Article 265

Article 265 of the Constitution of India enshrines the fundamental principle of legality in taxation, ensuring that no tax can be levied or collected by the government without the sanction of law. This provision safeguards citizens from arbitrary fiscal impositions and upholds the rule of law in all matters relating to public revenue. It forms the cornerstone of India’s fiscal and constitutional governance, ensuring transparency, legality, and accountability in taxation.

Constitutional Provision and Meaning

The text of Article 265 states:“No tax shall be levied or collected except by authority of law.”
This simple yet powerful statement encapsulates two essential requirements:

1. Levy of Tax: The imposition or creation of a tax obligation must be authorised by law.
2. Collection of Tax: The process of collecting tax must also be legally sanctioned.

Thus, a tax is valid only when both its imposition and collection are supported by a valid law passed by the competent legislative authority. Administrative orders or executive notifications cannot substitute legislative authority in this context.

Principle of Legality in Taxation

Article 265 is a constitutional affirmation of the rule of law in fiscal affairs. It ensures that:

• The power to tax is not inherent in the government; it must be derived from statutory law.
• No individual or business can be compelled to pay a tax unless it is imposed through due legislative process.
• Taxation must conform to constitutional boundaries, particularly those relating to legislative competence and fundamental rights.

This principle upholds financial democracy, ensuring that only elected legislatures, representing the people, have the authority to impose taxes.

Legislative Competence and Related Constitutional Provisions

The authority to impose and collect taxes flows from the distribution of legislative powers under the Constitution. Several Articles work in conjunction with Article 265 to define the scope of taxation:

• Article 246: Distributes legislative powers between Parliament and State Legislatures through three lists in the Seventh Schedule—Union List, State List, and Concurrent List. The power to levy different kinds of taxes is allocated accordingly.
• Article 246A: Introduced by the 101st Constitutional Amendment (2016), it provides a special framework for the Goods and Services Tax (GST), empowering both Parliament and State Legislatures to make laws relating to GST.
• Article 268 to 281: Define the division of tax revenues and the financial relations between the Union and the States.

Together, these provisions ensure that taxation in India operates within a clearly defined constitutional and legislative framework.

Judicial Interpretation and Case Law

Over time, the Supreme Court of India has elaborated on the meaning and scope of Article 265 through several landmark judgments:

• K.K. Verma v. Union of India (1954): The Court held that taxation must be backed by legislative authority and that executive orders cannot create tax obligations.
• R.C. Cooper v. Union of India (1970) (Bank Nationalisation Case): The Court reiterated that taxation measures must satisfy constitutional requirements of legislative competence and fairness.
• M.C. Mehta v. Union of India (1987): The Court emphasised that no tax or fee can be collected without the backing of valid statutory law.
• State of West Bengal v. Kesoram Industries Ltd. (2004): The judgment clarified the distinction between taxes and fees and defined the legislative competence required for each under the Constitution.
• B.R. Enterprises v. State of Uttar Pradesh (2004): The Court reaffirmed that both the imposition and collection of taxes must be authorised by valid law, failing which they are unconstitutional.

These cases collectively underscore that Article 265 acts as a constitutional safeguard against unauthorised fiscal exactions and arbitrary administrative action.

Components of Article 265

The two essential components of Article 265 are:

1. Levy of Tax:
   • Refers to the act of imposing a tax liability.
   • Can be done only by the competent legislature through an enacted law.
   • Must clearly specify the nature of the tax, the person or entity liable, the rate, and the manner of assessment.
2. Collection of Tax:
   • Refers to the process of realising the tax due under the law.
   • Must also be in accordance with the statute governing taxation.
   • Collection without proper authority, even if the tax itself is validly imposed, violates Article 265.

For instance, if a tax is lawfully imposed but collected before the law comes into force, such collection would still be unconstitutional.

Implications and Purpose

Article 265 serves several vital constitutional and democratic purposes:

• Prevention of Arbitrary Taxation: It prevents the executive from imposing or collecting taxes without legislative approval.
• Protection of Citizens’ Rights: It protects individuals and businesses from unlawful or excessive fiscal burdens.
• Promotion of Fiscal Discipline: It ensures that taxation is transparent, legally justified, and subject to democratic oversight.
• Accountability of Government: Taxation laws are subject to legislative debate and judicial review, maintaining checks and balances on government power.

This Article thus acts as a constitutional check on the fiscal powers of the State, reinforcing the supremacy of law over administrative discretion.

Legislative Framework for Taxation

The authority to tax is exercised through specific laws enacted by competent legislatures. Examples include:

• Income Tax Act, 1961 – for taxation of income.
• Central Goods and Services Tax Act, 2017 – for GST at the central level.
• State Goods and Services Tax Acts – for GST at the state level.
• Customs Act, 1962 and Excise Act, 1944 – for import/export and manufacturing duties.

Each of these statutes provides for the levy, collection, assessment, and recovery of taxes, ensuring compliance with Article 265.

Enforcement and Remedies

Citizens are entitled to challenge any tax that lacks proper legal authority. Such challenges may be brought before the judiciary through writ petitions under Article 32 or Article 226, seeking judicial review of unconstitutional tax actions.
Courts have repeatedly upheld that:

• Taxes imposed without legislative backing are ultra vires (beyond the powers of the government).
• Recovery of such taxes is illegal, and taxpayers have the right to seek refunds.

This ensures that the government’s fiscal actions remain consistent with constitutional safeguards and democratic accountability.

Exceptions and Special Circumstances

Although Article 265 provides an absolute prohibition against taxation without legal authority, certain special provisions within the Constitution permit the levy of specific charges or duties in exceptional cases. For example:

• During a National Emergency, Parliament may legislate on any matter, including taxation, under Article 249 or Article 250.
• Certain fees and cesses may be imposed for specific services, provided they are supported by valid statutory authority and are not, in substance, disguised taxes.

However, even these exceptions require clear legislative sanction and cannot be exercised arbitrarily by the executive.

Significance in Fiscal Federalism

Article 265 not only upholds the rule of law but also reinforces the federal structure of India’s fiscal system. By mandating legislative authority for all taxes, it ensures that both the Union and the States operate strictly within their constitutionally assigned domains of taxation. This prevents overlapping and conflicts in fiscal jurisdiction and supports equitable financial relations between different levels of government.