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centre-State relations
The framers of the Indian constitution perceived the need for a strong Central Government, which would keep the disintegrating forces in check and safeguard the integrity of the counter. This aspect has made the Indian federation a unique one among the federal structures of the world. It is characterized by high degree of centralization. The Indian constitution can be both unitary as well as federal according to the requirements of time and circumstances. The Constitution of India is federal in form but unitary in spirit. The Centre-State relations in the Indian federation can be summed up as follows;
The Constitution divides legislative authority between the Union and the States in three lists— the Union List, the State List and the Concurrent List. The distribution is remarkably elaborate and detailed. The Union List consists of 99 items. It demonstrates the vast extent as well as the great importance of the powers vested in the Union government. The Union Parliament has exclusive authority to frame laws on subjects enumerated in the list. These include foreign affairs, defence, armed forces, communications, posts and telegraphs, foreign trade, inter-state trade, commerce, etc. A number of items included in the list have an important bearing on UnionState relations and some of them can enable the Union to expand its area of operation and thereby extend its control over the sphere, which falls under State jurisdiction. For example item number 52, which refers to industry, places a powerful lever in the hands of the Union to take any industry under its own control.
Both the Parliament and the State Legislatures can make laws on subjects given in the concurrent List, but the centre has a prior and superior claim to legislate on concurrent subjects. The list comprises of 52 items including criminal and civil procedure, marriage and divorce, economic and special planning, trade union, labour welfare, electricity, newspapers, books and printing presses, population control and family planning etc.
The state List consisting of 61 items contains subjects on which ordinarily the States along can make laws. These include public order, police, administration of justice, prisons, local government, agriculture etc. However, what makes State autonomy less real than it appears at first is the fact that under certain conditions the Constitution authorizes the Union Government to extend its over matters formally included in the State List. In fact, when a proclamation or emergency is in operation, Parliament can legislate on matters enumerated in all the three lists. Under Art. 356 relating to the breakdown of constitutional machinery in the State, Parliament can take over the legislative authority of the State. Art. 249 empower the Rajya Sabha to transfer any matter in the State List to the legislative jurisdiction of Parliament by a resolution passed by a two-thirds majority. According to Art. 252 if the Legislatures of two or more States pass resolution to the effect that it is desirable to have a law passed by the Parliament can make laws regulating the matter. Any other State may also adopt such a law by passing a resolution to that effect. Such laws can be amended or repealed only by the Parliament. Art.253 empowers the Parliament to make laws for the whole or any part of the territory of India for implementing international agreements and conventions to which India is a party even if the subjects covered by such treaties and agreements fall within the State List.
Finally, the residuary powers have been placed under the Legislative jurisdiction of the Union Parliament. This is a departure from the normal pattern of federalism. In the U.S.A., Switzerland and Australia, residuary powers vest in the component units. The Indian Constitution makes preferred to follow the example of Canada in the assignment of residuary powers
In addition to the parliament’s power to legislate directly on the State subjects as mentioned above, the Constitution also provides for the Center’s consent before a Bill passed by a State legislature can become a law. A State law providing for compulsory acquisition of private property shall have no effect unless it has received the consent of the President. Art. 31-A grants immunity to laws providing for agrarian reforms from Arts. 14 and 19. The immunity of Art. 31-A will not be available to a State law unless it has received the consent of the President. The object of these provisions is to ensure uniformity in laws providing for agrarian reforms.
Art. 200 directs the Governor of a State to reserve a Bill passed by a State Legislature for the consideration of the President if in his opinion, if passed into law, would derogate the powers of the High court.
Art. 282 (2) authorizes a State to tax in respect of water or electricity, generated, consumed, distributed or sold by any authority established by law made by parliament. But no such law shall be valid unless it has been reserved for the consideration of the President and has received his assent.
Art. 304 (b) authorizes a State Legislature to impose reasonable restrictions on the freedom of trade, commerce and intercourse within the State in the public interest. But such laws cannot be introduced in the State Legislature without the previous sanction of the President.
In short, the states do not possess exclusive or inviolable jurisdiction even in matters formally recognized by the constitution as falling within the sphere of State autonomy. In the UnitedState of America, federal legislation on any subject, which falls with in the sphere reserved to the States, is impossible without a constitutional amendment.
