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Extract from 15 FC report-page 67 "..Hence, the Union Government merely acts as
a custodian of funds so collected in the Public Account till these are appropriated for the
mandated purpose. Similarly, surcharges are meant to be levied only for short periods. Both
cesses and surcharges are excluded from the divisible pool..."
[270. Taxes levied and distributed between the Union and the States.-(1) All taxes and duties
referred to in the Union List, except the duties and taxes referred to in articles 2
[268, 269 and 269A],
respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purposes
under any law made by Parliament shall be levied and collected by the Government of India and shall be
distributed between the Union and the States in the manner provided in clause (2).
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[(1A) The tax collected by the Union under clause (1) of article 246A shall also be distributed between
the Union and the States in the manner provided in clause (2).
(1B) The tax levied and collected by the Union under clause (2) of article 246A and article 269A,
which has been used for payment of the tax levied by the Union under clause (1) of article 246A, and the
amount apportioned to the Union under clause (1) of article 269A, shall also be distributed between the
Union and the States in the manner provided in clause (2).]
(2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial
year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which
that tax or duty is leviable in that year, and shall be distributed among those States in such manner and from
such time as may be prescribed in the manner provided in clause (3).
(3) In this article, ―prescribed‖means,-
(i) until a Finance Commission has been constituted, prescribed by the President by order, and
(ii) after a Finance Commission has been constituted, prescribed by the President by order after
considering the recommendations of the Finance Commission.]
271. Surcharge on certain duties and taxes for purposes of the Union.-Notwithstanding anything in
articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those
articles 4
[except the goods and services tax under article 246A,]by a surcharge for purposes of the Union and
the whole proceeds of any such surcharge shall form part of the Consolidated Fund of India
280. Finance Commission.-(1) The President shall, within two years from the commencement of this
Constitution and thereafter at the expiration of every fifth year or at such earlier time as the President
considers necessary, by order constitute a Finance Commission which shall consist of a Chairman and four
other members to be appointed by the President.
(2) Parliament may by law determine the qualifications which shall be requisite for appointment as
members of the Commission and the manner in which they shall be selected.
(3) It shall be the duty of the Commission to make recommendations to the President as to-
(a) the distribution between the Union and the States of the net proceeds of taxes which are to be, or
may be, divided between them under this Chapter and the allocation between the States of the respective
shares of such proceeds;
(b) the principles which should govern the grants-in-aid of the revenues of the States out of the
Consolidated Fund of India;
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[(bb) the measures needed to augment the Consolidated Fund of a State to supplement the resources of
the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the
State;]
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[(c) the measures needed to augment the Consolidated Fund of a State to supplement the resources
of the Municipalities in the State on the basis of the recommendations made by the Finance Commission
of the State;]
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[(d)] any other matter referred to the Commission by the President in the interests of sound finance.
(4) The Commission shall determine their procedure and shall have such powers in the performance of
their functions as Parliament may by law confer on them