No Tax without Authority of Law: Article 265

Article 265 states that no tax shall be levied or collected except by authority of law. It is placed in Part XII, not among the fundamental rights, but it is a constitutional limit that courts enforce strictly. A tax must rest on a valid law made by a competent legislature, consistent with the Constitution, and clear about what is taxed, who pays and at what rate. This note covers the meaning of Article 265 and the cases that apply it.

1. The Text and Its Terms

Figure 1: Article 265

• Article 265. No tax shall be levied or collected except by authority of law.
• Law. An enactment of a competent legislature; an executive order, instruction or circular cannot impose a tax.
• Levy and collection. Both stages need legal authority. A tax lawfully levied but collected in excess, or collected without any levy, offends Article 265.
• Status. Article 265 is a constitutional right, not a fundamental right; it is enforced through Article 226, and through Article 32 where a fundamental right is also affected.

2. Conditions of a Valid Tax

Figure 2: Testing a tax against the Constitution

• Competence. The legislature must have a tax entry or the Article 246A power (Topic 3)
• Fundamental rights. In K.T. Moopil Nair v State of Kerala (1961), a land tax levied at a flat rate without regard to the productivity of the land was struck down under Article 14.
• Other limits. The law must respect the specific restrictions in Articles 276 and 285 to 289 (Topic 5) and the freedom of trade in Articles 301 to 304.
• Certainty. In Mathuram Agrawal v State of M.P. (1999), a Constitution Bench held that a taxing statute must clearly set out the subject of the tax, the person liable and the rate; if any is ambiguous, there is no valid tax and courts cannot fill the gap by inference.

3. Subordinate Legislation and Retrospectivity

• Delegated taxation. Rules can only operate within the Act. In Bimal Chandra Banerjee v State of M.P. (1970), rules requiring liquor licensees to pay excise duty on liquor they had not lifted were struck down, because the Act did not authorise a levy on such liquor.
• Retrospective tax. Parliament may tax with retrospective effect. Chhotabhai Jethabhai Patel v Union of India (1962) upheld a retrospective levy, subject to the law being otherwise valid.
• Validation laws. A legislature may cure the defect that made a levy invalid and validate past collections, but it cannot simply overrule a judgment without removing its basis.

4. Leading Cases

Figure 3: Cases on Article 265

In Mafatlal Industries v Union of India (1997), a nine judge bench held that Article 265 covers direct and indirect taxes, and that tax collected without authority of law must be refunded. A claimant who has passed the burden of an indirect tax on to others must, however, show that refund would not unjustly enrich him.

5. Frequently Asked Questions

Can the executive impose a tax by notification?

Not without statutory authority. A notification or rule can operate only where the parent Act authorises it and within its limits, as Bimal Chandra Banerjee (1970) shows.

Is Article 265 a fundamental right?

No. It is in Part XII of the Constitution. It is a constitutional limit on taxing power, enforceable through writ jurisdiction under Article 226.

Can a tax be imposed with retrospective effect?

Yes. A competent legislature may tax retrospectively, as Chhotabhai Jethabhai Patel v Union of India (1962) held, provided the law is otherwise valid and does not violate fundamental rights.

What happens to tax collected without authority of law?

It must be refunded, since Article 265 bars collection without authority. Under Mafatlal Industries (1997), a claimant who has passed on the burden of an indirect tax must also show that refund would not unjustly enrich him.

6. Related Topics

• Topic 1: Concept, Canons and Constitutional Scheme. The background.
• Topic 3: Distribution of Taxing Powers. Legislative competence.
• Topic 7: Interpretation of Taxing Statutes. Strict construction.