The distribution of powers is an essential feature of federalism.

A federal constitution establishes the dual polity with the Union at the centre and the States at the periphery,
each endowed with the sovereign powers to be exercised in the field assigned to them respectively by the
constitution.
The state is not subordinate to the centre in its own field; the authority of one is to co-ordinate with the other.
In the Indian federal set-up, the constitution divides powers between centre and states as:
Legislative
Administrative
Financial

A. Legislative Relations (Article 245)

The various legislative dimensions shared between centre and states are mentioned below:

Related to Territorial Powers

Article 245(1): Parliament is competent of make laws for whole or any part of territory of India. Legislature of
State may make laws for whole or any part of State.
Article 245 (2): Laws made by Parliament can have extra-territorial effect (outside of Indian Territory). Laws of
Parliament also govern the Indian Subjects and their property in any part of the world.
For certain UTs like Andaman & Nicobar, Lakshadweep and Dadra & Nagar Haveli, regulations made by the
President have the same force as the Acts of Parliament and such regulations may repeal or amend a law
made by Parliament in relation to such territory.
The application of Acts of Parliament to any scheduled Area may be barred or modified by notifications made
by the Governor.
Governor of Assam may direct that any other Act of Parliament shall not apply to an autonomous district or
tribal region. Similar powers have been vested with President regarding tribal region in the states of
Meghalaya, Tripura and Mizoram.

Related to Legislative Powers

In distributing subject matters between the Centre and States, our constitution makers followed Canadian
scheme. However, they added one more list to it, Concurrent List. (GoI Act 1935 had 3 fold enumerations :(
Federal, Provincial and Concurrent). 3 Lists are: Union List, State List and Concurrent List.
Subjects mentioned in the Union List are of national importance and only Parliament is competent to make
laws on these subjects. For State List, only the States have exclusive power to make laws.
Concurrent List is a “Twilight Zone”, where both the Union and States are competent to make law, without any
conflict. In case of a conflict between the Central law and the State law, the Central law prevails over the state
law.
Residuary Powers (Article 248): Parliament has exclusive power to make laws on the subjects not enumerated in any of
the 3 Lists (Entry 97 of Union List). Such powers include the power of making any law imposing a tax not mentioned in
any of the 3 Lists. Whether a particular subject falls under the residuary power or not is determined by courts.

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 To determine whether a particular enactment falls under one Entry or the other, it is the Pith and Substance of
such enactment and not its legislative level that is taken account of. Pith and Substance here means the true
object of the legislation or statute, and the competence of Legislature, which enacts it.
Colourable Legislation: The motives of the Legislature are, otherwise, irrelevant for determining whether it
has transgressed the constitutional limits of the Legislative power. This principle is based on the maxim that
you cannot do indirectly what you cannot do directly.

Related to Parliament’s Powers to Make Laws in State

Under Article 249, in the national interest, Parliament has the power to make laws w.r.t. any matter included

in the State list, for a temporary period, if Rajya Sabha passes a resolution supported by 2/3rd of the
members present and voting in that respect. The resolution remains in force for one year; it can be renewed
any number of times but not exceeding one year at a time. This provision does not restrict the power of a state
legislature to make laws on the same matter. But, in case of inconsistency between a state law and a
parliamentary law, the latter is to prevail.
Under the Proclamation of Emergency, Article 250 empowers that Parliament to make laws for the whole or
any part of the territory of India w.r.t. all matters in the State list. Such a law however shall cease to effect on
the expiration of 6 months after the proclamation of emergency has ceased to operate. Here also, the power
of a state legislature to make laws on the same matter is not restricted. But, in case of repugnancy between a
state law and a parliamentary law, the latter is to prevail.
Under Article 252, if the Legislatures of two or more States pass a resolution to the effect that it is desirable
to have a Law passed by Parliament on any matters in State List common to these States, Parliament can
make Laws in that respect. Such a law can be amended or repealed only by the Parliament and not by the
legislatures of the concerned states. The effect of passing a resolution under the above provision is that the
Parliament becomes entitled to legislate with respect a matter for which it has no power to make a law. On the
other hand, the state legislature ceases to have the power to make a law with respect to that matter. The
resolution operates as abdication or surrender of the power of the state legislature with respect to that matter
and it is placed entirely in the hands of Parliament which alone can then legislate with respect to it.
Under Article 253, Parliament has power to make any law for the whole or any part of the territory of India for
implementing treaties and international agreements and conventions.
Under Article 256, Parliament is empowered to make laws w.r.t. all matters in the State list when there is
failure of constitutional machinery of the State under Article 356. A law made so by the Parliament continues
to be operative even after the President’s rule. This means that the period for which such a law remains in
force is not co-terminus with the duration of the President’s rule.

