An Analysis Of Jurisprudential Evolution Of Taxation Law In India

Author: LawSphereX

Category: Taxation

Published: 2026-08-23T17:50:07.348823+00:00

Updated: 2026-08-26T17:12:18.421+00:00

AN ANALYSIS OF JURISPRUDENTIAL EVOLUTION OF

TAXATION LAW IN INDIA

Syed Mohammed Nasif, B.A. LL.B. (Hons), Aligarh Muslim University Centre, Malappuram Sidra Wasim, B.A. LL.B. (Hons), Aligarh Muslim University Centre, Malappuram

ABSTRACT

The jurisprudence of taxation in India has evolved through a confluence of historical developments, constitutional mandates, judicial interpretations, and economic policies. This paper critically examines the trajectory of taxation law from ancient Indian scriptures and medieval revenue systems to colonial impositions and post-independence tax reforms. It underscores the constitutional framework governing tax legislation, emphasizing federalism, revenue distribution, and the interplay between Union and State authorities. Through this paper we delve into foundational jurisprudential theories—such as utilitarianism, social contract theory, and Adam Smith’s principles— while analyzing key judicial doctrines shaping tax law, including strict interpretation, economic nexus, and the doctrine of colorable legislation.

Special attention is given to the introduction of the Goods and Services Tax (GST) as a landmark reform, assessing its impact on tax uniformity, compliance burdens, and federal relations. Furthermore, this paper highlights contemporary challenges, such as digital taxation, tax avoidance, and judicial inconsistency, advocating for AI-driven compliance mechanisms and blockchain-enabled transparency. By bridging taxation law with constitutional principles of equity and economic justice, this research seeks to provide a comprehensive jurisprudential analysis of India's tax system and propose a roadmap for its modernization.

1. INTRODUCTION

The word ‘tax’ has been derived from the Latin word “taxare” which means ‘to censure, charge or compute’. According to Hugh Dalton, the British economist, politician and Former Chancellor of the Exchequer “a tax is a compulsory contribution imposed by a public authority, irrespective of the exact amount of service rendered to the taxpayer in return, and not imposed as penalty for any legal offence. ”1 Tax is the primary source of revenue for the government. In order to garner income for the government to finance social projects, tax is collected from individuals and corporations via direct tax and indirect tax. Thus, taxation is the act of levying or imposing tax by a taxing authority. Taxation is the lifeblood of any government as it not only pays for public goods and services but also forms a crucial foundation of the social contract between citizens and economy.

The strength of a nation’s economy hinges on the efficacy of its taxation system, which, when strategically structured, ensures stable revenue generation, fosters industrial expansion, and sustains economic growth.

2. HISTORICAL DEVELOPMENT OF TAXATION LAW IN INDIA

2.1 ANCIENT INDIA

The emergence of the first civilization in the valleys of the Indus and Ganges dates back to the 3rd millennium BCE. Adherence to Vedas in ancient times influenced all aspects of India’s population, including a culture of fulfilling tax obligations. Voluntary benefactions to the rulers of the kingdoms and offerings made as sacrifices to the gods were christened as bali. Ancient Indian literature references variety of taxes, including bali, kara, and bhaga. These words have conveyed different meanings across various sources and time periods. For instance, the term bali encompassed a variety of levies, including religious offerings, land taxes, emergency impositions, or general taxation. The term kara served as a broader designation for taxes, often referring to monetary assessments, land-based dues, or regular monthly contributions from agrarian communities.

Meanwhile, bhaga typically denoted the king’s share of war spoils or his portion of revenue, and in some contexts, it may have been used interchangeably with bali. 2 1 “Dalton defines thus tax: a tax is a compulsory contribution imposed by a public authority, irrespective of the exact amount of service rendered to the taxpayer in return, and not imposed as penalty for any legal offence. ” S. R. Myneni, Law of Taxation 2 (7th ed. 2024). 2 “Adherence to the Vedas influenced all aspects of the life of India’s population, including a culture of fulfilling tax obligations. Voluntary offerings to the rulers of the kingdoms, as well as sacrifices to the gods, were called bali. It was believed that thus the ruler would protect the country from enemies, and the gods would shield the people from drought and other disasters. Ancient Indian literature mentions various taxes: bali, kara, bhaga. At

India became an empire during the reign of the Nanda dynasty (424 to 321 BCE). A factor assisting the consolidation of the Nanda kingdom was that taxes were given importance as revenue. This systematic taxation process, managed by officially designated officers, was integrated into the administrative framework. Despite wielding immense military power and governing a vast empire, Dhanananda, the final ruler of the Nanda dynasty in Magadha, remained unpopular among his subjects. A significant factor contributing to this discontent was his insatiable greed and obsession with wealth, which he amassed through oppressive taxation and exorbitant levies imposed upon the populace. 3 In India, a system of direct taxation—resembling that of modern times—has existed in various forms since ancient periods.

Ancient texts such as the Manu Smriti and the Arthasastra reference an assortment of tax measures. The sage Manu, renowned as an ancient lawgiver, asserted that the king possessed the authority to levy taxes. Yet, he advised that the imposition of taxes should be proportionate to the income and expenses of the subjects, warning against both the complete absence of taxes and the imposition of burdensome levies. He recommended that tax collection be organized in a manner that spared subjects from undue hardship. Specifically, Manu stipulated that traders and artisans should contribute onefifth of their profits in silver and gold, while agriculturists were required to pay one-sixth, oneeighth, or one-tenth of their produce, contingent upon their circumstances. This detailed analysis underscores the existence of a well-conceived taxation system even in ancient times.

Moreover, various other groups—including actors, dancers, singers, and dancing girls—were taxed as well, with payments accepted in the form of gold coins, cattle, grains, raw materials, or through the provision of personal services. 4 Subsequently, Kautilya preferred expanding the different times and in different sources, these words had different meanings. For example, bali could mean a religious tax, a land tax, an emergency tax, or simply tax in general. Kara was used as a common name for all taxes, as a monetary tax, as a monetary land tax, or as monthly taxes from farmers. Bhaga usually described the part of the spoils of war due to the king, or the king’s share. It may also have been a synonym for bali. ” Digital Tax Technologies, Taxes in Ancient India. 3,000

BCE—700

CE

(Aug. 3, 2023), https://taxtech. digital/2023/08/03/taxes-in-ancient-india/. (Accessed on Jan. 7, 2025, 10:30 AM IST). 3 “A factor assisting the consolidation of the Nanda kingdom was that taxes were given importance as revenue. The methodical collection of taxes by regularly appointed officials became a part of the administrative system. With all the military might and mastery of a large empire, Dhanananda (the last Nanda kind of Magadha) was not popular among his subjects. Much of his unpopularity was due to his avarice and love of wealth, which he accumulated at the expense of his people by means of excessive taxation and exactions. ” Suchandra Ghosh, Nanda Empire, in 8 The Encyclopedia of Empire (John M. MacKenzie ed. , Wiley Online Library, 2016), https://doi. org/10. 1002/9781118455074. wbeoe189. (Accessed on Jan. 9, 2025, 10:56AM IST).

