While framing the Indian Constitution, the Constituent Assembly had many models to draw upon, it wisely chose to take the Government of India Act, 1935 as the basis on which the new Constitution was to be framed. The adoption of the Government of India Act, 1935, as the basis of the new Constitution had the great advantage of smoothly making the transition from British rule to the new Republic of India without any break with the past. It ensured that the old laws and the constitutional provisions continued without a break; and thereby secured for India, the advantage which an evolutionary change has over a revolutionary break with the past.
The most important political feature of a Federal Constitution is the distribution of legislative power between the Centre and the States. At the time of drafting the Government of India Act, 1935, the British Parliament had to solve the problem posed by the demand of the Muslim minority that residuary power of legislation should be conferred on the Provinces, and the demand of the Hindu majority that residuary power should be conferred on the Federation. The Government of India Act, 1935, solved this problem and avoided the allocation of residuary power either to the Provinces or to the Federation by adopting the device of exhaustively enumerating every conceivable subject of legislative power and putting it in one or the other of the three Lists of the Seventh Schedule to the Act. Our Constitution had bodily adopted the scheme of the aforementioned Act with small verbal changes.
I. Federalism and the Indian Constitution
The Constitution of India came into force on 26-1-1950. For many decades thereafter, the Supreme Court of India was called upon to grapple the issue about the nature of federalism under the Indian Constitution. After the Supreme Court’s decision in State of W.B. v. Union of India, it was understood that the unitary features in the Constitution are so many that the federal features almost disappear. In State of Rajasthan v. Union of India, Beg, C.J. observed that the extent of federalism in the Indian Constitution is largely watered down by the means of progress and development of a country which has to be nationally integrated, politically and economically coordinated and socially, intellectually and spiritually uplifted. H.M. Seervai in his treatise on the Indian Constitution observes that the aforementioned view of the Supreme Court “ … is based on an imperfect study of our own and other Federal Constitutions.”
Certain landmark pronouncements of the Supreme Court may conveniently be considered at this point.
In Powers, Privileges and Immunity of State Legislatures, In re the Supreme Court of India discussed the essential characteristics of federalism in juxtaposition to British Parliament:
- In dealing with this question, it is necessary to bear in mind one fundamental feature of a Federal Constitution. In England, Parliament is sovereign; and in the words of Dicey, the three distinguishing features the principle of parliamentary sovereignty are that Parliament has the right to make or unmake any law whatever; that no person or body is recognised by law of England as having a right to override or set aside the legislation of Parliament; and that the right or power of Parliament extends to every part of the Queen’s dominions. On the other hand, the essential characteristic of federalism is “the distribution of limited executive, legislative and judicial authority among bodies which are coordinate with and independent of each other”. The supremacy of the Constitution is fundamental to the existence of a federal State in order to prevent either the legislature of the federal unit or those of the member States from destroying or impairing that delicate balance of power which satisfies the particular requirements of States which are desirous of union, but not prepared to merge their individuality in a unity. This supremacy of the Constitution is protected by the authority of an independent judicial body to act as the interpreted of a scheme of distribution of powers. Nor is any change possible in the Constitution by the ordinary process of federal or State legislation….
It must therefore be borne in mind that one of the important features of federalism has to be the existence of an independent judiciary which, in the face of growing ‘unitarism’, would not be afraid to exercise its power of judicial review to examine whether any action of the Centre adversely affects the federal balance between the Centre and the States.
The aforementioned decision of the Supreme Court of India in State of W.B. v. Union of India was one of the important pronouncements where the concept of federalism was discussed. A six-Judge Bench was called upon to decide a suit filed by the State of West Bengal against the Union of India in relation to the Coal Bearing Areas (Acquisition and Development) Act, 1957. In the aforesaid context, the majority decision inter alia observed as under:
- In some respects, a greater degree of economic unity was sought to be secured by transferring subjects having impact on matters of common interest into the Union List. A comparison of the Lists in Schedule 7 to the Constitution with Schedule 7 to the Government of India Act, 1935 discloses that the powers of the Union have been enlarged particularly in the field of economic unity, and this was done as it was felt that there should be centralised control and administration in certain fields if rapid economic and industrial progress had to be achieved by the nation…. The result was a Constitution which was not true to any traditional pattern of federation….
Furthermore, the Court also observed that a truly Federal Constitution has four essential characteristics viz.:
(a) an agreement between independent and sovereign units to surrender partially their authority in their common interest and vesting it in a Union, and retaining the residue of the authority in the constituent units;
(b) supremacy of the Constitution which cannot be altered except by the component units;
(c) distribution of powers between the Union and the regional units each in its sphere coordinate and independent of each other; and
(d) supreme authority of the courts to interpret the Constitution and to invalidate action violative of the Constitution.
The Court observed that characteristic (d) is to be found in full force in the Indian Constitution, but characteristics (a) and (b) are absent. Insofar as characteristic (c) is concerned, there is undoubtedly distribution of powers between the Union and the States in matters legislative and executive, but the distribution is not always an index of political sovereignty. The exercise of legislative and executive powers in the allotted fields is hedged in by numerous restrictions, so that the power of the States is not coordinated with the Union and is, in many respects, independent of the Union.
In the context of the distribution of legislative power, the majority judgment observed that:
- … (T)he basis of distribution of powers between the Union and States is that only those powers and authorities which are concerned with the regulation of local problems are vested in the States, and the residue especially those, which tend to maintain the economic, industrial and commercial unity of the nation are left with the Union….
The majority also observed that the power of taxation is severely restricted vis-à-vis the States, and that the States depend largely upon financial assistance from the Union. As mentioned, pursuant to the aforesaid decision, it was usually understood that India has a Federal Constitution, which leans towards a strong centre.
