KES’ Shri Jayantilal H.

Patel Law College, Mumbai

Centre State Relations

Constitution II

A project submitted in partial fulfilment of the requirements for

The 4th Semester of the LL. B Course

Khushi R. Kothari

Second Year LL. B

Div: B

Roll No.: 12

Under the Supervision of

Professor Shivani Negi

Professor Ambari Patwardhan.

Date of submission – March 27, 2024

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 Table of Contents.

Sr. No Particulars Page No.

1. Introduction and Evolution of Centre State Relations. 3-4

2. Types of Centre State Relations. 4

3. Centre State Legislative Relations. 5-8

4. Centre State Administrative Relations. 9-12

5. Centre State Financial Relations. 13-14

6. Landmark Judgements pertaining to Centre State Relations. 15

7. Conclusion and References. 16

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 Introduction

The Indian Constitution is a federal Constitution in as much as it established what may be called a dual polity
which will consist of the Union at the Centre and the States at the periphery each endowed with sovereign
powers to be exercised in the field assigned to them respectively by the Constitution.".- D.R. Ambedkar

The term "federalism" is not specifically mentioned in the Constitution, but a conclusion can be formed
regarding a governance structure that is largely federal. In a federal country, Centre-State Relations are an
important component of politics because they teach us about the dual character of having power divided
between the Centre and the states. In their respective domains, the Centre and the State are regarded as superior.
The Indian Constitution refers to the country as a "Union of States."

A separate section is devoted to 'Union-State Relations,' in which powers are divided between Centre-State
Relations in the form of the executive, legislative, and financial powers. Because the Centre and the State are
superior in their respective areas, they are supposed to maintain harmony and balance on a greater scale. As a
result, numerous clauses in India's constitution help to govern Centre-State Relations on various levels.

States have immense power to take decisions on various matters with the limitation that the centre can put
restrictions on these. On some matters, decisions are taken exclusively by the State which are listed under the
state list. Similarly, there is a union list in which the centre makes major decisions on the subjects included in
it. A separate list, called concurrent list, is present on which both the centre and state can make decisions

The Constitution of India divides all legislative, executive, and financial authority between the centre and the
states. This relationship is known as Centre-State Relations and is a core part of India's federalism.

Evolution of Centre–State Relations:

i. Post-Independence Period (1950s-1960s):
o The initial years witnessed a strong Centre with a focus on consolidating the nation.
o The Seventh Amendment (1956) reorganized the states on linguistic basis and introduced the concept
of Union Territories.
o The Planning Commission played a crucial role in shaping development policies, fostering a
centralizing tendency.
ii. Era of Various Amendments (1970s-1980s):
o The Forty-second Amendment (1976) transferred five subjects from the state list to the concurrent
list and gave more powers to the centre to deal with national emergencies and internal disturbances.
o The Forty-fourth Amendment (1978) reversed some of the changes made by the Forty-second
Amendment and restored the balance of power between the centre and the states.
o The emphasis shifted towards cooperative federalism, marked by the recommendations of
the Sarkaria Commission and the establishment of the Inter-State Council.
iii. Decentralization and Empowerment (1990s-2000s):
o Economic reforms in the 1990s furthered the process by encouraging states to take an active role in
economic development.

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 o The 73rd and 74th Amendments (1992) to the Constitution marked a significant step towards
decentralization, empowering local bodies and enhancing state autonomy.
o The Finance Commission became a critical tool for fiscal federalism.
iv. Goods and Services Tax (GST) Era (2017 Onwards):
o The One Hundred and First Amendment (2016) introduced the Goods and Services Tax (GST),
which replaced the multiple indirect taxes levied by the centre and the states and created a uniform tax
system.
o The GST Council exemplifies cooperative federalism in addressing issues related to indirect taxation.
Types Of Centre-State Relations

Part XI of the Indian Constitution is dedicated to centre-state relations. It is divided into legislative and
administrative connections. Part XII also contains laws governing financial relations. Following is a detailed
discussion of all three types.
Legislative Relations

Articles 245 to 255 deals with legislative relations between the Union and the states, specifically the
Parliament and state legislatures. It analyses the scope of the Union's and states' legislative powers. Analyzing
the provisions reveals that the Parliament evidently has superseding powers over state legislatures.