4 “In India, the system of direct taxation as it is known today, has been in force in one form or another even from ancient times. There are references both in Manu Smriti and Arthasastra to a variety of tax measures. Manu, the ancient sage and law-giver stated that the king could levy taxes, according to Sastras. The wise sage advised that taxes should be related to the income and expenditure of the subject. He, however, cautioned the king against excessive taxation and stated that both extremes should be avoided namely either complete absence of taxes or

tax base over increasing tax rates. His treatise on taxation outlined three key principles: the limitation of the state's taxing power, the avoidance of excessive taxation, and the moderation of any tax increases. He advocated for a system of tax collection designed to enhance the economy's permanent revenue-generating capacity. Kautilya supported both indirect taxes, such as excise and customs duties, and direct taxes, including income tax on individuals, wealth tax, and profession tax. He categorized tax revenue into three segments: income derived from taxes on domestically produced goods, income from taxes on goods produced in the capital, and income from taxes on imports and exports. Furthermore, he endorsed the "ability to pay" principle, suggesting that wealthier individuals should contribute higher taxes in accordance with their financial capacity.

5 Kautilya accorded great significance to public finance, and the taxation framework outlined in the Arthasastra is a testament to this focus. He maintained that the king acted merely as a custodian of the land, with a fundamental duty to protect it and enhance its productivity, thereby ensuring that land revenue served as the principal income source for the state. Moreover, Kautilya’s tax system was not viewed as a compulsory imposition upon the subjects but was instead founded on the principles of Dharma. In this arrangement, the king was entrusted with a sacred duty to protect his citizens in return for the taxes collected. Should the king neglect this duty, the subjects were justified in ceasing to pay taxes and could even demand a refund of those already paid. 6 Thus, it can be said that the Arthasastra dealt with the system of taxation in an intricately planned manner.

exorbitant taxation. According to him, the king should arrange the collection of taxes in such a manner that the subjects did not feel the pinch of paying taxes. He laid down that traders and artisans should pay 1/5th of their profits in silver and gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their produce depending upon their circumstances. The detailed analysis given by Manu on the subject clearly shows the existence of a well-planned taxation system, even in ancient times. Not only this, taxes were also levied on various classes of people like actors, dancers, singers and even dancing girls. Taxes were paid in the shape of gold-coins, cattle, grains, raw-materials and also by rendering personal service. ” Income Tax Department, Government of Gujarat, History of Direct Taxation in India, INCOME TAX GUJARAT, https://incometaxgujarat. gov.

in/history-of-directtaxation. php (Accessed on Jan. 31, 2025, 11:56AM IST). 5 Dr. Ritu Tanwar, An Analytical Study of the Relevance of Arthashastra in Modern India, Volume 5, International Organization of Scientific Research Journal of Economics and Finance, Page 32, cited at Page 34 (2014). 6 “Kautilya gave so much importance to public finance, and the taxation system in the Arthasastra is not far to seek. According to him, the power of the government depended upon the strength of its treasury. Kautilya said that the power of the government come from the treasury, and the earth, whose ornament is the treasury, is acquired by means of the treasury and army. However, the author regarded revenue and taxes as the earning of the sovereign for the services rendered by him to the people and to afford them protection and to maintain law and order.

Kautilya emphasized that the King was only a trustee of the land and his duty was to protect it and to make it more and more productive so that land revenue could be collected as a principal source of income for the State. Kautilya’s tax system was not a compulsory contribution by the subject to the State, but the relationship was based on Dharma and it was the King’s sacred duty to protect its citizens in view of the tax collected and if the King

2.2 MEDIEVAL INDIA

The medieval period in India witnessed a transition from unified empires to a more fragmented political environment. Feudalism took root, as local rulers and landlords assumed responsibility for tax collection—often in the form of agricultural produce and various tributes—from the peasantry. These levies funded local governance and the upkeep of standing armies. In contrast, the Chola monarchs exercised comprehensive control over the state’s resources, including its finances. The king devised strategies to secure adequate funds through the revenue department, known as Variayam, to levy taxes and dues that supported public services, his personal upkeep, the palace, and other state establishments. Nonetheless, the tax collection adhered to regulations set forth in ancient political texts, ensuring that levies were determined in light of the populace's income and expenditure.

Revenue administration was undertaken by the officials appointed by the Chola kings. More than 500 terms occur concerning the revenue in Chola's inscriptions. The most important tax, however, was the one levied on the land and called irai in the early period and kadamai in the later period. The Chola inscriptions referred to irai-kadamai, nilak-kadamai, pancavaram, nilavari, and puravayam as other taxes imposed on lands. 7 During the rule of the Delhi Sultanate, the Indian economy was primarily based on agriculture. As a result, land revenue was the principal source of income. The state used to own vast swaths of land known as Khalisa. Zia ud Din Barani in Tarikh-i- Firoz Shahi mentions that medieval India had a structured taxation system, particularly under the Delhi Sultanate.

The primary tax was Kharaj, a land tax levied on agricultural produce, typically one-third to one-half of the harvest, assessed through land measurement. Jizya, a poll tax on non-Muslims, was introduced for protection, while Zakat, a wealth tax, was collected for charitable purposes from Muslims. The Ghalla Bakshi was a tax on agricultural output, failed in his duty, the subject had a right to stop paying taxes, and even to demand refund of the taxes paid. ” Anil Singh Rana, An Analysis of Tax Structure and Responsiveness of Tax Yields in Nepal (2008) (unpublished Ph. D. dissertation, Tribhuvan University) (on file with Tribhuvan University Library). 7 “The Chola monarchs had the fullest control of all the resources of the state including finance.

The king had to devise ways and means of collecting sufficient finance through the department of revenue called Variayam to levy taxes and dues for public services and maintain himself and his palace and other establishments. However, the taxes were collected following the rules prescribed in ancient texts of the polity. The tax was therefore levied after consideration of the income and expenditure of the people. Revenue administration was undertaken by the officials appointed by the Chola kings. More than 500 terms occur concerning the revenue in Chola's inscriptions. The most important tax, however, was the one levied on the land and called irai in the early period and kadamai in the later period. The Chola inscriptions referred to irai-kadamai, nilak-kadamai, pancavaram, nilavari, and puravayam as other taxes imposed on lands. ” P.

Shanmugam, The Revenue System of the Cholas, 850-1279 139 (New Era Publications 1987).

usually collected in kind, and Charai was a tax on grazing cattle. The Ghari was a house tax. Additionally, Sulka, a customs duty, was collected on trade goods. The system was centralized, with taxes administered by governors and managed by a finance department, laying the groundwork for later taxation under the Mughals. The Mughal emperors exploited various sources of revenue. They levied direct taxes on income, persons, professions, and property. They also made money through extensive commercial enterprises. Additionally, the Mughals raised substantial sums through indirect taxes such as customs duties, transit dues, octroi, sales tax, and excise duties on manufactured goods. The administration of justice generated a small revenue from fines and judicial fees.

Loot from war and plunder, along with annual tribute from feudatory chiefs, also significantly contributed to the Mughal treasury. 8

2.3 TAXATION IN COLONIAL INDIA

The Treaty of Allahabad of 1765 signed by Shah Alam II and Lord Clive empowered the British and the French with the right to collect revenue known as Diwani on behalf of the emperor. Thus, the British system of collectors of land revenues was firmly established well before the disintegration of the Mughal Empire after 1857. Then came the Permanent Settlement of 1793, the first major institutional reform introduced by the East India Company in late 18th-century India. Under this system, the government granted land ownership rights to zamindars (landlords), who were previously just tax collectors. These zamindars now received heritable, saleable, and mortgageable land deeds, meaning their land could not be taken by the state.

