India has a federal form of government, and hence a federal finance system. The essence of federal form of government is that the Centre and the State Governments should be independent of each other in their respective, constitutionally demarcated spheres of Action. Once the fundamentals of the government are spelt out, it becomes equally important that each of the government should be provided with sources of raising adequate revenues to discharge the functions entrusted to it. For the successful operation of the federal form of government financial independence and adequacy for the backbone. Sales taxes are most important revenue for the state sin India. While the taxes vary in their design, they are generally levied in the first point of sale within the State. Hamilton in his federalist papers stated that Multileveled government permits various functions to be assumed by different levels, potentially improving efficiency since different activities have different optimal scales and hence in India with respect to Sales Tax Federalism, The Constitutional amendment in 1956, gave the States power to impose sales tax the Central Sales Tax Act, 1956,enacted by the Sixth Constitutional Amendment which introduced Entry 92A in List I of the Seventh Schedule authorizing Parliament to levy tax on the sale or purchase of goods (other than newspapers) in the course of inter-State trade. The revenue from this tax was assigned to the States by amending Article 269 of the Constitution. Thus, sale within the State (Intra-State sale) is within the authority of State Government, while sale outside State (Inter-State sale) is within the authority of Central Government. Accordingly, the Central Sales Tax (CST) is levied on sale or purchase of goods in the course of inter-State trade and commerce. The power to levy the CST and revenue from this tax is, however, assigned to the State occasioning the movement of goods from one State to another (i.e., the exporting State) An attempt has been made hereby to study the Distribution of Power and Tax federalism in India with respect to Sales Taxation in India Keeping in view the Central Sales Tax Act and the Individual States Sales Tax Acts. Fiscal Federalism In India
The federal character of public finance in India has its origin as far as the seventies of the last century. Although at that time the country had a unitary form of government, some division of functions and financial powers between the Center and the state was found administratively desirable. Ever since then the arrangements have been revised and improved from time to time. Fiscal federalism entails the division of responsibilities in respect of taxation and public expenditure among the different layers of the government, namely the Center, the states and the local bodies. Fiscal federalism helps governmental organization to realize cost efficiency by economies of scale in providing public services, which correspond most closely to the preference of the people. From the point of view of economy, it creates a unified common market, which promotes greater economic activity. India has a federal form of government, and hence a federal finance system. The essence of federal form of government is that the Centre and the State Governments should be independent of each provided with sources of raising adequate revenues to discharge the functions entrusted to it. For the successful operation of the federal form of government financial independence and adequacy form the backbone The Seventh Schedule (Article 246) delineates ‘the subject matter of laws made by the Parliament and by the Legislatures of the states’ and indicates the Union List (List I), states List (List II) and the Concurrent List (List III). List I invests the union with all functions of national importance such as defence, external affairs, communications, constitution, organization of the Supreme Court and the high courts, elections etc, List II...
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