States are well within their right to design their fiscal legislations to ensure that the tax burden on goods imported from other States and goods produced within the State fall equally. Such measures if taken would not contravene Article 304(a) of the Constitution. The question whether the levies in the present case indeed satisfy this test is left to be determined by the regular benches hearing the matters. 10. The questions whether the entire State can be notified as a local area and whether entry tax can be levied on goods entering the landmass of India from another country are left open to be determined in appropriate proceedings.= Decisions of this Court in Atiabari, Automobile Transport and Jindal cases (supra) and all other judgments that follow these pronouncements are to the extent of such reliance over ruled.= 2016 Nov. http://judis.nic.in/supremecourt/imgst.aspx?filename=44300= JINDAL STAINLESS LTD.& ANR. Vs. STATE OF HARYANA & ORS.

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3453/2002

JINDAL STAINLESS LTD.& ANR. …Appellants

VS.

STATE OF HARYANA & ORS. …Respondents
WITH
C.A. NO. 6383-6421/1997, C.A. NO. 6422-6435/1997, C.A. NO. 6436/1997, C.A.
NO. 6437-6440/1997 , C.A. NO. 3381-3400/1998, C.A. NO. 4651/1998, C.A. NO.
918/1999, C.A. NO. 2769/2000, C.A. NO. 4471/2000, C.A. NO. 3314/2001, C.A.
NO. 3454/2002, C.A. NO. 3455/2002, C.A. NO. 3456-3459/2002, C.A. NO.
3460/2002, C.A. NO. 3461/2002, C.A. NO. 3462-3463/2002, C.A. NO. 3464/2002,
C.A. NO. 3465/2002, C.A. NO. 3466/2002, C.A. NO. 3467/2002, C.A. NO.
3468/2002, C.A. NO. 3469/2002, C.A. NO. 3470/2002, C.A. NO. 3471/2002, C.A.
NO. 4008/2002, C.A. NO. 5385/2002, C.A. NO. 5740/2002, C.A. NO. 5858/2002,
W.P.(C) NO. 512/2003, W.P.(C) NO. 574/2003, C.A. NO. 2608/2003, C.A. NO.
2633/2003, C.A. NO. 2637/2003, C.A. NO. 2638/2003, C.A. NO. 3720-3722/2003,
C.A. NO. 6331/2003, C.A. NO. 8241/2003, C.A. NO. 8242/2003, C.A. NO.
8243/2003, C.A. NO. 8244/2003, C.A. NO. 8245/2003, C.A. NO. 8246/2003, C.A.
NO. 8247/2003, C.A. NO. 8248/2003, C.A. NO. 8249/2003, C.A. NO. 8250/2003,
C.A. NO. 8251/2003, C.A. NO. 8252/2003, T.C.(C) NO. 13/2004, W.P.(C) NO.
66/2004, W.P.(C) NO. 221/2004, C.A. NO. 997-998/2004, C.A. NO. 3144/2004,
C.A. NO. 3145/2004, C.A. NO. 3146/2004, C.A. NO. 4953/2004, C.A. NO.
4954/2004, C.A. NO. 5139/2004, C.A. NO. 5141/2004, C.A. NO. 5142/2004, C.A.
NO. 5143/2004, C.A. NO. 5144/2004, C.A. NO. 5145/2004, C.A. NO. 5147/2004,
C.A. NO. 5148/2004, C.A. NO. 5149/2004, C.A. NO. 5150/2004, C.A. NO.
5151/2004, C.A. NO. 5152/2004, C.A. NO. 5153/2004, C.A. NO. 5154/2004, C.A.
NO. 5155/2004, C.A. NO. 5156/2004, C.A. NO. 5157/2004, C.A. NO. 5158/2004,
C.A. NO. 5159/2004, C.A. NO. 5160/2004, C.A. NO. 5162/2004, C.A. NO.
5163/2004, C.A. NO. 5164/2004, C.A. NO. 5165/2004, C.A. NO. 5166/2004, C.A.
NO. 5167/2004, C.A. NO. 5168/2004, C.A. NO. 5169/2004, C.A. NO. 5170/2004,
C.A. NO. 7658/2004, SLP(C) NO. 9479/2004, SLP(C) NO. 9496/2004, SLP(C) NO.
9569/2004, SLP(C) NO. 9832/2004, SLP(C) NO. 9883/2004, SLP(C) NO.
9885/2004, SLP(C) NO. 9891/2004, SLP(C) NO. 9893/2004, SLP(C) NO.
9898/2004, SLP(C) NO. 9899/2004, SLP(C) NO. 9901/2004, SLP(C) NO.
9904/2004, SLP(C) NO. 9910/2004, SLP(C) NO. 9911/2004, SLP(C) NO.
9912/2004, SLP(C) NO. 9950/2004, SLP(C) NO. 9964/2004, SLP(C) NO.
9976/2004, SLP(C) NO. 9989/2004, SLP(C) NO. 9991/2004, SLP(C) NO.
9993/2004, SLP(C) NO. 9998/2004, SLP(C) NO. 9999/2004, SLP(C) NO.
10003/2004, SLP(C) NO. 10007/2004, SLP(C) NO. 10129/2004, SLP(C) NO.
10133/2004, SLP(C) NO. 10134/2004, SLP(C) NO. 10153/2004, SLP(C) NO.
10154/2004, SLP(C) NO. 10156/2004, SLP(C) NO. 10161/2004, SLP(C) NO.
10164/2004, SLP(C) NO. 10167/2004, SLP(C) NO. 10206/2004, SLP(C) NO.
10207/2004, SLP(C) NO. 10232/2004, SLP(C) NO. 10366/2004, SLP(C) NO.
10381/2004, SLP(C) NO. 10382/2004, SLP(C) NO. 10384/2004, SLP(C) NO.
10385/2004, SLP(C) NO. 10391/2004, SLP(C) NO. 10402/2004, SLP(C) NO.
10403/2004, SLP(C) NO. 10404/2004, SLP(C) NO. 10407/2004, SLP(C) NO.
10417/2004, SLP(C) NO. 10449/2004, SLP(C) NO. 10493/2004, SLP(C) NO.
10495/2004, SLP(C) NO. 10497/2004, SLP(C) NO. 10501/2004, SLP(C) NO.
10505/2004, SLP(C) NO. 10539/2004, SLP(C) NO. 10557/2004, SLP(C) NO.
10563/2004, SLP(C) NO. 10566/2004, SLP(C) NO. 10567/2004, SLP(C) NO.
10568/2004, SLP(C) NO. 10569/2004, SLP(C) NO. 10571/2004, SLP(C) NO.
10704/2004, SLP(C) NO. 10706/2004, SLP(C) NO. 10708/2004, SLP(C) NO.
10736/2004, SLP(C) NO. 10906/2004, SLP(C) NO. 10907/2004, SLP(C) NO.
10908/2004, SLP(C) NO. 10909/2004, SLP(C) NO. 10910/2004, SLP(C) NO.
10923/2004, SLP(C) NO. 10929/2004, SLP(C) NO. 10977/2004, SLP(C) NO.
11012/2004, SLP(C) NO. 11266/2004, SLP(C) NO. 11271/2004, SLP(C) NO.
11274/2004, SLP(C) NO. 11281/2004, SLP(C) NO. 11320/2004, SLP(C) NO.
11326/2004, SLP(C) NO. 11328/2004, SLP(C) NO. 11329/2004, SLP(C) NO.
11370/2004, SLP(C) NO. 14380/2005, SLP(C) NO. 1101/2007, SLP(C) NO.
1288/2007, SLP(C) NO. 6914/2007, SLP(C) NO. 9054/2007, SLP(C) NO.
10694/2007, SLP(C) NO. 12959/2007, SLP(C) NO. 13806/2007, SLP(C) NO.
14070/2007, SLP(C) NO. 14819/2007, SLP(C) NO. 14820/2007, SLP(C) NO.
14821/2007, SLP(C) NO. 14823/2007, SLP(C) NO. 14824/2007, SLP(C) NO.
14826/2007, SLP(C) NO. 14828/2007, SLP(C) NO. 14829/2007, SLP(C) NO.
14830/2007, SLP(C) NO. 14832/2007, SLP(C) NO. 14833/2007, SLP(C) NO.
14835/2007, SLP(C) NO. 14837/2007, SLP(C) NO. 14838/2007, SLP(C) NO.
14839/2007, SLP(C) NO. 14841/2007, SLP(C) NO. 14842/2007, SLP(C) NO.
14845/2007, SLP(C) NO. 14846/2007, SLP(C) NO. 14847/2007, SLP(C) NO. 15082-
15085/2007, SLP(C) NO. 15807/2007, SLP(C) NO. 16351/2007, SLP(C) NO.
17589/2007, SLP(C) NO. 17590/2007, SLP(C) NO. 17905/2007, SLP(C) NO.
17906/2007, SLP(C) NO. 17907/2007, SLP(C) NO. 17908/2007, SLP(C) NO.
17909/2007, SLP(C) NO. 17910/2007, SLP(C) NO. 17911/2007, SLP(C) NO.
17913/2007, SLP(C) NO. 17914/2007, SLP(C) NO. 17915/2007, SLP(C) NO.
17916/2007, SLP(C) NO. 17917/2007, SLP(C) NO. 17918/2007, SLP(C) NO.
17919/2007, SLP(C) NO. 17920/2007, SLP(C) NO. 17921/2007, SLP(C) NO.
17922/2007, SLP(C) NO. 17923/2007, SLP(C) NO. 17924/2007, SLP(C) NO.
17925/2007, SLP(C) NO. 17926/2007, SLP(C) NO. 17929/2007, SLP(C) NO.
17930/2007, SLP(C) NO. 17933/2007, SLP(C) NO. 17934/2007, SLP(C) NO.
17936/2007, SLP(C) NO. 17937/2007, SLP(C) NO. 17938/2007, SLP(C) NO.
17939/2007, SLP(C) NO. 17941/2007, SLP(C) NO. 17942/2007, SLP(C) NO.
17943/2007, SLP(C) NO. 17944/2007, SLP(C) NO. 17957/2007, SLP(C) NO.
17959/2007, SLP(C) NO. 17960/2007, SLP(C) NO. 17961/2007, SLP(C) NO.
17962/2007, SLP(C) NO. 17963/2007, SLP(C) NO. 17964/2007, SLP(C) NO.
17965/2007, SLP(C) NO. 17972/2007, SLP(C) NO. 17973/2007, SLP(C) NO.
17974/2007, SLP(C) NO. 17975/2007, SLP(C) NO. 17976/2007, SLP(C) NO.
17977/2007, SLP(C) NO. 17978/2007, SLP(C) NO. 17979/2007, SLP(C) NO.
17980/2007, SLP(C) NO. 17981/2007, SLP(C) NO. 17983/2007, SLP(C) NO.
17984/2007, SLP(C) NO. 18036/2007, SLP(C) NO. 18037/2007, SLP(C) NO.
18038/2007, SLP(C) NO. 18039/2007, SLP(C) NO. 18040/2007, SLP(C) NO.
18041/2007, SLP(C) NO. 18042/2007, SLP(C) NO. 18043/2007, SLP(C) NO.
18044/2007, SLP(C) NO. 18045/2007, SLP(C) NO. 18046/2007, SLP(C) NO.
18047/2007, SLP(C) NO. 18048/2007, SLP(C) NO. 18049/2007, SLP(C) NO.
18050/2007, SLP(C) NO. 18051/2007, SLP(C) NO. 18053/2007, SLP(C) NO.
18054/2007, SLP(C) NO. 18055/2007, SLP(C) NO. 18056/2007, SLP(C) NO.
18057/2007, SLP(C) NO. 18058/2007, SLP(C) NO. 18059/2007, SLP(C) NO.
18061/2007, SLP(C) NO. 18062/2007, SLP(C) NO. 18063/2007, SLP(C) NO.
18064/2007, SLP(C) NO. 18065/2007, SLP(C) NO. 18066/2007, SLP(C) NO.
18067/2007, SLP(C) NO. 18068/2007, SLP(C) NO. 18069/2007, SLP(C) NO.
18073/2007, SLP(C) NO. 18074/2007, SLP(C) NO. 18075/2007, SLP(C) NO.
18076/2007, SLP(C) NO. 18077/2007, SLP(C) NO. 18078/2007, SLP(C) NO.
18079/2007, SLP(C) NO. 18080/2007, SLP(C) NO. 18081/2007, SLP(C) NO.
18082/2007, SLP(C) NO. 18083/2007, SLP(C) NO. 18084/2007, SLP(C) NO.
18085/2007, SLP(C) NO. 18086/2007, SLP(C) NO. 18087/2007, SLP(C) NO.
18088/2007, SLP(C) NO. 18089/2007, SLP(C) NO. 18090/2007, SLP(C) NO.
18091/2007, SLP(C) NO. 18092/2007, SLP(C) NO. 19049/2007, SLP(C) NO.
19050/2007, SLP(C) NO. 19051/2007, SLP(C) NO. 19052/2007, SLP(C) NO.
19053/2007, SLP(C) NO. 19055/2007, SLP(C) NO. 19057/2007, SLP(C) NO.
19059/2007, SLP(C) NO. 19060/2007, SLP(C) NO. 19062/2007, SLP(C) NO.
19064/2007, SLP(C) NO. 19066/2007, SLP(C) NO. 19068/2007, SLP(C) NO.
19070/2007, SLP(C) NO. 19071/2007, SLP(C) NO. 19072/2007, SLP(C) NO.
19073/2007, SLP(C) NO. 19074/2007, SLP(C) NO. 19076/2007, SLP(C) NO.
19077/2007, SLP(C) NO. 19094/2007, SLP(C) NO. 19095/2007, SLP(C) NO.
19096/2007, SLP(C) NO. 19099/2007, SLP(C) NO. 19100/2007, SLP(C) NO.
19101/2007, SLP(C) NO. 19102/2007, SLP(C) NO. 19103/2007, SLP(C) NO.
19104/2007, SLP(C) NO. 19105/2007, SLP(C) NO. 19106/2007, SLP(C) NO.
19107/2007, SLP(C) NO. 19108/2007, SLP(C) NO. 19110/2007, SLP(C) NO.
19111/2007, SLP(C) NO. 19113/2007, SLP(C) NO. 19114/2007, SLP(C) NO.
19505/2007, SLP(C) NO. 19506/2007, SLP(C) NO. 19507/2007, SLP(C) NO.
19508/2007, SLP(C) NO. 19510/2007, SLP(C) NO. 19511/2007, SLP(C) NO.
19512/2007, SLP(C) NO. 19513/2007, SLP(C) NO. 19514/2007, SLP(C) NO.
19515/2007, SLP(C) NO. 19516/2007, SLP(C) NO. 19518/2007, SLP(C) NO.
19521/2007, SLP(C) NO. 19522/2007, SLP(C) NO. 19523-19528/2007, SLP(C) NO.
19529/2007, SLP(C) NO. 19530/2007, SLP(C) NO. 19531/2007, SLP(C) NO. 19543-
19547/2007, SLP(C) NO. 20527/2007, SLP(C) NO. 20529/2007, SLP(C) NO.
20559/2007, SLP(C) NO. 21841/2007, SLP(C) NO. 21843/2007, SLP(C) NO.
21844/2007, SLP(C) NO. 21845/2007, SLP(C) NO. 21846/2007, SLP(C) NO.
21847/2007, SLP(C) NO. 21848/2007, SLP(C) NO. 21849/2007, SLP(C) NO.
21851/2007, SLP(C) NO. 21855/2007, SLP(C) NO. 21864/2007, SLP(C) NO.
21866/2007, SLP(C) NO. 21867/2007, SLP(C) NO. 21871-21904/2007, SLP(C) NO.
21905/2007, SLP(C) NO. 21907/2007, SLP(C) NO. 21908/2007, SLP(C) NO.
21909/2007, SLP(C) NO. 21910/2007, SLP(C) NO. 22947/2007, SLP(C) NO.
22958/2007, SLP(C) NO. 24934-25066/2007, SLP(C) NO. 742/2008, SLP(C) NO.
746/2008, SLP(C) NO. 747/2008, SLP(C) NO. 3230/2008, SLP(C) NO. 3231/2008,
SLP(C) NO. 3233/2008, SLP(C) NO. 3234/2008, SLP(C) NO. 3236/2008, SLP(C)
NO. 3237/2008, SLP(C) NO. 3238-3262/2008, C.A. NO. 4715/2008, C.A. NO. 5041-
5042/2008, SLP(C) NO. 5407/2008, SLP(C) NO. 5408/2008, SLP(C) NO. 6148-
6152/2008, SLP(C) NO. 6831/2008, SLP(C) NO. 7914/2008, SLP(C) NO. 8053-
8077/2008, SLP(C) NO. 8199/2008, SLP(C) NO. 9227/2008, SLP(C) NO. 12424-
12425/2008, SLP(C) NO. 13327/2008, SLP(C) NO. 13889/2008, SLP(C) NO. 14232-
14252/2008, SLP(C) NO. 14454-14778/2008, SLP(C) NO. 14828/2008, SLP(C) NO.
14829/2008, SLP(C) NO. 14875/2008, SLP(C) NO. 15047/2008, SLP(C) NO.
15078/2008, SLP(C) NO. 15090/2008, SLP(C) NO. 15161/2008, SLP(C) NO.
15164/2008, SLP(C) NO. 15179/2008, SLP(C) NO. 15253/2008, SLP(C) NO.
15273/2008, SLP(C) NO. 15274/2008, SLP(C) NO. 15286-15287/2008, SLP(C) NO.
15288-15289/2008, S.L.P.(C)… /2008 CC NO. 15314 , SLP(C) NO. 15324/2008,
SLP(C) NO. 15325/2008, SLP(C) NO. 15326/2008, SLP(C) NO. 15327/2008, SLP(C)
NO. 15328/2008, SLP(C) NO. 15329/2008, SLP(C) NO. 15330/2008, SLP(C) NO.
15331/2008, SLP(C) NO. 15335/2008, SLP(C) NO. 15337/2008, SLP(C) NO.
15356/2008, SLP(C) NO. 15357/2008, SLP(C) NO. 15369/2008, SLP(C) NO.
15405/2008, SLP(C) NO. 15491/2008, SLP(C) NO. 15492/2008, SLP(C) NO.
15493/2008, SLP(C) NO. 15495/2008, SLP(C) NO. 15496/2008, SLP(C) NO.
15498/2008, SLP(C) NO. 15540/2008, SLP(C) NO. 15551/2008, SLP(C) NO.
15579/2008, SLP(C) NO. 15605/2008, SLP(C) NO. 15618/2008, SLP(C) NO.
15623/2008, SLP(C) NO. 15628/2008, SLP(C) NO. 15629/2008, SLP(C) NO.
15630/2008, SLP(C) NO. 15631/2008, SLP(C) NO. 15632/2008, SLP(C) NO.
15633/2008, SLP(C) NO. 15636/2008, SLP(C) NO. 15643/2008, SLP(C) NO.
15647/2008, SLP(C) NO. 15652/2008, SLP(C) NO. 15653/2008, SLP(C) NO.
15655/2008, SLP(C) NO. 15656/2008, SLP(C) NO. 15657/2008, SLP(C) NO.
15659/2008, SLP(C) NO. 15660/2008, SLP(C) NO. 15666/2008, SLP(C) NO.
15684/2008, SLP(C) NO. 15700/2008, SLP(C) NO. 15711/2008, SLP(C) NO.
15819/2008, SLP(C) NO. 15845/2008, SLP(C) NO. 15934/2008, SLP(C) NO.
16664/2008, SLP(C) NO. 16667/2008, SLP(C) NO. 16689/2008, SLP(C) NO.
16733/2008, SLP(C) NO. 16754/2008, SLP(C) NO. 16832/2008, SLP(C) NO.
16837/2008, SLP(C) NO. 16841/2008, SLP(C) NO. 16865/2008, SLP(C) NO.
16885/2008, SLP(C) NO. 16926/2008, SLP(C) NO. 16930/2008, SLP(C) NO.
17187/2008, SLP(C) NO. 17192/2008, SLP(C) NO. 17193/2008, SLP(C) NO.
17203/2008, SLP(C) NO. 17204/2008, SLP(C) NO. 17233/2008, SLP(C) NO.
17267/2008, SLP(C) NO. 17269/2008, SLP(C) NO. 17271/2008, SLP(C) NO.
17272/2008, SLP(C) NO. 17274/2008, SLP(C) NO. 17276/2008, SLP(C) NO.
17277/2008, SLP(C) NO. 17279/2008, SLP(C) NO. 17280/2008, SLP(C) NO.
17282/2008, SLP(C) NO. 17367/2008, SLP(C) NO. 17368/2008, SLP(C) NO.
17369/2008, SLP(C) NO. 17370/2008, SLP(C) NO. 17372/2008, SLP(C) NO.
17373/2008, SLP(C) NO. 17374/2008, SLP(C) NO. 17375/2008, SLP(C) NO.
17376/2008, SLP(C) NO. 17377/2008, SLP(C) NO. 17408/2008, SLP(C) NO.
17865/2008, SLP(C) NO. 17892/2008, SLP(C) NO. 18001/2008, SLP(C) NO.
18030/2008, SLP(C) NO. 18034/2008, SLP(C) NO. 18035/2008, SLP(C) NO.
18040/2008, SLP(C) NO. 18066-18067/2008, SLP(C) NO. 18344/2008, SLP(C) NO.
18346/2008, SLP(C) NO. 18354/2008, SLP(C) NO. 18360-18364/2008, SLP(C) NO.
18379/2008, SLP(C) NO. 18405/2008, SLP(C) NO. 18532/2008, SLP(C) NO.
18533/2008, SLP(C) NO. 18582/2008, SLP(C) NO. 18684-18714/2008, SLP(C) NO.
18850/2008, SLP(C) NO. 18857/2008, SLP(C) NO. 18865/2008, SLP(C) NO.
18870/2008, SLP(C) NO. 18871/2008, SLP(C) NO. 19019/2008, SLP(C) NO.
19026/2008, SLP(C) NO. 19030/2008, SLP(C) NO. 19049/2008, SLP(C) NO.
19120/2008, SLP(C) NO. 19141/2008, SLP(C) NO. 19372/2008, SLP(C) NO.
19421/2008, SLP(C) NO. 19425/2008, SLP(C) NO. 19460/2008, SLP(C) NO.
19470/2008, SLP(C) NO. 19714/2008, SLP(C) NO. 19722/2008, SLP(C) NO.
19731/2008, SLP(C) NO. 19737/2008, SLP(C) NO. 19802/2008, SLP(C) NO.
19847/2008, SLP(C) NO. 19849/2008, SLP(C) NO. 19867/2008, SLP(C) NO.
19873/2008, SLP(C) NO. 19876/2008, SLP(C) NO. 19986/2008, SLP(C) NO.
20068/2008, SLP(C) NO. 20089/2008, SLP(C) NO. 20165/2008, SLP(C) NO.
20766/2008, SLP(C) NO. 20795/2008, SLP(C) NO. 21107/2008, SLP(C) NO. 21117-
21125/2008, SLP(C) NO. 21127/2008, SLP(C) NO. 21506/2008, SLP(C) NO.
21509/2008, SLP(C) NO. 21510/2008, SLP(C) NO. 21819/2008, SLP(C) NO.
22081/2008, SLP(C) NO. 22083/2008, SLP(C) NO. 22084/2008, SLP(C) NO.
22086/2008, SLP(C) NO. 22100-22101/2008, SLP(C) NO. 22195/2008, SLP(C) NO.
22707/2008, SLP(C) NO. 22735/2008, SLP(C) NO. 22931/2008, SLP(C) NO.
23075/2008, SLP(C) NO. 23077/2008, SLP(C) NO. 23270/2008, SLP(C) NO.
23277/2008, SLP(C) NO. 23383/2008, SLP(C) NO. 23609/2008, SLP(C) NO.
23623/2008, SLP(C) NO. 25378/2008, SLP(C) NO. 25498/2008, SLP(C) NO.
26377/2008, SLP(C) NO. 26543/2008, SLP(C) NO. 26571/2008, SLP(C) NO.
26572/2008, SLP(C) NO. 26593/2008, SLP(C) NO. 26750/2008, SLP(C) NO.
26813/2008, SLP(C) NO. 26972/2008, SLP(C) NO. 27442-27444/2008, SLP(C) NO.
27606/2008, SLP(C) NO. 27927/2008, SLP(C) NO. 29194/2008, SLP(C) NO.
29196/2008, SLP(C) NO. 29561-29570/2008, SLP(C) NO. 29763/2008, SLP(C) NO.
29764/2008, SLP(C) NO. 30276/2008, SLP(C) NO. 30533/2008, SLP(C) NO. 30534-
30540/2008, SLP(C) NO. 30542/2008, S.L.P.(C)… /2009 CC NO. 2867, SLP(C)
NO. 3276/2009, SLP(C) NO. 4720/2009, S.L.P.(C)… /2009 CC NO. 5143,
S.L.P.(C)… /2009 CC NO. 5311, SLP(C) NO. 5371/2009, SLP(C) NO. 5376/2009,
SLP(C) NO. 5381/2009, SLP(C) NO. 5383/2009, SLP(C) NO. 5384/2009, SLP(C)
NO. 5393/2009, SLP(C) NO. 5395/2009, SLP(C) NO. 5396/2009, SLP(C) NO.
5399/2009, SLP(C) NO. 5401/2009, SLP(C) NO. 5403/2009, SLP(C) NO.
5405/2009, SLP(C) NO. 5406/2009, SLP(C) NO. 5408/2009, SLP(C) NO.
5409/2009, SLP(C) NO. 5410/2009, SLP(C) NO. 5411/2009, SLP(C) NO.
5412/2009, SLP(C) NO. 5413/2009, SLP(C) NO. 5414/2009, SLP(C) NO.
5420/2009, SLP(C) NO. 5421/2009, SLP(C) NO. 5422/2009, SLP(C) NO.
5424/2009, SLP(C) NO. 5426/2009, SLP(C) NO. 5493-5494/2009, SLP(C) NO.
5495/2009, S.L.P.(C)… /2009 CC NO. 5803, SLP(C) NO. 5883/2009, SLP(C) NO.
6254/2009, SLP(C) NO. 6669/2009, SLP(C) NO. 6670/2009, SLP(C) NO.
6675/2009, SLP(C) NO. 6676/2009, SLP(C) NO. 6682/2009, SLP(C) NO.
6683/2009, SLP(C) NO. 6684/2009, SLP(C) NO. 6685/2009, SLP(C) NO.
6686/2009, SLP(C) NO. 6687/2009, SLP(C) NO. 6688/2009, SLP(C) NO.
6689/2009, SLP(C) NO. 6690/2009, SLP(C) NO. 6692/2009, SLP(C) NO.
6693/2009, SLP(C) NO. 6694/2009, SLP(C) NO. 6696/2009, SLP(C) NO.
6698/2009, SLP(C) NO. 6699/2009, SLP(C) NO. 6700/2009, SLP(C) NO.
6701/2009, SLP(C) NO. 6702/2009, SLP(C) NO. 6703/2009, SLP(C) NO.
6704/2009, SLP(C) NO. 6705/2009, SLP(C) NO. 6708/2009, SLP(C) NO.
6709/2009, SLP(C) NO. 6710/2009, SLP(C) NO. 6711/2009, SLP(C) NO.
6712/2009, SLP(C) NO. 6713/2009, SLP(C) NO. 6714-6715/2009, SLP(C) NO.
6953/2009, SLP(C) NO. 7345/2009, SLP(C) NO. 8244/2009, SLP(C) NO.
9548/2009, SLP(C) NO. 9699/2009, SLP(C) NO. 10040/2009, SLP(C) NO.
10041/2009, SLP(C) NO. 10042/2009, SLP(C) NO. 10045/2009, SLP(C) NO.
10047/2009, SLP(C) NO. 10048/2009, SLP(C) NO. 10049/2009, SLP(C) NO.
10050/2009, SLP(C) NO. 10051/2009, SLP(C) NO. 10053-10054/2009, SLP(C) NO.
10192/2009, SLP(C) NO. 10279/2009, SLP(C) NO. 10952/2009, SLP(C) NO. 10954-
10956/2009, SLP(C) NO. 11042/2009, SLP(C) NO. 11122/2009, SLP(C) NO. 11603-
11611/2009, SLP(C) NO. 11646/2009, SLP(C) NO. 12948/2009, SLP(C) NO. 13270-
13274/2009, SLP(C) NO. 13483/2009, SLP(C) NO. 13496/2009, SLP(C) NO.
13517/2009, SLP(C) NO. 13611-13612/2009, SLP(C) NO. 14429/2009, SLP(C) NO.
14484/2009, SLP(C) NO. 14488/2009, SLP(C) NO. 14623/2009, SLP(C) NO.
14856/2009, SLP(C) NO. 14949/2009, SLP(C) NO. 15723/2009, SLP(C) NO.
16253/2009, SLP(C) NO. 16757-16760/2009, SLP(C) NO. 16784/2009, SLP(C) NO.
16789/2009, SLP(C) NO. 16888-16898/2009, SLP(C) NO. 17332-17333/2009,
SLP(C) NO. 17394-17396/2009, SLP(C) NO. 17488/2009, SLP(C) NO. 17490/2009,
SLP(C) NO. 17491/2009, SLP(C) NO. 17492-17498/2009, SLP(C) NO. 17722/2009,
SLP(C) NO. 17731/2009, SLP(C) NO. 17744/2009, SLP(C) NO. 19695/2009, SLP(C)
NO. 22293/2009, SLP(C) NO. 22295/2009, SLP(C) NO. 22302/2009, SLP(C) NO.
22303/2009, SLP(C) NO. 22304/2009, SLP(C) NO. 22306/2009, SLP(C) NO.
22307/2009, SLP(C) NO. 22308/2009, SLP(C) NO. 22309/2009, SLP(C) NO.
22310/2009, SLP(C) NO. 22311/2009, SLP(C) NO. 22312/2009, SLP(C) NO.
22313/2009, SLP(C) NO. 22316/2009, SLP(C) NO. 22317/2009, SLP(C) NO.
22318/2009, SLP(C) NO. 22320/2009, SLP(C) NO. 22321/2009, SLP(C) NO.
22322/2009, SLP(C) NO. 22323/2009, SLP(C) NO. 22324/2009, SLP(C) NO.
22325/2009, SLP(C) NO. 22408/2009, SLP(C) NO. 22425/2009, SLP(C) NO.
22428/2009, SLP(C) NO. 23990/2009, SLP(C) NO. 24149/2009, SLP(C) NO.
24430/2009, SLP(C) NO. 24822/2009, SLP(C) NO. 25157/2009, SLP(C) NO.
25390/2009, SLP(C) NO. 25399-25400/2009, SLP(C) NO. 25467/2009, SLP(C) NO.
25470/2009, SLP(C) NO. 25474/2009, SLP(C) NO. 25753/2009, SLP(C) NO.
25797/2009, SLP(C) NO. 26116/2009, SLP(C) NO. 26236/2009, SLP(C) NO.
26509/2009, SLP(C) NO. 27883/2009, SLP(C) NO. 28509/2009, SLP(C) NO.
28583/2009, SLP(C) NO. 28696/2009, SLP(C) NO. 28775/2009, SLP(C) NO.
29597/2009, SLP(C) NO. 29868/2009, SLP(C) NO. 30383/2009, SLP(C) NO. 30746-
30845/2009, SLP(C) NO. 30847/2009, SLP(C) NO. 31410/2009, SLP(C) NO.
31411/2009, SLP(C) NO. 31412/2009, SLP(C) NO. 33176/2009, SLP(C) NO. 33663-
33665/2009, SLP(C) NO. 33672/2009, SLP(C) NO. 34253/2009, SLP(C) NO.
34859/2009, SLP(C) NO. 35038/2009, SLP(C) NO. 35585/2009, SLP(C) NO.
35587/2009, SLP(C) NO. 35740/2009, SLP(C) NO. 35742/2009, SLP(C) NO. 35743-
35746/2009, SLP(C) NO. 35747/2009, SLP(C) NO. 35749/2009, SLP(C) NO.
35750/2009, SLP(C) NO. 35751/2009, SLP(C) NO. 35752/2009, SLP(C) NO.
35753/2009, SLP(C) NO. 35754/2009, SLP(C) NO. 35755/2009, SLP(C) NO.
35756/2009, SLP(C) NO. 35757/2009, SLP(C) NO. 36193/2009, SLP(C) NO.
36196/2009, SLP(C) NO. 36219/2009, SLP(C) NO. 36271/2009, W.P.(C) NO.
11/2010, W.P.(C) NO. 42/2010, W.P.(C) NO. 43/2010, W.P.(C) NO. 44/2010,
W.P.(C) NO. 46/2010, W.P.(C) NO. 48/2010, W.P.(C) NO. 63/2010, W.P.(C) NO.
71/2010, SLP(C) NO. 104/2010, SLP(C) NO. 245/2010, SLP(C) NO. 247/2010,
SLP(C) NO. 248/2010, S.L.P.(C)… /2010 CC NO. 886, S.L.P.(C)… /2010 CC
NO. 1082, SLP(C) NO. 1820/2010, SLP(C) NO. 1876/2010, SLP(C) NO. 2459/2010,
SLP(C) NO. 3387/2010, SLP(C) NO. 4102/2010, SLP(C) NO. 4362/2010, SLP(C)
NO. 4388/2010, SLP(C) NO. 4389/2010, SLP(C) NO. 4390/2010, SLP(C) NO.
4511/2010, SLP(C) NO. 4572/2010, SLP(C) NO. 4720/2010, SLP(C) NO.
5151/2010, SLP(C) NO. 5308/2010, SLP(C) NO. 5309/2010, C.A. NO. 5343-
5344/2010, SLP(C) NO. 6037/2010, SLP(C) NO. 6723/2010, SLP(C) NO.
6762/2010, SLP(C) NO. 6763/2010, SLP(C) NO. 6765/2010, SLP(C) NO.
6770/2010, SLP(C) NO. 6811/2010, SLP(C) NO. 7356/2010, SLP(C) NO.
7426/2010, SLP(C) NO. 7776/2010, SLP(C) NO. 7929/2010, SLP(C) NO.
9022/2010, SLP(C) NO. 9077/2010, SLP(C) NO. 9702/2010, SLP(C) NO.
9723/2010, SLP(C) NO. 10361/2010, SLP(C) NO. 11419/2010, SLP(C) NO.
11423/2010, SLP(C) NO. 12690/2010, SLP(C) NO. 14845/2010, SLP(C) NO.
14886/2010, SLP(C) NO. 15015/2010, SLP(C) NO. 15903/2010, SLP(C) NO.
16694/2010, SLP(C) NO. 16720/2010, SLP(C) NO. 18318/2010, SLP(C) NO.
18834/2010, SLP(C) NO. 19194/2010, SLP(C) NO. 19199/2010, SLP(C) NO.
19217/2010, SLP(C) NO. 22327/2010, SLP(C) NO. 22520/2010, SLP(C) NO.
23836/2010, SLP(C) NO. 29578/2010, SLP(C) NO. 36486/2010, W.P.(C) NO.
31/2011, W.P.(C) NO. 497/2011, C.A. NO. 905/2011, SLP(C) NO. 1308/2011,
C.A. NO. 2041/2011, C.A. NO. 2042/2011, S.L.P.(C)… /2011 CC NO. 2103,
SLP(C) NO. 3433/2011, SLP(C) NO. 4730/2011, SLP(C) NO. 4743/2011, SLP(C)
NO. 4747/2011, SLP(C) NO. 4750/2011, SLP(C) NO. 5094/2011, SLP(C) NO.
5105/2011, SLP(C) NO. 5106/2011, SLP(C) NO. 5110/2011, SLP(C) NO.
5112/2011, SLP(C) NO. 6351/2011, SLP(C) NO. 6492/2011, SLP(C) NO.
8571/2011, SLP(C) NO. 9758/2011, C.A. NO. 9900-9903/2011, SLP(C) NO.
12605/2011, SLP(C) NO. 13451/2011, SLP(C) NO. 13525/2011, SLP(C) NO.
13526/2011, SLP(C) NO. 14144/2011, SLP(C) NO. 14269/2011, SLP(C) NO.
14342/2011, SLP(C) NO. 18858/2011, SLP(C) NO. 18859/2011, SLP(C) NO.
18862/2011, SLP(C) NO. 18863/2011, SLP(C) NO. 18864/2011, SLP(C) NO.
33344/2011, W.P.(C) NO. 278/2012, W.P.(C) NO. 290/2012, C.A. NO. 4210/2012,
C.A. NO. 5860/2012, C.A. NO. 5861/2012, C.A. NO. 8275/2012, C.A. NO.
8278/2012, C.A. NO. 8280/2012, C.A. NO. 8283/2012, C.A. NO. 8284/2012, C.A.
NO. 8286/2012, C.A. NO. 8290/2012, C.A. NO. 8292/2012, C.A. NO. 8294/2012,
C.A. NO. 8295/2012, C.A. NO. 8296/2012, C.A. NO. 8297/2012, C.A. NO.
8298/2012, C.A. NO. 8299/2012, C.A. NO. 8300/2012, C.A. NO. 8301/2012, C.A.
NO. 8302/2012, C.A. NO. 8303/2012, C.A. NO. 8304/2012, C.A. NO. 8305/2012,
C.A. NO. 8306/2012, C.A. NO. 8307/2012, C.A. NO. 8308/2012, C.A. NO.
8309/2012, C.A. NO. 8311/2012, C.A. NO. 8312/2012, C.A. NO. 8313/2012, C.A.
NO. 8314/2012, C.A. NO. 8315/2012, C.A. NO. 8316/2012, SLP(C) NO.
8333/2012, C.A. NO. 8734/2012, C.A. NO. 8735/2012, C.A. NO. 8736/2012, C.A.
NO. 8737/2012, C.A. NO. 8738/2012, C.A. NO. 8739/2012, C.A. NO. 8740/2012,
C.A. NO. 8741/2012, C.A. NO. 8744/2012, C.A. NO. 8745/2012, C.A. NO.
8832/2012, C.A. NO. 8833/2012, C.A. NO. 8834/2012, C.A. NO. 8836/2012, C.A.
NO. 8837/2012, C.A. NO. 8839/2012, C.A. NO. 8840/2012, C.A. NO. 8841/2012,
C.A. NO. 8842/2012, C.A. NO. 8843/2012, C.A. NO. 8844/2012, C.A. NO.
8845/2012, C.A. NO. 8846/2012, C.A. NO. 9148/2012, C.A. NO. 9149/2012, C.A.
NO. 9150/2012, C.A. NO. 9151/2012, C.A. NO. 9152/2012, C.A. NO. 9153/2012,
C.A. NO. 9154/2012, C.A. NO. 9155/2012, C.A. NO. 9156/2012, C.A. NO.
9157/2012, C.A. NO. 9158/2012, C.A. NO. 9159/2012, C.A. NO. 9160/2012, C.A.
NO. 9161/2012, C.A. NO. 9162/2012, C.A. NO. 9163/2012, C.A. NO. 9164/2012,
C.A. NO. 9165/2012, C.A. NO. 9166/2012, C.A. NO. 9167/2012, C.A. NO.
9168/2012, C.A. NO. 9169/2012, C.A. NO. 9170/2012, C.A. NO. 9292/2012, C.A.
NO. 9293/2012, SLP(C) NO. 16535-16536/2012, SLP(C) NO. 16538/2012, SLP(C)
NO. 18602/2012, SLP(C) NO. 28173/2012, SLP(C) NO. 33954/2012, SLP(C) NO.
36187/2012, SLP(C) NO. 37455/2012, SLP(C) NO. 37680/2012, SLP(C) NO. 37708-
37709/2012, SLP(C) NO. 37712/2012, SLP(C) NO. 37728/2012, SLP(C) NO.
38304/2012, SLP(C) NO. 38919/2012, SLP(C) NO. 39998/2012, SLP(C) NO.
40146/2012, SLP(C) NO. 40147/2012, T.C.(C) NO. 149/2013, SLP(C) NO.
449/2013, C.A. NO. 539/2013, C.A. NO. 540/2013, C.A. NO. 541/2013, C.A. NO.
542/2013, C.A. NO. 543/2013, C.A. NO. 544/2013, C.A. NO. 545/2013, C.A. NO.
546/2013, C.A. NO. 547/2013, C.A. NO. 548/2013, SLP(C) NO. 1426/2013,
SLP(C) NO. 8939/2013, SLP(C) NO. 9844/2013, SLP(C) NO. 10466/2013, SLP(C)
NO. 10516/2013, SLP(C) NO. 10879/2013, SLP(C) NO. 11060/2013, SLP(C) NO.
16744-16746/2013, SLP(C) NO. 16867/2013, SLP(C) NO. 16869/2013, SLP(C) NO.
16870/2013, SLP(C) NO. 27001-27002/2013, SLP(C) NO. 30986/2013, SLP(C) NO.
32256/2013, SLP(C) NO. 33600/2013, C.A. NO. 1838/2014, C.A. NO. 9216/2014,
C.A. NO. 9214/2014, SLP(C) NO. 29119/2014, SLP(C) NO. 208/2015, SLP(C) NO.
212/2015, SLP(C) NO. 315-317/2015, SLP(C) NO. 320/2015, SLP(C) NO.
336/2015, SLP(C) NO. 352/2015, SLP(C) NO. 376/2015, SLP(C) NO. 411-
421/2015, SLP(C) NO. 380/2015, SLP(C) NO. 437/2015, SLP(C) NO. 445/2015,
SLP(C) NO. 457/2015, SLP(C) NO. 508/2015, SLP(C) NO. 510/2015, SLP(C) NO.
567/2015, SLP(C) NO. 561-562/2015, SLP(C) NO. 585/2015, SLP(C) NO.
621/2015, SLP(C) NO. 638/2015, SLP(C) NO. 641/2015, SLP(C) NO. 661/2015,
SLP(C) NO. 664/2015, SLP(C) NO. 662/2015, SLP(C) NO. 669/2015, SLP(C) NO.
668/2015, SLP(C) NO. 671/2015, SLP(C) NO. 672/2015, SLP(C) NO. 675/2015,
SLP(C) NO. 674/2015, SLP(C) NO. 683/2015, SLP(C) NO. 690-691/2015, SLP(C)
NO. 684-686/2015, SLP(C) NO. 693-694/2015, SLP(C) NO. 712/2015, SLP(C) NO.
1270/2015, SLP(C) NO. 1424/2015, SLP(C) NO. 1596/2015, SLP(C) NO.
1631/2015, SLP(C) NO. 1714/2015, SLP(C) NO. 1851-1852/2015, SLP(C) NO. 1943-
2001/2015, SLP(C) NO. 2038/2015, SLP(C) NO. 2054/2015, SLP(C) NO. 2063-
2065/2015, SLP(C) NO. 2081/2015, SLP(C) NO. 91/2015, SLP(C) NO. 4557/2015,
SLP(C) NO. 4581/2015, SLP(C) NO. 4657/2015, SLP(C) NO. 5046/2015, SLP(C)
NO. 5107/2015, SLP(C) NO. 5131/2015, SLP(C) NO. 5143/2015, SLP(C) NO.
5375/2015, SLP(C) NO. 5447/2015, SLP(C) NO. 5610/2015, SLP(C) NO.
5966/2015, SLP(C) NO. 6086/2015, SLP(C) NO. 6143/2015, SLP(C) NO.
6158/2015, SLP(C) NO. 6240-6243/2015, SLP(C) NO. 6565/2015, SLP(C) NO.
6575/2015, SLP(C) NO. 6631/2015, SLP(C) NO. 4600/2015, SLP(C) NO.
5007/2015, SLP(C) NO. 6728/2015, SLP(C) NO. 6754-6755/2015, SLP(C) NO.
6823/2015, SLP(C) NO. 6907/2015, SLP(C) NO. 6909-6910/2015, SLP(C) NO.
6939/2015, SLP(C) NO. 6956/2015, SLP(C) NO. 4386/2015, SLP(C) NO.
7319/2015, SLP(C) NO. 7957-7958/2015, SLP(C) NO. 8089/2015, SLP(C) NO.
2483/2015, SLP(C) NO. 8248/2015, SLP(C) NO. 8325/2015, SLP(C) NO. 8350-
8351/2015, SLP(C) NO. 8527/2015, SLP(C) NO. 9585/2015, SLP(C) NO.
11830/2015, SLP(C) NO. 8798/2015, SLP(C) NO. 9584/2015, SLP(C) NO. 5311-
5329/2015, SLP(C) NO. 11204-11205/2015, SLP(C) NO. 9164/2015, SLP(C) NO.
9167/2015, SLP(C) NO. 9176/2015, SLP(C) NO. 9181/2015, SLP(C) NO.
11832/2015, SLP(C) NO. 9188/2015, SLP(C) NO. 9348/2015, SLP(C) NO.
5908/2015, SLP(C) NO. 9386/2015, SLP(C) NO. 9484/2015, SLP(C) NO.
9582/2015, SLP(C) NO. 7874/2015, SLP(C) NO. 11080-11086/2015, SLP(C) NO.
12839/2015, SLP(C) NO. 11156/2015, SLP(C) NO. 11170/2015, SLP(C) NO.
12844/2015, SLP(C) NO. 8162/2015, SLP(C) NO. 11484/2015, SLP(C) NO.
12847/2015, SLP(C) NO. 11582/2015, SLP(C) NO. 11592/2015, SLP(C) NO.
13200/2015, SLP(C) NO. 13201/2015, SLP(C) NO. 4219-4227/2015, SLP(C) NO.
2966-2999/2015, SLP(C) NO. 11888/2015, SLP(C) NO. 11203/2015, SLP(C) NO.
14828/2015, SLP(C) NO. 14854/2015, SLP(C) NO. 15856/2015, SLP(C) NO.
15857/2015, SLP(C) NO. 15858/2015, SLP(C) NO. 11458-11465/2015, SLP(C) NO.
18213/2015, SLP(C) NO. 18333/2015, SLP(C) NO. 16312/2015, SLP(C) NO.
18334/2015, SLP(C) NO. 18335/2015, SLP(C) NO. 15855/2015, SLP(C) NO.
18338/2015, SLP(C) NO. 18184/2015, SLP(C) NO. 18179/2015, C.A. NO.
1956/2003, SLP(C) NO. 8775-8777/2015, SLP(C) NO. 5303/2015, SLP(C) NO.
16853/2015, SLP(C) NO. 21720/2015, SLP(C) NO. 23673-23674/2015, SLP(C) NO.
23764/2015, SLP(C) NO. 23765/2015, SLP(C) NO. 15353/2015, SLP(C) NO.
22349/2015, SLP(C) NO. 21718/2015, SLP(C) NO. 24547/2015, SLP(C) NO.
23757/2015, C.A. NO. 8240/2015, SLP(C) NO. 26751/2015, SLP(C) NO.
9117/2015, SLP(C) NO. 2214/2015, SLP(C) NO. 2531/2015, SLP(C) NO.
2289/2015, SLP(C) NO. 2530/2015, SLP(C) NO. 2392/2015, SLP(C) NO.
2499/2015, SLP(C) NO. 2502/2015, SLP(C) NO. 2538-2543/2015, SLP(C) NO.
2426/2015, SLP(C) NO. 2358/2015, SLP(C) NO. 2401/2015, SLP(C) NO.
2389/2015, SLP(C) NO. 2485/2015, SLP(C) NO. 2495/2015, SLP(C) NO. 3163-
3164/2015, SLP(C) NO. 3666/2015, SLP(C) NO. 3679/2015, SLP(C) NO.
3723/2015, SLP(C) NO. 3321/2015, SLP(C) NO. 4198-4199/2015, SLP(C) NO.
3325/2015, SLP(C) NO. 3466/2015, SLP(C) NO. 3635/2015, SLP(C) NO.
3318/2015, SLP(C) NO. 30396/2015, C.A. NO. 110/2016, C.A. NO. 109/2016,
C.A. NO. 583/2016, SLP(C) NO. 4945/2016, SLP(C) NO. 8253/2016, SLP(C) NO.
8204/2008, C.A. NO. 3925/2016, SLP(C) NO. 2057/2016, SLP(C) NO. 86/2016,
SLP(C) NO. 72/2016, C.A. NO. 5534/2016, C.A. NO. 5536/2016, C.A. NO.
5137/2016, SLP(C) NO. 33923/2012, C.A. NO. 5537/2016, SLP(C) NO.
16116/2009, SLP(C) NO. 30594/2009, SLP(C) NO. 2636/2015, SLP(C) NO.
2680/2015, SLP(C) NO. 2952/2015, SLP(C) NO. 2641/2015, SLP(C) NO.
2588/2015, SLP(C) NO. 2928/2015, SLP(C) NO. 2737/2015, SLP(C) NO.
2682/2015, SLP(C) NO. 8197-8198/2015, SLP(C) NO. 4197/2015, C.A. NO.
5538/2016, C.A. NO. 5533/2016, SLP(C) NO. 14539-14541/2016, SLP(C) NO.
16820/2016, C.A. NO. 4642-4643/2016

ORDER
By majority the Court answers the reference in the following terms:
1. Taxes simpliciter are not within the contemplation of Part XIII of
the Constitution of India. The word ‘Free’ used in Article 301 does not
mean “free from taxation”.
2. Only such taxes as are discriminatory in nature are prohibited by
Article 304(a). It follows that levy of a non-discriminatory tax would not
constitute an infraction of Article 301.
3. Clauses (a) and (b) of Article 304 have to be read disjunctively.

4. A levy that violates 304(a) cannot be saved even if the procedure
under Article 304(b) or the proviso there under is satisfied.

5. The compensatory tax theory evolved in Automobile Transport case and
subsequently modified in Jindal’s case has no juristic basis and is
therefore rejected.

6. Decisions of this Court in Atiabari, Automobile Transport and Jindal
cases (supra) and all other judgments that follow these pronouncements are
to the extent of such reliance over ruled.

7. A tax on entry of goods into a local area for use, sale or
consumption therein is permissible although similar goods are not produced
within the taxing state.

8. Article 304 (a) frowns upon discrimination (of a hostile nature in
the protectionist sense) and not on mere differentiation. Therefore,
incentives, set-offs etc. granted to a specified class of dealers for a
limited period of time in a non-hostile fashion with a view to developing
economically backward areas would not violate Article 304(a). The question
whether the levies in the present case indeed satisfy this test is left to
be determined by the regular benches hearing the matters.

9. States are well within their right to design their fiscal
legislations to ensure that the tax burden on goods imported from other
States and goods produced within the State fall equally. Such measures if
taken would not contravene Article 304(a) of the Constitution. The question
whether the levies in the present case indeed satisfy this test is left to
be determined by the regular benches hearing the matters.

10. The questions whether the entire State can be notified as a local
area and whether entry tax can be levied on goods entering the landmass of
India from another country are left open to be determined in appropriate
proceedings.

.……………..………….…..…CJI.
(T.S. THAKUR)
…………………………….…..…J.
(A.K. SIKRI)
…………………………….…..…J.
(S.A. BOBDE)
…………………………….…..…J.
(SHIVA KIRTI SINGH)
…………………………….…..…J.
(N.V. RAMANA)
…………………………….…..…J.
(R. BANUMATHI)
…………………………….…..…J.
(A.M. KHANWILKAR)

New Delhi;
November 11, 2016

R E P O R T A B L E

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.3453 OF 2002

Jindal Stainless Ltd. & Anr. …Appellant(s)

Versus
State of Haryana & Ors. …Respondent(s)

WITH
C.A. NO. 6383-6421/1997, C.A. NO. 6422-6435/1997, C.A. NO. 6436/1997, C.A.
NO. 6437-6440/1997 , C.A. NO. 3381-3400/1998, C.A. NO. 4651/1998, C.A. NO.
918/1999, C.A. NO. 2769/2000, C.A. NO. 4471/2000, C.A. NO. 3314/2001, C.A.
NO. 3454/2002, C.A. NO. 3455/2002, C.A. NO. 3456-3459/2002, C.A. NO.
3460/2002, C.A. NO. 3461/2002, C.A. NO. 3462-3463/2002, C.A. NO. 3464/2002,
C.A. NO. 3465/2002, C.A. NO. 3466/2002, C.A. NO. 3467/2002, C.A. NO.
3468/2002, C.A. NO. 3469/2002, C.A. NO. 3470/2002, C.A. NO. 3471/2002, C.A.
NO. 4008/2002, C.A. NO. 5385/2002, C.A. NO. 5740/2002, C.A. NO. 5858/2002,
W.P.(C) NO. 512/2003, W.P.(C) NO. 574/2003, C.A. NO. 2608/2003, C.A. NO.
2633/2003, C.A. NO. 2637/2003, C.A. NO. 2638/2003, C.A. NO. 3720-3722/2003,
C.A. NO. 6331/2003, C.A. NO. 8241/2003, C.A. NO. 8242/2003, C.A. NO.
8243/2003, C.A. NO. 8244/2003, C.A. NO. 8245/2003, C.A. NO. 8246/2003, C.A.
NO. 8247/2003, C.A. NO. 8248/2003, C.A. NO. 8249/2003, C.A. NO. 8250/2003,
C.A. NO. 8251/2003, C.A. NO. 8252/2003, T.C.(C) NO. 13/2004, W.P.(C) NO.
66/2004, W.P.(C) NO. 221/2004, C.A. NO. 997-998/2004, C.A. NO. 3144/2004,
C.A. NO. 3145/2004, C.A. NO. 3146/2004, C.A. NO. 4953/2004, C.A. NO.
4954/2004, C.A. NO. 5139/2004, C.A. NO. 5141/2004, C.A. NO. 5142/2004, C.A.
NO. 5143/2004, C.A. NO. 5144/2004, C.A. NO. 5145/2004, C.A. NO. 5147/2004,
C.A. NO. 5148/2004, C.A. NO. 5149/2004, C.A. NO. 5150/2004, C.A. NO.
5151/2004, C.A. NO. 5152/2004, C.A. NO. 5153/2004, C.A. NO. 5154/2004, C.A.
NO. 5155/2004, C.A. NO. 5156/2004, C.A. NO. 5157/2004, C.A. NO. 5158/2004,
C.A. NO. 5159/2004, C.A. NO. 5160/2004, C.A. NO. 5162/2004, C.A. NO.
5163/2004, C.A. NO. 5164/2004, C.A. NO. 5165/2004, C.A. NO. 5166/2004, C.A.
NO. 5167/2004, C.A. NO. 5168/2004, C.A. NO. 5169/2004, C.A. NO. 5170/2004,
C.A. NO. 7658/2004, SLP(C) NO. 9479/2004, SLP(C) NO. 9496/2004, SLP(C) NO.
9569/2004, SLP(C) NO. 9832/2004, SLP(C) NO. 9883/2004, SLP(C) NO.
9885/2004, SLP(C) NO. 9891/2004, SLP(C) NO. 9893/2004, SLP(C) NO.
9898/2004, SLP(C) NO. 9899/2004, SLP(C) NO. 9901/2004, SLP(C) NO.
9904/2004, SLP(C) NO. 9910/2004, SLP(C) NO. 9911/2004, SLP(C) NO.
9912/2004, SLP(C) NO. 9950/2004, SLP(C) NO. 9964/2004, SLP(C) NO.
9976/2004, SLP(C) NO. 9989/2004, SLP(C) NO. 9991/2004, SLP(C) NO.
9993/2004, SLP(C) NO. 9998/2004, SLP(C) NO. 9999/2004, SLP(C) NO.
10003/2004, SLP(C) NO. 10007/2004, SLP(C) NO. 10129/2004, SLP(C) NO.
10133/2004, SLP(C) NO. 10134/2004, SLP(C) NO. 10153/2004, SLP(C) NO.
10154/2004, SLP(C) NO. 10156/2004, SLP(C) NO. 10161/2004, SLP(C) NO.
10164/2004, SLP(C) NO. 10167/2004, SLP(C) NO. 10206/2004, SLP(C) NO.
10207/2004, SLP(C) NO. 10232/2004, SLP(C) NO. 10366/2004, SLP(C) NO.
10381/2004, SLP(C) NO. 10382/2004, SLP(C) NO. 10384/2004, SLP(C) NO.
10385/2004, SLP(C) NO. 10391/2004, SLP(C) NO. 10402/2004, SLP(C) NO.
10403/2004, SLP(C) NO. 10404/2004, SLP(C) NO. 10407/2004, SLP(C) NO.
10417/2004, SLP(C) NO. 10449/2004, SLP(C) NO. 10493/2004, SLP(C) NO.
10495/2004, SLP(C) NO. 10497/2004, SLP(C) NO. 10501/2004, SLP(C) NO.
10505/2004, SLP(C) NO. 10539/2004, SLP(C) NO. 10557/2004, SLP(C) NO.
10563/2004, SLP(C) NO. 10566/2004, SLP(C) NO. 10567/2004, SLP(C) NO.
10568/2004, SLP(C) NO. 10569/2004, SLP(C) NO. 10571/2004, SLP(C) NO.
10704/2004, SLP(C) NO. 10706/2004, SLP(C) NO. 10708/2004, SLP(C) NO.
10736/2004, SLP(C) NO. 10906/2004, SLP(C) NO. 10907/2004, SLP(C) NO.
10908/2004, SLP(C) NO. 10909/2004, SLP(C) NO. 10910/2004, SLP(C) NO.
10923/2004, SLP(C) NO. 10929/2004, SLP(C) NO. 10977/2004, SLP(C) NO.
11012/2004, SLP(C) NO. 11266/2004, SLP(C) NO. 11271/2004, SLP(C) NO.
11274/2004, SLP(C) NO. 11281/2004, SLP(C) NO. 11320/2004, SLP(C) NO.
11326/2004, SLP(C) NO. 11328/2004, SLP(C) NO. 11329/2004, SLP(C) NO.
11370/2004, SLP(C) NO. 14380/2005, SLP(C) NO. 1101/2007, SLP(C) NO.
1288/2007, SLP(C) NO. 6914/2007, SLP(C) NO. 9054/2007, SLP(C) NO.
10694/2007, SLP(C) NO. 12959/2007, SLP(C) NO. 13806/2007, SLP(C) NO.
14070/2007, SLP(C) NO. 14819/2007, SLP(C) NO. 14820/2007, SLP(C) NO.
14821/2007, SLP(C) NO. 14823/2007, SLP(C) NO. 14824/2007, SLP(C) NO.
14826/2007, SLP(C) NO. 14828/2007, SLP(C) NO. 14829/2007, SLP(C) NO.
14830/2007, SLP(C) NO. 14832/2007, SLP(C) NO. 14833/2007, SLP(C) NO.
14835/2007, SLP(C) NO. 14837/2007, SLP(C) NO. 14838/2007, SLP(C) NO.
14839/2007, SLP(C) NO. 14841/2007, SLP(C) NO. 14842/2007, SLP(C) NO.
14845/2007, SLP(C) NO. 14846/2007, SLP(C) NO. 14847/2007, SLP(C) NO. 15082-
15085/2007, SLP(C) NO. 15807/2007, SLP(C) NO. 16351/2007, SLP(C) NO.
17589/2007, SLP(C) NO. 17590/2007, SLP(C) NO. 17905/2007, SLP(C) NO.
17906/2007, SLP(C) NO. 17907/2007, SLP(C) NO. 17908/2007, SLP(C) NO.
17909/2007, SLP(C) NO. 17910/2007, SLP(C) NO. 17911/2007, SLP(C) NO.
17913/2007, SLP(C) NO. 17914/2007, SLP(C) NO. 17915/2007, SLP(C) NO.
17916/2007, SLP(C) NO. 17917/2007, SLP(C) NO. 17918/2007, SLP(C) NO.
17919/2007, SLP(C) NO. 17920/2007, SLP(C) NO. 17921/2007, SLP(C) NO.
17922/2007, SLP(C) NO. 17923/2007, SLP(C) NO. 17924/2007, SLP(C) NO.
17925/2007, SLP(C) NO. 17926/2007, SLP(C) NO. 17929/2007, SLP(C) NO.
17930/2007, SLP(C) NO. 17933/2007, SLP(C) NO. 17934/2007, SLP(C) NO.
17936/2007, SLP(C) NO. 17937/2007, SLP(C) NO. 17938/2007, SLP(C) NO.
17939/2007, SLP(C) NO. 17941/2007, SLP(C) NO. 17942/2007, SLP(C) NO.
17943/2007, SLP(C) NO. 17944/2007, SLP(C) NO. 17957/2007, SLP(C) NO.
17959/2007, SLP(C) NO. 17960/2007, SLP(C) NO. 17961/2007, SLP(C) NO.
17962/2007, SLP(C) NO. 17963/2007, SLP(C) NO. 17964/2007, SLP(C) NO.
17965/2007, SLP(C) NO. 17972/2007, SLP(C) NO. 17973/2007, SLP(C) NO.
17974/2007, SLP(C) NO. 17975/2007, SLP(C) NO. 17976/2007, SLP(C) NO.
17977/2007, SLP(C) NO. 17978/2007, SLP(C) NO. 17979/2007, SLP(C) NO.
17980/2007, SLP(C) NO. 17981/2007, SLP(C) NO. 17983/2007, SLP(C) NO.
17984/2007, SLP(C) NO. 18036/2007, SLP(C) NO. 18037/2007, SLP(C) NO.
18038/2007, SLP(C) NO. 18039/2007, SLP(C) NO. 18040/2007, SLP(C) NO.
18041/2007, SLP(C) NO. 18042/2007, SLP(C) NO. 18043/2007, SLP(C) NO.
18044/2007, SLP(C) NO. 18045/2007, SLP(C) NO. 18046/2007, SLP(C) NO.
18047/2007, SLP(C) NO. 18048/2007, SLP(C) NO. 18049/2007, SLP(C) NO.
18050/2007, SLP(C) NO. 18051/2007, SLP(C) NO. 18053/2007, SLP(C) NO.
18054/2007, SLP(C) NO. 18055/2007, SLP(C) NO. 18056/2007, SLP(C) NO.
18057/2007, SLP(C) NO. 18058/2007, SLP(C) NO. 18059/2007, SLP(C) NO.
18061/2007, SLP(C) NO. 18062/2007, SLP(C) NO. 18063/2007, SLP(C) NO.
18064/2007, SLP(C) NO. 18065/2007, SLP(C) NO. 18066/2007, SLP(C) NO.
18067/2007, SLP(C) NO. 18068/2007, SLP(C) NO. 18069/2007, SLP(C) NO.
18073/2007, SLP(C) NO. 18074/2007, SLP(C) NO. 18075/2007, SLP(C) NO.
18076/2007, SLP(C) NO. 18077/2007, SLP(C) NO. 18078/2007, SLP(C) NO.
18079/2007, SLP(C) NO. 18080/2007, SLP(C) NO. 18081/2007, SLP(C) NO.
18082/2007, SLP(C) NO. 18083/2007, SLP(C) NO. 18084/2007, SLP(C) NO.
18085/2007, SLP(C) NO. 18086/2007, SLP(C) NO. 18087/2007, SLP(C) NO.
18088/2007, SLP(C) NO. 18089/2007, SLP(C) NO. 18090/2007, SLP(C) NO.
18091/2007, SLP(C) NO. 18092/2007, SLP(C) NO. 19049/2007, SLP(C) NO.
19050/2007, SLP(C) NO. 19051/2007, SLP(C) NO. 19052/2007, SLP(C) NO.
19053/2007, SLP(C) NO. 19055/2007, SLP(C) NO. 19057/2007, SLP(C) NO.
19059/2007, SLP(C) NO. 19060/2007, SLP(C) NO. 19062/2007, SLP(C) NO.
19064/2007, SLP(C) NO. 19066/2007, SLP(C) NO. 19068/2007, SLP(C) NO.
19070/2007, SLP(C) NO. 19071/2007, SLP(C) NO. 19072/2007, SLP(C) NO.
19073/2007, SLP(C) NO. 19074/2007, SLP(C) NO. 19076/2007, SLP(C) NO.
19077/2007, SLP(C) NO. 19094/2007, SLP(C) NO. 19095/2007, SLP(C) NO.
19096/2007, SLP(C) NO. 19099/2007, SLP(C) NO. 19100/2007, SLP(C) NO.
19101/2007, SLP(C) NO. 19102/2007, SLP(C) NO. 19103/2007, SLP(C) NO.
19104/2007, SLP(C) NO. 19105/2007, SLP(C) NO. 19106/2007, SLP(C) NO.
19107/2007, SLP(C) NO. 19108/2007, SLP(C) NO. 19110/2007, SLP(C) NO.
19111/2007, SLP(C) NO. 19113/2007, SLP(C) NO. 19114/2007, SLP(C) NO.
19505/2007, SLP(C) NO. 19506/2007, SLP(C) NO. 19507/2007, SLP(C) NO.
19508/2007, SLP(C) NO. 19510/2007, SLP(C) NO. 19511/2007, SLP(C) NO.
19512/2007, SLP(C) NO. 19513/2007, SLP(C) NO. 19514/2007, SLP(C) NO.
19515/2007, SLP(C) NO. 19516/2007, SLP(C) NO. 19518/2007, SLP(C) NO.
19521/2007, SLP(C) NO. 19522/2007, SLP(C) NO. 19523-19528/2007, SLP(C) NO.
19529/2007, SLP(C) NO. 19530/2007, SLP(C) NO. 19531/2007, SLP(C) NO. 19543-
19547/2007, SLP(C) NO. 20527/2007, SLP(C) NO. 20529/2007, SLP(C) NO.
20559/2007, SLP(C) NO. 21841/2007, SLP(C) NO. 21843/2007, SLP(C) NO.
21844/2007, SLP(C) NO. 21845/2007, SLP(C) NO. 21846/2007, SLP(C) NO.
21847/2007, SLP(C) NO. 21848/2007, SLP(C) NO. 21849/2007, SLP(C) NO.
21851/2007, SLP(C) NO. 21855/2007, SLP(C) NO. 21864/2007, SLP(C) NO.
21866/2007, SLP(C) NO. 21867/2007, SLP(C) NO. 21871-21904/2007, SLP(C) NO.
21905/2007, SLP(C) NO. 21907/2007, SLP(C) NO. 21908/2007, SLP(C) NO.
21909/2007, SLP(C) NO. 21910/2007, SLP(C) NO. 22947/2007, SLP(C) NO.
22958/2007, SLP(C) NO. 24934-25066/2007, SLP(C) NO. 742/2008, SLP(C) NO.
746/2008, SLP(C) NO. 747/2008, SLP(C) NO. 3230/2008, SLP(C) NO. 3231/2008,
SLP(C) NO. 3233/2008, SLP(C) NO. 3234/2008, SLP(C) NO. 3236/2008, SLP(C)
NO. 3237/2008, SLP(C) NO. 3238-3262/2008, C.A. NO. 4715/2008, C.A. NO. 5041-
5042/2008, SLP(C) NO. 5407/2008, SLP(C) NO. 5408/2008, SLP(C) NO. 6148-
6152/2008, SLP(C) NO. 6831/2008, SLP(C) NO. 7914/2008, SLP(C) NO. 8053-
8077/2008, SLP(C) NO. 8199/2008, SLP(C) NO. 9227/2008, SLP(C) NO. 12424-
12425/2008, SLP(C) NO. 13327/2008, SLP(C) NO. 13889/2008, SLP(C) NO. 14232-
14252/2008, SLP(C) NO. 14454-14778/2008, SLP(C) NO. 14828/2008, SLP(C) NO.
14829/2008, SLP(C) NO. 14875/2008, SLP(C) NO. 15047/2008, SLP(C) NO.
15078/2008, SLP(C) NO. 15090/2008, SLP(C) NO. 15161/2008, SLP(C) NO.
15164/2008, SLP(C) NO. 15179/2008, SLP(C) NO. 15253/2008, SLP(C) NO.
15273/2008, SLP(C) NO. 15274/2008, SLP(C) NO. 15286-15287/2008, SLP(C) NO.
15288-15289/2008, S.L.P.(C)… /2008 CC NO. 15314 , SLP(C) NO. 15324/2008,
SLP(C) NO. 15325/2008, SLP(C) NO. 15326/2008, SLP(C) NO. 15327/2008, SLP(C)
NO. 15328/2008, SLP(C) NO. 15329/2008, SLP(C) NO. 15330/2008, SLP(C) NO.
15331/2008, SLP(C) NO. 15335/2008, SLP(C) NO. 15337/2008, SLP(C) NO.
15356/2008, SLP(C) NO. 15357/2008, SLP(C) NO. 15369/2008, SLP(C) NO.
15405/2008, SLP(C) NO. 15491/2008, SLP(C) NO. 15492/2008, SLP(C) NO.
15493/2008, SLP(C) NO. 15495/2008, SLP(C) NO. 15496/2008, SLP(C) NO.
15498/2008, SLP(C) NO. 15540/2008, SLP(C) NO. 15551/2008, SLP(C) NO.
15579/2008, SLP(C) NO. 15605/2008, SLP(C) NO. 15618/2008, SLP(C) NO.
15623/2008, SLP(C) NO. 15628/2008, SLP(C) NO. 15629/2008, SLP(C) NO.
15630/2008, SLP(C) NO. 15631/2008, SLP(C) NO. 15632/2008, SLP(C) NO.
15633/2008, SLP(C) NO. 15636/2008, SLP(C) NO. 15643/2008, SLP(C) NO.
15647/2008, SLP(C) NO. 15652/2008, SLP(C) NO. 15653/2008, SLP(C) NO.
15655/2008, SLP(C) NO. 15656/2008, SLP(C) NO. 15657/2008, SLP(C) NO.
15659/2008, SLP(C) NO. 15660/2008, SLP(C) NO. 15666/2008, SLP(C) NO.
15684/2008, SLP(C) NO. 15700/2008, SLP(C) NO. 15711/2008, SLP(C) NO.
15819/2008, SLP(C) NO. 15845/2008, SLP(C) NO. 15934/2008, SLP(C) NO.
16664/2008, SLP(C) NO. 16667/2008, SLP(C) NO. 16689/2008, SLP(C) NO.
16733/2008, SLP(C) NO. 16754/2008, SLP(C) NO. 16832/2008, SLP(C) NO.
16837/2008, SLP(C) NO. 16841/2008, SLP(C) NO. 16865/2008, SLP(C) NO.
16885/2008, SLP(C) NO. 16926/2008, SLP(C) NO. 16930/2008, SLP(C) NO.
17187/2008, SLP(C) NO. 17192/2008, SLP(C) NO. 17193/2008, SLP(C) NO.
17203/2008, SLP(C) NO. 17204/2008, SLP(C) NO. 17233/2008, SLP(C) NO.
17267/2008, SLP(C) NO. 17269/2008, SLP(C) NO. 17271/2008, SLP(C) NO.
17272/2008, SLP(C) NO. 17274/2008, SLP(C) NO. 17276/2008, SLP(C) NO.
17277/2008, SLP(C) NO. 17279/2008, SLP(C) NO. 17280/2008, SLP(C) NO.
17282/2008, SLP(C) NO. 17367/2008, SLP(C) NO. 17368/2008, SLP(C) NO.
17369/2008, SLP(C) NO. 17370/2008, SLP(C) NO. 17372/2008, SLP(C) NO.
17373/2008, SLP(C) NO. 17374/2008, SLP(C) NO. 17375/2008, SLP(C) NO.
17376/2008, SLP(C) NO. 17377/2008, SLP(C) NO. 17408/2008, SLP(C) NO.
17865/2008, SLP(C) NO. 17892/2008, SLP(C) NO. 18001/2008, SLP(C) NO.
18030/2008, SLP(C) NO. 18034/2008, SLP(C) NO. 18035/2008, SLP(C) NO.
18040/2008, SLP(C) NO. 18066-18067/2008, SLP(C) NO. 18344/2008, SLP(C) NO.
18346/2008, SLP(C) NO. 18354/2008, SLP(C) NO. 18360-18364/2008, SLP(C) NO.
18379/2008, SLP(C) NO. 18405/2008, SLP(C) NO. 18532/2008, SLP(C) NO.
18533/2008, SLP(C) NO. 18582/2008, SLP(C) NO. 18684-18714/2008, SLP(C) NO.
18850/2008, SLP(C) NO. 18857/2008, SLP(C) NO. 18865/2008, SLP(C) NO.
18870/2008, SLP(C) NO. 18871/2008, SLP(C) NO. 19019/2008, SLP(C) NO.
19026/2008, SLP(C) NO. 19030/2008, SLP(C) NO. 19049/2008, SLP(C) NO.
19120/2008, SLP(C) NO. 19141/2008, SLP(C) NO. 19372/2008, SLP(C) NO.
19421/2008, SLP(C) NO. 19425/2008, SLP(C) NO. 19460/2008, SLP(C) NO.
19470/2008, SLP(C) NO. 19714/2008, SLP(C) NO. 19722/2008, SLP(C) NO.
19731/2008, SLP(C) NO. 19737/2008, SLP(C) NO. 19802/2008, SLP(C) NO.
19847/2008, SLP(C) NO. 19849/2008, SLP(C) NO. 19867/2008, SLP(C) NO.
19873/2008, SLP(C) NO. 19876/2008, SLP(C) NO. 19986/2008, SLP(C) NO.
20068/2008, SLP(C) NO. 20089/2008, SLP(C) NO. 20165/2008, SLP(C) NO.
20766/2008, SLP(C) NO. 20795/2008, SLP(C) NO. 21107/2008, SLP(C) NO. 21117-
21125/2008, SLP(C) NO. 21127/2008, SLP(C) NO. 21506/2008, SLP(C) NO.
21509/2008, SLP(C) NO. 21510/2008, SLP(C) NO. 21819/2008, SLP(C) NO.
22081/2008, SLP(C) NO. 22083/2008, SLP(C) NO. 22084/2008, SLP(C) NO.
22086/2008, SLP(C) NO. 22100-22101/2008, SLP(C) NO. 22195/2008, SLP(C) NO.
22707/2008, SLP(C) NO. 22735/2008, SLP(C) NO. 22931/2008, SLP(C) NO.
23075/2008, SLP(C) NO. 23077/2008, SLP(C) NO. 23270/2008, SLP(C) NO.
23277/2008, SLP(C) NO. 23383/2008, SLP(C) NO. 23609/2008, SLP(C) NO.
23623/2008, SLP(C) NO. 25378/2008, SLP(C) NO. 25498/2008, SLP(C) NO.
26377/2008, SLP(C) NO. 26543/2008, SLP(C) NO. 26571/2008, SLP(C) NO.
26572/2008, SLP(C) NO. 26593/2008, SLP(C) NO. 26750/2008, SLP(C) NO.
26813/2008, SLP(C) NO. 26972/2008, SLP(C) NO. 27442-27444/2008, SLP(C) NO.
27606/2008, SLP(C) NO. 27927/2008, SLP(C) NO. 29194/2008, SLP(C) NO.
29196/2008, SLP(C) NO. 29561-29570/2008, SLP(C) NO. 29763/2008, SLP(C) NO.
29764/2008, SLP(C) NO. 30276/2008, SLP(C) NO. 30533/2008, SLP(C) NO. 30534-
30540/2008, SLP(C) NO. 30542/2008, S.L.P.(C)… /2009 CC NO. 2867, SLP(C)
NO. 3276/2009, SLP(C) NO. 4720/2009, S.L.P.(C)… /2009 CC NO. 5143,
S.L.P.(C)… /2009 CC NO. 5311, SLP(C) NO. 5371/2009, SLP(C) NO. 5376/2009,
SLP(C) NO. 5381/2009, SLP(C) NO. 5383/2009, SLP(C) NO. 5384/2009, SLP(C)
NO. 5393/2009, SLP(C) NO. 5395/2009, SLP(C) NO. 5396/2009, SLP(C) NO.
5399/2009, SLP(C) NO. 5401/2009, SLP(C) NO. 5403/2009, SLP(C) NO.
5405/2009, SLP(C) NO. 5406/2009, SLP(C) NO. 5408/2009, SLP(C) NO.
5409/2009, SLP(C) NO. 5410/2009, SLP(C) NO. 5411/2009, SLP(C) NO.
5412/2009, SLP(C) NO. 5413/2009, SLP(C) NO. 5414/2009, SLP(C) NO.
5420/2009, SLP(C) NO. 5421/2009, SLP(C) NO. 5422/2009, SLP(C) NO.
5424/2009, SLP(C) NO. 5426/2009, SLP(C) NO. 5493-5494/2009, SLP(C) NO.
5495/2009, S.L.P.(C)… /2009 CC NO. 5803, SLP(C) NO. 5883/2009, SLP(C) NO.
6254/2009, SLP(C) NO. 6669/2009, SLP(C) NO. 6670/2009, SLP(C) NO.
6675/2009, SLP(C) NO. 6676/2009, SLP(C) NO. 6682/2009, SLP(C) NO.
6683/2009, SLP(C) NO. 6684/2009, SLP(C) NO. 6685/2009, SLP(C) NO.
6686/2009, SLP(C) NO. 6687/2009, SLP(C) NO. 6688/2009, SLP(C) NO.
6689/2009, SLP(C) NO. 6690/2009, SLP(C) NO. 6692/2009, SLP(C) NO.
6693/2009, SLP(C) NO. 6694/2009, SLP(C) NO. 6696/2009, SLP(C) NO.
6698/2009, SLP(C) NO. 6699/2009, SLP(C) NO. 6700/2009, SLP(C) NO.
6701/2009, SLP(C) NO. 6702/2009, SLP(C) NO. 6703/2009, SLP(C) NO.
6704/2009, SLP(C) NO. 6705/2009, SLP(C) NO. 6708/2009, SLP(C) NO.
6709/2009, SLP(C) NO. 6710/2009, SLP(C) NO. 6711/2009, SLP(C) NO.
6712/2009, SLP(C) NO. 6713/2009, SLP(C) NO. 6714-6715/2009, SLP(C) NO.
6953/2009, SLP(C) NO. 7345/2009, SLP(C) NO. 8244/2009, SLP(C) NO.
9548/2009, SLP(C) NO. 9699/2009, SLP(C) NO. 10040/2009, SLP(C) NO.
10041/2009, SLP(C) NO. 10042/2009, SLP(C) NO. 10045/2009, SLP(C) NO.
10047/2009, SLP(C) NO. 10048/2009, SLP(C) NO. 10049/2009, SLP(C) NO.
10050/2009, SLP(C) NO. 10051/2009, SLP(C) NO. 10053-10054/2009, SLP(C) NO.
10192/2009, SLP(C) NO. 10279/2009, SLP(C) NO. 10952/2009, SLP(C) NO. 10954-
10956/2009, SLP(C) NO. 11042/2009, SLP(C) NO. 11122/2009, SLP(C) NO. 11603-
11611/2009, SLP(C) NO. 11646/2009, SLP(C) NO. 12948/2009, SLP(C) NO. 13270-
13274/2009, SLP(C) NO. 13483/2009, SLP(C) NO. 13496/2009, SLP(C) NO.
13517/2009, SLP(C) NO. 13611-13612/2009, SLP(C) NO. 14429/2009, SLP(C) NO.
14484/2009, SLP(C) NO. 14488/2009, SLP(C) NO. 14623/2009, SLP(C) NO.
14856/2009, SLP(C) NO. 14949/2009, SLP(C) NO. 15723/2009, SLP(C) NO.
16253/2009, SLP(C) NO. 16757-16760/2009, SLP(C) NO. 16784/2009, SLP(C) NO.
16789/2009, SLP(C) NO. 16888-16898/2009, SLP(C) NO. 17332-17333/2009,
SLP(C) NO. 17394-17396/2009, SLP(C) NO. 17488/2009, SLP(C) NO. 17490/2009,
SLP(C) NO. 17491/2009, SLP(C) NO. 17492-17498/2009, SLP(C) NO. 17722/2009,
SLP(C) NO. 17731/2009, SLP(C) NO. 17744/2009, SLP(C) NO. 19695/2009, SLP(C)
NO. 22293/2009, SLP(C) NO. 22295/2009, SLP(C) NO. 22302/2009, SLP(C) NO.
22303/2009, SLP(C) NO. 22304/2009, SLP(C) NO. 22306/2009, SLP(C) NO.
22307/2009, SLP(C) NO. 22308/2009, SLP(C) NO. 22309/2009, SLP(C) NO.
22310/2009, SLP(C) NO. 22311/2009, SLP(C) NO. 22312/2009, SLP(C) NO.
22313/2009, SLP(C) NO. 22316/2009, SLP(C) NO. 22317/2009, SLP(C) NO.
22318/2009, SLP(C) NO. 22320/2009, SLP(C) NO. 22321/2009, SLP(C) NO.
22322/2009, SLP(C) NO. 22323/2009, SLP(C) NO. 22324/2009, SLP(C) NO.
22325/2009, SLP(C) NO. 22408/2009, SLP(C) NO. 22425/2009, SLP(C) NO.
22428/2009, SLP(C) NO. 23990/2009, SLP(C) NO. 24149/2009, SLP(C) NO.
24430/2009, SLP(C) NO. 24822/2009, SLP(C) NO. 25157/2009, SLP(C) NO.
25390/2009, SLP(C) NO. 25399-25400/2009, SLP(C) NO. 25467/2009, SLP(C) NO.
25470/2009, SLP(C) NO. 25474/2009, SLP(C) NO. 25753/2009, SLP(C) NO.
25797/2009, SLP(C) NO. 26116/2009, SLP(C) NO. 26236/2009, SLP(C) NO.
26509/2009, SLP(C) NO. 27883/2009, SLP(C) NO. 28509/2009, SLP(C) NO.
28583/2009, SLP(C) NO. 28696/2009, SLP(C) NO. 28775/2009, SLP(C) NO.
29597/2009, SLP(C) NO. 29868/2009, SLP(C) NO. 30383/2009, SLP(C) NO. 30746-
30845/2009, SLP(C) NO. 30847/2009, SLP(C) NO. 31410/2009, SLP(C) NO.
31411/2009, SLP(C) NO. 31412/2009, SLP(C) NO. 33176/2009, SLP(C) NO. 33663-
33665/2009, SLP(C) NO. 33672/2009, SLP(C) NO. 34253/2009, SLP(C) NO.
34859/2009, SLP(C) NO. 35038/2009, SLP(C) NO. 35585/2009, SLP(C) NO.
35587/2009, SLP(C) NO. 35740/2009, SLP(C) NO. 35742/2009, SLP(C) NO. 35743-
35746/2009, SLP(C) NO. 35747/2009, SLP(C) NO. 35749/2009, SLP(C) NO.
35750/2009, SLP(C) NO. 35751/2009, SLP(C) NO. 35752/2009, SLP(C) NO.
35753/2009, SLP(C) NO. 35754/2009, SLP(C) NO. 35755/2009, SLP(C) NO.
35756/2009, SLP(C) NO. 35757/2009, SLP(C) NO. 36193/2009, SLP(C) NO.
36196/2009, SLP(C) NO. 36219/2009, SLP(C) NO. 36271/2009, W.P.(C) NO.
11/2010, W.P.(C) NO. 42/2010, W.P.(C) NO. 43/2010, W.P.(C) NO. 44/2010,
W.P.(C) NO. 46/2010, W.P.(C) NO. 48/2010, W.P.(C) NO. 63/2010, W.P.(C) NO.
71/2010, SLP(C) NO. 104/2010, SLP(C) NO. 245/2010, SLP(C) NO. 247/2010,
SLP(C) NO. 248/2010, S.L.P.(C)… /2010 CC NO. 886, S.L.P.(C)… /2010 CC
NO. 1082, SLP(C) NO. 1820/2010, SLP(C) NO. 1876/2010, SLP(C) NO. 2459/2010,
SLP(C) NO. 3387/2010, SLP(C) NO. 4102/2010, SLP(C) NO. 4362/2010, SLP(C)
NO. 4388/2010, SLP(C) NO. 4389/2010, SLP(C) NO. 4390/2010, SLP(C) NO.
4511/2010, SLP(C) NO. 4572/2010, SLP(C) NO. 4720/2010, SLP(C) NO.
5151/2010, SLP(C) NO. 5308/2010, SLP(C) NO. 5309/2010, C.A. NO. 5343-
5344/2010, SLP(C) NO. 6037/2010, SLP(C) NO. 6723/2010, SLP(C) NO.
6762/2010, SLP(C) NO. 6763/2010, SLP(C) NO. 6765/2010, SLP(C) NO.
6770/2010, SLP(C) NO. 6811/2010, SLP(C) NO. 7356/2010, SLP(C) NO.
7426/2010, SLP(C) NO. 7776/2010, SLP(C) NO. 7929/2010, SLP(C) NO.
9022/2010, SLP(C) NO. 9077/2010, SLP(C) NO. 9702/2010, SLP(C) NO.
9723/2010, SLP(C) NO. 10361/2010, SLP(C) NO. 11419/2010, SLP(C) NO.
11423/2010, SLP(C) NO. 12690/2010, SLP(C) NO. 14845/2010, SLP(C) NO.
14886/2010, SLP(C) NO. 15015/2010, SLP(C) NO. 15903/2010, SLP(C) NO.
16694/2010, SLP(C) NO. 16720/2010, SLP(C) NO. 18318/2010, SLP(C) NO.
18834/2010, SLP(C) NO. 19194/2010, SLP(C) NO. 19199/2010, SLP(C) NO.
19217/2010, SLP(C) NO. 22327/2010, SLP(C) NO. 22520/2010, SLP(C) NO.
23836/2010, SLP(C) NO. 29578/2010, SLP(C) NO. 36486/2010, W.P.(C) NO.
31/2011, W.P.(C) NO. 497/2011, C.A. NO. 905/2011, SLP(C) NO. 1308/2011,
C.A. NO. 2041/2011, C.A. NO. 2042/2011, S.L.P.(C)… /2011 CC NO. 2103,
SLP(C) NO. 3433/2011, SLP(C) NO. 4730/2011, SLP(C) NO. 4743/2011, SLP(C)
NO. 4747/2011, SLP(C) NO. 4750/2011, SLP(C) NO. 5094/2011, SLP(C) NO.
5105/2011, SLP(C) NO. 5106/2011, SLP(C) NO. 5110/2011, SLP(C) NO.
5112/2011, SLP(C) NO. 6351/2011, SLP(C) NO. 6492/2011, SLP(C) NO.
8571/2011, SLP(C) NO. 9758/2011, C.A. NO. 9900-9903/2011, SLP(C) NO.
12605/2011, SLP(C) NO. 13451/2011, SLP(C) NO. 13525/2011, SLP(C) NO.
13526/2011, SLP(C) NO. 14144/2011, SLP(C) NO. 14269/2011, SLP(C) NO.
14342/2011, SLP(C) NO. 18858/2011, SLP(C) NO. 18859/2011, SLP(C) NO.
18862/2011, SLP(C) NO. 18863/2011, SLP(C) NO. 18864/2011, SLP(C) NO.
33344/2011, W.P.(C) NO. 278/2012, W.P.(C) NO. 290/2012, C.A. NO. 4210/2012,
C.A. NO. 5860/2012, C.A. NO. 5861/2012, C.A. NO. 8275/2012, C.A. NO.
8278/2012, C.A. NO. 8280/2012, C.A. NO. 8283/2012, C.A. NO. 8284/2012, C.A.
NO. 8286/2012, C.A. NO. 8290/2012, C.A. NO. 8292/2012, C.A. NO. 8294/2012,
C.A. NO. 8295/2012, C.A. NO. 8296/2012, C.A. NO. 8297/2012, C.A. NO.
8298/2012, C.A. NO. 8299/2012, C.A. NO. 8300/2012, C.A. NO. 8301/2012, C.A.
NO. 8302/2012, C.A. NO. 8303/2012, C.A. NO. 8304/2012, C.A. NO. 8305/2012,
C.A. NO. 8306/2012, C.A. NO. 8307/2012, C.A. NO. 8308/2012, C.A. NO.
8309/2012, C.A. NO. 8311/2012, C.A. NO. 8312/2012, C.A. NO. 8313/2012, C.A.
NO. 8314/2012, C.A. NO. 8315/2012, C.A. NO. 8316/2012, SLP(C) NO.
8333/2012, C.A. NO. 8734/2012, C.A. NO. 8735/2012, C.A. NO. 8736/2012, C.A.
NO. 8737/2012, C.A. NO. 8738/2012, C.A. NO. 8739/2012, C.A. NO. 8740/2012,
C.A. NO. 8741/2012, C.A. NO. 8744/2012, C.A. NO. 8745/2012, C.A. NO.
8832/2012, C.A. NO. 8833/2012, C.A. NO. 8834/2012, C.A. NO. 8836/2012, C.A.
NO. 8837/2012, C.A. NO. 8839/2012, C.A. NO. 8840/2012, C.A. NO. 8841/2012,
C.A. NO. 8842/2012, C.A. NO. 8843/2012, C.A. NO. 8844/2012, C.A. NO.
8845/2012, C.A. NO. 8846/2012, C.A. NO. 9148/2012, C.A. NO. 9149/2012, C.A.
NO. 9150/2012, C.A. NO. 9151/2012, C.A. NO. 9152/2012, C.A. NO. 9153/2012,
C.A. NO. 9154/2012, C.A. NO. 9155/2012, C.A. NO. 9156/2012, C.A. NO.
9157/2012, C.A. NO. 9158/2012, C.A. NO. 9159/2012, C.A. NO. 9160/2012, C.A.
NO. 9161/2012, C.A. NO. 9162/2012, C.A. NO. 9163/2012, C.A. NO. 9164/2012,
C.A. NO. 9165/2012, C.A. NO. 9166/2012, C.A. NO. 9167/2012, C.A. NO.
9168/2012, C.A. NO. 9169/2012, C.A. NO. 9170/2012, C.A. NO. 9292/2012, C.A.
NO. 9293/2012, SLP(C) NO. 16535-16536/2012, SLP(C) NO. 16538/2012, SLP(C)
NO. 18602/2012, SLP(C) NO. 28173/2012, SLP(C) NO. 33954/2012, SLP(C) NO.
36187/2012, SLP(C) NO. 37455/2012, SLP(C) NO. 37680/2012, SLP(C) NO. 37708-
37709/2012, SLP(C) NO. 37712/2012, SLP(C) NO. 37728/2012, SLP(C) NO.
38304/2012, SLP(C) NO. 38919/2012, SLP(C) NO. 39998/2012, SLP(C) NO.
40146/2012, SLP(C) NO. 40147/2012, T.C.(C) NO. 149/2013, SLP(C) NO.
449/2013, C.A. NO. 539/2013, C.A. NO. 540/2013, C.A. NO. 541/2013, C.A. NO.
542/2013, C.A. NO. 543/2013, C.A. NO. 544/2013, C.A. NO. 545/2013, C.A. NO.
546/2013, C.A. NO. 547/2013, C.A. NO. 548/2013, SLP(C) NO. 1426/2013,
SLP(C) NO. 8939/2013, SLP(C) NO. 9844/2013, SLP(C) NO. 10466/2013, SLP(C)
NO. 10516/2013, SLP(C) NO. 10879/2013, SLP(C) NO. 11060/2013, SLP(C) NO.
16744-16746/2013, SLP(C) NO. 16867/2013, SLP(C) NO. 16869/2013, SLP(C) NO.
16870/2013, SLP(C) NO. 27001-27002/2013, SLP(C) NO. 30986/2013, SLP(C) NO.
32256/2013, SLP(C) NO. 33600/2013, C.A. NO. 1838/2014, C.A. NO. 9216/2014,
C.A. NO. 9214/2014, SLP(C) NO. 29119/2014, SLP(C) NO. 208/2015, SLP(C) NO.
212/2015, SLP(C) NO. 315-317/2015, SLP(C) NO. 320/2015, SLP(C) NO.
336/2015, SLP(C) NO. 352/2015, SLP(C) NO. 376/2015, SLP(C) NO. 411-
421/2015, SLP(C) NO. 380/2015, SLP(C) NO. 437/2015, SLP(C) NO. 445/2015,
SLP(C) NO. 457/2015, SLP(C) NO. 508/2015, SLP(C) NO. 510/2015, SLP(C) NO.
567/2015, SLP(C) NO. 561-562/2015, SLP(C) NO. 585/2015, SLP(C) NO.
621/2015, SLP(C) NO. 638/2015, SLP(C) NO. 641/2015, SLP(C) NO. 661/2015,
SLP(C) NO. 664/2015, SLP(C) NO. 662/2015, SLP(C) NO. 669/2015, SLP(C) NO.
668/2015, SLP(C) NO. 671/2015, SLP(C) NO. 672/2015, SLP(C) NO. 675/2015,
SLP(C) NO. 674/2015, SLP(C) NO. 683/2015, SLP(C) NO. 690-691/2015, SLP(C)
NO. 684-686/2015, SLP(C) NO. 693-694/2015, SLP(C) NO. 712/2015, SLP(C) NO.
1270/2015, SLP(C) NO. 1424/2015, SLP(C) NO. 1596/2015, SLP(C) NO.
1631/2015, SLP(C) NO. 1714/2015, SLP(C) NO. 1851-1852/2015, SLP(C) NO. 1943-
2001/2015, SLP(C) NO. 2038/2015, SLP(C) NO. 2054/2015, SLP(C) NO. 2063-
2065/2015, SLP(C) NO. 2081/2015, SLP(C) NO. 91/2015, SLP(C) NO. 4557/2015,
SLP(C) NO. 4581/2015, SLP(C) NO. 4657/2015, SLP(C) NO. 5046/2015, SLP(C)
NO. 5107/2015, SLP(C) NO. 5131/2015, SLP(C) NO. 5143/2015, SLP(C) NO.
5375/2015, SLP(C) NO. 5447/2015, SLP(C) NO. 5610/2015, SLP(C) NO.
5966/2015, SLP(C) NO. 6086/2015, SLP(C) NO. 6143/2015, SLP(C) NO.
6158/2015, SLP(C) NO. 6240-6243/2015, SLP(C) NO. 6565/2015, SLP(C) NO.
6575/2015, SLP(C) NO. 6631/2015, SLP(C) NO. 4600/2015, SLP(C) NO.
5007/2015, SLP(C) NO. 6728/2015, SLP(C) NO. 6754-6755/2015, SLP(C) NO.
6823/2015, SLP(C) NO. 6907/2015, SLP(C) NO. 6909-6910/2015, SLP(C) NO.
6939/2015, SLP(C) NO. 6956/2015, SLP(C) NO. 4386/2015, SLP(C) NO.
7319/2015, SLP(C) NO. 7957-7958/2015, SLP(C) NO. 8089/2015, SLP(C) NO.
2483/2015, SLP(C) NO. 8248/2015, SLP(C) NO. 8325/2015, SLP(C) NO. 8350-
8351/2015, SLP(C) NO. 8527/2015, SLP(C) NO. 9585/2015, SLP(C) NO.
11830/2015, SLP(C) NO. 8798/2015, SLP(C) NO. 9584/2015, SLP(C) NO. 5311-
5329/2015, SLP(C) NO. 11204-11205/2015, SLP(C) NO. 9164/2015, SLP(C) NO.
9167/2015, SLP(C) NO. 9176/2015, SLP(C) NO. 9181/2015, SLP(C) NO.
11832/2015, SLP(C) NO. 9188/2015, SLP(C) NO. 9348/2015, SLP(C) NO.
5908/2015, SLP(C) NO. 9386/2015, SLP(C) NO. 9484/2015, SLP(C) NO.
9582/2015, SLP(C) NO. 7874/2015, SLP(C) NO. 11080-11086/2015, SLP(C) NO.
12839/2015, SLP(C) NO. 11156/2015, SLP(C) NO. 11170/2015, SLP(C) NO.
12844/2015, SLP(C) NO. 8162/2015, SLP(C) NO. 11484/2015, SLP(C) NO.
12847/2015, SLP(C) NO. 11582/2015, SLP(C) NO. 11592/2015, SLP(C) NO.
13200/2015, SLP(C) NO. 13201/2015, SLP(C) NO. 4219-4227/2015, SLP(C) NO.
2966-2999/2015, SLP(C) NO. 11888/2015, SLP(C) NO. 11203/2015, SLP(C) NO.
14828/2015, SLP(C) NO. 14854/2015, SLP(C) NO. 15856/2015, SLP(C) NO.
15857/2015, SLP(C) NO. 15858/2015, SLP(C) NO. 11458-11465/2015, SLP(C) NO.
18213/2015, SLP(C) NO. 18333/2015, SLP(C) NO. 16312/2015, SLP(C) NO.
18334/2015, SLP(C) NO. 18335/2015, SLP(C) NO. 15855/2015, SLP(C) NO.
18338/2015, SLP(C) NO. 18184/2015, SLP(C) NO. 18179/2015, C.A. NO.
1956/2003, SLP(C) NO. 8775-8777/2015, SLP(C) NO. 5303/2015, SLP(C) NO.
16853/2015, SLP(C) NO. 21720/2015, SLP(C) NO. 23673-23674/2015, SLP(C) NO.
23764/2015, SLP(C) NO. 23765/2015, SLP(C) NO. 15353/2015, SLP(C) NO.
22349/2015, SLP(C) NO. 21718/2015, SLP(C) NO. 24547/2015, SLP(C) NO.
23757/2015, C.A. NO. 8240/2015, SLP(C) NO. 26751/2015, SLP(C) NO.
9117/2015, SLP(C) NO. 2214/2015, SLP(C) NO. 2531/2015, SLP(C) NO.
2289/2015, SLP(C) NO. 2530/2015, SLP(C) NO. 2392/2015, SLP(C) NO.
2499/2015, SLP(C) NO. 2502/2015, SLP(C) NO. 2538-2543/2015, SLP(C) NO.
2426/2015, SLP(C) NO. 2358/2015, SLP(C) NO. 2401/2015, SLP(C) NO.
2389/2015, SLP(C) NO. 2485/2015, SLP(C) NO. 2495/2015, SLP(C) NO. 3163-
3164/2015, SLP(C) NO. 3666/2015, SLP(C) NO. 3679/2015, SLP(C) NO.
3723/2015, SLP(C) NO. 3321/2015, SLP(C) NO. 4198-4199/2015, SLP(C) NO.
3325/2015, SLP(C) NO. 3466/2015, SLP(C) NO. 3635/2015, SLP(C) NO.
3318/2015, SLP(C) NO. 30396/2015, C.A. NO. 110/2016, C.A. NO. 109/2016,
C.A. NO. 583/2016, SLP(C) NO. 4945/2016, SLP(C) NO. 8253/2016, SLP(C) NO.
8204/2008, C.A. NO. 3925/2016, SLP(C) NO. 2057/2016, SLP(C) NO. 86/2016,
SLP(C) NO. 72/2016, C.A. NO. 5534/2016, C.A. NO. 5536/2016, C.A. NO.
5137/2016, SLP(C) NO. 33923/2012, C.A. NO. 5537/2016, SLP(C) NO.
16116/2009, SLP(C) NO. 30594/2009, SLP(C) NO. 2636/2015, SLP(C) NO.
2680/2015, SLP(C) NO. 2952/2015, SLP(C) NO. 2641/2015, SLP(C) NO.
2588/2015, SLP(C) NO. 2928/2015, SLP(C) NO. 2737/2015, SLP(C) NO.
2682/2015, SLP(C) NO. 8197-8198/2015, SLP(C) NO. 4197/2015, C.A. NO.
5538/2016, C.A. NO. 5533/2016, SLP(C) NO. 14539-14541/2016, SLP(C) NO.
16820/2016, C.A. NO. 4642-4643/2016
J U D G M E N T

T.S. THAKUR, CJI (for himself and A.K. Sikri and A.M. Khanwilkar, JJ.)

1. These appeals bring to fore for our determination vexed questions
touching the interpretation of Articles 301 to 307 comprising Part XIII of
the Constitution which have been the subject matter of several Constitution
Bench decisions of this Court, all but one, decided by majority. The
questions assume in a great measure considerable public importance not only
because the same deal with the powers of the State legislatures to levy
taxes but also because any pronouncement of this Court is bound to impact
the federal character of our polity and the Centre-State relationship in
legislative and fiscal matters. There is no gainsaying that it is the
importance of the questions that lies at the bottom of the present
reference to a larger Bench made in the following circumstances.

2. In exercise of their legislative powers under Entry 52 of List II of
the Seventh Schedule to the Constitution several States in the country, at
least 14 of whom are parties to these proceedings, have enacted laws that
provide for levy of a tax on the “entry of goods into local areas
comprising the States”. The constitutional validity of these levies was
questioned in different High Courts by assesses/dealers aggrieved of the
same, inter alia, on the ground that the same were violative of the
constitutionally recognised right to free trade commerce and intercourse
guaranteed under Article 301 of the Constitution of India. The levies were
also assailed on the ground that the same were discriminatory and,
therefore, violative of Article 304(a) of the Constitution of India.
Absence of Presidential sanction in terms of Article 304(b) of the
Constitution of India was also set-up as a ground of challenge to the
levies imposed by the respective State legislatures. Writ Petition (Civil)
No. 8700 of 2000 filed before the High Court of Punjab and Haryana was one
such petition that assailed the constitutional validity of the Haryana
Local Development Act, 2000. Relying upon the decisions of this Court in
Atiabari Tea Co. Ltd. v. State of Assam & Ors. (AIR 1961 SC 232);
Automobile Transport (Rajasthan) Ltd. etc. v. State of Rajasthan & Ors.
(AIR 1962 SC 1406); M/s. Bhagatram Rajeev Kumar v. Commissioner of Sales
Tax, M.P. and Ors. (1995 Supp [1] SCC 673 ); and State of Bihar and Ors.
v. Bihar Chamber of Commerce and Ors. (1996) 9 SCC 136, a Division Bench of
the High Court of Punjab and Haryana dismissed the said petition and
connected matters on the ground that the levy was compensatory in character
hence outside the purview of Article 301.

