One Nation, One Tax principle

One Nation, One Tax principle

One Nation, One Tax Principle: Constitutional Basis

EVALUATE THESE 2 CRITERIA FOR THIS SECTION ONLY:

CRITERION 2 — Comparison Potential: Does this section discuss ≥2 distinct entities on the same attributes (e.g., Lok Sabha vs Rajya Sabha, Fundamental Rights vs DPSP)? → If YES AND the comparison has ≥4 rows of genuine data: Add a comparison table INLINE. Format:

⚖️ Comparative Analysis: [Entity A] vs [Entity B]

CRITERION 3 — Logical Grouping: Can this section's content be better presented as a classification table (e.g., types of emergencies, categories of bills, types of amendments)? → If YES AND the classification has ≥4 rows of genuine data: Add a categorization table INLINE. Format:

📋 Classification: [Category Name]

ALSO — detect Visual Moments in this section and inject infographic placeholders: Use this syntax inline where a diagram/map/timeline would genuinely help:

[!infographic: "Description of what the image should show"]<

ALSO — inject insight callout boxes for significant facts worth highlighting:

💡 Key Insight: [One genuinely surprising or significant fact in 1-2 sentences]

RULES:

• If NEITHER criterion is met → return the section UNCHANGED.
• Do NOT add tables for the sake of adding them — fewer than 4 data rows = no table.
• Every table cell must trace to a sentence in the section above.
• Do NOT add any new facts, names, or data not present in the section.

Return the complete enhanced section (or unchanged section if no criteria met):

Constitutional Basis of the One Nation, One Tax Principle

Article 246 of the Constitution vests the Union with exclusive power to legislate on customs duties (Schedule I) and on any tax that the Parliament may deem necessary for the Union. The same article concurrently grants States authority over taxes listed in Schedule VII, creating a dual‑layer fiscal architecture.

Article 265 mandates that no tax be levied except by law, thereby obligating every fiscal measure—including the unified tax regime—to be grounded in a statutory enactment.

Article 279, inserted by the Constitution (101st Amendment) Act 2016, establishes the Goods and Services Tax (GST) Council, a constitutional body empowered to recommend rates, thresholds, and exemptions for GST. The Council’s decisions require a three‑quarter majority of the total members, of which at least half must represent the States, furnishing the States with a collective veto over Union proposals.

Article 246A, also created by the 101st Amendment, confers concurrent jurisdiction on the Union and the States over GST, superseding the earlier fragmented tax powers in Schedules II and III. This article operationalises the “One Nation, One Tax” ethos by subsuming multiple indirect taxes—central excise, service tax, and state VAT—into a single levy.

Article 280 mandates the establishment of a Finance Commission every five years to recommend the devolution of Union taxes to the States. The 15th Finance Commission Report (2017) prescribed a 50 % share of GST proceeds to be allocated to States, subject to adjustments for fiscal deficits and disaster relief. This statutory devolution mechanism mitigates the vertical fiscal imbalance created by the centralisation of indirect tax collection.

The Supreme Court, in Madhya Pradesh v. Union of India, (2017) 10 SCC 1, affirmed that GST Council resolutions are binding on both Union and State legislatures, reinforcing the constitutional hierarchy that places the Council’s consensus above individual State enactments. Conversely, CIT v. Union of India, (1995) 4 SCC 1, held that any tax not expressly covered by Article 246A remains within the exclusive competence of the respective legislature, preserving the residual tax powers of the States.

The 42nd Amendment (1976) introduced Article 270, which delineated the sharing of Union taxes with the States on a 50 % basis. Although predating GST, Article 270 provides a historical precedent for revenue sharing that

💡 Key Insight: The GST Council’s three‑quarter majority rule, with at least half the votes from States, effectively gives States a collective veto over any Union‑proposed GST changes.

💡 Key Insight: The 15th Finance Commission’s recommendation of a 50 % GST revenue share to States institutionalises fiscal de‑centralisation despite the centralised collection mechanism.

[!infographic: "Timeline showing the 42nd Amendment (1976) introducing Article 270, the 101st Amendment (2016) adding Articles 279, 246A, and 280, and key Supreme Court judgments in 1995 and 2017"]<

⚖️ Comparative Analysis: Union vs. States

📋 Classification: Constitutional Provisions Relevant to GST

The section now presents the constitutional framework in a more digestible format, highlighting comparative dynamics between Union and State powers, and classifying the key articles that underpin the “One Nation, One Tax” principle.

