Part XII: Finance, Property, Contracts and Suits

Article 287: Exemption from Taxes on Electricity

Original Article:

No law of a State shall impose, or authorise the imposition of, a tax on the consumption or sale of electricity if:

• It is consumed by the Government of India, or sold to the Government of India for consumption by that Government.
• It is consumed in the construction, maintenance, or operation of any railway by the Government of India or a railway company.

Explanations:

Article 287 ensures that electricity used by the Government of India and railways remains tax-exempt. This provision promotes efficiency and cost reduction in essential government functions and public services.

Key Provisions:

Clause 1: Tax Exemption for Government Use

States cannot tax electricity consumed by the Government of India or sold for its consumption. This reduces operational costs for the Union government.

• The exemption applies to all departments and offices under the Union government, ensuring their functions remain cost-efficient.
• This clause supports large-scale federal projects that depend on affordable energy access.

Clause 2: Tax Exemption for Railways

Electricity used in railway operations, including construction and maintenance, is also exempt. This ensures affordability and operational efficiency in rail transport.

• The exemption extends to railway electrification projects, reducing costs for expanding railway infrastructure.
• By lowering electricity costs, the provision indirectly benefits passengers and goods transport by keeping tariffs affordable.

Additional Considerations:

Electricity sold to the railways or the Government of India must be priced lower by the amount of tax that would otherwise apply. This ensures that public services like transportation and governance do not bear unnecessary financial burdens.

• Suppliers are required to adjust their pricing to reflect the tax exemption.
• This provision creates a ripple effect, ensuring that public utility services remain efficient and affordable.

Real-Life Example:

During railway electrification projects, electricity supplied for construction and operation is tax-exempt under Article 287. This helps reduce the costs associated with expanding India’s rail network.

Amendments:

Article 287 has remained unchanged since its inception, reflecting its continued relevance in ensuring cost efficiency for government and public utility services.

Historical Significance:

The framers of the Constitution recognized the importance of affordable electricity for government functions and public infrastructure. By exempting certain electricity uses from state taxes, Article 287 supports economic growth and public service efficiency.

Debates and Deliberations:

During the Constituent Assembly debates, Dr. B.R. Ambedkar emphasized the need to exempt essential government functions from state taxes. Members discussed the impact of this provision on state revenues, ultimately agreeing on the importance of supporting national infrastructure like railways.

• Shri Brajeshwar Prasad suggested eliminating exceptions allowing Parliament to provide otherwise by law, arguing for uniformity in tax exemptions.
• Shri K.T. Shah raised concerns about the potential revenue loss for states but acknowledged the need to prioritize national infrastructure projects.

References:

• Constitution of India: Comprehensive details on Article 287.
• Railway Electrification Projects: Examples of tax exemptions under Article 287.
• Constituent Assembly Debates: Discussions on the economic implications of Article 287.