A similar conclusion was also reached by a seven-Judge Constitution Bench of the Supreme Court of India in State of Rajasthan v. Union of India. In the aforementioned case, the letter issued by the Union Home Minister to the nine Congress-ruled States asking them to advise their respective Governors to dissolve the State Assemblies and seek a fresh mandate from the people was challenged by way of a suit before the Supreme Court of India. In the aforesaid context, the Court observed as under:
- A conspectus of the provisions of our Constitution will indicate that, whatever appearance of federal structure our Constitution may have, its operations are certainly, judged both by the contents of power which a number of its provisions carry with them and the use that has been made of them, more unitary than federal….
The Court further added that in a sense, the Indian Union is federal. But the extent of federalism in it is largely watered down by the need of progress and development of a country which has to be nationally integrated, politically and economically coordinated, and socially, intellectually and spiritually uplifted. The Court observed that in such a system, the States cannot stand in the way of legitimate and comprehensively planned development of the country in the manner directed by the Central Government.
In State of Karnataka v. Union of India the Supreme Court of India observed that strictly speaking, the Indian Constitution is not of a federal character where separate, independent and sovereign States could be said to have joined to form a nation as in the United States of America or as may be the position in some other countries of the world. In this case, the Supreme Court reiterated that for the aforesaid reason, the Indian Constitution has been characterised as quasi-federal.
Perhaps the authority on Indian Federalism is the nine-Judge Bench judgment of the Supreme Court of India in S.R. Bommai v. Union of India. In S.R. Bommai the incumbent Chief Minister of the State of Karnataka had questioned the proclamation of emergency declared under Article 356 of the Constitution of India. It was in the aforesaid context that the Constitution Bench was called upon to review the Proclamation under Article 356. The Bench expressed itself through six opinions. The authors of all six opinions principally referred to the aforementioned decisions in State of West Bengal and State of Rajasthan in the course of their judgments.
But for the present discussion, it may be sufficient to say that there was a clear majority to support the findings concerning federal characteristics of the Constitution of India. The Court observed that the Indian Constitution has in it, not only features of pragmatic federalism which, while distributing legislative powers and indicating spheres of governmental powers of State and Central Governments, is overlaid by strong “unitary” features, particularly exhibited by lodging in Parliament the residuary legislative powers, and in the Central Government, the executive power of appointing certain constitutional functionaries and issuing appropriate directions to the State Governments, and even displacing the State Legislatures and the Governments in emergency situations. More significantly, the Court observed that democracy and federalism are the essential features of our Constitution and are part of its basic structure. The federal principle was observed to be dominant in the Constitution and the principle of federalism has not been watered down. Notwithstanding that there are many provisions in the Constitution where under the Centre has been given powers to override the States, the Indian Constitution is federal in nature. The States have an independent constitutional existence and they have an important role to play in the life of the people of the Union.
The majority concluded that the Constitution of India creates a federation but with a bias in favour of the Centre. The Centre has been made far more powerful vis-à-vis the States. Correspondingly, several obligations too, are placed upon the Centre. That does not make the States mere appendages of the Centre. Within the spheres allotted to them, the States are supreme. Most importantly, the Court observed that the Centre cannot tamper with the powers of the States.
In ITC Ltd. v. Agricultural Produce Market Committee the Supreme Court ruled that the Constitution of India deserves to be interpreted, language permitting, in a manner that does not whittle down the powers of the State Legislature and preserves the federalism while also upholding supremacy as contemplated by some of its articles.
Another Constitution Bench consisting of five Judges was called upon to examine federalism under the Indian Constitution in Kuldip Nayarv. Union of India. The aforesaid case came up before the Supreme Court of India in the form of a writ petition challenging the amendments made in the Representation of the People Act, 1951, whereby the requirement of “domicile” in the State concerned for getting elected to the Rajya Sabha was deleted. The fundamental basis of the petitioner’s challenge was that the impugned amendment violated the principle of federalism, a basic feature of the Constitution. While adjudicating upon the aforementioned issue, the Supreme Court observed that the nature of federalism in the Indian Constitution is no longer res integra.
After referring to a catena of judgments (which have been referred to hereinabove), and the facts of the case before it, the Supreme Court observed that India is not a federal State in the traditional sense of the term. In India, the context of federalism is not territory related. This is evident from the fact that India is not a true federation formed by agreement between various States and that territorially it is open to the Central Government, not only to change the boundaries, but even to extinguish a State.
The aforementioned decision in Kuldip Nayar was reaffirmed by a nine-Judge Bench of the Supreme Court of India in Jindal Stainless Ltd. v. State of Haryana. The issue before the Supreme Court was the validity of the laws enacted by different States in India providing for levy of tax on the entry of goods into local areas comprising the States. The majority opinion identified that the issue was of great concern not only because it dealt with the powers of the State Legislatures to levy taxes but also because any pronouncement would impact the federal character of polity and the Centre-State relationship in legislative and fiscal matters. The Court observed that the legal position is fairly well settled that the Constitution provides for quasi-federal character with a strong bias towards the Centre. A reference was made to the judgments which have been referred to hereinabove.
The latest decision on the issue is the five-Judge Bench decision of the Supreme Court in State (NCT of Delhi) v. Union of India. The issue in the aforesaid matter related to the scope, ambit and interpretation of Article 239-AA of the Constitution of India which makes certain special provisions with respect to Delhi. Relying upon S.R. Bommai and ITC Ltd., the Court reiterated that democracy and federalism are firmly imbibed in constitutional ethos. Whatever be the nature of federalism present in the Indian Constitution, whether absolutely federal or quasi-federal, the fact of the matter is that federalism is a part of the basic structure of the Constitution. The Court also discussed a novel concept of collaborative federalism. It observed that in a welfare State, there is a great necessity of collaborative federalism. The idea behind the concept of collaborative federalism is negotiation and coordination so as to iron out the differences which may arise between the Union and the State Governments in their respective pursuits of development. Lastly, insofar as the federal structure under the Indian Constitution is concerned, the Court reiterated that the Constitution prescribes a federal structure which provides for division of powers between the States and the Centre, but with a slight tilt towards the Centre. However, it also provides for a federal balance between the powers of the Centre and the States so that there is no unwarranted or uncalled for interference by the Centre which would entail encroachment by the Centre into the powers of the States. The need is for federal balance which requires mutual respect and deference to actualise the workability of a constitutional provision.
