The Automobile Transport (Rajasthan)
Ltd. Vs. The State of Rajasthan & Ors  INSC 128 (9 April 1962)
09/04/1962 MUDHOLKAR, J.R.
SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L.
AYYANGAR, N. RAJAGOPALA
CITATION: 1962 AIR 1406 1963 SCR (1) 491
CITATOR INFO :
R 1963 SC 928 (8,9) F 1963 SC1207 (34) R 1963
SC1667 (14,21) R 1964 SC 925 (2,9,12,13,14,57) R 1964 SC1006 (9) R 1967 SC1189
(5,7) F 1967 SC1575 (12) RF 1967 SC1643 (96) E 1968 SC 599 (14) RF 1969 SC 147
(8,9,26,33) E 1970 SC1864 (5) RF 1970 SC1912 (7) RF 1972 SC1061 (52) RF 1972
SC1804 (11) RF 1973 SC1461 (887,1229) RF 1974 SC1389 (173) RF 1974 SC1505 (7)
RF 1975 SC 17 (15) R 1975 SC 583 (13,19,25,27) E 1975 SC 594 (4) RF 1975 SC1443
(19,21) RF 1977 SC1825 (18) E&R 1978 SC 68 (252,253,254) RF 1979 SC1459
(33) RF 1981 SC 463 (24,25,26) RF 1981 SC 711 (11) R 1981 SC 774 (9,10,11) RF
1982 SC 29 (2) R 1983 SC 634 (12,14,15) OPN 1983 SC1005 (7) F 1983 SC1283 (5) D
1987 SC 56 (1) F 1987 SC1911 (6,7) RF 1988 SC 567 (11) RF 1988 SC2038 (4) RF
1989 SC1119 (14) R 1989 SC2015 (8) RF 1990 SC 781 (74) C 1990 SC 820 (12,20) RF
1991 SC1650 (3)
Freedom of Trade-State carriages-Tax on
Vehicles--State law imposing tax on vehicles used in public place or kept for
use--Constitutional validity-Rajasthan Motor Vehicles Taxation Act, 1951
(Rajasthan 11 of 1951),ss. 4, 11, Schedules--Constitution of India, Arts. 19,
245, 301, 304 Seventh Sch. List, I, entry 42, List II, entry 57.
Sub-section (1) of s. 4 of the Rajasthan
'Motor Vehicles Taxation Act, 1951, provided : "...... No motor vehicle
shall be used in any public place or kept for use in Rajasthan unless the owner
thereof has paid in respect of it, a tax at the appropriate rate specified in
the schedule 5 to this Act within the time allowed......." The appellants
were carrying on the business of plying stage carriages in the State of Ajmer.
They held permits and plied their buses on diverse routes. There was one route
which lay mainly in Ajmer State but it crossed narrow strips of the territory
of the State of Rajasthan. Another route, Ajmer to Kishangarh, was
substantially in the Ajmer State, but a third of it was in Rajasthan. Formerly,
there was an agreement between the Ajmer State and the former State of
Kishangarh, by which neither State charged any tax or fees on vehicles
registered in Ajmer or Kishangarh. Later, Kishangarh became a part of
Rajasthan. On the passing of the Rajasthan Motor Vehicles Taxation Act, 1951,
and the promulgation of the rules made there under, the Motor Vehicles Taxation
Officer Jaipur, demanded of the appellants payment of the tax due on their
motor Vehicles for the period April 1, 1951, to March 31, 1954. By virtue of
the provisions of s. 4 of the Act read with the Schedules no one could use or
keep a motor vehicle in Rajasthan without paying the appropriate tax for it and
if he did so he was made liable to the penalties imposed under s. II of the
The appellants challenged the legality of the
demand on the grounds that s. 4 of the Act read with the Schedules constituted
a direct and immediate 492 restriction on the movement of trade and commerce
with and within Rajasthan inasmuch as motor vehicles which carried passengers
and goods within or through Rajasthan had to pay the tax which imposed a
pecuniary burden on a commercial activity and was, therefore, hit by Art. 301
of the Constitution of India and was not saved by Art. 304(b) inasmuch as the
proviso to Art. 304(b) was not complied with, nor was the Act assented to by
'the President within the meaning of Art. 255 of the Constitution. The
respondents claimed that taxation for the purpose of raising revenue or for the
maintenance of roads etc., was not hit by Art. 301 and that the Act did not
constitute an immediate or direct impediment to the movement of trade and
commerce inasmuch as the tax imposed was a consolidate tax on the vehicle
itself though the quantum of the tax was fixed in some instances with reference
to the seating capacity or loading capacity etc.
Held (per S. K. Das, Kapur, Sarkar and Subba
Rao, jj.), that the Rajasthan Motor Vehicles Taxation Act 195 1, did not
violate the provisions of Art. 301 of the Constitution of India and that the
taxes imposed under the Act were compensatory or regulatory taxes which did not
hinder the freedom of trade, commerce and intercourse assured by that Article.
Such taxes, therefore, were legal.
Per S. K. Das, Kapur and Sarkar, JJ--(1) The
concept of freedom of trade, commerce and intercourse postulated by Art. 301
must be understood in the context of an ordinary society and as part of a
Constitution which envisaged a distribution of powers between the States and
the Union, and if so understood, the concept must recognised the need and
legitimacy of some degree of regulatory control, whether by the Union or the
States. Regulatory measures or measures imposing compensatory taxes for the use
of trading facilities did not hamper trade, commerce and intercourse but rather
facilitated them and, therefore, were not hit by the freedom declared by Art.
301 ; such measures need out comply with the requirements of the provisions of
Art. 304(b) of the Constitution. (2) In view of the provision,.;
of Art. 245, the restrictions in Part XIIT of
the Constitution applied to taxation laws ; and such laws were not confined
only to legislation with respect to entries relating to trade and commerce in
any of the lists in the Seventh Schedule. (3) On a proper construction of the
Act and the Schedules, the taxes imposed were really taxes for the use of the
roads in Rajasthan. In basing the taxes on passenger capacity or loading
capacity, the legislature had merely evolved a method and measure of
compensation demanded by the State, but the taxes were still compensation and
charge for regulation.
493 Per Subba Rao, J.--(1) The freedom
declared under Art. 301 of the Constitution of India referred to the right of
free movement of trade without any obstructions by way of barriers, inter-State
or intra-State, or other impediments operating as such barriers ; and the said
freedom was. not impeded, but on the other hand, promoted, by regulations
creating conditions for the free movement of trade, such as, police
regulations, provisions for services, maintenance of roads, provision for aerodromes,
wharfs etc., with or without compensation. (2) Parliament may by law impose
restrictions on such freedom in the public interest, and the States also, in
exercise of its legislative power, may impose similar restrictions, subject to
the proviso mentioned therein. (3) Laws of taxation were not outside the
freedom enshrined either in Art. 19 or Art. 301.
Per Hidayatullah, Rajagopala Ayyangar and
Mudholkar, JJ.--(1) Section 4(1) of the Rajasthan Motor Vehicles Taxation Act,
1951, as read with Schs. 11, III and Part I of Sch. IV, offended Art. 301 of
the Constitution, and as resort to the procedure prescribed by Art. 304(b) was
not taken it was ultra vires the Constitution. (2) The pith and substance of
the Act was the levy of tax on motor vehicles in Rajasthan or their use in that
State irrespective of where the vehicles came from and not legislation in
respect of interState trade or commerce. The Act was within entry 57 of the
List of the Seventh Schedule and not under entry 42 of Union List. (3) A tax
which is made the condition precedent of the right to enter upon and carry on
business is a restriction on the right to carry on trade and commerce within
Art. 301. In the present case, the trade, which consisted in making use of
motor vehicles for carriage of passengers and goods, could be carried on only
if the tax was paid, and, therefore, the taxes imposed by Schs. 11, III and
IV(1) operated on trade and commerce directly. (4) The tax levied under the Act
was not, truly a fair recompense for wear and tear of roads, but a restriction,
which Art, 301 forbade. (5) The Act was not, in its true character, regulatory
because there was no provision therein, which could be regarded as regulatory
of motor vehicles. The Act plainly levied a tax upon possession or use of motor
Atiabari Tea Co., Ltd. v. The State of Assam
and Others  1. S.C.R. 809, discussed.
American and Australian decisions with regard
to the Commerce Clause or the American Constitution and s. 92 of the Australian
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 42 to 44 of 1959.
Appeals from the final judgment and order
dated August 9, 1957, of the Rajasthan High Court (Jaipur Bench) at Jaipur in
Civil Writ Petitions Nos. 400 to 402 of 1954.
G. S. Pathak, J. B. Dadachanji, S. N. Andley,
Rameshwar Nath and P. L. Vohra, for the appellants.
G. C. Kasliwal, Advocate-General for the
State of Rajasthan, A. V. Viswanatha Sastri, S. K. Kapur and P. D. Menon, for
H. M. Seervai, Advocate-General for the State
of Maharashtra and Naunit Lal, for the State of Assam' (Intervener).
V. K. T. Chari, Advocate-General for the
State of Madras, R. Ganapathy Iyer, T. M. Sen and P. D. Menon, for the State of
Madras (Intervener) S. N. Sikri, Advocate-General for the State of Punjab, N.
S. Bindra, T. M. Sen and P. D. Menon, for the
State of Punjab (Intervener).
H. M. Seervai". Advorate-General for the
State of Maharashtra, T. M. Sen and P. D. Menon, for the State of Maharashtra
K. Bhimsankaram, T. M. Sen and P. D. Menon,
for the State of Andhra Pradesh (Intervener).
B. Sen, S. C. Bose and P. K. Bose, for the
State of West Bengal (Intervener).
Lal Narain Sinha, Lakshman, Saran, Singh, D.
P. Singh, R. K. Garg, M. K. Ramamurthi and S. C. Aggarwal, for the State of
Dinbandhu Sahu, Advocate-General for the
State of Orissa, B. K.P. Sinha, T. M. Sen and P. D. Menon, for the State of
495 K. L. Hathi and P. D. Menon, for the
State of Gujarat (Intervener).
M. Adhikari, Advocate-General for the State
of Madhya Pradesh, B. Sen, B. K. B. Naidu, and I. N. Shroff, for the State of
Madhya Pradesh (Intervener).
Ranadeb Chaudhuri, S. N. Andley, Rameshwar
Nath and P. L. Vohra, for M. A.Tulloch and Co. (Intervener).
K. Srinivasmurty and D. Goburdhun, for
Nazeeria Motor Service, Motor, and Andhra Pradesh Motor Union (Interveners).
N. C. Chatterjee, S. C. Mazumdar and R. H. Dhebar,
for the Attorney-General for India (Intervener).
1962. April 9. The following judgments were
delivered. The judgment of S. K. Das, J. L. Kapur and A. K. Sarkar, JJ., was
delivered by S. K. Das, J. The judgment of M. Hidayatullah, N. Rajagopala
Ayyangar and J. R. Mudholkar, JJ., was delivered by M. Hidayatullah, J. S. K.
DAS, J.-These are three consolidated appeals which arise from the judgment and
order of a Division Bench of Rajasthan High Court dated August, 9, 1957. They
have been preferred to this Court on the strength of a certificate granted by
the said High Court under Art. 132 of the Constitution certifying that the
cases involve a substantial question of law as to the interpretation of Art.
301 and other connected articles relating to trade, commerce and intercourse
within the territory of India, contained in Part XIII of the Constitution.
These appeals were originally heard by a Bench of five Judges and on April 4,
1961, that Bench recorded an order to the effect that having regard to the
importance of the constitutional issues involved 496 and the views expressed in
the decision of this Court in Atiabari Tea Co. Ltd. v. The State of Assam (1)
the appeals should be heard by a larger Bench. The appeals were then placed
before the learned Chief Justice for necessary orders, and on his orders have
now come to this Bench of seven Judges for disposal. As the constitutional
issues involved affect the state of the Union, notices were issued to the
Advocates-General concerned. A notice was also issued to the Attorney General
on behalf of the Union of India. The States of Andhra Pradesh, Assam, Bihar
Gujrat, Madras, Maharashtra, Orissa, Punjab, Uttar Pradesh and West Bengal
intervened and were represented before us either through their respective
Advocates-General or other Counsel M/s. M. A. Tulloch & Co., Andhra Pradesh
Motor Congress and Nazeeria Motor Service, Nellore, applied for intervention on
the ground that they would be affected in a pending litigation by the decision
of this Court on the constitutional issues involved. Those applications were
allowed by us. The result has been that we have heard very full arguments not
only from Counsel appear for the appellants and the respondents, but also from
the learned Counsel appearing on behalf of the Union of India, the learned
Advocates General or Counsel appearing for the intervening States and also from
learned Counsel appearing on behalf of the three interveners referred to above.
The appellants in the there appeals are (1)
the Automobile Transport (Raj.) Ltd., Ajmer in Civil Appeal No. 42 of 1959.
(2) the Rajasthan Roadways Ltd., Ajmer in
Civil Appeal No. 43 of 1959, and (3) Framji C. Framji and others in Civil
Appeal No. 44 of 1959. The respondents are (1) the State of Rajasthan, (2) the
Regional Transport Officer who is exofficio Motor Vehicles Taxation Officer,
Jaipur, and (1)  1. S. C. R. 809.
497 (3) the Collector of Jaipur. The first
two Appellants are private, limited liability companies registered under the
Indian Companies Act, 1913 and having their registered offices at Ajmer. The
third appellant is a partnership firm named Framji Motor Transport registered
under the India Partnership Act. These three appellants carried on the business
of plying stage carriages. The first appellant bad nine transport vehicles
plying between two stations in the State of Ajmer and between Ajmer and
Kishangarh, a town in Rajasthan at the relevant period. The two stations in
Ajmer were Nasirabad and Deoli. The road from Nasirabad to Deoli was mainly in
the former State of Ajmer but for some distance it passed through certain narrow
strips of territory of the State of Rajasthan. Similarly, the road from Ajmer
to Kishangarh was partly in the former State of Ajmer and partly in the State
of Rajasthan, approximately two-thirds of the road lying in Ajmer and one-third
in Rajasthan. The second and the third appellant also had some transport
vehicles which plied on the Nasirabad-Deoli route or from Kishangarh to Sarwar,
a town situated on the Nasirabad-Deoli road in the State of Rajasthan. On the
passing of the Rajasthan Motor Vehicles Taxation Act, 1951 (Rajasthan Act XI of
1951) (hereinafter referred to as the Act), and the promulgation of the rules
made thereunder, the second respondent demanded of the appellants payment of
the tax due on their motor Vehicles for the period beginning on April 1, 195 1,
and ending on March 3 1, 1954. The first appellant was called upon to pay Rs.
22,260, the second appellant Rs. 6,540 and the third appellant Rs. 10,260 under
r. 23 of the Rajasthan Motor Vehicles Taxation Rules. When the appellants failed
to pay the tax demanded from them, the second respondent issued certificates
under s. 13 of the Act to the, third respondent for the recovery of the tax due
as arrears 498 of land revenue. On receipt of the demand notices the second and
the third appellants filed appeals before the Transport Commissioner, Jaipur,
under s. 14 of the Act.
These appeals were however, dismissed by an
order of the Transport Commissioner dated October 21, 1953. The first appellant
did not file any appeal. Thereafter the three appellants filed three separate
writ petitions in the Rajasthan High Court in which their main contention was
that the relevant provisions of the Act imposing a tax on their motor vehicles
were unconstitutional and void as they contravened the freedom of trade,
commerce and intercourse throughout the territory of India declared by Art.301
of the Constitution and therefore the demand and attempted collection of such
tax were illegal and should be prohibited. The prayers which the appellants
made in their respective writ petitions were mainly there-(1) that it be
declared that the Rajasthan Motor Vehicles Taxation Act of 1951 and the Rules
made there under are invalid and not in accordance with the provisions of the
Constitution of India and consequently null and void and inoperative, and (2)
that a writ of prohibition or mandamus or any other appropriate writ, direction
or order directing the respondents not to realise any tax from the appellants
under the provisions of the Rajasthan Motor Vehicles Taxation Act of 1951 be
The three writ petition was heard together by
a Division Bench consisting of Bapna and Bhandari, JJ. They dealt with and
disposed of certain other objection to the validity of the Act, with which we
are no longer concerned; but as to the contravention of Art. 301 of the
Constitution, they felt that in view of the complexity of the points involved
and the apparent conflict between certain decisions of other High Courts, the
question should be referred to a Full Bench. Accordingly, they referred the
question whether ss.
4 and 11 of the Act infringed 499 the right
of freedom of trade, commerce or intercourse granted under Art. 301 of the
Constitution. The Full Bench dealt with the question from two different stand
Firstly, they considered the validity of the
Act from the stand point of Act, 19 St (1) of the Constitution which
guarantees, to all citizens of India the right to move freely throughout the
territory of India; this the Full Bench dealt with under the heading of' freedom
of intercourse from the stand point of the individual citizen and came to the
conclusion that restrictions which the Act imposed on the individual citizen
were reasonable restrictions having regard to the necessity of raising funds
for the maintenance of roads and the making of new roads in the State of
Rajasthan. Then the High Court considered the validity of the relevant
provisions of the Act from the stand point of trade, commerce and came to the
conclusion that the regulation of trade, commerce and intercourse within the
territory of India, both inter-State and intra-State. was not incompatible with
its freedom and in the matter of such regulation of trade, commerce and
intercourse a distinction must be drawn between restrictions which are direct
and immediate and restrictions which are indirect and consequential. The High
Court expressed its final conclusion in the following words :
"Transport vehicles are provided by
individuals carrying on business in them and those who carry on trade and
commerce as a whole, can use these transport vehicles. The fact that on account
of this taxation, the charges of transport vehicles are higher, let us say by
an anna a maund is, in our opinion, merely an indirect or consequential result
of this Act, and such an impediment may fairly be called remote. It would be a
different matter if the taxation is so high that 500 it virtually kills trade
and commerce by compelling the traders to raise their prices to an exorbitant
rate. But this being not the nature of the tax in this case, and the taxation
being not directly on trade, commerce or intercourse......... we are of opinion
that this taxation can not be said to offend against Art. 301, for its effect
on trade and commerce is only indirect and consequential and the impediment, if
any, may fairly be regarded as remote." In view of that conclusion the
Full Bench answered the question referred to it in the negative. The cases then
went back to the Division Bench with the answer given by the Full Bench and the
writ petitions were dismissed by the Division Bench by its judgment and order
dated August 9, 1957. The three appellants then moved the High Court for a
certificate under Art. 132 of the Constitution which certificate the High Court
granted by its order dated October 16, 1957.
It may be here stated that neither the
Division Bench nor the Full Bench of the Rajasthan High Court had the advantage
of the decision of this Court in Atiabari Tea Co., case (1), which decision
came much later in point of time. The main argument on behalf of the appellants
before us has been that the provisions of the Act under which the appellants
were sought to be taxed in respect of their motor vehicles plying on the
Nasirabad-Deoli or Kishangarh road contravened Art.
301 of the Constitution and were not saved by
Art. 304 (b) of the Constitution. We shall presently read the relevant
provision of the Act, but before we do so we may briefly refer to one short
point by way of clearing the ground for the discussion which will follow.
Article 305 of the Constitution as it originally stood said that nothing in
Arts, 301 and 303 shall affect (1)  1. S. C. R. 809.
501 the provisions of any existing law except
in so far as the President may by order otherwise provide. This article was
substituted by another article, somewhat wider in scope, by the Constitution
(Fourth Amendment) Act, 1955. The new article repeated the words of the old
article in the first part thereof and in the second part it said that nothing
in Art. 301 shall affect the operation of any law made before the commencement
of the Constitution (Fourth Amendment) Act, 1955, in so far as it relates to,
or prevent Parliament or the Legislature of a State from making any law relates
to, any such matter as is referred to in sub-cl. (ii) of cl. (6) of Art. 19
that sub-clause refers to the carrying on by the State or by a corporation
owned or controlled by the State, of any trade, business, industry or service,
whether to the exclusion, complete or partial, of citizens or otherwise.
The first part of Art. 305 does not apply in
the present cases because the expression "existing law" means any
law, ordinance, order, bye-law etc. passed or made before the commencement of
the Constitution. The Act which we are considering now in the present appeals
was made in 1955, i.e., after the commencement of the Constitution. The second
part of Art. 305 has also no hearing on the questions which we have to consider
in these appeals. Article 305, old or new, is, therefore, out of our way.
We now proceed to read the relevant
provisions of the Act.
The Act was made by the Rajpramukh of the
State of Rajasthan on April 1, 1951. The history of the constitution of the
United State of Rajasthan and the powers of the Rajpramukh under the covenant
creating the State were stated in Thakur Amar Singhji v. State of Rajasthan(1)
at pp. 312 to 316 of the report. With that history ,we are not concerned in the
present cases. The competence of the Rajpramukh to make the Act (1)  2.
502 was challenged in the High Court but was
decided against the appellants. That point has not been agitated before us and
we must proceed on the footing that the Act was validly made by the Rajpramukh.
Section 4 of the Act is the charging section, the validity of which has been challenged
before us on the ground that it violates the freedom of trade, commerce and
intercourse granted under Art. 301 of the Constitution. It is, therefore,
necessary to quote s. 4.
"4. Imposition of tax.-(1) Save as
otherwise provided by this Act or by rules made thereunder or by any other law
for the time being in force, no motor vehicle shall be used in any public place
or kept for use in Rajasthan unless the owner thereof has paid in respect of
it, a tax at the appropriate rate specified in the Schedules to this Act within
the time allowed by section 5 and, save as hereinafter specified, such tax
shall be payable annually notwithstanding that the motor vehicle may from time
to time cease to be used.
(2) An owner who keeps a motor vehicle of
which the certificate of fitness and the certificate of registration are
current, shall, for the purposes of this Act be presumed to keep such vehicle
(3) A person who keeps more than ten motor
vehicles for use solely in the course of trade and industry shall be entitled
to a deduction of ten per cent on the aggregate amount of tax to which he is
"4. Explanation.-The expression trade
and industry" includes transport for hire," Sections 5 to 7 deal with
(1) payment of tax, (2) tax payable on first liability to tax, and (3) refund
With these details we are not concerned here.
Section 8 imposes on the owner of every motor 503 vehicle an obligation to make
a declaration every year in respect of the motor vehicle in the prescribed form
stating the prescribed particulars etc.; it also imposes an obligation on every
owner to pay the tax which he is liable to pay in respect of the motor vehicle.
This section is also challenged as unconstitutional and it is obvious that it
is connected with s. 4. If s. 4 is unconstitutional, so must be s. 8. Section 9
deals with the payment of additional tax in circumstances which need not be
stated here. Section 10 deals with the grant of receipt and token. Section 11
"11. Penalties under this Act.-whoever contravenes
any of the provisions of this Act or of any rule made thereunder shall on conviction
be punishable with fine which may extend to Rs. 100 and in the event of such
person having been previously convicted of an offence under this Act or under
any rule made thereunder with fine which may extend to Rs.
200." Section 12 deals with the
compounding of offences and s. 13 lays down that when any person without any
reasonable cause fails or refuses to pay the tax, the Taxation Officer may
forward to the Collector of the district concerned a certificate over his
signature specifying the amount of tax due from such person and the Collector
shall recover the tax as if it were an arrears of land revenue. Section 14
provides for appeals to the Transport Commissioner. Section 16 lays down that
the liability of a person to pay the tax shall not be questioned or determined
otherwise than as provided in the act or in the rules made there under.
Sections 17 to 21 deal with certain ancillary
matters and s. 22 enables the Government to make rules for carrying into effect
the purpose of the Act. There are four Schedules to the Act to which a more
detailed reference will be made later. It is enough to state here that the 504
Schedules divide motor vehicles into two parts Schedule I deals with vehicles
other than transport vehicles plying for hire or reward; Schedule II deals with
transport vehicles of two kinds transport vehicles and goods vehicles; Schedule
III deals with goods vehicles registered outside Rajasthan but using roads in
Rajasthan; and Schedule IV deals with vehicles used for the carriage of goods
in connection with a trade or business carried on by the owner of the vehicle
under a private carrier's permit. Various rates of tax are provided for various
kinds of vehicles in these Schedules.
The High Court has pointed out that Schedule
I is concerned with vehicles other than transport vehicles and is mainly
concerned with what would come within the term ",intercourse" in Art.
301 and the other Schedules deal with what would come within the term
"trade and commerce" in that article. The result of reading s. 4 of
Act with the Schedules is that on one can use ox keep a motor vehicle in
Rajasthan without paying the appropriate tax for it and if he does so he is made
liable to the penalties imposed under s. 11 of the Act. In brief, this appears
to be the scheme of the Act.
Is this scheme in conflict with the freedom
of trade, commerce and intercourse within the territory of India assured by
Art. 301 and other connected articles in Part XIII of the Constitution ? That
is the problem before us.
It is necessary, therefore, to read at this
stage the relevant articles in Part XIII of the Constitution. For this purpose
we must read Arts. 301 to 304 as they stood at the relevant time.
"301. Subject to the other provisions of
this Part, trade, commerce and intercourse throughout the territory of India
shall be free.
302. Parliament may by law impose such
restrictions on the freedom of trade, 505 commerce or intercourse between one
State and another or within any part of the territory of India as may be
required in the public interest.
303. (1) Notwithstanding anything in Articles
302, neither Parliament nor the Legislature of a State shall have power to make
any law giving, or authorising the giving of, any preference to one State over
another, or making, or authorising the making of, any discrimination between
one State and another by virtue of any entry relating to trade and commerce in
any of the Lists in the Seventh Schedule.
(2) Nothing in clause (1) shall prevent
Parliament from making any law giving or authorising the giving of, any
preference or making, or authorising the making of, any discrimination if it is
declared by such law that it is necessary to do so for the purpose of dealing
with a situation arising from scarcity of goods in any part of the territory of
304. Notwithstanding anything in Article 301
or Article 303, the Legislature of a State may by law(a) 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) 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 506
the purposes of clause (b) shall be introduced or moved in the Legislature of a
State without the previous sanction of the President".
Article 305 we have already stated is out of
Article 306, which was later repealed by the
Constitution (Seventh Amendment) Act, 1956, is also not material for the
consideration of the problem before us. Article 307 is also not material as it
relates to the appointment of an appropriate authority for carrying out the
purposes of Arts.
301 to 304.
The series of articles on the true scope and
effect of which the decision of the problem before us depends were the subject
matter of consideration of this Court in the Atiabari Tea Co. case (1), In that
decision three views were expressed and one of the questions mooted and argued
before us is whether the principle of the majority decision in that case
requires reconsideration, or modification in any respect; or whether any of the
other two views expressed therein is the correct view. Another connected
question is that if the majority view is the correct view, does the principle
underlying it apply to the facts of the present cases It is, therefore,
necessary to set out briefly the facts of the Atiabari Tea Co. case (1) and the
three views expressed therein. The three appellants in that case were tea
companies, two of which carried on the trade of growing tea in Assam and the
other carried on its trade in Jalpaiguri in West Bengal. They carried their tea
to Calcutta in order that it might be sold in the Calcutta market for home
consumption or export outside India. Tea produced in Jalpaiguri had to pass
through a few miles of territory in Assam, while the tea produced in Assam had
to go all the way through Assam to reach Calcutta. Besides the tea which was
carried by rail, a substantial quantity had to go by road or by inland
water-ways and as such (1) (1961) 1 S.C.R. 809.
