Power of Taxation under the Constitution (Art. 265; the Federal Base) — Law of Taxation Notes

Power of Taxation under the Constitution (Art. 265; the Federal Base)

When the State of Kerala tried to charge a land tax on a flat, per-acre basis regardless of whether the land yielded anything, the Supreme Court struck it down in K.T. Moopil Nair v State of Kerala (1961). The reason is the theme of this whole topic: a tax is valid only if a competent legislature passed a valid law imposing it — and even then it must respect the Constitution’s other limits. In India, the taxman’s power begins and ends with the Constitution.

The constitutional scheme of taxation

Three pillars hold up the power to tax in India. Learn them as a set — the essay wants all three.

A. Article 265 — the foundation. No tax may be levied or collected except by authority of law. This means (i) there must be a law (a statute, not a mere executive order); (ii) that law must be valid — passed by a legislature that had the competence and following a valid procedure; and (iii) both the levy and the collection must be authorised. If any of these fails, the tax is unconstitutional and refundable.

Article 265: “No tax shall be levied or collected except by authority of law.”

B. Article 246 + the Seventh Schedule — who may tax what. Article 246 divides legislative power between the Union and the States using three lists in the Seventh Schedule:

List I (Union List) — taxes only Parliament may levy: income tax (Entry 82), customs (Entry 83), (formerly) excise (Entry 84 — now limited to petroleum, tobacco), corporation tax (Entry 85).
List II (State List) — taxes only State legislatures may levy: tax on agricultural income (Entry 46), land revenue (Entry 45), tax on sale of alcohol/petroleum, tolls, taxes on professions (Entry 60), etc.
List III (Concurrent List) — historically carries no tax entries (taxation was kept out of the Concurrent List, so a tax must belong clearly to List I or List II).

A key rule: taxation entries are distinct from general (regulatory) entries. The power to regulate a subject does not include the power to tax it unless a separate taxing entry exists. So each tax must be traced to its own taxing entry.

Article 246A (added by the 101st Amendment, 2016): Parliament and every State legislature have concurrent power to make laws on goods and services tax. GST is the great exception to the “no tax in the Concurrent List” rule — see Unit III.

C. Residuary power — Article 248 + Entry 97, List I. Any tax not mentioned in any list falls to Parliament under the residuary power. This is how new levies (e.g. the former gift tax) found a home.

Other constitutional limits worth naming:

Article 286 — a State cannot tax a supply that takes place outside the State or in the course of import/export; the boundary of a State’s taxing reach.
Article 301–304 — the free-trade guarantee; a tax must not impede inter-State trade (Topic 7).
Articles 285 & 289 — mutual tax immunity of Union and State property (Topic 6).
Fundamental Rights — a tax law, like any law, must not violate Article 14 (arbitrariness) or Article 19(1)(g) (freedom of trade) (Topic 6).

Article 286(1): “No law of a State shall impose… a tax on the supply of goods or of services… where such supply takes place outside the State; or in the course of the import… into, or export… out of, the territory of India.”

The scope of Parliament’s taxing power is therefore very wide: everything in List I, plus the residuary power, plus the concurrent GST power — subject only to the Fundamental Rights and the free-trade guarantee. But it is not unlimited: it cannot cross into the States’ exclusive List II entries, and it must obey Article 265.

🧩 WORKED EXAMPLE — Is the levy constitutionally valid?

Facts. A State legislature passes a law taxing the income of companies operating in the State.

Rule. Article 246 read with the Seventh Schedule: tax on income (other than agricultural income) is Entry 82 of List I — an exclusively Union subject. Article 265 requires a competent legislature.

Apply. The State has legislated on a Union List entry it has no competence over. Even though it followed proper procedure, the authority of law under Article 265 is missing, because the law itself is beyond the State’s power.

Conclusion. The tax is unconstitutional and void; any amount collected is refundable. (A State may tax agricultural income — Entry 46, List II — but not general income.)

In Simple Terms: No law, no tax (Art. 265). And even with a law, only the right legislature can pass it — the Constitution’s lists say who taxes what. Parliament gets the big taxes (income, customs); States get land, agriculture, alcohol; GST is shared.

flowchart TD
    ROOT["Power to Tax in India"]:::root
    ROOT --> A265["Art. 265<br/>no tax without a valid LAW"]:::leaf
    ROOT --> A246["Art. 246 + 7th Schedule<br/>WHO taxes WHAT"]:::leaf
    A246 --> L1["List I — Union<br/>income, customs"]:::sub
    A246 --> L2["List II — State<br/>land, agri income, alcohol"]:::sub
    A246 --> GST["Art. 246A — GST<br/>Union + State concurrent"]:::sub
    ROOT --> LIM["Limits<br/>Art. 286 · 301-304 · 285/289 · FRs"]:::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

K.T. Moopil Nair v State of Kerala (1961) — an arbitrary, confiscatory tax violating Art. 14 is void; a tax law is subject to Fundamental Rights.
Kesoram Industries Ltd. v Union of India (2004) — the power to tax must be traced to a specific taxing entry; regulatory entries do not carry it.
A.V. Fernandez v State of Kerala (1957) — in a taxing statute one must look merely at what is clearly said; the subject is taxed only if the letter of the law catches him.

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