To enforce this system, an independent judiciary was established to recognize these deeds as legal property rights, removing any customary or political claims over the land. While zamindars gained legal protection, they faced fixed high land revenue demands, often beyond their capacity. Despite this, they accepted the system, valuing state-backed security after years of instability. The British secured stable revenue, while zamindars profited by cultivating wastelands. Extended to South India after 1800, the system later led to peasant exploitation, 8 “The Mughal emperors exploited several sources of revenue. They levied direct taxes on income and persons, profession and property. They made money by extensive commercial undertakings of various kinds.

They raised substantial sums by indirect taxes such as customs duties, transit dues, octroi, sales tax, and the excise duty on manufactures. Administration of justice brought in a small sum in fines and judicial fees. The loot of the war and plunder along with annual tribute from feudatory chiefs also significantly contributed to the Mughal revenue. ” Shri Ram Sharma, Political Theory and Administrative Organisation, in The History and Culture of the Indian People: The Mughal Empire 531 (R. C. Majumdar ed. , Bhartiya Vidya Bhavan 1974).

zamindari dominance, and rigid taxation issues. 9 The economic exploitation of India under British rule was a major concern for early Indian intellectuals. While Dadabhai Naoroji is credited with developing the Drain of Wealth theory, Bhaskar Tarkhadkar and his contemporaries had already highlighted British economic policies as a “bitter curse” depleting India’s resource as early as 1841. Naoroji refined and popularized the Drain Theory, expressing his frustration with British policies as “unrighteous, despotic, plundering, and unnatural. ” Later by 1896, the Indian National Congress officially adopted the theory, making it central to the nationalist movement. Economists and leaders like M. G. Ranade, G. V. Joshi, R. C. Dutt, and G. K. Gokhale further exposed India’s financial exploitation under colonial rule.

10 Later Scotsman James Wilson who was also the first Finance Member of the Viceroy’s Executive Council in India created the first union budget and introduced the Income Tax Act in 1860. 11 It was introduced to compensate for the losses sustained by the government due to the rebellion of 1857. 9 “The new law was the Permanent Settlement. The superior right of landholding until then was associated with tax collection on behalf of the government. Henceforth, superior landholding right would mean ownership backed by a deed that specified a precise plot or estate owned. Being heritable ownership without entails, the deed would be saleable, mortgageable, possibly willable, and secure from state takeover. The deed implied the presence of a judiciary independent of the government. Courts of law would recognize these deeds as property rights and no other political or customary claim.

The deed was offered to the zamindars. They were a diverse set in their military, governance, and managerial capacity and had grown more diverse in the eighteenth century. Land revenue demands were set at an amount fixed forever but higher than most zamindars’ capacity to pay. Both parties understood that the zamindars could raise incomes by converting waste. After 1800, this arrangement, known as the Permanent Settlement, was extended to parts of South India. ” Tirthankar Roy, The Permanent Settlement and the Emergence of a British State in Late-Eighteenth-Century India, Economic History Working Paper No. 355, London School of Economics and Political Science, 4–5 (2023), available at: https://eprints. lse. ac. uk/119477/1/WP355. pdf. (Accessed on Jan. 24, 2025, 11:56PM IST).

10 “The striking similarity of the expressions like 'the most bitter curse' used by the both to condemn the British economic exploitation of India suggests that Dadabhai was acquainted with the writings of Bhaskar Tarkhadkar. And later as the editor of the Rast Goftar (1851), he might have also seen the files of the Bombay Gazette which carried the letters of 'A Hindoo'. All this evidence suggests that 'Hindu students and thoughtful gentlemen' referred to by Dadabhai are no other than Bhaskar Tarkhadkar and the other nationalist writers of his student days. Bipan Chandra in his brilliant study on economic nationalism in India, has pointed out that, "As the years went by his (Dadabhai's) passion and anger increased.

Unrighteous, despotic, plundering, unnatural, destructive, were some of the adjectives he applied to the British policy which, in his opinion, was leading to the draining of the 'lifeblood' of India". This was the vindication of the stand taken by the early nationalist critics. Many others like M G Ranade, G V Joshi, Bholanath Chandra, R C Dutt and G K Gokhale joined Dadabhai in pointing out the evils of the drain. At its Calcutta Session of 1896, the Indian National Congress officially adopted the drain theory, and thereafter it became a main plank in the organised nationalist agitation. But the original credit for raising the problem of drain so brilliantly as early as 1841 must go to Bhaskar Tarkhadkar and his associates. ” J. V. Naik, Forerunners of Dadabhai Naoroji’s Drain Theory, Volume 36 Economic and Political Weekly 4428, 4428–4432 (2001), available at http://www. jstor.

org/stable/4411389 (Accessed on Feb. 1, 2025, 12:56AM IST). 11 “James Wilson, the Scotsman who created India's first Budget, introduced the income tax act in 1860. ” ET Online, The Man Who Came Up with Income Tax in India, The Economic Times (Jan. 18, 2019, 7:08 PM),

Income tax can be defined as the annual charge levied on both earned income (wages, salaries or commission) and unearned income like dividends, interest or rent. In addition to financing a government’s operations, progressive income taxation is designed to distribute wealth creation more evenly in a population and to serve as buffer in case of fluctuations in the economic cycle. There are two basic types of income tax: personal income tax and corporation income tax. The Income Tax Act was passed in India in 1886, and there have been constant revisions and refinements in the Act since then. After the first World War, a new Income Tax Act was passed, in 1918, again to counter the residual effects of economic devastation caused by the war.

This Income Tax Act was in place till 1922, when it was replaced by another act, which for the first time gave, a specific nomenclature to various Income-tax authorities. After

40 years, and 15 years after India gained freedom from the British, the Income Tax Act was

modified again. The current Income Tax Act has been adopted in 1961, and bought into force with effect from April 1, 1962. It encompasses the whole of India, including Sikkim, Jammu and Kashmir. The Central Board of Revenue bifurcated and created a separate Board for Direct Taxes called as the Central Board of Direct Taxes under the aegis of Central Board of Revenue Act, 1963.12 The judicial developments under colonial rule emphasized on the enforcement of taxes on income, land, and trade. The legal precedents set during this period laid the groundwork for the taxation framework that emerged after India gained independence. While India’s postindependence tax laws have evolved, they were deeply influenced by British judicial practices and the economic policies of the colonial era.

3. CONSTITUTIONAL FRAMEWORK OF TAXATION IN INDIA

India is characterized by a three-tier federal structure that includes the Union Government, the State Governments, and Local Bodies. Any tax imposed without legal authorization or that exceeds the powers granted to the legislating body is deemed unconstitutional. The constitutional distribution of tax powers laid the foundational framework for the tax system in independent India. Central to this framework is the principle that tax powers must be distinctly https://economictimes.indiatimes.com/news/economy/the-man-who-came-up-with-income-tax-in-india/acontroversial-move/slideshow/67590662.cms. (Accessed on Jan. 24, 2025, 03:56PM IST).

