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Jindal Stainless Ltd. & ANR. Vs. State of Haryana & Ors.

[Civil Appeal No. 3453/2002]

[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. 3381-3400/1997]

[C.A. NO. 4651/1997]

[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. 1997]6/2008]

[SLP (C) NO. 20068/2008]

[SLP (C) NO. 2008]9/2008]

[SLP (C) NO. 2016]5/2008]

[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. 2013]]

[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]

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[C.A. NO. 5137/2016]

[SLP (C) NO. 33923/2012]

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[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]

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[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 e[TC. 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

Jindal Stainless Ltd. & ANR. Vs. State of Haryana & Ors.

[CIVIL APPEAL NO.3453 OF 2002]

[C.A. NO. 6383-6421/1997]

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[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. 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. 1997]6/2008]

[SLP (C) NO. 20068/2008]

[SLP (C) NO. 2008]9/2008]

[SLP (C) NO. 2016]5/2008]

[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]

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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 e[TC.

.....[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 E[TC.:

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 e[TC. 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 e[TC. 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. e[TC. v. Union of India and Ors. e[TC. (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, E[TC. 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 e[TC.

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 e[TC. 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/ Kerala/Jharkhand

Entry tax levied only on goods imported from other States; no levy of entry tax on the goods manufactured inside the State which is discriminatory.

Assam/Bihar/Haryana/Kerala(Post ) Jharkhand/West Bengal/Tamil Nadu/Mizoram/Arunachal Pradesh/Andhra Pradesh

Facially, the legislations state that all goods are taxed; but grant exemption to the locally 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 e[TC., 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 e[TC. 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 e[TC. 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 e[TC. 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 e[TC.) 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 e[TC. 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 e[TC. 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 e[TC. 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 e[TC. 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 e[TC. 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 e[TC.

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.

Etc. Etc. Jindal Stainless Ltd & ANR Vs. State of Haryana & Ors

[Civil Appeal No 3453 of 2002]

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 e[TC. 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 e[TC., 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 e[TC. 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 e[TC. 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 S[TC 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 S[TC 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, e[TC.

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 I[TC 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 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. In the language of Chief Justice Marshall : "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. 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."

(Id. at p.2-3)

Under the Indian Constitution the conferment of legislative power to impose, collect and enforce the realization of taxes is specifically spelt out from and enumerated under constitutional provisions. Taxing entries in Lists I and II are specifically enumerated and their ambit defined. Article 366(28) of the Constitution defines the expression taxation to include "the imposition of any tax or impost, whether general or local or special" and provides that the expression tax "shall be construed accordingly". 128 Several decisions of this Court have regarded the taxing power as an essential attribute of government and sovereignty. In Rai Ramkrishna v. State of Bihar[128] it was held that :

"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." In Raja Jagannath Baksh Singh v. State of U.P.[129] this principle was stated as follows:

"15...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 Amrit Banaspati Co. Ltd. v. State of Punjab[130] this Court held that : "10....taxation is a sovereign power exercised by the State to realise revenue to enable it to discharge its obligations."

(Id. at page 424).

In Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.[131] this Court held thus: "8.....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."

(Id. at p. 702)

129 The limitation on the states' power to tax must as a consequence be found in constitutional limitations. This follows the constitutional principle that all legislative powers conferred upon the Union Parliament and the state legislatures are an attribute of sovereignty. Hence the limitations on the exercise of those powers are such as have been crafted by the Constitution. These limitations which impose a fetter on the exercise of legislative powers may arise as a result of the guarantees of freedom in Part III; restraints arising from legislative competence and constitutional limitations imposed by other provisions of the Constitution.

Hence in Maharaj Umeg Singh v. State of Bombay[132] this Court held that the power of legislation that is vested in the state is plenary and the fetters or limitations on the exercise of legislative powers could only be imposed by the Constitution itself. The Court recognized that the Constitution may itself lay down fetters or limitations on the exercise of the power such as in Article 303 or Article 286(2). The fetter or limitation must however be traceable to the Constitution.

In Firm Bansidhar Premsukhdas v. State of Rajasthan[133] this Court adverted to the decision in Thakur Jagannath Baksh Singh v. United Provinces[134] and held that the limitation on the plenary powers of the legislature to enact law must be traced to an express provision in the Constitution : "...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 or 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. United Provinces."

(Id. at p. 19)

130 The legislative power of the states to impose taxes is subject, in general, to the same constitutional parameters which govern the exercise of all legislative power. The containment of legislative power follows from three constitutional precepts. First, legislation is valid if it is enacted by a legislature which has competence to enact law on the subject. This is the consequence of the distribution of legislative power between the Union and the States under Articles 245 and 246 read with the lists contained in the Seventh Schedule.

The legislatures, whether at the national or the state level, are entrusted with the power of legislation in exercise of which they must confine themselves to the boundaries allocated by the Constitution. These boundaries are defined with reference to the competence to enact law governing a particular subject matter. Parliamentary legislative power has a residuary or caTCh all area: subjects not enunciated elsewhere fall in its ambit. Second, the enumeration of fundamental rights by Part III of the Constitution operates as a restraint on the sovereign power vesting in the legislatures to enact law. Article 13 of the Constitution stipulates that the state shall not enact law which violates the freedoms guaranteed by the Chapter on fundamental rights.

A law whether made before or after the advent of the Constitution is void to the extent of its inconsistency with Part XIII. Third, other constitutional limitations or restrictions may condition or contain the law making power including in the field of taxation. These constitutional provisions are a manifestation of the doctrine of constitutional limitations under which every organ of the state which is a creation of the Constitution operates in the field assigned to it. 131 In the field of taxation, the containment of legislative powers vesting in the states may take place through provisions which are in the nature of :

(i) abstraction;

(ii) eclipse; and

(iii) limitations or restrictions.

These categories, it must be noted are convenient reference points for understanding the source of constitutional restrictions. An illustration of an abstraction of legislative power is contained in Entry 54 of the State List which provides for taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92(A) of the Union List. Entry 92(A) of the Union List was introduced by the Sixth amendment to the Constitution in 1956 to provide for 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. Under Entry 54 of the State List as it originally stood, the states possessed an unfettered area for imposing taxes on the sale or purchase of goods other than newspapers. Arguably, this could extend to the exercise of taxing powers on inter-state trade on the strength of the explanation to Article 286.

For the purposes of this judgment, it is not necessary to burden the record by referring to the judgment in The Bengal Immunity Company v The State of Bihar[135]. As a result of the sixth amendment, the ambit of Entry 54 is now expressly subject to the power of the Union under Entry 92(A) of List I.

132 Article 286 stipulates that a state law shall not impose or authorize the imposition of a tax on the sale or purchase of goods, where the sale or purchase takes place outside the state or in the course of import or export from or outside the territory of India. Article 286(1) provides an express bar. Article 269(3) empowers Parliament by law to formulate principles for determining when a sale or purchase or consignment of goods takes place in the course of inter-state trade or commerce. Parliament, in exercise of its powers under Article 269(3) enacted the Central Sales Tax Act 1956. Sections 14 and 15 of that Act provide a list of goods of special importance, the manner of imposing taxes and the restrictions on the power of imposing taxes.

133 The second source of containment on the legislative powers of the states in the area of taxation is Article 253 of the Constitution under which Parliament, notwithstanding anything contained in the earlier provisions of Chapter 1 of Part XI is entrusted with the power to enact legislation for the entire territory of India for implementing a treaty, agreement or convention with one or more countries or to implement a decision at an international conference association or other body. The non- obstante provision of Article 253 operates in relation to Articles 245 to 252. Hence, the legislative powers of the states including in the area of taxation may be eclipsed where Parliament has enacted a law to effectuate India's international obligations in pursuance of Article 253.

134 The third source of constitutional containment on the legislative power of a state is in the form of limitations of which Clause 3 of Article 286 provides an illustration. Under Clause 3, Parliament provides the restrictions and conditions in regard to "the system of levy, rates and other incidents of tax" upon which a law enacted by a state providing for a tax of the nature specified in sub-clause (a) and (b) is subject. Sub- clause (a) deals with a tax on the sale or purchase of goods declared to be of special importance in inter-state trade or commerce by a law enacted by Parliament. Sub-clause (b) deals with a tax on the sale or purchase of goods falling under sub-clauses (b), (c) and (d) of Article 366(29A). Among other things, a tax on contracts for hire purchase and involving transfer of the right to use goods is subject to the restrictions and conditions which are provided by a law enacted by Parliament in regard to the system of levy rates and other incidents of tax.

135 The constitutional containment of the legislative powers of the states also originates in the provisions of Part XIII which enable Parliament and the state legislatures to impose restrictions on inter-state trade or commerce subject to defining parameters. Whether, and if so, the extent to which taxes are within the purview of Part XIII is being dealt with separately below. H.3 Part XIII and taxation

136 The basic submission on the part of the states is that freedom under Article 301 is not freedom from taxation. This submission has been adduced primarily on the foundation that the Indian Constitution contemplates the position of the states as constitutional units of a federal structure, each of whom is sovereign within the fields allotted. Taxation, it has been urged is a manifestation of sovereign power which is foundational to the existence of government. Tax revenues are required for welfare and developmental activities. Hence, it has been submitted that these are strong reasons for not construing the freedom under Article 301 as freedom from taxation.

137 The next limb of the submission is that under Article 265, taxes can only be imposed under a law enacted by the competent legislature and the executive has no role to play in the levy and collection of tax, except under delegated legislative power. Under various Articles of Part XII [for instance Articles 276(2), 286(1) and 288(2)] the Constitution provides for limitations on the taxing powers of the states or powers are conferred upon Parliament to provide for limitations by law (Clauses 2 and 3 of Article 286).

There are at least five entries in the State List of the Seventh Schedule (Entries 50,51,54,55, and 57) which are specifically subject to limitations or principles prescribed by Parliament by a law made under List I and List III. In other words, it has been urged that wherever an exemption from taxes or a limitation on states' taxing powers is contemplated by the Constitution, this has been expressly provided under Articles 285, 287, 288 and 289. Consequently, it has been urged that exemption from the taxing power cannot be a matter of inference or implication and must be provided expressly and unambiguously. Moreover, under Article 289(2), a trade or business carried on by or on behalf of the government of a state can be subjected to tax "to such extent" as Parliament may by law provide. Based on this and the judgment of a nine Judge Bench of this Court in NDMC v. State of Punjab[136] it has been urged that in a situation where the Constitution subjects even the trade or business of a state to tax, an exemption in favour of trade, commerce and intercourse carried on by private individuals cannot be contemplated particularly by implication.

138 While evaluating this submission, it would at the outset be necessary to notice that there are two extreme positions which lie at opposing ends of the spectrum. The first is the position adopted by Justice J C Shah in Atiabari that all taxation falls within the ambit and purview of Part XIII. This submission postulates that every tax constitutes a restraint on the freedom of trade, commerce and intercourse. The opposing end of the spectrum is that taxes per se can never be a restraint on free trade since it is through the raising of revenues that a state provides ordered conditions for the safe, secure and efficient means for transacting trade and commerce.

In this view, only a discriminatory tax would run afoul of Part XIII [being violative of Article 304(a)] and, so long as a tax is non- discriminatory, it cannot be contrary to the provisions of Part XIII. This position would broadly correspond to the view espoused by Chief Justice Sinha. The middle ground which was sought to be advanced in the decision in Automobile Transport was that compensatory taxes would lie outside Part XIII since they facilitate rather than restrict trade. Taxes which are not compensatory and which in their direct and immediate effect restrict trade would be subject to the rigours of Article 304(b) of the Constitution. H.3.1 All taxes are not impediments

139 While evaluating the merits of the rival vie[WPoints, it cannot be gainsaid that an orderly society is a condition precedent for an environment in which trade, commerce and intercourse can flourish. Trade and commerce survive and flourish on the foundation of the rule of law. The sanctity of contracts must be recognized, protected and enforced through a legal system which creates rights and provides remedies for redressal. Again, the free movement of goods, services, persons and capital requires the existence of public order and conditions which allow for trade and commerce to take place unhindered. Neither trade nor commerce can flourish amidst violence, unrest and social disorder. Taxes provide revenue for the state to sustain manifold activities which are geared to providing conditions of social order. The state provides infrastructure both tangible and intangible.

Tax revenues form an essential part of the requirements necessary for states to govern. Taxes are required by Article 265 to be imposed by a law enacted by Parliament or the state legislatures. Without the power to raise revenues, the ability of the state to create conditions requisite for trade and commerce to exist would be denuded. Hence, as a matter of first principle it cannot be postulated that taxation in whatever form is a burden on trade, commerce and intercourse and that every tax necessarily hinders trade. Such a wide construction cannot be accepted simply because by raising revenues through the means of taxation, the state provides a political and legal order based on the rule of law where contractual transactions can be executed effectively.

The extreme position that every law which imposes a tax is to be regarded as a hindrance to trade, commerce and intercourse is unsustainable.

140 In the context of the relationship between the freedom guaranteed by Part III of the Constitution and the taxing power, it has been the consistent position of this Court that fundamental rights [particularly, the freedom of trade and business under Article 19(1)(g)] do not confer an immunity from taxation. In Indian Express Newspapers v. Union of India[137] this Court held that the rights guaranteed by Article 19(1)(a) and Article 19(1)(g) are subject to clauses (2) and (6) and the newspaper industry has not been granted an exemption from taxation in express terms. On the other hand, Entry 92 of the Union List of the Seventh Schedule empowers Parliament to make laws for levying taxes on sale or purchase of newspapers and on advertisements published therein.

The police power, taxation and eminent domain were held to be a form of social control essential for peace and good governance. Newspapers were held not to be free from the requirement of bearing a common fiscal burden, like others:

"43....Their newspapers have to be transported by roads, railways and air services. Arrangements for security of their property have to be made. The Government has to provide many other services to them. All these result in a big drain on the financial resources of the State as many of these services are heavily subsidized. Naturally such big newspaper organizations have to contribute their due share to the public exchequer. They have to bear the common fiscal burden like all others." (Id. at p. 671) This Court held that in the case of an ordinary taxing statute, a law may be questioned if it is openly confiscatory or a colourable device to confiscate. On the other hand, in the case of a tax on newsprint, it would be sufficient to show a "distinct and noticeable burdensomeness, clearly and directly attributable to the tax". While therefore holding that it was rejecting the submission that no tax could be levied on the newspaper industry, this Court held that any such levy was subject to judicial review under the provisions of the Constitution.

141 In Government of Tamil Nadu v. Ahobila Matam[138] this Court held that the imposition of an assessment on lands held by a religious denominational institution would not attract the right guaranteed by Article 26 of the Constitution. In All Bihar Christian Schools' Association v. State of Bihar[139] this Court held that an unaided minority institution is not immune from the operation of the general laws of the land and cannot claim an immunity, inter alia, from measures of taxation. Apart from these decisions, there are judgments of this Court holding that a taxing statute is not per se a restriction on the freedom under Article 19(1)(g). In Federation of Hotel & Restaurant Association of India v. Union of India[140] this Court while laying down the above principle held that the mere excessiveness of a tax or a diminution of profit earnings does not per se without more constitute a violation of rights under Article 19(1)(g). (See also in this context : Express Hotels (P) Ltd. v. State of Gujarat[141] and Pankaj Jain Agencies v. Union of India[142]).

142 In Vrajlal Manilal & Co. v. State of M.P[143] this Court held that an increase in the rate of tax on a particular commodity cannot per se be said to impede free trade and commerce in that commodity. The Court reaffirmed the principle that in order to be a restriction or impediment a legislative measure must directly or immediately impede the free flow of trade, commerce and intercourse so as to fall within the prohibition of Article 301.

A tax may in certain cases directly and immediately restrict or hamper the flow of trade. Whether the imposition of a tax does so in each case has to be judged on its own facts and in its own setting of time and circumstance. H.3.2 Articles 302, 303 and 304

143 Articles 302, 303 and 304 provide for restrictions on trade and commerce. The marginal note to each of the three articles specifically contemplates restrictions on or with regard to trade and commerce. The marginal note to Article 302 refers to the power of Parliament to impose restrictions on trade, commerce and intercourse. Under Article 302 Parliament is empowered by law to impose restrictions in the public interest on the freedom of trade, commerce and intercourse between one state and another or within any part of the territory of the India. Consequently, Parliamentary power under Article 302 to impose restrictions is not only confined to inter-state trade but extends to restrictions within any part of the territory of India.

However, Article 303 imposes a limitation both on Parliament and the state legislatures. Under Article 303, neither Parliament nor the legislature of a state can enact a law giving or authoring the giving of a preference to one state over another or making or authorising the making of 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. Article 303 has a non-obstante provision which overrides Article 302. The non-obstante clause in Article 303 is evidently inapposite in relation to the legislature of a state because Article 302 does not apply to a state legislature in the first instance.

Evidently the non-obstante provision can have meaning only in relation to Parliament because it has the effect of stipulating that the power of Parliament to impose restrictions in the public interest under Article 302 is subject to the principle of non-discrimination and non-grant of preferences to one state over another under Article 303. 144 Be that it is may, the effect of the norm which Article 303 enunciates is that neither Parliament nor the legislature of a state can grant preferences while enacting law to one state over another or make any discrimination. Article 303 concludes with the words "by virtue of any entry relating to trade and commerce in any of the lists in the Seventh Schedule."

These words were held by Justice Subba Rao in Automobile Transport to have the widest import. The entries which specifically refer to trade and commerce in the Seventh Schedule are entries 41 and 42 of the Union List, entries 26 and 27 of the State List and Entry 33 of the Concurrent list. Entries 41 and 42 of the Union List are as follows : 41. Trade and Commerce with foreign countries; import and export across customs frontiers; definition of customs frontiers...... 42. Inter-State trade and Commerce. Entry 26 of the State List is as follows : 26. Trade and commerce within the State subject to the provisions of Entry 33 of List III. 27. Production, supply and distribution of goods subject to the provisions of Entry 33 of List III. Entry 33 of the Concurrent list is as follows :

33. Trade and commerce in and the production, supply and distribution of - the products of any industry where the control of such industry by the Union is declared by Parliament by law to be expedient in the public interest, and imported goods of the same kind as such products; foodstuffs, including edible oilseeds and oils; cattle fodder, including oilcakes and other concentrates; raw cotton, whether ginned or unginned, and cotton seed; and raw jute.

145 In Automobile Transport it was urged that the expression "by virtue of the entries relating to trade and commerce in any of the lists in the Seventh Schedule" are of wider import than the words "by virtue of the said entries". Therefore, any law under Article 303 made by virtue of any entry in any of the lists in the Seventh Schedule, if it relates to trade and commerce, would be covered by the exception. Accepting the submission, Justice Subba Rao held as follows : "42....The words "any entry relating to trade and commerce in any of the Lists" are of the widest import and they yield to a very liberal interpretation.

The phraseology used supports this interpretation. The reason of the exception also sustains it. There cannot be any distinction on principles, from the standpoint of the mischief sought to be averted, between a law made by virtue of an entry ex-facie referring to trade and commerce and that made by virtue of any entry affecting trade and commerce. For instance, a law may be made by Parliament under entries relating to railways, highways, shipping e[TC.

These entries do not expressly refer to trade and commerce, though they may directly affect trade and commerce. If a law made under entry 26 of List II giving preference or making discrimination among the states is objectionable, it should also be objectionable, if made by virtue of any other entry. I would, therefore, hold that any law made by Parliament by virtue of any entry imposing the said discrimination restrictions would be under the said article."