Sarkaria Commission’s Opinion on Legislative Relations

The central theme of the criticism levelled before the Commission against the working of Union-State
legislative relations is ‘over-centralization’. Commission opined that:
Regarding Article 246 and 254: If the principles of Union Supremacy are excluded from these articles, it is
not difficult to imagine its deleterious results. There will be every possibility of our two-tier political system
being stultified by interference, strife, legal chaos and confusion caused by a host of conflicting laws.
 Regarding residuary powers: Powers related to taxation should remain with Parliament, while the other
residuary powers should be placed in Concurrent List.
Regarding Union List: Commission feels that the proposed redistribution on powers would require drastic
changes in the basic scheme and framework of the Constitution so dedicatedly designed to protect the
independence and ensure the unity and integrity of the country.
Regarding Concurrent List: Commission observes that the demand for abolition of the Concurrent List
would be a retrograde step. Such abolition would involve a drastic change in the fundamental scheme and
framework of the Constitution.

B. Administrative Relations

During the time of Emergency, Indian constitutional works like a unitary Government. In normal times, there are
constitutional provisions, which ensure the control of the Union over the states. Some of the mechanisms are:
Distribution of Executive Powers-The executive power has been divided between the Centre and the states on the lines
of the distribution of legislative powers, except in few cases. Thus, the executive power of the Centre extends to the
whole of India. Similarly, the executive power of state extends to its territory in respect of matters on which the state
legislature has exclusive power of legislation (i.e., the subjects enumerated in the State List).

In respect of matters on which both the Parliament and the state legislatures have power of legislation (i.e., the
subjects enumerated in the Concurrent List), the executive power rests with the states except when a
Constitutional provision or a parliamentary law specifically confers it on the Centre.

Further Article 257 provides that States must exercise their executive power in such a way so as not to impede or
prejudice the exercise of the executive power of the Union in the State.
Article 256 provides that the executive power of the State shall be so exercised as to ensure compliance with the laws
made by the Parliament and executive power of the Union shall also extend to the giving of such directions to a state as it
may deem essential for the purpose.
Center’s Directions to the States - The Centre is empowered to give directions to the states with regard to the exercise
of their executive power in the following matters:
The construction and maintenance of means of communication (declared to be of national or military importance) by
the state;
The measures to be taken for the protection of the railways within the state;
The provision of adequate facilities for instruction in the mother-tongue at the primary stage of education to children
belonging to linguistic minority groups in the state; and
The drawing up and execution of the specified schemes for the welfare of the Scheduled Tribes in the state.
Constitution prescribes coercive sanction for the enforcement of its directions through Article 356.

Delegation of Union Functions to the States

Under Article 258(1), The President with the consent of the Governor of a state entrust either conditionally or
unconditionally to that Government or to is officers, functions in relation to any matter to which the executive power of
the Union extends.
Under Article 258(2), Parliament is empowered to use State machinery for the enforcement of Union Laws. For such
purpose, it can confer powers or impose duties on State functionaries.
 The Constitution also makes provision for the entrustment of the executive functions of the centre to a state without the
consent of the state. But, in this case the delegation is by the parliament and not by the President.
All India Services are common to both the Union and the States. The officers of these services are appointed and
regulated by the Centre and are placed in various States.
Grants in-aid (Article 275): Parliament has power to make such grants as it may deem necessary to give financial
assistance to any State, which is in need of such assistance (Article 275).
Article 261 provides that full faith and credit shall be given throughout the territory of India to public acts, records and
judicial proceedings of the Union and every State.
Article 261(3) declares that final judgment or orders delivered or passed by civil courts in any part of territory of India
can be executed anywhere in the country.
Article 262: Adjudication of disputes relating to waters of inter-state rivers or river valleys. Article 262(2) provides
that Parliament may by Law provide that neither the SC nor any other court shall exercise jurisdiction in respect of any
such dispute.
Under Article 263, President has power to establish Inter-State Councils and define its duties, organization and
procedure. These councils have duty of inquiring into and advising upon disputes, which arises between the States.
These Councils also investigate and discuss the subjects of common interest between the Union and States or between
two or more states and make recommendations on any such subject for better coordination of policy and action. The
President has so far established Central Council of Health, a central Council of Local Self-Government and a Transport
Development Council.
Parliament has power to constitute an Inter-State Commerce Commission (Article 307) and empower it to execute such
functions as it may deem fit.

