CONSTITUTIONAL PROVISIONS

RELATING TO TAX
PRESENTED BY,
ROSANTO ANTO
ASSISTANT PROFESSOR
SOL
• The system of taxation is the backbone of a
nation’s economy which keeps
• revenue consistent,
• manages growth in the economy, and
• fuels its industrial activity.
• India’s three-tier federal structure consists of the Union
Government, the State Governments, and the Local Bodies
which are empowered with the responsibility of the different
taxes and duties, which are applicable in the country.
• The local bodies would include local councils and the municipalities.
The government of India is authorized to levy taxes on individuals
and organizations according to the Constitution.
• However, Article 265 of the Indian constitution states that the right to
levy/charge taxes hasn’t been given to any except the authority of
law.
• The 7th schedule of the constitution has defined the
subjects on which Union/State, or both can levy
taxes.
• As per the 73rd and 74th amendments of the
constitution, limited financial powers have been
given to the local governments which are enshrined
in Part IX and IX-A of the constitution.
• Article 265
No tax shall be levied (Impose)or collected except by the
“Authority of law”
• If any type of tax is levied by govt. for which law doesn’t
exist, then it will be unconstitutional
 TANGKHUL V. SIMIREI SHAILEI AIR 1961

• All the villagers were paying Rs 50 a day to the head man in place of a
custom to ‘failure to offer one day’s free labour”
• Done every year and the practice had been continuing for generations. The
Court, in this case, held that the amount of Rs. 50 was like a collection of
tax and no law had authorized it, and therefore it violated Art 265.
• Article 265 is infringed every time the law does not authorize the tax
imposed.
 LEVY AND COLLECTION

• Power to levy any tax is derived from the Constitution of India

• The charging section is the must in any Taxing Law for levy( impose)
and collection (payment) of taxes.
CHOTTABHAI B V. UNION OF INDIA 1962
SCR SUPL (2) P. 1006

• Article 265 is applicable not only for “levy” but also

for the collection of taxes and the expression
“assessment” within its compass covers both the
aspects carried out by the executive functionary.
S. GOPALAN V. STATE OF MADRAS (1958) 2
MLJ 117

• : “Law” means an act of the legislature and it:-

•  should be within the legislative competence of the legislature
•  Should not be prohibited by any constitutional provisions like
Article 27, 276, 286 and 301 etc.
•  Should not be in violation of any fundamental right
•  Should not be violative of any constitutional limitations like
Article 301 and Article 304
• Article 27,276,286,301,304
• Article 27:Freedom as to payment of taxes for promotion of any particular
religion No person shall be compelled to pay any taxes, the proceeds of which are
specifically appropriated in payment of expenses for the promotion or maintenance
of any particular religion or religions denomination
• Article:276 Taxes on professions, trades, callings and employments. 
• Article 286:Restrictions as to imposition of tax on the sale or purchase
of goods.which restrains the States from framing laws for imposition of any
tax on the sale or purchase of goods where such sale or purchase takes
place outside the State or in course of the import of the goods into, or
export of the goods out of, the territory of India.
• Article 301:Freedom of trade, commerce and intercourse
Subject to the other provisions of this Part, trade, commerce
and intercourse throughout the territory of India shall be free
• Article 304: Restrictions on trade, commerce and
intercourse among States Notwithstanding anything
VIKRAM CEMENT V. STATE OF MADHYA
PRADESH (2015) 11 SCC 708
• Explanation in Notification –
• ■ while reducing entry tax(movement of goods from one state to another
imposed by state governments in India), appended an Explanation stating that
amount which was already paid by the dealer at a higher rate would not be
refunded.
• ■ Explanation resulted in discrimination.
• ■ There was no objective which was sought to be achieved. Held to be clearly
violative of Article 265 of the Constitution
G.K.KRISHNAN & ORS V. STATE OF TAMIL
NADU (1975) 1 SCC 375
• Vehicle tax under Section 4 of Madras Motor Vehicles Taxation Act,
1931 and Articles 14 and 301 of the Constitution of India.
• ■ Motive behind the imposition of tax immaterial. Giving the wrong
reason for the imposition of tax does not derogate from the validity
of the tax.
• ■ Tax held to be not restricting freedom of trade, and
• commerce as guaranteed under Article 301
BINOY VISWAM V. UNION OF INDIA [2017]
396 ITR 66 (SC)
• Section 139AA of the IT Act makes it compulsory for all persons who are Income-
tax assessees to obtain an Aadhaar card and quote their Aadhaar number to the
prescribed Income-tax authority.
• ■ Held valid, within the legislative competence of Parliament and neither
discriminatory nor violative of Article 19(1)(g) of the Constitution. Proviso to
section 139AA(2) cannot be read retrospectively, but prospectively.
• ■ A legislation cannot be declared unconstitutional on the ground that it is
“arbitrary” inasmuch as examining whether a particular Act is arbitrary implies a
value judgment and courts do not examine the wisdom of legislative choices and,
therefore, cannot undertake this exercise
RMDC (MYSORE) PRIVATE LTD. VS. STATE
OF MYSORE AIR 1962 SC 594

