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Chanderprabhu Jain College of Higher Studies
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School of Law
An ISO 9001:2015 Certified Quality Institute
(Recognized by Govt of NCT of Delhi, Affiliated to GGS Indraprastha University, Delhi & Approved by Bar Council of India)
E-NOTES
CLASS & SECTION: LLM-1 Semester

SUBJECT CODE: GEN-103
SUBJECT NAME: System of Governance
UNIT- 1I
Introduction
A federal system of government is one that divides the powers of government between the
national (federal) government and state and local governments. The Constitution of the United
States established the federal system, also known as federalism. Under federalism, each level of
government has sovereignty in some areas and shares powers in other areas. For example: both
the federal and state governments have the power to tax. Only the federal government can
declare war.
What is a federal system government?

Federalism and the federal system define the basic structure of American government. There
were many disagreements at the Constitutional Convention. Many delegates feared a national
government that was too strong and many delegates feared that states’ rights would merely
continue the weak form of government under the Articles. The Constitution created a federal
system of government (federalism) as a compromise. Under federalism, power is shared and
divided between national and state governments. Both levels have their own agencies and
officials and directly affect the people. The Founding Fathers really had no other choice except
federalism. The weak union created under the Articles would not work yet people did not want to
give all the power to a national government. Federalism was the middle ground–compromise–a
way to distribute authority between the states and the national government
What are the advantages of a federal system of government?

The powers are limited.
I learnt that the “individual” was the top-most focus of the American society. Every policy
devised at the official level would firstly think how it would benefit or affect the individual
living inside the American state. In our society, there is greater emphasis on family, society and
the country but a lot of attention in the US is paid to individual liberty. The state tries to ensure
all forms of liberty for the individual. This includes the freedom of religion. Every individual is
free to practice whatever religion he or she prefers. However, there is no state religion in the US.
The government does not have a religion or does it pursue any policy, including the foreign
policy, on the basis of religion. There are no religious parties in the US.
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Another important area of individual liberty enshrined in the US Constitution is the freedom of
speech and cultural expression. While everyone is allowed to independently articulate their
views, people are expected to refrain from making hate speeches.
There is also freedom of information. The government of the United States cannot put any curbs
on the media. Interestingly, there is no Ministry of Information in the United States. The media is
largely independent and free from official control. All media outlets are under private ownership
which keeps ascertaining public opinion about their interest in different issues through opinion
polls and surveys. The US media rarely discusses the country’s foreign policy. A lot of attention
is paid to domestic issues by the media because not many people in the US take a keen interest in
foreign affairs. Newspapers and TV channels keep the interest of their readers and viewers
supreme and they avoid printing and broadcasting such material which fails to attract public
attention.
The government structure in the US is not centralized. The country is divided into independent
federal, state and local governments. There are fifty states in the US but all of them have
different constitutions, separate laws and state flags. Several laws, including those pertaining to
death penalty, gay and lesbian marriages or age of eligibility to use alcoholic drinks, differ from
one state to the other. For example, death penalty is legal in New York but it is illegal in Florida.
In the same way, punishment for one offense could also be different from one state to the next
state.
Unlike Pakistan, the President of the United States does not appoint the governors of American
states nor does he influence them. They are elected by the voters inside the states and enjoy full
independence in terms of pursing state policies. The states in the US are so much powerful that
they can even negotiate international trade deals with other countries provided that they do not
clash with the interests of the US federation.
The American states are empowered to impose taxes on the citizens. Mr. Elias informed us that
90% of state budget in the US comes from public taxes while the government accounts for only
10% of the budget.
Another classic example of decentralized American federal system are the local governments.
The local governments are also autonomous and powerful to impose taxes. The county police
chief is elected. He is so powerful that even the President of the US cannot pressurize him. Thus,
he is expected to perform well if he is interested to seek a new term for the same office. There is
no national education policy in the US. Every county and state has its own education policy.
Every county is divided into a school district. The federal government’s contribution to the total
education budget of the states is barely 6% while the remaining budget is paid by the states
themselves.
The US federal government has four mandates which can not be take away from it under the US
constitution.
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1. Defense
2. Foreign Policy
3. Management of dollar
4. Inter-state commerce
The US has a bicameral presidential system comprising of the House of Representatives, the
lower house with 435 members, and the US Senate, the upper house with 100 seats. Presently,
the Democratic Party of President Barrack Obama has 255 seats in the lower house while the
Republicans have 178 seats. Two other seats are currently vacant. Representation in the House of
Representatives is given to the states on the basis of population. At the moment, California, the
most populated state of the US, has 53 seats. The Senate provides equal representation to all
states.
Courts of the United States

