CONSTITUTIONAL LAW OF INDIA 952 ici ' Lg, Public Acts, Records and Judicial Proceedings. (474 coe ge1 (1) provides that "full f20% and credit. g, le gp recat? the territory of oe oe eae records t bed i Union and Of y » Parliamen, jel procera eos the manner 10 ee and the condition, by. wie empowers records and proceedings ba) be pevved and the aittergiy Sarai Cae oe ary ar of esl ders delivered or passed by civil Court ny Pa of India a a of acdtiae anywhere within the territory of India, according @ Peet r Territories Outside India (Article 260) i al n ja ae a icial functions in respect of any territory nop a t the territory of India S pirated i agreement = Py Government of such territory and only such functions may be unde i vested in that Government. Such an agreement, however, shan te are any law relating to the exercise of foreign beats aatasis ve L Se ae bles the Government of India to undertg; werned by all to aa Foreign Jurisdiction Act, 1947 provides for ike iti jurisdiction by the Government of India over territories outside respect of which the Government of India has acquired juris, diction a ia agreement or other lawful means. tat 3. FINANCIAL RELATIONS (Articles 264 to 293) a The Indian Constitution incorporates a very elaborate schem, Centre-State financial relations. Its chief characteristics are : the en. | separation of taxing powers between the Centre and the States; comply between the two; and the allocation of funds to the States. Another feature of the financial scheme is that it seeks to avoid the POssibiliy overlapping and multiple taxation. In order to eliminate the finan inequalities between the two layers of Government, inter se, the Constitutin provides the device of Finance Commission, to advise the President on the: matters, every fifth year. For bridging the gap between fiscal capacity al capacity for administration and for making inter-governmental finantil adjustments, the instrument of grants-in-aid is adopted. These aspects aftr financial scheme are discussed below. , Consolidated Fund of India and the States’ [Article 266 (I) Clause (1) of, Article 266 provides for the "Consolidated Fund of It and the "Consolidated Fund of the States". The Consolidated Fund of Inds is formed of the following : ’ J @ all revenues received by the Government of India us moneys raised by the Government of India by the issue of treat ‘ loans or ways and means advances; and (jii) all moneys received by Government of India in repayment of loans. «ond Ht However, the sums paid into the Contingency Fund of Indie rip} revenues received by the Government of India/but assigned 10 thee hot form part of the Consolidated Fund of India. 86. Clause (2) of Article 261.105.07 RELATIONS BETWEEN THE UNION AND THe stags 200 ] 15-101 66-67,283 j ee jdated Fund of a State is formed of the following: he 2 evenues: received by the Government of the Hh @ a sed by the State Government by the issie of joa) oneys ‘ways and means advances; and (ii) all moneys aa ie joo08 OF ie of the State in repayment of loans y the ern idi Contingency Fund id into the ingency of that State Go pee ea its Coe phir * vernment do , form of Article lays down that no moneys out clause @ of of India or the Consolidated Fund et is : ve a consolida except in accordance with law and for the purposes and in the ope ovided in the Constitution, ner man .. Accounts of India and the State [Article 266 (2)] Pe (2) of Article 266 provides that all other public moneys received on behalf of the Government of India or the Government of a State by oF credited to the Public Account of India or the Public Account of the a, ne the case may be. pifference between the Consolidated Fund and the Public. 953 count 7 ine at Ac ‘The difference lies in respect of the appropriation of any money out of these Funds. While for the appropriation of. any money out of the Consolidated Fund, the procedure laid down in the Constitution (ie. Articles 112 to 117 in case of the Union and Articles 202 to 207 in case of States) has to be followed, but for withdrawing any money out of the Public Account there is no such Constitutional limitation as to authority and procedure. Contingency Fund (Article 267) Clause (1) of Article 267 empowers Parliament to establish by law a Contingency Fund for the Union. In the exercise of power under this Article Parliament enacted the Contingency Fund of India Act, 1950. The Act is amended by the Amendment Act, 1970. This fund is placed at the disposal of the President, by Parliament, by law. The amount of this Fund is determined by Parliament, by law. Clause (2) of Article 267 empowers the Legislature of a State to establish by law similar Fund entitled as “the Contingency Fund of the State". This Fund will be at the disposal of the Governor of that State. The Fund is in the nature of an imprest with the executive to be utilized meeting unforeseen expenditure, pending authorisation of such ctentue by Parliament under Article 115 or 116 and by the Legislature e State under Article 205 or 206 respectively. Custody, etc. of Consolidated Funds, Contingency Funds and ®neys credited to the Public Accounts (Article 283) Pee 283 deals with the custody as well as the expenditure of a all public 9: It aims at placing the custody. as well as the expenditure of 1 Moneys under the control of the Legislatures. It provides— {) The custody of the Consolidated Fund of India and the Contingency Fund of India, the payment of moneys into such