12 Income Tax Department, Government of India, Central Board of Direct Taxation, INCOME TAX INDIA,

https://incometaxindia.gov.in/pages/about-us/central-board-of-direct-taxation.aspx (Accessed on Jan. 29, 2025, 09:56 AM IST).

separated between the central and state governments. Moreover, Schedule VII of the Constitution categorizes the subjects of taxation into three distinct lists. India’s quasi-federal structure blends both federal and unitary elements, significantly shaping the taxation powers of the Union and State Legislatures. The Seventh Schedule of the Constitution defines taxation powers through Lists I, II, and III. However, certain provisions grant the Union government broader control over taxation, sometimes affecting the financial autonomy of states. 13 While this structure promotes uniformity and efficiency in taxation, it has also led to fiscal centralization, making states reliant on tax devolution and grants from the Union. Until 2003, India's constitution did not explicitly grant any level of government the power to tax services.

Since all residuary taxation powers were vested in the central government, this authority served as the foundation in 1994 for imposing taxes on certain services. Later, through the 88th Amendment (Article 268A), the Constitution formally allocated the power to tax services to the central government, with the resulting revenues being collected and distributed between the central and state governments in accordance with parliamentary principles. India’s taxation system operates within a well-defined constitutional framework, where the distribution of fiscal authority between the Union and State governments is carefully delineated to maintain balance. Article 110 of the Indian Constitution plays a crucial role in taxation jurisprudence as it defines what constitutes a “Money Bill.

” A Money Bill primarily deals with financial matters such as imposition, abolition, alteration or regulation of taxes, borrowing, and government expenditures. 14 Article 265 mandates that no tax shall be levied or 13 “The Constitution effects a complete separation of the taxing power of the Union and of the States under Article 246. There is no overlapping anywhere in the taxing power and the Constitution gives independent sources of taxation to the Union and the States. In spite of the fields of legislation having been demarcated, the question of repugnancy between law made by Parliament and a law made by the State Legislature may arise only in cases when both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List and a direct conflict is seen.

If there is a repugnancy due to overlapping found between List II on the one hand and List I and List III on the other, the Stats law will be ultra vires and shall have to give way to the Union law. ” “The federalism under the Indian context points out to the supremacy of the Parliament and the legislative entries contained in different Lists of the Seventh Schedule must be construed accordingly. ” Kesoram Industries Ltd v. State of West Bengal, (2004) 10 SCC 201 (India).

14 “(1) For the purposes of this Chapter, a Bill shall be deemed to be a Money Bill if it contains only provisions dealing with all or any of the following matters, namely: — (a) the imposition, abolition, remission, alteration or regulation of any tax; (b) the regulation of the borrowing of money or the giving of any guarantee by the Government of India, or the amendment of the law with respect to any financial obligations undertaken or to be undertaken by the Government of India; (c) the custody of the Consolidated Fund or the Contingency Fund of India, the payment of moneys into or the withdrawal of moneys from any such Fund; (d) the appropriation of moneys out of the Consolidated Fund of India; (e) the declaring of any expenditure to be expenditure charged on

collected except by the authority of law, ensuring all taxes have legal backing. 15 Article 266 establishes the Consolidated Funds for the Union and the States, into which all revenues, loans, and recoveries are credited. 16 Articles 26817 and 26918 deal with duties levied by the Union but either collected by the States or shared between the Union and States, respectively. Article 270 ensures that certain Union taxes are distributed to the States. 19 Article 271 grants the Parliament the Consolidated Fund of India or the increasing of the amount of any such expenditure; (f) the receipt of money on account of the Consolidated Fund of India or the public account of India or the custody or issue of such money or the audit of the accounts of the Union or of a State; or (g) any matter incidental to any of the matters specified in sub-clauses (a) to (f).

(2) A Bill shall not be deemed to be a Money Bill by reason only that it provides for the imposition of fines or other pecuniary penalties, or for the demand or payment of fees for licences or fees for services rendered, or by reason that it provides for the imposition, abolition, remission, alteration or regulation of any tax by any local authority or body for local purposes. (3) If any question arises whether a Bill is a Money Bill or not, the decision of the Speaker of the House of the People thereon shall be final. (4) There shall be endorsed on every Money Bill when it is transmitted to the Council of States under article 109, and when it is presented to the President for assent under article 111, the certificate of the Speaker of the House of the People signed by him that it is a Money Bill. ” Constitution of India, art. 110 (India).

15 “No tax shall be levied or collected except by authority of law. ” Constitution of India, art. 265 (India).

16 “Subject to the provisions of article 267 and to the provisions of this Chapter with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to States, all revenues received by the Government of India, all loans raised by that Government by the issue of treasury bills, loans or ways and money advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled "the Consolidated Fund of India", and all revenues received by the Government of a State, all loans raised by that Government by the issue of treasury bills, loans or ways and money advances and all moneys received by that Government in repayment of loans shall form one consolidated fund to be entitled "the Consolidated Fund of the State". ” Constitution of India, art. 266 (India).

17 “(1) Such stamp duties and such duties of excise on medicinal and toilet preparations as are mentioned in the Union List shall be levied by the Government of India but shall be collected-(a) in the case where such duties are leviable within any Union territory, by the Government of India, and (b) in other cases, by the States within which such duties are respectively leviable. (2) The proceeds in any financial year of any such duty leviable within any State shall not form part of the Consolidated Fund of India, but shall be assigned to that State. ” Constitution of India, art. 268 (India). 18 “(1) Taxes on the sale or purchase of goods and taxes on the consignment of goods shall be levied and collected by the Government of India but shall be assigned and shall be deemed to have been assigned to the States on or after the 1st day of April, 1996 in the manner provided in clause (2).

Explanation. — For the purposes of this clause- (a) the expression “taxes on the sale or purchase of goods” shall mean taxes on sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce; (b) the expression “taxes on the consignment of goods” shall mean taxes on the consignment of goods (whether the consignment is to the person making it or to any other person), where such consignment takes place in the course of inter-State trade or commerce.

(2) The net proceeds in any financial year of any such tax, except in so far as those proceeds represent proceeds attributable to Union territories, shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax is leviable in that year, and shall be distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law. (3) Parliament may by law formulate principles for determining when a sale or purchase of, or consignment of, goods] takes place in the course of inter- State trade or commerce. ” Constitution of India, art. 269 (India).

19 “(1) All taxes and duties referred to in the Union List, except the duties and taxes referred to in articles 268 and 269, respectively, surcharge on taxes and duties referred to in article 271 and any cess levied for specific purposes under any law made by Parliament shall be levied and collected by the Government of India and shall be distributed between the Union and the States in the manner provided in clause (2). (2) Such percentage, as may be prescribed, of the net proceeds of any such tax or duty in any financial year shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax or duty is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed in the manner provided in clause (3).

(3) In this article, “prescribed” means, -(i) until a Finance Commission has been constituted, prescribed by the President by order, and (ii) after a Finance Commission has been constituted,

the power to impose surcharges for Union purposes. 20 Articles 246A21 and 279A,22 introduced by the 101st Amendment, specifically empower the Union and States to legislate on Goods and Services Tax (GST), with the GST Council serving as a joint body for decision-making on related matters. These provisions collectively form the backbone of India’s tax collection prescribed by the President by order after considering the recommendations of the Finance Commission. Constitution of India, art. 270 (India). 20 “Notwithstanding anything in articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles [except the goods and services tax under article 246A,] by a surcharge for purposes of the Union and the whole proceeds of any such surcharge shall form part of the Consolidated Fund of India. ” Constitution of India, art. 271 (India).

