Unit 3: Question 03 & 04 : Centre State Relations - Legislative, Administrative &

Financial
Q01 : Scope of relationship between the union & state or center-State relationship of India ( 4 times)

Q02 : Scheme of distribution of legislative powers between union and state(4 times)

Q03: Legislative ( 3 times)

Q04: Financial (1 times)

Types of Centre State Relations

Part XI of the Indian Constitution focuses on center-state relations, covering legislative and administrative
connections, while Part XII deals with financial relations.

Legislative Relations

o Articles 245-255 discuss legislative relations between the Union (Parliament) and the states (state
legislatures).

o They define the scope of legislative powers, with Parliament having overriding authority.

o Provisions address subjects for legislation, inconsistency between state and national laws, and residual
powers.

o Schedule VII categorizes Union List, State List, and Concurrent List.

Administrative Relations

o Articles 256-263 cover administrative ties between the Central and state governments.

o India, while federal, has unitary traits, requiring states to obey national laws.

o Cooperative federalism, as suggested by the Sarkaria Commission, aims to improve relations between the
two levels of government.

Financial Relations

o Part XII, Articles 264-293, govern financial relations between the Center and states.

o India's federal nature dictates tax division, with the Center allocating funds to states.

o Schedule VII outlines taxation powers, regulations on levies, grants, surcharges, and notable examples like
the Goods and Services Tax (GST).

Financial Relations between Centre and State

These are mentioned in articles 268 to 293 in part XII of the constitution. These can be studied under the following
heads-

Allocation of taxing powers between centre and state

o Parliament can levy taxes on subjects listed in the union list (13 in number).

o The state legislature has the power to levy tax on subjects listed in the state list (18 In number).

o After the 101st Amendment Act of 2016, Parliament and state legislature can make laws governing goods
and services tax.

o Residuary power of taxation is vested in Parliament (gift tax, wealth tax, and expenditure tax).

o Restrictions on taxing powers of the state.

o The state legislature can impose taxes on professions, trades, and employment but at most 2500 per annum.
 o The state legislature is prohibited from imposing the tax on the supply of goods or services when the supply
takes place outside the state OR when the supply occurs in the course of import or export.

o The state legislature can tax the consumption or sale of electricity. Still, it cannot impose on the consumption
or sale of electricity consumed by the centre, sold to the centre, or consumed in the maintenance of
railways.

o The state legislature can impose any water tax, but that water should not be distributed or sold by any
authority established by Parliament.

Also read: Biosphere Reserves in India for UPSC here.

Distribution of Tax Revenues

o 80th Amendment Act of 2000, enacted to give effect to the recommendation of the tenth finance
commission (out of total income obtained from certain Central taxes and duties, 29% should go to the state).

o The 101st amendment has introduced a new tax regime ( goods and services tax GST).

o Taxes levied by the Centre but collected and appropriated by the states:

o Bill of exchange, cheque, promissory note, insurance policies, shares, etc.

o Taxes levied and collected by the Centre but assigned to the states:

o Sale or purchase of goods in the course of inter state trade consignment of goods in the course of
interstate trade.

o Levy and collection of goods and services tax during interstate trade.

Distribution of Non Tax Revenues

o Article 268 Duties levied by the Union but collected and appropriated by the States.

o Article 269 Taxes levied and collected by the Union but assigned to the States.

o Article 270 states that Taxes levied and distributed between the Union and the States

o Parliament may enact the taxes and levies surcharges in Articles 269 and 270. The surcharge's proceeds are
only used for the centre.

Grant-in-aids to States

o Statutory grants: Under Article 275, the Parliament can make grants to states in need of financial
assistance. Example: grant for the Welfare of scheduled tribes in a state.

o Discretionary grants: Under Article 282, the centre and state can make any grant for a public purpose.

Borrowing by Centre and States

o The Central Government can borrow within the country or outside up to a certain limit fixed by the
parliament.

o The state government can borrow only within the country from the central government.

Administrative Relations Between Centre and State

These are mentioned in articles 256 to 263 in part XI of the constitution. Administrative Relations between centre
and state can be studied in two parts – Based on the territorial extent and the basis of subjects.

Based on territorial extent:

o Administrative power of the centre or Union prevails on the whole of India or any State or UT.
 o The administrative power of States prevails on its Territory or State only.

Also, read Child Marriage Restraint Act here.

Based on subjects

o Central officer Union officials will execute laws on subjects listed in the union list.

o State officers will execute laws on subjects listed in the state list.

o State officers will execute laws on subjects listed in concurrent lists.

Under Centre – State Administrative relation Centre can give directions to state/s for the execution of:

o Article 257 (1) – not to make any hurdle in the way of Central execution power.

o Article 257 (2) – maintenance of the structure of national importance and military importance.

o Article 257 (3) – protection of Railways.

o Article 250 (A) – regarding mother language.

If the state is unable or doesn’t follow these directions, then – Article 365 states:

o It will be assumed that it is a failure of the constitutional system in that state, and on this basis, the president
can use the power mentioned in Article 356 and rule in that state.

o Under executive/administrative Centre-state relations by mutual understanding, centre and state can
transfer their power to each other for administration in the following ways:

o Governor can request a centre for administration in the state.

o President can request the state for administration.

Mutual Delegation of Functions

The executive functions are shared between the federal government and the states. The state governments may
approve the federal government's carrying out these duties. The distribution of executive power between the union
and the states is the mutual delegation function.

With the federal government's consent, the governor may transfer the union to the state's executive functions. This
delegation of authority can be conditional or unconditional. The state may provide the union executive authority
without the state's approval under the terms of the constitution. However, Parliament, not the President, is the body
that creates such delegations.

Cooperation Between Centre and States

Any dispute or complaint affecting the management, distribution, and use of water resources in interstate rivers and
river valleys may be decided by Parliament. The President has the authority to call a meeting of the inter-state
council to discuss issues of mutual interest to the centre and the states.

The federal government's public actions, documents, and judicial procedures and each state must be given complete
faith and credit by all of India. Parliament has the power to appoint the relevant agencies to carry out the
constitutional duties relating to interstate trade, commerce, and intercourse.

Legislative Relations Between Centre and State

These are mentioned in articles 245 to 255 in part 11, which deals with legislative relations between centre and
states. Legislative relations are further divided into two parts – Based on the territorial extent and the basis of
Legislative subjects.