• LEGISLATIVE COMPETENCE Challenge to the

constitutionality of the Mysore Act on the ground that
• (1) Mysore Legislature by adopting the Central Act
was no longer competent to pass any law regarding
prize competitions because the whole matter
including the power of taxation was surrendered
in favour of Parliament.
• (2)Mysore Act as amended violated Article 252(2) of the
Constitution in as much as it indirectly amends the Central
Act by adding a new method of control by imposition of
penalties of a monetary nature
• (3)Mysore Legislature could not amend an Act which stood
repealed as a result of the enactment of the Central Act.
• (4) Mysore Act as amended was repugnant to the Central
Act and is, therefore, to the extent of repugnancy, void under
Article 254(1) of the Constitution and
• (5) It was colourable legislation inasmuch as the tax was
imposed on the prize competitions with the object of
controlling them.
• Court held that by passing the resolution States did
not surrender their power of taxation.
• ■ Not a colourable piece of legislation by an indirect
attempt to amend Central Act
• ■ Tax imposed under Mysore Act was not a penalty
but was an exercise of power that the legislature
possessed of imposing a tax under Entry 62.
 INDIAN EXPRESS NEWSPAPERS (BOMBAY)
P. LTD. V. UNION OF INDIA (1985) 1 SCC 641

• Validity of subordinate legislation levying customs duty on

imported newsprint examined.
• ■ Subordinate legislation may be questioned on the ground of
legislative competence or being ultra vires the constitution and
additional grounds such as, being ultra vires the parent statute or
conflicting with any other statute or being so arbitrary that it
could not be said to conform to the statute or violative of Article
14 of the Constitution.
 KUNNATHAT THATHUNNI MOOPIL NAIR V.
STATE OF KERALA AND ANR. (1961) 3 SCR 77
• The tax proposed must be within the legislative competence
of the Legislature imposing a tax and authorizing collection.
• The tax must be subject to the conditions in Article 13 of the
Constitution.
• Article 13(2) is that the Legislature shall not make any law which takes
away or abridges the equality clause in Article 14.
• State not to deny to any person equality before the law or the equal
protection of the laws of the country.
DISTRIBUTION OF TAXATION POWER
• Central government, State government, and local government get
the power to impose tax from the Indian Constitution.

Article 245 and Article 246 deal with the distribution of

Taxation power.
• Article 245 of the constitution is the extent of law made by
parliament and by the legislature of the state, both the government
have the right to make laws. These are provided by the constitution
itself; these subject matters are provided in the 7th schedule of the
Indian constitution.
• According to article 245 subject to the
provision of this constitution, Parliament may
make laws for the whole or any part of the
territory of India and the Legislature can
make laws for any part of the State.
• Taxation system in India
Taxes play a contribution to total
revenues. The Indian tax system is called
a three-tier federal structure which
includes, the central government, state
government and local municipal body.
• Article 256
No one can levy or collect the tax without the
permission of the law.
• ROLE OF CENTER AND STATE GOVERNMENT IN THE INDIAN
TAXATION SYSTEM
Tax on custom duties, income tax service tax and central excise
duty are collected by the central government.