II. Relations between the Union and the States in the Indian Constitution
The Constitution of India incorporates the concept of federalism in various provisions. There are several such provisions to be found throughout the Constitution which relate to the idea of federalism, and particularly those which concern the relationship between States and Centre. These include inter aliadivision of legislative functions between them with sanction of the Constitution inter alia include Lists I, II and III of the Seventh Schedule; the authority to Parliament to legislate in a field covered by the State under Article 252 only with the consent of two or more States, with provision for adoption of such legislation by any other State; competence of Parliament to legislate in matters pertaining to the State List in the national interest, for a limited period, under Article 249 and under Article 250 during “emergency”; vesting the President with the power under Article 258(1) to entrust to a State Government, with consent of the Governor, functions in relation to matters to which executive power of the Union extends; etc.
Part XI of the Indian Constitution is titled “Relations between the Union and the States”. Chapter I thereof relates to legislative relations. An important provision in the aforesaid chapter is Article 246 which provides for subject-matter of laws made by Parliament and by the State Legislatures. This article deals with distribution of legislative powers as between the Union and the State Legislatures, with reference to the different Lists in Schedule VII. The gist of the article is that Parliament has complete and exclusive power to legislate with respect to matters in List I, and also has the power to legislate with respect to matters in List III. The State Legislature, on the other hand, has complete and exclusive power to legislate with respect to List II and has concurrent power with respect to matters included in List III. This provision provides for the distribution between the Union and the States, of the legislative power conferred by Article 245. The provisions of Article 246 are to be read with the entries in the Union List, State List and the Concurrent List in Schedule VII.
The distribution of legislative powers is an important aspect of the Constitution. By now, it is well-settled position of law that amongst the grounds available to test the constitutional validity of a statute, the two principal grounds are violation of a fundamental right guarantee under Part III of the Constitution, and legislative competence of the legislature which has enacted the statute. For the present purpose, it is not necessary to consider other grounds available to raise an ultra vireschallenge. Of the two aforementioned principal grounds of challenge, only the ground of legislative competence is of relevance while discussing the federal versus unitary nature of the Constitution.
It is contended in this paper that there has been a steady encroachment by the Centre over matters that would normally fall within the jurisdiction of the States leading to an erosion of the sphere of control that otherwise vested in the States. While this may be examined under different heads,three such heads have been considered below:
- Encroachment by the Centre over the States’ Legislative area;
- Part XIII – Interstate Trade and Commerce; and
- Effect of change in taxation and revenue sharing.
Each of these may now be considered.
III. Encroachment upon the States’ legislative arena by the Union
Over the past three decades, it is being observed that Parliament appears to have encroached upon the legislative powers of the States.
The Constitution (73rd Amendment) Act, 1992 inserted Part IX titled “The Panchayats”. The 73rd Amendment was brought into force under the garb of giving effect to a directive principle of State policy viz. Article 40 of the Constitution. Article 40 provides that the State shall take steps to organise village panchayats and endow them with such powers and authority as may be necessary to enable them to function as units of self-government.
The introduction of Part IX to the Constitution was by way of the aforementioned Amendment under Article 368 of the Constitution. It sought to grant a constitutional status to local self-government institutions. The Supreme Court of India in Gujarat Pradesh Panchayat Parishad v. State of Gujarat observed that in the light of the constitutional provisions in Part IX, a State Legislature cannot do away with the democratic bodies at the local level, nor can their normal tenure be curtailed otherwise than in accordance with law.
Part IX of the Constitution confers certain powers on local self-government. It promises duration of five years, free and fair elections, representation of Scheduled Castes and Scheduled Tribes in the administration of institutions of local self-government, “no interference” by other organs of the State, including judiciary, etc. To illustrate, Article 243-B provides that there shall be constituted in every State, panchayats at the village, intermediate and district levels in accordance with the provisions of this Part. Further, Article 243-C provides for composition of panchayats. Clause (1) thereof provides that subject to the provisions of Part IX, the legislature of a State may, by law, make provisions with respect to the composition of panchayats. The particulars of the composition have also been prescribed by Article 243-C. Article 243-D provides that seats shall be reserved for the Scheduled Castes (SC) and the Scheduled Tribes (ST) in every panchayat. Furthermore, it provides that the number of seats so reserved shall bare, as nearly as maybe, the same proportion to the total number of seats to be filled by direct election in the Panchayat as the population of the SC/ST in that panchayat area bares to the total population of that area. Not less than one-third of the seats reserved, are to be reserved for women belonging to SC/ST. Furthermore, not less than one-third of the total number of seats to be filled in by direct election in every Panchayat, shall be reserved for women. The provision also mandates reservation in the offices of the Chairpersons in the Panchayat. Article 243-E provides that every panchayat shall continue for five years from the date appointed for its first meeting and no longer. Article 243-F provides for disqualifications that a person may incur, for being a member of a Panchayat. The powers, authority and responsibilities of the Panchayats are provided for in Article 243-G. Much like many of the aforementioned clauses, Article 243-G also provides that subject to the provisions of the Constitution, the legislature of a State may endow the Panchayats with such power and authority as may be necessary to enable them to function as institutions of self-government. The law framed by a State Legislature pursuant to Article 243-G is subject to the condition as may be specified therein, with respect to implementation of schemes for economic development and social justice as may be entrusted to them including those in relation to matters listed in the Eleventh Schedule. Article 243-H enables the legislature of a State to authorise a Panchayat to levy, collect and appropriate such taxes, duties, tolls and fees in accordance with such procedure and subject to such limits as the law may prescribe. Article 243-K provides for the elections to the Panchayat. Clause (1) thereof provides that the superintendence and control of preparation of electoral rolls for, and the conduct of, all elections to the Panchayats shall be vested in a State Election Commission. Furthermore, clause (4) provides that the legislature of a State may, by law, make provision with respect to all matters relating to elections to the Panchayat. An important provision introduced by the 73rd Amendment is Article 243-N which provides for continuance of existing laws and Panchayats. It starts with a non obstante clause, and provides that notwithstanding anything in Part IX, any provision of law relating to Panchayats in force in a State immediately before the commencement of the 73rd Amendment Act, which is inconsistent with the provisions of Part IX, shall continue to be in force until amended or repealed by a competent legislature or until the expiration of one year from such commencement, whichever is earlier. The 73rd Amendment was brought into force on 24-4-1993. Therefore, in terms of the aforementioned article, any law relating to Panchayats in force in a State would continue to be in force only up to 24-4-1993, unless it was amended or repealed before that.
