The Indian Constitution incorporates a very elaborate scheme of centre state financial relations. Its chief characteristics are :- The complete separation of taxing powers between centre and states Tax sharing between the two The allocation of funds to the state 2 The tax enumerated in the centre list are leviable by the centre exclusively. The tax enumerated in the state list are leviable by the state exclusively

1. 1. The Indian Constitution incorporates a very
elaborate scheme of centre state financial
relations. Its chief characteristics are :-
•The complete separation of taxing powers
between centre and states
•Tax sharing between the two
•The allocation of funds to the state
2 The tax enumerated in the centre list are
leviable by the centre exclusively.
3. The tax enumerated in the state list are
leviable by the state exclusively.

2. One of the cardinal principle is incorporated in in
Art.265 “No tax shall be levied or collected
except by authority of law.”
Taxing statue must comply with the following
requirement for validity :-
•The law must be within the competence of the
concerned legislature and covered by the by the
entries in the respective lists of seventh schedule
of the constitution.
•The law should not be void under Art.13.

3. Consolidated fund of India and the state
Art.266.
It includes :-
 all revenues received by the Govt. of India/
State.
 All money raised by the govt. of India /state by
the issue of treasury bills, loans or ways and
means advances.
 All moneys received by the govt/state in
repayment of loans.
 No money can be appropriated except
accordance with law.
 The Acts passed for withdrawal of money from
the above funds are called the appropriation
Acts.

4.  Contingency fund of India :- Art. 267
empowers parliament to establish by law a
contingency fund for the union 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.
 Public account :- Art.266(2) the amount of
taxes ,duties and other revenues are
deposited in the consolidated funds. Other
public money received by or on behalf of the
appropriate govt. is credited to the public
account of union or the state.

5. Tax:- means burden of charges imposed by
the legislature in exercise of its legislative
power on person or property to raise money
for public purposes.
• The rule which apply to the
interpretation of the non- tax entries
apply Mutatis Mutandis to the
interpretation of tax entries as well.
• Entries 82 to 92 B enumerate the taxes
which ,parliament is entitled to levy
exclusive.

6.  Taxes on Income other than agricultural
income:- entry 82.
 income tax is divided between the centre
and state .
 Centre can levy a tax on non –agriculture
income.
 Tax on agriculture is assigned to the state.
 The term income means any profits or gain
which is actually received .therefore a tax on
capital gain or pension is permissible.
 A loan advance to share holder of a
company can be treated as income.
 The income Tax Act 1961 is a law made
under this entry.

7.  83. Duties of customs including export
duties.
 84. Duties of excise on tobacco and other
goods manufactured or produced in India
except—
a) alcoholic liquors for human consumption.
b) opium, Indian hemp and other narcotic
drugs and narcotics, but including
medicinal and toilet preparations
containing alcohol or any substance
included in sub-paragraph (b) of this
entry.

8.  The meaning of excise is that of a tax on
articles produce or manufactured in the
country.
 The SC has define manufacture as follows:-
 The moment there is transformation into a
new commodity
 Commercially known as distinct commodity
having its own character ,use ,name
 Whether be a result of one process or several
processes manufacture take place
 And liability to exercise duty is attracted.

9.  In empire Industries v. Union of India AIR
1986,the court has ruled that bleaching ,dyeing
,printing and finishing of man made cotton fabric
constitute manufacture as commercially a
different article is produced after these process
from the cloth which under goes these process .
Human skills and materials are used in the
processing of fabrics.
 Example :-
• A duty coal raised at the collieries is a
duty of exercise.
• a duty of excise can be imposed on
production of rubber.

10.  85 Corporation tax :- is a tax on income
payable by companies.
 The company paying tax are not authorized
to deduct the same from dividends payable
by the companies to individuals.
 97 any other tax not enumerated in list II & III
 Gift tax :- it is not a tax on land or building
what is tax is the transmission of title by gift
and the value of the land and building is only
the measure of the value of the gift.

11.  Service tax levied on services rendered by
mandap –keeper was held not to be tax on
land under entry 49 II nor a tax on sale and
purchase of goods under entry 54 list II but a
tax imposed by parliament under its
residuary power.

12. Tax :- tax is a compulsory exaction of money
by a public authority for a public purpose to
meet the general expenses of the state.
Fee :- is a payment for special services render
or some work done for the benefit of those
from whom the payment is demanded.

13.  Some service to be render to the payer of the
fee as essential element of the concept of the
fee.
 Indian Mica & Micantile Industries v. state of
Bihar AIR 1971,the court laid down the
emphasis on three element:-
 To be fee the state should render the
services to those from whom the fee is
collected.

14.  A mere regulation of trade in public interest
is no services to person required to pay the
levy.
 The fee charged is to have a reasonable
correlation with the expenses incurred in
rendering the services i.e. the levy must be
a quid pro quo for the service rendered.

15.  Imposition of charges for supervision,
inspection and control of private activity may
be regarded as a fee
 There are two kinds of fee :-Art.
110(2)199(2)
 Fee for licenses
 Fees for service render.
Liberty cinema case.
License fee dose not necessarily mean fee in
lieu of services and that no quid pro quo
need to established in such case.

16.  Vam organic chemicals ltd v. state of up
1997.the court accepted the notion of fee
charged for licenses i.e. regulatory fee the
court distinguish between the regulatory fee
and compensatory fee .i.e. fees for services
render .
 Court fees. State of Madras v. Zenith lamps
the supreme court ruled that court fees could
be levied not for increasing general revenues
but to meet the cost of administration of civil
justice.

17.  The scheme of allocation of centre –state
taxing powers designed with convenience
,simplicity economy and uniformity.
 But fails to create an equilibrium between
responsibility and resources at the state
level.
 The state revenue raising capacity is
cabined due to many reason:-
 The economic condition prevailing within
their boundaries.

18.  The fact that they have to share their taxing
power with the local govt.
 Their taxing powers being some what
inelastic.
 The constitution 80th Amendment Act 2000
 On the recommendation of the 10th finance
commission drastic changes have been
introduced in the scheme of tax-sharing
between the Union and the states.
 This amendment has been made applicable
from April1 1996 giving retrospective
effect.

19.  As per art.268 some taxes are levied by the
Union but are collected and appropriated by
the states. These are :-
a) Stamp duties listed in the union list.
b) Duties of excise on medicinal and toilet
preparations mentioned in the union list .
 The union govt. has no share in such taxes.
 Art.268A has been inserted by the
constitution 88th Amendment Act 2003.
Service tax is levied by the Union but
collected by the central and the state govt.

20.  Service tax or tax on service was levied by the
Finance Act 1994 and has now been given
constitutional status vide Art. 268A .
 Service tax is value added tax (VAT)
 Entry 92-C of list I
 Services tax on chartered Accountant ,cost
Accountant and architects etc has been
upheld by the Supreme Court .

21.  States power to levy sales taxes (Art.286)
The power to levy taxes on sale or purchase
of goods other than news paper belongs to
the state.
a) No state can impose a tax on sale or
purchase of goods takes place outside the
state.
b) States are debar to impose a tax on the
sale or purchase of goods which take
place in the course of the import or export
of the goods ,out of the territory of India.

22. c) No state can tax a sale or purchase taking
place in the course of inter – state trade
and commerce.
Art. 258 debars a state from taxing
union property unless parliament by law
otherwise provides.
Union of India v. state of U.P. AIR 2008 SC
521 Service charge for supply of water and
maintenance of sewerage system of
railway colonies as provided by the Jal
Sanathan, cannot be said to be tax on the
property of the union.