“Court of the United Sates” includes the Supreme Court of the United States, courts of appeals,
district courts, Court of International Trade, and any court created by Act of Congress the judges
of which are entitled to hole Office during good behavior. 28 U.S.C.A. ~ 451. Also, the senate
sitting as a court of impeachment.
Supreme court
An appellate court existing in most of the states. In the federal court system, and in most states, it
is the highest appellate court or court of last resort. In others (such as New York) the supreme
court is a court of general original jurisdiction, possessing also (in New York) some appellate
jurisdiction, but not the court of last resort.
Supreme court of errors. Formerly, the court of last resort in Connecticut, now called “Supreme
Court”.
The “Judicial power of the United States”, whatever it may be, is vested in the Supreme Court
and in such other courts as Congress may establish. But the composition of the Court, including
the number of its members, is left for congressional decision; and, while federal judges cannot be
removed except by impeachment, there is nothing to prevent Congress from creating additional
judgeships whenever it chooses. Furthermore, although the judicial power “extends” to a variety
of cases described in Article III, section 2, the second paragraph of that section significantly
qualifies what the first seems to have granted, and gives Congress power to control the Supreme
Court’s jurisdiction over appeals from lower courts.
By the way its famous section 25 gave the Supreme Court power to reverse or affirm state court
decisions which had denied claims based on the federal Constitution, treaties or laws. This meant
that such cases could be reached by the Supreme Court through its appellate jurisdiction.
But suppose a state court had denied such a claim under the federal Constitution and the
Supreme Court of the United States reversed on the ground that the state court’s interpretation of
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the Constitution was in error. And suppose further that the state court obstinately continued to
insist upon its own interpretation. Was there anything in the Constitution to guarantee that the
Supreme Court’s opinion would prevail, that the Supreme Court’s authority was superior to state
courts? Or suppose, to carry the matter a step further, that the state court had a federal law
invalid as conflicting with the national Constitution and the Supreme Court agreed with this
holding, thus asserting its authority to overthrow an act of Congress. Does the Constitution make
it clear that the Court has his final authority of “judicial review” over national legislative
enactments?
The answer to both questions is a fairly solid “no”. As for state decisions it has been argued that
the “supreme law of the land” clause and the clause extending the judicial power to cases arising
under the Constitution do make it clear that the Supreme Court was intended to be preeminent on
questions of constitutional interpretation. If the Constitution is supreme and the Supreme Court
has jurisdiction over cases involving the Constitution, then it follows that the court’s word on
such matters is paramount over all others.
The fact that the Constitution is supreme does not settle the question of who decides what the
Constitution means and as for judicial review of congressional acts, the support in the language
of the Constitution was even more suppositious. Arguments for the authority derived solely from
that language seem inevitably to beg the question.
Supreme Court of the United States
The U.S. Supreme Court comprises the Chief Justice of the United States and such number of
Associate Justices as may be fixed by Congress. Under that authority, and by virtue of the act of
June 25, 1948 ( 62 Stat. 869; 28 U.S.C.A. 1), the number of Associate Justices is eight. Power to
nominate the Justices is vested in the President of the United States, and appointments are made
by and with the advice and consent of the Senate. Article III, section 1, of the Constitution
further provides that “the Judges, both of the supreme and inferior Courts, shall hold their
Offices during good Behaviour, and shall, at stated Times, receive for their Services, a
Compensation, which shall not be diminished during their Continuance in Office” (unless
appointed during a Senate recess). The term “good behavior” is well understood to mean justices
may serve for the remainder of their lives, although they can voluntarily resign or retire.
Courts of Appeals, U.S.

Intermediate appellate courts created by Congress in 1891 and known until 1948 as United States
Circuit Courts of Appeals, sitting in eleven numbered circuits, the District of Columbia, and the
Court of Appeals for the Federal Circuit. Normally cases are heard by divisions of three judges
sitting together, but on certain matters all the judges of a circuit may hear a case. Courts of
Appeals have appellate jurisdiction over most cases decided by United States District Courts and
review and enforce orders of many federal administrative bodies. The decisions of the courts of
appeals are final except as they are subject to discretionary review on appeal by the Supreme
Court.
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Court of Appeals for the Federal Circuit. Federal court, established in 1982, with appellate
jurisdiction over actions arising under the laws relating to patents, plant variety protection,
copyrights, trademarks, contract and property claims against the United States, appeals from the
United States Claims Court, Patent and Trademark Office, the United States Court of
International Trade, the Merit Systems Protection Board, the Court of Veterans Appeals. As well
as appeals under the Plant Variety Protection Act, the Contract Disputes Act, decisions by the
United States International Trade Commission relating to unfair import practices, and decisions
by the Secretary of Commerce relating to import tariffs 28 U.S.C.A. ~ 1295.
District courts.
Each state is comprised of one or more federal judicial districts, and in each district there is a
district court. 28 USCA ~ et seq. The United States district courts are the trial courts with general
Federal jurisdiction over cases involving federal laws or offenses and actions between citizens of
different states. Each state has at least one district court, though many have several judicial
districts (e.g. northern, southern, middle districts) or divisions. There is also a United States
district court in the District of Columbia. (A territory situated on the Potomac river, and being
the seat of government of the United States. Legally it is neither a state nor a territory, but is
made subject, by the Constitution, to the exclusive jurisdiction of congress. )
In addition, the Commonwealth of Puerto Rico has a United States district court with jurisdiction
corresponding to that of district court in the various States. Only one judge is usually required to
hear and decide a case in a district court, but in some kinds of cases it is required that three
judges be called together to comprise the court (28 USCA ~2284). In districts with more than
one judge, the judge senior in commission who has not reached his seventieth birthday acts as
the chief judge.
Also, name for interior state courts of record having general jurisdiction.
District judge. The judge of a United State district court; also, in some states, the judge of a
district court of the state.
District parishes. Ecclesiastical divisions of parishes in England, for all purposes of worshop, and
for the celebration of marriages, christenings, churchings, and burials, formed at the instance of
the queen’s commissioners for bulding new churches.
Court of International Trade.

