Indian Constitution: Taxation Articles

• These notes cover key Indian Constitutional Articles related to taxation.

Article 265

• No tax can be collected without legal authority, specifically a statute law or act of the legislature.
• The law authorizing the tax must not violate any other constitutional provision.
• It protects against arbitrary tax extraction.
• Tangkhul v. Simirei Shailei: Collecting Rs 50 per villager without legal backing was deemed an unauthorized tax, violating Article 265.
• Lord Krishna Sugar Mills v. UOI: The government could not levy an additional excise duty on sugar merchants for failing to meet export targets without parliamentary approval.

Article 266

• Defines the Consolidated Fund of India and the States, and Public Accounts.
• Revenues, loans, and loan repayments form the Consolidated Fund.
• Money can only be withdrawn from the Consolidated Fund with legal authorization, as per the Constitution.

Article 268

• Specifies duties levied by the Union but collected and retained by the States.
• Examples include stamp duties and excise duties on medicinal and toilet preparations.
• These duties do not become part of the Consolidated Fund of India.
• Union territories are exceptions where the Government of India collects these duties.

Article 269

• Lists taxes levied and collected by the Union but assigned to the States.
• M/S. Kalpana Glass Fibre Pvt. Ltd. Maharashtra v. State of Orissa and Others: Inter-state transactions, exports, and imports under the CST Act are excluded from taxable turnover.
• Article 269 prohibits the sale or purchase of goods during interstate trade or commerce and the related tax levy and collection.

Article 269(A)

• Newly inserted article regarding Goods and Services Tax (GST) on inter-state trade or commerce, collected by the central government (named IGST).
• States receive their share through direct apportionment or from the Consolidated Fund of India (CFI).

Article 270

• Provides for taxes levied and distributed between the Union and the States.
• Includes all taxes and duties named in the Union List, excluding those in Articles 268, 269, and 269A.
• Taxes, surcharges, and cess specified in Article 271 are extracted by the Union Government.
• T.M. Kanniyan v. I.T.O.: Income tax collected forms part of the Consolidated Fund of India.
• Income tax cannot be distributed among the center, union territories, and states under Presidential rule.

Article 271

• Allows Parliament to increase taxes/duties mentioned in Articles 269 and 270 by levying an additional surcharge.
• Proceeds from the surcharge form part of the Consolidated Fund of India.
• The Union collects the surcharge, and the State has no role in its collection.

Cess and Surcharge

• Cess: A fee imposed for a specific purpose as decided by the legislation.
• Surcharge: An additional tax on an existing tax, collected by the Union for a particular purpose.
• Proceeds from both form part of the Consolidated Fund of India.
• M/s SRD Nutrients Private Limited v. Commissioner of Central Excise, Guwahati: Education and higher education cesses are considered surcharges.

Grants-in-Aid

• Central government financial assistance to states to balance financial requirements.
• Charged to the Consolidated Fund of India, with the Parliament having the authority to grant.

Article 273

• Provides grants charged to the Consolidated Fund of India for Assam, Bihar, Orissa, and West Bengal, in place of a share of net proceeds from export duty on jute products.
• These grants continue as long as the Union government levies export duty on jute/jute products, or for 10 years from commencement.

Article 275

• Grants sanctioned by Parliament to states in need of funds/assistance.
• Funds are used for state development and welfare schemes, including social welfare work for Scheduled Tribes.

Article 276

• Addresses taxes levied, governed, and collected by state governments.
• These taxes, such as sales tax/VAT, professional tax, and stamp duty, may vary across states.

Article 277

• Allows municipalities or local bodies to continue levying certain taxes/fees that were in place before the Constitution's commencement, even if they are mentioned in the Union List.
• This continues until a new law contradicting it is passed by the Parliament.
• Hyderabad Chemical and Pharmaceutical Works Ltd. v. State of Andhra Pradesh: Explained the difference between a tax (used for general benefit) and a fee (used for a specific purpose).

Article 279

• Deals with the calculation of “net proceeds”.
• "Net proceeds" are the proceeds remaining after deducting collection costs, as certified by the Comptroller and Auditor-General of India.

Article 282

• Normally meant for special, temporary or ad hoc schemes.
• It is without restriction the power to grant sanctions under it.
• Bhim Singh v. Union of India & Ors: Welfare schemes advancing public welfare are permissible, as seen in the MPLAD scheme.
• Cf. Narayanan Nambudripad, Kidangazhi Manakkal v. State of Madras: Religious practices are considered private unless the state manages them for public welfare.

Article 286

• Restricts the State's power to tax.
• States cannot tax imports/exports or impose taxes outside their territory.
• Only Parliament can define principles for when a sale/purchase occurs during export/import or outside the state (Sections 3, 4, 5 of the Central Sales Tax Act, 1956).
• Parliament can restrict taxes on goods of special importance, and the State Government can levy taxes on these goods subject to these restrictions (Section 14 and Section 15 of Central Sales Act, 1956).
• K. Gopinath v. the State of Kerala: Sale of cashew nuts after import and processing was not considered a sale in the course of import and was not exempt under the Central Sales Tax Act, 1956.

Article 289

• Exempts State Governments from Union taxation regarding their property and income, unless a law made by Parliament states otherwise.

Other Tax Related Provisions

• Article 301: Guarantees freedom of trade, commerce, and intercourse throughout India, subject to Articles 302, 303, and 304.
• Article 302: Empowers Parliament to impose restrictions on trade and commerce in the public interest.
• Article 303: Prohibits discrimination against State Governments except when there is a scarcity of goods in a particular state, and only Parliament can grant preference by law.
• Article 304: Allows a State Government to tax goods imported from other States/Union Territories but prohibits discrimination between goods from within the State and goods from outside the State.
• States can impose restrictions on freedom of trade within their territory.