Taxation — Constitutional Framework Deep Dive
Free study material · concepts, shortcuts & solved questions
Part XII's Financial Provisions, Pre- and Post-GST
Foundational Principle
Article 265: "No tax shall be levied or collected except by authority of law" — the constitutional bedrock of India's tax system, ensuring all taxation flows from validly enacted legislation, not executive fiat.
Pre-GST Tax Distribution Framework (Historical, Still Partially Relevant)
Before the 101st Amendment (2016), tax powers were divided rigidly by the Seventh Schedule's lists:
- Union List taxes: Income tax (except agricultural income), customs duties, corporation tax, excise duty (except on alcohol), service tax (introduced later, 1994).
- State List taxes: Land revenue, agricultural income tax, sales tax/VAT, excise duty on alcohol, stamp duty, entertainment tax, professional tax, taxes on vehicles.
- This rigid division caused significant tax cascading (tax-on-tax effects) since goods crossing state lines faced multiple, uncoordinated layers of central and state taxation — the core problem GST was designed to solve.
Post-GST Framework (101st Amendment, 2016)
- Article 246A: Grants concurrent power to Parliament and state legislatures to legislate on GST — a genuinely novel constitutional arrangement (neither purely Union List nor State List nor traditional Concurrent List, but a specially-created concurrent taxation power specific to GST).
- Article 269A: Governs Integrated GST (IGST) on inter-state trade/commerce — levied and collected by the Union, but apportioned between Union and states per Parliament's law based on GST Council recommendations.
- Article 279A: The GST Council (Chapter 11, Chapter 27) — the joint Centre-state body recommending GST rates/policy.
- GST subsumed: Central excise duty, service tax, additional customs duty (CVD), state VAT/sales tax, entertainment tax (state-level), luxury tax, entry tax, and several other indirect taxes — into a single, unified indirect tax.
- Excluded from GST: Alcohol for human consumption (remains entirely a state taxation subject); petroleum products (crude oil, diesel, petrol, natural gas, ATF) are constitutionally includable in GST but not yet actually brought under it by GST Council decision — remaining under the pre-GST excise/VAT regime for now, a frequently tested "in principle vs in practice" distinction.
Distribution of Tax Revenues (Articles 268–281)
| Article | Provision |
|---|---|
| 268 | Duties levied by Union but collected/appropriated by states (e.g., certain stamp duties) |
| 269 | Taxes levied and collected by Union but assigned to states (e.g., taxes on inter-state sale/purchase, pre-GST) |
| 269A | IGST — levied/collected by Union, apportioned per GST Council recommendation |
| 270 | Taxes levied and distributed between Union and states — the core "divisible pool" provision, covering most Union taxes (as modified by 80th Amendment, 2000, and subsequent amendments to include a broader divisible pool following the Tenth Finance Commission's recommendations) |
| 271 | Surcharges on certain duties/taxes for Union purposes — NOT shared with states (a significant, frequently tested state-grievance point, since surcharges/cesses can grow as a proportion of Union revenue without triggering revenue-sharing obligations) |
| 275 | Grants-in-aid to specified states (statutory grants) |
| 280 | Finance Commission (Chapter 9.3) |
| 282 | Discretionary grants for any public purpose, outside the Article 275 mechanism |
The Cess and Surcharge Controversy
Since cesses and surcharges are NOT part of the "divisible pool" shared with states (unlike regular taxes, most of which flow through Article 270's shared pool per Finance Commission recommendations), a growing reliance on cesses/surcharges by the Union government has been a persistent source of state fiscal grievance — states argue this practice effectively reduces their fair share of overall Union tax revenue, even as the divisible-pool percentage itself (recommended by successive Finance Commissions) has risen over time.
Common Traps
- Article 246A is a SPECIAL, GST-specific concurrent power — distinct from the traditional Concurrent List (List III) mechanism under Article 246/254; GST doesn't neatly fit into any pre-existing Seventh Schedule list, which is precisely why a new Article was needed.
- Petroleum products and alcohol remain outside GST — alcohol permanently (constitutionally excluded), petroleum products only temporarily/administratively (constitutionally includable, but the GST Council hasn't yet brought them in) — a frequently tested "why isn't petrol under GST" distinction.
- Cesses/surcharges are NOT shared with states via the divisible pool — a key, frequently tested fiscal federalism grievance point (Article 271).
- IGST (Article 269A) applies specifically to inter-state transactions; intra-state transactions are governed by CGST (Central GST) + SGST (State GST), collected in parallel by the Union and the concerned state respectively.
Solved Example (UPSC Prelims-Format MCQ)
Q1. Consider the following statements about India's post-GST taxation framework:
- Article 246A grants concurrent power to Parliament and state legislatures for GST legislation.
- Alcohol for human consumption is constitutionally excluded from GST.
- Petroleum products are constitutionally excluded from GST and can never be brought under it.
Which of the statements given above is/are correct? (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
Answer: (a) — Statement 3 is incorrect; petroleum products are constitutionally includable in GST (the GST Council simply hasn't decided to bring them in yet), unlike alcohol, which is permanently excluded.
Practice Set (Exam-Format MCQs)
Q1. Which Article establishes the foundational principle that no tax can be levied except by authority of law? (a) Article 264 (b) Article 265 (c) Article 280 (d) Article 300A Answer: (b)
Q2. Surcharges levied by the Union for its own purposes, under Article 271: (a) Must be shared with states via the divisible pool (b) Are NOT shared with states (c) Are abolished under GST (d) Require GST Council approval Answer: (b)
Q3. IGST on inter-state trade is governed by which Article? (a) Article 246A (b) Article 269A (c) Article 270 (d) Article 279A Answer: (b)
Q4. Which of the following remains permanently, constitutionally excluded from GST? (a) Petroleum crude (b) Natural gas (c) Alcohol for human consumption (d) Aviation turbine fuel Answer: (c)
Q5. The "divisible pool" of Union taxes shared with states is primarily governed by: (a) Article 269 (b) Article 270 (c) Article 271 (d) Article 282 Answer: (b)
Chapter 51 Quick Revision Sheet
- Article 265: No taxation without law.
- Article 246A: Special GST concurrent power (post-101st Amendment).
- Article 269A: IGST (inter-state), Union-collected, GST-Council-apportioned.
- Article 270: The divisible pool (shared taxes).
- Article 271: Surcharges — NOT shared with states (fiscal federalism grievance point).
- GST exclusions: Alcohol (permanent), petroleum products (temporary/administrative, pending GST Council decision).