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Statement of Facts

The Democratic Republic of Vyalikaval got independent in the year 1952 and adopted a
constitution on the lines of Indian Constitution in the year 1955.

The union is composed of nine states and one national capital territory. Union of Vyalikaval
constituted a finance commission to recommend the division of Union revenue among the
states in every five years as according to the constitution.

Of the total Union tax revenues 50% taxes were divided among the states by “Deekayshi
Formula” in which the criteria were laid down on the parameters of income distance, total area
of the state, forest cover, population and fiscal discipline. This formula enjoyed unanimous
support from the states and formed the basis of nearly all finance commission reports. The 13th
Finance Commission of 2016 also recommended division based on Deekayshi formula in
which the state of Magarthea and Uttam Pradesh were the highest earners. The Union accepted
all the recommendations in toto and were implemented for the next five years.

In the year 2021. 14th Finance Commission was constituted in the chairmanship of ex-
bureaucrat Ms. Arushka Tadri. The union requested the commission to reconsider the
Deekayshi formula and devise a new one. In furtherance of this different states and stakeholders
gave submission to the 14th Finance Commission with some states citing that deekayshi
formula has become outdated and needed to be replaced. However, some states were in the
favour of change in weights in the existing formula.

Finally, in 2022, the 14th Finance Commission came up with “Tadri Formula” for the
distribution of revenue among the states. There was drastic change in the criteria to the outgoing
formula. Now the division will be based on Ratio of the population of the state in 2011 census
to 1991 census, Reduction of the fertility rate, average per capita income growth and annual
increase in forest cover.

Now the taxes were distributed by Tadri Formula due to which the states who were the highest
earners in the previous tax regime found themselves at the bottom of the table. It was predicted
that the budgets of these two states i.e. Magrathea and Uttam Pradesh will decrease by an
average of 30% over the next five years.

There was severe criticism of the new formula by the media with the local newspapers’
editorials were vociferous regarding the rules of the same which led to cash strapped states
with even less revenue.
In response to the severe criticism, the commission also stated in its report that states should
overcome all potential deficits by increasing taxation and even then, if any shortfall arises, the
union could always make up with discretionary grants as required. Also, the recommendation
included the union govt. to remove all limits on the state’s power to levy taxes on professions.
These recommendations were accepted subsequently by the govt. in toto.

The union then amended the constitution to remove any limits on the state’s power to levy
taxes on professions and trades. Now they were free to levy unlimited amount as they wanted.

Subsequently, the state of Magarathea passed Magrathea Professional Tax Act, 2022 which
levied taxes on all the persons practising a profession with the amount payable being levied to
be determined by the income of the person practising the profession.

The Advocates registered under the Magarthea Bar Council had to pay professional tax in
accordance to their income. Also, all advocates (irrespective of where they are enrolled) had to
pay a flat tax of VYR 1 lakh, as an annual one-time payment.

Mr. Zakib Hassain engaged a senior advocate Ms. Bharti, enrolled in the Trisolian Bar Council,
and filed a writ petition in the Magarthea High Court challenging the constitutional validity of
the MPTA.

After she returned to her home state she got a notice from Mararthean tax authorities to pay
VYR 1 lakh. She filed a writ petition in Trisolaris high court to quash such notice. The high
court stayed the notice and held that state of Magarthea do not have the power to levy extra-
territorial tax. Soon afterwards, the Magarthea high court struck down MPTA as it is essentially
a tax on income and is ultra vires to the power of state government.

The state of Magarthea filed special leave petition under article 136 of the constitution
challenging the decisions of the Magarthea and Trisolaris high court respectively. Leave to
appeal was granted for the same.

Simultaneously the govt. of Mararthea presented their first budget and it was discovered that
the revenue shortfall in the first year of 14th Commission recommendations was nearly 40%
form the pervious year. Hence, they requested the union govt. to make discretionary grants to
make up for the same. Their request was denied by the union government.
Magarthea then filed a suit against the union government seeking the declaration that the Tadri
Formula was unconstitutional, and they should be provided with discretionary grants from the

The Supreme Court clubbed both the appeals and the suit, which will be heard by the
constitutional bench as per the direction of CJI.

Over the years even though the Deekayshi formula enjoyed mass support, there were some
voices of dissent against it as well