Article 287

Article 287 of the Constitution of India provides a specific fiscal exemption concerning the taxation of electricity. It restricts the power of States to levy taxes on electricity consumed by or sold to the Government of India. This constitutional safeguard ensures that the central government and its essential services, such as the railways, are not burdened by State-level taxes on electricity, thereby maintaining fiscal harmony and operational efficiency across the country.

Constitutional Framework and Objective

The inclusion of Article 287 in the Constitution reflects the framers’ intention to preserve the financial independence of the Union and to prevent undue interference by States in matters critical to national governance and infrastructure. Electricity is a vital input for industrial, commercial, and governmental operations; therefore, ensuring that the Government of India and key public services such as railways are free from additional State taxes helps sustain the economic unity and efficiency of the nation.
The article forms part of Part XII (Finance, Property, Contracts and Suits) of the Constitution, which regulates the financial relationships between the Union and the States. It complements other fiscal provisions such as Articles 285, 286, and 289 that establish reciprocal tax immunities between the two levels of government.

Scope of Exemption under Article 287

Article 287 mandates that no law made by a State shall impose, or authorise the imposition of, any tax on:

1. Electricity consumed by the Government of India.
2. Electricity sold to the Government of India for its own consumption.
3. Electricity used in the construction, maintenance, or operation of railways—whether by the Government of India or by railway companies.

This wide-ranging protection covers both direct consumption by central departments and electricity purchased for use in projects or public undertakings operated by the Union Government. It also extends to electricity utilised in railways, which are constitutionally under the Union List (Entry 22, List I), thereby recognising their national importance.

Effect on State Taxation

While Article 287 prohibits States from taxing electricity consumed by or sold to the Central Government, it does not prevent them from taxing electricity generally. However, when such State laws do impose a tax on the sale or consumption of electricity, they must provide compensatory adjustments to ensure that the Union or railway authorities do not bear the burden of those taxes.
This adjustment is achieved by reducing the price of electricity charged to the Union Government or the railways by the equivalent amount of the State-imposed tax. Consequently, the effective cost to the Central Government remains the same as that paid by other major consumers, thereby maintaining fiscal equity.

Legislative and Economic Context

Article 287 must be read alongside Article 265, which provides that no tax shall be levied or collected except by authority of law, and Article 286, which imposes restrictions on the imposition of sales tax on goods in inter-State or international trade. Collectively, these articles form a comprehensive financial framework ensuring that both the Union and the States exercise their taxing powers in a coordinated and constitutionally compliant manner.
Electricity, as an economic commodity, is governed by both central and state legislation. While the Electricity Act, 2003 regulates generation, transmission, and distribution, Article 287 ensures that fiscal policies concerning electricity do not undermine the Union’s operational autonomy or burden national infrastructure.

Judicial Interpretation and Case Law

The judiciary has consistently upheld the protective scope of Article 287, clarifying its intent to shield the Union from additional financial liabilities due to State taxation. Notable cases include:

• State of Uttar Pradesh v. Asha Ram (1970): The Supreme Court examined the limits of State taxation on electricity and affirmed that any tax levied on electricity consumed by the Government of India violates Article 287.
• Union of India v. State of Bihar (Indian Oil Corporation Ltd. Case, 2000): The Court observed that State-imposed levies cannot burden central undertakings or departments when electricity is used for Union functions.
• M/s. Satyam Shivam Sundaram v. State of U.P. (2000): The Allahabad High Court ruled that electricity supplied to government departments and railway operations enjoys full constitutional immunity from State taxation.

These judgments underscore the principle that financial burdens imposed by State laws must not impede the Central Government’s ability to discharge its constitutional duties or maintain critical infrastructure.

Relationship with Other Constitutional Provisions

Article 287 interacts closely with other constitutional articles dealing with taxation and fiscal federalism:

• Article 285: Exempts Union property from State taxation.
• Article 286: Restricts State taxation on inter-State and international trade.
• Article 289: Provides a reciprocal exemption for State property and income from Union taxation.
• Article 265: Lays down the fundamental principle that taxes can only be levied by lawful authority.

Together, these provisions preserve the federal balance in taxation powers, ensuring that neither the Union nor the States encroach upon each other’s fiscal jurisdiction.

Administrative and Fiscal Implications

In practical governance, Article 287 has significant implications for the budgeting and financial management of public utilities:

• Central departments and undertakings, such as the Ministry of Railways, are not required to pay State taxes on electricity consumption.
• Electricity Boards and State Distribution Companies must account for the exemption while determining tariffs for the Union and railway authorities.
• Public sector entities operating under the control of the Central Government may, in certain cases, claim similar exemptions if electricity is consumed for Union purposes.
• State finances may experience minor revenue implications due to these exemptions, but the provision ensures uniformity and predictability in fiscal administration.

By protecting the Union from additional charges, Article 287 facilitates uninterrupted power supply to essential national services such as defence installations, railways, ports, communication networks, and administrative offices.

Significance in the Federal Structure

The exemption under Article 287 serves multiple constitutional purposes:

• It upholds the financial sovereignty of the Union in relation to State taxation powers.
• It ensures the operational efficiency of Union-run infrastructure such as railways and other essential services.
• It maintains fairness by ensuring that the Union Government does not bear additional fiscal burdens compared to private consumers.
• It strengthens cooperative federalism by clearly demarcating the financial boundaries between the Union and the States.