Article 271

Article 271 of the Constitution of India provides a constitutional mechanism enabling the Union government to levy a surcharge on specific duties and taxes for its own purposes. It represents an essential fiscal tool in India’s federal financial structure, granting flexibility to the central government in managing revenue without altering the basic framework of taxation.

Constitutional Background

Article 271 is situated within Part XII of the Constitution, which encompasses provisions related to Finance, Property, Contracts, and Suits. This Part lays down the financial architecture of the Indian Union, defining how revenue is raised, distributed, and utilised between the Union and the States. Article 271 particularly empowers the Parliament to impose a surcharge on certain taxes and duties that are otherwise shared with the States, ensuring that the Union retains an additional source of income when national exigencies demand.

Scope and Exclusions

The article authorises Parliament to impose a surcharge on taxes and duties mentioned under Articles 269 and 270 of the Constitution. These include:

• Taxes on the sale or purchase of goods in the course of inter-State trade or commerce.
• Duties of excise on goods manufactured or produced within India, excluding alcoholic liquors intended for human consumption.

However, Article 271 explicitly excludes the Goods and Services Tax (GST), which is governed by Article 246A. Consequently, no surcharge can be levied on GST collections, marking a significant constitutional limitation on the Union’s taxing powers under this provision.

Mechanism and Revenue Allocation

When a surcharge is imposed under Article 271, its proceeds are credited to the Consolidated Fund of India. This ensures that the additional revenue is utilised exclusively for Union purposes and is not subject to the sharing mechanism applicable to regular taxes under Articles 269 and 270. Parliament may determine the rates, scope, and conditions of such surcharges through appropriate legislation, typically enacted during the Union Budget.

Related Constitutional Provisions

Article 271 must be understood in relation to the broader fiscal framework provided by other constitutional articles:

• Article 269 – Concerns taxes levied and collected by the Union but assigned to the States, such as inter-State trade taxes.
• Article 270 – Governs taxes levied and collected by the Union but distributed between the Union and the States according to prescribed formulae recommended by the Finance Commission.
• Article 246A – Introduces the Goods and Services Tax, a shared taxing power between the Union and the States, and expressly kept outside the purview of Article 271.

Together, these provisions ensure a balanced fiscal relationship between the Union and the States, while retaining a mechanism for the Union to mobilise additional funds when necessary.

Legislative Competence

The exclusive authority to impose a surcharge under Article 271 rests with the Parliament of India. This centralised power provides the Union with flexibility to raise extra revenue without amending existing tax laws or increasing base tax rates. Surcharges are typically imposed through the annual Finance Act, which accompanies the Union Budget. This legislative control reflects the Union’s dominance in fiscal policy formulation while preserving constitutional safeguards for States’ revenues.

Nature and Characteristics of Surcharges

Surcharges differ from regular taxes in both purpose and distribution:

• They are additional charges imposed on existing taxes or duties.
• The entire proceeds belong exclusively to the Union and are not shared with the States.
• They are temporary in nature, often levied to meet specific fiscal needs or emergencies.
• They can be applied to both direct taxes (like income tax) and indirect taxes (such as customs or excise duties), depending on the scope defined by Parliament.

Examples from fiscal practice include the education cess or health and education surcharge imposed on income tax, representing forms of surcharges that contribute directly to Union funds.

Judicial Interpretations and Doctrinal Position

Although there is no landmark Supreme Court case directly interpreting Article 271, several judicial pronouncements provide contextual clarity on the nature of surcharges and taxation powers. Courts have recognised that a surcharge is essentially a tax upon a tax, distinct from the basic tax liability, and that Parliament enjoys wide discretion under its fiscal powers to design and implement such measures.
In broader constitutional interpretation, the judiciary has emphasised the federal balance in fiscal relations, noting that the Union’s surcharge powers must be exercised in a manner consistent with cooperative federalism.

Practical and Fiscal Implications

In practice, surcharges have served as an important instrument of fiscal policy. They enable the Union government to:

• Mobilise additional revenue without altering statutory tax rates.
• Address emergency financial requirements such as natural disasters, defence needs, or economic slowdowns.
• Maintain budgetary flexibility while ensuring compliance with fiscal discipline targets.

However, frequent or high surcharges may lead to taxpayer discontent and reduced fiscal predictability, affecting the business environment and intergovernmental fiscal harmony.

Contemporary Relevance

In the post-GST era, Article 271 continues to retain significance despite its exclusion of GST. The Union government still relies on surcharges on income tax and other direct taxes to bolster its revenues. For instance, in recent budgets, surcharges have been applied progressively on high-income categories, reinforcing the principle of equitable taxation while ensuring fiscal stability.
The constitutional exclusion of GST from surcharge imposition has, however, limited the Union’s scope in the domain of indirect taxation, reinforcing cooperative federalism and preserving the States’ fiscal autonomy in GST administration.