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At this juncture, we may refer to article 246 which reads as follows:

"246. Subject-matter of laws made by Parliament and by the Legislatures of States -- (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the `Union List').

(2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (3), Parliament, and, subject to clause (1) the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in list III in the Seventh Schedule (in this Constitution referred to as the `Concurrent List').

Mr. Sen then submitted that two possible meanings could be ascribed to the phrase "Union Taxation": (i) Taxes that are levied by Parliament in exercise of its powers under Article 246(1) and pertain only to entries in List I of the Seventh Schedule; (ii) Any tax that is levied as a result of a law passed by Parliament including those that are relatable to entries in List II and List III of the Seventh Schedule. Mr. Sen vehemently urged that the former interpretation be adopted by this Court. According to him, acceptance of the latter would lead to anomalous results. He submitted that when Parliament makes laws in exercise of its powers under Article 246(4) and in doing so, legislates on entries in List-II, it is doing so in a different capacity and the character of these laws is different from ordinary Union legislations. To drive home the argument, Mr. Sen led us through certain other provisions of the Constitution, such as, Articles 249, 250, 252 and the Emergency Provisions in Part XVIII of the Constitution which empower Parliament to make laws on entries in List II, but the nature and effect of these legislations requires that they be not treated as ordinary Union legislations.

In Management of Advance Insurance Co. Ltd. v. Shri Gurudasmal & Ors., [1970] 3 S.C.R. 881, the main issue before another Constitution Bench was whether the word "State" used in Entry 80 of List I of the Seventh Schedule could be said to exclude the application of the definition in Section 3(58) of the General Clauses Act. Relying on the decision in Kanniyan's case, Hidayatullah, J. held that, ordinarily, the definition would apply in the interpretation of the Constitution unless it is repugnant to the subject or context. However, the noted, that after the Seventh Amendment Act where Union Territories have been mentioned as separate entities, the distinction between "Union Territories" and "States" cannot be lost sight of. He expressly approved the reasoning of Bachawat, J. in holding that in the context of Article 246, the definition provided in Section 3(58) would not apply; however, on the facts and in the circumstances of the case before him, he felt that the subject and context of Entry 80 of the Union List required the application of the definition given in Section 3(58). While referring to the decision in Ram Kishore's case, Hidayatullah, J. noted that this decision was per incuriam for the reason that it referred to Article 372 whereas the proper reference ought to have been to Article 372A.

To appreciate the true import of Sections 154 and 155, it will be necessary to refer to a few provisions of the 1935 Act so as to obtain an understanding of its general scheme. Section 5 of the 1935 Act stated that the Federation of India would comprise the Provisions, the Indian States and the Chief Commissioner's Provinces. Section 6 defined a `Federated States' as an Indian State which had acceded to or might accede to the Federation. Section 94 provided a list of the Chief Commissioner's Provinces and stated that they would be administered by the Governor General acting through a Chief Commissioner. Section 99, which provided the manner in which legislative powers were to be distributed between the Federal and Provincial legislatures, stated that the Federal Legislature was empowered to make laws for the whole or any part of British India or for any Federated States, while the Provincial Legislatures were empowered to make laws for the provinces. Section 311(1) defined `British India' as "All territories or the time being comprised within the Governor's Provinces and the Chief Commissioner's Provinces". Section 100, which dealt with the subject matter of Federal and Provincial laws, provided that the Federal Legislature would have power to make laws with respect to matters enumerated in List I of the Seventh Schedule to the 1935 Act, which was to be called the "Federal Legislative List"; the Provincial Legislature would have powers to make laws in respect of matters in List II of the Seventh Schedule, called "the Provincial Legislative List"; and, in respect of Matters provided in List III of the Seventh Schedule, called "the Concurrent Legislative List", both the Provincial and the Federal Legislature would have jurisdiction. Clause (4) of Section 100, which is of considerable importance for our purpose, provided in express terms that the Federal Legislature would have "power to make laws with respect to matters enumerated in the Provincial Legislative List except for a Province or any part thereof". It was, therefore, clearly contemplated that the Federal Legislature would have the power to make laws for matters in the Provincial Legislative List in respect of the Chief Commissioner's Provinces and the Federated States. Under the scheme of the 1935 Act, situations where the Federal Legislature could enact laws with respect to matters in the Provincial Legislative List were, therefore, not considered to be rare or unusual.