507 became liable to pay the tax leviable
under the Assam Taxation (on goods carried by Roads or Inland Waterways) Act,
1954. That Act levied a tax on certain goods carried by road or inland
waterways in the State of Assam and the validity of the levy of such a tax was
in question in the Atiabari Tea Co. case. (1). The principal ground of attack
was that the Assam Act violated the provisions of Art. 301 of the Constitution
and was not saved by the provisions of Art. 304(b). We may now summarise the
views expressed in that decision. First, as to the views of the learned Chief
Justice: He expressed the view that taxation simpliciter was not within the
terms of Art. 301 and a tax on movement of or passenger did not necessarily
connote impediment or restraint in the matter of trade and commerce. He draw a
distinction between taxation as such for the purpose of revenue on the One hand
and taxation for the purpose of making discrimination or giving preference on
the other hand; the letter, he said, could be treated as impediment to free
trade and commerce. He expressed his final conclusion in these words.
"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 nondiscriminatory restrictions imposed by
Parliament in public interest (Art. 392); (4) even discriminatory or (1) 
508 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 of manufactured in
that State (Art. 304(a);
and lastly (7) restrictions imposed by
existing laws have been continued, except in so far as the President may by
order otherwise direct(Art. 305)." (pp. 831-832.) The majority view
differed from that of the learned Chief Justice in that it did not accept as
correct the contention that tax laws were governed by the provisions of Part
XII of the Constitution only and were outside Part XIII. The majority expressed
the view that when Art. 301 provided that trade shall be free throughout the
territory of India, it was the movement or transport part of the trade that
must be free. The majority said:
"It is a federal constitution which we
are interpreting, and so the impact of Art. 301 must be judged accordingly.
Besides, it is not irrelevant to remember in this connection that the Article
we are construing imposes a constitutional limitation on the power of the
Parliament and the State Legislatures to levy taxes, and generally, but for
such limitation, the power of taxation would be presumed to be for public good
and would not be subject to judicial review or scrutiny. Thus considered we
think it would be reasonable and proper to hold that restrictions freedom from
which is 509 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 Art. 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." (p. 860.) The third view held by Shah, J., was that the
freedom contemplated was freedom of trade, commerce and intercourse in ill
their varied aspects inclusive of all activities which constitute commercial
intercourse and not merely restrictions on the movement aspect.
He said :
"The guarantee of freedom of trade and
commerce is not addressed merely against prohibitions, complete or partial; it
is addressed to tariffs, licensing, marketing regulations, price-control,
nationalization, economic or social planning, discriminatory tariffs,
compulsory appropriation of goods, freezing or stand-still orders and similar
other impediments operating directly and immediately on the freedom of
commercial intercourse as well. Every sequence in the series of operations
which constitutes trade or commerce is an act of trade or commerce and burdens
or impediments imposed on any such step are restrictions on the freedom of
trade commerce and intercourse. What is guaranteed is freedom in its widest
amplitude-freedom from prohibition, control, burden or impediment in commercial
intercourse." (p. 874.) So far we have set out the factual and legal
background against which the problem before us 510 has to be solved. We must
now say a few words regarding the historical background. It is necessary to do
this, because extensive references have been made to Australian and American
decisions, Australian decisions with regard to the interpretation of s. 92 of
the Australian Constitution and American decisions with regard to the Commerce
Clause of the American Constitution. This Court pointed out in the Atiabari Tea
Co. case (1) that it would not be always safe to rely upon the American or
Australian decisions in interpreting the provisions of our Constitution.
Valuable as those decisions might be in showing how the problem of freedom of
trade, commerce and intercourse was dealt with in other federal constitutions,
the provisions of our Constitution must be interpreted against the historical
background in which our Constitution was made; the background of problems which
the Constitution makers tried to solve according to the genius of the Indian
people whom the Constitution-makers represented in the Constituent Assembly.
The first thing to be noticed in this connection is that the
Constitution-makers were not writing on a clean slate. They had the Government
of India Act. 1935, and they also had the administrative set up which that Act
India then consisted of various
administrative units known as Provinces, each with its own administrative set
There were differences of language, religion
etc. Some of the Provinces were economically more developed than the others.
Even inside the same Province, there were underdeveloped and highly developed
areas from the point of view of industries, communications etc. The problem of
economic integration with which the Constitution-makers were faced was a
problem with many facts. Two questions, however, stood out,; one question was
how to achieve a federal, economic and fiscal integration, so that economic
policies affecting the interests of India as a whole could be carried out (1)
 1. S. C. R. 809.
511 without putting an ever-increasing strain
on the unity of India, particularly in the context of a developing economy.
The second question was how to foster the
development of areas which were under developed without creating too many preferential
or discriminative barriers. Besides the Province, there were the Indian States
also known as Indian India. After India attained political freedom in 1947 and
before the Constitution was adopted, the process of merger and integration of
the Indian States with the rest of the country had been accomplished so that
when the Constitution was first passed the territory of India consisted of Part
A States, which broadly stated, represented the Provinces in British India, and
Part B States which were made up of Indian States. There were trade barriers
raised by the Indian States in the exercise of their legislative powers and the
Constitution-makers had to make provisions with regard to those trade barriers
as well. The evolution of a federal structure or a quasi-federal structure
necessarily involved, in the context of the conditions then prevailing, a
distribution of powers and a basic part of our Constitution relates to that
distribution with the three legislative lists in the Seventh Schedule. The Constitution
itself says by Art. 1 that India is a Union of States and in interpreting the
Constitution one must keep in view the essential structure of a federal or
quasi-federal Constitution, namely, that the units of the Union have also
certain powers as has the Union itself One of the grievances made on behalf of
the intervening States before us was that the majority view in the Atiabari Tea
Co. case(1) did not give sufficient importance to the power of the States under
the Indian Constitution to raise revenue by taxes under the legislative heads
entrusted to them, in interpreting the series of articles relating to trade,
commerce and intercourse in Part XIII of the Constitution. It has been often
stated that freedom of (1)  1.S.C.R. 809.
512 inter-State trade and commerce in a
federation has been a baffling problem to constitutional experts in Australia,
in America and in other federal constitutions. In evolving an integrated policy
on this subject our Constitution-makers seem to have kept in mind three main
considerations which may be broadly stated thus: first, in the larger interests
of India there must be free flow of trade, commerce and intercourse, both
inter-State and intra-State; second, the regional interests must not be ignored
altogether; and third, there must be a power of intervention by the Union in
any case of crisis to deal with particular problems that may arise in any part
of India. As we shall presently show, all these three considerations have
played their part in the series of articles which we have to consider in Part
XIII of the Constitution. Therefore, in interpreting the relevant articles in
Part XIII we must have regard to the general scheme of the Constitution of
India with special reference to Part III (Fundamental Rights), Part XII
(Finance, Property etc. containing Arts. 276 and 286) and their interrelation
to Part XIII in the context of a federal or quasi federal constitution in which
the States have certain powers including the power to raise revenues for their
purposes by taxation.
On behalf of the appellants it has been
contended before us that s. 4 of the Act read with the Schedules constitutes a
direct and immediate restriction on the movement of trade and commerce with and
within Rajasthan inasmuch as motor vehicles which carry passengers and goods
within or through Rajasthan have to pay the tax which, it is stated, imposes a
pecuniary burden on a commercial activity and is, therefore, hit by Art. 301 of
the Constitution and is not saved by Art.
304(b) in as much as the proviso to Art.
304(b) was not complied with nor was the Act assented to by the President
within the meaning of Art. 255 of the Constitution.
513 Learned Counsel for the appellants has
submitted before us that the correct interpretation of the series of relevant
articles in Part XIII of the Constitution is the one made by Shah, J., in the
Atiabari Tea Co. case(1). He has, however, submitted that even on the
interpretation accepted by the majority of Judges in the Atiabari Tea Co.
case(1) he is entitled to succeed, because the relevant provisions of the Act
constitute a direct and immediate restriction on the movement part of trade,
commerce and intercourse. On behalf of the respondents the argument has
proceeded on the footing that taxation per so i.e. taxation for the purpose of
raising revenue or for the maintenance of roads etc. is not hit by Art. 301 and
the impugned provisions of the Act in question did not constitute an immediate
or direct impediment on the movement of trade and commerce inasmuch as the tax
imposed was a consolidated tax on the vehicle itself though the quantum of the
tax was fixed in some instances with reference to the seating capacity or
loading capacity etc The argument is that in this respect the facts of the
present cases differ from the facts of the Atiabari Tea Co. case(1); it is
argued that in the latter the tax was on the carriage of goods, whereas in the
present cases the tax is a consolidated tax on the vehicle itself, like a
property tax, and, therefore, it does not relate to the movement part of trade,
commerce and intercourse, though it may have an indirect effect on trade, and
commerce by raising the tariff or fare for passengers and goods. The learned
Counsel for the respondents has in this way tried to distinguish the majority
decision in the Atiabari Tea Co. case(1), but he has mainly argued in favour of
the view expressed by the learned Chief Justice. On behalf of the interveners,
some have supported the majority view with or without modifications and some the
other two views. Mr. N. C. Chatterjee appearing on behalf of the Union of India
supported the majority view, though the stand taken by the Attorney (1) 
1. S. C. R. 809.
514 General on behalf of the Union of India
in the Atiabari Tea Co. case(1) was somewhat different. Mr. Ranadeb Chaudhuri
appearing on behalf of one of the interveners (M/s. M.A. Tulloch & Co.) has
accepted the majority view with some modifications. He has stated that Art. 301
relates to movement or carriage; he has called it the "channeling" of
trade and commerce. He has, however, tried to reconcile the various provisions
in Part XIII by suggesting that there are two connected but independent
subjects dealt with therein;
one is freedom of movement of trade, and
commerce and in course (this, he has described, as "channeling" of
trade, commerce and intercourse), and the second is protection from
discrimination and preference which is not necessarily connected with movement
but may arise from subsidy etc.
These are the two ideas which, according to
him, inspired the relevant series of articles in Part XIII. On behalf of some
of the interveners the argument has been that the freedom declared under Art.
301 is not freedom from such regulatory measures as do not impede trade,
commerce and intercourse but rather facilitate such trade, commerce and
intercourse, e.g. traffic regulations for safeguarding public health, such as,
prohibiting the sale of adulterated food etc. This view suggests that in the
matter of taxation, such taxes are compensatory in nature, namely, those levied
for the maintenance of roads on which traffic, is to move, do not come within
the restrictions freedom from which is contemplated by Art. 301. This is the
view which Mr. Sikri, Advocate-General of Punjab, has mainly contended for. Mr,
Seervai appearing on behalf of the State of Maharashtra and some other States
has contended that Part XIII of the Constitution is confined to such action,
legislative or executive, as is taken in relation to any of the entries relating
to trade and commerce in any of the lists in the Seventh Schedule, namely,
entries relating to 41 and 42 in list (1)  1. S. C. R. 809.
515 I, entry 26 of list II, and entry 33 of
list III. The expression "throughout the territory of India" occurring
in Art. 301 has reference, according to this view, to space rather than to
movement. According to Mr. Seervai the mode of approach should be to consider
(i) the position of the States in the Indian Constitution with plenary powers
in their respective fields; (ii) the historical background of s. 297 of the
Government of India Act, 1935; (iii) the decisions of the Australian cases upto
1950 when the Constitution of India was made; and (iv) Part XIII of the
Constitution as compared and contrasted with Part III and Part XII thereof. As
to taxation, his contention is that it does not come within Part XIII except to
the extent mentioned in Art. 304(a). Mr. Lalnarain Sinha appearing for the
State of Bihar has supported the view of the learned Chief Justice in Atiabari
Tea Co. case(1) though the reasons given by him are somewhat different. His
argument has been that Art. 301 secures for trade, commerce and intercourse
throughout the territory of India a qualified freedom from restrictions based
on geographical classifications only; the freedom thus secured is in regard to
barriers (in the geographical sense) impeding trade, commerce and intercourse
between one State and another or between one territory and another within or
without the same State, and also against territorial discriminations in respect
of trade, commerce and intercourse either inter-State or intra-state. With
regard to taxation, his contention is that taxes (meant for raising revenue
only and called fiscal taxes) do not operate as inter-State or inter-territorial
barriers nor involve any territorial discriminations, and they do not come
within Part XIII. Mr. D. Sahu appearing for the State of Orissa argued that the
freedom granted by Art. 301 was confined to (i) inter-State barriers, and (ii)
customs-barriers which at one time existed between the Indian States and
adjacent (1)  1 S.C.R. 809.
516 British Indian territory. According to
him, the intra State aspect of the freedom assured by Art. 301 was confined to
old customs-barriers only which some of the Indian States which have now merged
in particular States of the Indian Republic had earlier imposed. Mr. C. B.
Agarwala appearing for the State of Uttar Pradesh argued that the subject
matter of Art. 301 was trade, commerce and intercourse, namely the entries
relating to trade and commerce in any of the lists in the Seventh Schedule ;
but the restrictions from which freedom was granted might come from any
direction ; they might come from legislative or executive action relating to
other entries also.
We have tried to summarise above the various
stand points and views which were canvassed before us and we shall now proceed
to consider which, according to us, is the correct interpretation of the
relevant articles in Part XIII of the Constitution. We may first take the
widest view, the view expressed by Shah, J., in the Atiabari Tea Co. case(1) a
view which has been supported by the appellants and one or two of the
interveners before us. This view, we apprehend, is based on a purely textual
interpretation of the relevant articles in part XIII of the Constitution and
this textual interpretation proceeds in the following way. Article 301 which is
in general terms and is made subject to the other provisions of Part XIII
imposes a general limitation on the exercise of legislative power, whether by
the Union or the States, under any of the topics-taxation topics as well as
other topics-enumerated in the three lists of the Seventh Schedule, in order to
make certain that "trade, commerce and intercourse thought the territory
of India shall be free".
Having placed a general limitation on the
exercise of legislative powers by Parliament and the State Legislatures, Art.
302 relaxes that restriction in favour of Parliament by providing that (1)
 1. S. C. R. 809.
517 authority "may by law impose such
restrictions on the freedom of trade, commerce or intercourse between one State
and another or within any part the territory of India as may be required in the
public interest". Having relaxed the restriction in respect of Parliament
under Art. 302, a restriction is put upon the relaxation by Art. 303(1) to the
effect that Parliament shall not have the power to make any law giving any
preference to any one State over another or discriminating between one State and
another by virtue of any entry relating to trade and commerce in lists I and
III of the Seventh Schedule. Article 303(1) which places a ban on Parliament
against the giving of preferences to one State over another or of
discriminating between one State and another, also provides that the same kind
of ban should be placed upon the State Legislature also legislating by virtue
of any entry relating to trade and commerce in lists II and III of the Seventh
Schedule. Article 303 (2) again carves out an exception to the restriction
placed by Art. 303(1) on the powers of Parliament, by providing that nothing in
303(1) shall prevent Parliament from making
any law giving preference to one State over another or discriminating between
one State and another, if it is necessary to do so for the purpose of dealing
with a situation arising from scarcity of goods in any part of the territory of
This exception applies only to Parliament and
not to the State Legislatures. Article 304 comprises two clauses and each
clause operates as a proviso to Arts. 301 and 303.
Clause (a) of that article provides that the
Legislature of a State may "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." This clause, therefore, permits the levy on
goods imported from 518 sister States any tax which similar goods manufactured
or produced in that State are subject to under its taxing laws.
In other words, goods imported from sister
States are placed on a par with similar goods manufactured or produced inside
the State in regard to State taxation within the State allocated field. Thus
the States in India have full power of imposing what in American State
legislation is called the use tax, gross receipts tax etc., 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. As was observed by Patinjali Sastri, C.J., in State of Bombay v.
United Motors(1) 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 States. Now cl. (b) of Art. 301 provides that notwithstanding anything
in Art. 301 or Art. 303, the Legislature of a State may by law 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. The proviso to
el. (b) says that no bill or amendment for the purpose of cl. (b) shall be
introduced or moved in the Legislature of a State without the previous sanction
of the President. This provision appears to be the State analog to the Union
Parliament's authority defined by Art. 302, in spite of the omission of the
word "reasonable' before the word restrictions' in the latter article.
Leaving aside the prerequisite of previous Presidential sanction for the
validity of State legislation under cl. (b) provided in the proviso thereto,
there are two important differences between Art. 302 and Art. 301(b) which
require special mention. The first is that while the power of Parliament under
(1)  S.C.R. 1069.
519 Art. 302 is subject to the prohibition of
preferences and discriminations decreed by Art. 303(1) unless Parliament makes
the declaration contained in Art. 303(2), the State's power contained in Art.
304(b) is made expressly free from the prohibition contained in Art. 303(1),
because the opening words of Art. 304 contain a non obstante clause both to
Art. 301 and Art. 303. The second difference springs from the fact that while
Parliament's power to impose restrictions under Art. 302 upon freedom of
commerce in the public interest is not subject to the requirement of
reasonableness, the power of the States to impose restrictions on the freedom
of commerce in the public interest under Art. 304 is subject to the condition
that they are reasonable.
On the basis of the aforesaid textual
construction, which is perhaps correct so far as it goes, the view expressed is
that the freedom granted by Art. 301 is of the widest amplitude and is subject
only to such restrictions as are contained in the succeeding articles in Part
XIII. But even in the matter of textual construction there are difficulties.
One of the difficulties which was adverted to during the Constituent Assembly
debates related to the somewhat indiscriminate or inappropriate use of the
expressions "subject to" and ""notwithstanding" in the
articles in question. Article 302, as we have seen, makes a relaxation in
favour of Parliament. Article 303 again imposes a restriction on that relaxation
"notwithstanding anything in Article 302 but Art. 303 relates both to
Parliament and the State Legislature, though Art. 302 makes no relaxation in
favour of the State Legislature. The non obstante clause in Art. 303 is,
therefore, somewhat inappropriate. Clause (2) of Art. 303 carves out an
exception from the restriction imposed on Parliament by cl.
(1) of Art. 303. But again cl. (2) relates
only to Parliament and not to the State Legislature even though cl.
(1) relates to both. Article 304 520 again
begins with a non obstante clause mentioning both Art.
301 and Art. 303, though Art. 304 relates
only to the Legislature of a State. Article 303 relates to both the State
Legislature and Parliament and again the non obstante clause in Art. 304 is
somewhat inappropriate. The fact of the matter is that there is such a mix up
of exception upon exception in the series of articles in ]Part XIII that a
purely textual interpretation may not disclose the true intendment of the
articles. This does not mean that the text of the articles, the words used
therein, should be ignored. Indeed, the text of the articles is a vital
consideration in interpreting them; but we must at the same time remember that
we are dealing with the Constitution of a country and the inter-connection of
the different parts of the constitution forming part of an integrated whole
must not be lost sight of. Even textually, we must ascertain the true meaning
of the word "free' occurring in Art. 301. From what burdens or
restrictions is the freedom assured ? This is a question of vital importance
even in the matter of construction. In s. 92 of the Australian Constitution the
expression used was 'absolutely free' and repeatedly the question was posed as
to what this freedom meant. We do not propose to recite the somewhat checkered
history of the Australian decisions in respect of which Lord Porter, after a
review of the earlier cases, said in Commonwealth of Australia v. Bank of New
South Wales (1) that in the "labyrinth of cases decided under s. 92 there
was no golden thread." What is more important for our purpose is that he
expressed the view that two general propositions stood out from the decisions:
(i) that regulation of trade, commerce and intercourse among the States is
compatible with its absolute freedom, and (ii) that s. 92 of the Australian
Constitution is violated only when a legislative or (1)  A.C. 235, 521
executive act operates to restrict such trade, commerce and intercourse
directly and immediately as distinct from creating some indirect or
inconsequential impediment which may fairly be regarded as remote. Lord Porter
admitted "that in the application of these general propositions, in
determining whether an enactment is regulatory or something more or, whether a
restriction is direct or only remote or incidental, there cannot fail to be
differences of opinion." It seems clear, however, that since "the
conception of freedom of trade, commerce and intercourse in a community
regulated by law presupposes some degree of restriction upon the
individual", that freedom must necessarily be delimited by considerations
of social orderliness. In one of the earlier Australian decisions (Duncan v.
The State of Queensland) (1), Griffith, C.J., said :
"'But the word "free" does not
mean extra legem, any more than freedom means anarchy.
We boast of being an absolutely free people,
but that does not mean that we are not subject to law". (p. 573) As the
language employed in Art. 301 runs unqualified the Court, bearing in mind the
fact that provision has to be applied in the working of an orderly society, has
necessarily to add certain qualifications subject to which alone that freedom
may be exercised. This point has been very lucidly discussed in the dissenting
opinion which Fullagar, J., wrote in Mc Carter v. Brodie (2), an opinion which
was substantially approved by the Privy Council in Hughes and Vale Proprietary
Ltd. v. State of New South Wales (3). The learned Judge gave several examples
to show the distinction between what was merely permitted regulation and what
true interference with freedom of trade and commerce.
He pointed out that in the matter of motor
vehicles (1)  22 C.L.R. 556 (2)  80 C.L.R. 432.
(3)  A.C. 241.
522 most countries have legislation which
requires the motor vehicle to be registered and a fee to be paid on
registration. Every motor vehicle must carry lamps of a specified kind in front
and at the rear and in the hours of darkness these lamps must be alight if the
vehicle is being driven on the road, every motor vehicle must carry a warning
device, such as a horn; it must not be driven at a speed or in a manner which
is dangerous to the public. In certain localities a motor vehicle must not be
driven at more than a certain speed. The weight of the load which may be
carried on a motor vehicle on a public highway is limited. Such examples may be
multiplied indefinitely. Nobody doubts that the application of rules like the
above does not really affect the freedom of trade and commerce; on the contrary
they facilitate the free flow of trade and commerce. the reason is that these
rules cannot fairly be said to impose a burden on a trader or deter him from
trading: it would be absurd, for example, to suggest that freedom of trade is
impaired or hindered by laws which require a motor vehicle to keep to the left
of the road and not drive in a manner dangerous to the public. If the word
'free' in Art. 301 means 'freedom to do whatever one wants to do, then chaos
may be the result; for example, one owner of a motor vehicle may wish to drive
on the left of the road while another may wish to drive on the right of the
road. If they come from opposite directions, there will be an inevitable clash.
Another class of examples relates to making a
charge for the use of trading facilities, such as, roads, bridges, aerodromes
etc. The collection of a toll or a tax for the use of a road or for the use of
a bridge or for the use of an aerodrome is no barrier or burden or deterrent to
traders who, in their absence, may have to take a longer or less convenient or
more expensive route. such compensatory taxes are no hindrance to anybody's
freedom so long as they remain reasonable; but they could of course be
converted into a hindrance to the freedom of trade. If the 523 authorities concerned
really wanted to hamper anybody's trade, they could easily raise the amount of
tax or toll to an amount which would be prohibitive or deterrent or create
other impediments which instead of facilitating trade and commerce would hamper
them. It is here that the contrast, between 'freedom' (Art. 301) and
restrictions' (Arts. 302 and 304) clearly appears: that which in reality
facilitates trade and commerce is not a restriction, and that which in reality
hampers or burdens trade and commerce is a restriction. It is the reality or
substance of the matter that has to be determined. It is not possible a priori
to draw a dividing line between that which would really be a charge for a
facility provided and that which would really be a deterrent to a trade; but
the distinction: if it has to be drawn, is real and clear. For the tax to
become a prohibited tax it has to be a direct tax the effect of which is to
hinder the movement part of trade. So long as a tax remains compensatory or
regulatory it cannot operate as a hindrance.
The most serious objection to the widest view
canvassed before us is that it ignores altogether that in the conception of
freedom of trade, commerce and intercourse in a community regulated by law
freedom must be understood in the context of the working of an orderly society.
The widest view proceeds on the footing that Art. 301 imposes a general
restriction on legislative power and grants a freedom of trade, commerce and
intercourse in all its series of operations, from all barriers, from all
restrictions, from all regulation, and the only qualification that is to be
found in the article is the opening clause, namely, subject to the other
provisions of Part XIII. This in actual practice will mean that if the State
Legislature wishes to control or regulate trade, commerce and intercourse in
such a way as to facilitate its free movement, it must yet proceed to make a
law under Art.
304(b) and 524 no such bill can be introduced
or moved in the Legislature of a State without the previous sanction of the
The practical effect would be to stop or
delay effective legislation which may be urgently necessary. Take, for example,
a case where in the interests of public health, it is necessary to introduce
urgently legislation stopping trade in goods which are deleterious to health,
like the trade in diseased potatoes in Australia. If the State Legislature
wishes to introduce such a bill, it must have the sanction of the President.
Even such legislation as imposes traffic regulations would require the sanction
of the President. 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 11. The States must also
have revenue to carry out their administration and there are several items
relating to the imposition of taxes in list
11. 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,, sales tax, excise duty etc., and legislation in respect of any
one of these items, may have an indirect effect on trade and commerce. Even
laws other than taxation laws, made under different entries in the lists
referred to above, may indirectly or remotely affect trade and commerce. If it
be held that every law made by 525 the Legislature of a State which has
repercussion on tariffs, licensing marketing regulations, price-control etc., must
have the previous sanction of the President, then the Constitution in so far as
it gives plenary power to the States and State Legislatures in the fields
allocated to them would be meaningless. In our view the concept of freedom of
trade, commerce and intercourse postulated by Art. 301 must be understood in
the context of an orderly society and as part of a Constitution which envisages
a distribution of powers between the States and the Union, and if so
understood, the concept must recognise the need and the legitimacy of some
degree of regulatory control, whether by the Union or the States: this is
irrespective of the restrictions imposed by the other articles in Part XIII of
the Constitution. We are, therefore, unable to accept the widest view as the correct
interpretation of the relevant articles in Part XIII of the Constitution.
We proceed now to deal with another
interpretation of the relevant provisions in Part XIII : this interpretation
may be characterised as the narrow interpretation. According to this
interpretation taxing laws are governed by the provisions of Part XII of the
Constitution and except Art.
304(a) none of the other provisions of Part
XIII extend to taxing laws. An additional argument is that the provisions of
Part XIII apply only to such legislation as is made under entries in the
Seventh Schedule which deal with trade, commerce and intercourse. According to
this argument entry 42 in list 1, which refers to inter. State trade and
commerce, entry 26 in list II which deals with trade and commerce within the
State subject to the provisions of entry 33 in list III, and entry 33 in list
III which deals with trade and commerce as specified therein, are the only
entries legislation relating to which attracts the provisions of Part XIII, and
legislation on other topics is not affected by these provisions. In support
argument 526 assistance has been sought from the heading of Part XIII and from
the use of the expression "subject to' in Art.301. It has been pointed out
that the title of Part XIII is trade, commerce and an intercourse ;
intercourse, it is stated, means commercial intercourse there being no separate
legislative entry in any of the three list relating to intercourse and the word
throughout' has reference to space rather than to movement. The expression
,subject to' it is stated, means conditional upon', thus connecting the
provisions of Art. 303 with the provisions of Art. 301.