3. The correctness of the said order was assailed before this Court in
Jindal Stripe Ltd. and Anr. v. State of Haryana and Ors. (2003) 8 SCC 60.
A two-Judge Bench of this Court, however, referred the matter to a larger
Bench as it noticed an apparent conflict between the pronouncements of this
Court in Atiabari (supra) and Automobile Transport (supra) cases on the one
hand and Bhagatram (supra) and Bihar Chamber of Commerce (supra) on the
other. The Court after noticing the development of law on the subject
observed:
“25. To sum up: the pre-1995 decisions held that an exaction to
reimburse/recompense the State the cost of an existing facility made
available to the traders or the cost of a specific facility planned to be
provided to the traders is compensatory tax and that it is implicit in such
a levy that it must, more or less, be commensurate with the cost of the
service or facility. The decisions emphasized that the imposition of tax
must be with the definite purpose of meeting the expenses on account of
providing or adding to the trading facilities either immediately or in
future provided the quantum of tax sought to be generated is based on a
reasonable relation to the actual or projected expenditure on the cost of
the service or facility.

26. The decisions in Bhagatram and Bihar Chamber of Commerce now say that
even if the purpose of imposition of the tax is not merely to confer a
special advantage on the traders but to benefit the public in general
including the traders, that levy can still be considered to be
compensatory. According to this view, an indirect or incidental benefit to
traders by reason of stepping up the developmental activities in various
local areas of the State can be legitimately brought within the concept of
compensatory tax, the nexus between the tax known as compensatory tax and
the trading facilities not being necessarily either direct or specific.

27. Since the concept of compensatory tax has been judicially evolved as
an exception to the provisions of Article 301 and as the parameters of this
judicial concept are blurred, particularly by reason of the decisions in
Bhagatram and Bihar Chamber of Commerce we are of the view that the
interpretation of Article 301 vis-à-vis compensatory tax should be
authoritatively laid down with certitude by the Constitution Bench under
Article 145(3).

28. In the circumstances let all these matters be placed before the Hon’ble
the Chief Justice for appropriate directions.”
4. The matters were, pursuant to the above, placed before a Constitution
Bench of this Court in Jindal Stainless Ltd. (2) and Anr. v. State of
Haryana and Ors., (2006) 7 SCC 241 which resolved the conflict noticed in
the reference order by holding that the working test propounded by seven
Judges in Automobile Transport case (supra) was incompatible with the test
of ‘some connection’ enunciated by the three Judge Bench in Bhagatram’s
case (supra). The Court held that the test of ‘some connection’ as
propounded in Bhagatram’s case (supra) had no application to the concept of
compensatory tax. The Court, accordingly, overruled the decisions rendered
in Bhagatram and Bihar Chamber of Commerce cases and held that the doctrine
of ‘direct and immediate effect’ of the impugned law on trade and commerce
under Article 301 as propounded in Atiabari (supra) and the working test
enunciated in Automobile Transport (supra) cases for deciding whether a tax
is compensatory or not will continue to apply. The Court observed:

“53. We reiterate that the doctrine of “direct and immediate effect”
of the impugned law on trade and commerce under Article 301 as propounded
in Atiabari Tea Co. Ltd. v. State of Assam and the working test
enunciated in Automobile Transport (Rajasthan) Ltd. v. State of
Rajasthan for deciding whether a tax is compensatory or not vide para 19
of the Report (AIR), will continue to apply and the test of “some
connection” indicated in para 8 (of SCC) of the judgment in Bhagatram
Rajeevkumar v. CST and followed in State of Bihar v. Bihar Chamber of
Commerce is, in our opinion, not good law. Accordingly, the constitutional
validity of various local enactments which are the subject-matters of
pending appeals, special leave petitions and writ petitions will now be
listed for being disposed of in the light of this judgment.”
5. The matters were, in terms of the above direction, listed before a
two-Judge bench for hearing of the appeals in the light of the above
pronouncement of the Constitution Bench. The two-Judge Bench, however,
noticed that although the basic issue in the appeals revolved around the
concept of compensatory tax, the High Courts had not examined the same as
they had considered themselves bound by the view taken in Bhagatram and
Bihar Chamber of Commerce cases (supra). The Court further found that in
the absence of relevant data before the High Courts, the issue whether the
levies were compensatory could not have been considered and accordingly
referred the matter back to the High Courts to decide the said aspect. The
appeals were, in the meantime, adjourned to await the finding from the High
Courts on the question whether the levies were indeed compensatory in
nature having regard to the decisions of this Court in Atiabari and
Automobile Transport cases (supra).

6. The matters were accordingly taken up by the High Courts, after the
remand, who came to the conclusion that the impugned levies were neither
compensatory in character nor was the procedure stipulated by Article
304(b) and the proviso to the same followed. The levies were on that basis
held to be in violation of Article 301 being an impediment to free trade,
commerce and intercourse and accordingly struck down. The High Courts of
Assam, Arunachal Pradesh, Jharkhand, Kerala and Tamil Nadu struck down the
levies imposed by their respective States also on the ground that they were
discriminatory in nature hence violative of Article 304(a) of the
Constitution.

7. All these judgments and orders of the High Courts, passed after the
remand, then, came to be challenged by the States concerned in the appeals
filed against the same. These appeals initially came-up before a two-Judge
Bench of this Court comprising Justice Arijit Pasayat and Justice S.H.
Kapadia. Their Lordships referred the same to a Constitution Bench for an
authoritative pronouncement on as many as ten questions formulated in the
reference order (Jaiprakash Associates Limited v. State of Madhya Pradesh
and Ors. (2009) 7 SCC 339). The Court noticed the arguments advanced on
behalf of the assessees that entry taxes were, in essence and in the
classical sense, in the nature of ‘a fee’ and not ‘a tax’. It also noted
the contention that all the cases on which the parties had placed reliance
related to entry tax in the context of tax on vehicles in contradiction to
taxes on entry of goods. The Court was of the view that while the
Constitution Bench in Jindal Stainless Ltd. (2) (supra) had dealt with some
aspects of the matter, certain other important constitutional issues
remained to be examined especially because a conceptually and contextually
different approach may be required vis-à-vis “transport cases” on the one
hand and cases of “entry tax on goods” on the other. The questions
formulated by the Court for determination by the Constitution Bench were in
the following words:

“(1) Whether the State enactments relating to levy of entry tax have
to be tested with reference to both clauses (a) and (b) of Article 304 of
the Constitution for determining their validity and whether clause (a) of
Article 304 is conjunctive with or separate from clause (b) of Article 304?

(2) Whether imposition of entry tax levied in terms of Entry 52 List
II of the Schedule VII is violative of Article 301 of the Constitution? If
the answer is in the affirmative whether such levy can be protected if
entry tax is compensatory in character and if the answer to the aforesaid
question is in the affirmative what are the yardsticks to be applied to
determine the compensatory character of the entry tax?

(3) Whether Entry 52 List II, Schedule VII of the Constitution like
other taxing entries in the Schedule, merely provides a taxing field for
exercising the power to levy and whether collection of entry tax which
ordinarily would be credited to the Consolidated Fund of the State being a
revenue received by the Government of the State and would have to be
appropriated in accordance with law and for the purposes and in the manner
provided in the Constitution as per Article 266 and there is nothing
express or explicit in Entry 52 List II, Schedule VII which would compel
the State to spend the tax collected within the local area in which it was
collected?

(4) Will the principles of quid pro quo relevant to a fee apply in
the matter of taxes imposed under Part XIII?

(5) Whether the entry tax may be levied at all where the goods meant
for being sold, used or consumed come to rest (standstill) after the
movement of the goods ceases in the “local area”?

(6) Whether the entry tax can be termed a tax on the movement of
goods when there is no bar to the entry of goods at the State border or
when it passes through a local area within which they are not sold, used or
consumed?

(7) Whether interpretation of Articles 301 to 304 in the context of
tax on vehicles (commonly known as “transport”) cases in Atiabari case and
Automobile Transport case apply to entry tax cases and if so, to what
extent?

(8) Whether the non-discriminatory indirect State tax which is
capable of being passed on and has been passed on by traders to the
consumers infringes Article 301 of the Constitution?

(9) Whether a tax on goods within the State which directly impedes
the trade and thus violates Article 301 of the Constitution can be saved by
reference to Article 304 of the Constitution alone or can be saved by any
other article?

(10) Whether a levy under Entry 52 List II, even if held to be in
nature of a compensatory levy, must, on the principle of equivalence
demonstrate that the value of the quantifiable benefit is represented by
the costs incurred in procuring the facility/services (which costs in turn
become the basis of reimbursement/recompense for the provider of the
services/facilities) to be provided in the “local area” concerned and
whether the entire State or a part thereof can be comprehended as local
area for the purpose of entry tax?”

8. The matter was accordingly placed before a five-Judge Bench of this
Court (Jindal Stainless Limited and Anr. v. State of Haryana and Ors.
(2010) 4 SCC 595) who briefly referred to the decisions in Atiabari,
Automobile Transport cases (supra) and Keshav Mills Co. Ltd. v. CIT (AIR
1965 SC 1636) and a few others and referred the matters to a larger Bench
for reconsideration of the judgment of this Court in Atiabari and
Automobile Transport (supra). The Court noted that the correctness of the
view taken in the said two cases had been doubted as early as in the year
1975 in G.K. Krishnan v. State of Tamil Nadu (1975) 1 SCC 375. The
reference order briefly set out some of the questions that required
consideration by a larger Bench. The Court said:
“11. Some of these aspects which need consideration by a larger Bench
of this Court may be briefly enumerated. Interplay/interrelationship
between Article 304(a) and Article 304(b). The significance of the word
“and” between Articles 304(a) and 304(b). The significance of the non
obstante clause in Article 304. The balancing of freedom of trade and
commerce in Article 301 vis-a-vis the States’ authority to levy taxes under
Articles 245 and 246 of the Constitution read with the appropriate
legislative entries in the Seventh Schedule, particularly in the context of
movement of trade and commerce.

12. Whether Article 304(a) and Article 304(b) deal with different
subjects? Whether the impugned taxation law to be valid under Article 304
(a) must also fulfil the conditions mentioned in Article 304(b), including
Presidential assent? Whether the word “restrictions” in Article 302 and in
Article 304(b) includes tax laws? Whether validity of a law impugned as
violative of Article 301 should be judged only in the light of the test of
non-discrimination? Does Article 303 circumscribe Article 301? Whether
“internal goods” would come under Article 304(b) and “external goods” under
Article 304(a)? Whether “per se test” propounded in Atiabari case should or
should not be rejected? Whether tax simpliciter constitutes a restriction
under Part XIII of the Constitution? Whether the word “restriction” in
Article 304(b) includes tax laws? Is taxation justiciable? Whether the
“working test” laid down in Atiabari makes a tax law per se violative of
Article 301? Interrelationship between Article 19(1)(g) and Article 301 of
the Constitution? These are some of the questions which warrant
reconsideration of the judgments in Atiabari Tea Co. Ltd. and Automobile
Transport (Rajasthan) Ltd. by a larger Bench of this Court.”
9. At the hearing before us learned counsel for the parties agreed after
a day -long exploratory exercise that the questions that fall for
determination by this Court could be re-framed as under:

Can the levy of a non-discriminatory tax per se constitute infraction of
Article 301 of the Constitution of India?

If answer to question No. 1 is in the affirmative, can a tax which is
compensatory in nature also fall foul of Article 301 of the Constitution of
India?

What are the tests for determining whether the tax or levy is compensatory
in nature?

Is the Entry Tax levied by the States in the present batch of cases
violative of Article 301 of the Constitution and in particular have the
impugned State enactments relating to entry tax to be tested with reference
to both Articles 304(a) and 304(b) of the Constitution for determining
their validity?

10. We have heard learned counsel for the parties at considerable length
on the above questions which we shall now take up for discussion ad-
seriatim.

Re: Question No. 1
11. Whether non-discriminatory fiscal measures also impede free trade,
commerce and intercourse and thereby fall foul of Article 301 of the
Constitution can be answered only if one keeps in view the Constitutional
scheme underlying separation of powers in a federal system of governance
like the one chosen by us. The answer would also depend upon the way we
look at, understand and interpret the provisions of the Constitution and in
particular the provisions of Parts XI, XII and XIII thereof. Interpretation
of these and indeed every other provision must have due regard to what are
recognised as the basic features of the Constitution. In doing so, the
approach of the Courts can neither be rigid nor wooden or pedantic. Being
a living and dynamic document, the Constitution ought to receive an equally
dynamic and pragmatic interpretation that harmonizes and balances competing
aims and objectives and promotes attainment of national goals and
objectives. It must, as observed by this Court, in Kihoto Hollohan v.
Zachillhu (1992) Supp 2 SCC 651 be read as a logical whole. The
Constitutional provisions cannot be read in isolation, nor can they be
interpreted in a manner that renders another provision redundant declared
this Court in T.M.A. Pai Foundation and others v. State of Karnataka (2002)
8 SCC 481. If words used in the provision are imprecise, protean or
evocative or can reasonably bear meaning more than one, it would be
legitimate for the Court to go beyond the literal confines of the provision
and to call in aid other well recognised rules of construction such as
legislative history, the basic scheme and framework of the statute as a
whole, the object sought to be achieved and the consequence flowing from
the adoption of one in preference to the other possible interpretation
observed this Court in Chief Justice of Andhra Pradesh and others. v. L.V.
A. Dixitulu and others (1979) 2 SCC 34. Reference may also be made to the
decision of this Court in Kesavananda Bharati v. State of Kerala (1973) 4
SCC 225 where this Court quoted with approval Lord Greene’s observations in
the following words:

“56. ……It is not right to construe words in vacuum and then insert the
meaning into an article. Lord Green observed in Bidie v. General Accident,
Fire and Life Assurance Corporation [1948] 2 All E.R. 995:

The first thing one has to do, I venture to think, in construing words in a
section of an Act of Parliament is not to take those words in vacuo, so to
speak, and attribute to them what is sometimes called their natural or
ordinary meaning. Few words in the English language have a natural or
ordinary meaning in the sense that they must be so read that their meaning
is entirely independent of their context. The method of construing statutes
that I prefer is not to take particular words and attribute to them a sort
of prima facie meaning which you may have to displace or modify. It is to
read the statute as a whole and ask oneself the question: ‘In this state,
in this context, relating to this subject-matter, what is the true meaning
of that word.

57. I respectfully adopt the reasoning of Lord Green in construing the
expression “the amendment of the Constitution….

xxxxxxxx

61. I may also refer to the observation of Gwyer, C.J., and Lord Wright:
“A grant of the power in general terms, standing by itself, would no doubt
be construed in the wider sense; but it may be qualified by other express
provisions in the same enactment, by the implications of the context, and
even by considerations arising out of what appears to be the general scheme
of the Act.” (Per Gwyer, C.J. — The Central Provinces and Berar Act, 1939,
FCR 18 at 42 MR).

“The question, then, is one of construction and in the ultimate resort must
be determined upon the actual words used, read not in vacua but as
occurring in a single complex instrument, in which one part may throw light
on another. The Constitution has been described as the federal compact, and
the Construction must hold a balance between all its parts.” (Per Lord
Wright — James v. Commonwealth of Australia, 1936 AC 578 at 613.)”
12. It is trite that a narrow interpretation that may have the potential
or tendency to subvert the delicate balance which the framers of the
Constitution had in mind while distributing legislative businesses
including the sovereign power to levy taxes must be avoided and a
construction that is most beneficial for a harmonious relationship between
different limbs of the State including that between the Centre and the
States or States inter se adopted. This may, at times, involve ironing out
of rough edges which exercise a Constitutional Court must necessarily
undertake to avoid confusion and resultant negation of the Constitutional
objectives.

13. Having said so, we must sail smooth on certain fundamentals before we
address the question whether levy of taxes per se operate as an impediment
or restriction on the right to free trade, commerce and intercourse. That
is because a true and correct answer to Question No.1 can be found only if
we constantly keep those fundamentals in mind while attempting to resolve
what has been found to be somewhat difficult to resolve. For instance,
whether levy of a tax is an attribute of sovereignty and if so whether
Article 246 of the Constitution recognises the sovereign power of the State
to make laws including the power to levy taxes on subjects enumerated in
List II of the Seventh Schedule of the Constitution is an important
dimension that must be addressed as a part of the interpretative exercise.
So also, we must examine whether power to tax if held to be subservient to
Article 301, shall have the effect of denuding the States of their
sovereignty in the matter of levy of taxes and in the process affect the
federal structure of the polity envisaged by the Constitution. If levy of
taxes is always presumed to be reasonable and in public interest, whether
such levies could be said to be within the contemplation of Article 304(b)
when it provided for imposition of “reasonable restrictions in public
interest” is yet another aspect that must be explored especially when the
reasonableness of any restriction within the comprehension of Article
304(b) is not free from judicial scrutiny by Courts. These are some of the
broad and fundamental issues that need to be examined before we attempt to
answer the question whether levy of taxes per se acts as an impediment for
free trade, commerce and intercourse. We may now briefly refer to these
fundamentals before adverting to the provisions of Part XIII that fall for
our interpretation.

Power to Tax : an Attribute of sovereignty
14. Power to levy taxes has been universally acknowledged as an essential
attribute of sovereignty. Cooley in his Book on Taxation – Volume-1 (4th
Edn.) in Chapter-2 recognises the power of taxation to be inherent in a
sovereign State. The power, says the author, is inherent in the people and
is meant to recover a contribution of money or other property in accordance
with some reasonable rule or apportionment for the purpose of defraying
public expenses. The following passage from the book is apposite:
“57. Power to tax as an inherent attribute of sovereignty.

The power of taxation is an essential and inherent attribute of
sovereignty, belonging as a matter of right to every independent
government. It is possessed by the government without being expressly
conferred by the people. The power is inherent in the people because the
sustenance of the government requires contributions from them. In fact the
power of taxation may be defined as “the power inherent in the sovereign
state to recover a contribution of money or other property, in accordance
with some reasonable rule or apportionment, from the property or
occupations within its jurisdiction for the purpose of defraying the public
expenses.” Constitutional provisions relating to the power of taxation do
not operate as grants of the power of taxation to the government but
instead merely constitute limitations upon a power which would otherwise be
practically without limit. This inherent power to tax extends to
everything over which the sovereign power extends, but not to anything
beyond its sovereign power. Even the federal government’s power of
taxation does not include things beyond its sovereign power. But where
exclusive jurisdiction over land is granted to another state or country,
the land remains subject to the taxing power of the state within whose
boundaries it is located.”

15. To the same effect is the decision of this Court in Raja Jagannath
Baksh Singh v. State of U.P. & Anr. (AIR 1962 SC 1563) where this Court
observed:
“…. The power of taxation is, no doubt, the sovereign right of the State;
as was observed by Chief Justice Marshall in M’Culloch v. Maryland [4 Law
Edn.579 p.607] : “The power of taxing the people and their property is
essential to the very existence of Government, and may be legitimately
exercised on the objects to which it is applicable to the utmost extent to
which the Government may choose to carry it.” In that sense, it is not the
function of the court to enquire whether the power of taxation has been
reasonably exercised either in respect of the amount taxed or in respect of
the property which is made the object of the tax. Article 265 of the
Constitution provides that no tax shall be levied or collected, except by
authority of law; and so, for deciding whether a tax has been validly
levied or not, it would be necessary first to enquire whether the
legislature which passes the Act was competent to pass it or not.”
(Emphasis supplied)

16. Reference may also be made to Dena Bank v. Bhikhabhai Prabhudas
Parekh & Co. (2000) 5 SCC 694 where this Court held:

“8. The principle of priority of government debts is founded on the rule
of necessity and of public policy. The basic justification for the claim
for priority of State debts rests on the well-recognised principle that the
State is entitled to raise money by taxation because unless adequate
revenue is received by the State, it would not be able to function as a
sovereign Government at all. It is essential that as a sovereign, the State
should be able to discharge its primary governmental functions and in order
to be able to discharge such functions efficiently, it must be in
possession of necessary funds and this consideration emphasises the
necessity and the wisdom of conceding to the State, the right to claim
priority in respect of its tax dues (see Builders Supply Corpn.[AIR 1965 SC
1061: (1965) 56 ITR 91])” (Emphasis
supplied)
17. In Commissioner of Income Tax, Udiapur, Rajasthan v. MCdowell and
Co. Ltd. (2009) 10 SCC 755 where this Court reiterated the legal position
in the following words:
“21. “Tax”, “duty”, “cess” or “fee” constituting a class denotes to various
kinds of imposts by State in its sovereign power of taxation to raise
revenue for the State. Within the expression of each specie each expression
denotes different kind of impost depending on the purpose for which they
are levied. This power can be exercised in any of its manifestation only
under any law authorising levy and collection of tax as envisaged under
Article 265 which uses only the expression that no “tax” shall be levied
and collected except authorised by law. It in its elementary meaning
conveys that to support a tax legislative action is essential, it cannot be
levied and collected in the absence of any legislative sanction by exercise
of executive power of State under Article 73 by the Union or Article 162 by
the State.

22. Under Article 366(28) “Taxation” has been defined to include the
imposition of any tax or impost whether general or local or special and tax
shall be construed accordingly. “Impost” means compulsory levy. The well-
known and well-settled characteristic of “tax” in its wider sense includes
all imposts. Imposts in the context have following characteristics:

(i) The power to tax is an incident of sovereignty.
(ii) “Law” in the context of Article 265 means an Act of legislature and
cannot comprise an executive order or rule without express statutory
authority.
(iii) The term “tax” under Article 265 read with Article 366(28) includes
imposts of every kind viz. tax, duty, cess or fees.
(iv) As an incident of sovereignty and in the nature of compulsory
exaction, a liability founded on principle of contract cannot be a “tax” in
its technical sense as an impost, general, local or special. “
(Emphasis Supplied)

Power of Taxation under the Constitution:

18. We shall presently turn to the Constitutional limitations on the
sovereign power to tax but before we do so we need to point out that while
the power to levy taxes is an attribute of sovereignty, exercise of that
power is controlled by the Constitution. This is evident from the
provisions of Article 265 which forbids levy or recovery of any tax except
by the authority of law. It reads:

“265. Taxes not to be imposed save by authority of law – No tax shall be
levied or collected except by authority of law.”

The authority of law referred to above must be traceable to a provision in
the Constitution especially where the legislative powers are shared by the
Centre and the States as is the case with our Constitution which provides
for what has been described as quasi federal system of governance.

The source of power to enact laws is contained in Articles 245 and 246 of
the Constitution which read:
“245. Extent of laws made by Parliament and by the Legislatures of States –
(1) Subject to the provisions of this Constitution, Parliament may make
laws for the whole or any part of the territory of India, and the
Legislature of a State may make laws for the whole or any part of the
State.
(2) No law made by Parliament shall be deemed to be invalid on the ground
that it would have extra-territorial operation.

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 (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”).

(3) Subject to clauses (1) and (2), the Legislature of any State has
exclusive power to make laws for such State or any part thereof with
respect to any of the matters enumerated in List II in the Seventh Schedule
(in this Constitution referred to as the ‘State List’).

(4)Parliament has power to make laws with respect to any matter for any
part of the territory of India not included [in a State] notwithstanding
that such matter is a matter enumerated in the State List.”
19. Interpreting Articles 245 and 246, a three-Judge Bench of this Court
in M/s. Hoechst Pharmaceuticals Ltd and Ors. v. State of Bihar and Ors.
(1983) 4 SCC 45, held on a review of the available decisions that the
Constitution effects a complete separation of taxing powers of the Union
and the States under Article 246 and that there is no overlapping anywhere
in the exercise of that power. The sources of taxation are clearly
delineated, observed the Court. The Court also held that there is a
distinction between general subjects of legislation and taxation for the
former are dealt within one group while the later is dealt with in a
separate group. The result is that the power to tax cannot be deduced from
a general legislative entry. That view was approved by a Constitution
Bench of this Court in State of West Bengal v. Kesoram Industries Ltd.
(2004) 10 SCC 201. The propositions stated in the two decisions must
therefore be treated to be fairly well settled. Reference may also be made
to the decision of this Court in State of Kerala and ors. v. Mar Appraem
Kuri Co. Ltd. and Anr. (2012) 7 SCC 106 where this Court explained the
sweep and purport of Articles 245 and 246:
“35. Article 245 deals with extent of laws made by Parliament and by the
legislatures of States. The verb “made”, in past tense, finds place in the
Head Note to Article 245. The verb “make”, in the present tense, exists in
Article 245(1) whereas the verb “made”, in the past tense, finds place in
Article 245(2). While the legislative power is derived from Article 245,
the entries in the Seventh Schedule of the Constitution only demarcate the
legislative fields of the respective legislatures and do not confer
legislative power as such. While Parliament has power to make laws for the
whole or any part of the territory of India, the legislature of a State can
make laws only for the State or part thereof. Thus, Article 245 inter alia
indicates the extent of laws made by Parliament and by the State
Legislatures.

36. Article 246 deals with the subject-matter of laws made by Parliament
and by the legislatures of States. The verb “made” once again finds place
in the Head Note to Article 246. This article deals with distribution of
legislative powers as between the Union and the State Legislatures, with
reference to the different Lists in the Seventh Schedule. In short,
Parliament has full and exclusive powers to legislate with respect to
matters in List I and has also power to legislate with respect to matters
in List III, whereas the State Legislatures, on the other hand, have
exclusive power to legislate with respect to matters in List II, minus
matters falling in List I and List III and have concurrent power with
respect to matters in List III. (See Subrahmanyan Chettiar v. Muttuswami
Goundan)

37. Article 246, thus, provides for distribution, as between Union and the
States, of the legislative powers which are conferred by Article 245.
Article 245 begins with the expression “subject to the provisions of this
Constitution”. Therefore, Article 246 must be read as “subject to other
provisions of the Constitution”.

38. For the purposes of this decision, the point which needs to be
emphasised is that Article 245 deals with conferment of legislative powers
whereas Article 246 provides for distribution of the legislative powers.
Article 245 deals with extent of laws whereas Article 246 deals with
distribution of legislative powers. In these articles, the Constitution
Framers have used the word “make” and not “commencement” which has a
specific legal connotation. [See Section 3(13) of the General Clauses Act,
1897.]”
(Emphasis supplied)

Limitations on the Exercise of Power
20. Exercise of sovereign power is, however, subject to Constitutional
limitations especially in a federal system like ours where the States also
to the extent permissible exercise the power to make laws including laws
that levy taxes, duties and fees. That the power to levy taxes is subject
to constitutional limitations is no longer res-integra. A Constitution
Bench of this Court has in Synthetics and Chemicals Ltd. and Ors. v. State
of U.P. and Ors. (1990) 1 SCC 109 recognised that in India the Centre and
the States both enjoy the exercise of sovereign power, to the extent the
Constitution confers upon them that power. This Court declared:

“56 … We would not like, however, to embark upon any theory of police
power because the Indian Constitution does not recognise police power as
such. But we must recognise the exercise of Sovereign power which gives the
State sufficient authority to enact any law subject to the limitations of
the Constitution to discharge its functions. Hence, the Indian Constitution
as a sovereign State has power to legislate on all branches except to the
limitation as to the division of powers between the Centre and the States
and also subject to the fundamental rights guaranteed under the
Constitution. The Indian States, between the Centre and the States, has
sovereign power. The sovereign power is plenary and inherent in every
sovereign State to do all things which promote the health, peace, morals,
education and good order of the people. Sovereignty is difficult to define.
This power of sovereignty is, however, subject to constitutional
limitations.”This power, according to some constitutional authorities, is
to the public what necessity is to the individual. Right to tax or levy
impost must be in accordance with the provisions of the Constitution.”
21. What then are the Constitutional limitations on the power of the
State legislatures to levy taxes or for that matter enact legislations in
the field reserved for them under the relevant entries of List II and III
of the Seventh Schedule. The first and the foremost of these limitations
appears in Article 13 of the Constitution of India which declares that all
laws in force in the territory of India immediately before the commencement
of the Constitution are void to the extent they are inconsistent with the
provisions of Part III dealing with the fundamental rights guaranteed to
the citizens. It forbids the States from making any law which takes away
or abridges, any provision of Part III. Any law made in contravention of
the said rights shall to the extent of contravention be void. There is no
gain saying that the power to enact laws has been conferred upon the
Parliament subject to the above Constitutional limitation. So also in
terms of Article 248, the residuary power to impose a tax not otherwise
mentioned in the Concurrent List or the State List has been vested in the
Parliament to the exclusion of the State legislatures, and the States’
power to levy taxes limited to what is specifically reserved in their
favour and no more.

22. Article 249 similarly empowers the Parliament to legislate with
respect to a matter in the State List for national interest provided the
Council of States has declared by a resolution supported by not less than
two-thirds of the members present and voting that it is necessary or
expedient in national interest to do so. The power is available till such
time any resolution remains in force in terms of Article 249 (2) and the
proviso thereunder.

23. Article 250 is yet another provision which empowers the Parliament to
legislate with respect to any matter in the State List when there is a
proclamation of emergency. In the event of an inconsistency between laws
made by Parliament under Articles 249 and 250, and laws made by legislature
of the States, the law made by Parliament shall, to the extent of the
inconsistency, prevail over the law made by the State in terms of Article
251.

24. The power of Parliament to legislate for two or more States by
consent, in regard to matters not otherwise within the power of the
Parliament is regulated by Article 252, while Article 253 starting with a
non-obstante clause empowers Parliament to make any law for the whole
country or any part of the territory of India for implementing any treaty,
agreement or convention with any other country or countries or any decision
made at any international conference, association or other body.

25. Article 285 exempts the property of the Union from all taxes imposed
by the States save in so far as the Parliament may by law provide. Article
286 places yet another Constitutional limitation on the State’s power to
collect any levy that imposes or authorises the imposition of a tax on the
sale or purchase of goods where such sale or purchase takes place outside
the State or in the course of import of the goods into or export of the
goods outside the territory of India. It also makes any law of a State
imposing tax on sale or purchase of goods of special importance in inter
State trade or commerce or a tax on the sale or purchase of goods being a
tax of the nature referred to in the relevant sub-clauses of clause 29(A)
of Article 366 subject to such restrictions and conditions as to the system
of levy, rates and other incidents of tax as the Parliament may by law
specify.

26. Article 287 places a Constitutional limitation on the State’s
legislative power to enact laws in so far as imposition of tax on
consumption or sale of electricity consumed by the Government of India or
sold to the Government of India for consumption by the Government or for
consumption of the construction, maintenance or operation of any railway by
the Government of India or a rail company etc. Similarly, Article 288
contains a Constitutional limitation on the power of the State in so far as
imposition of a tax in respect of any water or electricity stored,
generated, consumed, distributed or sold by any authority established by
any existing law or any law made by the Parliament is concerned.

27. It would thus appear that even when Article 246(2) and (3) confers
exclusive power on the State legislatures to make laws with respect to
matters in the Seventh Schedule such legislative power is exercisable
subject to constitutional limitations referred to above. What is
significant is that the power of the State legislatures to levy taxes is
also subject to the limitations of Article 304(a) of the Constitution
appearing in Part XIII thereof, which part regulates trade, commerce and
intercourse within the territory of India and comprises Articles 301 to
307. The provisions of these Articles have been the subject matter of a
series of decisions of this Court including several Constitution Bench
decisions to some of which we shall presently refer. The language employed
in the provisions and the non-obstante clauses with which the same start
have all the same given rise to several contentious issues for
determination by this Court over the past five decades or so. The fact
that the present batch of cases had to be referred to a Nine-Judge Bench to
once again examine the very same issues as have been debated and determined
in the previous judgments of this Court only shows that the task of
interpreting the provisions is by no means easy and has in fact become more
and more difficult on account of the pronouncements of this Court taking
different views not many of which have been unanimous. The marked
difference in the approach adopted by learned counsel for the parties in
these appeals is also a measure of the complexities of issues that fall for
determination. This is specially so because the prevailing legal position
in terms of the judgment of this Court in Atiabari and Automobile cases
(supra) holding that fiscal measures that are compensatory fall beyond the
mischief of Article 301 has been questioned by both sides. Mr. Harish
Salve who led the forensic exercise followed by M/s.Arvind Datar, Laxmi
Kumaran, Ravindra Shrivastava, N. Venkataraman and others vehemently argued
that the “Compensatory Tax Theory” propounded by the Seven Judges Bench of
this Court in Automobile case (supra) had no legal basis or constitutional
sanction and was neither acceptable nor workable. That is particularly so
because the State legislatures had taken umbrage under the “Compensatory
Tax Theory” and declared the fiscal levies imposed by them to be
compensatory in character and claimed the same to be outside the mischief
of Article 301 and consequently immune from any challenge on the ground
that these taxes and levies were unreasonable restrictions on the right to
free trade and commerce. The States who have enacted the laws providing
for levy of taxes on the entry of goods into a local area within the
meaning of Entry 52 of List II have, on the other hand similarly contended
that the Compensatory Tax Theory is bereft of any legal basis and that the
decision in Atiabari and Automobile cases (supra) need to be revisited to
restore and protect the sovereign power of legislation of the States and
the Federal character of our polity. Suffice it to say that except a
feeble attempt made by some Counsel, there has been a general consensus
that the compensatory tax theory deserves to be rejected and the issues
examined afresh on a true and correct interpretation of the relevant
constitutional provisions. We are mentioning all this only to show that
even after fifty years and several illuminating pronouncements of this
Court, the cleavage in the judicial opinion as to the true and correct
legal position on the subject continues to loom large and haunt lawyers and
litigants and, if we may say so, even Judges alike. The present reference
to a larger Bench is in that backdrop expected to give a quietus to this
raging legal controversy of considerable complexity, though given the
perseverance of the litigants and the ingenuity of the bar a quietus is
only a pious hope which has and may even in future elude us.

Constitutional Limitations must be Express:
28. The power to levy taxes, being a sovereign power controlled only by
the Constitution, any limitation on that power must be express. That
proposition is well settled by the decisions of this Court in Maharaj Umeg
Singh v. State of Bombay, AIR 1955 SC 540 and Firm Bansidhar Premsukhdas v.
State of Rajasthan AIR 1967 SC 40. In Umeg Singh’s case (supra) this Court
stated the legal position in the following words:
“12…….The legislative competence of the State Legislature can only be
circumscribed by express prohibition contained in the Constitution itself
and unless and until there is any provision in the Constitution expressly
prohibiting legislation on the subject either absolutely or conditionally,
there is no fetter or limitation on the plenary powers which the State
Legislature enjoys to legislate on the topics enumerated in the Lists II &
III of the Seventh Schedule to the Constitution.

xxxx xxxx xxxx

13. The fetter or limitation upon the legislative power of the State
Legislature which had plenary powers of legislation within the ambit of the
legislative heads specified in the Lists II & III of the Seventh Schedule
to the Constitution could only be imposed by the Constitution itself and
not by any obligation which had been undertaken by either the Dominion
Government or the Province of Bombay or even the State of Bombay. Under
Article 246 the State Legislature was invested with the power to legislate
on the topics enumerated in Lists II & III of the Seventh Schedule to the
Constitution and this power was by virtue of article 245(1) subject to the
provisions of the Constitution.

The Constitution itself laid down the fetters or limitations on this power,
e.g., in Article 303 or article 286(2). But unless and until the Court came
to the conclusion that the Constitution itself had expressly prohibited
legislation on the subject either absolutely or conditionally the power of
the State Legislature to enact legislation within its legislative
competence was plenary. Once the topic of legislation was comprised within
any of the entries in the Lists II & III of the Seventh Schedule to the
Constitution the fetter or limitation on such legislative power had to be
found within the Constitution itself and if there was no such fetter or
limitation to be found there the State Legislature had full competence to
enact the impugned Act no matter whether such enactment was contrary to the
guarantee given, or the obligation undertaken by the Dominion Government or
the Province of Bombay or even the State of Bombay.

29. Again in Bansidhar’s case (supra) this Court reiterated the legal
position in the following words:
“8… It is well-established that Parliament or the State Legislatures are
competent to enact a law altering the terms and conditions of a previous
contract or of a grant under which the liability of the Government of India
or of the State Governments arises. The legislative competence of
Parliament or of the State Legislatures can only be circumscribed by
express prohibition contained in the Constitution itself and unless and
until there is any provision in the Constitution expressly prohibiting
legislation on the subject either absolutely or conditionally, there is no
fetter of limitation on the plenary powers which the Legislature is endowed
with for legislating on the topics enumerated in the relevant lists. This
view is borne out by the decision of the Judicial Committee in Thakur
Jagannath Baksh Singh v. The United Provinces [1946 FCR 111] in which a
similar complaint was made by the taluqdars of Oudh against the United
Provinces Tenancy Act (U.P. Act 17 of 1939). It was held by the Judicial
Committee that the Crown cannot deprive itself of its legislative authority
by the mere fact that in the exercise of its prerogative it makes a grant
of land within the territory over which such legislative authority exists,
and no court can annul the enactment of a legislative body acting within
the legitimate scope of its sovereign competence. If therefore, it be found
that the subject-matter of a Crown grant is within the competence of a
Provincial legislature nothing can prevent that legislature from
legislating about it unless the Constitution Act itself expressly prohibits
legislation on the subject either absolutely or conditionally.
Accordingly, in the absence of any such express prohibition, the United
Provinces Tenancy Act, 1939, which in consolidating and amending the law
relating to agricultural tenancies and other matters connected therewith in
Agra and Oudh, dealt with matters within the exclusive legislative
competence of the Provincial legislature under Item 21 of List 11 of the
Seventh schedule to the Government of India Act, 1935, was intra vires the
Provincial legislature notwithstanding that admittedly some of its
provisions cut down the absolute rights claimed by the appellant taluqdar
to be comprised in the grant of his estate as evidenced by the sanad
granted by the Crown to his predecessor. The same principle has been
reiterated by this Court in Maharaj Umeg Singh and others v. The State of
Bombay [1955 2 SCR 164]. It was pointed out that in view of Art. 246 of the
Constitution, no curtailment of legislative competence can be spelt out of
the terms of clause 5 of the Letters of Guarantee given by the Dominion
Government to the Rulers of “States” subsequent to the agreements of
Merger, which guaranteed, inter alia, the continuance of Jagirs in the
merged ’States’. This principle also underlies the recent decision of this
Court in Maharaja Shree Umaid Mills Ltd. v. Union of India [1963 Supp 2 SCR
515] in which it was pointed out that there is nothing in Art. 295 of the
Constitution which prohibits Parliament from enacting a law altering the
terms. and conditions of a contract or of a grant under which the liability
of the Government of India arises….” (Emphasis Supplied)

30. One other fundamental aspect which must always be kept in mind while
interpreting the provisions of the Constitution is the federal structure
envisaged by it. Whether or not the Constitution of India is truly federal
in character has been the subject matter of debate not only in the
Constituent Assembly but also in Courts for over 60 years. The character
of the Constitutional scheme described in the Constituent Assembly Debates
was that there were doubts expressed whether the Constitution really
provided a federal structure in the governance of the country. The
criticism was that the scheme underlying the Constitution was more unitary
than federal, on account not only of several provisions in the Constitution
that empowered the Centre to at times intervene and enact laws for the
States but also on account of the Centre’s power to take over the
governance of the State. Repelling that criticism, Dr. B.R. Ambedkar
speaking in the Constituent Assembly explained the true character of the
Constitution of India in the following significant words:
“There is only one point of constitutional import to which I propose to
make a reference. A serious complaint is made on the ground that there is
too much of centralisation and that the States have been reduced to
municipalities. It is clear that this view is not only an exaggeration, but
is also founded on a misunderstanding of what exactly the Constitution
contrives to do. As to the relation between the Centre and the States, it
is necessary to bear in mind the fundamental principle on which it rests.
The basic principle of federalism is that the legislative and executive
authority is partitioned between the Centre and the States not by any law
to be made by the Centre but by the Constitution itself. This is what
Constitution does. The States under our Constitution are in no way
dependent upon the Centre for their legislative or executive authority. The
Centre and the States are coequal in this matter. It is difficult to see
how such a Constitution can be called centralism. It may be that the
Constitution assigns to the Centre too large a field for the operation of
its legislative and executive authority than is to be found in any other
federal Constitution. It may be that the residuary powers are given to the
Centre and not to the States. But these features do not form the essence of
federalism. The chief mark of federalism as I said lies in the partition of
the legislative and executive authority between the Centre and the units by
the Constitution. This is the principle embodied in our Constitution.”

31. To the same effect was the answer given to the criticism by Shri T.T.
Krishnamachari during the Constituent Assembly Debates on the draft
Constitution, when he said:
“Sir, I would like to go into a few fundamental objections because as I
said it would not be right for us to leave these criticisms uncontroverted.
Let me take up a matter which is perhaps partly theoretical but one which
has a validity so far as the average man in this country is concerned. Are
we framing a unitary Constitution? Is this Constitution centralising power
in Delhi? Is there any way provided by means of which the position of
people in various areas could be safeguarded, their voices heard in regard
to matters of their local administration? I think it is a very big charge
to make that this Constitution is not a federal Constitution, and that it
is a unitary one. We should not forget that this question that the Indian
Constitution should be a federal one has been settled by our Leader who is
no more with us, in the Round Table Conference in London eighteen years
back.”

“I would ask my honourable friend to apply a very simple test so far as
this Constitution is concerned to find out whether it is federal or not.
The simple definition I have got from the German school of political
philosophy is that the first criterion is that the State must exercise
compulsive power in the enforcement of a given political order, the second
is that these powers must be regularly exercised over all the inhabitants
of a given territory, and the third is the most important and that is that
the activity of the State must not be completely circumscribed by orders
handed down for execution by the superior unit. The important words are
‘must not be completely circumscribed’, which envisages some powers of the
State are bound to be circumscribed by the exercise of federal authority.
Having all these factors in view, I will urge that our Constitution is a
federal Constitution. I will urge that our Constitution is one in which we
have given power to the units which are both substantial and significant in
the legislative sphere and in the executive sphere.” (Emphasis Supplied)
32. Whether or not the Constitution provides a federal structure for the
governance of the country has been the subject matter of a long line of
decisions of this Court, reference to all of which may be unnecessary but
the legal position appears to be fairly well settled that the Constitution
provides for a quasi federal character with a strong bias towards the
Centre. The pronouncements recognised the proposition that even when
Constitution may not be strictly federal in its character as the United
States of America, where sovereign States came together to constitute a
federal union, where each State enjoins a privilege of having a
Constitution of its own, the significant feature of a federal Constitution
are found in the Indian Constitution which makes it a quasi federal
Constitution, if not truly federal in character and in stricto sensu
federal. The two decisions which stand out in the long line of
pronouncements of this Court on the subject may, at this stage, be briefly
mentioned. The first of these cases is the celebrated decisions of this
Court in Kesavananda Bharati case (supra), wherein a thirteen Judges Bench
of this Court, Sikri CJ (as His Lordship then was), being one of them talks
about whether the Constitution of India was federal in character and if so
whether federal character of the Constitution formed the basic feature of
the Constitution. Sikri CJ. summed up the basic feature of the
Constitution in the following words:
“292. … … …The true position is that every provision of the
Constitution can be amended provided in the result the basic foundation and
structure of the Constitution remains the same. The basic structure may be
said to consist of the following features:

Supremacy of the Constitution.
Republican and Democratic form of Government.
Secular character of the Constitution.
Separation of powers between the legislature, the executive and the
judiciary;
Federal character of the Constitution.

293. The above structure is built on the basic foundation i.e. the dignity
and freedom of the individual. This is of supreme importance. This cannot
by any form of amendment be destroyed.

294. The above foundation and the above basic features are easily
discernible not only from the preamble but the whole scheme of the
Constitution, which I have already discussed.”

To the same effect are the views expressed by Shelat and Grover JJ. who
declared that the federal character of the Constitution is a part of its
basic structure.

33. In S.R. Bommai v. Union of India 1994 (3) SCC 1, this Court had yet
another occasion to examine whether the Constitution was federal in nature.
Speaking for himself and Justice Kuldeep Singh, Sawant J. while referring
to H.M Seervai’s commentary on “Constitutional Law of India” held that the
principle of federalism has not been watered down so as to make the
Constitution unitary in character. The presence in the Constitution
exclusive legislative powers conferred on the State and the provision that
such powers may be exercised by the Parliament during an emergency may not
affect and dilute the federal character of the Constitution. So also, the
provisions of Article 355 imposing the duty on the Union to protect a State
against internal disorder are not inconsistent with the federal principles
nor are the powers vested in the Central Government under Article 356
inconsistent with the federal character of the Constitution.

The Court, in particular, dealt with the question whether List II contains
unimportant matters thereby denuding the Constitution of its federal
character. The Court observed that List II contains very important
subjects assigned to the State including the power to levy taxes which
powers are made mutually exclusive so that ordinarily the States have
independent source of revenue of their own. The following passages from the
decision are apposite:
“…….
97 (k) The view that unimportant matters were assigned to the States cannot
be sustained in face of the very important subjects assigned to the States
in List II, and the same applies to taxing powers of the States, which are
made mutually exclusive of the taxing powers of the Union so that
ordinarily the States have independent source of revenue of their own. The
legislative entries relating to taxes in List II show that the sources of
revenue available to the States are substantial and would increasingly
become more substantial. In addition to the exclusive taxing powers of the
States, the States become entitled either to appropriate taxes collected by
the Union or to a share in the taxes collected by the Union.

99. The above discussion thus shows that the States have an independent
constitutional existence and they have as important a role to play in the
political, social, educational and cultural life of the people as the
Union. They are neither satellites nor agents of the Centre. The fact that
during emergency and in certain other eventualities their powers are
overridden or invaded by the Centre is not destructive of the essential
federal nature of our Constitution. The invasion of power in such
circumstances is not a normal feature of the Constitution. They are
exceptions and have to be resorted to only occasionally to meet the
exigencies of the special situations. The exceptions are not a rule.

100. For our purpose, further it is really not necessary to determine
whether, in spite of the provisions of the Constitution referred to above,
our Constitution is federal, quasi-federal or unitary in nature. It is not
the theoretical label given to the Constitution but the practical
implications of the provisions of the Constitution which are of importance
to decide the question that arises in the present context, viz., whether
the powers under Article 356(1) can be exercised by the President
arbitrarily and unmindful of its consequences to the governance in the
State concerned. So long as the States are not mere administrative units
but in their own right constitutional potentates with the same
paraphernalia as the Union, and with independent Legislature and the
Executive constituted by the same process as the Union, whatever the bias
in favour of the Centre, it cannot be argued that merely because (and
assuming it is correct) the Constitution is labelled unitary or quasi-
federal or a mixture of federal and unitary structure, the President has
unrestricted power of issuing Proclamation under Article 356(1). If the
Presidential powers under the said provision are subject to judicial review
within the limits discussed above, those limitations will have to be
applied strictly while scrutinising the concerned material.”
(Emphasis Supplied)

34. What is important is that B.P. Jeevan Reddy, J. speaking for himself
and Aggarwal J., while holding the Constitution to be federal in character
cautioned that the Centre cannot tamper with the powers conferred upon the
States. States are not mere appendages of the Centre within the sphere
allotted to them. The States are supreme and the Centre cannot tamper with
their powers.

35. Justice K. Ramaswamy, speaking for himself also accepted federalism
of the Indian Constitution as a basic feature. One other decision that has
dealt with the federal character of the Constitution of India is Kuldeep
Nair v. Union of India and Ors. (2006) 7 SCC 1 wherein this Court held that
nature of federalism in the Indian Constitution is no longer res integra.
Relying upon the Constituent Assembly Debates to which we have referred
earlier. The Court declared:
“50. A lot of energy has been devoted on behalf of the petitioners to build
up a case that the Constitution of India is federal. The nature of
federalism in the Indian Constitution is no longer res integra.

51. There can be no quarrel with the proposition that the Indian model is
broadly based on federal form of governance. Answering the criticism of the
tilt towards the Centre, Shri T.T. Krishnamachari, during debates in the
Constituent Assembly on the draft Constitution, had stated as follows:
……….”
36. While parting with this aspect we must also refer to the decision of
this Court in Re: Under Article 143, Constitution of India (Special
Reference No.1 of 1964) AIR 1965 SC 745 wherein this Court held:
“39. In dealing with this question, it is necessary to bear in mind one
fundamental feature of a Federal Constitution. In England, Parliament is
sovereign; and in the words of Dicey, the three distinguishing features of
the principle of Parliamentary Sovereignty are that Parliament has the
right to make or unmake any law whatever; that no person or body is
recognised by the law of England as having a right to override or set aside
the legislation of Parliament, and that the right or power of Parliament
extends to every part of the Queen’s dominions (1). On the other hand, the
essential characteristic of federalism is “the distribution of limited
executive, legislative and judicial authority among bodies which are
coordinate with and independent of each other”. The supremacy of the
constitution is fundamental to the existence of a federal State in order to
prevent either the legislature of the federal unit or those of the member
States from destroying or impairing that delicate balance of power which
satisfies the particular requirements of States which are desirous of
union, but not prepared to merge their individuality in a unity. This
supremacy of the constitution is protected by the authority of an
independent judicial body to act as the interpreter of a scheme of
distribution of powers. Nor is any change possible in the Constitution by
the ordinary process of federal or State legislation (2). Thus the dominant
characteristic of the British Constitution cannot be claimed by a Federal
Constitution like ours.”

37. Before we turn to the provisions of Articles 301 to 307 comprising
Part XIII of the Constitution, we need to also bear in mind the historical
backdrop in which that part of the Constitution was enacted. While doing
so we must at the threshold acknowledge that the historical perspective of
Part XIII has been explored several times during the past in several
pronouncements of this Court. The exposition of different stages of
evolution and development of what comprises Part XIII today has been both
extensive as well as incisive. The decisions of the Court have gone into
great details while examining the history of Part XIII. It will,
therefore, be presumptuous for us to suggest that the historical basis of
Part XIII is a virgin area being traversed for the first time. In fairness
to the scholarly pronouncements that have preceded the present batch of
cases, we must acknowledge with gratitude the usefulness of the in-depth
study and understanding of the Judges who have examined and traced the
evolution of Part XIII while drawing their conclusions from the same, no
matter such inferences and conclusions have more often than not been varied
which is but natural when one examines history or the events that led to
its making.

38. It is, in our opinion, unnecessary to refer to all the decisions that
have till now traced the development of the jurisprudence concerning Part
XIII from its inception. A reference to some of the decisions alone should,
in our opinion, suffice. The first of these decisions to which we must
make a reference is the Constitution Bench decision in M.P.V. Sunderaramier
v. State of Andhra Pradesh, AIR 1958 SC 468. That was a case filed under
Article 32 of the Constitution of India for a Writ of Prohibition
restraining the State of Andhra Pradesh from imposing a tax on inter-State
trade of sale and purchase of yarn. The levy and collection of any such
tax was according to the petitioner contrary to the provision contained in
Article 282 (6) of the Constitution of India. One of the questions that
fell for consideration of the Court was whether the States could impose a
tax on inter-State sales having regard to the provisions of Articles 246
and 301 of the Constitution of India. The argument was that the freedom
guaranteed under Article 301 included freedom from taxation with the result
that any tax on inter-State sales would offend that guarantee. The
contention was rejected by this Court in unequivocal terms. The Court said
:
“(50) This contention suffers, in our opinion, from serious infirmities. It
overlooks that our Constitution was not written on a tabula-rasa, that a
Federal Constitution had been established under the Government of India
Act, 1935, and though that has undergone considerable change by way of
repeal, modification and addition, it still remains the framework on which
the present Constitution is built, and that the provisions of the
Constitution must accordingly be read in the light of the provisions of the
Government of India Act.”
(Emphasis supplied)
39. Three years later came the Constitution Bench decision of this Court
in Atiabari Tea Company Ltd. case (supra). The petitioner in that case
questioned the constitutional validity of Assam Taxation (on Goods Carried
by Roads or Inland Waterways) Act, (Assam Act XIII of 1954), before the
High Court. The Writ Petition having failed, the matter was brought up in
appeal before this Court which was heard alongwith several petitions filed
under Article 32 of the Constitution of India. The impugned legislation
levied taxes on certain goods carried by road and inland waterways in the
State of Assam. The levy under the legislation was challenged primarily on
the ground that the same was ultra vires of the Constitution inter aila
because of their repugnance with the provision of Article 301 of the
Constitution. This Court by a majority struck down the Constitutional
validity of the enactment holding that the impugned levy operated directly
and immediately as a restriction on free trade, commerce and intercourse
guaranteed under Article 301 of the Constitution of India. The decision
propounded three different points of view, one each taken by B.P. Sinha,
CJ. and J.C. Shah, J. and the third by majority comprising P.B.
Gajendragadkar, K.N. Wanchoo and K.C. Das Gupta, JJ. We shall presently
deal with the rationale underlying the three views but before we do so, we
may gainfully extract from the decision rendered by Sinha, CJ., the
historical perspective in which Part XIII of the Constitution was enacted.
In Para 9 of the Report, Sinha, CJ., as His Lordship then was, traced the
evolution of Part XIII in the following words:
“9. In order to fully appreciate the implications of the provisions of Part
XIII of the Constitution, it is necessary to bear in mind the history and
background of those provisions. The Constitution Act of 1935 (Government
of India Act, 26 (‘Geo. 5, Ch. 2) which envisages the federal constitution
for the whole of India, including what was then Indian India in
contradistinction to British India, which could not be fully implemented
and which also introduced full provincial autonomy enacted Section 297
prohibiting certain restrictions on internal trade in these terms:

297. (1) No Provincial Legislature or Government shall –

By virtue of the entry in the Provincial Legislative List relating to
trade and commerce within the Province, or the entry in that list relating
to the production, supply, and distribution of commodities, have power to
pass any law or take any executive action prohibiting or restricting the
entry into, or export from the Province of goods of any class or
description; or

By virtue of anything in this Act have power to impose any tax, cess, toll
or due which, as between goods manufactured or produced in the Province and
similar goods not so manufactured or produced, discriminates in favour of
the former, or which, in the case of goods manufactured or produced outside
the Province, discriminates between goods manufactured or produced in one
locality and similar goods manufactured or produced in another locality.

(2) Any law passed in contravention of this section shall, to the extent of
the contravention, be invalid.”

10. It will be noticed that the prohibition contained in the section
quoted above applied only to Provincial Governments and Provincial
Legislatures with reference to entries in the Provincial Legislative List
relating to trade and commerce within the Province and to production,
supply and distribution of commodities. That section dealt with
prohibitions or restrictions in respect of import into or export from a
Province, of goods generally. It also dealt with the power to impose taxes
etc. and prohibited discrimination against goods manufactured or produced
outside a Province or goods produced in different localities. Part XIII of
the Constitution has introduced all those prohibitions, not only in respect
of State Legislatures, but of Parliament also. ….

11. In this connection it has got to be remembered that before the
commencement of the Constitution about two-thirds of India was directly
under British rule and was called ‘British India’ and the remaining about
one-third was being directly ruled by the Princes and was known as “Native
States”. There were a large number of them with varying degrees of
sovereignty vested in them. Those rulers had, broadly speaking, the
trappings of a Sovereign State with power to impose taxes and to regulate
the flow of trade, commerce and intercourse. It is a notorious fact that
many of them had erected trade barriers seriously impeding the free flow of
trade, commerce and intercourse, not only shutting out but also shutting in
commodities meant for mass consumption. Between the years 1947 and 1950
almost all the Indian States entered into engagements with the Government
of India and ultimately merged their individualities into India as one
political unit, with the result that what was called British India, broadly
speaking, became, under the Constitution, Part A States, and subject to
certain exceptions not relevant to our purpose, the Native States became
Part B States. We also know that before the Constitution introduced the
categories of Part A States, Part B States and Part C States (excluding
Part D relating to other territories), Part B States themselves, before
their being constituted into so many units, contained many small States,
which formed themselves into Unions of a number of States, and had such
trade barriers and custom posts, even inter se. But even after the merger,
the Constitution had to take notice of the existence of trade barriers and
therefore had to make transitional provisions with the ultimate objective
of abolishing them all. Most of those Native States, big or small, had
their own taxes, cesses, tolls and other imposts and duties meant not only
for raising revenue, but also as trade barriers and tariff walls. It was in
the background of these facts and circumstances that the Constitution by
Article 301 provided for the abolition of all those trade barriers and
tariff walls. When for the first time in the history of India the entire
territory within the geographical boundaries of India, minus what became
Pakistan, was knit into one political unit, it was necessary to abolish all
those trade barriers and custom posts in the interest of national
solidarity, economic and cultural unity as also of freedom of trade,
commerce and intercourse.”
(Emphasis supplied)

40. The majority opinion offered by Gajendragadkar J., also traced the
history of Part XIII in the following words:
“33. Let us first recall the political and constitutional background of
Part XIII. It is a matter of common knowledge that, before the Constitution
was adopted, nearly two-thirds of the territory of India was subject to
British Rule and was then known as British India, while the remaining part
of the territory of India was governed by Indian Princes and it consisted
of several Indian States. A large number of these States claimed sovereign
rights within the limitations imposed by the paramount power in that
behalf, and they purported to exercise their legislative power of imposing
taxes in respect of trade and commerce which inevitably led to the erection
of customs barriers between themselves and the rest of India. In the matter
of such barriers British India was governed by the provisions of Section
297 of the Constitution Act, 1935. To the provisions of this section we
will have occasion later to refer during the course of this judgment. Thus,
prior to 1950 the flow of trade and commerce was impeded at several points
which constituted the boundaries of Indian States. After India attained
political freedom in 1947 and before the Constitution was adopted the
historical process of the merger and integration of the several Indian
States with the rest of the country was speedily accomplished with the
result that when the Constitution was first passed the territories of India
consisted of Part A States which broadly stated represented the provinces
in British India, and Part B States which were made up of Indian States.
This merger or integration of Indian States with the Union of India was
preceded by the merger and consolidation of some of the States inter-se
between themselves. It is with the knowledge of the trade barriers which
had been raised by the Indian States in exercise of their legislative
powers that the Constitution- makers framed the Articles in Part XIII. The
main object of Article 301 obviously was to allow the free flow of the
stream of trade, commerce and intercourse throughout the territory of
India.”

41. Then came the decision of this Court in Automobile case (supra)
wherein, this Court examined the challenge to the Rajasthan Motor Vehicles
Act, inter aila, on the ground that levy of taxes imposed under the said
Act were offensive to Article 301 of the Constitution of India. S.K. Das,
J. speaking for the majority also traced the historical background of Part
XIII in the following words:
“7. So far we have set out the factual and legal background against which
the problem before us has to be solved. We must now say a few words
regarding the historical background. It is necessary to do this, because
extensive references have been made to Australian and American decisions,
Australian decisions with regard to the interpretation of Section 92 of the
Australian Constitution and American decisions with regard to the Commerce
clause of the American Constitution. This Court pointed out in the Atiabari
Tea Co. case (1961) 1 SCR 809 : (AIR 1961 SC 232), that it would not be
always safe to rely upon the American or Australian decisions in
interpreting the provisions of our Constitution. Valuable as those
decisions might be in showing how the problem of freedom of trade, commerce
and intercourse was dealt with in other federal constitutions, the
provisions of our Constitution must be interpreted against the historical
background in which our Constitution was made; the background of problems
which the Constitution-makers tried to solve according to the genius of the
Indian people whom the Constitution-makers represented in the Constituent
Assembly. The first thing to be noticed in this connection is that the
Constitution-makers were not writing on a clean slate. They had the
Government of India Act, 1935 and they also had the administrative set up
which that Act envisaged. India then consisted of various administrative
units known as Provinces, each with its own administrative set up. There
were differences of language, religion etc. Some of the Provinces were
economically more developed than the others. Even inside the same Province,
there were under developed, developed and highly developed areas from the
point of view of industries, communications etc. The problem of economic
integration with which the Constitution-makers were faced was a problem
with many facets. Two questions, however, stood out; one question was how
to achieve a federal, economic and fiscal integration, so that economic
policies affecting the interests of India as a whole could be carried out
without putting an ever-increasing strain on the unity of India,
particularly in the context of a developing economy. The second question
was how to foster the development of areas which were under-developed
without creating too many preferential or discriminative barriers. Besides
the Provinces, there were the Indian States also known as Indian India.
After India attained political freedom in 1947 and before the Constitution
was adopted, the process of merger and integration of the- Indian States
with the rest of the country had been accomplished so that when the
Constitution was first passed the territory of India consisted of Part A
States, which broadly stated, represented the Provinces in British India,
and Part B States which were made up of Indian States. There were trade
barriers raised by the Indian States in the exercise of their legislative
powers and the Constitution-makers had to make provisions with regard to
those trade barriers as well. The evolution of a federal structure or a
quasi-federal structure necessarily involved, in the context of the
conditions then prevailing, a distribution of powers and a basic part of
our Constitution relates to that distribution with the three legislative
lists in the Seventh Schedule. … … …”

42. Hidayatullah J., in a separate dissenting opinion traced at great
length the historical evolution of not only the federal structure of the
Government of India Act, 1915 but also the recommendations made by the
Simon Commission and the Joint Parliamentary Committee on the Evolution of
such Federalism and for the protection of trade, commerce and intercourse.
His Lordship referred to the backdrop in which the Government of India Act,
1935 was enacted, including the recommendations made by the Butler
Committee, the Round Table Conference, the Federal Structure Committee, the
Federal Legislature and Provincial Legislature Committee and the Joint
Parliamentary Committee to eventually conclude that the avowed object
underlying all these recommendations and constitutional framework was to
ensure that the accession of the State to the federation implies its
acceptance of the principle that it will not set up a barrier to free
interchange so formidable as to constitute a threat to the future of the
federation. Based on the historical developments decades before the
enactment of Government of India Act, 1935, his Lordship concluded:
“95. The detailed examination of the history lying at the back of the
Government of India Act, 1935 lays bare some fundamental facts and
premises. It shows that the process through a whole century was the breakup
of a highly centralized Government and the creation of autonomous Provinces
with distinct and separate political existence, to be combined inter se and
with the Indian States, at a later period, in a federation. To achieve
this, not only was there a division of the heads of legislation, but the
financial resources were also divided and separate fiscs for the federation
and the Provinces were established. The fields of taxation were demarcated,
and those for the Provinces were chosen with special care to make these
units self-supporting as far as possible with enough to spare for “nation-
building activities”. In this arrangement, the door was open for the Indian
States to join on the same basis and on terms of equality. The most
important fact was that unlike the American and the Canadian Constitutions
the commerce power was divided between the Centre and the Provinces as the
Entries quoted by us clearly show. The commerce power of the Provinces was
exercisable within the Provinces. The fetter on the commercial power of the
Provinces was placed by Section 297. This was in two directions. Clause (a)
of sub-section (1) banned restrictions at the barriers of the Provinces on
the entry and export of goods, and clause (b) prohibited discrimination in
taxing goods between goods manufactured and produced in the Province as
against goods not so manufactured or produced and local discriminations.”

(Emphasis supplied)
43. In the opinion of Hidayatullah J., as his Lordship then was, several
pitfalls existed in the 1935 Act regarding trade and commerce which were
sought to be remedied by the framers of the Constitution while maintaining
its federal structure. The following passage is, in this regard,
instructive:
“96. When drafting the Constitution of India, the Constituent Assembly
being aware of the problems in various countries where freedom of trade,
commerce and intercourse has been provided differently and also the way the
Courts of those countries have viewed the relative provisions, must have
attempted to evolve a pattern of such freedom suitable to Indian
conditions. The Constituent Assembly realised that the provisions of
Section 297 and the Chapter on Discriminations in the Government of India
Act, 1935 hardly met the case, and were inadequate. They had to decide the
following questions: (a) whether to give the commerce power only to
Parliament or to divide it between Parliament and the State Legislatures;
(b) whether to ensure freedom of trade, commerce and intercourse inter-
State, that is to say, at the borders of the States or to ensure it even
intra-State; (c) whether to make the prohibition against restrictions
absolute or qualified, and if so, in what manner; (d) if qualified, by whom
was the restriction to be imposed and to what extent; (e) whether the
freedom should be to the individual or also to trade and commerce as a
whole; (f) what to do with the existing laws in British India and more so,
in the acceding Indian States; (g) whether any special provisions were
needed for emergencies; (h) what should be the special provisions to enable
the States to levy taxes on sale of goods, which taxes were to be the main
source of income for the States according to the experts. All these matters
have, in fact, been covered in Part XIII, and the pitfalls which were
disclosed in the Law Reports of the Countries which had accepted freedom of
trade and commerce have been attempted to be avoided by choosing language
appropriate for the purpose. In addition to this, the broad pattern of the
political set-up, namely, a federation of autonomous States was not lost
sight of. These autonomous conditions had strengthened during the operation
of the 1935 Constitution and led to what Prof. Coupland described as
“Provincial-patriotism”, for which the reason, according to the learned
Professor was:

“In the course of the last few years, moreover, the sense of Provincial
patriotism has been strengthened by the advent of a full Provincial self-
government. The people took a new pride in Governments that were now in a
sense theirs.” (The Constitutional Problem in India, part III p. 40).”

44. The historical backdrop painted by the decisions of this Court
referred to above has not been challenged on a question of fact.
Inferences drawn from the same may have, as noticed earlier, varied
depending on the individual perspective of the Judges about the said
backdrop. The common thread that runs through the historical narratives in
the pronouncements of this Court however is discernible and may be briefly
summed-up at this stage. The first of these threads that runs through the
historical perspective is the fact that before commencement of the
Constitution nearly 2/3rd of the country was ruled by the British while the
remaining 1/3rd was ruled by the Princes also known as native States that
enjoyed varying degrees of sovereignty over their respective territories.
These rulers had the power to impose taxes and to regulate the flow of
trade, commerce and intercourse. Some of them had erected trade barriers
thereby impeding free flow of trade, commerce and intercourse. With the
merger of these Princely States into the dominion of India to constitute
one single political entity, that part of the country that was ruled by the
British came to be known as Part-A State while the native States became
Part B States. What is significant is that even after the merger of these
States, the Constitution had to acknowledge the existence of trade barriers
and make transitional provisions with a view to eventually abolishing the
same. It was in that background that the Constitution by Article 301
provided for the abolition of all such trade barriers consequent upon the
entire geographical boundaries of India being knit into one political unit.
The whole object underlying the removal of such barriers was to facilitate
free trade, commerce and intercourse in the interest of national solidarity
and economic unity of the country. The evolution of Articles 301 to 307
comprising Part XIII of the Constitution is also punctuated by several
events, twists and turns to which we may briefly refer at this stage, but,
while we may do so, we need to remember that Section 297 of the Government
of India Act, 1935 dealt with the subject that eventually came under the
umbrella of Part XIII and prohibited provincial governments from imposing
barriers on trade within the country. The said provision also prohibited
levy of cess, tolls or other tax duties which discriminated between the
goods manufactured in one locality as against similar goods manufactured
elsewhere. It is because of the said provision that Venkatarama Iyer, J.
in MPV Sunderaramier’s case (supra) made the observation that the
Constitution was not written on a tabula rasa.
45. The first germ plasma for Article 301 was located in what was
introduced as Clause 13 in the draft submitted by the Sub-Committee on
fundamental rights comprising Mr. K.M. Munshi, Sir Alladi Krishnaswami
Ayyar and Sir B.N. Rau amongst others. The clause was in the following
words:

“Subject to regulation by the law of the Union, trade, commerce and
intercourse among the units, whether by means of internal carriage or by
ocean navigation, shall be free:

Provided that any unit may by law impose reasonable restrictions
thereon in the interest of public order, morality or health.”

From the note of Sir B.N. Rau it is evident that the first part of clause
13 (supra) was adopted from Section 92 of the Australian Constitution while
the proviso at the end of the clause was new.

46. Sir Alladi Krishnaswami Ayyar in the Draft Report of 10th, 14th and
15th April, 1947 in relation to Clause 13 suggested that it must be made
clear that:
“(1) goods from other parts of India than in the units’ concerned
coming into the units cannot escape duties and taxes to which the goods
produced in the units in themselves are subject.

(2) It must also be open to the unit in an emergency to place
restrictions on the rights declared by the clause.”
47. The above suggestions were accepted and it was modified and
incorporated as Clause 14 in the following words:

“14. (1) Subject to regulation by the law of the Union trade,
commerce and intercourse among the units by and between the citizens shall
be free:

Provided that any unit may by law impose reasonable restrictions in
the interest of public order, morality or health or in an emergency:

Provided that nothing in this section shall prevent any unit from
imposing on goods imported from other units the same duties and taxes to
which the goods produced in the unit are subject:

Provided further that no preference shall be given by any regulation
of commerce or revenue by a unit to one unit over another.

[N.B. – A proviso will have to be added to meet the difficulty
pointed out in para 6 of our report.]

(2) Trade, commerce or intercourse within the territories of the
Union by or with any person other than the citizens shall be regulated and
controlled by the law of the Union.
48. The above clause then came up for consideration before the Advisory
Committee where an elaborate debate ensued. What is of considerable
importance is the statement of Sir Alladi Krishnaswami Ayyar where he
explained the purpose of enabling a State to impose reasonable restriction
in the interest of public order, morality, health or in an emergency:
“Chairman: Then let us take up clause 14

C. Rajagopalachari: I Think we should add to 14 (1) that this shall not be
a bar to the imposition of taxes for genuine purposes of revenue.

Many Members: That comes later on: “N.B. A proviso will have to be added
to meet the difficulty pointed out in para 6 of our report.”

C. Rajagopalachari: That is why I am adding it.

Alladi Krishnaswami Ayyar: “Subject to regulation by the law of the Union,
trade, commerce, and intercourse among the units by and between the
citizens shall be free.” That is the general principle. Then come the
exceptions, “Provided that any unit may by law impose reasonable
restrictions in the interest of public order, morality or health or in an
emergency.” Suppose there is a general famine, and people are starved,
that is what is meant here to be dealt with.

And then “Provided that nothing in this section shall prevent any unit from
imposing on goods imported from other units the same duties and taxes to
which the goods produced in the unit are subject.” That is to say, we
ought not to differentiate; but at the same time, goods coming in should
not go scot-free; they should be subject to the same duty as goods produced
in the area.

And then “Provided further that no preference shall be given by any
regulation of commerce or revenue by a unit to one unit over another.”
Now, kindly read paragraph 6 of the report, regarding adding a proviso.

K.M. Panikkar: Rajaji (C. Rajagopalachari) has raised the question of the
right of the units to raise taxes, and says this right should not be
denied. I, however, think this is a dangerous power to be given to the
units. This may result in the creation of so many competing units. We
have allowed for two things. We have allowed the unit to tax its own
industries. We also allow things brought in to be taxed, for the sake of
parity. But our friends want to go a little further and say that the right
to impose taxes, or transit duty or some other kind of duty must be given
to the units. That I am afraid, will be a negation of the clause. There
are certain rates and duties existing in Indian States which for budgetary
and other reasons cannot now be extinguished immediately. It may be
possible to extinguish them over a period of time, by agreement, but not
immediately.

C. Rajagopalachari: If the States everywhere can impose taxes and duties
for revenue, cannot the provinces also do so?

Alladi Krishnaswami Ayyar: We do not give a carte blanche to the States.
It has been pointed out that certain condition of things obtain at present
in the States, and …

K.M. Panikkar: Let me explain the position. The position with regard to
the internal customs in the States is complicated. In a large number of
States these customs or duties do not exist. For example for the whole of
the Punjab States there is no right for internal customs. For Hyderabad
they have the right to impose a tax up to 5% only, both on imports and
exports. In Travancore and Cochin it is governed by what is called inter-
portal convention. A large number of States have no right whatever even
now for imposing customs duty, but a considerable number of them do enjoy
this power and their budgetary position today is based on the customs
duties they receive, both the maritime States and the internal States.
Therefore arrangements will have to be made with them by agreement and
contract for setting this matter.

Alladi Krishnaswami Ayyar: The Union Powers Committee’s attention was drawn
to this matter and it was suggested by Sir V.T. Krishnamachari and Sir B.L.
Mitter that some reference should be made to it in their report. We wanted
to permit the States to enjoy the indulgence they have been enjoying. But
we should guard against converting the country into competing units; that
will be against the federation idea.

Chairman: What shall we do about the note? A proviso will have to be added
to meet the difficulty pointed out in para 6 of the report. Shall we leave
it as it is or shall we draft it?

C. Rajagopalachari: I would request members who have given thought to
this subject to please inform me how the units will raise their revenue.
As it is, the Union does not contemplate the distribution of subsidies to
the provinces. The provinces or groups differ among themselves, some are
rich and some are poor. Some are capable of managing with their existing
resources; but others may have to increase their revenue for managing their
affairs. If you impose so many limitations on them, how can they do that?
It is all very well to say free trade is necessary; but how are the
provinces to live?

Alladi Krishnaswami Ayyar: So far as the provincial legislatures are
concerned, there is provision in Sec. 297 of the present Government of
India Act itself: (Reads) “No Provincial Legislature or Government shall by
virtue of entry *** have power to pass any law or take any executive action
***description…”

C. Rajagopalachari: But at present we have the receipts from customs and
other receipts.

Alladi Krishnaswami Ayyar: The other day the Madras Premier said he could
stop the import of textiles from Bombay and other places outside Madras:
but it was pointed out to him that until the constitution is altered he
cannot do so. This theory of self-sufficiency of different units is
dangerous in our country, because we have to depend upon one another.

Govind Ballabh Pant: There is unanimity about the body of this clause and
it is clear that there should not be any discrimination against one unit by
another unit. Otherwise we will be going against the very sense of a Union
or a Federal Constitution. If the units are to be discriminated against,
we will come to blows more often than otherwise. Therefore this should be
avoided. The only thing to be considered is how to give effect to the
suggestion made in para 6 of the President’s letter which we have received
through the chairman. Should we append a note to the effect that the
Constituent Assembly may consider how best to give effect to this clause in
relation to the States or shall we put up a draft. If we are not going to
put up a draft, then the matter is simple enough.”

49. The Advisory Committee accepted the recommendation of the Sub-
Committee in relation to Clause 14 with one change that the sub-clause
providing for central regulation of trade by or with non-citizens was
dropped as being vague and unnecessary. The Advisory Committee in its
report submitted on 23rd April, 1947 incorporated the above provision as
Clause 10. Certain amendments to the said clause were suggested and
adopted by the Constituent Assembly.

50. In the first Draft Constitution of October, 1947, Clause 17 underwent
further amendments and eventually appeared in the Draft Constitution of
1948 as Clause 16 incorporated in the Fundamental Rights Chapter in the
following words:

“16. Subject to the provisions of Article 244 of this Constitution and of
any law made by Parliament, trade, commerce and intercourse throughout the
territory of India shall be free.”

51. It is noteworthy to mention here that Inter-State trade and commerce
was dealt with in Articles 243, 244 and 245 in the Draft Constitution of
1948 which Articles were in the following terms:

“243. No preference shall be given to one State over another nor shall any
discrimination be made between one State and another by any law or
regulation relating to trade or commerce, whether carried by land, water or
air.

244. Notwithstanding anything contained in article 16 or in the last
preceding article of this Constitution, it shall be lawful for any State –

to impose on good imported from other States any tax to which similar goods
manufactured or produced in that State are subject, so, however, as not to
discriminate between goods so imported and goods so manufactured or
produced; and
to impose by land such reasonable restrictions on the freedom of trade,
commerce or intercourse with that State as may be required in the public
interests:

Provided that during a period of five years from the commencement of this
Constitution the provisions of clause (b) of this article shall not apply
to trade or commerce in any of the commodities mentioned in clause (a) of
Article 306 of this Constitution.

245. Parliament shall by law appoint such authority as it considers
appropriate for the carrying out of the provisions of Articles 243 and 244
of this Constitution and confer on the authority so appointed such powers
and such duties as it thinks necessary.”

52. The Ministry of Industry and Supply expressed some reservation
regarding clause (b) of Article 244 and demanded abolition of the said
clause altogether. The Ministry appears to have argued that it was not
possible to foresee the circumstances in which the freedom of trade,
commerce or intercourse with a State will need to be interfered with by
that State in the public interest, unless it be on the basis of
discrimination between the residents of one State to another, and this
would be wholly contrary to the spirit of the Constitution. [See: B. Shiva
Rao; the Framing of India’s Constitution, Volume-IV, Page 329]

53. The note in support of the proposed clause (b) to Article 244,
however, clearly suggests that restrictions referred to in clause (b) were
meant to be restrictions other than by way of taxation. The explanatory
note which was appended by Sir B.N. Rau was in the following words:

“Note: During a period of depression owing to destruction by flood or
otherwise of crops in any particular State, it may be necessary for the
State to impose restrictions on the export of any crop from such State in
the public interests. Similarly on the outbreak of any epidemic disease,
like plague, in a State it may be necessary for a neighbouring State to
impose restrictions on the freedom of intercourse between the inhabitants
of that State with the inhabitants of such neighbouring State. Clause (b)
of Article 244 is intended to give power to the State to impose such
restrictions.”
54. On 8th of September, 1949, Dr. B.R. Ambedkar moved an amendment
seeking to delete Articles 243, 244 and 245 and the same was adopted.
Simultaneously, a new Part XA was introduced containing draft Article 274-A
to E. Dr. Ambedkar informed the House that the Articles that were
otherwise scattered were now brought together so as to ensure that members
could get a holistic idea regarding trade and commerce. Article 274-A was
a repetition of Article 16 and laid down the general principle. Article 274-
B empowered Parliament to impose restrictions in public interest. Article
274-C prohibited Parliament and the State legislatures from making any law
giving any preference to one State over another, or making any
discrimination between one State and another, except when Parliament found
it necessary to do so to deal with a situation arising from scarcity of
goods; Article 274-D vested with the State legislatures the power to impose
non-discriminatory tax qua external goods and to impose reasonable
restrictions in public interest and Article 274-E provided for an Inter-
State Commission.

55. The Constituent Assembly Debates suggests that the introduction of
Articles 274A to 274E was severely criticized by several members of the
Assembly including Thakur Das Bhargava and Dr. P.S. Deshmukh who moved
several amendments to these clauses but the same were rejected and Articles
274-A to 274-E including Articles 274 DD and 274 DDD were adopted without
any modification. These Articles are now renumbered and appear as Articles
301 to 307 of the Constitution of India.

56. It is in the above backdrop that question No.1shall have to be
answered which turns on a true and correct interpretation of Article 301 of
the Constitution. We must at the threshold say that while attempting to
answer the question we are not on virgin ground, for this Court has in
Atiabari Tea Company case (supra) examined the matter at great length. The
decision of this Court in Automobile case (supra) has modified the view in
Atiabari, by bringing in the concept of compensatory taxes which this Court
held to be outside Part XIII of the Constitution.

57. While J.C. Shah, J. took the view that all taxes regardless whether
they are discriminatory or otherwise would constitute an impediment on free
trade and commerce guaranteed under Article 301 of the Constitution of
India, Sinha, CJ., held that taxes per se were totally outside the purview
of Article 301 and could never constitute a restriction except where the
same operated as a fiscal barrier that prevented free trade, commerce and
intercourse. The view taken by Justice Shah, J. was not supported by any
one of the counsel appearing for the parties for it was candidly accepted
that the same was an extreme view that was legally unsupportable. What was
all the same argued on behalf of the dealers/assessees was that the
majority view that propounded the test of “direct and immediate” effect on
free trade, commerce and intercourse was the correct view. Reliance, in
particular, was placed by learned counsel for the dealers/assessees upon
the following passages appearing in the majority judgment authored by
Gajendragadkar, J. to contend that the same propounded the correct legal
position:
“50. Let us now revert to Article 301 and ascertain the width and amplitude
of its scope. On a careful examination of the relevant provisions of Part
XIII as a whole as well as the principle of economic unity which it is
intended to safeguard by making the said provisions, the conclusion appears
to us to be inevitable that the content of freedom provided for by Article
301 was larger than the freedom contemplated by Section 297 of the
Constitution Act of 1935, and whatever else it may or may not include, it
certainly includes movement of trade which is of the very essence of all
trade and is its integral part. If the transport or the movement of goods
is taxed solely on the basis that the goods are thus carried or transported
that, in our opinion, directly affects the freedom of trade as contemplated
by Article 301. If the movement, transport or the carrying of goods is
allowed to be impeded, obstructed or hampered by taxation without
satisfying the requirements of Part XIII the freedom of trade on which so
much emphasis is laid by Article 301 would turn to be illusory. When
Article 301 provides that trade shall be free throughout the territory of
India primarily it is the movement part of the trade that it has in mind
and the movement or the transport part of trade must be free subject of
course to the limitations and exceptions provided by the other Articles of
Part XIII. That we think is the result of Article 301 read with the other
Articles in Part XIII.

51. Thus the intrinsic evidence furnished by some of the Articles of Part
XIII shows that taxing laws are not excluded from the operation of Article
301; which means that tax laws can and do amount to restrictions freedom
from which is guaranteed to trade under the said Part. Does that mean that
all tax laws attract the provisions of Part XIII whether their impact on
trade or its movement is direct and immediate or indirect and remote? It is
precisely because the words used in Article 301 are very wide, and in a
sense vague and indefinite that the problem of construing them and
determining their exact width and scope becomes complex and difficult.
However, in interpreting the provisions of the Constitution we must always
bear in mind that the relevant provision “has to be read not in vacuo but
as occurring in a single complex instrument in which one part may throw
light on another”. (Vide: James v. Commonwealth of Australia – 1936 A.C.
578 at pg. 613). In construing Article 301 we must, therefore, have regard
to the general scheme of our Constitution as well as the particular
provisions in regard to taxing laws. The construction of Article 301 should
not be determined on a purely academic or doctrinnaire considerations; in
construing the said Article we must adopt a realistic approach and bear in
mind the essential features of the separation of powers on which our
Constitution rests. It is a federal constitution which we are interpreting,
and so the impact of Article 301 must be judged accordingly. Besides, it is
not irrelevant to remember in this connection that the Article we are
construing imposes a constitutional limitation on the power of the
Parliament and State Legislatures to levy taxes, and generally, but for
such limitation, the power of taxation would be presumed to be for public
good and would not be subject to judicial review or scrutiny. Thus
considered we think it would be reasonable and proper to hold that
restrictions freedom from which is guaranteed by Article 301, would be such
restrictions as directly and immediately restrict or impede the free flow
or movement of trade. Taxes may and do amount to restrictions; but it is
only such taxes as directly and immediately restrict trade that would fall
within the purview of Article 301. The argument that all taxes should be
governed by Article 301 whether or not their impact on trade is immediate
or mediate, direct or remote, adopts, in our opinion, an extreme approach
which cannot be upheld. If the said argument is accepted it would mean, for
instance, that even a legislative enactment prescribing the minimum wages
to industrial employees may fall under Part XIII because in an economic
sense an additional wage bill may indirectly affect trade or commerce. We
are, therefore, satisfied that in determining the limits of the width and
amplitude of the freedom guaranteed by Article 301 a rational and workable
test to apply would be: Does the impugned restriction operate directly or
immediately on trade or its movement? It is in the light of this test that
we propose to examine the validity of the Act under scrutiny in the present
proceedings.”

58. On behalf of the respondent-States it was per contra argued that the
power to levy taxes is a sovereign power that remains totally unaffected by
Article 301 of the Constitution of India. Free trade, commerce and
intercourse was not, according to the learned counsel, to be understood as
free from any restrictions, leave alone free from taxes which the State
legislatures were otherwise competent to levy. Enunciation of law by
Sinha, CJ. was according to the learned Attorney General for India and
learned Counsel appearing for the States, the correct view which ought to
be accepted in preference to the other two contrary views propounded in the
judgment. Reliance, in particular, was placed by Mr. Rohatgi and learned
Counsel for the respondent-States upon the following passages appearing in
Sinha, CJ.’s judgment:

“14. Viewed in this all comprehensive sense taxation on trade, commerce and
intercourse would have many ramifications and would cover almost the entire
field of public taxation, both in the Union and in the State Lists. It is
almost impossible to think that the makers of the Constitution intended to
make trade, commerce and intercourse free from taxation in that
comprehensive sense. If that were so, all laws of taxation relating to sale
and purchase of goods on carriage of goods and commodities, men and
animals, from one place to another, both inter-State and intra-State, would
come within the purview of Article 301 and the proviso to Article 304 (b)
would make it necessary that all Bills or Amendments of pre-existing laws
shall have to go through the gamut prescribed by that proviso. That will be
putting too great an impediment to the power of taxation vested in the
States and reduce the States’ limited sovereignty under the Constitution to
a mere fiction. That extreme position has, therefore, to be rejected as
unsound.

15. In this connection, it is also pertinent to bear in mind that all
taxation is not necessarily an impediment or a restraint in the matter of
trade, commerce and intercourse. Instead of being such impediments or
restraints, they may, on the other hand, provide the wherewithals to
improve different kinds of means of transport, for example, in cane growing
areas, unless there are good roads, facility for transport of sugarcane
from sugarcane fields to sugar mills may be wholly lacking or insufficient.
In order to make new roads as also to improve old ones, cess on the grower
of cane or others interested in the transport of this commodity has to be
imposed, and has been known in some parts of India to have been imposed at
a certain rate per md. or ton of sugarcane transported to sugar factories.
Such an imposition is a tax on transport of sugarcane from one place to
another, either intra-State or inter-State. It is the tax thus realised
that makes it feasible for opening new means of communication or for
improving old ones. It cannot, therefore, be said that taxation in every
case must mean an impediment or restraint against free flow of trade and
commerce. Similarly, for the facility of passengers and goods by motor
transport or by railway, a surcharge on usual fares or freights is levied,
or may be levied in future. But for such a surcharge, improvement in the
means of communication may not be available at all. Hence, in my opinion,
it is not correct to characterise a tax on movement of goods or passengers
as necessarily connoting an impediment, or a restraint, in the matter of
trade and commerce. That is another good reason in support of the
conclusion that taxation is not ordinarily included within the terms of
Article 301 of the Constitution.

16. In my opinion, another very cogent reason for holding that taxation
simpliciter is not within the terms of Article 301 of the Constitution is
that the very connotation of taxation is the power of the State to raise
money for public purposes by compelling the payment by persons, both
natural and juristic, of monies earned or possessed by them, by virtue of
the facilities and protection afforded by the State. Such burdens or
imposts, either direct or indirect, are in the ultimate analysis meant as a
contribution by the citizens or persons residing in the State or dealing
with the citizens of the State, for the support of the Government, with
particular reference to their respective abilities to make such
contributions. Thus public purpose is implicit in every taxation, as such.
Therefore, when Part XIII of the Constitution speaks of imposition of
reasonable restrictions in public interest, it could not have intended to
include taxation within the generic term “reasonable restrictions”. This
Court has laid it down in the case of Ramjilal v. Income Tax Officer,
Mohindargarh(1951 SCR 127 at page 136) (AIR 1951 SC 97 at page 100), that
imposition and collection of taxes by authority of law envisaged by Article
265 is outside the scope of the expression “deprivation of property” in
Article 31(1) of the Constitution. Reasonable restrictions as used in Part
III or Part XIII of the Constitution would in most cases be less than total
deprivation of property rights. Hence, Part XII dealing with finance etc.
as already indicated, has been treated as a Part dealing with the sovereign
power of the State to impose taxes, which must always mean imposing burdens
on citizens and others, in public interest. If a law is passed by the
Legislature imposing a tax which in its true nature and effect is meant to
impose an impediment to the free flow of trade, commerce and intercourse,
for example, by imposing a high tariff wall, or by preventing imports into
or exports out of a State, such a law is outside the significance of
taxation, as such, but assumes the character of a trade barrier which it
was the intention of the Constitution- makers to abolish by Part XIII. The
objections against the contention that taxation was included within the
prohibition contained in Part XIII may thus be summarised: (1) Taxation, as
such, always implies that it is in public interest. Hence, it would be
outside particular restrictions, which may be characterised by the courts
as reasonable and in public interest. (2) The power is vested in a
sovereign State to carry on Government. Our Constitution has laid the
foundations of a welfare State, which means very much expanding the scope
of the activities of Government and administration, thus making it
necessary for the State to impose taxes on a much larger scale and in much
wider fields. The legislative entries in the three Lists referred to above
empowering the Union Government and the State Governments to impose certain
taxations with reference to movement of goods and passengers would be
rendered ineffective, if not otiose, if it were held that taxation
simpliciter is within the terms of Article 301. (3) If the argument on
behalf of the appellants were accepted, many taxes, for example, sales tax
by the Union and by the States, would have to go through the gamut
prescribed in Articles 303 and 304, thus very much detracting from the
limited sovereignty of the States, as envisaged by the Constitution. (4)
Laws relating to taxation, which is essentially a legislative function of
the State, will become justiciable and every time a taxation law is
challenged as unconstitutional, the State will have to satisfy the courts —
a course which will seriously affect the division of powers on which modern
constitutions, including ours, are based. (5) Taxation on movement of goods
and passengers is not necessarily an impediment.

17. That conclusion leads to a discussion of the other extreme position
that taxation is wholly out of the purview of Article 301. That extreme
position is equally untenable in view of the fact that Article 304
contains, and Article 306, before it was repealed in 1956, contained,
reference to taxation for certain purposes mentioned in those Articles. But
Article 306, which now stands repealed, contained references to tax or duty
on the import of goods into one State from another or on the exports of
goods from one State to another. Such imposts were really in the nature of
impediments to the free flow of goods and commodities on account of customs
barriers, which it was the intention of Article 301 to abolish. Similarly,
Article 304 while recognising the power of a State Legislature to tax goods
imported inter-State, insists that a similar tax is imposed on goods
manufactured or produced within the State. The Article thus brings out the
clear distinction between taxation as such for the purpose of revenue and
taxation for purposes of making discrimination or giving preference, both
of which are treated by the Constitution as impediments to free trade and
commerce. In other words, so long as the impost was not in the nature of an
impediment to the free flow of goods and commodities between one State and
another, including in this expression Union territories also, its legality
was not subject to an attack based on the provisions of Part XIII. But that
does not mean that State Legislatures derive their power of taxation by
virtue of what is contained in Article 304. Article 304 only left intact
such power of taxation, but contained the inhibition that such taxes shall
not be permitted to have the effect of impeding the free flow of goods and
commodities.”

Sinha, CJ. concluded as follows:

“18. ….. Thus, on a fair construction of the provisions of Part XIII, the
following propositions emerge: (1) trade, commerce, and intercourse
throughout the territory of India are not absolutely free, but are subject
to certain powers of legislation by Parliament or the Legislature of a
State; (2) the freedom declared by Article 301 does not mean freedom from
taxation simpliciter, but does mean freedom from taxation which has the
effect of directly impeding the free flow of trade, commerce and
intercourse; (3) the freedom envisaged in Article 301 is subject to non-
discriminatory restrictions imposed by Parliament in public interest
(Article 302); (4) even discriminatory or preferential legislation may be
made by Parliament for the purpose of dealing with an emergency like a
scarcity of goods in any part of India [Article 303(2)]; (5) reasonable
restrictions may be imposed by the Legislature of a State in the public
interest [Article 304(b)]; (6) non-discriminatory taxes may be imposed by
the Legislature of a State on goods imported from another State or other
States, if similar taxes are imposed on goods produced or manufactured in
that State [Article 304(a)]; and lastly (7) restrictions imposed by
existing laws have been continued, except insofar as the President may by
order otherwise direct (Article 305).”
59. Before we examine the rival submissions, we must also refer to the
decision of this Court in Automobile case (supra) which added a new
dimension to the legal exposition in Atiabari case (supra) by declaring
that taxes that were compensatory in nature fell outside Part XIII and
could never be treated as restrictions offensive to Article 301 of the
Constitution. S.K. Das, J. speaking for the majority explained the concept
of compensatory taxes falling outside Part XIII in the following words:
“10… As the language employed in Article 301 runs unqualified the Court,
bearing in mind the fact that that provision has to be applied in the
working of an orderly society, has necessarily to add certain
qualifications subject to which alone that freedom may be exercised. This
point has been very lucidly discussed in the dissenting opinion which
Fullagar, J. wrote in McCarter v. Brodie (1950) 80 CLR 432 an opinion which
was substantially approved by the Privy Council in Hughes and Vale
Proprietary Ld. v. State of New South Wales 1955 AC 241. The learned Judge
gave several examples to show the distinction between what was merely
permitted regulation and what was true interference with freedom of trade
and commerce. He pointed out that in the matter of motor vehicles most
countries have legislation which requires the motor vehicle to be
registered and a fee to be paid on registration. Every motor vehicle must
carry lamps of a specified kind in front and at the rear and in the hours
of darkness these lamps must be alight if the vehicle is being driven on
the road. Every motor vehicle must carry a warning device, such as a horn;
it must not be driven at a speed or in a manner which is dangerous to the
public. In certain localities a motor vehicle must not be driven at more
than a certain speed. The weight of the load which may be carried on a
motor vehicle on a public highway is limited. Such examples may be
multiplied indefinitely. Nobody doubts that the application of rules like
the above does not really affect the freedom of trade and commerce; on the
contrary they facilitate the free flow of trade and commerce. The reason is
that these rules cannot fairly be said to impose a burden on a trader or
deter him from trading: it would be absurd, for example, to suggest that
freedom of trade is impaired or hindered by laws which require a motor
vehicle to keep to the left of the road and not drive in a manner dangerous
to the public. If the word “free” in Article 301 means “freedom to do
whatever one wants to do”, then chaos may be the result; for example, one
owner of a motor vehicle may wish to drive on the left of the road while
another may wish to drive on the right of the road. If they come from
opposite directions, there will be an inevitable clash. Another class of
examples relates to making a charge for the use of trading facilities, such
as, roads, bridges, aerodromes etc. The collection of a toll or a tax for
the use of a road or for the use of a bridge or for the use of an aerodrome
is no barrier or burden or deterrent to traders who, in their absence, may
have to take a longer or less convenient or more expensive route. Such
compensatory taxes are no hindrance to anybody’s freedom so long as they
remain reasonable; but they could of course be converted into a hindrance
to the freedom of trade. If the authorities concerned really wanted to
hamper anybody’s trade, they could easily raise the amount of tax or toll
to an amount which would be prohibitive or deterrent or create other
impediments which instead of facilitating trade and commerce would hamper
them. It is here that the contrast, between “freedom” (Articles 301) and
“restrictions” (Articles 302 and 304) clearly appears: that which in
reality facilitates trade and commerce is not a restriction, and that which
in reality hampers or burdens trade and commerce is a restriction. It is
the reality or substance of the matter that has to be determined. It is not
possible a priori to draw a dividing line between that which would really
be a charge for a facility provided and that which would really be a
deterrent to a trade; but the distinction, if it has to be drawn, is real
and clear. For the tax to become a prohibited tax it has to be a direct tax
the effect of which is to hinder the movement part of trade. So long as a
tax remains compensatory or regulatory it cannot operate as a hindrance.

xxx xxx xxx

14. After carefully considering the arguments advanced before us we have
come to the conclusion that the narrow interpretation canvassed for on
behalf of the majority of the States cannot be accepted, namely, that the
relevant articles in Part XIII apply only to legislation in respect of the
entries relating to trade and commerce in any of the lists of the Seventh
Schedule. But we must advert here to one exception which we have already
indicated in an earlier part of this judgment. Such regulatory measures as
do not impede the freedom of trade, commerce and intercourse and
compensatory taxes for the use of trading facilities are not hit by the
freedom declared by Article 301. They are excluded from the purview of the
provisions of Part XIII of the Constitution for the simple reason that they
do not hamper trade, commerce and intercourse but rather facilitate them.

xxx xxx xxx

17. We have, therefore, come to the conclusion that neither the widest
interpretation nor the narrow interpretations canvassed before us are
acceptable. The interpretation which was accepted by the majority in the
Atiabari Tea Co. case is correct, but subject to this clarification.
Regulatory measures or measures imposing compensatory taxes for the use of
trading facilities do not come within the purview of the restrictions
contemplated by Article 301 and such measures need not comply with the
requirements of the proviso to Article 304(b) of the Constitution.”

60. Hidayatullah, J. in his dissenting judgment, however, took the view
that even when a tax may be compensatory in character it would be a valid
levy only if it goes through the process of presidential assent in terms of
Article 304(b) of the Constitution of India and the proviso thereto. The
following passage in this regard is relevant:
“125. That a tax is a restriction when it is placed upon a trade directly
and immediately may be admitted. But there is a difference between a tax
which burdens a trader in this manner and a tax, which being general, is
paid by tradesmen in common with others. The first is a levy from the trade
by reason of its being trade, the other is levied from all, and tradesmen
pay it because everyone has to pay it. There is a vital difference between
the two, viewed from the angle of freedom of trade and commerce. The first
is an impost on trade as such, and may be said to restrict it; the second
may burden the trader, but it is not a “restriction” of the trade. To
refuse to draw such a distinction would mean that there is no taxing entry
in Lists I and II which is not subject to Articles 301 and 304, however
general the tax and however non-discriminatory its imposition. To bring all
the taxes within the reach of Article 301 and thus to bring them also
within the reach of Article 304 is to overlook the concept of a Federation,
which allows freedom of action to the States, subject, however, to the
needs of the unity of India. Just as unity cannot be allowed to be
frittered away by insular action the existence of separate States is not to
be sacrificed by a fusion beyond what the Constitution envisages. No doubt.
Part XIII ensures economic unity to India and combines the federating
States into the larger State called India. The Constitution also permits
independent powers of taxation. What the Constitution does not permit is
that trade, commerce and intercourse should be rendered “unfree”. Trade and
commerce remain free even when general taxes are paid by tradesmen in
common with non-tradesmen. The question whether a tax offends Part XIII can
only arise when it seeks to tax trade, commerce and intercourse. Support
for the contrary proposition is not to be found in 1936 AC 578 James v.
Commonwealth. The Privy Council in James v. Commonwealth did not lay down:

“Every step in the series of operations which constitutes particular
transaction is an act of trade, and control under the State law of any of
these steps must be an interference with ifs freedom as trade” (p.629)

This passage represents the view held in McArthur’s case 1920 (28)
CLR 530. That case was disapproved at p. 631. We have already dealt with
this view at some length.

126. Thus, taxation laws and taxes must be divided into two kinds. Taxes
which are general and for revenue purposes which fall on those engaged in
trade, commerce and intercourse in the same way as they fall on others not
so engaged cannot normally be within the reach of Part XIII. A motor
transport owner cannot claim that he will not pay property tax in respect
of his garage buildings or electricity tax for the electricity he consumes
in lighting them, or income tax on his profits. Part XIII has nothing to do
with such taxes even though they fall upon tradesmen.

xx xxx xxx xxx

132. In our judgment, the first test to apply is what is the object and
scope of the legislation? A regulation of trade and commerce may achieve
some public purpose which affects trade and commerce incidentally but
without impairing the freedom. Sometimes, however, the regulation itself
may amount to a restriction, and if such a stage is reached, then under our
Constitution the restriction must be reasonably in the public interest, and
the President’s prior sanction must be obtained, if the law imposing such
restriction is made by the State Legislature, If, however, it does not
reach the stage of restriction of trade and remains only a regulation
incidentally touching trade and commerce, the regulation is outside the
operation of Articles 301 and 304. It is on this ground that laws
prescribing the rule of the road and like provisions already referred to as
well as a regulation that the height to which trucks may be loaded must be
such as not to endanger the overhead bridges or wires, do not have to go
before the President, since they do not affect the freedom guaranteed. The
object of such laws cannot be regarded as a restriction of trade and
commerce. Freedom in Article 301 does not mean anarchy. Similarly, a demand
for a tax from traders in common with others is not a restriction of their
right to carry on trade and commerce. A system of licensing of motor
vehicles is a regulation, but does not impair the freedom of trade and
commerce unless the licensing is made to depend upon arbitrary discretion
of the licensing authority. Similarly, a fee for administrative purposes
may also be viewed as a part of regulation. Such licensing and fees fall
outside Article 301, because they cannot be viewed as restrictions, and
therefore do not need to be processed under Article 304. Such regulations
are designed to give equal opportunity to everyone, subject to a certain
standard. The object being a public object, such regulations cannot be
questioned unless they amount to restrictions. A tax, however, which is
made the condition precedent of the right to enter upon and carry on
business at all is a very different matter. It is a restriction on the
right to carry on trade and commerce, and the restriction is released on
the payment of the tax, which is the price of such release. It is from this
point of view that the impugned provisions in this case must be examined.”
61. Subbarao J. as His Lordship then was, agreed with the majority view
but added the following passage to the same:

“37. The next question is, what is the content of the concept of freedom?
The word “freedom” is not capable of precise definition, but it can be
stated what would infringe or detract from the said freedom. Before a
particular law can be said to infringe the said freedom, it must be
ascertained whether the impugned provision operates as a restriction
impeding the free movement of trade or only as a regulation facilitating
the same. Restrictions obstruct the freedom, whereas regulations promote
it. Police regulations, though they may superficially appear to restrict
the freedom of movement, in fact provide the necessary conditions for the
free movement. Regulations such as provision for lighting, speed, good
condition of vehicles, timings, rule of the road and similar others, really
facilitate the freedom of movement rather than retard it. So too, licensing
system with compensatory fees would not be restrictions but regulatory
provisions; for without it, the necessary lines of communication, such as
roads, water-ways and air-ways, cannot effectively be maintained and the
freedom declared may in practice turn out to be an empty one. So too,
regulations providing for necessary services to enable the free movement of
traffic, whether charged or not, cannot also be described as restrictions
impeding the freedom. To say all these is not to say that every provision
couched in the form of regulation but in effect and substance a restriction
can pass off as a permissible regulation. It is for the Court in a given
case to decide whether a provision purporting to regulate trade is in fact
a restriction on freedom. If it be a colourable exercise of power and the
regulatory provision in fact is a restriction, unless the said provision is
one of the permissible restrictions under the succeeding articles, it would
be struck down. This view is consistent with the principles laid down by
the Australian High Court and the Privy Council in the context of
interprelation of the words “absolutely free” in Section 92 of the
Commonwealth of Australia Constitution Act, which is more emphatic than the
word “free” in Article 301 of our Constitution.

xxx xxx xxx

39. But the more difficult question is, what does the word “restrictions”
mean in Article 302? The dictionary meaning of the word “restrict” is “to
confine, bound, limit”. Therefore, any limitation placed upon the freedom
is a restriction on that freedom. But the limitation must be real, direct
and immediate, but not fanciful, indirect or remote. In this context, the
principles evolved by American and Australian decisions in their attempt to
reconcile the commerce power and the State police power or the freedom of
commerce and the Commonwealth power to make laws affecting that freedom can
usefully be invoked with suitable modifications and adjustments. Of all the
doctrines evolved, in my view, the doctrine of “direct and immediate
effect” on the freedom would be a reasonable solvent to the difficult
situation that might arise under our Constitution. If a law, whatever may
have been its source, directly and immediately affects the free movement of
trade, it would be restriction on the said freedom. But a law which may
have only indirect and remote repercussions on the said freedom cannot be
considered to be a restriction on it. Taking the illustration from taxation
law, a law may impose a tax on the movement of goods or persons by a motor-
vehicle; it directly operates as a restriction on the free movement of
trade, except when it is compensatory or regulatory. On the other hand, a
law may tax a vehicle as property, or the garage wherein the vehicle used
for conveyance is kept. The said law may have indirect repercussion on the
movement, but the said law is not one directly imposing restrictions on the
free movement. In this context, two difficulties may have to be faced:
firstly, though a law purporting to impose a tax on a property or a motor-
vehicle, as the case may be, may in fact and in reality impose a tax on the
movement itself; secondly, a law may not be on the movement of trade, but
on the property itself, but the burden may be so high that it may
indirectly affect the free flow of trade. In the former case, the court may
have to scrutinize the provisions of a particular statute to ascertain
whether the tax is on the movement. If the provisions disclose a tax on the
movement, it will be a restriction within the meaning of Article 302. In
the latter case, if the provisions show that the tax is on property, the
reasonableness of the tax may have to be tested against the provisions of
Article 19 of the Constitution. The question whether a law imposes a
restriction or not depends on the question whether the said law imposes
directly and immediately a limitation on the freedom of movement of trade.
If it does, the extent of the impediment relates to the question of degree
rather than to the nature of it. If it is a restriction, it must satisfy
the conditions laid down in Article 302 of the Constitution.

xxx xxx xxx

46. The foregoing discussion may be summarized in the following
propositions: (1) Article 301 declares a right of free movement of trade
without any obstructions by way of barriers, inter-State or intra-State, or
other impediments operating as such barriers. (2) The said freedom is not
impeded, but, on the other hand, promoted, by regulations creating
conditions for the free movement of trade, such as, police regulations,
provision for services, maintenance of roads, provision for aerodromes,
wharfs etc., with or without compensation. (3) Parliament may by law impose
restrictions on such freedom in the public interest; and the said law can
be made by virtue of any entry with respect whereof Parliament has power to
make a law. (4) The State also, in exercise of its legislative power, may
impose similar restrictions, subject to the two conditions laid down in
Article 304(b) and subject to the proviso mentioned therein. (5) Neither
Parliament nor the State Legislature can make a law giving preference to
one State over another or making discrimination between one State and
another, by virtue of any entry in the Lists, infringing the said freedom.
(6) This ban is lifted in the case of Parliament for the purpose of dealing
with situations arising out of scarcity of goods in any part of the
territory of India and also in the case of a State under Article 304(b),
subject to the conditions mentioned therein. And (7) the State can impose a
non-discriminatory tax on goods imported from other States or the Union
territory to which similar goods manufactured or produced in that State are
subject.”

