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Constitutional And Legislative Provisions |
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The Constitution of 1950 which closely followed the main features of the Government of India Act, 1935, in regard to the distribution of tax powers, clearly bifurcated all the tax powers between the Union and the States. The powers of the former are enumerated in List I (Union List of the Seventh Schedule) and that of the later in List II ( State List of the Seventh Schedule). No tax has been assigned to the Concurrent List.
Since the Indian federation has been evolved from largely unitary India, autonomy of the States wasn't given much weight. Progressive, broad-basegoods or passengers by sea, air & rail, taxes on railway fares & freights, taxes on transactions in stock exchange (except stamp duties), taxes on income ot6h4er than agricultural income, Duties of Customs including export duties, Corporation tax and taxes on sale or purchase of goods in the course of inter-State trade or commerce, other than news paper belong to the Union List. The States, on the other hand, have been assigned land revenue, agriculture income tax, estate and succession duties on agricultural property, taxes on land and buildings, restrictive excise, sales and purchase taxes, electricity and entertainment taxes, taxes on advertisement (excluding newspapers), vehicle taxes, and taxes on profession, trade and callings.
Since this distribution of tax powers is biased towards the Union, to meet the resulting revenue imbalance between the Union and the States, four dynamic balancing devices, viz., revenue sharing, revenue distribution, revenue assignment and grants -in -aid , have been adopted. In respect of revenue sharing , the States share the proceeds of the taxes on income (other than the corporation tax) and of the Union excise duties. Regarding revenue distribution , the entire proceeds of some of the taxes in the Union List are distributed among the States. These taxes include succession and estate duties; terminal taxes on passengers & goods carried by railway, sea or air; taxes on railway fares and freights; taxes on the sale and purchase of newspapers ; sale and purchase tax on inter - State trade and additional duties of excise in lieu of sales taxes. The revenue assignment relates to the taxes in the Union List whose revenue has been assigned to the State Governments. These taxes are levied by the Union but the proceeds are collected and retained by the States for their use. Such taxes are stamp duties and excise duties on medicine and toilet preparations containing alcohol. Finally, the Constitution provides for a system of grants which may be conditional or in aid of general revenues. Thus, all these taken together along with the financial powers under the State List, from the total financial resources of the State Governments.
Though considerations of national policy and administrative convenience require that some of the more elastic taxes should be assigned to the Union Governments, these considerations themselves require that some of the most expansive expenditure heads apart from defense, should be undertaken by the States. Consequently, a salient characteristic of federal government is legislative autonomy with financial dependence. This feature is accentuated in a developing economy where the functions of the States develop by leaps and bound with no corresponding increase in the sources of revenue. Over the years, therefore, the States have bound themselves increasingly dependent on the Union. Under these circumstances , the sales tax assumes an important place in the fiscal armory of the States, particularly as an instrument of a much sought fiscal autonomy.
The period following the adoption of the Constitution upto 1955 could be described as a transitory phase for sales taxation. It was only with the Supreme Court judgment in 1955 and through the resultant constitutional amendment in 1956, that the States power to impose sales tax was clearly demarcated. Thus, the taxes on sale or purchase of goods in the course of inter-State trade or commerce were brought expressly within the purview of the legislative jurisdiction of Parliament. As a result, the Central Sales Tax Act, 1956,enacted by the Sixth Constitutional Amendment which introduced Entry 92A in List I of the Seventh Schedule authorizing Parliament to levy tax on the sale or purchase of goods (other than newspapers) in the course of inter-State trade.The revenue from this tax was assigned to the States by amending Article 269 of the Constitution. Accordingly, the Central Sales Tax (CST) is levied on sale or purchase of goods in the course of inter-State trade and commerce. The power to levy the CST and revenue from this tax is, however,assigned to the State occasioning the movement of goods from one State to another (i.e., the exporting State).
In addition, section 15 of the CST Act laid down certain restrictions on the powers of the States in regard to the levy of inter - State sales tax on goods declared as of special importance within their respective territories as described under section 14 or the ACT.
In addition to the above, since 1975, the Union Government entered into an agreement with the States to abolish sales tax on textiles , sugar and tobacco including manufactured tobacco. According to the agreement, the Union Government levies an Additional Excise Duty in lieu of Sales tax (IDEALIST) on these 3 commodities. In recompense, the entire proceeds of the IDEALIST are assigned to the States. Thus, the Union Government entered into a tax-rental arrangement with the States who were given the Constitutional right to cancel the agreement and impose sales tax on these commodities, whenever they so desired. But the right of States to levy sales tax on these commodities was restricted by including these three items under the of "Good of Special Importance". Hence, the rate of sales tax on these commodities can't exceed the rate of the CST which, at present, is four per cent.
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