Article 279

Article 279 of the Constitution of India provides the constitutional mechanism for determining the “net proceeds” of taxes and duties levied and collected by the Union and the States. It serves as a fundamental provision in India’s fiscal framework, ensuring accuracy, transparency, and fairness in the distribution of revenues between the Centre and the States. The Article also lays down the role of the Comptroller and Auditor-General of India (CAG) in certifying such proceeds and guarantees the finality of this certification.

Concept and Definition of “Net Proceeds”

The term “net proceeds”, as defined in Article 279(1), refers to the amount of any tax or duty collected by the Union or a State government after deducting the cost of collection. This deduction includes expenses incurred in administering, assessing, and collecting the tax or duty.
In essence, “net proceeds” represent the actual revenue available for distribution among the Union and the States after accounting for administrative costs. The provision ensures that only genuine, net amounts are considered while apportioning revenues under Articles 269, 270, and 275, which govern financial relations between the two levels of government.

Role and Function of the Comptroller and Auditor-General of India

The Comptroller and Auditor-General (CAG) holds a constitutionally mandated role in determining the final figure of net proceeds. Article 279(1) expressly states that the CAG’s certificate regarding the calculation of net proceeds shall be final and conclusive.
This means that:

• The certification issued by the CAG is binding on both the Union and the States.
• No other authority, including Parliament or the executive, may alter or contest the certified figure.
• The CAG ensures neutrality and accountability in financial management by independently verifying the accuracy of the figures before certification.

The finality accorded to the CAG’s certification upholds the integrity of India’s fiscal administration, protecting it from political or executive influence.

Legislative and Executive Authority

Article 279(2) empowers Parliament and the President of India to make laws or issue orders concerning the calculation and distribution of tax proceeds. These powers include:

• Prescribing the method of calculation for determining the net proceeds.
• Fixing the timing and manner of payments to the States.
• Making adjustments between financial years, particularly in cases where collections or transfers are delayed.
• Addressing incidental or related matters necessary for implementing these financial provisions.

This legal and executive framework ensures uniformity and predictability in the financial relationship between the Union and the States.

Provisions Relating to States

Article 279 has direct implications for the States’ fiscal rights and revenues. It provides the legal foundation for:

• Assigning to the States their share of taxes and duties collected by the Union.
• Determining the basis for distribution of such revenues among different States in accordance with Article 270 and the recommendations of the Finance Commission.
• Ensuring transparency and objectivity in financial transfers, which are crucial for maintaining trust in intergovernmental fiscal arrangements.

The certification of net proceeds by the CAG thus directly impacts the budgetary planning and revenue estimates of State governments.

Judicial Interpretations and Case Law

The Supreme Court of India has interpreted Article 279 in several landmark judgments that clarify its application and scope.

• State of West Bengal v. Union of India (1963): The Court examined the broader framework of Union–State financial relations and emphasised that the equitable distribution of tax proceeds depends on accurate and certified determination of net proceeds under Article 279.
• K. Rajendran v. State of Kerala (1990): The Court affirmed the exclusive authority of the CAG to certify the net proceeds of taxes and duties. It held that the CAG’s certification is final and binding, ensuring constitutional accountability in fiscal administration.

These rulings underline the constitutional sanctity of the CAG’s certification and its importance in maintaining a fair and transparent system of fiscal management.

Administrative and Financial Implications

Article 279 performs several vital administrative functions within the Indian financial system:

• It ensures accurate measurement of tax revenues available for distribution.
• It guarantees transparency in the fiscal relationship between the Union and the States.
• It promotes accountability by vesting an independent constitutional authority—the CAG—with the task of certifying figures.
• It helps avoid disputes between the Centre and the States by providing a conclusive certification mechanism.

The Article also supports fiscal planning and coordination, as the determination of net proceeds influences the calculations used by the Finance Commission and the Union Budget.

Relationship with Other Fiscal Articles

Article 279 functions as a linking mechanism between various financial provisions under Part XII of the Constitution, particularly:

• Article 268: Relating to the distribution of duties levied by the Union but collected by the States.
• Article 269: Concerning taxes on inter-State trade or commerce.
• Article 270: Providing for taxes shared between the Union and the States.
• Article 275: Relating to grants-in-aid to States.
• Article 280: Establishing the Finance Commission, which uses the CAG’s certified figures to recommend revenue-sharing formulas.
• Article 281: Requiring that the Finance Commission’s recommendations, based partly on Article 279 data, be presented to Parliament.

Thus, Article 279 ensures that financial transfers, tax sharing, and grants are based on verified and conclusive data, forming the foundation for India’s fiscal federalism.

Significance for Fiscal Federalism and Cooperative Governance

The constitutional design of Article 279 reinforces India’s federal balance by ensuring that both the Union and the States operate on a transparent and equitable fiscal footing. Its significance lies in:

• Preventing disputes over revenue sharing through a final certification mechanism.
• Ensuring that financial distributions are based on objective, audited figures.
• Strengthening the principle of cooperative federalism, wherein fiscal relations are guided by fairness and accountability.

The Article thus upholds the constitutional discipline necessary for the smooth functioning of a multi-tiered financial system.