Constitution of India
Article 287: Exemption from taxes on electricity
Part XII — Finance, Property, Contracts and Suits (Chapter I — Finance, Sub-heading: Miscellaneous Financial Provisions)
Clause (a)
WHAT IT SAYS: No State law shall impose a tax on consumption or sale of electricity consumed by the Government of India, or sold to the Government of India for its own consumption — unless Parliament by law provides otherwise. WHAT IT MEANS: 1. States cannot levy electricity duty/tax on the Central Government's electricity consumption. 2. This covers both electricity directly consumed AND electricity purchased for Union consumption. 3. Parliament retains override power — it can permit States to levy such taxes if it chooses. KEY DOCTRINE: Doctrine of Intergovernmental Tax Immunity — Union is immune from State electricity taxation to preserve fiscal sovereignty of the Centre.
Clause (b)
WHAT IT SAYS: No State law shall impose a tax on consumption or sale of electricity consumed in the construction, maintenance or operation of ANY railway — whether by the Government of India or a railway company operating that railway — or sold to them for such purposes. WHAT IT MEANS: 1. Railways (Union List, Entry 22) enjoy complete exemption from State electricity taxes. 2. Covers BOTH government-operated railways and private railway companies. 3. Originally said 'Union railways' — Ambedkar amended it to 'any railway' to broaden scope. KEY DOCTRINE: Federal Fiscal Immunity for National Infrastructure — railways being a Union subject, States cannot burden their operations via electricity taxation.
Proviso (Price Adjustment Clause)
WHAT IT SAYS: If a State law imposes a tax on the SALE of electricity, it must ensure that the price charged to the Government of India or railway companies is LESS by the amount of the tax than the price charged to other substantial consumers. WHAT IT MEANS: 1. States CAN tax electricity sales generally — but must give the Union/railways a compensatory price reduction. 2. The effective cost to the Centre must equal the net price paid by other large consumers. 3. This ensures fiscal equity WITHOUT placing any additional burden on Union operations. KEY DOCTRINE: Compensatory Price Adjustment — a unique Indian mechanism ensuring that even when States exercise general taxation powers, the Union bears no net additional cost.
Constitutional Inspiration
SOURCE(S): 1. Government of India Act, 1935 — Section 154(1) Original provision: Barred Provinces from taxing Federal Government property and activities including railways without Federal consent. What India kept: The core principle of exempting central government and railways from provincial/state electricity taxes. INDIA'S SPECIFIC ADAPTATIONS: 1. Broadened railway coverage from 'Union railways' to 'any railway' — to protect all railway operations regardless of operator, recognising the expanding role of railways in nation-building. 2. Added compensatory price adjustment proviso — ensuring States retain general taxing power while Union is fiscally shielded; this balanced mechanism was absent in the 1935 Act. 3. Made Parliament the override authority — Parliament (not the President or Executive) can permit States to levy such taxes, reinforcing legislative supremacy in fiscal matters. ORIGINAL INDIAN CONTRIBUTION: The compensatory price-reduction mechanism (proviso) is an original Indian drafting innovation designed to balance federal fiscal autonomy with States' revenue needs.
Constituent Assembly Debate
DEBATED ON: 9 September 1949 (CAD Volume IX) Draft Article Number: 265 KEY SPEAKERS: 1. Dr. B.R. Ambedkar (Chairman, Drafting Committee) — Proposed a minor but significant amendment: substituting 'any railway' for 'Union railway' to ensure broader coverage of all railway operations. 2. An unnamed member — Proposed that Parliament should NOT be empowered to permit States to impose such electricity taxes at all (i.e., sought absolute prohibition on State taxation). MAJOR DISAGREEMENTS: 1. Scope of railway protection — Ambedkar widened it from 'Union railways' to 'any railway'; adopted without debate. 2. Parliamentary override power — One member wanted to remove Parliament's power to permit State electricity taxes; the Assembly rejected this amendment without debate. FINAL OUTCOME: Ambedkar's amendment ('any railway') was adopted; the proposal to remove Parliament's override power was rejected. The article was adopted largely as drafted with this one textual change. NOTE: The debate on this article was notably brief — the Assembly treated it as relatively uncontroversial compared to other fiscal provisions.
Landmark Judgments
LANDMARK JUDGMENTS: 1. State of U.P. v. Asha Ram (1970) — The Supreme Court held that any State tax on electricity consumed by the Government of India directly violates Article 287. 2. State of U.P. v. Renusagar Power Co. (1988) [AIR 1988 SC 1737] — Dealt with U.P.'s attempt to levy electricity duty on captive power; the Court examined the scope of electricity duty under State law and applied the doctrine of lifting the corporate veil. 3. NTPC v. State of Andhra Pradesh (AIR 2002 SC 1895) — Held that NTPC, a Central Government PSU generating and transmitting power inter-State, was exempt from State electricity duties when conditions of inter-State trade were satisfied. 4. Union of India v. State of Bihar (Indian Oil Corporation Ltd. Case, 2000) — Held that State-imposed levies cannot burden central undertakings or departments when electricity is used for Union functions. 5. Union of India v. U.P. State Electricity Board (2012) 3 SCC 329 — Recognised Indian Railways as an authorized entity for transmission and distribution activities in connection with railway operations. NOTABLE RECENT DEVELOPMENT: 1. Supreme Court (May 2026) — Ruled that Indian Railways is a 'consumer' under the Electricity Act, 2003, and cannot claim deemed distribution licensee status; must pay cross-subsidy surcharges. This limits Article 287's practical reach in the post-2003 electricity law regime. SCHOLARS & JURISTS: 1. D.D. Basu — Viewed Article 287 as part of the broader scheme of intergovernmental tax immunity provisions (Articles 285-289) ensuring federal fiscal balance. 2. M.P. Jain — Noted that Article 287 reflects the framers' concern to insulate critical national infrastructure (especially railways) from State fiscal interference while preserving Parliament's ultimate authority.