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“It is obvious that Article 246 imposes limitations on the legislative powers of the Union and State legislatures and its ultimate analysis would reveal the following essentials:

1. Parliament has exclusive power to legislate with respect to any of the matters enumerated in List I notwithstanding anything contained in clauses (2) and (3). The non obstante clause in Article 246(1) provides for predominance or supremacy of Union legislature. This power is not encumbered by anything contained in clauses (2) and (3) for these clauses themselves are expressly limited and made subject to the non obstante clause in Article 246 (1). The combined effect of the different clauses contained in Article 246 is no more and no less than this: that in respect of any matter falling within List I, Parliament has exclusive power of legislation.

3. Both Parliament and the State legislature have concurrent powers of legislation with respect to any of the matters enumerated in List III.

xxx xxx xxx The words “notwithstanding anything contained in clauses (2) and (3)” in Article 246(1) and the words “subject to clauses (1) and (2)” in Article 246(3) lay down the principle of federal supremacy viz. that in case of inevitable conflict between Union and State powers, the Union power as enumerated in List I shall prevail over the State power as enumerated in Lists II and III, and in case of overlapping between Lists II and III, the former shall prevail. But the principle of federal supremacy laid down in Article 246 of the Constitution cannot be resorted to unless there is an “irreconcilable” conflict between the entries in the Union and State Lists. In the case of a seeming conflict between the entries in the two Lists, the entries should be read together without giving a narrow and restricted sense to either of them. Secondly, an attempt should be made to see whether the two entries cannot be reconciled so as to avoid a conflict of jurisdiction. It should be considered whether a fair reconciliation can be achieved by giving to the language of the Union Legislative List a meaning which, if less wide than it might in another context bear, is yet one that can properly be given to it and equally giving to the language of the State Legislative List a meaning which it can properly bear. The non obstante clause in Article 246(1) must operate only if such reconciliation should prove impossible. Thirdly, no question of conflict between the two Lists will arise if the impugned legislation, by the application of the doctrine of “pith and substance” appears to fall exclusively under one list, and the encroachment upon another list is only incidental.

In paragraph 74, the learned Judge, while upholding the Hotel Receipts Tax Act, 1980 held that, in pith and substance, it was referable to Entry 82, List I, being, in substance, a tax on income. In particular, Shri Bhushan relied upon the statement of the law that since Parliament had exclusive power, under Article 246(1) and (3) of the Constitution, to make laws with respect to any of the matters enumerated in List I, if an Act of Parliament is squarely covered by an entry in the Union List, no restriction can be read into the power of Parliament to make laws in regard thereto. This was made in the context of a taxation entry, which as the aforesaid paragraph 74 itself states, refers to the Constitutional scheme which neatly divides the subject matters of tax between the Union and the States, so that there can be said to be no overlapping. There is no discussion in this paragraph of Parliamentary paramountcy in the context of incidental trenching and unoccupied field. This judgment, therefore, does not take the matter very much further.

28. Insofar as Article 246 is concerned, we have already seen how the said Article refers to federal supremacy insofar as the whittling down of a State List entry is concerned, when compared with a Union List entry. Once the spheres of both the entries have been delineated, the doctrine of pith and substance comes in to test whether a particular legislation is referable, as a whole, to an entry in List I or to the competing entry in List II. Once it is found that the legislation as a whole is referable to an entry in List I, but it incidentally encroaches upon an entry in List II, there is no reason for the doctrine of unoccupied field not to apply to federal legislation. The expression “with respect to” appears in all the sub-articles of Article 246, which expression, so far as sub-articles (1) to (3) are concerned, imports the twin doctrines of incidental trenching and unoccupied field, which applies, therefore, to legislation made under sub-articles (1) to (3) of Article 246, thus making it clear that incidental encroachment by Parliament cannot be tolerated when the exclusive field allotted to the State legislature is not unoccupied.