Similar to Part IX, is Part IX-A, comprising of Articles 243-P to 243-ZG. Part IX-A was inserted into the Constitution by Constitution (74th Amendment) Act, 1992. Part IX-A is titled “The Municipalities”. The object of introducing Part IX-A was that in many States the local bodies were not working properly, and timely elections were not being held and nominated bodies were continuing for long periods. Elections had been irregular and many times unnecessarily delayed or postponed and the elected bodies had been superseded or suspended without adequate justification at the whims and fancies of the State authorities. The provisions introduced vide Part IX-A were intended to restore the local bodies to their rightful place in political governance. It was considered necessary to provide a constitutional status to such bodies and to ensure regular and fair conduct of elections. Much like Part IX, Part IX-A also provides for constitution of Municipalities (Article 243-Q), composition of Municipalities (Article 243-R), reservation of seats (Article 243-T), duration of Municipalities (Article 243-U), powers, authority and responsibilities of Municipalities (Article 243-W), powers to impose taxes by, and funds of the Municipalities (Article 243-X), audit of accounts of Municipalities (Article 243-Z). Further, the aforesaid part also introduces provisions relating to election (Article 243-ZA). The provisions of Article 243-ZF are pari materia to the provisions of Article 243-N, insofar as it provides that any provision of a law relating to Municipalities in a State immediately before the commencement of the 74th Amendment, which is inconsistent with the provisions of Part IX-A shall continue to be in force until amended, repealed or until expiration of one year from the date of commencement of the Amending Act.
But for the introduction of Parts IX and IX-A, the State Legislature had complete power to legislate upon matters relating to Panchayats and Municipalities. This power could be traced to Article 246 read with Entry 5 of List II of Schedule VII. Entry 5 provides for “Local Government that is to say the constitution and powers of Municipal Corporations, Improvement Trusts, District Boards, Mining Settlement Authorities, and other local authorities for the purpose of local self-government or village administration”. Pursuant to the introduction of Parts IX and Part IX-A, it can be contended that Parliament has enacted provisions relating to a matter which clearly fell within the exclusive legislative domain of the States. As mentioned, the introduction of Parts IX and IX-A, make provisions in relation to certain aspects of the functioning of the Panchayats and the Municipalities respectively. By virtue of Articles 243-N and 243-ZF, the State Legislatures cannot make any statutes which are inconsistent with the provisions of Parts IX and IX-A. Perhaps, even in the absence of the aforementioned two articles, the States would have lost their power to make any statute which is inconsistent with the provisions of the aforementioned Parts by virtue of them being constitutional provisions. It is clear that the introduction of Parts IX and IX-A were made by using the power under Article 368 of the Constitution viz. the power of Parliament to amend the Constitution. It may be said that but for Article 368, Parliament could not have made any statute in relation to institutions of local self-governance by virtue of them being within the exclusive domain of the State Legislature. An attempt to usurp some domain from that which lies exclusively with the State Legislature will amount to be a colourable exercise of power by Parliament. In other words, using the power to amend the Constitution to enact provisions relating to local self-governments, Parliament has sought to do something indirectly, which it could not do directly.
This exercise was repeated by Parliament by introducing Part IX-B by the Constitution (97th Amendment) Act, 2011. This Part was titled “Cooperative Societies”. Part IX-B provided for incorporation of cooperative societies (Article 243-ZI), constitution of the board of cooperative societies (Article 243-ZJ), election of members of the board (Article 243-ZK), supersession and suspension of board (Article 243-ZL), etc. The 97th Amendment Act was challenged before various High Courts in the country. The Gujarat High Court was pleased to declare the aforementioned Act as unconstitutional in Rajendra N. Shah v. Union of India. The petitioner in the aforementioned matter, inter alia challenged the validity of the 97th Amendment on the ground that the subject-matter “cooperative societies” is exclusively within the legislative competence of the State Legislatures. In other words, the State Legislature is the only competent legislature to enact laws for cooperative societies. The petitioner relied upon Entry 32 in List II of Schedule VII to support his contention. Entry 32 reads as follows: “incorporation, regulation and winding up of corporations other than those specified in List I, and universities; unincorporated trading, literary, scientific, religious and other societies and associations; cooperative societies.” It was contended by the petitioner that Parliament had exercised its power to amend the Constitution in a colourable manner. Parliament could not have done something indirectly which it was not permitted to do directly.
The learned Division Bench of the Gujarat High Court observed:
- 12. If this Part IX-B was not incorporated, the State Legislatures would have the absolute right to enact on the above subjects according to the decision of such legislatures whereas, after the amendment, no option is given to the State Legislature to deviate from or ignore those provisions. Thus, by incorporation of Part IX-B, various restrictions have been imposed relating to laws of cooperative societies which have constrained the jurisdiction of the State Legislatures to enact any law relating to the cooperative societies on those aspects. In other words, in spite of the fact that the law relating to cooperative societies is still in List II of the 7th Schedule without bringing the subject of cooperative societies either into List I or List III, by way of this amendment, Parliament has controlled the said power without complying with the provisions of Article 368(2) of the Constitution by taking ratification of the majority of the State Legislature….
- 13. In other words, what could not be achieved except by complying with the provision of Article 368(2) of the Constitution, the selfsame(sic) purpose has been sought to be achieved by the amendment impugned in this writ application without complying with the provisions of Article 368(2) of the Constitution.
