UPSC Prelims 2014 · Question 7 of 100
UPSC Prelims 2014 question on Sales Tax Levy State
The sales tax you pay while purchasing a toothpaste is a
Show answer
Answer: D. Tax imposed and collected by the State Government
Verdict
The answer is a tax imposed and collected by the State Government. Sales tax on goods was a State subject in the constitutional scheme in force when this question was set.
Analysis
Taxes on the sale or purchase of goods other than newspapers fall under Entry 54 of the State List in the Seventh Schedule, so the State both levies and collects the tax. The most tempting distractor is the second option, tax imposed by the Centre but collected by the States, because the Constitution does contain such hybrid categories. That category historically covered items like stamp duties under Article 268, not sales tax. The third option inverts the arrangement and describes nothing in the scheme. The first option would require sales tax to sit in the Union List, which it does not.
Source
M. Laxmikanth, Indian Polity, and D. D. Basu, page 352.
How to crack it
For any tax question, first ask which List the entry sits in, then ask separately who collects and who keeps the proceeds. Those are three different questions and UPSC builds distractors by scrambling them. Keep the Article 268 to 269 family clear in your head: levied by Union but collected and appropriated by States, and levied and collected by Union but assigned to States. Note that this is a pre GST question, so treat it as a Seventh Schedule test rather than a description of current law.