Article 303 specifically uses the expression
"by virtue of any entry relating to trade and commerce in any of the lists
in the Seventh Schedule." It is argued that by reason of the connection
between Art. 301 and Art. 303, the words "by virtue of any entry relating
to trade and commerce etc." must be read into Art. 301 also so that Art.
301 will then be construed as a fetter on the commerce power i. e., the power
given to the Legislature to make laws under entries relating to trade and
commerce only. As to taxation being out of the provisions of Part XIIL of the
Constitution except for Art. 304(a), the argument is that we must look to the
historical background of s. 297 of the Government of India Act, 1935, and Arts.
274, 276 and 285 to 288 in Part XII of the Constitution. It is pointed out that
the power to tax is an incident of sovereignty and it is divided between the
Union and the States under the Constitution ;
Part XII of the Constitution deals with
several aspects of taxation and all the restrictions on the power to tax are
contained in Part XII which, according to this interpretation, is self
contained. Therefore, so it is argued, the freedom guaranteed by Art.301 does
not mean freedom from taxation, because taxation is not a restriction within
the meaning of the relevant articles in Part XIII.
527 It would appear from what we have stated
above that this interpretation consists of two main parts : one part is that
taxation simpliciter is not within the terms of Art. 301 and the second part is
that Art. 301 must take colour from the provisions of Art. 303 which, it is
said, is restricted to legislation with respect to entries relating to trade
and commerce in any of the lists in the Seventh Schedule, In Atiabari Tea Co.
Case ( 1) this Court deal with the correctness or otherwise of this narrow
interpretation and by the majority decision held against it. The majority judgment
in the Atiabari Tea Co. Case (1) deals, with the arguments advanced in support
of the interpretation in detail and as we are substantially in agreement with
the reasons given in that judgment, we do not think that any useful purpose would
be served by repeating them. It is enough to point out that though the power of
levying tax is essentially 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. The effect
of Art. 265 was considered in the majority decision and it was pointed out that
the power of taxation under our Constitution was subject to the condition that
no tax shall be levied or collected except by authority of law. 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 (1)  1. S. C. R. 809.
528 the provisions of both Part XII and Part
XIII. In view of the provisions of Art, 245, we find it difficult to accept the
argument that the restrictions in Part XIII of the Constitution do not apply to
taxation laws. As to the argument that Art. 301 must take colour from Art. 303,
we are unable to accept as correct the argument that the provisions of Art. 303
must delimit the general terms of Art. 301. 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 relaxation given by Art. 302 is itself in
the nature of an exception to 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 terms.
After carefully considering the arguments
advanced before us we have come to the conclusion that the narrow
interpretation canvassed for on behalf of the majority of the State cannot be
accepted, namely, that the relevant articles in Part XIII apply only to
legislation in respect of the entries relating to trade and commerce in any of
the lists of the Seventh Schedule. But we must advert here to one exception
which we have already indicated in an earlier part of this judgment. Such
regulatory measures as do not impede the freedom of trade, commerce and
intercourse and compensatory taxes for the use of trading facilities are not
hit by the freedom declared by Art. 301. They are excluded from the purview of
the provisions of Part XIII of the Constitution for the simple reason that they
do not hamper trade, commerce and intercourse but rather facilitate them.
This disposes of two of the main
interpretations which have been canvassed before us. We 529 accept neither the
widest interpretation nor the narrow interpretation for the reasons which we
have already indicated. It remains now to consider some of the other
interpretations which have been canvassed before us. Mr. Lalnarain Sinha has in
substance contended that Art. 301 is restricted to freedom from geographical
barriers only ; Mr. D. Sahu has contended that Art. 301 is confined to (i)
interstate barriers, and (ii) customs-barriers which at one time existed
between the Indian States and the adjacent British Indian territory. In our
opinion both these interpretations proceed on a somewhat narrow basis and are
not justified by the general words used in Art. 301 and the other relevant
articles in Part XIII of the Constitution.
In our opinion the ambit of the relevant
articles in Part XIII is wider than what these interpretations assume it to be.
While on this point it may be advisable to refer to the contrast between Art.
19 in Part III and Art. 301 in Part XIII of the Constitution. Article 19
guarantees to all citizens certain rights which are compendiously stated to be
the right to freedom ; two such rights are (i) to move freely throughout the
territory of India and (ii) to carry on any occupation, trade or business. The
right to move freely throughout the territory of India is subject to reasonable
restrictions in the interests of the general public or for the protection of
any scheduled tribe. The right to carry on any occupation, trade or business is
subject to reasonable restrictions in the interests of the general public and
in particular to any law relating to the carrying on by the State, of any
trade, business etc., whether to the exclusion, complete or partial, of
citizens or otherwise. The first contrast between Art. 19 and Art.
301 is that Art. 19 guarantees the right to
freedom to a citizen whereas freedom granted by Art. 301 is not confined to
citizens. Another distinction which has been drawn is that Art. 19 looks at the
right from the 530 point of view of an individual, whereas Art. 301 looks at
the matter from the point of freedom of the general volume of trade, commerce
and intercourse. We do not think that this distinction, if any such distinction
at all exists, is material in the present cases, because an individual trade
may complain of a violation of his freedom guaranteed under Art. 19(1)(g) and
he may also complain if the freedom assured by Art. 301 has been violated. In a
particular set of circumstances the two freedoms need not be the same or need
not coalesce. In some of the Australian decisions a distinction was sought to be
drawn between the free flow of the same volume of inter-State trade and the
individual's right to carry on his trade in more than one State and it was
argued that s. 92 of the Australian Constitution related to the free flow of
the volume of trade as distinguished from an individual's right to carry on his
trade. Such a distinction was negatived and the Privy Council pointed out that
the redoubtable Mr. James who fought many a battle for the freedom, of his
trade and occupation was after all an individual. Another aspect of this
contrast between Art. 19 and Art. 301 of the Constitution which has been
adverted to before us is this; it has been argued that if a law imposing a
restriction on the right of a citizen to carry on his trade or business is
justified under el. (6) of Art. 19 as being in the interests of the general
public, that law cannot again be impeached as being violative of Art. 301;
otherwise, so it is argued, the Constitution
will be taking away by Art. 301 what it has granted by cl. (6) of Art. 19.
The argument is that trade or business must
be such as a person is entitled to carry on before be can complain of any
impediment to the freedom of that trade or business. This is an aspect of the
problem which may require a more detailed and careful examination in an
appropriate case. If we 532 across geographical barriers. We are for this
reason unable to accept Mr. Sinha's contention. Mr. Ranadeb Chaudhuri appearing
on behalf of one of the interveners accepted the majority view that Art. 301
was aimed at the movement aspect of trade, commerce and intercourse; this lie
called the "channelling". of trade, commerce and intercourse. But he
raised the question of subsidy and said that Art. 303 which related to
discrimination and preference also aimed at the mischief of subsidy which might
be given to a State by way of preference or discrimination; that mischief, he
said, would come within Art. 303 even if it did not relate to the movement
aspect of trade and commerce. We are not concerned in the present cases with
the question of subsidy and need not, therefore, consider the argument of Mr.
Ranadeb Chaudhuri with regard to it.
As to the word ,intercourse" there bar,
also been some argument before us. On behalf of some of the States it has been
contended that the word ,intercourse' in the context in which it occurs in Art.
301 means commercial intercourse.
On behalf of the appellants it hat; been
argued that the word ,intercourse' takes in not merely trade and commerce in
the strict sense, but also activities, such as, movement of persons for the
purpose of friendly association with one another, telephonic communications
etc. For the purpose of the cases which we are considering nothing very much
turns upon whether we take the word intercourse' in a wide sense or in a narrow
sense. Even taking the word ,intercourse' in a wide sense, the question will
still be what does the word ,free' mean? Does it mean free from all regulation
which is necessary for an orderly society? We have already stated that the word
'free' in Art. 301 cannot be given that wide meaning.
We have, therefore, come to the conclusion
that neither the widest interpretation nor the narrow 533 interpretations
canvassed before us are acceptable. The interpretation which was accepted by
the majority in the Atiabari Tea Co. case (1) is correct, but subject to this
clarification. Regulatory measures or measures imposing compensatory taxes for
the s use of trading facilities do not come within the purview of the
restrictions contemplated by Art. 301 and such measures need not comply with
the requirements of the proviso to Art. 304(b) of the Constitution.
Now the question is, do the relevant
provisions of the Act read with the Schedules fall within what we have called
permitted regulation which does not really or materially affect freedom of
trade, commerce and intercourse; or do the taxes imposed by the relevant
provisions of the Act read with the Schedules come within the category of
compensatory taxes which are no hindrance to freedom of trade, commerce and
intercourse, being taxes for the use of trading facilities in the shape of
roads, bridges, etc. In an earlier part of this judgment we have quoted s. 4
which is the charging section. That section makes it quite clear that the tax
is imposed on a motor vehicle which shall be used in any public place or kept
for use in Rajasthan; the tax is to be at appropriate rates specified in the
Schedules to the Act and save as specified in the Act the tax shall be payable
annually notwithstanding that the motor vehicle may, from time to time, cease
to be used. Section 7 says in effect that if the motor vehicle in respect of
which such tax has been paid has not been used for a continuous period of not
less than three months, then the owner shall be entitled to a refund of an
amount equal to 1/12 of the annual rate of the tax paid. It appears from the
Schedules that a vehicle other than a transport vehicle is charged with a
consolidated tax, according as the motor vehicle is fitted with pneumatic tyres
or not. The rate of tax varies (1)  1. S. C. R. 809.
534 according to the nature of the vehicle,
whether it is a motor cycle, or a motor tricycle drawing a tractor, or a side
car etc. Schedule If relates to transport vehicles with again are classified
into various categories, those fitted with pneumatic tyres and those not so
fitted, motor vehicles plying for conveyance of passengers and light personal
luggage goods vehicles plying under public carrier's permit etc. The quantum of
tax fixed with regard to the seating capacity in some cases and loading
capacity in other cases. The tax on some goods vehicles is fixed per day or per
annum. Schedule III relates the goods vehicles only. A classification is again
made between different classes of goods vehicles fitted with pneumatic tyres,
conveying a trailer etc. The tax fixed is a tax for use per day. Schedule IV
deals with vehicles plying with a private carrier's permit. Here again a
classification is made of vehicles fitted with pneumatic tyres, with a general
permit for use in Rajasthan and those with a permit for lying within the limits
of one region only. The tax varies according to the loading capacity etc.
An examination of these provisions indicates
clearly enough that the taxes imposed are really taxes on motor vehicles which
use the roads in Rajasthan or are kept for use therein, either throughout the
whole area or parts of it.
The tax is payable by all owners of motor
vehicles, traders or otherwise. In dealing with the question whether these
taxes were reasonable restrictions on the right of individuals to move freely
throughout the territory of India etc. the High Court said:
"In this connection, it is well to
remember that the State maintains old roads, and makes new ones, and these
roads are at the disposal of those who use motor vehicles either for private
purposes or for trade or commerce.
This naturally costs the State. It has,
therefore, to find funds for making 535 new roads and maintenance of those that
are already in existence. These funds can only the raised through taxation, and
if the State taxes the users of motor vehicles in order to make and maintain
roads, it can hardly be said that the State is putting unreasonable
restrictions on the individuals' right to move freely throughout the territory
of India, or to practice any profession or to carry on any occupation, trade or
business. We have looked into figures of income and expenditure in this
connection of the Rajasthan State to judge whether this taxation is reasonable.
We-find that in 1952-53 income from motor vehicles taxation under the Act was
in neighbourhood of 34 lakhs. In that very year, the expenditure on new roads
and maintenance of old roads was in the neighbourhood of 60 lakhs. In 1954-55,
the estimated income from the tax was 35 lakhs, while the estimated expenditure
was over 65 lakhs. It is obvious from these figures that the State is charging
from the users of motor vehicles something in the neighbourhood of 50% of the
cost it has to incur in maintaining and making roads." The High Court
further pointed out that in the case of private motor cars the tax was Rs. 12
per seat and for an ordinary five-seater car, it came to Rs. 60 per year. On
payment of this amount the owner of the motor vehicle could use the car
anywhere in Rajasthan and the roads were open to him. In the case of a goods
vehicle, the tax was Rs. 2000 per year for a goods vehicle with a load capacity
of over five tons i.e. over 135 maunds. Assuming that such a vehicle could be
reasonably used for 200 days in a year, the tax amounted to Rs. 10 per day for
about 140 maunds of goods carried over any length of the road in Rajasthan.
This worked out to about Rs. 1 for 14 maunds i. e. almost 536 an anna a maund.
If the Act and the Schedules appended thereto are examined in this manner, it
will be noticed that the tax imposed is really a tax for the use of the roads
in Rajasthan and it cannot be said that it hinders the free movement of trade,
commerce and intercourse. 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.
Whether a tax is compensatory or nor cannot
be made to depend on the preamble of the statute imposing it. Nor do we think
that it would be right to say that a tax is not compensatory because the
precise or specific amount collected is not actually used to providing any
It is obvious that if the preamble decided
the matter, then the mercantile community would be helpless and it would be the
easiest thing for the Legislature to defeat the freedom assured by Art. 341 by
stating in the preamble that it is meant to provide facilities to the
tradesmen. Likewise actual user would often be unknown to trades. men and such
user may at some time be compensatory and at others not so.
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.
Nor do we think that it xi ill 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 born by the State out of
whatever source it may be. In 538 the instruments of commerce that have been
mentioned is no violation of the freedom of inter-State trades lies in the
relation to inter-state trade which their nature and purpose give them. The
reason why public authority must maintain them is in order that the commerce
may use them, and so for the commerce to bear or contribute to the cost of
their upkeep can involve no detraction from the freedom of commercial inter.
course between States." (p. 43) The learned Chief Justice reiterated the same
view in Commonwealth Freighters Property Ltd. v. Sneddon (1) We have,
therefore, come to the conclusion that the Act does not violate the provisions
of Art. 301 of the Constitution and the taxes imposed under the Act are
compensatory taxes which do not binder the freedom of trade, commerce and
intercourse assured by that article. The taxes imposed were, therefore, legal
and the High Court rightly dismissed the writ petitions filed by the
appellants. In the result the appeals fail and are dismissed with costs ; one
SUBBA RAO, J.-I agree with the conclusion
arrived at by my learned brother, S. K. Das, J., but, in view of the importance
of the question raised, I would prefer to give my own reasons for the
construction of the relevant provisions of Part XIII of the Constitution.
The question in these appeals is, what is the
ambit of the freedom enshrined in Art. 301 of the Constitution and what are the
limitations implicit in it or envisaged in the succeeding articles ? The
conflicting and sometimes mutually destructive arguments of learned counsel
appearing for the various parties and interveners, omitting the (1) (1959) 102
C. L. R. 280, 291.
539 immaterial variations, may conveniently
be placed under following heads: (1) Trade, commerce and intercourse" is a
term of widest amplitude taking in the gamut of activities starting from
production or manufacture and ending with the completion of a particular
commercial transactions ; and every restriction imposed by any law or executive
action on any part of the said integrated activity would be violative of the
freedom under Art. 301. (2) The expression "trade, commerce and
intercourse" means only transportation in the course of trade across the
State or inter State barriers, and any law be, it taxation or otherwise,
directly and materially affecting the said transportation, would infringe the
freedom. (3) The freedom recognized under Art. 301 is only the freedom against
geographical barriers between States or intrastate units created by law ; and laws,
including only discriminatory laws of taxation, creating the said barriers
would offend against Art. 301. (4) The freedom envisaged by Art. 301 is only a
freedom from laws showing preference to one State over another and
discrimination between one State and another made only by virtue of entry, 42
of List I entry 26 of List If and entry 33 of List III of the Seventh Schedule
to the Constitution. (5) The law of fiscal taxation is entirely outside the
domain of freedom declared by Art. 301. All the learned counsel appearing in
the case has agreed, or at any rate no argument was advanced to the contrary,
that the freedom, whatever may be its content or scope on which there is
difference of opinion, relates to both inter-State and intra-State trade.
Before considering the provisions of the said
articles, it will be useful to make certain general observations. We have to
bear in mind in approaching the problem presented before us that our
Constitution was not written on clean slate. Many of the concepts were borrowed
from the Government 540 of India Act or from other Constitutions and adapted to
suit the conditions of our country. We cannot ignore the fact that the
Constitution was drafted by persons some of whom had a deep knowledge of the
constitutional problems of other countries; and therefore, they must be assumed
to have had the knowledge of the interpretation put upon certain legal concepts
by the highest tribunals of those countries. At the same time, it can be
reasonably assumed that they have made a sincere attempt to accept the good and
to avoid the defects found by experience in the other constitutions and also to
could them to suit our conditions. Further, a brief survey of the relevant
provisions of those constitutions, which form the background of this article,
and the interpretation put on them by the highest tribunals of the respective
countries would not only be relevant but also be necessary for appreciating the
correct scope of Art. 301 of our Constitution. Our Constitution provides for a
federal structure with a bias towards a Central Government. But real and
substantial autonomy was conferred on the States within the boundaries of the
fields chalked out for them.
Therefore, in approaching the problem of
construing the provisions of Part XIII of our Constitution, unless the terms of
the provisions of the said Part are clear and unambiguous, it would be the duty
of this Court to construe them in such a manner as not to disturb the framework
of the Constitution. Before I attempt to construe the relevant provisions of
the Constitution, it would be convenient at this stage to consider briefly the
American and Australian law material to the present inquiry.
Clause 3 of s. 8 of Art. 1 of the
Constitution of the United States of America says that the Congress shall have
power to regulate commerce with foreign nations and among the several States
and with the Indian tribes. This clause has two aspects, namely, (i) it is a
source of national power and (ii) it operates as a curb on state power. This clause
gave rise, 541 among others, to two questions, namely, (i) what was the scope
and content of the commerce power? and (ii) bow to resolve the conflicts that
arose between the, law made by the Congress in exercise of that power and the
law made by the State in exercise of its police power, or their powers
expressed or implied, when they came into conflict with each other? An
authoritative definition of the word "commerce" was given by
Marshall, C. J., in Gibbons v. Oden (1), wherein he observed:
"This would restrict a general term
applicable to many objects to one of its significations Commerce, undoubtedly.
is traffic but something more-it is intercourse." The decisions of the
Supreme Court of the United States of America on the subject are not uniform.
Indeed, they have adopted the commerce power to meet all the demands, namely,
economic, commercial, industrial and transport revolutions of that country. It
is not necessary for the purpose of this case to consider the conflict or the
various nuances of the decision the concept of commerce was enlarged or reduced
to meet the exigencies of different situations; but the common thread was that
transportation across the borders, either physically or conceptually, was
uniformly held to be a necessary ingredient of the expression
"commerce". After noticing the conflict, Willis in his book on
Constitutional Law, summarizes the latest position thus, at p. 288:
"............... today the correct
definition of commerce is that it is traffic and commercial intercourse. This,
of course, gives Congress power wherever traffic or intercourse concerns an
When "commerce" is properly defined
as traffic, and the mental picture is formed, not of an isolated journey across
a state boundary line, but of an onward (1) (1824) 9 Wheat 1; 6 L. ed. 23.
542 coursing stream of business which knows
no state lines, which is constantly fed and as constantly feeds the streams of
production, and which debauches into the inter-state market, then regulations
of it by Congress, J.
whether taking the form of a prohibition of
certain phases of transportation or some other form " ceases to be open to
the charge of an ulterior intention to usurp their power, because it operates
most upon the very subject matter entrusted to Congress or, at most, upon local
incidents thereof, the fringe, so to speak, of a nation-spread fabric." In
this context the following references are instructive:
Carter v. Carter Coal Company(1), Kidd v.
Pearson(2), Welton v. State of Mussouri (3), Public Utilities Commission v.
Landon (4). It may be stated broadly that in
America "commerce" means traffic in its operation across the State
On the second question some of the American
decisions adopted a pragmatic approach to resolve the conflict. To solve the
conflict that arose between the laws made by the Congress regulating commerce
and those made by the State in exercise of its police power, the Supreme Court
of America evolved certain doctrines, such as, "original package",
,silence of Congress", "preemption", "undue and
unreasonable burden", and "direct and indirect effect". The
following decisions dealing with 'direct and indirect effect" on
inter-State trade can be usefully referred to in this regard, for, in my view,
they afford some guide to resolve the difficulties that might arise under our
Constitution: M' Culloch v. The State of Maryland (5) John T. Hendrick v. The
State of Maryland(6), (1) (1936) 298 U.S. 238. 80 L. ed.1160.
(2) (1888) 128 U.S. 132 L. ed. 346.
(3) (1876) 91 U.S. 27S; 23 L. ed. 347.
(4) (1919) 249 U.S. 2 36; 63 L. ed. 577.
(5) (1819) 17 U.S. 316; 4 L. ed. 579.
(6) (1915) 235 U.S. 610; 59 L. ed. 385, 543
Interstate Busses Corporation v. William H. Blodgett(1), Interstate Transit v
Dick Lindsey(2), and A. L.A. Schechter Poultry Corporation v. United State of
America(3). The said decisions show that in America the principle accepted was
that every restriction imposed by a State law did not offend the commerce
clause, unless it directly affected it, and that even taxation was permissible,
if it was for services rendered by the State to promote trade.
The Commonwealth of Australia Constitution
Act was passed in 1900. At the time that Act was made, the framers of that Act
had the background of the evolution of the American law on the commerce clause.
Under that Act, certain defined powers of legislation are conferred on the
Commonwealth in respect of trade and commerce. Section 51 reads: "Trade
and commerce with other countries and among the States".
Section 98 says: "The power of the
Parliament to make laws with respect to trade and commerce extends to
navigation and shipping and to railways the property of any State".
Section 99 prohibits the Commonwealth, by any
law or regulation of trade, commerce, or revenue, from giving preference to one
State or any part thereof over another State or any part thereof. Section 100
prohibits the Commonwealth from abridging, the right of a State or of the
residents therein to the reasonable use of the waters of rivers for
conservation or irrigation. Other legislative powers are conferred in respect
of specific subjects' of trade and commerce, such as, bounties, currency,
coinage, bills of exchange, bankruptcy, copy-rights, customs, excise, etc.
Section 92 says: "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 (1) (1928) 276 U.S. 245; 72 L. ed. 551.
(2) (1931) 283 U.S. 183; 75 L. ed. 953.
(3) (1935) 72 U.S 495; 79 L. ed. 1570.
544 absolutely free". Unlike the
American Constitution, the Australian Constitution confers a legislative power
on the Commonwealth Parliament to make laws in respect of trade and commerce
with other countries and among the States, and also in respect of certain
specific subjects of trade and commerce and then declares that trade, commerce
and intercourse among the States shall be absolutely free.
Unlike the American Constitution, in the
Australian Constitution, there is a declaration of freedom of trade, commerce
and intercourse among the States. While in America the expression used is
"commerce", in a. 92 of the Australian Constitution the expression,
"trade, commerce and intercourse" is used. The Australian
Constitution Act not only does not provide for any restrictions on the freedom
of trade, commerce and intercourse, but also used an expression of the widest
amplitude, viz., "absolutely free" emphasizing the freedom declared
by the section, This section, just like the commerce clause in the American
Constitution, was the subject of judicial scrutiny and conflict of decision.
The interpretation of this sub-section fell to be considered in the context of
marketing, banking and transport legislation.
The question raised was whether the freedom
of trade, commerce and intercourse was interfered by the laws made by the
State. Paradoxically, the Courts of Australia and, in appeals from some
decisions of those Courts, the Privy Council evolved the power to restrict the
said freedom by the States from the concept, of absolute freedom itself.
This was necessitated because there were no
statutory provisions limiting the absolute freedom and, as uncontrolled freedom
in the field of inter State Commerce may lead to chaos, limitations of the
freedom were evolved to save the said freedom The scope of the limitations so
evolved would be useful to construe the relevant provisions of all Constitution
which expressly provides for similar limitations. The scope of the freedom and
it 545 limitations are found in the leading decisions on the subject, which
throw considerable light on the question now raised, and they are : Smither's
case(1), W. & A. McArthur Ltd. v. The State of Queensland (2), James v.
Commonwealth of Australia (3) Commonwealth of Australia v. Bank of New South
Wales (4). In the aforesaid Australian decisions the expression "trade,
commerce, and intercourse among the States" has been understood in the
widest sense as including trade in all its manifestations involving
transportation or movement across the frontiers of the State it also includes
On the second question, some of the leading
Australian decisions contain an interesting and instructive exposition of the
conflict of jurisdiction and useful suggestions for resolving it. In this
context the following decisions may usefully be consulted : James v. Cowan (5),
Commonwealth of Australia v. Bank of New South Wales (4),Hughes and Vale
Proprietary Ltd. v. State of New South Wales (6), Hughes and Vale Private
Limited v. The State of New South Wales [No. 2] (7) Grannall v. Marrickville
Margarine Proprietary Ltd.
(8), Armstrong v. State of Victoria [No. 2]
(9), Commonwealth Freighters Proprietary Ltd. v. Sneddon (10). The Australian
decisions broadly laid down the following three propositions : (i) the impugned
law, whether fiscal or otherwise, shall directly and immediately restrict
traffic across the borders before it could be said to violate the freedom under
a. 92 of the Commonwealth of Australia Constitution Act ; (ii) compensatory
measures for the purpose of regulating commerce are not restrictions on the
said freedom ; and (iii) when a question arises whether a fiscal statute
amounts to a restriction on (1) (1912) 16 C.L.R. 99.(2) (1920) 28 C.L.R. 530.
(3)  A.C. 578. (4)  A.C. 235.
(5)  43 C.L.R. 386.(6) (1955] A.C. 241.
(7)  93 C.L.R. 127.(8)  93 C.L.R.
(9)  99 C.L.R. 28.(10)  102
546 the said freedom, a careful scrutiny of
the provisions may rebut the presumption that otherwise may arise that the
impugned Act is really a compensatory measure for the amenities provided or
The following principles emerge from the
foregoing American and Australian decisions : (1) Though in American law the commerce
clause only confers a power upon the Congress, under the Australian
Constitution Act, freedom of trade, commerce and intercourse is enshrined in s.