(Id. at p. 559- 560)

146 Justice Hidayatullah who delivered a dissenting judgment for and on behalf of himself and Justices Rajagopala Ayyangar and Mudholkar adopted a similar interpretation of the language of Article 303. The learned Judge held that in the Seventh Schedule there are many other entries apart from entries 41 and 42 of List 1, entries 26 and 27 of List II and Entry 33 of list III regulating inter-state trade. In that context, he observed that : "103....By the words of Article 303 'by virtue of any entry relating to trade and commerce' is meant not the five Entries last named by us but others also, e.g., Entry 8 of List II, Entries 29, 30, 81 of List I, Entry 29, 15 of List III (to mention only a few from each List).

Thus, is achieved one purpose which is paramount viz., that the exercise of the commerce powers, however derived is not to be exercised to create preferences and discrimination between one state and other State Legislature or both acting in union. No question of the content of the power or its source can arise in this context, because the prohibition is absolute. The article makes a great advance upon Section 297 of the Government of India Act 1935.

In the section, the inhibition was only against a Provincial Legislature or Government. Here the inhibition embraces not only these but is also against Parliament and the Central executive. The executive limb has been made powerless, because the source of restrictions must be 'law' and if a law cannot be made, executive action per se would be ineffective without more. Further, Section 297 was concerned only with goods and their taxation differentially. The Article takes in its stride not only the passage of goods or their taxation but all other matters inherent in free trade, commerce and intercourse."

147 However, it has been urged that this interpretation would be contrary to the position which has been adopted since the judgment in MPV Sundararamier v. State of Andhra Pradesh[144] : In support, it has been submitted that the taxing entries in the lists of the Seventh Schedule are indicated separately from non-taxing entries. Hence, it is urged, the words of Article 303 cannot be interpreted to include taxing entries. This submission cannot be accepted as a matter of first principle.

What the judgment in MPV Sundararamier lays down is that in the lists of the Seventh Schedule, the subjects of taxation are dealt with under distinct heads. Hence, the subject of a tax cannot be traced to a non-taxing entry. It was held that :

"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..... 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."

148 This principle would have no bearing on the interpretation of the words in Article 303 which restrain Parliament and the state legislatures from granting preferences to one state over another and from discriminating between one state and another "by virtue of any entry relating to trade and commerce" in any of the lists in the Seventh Schedule.

These words namely "entry relating to trade and commerce" are of the widest import. The expression "relating to" has a well-known connotation in law extending its ambit to all matters which are reasonably proximate or connected to the subject. While the constitution mandates the principle of non-discrimination between one state over another and the non-grant of preferences under Article 303, there is no basis to confine those words merely to the entries noted earlier (entries 41 and 42 of List I, entries 26 and 27 of List II and entry 33 of List III).

149 To recapitulate, the submission that the scope of Article 303 is restricted only to the four entries noted above cannot commend itself for acceptance of the following reasons :

(i) the key expressions in Article 303 are "shall have the power to make any law" making any discrimination between one state and another and "by virtue of any entry relating to trade and commerce";

(ii) the expression "power to make any law" would on its plain and literal meaning include tax laws. There is no justification to read this as "any law other than a tax legislation;

(iii) the expression "any entry relating to trade and commerce has a comprehensive significance, meaning something that is associated with or having a nexus to. The words 'any entry relating to trade and commerce' are words of amplitude and cannot be construed in a restrictive sense. 150 In State of Madras v. NK Nataraja Mudaliar[145] a Constitution Bench of this Court, while construing the provisions of the Central Sales Tax Act, 1956 dealt with the submission that entries relating to trade and commerce in the legislative lists, within the meaning of Article 303 would not include entries with respect to the levy of a tax on trade and commerce. It was also urged that the words in Article 303 must be confined to entries 41 and 42 of List I, entries 26 and 27 of List II and entry 33 of List III.

This issue was however kept open by the Constitution Bench, as is evident from the following extracts : "12. It was contended on behalf of the State that the power under Article 303 could only be exercised so as to restrict the authority of the Parliament which arises by virtue of an entry relating to trade and commerce in the legislative lists and it was urged that an entry with respect to the levy of tax on trade and commerce and is not an entry relating to trade and commerce and therefore there is no prohibition against the Parliament exercising power or authorising the giving of any preference to one State over another or making or authorising the making of any discrimination between on State and another by exercise of taxing power. Reliance in support of that contention was placed upon the judgment in Sundararamier and Company v. State of Andhra Pradesh MANU/SC/0151/1958: [1958] 1 SCR 1422 in which Venkatarama Aiyar, J., pointed out that under the scheme of entries in List I & II of the Seventh Schedule, the power of taxation exercisable in respect of any matter is a power distinct from the power to legislate in respect of that matter.

It was also urged that the expression "an entry relating to trade and commerce in any of the Lists in the Seventh Schedule i.e. entries 41 & 42 of List I, entries 26 & 27 of List III and entry 33 of List III in the Seventh Schedule, and extended to no others. On the other hand, it was contended that all legislative entries which directly affect trade and commerce are also within the expression "entry relating to trade and commerce...... 13. We need to express no opinion on the two questions argued before us.

The question whether entries relating to trade and commerce in the Lists in the Seventh Schedule are restricted to entries 41 & 42 of List I, entries 26 & 27 of List II and entry 33 of List III, or relate to all general entries which affect trade and commerce, is academic in the present case. Nor do we think it necessary to decide whether for the purpose of Article 303 entries relating to tax on sale or purchase of goods i.e. entry 92A of List I, and entry 54 of List II are entries relating to trade and commerce, for, in our opinion, an Act which is merely enacted for the purpose of imposing tax which is to be collected and to be retained by the State does not amount to 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, merely because of varying rates of tax prevail in different States."

151 In a subsequent judgment of a Constitution Bench in State of Tamil Nadu v. Sitolakshmi Mills[146] the assesse had claimed before the Madras High Court that it was not liable to be taxed at the higher rate under Section 8(2)(b) of the Central Sales Tax Act, 1956 on the turnover of sales in the course of inter-state trade to government or to unregistered dealers even though they had not obtained the C and D forms because Section 2(B) violates Articles 301 and 303(1) of the Constitution. The High Court accepted those claims. In appeal, the Constitution Bench observed :

"8....Normally, a tax on sale of goods does not directly interfere with the free flow or movement of trade. But a tax can be such that because of its rate or other features, it might operate to impede the free movement of goods.

The majority judgment delivered by Shah, J., in State of Madras v. N.K. Nataraja Mudaliar proceeds on the basis that tax under the Central Sales Tax Act is in its essence a tax which encumbers movement of trade and commerce, but the tax imposed in the case in question was saved by the other provisions of Part XIII. The Court then said that the exercise of the power to tax would normally be presumed to be in the public interest and as Parliament is competent under Article 302 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 as may be required in the public interest, the tax was saved. ...

9. Bachawat, J., in his judgment in the case said that if a tax on intra- State sales does not offend Article 301, logically, a tax on inter-State sales also cannot do so, that a tax does not operate directly or immediately on the free flow of trade or the free movement or transport of goods from one part of the country to the other, that the tax is on the sale, and that the movement is incidental and a consequence of the sale. He observed further that even assuming that the Central Sales Tax is within the mischief of Article 301, it is certainly a law made by Parliament in the public interest and is saved by Article 302......

10. As already stated, Section 8(2)(b) deals with sale of goods other than declared goods and it is confined to inter-State sale of goods to persons other than registered dealers or governments. The rate of tax prescribed is 10 per cent or the rate of tax imposed on sale or purchase of goods inside the appropriate State, whichever is higher. The report of the Taxation Inquiry Committee would indicate that the main reason for enacting the provision was to canalize inter-State trade through registered dealers, over whom the appropriate government has a great deal of control and thus to prevent evasion of tax :

"Where transactions take place between registered dealers in one State and unregistered dealers or consumers in another, this low rate of levy will not be suitable, as it is likely to encourage avoidance of tax on more or less the same scale as the present provisions of Article 286 have done. If this is to be prevented, it is necessary that transactions of this type should be taxable at the same rates which exporting States impose on similar transactions within their own territories. The unregistered dealers and consumers in the importing State will then find themselves be unable to secure any advantage over the consumers of locally purchased articles, nor of course will they, under this system, be able to escape the taxation altogether, as many of them do at present."[See Report of the Taxation Enquiry Commission, 1953-54, Vol. 3, p. 57].......

In other words, it was to discourage inter-State sale to un-registered dealers that Parliament provided a high rate of tax, namely 10 per cent. But even that might not serve the purpose if the rate applicable to intra- State sales of such goods was more than 10 per cent. The rate of 10 per cent would then be favourable and they would be at an advantage compared to local consumers. It is because of this that Parliament provided, as a matter of legislative policy that the rate of tax shall be 10 per cent or the rate applicable to intra-State sales whichever is higher.....

11. If prevention of evasion of tax is a measure in the public interest, there can be no doubt that Parliament is competent to make a provision for that purpose under Article 302, even if the provision would impose restrictions on the inter-State trade or commerce."

(Id. at 413- 414)

The statutory provision was consequently upheld on the ground that as a measure for preventing the evasion of tax in the public interest, Parliament was competent to enact it under Article 302 even if it restricted inter-state trade and commerce. H.3.3 Construing Article 304 152 The area which assumes a great deal of importance in the present case is whether it would be correct to postulate that taxes, save and except for discriminatory taxes under Article 304(a) would lie outside the pale and purview of Part XIII. If this submission was to be accepted, the necessary consequence would be that only a discriminatory tax of the nature contemplated by Article 304(a) would offend the guarantee of freedom under Article 301.

A non-discriminatory tax would lie outside the purview of Part XIII. Once a tax meets the parameters of Article 304(a), it would not breach the freedom of trade and commerce. Clauses a and b of Article 304 would - in the line of argument have to be treated in a disjunctive manner and a tax which is consistent with Clause (a) would not need to meet the requirements of Clause (b).

153 Justice G P Singh in his seminal treatise, 'Principles of Statutory Interpretation'[147] states that marginal notes to constitutional provisions are, as a matter of interpretation, treated as being a part of the Constitution and as providing some guidance as to the meaning of a provision : "Marginal notes appended to Articles of the Constitution have been held to constitute part of the Constitution as passed by the Constituent Assembly and therefore they have been made use of in construing the Articles, e.g. Article 286, as furnishing 'prima facie', 'some clue as to the meaning and purpose of the Article'."

While Article 301 stipulates that trade, commerce and intercourse throughout the territory of India shall be free, this guarantee is made subject to the other provisions of Part XIII. Part XIII has employed both the expressions "subject to" on the one hand and "notwithstanding anything" on the other. The expression "subject to" has a well-known legal connotation which conveys the idea of a provision yielding place to another provision or to other provisions to which it is made subject. This principle has been enunciated in the judgment of this Court in South Indian Corporation (P) Ltd. v Board of Revenue[148].

154 In State of Bombay v. The United Motors (India) Ltd[149] Chief Justice Patanjali Sastri, speaking for a Constitution Bench spoke of the subordination of the freedom under Article 301 to the powers of the states to levy non-discriminatory taxes. The learned Judge held : "11....It will be seen that the principle of freedom of inter-State trade and commerce declared in Article 301 is expressly subordinated to the State power of taxing goods imported from sister States, provided only no discrimination is made in favour of similar goods of local origin.

Thus the states in India have full power of imposing what in American State Legislation is called the use tax, gross receipts tax, e[TC. not to speak of the familiar property tax, subject only to the condition that such tax is imposed on all goods of the same kind produced or manufactured in the taxing State, although such taxation is undoubtedly calculated to fetter inter-State trade and commerce. In other words, the commercial unity of India is made to give way before the State-power of imposing "any" non- discriminatory tax on goods imported from sister Sates." (Id. at p.1081)

155 Article 304 begins with a non-obstante provision which takes effect notwithstanding what is contained in Articles 301 or 303. A non- obstante provision of this nature has a distinctive meaning. In Chandavarkar Sita Ratna Rao v. Ashalata S. Guram[150] this Court held that : "68...It is well settled that the expression 'notwithstanding' is in contradistinction to the phrase 'subject to', the latter conveying the idea of a provision yielding place to another provision or other provisions to which it is made subject."

(Id. at p. 478)

In South India Corporation v. Board of Revenue[151] while interpreting Articles 372 and 278 of the Constitution, this Court emphasised that the phrase "notwithstanding anything in the Constitution" is equivalent to stating 'inspite of the other articles of the Constitution' or that the other articles shall not to be an impediment to the operation of that particular article.

156 The use of the non-obstante clause in Article 304 in its application to Article 301 has been debated. That is because while Article 301 makes the guarantee of freedom of trade and commerce subject to the other provisions of Part XIII, Article 304 commences with a non-obstante provision which operates notwithstanding what is contained in Article 301. A reasonable construction or meaning would have to be attributed to these two provisions. So construed, Article 304, in its non-obstante provision, must mean that it would permit what is contemplated by Clauses (a) and (b) even though it would otherwise be within the ambit of the freedom guaranteed by Article 301.

Similarly, in its application to Article 303, the non-obstante clause in Article 304 indicates that despite the prohibition that is contained in Article 303, the state legislature is empowered to do something of the nature that falls within the ambit of the provision. The non-obstante provision of Article 304 governs both Clauses (a) and (b) that follow. By virtue of Clause (a), the legislature of a State can, despite the provisions of Article 301, impose a non- discriminatory tax. The power to impose a tax, it must be noted, is not conferred by Clause (a) of Article 304 but is a power which is traceable to the legislative power of the states under Articles 245 and 246 of the Constitution read with the legislative entries in the State List.

Article 304(a) is a clear indication that though a tax may constitute a restriction within the meaning of Article 301, the imposition of a non-discriminatory tax is permissible to the state legislature. Article 304(a) lifts an embargo that would otherwise have existed but for the non-obstante provision. Article 304(a), however, mandates that a tax which is being imposed on goods imported from other States or Union territories must be a tax to which similar goods manufactured or produced in that state are subject. Moreover, the tax shall not discriminate between goods that are imported and goods so manufactured and produced. H.3.4 Conjunctive or disjunctive : 'may'; 'and'

157 Clauses (a) and (b) of Article 304 are separated by the use of the expression "and". The issue is whether the expression "and" is to be construed as conjunctive or disjunctive. Clause (b) contemplates reasonable restrictions being imposed under a law enacted by the state legislature on the freedom of trade, commerce and intercourse with or within that state as are required in the public interest. The proviso operates only in relation to clause (b) and not clause (a). It stipulates 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 mandate of the proviso can however be cured under Article 255 which provides as follows : "Article 255 : No Act of Parliament or of the Legislature of a State and no provision in any such Act, shall be invalid by reason only that some recommendation or previous sanction required by this Constitution was not given, if assent to that Act was given - where the recommendation required was that of the Governor, either by the Governor or by the President; where the recommendation or previous sanction required was that of the President, by the President." Hence even though the previous sanction which is required under the proviso to Article 304(b) before the introduction of a bill has not been obtained, this deficiency can be cured if assent to the Act passed by a legislature is given by the President.

158 Article 304 provides that the legislature of a state may by law (a) impose a non-discriminatory tax as provided in clause (a); and (b) impose reasonable restrictions on the freedom of trade, commerce or intercourse. The expression 'may' in the prefatory part of Article 304 has to be read together with the expression 'and' which separates clauses (a) and (b). The use of the expression 'may' is indicative of the intent that the legislature of a state is not bound to levy an impost on goods imported from other states (though if it does so, the tax has to be non- discriminatory). Similarly, the state legislature has an enabling power to impose restrictions under clause (b). The legislature 'may' do so. It has the discretion whether to impose a tax or to impose a restriction and is not bound to do so.

159 The word 'and' is normally used in the conjunctive sense (G P Singh on Interpretation of Statutes[152]). However, this is not always the case. Coupled with the use of the expression 'may, the expression 'and' in Article 304 should be construed to mean and/or. In other words, the legislature of a state may take recourse to both clauses (a) and (b) of Article 304 or either of them. 160 The nuances of statutory interpretation when the expressions 'may' and 'and' are used together, have been succinctly summarised in "Statutory Interpretation" by Ruth Sullivan. The statement of legal position is thus : "2) "And" and "Or" Joint or Joint and Several "and" Both "and" and "or" are inherently ambiguous. "And" is always conjunctive in the sense that it always signals the cumulation of the possibilities listed before and after the "and".

However, "and" is ambiguous in that it may be joint or joint and several. In the case of a joint "and", every listed possibility must be included: both (a) and (b); all of (a), (b), and (c). In the case of a joint and several "and", all the possibilities may be, but need not be, included: (a) or (b) or both; (a) or (b) or (c), or any two, or all three. In other words, the joint and several "and" is equivalent to "and/or"..... Which meaning is appropriate depends on the context. When "and" is used before the final item in a list of powers, for example, it is joint and several : To carry out the purposes of this Act, the Governor in Council may make regulations respecting the conditions on which licences may be issued; the information and fees that firearm vendors may be required to furnish; and the annual fees that firearm owners may be charged.......

In this provision the Governor in Council is empowered to make regulations on any one or more of the listed subjects. However, notice what happens if "may" is replaced by "shall". If the Governor in Council is obliged to make regulations respecting (a) conditions (b) information and (c) fees, the joint and several "and" becomes joint". In the context of Article 304(a) the use of the expression 'may' in the prefatory part together with 'and' which separates clauses (a) and (b) indicates that the true meaning and intent is conveyed by the joint and several and/or. The state legislature may impose a tax falling under clause (a) as well as a reasonable restriction falling under clause (b). Alternately it may impose one of them.

These being enabling provisions, the legislature may not take recourse to either. However, when it imposes a tax and/or a restriction, the state legislature has to abide by the conditions of clauses (a) and (b) respectively. H.3.5 Article 304(a) not the universe of taxation 161 The submission of the states is that Article 304(a) is the only provision which deals expressly with a tax measure and that clause (b) can never be construed to cover the imposition of a tax. This submission has been founded on more than one rationale.

First, it has been submitted that when Article 304 uses separate expressions, taxes and restrictions, there is no reason or justification to bring taxes within the ambit of restrictions.

Second, it has been submitted that clause (b) of Article 304(a) contemplates the imposition of a reasonable restriction in the public interest. Taxation, it has been urged is presumed to be in the public interest.

Third, it has been submitted that in the context of Article 19, judgments of this Court which have held that the guarantee under Article 19(1)(g) does not confer an immunity from taxation.

162 A discriminatory tax is prohibited by Article 304(a). There is intrinsic material in the constitutional text to indicate that Article 304(a) does not exhaust the universe of taxation for the purposes of Part XIII. First, Article 304(a) provides that the legislature of a state may by law impose on goods imported from other states or union territories any tax to which similar goods manufactured or produced in that state are subject.

The ambit of clause (a) is a tax on goods, the origin of the goods being a state other than the state which is imposing the tax. Article 301 (over which the non-obstante clause contained in Article 304 operates) has a geographical coverage which extends throughout the territory of India. Article 301 guarantees the freedom of trade and commerce not only across state boundaries but equally freedom within any part of the territory of India. If the freedom of trade and commerce is restricted by a discriminatory tax - as Article 304(a) postulates is the case - the imposition of a discriminatory tax on internal movement within a state must by the same logic breach the freedom guaranteed by Article 301.

Since Article 304(a) covers only a tax on goods imported from other states, a discriminatory tax on goods which do not traverse state boundaries would not fall within the ambit of Article 304(a). Yet it would offend Article 301. A state may conceivably have a justification in the public interest in doing so or for imposing such a tax and if it were to do so, it must meet the requirements of Article 304(b). If Article 304 (b) were to be construed to not include taxes, such a course of action would be barred, however legitimate be the state interest.