Based on the territorial extent – Article 245

 o Laws made by parliament apply to the whole of India and on matters related to extraterritorial legislation.

o Laws made by Parliament are not applicable in the following cases:- In five union territories (Andaman and
Nicobar Islands, Lakshadweep, Dadra and Nagar Haveli Daman, and Diu and Ladakh).

o Only the president can make regulations/ amend or repeal any act of parliament for them.

o Governor can direct that an act of Parliament does not apply to scheduled areas in that state.

o The Governor of Assam may direct that a certain act of Parliament does not apply to a tribal area of the
state; similarly, the president enjoys the same power concerning Tribal areas and Meghalaya Tripura and
Mizoram.

o The State's laws apply to its own state only or territorial extension.

Know more about the Schedules Of the Indian Constitution here.

Based on Legislative subjects

There are 3 kind of lists provided in the seventh schedule in the constitution:

o The union list includes approximately 98 subjects. Examples – Defence, banking, atomic energy etc. Only
Parliament can make laws on these subjects.

o The state list includes approximately 61 subjects. Examples – Politics, fisheries, and police. Only the state
legislature has the power to make laws on these subjects.

o The concurrent list includes approximately 52 subjects. Example – population control and civil procedure.
Both Parliament and the state can make laws on these subjects. In cases of disputes, the laws made by the
Parliament prevails.

Residual subjects

o Article 248 – Those subjects not included in any of the three lists are called residual subjects, and Parliament
has the power to legislate on these subjects.

o Article 200 – Governor can reserve a bill for the president's assent.

o Article 201 – President can give assent to or disapprove the bill reserved by the governor.

The Centre can make laws on a state list under 5 conditions.

o Article 249 – If Rajya Sabha passes a resolution by, 2/3rd of the members present and voting.

o Article 250 – If National Emergency prevails (a result of 352 articles).

o Article 252 – If two or more States request Parliament to make laws on subjects of state list.

o Article 253 – To fulfill the terms of international agreement or treaty.

o Article 356 – If president rule prevails in any state.

Centre’s Control Over State Legislation

The Constitution authorises the federal government to exert the following influence over state legislative affairs:

o The governor may reserve particular state laws passed by the legislature for presidential consideration. The
president has complete authority over them.

o Only with the President's prior approval may bills on certain topics included in the state list be introduced in
the state legislature. Interstate commerce and trade, for instance.
 o In a financial emergency, the President may request that a state set aside money bills and other financial
bills for his consideration.

o According to the Indian Constitution, the central government may, with few exceptions, take control of the
state legislatures' laws and the Parliament's authority over the states to enact legislation relating to state
affairs.

Parliamentary Legislation in the State Field

The following five exceptional situations allow Parliament to pass laws on any subject covered by the state list:

o Approval of Resolution by Rajya Sabha: When two-thirds of the members present and vote support a
resolution in Rajya Sabha.

o It gives parliament the power to pass legislation on a state list issue that is best for the country. One
year is the duration of such a resolution.

o This resolution can be extended several times, but only for a year.

o Six months after its passage, the resolution's enacted laws are no longer in effect.

o In a conflict between state and union law, the latter takes precedence.

o Yet, legislation on the same subject may be passed by a state.

o Enforcement of Declaration of National Emergency: The Parliament may make laws on any subject covered
by the state list when a proclamation of a national emergency is in effect.

o The laws passed under this are only in effect for a short time, which is six months.

o The issue may also be addressed by state law, but union law will prevail in the event of a conflict.

o Parliamentary Request by State: Parliament is given the authority to act when a state requests that
Parliament take action on a number of topics by passing a resolution to that effect.

o After this resolution is approved, the state loses all rights there.

o The parliament can pass laws on any topic included in the state list for implementing international
treaties, accords, and conventions to put international agreements into effect.

o Imposition of President's Rule: When President's Rule is implemented, the legislature of a state gains the
authority to pass legislation relating to any issue on the State List.

Dispute Between Centre and State

In India, numerous rivers flow across state borders, leading to disputes over their regulation and development. These
disputes concern water utilization, control, and distribution from inter-state rivers for purposes like irrigation and
power generation. In the Indian Constitution, water-related issues within a single state fall under the State List, while
matters related to inter-state river waters are placed in the Union List.

Recognizing the persistent nature of these river water disputes, the framers of the Constitution exclusively vested
the authority to address them in Parliament. As a result, Parliament has the authority to enact laws for resolving
disputes or complaints regarding the use, distribution, or control of such waters. In 1956, Parliament enacted the
Inter-State Water Disputes Act, establishing tribunals responsible for adjudicating water disputes referred to them.

Punchhi Commission Recommendations

The commission gave recommendations for Centre-state relations, which include the following-

o There should be a broad agreement between the centre and state on concurrent list laws.

o The centre should follow the principle of a subsidiary.

 o The selection of governors should be based on their apolitical personality.

o The tenure for the Governor should be fixed for 5 years.

o The impeachment process for the president should be extended to the Governor.

o The Governor should not be chancellor of the university.

o There should be equal seats for all states in the Rajya Sabha.

o The zonal council should meet at least twice a year.

o All India services for health education and Judiciary should be created.

Early Phase of Centre-State Relations Trends (1950-67)

o This phase was dominated by the Centre, with the Party system serving as the most important intervening
factor in the functioning of a federal political system.

o Thanks to Nehru's charismatic leadership, the Congress party controlled the center and the states during this
time.

o As an internal matter, disagreements in centre state relations were resolved at the leadership level.

o Established by executive resolutions, the Planning Commission and the National Development Council (NDC)
were the Centre’s state supremacy vehicles.

o The Planning Commission managed state-run social services such as education, medicine, health,
agriculture, collaboration, social welfare, and industrial housing.

o The first phase of Indian Federalism was marked by central domination over the states, which even
relinquished some of their powers to the center.

o The States Reorganization Act established the Zonal Councils as advising institutions to improve cooperative
federalism in establishing standard policies in socioeconomic concerns. They were, however, formed within
the framework of a central dominance system over the states

Centre-state Relations: Financial

Introduction
India follows a federal structure where the powers are shared between both the centre and the states. Though however, the distribution of these
powers are not equal, and we often find states raising constant concerns about their extreme dependence on the Union Government for all the
matters, thus limiting their powers and autonomy. Hence, it is also said that India follows a quasi-federal structure where the central government
enjoys more powers over the states.

Similarly in the financial field too, the Union Government is more powerful than the states and though there have been various reforms in fiscal
federalism from time to time still there exists a wide variety of issues that needs to be addressed. As in the present situation also the states have to
rely heavily on the centre for financial resources.

