Question

Consider the following statements:

Statement-I: In India’s federal finance system, cess and surcharges are not shared between the central and state governments.

Statement-II: Articles 270 and 271 of the Indian Constitution exclude cesses levied for specific purposes and surcharges from the divisible pool of taxes.

Which one of the following is correct in respect of the above statements?

1. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I.
2. Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I.
3. Statement-I is incorrect but Statement-II is correct.
4. Statement-I is correct but Statement-II is incorrect.

Answer 1

Correct Answer:
1. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I.

Explanation:

Statement-I:

In India’s federal finance system, cess and surcharges are not shared between the central and state governments as they are not included in the divisible pool of taxes. Instead, these funds are retained entirely by the central government for specific purposes.

Statement-II:

Articles 270 and 271 of the Indian Constitution specifically exclude cesses levied for specific purposes and surcharges from the divisible pool of taxes that are shared with the states.

Since Statement-II explains why cess and surcharges are not shared with states, it is both correct and the valid explanation for Statement-I.

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Sources:

1. Constitution of India - Articles 270 and 271
   Official Government of India legal portal:
   https://legislative.gov.in/constitution-of-india

2. Finance Commission Reports on Cess and Surcharge Management
   Finance Commission official site:
   https://fincomindia.nic.in

3. Press Information Bureau (PIB) on Cess and Surcharges
   PIB official updates:
   https://pib.gov.in