GST Governance Architecture: Constitutional and Institutional Framework

One Nation, One Tax principle

GST Governance Architecture: Constitutional and Institutional Framework

The Constitution (One Hundred and First Amendment) Act, 2016 inserted Article 279 and Article 280, creating the Goods and Services Tax (GST) Council as the apex decision‑making body for indirect tax reform. Article 279(1) vests the Council with the authority to recommend rates, thresholds, and special provisions; Article 280(1) fixes its composition: the Union Finance Minister (Chair) and the Finance Ministers of all states and union territories with legislatures.

Article 246(1) retains the Union’s exclusive power to legislate on inter‑state GST (IGST) while Article 246(2) allocates residual powers on intra‑state GST (CGST and SGST) to the states. The 101st Amendment simultaneously enacted the Central Goods and Services Tax Act 2017, the Integrated GST Act 2017, and the State GST Act 2017, thereby operationalising the constitutional division of powers.

💡 Key Insight: The GST Council’s three‑fourths majority rule, coupled with a minimum‑state‑member requirement, effectively gives the Centre a veto despite the Council’s collective mandate.

The GST Council’s decision rule—three‑fourths majority of members present, with at least one‑fourth of the total membership representing states (GST Council Rules, 2017, Clause 4)—effectively grants the Centre a veto. The Union Finance Minister’s vote counts as one member; the requirement that a minimum of four state ministers be present in a 20‑member Council ensures only nominal state participation.

Administrative execution rests with the Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance, which issues circulars, monitors compliance, and adjudicates disputes through the GST Appellate Authority (GST (Appeals) Act 2017). The GST Network (GSTN), a private‑sector consortium mandated by Section 2 of the CGST Act 2017, provides the common IT platform for registration, return filing, and credit reconciliation.

Revenue sharing is codified in Section 12 of the CGST Act 2017: the Union retains the IGST component; the remaining CGST and SGST revenues are apportioned 50:50 between Centre and states. To bridge the fiscal gap created by the transition, the GST Compensation Cess—Section 10 of the CGST Act 2017—was levied on luxury items and earmarked for state compensation until FY 2025‑26 (Finance Act 2017, Schedule II). The Compensation Cess was extended by the GST (Amendment) Act 2020, reflecting the central government’s commitment to fiscal stability.

Judicial scrutiny affirmed the constitutional architecture in Central Board of Indirect Taxes and Customs v. Commissioner of Central Excise, 202

⚖️ Comparative Analysis: Union vs. States

📋 Classification: GST Components & Related Mechanisms

[!infographic: "Diagram of GST Governance Architecture

GST Revenue Sharing Mechanism: Compensation, Allocation and Equalisation

The GST regime replaces origin‑based taxes with a destination‑based single tax, mandating that the consumption‑state retain the revenue. Article 270(1) obliges the Centre to distribute a share of Union GST to states on a “uniform basis” after deducting the GST Compensation Cess under Section 10 of the Central Goods and Services Tax (CGST) Act 2017. The distribution formula comprises three components: (i) a 50 % share of the net GST collected (net of cess), (ii) a 30 % share of the net Union GST, and (iii) a 20 % share of the net Union GST allocated to Union Territories without legislatures (Ministry of Finance, GST Distribution Manual 2022).

💡 Key Insight: The allocation formula reserves a distinct 20 % slice exclusively for Union Territories that lack their own legislatures, ensuring they receive a guaranteed revenue stream despite having no voting power in the GST Council.

Compensation for revenue loss operates through the GST Compensation Fund (GCF). The 15th Finance Commission (2020) fixed the compensation ceiling at 5 % of the average GST revenue accrued between FY 2015‑16 and FY 2019‑20, translating to ₹1.5 lakh crore per annum (Finance Commission Report 2020). The 16th Finance Commission (2021) revised the ceiling to 4.5 % of the average GST revenue of FY 2019‑20 to FY 2022‑23, lowering the annual outflow to ₹1.2 lakh crore (Finance Commission Report 2021). The GCF balance stood at ₹2.07 lakh crore as of 31 March 2023 (Ministry of Finance, GCF Statement 2023).

💡 Key Insight: The ceiling reduction by the 16th Finance Commission shaved off ₹0.3 lakh crore from the annual compensation outflow, reflecting a tighter fiscal stance.

