Article 287 of the Indian Constitution is a significant provision within Part XII, which deals with Finance, Property, Contracts, and Suits. It specifically addresses the fiscal relationship between the Union and the States by placing restrictions on the taxing power of State Legislatures concerning electricity consumed by or sold to the Government of India, as well as electricity used for railway purposes under the Union’s purview.
This article serves to protect the financial autonomy and operational capacity of the Union government and its essential functions, such as the national railway system, from potential taxation by individual states. It establishes a principle of exemption for the Union from certain State taxes, subject to the overriding power of Parliament.
Original Text
Article 287. Exemption from taxes on electricity
Save in so far as Parliament may by law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the consumption or sale of electricity (whether produced by Government or other persons) –
(a) which is consumed by the Government of India, or
(b) which is sold to the Government of India for consumption by that Government or otherwise, or
(c) which is consumed in the construction, maintenance or operation of any railway by the Government of India or a railway company operating that railway, or
(d) which is sold to the Government of India or to any such railway company for consumption in the construction, maintenance or operation of any railway.
Detailed Explanation
Article 287 mandates that State Legislatures cannot enact laws that levy taxes on the consumption or sale of electricity under certain specified circumstances. This restriction is primarily aimed at benefiting the Government of India and railway operations associated with it, ensuring these activities are not burdened by State-level taxation on electricity.
The exemption applies irrespective of whether the electricity is produced by the government or private entities. There are four specific scenarios outlined where a State cannot impose such a tax:
- Consumption by Government of India: Any electricity directly consumed by the Government of India for its various purposes.
- Sale to Government of India: Electricity that is sold to the Government of India, whether the Government consumes it itself or uses it for other purposes (though the primary intent is usually self-consumption).
- Consumption in Railway Activities: Electricity consumed during the construction, maintenance, or operation of any railway by either the Government of India or a railway company operating that railway. This covers essential railway infrastructure and operational activities.
- Sale for Railway Activities: Electricity sold to the Government of India or to a railway company operating a railway specifically for consumption in the construction, maintenance, or operation of that railway.
A crucial caveat to this exemption is introduced by the opening phrase: “Save in so far as Parliament may by law otherwise provide…”. This means that while the general rule is exemption from State taxation on electricity in these cases, Parliament possesses the ultimate authority to override this exemption. Parliament can, by enacting a law, permit states to levy taxes on such electricity consumption or sale, potentially subject to certain conditions or limits it may prescribe. This provision underscores the Union’s supremacy in matters of fiscal federalism, allowing it to regulate potential conflicts or adjust financial arrangements as needed.
Detailed Notes
- Article 287 is located in Part XII of the Indian Constitution, dealing with Finance, Property, Contracts, and Suits.
- It restricts the power of State Legislatures to impose taxes on electricity.
- The restriction applies to taxes on both the consumption and the sale of electricity.
- The exemption applies regardless of whether the electricity is generated by government or non-government entities.
- Four specific cases are exempted from State tax on electricity:
- Electricity consumed directly by the Government of India.
- Electricity sold to the Government of India (for its consumption or otherwise).
- Electricity consumed for construction, maintenance, or operation of any railway by the Government of India.
- Electricity consumed for construction, maintenance, or operation of any railway by a railway company operating that railway.
- Electricity sold to the Government of India for consumption in railway construction, maintenance, or operation.
- Electricity sold to any such railway company for consumption in railway construction, maintenance, or operation.
- The term “railway company operating that railway” refers to a company managing a railway under the purview of the Government of India.
- The primary purpose is to protect the financial interests and operational efficiency of the Union government and the national railway network from State taxation.
- The exemption is not absolute; it is subject to the condition that Parliament may, by law, provide otherwise.
- Parliament has the power to permit states to levy taxes on such electricity, potentially with conditions.
- This article is an example of how the Constitution demarcates financial powers and provides for Union exemptions to maintain federal balance and ensure the smooth functioning of Union activities.
- It is similar in principle to Article 285 (exemption of Union property from State taxation) and Article 289 (exemption of State property and income from Union taxation, with exceptions).
Additional Comments
- This article is crucial for understanding the scheme of fiscal immunities between the Union and the States in India.
- It ensures that essential national infrastructure like railways, managed by the Union, is not subjected to varied and potentially burdensome tax regimes of different states.
- The provision allowing Parliament to override the exemption provides necessary flexibility for the Union government to adjust financial relations based on policy needs or evolving circumstances.
- Legal interpretations often revolve around the scope of “consumption” and “sale” and what constitutes “construction, maintenance or operation of any railway”.
Summary
Article 287 of the Indian Constitution prohibits states from levying taxes on electricity consumed by or sold to the Government of India, as well as electricity used in the construction, maintenance, or operation of railways by the Government of India or associated railway companies. This exemption protects key Union activities and infrastructure from State taxation. However, Parliament holds the power to make a law allowing states to impose such taxes, thereby retaining ultimate control over this financial arrangement.