Sarkaria Commission’s Opinion on Administrative Relations

In a two-tier system of government, where the administration of Union Law is largely secured through the
machinery of the State, differences are bound to arise in regard to manner of implementation of Union laws.
Article 256 and 257 are essential to ensure harmonious exercise of executive power by the Union and the
States.
Before issuing directions to a State under Articles 256 and 257, the Union should explore the possibilities of
settling points of conflict by all other available means. a direction under these provisions and application of the
sanction under Article 365 in the event of its non-compliance is a measure of last resort.
Federalism is more a functional arrangement for co-operative action, than a static institutional concept. Article
258 provides a tool, by the liberal use of which, co-operative federalism can be substantially realized in the
working of the system. The commission recommends a more extensive and generous use of this Article.

C. Financial Relations

Articles 268 to 293 in Part XII of the Constitution deal with Centre–state financial relations.
Finance Commission (Article 280) recommends to the President on the distribution of net proceeds of taxes between the
centre and states.
Constitution divides the taxing powers between the Central and states in following way:
Parliament has an exclusive power to levy taxes enumerated in the Union List.
 State Legislature has exclusive power to levy the taxes enumerated in the state list. Both the Parliament and the state
legislature can levy the taxes enumerated in the Concurrent List.
The residuary power of taxation (that is, the power to impose the taxes not enumerated in any of the three lists) is
vested in the Parliament. Under this provision, the parliament has imposed gift tax, wealth tax and expenditure tax.

Parliament can provide for grants-in-aid to states by the Centre. Such sums are charged on the Consolidated Fund of
India (Article 275).
The Union can make public purpose grants to states and to any institution within the states (Article 282).
Grants-in-Aid to the States - Besides sharing of taxes between the Centre and the states, the Constitution provides for
grants-in-aid to the states from the Central resources. There are two types of grants-in-aid, viz, statutory grants and
discretionary grants:
Statutory Grants - Article 275 empowers the Parliament to make grants to the states which are in need of financial
assistance and not to every state. These sums are charged on the Consolidate Fund of India every year.

Apart from this general provision, the Constitution also provides for specific for specific grants for promoting the welfare
of the scheduled tribes in a state or for raising the level of administration of the scheduled areas in a state including the
State of Assam.
The statutory grants under Article 275 (both general and specific) are given to the states on the recommendation of the
Finance Commission.
Discretionary Grants - 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 Centre makes grants
to the states.
Other Grants - 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.
Borrowing by the Centre and the States
The centre can grant loans to states and also give guarantee in respect of loans raised by them (Article 293).
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 give 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 outsanding 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.

Parliament can impose restrictions on Inter-state trade and commerce in the public interest (Article 302).
The accounts of the states shall be kept in such from as prescribed by the president on the advice of the Comptroller and
Auditor-General of India (Article 150).

Inter-Governmental Tax Immunities

 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.

Goods and Services tax

GST (101st amendment of the constitution) aims to make India a common market with common tax rates and
procedures and remove the economic barriers thus paving the way for an integrated economy at the national level. By
subsuming most of the Central and State taxes into a single tax and by allowing a set-off of prior-stage taxes for the
transactions across the entire value chain, it would mitigate the ill effects of cascading, improve competitiveness and
improve liquidity of the businesses. GST is a destination based tax. It follows a multi-stage collection mechanism. In this,
tax is collected at every stage and the credit of tax paid at the previous stage is available as a set off at the next stage of
transaction. This shifts the tax incidence near to the consumer and benefits the industry through better cash flows and
better working capital management.
The important changes made to the Constitution are:
Article 246 (A) This is a new article inserted in the constitution. It says that (1) Notwithstanding anything contained in
articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, has power to make laws with
respect to goods and services tax imposed by the Union or by such State. (2) Parliament has exclusive power to make
laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course
of inter-State trade or commerce.
Article 269A: Goods and services tax on supplies in the course of inter-State trade or commerce shall be levied and
collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner
as may be provided by Parliament by law on the recommendations of the Goods and Services Tax Council.
—For the purposes of this clause, supply of goods, or of services, or both in the course of import into the territory of
India shall be deemed to be supply of goods, or of services, or both in the course of inter-State trade or commerce.
 Parliament may, by law, formulate the principles for determining the place of supply, and when a supply of goods, or of
services, or both takes place in the course of inter-State trade or commerce.
Article 279-A: This article provides for constitution of a GST council by president within sixty days from this act
coming into force. The GST council will constitute the following members:
Union Finance Minister as chairman of the council
Union Minister of State in charge of Revenue or Finance
One nominated member from each state who is in charge of finance or taxation.

