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TAX 2 Contitutional Amendment.
TAX 2 Contitutional Amendment.
Distribution of Revenue.
Though various taxes have been separately included in
List I or List II and there is no overlapping in the matter
of taxation between the two Lists and there is no tax
provided in the Concurrent List except stamp duties
(Item 44), the constitution embodies an elaborate
scheme for the distribution of revenue between the
Union and the States in Part XII, with respect to taxes
imposed in List I.
The scheme of the Constitution with respect to
financial relations between the Union and the States,
devised by the Constitution makers, is such as to ensure
an equitable distribution of the revenue between the
center and the States.
All revenue received by the Government of India
normally form part of the Consolidated Fund of India,
and all revenues received by the Government of a State
shall form part of the Consolidated Fund of the State.
This general rule is subject to the provision of the
Chapter I of Part XII in which occur Arts. 266 to 277.
Though stamp duties and duties of excise on medicinal
and toilet preparations which are covered by the Union
List are to be levied by the Government of India, they
have to be collected by the States within which such
duties are leviable and are not to form part of the
Consolidated Fund of India, but stands assigned to the
State which has collected them (Art. 268).
Similarly, duties and taxes levied and collected by the
Union in respect of Succession Duty, Estate Duty,
Terminal Taxes on goods and passengers carried by
Railway, sea or air, taxes on rail fares and freights, etc.
as detailed in Art. 269 shall be assigned to the States
and distributed amongst them in accordance with the
principles of distribution as may be formulated by
Parliamentary legislation, as laid down in clause (2) of
Art. 269.
Art. 270 provides that taxes on income, other than
agricultural income shall be levied and collected by the
Government of India and distributed between the Union
and the States.
The taxes and duties levied by the Union and collected
by the Union or by the States as contemplated by Arts.
268, 269 and 270 and distributed amongst the States
shall not form part of the Consolidated Fund of India.
Further Excise duties which are levied and collected by
the Government of India and which form part of the
Consolidated Fund of India may also be distributed
amongst the States, in accordance with the principles
laid down by Parliament in accordance with the
provisions of Art. 272.
Express provision has been made by Article 273 in
respect of grants-in-aid of the revenue of the States of
Assam, Bihar, Orissa and West Bengal in lieu of
assignment of any share of the net proceeds of export
duty on jute and jute products.
Further a safeguard has been laid down in Art. 274 that
no bill or amendment which imposes or varies any tax
or duty in which States are interested or which affects
the principles of distribution of duties or taxes amongst
the States as laid down in Arts. 268 - 273 shall be
introduced or moved in either House of Parliament
except on the recommendation of the President.
Parliament has also been authorised to lay down that
certain sums may be charged on the Consolidated Fund
of India in each year by way of grants-in-aid of the
revenues of such States as it may determined to be in
need of assistance. This aid may be different for
different States, according to their needs, with particular
reference to schemes of development for the purposes
indicated in Art. 275(1).
Provision has also been made by Art. 280 for the
appointment by the President of a Finance Commission
to make recommendations to the President as to the
distribution amongst the Union and the States of the net
proceeds of taxes and duties as aforesaid, and as to the
principles which should govern the grants-in-aid of the
revenue of the States out of the Consolidated Fund of
India.
Part XII of the Constitution therefore has made
elaborate provisions as to the revenues of the Union and
of the States, and as to how the Union will share the
proceeds of duties and taxes imposed by it and collected
either by the Union or by the States.
Sources of revenue which have been allocated to the
Union are not meant entirely for the purposes of the
Union but have to be distributed according to the
principles laid down by Parliamentary legislation as
contemplated by the Articles aforesaid.
Thus all the taxes and duties levied by the Union and
collected either by the Union or by the States do not
form part of the Consolidated Fund of India but many
of those taxes and duties are distributed amongst the
States and form part of the Consolidated Fund of the
States.
Even those taxes and duties which constitute the
Consolidated Fund of India may be used for the
purposes of supplementing the revenues of the States in
accordance with their needs. The question of the
distribution of the aforesaid taxes and duties amongst
the States and the principles governing them, as also the
principles governing grants-in-aid of revenues of the
States out of the Consolidated Fund of India, are
matters which have to be decided by a high-powered
Finance Commission, which is a responsible body
designated to determine those matters in an objective
way.
The financial arrangement and adjustment suggested in
Part XII of the Constitution has been designed by the
Constitution-makers in such a way as to ensure an
equitable distribution of the revenues between the
Union and the States, even though those revenues may
be derived from taxes and duties imposed by the Union
and collected by it or through the agency of the States.
The powers of taxation assigned to the Union are based
mostly on considerations of convenience of imposition
and collection and not with a view to allocate them
solely to the Union; that is to say, it was not intended
that all taxes and duties imposed by the Union
Parliament should be expended on the activities of the
center and not on the activities of the States.
Sources of revenue allocated to the States, like taxes on
land and other kind of immovable property, have been
allocated to the States alone. The Constitution makers
realised the fact that those sources of revenue allocated
to the States may not be sufficient for their purposes
and that the Government of India would have to
subsidise their welfare activities out of the revenues
levied and collected by the Union Government.
Realising the limitations on the financial resources of
the States and the growing needs of the community in a
welfare State, the Constitution has made, specific
provisions empowering Parliament to set aside a portion
of its revenues, whether forming part of the
Consolidated Fund of India or not, for the benefit of the
States, not in stated proportions but according to their
needs. It is clear, therefore, that considerations which
may apply to those Constitutions which recognise
water-tight compartments between the revenues of the
federating States and those of the federation do not
apply to our Constitution which does not postulate any
conflict of interest between the Union on the one hand
and the States on the other. The resources of the Union
Government are not meant exclusively for the benefit of
the Union activities; they are also meant for subsidising
the activities of the States in accordance with their
respective needs, irrespective of the amounts collected
by or through them. In other words, the Union and the
States together form one organic whole for the purposes
of utilisation of the resources of the territories of India
as a whole.