Background

Article 246 – Subject Matter of Union and States to make laws on Taxation

Article 246 of The Constitution of India, 1949 provides a list of subjects giving power to the different levels of government to make laws on them.
Essentially speaking there are three kinds of lists mentioned under Article 246 that are as follows:

Union list

The Union Government has the authority to make laws relating to the subject matter given under the list I, called the Union list. It includes taxes like
Corporation Tax, Customs and Excise duties and taxes on income other than agricultural income, etc.

State List
The State Government is vested with the power to frame laws on the subjects mentioned under list II, called the state list. It includes taxes on
vehicles, liquors, land revenue, entertainment, luxuries, stamp duties and sale or purchase of goods, etc.

Concurrent List

While there is another list also known as the Concurrent List, which gives power to both the centre as well as state government to make laws with
regards to the subjects provided by the list III. List III does not include any major tax as such. This helps in avoiding the competitive exploitation of the
same source by both the authorities and the overlapping of tax-jurisdictions under the Indian Constitution. Further, in the case of conflict, the central
government decision will prevail over the State government decision.

Distribution of powers – Levying and collection of taxes

Article 268 to 281 of the Indian Constitution has made elaborate provisions that provide directions to the centre relating to the distribution of financial
resources amongst the states. It lays down principles for the centre and states to work in coordination for levying and collection of taxes through
systematic arrangements.

The provisions, for the time being, can be summarised as follows but will be explained in detail further. It includes:

1. Taxes levied by the Union but collected and kept by the States (Article 268).

2. Taxes levied and collected by the Union but assigned to the States (Article 269).

3. Taxes levied and distributed between the Union and the States (Article 270).

4. Grant-in-aid from the Centre to the States (Article 273, Article 275 and Article 282).

5. Sharing of proceeds from other taxes.

In giving recommendations with regards to the distribution of funds between the centre and state, the Finance commission mentioned under Article
280 plays a very important role.

GST Regime – 101st Amendment

The 101st Amendment in the constitution and the introduction of GST in the Indian Economy has significantly changed the landscape of financial
relations between the centre and states. Therefore, it is extremely important to have a basic knowledge of what GST is, its application and its different
forms.

Position before GST

Before the introduction of GST, there were multiple taxes imposed by the centre and states separately and the distribution of which was confusing and
non-uniform. It included Service Tax, Central Excise, Customs duty and State VAT etc. But after the GST, the principle of one nation one tax was
adopted.

Position before GST

GST is categorized into CGST, SGST or IGST depending on whether the transaction is Intrastate or Interstate supplies. Let’s understand what does this
means:

Inter-state and Intra-state Supplies

i) Intra-State supply of goods or services: In these kinds of transactions, the location of the supplier and the place of supply are in the same state.

ii) Inter-State Supply of Goods and Services: As per the Section 7 of The Integrated Goods, and Services Tax Act 2017 it can be understood that “Inter-
state” trade or commerce basically means:

 when the supplier is located in some other state or union territory and the place of the supply is in another state/UT, or

 when the supply of goods or services is made to or by a Special economic zone (SEZ) unit.

Central Goods and Services Tax (CGST)

1. CGST is a tax imposed on Intra-state supplies of goods and services and is governed by the CGST Act. Along with this SGST/UTGST will also
be levied on the same transaction and shall be governed by the SGST/UTGST Act.

2. It implies that in the case of Intra-state supplies of goods and services both CGST and SGST are combined which are collected
simultaneously; where CGST goes to the centre and SGST goes to the state.

3. The proportion of SGST and CGST is equal.

However, it must be noted that any tax levied on Intra-State supplies of goods and/or services by the centre and state shall not exceed 14% each.

State Goods and Services Tax (SGST)

1. The SGST is a tax levied by the state on the Intra State supplies of goods and/or services by the State Government.
2. It is governed by the SGST Act.

3. As already mentioned above it is levied and collected simultaneously with the CGST.

4. In the case of Union territories, it is called UGST and governed by the UGST Act.

Integrated Goods and Services Tax (IGST)

1. IGST or Integrated Goods and Services Tax is a tax levied on all Inter-State supplies of goods and/or services.

2. It is governed by the IGST Act.

3. IGST applies on any supply of goods and/or services in case of both import into India and export from India. Though the exports will be zero-
rated.

4. Tax obtained under IGST is shared between centre and states as per Article 269A.

The biggest achievement of GST is that it introduced a single uniform tax system with dual tax features where the revenue is shared between both
centre and state

The GST council as mentioned under Article 279 A, shall make decisions in relation to the GST rate, inter supply transactions and other matters related
to GST etc.

Article 265- Taxes not to be imposed save by authority of law

Explanation

According to Article 265 of the Constitution of India, the union and state cannot levy or collect any tax except authorised by law.

This basically means that the power of the centre or state government to levy and collect tax is not absolute power; as Article 265 of the Constitution
of India imposes certain general and specific limitations on it.

These restrictions can be easily understood after defining the scope of the expressions used in this section.

Scope

i) Law: The expression “law” used in this section basically refers to the statute law i.e. the act of the legislature. It essentially means that there must
be an existence of expressive legislative provision for the imposition of a tax.

Therefore, the important thing to note here is that a tax cannot be levied merely upon the orders of the executive. As it will not fall within the meaning
of this expression. Further, it can also be stated that the passing of a mere resolution by the house will also not be sufficient in the present case. So in
order to obtain any tax under the law, the Article requires the legislature to enact a law.

ii) Levy and collection: The use of the expression ‘levy’ and ‘collection’ mentioned under this Article is not only limited that the imposition of a tax
must be authorised by the law but rather it is comprehensive and wide enough to include that even the collection of the tax must be sanctioned by
the law. Therefore, it basically means that every stage in this entire process must comply with the requirement.

Moreover, a taxing statute must also not be in violation of Article 13 of the Indian constitution i,e. it should not lead to any infringement of
fundamental rights enshrined in the constitution. It should not transgress the equal protection clause of Article 14, reasonable restrictions clause
of Article 19 or the freedom of trade and commerce guaranteed under Article 301 of the Indian constitution.

Case law

In the case of Pratibha R.C.C. Spun, pipe and cement products V/s State of Karnataka, the imposition of a certain tax was rejected in the light of Article
265 of the Indian Constitution. In the instant case, a tax was charged in the pretext of a fee. Since there was no legislative enactment behind the
same, the imposition of the tax was considered illegal.