This federal court was originally established as the Board of United States General Appraisers in
1890, and in turn was superseded by the United States Customs Court in 1926.
In 1956 the Customs Court was established as an Article III court. The Customs Court Act of
1980 constituted the court as the United States Court of International Trade and revised its
jurisdiction. As so reconstituted, the court has jurisdiction over any civil action against the
United States arising from federal laws governing import transactions and also jurisdiction to
review determinations as to the eligibility of workers, firms and communities for adjustment
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assistance under the Trade Act of 1974. Civil actions commenced by the United States to recover
customs duties, to recover on a customs bond, of for certain civil penalties alleging fraud of
negligence are also within its exclusive jurisdiction.
The court is composed of a chief judge and eight judges, not more than five of whom may
belong to any one political party.
The 14th amendment

The due process clause, which appears in both the Fifth Amendment as a limit on the nation and
the 14th Amendment as a limit on the states, had usually been interpreted as having only a
procedural meaning. That is, it did not prevent government from depriving a person of life,
liberty or property, but simply guaranteed that certain standard procedures would be observed
before a person was so deprived.
Even though was an ambiguity of Constitution language, an ancient Supreme Court judge, Mr.
Campbell, has argument that the 14 Amendment had revolutionized the American system by
bringing the right of man, including of course the right to occupational freedom, under national
judicial protection.
The term “due process” has the same meaning in both the Fifth and the Fourteenth Amendments,
and it follows that the prohibitions announced against state action were usually presumptively
applicable to national laws as well, if Congress might venture to enact them.
During most of its history the Supreme Court had paid little attention to the subject of “civil
rights”. The Bill of Rights, it will be remembered, had been held inapplicable to the states in
1833. That meant that free expression (Amendment I) and the personal procedural rights
connected with arrest and trial ( Amendments IV- VIII) could be abridged by the states without
raising a federal constitution question.
In 1884 it was held in Hurtado v. California that the due process clause did not require the states
to conform to the Bill of Rights in their criminal procedures, and as late as 1922 the Court denied
that the amendment restricted the states in dealing with freedom of expression. According to the
states, they were for some time relatively unconfined by the constitutional doctrine in the civil
rights field. On the other hand the national government had so far had little occasion to encroach
on civil rights except in wartime, for police regulation (règlement de police) that raised questions
of this kind was left almost exclusively to the states.
Schenck v. United States involved a federal law, and the question of wether the free speech
guarantees applied to the states by the way of the Fourteenth Amendment was still comparatively
untouched. However, the Court in 1925, confronted by a New York law punishing “criminal
anarchy”, declared “we may and do assume” that freedom and press “are protected by the due
process clause of the Fourteenth Amendment from impairment by the States.”
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Procedural rules were sometimes interpreted rather generously in other areas as well. The right
against “unreasonable searches and seizures” (Amendment IV) did not avail, for example, to
prevent federal officers from searching the premises of an arrested person even though they bore
no warrant to conduct the search and there had been ample time to get one before making the
arrest. Evidence obtained by wiretapping was not admissible in federal tribunals because
wiretapping was forbidden by federal statute, but the Court steadily refused to hold that
wiretapping violated the Fourth Amendment, and it allowed the admission of evidence obtained
by various hidden listening devices like radio transmitters.
In the field of deportation and denaturalization, the Court established the important principle that
the man threatened by deportation or denaturalization was entitled to some procedural rights
under the due process clause. By the 1930s the Court had clearly accepted the idea that some
procedural rights protected against national action by Amendments IV-VIII, were also protected
against state action by the Fourteenth Amendment.
America’s primary racial minority, the Negroes, lagged so patently and woefully behind the rest
of the nation in their privileges: this problem seemed the greatest because it involved the most
glaring injustice. The XIV and XV amendments were passed originally to secure Negro rights,
though the other former amendment had been diverted to other uses. Consequently the Supreme
Court justices were conscious of United State’s position as a symbol of the free world and of the
new importance of the “non-White” nations in the world arena.
There were two kinds of race discrimination that mattered more than any of the rest: denial of the
voting right and denial of adequate education.
Missouri ex rel. Gaines v. Canada, 305 U.S. 337 (1938)[1], was a United States Supreme Court
decision holding that states that provide a school to white students must provide in-state
education to blacks as well. States can satisfy this requirement by allowing blacks and whites to
attend the same school or creating a second school for blacks.
The Law School at the University of Missouri refused admission to Lloyd Gaines because he
was an African-American. At the time there was no Law School specifically for African-
Americans within the state. Gaines cited that this refusal violated his Fourteenth Amendment
right. The state of Missouri had offered to pay for Gaines’ tuition at an adjacent state’s law
school, which he turned down.
In the 19-th century the Court had diminished the possible effect of the Fourteenth Amendment
by denying that Congress could reach private persons under the enforcement clause, and by
upholding state-required segregation of races.
The Equal Protection Clause, part of the Fourteenth Amendment to the United States
Constitution, provides that “no state shall … deny to any person within its jurisdiction the equal
protection of the laws”. This means that the amendment has no bearing on private discriminatory
behavior and that Congress (XIV Amendment prevented states from denying basic civil rights
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and gave Congress the power to enforce its guarantees of liberty and equality) extends only to
states and to state officials acting under state law.
The Missouri case that note was finally sounded loud and clear. In accordance with the casual
standards acceptable in the past, Missouri had never bothered to establish a Negro law school,
although it did maintain one limited to whites. Now a Negro student, duly qualified except for
his color, sought entrance to this University of Missouri law school and was of course denied.
The state came out with the fact that there were too few Negro applicants to warrant the setting-
up of a special school; and that, pending the day when the number of such applicants would be
substantial; Missouri had done its constitutional duty by offering to pay this Negro’s tuition at a
university in another state.
But these evasions, though once serviceable enough, did not impress a Court now coming alive
to the problem of civil rights on many fronts.
Federalism in Canada
The British North America Act, 1867, passed by the British Parliament, established a Dominion
of Canada as a self-governing part of the British Empire. It introduced federalism in Canada by
bringing together the Provinces of Upper and Lower Canada, Nova Scotia, and New Brunswick
together in one federal union. Other provinces joined the Dominion later. The Canadian
federation comprises four regions: Ontario, Western Provinces, Quebec, and the Maritime
Provinces. In addition to regions, North-west territories and Yukon are also parts of Canadian
federalism. The Canada Act 1982 has further strengthened federalism in Canada. Following
federal characteristics can be found in the Canadian Constitution.
Written and Rigid Constitution: The Constitution Act, 1867, also known as British North
America Act, 1867, passed by the British Parliament, introduced a parliamentary form of
government with a federal system in Canada. The amendment process of the Canadian
constitution has evolved over a period. The 1867 Act had no formula to amend the constitution.
The Canadian Parliament used to request the British Parliament to decide whether the
amendment was to be done. In 1949, the Canadian Parliament was given the power to amend
some parts of the constitution. According to the Canada Act, 1982, the Canadian constitution can
be amended in five ways (Pelletier 2017: 258-259). First, provisions affecting the federal
government can be amended by the federal Parliament. Second, provinces have exclusive power
to amend the constitution of the province. Third, few amendments also require the approval of
two-thirds of provinces, containing the majority of the population. It is also referred to as the
7/50 procedure. Fourth, other amendments require the federal consent and the approval of all
states (Section 41). Fifth, Parliament‘s amendment affecting only one or more, but not all states,
requires approval from the concerned state only. The amendment process of the Canadian
constitution affecting federal structure can be regarded as rigid.
Bicameral Legislature: Canada‘s federal legislature called Parliament is bicameral. It consists of

