foundations for future tax harmonisation.