funds, the ieCONSTITUTIONAL LAW OF INDIA 954 i wal of moneys therefrom, the custo eek those credited to such Funds recat ail of the Government of India, their payment into the of India and the withdrawal of moneys from aa bl other matters connected with or ancillary to ma; ten nt be regulated by law made by Parliament, and, untij | that behalf is so made, shall be regulated by Tuleg ai l President. ; Made by (2) The custody of the Consolidated Fund of a State. Contingency Fund of a State, the payment of moneys Funds, the withdrawal of moneys therefrom, the custo, moneys other than those credited to such Funds received yt behalf of the Government of the State, their Payne borg public account of the State and the withdrawal of mo ia the such account and all other matters connected with or anon matters aforesaid shall be regulated by law me gute Legislature of the State, and, until provision in that eae the made, shall be regulated by rules made by the Governor State. . Custody of Moneys Received by Public Servants and (Cq (Article 284) - _ Article 266(2) provides that all public moneys excepting those which to be included in the Consolidated Fund, shall be credited to the Account. Article 284 says of the custody of such public moneys. It that “all moneys received by or deposited with— (a) any officer employed in connection with the affairs of. the, Ur a of a State in his capacity as such, other than revenues or publi Moneys raised or received by the Government of India or tit Government of the State, as the case may be, or “Nahe () any Court within the territory of India to the credit of any calls matter, account or Persons, Y shall be paid into the public account of India or the public account of It State, as the case may be." z ae ot DISTRIBUTION OF TAXING POWER wie ; The Constitution divides the taxing power between the Centre at ‘age le taxes enumerated in the Union List®’ in the Seventh Set a © Constitution are leviable by the Centre exclusively while he mentioned in the State List® are levi 1 xclusive “nurrent List contains only thr poet cae er e : ae fe ae of legislative competence vis-a-vis the general anid : Ta: ordinarily would not be deduced from a get! wie 83, 84, 85 88. Entries 45, 46, 47 43, 86, 87,88, 89, 90, OL, 92, 92-A, 92B, 96 and oa a and 66. _ © 4, 60, 61, 62, 53, 54, 55, 56, 67, 68, 69) 60, Ob 89. Entries 95, 44 & 47- po 1 ancl PO Soy THE STATE'S P i € JCTIONS ON OWER TO LEVY Taxng TR Bie Rae to Levy Taxes on Professions and Trades : 276) 176,284,286 |. RELATIONS BETWEEN THE UNION AND qe STATES : 955 wer. However, the residuary taxi f ; (97 of the Union List.® "8 Power is vested in the 1 “cle . F prtic’’ ”. sposed by State under Entry 60, List IT* on profess; i ( ia J employments, is very similar to a tax on eae nine callings List.2® The Constitution permits this overlapping™ and to mitigata ihe Union Tier g from it, Clause (2) of Article 276 lays down that da ea the ee pa able by one person to the State or to any one municipalit; ), district ons Jocal authority in the State by way of this tax, shall not exceed Rs yer annim.°° eat 3500 es (3) of Article 276 lays down that the power of the Legislature of state t0 make laws under Clause (1) shall not be construed as limiting the f er of Parliament to make laws with respect to taxes on income accrping from or arising out of professions, trades, callings and employments. 9, State’s Power to Levy Sales Taxes® (Article 286) ‘The power to levy taxes on “sale or purchase of goods other than newspapers” belongs to the States.*” But, taxes on "imports and exports" and “Inter-State trade and commerce" and "taxes on sale or purchase of goods, other than newspapers, in the course of inter-State trade or commerce" are exclusive Union subjects.® In order to ensure that sales taxes imposed’ by the States do not interfere with imports and exports and inter-State trade and commerce, which are matters of national importance, Article 286, subjects the State’s power to levy sales tax to the following restrictions— : (i) No State can tax a sale or purchase taking place outside the State [Article 286 (1) (a)] onus . Article 286 (1) (a) prohibits a State to impose a tax on the sale or purchase of goods where such sale or purchase takes place outside the State. Clause (2) of Article 286 empowers Parliament to formulate by law principles for determining when a sale or purchase takes place outside the State. The Central Sal i v down these principles es Tax Act, 1956 passed by Parliament, lays aR a 10° See “Arlicle 265. Also see SP. Industries Company Limited v. Blectriity Inspector i AIR 2007 SC 1984, F merated in List I a : pa at T reads as "Any other matter not enumerated gt 92. Thieme 27! not mentioned in either of those ae ent 92. Bagg ny Teas as “taxes on profession, trade, callings and emplo”menis; M4 Guy 8% Union List, ; ; ne ee (1) of Article 276, tei ‘ pu by the Constitution (60th Amendment) Act 19 9, Saleg p> TPEES." i an cnt eomyonent of Sate ‘ax is, substantially, a tax on sale price, price is am oar have nexus with © event. Measure for quantification of tax therefore, eC 26095” 9% Type SC® State of Rajasthan v. R.0.. Association, AIR 2006 5 9% gaa” St Stato List, : ; 95, gq, Pnttics 83, 49 and 92-A respectively of the Union List, © Central Sales Tax Act, 1956. pra 88 for “two hundred——_" i. © > CONSTITUTIONAL LAW OF INDIA 956 ; Le ap, Ng place in the « & ine = n tax a sale or purchase taki; Prmpore and export [Article 286 (1) ()] Article 286 (1) (b) vere the States to impose a tax on ie purchase of goods when such kale or purchase takes Place in the Ale» the import of the goods into or, export of the 800ds out of the 4 nie y India. Parliament may by law formulate principles for determining tony t sale or purchase takes place in the course of import and export of poate is so explained in the Central Sales Tax Act, 1956. 