So, to summarise it can be stated that merely an executive order is not sufficient for the levying and collection of a tax and it is mandatory that there
must be legislative enactment behind the same. Additionally, apart from the imposition of the tax, even the recovery of the same must also be
authorised by the legislature through a statue or act.

Article 266- Consolidated Funds and public accounts of India and of the States

Article 266 of The Constitution of India focuses on the “Consolidated Funds and public accounts of India and of the States”. It lays down the definition
of consolidated funds and public accounts.

Consolidated Funds

As per the clause (1) of Article 166, Consolidate funds is a fund consisting of all the:

1. The revenue received by the Government of India.

2. Loans raised by the Government through issuing of treasury bills, advances, recovery of loans etc.
Exception: It excludes the items of Public funds mentioned in Article 266 and items of Contingency funds contemplated under Article 267 of the Indian
constitution. It also does not include certain other provisions of Chapter XII of the constitution of India, which deal with the assignment of the whole or
part of the net proceeds of some specific taxes and duties to States.

Explanation: Essentially speaking it is the Consolidated Fund mentioned under Article 266(1) which is generally called as the budget.

1. It includes all the revenues received by the Government, receipts of interests and repayment of the loans given by the Government, and all
the advances or new loans raised by the Government.

2. All the expenditures of the Government are met through the Consolidated Fund except in cases of unforeseen circumstances.

3. Further, no amount of money can be taken out of consolidated funds by the Government without the authorisation from the parliament.

Consolidated funds in a state

Similar to the consolidated funds in India there are consolidated funds in a state as well. It includes all the revenue received by the Government of a
State, all loans, advances or money received by the Government in repayment of loans etc. Further, all the above exceptions are equally applicable
here also.

Taking out money from Consolidated fund

As per clause (3) of Article 266, the money out of the Consolidated Fund of India or the Consolidated Fund of a State can only be appropriated upon
satisfaction of the following conditions:

1. It must be in accordance with the law.

2. It must have been used for the purpose intended.

3. It should have been appropriated in accordance with the manner provided in the constitution.

Public funds

As per sub-clause (2) of Article 266, public funds shall be constituted of all the other public revenue obtained by the Government of India or the
Government of State, or on the behalf of the Government. Such money received as the case may be either included in the public account of India or in
the public account of the state.

Explanation:

It basically includes certain specific transactions, such as small saving collections, provident funds, etc. In the case of public funds, the Government is
performing the duty similar to a banker as the funds kept in the Public Account does not belong to the Government, and the Government will have to
pay back this money in future to the persons and authorities who have deposited it. Therefore, there is no requirement of obtaining any authorisation
from the parliament before withdrawing money from the public account.

Article 267- Contingency Fund

Contingency Fund is defined under Article 267 of the Constitution of India,1949. Provisions under these Articles are:

Contingency Fund of India

As per this article, the Parliament by the authority of law may constitute a contingent for the purpose of meeting urgent or unforeseen circumstances
fund titled as the ”Contingency Fund of India”.

Nature of the fund: The fund is in a form of imprest and the Parliament may make law regarding the sum which has to be deposited from time to
time in the fund.

Approval: The fund is under the disposal of the President of India and it does not require any prior sanction or approval from the Parliament. Though
afterwards, the expenditure needs to be authorised by the Parliament under Article 115 or Article 116.

Further, with the approval of the parliament, the Government has to replenish the contingency fund by drawing out an equal proportion of sum from
the consolidated fund.

Contingency Fund of the State

Similarly, the legislature of a state may also establish a “Contingency Fund of the State” for the same objective i.e. urgent or unforeseen
circumstances.

Nature of the fund: The fund is in a form of imprest and the State legislatures may make law regarding the sum which has to be deposited from
time to time in the fund.

Approval: The fund is under the disposal of the Governor of the State and it does not require any prior sanction or approval from the State
Legislature. Though afterwards, the expenditure needs to be authorised by the Legislature of the State under Article 205 or Article 206 of the
Constitution of India.

Further, with the approval of the State Legislature, the Governor has to replenish the contingency fund by drawing out an equal proportion of sum
from the consolidated fund.
Article 268- Duties levied by the Union but collected and appropriated by the State

Explanation

Article 268 refers to stamp duties levied by the Union but collected and appropriated by the States. It includes stamp duties on bills of exchange,
cheques and promissory notes as levied by the Government of India.

These taxes are not included in the consolidated fund of India and appropriated by the same state in which it was levied thus do not contribute to the
Consolidated Fund of India, While in the case of Union territories the fund shall be appropriated to the Government of India.

Further, as per the article, all the decisions regarding levying and appropriation of these duties rest with the central government as it forms a part of
the union list.

Issues

The Indian States have been repeatedly raising their concerns regarding that the centre is not optimally allowing the state to exploit the taxation
resources mentioned under Article 268 and Article 269. Especially with regard to letters of credit, bills of lading, and the policies of general insurance,
which results in limiting the tax resources of the states and their further development.

Suggestions

Experts have been suggesting that the scope to raise more resources under Article 268 and 269 must be freshly examined. As it was last reviewed by
the VIII Financial Commission in 1984. Thus, it has become important to define the scope in order to meet the present requirement.

Amendment

With the 88th Amendment in the constitution, a new provision 268 A was inserted in this article which brought service tax within its ambit. But it was
again excluded by the 101st Amendment in the Constitution and with the introduction of GST. Further, it also omitted the duties of excise on medical
and toilet preparation, which were earlier included in this article but now amalgamated under GST.

Summary

To summarise it can be said that following are some key elements of Article 268:

1. It imposes a certain types of stamp duties.

2. It is levied by the centre but collected and appropriated by the States.

3. It forms a part of the Union list and does not form the part of the consolidated fund of India.

4. The scope of the revenue obtained under this Article is limited which has been further reduced by the 101st Amendment.

Article 269 Taxes levied and collected by the Union but assigned to the States

Subclause (1) of Article 269

Article 269(1) includes all the taxes on the “sale or purchase of goods“ and “taxes on the consignment of goods” except those included in Article 269
A. These taxes are assigned to States as provided by the law but are collected and levied by the Government of India.

Explanation

1) The expression “taxes on the sale or purchase of goods” does not imply on all kinds of trade but essentially refers to the taxes that are levied on
inter-state sale or purchase of all kinds of goods except newspapers.

2) The expression “taxes on the consignment of goods” refers to tax duty levied on the consignment of goods when happening in the course of Inter-
state trade. It includes both the cases even when the consignment is to the person making it or to any other person.