21 “(1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of every State, have power to make laws with respect to goods and services tax imposed by the Union or by such State. (2) Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce. Explanation - The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council. ” Constitution of India, art. 246A (India).

22 “(1) The President shall, within sixty days from the date of commencement of the Constitution (One Hundred and First Amendment) Act, 2016, by order, constitute a Council to be called the Goods and Services Tax Council. (2) The Goods and Services Tax Council shall consist of the following members, namely: (a) the Union Finance Minister — Chairperson; (b) the Union Minister of State in charge of Revenue or Finance — Member; (c) the Minister in charge of Finance or Taxation or any other Minister nominated by each State Government - Members. (3) The Members of the Goods and Services Tax Council referred to in sub-clause (c) of clause (2) shall, as soon as may be, choose one amongst themselves to be the Vice-Chairperson of the Council for such period as they may decide.

(4) The Goods and Services Tax Council shall make recommendations to the Union and the States on - (a) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be subsumed in the goods and services tax; (b) the goods and services that may be subjected to, or exempted from, the goods and services tax; (c) model Goods and Services Tax Laws, principles of levy, apportionment of Goods and Services Tax levied on supplies in the course of inter-State trade or commerce under article 269A and the principles that govern the place of supply; (d) the threshold limit of turnover below which goods and services may be exempted from goods and services tax; (e) the rates including floor rates with bands of goods and services tax ; (f) any special rate or rates for a specified period, to raise additional resources during any natural calamity or disaster; (g) special provision with respect to the States of Arunachal Pradesh, Assam, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand; and (h) any other matter relating to the goods and services tax, as the Council may decide.

(5) The Goods and Services Tax Council shall recommend the date on which the goods and services tax be levied on petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel. (6) While discharging the functions conferred by this article, the Goods and Services Tax Council shall be guided by the need for a harmonised structure of goods and services tax and for the development of a harmonized national market for goods and services. (7) One-half of the total number of Members of the Goods and Services Tax Council shall constitute the quorum at its meetings. (8) The Goods and Services Tax Council shall determine the procedure in the performance of its functions.

(9) Every decision of the Goods and Services Tax Council shall be taken at a meeting, by a majority of not less than three-fourths of the weighted votes of the members present and voting, in accordance with the following principles, namely: (a) the vote of the Central Government shall have a weightage of one-third of the total votes cast, and (b) the votes of all the State Governments taken together shall have a weightage of twothirds of the total votes cast, in that meeting. (10) No act or proceedings of the Goods and Services Tax Council shall be invalid merely by reason of - (a) any vacancy in, or any defect in, the constitution of the Council; or (b) any defect in the appointment of a person as a Member of the Council; or (c) any procedural irregularity of the Council not affecting the merits of the case.

(11) The Goods and Services Tax Council shall establish a mechanism to adjudicate any dispute - (a) between the Government of India and one or more States; or (b) between the Government of India and any State or States on one side and one or more other States on the other side; or (c) between two or more States, arising out of the recommendations of the Council or implementation thereof. ” Constitution of India, art. 279A (India).

system, balancing the powers of both levels of government. The taxation system in India is also influenced by the socialist and economic justice principles enshrined in Articles 39(b)23 and 39(c)24 of the Constitution. These provisions mandate the equitable distribution of material resources and prevent the concentration of wealth, ensuring that taxation serves the broader public good. The concept of progressive taxation, where higherincome groups are taxed at higher rates, aligns with these constitutional objectives. Income tax surcharges on the super-rich, corporate taxation, and wealth taxes are tools used to redistribute economic resources. The Supreme Court has recognized socialism as part of the basic structure of the Constitution in Kesavananda Bharati Sripadagalvaru v. State of Kerala, AIR 1973 SC 1461, reinforcing state’s role in ensuring economic justice. 25 In McDowell & Co.

Ltd. v. Commercial Tax Officer (1985) 3 SCC 230, the Court ruled that while legitimate tax planning is permissible, tax avoidance through artificial means is against public interest and constitutional principles. 26 These constitutional and judicial principles collectively underscore India’s taxation system as not merely a tool for revenue generation but as an instrument of economic regulation and social justice.

4. JURISPRUDENTIAL FOUNDATIONS OF MODERN TAXATION LAWS

Jeremy Bentham applied the principle of utilitarianism to law and governance, advocating for 23 “The State shall, in particular, direct its policy towards securing - (b) that the ownership and control of the material resources of the community are so distributed as best to sub serve the common good. ” Constitution of India, art. 39(b) (India). 24 “The State shall, in particular, direct its policy towards securing - (c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. ” Constitution of India, art. 39(c) (India). 25 “These provisions together with the other provisions of the Constitution contain one of the main objectives, namely, the building of A welfare State and an egalitarian social order in our country.

As stated before, the fundamental rights and the directive principles have been described as the "conscience of our Constitution". The Constitution makers had, among others, one dominant objective in view and that was to ameliorate and improve the lot of the common man and to bring about a socio-economic transformation based on principles of social justice. While the Constitution makers envisaged development in the social, economic and political fields, they did not desire that it should be a society where a citizen will not have the dignity of the individual. ” “A socialistic state, must have the power and make the attempt to build a new social and economic order free from exploitation, misery and poverty, in the manner those in charge of framing policies and making appropriate laws think best for serving the public good.

We do not today conceive of public good or progress in terms of a "movement from status to contract", but in terms of a movement for control of economic and other kinds of powers of exploitation by individuals so as to ensure that public good not merely appears to be served but is actually served by all individuals wherever or however placed. The emphasis today is upon due performance of their social obligations by individuals before claiming any right however fundamental or important it may be because rights and duties are correlative. ” Kesavananda Bharati Sripadagalvaru v. State of Kerala, AIR 1973 SC 1461 (India). 26 “Tax planning may be legitimate provided. It is within the framework of law. Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods.

” McDowell & Co. Ltd. v. Commercial Tax Officer (1985) 3 SCC 230 (India).

laws that promote the greatest happiness for the greatest number. The principle of utility and utilitarian approach to taxation,27 based on the philosophy of Jeremy Bentham, posits that taxation should aim to maximize the overall welfare of society. According to Bentham, taxes should be levied in a way that promotes the greatest happiness for the greatest number of people. The idea is that the state should collect taxes not just for revenue purposes but to fund public goods and services that benefit society as a whole. 28 Bentham’s utilitarianism suggests that taxation should be efficient, minimizing harm to citizens while ensuring that the government has sufficient resources to support public welfare. His theories provide a framework for progressive taxation,29 where the wealthy contribute more to the state, thus reducing inequalities and improving overall societal welfare.

Bentham critiques the disproportionate burden of taxation and legal fees on the poor, arguing that financial penalties and taxes, when applied uniformly without consideration of economic disparity, lead to systemic oppression. 30 Bentham’s utilitarian philosophy suggests that taxation should be structured to maximize societal welfare, ensuring that financial burdens are distributed equitably. Utilitarianism continues to influence modern taxation systems, particularly in the context of progressive income tax structures.