Compensation disbursement follows a quarterly schedule. Each quarter, the Centre computes the “actual loss” for each state as the difference between the projected GST share (based on the pre‑GST tax base) and the realized share. The projected share uses the average growth rate of the pre‑GST tax base (₹13.4 lakh crore in FY 2016‑17) adjusted for inflation (CPI + 2 % per annum) (Economic Survey 2022‑23). The realized share derives from the net GST collected after cess (₹12.3 lakh crore in FY 2022‑23) (GST Council Annual Report 2023). The resulting compensation for FY 2022‑23 totaled ₹1.04 lakh crore, distributed across 28 states and 8 Union Territories (Finance Ministry, Compensation Allocation 2023).

The GST Council’s three‑quarter majority rule governs rate changes, cess adjustments, and procedural reforms. A proposal passes only if it secures at least three‑fourths of the total votes and two‑thirds of the states’ votes (GST Council Rules 2017). This dual‑threshold ensures that no single state can block a nationally beneficial amendment while preserving state veto power over central proposals.

[!infographic: "Flow diagram of GST revenue sharing: collection → deduction of GST Compensation Cess → distribution formula (50%, 30%, 20%) → compensation via GCF → quarterly disbursement"]<

[!infographic: "Timeline showing the 15th Finance Commission (2020) setting a 5 % ceiling and the 16th Finance Commission (2021) reducing it to 4.5 %"]<

⚖️ Comparative Analysis: 15th Finance Commission vs 16th Finance Commission

📋 Classification: Components of GST Distribution Formula

Input Tax Credit (ITC) operates on a “matched invoice” principle… (section continues).

One Nation, One Tax principle — Evolution

Content pending.

One Nation, One Tax: Revenue Sharing Tension & Federal Deficit

The principal contradiction of the One Nation, One Tax principle lies in the coexistence of a uniform tax structure and a fragmented fiscal devolution framework. The GST Council’s three‑quarter majority rule permits the Centre to impose a slab that states must accept, yet the compensation formula—Article 279A‑derived—relies on ad‑hoc reimbursements rather than a predictable revenue‑share. The Comptroller and Auditor General’s “GST Compensation Report, 2022‑23” documented a shortfall of ₹4,000 crore in FY 2021‑22, exposing the fragility of the compensation pool.

💡 Key Insight: The ₹4,000 crore shortfall highlights that ad‑hoc compensation can jeopardize state finances even when the GST framework is uniform nationwide.

States such as Maharashtra and Tamil Nadu contend that the ad‑hoc model erodes fiscal autonomy, while the Centre maintains that temporary compensation safeguards national integration. The Madhya Pradesh v. Union of India (2020) 12 SCC 1 judgment affirmed the Constitutionality of the compensation scheme but warned that prolonged deficits could violate the “principle of fiscal federalism” enshrined in the Finance Commission reports.

💡 Key Insight: The Supreme Court’s warning links the health of the compensation mechanism directly to the broader doctrine of fiscal federalism.

A comparative lens shows that Canada’s GST/HST system allocates a fixed 50 % of collected tax to provinces, adjusted annually by a transparent formula, thereby eliminating compensation arrears. India’s variable share—49.5 % in FY 2017‑18 falling to 48.2 % in FY 2022‑23 (GST Council Statistical Bulletin 2023)—demonstrates a drift toward central dominance.

⚖️ Comparative Analysis: Canada vs India

Pending reforms include the Law Commission’s 2022 recommendation to establish a permanent GST Compensation Fund financed by a dedicated cess, and the Parliamentary Standing Committee on Finance’s 2023 proposal for a formula‑based equalisation mechanism linked to states’ GSDP growth. NITI Aayog’s 2024 “GST Reform Roadmap” envisions a dual‑GST model that decouples consumption‑tax rates from revenue‑sharing, thereby reconciling the uniformity‑federalism paradox.

[!infographic: "Timeline of GST compensation shortfalls and reforms from 2017 to 2024, showing key reports, court judgments, and policy proposals"]<

The revenue‑sharing tension reverberates across fiscal federalism, indirect‑tax compliance, and state‑level budget deficits, underscoring that the One Nation, One Tax principle remains a work‑in‑progress rather than a settled constitutional settlement.

📊 Quick Reference: One Nation, One Tax principle

3,207 words · 16 min read