The Constitution of India
Article 269
Taxes levied and collected by the Union but assigned to the States
(1) Taxes on the sale or purchase of goods and taxes on the consignment of goods shall be levied and collected by the Government of India but shall be assigned and shall be deemed to have been assigned to the States on or after the 1st day of April, 1996 in the manner provided in clause (2).
Explanation. — For the purposes of this clause, —
(a) the expression “taxes on the sale or purchase of goods” shall mean taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce;
(b) the expression “taxes on the consignment of goods” shall mean 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.
(2) The net proceeds in any financial year of any such tax, except in so far as those proceeds represent proceeds attributable to Union territories, shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax is leviable in that year, and shall be distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law.
(3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods] takes place in the course of inter-State trade or commerce.
Why this exists
Before GST, taxing goods that moved across state borders was tricky — if every state taxed such goods independently, it could lead to double taxation and trade barriers, undermining the idea of India as one common market. Article 269 solved this by centralizing collection (for uniformity and administrative ease) while ensuring the revenue still went to the states where the goods were consumed or sold, respecting fiscal federalism. The consignment tax provision (added later) aimed to plug a loophole where businesses avoided sales tax by structuring transactions as 'stock transfers' between branches.
How courts read it
Courts, especially in cases interpreting the Central Sales Tax Act (which implements Article 269), clarified the meaning of 'inter-state trade or commerce' — for example, in cases like *Tata Iron & Steel Co. v. State of Bihar* — to determine when movement of goods across state lines makes a transaction inter-state versus purely local. However, after the 101st Constitutional Amendment (2016) introducing GST, most inter-state supply of goods and services now falls under the new Article 269A (IGST), so Article 269's practical role has shrunk, though it technically remains part of the Constitution for provisions not covered by GST.
Common misconceptions
- Myth: Article 269 lets the Union government keep tax money collected on inter-state trade.
Fact: The Article specifically says this money does NOT go into the Union's treasury (Consolidated Fund of India) — it must be given to the states. - Myth: Article 269 is how GST on inter-state trade works today.
Fact: After the 2016 GST amendment, most inter-state trade taxation is now governed by the newer Article 269A (Integrated GST), not Article 269, which now applies more narrowly.