The different provisions define the subjects on which they can legislate, the consequence of inconsistency
between state and national law, the Parliament's residuary powers, and many other provisions. Schedule VII,
addresses the Union List, State List, and Concurrent List.

Administrative Relations

Articles 256 to 263 deal with administrative relations, including those between the Central Government and
several state governments. Though India is federal, it has unitary characteristics, and so Article 256 states that
state governments must ensure that they follow the laws passed by Parliament and do not conduct any
executive or administrative functions in violation of the same.

To establish improved relations between the Centre and the states, the Sarkaria Commission advocated for
cooperative federalism in administrative relations between the two. The same was crucial since multiple parties
working at the federal and state levels frequently created turmoil and distrust, leading to inefficient
administration.

Financial Relation

Part XII of the Constitution, Articles 264 to 293, deal with financial relations between the Centre and the state.
Because India is a federal country, it adheres to the division of powers when it comes to taxation, and it is the
responsibility of the Centre to allocate funds to the states.

Schedule VII describes the ability of the Centre and states to levy taxes. Furthermore, it contains numerous
regulations concerning the levy and allocation of taxes by the Centre and States, grants to states, surcharges,
and so on. The Goods and Services Tax, a dual structure tax, is a recent example of a financial centre-state
relationship.

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 Centre-State legislative relations

The legislative ties between the centre and state are governed by Articles 245 to 255 of Part XI of the
Constitution. It sets out a double division between the Union and the states with legislative powers i.e, in
territorial recognition and relation to the subject.

➢ Territory jurisdiction:

Concerning the territory, Article 245(1) requires a State Legislature to make law for the entire or any part of the
State to which it belongs, subject to the dispositions of this constitution. Unless the boundaries of the state itself
are broadened by an act of the Parliament, a State legislature can not broaden territorial jurisdiction in any
circumstance. On the other hand, Parliament has the right to legislate “on all or part of India’s territory, which
does not only include the States but also Indian Union territory.” It also has the strength of extra-territorial laws
that no state legislature has. This means that the laws made by Parliament would apply not only to individuals
and territories but also to Indian subjects living anywhere in the world. However, there are other limitations on
Parliament’s territorial competence. However, certain unique clauses of the constitution are subject to the
plenary territorial competence of Parliament. These are the following:
1. The President can make regulations that are equivalent to the laws of Parliament, some territories of the
Union, such as the Andaman and Lakshadweep Region, and these regulations may revoke or amend a law
adopted by Parliament on the said territories (Article 240).

2. Notifications can be issued by the governor (Para 5 of Schedule 5(3) of the Indian Constitution) that prevent
or change the application of the Acts of Parliament to any programmed area of government.

3. Para 12(1)(6) of schedule VI says that, by public notification, the Governor of Assam may, subject to such
exceptions or adjustments as may be stated in the notification, direct that any other act of Parliament shall
not apply to the autonomous region or district of the state of Assam or apply to that region or section.

In the case of A.H. Wadia v. CIT, the court held that if there is an appropriate relation or link between the State
and the object, i.e. subject matter of legislation, the State legislature cannot make extraterritorial law (objects
can not be located physically within territorial limits of the State). In the case of Wallace Bros, v. CIT, a licensed
business in England was a partner in an Indian venture. Indian revenue tax authorities were aiming to tax the
company’s entire income. The Court affirmed that the derivation for a year of the substantial part of its revenue
from British India has given a corporation sufficiently territorial relation to justify that it is regarded
domestically in India for all purposes of income taxation.

Hence, the above particular requirements have been adopted since the areas mentioned in the question are
outdated and may cause difficulties or other injurious effects if they are implemented indiscriminately.

➢ Subject matter:

A federal structure demands that the centre and States share their forces. The nature of the distribution is different
in every region, depending on the local and political context. For instance, in America, sovereign states did not
like the absolute central government subordination. Therefore, although maintaining the remainder, they
believed in confiding subjects of popular interest to the central government. Australia was pursuing just one set
of forces in the United States. There are double listings in Canada, leaving the residue in the centre by the federal
and provincial governments. The Canadians were mindful of the tragic circumstances that resulted in the Civil

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War of 1891 in the United States of America. We knew the vulnerabilities of the centre. And it was a good core
that they wanted. The Canadian regime chose a strong centre as a result of the Indian Constitution-Makers.
However, they have added one more list-a a concurrent list.

