Additional Duties of Excise
These duties are levied by the Central government in pursuance of an agreement reached by the National Development Council in December 1956. The agreement was that sales taxes levied in the States on mill-textiles, tobacco and sugar should be replaced by a surcharge on the States on the basis of consumption. It also provided that the new arrangement should ensure to the States the income which they derived at that time from their respective sales taxes. Since this agreement was reached in December 1956, net proceeds from additional duties of excise on the three commodities (textiles, tobacco and sugar) were considered for distribution among the States for the first time by Second Finance Commission. As far as Tenth Finance Commission is concerned, it has worked out the share of States in additional excise duties over the period 1995-2000 by assigning a weight of 50 per cent to the population according to the 1991 census, 40 per cent to the average of State domestic product for the three latest years 1987-88 to 1989-90 for which the requisite data were available and 10 per cent to the average collection of State sales tax for the three years 1990-91 to 1992-93 (the latest three years for which final accounts were available). An amount equal to 2.203 per cent is to be retained by ‘the Central government for the Union territories.
Estate Duty
As far as distribution of revenue from estate duty among States is concerned, the Second Commission recommended that
i) 1 per cent of the proceeds be retained for distribution among Union Territories;
ü) the balance be apportioned between immovable property and other property in the ratio of the gross value of all such properties brought into assessment in that year;
iii) the sum thus apportioned to the immovable property be distributed among the States in proportion to the gross value of the immovable property located in each State;
iv) the sum apportioned to property other than immovable property be distributed among the States in proportion to their population. The subsequent Commissions maintained these principles except varying the share of Union Territories.
Since the Central government abolished the estate duty with effect from April 1, 1985, and has no intention of levying it again, the Ninth and Tenth Finance Commissions were not required to make any recommendation with regard to the distribution of proceeds from it among the States Tenth Finance Commission’s Devolution Formula.
The Tenth Finance Commission in its Final Report had suggested a devolution formula under which 29 per cent of the gross tax revenue of the Centre was to devolve to the States. The Union Cabinet in February 2000 accepted this recommendation with some modification. It decided to devolve 29 per cont of the net, not gross, tax revenue of the Centre. This departure from the Tenth Finance Commission formula was objected to by several State governments.
The finance Minister thus gave a public assurance that the States would be compensated for the loss to them on account of the modification in the devolution formula from gross to net. A finance ministry release also went on to assure the State governments that the Centre would compensate them by suitably enhancing their percentage share beyond the present ceiling of 29 per cent. However, for some time there was a lot of confusion about the fate of the Cabinet decision on the devolution formula of the Tenth Finance Commission. But with the introduction of a Constitution ( 89th Amendment) Bill 2000 in the Parliament to enable the Centre to implement the Tenth Finance Commission devolution formula the confusion was removed.
Under this bill, the States entitlement was fixed at 29 per cent of net total Central tax revenue. The statement of Objects and Reasons attached to the bill states that the government decided to change the sharing of gross proceeds as recommended by the Tenth Finance Commission to ‘net proceeds’ in order to maintain consistency between Articles 270,279 and 280 of the constitution. However, this decision would not cause any loss to the States because the government has also decided to compensate the States by adequately enhancing the percentage share beyond 29 per cent. The tenth Finance Commissions devolution scheme was made effective from April 1, 1996.