The Social Contract Theory, as developed by Thomas Hobbes, John Locke, and Jean-Jacques Rousseau, provides a philosophical foundation for legitimizing state authority, including its 27 “By utility is meant that property in any object, whereby it tends to produce benefit, advantage, pleasure, good, or happiness, (all this in the present case comes to the same thing) or (what comes again to the same thing) to prevent the happening of mischief, pain, evil, or unhappiness to the party whose interest is considered: if that party be the community in general, then the happiness of the community: if a particular individual, then the happiness of that individual. ” Jeremy Bentham, An Introduction to the Principles of Morals and Legislation 7 (1780), https://www. earlymoderntexts. com/assets/pdfs/bentham1780. pdf. (Accessed on Feb 9, 2025, 10:56AM IST).

28 “With reference, therefore, to any government having for its end in view the greatest happiness of the greatest number, its aptitude consists in its want of aptitude with reference to any government that has for its ultimate end in view the maximization of the happiness of those who share in it, and for its mediate, or at any rate its collateral end, the minimization of the happiness of all who are subject to it. ” Jeremy Bentham, The Works of Jeremy Bentham, vol. 2 (William Tait ed. , 1843). Liberty Fund, https://oll. libertyfund. org/titles/bowring-the-works-ofjeremy-bentham (Accessed on Feb. 7, 2025, 10:34AM IST). 29 “In this mode of assessment there is nothing anomalous with relation to the other part of the system of government.

The object—the declared object at least, of those who have the management of the public expenditure, is to maximize the equality, to minimize the inequality, of the pressure produced by the correspondent taxes: no reason can be assigned why the repartition of the sensible burthen should in this case be determined by principles different from those by which it is determined in those other cases. ” Jeremy Bentham, The Works of Jeremy Bentham, vol. 2 (William Tait ed. , 1843). Liberty Fund, https://oll. libertyfund. org/titles/bowring-theworks-of-jeremy-bentham (last visited Feb. 7, 2025, 11:35AM). 30 “Oppression of the indigent, grievous in proportion to their indigence. Oppression in this shape has for its cause, the employment given to fixed sums, on whatsoever accounts imposed (viz.

penalty for delinquency in its various shapes) by substantive law: taxes and fees to functionaries of both sorts, judiciary and professional, under procedure law. ” Jeremy Bentham, The Works of Jeremy Bentham, vol. 2 (William Tait ed. , 1843). Liberty Fund, https://oll. libertyfund. org/titles/bowring-the-works-of-jeremy-bentham (last visited Feb. 7, 2025, 01:45PM).

capacity to impose taxes. Locke argued that because the state is founded on a contract, the payment of taxes represents the transfer of a civil property right. He maintained that a government cannot impose taxes without obtaining the consent and representation of the people. Any claim that taxes can be levied without such consent undermines the fundamental principles of property rights, thereby negating the government's intended purpose. This perspective has significantly shaped the understanding of the relationship between the public and the government regarding the allocation of property rights and tax revenue, ultimately forming the theoretical underpinning of modern limited government. 31 Rousseau posited that the relationship between citizens and government resembled a principalagent dynamic.

He argued that the State emerged from the social contract established between citizens and their government, with the government serving as the executor of the State's powers rather than entering into a direct contractual relationship with the people. In this principal-agent framework, the government, entrusted with executing property rights, also controls public communication and general publicity—a position that may lead to the misuse of public funds. Consequently, revenue collection must be directed toward public welfare, and both the government's power to levy taxes and its expenditure of revenue should be legally constrained and subject to rigorous public scrutiny. 32 Adam Smith, widely regarded as the father of modern economics, outlined four fundamental principles of taxation in The Wealth of Nations (1776), which continue to shape contemporary tax policies.

These principles include equity, which advocates that taxes should be proportionate to an individual’s ability to pay; certainty, ensuring that tax obligations are clear and predictable; convenience, which emphasizes that tax collection should be structured in a way that is least burdensome for taxpayers; and efficiency, which calls for minimizing economic distortions while maximizing revenue generation. Smith’s framework remains highly influential, particularly in justifying progressive taxation and designing tax systems that 31 Cai Chang, On the Origin and Evolution of Tax Contracts: Types, Functions, and Implementation Mechanisms,

2 Journal of Chinese Tax and Policy 45 (2012).

32 “So he who draws up the laws doesn’t or shouldn’t have any right to legislate; and the populace can’t deprive itself of this non-transferable right, even if it wants to, because according to the basic compact the only thing that can bind individuals is the general will, and the only way to be sure that a particular will is in conformity with the general will is to put it to a free vote of the people.” Jean-Jacques Rousseau, The Social Contract, Book II, Chapter VII, at 21 (Jonathan Bennett ed., 2017),https://www.earlymoderntexts.com/assets/pdfs/rousseau1762.pdf. (Accessed on Feb. 8, 2025, 10:34AM IST).

prioritize fairness, predictability, and economic efficiency.33

5. JUDICIAL DOCTRINES IN TAXATION LAW

The Doctrine of Equity and Justice is central to the fair application of taxation laws. It emphasizes that taxes should be applied equitably, ensuring that no taxpayer is subjected to disproportionate burdens. The principle is particularly relevant in progressive taxation systems, where the rich are expected to pay higher taxes, as it ensures fairness in the distribution of tax liabilities. In the landmark case of Commissioner of Income Tax v. McDowell & Company Limited, (1985)

3 SCC 230, the Supreme Court of India addressed the issue of tax avoidance and emphasized

the importance of adhering to the principles of natural justice, equity, and fairness in taxation laws. 34 In the same case, the Supreme Court ruled that courts must examine the real nature of transactions, preventing tax avoidance schemes that exploit legal technicalities and to transactions to strike a balance between taxpayers’ rights and the state’s power to levy taxes. Another fundamental doctrine in taxation law is the Doctrine of Pith and Substance,35 which plays a crucial role in resolving jurisdictional conflicts between state and central taxation authorities. By analyzing the substance of the legislation rather than its incidental effects, courts ensure that legislative intent is preserved without transgressing constitutional boundaries.

33 “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. The tax which each individual is bound to pay, ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it. Every tax ought to be so contrived, as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the state.

” Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, book V, chapter II, pt. II, at 676–77 (Edwin Cannan ed. , University of Chicago Press 1976) (1776). 34 “Tax planning may be legitimate provided. It is within the framework of law. Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. Further, Justice O. Chinnappa Reddy, in his concurring opinion stated that, “It is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation.

It is up to the court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of ‘emerging’ techniques of interpretation. ” Commissioner of Income Tax v. McDowell & Company Limited, (1985) 3 SCC 230 (India). 35 “For deciding under which entry a particular legislation falls, the theory of ‘pith and substance’ has been evolved by the courts. If in pith and substance a legislation falls within one list or the other but some portion of the subjectmatter of that legislation incidentally trenches upon and might come to fall under another list, the Act as a whole would be valid notwithstanding such incidental trenching. ” State of Karnataka & Ors. v. M/S Drive-In Enterprises, AIR 2001 SC 1328 (India).

Tax laws, imposing financial liabilities, must be strictly interpreted per their statutory language. Courts avoid extending their scope beyond explicit provisions, ensuring no tax is levied by inference or judicial interpretation. Unlike beneficial legislations, which may warrant a purposive approach, tax statutes must be construed strictly, allowing taxation only when expressly mandated by law. This principle aligns with the Doctrine of Strict Interpretation of Tax Statutes,36 maintaining adherence to legislative intent. In contrast, modern taxation principles also recognize the Doctrine of Economic Nexus,37 which shifts taxability from physical presence to economic participation. Courts apply this doctrine by evaluating whether an entity derives significant benefits from a jurisdiction, thereby justifying taxation.