The extent of laws made by Parliament and by the legislatures of states

So far as the subjects of law are concerned, the Constitution uses the Government of India Act of 1935 as its
basis and subdivides authority into three lists between the Union and the States. These are:

(i)The Union list,

(ii) the State list, and

(iii) the Concurrent list.

There are 98 subjects on the Union List, over which the Union has exclusive authority. The topics on the Union
list, for example, security and foreign relations, are of national significance, etc. There are 59 topics in the State
List over which countries have exclusive jurisdiction. The concerns listed on a State list, such as public order,
police and public safety, are of local or national importance. The Concurrent List contains 52 subjects like
criminal and civil cases, marriage and divorce, economic and special planning unions, money, media,
magazines, employment, management of the population and preparation of the families, etc. and both the Union
and States can enact laws on this list but the federal rule prevails over state law in the case of a dispute between
the law of the Central and the State law. The purpose of the constitutional inclusion of the list was to ensure
continuity in key legal principles across the country. Legislatures both in the parliament and in the State may
make laws on matters mentioned above, but a preliminary and ultimate right of the centre is to legislate on
established matters. In the event of a conflict between the law of the State and the law of the Union on a subject
in the Concurrent List, the law of the Parliament shall prevail.

Residuary powers of legislation

The Constitution also confers on the Union Parliament residual powers (subjects not mentioned on any of the
three lists). Article 248 notes that, concerning anything that is not listed in any of the three lists, the Parliament
has the exclusive authority to make legislation. It represents the constitutionalist inclinations to a strong core.
Another unique feature of the residual powers is that the final judgment on whether or not a particular matter
falls within the residual powers of the court. In comparison to the convention of other federations around the
world, residual powers have been granted to the Union, where the residual powers are assigned to the States. In
the case of a dispute, however, it is up to the court to determine whether a particular issue falls under the residual
power or not. The Parliament is therefore allowed to enact any legislation on any issue not mentioned in List II
or III. This authority shall include the authority to legislate, which does not include a tax on either of them (the
Governor-General, and not a federal legislature which exercised these powers, must be observed until
independence).

Entry 97 of List I also provides for the exclusive powers of Parliament to make laws on all subjects not
mentioned in List II or III. The remaining powers of legislation shall be solely delegated to the Union Parliament
under Article 248 and Entry 97 List I. The spectrum of residual powers, however, is limited as all the topics
included in all three lists and residual powers come under, or not, the Court’s view of a case. The reasoning for
this power is that it allows the House to legislate on any issue that has avoided the House’s oversight and on the
subject that currently can not be recognized. It requires Parliament, therefore, to enact legislation on topics that

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have taken society forward. The constitutional framers intended, however, that the use of residual powers should
be the final and not the first step.

In the case of Kartar Singh v. State of Punjab and UOI v. H.S. Dhillon’s case, the court held that parliament
may combine its power with the residual power under Article 248 under entry into the Union List or Competition
List. Also in the case of UOI v. H.S. Dhillon, it was held that Gift Tax Act, Inquiry Act Commissions, etc. are
valid under the parliamentary residuary power. In the case of State of A. P. v. National Thermal Power Corpn.
Ltd. the Supreme court held that unless an entry does not state an exclusion from the area of legislation that is
evident at the time of obvious reading, the absence of exclusion can not be read, if a particular clause in the
Constitution that forbids such legislation is valid, as allowing the legislative power not expressly excluded from
it.

Parliament’s power to legislate on State List

Although the Central Government does not have the power in the common circumstances to legislate on matters
mentioned in that State, the Parliament of the Union may only make laws on such matters under some special
conditions. These special conditions are:
a) In the National Interest (Art.249)

Several Articles of the Indian Constitution defined the parliament’s predominance in the legislative area. Article
249 provided that, where Rajya Sabha has declared, by a resolution approved by not less than two-thirds of the
members present and voting, that it is required or reasonable, in the national interest for Parliament to lay down
laws in respect of any matter mentioned in the State List referred to in the resolution, it becomes lawful for
Parliament to lay down laws for the whole or any part of the proceedings. For the time in question, such a
resolution was in place not for more than one year. However, the Rajya Sabha could extend the term of such a
resolution for a further duration of one year from the date on which it would otherwise have ceased to operate.
The law of Parliament, which Parliament should have been responsible for passing such a resolution by Rajya
Sabha, ceased to have any effect on the expiry of a term of six months after the date on which the resolution
ceased to be in force, except in the case of things done or omitted to be done before the expiry of that time. This
provision allowed the Rajya Sabha, representing the States, to place any matter of local significance but national
interest in the concurrent list. The Rajya Sabha can do so at any moment, whether emergency or not.