It may include:

1. Succession Duty

2. Central Sales Tax

3. Estate Duty etc

Subclause (2) of Article 269

Article 269(2) lays down that the revenue obtained from such tax is distributed between states (except in case of Union territories where it goes to the
central government), It does not form the part of the consolidated fund of India. The manner of the distribution is to be prescribed by the Parliament.

Subclause (3) of Article 269

Article 269(3) further explains that the parliament has the power to define the scope of what constitutes the sale, purchase or consignment of goods
in the course of inter-State trade or commerce.

To which state the Inter-state tax (IGST) goes?

Further in Inter-state commerce and trade i.e. Central tax collected goes to the consumer state. This can be easily understood with the help of the
following example.

For instance, if there is a jute bag manufactured in West Bengal and it is then exported to Orissa. As the goods involved here are transported from one
state to another. Thus, IGST will be applied. We are also aware that, in IGST both the centre and state have their own share. As in the present case,
West Bengal is the producing state and Orissa is the consuming state thus, the share of IGST will go to Orissa.

Summary

After reading all the clauses as a whole we can conclude that:

1. It is a tax levied on all the Inter-state sale, purchase and consignment of goods ( except on the goods mentioned under Article 269 A and
newspapers.

2. The tax is collected and levied by the Central Government but appropriated by the State Governments.

3. The amount collected from the Inter-state trade is appropriated to the consuming state.

4. The power to lay down laws regarding the Inter-state and commerce and the distribution of share rests with the parliament only.

5. The tax collected under this article does not form the part of the consolidated fund of India.

Article 269 (A) – Position in GST Regime

With the latest 101st Amendment a new article 269 A was inserted which brought some considerable changes.

Subclause (1) of Article 269

Article 269A(1) basically involves the following aspects:

1. Levying and collection of goods and services tax (GST).

2. It applies in the case of inter-State trade or commerce.

3. The tax collected shall be appropriated between the States and the Union.

4. The Parliament has the power to lay down the law regarding the sharing of taxes collected under this article as per the recommendations of
the Goods and Services Tax (GST) Council.

The Parliament, in Section 17 of the Integrated Goods and Services Tax Act, 2017 in the exercise of its powers provided in Article 269A(1) of the
Constitution has provided the manner in which integrated tax collected by the Union under the IGST Act can be apportioned in between the Union and
the States.

Import of goods is a tax on supply

Article 269A(1) is followed by an explanation that in the context of India, all the imports of goods and services in the course of inter-State trade, shall
be deemed to be considered as the part of the supply of goods and services.

Position after GST

This authorises the central government to levy IGST instead of CVD (countervailing duty) on the import transactions after the 101st amendment.

Position before GST

Before the introduction of GST, instead of IGST, CVD was applied in the case of inter-state trade or commerce. This was a specific form of tax that was
imposed by the Government of India for the protection of domestic producers and to mitigate the adverse impact of import subsidies.

Amount collected shall not form a part of Consolidated fund

Article 269A(2) further provides that the amount appropriated to the state by the procedure contemplated under clause (1) will not form a part of the
consolidated fund of India and shall directly be given to states.

Subclause (5) of Article 269(A)- Parliament will make laws on the Inter-state trade and commerce

Article 269A(5) deals with conferring the parliament certain powers to determine the scope or to decide the place of supply, as regards to when the
supply of goods or services will constitute inter-State trade or commerce.

Case laws

Supreme court on Inter-state trade

In the case of State of Andhra Pradesh v. National Thermal Corporation Ltd., 2002, The Supreme Court pronounced that in the purview of Section
3 and Section 6 of Central Sales Tax Act, 1956., movement of goods to some other state, after completion of the transaction within the State will not
amount to inter-state trade or commerce.
Therefore, the court dealt with a very important question in this case; which defined the scope of what will constitute inter-state trade which is
explained as follows:

1) When in the terms of the contract itself expressly or impliedly stipulates the condition regarding the inter-State movement of goods;

2) Further only existence of such term will not be sufficient itself rather there must be some actual movement of goods from one State to another
pursuant to such contract;

3) The goods must be moved from one state to another and the contract of sales must conclude in another state only.

Parliament has sole authority to make laws on Inter-State trade

In the case of Goodyear India Ltd. V. State of Haryana,1989, the question before the court was to decide upon the legitimacy of two sales tax acts
dealing with the consignment of goods. The court stipulated that Section 13AA of the Bombay Sales Tax Act, 1959 and Section 9(1) (b) of the Haryana
General Sales Tax Act, 1973 prescribing rules regarding the tax on consignment goods were beyond the scope of power of respective State
Legislatures. As the power to tax inter-state trade rests only with the Parliament, hence the aforementioned sections were held invalid in the eyes of
law.

Article 270- Taxes levied and distributed between the Union and the States

Article 270 of the Indian Constitution basically deals with the subject of how the taxes are levied and distributed between the Union and the states.

Clause (1) of Article 270

It lays down the procedure of the appropriation for certain taxes i.e. all the taxes except those mentioned under Article 268, 269 and 269A and any
surcharge on taxes and duties mentioned in Article 271 or, any cess levied for a specific purpose, other than these the provision holds true for every
other tax.

1. These taxes are levied and collected by the Union.

2. The tax shall be distributed between the States and the Central Government.

3. It may include taxes such as:

 Excise Duty on Non-GST products

 Income Tax

 Basic Customs Duty etc.

4. The manner for this distribution is provided under Article 270(2).

But before proceeding with understanding the manner of distribution as provided under Article 270(2), Let us first study what changes the 101st
Amendment brought to this Article and what are its implications.

Position after GST

The 101st Amendment inserted two new subclauses Article 270(1A) and Article270(1B) under this article. It basically lays down how the scope of the
tax to be distributed between Centre and State has been modified after the introduction of GST.

Sub-clause 270(1A)

As per this Sub-clause, tax collected by the Central Government under clause (1) of Article 246A of the Indian Constitution will also be distributed
between the centre and the state as per the method provided under Article 270(2).

246A(1): In simpler terms, it can be said that clause (1) Article 246A of the Indian constitution empowers both the Parliament and State Legislature to
make laws with respect to the goods and services tax when the trade is happening within the state i.e. Intra-State.

Hence, this Sub-clause when read along with Article 270(1A), implies that the taxes collected under Article 246A(1) shall also be distributed between
the states and the Union.