the Queen and two chambers, namely the Senate (the upper chamber) and the House of
Commons (the lower chamber). The Senate represents the provinces. Initially, the Senate had 71
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members. However, presently it has 104 members. The membership can be expanded up to 118.
Out of 104, four regions of the Canadian federation, namely Ontario, Western Provinces, Quebec
and the Maritime Provinces, send twenty-four representatives each to the Senate (Kapur and
Mishra 2018: 441). Two Senators represent each of the North-west Territories and Yukon. As
per the Constitution of 1867, the House of Commons was a 181 membered chamber.
Nevertheless, now the membership of the house has been extended up to 282.
Division of Powers: There is an explicit system of division of power in Canada. The Constitution
Act, 1867, is the primary source of division of powers in Canadian federation. Under sections 91
and 92(10) of the Constitution, the federal government has the power to make laws on items of
‗national‘ interest such as national defence, foreign affairs, employment insurance, banking,
federal taxes, the post offices, fisheries, shipping, railways, telephones and pipelines, Indigenous
lands and rights, and criminal law. Similarly, under sections 92, 92(A) and 93, the provincial
governments can make laws on ‗local‘ items like direct taxes, hospitals, prisons, education,
marriage, property and civil rights. In the Concurrent list, the Canadian constitution enumerates
items like agriculture, old-age pensions, and immigration. In case of inconsistency, under section
95, the federal law will prevail on agriculture and immigration, while under section 94A,
provincial laws will prevail in the case of the old-age pension. The residual powers rest with the
federal Parliament. It implies that powers not listed in the province list will go to the federal
Parliament.
Dispute Settlement Mechanism: Before 1949, the power to interpret the constitution was vested
with the Judicial Committee of the Privy Council. Since then, the interpretive power has been
handed over to the Supreme Court of Canada. Contrary to the centralist intentions of many
constitution-makers, in its constitutional interpretation, the Judicial Committee of the Privy
Council favoured provincial autonomy between the 1880s and 1930. However,the situation
changed after 1949 when the Supreme Court of Canada became the highest judiciary of Canada.
The Supreme Court seems to favour the strong federal government.
Two Tiers of Government: Like other federal states, Canada has two levels of government called
federal and provincial. The Lieutenant-Governor acts as Crown‘s representative. If Prime
Minister functions as the head of the government at the federal level, the Premiers exercise the
executive powers at the province level. In provinces, there also exists a cabinet and ministers.
Like the federal government, states have their legislature, executive and judiciary. Initially, the
legislature of the four provinces was bicameral. At present, they are single-chambered and
elected by people. The size of the provincial legislature varies as Prince Edward Island has only
twenty-seven membered legislature while Quebec has 125 membered legislature.
Federalism in India
India adopted its constitution on 26th January 1950. Although the Indian Constitution states that
―India that is Bharat shall be a union of states‖(Article 1) and nowhere mentions the word
‗federation‘ or ‗federalism‘, Dr B. R. Ambedkar asserted in 1948 that the ―Draft Constitution
could be both unitary as well as federal according to the requirements of time and circumstances.
In normal times, it is framed to work as a federal system. However, in times of war, it is
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designed to make it work as a unitary system‖ (quoted in Tillin 2019). The following
characteristics of federalism can be identified in the Indian constitution.
1. Written and Rigid Constitution: The Indian constitution adopted in 1950 had twenty-
two chapters, 395 Articles and eight schedules. It is the source of states and central
government‘s powers and authorities. The Indian constitution is a blend of rigidity and
flexibility. In comparison to the constitutions of the USA and Australia, the Indian
constitution is flexible. However, on issues related to centre-state relations, the
constitution is rigid. Any constitutional amendment affecting centre-state relations such
as the division of powers and state‘s representation in the Parliament requires a majority
of the total membership of the house and a majority of not less than two-thirds of the
members of the house present and voting. The amendment also requires to be ratified by
fifty per cent of state legislatures.
2. Division of Powers: The scheme of division of powers in the Indian federation is
presented in the Seventh Schedule of the Constitution of India. The constitution has three
lists for dividing the powers between the centre and states, Union, State and Concurrent
