Constitution of India
Article 268: Duties levied by the Union but collected and appropriated by the States
Part XII — Finance, Property, Contracts and Suits (Chapter I — Finance, Sub-heading: Distribution of Revenues between the Union and the States)
Clause (1)
WHAT IT SAYS: Stamp duties mentioned in the Union List shall be levied by the Government of India but collected — (a) by the Government of India in Union Territories, and (b) by the respective States elsewhere. WHAT IT MEANS: Parliament decides the rates; States act as collecting agents and keep the revenue — the Centre has no share. KEY DOCTRINE: Doctrine of Cooperative Fiscal Federalism — the Union legislates for uniformity but devolves collection and proceeds to States.
Clause (2)
WHAT IT SAYS: The proceeds of any such duty leviable within a State in any financial year shall NOT form part of the Consolidated Fund of India but shall be assigned to that State. WHAT IT MEANS: Unlike most Union taxes, these proceeds bypass the central exchequer entirely and go directly to State treasuries — no Finance Commission apportionment is needed. KEY DOCTRINE: Principle of Automatic Assignment — revenue is assigned to States by constitutional mandate, not executive discretion.
Constitutional Inspiration
SOURCE(S): 1. Government of India Act, 1935 — Sections 137-140 and Seventh Schedule, List I Original provision: The 1935 Act divided taxing powers into Federal, Provincial, and Concurrent Lists; certain federal duties (e.g. stamp duties on commercial instruments) were collected by Provinces. What India kept: The same framework of Union levy + State collection for specified duties. 2. Commonwealth of Australia Constitution Act, 1900 — Section 96 (Financial Assistance Grants) Original provision: Australia allowed federal grants to States on terms Parliament decided. What India kept: The broader principle of fiscal devolution, though Article 268 uses automatic assignment instead of discretionary grants. INDIA'S SPECIFIC ADAPTATIONS: 1. Automatic assignment to States without Finance Commission mediation — because framers wanted guaranteed State revenue streams independent of Centre's discretion. 2. Distinction between levy power and collection power — because India's federal structure required uniform rates nationally while respecting State administrative machinery. 3. Exclusion from Consolidated Fund of India — because framers wanted to prevent the Centre from using these proceeds for its own purposes, strengthening fiscal autonomy of States.
Constituent Assembly Debate
DEBATED ON: 4 August 1949 and 5 August 1949 (CAD Volume IX) DRAFT ARTICLE: Draft Article 249 of the Draft Constitution, 1948 KEY SPEAKERS: 1. Dr. B.R. Ambedkar (Chairman, Drafting Committee) — Moved the article with minor technical amendments; defended the existing system of financial redistribution between Centre and Provinces. 2. Shri B. Das (Orissa, General) — Argued that the Centre follows a 'policy of grab and hold' and urged more equitable distribution of revenue to develop backward provinces. 3. An unnamed Member — Opposed the article, arguing all taxes should be imposed and collected by the Union with an independent authority allocating funds to States based on needs. MAJOR DISAGREEMENTS: 1. Centralisation vs. Decentralisation — One member wanted all taxes collected centrally with an independent allocation body; the Drafting Committee rejected this in favour of direct State collection. 2. Adequacy of State revenue — B. Das and others argued the provisions did not go far enough in ensuring backward States received adequate funds for development. FINAL OUTCOME: Draft Article 249, with minor technical amendments, was adopted on 5 August 1949 without major substantive changes. AMBEDKAR'S KEY QUOTE: Ambedkar stated that the Drafting Committee decided to adhere to the old system of financial redistribution between Centre and Provinces.
Landmark Judgments
LANDMARK JUDGMENTS: 1. State of Madhya Pradesh v. Bhailal Bhai (1964 AIR 1006) — Taxes collected without proper legislative authority may be subject to refund; all taxation must have legislative sanction under the constitutional scheme. 2. State of West Bengal v. Kesoram Industries Ltd. (2004) 10 SCC 201 — Excise duties under Article 268 are limited to the stage of production/manufacture and do not extend to the sale of goods. 3. Bharat Barrel & Drum Manufacturing Co. Ltd. v. Collector of Central Excise (1999) 3 SCC 35 — Excise duties on medicinal and toilet preparations, though imposed by the Union, are collected by the States under the Article 268 constitutional scheme. 4. Synthetics and Chemicals Ltd. v. State of U.P. (1990) 1 SCC 109 — Only Parliament may impose duties of excise on non-alcoholic goods, reaffirming the rigid separation of fiscal powers between Union and States. NOTABLE DISSENTS: 1. No notable recorded dissents specific to Article 268 interpretation. SCHOLARS & JURISTS: 1. M.P. Jain (Indian Constitutional Law) — Article 268 exemplifies the principle that fiscal federalism in India operates through a unique levy-collection-assignment mechanism not found in most federations. 2. D.D. Basu (Commentary on the Constitution of India) — The article ensures that States are not mere agents of the Centre but have constitutionally guaranteed revenue sources from specified duties.