163 There is a second reason why the language and scheme of Part XIII must lead to the conclusion that it is not only discriminatory taxes of the nature contemplated by Article 304(a) which fall within the ambit of the Part. Article 304(a) only covers a tax on goods (goods imported from other states as seen above). A tax imposed by the state legislature otherwise than on goods, does not fall within the ambit of Article 304(a). The taxing entries of List II of the Seventh Schedule include various taxes that fall within the legislative competence of the state legislatures other than a tax on goods.

Among the taxing entries of List II (entries 46 to 62) are several which deal with aspects of taxation of goods. They include Entry 51 (providing for duties of excise on (i) alcoholic liquors for human consumption; and (ii) opium, hemp and other narcotics drugs and narcotic manufactured and produced in the state and countervailing duties on similar goods manufactured or produced elsewhere in India); Entry 52 (taxes on the entry of goods into a local area for consumption, use or sale);

Entry 53 (taxes on the consumption and sale of electricity); Entry 54 (taxes on the sale or purchase of goods other than newspapers subject to Entry 92A of List I); Entry 56 (taxes on goods carried by road or on inland waterways); Entry 57 (taxes on vehicles, whether mechanically propelled or not, suitable for use on roads subject to Entry 35 of List III) and Entry 58 (taxes on boats). Entries which deal with taxes other than on goods are Entry 56 (taxes inter alia on passengers carried by road or on inland waterways); Entry 59 (tolls); Entry 60 (tax on professions, trades, callings and employments); Entry 61 (capitation taxes) and Entry 62 (taxes on luxuries, including taxes on entertainments, amusements, betting and gambling). Article 304(a) applies only to taxes on goods.

A tax which is not on goods or on aspects bearing on goods is not governed by Article 304(a). A discriminatory tax which is not on goods is not within the prohibition of that article. For instance, a discriminatory tax on luxuries, entertainments, amusements, betting and gambling will not be governed by Article 304(a). Similarly, Article 304(a) will not apply to a tax on passengers carried on roads or inland waterways under Entry 56. Since the ambit of Article 304(a) is a non-discriminatory tax on goods imported from other states, it is evident that this provision is not exhaustive even of those discriminatory taxes which will offend Article 301.

There are taxes which fall within the legislative competence of the states, other than on goods, which are outside the purview of Article 304(a). If those taxes impede the freedom of trade, commerce and intercourse they would infringe Article 301 though they do not fall within Article 304(a). 164 Third, Article 302 has been held to enable Parliament to impose Central Sales Tax (Sitolakshmi Mills) (supra). The expression "restrictions" in Article 302 has been construed not to exclude a restriction by way of a taxing measure.

If the expression 'restriction' for the purposes of Article 302 does not exclude a legislative measure by way of a fiscal imposition, it cannot evidently be excluded from the ambit of the phrase 'restrictions' in Article 304. 165 Fourth, this conclusion is buttressed by the non-obstante provision contained in Article 304. The plain meaning of the non-obstante provision is that state legislatures may enact legislation in exercise of their law making authority under Articles 245 and 246, of the nature contemplated by clauses (a) and (b) of Article 304, despite the fact that such a legislative measure would otherwise fall within the ambit and purview of Article 301.

The non-obstante provision in Article 304(a) refers to Article 301. Obviously, unless something falls within the ambit of Article 301, there is no reason to incorporate the non-obstante clause in Article 304(a). In other words, what Article 304(a) does is to indicate that despite the fact that a legislative measure falls under Article 301, it is permissible if it adheres to Article 304. Despite Article 301, it is permissible in view of Article 304(a). Article 304(a) lifts the embargo. 166 The use of the clause of subjection in Article 301 and the non- obstante provision in Article 304 have been criticised as a case of inartistic draftsmanship.

A clause which makes a constitutional provision or, for that matter, a statutory provision subject to another makes the provision in which that clause is contained subordinate to the provision to which it is subjected. On the other hand, a non-obstante provision commencing with the word 'notwithstanding' is intended to indicate that the text in which the provision is contained overrides another. The criticism is that the expressions "subject to the other provisions of this Part" in Article 301 and "notwithstanding anything in Article 301" in Article 304(a) are incongruous.

For, the former expression subjects Article 301 to the other provisions of Part XIII [including Article 304(a)]. Hence, it was unnecessary to use a non-obstante clause in Article 304(a). 167 Having noticed this criticism, it is necessary to harmonise the text of Article 301 with Article 304. The guarantee of freedom under Article 301 is subject to Part XIII. Article 304 enables a state legislature in the exercise of its legislative power (under Articles 245 and 246) to enact a law despite the fact that it may otherwise fall within the ambit of Articles 301 or 303.

Article 303 contains the mandate that neither Parliament nor the legislature of the state can grant preferences to one state over another or discriminate between one state and another by virtue of the entries relating to trade and commerce in the lists of the Seventh Schedule. Article 303 postulates (in relation to Parliament) that the power conferred upon Parliament under Article 302 to impose restrictions on the freedom of trade, commerce or intercourse, in the public interest between one state and another or over any part of the territory of India cannot be exercised so as to grant preferences or to discriminate between one state and another.

However, this embargo is lifted by clause (2) of Article 303 when Parliament is dealing with a situation of scarcity of goods in any part of the territory of India. In relation to the legislature of the state, Article 303(1) imposes the same mandate against the grant of preferences between states or the making of any discrimination. However, clause (2) of Article 303 does not apply to the state legislatures. Clause (1) of Article 303 is a restraint on discriminating between one state over another or from granting preferences between them. In other words, the treatment which is extended to one state has to be extended to every other state.

The grant of preferences or the making of discrimination is proscribed. Article 303(1) is akin to a provision in international trade parlance conferring a 'most favoured nation' treatment. Under such an 'mfn' clause, treatment extended to one nation state has to be extended to the other. Article 303(1) embodies a similar principle inter se between the states so as to ensure a uniformity of treatment between states when Parliament or the state legislatures enact a law in exercise of their law making power. A state legislature which enacts a law is required to confer a parity of treatment to other states and is prevented from granting preferences to one state over another or from making discrimination between one state and another, by the operation of Article 303(1).

Article 304(a), however, allows the legislature of a state to impose a tax on goods imported from other states or union territories so long as the tax is one which is imposed on similar goods manufactured or produced in that state. Article 304 (a) in other words has the effect of lifting an embargo which would arise under Article 301. The clause of subjection in Article 301 and the non-obstante clause of Article 304 can hence be harmonised. 168 Article 306 of the Constitution (prior to its repeal by the Constitution (Seventh Amendment) Act, 1956) dealt with the power of certain states in Part B of the First Schedule to impose restrictions on trade and commerce.

Article 306 before its deletion provided as follows : "306. Notwithstanding anything in the foregoing provisions of this Part or in any other provisions of this 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 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." The above provision clearly envisages that taxes and duties which were being levied on imports into and exports from Part B states were restrictions.

Hence, a specific provision was incorporated, to provide for their continuance for a stipulated period. That such taxes and duties would otherwise have infringed Article 301 is evident from the non-obstante provision permitting their continuance. 169 Article 306 as it was originally incorporated into the Constitution provided a clear indicator that the founding fathers did not intend to use the expression 'restrictions' in contradistinction to taxes or duties on the import or export of goods between states. 170 Article 304(a) elaborates that a particular form of taxation - a non- discriminatory tax on goods - shall not be construed to violate Article 301. But Article 304(a) is not exhaustive of the universe of taxation. Article 304(a) has three defining characteristics. The first is that the tax is a tax on goods.

The second is that it is a tax on goods imported from other states. The third is the non-discrimination norm in relation to similar goods produced or manufactured in the state. A tax which fails to meet the yardstick embodied in Article 304(a) will violate Article 301. But Article 304(a) cannot be a basis for holding that every fiscal measure (apart from a discriminatory tax) lies outside the purview of Part XIII. For one thing, the rate of tax is but one element of taxation. There are other elements in a fiscal exaction including assessment, the machinery for collection and set offs and exemptions which can have an important bearing on whether the tax operates in a manner that impedes the freedom of interstate trade and commerce. Moreover, as we have noticed earlier, a discriminatory tax otherwise than on goods, does not attract the provisions of Article 304(a). Finally, a non-discriminatory tax may also become an impediment on the freedom of trade and commerce where the tax is so high as to render it confiscatory. Hence, a discriminatory fiscal imposition of the nature which offends Article 304(a) is illustrative of but not exhaustive of fiscal impediments on the freedom of trade and commerce.

171 The Constituent Assembly, while adopting Article 304 incorporated a marginal note which describes the ambit of the provision as : "restrictions on trade, commerce and intercourse amongst states". The marginal note is a broad indicator of constitutional intent. It is a constitutional indicator of the position that a restriction on the freedom of trade and commerce can be fiscal or non-fiscal in origin. The marginal note evidently utilizes the expression "restrictions" in relation to the entirety of the article.

Though a marginal note cannot override constitutional text nor can it control the specific meaning of the words used in the text, it is a broad indicator or pointer to the meaning intended. 172 For these reasons, it would be untenable to postulate as a general principle that it is only a discriminatory tax falling within the ambit of Article 304(a) that is subject to Part XIII of the Constitution. Tax legislation - Judicial review and Part XIII I.1 Taxation and Part XII 173 In early decisions of this Court, the issue as to whether the legislative power to tax was subject to constitutional control independent of Article 265 was analysed.

The initial view was that the power of taxation was subject to exclusively to Article 265 under which a tax can be imposed only with the authority of law. Consequently, a Constitution Bench of this Court in Ramjilal v. Income Tax Officer, Mohindargarh[153] held that the protection against imposition and collection of taxes save by authority of law directly comes from Article 265 and is not secured by clause (1) of Article 31: "11... If collection of taxes amounts to deprivation of property within the meaning of Article 31(1), then there was no point in making a separate provision again as has been made in Article 265.

It, therefore, follows that clause (1) of Article 31 must be regarded as concerned with deprivation of property otherwise than by the imposition or collection of tax, for otherwise Article 265 becomes wholly redundant. In the United States of America, the power of taxation is regarded as distinct from the exercise of police power or eminent domain. Our Constitution evidently has also treated taxation as distinct from compulsory acquisition of property and has made independent provision giving protection against taxation save by authority of law."

174 However, in Kunnathat Thathunni Moopil Nair v. The State of Kerala[154] Chief Justice Sinha speaking for a Constitution Bench rejected the submission that Article 265 of the Constitution was "a complete answer" to the validity of a state taxing law (The Travancore- Cochin Land Tax, 1955). The Constitution Bench held that Article 265 imposes a limitation by which a tax cannot be levied or collected by a mere executive fiat. Under Article 265, a tax can be imposed only with the authority of law which, it was held, must mean a valid law. For a law to be valid, it must be enacted by a legislature which possesses legislative competence and the tax must accord with Article 13. Hence, the Constitution Bench ruled that if the enactment imposing a tax violates Article 14, it would have to be struck down since the guarantee of equal protection of law must extend even to taxing statutes. Another Constitution Bench in Balaji v. Income Tax Officer, Special Investigation Officer[155] rejected the submission that taxing legislation was immune to a challenge on the ground of a violation of Article 19.

In Chhotabhai Jethabhai Patel & Co. v. Union of India[156] a Constitution Bench ruled that the judgment in Ramjilal could not have meant that if a law imposing a tax is outside the legislative competence of the legislature enacting it, it could be a law under which a person could be deprived of property under Article 31 or regarding which the Supreme Court could not be approached for relief under Article 32. The Constitution Bench held that it was also not possible to accept a more limited proposition that once a tax law is covered by an entry in the legislative lists and does not contravene a direct prohibition such as Article 276 (2) or Article 286, such a law is immune from a challenge under Part III of the Constitution. A taxing legislation could be impugned on the ground of :

(i) lack of legislative competence;

(ii) violation of a prohibition under a specific article of the Constitution; or

(iii) repugnancy to the fundamental rights guaranteed by Part III. 175 In Raja Jagannath Baksh Singh v. State of U.P.[157] the Constitution Bench held that though in Ramjilal (supra) there were general observations which indicated that the fundamental rights guaranteed in Part III could not be invoked in respect of a taxing statute, a consensus had emerged in subsequent decisions of this Court that a law imposing a tax could be challenged not only for want of legislative competence but also on the ground of its violating the freedoms contained in Part III. 176 A law which imposes a tax is not immune from constitutional challenge merely because taxation is a manifestation of the sovereign power of the state or because there is a presumption that a tax is imposed by the legislature in public interest. Taxing legislation is subject to constitutional restraints originating in the legislative competence of the legislature to enact the law, the guarantees of fundamental freedoms contained in Part III and constitutional limitations originating in the provisions of the Constitution.

I.2 The standard of judicial review 177 The standard of judicial review in relation to taxing legislation however recognizes that there inheres in the legislature the power to determine the objects on which a tax should be levied and to classify persons or properties for the purposes of the levy. If the classification is rational, a taxing statute cannot be challenged merely because different rates of taxation are prescribed for different categories of persons or objects. The validity of a taxing statute cannot be challenged merely on the ground that the rate of taxation is excessive.

However, if the statute is a colourable piece of legislation or a fraud on legislative power, it would be open to challenge on the ground that while enacting the law, the legislature has adopted a cloak or devise to confiscate the property of a citizen who is taxed. But such a conclusion cannot be reached merely on a finding that the tax which is imposed is unreasonably high or excessive. 178 Conceptually, the availability of judicial review in regard to taxing legislation is distinct from the standard of judicial review. Taxing legislation is not immune from constitutional challenges based on a lack of legislative competence, a breach of fundamental rights or a violation of a constitutional limitation or provision. But the standard of judicial review in relation to fiscal statutes recognizes that the legislature must possess a wide latitude to classify persons or objects for the purposes of the levy.

179 In Federation of Hotel and Restaurant Association of India v. Union of India[158] the Constitution Bench applied the test of palpable arbitrariness when a fiscal statute is challenged on the ground of Article 14. The Court held : "46. It is now well settled though taxing laws are not outside Article 14, however, having regard to the wide variety of diverse economic criteria that go into the formulation of a fiscal policy, the legislature enjoys a wide latitude in the matter of selection of persons, subject matter, events, e[TC., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous.

In examining the allegations of a hostile, discriminatory treatment what is looked into is not its phraseology, but the real effect of its provisions. A legislature does not, as an old saying goes, have to tax everything in order to be able to tax something. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of this Court on the matter have permitted the legislatures to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clear and hostile discrimination against particular persons or classes."

(Id. at p. 658-659)

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

180 Part XIII of the Constitution uses the expression "law" in Articles 302, 303 and 304, among others. There is no reasonable basis for holding that Part XIII includes all laws enacted by Parliament or the State legislatures except laws falling under Entries 82 to 96C of the Union List and Entries 46 to 62 of the State List. The judgment of Chief Justice Sinha in Atiabari broadly enunciated four reasons for excluding taxes from Part XIII of the Constitution : imposition of taxes is a manifestation of the sovereign power of the state which possess the inherent power to impose taxes to raise revenues; taxation is specifically governed by Part XII which is a self-contained code and the validity of a taxing statute cannot be assessed with reference to a provision outside Part XII; taxes provide for resources to improve facilities for trade and do not constitute a restriction on the movement of trade; and the concept of public purpose being implicit in every tax law, it cannot form a part of Article 301.

With the greatest of deference to the view of the learned Chief Justice, it is difficult to subscribe to the general proposition that tax laws per se lie outside the ambit of Part XIII. Taxation is indeed a manifestation of the sovereign power of the state to raise revenues for public purposes. But the exercise of sovereignty is subject to the constitutional limitations of a written constitution. Enactment of law by a law making body which possess a legislative competence over the subject matter upon which it legislates is one of the constitutional limitations.

The Constitution distributes legislative powers between the Union and States. While doing so it carves out fields of legislation which are reserved to the Union and the States respectively. Legislative powers in relation to taxation are also distributed between the Union and the States. Hence, all legislative power (of which the legislative power to impose a tax is a part) is subject to the distribution provided in the Constitution. Exercise of sovereign power is governed by the norms of a written Constitution. Taxing statutes, like other legislation, are subject to constitutional limitations including those contained in Part XIII. Hence, the general notion that taxation is a manifestation of sovereign powers must also comprehend within that conceptualisation, the limitations which the Constitution imposes upon all legislative power of which the taxing power is a part.

181 The second ground which weighed in the decision of Chief Justice Sinha in Atiabari has been considered earlier. Article 245 mandates that all laws are subject to the provisions of the Constitution. From that basic premise, it must follow that the limitations on the taxing power are not only those which are referable to Part XII. A subject such as taxation may be referable to a specific part of the Constitution, such as Part XII. This does not mean that its validity must be assessed only with reference to the provisions of that Part. The provisions of the Constitution are not isolated or watertight compartments. Constitutional provisions do not rest in silos.

182 As regards the third rationale undoubtedly, the revenues which the state raises from fiscal exactions generate resources which are also utilized to augment trade and commerce. This, however, does not confer an immunity from a challenge that a law which is enacted in pursuance of the taxing power breaches specific provisions of the Constitution.

183 While the concept of public purpose is implicit in tax law, it is also implicit in all legislation which is presumed to be in the public interest. Yet the presumption of constitutionality or of legislation being in the public interest does not confer a protection or immunity against a specific challenge on the ground that it violates a constitutional limitation such as that originating in legislative competence, the fundamental rights or constitutional provisions. I.4 Presidential sanction : the proviso to Article 304(b)

184 There is an aspect of the submission of the states bearing on the impact of the requirement of Presidential sanction under the proviso to Article 304(b), which requires close scrutiny. The submission is that if "reasonable restrictions" on the freedom of trade, commerce or intercourse with or within a state are construed to include a legislative measure imposing a tax, this would constitute a substantial encroachment on the power of the states to impose taxes. The requirement of obtaining prior Presidential sanction to a bill which is to be introduced or moved in the legislature of a state it is urged will, it is urged dilute the sovereign power of the states to impose taxes in the fields reserved for them and make them subservient to the Union.

185 While evaluating this submission, it must be emphasised that the proviso attaches to clause b of Article 304. Article 303 prohibits both Parliament and the legislature of a state from enacting laws granting preferences to one state over another or making discrimination between one state over another. 186 Article 303(2) makes an exception in respect of Union legislation enacted to deal with a situation of scarcity of goods in any part of the territory of India. The prohibition contained in clause 1 of Article 303 is, hence, lifted in the case of Parliament by clause 2. In the case of a state legislature, Article 303(1) is attracted where it grants preferences or makes a discrimination between one state and another. Article 304 in its non-obstante clause refers inter alia to Article 303.

Consequently, where a state legislature seeks to enact legislation granting a preference to one state over another or to make a discrimination of the nature referred to in Article 303(1), it must comply with the requirements of a Presidential sanction under the proviso to Article 304(b). Where the law enacted by the state legislature would result in a preference or discrimination prohibited under Article 303(1), the embargo can be lifted upon obtaining the previous sanction of the President under the proviso to Article 304(b). J Article 304(a) : The principle of non-discrimination Article 304(a) has been analysed and applied in judicial precedent over the last six decades. The context in which each of the decided cases arose for decision has undoubtedly shaped and refined the jurisprudence on the subject. Successive Benches have fleshed out the content of its language. While understanding Article 304 (a), this Court has to analyse the meaning of the expressions

(i) 'goods imported from other states';

(ii) 'any tax to which similar goods manufactured or produced in that state are subject'; and

(iii) 'so, however, as not to discriminate between goods so imported and goods so manufactured'. While defining the meaning of these expressions, judicial review is confronted with the basic question of when Article 304(a) would apply and the situations in which the requirement of a non-discriminatory tax is fulfilled. An important aspect of Article 304(a) is whether it permits a classification by the state legislature based on the need to achieve the economic development of the state. If development is a legitimate priority, to what extent does Article 304(a) condition the power of the state legislature to encourage the growth of its own industries by the grant of incentives, rebates and exemptions through fiscal legislation?

