http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 88  

PETITIONER: THE AUTOMOBILE TRANSPORT(RAJASTHAN) LTD.

       Vs.

RESPONDENT: THE STATE OF RAJASTHAN AND OTHERS(And Connected Appeals)

DATE OF JUDGMENT: 09/04/1962

BENCH: MUDHOLKAR, J.R. BENCH: MUDHOLKAR, J.R. DAS, S.K. SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L. SARKAR, A.K. SUBBARAO, K. HIDAYATULLAH, M. 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)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 88  

RF         1991 SC1650  (3)

ACT: 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  Tax- ation   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.

HEADNOTE: 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  thereunder,  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 Act. 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  com mercial 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  comp-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 88  

ensatory  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,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 88  

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 vehicles. Atiabari  Tea  Co., Ltd. v. The State of  Assam  and  Others [1961] 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 Constitution, considered. 494

JUDGMENT: CIVIL APPELLATE JURISDICTION :   Civil Appeals Nos. 42 to 44 of 1959. Appeals  from the final judament 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 the. respondents. 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 (Intervener). 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 Bihar (Intervener). Dinbandhu Sahu, Advocate-General for the State of Orissa, B. K.P.  Sinha,  T. M. Sen and P. D. Menon, for  the  State  of Orissa (Intervener).  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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 88  

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 Consti- tution  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  ex- officio Motor Vehicles Taxation Officer, Jaipur, and (1)  [1961] 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 88  

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 through out 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 thereunder 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 issued. The  three writ petition were 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  points. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 88  

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)  [1961] 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, some what wider in scope, by the  Constitution  (Fourth Amendment) Act,  1955.   The  new

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 88  

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)  [1955] 2. S.C.R. 303. 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 for use.               (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 liable.               "4.  Explanation.-The  expression  trade   and               industry" includes transport for hire," Sections  5  to  7 deal with (1) payment  of  tax,  (2)  tax

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 88  

payable  on first liability to tax, and (3) refund  of  tax. 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 says :               "11.    Penalties  under   this   Act.-whoever               contravenes any of the provisions of this  Act               or  of any rule made thereunder shall on  con-               viction  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  thereunder. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 88  

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 India.               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  our  way. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 88  

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  pro-               visions   of   Part   XIII,   the    following               propositions emerge: (1) trade, commerce,  and               intercourse throughout the territory of  India               are  not absolutely free, but are  subject  to               certain powers of legislation by Parliament or               the  Legislature of a State; (2)  the  freedom               declared  by  Art. 301 does not  mean  freedom               from  taxation  simpliciter,  but  does   mean               freedom from taxation which has the effect  of               directly  impeding  the free  flow  of  trade,               commerce  and  intercourse;  (3)  the  freedom               envisaged  in  Art.  301 is  subject  to  non-               discriminatory    restrictions   imposed    by               Parliament in public interest (Art. 392);  (4)               even discriminatory or                (1)  [1961] 1.S.C.R.809.               508               preferential  legislation may be made by  Par-               liament  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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 88  

             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 restric-               tions 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 immedia-               tely 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 opi-               nion,  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 88  

             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 envisaged. India  then consisted of various administrative units  known as  Provinces,  each  with its own  administrative  set  up. There  were differences of language, religion etc.  Some  of the  Provinces  were economically more  developed  than  the others.   Even inside the same Province, there  were  under- developed 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)  [1961] 1. S. C. R. 809.                             511 without  putting an ever-increasincg 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 88  

involved, in the context of the conditions then  prevailing, a  distribution of powers and a basic part of our  Constitu- tion 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)  [1931] 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 inter- relation 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 88  

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  im- pediment  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)  [1961] 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)  [1964] 1. S. C. R. 809. 515 I,  entry  26  of list II, and entry 33 of  list  III.   The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 88  

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)  [1961] 1 S.C.R. 809. 516 British Indian territory.  According to him, the  intraState 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".

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 88  

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) [1961] 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  Art. 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  India. 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 interState  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 88  

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)  [1953] 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  open- ing 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 88  

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)  [1950] 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) [1916] 22 C.L.R. 556  (2) [1950] 80 C.L.R. 432.                     (3) [1955] 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 88  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 88  

of  a State without the previous sanction of the  President. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 88  

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 judgement  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 88  

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)  [1961] 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 88  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 88  

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)  [1961] 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 88  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 88  

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  facilities. 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  hearing fee.   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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 88  

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 interState 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 29 of 88  

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  some-               thing 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  inter-State  market.               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."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 30 of 88  

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 borders. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 31 of 88  

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 interState 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 non-commercial intercourse. 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),  Common- wealth  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 32 of 88  

(1) (1912) 16 C.L.R. 99.(2) (1920) 28 C.L.R. 530. (3) [1936] A.C. 578.     (4) [1950] A.C. 235. (5) [1930] 43 C.L.R.  386.(6) (1955] A.C. 241. (7) [1956] 93 C.L.R. 127.(8) [1955] 93 C.L.R. 155. (9) [1957] 99 C.L.R. 28.(10) [1959] 102 C.L.R. 280. 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 services rendered. 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 significa- tion  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 the same.                             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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 33 of 88  