Income tax on agricultural products, professional tax, VAT, state

excise duty, land revenue, stamp duties, octroi, property tax,
water and drainage are collected by the state government.
• Article 246
Article 246 is related to the distribution of subject
matters on which central government or state
government can make laws. It must be read with the
7th schedule of constitution.
TYPES OF TAXES
1. Direct tax
It is paid by the person on whom it is legally imposed, the impact of money burden and
incidence are on the same person, and direct tax cannot be shifted to another person. For
eg; Income tax, wealth tax, house tax, salaries, and capital gains.
 

1.Indirect taxes
it is imposed on one person but paid partly or wholly by another person.
The impact and the incidence of tax are on a different person, indirect taxes can be shifted
or passed on to another person
e.g. GST, excise duty
 SEVENTH SCHEDULE TO CONSTITUTION
•The Seventh schedule deals with the division of subjects for
powers and responsibilities in the Union, State and Concurrent
list.

The seventh schedule has three types of list

•UNION LIST [ARTICLE 246 (1)]
•Under this list Parliament is authorized to make laws as per list 1 of the
seventh schedule
(Stock Market, Taxes on non-agricultural income, customs, excise duty,
corporate tax and so on)
 
 UNION LIST
• Entry No. 82:- Tax on Income other than agriculture income
• ■ Entry No. 83:- Duties of customs including export duties.
• ■ Entry No. 84:- Duties of excise on goods manufactured or produced
in India namely petroleum crude, high speed diesel, motor spirit,
natural gas, aviation turbine fuel, tobacco and tobacco products.
• ■ Entry No. 85:- Corporation tax
• ■ Entry No. 86:- Taxes on capital value of the assets, exclusive of
agricultural lands, of individuals and companies; taxes on the capital
of companies.
• Entry No.87:- Estate duty in respect of
property other than agricultural land
• ■ Entry No.88:-Duties in respect of succession
to property other than agricultural land
• ■ Entry No. 89:- Terminal taxes on goods or
passengers, carried by railways, sea or air,
taxes on railway fares and freight.
• ■Entry No. 90:- Taxes other than stamp duties on
transactions in stock exchanges and future markets.
• ■ Entry No. 91:- Rates of the stamp duty in respect of
bills of exchange, cheques, promissory notes, bills of
lading, letters of credit, policies of insurance, transfer
of shares, debentures, proxies and receipts.
• Entry No. 92 A:- Taxes on the sale or purchase of goods
other than newspapers, where such sale or purchase takes
place during inter-state trade or commerce or
• ■ Entry No. 92B:- Taxes on consignment of goods (whether
the consignment is to the person making it or to any other
person) where such consignment takes place during Inter-
state trade or commerce
• ■ Entry No. 96:- Fees in respect of any matters in the Union
List, but not including fees taken in any court.
Examples: Defence., Army, International Relations, Ports,
Railways, Highways, and Communication.
• ■ Entry No. 97: Any other matter not enumerated in List II
or List III including any tax not mentioned in List II and List
III.
 STATE LIST
• Entry No. 46:- Taxes on agricultural income
• ■ Entry No. 51:- Duties of excise on the following goods manufactured
or produced in the State and countervailing duties at the same or lower
rates on similar goods manufactured or produced elsewhere in India:-
• a. Alcoholic liquors for human consumption;
• b. Opium, Indian hemp and other narcotic drugs and narcotics, but not
including medicinal and toilet preparations containing alcohol or any
substance included in sub-paragraph (b) of this entry.
• ■ Entry No. 53:- Taxes on the consumption or sale of electricity.
• Entry No. 54:- Taxes on the sale of petroleum crude, high-speed
diesel, motor spirit (commonly known as petrol), natural gas, aviation
turbine fuel and alcoholic liquor for human consumption, but not
including sale during inter-state trade or commerce or sale during
international trade or commerce or sale during international trade or
commerce of such goods.
• ■ Entry No. 56:-Tax on goods and passengers carried by road or
inland waterways.
• ■ Entry No. 60:- Tax on professionals, trades, callings and
employment
• Entry 61:- Capitation taxes
• ■ Entry 62:- Taxes on entertainments and
amusements to the extent levied and collected
by a Panchayat or a Municipality or Regional
Council or a District Council
•State list [ Article 246(3)]
•Under this list state is authorized to make laws as per list two
of the 7th schedule.
1. Agricultural income,
2. taxation on consumption of electricity,
3. excise duty within the state territory,
4. capitation taxes,
5. transportation taxes,
6. taxes on the sale of petroleum taxes,
7. entertainment taxes,
8. taxes on medical products,
9. entertainment taxes
 
