Constitution of India
Article 268A: Service tax levied by Union and collected and appropriated by the Union and the States
Part XII — Finance, Property, Contracts and Suits (Chapter I — Distribution of Revenues between the Union and the States)
Clause (1)
WHAT IT SAID: Taxes on services shall be levied by the Government of India; such tax shall be collected and appropriated by the Government of India and the States in the manner provided in clause (2). WHAT IT MEANT: The Union alone had the power to impose service tax, but both Union and States shared in its collection and use — a cooperative fiscal model. KEY DOCTRINE: Cooperative Fiscal Federalism — Union levies, but revenue is shared with States outside the Finance Commission divisible pool.
Clause (2)
WHAT IT SAID: The proceeds in any financial year of any such tax levied under clause (1) shall be — (a) collected by the Government of India and the States; (b) appropriated by the Government of India and the States, in accordance with such principles of collection and appropriation as may be formulated by Parliament by law. WHAT IT MEANT: Parliament had to enact a law prescribing the formula for distributing service tax revenue between Centre and States — this law was never enacted since Art. 268A was never notified. KEY DOCTRINE: Parliamentary Prescription of Revenue-Sharing Principles — distribution was not automatic but required legislative action by Parliament.
Constitutional Inspiration
ORIGINAL INDIAN CONTRIBUTION — Article 268A was not borrowed from any foreign constitution. WHY FRAMERS FELT THIS WAS NEEDED: 1. The service sector was rapidly growing as a share of India's GDP, but there was no specific constitutional entry for taxing services. 2. Service tax was being levied since 1994 under residuary Entry 97 of the Union List (Article 248), which lacked explicit constitutional backing. 3. States demanded a share of service tax revenue since services were consumed within their territories. 4. The 88th Amendment gave explicit constitutional recognition via Article 268A and Entry 92C, and created a cooperative model for revenue-sharing between Centre and States. 5. It served as a transitional bridge toward the eventual unified GST regime introduced in 2016-2017.
Constituent Assembly Debate
NOT APPLICABLE — Article 268A was NOT part of the original Constitution of 1950. It was inserted by the Constitution (88th Amendment) Act, 2003. Therefore, there are no Constituent Assembly Debate (CAD) records for this Article. PARLIAMENTARY DEBATE CONTEXT: 1. The Constitution (88th Amendment) Bill was introduced on 7 March 2003 by Finance Minister Jaswant Singh. 2. The Statement of Objects & Reasons noted that services were not specifically covered under Union or State Lists. 3. States had demanded participation in service tax revenue as they moved toward VAT. 4. The Bill was passed by both Houses and received Presidential assent on 15 January 2004. 5. However, the date of commencement was never notified — making it effectively a dead letter until its omission in 2016.
Landmark Judgments
LANDMARK JUDGMENTS: 1. All India Federation of Tax Practitioners v. Union of India (2007) — Supreme Court upheld Parliament's legislative competence to levy service tax under Entry 97, List I; held that Art. 268A and Entry 92C (88th Amendment) fortify this position by showing 'service' and 'profession' operate in different spheres. 2. Tamil Nadu Kalyan Mandapam Association v. Union of India (2004) — Supreme Court upheld constitutional validity of service tax on mandap keepers; held that Parliament can define 'service' for tax purposes so long as it does not transgress constitutional restrictions. 3. Association of Leasing & Financial Service Companies v. Union of India (2010) — Supreme Court held service tax is a value-added tax on activity, distinct from sales tax on goods; further affirmed Parliament's power under Entry 97. 4. Union of India v. Mohit Minerals Pvt. Ltd. (2022) — Supreme Court held that GST Council recommendations (under successor Article 246A/279A) are recommendatory, not binding; clarified the cooperative federalism model that Art. 268A had foreshadowed. NOTABLE OBSERVATIONS: 1. In All India Federation (2007), the Court observed that the 88th Amendment 'clearly indicates that Entry 60 of List II and Entry 92C of List I operate in different spheres.' 2. Article 268A was never brought into force — service tax continued under the pre-existing Finance Act, 1994 framework throughout its nominal existence. SCHOLARS & JURISTS: 1. Dr. Vijay Kelkar (Chairman, Task Force on Fiscal Reforms, 2004) — Recommended shifting to consumption-based taxes; his report laid the intellectual groundwork for both Art. 268A and the eventual GST. 2. Finance Minister Jaswant Singh (Statement of Objects, 2003) — Stated the amendment would 'help in significant augmentation of revenues of the States' and 'pave the way for eventual inclusion of services within state-level VAT.'