In this article, we will discuss Centre State Relations (Part-8). So, let’s get started.
Financial Relations (Part-2)
(Contd. From Centre State Relations Part-7)….
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 Cente makes grants to the states.
“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 plan.
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.
Goods and Services Tax Council
The smooth and efficient administration of the goods and services tax(GST requires a co-operation and co-ordination between the Centre and the States. In order to facilitate this consultation process, the 101st Amendment Act of 2016 provided for the establishment of a Goods and Services Tax Council or the GST Council.
Article 279-A empowered the President to constitute a GST Council by an order. TheCouncil is a joint forum of the Centre and the States. It is required to make recommendations to the Centre and the States on the following matters:
(a) The taxes, cesses and surcharges levied by the Centre, the States and the local bodies that would get merged in GST.
(b) The goods and services that may be subjected to GST or exempted from GST.
(c) Model GST Laws, principles of levy, apportionment of GST levied on supplies in the course of inter-state trade or commerce and the principles that govern the place of supply.
(d) The threshold limit of turnover below which goods and services may be exempted from GST.
(e) The rates including floor rates with bands of GST.
(f) Any special rate or rates for a specified period to raise additional resources during any natural calamity or disaster.
Article 280 provides for a Finance Commission as a quasi-judicial body. It is constituted by the President every fifth year or even earlier. It is required to make recommendations to the President on the following matters:
The distribution of the net proceeds of taxes to be shared between the Centre and the states, and the allocation between the states, the respective shares of such proceeds. The principles which should govern the grants-in-aid to the states by the Centre(i.e., out of the Consolidated Fund of India). The measures needed to augment the Consolidated fund of a state to supplement the resources of the panchayats and the municipalities in the state on the basis of the recommendations made by the State Finance Commission.
Any other matter referred to it by the President in the interests of sound finance. Till 1960, the Commission also suggested the amounts paid to the States of Assam, Bihar, Orissa and West Bengal in lieu of assignment of any share of the net proceeds in each year of export duty on jute and jute products. The Constitution envisages the Finance Commission as the balancing wheel of fiscal federalism in India,
Protection of the States’ Interest
To protect the interest of states in the financial matters, the Constitution lays down that the following bills can be introduced in the Parliament only on the recommendation of the President:
A bill which imposes or varies any tax or duty in which states are interested;
A bill which varies the meaning of the expression ‘agricultural income,’ as defined for the purposes of the enactments relating to Indian income tax;
A bill which affects the principles on which moneys are or may be distributable to states; and
A bill which imposes any surcharge on any specified tax or duty for the purpose of the Centre. The expression “tax or duty in which states are interested” means: (a) a tax or duty the whole or part of the net proceeds whereof are assigned to any state; or (b) a tax or duty by reference to the net proceeds whereof sums are for the time being payable, out of the Consolidated Fund of India to any state. The phrase ‘net proceeds’ means the proceeds of a tax or a duty minus the cost of
collection. The net proceeds of a tax or a duty in any area is to be ascertained and certified by the Comptroller and Auditor-General of India. His certificate is final.