The sales tax you pay while purchasing a toothpaste is a
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- ATax imposed by the Central Government
- BTax imposed by the central Government but collected by the State Government.
- CTax imposed by the State Government but collected by the Central Government.
- DTax imposed and collected by the State Government.
Show answer
Answer: (D) Tax imposed and collected by the State Government.
Before GST
(2017), sales tax on goods like toothpaste was under Entry 54 of the State List (Schedule VII).
This means the State Government had the power to both impose AND collect it.
Easy way to remember: Sales Tax = State (both start with 'S').
The Centre handled excise duty on manufacturing; the State handled sales tax on purchase/sale.
Note: After GST, this distinction has changed, but this question is from the pre-GST era.
(Ref: Laxmikanth, D.D. Basu)
Before GST implementation in 2017, sales tax was exclusively a state subject under Entry 54 of the State List, giving states complete authority to impose and collect it.
UPSC frequently tested the pre-GST tax structure in 2014-2016 because GST was being actively discussed and debated during this period as a major upcoming reform.
The question tests federal division of tax powers - students must distinguish between manufacturing taxes (Centre's excise duty) versus sales taxes (State's domain).
Sales Tax (Pre-GST Era)
Indian Economy sales tax toothpaste State Government
Sales Tax: State Government's Domain (Pre-GST)
Sales tax was imposed and collected by State Governments under Entry 54 of State List
Memory trick: Sales Tax = State (both start with 'S')
Replaced by GST in 2017 - this changed the entire structure
Applied to purchase/sale of goods like toothpaste, clothes, electronics
Constitutional Basis
Sales tax fell under Entry 54 of the State List in Schedule VII of the Constitution. This gave State Governments exclusive power to both impose and collect sales tax on goods sold within their territory.
• Central Government: Handled excise duty on manufacturing
• State Government: Handled sales tax on purchase/sale transactions
Pre-GST Tax Division
Tax Type | Government Level | Constitutional Entry | Example Goods |
|---|---|---|---|
Sales Tax | State (impose + collect) | Entry 54 State List | Toothpaste, clothes, electronics |
Excise Duty | Central (impose + collect) | Entry 84 Union List | Manufactured goods at factory gate |
Service Tax | Central (impose + collect) | Entry 97 Union List | Telecom, banking, restaurants |
Question Context
This 2014 question tests the pre-GST tax structure. Sales tax on everyday items like toothpaste was a State subject - States could set their own rates and collect revenue directly. The correct answer is Option D: imposed and collected by State Government.
Trap: Confusing sales tax with excise duty - excise was Central, sales tax was State
Trap: Thinking Centre imposes but State collects (like some other taxes) - for sales tax, State did both
Trap: Post-GST knowledge interfering with pre-GST questions - always check the year
Memory aid: Sales Tax = State, Excise = Centre (alliteration helps)
Constitutional Tax Powers Distribution
Indian Economy Central Government State Government Tax imposed
Constitutional Distribution of Tax Powers: Union vs State
Union List (Entry 82-92): Income tax, customs, excise duty on manufactured goods
State List (Entry 46-62): Sales tax, entertainment tax, stamp duty, land revenue
Article 265: No tax without authority of law
Concurrent List: No major tax powers (education cess is an exception)
Tax Powers Under Constitution
# Constitutional Tax Distribution
## Union List
- Income Tax
- Corporate Tax
- Customs Duty
- Excise Duty
- Service Tax (pre-GST)
## State List
- Sales Tax
- Entertainment Tax
- Stamp Duty
- Land Revenue
- Luxury Tax
## Shared Taxes
- Income Tax (States get share)
- Union Excise (States get share)
- GST (post-2017)Key Constitutional Entries
List | Entry Number | Tax Type | Who Controls |
|---|---|---|---|
Union | Entry 82 | Income Tax (except agricultural) | Centre |
Union | Entry 83 | Customs duties | Centre |
Union | Entry 84 | Excise on manufactured goods | Centre |
State | Entry 46 | Entertainment tax | State |
State | Entry 54 | Sales tax | State |
State | Entry 63 | Land revenue including assessment | State |
Fiscal Federalism
The Constitution creates a dual tax structure where Centre and States have separate tax domains. However, Article 270 mandates sharing of certain Central taxes with States through Finance Commission recommendations.
• States depend on Central transfers for 40-50% of their revenue
• GST (2017) fundamentally changed this federal structure by creating a unified tax
Trap: Assuming Concurrent List has major tax powers - it has very few
Trap: Confusing 'imposed by' vs 'collected by' - some taxes are imposed by Centre but collected by States
Trap: Missing the pre-GST vs post-GST distinction in questions - check the year carefully
Entry numbers matter: Entry 54 (sales tax), Entry 84 (excise) are frequently tested
GST: Transformation of Indian Tax Structure
Indian Economy
GST Revolution: From Fragmented to Unified Tax System
GST launched July 1, 2017 - replaced 17+ indirect taxes with unified system
Constitutional Amendment: 101st Amendment (2016) enabled GST
Dual GST Model: CGST + SGST for intrastate, IGST for interstate transactions
GST Council: Constitutional body for rate decisions (Article 279A)
Pre-GST vs Post-GST Structure
Aspect | Pre-GST (Till June 2017) | Post-GST (From July 2017) |
|---|---|---|
Sales Tax | State Government only | Merged into SGST/IGST |
Excise Duty | Central Government only | Merged into CGST/IGST |
Service Tax | Central Government only | Merged into CGST/IGST |
Tax Structure | Fragmented, cascading effect | Unified, input tax credit |
Interstate Trade | Multiple checkpoints, CST | Seamless, IGST |
Constitutional Basis | Separate Union/State Lists | Article 246A, 279A |
GST Architecture
# GST System
## CGST
- Central component
- Intrastate supply
- Centre's revenue
## SGST
- State component
- Intrastate supply
- State's revenue
## IGST
- Interstate supply
- Import transactions
- Shared between Centre-State
## UTGST
- Union Territory component
- UT supplies
- UT revenueImpact on Questions
Pre-2017 questions test the old fragmented system where sales tax was purely a State subject. Post-2017 questions focus on GST's unified structure. Always check the question year - a 2014 question about toothpaste sales tax expects the pre-GST answer (State Government), while a 2018+ question might test GST rates or input tax credit.
Year trap: Using GST knowledge for pre-2017 questions or vice versa
Transition confusion: Some taxes like petroleum, alcohol still outside GST - remain with States
CGST vs SGST: Both apply together for intrastate, not alternatives to each other
Constitutional status: GST Council's decisions are binding - it's not just advisory