lists. The Union list has 100 subjects over which the central government has exclusive
jurisdiction. The State list has 61 subjects. The Concurrent list initially had 47 subjects
over which both the central and state can legislate. The Concurrent list has been enlarged
to 52 subjects, with the 42nd Amendment of 1976 transferring five subjects from the
State List to the Concurrent List. As in most constitutions, when there is aconflict
between central and state governments ‘laws, the centre‘s law prevails over the state
laws. The residual powers rest with the Centre.
3. Dispute Settlement Mechanism: The judiciary and inter-governmental bodies are two
mechanisms in the Indian federation to manage and resolvedisputes between the centre
and state or between the two states amicably.The Supreme Court is the ultimatearbitrator
in matters on centre vs state and state vs state. The matters related to (i) the centre and
one or more states (ii) centre and state or states vs a state or states (iii) one or more state
vs one or more states fall under the primary jurisdiction of the Supreme Court. These
issues can be directly taken to the Supreme Court. The Supreme Court also has the right
to interpret the constitution. Its power of judicial review functions as a guarantee against
the possible encroachment of powers and authorities of states by the centre. The inter-
governmental bodies prevent the conflict escalation and try to manage before letting them
explore or become disputes. Inter-State Council (Article 263) and National Development
Council bring central and state governments to a single platform to discuss their problems
and issues.
4. Bicameral Legislature: Indian legislature known as Parliament is bicameral. The two
chambers are Rajya Sabha, the upper chamber and Lok Sabha, the lower chamber. In a
bicameral legislature, the Lok Sabha (People‘s Council) represents the people across the
country. In contrast, the Rajya Sabha (Council of States) represents the states in the
national legislature. Contrary to the Lok Sabha, whose members are directly elected by
the people, the members of the Rajya Sabha are elected by the state legislatures. The
President nominates twelve members to Rajya Sabha for their contributions towards arts,
literature, sciences, and social services. Unlike the US, where all provinces, irrespective
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of their size and population, are given equal seats in the Senate, in Indiastatesare allotted
seats in the upper chamber according to their population. This is why the most populated
states of the Indian Union (Uttar Pradesh) have thirty-one seats in the Rajya Sabha while
the seven smallstates have only one seat each.
5. Dual Government: in India, a central government and state governments exist, each
having itspolitical institutions and processes. They have a separate legislature, executive,
and judiciary. The President is head of the Union of India, while the Governor is the
constitutional head of states. If the supreme court is India‘s highest judiciary, the High
courts are the state‘s highest judiciary. Establishing a distinct set of political institutions
for central and state governments has resulted in establishing two tiers of government in
Indian Federation,But unlike the US and Switzerland, there is only one citizenship, that is
the citizenship of India.
Cooperative Federalism
The Finance Commission of the Country determines financial relations between the center and
the state. It helps to understand the functioning of financial institutions in India. India has a
federal system of government, where the federal government and each state have equal authority
over laws and government functions. India uses the same structure in both the financial and other
sectors. However, compared to the state, the center has a higher concentration of authority.
Centre-state financial relations in India have a federal government with a division of authority
between the national government and the states. The distribution of these powers is unequal, and
we frequently hear from states that their severe reliance on the Union Government for all issues
is reducing their authority and autonomy.
About Financial Relation Between Centre And States
o Centre State financial relations: In Financial Relations, the center holds greater authority
than the states. The states’ development objectives are entirely dependent on the central
government.
o Without the central government’s active financial support, no state could afford to
function.
o Undoubtedly, in all federations, the units are not financially self-sufficient, but in India,
the state’s economic dependency on the center is excessive.
o The division of subjects allowed for in the constitution is such that the states have far
more sources of expenditure than revenue.
o The Union Parliament has the authority to legislate on any issue on the State list under
Articles 249,250, 252,253, and 356.
Provisions Related to Financial Relation Between Centre And States