92 as a cherished freedom : the composite expression in s. 92 of the said Act
was borrowed from the American decisions. (2) The expression "trade
commerce and intercourse", though it is not an expression of art, has
acquired a definite signification in the constitutional law of both the
countries, namely, it is traffic and commercial intercourse concerning an
inter-State market, or, to put it differently, the free flow or movement of
trade across the State borders. (3) The said freedom should not ,be infringed
by any law, whether taxation or otherwise or by executive action. (4) The
restriction may be before or after movement : it may be a prior restraint or a
subsequent burden. (5) The word "freedom" does not mean anarchy, but
assumes transactions based on law and carried out under the superintendence and
direction of law : such laws are, (a) laws of contract, property, tort, etc.,
(b) regulations for preserving and maintaining the freedom, such as, police
regulations about safety, speed, lighting, rule of the road, etc., (e) laws
providing for services and for compensation for services rendered, namely, the
construction and maintenance of wharfs, roads, aerodromes, etc., and the levy
of taxes to meet the expenditure incurred in connection therewith ; the said
laws are not restrictions on the said freedom but only facilities to promote
547 Now, let us look at the provisions of
Art. 301 of the Constitution. The article reads :
"Subject to the other provisions of this
Part, trade, commerce and intercourse throughout the territory of India shall
be free." Three groups of words in the said article, in their
juxtaposition and interaction, furnish the key to the problem, and they are :
(i) trade, commerce and intercourse, (ii) throughout the territory of India,
and (iii) shall be free. The expression "trade, commerce and
intercourse" is a composite one and has received, as already noticed, the
fullest judicial attention from the highest courts of America and Australia :
though they may not be words of art, they have acquired a secondary meaning or
significance. I shall accept the meaning acquired by that expression by the
gradual evolution of law in those countries.
Now, let us analyse the words "shall be
free". Three questions occur to one's mind in regard to this, namely, (i)
what is free ? (ii) free from what ? and (iii) where is it free ? As I have already
indicated, 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 548 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 from a freedom of such transport or movement from such barriers.
The next question is, where is it free ? The
second expression "throughout the territory of India" demarcates the
extensive field of operation of the said freedom. The said intercourse shall be
free throughout the territory of India. The use of the words "territory of
India" instead of "'among the several States" found in the
American Constitution or "among the States" found in the Australian
Constitution, removes all inter-State or intra-State barriers and brings out
the idea that for the purpose of the freedom declared, the whole country is one
unit. Trade cannot be free throughout the territory of India, if there are
barriers in any part of India, be it inter-State or intra-State. So long as
there is impediment to that freedom, its nature or extent is irrelevant. The
difference will be in degree and not in quality. The freedom declared under
Art. 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.
To State it differently all obstructions or impediments whatever shape they may
take, to the free flow or movement of trade, or non-commercial intercourse,
offend Art. 301 of the Constitution except in so far as they are saved by the
succeeding provisions. But we are not concerned in this case with
The next question is, what is the content of
the concept of freedom ? The word "freedom" is 549 not capable of
precise definition, but it can be stated what would infringe or detract from
the said freedom. Before a particular law can be said to infringe the said
freedom, it must be ascertained whether the impugned provision operates as a
restriction impeding the free movement of trade or only as a regulation
facilitating the same. Restrictions obstruct the freedom, whereas regulations
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 a 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
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, waterways and air-ways cannot
effectively be maintained and the freedom declared may in practice turn out to
be an empty one. So too, regulations providing for necessary services to enable
the free movement of traffic, whether charged or not, cannot also be described
as restrictions impeding the freedom. To say all these is not to say that every
provision couched in the form of regulation but in effect and substance a
restriction can pass off as a permissible regulation. It is for the Court in a
given case to decide whether a provision purporting to regulate trade is in
fact a restriction on freedom. If it be a colourable exercise of power and the
regulatory provision in fact a restriction, unless the said provision is one of
the permissible restrictions under the succeeding articles, it would be struck
down. This view is consistent with the principles laid down by the Australian
High Court and the Privy Council in the context of interpretation of the words
"absolutely free" in a. 92 of the Commonwealth of Australia
Constitution Act, which is more emphatic than the word "free" in Art.
301 of our Constitution.
550 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. We would be re-writting the
Constitution and introducing by side wind autocracy in the field of legislation
allotted to the States, while our Constitution has provided meticulously for
democracy. Therefore, any construction which may bring about such an unexpected
result shall be avoided, unless the Constitution compels us by express words to
do so. There are admittedly no such words of compulsion. At, the same time it
is also difficult to accept the argument advanced by the States that the laws
made under entry 42 of List I, entry 26 of List II and entry 33 of List III, of
the Seventh Schedule to the Constitution only are subject to that freedom ; for
firstly, the article does not restrict the freedom to the area covered by those
entries, and, secondly, laws made under the other entries may more effectively
and directly affect the movement of trade. If a law directly 551 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.
At this stage, an argument elaborated by Mr.
Lalnarain Sinha may also be noticed. The learned Advocate said that the filed occupied
by Art. 19 of Part III of the Constitution and that occupied by Part XIII
thereof are distinct, that Art. 19 deals generally with freedom of trade and
301 with discriminatory barriers and that
fiscal statutes could not be restrictions under Art. 19 and, therefore, they
could not equally be restrictions under Art. 301. He would say that whatever
might be said of "regulatory taxes" or ','destructive ones".
fiscal taxes are always in public interest and it is not possible for a court
to decide whether a particular tax is reasonable or not. On this premises, the
argument proceeds, a reasonable restriction is a restriction, the
reasonableness whereof can be ascertained by court, and in a case where the
reasonableness of a particular restriction is impossible of ascertainment by a
court, such as a law fixing a rate, the Constitution must be deemed to have
released such a restriction from the impact of the concept of the freedom. This
is an argument in reverse gear. The freedom declared by the Constitution cannot
be controlled by an involved process of reasoning.
It is not permissible to limit the content of
the freedom by the criterion of a court's ability to ascertain the
reasonableness of a restriction imposed thereon. What is guaranteed to a citizen
by the Constitution is a fundamental right to carry on business. If cl. (5) of
Art. 19 were not in the Constitution, every restriction on that right, be it by
a 552 law of taxation or otherwise, which limited the freedom, would certainly
violate the same. The fact that the Constitution saves laws made imposing
reasonable restrictions on the freedom has no relevance to the content of the
freedom, though it protects certain laws made infringing that freedom. If on a
construction of the provisions of Art. 19(6), it should be held that a fiscal
taxation was not a restriction within the meaning of the said clause, every law
imposing such a tax would infringe the fundamental right. This result could not
have been intended by the makers of the Constitution. Therefore, the contention
should be that every law of taxation is a reasonable restriction in public
interest. There are no merits in the contention either. It is said that
taxation is always in public interest, and that it is not possible for any
court to ascertain on the material placed before it that a rate is reasonable
or not. It is conceded that regulatory taxes or laws of taxation intended to
prohibit or restrict an activity and not to raise a general tax in the interest
of revenue may be a restriction and a court may be in a position to see whether
such laws pass the test laid down in Art. 19 (6) of Constitution. The arguments
is confined only to what is described as "fiscal taxation" that is
taxation solely intended for raising revenue for the State. It is also not
denied that unreasonable procedural restrictions imposed by law of taxation
would infringe the freedom. It is also admitted that a fiscal law may offend
the fundamental right enshrined in Art. 14 of the Constitution. If so, it is
beyond my comprehension on what principle the law of taxation could offend with
impunity the freedom enshrined in Art. 19 (1) (g). Article 13(2) says in
express terms "The State shall not make any law which takes away or
abridges the rights conferred by this Part and any law made in contravention of
this clause shall to the extent of the contravention, be void." 553 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 (1)
and in Balaji v. I. T. Officer (2), hold that a law of taxation would be void
if it infringed the fundamental right guaranteed under Art. 19 of the
Constitution. Therefore, the law of taxation also should satisfy the two tests
laid down in Art. 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 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. As a
proposition it is unsound. It may be legitimately contended that it is
difficult for a court to come to a definite conclusion on the correctness of a
rate fixed by the Legislature. Dixon, C. J., in Commonwealth Freighters
Proprietary Limited v. Sneddon (3), gives a very cogent answer to such an
argument in a different context. The learned Chief Justice said :
"Highly inconvenient as it may be, it is
true of some legislative powers limited by definition, whether according to
subject matter to purpose or otherwise, that the validity of (1)  3
S.C.R.77. (2)  2 S.C.R. 98 3.
(3) (1959) 102 C. L.R. 280, 292.
554 the exercise of the power must sometimes
depend on facts, facts which somehow must be ascertained by the court
responsible for deciding the validity of the law........................ All
that is necessary is to make the point that if a criterion of constitutional
validity consists in matter of fact, the fact must be ascertained by the court
as best it can, when the court is called upon to pronounce upon validity."
I entirely agree with these observations. It is common place to point out that
intricate problems come before a court involving decision on different and
complicated aspects of human activity. Questions involving science, medicine,
engineering, geology, biology, economics, Psychology, etc. all come for
judicial scrutiny, and I have never heard any court saying that it is difficult
to decide upon such a question and, therefore, the proceeding raising such a
question is outside the jurisdiction of such a court.
In saying this, I am not ignoring the
difficulties inherent in a problem of fixing the rate of taxes by a court.
Experience shows that the court applies
certain presumptions, such as that of the wisdom, knowledge and the good
intentions of the Legislature, and does not also meticulously go in to the
question, but only looks at the broad features. On the argument of learned
counsel when it is permissible and possible for a court to ascertain whether a
tax is fiscal or regulatory, I do not see how it becomes impossible, though it
may be difficult, to hold whether a fiscal tax is reasonable or not. The
distinction lies not in the nature of the enquiry but only in degree. That
apart, no restriction, if it is unreasonable, can be more deleterious to the
freedom than the imposition of fiscal burden on it, which may in certain
circumstances destroy the very freedom. I, therefore, hold, on a true
construction of the expressed words of Art. 19 555 of the Constitution, that it
is not possible or even permissible to hold that laws of taxation are outside
the scope of the freedom enshrined therein. As the premises of Mr. Lalnarain
Sinha's argument lack a reasonable basis his further argument that the freedom
in Art. 301 excludes from its scope fiscal laws must be rejected.
Having ascertained the scope and content of
the freedom envisaged in Art. 301 of the Constitution, let us look at the
succeeding provisions which place limitations on the said freedom. Under Art.
"Parliament may by law impose such
restrictions on the freedom of trade, commerce or intercourse between one State
and another or within any part of the territory of India, as may be required in
the public interest." This is an exception to Art. 301. The restrictions
contemplated therein are restrictions on the said freedom.
But the restrictions can be imposed by
Parliament only by law. Parliament's power to make law is derived from Arts.
245 and 246 of the Constitution. There under
it can make laws with respect to any of the matters enumerated in Lists I and
III of the Seventh Schedule and in respect of a territory not included in a
States with respect to matters enumerated in any of the three Lists. Therefore,
in exercise of the said power and by virtue of the language of the entries
correlated to that power, Parliament can make any law imposing restrictions on
the said freedom. The article in terms, or even by necessary implication, does
not exclude restrictions by way of taxation. It is not the source or the nature
of the law that matters but the impact of that law, be it a law of taxation or
otherwise, on the freedom that is crucial. It is 556 also not possible to
accept the argument that Art. 302 confers an independent power on the
Parliament, that is, a power in addition to that conferred on it by Arts. 245
and 246. There is no room for this argument, for the words ,,by law" in the
article clearly refer to the power of the Parliament to make law under the
Constitution. That apart, if it was the intention of the Constituent Assembly
to confer a fresh power, those world not have been used in Art.
302, but instead world suitable to confer a
new power, namely, '"shall have the power" would have been used.
Therefore, under this article the Parliament
can only impose restrictions by virtue of any of the entries in the Lists in
respect of which it can make laws. peruse on the entries in List I shows that
laws can be made restricting the said freedom under most of the entries, for
instance, entries 22, 23, 24, 25, 27, 29, 42, 52, 53, 56, 81, 89, 91, etc.
Whether there is a restriction or not, does
not depend upon the relevant entry, but on the nature of the impact of the law
on the freedom. But a limitation is sought to be placed upon this power by an
attempt to confine it to the entries mentioned in Art. 303. Article 303, which
prohibits the Parliament from making a law giving preference to one State over
another or making any discrimination between one State and another, is confined
only to the entries relating to trade and commerce. But Art. 303 is in the
nature of an exception or proviso to Art. 302. "The proviso leaves the
generality of the substantive enactment unqualified except in so far as it
concerns the particular subjects to which the proviso relates."
"Where the language of the main enactment is clear and unambiguous, a
proviso can have no repercussion on the interpretation of the main enactment so
as to exclude from it, by implication, what clearly falls within its expressed
terms": see M. & S. M. Railway v. Bezwada Municipality (1). The words
(1) A. I. R. 1944 P. C. 71, 73.
557 in Art. 302 are clear and unambiguous and
they do not confine its operation to any particular entries and, therefore, the
limitation imposed under Art. 303 cannot curtail the generality of the
provisions of the said article.
But the more difficult question is, what does
the word ",restrictions" mean in Art. 302? The dictionary meaning of
the word ,'restrict" it "to confine, bound, limit." Therefore,
any limitations placed upon the freedom is a restriction on that freedom. But
the limitation must be real, direct and immediate, but not fanciful, indirect
or remote. In this context, the principles evolved by American and Australian
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. Taking the illustration from taxation law, a law may impose
a tax on the movement of goods or persons by a motor-vehicle it directly
operates as a restriction on the free movement of trade, except when it is
compensatory or regulatory. On the other hand, a law may tax a vehicle as
property, or the garage wherein the vehicle used for conveyance is kept. The
said law may have indirect repercussion on the movement but the said law is not
one directly imposing restrictions on the free movement. In this context, two
difficulties may have to be faced: firstly, though a law purporting 558 to
impose a tax on a property or a motor-vehicle, as the case may be, may in fact
and in reality impose a tax on the movement itself, secondly, a law may not be
on the movement of trade, but on the property itself, but the burden may be so
high that it may indirectly affect the free flow of trade. In the former case,
the court may have to scrutinize the provisions of a particular statute to ascertain
whether the tax is on the movement. If the provisions disclose a tax on the
movement, it will be a restriction within the meaning of Art. 302. In the
latter case, if the provisions show that the tax is on property, the
reasonableness of the tax may have to be tested against the provisions of Art.
19 of the Constitution. The question whether a law imposes a restriction or not
depends on the question whether the said law imposes directly and immediately a
limitation on the freedom of movement of trade. If it does, the extent of the
impediment relates to the question of degree rather than to the nature of it.
If it is a restriction, it must satisfy the conditions laid down in Art. 302 of
Article 303 is an exception or a proviso to
Article 303 opens out with a non-obstante
clause, namely, "Notwithstanding anything in article 302". This
phrase is equivalent to saying that "in spite of article 302" or that
"article 302 shall be no impediment to the operation of article 303".
It is accepted on all hands that there is a defect in the phraseology used in
this article. This article prohibits both Parliament and the State Legislature
from making a law giving preference to a State or States or making discrimination
among the States. The non-obstante clause has no relevance so far as the
Legislature of a State is concerned, for Art. 302 does not deal with
Legislature of a State. In these circumstances, the non-obstante clause can
only be made applicable to that to which it is appropriate i.e., only to the
limitations imposed on Parliament under Art. 303. The 559 article, so far as it
relates to Parliament, may be read :
"Notwithstanding anything in article
302, the Parliament shall not have power to make any law giving, or authorising
the giving of, any preference to one State over another, or making, or
authorising the making of, any discrimination between one State and another, by
virtue of any entry relating to trade and commerce in any of the Lists in the
Now this provision prohibits the making of
laws of the nature mentioned therein only by virtue of the entries relating to
trade and commerce in any of the Lists in the Seventh Schedule. This article
clearly says that neither Parliament nor the Legislature of a State can make a
law imposing a restriction which has the effect of giving preference or making
discrimination as the case may be, among the States. But a difficulty that
confronts one is whether the limitation on the laws is confined only to the law
made by virtue of the entries referring to trade and commerce or by virtue of
any entry in the Seventh Schedule, which may affect trade and commerce. 'The
entries which refer to trade and commerce are entries 41 and 42 of List I,
entry 26 of List II and entry 33 of List III of the Seventh Schedule to the
Constitution. But it is contended that the words "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"
and, therefore, any law specified in Art. 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. 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 560 this
interpretation. The reason for the exception also sustains it. There cannot be
any distinction on principle, 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 etc.-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 If 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 discriminatory restrictions would be bad
Under the said article.
Article 303 (2) lifts the ban imposed on
Parliament under Art. 303 (1), if a law made by Parliament imposing such
discriminatory restrictions is necessary for the purpose of dealing with a
situation arising out of scarcity of goods in any part of the territory of India.
That part of Art. 303, which prohibits the Legislature of a State from making a
law of the nature mentioned therein, also bears the same constructions and it
is not necessary to restate it, except to mention that clause (2) of Art. 303
does not lift the ban in respect of the State Legislature.
Coming to Art. 304, we are again confronted
with a defect in phraseology. The article opens out again with a non obstante
clause, namely, "Notwithstanding anything in article 301 or article
303". Under Art. 301 (a), the Legislature of a State may by law impose on
goods imported from other States or the Union territories any tax to which
similar goods manufactured or produced in that State are subject so, however,
as not to discriminate between 561 them; and Art. 304 (b) enables the State
Legislature to impose such reasonable restrictions on the freedom of trade,
commerce or intercourse with or without that State as may be required in the
public interest. But no Bill or amendment for the purpose St. of cl. (b) shall
be introduced or moved in the Legislature of a State without the previous
sanction of the President. Clause (a), therefore, only enables the Legislature
of a State to impose non-discriminatory taxes on goods imported from other
States or the Union territories.
The non-obstante clause vis-a-vis Art. 304
(a) may have some relevance so far as Art. 301 is concerned, for it enables the
Legislature of a State to impose an impediment on the free movement of trade in
spite of the freedom declared under Art. 301. But it has no relevance to Art.
303, which only prohibits the State Legislature from making a discriminatory
law and it does not in any way prohibit the State Legislature from imposing a
non-discriminatory tax permitted under Art. 304 (a). But, with reference to
304 (b), the non-obstante clause has
significance and meaning even in regard to Art. 303, as cl. (b) lifts the ban
imposed by Art. 303, subject to the limitations mentioned therein. Therefore,
the non-obstante clause must be deemed to apply only to that part of Art. 304
appropriate to the said clause. If so read, the difficulty in the construction
disappears. Article 304 (a) lifts the general ban imposed by Art. 301 in
respect of imposition of non-discriminatory taxes on goods imported, which
indicates that but for the said provision the law of taxation in that regard
would infringe the freedom declared under Art. 301. Clause (b) of Art. 304
enables a State to make laws imposing reasonable restrictions on the freedom of
trade, commerce and intercourse; and I would interpret the word
"restrictions" in the same way as I have interpreted the said
expression in Art. 302. It cannot be said, as it is contended, that cl.
(b) only lifts the ban imposed by Art. 303
562 on the power of the Legislature of a State, but it does more than that. It
enables the State Legislature to impose all reasonable restrictions on the said
freedom in the sense I have already explained, all subject to the proviso.
Again, in the context of Art. 304 (b), a
strong plea is made by some of the learned Advocates appearing for the States,
relying upon the other provisions of the Constitution for holding that taxation
laws are outside the ken of the said provisions. Reference is made to Arts. 31
(5) (b) (i), 248, 265, 276, 285, 287 and 288. I do not propose to consider the
arguments based on the said articles in detail, as, in my view, these and
similar articles of the Constitution do not even remotely touch the question
raised before us. They fit in the scheme of the Constitution. The Constitution
confers power on the Legislatures to make laws of taxation, circumscribes that
power with reference to the entries in the Seventh Schedule and other
constitutional provisions, and provides for resolving conflict of powers. The
aforesaid articles, except Art. 31 (5) (b) (i) and Art. 248, appear in Ch. I of
Part XII under the general heading Finance", Article 265 declares that no
tax shall be levied or collected except by authority of law; that is to say,
tax cannot be levied or collected by an executive flat. Article 276 fixes a
ceiling on taxes payable to local boards on professions, trades, callings and
employments. Article 285 exempts property of the Union from State taxation
Article 286 prohibits the States from imposing a tax on inter-State sales,
subject to a proviso. Article 287 exempts the Union from the State law of
taxation on electricity; and Art. 288 gives a similar exemption to the Union
from taxes by States in respect of water or electricity in certain cases.
Article 31(5)(b)(i) exempts a law imposing or
levying any tax from the impact of the fundamental rights enshrined in Art.
31(2) 563 of the Constitution. Article 248 preserves the residuary power of the
Parliament in respect of any matter not enumerated in the Concurrent-List or
the State-List, including the power to impose taxes. These articles, therefore,
generally impose limitations on the appropriate legislative power of taxation
of States or give exemption in special cases. By and large, the said articles
and similar others operate as limitations, or restrictions on the power of
taxation conferred upon Parliament and the appropriate Legislatures under Art.
246 of the Constitution. But, in exercise of the power of taxation, subject to
these limitations, the appropriate legislature cannot make a law infringing the
freedoms conferred under the Constitution.
The conditions prescribed for imposing a tax
or the ceilings fixed thereon may affect the ambit of the power but cannot
either sanction encroachment on the freedom guaranteed by Art. 331 or curtail
the same. Assuming that some of the conditions prescribed in Art. 286 appear to
come into Conflict with those in Art. 304(b) in my view, there is no such
conflict-the said articles can co-exist by a process of harmonious construction.
In short, these articles may limit the power of the appropriate legislature in
imposing tax, but cannot be relied upon to curtail the ambit of the freedom
under Art. 301 of the Constitution.
Reliance is also placed on Art. 26 which
provides that every religious denomination or any section thereof shall have
the right, inter alia, to own and acquire movable and immovable property. It is
said that the freedom conferred by that article cannot preclude the State from
imposing a tax on the said property, and that, by the same parity of reasoning,
Art. 301 which confers the freedom cannot preclude the Legislative power
imposing a tax affecting that freedom. It is true that the marginal heading of
this article is "Freedom to manage religious affairs", but the
subject matter of Art. 26 cannot be equated to that of the freedom of trade 564
declared under Art. 301. I should not be understood to have expressed any view
on the construction of that article in the present case.
Article 305, as it stood before the
Constitution (Fourth Amendment) Art. 1955, only saves the existing laws from
the operation of Art. 301, and Art. 303, and it does not throw any light on the
construction of Art. 301. Article 306 was omitted 'by the Constitution (Seventh
Amendment) Act, 1956;
but the said article saved the operation of
any law made by any States specified in Part B in the First Schedule before the
commencement of the Constitution levying any tax or duty on the import of any
goods in to the State from other States or on the export of goods from the
State to other States and enacted that if there be an agreement between the
Government of India and the Government of that State in that behalf, the said
tax or duty might be levied or collected for such period not exceeding ten years
from the commencement of the Constitution, subject to the terms of the said
If a law of taxation cannot, under any
conceivable circumstances, be a restriction on the freedom of trade, why did it
become necessary to introduce a saving clause in terms of Art. 306 in the group
of articles in Part XIII? It is suggested that the saving clause might have
become necessary as there was an impediment under the other provisions of the
Constitution. But that circumstance cannot deprive the force of the
non-obstante clause in Art. 301 in its application to the provisions of Part
XIII. This article indicates the consciousness of the makers of the
Constitution that restrictions contemplated in that Part take in restrictions
by way of taxation and, therefore, it was necessary to provide for an exemption
in the case of Part B States for a specified period of time.
The foregoing discussion may be summarized in
the following propositions (1) Art. 301 declared 565 a right of free movement
of trade without any obstructions by way of barriers, inter-State, or
intraState or other impediments operating as such barriers. (2) The said
freedom is not impeded, but, on the other hand, promoted, by regulations
creating conditions for the free movement of trade, such as, police
regulations, provision for services, maintenance of roads, provision for
aerodromes, Wharfs etc., with or without compensation. (3) Parliament may be
law impose restrictions on such freedom in the public interest;
and the said law can be made by virtue of any
entry with respect where of Parliament has power to make a law. (4) The State
also, in exercise of its legislative power, may impose similar restrictions,
subject to the two conditions laid down in Art. 304 (b) and subject to the
proviso mentioned therein. (5) Neither Parliament nor the State Legislature can
make a law giving preference to one State over another or making discrimination
between one State and another, by virtue of any entry in the Lists,, infringing
the said freedom. (6) This ban is lifted in the case of Parliament for the
purpose of dealing with situations arising out of scarcity of goods in any part
of the territory of India and also in the case of a State under Art. 304 (b),
subject to the conditions mentioned therein. And (7) The State can impose a
non-discriminatory tax on goods imported from other States or the Union
territory to which similar goods manufactured or produced in that State are
The construction I have placed on the
provisions of the Constitution brings out the harmony between the various
articles in Part XIII of the Constitution and also discloses an integrated
scheme of freedom of trade,, commerce and intercourse maintaining a balance
between federalism and provincial autonomy.
I agree with my learned brother., Dan, J...
that the provisions of the Rajasthan Motor Vehicles Taxation Act (XI of 1951)
are regulatory in character 566 and that they do not infringe the freedom
enshrined in Art.
301 of the Constitution.
The appeals fail and are dismissed with
HIDAYATULLAH, J.-The Rajasthan Motor Vehicles
Taxation Act, 1951 (No. XI of 1951), in s. 4 provided:
"(1) Save as otherwise provided by this
Act or by rules made there under or by any other law for the time being in
force, no motor vehicle shall be used in any public place or kept for use in
Rajasthan unless the owner thereof has paid in respect of it, a tax at the
appropriate rate specified in the schedules to this Act within the time allowed
by section 5 and, save as hereinafter specified, such tax shall be payable
actually notwithstanding that the motor vehicle may from time to time cease to
(2)An owner who keeps a motor vehicle of
which the certificate of fitness and the certificate of registration are
current shall, for the purposes of this Act be presumed to keep such vehicle
(3)A person who keeps more than ten motor
vehicles for use solely in the course of trade and industry shall be entitled
to a deduction of ten per cent on the aggregate amount of tax to which he his liable.
Explanation.-The expression "trade and
industry" includes transport for hire." The Schedules referred to in
the first subsection are four in number. They specify the kind of vehicles
liable to the tax, the rates of the tax applicable to each kind, and some other
conditions. A detailed reference to the Schedules will be made by 567 us later.
Section 11, which created penalties for contravention of the Act, was follows:
"Whoever contravenes any of the
provisions of this Act or of any rule made there under shall on conviction be
punishable with fine which may extend to Rs. 100 and in the event of such
person having been previously convicted of an offence under this Act or under
any rule made there under with fine which may extend to Rs. 200." The appellants
who held permits, plied their buses from the State of Ajmer. Their routes
passed through the territory of Rajasthan, and they were required to pay the
tax in Rajasthan. They filed petitions under Art.
226 of the Constitution in the High Court of
Rajasthan, impugning the demand as a contravention of the provisions of Part
XIII and of Art. 19 of the Constitution. A Divisional Bench of the High Court,
which heard the petition, referred for the decision of a Full Bench the
"Whether ss. 4 and II of the Rajasthan
Motor Vehicles Taxation Act, 1951, infringe the right of freedom of trade,
commerce or intercourse granted under Article 301 of the Constitution?"
The Full Bench answered the question in the negative, and in view of the answer,
the petitions were dismissed. The appellants were, however, granted a
certificate under Art.