After referring to the decision of the Supreme Court in S.R. Bommai, the learned Division Bench observed that the impugned amendment also affected one of the basic structures of the Constitution viz. federalism. It held that the amendment was violating the basic structure of the Constitution so long as the subject of cooperative societies was in the State List of the 7th Schedule and at the same time the provisions of Article 368(2) were not complied with. Thus, the Gujarat High Court declared the Constitution (97th Amendment) Act, 2011 to be unconstitutional.
The aforementioned decision of the Gujarat High Court was challenged before the Supreme Court of India vide SLPNo. 25266-25267 of 2013. The Supreme Court was pleased to issue notice vide its order dated 23-8-2013. The matter is pending before the Supreme Court.
What is true in case of the 97th Amendment is equally true in case of the 73rd and 74th Amendments. All the aforesaid amendments were in relation to matters which were exclusively within the legislative competence of the State Governments. Parliament exercised its powers under Article 368 to encroach upon the legislative arena of the State Legislatures. It is not as if the distribution of matters in the context of legislative competence is set in stone. If Parliament so deems it appropriate, it can in certain situations, make laws in relation to matters enlisted in the State List as well. Such provisions are found in Chapter I of Part XI itself. Furthermore, in case a need is felt to shift a matter from one List to another, the procedure prescribed under Article 368(2) can be followed. A Bill for amending the Constitution to make any amendments of the Lists in the 7th Schedule can be introduced in either House of Parliament and once it received the assent of both the Houses, it may be forwarded to the States for ratification by the legislatures of not less than one-half of the States by resolution to that effect passed by those legislatures. Thereafter, such a Bill may be presented to the President for his assent.
Part XIII of the Constitution of India
Part XIII of the Constitution is titled “Trade, commerce and intercourse within the territory of India”. Article 301 provides that subject to the other provisions of Part XIII, trade, commerce and intercourse throughout the territory of India shall be free. Article 301 is inspired by Section 92 of the Australian Constitution when it refers to freedom of trade and commerce. However, it is subject to the limitations and conditions in Articles 302, 303 and 304 which are borrowed from the commerce clause under Article I of the US Constitution. Part XIII of the Indian Constitution is an amalgam of the United States’ and Australia’s Constitutions. It brings out the difference between regulatory and taxing powers.
Article 302 of the Constitution provides that Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another, or within any part of India as maybe required in the public interest. This provision is another instance of the Centre having wider powers as compared to States. Article 303 provides for restrictions on the legislative powers of the Union and of the States with regards to trade and commerce. Clause (1) thereof, provides that notwithstanding anything in Article 302, neither Parliament nor the legislature of a State shall have power to make any law giving, or authorising the giving of any preference to one State over another, or making, or authorising the making of any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the 7th Schedule. Discrimination means an intentional and purposeful differentiation creating economic barriers with an element of unfavourable bias. Furthermore, Clause (2) thereof carves out an exception to Clause (1) by providing that nothing therein shall prevent Parliament from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. This exception carved out by Article 303(2), is another instance where a wider discretion has been given to Parliament to make certain laws for the benefit of the Union, albeit in a specific situation.
Article 304 provides for restrictions on trade, commerce and intercourse among States. It inter alia provides that notwithstanding anything in Article 301 or Article 303, the legislature of a State may, by law, impose a tax on goods imported from other States which are similar to goods manufactured or produced in that State. Further, it also provides that the legislature of a State, may by law, impose such reasonable restrictions on the freedom of trade, commerce and intercourse with or within that State as may be required in public interest. The proviso to Article 304 requires the previous sanction of the President for introduction of any Bill or amendment for the purposes of Article 304 clause (b).
Federalism as reflected in the Temporary, Transitional and Special Provisions
Part XXI of the Constitution is entitled Temporary, Transitional and Special Provisions. The provisions contained in Part XXI again indicate the unitary leaning of the Indian Constitution. For instance, under Article 371 of the Constitution, the President may by order made with respect to the State of Maharashtra or Gujarat, provide for any special responsibility of the Governor for –
- The establishment of separate development boards for Vidarbha, Marathwada, and the rest of Maharashtra or, as the case may be, Saurashtra, Kutch and the rest of Gujarat with the provision that a report on the working of each of these boards will be placed each year before the State Legislative Assembly;
- The equitable allocation of funds for developmental expenditure over the said areas, subject to the requirements of the State as a whole; and
- An equitable arrangement providing adequate facilities for technical education and vocational training, and adequate opportunities for employment in services under the control of the State Government in respect of all the said areas, subject to the requirements of the State as a whole.
A provision akin to Article 371 is an inroad for the Central Executive viz. the President into certain affairs of the State. The scope of the power is clearly spelt out and has to be exercised in the manner specified therein. A similar provision is made in Article 371-D for the State of Andhra Pradesh or the State of Telangana where under the President may by order, for either of the States, provide, having regard to the requirement of each State, for equitable opportunities and facilities for the people belonging to different parts of such State, in the matter of public employment and in the matter of education, and different provisions may be made for various parts of the States.
The provisions of Part XXI make special provisions in relation to certain States in the country. The President has been granted the power to make orders in respect of the subjects mentioned therein, or appoint development boards in accordance with the provisions to ensure a comprehensive development of the State. Much like the aforementioned provisions, these provisions are an inroad for the Centre into the arena – legislative or executive, which otherwise would have legitimately been within the purview of the State.
Goods and Services Tax: A New Era of Federalism
The introduction of the Goods and Services Tax (GST) regime vide the Constitution (101st Amendment) Act, 2016, was a major step in revamping the tax structure. The 101st Amendment introduced Article 246-A in the Constitution making special provisions with respect to goods and services tax. Article 246-A(1) provides that notwithstanding anything contained in Articles 246 and 254, Parliament and subject to clause (2), the legislature of every State shall have power to make laws with respect to goods and services tax imposed by the Union or by such State. Clause (2) provides that Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.
The aforementioned Constitutional Amendment also amended the 7th Schedule to the Constitution. It substituted Entry 84 in List I. The substituted Entry 84 reads as under:
- Duties of excise on the following goods manufactured or produced in India, namely:
- petroleum crude;
- high speed diesel;
- motor spirit (commonly known as petrol);
- natural gas;
- aviation turbine fuel; and
- tobacco and tobacco products.