J.1 Precedent : 1963 to 1980 188 An early decision arose in State of Madhya Pradesh v. Abdeali[159]. The state government issued a notification under the Madhya Bharat Sales Tax Act, 1950, exempting the sale of footwear from the payment of sales tax subject to three conditions :

(i) The foot-wear had to be hand-made and not manufactured on a power machine;

(ii) The sale price should not exceed a stipulated amount; and

(iii) The sale must be by a manufacturer or a member of his family.

189 A Constitution Bench of this Court held that the notification did not discriminate between foot-wear manufactured or produced in the state and that which was imported from other states since the three conditions of the notification equally applied to all foot-wear irrespective of its origin. A notification granting an exemption for the benefit of small manufacturers making hand-made shoes of a small value who may be unable to compete with large manufacturers was valid. Significantly, in relation to Article 304(a) it was held that the exemption notification made no discrimination between out-of state manufacturers and in-state manufacturers since its conditions applied equally to both. A manufacturer situated outside the state could also claim the benefit of the exemption upon fulfilling the conditions of the exemption. Hence Article 304(a) was held not to have been breached.

190 In Firm A.T.B. Mehtab Majid v. State of Madras[160] the validity of Rule 16 of the rules framed under the Madras General Sales Tax Act, 1939 was challenged by the petitioner who was a dealer in hides and skins. The petitioner sold material which was tanned outside the state as well as what was tanned inside. The contention was that tanned hides and skins imported from outside the state and sold within were subject to a higher rate of tax than the tax imposed on hides and skins tanned and sold within the state.

Moreover, hides or skins imported from outside the state after purchase in a raw condition and then tanned inside the state were subject to higher taxes than those purchased in a raw condition within the state and tanned there. The Constitution Bench rejected the submission that Article 304(a) is attracted only when the goods enter the state while crossing its border. In other words, the imposition provided under clause (a) must not be only at the point of entry. The plea of discrimination was upheld by this Court since the sale of hides or skins which had been purchased in the state and then tanned within the state was not subject to any further tax.

This Court found that there was a breach of Article 304(a) for the following reasons : "17.....If the dealer has purchased the raw hide or skin in the State; he does not pay on the sale price of the tanned hides or skins; he pays on the purchase price only. If the dealer purchases raw hides or skins from outside the State and tans them within the State, he will be liable to pay sales tax on the sale price of the tanned hides or skins. He too will have to pay more for tax even though the hides and skins are tanned within the State, merely on account of his having imported the hides and skins from outside and having not therefore paid any tax under sub-rule (1)." Significantly, the Constitution Bench also dealt with the submission of the state that the circumstance of hides or skins tanned within the state and on which tax had been paid earlier at the time of their purchase in a raw condition was sufficient to consider them to be different from hides or skins tanned outside the state. This Court held that : "18...The similarity contemplated by Article 304(a) is in the nature of the quality and kind of the goods and not with respect to whether they were subject of a tax already or not."

191 In a subsequent decision in A Hajee Abdul Shakoor v. State of Madras[161] this Court held that Section 2(1) of the Madras General Sales Tax (Special Provisions) Act, 1953 discriminated against imported hides and skins sold upto 1 August 1957. The rate of tax on the sale of tanned hides and skins was: "10.....2 per cent on the purchase price of those hides and skins in the untanned condition, while the rate of tax on the sale of raw hides and skins in the State during 1955 to 1957 is 3 pies per rupee." Referring to the judgment in Mehtab Majid, this Court held that:

"10. In the earlier case, discrimination was brought about on account of sale price of tanned hides and skins to be higher than the sale price of untanned hides arid skins, though the rate of tax was the same, while in the present case, the discrimination does not arise on account of difference of the price on which the tax is levied as the tax on the tanned hides and skins is levied on the amount for which those hides and skins were last purchased in the untanned condition, but on account of the fact that the rate of tax on the sale of tanned hides and skins is higher than that on the sale of untanned hides and skins.

The rate of tax on the sale of tanned hides and skins is 2% on the purchase price of those hides and skins in the untanned condition while the rate of tax on the sale of raw hides and skins in the State during 1955 is 3 pies per rupee. The difference in tax works out to 7/1600th of a rupee, i.e. a little less than, 1/2 naya paise per rupee. Such a discrimination would affect the taxation upto the 1st of August 1957 when the rate of tax on the sale of raw hides and skins was raised to 2% of the sale price."

192 Another judgment of a Constitution Bench in State of Madras v. N.K. Nataraja Mudaliar[162] involved a case where the provisions of the Central Sales Tax Act, 1956 were challenged on the ground that the Act permitted the levy of tax at varying rates in different states. This challenge was accepted by the High Court on the ground that the imposition of varying rates of tax in different states on similar inter-state transactions constituted an impediment, thereby offending Article 301. While tracing the history of the legislation Justice J.C. Shah speaking on behalf of three judges held that the enactment encumbered the movement of trade and commerce for the following reasons :

"10. Tax under the Central Sales Tax Act on inter-State sales, it must be noticed, is in its essence a tax which encumbers movement of trade or commerce, since by the definition in Section 3 of the Act, a sale or purchase of goods is deemed to take place in the course of inter-State trade or commerce, if it-

(a) occasions the movement of goods from one State to another;

(b) is effected by a transfer of documents of title to the goods during their movement from one State to another."

However, the judgment held that the Central Sales Tax Act which was enacted for imposing a tax to be collected and retained by the state did not either grant a preference to one state or another or make any discrimination merely because varying rates of tax prevailed in different states. This Court rejected the view which had prevailed in the High Court that different rates of tax on the sale of the same or similar commodities by different states placed an unequal burden on inter-state trade:

"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 and 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."

(emphasis supplied)

The object of enacting a central legislation on the subject was explained thus:-

"17.....But since the power of taxation could be exercised in a manner prejudicial to the larger public interests by the States, it was found necessary to restrict the power of taxation in respect of transactions which had an inter-State content. Amendment of Article 286 and the enactment of the Sales Tax Validation Act 1956, and the Central Sales Tax Act, 1956, were all intended to serve a dual purpose: to maintain the source of revenue from sales tax to the States and at the same time to prevent the States from subjecting transactions in the course of inter- State trade so as to obstruct the free flow of trade by making commodities unduly expensive."

193 The leading judgment held that Article 304 prohibits the imposition of differential rates of tax by the same state on goods manufactured or produced in the state and similar goods imported into the state. But where the rates of tax imposed on imported goods by a taxing state are not different from the rates of tax on goods manufactured or produced within, Article 304(a) has no application. Consequently, the prevalence of different rates of sales tax in the states under the Central Sales Tax Act, was held not to be determinative of the giving of a preference or making of a discrimination. Justice R.S. Bachawat while agreeing with the order passed by the leading majority judgment, however, held that just as a sales tax on intra-state sales would not normally offend Article 301, similarly a tax on inter-state sale would not do so.

In his view, a tax on sale did not directly or immediately operate on the free flow of trade or the free movement of the transport of goods from one part of the country to another. Justice K.S. Hegde concurred with the majority the ground that the provisions of the Central Sales Tax Act had no direct or immediate impact on inter-state trade or commerce since sufficient safeguards were provided - firstly, by providing for the levy of sales tax in the state in which the goods are produced and secondly, by placing restrictions on the power of the states in fixing the rates.

194 The judgment of the Constitution Bench in Kalyani Stores v. The State of Orissa[163] involved a challenge to a levy imposed by the state of Orissa under the Bihar and Orissa Excise Act, 1915 at a rate of Rs.40/- per L.P. Gallon on foreign liquor of Indian manufacture imported into the state from other parts of the country. Subsequently, acting under the Bihar and Orissa Excise Act, 1915, the duty was enhanced to Rs.70/- per L.P. Gallon. Under Section 27 of the Bihar and Orissa Excise Act, 1915, a countervailing duty was provided on an excisable article imported into the state. Countervailing duties are provided for in Entry 51 of List II to the Seventh Schedule to the Constitution. This Court noted that countervailing duties can only be levied if similar goods are actually produced or manufactured in the state on which excise duties are being levied :

"4..... The fact that countervailing duties may be imposed at the same or lower rates suggests that they are meant to counterbalance the duties of excise imposed on goods manufactured in the State. They may be imposed at the same rate as excise duties or at a lower rate, presumably to equalise the burden after taking into account the cost of transport from the place of manufacture to the taxing State. It seems therefore that countervailing duties are meant to equalise the burden on alcoholic liquors imported from outside the State and the burden placed by excise duties on alcoholic liquors manufactured or produced in the State.

If no alcoholic liquors similar to those produced or manufactured imported into the State are produced or manufactured, the right to impose counterbalancing duties of excise levied on the goods manufactured in the State will not arise. It may therefore be accepted that countervailing duties can only be levied if similar goods are actually produced or manufactured in the State on which excise duties are being levied." During the course of discussions, the Constitution Bench held that the restriction on the freedom guaranteed by Article 301 could only be justified if it fell within Article 304. The reasonableness of the restriction had to be adjudged having regard to the purpose for imposing the restriction in the public interest.

In that case, it was held that since no foreign liquor was produced or manufactured in the State of Orissa the power to legislate under Article 304(a) is not available : "7...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."

195 The notification enhancing the duty was held to violate Article 301 and was found not to have complied with Articles 304(a) and

(b). The judgment in Kalyani Stores was explained and confined to the facts of the case in a subsequent decision in State of Kerala v. A.B. Abdul Khadir[164]. In Abdul Khadir this Court held that the earlier decision did not intend to lay down a proposition of universal applicability that the imposition of a duty or tax in every case would per se be an infringement of Article 301 and only such restrictions which directly or immediately impede the free flow of trade fall within the prohibition of Article 301.

196 A Constitution Bench of this Court in Rattan Lal & Co. v. The Assessing Authority[165] applied the test formulated in N.K. Nataraja Mudaliar (supra) in the context of a challenge to the Punjab General Sales Tax (Amendment and Validation) Act, 1967 and the Punjab Sales Tax (Haryana Amendment and Validation) Act, 1967. The Constitution Bench held that so long as the rate of tax is the same between goods imported from other states and similar goods, produced or manufactured within the state, Article 304 is satisfied.

197 In V. Guruviah Naidu and Sons v. State of Tamil Nadu[166] a Bench of two Judges of this Court repelled a challenge to the validity of a tax imposed under the Madras General Sales Tax Act, 1959 on raw hides and skins and on dressed hides and skins. In that case the rate of sales tax for raw hides and skins was three per cent, whereas for dressed hides and skins it was one and a half per cent. The Court held that a lower rate of tax in the case of dressed hides and skins was prescribed to offset the difference between the higher price of dressed hides and skins and the lower price of raw hides and skins. No material was shown to indicate that despite this lower rate of tax, imported hides and skins were subjected to discrimination. Upholding the levy, the Division Bench held as follows :- "9....

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 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 doubled 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." (Id. at p. 239-240)

198 A subsequent judgment of a Bench of two Judges in State of Karnataka v. Hansa Corporation[167] involved a challenge to the constitutional validity of an entry tax legislation, namely, the Karnataka Tax on Entry of Goods Into Local Areas for Consumption, Use or Sale Therein Act, 1979. The law was enacted under Articles 245 and 246 read with Entry 52 of the State List. Explaining the ambit of Article 304(a), this Court held that : "30. Article 304 lifts the embargo placed on the legislative power of State to enact law which may infringe the freedom of inter-State trade and commerce if its requirements are fulfilled. Article 304(a) imposes a restriction on the power of legislature of a State to levy tax which may be discriminatory in character by according discriminatory treatment to goods manufactured in the State and identical goods imported from outside the State.

The effect of Article 304(a) is to treat imported goods on the same basis as goods manufactured or produced in a State. This Article further enables the State to levy tax on such imported goods in the same manner and to the same extent as may be levied on the goods manufactured or produced inside the State. If a State tax law accords identical treatment in the matter of levy and collection of tax on the goods manufactured within the State and identical goods imported from outside the State, Article 304(a) would be complied with. There is an underlying assumption in Article 304(a) that such a tax when levied within the constraints of Article 304(a) would not be violative of Article 301 and State legislature has the power to levy such tax."

(Id. at p. 712)

The Court considered whether the Act being leviable on the entry of goods into a local area, it had a direct and immediate impact on the movement of goods thereby infringing the freedom of inter-state trade guaranteed in Article 301. In that context, the Court observed thus : "32....To the extent, the impugned tax is levied on the entry of goods in a local area it cannot be gainsaid that its immediate impact would be on movement of goods and the measure would fall within the inhibition of Article 301. Can it, however, be said that this tax imposes restrictions which in the facts and circumstances of the case could not be said to be reasonable?"

(Id. at p. 713)

The Court held that the petitioners were unable to establish before the High Court that the burden of the tax was so heavy as to constitute an unreasonable restriction on the freedom of trade and commerce. The Court held that a levy which was reasonable in its impact on the movement of goods and was imposed for augmenting municipal finances which had been adversely affected due to the abolition of octroi could not be held to be an impediment to inter-state trade and commerce. Even if the tax imposed an economic impediment to the activity taxed, it was held not to be unreasonable or against public interest.

The Court observed that though the Bill had not received the sanction of the President under clause (b) of Article 304, this was cured under Article 255 by the grant of Presidential assent and hence the legislation fell within the purview of Article 304(b). Being not discriminatory, it was held that Article 304(a) was not breached. The constitutional validity of the legislation was thus analysed on both the anvil of clauses (a) and (b) of Article 304 by the Bench of two Judges.

J.2 Exemptions and incentives : Video Electronics and Mahavir 199 A Bench of two Judges of this Court in Weston Electroniks v. State of Gujarat[168] dealt with the validity of an exemption granted under the Gujarat Sales Tax Act, 1969. A notification was issued under Section 49(2) of the Act by which sales tax on television sets imported from outside the state was fixed at 10 per cent, whereas it was one per cent for goods manufactured within the state. Adverting to the judgment of the Constitution Bench in Mehtab Majid, a Bench of two learned Judges noted the defence of the state that the rate of tax was reduced for locally manufactured goods by way of an incentive, placing reliance on clauses (b) and (c) of Article 39 of the Constitution.

This in the view of the Court did not provide a justification for a discrimination between imported goods and goods which were locally manufactured or produced. The prescription of a lower rate of tax for the latter was held to be invalid. This Court held : "... An exception to the mandate declared in Article 301 and the prohibition contained in clause (1) of Article 303 can be sustained on the basis of clause (a) of Article 304 only if the conditions contained in the latter provision are satisfied. In the result, the discrimination effected by applying different rates of tax between goods imported into the State of Gujarat and goods manufactured within the State must be struck down."

200 The judgment in Weston Electroniks was considered but distinguished by a larger Bench of three Judges of this Court in Video Electronics Pvt. Ltd. v. State of Punjab[169]. The judgment of this Court, inter alia, dealt with a challenge to the constitutional validity of notifications issued under the Uttar Pradesh Sales Tax Act, 1948, as well as under the Punjab General Sales Tax Act. Under the notification issued under the Uttar Pradesh legislation, an exemption from the payment of sales tax was granted for goods manufactured in new industrial units, where the date of commencement of production fell between two stipulated dates.

The exemption was for a stipulated period reckoned from the date of first sale if such sale took place not later than six months from the commencement of production. The period of exemption was confined for a specified period of three to seven years. Insofar as the State of Punjab was concerned, sales tax at the rate of 12 per cent was provided on electronic goods sold within the state irrespective of their manufacture.

In pursuance of a notification issued under the sales tax law, the rate of sales tax payable by electronic manufacturing units producing goods specified thereunder was brought down from 12 per cent to 1 per cent. The reduction in sales tax was defended on the ground that it was an incentive to a backward industrial state. While affirming the legality of the exemption notifications, a Bench of three learned Judges observed that this was not a case involving "a naked blanket preference in favour of locally manufactured goods, as against goods coming from outside the state[170]".

The Court held that the both under the notifications issued in Uttar Pradesh and in Punjab there was no discrimination against goods manufactured outside the state for the following reasons: "35....In case of Punjab, an overwhelmingly large number of local manufacturers of similar goods are subject to sales tax and, therefore, the general statement that the manufacturers within the State are favoured against the manufacturers outside the State, is incorrect. Under the notifications in case of U.P., only newly set up units are eligible to claim the benefits thereunder for a limited period of 5 years and that also only if they strictly comply with the terms and conditions set out in the notification."

(Id. at p. 113)

201 A close reading of the judgment in Video Electronics would thus indicate that both sets of notifications involving the States of Uttar Pradesh and Punjab were carefully structured to cover one or more of the following circumstances: Availability of a reduced rate of sales tax to new industrial units; Applicability of a reduced rate of sales tax to producers of certain specified goods, such as electronic goods; Limitation of the period during which the reduced rate of tax could operate; and Applicability of the general rate of sales tax to an overwhelmingly large number of local manufacturers, at par with imported goods. 202 While sustaining the grant of a reduced rate of sales tax, this Court distinguished, inter alia, the judgment in Weston Electroniks (supra) and similar cases in the following observations :

"30...... These cases were not at all concerned with granting of exemption to a special class for a limited period on specific conditions of maintaining the general rate of tax on the goods manufactured by all those producers in the State who do not fall within the exempted category at par with the rate applicable to imported goods as we have read these cases. Hence, it was not necessary in those decisions to consider the problem in its present aspect. If, however, the said power is exercised in a colourable manner intentionally or purposely to create unfavourable bias by prescribing a general lower rate on locally manufactured goods either in the shape of general exemption to locally manufactured goods or in the shape of lower rate of tax, such an exercise of power can always be struck down by the courts. That is not the situation in the instant cases."

(Id. at p. 110)

(emphasis supplied)

However, in the same judgment, the following observations have been made : "20..... 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 Seventh 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........

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 State is as much vital as economic unity."

(Id at p. 104)

203 The substratum of the judgment in Video Electronics, clearly is that Article 304(a) would not be breached by a classification brought about by a carefully structured notification which grants incentives to local industry of a specified class of units, with reference to a specific category of manufactured goods and for a stipulated period. If the observations in paragraph 20 (quoted above) are however, construed to set a broad principle, that would defeat the primary objective underlying Article 304(a) of the Constitution. This was noticed in a subsequent decision in Shree Mahavir Oil Mills v. State of J & K[171]. In that case, under the J & K General Sales Tax Act, 1962, sales tax on edible oil was prescribed at 4 per cent.

However, in order to protect the local edible oil industry, the state government issued a notification directing that the goods manufactured by a dealer operating as a small-scale industrial unit in the state would be exempted from the payment of tax to the extent and for the period specified. Subsequently, edible oils in general were shifted from Schedule D to Schedule C attracting tax at 8 per cent. There were in fact no large industries in Jammu and Kashmir producing edible oil. Out-of state manufacturers unsuccessfully impugned the notification before the High Court. Explaining the ambit of Article 304, the Bench of two learned Judges observed thus :

"8....The idea was not really to empower the State Legislatures to levy tax on goods imported from other States and Union Territories - that they are already empowered by other provisions in the Constitution - but to declare that that power shall not be so exercised as to discriminate against the imported goods vis-à-vis locally manufactured goods.

The clause, though worded in positive language has a negative aspect. It is, in truth, a provision prohibiting discrimination against the imported goods. In the matter of levy of tax - and this is important to bear in mind - the clause tells the State Legislatures - "tax you may the goods imported from other States/Union Territories but do not, in that process, discriminate against them vis-à-vis goods manufactured locally". In short, the clause says: levy of tax on both ought to be at the same rate.