132 of the Constitution, and the present
appeals have been filed.
The appellants contend that the Rajasthan
Motor Vehicles Taxation Act, 1951, is outside the competence of the State
Legislature inasmuch as its pith and substance is ",Inter State trade and
commerce which is a Union subject under Entry 42 of 568 Union List; that it is
null and void being in violation of Art. 19(1) (d), (f) and (g) of the Constitution;
that it is ultra vires and illegal, as it contravenes the freedom guaranteed
under Art. 301; that even if permissible, it is not a reasonable restriction of
=and commerce within Art.
304, and that not having been enacted with
the previous sanction of the President, it is not effective as law under Art.
At an earlier hearing, the attention of the
Constitution Bench of this Court was drawn to Atiabari Tea Co. Ltd. v.
State of Assam (1), where this Court struck
down by majority the Assam Taxation (on Goods Carried by Roads or Inland
Waterways) Act, 1954, as offending against the freedom of trade, commerce and
intercourse. On that occasion, three views were expressed. Sinha, C. J.. held
that the freedom guaranteed by Art. 301 was against "trade barriers,
tariff walls, or imposts which have a deleterious effect on the free flow of
trade, commerce and intercourse" but not against taxation Simpliciter.
Shah, J., held that the freedom envisaged was wide enough to comprehend within
itself a ban of prohibition, control or impediment of any kind whatever and of
taxes whether they fell on movement of trade or commerce or otherwise. The
majority (Gajendragadkar, Das Gupta and Wanchoo, JJ.) hold that though taxes as
such were not within the ban of Part XIII, such taxes as impeded the free flow
of trade and were directly placed on movement were included in it. The
appellants relied on the views of Shah, J., and failing that, on the majority
view which, they contended, also held good here, while the State Government
based its case upon the views of the learned Chief Justice. The Constitution
Bench was thus of the opinion that "having regard to the importance of the
Constitutional issues involved and the views expressed in Atiabari Tea Co. Ltd.
v. State of Assam (1)", this case (1)  1 S.C.R. 809.
569 should be heard by a larger Bench, and
these appeals have thus come before this special Bench.' Certain other parties
obtained permission to intervene, and notices having issued to the
Advocate-General of States, we have had the benefit of arguments from various
That freedom of trade, commerce and
intercourse is secured by Art. 301, subject to the other provisions of Part
XIII, has not been disputed in this case. The dispute is only as to what is
comprehended within that freedom, and a further question is whether the powers
of Parliament and the State Legislatures to levy taxes according to the Sundry
Entries in the Legislative Lists are meant to be circumscribed in any way, and
if so, to what extent.
Art. 301 of the Constitution, so far as its
language goes, is fairly modelled on s. 92 of the Australian Commonwealth Act,
1900, and numerous decisions of the High Court of Australia and on appeal, by
the Privy Council, were cited before us to define the content and extent of the
freedom envisaged. Besides, the Government of India Act, 1935, also contained
in a. 297 a provision on the subject of freedom of trade and commerce, and the
contention of the State partly has been that Part XIII enacts little more than
what was contained there.
Since the arguments made much of these two
analogies, it is necessary to state first certain well. known and wellaccepted
propositions relating to the interpretation of Constitutions, in which there
are fundamental limits upon the power to legislate. In Queen v. Burah (1), Lord
Selborne laid down a proposition which in its exposition of the subject and the
manner of expression can hardly be improved. Lord Selborne said:
"The established Courts of justice when
a question arises whether the prescribed limits (1) (1878) 3 App.cas.889.
570 have been exceeded, must of necessity
determine that question; and the only way in which they can properly do so, is
by looking to the terms of the instrument by which, affirmatively, the legislative
powers were created, and by which, negatively, they are restricted. If what has
been done is legislation within the general scope of the affirmative words
which give the power, and if it violates no express condition or restriction by
which that power is limited it is not for any Court of Justice to inquire
further, or two enlarge constructively those conditions or restrictions."
We have thus to see what powers have affirmatively been conferred on the
legislatures of the State and what are the restrictions on that power. In this
connection, we must also bear in mind the weighty observations of Gwyer, C. J.,
in Bhola Prasad v. The King Emperor (1) "We must again refer to the
fundamental proposition enunciated in The Queen. v. Burah(2) that Indian
Legislatures within their own sphere have plenary powers of legislation as
large and of the same nature as those of Parliament itself. If that was true in
1878, it cannot be less true in 1942. Every intendment ought therefore to be
made in favour of a Legislature which is exercising the powers conferred on
it." The legislative powers of the States after the establishment of the
Republic of India are certainly not any the less; and it must be conceded at
once that within the range of their powers as conferred the legislative entries
in Sch. VII, the State Legislatures are supreme, subject, of course, to such
restrictions as are to be found in the Constitution itself (1)  F.C.R.
17, 27. (2) (1878) 3 App. cas. 889 571 The power to tax motor vehicles is the
subject of Entry 57 in the State List, and it reads:"Taxes on vehicles,
whether mechanically propelled or not, suitable for use on roads, including
tramcars subject to the provisions of entry 35 of List III." The words
"suitable for use on roads" describe the kinds of vehicles and not
their condition. They exclude from the Entry, farm machinery, aeroplanes,
Railways etc. which though mechanically propelled are not suitable for use on
roads. The inclusion of trams using tracks which may be on roads or off them,
makes the distinction still more apparent. It is thus clear that the power to
tax motor vehicles is plenary, subject to Entry 35 of the Concurrent List or
any other restriction to be found elsewhere in the Constitution. Entry 35 above
referred to reads:
"35. Mechanically propelled vehicles
including the principles on which taxes on such vehicles are to be
levied." The existence of such an Entry in the Concurrent List cuts down
the supremacy of the State Legislatures, and in respect of taxation of motor
vehicles, if the principles of taxation are laid down by Parliamentary
legislation, the State laws repugnant thereto must be void, in view of the
provision of Art. 254 of the Constitution. The question whether the power of
Parliament to legislate and lay down principles of taxation under Entry 35 of
the Concurrent List would also have to be considered under Part XIII, does not
arise in this case, for admittedly there is no law by Parliament that Entry
either prior or subsequent to the State Act. Thus, so far as the taxing power
of the State Legislature is concerned, it must be admitted that it was not only
exercised under Entry 57, but, if judged solely under that Entry, that it was
572 The question thus is whether on the
exercise of this power there are to be found other curbs in other parts of the
Constitution, and whether those curbs have not been observed. Such curbs may be
of three kinds. The first may arise from the operation of the power of
legislation granted to Parliament by Entry 42 of the Union List, and the
contention in this connection is that the present impugned Act in its pith and
substance is legislation under that Entry and thus void. The second may arise
from Art. 19, sub-cls. (d), (f) and (g) if the law deprives the motor operators
of the right (a) to move freely throughout the territory of India' (b) to
acquire, hold and dispose of property, and (c) to practice any profession, or
to carry on any occupation, trade or business, and the restriction is incapable
of being justified as reasonable. The third may arise from the provisions of
Part XIII where freedom of trade, commerce and intercourse throughout the
territory of India has been ,guaranteed', subject only to the provisions of
that Part. These, in the main, are also the contentions.
and these appeals can be effectively disposed
of from these three view points.
The first contention that the impugned Act is
bad because it is legislation directly under Entry 42 of the Union List need
not detain us long. The subject of Entry 42 of the Union List is not taxation
but "inter-State trade and commerce". The scheme of the Legislative
Lists shows that taxation entries are separate from other entries, and the
other entries do not include a power to impose a tax, though the power to levy
fees is included as it is expressly so stated. The subject of Entry 57 of the
State List is taxation on vehicles. An Act which seeks directly to levy a tax
on motor vehicles even though there may be incidental and subsidiary provisions
about the regulation of a particular inter-State trade carried on with the aid
of or in 573 motor vehicles is legislation really within Entry 57 and not
within the other Entry though it may, touch it, and is thus within the
competence of the State Legislature. That these motor vehicles come into the
taxing State from an extra State point and are taxed within the taxing State by
reason of their use or presence there, may raise problems under Part XIII but
not under Entry 42 of the Union List. The words of the charging section are :
"No motor vehicle shall be used in any
public place or kept for use in Rajasthan unless the owner thereof has paid, in
respect of it, a tax at the appropriate rate specified in the Schedule to this
Act........" The pith and substance of the Act is the levy of a tax on
motor vehicles in Rajasthan or their use in that State irrespective of where
the vehicles come from. In one sense, it does not seek directly or immediately
to legislate on inter-State trade or commerce or to prohibit the entry of such
motor vehicles it the tax be paid, except in so far as a person deterred by the
tax may keep out. This may be a point for consideration under Part XIII or even
Art. 19 of the Constitution, but not under Entry 42 of the Union List.
Even if the levy of the tax may be said to
touch inter-State trade or commerce, it is not legislation in respect of
interstate trade or commerce. It has been held consistently by this Court, the
Privy Council and the Federal Court that a law substantially in its pith and
substance under an Entry in one List may touch incidentally on a topic of
legislation in a rival List without being void or ultra vires. This, in our
opinion, is sufficient to dispose of the first point.
The next attack is with the aid of Art. 19 of
the Constitution. That Article guarantees to the citizens of India certain
basic freedoms. Freedom from taxation is not one of them. It is hardly 574
necessary in this case to examine the subject from the angle of Art. 19,
because a law to be good under that Article must satisfy the test of
reasonableness. If the impugned sections here are declared to be unreasonable
restrictions upon the freedom of trade, commerce and intercourse, they would
fall also under Part XIII. If this were to happen, it would be wholly
unnecessary to decide whether taxation laws are within the reach of Art. 19 and
also whether the impugned provisions have to pass the independent scrutiny of
Art. 19 before they can be sustained.
This brings us to the consideration of the
last point on which arguments occupied the Court for several days. It would be
necessary (if not, impossible) to try to discuss the arguments which, though
proceeding from the same side, were often conflicting. The use of language
borrowed from a. 92 of the Australian Constitution in Art. 301 of our Constitution
led to the citation of many Australian rulings.
Those rulings are so numerous that they
provoked a former Chief Justice of the High Court of that Country to say that
when he died, s. 92 would be found to be written on his heart But it is
reasonable to suppose that those who borrowed the language in India were fully
aware of the conflict of opinion in Australia. It is reasonable to assume that
the framers of our Constitution must have sought to avoid there dangers. It
must not also be overlooked that the decisions of the Privy Council in
Commonwealth of Australia v. Bank of New South Wales(1) and Hughes and Vale
Pty. Ld. v. State of N.S.W. (2), which to some extent have narrowed down the
controversy in Australia, were not rendered when the draft Constitution was
framed or the Constitution was adopted. A note has, however, to be taken of the
fact that the history of the establishment of federation in the two Countries
is so vastly different that in spite of (1)  A.C. 235.
(2)  A.C. 241.
575 certain resemblance in the language
employed in the comparable provisions of the two Constitutions, they cannot
mean the same thing. Indeed, they differ in so many respects that nothing is
more dangerous than to suppose that the Indian Constitution wished to secure
freedom of trade, commerce and intercourse in the same way as did the Australian
Commonwealth. These differences are not to be found solely in the language of
the corresponding provisions but in the evolution of the two Countries and the
checks and balances provided in our Constitution which are not to be found in
the Australian Constitution. We shall refer to these differences briefly before
examining what checks and balances have been provided in our Constitution.
The Commonwealth of Australia was formed out
of a number of Colonies which were separated by high tariff walls and numerous
differential inter-Colonial duties. The idea of a federation was born out of a
desire to secure free trade on a reciprocal basis between the Colonies. The
Federation was, however, delayed by the failure to reach agreement on the
financial aspects of the Constitution. Numerous conventions took place which
tried unsuccessfully to solve the problem which was aptly described ",as
the lion in the path of unity". It was after surmounting many difficulties
that the financial clauses were settled by agreement. It is in the background
of these historical facts that the provisions relating to freedom of trade, commerce
and intercourse have been interpreted by the High Court of Australia. The
provisions of the Australian Constitution themselves enact the underlying
agreements. Sections 51, 88, 89, 90, 100 and 102 insist upon uniformity and the
absence of discrimination in matters of trade and commerce after the imposition
of uniform duties of customs which was to be achieved in two years.
576 Section 92 then epitomizes the whole
concept of this unity and freedom from preferential treatment by enacting :
"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." It may
be pointed out here that the alternative phrase "throughout the
Commonwealth" was not accepted, though it was suggested as an amendment
more than once.
The provisions of the Australian Constitution
such as bear on trade and commerce, are no more than covenants entered into at
the Conventions, which have been introduced bodily into the Australian
Constitution, the fate of which depended for a long time on how to secure an
agreement about uniform tariffs customs, excises and bounties. The declaration
of freedom of trade, commerce and intercourse was the logical culmination of
the negotiations for the establishment of the Federation. The language of s. 92
was thus made emphatic, even though its full purport remained vague. As
observed by Viscount Haldane, L. C., in Attorney-General for the Commonwealth
of Australia v. Colonial Sugar Refining Company Limited (1) :
"It is a matter of historical knowledge
that Australia the work of fashioning the future Constitution was one which
occupied years of preparation through the medium of conventions and conferences
in which the most distinguished statesmen of Australia took part.
Alternative systems were discussed and
weighed against other with minute care. The Act of 1900 must accordingly be
regarded as an instrument which was fashioned with great (1)  A.C. 237.
577 deliberation, and if there is as points
obscurity in its language, this may be taken to be due not to any uncertainty
as to the adoption of the stricter from of federal principle, but to that
difficulty in obtaining ready agreement about phrases which attends the
drafting of legislative measures by larger assemblages." But declarations
in a Constitution, however worded, must be given effect to, and they always
loom large on the horizon of law-making, if they curtail legislative power, and
it is not surprising that the Australian High Court was faced with the problem
of deciding which laws rendered trade, commerce and intercourse unfree and
which did not. In the course of these decisions, a wide cleavage in opinion
one view holding that any burden on trade,
commerce or intercourse between the States was bad, and the other view
attempting justification to save laws which were impugned.
Various grounds for such justification were
evolved. Some laws were upheld on the ground that they were merely regulatory
but some others were declared void as having crossed the line of legitimate
regulatory action. Some taxation laws were upheld on the ground that though
they burdened trade or commerce, they were compensatory in character. Even
there, differences arose about the tests to be applied to discover when such
laws could be said to have exceeded the limits. The number of such cases is
legion, and almost any view can be supported by citations from some judgment or
other from the Australian law Reports. Lord Porter in Commonwealth of Australia
v. Bank of New South Wales (1) aptly summed up : "In this labyrinth there
is no golden thread" (p. 310). The maze of law round s. 92 was, of course,
something of which the framers of our Constitution were not unaware. They knew
(1)  A. C.
578 that in spite of the force of the words
"absolutely free", it was well-settled that the freedom so
contemplated was a qualified freedom. In Duncan v. State of Queensland (1)
Griffith, C. J., had observed, what was generally accepted, that "the word
free' does not mean extra legem, any more than freedom means anarchy". The
task of the Bench as also the Bar was to ascertain the limits of freedom or
more appropriately, the limits to which restrictions could go.
In this, the Australian High Court was the
actor in the main ; but the Privy Council also delivered four judgments. Of
these, two were before our draft Constitution and two, thereafter. It is,
therefore necessary to investigate, to find out what was the accepted position
in about 1948 to be able to see if any of the principles so laid down were
accepted and to what extent they were modified to suit our Constitution in the
light of our own history. We shall first notice those cases which were decided
before our Constitution was drafted in 1948.
This first point on which difference arose in
Australia was whether s. 92 of the Commonwealth of Australia Act was addressed
only to the States, or whether it bound the Commonwealth as well. In W. &
A. McArthur Ltd v. State of Queensland (2) the majority held that the
Commonwealth was not bound.' Gavan Duffy, J., alone held that the language of
the section clearly controlled both the powers conferred on the Federal
Parliament and those reserved to State Parliament. The view of the majority was
negatived by the Privy Council in James v. Commonwealth of Australia (3).
Indeed, the High Court of Australia had
already doubted the correctness of the view, but it felt itself bound by it.
The Privy Council traced the development of
that view and pointed out that though in The King v. Vizzard (4) the
Commonwealth agreed to be (1) (1916) 22 C. L. R. 536, 573 (2) (920) 20 C. L. R.
(3)  A. C. 578.
(4) (1933) 50 C.L.R. 30.
579 bound within certain limits, the ruling
in McArthur's case (1) was not departed from and that though the view was
reaffirmed in Australia from time to time, it was not applied in practice. The
Board, however, did not "shelter under the decision in McArthur's case
(1), and decided that the Commonwealth was also bound. Thus, the opinion of
Issacs, J., in Foggitt Jones & Co. Ltd. v. The State of New South Wales (2)
that s. 92 "makes Australia one indivisible Country for the purpose of
commerce and intercourse between Australians" and that it was "beyond
the power of any State Parliament, or even of the Commonwealth Parliament, by
any regulation of trade and commerce, to impair that fundamental
provision" was accepted at least in its first part.
The second point was what was meant by
$(absolutely free". The Attorney-General for Australia in the course of
his arguments in James v. Commonwealth of Australia (3) summarised the
propositions which were urged and supported by authorities in the arguments
before the Privy Council in that case, and they were six, as follows :
"(1) The first meaning of 'free' is free
of all law of every description ;
(2)Free of any restrictions imposed upon
trade and commerce by reason of its interState character. That is, free of any
discriminating trade law ;
(3)Free as trade and commerce of all interference
whether specially directed to it or not ;
(4) Free of all laws the pith and substance
(1) (1920) 28 C.L.R. 530. (2) (1916) 21 C.L.R. 557.
(3)  A.C. 578.
580 of which is a regulation of interstate
trade or commerce;
(5)Freedom attaches to trade and commerce
regarded as a whole and not distributively.
Individuals are not guaranteed freedom in
relation to their trade and commerce so long as trade and commerce as a whole
are not impaired.
(6)Free from pecuniary imposts-that is the
narrowest meaning of s. 92." These six propositions fairly represent the
view in the various judgments of the Australian High Court. Isaacs, J., in Rex
v. Smithers (1) had observed :
"In my opinion, the guarantee of
inter-State freedom of transit and access for persons and property under a. 92
is absolute-that is, it is an absolute prohibition on the Commonwealth and
States alike to regard State borders as in themselves possible barriers to
intercourse between Australians." In McArthur'a Case (2), the claim was
made against all Governmental control and the majority also held that to be its
The Privy Council examined the scheme of the
Constitution of Australia and drew the line thus :
"The true criterion seems to be that
what is meant is freedom as at the frontier or, to use the words of s. 112, in
respect of 'goods passing into or out of the State'. What is meant by that
needs explanation, The idea starts with the admitted fact that federation in
Australia was intended (inter alia) to abolish the frontiers between the
different States and create one Australia. That conception involved freedom
from customs duties, imports, border prohibitions and restrictions of every (1)
 16 C. L. R.99.
(2)  28 C. L. R. 533 581 kind:the
people of Australia were to be free to trade with each other, and to pass to
and fro among the States, without any burden, hindrances or restrictions based
merely on the fact that they were no members of the same State." After
referring to some cases in which the burdens and hindrances took diverse forms
and appeared under various disguises, the Board observed that it must be a
question of fact in every case whether there was an interference with the
freedom of passage, and finally observed :
"As a matter of actual language, freedom
in s. 92 must be somehow limited, and the only limitation which emerges from
the context, and which can logically and realistically be applied, is freedom
at what is the crucial point in inter-State trade, that it is at the State
barrier." The language of s. 92, particularly "among the States,
whether by means of internal carriage or ocean navigation, shall be absolutely
free", taken with the history to which we have already referred apparently
decided the controversy.
This was departed from later in Commonwealth
of Australia v. Bank of New South Wales (1), but after our Constitution was
The next question decided was: what was meant
by "trade and commerce". Again, in McArthur's Case (2), the meaning
given was a very wide one. It was not confined to the "mere act of
transportation of merchandise over the frontier." It was said that
"all the commercial arrangements of which transportation is the direct and
necessary result from part of "trade and commerce". In (1)  A.
(2)  82 C. L. R. 530 582 the concept of
"trade and commerce" were thus included"the mutual communing,
the negotiations, verbal and by correspondence, the bargain, the transport and
the delivery are all, but not exclusively, parts of that class of relations
between mankind which the world calls trade and commerce'." In reaching
this conclusion, Knox, C.J., referred to Bank of India V. Wilson (1) and
Commissioners of Taxation v. Kirk(2), where Lord Davey observed:
"The word trade' no doubt primarily
means traffic by way of sale or exchange or commercial dealing," but also
added that "it may have a large meaning." The view of Knox, C.J., was
expressly disapproved by a Privy Council in James v. Commonwealth of Australia
(3) involving, as it did, a conception of inter-State trade, commerce and
intercourse commencing at whatever stage in the State of origin, and continuing
until the moment in the other State when the operation of inter-State trade
could be said to end, the freedom attaching to every stop in the transaction
from beginning to end. It was said that such a view would lead to an immunity
from law of a whole body of acts or dealings by the mere fact "that they
are parts of an interState transaction." The concept of trade and commerce
was thus limited to that movement to which crosses a State barrier.
As regards "intercourse" also, the
earlier meaning was wide.
The question was whether such
,,intercourse" must be "commercial". It was held in earlier
cases that this conferred a personal right on an Australian and
"independent of any commercial attributes he may possess, to pass over the
(1) (1877) 3 Ex. D FOR. (2)  A.C. 588 592.
(3)  A.C 578.
583 Continent irrespective of any State
border as a reason in itself for interference" (per Isaacs, J., in R. v.
Smithers Ex Parte Benson (1). This view was affirmed in Duncan v. State of
Queensland (2) and also in McArthur's case (3).
Later, it was held that the concept of
"'trade, commerce and intercourse " meant what was held to be
included in the concept of "commerce" as understood in the United
(per Dixon, J., in the Bank case) (4). With
the exact meaning of the word, we are not presently concerned.
We shall next see how the doctrine of the
freedom of trade, commerce and intercourse was applied in practice. In this
connection, three cases filed by one James to question the marketing
legislation of the States and the Commonwealth did much to settle some of the
controversies. The two cases decided by the Privy Council before our draft
Constitution were due to his efforts. His first case did not reach the Privy
Council, and is reported in James v. South Australia (5), but it was approved
by the Privy Council in James v.
Cowan (6). These cases may be noticed
In James v. South Australia (5), State
legislation creating a Dried Fruits Board and empowering it to five maximum
prices (s. 19) and to determine where and in what quantities dried fruits
should be marketed (s. 20), and to acquire on behalf of the Minister dried
fruits from dealers (s. 28), was challenged under s. 92. Section 28 was
expressly made subject to s. 92. Section 20 was declared invalid by the High
Court of Australia, but ss. 28 and 29 were hold to be valid.
In James v. Cowan(6), the question was the
compulsory acquisition of dried fruits in South Australia by the Minister of
Agriculture through a Board, after (1) (1912) 16 C. L. R. 99.
(2) (1916) 22 C. L. R. 556 573.
(3) (1925) 28 C.L.R. 530.
(4) (1948) 76 C.L. R. 1, 380, 381.
(5) (1927) 40 C.L.R. 1.(6)  A.C. 542.
584 determination by the Board in its
absolute discretion what quantities should be marketed locally and fixing
quotas for the other States. The question was whether this affected freedom of
commerce among the States. The Privy Council emphatically answered that it did.
But it made remarks which showed that if the primary object of the legislation
was not directed to trade or commerce but such matters as defence., famine,
disease and the like., the incidental effect on the trade and commerce was
immaterial. The action of the Minister was declared ultra vires, and James was
held entitled to succeed in his claim for damages.
The legislation by the State having been
declared invalid, the Commonwealth made the Dried Fruits Act (1928-35). Under
that law, no person could send dried fruit from one State to another unless he
exported his quota outside Australia.
This was challenged by James. When the case
reached the Privy Council, three points were Considered by the Privy Council
and decided. The first was that. 92 bound also the Commonwealth, the second was
that it created a ban against prohibitions or burdens at the frontier, and
lastly, that it protected commerce in motion and passing the frontiers of the
States. A large number of cases were noticed in which it was decided that trade
and commerce was validly burdened in the exercise of power to make laws without
impairing movement of trade at the borders. These laws dealt with various
subjects like monopolies, price fixation, health regulations, licensing systems,
entry of goods or persons and transport.
The last group consisted of cases in which
restrictions applying to motor vehicles as integers of trade and commerce or
their owners were considered. Willard v. Raw-ion (1) was concerned (1) (1933)
48 C.L.R. 31 S.
585 with a law which required registration of
all motor vehicles on payment of a fee. The King v. Vizzard (1) was concerned
with the licensing of motor vehicles acting as common carriers. O' Gilpin's
case (2) was concerned with owners of vehicles carrying their own goods, and
Bessell v. Dayman (3) was concerned with law affecting inter. State journeys.
These laws were declared valid by the High
Court, and special leave to appeal having been refused, it was understood that
the Privy Council had approved them. In all these cases, the decisions were by
majority, but Dixon and Starke, JJ. dissented. In James v. Commonwealth of
Australia (4) the Privy Council selected The King v. Vizzard as the best
example. In that case, the question was whether the State Transport
(Co-ordination) Act, 1931 (N.S.W.) contravened s. 92. Under that Act, no public
motor vehicle could operate in the State unless the motor vehicle was licensed.
Licensing was by a Board which had complete discretion, and a fee had to be
paid. The lorry of the appellant in that case plying between Melbourne and Now
South Wales was unlicensed, and the driver was convicted for breach of the Act.
The Australian High Court held by majority that the Act did not contravene s.
62. The Privy Council described the judgment of Evatt, J., as of great
importance and quoted the following passage from it:
"Section 92 does not guarantee that, in
each and every part of a transaction which includes the inter-State carriage of
commodities, the owner of the commodities, together with his servant and agent
and each and every independent contractor co operating in the delivery and
marketing of the commodities, and each of his servants and (1) (1933) 50 C L.
(2) (1935) 52 C.L.R. 189.
(3) (1935) 52C.L.R.215.
(4)  A.C. 5 78.
586 agents, possesses, until delivery and
marketing are completed, a right to ignore State transport or marketing
regulations, and to choose how, when and where each of them will transport and
market the commodities." This was before the decision of Riverina
Transport Pty. Ltd v. Victoria (1), which was decided on the basis of Rex. v.
Vizzard (2) though not without some doubts.
In 1945, the Australian High Court decided
Australian National Airways Pty. Ltd. v. The Commonwealth (3). Under the
Airlines Act, 1945, authority was given to establish State managed services to
the exclusion of existing commercial lines whose business was to terminate,
whenever a line, was effectively started by the Government Airlines Commission.
