Actual Article
Article 288: Exemption from taxation by States in respect of water or electricity in certain cases
- Save in so far as the President may by order otherwise provide, no law of a State shall impose, or authorize the imposition of, a tax on the consumption or sale of water or electricity (whether produced by a Government or other persons) which is—
- (a) consumed by the Government of India, or sold to the Government of India for consumption by that Government; or
- (b) consumed in the construction, maintenance, or operation of any railway by the Government of India or a railway company operating that railway, or sold to the Government of India or any such railway company for consumption in the construction, maintenance, or operation of any railway,
and any such law imposing, or authorizing the imposition of, a tax on the consumption or sale of water or electricity shall secure that the tax payable on the sale of water or electricity to the Government of India for consumption by that Government, or to any such railway company for consumption in the construction, maintenance, or operation of any railway, shall be reimbursed to that Government or the railway company.
- The President may by order direct that any tax on the consumption or sale of water or electricity which, immediately before the commencement of this Constitution, was being lawfully levied by the Government of any State or by any municipality or other local authority or body for the purposes of the State, municipality, district or other local area may, notwithstanding that the imposition of such tax is contrary to the provisions of this article, continue to be levied and to be applied to the same purposes until such period as he thinks fit.
UPSC Notes for Article 288
Explanation:
- Exemption from State Taxes: Article 288 exempts the consumption or sale of water or electricity consumed by the Government of India or used in railway operations from State taxes unless the President provides otherwise by order.
- Reimbursement Clause: If any State law imposes such a tax, it must ensure that the tax paid is reimbursed to the Government of India or the railway company.
- Continuity of Pre-Existing Taxes: The President can allow the continuation of pre-existing taxes on the consumption or sale of water or electricity that were being lawfully levied before the commencement of the Constitution.
Key Points:
- Operational Efficiency: The exemption reduces the financial burden on the central government and railways, promoting efficient operation and maintenance.
- Presidential Authority: The President has the authority to direct the continuation of pre-existing taxes, providing flexibility in tax policies.
- Support for Essential Services: By exempting water and electricity used in critical government and railway operations from State taxes, the article supports essential public services.
Important Cases and Commissions Related to Article 288
Cases:
- No specific landmark cases directly interpreting Article 288, as it primarily deals with procedural aspects of taxation on water and electricity.
Commissions:
- Finance Commission: Reviews and makes recommendations on financial policies, including tax exemptions under Article 288.
- Electricity Regulatory Commissions: Oversee the regulation of electricity tariffs and policies, including the implications of tax exemptions for the electricity sector.
Important Reports Related to Article 288:
- Finance Commission Reports: Analyze the impact of tax exemptions on water and electricity consumption by the government and railways.
- Reports by Electricity Regulatory Commissions: Discuss the financial implications of tax policies on electricity and recommend measures to optimize consumption and taxation.
Previous Year Prelims Questions Related to Article 288
- (UPSC Prelims 2016) What does Article 288 of the Indian Constitution exempt from State taxes?
- A. Consumption of water by the government and railways
- B. Sale and consumption of electricity by the Government of India and for railways
- C. Sale of agricultural produce
- D. Purchase of machinery by industries Correct Answer: A. Consumption of water by the government and railways
- (UPSC Prelims 2018) Who has the authority to alter the tax exemptions provided under Article 288?
- A. The President
- B. The Prime Minister
- C. The Parliament
- D. The Supreme Court Correct Answer: A. The President
Previous Year Mains Questions Related to Article 288
- Mains 2016: “Discuss the significance of Article 288 in promoting the efficient operation of government functions and railways. How does this exemption impact the financial policies of State governments?”
- Mains 2019: “Evaluate the role of the President in regulating tax exemptions on water and electricity as provided under Article 288. What are the potential benefits and challenges associated with these exemptions?”
Additional Insights:
- Ensuring Operational Efficiency: Article 288 plays a crucial role in enhancing the operational efficiency of government functions and railways by reducing the financial burden of water and electricity taxes.
- Balancing State and Central Interests: The exemption from State taxes balances the financial interests of both State and central governments, ensuring that essential services like railways are not hindered by additional tax burdens.
Understanding Article 288 is crucial for UPSC aspirants as it provides insights into the mechanisms for exempting water and electricity from State taxes, emphasizing the importance of operational efficiency and financial autonomy for government functions and railways. This knowledge is essential for both preliminary and main examinations, offering a comprehensive understanding of the financial provisions and their impact on governance within the Indian Constitution.