Delegation of Taxing Power; Centre-State Tax Relations — Law of Taxation Notes

Delegation of Taxing Power; Centre-State Tax Relations

A municipality cannot pass its own “Act” — yet your city charges you property tax every year. How? Because the State legislature delegates the power to fix and collect certain taxes to local bodies, within limits the legislature itself lays down. The question the courts keep asking is: how much of the taxing power can be handed down before the legislature has abdicated its job?

What may be delegated, and what may not

The rule against excessive delegation says a legislature may delegate the details and machinery of a tax, but must itself decide the essential legislative function — the subject of the tax, the taxable person, and the maximum rate or the policy that guides the rate. It cannot hand a naked, unguided power to tax to another body.

So a valid delegation of taxing power keeps this shape:

The legislature fixes the essentials — it identifies the tax, the persons liable, and lays down a policy or an outer limit for the rate.
The delegate (executive or local body) fills the gaps — it sets the exact rate within the ceiling, prescribes the procedure, grants exemptions, within the legislature’s guidance.

In Devi Das Gopal Krishnan v State of Punjab (1967) the Supreme Court struck down a provision that let the government fix a sales-tax rate with no ceiling (unguided), but upheld a later version that set a maximum. That is the test: guidance and a ceiling save the delegation; a blank cheque destroys it.

Delegation to local bodies. State laws (municipal Acts, panchayat Acts) authorise local bodies to levy taxes such as property tax, water tax, tax on trades and professions, entertainment tax, and (formerly) octroi. The local body’s power is entirely derivative — it exists only because a State statute conferred it, and only to the extent conferred. Article 243H and 243X (added by the 73rd and 74th Amendments) enable States to authorise panchayats and municipalities to levy and collect such taxes.

Centre-State tax relations. The Constitution not only divides taxing power (Art. 246) but also shares the proceeds:

Some taxes are levied by the Union but shared with the States (income tax is distributed under Art. 270).
The Finance Commission (Art. 280 — Topic 9) recommends how central taxes are divided.
Under GST, the GST Council (Art. 279A) now co-ordinates Centre and State rates, and the Union compensates States for revenue loss (Unit IV).

In Simple Terms: A legislature can let the government or a municipality fix the exact rate and run the machinery of a tax — but it must first decide what is taxed, who pays, and the maximum rate. A local body’s power to tax is only borrowed from a State law. And beyond dividing taxes, the Constitution shares their proceeds (Finance Commission, GST Council).

flowchart TD
    ROOT["Delegation of taxing power"]:::root
    ROOT --> L["Legislature keeps the ESSENTIALS<br/>subject · person · ceiling rate"]:::leaf
    ROOT --> D["Delegate fills DETAILS<br/>exact rate (within ceiling) · procedure"]:::leaf
    D --> LB["Local bodies<br/>property/water/profession tax<br/>(Arts. 243H, 243X)"]:::sub
    ROOT --> V["Test: guidance + ceiling = VALID;<br/>unguided power = void (Devi Das, 1967)"]:::leaf
    classDef root fill:#FFF8DC,stroke:#000,stroke-width:1px,color:#000;
    classDef leaf fill:#E6F3FF,stroke:#1E3A8A,color:#000;
    classDef sub fill:#F2F2F2,stroke:#555,color:#000;
    linkStyle default stroke:#888,stroke-width:1px;

Case Laws

Devi Das Gopal Krishnan v State of Punjab (1967) — an unguided power to fix a tax rate is excessive delegation and void; a ceiling/guidance saves it.
Corporation of Calcutta v Liberty Cinema (1965) — the power to fix a licence-fee/rate may be delegated to a local body where the statute lays down sufficient guidance.

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