The validity of the entire Act was challenged
by private operators who stood excluded from field, on the ground of an
infringement of s. 92 of the Commonwealth of Australia Act. The establishment
of the Airlines Commission was upheld, but the creation of monopoly was held to
be invalid. Latham, C.J observed:
"I venture to repeat what I said in the
former case (Milk Board case) (4): 'One proposition which I regard as
established is hat simple legislative prohibition (Federal or State), as
distinct from regulation, of inter State trade and commerce is invalid. Further
a law which is directed against' inter-State trade and commerce is invalid.
Such a law does not regulate such trade, it merely prevents it.
But a law prescribing rules &is to (1)
(1937) 57 C. L. R. 327.
(2) (1933) 50 C. L. R. 30.
(3) (1945) 71 C. L. R. 29.
(4) (1939) 62 C. L. R. 116, 127.
587 the manner in which trade (including
transport) is to be conducted is not a mere prohibition and may be valid in its
application to inter-State, notwithstanding s. 92." One other important
case was decided by the High Court of Australia before our draft Constitution
was prepared, and to that we next turn. That case is Bank of New South Wales v.
The Commonwealth (1). The question was about the constitutionality of the
Banking Act, 1947, and alternatively of some of its sections. The Act provided
for the acquisition of shares in certain private banks by the Commonwealth Bank
by agreement or compulsion and generally for their closure and management by
the Commonwealth Bank.
Five grounds were taken in attacking the Act.
One such ground was that the acquisition provisions, the management provisions
and the prohibition provisions were contrary to s. 92 of the Australian
Constitution. Latham, C. J., after holding that banking was not trade or
commerce, held that banking was an instrument which was used in inter-State
trade and commerce. He held, therefore that since the overthrow of McArthur's
case (2) by the Privy Council, the legislative control by the Act did not offend
s. 92, because it was a general control and not a control of any inter State
element. McTiernan, J., agreed in this conclusion.
The majority, however held otherwise. Rich
and Williams, JJ., in their judgment laid down that the freedom in s.92 was a personal
right attaching to the individual, that a banker who carried on business in
more than one State was engaged in trade, commerce and intercourse among the
States, that James v. Commonwealth (3) could not be understood to have laid
down that s. 92 protected only the actual passage of goods or persons from one
State to another and the Act prohibiting such trade, commerce or inter(1)
(1948) 76 C. L. R. 1, 180, 38 (2) (1920) 28 C. L. R. 530.
(3) (1936) A. C. 578.
588 course offended s. 92. Starke, J., began
his judgment on this part by saying Is. 92 of the Constitution prescribes but
judicial decisions have much weakened" the freedom of trade, commerce and
intercourse. He then summarised the position as at that date as follows:
(1) The prohibition of a. 92 was addressed to
the States as well as to Commonwealth Parliament.
(2) The freedom was from both legislative and
(3) The freedom was available to the
individual as also to trade and commerce viewed as a whole.
(4) The individuals were to conduct their
commercial dealings independently of State boundaries.
(5) The freedom was assured not only to
tangibles but also to intangibles, and the words of the section by means of
internal carriage or ocean navigation" in s. 92 could not be hold to mean
only tangibles. Starke, J., himself said that these words "'trade,
commerce and intercourse" were wide enough to include intangibles and took
the aid of some American decisions which had held that insurance was within the
(6) Though the freedom was at the frontiers
of the States but any restraint put upon trade, commerce and intercourse even
before some tangible property leaves the State of origin was also contemplated.
(7) Dixon, J's dictum in O' Gilpin's case(1)
where he observed "It is not, therefore every regulation of commerce or of
movement (1) (1935) 52 C. L. R. 189.
589 that involves a restriction or burden
constituting an impairment of freedom. Traffic regulations affecting the
lighting and speed of vehicles, tolls for the use of a bridge, prohibition of
fraudulent descriptions upon s goods, and provisions for the safe carriage of
dangerous things, supply examples of regulatory provisions not strictly
restrictions within s. 92.
According to State, J., all Transport cases
precept Willard v. Rawson (1) were wrongly decided. Willard v. Rawson (2),
according to the learned judge was a pure case of traffic regulation, but in a
other cases the burdens imposed directly and immediately upon the transport and
movement of passengers and goods whether engaged in domestic inter-State or
other trade or commerce, were wrong held to be merely regulatory of the freedom
had not its restriction.
Dixon, J., in dealing with the words
"trade, commerce and intercourse" stated that the compensations
expression was evidently used to "include I forms and variety of inter State
transactions whether byway of commercial dealing or all personal converse or
passage". He also held that intangibles like insurance, banking, etc. were
included that concept, and agreed with the view that though regulation of
trade, commerce and inter Coarse was compatible with freedom of inter-State
passage or converse, anything which restricted the freedom of such an
intercourse was excluded by 1992. The analysis of the Banks' case(1) in the
High Court in the judgment of Starke, J., represents adequately the views
entertained on the subject of freedom of trade, commerce and intercourse in
action to s. 92 of the Commonwealth of Australia it before our Constitution was
(1) (1933) 48 C.L.R. 316.
(2) (1948) 76 C.L.R. 1, 380, 381 590 We shall
now leave the Australian scene for the time being, but will revert to it to
show how further difficulties arising in Australia from these settled views
were solved, to begin with by the Privy Council and subsequently thereto, by
the High Court of Australia, We shall also refer to the late cases that were
decided in reference to s. 92 of the Australian Commonwealth Act, but which
were not available to the Constituent Assembly in India when our Constitution
was framed. We shall then be in a position to see how in Australia the
difficulties were surmounted and how in India those difficulties were envisaged
and tried to be met by proper legislative enactments:
Before we proceed to an examination of the
provisions in the Indian Constitution and their evolution, we will refer to the
provisions on the subject of freedom of trade and commerce in the Constitutions
of Canada and the United States of America because they were also precedents
which were available. In the British North America Act, 1867 s. 91(2) places
"The Regulation of Trade and Commerce" in the exclusive power of
Parliament. Section 121 then provides:
"All Article of the Growth, Produce or
Manufacture of any one of the Provinces shall, from and after the Union, be
admitted free into each of the other Provinces." Several important
decisions were rendered by the Privy Council and to some of them we find it
necessary to refer.
In Citizens Insurance Co. v. Parssons (1)
and. again in Bank of Toronto v. Lamb(3) the Privy Council found it necessary
to limit the general words of No. 2 of s. 91 'to afford scope for powers given
exclusively to the Provincial Legislatures'. In City of Montreal v. Montreal
Street Railway (3), the same was observed again. Lord (1) (1881) 7 App. Cas.
(2) (1887) 12 App. Cas. 575.
(3) (1912) A. C. 333, 344.
591 Halsbury, L. C., in Attorney-General for
Onterio v. Attorney General for the Dominion (1) said that the words must be
given 'a statutory meaning'. There is, however no definite statement of the
limits to be placed but generally the exercise of regulation of trade and
commerce within the Provinces is upheld under No. 16 of s. 92, which gives the
following power to the Provinces:
"Generally all matters of a merely local
or private nature in the Province." And this is even where some
prohibitions and restrictions affect the importation, exportation, manufacture,
keeping sale, purchase and use of commodities and must in some way interfere
with business operations beyond the Province. In Bank of Toronto v. Lambe (2)
at p. 586, the Privy Council said that if the general power of regulation given
to Parliament could be said to prohibit provincial taxation on the persons or
things regulated, it could only be by straining those general words to their
widest extent. In the Liquor Prohibition Appeal 1895 (2), Lord Watson asked the
question which we may well ask: "Do you regulate a man when you tax
him?" and Lord Herschel said thereupon:
"May it not be necessary to regard it
from this point of view, to find what is within regulation of trade and
commerce, what is the object and scope of the legislation.? Is it some public
object which incidentally involves some fetter on trade or commerce or is it the
dealing with trade and commerce for the purpose of regulating it ? May it not
be that, in the former ease, it is not a regulation of trade and commerce,
while in the latter it is, though in each case trade and commerce in a sense
may be affected ?" (1)  A. C. 348 (2) (1817) 12 App. Cas. 575.
592 Lord Watson then said:
"It would be difficult to imply from
these words the regulation of trade and commerce' whilst the power of direct
taxation is given the province the clauses must be reasonable read together it
would be difficult to suppose that regulating commerce meant the passing of an
Act by the Dominion legislator exempting banks from provincial taxation, for
practically that is what the argument in that case" [Bank of Toronto v.
Lambe (1)] had come to; that under the words regulating commerce was implied a
power of exempting a bank from provincial taxation, or the liability to by
taxed by the provincial parliament." (Lefroy Canada's Federal System
(1913) p. 391).
We do not consider it necessary to refer to
more cases but would refer later to the words of Lord, Watson and Lord
Herschell, which we have quote, here.
The law in United States of America need not
detain us long. Article 1. s. 8 gives the commerce power in the following terse
"The Congress shall have power.........
T regulate Commerce with foreign Nations, an, among the several States, and
with the India Tribes." In 1824, in the well-known case of Gibbone Ogden
(2), this clause was considered.
Marshall, C.J gave the definition of commerce:
"Commerce, undoubtedly, is traffic, but
it is something more; it is intercourse. I describes the commercial intercourse
between nations and parts of nations, in all it branches, and is regulated by
prescribing rule for carrying on that intercourse." (1)  12 App,
(2) (1824) 9 Wheat 16 L. ed. 23.
593 The principle of federation as understood
in the United States is that sovereign States have surrendered a part of their
power to the United states and barring what has been surrendered and what is
prohibited by the constitution of the States, the residue belongs to the United
States. This is brought, out in the Tenth Amendment:
"The powers not delegated to the United
States by the Constitution nor prohibited by it to the States, are reserved to
the States respectively, or to the people." Most of the cases in the
American Reports are concerned with what rights belong to the States and how
far the Congress can regulate commerce. That is not a subject with which we are
concerned in the present enquiry.
We now come to the Indian scene. In M. P. V. Sundararamier
& Co. v. The State of Andhra Pradesh Venkatarama Aiyar, J., rightly pointed
out that "Our Constitution was not written on a tabula rasa, that a
Federal Constitution bad been established under the Government of India Act,
1935, and though that has under. gone considerable change by way of repeal,
modification and addition, it still remains the framework on which the present
Constitution is built, and that the provisions of the Constitution must
accordingly be read in the light of the provisions of the Government of India
Act (1935)" The history of India during the last hundred years was one of
continual transition. From the fully centralised Government at the Centre and
in the administrative units then called provinces to partial responsibility in
the provinces called Dyarchy, from (1)  S. C. R. 1422, 1478.
594 Dyarchy to provincial Autonomy in a
federation of mere administrative units in which the Indian States were expected
to join, and from thence to a Dominion under the Crown and lastly to a Republic
of a Union of States are transitions within one's memory. Earlier still, there
was the rule of East India Company under the Crown through the Secretary of
State for India and the Governor-General.
The transition in India was thus in the
Whereas several independent units joined
together in Australia to form a federation to evolve a Central Government, in
India the transition was from a highly centralised Government to a federation
of States which were made autonomous units. The history of the last hundred
years or more thus saw the emergence of self governing States with separate
legislatures, executives and financial resources, albeit controlled by the Centre.
The union of these States makes them members of a Sovereign Democratic
Republic. We shall briefly notice the steps in this transformation. Our survey
must begin somewhat earlier than the Government of India Act, 1935, but it need
only embrace the degree of independence in the legislative and financial
Under the East India Company, the notion of a
Central Government did not emerge till the Charter of the Company was renewed
in 1833, and the Governor-General and his Council in Bengal began to exercise
control over the presidential of Madras and Bombay. There was thus a move
towards a unitary form of government. In, view of the bitter lessons learnt in
the days of Warren Hastings, the Governor-General was also authorised by the
Charter Act of 1833 to overrule his Council, a power which he continued to
exercise down to 1935. There was thus, in truth and reality, only one
Government and the so-called Governments of 595 the Presidencies and Provinces
were agents of the Central Government. After 1858, the Government of the
country was carried on in the name of the Queen through her Secretary of State
for India. The general pattern was, however, the same, though as time passed,
democratic institutions in Government slowly emerged.
When the Reforms came in 1919 and introduced
a system of local governments, the process was not decentralisation but
reconcentration, as is known in France. By stages, the Councils at the Centre
and in the Provinces were greatly expanded, a large number of nominated members
When elections came, they included the
representation of some special interests. Legislation was even then from the
Centre in the shape of Regulations or under instructions from the Centre,
unless it was of a wholly local character.
We shall. pass over the details of the
When Parliament began to modify all this, the
aim was to give to the Provinces a separate existence, though under a strong
Centre. When the Government of India Act, 1915 was amended, there was a
definite break up of the legislative machinery into two. There emerged then the
Legislative Assembly and local Legislatures. In the field of local
Legislatures, the first experiments in Democracy were tried.
To invest separate powers, there was a
classification of subjects between the Centre and the Provinces, and the topics
of legislation, taxation and administration were separated to distinguish the
different spheres. Such provision was to be made under S. 45A and the rules
that were framed, go under the name of the Devolution Rules and its Schedules
were the precursors of the Lists under the Government of India Act, 1935 and
the present Constitution.
The only difference was that there 596 was no
third List, which was hardly necessary, ax the residual power was in the
Centre. The powers of the local Legislatures were, however, not unlimited.
Apart from the limitations arising from the allotment of subjects under the
Devolution Rules, there was a control of the Centre. Any Act passed by the
local Legislature could be disallowed by the Governor-General or the Crown. In
certain circumstances, it could be repealed by the Indian Legislature. Thus,
though the seed of federation was sowed, there was no semblance of a
We shall now analyse the financial arrangements,
including taxation, during the period covered by us already. The finances of
India during the early stages were also centralised. The Provinces were given
what was considered to be their `needs' and provincial taxation as well as
Provincial expenditure were centrally controlled. The process of
decentralisation in finance, however, may be said to have commenced earlier.
The Act of 1858 by which the rule of the East India Company was terminated also
vested the revenues of India in the Crown with the necessary control in the
Secretary of State. Mr. Wilson, the founder of the 'Economist' and the first
Member for Finance, advocated that the Provinces should not depend on
",grants" but should have independent resources. His suggestions bore
fruit in Lord Mayo's regime, when in addition to fixed grants some sources of
revenue were "provincialised". By 1882 there came to exist a
bifurcation which was described in the phrase "divided heads of
revenue"-a phrase used for years afterwards. The Montagu-Chelmsford Report
was the next important landmark and led to proper provincial enfranchisement.
The Report said:
"The existing financial relations
between the Central and Provincial Governments must 597 be changed if the
popular principle in Government is to have fair play in the Provinces.
Our first aim has therefore been to find some
means of entirely separating the resources of the Central and Provincial
Governments." Under the Government of India Act, the Devolution Rules
(Rules 2 and 14) made the separation of the resources. From this, it is not to
be gathered that the Provinces had a separate fisc. By R. 16, it was provided
that all moneys were to be paid into an account in the custody of the
Governor-General and he made rules with the sanction of the Secretary of State
and issued orders, both general and special, for payments, withdrawals or
disbursements from that account. By far the greater part of the Devolution
Rules dealt with these matters and, in addition, there were congeries of rules
Taxation in the Provinces was under Entry 48
in Part II of the First Schedule of the Devolution Rules, which read:
"48. Sources of Provincial Revenue not
included under previous heads, whether(a) taxes included in the Schedule to the
Scheduled Tax Rules or (b) taxes, not included in those schedules, which are
imposed by or under provincial legislation which has received the general
previous sanction of the Governor-General" The Scheduled Tax Rules made by
the Governor-General in Council under s. 80A (3)(a) of the Government of India
Act divided the heads of taxes into two parts. The first part dealt with taxes
598 which the Legislative Councils could impose without the previous sanction
of the Governor General for the purposes of Local Government. The second part
dealt with taxes which the local Legislatures could impose or authorise the
imposition of, without the previous sanction of the Governor General for
purposes of local authority. The first contained eight heads: six taxes, one
registration fee and one stamp duty. The six taxes were (a) tax on land put to
non-agricultural uses, (b) tax on succession, (c) tax on betting and gambling,
(d) tax on advertisements, (e) tax on amusements and (f) tax on specified
luxuries. In the second part were (a) tolls, (b) taxes on vehicles or boats,
(c) octroi, (d) terminal taxes if octroi was not levied in that area before a
particular date, (e) taxes on trades, professions or callings, and (f) tax on
There were also taxes and fees on certain
services which the local authorities render. The six taxes in the second part
were taxes on trade and commerce in motion. They were of course taxes for local
authorities, but the Indian Legislature, the Governor-General and finally the
Crown could annul any law if not acceptable to them. We shall pass over the
Report of the Committee of Inquiry presided over by Lord Mestan, which
recommended the amounts payable to Local Governments from income-tax etc. We
shall also pass over the Reforms Inquiry Committee presided over by Sir
Alexander Muddiman and that presided over by Lord Incheape.
Under the recommendations of the first and as
a result of the retrenchment made by the second, in 1927-28 the contributions
by the Provinces ceased. Thus, just before the establishment of the Indian
Statutory Commission in 1927 there was not only Dyarchy working but the sources
of revenue were divided between the Centre and the Provinces.
It was at this stage that the Indian
Statutory 599 Commission (popularly known as the Simon Commission) was
appointed. The Commission recommended that the Organic Instrument to be framed
should have provisions for its own development; in other words, that India
should have act flexible and not a rigid Constitution, and that any development
should have regard to India as a whole and not merely British India. In this,
there was the echo of what the Montagu-Chelmsford Report said:
"Our conception of the eventual future
of India is a sisterhood of States, selfgoverning in all matters of purely local
or provincial interest In this picture there is a place for the Native
States." The Commission emphasised one fact more than any other. They
"Economic forces are such that the
States and British India must stand or fall together. The increasing importance
of industry brings problems that must be faced by both together The States
themselves have their own tariff policies, and there is a serious possibility
that, unless provision can be made for the reconciliation of divergent
interests, numbers of tariff walls will be perpetuated in an area where fiscal
unity is most desirable." The Commission also suggested that"the now
Constitution should provide an open door whereby, when it seems good to them,
the Ruling Princes may enter on just and reasonable terms." The
Commission, therefore, recommended a federal Constitution composed of British
India and the Indian States. They said:
"We are inclined ourselves to think that
the easier and more speedy approach to the 600 desired end can be obtained by reorganising
the Constitution of India on a federal basis in such a way that individual
States or groups of States may have the opportunity of entering as soon as they
wish to do so. " When the Government of India Act, 1935, was being
fashioned, the Committee was assisted by a Financial Adviser in Mr.
(later, Sir) Walter Leyton, whose task was to
evolve some scheme under which the Provinces could get adequate revenues. The
Indian States, if they were to join in the Federation, also insisted that their
position be safeguarded. Mr. Leyton then pointed out that before the Indian
States Committee, 1928-29 (commonly known as the Butler Committee) the Indian
States had urged that they must receive a share of the customs which bad by
then risen to as much as Rs. 50 crores, and the Butler Committee had also
suggested that this claim should be examined by a panel of experts. When the
Round Table Conference met, the question of the shares of the Indian States in
the customs and excise revenues was again raised. The Federal Structure
Committee was commissioned among other matters, to report on the powers of
Federal Legislature and the Provincial Constitution Committee, to report in the
same way on the powers of the Provincial Legislatures. In the report of the
Federal Structure Committee, the subject of trade and taxes on it was dealt
with only from the angle of discrimination, but emphasis appears to have been
placed only on British trade and the fiscal conventions. Thus, the discussions
before the Conference also centered round two questions: (a) the protection of
British interests and (b) no commercial discrimination on the ground of race
When the Joint Parliamentary Committee on the
Indian Constitutional Reforms went into these questions, and recommended the
abolition of 601 Dyarchy in the federating units and the establishment of
Provincial Autonomy, the Committee sensed the dangers of breaking up the unity
of India and said:
"...in transferring so many of the
powers of Government to the Provinces, and in encouraging them to develop a
vigorous and independent political life of their own, we have been running the
inevitable risk of weakening or even destroying that unity. Provincial Autonomy
is, in fact, an inconceivable policy unless it is accompanied by such an
adaptation of the structure of the Central Legislature as will bind these
autonomous units together".
They also pointed out that the unity of India
on which they had laid so much emphasis was dangerously imperfect so long as
the Indian States had no constitutional relationship with British India. The
Committee recognised the difficulties of economic ties between the Provinces
inter se and also British India as a whole on the one hand, and the Indian
States on the other, and observed :
"On the one band, with certain
exceptions, the States are free themselves to impose internal customs policies,
which Cannot but obstruct the flow of trade. Even at the maritime ports
situated in the States, the administration of the tariffs is imperfectly
coordinated with that of the British Indian ports, while the separate rights of
the States in these respects are safeguarded by long standing treaties or usage
acknowledged by the Crown.
On the other hand, tariff policies, in which
every part of India is interested, are laid down by a Government of India and
British India Legislature in which no Indian State has a voice, though the
States constitute 602 only slightly less than half the area, and one-fourth of
the population of India. Even where the Government of India has adequate powers
to impose internal indirect taxation or to control economic development, as in
the case of salt and opium, the use of these powers has caused much friction
and has often left behind it, in the States, a sense of injustice. " They
suggested the means by which internal trade and commerce could be secured some
measure of freedom and their recommendations must be quoted in extenso. In para
264 of the Report, they observed :
"It is greatly to be desired that States
adhering to the Federation should, like the Provinces, accept the principle of
internal freedom for trade in India and that the Federal Government alone
should have the power to impose tariffs and other restrictions on trade. Many
States, however, derive substantial revenues from customs duties levied at the
frontiers on goods entering the State from other parts of India. These duties
are usually referred to as internal customs duties, but in many of the smaller
States are often more akin to octroi and terminal taxes than to customs. In
some of the larger States the right to impose them is specifically limited by
treaty. We recognise that it is impossible to deprive States of revenue Upon
which they depend for balancing their budgets and that they must be free to
alter existing rates of duty to suit varying conditions. But internal customs
barriers are in principle inconsistent with the freedom of interchange of a
fully developed Federation, and we are strongly of the opinion that every
effort should be made to substitute other forms of taxation for these internal603
customs the accession of a State to the Federation should imply its acceptance
of the principle that it will not set up a barrier to free interchange so
formidable as to constitute a threat to the future of Federation..."
However, in dealing with commercial discrimination, the Joint Parliamentary
Committee was more concerned with British Imports and the Fiscal Convention
which it was anticipated, would lapse on the new Constitution coming into
force. The Committee, therefore, suggested that the Governor-General and the
Governors should be empowered to withhold their assent to Bills which were
discriminatory in fact or bad that tendency. They also recommended statutory
prohibition against certain specified kinds of discrimination, and added :
"We need hardly add that the effect of
our recommendation for the statutory prohibition of certain specified forms of
discrimination would lay open to challenge in the Courts as being ultra vires
any legislative enactment which is inconsistent with these prohibitions, even
if the Governor-General or Governor has assented to it." With these
suggestions in respect of the freedom of Grade and commerce, a Federal
Constitution was recommended. It was also recognised that it would be the Provinces
which would carry on the ,national building activities' and the need for more
finances 'or the Provinces was acutely recognised. The establishment of
self-governing units and self-governing constitutions, the creation of deficit
Provinces, the corporation of Burma and the cost of establishment of a
Federation, were matters which were gone into by the Federal Finance Committee.
The Federal Structure Committee, Sir Walter Leyton, the Davidson Committee and
experts like Sir Malcolm Hailey and Sir Otto Niemeyer. The Report 604 of the
First Taxation Inquiry Committee (1926) was also available from which guidance
was taken, and just as the topics of legislation were demarcated between the
Centre and the Provinces, so also the sources of revenue were allocated between
the Centre and the Provinces. The intention was to create financially stable
governments with well defined powers of taxation. This was, of course,
absolutely necessary if the autonomous Provinces were to exist without
subventions, which were necessary to support the deficit Provinces. The
legislative heads were, therefore, completely divided between the Centre and
the Provinces one List being exclusive to each and a third List was added by
which certain subjects were to be within their concurrent jurisdiction. The
intention was to avoid the assignment of residual powers to a minimum, and as
observed by Gwyer, C. J., in In re The Central Provinces and Berar Act No. XIV
of 1938 (1), this ",made the Indian Constitution Act unique among federal
Constitutions in the length and detail of its Legislative Lists." The
Government of India Act, 1935, provided by s. 5 that His Majesty was to declare
by proclamation that as from a date to be appointed "there shall be united
in a Federation under the Crown, by name of the Federation of India,(a)
(b) The Indian States which have or may
thereafter accede to the Federation........
The proclamation never issued.
The freedom of trade and commerce which was
the subject of such anxious thought received short treatment in the Government
of India Act, 1935. Chapter III in Part V (Legislative Powers) (1) 
F.C.R. 18, 38.
605 dealt with discrimination in a series of
sections which Dr. Keith described as "liable to be regarded as oppressive
and unfair." Though lip service was paid to caste, creed, colour etc. the
provisions were really designed to protect British interests. The freedom of
internal trade simpliciter was dealt with in Part XII (Miscellaneous and
General), and s. 297 provided :
"297 (1). No Provincial Legislature or
Government shall(a) by virtue of the entry in the Provincial Legislative List
relating to trade and commerce within the Province, or the entry in that list
relating to the production, supply, and distribution of commodities have power
to pass any law or take any executive action prohibiting or restricting the
entry into or export from, the Province of goods of any class or description :
(b) by virtue of anything in this Act have
power to impose any tax, cess, toll, or due which, as between goods
manufactured or produced in the Provinces and similar goods not so manufactured
or produced, discriminates in favour of the former, or, which, in the case of
goods manufactured or produced outside the Provinces, discriminates between
goods manufactured or produced in one locality and similar goods manufactured
or produced in another locality.
(2) Any law passed in contravention of this
section shall, to the extent of the contravention, be invalid" By this
section, power was denied to the Provincial Legislatures under two Entries in
the 606 Provincial List to impair free entry and export of goods in the
Provinces. The two Entries were referred to separately and expressly by their
content and were "27. Trade and Commerce within the Province" and
29. Production, supply and distribution of
goods." The word ,'commodities" was used instead of "goods"
in the White Paper, and the change to "goods" appears to have been
lost sight of in s. 297(1). However, the definition of "goods" took in
commodities, and the words "goods of any class or description" were
wide enough to show what was meant. The subject of taxation was not dealt with
(a) but cl. (b), and that provided that
taxation in the Provinces was not to have a differential basis. In this
connection, reference may also be made to Entries 19, 20, 21, 22, 23, 24 and 26
of List I and Entries 20 and 32 in List III, which 'in some measure) involve
regulation of trade, commerce and intercourse.
The detailed examination of the history lying
at the back of the Government of India Act, 1935, lays bare some fundamental
facts and premises. It shows that the process through a whole century was the
breakup of a highly centralised Government and the creation of autonomous
Provinces with distinct and separate political existence, to be combined inter
se and with the Indian States, at a later period, in a federation. To achieve
this, not only was there a division of the heads of legislation but the
financial resources were also divided and separate fiscs for the federation and
the Provinces were established. The fields of taxation were demarcated, and
those for the Provinces were chosen with special care to make these units self
supporting as far as possible with enough to spare 607 for "nation-building
activities." In this arrangement, the door was open for the Indian States
to join on the same basis and on terms of equality. The most important fact was
that unlike the American and the Canadian Constitutions the commerce power was
divided between the Centre and the Provinces as the Entries quoted by us
clearly show. The commerce power of the Provinces was exercisable within the
Provinces. The fetter on the commercial power of the Provinces was Placed by s.