b) Under Proclamation of National Emergency (Art. 250)

Article 250 notes that in the case of a declaration of emergency, Parliament shall have the power to make law
on any item on the State List. This legislation shall extend in the case of a national emergency (Article 352) and
every State in compliance with the Order of the President (Article 356) or the event of a financial emergency
(Article 360). Under this time, the laws of the State or States shall remain inoperative to the degree that they are
contrary to the law of the centre (Art. 251). Thus, the Parliament as a whole will legislate on the subjects
specified in the State List while the National Emergency Declaration is in effect. However, the laws enacted by
the Parliament according to this clause shall cease to affect the expiration of a period of six months after the
termination of the Proclamation, except in the case of items done or omitted to be done before the expiration of
that time.

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c) By Agreement between States (Art. 252)

Article 252 provides for regulation by invitation. If the Legislatures of two or more States adopt a resolution
and order the centre to make a law on a specific item of the State Register, it shall be legal for the Parliament to
make a law. In the first place, such law shall apply to the States which have made such a request, unless any
other State may subsequently follow it by passing such a resolution. Third, such laws can only be amended or
repealed by Parliament. The parliament may also make laws about a State subject if two or more states’
legislatures agree that a parliament is allowed to make laws concerning any issue mentioned in the State List
concerning that Matter. Subsequently, any act passed by the Parliament shall extend to those States and to any
other State which has passed such a resolution. Parliament also has the power to amend or revoke any act of
this kind.

d) To Implement Treaties (Art. 253)

To implement treaties or international conventions, Parliament shall have the power to legislate concerning any
subject. In other words, even about a state issue, the usual distribution of powers does not preclude Parliament
from passing legislation to satisfy its foreign obligations or through such legislation (Article 253). The
Parliament may pass any Treaty, international agreement or convention, with any other country or state, or any
decision taken during an international conference, association or other entity, within the whole and any part of
the territory of India. Any law enacted by this Parliament shall not, in that it covers the subject listed in the list
of States, be invalidated.

e) Under Proclamation of President’s Rule (Art. 356)

By Article 356 and Article 357 of the Indian Constitution, the prevalence of Parliament was further defined.
Article 356 stipulated that if the President was satisfied that there existed a situation in which the government
of the State can not be enforced according to the provisions of the Constitution, he may declare exercisable by
or under the competence of the Parliament the powers of the Legislature of that State. Parliament must delegate
the legislative power to the President, as provided for in Article 357. The President may also allow the
Parliament to exercise the powers of the State legislature during the Declaration of the Rule of the President as
a result of the collapse of constitutional machinery in the State. Nevertheless, all such regulations passed by
Parliament cease functioning six months after the declaration of the rule of the President is over.

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 Administrative Relations between Centre and States

The administrative relations between the Centre and the States are stated under Article 256 to Article 263 of the
Constitution of India. The Government of India has also constituted the Punchhi Commission in 2007, to
determine the Centre-State Relations.

Article 246 of the Constitution deals with the subject matter of laws which are to be made by the Parliament
and the State Legislatures. The Constitution, under Schedule VII, lays down three lists. These lists divide the
subjects between the Centre and the States. The List I is the Union List, List II is the State List and List III is
the Concurrent List.

As a set rule, the Central Government has administrative authority over the matters on which the Parliament is
empowered to make the laws. The State Governments exercises administrative authority over the matters
specified in the State List.

The obligation of States and the Union

Article 256 of the Constitution of India can be divided into two parts.

Firstly, it lays down that the executive powers of the State are to be exercised in such a manner that it complies
with the laws made by the Parliament or any other existing laws which are applicable in the State. Secondly, it
states that the executive power of the Union includes in its ambit such directions that are given to the State by
the Central Government, which it deems necessary for the purpose.

