The Constitution of India
Article 286
Restrictions as to imposition of tax on the sale or purchase of goods
(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place —
(a) outside the State; or
(b) in the course of the import of the goods into, or export of the goods out of, the territory of India.
(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1).
(3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, —
(a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or
(b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), subclause (c) or sub-clause (d) of clause (29A) of article 366,
be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.
Why this exists
After Independence, individual States began taxing sales in ways that clashed with each other or taxed the same transaction twice, and some States even tried to tax goods moving in international trade. This threatened India's goal of a unified internal market and orderly foreign trade. Article 286 was designed to draw clear boundaries around State sales-tax power, keep import/export and inter-State trade largely under central oversight, and let Parliament coordinate tax rules on goods considered nationally important. The 46th Amendment (1982) later added clause (3)(b), linking this Article to the expanded definition of 'sale' in Article 366(29A), which covers things like works contracts and hire-purchase.
How courts read it
In State of Bombay v. United Motors (1953) and later Bengal Immunity Co. v. State of Bihar (1955), the Supreme Court grappled with when a sale is 'outside the State' or part of import/export, pushing Parliament to legislate clearer rules (leading to the Central Sales Tax Act, 1956). After the 46th Amendment introduced the wider concept of 'deemed sales' under Article 366(29A), the Court in Builders' Association of India v. Union of India (1989) and related works-contract cases examined how States could tax such deemed sales while respecting the restrictions Parliament could impose under Article 286(3).
Common misconceptions
- Myth: States can tax any goods sold within India however they like, as long as the seller is based in that State.
Fact: Article 286 blocks States from taxing sales that legally take place outside their territory or during import/export, regardless of where the seller is based. - Myth: Article 286 bans all State sales tax on inter-State trade.
Fact: It doesn't ban such tax outright — it lets Parliament set rules and restrictions, which led to laws like the Central Sales Tax Act rather than a blanket prohibition.