This was and is a ringing declaration against the States creating what may be called "tax barriers" - or "fiscal barriers", as they may be called - at or along their boundaries in the interest of freedom of trade, commerce and intercourse throughout the territory of India, guaranteed by Article 301. As we shall presently point out, this clause does not prevent in any manner the States from encouraging or promoting the local industries in such manner as they think fit so long as they do not use the weapon of taxation to discriminate against the imported goods vis-à-vis the locally manufactured goods. To repeat, the clause bars the States from creating tax barriers - or fiscal barriers, as they can be called - around themselves and/or insulate themselves from the remaining territories of India by erecting such "tariff walls."

(Id. at p. 45)

204 The judgment in Video Electronics was distinguished on the ground that in that case the notifications of the States of Uttar Pradesh and Punjab were carefully circumscribed : "22.....So far as the Uttar Pradesh notification was concerned, it was held that inasmuch as it was a case of grant of exemption "to a special class for a limited period on specific conditions" and was not extended to all the producers of those goods, it does not offend the freedom guaranteed by Article 301. Similarly, in the case of Punjab notification, it was held that since the exemption is for certain specified goods and also because "an overwhelmingly large number of local manufacturers of similar goods are subject to sales tax", it cannot be said that local manufacturers were favoured as against the outside manufacturers."

(Id. at p. 51)

Again, it was held that :

"23. All the above observations were made to justify (1) grant of incentives and subsidies and (2) exemption granted to new industries, of a specified type (small-scale industries commencing production within the two specified dates) and for a short period. They were not meant to nor can they be read as justifying a blanket exemption to all small-scale industries in the State irrespective of their date of establishment. The case before us clearly falls within the ratio of the Constitution Bench decision in A.T.B. Mehtab Majid and the decisions in Indian Cement, W.B. Hosiery Assn. and Weston Electroniks. The limited exception created in Video Electronics does not help the State herein for the reason that exemption concerned herein is neither confined to "new industries", nor is circumscribed by other conditions of the nature stipulated in the Uttar Pradesh notification.

It is not possible to go on extending the limited exception created in the said judgment, by stages, which would have the effect of robbing the salutary principle underlying Part XIII of its substance. Indeed, it has been the contention of Shri Salve that, on principle, the exception carved out in Video Electronics is unsustainable. For the purpose of this case, it is not necessary for us to say anything about the correctness of Video Electronics. Suffice it to say that the limited exception carved out therein cannot be widened or expanded to cover cases of a different kind.

It must be held that the total exemption granted in favour of small-scale industries in Jammu and Kashmir producing edible oil (there are no large-scale industries in that State producing edible oil) is not sustainable in law."

(Id. at p. 52)

205 The Court cautioned that a limited exception which had been carved out in Video Electronics should not be enlarged "lest it eat up the main provision." An unconditional exemption in the case of edible oil produced within the state from sales tax while subjecting similar goods produced in other states to sales tax at 8 per cent was held to violate Article 304(a) of the Constitution.

206 The judgment in Shree Mahavir Oil Mills expressly left open the correctness of the view in Video Electronics. In Shree Mahavir Oil Mills an exemption from the payment of sales tax altogether granted to local industry was set aside as violating Article 304(a). The earlier decision in Video Electronics was distinguished on the ground that it related to a case not involving a blanket preference.

J.3 Article 304(a) and reasonable classification 207 Does Article 304(a) prohibit a state from making a reasonable classification? Article 303 contains a prohibition on the legislature of a state granting a preference to one state over another and for making a discrimination. Article 304 operates, inter alia, as an exception to the norm contained in Article 303 as a result of its non-obstante provision. Under clause (a) of Article 304 a state may impose on goods which are imported from other states "any tax" to which similar goods manufactured or produced in that state are subject.

This is followed by the further requirement that the imposition of such a tax shall "so however" not discriminate between goods so imported and goods so manufactured or produced. The principle which underlies clause (a) of Article 304 is non- discrimination between goods imported from another state and goods produced or manufactured within. Clause (a) enables the state legislature to impose a tax on goods imported, in the exercise of its legislative power, so long as that tax is imposed also on similar goods manufactured or produced within.

The latter part of clause (a) which contains a mandate against discrimination must have some meaning. In drafting the provision, the founding fathers evidently did not confine it merely to a norm providing a parity of taxes between imported goods and similar goods produced or manufactured within. While stipulating that "any tax" to which similar goods produced or manufactured in the state are subject can be imposed on goods imported into the state from other states, clause (a) contains the mandate that there should be no discrimination between goods, that are imported and goods that are manufactured within.

The judgment in Video Electronics construed Article 304(a) as not precluding a state from taking steps to promote the growth of its own nascent industry. In the case of the State of Punjab, the defence of the State was that a reduced rate of sales tax was imposed to boost the electronics manufacturing industry and to stop existing industrial units shifting to neighbouring states, particularly having regard to "the prevailing peculiar circumstances of Punjab". Moreover, while states, such as Gujarat and Maharashtra were fully developed industrial states, Punjab at that stage was backward in terms of industrial growth.

These factors undoubtedly weighed with this Court in sustaining the notification.

208 A state does have a legitimate concern and interest in ensuring the growth and development of its own industry. Levels of industrial growth and economic development are not uniform across the country. A state legislature can have a legitimate interest, in the exercise of its law making power, to ensure balanced development and growth of its industry, particularly, in the nascent stage of industrial development. Yet, while doing so and granting incentives the legislature or as its delegate, the state government must ensure that the grant of incentives is carefully structured so as not to defeat the underlying spirit and object of Article 304(a). Moreover, when the grant of such an incentive is challenged, it is for the state to justify it with reference to circumstances which have a bearing on legitimate state interest.

J.3.1 Formal and substantive equality

209 Equality and non-discrimination are elements of the same universe. Equality has both a formal and substantive content. In a formal sense, equality perceives of governance under the same legal regime and the application of the same legal principles. Uniform application of law fulfils the norm of formal equality. Substantive equality looks beyond formal equality. That which may satisfy the requirements of formal equality may be inadequate and insufficient to meet the vision of substantive equality. Substantive equality recognises that there are histories of discrimination based on social background, gender and access to resources.

They determine the pursuit of opportunity. Hence, formal equality may not necessarily result in just ou[TComes. Treating all individuals alike may perpetuate deprivation and denial of economic opportunity to those for whom the social order has not provided equal access to education or to the resources necessary for economic advancement. Hence, substantive equality is premised on the foundation that in order to produce just ou[TComes and a real equality between individuals who are unequally situated, the legal regime must comprehend an understanding of their past histories of discrimination, disability and injustice.

210 Regions within a nation are not equal in a real sense in terms of economic advancement and social development. Typically, economic development has spread along areas which developed around the availability of infrastructure and resources. As ports and railways developed over the last century and a half, the benefits of development permeated to regions where economic opportunity was available. Yet, other areas of the country have remained in a state of comparative under-development as a result of circumstances such as geographical isolation and the absence of developed means of communication. Many regions have suffered from the absence of education and unavailability of access to health and sanitation. Social deprivation and discrimination have been the defining characteristic of large swathes of the nation. In this background, substantive equality like its mirror image-non-discrimination-construes the need for development in terms of mitigating regional histories of suffering and strife, and of denial, deprivation and discrimination.

211 Article 304(a) is an amalgam of formal as well as substantive norms of equality. At a formal level, the provision requires that when a state imposes a tax on imported goods, the tax must likewise be imposed on similar goods which are manufactured or produced in the state. Parity of tax between domestic goods produced and manufactured in a state with those which are imported from other states is the first and formal requirement. But beyond this, Article 304(a) brings into focus substantive principles by embodying a norm of non-discrimination in its latter stipulation.

Non- discrimination in a substantive sense requires a level playing-field. Two states in the nation may not be comparable in terms of social development and economic advancement. One state may be industrialised with a growth of capital investment in urban infrastructure while another state may be predominantly agricultural. Article 304(a) does not prohibit a state from taking steps that are necessary for development and growth within its territories.

But the submission is that while a state is at liberty to adopt policies which lead to its own economic advancement, it cannot utilise tax treatment as a measure to do so in a manner that would be forbidden by Article 304(a). This submission undoubtedly carries a degree of weight. But equally, parity of tax treatment between goods produced and manufactured in a state and those which are imported from other states must be balanced with the need to produce a state of non-discrimination in a substantive as opposed to formal sense. Hence, the judgment of this Court in Shree Mahavir Oil Mills v. State of J & K[172] while construing the earlier decisions in Video Electronics, held that the limited exception carved out in the latter decision should not consume the rule.

Video Electronics was a situation where a rebate of sales tax was carefully structured to cover industrial units of a well-defined class over a measurable period of time and for rational reasons. This was not an unrestricted or blanket preference to domestic goods. Article 304(a) was intended to protect freedom of trade and commerce from protectionism and parochial demands in the interest of the economic unity of the nation. Hence, while Article 304(a) cannot be read to prohibit a classification, it cannot be read to allow states to pursue policies of protectionism that destroy the essential freedom of trade and commerce.

J.4 Production and manufacture within the home state

212 Another aspect which needs close analysis is whether under Article 304(a), it is necessary that a state must actually produce or manufacture goods similar to goods imported from other states which are sought to be taxed. The crucial words are "any tax to which similar goods manufactured or produced in that state are subject". Article 304(a) is not in the nature of a countervailing duty. Entry 51 of List II of the Seventh Schedule on the other hand, provides for countervailing duties and is as follows : "51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India- Alcoholic liquors for human consumption; Opium, Indian hemp and other narcotic drugs and narcotics; But not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry."

213 The words "similar goods manufactured or produced" are common to both Article 304(a) and Entry 51. However, the notion of a countervailing duty under Entry 51 (as the judgment in Kalyani Stores explains) is intended to counterbalance the duty of excise levied on articles which are produced or manufactured in the state. The countervailing duty is imposed on articles which are produced or manufactured elsewhere in India. In the context of a countervailing duty, this Court in Kalyani Stores held that it postulates the actual production or manufacture of goods. This principle cannot be extrapolated to Article 304(a) where the tax which is imposed is not in the nature of a countervailing duty. Article 304(a), when it refers to a tax on goods, covers taxes on any aspect of goods which fall within the legislative competence of the state legislature.

The latter part of Article 304(a) which contains the words "so however as not to discriminate between goods so imported and goods so manufactured and produced" is not a surplusage. The object of the latter part is to ensure that there is no discrimination between goods which are produced or manufactured in the state and goods which are imported from other states. If a particular rate of duty is levied on goods which are produced or manufactured in a state, a higher rate of duty cannot be levied on goods imported from other states. This, however, does not preclude a state from imposing a duty on imported goods where it does not actually produce or manufacture goods of that description. The observations of this Court in Kalyani Stores were made in the context of a countervailing duty under Entry 51 of List II which is distinguishable.

A state, in other words, is not confined by Article 304(a) to impose a tax on imported goods, confined only to the basket of goods actually produced or manufactured within that state. To take an example, if motor vehicles are manufactured in six states, Article 304(a) does not restrict the power of the state legislatures of the other states to impose a tax (in the exercise of the legislative power) with respect to motor vehicles. Any other construction would lead to the unintended, if not absurd, consequence that a tax on goods which are imported from other states can be levied only by those states which actually manufacture similar goods within the state.

If a state does not manufacture or produce goods similar to the imported goods on which a tax is imposed, no question of discrimination will arise. The object of Article 304(a) is to prevent disparity of treatment between goods that are produced or manufactured in a state and goods which a state imports from other states. Where a state does not actually produce or manufacture goods of that description. no issue of discrimination qua Article 304(a) would arise. K Entry Tax

214 Entry 52 of List II to the Seventh Schedule of the Constitution provides for : "52. Taxes on the entry of goods into a local area for consumption, use or sale therein." Entry 89 of List I provides for terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights. K.1 Octrois and Terminal taxes

215 The legislative history surrounding the incorporation of Entry 52 is a significant guide to interpreting its provisions. Section 80A of the Government of India Act, 1915 defined the powers of the provincial legislatures. Under the Devolution Rules, the following provisions were contained in Item Nos. 7 and 8 of the Second Schedule : "Item No. 7. An octroi Item No. 8. A Terminal tax on goods imported into or exported from a local area save where such tax is first imposed in a local area in which an octroi was not levied on or before 6 July, 1917."

In the Government of India Act, 1935, Entry 49 of the legislative lists (list II) provided as follows : "49.Cesses on entry of goods into a local area for consumption, use or sale therein. Terminal taxes were placed in List I."

216 In the Government of India Act, 1935, Entry 49 used the expression "entry of goods into a local area for consumption, use or sale therein", instead and in place of "octroi" (as contained in the Devolution Rules under the Act of 1915). The Constitution incorporated Entry 52 in List II in language which corresponds to Entry 49 of List II under the Government of India Act, 1935 but with the difference that the expression 'taxes' is used instead of 'cesses'.

217 The imposition of octroi has a historical significance both in India and elsewhere. Tracing its history, a Constitution Bench of this Court in Diamond Sugar Mills Ltd. v. The State of Uttar Pradesh[173] explained the meaning of octroi thus : "Octroi is an old and well known term describing a tax on the entry of goods into a town or a city or a similar area for consumption, sale or use therein. According to the Encyclopaedia Britannica octroi is an indirect or consumption tax levied by a local political unit, normally the commune or municipal authority, on certain categories of goods on their entry into its area." (Id. at p. 252)

218 Octroi was a tax levied on the entry of goods into areas which were administered by local bodies. When the draftsmen of the Constitution incorporated Entry 52 in List II, it was with the knowledge that the expression 'local area' had been used in the Government of India Act, 1935. Moreover, it could not but have been present to the minds of the framers that the expression 'octroi' which was used in the Devolution Rules had been replaced subsequently in Entry 49 of List II in the Government of India Act of 1935 with a description rather than label : the label being descriptive of the entry of goods into a local area; the purpose being consumption, use or sale therein. The expression 'therein' also indicates that the goods enter for the purpose of being used, consumed or sold within the local area.

219 The situation that fell for consideration before the Constitution Bench in Diamond Sugar Mills arose under Section 3 of the UP Sugar Cane Cess Act, 1956 under which the State Government was empowered to impose a cess not exceeding a stipulated amount on the entry of sugarcane into the premises of a factory for use, consumption or sale therein.

The legislative competence of the state legislature was questioned on the ground that the premises of a factory did not constitute a local area within the meaning of Entry 52. The Constitution Bench held thus : "The etymological meaning of the word "local" is "relating to" or "pertaining to" a place. It may be first observed that whether or not the whole of the State can be a "local area", for the purpose of Entry 52, it is clear that to be a "local area" for this purpose it must be an area within the State. On behalf of the respondents, it is argued that "local area" in Entry 52 should therefore be taken to mean "any part of the State in any place therein". So, the argument runs, a single factory being a part of the State in a place in the State is a "local area". In other words, "local area" means "any specified area inside the State".

The obvious fallacy of this argument is that it draws no distinction between the word "area" standing by itself and the phrase "local area". If the Entry had been "entry of goods into any area of the State........." some area would be specified for the purpose of the law levying the cess on entry. If the Constitution makers were empowering the State Legislatures to levy a cess on entry of goods into any specified area inside the state, the proper words to use would have been "entry of goods into any area.........."

It would be meaningless and indeed incorrect to use the words they did use "entry of goods into a local area". The use of the words "local area" instead of the word "area" cannot but be due to the intention of the Constitution-makers to make sure that the power to make laws relating to levy on entry of goods would not extend to cases of entry of goods into any and every part of the state from outside that part but only to entry from outside into such portions of the state as satisfied the description of "local area".

(Id. at p. 250)

In holding that a factory could not be a local area, the Constitution Bench observed that : "It was with the knowledge of the previous history of the legislation that the Constitution-makers set about their task in preparing the lists in the seventh Schedule. There can be little doubt therefore that in using the words "tax on the entry of goods into a local area for consumption, use or sale therein", they wanted to express by the words "local area" primarily area in respect of which an octroi was leviable under item 7 of the Schedule tax rules, 1920-that is, the area administered by a local authority such as a municipality, a district Board, a local Board or a Union Board, a Panchayat or some body constituted under the law for the governance of the local affairs of any part of the State. 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."

(Id. at p. 253)

220 These observations indicate that Entry 52 having used the expression "local area" rather than "area", the Constitution did not intend that the entry of goods into just any area in the state would attract the entry. The entry had to be into a local area. A local area is an area administered by a local authority such as a municipality, a district or a local board or a panchayat or some other body constituted by law for administering the governance of local affairs in any part of the state. Whether the entire state could be declared as a local area was, however, kept open in Diamond Sugar Mills.

221 In another judgment of a Constitution Bench in Bangalore Woollen Cotton and Silk Mills Co. Ltd. v. Corporation of the City of Bangalore[174] there was a challenge to the constitutional validity of the imposition of octroi duty on cotton and wool by the Bangalore Municipal Corporation Act, 1949 inter alia under the provisions of Article 301. The octroi duty was, in the submission of the state, saved by Article 305 which stipulated that 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. The Constitution Bench accepted the submission and held that there was no contravention of Article 301.

222 In Burmah Shell Oil Storage and Distribution Co. India Ltd. v. The Belgium Borough Municipality[175] the appellant had unsuccessfully moved the High Court for a writ seeking to prohibit the municipality from charging octroi on its products which were brought inside octroi limits for sale. The goods brought into octroi limits by the appellant comprise of four categories : Goods consumed by the appellant; Goods sold by the appellant itself or through dealers and consumed within octroi limits by others; Goods sold by the appellant itself or through dealers within octroi limits but consumed outside; and Goods sent by the appellant from its depot within octroi limits to points outside the municipality where they were produced and consumed by others.

223 Under Section 73 of the Bombay Municipal Boroughs Act, 1925, the municipality was empowered to impose an octroi on animals or goods brought within the octroi limits for consumption, use or sale therein. The Constitution Bench took note of the legislative history relating to terminal taxes and octroi. Terminal Taxes were concerned only with the entry of goods into a local area irrespective of whether or not they were used there. Octrois were taxes on goods brought into the local area for consumption, use or sale. When the Constitution was adopted, the expression octroi was avoided and instead a description was used. Expounding the ambit of Entry 52, the Constitution Bench observed as follows:

"21. It is not the immediate person who brings the goods into a local area who must consume them himself, the act of consumption may be postponed or may be performed by someone else but so long as the goods have been brought into the local area for consumption in that sense, no matter by whom, they satisfy the requirements of the Boroughs Act and octroi is payable. Added to the word "consumption" is the word "use" also. There may be certain commodities which though put to use are not 'used up' in the process. A motor-car brought into an area for use is not used up in the same sense as food-stuffs. The two expressions use and consumption together therefore, connote the bringing in of goods and animals not with a view to taking them out again but with a view to their retention either for use without using them up or for consumption in a manner which destroys, wastes or uses them up." (Id. at p. 230-231)

224 The Constitution Bench ruled that so long as goods are brought inside the area for sale within the area to an ultimate consumer, it makes no difference that the consumer does not consume them in the area but takes them out for consumption elsewhere : "22......The word "therein" does not mean that all the act of consumption must take place in the area of the municipality. It is sufficient if the goods are brought inside the area to be delivered to the ultimate consumer in that area because the taxable event is the entry of goods which are meant to reach an ultimate user or consumer in the area." (Id. at. P. 233) Hence, the appellant was held to be liable to pay octroi duty on goods brought into a local area :

To be consumed by itself or sold directly by it to consumers; For sale to dealers who in their turn sold the goods to consumers within the municipal area irrespective of whether such consumers bought them for use inside or outside the area. However, the appellant was not liable to octroi in respect of goods which it brought into a local area for re-export.