The administrative relations between the Union and the States offer yet another proof of the highly integrated nature of the Indian federation. Under the constitution the Union government can exercise the executive power in respect of all matters within its legislative jurisdiction. Some of these matters, such as customs, and central excise, income tax, Railways, post and Telegraphs are administered directly by services maintained by the Union Government. In most of the cases, the administration of Union matters is delegated to State authorities. In this respect, there is a striking contrast between the American and the Indian federal system. In the United States, the administrative systems of the Union and the States run parallel. In India they meet at many points.
The Union-State administrative relations in India are organized as to enable the Union Government exercise considerable direction and control over the administrative machinery of the States. The constitution on places upon the States the obligation to exercise their executive authority in such a way as to ensure compliance with the Union laws. It also enshrines that the executive power of the State shall be so exercise of the executive power of the Union. The Union Government has been armed with the power of giving such directions to States as may appear to be necessary for the purpose. The Union Government can apply drastic sanctions against the state, which falls to carry out its directions. Acting on the powers under Art. 356 the President may proclaim a breakdown of constitutional government in a state and proceed to take into his hands all the powers of the Governor or any other State officer. In such an eventually, the federal basis of Indian polity is suspended in respect of the particular State concerned. The Union government has also been given certain power to promote inter-state cooperation and to settle inter- State river water disputes. For this purpose the President may appoint Inter-State Council to effect coordination between states. The function of the Inter-State council is advisory in nature.
The Constitution provides for a financially strong centre so much so the States are almost totally dependent on the Union. The outstanding feature of Indian finances is that most of the resources accrue to the Union and out of these some are transferred to States.
Art. 268 provides the scheme of the distribution of revenue between the Union and the States. The States possess exclusive jurisdiction over taxes enumerated in the State List. The Union is entitled to the proceeds of the taxes in the Union List. The Concurrent List included no taxes. However, while the proceeds of taxes within the State List are entirely retained by the States, proceeds of some of the taxes in the Union List be allotted, wholly or partially, to the States. The Constitution mentions four categories of Union taxes, which are wholly or partially assigned to the States:
(i) Duties Levied by the Union but Collected and Appropriated by the States. According to Art. 268 stamp duties and duties of excise on medicinal and toiled preparations mentioned in the Union List are levied by the Central Government. These duties are collected by the states within which such duties are leviable. The proceeds of such duties are assigned to the States.
(ii) Taxes Levied and Collected by the Union but assigned to the States. According to Art. 269 (1) duties in respect of succession to property other than agricultural land, (2) estate duty in respect of property other than agricultural land, (3) terminal taxes on goods or passengers carried by railway, sea or air, (4) taxes on railway fares and freights etc.
(iii) Taxes levied and collected by the Union and distributed between the Union and States. According to Art. 270 income tax not including corporation tax is levied and collected by the Union and is distributed between the Union and the States. After deducting some attributed to the Union territories and to the Union emoluments a prescribed percentage of the taxes are distributed among States in such manner as may be prescribed by law.
(iv) Taxes levied and collected by the Union and may be distributed between the Union and States. During other than those on medicinal and toilet preparations are mentioned in the Union List are levied and collected by the Union and whose net proceeds may be shared between the Union and the States.
The Union Government can borrow money on the security of the Consolidated Funds of India. State Government has to obtain the permission of the Centre to raise loans. The centre has powers to grant loans and grants-in -aid to the States. The President appoints a Finance Commission every five years to advise him regarding the distribution of resources between the Union and the States and other related matters.
Further, the President appoints the comptroller and Auditor- General of India, who determines the manner in which the accounts. During a Financial Emergency, the Centre can require the States to reduce the salaries of their servants and direct them to reserve all the Money bills for its approval.
There are several articles in the constitution of India which define the financial relations between Union and States. Since GST bills involve a huge interest of the state governments, such a historical tax reform cannot take place without making suitable changes into the constitution. For this purpose, 101st amendment of the constitution was passed. This act received the assent of the President of India on 8th September, 2016 and came into force on July 1st 2017. The important changes made in constitution (new articles / amended articles) via this law are as follows:
This is a new article inserted in the constitution. It says that:
(1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.
Notable Points from Article 246A
This is a new article which reads as follows:
(1) Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
Explanation—For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce.
(2) The amount apportioned to a State under clause (1) shall not form part of the Consolidated Fund of India.
(3) 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.
(4) 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.