8 In K. Gopinathan v. State of Kerala,’ cashewnuts, Purchag, imported by the C.C.I. from African suppliers, were subsequently sold Be C.C.L to local users for processing and export. It was held that the aa the C.C.I. were not in the course of import and were not covered b exemption provision of Section 5 (2) of the Central Sales Tax Act, 1956. being no direct or inseverable link between transactions of sale and impq of goods on account of nature of understanding between the COL, a purchasers as also by reason of canalising scheme for import by CCI, the sales go out of the sweep of exemption of Section 5 (2) of the Act, (iii) No State can tax a sale or purchase taking place in the course of inter-State trade and Commerce The Constitution (Sixth Amendment) Act, 1956 inserted Entry 92 Ain Union List entitled as "taxes on the sale or purchase of goods other than - newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce", After this Amendment, the power to impose tax on sale or purchase taking place in the course of inter-State trade and commerce is vested exclusively with the Parliament. Section 3 of the Central Sales Tax Act, 1956 provides : _ A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase— (@) occasions the movement of goods from one State to another, or 0) is effected by a transfer of documents of title to the goods during their movement from one State to another. (iv) Taxes on sale or h: ial Importance [Article 286 (8) @l Purchase of Goods of Special ld be as Parli ify.3 Section 14 mi Jament may, by law, specify. ; fap Central Sales Tax Act, 1956 declares a number of 6% ae diet importance in inter-State trade Ber cones Section 16 = dl ue Pipe restrictions on taxation of sales of such goods, state i levied onk 3 e sale price of the gata ©; and at a maximum rate of 3 per 1 Clause @) of aries: 995. 286. = G1 2 AIR 1997 8 i995, °” 98° & Gopinathanv. Slate of Kerala, AIR 1997 5 4 Article 296 (3) 7 , (oth Amendment ‘het dog di Clause was inserted by the ConstitutiorRELATIONS BETWEEN THE UNION AND THE oun 957 96589! : the sale oF Ean 108 goods in the eS r commerce 5 ecified in sub-cl: course of Sate 2) of Article. 366 [Article 286 (3) Gla (®), (©) or (a) it (29% ation (Forty-sixth Amendment) Act, 1982 has if Article 6 to the effect that State saleajtanlaieied sca 2 (3) 7 nenti ed in sub-clause (b), (c) and (d) of Clause ae subjected to restrictions which may be im -A) : ti the a6 pave P site ent, DY lays , 7 a porliam 9-A) of. Article 366, inserted by the Constitution (Forty-si oa aot Wn8aedet that "tax on the sale or eae a ole en! jpalades” on the transfer of property in goods (whether as goods or in Ived in the execution of a works contract; i) acne other form) invo! © 2 tax on the delivery of goods on hire-purchase or any system of payment by instalments; @ a tax on the transfer of the right to use any goods for any purpose (whether oF not for a specified period) for cash, deferred payment or other valuable consideration; y hall be deemed to be’a sale of those goods by ch transfer, delivery § the transfer or delivery and a purchase of those goods by the person making r 1 the person to whom such transfer or delivery 1s made. ~The State laws imposing taxes on such sales or purchases (mentioned above) shall be subjected to such restrictions and conditions as may be specified by Parliament, by law. and su‘ Inter-Government Tax Immunity—Doctrine of Immunity of Instrumentality (Articles 285, 287, 288 & 289) For the smooth working of the system of double government set up by afederal Constitution, it is necessary that there should be jmmunity of the re of one government from taxation by the other. Such "mutual and en taxation” saves "a good deal of fruitless labour assessment It seeks t, tion and cross-accounting of taxes between the two governments* without Realy: that government at one level in & toler oat fovernment oe aa the operations and instrament. ee general princi : e other level". It is the most signlt ant APB rnmental immunity", ples of "immunity of instrumentality” oT inter-8' the first time "was for t e ica, in the THB acces ‘ Pama of “inter-governmental immuns Wallamey C2 the Supreme Cours ertne United States of A that the eid of McCulloch v. Maryland.* The Court laid oe a a ii any e 0 power, by taxation, or otherwise, t0 “retard, Ee k Woongress hat ner control, the operations of the constitul x © doctrine ey. into execution the powers vested in 8 Wh, Xxplains : i ‘ Te en two separate Governments a? established ® ; ee St & pig 2 of WB. v. Union of India, AIR 7563 SC 1760: 6, " (L (819) 4 Wheaton, 31 a 6.RE, ie CONSTITUTIONAL LAW OF INDIA noe rar [ Mn i limited jurisdicti, Se, titution, each with a ; On, the poy, 4 Eseersisln shall be construed us being under an ica emee of tn sal oto cen as oni ho ote the other Gove! ‘ In the instant case, the U.S. Congress enacted a Jay « my and a State (Maryland) levied a tax on the operations heey bere American'Supreme Court held the levy unconstitutiona). the Bay The Indian Constitution incorporates Provisions Tegarg; "inter-governmental tax immunity mainly in Articles 285, 287 Se ty The Supreme Court has confined the doctrine of wing and 2 instrumentalities' to the area laid down in these Provision ily 4 Constitution. The eae pe rejected he extension of the doctring int what is envisaged by the Constitution. Article 285 (1) debars a State from taxing Unio; . 