225 For many years after the adoption of the Constitution, local bodies across the country continued to levy octroi, which was an important source of revenue. Octroi was levied under state legislation, enacted with reference to Entry 52 of List II (read with Articles 244, 245 and 246). Octroi, however, assumed an obnoxious character and was a subject of comment by this Court in Hansa Corporation (supra). Octroi duty became associated with check posts installed by local bodies. The octroi barriers became notorious for long queues of fully laden vehicles awaiting entry into local limits. Worse still, octroi became a vexed symbol of the misdeeds of local officials or contractors tasked with the collection of octroi duty. Over a period of time, accepting the clamour of the trade, octroi was gradually phased out and replaced by entry tax legislation in the states. Noteworthy, among the changes made, was that the tax would be leviable upon a dealer. Moreover, the tax would be collected not at the octroi or municipal limit but subsequently after the submission of returns. K.2 Entry taxes and Article 304(a)

226 For the purposes of this reference, it is necessary to clarify at the outset that the detailed provisions of each state legislation pertaining to entry tax do not fall for consideration. It is sufficient for the purposes of the present reference to consider some of the important aspects of entry tax legislation vis-à-vis Part XIII which are of common concern.

227 The first significant aspect of the matter is the inter-play between entry tax legislation and Article 304 (a). The interface between the two arises because entry tax is levied on the entry of goods into a local area for consumption, use or sale therein. If the goods originate in any other state, the imported goods would upon entry into a local area be liable to entry tax since the charging event is the entry of the goods into the local area for consumption, use or sale. Issues of discrimination arise on whether similar goods produced or manufactured within the state are subject to entry tax.

228 Article 304 permits the state legislature to impose on goods imported from another state any tax to which similar goods produced or manufactured in the state are subject. The object is to ensure that there is no discrimination between the goods "so imported" and the goods "so produced or manufactured". The critical requirement of Article 304 (a) is that the tax must be origin neutral. Hence, where the state legislature levies an entry tax on goods entering a local area (without making any discrimination based on whether or not the goods originate in the state or are imported from outside) the mandate of Article 304(a) would be met.

229 The issue is whether Article 304 (a) would be breached by imposing an entry tax only upon goods that are imported from other states. Plainly, if a tax is imposed on goods which are imported from other states without subjecting similar goods produced or manufactured within the state to the tax, there would be a violation of Article 304(a). This would constitute an unconstitutional discrimination between goods imported from other states which are subject to tax and goods produced or manufactured within the state which are not subject to the levy. Such an act of discrimination may take place, for instance, in a situation where state law defines the entire area of the state as a local area or by incorporating a specific definition of the expression dealer or importer to mean an importer of goods from outside the state.

For instance, goods may be subject to entry tax only when they cross the state boundary. Movement of goods exclusively within the state, is not subject to entry tax. Alternatively, the expression local area may be defined with reference to the entire state. If the legislation imposes a tax only upon the entry of goods originating outside the state into the state, while goods produced and manufactured within the state are not subject to the levy, this would constitute a hostile discrimination prohibited by Article 304 (a). K.3 Meaning of 'Local area'

230 The issue as to whether the entire area of a state can be treated as a local area for the purposes of Entry 52 of List II, was specifically kept open for consideration in the judgment of the Constitution Bench in Diamond Sugar Mills. The issue was, however, dealt with in a judgment of three learned Judges of this Court in Shaktikumar M. Sancheti v. State of Maharashtra[176]. In that case an entry tax was levied under Section 3 of the Maharashtra Tax on Entry of Motor Vehicles into Local Areas Act, 1987. The Act was challenged by contractors or dealers of motor vehicles who had purchased them outside the state and had brought them within the state of Maharashtra as being a colorable exercise of legislative power under Entry 52 of List II as well as violating Article 301.

Taking note of the fact that the issue of what constitutes a local area had not been decided in Diamond Sugar Mills, the Bench of three Judges held as follows : "4....The expression 'local area' has been used in various Articles of the Constitution, namely, 3, 12, 245(1), 246, 277, 321, 323A, 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 e[TC. 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 the word 'a' before 'local area' in the Section is significant. The taxable event according to the High Court, is not the entry of vehicle in any area of the State but in a local area.

The High Court explained it by giving an illustration that if a motor vehicle was brought from Jabalpur (Madhya Pradesh) for being used or sold at Amravati (in Nagpur District of Maharashtra), which was the border area, taxable event was not the entry in Nagpur District but entry in area of Amravati Municipal Corporation. The levy, therefore, is not, as urged by the learned Counsel for appellant, on entry of vehicle in any part of the State but in any local area in the State. It cannot, therefore, be struck down on this ground."

(Id. at p. 355)

231 The Seventy-third amendment to the Constitution has incorporated Part IX which deals with Panchayats while the Seventy fourth amendment has incorporated Part IXA which deals with Municipalities. Article 243(d) defines Panchayats as institutions of self-government constituted under Article 243(b) for the rural areas. Article 243(b) requires the constitution in every state of Panchayats at the village, intermediate and district levels. Article 243H (a) empowers the legislature of a state by law to authorize a Panchayat to levy, collect and appropriate such taxes, duties, tolls and fees in accordance with such procedure and subject to such limits. Article 243Q provides for the constitution of a Nagar Panchayat, a Municipal Council and a Municipal Corporation. Article 243X empowers the legislature of a state by law to authorize a Municipality to levy, collect and appropriate such taxes duties, tolls and fees in accordance with such procedure and subject to such limits. With these amendments, local areas now have assumed a constitutional context and significance.

232 In the judgment in Diamond Sugar Mills, the Constitution Bench emphasized that in using the expression local area, the framers of the Constitution were aware of the previous legislative history and meant an area administered by a body (such as Municipalities, Panchayats or local board) constituted under the law for the governance of local affairs in any part of the state.

This statement of principle in the decision in Diamond Sugar Mills now stands fortified in view of the constitutional amendments brought by the insertion of Parts IX and IXA into the Constitution. A local area cannot be defined with reference to the entire state but will comprehend within the state, an area that is administered by a local body constituted under the law.

K.4 Severability

233 On behalf of the states, it has been urged that where a state legislature provides for the levy of an entry tax only upon goods brought from outside the state, the offending words may be treated as severable and struck down so as to allow for the imposition on goods entering a local area both from within or outside the state. Such an exercise would clearly be impermissible.

Where the state legislature has evinced a clear intent to levy a tax only upon the entry of goods originating from outside the state, it would be impermissible, by a process of interpretation as suggested to excise the offending words. Such an excise would not fall within the permissible scope of reading down the statute. The effect of such a judicial exercise would be to impose a levy upon goods moving into a local area from within the state, though, this has not been done by the state legislature. Whether such a levy should be imposed is a matter for the state legislature to determine in its law making authority.

This Court in the exercise of its power of judicial review can hold that a discrimination between goods imported from outside the state and goods produced or manufactured within the state for the levy of a tax would be violative of Article 304(a). Where the state legislature has committed an act of hostile discrimination by imposing a tax only upon goods originating outside the state upon their entry within it, the court must strike down such a provision which violates Article 304(a). The provision cannot be re-written by judicial interpretation to mean that the tax will be levied both on goods originating outside the state and goods originating within the state and entering a local area. Re-writing a legislative provision is impermissible in the exercise of judicial review.

K.5 Equality of tax burdens

234 At first impression Article 304(a) presents a fairly simple application. If a tax at the rate of five per cent is imposed by a taxing state on goods imported from other states, similar goods which are produced or manufactured within the taxing state must be subjected to a five per cent tax. If a higher rate of tax is imposed on goods originating in other states which are imported into the taxing state, this would result in a discrimination against imported goods. Such a discrimination is sought to be obviated by the requirement that the rate of tax should be the same as between similar goods produced or manufactured within the taxing state and goods imported from other states. This furnishes the rationale for several decisions of this Court, which hold that Article 304(a) mandates the same rate of tax and once that requirement is fulfilled, the application of the provision is at an end.

235 The submission of the petitioners, however, which falls for close examination is that Article 304(a) requires that the very tax which is imposed by a taxing state on imported goods must be imposed on domestic goods. In the context of entry tax, the submission is that unless the taxing state imposes it on similar local goods, an entry tax cannot be imposed on goods imported from other states. If goods manufactured or produced in the taxing state are not subject to entry tax, that will result in a discrimination if imported goods of other states are so subject.

236 The example which has been set out above of the application of differential rates of tax, for the same tax imposed on domestic as opposed to imported goods presents a simple application of Article 304(a). The example is simple in the sense that a discrimination is then effected in the imposition of the same tax by subjecting domestic and imported goods to differing treatment. The picture may, however, become more nuanced. Different states have adopted varying models while framing legislation in a manner which, according to them, fulfils the mandate of Article 304(a). Whether it in fact, does so is for the court to determine.

237 A state may have a single legislative enactment providing for both entry tax and sales tax at equal rates. Some other states provide for set offs and statutory exemptions to goods paying local sales tax. Certain states provide a similar set off for goods imported from another state, if they are sold in the taxing state. The legislation of some states provides for a reduction of tax liability under the sales tax law by the amount of entry tax paid while in other cases, state legislation provides for a reduction of entry tax by the amount of tax paid under the General Sales Tax Act.

Similarly, state enactments provide for the reduction of liability under entry tax legislation by the amount of tax which is paid under the sales tax law of that state. Contrariwise, such a reduction has not been made available to imported goods in certain state legislation. The state legislation may have excluded from entry tax those local goods which are liable to pay sales tax under the State Act. However, an importer of scheduled goods who incurs liability under value added tax legislation, by virtue of the sale of imported goods or the sale of goods manufactured by consuming such imported scheduled goods, is entitled to a set off. State legislation in certain cases exempts goods from entry tax if after entry in a local area, the goods are sold there and become liable to pay value added tax. In other cases, manufacturers in a local area are exempt from paying entry tax on raw material imported from another local area or another state.

In some cases, manufacturers in a local area are required to pay the same entry tax on raw material imported from another local area or another state.

238 These examples furnish illustrations of different patterns and approaches adopted by state legislation. It is necessary to clarify that in this reference the nuances of each state law are not being considered since the cases would have to be placed for disposal before the appropriate Bench after the reference is answered. For the purposes of this reference, it is sufficient for the court to lay down broad principles governing the area without going into individual facts or detailed provisions covering each case in relation to the period at issue in the respective states.

239 Article 304(a), in so far as is material, authorises the legislature of a state to impose on "goods imported" from other states "any tax to which similar goods manufactured or produced in that state are subject". Several aspects of Article 304(a) merit emphasis :

240 The first is that Article 304(a) refers to the imposition of any tax on goods. The provision is not either a source of legislative power nor does it prescribe fields of legislation. The expression "any tax on goods" is of a generic nature and covers all taxes which a state is competent to impose on any aspect of goods under Articles 245 and 246 read with List II of the Seventh Schedule. The expression 'any tax' would mean any exaction in the nature of an impost or levy which the state legislature is competent to enact by virtue of its legislative powers. The expression 'any tax' must mean what it says: it means any levy which the state is constitutionally competent to legislate. The second aspect of Article 304(a) is the latter part which provides that the state shall act : "so, however, as not to discriminate between goods so imported or goods so manufactured or produced."

241 The fundamental reason for the incorporation of this provision is to prohibit discrimination being practiced by the state against imported goods by embarking upon protectionist policies. The discrimination which the constitutional provision is intended to rule out is discrimination which is protectionist in nature. A state cannot impose taxes in a manner that would make the goods of another state non-competitive so as to effectively bar the inflow of trade by utilizing fiscal exactions. Thirdly, the latter part of Article 304(a) is prefaced by the expression "so however".

In Words and Phrases[177] the expression however has been explained as indicating "an alternative intention, a contrast with a previous clause and a modification of it under circumstances"[178]. The Oxford dictionary defines the expression 'however' to mean "in any case, at all events, at any rate." Another meaning attributed to the phrase is "used by itself, or followed by points of suspension, as an interjection or as a formula concluding, introducing or modifying an utterance in some contextual way". P Ramanatha Aiyar's Law Lexicon[179] states that the word 'however' in a deed or will indicates an alternative intention, a contrast with a previous clause and a modification of it under certain circumstances.

The latter part of Article 304(a) follows upon the first which enables the state to impose on goods which are imported from other states any tax to which the goods produced or manufactured within the state are subject. The latter part constitutes a positive re-affirmation that in any case, at all events and at any rate there shall be no discrimination between goods manufactured or produced within the taxing state and goods imported from other states. This narrative is the dominant theme of Article 304 (a). Fourthly, an expression of some significance that is used in the latter part of Article 304(a) is "between". That expression has been employed so as to mandate that there shall be no discrimination between goods imported into the taxing state from other states and goods that are manufactured and produced within.

The use of the expression "so" in the latter part is an obvious reference to the imported goods and the goods manufactured or produced within, referred to in the first part. The expression 'between' postulates that imported goods and local goods must be allowed a level playing field in the taxing state. Imported goods from another state cannot be placed at a comparative disadvantage. The expression 'between' also signifies that goods produced or manufactured within the taxing state should also not be discriminated against. In seeking parity of treatment, it is as much the obligation of the taxing state to ensure that there is no discrimination against goods originating in other states, as much as it is its concern to ensure that domestic goods are not discriminated against.

The former is a matter of constitutional obligation. However, it does not exclude a similar obligation and concern of the taxing state in respect of goods produced and manufactured within its territorial limits. Both must go hand in hand. Discrimination both in a positive manner against imported goods and a reverse discrimination against domestic goods are within the ambit of Article 304(a). The fifth important principle which requires emphasis is that our Constitution does not embody a requirement that the state legislature while enacting a legislation must legislate separately in respect of each subject of legislation contained in List II. A law enacted by the state legislature imposing a fiscal levy may cover more than one subject of legislation falling within its legislative competence in List II. In contrast, Section 55 of the Australian Constitution mandates that there shall be one tax law on one subject.

Article 55 of the Australian Constitution reads as follows: "Article 55 : Laws imposing taxation shall deal only with the imposition of taxation and any provision therein dealing with any other matter shall be of no effect. Laws imposing taxation except laws imposing duties of customs or of excise shall deal with one subject of taxation only; but laws imposing duties of customs shall deal with duties of customs only, and laws imposing duties of excise shall deal with duties of excise only."

242 The Indian Constitution does not impose such a restriction on the states. Considered from a different perspective, "rag-bag" legislation is constitutionally permissible under the Indian Constitution and it is open to a single enactment to draw sustenance from more than one entry which falls within the legislative competence of the enacting legislature. [See in this context: Ujagar Prints (II) v. Union of India[180] All India Federation of Tax Practitioners v. Union of India[181] and State of A.P. v. NTPC[182]].

243 As a matter of constitutional doctrine, there is no restraint on the plenary powers of Parliament as well as the state legislatures which requires the legislative body enacting a statute to legislate only upon one head of legislation falling within its competence. The legislature can distribute or allocate its regulatory or law making requirements (both fiscal and non-fiscal) in a manner which best sub-serves its needs and concerns. Once this be the position, its impact upon the interpretation of Article 304(a) is that it is open to the state legislature to have due regard to the equality of tax burdens, when it legislates to impose "any tax" so long as it does not breach the notion of non-discrimination as between goods that are imported from other states and goods which are produced or manufactured within. It is legitimately entitled to ensure that the tax burden should not discriminate between locally produced or manufactured goods of that state and goods originating in other states.

The substance must prevail over form. Once there is no constitutional necessity that the form in which legislation is enacted in India must cover only one legislative entry, the legislature is entitled to devise a law in a suitable manner which while being consistent with the norm of non- discrimination also preserves a parity of tax burden between goods imported and domestic goods. This is the foundation of the theory of equivalence.

244 The burden of establishing that there is a discrimination against goods which are imported from other states lies on the person who sets up such a plea. In answering a plea of discrimination, it would be open to the state to establish that the legislative provision which it has enacted maintains the principle of non-discrimination between goods produced and manufactured within the state and goods imported from other states while at the same time bringing about parity in terms of tax burden between domestic and imported goods. Sales tax is referable to Entry 54 of List II ("taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I"). Entry tax is referable to Entry 52 of List II ("taxes on the entry of goods into a local area for consumption, use or sale therein").

Both sets of taxes fall within the competence of the state legislature. Taxable events under entries both entries are distinct : in the case of one the sale of goods and in the case of the other, entry of goods into a local area for consumption, use or sale therein. Both deal with separate aspects of the taxation of goods; the taxable events being proximate though distinct. The expression "any tax" recognises the full panoply of taxes on goods falling within List II. If a law can cover Entry 52 and Entry 54 of List II, there is no reason to prohibit the state law making authority from having due regard to the tax burdens imposed on domestic goods and goods imported from other states under entry tax and sales tax legislation, taken as a composite whole.

"Any tax" does not mean a tax under one entry of List II as a discrete and isolated legislation independent of any another entry. Any adjustment, exemption or set off based on the payment of sales tax may be intended to avoid double taxation and discrimination. Whether this object has been legitimately achieved by the enacting law is a matter to be determined on its interpretation and application. 245 It is trite law that every discrimination involves a differentiation but every differentiation does not implicate discrimination. (Digvijay Cement v. State of Rajasthan[183]).

The enquiry into whether a state has practiced discrimination against goods imported from other states will commence with an investigation into whether the state legislation has made any differentiation between the two sets of goods. This is not merely in terms of the rate of tax but there are other important aspects including : procedures and machinery including aspects such as licencing, recognition and compliance: Measure of the tax; and Exemptions or set offs; Beyond this enquiry, the court would need to analyse the reasons for the differentiation and then to determine as to whether there has been a discrimination violative of Article 304(a).

K.6 Entry tax and imported goods 246 Entry 83 of List I provides for "duties of customs including export duties". The submission of the petitioners is that there being no over- lapping of legislative entries, the field of Entry 52 of List II would begin where that of Entry 83 of List I ends. Hence, while considering whether entry tax can be imposed in relation to goods imported into India, it is urged that until the goods become a part of the land mass, they can be subjected to a law under Entry 83 of List I and to a duty of import. It is only where a Bill of entry for home consumption is filed that the goods cease to be imported goods. Until then, it is urged, no entry tax would be leviable.

247 The taxable event referable to a law enacted under Entry 83 of List I (in relation to an import customs duty) is the act of import by which goods originating in a foreign country are brought into India. Section 2 (23) of the Customs Act, 1962 defines the expression import to mean "bringing into India from a place outside India".

The expression imported goods is defined to mean "any goods brought into India from a place outside India" but so as not to include goods which have been cleared for home consumption. Section 2 (26) defines the expression importer in relation to any goods at any time between their importation and the time when they are cleared for home consumption, to include any owner or any person holding himself out to be an importer.

248 Section 46 provides that the importer of any goods (other than goods for transit or transhipment) shall present to the proper officer a bill of entry for home consumption or warehousing in the prescribed format. The bill of entry can be presented at any time after the delivery of the import manifest or import report. Section 47 provides for clearance of goods for home consumption upon the satisfaction of the officer that the goods entered for home consumption are not prohibited goods and the importer has paid the import duty assessed thereon together with the charges payable under the Act. Section 48 provides for the sale of goods by the person having custody if they are not cleared for home consumption or warehousing or transhipped within 30 days from the date of unloading. Chapter IX provides for warehousing. Section 57 provides for public warehouses where dutiable goods may be deposited. Section 58 provides for the licencing of private warehouses where dutiable goods may be deposited.

Section 59 provides for the execution of a warehousing bond. Section 60 deals with the grant of permission to deposit goods in a warehouse. Section 61 provides for the period during which goods can remain in a warehouse. Under Section 64, the owner's right to deal with warehoused goods has been statutorily recognized to the extent mentioned therein. Section 65 enables the owner of any warehoused goods with due permission to carry on any manufacturing process or operations in the warehouse, relating to the goods. Section 68 provides for the clearance of warehoused goods for home consumption subject to the presentation of a bill of entry, payment of import duty and all penalties and charges and upon the passing of an order of clearance for home consumption. Section 73 provides for the cancelation and the return of a warehousing bond.