Further, it also deleted Entries 92 and 92-C from the Union List. Insofar as the State List is concerned, the 101st Amendment deleted Entry 52 viz. taxes on the entry of goods into a local area for consumption, use or sale therein, and Entry 55 viz. taxes on advertisements other than advertisements published in the newspapers and advertisements broadcast by radio or television. Entry 54 of the State List was substituted and so was Entry 62.
Introduction of Article 246-A meant that the power of levying GST was given to the Union and the States. Prior to the aforementioned constitutional amendment, the power to legislate upon matters relating to taxation was distributed between the Union and the States on the basis of the nature of transaction. With the introduction of Article 246-A, the classification based on the nature of transaction has been done away with. The Union and the States now share the revenue on all transactions.
The Amendment also introduced Article 269-A which provides for levy and collection of GST in course of inter-State trade or commerce. Article 269-A(1) provides that GST on supplies in the course of inter-State trade and commerce shall be levied and collected by the Government of India and such tax shall be apportioned between the Union and the States in the manner as may be provided by Parliament by law on the recommendation of the GST Council. Introduction of this article is also a blow to the concept of federalism under the Constitution. It may be rational to grant the power to levy and collect the GST to the Government of India, but to determine the apportionment between the Union and the States by a law made by Parliament on the recommendation of the GST Council leans in favour of the Centre. Not only is the amount being collected by the Centre, but the manner in which it is to be distributed between the Union and the States is also to be decided by the Central Legislature viz. Parliament. The structure and functioning of the GST Council also favours the Centre than the States.
The aforementioned Amendment also introduced Article 279-A which provides for constitution of a GST Council. Clause (4) thereof, inter alia provides that the Council shall make recommendations to the Union and the States on the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the Goods and Services Tax, and any other matter relating to GST. It is true that the GST Council consists of members from the Union as well as the States. However, a bare reading of the aforementioned article makes it abundantly clear that the voting power of the members from the Union is higher than that of the members from the States. This itself is a severe blow to the nature of Indian Federalism. Under Article 279-A, the GST Council has been given wide powers to make recommendations to the Union and States on the taxes, cesses and surcharges to be levied by the Union and States, the goods and services that may be subjected to or exempted from the GST, the model GST law, the rates of GST and many other issues. The Council consists of the Union Finance Minister, the Union Minister of State in charge of Revenue or Finance, the Minister in charge of Finance or Taxation or any other minister nominated by each State Government. Clause (9) of Article 279-A provides that every decision of the GST Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles viz.:
- The vote of the Central Government shall have a weightage of one-third of the total votes cast; and
- The votes of the State Governments taken together shall have weightage of two-thirds of the total votes cast in that meeting.
Prior to the introduction of the GST regime, the taxation power was distributed between the Centre and the States. Now with GST being a part of the constitutional framework, and the GST Council playing a very important role in the operation of that regime, the bias that Indian Federalism had towards the Centre appears to have magnified further.
Federalism and the Union Parliament
Part V of the Constitution is entitled “The Union”. Chapter II thereof includes the provisions relating to Parliament. Article 79 provides that there shall be a Parliament for the Union which shall consist of the President and two Houses to be known respectively as the Council of States and the House of the People. The Council of States consists of twelve members to be nominated by the President, and not more than two hundred and thirty-eight representatives of the States and of the Union Territories. The House of the People on the other hand shall consist of not more than five hundred and thirty members chosen by direct election from the territorial constituencies in the States, and not more than twenty members to represent the Union Territories, chosen in such a manner as Parliament may by law provide.
In Kuldip Nayyar the Supreme Court discussed the role of a bicameral legislature as under:
- The growth of “bicameralism” in parliamentary forms of Government has been functionally associated with the need for effective federal structures. This nexus between the role of “Second Chambers” or Upper Houses of Parliament and better coordinated between the Central Government and those of the constituent units, was perhaps first laid down in definite terms with the Constitution of the United States of America, which was ratified by the thirteen original States of the Union in the year 1787. The Upper House of the Congress of USA, known as the Senate, was theoretically modelled on the House of Lords in the British Parliament, by was totally different from the latter with respect to its composition and powers.
- Since then, many nations have adopted a bicameral form of Central Legislature, even though some of them are not federations…. Likewise, Parliament of the Union of India consists of the Lok Sabha (House of the People) and the Rajya Sabha (Council of States, which is the Upper House). In terms of their functions as agencies of representative democracies, the Lowe Houses in the legislatures of India, USA and Canada, namely, the Lok Sabha, the House of Representatives and the House of Commons broadly follow the same system of composition. As of now, Members of the Lower Houses are elected from pre-designated constituencies, through universal adult suffrage. The demarcation of these constituencies is in accordance with distribution of population, so as to accord equity in the value of each vote throughout the territory of the country. However, with the existence of constituent States of varying areas and populations, the representation accorded to these States in the Lower House becomes highly unequal. Hence, the composition of the Upper House has become an indicator of federalism, so as to more adequately reflect the interests of the constituent States and ensure a mechanism of checks and balances against the exercise of power by Central authorities that might affect the interests of the constituent States.”
Article 107 of the Constitution makes provisions as to introduction and passing of bills. It inter alia provides that subject to the provisions of Articles 109 and 117 with respect to Money Bills and other financial Bills, a Bill may originate in either House of Parliament. Article 109 provides for a special procedure in respect of Money Bills. It provides that a Money Bill shall not be introduced in the Council of States. After a Money Bill has been passed by the House of the People it shall be transmitted to the Council of States for its recommendation. The Council of States is mandated to return the Money Bill along with its recommendations within the stipulated time period. The House of the People has the option to either accept or reject all or any of the recommendations of the Council of States. If the Money Bill passed by the House of the People and transmitted to the Council of States for its recommendations is not returned to the House of the People within the stipulated time period, it is deemed to have been passed by both Houses at the expiration of the stipulated time period in the form in which it was passed by the House of the People.