It appears from reading the provision that if the States duly comply with the first part, then the second part does
not seem necessary. Whereas, if the second part indeed serves its purpose sometimes, then it is evident that the
States are guilty of violating the first part of the provision.

The Constitution lays down this provision with the assumption that the States will be, at some juncture, guilty
of either wilful defiance or negligence of its duties.

Article 256 is the successor of Section 122 of the Government of India Act, 1935. Although this provision is
particularly silent about the consequences in case of non-compliance, the drastic sanction is laid down in Article
365 of the Constitution. To explain, if a State fails to comply with the directions issued by the Centre, then it is
lawful for the President to hold that a situation has arisen wherein the State government cannot be carried on
according to the provisions of the Constitution. Consequently, a state emergency can be imposed. The primary
theme of this provision is that there should be a proper execution of the central laws in all the states.

Legal Precedents

In the case of Rameshwar Oraon vs. State of Bihar and Ors. (1995), it was observed that it is mandatory for the
State Government to act according to the directions issued by the Central Government.

In the case of State of Karnataka vs. Union of India (1977), it was held that the Centre can issue directions to a
State under Article 256 as a legal entity, not as a geographical or territorial unit. Further, in State of Rajasthan
vs. Union of India (1977), the Apex Court held that the issuance of directions to the State government by the
Centre under Article 256 is justified if the Union Government is of the opinion that the manner in which the
executive power of the State is exercised may be in contravention to the enforcement of Central Laws.

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In Swaraj Abhiyan vs. Union of India (2017), the Apex Court drew attention to this provision, calling it a
‘forgotten provision’. This is because of the seldom usage of this provision since the Constitution came into
force.

Control of the Union over States in certain cases

Article 257 of the Constitution of India, 1950 deals with this subject.

Article 257(1) provides that the exercise of the executive powers of the State should be done in such a manner
that it does not hamper or prejudice the exercise of the executive powers of the Centre. Further, the second part
of this clause is similar to that of Article 256. It lays down that the Centre can issue directions to the State
Governments for purposes deemed necessary.
Article 257(2) provides that the executive power of the Union to issue directions to the States shall also extend
to the matters of construction and maintenance of means of communication declared to be of national or military
importance. Although communications is a State subject under Entry 13, List II, Schedule VII of the Constitution
– the Union has been empowered to issue directions.

The proviso states that nothing in this particular provision will be considered as restricting the power of the
Parliament to:

1. Declare certain highways or waterways as national highways or waterways;

2. Construct and maintain means of communication as a part of its functions with reference to naval, military
and air force purposes.

Article 257(3) provides that the executive power of the Union to issue directions to the States shall also extend
to the measures required to be taken for the protection of the railways within a particular State.

Article 257(4) provides that for the purpose of compliance to the directions under clause (2) or clause (3), the
States incur excess costs, which would not have occurred in the discharge of the normal duties of the State in
the absence of such directions, then these costs shall be paid by the Government of India such sum as may be
agreed. If there is a default of agreement, the sum of the extra costs so incurred by the State will be determined
by an arbitrator appointed by the Chief Justice of India.

Power of the Union to confer powers, etc. on States in certain cases

Article 258 of the Constitution of India, 1950 lays down the contents of this subject.

Article 258(1) begins with a non-obstante clause. It states that the President, with the permission of the Governor
of the State, can entrust conditionally or unconditionally the State Government or its officers to perform
functions which are related to any matter which is included in the ambit of the executive power of the Union.

Article 258(2) provides that a Parliament-made law which is applicable in any State may confer certain powers
and impose duties, or authorise such conferring of powers and imposition of duties upon the State or its officers
and the authorities thereof. The clause has a non-obstante clause within it. It states that even if the Legislature
of the State has no power to make laws on that matter, the Parliament made law is applicable.

Article 258(3) states that the extra costs of administration which the States incur, in connection with the exercise
of such conferred powers and imposed duties, shall be paid by the Government of India – such sum as may be

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agreed. If there is a default of agreement, the sum of the extra costs so incurred by the State will be determined
by an arbitrator appointed by the Chief Justice of India.