Article Financial Relations Between Centre And States
Articles Article 249 is an important article of the Indian constitution that deals with
249 Parliament’s Legislative Powers in relation to issues on the state list.
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Article Article 250 of the Indian Constitution deals with Parliament’s power to legislate for
250 the whole or any part of the country, on any issue in the State List if a Proclamation
of Emergency is in effect.
Article Article 252 of the Indian Constitution deals with Parliament’s power to legislate for
252 two or more states by approval and acceptance of such legislation by any other state.
Article Article 253 deals with issues relating to legislation for putting international
253 agreements into effect.
Article Article 356 of the Constitution grants the federal government the authority to
356 establish direct control over any state, a practice is known as the President’s Rule.
Constitutional Provisions Related to Levying and Collection of Taxes

o Articles 268 to 281 of the Indian Constitution contain detailed provisions that provide the
centre instructions on how to distribute financial resources among the states.
o It establishes guidelines for the centre and states to follow in order to coordinate tax
levying and collecting through methodical procedures and helps understand the centre-
state financial relations.
Article Description
Article o Duties imposed by the Union but collected and appropriated by the States –
268 As stated in article 268, the Central Government shall levy stamp duties on
items listed in the Union List. These charges are levied by the states and
collected by them. The profits from such charges are divided among the
states.
o The profits of any such charge levied inside any State in any fiscal year must
not be credited to the Consolidated Fund of India. However, the revenues
must be allocated to that state.
Article Union levies a service tax, which is collected and appointed by the Union and the
268A States –
o This article was added by the Constitution (88th Amendment) Act, 2003,
empowering the Union of India to levy service taxes to be collected and
appropriated by the Union and the States in accordance with such principles
as could be formulated by Parliament by law, was removed by the
Constitution’s 101st Amendment in 2016.
Article o Taxes are levied and collected by the Union, but assigned to the States within
269 which they are leviable.
Article o Except as stipulated in article 269A, states that taxes on the sale or purchase
269A of products and taxes on the assignment of goods should be imposed and
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collected by the government, but they must be allocated in the manner

authorized by parliament.
o It stipulates that the net earnings of such tax, excluding those attributable to
Union territory, shall not constitute part of the consolidated fund of India, but
shall be allotted to the states in accordance with such distinction principles as
may be defined by parliament by legislation.
Article o Taxes levied and collected by the Union and distributed between the Union
270 and the States.
o The Constitution (80th Amendment) Act of 2000 replaced a new article for
article 270, which was declared to have been substituted on April 1, 1996.
o This article deals specifically with income taxes other than agricultural
income and corporate tax, which shall be levied and collected by the Union
and divided between the Union and States.
Article o It states that if parliament increases any of the charges or taxes stated in
271 articles 269 and 270, excluding the goods and services tax under article
246A, by imposing a surcharge, the money would be deposited in the
Consolidated Fund of India.
Restriction on Taxation Power of the State

