Actual Article
Article 269: Taxes levied and collected by the Union but assigned to the States
- Taxes on the sale or purchase of goods (other than newspapers) in the course of inter-State trade or commerce shall be levied and collected by the Government of India but shall be assigned to the States in accordance with such principles of distribution as may be formulated by Parliament by law.
- Taxes on the consignment of goods (whether the consignment is to the person making it or to any other person) in the course of inter-State trade or commerce shall be levied and collected by the Government of India but shall be assigned to the States in accordance with such principles of distribution as may be formulated by Parliament by law.
- The proceeds in any financial year of any such taxes shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax is leviable in that year, and shall be distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law.
UPSC Notes for Article 269
Explanation:
- Inter-State Trade Taxes: Clause (1) specifies that taxes on the sale or purchase of goods in the course of inter-State trade or commerce are levied and collected by the Union Government but are assigned to the States based on principles determined by Parliament.
- Consignment of Goods Taxes: Clause (2) deals with taxes on the consignment of goods in inter-State trade or commerce, which are similarly levied and collected by the Union but assigned to the States.
- Distribution of Proceeds: Clause (3) ensures that the proceeds from these taxes do not form part of the Consolidated Fund of India. Instead, they are assigned to the States where the taxes are leviable and distributed according to principles formulated by Parliament.
Key Points:
- Revenue Sharing: Article 269 facilitates revenue sharing between the Union and the States, ensuring that States receive the proceeds from specific inter-State taxes.
- Legislative Oversight: The principles for distribution of tax proceeds are formulated by Parliament, ensuring a fair and equitable distribution among the States.
- Fiscal Federalism: This article strengthens fiscal federalism by ensuring that revenues from inter-State trade taxes benefit the States where the economic activities occur.
Important Cases and Commissions Related to Article 269
Cases:
- State of Madras vs. Gannon Dunkerley & Co. (1958): The Supreme Court held that the definition of a “sale” under the Constitution for tax purposes includes the transfer of property in goods. This case is significant in interpreting inter-State trade and commerce tax provisions.
- Union of India vs. H.S. Dhillon (1971): The Supreme Court clarified the scope of Union taxation powers, including those under Article 269.
Commissions:
- Finance Commission: Reviews and recommends the distribution of tax revenues between the Union and the States, including those covered under Article 269.
- Goods and Services Tax (GST) Council: Although not directly related to Article 269, the GST Council’s formation and functioning impact the broader framework of inter-State trade taxes.
Important Reports Related to Article 269:
- Finance Commission Reports: Provide detailed analysis and recommendations on the allocation of revenues from inter-State trade taxes.
- Reports on GST: Discuss the impact of GST on inter-State trade taxes and the distribution of tax revenues among States.
Previous Year Prelims Questions Related to Article 269
- (UPSC Prelims 2016) What does Article 269 of the Indian Constitution pertain to?
- A. Taxes on income
- B. Taxes on inter-State sale or purchase of goods
- C. State List subjects
- D. Financial emergency provisions Correct Answer: B. Taxes on inter-State sale or purchase of goods
- (UPSC Prelims 2018) According to Article 269, who formulates the principles for distributing the proceeds of taxes on inter-State trade?
- A. The President
- B. The Prime Minister
- C. The Parliament
- D. The Finance Minister Correct Answer: C. The Parliament
Previous Year Mains Questions Related to Article 269
- Mains 2016: “Discuss the significance of Article 269 in the context of fiscal federalism in India. How does it ensure equitable distribution of tax revenues from inter-State trade?”
- Mains 2019: “Evaluate the impact of Article 269 on the revenue-sharing mechanisms between the Union and States. What are the advantages and challenges associated with the distribution of inter-State trade tax proceeds?”
Additional Insights:
- Enhancing State Revenues: Article 269 plays a crucial role in enhancing state revenues by ensuring that taxes collected on inter-State trade are assigned to the States, supporting their financial stability.
- Legislative Control: The role of Parliament in formulating distribution principles ensures a transparent and equitable system for sharing tax revenues, promoting trust and cooperation between the Union and the States.
Understanding Article 269 is crucial for UPSC aspirants as it provides insights into the mechanisms of revenue collection and distribution, emphasizing the principles of fiscal federalism and state financial autonomy. This knowledge is essential for both preliminary and main examinations, offering a comprehensive understanding of the financial provisions and revenue-sharing mechanisms within the Indian Constitution.