5 5 n Property Parliament by law otherwise provides, Article 285 (1) cannot be ov gies any executive order.or a circular issued by any authority, either at the oh or in the States.* Gente Clause (2), however, provides that the exemption from State taxat would not be available with respect to any property of the Union on ae tax was leviable immediately before the commencement of the Constituti provided such tax continues to be levied in that State. However, Parliament pe make a law withdrawing the exception contained in Clause (2) of Article 5: _It has been held that exemption under Article 285 from tax is limited to direct taxes and not to sales tax which can be validly levied on the property of the Union.1! For instance, Telecommunication Department run by Ministy of Government of India is held entitled to seek exemption of octroi duty on goods brought by it within limits of Municipal Corporation.2 However, service charges for supply of water and maintenance of Hee een of railway colonies, as provided by Jal Sansthan, cannot le HES eee ei property of the Union. Being fee, its recovery is nit Article 289 (1) consis co) i isi i States. It responding provisions in favour of the Gan ems ma te Property and income of a State shall be exempt fr ju von's However, Clause (2) of Article 289 provides that imm 3 . } f i in connection therewith, or business or any income accruing or aris Claus i business or Peon” sore Parliament to declare any tradi ee © or business to be incidental to the or TiBee Sa e incidenta! MO, Amrit Eensel z v. Union of Indi ae ia, AIR 1963 SC 1760. st. Sp Pat Office, AIR 2004 SC 2912; Union of India ¥- Pam iy Cisse), Anticte zag. 1°: a Premption of Union's Pro , EP. Engr, CP.WD, Bi re mali ne oH Ae, At xs cst : India y, ra, AIR 2008 (NOC) 116 (Bom): 5 State of UP, AIR 099 SC 521. a_ 785-89 ] ment. Such trade or business shall be exempt from Uni ion RELATIONS BETWEEN THE UNK ION AND TH} IE STATES 9 59 Ne if Gover®! jor 288 partially incorporate : jos icles 787 or elation to the Union ania aad "immunity of ited by Union Legislation, no State shall tax ‘fr that save in ‘city which is consumed by the Government of ae re ‘ompany in the construction, maintenance or ope a or 8 article 988 exempts from State taxation any water a a of a iway- consumed, distributed, or sold by any authority ¢ Se goer ‘ + developing any inter-State river or river-valley. It is, ho for Me a Presidential Order providing otherwise. But, Clause (3) of satjert ermits a State Legislature to impose a tax of the nature eee use (1): Such a tax, however, will be valid only if, having been reserved Deas consideration of the President, has received his assent thereto. for # nis ase, however, has application only in respect of the river valley athorities like Damodar Valley Corporation. Tt would have sapling oe, 12 made by the State Legislature for imposing or authorising the in trgition of taX mentioned in Clause (1), as also when such law provides tie fixation of the rates and other incidents of such tax by means of Rules qrorders to be made under the law by any authority. The Clause would have 10 application in case provisions are made which merely deal with the mode and manner of the payment of the aforesaid tax.” : ; hi Municipal Corporation: v.. State of Punjab,}* the In New De! Supreme Court held that State property exempted from tax under Article 289 (1) meant such property as was used for the purpose of the Government and not for purposes of trade or business. Distinguishing between Articles 285 and 289, the Court observed "basic premise of one sovereign not taxing another sovereign is man: i ifested in these two Articles, but while immunity in favour of Union of India under Article 285 is absolute, immunity in favour of State under Article 289 is a qualified one". 5 Again, in F.C.I. v. Municipal Committee, Jalalabad," it has been held that Food Corporation of India, @ Government company, i @ dist entity from the Central Government “ind is, therefore, not exempt from State taxation under Article 285. ; : N i 0 pen Except by Authority of Law (Article 265) Gules icle 265 declares that "no tax shall be levied or colle an uthority of law". This Article embodies the English princip™ i te law, or ie Tepresentation".1® The term "law" in Article 265 means oe is 10 ne uae by the Legislature. "Accordingly, a customary pares or by Se alid. Again, no tax can be levied either by an executt * See DV. Cor qj 6. 