Taxes, Property and Suits
Part XII of the Indian Constitution reviews issues related to finance, property, contracts and suits. Importantly, this part of the Constitution establishes the Right to Property and discusses the Government’s contractual liabilities.
According to Article 265 of the Indian Constitution, “No tax shall be levied or collected except by authority of law.” This article has been reiterated in All India Federation v. Union of India and many other judgements. The taxation system in the country is divided into direct and indirect taxes. Direct Taxes are levied on the taxable income of individuals and corporations. The indirect tax was a complicated affair and was replaced by the GST, on 1st July 2017 through the implementation of the One Hundred and First Amendment of the Indian Constitution. The cries for the implementation of the GST started back in 1999 when then Prime Minister, Atal Bihari Vajpayee and his economic advisory council set up a committee to prepare a GST model. The GST was also suggested by the Twelfth Finance Commission.
The GST is a single indirect tax policy on goods and services from the manufacturer to the consumer and is paid by both the parties. Article 246A establishes the GST and Article 279A establishes a GST Council which makes recommendations to the Union and State on different aspects of the GST. Earlier the distribution of taxes between Union and State was divided on the basis of the nature of transactions. With the introduction of Article 246-A, the Union and State share tax revenues from almost all transactions. The division of taxes has always been quite evenly placed in the Constitution in order to maintain the division of power between Union and State.
Contract and Suits
Government liability for the breach of contract was recognized before the establishment of this Constitution. When the East India Company began to exercise sovereign functions in India, it was decided that it could be sued in its own courts. Article 298 talks about the power of the Union and the State to carry on trade and make contracts for that purpose and Article 299 safeguard the interests of the Government and protects it from unauthorised contracts. In Union of India v. A.L. Rallia Ram, the Supreme Court held that if the provisions of Article 299(1) were complied with, then the contract was valid and could be enforced by or against the government. In Ramana Dayaram Shetty v. International Airports Authority of India, the Supreme Court held that the Government no longer enjoyed absolute discretion to enter into contracts with anyone it likes. The government was now a private individual and that it had to follow constitutional provisions and could be subjected to writ jurisdiction of the court. Further, Article 300 states that the Government has the right to sue and be sued. In Union of India v. Mohim Chandra, Chief Justice Ram Labhaya stated that “Article 300 clothes the Government of India with the status of a juristic person. It could, therefore, be sued. The word ‘sue’ would cover execution proceedings also. It is not limited to suits only. The only immunity that the Government of India enjoys, is for acts done in the exercise of sovereign functions.” The position of Union Territories in this scenario is separate from the Central Government. In Satya Dev v. Padma Dev, the court held that Union Territories were separate entities from the Central Government and a suit by or against a Union Territory must, therefore, be brought by or against the Government of the Union Territory and not in the name of the Central Government.
While framing our constitution, the constituent assembly examined various other constitutions which guarantee basic rights. The debates in the Constituent Assembly when the draft Article 19(1)(f) and Article 31 came up for discussion clearly indicate that the framers of our Constitution attached sufficient importance to property to incorporate it in the chapter of fundamental rights. In order to balance the state’s power to acquire property with the individual’s fundamental right to property, the Supreme Court held that the Government had to show that the private property it wishes to acquire was needed for a public purpose and offer fair compensation in exchange.
Many people decried the framing of Right to Property as a fundamental right. Before the constitution came into being, there had been an unjust accumulation of wealth sanctioned by Zamindari systems which had caused widespread poverty. After the constitution came into being, the government, in pursuance of directive principles of state policy (DPSP), ordered the state governments to enact agrarian reform laws. These laws abolished the zamindari system and redistributed the land to those people who were responsible for tilling it. The zamindars challenged these reform laws on the grounds that their right to property was being violated under article 14, 19, 31 of the constitution. This view of the zamindars was upheld by courts as being violative of their right to property. In the whole scheme of things, article 39 which is included in the DPSP of the constitution and which directs the state to work for equitable distribution of material resources for the community was being violated but because fundamental rights had an overriding effect over the DPSP, the government’s plan to enact agrarian reform laws was failing. The 25th amendment of the constitution added article 31-C which sought to protect any law made on lines of 39th article and also protected the law even if it was found violative of article 14, 19, 31. This amendment was made for equitable distribution of wealth, removal of the concentration of economic power and prevention of exploitation as encapsulated in Article 39 but not the destruction of the property right. The amendment’s validity was upheld in the case of Keshavananda Bharti v. Union of India. Article 31-C was later struck down by the Supreme Court on the grounds that it violated the basic structure of the constitution. The statement of object and reasons of the 42nd Amendment Bill, 1976 sought to remove the difficulties that were present in ending poverty, inequality etc. This amendment bill was proposed to express the high ideals of socialism, secularism and integrity of the nation and to make the directive principles more comprehensive and give them precedence over those fundamental rights which have been allowed to be relied upon to frustrate socio-economic reforms for implementing the directive principles. All of this ultimately leads to the 44th Amendment 1978 which removed the Right to Property as a fundamental right and made it a legal right. Soon after the removal of Right to Property as a fundamental right, the Supreme Court realised its importance in the case of Bhim Singh v. Union of India when it had to take recourse to other fundamental rights in the absence of Right to Property. In 2007, a petition was filed seeking directions to include the right to property in fundamental rights. The reason for the petition was the newly formed policy on special economic zones (SEZs), which according to the petitioner had its goal in taking over the property of individuals, small peasants and farmers under the Land Acquisition Act without reference to their reasonableness. The Supreme Court rejected the petition stating that the 44th Amendment which removed Right to Property as a fundamental right had to be read along with the 42nd Amendment by which the word ‘Socialist’ was added in the Preamble of the Constitution. Justice G.S. Singhvi in the case of Radhe Shyaam Lrs. & Ors. v.State of U.P. & Ors. held that “Even though Right to Property is no longer a fundamental right, the same continues to be an important constitutional right and in terms of Article 300-A, no person can be deprived of his property except by authority of law.”
 2007 TaxPub(DT) 1466 SC.
 AIR 1963 SC 1685.
 AIR 1979 SC 1628.
 AIR 1952 ass. 159 at 166.
 AIR 1959 Tri. 41.
 AIR 1973 SC 1461.
 Minerva Mills Ltd. v. Union of India, AIR 1980 SC 1789.
 (1981) 1 SCC 166.
 Civil Appeal No. 3261 of 2011.