THE CONSTITUTION (FORTY-SIXTH AMENDMENT)

Statement of Objects and Reasons appended to the Constitution
       (Forty-sixth Amendment) Bill, 1981 which was enacted as
          THE CONSTITUTION (Forty-sixth Amendment) Act, 1982

                   STATEMENT OF OBJECTS AND REASONS

Sales  tax  laws enacted in pursuance of the Government of India  Act,
1935  as  also the laws relating to sales tax passed after the  coming
into  force  of  the Constitution proceeded on the  footing  that   the
expression  "sale  of  goods", having regard to the rule as   to  broad
interpretation  of entries in the legislative lists, would be given  a
wider  connotation.  However, in Gannon Dunkerley's case (A.I.R.  1958
S.C.  560), the Supreme Court held that the expression "sale of goods"
as used in the entries in the Seventh Schedule to the Constitution has
the  same  meaning as in the Sale of Goods Act, 1930.   This   decision
related to works contracts.

2.  By a series of subsequent decisions, the Supreme Court has, on the
basis  of the decision in Gannon Dunkerley's case, held various  other
transactions  which  resemble,  in substance, transactions by  way   of
sales, to be not liable to sales tax.  As a result of these decisions,
a  transaction, in order to be subject to the levy of sales tax  under
entry 92A of the Union List or entry 54 of the State List, should have
the  following  ingredients,  namely, parties competent  to   contract,
mutual  assent  and  transfer  of property in goods from  one   of  the
parties to the contract to the other party thereto for a price.

3.   This  position  has   resulted in scope for avoidance  of  tax  in
various  ways.   An  example of this is the  practice  of   inter-State
consignment  transfers, i.e., transfer of goods from head office or  a
principal  in one State to a branch or agent in another State or  vice
versa  or  transfer  of  goods on consignment account,  to   avoid  the
payment  of sales tax on inter-State sales under the Central Sales Tax
Act.   While  in the case of a works contract, if the contract  treats
the sale of materials separately from the cost of the labour, the sale
of materials would be taxable, but in the case of an indivisible works
contract,  it  is  not possible to levy sales tax on the  transfer   of
property in the goods involved in the execution of such contract as it
has  been held that there is no sale of the materials as such and  the
property  in them does not pass as moveables.  Though practically  the
purchaser  in a hire-purchase agreement gets the goods on the date  of
the  hire-purchase, it has been held that there is sale only when  the
purchaser  exercises  the option to purchase at a much later date  and
therefore  only  the depreciated value of the goods involved  in  such
transaction  at  the time the option to purchase is exercised  becomes
assessable  to sales tax.  Similarly, while sale by a registered  club
or  other  association of persons (the club or association of  persons
having  corporate  status)  to  its members is taxable,  sales   by  an
unincorporated  club  or association of persons to its members is  not
taxable as such club or association, in law, has no separate existence
from  that  of  the members.  In the Associated Hotels of  India   case
(A.I.R.   1972  S.C.  1131), the Supreme Court held that there   is  no
sale involved in the supply of food or drink by a hotelier to a person
lodged in the hotel.

4.   In the New India Sugar Mills case (A.I.R.   1963 S.C.  1207),  the
Supreme  Court  took  the  view that in  the  transfer   of  controlled
commodities  in  pursuance of a direction under a Control  Order,  the
element  of  volition by the seller, or mutual assent, is absent  and,
therefore, there is no sale as defined in the Sale of Goods Act, 1930.
However, in Oil and Natural Gas Commission Vs.  State of Bihar (A.I.R.
1976  S.C.   2478),  the Supreme Court had occasion  to   consider  its
earlier  decisions  with  regard  to the  liability  of   transfers  of
controlled  commodities to be charged to sales tax.  The Supreme Court
held  that  where  there are any statutory  compulsions,  the   statute
itself should be treated as supplying the consensus and furnishing the
modality  of  the consensus.  In Vishnu Agencies Vs.   Commercial   Tax
Officer (A.I.R.  1978 S.C.  449), six of the seven Judges concurred in
over-ruling  the  decision,  in New India Sugar Mills case  while   the
seventh  Judge held the case to be distinguishable.  It is, therefore,
considered desirable to put the matter beyond any doubt.

5.   The  various problems connected with the power of the  States  to
levy  a  tax on the sale of goods and with the Central Sales Tax  Act,
1956  were  referred to the Law Commission of India.   The   Commission
considered these matters in their Sixty-first Report and, recommended,
inter  alia, certain amendments in the Constitution if as a matter  of
administrative policy it is decided to levy tax on transactions of the
nature mentioned in the preceding paragraphs.

6.   Device  by  way  of lease of films has  also  been  resulting  in
avoidance of sales tax.  The main right in regard to a film relates to
its  exploitation and after exploitation for a certain period of time,
in  most cases, the film ceases to have any value.  It is,  therefore,
seen  that instead of resorting to the outright sale of a film, only a
leased or transfer of the right to exploitation is made.