1 gp pn vs Stale of Bihar, AIR 1976 8C 7956. et. Ang, Uidustries Company Limited v. Electricity Inspector, Be om 1% a a SC 2847. pio 9 SC ; ion of Indies Be 1889 SC 2573. See also AK. Bindal ¥. ones 1S 1 Arg Me Corpn. of See ae Seesiary Gon a 1 Ba WDE. iSeneral v. Wills United Diaries, (1923) 57 rvice, AIR 2004 SC 2615.960 CONSTITUTIONAL LAW OF INDIA the resolutions of the Houses of the Legislature oy }, I %, r a in the absence of express statutory authority for the chaste, Power to impose tax generally is deduced from tae aa % ly ancillary power deduced from general Entries?! However, Article s and prohibition in respect of taxes and not fees. The power Coie 265 ety incident of Sovereign authority (imperium) but not an ingid ‘ i maa rights (dominium).” nt of A tax has been said to be a payment for raising general Tevenye, a burden. It is based on the principle of ability or capacit a to be a manifestation of the taxing power of the State. ¥ 0 pay, It is hy Tax and Fee a The distinction between a "tax" and a "fee" is of great t importance. While no tax can be levied outside the tax entries, fee levied in respect of a non-tax entry as well. Another important di Say that Articles 110 and 199, which deal with "Money Bills" lay down expret that, a Bill will not be deemed to be a "Money Bill" by reason only thats | provides for the imposition of a- fee, whereas, a Bill dealing “with the imposition, or regulation of tax will always be a "Money Bill", oN Although, there is no generic difference between a "' " and "a feet but the Indian Constitution recognises a clear distinction between them fr legislative purposes. The distribution of power between the Centre and the States to levy a tax is not identical with that of the power to levy a fee, While taxes are specifically distributed between the Centre and the States, ther is an entry at the end of each List in the Seventh Schedule, as regards ess which may ‘be levied in respect of or as incidental to the matter that® included in that list.23 a .__ The Supreme Court had the occasion of distinguishing a tax from ae in Commissioner of H.R.E. v. L.T. Swamiar.# The Court observed that tax "is a compulsory exaction of money by a public authority for ia ay Purposes, to meet the general expenses of the State without reference es special benefit to be conferred upon the taxpayers". The taxes colled merged in the general revenue and applied for general public puis on the other hand, “are Payments for some special service rendere anded’. those from whom payments are dem which was said that in fees, ths id pro quo was absent in a ee ere was always an element of qu 4 The traditional conce; 5 dergone ch ange i Pt of quid pro quo has, however, un tion ™ recent cases. It has been held that though the fee must have rela' 19. Ibid. 20. Gopal Narain v. Sia i te of Bihar, 21 SP. Industrial Co plan, AIR 1964 sc 370. oor sc 19 22. 8e0 7 Jacob y. GoD, Limited vy, Electricity Inspector, AIR 2 24 ate EMEY 96 List 1, Enter eens AIR 2013 SC 3251. ee #4. AIR 1954 so 299 g,0 nt” 96 List IU & Entry 47 List Ul. of WES 3h tries Lid, ATR popes, COMstitution Bench's decision in State ! 9 g00s 212 005 $C 1646; M. Cérpn, Amritsar v. SSP.O» 25, mas Co, ” 1 amr 2016 6° Kandivali P Industri: f Mins Dis Tan, Tete ©. MLC. of Greater Mumbo 86 scree Committee Ch: . arp 1991 Si| | | : | RELATIONS BETWEEN THE UNION AND THE st, ATES 961 endered, oF the advantages conferred, . envio’ were casual relation may be enough. wie relation need not i ig a fair correspondence between th has to be seen i be ener there } e fee charged 1 is ndered to the fee-payers as a class.” The and the cost a co-relationship are not required ee involving formula. It is not necessary to establish that Snel a Be penefit of the services rendered for which the f who nay wus Te one who js liable to pay received general benefit from thos is Dang j fee, the element of services required for collectin; uN Jovyi22 29 What has to be seen is whether, there is a broad oe os +p between the totality of the fee on the one hand and the oe Ca je he services, on the other. These need not be an exact i of thematical correlation between the amount realised as a fee and the Falls athe services rendered. A broad correlation is sufficient to sustain the levy.” in, the fact that others besides those paying the fees, are also uld not detract from the character of the fee. Merely because a charge 15 paid under an agreement, required to be entered into with the Government, would not make the payment as compulsory exaction in the a tax. It has also been ruled that merely because the fees were taken to the Consolidated Fund of the State and not separately appropriated towards the expenditure for rendering the service, by itself, is not decisive to determine as to whether it is a fee or 2 tax.3! If there is present the element of quid pro quo, even though exact quid pro quo is not there, the payment would be a fee and not a tax. i _ From the conspectus of the views taken by the Hon'ble Supreme Court in catena of cases* decided subsequently that a "fee" so imposed, may be regulatory or compensatory jn nature. In case it is found that the "fee" in a regulatory fee, like the license fee, 00 quid pro quo is requi be established. However, such "fee" must be reasonable and not excessive. There being no possible criteria to work out with arithmetical equival he cunt of fee which can be said to be reasona vif there 1s peed correlation between the expenditure whic charged", it is said that the i the a Delhi Race Club Ltd. v. Unio! inion Territory of Delhi notified the Delhi Race Course. 26, i 004 Ses BSE Broken Forum v. Senurities and xchond® Board of India, SEBD- 2 1.8 Peeeis ot Delhi ‘Municipality v. Yasin, AIR 1989 SC 617. 2B Sri eae v. Commr, HLRE., AIR 1980 SC 1. s¢ 2086 et eet Des x. Town, ‘Area Committee, Chirgo™ AIR 1991 99 4 2. State Also see Municipal Corporation, re pabubhoi, AIR 19 “sop, Mie et LE Shivalik Agro Poly Prod Re catshind Sugar, Mullery, CT... AIR 2006 SC 2897. aa 0. comniet % Sia Stainless Lid. v. State of Haryan® ‘AIR 2006 $C, 2550; 82, See ae of Maharashtra, 2005 (2) Scc 345. ‘ AIR 1999 sc 2334. 