Financial Relations between the Centre and the States

The Constitution of India demarcates spheres between the Union and the States in their areas of financial matters. The Parliament has the power to levy taxes on subjects enumerated in the Union List covering items such as 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92A, 92B and 96. The state legislatures have the power to levy taxes on subjects enumerated in the State List on items such as 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63 and 65. Both the Union and the States can levy taxes on maters included in items such as 33, 44 and 47 of the Concurrent List. The residuary power of taxation (such as gift tax, wealth tax, and expenditure tax) is vested in the Parliament. The80th Amendment Act, 2000, also known as �Alternative Scheme of Devolution�, made major changes in the scheme of distribution of tax revenue between the Centre and the State. Based on the recommendations of the Tenth Finance Commission, the amendment provides that the States would receive 29ft of the total income obtained from certain central taxes and duties. With regard to the distribution of tax revenues �between the Centre and the States, the Constitution states:

(i) Taxes levied by the Centre but collected and appropriated by the States: This category includes the following taxes: (i) Stamp duties, (ii) Excise duties on medicinal and toilet preparations. (Article 268); (iii) Service tax (Article 268A)

(ii) Taxes levied and collected by the Centre but assigned to the States: The taxes such as : (i) Taxes on the sale or purchase of goods in the course of inter-state trade or commerce (other than newspapers). (ii) Taxes on the consignment of goods in the course of inter-state trade or commerce. (Article 269).

(iii) Taxes levied and collected by the Centre but distributed between the Centre and The States: This category includes taxes and duties: (i) such as those are included in the Union except those in Article 268; (ii) Surcharges on taxes and duties (mentioned below). (iii) Any cess levied for specific purposes. (Article 270);

Taxes for the purpose of the Centre

The Parliament can at any time levy the surcharges on duties or taxes mentioned above, the proceeds of such surcharges go to the Centre exclusively. (Article 271) and

Grants-in-Aids to 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 which include : (a) Statutory grants, under Article 275, to States on the representation of the Finance Commission; (b) Discretionary grants to the States in the name of development, (C) Grants of export duty like on jute and jute products (Article 273).

Centre�State Relations Commissions

The Punchhi Commission Numerous Centre�States relation commissions, such as the JVP committee, the Dar commission, the Raja mannar committee, the Sarkaria Commission, have been appointed from time to time. The Punchhi Commission (established in 2007) with former Chief Justice of India as its chairman together with four other members gave its report to the Government (200-11) on the Central�States Relations. Its chief recommendations were :

(i) Article 355 and 356 be amended to enable the Centre to bring specific troubled-torn areas under the President�s rule, but only for a limited period.

(ii) Article 355 and 356 be so amended that even a local area, covering a specific locality can be brought under the President�s rule.

(iii) The commission supports the right of the Union to give sanction for the prosecution of a minister against the advice of the state government.

(iv) The communal violence bill be so amended that the central forces could be deployed without seeking the sanction of the state government, the deployment be carried out for a period as short as possible.

(v) While the Governor has to appoint the Chief Minister, he need to keep the following in mind: (a) Call the group leader with the largest pre poll alliance commanding the largest number. (b) The single largest party with support of others. (c) The post-electoral coalition with all parties joining the government; and (d) The post-electoral alliance with some parties joining the government and remaining members, including independents while some supporting from outside.

(vi) Amendment be made to empower the Governor to sanction prosecution of the ministers violating the advice of the Council of Ministers.

(vii) While appointing a Governor of a State, special care be taken to ensure that the person appointed has not indulged in local politics before being appointed the Governor.

(viii) Amendment be made to dismiss the Governor of his office through impeachment.

(ix) The Governors are to be appointed on the recommendations of committee comprising the Prime Minister, Home Minister, Speaker of the Lok Sabha, the chief minister of the concerned state. The Vice President may also be involved in the appointment of the Governor.

(x) The Union of the States needs to strengthen the principle of cooperative and creative federation. Accordingly, it was recommended that the individual and collective consultations with the States should be undertaken through Inter�State Council as established under Article 263.

Written by princy

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