Distribution of revenues between Union and States :
Many important taxes are within the jurisdiction of Union Government. All residual powers of collection oftaxes are with Union Government. Thus, in federal structure as in Constitution of India, Union Government is much stronger than State Governments. [In USA, all residual powers are with States].
Since major revenue is collected by Union, it is necessary to distribute it among States. The provisions are briefly as follows –
Duties levied by Union and Collected and appropriated by States – Article 268 of Constitution of India states that stamp duties covered in Union List shall be levied by Government of India but collected by States.
This Article made reference to duties of excise on medical and toilet preparations. This reference has been omitted w.e.f. 16-9-2016, as these duties will be subsumed in GST.
For this purpose, ‘State’ will include ‘Union territory with legislature’- Article 366(26B) of Constitution of India inserted w.e.f. 16-9-2016 [This will cover Delhi and Puducherry].
Taxes levied and collected by Union but assigned to States – Article 269 of Constitution of India enumerates taxes and duties which are levied and collected by Government of India but assigned to States.
These cover (a) tax on sale or purchase of goods in inter-state trade or commerce (CST) (b) tax on consignment of goods in inter-state trade or commerce.
For this purpose, ‘State’ will include ‘Union territory with legislature’- Article 366(26B) of Constitution of India inserted w.e.f. 16-9-2016 [This will cover Delhi and Puducherry].
Presently, there is no tax on consignment of goods in inter-state transactions. Hence, only CST is covered under these provisions.
Taxes levied and collected by Union and distributed between Union and States – Article 270 of Constitution of India provides that net proceeds of all taxes and duties referred to in Union List, except the specified taxes, shall be levied and collected by Centre and shall be distributed between Centre and States.
Thus, revenue from taxes like income tax and Central Excise are distributed between Centre and States as per recommendation of Finance Commission, which is constituted under Article 280 of Constitution of India.
The specified taxes (which shall not be distributed on basis of recommendation of Finance Commission) are –
(a) Duties and taxes referred in Articles 268, 269 and 269A (b) Surcharge on taxes and duties referred to in Article 271 and (c) Any cess levied for specific purposes under a law made by Parliament. [as amended w.e.f. 16-9-2016]
Article 268 refers to stamp duties.
Article 268A provided that tax on services shall be apportioned between Union and States. This reference has been omitted w.e.f. 16-9-2016.
Article 269A refers to IGST on goods and services [inserted w.e.f. 16-9-2016]
Article 271 refers to surcharge on duties and taxes for the purpose of Union.
As per Article 270(1A) [as inserted w.e.f. 16-9-2016], the tax collected by the Union under article 246A(1) shall also be distributed between the Union and the States in the manner provided in article 246A(2).
As per Article 270(1B) of Constitution of India (as inserted w.e.f. 16-9-2016], the tax levied and collected by the Union under Article 246A(2) and article 269A, which has been used for payment of the tax levied by the
Union under article 246A(1) and the amount apportioned to the Union under article 269A(1), shall also be distributed between the Union and the States in the manner provided in Article 246A(2).
This provision is only for distribution of portion of IGST collected by Union to States.
Apportionment of IGST between Union and States – As per Article 269A(1) (inserted w.e.f. 16-9- 2016), IGST collected by Union will be apportioned between Union and States as per law made by Parliament on the recommendation of GST Council.
As per Article 269(1A) (as inserted w.e.f. 16-9-2016], the amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.
As per Article 269(1B), where an amount collected as tax levied under clause (1) has been used for payment of the tax levied by a State under article 246A, such amount shall not form part of the Consolidated Fund of India.
As per Article 269(1C) [inserted w.e.f. 16-9-2016], where an amount collected as tax levied by a State under article 246A has been used for payment of the tax levied under clause (1), such amount shall not form part of the Consolidated Fund of the State.
For this purpose, ‘State’ will include ‘Union territory with legislature’- Article 366(26B) of Constitution of India [This will cover Delhi and Puducherry] inserted w.e.f. 16-9-2016.
This provision is essentially in respect of payment of SGST to State where the SGST was used for payment of IGST. Such adjustment among States will be made by Central Clearing Agency on approval of Parliament.
The balance of IGST which will be retained by Union will be distributed between Union and States on basis ofrecommendation of Finance Commission – Article 270(1A) of Constitution of India.
Surcharge on taxes for purpose of Union – Article 271 of Constitution of India (amended w.e.f. 16-9-2016) provides that Union can levy surcharge on taxes and duties specified in Articles 269 and 270 (i.e. on income tax, excise and CST), which will be retained by Union and will not be distributed among States. this will not include surcharge on GST. Thus, even if Union imposes surcharge on GST, it will have to be shared with States.
This Article is amended w.e.f. 16-9-2016 to provide that this will not include surcharge on GST. Thus, even if Union imposes surcharge on GST, it will have to be shared with States.
GST on inter-state transaction to be levied and collected by Union and distributed between Union and States – Article 269A of Constitution of India (inserted w.e.f. 16-9-2016] provides that GST on interstate trade or commerce, shall be levied and collected by Centre and shall be distributed between Centre and States by Parliament by law, on recommendation of GST Council.
Effect of the amendment is that the IGST collected by Union on inter-state supply of goods and services shall be apportioned between Union and States on basis of law passed by Parliament on recommendation of GST Council.
This is really to cover adjustment among States by debit and credit with Central Clearing Agency.
CVD on imports will also be apportioned – Tax on import of goods and services in the course of import into territory of India shall also be apportioned by Parliament between Union and States on basis of recommendation of GST Council – explanation to Article 269A(1) of Constitution of India inserted w.e.f. 16- 9-2016.
For this purpose, ‘State’ will include ‘Union territory with legislature’- Article 366(26B) of Constitution of India [This will cover Delhi and Puducherry].
Thus, CVD imposed on imports (in lieu of IGST) will be apportioned between Union and States by Parliament on basis of recommendation of GST Council.