Tax Provisions in Constitution of India

onstitution is the foundation and source of powers to legislate all laws in India.
Parliament, as well as State Legislatures gets the power to legislate various laws from
the Constitution only and therefore every law has to be within the vires of the
Constitution.
Talking about the taxation laws and the interpretation of taxation laws, every lawyer or a
tax professional practicing taxation laws must understand the basic provisions of
Constitution relating to taxation including the powers of Parliament and State
Legislatures to legislate regarding levy and collection of tax, the restrictions imposed by
our Constitution on such powers, entries concerning taxation in Central List i.e List-1
and State List i.e List-2 of Seventh Schedule to Constitution of India.
All laws and executive actions are subordinate to the Constitution. To form clear
understanding of the basic concepts relating to taxation laws one must understand the
relevant provisions of the Constitution, as the power to levy and collect tax by State
Governments or Union Government comes from the Constitution only.
One thing must be kept in mind that there is always an object behind every law and that
object ultimately exists to achieve the objects enumerated in the Preamble of our
Constitution, which runs as under:
WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a
SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC and to secure to all its
citizens:
JUSTICE, social, economic and political;
LIBERTY, of thought, expression, belief, faith and worship;
EQUALITY of status and of opportunity;
and to promote among them all
FRATERNITY assuring the dignity of the individual and the unity and integrity of the
Nation;
IN OUR CONSTITUENT ASSEMBLY this twenty-sixth day of November, 1949,DO
HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION.
While interpreting every law one has to keep in mind the object behind the law, if any
provision of the law or any administrative action or any interpretation of the law defeats
the object of such law for which it is being legislated and consequently is not in
accordance with the Constitution then it is illegal, void and ultra vires of the Constitution.
Therefore it is important to understand the powers and scheme of taxation under
Constitution before understanding the taxation laws. Whenever I try to understand any
complicated provision of law, I refer to the object of the law for which it has been
legislated and also the power of the Parliament or State legislature under the
Constitution to legislate such law for better understanding of the subject.
For example State VAT Acts have been legislated by State Legislatures under Entry 54
of List-II of the Seventh Schedule to the Constitution, which runs as under:
“Tax on sale or purchase of goods other than newspapers except tax on interstate sale
or purchase.”
Hence every law legislated under Entry 54 of State List must levy tax only on the sale or
purchase of goods other than newspapers within the State Jurisdiction. If a State law
legislated under entry 54 levies tax on the inter-state sale or purchase of goods, it has
to be struck down as ultra vires of the Constitution.
The roots of every law in India lies in the Constitution, therefore understanding the
provisions of Constitution is foremost to have clear understanding of any law.
Now, Let us go through some of the relevant provisions of our Constitution relating to
taxation:
Article 246(1) of Constitution of India states that Parliament has exclusive powers to
make laws with respect to any of matters enumerated in List I in Seventh Schedule to
Constitution(i.e Union list). Article 246(3) provides that State Government has exclusive
powers to make laws for State with respect to any matter enumerated in List II of
Seventh Schedule to Constitution(i.e. State List).
Parliament has exclusive powers to make laws in respect of matters given in Union List
and State Government has the exclusive jurisdiction to legislate on the matters
containing in State List.
There is yet another list i.e List III (called concurrent list) in the Seventh Schedule to the
Constitution. In respect of the matters contained in List III both the Central Government
and State Governments can exercise powers to legislate. In case of Union Territories
Union Government can make laws in respect of all the entries in all the three lists.
List III of Seventh Schedule(i.e Concurrent list) includes entries like Criminal law and
Procedure, Trust and Trustees, Civil Procedures, economic and social planning, trade
unions, charitable institutions, price control factories, etc.
In case there is a conflict between the laws legislated by State Government and Central
Government in respect of entries contained in Concurrent list, law made by Union
Government prevails.
However there is one exception to this rule, if law made by State contains any provision
repugnant to earlier law made by Parliament, law made by State Government prevails, if
it has received assent of President. Even in such cases, Parliament can make fresh law
and amend, repeal or vary law made by State.
Now lets go through the Entries in Union list and State list relevant to Taxation.
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 Tobacco and other goods manufactured or
produced in India except alcoholic liquors for human consumption, opium, narcotic
drugs, but including medicinal and toilet preparations containing alcoholic liquor, opium
or narcotics.
Entry No. 85 – Corporation tax
Entry No. 92A – Taxes on sale or purchase of goods other than newspapers, where
such sale or purchase takes place in the cource of Interstate trade or commerce.
Entry No. 92B – Taxes on consignment of goods where such consignment takes place
during Inter-State trade or commerce.
Entry No. 92C – Tax on services
Entry No. 97 – Any other matter not included in List II, List III and any tax not
mentioned in List II or List III.
State List:
Entry No. 46 – Taxes on agricultural income.
Entry No. 51 – Excise duty on alcoholic liquors, opium and narcotics.
Entry No. 52 – Tax on entry of goods into a local area for consumption, use or sale
therein (usually called Octroi or Entry Tax).
Entry No. 54 – Tax on sale or purchase of goods other than newspapers except tax on
interstate sale or purchase.
Entry No. 55 – Tax on advertisements other than advertisements in newspapers.
Entry No. 56 – Tax on goods and passengers carried by road or inland waterways.
Entry No. 59 – Tax on professionals, trades, callings and employment.
There are also certain restrictions which have been imposed in our Constitution on the
powers of State Governments and Union Government. So far indirect tax especially the
tax on sale and purchase of goods is concerned certain restrictions imposed in
Constitution are provided here below:
Article 286(1) – State Government cannot impose tax on sale or purchase during
imports or exports; or tax on sale outside the State.
Article 286(2) – Parliament is authorized to formulate principles for determining when a
sale or purchase takes place (a) outside the State (b) in the course of import or export.
[sections 3,4,5 of CST Act, 1956 have been legislated under these powers].
Article 286(3) – Parliament can place restrictions on tax on sale or purchase of goods
declared as goods of special importance and the State Government can tax such
declared goods subject to these restrictions[section 14, 15 of CST Act, 1956 imposes
restrictions and conditions on the power of State Governments to levy tax on declared
goods.]
Article 301- Trade, commerce and inter -course through out the territory of India shall
be free, subject to provisions of Article 302 to 304 of Constitution.[Entry tax in Haryana
was held as ultra vires of article 301 by Punjab & Haryana High Court in Jindal Strips
Ltd. v State of Haryana and others, (2007) 29 PHT 385 (P&H)].
Article 302 – Restriction on trade or commerce can be placed by Parliament in the
public interest.
Article 303(1), 303(2) – No discrimination can be made between one State and another
or give preference to one State over another. Such discrimination or preference can be
made only by Parliament by law to deal with situation arising from scarcity of the goods.
Article 304 – State can impose tax on goods imported from other States or Union
territories, but a State cannot discriminate between goods manufactured in the State
and goods brought from other States.
Proviso to article 304 provides that State legislature can impose reasonable restrictions
on freedom of trade and commerce within the state in public interest. However, such bill
cannot be introduced in State Legislature without previous sanction of the President.
Article 265 – No tax shall be levied or collected except by authority of law.
Article 300A – No person shall be deprived of its property save by authority of law.
Concluding in the end, all the above articles of the Constitution are very important in
relation to taxation and must be deeply understood by every tax professional.
Interpretation of every law, validity of subordinate legislation’s and administrative
actions must be judged in the background of the provisions of Constitution.

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onstitution is the foundation and source of powers to legislate all laws in India.

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