297. This was in two directions.
Clause (a) of sub-s. (1) banned restrictions
at the barriers of the Provinces on the entry and export of goods, and cl.
(b) prohibited discrimination in taxing goods
between goods manufactured and produced in the Province as against goods not so
manufactured or produced and local discriminations.
When drafting the Constitution of India, the
Constituent Assembly being aware of the problems in various countries where
freedom of trade, commerce and intercourse has been provided differently and
also the way the Courts of those countries have viewed the relative provisions,
must have attempted to evolve a pattern of such freedom suitable to Indian
conditions. The Constituent Assembly realised that the provisions of s. 297 and
the Chapter on Discriminations in the Government of India Act, 1935, hardly met
the case, and were inadequate. They had to decide the following questions : (a)
whether to give the commerce power only Parliament or to divide it between
Parliament and the State Legislatures ; (b) whether to ensure freedom of trade,
commerce and intercourse inter State, that is to say, at the borders of the
States or to ensure it even intra-States ;
(c) whether to make the prohibition against
restrictions absolute or qualified, and if so, in what manner ; (d) if qualified
by whom was the restriction to be imposed and to 608 what extent; (e) whether
the freedom should be to the individual or also to trade and commerce as a
whole ; (f) what to do with the existing laws in British India and more so, in
the acceding Indian States ; (g) whether any special provisions were needed for
emergencies; (h) what should be the special provisions to enable the States to
levy taxes on sale of goods, which taxes were to be the main source of income
for the States according to the experts. All-these matters have, in fact, been
covered in Part XIII, and the pitfalls which were disclosed in the Law Reports
of the Countries which had accepted freedom of trade and commerce have been
attempted to be avoided by choosing language appropriate for the purpose. In
addition to this, the broad pattern of the political set-up, namely, a
federation of autonomous States was not lost sight of. These autonomous
conditions had strengthened during the operation of the 1935 Constitution and
led to what Prof. Coupland described as "Provincial patriotism", for
which the reason, according to the learned Professor was :
"In the course of the last few years the
sense of Provincial patriotism has been, strengthened by the advent of a full
Provincial self-government. The peoples took a now pride in Governments that
were now in a sense theirs." (The Constitutional problem in India, part
III. p. 40) With this historical background of our country and the historical
setting in which other Federations have dealt with the problems of trade and
commerce, we now proceed to examine the Constitution to discover the meaning of
the various Articles in Part XIII. We begin by reading Part XIII here
indicating in each Article the changes made and the relevant dates on which they
were made 609 "Part XIII Trade, Commerce and Intercourse within the
Territory of India.
301. Subject to the other provisions of this
Part, trade, commerce and intercourse throughout the territory of India shall
302. Parliament may by law impose such
restrictions on the freedom of trade, commerce or intercourse between one State
and another or within any part of the territory of India as may be required in
the public interest.
303. (1) Notwithstanding anything in article
302, neither Parliament nor the Legislature of a State shall have power to make
any law giving, or authorising the giving of, any preference to one State over
another, or making or authorising the making of, any discrimination between one
State and another, by virtue of any entry relating to trade and commerce in any
of the Lists in the Seventh Schedule.
(2) Nothing in clause (1) shall prevent
Parliament from making any law giving, or authorising the giving of, any
preference or making, of authorising the making of, any discrimination of it is
declared by such law that it is necessary to do so for the purpose of dealing
with a situation arising from scarcity of goods in any part of the territory of
(In its application to the State of Jammu and
Kashmir, in cl. (1) of art. 303, the words "by virtue of any entry
relating to trade and commerce in any of the Lists in the Seventh
Schedule" shall be omitted).
610 304. Notwithstanding anything in Art.
301, or Art.
303, the Legislature of a State may by law(a)
impose on goods imported from other States (or the Union territories) any tax
to which similar goods manufactured or produced in that State are subject, so,
however as not to discriminate between goods so imported and good so
manufactured or produced, and (b) impose such reasonable restrictions on the
freedom of trade, commerce or intercourse with or within that State as may be
required in the public interest ;
Provided that no Bill or amendment for the
purposes of clause (b) shall be introduced or moved in the Legislature of a
State without the previous sanction of the President.
Ins. by the Constitution (Seventh Amendment)
Act, 1956, s. 29 and Sch.) 305. Nothing in articles 301 and 303 shall affect
the provisions of any existing law except in so far an the President may by
order otherwise direct, and nothing in article 301 shall affect the operation
of any law made before the commencement of the Constitution (Fourth Amendment)
Act, 1955, in so far as it relates to, or prevent Parliament or the Legislature
of a State from making any law relating to any such matter as is referred to in
sub-clause (ii) of clause (6) of article 19.
(This Article was substituted for original
Article which was as follows:
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 provide.') 306. Deleted.
(The original Article before its deletion
'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 year,% from such commencement terminate or modify
any such agreement if, after consideration of them report of the Finance
Commission constituted under Article 280, he thinks it necessary to do so').
307. Parliament may by law appoint such
authority as it considers appropriate for carrying out the purposes of Articles
301, '302, 303 and 304, and confer on the authority so appointed such powers
and such duties as it thinks necessary.
Part XIIL unlike some of the Constitutions
which we have considered, contains within itself 612 and in one place the
provisions regarding the freedom of trade, commerce and intercourse. The
commerce power as a head of legislation is divided in the Constitution, and
figures in all the three Lists. Apart from other Entries under which trade and
commerce can be affected and which are to be found in all the three Lists,
there are two Entries in the Union List, two in the State List and one in the
Concurrent List, which bear directly upon trade and commerce.
41. Trade and commerce with foreign,
countries, import and export across custom s frontiers;
42. Inter-State trade and commerce.
State List :
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.
33. (Trade and Commerce in, and the
production, supply and distribution of : (a) the products of any industry where
the control of such industry by the Union is declared by Parliamentary law to
be expedient in the public interest) and imported goods of the same kind as
such products ;
(b) food-stuffs, including edible oilseeds
(c) cattle fodder, including oilcakes and
613 (d) raw cotton, whether ginned or
unpinned and cotton seed or (e) raw jute.
The words in brackets show the entry as it
was prior to its amendment by the Constitution (Third Amendment) Act, 1954. The
word industries' occurred in place of the word industry' there.
By dividing the commerce power and by
enacting the provisions of Part XIII, the problems which arose in the United
States of America and Canada have been avoided. In Canada, as we have shown
already, the question was whether in passing a law the Provinces were
encroaching upon the commerce power of the Dominion given by No. 2 of s. 91 and
conversely, whether the regulation of trade by the Dominion meant an
encroachment of the powers of the Provinces. In our Constitution, questions of
conflict under two rival Lists may arise, but on the plane of exercise of
commerce power, such questions can hardly arise. In the United States, the
controversy is between the powers of the Congress and the powers of the States.
American and Canadian precedents were thus avoided by dividing the commerce
The constitution deliberately chose the
Australian pattern in Art. 301, but made certain other provisions, and this was
done to avoid the controversy as it had raged in Australia.
Article 301 states in general words (like s.
92 of the Australian Constitution) that trade, commerce and intercourse shall'
be free. But the opening words "Subject to the other provisions of this
Part" serve to direct attention to the provisions next following. These
words achieve two purposes. They indicate (a) freedom is not absolute but
subject to what is next provided ; and 614 (b) that the curbs on freedom of
trade and commerce are primarily to be found in Part XIII.
Next, the words "throughout the
territory of India" avoid disputes which took place in Australia till the
Banks case (1) was decided by the Privy Council namely whether, freedom is
secured only at the frontiers of the States or also within the States. The form
of words adopted by our Constitution (,"throughout the territory ")
was suggested Australia as an amendment but was not accepted, and the Privy
Council in James v. Commonwealth (2) was understood to have endorsed the view
that freedom only at the barriers of the States was meant. Our Constitution
chose the form which was rejected do Australia thereby anticipating the
decision of the Privy Council in the Banks's case. It must be remembered that
the Banks' case was not decided by the Privy Cousteau when our Constitution was
drafted. The freedom in India is inter-State as well as intrastate. This
freedom is addressed to Parliament as well as to the State Legislatures, as the
next Article clearly show.
Article 302 then makes the first exception to
That, Article gives power to Parliament to
put restrictions on this freedom. This shows clearly that Parliament is bound
by Art. 301. Disputes similar to those which took place in Australia in which
it was hotly debated whether the Commonwealth was bound or not have thus been
avoided. By providing separate releases from Art. 301 for Parliament and the
State Legislatures, that controversy can never arise.
Parliament which is authorised by Art. 302
can impose restrictions on trade, commerce and intercourse in two aspects.
They are :
(a) between one State and another; or (1)
 76 C. L. R. I. 38, 381.
(2) (1936) A. C. 578.
615 (b) within any part of the territory of
By the first is meant trade and commerce in
motion across the frontiers of States. It means the inter-State character of
trade, commerce and intercourse. By the second, the power is made more general.
Parliament may put restriction in " any part' of the territory of India.
The territory of India is defined by Art. 1(3), which says :
"(3) The territory of India shall
comprise(a) the territories of States;
(b) the Union territories specified in the
First Schedule ;
(Before the Constitution (Seventh Amendment)
Act, 1956 the clause read the territories specified in Part D of the First
Schedule') and (c) such other territories as may be acquired." The words
",within any part of the territory of India" give power to Parliament
to legislate for 'any part' not only generally but also locally. This power is
subject to two restrictions. The first is that this must be done by law', which
means that without a valid law the power cannot be exercised. The second is
that the law must be in the 'public interest.' Since law is made the
prerequisite of action, mere executive action is out of the question. This
obviates the argument emphatically rejected by the Privy Council in James v.
Cowan (1) that the executive was not under the fetter of a. 92 of the
Australian Commonwealth Act. The word 'required' limits the restrictions to the
necessities of the situation so that the Article may not be liberally construed
as a free charter. The word (1) (1932) A. C. 542.
616 "reasonable' is not included as
qualifying restrictions' as it does in Art. 304 ; but it is impossible that the
freedom granted in Art. 301 was to be ,mocked at' by making "unreasonable'
restrictions permissible at the hands of Parliament. Normally Parliament is the
best judge of public interests, and a question of policy can hardly arise
before the Courts. But if a question arises whether Parliament has under color
of Art. 302 encroached upon Art. 301, the matter may in exceptionable
circumstances be justifiable. It will be useless in this connection to invoke
the voice of Parliament.
Next comes Art. 303. It begins with the no obstructive
clause "Notwithstanding anything in Article 302." The effect of these
words is to take away the power granted to Parliament to fetter freedom in this
preceding Article in the circumstances stated in this Article. This no
obstructive Clause has been criticised as not being wholly related to what
follows. We do not agree. The answer to the objection will appear from what we
The Article says that neither (a) Parliament
nor (b) Legislature of a State shall have power (i) to make any law giving or
(ii) to make a law authorising the giving of(A) any preference to one State
over an; other (B) any discrimination between one State and another, by virtue
of any Entry relating to trade and commerce in any of the Lists in the Seventh
Schedule. The main idea underlying this Article is to ban preference and
discrimination between one State and another in matters of trade, commerce and
intercourse. This principle of uniformity is high that by the non-obstante
clause the powers of Parliament under Art. 302 are completely nullified and
along with the powers of Parliament, all 617 derivative powers of the State
Legislatures where Parliament declares by law that a restriction is in the
public interest and the State Legislature (legislates under the shelter of such
a declaration, are also nullified, see Entry 33(a).
Entry 35 of the Concurrent List or Entry 57
of List If read with Entry 35 of List 111, to confine the citation to Entries,
with which we are primarily concerned here. In the Seventh Schedule to the
Constitution in addition to Entries 41 and 42 (List 1), 26 and 27 (List II) and
33 (List III) there are many other Entries regulating special trades. In some
of them, the formula by law made by Parliament' is again repeated out of
abundant caution. By the words of Art. 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 1 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 power, however
derived, is not to be exercised to create preferences and discrimination
between one State and other whether the action proceeds from Parliament or a
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 a. 297 of the Government of
India Act, 1935. In the section, the inhibition was only against I Provincial
Legislature or Government. Here the inhibitions embraces not only these but is
also against Parliament and the Central executive. The executive limb bag 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.
Future, S. 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 618 other matters inherent in free trade, commerce and intercourse. The
Article has its echo in a. 99 of the Australian Constitution, which reads;
"99. Commonwealth not to give
preference. The Commonwealth shall not, by any law or regulation of trade,
commerce or revenue, give preference to one State or any part thereof over
another State or any part thereof." It is to be read with s. 102, under
which Parliament can forbid preferences by State. Article 303, however, goes
much further. It emasculates the total legislative power in the country from
achieving a single preference or discrimination in trade, commerce and
intercourse by a united or concerted action by Parliament and State Legislature
thus insuring equality to all peoples of India from whatever part they may be
drawn and wherever they may be living.
There is, however, one exception to it, and
that it is contained in cl. (2). Preference or discrimination may be made in
one instance by Parliament by law. The ambit of that exception plainly appears
from the words of cl. (2), which are explicit in themselves. Let us quote them
"Nothing in clause (1) shall prevent
Parliament from making any law giving, or authorising the giving of, any preference
or making, or authorising the making of, any discrimination if it is declared
by such law that it is necessary to do so for the purpose of dealing with a
situation arising from scarcity of goods in any part of the territory of
India." The question of famine is primarily in mind. and secondarily the
readjustment or even distribution of goods due to some economic imbalance.
Clause (2) is self-explanatory, and questions such as fixing 619 of quotas of
dried fruits or their even distribution in home and outside markets which
agitated the Australians can hardly &rise, and similar questions can
adequately be dealt with by Parliament under this power.
Next comes Art. 304. It beings with the
non-obstante clause "Notwithstanding anything in article 301 or article
303." It is contended that one can understand the mention of Art. 301 but
not of Art. 303, and the Article is thus said to be inaccurately drafted. We
have already shown why in Art. 303 the State Legislatures found a mention, and
unless Art. 303 was also put aside in Art. 304, there would arise a question of
balancing it against Art. 304. To avoid this, both Arts.
301 and 303 have been excluded from
Article 304 is divided into two parts. It
enables the Legislatures of States to pass laws which affect trade, commerce
and intercourse. Clause (a) of the Article enables taxation of good from other
States pari passu taxation of similar goods in the State but so as not to
discriminate between them. The ban of Art. 301 is lifted but uniformity is
imposed. Compared with s. 297(1)(b) the Article is narrower in its enabling
portion and shorter in it reaches.
Section 297 inhibited 'tax, cess, tolls or
due' taking in its reach all kinds of imposts on movement, but the Article
gives per. mission to impose only taxes on goods on no differentiation basis
between State and State, saying nothing about other imposts. Further, unlike
the ,section, local areas are Dot mentioned in the Article treating the purely
inter-State matters on a different footing. Trade, commerce and intercourse
generally are next enabled by cl.
(b) to be restricted. They can be restricted
on two places the first in their inter-State aspect denoted by the words
"with...... that State" and second, in their inter-State aspect
denoted by the words ,within 620 that State." Both these aspects are open
to restrictions provided that the restrictions are "reasonable" and
are "required in the public interest." The use of the word
'reasonable" brings in the justicability of the law. It is useless in this
context to invoke the voice of the legislature. The opinion of the legislature
as expressed in the law may of course raise a strong presumption, and create a
heavy burden for one challenging the law, but the extent of the restriction and
whether it is commensurate with the requirements of the public interest (though
a matter for the legislature to decide in the first instance) may have to be
decided ultimately by the Courts. Of course, laws can be made without affecting
trade, commerce and intercourse directly without having to be considered by
Courts or processed under the proviso. It is only a law which directly and
immediately affects trade, commerce and intercourse which will need to be
submitted to the President for his sanction, though the sanction of the
President will not save it from being questioned. The Joint Committee on Indian
Constitutional Reform in its Report (para 367) correctly pointed out:
"We need hardly add that the effect of
our recommendations for the statutory prohibition of certain specified forms of
discrimination would lay open to challenge in the Courts as being ultra vires
any legislative enactment which is inconsistent with these prohibitions, even
if the Governor-General or the Governor has assented to it." The same will
operate even if the President gives his sanction.
Article 305 saved existing laws to start
with, and at the time of the passing of the Constitution (Fourth Amendment)
Act, 1955, room was made for the operation of laws by which a State or a corporation
owned or controlled by the State carries 621 on any trade, business, industry
or service whether as a monopoly or otherwise. Article 305 does not apply to
the statute here impugned as it was not an ,existing law'.
Article 306 was a transitory provision which
enabled certain Part B States to Continue levy of existing taxes or to restrict
trade, commerce and intercourse for a period, notwithstanding the provisions of
Part XIII. With that, we are not concerned after 1955 due to the repeal of that
Article. Article 307 also is immaterial in this case. It provides for the
appointment of an authority for carrying out the purposes of Arts. 301-304, and
is a counterpart of s. 101 of the Australian Constitution. We shall now notice
some cases which were decided by the High Court of Australia and the Privy
Council, because it is these cases which have been cited to us in support by
the rival parties. After the Constitution of India came into force on January
26 1950, came the decision of the Privy Council in Commonwealth of Australia v.
Bank of New South Wales(1). In that case, the Privy Council departed from what
had been understood to be some of its former opinions. While adhering to its
view that the test was whether an impugned law not 'remotely or incidentally'
but directly and immediately restricted the inter-State business of banking at
the barriers of the States, the Privy Council observed that such phrases as
"freedom at the frontier...... in respect of goods passing into or out of
the State," and "freedom of what is the crucial point in inter-State
trade, that is at the State harrier" which it had used in James v. The
Commonwealth (2) were to be read secundum subject am materiam, and in the
context in which they occurred, and observed:
(1) (1950 A.C. 23S.
(2) (1936) A.C. 578.
622 "They cannot be interpreted as a
decision either that it is only the passage of goods which is protected by s.
92 or that it is only at the frontier that the stipulated freedom may be
impaired. It is not to be doubted that a restriction, applied not at the border
but at a prior or subsequent stage of inter State trade, commerce or
intercourse, may offend against s. 92. Nor, as their Lord ships hold, in
accordance with the view long entertained in Australia, is it in respect of the
passage of goods only that such trade commerce and intercourse is
protected." The Privy Council also corrected the view entertained in
Australia that a full and unqualified approval was given to the opinion of
Evatt,J., in The King v.
Vizzard (1), by Lord Wright in Jaimes v. The
commonwealth The Privy Council observed:
"But it does not appear to their
Lord,ships that the whole of the learned Judge's reasoning received the
considered approval of the Board." The Privy Council next approved of the
following passage from the Australian National Airways case (3) which has
already been quoted by us:
"I venture to repeat what I said in the
former case (the Milk case) (4): 'One proposition which I regard as established
is that simple legislative prohibition (Federal or State), as distinct from
regulation, of interState trade and commerce is invalid. Further law which is
"directed against" inter-State trade and commerce is invalid. Such a
law does not regulate such trade, it merely prevents it.
But a law prescribing rules at to the manner
in which trade (including transport) is to be conducted is not a (1) (1933) 50
(3) (1945) 71 C.L.R. 29.
(2) (1936) A, C. 578.
(4) (1939) 62. C.L.R. 116, 127.
623 mere prohibition and may be valid in its
application to inter-State trade, notwithstanding s. 92'.", observing:
"With this statement, which both repeats
the general proposition and precisely states that simple prohibition is not
regulation, their Lordships agree." The Privy Council also made it clear
that in some cases "'regulation" may take the form of prohibition,
thus endorsing the statement of Harrison Moore that the power of legislation,
is not merely a power to regulate; it ranges from creation to destruction, it
may establish as well as prohibit: The Commonwealth of Australia, 2nd Edn., p.
The Advocates-General of Bombay and the
Punjab and Mr. G. S.
Pathak relied upon many decisions of the
Australian High Court after the Banks' case. (1) Strictly speaking, these
decisions could not have influenced the framing of our Constitution, because by
the time they were rendered, our Constitution had already been framed. The
Banks case, (1) having drawn the distinction between regulation and simple
prohibition, the later Australian cases began to allow a play for regulation of
trade and commerce. There being no machinery for achieving restrictions,
reasonable in them.
selves, restrictions to be valid had to be
within the limits of regulation. Indeed, this way of justifying legislation,
otherwise restrictive, as regulatory was being adopted even before the Bank8'
case., (1) and the Transport cases were all examples of justification of many
laws as regulatory.
In some Transport cases, taxes which burdened
trade and commerce were justified as compensatory being, it was said, a
recompense for the wear and tear of roads. We (1) (1948) 76 C.L.R. 1, 380, 381.
624 shall notice these cases briefly, since
justification for the sections impugned here was attempted on the ground that
the provisions were merely regulatory or compensatory. We shall examine these
cases as representing two different phases:
In McCarter v. Brodie (1), which was a
transport case, the High Court of Australia was invited to overrule the
Transport cases and to declare that the minority judgments throughout had been
right. The Chief Justice basing himself on the Banks' case (2) opined that the
Privy Council had finally decided that laws directly operating upon persons
engaging in inter-State trade and commerce were not infringements of a. 92 if
they were what could fairly be described as regulation'. If, however, they were
laws which directly dealt with the subject-matter of trade and commerce and
exceeded regulation and passed into prohibition, they were invalid. The law was
thus upheld, but Dixon and Fullagar, JJ., dissented.
Then came the decision of the Privy Council
in Hughes and Vale Pty. Ltd. v. State of N. S.W.( 3) By that decision, Rex v.
Vizzard (4) and all Transport cases following that decision and the majority
judgment in McCarter v. Brodie (1) were overruled and the opinions of Dixon and
Fullagar, JJ., in the last mentioned case were upheld. The decision of the
Privy Council in Hughes and Vale Pty. Ltd. v. State of N. S. W. (3) must be
examined a little closely. All the earliest Transport cases were decided after
the decision of the Privy Council in James v. Cowan(5) but before James v.
The Commonwealth(6) was decided. The Riverina
case (7) and the Austrailan National Airways case (8) preceded the Banks' ease
(2) and McCarter v. Brodie (1) followed (1) (1950) 80 C.L.R. 432.(2) (1948) 76
C.L.R. 1, 380, 38 1.
(3) (1955) A.C. 241.(4) (1933) 50 C.L.R. 30.
(5) (1932) A.C. 542.(6) (1936) A.C. 579.
(7) (1937) 57 C.L.R. 327.(8) (1945) 71 C.L.R.
625 it, and then came Hughes and Vale Pty.
Ltd. v. State of N.S.W. (1) from which the appeal went to the Privy Council.
Leave to appeal in McCarter v. Brodie (2) was
Before we examine the decision of the Privy
Council, lot us recall and re-state the main events in brief. In James v.
South Australia (3), what was struck down by
the High Court as. a contravention of s. 92 was the executive determination of
where and in what quantities dried fruit were to be marketed. In James v. Cowan
(4), the action of the Minister expropriating the surplus dried fruits was also
held to be a contravention. In James v. The Commonwealth (5), it was held that
s. 92 bound not only the States but also the Commonwealth. The last case was
also generally understood as laying down that by "free" was meant freedom
at the frontiers. An extract from the judgment of Evatt, J., in The King v.
Vizzard (6) was quoted to ,show that freedom did not attach itself to each and
every part of transaction, and the other parts were not free from regulation or
Then came the Bank's case, (7) which laid
down that regulation of trade, commerce and intercourse among the States was
not incompatible with their absolute freedom; and that there was a breach of s.
92 only when the legislature or the executive acted to restrict such trade,
commerce or intercourse directly and immediately as distinct from creating some
indirect or consequential impediment, which could only be regarded as remote.
Thus, regulation was considered as the antithesis of ',simple prohibition'.
The Transport cases involved almost always:
(i) a licensing system of motor transport
vehicles by a Board;
(1) (1955) A. C. 241.
(3) (1927) 40 C.L.R. 1.
(5) (1936) A. C. 578.
(2)  8 0C.L.R.432.
(4) (1932) A. C 542.
(6) (1933) 50 C.L.R. 30.
(7) (1948) 76 C. L.R. 1, 380, 381.
626 (ii) a discretion to the Board to grant a
licence or not;
(iii) a payment of a licence fee which had a
and (iv) sometimes a mileage charge as in O'
Gilpin's case (1).
How were these cases affected by the pronouncement
of the Privy Council ? The earlier view that The King v. Vizzard (2) was
approved by the Privy Council in James v. The Commonwealth (3) fell to the
ground when the Privy Council in the Bank's case (4) abjured this. There was
also the approval given to the Australian National Airways case (5), to which
we have referred. The implications of this approval had also to be considered.
These Questions arose before the High Court in McCarter v. Brodie (6). In that
case, the Transport Regulatiou Acts, 1933-47 provided for licensing of
commercial goods vehicles by a Board with discretionary powers and for payment
of a fee. The effect of the Bank's case upon the Transport cases was urged, and
it was contended that they must be overruled, but the majority applying Rex
v.Vizzard (2) and the Riverina case held the law to be valid. Dixon and
Fullagar, JJ., however dissented. In describing what was hold by these learned
Judges, we shall borrow their language, as was also done by the Privy Council.
According to Dixon, J., the Banks' case (4)
had proved wrong three propositions, and they were :
(1) that s. 92 did not guarantee freedom of
(2) "that' if the same volume of trade
(1) (1935) 52 C.L.R. 189.
(3) (1936) A.C. 578.
(5) (1945) 71 C.L.R. 29.
(2) (1933) 50 C.L.R. 30.
(4) (1948) 76 C.L.R. 1, 380, 38 1.
(6) (1990) 80 C.L.R. 432.
(7) (1937) 501 C.L.R. 327.
627 flowed from State to State before as
after the interference with individual trader then the freedom of trade among
the States remained unimpaired.' (3) that because a law applied alike to
inter-State commerce and to domestic commerce of a State, it might escape
objection notwithstanding that it prohibited, restricted or burdened
Next, according to him two further points
were settled by the Bank's case: (1).
(1) That the object or purpose of an Act,
challenged as contrary to s. 92 was to be ascertained from what was enacted and
consisted in the necessary legal effect of the law itself and not in its
ulterior effect socially or economically and (2) that the doctrine of 'pith and
sub stance though of help to find out whether it Wag nothing but a regulation
of a class of transactions forming part of a trade and commerce was beside the
point when the law amounted to a prohibition or the question of regulation
could not fairly arise.
According to Dixon, J.,, the Transport cases
involved a pragmatical solution. The main reason of the error according to him
was that trade and commerce Was treated 'as a sum of activities' and "the
interState commercial activities of the individual, and his right to engage in
them were ignored", and much importance was attached to absence of
discrimination against inter-State trade considered as a whole. Dixon, J., then
added to the five points a sixth, viz., "the distinction taken between, on
the one hand, motor vehicles as integers of traffic, and, on the other hand,
the trade of carrying by motor vehicle (1)  76 C.L.R. 1. 380,381.
