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The entries in the legislative lists are divided into two groups- one relating to the power to tax and the other relating to the power of general legislation relating to specified subjects. Taxation is considered as a distinct matter for purposes of legislative competence. Hence, the power to tax cannot be deducted from a general legislative Entry as an ancillary power. Thus, the power to legislate on inter-state trade and commerce under Entry 42 of List I does not include a power to impose tax on sales in the course of such trade and commerce. There is no Entry as to tax, in the Concurrent List; it only contains an Entry relating to levy fees in respect of matters specified in List III other than court-fees. In order to determine whether a tax was within the legislative competence of the legislature which imposed it, it is necessary to determine the nature of the tax, whether it is a tax on income, property, business or the like so that the Entry under which the legislative power has been assumed could be ascertained. The primary guide for this is what is known as the ‘charging section. The identification of the subject-matter of a tax is only to be found in the charging section, the section which creates the liability to pay the tax as distinguished from the mode of assessment or machinery by which it is assessed. Generally speaking, all taxation is imposed on persons, but the nature and amount of liability is determined either by individual units, as in the case of a poll-tax, or in respect of the tax payers’ interest in property or in respect of transactions of activities of the tax payers. But, the ‘incidence’ or the ultimate burden of a tax does not determine its nature or alter the legislative power relating to it. It is the substance of the levy and not the form that determines the nature of the tax. The name given by the Legislature is not conclusive for this purpose. Once it is held that a legislature has the power to legislate over a particular subject, its competence is not to be limited by the manner in which the power is exercised. Thus, a taxing statute may be amended by incorporating a provision in an annual Finance Act. The intrinsic character of the tax is not to be determined by the mode of measurement or the standard of calculation prescribed for assessing the amount of the tax. So far as the Entries relating to the taxing power are concerned,- “it is wrong to think that two independent imposts arising from two different acts or circumstances were not permitted” by the Constitution. Thus, the same article may be subject to a Central excise duty and a State Octori duty, or a State tax as well as a Ambit Of Taxing Power If the power to impose a tax is established, the power to collect the same is necessarily implied. The legislature having the power to impose a tax has also the power to prescribe the means by which the tax shall be collected and to designate officers by whom it shall be enforced; the obligation and indemnity of those officers; the means to ensure proper realization of the tax. The method and manner of collection of tax is no criterion for judging the vires of the tax law. The following powers flow from the power to tax as ancillary powers- (1) To provide for refund of a tax illegally or improperly collected and to impose restriction upon the right to claim such refund. (2) To provide for the prevention of evasion of the tax imposed. (3) To levy a penalty for the proper enforcement of the taxing statute, or collecting any amount wrongly under colour of that statute, whether by way of fine or forfeiture. On the other hand, in exercise of taxing power conferred by exercise of a legislative Entry, the Legislature cannot provide for the following, which cannot be said to be ‘ancillary’ to the legislative power in question: (1) that any money collected by a person by a wrong application of taxing law would still be recoverable by the State as if it were a tax imposed under its legitimate powers, even though the Legislature may penalize such illegal collection. (2) The result would be the same if the law required the dealer who has recovered an illegal sum which was not recoverable under the taxing law to deposit it with the State so that the State might refund to the person from whom the money had been illegally recovered, because the requirement of deposit with the State is an exercise of the taxing power over a subject which was outside that power. Constitutional Limitations Upon The Taxing Power Apart from the limitation by the division of the taxing power between the Union and State Legislature by the relevant Entries in the legislative Lists, the taxing power of either Legislature is particularly subject to the following limitations imposed by particular provisions of our Constitution: (1) It must not contravene Art.13. (2) It must not deny equal protection of the laws, must not be discriminatory or arbitrary .(Art.14) (3) It must not constitute an unreasonable restriction upon the right to business.(19(1)(g)) (4) No tax shall be levied the proceeds of which are specially appropriated in payment of expenses for the promotion or maintenance of any particular religion or religious denomination (Art.27). (5) A State Legislature or any authority within the State cannot tax the property of the Union.(Art.285) (6) The Union cannot tax the property and income of a State (Art.289). (7) The power of a State to levy tax on sale or purchase of goods is subject to Art.286. (8) Save in so far as Parliament may, by law, otherwise provide, a State shall not tax the consumption or sale of electricity in the cases specified in Art.287
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Category Taxation, Other Articles by - G. ARAVINTHAN