Part XII: Finance, Property, Contracts and Suits

Article 268: Duties levied by the Union but collected and appropriated by the States

Original Article:

(1) Such stamp duties *** as are mentioned in the Union List shall be levied by the Government of India but shall be collected—

• (a) in the case where such duties are leviable within any Union territory, by the Government of India, and
• (b) in other cases, by the States within which such duties are respectively leviable.

(2) The proceeds in any financial year of any such duty leviable within any State shall not form part of the Consolidated Fund of India, but shall be assigned to that State.

Amendments:

¹ The words "and such duties of excise on medicinal and toilet preparations" omitted by the Constitution (One Hundred and First Amendment) Act, 2016, s. 6, (w.e.f. 16-9-2016).

² Substituted by the Constitution (Seventh Amendment) Act, 1956, s. 29 and Sch., for "State Specified in Part C of the First Schedule" (w.e.f. 1-11-1956).

Explanations:

Article 268 outlines a distinct fiscal mechanism in India’s federal structure, allowing duties, primarily on certain stamp transactions, to be levied by the Union but collected by the States. It provides an avenue for States to generate revenue from certain duties without needing to legislate them independently. This article is crucial for maintaining revenue autonomy for States within India's federal setup.

Clause-by-Clause Explanation:

Clause (1): Union-Levied, State-Collected Duties

This clause establishes the division of responsibility for stamp duty collection between the Union and the States.

• Sub-clause (a): Duties within Union territories fall under the purview of the Union government.
• Sub-clause (b): Duties within State territories are collected by the respective State.

Illustrative Example: A business contract in Delhi requires stamp duty collection by the Union government, while in Rajasthan, the State government collects it. This demonstrates inter-governmental cooperation in revenue administration.

Clause (2): Revenue Allocation to States

The revenue obtained from stamp duties within State territories does not form part of the Consolidated Fund of India, ensuring direct allocation to the respective States.

Illustrative Example: Stamp duty collected on property sales in Tamil Nadu directly contributes to the State's revenue rather than the Union's finances, supporting local governance.

Legislative History:

Article 268 was originally proposed as Article 249 in the Draft Constitution and adopted after extensive discussions in August 1949. This adoption highlighted the need to balance fiscal federalism, ensuring States received revenue for duties imposed by the Union.

Amendments:

The 101st Amendment omitted duties on medicinal and toilet preparations, aligning with the GST regime, while the Seventh Amendment reorganized references to Union territories. These amendments streamlined tax structures and clarified administrative responsibilities between the Union and the States.

Historical Significance:

Article 268 represents the evolving nature of India’s fiscal federalism. Historically, it was designed to provide States with a reliable source of revenue, while ensuring that the Union retains legislative control over the imposition of duties. The structure has evolved to adapt to significant tax reforms, including the implementation of GST.

Real-Life Examples:

One practical application of Article 268 is seen in property registration processes. For example, stamp duties collected on property transactions in Maharashtra provide the State government with substantial revenue, aiding in the funding of local development projects and public services.

Similarly, in Union territories like Delhi, the Union government collects these duties, contributing to their administrative and developmental expenses.

Debates and Deliberations:

The Constituent Assembly extensively debated the balance of fiscal powers between the Union and States. Dr. B.R. Ambedkar emphasized the need for a clear division to avoid conflicts. Shri B. Das argued for empowering local governments, while Shri Brajeshwar Prasad advocated for central oversight to maintain uniformity. These discussions reflect the effort to create a balanced federal system that respects both central authority and State autonomy.

Members like H.V. Kamath raised concerns about the efficiency of collection mechanisms, prompting discussions on administrative accountability and transparency.