62. The net effect of the decision in Automobile case (supra) is that
taxes, if the same are compensatory in character, do not offend the
guarantee of free trade, commerce and intercourse under Article 301 of the
Constitution. The further question whether the compensatory character of a
tax has to be determined by reference to the direct and substantial
benefits/ facilities provided by the State to the tax payer was examined
and answered in the affirmative in Jindal Stainless Steel case (supra),
where this Court while overruling the decisions in Bhagatram and Bihar
Chamber of Commerce cases (supra) declared that it is not just a remote
benefit to the tax payer but only a direct and substantial benefit that
would justify levy of compensatory taxes without offending Article 301 of
the Constitution of India. Speaking for the Court, Kapadia, J. observed:
“49. The concept of compensatory taxes was propounded in Automobile
Transport in which compensatory taxes were equated with regulatory taxes.
In that case, a working test for deciding whether a tax is compensatory or
not was laid down. In that judgment, it was observed that one has to
enquire whether the trade as a class is having the use of certain
facilities for the better conduct of the trade/business. This working test
remains unaltered even today.

50. As stated above, in the post 1995 era, the said working test propounded
in Automobile Transport stood disrupted when in Bhagatram case, a Bench of
three Judges enunciated the test of “some connection” saying that even if
there is some link between the tax and the facilities extended to the trade
directly or indirectly, the levy cannot be impugned as invalid. In our
view, this test of “some connection” enunciated in Bhagatram case is not
only contrary to the working test propounded in Automobile Transport case
but it obliterates the very basis of compensatory tax. We may reiterate
that when a tax is imposed in the regulation or as a part of regulatory
measure the controlling factor of the levy shifts from burden to
reimbursement/recompense. The working test propounded by a Bench of seven
Judges in Automobile Transport and the test of “some connection” enunciated
by a Bench of three Judges in Bhagatram case cannot stand together.
Therefore, in our view, the test of “some connection” as propounded in
Bhagatram case is not applicable to the concept of compensatory tax and
accordingly to that extent, the judgments of this Court in Bhagatram
Rajeevkumar v. CST and State of Bihar v. Bihar Chamber of Commerce stand
overruled.

xxx xxx xxx xxx

52. In our opinion, the doubt expressed by the referring Bench about the
correctness of the decision in Bhagatram case followed by the judgment in
Bihar Chamber of Commerce was well founded.

53. We reiterate that the doctrine of “direct and immediate effect” of the
impugned law on trade and commerce under Article 301 as propounded in
Atiabari Tea Co. Ltd. v. State of Assam and the working test enunciated in
Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan for deciding
whether a tax is compensatory or not vide para 19 of the Report (AIR), will
continue to apply and the test of “some connection” indicated in para 8 (of
SCC) of the judgment in Bhagatram Rajeevkumar v. CST and followed in State
of Bihar v. Bihar Chamber of Commerce is, in our opinion, not good law.
Accordingly, the constitutional validity of various local enactments which
are the subject-matters of pending appeals, special leave petitions and
writ petitions will now be listed for being disposed of in the light of
this judgment.”

63. The legal position that today holds the field in light of the above
is that compensatory taxes would fall outside Part XIII of the Constitution
only if tax payers receive benefits and facilities commensurate to the
levy. Any and every benefit howsoever remote or distant, would not save
the levy from an attack on the ground of violation of Article 301. Having
said that we must mention to the credit of the learned counsel for the
dealers/assessees that except a feeble attempt made by Mr.A.K. Ganguly,
learned counsel appearing for Sony India Pvt. Ltd. and Mr. Bagaria, learned
counsel appearing for Steel Authority of India Limited (SAIL) the rest of
the counsel fairly accepted that there was no constitutional or juristic
basis for the Compensatory Tax Theory propounded by the majority judgment
in Automobile Transport case (supra). Mr. Salve, who led the team of
lawyers appearing for the dealers/assessees also did not support the
compensatory tax theory propounded in Automobile case (supra). Mr.
Rohatgi, learned Attorney General for India and M/s. Rakesh and Dinesh
Dwivedi who appeared for some of the States also argued that the
Compensatory Tax Theory has no basis whatsoever and that the same ought to
be abandoned not only because of lack of any juristic support but also
because of the problems that beset the application of the said theory in
practice. It may, in the light of the concessions made at the Bar, have
become unnecessary for us to deal with this aspect at any length but since
M/s. Ganguly and Bagaria have not fully subscribed to the views urged by
their colleagues appearing for the dealers, we are left with no option but
to squarely deal with the question whether the Compensatory Tax Theory is
indeed sustainable. Three distinct aspects touching the question need be
noticed straightaway. The first and the foremost of these aspects is that
the concept of compensatory taxes is not recognised by the Constitution. A
tax is a compulsory exaction of money for general public good and is
defined as under by Thomas M Cooley in his book The Law of Taxation at page
61(Clark A. Nichols ed., 4th ed. 1924) as:

“Taxes are the enforced proportional contributions from persons and
property, levied by the state by virtue of its sovereignty for the support
of government and for all public needs. This definition of taxes, often
referred to as “Cooley’s definition,” has been quoted and endorsed, or
approved, expressly or otherwise, by many different courts. While this
definition of taxes characterizes them as ‘contributions’, other
definitions refer to them as ‘imposts’, ‘duty or impost’, ‘charges’,
‘burdens’, or ‘exactions’, ; but these variations in phraseology are of no
practical importance.”

xxx xxx xxx xxx
xxx xxx xxx xxx

The term is defined also in The Major Law Lexicon by P. Ramanatha
Aiyar – Vol. 6 – 4th Edition – Page Nos.6678 and 6679 in the following
words:

The term “tax” and “taxes” have been defined as a rate or sum of money
assessed on the person or property of a citizen by government for the use
of the nation or state; burdens or charges imposed by the legislative power
upon persons or property to raise money for public purposes, and the
enforced proportional contribution of persons and property levied by
authority of the state for the support of government and for all public
needs.

xxx xxx xxx xxx
xxx xxx xxx xxx

Taxes are public burdens, of which every individual may be compelled to
bear his part, and that in proportion to the extent of protection he
receives or the amount of property held by him, as the will of the
Legislature may direct. The power of taxation is said to be an incident of
sovereignty, and co-extensive with that of which it is incident.”

Blackwell on Tax Titles as cited in ‘Tata Iron & Steel Co. Ltd. v.
State of Bihar, AIR 1991 Patna 75, 81 has the following to say about
taxes:

‘Taxes are defined to be burdens or charges imposed by the legislative
power upon persons or property to raise money for public purposes.’
Black’s Law Dictionary, 7th Edn., P. 1469 defines tax as under:
“A monetary charge imposed by government on persons, entities or property
to yield public revenue,”
If taxes are eventually meant to serve larger public good and for running
the governmental machinery and providing to the people the facilities
essential for civilized living, there is no question of a tax being non-
compensatory in character in the broader sense.

64. Secondly, because the concept of compensatory tax obliterates the
distinction between a tax and a fee. The essential difference between a
tax and a fee is that while a tax has no element of quid pro quo, a fee
without that element cannot be validly levied. The difference between a
tax and the fee has been examined and elaborated in a long line of
decisions of this Court. (See: Commissioner, Hindu Religious Endowments,
Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (AIR 1954 SC
282), Mahant Sri Jagannath Ramanuj Das & Anr. v. State of Orissa & Anr.
(AIR 1954 SC 400), The Hingir-Rampur Coal Co. Ltd. v. State of Orissa (AIR
1961 SC 459), Corporation of Calcutta and anr. v. Liberty Cinema (AIR 1965
SC 1107), Kewal Krishna Puri and Anr. v. State of Punjab (1980) 1 SCC 416,
Krishi Upaj Mandi Samiti and Ors. v. Orient Paper and Industries Ltd.
(1995) 1 SCC 655), State of Gujarat and Anr. v. Akhil Gujarat Pravasi V.S.
Mahamendal (2004) 5 SCC 155: State of West Bengal v. Kesoram Industries
Ltd. & ors. (2004) 10 SCC 201.

65. Thirdly, and lastly, the concept of Compensatory taxes being outside
Part XIII, is difficult to apply in actual practice. Experience in the
present batch of cases has amply demonstrated that difficulty. Most of the
legislations enacted by the States in these cases have described the entry
tax levied under the same to be compensatory in character. This may have
been done to take the levy outside the mischief of Article 301 of the
Constitution. The question however is whether tax amount collected in
terms of the said legislation is really used by the State for the purpose
of providing or maintaining services and benefits to the tax payers and
whether the Courts can follow the money trail to determine whether the
State concerned has actually used the amount for the avowed purpose
underlying the legislation. This process is fraught with serious
difficulties, a fact that was not disputed by learned Counsel for the
assessees/dealers. Actual application of the Compensatory Tax Theory,
therefore, runs into difficulties to an extent that the theory at some
stage breaks down. M/s. Salve, Rohatgi and Dwivedi were in that view
perfectly justified in submitting that the Compensatory Tax Theory was
legally unsupportable and deserved to be abandoned. We have no hesitation
in agreeing with that submission, the arguments of M/s. Ganguly and Bagaria
to the contrary notwithstanding.

66. With the Compensatory Tax Theory no longer found acceptable, we are
left with only two competing view points, one expressed by Gajendragadkar,
J. and the other by B.P. Sinha, CJ. Which one is the correct view is the
critical question that falls for our determination having regard to the
Constitutional scheme and the language employed in Articles 301 to 307 to
which we must now turn for a closer look.
Article 301 is as under:
“301. Freedom of trade, commerce and intercourse.- Subject to the other
provisions of this Part, trade, commerce and intercourse throughout the
territory of India shall be free”

A plain reading of the above would show that freedom of trade, commerce and
intercourse is by no means absolute, the same being subject to the other
provisions of Part XIII of the Constitution. Amongst those provisions are
Articles 302, 303 and 304 which have a direct bearing on the nature and the
extent of restrictions subject to which only is the right to freedom of
trade, commerce and intercourse referred to in Article 301 exercisable.
Article 302 reads thus:
“302. Power of Parliament to impose restrictions on trade, commerce and
intercourse.— Parliament may by law impose such restrictions on the freedom
of trade, commerce or intercourse between one State and another or within
any part of the territory of India as may be required in the public
interest.”

67. The above leaves no manner of doubt that Parliament is empowered to
impose such restrictions on the freedom of trade, commerce and intercourse
between one State and another or within any part of the territory of India
as may be required in public interest. Reading Articles 301 and 302
together, it is evident, that freedom of trade, commerce and intercourse is
subject to restrictions which Parliament may by law impose in public
interest. The absolute character of the freedom of trade, commerce and
intercourse is thus lost by reason of Article 302 itself empowering
Parliament to impose such restrictions as it may consider necessary in
public interest. Article 303, in turn, places restrictions on the
legislative powers of the Parliament and of the States, when it says :
“303. Restrictions on the legislative powers of the Union and of the States
with regard to trade and commerce.—(1) Notwithstanding anything in article
302, neither Parliament nor the Legislature of a State shall have power to
make any law giving, or authorising the giving of, any preference to one
State over another, or making, or authorising the making of, any
discrimination between one State and another, by virtue of any entry
relating to trade and commerce in any of the Lists in the Seventh Schedule.
(2) Nothing in clause (1) shall prevent Parliament from making any law
giving, or authorising the giving of, any preference or making, or
authorising the making of, any discrimination if it is declared by such law
that it is necessary to do so for the purpose of dealing with a situation
arising from scarcity of goods in any part of the territory of India.”

68. A careful reading of the above would show that notwithstanding the
power vested in the Parliament under Article 302, it shall not make any law
giving, or authorising the giving of any preference to one State over
another, or making, or authorising the making of, any discrimination
between one State and another, by virtue of any entry relating to trade and
commerce in any of the Lists in the Seventh Schedule. From Clause (2) of
Article 303 (supra) it is manifest that the restriction on the power vested
in Parliament in terms of Clause (1) of Article 303 shall not extend to
Parliament making any law with a view to giving or authorising the giving
of, any preference or making, or authorising the making of, any
discrimination if it is declared by such law that it is necessary to do so
for the purpose of dealing with a situation arising out of scarcity. A
conjoint reading of Clauses (1) and (2) of Article 303 would thus make it
clear that while Parliament/ Legislature of a State shall have no power to
make a law imposing restriction on trade, commerce and intercourse, by
giving or authorizing the giving of any preference to one State over the
other, such limitation on the legislative power of Parliament shall not
extend to giving of any preference or making or authorizing any
discrimination if it is declared by law that a situation has arisen out of
scarcity of goods that makes it necessary to do so. In other words, while
the Parliament may impose restrictions in public interest under Article
302, the restriction so imposed shall not be in the nature of giving
preference or discrimination between one State or the other except when the
law declares that scarcity of goods in any part of India necessitates such
preference or discrimination.

69. That brings us to Article 304 of the Constitution which too like
Articles 302 and 303 deals with restrictions on the freedom of trade,
commerce and intercourse. It reads:

“304. Restrictions on trade, commerce and intercourse among
States.—Notwithstanding anything in Article 301 or Article 303, the
Legislature of a State may by law— (a) impose on goods imported from other
States or the Union territories any tax to which similar goods manufactured
or produced in that State are subject, so, however, as not to discriminate
between goods so imported and goods so manufactured or produced; and (b)
impose such reasonable restrictions on the freedom of trade, commerce or
intercourse with or within that State as may be required in the public
interest: Provided that no Bill or amendment for the purposes of clause (b)
shall be introduced or moved in the Legislature of a State without the
previous sanction of the President.”

The Article starts with a “non-obstante” clause which has been the subject
matter of forensic debates in several cases. We do not for the present
propose to address the effect of the non-obstante clause at this stage or
the interplay between the expression “subject to” appearing in Article 301
and the non obstante clause in Article 304. We shall turn to that aspect a
little later. What we wish to examine is whether Article 304(a) treats
taxes as a restriction so that any such levy may fall foul of Article 301.
The answer to that question, we say without any hesitation is in the
negative. Article 304(a) far from treating taxes as a restriction per se,
specifically recognises the State legislature’s power to impose the same on
goods imported from other States or Union Territories. The expression “the
legislature of a State may by law impose on goods imported from other
States (or Union Territories) any tax” are much too clear and specific to
be capable of any equivocation or confusion. It is true that the source of
power available to the State legislature to levy a tax is found in Articles
245 and 246 of the Constitution but, the availability of such power for
taxing goods imported from other States or Union Territories is clearly
recognised by Article 304 (a). The expression ‘may by law impose’ is
certainly not a restriction on the power to tax. That does not, however,
mean that the power to tax goods imported from other States or Union
Territories is unqualified or unrestricted. There are, in our opinion, two
restrictions on that power. The words “to which similar goods manufactured
or produced in that State are subject” impose the first restriction on the
power of the State legislature to levy any such tax. These words would
imply that a tax on import of goods from other States will be justified
only if similar goods manufactured or produced in the State are also taxed.
The second restriction comes from the expression “so, however, as not to
discriminate between goods so imported and goods so manufactured or
produced”. The State legislature cannot in the matter of levying taxes
discriminate between goods imported from other States and those
manufactured or produced within the State levying such a tax. The net
effect of Article 304 (a) therefore is that while levy of taxes on goods
imported from others State and Union territories is clearly recognised as
Constitutionally permissible, the exercise of such power is subject to the
two restrictive conditions referred to above. That does not however
detract from the proposition that levy of taxes on goods imported from
other States is constitutionally permissible so long as the State
legislatures abide by the limitations placed on the exercise of that power.
To put it differently, levy of taxes on import of goods from other States
is not by itself an impediment under the scheme of Part XIII or Article 301
appearing therein.

70. That brings us to the question whether Clauses (a) and (b) have to be
read conjunctively. It was contended on behalf of the dealers/assessees
that even when a tax in terms of Article 304 (a) is not forbidden being non-
discriminatory, it may still constitute a restriction under Clause (b)
thereof. The argument is that just because a tax passes muster under
Clause (a) of Article 304 being non-discriminatory does not mean that the
levy of such a tax is not a restriction on the freedom of trade, commerce
and intercourse. It was contended that while a discriminatory tax must be
treated as a restriction by itself the reasonableness of a non-
discriminatory tax will have to be seen by the President in terms of the
Proviso to Clause (b). It was argued that Article 304(a) does not exhaust
the universe in so far as levy of taxes is concerned for even when the law
complies with the requirement of Clause (a), it may fail to pass the test
of reasonableness and of public interest under Clause (b) in which event
the President may decline the sanction for introduction of any Bill aimed
at levying such a tax.

71. There is, in our opinion, no merit in any of the contentions noted
above. Clauses (a) and (b) of Article 304 deal with two distinct subjects
and must, therefore, be understood to be independent of each other. While
Clause (a) deals entirely with imposition of taxes on goods imported from
other States, Clause (b) deals with imposition of reasonable restriction in
public interest. It is trite that levy of a tax in terms of Article
304(a) may or may not be accompanied by the imposition of any restriction
whether reasonable or unreasonable. There is, in our opinion, no rationale
in the contention that the legislature of a State cannot levy a tax without
imposing one or more reasonable restrictions or that a law that is simply
imposing restrictions in terms of Clause (b) to Article 304 must be
accompanied by the levy of a tax on the import of goods. The use of the
word ‘and’ between clauses (a) and (b) does not admit of an interpretation
that may impose an obligation upon the legislature to necessarily impose a
tax and a restriction together. The law may simply impose a tax without
any restriction reasonable or otherwise or it may simply impose a
reasonable restriction in public interest without imposing any tax
whatsoever. It may also levy a tax and impose such reasonable restriction
as may be considered necessary in public interest. All the three
situations are fully covered and permissible under Article 304 in view of
the phraseology used therein. The word ‘and’ can mean ‘or’ as well as
‘and’ depending upon the context in which the law enacted by the
legislature uses the same. Suffice it to say that levy of taxes do not
constitute a restriction under Part XIII except in cases where the same are
discriminatory in nature. Once Article 304 (a) is understood in that
fashion, Clause (b) dealing with reasonable restrictions must necessarily
apply to restrictions other than those by way of taxes. It follows that
for levy of taxes prior Presidential sanction in terms of the proviso under
Article 304(b) will be wholly unnecessary. This view is reinforced on the
plain language of proviso to Article 304(b), which is limited to law
relating to reasonable restrictions referred to in clause (b).

72. The sum total of what we have said above regarding Articles 301, 302,
303 & 304 may be summarized as under:
Freedom of trade, commerce and intercourse in terms of Article 301 is not
absolute but is subject to the Provisions of Part XIII.
Article 302 which appears in Part XIII empowers the Parliament to impose
restrictions on trade, commerce and intercourse in public interest.

The restrictions which Parliament may impose in terms of Article 302 cannot
however give any preference to one State over another by virtue of any
entry relating to trade and commerce in any of the lists in the Seventh
Schedule.
The restriction that the Parliament may impose in terms of Article 302 may
extend to giving of preference or permitting discrimination between one
State over another only if Parliament by law declares that a situation
arising out of scarcity of goods warrants such discrimination or
preference.

Article 304(a) recognizes the availability of the power to impose taxes on
goods imported from other States, the legislative power to do so being
found in Articles 245 and 246 of the Constitution.

Such power to levy taxes is however subject to the condition that similar
goods manufactured or produced in the State levying the tax are also
subjected to tax and that there is no discrimination on that account
between goods so imported and goods so manufactured or produced.

The limitation on the power to levy taxes is entirely covered by Clause (a)
of Article 304 which exhausts the universe in so far as the State
legislature’s power to levy of taxes is concerned.

Resultantly a discriminatory tax on the import of goods from other States
alone will work as an impediment on free trade, commerce and intercourse
within the meaning of Article 301.

Reasonable restrictions in public interest referred to in Clause (b) of
Article 304 do not comprehend levy of taxes as a restriction especially
when taxes are presumed to be both reasonable and in public interest.

73. The inferences enumerated above are based on a textual interpretation
of the provisions of Article 301 to Article 304. An interpretation which
is both textual and contextual has always been found to be more acceptable.
That is so because it is only when both the text and the context are kept
in view that the statutory provisions can be best understood. An
interpretation that makes the textual match the contextual meaning of the
provision is preferred by Courts over one that prefers one at the cost of
the other.

74. In Reserve Bank of India v. Peerless General Finance and Investment
Co. Ltd. (1987) 1 SCC 424 this Court pithily summed up the law on the
subject in the following words:
“33. Interpretation must depend on the text and the context. They are the
basis of interpretation. One may well say if the text is the texture,
context is what gives the colour. Neither can be ignored. Both are
important. The interpretation is best which makes the textual
interpretation match the contextual… … …”
75. We may also refer to the following passage of Constitutional Law of
India (4th Edition) by H.M. Seervai where the distinguished author has
adverted to the golden rule of interpretation applicable to Constitutional
provisions in the following words:
“2.12. The golden rule of interpretation is that words should be read in
their ordinary, natural and grammatical meaning subject to the rider that
in construing words in a Constitution conferring legislative power the most
liberal construction should be put upon the words so that they may have
effect in their widest amplitude.”

76. Let us then see whether the textual interpretation placed on Articles
301 to 304 matches the contextual. The contextual interpretation of Part
XIII must, out of necessity, start with the historical perspective of that
Part. We have with great advantage extracted in the earlier part of this
Judgment the historical backdrop as set out in the decisions of this Court
both in Atiabari and Automobile cases (supra). While it is unnecessary to
recall the said passages over again, we need to remember that Part XIII had
a historical precursor in the form of Section 297 of the Government of
India Act, 1935 that governed what was then called the British India
comprising the territory of India subject to British Rule. The rest of the
territories were at that time Princely States who claimed sovereign rights
within the limitations imposed by the paramount power. The power to levy
taxes was one such power wielded by the Princely States which led to
erection of customs barriers impeding the flow of trade, commerce and
intercourse. Section 297 aimed at removing such trade barriers. It
provided for a prohibition against enactment of any law or taking of any
executive action by the provincial legislature that restricted the entry
into or export from the province goods of any class or description.

77. More importantly, in terms of clause (b) of Section 297(1) of
Government of India Act, 1935 no provincial legislature or Government could
impose any tax, cess, toll or due which discriminated between goods
manufactured or produced in the provinces and goods not so manufactured or
produced or between goods manufactured or produced outside the province
discriminated between goods manufactured or produced in one locality and
similar goods manufactured or produced in another locality. With India
attaining its freedom, Part XIII of the Constitution adopted by it, was
aimed at bringing about economic unity. The object underlying Part XIII
was to make movement and exchange of goods free throughout the territory of
India. This was achieved by Article 301 to Article 304 adopting
substantially the scheme underlying the 1935 Act. The only difference
between the said provisions and Section 297 of the 1935 Act was that the
principles enunciated in the latter were extended to the Union Government
and the Union Parliament and to the territory which had after merger become
a part of India. Notably, the essence of the freedom of trade commerce and
intercourse as recognized in the 1935 Act and in the Constitution under
Part XIII remained the same. It was for that reason that Justice
Venkatarama Iyer had in M.P.V. Sunderaramier’s case (Supra) observed and if
we may say so rightly that the Constitution of India was not written on a
tabula rasa. The common feature which the two provisions share is that the
provincial legislature’s power to impose taxes is recognized subject only
to the limitation that there is no discrimination between goods
manufactured or produced within the Province or State vis-a-vis those
imported from outside. In Atiabari’s case (supra), the majority speaking
through Gajendragadkar, J. noticed the co-relation between Section 297 of
1935 Act, and Article 301 of the Constitution of India but concluded that
Article 301 did not simply adopt Section 297 of the 1935 Act but widened
and enriched the same in content. The Court did not, however, elaborate as
to how much richer and wider did Article 301 make the freedom of trade,
commerce and intercourse then what was envisaged under Section 297. The
Court said :
“42. … … …That is why we are inclined to hold that the broad and
unambiguous words used in Article 301 are intended to emphasize that the
freedom of trade, commerce and intercourse guaranteed was richer and wider
in content than was the case under Section 297; how much wider and how much
richer can be determined only on a fair and reasonable construction of
Article 301 read along with the rest of the articles in Part XIII. In our
opinion therefore, the argument that tax laws are outside Part XIII cannot
be accepted.”
(emphasis supplied)
78. We have with great respect to the distinguished Judges failed to
persuade ourselves to subscribe to the above view. The argument that
Article 301 had enriched and widened the content of trade, commerce and
intercourse beyond what is evident from a comparison of the language
between the two provisions namely (a) extending the prohibition against
discrimination to the Union Government and the Parliament and (b) making
the provision applicable to the territory of India as defined by the
Constitution, has not impressed us. The textual interpretation placed by
us upon Articles 301-304 instead gets considerable support from the
contextual and the historical perspective of Part XIII.

79. We may now turn to yet another contextual feature that has a bearing
on the true and correct interpretation of Part XIII namely the sovereign
character of the power to tax available to the State legislature. It is
now fairly well settled that the Constitutionally vested power to levy tax
can be regulated or controlled only by specific Constitutional limitations,
if any. We have in the earlier part of this judgment elaborated how the
power to levy taxes is a sovereign power with several limitations
specifically stipulated by the Constitution itself. We have also explained
at some length how legislative competence of the State legislatures can be
circumscribed only by express provisions of the Constitution and unless
there is an express limitation on the plenary taxing power of the States,
there is no other fetter on the exercise of that power.

80. Applying the above principle to the case at hand, we do not see any
specific limitation on the State’s power to levy taxes on the import of
goods from other States except the one referred to in Article 304(a) of the
Constitution. That limitation we have sufficiently explained is confined to
levy of discriminatory taxes within the comprehension of Article 304(a).
So long as taxes are non-discriminatory and, therefore, consistent with
Article 304(a), there is no limitation leave alone any express limitation
on the States’ legislative power to levy any tax on the import of goods
from another State. The power to levy a tax in terms of Articles 245 and
246 read with Entry 52 of list II not being in dispute in the cases at
hand, the absence of any specific limitation forbidding the exercise of
such power whether for the sake of free trade, commerce and intercourse or
otherwise simply means that the State legislatures are free to levy taxes
that are non-discriminatory in nature.

81. That brings us to the third contextual feature relevant to the
interpretation of Part XIII. We have in the earlier part of this judgment
referred to the decisions of this Court in Kuldip Nayyar’s case and S.R.
Bommai’s case apart from the decisions of this Court in Special Reference
No. 1 of 1964 (supra) to hold that the Indian Constitution if not federal
in the strict sense of the term is at least quasi federal in character.
That proposition has not been disputed even by the counsel for the
assesses/dealers, and must be held to be fairly well settled. Equally well
settled is the proposition that India’s federal structure is one of the
basic features of the Constitution. Relying upon the settled legal position
Mr. Mukul Rohtagi, Attorney General, followed by Mr. Rakesh Dwivedi, Mr. PP
Rao, Mr. AK Sinha and Mr. Devdatt Kamath strenuously argued, and in our
opinion rightly so that the provisions of our Constitution are aimed at
vesting and maintaining with the States substantial and significant powers
in the legislative and executive fields so that States enjoy their share of
autonomy and sovereignty in their sphere of governance. This can in turn
be done by interpreting the provisions of the Constitution including those
found in Part XIII in a manner that preserves and promotes the federal set-
up instead of diluting or undermining the same. In ITC Limited v.
Agricultural Produce Market Committee and Ors. (2002) 9 SCC 232 this Court
ruled that the Constitution of India must be interpreted in a manner that
does not whittle down the powers of the State legislature. An
interpretation that supports and promotes federalism while upholding the
Central supremacy as contemplated by some of the Articles must be
preferred. To the same effect is the nine judge Bench decision of this
Court in S.R. Bommai’s case (supra) where this Court cautioned against
adoption of an interpretation that has the effect of whittling down the
powers reserved to the States. This Court said:
“276. The fact that under the scheme of our Constitution, greater power is
conferred upon the Centre vis-a-vis the States does not mean that States
are mere appendages of the Centre. Within the sphere allotted to them,
States are supreme. The Centre cannot tamper with their powers. More
particularly, the Courts should not adopt an approach, an interpretation,
which has the effect of or tends to have the effect of whittling down the
powers reserved to the States. It is a matter of common knowledge that over
the last several decades, the trend the world over is towards strengthening
of Central Governments be it the result of advances in
technological/scientific fields or otherwise, and that even in USA the
Centre has become far more powerful notwithstanding the obvious bias in
that Constitution in favour of the States. All this must put the court on
guard against any conscious whittling down of the powers of the States. Let
it be said that the federalism in the Indian Constitution is not a matter
of administrative convenience, but one of principle – the outcome of our
own historical process and a recognition of the ground realities. This
aspect has been dealt with elaborately by Shri M.C. Setalvad in his Tagore
Law Lectures “Union and State relations under the Indian Constitution”
(Eastern Law House, Calcutta, 1974). The nature of the Indian federation
with reference to its historical background, the distribution of
legislative powers, financial and administrative relations, powers of
taxation, provisions relating to trade, commerce and industry, have all
been dealt with analytically. It is not possible nor is it necessary for
the present purposes to refer to them. It is enough to note that our
Constitution has certainly a bias towards Centre vis-a-vis the States:
Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan. It is equally
necessary to emphasise that courts should be careful not to upset the
delicately-crafted constitutional scheme by a process of interpretation.”
(emphasis supplied)

82. Reference may also be made to Kesavananda Bharati’s case (supra)
where a Bench of thirteen Judges cautioned that the process of
interpretation should not diminish or whittle down the provisions of the
original contract upon which the federation was founded nor is it
legitimate to impose by a process of judicial construction a new contract
upon the federating states. To the same effect is the decision of this
Court in M/s. International Tourist Corporation & ors. v. State of
Haryana and Ors. (1981) 2 SCC 318 where this Court observed:
“6A. There is a patent fallacy in the submission of Shri Sorabji.
Before exclusive legislative competence can be claimed for Parliament by
resort to the residuary power, the legislative incompetence of the State
legislature must be clearly established. Entry 97 itself is specific that
a matter can be brought under that entry only if it is not enumerated in
List II or List III and in the case of a tax if it is not mentioned in
either of those lists. In a Federal Constitution like ours where there is
a division of legislative subjects but the residuary power is vested in
Parliament, such residuary power cannot be so expansively interpreted, as
to whittle down the power of the State legislature. That might affect and
jeopardize the very federal principle. The federal nature of the
Constitution demands that an interpretation which would allow the exercise
of legislative power by Parliament pursuant to the residuary powers vested
in it to trench upon State legislation and which would thereby destroy or
belittle state autonomy must be rejected.”

(emphasis supplied)

83. An approach which tends to dilute the federal character of our
Constitutional scheme must, therefore, be avoided and one that supports and
promotes the concept of federalism preferred by the courts while
interpreting the provisions of the Constitution.

84. Dealing in particular with the scope and meaning of Article 304 (b)
of the Constitution on a true and correct interpretation Seervai in his
treatise Constitutional Law of India (supra) sounded a note of caution and
observed that if Article 304(b) was interpreted in a manner that would
include levy of taxes as a restriction within the meaning of that Article,
it would totally dislocate the scheme under our Constitution. The
celebrated author, in our opinion, was right in saying so for the taxing
power of the Union and the States are mutually exclusive. While the
Parliament cannot legislate on the subjects reserved for the States, the
States cannot similarly trespass onto the taxing powers of the Union. If
the Constitutional scheme does not allow the Parliament to usurp the taxing
powers of the State Legislatures, such process of usurpation cannot also be
permitted to take place in the garb of making Union executive’s concurrence
an essential pre-requisite for any taxing legislation. The following
passage from Seervai’s book (Vol. 3, Page 2607) is in this regard
instructive:

“23.43. Thirdly, the whole scheme of taxation in our Constitution would be
completely dislocated if Article 304(b) included a tax. The taxing powers
of the Union and the States have been made mutually exclusive so that
Parliament cannot deprive the States of their taxing powers as has happened
in countries where the powers of taxation are concurrent. It would be
surprising if the Union legislature, i.e. Parliament could not take away
the taxing powers of the State legislatures and yet it would be open to the
Union executive under Article 304(b) to deprive the State legislatures of
their taxing powers.”

85. To the same effect are the following observations made by Mathew’s,
J. in G.K. Krishnan’s case (supra):

“27. … … …Article 304(a) prohibits only imposition of a
discriminatory tax. It is not clear from the article that a tax
simpliciter can be treated as a restriction on the freedom of internal
trade. Article 304(a) is intended to prevent discrimination against
imported goods by imposing on them tax at a higher rate than that borne by
goods produced in the State. A discriminatory tax against outside goods is
not a tax simpliciter but is a barrier to trade and commerce. Articled 304
itself makes a distinction between tax and restriction. That apart, taxing
powers of the Union and States are separate and mutually exclusive. It is
rather strange that power to tax given to states, say, for instance under
entry 54 of List II to pass a law imposing tax on sale of goods should
depend upon the goodwill of the Union executive.”

86. Suffice it to say that the interpretation of any provision of the
Constitution will be true and perfect only when the Court looks at the
Constitution holistically and keeps in view all important and significant
features of the Constitutional scheme constantly reminding itself of the
need for a harmonious construction lest interpretation placed on a given
provision has the effect of diluting or whittling down the effect or the
importance of any other provision or feature of the Constitution. So
interpreted Article 301 appearing in Part XIII does not, in our opinion,
work as an impediment on the States’ taxing powers except in situations
where such taxes fall foul of Article 304(a) of the Constitution. The
contextual approach thus fully matches the textual interpretation which we
have placed on Part XIII.

87. On behalf of the dealers/assessees it was contended with considerable
amount of tenacity that since Article 304 starts with a non-obstante clause
the inference was that the framers of the Constitution treated taxes as
impediments for free trade, commerce and intercourse. The argument was
that unless Article 301 was understood to mean that taxes could also be
restrictions on free trade and commerce, there was no need for the framers
of the Constitution to start Article 304 with a non-obstante clause
inasmuch as a non-obstante clause is meant to be only an exception to the
generality of the provision. Similar contentions urged in the past have
been noticed by this Court and by jurists alike while attempting
interpretation of Part XIII. This is evident from the passages which have
dealt with the anomaly arising out of the use of the expression ‘subject
to’ in Article 301 and the non-obstante clause in Article 304 of the
Constitution. This Court has often found the use of the non-obstante
clause in Article 304 to be either confusing or an unnecessary surplusage.
But the problem with the use of non-obstante clauses in Part XIII has been
the subject matter of criticism even in the Constituent Assembly as is
evident from the following passages from the debates:
Constitution Assembly Debates (Vol. IX Page 1131):
“Dr. P S Deshmukh: If we analyse the new articles that have been proposed,
it is very difficult to understand them and I think the comment is
absolutely justified that this is going to be a lawyers’ constitution, a
“paradise for lawyers” where there will be so many innumerable loopholes
that we will be wasting years and years before we could come to the final
and correct interpretation of many clauses. If we read this article 274,
you will find, Sir, that this is one of the most wonderful articles in the
whole Constitution. This is not the only one; there are many others. If we
count the use of the word ‘notwithstanding’ in this Constitution, I am
certain that the number of times that word is used will far exceed the use
of the word ‘Parliament’ or ‘Constitution’ in the whole Constitution. If
you will permit me, Sir, I will describe the situation a little
graphically. We first of all provide and say or declare that a certain
person is a man. Then, we say, notwithstanding this declaration, you shall
wear a sari and nothing but a sari.

Shri T.T. Krishnamachari : There is no bar to that.

Dr. P.S. Deshmukh : Then, notwithstanding the fact that you are considered
a man, and notwithstanding the fact that you wear nothing else but saris,
you will wear a Gandhi cap also. Then we have another ‘notwithstanding’.
Notwithstanding that you are a man, notwithstanding that you shall wear
nothing but a sari, notwithstanding that you shall also wear a Gandhi cap,
you will be at liberty to describe yourself as a woman. (Laughter)
Something of that sort, as funny and as amusing, is really the situation so
far as this article 274 is concerned. If you read through it, you will
see that as soon as the first part is over, we start with “notwithstanding
whatever is said in the first part, such and such a thing will happen”. In
the next clause, we say not only notwithstanding what is contained in the
first clause, together with notwithstanding what is contained in the other
clauses’ and then add something more. I think there is a better method of
drafting. Even if it is necessary to cope with complex situations and to
provide something on the lines proposed, there should be a simpler and more
direct way of drafting and making a provision which is not so
ununderstandable that only supermen could read this constitution, even
assuming that only supermen are to be born in India hereafter. If this
Constitution is made for the average man, if it is going to affect the
rights and privileges of the ordinary common man, it is necessary that the
drafters of this constitution should be more clear and use phraseology
which is more easily understandable and simpler.
xxx xxx xxx xxx

I hope therefore that the whole chapter will be made simpler. Instead of
tying the hands of both the States as well as of Parliament, it would be
far better not to commit ourselves to any policy, but to leave the whole
thing to Parliament. Otherwise, the situation which has arisen already in
respect of article 16 may arise in respect of article 274 itself. It is,
therefore, better to have simpler provisions and I have given them the
simplest form. I hope that this will appeal to the drafters of the
Constitution and if they accept it, I can tell them that they will be out
of much of the trouble. But if they insist upon the draft that they have
produced, it will be very difficult for trade and commerce not only to
prosper but even to exist.”

88. In Automobile Transport case (supra), S K Das, J. speaking for the
majority noticed the anomaly arising out of the use of the non-obstante
clause in Article 304 and described the same to be “somewhat
inappropriate”. The majority judgment in Automobile Transport case (supra)
in fact took the view that the mix up of exception upon exception in the
series of Articles in Part XIII makes a purely textual interpretation
difficult. The following passage is in this regard apposite:
“10. Art. 304 again begins with a non obstinate clause mentioning both
Art. 301 and Article 303, though Article 304 relates only to the
Legislature of a State. Article 303 relates to both the State Legislature
and Parliament and again the non obstante clause in Article 304 is somewhat
inappropriate. The fact of the matter is that there is such a mix up of
exception upon exception in the series of articles in Part XIII that a
purely textual interpretation may not disclose the true intendment of the
articles.”

89. Subba Rao, J., as His Lordship then was, in a separate judgment
delivered in Automobile Transport case (supra) also found the use of the
non-obstante clause to be a “defect in phraseology”. His Lordship held
that the non-obstante clause has no relevance to Article 303 even when the
Article is mentioned alongwith the non-obstante clause. The importance of
the non-obstante clause was then confined to Article 304(b) as is clear
from the following paragraph of the judgment :
“42. … … …The non-obstante clause vis-a-vis Article 304(a) may have some
relevance so far as Article 301 is concerned, for it enables the
Legislature of a State to impose an impediment on the free movement of
trade in spite of the freedom declared under Article 301. But it has no
relevance to Article 303, which only prohibits the State Legislature from
making a discriminatory law and it does not in any way prohibit the State
Legislature from imposing a non-discriminatory tax permitted under Art.
304(a). But, with reference to Art. 304(b), the non-obstante clause has
significance and meaning even in regard to Art. 303, as clause (b) lifts
the ban imposed by Art. 303, subject to the limitation mentioned therein.
Therefore, the non-obstante clause must be deemed to apply only to that
part of Art. 304 appropriate to the said clause. If so read, the difficulty
in the construction disappears. Art. 304(a) lifts the general ban imposed
by Article 301 in respect of imposition of non-discriminatory taxes on
goods imported, which indicates that but for the said provision the law of
taxation in that regard would infringe the freedom declared under Art.
301.”

90. Hidayatullah, J. also found the non-obstante clause in Article 304 to
be somewhat anomalous and described the same as “inaccurate drafting of the
Constitution”.

91. Suffice it to say that the use of the non-obstante clause in Article
304 has had its share of criticism from the very inception which criticism
has to an extent been prophetic for the interpretation of Part XIII has
indeed been a lawyer’s paradise over the past fifty years or so. Seervai
has in his treatise adverted to this anomaly arising from the use of the
non-obstante clause and said that the same covers both the clauses (a) and
(b) of Article 304. He argues with considerable forensic force that
reference to Article 301 in the non-obstante clause is meaningless having
regard to the fact that the freedom granted thereunder is itself subject to
other provisions of Part XIII including Article 304. This would necessarily
imply that Article 304 (a) and (b) do not subtract anything from Article
301. That appears to us to be the correct view on the subject. While it is
true that legislature does not waste words and that no part of a
legislation can be rendered a surplusage, the only rational meaning that
can be attributed to the non-obstante clause appearing in Article 304 is
that the same was used only as a manner of abundant caution and a possible
reassurance that Article 301 is indeed subordinate to Article 304 which it
was even otherwise without the use of that clause. The net effect of the
discussion therefore is that the expression ‘subject to other provisions of
this Part’ appearing in Article 301 and the non-obstante clause appearing
in Article 304 do not traverse in different directions. There is no
conflict in the two provisions on account of the use of the said
expressions. Interpreted individually or conjointly, the said two
expressions simply mean that Article 304 takes precedence over Article 301.
While Article 304(a) recognizes the power of the State Legislatures to tax
goods imported from other State, it also imposes limitations on the
exercise of that power. On the other hand clause (b) to Article 304 permits
imposition of reasonable restrictions subject to the proviso appearing
below that clause. We have thus no hesitation in rejecting the argument
that the use of the non-obstante clause in Article 304 is suggestive of the
Constitution recognizing taxes as restrictions under Article 301 or that
the power to impose a reasonable restriction under Article 304(b) is meant
to include the power to levy taxes so that levy of taxes may be permissible
only in case the procedure provided under the proviso is followed.

92. On behalf of the dealers/ assessee it was argued that the State
legislatures may levy taxes that may operate as fiscal barriers and thereby
prevent or restrict inter State trade, commerce and intercourse. It was
urged that if such statutory fiscal barrier is also held not to be a
restriction upon the freedom of trade, commerce and intercourse guaranteed
under Part XIII, a citizen whose right under that Part is affected may have
no redress against such levies. Relying upon the decision of this Court in
Ramjilal v. Income Tax Officer, Mohindargarh, AIR 1951 SC 97, it was
contended that a challenge to a fiscal statute shall not be maintainable
even under Part III of the Constitution, thereby, not only violating the
citizen’s constitutional rights of free trade and commerce but also denying
them the remedy against such violation. This according to the learned
counsel was one among other reasons why levy of taxes ought to be treated
as restrictions on free trade, commerce and intercourse.

93. In Ramjilal’s case (supra), a petition under Article 32 of the
Constitution was filed before this Court by the petitioner who was carrying
on business in the State of Nabha. With the merger of Nabha into the State
of Pepsu, the petitioner was required by the assessing authority to file
return and pay income tax for the income earned by him during the previous
years. Aggrieved, the petitioner challenged the proceedings inter alia on
the ground that the assessment of tax for previous year violated his right
guaranteed under Article 14. This Court repelled the contention founded on
Article 14 holding that there was reasonable classification of assessee
under the relevant statute and that the petitioner’s challenge to the
proceedings under Article 14 was untenable. Having said that, the Court
examined the question whether the taxing statute violated Right to Property
guaranteed under Article 31 (1) of the Constitution. Repelling the
contention this Court held that if collection of taxes amounted to
deprivation of property within the meaning of Article 31 (1), there was no
point in making a separate provision regarding the same as is made in
Article 265. This Court declared that Article 31(1) must be regarded as a
guarantee against deprivation of property otherwise, than by imposition of
tax for otherwise Article 265 would become wholly redundant. The Court
declared that the Constitution had treated taxation as distinct from
compulsory acquisition of property and has made independent provisions
giving protection against taxation.

94. Then came Kunnathat Thathunni Moopil Nair v. The State of Kerala &
Anr., AIR 1961 SC 552, where again one of the questions that fell for
consideration was whether Article 265 of the Constitution was a complete
answer to the attack against the Constitutionality of a taxing statute.
This Court held that in order that a taxing law may be valid, the tax
proposed to be levied must be within the legislative competence of the
legislature imposing the tax and authorizing the collection thereof and
that the tax must be subject to the condition laid down under Article 13 of
the Constitution. One of such conditions declared by this Court was that
the legislature shall not make any law that takes away or abridges the
equality clause in Article 14. The Court declared that the guarantee of
equal protection of laws must extend even to taxing statutes. It clarified
that every person may not be taxed equally but property of the same
character has to be taxed, the taxation must be by the same standard so
that the burden of taxation may fall equally on all persons holding that
kind and extent of property. If the taxation, generally speaking, imposes
similar burden on everyone with reference to that particular kind and
extent of property on the basis of such taxation, the law shall not be open
to attack on the ground of inequality even though the result of taxation
may be that the total burden on different persons may be unequal. The Court
summed up that taxing statute is not fully immune from an attack on the
ground that it infringes equality clause under Article 14, no matter the
Courts are not concerned with the policy underlying the taxing statute or
whether a particular tax could have been imposed in a different way or a
way that the Court might think would have been more equitable in the
interest of equity.

95. To the same effect is the decision in Laxmanappa Hanumantappa
Jamkhandi v. Union of India, AIR 1955 SC 3. Reference may also be made to
Smt. Ujjam Bai v. State of Uttar Pradesh, AIR 1962 SC 1621 which took note
of the pronouncements of this Court in the three cases mentioned above to
examine whether there was any conflict between the view taken in Moopil
Nair case on the one hand and Ramjilal and Laxmanappa cases on the other,
the Court found on a closer examination that there was no such conflict and
clarified that the observation made in Ramjilal and Laxmanappa cases must
in the context bear reference to abrogation of Article 31 (1) only in so
far as the admissibility of a challenge to taxation law with reference to
Part III is concerned. The Court explained that in Moopil Nair’s case this
Court has held that a taxing statute was not immune from challenge under
Article 14 just because the legislature that imposed the tax was competent
to levy the tax in terms of Article 265. This Court summed up the legal
position in the following words:
“ The result of the authorities may thus be summed up:

(1) A tax will be valid only if it is authorized by a law enacted by a
competent legislature. That is Article 265.

(2) A law which is authorized as aforesaid must further be not repugnant to
any of the provisions of the Constitution. Thus, a law which contravenes
Articles 14 will be bad, Moopil Nair’s case.

(3) A law which is made by a competent legislature and which is not
otherwise invalid, is not open to attack under Article 31 (1). Ramjilal’s
case and Laxmanappa’s case.

(4) A law which is ultra vires either because the legislature has no
competence over it or it contravenes, some constitutional inhibition, has
no legal existence, and any action taken thereunder will be an infringement
of Article 19 (1) (g) Himmatlal’s case and Laxmanappa’s case. The result
will be the same when the law is a colourable piece of legislation.

(5) Where assessment proceedings are taken without the authority of law, or
where the proceedings are repugnant to rules of natural justice, there is
an infringement of the right guaranteed under Article 19(1)(f) and Article
19(1)(g); Tata Iron & Steel Co. Ltd; Moopil Nair’s case and Shri Madan Lal
Arora’s case.”
96. The above statement of law in our view is legally unexceptionable.
The argument that Ramjilal and Laxmanappa’s cases place taxing statute
beyond the purview of challenge under Part III has been correctly repelled
and fiscal statutes are also held to be open to challenge on the touchstone
of Article 14 of the Constitution. The contention that an aggrieved
citizen may have no remedy against a taxing statute does not, therefore,
hold good. Whether or not a challenge to such a statute succeeds is,
however, a different matter. It is fairly well settled by now that Courts
show considerable deference to the legislature in the matter of quantum of
tax that may be levied as also the subjects and individuals upon whom the
same may be levied. Just because room for challenge to a fiscal statute is
limited is in our view no reason to hold that levy of taxes otherwise
within the competence of the legislature imposing the same should be seen
as a restriction on free trade and commerce guaranteed under Article 301
which Article does not either textually or contextually recognize levy of
taxes as impediments except in cases where the same are discriminatory in
nature thereby being offensive to Article 304 (a) of the Constitution.

97. On behalf of the States it was argued by the learned Attorney
General, and M/s. Rao and Dwivedi that the decisions of this Court in
Atiabari and Automobile Transport cases had drawn support for their
conclusion on the Australian and American decisions. It was urged that
although the view taken by the majority decision in the former had
recognized that decisions from other jurisdictions may not be helpful while
interpreting the provisions of our Constitution, yet the Court had referred
to and relied upon those decisions to buttress its conclusions. The
Australian decisions relied upon by the majority have, it was contended,
been reversed by subsequent pronouncements of the Australian High Court,
which pronouncements are now gravitating towards the theory that
discriminatory taxes alone will operate as restrictions against free trade,
commerce and intercourse. It was in that view argued that the theoretical
basis borrowed from the foreign judgments by this Court in Atiabari case
stood demolished or atleast substantially eroded by the subsequent
pronouncements of the Australian High Courts, thereby, rendering the
correctness of the view taken by the majority in Atiabari’s case open to
serious doubts.

98. There is, in our view, considerable merit in that submission. In
Atiabari’s case (supra), Gajendragadkar J., speaking for the majority while
referring to the American and Australian decisions observed:

“59…. … … We have deliberately not referred to these decisions earlier
because we thought it would be unreasonable to refer to or rely on the said
section or the decisions thereon for the purpose of construing the relevant
Articles of Part XIII of our Constitution. It is commonplace to say that
the political and historical background of the federal polity adopted by
the Australian Commonwealth, the setting of the Constitution itself, the
distribution of powers and the general scheme of the Constitution are
different, and so it would not be safe to seek for guidance or assistance
from the Australian decisions when we are called upon to construe the
provisions of our Constitution. In this connection we have already
referred to the note of warning struck by Venkatarama Aiyar, J., against
indiscriminate reliance being placed on Australian and American decisions
in interpreting our Constitution in the case of M.P.V. Sundararamier & Co.
The same caution was expressed by Gwyer, C.J., as early as 1939 when he
observed in The Central Provinces and Berar Sales of Motor Spirit and
Lubricants Taxation Act, 1938. In the matter of AIR 1939 F.C. 1 at P.5;
“there are few subjects on which the decisions of other Courts require to
be treated with greater caution than that of federal and provincial powers,
for in the last analysis the decision must depend upon the words of the
Constitution which the Court is interpreting; and since no two
Constitutions are in identical terms it is extremely unsafe to assume that
a decision on one of them can be applied without qualification to another.
This may be so even where the words or expressions used are the same in
both cases, for a word or a phrase may take a colour from its context and
bear different senses accordingly.”
(emphasis supplied)
99. Having said that Gajendragadkar J., referred to these decisions with
a view to supporting his conclusions by reference to Judges in other
jurisdiction responding to similar challenges posed by interpretation of
what His Lordship described as “sister constitutions”. He said:
“59. … … …When you are dealing with the problem of construing a
constitutional provision which is none-too-clear or lucid you feel inclined
to inquire how other judicial minds have responded to the challenge
presented by similar provisions in other sister Constitutions. It is in
that spirit that we propose to refer to two Privy Council decisions which
dealt with the construction of Section 92 of the Australian Constitution.”

100. The Court, then, relied upon the decisions of the Australian High
Court in James v. Commonwealth of Australia (1936) A.C. 578 and
Commonwealth of Australia and others v. Bank of New South Wales and
others [1950] A.C. 235 to hold that the test of direct and immediate effect
evolved by the Australian High Court pronouncements, while interpreting
Section 92 of the Australian Constitution, was the correct test applicable
even to our Constitution including interpretation of Article 301 thereof.
The Court said:

Commonwealth of Australia v. Bank of New South Wales
“61. … … … In deciding the said question one of the tests which was applied
by Lord Porter was: “Does the act not remotely or incidentally (as to which
they will say something later) but directly restrict the inter-State
business of banking”, and he concluded that “two general propositions may
be accepted, (1) that regulation of trade, commerce and intercourse among
the States is compatible with its absolute freedom, and (2) that Section 92
is violated only when a legislative or executive act operates to restrict
such trade, commerce and intercourse directly and immediately as distinct
from creating some indirect or consequential impediment which may fairly be
regarded as remote”. This decision thus justifies the conclusion we have
reached about the scope and effect of Article 301.”

(emphasis supplied)

101. In Automobile’s case (supra) also Das, J. while speaking for the
majority followed the direct and immediate effect test relying upon the
pronouncements of the High Court of Australia in Commonwealth of Australia
and Ors. v. Bank of New South Wales and Ors. [1950] A.C. 235. This is
evident from the following passage:

“10. … … …In Section 92 of the Australian Constitution the
expression used was “absolutely free” and repeatedly the question was posed
as to what this freedom meant. We do not propose to recite the somewhat
chequered history of the Australian decisions in respect of which Lord
Porter, after a review of the earlier cases, said in Commonwealth of
Australia v. Bank of New South Wales that in the “labyrinth of cases
decided under Section 92 there was no golden thread”. What is more
important for our purpose is that he expressed the view that two general
propositions stood out from the decisions: (i) that regulation of trade,
commerce and intercourse among the States is compatible with its absolute
freedom, and (ii) that Section 92 of the Australian Constitution is
violated only when a legislative or executive act operates to restrict such
trade, commerce and intercourse directly and immediately as distinct from
creating some indirect or inconsequential impediment which may fairly be
regarded as remote. … … …”
102. On behalf of the States it was contended and, in our opinion, rightly
so that the “direct and immediate” effect test evolved by the pronouncement
of the Australian High Court has itself been watered down and diluted. The
current view in Australia is that only such taxes as are discriminatory
introduced by way of a protectionist measure operate as restrictions on the
freedom of trade, commerce and intercourse. This is evident from the
decisions of the Australia High Court in Cole v. Whitfield (1988) 165 CLR
360. The Court in that case reviewed the case law on the subject and
rejected the argument that if Section 92 of the Australian Constitution was
interpreted to be forbidding only discriminatory burdens it would have the
effect of denying the freedom of trade, commerce and intercourse. The
Court said:

“… .. ..Plainly, however, the construction which treats Section 92 as being
concerned to guarantee the freedom of inter-State trade and commerce from
discriminatory burdens does not involve the consequence that the grant of
legislative power with respect to inter-State trade and commerce is
deprived of its essential content.”
103. The Court noticed the evolution of the law on the subject and held
that it is only discriminatory burdens that are forbidden by Section 92 and
that the question whether a burden is indeed discriminatory is a question
of fact and degree to be answered upon judicial interpretation and
impressions. The following passage is, in this regard, instructive.

“ Departing now from the doctrine which has failed to retain general
acceptance, we adopt the interpretation which, as we have shown, is
favoured by history and context. In doing so, we must say something about
the resolution of cases in which no impermissible purpose appears on the
face of the impugned law, but its effect is discriminatory in that it
discriminates against inter-State trade and commerce and thereby protects
intra-State and commerce of the same kind. We mention first Commonwealth
laws enacted under Section 51(i) which govern the conduct of inter-State
trade and commerce. Such laws will commonly not appear to discriminate in
a relevant sense if they apply to all transactions of a given kind within
the reach of the Parliament. It is, however, possible for a general law
enacted under Section 51(i) to offend Section 92 if its effect is
discriminatory and the discrimination is upon protectionist grounds.
Whether such a law is discriminatory in effect and whether the
discrimination is of a protectionist character are questions raising issues
of fact and degree. The answer to those questions may, in the ultimate,
depend upon judicial impression.”
(emphasis supplied)
104. The Court also held that it is only if the discrimination is of a
protectionist character that Section 92 of the Australian Constitution
would stand violated. The Court said:

“In the case of a State law, the resolution of the case must start
with a consideration of the nature of the law impugned. If it applies to
all trade and commerce, inter-State and intra-State alike, it is less
likely to be protectionist than if there is discrimination appearing on the
face of the law. But where the law in effect, if not in form,
discriminates in favour of intra-State trade, it will nevertheless offend
against Section 92 if the discrimination is of a protectionist character. A
law which has as its real object the prescription of a standard for a
product or a service or a norm of commercial conduct will not ordinarily be
grounded in protectionism and will not be prohibited by Section 92. But if
a law, which may be otherwise justified by reference to an object which is
not protectionist, discriminates against inter-State trade or commerce in
pursuit of that object in a way or to an extent which warrants
characterization of the law as protectionist, a court will be justified in
concluding that it nonetheless offends Section 92.”
(emphasis supplied)

105. The above passage signifies a paradigm shift in the judicial opinion
in Australia as regards the interpretation of Section 92 of the Australian
Constitution. The earlier view that any impediment including one in the
nature of a tax which directly and immediately affects free trade, commerce
and intercourse would violate Section 92 has been evidently abandoned by
the Australian jurists. It follows that whatever support may have been
available from the earlier decisions for the view taken in Atiabari (supra)
and Automobile(supra) cases as to the true test applicable for interpreting
Part XIII, has, if we may use that expression, “fizzled out” with the
passage of time.

106. We may, at this stage, deal with yet another contention urged on
behalf of the dealers in support of their case that taxes were, in the
scheme of Part XIII, treated as restrictions. It was argued that the
presence of Article 306 of the Constitution which now stands repealed by
Constitution 7th Amendment Act, 1956 was itself suggestive of the fact that
taxes were intended to be restrictions on free trade, commerce and
intercourse, for otherwise, there was no reason why a provision like
Article 306 should have been incorporated by the framers of the
Constitution. Article 306, as it stood, before its deletion, was in the
following terms:
“Article 306. Power of certain States in Part B of the First Schedule to
impose restrictions on trade and commerce. – Notwithstanding anything in
the foregoing provisions of this Part or in any other provisions of the
Constitution, any State specified in Part B of the First Schedule which
before the commencement of this Constitution was levying any tax or duty on
the import of goods into the State from other States or on the export of
goods from the State to other States may, if an agreement in that behalf
has been entered into between the Government of India and the Government of
that State, continue to levy and collect such tax or duty subject to the
terms of such agreement and for such period not exceeding ten years from
the commencement of this Constitution as may be specified in the agreement.
Provided that the President may at any time after the expiration of five
years from such commencement terminate or modify any such agreement if,
after consideration of the report of the Finance Commission constituted
under Article 280, he thinks it necessary to do so.”
107. A careful reading of the above would show that the provision started
with a non-obstante clause and made it constitutionally permissible for any
State specified in Part B of the First Schedule to continue levying taxes
or duties on the import of goods into the State from other States or on the
export of goods from the State to other States, if an agreement in that
behalf has been entered into between the Government of India and the
Government of that State for such period not exceeding ten years as has
been stipulated in the agreement.

108. The historic rationale behind incorporation of Article 306 lay in the
fact that some States were imposing taxes/duties on the import of goods
into their territory and on the export of goods from their territory, which
taxes and levies were inconsistent with the Scheme of Part XIII, but, since
the States were heavily relying upon the revenue so collected, the tax
barriers set-up for such collection could not be completely taken away in
one go. The framers of the Constitution in that view considered it
necessary in the interest of stability of revenue to preserve the power
exercised by the States for a limited period subject to the conditions
stipulated in Article 306. The true effect of Article 306, therefore, was
that while the States had no power under the Constitutional Scheme to levy
customs duties on the import and export of goods to and from a State and
even when such taxes and levies were discriminatory vis-à-vis goods
produced/manufactured from outside the State, the discriminatory duties and
levies were in larger interest of stability of revenue of the concerned
States permitted, but, conditionally for a limited period. The marginal
note of Article 306, therefore, rightly mentions such levies and duties to
be restrictions on trade, commerce and intercourse. The reason for such
description being the discriminatory nature of such taxes and levies. Seen
in the historical perspective, it is futile to argue that Article 306 lends
any assistance for determining whether taxes act as restrictions on free
trade, commerce and intercourse. Seervai has correctly summed-up the true
import of Article 306 in the following passage from his treatise (supra):
“24.42. Again, Article 306 enabled the former Native States, which became
Part B States, to continue to levy any tax or duty on the import of goods
into such States from other States and to impose a duty on the export of
goods out of such States for a limited period of time. The reason for
enacting this provision is simple. First, Part B States claimed to be
sovereign States vis-à-vis British India, and vis-à-vis other Native States
so that the provinces of British India were in relation to Native States,
and the Native States were foreign States to one another. The duties of
import and export levied by Native States were thus duties of customs which
are well known for creating tariff barriers. Thus a customs duty on the
import of goods creates a tariff wall which the outside goods must surmount
since there is no obligation on the Native State imposing such duty to
impose any corresponding duty on similar goods manufactured and produced in
the other States. And the same is true of duties of export for they can
effectively prevent goods going out of the State by making them unsaleable
in States where goods bear no such tax or bear a very much smaller tax.
This scheme of taxation is basically opposed to the scheme of our
Constitution because the States of India are not foreign States to one
another, and no State can levy a duty or customs on goods imported from
another, for no State has power to levy a duty of customs. That power
belongs exclusively to Parliament in relation to foreign countries.
Secondly, such duties would ordinarily contravene Article 304(a) so far as
import from other States is concerned. However, as the revenues of the
Native States were to a greater or smaller extent dependent on duties of
customs, to have prohibited them at once would have dislocated the finances
of those States. So, for a limited period of time, these duties were
allowed to continue.”

For all that we have said above we have no hesitation in rejecting the
contention urged on behalf of the dealers.

109. It was next argued on behalf of the dealers that an unreasonably high
rate of tax could by itself constitute a restriction offensive to Article
301 of the Constitution. This was according to learned counsel for the
dealers acknowledged even in the minority judgment delivered by Sinha, CJ
in Atiabari’s case (supra). If that be so, the only way such a restriction
could meet the constitutional requirements would be through the medium of
the proviso to Article 304(b) of the Constitution. There is, in our
opinion, no merit in that contention either and we say so for two precise
reasons. Firstly, because taxes whether high or low do not constitute
restrictions on the freedom of trade and commerce. We have held so in the
previous paragraphs of the judgment based on our textual understanding of
the provisions of Part XIII which is matched by the contextual
interpretation. That being so the mere fact that a tax casts a heavy
burden is no reason for holding that it is a restriction on the freedom of
trade and commerce. Any such excessive tax burden may be open to challenge
under Part III of the Constitution but the extent of burden would not by
itself justify the levy being struck down as a restriction contrary to
Article 301 of the Constitution.
110. Secondly because, levy of taxes is both an attribute of sovereignty
and an unavoidable necessity. No responsible government can do without
levying and collecting taxes for it is only through taxes that governments
are run and objectives of general public good achieved. The conceptual or
juristic basis underlying the need for taxation has not, therefore, been
disputed by learned counsel for the dealers and, in our opinion, rightly
so. That taxation is essential for fulfilling the needs of the government
is even otherwise well-settled. A reference to “A Treatise on the
Constitutional Limitations” (8th Edn. 1927 – Vol. II Page 986) by Thomas M
Cooley brings home the point with commendable clarity. Dealing with power
of taxation Cooley says:
“Taxes are defined to be burdens or charges imposed by the
legislative power upon persons or property, to raise money for public
purposes. The power to tax rests upon necessity, and is inherent in every
sovereignty. The legislature of every free State will possess it under the
general grant of legislative power, whether particularly specified in the
constitution among the powers to be exercised by it or not. No
constitutional government can exist without it, and no arbitrary government
without regular and steady taxation could be anything but an oppressive and
vexatious despotism, since the only alternative to taxation would be a
forced extortion for the needs of government from such persons or objects
as the men in power might select as victims.”

111. Reference may also be made to the following passage appearing in
McCulloch v. Maryland, 17 US 316 (1819) where Chief Justice Marshall
recognized the power of taxation and pointed out that the only security
against the abuse of such power lies in the structure of the government
itself. The court said:
“43. … .. ..It is admitted that the power of taxing the people and
their property is essential to the very existence of government, and may be
legitimately exercised on the objects to which it is applicable to the
utmost extent to which the government may choose to carry it. The only
security against the abuse of this power is found in the structure of the
government itself. In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against erroneous
and oppressive taxation.

44. The people of a State, therefore, give to their government a right of
taxing themselves and their property; and as the exigencies of the
government cannot be limited, they prescribe no limits to the exercise of
this right, resting confidently on the interest of the legislator, and on
the influence of the constituents over their representative, to guard them
against its abuse.”

112. To the same effect is the decision of this Court in State of Madras
v. N.K. Nataraja Mudaliar (AIR 1969 SC 147) where this Court recognized
that political and economic forces would operate against the levy of an
unduly high rate of tax. The Court said:
“16.… … …Again, in a democratic constitution political forces would
operate against the levy of an unduly high rate of tax. The rate of tax on
sales of a commodity may not ordinarily be based on arbitrary
considerations, but in the light of the facility of trade in a particular
commodity, the market conditions internal and external – and the likelihood
of consumers not being scared away by the price which includes a high rate
of tax. Attention must also be directed sub-Section (5) of Section 8 which
authorizes the State Government, notwithstanding anything contained in
Section 8, in the public interest to waive tax or impose tax on sales at a
lower rate on inter-State trade or commerce. It is clear that the
legislature has contemplated that elasticity of rates consistent with
economic forces is clearly intended to be maintained.”

113. Also apposite is the following passage from the said decision where
this Court held that free flow of trade does not necessarily depend upon
the rate of taxes but upon a variety of factors which the Court identified
in the following words:
“14. … … … The flow of trade does not necessarily depend upon the rates of
sales tax: it depends upon a variety of factors, such as the source of
supply, place of consumption, existence of trade, channels, the rates of
freight, trading facilities, availability of efficient transport and other
facilities for carrying on trade. Instances can easily be imagined of
cases in which notwithstanding the lower rate of tax in a particular part
of the country goods may be purchased from another part, where a higher
rate of tax prevails. Supposing in a particular State in respect of a
commodity, the rate of tax is 2 per cent but if the benefit of that low
rate is offset by the freight which a merchant in another State may have to
pay for carrying that commodity over a long distance, the merchant would be
willing to purchase the goods from a nearer State, even though the rate of
tax in that State may be higher. Existence of long standing business
relations, availability of communications, credit facilities and a host of
other factors – natural and business – enter into the maintenance of trade
relations and the free flow of trade cannot necessarily be deemed to have
been obstructed merely because in a particular State the rate of tax on
sales is higher than the rates prevailing in other States.”

114. Reliance by the counsel for the dealers upon the judgment of Sinha,
CJ is also, in our opinion, of no avail to them. After holding taxes to be
outside the purview of Part XIII of the Constitution, His Lordship made the
following observations:
“17. … … … If a law is passed by the Legislature imposing a tax which
in its true nature and effect is meant to impose an impediment to the free
flow of trade, commerce and intercourse, for example, by imposing a high
tariff wall, or by preventing imports into or exports out of a State, such
a law is outside the significance of taxation, as such, but assumes the
character of a trade barrier which it was the intention of the Constitution
makers to abolish by Part XIII.”

115. A careful reading of the above would show that Sinha, CJ had two
situations in mind. One, where the State prevents imports into and exports
out of the State and the other where the State imposes the high tariff wall
with a view to imposing an impediment to the free flow of trade, commerce
and intercourse. Insofar as the first category viz. laws that forbid
imports into and exports out of a State are concerned, the same would work
as a restriction in terms of restrictions within the contemplation of Part
XIII and may be permissible in the manner and to the extent the said Part
permits to do so, but, in the second case, viz. legislature imposing a high
tariff wall so as to operate as an impediment to free flow of trade,
commerce and intercourse, there are considerable difficulties. That is so
because the judgment does not elaborate as to what would constitute a high
tariff wall for the tax to operate as a restriction/impediment.
116. Counsel for the parties were, in the course of arguments, repeatedly
asked whether any objective standards and norms can be evolved to determine
the height and the width of the wall referred to in the passage extracted
above. They were, however, unable to suggest any such norms. They fairly
conceded that it was difficult if not impossible to evolve any such norm
applicable to myraid situations that would arise before the courts. This
implies that the tariff wall theory actually breaks down and is not
amenable to judicially manageable dimensions. What may sound a high tariff
wall or a fiscal barrier to one may not be so to the other. What may
constitute a fiscal wall or barrier for one category of traders may not be
so for other categories. So also, the tax at a given rate may be high on a
particular commodity but reasonable qua another. Suffice it to say that
the fiscal wall theory gets into serious difficulties when it comes to
enforcement or effectuating the same. The logic behind the theory in fact
cracks and gives-up. Such being the position, we have little hesitation in
holding that the fiscal wall theory propounded in Sinha, CJ’s minority
judgment is not really workable and has not commended itself to us. It
follows that simply because the tax is high is no reason for it to change
its character and take the form of a restriction within the meaning of Part
XIII, no matter any one aggrieved of such heavy burden shall have the
liberty to assail the same on all such grounds as may be available to him
under Part III of the Constitution. We are conscious of the fact that some
decisions of this Court in Raja Jagannath Baksh Singh v. State of UP AIR
1962 SC 1563; Federation of Hotel & Restaurant Assn. of India etc. v.
Union of India & ors. (1989) 3 SCC 634; Y V Srinivasamurthy and ors. v.
State of Mysore and Anr. AIR 1959 SC 894; D G Gose & Co. (Agents) (P) Ltd.
v. State of Kerala and anr. (1980) 2 SCC 410; A Suresh and others v. State
of TN and another (1997) 1 SCC 319 have declared that just because a tax is
heavy is no reason for it to be contrary to Part III, but we leave that
question open to be examined in appropriate cases as and when any such
challenge is mounted by anyone aggrieved of an unduly heavy tax rate.

117. That brings us to the question whether the use of the expression “by
virtue of any entry relating to trade and commerce” appearing in Article
303 are wide enough to include entries relating to levy of taxes also. The
argument advanced amongst others by Mr. Datar is that the expression
“relating to trade and commerce” appearing in the said Article must be
interpreted liberally so as to include not only Entry 42 in List I, Entry
26 in List II and Entry 33 in List III but also other entries that empower
the Parliament and State Legislatures to levy taxes. By that logic it was
contended that levy of taxes is also treated as a restriction within the
contemplation of Part XIII making it necessary for the legislature to
resort to Article 304(b) and the proviso for doing so. There is in our
opinion no merit in that contention also.

118. We say so for two precise reasons. Firstly because entries relating
to Trade and commerce by themselves are not sufficient to empower the
legislature to levy taxes. The constitutional scheme is such that a taxing
entry is distinct from other entries and a levy of tax is possible only if
there is an entry which authorizes the competent legislature to levy the
same. This distinction has for long been maintained by judicial
pronouncements of this Court. We may in this regard refer to M.P.V.
Sunderaramier’s case (supra) where this Court has declared:

“51. In List I, Entries 1 to 81 mention the several matters over
which Parliament has authority to legislate. Entries 82 to 92 enumerate the
taxes which could be imposed by a law of Parliament. An examination of
these two groups of Entries shows that while the main subject of
legislation figures in the first group, a tax in relation thereto is
separately mentioned in the second. Thus, Entry 22 in List I is “Railways”,
and Entry 89 is “Terminal taxes on goods or passengers, carried by railway,
sea or air; taxes on railway fares and freights”. If Entry 22 is to be
construed as involving taxes to be imposed, then Entry 89 would be
superfluous. Entry 41 mentions “Trade and commerce with foreign countries;
import and export across customs frontiers”. If these expressions are to be
interpreted as including duties to be levied in respect of that trade and
commerce, then Entry 83 which is “Duties of customs including export
duties” would be wholly redundant. Entries 43 and 44 relate to
incorporation, regulation and winding up of corporations. Entry 85 provides
separately for corporation tax. Turning to List II, Entries 1 to 44 form
one group mentioning the subjects on which the States could legislate.
Entries 45 to 63 in that List form another group, and they deal with taxes.
Entry 18, for example, is “Land” and Entry 45 is “Land revenue”. Entry 23
is “Regulation of mines” and Entry 50 is “Taxes on mineral rights”. The
above analysis — and it is not exhaustive of the Entries in the Lists —
leads to the inference that taxation is not intended to be comprised in the
main subject in which it might on an extended construction be regarded as
included, but is treated as a distinct matter for purposes of legislative
competence. And this distinction is also manifest in the language of
Article 248, clauses (1) and (2) and of Entry 97 in List I of the
Constitution. Construing Entry 42 in the light of the above scheme, it is
difficult to resist the conclusion that the power of Parliament to
legislate on inter-State trade and commerce under Entry 42 does not include
a power to impose a tax on sales in the course of such trade and commerce.”
xxx xxx xxx
55. To sum up: (1) Entry 54 is successor to Entry 48 in the
Government of India Act, and it would be legitimate to construe it as
including tax on inter-State sales unless, there is anything repugnant to
it in the Constitution and there is none such. (2) Under the scheme of
the Entries in the Lists, taxation is regarded as a distinct matter and is
separately set out. … … ..”
119. The above pronouncement is, in our opinion, the correct
enunciation of the legal position in the light whereof it is difficult to
appreciate how entries relating to trade and commerce could be understood
to be including levy of taxes also. That apart, once taxes are held to be
outside Part XIII for the reason that we have already set out earlier,
there is no way we can bring them back into that Part by a tenuous
interpretation or understanding of Article 303. As explained by us earlier,
Article 303 is an exception to Article 302, inasmuch as it limits the power
conceded to the Parliament under Article 302 to impose restrictions on
freedom of Trade, commerce and intercourse in public interest. The power
exercised by Article 302 cannot be so exercised as to give preference to
one state over another except under a situation covered by Article 303(2)
namely situation arising from scarcity of goods in any part of the
territory of India. We cannot add to this Article any artificially
extended meaning the ingenuity of the bar in coining any such
interpretation notwithstanding.
120. Relying upon the decision in Mudaliar’s case (supra) it was argued on
behalf of the assessee that this Court has upheld the constitutional
validity of the Central State Tax Act on the ground that such a tax was in
public interest within the contemplation of Article 302 of the Constitution
of India, hence, validly leviable. This, according to the learned counsel,
implied that the tax was recognised as a restriction which could be levied
only if found to be in public interest as stipulated in Article 302. We
have no difficulty in rejecting that contention. In Mudaliar’s case, this
Court was bound by and followed the pronouncement of the larger bench in
Atiabari’s case holding that taxes could also be restrictions on free trade
and commerce if they directly and immediately impeded their free flow. We
have, in the preceding part of this judgment, held that view to be legally
unsustainable on a proper construction of the provision of Part XIII and
the Constitutional scheme. Once the premise on which Atiabari’s case was
decided is held to be flawed, Mudaliar that simply followed the ratio of
that decision cannot stand scrutiny. The argument that Central Sales Tax
was valid in terms of Article 302 as such a tax was in public interest
becomes academic if taxes are held to be outside the purview of Part XIII.
This incidentally will be true in respect of every other pronouncement
where benches of smaller strength have dealt with similar other
legislations and taken a view following the ratio in Atiabari’s case.

121. We may at this stage deal with yet another contention urged on behalf
of the assesses who argued that while Article 304(a) forbids discriminatory
fiscal legislation in respect of goods coming from another state there was
no provision which prevented the States from levying discriminatory taxes
within its territorial limits. The argument was that the absence of any
provision against discriminatory taxation within a State must be understood
to mean that taxes would generally be restrictions and unless the States
take recourse to Article 304(b) they cannot levy such taxes upon trade and
commerce within their territorial limits. The argument is, in our view,
more in despair than substantial. It is true that Part XIII does not in
terms forbid the levy of discriminatory taxes on goods produced within the
States but the fact that there is no such prohibition does not necessarily
mean that if such discriminatory taxation does indeed take place the same
is constitutionally permissible. Whether or not there is hostile
discrimination between goods from one part of the State and those from
another part is a matter which will have to be judged on a case to case
basis and on the touchstone of Article 14. Having said that we need to
remind ourselves that Part XIII of the Constitution was aimed at addressing
the mischief arising from fiscal and other barriers which the princely
states had imposed and which gravely impeded free trade and commerce. The
Constituent Assembly Debates show that framers of the Constitution were
concerned with the removal of such barriers. Discrimination intra-State in
terms of levy of taxes was never considered to be a challenge for
presumably the Constituent Assembly never considered the same to be a real
possibility necessitating a specific provision prohibiting levy of
discriminatory intra-State taxes.
122. On behalf of the assessees-dealers, it was next argued that
levy of entry tax on import of goods from outside the local area in the
State will be per se discriminatory if goods so imported or similar are not
produced or manufactured within the State. That is, argued the learned
counsel, because the levy will fall unequally thereby violating the
guarantee against discrimination contained in Article 304(a). We have no
difficulty in rejecting that submission as well. The reason is obvious.
Article 304(a), in our opinion, strikes at discriminatory taxation implying
thereby that the levy falls unequally as between goods produced or
manufactured within the State and those being imported from outside. The
essence of the guarantee in Article 304(a) lies in the same or similar
goods being treated similarly in the matter of taxation. The question,
therefore, is whether that guarantee is violated if the goods subjected to
levy of entry tax are not produced or manufactured within the State levying
the tax. Our answer is in the negative. This is because there is no
question of any discrimination if goods from outside the State are not at a
disadvantage vis-a-vis goods produced or manufactured within that State.
It is true that a levy on goods that are not produced or manufactured in
the State is likely to make such goods costlier but that is not enough for
the levy to be considered unconstitutional. A responsive Government aware
of the needs of its constituents will be under tremendous pressure to keep
such taxes low enough for its constituents to be able to afford the same.
Democratic processes and pressures within the system of governance that we
have will itself take care of any aberration in this regard. What is
absolutely clear, however, is that Article 304(a) will not frown at a levy
simply because same or similar goods as are taxed are not produced or
manufactured in the State. Reliance upon the decision in Kalyani Stores
AIR 1966 SC 1686 does not, in our opinion, help the assessees. The majority
judgment in that case looked at Article 304(a) as the source of power to
levy a tax or duty. We have in the earlier parts of the judgment explained
that the source of power to levy taxes/duties lies in Articles 245 and 246
of the Constitution read with the entries in the three lists contained in
Schedule VII. Article 304(a), in that view, only places a constitutional
restriction on the power to levy taxes or duties while recognizing the
availability of such powers to the State legislatures. The restrictions as
explained by us in the earlier paras to levy taxes/duties is confined to
levy of discriminatory taxes and duties alone. To the extent, Kalyani
Stores takes the view that the power to levy taxes is traceable to Article
304(a) the decision, in our opinion, is not sound nor is it correct to say
that since goods being taxed are not produced in the State, the power to
levy a tax gets obliterated.

123. Appearing for some of the assessees Mr. Venkatraman argued that
the Central Sales Tax Act was a classic example of the Union exercising its
power under Article 302 of Part XIII. He contended that the restrictions so
imposed signify that tax and restrictions are synonymous within the
contemplation of part XIII.

124. The Central Sales Tax Act, 1956 was enacted pursuant to the
Sixth Amendment Act, 1956 whereby taxes on sale and purchase of goods in
the course of inter-state trade and commerce were expressly brought within
the purview of the legislative competence of Parliament. This included the
power to impose restrictions upon the power of the State legislature
insofar as levy of taxes of sale or purchase of goods of special importance
is concerned. Entry 92-A added by the Sixth Amendment Act 1956 empowered
the Parliament to levy taxes on the sale and purchase of the goods other
than newspapers in the course of trade and commerce. Entry 54 of the State
List by the same amendment was redrawn to make the taxes on the sale and
purchase of goods subject to Entry 92-A of List I. The two entries read as
under:
“92-A. Taxes on the sale or purchase of goods other than newspapers, where
such sale or purchase takes place in the course of inter-State trade or
commerce.

54. Taxes on the sale or purchase of goods other than newspapers,
subject to the provisions of Entry 92-A of List-I.”

125. The States’ power it is evident is made subservient to the
powers of the Parliament under Entry 92-A. Section 15 of the Central Sales
Tax Act, therefore, has overriding effect vis-a-vis any State Law
authorizing imposition of taxes on sale/purchase of declared goods. Seen in
the above perspective, Parliament has limited the legislative power of the
State insofar as taxes on declared goods are concerned. We find it
difficult to read into such restrictions the meaning sought to be drawn by
the learned counsel that taxes themselves are restrictions within the
comprehension of Part XIII. The imposition of restrictions on the State’s
power of taxation in regard to declared goods is not, in our opinion,
suggestive of taxes themselves being restrictions for purposes of Part XIII
of the Constitution. Not only that, Article 286(3) provides the source of
power for the Parliament to impose any restriction on the State authority
to levy a tax on goods of special importance declared by Parliament.
Article 286 (3) reads as :
“286.Restriction as to imposition of tax on the sale or purchase of
goods:

(1)….
(2)….
(3) Any law of a State shall, in so far as it imposes, or
authorises the imposition of,—

(a) a tax on the sale or purchase of goods declared by Parliament by
law to be of special importance in inter-State trade or commerce; or

(b) a tax on the sale or purchase of goods, being a tax of the nature
referred to in sub-clause (b), sub clause (c) or sub-clause (d) of clause
(29A) of article 366,

be subject to such restrictions and conditions in regard to the system of
levy, rates and other incidents of the tax as Parliament made by law
specify.”
126. In the light of what we have said above, we answer Question
No.1 in the negative and declare that a non-discriminatory tax does not per
se constitute a restriction on the right to free trade, commerce and
intercourse guaranteed under Article 301. Decisions taking a contrary view
in Atiabari’s case (supra) followed by a series of later decisions shall,
therefore, stand overruled including the decision in Automobile Transport
(supra) declaring that taxes generally are restrictions on the freedom of
trade, commerce and intercourse but such of them as are compensatory in
nature do not offend Article 301. Resultantly decisions of his Court in
Jindal Stainless Limited(2) and anr. v. State of Haryana and ors.
(2006) 7 SCC 241 shall also stand overruled.

127. Re. Question No.2
In view of our answer to Question No.1, Question No.2 does not arise for
consideration.

128. Re. Question No.3
In the light of what we have said in Question Nos. 1 and 2, this question
also does not survive for consideration.
129. Re. Question No.4
This question touching the constitutional validity of the impugned State
enactments can be split into two parts. The first part which can be
briefly dealt with at the outset is whether the constitutional validity of
the impugned legislations has to be tested by reference to both Articles
304(a) and 304(b) as contended by learned counsel for the assessees or only
by reference to Article 304(a) as argued by the States. In the light of
what we have said while dealing with question No.1 we have no hesitation in
holding that Article 304(b) does not deal with taxes as restrictions. At
the risk of repetition, we may say that restrictions referred to in Article
304(b) are non-fiscal in nature. Constitutional validity of any taxing
statute has, therefore, to be tested only on the anvil of Article 304(a)
and if the law is found to be non-discriminatory, it can be declared to be
constitutionally valid without the legislation having to go through the
test or the process envisaged by Article 304(b). Should, however, the
statute fail the test of non-discrimination under Article 304(a) it must be
struck down for the same cannot be sustained even if it had gone through
the process stipulated by Article 304(b). That is because what is
constitutionally impermissible in terms of Article 304(a) cannot be
validated and sanctioned through the medium of Article 304(b). Suffice it
to say that a fiscal statute shall be open to challenge only under Article
304(a) of the Constitution without being subjected to the test of Article
304(b) either in terms of the existence of public interest or
reasonableness of the levy.

130. That brings us to the second part of question No.4 viz. whether
the impugned State enactments violate Article 304(a) of the Constitution.
That aspect will necessarily involve a careful reading of the impugned
enactments and a proper appreciation of the scheme underlying the same.
While we have at some length heard learned counsel for the parties on that
aspect, we do not propose to deal with all the dimensions of that challenge
based on Article 304(a) except two of them that were argued at great length
by learned counsel for the parties. The first of these two dimensions
touches upon the State’s power to promote industrial development by
granting incentives including those in the nature of exemptions or reduced
rates of levy on goods locally produced or manufactured. On behalf of the
assesses it was contended that grant of exemptions and incentives in favour
of locally manufactured/produced goods is also one form of insidious
discrimination which was impermissible in terms of article 304(a) for such
exemptions and incentives had the effect of putting goods from another
State at a disadvantage. Relying upon a decision of two-Judge Bench of this
Court in Shree Mahavir Oil Mills and Anr. v. State of Jammu and Kashmir and
Ors. (1996) 2 SCC 39 it was argued that exemptions in favour of locally
produced goods from payment of taxes was constitutionally impermissible and
offensive to article 304(a). That was a case where the State Government
had totally exempted goods manufactured by small scale industries within
the State from payment of sales tax even when the sales tax payable by
other industries including manufacturers of goods in adjoining States was
in the range of 8%. This exemption was questioned by manufacturers of
edible oils from other States on the ground that the same was
discriminatory and violative of Articles 301 and 304 of the Constitution.

131. This Court held that the exemption given to manufacturers of edible
oil was total and unconditional, while producers of edible oil from
industries in adjoining states had to pay sales tax @ 8%. Grant of
exemption to local oil producing units thereby put the former at a
disadvantage. Having said that, the Court exercised its powers under
Article 142 of the Constitution and struck down the exemption by moulding
the reliefs to suit the exigencies of the situation. The Court no doubt
noticed a three-Judge Bench decision in Video Electronics vs. State of
Punjab (1990) 3 SCC 87 in which notifications issued by the States of U.P
and Punjab providing for exemptions to new units established in certain
areas for a prescribed period of 3 to 7 years were assailed as
discriminatory. The challenge to the exemption was in that case also based
on the alleged violation of Articles 301 and 304. This Court however upheld
the notifications in question on the ground that the same related to a
specific class of industrial units and the benefit under the same was
admissible for a limited period of time only. The Court observed that if an
overwhelmingly large number of local manufacturers were subject to sales
tax, it could not be said that the local manufactures were favored as a
class against outsiders.

Adverting to the decision in Video Electronics (supra) this Court in
Mahavir (supra) held the same to be distinguishable on the ground that the
Punjab and U.P notifications were qualitatively different from the one
issued by the Government of Jammu and Kashmir in as much as while the
former benefitted only specified units and limited the benefit to a
specified period, the latter was not subject to any such limitations. This
declared the Court resulted in discrimination vis-a-vis. outside goods.
What is important is that in Video Electronics (supra) this Court
recognized the difference between differentiation and discrimination and
held that every differentiation is not discrimination. This Court noted
that the word discrimination was not used in Article 14 as it has been used
in Article 16, Article 303 and Article 304 (a). The use of the word in 304
(a) observed this Court involved an element of “intentional and unfavorable
bias”. So long as there was no such bias evident from the measure adopted
by the state, mere grant of exemption or incentives aimed at supporting
local industries in their growth, development and progress did not
constitute discrimination.

132. We respectfully agree with the line of reasoning adopted in
Video Electronics (supra). The expression “discrimination” has not been
defined in the Constitution though the same has fallen for interpretation
of this Court on several occasions. The earliest of these decisions was
rendered in Kathi Raning Rawat v. The State of Saurashtra AIR 1952 SC 123,
where a seven-Judge Bench of this Court held that all legislative
differentiation is not necessarily discriminatory. Relying upon the meaning
of the expression in Oxford Dictionary, Patanjali Sastri, CJ (as His
Lordship then was) explained :
“7. All legislative differentiation is not necessarily discriminatory. In
fact, the word “discrimination” does not occur in Article 14. The
expression “discriminate against” is used in Article 15(1) and Article
16(2), and it means, according to the Oxford Dictionary, “to make an
adverse distinction with regard to; to distinguish unfavourably from
others”. Discrimination thus involves an element of unfavourable bias and
it is in that sense that the expression has to be understood in this
context. If such bias is disclosed and is based on any of the grounds
mentioned in Articles 15 and 16, it may well be that the statute will,
without more, incur condemnation as violating a specific constitutional
prohibition unless it is saved by one or other of the provisos to those
articles. But the position under Article 14 is different. Equal protection
claims under that article are examined with the presumption that the State
action is reasonable and justified. This presumption of constitutionality
stems from the wide power of classifi-cation which the legislature must, of
necessity, possess in making laws operating differently as regards
different groups of persons in order to give effect to its policies… .. ..”

133. Fazl Ali J. in his concurring judgment explained the concept in the
following words:
“19. I think that a distinction should be drawn between “discrimination
without reason” and “discrimination with reason”. The whole doctrine of
classification is based on this distinction and on the well-known fact that
the circumstances which govern one set of persons or objects may not
necessarily be the same as those governing another set of persons or
objects, so that the question of unequal treatment does not really arise as
between persons governed by different conditions and different sets of
circumstances. The main objection to the West Bengal Act was that it
permitted discrimination “without reason” or without any rational basis.”

Any challenge to a fiscal enactment on the touchstone of Article 304(a)
must in our opinion be tested by the same standard as in Kathi’s case
(supra). The Court ought to examine whether the differentiation made is
intended or inspired by an element of unfavourable bias in favour of the
goods produced or manufactured in the State as against those imported from
outside. If the answer be in the affirmative, the differentiation would
fall foul of Article 304(a) and may tantamount to discrimination.
Conversely, if the Court were to find that there is no such element of
intentional bias favouring the locally produced goods as against those from
outside, it may have to go further and see whether the differentiation
would be supported by valid reasons. In the words of Fazl Ali, J.
discrimination without reason would be unconstitutional whereas
discrimination with reason may be legally acceptable. In Video Electronic’s
case, this Court noted that the differentiation made was supported by
reasons. This Court held that if economic unity of India is one of the
Constitutional aspirations and if attaining and maintaining such unity is a
Constitutional goal, such unity and objectives can be achieved only if all
parts of the Country develop equally. There is, if we may say so, with
respect considerable merit in that line of reasoning. A State which is
economically and industrially backward on account of several factors must
have the opportunity and the freedom to pursue and achieve development in a
measure equal to other and more fortunate regions of the country which have
for historical reasons, developed faster and thereby acquired an edge over
its less fortunate country cousins. Economic unity from the point of view
of such underdeveloped or developing states will be an illusion if they do
not have the opportunity or the legal entitlement to promote industries
within their respective territories by granting incentives and exemptions
necessary for such growth and development. The argument that power to grant
exemption cannot be used by the State even in case where such exemptions
are manifestly intended to promote industrial growth or promoting
industrial activity has not appealed to us. The power to grant exemption is
a part of the sovereign power to levy taxes which cannot be taken away from
the States that are otherwise competent to impose taxes and duties. The
conceptual foundation on which such exemptions and incentives have been
held permissible and upheld by this Court in Video’s case is, in our
opinion, juristically sound and legally unexceptionable. Video Electronics,
therefore, correctly states the legal position as regards the approach to
be adopted by the Courts while examining the validity of levies. So long as
the differentiation made by the States is not intended to create an
unfavourable bias and so long as the differentiation is intended to benefit
a distinct class of industries and the life of the benefit is limited in
terms of period, the benefit must be held to flow from a legitimate desire
to promote industries within its territory. Grant of exemptions and
incentives in such cases must be deemed to have been inspired by
considerations which in the larger context help achieve the Constitutional
goal of economic unity.

134. Seen in the above context the decision in Mahabir Oil’s case is
indeed distinguishable in as much as the manufactures of edible oil were
exempt totally and unconditionally while other manufacturers from outside
the State were not so exempt. Whether or not the impugned enactments in the
present batch of cases satisfy the tests referred to above and elaborated
in Video Electronics case is a matter on which we do not propose to express
any opinion for that aspect is best left open to be considered by the
regular benches hearing these matters after the reference is disposed off.
135. The other dimension of what according to the assesses amounts to
discrimination lies in goods coming from outside the State for sale,
consumption or use within a local area of another State being subjected to
an entry tax at a rate different from the one at which goods manufactured
within the taxing State are taxed. We are not getting into the substantive
or machinery provisions of the State enactments that levy entry tax on
goods entering a local area. This can be done more appropriately by the
bench hearing the matter after the reference has been answered. What we
propose to examine is whether grant of exemption or adjustment/ setoff/
credit to goods produced or manufactured within the taxing State can vis a
vis goods coming from outside the State constitute discrimination against
such outside goods. According to the assessee it does constitute
discrimination against such outside goods while according to the State any
provision which is aimed at equalizing the impact of taxes on goods after
their production/ manufacture is legitimate and constitutionally
permissible.

136. The States argue that the grant of exemption to indigenous goods is
aimed only at neutralizing the impact of entry tax on those goods, in cases
where VAT/ Sales Tax payable on such goods is equivalent to the rate at
which entry tax is chargeable. The exemption in such cases has the effect
of rendering the locally produced goods free from entry tax liability. In
cases where there is a difference in the rate of VAT/ Sales Tax and entry
tax adjustment/credit of the amount paid towards VAT/ Sales tax has the
effect of reducing the entry tax liability proportionately. It is argued
that so long as similar credit/adjustment/setoff is made admissible to
goods coming from another state there is no question of any discrimination
qua them. The rate of tax paid on such goods in the state from where they
are brought including the Central Sales Tax, if any payable on the same may
be equal to the entry tax payable under the relevant statute in which case
such outside goods also enjoy the same advantage as goods manufactured in
the taxing state, dispelling any misconceived impression about any
discrimination qua such goods.

137. The legal position as to the approach that courts adopt towards
fiscal measures while examining their constitutional validity is fairly
well settled by a long line of decisions of this Court. The law on the
subject is so well settled that it calls for no elaborate discussion of the
same. Courts have almost universally accepted the principle that keeping
in view the inherent complexities of fiscal adjustments and the diverse
elements and inputs that go into such exercise a greater latitude is due to
the legislature in taxation related legislations. It is unnecessary to
refer to all the decisions in which this Court has conceded such play at
the joints to the legislature. Reference to some of the decision of this
Court should in our opinion suffice. In Mafatlal v. Union of India 1997(5)
SCC 536 in a separate but concurring opinion Paripoornan, J. held:

“ 343. .. ..In the matter of taxation laws, the Court permits a great
latitude to the discretion to the legislature. The State is allowed to
pick and choose districts, objects, persons, methods and even rate for
taxation if it does so reasonably. The Courts view the laws relating to
economic activities with greater latitude than other matters. [See
Collector of Customs v. Nathella Sampathu Chetty and Anr. AIR 1962 SC 316;
Khyerbari Tea Company Ltd. and Anr. v. State of Assam and Ors. AIR 1964 SC
925; R.K. Garg v. Union of India and Ors. AIR 1981 SC 2138; Gauri Shanker
and Ors v. Union of India and Ors. (1994) 6 SCC 349 and Union of India and
Anr. v. A. Sanyasi Rao and Ors. (1996) 3 SCC 465]etc.”
138. Reference may also be made to the Constitution bench decision of this
Court in Khandige Sham Bhat v. Agrl. ITO, AIR 1963 SC 591 where this Court
declared that a law may facially appear to be non discrimination and yet
its impact on persons and property similarly situate may operate unequally
in which event, the law would offend the equity clause. This implies that
facial equality is not the only test for determining whether the law is
constitutionally valid. What is equally important is the impact of the
legislation. This Court held:

“7…Though a law ex facie appears to treat all that fall within a class
alike, if in effect it operates unevenly on persons or property similarly
situated, it may be said that the law offends the equality clause. It will
then be the duty of the court to scrutinise the effect of the law carefully
to ascertain its real impact on the persons or property similarly situated.
Conversely, a law may treat persons who appear to be similarly situate
differently; but on investigation they may be found not to be similarly
situate. To state it differently, it is not the phraseology of a statute
that governs the situation but the effect of the law that is decisive. If
there is equality and uniformity within each group, the law will not be
condemned as discriminative, though due to some fortuitous circumstance
arising out of a peculiar situation some included in a class get an
advantage over others, so long as they are not singled out for special
treatment. Taxation law is not an exception to this doctrine vide
Purshottam Govindji v. B.M. Desai, and Kunnathat Thathuni Moopil Nair v.
State of Kerala. But in the application of the principles, the courts, in
view of the inherent complexity of fiscal adjustment of diverse elements,
permit a larger discretion to the legislature in the matter of
classification, so long it adheres to the fundamental principles underlying
the said doctrine. The power of the legislature to classify is of “wide
range and flexibiliy” so that it can adjust its system of taxation in all
proper and reasonable ways.”
139. In V. Guruviah Naidu and Sons and ors. v. State of Tamil
Nadu and ors, (1977) 1 SCC 234 the Court was examining whether levy of
sales tax on hides and skins from within or outside the State was
discriminatory and offensive to Article 304(a) of the Constitution.
Repelling the contention that it was violative of Article 304(a), this
Court held:

“8. None of the circumstances which led this Court to strike down the
relevant provisions in the abovementioned two cases exists in the present
case. In Mehtab’s case discrimination was found to exist because of the
fact that tax was being levied at the same rate in respect of both raw
hides and skins as well as dressed hides and skins, even though the price
of dressed hides and skins was much higher. The position was worse in the
case of Hajee Abdul Shukoor because in that case the sales tax was found to
have been charged at a higher rate in respect of dressed hides and skins
than that on the sale of raw hides and skins in spite of the fact that the
price of dressed hides and skins was higher than that of raw hides and
skins. The position in the present case is materially different, for here
the rate of sales tax for raw hides and skins is 3 per cent, while that for
dressed hides and skins is 11/2 per cent. It is plain that the lower rate
of tax in the case of dressed hides and skins has been prescribed with a
view to offset the difference between the higher price of dressed hides and
skins and the lower price of raw hides and skins. No material has been
brought on the record to show that despite the lower rate of sales tax for
dressed hides and skins, the imported hides and skins are being subjected
to discrimination. The onus to show that there would be discrimination
between the hides and skins which were purchased locally in the raw form
and thereafter tanned and the hides and skins which were imported from
other States was upon the appellant. The appellant, we find, has failed to
discharge such onus.