Sub-clause 270(1B)

According to Sub-clause 270(1B), the following taxes collected by the Central government will also be distributed between Centre and States.

1. The amount apportioned to the Central government in IGST shall also be distributed to the states i.e. the central portion in IGST. It is the tax
collected by the Central Government under clause (1) of Article 269.

2. Taxes collected under IGST which has been used for payment of CGST.

Clause (2) of Article 270

This clause lays down that the central tax obtained by the government as mentioned in clause (1) shall be distributed between the states as per the
time and manner provided under clause (3) and such share will not form the part of the consolidated fund of India.
Clause (3) of Article 270

According to Article 270(3), all central taxes formed in one central pool shall be distributed in the manner prescribed by the President of India as per
the recommendations of the Finance Commission. For the operational period of 2015-2020, the share of the states in the net proceeds of the Union tax
revenue was 42%.

Centrally administered Union territories

In the case of T.M. Kanniyan v. Income Tax Officer, Pondicherry,1967, the Supreme Court held that Income tax as per the application of Article 270
forms a part of the consolidated fund of India. Further, the court opined that it is not necessary to distribute income tax to Union territories which are
centrally administered by the President.

The court also stipulated that the purpose behind Article 270 is to ensure equitable distribution of the financial resources between the Centre and the
State.

Article 271 – Surcharge on certain duties and taxes for purposes of the Union

Article 271 has the following key elements:

1. Parliament has the power to increase any duty or tax anytime by levying a surcharge except in the case of GST mentioned under Article
246A.

2. All the proceeds obtained from the surcharges will be part of the consolidated fund of India.

3. All the amount from such an increase in tax shall be retained by the parliament and it is not shared amongst the states.

4. The Article has its basis to Section 137 and Section 136(1) of the Government of India Act, 1935.

5. Further, no authority has the power to prevent the Parliament from imposing a surcharge.

In the case of Ved Vyas Chawla vs The Income Tax Officer,1964 Allahabad High Court while deciding upon a writ petition questioned the imposition of
an additional surcharge being violative of Article, the court observed as follows:

1. The court held that the word “at any time” used in the article is very significant. This empowers the government to levy a surcharge from
time to time. That is if the parliament had imposed a surcharge in one shape does not prevent it to modify or impose the surcharge in another form in
order to meet the changing needs.

2. The parliament can even levy a surcharge only on a particular class as well and not overall public in general. But it is essential the particular
class must have some real and substantial difference from the rest of the others. Further, it is also necessary that the act of imposition of the
additional surcharge must have a reasonable nexus with the objects it sought to achieve.

Article 273 – Grants in lieu of export duty on jute and jute products

According to Article 273, the Government of India before independence provided the provision regarding the sharing of net proceeds of the jute export
duty with the jute growing provinces. But under the constitution, the states are not entitled to obtain any apportion of such duty.

The Provision specifies that for a period of 10 years from the commencement of the Constitution, the jute growing states of West Bengal, Bihar, Orissa
and Assam will receive grants-in-aid from the Union from the share of the jute export duty. But as this provision was applicable only up to 10 years
after the commencement of the constitution, so now this Article does not hold any relevance.

Article 274- Prior recommendation of President required to Bills affecting taxation in which States are interested

As per this article, any bill or amendment on the following listed subject matters cannot be moved or introduced in either house of the Parliament
before a prior sanction from the President which include bills/amendments dealing with:

1. The imposition or varying of any tax within which the States are interested; or

2. It modifies or changes the meaning of the expression “Agricultural Income” as laid down in the Indian Income-Tax Act; or

3. It lays down, modifies or amends any principle by which money is distributed to the States; or

4. It levies a surcharge on the state taxes for the purpose of the Union.

The clause(2) under Article 274 provides the definition of the term “ tax or duty in which states are interested” which can split into two-parts:

1. any tax or duty the whole or part of the net proceeds of which are assigned to any State; or

2. Net proceeds of any tax or duty that are actually part of the consolidated fund of India but for the time being, assigned to the States.

Grants from the Union to certain States

Apart from the distribution of taxes between the Centre and the States, there are certain articles in the Constitution which provide the scope for
Grants-in-aid.

Under Article 275 and Article 282, the Parliament may make grants-in-aid from the Consolidated Fund of India to such States as are in need of
assistance, particularly for the promotion of the welfare of tribal areas, including a special grant to Assam.
Types of Grants

Essentially speaking there are two major types of grants that are Statutory grants and Discretionary grants.

1. Statutory grants are provided under Article 275 of the Constitution of India.

2. While discretionary grants are provided under Article 282 of the Constitution of India.

Article 275 – Statutory grants

These grants are given by the Parliament to the specific states who are in need of assistance.

1. Under this, different amounts of grants are fixed for different states.

2. The amount is given out of the consolidated fund of India.

3. There are two provisos to clause (1) dealing with the granting of aid to the states for any developmental scheme approved by the
government of India for the welfare of scheduled areas and scheduled tribes, with a special focus to Assam.

According to clause (2) of Article 275, any order made by the Parliament regarding the grants-in-aid as provided under clause (1) shall need a prior
recommendation of the Finance Commission.

Further, it also lays down that the Finance Commission has the power to make recommendations other than those which are mentioned in provisos to
clause (1).

Article 282- Discretionary Grants

As per Article 282, the Centre upon its own discretion can grant aid to certain States for the public purpose. These grants are not compulsory in
nature. The centre used to make these grants on the recommendations of the planning commission. Further, during the planning commission era, the
sum under discretionary grants were even bigger than the statutory grants.

Article 276- Taxes on professions, trades, callings and employments

Article 276 empowers a state or other local authority to impose taxes on professions and trades. But the total amount payable under any such tax
shall not exceed two thousand and five hundred rupees per annum. Earlier this limit was up to two fifty rupees only and was raised after the
recommendations of the Sarkaria Committee in 1988.

Tax levied if exceeded the permissible limit

In the case of Commissioner, Quilon vs M/S. Harrisons & Crosfield Ltd,1964, the Kerala Government imposed Kerala Profession Tax, 1958 which was
held ultra vires by the Supreme Court of India. As the Kerala legislature was incompetent to impose a tax exceeding the permissible limit. Thus, being
violative of Article 276 was held unconstitutional accordingly.

The overlapping situation with Union List

In the Case of B.M. Lakhani v. Municipal Committee,1970, two important observations were made by the Supreme Court that are as follows:

1. The suit for refund of money paid in excess than the amount prescribed under Article 276 is maintainable in law.

2. Though there is a limitation or cap on the amount of tax to be levied but no such bar exists on the exercise of this power by the state or
local bodies. Further despite the fact that the subject of income tax is mentioned in the Union list. But the Constitution allows such overlapping under
Article 276.

