Fiscal Federalism:  India has a federal form of government, and hence a federal finance system. The essence of federal form of government is that the Centre and the State Governments should be independent of each other in their respective, constitutionally demarcated spheres of Action. Once the fundamentals of the government are spelt out, it becomes equally important that each of the government should be provided with sources of raising adequate revenues to discharge the functions entrusted to it. For the successful operation of the federal form of government financial independence and adequacy for the backbone.

Sales taxes are most important revenue for the state sin India. While the taxes vary in their design, they are generally levied in the first point of sale within the State.

Fiscal Federalism In India

• The federal character of public finance in India has its origin as far as the seventies of the last century. Although at that time the country had a unitary form of government, some division of functions and financial powers between the Center and the state was found administratively desirable. Ever since then the arrangements have been revised and improved from time to time. Fiscal federalism entails the division of responsibilities in respect of taxation and public expenditure among the different layers of the government, namely the Center, the states and the local bodies. Fiscal federalism helps governmental organization to realize cost efficiency by economies of scale in providing public services, which correspond most closely to the preference of the people. From the point of view of economy, it creates a unified common market, which promotes greater economic activity.
   

• India has a federal form of government, and hence a federal finance system. The essence of federal form of government is that the Centre and the State Governments should be independent of each provided with sources of raising adequate revenues to discharge the functions entrusted to it. For the successful operation of the federal form of government financial independence and adequacy form the backbone
   

• The Seventh Schedule (Article 246) delineates ‘the subject matter of laws made by the Parliament and by the Legislatures of the states’ and indicates the Union List (List I), states List (List II) and the Concurrent List (List III). List I invests the union with all functions of national importance such as defence, external affairs, communications, constitution, organization of the Supreme Court and the high courts, elections etc, List II invests the states with a number of important functions touching on the life and welfare of the people such as public order, police, local government, public health, agriculture, land etc. List III is a concurrent List, which includes administration of justice, economic and social planning, trade and commerce, etc.
   

• According to Article 246, Seventh Schedule, Parliament has exclusive powers to make laws regarding matters enumerated in List I, not withstanding the provisions of the other clauses of this Article. On the other hand, the Legislature of any state has exclusive power to make laws for the state regarding any of the matters enumerated in List II, subject to other clauses. With regard to List III, both the Parliament and a State Legislature can make laws but the law listed in I or III, vests with the Union. Thus, the Union has supremacy over a wide range of the legislative field.
   

• These lists include the powers of taxation also. The union List includes among others, taxes on income other than agricultural income, excise duties, customs and corporation tax. The State list includes land revenue, excise on Alcoholic liquors, tax on agricultural incomes, estate duty, taxes on sale or purchase of goods, taxes on vehicles, on professions, on luxuries, on entertainment, on stamp duties, etc. the concurrent list does not include any important taxes.
   

• Though considerations of national policy and administrative convenience require that some of the more elastic taxes should be assigned to the Union Governments, these considerations themselves require that some of the most expansive expenditure heads apart from defense, should be undertaken by the States. Consequently, a salient characteristic of federal government is legislative autonomy with financial dependence. This feature is accentuated in a developing economy where the functions of the States develop by leaps and bound with no corresponding increase in the sources of revenue.

Sales Taxation In India

• Sales tax is the most important revenue for the States in India. It can be defined as a tax on sale of goods. The liability to pay sales tax arises on making sales of goods. Sales tax is levied on the sale of a commodity, which is produced or imported and sold for the first time. If the product is sold subsequently without being processed further, it is exempt from sales tax.
   

• According to John Due, "A sales Tax is levy imposed upon the sales, or element incidental to sales, such as receipts from them, of all or a wide range of commodities. "A sales tax may be levied upon all the transactions through which the commodities pass or upon one or a small number of stages only. It is presumed that the tax will be shifted forward to the consumers, the selling firm being regarded as merely an agent to collect tax.The present day sales taxes may be classified into three major groups.
   

• Multiple-stage Taxes: they apply to all the stages in production and distribution, in other words all the transactions from initial production to final sale to the consumers.
   

• Single-stage Taxes: they apply to commodities only once in productionand distribution channels.
   

• Value Added Taxes: it bears the characteristics of both multi stage taxes and single stage taxes, since “it involves the multiplication of the tax rate but produces the same overall distribution on commodity as a single stage tax.

Procedure For Imposition Of Sales Tax

• Central Sales Tax is the charging section i.e. it creates a liability for a dealer to pay Sales Tax on all sales of goods other than sale of electrical energy affected by him in the course of inter-state trade or commerce during any financial year.
  
  A sale or purchase of goods is said to take place when the transfer of property in the existing goods or future goods takes place for consideration of money. The goods have been divided into different categories and different rates of sales tax are charged for different categories of goods.
   

• In most of the cases related to the sales tax, the tax on the sale or purchase of goods is at single point. Under the provisions of some state laws the assesses are divided into several categories such as manufacturer, dealer, selling agent etc. and such as assess is required to obtain a registration certificate to that effect. The sales tax or the purchase tax is levied on that assesses on the basis of his category such as dealer, manufacturer etc. on production of certain forms or certificates (and differential rates of sales tax are levied). Generally, a quarter return of sales or purchases is insisted upon and the assesses is required to furnish the return in the prescribed form.
   

• At the time of assessment, the assesses has to furnish all the documentary evidence and satisfy the concerned sales tax / commercial tax officer. The sales tax laws of the states prescribe the procedure to be followed in case an assessee prefers to make an appeal. Every dealer should apply for registration and obtain a registration certificate to that effect. The registration certificate number should be quoted in the entire bill / cash memos.