9. Article 304(a) does not prevent levy of tax on goods; what it prohibits
is such levy of tax on goods as would result in discrimination between
goods imported from other States and similar goods manufactured or produced
within the State. The object is to prevent discrimination against imported
goods by imposing tax on such goods at a rate higher than that borne by
local goods since the difference between the two rates would constitute a
tariff wall or fiscal barrier and thus impede the free flow of inter-State
trade and commerce. The question as to when the levy of tax would
constitute discrimination would depend upon a variety of factors including
the rate of tax and the item of goods in respect of the sale of which it is
levied. The scheme of Items 7(a) and 7(b) of the Second Schedule to the
State Act is that in case of raw hides and skins which are purchased
locally in the State, the levy of tax would be at the rate of 3 per cent at
the point of last purchase in the State. When those locally purchased raw
hides and skins are tanned and are sold locally as dressed hides and skins,
no levy would be made on such sales as those hides and skins have already
been subjected to local tax at the rate of 3 per cent when they were
purchased in raw form. As against that, in the case of hides and skins
which have been imported from other States in raw form and are thereafter
tanned and then sold inside the State as dressed hides and skins, the levy
of the tax is at the rate of 11/2 per cent at the point of first sale in
the State of the dressed hides and skins. This levy cannot be considered to
be discriminatory as it takes into account the higher price of dressed
hides and skins compared to the price of raw hides and skins. It also
further takes note of the fact that no tax under the State Act has been
paid in respect of those hides and skins. The legislature, it seems,
calculated the price of hides and skins in dressed condition to be double
the price of such hides and skins in raw state. To obviate and prevent any
discrimination or differential treatment in the matter of levy of tax, the
legislature therefore prescribed a rate of tax for sale of dressed hides
and skins which was half of that levied under Item 7(a) in respect of raw
hides and skins.”
140. In Malwa Bus Service (Private) Ltd. v. State of Punjab and others
(1983) 3 SCC 237 this Court held that a difference in the rate of tax by
itself cannot be considered to be discriminatory and offensive to the
equality clause:
“21. The next submission urged on behalf of the petitioners is based on
Article 14 of the Constitution. It is contended by the petitioners that the
Act by levying Rs 35,000 as the annual tax on a motor vehicle used as a
stage carriage but only Rs 1500 per year on a motor vehicle used as a goods
carrier suffers from the vice of hostile discrimination and is, therefore,
liable to be struck down. There is no dispute that even a fiscal
legislation is subject to Article 14 of the Constitution. But it is well
settled that a legislature in order to tax some need not tax all. It can
adopt a reasonable classification of persons and things in imposing tax
liabilities. A law of taxation cannot be termed as being discriminatory
because different rates of taxation are prescribed in respect of different
items, provided it is possible to hold that the said items belong to
distinct and separate groups and that there is a reasonable nexus between
the classification and the object to be achieved by the imposition of
different rates of taxation. The mere fact that a tax falls more heavily on
certain goods or persons may not result in its invalidity. As observed by
this Court in Khandige Sham Bhat v. Agricultural Income Tax Officer in
respect of taxation laws, the power of legislature to classify goods,
things or persons are necessarily wide and flexible so as to enable it to
adjust its system of taxation in all proper and reasonable ways. The Courts
lean more readily in favour of upholding the constitutionality of a taxing
law in view of the complexities involved in the social and economic life of
the community. It is one of the duties of a modern legislature to utilise
the measures of taxation introduced by it for the purpose of achieving
maximum social good and one has to trust the wisdom of the legislature in
this regard. Unless the fiscal law in question is manifestly discriminatory
the court should refrain from striking it down on the ground of
discrimination. These are some of the broad principles laid down by this
Court in several of its decisions and it is unnecessary to burden this
judgment with citations. Applying these principles it is seen that stage
carriages which travel on an average about 260 kilometres every day on a
specified route or routes with an almost assured quantum of traffic which
invariably is overcrowded belong to a class distinct and separate from
public carriers which carry goods on undefined routes. Moreover the public
carriers may not be operating every day in the State. There are also other
economic considerations which distinguish stage carriages and public
carriers from each other. The amount of wear and tear caused to the roads
by any class of motor vehicles may not always be a determining factor in
classifying motor vehicles for purposes of taxation. The reasons given by
this Court in G.K. Krishnan case for upholding the classification made
between stage carriages and contract carriages both of which are engaged in
carrying passengers are not relevant to the case of a classification made
between stage carriages which carry passengers and public carriers which
transport goods. The petitioners have not placed before the court
sufficient material to hold that the impugned levy suffers from the vice of
discrimination on the above ground.”

141. Seen in the context of the above, we are inclined to accept the
submission made on behalf of the State that so long as the intention behind
the grant of exemption/adjustment/credit is to equalize the fall of the
fiscal burden on the goods from within the State and those from outside the
State such exemption or set off will not amount to hostile discrimination
offensive to Article 304(a). Having said that, we leave open for
examination by the regular benches hearing the matters whether the impugned
enactment achieve the object of such equalization or lead to a situation
that exposes goods from outside the state to suffer any disadvantage vis-a-
vis those produced or manufactured in the taxing State.
142. We must, while parting, mention that learned counsel for the parties
had attempted to raise certain other issues like whether the entire State
can be treated as a local area and whether entry tax can be levied on goods
imported from outside the country. We do not, however, consider it
necessary in the present reference to address all those issues which are
hereby left open to be decided by the regular bench hearing the matter.

143. With that observation the reference is answered. The Registry shall
now place the matters before regular benches for an expeditious disposal of
the same in the light of what has been observed by us above.
.……………..………….…..…CJI.
(T.S. THAKUR)
…………………………….…..…J.
(A.K. SIKRI)

…………………………….…..…J.
(A.M. KHANWILKAR)
New Delhi
November 11, 2016
REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 3453 OF 2002 etc. etc.

Jindal Stainless Ltd. & Anr. .. Appellant(s)
VERSUS

State of Haryana & Ors. ..Respondent(s)

1 JUDGMENT

S. A. BOBDE, J.

I am in respectful agreement with the Judgment of the Chief Justice,
on the question that taxes are not restrictions on the freedom of trade,
commerce and intercourse guaranteed by Article 301.

Taxes are not restrictions on Trade

2. In addition to the reasons stated in the judgment, it appears that
there is a more fundamental reason why tax is not liable to be viewed as a
restriction on the freedom of trade, commerce and intercourse. On the
contrary it seems that a tax, such as the one we are concerned with is
predicated on the freedom of trade and commerce. This is particularly true
of an entry tax. It is an impost levied on transactions which are entered
into in the course of that freedom. In fact, but for such freedom of trade
there would be no transaction and no occasion for the levy of a tax. The
levy of a tax is a distinct event from the transaction. Trade and commerce
must take place to attract a tax. Undoubtedly a tax may make the
transaction less profitable to the extent of the tax. But that is far from
being an impediment on the transaction which is part of trade, the freedom
which is guaranteed under Article 301. It is not possible to readily
conceive of a tax, which in itself, restricts or impedes the
freedom of trade. The circumstances are much like the freedom of movement
of an individual by a bus and the charge of a bus ticket for such movement.
It can hardly be contended that the charge of a bus ticket impedes the
freedom of movement.

3. The other related contentions have been adequately dealt with by the
Judgment of the Chief Justice and I fully subscribe to the same. I would
also agree in this regard with the view of Sinha, CJ, in Atiabari that a
tax is not a restriction. Sinha, CJ, observed that “…….if a law is passed
by the Legislature imposing a tax which in its true nature and effect is
meant to impose an impediment to the free flow of trade, commerce and
intercourse, for example, by imposing a high tariff wall, or by preventing
imports into or exports out of a State, such a law is outside the
significance of taxation, as such, but assumes the character of a trade
barrier which it was the intention of the Constitution makers to abolish by
Part-XIII”. However, it is difficult to implement such a test since it
does not disclose any objective standard for determining when such a law
would assume the character of a trade barrier. In principle, a tax cannot
constitute a restriction on the freedom of trade, commerce and intercourse
as held by Sinha, CJ. Therefore, it would not be possible to construe a
tax as a trade barrier merely because the rates are high. As regards
apprehensions expressed regarding high rates of taxation, it would be
apposite to rely on the observations of Marshall, CJ, in McCulloch v.
Maryland, 17 US 316 (1819), that the only security against the abuse of
such power lies in the structure of the government itself.

Article 304 (a)
4. In regard to the question whether the levy of entry tax on import of
goods from outside the local area in the State will be per se
discriminatory if goods similar to those imported are not produced or
manufactured within the State, I find it difficult to agree with the
conclusion that a tax on goods imported into a State can be levied even if
similar goods are not manufactured or produced in the importing State. I
would agree with the conclusion drawn by Ashok Bhushan, J., in this regard.

Article 304 reads as follows:
“Restrictions on trade, commerce and intercourse among States.-
Notwithstanding anything in Article 301 or Article 303, the Legislature of
a State may by law-

(a) impose on goods imported from other States [or the Union territories]
any tax to which similar goods manufactured or produced in that State are
subject, so, however, as not to discriminate between goods so imported and
goods so manufactured or produced; and

(b) impose such reasonable restrictions on the freedom of trade, commerce
or intercourse with or within that State as may be required in the public
interest:

Provided that no Bill or amendment for the purposes of clause (b) shall be
introduced or moved in the Legislature of a State without the previous
sanction of the President.”

5. The non-discriminatory principle is embedded in two provisions of
Part XIII: Article 303 (1) – Parliament cannot impose restrictions under
Article 302 and make a discriminatory law under any entry relating to trade
and commerce; the other is Article 304 (a) which (unlike Section 297 of the
erstwhile Government of India
Act, 1935 which prohibited – through a negative mandate, discriminatory
treatment) empowers State Legislatures
to impose non-discriminatory taxes on goods. Thus,
Article 304 (a) differentiates between discriminatory and non-
discriminatory taxes. The premise underlying
this provision is the paramount aim of Part XIII
to establish and foster economic unity of the country.
Non-discrimination, or parity of treatment is therefore at the core of its
purpose, which Shri T.T Krishnamachari stressed, in his speech in the
Constituent Assembly. He said that “restrictions by the State have to be
prevented so that the particular idiosyncrasy of some people in power or
narrow provincial policies of certain States should not be allowed to come
into play and affect the general economy of the country.” [Constituent
Assembly Debates, 1139 (1949)].

6. The Article, therefore, recognizes the power of a Legislature to a
State to impose the tax on the imported goods so, however, as not to
discriminate between goods so imported and goods so manufactured or
produced. While there is no doubt that this Article recognizes the power
to legislate on a State, it equally qualifies that power with the condition
that such a law must comply with. That condition is that the law which
imposes a tax on imported goods cannot “discriminate” between goods so
imported and the goods so manufactured or produced. It also postulates
that the tax on import is a “tax to which similar goods manufactured or
produced in that State are subject.” The Article thus imposes two
conditions: firstly, that a law may impose a tax on goods imported from
other States, ‘any tax’ to which “similar goods manufactured or produced’
in that State are subject. This clearly implies that the goods imported
from other States may be subjected to a tax where similar goods are in
fact, manufactured or produced in the importing State and are subjected to
tax. In other words, (a) the goods imported from other States must be
similar to (b) the goods manufactured or produced in the importing State
and
(c) the goods so locally manufactured or produced must be subject to tax.
The second condition is the tax that is imposed on imported goods should
not discriminate between the imported goods and goods manufactured or
produced in the importing State.

7. The intention of the Article thus, clearly is that where a tax exists
on goods imported into a State there should be no discrimination between
such a tax and a tax on similar goods manufactured or produced in the
importing State. The reference point for tax on imported goods is the tax
on locally manufactured goods. It is not possible to construe the
prohibition against discrimination where there is no tax upon similar goods
manufactured or produced in the importing State. Undoubtedly, the effect
of such a construction is that the imported goods cannot be taxed where
similar goods are not manufactured or produced in the importing State and
are therefore, not subjected
to similar tax and that seems to be the clear intention
of this Article.

8. In the normal course, a State in which certain goods are not
manufactured would rely on the supply of such goods from other States and
the effect of this provision would be to make the goods so imported
available without the additional burden of tax. In sum, the premise on
which tax can be imposed is the existence of not mere taxes on goods
produced or manufactured locally, or the theoretical possibility of
taxation, to avoid the prohibition under Article 304 (a), but the actual
production or manufacture of similar goods, that are subject to like or
similar tax. Absent this condition, the levy would fall foul of Article 304
(a) since it would constitute an additional burden (the goods already
having suffered some form of taxation in the producing state). This
interpretation, in my opinion would also further economic progress and the
unhindered availability of goods in states which do not have manufacturing
capacities and may not be able to develop it, having regard to lack of
natural resources or other geographical limitations. It also furthers the
aims underlying Article 301 of the Constitution of India.

Conclusion
9. I answer Question No.1 in the negative and I agree with the
conclusions drawn by the Chief Justice. I would also
answer Question Nos. 2, 3 and 4 in agreement with the Chief Justice.

…………………………J.
[ S.A. BOBDE ]
NEW DELHI,
NOVEMBER 11, 2016
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.3453 OF 2002
Jindal Stainless Ltd. & Anr. …..Appellant(s)
Versus
State of Haryana & Ors. …..Respondent(s)
W I T H
CONNECTED MATTERS

J U D G M E N T
Shiva Kirti Singh, J.
Since I am in respectful agreement with the judgment by T.S. Thakur, CJI, I
do not propose to go into whole gamut of documents, materials, relevant
constitutional provisions and the precedents which have already been
noticed not only by T.S. Thakur, CJI, but also by N.V. Ramana, R.
Banumathi, D.Y. Chandrachud, and Ashok Bhushan, JJ. in their separate
detailed judgments, which I had the privilege to go through.

While recording my agreement with judgment of T.S. Thakur, CJI and other
similar views, in the light of some of the differing judgments, I feel it
necessary to underline my understanding of the core issues and why they
need to be answered in a particular way.
The basic issue which has generated the present litigation arises out of a
challenge to various taxing statutes enacted by several States to impose
Entry Tax on goods in exercise of specific power available to the State
legislature under Entry 52 of List II in the 7th Schedule of the
Constitution. If the Constitution Bench judgments in Atiabari’s case and in
Automobile Transport’s case were not under doubt, then as per majority view
in Atiabari’s case one was required to apply the test of “direct or
immediate” effect of Entry Tax. If it restricts freedom of trade and
commerce, it had to be struck down. Since such a view did not permit
certain levies imposed by the State legislature to provide better
facilities for interstate trade and commerce, the concept of regulatory and
compensatory taxation was advanced as a permissible exception, by the
majority view in Automobile Transport case. The purpose was to reconcile
the freedom of trade and commerce stipulated by Article 301 with the need
of resources for the States through imposition of taxes on trade and
commerce. Such tax was held permissible if it was to provide facilities
which would improve and help freedom of trade and commerce through
activities such as construction and upkeep of roads and other similar
facilities.
As discussed in detail in the other judgments, ultimately States felt the
need to exercise their legislative power to impose taxes even for general
welfare measures and police duties. Resultantly it became more and more
difficult to justify such tax as compensatory tax and such attempts brought
excessive strain on the very concept of regulatory and compensatory tax.
On the one side Trade and Industry seriously criticised such attempts,
inter-alia, on the ground that it blurs the distinction between
compensatory tax and regular tax. On the other hand, the States comprising
the Indian Union are clearly unhappy with the law settled in Atiabari’s
case as well as in Automobile Transport case which permits them to impose
taxes affecting freedom of trade and commerce but on the condition that it
is actually by way of a fee, justified by some sort of quid pro quo.
In the above factual background the heavy burden that has befallen on this
nine Judges Bench is to interpret Articles 301 to 304 comprising Part XIII
of the Indian Constitution in a manner which is justified both by the text
as well as the historical context and also effects the desired balance
between the need of the country to have free movement of trade and commerce
on one hand and the sovereign taxing powers of the States given to them by
the Constitution on the other. Limitation on such power must be explicit in
the Constitution. For safeguarding freedom of trade and commerce, such
limitation is to be found only in Article 304(a) of Part XIII of the
Constitution.
Answering the question No. 1 in the negative or in other words declaring
that levy of a non-discriminatory tax per-se does not violate Article 301,
in my opinion means that the majority view in respect of limits in
imposition of tax through legislation in Atiabari case (supra) as well as
in Automobile Transport case is no longer a good law. Since, in the matter
of levy of taxes the compensatory theory is no more relevant, the State
Legislatures are free to exercise their taxing powers without the need of
declaring and showing that taxes imposed by them on outside goods are for
the benefit of concerned traders or manufacturers. But such tax must be,
in essence, non-discriminatory, both, in the ultimate tax burden and in
machinery provisions. To muster compliance with Part XIII of the
Constitution, the tax must pass the twin tests embodied in Article 304(a) –
(i) Similar goods produced locally must also be subjected to similar tax
and (ii) such state action should not attract the vice of discrimination
between the two varieties of goods.
The entire discussion in my view leads to a fair conclusion that the views
summarized by Sinha, CJI in paragraph 18 of his judgment in Atiabari case
depict the law emanating from Part XIII of the Constitution in the correct
perspective. However same cannot be said of observations in paragraph 16
where His Lordship used the expression – “If a law is passed by the
legislature ……. imposing a high tariff wall——–assumes the character of
a trade barrier which it was the intention of the Constitution makers to
abolish by Part XIII.” These observations do create practical difficulties
of insurmountable proportions. Hence these deserve to be treated as obiter
or interpreted in the light of the entire passage, to mean such taxes which
impose an impediment to the free flow of trade, commerce and intercourse by
creating discriminatory tariff wall/trade barrier (emphasis supplied). For
Part XIII there can be no real impediment through tax unless the so called
wall or barrier is one of hostile discrimination between local goods and
outside goods.

……………………………….J.
[SHIVA KIRTI SINGH]
New Delhi.
November 11, 2016.

Reportablee
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3453 OF 2002

JINDAL STAINLESS LTD. & ANR. …Appellant(S)
Versus
STATE OF HARYANA & ORS. …Respondent(S)

With Connected Matters
JUDGMENT

N. V. Ramana, J.

Table Of Contents

|Part-I : Introduction |Para 1.1 – 1.3 |
|Part-II : Case history |Para 2.1 – 2.3 |
|Part-III : Arguments canvased |Para 3.1 – 3.10 |
|Part-IV : Need for review |Para 4.1 – 4.2 |
|Part-V : Constitutional Interpretation |Para 5.1 – 5.9 |
|Part-VI : Introduction to taxation and its |Para 6.1 – 6.2 |
|importance | |
|Part-VII : Freedom of trade, commerce and |Para 7.1 – 7.41 |
|intercourse | |
|Part-VIII : Article 304 of the Constitution |Para 8.1 – 8.26 |
|Part-IX : Conclusions |Para 9.1 – 9.2 |

PART – I : INTRODUCTION
I have had the privilege of going through the draft judgments prepared by
the learned Chief Justice T.S. Thakur and my brother/sister judges. I am
broadly in agreement with the conclusion of the learned Chief Justice on
most of the issues. The erudite draft judgment of learned Chief Justice
would in the usual course may not have warranted another concurring
judgment. But when a Bench of nine judges of this Court has been assembled
to consider the seminal issues that have been bothering the nation for
about fifty years and such issues have been debated in the Court over a
period of four weeks, many aspects having a bearing, canvassed about a
constitutional question, a concurring judgment cannot be treated as a
repetitive burden or a superfluous legal exercise.[1]Therefore I propose to
deliver a brief judgment concurring with the judgment of the learned Chief
Justice, giving my own reasons.

As a caveat, I may mention that the contentious matter herein is important
not only from the legal point of view but also for a common man who
ultimately bears the tax burden. Secondly in constitutional matters,
judgment with clarity is preferable to a judgment of wandering
complexities. It is appropriate to quote Lord Denning[2] He said-

‘…I avoid long sentences like the plague: because they lead to obscurity.
It is no good if the hearers cannot follow them… I refer sometimes to
previous authorities. I have to do so because I know people are prone not
to accept my views unless they have support from the books. But never at
much length. Only a sentence or two… I finish with a conclusion – and
epilogue – again as the chorus does in Shakespeare. In it, I gather the
threads together and give the result’.
(emphasis supplied)

Although I have tried in this Judgment to keep it as simple as possible yet
sometimes legal jargon becomes unavoidable to keep the essence of the law.

As detailed by the learned Chief Justice below the referral order
formulated as many as twelve (12) questions. Nonetheless on very first day
with the consent of the learned counsels, we reframed these questions as
under-

Can levy of a non-discriminatory tax per se constitute infraction of
Article 301 of the Constitution of India?
If the answer to Question No.1 is in the affirmative, can a tax which is
compensatory in nature also fall foul of Article 301 of the Constitution of
India?
What are the tests for determining whether the tax or levy is compensatory
in nature?
Is the entry tax levied by the states in the present batch of cases is
violative of Article 301 of the Constitution and in particular have the
impugned State enactments relating to entry tax to be tested with reference
to Articles 304(a) and 304(b) of the Constitution for determining their
validity?
PART II : CASE HISTORY
Let me take up the first case in the batch of appeals (Civil Appeal No.
3453 of 2002 (Jindal Stainless Steel Ltd. v. State of Haryana). On May 5,
2000, the State of Haryana issued the Haryana Local Area Development Tax
Ordinance, 2000 (Ordinance No. 10 of 2000). The Ordinance was later
replaced by the Haryana Local Area Development Tax Act, 2000. Therein, a
provision was made for levy and collection of tax on entry of goods into
local area. The validity of the said Act was challenged on the ground that
it violated Articles 301 and 304 of the Constitution. C.W.P. No. 6630 of
2000 (Jindal Strips Limited v. State of Haryana) and connected petitions
were dismissed by the High Court on December 21, 2001[3]. Following the
judgments of this Court, inter alia, in Bhagatram and Bihar Chamber of
Commerce, the High Court upheld the validity of the said Act. It was held
that the entry tax was compensatory as per parameters laid down by this
Court in the said judgments and thus, did not violate Articles 301/304 of
the Constitution. On appeal to this Court, the matter was referred to the
Constitution Bench in Civil Appeal No. 3453 of 2002 vide order dated
September 26, 2003. The said order is reported as Jindal Stripe Ltd.
v. State of Haryana [hereinafter ‘Jindal (1)’][4]. On April 13, 2006, the
Constitution Bench delivered its judgment in Jindal (2), and reversed the
earlier judgments in Bhagatram and Bihar Chamber of Commerce. The
Constitution Bench laid down the ingredients of compensatory tax as being
value of direct, measurable and quantifiable special benefits provided by
the State to tax-payers on the basis of equivalence. The matter was
thereafter placed before a Division Bench of this Court for decision in the
light of judgment of the Constitution Bench. On July 14, 2006, the Division
Bench of this court in its order in Jindal Stainless Ltd. v. State of
Haryana[5], observed that relevant data had not been placed before the High
Court for determining the nature of tax and asked the High Court to deal
with the basic issue whether the levy was compensatory in nature.
Accordingly, the State filed data by means of affidavits and vide order
dated March 14, 2007 (reported as Jindal Strips Limited v. State of
Haryana, a Division Bench of High Court held that the levy was not
compensatory in character and amounted to restriction on free flow of trade
and commerce and violated Articles 301 and 304 of the Constitution of
India. On April 16, 2008, the State of Haryana repealed the 2000 Act and
enacted the Haryana Tax on Entry of Goods into Local Areas Act, 2008,
impugned in this Appeal. The High Court in Indian Oil Corporation v. State
of Haryana[6], declared that the provisions of the Haryana Tax on Entry of
Goods into Local Areas Act, 2008 to be unconstitutional and void. The
Punjab and Haryana High Court invalidated the Haryana Act, the matters
again came to this Court in a connected matter being Jaiprakash
Associates[7](A two judge bench) referred ten questions to the
constitutional bench.[8]

One of the questions is whether State enactment relating to levy of entry
tax has to be tested with reference to both Articles 304 (a) and 304(b).
When the matter was placed before the constitutional bench along with
Jindal (3)[9], the constitutional bench was confronted with the arguments
by the State that the tests propounded by the Atiabari and Automobile
failed to strike a balance between freedom of trade and commerce under
Article 301 and taxing power of the State under Article 246 r/w relevant
legislative entries to the Constitution of India. The constitutional bench,
found merit to refer to suitable larger bench for reconsideration of
Atiabari and Automobile. For doing so support was drawn from Keshav
Mills[10], GK Krishnan, Dawoodi Bora[11]. That’s how the matter is before
us.

Entry tax is levied by the State of Haryana under the provisions of Haryana
tax on Entry of Goods into Local Areas Act, 2008. Section 3 of the Act
contains the charging the provision which states that the tax is levied
‘for the purpose of development of trade, commerce and industry and for
creation and maintenance of infrastructure facilities for free flow of
trade and commerce in State’. Section 25 of the Act provides that the
proceeds of the levy shall be appropriated to a fund notified by the
Government and shall be exclusively utilized for the development or
facilitating the trade, commerce and industry in the State and also inter
alia provides benefits towards which the proceeds may be applied. Most of
the States in appeal have enacted similar provisions under the impugned
enactments.

Part-III : Arguments canvassed

Arguments of Petitioners/Appellants (assessee(s))
3.1 Mr. Harish Salve, learned senior counsel argued as below-
That taxes generally amount to restriction but it is only such taxes that
directly and immediately restrict trade that will fall within the Article
301. Applying this test the court can strike down the law as violative of
Article 301 unless saved by Article 304(b).
The result of reading Article 304(a) and (b) together appears to be that a
tax can be levied by State on goods manufactured/produced or imported in
the State and thereby reasonable restrictions can be placed on the freedom
of trade either with another State or between different areas of the same
State.
The vital federal safeguard provided in the proviso is pervious sanction of
the President. Article 301 operates to restrict legislative power of State.
Lastly, he argues that proviso of Article 304 can be read down in
appropriate cases.
In rejoinder he argues that as Article 304(a) of the Constitution envisages
the rule of per se violation there is no question of impact test or
comparative tax burden test under it as the text of the same does not
accept such interpretation.

3.2 Mr. A. K. Ganguli, his main contentions are-
The Reference Order to a larger bench to ‘reconsider’ the decisions in
Atiabari and Automobile is not warranted and runs contrary to the settled
law laid down by this Hon’ble Court as it constitutes a binding precedent
under Article 141 of the Constitution.
Regarding the construction of Article 304 of the Constitution he submits
that it is inherent in the drafting of the clause (a) itself that both
clauses (a) and (b) of article 304 are not mutually exclusive. It is
submitted that clause (b) acts as a gateway to protect those laws which
don’t satisfy the dual conditions laid down in clause (a).
Further he supported the concept of compensatory tax which has stood the
test of time.

3.3 Mr. T.R. Andhyarujina, learned senior counsel argues as follows-
That there is no requirement of reference to a larger bench as there is no
public mischief being caused by the prior Judgment. In alternative he
submits that the compensatory taxes levied by the States would in a large
measure negative the freedom of trade and commerce guaranteed by Article
301 because there is no proof that the State will utilize the tax for the
improvement of trade facilities etc. Even assuming a State in the Act that
the tax collected will be used for that particular purpose. A declaration
to that effect would only mean a clever device to refute the abridgment of
free trade.
Hence, it is his submission that where a State claims to have imposed a
compensatory tax, it should not be permitted to impose a tax without
complying with the requirement of Article 304(b). Otherwise according to
him all taxes would be outside the purview of the freedom of trade by mere
assertion as is done by 22 States that the tax is compensatory.

3.4 Mr. Arvind P. Datar contends-
That Concept of compensatory tax may be confined to Entry no. 56 and 57 and
not applied to any other tax/duty in State List.
Further the working test contemplated in Automobile Case has not worked
satisfactorily.
Neither the “direct or immediate effect” test of Atiabari nor the “working
test” of Automobile Case is feasible in practice.
He suggested the bench to adopt “Appreciable Adverse Effect on Trade &
Commerce [AAETC]” borrowed from section 3 of the Competition Act, 2002. The
difference between enactment of AAETC before and after the impugned Law
will provide the impact on Trade & commerce.
The Burden of Proof will be on the petitioner to establish, prima facie, to
prove actual or potential AAETC.

3.5 Mr. S.K. Bagaria, learned senior advocate, Mr. J. Dhankar, learned
senior advocate, Mr. N. Venkatraman, learned senior advocate, Mr. R.
Srivastava, learned senior advocates, Mr. Dhruv Aggrawal, learned senior
advocate, Mr. Gopal Jain, learned senior advocate, Mr. Tushar Mehta,
learned Additional Solicitor General, Mr. Dilip Tandon, Smt. Suruchi
Aggrawal, Mr. V. Lakshmikumaran for assesses have either adopted the
submissions made by the above named advocates or provided alternative
reasons for the conclusions reached by the abovementioned advocates.

3.6 Mr. Mukul Rohatgi, learned Attorney General of India submits-
That that power to tax is an incident of sovereignty provided under
specific entries in List II. It is to be noted that such power cannot be
suppressed even by the Parliament of India under our Constitution.
Part XIII generally does not deal with Taxes except in so far as Article
304(a). Part XIII is only concerned with deliberate discrimination. If
discrimination is done for alleviation of economic condition than such a
measure would not be covered under the mischief of Article 304(a).
Furthermore 304(a) and 304(b) are disjunctive in which only (a) applies to
taxes and (b) applied to non-fiscal measures. It is always assumed taxes
are imposed in public interest and is reasonable. Therefore inclusion of
taxes under Article 304(b) would be an exercise in redundancy which will
never be the intention of our Constitution framers. Therefore, Sovereign
power of the State cannot be made a plaything of Executive.
Federalism is to be disjointed from economic unity. Part XIII and Part III
are at different pedestal. Part III is individualistic in nature and has
sufficient remedies to cover excessive taxation and other burdens.
Moreover, Hon’ble C.J Sinha’s View in Atiabari has not required any
reconsideration and the same should be followed even by this court. He
submits that any test under article 301 will have to draw a line as to when
taxes become Trade barriers. Such examination by Courts is not warranted.
Part XIII has its origin in section 297 of Government of India Act 1935. It
is to be noticed that earlier Article 301 was present as Article 16 under
Part III of Constitution which was subsequently taken out.
The source of Power to tax is present both under Article 245 as well as
Article 246. We should not separate Article 246 and read taxing power only
under 246. He argues that our Constitution is organic and flexible document
which was considerate about providing level playing field to various
States. He lastly argues that Video Electronic Case should be upheld.

Arguments of Respondents (States/Authorities)
3.7 Mr. P. P. Rao, learned senior counsel contends-
that scope of Entry 52 of the State List cannot be reduced.
Discrimination only arises if goods are available. If no tax can be imposed
on the ground that there is no production that consumer state loses their
revenue and the same is detrimental to the existence of very State itself.
Therefore, the interpretation that sub-serves the intent and autonomy of
State should be adopted in a Federal Constitution.
that 304 (a) is not a part of 301 and the only restriction on imposition of
tax is article 304(a) of Constitution.
He argues that inclusion of taxes under article 304(b) was never argued
before the bench of Atiabari. The observation in Atiabari is per in curium
as there was no discussion or deliberation regarding the same.

3.8 Mr. Rakesh Dwivedi, learned counsel submits-
That Part XIII is not a basic feature of the Constitution and every
provision of Constitution though important cannot be elevated to the
pedestal of basic feature. Economic Unity is not defined and for trade,
commerce and intercourse political unity is equally important.
If Article 19(1)(g) is explicitly given to citizens, Article 301 cannot be
expanded to give same right to foreigners.
“Free” in Art 301 does not mean free from Taxation.
“Subject to” is the dominant expression in Art 301 and indicates
subservience to at least Art 302, 303 and 304. Art 302-304 are mere
restatement of powers under Art 246 r/w VII schedule with some limitations.
Each restated power by itself overrides the freedom in Art 301.
The equation between compensatory tax and fee is inconsistent with the
Scheme of our Constitution which specifically draws distinction between two
concepts.
The judgments of Atiabari and Automobile erred in reaching the concepts of
direct and immediate impediment and compensatory Tax.
Further subjecting taxing power to executive clearance under Article 304(b)
will not be justifiable as assent of the President cannot be reviewed.
.
3.9 Mr. Shyam Divan, learned senior counsel argues that-
The wordings of Article 301 are free from protectionist barriers.
Tax is obviously a restriction which would require this court to examine
the height of the barrier on a case to case basis.

3.10 Mr. Dinesh Dwivedi, learned senior counsel, Mr. S. V. Giri, learned
senior counsel, Mr. A. K. Sinha, learned senior advocate, Mr. J. K. Gilda,
learned Advocate General of State of Chhattisgarh, Mrs. Madhvi Divan,
assisting the learned Attorney General of India, Mr. Devdutt Kamath,
learned Additional Advocate General for the State of Karnataka, Mr. S. S.
Shamshery, learned Additional Advocate General for the State of Rajasthan,
have either adopted the submissions made by the above named advocates or
provided alternative reasons for the conclusions reached by the
abovementioned advocates.
PART – IV : NEED FOR REVIEW
4.1 The learned counsel for the dealers/assesses argued for rejection of
the reference itself. Shri T.R. Andhyarujina and Shri A.K. Ganguli,
Learned Senior Counsel submitted that the doctrine of direct and immediate
effect as well as compensatory tax which furnish a workable test vis-à-vis
validity of a tax law in the context of inter-State trade are sound.
Therefore, there is no need to review the decisions in Atiabari and
Automobile. They would urge that these two decisions have been followed by
this Court in half a dozen judgments and by various High Courts, and
therefore, the ratio therein acquired the status of stare decisis.
According to them, in the absence of any compelling changes in the
Constitution or the law, the reference may not be necessary. They would
point out that after the decision in Automobile, every State which made law
for the levy of tax on entry of goods, declaring such tax to be
compensatory so as to save such law from the effect of Articles 301 and 304
of the Constitution. We have given our earnest and anxious consideration
to these submissions and are not able to agree with any of these
contentions.

4.2 This Court has over-ruled approximately 60 Constitutional judgments
in its 60 years of existence[12], which is an impressive rate in itself,
considering the fact that our nation is comparatively young and is
developing jurisprudence in many aspects. Further it is interesting to note
that there are only Seventeen Judgments of this Court with nine or higher
bench strength.[13] It is further important to note that most of the times
nine judge bench decisions have led to change in law by legislative measure
like Madhav Rao Scindia[14], R.C. Cooper[15]etc. All this points out that
the exercise of constituting higher bench strength has taken place where
there is grave need for settling the issue which caused grave mischief to
the general-public at large. These numbers speak of restraint in over-
ruling its own decisions. When Atiabari was decided, States sovereign power
to levy tax within its permissible Constitutional competence stood
curtailed. Probably, for this reason, two years after the decision in
Atiabari came the decision in Automobile on the premise that the ruling in
Atiabari was insufficient. Indeed, Automobile added new dimension to the
tax by introducing the doctrine of compensatory tax which is very
conspicuous in the Constitutional scheme by its absence. The judicial
innovation of compensatory tax was seemingly to unfetter the State’s power
to some extent the levy of taxes on entry of goods. There is no gainsaying
that Part XIII nowhere, much less Article 301 either expressly or impliedly
contemplate compensatory tax. The workable test of compensatory tax to
comply with the Constitutional principle was doubted within a decade of the
decision in G.K. Krishnan (1974), followed by the decisions in Bhagat Ram
and Bihar Chamber of Commerce. From 1960 to 1996, there remained
uncertainty with regard to the power of the State to levy tax as per entry
52 of the State List and principle of compensatory tax to immunize such
entry tax from the perceived injunctive rigor of Articles 301 and 304(a).
Thus, it would not be sound to argue that the principle laid down in
Atiabarithat is “direct and immediate effect” and doctrine of “compensatory
tax” evolved in Automobile attained any finality. Further even in Jindal
(2), the aspect of compensatory tax was doubted by Justice S. H. Kapadia
also (as his lordship then was). Therefore, this cannot be a ground to
doubt the sound reasoning in the referral order of five Judges Bench of
this Court in Jindal (3). Thus there is a need for review.
PART-V :CONSTITUTIONAL INTERPRETATION

The resolution of constitutional litigation ultimately rests upon the plain
language of the text. In the event of vagueness in the language or when the
language is capable of two different meanings it is not a bar to analyze
the context[16]. In interpreting the constitutional text the court may not
feel shy of using all the tools and employing all the aids of construction.
The Learned Chief Justice has elaborately analyzed various provisions in
Part XIII and dealt with contextual aspects to see whether the contextual
aspects match the textual. I am in respectful agreement with the nine
postulations summarized by the Learned Chief Justice regarding the purport
of Article 301, 302, 303 and 304.

Apart from the general principles of interpretations in my considered
opinion, the relevant provisions of the Constitution especially those
relating to legislative powers, the provisions limiting those powers, the
external aids like Constituent Assembly Debates, other documents and the
precedents are required to be considered. Be that as it is, it is a settled
proposition that generally the construction of the Constitution must be
most beneficial and widest possible amplitude. The court must gather from
the spirit of the Constitution and the language must not be construed in a
narrow and pedantic manner. In re CP and Berar Act, 1938[17], Gwayer CJ.,
summed up this principle in the following manner –

…the Court should seek to ascertain the meaning and intention of Parliament
from the language of the statute itself; but with the motives of Parliament
it has no concern…. The Constitution is not to be construed in any narrow
and pedantic sense…. A broad and liberal spirit should inspire those
whose duty it is to interpret it; but I do not imply by this that they are
free to stretch or pervert the language of the enactment in the interests
of any legal or constitutional theory, or even for the purpose of supplying
omissions or of correcting supposed errors.

Equally important point is that legislative powers especially taxing powers
cannot be tested by implication. Unless there is express limitation on the
power of the State to enact the State law, it is not the province of the
court to curtail the power of the state by interpretative process. We have
reached a stage that every law must be tested with reference to preamble
and Directive Principles of State Policy. As held in Atam Prakash v. State
of Haryana [herein after ‘Atam Prakash’][18], if preamble is the guiding
light Directive Principles of State Policy is the book of interpretation,
this was lucidly explained in Atam Prakash.

‘The Preamble embodies and expresses the hopes and aspirations of the
people. The Directive Principles set out proximate goals. When we go about
the task of examining statutes against the Constitution, it is through
these glasses that we must look, ‘distant vision’ or ‘near vision’. The
Constitution being sui-generis, where Constitutional issues are under
consideration, narrow interpretative rules which may have relevance when
legislative enactments are interpreted may be misplaced. Originally the
Preamble to the Constitution proclaimed the resolution of the people of
India to constitute India into ‘a Sovereign Democratic Republic’ and set
forth ‘Justice, Liberty, Equality and Fraternity’, the very rights
mentioned in the French Declarations of the Rights of Man as our hopes and
aspirations. That was in 1950 when we had just emerged from the colonial-
feudal rule. Time passed. The people’s hopes and aspirations grew. In 1977
the 42nd amendment proclaimed India as a Socialist Republic. The word
‘socialist’ was introduced into the Preamble to the Constitution. The
implication of the introduction of the word ‘socialist’, which has now
become the center of the hopes and aspirations of the people a beacon to
guide and inspire all that is enshrined in the articles of the
Constitution, is clearly to set up a “vibrant throbbing socialist welfare
society” in the place of a “Feudal exploited society”. Whatever article of
the Constitution it is that we seek to interpret, whatever statute it is
whose constitutional validity is sought to be questioned, we must strive to
give such an interpretation as will promote the march and progress towards
a Socialistic Democratic State.’[19]

Our constitutional history shows that we at one point had rigorously
defended individualistic rights [for ex. Right to Property]. Slowly we have
moved towards community rights by invoking Directive Principles of State
Policy as a tool to judicially interpret Part III of the Constitution.
Directive Principles of State Policy is a normative goal in the
Constitution. Such important part cannot be restricted to only Part III
interpretation and reduced to two wheels of Chariot[20] rather it is like a
bright sun which should shine in every part of the Constitution.

Before consideration of legal aspects, we need to passingly refer to
certain factual scenarios which may be pertinent to the issues of economic
unity, balanced growth and development of all regions of India. India that
is Bharath is said to be a Country with economic unity. But such assertion
cannot be sustained for the reason that 82.5° Meridian or Indian Standard
Time line seems to starkly divide India broadly as affluent West and
destitute East. Top 5 states share 44.87% of India’s total economy.[21]
Five states of South India share 25.98%.[22] Eight States of North-East
India share only 2.64% of economy.[23] 13 States/UTs have Gross State
Domestic Product less than Rs. 1 lakh Crore.[24] While the growth in 2013-
14 in Maharashtra was pegged at 8.71% while Rajasthan recorded mere 4.6%
growth at 2004-2005 prices.[25] As per Tendulkar formulation Bihar has
54.4% population below poverty line while Jammu Kashmir has only 13.2%.[26]
Population in Uttar Pradesh was pegged at 199,812,341 while Kerala is
33,406,061, as per Census 2011.[27] Literacy Rate in Kerala is 94% while in
Bihar its 61%.[28] Sex ratio in Kerala is 1084 while in Haryana is 879.[29]
In Andhra Pradesh 12.04% live in slums whereas in Assam only 0.63% live in
slums.[30] The Utility of the Union to attain political and economic
prosperity does not reflect in the figures or statistics so portrayed
above. All is not lost in what we have achieved. We have stood with each
other and for what is right? We have enacted laws and struck them down for
right reasons. We have been beaten down but never gave up. We have braved
poverty and hunger. We have cared about neighbors and have strived to be a
welfare State. We have constructed great many things and achieved many
more. We have advanced on scientific fronts and reached distances in
universe which were unfathomable five decades back. We have earned a
respectable name in the international scenario. We have produced great
artists, many leaders and great men. We were not scared so easily by any
adverse situation. First step in solving any problem troubling the present
is recognizing that there is one India but India as a union of States.
States being independent entities under the Constitution require resource
to perform their duties under the Constitution.

Before a detailed discussion on legal fronts of this Case it is necessary
to consider certain Constitutional principles and ethos. On considering the
scheme of the Constitution, the power of Union and State are parallel. The
Parliament as a super-legislature over State assemblies cannot be accepted.
On legislative front, demarcation of power is apparent from the language of
Article 246 read with VII Schedule of the Constitution. People have vested
the power in States to administer and provide welfare measures. For this
process it is the State Government which has been elected by the people to
administer by taking into consideration priorities and peculiarities of
that particular region.

This Constitutional principle should not be ignored while imposing
restrictions on the State. While feeling happy that we are one nation, we
must not ignore the State rights. The facts and realities cannot be
forgotten in the first place. The Union does not exist in isolation rather
it is a co-operative association of the States. Taking into consideration
of various problems faced and differences which exists between the States,
importance of State’s power to tax cannot be ignored or stifled. Poverty,
unemployment, backwardness and adverse climate etc. are running amok within
our Country. Natural calamities, insurgencies and extremism are confronted
by certain States. Over-growth and industrialization have taken place only
in some places whereas rest of the country is reeling under under-
development because of various facts such as geographical positioning,
colonial establishments and discriminatory policies that have resulted in
concentration of wealth in only certain affluent areas. No State, in this
grand Union, should be made to feel discriminated and embarrassed because
of the mere fact that history has not been congenial to them and have
remained under-developed. Any restriction imposed should not come in the
way of natural development of a State on the ground that it creates
barriers for free movement of the goods and trade. All States must be
provided an equal level playing field for development and opportunities.
This was the grand intention of the framers of our Constitution to not make
a lassiez faire State.[31]Determined to make our Country a co-operative
federalist, our framers set definite rules to achieve the objective.
Through interpretation, Constitution cannot be re-constructed so that the
goal envisaged by our framers will be more fully achieved by such
construction. Such measure would not be justified in light of clear
demarcation of functions bequeathed by our Constitution.

The Union and the States are co-equal in the Indian Federal structure. Our
framers created a unique federal structure which cannot be abridged in a
sentence or two. The nature of our federalism can only be studied having a
thorough understanding of all the provisions of the Constitution.
Confirmation that the Union and States are co-equals in the Indian federal
structure. can be found in the speeches of Hon’ble P.S. Deshmukh, Shri T.
T. Krishnamachari and Hon’ble Dr. B. R. Ambedkar[32]before the Constituent
Assembly. Common philosophy which runs through our Constitution is that
both Center and States have been vested with the substantial powers which
are necessary to preserve our unique federation with clear demarcation of
power. Calling India as quasi-federal might not be advisable as our
features are unique and quite different from other Countries like United
States of America etc. Courts in India should strive to preserve this
unique balance which our framers envisaged, any interference into this
balancing act would be detrimental for grand vision proscribed by our
makers.[33] Amphibious nature of our federalism has been even noted by the
Sarkaria Commission Report on Center-State relationship. Co-operative
federalism envisaged under our Constitution is a result of pick and choose
policy which our framers abstracted from the wisdom of working experience
of other Constitutions. Some Judgments which are illustrative of nature of
federalism in India are (i)West Bengal (6 Judge Bench), a case relating to
the power of Union to acquire land and right in and over the land, which
are vested in State. This case produced two opinions, one by C. J. B.P.
Sinha (majority opinion) and other by K. Subba Rao J. (dissenting opinion).
As per the majority, there is undoubtedly distribution of powers between
the Union and the States in matters legislative and executive; but
distribution of powers is not always an index of political sovereignty. The
exercise of powers legislative and executive in the allotted fields is
hedged in by numerous restrictions, so that the powers of the States are
not coordinate with the Union and are not in many respects independent.
Minority Judgment held that the Indian Constitution accepts the federal
concept and distributes the sovereign powers between the co-ordinate
constitutional entities, namely, the Union and the States. This concept
implies that one cannot encroach upon the governmental functions or
instrumentalities of the other, unless the Constitution expressly provides
for such interference. In (ii) Kesavanada Bharathi v. State of Kerala
[hereinafter ‘Keshvanada Bharathi’][34], majority held that the power
conferred under Article 368 of the Constitution was not absolute. They took
the view that by an amendment, the basic structure of the Constitution
cannot be damaged or destroyed. And, as to what are the basic structures of
the Constitution, illustrations were given by each of these Judges. They
include supremacy of the Constitution, democratic, republican form of
Government, secular character of the Constitution, separation of powers
among the legislature, executive and judiciary, the federal character of
the Constitution, Rule of Law, equality of status and of opportunity;
justice, social, economic and political; unity and integrity of the nation
and the dignity of the individual secured by the various provisions of the
Constitution. In (iii) S.R. Bommai, this Court while determining the
constitutional validity of emergency proclamations issued by the Centre in
various States observed that federalism, as understood by the American
Scholars is absent in Indian Constitution which is more of a hybrid of pure
federalist character and pure unitary character. However, the distribution
of powers must not be rubbished out as being absent. It was observed by
Ahmadi J. that in order to maintain the unity and integrity of the nation
our founding fathers appear to have leaned in favour of a strong Centre
while distributing the powers and functions between Centre and the States.
But the essential characteristics can be understood by knowing the
“effects” of such a system. As per Sawant and Kuldip Singh JJ: The features
in the Constitution which provide the Centre with overriding powers over
the states is only an exception and are not normal features of the
Constitution. K. Ramaswamy J., observed that Indian Federalism places the
nation as a whole under control of a national Government, while States are
allowed to exercise their sovereign power within their legislative sphere.
As per Jeevan Reddy and Agrawal, JJ. the bias in favour of the Centre does
not make the states mere appendages of the Centre. States are supreme in
the sphere allotted to them. The ultimate conclusion reached by this Court
was that the fundamental feature of federalism being that irrespective of
each list, each legislature is supreme. In (iv) ITC, the majority led by
Justice Ruma Pal held that the Constitution of India deserves to be
interpreted in a manner that it does not whittle down the powers of State
Legislatures and preserves the federalism while also upholding the central
supremacy as contemplated by some of the Articles. In (v) State of West
Bengal v. Kesoram Industries Ltd.[35], it was concerned with Entries 52, 54
and 97 in List I and Entries 23, 49, 50 and 66 in List II of the Seventh
Schedule to the Constitution of India as also the extent and purport of the
residuary power of legislation vested in the Union of India. Wherein it was
observed therein that federalism is one of the basic pillars of the Indian
Constitution and that having regard to Articles 245, 248, 250, 256,
257, 356 and Entry 97 in list I of the seventh Schedule of the
Constitution, it is not possible to say that India is not a subscriber
to federalism but although having unique federal character it can, be said
to be quasi-federal or hybrid federal State. Thus constitutional courts
have interpreted that India has a federal polity and that each State has
independent constitutional existence assigned with important role of
Constitutional governance.

In view of these aspects, we need to consider the controversies in these
cases and interpret relevant provisions of the Constitution in light of
following rules and principles, which are-

That Directive Principles of State Policy should be utilized for
interpreting every part of the Constitution. and
In a federal Constitution, an interpretation which preserves the State’s
power should be preferred.
PART-VI :INTRODUCTION TO TAXATION AND ITS IMPORTANCE

The States in the modern era are not strictly confined to political
activities and law making functions. They function in a welfare society.
Such working of States was visualized by our framers also, who were aware
of responsibilities a State must shoulder and discharge. This is the very
reason for existence of Directive Principles of State Policy and which sets
normative and positive standards for the Government. When the State is
burdened with such normative goals as its primary responsibility, such
activities are inevitably dependent on availability of monitory resources.
The definition of Sovereignty has acquired a new flavor in the recent past,
‘Sovereignty is responsibility’. In a democratic system the elected
Governments are always responsible for its people. If there is any high
taxation which is affecting their life, this puts pressure on the
Governments to reduce taxes and elected Governments are answerable to
public every five years. No Government can raise tax which would cause
public inconvenience. In this context, Sovereignty is no more endless
power, rather it is responsibility. A responsible government in a democracy
should always strive to keep taxes as low as possible, so that no heavy
burden is placed on the individuals. Although States are empowered to tax
under the Constitution, it does not necessarily mean that they should tax
at exorbitant rates. Tax is a way of apportioning the cost of government
among those who in some measure are privileged to enjoy the benefits and
must therefore bear its burdens. Fundamentally the exercise of sovereignty
also includes lawful taxation as its incident. Assesses/dealer on the other
hand stated that all powers exercised by the state such as police powers,
power of eminent domain and power to tax are also incidents of
sovereignty.[36] There is nothing which mandates this Court to deny
latitude in use of taxing powers in comparison to other similar powers.
Although all powers exercised by State are incidents of sovereignty, there
is need to treat taxation on a different pedestal to sustain the Government
at the current level and to achieve the Constitutional goals set by our
framers.

A tax is a burden or charge imposed by a competent legislature upon persons
or property, to raise money for public purposes.[37]Important elements of a
tax may be said to be first, that it is a compulsory exaction; secondly, it
is payable to the State or to some public authority on its behalf; and
thirdly, that it is an exaction for purposes of public interest. Our
Constitution has demarcated the taxing powers between the Center and
States. Taxing power of the Union as well as the States resides in Article
245 read with 246 of the Indian Constitution. The Article 246 of the
Constitution, lays down that Parliament has exclusive power to make laws
with respect to any matter enumerated in Union List (List I of schedule
VII). The States have complete power to make laws with respect to any
matter enumerated in the State List (List II of schedule VII) and both
Parliament and State Legislature have power to make laws with respect to
any matter enumerated in the Concurrent List (List III of schedule VII). As
per Article 265, no taxes shall be levied or collected except by the
authority of law. It is important to note that taxation entries are to be
found only in lists I and II, indicating that in our Constitutional scheme,
taxation powers of the Centre and the States are mutually exclusive. There
are no Entries in the Concurrent List which gives power of taxation. This
being the case, the moment the levy contained in a taxing statute
transgresses into a prohibited field, it is liable to be struck down.
PART-VII :FREEDOM OF TRADE, COMMERCE AND INTERCOURSE

To consider the question as to whether the tax laws come under the ambit of
Article 301 vis-à-vis freedom of trade, commerce and intercourse, it is
necessary to refer to the constitutional provisions, Constituent Assembly
Debates and precedents. To begin with, I will first consider the relevant
Articles, by extracting Part XIII verbatim.
PART XIII
TRADE, COMMERCE AND INTERCOURSE WITHIN THE TERRITORY OF INDIA
301.Freedom of trade, commerce and intercourse.—
Subject to the other provisions of this Part, trade, commerce and
intercourse throughout the territory of India shall be free.
302. Power of Parliament to impose restrictions on trade, commerce and
intercourse.—
Parliament may by law impose such restrictions on the freedom of trade,
commerce or intercourse between one State and another or within any part of
the territory of India as may be required in the public interest.
303. Restrictions on the legislative powers of the Union and of the States
with regard to trade and commerce.—
(1) Notwithstanding anything in article 302, neither Parliament nor the
Legislature of a State shall have power to make any law giving, or
authorising the giving of, any preference to one State over another, or
making, or authorizing the making of, any discrimination between one State
and another, by virtue of any entry relating to trade and commerce in any
of the Lists in the Seventh Schedule.
(2) Nothing in clause (1) shall prevent Parliament from making any law
giving, or authorizing the giving of, any preference or making, or
authorizing the making of, any discrimination if it is declared by such law
that it is necessary to do so for the purpose of dealing with a situation
arising from scarcity of goods in any part of the territory of India.
304. Restrictions on trade, commerce and intercourse among
States.—notwithstanding anything in article 301 or article 303, the
Legislature of a State may by law—
(a) impose on goods imported from other States or the Union territories any
tax to which similar goods manufactured or produced in that State are
subject, so, however, as not to discriminate between goods so imported and
goods so manufactured or produced; and
(b) impose such reasonable restrictions on the freedom of trade, commerce
or intercourse with or within that State as may be required in the public
interest:
Provided that no Bill or amendment for the purposes of clause (b) shall be
introduced or moved in the Legislature of a State without the previous
sanction of the President.
305. Saving of existing laws and laws providing for State monopolies.—
Nothing in articles 301 and 303 shall affect the provisions of any existing
law except in so far as the President may by order otherwise direct; and
nothing in article 301 shall affect the operation of any law made before
the commencement of the Constitution (Fourth Amendment) Act, 1955, in so
far as it relates to, or prevent Parliament or the Legislature of a State
from making any law relating to, any such matter as is referred to in sub-
clause (ii) of clause (6) of article 19.
306.[Power of certain States in Part B of the First Schedule to impose
restrictions on trade and commerce.][38]
Rep. by the Constitution (Seventh Amendment) Act, 1956, s. 29 and Sch.
307. Appointment of authority for carrying out the purposes of articles 301
to 304.—
Parliament may by law appoint such authority as it considers appropriate
for carrying out the purposes of articles 301, 302, 303 and 304, and confer
on the authority so appointed such powers and such duties as it thinks
necessary.

Needless to mention that when the language of the provision is clear and
unambiguous that, the intention of the law makers should be inferred from a
plain reading of the provision itself. Ordinarily, we need not go beyond
the clear language of the provision to interpret the Statute.

The freedom of trade, commerce and intercourse throughout the territory of
India is assured, but such freedom of trade is subject to Part XIII of the
Constitution. When we evaluate the impact of Article 301 on the plenary
taxing power of the Sovereign State, the opening words become significant.
Be that as it may, Article 301 only guarantees throughoutness of trade and
commerce, the freedom, however, is not absolute freedom nor is it free from
regulations.

The dissection of Article 301 shows that it has three significant parts or
phrases. These are, ‘subject to other provisions of this part’, and ‘Trade,
Commerce and Intercourse throughout territory of India’, ‘shall be free’.
Which everway one reads, the plain meaning of this is that trade, commerce
and intercourse, shall be free, subject to Articles 302 to 307 of the
Constitution. The two sets of the provisions which are mainly contemplated
in the phrase ‘subject to other provisions’ are Articles 302, 303 and 304
(a) and (b). Article 303. The Parliament may by law restrict the freedom
of trade in public interest and such law would be free from Article 301.

Article 301 of the Constitution begins with the phrase ‘Subject to other
provisions of this Part’. This phrase gives an initial indication as to
what to expect? The position of this phrase should be taken into
consideration. Even before the declaration of freedom of Trade, Commerce
and Intercourse, it is being subjected to limitations. Further the opening
words of Article 301, namely, ‘subject to the provisions of this part’
require that all the Articles of the Part XIII have to be read together so
as to understand the width and meaning of the Part XIII. ‘Subject to’ is
the dominant expression so far as Article 301 is concerned. It indicates
subservience to at least Articles 302, 303 and 304. Articles 302 to 304
embody a restatement of powers under Article 246 r/w the State List under
the VII Schedule. Each restated power by itself overrides the freedom of
trade in Article 301.

Article 301 loses its prime place, if States make laws under any of the
taxing entries, erecting reasonable restrictions or imposing tax on the
free trade. Such power over-rides freedom of trade and commerce. Thus, the
general declaration by Article 301 is relaxed in favor of Parliament by
Article 302 and in favor of the States by Articles 303 and 304. It is
interesting to note that Article 304 starts with a non-obstante clause
whereas Article 302 does not have a non-obstante clause. As the freedom of
trade in Article 301 is itself subject to 302 and 304, the intention of the
framers, to my mind, appears to be clear. The Constitution guards and
protects the State legislations under Article 304(a) and (b) from
overemphasized effect on freedom of trade under Article 301.

It is a sound principle of jurisprudence that entire statute has to be
construed as a whole and not in isolation. While doing so, no clause in any
provision can be ignored especially when we interpret the Constitution
which is ‘suprema lex’. The difference between the power of the Union and
the States vis-a-vis Article 301 is that Article 302 does not have
application to tax laws like Article 304(a), but under Article 304(a), tax
can be imposed on the goods imported from other States. From the
understanding of the Articles 301, 302, 303 and 304, what emerges is
summarized below-
Article 302 is an exception to Article 301.
The limitation under Article 302 is again subject to Article 303.
Articles 302 and 303 do not refer to laws under taxing entries.
Article 304 can be an exception to be generally construed as dealing with
non-tax discriminatory tax and restrictions.

In addition to plain reading, an analysis of the relevant provisions and
the legislative history of Article 301, is also relevant, in understanding
the free trade clause in our Constitution. This can be considered also with
reference to Constituent Assembly Debates and the legislative history which
are equally important external aids.

In this connection, it has to be remembered that before the commencement of
the Constitution, about two-thirds of India was directly under the British
rule and was called ‘British India’ and the remaining about one third was
being directly ruled by the native Princes and was known as ‘Native
States’. There were a large number of them with varying degrees of
sovereignty vested in them. Those rulers had, broadly speaking, the
trappings of a Sovereign State with power to impose taxes and to regulate
inter-State trade. It is well known fact that many of them had erected
trade barriers seriously impeding the free flow of trade, commerce and
intercourse, thereby not only shutting out but also shutting in commodities
meant for mass consumption. Between the years 1947 and 1950, almost all the
Indian States entered into agreements with the Government of India and
merged into India as one political unit, with the result that what was
called British India, broadly speaking, came under the Constitution. The
native States became Part ‘B’ States. These Part ‘B’ States, in turn, were
some sort of unions of small States or individual princely States. They
erected, more often than not, trade barriers and customs posts even amongst
themselves. It was in this background, India for the first time, was
constituted as one political unit. Hence, it was necessary to abolish all
those trade barriers and custom posts in the interest of national
solidarity, economic and cultural unity as also of freedom of trade.

One of the early tasks to engage the attention of the Constituent Assembly
in 1947 was freedom of trade and commerce within territories of the Union.
It is important to note that in the Draft Constitution, the freedom of
trade, commerce and intercourse which was a part of fundamental right, was
dropped as such. Basic principles were formulated in the notes submitted to
the sub-committee on Fundamental Rights by Dr. K.M. Munshi[39] and
SirAlladi Krishnaswami Iyer[40]. The Sub-Committee discussed Sir B.N. Rau’s
draft provision on the subject on March 29, 1947 and was adopted in the
following form:

Subject to regulation by the law of the Union, trade, commerce, and
intercourse among the units, whether by means of internal carriage or by
ocean navigation, shall be free:
Provided that any unit may by law impose reasonable restrictions thereon in
the interest of public order, morality or health.

Commenting on the Clause when the draft of the sub-committee’s report was
under Consideration. Sir Alladi Krishnaswami Iyer suggested that goods
entering a particular unit from other units of the Union should not escape
duties and taxes to which goods produced in the concerned unit itself were
subjected to. These suggestions were accepted by the Sub-committee and
incorporated in the report submitted to the Advisory Committee on April 16,
1947. On April 21, 1947 the clause came up for debate before the Advisory
Committee. Shri C. Rajgopalchari expressed his view that the units must be
allowed to raise some kind of custom duties for genuine revenue purposes,
for which the reply of Shri K. M. Panikkar is relevant for our discussion:

K. M. Panikkar: Rajaji (C. Rajgopalchari) has raised the question of the
right of the units to raise taxes, and to say this right should not be
denied. I, however, think this is dangerous power to be given to the units.
This may result in creation of competing units. We have allowed two things.
We have allowed the unit to tax its own industries. We also allow things
brought in to be taxed, for sake of parity. But our friend wants go little
further and say that the right to impose taxes or transit duty or some kind
of duty must be given to the units. That, I am afraid, will be a negation
of the clause.[41]

In the interim report of the Advisory Committee dt.23.04.1947 placed by
Shri Sardar Vallabhai Patel, the following recommendations were made :

“While agreeing in principle with this clause we recommend that instead of
being included in Fundamental Rights, it should find a place in some other
part of the Constitution.”

Taking into consideration above deliberations and decisions of the
Assembly, Sir B.N. Rau incorporated the following clause in his draft
Constitution of October, 1947 under Part III-Fundamental Rights including
Directive Principles of State Policy[42]:-

|17. Provided that nothing |Freedom of trade, |
|in this section shall |commerce and |
|prevent any unit from |intercourse among |
|imposing on goods |the units. |
|manufactured or produced in|[Cf. Common wealth |
|that unit are subject, so, |of Australia |
|however, as not to |Constitution Act. |
|discriminate between goods |Ss. 92 and 99, |
|so imported and goods so |Government of India|
|manufactured or produced : |Act, 1935, s. 297 |
|Provided further that no | |
|preference shall be given | |
|by any regulation of trade,| |
|commerce or revenue to one | |
|unit over another : | |
|Provided also that nothing | |
|in this section shall | |
|preclude the Federal | |
|Parliament from imposing by| |
|Act restrictions on the | |
|freedom of trade, commerce | |
|and intercourse among the | |
|units in the interests of | |
|public order, morality or | |
|health or in cases of | |
|emergency. | |

With some modifications, this clause was retained in the Fundamental Rights
chapter in the draft Constitution of February 21, 1948. The proviso was
redrafted and included as an independent Article under a separate heading,
namely, “Inter-state trade and commerce” in Part IX of the Draft
Constitution pertaining to relations between the Union and the States.[43]

Further when the draft Constitution was published and circulated for
suggestions and opinions, Sir Alladi Krishnaswami Iyer commented in the
following manner:-

“Comments of AlladiKrishnaswamiAyyar: In this regard to interstate trade
there are three main provisions in the Draft Constitution :
The freedom of inter-state trade secured by Article 16;
Subject to an interference by federal law :
An interference by a provision or state law to the extent provided in item
33, [44], List II.
The power of interference under Sub-clause (b) of the Article 244 is too
drastic and much wider than that provided in the Original Draft. Would not
this provision practically nullify the freedom of trade secured by the
Article 16 as the expression ‘interests of public is vague and uncertain
and cannot be subject to judicial review.”

Draft Articles relating to trade and commerce were scattered in different
parts of the draft Constitution (i.e., Clause 16 and Articles 243 to 245)
and the purpose was to string together all these scattered provisions under
one head. Dr. Ambedkar stated before the Constituent Assembly that :

Sir, all that I need do at this stage is to inform the House that
originally the articles dealing with freedom of trade and commerce were
scattered in different parts of the Draft Constitution. One article found
its place in the list of Fundamental Rights, namely, article 16, which said
that trade and commerce, subject to any law made by Parliament, shall be
free throughout the territory of India. The other articles, namely, 243,
244 and 245 were included in some other part of the Draft Constitution. it
was found in the course of discussion that a large number of members of the
House were not in a position to understand the implications of articles
243, 244 and 245, because these articles were dissociated from article 16.
In order, therefore, to give the House a complete picture of all the
provisions. relating to freedom of trade and commerce the Drafting
Committee felt that it was much better to assemble all these different
articles scattered in the different parts of the Draft Constitution into
one single part and to set them out seriatim, so that at one glance it
would be possible to know what are the provisions with regard to the
freedom of trade and commerce throughout India. I should also like, to say
that according to the provisions contained in this part it is not the
intention to make trade and commerce absolutely free, that is to say,
deprive both Parliament as well as the States of any power to depart from
the fundamental provision that trade and commerce shall be free throughout
India.[45]
(Emphasis Supplied)
From the above legislative history and Constituent Assembly Debates, four
propositions would emerge:-
It is clear from a comparison of Clause 16, 243, 244 and 245 of the draft
Constitution with Articles in Part XA (now Part XIII) that they were not
merely arranged in seriatim but were substantially altered.
That freedom of trade, commerce and intercourse is not a fundamental right.
That trade, commerce and intercourse in India is not absolutely free.
That the discriminatory tax (like erstwhile custom duties imposed by
certain independent states) is harmful for the federation.

1 Plains of Ganges can never be fertilized by water of Murray or Potmac
rivers

The precedents as well support the view that tax laws are not contemplated
in Article 301. Before considering the relevant precedents, a brief
reference to the extent and scope of right to free trade as enforced in
Australia, USA and Canada may be refereed to. It is to be kept in mind that
the plains of Ganges can never be fertilized by waters of Murray[46] or
Potmac[47]. But it is important to see the course which they have sailed
and taken their countries to glory. It is imperative to mention that during
the drafting process of Article 301, foot note for the same had reference
to Australian Constitution. It is no gainsaying that our framers were
learned men who drew our Constitution having hindsight of the wisdom of
these great federations.

The main inspiration for Part XIII has been American and Australian models.
These models present before the Constituent Assembly were re-designed and
expanded by the framers of the Constitution in India according to the needs
of Indians. It is important to note that the interpretation provided by
other countries are just indicative. They may have persuasive value
because the context and history has been quite different as compared to
India. At least in relation to Part XIII of the Constitution an indigenous
interpretation should be provided without placing heavy reliance on the
foreign cases as they may be subject to change which will inevitably stir
the matter once again. Moreover, our constitutional structure is quite
different from those provided under Australian and American Constitutions.

In Australia and the United States of America, giving textual meaning to
the applicable Constitutional provisions, the Courts interpreted the
‘commerce clause’ or ‘free trade clause’ in such a manner that the (federal
units) were completely barred to levy any taxes on inter-state trade and
commerce, Fortunately off late, in these jurisdictions, the law has been
diluted to enable the federal units to regulate inter-state trade and
commerce even by imposing levies. This would be clear by brief reference
to the case law governing inter-state trade in Australia, Canada and the
United States of America.

2 Commonwealth of Australia

Section 92 of the Australian Constitution declares that ‘on the imposition
of uniform duties of customs, trade, commerce and intercourse among the
States, whether by means of internal carriage or ocean navigation, shall be
absolutely free. In Cole v Whitfield[Herein after ‘Cole’][48], and later
in CastlemaineTooheys Ltd v South Australia[49] and, most recently,
in Betfair Pty Ltd v Western Australia[50], the Court observed that Section
92 of the Australian Constitution only meant that Australia was free from
those measures which were discriminatory and protectionist burdens. Cole
insisted that Section 92 proscribes both direct and indirect protectionist
discrimination: –

‘The concept of discrimination in its application to interstate trade and
commerce necessarily embraces factual discrimination as well as legal
operation. A law will discriminate against interstate trade or commerce if
the law on its face subjects that trade or commerce to a disability or
disadvantage or if the factual operation of the law produces such a
result’.[51]

Earlier to this, Australian Courts have grappled to achieve uniformity
until 1988 [Cole]. Earlier Judgments had taken a right based approach,
wherein a single trader who was burdened, could claim violation of Section
92 of the Australian Constitution.[52] Such wide interpretation given in
the earlier case laws led to development of narrower test by the High Court
in Cole. Earlier Case laws were available and were cited in the Atiabari
and Automobile also. It is interesting to note that our framers drawing
experience of Bank Nationalization Case[53], were concerned about stifling
the natural growth of the Country by broad law such as Section 92 of
Australian Constitution.[54]

3 United States of America

Article 1 Section 8 Clause 3 of the U.S. Constitution states that “The
Congress shall have the legislative power to regulate commerce, with
foreign nations and among several States, and with Indian Tribes.” This
Clause also known as the ‘Commerce Clause’ has been under judicial scrutiny
for a long time. The plain reading of this Article means that the Federal
Legislature is empowered to regulate the inter-state trade.

In Brown v. Maryland[55], a case involving the constitutionality of a
Maryland law requiring all importers and wholesalers of foreign articles to
obtain a license, Chief Justice Marshall reasoned that the rationale of
McCulloch[56] was “entirely applicable” to state taxation of private
enterprises engaged in inter-state commerce. Thus, holding the Maryland
statute unconstitutional, Justice Marshall stated:
‘We admit this power (of a State to tax its own citizens on their property
within its territory) to be sacred…. We cannot admit that it may be used
so as to obstruct or defeat (Congress’) power to regulate commerce. It has
been observed that the powers remaining with the States may be so exercised
as to come in conflict with those vested in Congress. When this happens,
that which is not supreme must yield to that which is supreme’.

The Supreme Court in Freeman v. Hewitt[57], put a bar on the States to tax
such activities which directly affected inter-state commerce as federal
government was the sole authority to regulate these matters. Following
extract may be relevant-
‘The Commerce Clause was not. merely an authorization to Congress to enact
laws for the protection and encouragement of commerce among the States, but
by its own force created an area of trade free from interference by the
States. In short, the Commerce Clause even without implementing legislation
by Congress is a limitation upon the power of the States…. This
limitation on State power … does not merely forbid a State to single out
interstate commerce for hostile action. A State is also precluded from
taking any action which may fairly be deemed to have the effect of impeding
the free flow of trade between States. It is immaterial that local commerce
is subjected to a similar encumbrance’.

In 1977 in a landmark judgment in Complete Auto Transit vs. Brady[58], the
Supreme Court went back on the above approach and adopted practical effects
approach, according to which, a State law which is “applied to an activity
with a substantial nexus with the taxing state, fairly apportioned, non-
discriminatory against inter-state commerce, and fairly related to the
services provided by the State” shall not be invalidated on the ground that
States lack legislative competence. Subsequently the Supreme Court has
further empowered the States to adopt legislations and it now only requires
that there should be a fair relation or connection between the tax imposed
and the general benefits provided to the taxpayers which include civic
services as maintenance of public roads and running of mass transits (refer
D.H. Holmes Company Ltd. vs. Shirley McNamara[59]). In the Commonwealth
Edison Company vs. State of Montana[60] the Supreme Court has observed that-

‘when a general revenue tax does not discriminate against interstate
commerce and is apportioned to activities occurring within the State, the
State is free to pursue its own fiscal policies unembarrassed by the
Constitution.’

It is obvious from the line of cases that America has been moving towards
empowering States to develop their own fiscal policy under the Commerce
Clause. Our Constitution, on the other hand, has achieved directly what the
US Courts are trying to achieve by way of judicial interpretation.

4 Canada

Canadian Constitution envisages freedom of trade under Section 121 as
follows ‘All Articles of the Growth, Produce, or Manufacture of any one of
the Provinces shall, from and after the Union, be admitted free into each
of the other Provinces’. It is important to note the federal scheme before
referring to interpretation provided by the Courts in Canada. Under Section
92(2) provincial power to tax is restricted by three limitations i. The tax
must be ‘direct’ ii. The tax must be ‘within the province’ iii. The tax
must be for ‘provincial purposes’.[61] Federal and Provincial powers
overlap in the field of direct taxation, which includes the two most
lucrative taxes, namely, income tax and the sales tax. Section 121 has been
interpreted by the Supreme Court in Gold Seal Case (1921)[62], In this Case
the Supreme Court of Canada speaking through Duff J. observed that:

‘The capacity of the Parliament of Canada to enact the amendment of 1919 is
denied. With this I do not agree. And, first, I am unable to accept the
contention founded upon Section 121 of the B.N.A. Act; the phraseology
adopted, when the context is considered in which this section is found,
shews, I think, that the real object of the clause is to prohibit the
establishment of customs duties affecting interprovincial trade in the
products of any province of the Union.’[63]

Similarly, Mignault J. stated:

‘I think that, like the enactment I have just quoted, the object of section
121 was not to decree that all articles of the growth, produce or
manufacture of any of the provinces should be admitted into the others, but
merely to secure that they should be admitted “free,” that is to say
without any tax or duty imposed as a condition of their admission. The
essential word here is “free” and what is prohibited is the levying of
custom duties or other charges of a like nature in matters of
interprovincial trade.’[64]

The Conspectus of law in Australia and the United States of America which
have federal Constitutions would show that initially the highest courts in
those countries interpreted their respective constitutional provisions as
totally prohibiting the States (federal Units) from levying any tax or
regulating on inter-State trade and commerce, but subsequently there is a
paradigm shift even in these jurisdictions and currently the existing
provisions have been interpreted so as not to deny such powers to States.

5 Indian Case Law

Returning to the main controversy in the case, it may be noted that apart
from the two leading judgments on the entry tax and compensatory tax in the
context of transportation Cases, we have large number of cases decided by
the various High courts and this Court. It is however not necessary to
refer to all cases. It would be suffice to refer to a few.

In Atiabari, the validity of Assam Taxation (on Goods Carried by Roads and
Inland Waterways) Act, 1954, which squarely comes under Entry 56 of List II
fell for consideration. It was assailed as violating Article 301, and as
not saved by Article 304(b). The challenge was upheld. It is necessary to
extract the following from the Atiabari. :

‘…It is obvious that whatever may be the content of the said freedom it is
not intended to be an absolute freedom; absolute freedom in matters of
trade, commerce and intercourse would lead to economic confusion, if not
chaos and anarchy; and so the freedom guaranteed by Article 301 is made
subject to the exceptions provided by the other Articles in Part XIII. The
freedom guaranteed is limited in the manner specified by the said Articles
but it is not limited by any other provisions of the Constitution outside
Part XIII. That is why it seems to us that Article 301, read in its proper
context and subject to the limitations prescribed by the other relevant
Articles in Part XIII, must be regarded as imposing a constitutional
limitation on the legislative power of Parliament and the Legislatures of
the States. What entries in the legislative lists will attract the
provisions of Article 301 is another matter; that will depend upon the
content of the freedom guaranteed; but wherever it is held that Article 301
applies the legislative competence of the Legislature in question will have
to be judged in the light of the relevant Articles of Part XIII; this
position appears to us to be inescapable.

50. Let us now revert to Article 301 and ascertain the width and amplitude
of its scope. On a careful examination of the relevant provisions of Part
XIII as a whole as well as the principle of economic unity which it is
intended to safeguard by making the said provisions, the conclusion appears
to us to be inevitable that the content of freedom provided for by Article
301….

51. certainly includes movement of free trade which is of the very essence
of all trade and is its integral part. If the transport or the movement of
goods is taxed solely on the basis that the goods are thus carried or
transported that, in our opinion, directly affects the freedom of trade as
contemplated by Article 301. If the movement, transport or the carrying of
goods is allowed to be impeded, obstructed or hampered by taxation without
satisfying the requirements of Part XIII the freedom of trade on which so
much emphasis is laid by Article 301 would turn to be illusory. When
Article 301 provides that trade shall be free throughout the territory of
India, primarily it is the movement part of the trade that it has in mind
and the movement or the transport part of trade must be free subject of
course to the limitations and exceptions provided by the other Articles of
Part XIII….Besides, it is not irrelevant to remember in this connection
that the Article we are construing imposes a constitutional limitation on
the power of the Parliament and State Legislatures to levy taxes, and
generally, but for such limitation, the power of taxation would be presumed
to be for public good and would not be subject to judicial review or
scrutiny. Thus considered we think it would be reasonable and proper to
hold that restrictions freedom from which is guaranteed by Article 301,
would be such restrictions as directly and immediately restrict or impede
the free flow or movement of trade. Taxes may and do amount to
restrictions; but it is only such taxes as directly and immediately
restrict trade that would fall within the purview of Article 301.’

(Emphasis Supplied)

In Atiabari, Chief Justice B. P. Sinha wrote a dissenting opinion holding
that any inference that the taxation simpliciter is within the terms of
Article 301 cannot be justified under the Constitution. Indeed, it is
observed that, it is only such taxes which directly and immediately affect
trade would fall within the purview of Article 301, though both the Learned
Judges used different languages, the purports appears to be same. It is
only such laws which operate in a restrictive manner, right to free trade
that are prohibited. Be that as it is, rejecting the submission that
Article 301 must be construed as freedom from all kinds of impediments,
restraints and trade barriers including freedom from all taxation, the
Learned Chief Justice said as follows:

‘In my opinion, there is no warrant for such an extreme position. It has to
be remembered that trade, commerce an intercourse include individual
freedom of movement of every citizen of India from State to State, which is
also guaranteed by Art.19(1)(d) of the Constitution. The three terms used
in Art. 301 include not only free buying and selling, but also the freedom
of bargain and contract and transmission of information relating to such
bargains and contract as also transport of goods and commodities for the
purposes of production, distribution and consumption in all their aspects,
that is to say, transportation by land, air or water. They must also
include commerce not only in goods and commodities, but also transportation
of men and animals by all means of transportation. Commerce would thus
include dealings over the telegraph, telephone or wireless and every kind
of contract relating to sale, purchase, exchange etc. of goods and
commodities.

15. Viewed in this, all comprehensive sense, taxation on trade, commerce
and intercourse would have many ramifications and would cover almost the
entire field of public taxation, both in the Union and in the State Lists.
It is almost impossible to think that the makers of the Constitution
intended to make trade, commerce and intercourse free from taxation in that
comprehensive sense. If that were so, all laws of taxation relating to sale
and purchase of goods on carriage of goods and commodities, men and
animals, from one place to another, both inter-State and intra-State, would
come within the purview of Art. 301 and the proviso to Art. 304(b) would
make it necessary that all bills or Amendments or pre-existing laws shall
have to go thereof the gamut prescribed by that proviso. That will be
putting too great an impediment to the power of taxation vested in the
States and reduce the States’ limited sovereignty under the Constitution to
a mere fiction. That extreme position has, therefore, to be rejected as
unsound.’

Dealing with the importance of taxing power of the State to raise money the
learned Chief Justice. opined thus :-

‘In my opinion, another very cogent reason for holding that taxation
simpliciter is not within the terms of Art. 301 of the Constitution is that
the very connotation of taxation is the power of the State to raise money
for public purposes by compelling the payment by persons, both natural and
juristic, of monies earned or possessed by them, by virtue of the
facilities and protection afforded by the State. Such burdens or imposts,
either direct or indirect, are in the ultimate analysis meant as a
contribution by the citizens or persons residing in the State or dealing
with the citizens of the State, for the support of the Government, with
particular reference to their respective abilities to make such
contributions. Thus public purpose is implicit in every taxation, as such.
Therefore, when Part XIII of the Constitution speaks of imposition of
reasonable restrictions in public interest, it could not have intended to
include taxation within the generic term “reasonable restrictions”’

In Automobile, the challenge was to the Rajasthan Motor Vehicles Taxation
Act, 1951. The Appellants were unsuccessful before the Rajasthan High
Court, which upheld the said Act. By majority of 4:3 this Court affirmed
the judgment of the High Court. Justice S.K.Das who wrote the lead judgment
observed that Part XIII is intended to achieve the federal economic and
fiscal integration and addresses the questions of economic unity. He held
that, “regulatory measures or measures imposing compensatory taxes for the
use of trading facilities do not come within the purview of the
restrictions contemplated by Article 301 and such measures need not comply
with the requirements of the proviso to Article 304(b) of the Constitution,
(and) that the relevant Articles in Part XIII apply only to legislation in
respect of the entries relating to trade and commerce in any of the lists
of the Seventh Schedule. But we must advert here to one exception which we
have already indicated in an earlier part of this Judgment. Such regulatory
measures do not impede the freedom of trade, commerce and intercourse and
compensatory taxes for the use of trading facilities are not hit by the
freedom declared by Article 301. They are excluded from the purview of the
provisions of Part XIII of the Constitution for the simple reason that they
do not hamper trade, commerce and intercourse but rather facilitate them”.

Justice K. Subba Rao (as his lordship then was) in a separate opinion
concurred with the majority and summarized the following principles that
are to be applied while testing a law under challenge as violating Article
301 of the Constitution (1) Article 301 declares a right of free movement
of trade without any obstructions by way of barriers, inter-State or intra-
State, or other impediments operating as such barriers. (2) The said
freedom is not impeded, but, on the other hand, promoted, by Regulations
creating conditions for the free movement of trade, such as, police
Regulations, provision for services, maintenance of roads, provision for
aerodromes, wharfs etc., with or without compensation. (3) Parliament, may
by law, impose restrictions on such freedom in the public interest; and the
said law can be made by virtue of any entry with respect whereof Parliament
has power to make a law.(4) The State also, in exercise of its legislative
power, may impose similar restrictions, subject to the two conditions laid
down in Article 304(b) and subject to the proviso mentioned therein. (5)
Neither Parliament nor the State Legislature can make a law giving
preference to one State over another or making discrimination between one
State and another, by virtue of any entry in the Lists, infringing the said
freedom. (6) This ban is lifted in the case of Parliament for the purpose
of dealing with situations arising out of scarcity of goods in any part of
the territory of India and also in the case of a State under Article
304(b), subject to the conditions mentioned therein; and (7) The State can
impose a non-discriminatory tax on goods imported from other States or the
Union territory to which similar goods manufactured or produced in that
State are subject.

As discussed above, a Constitution Bench of this Court in Atiabari had
struck down the Assam Act levying the tax on goods carried by road or
inland waterways. Making certain additional provisions, Assam Assembly
enacted the Assam Act No. 10 of 1961, coming under Entry 56 of the State
List, with the previous sanction of the President with the same
nomenclature, which was impeached as unreasonable under Article 32 of the
Constitution, in Khyerbari Tea Company v. State of Assam[65]. By the time,
this Court took up the case, the scope and effect of provisions contained
in Part XIII of the Constitution came to be considered in Automobile.
Rejecting the challenge this Court observed that the freedom can be
restricted by a law satisfying the two conditions in Article 304. In
examining the constitutionality of the statute, it must be assumed that the
legislature understands and appreciates the needs of the people and the
laws it enacts are directed to problems which are made manifest by
experience and that the legislature enacts the laws which the people’s
representatives consider to be reasonable for the purpose for which they
are enacted. The presumption is in favor of the constitutionality of
enactment. However, when it is shown that an Act invades the freedom of
trade, it is necessary to enquire whether the State has proved that the
restrictions imposed by way of taxation are reasonable and in public
interest within the meaning of Article 304(b). It was also held that a law
passed under Article 304(b) can be made to have retrospective effect.

In Jindal (2), the law was summarized by the Constitutional Bench as under:

‘Article 301 is binding upon the Union Legislature and the State
Legislatures, but Parliament can get rid of the limitation imposed by
Article 301 by enacting a law under Article 302. Similarly, a law made by
the State Legislature in compliance with the conditions imposed by Article
304 shall not be hit by Article 301. Article 301 thus provides for freedom
of inter-State as well as intra-State trade and commerce subject to other
provisions of Part XIII and correspondingly it imposes a general limitation
on the legislative powers, which is relaxed under the following
circumstances:

(a) Limitation is relaxed in favour of Parliament under Article 302, in
which case Parliament can impose restrictions in public interest. Although
the fetter is limited enabling Parliament to impose by law restrictions on
the freedom of trade in public interest under Article 302, nonetheless, it
is clarified in Clause (1) of Article 303 that notwithstanding anything
contained in Article 302, Parliament is not authorised even in public
interest, in the making of any law, to give preference to one State over
another. However, the said clarification is subject to one exception and
that too only in favour of Parliament, where discrimination or preference
is admissible to Parliament in making of laws in case of scarcity. This is
provided in Clause (2) of Article 303.
(b) As regards the State Legislatures, apart from the limitation imposed by
Article 301, Clause (1) of Article 303 imposes additional limitation,
namely, that it must not give preference or make discrimination between one
State or another in exercise of its powers relating to trade and commerce
under Entry 26 of List II or List III. However, this limitation on the
State Legislatures is lifted in two cases, namely, it may impose on goods
imported from sister State(s) or Union Territories any tax to which similar
goods manufactured in its own State are subjected but not so as to
discriminate between the imported goods and the goods manufactured in the
State [see Clause (a) of Article 304]. In other words, Clause (a) of
Article 304 authorises a State Legislature to impose a non-discriminatory
tax on goods imported from sister State(s), even though it interferes with
the freedom of trade and commerce guaranteed by Article 301. Secondly, the
ban under Article 303(1) shall stand lifted even if discriminatory
restrictions are imposed by the State Legislature provided they fulfil the
following three conditions, namely, that such restrictions shall be in
public interest; they shall be reasonable; and lastly, they shall be
subject to the procurement of prior sanction of the President before
introduction of the Bill.’

One need to note that Atiabari dealt with the challenge to an enactment
which squarely comes under Entry 56 whereas Automobile is a case concerned
with the challenge to Rajasthan Motor Vehicle Taxation Act. Taxes on motor
vehicles is a subject which falls under Entry 57. The cases which were
subsequently decided by this court in relation to Part XIII, were decided
by this Court were not concerned with Entries 56 and 57. Be that as it may,
deviating a little, let me now examine the scope of Entry 52 and the nature
of the tax contemplated there under. Entry 52 of the State list deals with
‘taxes on the entry of the goods for consumption use or sale therein’. A
law made under this entry like various Acts which are impugned in these
appeals levy tax on entry of goods from one State to other. The taxable
event is the entry into local area in another State. As defined in Concise
Oxford Dictionary the verb ‘enter’ means ‘to come or go into and entry as a
noun is act of coming or going’.[66] There is a palpable difference between
the entry of goods and sale of goods. Many enactments levying tax on sale
define the sale as ‘transfer of property from one person to another in
course of business for cash or deferred payment.’ When goods enter the
State it may be for consumption, use or sale. The factum of entry and sale
may not happen at the same time and, therefore, entry of goods is one thing
and consumption, use or sale is another thing. Therefore, the mere fact
that the goods are intended for sale is no significance to the taxable
event in law on the entry of goods.

In Hansa Corp.[67], the Constitutional validity of Karnataka Tax on Entry
of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1979
was challenged before this Court. This Court upheld the validity of the Act
and pointed out that the formulation in Atiabari and Automobile was even
applicable for Entry Tax under Entry 52 of the State List. This Court
summed up the position of law as below-

‘Entry 52 in State List read with Article 246 of the Constitution confers
power on the State legislature to enact a law to levy tax on the entry of
goods into a local area for consumption, use or sale therein. This tax in
common parlance is known as ‘octroi’. Octroi was leviable by the
municipality under the power delegated to it under various laws providing
for setting up of and administration of municipal corporations and
municipalities. Octroi thus understood was being levied by various
municipalities and municipal corporations in Karnataka State. Since some
time a feeling had grown that octroi was obnoxious in character and impeded
the development of trade and commerce and there was a clamour for its
abolition. Taking note of the resentment of the business community,
Karnataka State abolished octroi with effect from April 1, 1979. However,
no one was in doubt that octroi was a major source of revenue to
municipalities and its abolition would cause such a dent on municipal
finances that compensation for the loss would be inevitable. Accordingly,
the State Government undertook a policy of compensating the municipalities
year by year. For generating funds for this compensation, rates of sales
tax were raised and in some cases a surcharge was levied. The amount so
collected was not sufficient to bridge the gap in municipal budget. To
further augment the finances for compensating the municipalities,
additional fund was sought to be generated by levy of tax under the
impugned legislation. No doubt, the tax levied was one on entry of
scheduled goods in local areas meaning thereby it had all the broad
features of octroi, yet the manner of levy, the method of collection and
the persons liable to pay the same were so devised by the impugned Act as
to remove the obnoxious features of octroi. As the charging section shows,
the tax was to be levied on entry of scheduled goods in a local area at a
rate to be specified by the Government not exceeding 2% ad valorem. The
taxing event would be the entry of scheduled goods in a local area. In
fact, octroi was being levied on almost all conceivable goods entering into
a local area for consumption, use or sale therein. There appears to be a
discernible policy in selecting the goods set out in the schedule, the
entry of which in a local area would provide the taxing event. The goods
selected for levy are textiles, tobacco and sugar. Way back in 1957 there
was a demand for abolition of sales tax on the scheduled goods and at the
instance of the Union Government the State Governments agreed to forego
their right to levy sales tax on the aforementioned scheduled goods on the
condition that the Union Government would levy additional excise duty on
them and distribute the net proceeds of such duty amongst the consenting
States. Parliament accordingly has enacted the Additional Duties on Goods
(Goods of Special Importance) Act, 1957. Therefore, while raising rates of
sales tax and levying surcharge in respect of some other items the State
Government could not have levied sales tax on the scheduled goods. They
were, therefore, selected for the levy of the tax under the impugned Act on
their entry into a local area’.
XXX
‘On a conspectus of these decisions it appears well settled that if a tax
is compensatory in character it would be immune from the challenge under
Article 301. If on the other hand the tax is not shown to be compensatory
in character it would be necessary for the party seeking to sustain the
validity of the tax law to show that the requirements of Article 304 have
been satisfied’.

In Atiabari, majority held that the legislative competence of the
legislature will have to be judged in the light of relevant Articles of
Part XIII and that what entries will attract Article 301 will depend on the
content of freedom guaranteed. In Jaiprakash, this Court ruled that concept
of compensatory tax evolved in Automobile does not apply to general notion
of entry tax. As pointed out earlier Atiabari is a case dealing with tax
under Entry 56, whereas Automobile is a case under Entry 57. In view of
this it would not be safe to apply the majority opinion in Atiabari and
Automobile while dealing with entry tax. I am therefore compelled to hold
that tax law simpliciter is not contemplated in Article 301 of the
Constitution.

There is no gainsaying that the law made by Parliament or State legislature
is subject to Constitutional limitations. A law which abridges fundamental
rights is rendered void by reason of Article 13. A law by the Union or the
States relating to a subject matter outside the powers assigned under
Articles 245 read with Article 246 and relevant legislative entries in the
Seventh Schedule would be ultra vires as legislatively incompetent. Apart
from these limitations, the law of the Union or the States is also subject
to other Constitutional limitations. The provisions of Part XIII,
especially, Article 304(a) and (b) also act as a limitation on the
legislative jurisdiction of the Union and the States. The power endowed
under Articles 245 and Article 246 to a competent legislature to make laws
is ‘subject to the provisions of the Constitution. Nonetheless, if a State
makes law under Article 245(1) r/w. Article 246(3) in respect of the
subjects enumerated in Entries 45 to 63 of List II in the Seventh Schedule,
it is doubtful whether it can be invalidated only on the ground that it
does not comply with Articles 301 and 304(a). Indeed various provisions of
the Constitution dealing with fiscal measures in Part XII, for instance
Articles 265, 269, 276 and 286, specifically deal with taxes, but in Part
XIII, except Article 304(a), no other Article deals with taxes. Further
Chapter I of Part XII of the Constitution specifically deals with
provisions regarding ‘Finance’, whereas Part XIII deals with ‘Trade,
Commerce and Intercourse’ within the territory of India. Thus, these two
Parts are kept distinctly separate. Though every law is made subject to all
provisions of the Constitution, it does not mean that every tax law made by
the State must be made answerable to the general provisions relating to
trade, commerce and intercourse. The provisions of the Constitution, the
Constituent Assembly Debates and the precedents, lead us to such a
conclusion. The reasons for this conclusion are summarized as below-

First, Taxation is an incident of sovereignty, which cannot be curtailed by
any implied limitations.[68]

Secondly, It is part of any sovereign government to ensure a welfare State.
To achieve the same, tax is the only course available to the government to
generate revenue for purposes of welfare activities. Courts, therefore,
cannot abridge the taxing power of the sovereign State.

Thirdly, the very conception of Part XIII was only to prevent
discriminatory taxes under Article 304(a).

Fourthly, argument of inconvenience cannot affect the interpretation of
Article 301 to bring in new tests and expand the provision beyond what was
imagined by the framers of our Constitution. Article 304 (a) is an isolated
provision which only deals with the discriminatory taxes. Existence of such
provision cannot furnish evidence to say that Article 301 is not subject to
taxing power of the State.

Fifthly, the taxing entries are specifically provided for in the Seventh
Schedule. It is settled principle under our Constitution that taxing power
cannot be derived from a general entry.[69]In light of this principle the
Constituent Assembly passed the Articles and Entries in the following time
line: On 13 June, 1949 present Article 245 which was Article 217 (in the
draft Constitution) was passed. On September 02, 1949 Entry 52 of State
List (which was entry 61 in the draft Constitution) was passed. On
September 08, 1949 PART XIII (which was PART XA in the draft Constitution)
was passed. This shows that our Constitution framers are presumed to be
aware of the inter-play of taxing provisions. Therefore, the only explicit
limitation imposed on the taxing power of the State is Article 304(a) of
the Constitution.

Sixthly, we cannot ignore the legislative journey of Article 301 in Part
XIII. At the stage of drafting, free trade, commerce and intercourse was in
fact sought to be made a fundamental right but it was not accepted.
Ultimately it was resolved to bring all the provisions relating to free
trade, commerce and intercourse at one place. What started as a fundamental
right came to be enacted as a constitutional right? Thus, there is abundant
guidance from the legislative history in regard to incorporation of Article
301 only as a constitutional right.

Seventhly, That Article 306 cannot have an impact on the interpretation of
Article 301, as it only saved certain discriminatory taxes. Since the
framers wanted to preserve the imposition of such discriminatory taxes for
a limited period, which otherwise would have been beyond the competence of
State legislature to impose tax on import or on export of goods. Therefore
taxes are not covered under the Article 301 only inter-state discriminatory
taxes are barred under Article 304(a) of the Indian Constitution.

Eighthly, Tax management is a province of political sphere. Judiciary
should provide certain latitude for the government as taxes are lifeline of
the Governments.

Ninthly, Article 301 of the Indian Constitution uses the term ‘free’. The
word ‘free’ means ‘which is not confined or restricted’. Either the trade
is ‘free or not free’. To state that trade, commerce and intercourse
throughout the territory in India is free and then qualify this Article 301
with subsequent Articles under 302, 303 and 304 only portrays that Article
301 is merely clarificatory in nature. If trade was, indeed, free then
majority of Articles in the Constitution would have been redundant. From
the history, context and interpretation it is clear that Article 301 is
just a form to be understood subject to other provisions of Part XIII. If
no other motive for its insertion can be suggested, a sufficient one is
found in the desire to remove all doubts i.e., the wordings of Article 301
is beyond any doubt a clarificatory provision and the extent of freedom is
limited to those discriminatory taxes, restrictions (other than taxation
simpliciter) and prohibitions provided explicitly under Articles 302, 303
and 304.

In Atiabari and Automobile this Court relied on a non-obstante clause in
Article 304 to hold that, by necessary implication, tax law come within the
purview of Article 301. This view is not sound because one has to read the
text and context while interpreting the constitutional provisions. In this
regard, I respectfully agree with the reasoning and conclusions reached by
Hon’ble the Chief Justice that non-obstante clause in Article 304 (a) is
not determinative in the interpretation of Article 301.
PART-VIII : ARTICLE 304 OF THE CONSTITUTION

Whether a law levying tax on entry of goods needs to be tested with
reference to Article 304(a) and (b) of the Constitution? In order to
appreciate the implication of Article 304 of the Constitution, it is
necessary to bear in mind that historical background of these provisions.
The Government of India Act, 1935 envisaged a federal Constitution for the
whole of British India. The Government imposed restriction on the
legislature of the States to legislate in relation to internal trade under
Section 297 in the following terms:-

‘297. (1)No Provincial Legislature or Government shall.
(a) by virtue of the entry in the Provincial Legislative List relation to
trade and commerce within the Province, or the entry in that list relating
to the production, supply, and distribution of commodities, have power to
pass any law or take any executive action prohibiting or restricting the
entry into or export from, the Province of goods of any class or
description; or
(b) by virtue of anything in this Act have power to impose any tax, cess,
toll, or due which, as between goods manufactured, or produced in the
Province and similar goods not so manufactured or produced, discriminates
in favour of the former or which, in the case of goods manufactured or
produced outside that Province, discriminates between goods manufactured or
produced in another locality.
(2)Any law passed in contravention of this section shall, to the extent of
the contravention, be invalid.’

It may be noticed that prohibition contained in the section quoted above
applied only to Provincial Governments and Provincial legislatures with
reference to entries in the legislative list relating to trade and commerce
and to production, supply and distribution of commodities. This section
dealt with prohibitions or restrictions in respect of import into or export
from a Province, of goods generally. It also dealt with the power to impose
taxes etc. and prohibited discrimination against goods manufactured or
produced outside a Province or goods produced in different localities.

The Sub Committee on Fundamental Rights comprising of Shri. K. M. Munshi,
Sir Alladi Krishnaswami Iyer and Sir. B. N. Rau on March, 29 1947
introduced Clause 13 in the following form:-

‘Subject to regulation by the law of the Union, trade, commerce and
intercourse among the units, whether by means of internal carriage or by
Ocean Navigation, shall be free:
Provided that any unit may by law impose reasonable restrictions thereon in
the interest of public order, morality or health.’[70]
(Emphasis supplied)

The proviso herein above empowered the ‘Unit’ to impose by law, reasonable
restrictions in the interest of the public order, morality or health. Sir
B. N. Rau in his comments to the aforesaid draft discussed by the Sub
Committee stated that ‘the first paragraph of Clause 13 is adopted from the
Australian Constitution (Sec. 92) while the proviso was new’. Further, Sir
Alladi Krishnaswami Iyer in his comments on Draft Report of 10th, 14th&
15th April, 1947, in relation to Clause 13 suggested that it must be made
clear that :

‘(1) Goods from other parts of India than in the units’ concerned coming
into the units cannot escape duties and taxes to which the goods produced
in the units in themselves are subject.
(2) It must also be open to the unit in an emergency to place restrictions
on the rights declared by the clause’’[71]

The suggestions of Sir. Alladi Krishnaswami Iyer were accepted and the
Clause was accordingly modified and incorporated as Clause 14 as below :

14. (1) Subject to regulation by the law of the Union trade, commerce and
intercourse among the units by and between the citizens shall be free:
Provided that any unit may by law impose reasonable restrictions in the
interest of public order, morality or health or in an emergency:
Provided that nothing in this Section shall prevent any unit from imposing
on goods imported from other units the same duties and taxes to which the
goods produced in the unit are subject:
Provided further that no preference shall be given by any regulation of
commerce or revenue by unit to one unit over another.[72]

It may be relevant to note that while imposing reasonable restriction in
the first Proviso, the imposition of non-discriminatory tax was in the
second Proviso. The third Proviso was a pre-cursor of Article 303. On
21.04.1947, the aforesaid Clause 14 came up for consideration of the
Advisory Committee. Explaining the purpose of enabling a State to impose
reasonable restriction in the interest of public order, morality, health or
in emergency, Sir Alladi Krishnaswamy Iyer said:

‘Suppose there is a general famine and people are starved that is what is
meant here to be dealt with’
The advisory Committee accepted the recommendation of the Sub-Committee in
relation to Clause 14 with ‘one change; the sub-clause providing for
central regulation of trade by or with non-citizens was dropped as being
vague and unnecessary.[73]

The Advisory Committee submitted its report on 23.04.1947 wherein Clause 10
provided as under:

‘10. Subject to regulation by the law of the Union, trade, commerce and
intercourse among the units by and between the citizens shall be free:
Provided that any unit may by law impose reasonable restrictions in the
interest of public order, morality or health or in any emergency:
Provided that nothing in this section shall prevent any unit from imposing
on goods imported from other units the same duties and taxes to which the
goods produced in the unit are subject:
Provided further that no preference shall be given by any regulation of
commerce or revenue by a unit to one unit over the another’.[74]

On 01.05.1947 certain amendments were suggested which were adopted by the
Constituent Assembly. Clause 10, as amended, reads as follows:

‘10. Subject to regulation by the law of the Union, trade, commerce, and
intercourse among the units by and between the citizens shall be free:
Provided that any unit may by law impose reasonable restrictions in the
interest of public order, morality or health or in any emergency:
Provided that nothing in this section shall prevent any unit from imposing
on goods imported from other units the same duties and taxes to which the
goods produced in the unit are subject:
Provided further that no preference shall be given by any regulation of
commerce or revenue by a unit to one unit over another.

In the first Draft Constitution of October, 1947, Clause 17 reads as
follows:

‘17. Subject to the provisions of any Federal Law, trade, commerce and
intercourse among the units shall, if between the citizens of the
federation, be free:
Provided that nothing in this section shall prevent ny unit from imposing
goods imported from other unit from imposing goods imported from other
units any tax to which similar goods manufactured or produced in that unit
are subject, so, however, as not to discriminate between goods so imported
and goods so manufactured or produced:
Provided further that no preference shall be given by any regulation of
trade, commerce or revenue to one unit over another:
Provided also that nothing in this section shall preclude the Federal
Parliament from imposing by Act restrictions on the freedom of trade,
commerce and intercourse among the units in the interests of public order,
morality or health or in cases of emergency’.[75]

On 01.11.1947, the Drafting Committee considered Clause 17 and was of the
opinion that ‘the first and second provisos to this clause should be
transferred as independent clauses in the chapter dealing with relations
between the different States and the third proviso was unnecessary.[76]

On 28.01.1948, the Drafting Committee decided to introduce three new
clauses, namely Clause 192 E, 192 F & 192 G, relating to trade, commerce
and intercourse. Clause 192 E, 192 F and 192 G as introduced by the
Drafting Committee on 28.01.1948, reads as follows:

‘192E. No Preference shall be given by any regulation of trade, commerce or
revenue to one State or any part thereof over another State or any part
thereof.
192-F. Notwithstanding anything contained in Article 17 or in the last
preceding Article of this Constitution, it shall be lawful for any state-
To impose on goods imported from other State any tax to which similar goods
manufactured or produced in that State are subject, so, however, as not to
discriminate between goods so imported and goods so manufactured or
produced: and
To impose by law any restrictions on the freedom of trade, commerce or
intercourse with that State in the interests of public order, morality and
health or in cases of emergency.
*The committee is of opinion that the provisions contained in Articles 192-
E and 192-F should more appropriately be included in this Chapter than in
Part III dealing with fundamental rights.
192-G (1) there shall be an Inter-State Commerce Commission consisting of
such members as the president may think fit to appoint for the execution
and maintenance within the territory of India of the provisions of this
Constitution relating to Trade and Commerce.
(2) The term of the office of the members of the commission, and the
remuneration to be paid to them shall be such as the President may by Order
determine.
(3) The procedure of the commission shall be defined by the President by
the Order and the Commission shall have such powers including the power of
adjudication as the President may, from time to time, by Order, confer on
it.
(4) It shall be the duty of the Commission to decide any dispute relating
to Trade or Commerce between the States referred to it by the President for
adjudication and the decision of the Commission shall be final and shall
not be questioned in any Court’.

On 29.01.1948, the said clause was further revised and the revised clause
reads as follows:
‘*192-E. No preference shall be given to nor shall any discrimination be
made between one state or any part thereof and another State or any part
thereof by ay regulation of trade or commerce, whether by means of internal
carriage through roads, railways or rivers or by means of navigation
through seas.
*192-F Notwithstanding anything contained in Article 17 or in the last
preceding Article of this Constitution, it shall be lawful for any State-
(a) to impose on goods imported from other State any tax to which similar
goods manufactured or produced in that State are subject, so, however, as
not to discriminate between goods so imported and goods so manufactured or
produced; and
(b) To impose by law such reasonable restrictions on the freedom of trade,
commerce or intercourse with that State as may be required in the public
interests.
*The committee is of opinion that the provisions contained in Articles 192-
E and 192-F should more appropriately be included in this Chapter than in
Part-III dealing with the fundamental rights.
*192-G. Parliament shall by law appoint such authority as it considers
appropriate for the carrying out of the provisions of Article 192-E and 192-
F of this Constitution and confer on the authority so appointed such powers
and such duties as it thinks necessary.

