1.
Introduction to Delegation of Taxation Power
Delegation allows the legislative branch to transfer certain functions to the executive or
local authorities, empowering them to address administrative details effectively. In the
field of taxation, this transfer enables states and local authorities to implement taxes, set
rates, and collect revenues based on regional needs. Although Article 265 of the Indian
Constitution stipulates that “no tax shall be levied or collected except by authority of
law,” it recognizes the practicality of delegation in modern governance.
2. Historical Context and Basis for Delegation of Taxation Power
In India, the basis for delegation of taxation stems from both pre- and
post-independence frameworks, where fiscal federalism was a vital component of
regional autonomy. Early tax systems under British rule led to a centralized taxation
approach, but with the adoption of the Constitution, India formalized a federal structure
with shared fiscal responsibilities. This shift allowed for a dynamic system where states
could influence their economic policies through specific taxes while following
constitutional mandates.
3. Constitutional Framework for Taxation Power in India
Under Article 246 and the Seventh Schedule, the Indian Constitution delineates taxation
powers across three lists—Union, State, and Concurrent. Taxes like customs duties and
income taxes fall under the Union List, while land revenue, property taxes, and
agricultural taxes are assigned to the State List. The Concurrent List, although limited in
taxation powers, provides room for both the central and state governments to
collaborate on matters like bankruptcy law, essential for financial stability.
Fiscal Federalism and Revenue Sharing
Fiscal federalism in India is implemented through constitutional mandates, allowing
state and local bodies to access revenue sources. Key provisions, such as Article
268–270, outline how revenue from certain taxes is shared or allocated entirely to
states. For example, stamp duties and registration fees are collected by the Union but
allocated to states, ensuring that both levels of government maintain fiscal autonomy
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4. Principles Governing Delegation of Taxation Power
Delegation within taxation is framed by specific principles that limit the executive’s
power. Only non-essential functions, such as setting tax rates or detailing administrative
procedures, may be delegated. The judiciary’s interpretation of “excessive delegation”
ensures that essential legislative functions, particularly those defining the tax itself,
remain within legislative purview. This doctrine has been reinforced through various
judicial pronouncements, safeguarding the integrity of legislative authority.
Judicial Standards for Delegation
In Hari Shankar Bagla v. Madhya Pradesh, the Supreme Court underscored that
delegation is permissible as long as it does not transfer essential legislative power. The
Court asserted that while legislative bodies may delegate certain administrative tasks,
they cannot pass on core functions such as creating or abolishing taxes, thus
maintaining a check on executive overreach
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5. Delegation of Taxation Power to State Legislatures
State legislatures have the authority to impose taxes that are region-specific, such as
taxes on the sale of goods, property, and alcohol. This localized control allows states to
tailor tax rates to their economic conditions. For example, excise duties on alcohol are
significant revenue sources for many states, which regulate and adjust tax policies
based on regional consumption patterns. This form of delegation strengthens fiscal
federalism by enabling states to generate revenue independently of central transfers.
State-Specific Taxes and Revenue Mechanisms
Many states also levy professional taxes on individuals working within their jurisdictions.
The Andhra Pradesh Motor Vehicle Tax Act, for instance, imposes different rates based
on vehicle type and capacity. This flexibility ensures that states can manage their fiscal
requirements and accommodate specific local conditions
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6. Delegation of Taxation Power to Local Bodies
Local governments, empowered by the 73rd and 74th Constitutional Amendments, are
granted powers to raise taxes to fund local infrastructure and services. Municipalities
commonly impose property taxes, entertainment taxes, and service charges to meet
local developmental needs. These taxes are vital for funding municipal services such as
water supply, waste management, and road maintenance, directly impacting citizens at
a grassroots level.
Examples of Local Taxation
Municipal corporations, for example, often levy entertainment taxes based on the
seating capacity of theaters, as well as property taxes scaled according to land value.
Such taxes reflect local economic conditions and are critical for sustainable urban
development. However, local tax administration requires efficiency and oversight to
ensure transparency and prevent misuse of funds
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7. Judicial Oversight and Key Case Laws
Indian courts have played a pivotal role in setting limits on tax delegation. In Harak
Chand v. India, the Supreme Court ruled that unrestricted delegation of legislative
powers violated constitutional provisions. Similarly, in Bhatnagars and Co. v. Union of
India, the Court upheld the principle that while some administrative discretion is
necessary, core legislative functions must be clearly outlined in the parent legislation.
Such rulings emphasize the judiciary’s commitment to preserving legislative integrity.