The Financial Relation Between the Centre And States is mentioned below, with a few
restrictions imposed on the state.
o Article 286 limits the state’s ability to levy a product sales tax.
o A state can impose taxes on the sale or purchase of goods (other than newspapers)
o Purchase or sale of goods occurring outside of the state: Article 286 (1) (a) forbids a state
from levying a tax on the provision of goods or services, or both, that occur outside the
state.
o Purchase or sale of goods during import and export: Article 286(1)(b) forbids states from
levying taxes on goods and services imported into or exported from India’s territory.
I Distribution of Tax Revenues
o Tax revenues (distribution of tax revenue between centre and state) can be derived from
indirect or direct taxes. A middleman collects indirect taxes from individuals who
ultimately incur the economic burden of the tax. VAT, sales tax, goods and services tax,
and other similar taxes are included.
o While direct taxes are taxes paid directly to the government of India by the citizen on
whom they are levied, income tax, wealth tax, gift tax, property tax, and so on are all
forms of direct taxes.
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o Union-Levied Duties Collected and Appropriated by the States: Stamp duties on bills of
exchange, etc., and Excise duties on alcoholic, medicinal, and toilet preparations. These
taxes are not included in the Consolidated Fund of India and are apportioned to that state
separately.
o The Centre levies service tax, but the Centre and the States collect and remit it. These
include taxes on the sale and acquisition of products in interstate trade or commerce and
on the consignment of commodities in interstate trade or commerce.
II Distribution of Non-tax Revenues
o Non-tax revenue is levied against government services. It is essential to pay tax on a

portion of one’s income and the number of products and services used. Non-tax revenue,
on the other hand, becomes due only when the government’s services are used.
o Aside from taxes being a key source of income, the government also collects recurring
income, known as non-tax revenue.
o While there are limited sources of tax revenue, there are numerous sources of non-tax
revenue, with the number of collections per source increasing.
o Although there are several non-tax revenue streams, the quantity per source is
substantially lower than that of tax income.
o When citizens utilize government services, they pay bills, classified as non-tax revenue
since the government provides infrastructural support to implement the services.
o Non-tax revenue also includes interest paid by the government on loans or cash made
available to states.
III Grants-in-Aid to the States
o Aside from the allocation of taxes between the Centre and the States, some clauses of the
Constitution provide for Grants-in-aid.
o Under Articles 275 and 282, the Parliament may give grants-in-aid from the Consolidated
Fund of India to States in need, notably for developing tribal welfare, including a specific
grant to Assam.
o Statutory grants and discretionary grants are the two basic categories of grants. Article
275 of the Indian Constitution provides for statutory grants. In comparison, discretionary
grants are provided under Article 282 of the Indian Constitution.
1. Types of Grant
o Statutory grants and discretionary grants are the two basic categories of grants.
o Article 275 of the Indian Constitution provides for statutory grants, while Article 282
discusses Discretionary Grants.
2. Statutory grants (Article 275)
o The Parliament grants these subsidies to states that require assistance.
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o Distinct amounts are designated for each state within this program.
o Funds are sourced from India's consolidated fund.
o Clause (1) encompasses two provisions related to allotting funds to states for approved
developmental projects aimed at the welfare of scheduled areas and tribes, focusing on
Assam.
o Any Parliament-enacted orders concerning grants-in-aid, as outlined in clause (1),
mandate a prior proposal from the Finance Commission, according to clause (2) of
Article 275.
o In addition to sharing taxes between the Center and the States, certain clauses in the
Constitution account for Grants-in-aid.
o Articles 275 and 282 empower the Parliament to provide grants-in-aid from the
Consolidated Fund of India to needy States, particularly for tribal welfare development,
including a specific allocation for Assam.
3. Discretionary Grants
o According to Article 282, the Centre may award aid to certain states at its discretion for
public purposes. These grants are non-obligatory.
o The planning commission’s suggestions were used to make these awards by the center.
Furthermore, discretionary funds were considerably larger during the planning
commission era than statutory grants.
4. Finance Commission – Article 280
o Article 280 is important to the Indian Constitution because it focuses on the Indian
Finance Commission. This article outlines the financial commission's structure, powers,
and functions.
o The inspiration for the concept of the finance commission comes from the
Commonwealth Commission of Australia.
o As per Article 280, the President is empowered to establish a Finance Commission every
five years. The President can issue orders to constitute the Finance Commission every
fifth year or when necessary.
o The role of the Finance Commission is to provide recommendations to the President
regarding the allocation of net tax revenues between the central and state governments.
o The membership of the Finance Commission is specified in the Finance Commission Act,
1951, which, when read with the requirements of Article 280, states that the Commission
would consist of five members, one chairman, and 4 other members appointed by
the President of India.
o The Chairman’s selection requirements are that they should have a special awareness of
public affairs, while the members must have the following qualifications:
o He or she should be or have been qualified as a High Court judge, have
knowledge of finance or expertise in financial affairs and work in administration,
or have an understanding of economics.
o He or she must have special knowledge of government finance and accounting.
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o He/she must have prior experience in financial and administrative problems, or

