1) Define Tax.
Explain the Characteristics of Tax /
Different types of Tax
Introduction: Taxation is one of the most important sovereign powers of the State. The
government requires funds for administration, welfare activities, and development. Taxes are the
main source of such revenue.
Definition: Justice Holmes: 'Taxes are what we pay for a civilized society.' Article 265 of the Indian
Constitution: 'No tax shall be levied or collected except by authority of law.' Prof. Seligman: 'A tax is
a compulsory contribution from a person to the government to defray the expenses incurred in the
common interest of all, without reference to any special benefit conferred.'
Characteristics of Tax: Tax is compulsory, must be authorized by law, no quid pro quo, levied only
by government, used for public welfare, and is non-returnable.
Types of Taxes: Direct tax, Indirect tax, Progressive tax, Regressive tax, Proportional tax.
Case Law: Chhotabhai Jethabhai Patel & Co. v. Union of India (1962).
Conclusion: Tax is the backbone of the financial system of any State.
2) Explain Tax Evasion & Tax Avoidance
Introduction: Both tax evasion and tax avoidance are ways of reducing tax liability, but they differ
in legality and ethics.
Tax Evasion: Illegal practice of concealing information to reduce tax liability. Examples: concealing
income, fake invoices, smuggling. Criminal and punishable.
Tax Avoidance: Legal arrangement of affairs to minimize tax liability within the law. Examples:
claiming deductions, shifting operations to tax-free zones. Legal but sometimes unethical.
Case Laws: McDowell & Co. Ltd. v. CTO (1985), Azadi Bachao Andolan v. Union of India (2003).
Conclusion: Tax avoidance is legal but discouraged, while tax evasion is illegal and punishable.
3) Discuss the Power of Taxation & Constitutional
Limitations
Introduction: The power to levy taxes is a sovereign function, but in India, it is divided between the
Union and the States.
Power of Taxation: Articles 246, 248 & Seventh Schedule. Union List – Income Tax, Customs,
Excise. State List – Land revenue, excise on liquor. Residual power with Parliament.
Constitutional Limitations: Article 265 (authority of law), Article 14 (equality), Article 19(1)(g)
(trade freedom), Article 301 (freedom of commerce), Articles 276 & 286 (restrictions on states).
Case Law: Kunnathat Thathunni Moopil Nair v. State of Kerala (1961).
Conclusion: Taxation powers are balanced with constitutional safeguards to prevent arbitrary
taxation.
4) Doctrine of Immunity of State Instrumentality
from Tax
Introduction: This doctrine deals with whether one government can impose taxes on the
instrumentalities of another.
Meaning: Based on federalism – Union and States are sovereign within their own spheres. Articles
285 & 289 provide exemptions.
Case Laws: New Delhi Municipal Council v. State of Punjab (1997), State of West Bengal v. Union
of India (1964).
Conclusion: The doctrine protects federal balance by ensuring that neither the Union nor the
States can cripple each other through taxation.
5) Explain Cess, Fees, Tax
Introduction: Though often used interchangeably, 'Tax,' 'Fee,' and 'Cess' are distinct concepts
under fiscal law.
Tax: Compulsory exaction for public purposes without quid pro quo. Example: Income Tax, GST.
Fees: A charge for specific services rendered by government, involving quid pro quo. Example:
Court fees. Case: Hingir-Rampur Coal Co. v. State of Orissa (1961).
Cess: A type of tax levied for a specific purpose, usually as an additional levy. Example: Education
Cess.
Conclusion: Taxes are for general revenue, fees are for services, and cess is a targeted levy.