1.Article 266
This article talks about consolidated funds and
Public accounts of India and the states.
Consolidated funds are those funds in which all
the receipts of the government of India are
credited like tax, loans taken, treasury bills, etc.
(savings)
All expenditure of the government of India is done
from the consolidated fund of India from which
money is appropriated after the permission of
parliament.
 CONCURRENT LIST
• Entry 43:- Recovery in a state of claims in respect of taxes and
other public demands, including arrears of land revenue and
sums recoverable as such arrears, arising outside that State.
• ■ Entry 44:-Stamp duties other than duties or fees collected by
means of judicial stamps, but not including rates of stamp duty.
• ■ Entry 47:- Fees in respect of any of the matters in this List,
but not including fees taken in any court.
• CIT V. S.V. GOPALA & ORS. (2017) 396 ITR 694
(SC)
• ■ CBDT issued circular under section 119 of the Income Tax
Act, 1961 amending Rule 68B of the IInd schedule to the Act,
which otherwise has statutory force.
• ■ HELD: Such legislative provisions cannot be amended by
CBDT in exercise of its power under section 119. Circular held
to be ultra vires and quashed it. (all other persons employed in the
execution of this Act shall observe and follow such orders, instructions and
directions of the Board)
• Article 267
Contingency funds are maintained by the
president and held by the finance secretory
on behalf of the president. Such funds are
used at the time of emergencies such as
natural calamities and crises like floods,
tsunamis and earthquakes.
CONSTITUTIONAL DISTRIBUTION OF
REVENUES
• ARTICLE 268
DUTIES LEVIED BY THE UNION BUT COLLECTED AND
APPROPRIATED BY THE STATE(Service Tax, duties,)

• ARTICLE 269:
• TAX LEVIED AND COLLECTED BY THE UNION BUT ASSIGNED TO THE
STATES
(Inter-state trade or commerce-Do does not form a consolidated fund of India)
• ARTICLE 270:
• TAXES LEVIED AND DISTRIBUTED BETWEEN THE UNION AND THE
STATES
• This includes all taxes and duties referred to in the Union List except the
following:
• Duties and taxes referred to in Articles 268, 268-A and 269 (mentioned above);
• Surcharge on taxes and duties referred to in Article 271 (mentioned below); and
• Any cess levied for specific purposes.
• The manner of distribution of the net proceeds of these taxes and duties as
prescribed by the President on the recommendation of the Finance Commission.
• GOVIND SARAN GANGA SARAN V. S.T.
COMMERCIAL (AIR 1985) SC 1041
• ■ Components of tax:
•  Nature of the taxable event
•  The person on whom the levy is imposed
•  Rate at which tax is imposed
•  Measure or value to which the rate will be applied for computing
the tax liability.
• Article 273
Grants in lieu of export duty on jute and jute products in
states Assam, Bihar, Orissa, and West Bengal and this
grant shall be charged on the consolidated fund of India
(CFI)
• Article 274
Talks about the taxes in which states are interested such
as agricultural income, for that prior recommendation of
president is required to bills affecting taxation in which
states are interested.
• Article 275
Talks about grants from the Union to the State for schemes and
developments, the welfare of SC and ST(backward classes) and thirdly
the administration development of the autonomous district of Assam.

