Which of the following statements regarding Article 270 are correct?
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Article 270 governs the sharing of taxes between the Union and States, including proceeds from GST.
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After the 101st Constitutional Amendment, Article 270 includes provisions for distributing revenue from Union taxes and GST.
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The GST Compensation Cess is also shared between the Union and States under Article 270.
- AOption (a)
1 and 3 only
- BOption (b)
1 Only
- COption (c)
1 & 2 only
- DOption (d)
2 & 3 only
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Correct answer
1 & 2 only
Why this answer is correct
The correct answer is 3) 1 & 2 only.
Key Points
- Article 270 of the Indian Constitution governs the sharing of taxes between the Union and the States. After the 101st Constitutional Amendment Act, 2016, it was amended to include provisions for the sharing of revenue from Goods and Services Tax (GST). Hence, statement 1 is correct.
- The 101st Constitutional Amendment added provisions in Article 270 to ensure that the revenue collected through GST is apportioned between the Union and the States based on the recommendations of the Finance Commission. Hence, statement 2 is correct.
- The GST Compensation Cess, however, is not shared between the Union and the States under Article 270. It is governed by the GST (Compensation to States) Act, 2017, which ensures compensation to States for any revenue loss due to the implementation of GST. Hence, statement 3 is incorrect.
- The Finance Commission plays a key role in determining the sharing formula for taxes, including GST, under Article 270.
- It is important to note that the sharing mechanism under Article 270 does not include non-divisible taxes, such as surcharges and cesses, which remain with the Union Government.
Additional Information
- 101st Constitutional Amendment Act, 2016:
- This amendment introduced the Goods and Services Tax (GST) in India, effective from 1st July 2017.
- It subsumed multiple indirect taxes levied by the Centre and the States, such as excise duty, VAT, and service tax, under a single tax regime.
- It led to the addition of Article 246A, empowering both the Parliament and State Legislatures to make laws on GST.
- It also introduced Article 269A, which deals with the apportionment of GST collected on inter-State trade.
- GST Compensation Cess:
- It is levied under the GST (Compensation to States) Act, 2017 to compensate States for revenue losses arising due to GST implementation.
- The compensation cess is levied on specific luxury and sin goods, such as tobacco, aerated drinks, and automobiles.
- The funds collected through the cess are not part of the divisible pool under Article 270 and are kept in a separate compensation fund.
- Finance Commission:
- It is constituted under Article 280 of the Constitution to recommend the distribution of tax revenues between the Centre and the States.
- The Commission takes into account factors such as population, area, fiscal capacity, and governance when recommending the sharing formula.
- The 15th Finance Commission, chaired by N.K. Singh, has been tasked with making recommendations for the period 2021-26.
- Key Features of GST:
- GST is a destination-based tax, meaning it is collected at the point of consumption.
- It is levied at multiple rates, categorized into 5%, 18%, and 40%, depending on the goods or services.
- It aims to create a unified tax structure, reducing cascading effects and improving tax compliance.
Important Points
- Revenue Distribution: Taxes collected under GST are distributed between the Centre and the States in a 50:50 ratio. For inter-State supplies, the tax collected is divided between the Centre and the destination State.
- GST Council: The GST Council, established under Article 279A, is responsible for making recommendations on GST rates, exemptions, and other related matters.
- Impact of GST: GST has simplified the tax structure, enhanced transparency, and contributed to the formalization of the economy. However, challenges such as compliance costs and revenue shortfalls for States persist.