o He/she must have a strong knowledge of economics.
5. GST Regime – 101st Amendment
The Goods and Services Tax (GST) is a Value Added Tax (VAT) levied on the manufacturing,
sale, and consumption of goods and services.
6. Before the introduction of the GST
o Before the Goods and Services Tax was implemented, several taxes were levied
separately by the center and states, the distribution of which was unclear and non-
uniform.
o It contained Service Tax, Central Excise, Customs Duty, and State VAT, among others.
However, with the implementation of the GST, the idea of one nation, one tax was
implemented.
7. After the introduction of the GST
o Depending on whether the transaction is intrastate or interstate, GST is classified as

CGST, SGST, UTGST, and IGST.
o Intra-State provision of commodities or services: In these transactions, the supplier’s
location and the supply site are in the same state.
o The CGST Act governs the CGST, which is a tax levied on intra-state deliveries of goods
and services. In addition, SGST/UTGST will be imposed on the same transaction and
controlled by the SGST/UTGST Act.
o The SGST is a state tax the state government charges on intrastate deliveries of goods
and/or services.
o In this context, “tax or duty in which states are interested” means (a) a tax or duty the
whole or part of the net profits of which are allocated to any state; or (b) a tax or duty
based on the net proceeds of which sums are due out of the Consolidated Fund of India to
any state at the moment.
8. Protection of Interest of The States
To preserve the interests of states in financial problems, the following measures can only be
submitted upon the president’s recommendation:
o A measure that imposes or modifies any tax or duty that states are interested in;
o A bill that modifies the definition of the term “Agricultural income” for Indian income
tax legislation.
o A measure modifies the principles under which funds may be distributed to states and a
bill that imposes a surcharge on any specific tax or duty for the Centre.
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9. Inter-State and Intra-State Supplies
o The central government will collect CGST, SGST, or IGST depending on whether the
transaction is intrastate or interstate under the GST statute.
o When products or services are supplied within a state, this is referred to as intra-state
transactions, and both the CGST and SGST are collected.
o When products or services are supplied across states, this is referred to as an inter-state
transaction, and only IGST is collected.
o Using the right GSTIN becomes critical in determining the application of taxes. As a
result, before entering the GST number in the sales invoice, confirm it using the GST
search tool.
o It should be remembered that the GST is a destination-based tax collected by the state
where the commodities are consumed but not by the state where the items are made.
o Unlike in the past, when there were various taxes such as Central Excise, Service Tax,
State VAT, and so on, GST has only one tax with three components: CGST, SGST,
UTGST, and IGST.
Effect of Emergency on Centre-State Financial Relations

1. During National Emergency
o In times of Emergency, the President may direct that all grant-in-aids received by the
states from the Union be discontinued.
o However, such a suspension is only temporary and can only go up to the end of the fiscal
year in which the Proclamation of Emergency is lifted.
2. During Financial Emergency
o In times of financial emergency, the President has the authority to change the distribution
and allocation of taxes from the Centre to the States and to require the States to follow
the rules of financial propriety established by the Parliament.
o Additional directives can be issued to states to reserve the President’s consideration on all
financial and money laws even after the State Legislature has enacted them.
17

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Chanderprabhu Jain College of Higher Studies

CLASS & SECTION: LLM-1 Semester

What is a federal system government?

What are the advantages of a federal system of government?

Courts of the United States

Supreme Court of the United States

Courts of Appeals, U.S.

Court of International Trade.

The 14th amendment

Bicameral Legislature: Canada‘s federal legislature called Parliament is bicameral. It consists of

About Financial Relation Between Centre And States

Provisions Related to Financial Relation Between Centre And States

Constitutional Provisions Related to Levying and Collection of Taxes

collected by the government, but they must be allocated in the manner

Restriction on Taxation Power of the State

I Distribution of Tax Revenues

II Distribution of Non-tax Revenues

o Non-tax revenue is levied against government services. It is essential to pay tax on a

III Grants-in-Aid to the States

2. Statutory grants (Article 275)

o The Parliament grants these subsidies to states that require assistance.

4. Finance Commission – Article 280

o He/she must have prior experience in financial and administrative problems, or

5. GST Regime – 101st Amendment

6. Before the introduction of the GST

7. After the introduction of the GST

o Depending on whether the transaction is intrastate or interstate, GST is classified as

8. Protection of Interest of The States

9. Inter-State and Intra-State Supplies

Effect of Emergency on Centre-State Financial Relations

2. During Financial Emergency

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