The Constitution of India
Article 268A
Service tax levied by Union and collected and appropriated by the Union and the States
(1) Taxes on services shall be levied by the Government of India and such tax shall be collected and appropriated by the Government of India and the States in the manner provided in clause (2).
(2) The proceeds in any financial year of any such tax levied in accordance with the provisions of clause (1) shall be —
(a) collected by the Government of India and the States;
(b) appropriated by the Government of India and the States,
in accordance with such principles of collection and appropriation as may be formulated by Parliament by law.
Why this exists
Before this Article existed, service tax was levied by the Union under its residual taxing power (Entry 97, List I), and states got no direct share unless the Union voluntarily gave one. As service-based industries grew, states wanted a constitutional right to a portion of this revenue. The 88th Constitutional Amendment Act, 2003 inserted Article 268A to formally recognize service tax as a distinct category, collected by the Centre but shared with States under principles Parliament would frame by law. However, the actual 'principles of collection and appropriation' law was delayed for years, and this arrangement was eventually superseded when the Goods and Services Tax (GST) system was introduced. The 101st Constitutional Amendment Act, 2016, which brought in GST, omitted Article 268A entirely, since service tax was merged into the unified GST framework.
Common misconceptions
- Myth: Article 268A is still part of the Indian Constitution today.
Fact: It was omitted by the 101st Constitutional Amendment Act, 2016, when the GST system replaced separate service tax provisions. - Myth: States could independently tax services under this Article.
Fact: Only the Government of India could levy the tax; states only shared in collecting and receiving the proceeds, not in imposing the tax itself.