Article 277 – Saving of Pre-Constitutional laws

According to Article 277, if any taxes, duties, cesses or fees which were lawfully levied by the Government of any state, municipality, or local bodies
before the commencement of the Constitution shall be continued even after the commencement. It will not be affected by the fact that the same
subject is now a part of the Union list. Though however, it will be continued only till the Parliament does not make any law to the contrary.

Object: In the words of renowned Indian Jurist, Durga Das Basu, it can be said that the object of this article is to ensure that there will be no
dislocation or disturbance in the taxes or finances of local government and authorities by reason of the commencement of such constitutional changes
so, to minimise the chances of a conflict.

Scope: The scope of this article is very limited and cannot be applied in cases where there has been no shift in the distribution of taxation powers
between the State and the Union under the Constitution.

One important thing to take into consideration here is that Article 277 is a specific provision concerning the validity of pre-constitutional laws
restricted to taxes, duties, fees or cesses. While Article 372 of the constitution is for all the pre-constitutional valid laws in general.

No alteration or increase in the pre-constitution taxes, duties or fees

In the instant case of The Town Municipal Committee vs Ramchandra Vasudeo Chimote, 1964, the Municipality of Amravati used to impose a terminal
tax on goods, except in case of gold and silver under a particular law passed before the constitution.
However, after the constitution of India came into force this power was given to the Parliament under Entry 89 of list 1. But it happened that the
Municipality issued an amending notification after the commencement of the constitution and also includes gold and silver within the ambit of
terminal tax.

The Supreme court pronounced that, the action of the municipality was violative of Article 277 as the municipality was incompetent to increase or
alter the incidence of the pre-constitutional taxes. Thus, the action of the Municipality was held illegal by the court.

Pre- constitutional taxes or fees after the Parliament makes a law to the contrary

In the case of Hyderabad Chemical and Pharmaceutical Works Ltd. V. State of Andhra Pradesh,1964, the appellants had a pharmaceutical company
where they manufactured medicines by using alcohol. The company was required to pay certain fees to the State government as per the rules laid
under the Hyderabad Akabri Act.

Thereafter, the Parliament passed the Medicinal and Toilet Preparations Act, 1955 which exempted them from paying such fees. The appellant thus
challenged the imposition of the fees and contended that no such tax can be levied as per Article 277 and by the virtue of entry 84 of list 1.

The Supreme court pronounced that Hyderabad Act must be deemed to have been repealed after the passing of the law by the Parliament. Further in
the judgement the court also distinguished between the definition of tax and fees.

A tax is a sum levied by the government for the public purpose without any specific reference or purpose, that the funds obtained under it will be
utilised by the state for what kind of services. Whereas the fee is an amount imposed by the State in respect of specific services performed for the
benefit of the individual In simpler words, it can be understood that a fee is the payment made for some special benefits while tax is paid for a
common benefit conferred by the Government on all tax-payers.

Article 279- Calculation of net proceeds

Article 279 basically defines the net proceeds of a tax. As per clause (1) of this article, all the earnings from the taxes excluding the cost of the
collection will constitute the net proceeds of India.

Further, it provides that the net proceeds of a tax or duty, in whole or in part or of any area will be certified by the Comptroller and the Auditor General
of India and the decision of the CAG shall be final subject to conditions mentioned under clause (2) of the Article.

Article 279 A- GST Council

Article 279A empowers the president of India to constitute a Council named Goods and Services Tax Council (GST Council) within 60 days after the
commencement of the 101st Constitution Amendment Act, 2016.

Objective

It shall seek to ensure a uniform system of GST to avoid any conflict or confusion, and the development of a harmonized national market for goods
and services.

Composition of GST Council

The members of the council will be as follows:

1. The Union Finance Minister of India will serve as the chairperson of this council.

2. The respective states will nominate the State Finance Ministers/ or any other Minister as the member of the council.

3. The Union Minister of State in charge of revenue or finance will also be a member of this council.

4. The representatives of the states shall choose amongst themselves one “Vice-president”.

Quorum and powers

The council shall meet from which one half of its member will constitute a quorum, which will have the power to make decisions on the following listed
matters:

1. Threshold exemption limit i,e. the turnover below which goods and services will be exempted from GST.

2. Rate of GST to be levied, and special provisions with respect to the states of Arunachal Pradesh, Jammu and Kashmir, Assam, Meghalaya,
Manipur, Nagaland, Mizoram, Sikkim, Tripura, Himachal Pradesh and Uttarakhand, categorised as special-category states.

3. Laws on the model of GST, rules for determining Inter-state supply transactions and determining the place of supply or any other matter.

Further, the GST Council is also empowered to establish a mechanism to adjudicate any dispute between the Centre and the States or between any
States.

Process of Decision-making

The decision shall be taken by at least three- fourth majority out of which:

1. The vote of the Central Government will have one-third of the weightage.

2. The vote of all the State Governments shall account for two-third of weightage.
Process of Ratification

Article 368 of the Indian Constitution has been amended to include Article 279 A within its ambit. It basically implies that to bring any amendments or
modification to Article 279 A, ratification by a two-thirds majority of both the houses and half of the state legislatures will be required.

Article 280-Finance Commission

Article 280 of the Indian Constitution is a very important article as it deals with the Finance Commission of India. It lays down the composition, power
and functions of the finance commission. The idea of the finance committee has been borrowed from the Common-wealth Commission of Australia.

As per Article 280, the President has the power to set up a Finance Commission after a period of every five years. The Finance Commission will assist
the President by making recommendations to him regarding the distribution of net proceeds of taxes to be divided between the centre and the states.

Object

The object of setting up the Finance Commission is to ensure an equitable distribution of funds between the Centre and state so that neither there is
any impairment to the autonomy of States nor to limit the revenue resources of the Centre.

Constitution of Finance Commission

The composition of Finance Commission is mentioned under the Finance Commission Act, 1951 which when read with provisions of Article 280 lays
down that the Commission basically consists of five members out of which there will be one Chairman, as appointed by the President of India. The
criteria for selection of the Chairman is that he/she should have a special understanding of public affairs while the members shall possess the
following qualifications:

1. He/she may be either a judge of a High Court or qualified enough to be appointed so.

2. He/She must have deep knowledge of the finance and accounts of the Government.

3. He/She must be experienced in the field of financial matters and in administration; or

4. He/ She must have a special understanding of economics.

Functions of the Finance Commission

The Finance Commission has the following functions which involve recommending the President regarding:

1. The distribution of the net proceeds between the Union and the States and allocation of such proceeds between different States.