628 as part of commerce." This
distinction, according to him, was not valid.
Fullagar, J., in a concurring judgment drew a
good picture of how a regulation by its severity could become a prohibition. He
observed that though traffic regulations and even licensing of motor vehicles
including commercial vehicles could be said not to cross the line of regulation
but both had to be reasonable so as not to impair the freedom. And the same
could be said also about licence fees, etc. which had to be reasonable and
nondiscriminatory, lest they passed from regulation into what the Privy Council
called simple prohibition. The majority opinion, of course, prevailed but not
The case of Hughes and Vale Pty. Ltd. v.
State of N. S. W. (1) came after McCarter v. Brodie (1). The High Court
followed the earlier decision,, but Dixon, C.J., observed :
"...... to my mind the distinction
appears both clear and wide between, on the one hand, such levies and such
provisions prohibiting transportation without licence as the foregoing and on
the other hand the regulations and registrations of motor traffic using the
roads and the imposition of registration fees. In the same way the distinction
is wide between such provisions and the use of a system of licensing to ensure
that motor vehicles used for the conveyance of passengers or goods for reward
conform with specified conditions affecting the safety and efficiency of the
service offered and do not injure the highways by excessive weight or
immoderate use or interfere with the use of the highways by other traffic. The
validity of such laws must depend upon the question whether they (1) 
(2) 80 C.L.R. 432.
629 impose a real burden or restriction upon
When the case reached the Privy Council, it
was contended that where the tax was on the movement itself, the tax could not
be regarded as regulatory and the reasons in the judgments of Dixon, C.J., and
Fullagar, J., were urged.
This was accepted by the Privy Council. On
the other side, it was contended that the provisions which were State-wide were
regulatory and were imposed on all vehicles, and the effect on inter-State
trade or commerce was indirect or consequential. This was not accepted. Even
the other side conceded that :
"the imposition of charges in respect of
vehicles used on inter-State journeys would infringe section 92 if the charges
(a) discriminated against inter-State road transport or vehicles engaged
therein; (b) were imposed at such a rate as to be prohibitive of inter-State
road transport, whether alone or in common with all road transport".
The Privy Council pointed out that in the
Transport cases, (1) sufficient weight was not given to James v. Cowan (2 ),
where determinations of executive in its discretion were said to be invalid. It
accepted the six propositions of Dixon, J., and followed the unusual practice
of quoting in extenso the opinions of Dixon and Fullagar, JJ., in McCarter v.
Brodie (3 ) and expressed them as their own. The Board overruled the Transport,
cases, and observed :
"In their opinion it follows that if the
validity of the Transport Act is to be established in the present case, it can
only be upon the ground that the restrictions contained therein are regulatory'
in the sense in which that word is used in the Bank case." (1)  57
C.L.R. 327. (2) A.C. 542.
(3)  80 C.L.R. 432.
630 We now come to the last phase. The
distinction between laws which merely regulate and those that restrict or
prohibit having thus been established at the cost of all the Transport cases
except Willard v. Rawson (1), a new method was adopted by the Australian
Legislatures. Wynes in "Legislative Executive and Judicial Powers in
Australia" (1956), tells us that the transport legislation was amended by
four of the States and the amended law was challenged in several cases We shall
not trouble ourselves with them or with those in which laws in bar of claims
arising out of the decision of the Privy Council were considered, but must draw
attention to the difference between "regulation" and "restriction"
made in Hughes and Vale Pty Ltd. v. The State of New South Wales [No. 2] (2).
For the present purpose, however, we borrow the following summary, inadequate
though it is, form Wynes:
"Speaking of 'regulation', their Honours
said that see. 92 of course assumed that the transactions protected would be
carried out in accordance with the general law ; merel y because a transaction
was apart of inter-State trade, commerce or intercourse, the persons engaging
in it were not excluded from the operation of that law. 'What was precluded
were restrictions of a real character preventing or obstructing the dealing
across the border or the inter-State passage or interchange.
There was a clear distinction in conception
between laws interfering with freedom to carry out the very activity
constituting interState trade and laws imposing on those engaged therein rules
of proper conduct or other restraints directed to the due and orderly manner of
carrying it out. This distinction was naturally described as 'regulation', a
word (1) 48 C.L.R. 316. (2)  93 C.L.R.
631 of anything but fixed legal import which
differed according to the nature of the thing to which it applied. Perhaps the
true solution in any given case could be found by distinguishing between the
features of the activity in virtue of which it fell within the category of
trade, commerce and intercourse among the States and those features which,
though invariably found to occur in some form or another in the activity, were
not essential to the conception." It was pointed out also that under the
guise of what may legitimately be regulation, real burdens and restrictions
could be placed.
There was a divergence of opinion again over
the question of licence charges and registration fees. The majority was
prepared to sustain charges if imposed "as a real attempt to fix a
reasonable recompense or compensation for the use of the highway and for a
contribution to the wear and tear which the vehicle may be expected to
make." The minority thought that (except for a fee for a specific service)
no charges could be levied. In two cases viz., Nilson v. The State of South
Australia (1) and Pioneer Tourist Coaches Pty. Ltd. v. The State of South
Australia (2), it was held that a State could not require commercial motor
vehicles to register and pay a fee exceeding mere administrative charges.
There is yet another line of cases recently
decicided in Australia. The taxing of commercial vehicles employed in
inter-State or intrastate transport has been justified in some cases on the
ground that such taxes are compensatory, and the tax is a recompense for the
wear and tear of roads.
In Armstrong v. The State of Victoria [No. 2]
(3), Part II of the (1)93C.L.R 292. (2) (1955] 93 C.L.R. 307.
(3)  99 C.L.R. 28.
632 Commercial Goods Vehicles Act, 1955
(Victoria) was challenged. That Act required the owner of every commercial
vehicle of load capacity exceeding four tons to pay compensation for the wear
and tear caused to the roads.
There was a schedule under which the payment
Every vehicle paid one-third of a penny per
ton of the sum of-(a) the tare weight of the vehicle and (b) forty per cent of
the load capacity of the vehicle per mile of public highway along which the
vehicle traveled in Victoria. The receipts were paid to the credit of a special
account and applied solely for the maintenance of the highway. This law was
upheld under s. 92 by a narrow majority of 4 to 3 in its application to
inter-State trade. in the same, case. s. 3 of the Motor Car Act, 1951 (Viet.),
which levied fees on a motor car used for carrying goods for hire or in the
course of trade according to the power weight and varying according to the
number of wheels and types of types etc., was upheld by a majority of 6 to 1.
The main reason given was what these payments served to maintain roads at a
standard by which inter-State operations of trade, commerce and intercourse
were improved. It was, however, said that the charge must not be more than a
fair recompense for the actual use of the roads. McTierman, J., relied on a
passage in Adam Smith's "The Wealth of Nationals", where public
'works as roads, bridges, etc. are discussed as facilities of commerce.
The question was again considered in
(commonwealth Freighters Pty. Ltd. v. Sneddon where the Road Maintenance
(Contribution) Act, 1958 (N. S. W.) which imposed upon owners of commercial
goods vehicles a, road charge at a rate per mile was upheld. It will thus
appear that tax legislation in Australia has now to resort to the creation of a
separate fund to which State collections have to go (1)  102 C.L.R. 280.
633 ear-marked for the maintenance of roads
and to provide elaborate criteria for determining the amount payable. On this
subject as well as on the subject of regulations as described by Fullagar, J.,
in McCarter v. Brodie (1), the law for the time being seems settled.
Having dealt with the historical background
of the Constitution, the possible models which were considered in the drafting
of Part XIIL we proceed to consider the three views expressed in the Atiabari
Tea Company case (1). These views are not sharply divided. The majority accepts
the view expressed by the learned Chief Justice, but goes beyond it, while
Shah, J., accepts the views of the majority but goes still further. The main
question that arose then, as it has arisen here, is : Do taxation laws come
within the reach of Art. 301 ? Now, it cannot be laid down as a general
proposition that all taxes are hit by that Article. We have shown above that
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 Art.
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 (1)  80 C. L.R. 432. (2)  1. S.C.R. 309.
634 not have been intended. Restriction"
must, there fore, mean something more than a mere tax burden In our opinion,
the issue of taxation cannot made justifiable with reference to Art. 301 in
those cases where the tax is a general tat which a trade pays in common with
others, We would, therefore respectfully disagree with the view of Shah, J.
when he holds :
"Not merely discriminative tariffs
restricting movement of goods are included in the restrictions which are bit 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 burdens on commercial intercourse trench upon the freedom guaranteed
by Article 301." 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 1 and 11 which is
not subject to Arts. 301 and 304, however general the tax and however non.
discriminatory its imposition. To bring all the taxes within the reach of Art.
301 and thus to bring them 635 also within the reach of Art. 304 is to overlook
the concept of a Federation, which allows freedom of action to the States,
subject, however, to the needs of the unity of India. Just as unity cannot be
allowed to be frittered away by insular action, the existence of separate
States is not to be sacrificed by a fusion beyond what the Constitution
envisages. No doubt, Part XIII ensures economic unity to India and combines the
federating States into the larger State called India. The Constitution also
permits independent powers of taxation. What the Constitution does not permit
is that trade, commerce and intercourse should be rendered 'unfree'. Trade and
commerce remain free even when general taxes are paid by tradesmen in common
with no tradesmen. The Question whether a tax offends Part XIII can only arise
when it seeks to tax trade, commerce and intercourse. Support for the contrary
proposition is not to be found in James v. The Commonwealth The Privy Council
in James v. The Commonwealth did not lay down:
"Every step in the series of operations
which constitutes the particular transaction is an act of trade, and control
under the State law of any of these steps must be an interference with its
freedom as trade." (p. 629) The passage represents the view hold in
McArthur's case (2).
That case was disapproved at p. 631. We have
already dealt with this view at some length.
Thus, taxation laws and taxes must be divided
into two kinds. Taxes which are general and for revenue purposes which fall on
those engaged in trade, commerce and intercourse in the same way as they fall
on others not so engaged cannot (1) (1936) A.C. 578.
(2) (1920) 28 C.L.R. 530.
636 normally be within the reach of Part
XIII. A motor transport owner cannot claim that be will not pay property tax in
respect of his garage buildings or electricity tax for the electricity he
consumes in lighting them, or income tax on his profits. Part XIII has nothing
to do with such taxes even though they fall upon tradesmen.
But this is not to say that we accept the
view that all taxes or taxing laws are outside the reach of Part XIII. We find
ourselves unable to accept the argument that there must be a discernible point
in the operations of trade, commerce and intercourse at which the tax becomes a
barrier to the freedom of the movement of trade before it will offend the
freedom guaranteed. This argument considers the subject of freedom in terms of
barriers, tariff walls and imposts, erected in the way of the free flow of
trade, commerce and intercourse. Of course, if the tax does create barriers,
tariff walls and imposts at some discernible point, the restriction is easy to
detect. But restrictions may be diverse, subtle and disguised, and a tax may be
a direct and immediate restriction without appearing to be so at a particular
point in the movement of trade. A law which prohibits trade, commerce and
intercourse and releases them on the fulfillment of some unreasonable condition
including the payment of an unreasonable or discriminatory tax will just as
much be a restriction offending the freedom as a tariff wall or any other
barrier. No question of pith and substance in this context arises, as was
pointed out by the Privy Council in the Banks' case. The nature of the tax and
its relation to trade, commerce and intercourse are the matters to consider.
In trying to establish that taxation entries
are entirely out side the reach of Part XIII, it is contended that Part XII,
which deals with taxation, is a code by itself and taken with the Legislative
Lists, lays down the power of taxation which cannot be taken away by the
provisions of Part XIII. The power of taxation is, therefore, said to be not
subject to the declaration of freedom in Art. 301. The imposition of a tax is
conditioned on the existence of a law. Article 265 lays down that "no tax
shall be levied or collected except by authority of law". Article 301 is a
curb on the law-making power, because by the unambiguous declaration contained
in it, the freedom of trade, commerce and intercourse is secured. The
prohibition is addressed not only to the Executive but also to the Legislature,
because Arts. 302 and 304 lift the ban which has been imposed in favour of
action by law made by Parliament and the State Legislatures respectively.
Article 304 expressly mentions the power to impose taxes which must include at
least excise duties and sales tax, and from this, also, it is quite clear that
taxation is within the prohibition contained in Part XII. This argument was
also rejected by the majority in Atiabari Tea Company case (1), and we
Before, however, a tax can be struck down,
the incidence of the tax and the method of its collection must be examined.
If the tax falls upon trade, commerce and
intercourse as such, irrespective of whether it falls on trade viewed as a
whole or upon individual traders, and restricts the freedom guaranteed, a
question will immediately arise about the legality of the tax. In this
connection, even trade not in motion and more so trade in motion will be
protected unless the law, if made by Parliament is in the public interest, and
if made by the State Legislature it is reasonably in the public interest and
the previous sanction of the President has been obtained. What we have said about
taxation and taxes is also (1) (1961) 1. S.C.R. PC(1).
638 true of other restrictions though not of
a pecuniary character. A restriction from whatever source it may proceed, must
be backed by law made in the manner indicated and the law must comply equally
with those conditions. It may be stated there that it is not open under Part
XIII to courts to devise their own technique for exempting patent and palpable
interferences with the freedom of trade and commerce. In the Australian
Constitution, there was no machinery for determining what freedom of trade,
commerce and intercourse meant in given circumstances, and the Courts stepped
in with its own interpretation of s. 92 of the Commonwealth of Australia Act.
In our Constitution, many problems which agitated the Australian High Court
have been obviated, and in so far as restriction of the freedom is concerned it
can only be achieved by law made in the public interest and in the manner
indicated. In so far as State legislation is concerned, the law must be reasonably
in the public interest, and the sanction of the President must be obtained.
Thus, the President in the first instance and finally the courts will be the
judges of the reasonableness of the restriction and the existence of public
Part XIII, which has created the freedom has
thus also shown the way for restricting the freedom. The Privy Council in the
Banks' case observed:
"If these two tests are applied : first
whether the effect of the Act is in a particular respect direct or remote; and
secondly, whether in its true character it is regulatory, the area of dispute
may be considerably narrower." This may be true where the law attempts to
regulate freedom but not true where the law restricts (1)  76. C.L.R. 1,
380, 38 1, 639 freedom. There is a real difference between regulation and
restriction. Traffic rules are regulations, not restrictions. Trade, commerce
and intercourse are regulated so that they may flow freely. The rule of the
road is not a restriction of commercial traffic, but is one designed to make
the flow of traffic smooth. The prescription that cars should have reliable
brakes or lights or a sound device are not restrictions of trade. These
regulations are needed both for ensuring safety for those engaged in traffic as
also for securing that every one engaged in traffic might equally enjoy that
right. The classification of heavy transport vehicles, the tare weight, the
kinds of tares they must have, the seating capacity of buses and go on and so
forth are not normally restrictions of trade, commerce and intercourse but are
meant for the better and more effective flow of trade, commerce and intercourse.
Such laws cannot be viewed as restrictions at all, and do not come within the
freedom angle, nor do they require the process under which freedom can be
Just as a tax of a general character payable
by all and sundry and not placed upon a trade directly and immediately cannot
be considered as a restriction of trade even though it burdens a trader, so
also regulations of trade without hampering it or impairing its freedom cannot
be described as restrictions. A regulation, when it ceases to be a regulation
and becomes a prohibition may require justification as a reasonable
restriction. Fullagar, J., in Mc Carter v. Brodie (1) pointed out that a
regulation of speed on the high ways does not offend the freedom guaranteed,
but a rule that commercial vehicles should travel at one miles per hour ceases
to be regulation and becomes a restriction. Here, the question is not one of
degree but of the essence of the purpose. The technique of justifying laws as
regulatory was (1)  80 C.L.R. 432.
640 evolved in Australia in view of the
intractable language of s. 92 without any indication of the circumstances in
which the absolute freedom could be curtailed. The detailed pro-visions
contained in Part XIII render such a construction of Art. 301 at once
unnecessary and impermeable.
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. Of such a tax, Lord Watson asked the question: "Do you regulate a
man when you tax him ?" As was pointed out by Lord Herschell during the
arguments in the Liquor Prohibition Appeal 1895 (1) in a passage which we have
quoted earlier, the matter may be looked at in two ways. Lord Herschell observed:
"May it not be necessary to regard it
from this point of view, to find what is within regulation of trade and
commerce, what is the object and scope of the legislation ? Is it some public
object which incidentally involves some fetter on trade or commerce or is it
the dealing with trade and commerce for the purpose of regulating it ? May it
not be that, in the former case, it is not a regulation of trade and commerce,
while in the (1)  A.C. 348.
641 latter it is, though in each case trade and
commerce in a sense may be affected ?" In our judgment, the first test to
apply is what is the object and scope of the legislation? A regulation of trade
and commerce may achieve some public purpose which affects trade and commerce
incidentally but without impairing the freedom. Sometimes, however, the
regulation it self may amount to a restriction, and if such a stage is reached,
then under our Constitution there striation must be reasonably in the public
interest, and the President's prior sanction must be obtained, if the law
imposing such restriction is made by the State Legislature. If, however, it
does not reach the stage of restriction of trade and remains only a regulation
incidentally touching trade and commerce, the regulation is outside the operation
of Arts. 301 and 304. It is on this ground that laws prescribing the rule of
the road and like provisions already referred to as well as a regulation that
the height to which trucks may be loaded must be such as not to endanger the
overhead bridges or wires, do not have to go before the President, since they
do hot affect the freedom guaranteed. The object of such laws cannot be
regarded as a restriction of trade and commerce. Freedom in Art. 301 does not
mean anarchy. Similarly, a demand for a tax from traders in common with others
is not a restriction of their right to carry on trade and commerce. A system of
'licensing of motor vehicles is a regulation, but does not impair the freedom
of trade and commerce unless the licensing is made to depend upon arbitrary
discretion of the licensing authority. Similarly, a fee for administrative
purposes may also be viewed as a part as regulation. Such licensing and fees
fall outside Art. 301, because they cannot be viewed as restrictions, and
therefore do not need to be processed under Art. 304.
642 Such regulations are designed to give
equal opportunity to everyone, subject to a certain standard. The object being
a public object, such regulations cannot be questioned unless they amount to
res trictions. A tax, however, which is made the condition precedent of the
right to enter upon and carry on business at all is a very different matter. It
is a restriction on the right to carry on trade and commerce, and the
restriction is released on the payment of the tax, which is the price of such
release. It is from this point of view that the impugned provisions in this
case must be examined.
We have to examine the precise nature of the
tax imposed, which has to be gathering from the charging section read with the
Schedules, and the plain question is whether so read, there can be said to be
anything other than a tax on a trader and on his activity as a trader. The Act
consists of 24 sections, and 4 Schedules. Section 4(1) which imposes the tax is
the charging section and has, on its terms, to be read with each of the
Schedules to the Act. Apart from the usual sections generally found in every
taxing measure such as prescribing the time the tax has to be paid, cases in
which refund may be had, declarations which have to be made, and provisions for
recovery of tax, appeals, etc. there are provisions for penalties and for
compounding. There is one other provision, to which attention may be drawn and
that is s. 20, which reads:
"20. Levy of toll on certain bridges.
Notwithstanding anything contained in this Act it shall be lawful for the
Government to levy tolls on motor vehicles under any law or usage for the time
being in force, such rates as i t may from time to time fix(i) for the use of
any bridges, or 643 (ii) on any bridge constructed, reconstructed or repaired
after the commencement of this Act." The four Schedules, as their headings
amply show, deal with different subjects. Schedule 1 is divided into two parts
A and B. They deal with the subjects indicated in the headings.
"A. Vehicles (other than Transport
Vehicles plying for hire or required) if fitted solely with pneumatic tyres.
B. If the above motor vehicles are fitted
with resilient or non-resilient tyres, extra tax will be levied at 5% of the
above rate." Part A is then divided into three sections dealing with
different classes of vehicles and prescribe different rates for each such
class. We are not at present concerned with vehicles which are not used as
transport vehicles plying for hire. Schedule II is also divided into two parts
dealing respectively with vehicles fitted with pneumatic tyres and vehicles not
so fitted. The first part deals with two categories marked respectively
"A" and "B". ,A" comprises motor vehicles plying for
hire for the conveyance of passengers and light personal luggage of passengers,
while "B" cornprises goods vehicles plying under Public Carrier's
Permit. There are further sub-divisions in each category "A" and
"B" according to the seating capacity of the vehicles on the basis of
which different rates of tax are imposed, but it is not necessary to go into
Schedule III comprises goods vehicles
registered outside the State using roads in Rajasthan, and they are required to
pay a tax calculated at a specified sum per day. Schedule IV is headed:
"Vehicles used for the carriage of goods
644 in connection with a trade or business carried on by the owner of the
vehicle under a Private Carrier's Permit." These vehicles are again
classified according to the kind of tyres with which they are fitted as well as
by their load capacity and different amounts of tax are payable by each class.
Part II of this Schedule specified the tax payable by dealers in or
manufacturers of motor vehicle, which is described as a payment "for a general
licence" dependent upon the number of vehicles which they manufacture or
From the above analysis, it will be seen that
the tax in Schs.II to IV is laid upon trade and commerce directly and
immediately. It cannot be described as a property tax.
Motor Vehicles employed by a trader for
transport of passengers and goods are integers of trade and commerce.
The tax is not like the property tax which a
transport operator pays on buildings employed by him in his business.
There, the tax is payable also but not as a
condition precedent to the business. The tax, with which we are concerned, is
one directly and immediately laid on trade and commerce and also on trade and
commerce in movement. In this connection, Sch. 1 and Part 11 of Sch. IV need not
be considered for we are dealing with motor vehicles used as integers of trade
and commerce. The tax is evidently not a fee for administrative purposes;
therefore, it cannot be justified as representing payment for services. Its
object is the raising of revenue, which distinguishes a tax from a fee.
We may next consider whether the tax can be
justified as regulatory or compensatory. For this purpose, some facts must be
stated. The appellants are three. They owned buses which were registered in the
former State of 645 Ajmer. They plied on diverse routes. There was one route.
Nasirabad to Deoli, which lay mainly in Ajmer
State, but it crossed narrow strips of the territory of Rajasthan.
Another route, Ajmer to Kishengarh, was
substantially in the Ajmer State, one-third of which was only in Rajasthan.
Kishengarh was, at the material time, a part
The appellants were required to charge fares
prescribed by the Ajmer authorities, and could not change them to cover extra
expenditure in the shape of taxes, which they had to bear in Rajasthan.
Formerly, there was an agreement between the Ajmer State and. Kishengarh State,
by which either State did not charge any tax or fees on vehicle registered in
the respective States. Later, Kishengarh became a part of Rajasthan, and the
tax was demanded from these appellants for the period, April 1, 1951, to March
31, 1954. The demand was made by virtue of s. 4, the charging section, under
pain of the application of s. 1 1, which provides of penalties.
The taxes, which are imposed by Schs. II, III
and IV(1), operate on trade and commerce directly. It is not denied that the
carriage of passengers and goods amounts to trade.
It was, in fact, so help in the Transport
cases in Australia and also by the Privy Council. Under the Act, this trade can
only be carried on, if the tax is paid. The Act, therefore, involves a
prohibition against a trade, which prohibition is released on payment of tax.
The Schedules affect motor vehicles for carriage of passengers and goods on
hire in Rajasthan and also similar vehicles coming from outside. In so far as
vehicles coming from outside are concerned, their entry into the State is
barred unless the tax is paid. The tax is thus not incidental to trade but is
directly on it and is on its movement. This is not tax which the trader has to
bear in common with others, and the tax is 646 for revenue purposes. This is a
case in which if the tax is not paid, the trade is destroyed. The charging
provisions do not take into account what distance a particular vehicle travels
within the State. A vehicle traveling a hundred miles and another traveling
only one mile have to pay an identical sum as tax. How then can it be said that
it involves a fair recompense for the wear and tear of roads? To say that such
tax is compensatory and is a recompense for the wear and tear of the roads is
to mis describe it.
Section 20, which we quoted earlier, may be
compensatory for use of a bridge and may even be described as regulatory within
the decision of Fullagar, J., in McCarter v. Brodie (1) but not the taxing
provisions which even in Australia would not be regarded either as compensatory
It is impossible, therefore, to turn to the
Australian precedents for help.
Further, the duty of maintaining roads is a
duty of the State, and it performs it not from any special fund which is
created from the receipt of these taxes but from its general funds. The wear
and tear of the roads is not caused by the transport vehicles only but other
vehicles not employed in the trade of transport. The tax which is levied is not
based on any theory of recompense, which has been evolved in Australia. There,
the distance traveled, the load carried are taken into account, and a charge is
payable by each operator according to the distance actually travelled by him in
consonance with the weight carried. A further circumstance which goes into the
determination of the amount payable is the kind of tyres and the number of
wheels which the vehicle has. To say that the impugned tax is compensatory
without any attempt to apportion the charge according to the actual wear and
tear, is to borrow a theory for justification which does not apply to the facts
(1)  80 C.L.R.432.
647 The only other question is whether the Act
is, in its true character, regulatory. There is no provision in the Act which
can be regarded as regulatory of motor vehicles or their use. The Act plainly
levies a tax upon the possession or use of motor vehicles. A tax does not
regulate trade ordinarily; it imposes a charge on trade. The question thus
remains: does the tax burden trade or impair the free, flow of trade and
commerce as contemplated Art: 301? It is clear that the tax is on trade. It is
also clear that it is on the movement of trade. It is further clear that it
creates a barrier between one State and another, which trade cannot cross
except on a heavy payment. The tax is not truly a fair recompense for wear and
tear of roads even if a justification on the doctrine of compensatory taxes is
applied. It is nothing except a restriction, which Art. 301 forbids. The Bill
which became the Act, was not submitted to the President for his Previous
sanction, nor was it assented to subsequently after it passed the Legislature.
The question, therefore, whether the
restriction imposed by the Act is reasonable or not,, does not arise.
We are, therefore, of opinion that s. 4(1) as
read with Schs. IT, III and Part 1 of Sch. IV offends Art. 301 of the
Constitution, and as resort to the procedure prescribed by Art. 301(b) was not
taken, it is ultra vires the Constitution. We wish to make it clear that we
pronounce no opinion about the constitutional validity of s. 4(1) as read with
Sch. 1 or the second Part of Sch. TV. The first raises a question as to the meaning
of the expression "intercourse" in Part XIII and as that matter is
not relevant for the appeal before us, and thus no arguments were heard on that
point, we refrain from expressing any opinion on it. The second involves many
other questions, which are far remote from the controversy with which we are
now concerned, and therefore need not be considered here.
648 We would, therefore, allow the appeals,
and quash the demand made upon the appellants.
By COURT: In accordance with the opinion of
the majority, these appeals are dismissed with costs, one hearing fee,.