Role of the Judiciary in Taxation
The judiciary serves as a watchdog against excessive delegation, ensuring that
executive agencies adhere to constitutional limits. Judicial oversight also promotes
uniformity across states, preventing arbitrary tax practices that could disadvantage
certain regions
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8. Fiscal Federalism in India: Structure and Implementation
Fiscal federalism enables a balanced distribution of financial resources across
government levels. Through revenue-sharing arrangements, states receive a portion of
central taxes, facilitating equitable development. This distribution, determined by the
Finance Commission, considers factors like population and per capita income.
Additionally, the Goods and Services Tax (GST) has simplified indirect taxation by
consolidating various state and central taxes, promoting fiscal unity while respecting
state-specific needs.
9. Case Studies in Delegation of Taxation Power
Several case studies illustrate the effectiveness and challenges of tax delegation. For
example, property tax collection in Maharashtra highlights the importance of efficient
administration, where local authorities have introduced digital platforms to streamline
tax payments. On the other hand, Kerala’s excise tax policies showcase how states can
leverage their autonomy to fund public health and education initiatives through taxes on
alcohol.
Insights from State and Local Tax Administration
Such case studies reveal that successful tax delegation depends on transparency and
accountability. States that invest in training and technology tend to manage delegated
taxes more effectively, enhancing their capacity to provide essential services to citizens
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10. Challenges and Criticisms of Delegation in Taxation
While delegation is essential for functional governance, it has its limitations. Critics
argue that over-reliance on local bodies can lead to inconsistent tax practices across
regions. Local bodies may also lack the resources to manage tax collection effectively,
potentially leading to revenue losses. Moreover, excessive delegation without clear
guidelines can blur accountability, making it difficult for citizens to understand tax
policies or challenge unfair practices.
Improving Transparency and Accountability
To address these challenges, some states have implemented e-governance initiatives
that make tax data publicly accessible. Additionally, regular audits and citizen feedback
mechanisms can help ensure that delegated powers are exercised responsibly,
reinforcing public trust in local taxation.
11. Conclusion and Future Outlook
The delegation of taxation power in India serves as a critical tool for empowering state
and local governments. When properly regulated, delegation promotes efficiency and
responsiveness, enabling governments to address region-specific needs. However,
continuous judicial oversight and transparent practices are essential to prevent the
misuse of delegated authority. Looking forward, policy reforms could further enhance
tax collection capabilities at the local level, reinforcing India’s federal structure and
supporting balanced regional development.
Case laws:
Hari Shankar Bagla v. Madhya Pradesh
This case established the principle that essential legislative functions cannot be
delegated. The court ruled that while certain procedural details in tax laws can be
managed by the executive, the fundamental legislative policies and principles must be
outlined by the legislature itself. This ruling has become a foundational precedent in
limiting excessive delegation in India.
In re Delhi Laws Act, 1912
The Supreme Court held that delegation of essential legislative functions, such as
determining core policies, cannot be transferred to the executive branch. This case
reinforced that the legislature must declare the policy and provide guidelines when
delegating ancillary administrative functions.
Bhatnagars & Co. v. Union of India
Here, the Supreme Court upheld Section 3(a) of the Imports and Exports Control Act,
1947, which allowed the central government to restrict or prohibit the import/export of
certain goods. Although the Act lacked specific policy details, the court referred to the
preamble and historical context of similar laws to interpret legislative intent, thereby
allowing limited delegation for operational purposes.
Harak Chand v. Union of India
In this case, the Supreme Court invalidated Section 5(2)(b) of the Gold Control Act,
1968, as it provided overly broad discretionary powers to the executive. This ruling
emphasized that delegation must be accompanied by clear guidelines to prevent
arbitrary or excessive use of legislative power by administrative bodies.
D.S. Garewal v. State of Punjab
The court upheld Section 3 of the All India Services Act, 1951, which allowed the central
government to create rules regulating the service conditions of All India Services. The
Act was upheld even though it contained minimal guidance, with the court noting that
the Act’s objectives provided implicit legislative policy.
D.K. Trivedi & Sons v. State of Gujarat
In this case, Section 15(1) of the Mines and Minerals (Regulation and Development)
Act, 1957, was challenged as an excessive delegation. The Supreme Court upheld it,
stating that the delegation to state governments included sufficient guidelines,
especially regarding the frequency of royalty rate adjustments, thus not amounting to
excessive delegation.
Jalan Trading Company v. Mill Majdur Sabha
Section 37 of the Payment of Bonus Act, 1965, granted the central government
sweeping powers to remove any “doubts or difficulties” in the Act's application. The
Supreme Court found this clause to be an excessive delegation of legislative authority
as it lacked sufficient checks, allowing the executive to act without judicial oversight.
