Background

After the adoption of the Indian Constitution in 1950, the newly independent nation faced several administrative and financial challenges. One of the major issues was the overlapping power of the Union and State governments in imposing taxes on the same goods, especially on inter-State sales or purchases. This created confusion, double taxation, and disputes between different States.

To address this, the Parliament enacted the Constitution (Sixth Amendment) Act, 1956. The main objective of this amendment was to clarify the authority of the Union and States over taxes on the sale or purchase of goods in inter-State trade or commerce. It sought to promote a more uniform and efficient taxation system across India.

This amendment was also linked to the recommendations of the Taxation Enquiry Commission, which emphasized that uniformity in sales tax laws was essential for national economic integration.

Important Facts for Prelims Exams

  1. Year of enactment: 1956

  2. President in office: Dr. Rajendra Prasad

  3. Prime Minister: Pt. Jawaharlal Nehru

  4. Amendment type: Financial/Taxation related

  5. Article affected: Article 269, 286, and the Seventh Schedule

  6. Empowered Parliament to formulate laws related to inter-State sales tax

  7. Introduced a new entry in the Union List (Entry 92A) related to taxes on inter-State sales or purchases

  8. Enhanced fiscal coordination between the Union and the States.

Main Provisions and Key Facts

  1. Amendment of Article 269
    The amendment modified Article 269 to include taxes on the sale or purchase of goods in the course of inter-State trade or commerce as taxes levied and collected by the Government of India but assigned to the States.

  2. Amendment of Article 286
    It clarified restrictions on the imposition of taxes on sales or purchases taking place outside a State or in the course of import or export. The amendment ensured that States could not impose taxes on inter-State sales, imports, or exports.

  3. Insertion of a new Entry 92A in the Union List
    A new entry was added to the Union List in the Seventh Schedule—Entry 92A—empowering Parliament to make laws on taxes concerning the sale or purchase of goods in inter-State trade or commerce.

  4. Uniformity of Sales Tax
    The amendment ensured a uniform system of taxation on inter-State trade, thus preventing multiple States from imposing taxes on the same transaction.

  5. Clarification of Taxing Jurisdiction
    It brought clarity regarding which government—Union or State—had the right to impose specific types of taxes, especially in transactions that crossed State boundaries.

Significance

  1. Promoted fiscal clarity and coordination among States and the Union.

  2. Prevented double taxation and ensured fairness in inter-State trade.

  3. Strengthened the economic unity of India by removing inter-State trade barriers.

  4. Provided the legal foundation for a national taxation framework, which later evolved into the Goods and Services Tax (GST).

  5. Reduced legal disputes and administrative confusion related to the taxation of goods sold across States.

Criticism or Limitations

  1. Despite resolving the inter-State taxation issue, the amendment did not simplify the overall tax system immediately.

  2. Different States continued to have varied sales tax rates, leading to a lack of complete uniformity.

  3. The need for a single indirect tax regime was still felt for several decades until GST was implemented in 2017.

  4. Some States felt that their fiscal autonomy had been reduced due to greater control by the Union over inter-State trade taxation.

Key Points for Exams

  1. Amendment Year – 1956

  2. Amendment Type – Financial/Taxation

  3. Articles Affected – 269, 286

  4. New Entry Added – Entry 92A (Union List)

  5. Related Schedule – Seventh Schedule

  6. Objective – To regulate inter-State trade and taxation

  7. Significance – Strengthened fiscal federalism and economic integration

  8. Linked with – Taxation Enquiry Commission recommendations

In Short

The Sixth Constitutional Amendment Act, 1956 aimed to clarify and streamline the taxation of inter-State sales and purchases in India. It brought clarity to Articles 269 and 286, introduced Entry 92A, and promoted financial harmony between the Union and the States. The amendment served as a significant step toward a more unified taxation structure, paving the way for later reforms like GST.