Power of the States to entrust functions to the Union

This power is laid down under Article 258-A of the Constitution of India. The article begins with a non-obstante
clause. It states that the Governor of a State, with the consent of the Union Government, may entrust
conditionally or unconditionally to that particular State’s government or its officers, functions which are related
to any matter that is included in the scope of the executive power of the State.
This provision was inserted into the Constitution by the Constitution (Seventh Amendment) Act, 1956.

Jurisdiction of the Union in relation to territories outside India

Article 260 of the Indian Constitution deals with the jurisdiction in relation to foreign territories. The article
states that the Indian Government can enter into an agreement with the Government of any territory which is
not a part of the Indian territory. This agreement is entered into to undertake any executive, legislative or judicial
functions vested in the Government of that territory. All such agreements are subjected to and governed by any
law which pertains to the exercise of foreign jurisdiction for the time being in force.

This is a latent emboldening provision. The Constituent Assembly debated this provision on three different
sessions – July 25, 1947; July 28, 1947, and August 25, 1947. Upon a perusal of these debates, it can be
understood that the motive behind this provision was to facilitate the administration of states that had not
acceded to the Indian Union.

The Apex Court has ruled in GVK Inds. Ltd. & Anr. vs. The Income Tax Officer & Anr. (2011), that this Article
is to be invoked only in cases when such laws either have an impact on or consequences for the people of India
or the Indian territory. The Parliament has also enacted the Foreign Jurisdiction Act, 1947 in accordance with
this Article, to provide for the exercise of foreign jurisdiction of the Union Government.

Public acts, records and judicial proceedings

Article 261 of the Constitution of India deals with public acts, records and judicial proceedings.
Article 261(1) provides that full faith and credit must be given to all the public acts, records and judicial
proceedings of the Union and every State, throughout the territory of India.
Article 261(2) provides that the manner in which and conditions under which the aforementioned acts, records
and proceedings are to be proved along with the effect thereof, shall be provided by such law as made by the
Parliament.

Article 261(3) states that final judgments or orders which are delivered or passed by the civil courts located in
any part of the Indian territory are capable of execution anywhere within that territory, according to the law.

Adjudication of disputes relating to waters of inter-State rivers or river valleys

Article 262 of the Constitution of India deals with the adjudication of disputes relating to the above-stated issues.

Article 262(1) states that the Parliament may formulate laws to provide for the adjudication of any dispute or
complaint with reference to the use, distribution or control of waters of, or in, any inter-State river or inter-State
river valley.

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Article 262(2) begins with a non-obstante clause and provides that the Parliament may by law provide that
neither the Apex Court nor any other court shall be able to exercise their jurisdiction in respect of any such
dispute or complaint as mentioned in clause (1).

The States have a power to legislate on this issue of water under Entry 17, State List, Schedule VII. The Union
is empowered to legislate upon the same under Entry 56, Union List, Schedule VII.

In exercise of the powers bestowed by Article 262, the Parliament enacted the Inter-State Water Disputes Act,
1956. If the water disputes cannot be settled by negotiations then the Central Government establishes a Water
Disputes Tribunal for the adjudication of such disputes. There are currently five active tribunals – namely, Ravi
and Beas Water Tribunal, Krishna Water Disputes Tribunal – II, Vasundhara Water Disputes Tribunal, Mahadayi
Water Disputes Tribunal and Mahanadi Water Disputes Tribunal. There are several legal doctrines related to the
issue of inter-state waters. These include – Doctrine of Riparian Rights, Prior Appropriation, Territorial
Sovereignty, Community of Interest and Equitable Apportionment.
The Supreme Court in the judgment of State of Kerala through the Chief Secretary to Government vs. State of
Tamil Nadu through the Chief Secretary to Government (2018), finally settled the age-long Cauvery Water
Dispute.

Provisions with respect to an inter-State Council

Under Article 263 of the Constitution of India, if the President believes that the establishment of an inter-state
council would help in serving the public interests, then it is lawful for the President to establish such Council
by order. He shall also define the nature of duties to be performed by the Council, its organisation and the
procedure to be followed.

The President can charge the Council with the following duties:

1. To inquire into and advise upon disputes which may have arisen between States;

2. To investigate and discuss subjects in which some or all of the States, or the Union and one or more of the
States display a common interest;

3. To make recommendations upon any subject and in particular, to make recommendations for enhanced
coordination of policy and action pertaining to that subject.

