1️⃣ Tax — The Constitutional Core

The foundation lies in Constitution of India:

• Article 265 → No tax without authority of law
• Article 266 → Proceeds credited to Consolidated Fund
• Article 270 → Distribution of shareable taxes

What is a Tax?

A tax is:

• ✔ Compulsory extraction
• ✔ Enforceable by statute
• ✔ For public purposes
• ❌ No direct quid pro quo

Judicial Definition

In Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Thirtha Swamiar, the Supreme Court clarified:

A tax is imposed for public purposes without reference to any specific benefit to the payer.

Key Implication

Taxes (other than surcharges and cesses unless specified) form part of the divisible pool shared with States under Article 270.

🔎 Finin2min Insight:
Tax is the umbrella. Everything else (except fee) largely operates within this structure.

2️⃣ Duty — A Species of Tax (Goods-Centric)

A duty is constitutionally a tax under specific entries of Schedule VII, primarily the Union List (e.g., Entry 83 – Customs; Entry 84 – Excise).

Post-GST Position

After the Constitution (One Hundred and First Amendment) Act:

• Most indirect taxes were subsumed into GST.
• Residual duties remain (e.g., customs duty, excise on petroleum & tobacco).

Principle

✔ Every duty is a tax.
❌ Not every tax is a duty.

Revenue Sharing

• GST components → shareable
• Non-GST duties (e.g., customs) → governed separately

🔎 Finin2min Insight:
Duty = Tax triggered by manufacture, import, or export of goods.

3️⃣ Cess — Tax with an Earmark

Cess is a tax imposed for a specific purpose.

Constitutional Position

Under Article 270(1), cesses are explicitly excluded from the divisible pool, unless Parliament provides otherwise.

Examples

• Health & Education Cess
• GST Compensation Cess
• Swachh Bharat Cess

Important Exception

The GST Compensation Cess, enacted under the 101st Amendment framework, was designed to compensate States for GST revenue loss. Proceeds were used for that purpose and the levy was extended until March 2026 to service borrowings raised for compensation.

Thus:

• Generally → Cess is not shareable
• GST Compensation Cess → Used for state compensation (functional exception)

🔎 Finin2min Insight:
Cess = Tax + Purpose Tag + Usually Non-shareable.

4️⃣ Surcharge — Tax on Tax

Authority flows from Article 271 of the Constitution.

Parliament may increase any shareable tax by imposing a surcharge for Union purposes.

Structure

• Calculated as % of tax payable
• Retained fully by Centre
• Not part of divisible pool

Judicial Recognition

In Union of India v. Modi Rubber Ltd., the Court recognized surcharge as an additional component of tax.

Fiscal Impact

Growing reliance on surcharges:

• Raises Centre’s net revenue
• Reduces effective fiscal devolution to States

🔎 Finin2min Insight:
Surcharge = Fiscal lever without federal sharing.

5️⃣ Fee — Where Quid Pro Quo Exists

A fee differs fundamentally from tax.

Defining Feature

✔ Presence of quid pro quo
✔ Reasonable correlation between levy and service

Landmark Principle

In Kewal Krishan Puri v. State of Punjab, the Supreme Court emphasized the need for a reasonable relationship between fee collected and services rendered.

Absolute mathematical equivalence is not required — but nexus must exist.

Examples:

• Court fees
• Regulatory fees
• Licensing charges

🔎 Finin2min Insight:
Fee = Pay for Service.
Tax = Pay for Governance.

📊 Clean Constitutional Comparison

🏛 Legislative Competence Framework

Authority flows from Schedule VII of the Constitution:

• Union List → Customs, Income Tax, etc.
• State List → State GST (post-101st Amendment structure adjusted)
• Concurrent dynamics through GST Council mechanism

Understanding which list a levy falls under determines:

• Validity
• Jurisdiction
• Litigation outcome

📈 2026 Fiscal Relevance

Post-GST Compensation Cess expiry (March 2026):

• Rising cess & surcharge collections
• Shrinking shareable tax proportion
• Renewed Centre–State fiscal debate
• Heightened attention from Finance Commission

Cesses and surcharges materially affect effective devolution percentage, even if headline devolution ratios remain unchanged.

🧠 Finin2min Bottomline

• Tax → Core compulsory levy
• Duty → Goods-triggered tax
• Cess → Earmarked, usually non-shareable tax
• Surcharge → Tax enhancement retained by Centre
• Fee → Service-linked levy

In India’s federal tax design, terminology is not semantic — it determines who legislates, who collects, and who retains.

And in fiscal law — structure is strategy.

⚠️ Disclaimer
For informational purposes only. Based on Income-tax Act, 1961, GST law, CBDT instructions, and prevailing rules.

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Finin2min