Article 272
Article 272 of the Constitution of India originally provided for the distribution of certain Union taxes, particularly Union duties of excise, between the Union and the States. Although the Article has since been repealed, its historical relevance lies in shaping the foundation of India’s fiscal federalism and the evolution of intergovernmental financial relations.
Historical Context and Evolution
When the Constitution came into force in 1950, Article 272 was designed to ensure that the financial resources of the States were supplemented by a share in certain Union-collected taxes. This arrangement reflected the framers’ intent to maintain fiscal balance in a federal structure where the Union had broader taxing powers but the States carried significant expenditure responsibilities.
Initially, the Article authorised the Parliament to prescribe, by law, the manner in which the net proceeds of Union duties of excise, except those on medicinal and toilet preparations, would be distributed among the States. The provision recognised that the States required assured revenue streams to function effectively, and therefore, Union duties of excise on certain goods—such as sugar, tobacco, and textiles—were to be shared with them.
However, over the decades, the fiscal system evolved through successive Finance Commissions and Constitutional Amendments, leading to the eventual repeal of Article 272. The Eightieth Amendment Act, 2000, in particular, fundamentally restructured the tax-sharing mechanism under Article 270, rendering Article 272 redundant.
Key Provisions (Before Repeal)
Prior to its repeal, Article 272 consisted of two key clauses:
- Clause (1) – Empowered the Union Government to levy and collect specific duties of excise as part of its fiscal authority.
- Clause (2) – Required that the net proceeds of such duties be distributed among the States in accordance with principles prescribed by Parliament, often guided by the recommendations of the Finance Commission.
This framework was a significant aspect of the vertical fiscal balance between the Union and the States, ensuring that States received a constitutionally assured portion of Union revenues.
Fiscal Distribution and Administrative Mechanisms
The responsibility for implementing the distribution of taxes under Article 272 rested with the Ministry of Finance, Government of India. The process involved:
- Collection of Union duties of excise by the central authorities.
- Calculation of net proceeds, after deducting collection costs.
- Distribution to the States based on statutory formulae and Finance Commission recommendations.
This mechanism aimed to promote transparency and accountability, ensuring that States received their due share of central revenue in a timely manner.
Relation to Other Constitutional Provisions
Article 272 functioned in conjunction with several other financial provisions of the Constitution, particularly:
- Article 270 – Provided for the sharing of taxes levied and collected by the Union with the States.
- Article 269 – Dealt with taxes levied and collected by the Union but assigned to the States.
- Article 280 – Established the Finance Commission, responsible for recommending the principles governing the distribution of central taxes between the Union and the States.
Together, these Articles formed the constitutional foundation of fiscal federalism in India, balancing the revenue-raising powers of the Union with the financial needs of the States.
Judicial Interpretations and Case Law
Although Article 272 has been repealed, several judicial decisions historically contributed to interpreting its scope and the nature of fiscal relations under it:
- K. K. Verma v. Union of India (1954) – Examined the division of taxation powers and the respective competencies of the Union and the States.
- State of West Bengal v. Union of India (1963) – Clarified the constitutional framework governing excise duties and the distribution of tax proceeds.
- Union of India v. State of Kerala (1970) – Discussed the interpretation of Articles 270 and 272 in the context of revenue sharing between the two levels of government.
These cases reinforced the constitutional principle that taxation powers and their distribution must align with the objectives of equitable financial federalism.
Implications for State Finances
Before its repeal, Article 272 had significant implications for State finances. It provided a stable and predictable source of income, particularly for less developed States with limited internal tax bases. The system ensured that a portion of central revenues from excise duties flowed to State treasuries, supporting essential services such as education, healthcare, and infrastructure.
However, the reliance on centrally collected revenues also contributed to fiscal dependency, prompting debates on the autonomy of States in revenue generation. The evolution of alternative tax-sharing mechanisms and the eventual adoption of comprehensive revenue-sharing arrangements under Article 270 aimed to address these challenges.
Repeal and Its Aftermath
The Eighty-Eighth Amendment Act (2003) and earlier Eighty-First and Eightieth Amendments gradually transformed the tax distribution system. The Eightieth Amendment introduced a pooling mechanism, under which all taxes (except surcharges and cesses) formed part of the divisible pool shared between the Union and the States.
Consequently, the specific framework under Article 272 was subsumed within the broader and more flexible scheme of Article 270. This led to the formal repeal of Article 272, acknowledging the redundancy of separate provisions for excise duty distribution.
Current Relevance
Although no longer operational, Article 272 remains historically significant for understanding the evolution of India’s fiscal system. Its principles continue to influence current discussions on fiscal devolution, especially in the context of the Goods and Services Tax (GST) regime introduced by the One Hundred and First Amendment Act, 2016.
The GST has replaced several central and state taxes, fundamentally reshaping the landscape of revenue sharing. While Article 272 itself is repealed, its underlying concept—equitable distribution of central revenues—persists in modern fiscal mechanisms such as the Finance Commission’s recommendations and the GST Compensation Fund.
Challenges and Future Considerations
The issues that prompted Article 272—namely, ensuring adequate State revenue and maintaining fiscal balance—remain relevant in contemporary policy debates. The dependence of States on Union transfers continues to be a concern, as disparities in fiscal capacity persist across regions.
Future fiscal reforms are likely to focus on:
- Enhancing State-level revenue generation capacity.
- Strengthening cooperative federalism through transparent and predictable revenue-sharing models.
- Revisiting the design of grants-in-aid and special purpose transfers to ensure fiscal equity.