(5) Parliament may, by law, formulate the principles for determining the place of
supply, and when a supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.’
Notable Points from Article 269A
• This article says that in case of the inter-state trade, the tax will be levied and collected by the Government of India and shared between the Union and States as per recommendation of the GST Council.
• The article also makes it clear that the proceeds such collected will not be credited to the consolidated fund of India or state but respective share shall be assigned to that state or centre. The reason for the same is that under GST, where centre collects the tax, it assigns state’s share to state, while where state collects tax, it assigns centre’s share to centre. If that proceed is deposited in Consolidated Fund of India or state, then, every time there will be a need to pass an appropriation tax. Thus, under GST, the apportionment of the tax revenue will take place outside the Consolidated Funds.
This article provides for constitution of a GST council by president within sixty days from this act coming into force. The GST council will constitute the following members:
The GST council will be empowered to take decisions on the following:
All decisions taken at the GST council will be taken based on voting. Process of voting is clearly articulated in detail in the constitutional amendment bill.
This amendment has made following changes in 7th schedule of the constitution:
Union List:
State List
Further, the amendment also provided that Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years. This resulted into the Compensation Cess Bill.
A critical examination of the legislative, administrative and financial relations makes it very clear that under the Indian federal system the Centre has been assigned a very predominant role. The States are heavily dependent upon the Union Government. The Constitution has some conspicuous unitary features. These are; _ (a) a single Constitution both for the Centre and the States, with the exception of Jammu and Kashmir; (b) a major part of the Constitution can be amended by the parliament alone and the exclusive right of the Parliament to propose amendments; (c) provision for a single all-India citizenship with the exception of Jammu and Kashmir; (d) the power of the Parliament to change the name, territory or boundary of States without their consent; (e) the appointment of the governor of a State by the President and his functioning as the agent of the Centre; (f) a united judiciary both for the Centre and the States with the Supreme Courts at the apex; (g) the representation of the States in the Rajya Sabha is based on population of a State. Thus there is unequal representation to the State in the Rajya Sabha;(h) the presence of all-India Services whose appointment is made by the Center; (i) the power of the Centre to impose President rule on States and promulgation of national and financial emergencies; (j) the right of the Parliament to legislate on subjects in State List under certain circumstances; and (k) single election machinery to conduct elections to the Parliament and State Legislatures.
For this reason some critics have called India a centralized federation. It appears that the Constitution makers envisaged a “co-operative federalism” in which the Union ends the States should collaborate with each other for the common good.
Sr. No
Union List
Concurrent List
1.
Defence of India
Public order
Criminal law
2.
Arms, firearms, ammunition
Police
Criminal Procedure
3.
Atomic Energy, mineral-resources
Local Government
Municipal and divorse-adoption
4.
CBI
Public Health, Sanitation, Hospitals & dispensaries
Transfer of property other than agricultural land
5.
Foreign Affairs
Intoxicating liquors
Bankrupting and insolvency
6.
War and Peace
Water
Concept of court but most including Supreme Court
7.
Extradition
Fisheries
Forests
8.
Railways
Bething and gambling
Economic social planning
9.
National Highways
Land Revenues
Population Central & family planning
10.
Ports
Tax on agriculture income
Trade Unions
11.
Lotteries organized by Government of India or – Government of a state
Tolls
Charities
12.
Stock exchanges and future markets
Capitation taxes
Price Control
13.
Fishing and Fisheries beyond territorial waters
Electricity
14.
Census
Factories
15.
All India Services
Newspapers, books and printing press
16.
Taxes on income other than agriculture income
17.
Tax on services (added by 88th amendment, act 2003)
1. Setalvad Committee – The Setalvad Committee was appointed in 1966 by the Administrative Reform Commission (1966-69) to study and make recommendations for the improvement of Centre-state relations. The Committee recommended for giving more autonomy to the States within the limit of the Constitution.
2. Raja Mannar Committee – This committee was appointed in 1969 by Tamilnadu government for suggesting measures for providing more autonomy to States. Its two other members were – Dr. Laxman Swamy Muddaliar and P. C. Chanda Reddy. The Committee recommended for – (i) abolishing the residuary powers or transferring them to the States, (ii) organisation of Inter-State Council and (iii) abolition of All India Services.