In the Draft Constitution of 1948, Clause 16 was incorporated in the
Fundamental rights Chapter which reads as under:
‘16. Subject to the provisions of Article 244 of this Constitution and of
any law made by the Parliament, trade, commerce and intercourse throughout
the territory of India shall be free.

Inter-State trade and Commerce was dealt with in Article 243, Article 244
and Article 245 which reads as below:
‘*243. No preference shall be given to one State over another nor shall any
discrimination be made between one state and another by any law or
regulation relating to trade or commerce, whether carried by land, water or
air.
*244. Notwithstanding anything contained in Article 16 or in the last
preceding Article of this Constitution, it shall be lawful for any State-
(a) to impose on goods imported from other States any tax to which similar
goods manufactured or produced in that State are subject, so, however, as
not to discriminate between goods so imported and goods so manufactured or
produced: and
(b) To impose by land such reasonable restrictions on the freedom of trade,
commerce or intercourse with that State as may be required in public
interests:
Provided that during a period of five years from the commencement of this
Constitution the provisions of Clause (b) of this Article shall not apply
to trade or commerce in any of the Commodities mentioned in Clause (a) of
Article 306 of this Constitution.
245. Parliament shall by law appoint such authority as it considers
appropriate for the carrying out of the provisions of Articles 243 and 244
of this Constitution and confer on the authority so appointed such powers
and such duties as it thinks necessary.[77]

In the comments and suggestions to the Draft Constitution of February,
1948, the note to the comment of the Ministry of Industry and Supply is
relevant. The Ministry of Industry and Supply has expressed the view that
Clause (b) of Article 244 is open to serious objection on principle and
should be deleted altogether. The Ministry has pointed out that it is not
possible to foresee the circumstances in which the freedom of trade,
commerce or intercourse with a State will need to be interfered with by the
State in the Public interest, unless it be on the basis of discrimination
between the residents of one State and another, and this would be wholly
contrary to the spirit of the Constitution.[78]

On 08.09.1949, Hon’ble Dr. Ambedkar moved for the deletion of these
Articles and the motion was adopted by the Constituent Assembly without any
opposition. The substance of these Articles was however, embodied in
another amendment moved by Hon’ble Dr. Ambedkar immediately thereafter on
the same day. All these Articles were added in Part XA. The events at the
stage of drafting the Constitution, especially Part XIII would show the
following which I may summarize at the cost of repetition:

First, initially the right to free trade was a Fundamental Right, but it
was not accepted by the Advisory Committee and not even moved in the
Constituent Assembly for adoption.
Second, though the precursor clause to Article 304 underwent repeated
changes before the Advisory Committee and the Drafting Committee, never it
was suggested that freedom of trade was meant to be freedom from payment of
taxes.
Third, the power of federal unit to levy tax on the goods imported from
other units was specifically adumbrated to dispel any doubt about taxing
power of the State. The logical conclusion is that the power of the State
to levy any tax on goods imported is specifically saved and declared in the
final clause, therefore it would be impermissible to test a law imposing
entry tax with reference to Article 304(b).
Fourth, taxes were never intended to be a restriction on freedom of trade.

Another important question which needs to be answered as a part of this
reference is whether State enactments relating to levy of entry tax have to
be tested with reference to both clauses (a) and (b) of Article 304 or only
with reference to clause (a) of Article 304 of the Constitution? In other
words is Clause (a) and (b) of Article 304 is conjunctive or disjunctive?
The answer must be that the history, the context and the plain words
indicate that Article 304 (a) and (b) are disjunctive in nature. A levy of
tax need not be tested with reference to Article 304 (b) of the
Constitution. Following are the reasons for reading Article 304 (a) and (b)
of the Indian Constitution disjunctively.

First, the legislative history and the intention of the framers as
elucidated above clearly point out that taxes were never treated as
restrictions in the first place.
Secondly, Article 304(a) does not bar or limit State power to levy non-
discriminatory taxes on the goods imported from other States. What is
restricted is levy of discriminatory tax only, so to say, similar goods
manufactured or produced in that State are also subjected to tax, so as not
to discriminate between the goods imported and goods manufactured or
produced in the State.
Thirdly, the two clauses of Article 304 are connected by the word ‘and’.
Sub-clause (a) puts a restriction on the State to not impose a
discriminatory tax, whereas sub-clause (b) deals with other restrictions
relating to trade, commerce and intercourse.
Fourthly, Article 304 (a) and (b), on a careful reading would show that
Article 304 (a) and (b) are disjunctive. This is made clear by the proviso,
which is to the effect that a Bill for the purpose of Article 304 (b) can
be moved by the Legislature of the States, only by the previous sanction of
the President.  If Clauses (a) and (b) are not disjunctive, then the
language of the proviso would have been certainly different and the Bill
for the purpose for Clause (a) would have been mentioned. Conspicuous
absence of reference to 304(a) in the proviso would certainly lend support
to the view that Clause (a) and (b) of Article 304 are distinct and
disjunctive. The proviso, it is well settled, is intended to explain the
main operating part of the Article. It is never used or interpreted as
expanding the operative part of the provision.
Fifthly, if one reads Clauses (a) and (b) of Article 304 conjunctively,
then it would not subserve the federal nature of the Constitution which is
a basic structure.

I will now deal with the purport and scope of the word “discrimination”
used in Article 304(a) by making some general observations. Article 304(a)
should be interpreted keeping in mind the balanced development of the
country, which is an important part of economic integration. To achieve the
economic unity of the country, allowing trade and commerce without imposing
taxes is not the only solution but it can also be achieved by bringing in
overall prosperity. Part XIII of the Constitution permits some forms of
differentiation, for example, to encourage a backward region or to create a
level playing field for parts of the Country that may not have reached the
desired level of economic development. Therefore, Part XIII envisions a
twofold object: (i) facilitation of a common market through ease of trade,
commerce and intercourse by erasing barriers; and (ii) regulations (or
restrictions) which may be necessary for development of backward regions or
in public interest. A brief reference to the Constituent Assembly debates
would amply demonstrate the same. Hon’ble Member Shri P. S. Deshmukh said:
‘How pompously did we decide that there shall be “free trade” everywhere!
It is not such an easy thing as that and I hope advancement and progress of
the various units of the Union varies considerably. Some of them are
backward like Assam or Orissa where there are very few industries and very
little trade is in the hands, at least of the indigenous population. We may
have probably to give them some protection in order that they may rapidly
come on par with other units. It may be necessary also from time to time to
vary our provisions so far as aid and concessions to industries and other
things are concerned. I therefore do not think that is right to bar all
discrimination, as it is called (in fact it is not),barring all possibility
of help to those who are backward and who are unable to compete with the
more advanced, and who therefore stand in need of assistance. From that
point of view, my amendment seeks to give Parliament a blank cheque and
leave to it entirely the determination of the policy with regard to trade
and commerce not only of the whole Union or in regard to any particular
State or States, but so far as all States and their trade and commerce
inter se is concerned. Therefore, I have proposed a very simple provision
as has been embodied in my amendment No. 340’.
(emphasis supplied)

Sir Alladi Krishnaswami Iyer stated:
‘My friend Mr. Krishnamachari has pointed out that this freedom clause in
the Australian Constitution has given rise to considerable trouble and to
conflicting decisions of the highest Court. There has been a feeling in
those parts of Australia which depend for their well-being on agricultural
conditions that their interests are being sacrificed to manufacturing
regions, and there has been rivalry between manufacturing and agricultural
interests. Therefore, in a federation what you have to do is, first, you
will have to take into account the larger interests of India and permit
freedom of trade and intercourse as far as possible. Secondly, you cannot
ignore altogether regional interests. Thirdly, there must be the power
intervention of the Centre in any case of crisis to deal with peculiar
problems that might arise in any part of India. All these three factors are
taken into account in the scheme that has been placed before you’.
To what extent economic unity in India and regional interests has to be
kept in mind while meaningfully implementing free trade clause in Article
301? In Video Electronics[79] this Court had an occasion to delve into
these aspects. This Court even suggested that there could be
differentiation among regions and among the goods exchanged between the
regions without attracting the tag of discrimination. The following
passage from Video Electronics is apposite:

‘Economic unity is a desired goal, economic equilibrium and prosperity is
also the goal. Development on parity is one of the commitments of the
Constitution. Directive principles enshrined in Articles 38 and 39 must be
harmonized with economic unity as well as economic development of developed
and under developed areas. In that light on Article 14 of the Constitution,
it is necessary that the prohibitions in Article 301 and the scope of
Article 304(a) and (b) should be understood and construed. Constitution is
a living organism and the latent meaning of the expressions used can be
given effect to only if a particular situation arises. It is not that with
changing times the meaning changes but changing times illustrate and
illuminate the meaning of the expressions used. The connotation of the
expressions used takes its shape and color in evolving dynamic situations.
A backward State or a disturbed State cannot with parity engage in
competition with advanced or developed States. Even within a State, there
are often backward areas which can be developed only if some special
incentives are granted. If the incentives in the form of subsidies or grant
are given to any part of units of a State so that it may come out of its
limping or infancy to compete as equals with others, that, in our opinion,
does not and cannot contravene the spirit and the letter of Part XIII of
the Constitution. However, this is permissible only if there is a valid
reason, that is to say, if there are justifiable and rational reasons for
differentiation. If there is none, it will amount to hostile
discrimination’.[80]

There is a vital difference between mere ‘differentiation’ and
‘discrimination. It is discrimination not differentiation that is sought to
be prevented through Part XIII. Again reference to certain observations of
this Court in Video Electronics would be pertinent:
‘… very differentiation is not discrimination. The word ‘discrimination’ is
not used in art. 14 but is used in Articles 16, 303 & 304(a). When used
in Article 304(a), it involves an element of intentional and purposeful
differentiation thereby creating economic barrier and involves an element
of an unfavorable bias. Discrimination implies an unfair classification.
Reference may be made to the observations of this Court in Kathi Raning
Rawat v. The State of Saurashtra, [1952] SCR 435 where Chief Justice
Shastri at p. 442 of the report reiterated that all legislative
differentiation is not necessarily discriminatory. At p. 448 of the report,
Justice Fazal Ali noticed the distinction between ‘discrimination without
reason’ and ‘discrimination with reason’. The whole doctrine of
classification is based on this and on the well-known fact that the
circumstances covering one set of provisions or objects may not necessarily
be the same as these covering another set of provisions and objects so that
the question of unequal treatment does not arise as between the provisions
covered by different sets of circumstances’.[81]
In the above case exemption and incentive granted by one State to its
inhabitants was challenged as being violative of Article of 304 (a).
Recognizing the concept of economic equality, this Court held :

‘Concept of economic barrier must be adopted in a dynamic sense with
changing conditions. What constitutes an economic barrier at one point of
time often cease to be so at another point of time. It will be wrong to
denude the people of the State of the right to grant exemptions which flow
from the plenary powers of legislative heads in list II of the 7th Schedule
of the Constitution. In a federal polity, all the States having powers to
grant exemption to specified class for limited period, such granting of
exemption cannot be held to be contrary to the concept of economic unity.
The contents of economic unity by the people of India would necessarily
include the power to grant exemption or to reduce the rate of tax in
special cases for achieving the industrial development or to provide tax
incentives to attain economic equality in growth and development. When all
the States have such provisions to exempt or reduce rates the question of
economic war between the States inter se or economic disintegration of the
country as such does not arise. It is not open to any party to say that
this should be done and this should not be done by either one way or the
other. It cannot be disputed that it is open to the States to realize tax
and thereafter remit the same or pay back to the local manufacturers in the
shape of subsidies and that would neither discriminate nor be hit
by art.304(a) of the Constitution. In this case and as in all
constitutional adjudications the substance of the matter has to be looked
into to find out whether there is any discrimination in violation of the
constitutional mandate’.
(emphasis supplied)

Thus stated, the principle laid down in Video Electronics is that, if a
backward area in a State needs impetus for the development, and in such
circumstances incentives are given for the industry to develop whether by
way of subsidies or tax exemptions for a certain period of time as desired
by the competent legislature, the same would be permissible and would fall
outside the scope of Article 304 (a). Such State enactment is not
inherently discriminatory, but rather aims to ensure economic equality
which is a facet of economic unity.

A State law directed towards development of a particular region is
permissible under Part XIII. In support, we may again refer to the
discussion in the Constituent Assembly debates dealing with the concepts of
“public interest” and “interest of general public”. Clause 13 was
introduced in Chapter dealing with Fundamental Rights making the right to
free trade, commerce and intercourse as a Fundamental Right subject to
reasonable restriction. Pandit Thakur Das Bhargava sought to move an
amendment[82] to substitute the words, ‘public interest’ for ‘interests of
the general public’ he said :

‘I maintain that there is great difference between the two expressions.
‘Public interest’ in regard to a State would only include the interests of
the inhabitants of that State at the most though the word ‘public’ includes
portions of the public. Therefore, the interests of a part of the
inhabitants of a State would also mean ‘public interest’, whereas if you
use the words “interests of the general public” they would have reference
to the interests, of the. general public of India as a whole. It may be
that on many occasions a conflict may arise. between the public interest as
understood in the amendment of Dr. Ambedkar and ‘the interests of the
general public’ as used in article 13. When that conflict arises it would
be encouraging provincialism and the interests of a few as against the
general interest if we accept the words ‘public interest’ in the place of
the words “in the interests of the general public’[83].

This amendment was negatived. The fact that this amendment did not go
through would indicate that ‘public interest’ could imply a regional
interest that needs to be protected which may not be ‘in the interests of
the general public’ but specific to a smaller region. Such an
interpretation is supported by the manner in which the word
‘discrimination’ has been interpreted by a three Judge bench of this Court
in Video Electronics. Thus it can be said that the common thread in Part
XIII is the achievement of economic unity and parity which does not
altogether preclude differentiation for justifiable and rational reasons
wherever necessary. The heart and soul of Part XIII is to dissolve hostile
discrimination within the territory of India.

The second facet is that Article 304 (a) is a limitation to impose any tax
on goods imported from other States. This power is subject to the condition
that the goods manufactured or produced within the State are also subjected
to tax, so as not to discriminate between the goods imported from outside
the State. Article 304(a) is not a limitation on the legislature of a State
to impose such tax on goods imported. The only condition envisaged under
Article 304 (a) is, same tax is imposable on the goods imported from other
States as well as goods if manufactured in that State.

The contention that the taxing power lies in Article 304 (a) and not in
Article 245 r/w 246 is not correct. The words “may by law” appearing in
Article 304 is not source of legislative power. It is an option given to
the States in case it decides to levy any tax on the goods imported from
other States. The source of legislative power resides in Article 245 r/w.
Article 246 which is indisputable. This power is not subject to any
implied limitation. The plain reading would show that in a given
situation, the State may by choice decide not to levy any tax imported from
other States or opt to levy taxes on certain goods imported from other
States. Indeed in all the entry tax laws, the charging section enables the
levy of entry tax only on the scheduled goods. The scheduled goods are
goods declared as attracting entry tax.

Discrimination is a relative concept; in order to discriminate a reference
point is required. Article 304(a) rather than being an enabling provision
to allow the State to impose tax, is a restricting provision, which
prevents such levy of tax on goods as would result in discrimination
between goods imported from other States and similar goods manufactured or
produced within the State. The object is to prevent discrimination against
imported goods by imposing tax on such goods at a rate higher than that
borne by local goods since the difference between the two rates would
constitute a tariff wall or fiscal barrier and thus impede the free flow of
inter-State trade and commerce. It does not prohibit levy of tax as such in
the situation wherein the goods are not produced or manufactured in the
State itself and does not affect the authority of the State to tax the
imported goods. It only bars discrimination on the basis of taxing the
products manufactured within the State vis-á-vis imported goods which will
only occur if the precondition of manufacturing in the taxing State is
satisfied.
I agree with the conclusions and reasons given by the learned Chief Justice
regarding the exemption/set off/credit with respect to Sales tax.

There was good amount of debate on the doctrine of compensatory tax evolved
by this Court in Automobile. I am in respectful agreement with the
consideration, reasoning and conclusion in the judgment of the learned
Chief Justice, who held that concept of compensatory tax has neither any
juristic basis nor a part of Indian Constitutional law. It is interesting
and glaring to note that at the stage of drafting, at the stage of
consideration by the Sub-Committee as well as Advisory Committee and when
the Part XA (now Part XIII) was adopted by the Constituent Assembly, never
even for a moment, the principle of compensatory tax was thought of.

PART-IX:CONCLUSIONS
On an analysis and reasoning as herein above the following conclusions
would emerge-
Part XIII does not contemplate tax laws within its ambit except to the
extent of Article 304(a) of the Constitution.
Article 304 (a) and (b) are disjunctive.
Restrictions mentioned under Article 304(b) of the Constitution do not
include tax.
It is not correct to say that since goods being taxed are not produced in
the State the power to levy a tax gets obliterated, that is to say, that
Article 304 (a) does not bar levy of tax if the goods are not manufactured
or produced within the State.
Article 304(a) of the Constitution protects from discrimination (for
protectionism) and not mere differentiation.
Before parting with this case, I would like to express my appreciation for
the way the hearing of the case took place before the Court. Attorney
General needs to be specially mentioned and thanked, who had appeared and
assisted the Court. Lastly, it was a wonderful sight to see young
practitioners ably assisting their seniors which only goes on to reflect
vibrancy of Indian Supreme Court Bar.
…………………………………J.
(N. V. Ramana)
New Delhi
November 11, 2016

REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3453 OF 2002

JINDAL STAINLESS LTD.& ANR. Appellants

Versus

STATE OF HARYANA & ORS. Respondents

WITH

CA NO. 6383-6421/1997, CA NO. 6422-6435/1997, CA NO. 6436/1997, CA NO. 6437-
6440/1997 , CA NO. 3381-3400/1998, CA NO. 4651/1998, CA NO. 918/1999, CA
NO. 2769/2000, CA NO. 4471/2000, CA NO. 3314/2001, CA NO. 3454/2002, CA NO.
3455/2002, CA NO. 3456-3459/2002, CA NO. 3460/2002, CA NO. 3461/2002, CA
NO. 3462-3463/2002, CA NO. 3464/2002, CA NO. 3465/2002, CA NO. 3466/2002,
CA NO. 3467/2002, CA NO. 3468/2002, CA NO. 3469/2002, CA NO. 3470/2002, CA
NO. 3471/2002, CA NO. 4008/2002, CA NO. 5385/2002, CA NO. 5740/2002, CA NO.
5858/2002, WP(C) NO. 512/2003, WP(C) NO. 574/2003, CA NO. 2608/2003, CA NO.
2633/2003, CA NO. 2637/2003, CA NO. 2638/2003, CA NO. 3720-3722/2003, CA
NO. 6331/2003, CA NO. 8241/2003, CA NO. 8242/2003, CA NO. 8243/2003, CA NO.
8244/2003, CA NO. 8245/2003, CA NO. 8246/2003, CA NO. 8247/2003, CA NO.
8248/2003, CA NO. 8249/2003, CA NO. 8250/2003, CA NO. 8251/2003, CA NO.
8252/2003, TC(C) NO. 13/2004, WP(C) NO. 66/2004, WP(C) NO. 221/2004, CA NO.
997-998/2004, CA NO. 3144/2004, CA NO. 3145/2004, CA NO. 3146/2004, CA NO.
4953/2004, CA NO. 4954/2004, CA NO. 5139/2004, CA NO. 5141/2004, CA NO.
5142/2004, CA NO. 5143/2004, CA NO. 5144/2004, CA NO. 5145/2004, CA NO.
5147/2004, CA NO. 5148/2004, CA NO. 5149/2004, CA NO. 5150/2004, CA NO.
5151/2004, CA NO. 5152/2004, CA NO. 5153/2004, CA NO. 5154/2004, CA NO.
5155/2004, CA NO. 5156/2004, CA NO. 5157/2004, CA NO. 5158/2004, CA NO.
5159/2004, CA NO. 5160/2004, CA NO. 5162/2004, CA NO. 5163/2004, CA NO.
5164/2004, CA NO. 5165/2004, CA NO. 5166/2004, CA NO. 5167/2004, CA NO.
5168/2004, CA NO. 5169/2004, CA NO. 5170/2004, CA NO. 7658/2004, SLP(C) NO.
9479/2004, SLP(C) NO. 9496/2004, SLP(C) NO. 9569/2004, SLP(C) NO.
9832/2004, SLP(C) NO. 9883/2004, SLP(C) NO. 9885/2004, SLP(C) NO.
9891/2004, SLP(C) NO. 9893/2004, SLP(C) NO. 9898/2004, SLP(C) NO.
9899/2004, SLP(C) NO. 9901/2004, SLP(C) NO. 9904/2004, SLP(C) NO.
9910/2004, SLP(C) NO. 9911/2004, SLP(C) NO. 9912/2004, SLP(C) NO.
9950/2004, SLP(C) NO. 9964/2004, SLP(C) NO. 9976/2004, SLP(C) NO.
9989/2004, SLP(C) NO. 9991/2004, SLP(C) NO. 9993/2004, SLP(C) NO.
9998/2004, SLP(C) NO. 9999/2004, SLP(C) NO. 10003/2004, SLP(C) NO.
10007/2004, SLP(C) NO. 10129/2004, SLP(C) NO. 10133/2004, SLP(C) NO.
10134/2004, SLP(C) NO. 10153/2004, SLP(C) NO. 10154/2004, SLP(C) NO.
10156/2004, SLP(C) NO. 10161/2004, SLP(C) NO. 10164/2004, SLP(C) NO.
10167/2004, SLP(C) NO. 10206/2004, SLP(C) NO. 10207/2004, SLP(C) NO.
10232/2004, SLP(C) NO. 10366/2004, SLP(C) NO. 10381/2004, SLP(C) NO.
10382/2004, SLP(C) NO. 10384/2004, SLP(C) NO. 10385/2004, SLP(C) NO.
10391/2004, SLP(C) NO. 10402/2004, SLP(C) NO. 10403/2004, SLP(C) NO.
10404/2004, SLP(C) NO. 10407/2004, SLP(C) NO. 10417/2004, SLP(C) NO.
10449/2004, SLP(C) NO. 10493/2004, SLP(C) NO. 10495/2004, SLP(C) NO.
10497/2004, SLP(C) NO. 10501/2004, SLP(C) NO. 10505/2004, SLP(C) NO.
10539/2004, SLP(C) NO. 10557/2004, SLP(C) NO. 10563/2004, SLP(C) NO.
10566/2004, SLP(C) NO. 10567/2004, SLP(C) NO. 10568/2004, SLP(C) NO.
10569/2004, SLP(C) NO. 10571/2004, SLP(C) NO. 10704/2004, SLP(C) NO.
10706/2004, SLP(C) NO. 10708/2004, SLP(C) NO. 10736/2004, SLP(C) NO.
10906/2004, SLP(C) NO. 10907/2004, SLP(C) NO. 10908/2004, SLP(C) NO.
10909/2004, SLP(C) NO. 10910/2004, SLP(C) NO. 10923/2004, SLP(C) NO.
10929/2004, SLP(C) NO. 10977/2004, SLP(C) NO. 11012/2004, SLP(C) NO.
11266/2004, SLP(C) NO. 11271/2004, SLP(C) NO. 11274/2004, SLP(C) NO.
11281/2004, SLP(C) NO. 11320/2004, SLP(C) NO. 11326/2004, SLP(C) NO.
11328/2004, SLP(C) NO. 11329/2004, SLP(C) NO. 11370/2004, SLP(C) NO.
14380/2005, SLP(C) NO. 1101/2007, SLP(C) NO. 1288/2007, SLP(C) NO.
6914/2007, SLP(C) NO. 9054/2007, SLP(C) NO. 10694/2007, SLP(C) NO.
12959/2007, SLP(C) NO. 13806/2007, SLP(C) NO. 14070/2007, SLP(C) NO.
14819/2007, SLP(C) NO. 14820/2007, SLP(C) NO. 14821/2007, SLP(C) NO.
14823/2007, SLP(C) NO. 14824/2007, SLP(C) NO. 14826/2007, SLP(C) NO.
14828/2007, SLP(C) NO. 14829/2007, SLP(C) NO. 14830/2007, SLP(C) NO.
14832/2007, SLP(C) NO. 14833/2007, SLP(C) NO. 14835/2007, SLP(C) NO.
14837/2007, SLP(C) NO. 14838/2007, SLP(C) NO. 14839/2007, SLP(C) NO.
14841/2007, SLP(C) NO. 14842/2007, SLP(C) NO. 14845/2007, SLP(C) NO.
14846/2007, SLP(C) NO. 14847/2007, SLP(C) NO. 15082-15085/2007, SLP(C) NO.
15807/2007, SLP(C) NO. 16351/2007, SLP(C) NO. 17589/2007, SLP(C) NO.
17590/2007, SLP(C) NO. 17905/2007, SLP(C) NO. 17906/2007, SLP(C) NO.
17907/2007, SLP(C) NO. 17908/2007, SLP(C) NO. 17909/2007, SLP(C) NO.
17910/2007, SLP(C) NO. 17911/2007, SLP(C) NO. 17913/2007, SLP(C) NO.
17914/2007, SLP(C) NO. 17915/2007, SLP(C) NO. 17916/2007, SLP(C) NO.
17917/2007, SLP(C) NO. 17918/2007, SLP(C) NO. 17919/2007, SLP(C) NO.
17920/2007, SLP(C) NO. 17921/2007, SLP(C) NO. 17922/2007, SLP(C) NO.
17923/2007, SLP(C) NO. 17924/2007, SLP(C) NO. 17925/2007, SLP(C) NO.
17926/2007, SLP(C) NO. 17929/2007, SLP(C) NO. 17930/2007, SLP(C) NO.
17933/2007, SLP(C) NO. 17934/2007, SLP(C) NO. 17936/2007, SLP(C) NO.
17937/2007, SLP(C) NO. 17938/2007, SLP(C) NO. 17939/2007, SLP(C) NO.
17941/2007, SLP(C) NO. 17942/2007, SLP(C) NO. 17943/2007, SLP(C) NO.
17944/2007, SLP(C) NO. 17957/2007, SLP(C) NO. 17959/2007, SLP(C) NO.
17960/2007, SLP(C) NO. 17961/2007, SLP(C) NO. 17962/2007, SLP(C) NO.
17963/2007, SLP(C) NO. 17964/2007, SLP(C) NO. 17965/2007, SLP(C) NO.
17972/2007, SLP(C) NO. 17973/2007, SLP(C) NO. 17974/2007, SLP(C) NO.
17975/2007, SLP(C) NO. 17976/2007, SLP(C) NO. 17977/2007, SLP(C) NO.
17978/2007, SLP(C) NO. 17979/2007, SLP(C) NO. 17980/2007, SLP(C) NO.
17981/2007, SLP(C) NO. 17983/2007, SLP(C) NO. 17984/2007, SLP(C) NO.
18036/2007, SLP(C) NO. 18037/2007, SLP(C) NO. 18038/2007, SLP(C) NO.
18039/2007, SLP(C) NO. 18040/2007, SLP(C) NO. 18041/2007, SLP(C) NO.
18042/2007, SLP(C) NO. 18043/2007, SLP(C) NO. 18044/2007, SLP(C) NO.
18045/2007, SLP(C) NO. 18046/2007, SLP(C) NO. 18047/2007, SLP(C) NO.
18048/2007, SLP(C) NO. 18049/2007, SLP(C) NO. 18050/2007, SLP(C) NO.
18051/2007, SLP(C) NO. 18053/2007, SLP(C) NO. 18054/2007, SLP(C) NO.
18055/2007, SLP(C) NO. 18056/2007, SLP(C) NO. 18057/2007, SLP(C) NO.
18058/2007, SLP(C) NO. 18059/2007, SLP(C) NO. 18061/2007, SLP(C) NO.
18062/2007, SLP(C) NO. 18063/2007, SLP(C) NO. 18064/2007, SLP(C) NO.
18065/2007, SLP(C) NO. 18066/2007, SLP(C) NO. 18067/2007, SLP(C) NO.
18068/2007, SLP(C) NO. 18069/2007, SLP(C) NO. 18073/2007, SLP(C) NO.
18074/2007, SLP(C) NO. 18075/2007, SLP(C) NO. 18076/2007, SLP(C) NO.
18077/2007, SLP(C) NO. 18078/2007, SLP(C) NO. 18079/2007, SLP(C) NO.
18080/2007, SLP(C) NO. 18081/2007, SLP(C) NO. 18082/2007, SLP(C) NO.
18083/2007, SLP(C) NO. 18084/2007, SLP(C) NO. 18085/2007, SLP(C) NO.
18086/2007, SLP(C) NO. 18087/2007, SLP(C) NO. 18088/2007, SLP(C) NO.
18089/2007, SLP(C) NO. 18090/2007, SLP(C) NO. 18091/2007, SLP(C) NO.
18092/2007, SLP(C) NO. 19049/2007, SLP(C) NO. 19050/2007, SLP(C) NO.
19051/2007, SLP(C) NO. 19052/2007, SLP(C) NO. 19053/2007, SLP(C) NO.
19055/2007, SLP(C) NO. 19057/2007, SLP(C) NO. 19059/2007, SLP(C) NO.
19060/2007, SLP(C) NO. 19062/2007, SLP(C) NO. 19064/2007, SLP(C) NO.
19066/2007, SLP(C) NO. 19068/2007, SLP(C) NO. 19070/2007, SLP(C) NO.
19071/2007, SLP(C) NO. 19072/2007, SLP(C) NO. 19073/2007, SLP(C) NO.
19074/2007, SLP(C) NO. 19076/2007, SLP(C) NO. 19077/2007, SLP(C) NO.
19094/2007, SLP(C) NO. 19095/2007, SLP(C) NO. 19096/2007, SLP(C) NO.
19099/2007, SLP(C) NO. 19100/2007, SLP(C) NO. 19101/2007, SLP(C) NO.
19102/2007, SLP(C) NO. 19103/2007, SLP(C) NO. 19104/2007, SLP(C) NO.
19105/2007, SLP(C) NO. 19106/2007, SLP(C) NO. 19107/2007, SLP(C) NO.
19108/2007, SLP(C) NO. 19110/2007, SLP(C) NO. 19111/2007, SLP(C) NO.
19113/2007, SLP(C) NO. 19114/2007, SLP(C) NO. 19505/2007, SLP(C) NO.
19506/2007, SLP(C) NO. 19507/2007, SLP(C) NO. 19508/2007, SLP(C) NO.
19510/2007, SLP(C) NO. 19511/2007, SLP(C) NO. 19512/2007, SLP(C) NO.
19513/2007, SLP(C) NO. 19514/2007, SLP(C) NO. 19515/2007, SLP(C) NO.
19516/2007, SLP(C) NO. 19518/2007, SLP(C) NO. 19521/2007, SLP(C) NO.
19522/2007, SLP(C) NO. 19523-19528/2007, SLP(C) NO. 19529/2007, SLP(C) NO.
19530/2007, SLP(C) NO. 19531/2007, SLP(C) NO. 19543-19547/2007, SLP(C) NO.
20527/2007, SLP(C) NO. 20529/2007, SLP(C) NO. 20559/2007, SLP(C) NO.
21841/2007, SLP(C) NO. 21843/2007, SLP(C) NO. 21844/2007, SLP(C) NO.
21845/2007, SLP(C) NO. 21846/2007, SLP(C) NO. 21847/2007, SLP(C) NO.
21848/2007, SLP(C) NO. 21849/2007, SLP(C) NO. 21851/2007, SLP(C) NO.
21855/2007, SLP(C) NO. 21864/2007, SLP(C) NO. 21866/2007, SLP(C) NO.
21867/2007, SLP(C) NO. 21871-21904/2007, SLP(C) NO. 21905/2007, SLP(C) NO.
21907/2007, SLP(C) NO. 21908/2007, SLP(C) NO. 21909/2007, SLP(C) NO.
21910/2007, SLP(C) NO. 22947/2007, SLP(C) NO. 22958/2007, SLP(C) NO. 24934-
25066/2007, SLP(C) NO. 742/2008, SLP(C) NO. 746/2008, SLP(C) NO. 747/2008,
SLP(C) NO. 3230/2008, SLP(C) NO. 3231/2008, SLP(C) NO. 3233/2008, SLP(C)
NO. 3234/2008, SLP(C) NO. 3236/2008, SLP(C) NO. 3237/2008, SLP(C) NO. 3238-
3262/2008, CA NO. 4715/2008, CA NO. 5041-5042/2008, SLP(C) NO. 5407/2008,
SLP(C) NO. 5408/2008, SLP(C) NO. 6148-6152/2008, SLP(C) NO. 6831/2008,
SLP(C) NO. 7914/2008, SLP(C) NO. 8053-8077/2008, SLP(C) NO. 8199/2008,
SLP(C) NO. 9227/2008, SLP(C) NO. 12424-12425/2008, SLP(C) NO. 13327/2008,
SLP(C) NO. 13889/2008, SLP(C) NO. 14232-14252/2008, SLP(C) NO. 14454-
14778/2008, SLP(C) NO. 14828/2008, SLP(C) NO. 14829/2008, SLP(C) NO.
14875/2008, SLP(C) NO. 15047/2008, SLP(C) NO. 15078/2008, SLP(C) NO.
15090/2008, SLP(C) NO. 15161/2008, SLP(C) NO. 15164/2008, SLP(C) NO.
15179/2008, SLP(C) NO. 15253/2008, SLP(C) NO. 15273/2008, SLP(C) NO.
15274/2008, SLP(C) NO. 15286-15287/2008, SLP(C) NO. 15288-15289/2008,
S.L.P.(C)… /2008 CC NO. 15314 , SLP(C) NO. 15324/2008, SLP(C) NO.
15325/2008, SLP(C) NO. 15326/2008, SLP(C) NO. 15327/2008, SLP(C) NO.
15328/2008, SLP(C) NO. 15329/2008, SLP(C) NO. 15330/2008, SLP(C) NO.
15331/2008, SLP(C) NO. 15335/2008, SLP(C) NO. 15337/2008, SLP(C) NO.
15356/2008, SLP(C) NO. 15357/2008, SLP(C) NO. 15369/2008, SLP(C) NO.
15405/2008, SLP(C) NO. 15491/2008, SLP(C) NO. 15492/2008, SLP(C) NO.
15493/2008, SLP(C) NO. 15495/2008, SLP(C) NO. 15496/2008, SLP(C) NO.
15498/2008, SLP(C) NO. 15540/2008, SLP(C) NO. 15551/2008, SLP(C) NO.
15579/2008, SLP(C) NO. 15605/2008, SLP(C) NO. 15618/2008, SLP(C) NO.
15623/2008, SLP(C) NO. 15628/2008, SLP(C) NO. 15629/2008, SLP(C) NO.
15630/2008, SLP(C) NO. 15631/2008, SLP(C) NO. 15632/2008, SLP(C) NO.
15633/2008, SLP(C) NO. 15636/2008, SLP(C) NO. 15643/2008, SLP(C) NO.
15647/2008, SLP(C) NO. 15652/2008, SLP(C) NO. 15653/2008, SLP(C) NO.
15655/2008, SLP(C) NO. 15656/2008, SLP(C) NO. 15657/2008, SLP(C) NO.
15659/2008, SLP(C) NO. 15660/2008, SLP(C) NO. 15666/2008, SLP(C) NO.
15684/2008, SLP(C) NO. 15700/2008, SLP(C) NO. 15711/2008, SLP(C) NO.
15819/2008, SLP(C) NO. 15845/2008, SLP(C) NO. 15934/2008, SLP(C) NO.
16664/2008, SLP(C) NO. 16667/2008, SLP(C) NO. 16689/2008, SLP(C) NO.
16733/2008, SLP(C) NO. 16754/2008, SLP(C) NO. 16832/2008, SLP(C) NO.
16837/2008, SLP(C) NO. 16841/2008, SLP(C) NO. 16865/2008, SLP(C) NO.
16885/2008, SLP(C) NO. 16926/2008, SLP(C) NO. 16930/2008, SLP(C) NO.
17187/2008, SLP(C) NO. 17192/2008, SLP(C) NO. 17193/2008, SLP(C) NO.
17203/2008, SLP(C) NO. 17204/2008, SLP(C) NO. 17233/2008, SLP(C) NO.
17267/2008, SLP(C) NO. 17269/2008, SLP(C) NO. 17271/2008, SLP(C) NO.
17272/2008, SLP(C) NO. 17274/2008, SLP(C) NO. 17276/2008, SLP(C) NO.
17277/2008, SLP(C) NO. 17279/2008, SLP(C) NO. 17280/2008, SLP(C) NO.
17282/2008, SLP(C) NO. 17367/2008, SLP(C) NO. 17368/2008, SLP(C) NO.
17369/2008, SLP(C) NO. 17370/2008, SLP(C) NO. 17372/2008, SLP(C) NO.
17373/2008, SLP(C) NO. 17374/2008, SLP(C) NO. 17375/2008, SLP(C) NO.
17376/2008, SLP(C) NO. 17377/2008, SLP(C) NO. 17408/2008, SLP(C) NO.
17865/2008, SLP(C) NO. 17892/2008, SLP(C) NO. 18001/2008, SLP(C) NO.
18030/2008, SLP(C) NO. 18034/2008, SLP(C) NO. 18035/2008, SLP(C) NO.
18040/2008, SLP(C) NO. 18066-18067/2008, SLP(C) NO. 18344/2008, SLP(C) NO.
18346/2008, SLP(C) NO. 18354/2008, SLP(C) NO. 18360-18364/2008, SLP(C) NO.
18379/2008, SLP(C) NO. 18405/2008, SLP(C) NO. 18532/2008, SLP(C) NO.
18533/2008, SLP(C) NO. 18582/2008, SLP(C) NO. 18684-18714/2008, SLP(C) NO.
18850/2008, SLP(C) NO. 18857/2008, SLP(C) NO. 18865/2008, SLP(C) NO.
18870/2008, SLP(C) NO. 18871/2008, SLP(C) NO. 19019/2008, SLP(C) NO.
19026/2008, SLP(C) NO. 19030/2008, SLP(C) NO. 19049/2008, SLP(C) NO.
19120/2008, SLP(C) NO. 19141/2008, SLP(C) NO. 19372/2008, SLP(C) NO.
19421/2008, SLP(C) NO. 19425/2008, SLP(C) NO. 19460/2008, SLP(C) NO.
19470/2008, SLP(C) NO. 19714/2008, SLP(C) NO. 19722/2008, SLP(C) NO.
19731/2008, SLP(C) NO. 19737/2008, SLP(C) NO. 19802/2008, SLP(C) NO.
19847/2008, SLP(C) NO. 19849/2008, SLP(C) NO. 19867/2008, SLP(C) NO.
19873/2008, SLP(C) NO. 19876/2008, SLP(C) NO. 19986/2008, SLP(C) NO.
20068/2008, SLP(C) NO. 20089/2008, SLP(C) NO. 20165/2008, SLP(C) NO.
20766/2008, SLP(C) NO. 20795/2008, SLP(C) NO. 21107/2008, SLP(C) NO. 21117-
21125/2008, SLP(C) NO. 21127/2008, SLP(C) NO. 21506/2008, SLP(C) NO.
21509/2008, SLP(C) NO. 21510/2008, SLP(C) NO. 21819/2008, SLP(C) NO.
22081/2008, SLP(C) NO. 22083/2008, SLP(C) NO. 22084/2008, SLP(C) NO.
22086/2008, SLP(C) NO. 22100-22101/2008, SLP(C) NO. 22195/2008, SLP(C) NO.
22707/2008, SLP(C) NO. 22735/2008, SLP(C) NO. 22931/2008, SLP(C) NO.
23075/2008, SLP(C) NO. 23077/2008, SLP(C) NO. 23270/2008, SLP(C) NO.
23277/2008, SLP(C) NO. 23383/2008, SLP(C) NO. 23609/2008, SLP(C) NO.
23623/2008, SLP(C) NO. 25378/2008, SLP(C) NO. 25498/2008, SLP(C) NO.
26377/2008, SLP(C) NO. 26543/2008, SLP(C) NO. 26571/2008, SLP(C) NO.
26572/2008, SLP(C) NO. 26593/2008, SLP(C) NO. 26750/2008, SLP(C) NO.
26813/2008, SLP(C) NO. 26972/2008, SLP(C) NO. 27442-27444/2008, SLP(C) NO.
27606/2008, SLP(C) NO. 27927/2008, SLP(C) NO. 29194/2008, SLP(C) NO.
29196/2008, SLP(C) NO. 29561-29570/2008, SLP(C) NO. 29763/2008, SLP(C) NO.
29764/2008, SLP(C) NO. 30276/2008, SLP(C) NO. 30533/2008, SLP(C) NO. 30534-
30540/2008, SLP(C) NO. 30542/2008, S.L.P.(C)… /2009 CC NO. 2867, SLP(C)
NO. 3276/2009, SLP(C) NO. 4720/2009, S.L.P.(C)… /2009 CC NO. 5143,
S.L.P.(C)… /2009 CC NO. 5311, SLP(C) NO. 5371/2009, SLP(C) NO. 5376/2009,
SLP(C) NO. 5381/2009, SLP(C) NO. 5383/2009, SLP(C) NO. 5384/2009, SLP(C)
NO. 5393/2009, SLP(C) NO. 5395/2009, SLP(C) NO. 5396/2009, SLP(C) NO.
5399/2009, SLP(C) NO. 5401/2009, SLP(C) NO. 5403/2009, SLP(C) NO.
5405/2009, SLP(C) NO. 5406/2009, SLP(C) NO. 5408/2009, SLP(C) NO.
5409/2009, SLP(C) NO. 5410/2009, SLP(C) NO. 5411/2009, SLP(C) NO.
5412/2009, SLP(C) NO. 5413/2009, SLP(C) NO. 5414/2009, SLP(C) NO.
5420/2009, SLP(C) NO. 5421/2009, SLP(C) NO. 5422/2009, SLP(C) NO.
5424/2009, SLP(C) NO. 5426/2009, SLP(C) NO. 5493-5494/2009, SLP(C) NO.
5495/2009, S.L.P.(C)… /2009 CC NO. 5803, SLP(C) NO. 5883/2009, SLP(C) NO.
6254/2009, SLP(C) NO. 6669/2009, SLP(C) NO. 6670/2009, SLP(C) NO.
6675/2009, SLP(C) NO. 6676/2009, SLP(C) NO. 6682/2009, SLP(C) NO.
6683/2009, SLP(C) NO. 6684/2009, SLP(C) NO. 6685/2009, SLP(C) NO.
6686/2009, SLP(C) NO. 6687/2009, SLP(C) NO. 6688/2009, SLP(C) NO.
6689/2009, SLP(C) NO. 6690/2009, SLP(C) NO. 6692/2009, SLP(C) NO.
6693/2009, SLP(C) NO. 6694/2009, SLP(C) NO. 6696/2009, SLP(C) NO.
6698/2009, SLP(C) NO. 6699/2009, SLP(C) NO. 6700/2009, SLP(C) NO.
6701/2009, SLP(C) NO. 6702/2009, SLP(C) NO. 6703/2009, SLP(C) NO.
6704/2009, SLP(C) NO. 6705/2009, SLP(C) NO. 6708/2009, SLP(C) NO.
6709/2009, SLP(C) NO. 6710/2009, SLP(C) NO. 6711/2009, SLP(C) NO.
6712/2009, SLP(C) NO. 6713/2009, SLP(C) NO. 6714-6715/2009, SLP(C) NO.
6953/2009, SLP(C) NO. 7345/2009, SLP(C) NO. 8244/2009, SLP(C) NO.
9548/2009, SLP(C) NO. 9699/2009, SLP(C) NO. 10040/2009, SLP(C) NO.
10041/2009, SLP(C) NO. 10042/2009, SLP(C) NO. 10045/2009, SLP(C) NO.
10047/2009, SLP(C) NO. 10048/2009, SLP(C) NO. 10049/2009, SLP(C) NO.
10050/2009, SLP(C) NO. 10051/2009, SLP(C) NO. 10053-10054/2009, SLP(C) NO.
10192/2009, SLP(C) NO. 10279/2009, SLP(C) NO. 10952/2009, SLP(C) NO. 10954-
10956/2009, SLP(C) NO. 11042/2009, SLP(C) NO. 11122/2009, SLP(C) NO. 11603-
11611/2009, SLP(C) NO. 11646/2009, SLP(C) NO. 12948/2009, SLP(C) NO. 13270-
13274/2009, SLP(C) NO. 13483/2009, SLP(C) NO. 13496/2009, SLP(C) NO.
13517/2009, SLP(C) NO. 13611-13612/2009, SLP(C) NO. 14429/2009, SLP(C) NO.
14484/2009, SLP(C) NO. 14488/2009, SLP(C) NO. 14623/2009, SLP(C) NO.
14856/2009, SLP(C) NO. 14949/2009, SLP(C) NO. 15723/2009, SLP(C) NO.
16253/2009, SLP(C) NO. 16757-16760/2009, SLP(C) NO. 16784/2009, SLP(C) NO.
16789/2009, SLP(C) NO. 16888-16898/2009, SLP(C) NO. 17332-17333/2009,
SLP(C) NO. 17394-17396/2009, SLP(C) NO. 17488/2009, SLP(C) NO. 17490/2009,
SLP(C) NO. 17491/2009, SLP(C) NO. 17492-17498/2009, SLP(C) NO. 17722/2009,
SLP(C) NO. 17731/2009, SLP(C) NO. 17744/2009, SLP(C) NO. 19695/2009, SLP(C)
NO. 22293/2009, SLP(C) NO. 22295/2009, SLP(C) NO. 22302/2009, SLP(C) NO.
22303/2009, SLP(C) NO. 22304/2009, SLP(C) NO. 22306/2009, SLP(C) NO.
22307/2009, SLP(C) NO. 22308/2009, SLP(C) NO. 22309/2009, SLP(C) NO.
22310/2009, SLP(C) NO. 22311/2009, SLP(C) NO. 22312/2009, SLP(C) NO.
22313/2009, SLP(C) NO. 22316/2009, SLP(C) NO. 22317/2009, SLP(C) NO.
22318/2009, SLP(C) NO. 22320/2009, SLP(C) NO. 22321/2009, SLP(C) NO.
22322/2009, SLP(C) NO. 22323/2009, SLP(C) NO. 22324/2009, SLP(C) NO.
22325/2009, SLP(C) NO. 22408/2009, SLP(C) NO. 22425/2009, SLP(C) NO.
22428/2009, SLP(C) NO. 23990/2009, SLP(C) NO. 24149/2009, SLP(C) NO.
24430/2009, SLP(C) NO. 24822/2009, SLP(C) NO. 25157/2009, SLP(C) NO.
25390/2009, SLP(C) NO. 25399-25400/2009, SLP(C) NO. 25467/2009, SLP(C) NO.
25470/2009, SLP(C) NO. 25474/2009, SLP(C) NO. 25753/2009, SLP(C) NO.
25797/2009, SLP(C) NO. 26116/2009, SLP(C) NO. 26236/2009, SLP(C) NO.
26509/2009, SLP(C) NO. 27883/2009, SLP(C) NO. 28509/2009, SLP(C) NO.
28583/2009, SLP(C) NO. 28696/2009, SLP(C) NO. 28775/2009, SLP(C) NO.
29597/2009, SLP(C) NO. 29868/2009, SLP(C) NO. 30383/2009, SLP(C) NO. 30746-
30845/2009, SLP(C) NO. 30847/2009, SLP(C) NO. 31410/2009, SLP(C) NO.
31411/2009, SLP(C) NO. 31412/2009, SLP(C) NO. 33176/2009, SLP(C) NO. 33663-
33665/2009, SLP(C) NO. 33672/2009, SLP(C) NO. 34253/2009, SLP(C) NO.
34859/2009, SLP(C) NO. 35038/2009, SLP(C) NO. 35585/2009, SLP(C) NO.
35587/2009, SLP(C) NO. 35740/2009, SLP(C) NO. 35742/2009, SLP(C) NO. 35743-
35746/2009, SLP(C) NO. 35747/2009, SLP(C) NO. 35749/2009, SLP(C) NO.
35750/2009, SLP(C) NO. 35751/2009, SLP(C) NO. 35752/2009, SLP(C) NO.
35753/2009, SLP(C) NO. 35754/2009, SLP(C) NO. 35755/2009, SLP(C) NO.
35756/2009, SLP(C) NO. 35757/2009, SLP(C) NO. 36193/2009, SLP(C) NO.
36196/2009, SLP(C) NO. 36219/2009, SLP(C) NO. 36271/2009, WP(C) NO.
11/2010, WP(C) NO. 42/2010, WP(C) NO. 43/2010, WP(C) NO. 44/2010, WP(C) NO.
46/2010, WP(C) NO. 48/2010, WP(C) NO. 63/2010, WP(C) NO. 71/2010, SLP(C)
NO. 104/2010, SLP(C) NO. 245/2010, SLP(C) NO. 247/2010, SLP(C) NO.
248/2010, SLP(C)… /2010 CC NO. 886, SLP(C)… /2010 CC NO. 1082, SLP(C)
NO. 1820/2010, SLP(C) NO. 1876/2010, SLP(C) NO. 2459/2010, SLP(C) NO.
3387/2010, SLP(C) NO. 4102/2010, SLP(C) NO. 4362/2010, SLP(C) NO.
4388/2010, SLP(C) NO. 4389/2010, SLP(C) NO. 4390/2010, SLP(C) NO.
4511/2010, SLP(C) NO. 4572/2010, SLP(C) NO. 4720/2010, SLP(C) NO.
5151/2010, SLP(C) NO. 5308/2010, SLP(C) NO. 5309/2010, CA NO. 5343-
5344/2010, SLP(C) NO. 6037/2010, SLP(C) NO. 6723/2010, SLP(C) NO.
6762/2010, SLP(C) NO. 6763/2010, SLP(C) NO. 6765/2010, SLP(C) NO.
6770/2010, SLP(C) NO. 6811/2010, SLP(C) NO. 7356/2010, SLP(C) NO.
7426/2010, SLP(C) NO. 7776/2010, SLP(C) NO. 7929/2010, SLP(C) NO.
9022/2010, SLP(C) NO. 9077/2010, SLP(C) NO. 9702/2010, SLP(C) NO.
9723/2010, SLP(C) NO. 10361/2010, SLP(C) NO. 11419/2010, SLP(C) NO.
11423/2010, SLP(C) NO. 12690/2010, SLP(C) NO. 14845/2010, SLP(C) NO.
14886/2010, SLP(C) NO. 15015/2010, SLP(C) NO. 15903/2010, SLP(C) NO.
16694/2010, SLP(C) NO. 16720/2010, SLP(C) NO. 18318/2010, SLP(C) NO.
18834/2010, SLP(C) NO. 19194/2010, SLP(C) NO. 19199/2010, SLP(C) NO.
19217/2010, SLP(C) NO. 22327/2010, SLP(C) NO. 22520/2010, SLP(C) NO.
23836/2010, SLP(C) NO. 29578/2010, SLP(C) NO. 36486/2010, WP(C) NO.
31/2011, WP(C) NO. 497/2011, CA NO. 905/2011, SLP(C) NO. 1308/2011, CA NO.
2041/2011, CA NO. 2042/2011, SLP(C)… /2011 CC NO. 2103, SLP(C) NO.
3433/2011, SLP(C) NO. 4730/2011, SLP(C) NO. 4743/2011, SLP(C) NO.
4747/2011, SLP(C) NO. 4750/2011, SLP(C) NO. 5094/2011, SLP(C) NO.
5105/2011, SLP(C) NO. 5106/2011, SLP(C) NO. 5110/2011, SLP(C) NO.
5112/2011, SLP(C) NO. 6351/2011, SLP(C) NO. 6492/2011, SLP(C) NO.
8571/2011, SLP(C) NO. 9758/2011, CA NO. 9900-9903/2011, SLP(C) NO.
12605/2011, SLP(C) NO. 13451/2011, SLP(C) NO. 13525/2011, SLP(C) NO.
13526/2011, SLP(C) NO. 14144/2011, SLP(C) NO. 14269/2011, SLP(C) NO.
14342/2011, SLP(C) NO. 18858/2011, SLP(C) NO. 18859/2011, SLP(C) NO.
18862/2011, SLP(C) NO. 18863/2011, SLP(C) NO. 18864/2011, SLP(C) NO.
33344/2011, WP(C) NO. 278/2012, WP(C) NO. 290/2012, CA NO. 4210/2012, CA
NO. 5860/2012, CA NO. 5861/2012, CA NO. 8275/2012, CA NO. 8278/2012, CA NO.
8280/2012, CA NO. 8283/2012, CA NO. 8284/2012, CA NO. 8286/2012, CA NO.
8290/2012, CA NO. 8292/2012, CA NO. 8294/2012, CA NO. 8295/2012, CA NO.
8296/2012, CA NO. 8297/2012, CA NO. 8298/2012, CA NO. 8299/2012, CA NO.
8300/2012, CA NO. 8301/2012, CA NO. 8302/2012, CA NO. 8303/2012, CA NO.
8304/2012, CA NO. 8305/2012, CA NO. 8306/2012, CA NO. 8307/2012, CA NO.
8308/2012, CA NO. 8309/2012, CA NO. 8311/2012, CA NO. 8312/2012, CA NO.
8313/2012, CA NO. 8314/2012, CA NO. 8315/2012, CA NO. 8316/2012, SLP(C) NO.
8333/2012, CA NO. 8734/2012, CA NO. 8735/2012, CA NO. 8736/2012, CA NO.
8737/2012, CA NO. 8738/2012, CA NO. 8739/2012, CA NO. 8740/2012, CA NO.
8741/2012, CA NO. 8744/2012, CA NO. 8745/2012, CA NO. 8832/2012, CA NO.
8833/2012, CA NO. 8834/2012, CA NO. 8836/2012, CA NO. 8837/2012, CA NO.
8839/2012, CA NO. 8840/2012, CA NO. 8841/2012, CA NO. 8842/2012, CA NO.
8843/2012, CA NO. 8844/2012, CA NO. 8845/2012, CA NO. 8846/2012, CA NO.
9148/2012, CA NO. 9149/2012, CA NO. 9150/2012, CA NO. 9151/2012, CA NO.
9152/2012, CA NO. 9153/2012, CA NO. 9154/2012, CA NO. 9155/2012, CA NO.
9156/2012, CA NO. 9157/2012, CA NO. 9158/2012, CA NO. 9159/2012, CA NO.
9160/2012, CA NO. 9161/2012, CA NO. 9162/2012, CA NO. 9163/2012, CA NO.
9164/2012, CA NO. 9165/2012, CA NO. 9166/2012, CA NO. 9167/2012, CA NO.
9168/2012, CA NO. 9169/2012, CA NO. 9170/2012, CA NO. 9292/2012, CA NO.
9293/2012, SLP(C) NO. 16535-16536/2012, SLP(C) NO. 16538/2012, SLP(C) NO.
18602/2012, SLP(C) NO. 28173/2012, SLP(C) NO. 33954/2012, SLP(C) NO.
36187/2012, SLP(C) NO. 37455/2012, SLP(C) NO. 37680/2012, SLP(C) NO. 37708-
37709/2012, SLP(C) NO. 37712/2012, SLP(C) NO. 37728/2012, SLP(C) NO.
38304/2012, SLP(C) NO. 38919/2012, SLP(C) NO. 39998/2012, SLP(C) NO.
40146/2012, SLP(C) NO. 40147/2012, TC(C) NO. 149/2013, SLP(C) NO. 449/2013,
CA NO. 539/2013, CA NO. 540/2013, CA NO. 541/2013, CA NO. 542/2013, CA NO.
543/2013, CA NO. 544/2013, CA NO. 545/2013, CA NO. 546/2013, CA NO.
547/2013, CA NO. 548/2013, SLP(C) NO. 1426/2013, SLP(C) NO. 8939/2013,
SLP(C) NO. 9844/2013, SLP(C) NO. 10466/2013, SLP(C) NO. 10516/2013, SLP(C)
NO. 10879/2013, SLP(C) NO. 11060/2013, SLP(C) NO. 16744-16746/2013, SLP(C)
NO. 16867/2013, SLP(C) NO. 16869/2013, SLP(C) NO. 16870/2013, SLP(C) NO.
27001-27002/2013, SLP(C) NO. 30986/2013, SLP(C) NO. 32256/2013, SLP(C) NO.
33600/2013, CA NO. 1838/2014, CA NO. 9216/2014, CA NO. 9214/2014, SLP(C)
NO. 29119/2014, SLP(C) NO. 208/2015, SLP(C) NO. 212/2015, SLP(C) NO. 315-
317/2015, SLP(C) NO. 320/2015, SLP(C) NO. 336/2015, SLP(C) NO. 352/2015,
SLP(C) NO. 376/2015, SLP(C) NO. 411-421/2015, SLP(C) NO. 380/2015, SLP(C)
NO. 437/2015, SLP(C) NO. 445/2015, SLP(C) NO. 457/2015, SLP(C) NO.
508/2015, SLP(C) NO. 510/2015, SLP(C) NO. 567/2015, SLP(C) NO. 561-
562/2015, SLP(C) NO. 585/2015, SLP(C) NO. 621/2015, SLP(C) NO. 638/2015,
SLP(C) NO. 641/2015, SLP(C) NO. 661/2015, SLP(C) NO. 664/2015, SLP(C) NO.
662/2015, SLP(C) NO. 669/2015, SLP(C) NO. 668/2015, SLP(C) NO. 671/2015,
SLP(C) NO. 672/2015, SLP(C) NO. 675/2015, SLP(C) NO. 674/2015, SLP(C) NO.
683/2015, SLP(C) NO. 690-691/2015, SLP(C) NO. 684-686/2015, SLP(C) NO. 693-
694/2015, SLP(C) NO. 712/2015, SLP(C) NO. 1270/2015, SLP(C) NO. 1424/2015,
SLP(C) NO. 1596/2015, SLP(C) NO. 1631/2015, SLP(C) NO. 1714/2015, SLP(C)
NO. 1851-1852/2015, SLP(C) NO. 1943-2001/2015, SLP(C) NO. 2038/2015, SLP(C)
NO. 2054/2015, SLP(C) NO. 2063-2065/2015, SLP(C) NO. 2081/2015, SLP(C) NO.
91/2015, SLP(C) NO. 4557/2015, SLP(C) NO. 4581/2015, SLP(C) NO. 4657/2015,
SLP(C) NO. 5046/2015, SLP(C) NO. 5107/2015, SLP(C) NO. 5131/2015, SLP(C)
NO. 5143/2015, SLP(C) NO. 5375/2015, SLP(C) NO. 5447/2015, SLP(C) NO.
5610/2015, SLP(C) NO. 5966/2015, SLP(C) NO. 6086/2015, SLP(C) NO.
6143/2015, SLP(C) NO. 6158/2015, SLP(C) NO. 6240-6243/2015, SLP(C) NO.
6565/2015, SLP(C) NO. 6575/2015, SLP(C) NO. 6631/2015, SLP(C) NO.
4600/2015, SLP(C) NO. 5007/2015, SLP(C) NO. 6728/2015, SLP(C) NO. 6754-
6755/2015, SLP(C) NO. 6823/2015, SLP(C) NO. 6907/2015, SLP(C) NO. 6909-
6910/2015, SLP(C) NO. 6939/2015, SLP(C) NO. 6956/2015, SLP(C) NO.
4386/2015, SLP(C) NO. 7319/2015, SLP(C) NO. 7957-7958/2015, SLP(C) NO.
8089/2015, SLP(C) NO. 2483/2015, SLP(C) NO. 8248/2015, SLP(C) NO.
8325/2015, SLP(C) NO. 8350-8351/2015, SLP(C) NO. 8527/2015, SLP(C) NO.
9585/2015, SLP(C) NO. 11830/2015, SLP(C) NO. 8798/2015, SLP(C) NO.
9584/2015, SLP(C) NO. 5311-5329/2015, SLP(C) NO. 11204-11205/2015, SLP(C)
NO. 9164/2015, SLP(C) NO. 9167/2015, SLP(C) NO. 9176/2015, SLP(C) NO.
9181/2015, SLP(C) NO. 11832/2015, SLP(C) NO. 9188/2015, SLP(C) NO.
9348/2015, SLP(C) NO. 5908/2015, SLP(C) NO. 9386/2015, SLP(C) NO.
9484/2015, SLP(C) NO. 9582/2015, SLP(C) NO. 7874/2015, SLP(C) NO. 11080-
11086/2015, SLP(C) NO. 12839/2015, SLP(C) NO. 11156/2015, SLP(C) NO.
11170/2015, SLP(C) NO. 12844/2015, SLP(C) NO. 8162/2015, SLP(C) NO.
11484/2015, SLP(C) NO. 12847/2015, SLP(C) NO. 11582/2015, SLP(C) NO.
11592/2015, SLP(C) NO. 13200/2015, SLP(C) NO. 13201/2015, SLP(C) NO. 4219-
4227/2015, SLP(C) NO. 2966-2999/2015, SLP(C) NO. 11888/2015, SLP(C) NO.
11203/2015, SLP(C) NO. 14828/2015, SLP(C) NO. 14854/2015, SLP(C) NO.
15856/2015, SLP(C) NO. 15857/2015, SLP(C) NO. 15858/2015, SLP(C) NO. 11458-
11465/2015, SLP(C) NO. 18213/2015, SLP(C) NO. 18333/2015, SLP(C) NO.
16312/2015, SLP(C) NO. 18334/2015, SLP(C) NO. 18335/2015, SLP(C) NO.
15855/2015, SLP(C) NO. 18338/2015, SLP(C) NO. 18184/2015, SLP(C) NO.
18179/2015, C.A. NO. 1956/2003, SLP(C) NO. 8775-8777/2015, SLP(C) NO.
5303/2015, SLP(C) NO. 16853/2015, SLP(C) NO. 21720/2015, SLP(C) NO. 23673-
23674/2015, SLP(C) NO. 23764/2015, SLP(C) NO. 23765/2015, SLP(C) NO.
15353/2015, SLP(C) NO. 22349/2015, SLP(C) NO. 21718/2015, SLP(C) NO.
24547/2015, SLP(C) NO. 23757/2015, C.A. NO. 8240/2015, SLP(C) NO.
26751/2015, SLP(C) NO. 9117/2015, SLP(C) NO. 2214/2015, SLP(C) NO.
2531/2015, SLP(C) NO. 2289/2015, SLP(C) NO. 2530/2015, SLP(C) NO.
2392/2015, SLP(C) NO. 2499/2015, SLP(C) NO. 2502/2015, SLP(C) NO. 2538-
2543/2015, SLP(C) NO. 2426/2015, SLP(C) NO. 2358/2015, SLP(C) NO.
2401/2015, SLP(C) NO. 2389/2015, SLP(C) NO. 2485/2015, SLP(C) NO.
2495/2015, SLP(C) NO. 3163-3164/2015, SLP(C) NO. 3666/2015, SLP(C) NO.
3679/2015, SLP(C) NO. 3723/2015, SLP(C) NO. 3321/2015, SLP(C)
NO. 4198-4199/2015, SLP(C) NO. 3325/2015, SLP(C) NO. 3466/2015, SLP(C) NO.
3635/2015, SLP(C) NO. 3318/2015, SLP(C) NO. 30396/2015, C.A. NO. 110/2016,
C.A. NO. 109/2016, C.A. NO. 583/2016, SLP(C) NO. 4945/2016, SLP(C) NO.
8253/2016, SLP(C) NO. 8204/2008, C.A. NO. 3925/2016, SLP(C) NO. 2057/2016,
SLP(C) NO. 86/2016, SLP(C) NO. 72/2016, C.A. NO. 5534/2016, C.A. NO.
5536/2016, C.A. NO. 5137/2016, SLP(C) NO. 33923/2012, C.A. NO. 5537/2016,
SLP(C) NO. 16116/2009, SLP(C) NO. 30594/2009, SLP(C) NO. 2636/2015, SLP(C)
NO. 2680/2015, SLP(C) NO. 2952/2015, SLP(C) NO. 2641/2015, SLP(C) NO.
2588/2015, SLP(C) NO. 2928/2015, SLP(C) NO. 2737/2015, SLP(C) NO.
2682/2015, SLP(C) NO. 8197-8198/2015, SLP(C) NO. 4197/2015, C.A. NO.
5538/2016, C.A. NO. 5533/2016, SLP(C) NO. 14539-14541/2016, SLP(C) NO.
16820/2016, C.A. NO. 4642-4643/2016

J U D G M E N T
R. BANUMATHI J.
1. I have perused the judgment of Hon’ble the Chief Justice. I agree
with the views taken by Hon’ble the Chief Justice on Question Nos.1 and 4
with certain additions. On Question Nos. 2 and 3, while agreeing with the
views of the Chief Justice over-ruling Jindal Stainless Ltd. (2), on the
question of ‘Compensatory tax’, I have recorded my reasonings which in my
view is necessary to be clarified.
Since substantial questions of law arise for determination which is of
considerable importance from the point of view of trade, commerce and
intercourse and economic unity of the nation, I would like to give my own
reasonings for my conclusions.
1(a). Question No. 1:- I agree with the conclusion of the Chief Justice
holding that a non-discriminatory tax does not per se constitute a
restriction on the right to free trade, commerce and intercourse guaranteed
under Article 301 of the Constitution. I also agree with the view over-
ruling the decisions in Atiabari and Automobile Transport to the extent
they declare that taxes generally are restrictions on the freedom of trade,
commerce and intercourse. I also agree with the view taken by the Chief
Justice over-ruling Jindal Stainless Ltd. (2) & Anr. v. State of Haryana &
Ors. (2006) 7 SCC 241. Insofar as the concept of compensatory taxes evolved
in Automobile Transport. I am of the view, abandoning compensatory tax in
the subsequent judicial pronouncement like the present one, might prejudice
the interest of the concerned States.
1(b). Question No. 4:- I agree with the view taken by the Chief Justice on
question No. 4 however, with the following additions:-
When the entry tax is levied by the Entry Tax Act enacted by the State
Legislature, the term ‘a local area’ contemplated by Entry 52 may cover the
‘Whole State’ or ‘a local area’ as notified in the legislation. I agree
with the view taken in Bihar Chamber of Commerce that from the point of
view of entry tax that the State is a compendium of local areas and where
the local areas contemplated by the Act cover the entire State, the
difference between the State and ‘a local area’ practically disappears.
States have legislative competence to levy entry tax on the goods imported
from other countries when those goods imported from other countries enter a
local area for use, consumption or sale therein.
Tax concessions/benefits/subsidies granted by the State for locally
manufactured goods need not necessarily be limited for a specific period of
time.
1(c). Questions Nos. 2 and 3:-
Insofar as compensatory taxes are concerned in the light of the conclusions
on question No. 1, I hold that the nomenclature of ‘compensatory’ ascribed
to the taxes levied by the State Government under Entry 52, List II
pursuant to Automobile is unwarranted. The concept of compensatory tax was
evolved fifty years back through judicial pronouncements. It has withstood
the test of time and thus, any subsequent judicial pronouncement like the
present one should not prejudice the interest of the parties involved. The
State Governments should not suffer any loss of revenue solely because of
judicial interpretations and innovations in Automobile and the case
subsequent to it. Subject to passing the muster of Art. 304(a), entry tax
levied by the States under entry 52, List II even though termed as
compensatory tax does not fall foul of Art. 301. In my view, Jindal
Stainless Ltd. (2) & Anr. v. State of Haryana & Ors. (2006) 7 SCC 241 is
not a correct view in adopting quantifiable data approach; for a tax, there
is no requirement of proximate quid pro quo and Jindal Stainless Ltd. (2)
is overruled. I agree with the view taken in Bhagatram and Bihar Chamber
of Commerce as the same is in harmony with the original design of
compensatory tax laid down in Automobile.
1(d). For the above conclusions, I have put forth my views and reasonings
under the following heads of discussions:-

Introduction …..[Para Nos. 1-1(d)]
Background to the reference …..[Para Nos. 2-7]
Scheme of the Constitution/distribution
of legislative powers …..[Para Nos. 8-14]

Freedom of trade commerce and intercourse …..[Para Nos. 15-27]
Freedom under Article 301 is subject to
Part XIII and other parts of the Constitution
viz. Part III, IV, XII etc. …..[Para Nos. 28-
35]

Question No. 1 with incidental questions .….[Para Nos. 36-
103]
Question No.4 with incidental questions …..[Para Nos. 104-
177]
Question Nos. 2 and 3 .….[Para Nos. 178-191]
Unjust Enrichment …..[Para Nos. 192-198 ]
Conclusions …..[Para Nos. 199]

BACKGROUND TO THE REFERENCE:
2. In Automobile the concept of compensatory tax has been judicially
evolved as an exception to the provisions of Art. 301. Pre-1995 decisions
have held that the entry tax imposed on the entry of goods into a local
area for consumption, use or sale therein is in the nature of a
compensation, to which, the cost of an existing facility made available to
the traders, or the cost of the specific facility planned to be provided to
the traders, more or less, is to be commensurate with. Pre-1995 decisions
further emphasized that the imposition of tax is must for the definite
purpose of meeting the expenses on account of providing or adding to the
trading facilities, either immediately or in future, provided the tax
sought to be generated is based on a reasonable relation to the actual or
the projected expenditure on the cost of the service or facility. But the
decisions in Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P. &
Ors. 1995 Suppl. (1) SCC 673 and State of Bihar & Ors. v. Bihar Chamber of
Commerce and Ors. (1996) 9 SCC 136 held that even if the purpose of
imposition of the tax is not to confer a special advantage on the traders,
but to benefit the public in general including the traders, the levy can
still be considered compensatory. In Bihar Chamber of Commerce, this Court
reiterated the position that “some connection” between the tax and the
trading facilities is sufficient to characterize it as compensatory tax.
The Court went on further to hold that an indirect or incidental benefit to
traders by reason of stepping up the developmental activities in various
local areas of the State can be legitimately brought within the concept of
compensatory tax and the nexus between the compensatory tax and the trading
facility need not necessarily be either direct or specific. In Jindal
Stripe Ltd. and Anr. v. State of Haryana and Ors. (2003) 8 SCC 60, this
Court referred the matter to the Constitution Bench to authoritatively lay
down the principles vis-à-vis compensatory tax.
3. In Jindal Stainless Ltd. (2) & Anr. v. State of Haryana & Ors. (2006)
7 SCC 241, Constitution Bench considered the various decisions relating to
compensatory tax and held that whenever a law levying compensatory tax is
impugned as violative of Art. 301 of the Constitution, the Court has to see
whether the impugned enactment facially indicates the proportionality to
the quantifiable data on the basis of which the compensatory tax is sought
to be levied. It was further held:
“46. …it must broadly indicate proportionality to the quantifiable benefit.
If the provisions are ambiguous or even if the Act does not indicate
facially the quantifiable benefit, the burden will be on the State as a
service/facility provider to show by placing the material before the Court,
that the payment of compensatory tax is a reimbursement/recompense for the
quantifiable/ measurable benefit provided or to be provided to its
payer(s). As soon as it is shown that the Act invades freedom of trade it
is necessary to enquire whether the State has proved that the restrictions
imposed by it by way of taxation are reasonable and in public interest
within the meaning of Article 304 (b).”

4. The Constitution Bench further held that the test of “some
connection” enunciated in Bhagatram was not only contrary to the working
test propounded in Automobile but obliterated the very basis of
compensatory tax. It was, therefore, held that the test of “some
connection” as propounded in Bhagatram was not a correct view and the
judgments in Bhagatram and Bihar Chamber of Commerce were overruled.

5. After the judgment of Constitution Bench in Jindal Stainless (2)
dated 13.04.2006, the matter went to a Division Bench which in turn by
their order dated 14.07.2006, reported in Jindal Stainless Ltd. (3) and
Anr. v. State of Haryana & Ors. (2006) 7 SCC 271, directed the High Courts
to re-examine the challenge in the light of the principles laid down by the
Constitution Bench. While doing so, this Court retained seisin of the
appeals by directing the appeals to be listed in January, 2007 and in the
meantime requested the High Courts to dispose of the challenge to the Act
after granting opportunities to the respective parties to place materials
on record. After the matter was so remanded, in pursuance of the parameters
laid down by the Constitution Bench in Jindal Stainless Ltd. (2), the
Punjab and Haryana High Court by judgment dated 14.03.2007, took the view
that the levy under Haryana Local Area Development Act, 2000 was not
compensatory. The State of Haryana challenged the aforesaid judgment dated
14.03.2007 in Civil Appeal No.4715 of 2008 and filed certain other appeals
challenging orders in separate cases.

6. Considering the importance of the issues relating to Articles 301,
304 and other provisions of Part XIII of the Constitution, in Jaiprakash
Associates Ltd. vs. State of Madhya Pradesh and Ors (2009) 7 SCC 339 [two
Judges], the matter was referred to a larger Bench in terms of Art. 145(3)
of the Constitution stating that the concept of compensatory tax is a
judicially evolved concept and in a way provides a balancing factor between
federal control and the State Taxing Board. It was observed that the
concept had its matrix in transportation cases and did not apply to the
general notion of entry tax. The Court considered it necessary to refer
the batch of appeals to a larger Bench in terms of Art. 145(3) of the
Constitution and framed ten questions for reference. Subsequently, in
Jindal Stainless Ltd. & Anr. v. State of Haryana & Ors. (2010) 4 SCC 595,
after referring to the reference made in Jaiprakash Associates, the matter
was referred to a larger Bench. Accordingly, the matters are now before
this larger Bench.

7. Even though ten questions were framed for reference, when the matters
came up for consideration before this larger Bench, the issues for
consideration were abridged to four questions as under:-
Can the levy of a non-discriminatory tax per se constitute infraction of
Article 301 of the Constitution of India?

If answer to Question No. 1 is in the affirmative, can a tax which is
compensatory in nature also fall foul of Article 301 of the Constitution of
India?

What are the tests for determining whether the tax or levy is compensatory
in nature?

Is the entry tax levied by the States in the present batch of cases
violative of Article 301 of the Constitution and in particular have the
impugned State enactments relating to entry tax to be tested with reference
to both Articles 304(a) and 304(b) of the Constitution for determining
their validity?
SCHEME OF THE CONSTITUTION/DISTRIBUTION OF LEGISLATIVE POWERS:

8. Art. 1 of the Constitution describes India as a Union of States,
thereby implying the indestructible nature of its unity. The country is
divided into several units, known as States or Union Territories and the
Constitution lays down not only structure of the Union Government but also
the structure of the State Governments.

9. Art. 245 of the Constitution deals with “Extent of laws made by
Parliament and by the Legislators of State”. Art. 245(1) provides that the
Parliament may make laws for the whole or any part of the territory of
India, and the legislature of a State may make laws for the whole or any
part of the State. As per subjects of legislation, all the conceivable
subjects have been distributed between the Union and the States with
reference to three Lists contained in the Seventh Schedule to the
Constitution. The three Lists are exhaustive, yet as a matter of principle
and also to meet unforeseen circumstances, Art. 248 and entry 97, List I
stipulate that the residuary power vests in the Union i.e., Parliament has
exclusive power to make any law with respect to any matter not enumerated
in the Concurrent or State List.

10. Art. 246 stipulates that with respect to the matters enumerated in
List I, Parliament has the exclusive jurisdiction; with respect to those in
List II, State Legislatures have exclusive jurisdiction; and with respect
to those in List III, both of them can legislate subject to the discipline
enjoined in Art. 254. But the power of Parliament with respect to matters
in List I is “notwithstanding anything in clauses (2) and (3)” of Art. 246.
In other words, List I has priority over Lists III and II; and List III
has priority over List II. The Scheme of legislative relations between the
Union and the State is inviolable. [A.K. Gopalan v. State of Madras AIR
1950 SC 27]
11. As the opening words of Art. 245(1) state, the legislative powers of
both Union and State Legislatures are subject to other provisions of the
Constitution even though their powers are plenary within the spheres
assigned to them respectively by the Constitution. Legislative competence
of State Legislature can only be circumscribed by express prohibition
contained in the Constitution itself. Unless and until there is any
provision in the Constitution expressly prohibiting legislation on the
subject either absolutely or conditionally, there is no fetter or
limitation on the plenary powers which the State Legislatures enjoy to
legislate on the topics enumerated in List II and List III of the Seventh
Schedule to the Constitution. It is noteworthy that though Art. 245 is pre-
fixed by the words ‘Subject to the provisions of this Constitution…’; Art.
246 is not. But because Art. 246 only provides for distribution of the
legislative powers conferred under Art. 245, the words ‘subject to the
provisions of the Constitution’ apply equally to Art. 246.
12. The power of the Parliament and State Legislature to enact laws flows
from Articles 245 and 246. Considering the source of legislative powers of
the Union and the State in Maharaj Umeg Singh and Others v. The State of
Bombay and Others, 1955 (2) SCR 164, it was held as under:-
“Under Article 246 the State Legislature was invested with the power to
legislate on the topics enumerated in Lists II & III of the Seventh
Schedule to the Constitution and this power was by virtue of Article 245(1)
subject to the provisions of the Constitution.”

13. A Constitution Bench of this Court in K.T. Plantation Private Limited
and Another v. State of Karnataka (2011) 9 SCC 1 (Five Judges) observed as
under:
“186. A Constitution Bench of this Court in Hoechst Pharmaceuticals Ltd.
case, held that the various entries in List III are not “powers” of
legislation but “fields” of legislation. Later, a Constitution Bench of
this Court in State of W.B. v. Kesoram Industries Ltd. (2004) 1 SCC 10 held
that Article 245 of the Constitution is the fountain source of legislative
power. It provides that subject to the provisions of this Constitution,
Parliament may make laws for the whole or any part of the territory of
India, and the legislature of a State may make laws for the whole or any
part of the State.”
14. While interpreting Articles 245 and 246, in State of Kerala and Ors.
v. Mar Appraem Kuri Company Limited and Anr. (2012) 7 SCC 106, this Court
observed as under:-

“35. Article 245 deals with extent of laws made by Parliament and by the
legislatures of States. The verb “made”, in past tense, finds place in the
Head Note to Article 245. The verb “make”, in the present tense, exists in
Article 245 (1) whereas the verb “made”, in the past tense, finds place in
Article 245 (2). While the legislative power is derived from Article 245,
the entries in the Seventh Schedule of the Constitution only demarcate the
legislative fields of the respective legislatures and do not confer
legislative power as such. While Parliament has power to make laws for the
whole or any part of the territory of India, the legislature of a State can
make laws only for the State or part thereof. Thus, Article 245 inter alia
indicates the extent of laws made by Parliament and by the State
Legislatures.
…..
37. Article 246, thus, provides for distribution, as between Union and the
States, of the legislative powers which are conferred by Article 245.
Article 245 begins with the expression “subject to the provisions of this
Constitution”. Therefore, Article 246 must be read as “subject to other
provisions of the Constitution”.

38. For the purposes of this decision, the point which needs to be
emphasized is that Article 245 deals with conferment of legislative powers
whereas Article 246 provides for distribution of the legislative powers.
Article 245 deals with extent of laws whereas Article 246 deals with
distribution of legislative powers. In these articles, the Constitution
Framers have used the word “make” and not “commencement” which has a
specific legal connotation. [See Section 3(13) of the General Clauses Act,
1897.] [Emphasis Supplied]
FREEDOM OF TRADE, COMMERCE AND INTERCOURSE:
15. Art. 301 of the Constitution provides for freedom of trade, commerce
and intercourse throughout the territory of India, subject to the other
provisions of Part XIII, Articles 302-305 which permit the imposition of
reasonable restrictions on this freedom by Parliament and the State
Legislatures. The underlining idea in making trade, commerce and
intercourse throughout the territory of India free is to emphasize on the
economic unity of India and to ensure that unity of the country may not be
broken by internal barriers.

16. The Constitution-makers desired free flow of trade and commerce in
India as they realized that economic unity and integration of the country
provided the main sustaining force for the stability and progress of the
political and economic unity of the nation, and that the country should
function as one single economic unity without barriers on internal trade.
In order to ensure that the State Legislatures subjected to local and
regional pulls did not create trade barriers in future, Art. 301 was
incorporated in the Constitution. Art. 301 in general enacts that “subject
to the other provisions of this Part, trade, commerce and intercourse
throughout the territory of India shall be free”. After having declared the
general nature of the freedom of trade and commerce, Part XIII of the
Constitution sets out the limitations to this freedom, in Articles 302 to
304 which re-state the powers of the Parliament and the State Legislatures
in imposing restrictions on the freedom of trade, commerce and intercourse.
Articles 302 to 304 are not exceptions to Art. 301. Articles 302 to 304
embody a statement of powers under Art. 246 and the Seventh Schedule with
some limitations. Each re-stated power by itself overrides the freedom
in Art. 301.

17. Art.302 empowers the Parliament to impose restrictions on the freedom
of trade, commerce and intercourse provided they are required in public
interest. The purpose of this provision is to allow the Government of
India to restrict the movement of goods so as to safeguard a well-balanced
economy and for proper organization or supply of goods and services. Famine
may be raging in one part of the country while there is plenty in another
part, as has been the past experience of the country in regard to food. If
Parliament has no effective powers to impose restrictions in such
situations on freedom of trade and commerce, then it will undermine the
unity of nation. It is reasonable to presume that the Parliament, people’s
representative is a better judge of public interest and that its judgment
must have primacy over any other judgment, including that of the courts.

18. Although Parliament is empowered to restrict the free movement of
articles in trade and commerce, normally the laws passed by Parliament in
this context ought to be non-discriminatory in character. Art. 303(1) of
the Constitution prohibits Parliament and the State Legislature from making
“any law giving or authorizing the giving of, any preference to one State
over another, or making or authorizing the making or, any discrimination
between State and another, by virtue of any entry relating to trade and
commerce in any of the Lists in Seventh Schedule”. Preference or
discrimination amounts to a restriction on the freedom guaranteed under
Art. 301 of the Constitution only if it is a law made by the virtue of any
entry relating to trade and commerce in any of the Lists in the Seventh
Schedule. Application of Art. 303(1) is to specific entries on trade and
commerce and not to be confused with the general application of Art. 301 to
all the legislative entries other than the entries relating to trade and
commerce. But when any part of the country is suffering from scarcity of
goods, Parliament may, to meet such a situation; pass even a discriminatory
law [Art. 303(2)]. Art. 303(2) is an exception to Art. 303(1) inasmuch
that the limitations of Art. 303(1) lose operation when aforesaid
preference and discrimination is made for the purpose of dealing with
situation arising from scarcity of goods, and the Parliament may in these
situations enact a law that gives or authorises giving preference or makes
or authorises making of any discrimination.

19. As per Art. 304(a), a State Legislature may impose any tax on goods
imported from other States or Union Territories to which similar goods
produced in that State are also subject, so as not to discriminate between
the goods so imported and goods so manufactured or produced within the
State. A State Legislature is also authorised to impose reasonable
restrictions on the freedom of trade and commerce with or within that State
as may be required in public interest, subject to the condition that no
Bill or Amendment shall be moved in the Legislature of a State without
previous sanction of the President [Art. 304(b)]. Art. 304 begins with non-
obstante clause and is intended to override both Art. 301 and Art. 303.
Art. 304(a) does not prevent taxation of goods; it only prohibits taxes
that discriminate between the goods imported from other States and similar
goods that are manufactured or produced within the taxing State.

20. Under Art. 305, tax laws existing at the time of the commencement of
the Constitution were safeguarded even if they violated the freedom of
inter-State trade and commerce along with the power of Parliament to
regulate them. At the same time, the President was empowered to make any
changes to those laws as he thought fit. This Article in its present form
was added by the Fourth Amendment of the Constitution, 1955, and it saves
all the existing laws providing for State monopolies which were passed
before coming into effect of the Fourth Amendment. Under Art. 307,
Parliament is empowered to appoint such authority as it considers
appropriate for carrying out the purposes of Articles 301 to 304 and to
confer on that authority such powers and duties as it thinks necessary.
21. Part XII and Part XIII of the Constitution lay down the parameters
within which State Governments can exercise their right to enact
laws/impose tax, restricting the freedom of trade, commerce and
intercourse. Purpose of including Part XIII (as it stands today) in the
Constitution as emerges from Section 297 of the Government of India Act,
1935 was to confer a freedom of trade, commerce and intercourse, subject to
restrictions and non-discriminatory tax laws. In this respect, Art. 301
does not confer any higher right. Even the Constitutional Assembly Debates
show that the framers did not intend to confer any absolute freedom of
trade, commerce and intercourse. Be it noted that they did not adopt the
expression “absolutely free” as found in the Australian Constitution.
Reference to “Constituent Assembly Debates 30.07.1949 to 18.09.1949” shows
that Dr. B.R. Ambedkar while introducing Part XA: Trade, Commerce and
Intercourse within the territory of India Articles 274A to 274D (which
corresponds to Articles 301 to 304 and 307) before the Constituent Assembly
specifically noted that it is not the intention to make trade, commerce and
intercourse absolutely free in India. Relevant extracts from the debate
are as under:-
“….I should also like, to say that according to the provisions contained in
this part it is not the intention to make trade and commerce absolutely
free, that is to say, deprive both Parliament as well as the States of any
power to depart from the fundamental provisions that trade and commerce
shall be free throughout India. The freedom of trade and commerce has been
made subject to certain limitations which may be imposed by Parliament or
which may be imposed by the Legislatures of various states, subject to the
fact that the limitation contained in the power of Parliament to invade the
freedom of trade and commerce is confined to cases arising from scarcity of
goods in any part of the territory of India and in the case of, the States
it must be justified on the ground of public interest. The action of the
States in invading the freedom of trade and commerce in the public interest
is also made subject to a condition that any Bill affecting the freedom of
trade and commerce shall have the previous sanction of the President;
otherwise, the State would not be in a position to undertake such
legislation…..” (Constituent Assembly Debates (CAD) 30.07.1949 to
18.09.1949 page 1126)

22. In fact, Shri T.T. Krishnamachari, while opposing to the idea of
debarring States from imposing any kind of restriction on freedom of trade
and commerce emphasized subjecting ‘trade and commerce’ to State’s direct
regulation, so that the economic progress of the country was not hindered.
Relevant extract is as under:-
“Shri T.T. Krishnamachari:…. Let me tell the House that so far as I am
concerned I think this is about the maximum amount of liberty that we can
give for trade and commerce, the maximum amount of concession that we can
give to trade and commerce consistent with the future economic improvement
of this country. Even as it was originally suggested, that we should make
it a matter of fundamental right, and even without the restriction that
have been put in article 16, I am afraid the economic progress of the
country will become well-nigh impossible. There is absolutely no use in the
honourable Member trying to confuse a matter of civil liberty with a mater
of rights in respect of trade and commerce. The world has well-nigh come
to a position when trade and commerce cannot be run without control and
somekind of direction by the Government. If my honorable friends think
that we are in the days of the nineteenth century when the laissez faire
enthusiast had practically the ordering of everything in the world I am
afraid they are mistaken.”[CAD Page No.1140 dated 08.09.1949]

23. Reiterating the views of Shri T.T. Krishnamachari, Shri Alladi
Krishnaswami Ayyar pointed out that the Scheme as evolved has taken into
account larger interest of India along with the interests of particular
State, wide geography of the country where the interest of one region
differs from the interest of another region, and future prosperity of our
country. Relevant extract is as under:-
“Shri Alladi Krishnaswami Ayyar:…. It may be that manure and other things
are required in one part of the country while profiteers from another part
of the country may try to transport the goods from the part affected. At
the same time, in the interests of the larger economy and the future
prosperity of our country, a certain degree of freedom of trade must be
guaranteed.
My Friend, Mr. Krishnamachari has pointed out that this freedom clause in
the Australian Constitution has given rise to considerable trouble and to
conflicting decisions of the highest Court. There has been a feeling in
those parts of Australia which depend for their well-being on agricultural
conditions that their interests are being sacrificed to manufacturing
regions, and there has been rivalry between manufacturing and agricultural
interests. Therefore, in a federation what you have to do is first, you
will have to take into account the larger interests of India and permit
freedom of trade and intercourse as far as possible. Secondly, you cannot
ignore altogether regional interests. Thirdly, there must be the power
intervention of the Centre in any case of crisis to deal with peculiar
problems that might arise in any part of India. All these three factors
are taken into account in the Scheme that has been placed before you.”[CAD
Page No.1143 dated 08.09.1949]
24. Referring to reasonable restrictions that may be imposed by the
States and the necessity to obtain sanction from the President, Shri Alladi
Krishnaswami Ayyar further observed as under:-
Shri Alladi Krishnaswami Ayyar:….“Therefore, if on account of parochial
patriotism or separatism, without consulting the larger interests of India
as a whole if any Bill or amendment is introduced, it will be open to the
President, namely, the Cabinet of India to withhold sanction. This is
therefore a very restricted power that is conferred on the legislature of a
State. After all what is the nature of the power given? The power is
confined to imposing such reasonable, restrictions on the freedom of trade,
commerce or intercourse with or within that State as may be required in
the public interest therefore the President who has to grant sanction will
have the opportunity to see that the legislation is in the public interest
and that the restriction imposed is reasonable. It is not possible to
devise a water tight formula for the purpose of defining these
restrictions.” [CAD Page No.1144 dated 08.09.1949]
25. The purpose of including Part XIII in the Constitution as emerges
from the Constituent Assembly Debates was to ensure the interest of the
larger economy of the nation and to prevent unreasonable trade barriers in
the free flow of trade, commerce and intercourse, impeding economic growth.
Framers of the Constitution considered flow of trade, commerce and
intercourse throughout the territory of India as important for economic
unity, but they did not deify trade, commerce and intercourse nor they
entertained any fetish for it. In fact, freedom of trade, commerce and
intercourse was initially meant to be a fundamental right but was removed
from the part pertaining to ‘Fundamental Rights’ as it was considered that
it did not have any great content as a fundamental right.
26. It was considered that freedom of trade, commerce and intercourse
need not be kept at such a high pedestal. It is apposite to refer to the
following relevant Debates of the Constituent Assembly.

“Atul Chandra Gupta (Advocate, Calcutta High Court) has suggested that
clause (b) of article 244 should be deleted as this clause negatives
articles 16 and 243 by its vague generality.

Note: Clause (b) of article 244 is based on the recommendation of the
Advisory Committee as adopted by the Constituent Assembly. The Drafting
Committee has considered it necessary to substitute for the words “in the
interest of public order, morality or health” which occur in the said
recommendation, the words “in the public interests”. [The Framing of
India’s Constitution (Vol. 4) (Page 328)]
Shri C. Subramanian (Madras : General): “….There are three Articles 243,
244 and 245 which deal with this subject ‘inter-state trade and commerce’
in the body of the Draft. Then in the list of legislative powers in the
Union list, we find in entry 73 “inter-state trade and commerce subject to
the provisions of entry 23 of List No. II”. Then item 32 in List II is
“trade and commerce within the state; markets and fairs”; and item 33
refers to the “regulation of trade, commerce and intercourse with other
States for the purposes of the provisions of article 244 of this
Constitution.” Therefore, you will find inter-state trade and commerce,
subject to article 244, is a Union subject. Parliament can deal with it.
Trade and commerce within the state and inter-state commerce as provided in
article 244 are given to the State Legislatures. You will find, Sir, that
in article 244, even though it might be inter-state trade and commerce, the
State Legislature is given certain powers to impose certain taxes and
impose certain restrictions. Having this in mind, if we come to Article
16, we find the words, “subject to the provisions of article 244 of this
Constitution”, that is, even in respect of inter-state trade and commerce,
the State Legislature has been given certain powers and that is not touched
by this article. Therefore leaving that, the article would read “subject
to the provisions of any law made by Parliament, trade and commerce and
intercourse through the territory of India shall be free”. I really fail
to understand how this can be a fundamental right and whether there is any
right at all reserved. The very conception of a fundamental right is that
there is a certain right taken out of the province of the legislature
either of the Union or of the State. To put it in other words, the
sovereignty vests in the public, but that sovereignty is delegated to the
legislatures or the sovereignty is expressed through the legislatures in
respect of certain subjects. [CAD Page No. 798, 30.07.1949-18.09.1949]

The Honourable Dr. B.R. Ambedkar: ….Now, I quite appreciate the argument
that this article 16 is out of place in the list of fundamental rights, and
to some extent, I agree with Mr. Subramaniam. But I shall explain to him
why it was found necessary to include this matter in the fundamental
rights. My Friend, Mr. SUbramaniam will remember that when the Constituent
Assembly began, we began under certain limitations. One of the limitations
was that the Indian States would join the Union only on three subjects-
foreign affairs, defence and communications. On no other matter they would
agree to permit the Union Parliament to extend its legislative and
executive jurisdiction..…Or to put it briefly and in a different language,
they were not prepared to allow trade and commerce to be included as an
entry in List No.I. If it was possible for us to include trade and
commerce in List I, which means that Parliament will have the executive
authority to make laws with regard to trade and commerce throughout India,
we would not have found it necessary to bring trade and commerce under
article 16, in the fundamental rights. But as that door was blocked, on
account of the basic considerations which operated at the beginning of the
Constituent Assembly, we had to find some place, for the purpose of
uniformity in the matter of trade and commerce throughout India, under some
head. After exercising considerable amount of ingenuity, the only method
we found of giving effect to the desire of a large majority of our people
that trade and commerce should be free throughout India, was to bring it
under fundamental rights. That is the reason why, awkward as it may seem,
we thought that there was no other way left to us, except to bring trade
and commerce under fundamental rights. I think that will satisfy my friend
Mr. Subramaniam why we gave this place to trade and commerce in the list of
fundamental rights, although theoretically, I agree that the subject is not
germane to the subject-matter of fundamental rights.
With regard to the other argument, that since trade and commerce have
been made subject to article 244, we have practically destroyed the
fundamental right, I think I may fairly say that my friend Mr. Subramaniam
has either not read article 244, or has misread that article. Article 244
has a very limited scope. All that it does is to give powers to the
provincial legislatures in dealing with inter-state commerce and trade, to
impose certain restrictions on the entry of goods manufactured or
transported from another State, provided the legislation is such that it
does not impose any disparity, discrimination between the goods
manufactured within the State and the goods imported from outside the
State. Now, I am sure he will agree that that is a very limited law. It
certainly does not take away the right of trade and commerce and
intercourse throughout India which is required to be free.” [CAD Page No.
1125, 30.07.1949 to 18.09.1949]

27. After this discussion in the Constituent Assembly, Part XA,
(presently Part XIII of the Constitution) was moved and adopted in the
present form. The fact that free trade and commerce in Part XIII was
initially introduced as a Fundamental Right and then shifted from the Part
pertaining to Fundamental Rights indicates that the framers of the
Constitution considered that freedom of trade and commerce need not be
exalted on par with Fundamental Rights.

FREEDOM UNDER ART. 301 IS SUBJECT TO PART XIII AND OTHER PARTS OF THE
CONSTITUTION PARTS III, IV AND XII ETC.:

28. An argument was advanced that Art. 301 is “subject only” to Part XIII
and the same cannot be restricted by general and special powers of the
Constitution. In this regard, reliance was placed upon Constituent Assembly
Debates where an amendment to Art. 274A was moved by Pandit Thakur Das
Bhargav:“I want the word ‘Part’ to be substituted by the word
‘Constitution’”, which was not approved. Freedom under Art. 301 in the
constitutional context does not mean freedom from all laws, it is subject
to restrictions in Part XIII and also to other parts of the Constitution.

29. Art. 301 provides for freedom of trade, commerce and intercourse
throughout the territory of India. It strikes an eco-political balance
required for the working of a federal structure. Art. 301 cannot be
interpreted as to mean a restriction on the plenary power of the State to
impose tax in respect of the relevant “fields” in List II of the Seventh
Schedule of the Constitution. What it means is that such plenary power of
taxation shall not be used to create trade barriers or to discriminate
between “goods manufactured within the State” and “goods imported”. The
expression in Art. 301 “subject to” is a dominant expression. It indicates
subservience of the freedom to Articles 302, 303 and 304.

30. Considering the scope of the expression “subject to” this Court in
K.T. Plantation (P) Ltd v. State of Karnataka (2011) 9 SCC 1, observed:
“Section 110 of the Land Reforms Act empowers the State Government to
withdraw the exemption granted to any land referred to in Sections 107 and
108. Section 107 itself has been made “subject to” Section 110 of the Act.
The words “subject to” conveys the idea of a provision yielding place to
another provision or other provisions to which it is made subject.
65. In Black’s Law Dictionary, 5th Edn. At p. 1278, the expression “subject
to” has been defined as under:
“Subject to – Liable, subordinate, subservient, inferior, obedient to;
governed or effected by; provided that; provided; answerable for.”
66. Since Section 107 is made subject to Section 110, the former section
conveys the idea of yielding to the provision to which it is made subject
that is Section 110 which is the will of the legislature….”

31. Interpretation of the Constitution should emerge from a reading of
the whole of the Constitution to ensure that the overall objectives are
achieved. Part XIII as a whole is based on a balanced scheme and it should
be interpreted with reference to other parts of the Constitution including
Part III, Part XII and Articles 38 and 39 of the Directive Principles of
State Policy. Each of these Parts must be read not in isolation or as
water tight compartments but harmoniously as a logical whole. The
Constitution must be treated as a logical whole and provisions are not to
be read in isolation. In Kesavananda Bharti v. State of Kerala, (1973) 4
SCC 225, the Court stated:
“56. ….It is not right to construe words in vacuum and then insert the
meaning into an article. Lord Green observed in Bidie v. General Accident,
Fire and Life Assurance Corporation (1948) [All E.R. 995, 998]
……
61. I may also refer to the observation of Gwyer, C.J., and Lord Wright:
“A grant of the power in general terms, standing by itself, would no doubt
be construed in the wider sense; but it may be qualified by other express
provisions in the same enactment, by the implications of the context, and
even by considerations arising out of what appears to be the general scheme
of the Act.” (Per Gwyer, C.J. — The Central Provinces and Berar Act, 1939,
FCR 18 at 42 MR).
“The question, then, is one of construction and in the ultimate resort must
be determined upon the actual words used, read not in vacua but as
occurring in a single complex instrument, in which one part may throw light
on another. The Constitution has been described as the federal compact, and
the Construction must hold a balance between all its parts.” (Per Lord
Wright — James v. Commonwealth of Australia, 1936 AC 578 at 613.)

See also Kihoto Hollohan v. Zachillhu and Ors. (1992) Supp 2 SCC 651 [Paras
26 and 27].

32. In T.M.A. Pai Foundation v. State of Karnataka, (2002) 8 SCC 481, the
Supreme Court stated:-
“148. ….When constitutional provisions are interpreted, it has to be borne
in mind that the interpretation should be such as to further the object of
their incorporation. They cannot be read in isolation and have to be read
harmoniously to provide meaning and purpose. They cannot be interpreted in
a manner that renders another provision redundant. If necessary, a
purposive and harmonious interpretation should be given.”

It follows from the above decisions that while interpreting the
Constitution the emphasis must be on reading it as a whole, and in a manner
that the intent and object of no part of the Constitution is defeated. In
this regard, there must be a holistic approach towards the provisions of
the Constitution.

33. Object of Part XIII is not to make inter-State trade, commerce and
intercourse absolutely free. Part XIII will have to be read along with
other Parts of the Constitution namely, Parts III, IV and XII along with
the basic features of sovereignty and federalism. Free trade, commerce and
intercourse is subject to the other provisions of Part XIII as well as
other constitutional provisions. Art. 301 does not use the word subject
‘only’ to Part XIII. The word “free” in Art. 301 is to be read not in
isolation or in the limited context of Part XIII, but has to be read as
part of the Constitution as a whole. The word “free” cannot be given a
meaning which renders the legislative powers of the State ineffective. For
instance, Art. 301 cannot be held to employ freedom from giving minimum
wage, gratuity, provident fund etc. to the workers employed.

34. Articles 302 to 304 are neither exceptions nor provisos to Art. 301
and therefore, the principles of interpreting a proviso cannot be applied
to them. But both Atiabari and Automobile proceeded on the footing that
Art. 302 is in the nature of exception to Art. 301.
Gajendragdkar J. in Atiabari held:

“Thus, the effect of Art. 302 is to provide for an exception to the general
rule prescribed by Article 301….” [Pages 853-854]

Similarly, Das J. in Automobile held:

“….The fact of the matter is that there is such a mix up of exception upon
exception in the series of articles in Part XIII that a purely textual
interpretation may not disclose the true intendment of Articles….” [Page
520]
“…It seems to us that so far as Parliament is concerned, Art. 303(1) carves
out an exception from the relaxation given in favour of Parliament by Art.
302; the relation given by Art. 302 is itself in the nature of exception of
the general terms of Art. 301. It would be against the ordinary canons of
construction to treat an exception or proviso as having such a repercussion
on the interpretation of the main enactment so as to exclude from it by
implication what clearly falls within its express term….” [Page 528]

The above view in Atiabari and Automobile is not correct. Articles 302 to
304 embody re-statement of powers under Art. 246 and the Seventh Schedule.
Each re-stated power by itself overrides the freedom in Art. 301.

