GST on Inter-State Trade or Commerce

GST on inter-state trade — formally Integrated Goods and Services Tax, or IGST — is governed by Article 269A of the Constitution, inserted by the Constitution (One Hundred and First Amendment) Act, 2016. It is levied and collected by the Government of India on supplies of goods, services, or both, in the course of inter-State trade or commerce, and then apportioned between the Union and the states in a manner Parliament prescribes by law, acting on the recommendations of the Goods and Services Tax Council.

What Article 269A Provides

Article 269A(1) vests the power to levy and collect GST on inter-State supplies exclusively in the Government of India. The tax so collected is then apportioned between the Union and the states as Parliament may provide by law, following the GST Council's recommendations. An Explanation to the clause treats any supply of goods, services, or both in the course of import into India as an inter-State supply for this purpose — bringing IGST on imports within the same apportionment framework. Article 269A(5) further empowers Parliament to formulate, by law, the principles for determining the place of supply, and for determining when a supply of goods or services is treated as taking place in the course of inter-State trade or commerce — questions on which the correct apportionment of revenue depends.

Keeping IGST Out of the Consolidated Fund

Article 269A(2), (3) and (4) build a set of accounting rules to keep this shared tax administratively clean. The amount apportioned to a state under clause (1) does not form part of the Consolidated Fund of India. Where IGST collected has been used to pay a state's own GST liability under Article 246A, that amount likewise does not form part of the Consolidated Fund of India. And, in the reverse situation, where a state's GST collection has been used to pay IGST liability, that amount does not form part of the Consolidated Fund of the State. These provisions ensure that cross-utilisation between IGST and state GST does not distort either government's constitutional fund.

The GST Council's Role

Article 279A, also inserted by the 101st Amendment, constitutes the Goods and Services Tax Council, chaired by the Union Finance Minister, with the Union Minister of State in charge of Revenue or Finance and one nominated minister from each state government as members. The Council makes recommendations to the Union and states on matters directly relevant to Article 269A — including the apportionment of GST levied on inter-State supplies, the principles governing place of supply, the threshold turnover below which goods and services may be exempted, GST rates and floor rates with bands, and any special rate to raise resources during a natural calamity or disaster. Because Article 269A conditions apportionment on a law made "on the recommendations of the Goods and Services Tax Council," the Council's advisory role effectively shapes how inter-State GST revenue is actually split.

Constitutional Background: Freedom of Trade Across States

Article 269A operates against the backdrop of Part XIII of the Constitution, which addresses trade, commerce and intercourse within India. Article 301 declares that trade, commerce and intercourse throughout India shall be free, subject to the other provisions of that Part. Article 302 allows Parliament to impose restrictions on this freedom in the public interest, while Article 303 bars both Parliament and state legislatures from giving preference to one state over another, or discriminating between states, through any entry relating to trade and commerce — except where a law declares this necessary to deal with a scarcity of goods. Article 304 permits a state legislature to tax goods imported from other states, provided similar goods made within the state face the same tax, so that no discrimination arises against imported goods. Before the GST regime, the power of a state to tax the sale or purchase of goods delivered for consumption within it — even where the sale arose in the course of inter-State trade or commerce — was contested; in Bengal Immunity Co v State of Bihar (1955), the Supreme Court overruled its own earlier majority view in State of Bombay v United Motors on this very question, observing that the Court was not bound by its own prior decisions.

UPSC Relevance

Prelims

• Article 269A, inserted by the 101st Constitutional Amendment Act, 2016, governs IGST on inter-State supplies.
• IGST is levied and collected by the Union and apportioned between Union and states on GST Council recommendations.
• Imports into India are deemed inter-State supplies under Article 269A's Explanation.
• Article 279A constitutes the GST Council, chaired by the Union Finance Minister.

Mains

• Discuss how Article 269A reworks Centre-state financial relations for indirect taxation compared to the pre-GST Article 269 mechanism.
• Analyse the GST Council's role as a cooperative-federalism body shaping the operation of Article 269A.

FAQ

Q1. What does Article 269A deal with? GST (IGST) levied and collected by the Union on supplies of goods, services, or both in the course of inter-State trade or commerce, and its apportionment between the Union and the states.

Q2. Who decides how IGST is apportioned? Parliament, by law, on the recommendations of the Goods and Services Tax Council constituted under Article 279A.

Q3. Are imports into India covered under Article 269A? Yes — the Explanation to Article 269A(1) deems any supply of goods, services, or both in the course of import into India to be an inter-State supply.

Q4. Does IGST revenue form part of the Consolidated Fund of India? The amount apportioned to a state does not form part of the Consolidated Fund of India, and cross-utilised amounts between IGST and state GST are similarly kept outside the respective Consolidated Funds.

Q5. How does Article 269A relate to Part XIII of the Constitution? Article 269A operates within the broader constitutional commitment to free trade, commerce and intercourse across states under Article 301, subject to the restrictions Parliament and states may impose under Articles 302 to 304.

Quick Revision

• Article 269A — IGST levied and collected by Union, apportioned with states per GST Council-informed law.
• Inserted by the Constitution (101st Amendment) Act, 2016 alongside Article 246A.
• Imports into India deemed inter-State supplies for apportionment.
• Article 279A GST Council recommends rates, exemptions, place-of-supply principles, apportionment.
• Sits within Part XIII's broader freedom-of-trade framework (Articles 301-304).

Sources

• The Constitution of India, Articles 269A, 279A, 301–304 — Ministry of Law and Justice, legislative.gov.in.

Further Reference

For deeper reading on this topic and the wider polity syllabus, these standard works are recommended:

• M. Laxmikanth, Indian Polity (McGraw Hill) — the standard UPSC handbook.
• D.D. Basu, Introduction to the Constitution of India (LexisNexis) — authoritative constitutional-law treatment.
• The Constitution of India — Bare Act — the official text.