3. Sarkaria Commission headed by Justice Ranjeet Singh Sarkaria, the Commission was appointed on March 24, 1983 by the Union government to study and make recommendations with respect to Centre-State relations. The Commission has submitted its report in 1988.
4 . Second Commission on Centre-State Relations (M.M. Punchhi), 2007.
When two or more States request the parliament to do so. Other states may later resolve to be under such a law. (Art. 252)
Following are the important aspects of Art.249
All residuary powers are with the Union Parliament. The Sarkaria Commission on Centre-State relations, which submitted its report in 1987, wanted the residuary powers in taxation to be retained with the centre and not transferred to the States, even though it endorsed the Supreme Court’s interpretation that these powers cannot be so expansively interpreted as to dilute the power of the State legislatures.
The Sarkaria Commission reasoned that the Constitution-makers did not include any entry relating to taxation in the Concurrent List so as to avoid Union-State frictions, double taxation and frustrating litigation. The Commission said that the power to tax might be used not only to raise resources but also to regulate economic activity and giving the power to states may prejudice national interest. Some states demand that the residuary powers, including those of taxation, be vested in the States. The States argue that they need taxation powers in order to mobilise resources to meet their developmental needs.
Administrative Relations: Articles 256 to 263 in Part XI deal with administrative relations between the centre and states.
Distribution of taxes in the centre and state
Sr. No.
Title
Description
1
Taxes levied by the centre but collected and appropriated by the states (Article 268)
i) Stamp duties on bills of exchange, cheques, promissory notes, policies of insurance, transfer of shares and others
ii) Excise duties on medicinal and toilet preparations containing alcohol and narcotics.
2
Service Tax levied by the centre but collected and appropriated by the centre and the states (Article 268-A)
Taxes on services are levied by the centre. But, their proceeds are collected as well as appropriated by both the centre and the states. The principles of their collections and appropriation are formulated by the Parliament.
3
Taxes levied and collected by the centre but assigned to the states (Article 269)
i) Taxes on the sale or purchase of goods (other than newspapers) in the course of inter-state trade or commerce.
ii) Taxes on the consignment of goods in the course of interstate trade or commerce.
4
Taxes levied and collected by the Centre but distributed between the centre and the states (Article 270)
i) Duties and taxes referred to in Articles 268, 268-A and 269 (mentioned above).
ii) Surcharge on taxes and duties referred to in Article 271.
iii) Any cess levied for specific purposes.
The Parliament can at any time levy the surcharges on taxes and duties referred to in Articles 269 and 270. The proceeds of such surcharges go to the centre exclusively. In other words, the states have no share in these surcharges.
5
Surcharge on certain taxes and duties for purposes of the centre (Article 271)
These are the taxes belonging to the states exclusively.
6
Taxes levied and collected and retained by the states
Besides sharing of taxes between the Centre and the states, the Constitution provides for grants-in-aid to the states from the Central resources.
Article 275 empowers the Parliament to make grants to the states which are in need of financial assistance and not to every state. Also, different sums may be fixed for different states. These sums are charged on the Consolidated Fund of India every year.
Apart from this general provision, the Censtitution also provides for specific grants for promoting the welfare of the scheduled tribes in a state or for raising the level of administration of the scheduled areas in a state including the State of Assam. The statutory grants under Article 275 (both general and specific) are given to the states on the recommendation of the Finance Commission.
Article 282 empowers both the Centre and the states to make any grants for any public purpose, even if it is not within their respective legislative competence. Under this provision, the Centre makes grants to the states on the recommendations of the Planning Commission—an extra-constitutional body.
"These grants are also known as discretionary grants, the reason being that the Centre is under no obligation to give these grants and the matter lies within its discretion. These grants have a two-fold purpose: to help the state financially to fulfil plan targets; and to -give some leverage to the Centre to influence and coordinate state action to effectuate the national Notably, the discretionary grants form the larger part of the Central grants to the states (when compared with that of the statutory grants).
Hence, the Planning Commission has assumed greater significance than the Finance Commission in Centre state financial relations
The Constitution also provided for a third type of grants-in-aid, but for a temporary period. Thus, a provision was made for grants in lieu of export duties on jute and jute products to the States of Assam, Bihar, Orissa and West Bengal. These grants were to be given for a period of ten years from the commencement of the Constitution. These sums were charged on the Consolidated Fund of India and were made to the states on the recommendation of the Finance Commission.
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