This principle has gained increasing relevance in the digital economy, cross-border transactions, and e-commerce taxation, where businesses may generate revenue from a jurisdiction without a physical establishment there. By emphasizing economic connection over territorial presence, this doctrine ensures that taxation remains equitable in a globally interconnected marketplace. Similarly, the Doctrine of Colourable Legislation serves as a constitutional safeguard against legislative overreach in taxation. This doctrine is based on the maxim “What cannot be done directly, cannot be done indirectly. ”38 It prevents legislatures from enacting laws that indirectly exceed their constitutional powers by disguising them under a different subject matter.

In taxation, this principle is applied when a legislature masks an unconstitutional tax as a fee, charge, or other levy to evade constitutional limitations. Courts have consistently held that if a tax is imposed under the guise of another fiscal measure without legislative competence, it constitutes colourable legislation and is liable to be struck down. This ensures that taxation laws remain within the constitutional framework and do not serve as a tool for circumventing 36 “It is a well-accepted rule of interpretation that a statutory provision imposing tax should be construed strictly. If the Revenue seeks to bring a subject within the tax net, it must do so within the clear words of the statute. If there is any ambiguity or doubt, it should be resolved in favor of the assessee. ” Commissioner of Income Tax, Bangalore v. B. C. Srinivasa Setty, (1981) 2 SCR 938 (India).

37 “The test of sufficient territorial nexus was thus replaced by a simpler and more easily workable test: Are the goods actually delivered in the taxing State, as a direct result of a sale or purchase, for the purpose of consumption therein? Then, such sale or purchase shall be deemed to have taken place in that State and outside all other States. ” The State of Bombay & Anr. v. The United Motors (India) Ltd. & Ors. , [1953] INSC 24 (India). 38 “The question whether a law was a colourable legislation and as such void did not depend on the.

motive or bona fides of the legislature in passing the law but upon the competency of the legislature to pass that particular law, and what the courts have to determine in such cases is whether though the legislature has purported to act within the limits of its powers, it has in substance and reality transgressed those powers, the transgression being veiled by what appears, on proper, examination, to be a mere pretence or disguise. The whole doctrine of colourable legislation is based upon the maxim that you cannot do indirectly what you cannot do directly. ” K. C. Gajapati Narayan Deo v. State of Orissa, AIR 1953 SC 375 (India).

jurisdictional limitations.

6. GST AS A TURNING POINT IN INDIAN TAX JURISPRUDENCE

Goods and Services Tax (GST) is a single tax levied on goods and services from manufacturing to consumption, eliminating all indirect taxes previously levied. The implementation of GST was one of the biggest indirect tax reforms of recent times in India. The history of GST goes back as early as the year 1954, when it was first adopted by France, followed by over 160 countries worldwide. Malaysia was one of the most recent countries to adopt a valued-based tax system, GST, back in 2015. The journey towards GST began in 2000 when the Vajpayee government introduced the concept and established a task force to design a roadmap for its implementation. In 2006, Finance Minister P. Chidambaram set a target date of April 1, 2010, for GST rollout. However, due to various challenges, this deadline was postponed.

The Empowered Committee of State Finance Ministers released the first discussion paper on GST in 2009, outlining its structure and seeking feedback. Subsequent years saw the introduction and lapse of constitutional amendment bills until the 122nd Constitutional Amendment Bill was reintroduced in 2014. After rigorous debates and revisions, both houses of Parliament passed the bill in 2016, leading to the formation of the GST Council. The Council finalized the GST rates and regulations, culminating in the official rollout of GST on July 1, 2017. GST is focused on the “supply” of goods and services as opposed to the older taxes that were also applicable to the manufacturing process. Since it is focused on supply, it is regarded as a destination-based tax.

39 The GST Council, established under Article 279A of the Constitution, upholds the principle of cooperative federalism by allowing both the Centre and the states to collectively determine tax rates and policies. While its recommendations carry significant weight, they are not legally binding. 40 GST was designed to simplify India’s indirect tax system, but the existence of multiple tax rates has led to complexity and confusion. The tax structure includes rates of 0%, 5%, 12%, 18%, and 28%, with certain goods and services subject to additional Annapoorna, History of

GST

Explained with Timelines,

CLEARTAX

(Jan. 8, 2025), https://cleartax.in/s/history-of-gst. (Accessed on Feb. 2, 2025, 10:34AM IST). 40 "The deletion of Article 279B and the inclusion of Article 279(1) by the Constitution Amendment Act 2016 indicates that the Parliament intended for the recommendations of the GST Council to only have a persuasive value, particularly when interpreted along with the objective of the GST regime to foster cooperative federalism and harmony between the constituent units." Union of India v. M/S Mohit Minerals Pvt. Ltd., (2022) 9 SCR 300 (India).

cess. For instance, the GST Council has clarified rates on popcorn recently, stating that readyto-eat-popcorn garnished with salt and spices will be taxed at 5% if unlabeled and 12% if prepackaged. However, caramel popcorn will be taxes at 18%. 41 The compliance process under GST is extensive, requiring businesses to file multiple returns monthly, quarterly, and annually. Small and medium-sized enterprises (SMEs) often lack the resources or expertise to manage these compliance requirements. Also, the implementation of the e-invoicing system and reconciliation of input tax credits (ITC) has further increased the burden on businesses. Additionally, the GST Network (GSTN), the digital backbone for GST implementation, has faced several technical issues since its launch. Problems such as slow servers, system crashes, and glitches in return filing have frustrated taxpayers.

These technical difficulties have delayed return filings and caused disruptions in the functioning of businesses. Furthermore, GST in India has witnessed numerous changes in tax rates, exemptions, and procedural requirements. These frequent amendments have made it a lack of stability in rules has caused confusion among taxpayers and professionals alike. 42 GST has altered tax jurisprudence in India by streamlining the tax system, redefining federal taxation powers, and modernizing dispute resolution. However, challenges such as classification disputes, federal tensions over revenue-sharing, and compliance burdens continue to shape its evolution. The judiciary remains pivotal in ensuring fairness, legal certainty, and the protection of taxpayer rights, reinforcing GST as a cornerstone of India’s tax legal framework.

41 “The Goods and Services Tax Council has clarified the GST rates on popcorn, stating that ready-to-eat-popcorn garnished with salt and spices will be taxed at 5% if unlabeled and 12% if pre-packaged. However, caramel popcorn, which includes sugar, will be taxed at 18%, reflecting a reclassification under a different tariff heading. ” 55th GST Council Meeting: Key Changes to Tax Rates on Popcorn, Fortified Rice, and Used Vehicles,” ET LegalWorld (Dec. 26, 2024), https://legal. economictimes. indiatimes. com/news/law-policy/55th-gst-councilmeeting-key-changes-to-tax-rates-on-popcorn-fortified-rice-and-used-vehicles/116671909. (Accessed on Jan. 27, 2025, 12:34AM IST).

42 “The compliance process under GST is extensive, requiring businesses to file multiple returns monthly, quarterly, and annually. Small and medium-sized enterprises (SMEs) often lack the resources or expertise to manage these compliance requirements. Additionally, the implementation of the e-invoicing system and reconciliation of input tax credits (ITC) has further increased the burden on businesses... The GST Network (GSTN), the digital backbone for GST implementation, has faced several technical issues since its launch. Problems such as slow servers, system crashes, and glitches in return filing have frustrated taxpayers. These technical difficulties have delayed return filings and caused disruptions in the functioning of businesses... Furthermore, GST in India has witnessed numerous changes in tax rates, exemptions, and procedural requirements.