4a, ge, Union of India v. The Motion ‘Pictures AssociatiOhy © pygerabod Municipal eeange,, Secunderabad Hyderabad Hotel Owner Assoe™ “i 1998 sc cy iam AIR 1999 SC 635; P. ‘Kannadason ¥- of oe pelt Race Club nt Tog Tiere. ‘Sudhir’ Ranjan Nath, ATR 1997 8011 M. Arp Ol AIR 2012 SC 3408. : 2012 SC 3408. enses of t 41,a 962 CONSTITUTIONAL LAW OF INDIA i ercise of power referred by Section 11 of onc teahens “Act, 1952 which was extended to the une Moen Central Government in the exercise of the powers under Se, edna Union Territory 1s) Act, 1950. To achieve the purpose of se i licences are issued subject to compliance with certain conditions Aa, tas therein. To ensure compliance with the conditions the 1985 Rules Re Officers on to conduct inspection of the club at reasonable times, Fs ; i ; ‘o regulates control and encourage hors, ef jn the nature of impost regulatory fee the Count that there was no requirement to comply with the test of quid pro ati Reiterating the similar views echoed in Secunderabad Hyderg} Hyderabad Municipality,® the on Hotels Owners Assocn. Vv. observed® : the licence fee levied ... being regulatory in nature, th Government need not render some defined or specific services in retum as long as the fee satisfies the limitation of being reasonable,’ ~ It may also be noticed that there is no bar under Article 265 on the State Government to impose and collect surcharge on fees. Surcharge is held to mean extra charge or extra cost and not tax. Surcharge is thus nothing but additional fee, which can be prescribed by State Government.” No Bar Against Double Taxation , i There is nothing in Article 265 which prohibits double taxation. Where more than one legislative authority such as the State legislature, 2) Authority like a Municipality, possess the powers to levy a tax, the sine person or object may be validly subjected to separate taxes imposed by te State and as well as Municipality. Also, the same Legislature may impose ® tax twice on a thing subject however to constitutional limitation, if/any- aT DISTRIBUTION OF REVENUE BETWEEN THE UNION STATES pion The Constitution has allocated the taxing powers betweed tte ie and the States. While the taxes levied by the States are jected oe and entirely go to their Consolidated Fund and are approprial ed byt ath their on purposes, the taxes levied by the Centre are shareable WF a Tt was provided, realising the fact that the revenues wae rane by the States by the use of the allotted taxing powers sida ie as oes assigned to them by the Constitution. This ono regulated Union and the States, of the revenues raised by *? » under Articles 268 to 281. It is done through— pt ess Assignment of Revenue from several taxes; ) Corin g of taxes; (.) Permissive Sharing of taxes; and (@) O70 Se ee arate cht hse 35. AIR 1909 SC 645, 36. Delhi 1 aihas ae Lid. v. U.O.L, AIR 2012.SC 2408. ing. & Loco Co, Lid. v. State of Bihar, ) 288 ae 88 Avinder Si : wu Singh v. State of Punjab, AIR 1979 SC 321. ‘ar 2008 (NO- Ay: 65,268,208 ts: 5 giGNMENT OF UNION REVENUE TO THE sraTEs () f jed by the Union but Collec ny puties ie ee the States (Article 268) ted. and Apron 268 (1) provides that such stamp duties and such duties of excise + inal and toilet preparation as are mentioned in the Union List shall on metio the Government of India, but shall be collected, in the case be Jevied y duties are leviable within any Union Territory, by the where Be of India, and the duties leviable in the States by the States me ch duties are respectively leviable. 269] RELATIONS BETWEEN THE UNION AND THE STATES 963 within which su #1) Service Tax Levied by the Union and Collected and (i) opriated by the Union and the States (Article 268A) ees 268A, as inserted by the Constitution (Kighty-eighth Amendment) Act, 2003, provides that taxes on services shall be levied by the Government of India and the proceeds, in any financial year, of any such tax, shall be collected and appropriated by the Government of India and the States, in accordance with such principles of collection and appropriation, as may be formulated by President by law. This Amendment shall come into foree on such date as may be notified by the Government of India by Notification. (ii) Taxes Levied and Collected by the Union but Assigned to the States (Article 269) Article 269(1),° provides that taxes on the sale or purchase of goods and taxes on the consignment of goods shall be levied and collected by the vernment of India but shall be assigned and shall be deemed to have been et to the States ‘on or after the 1st day of April, 1996 in accordance Le Such principles of distribution as may be formulated by Parliament, by on pepecesion "taxes on the sale or purchase of goods” shall mean taxes Purchase ene of goods other than newspapers where such sale or Exp], 8 place in the course of inter-State trade or commerce. ; “axes on ae (a) to Clause (1) of Article 269 says that the Sue Boods hether ee of goods" shall mean taxes on the consi gnaens of Person), i the Consignment is to the person making it or to any other trade op pees consignment takes place in the course of inter-State Cla i : Saancial ye e: of Article 269 further provides that the net proceeds in ie Con, eds attributany such tax, except in 80 far as those process 7 tha vidateg iaaeet © to Union Territories, shall not form parti te in get’ is leviab] of India, but shall be assigned to the States wi ae Parhgat@ance with in that year and shall be distributed among rr eaiby Ment, by lag’ ach Principles of