The Inter-State Council was established based on the recommendations of the Sarkaria Commission, 1988. The
Council was established in 1990 pursuant to a Presidential order. It functions as a permanent independent
national forum for consultation. The Council was recently reconstituted in 2019, with the Prime Minister as its
chairperson.

In the current crisis due to the enactment of the Citizenship Amendment Act, 2019, there is an increased distrust
between the Centre and the States. In such times of constitutional crisis, it is essential that the Council meets to
arrive at a harmonious solution.

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 Centre State Financial Relations

Indian Constitution has made elaborate provisions, relating to the distribution of the taxes as well as non-tax
revenues and the power of borrowing, supplemented by provisions for grants-in-aid by the Union to the States.

Article 268 to 293 deals with the provisions of financial relations between Centre and States.

The Constitution divides the taxing powers between the Centre and the states as follows:

The Parliament has exclusive power to levy taxes on subjects enumerated in the Union List, the state legislature
has exclusive power to levy taxes on subjects enumerated in the State List, both can levy taxes on the subjects
enumerated in Concurrent List whereas residuary power of taxation lies with Parliament only.

Distribution of the tax-revenue

1.Duties Levied by the Union but Collected and Appropriated by the States: Stamp duties on bills of Exchange,
etc., and Excise duties on medical and toilet preparations containing alcohol. These taxes don’t form the part of
the Consolidated Fund of India, but are assigned to that state only.

2. Service Tax are Levied by the Centre but Collected and Appropriated by the Centre and the States.

3. Taxes Levied as Well as Collected by the Union, but Assigned to the States: These include taxes on the sale
and purchase of goods in the course of inter-state trade or commerce or the taxes on the consignment of goods
in the course of inter-state trade or commerce.

4. Taxes Levied and Collected by the Union and Distributed between Union and the States: Certain taxes shall
be levied as well as collected by the Union, but their proceeds shall be divided between the Union and the States
in a certain proportion, in order to effect on equitable division of the financial resources. This category includes
all taxes referred in Union List except the duties and taxes referred to in Article 268, 268-A and 269; surcharge
on taxes and duties mentioned in Article 271 or any Cess levied for specific purposes.

5. Surcharge on certain duties and taxes for purposes of the Union: Parliament may at any time increase any of
the duties or taxes referred in those articles by a surcharge for purposes of the Union and the whole proceeds of
any such surcharge shall form part the Consolidated Fund of India.

Grants-in-Aid

Besides sharing of taxes between the Center and the States, the Constitution provides for Grants-in-aid to the
States from the Central resources.

There are two types of grants:-

1. Statutory Grants: These grants are given by the Parliament out of the Consolidated Fund of India to such
States which are in need of assistance. Different States may be granted different sums. Specific grants are also
given to promote the welfare of scheduled tribes in a state or to raise the level of administration of the Scheduled
areas therein (Art.275).

2. Discretionary Grants: Center provides certain grants to the states on the recommendations of the Planning
Commission which are at the discretion of the Union Government. These are given to help the state financially
to fulfill plan targets (Art.282).

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Effects of Emergency on Center-State Financial Relations:-

1. During National Emergency: The President by order can direct that all provisions regarding division of
taxes between Union and States and grants-in-aids remain suspended. However, such suspension shall not
go beyond the expiration of the financial year in which the Proclamation ceases to operate.
2. During Financial Emergency: Union can give directions to the States:-
(2.1) To observe such canons of financial propriety as specified in the direction.
(2.2) To reduce the salaries and allowances of all people serving in connection with the affairs of the State,
including High Courts judges.
(2.3) To reserve for the consideration of the President all money and financial Bills, after they are passed by
the Legislature of the State.

Finance Commission

Although the Constitution has made an effort to allocate every possible source of revenue either to the Union
or the States, but this allocation is quite broad based. For the purpose of allocation of certain sources of revenue,
between the Union and the State Governments, the Constitution provides for the establishment of a Finance
Commission under Article 280. According to the Constitution, the President of India is authorized to set up a
Finance Commission every five years to make recommendation regarding distribution of financial resources
between the Union and the States.