These frequent amendments have made it a lack of stability in rules has caused confusion among taxpayers and professionals alike. ” Team Ebizfiling, “Challenges in GST Implementation in India,” Ebizfiling (Jan. 6, 2025), https://ebizfiling. com/blog/challenges-in-gst-implementation-in-india/. (Accessed on Jan. 17, 2025, 10:34PM IST).

7. CHALLENGES IN MODERN TAXATION LAW AND WAY FORWARD

Modern taxation systems grapple with a range of complexities that make tax administration and policy-making increasingly challenging. The intricate network of direct and indirect taxes often creates confusion for taxpayers, driving up compliance costs and administrative burdens. As a result, even well-intentioned individuals and businesses may struggle with unintentional non-compliance, while tax authorities must dedicate significant resources to enforcement and oversight. The Indian tax administration system has always been in the eye of storm for being amongst the largest litigator in its peers, is now witnessing a new low, a disconcerting decline in morale of its officials having regard to several systemic steps brought in with all good intentions of the government with one objective “Accountability”.

In a bid to curb corruption and streamline tax administration, the government introduced the faceless assessment regime, aiming to enhance transparency and efficiency. While the initiative was well-intentioned, its rapid implementation may have outpaced the system’s ability to adapt. Instead of yielding the desired outcomes at the appeals and review levels, it has led to an unforeseen surge in both pending appeals and the volume of disputes, locking substantial sums in prolonged litigation. What was meant to simplify and expedite tax resolution has inadvertently compounded the very issues it sought to resolve. 43 To restore public confidence in the tax administration system and to guarantee fair and efficient adjudication, several measures must be implemented.

The current government should embody its maxim “Minimum Government Maximum Governance” by establishing a system in which administration and good governance operate independently of undue interference in the judicial functions of revenue authorities. In addition, it is essential to enhance accountability, provide ongoing training, refine the faceless appellate system, reduce the backlog of appeals, and foster 43 “The Indian tax administration system has always been in the eye of storm for being amongst the largest litigator in its peers, is now witnessing a new low, a disconcerting decline in morale of its officials having regard to several systemic steps brought in with all good intentions of the government with one objective “Accountability”.

The Government brought in the faceless assessment regime for all right reasons to move away from corruption and provide improved tax administration and accountability. One could say it did go a little too far and probably too fast to expect results even at an appeals/ review level and is instead left with quite unexpected results, “Increase in both number of pending appeals and the amounts locked in disputes. ” Sandeep Bhalla, India’s Tax System Crisis: Addressing Accountability and Efficiency Failures,

ETCFO

(Aug. 24, 2024), https://cfo.economictimes.indiatimes.com/blog/indias-tax-system-crisis-addressing-accountability-andefficiency-failures/112754574. (Accessed on Jan 18, 2025, 10:34AM IST).

a culture of integrity among tax officials. Improving India’s tax administration requires a multi-pronged approach that blends technology, policy simplification, and taxpayer-centric reforms. A shift towards AI-driven predictive analytics can help in early detection of tax evasion patterns, reducing fraud while ensuring honest taxpayers are not unnecessarily harassed. Blockchain technology for GST invoices can eliminate fake invoicing and ensure seamless input tax credit claims. Additionally, a unified tax portal integrating GST, income tax, and customs with a single login can enhance ease of compliance and transparency.44

8. CONCLUSION

The jurisprudential trajectory of taxation in India has been shaped by a delicate interplay between constitutional directives, judicial scrutiny, and legislative recalibration. Indian courts have consistently played a pivotal role in interpreting tax laws, ensuring that the state’s fiscal prerogatives do not violate constitutional safeguards on taxpayer rights. The judiciary has upheld the principles of equity, predictability, and non-arbitrariness, ensuring that taxation laws adhere to constitutional mandates under Articles 265, 266, and 300A. In Kesavananda Bharati v. State of Kerala, AIR 1973 SC 1461, the Supreme Court recognized economic justice as a constitutional objective, reinforcing the state’s duty to prevent wealth concentration and ensure a fair economic order. Similarly, in McDowell & Co. Ltd. v.

Commercial Tax Officer, (1985) 3 SCC 230, the Court held that tax planning is legitimate, but tax evasion through colorable devices is impermissible, cautioning against artificial arrangements solely aimed at avoiding taxes. The introduction of the Goods and Services Tax (GST) in 2017 marked a paradigm shift in India’s tax regime, replacing multiple indirect taxes with a unified tax framework. The Supreme Court’s ruling in Union of India v. Mohit Minerals, (2022) SCC OnLine SC 657, clarified that GST Council recommendations are advisory, not binding, as both the Union and 44 "To improve the government's tax revenue in a rising nation like India, we must make some revolutionary adjustments to the tax code or tax structure.

By utilizing AI and machine learning, we can improve the administration of taxes in India, increase tax process transparency, identify new taxpayers, and stop tax evasion and fraud. " C. D. N. Rakkini & G. Madhu Sudhanan, An Investigation into the Use of Artificial Intelligence in the Indian Tax System, International Journal for Multidisciplinary Research. (2024), https://doi. org/10. 36948/ijfmr. 2024. v06i06. 29998. (Accessed on Jan 26, 2025, 01:34AM IST).

states have independent legislative competence under Article 246A45. This judgment reinforced India’s quasi-federal structure, affirming that states retain taxation autonomy within the GST framework. However, taxation jurisprudence continues to grapple with systemic inefficiencies, including classification disputes, transitional credit ambiguities, inconsistent Advance Rulings, and excessive compliance burdens—all of which have significantly increased tax litigation. The intersection of taxation and constitutional principles necessitates a jurisprudentially sound and technologically adaptive framework. Future tax reforms should emphasize legal certainty, streamlined dispute resolution through alternative mechanisms, and enhanced transparency via AI-driven tax audits and blockchain-based compliance.

Strengthening harmonization between taxation laws and constitutional values will be pivotal in fostering a fiscally resilient, equitable, and legally coherent taxation system in India. 45 “The deletion of Article 279B and the inclusion of Article 279(1) by the Constitution Amendment Act 2016 indicates that the Parliament intended for the recommendations of the GST Council to only have a persuasive value, particularly when interpreted along with the objective of the GST regime to foster cooperative federalism and harmony between the constituent units. ” “Neither does Article 279A begin with a non-obstante clause nor does Article 246A state that it is subject to the provisions of Article 279A. The Parliament and the State legislatures possess simultaneous power to legislate on GST. Article 246A does not envisage a repugnancy provision.

” “The ‘recommendations’ of the GST Council are the product of a collaborative dialogue involving the Union and States. They are recommendatory in nature. To regard them as binding edicts would disrupt fiscal federalism, where both the Union and the States are conferred equal power to legislate on GST. It is not imperative that one of the federal units must always possess a higher share in the power for the federal units to make decisions. Indian federalism is a dialogue between cooperative and uncooperative federalism where the federal units are at liberty to use different means of persuasion ranging from collaboration to contestation. ” Union of India v. Mohit Minerals, (2022) SCC OnLine SC 657 (India).