distribution as may be form a Clause ay ‘ 0 aS 2009 p,- Arele 269 is substinted by the Constitution (80th Amendment f A a aarlanati ee existing Clause. tit, Clay ‘cle’ ¥ i ted by use (1) of Article 269. for existing Clause. ‘© Constitution (80th Amendment) Act, 2000 Se964 CONSTITUTIONAL LAW OF INDIA Clause (1) and (2) of Article 269 have been Constitution (80th Amendment) Act, 2000 for the amendment has been enacted to give effect to the recomme Clays? Tenth Finance Commission, 1994, whereunder it was pag ions ; the total income obtained from certain central taxes and dan that ot shall be given to the States." ies, 29 tent (b) COMPULSORY SHARING OF TAXES Union Taxes and Duties other than those r Articles 268 and 269 & Surcharge on taxes and to in Article 271 (Article 270) Article 270(1)® provides that all taxes and duties referred Ba Union List, except the duties and taxes referred to in Articles 268, ae and 269 respectively, surcharge on taxes and duties referred to in Arti ‘ai and any cess levied for specific purposes under any law made by Pari uy shall be levied and collected by the Government of India and shall distributed between the Union and the States in the manner, provided iy Clause (2). rah Clause (2) of Article 270 provides that such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial yer shall not form part of the Consolidated Fund of India, but shall be assign to the States within which that tax or duty is leviable in that year, andshal be distributed: among those States in such manner and from such times may be prescribed, until a Finance Commission hasbeen‘ constitutel prescribed by the President by order, and after 2 Finance Commission has been constituted, prescribed by the President by order after considering the recommendations of the Commission.‘ ‘ (c) PERMISSIVE SHARING OF TAXES Union Duties of Excise other than Duties on Medicinal “4 Toilet Preparations (Article 272) tes of tht Article 272 had provided for permissive sharing with the se Union duties of excise other than those on medicinal and toilet prepare in the Union List. In view of the recommendations of Nin 1979 ® Commission, 1989, the Union Duties of Excise (Distribution) Ath iy ae by Act 13 of 1990, these duties were shared by the Union 8. % okt i ait The Constitution (80th Amendment) Act, 2000'has ot ie _ 272. Article 272 shall be deemed to have been omitted with ¢ Substj existi; eferreg duties retenda 972,275 69702 is 70028 - further provided as follows :6 6. ivalent to the whole j tae i m equiva. ‘ e u or any part Be duties of excise including additional dotinet Peseta of the = and collected by the Government of India and ‘shies which aro at Jj as grants-in-aid to the States after the Ist day of Ae been pefore the commencement of the Constitution (80th Aneddeae put before “T° hall be deemed to have been distributed in aumdan® faite f Article 270. accordance wil RELATIONS BETWEEN THE UNION AND THE STATES 965 provisions oO cf that any sum equivalent to the whole or an : Realy other tax or duty that has been distributed. soatenen ‘i poets after 1st April, 1996 but before the commencement of the sgt woth iment; shall be deemed to have been distributed in accordance with the provisions of Article 270. zi 2 impovettéct of this Amendment is that the taxes and duties, what was issibly shareable under old Article 272 have been made compulsorily Te gable under the new Article 270. The object is to enhance the income of the States. @ GRANT-IN-AID (Articles 273, 275 and 282) _ The Constitution provides for the following three kinds of grants-in-aid to the States from the Union resources— 3 S (a) Article 273 provides for the making of grants-in-aid to the States of Assam, Bay Orissa and West Bengal in lieu of export duty on e jute products. The sums of such grants are to.be prescribed by the President in consultation with the Finance Commission. Dies i ney ces cenetal toe a _ = ssential, e States ; wi are in ni peevcial assistance: Special grants may also be made to the States Promoting the welfare of 2 administration of the Scheduled Areas. — sr ict ©) . fs 5 } et eae provides that the Union or a State may make any grants Bn ie eee eee notwithstanding that the purpose * not State. a theneee to which Parliament or the Legislature of the otpeecently, the P. & H Hae be, may 1a ed a8 Punjab «@ held tt H. High Court in Sukhpal Singh Khaira v. State Rifered qin ld that under Article 282, the State Government Iss 18 ont2® to Whether ower to spend money on any public purpose and the Y be debated er or not the expenditure was made on public purpose can FN ANCE and tested in the State Assembly and not before the Court. co vi y fgg? meth MISSION (Article 280) a fleaas and most usually adopted to adjust the imbalances betwit % tion j thesncial resources of the two layers of governments the Ree transfer of funds from the Central Gavernme® * came in Tidune, eae on 9th June, 2000.966 CONSTITUTIONAL LAW OF INDIA. hi 1 Oe ents, promote political stability, facilitate rapid ‘omy of th eel equalisation or foster a sense of financial reeponait 2 8 8 basic objective of the welfare of the country as a whole, Whe’ beste! necessary is, to provide a mechanism, sufficiently flexible is the adjustments required to be made, from time to time, reflecting th to en, aly economic, financial and social needs of the general as wel] changing governments. d 8 the ies The framers of the Indian Constitution ensured that the ty funds from the Centre to the