Article 110 provides for the definition of “Money Bills”. A Bill shall be deemed to be a Money Bill if it contains only provisions dealing with all or any of the following matters, namely –
- The imposition, abolition, remission, alteration or regulation of any tax;
- The regulation of the borrowing of money or the giving of any guarantee by the Government of India, or the amendment of the law with respect to any financial obligations undertaken or to be undertaken by the Government of India;
- The custody of the Consolidated Fund or the Contingency Fund of India, the payment of monies into or the withdrawal of monies from any such Fund;
- The appropriation of monies out of the Consolidated Fund of India;
- the declaring of any expenditure to be expenditure on the Consolidated Fund of India or the increasing of the amount of any such expenditure;
- The receipt of money on account of the Consolidated Fund of India or the public account of India or the custody or issue of such money or the audit of the accounts of the Union or of a State; or
- Any matter incidental to any of the matters specified in sub-clauses (a) to (f).
A Bill shall not be deemed to be a Money Bill by reason only that it provides for the imposition of fines or other pecuniary penalties, or for the demand or payment of fees for licences or fees for services rendered, or by reason that it provides for the imposition, abolition, remission, alteration or regulation of any tax by any local authority or body for local purposes. If any question arises whether a Bill is a Money Bill or not, the decision of the Speaker of the House of the People thereon shall be final.
The aforementioned articles of the Constitution clearly indicate that the Council of the States and the House of People are two equal components of the Union Parliament. Except for the MoneyBill, there is constitutionally no distinction in the legislative functioning, powers and authorities of both the Houses. However, the Council of States is unfairly looked down upon as an “indirectly elected House”, juxtaposed to the House of the People being the directly elected house.
In the recent past the ruling dispensation has used the provisions relating to Money Bill in the Constitution of India to carry out amendments to the Foreign Contribution (Regulation) Act, 2010, the Securities Contracts (Regulation) Act, 1956, the Prevention of Money-Laundering Act, 2002 and the Foreign Exchange Management Act, 1999 through the provisions of the Finance Act, 2015. Had the aforementioned statutes been amended in the usual manner viz. by introducing an ordinary amendment Bill, they would require the approval of both the Houses. However, incorporating the amendments in the Finance Bill, which is a Money Bill, ensured that the Council of the States’ role was reduced to that of an advisor, whose advice was not even binding upon the House of the People.
The role of the Upper House viz. the Rajya Sabha was discussed by the Supreme Court in Kuldip Nayaras under:
- 79. The genesis of the Indian Rajya Sabha on the other hand benefited from the constitutional history of several nations which allowed the Constituent Assembly to examine the federal functions of an Upper House. However, “bicameralism” had been introduced to the provincial legislatures under the British rule in 1921. The Government of India Act, 1935 also created an Upper House in the federal legislature, whose members were to be elected by the members of provincial legislatures and in case of Princely States to be nominated by the rulers of such territories. However, on account of the realities faced by the young Indian Union, a Council of States (the Rajya Sabha) in the Union Parliament was seen as an essential requirement for a federal order. Besides the former British provinces, there were vast areas of Princely States that had to be administered under the Union. Furthermore, the diversity in economic and cultural factors between regions also posed a challenge for the newly-independent country. Hence, the Upper House was instituted by the Constitution-Framers which would substantially consist of members elected by the State Legislatures and have a fixed number of nominated members representing non-political fields. However, the distribution of representation between the States in the Rajya Sabha is neither equal not relatively more weightage to smaller States but larger States are accorded weightage regressively for additional population. Hence the Rajya Sabha incorporates unequal representation for States but with proportionally more representation given to smaller States. The theory behind such allocation of seats is to safeguard the interests of smaller States but at the same time giving adequate representation to the larger States so that the will of the representatives of a minority of the electorate does not prevail over that of a majority.
- 80. In India, Article 80 of the Constitution of India prescribes the composition of the Rajya Sabha. The maximum strength of the House is 250 Members, out of which up to 238 members are the elected representatives of the States and the Union Territories [Article 80(1)(b)], of non-political fields like literature, science, arty and social services [Articles 80(1)(a) and (3)]. The members from the States are elected as per the system of proportional representation by means of the single transferable vote [Article 80(4)]. The manner of election for representatives from the Union Territories has been left to prescription by Parliament [Article 80(5)]. The allocation of seats for the various States and Union Territories of the Indian Union is enumerated in the Fourth Schedule to the Constitution, which is read with Articles 4(1) and 80(2). This allocation has obviously varied with the admission and reorganisation of States.
In K.S. Puttaswamy v. Union of India the Supreme Court of India was examining a wide array of arguments questioning the validity of the Aadhar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016. One of the contentions raised before the Supreme Court of India was that the introduction of the Bill which culminated into Aadhar Act as a Money Bill was in contravention of the provisions of Article 110 of the Constitution. It was contended on behalf of the respondent Union that Section 7 of the aforementioned Act, which was the heart and soul of the Act fulfilled the requirements of a Money Bill as the expenditure of the subsidies, benefits and services is incurred from the Consolidated Fund of India.
In the course of its judgment, the Court expressed its opinion through three views. The majority view observed that the Rajya Sabha is an important institution signifying constitutional federalism. It is precisely for this reason that to enact any statute, the Bill has to be passed by both the Houses. It is the constitutional mandate. The only exception to the aforesaid parliamentary norm is Article 110 of the Constitution of India. Having regard to this overall scheme of bicameralism enshrined in the Indian Constitution, strict interpretation has to be accorded to Article 110.
Ultimately, after examining the provisions of the aforementioned Act, the Supreme Court held that the Bill was rightly introduced as Money Bill. However, the dissenting judgment of Dr D.Y. Chandrachud, J. is also required to be considered for the present purposes. The dissenting Judge observed:
- 1103. Bicameralism, when entrenched as a principle in a constitutional democracy, acts as a check against the abuse of power by constitutional means or its use in an oppressive manner. As a subset of the constitutional principle of division of power, bicameralism is mainly a safeguard against the abuse of the constitutional and political process. A bicameral national Parliament can hold the Government accountable and can check or restrain the misuse of government power. Among its other roles is that of representing local State units, acting as a body of expert review, and providing representation for diverse socio-economic interests or ethno-cultural minorities.
