KSLU Solved Question Papers
Law of Taxation
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 7
2023 Mar (100 marks) Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 7 Law of Taxation 2023 Mar (100 marks) Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2023 Mar (100 marks) examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2023 Mar (100 marks) examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2023 Mar (100 marks) examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 13 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1Explain the meaning and essentials of tax and distinguish it from fees and cess.[16]
Answer
For full marks, cover: the meaning of tax (article 366(28); the definition in Shirur Mutt); its essentials, each explained (compulsion, authority of law under article 265, public authority, public purpose, no quid pro quo, a taxing entry, a measure, recovery, the Consolidated Fund); the meaning and kinds of fee and how the quid pro quo test changed (Kewal Krishan Puri, Sreenivasa General Traders); the meaning of cess, its examples (GST compensation cess, health and education cess) and its constitutional treatment (article 270(1)); surcharge compared; a table of differences; why the distinction matters.
Meaning of tax
The Constitution does not define "tax" fully. Article 366(28) says only that "taxation" includes the imposition of any tax or impost, whether general, local or special. The working definition comes from the Supreme Court.
Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, AIR 1954 SC 282, decided on 16 April 1954. The Madras Hindu Religious and Charitable Endowments Act, 1951 imposed an annual contribution on every religious institution. It could be up to 5 per cent of the institution's income. The State described it as payment for the services of its endowments department. A seven-judge Bench held that the levy was in truth a tax, not a fee. A State Legislature had no power to impose a tax of that kind, so section 76(1) was void. The Court defined a tax as "a compulsory exaction of money by public authority for public purposes enforceable by law", which "is not payment for services rendered".
Essentials of a tax
1. Compulsory. The taxpayer has no choice. He must pay whether or not he agrees, once the law applies to him.
2. Imposed by authority of law. Under article 265, no tax shall be levied or collected except by authority of law. An executive order, circular or contract cannot create a tax.
3. Levied by a public authority. Only the State, through Parliament, a State Legislature, or a local body empowered by law, can impose a tax. A private body cannot.
4. For public purposes. The money is raised to meet the general expenses of government, such as defence, roads, schools and hospitals. It is part of a common burden shared by the community.
5. No quid pro quo. The taxpayer gets no special service or benefit in return. He may gain from public spending like everyone else, but the payment is not linked to it.
6. Within a taxing entry. The legislature must have a taxing entry in the Seventh Schedule, or the GST power in article 246A. A general subject entry does not carry the power to tax.
7. Measured by a standard. A tax has a base and a rate: income, value, quantity or turnover. That measure need not reflect any service to the payer.
8. Recoverable by law. Unpaid tax can be recovered by coercive process, such as attachment and sale, under the taxing statute.
9. Paid into the Consolidated Fund. Under article 266, the revenues of the Government form part of its Consolidated Fund. They are spent only by appropriation under law.
Meaning and kinds of fee
A fee, in Shirur Mutt's words, is a charge for a special service rendered to individuals by a governmental agency. Its amount is supposed to be based roughly on the cost of the service. Fees may be levied on the matters in each List (Union List entry 96, State List entry 66, Concurrent List entry 47).
There are two kinds:
- Fee for service, such as a court fee or a registration fee.
- Regulatory or licence fee, charged for the cost of regulating an activity, such as a market fee or a licence fee for a trade.
How the quid pro quo test changed.
Kewal Krishan Puri v. State of Punjab, AIR 1980 SC 1008, decided on 4 May 1979. Market committees in Punjab and Haryana raised the fee on agricultural produce, finally from Rs 2 to Rs 3 for every Rs 100. A five-judge Bench laid down strict conditions for a valid fee. The money must be spent on services to the payers. The services must relate to their transactions. And there must be a special benefit with a "direct, close and reasonable correlation" to the payers.
Sreenivasa General Traders v. State of Andhra Pradesh, AIR 1983 SC 1246, decided on 6 September 1983. Traders challenged a market fee and its increase. A three-judge Bench upheld it and relaxed the test. It said that "the traditional view that there must be actual quid pro quo for a fee has undergone a sea change". A broad and reasonable relationship between the fee and the services is enough. For a regulatory fee, the special benefit is secondary to the purpose of regulation. But if raising general revenue predominates, the levy becomes a tax.
Meaning of cess
A cess is a levy raised for a specific purpose, and its proceeds are meant for that purpose. A cess is not a separate category. It may be a tax or a fee, depending on its nature. Most cesses imposed today are taxes earmarked for a purpose.
Examples.
- The GST compensation cess was levied under section 8 of the GST (Compensation to States) Act, 2017. It fell on pan masala, tobacco, coal, aerated waters and motor cars. Its proceeds went to the GST Compensation Fund under section 10, to compensate the States.
- The health and education cess of 4 per cent, levied each year by the Finance Act on the income-tax payable.
Constitutional treatment. Under article 270(1), taxes on the Union List are shared with the States. But any cess levied for specific purposes under a law of Parliament is excluded from that sharing. The Union keeps it.
Surcharge compared. A surcharge under article 271 is an addition to certain Union taxes for the Union's own purposes. Its proceeds also stay with the Union. Unlike a cess, it is not earmarked for a specific purpose, and it cannot be levied on GST.
Differences at a glance
| Point | Tax | Fee | Cess |
|---|---|---|---|
| Nature | compulsory exaction for public purposes | charge for a special service or regulation | levy for a specific purpose |
| Return to payer | none | special service or benefit | none to the payer personally |
| Measure | ability or base fixed by law | broadly the cost of the service | as fixed by the law, often a percentage of a tax |
| Use of money | general revenue | the service concerned | the specified purpose |
| Point | Tax | Fee | Cess |
|---|---|---|---|
| Source of power | taxing entries, article 246A | fee entries in each List | the relevant taxing or fee entry |
| Sharing with States | Union taxes generally shared | not applicable | Union cess not shared (article 270(1)) |
Illustration
A municipality maintains a market and charges each trader Rs 500 a year for a licence to trade there, spending the money on the market. That is a fee. The same municipality levies property tax on all buildings in its area for its general expenses. That is a tax. The Union adds a 4 per cent levy on income-tax and earmarks it for health and education. That is a cess, and it is a tax in nature.
Why the distinction matters
- Legislative competence. A State may levy a fee under State List entry 66 on its subjects, but not a tax without a taxing entry. That is why the levy in Shirur Mutt failed once it was held a tax.
- Validity tests. A fee must have a reasonable relation to services or regulation. A tax needs none.
- Federal finance. Whether a Union levy is a tax, a cess or a surcharge decides whether the States share in it.
Conclusion. A tax is a compulsory exaction by public authority under law for public purposes, as Shirur Mutt defines it. The payer gets no direct return. A fee pays for a special service or for regulation, and after Sreenivasa General Traders needs only a broad relation to the services rendered. A cess is a tax or fee earmarked for a purpose, and article 270(1) keeps a Union cess outside the pool shared with the States. The label the legislature uses does not decide the question: the courts look at the substance of the levy.
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