35. Further the majority in Atiabari held that:
“…The doctrine of freedom of trade, commerce and intercourse enunciated in
Art. 301 is not subject to the other provisions of the Constitution, but is
made subject only to the other provision of Part XIII, that means, once the
width and amplitude of freedom enshrined in Art. 301 are determined, they
cannot be controlled by any provision outside Part XIII…” [Page 848]

The majority appears to have read Art. 301 as “subject only to Part XIII”.
In the opinion of learned author H.M. Seervai too, the majority view in
Atiabari that Art. 301 is subject “only to Part III” was not correct. It
is apposite to quote the relevant passage from H.M. Seervai’s book on
Constitutional Law of India, 4th Edition, Volume 3:
“…..The reasons are — (1) It read into Art. 301 after the words “subject”
the word “only” which is not there and this is contrary to well-settled
principles of interpretation. Further, the power to make rules, referred
to in Arts. 302 to 305 is governed by Articles 245 and 246, and,
therefore, subject to the provisions of our Constitution. (2) The proviso
to Art. 304(b) which requires the previous consent of the President to a
bill for the purpose of clause (b), necessarily takes us out of Part XIII
to Part XI, since Art. 255 in that part provide that the failure to obtain
the previous sanction of the President to the introduction of the bill can
be made good by his subsequent assent. It follows therefore that the
freedom guaranteed by Art. 301 is not limited to restriction permitted only
by Art. 304(b) for the proviso to it is overridden by Art.255 (3). Trade
is dealt with not only in Art. 301 but also in Art.19(1)(g) and the
relation of that Article is necessary for a proper interpretation of Part
XIII. Article 19(1)(g) guarantees to every citizen the right to carry on
any trade or business. But trade cannot be carried on without goods or
property and the right to acquire, hold and dispose of property which is
guaranteed under Art; 19(1) (f). Again, it is not only Art.303 which speaks
of discrimination “Arts. 14 and 15 do likewise and the relation of this
Article to 303 must be considered.” [Page 2591]

The States are right in submitting that the majority view, both in Atiabari
and Automobile, is not correct. Part XIII and Freedom of Trade, Commerce
and Intercourse will have to be read with other Parts of the Constitution,
particularly, Part III, IV and XII and basic features of sovereignty and
federalism.
Question No.1: Can the levy of a non-discriminatory tax per se constitute
infraction of Article 301 of the Constitution of India?
Power to Tax is an incident of State Sovereignty:-
36. Entries relating to taxation and levy of duty under the State List,
Seventh Schedule are Entries 46-62 and under the Concurrent List, Seventh
Schedule are Entries 35, 43 and 44. The power to tax is a sovereign right
of the State and is essential to the very existence of a Government. Any
fetters on the power of the State to generate revenue through taxes have a
direct impact on the autonomy and governance of the State.

37. The term ‘tax’ is ordinarily used to express the exercise of the
sovereign power to raise revenue for the expenses of the Government. Judge
Cooley in his memorable work on the “Law of Taxation” stated that taxation
is a mode of raising revenue for a public purpose; and the power of
taxation is an essential and inherent attribute of sovereignty, belonging
as a matter of right to every independent Government. He defined the power
of taxation as the power inherent in the sovereign State to recover a
contribution of money or other property in accordance with some reasonable
rule of apportionment from the property or occupations within its
jurisdiction for the purpose of defraying the public expenses: –
“…It is obvious that it is an incident of sovereignty, and is co-extensive
with that to which it is an incident. All subjects over which the
sovereign power of a State extends are objects of taxation, but those over
which it does not extend are, upon the soundest principles, exempt from
taxation. This proposition may almost be pronounced self-evident.
The power of taxation is an essential and inherent attribute of
sovereignty, belonging as a matter of right to every independent
Government. It is possessed by the Government without being expressly
conferred by the people. The power is inherent in the people because the
sustenance of the government requires contributions from them. In fact the
power of taxation may be defined as “the power inherent in the sovereign
state to recover a contribution of money or other property, in accordance
with some reasonable rule or apportionment, from the property or occupation
within its jurisdiction for the purpose of defraying the public expenses”.”
(Cooley, Taxation (4th Edition) Pages. 72, 149, 150; Referred to in the
Article Power to Tax by Herman M. Knoeller reported in Market Law Review
Volume 22 Issue 3 April, 1938. )

38. This Hon’ble Court has held in a catena of cases that power to levy
tax is a sovereign power of the State starting from Raja Jagannath Baksh
Singh v. The State of U.P. and Anr., (1963) 1 SCR 220, where this Hon’ble
Court observed that:-
“……. The power of taxation is, no doubt, the sovereign right of the State;
as was observed by Chief Justice Marshall in M’Culloch v. Maryland [4 Law
Edn. 579 p. 607] : “The power of taxing the people and their property is
essential to the very existence of Government, and may be legitimately
exercised on the objects to which it is applicable to the utmost extent to
which the Government may choose to carry it.” In that sense, it is not the
function of the Court to enquire whether the power of taxation has been
reasonably exercised either in respect of the amount taxed or in respect of
the property which is made the object of the tax. Article 265 of the
Constitution provides that no tax shall be levied or collected, except by
authority of law; and so, for deciding whether a tax has been validly
levied or not, it would be necessary first to enquire whether the
legislature which passes the Act was competent to pass it or not.”
[Emphasis Supplied] [Page 232-233]

39. Power to tax is a sovereign power and is legislative in character and
it has to be exercised within the constitutional limitation. In State of
W.B. v. Kesoram Industries Ltd. and Others (2004) 10 SCC 201, it was held
as under:-
“109. The primary purpose of taxation is to collect revenue. Power to tax
may be exercised for the purpose of regulating an industry, commerce or any
other activity; the purpose of levying such tax, an impost to be more
correct, is the exercise of sovereign power for the purpose of effectuating
regulation though incidentally the levy may contribute to the revenue….”

Power of taxation has been regarded as an inherent attribute of sovereignty
emanating from necessity. Same view was reiterated in Yadlapati
Venkateswarlu v. State of A.P. (1992) Suppl. (1) SCC 74 [Para 9], State of
U.P. & Anr. v. Synthetics and Chemicals Ltd. & Anr. (1991) 4 SCC 139 [Para
44], Amrit Banaspati Co. Ltd. and Anr. v. State of Punjab and Anr. (1992) 2
SCC 411 [Para 10], Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Ors.
(2000) 5 SCC 694 [Para 8].

40. Subject to the Constitution and its inherent restrictions, the power
of taxation is regarded as political and supreme. Power to levy tax is
indispensable for the existence of any civilized Government as it is a
necessity for its support and maintenance. Without taxes, for lack of
source of revenue, the Government would become paralyzed. How much revenue
is to be drawn and from which source is a matter of fiscal policy and
wholly depends on the needs of a State. In order to support the existence
of the State and its welfare activities, as mandated by the Directive
Principles of the State Policy, the State is empowered to raise revenue
through, (i) taxes and duties; (ii) loans raised by the issue of treasury
bills, loans or ways and means of advances; (iii) fees for licenses; (iv)
fees for services rendered; and (v) fines or other pecuniary penalties
(Articles 199, 207 and 266). On behalf of the State, it was submitted that
there are fiscal limitations against taking loans in view of debt
servicing; even otherwise tax is preferable as it is a mode of re-
distributing wealth in the form of public welfare.

41. In Elel Hotels & Investments Ltd. and Others v. Union of India (1989)
3 SCC 698, it was held:-
“20….Taxation is not now a mere source of raising money to defray expenses
of Government. It is a recognized fiscal tool to achieve fiscal and social
objectives…”

42. Parts XI and XII of the Constitution deal with “Relations between the
Union and the States” and “Finance, Property, Contracts and Suits”
respectively. Part XII dealing with finance etc. has been treated as Part
dealing with the sovereign power of the States to impose taxes, which must
always mean imposing burden on citizens and others in public interest. The
power of taxation is vested in a sovereign State to carry on with the
affairs of the Government. Our Constitution had laid the foundation of a
Welfare State, very much extending the activities of the Government and the
administration thus making it necessary for the State to impose taxes on a
large scale and in much wider fields. The legislative competence of the
Parliament or of the State Legislatures can only be circumscribed by
express prohibition contained in the Constitution itself. The plenary
powers of legislation vested in the Union and State Legislatures by the
Constitution are not subject to any limitations other than those imposed by
the Constitution itself.

43. In Maharaj Umeg Singh and Ors. v. The State of Bombay and Ors. AIR
1955 SC 540, this Court held that since the power of the State to legislate
within its legislative competence is plenary and the same cannot be
curtailed in the absence of an express limitation placed on such power in
the Constitution itself, there is no express prohibition on the legislative
powers of the State to levy taxes on the goods entering into a local area
for consumption, use or sale thereon. Taxes being the lifeblood of the
State, they cannot be decimated by implication.

44. The power to tax is a sovereign power and is legislative in
character. In a federal system, the legislative power is exercised by
distribution of powers between the Union and the States; both are supreme
in their respective spheres. State’s power despite the limited width of its
field is plenary in nature. Except where the constitutional intent is
express and clear, the State’s plenary power ought not to be whittled down
by interpretation. In the present reference, we are concerned with entry
52, List II “Taxes on the entry of goods into a local area for consumption,
use or sale therein”. Entry tax is a tax levied on ‘Entry of goods into a
local area’ for the purpose of consumption, use or sale therein. States
within their spheres are autonomous entities and have the competence to
enact legislation in the fields enumerated in List II of Seventh Schedule.
45. In the State List, there are eighteen entries on which the State
Legislature has the power to levy taxes. States and only States have power
to enact legislation in the above fields levying taxes and raise revenue.
The above entries in List II relating to the imposition of taxes by the
States, despite the limited width of its field are plenary in nature.
States must have revenue to carry out their administration and the States
are entitled to raise revenue by exercising its power to tax. Such an
important power of taxation expressly granted under the Constitution cannot
be allowed to be whittled down and made subservient to trade, commerce and
intercourse.

46. Tax has always been treated as a distinct entity and is kept on a
pedestal separate from all the other legislative fields of the Seventh
Schedule. It is worth repeating that the power of taxation is an inherent
attribute of sovereignty emanating from necessity. As noted earlier, the
exaction is not merely fundamental for existence of the State but also to
support the welfare activities, therefore, it forms a pre-condition for
exercise of other legislative power. The special status conferred on taxing
statutes is evident from the following special provisions: Article 265
provides that no tax shall be levied or collected except by the authority
of law; therefore there can be no levy or collection by exercise of
executive power. Tax legislations are given the status of Money Bills under
Articles 110 and 199 of the Constitution and, therefore, have a different
laying procedure. They can originate only in the lower houses of the
Parliament and the State Legislature as per Articles 109 and 198. Being a
Money Bill, all the revenue is sent to the Consolidated Fund and can only
be taken out through Appropriation Bills (Articles 114 and 204).

Freedom in Art. 301 does not mean freedom from taxation:-
47. Historically, Art. 301 was meant to do away with barriers between
‘Native States’ and the rest of India. Thus, Art. 301 should be interpreted
in the light of the object i.e. “economic integration of the nation”, as
opposed to being aimed at any or every action which can possibly have an
impact on trade, commerce and intercourse. “Free” in Art. 301 does not mean
freedom from taxation; taxation simpliciter is not within the purview of
Art. 301. In a sense, every tax imposed by a State Legislature may have an
indirect effect on the flow of trade, commerce and intercourse. If the
power of the State Legislature to enact any tax laws is held to be subject
to the limitation under Art. 301, the legislative power of the State to
levy taxes under various entries in List II would be rendered ineffective.

48. In various provisions in Part XII of the Constitution certain
restrictions have specifically been incorporated on State’s power to levy
tax. Restrictions as to imposition of tax on the sale or purchase of goods
[Art. 286]; Taxes on professions, trades, callings and employments, in
terms of which power of the State Legislature is limited to levy tax on
professions where the total amount payable is not exceeding rupees two
thousand and five hundred per annum [Art. 276(2)]; the limitation on
State’s taxing power imposed by the Constitution itself or power is given
to Parliament to provide the limitations by a law [Art.286 (2) and (3)];
Exemption from taxation by States in respect of water or electricity in
certain cases and the power of the State Legislature to levy such tax after
obtaining assent of the President [Articles 288, 288 (1) and (2)];
Identically, there are at least five entries in List II [entries 50, 51,
54, 55 and 57] which specifically provide that they are subject to the
limitations/principles prescribed by Parliament by law made under List I
and List III.

49. In the Constitution, wherever exemption from taxes were contemplated,
they were expressly provided for—Exemption of property of the Union from
State taxation [Art. 285]; Exemption from taxes on electricity [Art. 287];
Exemption from taxation by States in respect of water or electricity in
certain cases [Art. 288]; Exemption of property and income of a State from
Union taxation [Art. 289]. Exemption from tax power of Parliament/State
Legislature must thus be provided expressly and unambiguously. Art. 289(2)
shows that the trade or business carried on by, or on behalf of, the
Government of the State, can also be subjected to tax and the tax could be
“to such extent”, if any, as Parliament may by law provide. When even the
trade or business carried on by or on behalf of the Government of the State
can also be subjected to tax, it would be erroneous to hold trade, commerce
and intercourse carried on by private individuals and companies in the
country free from tax; and that too, by implication.

50. It is well-settled that even Fundamental Rights in Part III of the
Constitution are not immune from taxation and taxation has been held to be
“not a restriction”. In Indian Express Newspapers (Bombay) Pvt. Ltd. and
Ors. etc. v. Union of India and Ors. etc. (1985) 1 SCC 641, levy of
indirect tax on newspaper industry, through levies on imported newsprints
was challenged as violative of Art. 19(1)(a). Holding that press is not
immune from taxes it was held:-
“49. ….Yet the American courts have recognized the power of the State to
levy taxes on newspaper establishments, of course, subject to judicial
review by courts by the application of the due process of law
principle….Taxation is the legal capacity of sovereignty or one of its
governmental agents to exact or impose a charge upon persons or their
property for the support of the government and for the payment for any
other public purposes which it may constitutionally carry out.

65. Newspaper industry enjoys two of the fundamental rights, namely the
freedom of speech and expression guaranteed under Article 19(1) (a) and the
freedom to engage in any profession, occupation, trade, industry or
business guaranteed under Art. 19(1) (g) of the Constitution, the first
because it is concerned with the field of expression and communication and
the second because communication has become an occupation or profession and
because there is an invasion of trade, business and industry into that
field where freedom of expression is being exercised. While there can be no
tax on the right to exercise freedom of expression, tax is leviable on
profession, occupation, trade, business and industry. Hence tax is
leviable on newspaper industry. But when such tax transgresses into the
field of freedom of expression and stifles that freedom, it becomes
unconstitutional. As long as it is within reasonable limits and does not
impede freedom of expression it will not be contravening the limitation of
Art.19(2). The delicate task of determining when it crosses from the area
of profession, occupation, trade, business or industry into the area of
freedom of expression and interferes with that freedom is entrusted to the
courts.
….
69. In the case of ordinary taxing statutes, the laws may be questioned
only if they are either openly confiscatory or a colourable device to
confiscate. On the other hand, in the case of a tax on newsprint, it may be
sufficient to show a distinct and noticeable burdensomeness, clearly and
directly attributable to the tax.” [Emphasis added]

51. In All Bihar Schools Association and Anr. v. State of Bihar and Ors.
(1988) 1 SCC 206, it was held that religious minority institutions are not
immune from general laws including tax measures and social welfare
legislations. Similarly, in Printers (Mysore) Ltd. and Anr. v. Asstt.
Commercial Tax Officer and Ors. (1994) 2 SCC 434, after referring to
Express Newspapers case, it was held that press is not immune from taxation
or general law. Thus when even Fundamental Rights are not free from
taxation, trade, commerce and intercourse cannot claim immunity from
taxation.

52. Art. 304(a) allows levy of tax on goods imported from other States,
any tax, to which similar goods manufactured or produced in that State are
subject so as not to discriminate between goods so imported and goods so
manufactured or produced within the State. Art. 304(a) states non-
discriminatory tax does not impede the flow of trade, commerce and
intercourse. Art. 304(a) applies where the following conditions are
cumulatively satisfied:-
(a) the State Legislature by law imposes a tax;
(b) tax is imposed on goods imported into that State from other States or
Union Territories;
(c) a tax is also imposed on similar goods manufactured or produced in
that State; and
(d) there is no discrimination between goods imported and goods
manufactured or produced in that State.

When these four conditions are fulfilled, Art. 304(a) provides a
constitutional route to levy non-discriminatory tax. Under Art. 304(b), the
ban under Art.301 stands lifted even if discriminatory restrictions are
imposed by the State Legislatures, provided they fulfill the following
conditions–(a) such restrictions are in public interest; (b) they are
reasonable; and (c) they are subject to obtaining of prior sanction of the
President before introduction of the Bill or amendment.

53. While the States have legislative power to levy taxes on goods
imported from other States, Art. 304(a) imposes restrictions on this power
of the States to levy a tax on goods that would result in discrimination
between goods imported from other States and similar goods manufactured or
produced within the States. The non-obstante clause in Art. 304 with
respect to Art. 301, actually indicates that since tax does not fall within
the purview of Art. 301, therefore, Art. 304(a) was brought in to provide
against discrimination based on source or destination of goods. Art. 304(a)
is thus a restriction on the tax powers of the States, not to discriminate
between the goods imported into the State with similar goods manufactured
or produced within the taxing State.

54. Constituent Assembly Debates indicate that the framers of the
Constitution while intending to guarantee free flow of trade, commerce and
intercourse did not deify it. As discussed earlier, at the time of drafting
Constitution, provision containing freedom of trade, commerce and
intercourse which was initially shown as Fundamental Rights; but after
debates, it was shifted to a separate Part [Part XIII]. The framers of the
Constitution did not intend that trade, commerce and intercourse is free
from taxation. Art. 304 provides for the power of the States to impose
taxes, subject of course, the levy is not discriminatory. Hence, Art. 301
ought not to be read as freedom from tax laws.

55. In this regard, we may usefully refer to Constituent Assembly
Debates/Framing of India’s Constitution:
Shri Alladi Krishnaswami Ayyar

“And then, “Provided that nothing in this section shall prevent any unit
from imposing on goods imported from other units the same duties and taxes
to which goods produced in the unit are subject”. That is to say we ought
not to differentiate; but at the same time, goods coming in should not go
scot free: they should be subject to the same duty as goods produced in the
area” (The framing of India’s Constitution, Select Documents by Universal
Law, Law Publishing Pvt. Co. Pvt. Ltd. Vol.2 Page.253)

Gobind Ballabh Pant

“There is unanimity about the body of this clause and it is clear that
there should not be any discrimination against one unit by another unit.
Otherwise we will be going against the very sense of a Union of Federal
Constitution. If the units are to be discriminated against we will come to
blows more often than otherwise. Therefore this should be avoided.”(The
framing of India’s Constitution, Select Documents by Universal Law, Law
Publishing Pvt. Co. Pvt. Ltd. Vol.2 Page.254)

Shri Krishnaswami Ayyar

“So far as article 16 is concerned, the substance of the freedom of trade
guarantee is preserved. We have prohibited the States and the Centre from
passing discriminatory laws” [Constituent Assembly Debates dated 30.07.1949
to 18.09.1949 (Page 1144)]

56. A tax legislation could be challenged on the ground of legislative
competence as well as violation of Fundamental Rights guaranteed under Part
III of the Constitution. In Rai Ramkrishna and Ors. v. The State of Bihar
(1964) 1 SCR 897, this Court while holding that tax Statutes were not
beyond the constitutional limitation prescribed by Articles 14 and 19 held
that the challenge must however be dealt with caution and circumspection:
“13. …..that taxing statutes are not beyond the pale of the constitutional
limitations prescribed by Articles 19 and 14, and he also concedes that the
test of reasonableness prescribed by Art. 304(b) is justiciable. It is, of
course, true that the power of taxing the people and their property is an
essential attribute of the Government and Government may legitimately
exercise the said power by reference to the objects to which it is
applicable to the utmost extent to which Government thinks it expedient to
do so. The objects to be taxed so long as they happen to be within the
legislative competence of the legislature can be taxed by the legislature
according to the exigencies of its needs, because there can be no doubt
that the State is entitled to raise revenue by taxation. The quantum of tax
levied by the taxing statute, the conditions subject to which it is levied,
the manner in which it is sought to be recovered, are all matters within
the competence of the legislature, and in dealing with the contention
raised by a citizen that the taxing statute contravenes Art. 19, courts
would naturally be circumspect and cautious. Where for instance, it appears
that the taxing statute is plainly discriminatory, or provides no
procedural machinery for assessment and levy of the tax, or that it is
confiscatory, Courts would be justified in striking down the impugned
statute as unconstitutional. In such cases, the character of the material
provisions of the impugned statute is such that the Court would feel
justified in taking the view that, in substance, the taxing statute is a
cloak adopted by the legislature for achieving its confiscatory purposes.
This is illustrated by the decision of this Court in the case of Kunnathet
Thathunni Moopil Nair v. State of Kerala [1961] 3 SCR 77, where a taxing
statute was struck down because it suffered from several fatal infirmities.
On the other hand, we may refer to the case of Raja Jagannath Baksh Singh
v. State of Uttar Pradesh [1962] 46 ITR 169 (SC) , where a challenge to the
taxing statute on the ground that its provisions were unreasonable was
rejected and it was observed that unless the infirmities in the impugned
statute were of such a serious nature as to justify its description as a
colourable exercise of legislative power; the Court would uphold a taxing
statute.” [Emphasis supplied]

57. In Hari Krishna Bhargav v. Union of India and Anr. AIR 1966 SC 619,
the Bench noting the effect the series of decisions has had on Ramjilal,
concluded that although the power to tax is not a power that transcends
fundamental rights, a taxing Statute cannot merely be challenged on the
ground that it is harsh and excessive. It was observed as under:-
“10. It was urged that even if the exercise of the powers to compel
deposits be regarded as not unconstitutional, its exercise is harsh and the
demands made by the State are excessive. Exercise of the taxing power by
the State has undoubtedly to be tested in the light of the fundamental
freedoms guaranteed by Ch. III of the Constitution. It is not a power which
transcends the fundamental rights, as was assumed in certain earlier
decisions : Ramjilal v. Income-tax Officer (1951) 19 ITR 174 (SC) ;
Laxmanappa Hanumantappa v. Union of India (UOI) (1954) 26 ITR 754 (SC) ;
and the view expressed by Venkatarama Ayyar J., in S. Anantha Krishnan v.
State of Madras I.L.R. [1952] Mad. 933. But it is now settled by decisions
of this Court (e.g.) Kunnathat Thathunni Moopil Nair v. The State of Kerala
and Another (1961) 3 SCR 77 that a taxing statute is subject to the
“conditions laid down in Art. 13 of the Constitution”. A taxing statute may
accordingly by open to challenge on the ground that it is expropriatory; or
that the statute prescribes no procedure or machinery for assessing tax,
but it is not open to challenge merely on the ground that the tax is harsh
or excessive.” [Emphasis supplied]

Consistent view taken in the above series of decisions and other decisions
is that tax legislations can be challenged on the ground that they infringe
the Fundamental Rights under Part III but that does not however mean that
there is freedom from taxation or that tax is per se a restriction on
Fundamental Rights or freedom of trade, commerce and intercourse.

Tax is not a restriction per se:
58. The above Constituent Assembly Debates and the history of Art. 301
show that freedom envisaged in Art. 301 is not freedom from taxation but
only freedom from trade barriers. So long as the tax remains non-
discriminatory, its validity cannot be judged under Art. 301. Under Art.
246(3) of the Constitution, a State has exclusive power to make laws for
such State or any part thereof with respect to any of the matters
enumerated in List II of the Seventh Schedule. Art. 246(3) is subject to
clauses (1) and (2) of Art. 246 i.e. matters enumerated in Lists I and III
of the Seventh Schedule. As per Art. 265, a tax can be imposed only under
authority of law and there is no role of the Executive. Taxation includes
the imposition of any tax as defined under Art. 366(28): “taxation”
includes the imposition of any tax or impost, whether general or local or
special, and “tax” shall be construed accordingly. It is a sovereign power
of compulsory exaction as a part of any burden by public authority for
public purposes enforceable by law. Imposing a tax is a compulsory
exaction made for a public purpose without reference to any special benefit
to the taxpayers.

59. The taxing power of the State stands independently fortified by Parts
XI and XII of the Constitution of India and can only be challenged on the
ground of reasonableness. It needs no reiteration that power of States to
levy taxes for the purpose of governance and carrying out its welfare
activities is a necessary attribute of State’s sovereignty and in that
sense it is a power of supreme attribute. It is well-settled that taxes
are levied in public interest and hence, cannot be considered a restriction
per se on the enjoyment of any freedom contemplated by the Constitution. It
would be highly unjustified to view a taxing Statute as a restriction on
individual freedoms.

60. The essential characteristics of a tax are that: (i) it is imposed
under a statutory power without the taxpayer’s consent and the payment is
enforced by law; (ii) it is an imposition made for public purpose without
reference to any special benefit to be conferred on the payer of the tax;
and (iii) it is part of the common burden. In Commissioner Hindu Religious
Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt
1954 SCR 1005, the Constitution Bench has laid down the characteristics of
a tax which has since been consistently followed and it is as under :-
“….A tax is a compulsory exaction of money by a public authority for public
purposes enforceable by law and is not payment “for services rendered”.
This definition brings out, in all opinion, the essential characteristics
of a tax as distinguished from other forms of imposition which, in a
general sense, are included within it. It is said that the essence of
taxation is compulsion, that is to say, it is imposed under statutory power
without the taxpayer’s consent and the payment is enforced by law. The
second characteristic of tax is that it is an imposition made for public
purpose without reference to any special benefit to be conferred on the
payer of the tax. This is expressed by saying that the levy of tax is for
the purposes of general revenue, which when collected revenues of the
State. As the object of a tax is not to confer any special benefit upon any
particular individual there is as it is said, no element of “quid pro quo”
between the taxpayer and the public authority. Another feature of taxation
is that as it is a part of the common burden, the quantum of imposition
upon the taxpayer depends generally upon his capacity to pay.”

The above decision was followed in Indian Medical Association v. V.P.
Santha and Ors. (1995) 6 SCC 651 and also in State of Gujarat and Ors. v.
Akhil Gujarat Pravasi V.S. Mahamandal and Ors. (2004) 5 SCC 155.

61. A five Judges Bench of this Court in Federation of Hotel and
Restaurant Association of India, Etc. v. Union of India and Ors. (1989) 3
SCC 634 has held that mere excessiveness of a tax or even the circumstance
that its imposition might tend towards diminution of the earnings or
profits of the persons of incidence does not per se and without more,
constitute violation of Art. 19(1)(g). The relevant extract from the
judgment is as under:
“62. A taxing statute is not, per se, a restriction of the freedom under
Article 19(1)(g). The policy of a tax, in its effectuation, might, of
course, bring in some hardship in some individual cases. But that is
inevitable, so long as law represents a process of abstraction from the
generality of cases and reflects the highest common factor. Every cause, it
is said, has its martyrs. Then again, the mere excessiveness of a tax or
even the circumstance that its imposition might tend towards the diminution
of the earnings or profits of the persons of incidence does not, per se,
and without more, constitute violation of the rights under Article
19(1)(g).”

62. Similar view was expressed in Express Hotels Private Limited v. State
of Gujarat and Anr. (1989) 3 SCC 677. A taxing Statute is not per se
restriction of the freedom under Art. 19(1)(g):
“28. So far as the argument that Fundamental Rights under Article 19(1)(g)
are violated by a levy on a mere provision for luxury, without its actual
utilisation, is concerned it is settled law that the mere excessiveness of
a tax or that it affects the earnings cannot, per se, be held to violate
Article 19(1)(g)….”

63. Art. 304(a) authorizes a State Legislature to impose a non-
discriminatory tax on goods imported from other States. Art. 304(a) does
not prevent levy of tax on goods; what it prohibits is such levy of tax on
goods as would result in discrimination between goods imported from other
States and similar goods manufactured or produced within the State. The
object is to prevent imported goods from being discriminated by imposition
of a higher tax thereon than the local goods. Under Art. 304(b), States can
impose reasonable restrictions on the freedom of trade, commerce and
intercourse with or within that State as may be required in public
interest; provided they obtain prior sanction of the President before
introduction of the Bill. As taxes are levied for the purpose of raising
revenue, they are not restrictions and are presumed to be in public
interest. Thus, tax simpliciter is not a restriction on the freedom of
trade and commerce and is outside the purview of Art. 301.

Majority view in Atiabari and Automobile: Need of re-appreciation:-
64. In Atiabari Tea Co. Ltd. v. The State of Assam and Ors., 1961 SCR
809, Assam Legislature enacted the Assam Taxation (On Goods Carried by
Roads or Inland Waterways) Act, 1954 acting on entry 56 of the State List
and imposed tax at a rate of one anna per pound of tea in chest box,
carried through the State of Assam by any means other than the railways and
the air. The appellant who carried their tea to Calcutta in the State of
West Bengal through the State of Assam assailed the validity of the Act
inter alia on the ground that it violated Art. 301 of the Constitution.
Contention of the appellant was that words of Art. 301 are very wide and
unambiguous and that it would be unreasonable to exclude from its ambit a
taxing law which restricted trade, commerce or intercourse either directly
or indirectly. The respondent-State of Assam urged that the provisions of
sovereign power of the State to levy tax under Parts XI and XII of the
Constitution stood by themselves and that the tax would not fall foul of
Part XIII.

65. After discussing various provisions of Part XIII and after
tracing the constitutional background, speaking for the majority, Justice
Gajendragadkar held as under:-
“……..Thus considered we think it would be reasonable and proper to hold
that restrictions freedom from which is guaranteed by Art. 301 would be
such restrictions as directly and immediately restrict or impede the free
flow or movement of trade. Taxes may and do amount to restrictions; but it
is only such taxes as directly and immediately restrict trade that would
fall within the purview of Art.301. The argument that all taxes should be
governed by Article 301 whether or not their impact on trade is immediate
or mediate, direct or remote, adopts, in our opinion, an extreme approach
which cannot be upheld. If the said argument is accepted it would mean,
for instance, that even a legislative enactment prescribing the minimum
wages to industrial employees may fall under Part XIII because in an
economic sense an additional wage bill may indirectly affect trade or
commerce. We are, therefore, satisfied that in determining the limits of
the width and amplitude of the freedom guaranteed by Art. 301 a rational
and workable test to apply would be: Does the impugned restriction operate
directly or immediately on trade or its movement?” [Page 860] [Emphasis
Supplied]

The majority based its opinion on the reasoning that any legislation
whether taxing or otherwise which imposed any restrictions that had the
effect of directly offending the movement or transport of goods would
attract the provisions of Art. 301 and its validity could be sustained only
if it satisfied Art. 302 or Art. 304(b) of the Constitution.

66. Sinha, C.J. in his dissenting judgment referred to the integration of
“Native States” with the Government of India and how the “Native States”
ultimately merged their individualities into India to emerge as one
political unit with the result that what was called British India became
under the Constitution ‘Part-A States’, and the “Native States” became
‘Part-B States’. Sinha, C.J. pointed out that most of the “Native States”,
big or small had their own taxes, cesses, tolls and other imposts and
duties meant not only for raising revenue but also as trade barriers and
tariff walls. In the background of those circumstances, it was necessary to
abolish all those trade barriers and custom posts as also in the interest
of national solidarity, economic and cultural unity and freedom of trade
and commerce guaranteed in the Constitution by Art. 301. Observing that the
power to tax is inherent in sovereignty, public purpose is inherent in
every taxation and tax simpliciter is not an impediment to the freedom of
trade, commerce and intercourse, Sinha C.J. held as under:-
“…. If that were so, all laws of taxation relating to sale and purchase of
goods on carriage of goods and commodities, men and animals, from one place
to another, both inter-State and intra-State would come within the purview
of Art.301 and the proviso to Art. 304(b) would make it necessary that all
Bills or Amendments of pre-existing laws shall have to go through the gamut
prescribed by that proviso. That will be putting too great an impediment
to the power of taxation vested in the States and reduce the States’
limited sovereignty under the Constitution to a mere fiction. That extreme
position has, therefore, to be rejected as unsound.” [Page 827]
……
In my opinion, another very cogent reason for holding that taxation
simpliciter is not within the terms of Art. 301 of the constitution is that
the very connotation of taxation is the power of the State to raise money
for public purposes by compelling the payment by persons, both natural and
juristic, of monies earned or possessed by them, by virtue of the
facilities and protection afforded by the State. Such burdens or imposts,
either direct or indirect, are in the ultimate analysis meant as a
contribution by the citizens or persons residing in the State or dealing
with the citizens of the State, for the support of the Government, with
particular reference to their respective abilities to make such
contributions. Thus public purpose is implicit in every taxation, as such.
Therefore, when Part XIII of the Constitution speaks of imposition of
reasonable restrictions in public interest, it could not have intended to
include taxation within the generic term “reasonable restrictions”………[Page
828]
……
….The objections against the contention that taxation was included within
the prohibition contained in Part XIII may thus be summarized: (1)
Taxation, as such, always implies that it is in public interest. Hence, it
would be outside particular restrictions, which may be characterized by the
Courts as reasonable and in public interest. (2) The power is vested in a
sovereign State to carry on Government. Our Constitution has laid the
foundations of a welfare State, which means very much expanding the scope
of the activities of Government and administration, thus making it
necessary for the State to impose taxes on a much larger scale and in much
wider fields. The legislative entries in the three lists referred to above
empowering the Union Government and the State Governments to impose certain
taxations with reference to movements of goods and passengers would be
rendered ineffective, if not otiose, if it were held that taxation
simpliciter is within the terms of Art. 301. (3) If the argument on behalf
of the appellants were accepted, many taxes, for example, sales tax by the
Union and by the States, would have to go through the gamut prescribed in
Articles 303 and 304, thus very much detracting from the limited
sovereignty of the States, as envisaged by the Constitution. (4) Laws
relating to taxation, which is essentially a legislative function of the
State, will become justiciable and every time a taxation law is challenged
as unconstitutional, the State will have to satisfy the courts – a course
which will seriously affect the division of powers on which modern
constitutions, including ours, are based. (5) Taxation on movement of
goods and passengers is not necessarily an impediment.”[Page 829]
……
Article 301, with which Part XIII commences, contains the crucial words
“shall be free” and provides the key to the solution of the problems posed
by the whole Part. The freedom declared by this Article is not an absolute
freedom from all legislation. As already indicated, the several entries in
the three Lists would suggest that both Parliament and State Legislatures
have been given the power to legislate in respect of trade, commerce and
intercourse, but it is equally clear that legislation should not have the
effect of putting impediments in the way of free flow of trade and
commerce. In my opinion, it is equally clear that the freedom envisaged by
the Article is not an absolute freedom from the incidence of taxation in
respect of trade, commerce and intercourse, as shown by Entries 89 and 92 A
in List I, Entries 52, 54 and 56 to 60 in List II and Entry 35 in List III.
All these entries in terms speak of taxation in relation to different
aspects of trade, commerce and intercourse. The Union and State
Legislature, therefore, have the power to legislate by way of taxation in
respect of trade, commerce and intercourse, so as not to erect trade
barriers, tariff walls or imposts, which have a deleterious effect on the
free flow of trade, commerce and intercourse. That freedom has further been
circumscribed by the power vested in Parliament or in the Legislature of a
State to impose restrictions in the public interest. Parliament has further
been authorised to legislate in the way of giving preference or making
discrimination in certain strictly limited circumstances indicated in cl.
(2) of Art. 303. Thus, on a fair construction of the provisions of Part
XIII, the following propositions emerge: (1) trade, commerce and
intercourse throughout the territory of India are not absolutely free, but
are subject to certain powers of legislation by Parliament or the
Legislature of a State; (2) the freedom declared by Art.301 does not mean
freedom from taxation simpliciter, but does mean freedom from taxation
which has the effect of directly impeding the free flow of trade, commerce
and intercourse; (3) the freedom envisaged in Art. 301 is subject to non-
discriminatory restrictions imposed by Parliament in public interest
(Art.302); (4) even discriminatory or preferential legislation may be made
by Parliament for the purpose of dealing with an emergency like a scarcity
of goods in any part of India [Art. 303(2)]; (5) reasonable restrictions
may be imposed by the Legislature of a State in the public interest [Art.
304(b)]; (6) non-discriminatory taxes may be imposed by the Legislature of
a State on goods imported from another State or other States, if similar
taxes are imposed on goods produced or manufactured in that State [Art.
304(a)]; and lastly (7) restrictions imposed by existing laws have been
continued, except insofar as the President may by order otherwise direct
(Art. 305). [Page 831-832] [Emphasis added]

67. A larger Bench of seven Judges was constituted in Automobile
Transport (Rajasthan) Ltd. v. The State of Rajasthan and Ors. (1963) 1 SCR
491, in which the validity of Rajasthan Motor Vehicles Taxation Act, 1951
and the Rules made thereunder was under challenge. Section 4 of the
Rajasthan Act required every owner of motor vehicle “used in any public
place or kept for use in Rajasthan” to pay tax at the appropriate rate
specified in the Schedule to the Act. The appellants therein who were
stage carriage operators challenged the validity of the Rajasthan Act on
the ground that such levy contravened Art. 301 of the Constitution and was
not saved by Art. 304(b) thereof. The validity of the Rajasthan Act was
upheld by a majority of 4:3. Justice S.K. Das who spoke for the majority,
agreed with the majority view of Atiabari that only those restrictions
which directly and immediately restrict or impede the free flow of trade,
commerce and intercourse would be in violation of Art. 301. But the
majority in Automobile added a clarification that a regulatory measure or
measures imposing compensatory taxes for the use of trading facilities
would not come within the purview of restrictions contemplated by Art. 301
and such measures need not comply with the requirements of Art. 304(b).

68. While concurring with the majority view that the provisions of the
Rajasthan Motor Vehicles Taxation Act 1951, are regulatory in character,
delivering a separate judgment. Justice Subba Rao widely referred to
Section 92 of the Australian Constitution to hold that the Court will have
to ascertain whether the impugned law in a given case affects the movement
directly or indirectly. It was held that “only if a tax directly and
immediately affects the movement of trade, it would be violating the
freedom; on the other hand if the impact is indirect and remote it would be
unobjectionable.

69. On behalf of the assessees, it has been argued before us that the
majority judgments in Atiabari and Automobile held that State tax
legislation must conform to Art. 304(b) in addition to Art. 304(a). The
thrust of the submissions made is that entry tax falls within the
expression ‘restriction’ under Art. 304(b). They submit that the State
legislation levying tax on the goods imported into the State may have to be
justified under Art. 304(b), if they are challenged as excessive in amount,
to such an extent that they operate as a restriction on the movement of
goods or persons and impose a burden on the freedom of trade and commerce.

70. Mr. P.P. Rao, Mr. Rakesh Dwivedi, Mr. V. Giri, Mr. Shyam Divan and
Mr. Ajit Kumar Sinha learned Senior Counsel and other counsel appearing for
the States advanced meticulous arguments that there is erroneous approach
in the judgments of Atiabari and Automobile and they made the following
submissions to fortify their contentions that the majority views in
Atiabari and Automobile are to be re-visited:-
(i) Even though the majority referred to Section 297 of the Government of
India Act, 1935 and referred to the economic unity of the nation, no
detailed discussion was done on the history of Part XIII and Constituent
Assembly Debates which threw considerable light on Part XIII and
consequently erred in holding that Art. 301 read in its proper context
imposes constitutional limitations on the legislative powers of the
Parliament and the State. [Page 848] Majority in Atiabari held that :-
“….the freedom of the movement of trade cannot be subject to any
restrictions in the form of taxes imposed on the carriage of goods or their
movement, all that is meant is that the said restrictions can be imposed by
the State Legislatures only after satisfying the requirement of Art.
304(b)….” [Page 861].

If the said view of Atiabari is to be adopted then for each and every
legislation, the State Legislatures will have to undergo the process of
Art. 304(b). Tax is one important mode of raising revenue to enable the
States to discharge its obligations as a Welfare State. Such plenary powers
of the State legislature to impose taxes cannot be whittled down or made
subservient to Art. 301.
The majority read Art. 301 as subject only to the provisions of Part XIII.
[Page 848]
Majority drew support from the Constitutions of Australia and USA however
one does not find any provision comparable to Part XIII in Australian and
American Constitution. Even Australia and USA now reject the “direct and
immediate test” and have adopted “discrimination theory”.
71. Learned Attorney General for India, Mr. Mukul Rohatgi has
additionally submitted that bringing taxes within the purview of Art.
304(b) is completely foreign to the constitutional scheme of federalism as
it would empower the President to, by virtue of proviso to Art. 304(b),
super-adjudicate over the sovereign power of the State and that the
sovereign power of the State cannot be subjected to an implied limitation
as it would destroy sovereignty, federalism and economic unity of the
country.

72. Art. 301 guarantees freedom of trade and commerce from “restrictions”
and not freedom from all “laws”. With due respect, in Atiabari, by
application of “direct and immediate test”, rather than examining the
powers of the State Legislature to enact legislation with reference to the
entries in List II, the majority has gone into the effects of the
legislation. As per majority view of Atiabari, Art. 301 is a limitation
upon the exercise of legislative powers of the State, which, in my view
negates or limits the legislative power of the States expressly granted
under various entries in List II of the Seventh Schedule. As rightly
contended by the counsel for the States, in Atiabari and Automobile, there
was no detailed reference to Constituent Assembly Debates which throw
considerable light on the scope of Part XIII.

73. The view taken in Atiabari and Automobile that taxes may and do
amount to restriction, is flawed. Taxing power of the State stands
independently fortified by Part XII of the Constitution and can be
challenged only on the ground of reasonableness. Through a series of
judicial pronouncements, it is accepted that even a challenge to the taxing
Statute under Articles 19(1)(g), 14 and under Part III of the Constitution
has to be dealt with caution and only after great circumspection should the
Statute be struck down.
Freedom in Art. 301 is not freedom from taxation—non-discriminatory taxes
are outside the purview of Art. 301:

74. In Atiabari, Sinha, C.J. took a different view of Art. 301 than the
one taken by the majority and concluded as under:-
“…..(2) the freedom declared by Art. 301 does not mean freedom from
taxation simpliciter, but does mean freedom from taxation which has the
effect of directly impeding the free flow of trade, commerce and
intercourse;……” [Page 831]

“In my opinion, another very cogent reason for holding that taxation
simpliciter is not within the terms of Article 301 of the Constitution is
that the very connotation of taxation is the power of the State to raise
money for public purposes by compelling the payment by persons, both
natural and juristic, of monies earned or possessed by them, by virtue of
the facilities and protection afforded by the State. Such burdens or
imposts, either direct or indirect, are in the ultimate analysis meant as a
contribution by the citizens or persons residing in the State or dealing
with the citizens of the State, for the support of the Government, with
particular reference to their respective abilities to make such
contributions. Thus public purpose is implicit in every taxation, as such.
Therefore, when Part XIII of the Constitution speaks of imposition of
reasonable restrictions in public interest, it could not have intended to
include taxation within the generic term “reasonable restrictions….” [Page
828]

According to Sinha C.J., every tax including a tax on ‘movement of goods or
passengers’ was not necessarily an impediment or restraint in the matter of
trade, commerce and intercourse. As per Sinha C.J., taxation by its very
nature could not be included within the term “reasonable restriction” used
in Part XIII. The view of Sinha C.J. is a correct view and is in
consonance with the consistent view taken by this Court that taxing
statutes are not per se a ‘restriction’.
Atiabari and Automobile: Reference to Australian and American cases:

75. The Commonwealth of Australia Constitution Act came into being in
1900. Chapter I, Part V lays down the powers of the Parliament wherein, by
virtue of Section 51(i), Parliament is empowered to legislate with respect
to ‘trade and commerce with other countries, and among the States’. Chapter
IV, Sections 81-105A deal with ‘Finance and Trade’. The most relevant
provision in this Chapter, for our purpose is Section 92 which has been
consistently mooted upon and has evolved through several judicial
pronouncements. Section 92 declares trade, commerce and intercourse to be
absolutely free, subject only to imposition of custom duties. Further,
Section 99 mandates that the Commonwealth shall not give preference to one
State or any part thereof over another State or any part thereof while
making any law or regulation with respect to trade, commerce or revenue.
Under Section 102, the Parliament is authorised to make a law forbidding
the States from making any preference or discrimination insofar as Railways
are concerned, but with due regard to financial responsibilities incurred
by States in connection with construction and maintenance of Railways.

76. The Constitution framers while ascertaining the scope of freedom of
inter-State trade and commerce in India deliberated upon Section 92 of the
Australian Constitution. Pandit Thakur Das Bhargav was in favour of making
trade and commerce absolutely free in India. However, Shri T.T.
Krishnamachari speaking for the Draft Committee brought out the
difficulties which could have been faced by guaranteeing absolute freedom
of trade and commerce in India on par with Section 92 of the Australian
Constitution.

77. The following observations of Shri T.T. Krishnamachari are relevant
to be noted:
“….I do not know if he realises that an ombnibus right such as the one that
we recognise should not be given so far as freedom of trade and commerce is
concerned, which perhaps has an echo in article 92 of the Australian
Constitution, which has made the economic position of Australia a very
difficult one today. They in Australia find that by reason of the fact that
their provisions for amendment of the Constitution are so difficult that
they are not able to amend the Constitution, and article 92 stands as a bar
to any progressive legislation which they have undertaken. It may be right
or it may be wrong – the people of Australia are behind the Government but
when they wanted to nationalise banking, article 92 of the Australian
Constitution has been held as a bar to the Government’s power to
nationalise the banks. There is no point in shutting the hands of the
future Government in operating this Constitution.”
[Constitutional Assembly Debates, Volume IX, Page.1142, dated 30.07.1949-
18.09.1949]

78. Shri T.T. Krishnamachari highlighted how Section 92 stood in between
the nationalisation of private banks in Australia. This observation was
probably made taking note of the view taken by Australian High Court, which
was later affirmed by Privy Council in Commonwealth of Australia v. Bank of
New South Wales (1949) 79 CLR 497:[1950] AC 235, (famously known as Bank
Nationalisation Case). In 1947, the Australian Government decided to
nationalise private banks in Australia. In line of this process,
the Banking Act, 1947, was enacted. However, the policy faced several
controversies and was ultimately challenged before the courts. The Bank of
New South Wales challenged the constitutional validity of Banking Act,
1947. The High Court of Australia found certain provisions of the Act to be
invalid and thus, struck them down. The Commonwealth Government appealed
against the decision in the Privy Council, however, the Privy Council
affirmed the decision of the Australian High Court.
79. Our Constitution framers noticed the problems which had emerged in
relation to the trade and commerce provisions of the Australian
Constitution. After deliberations, the phrase “absolutely free” occurring
in Section 92 of the Australian Constitution was not borrowed and
incorporated in the Indian Constitution. While the framers of Indian
Constitution took great caution to avoid the state of ambiguity faced in
Australia with regard to freedom of trade and commerce, due to the judicial
development in Atiabari and Automobile, confusions were sown in Indian
scenario also.

80. Atiabari and Automobile adopted the ‘Direct and Immediate test’ which
had evolved in Australia through a series of pronouncements [James v. State
of South Australia (1927) 40 CLR 1; James v. Cowan (1932) A.C. 542; James
v. Commonwealth of Australia (1936) A.C. 578] and was dominantly relied
upon in the Bank Nationalisation Case. In the Bank Nationalisation Case, it
was held that Section 92 would be breached only where the law under
challenge restricted trade and commerce directly and immediately. The Court
observed that where the restriction is indirect or remote, the freedom
provided by Section 92 would not be impaired. The test on which every
impugned legislation ought to be examined was formulated in the following
terms: Does the law under challenge directly and immediately, as opposed to
incidentally, restrict the trade and commerce in which the individual was
engaged? Atiabari and Automobile fundamentally concurred with the
Australian cases to hold ‘tax’ as a restriction for the purposes of Part
XIII of the Constitution of India. Gajendragadkar, J. in Atiabari observed:

“It is commonplace to say that the political and historical background of
the federal polity adopted by the Australian Commonwealth, the setting of
the Constitution itself, the distribution of powers and the general scheme
of the Constitution are different, and so it would to be safe to seek for
guidance or assistance from the Australian decisions when we are called
upon to construe the provisions of our Constitution.”.

Gajendragadkar, J. further relied on the Bank Nationalisation Case to
borrow the concept of ‘direct and immediate impediment on the freedom of
trade and commerce’ from the Australian system. Relevant extract from
Gajendragadkar J.’s judgment is as under:

“In the case of Commonwealth of Australia v. Bank of New South Wales (1927)
40 C.L.R. 1 to which reference has already been made in connection with the
test of pith and substance the Privy Council was examining the validity of
s. 46 of Banking Act (Commonwealth) (No. 57 of 1947) in the light of the
provisions of s. 92 of the Australian Constitution. In deciding the said
question one of the tests which was applied by Lord Porter was : “Does the
act not remotely or incidentally (as to which they will say something
later) but directly restrict the inter-State business of Banking”, and he
concluded that

“two general propositions may be accepted, (1) that regulation of trade,
commerce and intercourse among the States is compatible with its absolute
freedom, and (2) that s. 92 is violated only when a legislative or
executive act operates to restrict such trade, commerce and intercourse
directly and immediately as distinct from creating some indirect or
consequential impediment which may fairly be regarded as remote”.”[Page 870
of SCR]

81. Again in Automobile, reliance was placed on Australian and American
cases, in particular on Commonwealth of Australia v. Bank of New South
Wales and James v. Commonwealth of Australia to finally hold that ‘tax’ is
a restriction for the purpose of Part XIII of the Constitution. Subba Rao
J. concurring with the majority view pointed out that Art. 301 was borrowed
from Section 92 of the Australian Constitution, and after referring to the
differences in the language of both the provisions and evolution of
federation in both the countries, Subba Rao J. chose to concur with
“doctrine of direct and immediate effect”. Following observations of Subba
Rao J. clearly show that heavy reliance was placed by him on American and
Australian decisions:-
“In this context, the principles evolved by American and Australian
decision in their attempt to reconcile the commerce power and the State
police power or the freedom of commerce and the Commonwealth power to make
laws affecting that freedom can usefully be invoked with suitable
modifications and adjustments. Of all the doctrines evolved, in my view,
the doctrine of “direct and immediate effect” on the freedom would be a
reasonable solvent to the difficult situation that might arise under our
Constitution. If a law, whatever may have been its source, directly and
immediately affects the free movement of trade, it would be restriction on
the said freedom. But a law which may have only indirect and remote
repercussion on the said freedom cannot be considered to be a restriction
on it.”

82. The above views taken in Atiabari and Automobile in the light of the
Australian cases represent a mechanical implantation of a foreign concept
into the Indian legal system, not keeping in view the distinct features of
Indian Polity and the Constituent Assembly Debates. Majority view in
Atiabari and Automobile do not appear to have taken note of the historical
background of merger of ‘Native States’ with their individualities, with
British India, and the federal nature of the Indian Constitution while
discussing the fundamental question as to whether ‘Freedom’ in Art. 301
meant freedom from tax. The majority appears to have begun with the
presumption of tax laws being subservient to Art. 301 and later concluded
that if all the tax laws are brought in Art. 301, State’s legislative power
to tax would be destroyed. Thereafter, in an attempt to save the taxing
power of the State, they borrowed the concepts of ‘direct and immediate
test’ and ‘compensatory tax’ from the Australian and American Cases.

83. In this regard, learned author H.M. Seervai in Constitutional Law of
India, 4th Edition, Volume 3 has observed as under:
“It is submitted that the principles of interpretation adopted by the
majority judgment in the Atiabari case and by all the judgments in the
Automobile case depart widely from well settled principles of construction.
They first try to ascertain the intention of the framers of the
Constitution, by reference to ‘history’ and then proceed to consider what
construction would best effectuate that intention. But if an intention is
to be first assumed, it is not difficult to read it into the words to be
interpreted. It is submitted that words have to be interpreted according to
their terms, or according to well known extrinsic aids to construction”
[Page 2598]

Mr. Seervai has also pointed out that the very observation that the
Australian scenario is akin to the Indian scenario was flawed. It is
obscure how the comparative study of the Australian and Indian
Constitutions undertaken by this Court in Atiabari and Automobile lead to a
conclusion that interpretation of Section 92 as done in Bank
Nationalisation Case can be suitably adopted in Indian set-up. Mr. Seervai
at Page 2599 observed as under:-
“…provisions of part XIII of our Constitution are radically different. The
judges who cite the Australian decisions repeat the warning that it is not
safe to interpret the provisions of the Constitution by reference to
decisions on other Constitutions, nevertheless those decisions are not only
referred to but are found to support the interpretation that a tax may
amount to a restriction under Article 301. But it is submitted that the
decision in James v. Commonwealth of Australia, that a tax may amount to a
‘restriction’ cannot support the conclusion that a tax is included in
Article 301…” [Page 2599]

84. Interestingly, the Australian cases relied upon in Atiabari and
Automobile failed to withstand the test of time. As of today, by virtue of
a seven Judges Bench, judgment of the High Court of Australia, the
decisions in James v. Common Wealth and Bank Nationalisation Case stand
overruled. In Cole v. Whitfield (1988) 78 ALR 42, the High Court of
Australia considered Section 92 and other ancillary provisions relating to
freedom of trade and commerce and found the test of “direct and immediate
effect” to be insignificant; the Court held as under:-

“48. Departing now from the doctrine which has failed to retain general
acceptance, we adopt the interpretation which, as we have shown, is
favoured by history and context. In doing so, we must say something about
the resolution of cases in which no impermissible purpose appears on the
face of the impugned law, but its effect is discriminatory in that it
discriminates against inter-State trade and commerce and thereby protects
intra-State trade and commerce of the same kind….”
85. In Cole v. Whitfield, the High Court while disapproving of the
“individual rights” approach authoritatively adopted in Bank
Nationalisation Case held that Section 92 guarantees freedom of inter-State
trade and commerce only against the discriminatory protectionist burdens.
This decision brought to an end the “quite unacceptable state of affairs”
then attending Section 92 of the Constitution, as the preceding eighty
years of judicial development concerning freedom of inter-State trade,
commerce and intercourse in Australia “had yielded neither clarity of
meaning nor certainty of operation”. Cole v. Whitfield laid down that for
a burden to be ‘protectionist’ it must ‘discriminate’ against inter-State
trade or commerce in a ‘protectionist sense’. The Court observed as under:
“A law which has as its real object the prescription of a standard for a
product or a service or a norm of commercial conduct will not ordinarily be
grounded in protectionism and will not be prohibited by s 92. But if a law,
which may be otherwise justified by reference to an object which is not
protectionist, discriminates against interstate trade or commerce in
pursuit of that object in a way or to an extent which warrants
characterization of the law as protectionist, a court will be justified in
concluding that it nonetheless offends s 92.” [Page 66]

86. This requirement was based on an appraisal of the history of Section
92, which showed that its purpose was the achievement of inter-colonial
free trade. As was observed in Betfair Pty Ltd v Western Australia (2008)
244 ALR 32:
“S. 92 was not designed to create “a laissez-faire economy in Australia”;
rather, it had a more limited operation, to prevent the use of State
boundaries as trade borders or barriers for the protection of intrastate
players in a market from competition from interstate players in that
market.” [Page 45] [Emphasis added]

While the reasoning in Cole v. Whitfield has been explained and developed
in subsequent cases, fundamentally the judgment has withstood the test of
time.

87. From the above it clearly emerges that the ramshackle cottage on
which the decision in Atiabari and Automobile was based has itself fallen
down. Even the idea of “freedom” in respect of trade and commerce in
Australia has considerably changed to suit the dynamics of the present day
trade and commerce.

88. Similarly, Article I, Section 8, Clause 3 of the US Constitution
empowers the Congress “To regulate commerce with foreign nations, and among
several states, and with the Indian Tribes”. The power of the Congress is
not restricted to regulation of trade between the States only, rather it
can regulate international trade as well. So far as inter-State trade is
concerned, Congress under the Commerce Clause is empowered to regulate
broad areas of activities such as use of the channels of inter-State
commerce, the protection of the instrumentalities of inter-State commerce,
or persons or things in inter-State commerce, and activities that
substantially affect inter-State commerce; whereas in the Indian
Constitution, States have plenary power to legislate on the subjects
enumerated in List II subject to the Constitutional limitations. Atiabari
and Automobile erred in relying on Freeman v. Hewit 329 U.S. 249 (1946),
which has been discarded by the US Supreme Court itself in Complete Auto
Transit, Inc. v. Charles R. Brady [1977] USSC 54: (1977) 430 US 274. In
Complete Auto Transit, the US Supreme Court while dealing with an inter-
State levy purported to be compensatory, formulated a four-part test to
determine if a State tax violates the Commerce Clause: (i) Nexus: there
must be a sufficient connection between the taxpayer and the State to
warrant the imposition of State Tax Authority; (ii) Fair Apportionment: the
State must not tax more than its fair share of the income of a taxpayer;
(iii) No discrimination: the State must not treat out-of-State taxpayers
differently than in-State taxpayers; and (iv) Related to services: the tax
must be fairly related to services provided to the taxpayer by the State.

89. In view of the above, the position which stands good today is that
the judgments of US Supreme Court, Privy Council and Australian High Court
relied upon in Atiabari and Automobile have been overruled in Complete Auto
Transit in USA and Cole v. Whitfield in Australia. The principle of ‘direct
and immediate effect on the trade and commerce’ has been rejected and it
has been held that the norms of commercial conduct shall not be
‘protectionist’ or ‘discriminatory’. The principles of ‘direct and
immediate test’ laid down in Atiabari and ‘Compensatory Taxes’ enunciated
in Automobile are to be overruled and minority judgment of Sinha, C.J. that
‘tax simpliciter’ is not violative of Art. 301 is to be affirmed.
Art.304 (a) and (b) must be read disjunctively:
90. As the word “restrictions” in the marginal note of Art. 304 suggests
plurality of powers and indicates that Clauses (a) and (b) of Art. 304
confer distinct powers. Art. 304(a) deals with tax; Art. 304(b) deals with
restrictions that are reasonable and in public interest. Constitution
framers could not have intended to include tax in Art. 304(b); since the
elements of “reasonableness” and “public interest” are inherent in a tax.
The use of the word “and” does not assist the interpretation that the
provisions are conjunctive. It only means that:-
(i) the State can impose taxes on goods coming from outside so as not to
discriminate between the goods imported and goods manufactured or produced
within the State [Art. 304 (a)]
-and-
(ii) It can also in addition impose other restrictions that are reasonable
and in public interest [Art. 304 (b)] subject to the assent of the
President. [Emphasis added]

That Articles 304(a) and (b) are disjunctive, is also clear from the fact
that the proviso to Art. 304(b) i.e. the presidential sanction is referable
to Art. 304(b) only and not to a law imposing tax on goods imported from
other States contemplated under Art. 304(a). This is because, Art. 304(a)
has an inbuilt safeguard, inasmuch the taxes imposed on the goods coming
from another State cannot be discriminatory and, therefore, no presidential
sanction is required.

91. It is relevant to note that the word “and” is used after semi colon
in Art. 304(a). While it is correct to say that the word “and” normally is
conjunctive, it is also often construed as disjunctive on the basis of the
legislative intent as gathered from the words of the proviso under context
in which it was used. Considering whether the word “and” is conjunctive or
disjunctive, in relation to Section 4(i) of Maharishi Mahesh Yogi Vedic
Vishwavidyalaya Adhiniyam, 1995, in Maharishi Mahesh Yogi Vedic
Vishwavidyalaya v. State of Madhya Pradesh and Others (2013) 15 SCC 677 and
observing that the word “and” is used as disjunctive, this Court held as
under:-
93. …. we also refer to the following decisions rendered by this Court in
Ishwar Singh Bindra v.State of U.P., AIR 1968 SC 1450, wherein in para 11
it has been held as under: (AIR p. 1454)
“11. … It would be much more appropriate in the context to read it
disconjunctively. In Stroud’s Judicial Dictionary, 3rd Edn., it is stated
at p. 135 that ‘and’ has generally a cumulative sense, requiring the
fulfilment of all the conditions that it joins together, and herein it is
the antithesis of or. Sometimes, however, even in such a connection, it is,
by force of a context, read as ‘or’. Similarly in Maxwell on Interpretation
of Statutes, 11th Edn., it has been accepted that ‘to carry out the
intention of the legislature it is occasionally found necessary to read the
conjunctions “or” and “and” one for the other’.”[Emphasis supplied]

94. We may also refer to para 4 of the decision rendered by this Court in
Director of Mines Safety v. Tandur and Nayandgi Stone Quarries (P) Ltd.
(1987) 3 SCC 208 (SCC p. 211, para 4)
“4. According to the plain meaning, the exclusionary clause in sub-section
(1) of Section 3 of the Act read with the two provisos beneath clauses (a)
and (b), the word ‘and’ at the end of para (b) of sub-clause (ii) of the
proviso to clause (a) of Section 3(1) must in the context in which it
appears, be construed as ‘or’; and if so construed, the existence of any
one of the three conditions stipulated in paras (a), (b) and (c) would at
once attract the proviso to clauses (a) and (b) of sub-section (1) of
Section 3 and thereby make the mine subject to the provisions of the Act.
The High Court overlooked the fact that the use of the negative language in
each of the three clauses implied that the word ‘and’ used at the end of
clause (b) had to be read disjunctively. That construction of ours is in
keeping with the legislative intent manifested by the scheme of the Act
which is primarily meant for ensuring the safety of workmen employed in the
mines.” [Emphasis supplied]

95. …..we are not inclined to hold that the expression “and” used in the
Preamble, as well as in Section 4 should be read conjunctively as contended
by the learned counsel for the State. On the other hand, in the context in
which the said expression is used, it will have to be read as “or” creating
a disjunctive reading of the provision.”

92. In A.K. Gopalan v. State of Madras AIR 1950 SC 27, in the context of
Art. 22(7)(a) of the Constitution of India, Constitution Bench observed
that since it is an enabling provision the word ‘and’ should be read
disjunctively and held as under:-
“248.…..In fact clause (4) (b) contemplates the detention itself to be in
accordance with the provisions of any law made by Parliament under sub-
clause (a) and (b) of clause (7). Therefore, the detention can well be
under the very law which the Parliament makes under sub-clause (a) and (b)
of clause (7). As to the second point the argument is that Parliament has
a discretion under clause (7) to make a law and it is not obliged to make
any law but when our Parliament chooses to make a law it must prescribe
both the circumstances under which, and the class or classes of cases in
which, a person may be detained for a period longer than three months. I
am unable to construe clause (7) (a) in the way suggested by learned
counsel for the petitioner. It is an enabling provision empowering
Parliament to prescribe two things. Parliament may prescribe either or
both. If a father tells his delicate child that he may play table tennis
and badminton but not the strenuous game of football, it obviously does not
mean that the child, if he chooses to play at all, must play both table
tennis and badminton. It is an option given to the child. Likewise, the
Constitution gives to Parliament the power of prescribing two things.
Parliament is not obliged to prescribe at all but if, it chooses to
prescribe it may prescribe either or both……” [Emphasis added]

Applying the ratio in the above decisions since the expression ‘and’ is
used in Art. 304 after semi-colon, it will have to be read as ‘or’ creating
a disjunctive reading of Art. 304(a) and Art. 304(b) indicating that the
State Legislature can exercise its power either under Art.304 (a) or Art.
304 (b) or both.
Whether Art. 304(b) coupled with the proviso is applicable to tax laws-
Judicial Approach:

93. In Atiabari, majority held that “tax laws” fall within the
comprehension of Art. 301 and, therefore, any legislation whether taxing or
otherwise which imposes any direct restriction on the movement or transport
of goods attracts the provisions of Art. 301, and its validity can be
sustained only if it satisfies the requirements of Art. 302 or Art. 304.
According to the above view in Atiabari, it is not possible for the State
Legislature to pass any law at all with respect to some of the tax entries
viz. sales tax (entry 54, List II); law relating to gambling (entry 34,
List II) or tax on betting and gambling (entry 62, List II); and tax on the
carriage of goods or passengers by road or inland waterways (entry 56, List
II). If the legislations under the above entries are challenged on the
ground that they operate as a direct restriction on the freedom of trade,
commerce and intercourse, as per the view in Atiabari, these legislations
may have to be justified under Art. 304(b). Atiabari approach would totally
take away the sovereign powers of the State Legislature to enact laws in
exercise of its powers under various taxing entries of List II, which could
not have been the intention of the framers of the Constitution.
ART. 304(b) IS APPLICABLE ONLY TO NON-FISCAL LAWS AND NOT TO TAX LAWS:-

94. Art. 304(a) and Art. 304(b) are two distinct powers and freedom of
trade, commerce and intercourse is subject to them. Art. 304(b) relates to
reasonable restrictions imposed in public interest. Art. 304(b) deals with
non-fiscal legislation imposing reasonable restrictions in public interest
and tax laws are not included under Art. 304(b). In this regard, reliance
has been placed on ‘Interim Report of the Advisory Committee on the Subject
of Fundamental Rights’ dated 23.04.1947, as published in “The Framing of
India’s Constitution Select Documents-The Project Committee” by Universal
Law Publishing Co. Pvt. Ltd. Learned Senior Counsel Mr. Rakesh Dwivedi has
taken us through the chain of events leading to Art. 304(b) and the
proviso’s present form in Art. 304(b). Draft Article 10 of the “Justiciable
Fundamental Rights”(page No.297 of the said book) presently Part XIII as
‘originally proposed’ read as under:-
“10. Subject to regulation by the law of the Union, trade, commerce, and
intercourse among the units by and between the citizens shall be free:
Provided that any unit may by law impose reasonable restrictions in the
interest of public order, morality or health or in an emergency:
Provided that nothing in this section shall prevent any unit from imposing
on goods imported from other units the same duties and taxes to which the
goods produced in the unit are subject:
Provided further that no preference shall be given by any regulation of
commerce or revenue by a unit to one unit over another.” [Emphasis added]

95. The first proviso to Draft Art. 10 corresponds to Art. 304(b) and
second proviso relates to Art. 304(a). That first proviso to Draft Art.10
[Art. 304(b)] relates only to “public order, morality or health or in an
emergency” is also made clear from the Constituent Assembly
Debates/Advisory Committee Proceedings. In this regard, we may refer to
the speech of Shri Alladi Krishnaswami Ayyar in the Constituent Assembly
Debates, which is as under:-
“Alladi Krishnaswami Ayyar: “Subject to regulation by the law of the
Union, trade, commerce, and intercourse among the units by and between the
citizens shall be free.” That is the general principle. Then come the
exceptions, “Provided that any unit may by law impose reasonable
restrictions in the interest of public order, morality or health or in an
emergency.” Suppose there is a general famine, and people are starved, that
is what is meant here to be dealt with.
And then “Provided that nothing in this section shall prevent any unit
from imposing on goods imported from other units the same duties and taxes
to which the goods produced in the unit are subject.” That is to say, we
ought not to differentiate; but at the same time, goods coming in should
not go scot-free; they should be subject to the same duty as goods produced
in the area.” [Emphasis Added] (Page. 253 of the said book of Select
Documents-Project Committee)

96. In October 1947, the Draft presented by the Drafting Committee
shifted the then Art. 10 outside the Part on Fundamental Rights (Right of
Freedom) to Articles 243 and 244 and the power under Art. 244(b) was kept
within the States. Art. 244(b) as adopted reads as under:-
“244. Notwithstanding anything contained in article 16 or in the last
preceding article of this Constitution, it shall be lawful for any State-
(a) to impose on goods imported from other States any tax to which similar
goods manufactured or produced in that State are subject, so, however, as
not to discriminate between goods so imported and goods so manufactured or
produced; and
(b) to impose by law such reasonable restrictions on the freedom of
trade, commerce or intercourse with that State as may be required in the
public interest.”

97. In this regard “Note to Art. 244 (b)” as referred to in Page 328 of
the said book Framing of India’s Constitution Select Documents-Project
Committee reads as under:-
“Note: Clause (b) of article 244 is based on the recommendation of the
Advisory Committee as adopted by the Constituent Assembly. The Drafting
Committee has considered it necessary to substitute for the words “in the
interest of public order, morality or health” which occur in the said
recommendation, the words “in the public interests”. [Page 328]

The above note clearly shows that after Debate, based on the
recommendations of Advisory Committee the phrase “public order, morality or
health or in an emergency” was substituted with the word “public interest”.
This clearly shows that the framers of the Constitution never intended to
bring tax laws within the fold of Art. 304(b).

98. After Debate, first proviso to Draft Art. 10 was adopted as
Art. 274(D)(b) [present Art. 304(b)]. As seen from page 330 of the first
Draft Constitution, the Committee was of the opinion that the first and
second proviso should be transferred as independent clauses in the Chapter
dealing with relation between the different States and the third proviso
was found unnecessary in view of the opening words “subject to the
regulation by the law of the Union and, accordingly, the same was adopted
in Art. 274(D)(b) [Present Art. 304(b)] which reads as under:-
“(b) impose such reasonable restrictions on the freedom of trade,
commerce or intercourse with or within that State as may be required in the
public interest.
Provided that no Bill or amendment for the purposes of clause (b) of
this article shall be introduced or moved in the legislature of a State nor
shall any Ordinance be promulgated for the purpose by the Governor or Ruler
of the State without the previous sanction of the President.”

99. If Art. 304(b) is also held to cover tax laws, it would amount to
empowering the States to make laws imposing tax even on the freedom of
trade, commerce and intercourse. As such there is no such entry in List II
of Seventh Schedule of the Constitution so empowering the States.
Commenting on this, learned author H.M. Seervai in his Constitutional Law
of India 4th Edition, Volume 3 observed as under:-
“24.43. There are other reasons supporting the conclusion that a tax
simpliciter is not a restriction on the freedom of trade. Article 304
itself makes a distinction between taxes and restrictions and the correct
conclusion to draw from this fact is that restrictions in Art.304 (b) do
not include a tax. Secondly, by virtue of the non obstante clause, Art.304
(b) enables even discriminatory restrictions to be imposed which are
forbidden by Art. 303 (1). We have seen that Art. 303(1) cannot possibly
refer to taxes. Thirdly, the whole scheme of taxation in our Constitution
would be completely dislocated if Art.304 (b) included a tax. The taxing
powers of the Union and the States have been made mutually exclusive so
that Parliament cannot deprive the States of their taxing powers as has
happened in countries where the powers of taxation are concurrent. It
would be surprising if the Union legislature, i.e. Parliament could not
take away the taxing powers of the State legislatures and yet it would be
open to the Union executive under Art.304 (b) to deprive the State
legislatures of their taxing powers. Again, if restrictions include a tax,
two questions would arise. As a matter of language, Art.302 would then run:
“Parliament may, by law, impose such restrictions, including a tax, on the
freedom of trade and commerce or intercourse…” The Article would then
become a source of power because there is no legislative entry relating to
a tax “on the freedom of trade” unless the residuary entry is resorted to,
Art. 304 (b) would raise the same question, and there would be no residuary
entry to resort to, and it would raise the further question whether the
reasonableness of taxes is made justiciable under our Constitution.” [Page
2607]

Levy of taxes is the economic lifeline of the State. Framers of the
Constitution never intended to include tax within the fold of Art. 304(b).
To give the Centre a veto over the plenary power of the State to levy the
tax would completely distort the Centre-State balance and cooperative
federalism. Such an interpretation has no basis in the Constitutional
Assembly Debates and is liable to be rejected.

100. The rationale for the sanction of President contemplated by proviso
to Art. 304(b) is apparent from the fact that trade and commerce with
foreign countries and inter-State trade and commerce are subject matters in
List I of the Seventh Schedule (entries 41 and 42, List I). Further, trade
and commerce in production, supply and distribution of industry controlled
by the Union, food stuffs, including edible oils, seeds and oils; cattle
fodder; raw cotton, cotton seed; and raw jute are subject matters in entry
33, List III. Entry 34, List III deals with price control. Only intra-
State trade and commerce is in List II (entry 26, List II) subject to entry
33, List III, as stated therein. Parliament has thus occupied an
overwhelming space with respect to trade and commerce within the State
also. It is in this backdrop that the State has been given power to impose
reasonable restrictions on the freedom of trade, commerce and intercourse
with or within that State with the proviso requiring presidential assent
before the Bill is introduced. The rationale, therefore, is that a non-
fiscal law of the State with respect to freedom of trade, commerce and
intercourse would be entrenching upon either the exclusive legislative
field of the Parliament in List I or the occupied field of the Parliament
in List III. It follows that Art. 304(b) relates to non-fiscal laws of the
States. In the above context, the assent of the President envisaged in
proviso to Art.304(b) would be somewhat akin to the assent contemplated in
Art. 254. Such assents are not judicially reviewable. [vide Kaiser-i-Hind
(P) Ltd. and Anr. v. National Textile Corpn. (Maharashtra North) Ltd. and
Others (2002) 8 SCC 182, (Paras 23 to 27)]

101. If the framers of the Constitution intended that State legislation
required sanction of the President for tax laws pertaining to inter-State
trade, commerce and intercourse, the Constitution would have made an
express provision in the Constitution. Art.274 says that no Bill or
Amendment which imposes or varies any tax or duty in which States are
interested; or which alters meaning of “agricultural income” under Income
Tax Act or principles of distribution; or, imposes surcharge for Union
purpose shall be introduced or moved in either House of Parliament except
on the recommendation of the President”. This indicates the significance of
revenue for States and also the limits on Union. If framers intended to
have an identical framework in Art. 304 for State Tax Laws they would have
expressly said so. Art. 288 also provides for the role of President in the
context of imposition of tax by States in respect of water and electricity.
Under Art. 288(1), the tax imposed by existing State laws would continue
only subject to order passed by the President. Under Art. 288(2) the
legislature of a State could impose a tax in respect of water or
electricity stored, generated, consumed, distributed or sold by an
authority established under any existing law or any law made by Parliament
for regulating or developing any inter-State river or river valley unless
the law has been reserved for the consideration of the President and has
received his assent. This again shows that Presidential assent with
respect to tax has to be specifically provided for.

102. In the light of the above discussion, the majority view in Atiabari,
at Page 861 that the freedom of movement of trade cannot be subject to any
restriction in the form of taxes and that such a legislation can be passed
only after specifying the requirements of Art. 304(b), is not a correct
view. I find merit in the submission made by Mr. Rakesh Dwivedi, Senior
Advocate, that the Parliament has occupied an overwhelming space with
respect to trade and commerce both within and outside the State and it is
in this backdrop, that the State has been given power to impose such
reasonable restrictions in “public interest” on the trade, commerce and
intercourse with or within that State subject to the satisfaction of the
proviso under Art. 304(b). It follows, therefore, that Art. 304(b) relates
to non-fiscal laws of the States. To subject the State’s sovereign
legislative levying tax to Presidential assent would in effect erode the
pillar of federalism which this country is built on. In the absence of an
express provision in the Constitution, such presidential sanction for
taxing laws cannot be read into the provision.
Conclusion on Question No.1:
103. Non-discriminatory taxes do not constitute infraction of Art. 301 of
the Constitution. With due respect, the view taken in Atiabari and
approved in Automobile Transport declaring that taxes do amount to
restriction and that freedom of trade, commerce and intercourse cannot be
subject to restriction in the form of taxes is not a correct view and are
to be over-ruled. However, I am agreeing with the concept of compensatory
tax evolved in the Automobile case for the reasons indicated while
answering question Nos. 2 and 3.
QUESTION NO. 4: IS THE ENTRY TAX LEVIED BY THE STATES IN THE PRESENT BATCH
OF CASES VIOLATIVE OF ART. 301 OF THE CONSTITUTION AND IN PARTICULAR HAVE
THE IMPUGNED STATE ENACTMENTS RELATING TO ENTRY TAX TO BE TESTED WITH
REFERENCE TO BOTH ARTICLES 304(a) AND 304(b) OF THE CONSTITUTION FOR
DETERMINING THEIR VALIDITY?

104. The core question which needs to be addressed is whether the tax
levied under entry 52, List II would impinge upon Article 301. Entry 52,
List II reads as: “Tax on the entry of goods into a local area or
consumption or sale therein”. A bare reading of the entry would show that
entry tax can be levied only on the satisfaction of the conditions in entry
52 of List II namely: (i) the tax to be levied on the entry of goods into
local area; (ii) entry of goods into the local area is for consumption, use
or sale therein.

105. There are two other entries in the Constitution which also authorize
the levy of taxes which fall essentially on the movement of tradables
within the country, viz., entry 56 of the State List and entry 89 of the
Union List. Entry 56 of the State List empowers the State to levy “taxes
on goods and passengers carried by road or inland waterways”; while entry
89 of the Union List contemplates the levy of “terminal taxes on goods or
passengers carried by railway, sea or air, taxes on railway fares and
freights”. While there are variations in the operational form of taxes
under entry 52, essentially these constitute a levy on entry of goods into
a local area for sale, consumption or use therein. Under an entry tax
regime, a company, trading firm or an individual would be liable to pay
entry tax on goods brought into a local area for consumption, use or sale
therein. The core question which needs to be addressed in respect of entry
52, List II of Seventh Schedule is whether the tax levied under the said
entry would impinge upon Art. 301.
History and Purpose of Entry Tax:
106. The term “Entry Tax” traces its history back to a particular tax
called “Octroi”. The word “Octroi” comes from the French word ‘octroyer’
which means ‘to grant’ and in its original use meant ‘an import’ or ‘a
toll’ or ‘a town duty’ on goods brought into a town. At first, octroi were
collected at ports but being highly productive, towns began to collect them
by creating octroi limits. They came to be known as “town duties”. The
term “octroi” appeared in the Scheduled Tax Rules framed under the
Government of India Act, 1919. The expression signified a tax levied on
entry into an area of a unit of local administration. The entry was re-
fashioned and enacted as item 49 of the Provincial Legislative List under
the Government of India Act, 1935. Item 49 reads as “Cesses on the entry
of goods into a local area for consumption, use or sale therein”. In Burmah
Shell Oil Storage and Disturbing Co. of India Ltd. Belgaum v. Belgaum
Borough Municipality Belgaum Cell, 1963 SCR Suppl. (2) 216, the Supreme
Court of India while distinguishing terminal tax and Octroi held that the
Octroi’s leviable in respect of goods brought into a municipal area for
consumption or use of sale.

107. When Government of India Act, 1935 was enacted, terminal taxes were
separated from octroi and were included in the Union List while octroi was
allocated to the provinces. The term “octroi” was avoided because terminal
taxes are also ‘octroi’ in a sense. This scheme has been adopted in the
Constitution with the difference that in the entry relating to ‘octroi’ the
word ‘tax’ replaces the word ‘cess’. Levy of octroi was also criticized
for being an obsolete method of the collection, involving stoppage of
vehicles at the check posts outside the city limits, thereby obstructing
flow of vehicular traffic, and causing wastage of business hours, loss of
fuel etc.

108. Entry tax like ‘octroi’ is a tax on entry of goods into a local area
for consumption, use or sale therein. However, entry tax is different from
octroi, inter alia, in the following respects:- Firstly, it is not
collected at the checkpost; but is payable by furnishing returns of the
purchases from outside the local area or the details of the goods entered
into the local area. Entry tax is easier to administer as returns are filed
on self- assessment and it avoids the harassment associated with octroi.
Secondly, it is imposed as an ad valorem tax as against octroi, which is
generally a combination of specific and ad valorem levies. Thirdly, entry
tax is a State-level levy while octroi is a local levy; entry tax revenue
is treated as State revenue and is spent on local bodies for their
development and the State in general.

109. On behalf of the assessees, it was contended that proper
meaning attached to the words “local area” in Entry 52 is an area
administered by a local body like a municipality, a district Board, a local
Board, a Union Board, a Panchayat or the like. In this regard, reliance
has been placed upon Diamond Sugar Mills Limited v. State of U.P. [1961] 3
SCR 242, wherein this Court held as under:-
“Whether the entire area of the State, as an area administered by the
State Government, was also intended to be included in the phrase “local
area”, we need not consider in the present case.
“…We are of the opinion that the proper meaning to be attached to the words
“local area” in Entry 52 of the Constitution, (when the area is a part of
the State imposing the law) is an area administered by a local body like a
municipality, a district board, a local board, a union board, a Panchayat
or the like. The premises of a factory is therefore not a “local area”.”

This Court in M.O. Shamsudhin v. State of Kerala (1995) 3 SCC 351 has also
held that:
“the expression local area has been used in various Articles of the
Constitution namely 3(b) 12, 245(1), 246, 277, 321, 323-A and 371-D. They
indicate that the constitutional intention was to understand the ‘local
area’ in the sense of any area which is administered by a local body, may
be corporation, municipal board, district board etc. The High Court on
this aspect held and in our opinion rightly that the definition does not
comprehend entire State as local area as the use of word ‘a’ before ‘local
area’ in the section is significant.”

110. As discussed above, entry tax is not collected at the behest of
municipality or a panchayat attached to a checkpost. It is payable by the
assesses by filing their returns. Entry tax is a State level levy, levied
by State Legislature upon entry of goods into a local area for consumption,
use or sale therein. The local authorities themselves cannot levy the tax.
The power is that of State Legislature and of no one. In Bihar Chamber of
Commerce, this Court was faced with the task of interpreting the term
“local area” in the context of entry 52, List II. The Court observed that
where State Legislature has levied a tax covering the entire State and
proceeds of such tax are spent for common welfare activities of the State,
the distinction between the State and the local areas practically
disappears. In Bihar Chamber of Commerce, it was held as under:-
“12. ….Where the local areas contemplated by the Act cover the entire
States the distinction between the State and the local areas practically
disappears. (The situation would, no doubts be different if the local
areas are confined to a few cities or towns in the State and the levy is
upon the entry of goods into those local areas alone. This is an important
distinction which should be kept in mind while appreciating the aspect and
also while examining the decisions of this Court rendered in fifties and
sixties). The facilities provided in the State are the facilities provided
in the local areas as well. Interests of the State and the interests of
the local authorities are, in essence, no different….
36. …Entry 52 empowers the State Legislature to levy this tax. The local
authorities cannot themselves levy this tax. The power is that of the
State Legislature and of none else. So long as the tax is levied upon the
entry of goods into a local area for the purpose of consumption, use or
sale therein, the requirement of Entry 52 is satisfied. The character of
the tax so levied is that of entry tax – by whatever name it is
called……..From the point of view of the entry tax, one may say that the
State is a compendium of local areas. Spending for the purposes of the
State is thus spending for the purposes of local areas. Situation may
perhaps be different where the local areas are confined to a few cities or
towns in the State. But where the local areas span the entire State, it
cannot be argued that money spent for welfare schemes for improvement of
roads, rivers and other means of transport and communication is not spent
on or for the purposes of local areas. The purposes and needs of local
areas are no different from the purposes and needs of the State – not at
any rate to any appreciable degree…..”

The Entry tax is a State level levy and the entry tax revenue is treated as
the State Revenue. As held in Bihar Chamber of Commerce, “the State is a
compendium of local areas…. the purposes and needs of local areas are no
different from the purposes and needs of the State.” As entry tax levy
being a State-level entry, it is spent on the development of local bodies
and the State in general. When the entry tax is levied by the Entry Tax
Act enacted by the State Legislature, the term ‘a local area’ contemplated
by Entry 52 may cover the ‘whole State’ or ‘a local area’ as notified in
the legislation. I agree with the views taken in Bihar Chamber of Commerce
that from the view of Entry Tax, the State is a compendium of local areas
and where the local areas cover the entire State, the difference between
the ‘State’ and ‘a local area’ practically disappears.

111. Counsel appearing for the States contend that the burden of entry
tax, if any, on the trader cannot by itself constitute a restriction on the
inter-State movement of goods. To constitute a restriction per se on the
freedom of trade, commerce and intercourse, levy of tax, in conjunction
with other factors should actually create a substantial advantage in favour
of the persons who indigenously manufacture or produce goods as compared to
the similar goods which are imported from outside the State. The sovereign
power available to the State Legislature to levy tax cannot be decimated by
every inconvenience that may be caused to a trader. If the tax is of such
a character, that the burden, if any, borne by the dealer, can be absorbed
by him as a part of his trade and business, then the trader will have to
bear the same. It does not then make the tax discriminatory or create a
restriction on the flow of goods from one State to another.

112. Imposition of entry tax is not merely “on movement or transport of
goods”; consideration of entry 52, List II of Seventh Schedule shows that
taxable event in the case of entry tax is entry of goods into the local
area where it is to be used, consumed or sold therein. If the goods merely
enter into a local area and then move to another destination beyond that
local area, no tax can be levied under entry 52. To attract a levy under
entry 52, List II, the goods must come to rest in the local area where they
are taxed in the sense that their further movement and transport stands
terminated and the goods are supposed to be used, consumed or sold in that
local area. Since the taxable event under entry 52 is not the mere entry
of the goods into the local area, but the fact that the goods are also to
be used, consumed or sold, the necessary sequiter is that the movement of
goods is terminated in that local area. Power to levy entry tax lies
within the competence of a State Legislature. Since entry tax is leviable
at the termination of the movement of trade and the goods have entered the
local area for the purpose of use, consumption or sale, the levy of entry
tax does not restrict flow of trade, commerce or intercourse and is not
violative of Arti. 301 of the Constitution.

113. Taking us through various States’ legislations, Senior Counsel
Mr. Harish Salve on behalf of the assessees contended that the entry tax
levied by State legislations are discriminatory and broadly classified the
Entry Tax Statutes on discrimination into four different categories as
under:-
|States |Alleged discrimination |
|Tamil Nadu/Andhra Pradesh/ |Entry tax levied only on goods |
|Kerala/Jharkhand |imported from other States; no |
| |levy of entry tax on the goods |
| |manufactured inside the State |
| |which is discriminatory. |
|Assam/Bihar/Haryana/Kerala(Post|Facially, the legislations state |
|) Jharkhand/West Bengal/Tamil |that all goods are taxed; but |
|Nadu/Mizoram/Arunachal Pradesh/|grant exemption to the locally |
|Andhra Pradesh |produced goods |
|Orissa/Madhya Pradesh |Local manufacturers are given the |
| |set- off of entry tax paid on raw |
| |materials and thus preferential |
| |treatment given to locally |
| |produced goods. |
|Chhattisgarh |Excessive delegation to the |
| |executive to levy entry taxes up |
| |to 50% who in turn levy higher |
| |rate of entry tax on certain goods|
| |and lesser rate for similar goods |
| |which is discriminatory. |
Entry Tax levied only on goods imported from other States: No levy of Entry
Tax on the goods manufactured inside the State-Whether discriminatory.

114. Contention of the assessees is that entry tax is levied only on goods
entering the local area from other States and there is no levy of entry tax
on the locally produced goods when they move from one local area to
another; as goods imported from other States are being discriminated
against, such levy is not saved under Art. 304(a). It is their contention
that entry tax only on goods coming from outside the State and not intra-
State entry of goods from one local area to another local area or on
movement of goods is a clear case of discrimination, offending Art. 304(a).
115. The assessees seek to narrow down the wide purport of the term ‘any
tax’ used in Art. 304(a) by contending that equivalence should be brought
about in the imposition of entry tax itself. By contending so, the
appellants have become oblivious of the fact that the State Legislature is
always free to provide for equivalence in the Entry Tax Act, and
alternately make provisions for adjustments and set-offs in other
enactments of Sales Tax or Value Added Tax Acts.

116. The term ‘any tax’ means any exaction by any impost or levy. The
effect of all the taxes levied on the goods imported from other States and
the ones manufactured within the State must be such that no discrimination
is caused either to the imported goods or locally manufactured goods.
Unlike Section 92 of the Australian Constitution, Art. 304(a) does not talk
of uniformity. Section 92 of the Australian Constitution reads as follows:-
“On the imposition of uniform duties of customs, trade, commerce, and
intercourse among the States, whether by means of internal carriage or
ocean navigation, shall be absolutely free.” No such restriction is imposed
on the legislative power of the States in India to ensure uniformity in
levy of a particular tax. The raison d’ etre for use of the expression “so,
however, as not to discriminate” is to prohibit protectionism. Moreover,
Constitution of India does not contain a provision similar to Section 55 of
the Australian Constitution which mandates one tax law on one subject. In
India, the State Legislature is nowhere obligated by the Constitution to
ensure that the law imposing tax deals with one subject of taxation only.

117. The chargeable event in the case of entry tax is entry of goods into
a local area. By its very nature, entry tax does not contemplate impost on
indigenous goods. Goods imported into a local area from another State are
subjected to entry tax but goods entering into a local area from another
local area of the same State do not attract entry tax. In this way, it may
appear that goods imported from outside the State are put to a
disadvantageous position but in terms of tax treatment there is no
discrimination. The essence of Art. 304(a) lies in ensuring equality of
fiscal burden and absence of discrimination. In terms of Art. 304(a), the
only requirement is that the goods imported into the local area should not
be discriminated against. As discussed infra, in tax treatment there is no
discrimination between the goods.

118. The expression ‘any tax’ used in Art. 304(a) is generic in nature and
covers all taxes on goods which a State is competent to impose by virtue of
Articles 245 and 246 read with List II of Seventh Schedule. A Scheme
adopted by a State Legislature whereby several taxes are levied on the
goods (either locally produced or imported from other States) under
different heads, cannot be faulted with if it conforms to the principle of
equivalence and non-discrimination. For e.g., both sales tax levied under
entry 54, List II and entry tax levied under entry 52, List II are taxes on
goods. It is the burden of the tax which can discriminate and not the form.
States are free to equalise the burden of entry tax on the goods imported
from other States by giving them set-off against the sales tax paid by them
in the exporting State. In such a manner, equivalence can be brought about
in the tax burden borne by the goods imported from other States and the
locally manufactured/produced goods. The contention of the assessees that
the term ‘any tax’ used in Art. 304(a) refers to every tax distinctly,
thereby prohibiting imposition of entry tax on imported goods unless, entry
tax is imposed on locally manufactured/produced goods, does not lead to
just and reasonable interpretation of Art. 304(a). The wholesome effect of
the taxes levied under distinct heads needs to be taken into account. The
tax burden borne by the goods form a part of the price of the goods and if
both, locally manufactured/produced goods and imported goods are subjected
to similar tax burdens, irrespective of the heads under which the taxes are
levied, say entry tax or sales tax etc., then no discrimination can be said
to have been caused.

119. In case if entry tax not levied to equalize tax burden on the local
goods and goods imported from outside, there will be huge trade diversion
to low-rate tax State, causing loss of revenue to the high-rate tax States,
where the goods are used or consumed. Let us take an example of entry tax
in the case of motor vehicles. System of sales tax on motor vehicles varies
from one State to another. Rates of tax also vary according to the
category of the vehicles viz., car, jeep, scooter, motorcycle, truck,
tractor etc. Inter-State sales tax differential is large enough to induce
trade diversions from high-rate tax States to low-rate tax States. These
trade diversions have their impact on the collection of sales tax and
results in loss of tax revenue to the State and the local area where the
vehicles are used; but there is tax gain to the exchequer of the low-rate
tax State where the vehicles are shown to have been purchased. Thus levy of
entry tax by the importing State where the vehicles are used is justified
to accord equal treatment to vehicles purchased within the State and those
purchased from outside.

120. Often the diversion occurs merely on paper; for instance,
manufacturers of vehicles in Tamil Nadu may employ local dealers in low-
rate tax State/Union territories to sell their products to consumers all
over the country. Where the tax rates differ widely in adjoining
States/Union Territories, dealers located in low-rate tax territories act
as agents for purchasers from the State with high-rate tax
areas/territories. The vehicles do not move physically but the sales are
shown to have taken place outside the high-rate tax State. The State where
sale is said to have taken place stands to gain but the State where the
vehicle is used loses the revenue of its sales tax. The extent of
differentiation in tax rates is evidently large enough to induce trade
diversion from high-rate tax States to low-rate tax territories. In such
cases, levy of entry tax equalizes the revenue loss to the State where the
vehicle is used, and at the same time prevents discrimination between the
locally purchased vehicles and vehicles purchased in other States/Union
Territories.

121. Entry of goods into a local area from another local area of the State
can be effected either by a dealer who purchased the goods from the
manufacturer or by an individual. A dealer who effects entry of goods into
a local area from another local area in the same State would be taxed in
the form of sales tax/VAT; so also the individual would have already paid
the sales tax in another local area, where he bought the goods. In case of
entry tax levied on goods imported from other State, set-off like in the
cases of State enactments of Tamil Nadu and Andhra Pradesh is given to the
extent of the sales tax/VAT paid in the purchasing State; in few of the
States like Kerala, after levy of entry tax, to the extent entry tax paid,
input credit is given from the sales tax/VAT payable in the State where the
goods are imported. Tax burden is more or less the same, for both
indigenous goods and outside goods. This is because, where an entry tax is
imposed on goods brought from outside, the benefit of credit of the amount
already paid as entry tax is given as input credit for the purpose of
payment of VAT. Moreover, if a State enactment provides for set-off and
statutory exemptions to goods paying local sales tax, thereby equalising
the net tax burden on the imported goods and local goods, it does not fall
foul under Art. 304(a), so long as it is balancing sales tax against the
entry tax.

122. The question as to whether entry tax in a particular case constitutes
an impediment will always have to be decided with reference to the
comparison of burdens that are cast on persons who bring the goods into the
taxing State and that which is suffered by the persons who manufacture or
produce the goods within the State. Art. 304(a) does not prevent levy of
tax on goods imported from other States. The expression used is ‘any tax’;
what is prohibited is such levy of tax on goods as would result in
discrimination between goods imported from other States and similar goods
manufactured or produced within the State. The object is to prevent
imported goods from being discriminated against by imposing a higher tax
thereon than on local goods. If the tax burden on both the categories are
almost the same, then the entry tax obviously cannot constitute an
impediment to the very flow of trade and commerce across the borders of the
State. There is no merit in the contention of the assessees that the levy
of entry tax only on goods imported from other States and not on indigenous
goods is discriminatory and violative of Art. 304(a).

123. In a catena of decisions, this Court has struck down the levy of
entry tax on the imported goods holding that the levy is discriminatory and
not saved by Art. 304(a). In Indian Cement and Ors. v. State of Andhra
Pradesh and Ors. (1988) 1 SCC 743, the Government of Andhra Pradesh issued
a Notification reducing the rate of sales tax on sale of locally produced
cement to bulk consumers to 4%, on the other hand, the sales tax imposed on
sale of cement imported from the other States was levied at 13.75%. Thus,
the indigenous cement producers had a benefit of 9.75%. Levy of sales tax
imposed on sale of cement imported from other States was challenged as
impeding free flow of trade and commerce. The Supreme Court held the
Notification invalid as it was hit by Art. 304(a) affecting inter-State
trade and commerce.

124. In Western Electronic and Anr. vs. State of Gujarat and Ors.
(1988) 2 SCC 568, State of Gujarat imposed sales tax at 15% on all
electronic goods whether locally manufactured or imported from outside.
After sometime, the State reduced the tax to 10% on goods imported from
outside and to 1% on locally manufactured goods with a view to give
incentive to encourage local manufacturing units. The Supreme Court held
that by applying different rates of tax between goods imported into the
State of Gujarat and goods manufactured within that State is discriminatory
and violative of Art. 304(a) and, accordingly, quashed the Notification.

125. In State of U.P. and Anr. v. Laxmi Paper Mart and Ors. (1997) 2 SCC
697, State Government had exempted the exercise-books made from paper
purchases within Uttar Pradesh from the levy of sales tax. Whereas,
exercise-books produced outside the State of Uttar Pradesh were subjected
to sales tax at the rate of 5%. The said exemption granted to indigenously
manufactured exercise-books was challenged. The challenge was upheld by
this Court and the exemption granted to locally manufactured exercise-books
was held to be discriminatory within the meaning of Art. 304(a) of the
Constitution of India.
Preferential treatment for locally produced goods by grant of exemption or
set-off etc. and non-grant of such exemption or set-off to goods imported
from other States – Not-discriminatory:

126. While States have the sovereign power to levy taxes to raise revenue,
difference in rates of taxes by itself or granting tax incentive or
concession to local manufacturer by itself, cannot amount to
discrimination. The word “discrimination” involves an element of
“intentional and purposeful differentiation”. It creates economic and
regional imbalances in India and is an area of concern.

127. Contention of States is that apart from legislative power to levy
taxes, States also have the power to grant exemptions, tax concessions or
incentives to the goods manufactured within the State so as to encourage
the manufacturing units and traders within the State, and also to attain
economic growth and development. Reiterating the same, the learned Attorney
General has submitted that such fiscal measures are necessary for economic
parity as also for further strengthening of the economic unity of the
nation which the assessees themselves desire. Placing reliance upon Video
Electronics Pvt. Ltd. and Anr. v. State of Punjab and Anr. (1990) 3 SCC 87,
it was submitted that every differentiation in the tax rebate, exemption or
tax concession granted to indigenous goods which may result in
differentiation in the rate of tax on goods imported into the State, would
not amount to discrimination falling foul under Art.304(a). The States
submit that every differentiation is not discrimination, and only those
restrictions which impede the flow of trade, commerce and intercourse would
fall foul under Art.304 (a). The above contention of the States has been
favourably considered by the Supreme Court over the years. The Supreme
Court has taken note of the differentiation on consideration of natural or
economic factors prevailing in different regions which need to be
encouraged by providing tax incentives to attain economic equality in
growth and development.

128. Part XIII envisages a two-fold object:- (i) facilitation of a common
market through ease of trade, commerce and intercourse by removal of
barriers; and (ii) development of economically backward regions through
regulations or restrictions which may incidentally differentiate between
States or regions. Part XIII is not about “freedom” alone but is a code of
checks and balances on inter-State trade, commerce and intercourse intended
to achieve economic integration of the country and parity. Balanced
development of the country is an equally vital facet of economic
integration. The “freedom” referred to in Art. 301 must take flavour from
the expression “throughout the territory of India”; the Union was envisaged
not only as a political union but also an economic union. The grand vision
was to unify the country, not only politically but also by creation of an
economic union of hitherto disparate Provinces and Princely States.
Freedom of movement of goods and services and the creation of a common
market must be understood in this context. Thus, the spirit of Part XIII
must be seen in the context of achieving a balance between a cohesive
economic union having due regard for the federal character of the
Constitution and not in the sense of a handicap for State’s individual
development.

129. We may usefully refer to the following passage authored by Prof. D.D.
Basu in Comparative Federalism, Prentice Hall of India, 1987, which reads
as under:
“The great problem of any federal structure is to prevent the growth of
sectional and local interests which are inimical to the interests of the
nation as a whole. The strength of the Union may be achieved only by
minimizing inter-State barriers as much as possible, so that the people may
feel that they are the members of one nation, though they may, for the time
being, be residents of particular geographical divisions of the country.
One of the means to achieve this object is to guarantee to every citizen
the freedom of movement throughout the territory of the Union, and also to
reside and settle in any part thereof.
……
While a federation is formed to preserve or secure regional autonomy, that
is not done at the sacrifice of notional interests. Unless the national
interests are safeguarded, the country would be divided into pieces,
resulting in a weak government unable to maintain itself from foreign
aggression, and would also create economic chaos in an age when apparently
local disturbances have a wide repercussion. It is this last mentioned
economic strength of the federation which is intended to be ensured by the
safeguard for maintaining freedom of trade, commerce and intercourse
throughout the federal territory, which safeguard the Union and the States
are both enjoined not to violate.” [Page 613]

Part XIII and the provisions therein are to be interpreted in a manner that
encourages a backward region or creates a level playing field for those
parts of the country that may not have reached the desired level of
development.

130. Historically, regional imbalances in India started from the British
regime. During that time, industrialists started development in a few
earmarked regions of the country like the metropolitan cities of Kolkata,
Mumbai, Chennai that possessed rich potential for manufacturing, trading
and transport facilities. This resulted in an uneven growth amongst the
States, keeping few States less developed. The regional imbalances and
general economy of the country were taken note of by the framers of the
Constitution. The Constituent Assembly was conscious of the uneven
development in different parts of the country and the need to create a
level playing field by removal of trade barriers as well as by affording
avenues for economic opportunity and economic equality for less developed
parts of the country. Significant observations have been made in
Constituent Assembly Debates justifying certain amount of flexibility to
the States. In this regard, reference to Constituent Assembly Debates
dated 30.07.1949 to 18.09.1949 whereby Dr. P.S. Deshmukh proposed a series
of amendments in Part XIII granting powers to the States, is relevant to be
noted:-
Dr. P.S. Deshmukh: “Trade and commerce are not things which are decided
once, for all; they are things that arise and grown from day to day. They
may be varied; there may be circumstances and situations when the whole
thing will have to be revised. This may arise so far as a particular State
is concerned or in respect of more than one State. How pompously did we
decide that there shall be “free trade” everywhere. It is not such an easy
thing as that and I hope that this is now broadly realized. For instance,
we know that the stage, of advancement and progress of the various units of
the Union varies considerably. Some of them are backward like Assam or
Orissa where there are, very few industries and very little trade is in the
hands, at least of the indigenous population. We may have probably to give
them some protection in order that they may rapidly come on par with other
units. It may be necessary also from time to time to vary our provisions
so far as aid and concessions to industries and other things are concerned.
I therefore do not think that is right to bar all discrimination, as it is
called (in fact it is not), barring all possibility of help to those who
are backward and who are unable to compete with the more advanced, and who
therefore, stand in need of ‘assistance.’ From that point of view, my
amendment seeks to give Parliament a blank cheque and leave to it entirely
the determination of the policy. With regard to the trade and commerce not
only of the whole Union or in regard to any particular State or States, but
so far as all States and their trade and commerce inter se is concerned.
Therefore, I have proposed a very simple provision as has been embodied in
my amendment No. 340.” [Page No. 1133]

While the proposed amendments were not accepted, the debate acknowledged
that flexibility to allow certain amount of leverage to the States was
necessary and also desirable. It is apposite to refer to the following
observation by Shri Alladi Krishnaswami Ayyar in Constituent Assembly
Debates dated 30.07.1949 to 18.09.1949:-
Shri Alladi Krishnaswami Ayyar: “.….My Friend Dr. Ambedkar, in the scheme
he has evolved, has taken into account the larger interests of India as
well as the interests of particular State and the wide geography of this
country in which the interests of one region differ from the interests of
another region….. My Friend Mr. Krishnamachari has pointed out that this
freedom clause in the Australian Constitution has given rise to
considerable trouble and to conflicting decisions of the highest Court.
There has been a feeling in those parts of Australia which depend for their
well-being on agricultural conditions that their interests are being
sacrificed to manufacturing regions, and there has been rivalry between
manufacturing and agricultural interests. Therefore, in a federation what
you have to do is, first, you will have to take into account the larger
interests of India and permit freedom of trade and intercourse as far as
possible. Secondly, you cannot ignore altogether regional interests.
Thirdly, there must be the power intervention of the Centre in any case of
crises to deal with peculiar problems that might arise in any part of
India. All these three factors are taken into account in the scheme that
has been placed before you.” [Emphasis added] [Page No. 1143]

131. Similar was the concern expressed by Shri C. Rajagopalachari in his
observations on the proposed draft Article 10:
“C. Rajagopalachari: I would request members who have given thought to this
subject to please inform me how the units will raise their revenue. As it
is, the Union does not contemplate the distribution of subsidies to the
provinces. The provinces or groups differ among themselves, some are rich
and some are poor. Some are capable of managing with their existing
resources; but others may have to increase their revenue for managing their
affairs. If you impose so many limitations on them, how can they do that?
It is all very well to say free trade is necessary; but how are the
provinces to live?”

