Extra Territorial Operation of Tax Laws- Constitutional Validity

EXTRA TERRITORIAL OPERATION OF TAX LAWS- CONSTITUTIONAL VALIDITY

INTRODUCTION

* OPERATION OF TAX LAWS IN INDIA- Each State in India is separate for administrative and constitutional purposes. However, with the developments in the Indian Economy, it is not possible for the states to remain separate in an economic sense. The disparities in different regions of the Country have ensured that trade flows from one region to another. Taxing powers are divided between the Centre and the States. The Constitution allots separate legislative heads of taxation to the Centre and the States. The taxes enumerated in the Union List (List I) are leviable by the Centre while those mentioned in the State List (List II) are leviable by the States. Not many tax entries are contained in the Concurrent List; this has been done to avoid problems of overlapping and multiple taxation between the Centre and the States. If any power to tax is clearly mentioned in List II of the Seventh schedule of the Constitution of India, the same would not be available to be exercise by the Parliament based on the assumption of residuary power, for under the constitutional scheme, the power to legislate in respect of a matter including a residuary matter does not carry with it a power to impose a tax.

* RESTRICTIONS ON TAXING POWERS- The States’ power to levy tax has been subjected to a few restrictions with a view to keep inter-State and international trade and commerce and trade in the goods of special importance free from haphazard State taxation and these restrictions are as follows:

1) A State is debarred from levying a tax on inter-state sale or purchase.

2) No State can tax a sale or purchase taking place outside the State.

3) A State is debarred from levying a tax on sale or purchase taking place in the course of import and export.

In this Essay we are going to deal with the second point and elaborate it with necessary explanations, statutes and case laws.

A...