Forward To 1919
To do this, we must first retrieve a fascinating little nugget of history hidden away in the Sarkaria Commission report. On page 6 of the report, it has been noted that The Government of India Act 1919 (the landmark legislation which brought dyarchy to the country) ushered in the first phase of responsible government in India ... separate Central and Provincial Lists of subjects were drawn up ...There was also a third List regarding taxation powers of local bodies.
Tragically, the government of India Act 1935 did away with this third list. And by the time independent India came to draw up its own Constitution, 1919 was such a discredited event in the history of our constitutional evolution that we threw away the baby with the bathwater. There was no third list of taxation powers for the local bodies in our Constitution. There was a throw-away reference to village Panchayats in the Directive Principles of State Policy and the subject was firmly included in the list of subjects exclusively reserved for the states. Our founding fathers appear not to have realised that Panchayati Raj can be implemented only as dyarchy in state government!
Rajiv Gandhi's constitutional initiative of 1989, which led to the amendments of 1992, did not revive a third list because Rajiv understood that to introduce an entire new chapter to the Constitution was difficult enough; it would have been impossible to get away with adding a local bodies list to the existing lists, especially as that would have required introducing two more lists, one relating to concurrent jurisdiction of the states and the local bodies, another relating to the concurrent jurisdiction of the Centre and the local bodies. Moreover, the lists in the Constitution related to legislative powers, and what was being constitutionally sanctified at the grassroots was a third tier of governance, not a third tier of government.
Therefore, instead, of opening the Pandora's box of a local bodies list in the same schedule where the powers of the Union, the states and concurrent jurisdiction were detailed, Rajiv Gandhi hit upon the scheme of adding two more schedules to the Constitution, the Eleventh and the Twelfth, listing out the areas of jurisdiction of the Panchayats and Nagarpalikas respectively, for the preparation of plans for economic development and social justice and the implementation of schemes for economic development and social justice. (Article 243 G).
The most encouraging element of state legislation following the entry into force of the constitutional amendments is that every single state, without exception, has bodily lifted every subject listed in the Eleventh and Twelfth schedules for incorporation in state legislation. We are, therefore, no longer constrained by arcane legal arguments over jurisdiction. Every state has agreed with the Constitution on the list of subjects that must be devolved to the local bodies.
And having so agreed, of course, no state has done anything about devolving the finances that should automatically go with the devolution of subject-related responsibility, authority and administrative powers. That is where the 1919 legislative experience assumes relevance.
Schedule II of the Scheduled Taxes Rules, prepared under Section 80 A (3) of the Government of India Act 1919, listed 11 taxes which may be imposed for the purposes of the local authorities : A toll; an octroi; and 9 types of taxes on: Land or land values; buildings; vehicles or boats; animals; menials and domestic servants; terminal tax on goods imported or exported from the local area; trades, professions and callings; private markets; and services such as scavenging, sanitary of sewage works, public conveniences, water, lighting.
Some of this is archaic and at least two items