By Deepak Vyas
The power of taxation is an inherent and an essential attribute of sovereignty which primarily rests on necessity. Modern constitutions of nations recognise this power by making express provisions therein. The sovereign attribute of taxation is the authority of the sovereign to compulsorily impose burden or charges upon persons or property to raise money as public revenue for public purposes. In a federal constitution, the power of taxation is distributed among the federal and the provincial legislatures, i.e., the central and the state legislatures. Our constitution makes a fine balance in the taxing powers of the Parliament and the state legislatures. However, the distribution is not based on the distinction of direct and indirect unlike other federal constitutions.
While the Parliament has the power to levy taxes viz. income, excise and customs, service tax, etc., the state enjoys the power to levy taxes on the sale and purchase of goods, on land and buildings, land revenue, and excise duties on alcohol consumption, etc. In modern times, the executive has made more laws in the exercise of its administrative powers than the legislature itself. As is established, the legislature is competent to delegate certain subsidiary legislative powers and functions to the executive. This recognition is founded on the premise that, since the executive is in closer touch with ground realities and can be more responsive to exigencies that may arise, it can effectively deal with the implementation of legislative policies.
Evolution of Law on the Subject
As the author has already introduced in the first part of the paper, in a democratic system, levying tax is exclusively the function of the Legislature. But, considering the complex procedures in defining each and every minute detail concerning the imposition of tax, delegation has permeated even the tax area, which has not completely taken off the sovereign power yet has undoubtedly caused a dent in the principle. The Supreme Court held in Rajnarain v. Chairman, Patna Administration that the power to tax is essentially a legislative function.
Article 265 provides the constitutional mandate to the legislature for the imposition of taxes. It states: “no tax shall be levied or collected except by the authority of law.” Therefore, in effect, what happens is that the legislature enacts the law or a statute to levy a tax, and leaves some elements of taxing power to the executive. No tax, fee, or other pecuniary imposition can be levied by subordinate legislation unless it is backed by a statute which specifically authorizes the imposition of tax. A general power simply for carrying out the purposes of the Act shall not amount to granting of the power to impose tax.
On the other hand, certain other powers do not fall under ‘essential legislative function’ and therefore may be delegated:
- The power to select the persons on whom the tax is to be laid.
- The power to amend the schedule of exemptions.
- The determination of the rates at which it is to be charged in respect of different classes of goods.
- The choice of particular tax suited to the purposes of the Act and within the competence of the legislature concerned.
Thus, three variants emerge of the formulae used to delegate power to impose tax:
- First is the power of exemption either of a commodity or persons.
- Second is the power of the government to bring additional transactions, commodities, or persons within the purview of a tax.
- Finally, the power conferred upon the executive to fix from time to time the rate of tax itself.
Any discussion on the legal position of tax laws in India dates back to the Supreme Court’s judgment in the case of Banarasi Das v. State of Madhya Pradesh. In this case, the Supreme Court was confronted with the question as to whether Section 6(2) of the Berar Sales Tax Act, 1947, which empowered the State government to amend the schedule of the Act providing either for exemption from sales tax or to bring in other goods within the purview of sales tax, was suffering from the vice of excessive delegation. The Supreme Court, speaking through Justice Venkatarama Aiyer, held that the impugned provision was not an impermissible delegation of legislative power. The Supreme Court relied on Raj Narain’s Case and held that the executive can determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid and the rates at which it is to be charged. In the instant case, the Court also referred to Powell v. Apollo Candle Co. Ltd., Syed Mohammed and Co. v. Madras, and Hampton Junior and Co. v. US, and went on to hold that the power conferred by Section 6(2) was not unconstitutional.
Actually, the judicial comprehension of the judgment in the Banarasi Das case came to light only after subsequent judgments like in the case of Corp. of Calcutta v. Liberty Cinema, wherein the court held there was no distinction in principle between delegating a power to fix rates of taxes to be charged on different classes of goods and a power to fix rates simpliciter. Thus, in the instant case, the majority upheld the validity of Section 548(2) of the Calcutta Municipal Act, 1951, notwithstanding that no guideline was issued.
Two years later in 1967, in the case of Devi Das v. State of Punjab, the Supreme Court was confronted with the question as to whether Section 5 of the Punjab General Sales Tax (Amendment) Act, 1948 suffered from the vice of excessive delegation. The provision empowered the executive to levy sales tax at a rate not exceeding 2%. The Court stated that it was alright to confer a reasonable area of discretion on the Government by a fiscal statute, but a large statutory discretion by means of a wide gap between the maximum and the minimum rates, and thus enabling the government to fix an arbitrary rate, is not sustainable.
While examining other provisions in the same case, Justice Khanna affirmed the guidelines theory and was of the opinion that enough guidelines were present in the legislation. However, Justice J.M. Mathew gave a different reasoning, holding that it is not for the Court to hunt for legislative policy or guidance in the crevices of the Statute. Emphasizing upon the power of the legislature to repeal the provisions of Section 8(2)(b), he said that the legislature has not abdicated its function and thus has not effaced itself. It is the submission of the researchers here that the conflict within the majority opinion was apparent, which influenced subsequent cases.
Conclusion
The article was an attempt to address the issue of delegated legislation in tax laws, with the recognition that while there could be a delegation of tax powers by the legislature, it cannot confer arbitrary power on the executive. It is submitted that the model is most developed in the United States where the Courts look for several checks on the power conferred on the executive.
The author concludes with this quote by Sir John Donaldson, M.R., in R. v. Lancashire CC, ex p Huddleston on the development of administrative law:
“Administrative law has created a new relationship between the courts and those who derive their authority from the public law, one of partnership based on a common aim, namely, the maintenance of the highest standards of public administration.”