Article 288

Article 288 of the Constitution of India provides for exemption from State taxation on water or electricity in specific cases, particularly concerning inter-State rivers or river-valley projects. It safeguards national and inter-State projects from unilateral State taxation, ensuring uniform fiscal policy and cooperative management of water and electricity resources across India.

Constitutional Context and Objective

The article was incorporated to prevent financial and administrative conflicts between the Union and the States over taxation of water and electricity associated with inter-State river or river-valley development projects. These projects are vital for irrigation, hydroelectric power generation, and national infrastructure. Since they serve multiple States or fall within the jurisdiction of Parliament, Article 288 restricts State powers to impose taxes on such undertakings without Presidential authorisation.
It complements related provisions such as Article 262, which deals with adjudication of water disputes, and Article 287, which exempts electricity consumed or sold to the Government of India from State taxes. Together, these articles maintain a balanced framework of fiscal and administrative coordination between the Union and the States.

Exemption from State Taxation under Article 288(1)

Article 288(1) grants exemption to specific authorities and projects from State taxes on water or electricity. It provides that a State law in force before the commencement of the Constitution shall not impose or authorise any tax on:

• Water or electricity that is stored, generated, consumed, distributed, or sold by an authority established either by an existing law, or
• Any law made by Parliament for the regulation or development of an inter-State river or river valley.

This clause prevents any pre-Constitution State law from taxing such projects or authorities, ensuring uninterrupted national and inter-State cooperation.
However, the President of India may issue an order making an exception to this rule and permit such taxation, either wholly or partially. This discretionary power of the President guarantees that the decision to allow State taxation on inter-State projects is taken with due regard to the national interest.
The expression “law of a State in force” includes all pre-Constitution laws not repealed after the commencement of the Constitution, even if they were not operational in certain regions.

State Legislature’s Power and Presidential Oversight under Article 288(2)

Article 288(2) allows a State Legislature to make laws imposing or authorising taxes on water or electricity concerning inter-State river projects. However, the exercise of this power is subject to strict procedural safeguards to preserve central oversight:

• Any such Bill must be reserved for the consideration of the President.
• The Bill shall not become law unless it receives the President’s assent.
• If the law authorises fixation of tax rates or the making of subsidiary rules or orders, these can be framed only with the prior approval of the President.

This provision ensures that State taxation on water and electricity projects affecting inter-State or national interests is not introduced without central supervision and concurrence.

Key Features of Article 288

• Authorities established for the regulation or development of inter-State rivers or river valleys are exempt from State taxation unless the procedure under Article 288(2) is followed.
• The provision applies to both pre-Constitution and post-Constitution State laws.
• It mandates Presidential oversight, ensuring that national interests take precedence over regional fiscal considerations.
• It maintains uniformity in taxation policies across India in respect of inter-State water and electricity resources.

Role of the President

The President’s role under Article 288 is of paramount significance. The President is empowered to:

• Issue orders permitting or exempting specific cases from the prohibition on State taxation.
• Grant assent to State laws that seek to impose such taxes.
• Approve rules or orders fixing tax rates under State laws relating to these subjects.

This centralised authority ensures that taxation policies affecting inter-State resources align with national priorities and economic policy.

Relevant Authorities and Projects

The protection under Article 288 extends to authorities or corporations constituted under existing or Parliamentary laws for inter-State water and electricity regulation. Notable examples include:

• The Damodar Valley Corporation (DVC), managing hydroelectric and irrigation development in the Damodar basin.
• The Bhakra Beas Management Board (BBMB), regulating projects serving Punjab, Haryana, Rajasthan, and Himachal Pradesh.
• The National Thermal Power Corporation (NTPC), operating power stations connected with inter-State river systems.

These institutions are crucial to India’s economic and infrastructural growth and thus require fiscal immunity from uncoordinated State taxation.

Judicial Interpretation

The Supreme Court has repeatedly upheld the protective intent of Article 288 and clarified its scope in several judgments:

• The Court has ruled that authorities established under Parliamentary law, such as NTPC, are entitled to exemption from State electricity duties unless Presidential assent has been obtained.
• It has affirmed that no State tax can be levied on electricity generated or distributed by such authorities without following the constitutional process under Article 288(2).
• Judicial pronouncements have consistently reinforced that this exemption preserves national interests and prevents fiscal interference by States in centrally regulated projects.

Related Constitutional Provisions

Article 288 functions in conjunction with several other constitutional provisions that regulate financial relations between the Union and the States:

• Article 262: Concerns adjudication of inter-State river disputes.
• Article 287: Exempts electricity consumed by or sold to the Government of India from State taxes.
• Article 289: Provides reciprocal protection of State property from Union taxation.

These interconnected articles strengthen India’s federal balance in managing shared natural and fiscal resources.

Practical Implications

Article 288 has important implications for India’s water and energy governance:

• State Governments cannot levy taxes on water or electricity from inter-State projects without the President’s assent.
• Inter-State and central authorities such as NTPC, DVC, and BBMB are protected from arbitrary State taxation.
• The provision ensures continuity and uniformity in the financial administration of inter-State water and electricity projects.
• It prevents fiscal disputes and jurisdictional overlap between the Union and the States, supporting coordinated national development.