2. To lay down guidelines concerning the grants-in-aid of the revenue of the states out of the Consolidated Fund of India.

3. The suggestions on augmentation of the consolidated Fund of a state to supplement the resources of the Panchayats and Municipalities in
the State.

4. Any other matter in the interest of sound finance.

Powers of the Finance Commission

The Finance Commission has all the powers of a civil court conferring it with a power to summon the witnesses, requiring any person to furnish any
information, production of documents or any point that the Commission regards relevant or useful.

Significance of the Finance Commission

1. Finance Commission has played an imperative role in strengthening and improvising the fiscal federal structure of India. With the setting up
of a new Finance Commission after every five years, and each time the recommendations have been made wider.

2. Further, the Union Government has also adopted a liberal attitude and been receptive towards the recommendations of the Finance
Commission and accepted them at large.

3. The Commission along with giving recommendations on the subjects already mentioned has also suggested and gave its views regarding
various other financial issues such as returns of the public undertakings, debt burdens of the States.

4. It has also settled many complicated financial issues from time to time-related to financial issues between the Union and States. Thus, all in
all, the Finance Commission has been successful in bringing dynamic and progressive changes in the financial relations between the Centre and the
States as per the changing time.

However, there still have been demands from the states that more resources must be allocated to poor states than rich states in order to level inter-
regional financial disparities.

Article 281-Recommendations of the Finance Commission

Article 281 defines the process of how the recommendations of the Finance committee will be introduced in parliament. As per this article, the
President of India shall cause to lay down all the recommendations made by the Finance Commission under the provisions of this Constitution along
with an explanatory memorandum before each House of the Parliament.

Borrowing powers of Centre and State

Article 292 and Article 298 of the constitution confer both the Centre and the States the power to borrow. However, there is a huge disparity between
the scope of powers of the State and Centre. The borrowing powers in the constitution are similar to what was defined in the Government of India Act
1919 and Government of India Act, 1935.

Borrowing power of the Central Government

The Central Government has almost unlimited powers in terms of borrowing. The law imposes no restrictions on the Centre in relation to both national
and international borrowing. It is subject to only some restrictions which are to be fixed by the parliament by the law (Article 292).

Borrowing Power of the State Government

In India, the borrowing powers enjoyed by the state government are much less in comparison to the Central Government. As there are various kinds of
territorial and other limitations on the borrowing powers of the state.

The Indian States are not allowed to raise loans outside India and only have the option to raise loans either from the Government of India or through
public loans. But essentially speaking, it is a very difficult and lengthy process for the State to raise a public loan, as it essentially needs a prior
consent of the Government of India which cannot be issued if a part of a loan advanced to the State by the Union government or any guarantee in
respect to it is still outstanding.

This leaves the States having no independent borrowing powers. It compels the states to comply with numerous conditions resulting in extreme
dependence on the Central Government’s permission to obtain loans from the public, financial institutions or from the Centre itself.

Therefore this inequitable distribution in borrowing power is still an issue and a prime concern which needs to be addressed keeping in mind the
changing dynamics of the financial relations between the States and the Centre.

Moreover, the Centre is also allowed to run up the deficits by borrowing from the Reserve bank of India (RBI). While in case of states they have to
adhere to the overdraft limit laid down by the RBI. Further, the external credits sanctioned for State projects are not entirely allocated to the States on
the same terms and conditions.

Effect of Emergency on Centre-states Financial Relation

During National Emergency

The President in situations of Emergency can order that all grant-in- aids received by the states by the Union shall remain suspended. However, such
suspension is only temporary in nature and cannot go beyond the expiration of the financial year in which the Proclamation of Emergency ceases to
operate.

During Financial Emergency

The Centre-States financial relations changes considerably in case if Financial Emergency is imposed as per Article 280 of the Indian Constitution. In
such cases, the Centre becomes so powerful and exercises immense control over the States compelling them to observe certain norms of financial
propriety and other essential safeguards. The Union government can give the following mentioned directions to the States-

1. It includes directions to State Governments regarding the reduction of the salary and allowances of all the employees engaged in service of
the State which even includes judges of the High Courts.

2. In situations of Financial Emergency, the President has the power to make an alteration in the distribution and allocation of taxes from the
Centre to the States and to direct the States to observe principles of Financial propriety as laid down by the Parliament.

3. Further directions can also be issued compelling the states to reserve the consideration of the President on all financial and money bills
even after they have been passed by the State Legislature.

Conclusion
After making a comprehensive study on financial relations between the Centre and State through a detailed discussion over the various ways of
distribution of revenues between the Centre and State, the subject matters mentioned in the three lists, various types of government funds in India,
GST and its implications, the role of finance commission and GST Council, and the borrowing power of the States. We are in a position to draw out the
following conclusion.

Undoubtedly we can say that no state can afford to work without the active financial assistance of the central government. It is also an undeniable fact
that Indian states do enjoy relatively a lower degree of economical independence as the dependence on the Centre is indeed much greater than any
other federations in the world which can also be substantiated by considering the following points:

1. First and foremost, that state does not have power under the constitution to obtain any foreign assistance and any foreign assistance which
is quite massive is channelised through the central government. So any decision regarding allocation of such assistance rests in the hands of the
Union Government.

2. Secondly, there is no provision in the constitution which enables the states to sign any agreement with any international agency or
organisation.

3. Thirdly, the Central Government has the power to bring any subject from the State to the concurrent list thereby depriving the former of
many of its financial resources.

So there are always some chances that the centre Government may do partiality in the distribution of financial resources in order to confer extra
benefits to the political parties of their choice. Therefore, they may use this power for their own political gains.
However, the future seems bright as the Finance Commission has always been very liberal and receptive to the demands of the states and giving
recommendations on the distribution of taxes and other financial concerns like state borrowings and State debts etc. Moreover, the efforts of the
Central Government in bringing GST and establishment of the GST council are appreciable as it brought much more clarity and uniformity in the
taxation. This essentially will lead to an increase in the revenues in the long run.

We can finally conclude by saying that all these loopholes in the federal structure can be easily solved, if both the Centre and State Governments
show a higher degree of cooperation, putting in sincere efforts to work in harmony keeping their political motives aside.