Article 277

Article 277 of the Constitution of India serves as a transitional financial safeguard, ensuring that the taxes, duties, cesses, and fees lawfully levied by States or local authorities before the commencement of the Constitution continue to remain valid. The provision plays a crucial role in maintaining financial continuity and administrative stability during India’s shift from pre-Constitutional governance systems to a unified constitutional framework.

Historical and Constitutional Context

Before the adoption of the Constitution on 26 January 1950, several provincial governments, municipalities, and local bodies across British India and princely states levied various taxes and duties under existing laws. The coming into force of the Constitution significantly restructured the distribution of taxation powers between the Union and the States through the Seventh Schedule.
However, an immediate cessation of existing taxes could have led to severe revenue disruptions for States and local institutions. To prevent this, the framers incorporated Article 277 into Part XII of the Constitution (Finance, Property, Contracts, and Suits), ensuring that all pre-existing lawful levies continued until Parliament enacted otherwise.

Key Provisions of Article 277

Article 277 states that:

“Any taxes, duties, cesses or fees which, immediately before the commencement of this Constitution, were being lawfully levied by the Government of any State or by any municipality or other local authority or body for the purposes of the State, municipality, district or other local area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and applied for the same purpose until provision to the contrary is made by Parliament by law.”

This single but comprehensive sentence provides for three essential aspects:

1. Continuation of Existing Taxes – Any tax, duty, cess, or fee that was lawfully imposed before the Constitution came into effect can continue to be levied and collected even if it now falls under the Union List.
2. Scope of Application – The continuation applies to all levels of governance, including:
   • State Governments,
   • Municipal Corporations and Local Bodies, and
   • Other authorities constituted for specific administrative or developmental purposes.
3. Parliamentary Supremacy – Such taxes remain valid only until Parliament enacts a law to the contrary. Once Parliament passes new legislation on the same subject, the existing levies stand repealed or modified as per the new law.

Objective and Rationale

The purpose of Article 277 is primarily transitional. It was included to:

• Prevent any fiscal vacuum or loss of revenue during the early years of the Republic.
• Allow States and local authorities to maintain their administrative and developmental functions without interruption.
• Facilitate a smooth shift from the colonial and princely taxation systems to the new constitutional order.

By enabling local and state governments to retain their traditional sources of income, Article 277 helped secure the financial autonomy of these bodies during a period of institutional transformation.

Scope and Extent

The scope of Article 277 extends across multiple tiers of government and covers various kinds of levies, such as:

• Local taxes on markets, fairs, and entertainment,
• Cesses on land or agricultural produce,
• Fees for licensing and regulation by municipal bodies,
• Duties on goods and commodities within local jurisdictions.

Even if such taxes now fall under subjects exclusively listed in the Union List, they may continue under Article 277 until Parliament intervenes. This ensures administrative flexibility and fiscal stability at the grassroots level.

Relationship with Other Constitutional Provisions

Article 277 operates in conjunction with several other financial and legislative provisions:

• Article 246 – Defines the distribution of legislative powers between the Union and the States, dividing subjects into Union, State, and Concurrent Lists.
• Article 265 – Lays down the fundamental rule that no tax shall be levied or collected except by authority of law.
• Article 372 – Provides for the continuation of existing laws and administrative arrangements until modified or repealed by competent authority.

Together, these provisions ensure continuity of governance and legal validity of taxation systems inherited from the pre-Constitutional regime.

Judicial Interpretation and Case Law

The Supreme Court of India has upheld the principle underlying Article 277 in several important decisions, affirming its role in preserving financial stability and protecting the autonomy of local bodies.

• M/s. S.R. Tewari v. District Board, Agra (1964) – The Court recognised the continued authority of local bodies to levy and collect taxes lawfully imposed before the Constitution, unless specifically altered by Parliament.
• State of West Bengal v. Kesoram Industries Ltd. (2004) – This case discussed the powers of States to levy taxes and the constitutional implications of Article 277. The Court reiterated that local and State taxation powers continue under this Article until Parliament legislates otherwise.

These rulings underline the temporary yet protective character of Article 277, confirming that its primary aim is to maintain fiscal continuity rather than create permanent taxation rights for States or local bodies.

Fiscal and Administrative Implications

Article 277 carries significant implications for financial administration and local governance:

• It acts as a financial safety net, allowing pre-existing taxes to continue until new constitutional laws are enacted.
• It helps prevent disruption in public services, which depend on revenue from local and State taxes.
• It reinforces financial decentralisation, enabling local bodies to function effectively without immediate dependence on Union transfers.
• It provides constitutional legitimacy for the continuation of older taxation systems, ensuring legal clarity during periods of administrative change.

Role in Fiscal Federalism

Article 277 exemplifies the cooperative nature of Indian federalism, particularly in financial matters. By preserving the power of States and local authorities to continue levying certain taxes, it acknowledges the shared responsibility between the Union and sub-national governments in maintaining fiscal equilibrium.
The provision also illustrates how the Constitution accommodates flexibility and gradual transition, rather than abrupt centralisation, in matters of taxation and public finance.

Contemporary Relevance

Although Article 277 was conceived as a transitional measure, its relevance persists in contemporary fiscal administration. Many local taxes and cesses introduced before 1950 continued for decades under its authority until replaced by new central or state legislation.
In the post-GST era, while most indirect taxes have been subsumed under the Goods and Services Tax, Article 277 remains symbolically important as a constitutional precedent for fiscal continuity and the preservation of local revenue rights during structural transitions in taxation.

Significance in India’s Fiscal Framework

Article 277 represents a pragmatic approach to constitutional financial management. It ensures that:

• State and local finances remain uninterrupted during transitions in taxation structures.
• Parliament retains the ultimate authority to harmonise taxation policies under the Union framework.
• Local governance institutions continue to function effectively with assured revenue sources.