7.   There  were reports from State Governments to whom revenues  from
sales  tax  have  been assigned, as to the large  scale   avoidance  of
Central  sales tax leviable on inter-State sales of goods through  the
device of consignment of goods from one State to another and as to the
leakage  of  local  sales  tax   in  works   contracts,   hire-purchase
transactions, lease of films, etc.  Though Parliament could levy a tax
on  these transactions, as tax on sales has all along been treated  as
an  item  of revenue to be assigned to the States, in regard to  these
transactions which resemble sales also, it is considered that the same
policy should be adopted.

8.  Besides the above mentioned matters, a new problem has arisen as a
result of the decision of the Supreme Court in Northern India Caterers
(India)  Ltd.  Vs.  Lt.  Governor of Delhi (A.I.R.  1978 S.C.    1591).
States have been proceeding on the basis that the Associated Hotels of
India  case  was  applicable  only to supply of food  or   drink  by  a
hotelier  to a person lodged in the hotel and that tax was leviable on
the  sale of foodstuffs by a restaurant.  But over-ruling the decision
of  the Delhi High Court, the Supreme Court has held in the above case
that  service  of  meals  whether in a hotel or  restaurant   does  not
constitute  a  sale of food for the purpose of levy of sales  tax  but
must  be regarded as the rendering of a service in the satisfaction of
a  human  need or ministering to the bodily want of human beings.   It
would not make any difference whether the visitor to the restaurant is
charged for the meal as a whole or according to each dish separately.

9.   It is, therefore, proposed to suitably amend the Constitution  to
include in article 366 a definition of "tax on the sale or purchase of
goods"  by  inserting  a  new  clause  (29A).    The  definition  would
specifically include within the scope of that expression tax on---

(i) transfer for consideration of controlled commodities;

(ii)  the transfer of property in goods involved in the execution of a
works contract;

(iii)  delivery of goods on hire-purchase or any system of payment  by
instalments;

(iv)  transfer of the right to use any goods for any purpose for cash,
deferred payment or other valuable consideration;

(v)  the  supply of goods by an unincorporated association or body  of
persons  to  a  member  thereof for cash, deferred  payment   or  other
valuable consideration;

(vi)  the supply, by way of or as part of any service, of food or  any
drink  for  cash,  deferred payment or other  valuable   consideration.
(See clause 4).

10.   A  new entry is sought to be inserted in the Union List  in  the
Seventh  Schedule,  as  entry 92B, to enable the levy of  tax  on   the
consignment  of goods where such consignment takes place in the course
of inter-State trade or commerce.  (See clause 5).

11.   Clause (1) of article 269 is proposed to be amended so that  the
tax  levied  on the consignment of goods in the course of  inter-State
trade or commerce shall be assigned to the States.  Clause (3) of that
article is proposed to be amended to enable Parliament to formulate by
law principles for determining when a consignment of goods takes place
in the course of inter-State trade or commerce.  (See clause 2).

12.   Clause  (3) of article 286 is proposed to be amended  to  enable
Parliament  to specify, by law, restrictions and conditions in  regard
to  the  system of levy, rates and other incidents of the tax  on  the
transfer  of  goods involved in the execution of a works contract,  on
the  delivery  of goods on hire-purchase or any system of  payment  by
instalments and on the right to use any goods.  (See clause 3).

13.   The  proposed amendments would help in the augmentation  of  the
State  revenues to a considerable extent.  Cluase 6 of the Bill  seeks
to  validate  laws  levying  tax on the supply of food  or   drink  for
consideration and also the collection or recoveries made by way of tax
under  any such law.  However, no sales tax will be payable on food or
drink  supplied  by a hotelier to a person lodged in the hotel  during
the  period from the date of the judgment in the Associated Hotels  of
India  case  and the commencement of the present Amendment Act if  the
conditions  mentioned  in sub-clause (2) of clause 6 of the  Bill  are
satisfied.   In the case of food or drink supplied by Restaurants this
relief  will be available only in respect of the period after the date
of  judgment  in the Northern India Caterers (India) Limited case  and
the commencement of the present Amendment Act.

14.  The Bill seeks to achieve the above objects.

NEW DELHI;                                       R.   VENKATARAMAN.

The 18th March, 1981.

        THE CONSTITUTION (FORTY-SIXTH AMENDMENT)
                              ACT, 1982

                                                [2nd February, 1983.]

An Act further to amend the Constitution of India.

BE  it enacted by Parliament in the Thirty-third Year of the  Republic
of India as follows:-

1.   Short title.-This Act may be called THE CONSTITUTION (Forty-sixth
Amendment) Act, 1982.

2.  Amendment of article 269.-In article 269 of the Constitution,-

(a)  in  clause  (1), after sub-clause (g), the  following  sub-clause
shall be inserted, namely:-

"(h)  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,";

(b)  in  clause  (3), for the words "sale or purchase of  goods",  the
words  "sale  or  purchase  of,  or consignment  of   goods"  shall  be
substituted.

3.  Amendment of article 286.-In article 286 of the Constitution, for
clause (3), the following clause shall be substituted, namely:-

"(3)  Any law of a State shall, in so far as it imposes, or authorises
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), sub-clause (c) or sub-clause (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.".

