Supreme Court Reaffirms Constitutional Limits on State Taxation

The Supreme Court in State of Uttar Pradesh v. Reliance Industries Limited & Ors. delivered a significant constitutional and fiscal federalism ruling concerning the taxability of inter-State sale of natural gas under the Central Sales Tax framework. 

The Court examined whether the State of Uttar Pradesh could levy VAT on natural gas supplied by Reliance Industries Limited from the KG-D6 basin pursuant to Gas Sales and Purchase Agreements executed with industrial consumers situated in Uttar Pradesh. 

The judgment extensively analyzed constitutional limitations on State taxing powers, the architecture of fiscal federalism, the scope of Articles 269 and 286 of the Constitution, and the operation of Sections 3 and 4 of the Central Sales Tax Act, 1956. 

Upholding the High Court’s view, the Supreme Court reaffirmed that once a transaction qualifies as an inter-State sale under Section 3 of the CST Act, States are constitutionally barred from treating it as an intra-State transaction for VAT purposes.