249 The Constitution distributes subjects of legislation including, amongst them, those covering fiscal matters between the Union and the States. The fields or subjects of legislation are elaborately defined so as to exclude the possibility of overlapping between entries in List I and those in List II. Even where the fields may appear to overlap, they must be construed to be mutually exclusive. The submission of the petitioners proceeds on the basis that if entry into any part of India from outside India is an entry into a local area, it would nonetheless be necessary to earmark the ambit of Entry 83, List I and Entry 52 List II respectively. Both, according to the petitioners cover taxes on the movement of goods. According to the petitioners, Entry 52 should cover an entry into a local area after the importation of the goods is complete since the field of Entry 83 continues to subsist until the goods have been imported by filing of a Bill of entry for home consumption.

250 Entry 83 of List I and Entry 52 of List II have separate and distinct fields of operation. Entry 41 of List I deals with trade and commerce with foreign countries; import and export across customs frontiers; and definition of customs frontiers. The distribution of powers with reference to the taxing entries in List I and II is mutually exclusive.

251 In a decision rendered in 1942 by the Federal Court in Province of Madras v. Messrs. Boddu Paidanna & Sons[184] it was held that if a tax payer who pays sales tax is also a manufacturer subject to excise duty "there may no doubt be overlapping in one sense, but there is no overlapping in law". The two taxes which he is called upon to pay - excise duty and sales tax were held to be "economically two separate and distinct imposts". There was, in the view of the Federal Court no reason to expand the meaning of the expression 'duties of excise' at the expense of the provincial power to levy taxes on the sale of goods. The judgment of the Federal Court was affirmed by the Privy Council in Governor General in Council v. Province of Madras[185].

The Privy Council held that : "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 manufacture itself."

252 Applying the same principle, this Court held in Ram Krishan Ram Nath Agarwal v. Secretary, Municipal Committee, Kamptee[186] that a Bidi manufacturer was liable to pay excise duty and octroi on two distinct taxing events : whereas excise duty is a tax on manufacture, octroi duty is a tax on the entry of goods into a local area. In The Jiyajeerao Cotton Mills Ltd. v. State of Madhya Pradesh[187] a textile mill which was generating electricity for running the mill (and not for sale) questioned the levy of electricity duty on the ground that this would amount to a levy of excise duty which fell exclusively within the competence of Parliament under Entry 84 of List I. Rejecting the submission, this Court held that : "6. It is difficult to see how the levy of duty upon consumption of electrical energy can be regarded as duty of excise falling within Entry 84 of List I.

Under that Entry, what is permitted to Parliament is levy of duty of excise on manufacture or production of goods (other than those excepted expressly by that entry). The taxable event with respect to a duty of excise is "manufacture" or "production". Here the taxable event is not production generation of electrical energy but its consumption. If a producer generates electrical energy and stores it up, he would not be required to pay any duty under the Act. It is only when he sells it or consumes it that he would be rendered liable to pay the duty prescribed by the Act. The Central Provinces and Berar Electricity Act was enacted under Entry 48-B of List II of the Government of India Act, 1935.

The relevant portion of that Entry read thus: "Taxes on the consumption or sale of electricity" Entry 53 of List II of the Constitution is to the same effect..."

(Id. at p. 286-287)

253 In D G Gose v. State of Kerala[188] this Court held that a tax on buildings imposed under the Kerala Building Tax Act, 1961 was referable to Entry 49 of List II and was not a tax on the capital value of assets under Entry 86 of List I. In that context, it was held that : "7....So if a tax is levied on all that one owns, or his total assets, it would fall within the purview of Entry 86 of List I, and would be outside the legislative competence of a State legislature, e.g. a tax on one's entire wealth. That entry would not authorise a tax imposed on any of the components of the assets of the assessee.

A tax directly on one's lands and buildings will not therefore be a tax under Entry 86..... 8....If, therefore, a tax is directly imposed on 'buildings', it will bear a direct relation to the buildings owned by the assessee. It may be that the building owned by an assessee may be a component of his total assets, but a tax under Entry 86 will not bear any direct or definable relation to his building. A tax on 'buildings' is therefore a direct tax on the assessee's buildings as such, and is not a personal tax without reference to any particular property."

(Id. at. p. 421)

254 This decision has been affirmed in Union of India v. H S Dhillon[189]. While reiterating this position in Lt. Col. Sawai Bhawani Singh v. State of Rajasthan[190] this Court held that : "7.....These two taxes are separate and distinct in nature and it cannot be said that there was any overlapping, or that the State Legislature was not competent to levy such tax on lands and buildings merely on the ground that they have been subjected to another tax as a component of the total assets of the person concerned." (Id. at p. 111)

255 In M/s R R Engineering Co. v. Zila Parishad Bareilly[191] a tax was imposed on "circumstances and property" under the UP Kshettra Samitis & Zila Parishad Adhiniyam, 1961. This composite tax was questioned on the ground that this was essentially a tax on income under Entry 82 of List I and therefore outside the legislative competence of the state legislature. Rejecting this submission, this Court held that :

"17. The Full Bench decision under appeal in the instant case, R.R. Engineering Co. [R.R. Engineering Co. v. Zila Parishad, Bareilly, AIR 1970 All 316] has taken the same view of the nature of the tax on circumstances and property by holding that it is not a tax on income but is a tax on a man's financial position, his status as a whole, depending upon his income from trade or business. Earlier, another Full Bench of the Allahabad High Court had held in Zila Parishad, Muzaffar Nagar v. Jugal Kishore that the tax on circumstances and property is fundamentally distinct from and cannot be equated with income tax, that it is not covered by item 82, List I, Schedule VII, of the Constitution and that it is essentially a tax on status or financial position combined with a tax on property. These decisions correctly describe the nature of the tax on circumstances and property. We affirm the view taken therein, especially that the aforesaid tax is not a tax on income."

(Id at p. 337)

The constitutional principle has been enunciated by a Constitution Bench in Godfrey Phillips India Ltd. v. State of U P[192] thus : "The logical corollary of holding that taxes are imposed only on taxable events is that even when an entry speaks of a levy of a tax on goods, it does not include the right to impose taxes on taxable events which have been separately provided for under other taxation entries. The tax in respect of goods has sometimes been referred to as a tax on an aspect of the goods and sometimes as the taxable income. (See Federation of Hotel Restaurant v. Union of India (1989) 3 SCC 634= AIR 1990 SC 1637, (Pr. 13, 14, 16)."

(Id. at p. 544)

256 The principle of law is hence well-settled : the taxing powers of the Union and the states are mutually exclusive. (See in this context the decisions in Hoechst Pharmaceuticals v. State of Bihar[193] ; and State of West Bengal v. Kesoram Industries[194]). 257 A Bench of nine Judges of this Court in Re Sea Customs[195] distinguished the taxable event in the case of a duty of excise, which is the manufacture of goods, with a sales tax where the taxable event is the act of sale. Dealing with customs duties, the Bench of nine Judges speaking through Sinha, CJ held as follows : "Similarly in the case of duties of customs including export duties though they are levied with reference to goods; the taxable event is either the import of goods within the customs barriers or their export outside the customs barriers.

They are also indirect taxes like excise and cannot in our opinion be equated with direct taxes on goods themselves. Now, what is the true nature of an import of an import duty? Truly speaking, the imposition of an import duty, by and large, results in a condition which must be fulfilled before the goods can be brought inside the customs barriers, i.e. before they form part of the mass of goods within the country." (Id. at. p. 543) Entry of goods into a local area for consumption, use or sale therein attracts the charging provision of entry tax legislation.

The levy which is referable to Entry 52 of List II is attracted the moment the goods enter a local area for consumption, use or sale. The Customs Act, 1962 has made a beneficial provision for allowing goods to be deposited in public or private warehouses and for the clearance of goods for home consumption. These provisions cannot and do not detract from the power of the state legislatures under Entry 52 nor do they denude the states from levying an entry tax once the taxable event under state law has occurred.

258 In the present case, the grievance of the states is that the petitioners have not stated in the pleading that there is any warehousing station in their factory units or in the local area where they are located. Hence, the contentions are stated to have been advanced without any basis in the pleadings or facts. Moreover, it has been submitted that the petitioners have not produced any evidence that the bill of entry is filed in the factory units or in a land customs station located in the same local area as the petitioner's units. 259 For the purposes of this reference, it is not appropriate for the court to conclusively adjudicate upon the issues raised relating to the facts of the above cases. Hence, it is only appropriate and proper that all the facts are fully established before the regular bench adjudicating upon the cases relating to goods imported from abroad.

However, the constitutional position in respect of Entry 83 of List I and Entry 52 of List II has been clarified above. The taxable event for the imposition of a duty of customs is distinct from the taxable event in respect of an entry tax, which is the entry of goods into a local area for consumption, use and sale therein. M Direct and inevitable effect test

260 Whether taxes per se constitute an impediment upon the freedom of trade, commerce and intercourse is an issue which has resulted in two contrary positions, neither of which has been subscribed to in this judgment. At one end of the spectrum is the theory that all taxes impede the freedom of trade, commerce and intercourse. If this theory were to be accepted, the entire tax regime and the state taxing power would be controlled by Part XIII of the Constitution. The states which are sovereign within their own sphere would in the exercise of their constitutional power to raise revenues by way of taxation be subject to the rigours of Part XIII. Such an extreme view is not acceptable either from the stand point of textual construction or from its consequence for the federal structure of the Constitution. All taxes do not impede the freedom of trade, commerce and intercourse.

In fact, as discussed earlier, taxes provide the means by which revenues can be raised under a regime of law made by law making bodies at the federal and state level. Absent a taxing power, the states would be bereft of revenues needed for maintaining order and governance. Trade, commerce and intercourse cannot survive in the abstract and without conditions of stability and order created by the state. Moreover, the revenues which are made available to the state provide the basis for creating infrastructure and amenities, both direct and incidental, through which trade and commerce can effectively be transacted and can flourish. Hence, the extreme proposition that all taxes constitute a restriction or impediment upon trade has been eschewed.

261 At the other end of the spectrum lies the view that taxes do not constitute a restriction upon the freedom of trade, commerce and intercourse. If this view were to be accepted, Part XIII would have no role as a constitutional limitation on taxing legislation save and except for discriminatory taxes of the kind that are prohibited by Article 304(a). The position that Article 304(a) constitutes the entire universe of taxation for the purpose of Part XIII has been rejected by this judgment on the ground that it suffers from fundamental fallacies and is contrary to the text of Part XIII. To recapitulate, the grounds for so holding are : Laws for the purposes of Part XIII must mean all laws and not to the exclusion of taxing legislation;

The constitutional validity of Parliamentary legislation imposing sales tax has been upheld on the basis of the provisions of Article 302 which enables Parliament to impose restrictions on the freedom of trade and commerce in the public interest. If taxing legislation is regarded as a restriction for the purposes of Article 302, there is no reason to exclude the same interpretation for the purposes of Article 304; Article 304(a) deals with a specific area of taxation - taxation of goods.

The legislative powers of the state legislatures in List II of the Seventh Schedule enables them to tax persons, activities or things (Godfrey Phillips India Ltd. v. State of UP[196]). Article 304(a) covers only the last category namely a tax on goods. It does not cover taxes on persons (profession taxes or luxury tax) or taxes on activities (betting and gambling); Article 301 guarantees free trade, commerce and intercourse throughout the territory of India. Inter-state trade as well as trade and commerce within a state is guaranteed. Article 304(a) covers only taxes imposed on goods imported from other states. Article 304(a) in other words does not cover imposts on goods traversing within a state; Article 306 of the Constitution, as it stood prior to its repeal contemplated that restrictions could take the form of duties and imposts; and The expression 'restrictions' has been utilized in Part XIII of the Constitution, as the provisions of Articles 302, 303, 304 and 306 would indicate in a manner that would not exclude taxing legislation.

The consistent view of Constitution Benches of this Court has been that taxes may under certain circumstances amount to a restriction on the freedom of trade and commerce. The position has been lucidly summarized in the erudite judgment of Justice M N Venkatachaliah (as the learned Chief Justice then was) in Express Hotels Pvt. Ltd. v. State of Gujarat[197]. After reviewing the position of law, the learned judge held thus : "Taxes can and do sometimes, having regard to their effect and impact on the free flow of trade constitute restrictions on the freedom under Article 301. But the restriction must stamp from the provisions of the law imposing the tax which could be said to have a direct and immediate effect of restricting the free flow of "trade, commerce and intercourse". It is not all taxes that have this effect."

(Id. at p. 697)

262 Nearly, five decades of jurisprudence having developed in support of the above principle, there is neither any rationale of constitutional principle or law that should leave this Court to make a departure from the position and to hold that taxes can in no circumstances constitute a restriction on the freedom of trade and commerce. Moreover, it has been accepted even as a matter of judicial precedent that taxation serves not only the purpose of raising revenues but is also a powerful instrument of social control.

The states and the Union in the exercise of their legislative powers, utilise taxation not only as a means of raising revenues to support their developmental activities but also as a measure of achieving social objects. Whether the pursuit of those social objects or the pursuit of social regulation infringes upon the area of free trade and commerce cannot be decided a priori. The power of taxation is capable of being used in a manner which can constitute, in a given case, a restraint or impediment on the freedom of trade and commerce.

263 In determining as to when taxes can constitute a restriction on the freedom of trade and commerce, the direct and immediate effect test (as refined subsequently) provides a judicially manageable framework. The test of direct and immediate effect was enunciated in the judgments in Atiabari and Automobile Transport. The test is firmly entrenched as a part of our jurisprudence. In R C Cooper v. Union of India[198] a Bench of eleven Judges of this Court while adjudicating upon the validity of a law providing for bank nationalization overruled the judgment in A K Gopalan v. The State of Madras[199] which had taken the view that it was the object of the action of the state in relation to the fundamental right of the individual and not the effect of the action that was relevant. This Court held that :

"49.....But it is not the object of the authority making the law impairing the right of a citizen, nor the form of action that determines the protection he can claim: it is the effect of the law and of the action upon the right which attracts the jurisdiction of the Court to grant relief. If this be the true view, and we think it is, in determining the impact of State action upon constitutional guarantees which are fundamental, it follows that the extent of protection against impairment of a fundamental right is determined not by the object of the Legislature nor by the form of the action, but by its direct operation upon the individual's rights."

(Id at p. 288)

In Bennett Coleman & Co. v. Union of India[200] the same principle was formulated in the following statement of law : "..First, it is not the object of the authority making the law impairing the right of the citizen nor the form of action that determines the invasion of the right. Secondly, it is the effect of the law and the action upon the right which attracts the jurisdiction of the court to grant relief. The direct operation of the Act upon the rights forms the real test."

(Id at p. 799)

264 In Maneka Gandhi v. Union of India[201] this Court refined this test to mean the "direct and inevitable effect" of the action impugned. The direct and inevitable effect is that which necessarily must be intended by the state legislature, or, in other words, what may be described as the doctrine of intended and real effect. This Court held that : "20. It may be recalled that the test formulated in R.C. Cooper case merely refers to "direct operation" or 'direct consequence and effect' of the State action on the fundamental right of the petitioner and does not use the word "inevitable" in this connection. But there can be no doubt, on a reading of the relevant observations of Shah, J., that such was the test really intended to be laid down by the Court in that case.

If the test was merely of direct or indirect effect, it would be an open-ended concept and in the absence of operational criteria for judging "directness", it would give the Court an unquantifiable discretion to decide whether in a given case a consequence or effect is direct or not. Some other concept-vehicle would be needed to quantify the extent of directness or indirectness in order to apply the test. And that is supplied by the criterion of "inevitable" consequence or effect adumbrated in the Express Newspapers case. This criterion helps to quantify the extent of directness necessary to constitute infringement of a fundamental right. Now, if the effect of State action on fundamental rights is direct and inevitable, then a fortiori it must be presumed to have been intended by the authority taking the action and hence this doctrine of intended and real effect." (Id. at p. 299)

265 In order to determine whether a law providing for the imposition of a tax constitutes a restriction on the freedom of trade, commerce and intercourse, the principle that must be applied is whether the direct and inevitable effect or consequence of the law is to impede trade and commerce. The burden must lie on the person who alleges that such is the effect of the tax to plead and establish to the satisfaction of the court that the consequence which is alleged does in fact exist. The direct and inevitable consequence for the purposes of Part XIII of the Constitution is not the same as an infringement of the fundamental right to carry on an occupation trade or business under Article 19(1)(g).

Under Article 19 (1)(g), it is the individual's right to carry on trade or business which is guaranteed as a fundamental freedom. When a legislative measure seeks to curtail that freedom, the test is whether the right of the individual has been infringed or eviscerated. In the context of Part XIII, the matter is looked at from the perspective of trade and commerce as a whole. Hence, in a case which falls under Part XIII of the Constitution it is for the petitioner to demonstrate and establish that the direct and inevitable effect of the law imposing a tax is to impede or restrict the flow of trade and commerce.

266 The mere fact that the activity which is taxed is related to the flow or movement of trade and commerce is not sufficient in itself to lead to the inference that a tax on that activity impedes or restricts it. Businessmen and traders must and do necessarily factor in the requirement of tax compliance as a part of an overall business plan. Hence, the mere fact that the tax is imposed with reference to an activity or thing which constitutes an aspect of trade or commerce is not sufficient in itself lead to the consequence that it is a restriction or impediment of trade and commerce.

The petitioner with such a grievance must cross the threshold of establishing in cogent terms before the Court that the direct and inevitable effect of the tax law is to constitute an impediment of trade and commerce.

267 In the context of entry tax, it is said on behalf of the petitioners that, there cannot be an entry into a local area of goods for consumption, use or sale unless the tax is paid. If the tax is not paid there can be no entry of goods. This is the basis for urging that entry tax constitutes a direct impediment or restriction on the freedom of trade and commerce. This approach to the issue cannot be accepted. In the regulatory sphere, adherence to a regulatory statute may be made a condition precedent to engaging in a particular line of activity involving business, trade or commerce.

However, the requirement of compliance does not by itself render the statute an impediment of trade and commerce. Similarly, in the fiscal arena, the fact that a tax liability has to be discharged as an incident of or a pre-condition for engaging in a line of activity does not by itself - and without actual proof of impediment or restraint - constitute a restriction. A conclusion that the inevitable consequence and effect of the legislation is to impede or restrict trade and commerce can be drawn only on the basis of demonstrable material that establishes that the impact of the tax is to result in that consequence. The burden to establish this is on the person who seeks to do so as a ground for relief.

268 In a regulatory area as well as in a fiscal context, the legislature may prescribe the fulfilment of certain requirements subject to which a line of business, trade or commerce may be pursued. The fulfilment of those requirements may be set down as a condition precedent. A statutory regulator may for instance stipulate requirements of licencing or registration before a commercial activity which it regulates can be undertaken.

Licencing or registration norms may stipulate financial and other requirements which need to be fulfilled as a pre-condition for carrying on an activity or business. The fact that a statute allows for or prescribes such norms which constitute a condition precedent is not reason enough to hold that they constitute restrictions in themselves or an impediment of trade and commerce. The right to carry on trade and commerce is not a right to be free from regulation that ensures orderly conditions for the pursuit of the activity. Nor can a right be exercised in such a manner as would create chaos through unregulated actions of numerous participants. In other words, the fact that a requirement operates as a pre- condition is not sufficient in itself to hold that it impedes or restricts trade.

In order to constitute an impediment, the condition must be demonstrated to cause, as a direct and inevitable consequence of its operation a restriction of trade or commerce. Every regulatory requirement does not restrict or impede trade and commerce even if at the threshold, its fulfilment is a condition enabling a person or entity to engage in a regulated activity.

