In this article, we will discuss Centre State Relations (Part-9). So, let’s get started.
Financial Relations (Part-3)
(Contd. from Centre State Relations Part-8)…..
Borrowing by the Centre and the States
The Constitution makes the following provisions with regard to the borrowing powers of
the Centre and the states:
The Central government can borrow either within India or outside upon the security of the Consolidated Fund of India or can give guarantees, but both within the limits fixed by the Parliament. So far, no such law has been enacted by the Parliament.
Similarly, a state government can borrow within India (and not abroad) upon the security of the Consolidated Fund of the State or can give guarantees, but both within the limits fixed by the legislature of that state.
The Central government can make loans to any state or give guarantees in respect of loans raised by any state. Any sums required for the purpose of making such loans are to be charged on the Consolidated Fund of India.
A state cannot raise any loan without the consent of the Centre, if there is still outstanding any part of a loan made to the state by the Centre or in respect of which a guarantee has been given by the Centre.
Inter-Governmental Tax Immunities
Like any other federal Constitution, the Indian Constitution also contain the rule of
‘immunity from mutual taxation’ and makes the following provisions in this regard:
Exemption of Central Property from State Taxation
The property of Centre is exempted from all taxes imposed by a state or any authority within a state like municipalities, district boards, panchayats and so on. But, the Parliament is empowered to remove this ban. The word ‘property’ includes lands, buildings. chattels, shares,debts, everything that has a money value, and every kind of property-movable or immovable and tangible or intangible. Further, the property may be used for sovereign (like armed forces) or commercial purposes. The corporations or the companies created by the Central government are not immune from state taxation or local taxation. The reason is that a corporation or a company is a separate legal entity.
Exemption of State Property or Income from Central Taxation
The property and income of a state is exempted from Central taxation. Such income may be derived from sovereign functions or commercial functions. But the Centre can tax the commercial operations of a state if Parliament so provides. However, the Parliament can declare any particular trade or business as incidental to the ordinary functions of the government and it would then not be taxable. Notably, the property and income of local authorities situated within a state are not exempted from the Central taxation. Similarly, the property or income of corporations and companies owned by a state can be taxed by the Centre. The Supreme Court, in an advisory opinion (1963), held that the immunity granted to a state in respect of Central taxation does not extend to the duties of customs or duties of excise. In other words, the Centre can impose customs duty on goods imported or exported by a state, or an excise duty on goods produced or manufactured by a state.
Effects of Emergencies
The Centre-state financial relations in normal times (described above) undergo changes during emergencies. These are as follows:
National Emergency While the proclamation of national emergency ( under Article 352) is in operation, the president can modify the constitutional distribution of revenues between the Centre and the state. This means that the president can either reduce or cancel the transfer of finances (both tax sharing and grants-in-aid) from the Centre to the states. Such modification continues till the end of the. financial year in which the emergency ceases to operate.