* * *
- 1106. The institutional structure of the Rajya Sabha has been developed to reflect the pluralism of the nation and its diversity of language, culture, perception and interest. The Rajya Sabha was envisaged by the Makers of the Constitution to ensure a wider scrutiny of legislative proposals. As a second chamber of Parliament, it acts as a check on hasty and ill-conceived legislation, providing an opportunity for scrutiny of legislative business. The role of the Rajya Sabha is intrinsic to ensuring executive accountability and to preserving a balance of power. The Upper Chamber complements the working of the Lower Chamber in many ways. The Rajya Sabha acts as an institution in relation to the Lok Sabha and represents the federal structure of India. Both the existence and the role of the Rajya Sabha constitute a part of the basic structure of the Constitution. The architecture of our Constitution envisions the Rajya Sabha as an institution of federal bicameralism and not just as a part of a simple bicameral legislature. Its nomenclature as the “Council of States” rather than the “Senate” appropriately justifies its federal importance….
The aforementioned decisions of the Supreme Court, as well as the constitutional provisions themselves indicate the important role of the Council of the States in the federal set up of India. The only way to exclude the Upper House from taking part in the law-making process is to enact a law by way of a Money Bill. The Constitution defines what a Money Bill is. Such a definition, ought to be interpreted in the narrowest possible manner and in its strictest possible sense to ensure that the federal nature of the Union Parliament, as contemplated by the Constitution, is not defeated by way of clever drafting.
The above discussion demonstrates that the framers of the Constitution always intended for India to have a federal system with a relatively strong Union. Perhaps, at the time of framing of the Constitution, a need was felt to ensure that the autonomy of the States is marginally weaker than that of the Union so as to ensure that the integrity of the nation is maintained. Over the years, the Supreme Court of India has recognised this feature of the Indian federal structure. Various constitutional scholars have also recognised that India has evolved an indigenous federal structure.
The decision of the Supreme Court in S.R. Bommai case has further strengthened federalism by recognising it to be a part of the basic structure of the Constitution. By virtue of the same, the federal nature of the Constitution cannot be disturbed by a strong Central Executive. However, it appears that the States have not been diligent enough to protect their own autonomy under this structure. The introduction of Parts IX and IX-A is a clear indication that the States have willingly seceded a portion of their legislative authority to the Centre. Even in case of Part IX-B, it was not the States, but other stakeholders in the cooperative movement, who challenged the validity of the constitutional amendment. The decision of the Gujarat High Court, which is now before the Supreme Court, may culminate into another declaration of federal principles in contemporary Indian political system.
Unfortunately, Parliament which is a responsible constitutional organisation has used hitherto before unprecedented methods to encroach upon the powers of other authorities. If this practice is not checked, then it may lay down dangerous precedents and enable a powerful Centre to change the very nature of the special form of federalism in India by making itself the sole repository of executive and legislative powers.
The introduction of the GST regime by way of a constitutional amendment reinforces the argument that Parliament, and in turn, the Central Executive, is taking steps to reduce the autonomy of the States under the constitutional mechanism. These may seem like small steps at present, but if it continues unchecked, over the years the authority of the States may be severely eroded so as to make federalism under the Indian Constitution a mere illusion. If this is to be stopped, then States must be vigilant about any encroachment by the Centre, upon the fields which are exclusively protected for them by the Indian Constitution. The political affiliations of the executive, or for that matter, the legislature of a State, should not result in it becoming subservient to the Centre. The very idea of a federal structure, and more particularly, its application to the peculiar situation in India, is to ensure that local issues are addressed by a local legislature, considering local factors.
*Senior Advocate and Former Advocate General of Maharashtra.
**Advocate, Supreme Court of India.
Seervai H.M., Ch. V: Federalism in India, Constitutional Law of India, Fourth Edn. Vol. I, p. 286, Universal Law Publishing.
Id., at p. 287.
Seervai H.M., Ch. V: Federalism in India, Constitutional Law of India, Fourth Edn. Vol. I, p. 283, Universal Law Publishing.
Id., at para 39.
Supra Note 3.
Supra Note 3, per Sinha, C.J. for majority.
Id., at para 30.
Id., at para 31.
Id., at para 32.
Supra Note 4.
Id., per Beg, C.J. at p. 621, para 56.
Id., per Beg, C.J. at p. 622, para 57.
Id., at pp. 716-717, para 220, per Untwalia, J.
Supra Note 3.
Supra Note 4.
Supra Note 20, per Ahmadi, J. at paras 19, 20 and 23.
Id., per Sawant and Kuldip Singh, JJ. at paras 96 to 99.
Id., per Jeevan Reddy and Agrawal, JJ. at para 434(9).
Id., at p. 266, para 59.
Supra Note 30 at para 50, p. 49.
Id., at p. 56, para 71.
Supra Note 30.
Id.,at para 1, p. 122, per T.S. Thakur, C.J.
Id., at para 32,p. 141, per T.S. Thakur, C.J.
Supra Note 20.
Supra Note 28.
Supra Note 38 at para 108, per Dipak Misra, C.J.
Id., at para 119, per Dipak Misra, C.J.
Id., at para 129, per Dipak Misra, C.J.
Supra Note 30, per Sabharwal, C.J. at para 53.
 D.D. Basu, Shorter Constitution of India, 14th Edn., Vol. II, at para 1615.
Supra Note 87.
Supra Note 20.
Id., at para 22.
 Article 80, Constitution of India.
Supra Note 30.
Id., at pp. 56-57.
 Supra Note 30, pp. 59, 60.
Supra Note 124, at para 461, p. 453.
Id., per majority at para 463, p. 455.
Id., per majority at para 472, p. 458.
Id., per Chandrachud, J. at pp. 742, 743.
Supra Note 30.