Brief of the 46th Amendment of the Indian Constitution

This amendment revised Arts.269, 286,366 and the Seventh Schedule in order to overcome a Supreme Court ruling which resulted in the possibility of eliminating sales tax. It sought to assist significantly increase state income in a variety of ways. The Supreme Court ruled in Gannon Dunkerley’s case that the term “sale of goods” as used in the entries in the Seventh Schedule had the same meaning as in the Sale of Goods Act. Following the previous judgment, the court concluded in a series of landmark judgments that diverse transactions that resembled in content a sales transaction were not liable to sales tax. This created opportunities for tax evasion in a variety of methods, such as interstate sales of products.

The Supreme Court ruled in Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi that serving meals at a hotel or restaurant did not constitute a sale of food for the purpose of levying sales tax and must be regarded as performing a service in fulfilment of a human need. The modification included a new sub-clause (h) following sub-clause (g) in Art.269, allowing the central government to charge taxes on products consigned in the course of inter-state trade or commerce.

It revised clause (3) of Art.286 and authorized the legislature by legislation to develop standards for deciding when a consignment of goods (in addition to the exiting sale or purchase of commodities) would be in the course of inter-state trade or commerce. Central government assessed and collected taxes would be allocated to the states. Art.286 clause(3) was revised to allow the parliament to determine by legislation the restrictions and conditions under which a state may charge a tax on the sale or purchase of goods on issues referred to in sub-clauses (b), (c), and (d) of art.366 paragraph (29-A). The change added a new provision (29-A) to Article 366. The modification added a new clause (29-A) to article 366, defining “tax on the sale or purchase of goods” to include a tax on –

  • the transfer of property in any products for cash, postponed payment, or other valued compensation other than in accordance with a contract;
  • the transfer of property in commodities (whether as products or in another form) associated with the performance of a work contract;
  • the delivery of products on hire purchase or any other instalment payment method;
  • the transfer of the right to use any products for any purpose, whether or not for a set length of time, for cash or other significant consideration
  • the provision of commodities to a member of an unincorporated group or body of individuals in exchange for cash, deferred payment, or other useful consideration;
  • the provision of products being food or any other commodity for human consumption or any drink (whether or not intoxicating) by way of or as part of any service or in any other manner whatever, when such supply or service is for cash, deferred payment, or other valued consideration;

And such a transfer, delivery, or supply of products would be considered a sale or acquisition of goods

In list 1 of the 6 schedule, a new entry 92-B was added to allow the central government to impose “Taxes on the consignment of commodities “in the course of inter-state trade or commerce.

Section 6 (1) of the Amendment Act recognizes legislation levying tax on the provision of or as part of any service, of food, drink, or other product for human consumption for consideration, as well as any levy or collection made by way of tax on such supply under any such law. Any supply made prior to the commencement of this Amendment (i.e. 3.2.1983) shall be deemed to have been a sale notwithstanding any judgment, decree, or order of any Court, tribunal, or authority based solely on the fact that the concerned legislature or authority lacked the competence to pass or make such law.

There is no claim for a return of any such tax that has been collected. Subsection (2) of Section 6 exempts payment of tax on food and drink supplied by an hotelier to a person staying in the hotel between 4.1.1972 (date of judgment in N.I Caterers (India Case) and 2.2.1983 prior to the beginning of this amendment.

The exemption from tax on food or drink supplied by any restaurant or eating house must be accessible only during the period from 7.9.1973 (date of judgment in Northern India Caterers (India) Ltd, Case) to 2.2.1983 prior to the start of the 46th Amendment Act. However, exemption from payment of tax on such supplies during the aforementioned period shall be available when the tax has not been collected on such supply because no such tax could have been levied or collected at that time, and the burden of proving that the aforementioned tax was not collected on such supplies shall be on the person claiming exemption.

Under sub-section (3), a person shall be entitled to challenge, in accordance with the law enacted prior to the 46th Amendment, the assessment, re-assessment, levy, or collection of the previously mentioned tax, or claim referred of the above said tax paid by him in excess of the amount due from him under any such law, and no act or omission on the part of any person prior to the commencement of this 46th Amendment shall be punish.

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