269 In a fiscal context, the payment of an impost or levy is attracted when the taxing event occurs. The tax may be on persons, activities or things. It is the taxing event which incurs the charge or liability to tax. The charge may be associated with an aspect of an activity or thing. The mere fact that this aspect is connected with the flow or movement of trade or commerce does not in itself lead to the conclusion that the tax constitutes an impediment or restriction. The impediment does not lie in the aspect of the activity or thing which is the subject of the tax but in its consequence. Every tax or movement on entry does not impede trade or commerce.

The volume of trade in a commodity is determined by numerous variables including the nature of the product, availability of raw material, transportation and infrastructure, the nature and extent of competition, market cycles as well as the elasticity of demand and supply. The tax structure is one ingredient which has a bearing on the allocation of resources.

For a tax to constitute a restriction, there must be demonstrable material to indicate that its direct and inevitable effect or consequence is to obstruct or impede trade or commerce. Before the tax is held to be a restriction, the threshold must be crossed by demonstrating that the immediate and necessary consequence is to restrict impede or obstruct trade as a whole. Unless the impact of the financial levy is demonstrated, in terms of its direct and inevitable consequence, to restrict trade or commerce the provisions of Article 304 (b) would not be attracted.

For, there has to a restriction in the first place before the issue of its reasonableness arises. Consequently, it is not possible to hold that the mere fact that the charge of the tax is associated with an aspect of the movement of trade and commerce indicates that it is a restriction in every case. The burden lies upon the individual or entity asserting the existence of a restriction to demonstrate its impact in terms of the direct and inevitable effect test as adopted above. Hence, there can be no a priori assumption that an entry tax constitutes a restriction or impediment to trade and commerce. N Conclusion The conclusions of this judgment are, in summation, formulated below :

270 The freedom guaranteed by Article 301 enables goods, services, persons and capital to engage in trade, commerce and commercial intercourse throughout the territory of India. The expression 'throughout' extends the ambit of the freedom across and within state boundaries. Article 301 subserves the constitutional goal of integrating the nation into an economic entity comprising of a common market for goods and services.

271 The freedom guaranteed by Article 301 is not absolute but is subject to legislative control by Parliament and the state legislatures. Articles 302, 303 and 304 define the ambit of the restrictions which Parliament and the state legislatures may impose by laws enacted in pursuance of their legislative powers under Articles 245 and 246. Besides providing for permissible restrictions, those articles lay down the limits which govern the law making authority.

272 Articles 245 and 246 together constitute the source of the legislative power of Parliament and the state legislatures. Article 245 is subject to the provisions of the Constitution. Every constitutional authority is subject to its provisions. No arm of the Constitution is vested with absolute power. Every institution created by the constitution operates subject to the governing principles of the written constitution and is subject to the limitations which it prescribes. Constitutional limitations on legislative power originate in the necessity that the enacting body must possess legislative competence on the subject on which it enacts law, that the law which it enacts must not infringe fundamental rights and that it must abide by other norms prescribed by the Constitution.

273 Part XIII of the Constitution enunciates a set of constitutional limitations on the legislative power to regulate trade, commerce and commerce.

274 The federal structure is one of the basic features of the Constitution. Judicial interpretation of Part XIII must factor in the necessity of ensuring that the carefully crafted balance between the Union and the States is preserved.

275 Taxation is a sovereign power entrusted by the Constitution to the Union and the States. The Seventh Schedule distributes legislative power, including the power to tax, between Parliament and the state legislatures. The interpretation of Part XIII must ensure that the autonomy of the states in the fields assigned to them is not eroded.

276 While recognising sovereignty in the fields assigned to the centre and the states, the Constitution subjects its sovereign arms to constitutional limitations which are designed to preserve the balance which it has created. Hence all legislative power, including of a fiscal nature has to abide by the norms of the written constitution. Judicial review of fiscal legislation however recognises the wide latitude which inheres in the legislatures both at the national and state level to classify persons, objects and things for the purpose of raising revenues.

277 The concept of compensatory taxes was judicially evolved in the decision in Automobile Transport to exclude certain regulatory measures and fiscal exactions from the operation of Part XIII. The concept has created doctrinal inconsistencies and uncertainty in the application of legal standards. The decision in Automobile Transport is to that extent overruled.

278 The proposition that taxes do not constitute a restriction on the freedom of trade and commerce (save and except for a discriminatory tax which violates Article 304(a)) does not reflect a valid constitutional principle. Article 304(a) does not constitute the entire universe of taxation for the purpose of Part XIII. Article 304(a) deals with a species of non- discriminatory taxes : non-discriminatory taxes on goods imported from other states.

279 As a statement of constitutional principle, neither of the two positions which lie at the extreme ends of the spectrum is valid : at one end is the position that all taxes are restrictions and at the other end, is the position that no tax (except a discriminatory tax on goods) is a restriction. All taxes do not constitute restrictions. Some taxes may impede trade and commerce.

280 A tax may amount to a restriction where its direct and inevitable effect is to restrict the freedom of trade, commerce and intercourse. The burden to establish this is on the person who seeks to assail the validity of a particular tax on the ground that it amounts to a restriction on the freedom guaranteed by Article 301. Unless this threshold is crossed, the proviso to Article 304(b) will have no application for, it is only when there is a restriction that the question of its reasonableness can arise.

281 The expression 'may' in Article 304 has to be read in conjunction with the expression 'and' which separates clauses (a) and (b). The true construction of the expressions is in the sense of a joint and several "and/or".

282 Article 304(a) does not require that in order to impose a tax on goods imported from other states, similar goods must be actually produced or manufactured within the taxing state. The object of the provision is to prevent states from following protectionist policies by discriminating against goods produced or manufactured by other states. Article 304(a) does not import the concept of a countervailing duty.

283 Article 304(a) does not prevent a reasonable classification. The provision comprehends both formal and substantive notions of equality. Formal equality would be met when the same rate of tax is prescribed for goods imported from other states as is levied on goods produced and manufactured within. Apart from the rate of tax, other significant aspects include procedural provisions such as licensing and registration, the machinery for assessment and set-offs and exemptions. Substantive equality recognises the need for the development of underdeveloped areas of the country. A balance has to be struck between the concerns of both formal and substantive equality. The decisions in Video Electronics and Mahavir must be understood in that context.

284 The expression "any tax" in Article 304(a) does not mean a tax which is referable to only one subject of legislation falling under a taxing entry in List II of the Seventh Schedule. When a legislature legislates, the full range of its plenary powers is available to it. In India, the legislatures are not confined to imposing a tax under one entry while formulating a fiscal law. Hence, Article 304(a) does not fetter the state legislatures from ensuring an equality of tax burden between goods that are imported from other states and goods manufactured or produced within.

285 While enacting entry tax legislation referable to Entry 52 of List II, it is permissible for the state legislature to have regard to the equalisation of tax burdens between goods imported from other states and goods manufactured or produced within. The legislature may have regard to the tax burden under value added tax/sales tax law as well as entry tax, considered as a composite whole. Whether the scheme of exemptions and set offs has achieved an equalisation of tax burdens as between goods domestic to a state and those imported from other states is an issue to be considered in each case having due regard to the provisions of state legislation.

286 A "local area" for the purposes of Entry 52 of List II is not the entire state. Local area postulates an area within a state administered by a local body under relevant state legislation.

............................................... J [DR D Y CHANDRACHUD]

NEW DELHI

NOVEMBER 11, 2016.

Jindal Stainless & ANR. Vs. State of Haryana & Ors.

[Civil Appeal No.3453 of 2002]

Connected Matters

ASHOK BHUSHAN, J.

Before this Constitution Bench of Nine Judges of the Apex Court of this country which have time and again, when there arose serious debates and doubts on the Constitutional provisions of our country, authoritatively concluded the debates and quenched the doubts, a galaxy of lawyers by their illuminating arguments engaged the Court for long twenty one days hearing. Now, it is our turn to respond.

2. In preparing my judgment I had advantage of going through thoughtful & well reasoned judgment of My Lord the Chief Justice. I deeply regret my inability to share the views of learned Chief Justice on Question No. 1 & 4 as framed by us, although I agree with the conclusion of His Lordship on Question No. 2 & 3. The views of Dr. Justice D. Y. Chandrachud in his scholarly judgment are fairly near my own except on few subjects on which I have expressed different opinion. Looking to the vital Constitutional issues having a far reaching impact on economic unity of the country, I consider it my duty to express my views in my own way on all issues raised before us. I begin my task in following manner.

3. This larger Bench has been constituted on a reference made by a Constitution Bench of this Court in Jindal Stainless Ltd & another Vs. State of Haryana & Other, 2010] (4) SCC 595, expressing doubts on correctness of Constitution Bench Judgment in Atiabari Tea Co. Ltd, 1961 (1) SCR 809 and 7 Judges Bench Judgment in Automobile Transport case, 1963 (1) SCR 491, on interpretation of Part XIII of the Constitution of India. Part XIII of the Constitution was engrafted by framers of the Constitution to attain the goal of economic unity of the country. Large number of issues ranging from principles of constitutional interpretation, federalism, sovereignty of states, limitation on legislative powers of the States, freedom of trade, commerce and intercourse as envisaged by Constituent Assembly, to the interpretation of various articles of Constitution including Article 301 - 306 contained in Part XIII, have arisen before us in this bunch of cases.

4. For answering the questions which have arisen before us, various aspects related to the issues noticed above are to be deliberated with reference to relevant precedents. We have thus identified certain broad steps for our discussion before attempting to answer the specific questions.

5. On the above subjects, learned eminent counsel appearing before us have thrown different shades of light to illuminate the topics, which we are sure, shall make our task easy to discharge our constitutional responsibility of interpreting the Constitution. The Constitution, not only, contains the goals and aspirations set by Constituent Assembly for our country, but it is also a guiding star for the future generations to attain the highest standards of social, political, economic and individual life. We have divided our discussion into parts which are; firstly, the facts leading to this reference. Secondly, two Constitution Bench judgments in Atiabari Tea Company and Automobile Transport. Thirdly, submissions made before us by learned counsel appearing for various parties. Fourthly, the discussion on the subjects relevant on questions falling for our considerations. Fifthly, our conclusions, and sixthly, our answers. Fourth part contains following subjects:-

A. LEGISLATIVE HISTORY AND DEBATES IN CONSTITUENT ASSEMBLY ON FREEDOM OF TRADE, COMMERCE AND INTERCOURSE.

B. NATURE OF FEDERALISM IN CONSTITUTION OF INDIA.

C. LIMITATIONS ON THE LEGISLATIVE POWER OF THE STATE UNDER THE CONSTITUTION.

D. WHETHER PART XIII OF THE CONSTITUTION INCLUDES "TAX LEGISLATION" AND WORD "RESTRICTION" USED THEREIN INCLUDES TAX LEGISLATION.

E. LEGISLATIVE HISTORY AND CONSTITUENT ASSEMBLY DEBATES RELATING TO ARTICLE 304(a) AND ARTICLE 304(b).

F. INTERPRETATION, SCOPE AND AMBIT OF ARTICLE 304(a) AND ARTICLE 304(b).

G. ENTRY 52, LIST II OF VIITH SCHEDULE.

H. MEANING OF RESTRICTION AS USED IN PART XIII.

I. WHETHER DIRECT AND IMMEDIATE EFFECT TEST AS LAID DOWN IN ATIABARI & APPROVED IN AUTOMOBILE TRANSPORT IS NO LONGER A CORRECT TEST.

J. COMPENSATORY TAX THEORY.

PART I FACTS AND EVENTS LEADING TO REFERENCE TO THIS NINE JUDGES BENCH

6. For fully appreciating the issues and questions raised in this batch of cases, certain facts and events preceding the Reference to this larger Bench need to be noted. The challenges to various State Legislations were laid before different High Courts on various grounds including the ground that levy of Entry Tax violates the freedom of trade, commerce and intercourse as guaranteed by Article 301 of the Constitution of India and Legislations are not saved under Article 304.

7. One of the State Legislations, namely, Haryana Local Area Development Tax Act, 2000] came to be challenged before Punjab and Haryana High Court. The High Court by its judgment dated 21.12.2001] upheld the validity of the Act which judgment came to be challenged in [CIVIL APPEAL No.3453 of 2002] with connected matters; Jindal Stainless Ltd. & ANR. vs. State of Haryana & Ors. In the above appeals, appellants were Industries or Association of Industries manufacturing their products within the State of Haryana.

The raw materials for their respective products were brought from outside the State. The above 2000] Act was enacted to provide for levy and collection of tax on the entry of goods into the local area of the State of Haryana for consumption and use therein and matters incidental thereto and connected thereto. One of the grounds of challenge was that 2000] Act is violative of Article 301 and not saved under Article 304. The Pubjab and Haryana High Court repelled the challenge holding that Entry Tax being compensatory in nature is outside the purview of Article 301 as has been held by the Constitution Bench judgment in Atiabari Tea Co. Ltd. vs.The State of Assam & Ors., (1961) 1 SCR 809, and larger Bench judgment of Seven Judges in Automobile Transport (Rajasthan) Ltd. vs. The State of Rajasthan and Ors., (1963) 1 SCR 491.

8. In Atiabari Tea Co.Ltd.(supra) the Assam Taxation(on goods carried by Roads and Inland Waterways) Act, 1954 was challenged. The Assam High Court upheld the validity of that Act against which the matter was taken to this Court, the appellant contended that Act violated the freedom of trade and it was without previous President's Sanction as required by Article 304(b). The majority rejected the argument raised on behalf of the State that Tax Laws are outside Part XIII. It was held that the Tax Laws can and do amount to restriction freedom from which is guaranteed to trade under Part XIII. It was held that a rational and workable test to be applied for finding out is; whether the impugned restrictions operate directly and immediately on trade or its movement.

9. The above decision of the Constitution Bench came for consideration before larger Bench in Automobile Transport (supra). In which case Rajasthan Motor Vehicles Taxation Act, 1951 came to be challenged on the ground that it violates Article 301. The Rajasthan High Court has upheld the validity of that Act. The larger Bench in the Automobile Transport case by majority approved the ratio of Atiabari Tea Co.Ltd. Subject to an exception which was judicially crafted that compensatory taxes are not hindrance to any body's freedom. It was held that regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contained in Article 301 and such measures need not comply with the requirement of the proviso to Article 304(b).

10. It was further held that a working test for deciding whether a tax is compensatory or not is to enquire whether the traders people are having the use of certain facilities for the better conduct of their business and paying not much more than what is required for providing the facilities.

11. The above two judgments, around which discussion before us has centered shall be noted hereinafter in some detail including the views expressed by the majority and minority.

12. What is compensatory tax came for consideration by this Court in the context of M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 in M/s. Bhagatram Rajeevkumar vs. Commissioner of Sales Tax, M.P. and others, (1995) Supp.(1) SCC 673. The Three Judge Bench in the above case held that 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 above Three Judge Bench judgment was followed by a Two Judge Bench in State of Bihar and others vs. Bihar Chamber of Commerce and others, (1996) 9 SCC 136, which was in the context of Bihar (Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein) Act, 1993. Two Judge Bench reiterated the position that "some connection" between the tax and the trading facilities is sufficient to mention it as compensatory tax.

13. Now reverting back to Jindal Stripe Ltd.and another vs. State of Hayana and others, (2003]) 8 SCC 60, before the Two Judge Bench of this Court, submissions on behalf of State of Haryana that tax is compensatory in nature and submissions by the appellant that the Act violates Article 301 was noted. The Two Judge Bench also referred to Aitabari Tea Co. Ltd. And Automobile Transport (Rajasthan) Ltd. and noted the working test for finding out a compensatory tax as laid down in Automobile Transport.

Two Judge Bench expressed its doubt regarding the correctness of tests laid down by Bhagatram Rajeevkumar and Bihar Chamber of Commerce to find out whether the tax is compensatory or not. Two Judge Bench expressed its doubt and observed that interpretation of Article 301 vis-a-vis compensatory tax need to be laid down by a Constitution Bench. Following was laid down in paragraph 26 and 27: "26.The decisions in Bhagat Ram 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 Bhagat Ram(supra) and Bihar Chamber of Commerce(supra), we are of the view that the interpretation of Article 301 vis-a-vis compensatory tax should be authoritatively laid down with certitude by the Constitution Bench under Article145(3)."

14. Consequent to Reference made to the Constitution Bench in Jindal Stripe Ltd.(supra), a Five Judges Bench answered the Reference by its judgment dated 13th April, 2006 reported in Jindal Stainless Ltd.(2) and another vs. State of Haryana and others, (2006) 7 SCC 241, the Constitution Bench overruled judgments of Bhagatram Rajeevkumar and Bihar Chamber of Commerce and recorded their views in paragraph 52-53 to the following effect:

"52. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram's case followed by the judgment in the case of 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, will continue to apply and the test of "some connection" indicated in para 8 of the judgment in Bhagatram Rajeevkumar v. Commissioner of Sales Tax, M.P. and followed in the case of 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."

15. After judgment of the Constitution Bench all the matters including the matters of Jindal were again listed before a Two Judge Bench. Two Judge Bench noticed that basic issues revolve around the concept of compensatory tax and the High Courts concerned had not examined the issues in the proper perspective as they were bound by the judgments of Bhagatram Rajeevkumar and Bihar Chamber of Commerce. Referring to the Constitution Bench judgment in Jindal Stainless Ltd.(2) (supra) this Court in Jindal Stainless Ltd.(3) and another vs. State of Haryana and others, (2006) 7 SCC 271, permitted the parties to place the data in the writ petitions before the High Court and the High Courts were requested to decide the aforesaid issues within five months.

Following was stated in paragraphs 5 & 6: "5.Since relevant data do not appear to have been placed before the High Courts, we permit the parties to place them in the concerned Writ Petitions within two months. The concerned High Courts shall deal with the basic issue as to whether the impugned levy was compensatory in nature. The High Courts are requested to decide the aforesaid issue within five months from the date of receipt of our order. The judgment in the respective cases shall be placed on record by the concerned parties within a month from the date of the decision in each case pursuant to our direction. "6.Place these matters for further hearing in third week of January, 2007]."

16. Different High Courts in consequence to directions by this Court in Jindal Stainless Ltd.(3) (supra) decided the matter one or other way. Some of the High Courts held the Act, which were under challenge, compensatory in nature whereas other High Courts relying on the Constitution Bench judgment in Jindal Stainless Ltd.(2), held the respective Acts as not compensatory. The judgments of the different High Courts consequent to directions in Jindal Stainless Ltd.(3) came to be challenged by different assessees and the State before this Court.

A batch of SLPs came for consideration before Two Judge Bench. Two Judge Bench observed that though some of the factors have been addressed to by the Constitution Bench in Jindal Stainless (2)(supra) whereas certain other constitutional issues are involved. Two Judge Bench opined that considering the importance of the issues relating to Articles 301 and 304 and Part XIII of the Constitution, it is necessary to refer the matter to a larger Bench in terms of Article 145(3) of the Constitution. In Reference order following was stated in paragraphs 8 and 9:

"8.The concept of compensatory tax is judicially evolved and in a way provides a balancing factor between federal control and State Taxing Board. The concept really had its matrix in transportation cases and does not apply to general notion of Entry Tax. Therefore, considering the importance of the issues relating to Articles 301 and 304 and Part XIII of the Constitution, we consider it necessary to refer the matter to a larger Bench in terms of Article 145(3) of the Constitution.

9.The following questions are referred for the aforesaid purpose:

(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 7th Schedule 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, 7th Schedule 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, 7th Schedule 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's case (supra) and Automobile Transport's case (supra) 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 infrin