Constitution

Finance Commission is to be constituted by the President every 5 years. The Chairman must be a person having
‘experience in public affairs’. Other four members must be appointed from amongst the following:-

1. A High Court Judge or one qualified to be appointed as High Court Judge;

2. A person having knowledge of the finances and accounts of the Government;

3. A person having work experience in financial matters and administration;

4. A person having special knowledge of economics.

Functions

The Finance Commission recommends to the President as to:-

1. The distribution between the Union and the States of the net proceeds of taxes to be divided between them
and the allocation between the States of respective shares of such proceeds;

2. The principles which should govern the grants-in-aid of the revenue of the States out of the Consolidated
Fund of India;

3. The measures needed to augment the Consolidated Fund of a State to supplement the resources of the
Panchayats and Municipalities in the State;

4. Any other matter referred to the Commission by the President in the interest of sound finance

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 Landmark Judgements pertaining to Centre State Relations.

Rameshwar Prasad v Union of India1 is a landmark case, in this the Supreme Court reviewed the
constitutional validity of the centre’s decision of dissolution of Bihar State Legislative Assembly and the
validity of the proclamation of President’s Rule under Article 356 of the Constitution. This situation arose
because in the State Elections of Bihar in 2005 a fractured verdict was delivered, which resulted the Governor
recommending an Emergency in the State. Subsequently, political shuffles ensued between parties and the
National Democratic Alliance (NDA) claimed to have the requisite numbers to form a Government. The
Governor, however, wrote to the President informing him that financial incentives had made politicians switch
their support, and then submitted a final report to the President recommending dissolution of the
assembly.[4] The court’s verdict was, that the dissolution of a state assembly and a proclamation of President’s
Rule is unconstitutional, it also said the court has the power to restore a dissolved assembly of any state by the
appropriate measures. The court in its verdict stated that an assembly is ‘duly constituted’ when the election
commission declared the names, as per Section 73 of the Representation of People’s Act, 1951. This judgement
highlights how an executive and legislation comes into existence after an election.
In U.N.R. Rao v Indira Gandhi2, the question before the court was whether an executive government could
exist even after the dissolution of the legislature. The court interpreted the language of Article 74(1), which
states that there “shall” be a council of ministers which assist the president, this council will remain in office
even after the dissolution of the legislators or Lok Sabha. The court reasoned that in case of approaching article
74 as merely directory and switching the word “shall” with “may”, it would mean as the president acting
independently without any aid from the council of ministers. therefore, even if the Lok Sabha is dissolved a
parliamentary form of government requires that a democratically elected branch is present to advise the
president.

In Samsher Singh v State of Punjab3, the issue under question was the Governor’s power which enables him
to recruit persons to the judicial services, conferred under Article 234 of the Constitution of India. The
contention of the petitioners was that the Governor should act in their personal capacity instead of relying on
the aid and advise of the Council of Ministers. Since India follows the example of United Kingdom which is
a Parliamentary Form of Government, this implies that the Governor or President is only a nominal head and
the real power vests in the prime minister. Hence, it was decided that the Governor should take the advice of
the Council before deciding on matters.

1 Rameshwar Prasad V. Union Of India (2006) 2 SCC 1

2 U.N.R. Rao v Indira Gandhi 1971 AIR SC 1002
3 Samsher Singh v State of Punjab AIR 1974 SC 212

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 Conclusion/Analysis

In India, the Centre-States relations constitute the core elements of the federalism. The Central Government and
State Government cooperate for the well-being and safety of the citizens of India. The work together in the field
of environmental protection, terror control, family control and socio-economic planning.

The Indian constitution aim at reconciling the national unity while giving the power to maintain state to the
State governments. It is true that the union has been assigned larger powers than the state governments, but this
is a question of degree and not quality, since all the essential features of a federation are present in the Indian
constitution. It is often defined to be quasi-federal in nature. Thus, it can be safely said that Indian Constitution
is primarily federal in nature even though it has unique features that enable it to assume unitary features upon
the time of need. Federal but its spirit is unitary.

References

➢ Legal Services India

https://www.legalservicesindia.com/article/2312/Central-State-Relation---Legislative,-Administrative-
and-Financial.html

➢ Legal Desire
https://legaldesire.com/centre-state-relationships-a-journey-through-the-landmark-judgements/

➢ Ipleaders
https://blog.ipleaders.in/?s=centre+state+relations

➢ The Constitution of India

https://lddashboard.legislative.gov.in/sites/default/files/COI...pdf

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