Article 276
The sixtieth amendment act of the constitution of India amended
article 276.
The article talks about how the taxes are levied on professions, trades
and callings and employment and the limit of these taxes aisRs.2500.
• Article 277

Talks about that any taxes, duties , cesses or fees

immediately before the commencement of the
constitution, were being lawfully levied by the government
of any state or any municipality or any other local authority
may notwithstanding that those taxes, duties and cesses
or fees are mentioned in the Union list continue to be
levied by the same purpose until the provision to the
contrary has been made by Parliament by law.
• Article279
Talks about calculation of net proceeds and its partition here net
proceeds are actual amount after deducting the cost inferred from
the collection of Tax. And this amount apportioned between union
and state.
• Article279A
The article defines GST council clause 1 of the article says that when
the 101 amendment passes president constitutes a council namely
GST council.

The chairperson of that council will be the union finance minister and
the union ministers of state in charge of revenue of finance is the
member, the minister in charge of finance or taxation or any other
minister nominated by each state governments are the members.
• the council can give the recommendation on cess, tax,
surcharge levied by the union and state and other local
bodies, and the goods and services that may be exempted
from the GST.

GST laws and on what basis it is decided and appointment

principles and threshold limit of turnover, base rate, special
rate for the special purposes like for natural calamity or
special provisions on respect of hilly areas or northeast
states. ( Arunachal Pradesh, Mizoram, Kashmir, Manipur,
Meghalaya, Nagaland, Uttrakhand and Himachal Pradesh)
GST council shall recommend the date
on which the goods and services tax
shall be levied on petroleum, crude
oil, high-speed diesel, natural gas, and
aviation turbine fuel.
• Article 282
The Union or a state may make any grants for any public purpose ,
notwithstanding that the purpose is not one with respect to which
Parliament or the Legislature of the state , as the case may be, may make
laws.

Article 286
State cannot authorize the imposition of tax on supply of goods and
services , where such supply takes place outside the state or where the
export of the goods and services takes place out of territory of India.

Parliament by law formulate principles for determining when a supply of

goods and services takes place in any way mentioned in clause (1)
1.Article289
This article talks about exemption of property and income of
state from union taxation.
2.The property and income of state are exempted from union
taxation.
Nothing in Clause (1) shall prevent the Union from imposing or
authorizing the imposition of , any tax to such extent , if any , as
Parliament made by law provide in respect of a trade or business
of any kind carried on by or on behalf of the government of a
state , or any operations connected therewith , or any property
used or occupied for the purpose of such trade or business or
any income accruing or arising in connection therewith.
 DOCTRINE OF IMMUNITY OF
INSTRUMENTALITIES

• According to Tax Law, the Doctrine of Immunity of Instrumentalities means, the

State and Central (Federal) Governments have immunity from paying taxes
imposed by the other. The immunity is applicable to the instrumentalities set
up by the Governments i.e., Statutory Corporations set up by them.
• The concept of the Doctrine of Immunity of Instrumentalities originated in the
USA as a judicial interpretation but was not mentioned in the American
constitution.
I. Article 285 of the Constitution of India exempts the properties of the Union from State taxation.
II. Article 286 deals with Restrictions as to imposition of tax on the sale or purchase of goods.
III. Article 287 deals with Exemption from taxes on electricity
IV. Article 288 deals with Exemption from taxation by States in respect of water or electricity in
certain cases
V. Article 289(1) of the Constitution of India exempts the properties of the State from Union
taxation.
VI.Article 289(2) of the Constitution of India relaxes the Doctrine saying that the Union can tax a
State by passing a bill in the Parliament.
VII.Central Government can impose tax on income or property of State-owned companies or
Corporations. Hence Article 289(1) is applicable only on State and not on its instrumentalities.
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