Article 265: Taxation by Authority of Law

Article 265 requires the government to have legal authority both to impose a tax and to collect it. It states: “No tax shall be levied or collected except by authority of law.” Thus, a tax demand must rest on a valid law, and its collection must conform to that law.

Legal authority is required for both levy and collection

Article 265 covers two distinct stages of taxation: creating the tax liability and recovering the amount due. Legal authority for one stage does not excuse illegality at the other.

• Levy means the legal imposition of a tax, while collection concerns its recovery from the person liable to pay it.
• An executive order, administrative circular or departmental practice cannot, by itself, create a tax liability without statutory authority.
• Even when a tax is validly imposed, officials must collect it within the limits and through the procedures authorised by the governing law.
• A budget announcement or policy proposal alone does not authorise taxation; the necessary legal provision must be in force.

What makes the authorising law valid?

The existence of a statute is necessary, but it is not sufficient. The taxing law must have been enacted by a competent legislature and must comply with the Constitution.

• Article 246 and the Seventh Schedule distribute legislative powers, including specified taxation powers, between Parliament and State Legislatures.
• Article 246A makes special provision for legislative power over goods and services tax.
• The law must identify the taxable event, the person liable, the rate and the measure used to calculate the tax, or provide a legally valid mechanism for determining them.
• Rules and notifications may implement taxation where the parent statute authorises them, but they cannot exceed that authority.
• Tax legislation remains subject to constitutional limitations, including Article 14, which prohibits arbitrary or discriminatory State action.

Distinguishing taxes from other charges

Article 265 specifically addresses taxation. Not every payment collected by a public authority or service provider is necessarily a tax.

• A tax is a compulsory exaction for public purposes and is not a payment for a specific service rendered to the payer.
• Fees and contractual service charges must be distinguished from taxes by examining their legal basis and substance, rather than their label alone.