The GST would replace the following taxes currently levied and collected by the Centre:
Central Excise Duty
Duties of Excise (Medicinal and Toilet Preparations)
Additional Duties of Excise (Goods of Special Importance)
Additional Duties of Excise (Textiles and Textile Products)
Additional Duties of Customs (commonly known as CVD)
Special Additional Duty of Customs (SAD)
Service Tax
Central Surcharges and Cesses so far as they relate to supply of goods and services

State taxes that would be subsumed under the GST are:

State VAT
Central Sales Tax
Luxury Tax
Entry Tax (all forms)
Entertainment and Amusement Tax (except when levied by the local bodies)
Taxes on advertisements
Purchase Tax
Taxes on lotteries, betting and gambling
State Surcharges and Cesses so far as they relate to supply of goods and services

The list of exempted goods and services would be common for the Centre and the States.
An Integrated tax (IGST) would be levied and collected by the Centre on inter-State supply of goods and services.
Accounts would be settled periodically between the Centre and the States to ensure that the SGST/UTGST portion of
IGST is transferred to the destination State where the goods or services are eventually consumed.

Zonal Councils

Zonal Councils aim at promoting cooperation & coordination between States, UTs and the Centre.
They discuss &make recommendations regarding common matters.
They are only deliberative and advisory bodies.
These are statutory bodies created by States Reorganization Act of 1956.
The Act divided the country into 5 zones:
Northern Zone
Central Zone
 Eastern Zone
Western Zone
Southern Zone

Each zonal council consist of:

From Centre – Home Minister (acts as a chairman)
From States - CM of all States in Zone + 2 other ministers (Each CM acts as a Vice-Chairman by rotation, holding offi
ce for a period of 1 year at a time)
Administrators of all UTs in the zone
Following can be associated as advisors (without right to vote)
One person nominated by Planning Commission.
Chief Secretary of each state in the zone.
Development Commissioner of each state in the Zone.

North-Eastern Council
In addition to the above Zonal Councils, a North-Eastern Council was created by a separate Act of Parliament—the
North-Eastern Council Act of 1971.
Its members include Assam, Manipur, Mizoram, Arunchal Pradesh, Nagaland, Meghalaya, Tripura and Sikkim. Its
functions are similar to those of the zonal councils, but with few additions.
It has to formulate a unified and coordinated regional plan covering matters of common importance.
It has to review from time to time the measures taken by the member states for the maintenance of security and public
order in the region.

Zonal Councils
Context
Union Minister for Home Affairs, Amit Shah chaired the 29th meeting of the Northern Zonal Council held at
Chandigarh.

What are Zonal councils?

The Zonal Councils are the statutory (and not the constitutional) bodies.They are established by an Act
of the Parliament, that is, States Reorganisation Act of 1956.
The act divided the country into five zones (Northern, Central, Eastern, Western and Southern)and
provided a zonal council for each zone.
North-Eastern Council:
 In addition to the above Zonal Councils, a North-Eastern Council was created by a separate North-Eastern
Council Act of 1971.
Its members include Assam, Manipur, Mizoram, Arunchal Pradesh, Nagaland, Meghalaya, Tripura
and Sikkim.

The factors that have been taken into account during formation of Zonal Councils:

The natural divisions of the country.

The river systems and means of communication.
The cultural and linguistic affinity.
The requirements of economic development, security and law and order.

Members of the Zonal council:

Home minister of Central government.