[Page No.254 of the Framing of India’s Constitution Select Documents-The
Project Committee, Volume 2 by the Indian Institute of Public
Administration Universal Law Publishing Co. Pvt. Ltd.]

132. There are considerable regional disparities in India attributable to
a variety of reasons. Economically speaking, of these reasons, the ones
that are most apparent are geography and consequent economic inadequacy.
States with access to seacoasts and natural resources including mineral
wealth, water resources have a definite edge over the other States. Whereas
States that have terrains that make access to a region difficult, including
hills, rivers and dense forests, show lesser signs of economic development.
Lack of perennial sources of water or water scarcity due to lower
precipitation can also constrain the development of a region. Historically,
more development opportunities have been made available to already forward
States that had the initial geographic advantage. It is the natural
tendency of the private sector to set up industries in already developed
regions, which provide infrastructural support required to maintain those
industries. This has accelerated the development in these forward States;
and the backward regions, unable to attract significant investment have not
seen much growth. To counter-balance this tendency, various incentive and
disincentive schemes have been introduced to direct investments to backward
regions. However, the success of these policies has been limited because
often the States with these backward regions are unable to meet their
expenses and provide economic overheads, such as transport, communication,
power, banking & insurance etc. This has widened the gaps between the
States where investments of the past have created adequate social and
economic infrastructure to attract private investments and the States that
were neglected in the past and are unable to attract investments due to
lack of infrastructure. [Reference: N J Kurian, “Regional Disparities in
India”, Planning Commission of India, 2001 available at:
http://planningcommission.nic.in/reports/sereport/ser/vision-
2025/regdsprty.

133. A recent news article published in ‘The Hindu’, titled “The gap
between rich and poor States”, delineates this economic disparity between
the States. The authors propose that since contrary to global experiences,
India continues to show trends of divergence among its large States, it is
time to accept the country’s economic diversity. Amid such economic
disparity among States with varying future needs and priorities, the way
forward is greater devolution of fiscal and legislative powers on the
States to create a level playing field. Relevant portion of this article
reads as under:-
“…per capita net domestic product from 1960 to 2014 of India’s 12 largest
States, that accounted for 85 per cent of the total population, shows that
economic disparity within India’s States is among the largest in the
world…
This gap of four times between the richest and the poorest large State in
India is among the highest in the world. A similar ratio in other federal
polities such as the U.S., European Union and China is between two and
three times. Our convergence analysis shows that this economic disparity
among States is only widening and not narrowing. India is the only large
country in the world today that is experiencing an economic divergence
among its States and not convergence, as economic theory would posit.”
“…..Pre-1990 and post-1990 look like almost two different eras in India’s
history of economic diversity among States. Economic theory would suggest
that the poorer regions grow faster to catch up with the richer States to
cause an eventual convergence, as is happening globally. Contrary to global
experiences of narrowing disparity, both across and within nations, India
actually shows trends of an exacerbating divergence among its large States,
implying the richer States will continue to grow faster.”
“Whatever be the reasons, it is quite evident that the priorities of a more
prosperous State will be quite different from those that are still very
poor. India’s cultural and political diversity is a well-entrenched fact.
It is time to accept its economic diversity too. Amid such economic
disparity among States with varying future needs and priorities, a Delhi-
based one-size-fits-all policy regime for all of India is entirely
anachronistics.….. the struggles of the European Union in balancing common
market policies for economically diverse nations should serve as a gentle
reminder for an even more diverse India.” [emphasis added]
[By Praveen Chakravarty and Vivek Dehejia [New Delhi Edition dated 5th
September, 2016]

134. Since economic unity of the nation is the underlying object for
freedom in Art. 301, it would be necessary to define the concept of
economic unity adopted by the Constitution of India. Firstly, economic
unity cannot but be federal in nature; it must involve the even development
of all the States. All States, particularly, the underdeveloped and far-
flung border-States have a right to develop themselves so as to secure the
welfare of their residents. Secondly, the object of freedom of trade,
commerce and intercourse is to foster economic unity by contribution to the
development of all the States. Thirdly, as per the Directive Principles of
State Policy, the States are to sub-serve common good; secure and protect a
social order which stands for the welfare of the people; endeavour to
provide an adequate means of livelihood; and also secure, within the limits
of its economic capacity the right to work, education and public
assistance.

135. Re-organisation of States is yet another factor which has to be borne
in mind. Creation of State of Uttarakhand from the undeveloped hilly area
of Uttar Pradesh; State of Jharkhand from the predominantly tribal areas of
the State of Bihar, State of Chhattisgarh from the State of Madhya Pradesh
and the recent bifurcation of the State of Telangana from the State of
Andhra Pradesh comes to mind. The newly bifurcated States have to develop
their new capitals, create new State infrastructure including High Courts
in due course. They have to develop their own industrial bases for
manufacture and production and for creating job opportunities. To attract
capital investment, they have to provide infrastructure like transport,
communication, power and technology. Re-organisation of States apart, as a
Welfare State, a State is under an obligation to create job opportunities
and promote welfare of the people by securing standard of living and
economic justice. Having regard to the multifarious activities of a
Welfare State, it is necessary that the States must have
leverage/flexibility in exercise of their power to levy taxes and,
therefore, steps taken by the States that result in differentiation cannot
amount to discrimination that impedes the free flow of trade, commerce and
intercourse.

136. Manufacturing activities within the State involve several activities
right from sourcing of raw-materials, manufacture of goods, marketing of
the manufactured goods, and export of the manufactured goods.
Manufacturing activities convert the State from a mere trade hub to a
manufacturing hub, creating employment opportunities for the locals,
thereby giving impetus to the growth of the State. Manufacturing is a
giant step for boosting the economy of the State; it brings in
opportunities and socio-economic benefits to the residents of the
respective States. Per contra, goods coming in from outside the State only
tap the market potential of the State without creating any employment
opportunities or boosting the economy of the State. Thus granting
exemptions/set-off/tax incentives to locally produced goods and not
granting such exemption to goods coming from outside cannot be said to be
discriminatory.

137. Furthermore, every differentiation is not necessarily discriminatory.
The word ‘discrimination’ used in Art. 304(a) requires an element of
intentional and purposeful differentiation that creates an economic
barrier. It involves an element of an intentional difference between the
treatment of locally produced goods and goods imported from other States.
The distinction between “differentiation and discrimination” has been
culled out in Kathi Raning Rawat v. The State of Saurashtra (1952) SCR 435,
wherein the Constitution Bench held as under:-
“Patanjali Shastri J:….
All legislative differentiation is not necessarily discriminatory. In
fact, the word “discrimination” does not occur in Article 14. The
expression “discriminate against” is used in Article 15(1) and Article
16(2), and it means, according to the Oxford Dictionary, “to make an
adverse distinction with regard to; to distinguish unfavourably from
others”. Discrimination thus involves an element of unfavourable bias and
it is in that sense that the expression has to be understood in this
context. If such bias is disclosed and is based on any of the grounds
mentioned in Articles 15 and 16, it may well be that the statue will,
without more, incur condemnation as violating a specific constitutional
prohibition unless it is saved by one or other of the provisos to those
articles. But the position under Article 14 is different. Equal
protection claims under that Article are examined with the presumption that
the State action is reasonable and justified. This presumption of
constitutionality stems from the wide power of classification which the
legislature must, of necessity, possess in making laws operating
differently as regards different groups of persons in order to give effect
to its policies. The power of the State to regulate criminal trials by
constituting different courts with different procedures according to the
needs of different parts of its territory is an essential part of its
police power – (cf. Missouri v. Lewis)(3). Though the differing (1) [1950]
SCR 88 (3) 101 US 22 (92) AIR 1951 Hyderabad II.”

“Fazl Ali, J.:
…I think that a distinction should be drawn between “discrimination without
reason” and “discrimination with reason”. The whole doctrine of
classification is based on this distinction and on the well-known fact that
the circumstances which govern one set of persons or objects may not
necessarily be the same as those governing another set of persons or
objects, so that the question of unequal treatment does not really arise as
between persons governed by different conditions and different sets of
circumstances….” [Emphasis added]

138. The desired objective of economic integration through checks and
balances to encourage less developed parts of the country, so that they may
compete as equals with others, does not contravene Part XIII of the
Constitution. In Video Electronics, the three Judges Bench held as under:
“20. The question as we see is, how to harmonise the construction of the
several provisions of the Constitution, It is true that if a particular
provision being taxing provision or otherwise impedes directly or
immediately the free flow of trade within the Union of India then it will
be violative of Article 301 of the Constitution. It has further to be borne
in mind that Article 301 enjoins that trade, commerce and intercourse
throughout the territory of India shall be free. The first question,
therefore, which one has to examine in this case is, whether the sales tax
provisions (exemption etc.) in these cases directly and immediately
restrict the free flow of trade and commerce within the meaning of Article
301 of the Constitution, We have examined the scheme of Article 301 of the
Constitution read with Article 304 and the observations of this Court in
Atiabari’s case [1961] 1 SCR 809 (supra), as also the observations made by
this Court in Automobile Transport, Rajasthan’s case [1963] 1 SCR 491
(supra). In our opinion Part XIII of the Constitution cannot be read in
isolation. It is part and parcel of a single constitutional instrument
envisaging a federal scheme and containing general scheme conferring
legislative powers in respect of the matters relating to list II of the 7th
Schedule on the States. It also confers plenary powers on States to raise
revenue for its purposes and does not require that every legislation of the
State must obtain assent of the President. Constitution of India is an
organic document. It must be so construed that it lives and adapts itself
to the exigencies of the situation, in a growing and evolving society,
economically, politically and socially. The meaning of the expressions used
there must, therefore, be so interpreted that it attempts to solve the
present problem of distribution of power and rights of the different States
in the Union of India, and anticipate the future contingencies that might
arise in a developing organism. Constitution must be able to comprehend the
present at the relevant time and anticipate the future which is natural and
necessary corollary for a growing and living organism. That must be part of
the constitutional adjudication. Hence, the economic development of States
to bring these into equality with all other States and thereby develop the
economic unity of India is one of the major commitments or goals of the
constitutional aspirations of this land. For working of an orderly society
economic equality of all the States is as much vital as economic unity.


22. It has to be examined whether difference in rates per se discriminates
so as to come within Articles 301 and 304(a) of the Constitution. It is
manifest that free flow of trade between two States does not necessarily or
generally depend upon the rate of tax alone. Many factors including the
cost of goods play an important role in the movement of goods from one
State to another. Hence the mere fact that there is a difference in the
rate of tax on goods locally manufactured and those imported would not
amount to hampering of trade between the two States within the meaning of
Article 301 of the Constitution. As is manifest, Article 304 is an
exception to Article 301 of the Constitution. The need of taking resort to
exception will arise only if the tax impugned is hit by Articles 301 and
303 of the Constitution. If it is not then Article 304 of the Constitution
will not come into picture at all. See the observations in Nataraja
Mudaliar’s case [1968] 3 SCR 829 of the report. It has to be borne in mind
that there may be differentiations based on consideration of natural or
business factors which are more or less in force in different localities. A
State might be allowed to impose a higher rate of tax on a commodity either
when it is not consumed at all within the State or if it is felt that the
burden falling on consumers within the State, will be more than that and
large benefit is derived by the revenue. The imposition of a rate of sales
tax is influenced by various political, economic and social factors.
Prevalence of differential rate of tax on sales of the same commodity
cannot be regarded in isolation as determinative of the object to
discriminate between one State and another. Under the Constitution
originally framed revenue from sales tax was reserved for the States.

24. The object is to prevent discrimination against the imported goods by
imposing tax on such goods at a rate higher than that borne by local goods.
The question as to when the levy of tax would constitute discrimination
would depend upon a variety of factors including the rate of tax and the
item of goods in respect of the sale on which it is levied. Every
differentiation is not discrimination. The word ‘discrimination’ is not
used in Article 14 but is used in Articles 16, 303 & 304(a). When used in
Article 304(a), it involves an element of intentional and purposeful
differentiation thereby creating economic barrier and involves an element
of an unfavourable bias. Discrimination implies an unfair classification.
Reference may be made to the observations of this Court in Kathi Raning
Rawat v. State of Saurashtra,1952 SCR 435 where Chief Justice Shastri at p.
442 of the report reiterated that all legislative differentiation is not
necessarily discriminatory. At p. 448 of AIR) of the report, Justice Fazal
Ali noticed the, distinction between ‘discrimination without reason’ and
‘discrimination with reason’. The whole doctrine of classification is based
on this and on the well-known fact that the circumstances covering one set
of provisions or objects may not necessarily be the same as these covering
another set of provisions and objects so that the question of unequal
treatment does not arise as between the provisions covered by different
sets of circumstances.
…28. Concept of economic barrier must be adopted in a dynamic sense with
changing conditions. What constitutes an economic barrier at one point of
time often cease to be so at another point of time. It will be wrong to
denude the people of the State of the right to grant exemptions which flow
from the plenary powers of legislative heads in List II of the 7th Schedule
of the Constitution. In a federal polity, all the States having powers to
grant exemption to specified class for limited period, such granting of
exemption cannot be held to be contrary to the concept of economic unity.
The contents of economic unity by the people of India would necessarily
include the power to grant exemption or to reduce the rate of tax in
special cases for achieving the industrial development or to provide tax
incentives to attain economic equality in growth and development. When all
the States have such provisions to exempt or reduce rates the question of
economic war between the States inter se or economic disintegration of the
country as such does not arise. It is not open to any party to say that
this should be done and this should not be done by either one way or the
other. It cannot be disputed that it is open to the States to realise tax
and thereafter remit the same or pay back to the local manufacturers in the
shape of subsidies and that would neither discriminate nor be hit by
Article 304(a) of the Constitution. In this case and as in all
constitutional adjudications the substance of the matter has to be looked
into to find out whether there is any discrimination in violation of the
constitutional mandate.” [Emphasis added]

Thus while considering the scope of “discrimination” under Art. 304(a) in
Video Electronics, this Court has carved out an exception that States have
powers to grant exemption to specific class for limited period and that
such grant of exemption cannot be held to be discriminatory. To reduce the
rate of tax in special cases or to provide tax incentives is for achieving
the industrial development and attainment of economic equality in growth
and development.

139. In Shri Mahavir Oil Mills and Anr. v. State of J&K and Others (1996)
11 SCC 39, a Division Bench of this Court, however, struck a contrary note.
The State of Jammu and Kashmir granted exemption to the edible oil produced
by small scale industries within the State of Jammu and Kashmir from sales
tax while subjecting the edible oil produced in other States to sales tax
at 8 per cent. A subsequent Notification was issued on 20.12.1993 as a
result of which the general rate of sales tax payable on edible oil became
8%. The manufacturers of edible oil from the adjoining States claimed that
the exemption granted from payment of tax to the local industries was
discriminatory. The exemption given by the Government of Jammu and Kashmir
to the manufacturers of the edible oil was absolute and the period of
exemption was five years – which was later extended by another five years.
The said legislation was struck down on the ground that the State has
brought about discrimination prohibited by Art. 304(a) of the Constitution.
The Court declined to apply the limited exception carved out in Video
Electronics and observed that the said exception in Video Electronics
cannot be widened or expanded to cover cases of a different kind. This
Court held that the unconditional exemption granted to edible oil
industries within the State of Jammu and Kashmir for a period of ten years
and at the same time subjecting edible oil imported from other States to
sales tax at 8% was discriminatory and violative of Art. 304(a) of the
Constitution.

140. The decision in Video Electronics was, however, approvingly
referred to by the Constitution Bench in Sri Digvijay Cement Company
Limited and Ors. v. State of Rajasthan and Others (2000) 1 SCC 688. In
Digvijay, Section 8 of the Central Sales Tax Act came up for consideration.
Section 8 of the Central Sales Tax Act stipulates that the State
Governments were empowered to either exempt any goods from Central Sales
Tax or to prescribe a lower rate of tax. The State of Rajasthan had
reduced the rate to seven percent though stipulated local sales tax was
sixteen per cent. In consequence, cement in Rajasthan became cheaper in
comparison to Gujarat and that increased the flow of cement from Rajasthan
to other States. After referring to the cases Firm ATB Mehtab Majid & Co
v. State of Madras & Anr. AIR 1963 SC 928 and State of Madras v. N.K.
Nataraja Mudaliar (1968) 3 SCR 829, this Court held as under:-
“24. We are unable to agree with the contention of the learned counsel for
the petitioners that the impugned notification had the effect of preventing
or hindering the free movement of goods from one State to another. As far
as the State of Rajasthan is concerned, it had the opposite effect. Merely
because local rate of tax in the State of Gujarat on the sale of cement was
higher than the inter-State sales tax on the cement sold from Rajasthan
cannot lead to the conclusion that the impugned notification prevented or
hindered the free movement of goods from one State to another. In fact the
impugned notification had the opposite effect, namely, it increased the
movement of cement from Rajasthan to other States. It is not as if the
impugned notification created a barrier which may have had the effect of
hindering free movement of goods but on the other hand, the sales tax
barrier was lowered resulting in increased volume of inter-state trade.”

141. It follows from the Constituent Assembly Debates and the decisions in
Video Electronics and Digvijay that historical, cultural, geographical and
other factors have an impact on trade and commerce. While insisting on
economic integration of the nation, Courts are to keep in view the regional
requirements so as to cater to the need of economic development of the
nation as a whole. Government incentives to invest in backward areas
granting subsidies or tax concessions for a certain period of time would be
permissible and would fall outside the scope of Part XIII and Art. 304(a).
Such action of the State Government is not discriminatory; rather it aims
at ensuring economic equality.

142. In Video Electronics and Digvijay, this Court held that it is
constitutionally permissible for a State Legislature to make laws that
promote and encourage local trade; a form of affirmative action to move
beyond the concept of discrimination towards true and a stronger union
which is the underlining objective of the Constitution. Although balanced
growth and economic integration of the nation as a whole has been accepted
as one of the major objectives of economic planning, it is to make a
headway in achieving the object. The growing regional disparities have
become a reality and hence may pose a barrier to India’s future economic
growth.

143. India is a union of States with federalism as a basic feature of the
Constitution. However, revenue-wise Union has an edge over the States.
All major taxes like income tax, wealth tax, service tax, excise duty etc.
are with the Union. Taxes raised by the States are insufficient to
discharge their mandate as a Welfare State. India still exists in villages
and countryside. Substantial number of population is still below poverty
level. Subjects like public order (entry 1, List II); public health and
sanitation, hospital and dispensaries (entry 6, List II); Education (entry
25, List III); providing employment opportunities; roads, bridges etc. and
other infrastructure (entry 30, List II) inter alia are subject matters for
the State; and States have limited resources to provide for education,
healthcare, civic amenities, infrastructure, communications, village
industries, rural employment and technology and to ensure dignified human
living of the people of the State, without access to an adequate source of
revenue.

144. As discussed earlier, development of the country is seemingly
unbalanced and unequal. Despite the economic reforms initiated in the
country about twenty five years ago, entrepreneurs are hesitant to invest
in backward States because of varied reasons like inadequacy of power, lack
of infrastructure and transportation, quality of human resources etc.
Resultantly, few States continue to be backward States. In order to have a
planned development for the benefit of the people and overall growth of the
country as a nation, regional imbalances are to be removed. While trade,
commerce and intercourse is important for the economic unity of the nation,
the Courts cannot be oblivious of the responsibilities of a Welfare State
in raising its resources by levy of taxes to meet the challenges.
Incentives to invest in backward areas, subsidies and tax concessions are
some of the measures used by the State to guide the location of the
industries in backward areas and to generate employment opportunities for
the people of the State. While power of taxation is indispensable, State
also has the power to grant tax concessions or incentives to indigenous
manufacturers/producers. Such incentives/tax concessions would certainly
create differentiation between the locally produced goods and the goods
that are imported into the State from the sister States; but the same
cannot be said to be discriminatory and falling foul of Art.304(a).

145. I summarise my conclusion on this point as under:- While I agree with
the views of the Constitution Bench in Digvijay and Video Electronics, I do
not endorse the views of Mahavir Oil Mills. Accordingly, the law laid
down in Laxmi Paper Mart which relies upon Mahavir Oils is also held bad in
law. Moreover, Indian Cement needs no consideration as it has been
specifically overruled in Digvijay. The conclusions in this regard could be
summarized as under:-
Any difference in the rate of tax on goods locally manufactured and those
imported, such difference not being discriminatory does not fall foul of
Art. 304(a);

Any incentive/benefits of concession in the rate of tax given to the
indigenous manufacturers in order to encourage the manufacture/production
in the State cannot be said to be discriminatory.

Repercussions of Art. 304(a) when no local goods are produced:
146. The State may by law impose any tax on imported goods to which
similar goods manufactured or produced in the State are subject. It is the
submission of the assessees that when a State does not produce or
manufacture goods within its territory then it cannot resort to the power
conferred on it by Art.304(a) to impose a tax on similar imported goods. In
support of their contentions, the assessees placed reliance upon Kalyani
Stores v. State of Orissa (1966) 1 SCR 865, where no foreign liquor was
produced or manufactured in the State of Orissa but tax was levied on
foreign liquor imported into the State of Orissa. When the levy was
challenged as violative of Art.301, it was held that:-
“7. ….The notification levying duty at the enhanced rate is purely a fiscal
measure and cannot be said to be a reasonable restriction on the freedom of
trade in the public interest. Article 301 has declared freedom of trade,
commerce and intercourse throughout the territory of India, and restriction
on that freedom may only be justified if it falls within Article 304.
Reasonableness of the restriction would have to be adjudged in the light of
the purpose for which the restriction is imposed, that is, “as may be
required in the public interest”. Without entering upon an exhaustive
categorization of what may be deemed “required in the public interest”, it
may be said that restrictions which may validly be imposed under Article
304(b) are those which seek to protect public health, safety, morals and
property within the territory. Exercise of the power under Article 304(a)
can only be effective if the tax or duty imposed on goods imported from
other States and the tax or duty imposed on similar goods manufactured or
produced in that State are such that there is no discrimination against
imported goods. As no foreign liquor is produced or manufactured in the
State of Orissa the power to legislate given by Article 304 is not
available and the restriction which is declared on the freedom of trade,
commerce or intercourse by Article 301 of the Constitution remains
unfettered.” [Emphasis supplied]

Learned Counsel for the assesses have relied on Kalyani Stores to contend
that Art. 304(a) is the only avenue for the State to impose entry tax and
the same can be availed of only when there are similar goods being
manufactured within the State so as to prevent discrimination. However,
the law laid down in Kalyani Stores cannot be applied in the case of entry
tax levied under entry 52, List II. The dictum of Kalyani Stores has a
limited application to counterveiling duties imposed on sale of liquor
levied under entry 51, List II and that too to the limited extent it is
actually in force as of now. Power to impose counterveiling duties of
excise on alcoholic beverages etc. manufactured or produced in the State
and counterveiling duties at the same or higher rates on similar goods
manufactured or produced elsewhere in India, under entry 51, List II is
materially distinct from a levy under entry 52, List II and thus, an
interpretation of the law relating to the former cannot be applied to the
latter.

147. Furthermore, Kalyani Stores does not appear to have noticed the non-
obstante clause in Art. 304 “Notwithstanding anything in Article 301 or
Article 303….”. The non obstante clause should be understood in a manner
appropriate to the substance of Articles 302 to 304. The true source of
power of the State Legislature remains in Part XI, in Article 245 read with
Article 246 and entries of List II. Art.304 is not a source of power; it
embodies a re-statement of powers conferred under Articles 245 and 246 read
with the entries of List II of Seventh Schedule with some limitations.

148. The rigorous view taken in Kalyani Stores was diluted in State of
Kerala v. Abdul Qadir and Others (1969) 2 SCC 363. The State of Kerala
levied a tax on tobacco which was imported into the State from outside. No
tobacco was manufactured or produced within the State of Kerala. The
Court, upon a challenge to the tax law, upheld the levy of tax on tobacco
and observed that the correct approach was to see whether the impugned tax
impeded the free flow of trade and commerce under Art.301. The Court stated
that levy of tax on tobacco did not impede the free flow of trade and
commerce.

149. The first part of Art. 304(a) re-states the power of the State to
impose a tax on goods imported from the other States. Second part of Art.
304(a) places a limitation on the power of the State Legislature. It
provides that a State may only tax imported goods so as not to discriminate
them with the locally produced or manufactured similar goods i.e. the
limitation of non-discrimination vis-à-vis similar internal goods. When a
situation arises where no similar goods are manufactured or produced in
that State, the tax merely does not fall within the scope of Art.304(a);
the limitation is taken away but the power to tax remains. The sovereign
and plenary power of the State to tax cannot be emasculated and made
subject to a limitation that a State can only tax those goods which are
produced within its territory also.

150. This is better explained by way of an example: Zinc is an important
mineral resource used in galvanization of iron and steel. It is also used
in automotive, electrical and machinery industries. Haryana does not have
zinc ore, however, it does have the industries mentioned above. If zinc is
imported from Odisha or Rajasthan, then State of Haryana can impose a tax
on it, even though there is no local production of zinc. This does not mean
that there is a discrimination against the imported zinc. Discrimination
involves an element of intentional and purposeful differentiation; without
a comparable good there cannot be a disparate treatment or discrimination
of the imported zinc. Thus, a State law that imposes a tax on imported
goods where similar goods are not manufactured or produced in that State,
will meet the requirement of Art.304(a) and there would not arise any
question of discrimination.

151. It is true that when similar goods are not manufactured inside the
State, there are chances of a higher rate of tax on such goods brought into
the taxing State from other States but that does not mean that there should
be a blanket protection of such goods from tax. Power of the State to tax
the goods imported cannot be whittled down on the ground that there are no
similar goods manufactured or produced within the taxing State. Exorbitant
taxation of such goods will remain open to challenge under Part III in Art.
19(1)(g) read with Art. 19(6) and Art. 14. With these observations, I hold
that the power to impose a tax on imported goods is not taken away when no
similar local goods are manufactured within the State and thus, the law
laid down in Kalyani Stores is not a good law.
Levy of Entry Tax on Imported Goods
152. Most of the States levy entry tax on the goods imported from outside
the country when they enter into a local area for consumption, use or sale
therein. The issue that arises is as to whether State Legislature is
competent to levy entry tax on the goods imported from other countries when
they enter into a local area for consumption, use or sale therein.

153. Contention of the assessees is that import and export across the
customs frontiers are covered by entry 41, List I; duties of customs
including export duties are covered by entry 83, List I of the Seventh
Schedule and thus transactions relating to “import/export across customs
frontiers including duties of customs including export duties” fall within
the exclusive domain of the Parliament. It is further contended that the
mandate of Clause 1(d) of Art. 286 of the Constitution prevents the State
from levying sales tax so as not to interfere with the Union’s legislative
power with respect to import and export across frontiers (entry 41, List
I) and “the duties of customs including export duty” (entry 83, List I).
It is contended that if the State is permitted to levy entry tax under
entry 52, List II on goods imported from outside the country, the same
would amount to levy of ‘tax on imported goods’ which is a clear
transgression of powers of the Parliament under entry 41 and entry 83 of
List I.

154. Per contra, the States contend that once the imported goods are
cleared on payment of customs duty, the goods are mixed with the mass of
goods in India and when such imported goods enter into the local area, the
States are well within their legislative competence to levy entry tax in
exercise of their legislative power under entry 52, List II. Counsel for
the States have submitted before us that the taxable event under entry 83,
List I and that under entry 52, List II are distinct; taxable event with
respect to entry 83, List I, is the act of import i.e. bringing of goods
from a foreign country to India, whereas, the taxable event under entry 52,
List II is the entry of goods into local area for consumption, use or sale
therein. It was further argued that entry 41, List I which deals with trade
and commerce with foreign countries, import and export across custom
frontiers, and definition of custom frontiers has to be read along with
entry 83, List I.
Meaning of the word “Import”:
155. “Import” means bringing or taking by sea or air across any customs
frontier. Import is defined in Section 2(23) and imported goods in Section
2(25) of the Customs Act as under:-
“(23) “import”, with its grammatical variations and cognate expressions,
means bringing into India from a place outside India;
….
(25) “imported goods” means any goods brought into India from a place
outside India but does not include goods which have been cleared for home
consumption;

156. The meaning of the word “import” has been explained in P. Ramanatha
Aiyar’s “The Major Law Lexicon”, 4th Edition 2010 as under:-
“The term “import” means to bring into a country merchandise from abroad
and is the direct converse of the term “export” which means to carry from a
state or country, as wares in commerce. The term “export” signifies
etymologically “to carry out” and “import” means to “bring in”. Its
commercial meaning is directly contrary to the term “export”. Goods
brought into the country from abroad. The importation of certain goods, as
authorized reprints of copyright books, false coin and indecent or obscene
prints, is expressly forbidden and with regard to certain other goods, such
as wine, spirits and tobacco, restrictions are imposed as to the place and
manner of their importation. Goods or services brought into a country for
sale, from abroad, or to bring in such goods or services.” (Trade Finance &
Banking) [Page 3207]

157. Similarly, as per Section 2(e) of the Foreign Trade (Development and
Regulation) Act (22 of 1992), “Import” and “export” means respectively
bringing into, or taking out of India, any goods by land, sea or air.

158. “Import” and “export” across customs frontiers and definition of
‘customs frontiers’ are covered by entry 41, List I and “duties of customs
including export duties” are covered by entry 83, List I of the Seventh
Schedule. Entry 41 and entry 83 of List I of the Seventh Schedule read as
under:-
“41. Trade and commerce with foreign countries; import and export across
customs frontiers; definition of customs frontiers.
83. Duties of customs including export duties.”

159. As per Section 2(28) of the Customs Act, 1962 read with Section 5(1)
of the Territorial Waters Continental Shelf, Exclusive Economic Zone and
other Maritime Zones Act, 1976, ‘Indian Customs Waters’ mean water
extending in sea upto the limit of contiguous zone, i.e., a line, every
point of which is at a distance of 24 Nautical Miles from the nearest point
of the base line. These definitions define the customs frontier.

160. Goods imported in a vessel/aircraft require payment of customs duty
before they are cleared into the country. Unless these are not meant for
customs clearance at the port/airport of arrival by particular
vessel/aircraft and are intended for transit by the same vessel/aircraft or
trans-shipment to another customs station or to any place outside India,
detailed customs clearance formalities of the landed goods have to be
followed by the importers. In respect of goods which are off-loaded,
importers have the option to clear them for home consumption after payment
of the duties leviable or to clear them for warehousing without immediate
discharge of the duties leviable in terms of the warehousing provisions as
provided in the Customs Act. Sections 45 to 48 deal with clearance of
imported goods for home consumption. In terms of Section 46, every
importer is required to file Bill of Entry for clearance of goods for home
consumption or warehousing in the form as prescribed by regulations. In
terms of Section 47 of the Customs Act, proper officer on being satisfied
that the goods entered for home consumption are not prohibited goods and
the importer has paid the import duty and on being satisfied that the
prescribed formalities have been duly completed, passes an order for
clearance of goods for home consumption. Evidently Chapter IX of the
Customs Act is a facility for warehousing, deposit of imported goods and
their clearance. Section 68 provides for clearance of warehoused goods for
home consumption by the importer. Under Section 68, the warehoused goods
can be cleared for home consumption by presenting Bill of Entry, paying
import duty etc. and obtaining an order for clearance.

161. The moment imported goods are cleared for home consumption either
under Section 47 of the Act or under Section 68 of the Customs Act, the
imported goods mix up with the mass of goods in the country and enter into
the local area. Import of goods into the territory of India and transit of
goods within the country are not integral. Import of goods and customs
clearance and the entry of goods into the local areas are two distinct
events. In the case of customs duty, the taxable event is entry of goods
into the territory of India. The taxable event under entry 52, List II is
the entry of goods into local area for consumption, use or sale therein.
Two taxable events are distinct in law and there is no overlap.

162. Under the Indian Constitution, the distribution of power with regard
to tax has been done in a mutually exclusive manner and in great detail
with reference to different aspects of property or goods. Considering an
issue with regard to excise duty and sales tax payable by a manufacturer
upon manufacture and sale in Province of Madras v. M/s Boddu Paidanna and
Sons AIR 1942 FC 33 = 1942 FCR 90, the Federal Court has held that:-
“If the taxpayer who pays a sales tax is also a manufacturer or producer of
commodities subject to a central duty of excise, there may no doubt be an
overlapping in one sense; but there is no overlapping in law. The two
taxes which he is called on to pay are economically two separate and
distinct imposts. There is in theory nothing to prevent the Central
Legislature from imposing a duty of excise on a commodity as soon as it
comes into existence, no matter what happens to it afterwards, whether it
be sold, consumed, destroyed, or given away… It is the fact of manufacture
which attracts the duty, even though it may be collected later… In the case
of a sales tax, the liability to tax arises on the occasion of a sale, and
a sale has no necessary connection with manufacture or production.”

….there are two complementary powers, each expressed in precise and
definite terms then there is no reason for extending the meaning of the
expression ‘duties of excise’ at the expense of the provincial power to
levy taxes on sale of goods.” [Page 101]

163. Boddu Paidanna has been affirmed in Governor General of Council v.
Province of Madras AIR 1945 PC 98 = 58 LW 228 in following words:-
“Here again their Lordships find themselves in complete accord with the
reasoning and ocnslusions of the Federal Court in the Boddu Paidanna Case
(1). The two taxes, the one levied upon a manufacturer in respect of his
goods, the other upon a vendor in respect of his sales, may, as is there
pointed out, in one sense overlap. But in law there is no overlapping.
The taxes are separate and distinct imposts. If in fact they overlap, that
may be because the taxing authority, imposing a duty of excise, finds it
convenient to impose that duty at the moment when the exciseable article
leaves the factory or workshop for the first time upon the occasion of its
sale. But that method of collecting the tax is an accident of
administration, it is not of the essence of the duty of excise which is
attracted by the manufacturer itself.”

164. In Ram Krishan Ram Nath Agarwal v. Secretary, Municipal Committee,
Kamptee, Union of India AIR 1950 SC 11, a case relating to bidi
manufacturer who was required to pay excise duty and octroi, the Supreme
Court approved the Federal Court judgment and held that the ‘excise duty’
was tax on the ‘manufacturer’ while ‘octroi duty’ was a ‘tax’ on the ‘entry
of goods’ within a particular area. Tobacco becomes subject to excise duty
when it reaches the stage of manufacture and it does not conflict with a
levy on the entry of goods within a certain area. It was observed that “it
is wrong to think that two independent impost arising from two different
sets of circumstances were not permitted in law”.

165. In Gujarat Ambuja Cement Ltd. v. Union of India (2005) 4 SCC 214, the
levy of service tax on carriage of goods by transport operators was
challenged as being legislatively beyond the competence of Parliament. This
Court held that there is a distinction between the object of tax, the
incidence of tax as well as collection machinery. The legislative
competence is to be determined with reference to object of the levy. It
was held that the service tax and the tax under entry 56, List II are
distinct.

166. As already noted, under our Constitution, there is no overlapping in
the taxing power. The Constitution gives independent powers of taxation to
the Union and the States. The taxing power of the Union and of the States
are mutually exclusive. This avoids the difficulties which have arisen
under other Federal Constitutions as rightly observed in Hoechst
Pharmaceuticals v. State of Bihar (1983) 4 SCC 45 and State of West Bengal
v. Kesoram Industries (2004) 10 SCC 201.

167. The other contention of the appellants is that the doctrine of
‘Unbroken Package’ should be applied in the context of entry 83, List I as
was initially applied by US courts. Doctrine of ‘Unbroken Package’
postulates that import of goods continues even after crossing customs
barrier until the package imported is broken up at the importer’s
destination and the goods are taken out. This argument was pressed upon
mainly to save the foreign goods from suffering entry tax at the instance
of State authorities. The appellants contended that no entry tax can be
levied under entry 52, List II by the State authorities before the package
is broken.

168. Such a contention does not find force in the light of the fact that
doctrine of ‘Unbroken Package’ has not only been discredited by Indian
Courts, but also by the American Courts. In the American context, reference
can be made to Prof. Tribe on American Constitutional Law States, in which
the learned Professor has criticized the doctrine of ‘Unbroken Package’ in
the following words:
“in the dormant commerce clause context, the court long ago disparaged the
‘unbroken-package doctrine as applied to interstate commerce……..as more
artificial than sound’ and the court has concluded that taxes imposed on
goods while in transit through the taxing state are in effect potentially
repeatable taxes on interstate commerce itself and are thus barred by the
commerce clause. But non-discriminatory taxes imposed on goods prior to
their movement into interstate transit, or subsequent to the completion of
such transit, are taxes incapable of multiple application and are thus
sufficiently local to survive jurisdiction scrutiny.” [Page. 1162-1163]

169. Learned counsel on behalf of the States rightly contended that the
‘original package doctrine’ or ‘unbroken package doctrine’ as propounded in
Brown v. State of Maryland by Chief Justice Marshall has been expressly
disapproved by Indian courts as well. In this regard, reliance has been
placed upon Province of Madras v. Boddu Paidanna & Sons AIR 1942 FC 33 =
1942 FCR 90; State of Bombay v. F.N. Balsara (CB) AIR 1951 SC 318; State of
Travancore-Cochin v. Shanmugha Vilas Cashew Nut Factory (1954) SCR 53.

170. In Gramophone Company of India Ltd. v. Birendra Bahadur Pandey (1984)
2 SCC 534, this Court while interpreting the word “import” in Section 53 of
the Copyright Act, 1957, discredited the ‘Doctrine of Unbroken/original
Package’ in the following terms:
“37. The Calcutta High Court thought that goods may be said to be imported
into the country only if there is an incorporation or mixing up of the
goods imported with the mass of the property in the local area. In other
words the High Court relied on the ‘original package doctrine’ as
enunciated by the American Court. Reliance was placed by the High Court
upon the decision of this Court in the Central India Spinning and Weaving
and Manufacturing Co. Ltd. The Empress Mills, Nagpur v. Municipal
Committee, Wardha [1958]1SCR1102 . That was a case which arose under the
C.P. and Berar Municipalities Act and the question was whether the power to
impose ‘a terminal tax on goods or animals imported into or exported from
the limits of a municipality’ included the right to levy tax on goods which
‘were neither loaded or unloaded at Wardha but were merely carried across
through the municipal area’. This Court said that it did not. The word
‘import’, it was thought meant not merely the bringing into but comprised
something more, that is ‘incorporating and mixing up of the goods with the
mass of the property in local area’, thus accepting the enunciation of the
‘Original Package Doctrine’ by Chief Justice Marshall in Brown v. State of
Maryland 6 L. Ed. 78. Another reason given by the learned Judges to arrive
at the conclusion that they did, was that the very levy was a ‘terminal
tax’ and, therefore the words ‘import and export’, in the given context,
had something to do with the idea of a terminus and not an intermediate
stage of a journey. We are afraid the case is really not of any guidance to
us since in the context of a ‘terminal tax’ the words ‘imported and
exported’ could be construed in no other manner than was done by the Court.
We must however say that the ‘original package doctrine’ as enunciated by
Chief Justice Marshall on which reliance was placed was expressly
disapproved first by the Federal Court in the Province of Madras v. Boddu
Paidanna:1942 FCR 90 and again by the Supreme Court in State of Bombay v.
F.N. Balsara,. Apparently these decisions were not brought to the notice of
the Court which decided the case of Central India Spinning and Weaving and
Manufacturing Co. Ltd., The Empress Mills, Nagpur v. Municipal Committee,
Wardha. So we derive no help from this case. As we said, we prefer to
interpret the word ‘import’ as it is found in the Copyright Act rather than
search for its meaning by referring to other statutes where it has been
used.”

171. Chapter VIII of Customs Act deals with goods in Transit. Section 54
deals with trans-shipment of goods without payment of duty upon
presentation of bill of trans-shipment. The inland container depot and
land custom station are creatures of Statute. They are not determinative of
the taxable event for imposition of custom duty on imports. Many of the
provisions are facilitative and/or intended for purposes of valuation and
fixation of rates. The crucial aspect is that according to entry 83, List I
as well as the Customs Act, 1962 the taxable event is ‘import’ or ‘bringing
of the goods into India’ and it is distinct from the taxable event of entry
52, List II.

172. The assessees contended that a factory unit may have a warehouse
where goods are deposited and are kept under a bond which may even permit
sale or manufacture. It was even contended that the warehouse itself may
be in the same local area, illustratively in Delhi/Mumbai.

173. Sections 2(43), 2(44) and 2(45) deal with warehouse, warehoused goods
and warehousing station. Section 9 requires the Board to issue a
Notification in the Official Gazette declaring places to be warehousing
stations at which alone public warehouses may be appointed and private
warehouses may be licensed. The public warehouses are appointed under
Section 57 and private warehouses are licensed under Section 58.

174. On behalf of the States, it was submitted that there is no submission
by any of the assessees that there is a warehousing station in their
factory units or in the local area where they are located or that there is
any public warehouse or private warehouse so located. Our attention was
drawn to SLPs pertaining to Indian Oil Corporation, Vedanta and NALCO to
contend that the assessees have not produced any evidence nor is there any
pleading that the Bill of Entry is filed in the factory units or in a land
custom station which is located in the same local area as the assessees’
unit. Hence, it is submitted that the warehouse and warehouse bond based
contentions have been advanced without any basis in pleadings and facts.

175. A comparison of Sections 58 and 57 shows that a licensed private
warehouse is different from a public warehouse. Section 58 deploys the
expression “dutiable goods imported by or on behalf of the licensee, or any
other imported goods”. Similar expression is not used in Section 57 with
respect to public warehouses wherein dutiable goods may be deposited. It
is clear that the goods deposited in private warehouses are considered to
be goods which have already been imported. Further, ‘warehousing bond’ is
dealt with in Section 59 which is issued where the goods have been entered
for warehousing and after assessment of the duty, the bond is executed for
a sum twice the amount of the duty assessed. When the requirements in
Section 59 are complied with then permission to deposit the goods in
warehouse is granted. This indicates that both in public warehouses and
private warehouses the deposits are permitted only for goods which are
already imported. Stringent provision is made in Section 59(2) to pay all
duties or interest on or before the date of demand. Under Section 62, the
proper custom officer exercises control over all the warehoused goods and
he may cause any warehouse to be locked. The owner of the goods can with
the sanction of the proper officer deal with the goods, show the goods for
sale and even carry on any manufacturing process or other operations in the
warehouse in relation to such goods.

176. Such warehousing or warehousing bond cannot prevent the levy of entry
tax, especially where warehouse is established in a factory unit. On the
basis of the law laid down above, I hold that the taxable events under
entry 83, List I and entry 52, List II are distinct; any movement of the
imported goods to the warehouse in the factory unit would not prevent the
State from levying and collecting entry tax when such goods enter a local
area of the State for consumption, use or sale therein.

177. Summarily, the conclusion on question No.4 is as under:-
Entry tax with reference to entry 52, List II of Seventh Schedule is not
violative of Art. 301 subject to the levy being non-discriminatory i.e.
passing the muster of Art. 304(a). A levy sustainable under Art. 304(a),
being non-discriminatory would ipso facto be out of the purview of Art.
301.
When the entry tax is levied by the Entry Tax Act enacted by the State
Legislature, the term ‘a local area’ contemplated by Entry 52 may cover the
‘Whole State’ or ‘a local area’ as notified in the legislation. I agree
with the view taken in Bihar Chamber of Commerce that from the point of
view of entry tax that the State is a compendium of local areas and where
the local areas contemplated by the Act cover the entire State, the
difference between the State and ‘a local area’ practically disappears.
Articles 304(a) and 304(b) are to be read disjunctively; both apply to
different subject matters; while Art. 304(a) deals with tax, Art. 304(b)
deals only with non-fiscal matters.

Conclusions on the incidental questions arising under Question No.4:-

Where there is equivalence in terms of tax treatment between the locally
produced goods and the ones imported from other States, levy of entry tax
on the goods imported from other States when there is no such levy on the
locally produced goods is not discriminatory.

Every differentiation is not discrimination. Any difference in the rate of
tax on goods locally manufactured and those imported, such difference not
being discriminatory does not fall foul under Art.304(a). Any
incentive/benefits of concession in the rate of tax given to the local
manufacturers/producers in order to encourage the local
manufacturers/production in the State cannot be said to be discriminatory.
Digvijay and Video Electronics have laid down the correct law. Mahavir Oil
Mills is not a correct view.

Levy of entry tax on the goods imported from the other States is not
discriminatory merely on the ground that there are no similar goods
manufactured or produced within the taxing State. The law laid down in
Kalyani Stores is not a good law.

Levy of entry tax on the goods imported from outside India which enter into
local area for consumption, use or sale therein is within the legislative
competence of the State.
QUESTION NO. 2: IF ANSWER TO QUESTION NO.1 IS IN THE AFFIRMATIVE, CAN A TAX
WHICH IS COMPENSATORY IN NATURE ALSO FALL FOUL OF ARTICLE 301 OF THE
CONSTITUTION OF INDIA?

QUESTION NO. 3: WHAT ARE THE TESTS FOR DETERMINING WHETHER THE TAX OR LEVY
IS COMPENSATORY IN NATURE?

178. The concept of ‘compensatory tax’ is a judicially evolved concept.
Majority in Atiabari held that taxes may and do amount to restrictions and
hence tax legislation is subject to scrutiny under Art. 301. In Atiabari,
the test of “direct and immediate effect on trade, commerce and
intercourse” was evolved. The majority in Atiabari had thus completely read
down State’s taxing power under entry 52, List II thereby holding that
State’s legislative power is subject to the freedom clause in Art. 301.
This had an adverse effect on the legislative power of the State to levy
tax and its financial autonomy.

179. In Automobile, while the Supreme Court affirmed the views of
Atiabari, compensatory taxes were carved out as an exception to Art. 301.
In Automobile, this Court evolved the concept of compensatory taxes and
held that “regulatory measures or measures imposing compensatory taxes for
the use of trading facilities do not come within the purview of the
restrictions contemplated by Article 301”. Compensatory taxes were held to
be ones which did not hinder the freedom of trade, commerce and
intercourse, instead facilitated the same. Further, the Court laid down a
“working test” to ascertain whether a tax is compensatory or not in the
following terms:-
“27…. It seems to us that a working test for deciding whether a tax is
compensatory or not is to enquire whether the trades people are having the
use of certain facilities for the better conduct of their business and
paying not patently much more than what is required for providing the
facilities. It would be impossible to judge the compensatory nature of a
tax by a meticulous test, and in the nature of things that cannot be done.”

180. In Automobile, the Bench negating the requirement of setting up a
separate fund for the taxes collected in the name of compensatory tax, held
that the State need not maintain a separate fund for the compensatory taxes
so collected from the traders enjoying the benefit of the services provided
by the State; rather it is sufficient if the State provides certain
facilities for better conduct of traders’ business. This Court held as
under:-
“28. Nor do we think that it will make any difference that the money
collected from the tax is not put into a separate fund so long as
facilities for the trades people who pay the tax are provided and the
expenses incurred in providing them are borne by the State out of whatever
source it may be…”

Having observed so, in Automobile itself, this Court had ruled out
the element of quid pro quo from the ambit of compensatory tax. While
stressing on the need for ensuring that the assessees are not ‘paying much
more than what is required for providing the facilities’, the Court merely
intended to prohibit levy of an exorbitant tax. It was nowhere intended by
the Court to authorise levy of ‘fee’ in the name of ‘compensatory tax’.

181. In various cases, this Court has repeatedly held that
regulatory measures like licensing or price control or compensatory
measures cannot be treated as violative of freedom of trade, commerce and
intercourse within the territory of India. While upholding the enhancement
of the motor vehicles tax, in G.K. Krishnan v. State of Tamil Nadu (1975) 1
SCC 375, this Court held that a compensatory tax is not a restriction upon
the movement part of trade and commerce. Neither should the tax go beyond
a proper recompense to the State for the actual use made of the physical
facilities provided in the shape of a road nor it is necessary that there
should be a separate fund or express allocation of money for the
maintenance of roads to prove the compensatory purpose, when such purpose
is proved by alternative evidence.

182. The decision in Krishnan’s case was reiterated in International
Tourists Corporation and Ors. v. State of Haryana and Ors. (1981) 2 SCC
318, in which levy of tax on passengers and goods under The Punjab
Passengers and Goods Taxation Act, 1952 and similar other enactments of
other States were under challenge. State of Haryana levied a tax on
transporters plying motor vehicles between Delhi and Jammu and Kashmir. The
transporters would use national highway, pass through Haryana, without
picking up or setting down passengers in the State. Since, the
responsibility to construct and maintain the highways is with the National
Highways Authority of India, it was contended by the transporters that the
tax could hardly be regarded as compensatory. But the Court rejected this
contention and held that if the taxes were to be proportionate to the
expenditure on regulation and service, it would not be a tax but a fee. It
was pointed out that in the case of a fee, it may be possible to precisely
identify and measure the benefits received from the Government and in the
case of regulatory and compensatory tax, it would be well-nigh impossible
to identify and measure the benefits received and the expenditure incurred
and to levy the tax in accordance with such benefits. It was held as
under:-
“9. While in the case of a fee it may be possible to precisely identify and
measure the benefits received from the Government and levy the fee
according to the benefits received and the expenditure incurred, in the
case of a regulatory and compensatory tax it would ordinarily be wellnigh
impossible to identify and measure, with any exactitude, the benefits
received and the expenditure incurred and levy the tax according to the
benefits received and the expenditure incurred. What is necessary to uphold
a regulatory and compensatory tax is the existence of a specific,
identifiable object behind the levy and a nexus between the subject and the
object of the levy. If the object behind the levy is identifiable and if
there is sufficient nexus between the subject and the object of the levy,
it is not necessary that the money realised by the levy should be put into
a separate fund or that the levy should be proportionate to the
expenditure. There can be no bar to an intermingling of the revenue
realised from regulatory and compensatory taxes and from other taxes of a
general nature nor can there be any objection to more or less expenditure
being incurred on the object behind the compensatory and regulatory levy
than the realisation from the levy.” [Emphasis added]

183. In M/s. Bhagatram Rajeevkumar v. Commissioner of Sales Tax,
M.P. and Ors. 1995 Supp (1) SCC 673, it was held that even if there is some
link or some connection between the tax and the facilities extended to the
trade directly or indirectly the levy cannot be challenged as invalid.

184. The same dictum was followed in State of Bihar and Ors. v. Bihar
Chamber of Commerce and Ors. (1996) 9 SCC 136, wherein this Court
considered the challenge to a legislation in which the State of Bihar
levied entry tax on the goods entering into a local area for consumption,
use or sale therein. The Act was challenged as violative of Art.301 of the
Constitution. After referring to Bhagatram, it was held as under:-
“18. In this connection, it is necessary to notice a few decisions brought
to our notice. In Bhagatram Rajeevkumar (1995) Suppl. 1 SCC 673, a three-
judge Bench of this Court has rejected the argument that to be
compensatory, the tax must facilitate the trade. The reason is obvious: if
a measure facilitates the trade, it would not be a restriction on trade but
an encouragement to it. It was observed: [SCC Page 678, Para 8]
“…The submission of Shri Ashok Sen, learned Senior Counsel that
compensation is that which facilitates the trade only does not appear to be
sound. The concept of compensatory nature of tax has been widened and if
there is substantial or even some link between the tax and the facilities
extended to such dealers directly or indirectly the levy cannot be impugned
as invalid. The stand of the State that the revenue earned is being made
over to the local bodies to compensate them for the loss caused, makes the
impost compensatory in nature, as augmentation of their finance would
enable them to provide municipal services more efficiently, which would
help or ease free flow of trade and commerce, because of which the impost
has to be regarded as compensatory in nature, in view of what has been
stated in the aforesaid decisions, more particularly in Hansa Corpn. Case
(1980) 4 SCC 697”.[Emphasis supplied]

185. The Constitution Bench in Jindal Stainless Ltd. (2) after
placing reliance on Automobile concluded that there is difference between a
taxing Statute whose purpose is collection of revenue, and a taxing Statute
whose purpose is regulation. The Court formulated a working test to
determine whether the impugned law is a product of the exercise of
regulatory power or taxing power: “If the impugned law seeks to control the
conditions under which an activity like trade is to take place then such
law is regulatory”. The Bench concluded that the only way to reconcile a
compensatory tax Statute that chooses movement of trade and commerce as a
criterion and in effect impedes it, is by holding it as regulatory and,
therefore, outside the scope of Articles 301, 302 & 304.

“38…. If the impugned law seeks to control the conditions under which an
activity like trade is to take place then such law is regulatory. Payment
for regulation is different from payment for revenue. If the impugned
taxing or non-taxing law chooses an activity, say, movement of trade and
commerce as the criterion of its operation and if the effect of the
operation of such a law is to impede the activity, then the law is a
restriction under Article 301. However, if the law enacted is to enforce
discipline or conduct under which the trade has to perform or if the
payment is for regulation of conditions or incidents of trade or
manufacture then the levy is regulatory. This is the way of reconciling the
concept of compensatory tax with the scheme of Articles 301, 302 and 304.
…”
The Bench further held:

“45. To sum up, the basis of every levy is the controlling factor. In the
case of “a tax”, the levy is a part of common burden based on the principle
of ability or capacity to pay. In the case of “a fee”, the basis is the
special benefit to the payer (individual as such) based on the principle of
equivalence. When the tax is imposed as a part of regulation or as a part
of regulatory measure, its basis shifts from the concept of “burden” to the
concept of measurable/ quantifiable benefit and then it becomes “a
compensatory tax” and its payment is then not for revenue but as
reimbursement/ recompense to the service/facility provider. It is then a
tax on recompense. Compensatory tax is by nature hybrid but it is more
closer to fees than to tax as both fees and compensatory taxes are based on
the principle of equivalence and on the basis of reimbursement/recompense.
If the impugned law chooses an activity like trade and commerce as the
criterion of its operation and if the effect of the operation of the
enactment is to impede trade and commerce then Article 301 is violated.
46. Burden on the State: Applying the above tests/parameters, whenever a
law is impugned as violative of Article 301 of the Constitution, the Court
has to see whether the impugned enactment facially or patently indicates
quantifiable data on the basis of which the compensatory tax is sought to
be levied. The Act must facially indicate the benefit which is quantifiable
or measurable. It must broadly indicate proportionality to the quantifiable
benefit. If the provisions are ambiguous or even if the Act does not
indicate facially the quantifiable benefit, the burden will be on the State
as a service/facility provider to show by placing the material before the
Court, that the payment of compensatory tax is a reimbursement/recompense
for the quantifiable/measurable benefit provided or to be provided to its
payer(s). As soon as it is shown that the Act invades freedom of trade it
is necessary to enquire whether the State has proved that the restrictions
imposed by it by way of taxation are reasonable and in public interest
within the meaning of Article 304(b) [see para 35 (of AIR) of the decision
in Khyerbari Tea Co. Ltd. and Anr. v. State of Assam].”

For compensatory tax, Jindal Stainless Ltd. (2) thus ingrained the tests of
(i) facial declaration; and (ii) proportionality to the quantifiable
benefits provided to its payers, as an essential element. It was held that
compensatory taxes like fees always have to be proportionate to the
benefits and the decisions rendered in Bhagatram and Bihar Chamber of
Commerce were declared bad in law.

186. Until Jindal Stainless Ltd. (2) compensatory taxes were dealt as
taxes and only Jindal Stainless Ltd. (2) equated compensatory tax to ‘a
fee’ and held that compensatory tax is based on the principle of “pay for
the value” and that it is a sub-class of ‘fee’. It was further held that
compensatory tax is a recompense/reimbursement. The distinction between a
‘tax’ and a ‘fee’ lies primarily in the fact that a ‘tax’ is levied as a
part of common burden, while a ‘fee’ is for payment of a specific benefit
or privilege rendered by some governmental agency. The distinction between
‘tax’ and ‘fee’ has been elucidated in Gujarat Ambuja Exports Limited and
Another v. State of Uttarakhand and Others (2016) 3 SCC 601 as under:
“….it is necessary to consider the difference between the concept of tax
and that of a fee. The neat and terse definition of tax which has been
given by Latham, C.J., in Matthews v. Chicory Marketing Board (1938) 60
C.L.R. 263 is often cited as a classic on this subject. “A tax”, said
Latham, C.J., “is a compulsory exaction of money by public authority for
public purposes enforceable by law, and is not payment for serviced
rendered”. In bringing out the essential features of a tax this definition
also assists in distinguishing a tax from a fee. It is true that between a
tax and a fee there is no generic difference. Both are compulsory
exactions of money by public authorities; but whereas a tax is imposed for
public purposes and is not, and need not, be supported by any consideration
of service rendered in return, a fee is levied essentially for services
rendered and as such there is an element of quid pro quo between the person
who pays the fee and the public authority which imposes it….In regard to
fees there is, and must always be, co-relation between the fee collected
and the service intended to be rendered….The distinction between a tax and
a fee is, however, important, and it is recognized by the Constitution.
Several Etnries in the Three Lists empower the appropriate Legislatures to
levy taxes; but apart from the power to levy taxes thus conferred each List
specifically refers to the power to levy fees in respect of any of the
matters covered in the said List excluding of course the fees taken in any
Court.”

The same view was reiterated in State of Tamil Nadu v. TVL South Indian
Sugar Mills Association (2015) 13 SCC 748, Krishi Upaj Mandi Samiti and
Others v. Orient Paper & Industries Ltd. (1995) 1 SCC 655 and Krishna Das
v. Town Area Committee, Chirgaon (1990) 3 SCC 645.

187. It must be reiterated that all the taxes are intended for public
purpose and are levied in public interest. Levy of tax is not to fill the
State coffers but to perform various functions including public welfare for
which said funds are required. Taxation is not a profit-making exercise for
the States; as stated earlier, the States perform several functions for
which they require funds and have the power to levy tax to raise revenues
and thus virtually all taxes are monies paid for services or facilities
provided by the State. Art. 266(1) provides that all revenue including that
from taxes received by a State Government shall form one consolidated
fund—the Consolidated Fund of the State. This fund is a reservoir and
resources placed in it are a part of the whole. All revenue is subsumed in
it and cannot be delineated. The Consolidated Fund of a State is a single
unified account for the State and withdrawal of money from the same is
protected by the requirement of passing an Appropriation Act. Further,
Art. 266(3) by stating that ‘no money out of any Consolidated Fund shall be
appropriated except in accordance with law – for the purposes and in the
manner provided in the Constitution’ provides another safeguard in lieu of
ensuring legitimate use of public money. The manner of appropriation of
money collected in the Consolidated Fund of the State falls under Part VI,
Chapter III, ranging from Articles 202 to 206 of the Constitution. There
are sufficient constitutional safeguards for the appropriation of money
collected in Consolidated Fund. The revenue generated by the States in the
form of entry tax has to necessarily form part of this Fund, and once it so
subsumed, States cannot be asked to show a ‘proximate quid pro quo’ by
furnishing ‘quantifiable data’ as to their expenditure. It may not be
possible for the States to show with mathematical precision a direct link
between the expenditure incurred in individual cases and the corresponding
levy imposed.

188. I hold that the entry tax levied by various States, falling within
the domain of entry 52, List II, is a tax simpliciter, even though by
nomenclature it is termed as a ‘compensatory tax’. Subject to passing the
muster of Art. 304(a), entry tax levied by the States under entry 52, List
II even though termed as compensatory tax does not fall foul of Art. 301.
The ratio laid down in Jindal Stainless Ltd. (2) equating compensatory
taxes to fee had wide ramifications. Some High Courts viz., Orissa,
Chhattisgarh and Madhya Pradesh upheld the levy of entry tax as
compensatory. Many other High Courts struck down the levy applying the
test laid down in Jindal Stainless Ltd. (2). In those cases where the
levy was struck down, High Courts held that the State could not show what
were the benefits provided to the traders who imported goods from outside
the States to recompense the tax payer.

189. I disagree with the narrow approach in Jindal Stainless Ltd. (2)
equating compensatory taxes to ‘fee’ and mandating the States to prove
‘proximate quid pro quo’ by ‘quantifiable data approach’. Since now we have
held that taxes are outside the purview of Art. 301, taxes in the name of
‘compensatory taxes’ are also outside the purview of Art. 301. To uphold a
regulatory or compensatory tax, comprehensive parameters cannot be laid
down as they may vary depending upon the nature of the levy. Automobile
case itself has laid down parameters of compensatory taxes (Das J. at Pages
536-537). It is not necessary that the money so collected should be put
into a separate fund or that the levy should be proportionate to the
expenditure.

190. Insofar as levy of entry tax is concerned, enactments of some States
facially declare that they are compensatory. The compensatory tax so levied
is subsumed in the Consolidated Fund of the State. Once there is
intermingling in the Fund and money is spent for public purposes of
development of various local areas like construction, maintenance of roads
and bridges, and for other amenities which facilitate trade, there will
always be a link between the liability of the tax borne by the traders and
benefits enjoyed by them either directly or indirectly.

191. To summarise the conclusions on question Nos. 2 and 3:-

In so far as compensatory taxes are concerned in the light of the
conclusion on question No.1, I hold that the nomenclature of ‘compensatory’
ascribed to the taxes levied by the State Government under Entry 52, List
II pursuant to Automobile is unwarranted. The concept of compensatory tax
was evolved fifty years back through judicial pronouncements. It has
withstood the test of time and thus, any subsequent judicial pronouncement
like the present one should not prejudice the interest of the parties
involved. The State Governments should not suffer any loss of revenue
solely because of judicial interpretations and innovations in Automobile
and the cases subsequent to it.

Subject to passing the muster of Art. 304(a), entry tax levied by the
States under entry 52, List II even though termed as compensatory tax does
not fall foul of Art. 301. It is not necessary that the money realized by
the levy should be put into a separate Fund or that the levy should be
proportionate to the expenditure. There is no bar to subsumption of the
revenue realized from regulatory/compensatory taxes into the Consolidated
Fund of the State as they are no different from other taxes of a general
nature. Moreover, the quantum of expenditure incurred in achieving the
object behind a compensatory levy cannot be inquired into.

Jindal Stainless Ltd. (2) & Anr. v. State of Haryana & Ors. (2006) 7 SCC
241 is not a correct view in adopting quantifiable data approach; for a
tax, there is no requirement of proximate quid pro quo and Jindal Stainless
Ltd. (2) is overruled. The view taken in Bhagatram and Bihar Chamber of
Commerce is correct as the same is in harmony with the original design of
compensatory tax laid down in Automobile.
REFUND AND UNJUST ENRICHMENT:-

192. Lastly, it is necessary to consider an important issue raised by the
assessees on the payment of tax/refund of tax in case the validity of the
legislations is upheld or otherwise as the case may be. It has come on
record that many Entry Tax legislations of the State are enacted pursuant
to Bhagatram and Bihar Chamber of Commerce. But Jindal Stainless Ltd. (2)
which we have now over-ruled, has led to a scenario of discordant judicial
pronouncements, whereby some High Courts have struck down the impugned
legislation as being non-compensatory, while the others have upheld the
laws declaring them compensatory. In some States, the High Courts have
passed interim orders directing petitioners to pay 33% of the demand and in
some cases 50% of the demand. When the matters were admitted by the Court,
interim orders were passed directing the assessees to pay 50% of the
demand. But, this Court cannot lose sight of the fact that assessees have
not pleaded and produced evidence to establish that they have not passed on
the tax burdens to the consumers. In absence of such a submission, the
normal presumption is that they have passed on the tax burden. Had they
contended otherwise, burden would have been on them to allege and establish
the same. In the absence of any such allegation and proof, the claim of
refund is not called for.

193. Learned Senior Counsel Mr. Giri has argued that the payment effected
under the Entry Tax Act can be legitimately taken into account for the
purpose of fixing the price of goods that can be collected by the same
person as a dealer under the Sales Tax Act, just as in the case of Sales
Tax. It is thus submitted that the burden suffered by the goods in question
have actually been passed on to the consumer and that at any rate the
assesses would not be entitled to any refund.

194. Learned Senior Counsel Mr. Rakesh Dwivedi has submitted that the
doctrine of unjust enrichment is invoked in cases where the States have
acted on the basis of earlier Supreme Court judgments or where the laws
have been operating for a very long time and the rights and liabilities of
the people have crystallised on the basis of such laws, and where the laws
are subsequently declared ultra vires and previous judgments are over-
ruled. It is further submitted that in such cases, particularly in tax
matters, law is declared prospectively and the reason behind such
prospective application is to save the taxes which has been already
collected. In order to support his contentions, he relied on the decisions
of this Court in Synthetics & Chemicals v. State of U.P. (1990) 1 SCC 109;
Belsund Sugar Co. Ltd. v. State of Bihar (1999) 9 SCC 620; Mafatlal
Industries Ltd vs Union of India (1997) 5 SCC 536 etc.

195. By catena of judicial pronouncements, this Court has fairly laid down
the concept of `unjust enrichment’ in respect of tax laws. The doctrine of
‘unjust enrichment’ is that no person can be allowed to enrich inequitably
at the expense of another. A right of recovery/payment under the doctrine
of ‘unjust enrichment’ arises where retention of a benefit is considered
contrary to justice or against equity. The concept of ‘unjust enrichment’
is applicable for the purpose of grant of refund. The concept provides that
if a person pays tax/duty to the Government in terms of the prevailing tax
Statutes and passes it on to the consumers and, subsequently, the tax/duty
is found not payable, refund cannot be claimed from the Government
authorities, as whatever liability he had incurred has already been
recovered. And, if he gets the refund, he would be unjustly enriched.

196. In Mafatlal Industries Ltd v. Union of India (1997) 5 SCC 536, a nine-
judge Bench of this Court considered the scope and ambit of the said
doctrine in detail. The Court held that Central Excise and Salt Act is a
self-contained Code which also provides for determination of claim of
refund. The Act was found to have expressly declared that no refund shall
be made except in accordance therewith. The Court further held that even in
regard to exercise of jurisdiction under Articles 32 and 226, Court would
certainly take note of the legislative intent manifested in the provision
in the Act. The Court further dealt extensively with the scope of refund in
a case where the burden of tax has been passed on to the consumers. An
excerpt from the majority view reads as under:
“108. A claim for refund, whether made under the provisions of the Act as
contemplated in proposition… (i) above or in a suit or writ petition in
the situations contemplated by proposition (ii) above, can succeed only if
the petitioner/plaintiff alleges an d establishes that he has not passed on
the burden of duty to another person/other persons. His refund claim shall
be allowed/decreed only when he establishes that he has not passed on the
burden of the duty or the extent he has not so passed on, as the case may
be. Whether the claim for restitution is treated as a constitutional
imperative or as a statutory requirement, it is neither an absolute right
nor an unconditional obligation but is subject to the above requirement, as
explained in the body of t he judgment. Where the burden of the duty has
been passed on, the claimant cannot say that he has suffered any real loss
or prejudice. The real loss or prejudice is suffered in such a case by the
person who has ultimately borne the burden and it is only that person who
can legitimately claim its refund. But where such person does not come
forward or where it is not possible to refund the amount to him for one or
the other reason, it is just and appropriate that amount is retained by the
State, that is, by the people. There is no immorality or impropriety
involved in such a proposition.
………….
The doctrine of unjust enrichment is a just and salutary doctrine. No
person can seek to collect the duty from both ends. In other words, he
cannot collect the duty from the purchaser at one end and also collect the
same duty from the State on the ground that it has been collected from him
contrary to law. The power of the court is not meant to be exercised for
unjustly enriching a person. The doctrine of unjust enrichment is, however,
inapplicable to the State. State represents the people of the country. No
one can speak of the people being unjustly enriched.”
197. In Godfrey Philips India Ltd. v. State of U.P. (2005) 2 SCC 515, the
constitutional validity of the Uttar Pradesh Tax on Luxuries Act, 1995 as
also other State Acts was challenged inter alia on the ground of
legislative competence of the State Legislatures. The Court allowed the
petition and held that the State Legislatures were not competent to impose
luxury tax on tobacco and tobacco products and the Acts were declared ultra
vires and unconstitutional. In the intervening period, however, tax was
collected by the appellants from consumers and also paid to the State
Governments. The Court held as under:

“94. It was stated on behalf of the State Governments that after obtaining
interim orders from this Court against recovery of luxury tax, the
appellants continued to charge such tax from consumers/customers. It is
alleged that they did not pay such tax to respective State Governments. It
was, therefore, submitted that if the appellants are allowed to retain the
amounts collected by them towards luxury tax from consumers, it would
amount to “unjust enrichment” by them.
95. In our opinion, the submission is well founded and deserves to be
upheld. If the appellants have collected any amount towards luxury tax from
consumers/customers after obtaining interim orders from this Court, they
will pay the said amounts to the respective State Governments.”

From the above decision in Godfrey Philips India Ltd., it is clear that
even when the legality of a tax has been challenged successfully, there can
be no question of the State tax being retained by the dealer/manufacturer
notwithstanding its illegality.
198. It is well-settled that a claim of refund can be allowed only when
the claimant establishes that he has not passed on the tax burden to the
consumers. No refund can be granted so as to cause windfall gain to any
person when he has not suffered the burden of tax. The possibility of the
tax burden having been passed on to the consumers by the assessees cannot
be ruled out in the present case. Applying the law laid down above to the
present case, it emerges that the assessees cannot claim refund
irrespective of whether the impugned legislations are declared valid or
unconstitutional. Unless the assessees establish that they have not passed
on the tax burden to the consumers, they cannot make a claim for refund and
unjustly enrich themselves.

199. Summary of the conclusions on Question Nos. 1 to 4 are as under:-
Question No. 1:
Non-discriminatory taxes do not constitute infraction of Art. 301 of the
Constitution. With due respect, the view taken in Atiabari and approved in
Automobile Transport that taxes do amount to restriction and that freedom
of trade, commerce and intercourse cannot be subject to restriction in the
form of taxes is not a correct view and are to be over ruled. However, I
am agreeing with the theory of compensatory tax evolved in the Automobile
case for the reasons indicated hereunder while answering Question Nos. 2
and 3.
Question No.4:-
Entry tax with reference to entry 52, List II of Seventh Schedule is not
violative of Art. 301 subject to the levy being non-discriminatory i.e.
passing the muster of Art. 304(a). A levy sustainable under Art. 304(a),
being non-discriminatory would ipso facto be out of the purview of Art.
301.
When the entry tax is levied by the Entry Tax Act enacted by the State
Legislature, the term ‘a local area’ contemplated by Entry 52 may cover the
‘Whole State’ or ‘a local area’ as notified in the legislation. I agree
with the view taken in Bihar Chamber of Commerce that from the point of
view of entry tax that the State is a compendium of local areas and where
the local areas contemplated by the Act cover the entire State, the
difference between the State and ‘a local area’ practically disappears.
Articles 304(a) and 304(b) are to be read disjunctively; both apply to
different subject matters; while Art. 304(a) deals with tax, Art. 304(b)
deals only with non-fiscal matters.
Where there is equivalence in terms of tax treatment between the locally
produced goods and the ones imported from other States, levy of entry tax
on the goods imported from other States when there is no such levy on the
locally produced goods is not discriminatory.
Every differentiation is not discrimination. Any difference in the rate of
tax on goods locally manufactured and those imported, such difference not
being discriminatory does not fall foul under Art.304(a). Any
incentive/benefits of concession in the rate of tax given to the local
manufacturers/producers in order to encourage the local
manufacturers/production in the State cannot be said to be discriminatory.
Digvijay and Video Electronics have laid down the correct law. Mahavir Oil
Mills is not a correct view.
Levy of entry tax on the goods imported from the other States is not
discriminatory merely on the ground that there are no similar goods
manufactured or produced within the taxing State. The law laid down in
Kalyani Stores is not a good law.
Levy of entry tax on the goods imported from outside India which enter into
local area for consumption, use or sale therein is within the legislative
competence of the State.
Question Nos. 2 and 3:-
In so far as compensatory taxes are concerned in the light of the
conclusion on question No.1, I hold that the nomenclature of ‘compensatory’
ascribed to the taxes levied by the State Government under Entry 52, List
II pursuant to Automobile is unwarranted. The concept of compensatory tax
was evolved fifty years back through judicial pronouncements. It has
withstood the test of time and thus, any subsequent judicial pronouncement
like the present one should not prejudice the interest of the parties
involved. The States should not suffer any loss of revenue solely because
of judicial interpretations and innovations in Automobile and the decisions
subsequent to it.
Subject to passing the muster of Art. 304(a), entry tax levied by the
States under entry 52, List II even though termed as compensatory tax does
not fall foul of Art. 301. It is not necessary that the money realized by
the levy should be put into a separate Fund or that the levy should be
proportionate to the expenditure. There is no bar to subsumption of the
revenue realized from regulatory/compensatory taxes into the Consolidated
Fund of the State as they are no different from other taxes of a general
nature. Moreover, the quantum of expenditure incurred in achieving the
object behind a compensatory levy cannot be inquired into.
Jindal Stainless Ltd. (2) & Anr. v. State of Haryana & Ors. (2006) 7 SCC
241 is not a correct view in adopting quantifiable data approach; for a
tax, there is no requirement of proximate quid pro quo and Jindal Stainless
Ltd. (2) is overruled. The view taken in Bhagatram and Bihar Chamber of
Commerce is correct as the same is in harmony with the original design of
compensatory tax laid down in Automobile.
Unjust Enrichment:
The concept of unjust enrichment is applicable for considering the
question of refund. Unless the assessees establish that they have not
passed on the tax burden to the consumers, they cannot make a claim for
refund and unjustly enrich themselves.

.………………………..J.
[R. BANUMATHI]
New Delhi;
November 11, 2016.
REPORTABLE

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No 3453 OF 2002 Etc. Etc.

JINDAL STAINLESS LTD & ANR …..APPELLANTS

Versus

STATE OF HARYANA & ORS …..RESPONDENTS
J U D G M E N T

Dr D Y CHANDRACHUD, J
This judgment is structured to consist of the following parts :
Introduction;

Part XIII of the Constitution : text and context;

Constitutional history as a guide;

The trend-setting decisions : Atiabari and Automobile Transport;
D1 Atiabari : Article 301 and taxation

D.2 Automobile Transport

E Compensatory taxes;
E.1 Original understanding

E.2 Khyerbari

E.3 Subsequent applications

E.4 The breaking point

E.5 Doctrinal concerns and inconsistencies

F The content of freedom : goods, services, persons and capital;
G Taxation and Federalism;
H Taxing powers;
H.1 Article 245 and constitutional limitations

H.2 Sovereignty and constitutional limitations

H.3 Part XIII and taxation

H.3.1 All taxes are not impediments

H.3.2 Articles 302, 303 and 304

H.3.3 Construing Article 304

H.3.4 Conjunctive or disjunctive: ‘may’; ‘and’

H.3.5 Article 304(a) not the universe of taxation

I Tax legislation : Judicial review and Part XIII;
I.1 Taxation and Part XII

I.2 The standard of judicial review

I.3 Limitations of Sinha CJ’s view in Atiabari

I.4 Presidential Sanction : the proviso to Article 304(b)

J Article 304(a) : the principle of non-discrimination;
J.1 Precedent – 1963 to 1980

J.2 Exemptions and incentives : Video Electronics and Mahavir

J.3 Article 304(a) and reasonable classification

J.3.1 Formal and substantive equality

J.4 Production and manufacture within the home state

K Entry tax;
K.1 Octrois and terminal taxes

K.2 Entry taxes and Article 304(a)

K.3 Meaning of ‘Local area’

K.4 Severability

K.5 Equalising tax burdens

K.6 Entry tax and imported goods

M Direct and inevitable effect test;

N Conclusion.
Introduction
References to Benches of nine Judges, or at any rate decisions by nine, are
a comparative rarity. Despite a prolific tradition of precedent in our
judicial institutions, there have been only eight reported decisions by a
Bench of nine Judges since the adoption of the Constitution[84]. The
present reference traverses an area of constitutional law which is fraught
with unresolved complexity. The draft-persons of the Constitution perceived
the freedom of trade, commerce and intercourse to lie at the heart of the
economic unity of the nation. They were keenly aware that parochial
pressures emanating from within the states could pose real challenges to
the creation of a pan- India common market. The dangers of protectionist
policies within the states had nonetheless to be balanced with the need to
meet the aspirations for development of all areas within the country.
Levels of economic attainment in the provinces and erstwhile princely
states were far from uniform at the eve of Independence. Many of the
erstwhile princely states had concerns about ceding their control over
trade and commerce to a national entity. Part XIII was formulated in this
background. It represents the balancing vision of the framers and seeks to
create an equilibrium between free trade and regulation, state and federal
control and between provincial autonomy and national interests in an area
closely related to economic growth and development.
2 Yet, the semantics of the provisions adopted in framing all of six
constitutional articles which comprised Part XIII- Articles 301 to 306 –
attracted criticism within the Constituent Assembly. One member complained
of several provisions threatening to become a “paradise for lawyers where
there will be so many innumerable loopholes that we will be wasting years
and years before we could come to the final and correct interpretation of
many clauses[85]”. Many years later, a distinguished Judge of this court
spoke of the “mix up of exception upon exception in the series of articles
in Part XIII that a purely textual interpretation may not disclose the true
intendment of the articles[86]”. Those remarks continue to be relevant even
now. The law in the area of free trade and commerce has remained in a state
of flux despite successive decisions by Constitution benches of this court.
A similar judicial cri de coeur has found expression in Australia[87]. That
this is  so should not seem surprising : this is an area of the
Constitution which cuts across major concerns about the federal structure,
the states’ power to tax and, the relationship between growth, development
and free trade.

3 Each of those concerns has a pointed contemporary relevance with the
adoption of the constitutional amendment providing for a Goods and Services
Tax. When the hearings began, many of the counsel had reservations on the
continued relevance of the reference. With the passage of the one hundred
and first constitutional amendment, the distribution of the legislative
power to tax goods and services has undergone a significant change. The
taxing entry for the levy of Entry tax (Entry 52 of List II of the Seventh
Schedule), which lies at the core of the dispute in the present reference,
stands deleted as part of a constitutional process by which several taxes
are being subsumed under the GST. Yet, the reference has to be answered,
not the least of the reasons for which is the determination of past
liabilities and entitlements. But more fundamentally, the reference raises
important issues of constitutional principle about the relationship of the
freedom of trade and commerce with the fiscal and regulatory concerns of
the states over the need to bring growth and development within. The issues
raised have a vital bearing on the intersection of the Constitution with
free trade one hand and growth and development on the other.

4 This judgment will explore the socio-economic and political
compulsions which led the founding fathers of the Constitution to adopt the
guarantee under Article 301. The political backdrop of partition with its
attendant social suffering provided a powerful rationale for a
constitutional structure which would knit the nation together as a cohesive
unit. The instrumentalities of trade and commerce were conceived, in the
vision of the draftsmen of the Constitution, as a means for bringing about
economic integration. The economic integration of India into a common
market was to be achieved by guaranting the freedom of trade throughout the
territory of India. Yet, at its birth the new nation comprised of different
regions, with disparate social attainments and economic development. They
had their own concerns, be they the erstwhile princely states or the states
which formed part of British India. Part XIII reflected an attempt by the
framers to draw a balance between freedom on one hand and the need to
regulate to protect diverse aspects of public interest both of a national
and regional character, on the other. The regulatory power under Article
302 would enable the national legislative body to perceive and regulate
aspects of public interest of a national character. Within the area of
regulation a distribution was envisaged between the Centre and the States
to preserve the balance within the newly created federation. The attention
that was bestowed to the regulatory requirements of the states in relation
to trade and commerce reflected the need for bringing the states on board
for producing a viable and acceptable social compact that the
constitutional document embodies.
5 Part XIII of the Constitution reflects a consciously crafted
constitutional superstructure which looks upon the freedom to trade and to
engage in commerce not merely from the perspective of trade and commerce
itself, but from a wider national perspective that incorporates both the
needs of the nation as reflected in regulatory powers of the centre and the
concerns of the federating states to preserve their interests and
obligations as well as their commitments to their people.
6 The debates of the Constituent Assembly provide a valuable insight,
grounded in history, which helps us in illuminating the meaning and content
of the text of Part XIII. History constitutes a seminal value in
interpreting the words of the Constitution since the events which were a
forerunner to the adoption of the Constitution shed light on the concerns
which led to the adoption of the text. Yet, as our contemporary
jurisprudence recognises, the text of the Constitution cannot be frozen by
the context of history which produced the language of the text. The
concerns that motivated the framers provide a historical context which is
an aid to constitutional interpretation. But, it is important to realise
that the Constitution as an organic document has to evolve with societal
change. The challenges to governance which India has faced over the last
seven decades cannot be ignored in giving present meaning to the
constitutional text. The words of the Constitution cannot be frozen in
their content with reference to the intent of its framers. To succeeding
generations lies the task of imparting a meaning that would, while ensuring
a sense of continuity, infuse the constitutional document with the ability
to meet the challenges of the present and foreseeable future.
7 I have had the privilege of reading the draft of the judgment of
the learned and distinguished Chief Justice. My judgment has
been necessitated by my inability to agree with some of the crucial
issues raised there, especially on its conclusion that taxes (except
for discriminatory taxes) can never be
restrictions within the meaning of Part XIII. On the aspects on which we
agree, I have adduced my own reasons.

Part XIII of the Constitution : Text and Context

8 Part XIII of the Constitution has more than an abundant share of
constitutional intricacies. Despite a judicial discourse of more than five
decades, the debate on the true meaning of its provisions continues to
bedevil academics, lawyers and judges who have had occasion to visit its
provisions.
9 The ambit of Part XIII is trade, commerce and intercourse within the
territory of India. Article 301[88] mandates that trade, commerce and
intercourse throughout the territory of India shall be free, “subject to
the other provisions” of Part XIII. The freedom thus conferred is subject
to the restrictions that are contemplated in the provisions of Part XIII
that follow. The sources of the restrictions, the extent of the
restrictions and the limitations or qualifications upon the power to
restrict are defined in Part XIII.
10 In framing Article 301, the framers of the Constitution made a
deliberate departure from the text of the Australian and US Constitutions.
Article 1 Section 8 of the US Constitution confers upon Congress the power
“to regulate commerce with foreign nations and among the several states”
(besides the Indian tribes). Section 92 of the Australian Constitution
stipulates that “on the imposition of uniform duties of customs, trade,
commerce and intercourse among the states whether by means of internal
carriage or ocean navigation shall be absolutely free”. The expression
‘absolutely free’ occurring in the Australian Constitution was consciously
not adopted in the framing of India’s Constitution. A simpler expression,
“free”, was preferred to “absolutely free”.
11 Dr B R Ambedkar while moving the introduction of draft Part XA of the
Constitution (corresponding to Part XIII) emphasised the impact of the
deletion of the qualification “absolutely” in defining the extent of the
freedom. Dr Ambedkar observed that :
“I should also like to say that according to the provisions contained in
this part, it is not the intention to make trade and commerce absolutely
free, that is to say, deprive both Parliament as well as the States of any
power to depart from the fundamental provision that trade and commerce
shall be free throughout India.”

At a certain level, the expression “absolutely free” adds little by way of
substantive content to ‘free’. However, in the context of comparative
constitutional history, the deletion of the word ‘absolute’ carried
significance. Absolute freedom may carry the meaning that the freedom is
not subject to restrictions. The use of the word ‘absolute’ was liable to
give rise to an inference that the freedom was unqualified. The
observations of Dr Ambedkar indicate that while trade, commerce and
intercourse are to be free, that freedom is not unqualified but that it is
subject to the provisions of Part XIII. While conferring the freedom, the
Constitution recognises expressly that the freedom which it confers would
be subject to the provisions of Part XIII.
12 The second aspect of Article 301 in which a conscious departure was
made from the US and Australian Constitutions is that the freedom of trade,
commerce and intercourse extends, in our Constitution, throughout the
territory of India and not merely among the states. The expression ‘among
the states’ would cover a movement inter-State or across State boundaries.
In discarding the expression “among the states” (which is used in Section
92 of the Australian Constitution) and “among several states” (which is
used in Article 1 Section 8 of the US Constitution), Article 301
guarantees a more comprehensive coverage to the freedom to include both
inter-State and intra-State trade, commerce and intercourse. ‘Throughout
the territory of India’, means in every part of India. In other words, the
freedom that is conferred by Article 301 extends over but is not confined
to inter-State movement across State boundaries.
13 The Constitution, while recognising the freedom of trade, commerce
and intercourse throughout the territory of India makes that freedom
subject to the provisions of Part XIII. Article 302[89] empowers
Parliament to impose restrictions on the freedom of trade, commerce and
intercourse between one state and another or within any part of the
territory of India. This is subject to qualifications. First, restrictions
have to be imposed by law. Second, they must be such as may be required in
the public interest. However, the empowerment of Parliament under Article
302 to impose restrictions on the freedom guaranteed by Article 301 is
subject to constitutional limitations prescribed in clause 1 of Article
303. Under clause 1 of Article 303[90], there is an absolute prohibition
upon Parliament making any law giving or authorising the giving of
preferences to one state over another or making a discrimination between
one state and another, by virtue of any entry relating to trade and
commerce in any of the lists of the Seventh Schedule. A similar limitation
is imposed on the state legislatures. The non-obstante provision in clause
1 of Article 303 is somewhat inapposite in its application to the
legislature of a state. In its application to Parliament, the non-obstante
provision which operates over Article 302 was intended to impose a
constitutional limitation upon Parliament while legislating to impose a
restriction in the public interest. Since Article 302 applies only to
Parliament and not to the state legislatures, the non-obstante provision
contained in Article 303 is to that extent inartistic. Be that it is may,
clause 1 of Article 303 imposes a constitutional limitation upon the law
making power of Parliament and the state legislatures while enacting a law
by virtue of any entry relating to trade and commerce in the lists of the
Seventh Schedule. The constitutional limitation prevents the grant of
preferences or the making of discrimination between one state and another
while enacting a law by virtue of any of the entries relating to trade and
commerce in the lists of the Seventh Schedule. However, the constitutional
limitation upon the power of Parliament under clause 1 of Article 303 is
lifted in clause 2 where Parliament enacts a law for dealing with a
situation arising from the scarcity of the goods in any part of the
territory of India. The freedom under Article 301 is thus subject to
Parliamentary restrictions under Article 302. The power to impose
restrictions is subject to the limitations in clause 1 of Article 303.
However, those limitations can be relaxed in the situation contemplated by
clause 2 of Article 303. The prohibition on the enactment of law which has
the effect of granting preferences or making discrimination between states
is, in relation to Parliament, lifted by clause 2 when it is necessary to
deal with a situation of the scarcity of goods in any part of India.
14 Article 304[91] commences with a non-obstante provision,
“notwithstanding anything in Article 301 or Article 303”. Under clause (a),
a state legislature may by law impose on goods imported from other states,
a tax to which similar goods manufactured or produced in that state are
subject. This has to be done in a manner that does not discriminate between
the goods so imported and goods so manufactured or produced in the state
which imposes the tax. Clause (a) of Article 304 subjects the taxing power
of a state with reference to goods imported from other states to a
constitutional limitation of non-discrimination. The prohibition of non-
discrimination is in regard to the tax which is imposed on goods imported
from another state. The equality of treatment is with reference to the tax
imposed on goods manufactured or produced in the state. The non- obstante
provision which refers to Article 301 carries the clear intendment that a
tax of the nature within the contemplation of clause (a) of Article 304
would, but for that provision have fallen within the ambit of Article 301.
The effect of the non-obstante provision is that notwithstanding Article
301 (which would otherwise bring within its purview a tax of this nature),
clause (a) of Article 304 enables the imposition by a state of a tax on
imported goods subject to the constitutional limitation of non-
discrimination between the goods that are imported into the state with
goods that are manufactured or produced within the state. Both clause (1)
of Article 303 and clause (a) of Article 304 embody principles of non-
discrimination, though with different facets.
15 Clause (1) of Article 303 deals with preferences or discrimination
between one state and another. Article 304 (a) deals with a non-
discriminatory tax imposed on goods imported into a state when a similar
tax is imposed on goods produced or manufactured in the state. Article 302
refers to restrictions in general without any qualification as regards the
fiscal or non-fiscal nature of the restrictions. The constitutional
limitation imposed by Article 303 on the power to impose a restriction
under Article 302 is also not defined with reference to a fiscal or non-
fiscal provision. Article 304(a) is a species of restriction namely, a non-
discriminatory levy of tax. Clause (b) of Article 304 enables the
legislature of a state to impose by law reasonable restrictions as may be
required in the public interest on the freedom of trade, commerce or
intercourse with or within that state. The expression “with or within that
state” indicates that the state legislature in exercise of its power can
impose restrictions both in regard to inter-State as well as intra-State
trade, commerce and intercourse. The power of the state to do so is,
however, conditioned by three limitations : the first is that the
restriction must be reasonable; the second is that the restriction should
be required in the public interest; and the third which is spelt out in the
proviso, is that the Bill or an amendment for the purpose of clause (b)
shall not be introduced or moved in the legislature of a state without the
previous sanction of the President.
16 A plain construction of the provisions of clause (a) and clause (b)
of Article 304 would indicate that clause (a) is not exhaustive of the
universe of taxing legislation insofar as the state legislatures are
concerned. Clause (a) of Article 304 embodies the principle of non-
discrimination and prescribes it as a limitation subject to which a state
may by law impose a tax on goods which are imported into the state. Clause
(a) lifts the embargo arising from Article 301 on the power of a state to
impose a tax on goods imported from other states subject to a condition:
the State may impose any tax to which similar goods manufactured or
produced in that state are subject. Clause (a), in other words deals only
with the taxation of goods which are imported from other states or union
territories.
17 Clause (b) of Article 304 refers to reasonable restrictions on the
freedom of trade, commerce or intercourse with or within the state. An
intra-State restriction is within the purview of clause (b) but not within
clause (a). Clauses (a) and (b) are separated by the conjunctive ‘and’. The
use of the expression ‘and’ must however be read together with the
prefatory part of Article 304. Article 304 provides that the legislature
of a state ‘may’ by law impose a tax on goods imported from other states,
subject to the principle of non-discrimination [embodied in clause (a)].
The state legislature may also impose such reasonable restrictions as are
required in the public interest [under clause (b)]. Clause (b) is,
however, subject to the proviso.
18 The provisions of Part XIII of the Constitution contain an
elaboration of the freedom of trade, commerce and intercourse and the
restrictions which the Constitution contemplates as being within the
legislative powers of Parliament and the state legislatures. The
legislative power conferred upon Parliament can restrict the ambit of the
freedom to the extent that is specified in Articles 302 and 303.
Similarly, the state legislatures are subject to the limitations contained
in Article 303 (1) and Article 304. Parliament as well as the state
legislatures are subject to
constitutional limitations on the exercise of their law making power in
restricting the freedom of trade, commerce and intercourse.
19 The extent of the freedom under Article 301 has in this manner been
made subject to the provisions of Part XIII. Those provisions of Part
XIII define the extent to which a restriction can be imposed by law as well
as the limitations on the power of Parliament and the state legislatures
while prescribing a restriction.
Constitutional history as a guide
20 The Constitution was enacted in a historical and comparative
framework. Historically, there was the presence in India prior to
independence of the British Indian territories on the one hand and the
princely states on the other. The founding fathers intended while enacting
Part XIII to wield India into an economically integrated entity. In
adopting Part XIII, the founding fathers did not intend to elaborate as
much on the notion of lassiez-faire as on the integration of India into an
economic entity.
21 The Constitution was framed in the context of a social, economic and
political upheaval. The Constituent Assembly debates provide an enriching
insight into the problems and concerns that were present to the minds of
the draftsmen of the Constitution, as they adopted what became Part XIII.
Dr B Shiva Rao in his seminal work titled ‘The Framing of India’s
Constitution’[92] explains the historical perspective which led to the
attention of the Constituent Assembly being engaged towards the freedom of
trade and commerce within the territories of the Union :
“Under the British Rule, freedom of trade was the established practice in
British India, with no inter-provincial duties or other trade barriers.
With the advent of provincial autonomy in April, 1937, it was considered
necessary to place this mater on a statutory basis. Accordingly, section
297 of the Government of India Act, 1935, prohibited Provincial Governments
from imposing barriers on trade within the country; nor could they levy any
tax, cess, toll or other due which discriminated between goods manufactured
in one locality and similar goods manufactured elsewhere. But this was far
from ensuring freedom of internal trade throughout the sub-continent.
Indian States could, and very often did, levy export and import duties at
their frontiers and some of them derived considerable revenue from this
source.”

22 On 29 March 1947, the Sub-committee on Fundamental Rights discussed
and adopted the draft provisions submitted by B N Rau on the freedom of
trade and commerce, which read thus :
“Subject to regulation by the law of the Union, trade, commerce and
intercourse among the units, whether by means of internal carriage or by
ocean navigation, shall be free: Provided that any unit may by law impose
reasonable restrictions thereon in the interest of public order, morality
or health.” (Id. at p.699)

23 While discussing the report of the Sub-committee Alladi Krishnaswami
Ayyar opined that: (i) goods which enter a particular unit from other
units of the of the union should not escape duties and taxes to which goods
produced in the concerned unit itself were subject; (ii) in an emergency a
unit should be able to place restrictions on inter-State trade and
commerce; (iii) the right should extend to non-citizens; and (iv) the
freedom of trade should cover coastal trade specifically. After these
suggestions were accepted, the Advisory Committee took up the issue for
discussion. Commenting on these developments, B Shiva Rao (supra)
specifically adverts to the view of C Rajagopalachari which was that the
units of the Union must have the power to impose customs duties and other
taxes for raising revenue. A contrary view was, however, expressed inter-
alia by Alladi Krishnaswami Ayyar. Shiva Rao’s statement of what
transpired is extracted below :
“During the discussions, Rajagopalachari expressed the view that units
should be given power to impose customs duties and other taxes for genuine
revenue purposes; if this was not conceded, the clause would wrest from
them a substantial means of increasing their revenues and hamper the
progress of the comparatively poorer ones amongst them. Alladi Krishnaswami
Ayyar and K M Panikkar feared, on the other hand, that the grant of such
taxing power to the Provinces or States might encourage competition between
them and thus weaken the federal idea and should, therefore, be prevented.
The committee accepted the provisions as recommended by the sub-committee
with one change; the sub-clause providing for central regulation of trade
by or with non-citizens was dropped as being vague and unnecessary.”
(Id. at p.700)

24 The clause was debated in the Constituent Assembly. B N Rau
incorporated the following clauses in the draft constitution of October
1947 :
“Subject to the provisions of any Federal law, trade, commerce and
intercourse among the units shall, if between the citizens of the
Federation, be free : Provided that nothing in this section shall prevent
any unit from imposing on goods imported from other units any tax to which
similar goods manufactured or produced in that unit are subject, so,
however, as not to discriminate between goods so manufactured or produced :
Provided further that no preference shall be given by any regulation of
trade, commerce or revenue to one unit over another: Provided also that
nothing in this section shall preclude the Federal Parliament from imposing
by Act restrictions on the freedom of trade, commerce and intercourse among
the units in the interests of public order, morality or health or in cases
of emergency.” (Id. at p.701)

25 The Drafting Committee thereafter redrafted the above provisos which
came to be included as independent articles under the heading of “Inter-
State Trade and Commerce” in Part IX of the draft constitution. Article 16
(which formed a part of the Chapter on Fundamental Rights) provided that
subject to the provisions of Article 244 and of any law made by Parliament,
trade, commerce and intercourse throughout the territory of India would be
free. Article 243 prohibited preferences and discrimination between one
state and another. Articles 244 permitted the imposition of a non-
discriminatory tax by a state on goods imported from another state similar
to a tax which goods manufactured in the state are subject.
26 Alladi Krishnaswami Ayyar had strong reservations to allowing the
imposition of reasonable restrictions on inter-State trade, on the ground
that this would practically nullify the freedom of trade secured under
draft Article 16, the expression “in the public interest” being vague.
When draft Article 16 was taken up in the Constituent Assembly, objections
were raised to it being adopted as an Article under the Fundamental Rights.
Subjecting the freedom of trade under Article 16 to a law made by
Parliament and to the power of the state to impose taxes and restrictions
was in this view destroying the fundamental character of the freedom
conferred and no residue would be left which could not be curtailed by
Parliament or the states.
27 Dr B R Ambedkar while responding to the inclusion of Article 16 drew
attention to the history surrounding the article. The Indian states had
initially agreed to join the Union only in respect of foreign affairs,
defence and communications. They were unwilling to allow the Union
Parliament to have legislative authority over trade and commerce by its
inclusion in the Union List of the Seventh Schedule. Shiva Rao[93] states
that on the other hand it was believed that the formation of an All-India
Union would be without meaning if trade and commerce throughout the Union
was not free. After the speech by Dr Ambedkar, draft Article 16 was adopted
to be added to the Constitution.
28 Subsequently, the Constituent Assembly accepted the view of Dr
Ambedkar that a separate part, Part XA, exclusively devoted to trade,
commerce and intercourse within the territory of India be adopted. Part XA
was to consist of Articles 274A to 274E. Eventually, Article 16 was
deleted from the Chapter on Fundamental Rights on the ground that with the
inclusion of the right in Article 274A (corresponding to present Article
301), the retention of Article 16 was rendered superfluous. Dr Ambedkar
explained that different articles which were scattered in various parts
were brought together in one part dealing with the freedom of trade,
commerce and intercourse. Shiva Rao adverts to the observations of Alladi
Krishnaswami Ayyar, which are significant :
“Alladi Krishnaswami Ayyar replied that the transfer of a provision in
regard to freedom of inter-State trade from one part of the Constitution to
another did not alter or affect the nature of the right embodied in it; the
mere placing of a provision in the chapter on fundamental rights did not
carry with it any particular sanctity, nor did its justiciability depend on
such placement.” (Id. at p.706)

Moreover, with the integration of the Indian states and with the strong
federation having materialised there was no need felt to retain the
provision for freedom of inter-State trade in the chapter on Fundamental
Rights.
29 Partition and the immense human suffering inflicted upon large
segments of the population provided a strident political backdrop for the
need to preserve the unity of the nation. In assigning the role of a strong
centre in the federal polity, the founding fathers had a constitutional
vision for preserving the political unity of free and democratic India. The
economic history of both the British and Indian states was marred by
famines and scarcity. Present to the minds of the founding fathers were
the inequalities of resources and disparities in development between
various provinces, including those that constituted British India on one
hand and Indian states on the other. The framers of the Constitution
contemplated that the provisions of draft Part XA (present Part XIII)
should be an instrument for achieving economic progress under the rubric of
one nation. Part XIII was the corner stone for fostering the economic
development of the nation. In the vision of the founding fathers, India had
to be knit together in terms of an economic and fiscal union.
30 In the social and political milieu that preceded the adoption of the
Constitution, the emphasis in Part XIII was not as much upon creating a
market economy: laissez faire was not an attractive political doctrine. In
fact, responding to an amendment that was proposed by Pandit Thakur Das
Bhargava that the freedom of trade should be absolute, T T Krishnamachari,
responded by stating that the extent of freedom which was allowed “is about
the maximum amount of liberty that we can give for trade and commerce, the
maximum amount of concession that we can give to trade and commerce
consistent with the future economic improvement of this country”. He
observed :
“Even as it was originally suggested, that we should make it a matter of
fundamental right, and even without the restrictions that have been put in
Article 16, I am afraid the economic progress of the country will become
well-nigh impossible. There is absolutely no use in the honourable Member
trying to confuse a matter of civil liberty with a matter or rights in
respect of trade and commerce. The world has well-nigh come to a position
when trade and commerce cannot be run without control and some kind of
direction by the Government. If my honourable friends think that we are in
the days of the nineteenth century when the laissez faire enthusiast had
practically the ordering of everything in the world, I am afraid they are
mistaken.”

In his address to the Constituent Assembly, T T Krishnamachari emphasised
the need to restrain the exercise of state powers which, it was
apprehended, may be deployed to pursue narrow provincial interests :
“A certain amount of freedom of trade and commerce has to be permitted. No
doubt, restrictions by the State have to be prevented so that the
particular idiosyncrasy of some people in power or narrow provincial
policies of certain States should not be allowed to come into play and
affect the general economy of the country.”

31 Yet regional concerns could not be ignored. Addressing the
Constituent Assembly, Alladi Krishnaswami Ayyar spoke about the diversity
of interests, geographical position and economic attainments of various
regions of the country. They required attention as well:
“My friend, Dr Ambedkar in the scheme has evolved and has taken into
account the larger interests of India as well as the interest of particular
states and the wide geography of this country in which the interests of one
region differ from the interests of another region. There is no need to
mention that famine may be raging in one part of the country while there is
plenty in another part. It may be that manure and other things are required
in one part of the country while profiteers from another part of the
country may try to transport the goods from the part affected. At the same
time, in the interests of the larger economy and the future prosperity of
our country, a certain degree of freedom of trade must be guaranteed.”

Consistent with the concern about enabling the country to achieve economic
prosperity, he spelt out the following priorities underlying Part XIII :
“Therefore in a federation what you have to do is, first you will have to
take into account the larger interests of India and permit freedom of trade
and intercourse as far as possible. Secondly, you cannot ignore altogether
regional interests. Thirdly, there must be the power of intervention of the
Centre in any case of crisis to deal with peculiar problems that might
arise in any part of India. All these three factors are taken into account
in the scheme that has been placed before you.”