4.   Amendment  of  article 366.-In article 366 of  the  Constitution,
after clause (29), the following clause shall be inserted, namely:-

`(29A) "tax on the sale or purchase of goods" includes-

(a)  a tax on the transfer, otherwise than in pursuance of a contract,
of  property in any goods for cash, deferred payment or other valuable
consideration;

(b) a tax on the transfer of property in goods (whether as goods or in
some other form) involved in the execution of a works contract;

(c)  a tax on the delivery of goods on hire-purchase or any system of
payment by instalments;

(d)  a  tax  on  the transfer of the right to use any  goods  for  any
purpose  (whether  or not for a specified period) for  cash,  deferred
payment or other valuable consideration;

(e)  a tax on the supply of goods by any unincorporated association or
body  of  persons  to a member thereof for cash, deferred  payment   or
other valuable consideration;

(f) a tax on the supply, by way of or as part of any service or in any
other manner whatsoever, of goods, being food or any other article for
human  consumption  or any drink (whether or not intoxicating),  where
such supply or service is for cash, deferred payment or other valuable
consideration,

and  such transfer, delivery or supply of any goods shall be deemed to
be  a sale of those goods by the person making the transfer,  delivery
or  supply  and a purchase of those goods by the person to  whom  such
transfer, delivery or supply is made;'.

5.   Amendment  of  Seventh Schedule.-In the Seventh Schedule  to  the
Constitution,  in  List I-Union List, after entry 92A,  the  following
entry shall be inserted, namely:-

"92B.   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.".

6.   Validation and exemption.-(1) For the purposes of every provision
of  the  Constitution  in  which the expression "tax on  the   sale  or
purchase  of goods" occurs, and for the purposes of any law passed  or
made,  or  purporting  to  have  been   passed  or   made,  before  the
commencement of this Act, in pursuance of any such provision,-

(a)  the  said  expression shall be deemed to include,  and  shall  be
deemed  always  to  have included, a tax (hereafter  in  this   section
referred  to as the aforesaid tax) on the supply, by way of or as part
of any service or in any other manner whatsoever, of goods, being food
or  any  other article for human consumption or any drink (whether  or
not  intoxicating)  for  cash,  deferred  payment  or   other  valuable
consideration;  and

(b)  every  transaction by way of supply of the nature referred to  in
clause  (a)  made before such commencement shall be deemed to be,  and
shall  be  deemed always to have been, a transaction by way  of  sale,
with  respect to which the person making such supply is the seller and
the person to whom such supply is made, is the purchaser,

and  notwithstanding  any  judgment,   decree or order  of  any  court,
tribunal  or  authority, no law which was passed or made  before  such
commencement  and  which imposed or authorised the imposition  of,  or
purported  to impose or authorise the imposition of, the aforesaid tax
shall  be  deemed  to be invalid or ever to have been invalid  on   the
ground  merely,  that  the Legislature or other authority  passing   or
making  such law did not have competence to pass or make such law, and
accordingly:-

(i)  all the aforesaid taxes levied or collected or purporting to have
been levied or collected under any such law before the commencement of
this  Act  shall  be  deemed always to have  been  validly   levied  or
collected in accordance with law;

(ii)  no suit or other proceeding shall be maintained or continued  in
any  court or before any tribunal or authority for the refund of,  and
no  enforcement  shall be made by any court, tribunal or authority  of
any  decree  or order directing the refund of, any such aforesaid  tax
which has been collected;

(iii)  recoveries  shall be made in accordance with the provisions  of
such  law of all amounts which would have been collected thereunder as
such  aforesaid tax if this section had been in force at all  material
times.

(2)  Notwithstanding anything contained in sub-section (1), any supply
of  the nature referred to therein shall be exempt from the  aforesaid
tax-

(a) where such supply has been made, by any restaurant or eating house
(by  whatever  name  called), at any time on or after the 7th  day   of
September,  1978  and  before  the commencement of this  Act   and  the
aforesaid tax has not been collected on such supply on the ground that
no such tax could have been levied or collected at that time;  or

(b)  where such supply, not being any such supply by any restaurant or
eating  house (by whatever name called), has been made at any time  on
or  after the 4th day of January, 1972 and before the commencement  of
this  Act and the aforesaid tax has not been collected on such  supply
on  the ground that no such tax could have been levied or collected at
that time:

Provided  that  the burden of proving that the aforesaid tax  was  not
collected on any supply of the nature referred to in clause (a) or, as
the  case  may  be, clause (b), shall be on the  person  claiming   the
exemption under this sub-section.

(3) For the removal of doubts, it is hereby declared that,-

(a)  nothing  in sub-section (1) shall be construed as preventing  any
person-

(i)  from  questioning  in accordance with the provisions of  any  law
referred to in that sub-section, the assessment, reassessment, levy or
collection of the aforesaid tax, or

(ii) from claiming refund of the aforesaid tax from him paid by him in
excess of the amount due from him under any such law; and

(b)  no  act  or  omission  on the part  of  any  person,  before  the
commencement  of  this  Act, shall be punishable as an  offence   which
would not have been so punishable if this Act had not come into force.