States should be made in such a Ansfer of not to impair the autonomy of the States. It was provided that the Pay of such devolution of funds and the principles of their distribution a States inter se should not be left entirely to the discretion of the can authorities, but should be determined on the recommendations 4 independent and impartial agency, which would assess the changing neais of the States, and take into account the imbalances between the richer States and the poor ones, in making its recommendations. All these objectives wer achieved by making provision in the Constitution itself, for a period appointment of a Finance Commission, a non-political body and by leaving to it the task of making inter-government financial adjustments from tim to time.” regional governments. It may try to safeguard the auto Constitution of Finance Commission 4 oe Article 280 required the President to appoint a Finance Commission within two years from the commencement of the Constitution and oe at the expiration of every fifth year or at such earlier time as the Presit might consider necessary. The Commission is to consist of 2 Coe 0 four other members appointed by the President. Clause (2) of ee & empowers the Parliament. to determine, by law, the qualifications Chairman and the members of the Commission. Accordingly, the Finance Commission (Misce son 1951 was enacted, laying down that the Chairman is to be @ ate, experience in public affairs and the four other members are to oF n cout from among persons qualified to be appointed as the Judges of a or having special knowledge of the finances and accounts of oe jatration ao or having wide experience in financial matters and in admis) having special knowledge of economics.” The Finance Commission being an ad hoc body, 49. RJ. May, Federalism and Fi jl mdon Press i sas alas Gh acaltealiUulotvond. seve paca der the Inaia®. © Eastern Law House, Calcutta, 1974 103-4. men! 50. The present F.C. is the 13th Finance Commission, mad? renee HA Gayens nance G State Fel a yum, "Finance Commissioi “ Union-: een aH Hea Meenakshi eter oe 106. 52% ae noe aceon on the Financial Provisions, December oes i ‘ancous peat Piss he by the Finance Commission (Mis 58. Section 3 of the Amended Act, 1955, llaneous Provisions) At its the. tenure i” fa 196% jis t sins ©a 391,292,293 1 RELATIONS BETWEEN THE UNION AND hip STATES 780,22 0" nea 967 P by the President in the order of thi i ig determined. ; appointment, emb? Se are appointed for a period of one year, The Members render Usui! ally» me or part-time service as the President may specify ; Us whole im emoluments are determined by the Coveraaties nia ie and dure to be followed is determined by the Commission itself, who in mhe proce mance of its function. enjoys all the powers of a Civil Court under the perfor Civil Procedure, 1908, in respect of summoning and enforcing the he Code of witnesses, requiring the production of documents and attendance g any public record from any court or office. The function of eeesion is recommendatory and advisory in nature. The e eon dations made by the Commission together with an explanatory ea dum as to the action taken thereon, are caused to be laid by the Beadont, before each House of Parliament.5? Duties of the Finance Commission [Article 280(3)] According to Article 280 (3), the duties of Fina: to make recommendation to the President as to— (a) the distribution between the Union and the States of the net proceeds of the taxes which are to be or may be divided between them and the allocation between the States of the respective shares of such proceeds; ‘ the principles which should govern the grants-in-aid of the revenue of the States out of the Consolidated Fund of India; (©) the measures needed to augument the Consolidated Fund of a State to supplement the resour ‘ces of the Panchayats in the State, on the _ basis of the recommendations made by the Finance Commission of the State;s* (@) the measures needed to augument the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State;59 s ince Commission shall be ©) (©) any other matter referred to the Commission by the President in B © interests of sound finance. 0. ? rte Powers (Articles 292 and 293) oe recutive 292 provides that the Government of India, in the exercise of its Baia ith jay borrow upon the security of the Consolidated Fund of Giliament po'Sh limits, if any, as may from time to time be fixed by Sovernm, by law, It shall include the giving of guarantees by the Ms ent of India within fang paticle 293 empowe, State one Suarantees) such limits, if any, as may be 50 fixed. = rs the State Governments to borrow within In i i id of the upon the security of the Consolidated Fun ets within limits fixed by the State Legislatures. But the qq action € ‘ $9, ytd by Thertea i the Constitution (73rd Amendment) Act, 1992. e ‘onstitution (74th Amendment) Act, 1992.CONSTITUTIONAL LAW OF INDIA 968 cag er of the State is subjected to some restrictions. A State cannot 4 Bait outside India. Clause (3) of Article 293 provides that "a State m without the consent of the Government of India raise any loan if om still outstanding any part of a loan which has been made to the State 1 is Government of India or by its predecessor Government, or in respect ates _ a guarantee has been given by the Government of India or by its predecosgy, Government”. While giving its consent, the Government of India may imposy "any condition which it may think fit to impose.