32 The introduction of the proviso to draft Article 274 (D)
[corresponding to the proviso to the present Article 304 (b)] was justified
as being necessary “if on account of parochial patriotism or separatism
without consulting the larger interest of India as a whole,” a bill or
amendment was introduced by a state legislature. This was regarded by
Alladi Krishnaswami Ayyar as “a very restricted power that is conferred on
the legislation of a state” to impose reasonable restrictions on the
freedom of trade, commerce and intercourse with or within that state as may
be required in the public interest. Therefore, it was envisaged that the
President who had to grant sanction will have the opportunity to see that
the legislation is in the public interest and that the restriction imposed
is reasonable. Moreover, he observed “it is not possible to devise a
watertight formula for defining these restrictions.”
33 The deliberations in the Constituent Assembly surrounding the
introduction of Part XIII leave little ambiguity about the constitutional
philosophy underlying the introduction of the guarantee of free trade,
commerce and intercourse. The guarantee of that freedom was guided by the
object of fostering economic development. Towards achieving that goal, the
founding fathers recognised the need to weave the nation into one economic
entity. At the same time, regional interests representing the diversity
prevalent within the states had to be recognised by allowing a regulatory
role for the states. While recognising the importance of the state
legislatures in relation to trade, commerce and intercourse, the founding
fathers had evident concerns about what they described as parochial
interests or narrow provincial policies posing a danger to the economic
development of the nation. Hence, the Union Government was conferred with a
power of intervention which was qualitatively different from the regulatory
power conferred upon the states. To the Union Government was assigned the
role of ensuring that the goal of pursuing economic development of the
nation as one economic entity was not
destroyed by the pursuit of parochial interests. It was in that background
that the proviso to Article 304 (b) mandated the prior sanction of the
President to a bill or amendment introduced in the state legislature for
imposing reasonable restrictions in the public interest on the freedom that
was guaranteed by Part XIII.
34 The founding fathers were careful when they noted that it was not
possible to elucidate by a watertight formula, the form in which such
restrictions may take. The nature of the Indian economy on the eve of the
adoption of the Indian Constitution was radically different from the
economy which has emerged in the era of trade liberalism and beyond. I
shall deal with the impact of those changes in a subsequent part of this
judgment. At this stage, it would suffice to note that the guarantee of
freedom for trade, commerce and intercourse which the Constitution adopted
in Part XIII was an instrument of fostering economic progress as an
important facet of national policy.
D. The trend-setting decisions : Atiabari and Automobile Transport
35 Two decisions rendered over five decades ago have shaped
constitutional jurisprudence under Part XIII. They form the fulcrum of the
reference in these proceedings. The first is the decision of a Constitution
Bench in Atiabari Tea Company Ltd. v. The State of Assam [94]. The second
is a decision of seven Judges in the The Automobile Transport (Rajasthan)
Ltd. v. The State of Rajasthan[95].
36 In Atiabari, the Assam Taxation (on goods carried by roads and inland
waters ways) Act, 1954 was enacted by the state legislature under entry 56
of the State List to the Seventh Schedule. The law provided for the levy of
a tax on manufactured tea in chests carried by motor vehicles (except by
railways and airways) at a specified rate per pound.
37 A Special Bench of the High Court dismissed the petitions challenging
the validity of the Act. By a judgment of the Supreme Court rendered by a
majority, the appeals and petitions filed under Article 32 by producers of
tea were allowed. The majority held the Act to be ultra-vires.
38 Justice P B Gajendragadkar delivered the leading majority judgment on
behalf of Justices K N Wanchoo and K C Dasgupta, while Justice J C Shah
delivered a separate judgment. Justice Gajendragadkar held that the Act
imposed a direct restriction on the freedom of trade and in the absence of
compliance with the provisions of Article 304(b), it was unconstitutional.
Justice Shah held that Part XIII imposes restrictions on the legislative
powers of Parliament and state legislatures under Articles 245, 246 and 248
read with the lists of the Seventh Schedule. According to this view,
restrictions on freedom of trade and commerce include burdens in the nature
of taxation. The Act was held as having infringed Article 301 and failing
compliance with the proviso to Article 304 (b), it was found to be
unconstitutional. Chief Justice B P Sinha differed with the majority on
the ground that Part XIII of the Constitution did not justify the inference
that taxation simpliciter is within Article 301 of the Constitution.
39 The correctness of the view in Atiabari was reconsidered by a larger
bench of seven Judges in Automobile Transport (supra). The Rajasthan Motor
Vehicles Taxation Act, 1951 provided for the levy of a tax on motor
vehicles used in any public places or kept for use in Rajasthan. The
Rajasthan High Court, in view of a judgment rendered by its Full Bench
negatived a challenge to the provisions of the Act. The decision of the
Rajasthan High Court had been rendered before the judgment in Atiabari was
pronounced. When a Bench of seven Judges considered the matter in this
Court, Justice S K Das, delivered the leading majority judgment on behalf
of himself and Justices Kapoor and Sarkar.
40 The view of the three judges was that the Act did not violate the
provisions of Article 301 because the taxes imposed were compensatory in
nature which did not hinder the freedom of trade, commerce and intercourse.
The interpretation placed by the majority in Atiabari was held to be
“correct, but subject to this clarification” that regulatory measures or
measures imposing compensatory taxes for the use of trading facilities do
not fall within the purview of the restrictions contemplated by Article 301
and need not comply with the requirements of the proviso to Article 304(b)
of the Constitution. Justice B Subba Rao agreed with the view of Justice S
K Das, in a concurring judgment.
41 Justice M Hidayatullah delivered a dissenting judgment for and on
behalf of himself and Justices Rajagopala Ayyangar and Mudholkar. In the
view of the minority a tax which is made a condition precedent to the right
to enter upon and carry on business is a restriction on the right to carry
on trade and commerce. The tax, it was held, was not a fee for
administrative purposes, its object being to raise revenue. The judgment of
the minority held that the tax was directly upon trade and on its movement.

42 In order to facilitate an analysis of the varying and divergent lines
of thought in the three judgments in Atiabari and the three judgments in
Automobile Transport (supra), it would be necessary to consider the views
expressed under the following heads :
D.1 Atiabari : Article 301 and taxation
43 Chief Justice Sinha in his judgment in Atiabari held that freedom
under Article 301 could not be construed in such a comprehensive manner as
to include freedom from all impediments, restraints and barriers, including
freedom from all taxes :
“13. Learned counsel for the appellants vehemently argued that the freedom
contemplated by Article 301 must be construed in its most comprehensive
sense of freedom from all kinds of impediments, restraints and trade
barriers, including freedom from all taxation. In my opinion, there is no
warrant for such an extreme position.” (Id. at
p.826)

Defining the expressions trade, commerce and intercourse, Chief Justice
Sinha held that :

“13…..The three terms used in Article 301 include not only free buying and
selling, but also the freedom of bargain and contract and transmission of
information relating to such bargains and contracts as also transport of
goods and commodities for the purposes of production, distribution and
consumption in all their aspects, that is to say, transportation by land,
air or water. They must also include commerce not only in goods and
commodities, but also transportation of men and animals by all means of
transportation. Commerce would thus include dealings over the telegraph,
telephone or wireless and every kind of contract relating to sale,
purchase, exchange etc. of goods and commodities.” (Id. at
p. 826-827)
44 In the view of Chief Justice Sinha, in this comprehensive sense,
taxation of trade, commerce and intercourse would cover almost the entire
field of public taxation both in the Union and in the State lists. Hence,
“it is almost impossible to think that the makers of the Constitution
intended to make trade, commerce and intercourse free from taxation in that
comprehensive sense”. (emphasis supplied)
45 The first reason adduced in Chief Justice Sinha’s judgment for not
adopting such a comprehensive definition of the freedom under Article 301
is that the power to tax in order to raise revenue is a manifestation of
sovereignty. Being a sovereign power, it is not ordinarily justiciable.
Second, the power of the states to raise finances for the purpose of
government is elucidated in Part XII of the Constitution. Article 265
imposes a prohibition on the levy or collection of a tax except by
authority of law. Part XII of the Constitution which deals with finances
and Part XIII are self-contained provisions, one not being subject to the
other :
“Hence, both Parts XII and XIII are meant to be self-contained in their
respective fields. It cannot, therefore, be said that the one is subject to
the other.” (Id. at p. 824)

The third reason adduced in the judgment of Chief Justice Sinha for not
adopting such a comprehensive definition of the freedom conferred by
Article 301 is the dilution of the power of the states to impose taxes,
which would result from adopting such a construction :

“14…It is almost impossible to think that the makers of the Constitution
intended to make trade, commerce and intercourse free from taxation in that
comprehensive sense. If that were so, all laws of taxation relating to sale
and purchase of goods on carriage of goods and commodities, men and
animals, from one place to another, both inter-State and intra-State, would
come within the purview of Article 301 and the proviso to Article 304(b)
would make it necessary that all Bills or Amendments of pre-existing laws
shall have to go through the gamut prescribed by that proviso. That will be
putting too great an impediment to the power of taxation vested in the
States and reduce the States’ limited sovereignty under the Constitution to
a mere fiction. That extreme position has, therefore, to be rejected as
unsound.” (Id. at p. 827)
Fourthly, Chief Justice Sinha held that Article 304 is divided into two
parts : (i) clause(a) which deals with the imposition of
discriminatory taxes by a state legislature; and (ii) clause(b) which
relates to the imposition of reasonable restrictions. This, in the view of
the Chief Justice, indicates that the imposition of taxes is not within the
fold of reasonable restrictions on the freedom of trade, commerce and
intercourse :

“12…..But a close examination of the provisions of Article 304 would show
that it is divided into two parts viz. (1) dealing with imposition of
discriminatory taxes by a State Legislature; and (2) relating to imposition
of reasonable restrictions, thus showing that imposition of taxes,
discriminatory or otherwise, is a class apart from imposition of reasonable
restrictions on freedom of trade, commerce and intercourse.” (Id. at
p. 824)
Fifthly, Chief Justice Sinha opined that “not all taxes constitute
necessarily an impediment or restraint in the matter of trade, commerce and
intercourse” :
“15…..all taxation is not necessarily an impediment or a restraint in the
matter of trade, commerce and intercourse. Instead of being such
impediments or restraints, they may, on the other hand, provide the
wherewithals to improve different kinds of means of transport, for example,
in cane growing areas, unless there are good roads, facility for transport
of sugarcane from sugarcane fields to sugar mills may be wholly lacking or
insufficient. In order to make new roads as also to improve old ones, cess
on the grower of cane or others interested in the transport of this
commodity has to be imposed, and has been known in some parts of India to
have been imposed at a certain rate per maund or ton of sugarcane
transported to sugar factories. Such an imposition is a tax on transport of
sugarcane from one place to another, either intra-State or inter-State. It
is the tax thus realised that makes it feasible for opening new means of
communication or for improving old ones. It cannot, therefore, be said that
taxation in every case must mean an impediment or restraint against free
flow of trade and commerce. Similarly, for the facility of passengers and
goods by motor transport or by railway, a surcharge on usual fares or
freights is levied, or may be levied in future. But for such a surcharge,
improvement in the means of communication may not be available at all.
Hence, in my opinion, it is not correct to characterise a tax on movement
of goods or passengers as necessarily connoting an impediment, or a
restraint, in the matter of trade and commerce. That is another good reason
in support of the conclusion that taxation is not ordinarily included
within the terms of Article 301 of the Constitution.” (Id. at p.
827-828)

Sixthly, in the view of the Chief Justice Sinha “taxation simpliciter” is
not within the terms of Article 301 since the very purpose underlying the
taxing power is the ability of the state to raise money for public purposes
by compelling the payment by those who are taxed of moneys earned or
possessed by them, by virtue of the facilities and protection offered by
the state. A public purpose is implicit in every taxation. Part XIII when
it refers to ‘reasonable restrictions in the public interest’ could not
have intended to include taxation within the ambit of the expression.
46 At the same time, Chief Justice Sinha rejected the ‘extreme
proposition’ that taxation would be wholly outside the purview of Article
301. That position was rejected on the ground that firstly, Article 304
contains a specific reference to taxation and secondly, Article 305 prior
to its repeal made a specific reference to taxation for certain purposes.
Chief Justice Sinha made a distinction in the following observations :
“17…..The Article thus brings out the clear distinction between taxation as
such for the purpose of revenue and taxation for the purpose of making
discrimination or giving preference, both of which are treated by the
Constitution as impediments to free trade and commerce. In other words, so
long as the impost was not in the nature of an impediment to the free flow
of goods and commodities between one State and another, including in this
expression Union territories also, its legality was not subject to an
attack based on the provisions of Part XIII.” (Id. at p.
830)

47 In this view, a law which imposes an impediment to the free flow of
trade, commerce and intercourse such as by a high tariff wall is not a
measure of taxation but assumes a character of a trade barrier :
“16…..If a law is passed by the Legislature imposing a tax which in its
true nature and effect is meant to impose an impediment to the free flow of
trade, commerce and intercourse, for example, by imposing a high tariff
wall, or by preventing imports into or exports out of a State, such a law
is outside the significance of taxation, as such, but assumes the character
of a trade barrier which it was the intention of the Constitution – makers
to abolish by Part XIII.” (Id. at p. 829)

The conclusions of the Chief Justice are restated in the following
propositions :
“16….The objections against the contention that taxation was included
within the prohibition contained in Part XIII may thus be summarised: (1)
Taxation, as such, always implies that it is in public interest. Hence, it
would be the outside particular restrictions, which may be characterised by
the courts as reasonable and in public interest. (2) The power is vested in
a sovereign State to carry on Government. Our Constitution has laid the
foundations of a welfare State, which means very much expanding the scope
of the activities of Government and administration, thus making it
necessary for the State to impose taxes on a much larger scale and in much
wider fields. The legislative entries in the three Lists referred to above
empowering the Union Government and the State Governments to impose certain
taxations with reference to the movement of goods and passengers would be
rendered ineffective, if not otiose, if it were held that taxation
simpliciter is within the terms of Article 301. (3) If the argument on
behalf of the appellants were accepted, many taxes, for example, sales tax
by the Union and by the States, would have to go through the gamut
prescribed in Articles 303 and 304, thus very much detracting from the
limited sovereignty of the States, as envisaged by the Constitution. (4)
Laws relating to taxation, which is essentially a legislative function of
the State, will become justiciable and every time a taxation law is
challenged as unconstitutional, the State will have to satisfy the courts —
a course which will seriously affect the division of powers on which modern
constitutions, including ours, are based. (5) Taxation on movement of goods
and passengers is not necessarily an impediment.” (Id. at
p. 829-830)

The basic principle which is enunciated in the judgment of the Chief
Justice Sinha is that :
“18…..(2)  the freedom declared by Article 301 does not mean freedom from
taxation simpliciter, but does mean freedom from taxation which has the
effect of directly impeding the free flow of trade, commerce and
intercourse.” (Id. at p. 831)

48 The test, in the view of Chief Justice Sinha, is whether a tax has
the effect of directly impeding the free flow of trade, commerce and
intercourse. If it does, it falls within the ambit of Article 301. The
test is of the true nature and effect of the tax. Does it impose an
impediment to the free flow of trade, commerce & intercourse? An
illustration of such an impediment is a high tariff wall which then assumes
the character of a trade barrier. A high tariff wall is an example of an
impediment under taxing laws to the freedom of trade, not an exhaustive
elaboration. Those taxes which impede the free flow of trade and commerce
are within Article 301.
49 The judgment of Justice Gajendragadkar, for the majority holds that
the power of taxation is subject to constitutional provisions :

“35…Basing himself on this character of the taxing power of the State, the
learned Attorney General has asked us to hold that Part XIII that can have
no application to any statute imposing a tax. In our opinion, this
contention is ‘not’ well-founded…..“therefore, the true position appears to
be that, though the power of levying tax is essential for the very
existence of the government, its exercise must inevitably be controlled by
the constitutional provisions made in that behalf. It cannot be said that
the power of taxation per se is outside the purview of any constitutional
limitations.” (Id. at p. 846)
50 Justice Gajendragadkar noted first, that the power under Article 265
of the Constitution to levy a tax under the authority of law is referable
to Article 245 read with the corresponding legislative entries in the
Seventh Schedule. Since Article 245 is subject to the provisions of the
Constitution, the power of Parliament and of the state legislatures to
impose taxes is subject to the application of constitutional provisions,
which must include Part XIII :
“37….Now, if we look at Article 245 which deals with the extent of laws
made by Parliament and by the Legislatures of States, it begins with the
words “subject to the provisions of this Constitution”; in other words, the
power of Parliament and the Legislatures of the States to make laws
including laws imposing taxes is subject to the provisions of this
Constitution and that must bring in the application of the provisions of
Part XIII.” (Id. at p. 847-848)

Second, in this view, the freedom of trade, commerce and intercourse under
Article 301 is subject only to the provisions of Part XIII which means that
the amplitude of the freedom cannot be controlled outside Part XIII.
Thirdly, in the view of Justice Gajendragadkar, the freedom guaranteed by
Article 301 is a freedom from all restrictions except those which are
contemplated under Part XIII :

“42….Stated briefly trade even in a narrow sense would include all
activities in relation to buying and selling, or the interchange or
exchange of commodities and that movement from place to place is the very
soul of such trading activities. When Article 301 refers to the freedom of
trade, it is necessary to enquire what freedom means. Freedom from what?
is the obvious question which falls to be determined in the context. At
this stage, we would content ourselves with the statement that the freedom
of trade guaranteed by Article 301 is freedom from all restrictions except
those which are provided by the other Articles in Part XIII.” (Id. at p.
853)
Fourthly, Justice Gajendragadkar adverts to the effect of the non-obstante
clause in Article 304 which enables the imposition of a tax notwithstanding
the provisions of Article 301 :

“46…..How a tax can be levied on internal goods is, however, provided by
Article 304(b). The non-obstante clause referring to Article 301 would go
with Article 304(a), and that indicates that tax on goods would not have
been permissible but for Article 304(a) with the non-obstante clause. This
incidentally helps to determine the scope and width of the freedom
guaranteed under Article 301; in other words, Article 304(a) is another
exception to Article 301.” (Id. at p. 856)
In this view, Article 304 (a) and Article 304(b) have to be read together.
That tax legislation is included in Article 301 is an inference from the
use of the non-obstante clause in Article 304. Finally, Justice
Gajendragadkar held that movement of trade is the essence of the freedom
guaranteed by Article 301. If transport or movement of goods is taxed
solely on the basis that goods are carried or transported, that would
affect directly the freedom of trade under Article 301 :

“49…..it certainly includes movement of trade which is of the very essence
of all trade and its integral part. If the transport or the movement of
goods is taxed solely on the basis that the goods are thus carried or
transported that, in our opinion, directly affects the freedom of trade as
contemplated by Article 301. If the movement, transport or the carrying of
goods is allowed to be impeded, obstructed or hampered by taxation without
satisfying the requirements of Part XIII, the freedom of trade on which so
much emphasis is laid by Article 301 would turn to be illusory. When
Article 301 provides that trade shall be free throughout the territory of
India, primarily it is the movement part of the trade that it has in mind
and the movement or the transport part of trade must be free subject of
course to the limitations and exceptions provided by the other Articles of
Part XIII.” (Id. at p. 859)
51 Justice Gajendragadkar did notice the need to draw a balance for
preserving the powers of the states in a federal constitution. The test
which he formulated is that the restrictions which fall within Article 301
are those which directly and immediately restrict or impede the free flow
or movement of trade :

“50…..Thus considered we think it would be reasonable and proper to hold
that restrictions freedom from which is guaranteed by Article 301, would be
such restrictions as directly and immediately restrict or impede the free
flow or movement of trade. Taxes may and do amount to restrictions; but it
is only such taxes as directly and immediately restrict trade that would
fall within the purview of Article 301. The argument that all taxes should
be governed by Article 301 whether or not their impact on trade is
immediate or mediate, direct or remote, adopts, in our opinion, an extreme
approach which cannot be upheld.” (Id. at p. 860)
52 Justice Gajendragadkar, in the ultimate analysis also shuns an
interpretation under which all taxes would be brought within the ambit of
Article 301. The principle which the learned judge adopts is that taxing
laws are not excluded from the operation of Article 301 and that they can
and do amount to restrictions on freedom. Yet, tax laws which directly and
immediately restrict trade or its movement are alone within the ambit of
Article 301.
53 Justice Shah joined the conclusion of the majority in holding that
the Assam enactment violated the guarantee of freedom under Article 301 and
had not passed muster under the proviso to Article 304(b). But Justice
Shah agreed with the conclusion of the majority on a much wider premise
that all laws of taxation fall within the purview of Article 301. In his
view, trade and commerce comprehends traffic in goods and much more. In
this view, while movement of goods may be an important ingredient of
effective commerce, movement itself is not an essential ingredient of
commerce. In his view :

“66…..What is guaranteed is freedom in its widest amplitude — freedom from
prohibition, control, burden or impediment in commercial intercourse. Not
merely discriminative tariffs restricting movement of goods which are
included in the restrictions and are hit by Article 301, but all taxation
on commercial intercourse, even imposed as a measure for collection of
revenue is so hit. Between discriminatory tariffs and trade barriers on the
one hand and taxation for raising revenue on commercial intercourse, the
difference is one of purpose and not of quality. Both these forms of burden
on commercial intercourse trench upon the freedom guaranteed by Article
301.” (Id. at p. 874-875)
The freedom under Article 301, in the judgment of Justice Shah, connotes
freedom from tax burdens as well as other impediments but is subject to
Part XIII of the Constitution.
54 The distinction between the judgment of the majority and the view of
Justice Shah is precisely in the extent to which tax laws are held to fall
within the ambit of Article 301. For the majority, movement constitutes
the soul of trade whereas for Justice Shah, it is not an essential
ingredient in all situations. For the majority, it is the movement or the
transport part of trade that must be free subject to the limitations in
Part XIII. However, it was only such taxes as directly and immediately
impede trade that fall within the purview of Article 301. Justice
Gajendragadkar rejected the contention that all taxes should be governed by
Article 301 whether or not their impact on trade is immediate and direct on
the one hand or whether it is remote and “mediate “on the other. For
Justice Shah every law of taxation of commercial intercourse, even when it
is a measure for the collection of revenue is hit by Article 301.
55 Having said this, it is necessary also to note that there was at the
same time an agreement on principle on certain crucial aspects of Part XIII
between the views expressed in the judgment of the majority and the views
of Justice Shah. Firstly, the majority (as noted earlier) spoke of
constitutional restrictions and limitations on the legislative powers of
Parliament and the state legislatures, and emphasised that Part XIII is a
source of such a limitation. Justice Shah agreed with this premise in the
following observations :

“64….On the exercise of the legislative power to tax trade, commerce and
intercourse, restrictions are prescribed by certain provisions contained in
Part XII, e.g., Articles 276, 286, 287, 288 and 289: but these restrictions
do not exhaustively delimit the periphery of that power. The legislative
power to tax is restricted also by the fundamental freedoms contained in
Part III, e.g., Articles 14,15(1),19(1)(g) and 31(1) and is further
restricted by Part XIII. Article 245, clause (1), of the Constitution
expressly provides that the legislative powers of the Parliament and the
State Legislatures to make laws are subject to the provisions of the
Constitution; and Article 301 is undoubtedly one of the provisions to which
the legislative powers are subject.” (Id. at p. 873)
Secondly, Justice Shah like the majority emphasized the non-obstante
provision of Article 304 which operates with reference to Article 301. In
his view, if Article 301 did not deal with the burdens of taxation, there
was no reason to incorporate a non-obstante provision in Article 304 :

“74…. If Article 301 and Article 303 did not deal with the restrictions or
burdens in the nature of tax, the reason for incorporating the non-obstante
clause to which Article 304, clause (1), is subject, cannot be appreciated.
Undoubtedly, the provisions of Part XIII of the Constitution do not impose
additional or independent powers of taxation; the powers of taxation are to
be found conferred by Articles 245, 246 and 248 read with the Lists in the
Seventh Schedule, and the provisions of Part XIII are limitative of the
exercise of legislative power. The circumstance that the Constitution has
chosen to deal with a specific field of taxation as an exception to
Articles 301 and 303 (which should really be Article 303(1)) strongly
supports the inference that taxation was one of the restrictions from the
imposition of which by the guarantee of Article 301, trade, commerce and
intercourse are declared free.” (Id at p. 881)
Thirdly, Justice Shah adopts the same position as the majority did in
holding that the expression ‘restrictions’ in clause (b) of Article 304
includes a restriction in the nature of a tax :

“75…..Clause (b) deals with a general restriction which includes a
restriction by the imposition of a burden in the nature of tax. Clause (a)
deals with a specific burden of taxation in a limited field.”
(Id. at p. 881)

56 The basic difference between the judgment of the majority and the
decision of Justice Shah lies in the extent to which the taxing power is
regarded as being within or outside the purview of Article 301. For the
majority every taxing legislation is not within the ambit of Article 301.
The guarantee under Article 301 is against such restrictions as directly
and immediately restrict or impede the free flow or movement of trade. Only
those taxes which directly and immediately restrict trade would fall within
Article 301. For Justice Shah all taxation on commercial intercourse would
attract the provisions of Article 301.
57 A comparison of the view that was adopted by the majority with the
judgment of Chief Justice Sinha would indicate differences of substance on
some issues and essentially of degree on other aspects. Chief Justice Sinha
prefaced his discussion with the premise that taxation is governed by Part
XII and that Part XII and Part XIII are self-contained and independent
provisions. Moreover, Chief Justice Sinha held that taxation being an
essential attribute of sovereignty, it would not be appropriate in a
federal structure to make the state power of taxation subservient by the
application of Article 304 (b) to all taxing legislation. However, Chief
Justice Sinha ultimately accepts the position that not all but some tax
legislation is subject to the mandate of Article 301. In his view, so long
as a tax imposition is not an impediment to the free flow of trade,
commerce and intercourse, it must pass muster and would not fall within
Article 301. Justice Gajendragadkar also held (speaking for the majority)
that a tax law which directly and immediately restricts trade will fall
within the ambit of Article 301. The test in the judgment of Chief Justice
Sinha is whether a tax law “has the effect of directly imposing the free
flow of trade”. The test adopted by the majority of “such taxes as
directly and immediately restrict trade” find a broad co-relation to the
test adopted by Chief Justice Sinha. The difference in the view of the
majority from that of the learned Chief Justice on this aspect was
essentially a difference of degree. Chief Justice Sinha noted that he
differed with the majority on the ground that the Constitution does not
justify the inference that taxation simpliciter is within the terms of
Article 301. In his view, the Assam legislation in that case was a taxing
statute simpliciter without any discrimination against dealers or producers
outside the state. The majority held the tax to be unconstitutional since
its object was to collect taxes on goods solely on the ground that they are
carried by road or by inland waterways within the area of the state. This,
for the majority, was a restriction within the ambit of Article 301 which
could have been achieved lawfully only by satisfying the requirements of
Article 304 (b). On the other hand, Chief Justice Sinha would regard only a
discriminatory tax as a restriction on trade.
D.2 Automobile Transport
58 The seven Judge bench in Automobile Transport dealt, in the three
judgments which were delivered, with: (i) the nature and extent of the
freedom guaranteed by Article 301; (ii) the power to impose taxes; (iii)
constitutional limitations or restrictions on the power to tax; (iv) the
necessity of interpreting the provisions of Part XIII so as not to
eviscerate the sovereignty of the states; and (v) whether, and if so, the
extent to which Part XIII controls fiscal legislation.
D.2.1 Freedom and regulation
59 Justice S K Das, in the leading judgment of the majority held that
though Article 301 “runs unqualified”, the freedom must necessarily be
delimited by considerations of social orderliness :
“10…. As the language employed in Article 301 runs unqualified the Court,
bearing in mind the fact that that provision has to be applied in the
working of an orderly society, has necessarily to add certain
qualifications subject to which alone that freedom may be exercised.” (Id.
at p. 521)

60 Justice Subba Rao in a concurring judgment held that the freedom
conferred by Article 301 is a freedom of trade across borders. The freedom
is to trade unrestricted by barriers :
“35….. the said composite expression means trade across the borders: what
is free is that trade. It is implicit in the concept of freedom that there
will be obstructions to it. Such obstructions or barriers may be, in the
present context, to the freedom to trade across the borders. Article 301
provides for freedom from the said barriers or impediments in effect
operating as barriers. This freedom from barriers cannot operate in vacuum
and must be limited by space. A barrier may be put up between two States at
the boundary of the States or between two districts, two taluks, two towns
or between two parts of a town. The barrier may be at a particular point,
at a boundary or might take the form of a continuous impediment till the
boundary is crossed. It may take different forms. The restrictions may be
before or after movement. It may be a prior restraint or a subsequent
burden. But the essential idea is that a barrier is an obstacle put across
trade in motion at a particular point or different points. The expression
“shall be free” declares in a mandatory form a freedom of such transport or
movement from such barriers.” (Id. at p. 547-548)

61 Freedom under Article 301, being throughout the territory of India,
Justice Subba Rao held that Article 301 removes both inter-State and intra-
State barriers, making the country as a whole into one unit :
“36…..The freedom declared under Article 301 may be defined as a right to
free movement of persons or things, tangible or intangible, commercial or
non-commercial, unobstructed by barriers, inter-State or intra-State or any
other impediment operating as such barriers.” (Id. at p. 548)

62 Yet, the judgment of the majority posits that freedom under Article
301 is not impaired by facilitative regulations. Such regulations are
facilitative because they promote trade and are not restrictive of it. The
concept of facilitative regulations is in tandem with the view that the
right under Article 301 is capable of regulation so as to preserve an
orderly society. Regulations such as those defining limits of speed for
transport vehicles, permissible loads or requiring the registration of
vehicles do not impede trade. Adverting to these examples Justice S K Das
held :
“10…..that the application of rules like the above does not really affect
the freedom of trade and commerce; on the contrary they facilitate the free
flow of trade and commerce. The reason is that these rules cannot fairly be
said to impose a burden on a trader or deter him from trading: it would be
absurd, for example, to suggest that freedom of trade is impaired or
hindered by laws which require a motor vehicle to keep to the left of the
road and not drive in a manner dangerous to the public. If the word “free”
in Article 301 means “freedom to do whatever one wants to do”, then chaos
may be the result.” (Id. at p. 522)

Justice Subba Rao adopted the same position. Facilitative regulations, in
his view, do not restrict trade :
“37…Before a particular law can be said to infringe the said freedom, it
must be ascertained whether the impugned provision operates as a
restriction impeding the free movement of trade or only as a regulation
facilitating the same. Restrictions obstruct the freedom, whereas
regulations promote it. Police regulations, though they may superficially
appear to restrict the freedom of movement, in fact provide the necessary
conditions for the free movement. Regulations such as provision for
lighting, speed, good condition of vehicles, timings, rule of the road and
similar others, really facilitate the freedom of movement rather than
retard it. So too, licensing system with compensatory fees would not be
restrictions but regulatory provisions; for without it, the necessary lines
of communication, such as roads, water-ways and air-ways, cannot
effectively be maintained and the freedom declared may in practice turn out
to be an empty one. So too, regulations providing for necessary services to
enable the free movement of traffic, whether charged or not, cannot also be
described as restrictions impeding the freedom.” (Id. at p. 549)
Significantly, these observations of Justice Subba Rao indicate that fees
for the use of facilities or as charges for regulations which facilitate
trade do not hinder or obstruct the free flow of trade. For, without those
facilities, trade would be rendered difficult.
D.2.2 Taxation and constitutional limitations
63 Justice S K Das held that the power to impose taxes is essential
for the existence of government. Yet, in his view, it can be controlled by
constitutional provisions. Part XII of the Constitution controls the power
to levy taxes. But, Part XII does not exhaust the limitations on the power
to tax:
“13…. though the power of levying tax is essential for the very existence
of government, its exercise may be controlled by constitutional provisions
made in that behalf. It cannot be laid down as a general proposition that
the power to tax is outside the purview of any constitutional limitations.
We have carefully examined the provisions in Part XII of the Constitution
and are unable to agree that those provisions exhaust all the limitations
on the power to impose a tax.” (Id. at p. 527)

64 Justice Subba Rao dealt with the issue from the perspective of
whether the power of taxation is subject to limitation. Justice Subba Rao
analysed the legal presumption that taxation is in the public interest and
that it is not possible for a court to determine whether a particular rate
of tax is reasonable. Considering the matter, Justice Subba Rao observed
thus :
“39….. A law of taxation is made by Parliament or the Legislature of a
State, as the case may be, in exercise of the power conferred under the
Constitution by virtue of the entries found therein. It is a law just like
any other law made under the Constitution. This Court, in K. Thathunni
Moopil Nair v. State of Kerala [ AIR (1962) SC 552] and in Balaji v. I.T.
Officer [ AIR (1962) SC 123] , held that a law of taxation would be void if
it infringed the fundamental right guaranteed under Article 19 of the
Constitution. “Therefore, the law of taxation also should satisfy the two
tests laid down in Article 19(6) of the Constitution. It is said that a law
of taxation is always in public interest. Ordinarily, it may be so, but it
cannot be posited that there cannot be any exceptions to it. A taxing law
may be in public interest in the sense that the income realised may be used
for public good, but there may be occasions, when the rate or the mode of
taxation may be so abhorrent to the principles of natural justice or even
to the well settled principles of taxation that it may cause irremediable
harm to the public rather than promote public good, that the court may have
to hold that it is not in public interest. Nor can I agree with the
contention that it is impossible for a court to hold in any case that a
rate of taxation is reasonable or not”.  (Id. at p. 553)

In this view, no restriction, if it is unreasonable, can be more
deleterious to freedom than the imposition of a fiscal burden on it, which
may in certain circumstances destroy the very freedom. Consequently,
Justice Subba Rao rejected the notion that laws of taxation are outside the
scope of the freedom guaranteed by Article 301. The presumption of the
fiscal law being in the public interest does not exclude judicial review
where the law has transgressed those boundaries.
65 Justice Hidayatullah was explicit in holding that “taxation is within
the prohibition contained in Part XIII[96].”
66 The basic premise of the majority is that tax legislation is subject
to constitutional limitations or restrictions. Under Article 265, a tax can
be levied only with the authority of law. Article 245 which empowers
Parliament to enact legislation for the territory of India and the state
legislatures, for the territories of the respective states, is “subject to
the provisions of this Constitution.” This expression would include Parts
XII and XIII. Justice S K Das held thus :

“13…. Article 245 which deals with the extent of laws made by Parliament
and by the Legislatures of States expressly states that the power of
Parliament and of the State Legislatures to make laws is “subject to the
provisions of this Constitution”. The expression “subject to the provisions
of this Constitution” is surely wide enough to take in the provisions of
both Part XII and Part XIII. In view of the provisions of Article 245, we
find it difficult to accept the argument that the restrictions in Part XIII
of the Constitution do not apply to the taxation laws.” (Id. at
p. 527-528)
67 Having held that the power of taxation is subject to constitutional
limitations which include Part XIII, Justice S K Das rejected what he
described as a “narrow interpretation” which postulates that save and
except for Article 304(a), none of the other provisions of Part XIII extend
to taxing statutes. That submission was also not accepted by Justice Subba
Rao.
D.2.3 State sovereignty
68 The majority was conscious of the need to preserve the sovereignty
of the states. State autonomy would be impaired by an extensive
construction of Article 301 and if all measures of taxation were brought
within its ambit. Adopting such a view would lead to a situation where
every law passed by the state legislature would be subject to the proviso
to Article 304(b). Justice S K Das observed that a construction which would
bring about such a result must be avoided :

“11….. Such an interpretation would, in our opinion, seriously affect the
legislative power of the State Legislatures which power has been held to be
plenary with regard to subjects in List II. The States must also have
revenue to carry out their administration and there are several items
relating to the imposition of taxes in List II. The Constitution-makers
must have intended that under those items, the States will be entitled to
raise revenue for their own purposes. If the widest view is accepted, then
there would be for all practical purposes, an end of State autonomy even
within the fields allotted to them under the distribution of powers
envisaged by our Constitution. An examination of the entries in the Lists
of the Seventh Schedule to the Constitution would show that there are a
large number of entries in the State List (List II) and the Concurrent List
(List III) under which a State Legislature has power to make laws. Under
some of these entries, the State Legislature may impose different kinds of
taxes and duties, such as property tax, profession tax, sales tax, excise
duty etc., and legislation in respect of any one of these items may have an
indirect effect on trade and commerce. Even laws other than taxation laws,
made under different entries in the Lists referred to above, may indirectly
or remotely affect trade and commerce. If it be held that every law made by
the Legislature of a State which has a repercussion on tariffs, licencing,
marketing regulations, price-control etc. must have the previous sanction
of the President, then the Constitution insofar as it gives plenary power
to the States and State Legislatures in the fields allocated to them would
be meaningless”. (Id. at p. 524-525)
69 Justice Subba Rao in the concurring judgment also noted that
conceivably, every law enacted by a state legislature in pursuance of its
legislative power may remotely affect trade. If every Bill introducing such
a legislation were to be subjected to the prior sanction of the President
under the proviso to Article 304 (b) that would result in a serious
dilution of the autonomy of the states :
“38. The Constitution confers on the Parliament and the State Legislatures
extensive powers to make laws in respect of various matters. A glance at
the entries in the Lists of the Seventh Schedule to the Constitution would
show that every law so made may have some repercussion on the declared
freedom. Property tax, profession tax, sales tax, excise duty and other
taxes may all have an indirect effect on the free flow of trade. So too,
laws, other than those of taxation, made by virtue of different entries in
the Lists, may remotely affect trade. Should it be held that any law which
may have such repercussion must either be passed by the Parliament or by
the State Legislature with the previous consent of the President, there
would be an end of provincial autonomy, for in that event, with some
exceptions, all the said laws should either be made by the Parliament or by
the State Legislature with the consent of the Central Executive Government.
By so construing, we would be making the Legislature of a State elected on
adult franchise the handmaid of the Central executive.”
(Id. at p. 550)

70 Justice Hidayatullah was also concerned about the consequence on
state autonomy of the adoption of a view which subjugated all state
legislations having a conceivable, if even remote, impact upon trade to
Presidential sanction :
“124… the financial independence of the States was secured by an elaborate
division of heads of taxation, which were well thought out to provide the
States with the means of independent existence and the wherewithal of
nation-building activities. There is hardly any tax which the States are
authorised to collect which could not be said to fall on traders. Property
tax, sales tax, municipal taxes, electricity taxes (to mention only a few)
are paid by traders as well as by non-traders. To say that all these taxes
are so many, restrictions upon the freedom of trade, commerce and
intercourse is to make the entire Constitutional document subordinate to
trade and commerce. Since it is axiomatic that all taxes which a tradesman
pays must burden him, any tax which touches him must fall within Article
304, if the word “restriction” is given such a wide meaning, every such
legislation will then be within the pleasure of the President, and this
could not have been intended. “Restriction” must, therefore, mean something
more than a mere tax burden.” (Id. at p. 633-634)

Every burden of tax, in this view would not be a restriction of trade and
commerce.
Justice Hidayatullah too shared this concern when he observed :
“125… To bring all taxes within the reach of Article 301 and thus to bring
them also within the reach of Article 304 is to overlook the concept of a
Federation, which allows freedom of action to the States, subject, however,
to the needs of the unity of India. Just as unity cannot be allowed to be
frittered away by insular action. The existence of separate States is not
to be sacrificed by a fusion beyond what the Constitution envisages.” (Id.
at p. 634-635)
E. Compensatory Taxes
E.1 Original understanding
71 The judgment of the majority evolved the concept of compensatory
taxes in response to its felt concern to preserve state autonomy.
Compensatory taxes which are in the nature of a charge for the use of
trading facilities would not be regarded as being a hindrance to the
freedom of trade, so long as they are reasonable. By first devising the
concept and then placing it beyond the pale of Article 301, the Court in
Automobile Transport ensured that compensatory taxes would not be subject
to the constitutional grind of Article 304(a). A class of tax legislation
bearing a compensatory character was carved out of Part XIII.
72 What are compensatory taxes? Explaining the concept, Justice S K Das
in the judgment of the majority held that :

“10… Another class of examples relates to making a charge for the use of
trading facilities, such as, roads, bridges, aerodromes etc. The collection
of a toll or a tax for the use of a road or for the use of a bridge or for
the use of an aerodrome is no barrier or burden or deterrent to traders
who, in their absence, may have to take a longer or less convenient or more
expensive route. Such compensatory taxes are no hindrance to anybody’s
freedom so long as they remain reasonable; but they could of course be
converted into a hindrance to the freedom of trade.” (Id. at
p. 522)
In this view, for a tax to become prohibited, it has to be a tax, the
effect of which is to directly hinder “the movement part of trade”[97]. So
long as a tax remains compensatory or regulatory, it does not operate as a
hindrance. Again, this was elaborated in the following observations :
“14….But we must advert here to one exception which we have already
indicated in an earlier part of this judgment. Such regulatory measures as
do not impede the freedom of trade, commerce and intercourse and
compensatory taxes for the use of trading facilities are not hit by the
freedom declared by Article 301.” (Id. at p. 528)

In the view of the majority :
“17….Regulatory measures or measures imposing compensatory taxes for the
use of trading facilities do not come within the purview of the
restrictions contemplated by Article 301 and such measures need not comply
with the requirements of the proviso to Article 304 (b) of the
Constitution.” (Id. at p. 533)

Compensatory taxes were held to lie outside Article 301. Not being
‘restrictions’ which hamper the freedom of trade, compensatory taxes would
not fall within the ambit of Article 301 and were not subject to the
rigours of the proviso to Article 304(b).
73 The tax imposed by the State of Rajasthan was held to be compensatory
since it facilitated trade and commerce :
“19….The taxes are compensatory taxes which instead of hindering trade,
commerce and intercourse facilitate them by providing roads and maintaining
the roads in a good state of repairs.” (Id. at p.
536)

A tax would not cease to be compensatory merely because the precise or
specific amount which is calculated is not actually used to provide
facilities. The test on whether a tax is compensatory is formulated thus :
“19…It seems to us that a working test for deciding whether a tax is
compensatory or not is to enquire whether the trades people are having the
use of certain facilities for the better conduct of their business and
paying not patently much more than what is required for providing the
facilities.” (Id. at p. 536)
Even if the proceeds from the tax are not credited to a separate fund that
would make no difference so long as facilities are provided for trades’
people who pay the tax. In his concurring judgment, Justice Subba Rao also
adopted the ‘direct and immediate effect’ test. Justice Subba Rao held that
:
“38…If a law directly and immediately imposes a tax for general revenue
purposes on the movement of trade, it would be violating the freedom. On
the other hand, if the impact is indirect and remote, it would be
unobjectionable. The Court will have to ascertain whether the impugned law
in a given case affects directly the said movement or indirectly and
remotely affects it.” (Id. at p. 550-551)

A law which directly and immediately affects the free movement of trade in
this view is a restriction on freedom. However, a measure which is
compensatory or regulatory does not hinder trade :
“40…. Of all the doctrines evolved, in my view, the doctrine of “direct and
immediate effect” on the freedom would be a reasonable solvent to the
difficult situation that might arise under our Constitution. If a law,
whatever may have been its source, directly and immediately affects the
free movement of trade, it would be restriction on the said freedom. But a
law which may have only indirect and remote repercussions on the said
freedom cannot be considered to be a restriction on it. Taking the
illustration from taxation law, a law may impose a tax on the movement of
goods or persons by a motor-vehicle; it directly operates as a restriction
on the free movement of trade, except when it is compensatory or
regulatory. On the other hand, a law may tax a vehicle as property, or the
garage wherein the vehicle used for conveyance is kept. The said law may
have indirect repercussions on the movement, but the said law is not one
directly imposing restrictions on the free movement.”

74 Justice Hidayatullah adopted the position that a tax would amount to
a restriction when it is placed upon trade directly and immediately. But,
in his view, a distinction would have to be drawn between a tax which is
paid by tradesmen in common with non-tradesmen and a tax upon trade. A tax
which is imposed upon trade, as such, must be distinguished from general
taxes imposed for the purposes of revenue. The latter are normally not
within the reach of Part XIII :
“125.That a tax is a restriction when it is placed upon a trade directly
and immediately may be admitted. But there is difference between a tax
which burdens a trader in this manner and a tax, which being general, is
paid by tradesmen in common with others. The first is a levy from the trade
by reason of its being trade, the other is levied from all, and tradesmen
pay it because everyone has to pay it. There is a vital difference between
the two, viewed from the angle of freedom of trade and commerce. The first
is an impost on trade as such, and may be said to restrict it; the second
may burden the trader, but it is not a restriction’ of the trade. To refuse
to draw such a distinction would mean that there is no taxing entry in
Lists I and II which is not subject to Articles 301 and 304, however
general the tax and however non-discriminatory its imposition.”

75 Justice Hidayatullah accepted the notion of facilitative regulations
such as traffic rules and rules of the road. Such regulatory provisions, in
his view, are not restrictions at all since they do not hamper trade or
impair its freedom. Consequently, a fee for rendering services to the trade
would not hamper or restrict it. Similarly, an administrative fee may also
be viewed as a part of regulation and would not fall to be classified as a
restriction. A tax however, which is a condition precedent to the right to
enter upon and carry on business stands on a different footing :
“131. Let us now see whether the validity of taxation laws directly
impinging on trade and commerce can be upheld on the ground that they are
regulatory. Here, a distinction must be made between fees and taxes. Fees
charged as quid pro quo for services rendered or as representing
administrative charges are quite different from taxes, pure and simple.
Fees may partake of regulation when they are demanded to enable Government
to meet the cost of administration. But the tax, with which we are
concerned, is hardly a fee in that narrow sense. It is a tax for raising
revenue.”

Justice Hidayatullah dissented from the judgment of the majority on the
ground that the tax in question was evidently not a fee for administrative
purposes nor could it be justified as representing a payment for services.
The object of the tax was to raise revenue, which distinguished it from a
fee.
76 The correctness of the decision in Automobile Transport – as indeed
of the earlier decision in Atiabari – lies at the heart of this reference.
At this stage, it would be necessary to recapitulate the basic principles
which emerged from Automobile Transport. The decision and the principles
which it proceeds to formulate have their own logic. First, Automobile
Transport enunciates that the freedom under Article 301 is consistent with
facilitative regulations which enhance, rather than hinder trade. Second,
though the power to tax is an essential attribute of government, it is
subject to constitutional limitations including amongst them Part XIII of
the Constitution. As a consequence, tax laws are not as a matter of
principle outside the ambit of Article 301. Third, the test to be applied
in determining whether a law infringes the freedom guaranteed by Article
301 is whether the direct and immediate effect is to hinder the movement of
trade. A law which has that effect, including a tax law must, where it has
been enacted by the state legislature be subject to the provisions of
Article 304. Fourth, compensatory taxes which are imposed in consideration
of the facilities which are provided by the state to trade and commerce are
outside the ambit of Article 301. Fifth, a compensatory tax does not
hinder the freedom of trade and commerce and need not comply with the
requirements of the proviso to Article 304(b) of the Constitution.
E.2 Khyerbari
77 In Atiabari, an enactment of 1954 legislated by the State of Assam
was found to be invalid. The state legislature then obtained the previous
sanction of the President under Article 304(b) and proceeded to enact the
Assam Taxation (on goods carried by road or on inland waterways) Act –
1961. A Constitution Bench dealt with the challenge to the new law in
Khyerbari Tea Co. Ltd. v. State of Assam[98].
78 Justice Gajendragadkar who delivered the judgment of the majority
held that the judgment in Automobile Transport introduced a “clarificatory
rider” to the majority view in Atiabari[99] and that it had “substantially
accepted” the earlier decision[100].
79 The opinion of Justice Gajendragadkar in Khyerbari seems to indicate
an element of reservation in regard to the concept of compensatory taxes.
Compensatory taxes, the judge noted, were evolved in conceptual terms in
Australia in the context of Section 92 which is “absolute in terms” and on
its “literal construction, admits of no exceptions”. Justice Gajendragadkar
indicated that the constitutional compulsions which led to the notion of
compensatory taxes not being a hindrance to freedom being adopted in
Australia were absent in India. Articles 302 to 304 specifically provide
for the imposition of restrictions on the freedom guaranteed by Article
301. Justice Gajendragadkar adverted to the minority view of Justice
Hidayatullah in Automobile Transport on this aspect. His observations on
the concept of compensatory taxes are as follows :
“13… Section 92 is absolute in terms and on its literal construction,
admits of no exceptions. The Australian decisions, therefore, had to
introduce distinctions, such as compensatory or regulatory tax laws in
order to take laws answering the said description out of the purview of
Section 92. In our Constitution, however, though Article 301 is worded
substantially in the same way as Section 92, Articles 302 and 304 provide
for reasonable restrictions being imposed on the freedom of trade subject
to the requirements of the said two articles, and so, the problem facing
judicial decisions in Australia and in this country in regard to the
freedom of trade and the restrictions which it may be permissible to impose
on it, is not exactly the same. The minority view expressed by
Hidayatullah, J. has pointedly referred to this aspect of the matter.”

80 In Khyerbari, the judgment of the Supreme Court noted in more than
one place that the tax in question had not been supported by the State of
Assam on the ground that it was compensatory. Justice Gajendragadkar held
that if the enactment had been claimed by the state to be compensatory, it
would have been necessary to constitute a larger Bench to reconsider the
position. This was because the state law of 1954 was enacted as a
consequence of the earlier law having been invalidated in Atiabari. In
Atiabari, the view of the majority was that such a tax (even if
compensatory) could be sustained only after complying with Article 304(b).
The earlier law had been struck down ‘though it was compensatory’. Justice
Gajendragadkar found that it would be unfair to preclude the petitioners
from contending that the compensatory character of the levy was not
material to its validity under Part XIII. Justice Gajendragadkar
accordingly held as follows :
“14…. If in the present case, it had been urged before us that the tax
levied by the Act is compensatory in character, it would have been
necessary to consider the question once again by constituting a larger
Bench. It will be recalled that the Act with which we are concerned has
been passed by the Assam Legislature directly as a result of the decision
of this Court in Atiabari Tea Co. case [(1961) 1 SCR 809] ; that decision
was that if the tax imposed by the Act was compensatory in character, then
the Act could be sustained only if it was passed after complying with the
provisions of Article 304(b). The Assam Legislature has accordingly adopted
the said procedure and passed the Act. If the Act had been compensatory in
character, it would have become necessary for us to consider the whole
position once again, because it would obviously be unfair and unjust that
the earlier Act should have been struck down though it was compensatory in
character and in testing the validity of the present Act, it should be open
to the petitioners to contend that its compensatory character is irrelevant
to the enquiry under Article 304(b).”

81 A reference to the larger bench was however obviated since the High
Court had held that Act not to be compensatory and no submission to the
contrary was urged by the state. The new enactment of the Assam Legislature
was upheld against the challenge that it violated Articles 14, 19 and 301 :

“45. It is, of course, true that the validity of tax laws can be questioned
the light of the provisions of Articles 14, 19 and 301 if the said tax
direct and immediately imposes a restriction on the freedom of trade; but
the power conferred on this Court to strike down a taxing statute if it
contravenes the provisions of Articles 14, 19 or 301 has to be exercised
with circumspection bearing in mind that the power of the State to levy
taxes for the purpose, governance and for carrying out its welfare
activities is a necessary attribute sovereignty and in that sense it is a
power of paramount character. In what case a taxing statute can be struck
down as being unconstitutional is illustrated in the decision of this Court
in K.T. Moopil Nair v. State of Kerala. [(1961) 3 SCR 77]……. It is in
regard to such a taxing statute which can properly be regarded a purely
confiscatory that the power of the court can be legitimately invoked and
exercised”.
The law enacted by the state legislature was upheld in Khyerbari not on the
ground that it was compensatory- such a justification having not been
pressed by the state – but on the ground that its provisions were not
violative of Articles 14, 19 and 301. The Act was not confiscatory and was
held to pass muster under Articles 14, 19 and 301.
E.3 Subsequent applications
82 Between 1962 and 1995, the working test adopted in Automobile
Transport for determining whether a tax is compensatory was adopted largely
in the context of motor vehicle taxes. See in this context the decisions
in S K Madar Saheb v. State of AP[101];  Bolani Ores Ltd v. State of
Orissa[102]; G. K. Krishnan v. State of TN[103]; International Tourist
Corpn. v. State of Haryana[104]; Malwa Bus Service (P) Ltd. v. State of
Punjab[105]; Meenakshi v. State of Karnataka[106]; B.A. Jayaram v. Union of
India[107] and State of Maharashtra v. Madhukar Balkrishna Badiya[108].
83 In International Tourist Corporation v. State of Haryana[109],
Justice O. Chinnappa Reddy speaking for a Bench of two Judges of
this Court refined the test of a regulatory and compensatory tax by
stipulating that there must exist a specific or identifiable object behind
the levy and a nexus between the subject and the object. This Court held :

“9.While in the case of a fee it may be possible to precisely identify and
measure the benefits received from the Government and levy the fee
according to the benefits received and the expenditure incurred, in the
case of a regulatory and compensatory tax it would ordinarily be well nigh
impossible to identify and measure, with any exactitude, the benefits
received and the expenditure incurred and levy the tax according to the
benefits received and the expenditure incurred. What is necessary to uphold
a regulatory and compensatory tax is the existence of a specific,
identifiable object behind the levy and a nexus between the subject and the
object of the levy. If the object behind the levy is identifiable and if
there is sufficient nexus between the subject and the object of the levy,
it is not necessary that the money realised by the levy should be put into
a separate fund or that the levy should be proportionate to the
expenditure.” (Id. at p. 328)

Reading the nexus requirement into a compensatory tax represented the
effort of this Court to bring clarity to the otherwise vague and uncertain
core of a judicially evolved doctrine.
84 In G K Krishnan v. State of Tamil Nadu[110], a tax on motor vehicles
under the Motor Vehicle Taxation Act, 1931 was under challenge on the
ground of a violation of Article 301. By a notification, the rate of tax
which was imposed on a quarterly basis was enhanced. Justice K K Mathew
who delivered the judgment of a Bench of three Judges of this Court
observed that the judgment in Automobile Transport “practically overruled”
the decision in Atiabari :
“13…..insofar as it held that if a State Legislature wanted to impose tax
to raise moneys necessary in order to maintain roads, that could only be
done after obtaining the sanction of the President as provided in Article
304(b)”. (Id. at p. 380)

Justice Mathew held that there is a clear distinction between a law which
interferes with the freedom to trade and a law which merely regulates :
“14….The word “free” in Article 301 does not mean freedom from regulation.
There is a clear distinction between laws interfering with freedom to
carry out the activities constituting trade and laws imposing on those
engaged therein rules of proper conduct or other restraints directed to the
due and orderly manner of carrying out the activities. This distinction is
described as regulation. The word “regulation” has no fixed connotation.
Its meaning differs according to the nature of the thing to which it is
applied. The true solution, perhaps, in any given case, could be found by
distinguishing between features of the transaction or activity in virtue of
which it fell within the category of trade, commerce and intercourse and
those features which, though invariably found to occur in some form or
another in the transaction or action are not essential to the conception.
What is relevant is the contrast between the essential attribute of trade
and commerce and the incidents of the transaction which do not give it
necessarily the character of trade and commerce. Such matters relating to
hours, equipment, weight/size of load, lights, which form the incidents of
transportation, even if inseparable, do not give the transaction its
essential character of trade or commerce. Laws for Government of such
incidents “regulate”. (Id. at p. 381)

85 The Bench of three Judges, following the line of precedent in
Automobile Transport held that for a law to become a prohibited tax, it has
to be a direct tax, the effect of which is to hinder the movement part of
trade. A tax which is compensatory or regulatory does not however operate
as a restriction on the freedom under Article 301. The nature of a
compensatory tax was considered in the following observations :

“17. Strictly speaking, a compensatory tax is based on the nature and the
extent of the use made of the roads, as for example, a mileage or ton-
mileage charge or the like, and if the proceeds are devoted to the repair,
upkeep, maintenance and depreciation of relevant roads and the collection
of the exaction involves no substantial interference with the movement. The
expression “reasonable compensation” is convenient but vague. The standard
of reasonableness can only lie in the severity with which it bears on
traffic and such evidence of extravagance in its assessment as comes from
general considerations. What is essential for the purpose of securing
freedom of movement by road is that no pecuniary burden should be placed
upon it which goes beyond a proper recompense to the State for the actual
use made of the physical facilities provided in the shape of a road. The
difficulties are very great in defining this conception. But the conception
appears to be based on a real distinction between remuneration for the
provision of a specific physical service of which particular use is made
and a burden placed upon transportation in aid of the general expenditure
of the State. It is clear that the motor vehicles require, for their safe,
efficient and economical use, roads of considerable width, hardness and
durability; the maintenance of such roads will cost the government money.
But, because the users of vehicles generally, and of public motor vehicles
in particular, stand in a special and direct relation to such roads, and
may be said to derive a special and direct benefit from them, it seems not
unreasonable that they should be called upon to make a special contribution
to their maintenance over and above their general contribution as taxpayers
of the State. If, however, a charge is imposed, not for the purpose of
obtaining a proper contribution to the maintenance and upkeep of the road,
but for the purpose of adversely affecting trade or commerce, then it would
be a restriction on the freedom of trade, commerce or intercourse.” (Id. at
p. 382)
86 The Bench of three Judges in G K Krishnan (supra) was bound by the
view which was taken by a larger Bench of seven Judges in Automobile
Transport. The above extract however, indicates the difficulties which the
Court noticed in applying concepts such as “reasonable compensation”, an
expression, which however convenient, is but vague. The Court noticed the
rationale for the doctrine of compensatory taxes: providing recompense to
the state for the provision of services which facilitate trade. A
compensatory tax is distinguished from a general measure of taxation. The
state may impose the tax as a part of raising revenues in aid of the
general expenditure of the state. Though, all revenues of the state in the
ultimate analysis are expended for public purposes, a burden imposed as a
part of raising resources for meeting general expenditure is not
compensatory. A compensatory tax in terms of the concept evolved by the
Supreme Court in Automobile Transport is to provide a proper recompense to
the state for the provision or use of all facilities made available to
trade and commerce.
87 Justice Mathew, observed that in such matters, a rough approximation
rather than a mathematically accuracy is what is required. The law imposed
by the state legislature was held to pass muster of judicial review.
88 The judgment in G K Krishnan (supra) is also noteworthy because it
raises the issue as to whether the restrictions contemplated by Article
304(b) would include the levy of a non-discriminatory tax. Justice Mathew
held that it was strange that the power to impose a tax conferred upon the
states should yet depend upon the sanction of the President under the
proviso to Article 304(b) :

“27. Whether the restrictions visualized by Article 304(b) would include
the levy of a non-discriminatory tax is a matter on which there is scope
for difference of opinion. Article 304(a) prohibits only imposition of a
discriminatory tax. It is not clear from the article that a
tax simpliciter can be treated as a restriction on the freedom of internal
trade. Article 304(a) is intended to prevent discrimination against
imported goods by imposing on them tax at a higher rate than that borne by
goods produced in the State. A discriminatory tax against outside goods is
not a tax simpliciter but is a barrier to trade and commerce. Article 304
itself makes a distinction between tax and restriction. That apart, taxing
powers of the Union and States are separate and mutually exclusive. It is
rather strange that power to tax given to States, say, for instance, under
Entry 54 of List II to pass a law imposing tax on sale of goods should
depend upon the goodwill of the Union Executive. It is said that a tax on
sale does not impede the movement of goods. But Shah, J. said
in State v. Nataraja [AIR 1969 SC 147 : (1968) 3 SCR 829 : (1968) 22 STC
376] : “that tax under Central sales tax on inter-State sale, it must be
noticed, is in its essence a tax which encumbers movement of trade and
commerce.” (Id. at p. 385)
Justice Mathew also observed that the Court was not called upon to make any
pronouncement on whether there was any warrant to restrict Article 301 to
the movement part of trade and commerce. However, as the court held, it was
unnecessary to pursue the matter any further as the tax imposed under the
notification of the state in that case was held to be compensatory in
character and hence not restrictive of the freedom.
E.4 The breaking point
89 The judgment in Automobile Transport held that compensatory taxes lie
outside the purview of Article 301. Justice Mathew while upholding that
the Madras Motor Vehicles Taxation Act, 1931 had cautioned in G K Krishnan
(supra) that the concept of reasonable compensation is “convenient but
vague” and emphasized “very great” difficulties in defining it. The issue
came to the fore in M/s Bhagatram Rajeev Kumar v. Commissioner of Sales
Tax, M.P[111]. An entry tax was imposed on goods such as sugar on which no
sales tax is leviable, under the Madhya Pradesh Sthaniya Kshetra Me Mal Ke
Pravesh Par Kar Adhiniyam, 1976. No sales tax could be levied on sugar
since it is one of the goods on which additional excise duty is leviable
under the Additional Duties of Excise Act, 1957. This Court held that
though sugar was a commodity on which no sales tax is leviable because
additional excise duty is payable, it was within the taxing provisions of
the entry tax legislation. There was a challenge to the entry tax law on
the ground that it violated Article 301 and that it was not regulatory or
compensatory. A Bench of three Judges of this Court held that the figures
which had been disclosed by the state as justification for the levy as a
compensatory tax were not disputed. However, the Bench reformulated the
test of what constitutes a compensatory tax in the following observations :

“8….. The concept of compensatory nature of tax has been widened and if
there is substantial or even some link between the tax and the facilities
extended to such dealers directly or indirectly, the levy cannot be
impugned as invalid. The stand of the State that the revenue earned is
being made over to the local bodies to compensate them for the loss caused,
makes the impost compensatory in nature, as augmentation of their finance
would enable them to provide municipal services more efficiently, which
would help or ease free flow of trade and commerce, because of which the
impost has to be regarded as compensatory in nature, in view of what has
been stated in the aforesaid decisions, more particularly in  Hansa Corpn.
Case.” (Id. at p. 678)

90 These observations made a marked departure from the test which was
adopted in the judgment of seven Judges in Automobile Transport. The test
of a compensatory tax as formulated in Automobile Transport is whether the
trade has the use of facilities for the conduct of its business and is
required to pay not patently much more than what is required for providing
the facilities. In a substantially watered down redefinition of the test,
Bhagatram required a “substantial or even some link” between the tax and
the facilities extended “directly or indirectly”. The underlying basis or
foundation for regarding a tax as compensatory was almost obliterated. The
reference in Bhagatram to the earlier decision in State of Karnataka v.
Hansa Corporation[112], clearly overlooks that in that case the state had
made no effort to sustain the validity of the tax on the ground that it was
compensatory in character. Hence, the Bench in Hansa Corporation expressly
clarified that it was not necessary for the Court to examine whether the
tax was compensatory. Yet, the decision in Hansa Corporation was construed
in Bhagatram to be an authority for the proposition that even some link
between the facilities provided and the payment demanded, whether direct or
indirect, would suffice.
91 The decision in Bhagatram was followed by another Bench of two judges
in State of Bihar v. Bihar Chamber of Commerce[113]. At issue was an entry
tax imposed by the Bihar (Tax on Entry of Goods into Local Areas for
Consumption, Use or Sale therein), 1993. The High Court had held the Act
to be invalid on the ground that the state had not disclosed material to
justify that it was compensatory or regulatory nor had the state fulfilled
the requirements of Article 304(b). The submission of the state in appeal
was that the enactment was intended by the state legislature to offset
atleast in part the loss of revenue caused to it, as a result of a decision
of this Court in India Cement Ltd. v. State of Tamil Nadu[114]. The state
submitted that due to a loss of revenue from the cess on minerals, it was
necessary for the state to find alternative sources of revenue to support
its welfare schemes. The money raised would, it was asserted, be spent for
the welfare of the state, which was divided into local areas. Moreover, it
was urged that even if the levy was not compensatory, the assent of the
President had been obtained under Article 304(b) read with Article 255.
The enactment was held to be compensatory. The following tests were laid
down:

“12….It is not and it cannot be stipulated that for the purpose of
establishing the compensatory character of the tax, it is necessary to
establish that every rupee collected on account of the entry tax should be
shown to be spent on providing the trading facilities. It is enough if some
connection is established between the tax and the trading facilities
provided. The connection can be a direct one or indirect one, as held by
this Court in Bhagatram Rajeevkumar v. CST [1995 Supp (1) SCC 673 : (1995)
96 STC 654] : (SCC p. 678, para 8)……“The concept of compensatory nature of
tax has been widened and if there is substantial or even some link between
the tax and the facilities extended to such dealers directly or
indirectly the levy cannot be impugned as invalid”…..Though not stated in
the counter-affidavit, we can take notice of the fact that the State does
provide several facilities to the trade including laying and maintenance of
roads, waterways and markets, etc. As a matter of fact, since the levy is
by the State, we must also look to the facilities provided by the State for
ascertaining whether the State has established the compensatory character
of the tax.” (Id. at p. 147)
The Court in Bihar Chamber of Commerce held that so long as “some
connection is established between the tax and the trading facilities
provided” the levy would be held to be compensatory in character.
92 These decisions were doubted by a Bench of two-Judges in Jindal
Stripe Ltd. v. State of Haryana[115].
93 Jindal Stripe involved a batch of appeals raising a challenge to the
Haryana Local Area Development Tax Act, 2000 on the ground that it was
“violative” of Article 301 and was not saved by Article 304. A Bench of
two judges held that the decisions in Bhagatram and Bihar Chamber of
Commerce seem to have deviated from the principles underlying the
imposition of a compensatory tax which had held the field from 1962 to
1995. In the view of the referring Bench, if the test enunciated in the
above two cases was to be accepted as the position in law, any tax could
pass the test of a compensatory tax without infringing upon the freedom
ordained by Article 301. The reference was heard by a Constitution Bench in
Jindal Stainless Ltd.(2) v. State of Haryana[116], The Constitution Bench
in Jindal Stainless elucidated the difference between regulatory and taxing
powers. Taxing legislation, the Court ruled, is based on the concept of
burden and on the principle of ability to pay. On the other hand,
regulatory charges are a recompense for the costs or expenses incurred by
the state for the provision of services or facilities:
“31…Suffice it to state at this stage that the basis of special
assessments, betterment charges, fees, regulatory charges is
“recompense/reimbursement” of the cost or expenses incurred or incurrable
for providing services/facilities based on the principle of equivalence
unlike taxes whose basis is the concept of “burden” based on the principle
of ability to pay. At this stage, we may clarify that in the above case
of Automobile Transport [(1963) 1 SCR 491 : AIR 1962 SC 1406], this Court
has equated regulatory charges with compensatory taxes and since it is the
view expressed by a Bench of seven Judges, we have to proceed on that
basis. The fallout is that compensatory tax becomes a sub-class of fees”.
(Id. at p. 264)

Based on this distinction, the Constitution Bench held that if a law,
fiscal or otherwise, operates upon the movement of trade or commerce and
its effect is to impede that activity, the law would constitute a
restriction under Article 301. However, if the law seeks to enforce a
payment for regulation of conditions or incidents of trade, it is
regulatory in character:
“38…..If the impugned law seeks to control the conditions under which an
activity like trade is to take place then such law is regulatory. Payment
for regulation is different from payment for revenue. If the impugned
taxing or non-taxing law chooses an activity, say, movement of trade and
commerce as the criterion of its operation and if the effect of the
operation of such a law is to impede the activity, then the law is a
restriction under Article 301. However, if the law enacted is to enforce
discipline or conduct under which the trade has to perform or if the
payment is for regulation of conditions or incidents of trade or
manufacture then the levy is regulatory.” (Id. at p. 266)

94 The Constitution Bench held that taxes are levied as a part of the
common burden. While the foundation of a fee is “the principle of
equivalence”, the basis of a tax is ability to pay. The main basis of a fee
or a compensatory tax is an equivalence and a “quantifiable measurable
benefit”. A compensatory tax has to be broadly proportional :
“42…Compensatory tax is based on the principle of “pay for the value”. It
is a sub-class of “a fee”. From the point of view of the Government, a
compensatory tax is a charge for offering trading facilities. It adds to
the value of trade and commerce which does not happen in the case of a tax
as such. A tax may be progressive or proportional to income, property,
expenditure or any other test of ability or capacity (principle of
ability). Taxes may be progressive rather than proportional. Compensatory
taxes, like fees, are always proportional to benefits. They are based on
the principle of equivalence. However, a compensatory tax is levied on an
individual as a member of a class, whereas a fee is levied on an individual
as such. If one keeps in mind the “principle of ability” vis-à-vis the
“principle of equivalence”, then the difference between a tax on one hand
and a fee or a compensatory tax on the other hand can be easily spelt out.”
(Id. at p. 267)

95 The Constitution Bench held that a compensatory tax is a compulsory
contribution levied broadly in proportion to the special benefits derived
to meet the costs of regulation or an outlay which is incurred to provide a
special advantage to trade, commerce and intercourse. Whenever a law is
impugned as being violative of Article 301, the Court must determine
whether the enactment facially or patently indicates quantifiable data on
the basis of which the compensatory tax is sought to be levied. The statute
must broadly indicate a proportionality to a quantifiable benefit. Even if
the statute were not to indicate this, the state may discharge the burden
cast upon it by producing material to indicate that the payment of the
compensatory tax is a reimbursement or recompense for a
quantifiable/measurable benefit provided or to be provided to the payer of
the tax. The reference was answered by the Constitution Bench by holding
that the test of what constitutes a compensatory tax had been substantially
altered by the decisions in Bhagatram and Bihar Chamber of Commerce in a
manner which was inconsistent with the judgment of seven Judges in
Automobile Transport. In holding that ‘some connection’ or ‘some link’
between the tax and the facilities extended would suffice, ‘whether direct
or indirect’, the judgments in the Bhagatram and Bihar Chamber of Commerce
were held to have deviated from the settled concept of compensatory taxes
and were hence overruled.
E.5 Doctrinal concerns and inconsistencies
96 The theory of compensatory taxes was evolved in Automobile Transport
to assimilate doctrinal concerns at several levels. Freedom of trade and
commerce under Article 301 of the Constitution is expressly made subject to
the provisions of Part XIII. The deliberate use of the expression ‘free’
instead of “absolutely free” (the latter expression being adopted in the
Australian Constitution) coupled with the language of Article 301 which
subjects its provisions to Part XIII is indicative of the fact that the
freedom which is guaranteed is subject to legislative control. Articles
302, 303 and 304 are a part of the constitutional scheme which, while
defining the ambit of the freedom in Article 301 subjects it to
restrictions under Articles 302 and 304. The nature of the restrictions
and the limitations on the power of Parliament and of the state
legislatures while legislating to impose restrictions is conditioned by
constitutional parameters. The conditions are based on the fulfilment of
substantive and procedural norms: substantive such as the principle of non-
discrimination, the element of public interest and reasonableness; and
procedural (if it can be regarded as a matter of procedure) by requiring
the sanction of the President prior to the introduction of a Bill in the
state legislature.
97 At a doctrinal level, the Court in Automobile Transport was cognizant
of the fact that regulation of trade and commerce may, in fact, facilitate
trade rather than impede its freedom. As the Court postulated, the freedom
to trade does not mean a freedom to trade in chaos. Conditions of chaos
are destructive of an orderly society. Conditions which ensure a
disciplined and orderly conduct of trade and commerce facilitate trade.
Trade also pre-supposes the existence of infrastructure and the provision
of facilities for pursuing the avenues of commerce and trade. The state
which provides those facilities has a legitimate interest in recovering the
costs which it incurs. In the absence of resources generated by charges
levied for the use of facilities, the state may not have the wherewithal to
provide the facilities in the first place. Hence, when the concept of
compensatory taxes was devised, Justice S K Das, in Automobile Transport
adverted to collections made for the use of trading facilities, such as
roads, bridges and airports. “Such compensatory taxes” as the judgment
held, were not a hindrance to anyone’s freedom so long as they remain
reasonable. So long as the tax was compensatory or regulatory, it did not
operate as a hindrance. In another part of the judgment, Justice Das held
that a regulatory measure or measures imposing compensatory taxes for the
use of trading facilities did not fall within the purview of restrictions
contemplated by Article 301 and did not have to comply with the
requirements of the proviso to Article 304(b).
98 The judgment in Automobile Transport indicates that a second
doctrinal concern which weighed with the Court was a dilution of the
sovereign power to tax conferred upon the states if all fiscal legislation
was required to pass muster of a Presidential sanction under the proviso to
Article 304(b). This concern was present to the mind of the Court in
Automobile Transport, when Justice Das observed that if all legislation of
the state legislatures which has a repercussion on tariffs, licensing,
marketing regulation and price control was required to proceed through a
prior Presidential sanction, the plenary power of the states in the fields
of legislation allocated to them would be meaningless. The theory of
compensatory taxes was an answer to this conundrum. So long as the tax
retained a compensatory character, it did not fall within the fold of
Article 301. If a compensatory tax does not offend Article 301, the
provisions of Article 304(b) are not attracted. In the same vein, Justice
Subba Rao cautioned against a construction of Part XIII that would render
the states as “the handmade of the central executive”. Besides the ‘direct
and immediate’ test which the learned judge considered to be a “reasonable
solvent”, Justice Subba Rao also adverted to a tax which is compensatory or
regulatory not operating as a restriction on the free movement of trade.
99 Compensatory taxes were envisaged as a doctrinal concept to preserve
an area where the sovereignty of the state legislatures in fiscal matters
could operate without the constraining influence of a prior Presidential
sanction. Such taxes would not fall within the ambit of Article 301. Their
position was reconciled with freedom on the ground that a compensatory tax
for the use of facilities is not a hindrance to trade but facilitates it.
100 The difficulties that the concept of compensatory taxes would
encounter had their seeds in the formulation in Automobile Transport
itself. The judgment of Justice Das used the concept in varying contexts
as a tax for the use of facilities and, in other places, as a tax to
provide facilities. Use relates to the availment of a facility. Providing
for facilities emphasises the role of the state in terms of the investment
which it incurs and the expenditure required for upkeep and maintenance.
Use and provision may be two shades of the same coin but they have their
own distinctions. The concept of compensatory taxes was by its very nature
formulated in terms which were vague and not capable of precise definition.
The judgment of the majority in Automobile Transport speaks of
compensatory taxes not being a hindrance, so long as they are reasonable.
Moreover, the working test that was adopted in the judgment made it clear
that it was not the precise or specific amount that is collected that is
required to be expended for providing facilities. The working test is that
the trade which has the use of facilities for the better conduct of
business does not pay ‘patently much more’ than what is required for
providing the facilities. ‘Paying not patently much more’ is a concept
which suffers from vagueness. How much more is within the ambit of the
phrase ‘not patently much more’ introduces an element of subjectivity. A
standard which is subjective becomes uncertain and indefinite in its
practical application. The lack of precision about what constitutes a
compensatory tax undoubtedly did furnish to the Court and to the process of
judicial review a measure of flexibility to preserve the sovereignty of the
state legislatures. The difficulties which would be encountered however
became evident, when the three judge Bench in Bhagatram and the two judge
Bench in Bihar Chamber of Commerce rested the decision on a “some
connection” or “some link” requirement. If some connection or some link
were to suffice, the whole notion of compensatory taxes being a means of
recouping the states for the cost of providing facilities to the trade
would tend to disappear. In fact, as the decision in Bhagatram indicated,
the compensatory aspect of the tax which was upheld in that case was a loss
which was sustained by the state as a result of sugar not being amenable to
sales tax (being a commodity on which an additional duty of excise was
leviable). Similarly, in Bihar Chamber of Commerce, the state had sought to
sustain the tax as compensatory on the ground that the loss of revenue
sustained from the cess upon minerals, as a result of a judgment of the
Supreme Court, had to be made up by tapping an alternative source of
revenue. These two decisions showed that the concept of compensatory taxes
was understood by the states not as a method of compensating a state for
the provision of infrastructure and facilities to the trade but as a
measure to recover a loss of revenue under another head. If compensatory
taxes were to mean compensation for the loss of state revenue under some
other head, the theory which found acceptance in the two decisions of this
Court had travelled far beyond the domain that was contemplated in
Automobile Transport. Correctly, therefore, both the decisions in
Bhagatram and in Bihar Chamber of Commerce were overruled in Jindal
Stainless. However, both the decisions led to subjectivity, uncertainty and
vagueness.
101 A close reading of the decision in Jindal Stainless indicates that
while the earlier decisions in Bhagatram and in Bihar Chamber of Commerce
were overruled, the pendulum had swung to the other extreme. The
Constitution Bench in Jindal Stainless proceeded to explain the basis of
the “judicially evolved concept” of compensatory taxes by distinguishing a
tax which is based on the principle of ability to pay from a fee which is
based on the principle of equivalence. Compensatory taxes, the Constitution
Bench held, constitute a sub-class of a fee and are based on the principle
of “pay for value”. In holding that the collection on account of a
compensatory tax must be “broadly in proportion” to the special benefits
derived to defray the costs of regulation or to meet the outlay incurred,
the Constitution Bench was restating the working test of Automobile
Transport. But the subsequent observations in Jindal Stainless make it
evident that the Constitution Bench introduced a near mathematical
formulation which would not be consistent with the test which was
propounded in Automobile Transport. The judgment of the Constitution Bench
requires that the enactment which imposes a compensatory tax must facially
or patently, indicate quantifiable data and a benefit which is quantifiable
or measurable. The Court held that however, where a statute did not to do
so, the burden would lie on the state as a service provider to produce
material indicating that the payment of the tax is a reimbursement or
recompense for a quantifiable/measurable benefit. These observations bring
the concept of a compensatory tax in line with a fairly strict application
of a quid pro quo principle which had not been accepted in Automobile
Transport. In fact, the Bench of seven Judges in Automobile Transport had
specifically clarified that the precise amount that is realized need not be
spent on the provision of facilities and the only requirement is that the
trade should not be made to pay patently much more than what is incurred
for the provision of the facilities. The observations in Jindal Stainless
requiring the establishment of a nexus or relationship between a
quantifiable or measurable benefit and a reimbursement/recompense to the
state are contrary to and inconsistent with the law which was laid down in
Automobile Transport.
102 Evidently, both Justice Gajendragadkar in Khyerbari and Justice
Mathew in G.K. Krishnan had reservations about the concept of compensatory
taxes. Justice Gajendragadkar recorded his reservations because the
predecessor of the enactment of the state legislature of Assam in issue in
Khyerbari had been struck down in the decision in Atiabari. The majority
in Atiabari had held the tax to be invalid for want of compliance with the
proviso to Article 304(b) despite its compensatory character. Justice
Gajendragadkar held that if the new enactment, which had been brought into
force after complying with the proviso to Article 304(b) was to be
supported by the state as being compensatory in character, a reference to a
larger Bench would have been necessitated. That, however, did not become
necessary because the State of Assam did not support the enactment as being
compensatory before the Supreme Court. These observations of Justice
Gajendragadkar were in the decision rendered in 1964 in Khyerbari. Eleven
years later, Justice Mathew in an eloquent judgment in G.K. Krishnan spoke
about the expression ‘reasonable’ being convenient but vague. The judge
stressed that that were very difficulties in defining this conception. The
Constitution Bench in Jindal Stainless was bound by the doctrine of
compensatory taxes which had been formulated by a larger Bench of seven
Judges in Automobile Transport. The validity of the compensatory tax
theory was not under challenge.
103 The judicially evolved concept of compensatory taxes has created in
its wake new problems in its search for solutions. If a strict reading of
the doctrine of compensatory taxes in terms of the ‘quantifiable/measurable
benefits’ approach is adopted (as did the Constitution Bench in Jindal
Stainless) the formulation assumes the character of a strict application of
a quid pro quo test. A compensatory tax is then a fee properly so called.
The Constitution, in the legislative entries contained in the Lists in the
Seventh Schedule classifies taxes and fees under distinct heads. If a
compensatory tax were to assume the character of a fee, that raises the
question as to whether the concept has any utility in the first place. If,
on the other hand, the concept of compensatory taxes were to have a loose
and undefined ambit, by the application of the ‘some link’ or ‘some
connection’ test (as was adopted in Bhagatram and Bihar Chamber of
Commerce), then any connection would suffice for a tax to be called
compensatory. Both these approaches which are extreme in their own way are
contrary to the law laid down by seven Judges in Automobile Transport.
Bhagatram and Bihar Chamber of Commerce render the concept so loose and
undefined as to denude it of its rationale. Jindal Stainless while
overruling these decisions adopted a strict standard which was not
contemplated by Automobile Transport. Bhagatram and Bihar Chamber of
Commerce were overruled in Jindal Stainless as being contrary to the test
laid down in Automobile Transport. But as we have seen, the
quantifiable/measurable benefit test laid down in Jindal Stainless by the
Constitution Bench is itself replete with doctrinal problems, besides its
patent inconsistency with Automobile Transport. If both these extremes are
to be avoided, we are left with the middle ground which the decision in
Automobile Transport sought to adopt. However, the basic conception of
compensatory taxes as propounded in Automobile Transport is vague and
indefinite and has produced a maze of doctrinal uncertainty, if not chaos
in constitutional litigation. As this batch of appeals indicates, the state
legislatures have amended their entry tax legislation to incorporate
specific statutory provisions indicating the manner in which the proceeds
of the tax would be utilized so as to enable the tax to approximate a
compensatory tax. Once the state legislature has done so, by adopting
statutory provisions, would the Court have either the expertise or the
competence to second guess the basis which has been made by the state
legislature? The answer to that would necessarily have to be in the
negative. The Court cannot assume the character of an accountant overseeing
the balance sheets of income and expenditure and enquiring into capital
account investments made by the states. Such matters do not lie within the
competence or ken of judicial review. More fundamentally, all tax revenues
are utilised by the state for public purposes. All taxation being in aid of
the creation of conditions of social order, a compensatory element can
never be disassociated from taxation. Equally insofar as fees are
concerned, the payment which is required to be made is not always
voluntary. The contribution exacted from trade and commerce may not always
be for the actual use of a facility but may be for the provision of the
facility which trade and commerce is entitled to use. The state expends
large budgets on providing expenditure to maintain law and order and
security. The distinction between a tax and a fee has become blurred in our
jurisprudence and Courts have found it difficult to find a clear dividing
line.

104 A doctrinal irrationality which the theory of compensatory taxes
fails to meet is a discriminatory compensatory tax. Discriminatory taxes
which single out goods originating in other states to hostile
discrimination violate Article 304(a). If compensatory taxes as a class
fall outside Part XIII, this would include even those compensatory taxes
which are discriminatory. While holding that compensatory taxes fall
outside Part XIII, the theory propounded by this Court did not account for
the position that discriminatory compensatory taxes constitute an
impediment to trade and commerce, thereby violating Article 301.
105 Hence, the notion of compensatory taxes is beset with doctrinal
problems. The concept has led to uncertainty and vagueness and has
produced inconsistencies in constitutional adjudication. Constitutional
adjudication must avoid these uncertainties which result in a
multiplication of litigation and uncertainty both to the revenue and to the
tax payer. Uncertainty in the application of fiscal legislation leads to a
situation where tax compliance is beset with interpretational and practical
difficulties. A concept which is replete with such evident problems is
best eschewed.
F The content of freedom : goods, services, persons and capital
106 Article 301 has guaranteed the freedom of trade, commerce and
intercourse (subject to the provisions of Part XIII). Article 19(1)(g)
guarantees to every citizen the right to carry on any occupation trade or
business. At a certain level, a distinction can be drawn between the two
sets of freedoms. Article 19(1)(g) guarantees individual freedom. Article
301, on the other hand, looks at trade, commerce and intercourse as a
whole. Such a distinction however may have its own limitations. Individual
rights of all citizens protected by Article 19 lead to the establishment of
a constitutional democratic order governed by the rule of law and based on
human freedom. The dichotomy that Article 301 in its perspective looks at
trade and commerce as a whole (as distinguished from an individual right)
may also have its own limitations. The freedom recognised by Article 301 is
enforceable. Enforceability is at the behest of an individual. In the
constitutional recognition of freedom dwells the constitutional right of
the individual to enforce it and to secure remedies for enforcing wrongs.
The real content of freedom lies in the right which inheres in it and in
the protection of the individual to enforce the right. The freedoms
guaranteed by Article 301 are enforceable at the instance of individuals
who are aggrieved by state action. Thus, a distinction between Article
19(1)(g) and Article 301on the basis of the former reflecting an individual
right as opposed to a collective entitlement under the latter may not be
completely accurate. Though, one is an enforceable fundamental right of a
citizen while the other is a recognition of the free flow of trade,
commerce and intercourse, both in essence are enforceable, and enforceable
at the behest of aggrieved individuals. A more nuanced perspective with
regard to both sets of rights recognises that both reflect shades of the
same universe of freedom.
107 Indian society and the economy have evolved between the advent of the
Constitution and the present in a manner that would appear unrecognisable
between 1950 and now. The entrepreneurial spirit of the nation has resulted
in a diversification of the economy. A predominantly agricultural economy
at the birth of the Constitution has increasingly found change in the last
seven decades with the enhancement of the manufacturing base, and in more
recent times to the diversification into services, especially financial
services. The age of the internet was yet to dawn when the Constitution was
adopted. The internet with its powerful tools for the dissemination of
knowledge and information has provided new avenues for business, trade and
commerce. The ambit of Article 301 must in a contemporary context
incorporate all avenues of trade, commerce and intercourse and the
instrumentalities by which they flourish.
108 Trade and commerce do not exist in a vacuum. The channels of trade
and commerce require a stable social order for business transactions to be
concluded, for contracts to be fulfilled and for commercial dealings to be
enforced in law. The sanctity of contracts, secure conditions for trade
and commerce and conditions which ensure an ease of doing business are
supported by the state which has a vital role in the preservation of the
rule of law. The meaning of the guarantee under Article 301 must in a
modern context accommodate the needs and aspirations of business that would
allow for economic development and growth to take place in the nation.
Fundamentally the creation of a common market for goods and services
requires the removal of obstacles to the free movement of goods, persons,
services and capital between the states which constitute the Union of
India. These four fundamental freedoms are the foundation of Article 301.
The free movement of goods constitutes the traditional domain of trade and
commerce. Our Constitution in its recognition of the freedom of intercourse
protects the movement of persons engaging in commercial intercourse. Trade
and commerce has diversified into services which constitute a vital element
in the economic life of the nation. The movement of capital is the
foundation for trade and commerce. Capital provides the foundation for
business. These four freedoms guaranteeing the free movement of goods,
services, persons and capital between the states, form the basis of the
guarantee under Article 301. Commercial transactions by which the free
movement of each constituent element takes place fall within the ambit of
the freedom.
G Taxation and Federalism
109 In determining an interpretation that would bring a balance between
the diverse strands of Part XIII, it is necessary for the Court equally to
bear in mind the needs of the federal structure. The doctrine of the basic
structure of the Indian Constitution has evolved to incorporate federalism
as one of its integral features.
110 The guarantee that trade, commerce and intercourse shall be free
throughout the territory of India is subject to the provisions of Part
XIII. The meaning of the expression “throughout the territory of India” is
elucidated by Article 1 of the Constitution which stipulates that “India,
that is Bharat, shall be a Union of States”. The Union which the
Constitution postulates is defined in terms of a political union and an
economic union which brought together the erstwhile provinces of British
India and the princely states. The freedom under Article 301 comprehends,
as we have seen, the free movement of goods, services, persons and capital.
These are essential ingredients in the creation of a common market as an
incident of an economic union. The freedom under Article 301 is not
absolute for, the constitutional guarantee is subject to the provisions of
Part XIII. The provisions of Article 302 to Article 304 bring about a
balance between the guarantee of freedom on one hand and legislative
control over trade and commerce on the other hand. While doing so, those
articles define the powers of Parliament and the state legislatures, while
subjecting them to restraints that are intended to preserve the power of
regulating trade and commerce.
111 While the Constitution does in that sense subordinate the freedom
under Article 301 to the provisions of Part XIII, it would not be correct
to read the provisions of Part XIII in isolation. Part XIII is an integral
element of the Constitution, but so are the other Parts under which
executive and legislative powers are constitutionally conferred upon the
structures of governance in the Union and the States. While construing the
provisions of the Constitution it is necessary to construe the text in the
context of the organic nature of the constitutional document. The linkages
between various Parts of the Constitution contribute to the creation of a
composite whole. No segment of the Constitution can be read in isolation.
The scheme of the Constitution must hence be understood having regard to
its history, text and context.
112 A Constitution Bench of this Court in Kihoto Hollohan v.
Zachillhu[117], emphasised the essential oneness of the Constitution when
it held that:

“26. In expounding the processes of the fundamental law, the Constitution
must be treated as a logical whole. Westel Woodbury Willoughby in The
Constitutional Law of the United States (2nd Edn. Vol. 1, p.65)
states :
“The Constitution is a logical whole, each provision of which is an
integral part thereof, and it is, therefore, logically proper, and indeed
imperative, to construe one part in the light of the provisions of the
other parts”…..
27. A constitutional document outlines only broad and general principles
meant to endure and be capable of flexible application to changing
circumstances — a distinction which differentiates a statute from a Charter
under which all statutes are made…..” (Id. at p.676)
Words of the Constitution “cannot be read in isolation and have to be read
harmoniously to provide meaning and purpose” (T.M.A Pai Foundation v. State
of Karnataka[118]).
113 The judgment of Justice Gajendragadkar, speaking for the majority in
Atiabari, however construed the language of Article 301 to mean that the
guarantee of freedom was subject only to the provisions of Part XIII. With
respect, this does not constitute an appropriate approach to constitutional
interpretation since it leads to a construction of Part XIII in isolation
from other provisions which have a significant bearing on the nature of the
freedom and its relationship with the structures of governance. To consider
the guarantee under Article 301 as being subject only to Article 302 to 304
overlooks the relationship of Part XIII with other provisions of the
Constitution. Freedom is integral to that relationship.
114 The issue as to whether the Constitution creates a federal structure
was debated upon in the Constituent Assembly. When the Draft Constitution
was being discussed, T T Krishnamachari while supporting the view that the
Constitution was to establish a federal structure observed thus :
“the first criterion is that the State must exercise compulsive power in
the enforcement of a given political order, the second is that these powers
must be regularly exercised over all the inhabitants of a given territory,
and the third is the most important and that is that the activity of the
State must not be completely circumscribed by orders handed down for
execution by the superior unit. The important words are ‘must not be
completely circumscribed’, which envisage some powers of the State are
bound to be circumscribed by the exercise of federal authority. Having all
these factors in view, I will urge that our Constitution is a federal
Constitution.” (Id. at p.21)

Dr. Ambedkar gave expression to the same thought in the following
observations:
“The basic principle of federalism is that the legislative and executive
authority is partitioned between the Centre and the States not by any law
to be made by the Centre but by the Constitution itself. This is what the
Constitution does. The States under our Constitution are in no way
dependent upon the Centre for their legislative or executive authority. The
Centre and the States are coequal in this matter. It is difficult to see
how such a Constitution can be called centralism. It may be that the
Constitution assigns to the Centre too large a field for the operation of
its legislative and executive authority than is to be found in any other
federal Constitution. It may be that the residuary powers are given to the
Centre and not to the States. But these features do not form the essence of
federalism. The chief mark of federalism as I said lies in the partition of
the legislative and executive authority between the Centre and the units by
the Constitution. This is the principle embodied in our Constitution.” (Id.
at p.22)

115 A Bench of six Judges of this Court in State of West Bengal v. Union
of India[119] dealt with whether the property of a state in coal bearing
areas is immune from acquisition by the Union. This Court held that in the
structures of constitutional governance that are created by the
Constitution full sovereignty does not reside in the states. Moreover, the
Constitution contains a marked tilt in favour of the powers of the Union.
Chief Justice B P Sinha adverted to the provisions of Part XIII “which seek
to make India a single economic unit for purposes of trade and commerce
under the overall control of the Union Parliament and the Union
Executive[120]” Our Constitution, the Court held “was not true to any
traditional pattern of federalism[121].” Legal sovereignty is vested in the
people of India while political sovereignty is distributed between the
Union and the States, with greater weightage in favour of the Union. In
that context, this Court held that :
“35. The normal corporate existence of States entitles them to enter into
contracts and invests them with power to carry on trade or business and the
States have the right to hold property. But having regard to certain basic
features of the Constitution, the restrictions on the exercise of their
powers executive and legislative and on the powers of taxation, and
dependence for finances upon the Union Government, it would not be correct
to maintain that absolute sovereignty remains vested in the States…..
36. The Parliamentary power of legislation to acquire property is, subject
to the express provisions of the Constitution, unrestricted. To imply
limitations on that power on the assumption of that degree of political
sovereignty which makes the States coordinate with and independent of the
union, is to envisage a Constitutional scheme which does not exist in law
or in practice. On a review of the diverse provisions of the Constitution,
the inference is inevitable that the distribution of powers—both
legislative and executive does not support the theory of full sovereignty
in the States so as to render it immune from the exercise of legislative
power of the Union Parliament particularly in relation to acquisition of
property of the States.”

116 The evolution of constitutional doctrine in the five decades that
have elapsed since the judgment in State of West Bengal (supra) indicates a
recognition that the Constitution does indeed create a federal structure.
Though the federal structure is asymmetric in the powers assigned to the
states as compared to those assigned to the Centre this does not render the
Constitution unitary. The Constitution is federal and in the working of a
democratic Constitution, judicial review has stepped in to restore the
balance despite the asymmetries of distribution and powers. The provisions
of the Constitution which indicate a tilt in favour of the Union do not
detract from the principle that in the fields which are assigned to them,
the states are intended to be integral elements of a federal structure.
They are sovereign within their competence, subject to constitutional
limitations.
117 This principle was set forth in the following terms in Special
Reference 1 of 1964[122] under Article 143 of the Constitution:
“The supremacy of the Constitution is fundamental to the existence of a
federal State in order to prevent either the legislature of the federal
unit or those of the member States from destroying or impairing that
delicate balance of power which satisfies the particular requirements of
States which are desirous of union, but not prepared to merge their
individuality in a unity. This supremacy of the Constitution is protected
by the authority of an independent judicial body to act as the interpreter
of a scheme of distribution of powers. Nor is any change possible in the
Constitution by the ordinary process of federal or State legislation.”
(para 38)

118 The constitutional position is authoritatively set forth in the
judgment in S.R. Bommai v. Union of India[123]. Justice K. Ramaswami
construed federalism to be a basic feature, in the following observations :

“247. Federalism envisaged in the Constitution of India is a basic feature
in which the Union of India is permanent within the territorial limits set
in Article 1 of the Constitution and is indestructible……Neither the
relative importance of the legislative entries in Schedule VII, Lists I and
II of the Constitution, nor the fiscal control by the Union per se are
decisive to conclude that the Constitution is unitary. The respective
legislative powers are traceable to Articles 245 to 254 of the
Constitution. The State qua the Constitution is federal in structure and
independent in its exercise of legislative and executive power. However,
being the creature of the Constitution the State has no right to secede or
claim sovereignty. Qua the Union, State is quasi-federal. Both are
coordinating institutions and ought to exercise their respective powers
with adjustment, understanding and accommodation to render socio-economic
and political justice to the people, to preserve and elongate the
constitutional goals including secularism.”(Id. at p. 205)

Justice B.P. Jeevan Reddy accepted the same doctrinal position in the
following terms :
“276. The fact that under the scheme of our Constitution, greater power is
conferred upon the Centre vis-a-vis the States does not mean that States
are mere appendages of the Centre. Within the sphere allotted to them,
States are supreme. The Centre cannot tamper with their powers. More
particularly, the courts should not adopt an approach, an interpretation,
which has the effect of or tends to have the effect of whittling down the
powers reserved to the States…… must put the Court on guard against any
conscious whittling down of the powers of the States.” (Id. at p.
216-217)

Justice P.B. Sawant, similarly held that though there are provisions under
which the Centre has overriding powers over the states, our Constitution
does create a federal structure. The states are sovereign in the fields
which are left to them.
119 In ITC v. Agricultural Produce Market Committee[124], this Court
emphasised that in interpreting the text of the Constitution the Court
should ensure, where the language permits that the powers of the state
legislatures are not diluted and that the principles of federalism are
preserved (See also in this context Kuldip Nayar v. Union of India[125])
120 The federal constitutional doctrine has consequences for
interpretation. In interpreting the text of the Constitution, the Court
must construe the text in a manner that would preserve the carefully
crafted balance between the Union and the states. Where the language of
the text permits, the effort of constitutional interpretation should be to
ensure that the states are not subordinated to the Union in areas reserved
to them. Yet it is equally a matter of constitutional doctrine that here a
particular provision (such as the proviso to Article 304(b) imposes a
specific requirement (assent of the President before a Bill is introduced
in the state legislature) which subjects the legislative power of the
states to constitutional limitations, it would not be open to the Court to
ignore the plain meaning and effect of such a provision. The text of the
Constitution cannot be subverted on the basis of an abstract notion or
hypothesis. While creating a federal structure, the draftsmen of the
Constitution were conscious of the need for preserving a political and
economic Union. If, as a part of that constitutional scheme, the text of
the document has incorporated specific provisions, they must be given their
plain meaning and effect. It would not be open to the Court to dilute the
meaning of the text on the basis of a priori considerations.
H Taxing powers

H.1 Article 245 and constitutional limitations

121 Article 245 of the Constitution provides for the extent of laws made
by Parliament and the legislatures of the states. Clause 1 of Article 245
enables Parliament “subject to the provisions of this Constitution” to
make laws for the whole or any part of the territory of India and for the
legislature of a state to make laws for the whole or any part of the state.
Implicit in Article 245, which defines the territorial extent of laws
enacted by Parliament and the state legislatures, is the power to enact
laws. Defining the extent of the law making power with reference to
territorial coverage presupposes the existence of a power to frame
legislation in the first place. Hence Article 245 is the fountainhead of
legislative power. It makes legislative powers subject to constitutional
limitations. The distribution of legislative powers is embodied in Article
246 which deals with the subject matter of laws made by the Parliament and
by the state legislatures. Parliament has exclusive powers to make laws
with respect to matters enumerated in List I of the Seventh Schedule.
Subject to the law making powers of Parliament in List I, the legislature
of a state has exclusive power to enact law for the state with respect to
any of the matters enumerated in List II. Parliament and the state
legislatures have concurrent powers to enact legislation in respect of
matters enumerated in List III. Article 245 is the source of legislative
power. Article 246 distributes legislative powers between Parliament and
the state legislatures on the basis of the Lists in the Seventh Schedule.
Article 245, in the conferment of legislative powers upon Parliament and
the state legislatures makes them subject to the provisions of the
Constitution.
122 The power to enact laws is a manifestation of sovereignty. The
Constitution while conferring legislative powers upon the Union and the
states makes them subject to constitutional limitations. The sovereignty
of the legislature is subject to the norms of the written constitution.
The power to tax is subsumed in legislative power. Like all legislative
power, fiscal legislation is subject to the mandate of the written
constitution. This is the plain consequence of the opening words of Article
245(1) under which the conferment of legislative powers is made subject to
the provisions of the Constitution.
123 The entries in the legislative lists of the Seventh Schedule are not
sources of legislative power but only define the subjects or heads of
legislation entrusted to the law making competence of Parliament and the
state legislatures. Read together, Articles 245 and 246 confer legislative
power upon the Union and the states in the first place and distribute that
power between them to enact legislation on the fields of legislation
entrusted to their competence. Though Article 245 is made expressly subject
to the provisions of the Constitution while there are no such similar words
in Article 246, both Articles are subject to the other provisions of the
Constitution. The language of Article 245 which subjects the conferment of
legislative power to constitutional provisions is a recognition of the
doctrinal principle that all constitutional power vesting in the organs of
the state is subject to constitutional limitations. The Constitution which
entrusts power conditions the entrustment to the observance of
constitutional safeguards and limitations. All legislative power is
subject to constitutional limitations.
124 In State of Kerala v. Mar Appraem Kuri Co. Ltd[126], this Court
construed the relationship between Articles 245 and 246 in the following
observations :
“35…While the legislative power is derived from Article 245, the entries in
the Seventh Schedule of the Constitution only demarcate the legislative
fields of the respective legislatures and do not confer legislative power
as such……
36. Article 246 deals with the subject-matter of laws made by Parliament
and by the legislatures of States. The verb “made” once again finds place
in the Head Note to Article 246. This article deals with distribution of
legislative powers as between the Union and the State Legislatures, with
reference to the different Lists in the Seventh Schedule.
37. Article 246, thus, provides for distribution, as between Union and the
States, of the legislative powers which are conferred by Article 245.
Article 245 begins with the expression “subject to the provisions of this
Constitution”. Therefore, Article 246 must be read as “subject to other
provisions of the Constitution”. (Id. at p. 128)

125 The limitations on the exercise of legislative power emanate from
(i) guarantees of freedom under Part III of the Constitution
containing fundamental rights; (ii) the requirement that the law making
authority must possess legislative competence to enact a law on the subject
on which it legislates; and (iii) other constitutional limitations. Part
XIII of the Constitution is one of those constitutional limitations. The
constitutional limitation emanating from Part XIII arises from the
recognition which it contains of the guarantee of free trade, commerce and
intercourse. Hence the first premise upon which legislative powers are
conferred upon and distributed between the Centre and the states is that
though the enactment of law is a manifestation of sovereignty, law making
authority under the Indian Constitution is subject to constitutional
restraints. Absolute power does not dwell in any constitutional authority
which is subject to a written constitution.
126 The legislative entries in the Lists of the Seventh Schedule to the
Constitution delineate general fields of legislation separately from taxing
heads. In the Union List taxing entries are contained from Entries 82 to
92C. The residual entry, Entry 97 deals with matters not enumerated in the
state or concurrent lists, including any tax not mentioned in either of
those lists. In the state list taxes are comprised in Entries 46 to 62.
Fees are dealt with under separate heads: in Entry 96 of List I, Entry 66
of List II and Entry 47 of List III.
H.2 Sovereignty and constitutional limitations
127 The power to tax has been considered to be an essential attribute of
government and a sovereign power vesting in the state. Thomas Cooley in
his “Treatise on the Constitutional Limitations which rest upon the
Legislative power of the States of the American Union[127]” provides a
jurisprudential foundation to the taxing power in the following
observations :
“Taxes are defined to be burdens or charges imposed by the legislative
power upon persons or property, to raise money for public purposes. The
power to tax rests upon necessity, and is inherent in every sovereignty.
The legislature of every free State will possess it under the general grant
of legislative power, whether particularly specified in the constitution
among the powers to be exercised by it or not. No cons