Chief Ministers of all the States in the zone.
Two other ministers from each state in the zone.
Administrator of each union territory in the zone.
The home minister of Central government is the common chairman of the five zonal councils.
Each chief minister acts as a vice-chairman of the council by rotation, holding office for a period of
one year at a time.
Advisers -One person nominated by the Planning Commission for each of the Zonal Councils, Chief
Secretaries and another officer/Development Commissioner nominated by each of the States included in the
Zone.
Union Ministers are also invited to participate in the meetings of Zonal Councils depending upon necessity.

What makes Zonal Councils different from institutions like the National Development Council, Inter State
Council?

Zonal Councils are regional fora of cooperative endeavour for States linked with each other economically,
politically and culturally.
Being compact high level bodies, specially meant for looking after the interests of respective zones, they are
capable of focusing attention on specific issues taking into account regional factors, while keeping the national
perspective in view.
The Zonal Councils provide an excellent forum where irritants between Centre and States and amongst
States can be resolved through free and frank discussions and consultations.

Objectives of Zonal Councils:

Bringing out national integration.

Arresting the growth of acute State consciousness, regionalism, linguism and particularistic tendencies.
Enabling the Centre and the States to co-operate and exchange ideas and experiences.
 Establishing a climate of co-operation amongst the States for successful and speedy execution of
development projects.

Functions of the Zonal Councils:

Each Zonal Council is an advisory body and may discuss any matter in which some or all of the States
represented in that Council, or the Union and one or more of the States represented in that Council, have a
common interest and advise the Central Government and the Government of each State concerned as to the
action to be taken on any such matter.
In particular, a Zonal Council may discuss, and make recommendations with regard to:
Any matter of common interest in the field of economic and social planning.
Any matter concerning border disputes, linguistic minorities or inter-State transport.
Any matter connected with or arising out of, the re-organization of the States under the States Reorganisation
Act.

GST Council
Context

The 31st meeting of Goods and Services Tax (GST) Council was held in the national capital.
The GST Council reduced tax rate on 23 goods and services, including movie tickets, TV/monitor screens and power
banks. It also exempted frozen and preserved vegetables from the levy.

About

What is GST Council?

It is a constitutional body for making recommendations to the Union and State Government on issues related
to Goods and Service Tax.
It is chaired by the Union Finance Minister and other members are the Union State Minister of Revenue or
Finance and Ministers in-charge of Finance or Taxation of all the States.

How is it composed?

As per Article 279A of the amended Constitution, the GST Council which will be a joint forum of the Centre
and the States, shall consist of the following members: -
Union Finance Minister - Chairperson;
Union Minister of State in charge of Revenue or Finance - Member;
Minister in charge of Finance or Taxation or any other
Minister nominated by each State Government - Members.

What is the mandate of GST Council?

 It shall make recommendations to the Union and the States on—
the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be
subsumed in the goods and services tax;
the goods and services that may be subjected to, or exempted from the goods and services tax;
model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on
supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the
place of supply;
the threshold limit of turnover below which goods and services may be exempted from goods and services
tax;
the rates including floor rates with bands of goods and services tax;
any special rate or rates for a specified period, to raise additional resources during any natural calamity or
disaster;
special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and any other matter
relating to the goods and services tax, as the Council may decide.
It shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed
diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel.
While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided
by the need for a harmonized structure of goods and services tax and for the development of a harmonized
national market for goods and services.
One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum
at its meetings.
The Goods and Services Tax Council shall determine the procedure in the performance of its functions.

How the council do takes a decision on any tax issue?

Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than
three-fourths of the weighted votes of the members present and voting, in accordance with the following
principles-

The vote of the Central Government shall have a weightage of one third of the total votes cast, and
The votes of all the State Governments taken together shall have a weightage of two-thirds of the total votes
cast, in that meeting.

Will absenteeism of any state or vacancy/ies halt the decision of the council?

No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reason of—

any vacancy in, or any defect in, the constitution of the Council; or
any defect in the appointment of a person as a Member of the Council; or
any procedural irregularity of the Council not affecting the merits of the case.

Is there any provision for resolving the issues arising among the different parties of the council?

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 The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute —

between the Government of India and one or more States; or

between the Government of India and any State or States on one side and one or more other States on the
other side; or
between two or more States, arising out of the recommendations of the Council or implementation thereof.

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