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 non-commercial intercourse. 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  promote   it. Police regulations, though they may superficially appear  to restrict the freedom of movement, in fact provide the neces- sary  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  it. So too, licensing system with compensatory fees would not be restrictions but regulatory provisions ; for without it, the necessary  lines of communication, such as roads,  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 34 of 88  

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  sidewind 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 that  Art. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 35 of 88  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 36 of 88  

(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)  [1961]  3 S.C.R.77.        (2)  [1962]  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 some how must  be               ascertained by the court responsible for deci-               ding       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  ascer-               tained  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  meti- culously 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 37 of 88  

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. 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." 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.  Thereunder 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 38 of 88  

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 the Constitution. Article  303  is  an exception or a  proviso  to  Art.  302. Article  303 opens out with a non-obstante  clause,  namely,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 39 of 88  

"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 a 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  Seventh               Schedule". 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 40 of 88  

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  Art. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 41 of 88  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 42 of 88  

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  agreement. 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  provi- sions  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 subject. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 43 of 88  

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 costs. 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 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 actually 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 for use.               (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  sub-               section 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 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."               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 following question:               "Whether  ss. 4 and II of the Rajasthan  Motor               Vehicles  Taxation  Act,  1951,  infringe  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 44 of 88  

             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. 265. 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)  [1961] 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 angles. 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,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 45 of 88  

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  well- accepted  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  deter-               mine that question; and the only way in  which               they can properly do so, is by looking to  the               terms  of the instrument by which,  affirmati-               vely, 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  constru-               ctively 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) [1942] 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 46 of 88  

             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  concer- ned,  it  must be admitted that it was  not  only  exercised under Entry 57, but, if judged solely under that Entry, that it was properly exercised. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 47 of 88  

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 Con- stitution  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  con- flict  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 48 of 88  

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) [1950] A.C. 235. (2) [1955] 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  Austra- lian  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 49 of 88  

             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   dis-               tinguished  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)   [1914] A.C. 237.                                    577               deliberation,  and if there is as points  obs-               curity  in its language, this may be taken  to               be  due not to any uncertainty as to the  ado-               ption   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 soon  appeared. 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) [1950] A.  C. 235. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 50 of 88  

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. 530. (3) [1936] 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  discrimi-               nating 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) [1936] A.C. 578.               580               of  which is a regulation of interstate  trade

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 51 of 88  

             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  meaning.               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) [1912] 16 C. L. R.99.                (2) [1920] 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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 52 of 88  

This was departed from later in Commonwealth of Australia v. Bank of New South Wales (1), but after our Constitution  was drafted. 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) [1950] A. C. 235. (2) [1920] 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  inter- State  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) [1900] A.C. 588 592.                     (3) [1936] 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  States: (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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 53 of 88  

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 briefly. 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) [1932] 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 54 of 88  

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. R. 30.               (2)   (1935) 52 C.L.R. 189.               (3)   (1935) 52C.L.R.215.               (4)   [1936] A.C. 5 78.               586               agents, possesses, until delivery and  market-               ing  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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 55 of 88  

             (4)   (1939) 62 C. L. R. 116, 127.                                    587               the  manner in which trade  (including  trans-               port) is to be conducted is not a mere  prohi-               bition 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 judgement 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 executive control.               (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 Commerce power.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 56 of 88  

             (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 constit-               uting  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  reg-               ulatory  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  in- tangibles  like insurance, banking, etc. were included  that concept, and agreed with the view that though regulation  of trade, commerce and interCoarse 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 framed. (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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 57 of 88  

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 theme 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  Leg- islatures’.  In City of Montreal v. Montreal Street  Railway (3), the same was observed again.  Lord (1) (1881) 7 App.  Cas. 96. (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)  [1896]  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 58 of 88  

             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 words :               "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) [1837] 12 App, Cas. 575.                (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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 59 of 88  

(1)  [1958] 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  converse  order. 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 fields. 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 being  added. 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 preparatory  periods. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 60 of 88  

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 federation. 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 Govern-               ment  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 and instructions.               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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 61 of 88  

             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 imposi- tion  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  private  markets. 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  con- tributions  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,   self-               governing  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 observed:               "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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 62 of 88  

             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    etc. 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  encou-               raging  them to develop a vigorous  and  inde-               pendent  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 63 of 88  

             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  in-               justice.  "               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 internal-                                    603               customs the accession of a State to the  Fede-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 64 of 88  

             ration  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)  Provinces...... (b)  The  Indian States which have or may thereafter  accede

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 65 of 88  

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)  [1939] 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  contra-               vention, 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  in  cl. (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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 66 of 88  

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 interState, 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,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 67 of 88  

             strengthened  by  the advent of  a  full  Pro-               vincial  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 be free. 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 India. (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, how- ever  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 68 of 88  

(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 ex- 611               cept  in so far as the President may by  order               otherwise provide.’)                               306.  Deleted.               (The original Article before its deletion               read :                ’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  Con-               stitution  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.               Union List               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.               Concurrenl List

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 69 of 88  

             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               and oils;               (c) cattle fodder, including oilcakes               and other concentrates;               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 power. 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  inter- course  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 Consti- tution   (,"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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 70 of 88  

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 the  freedom. 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  rest- rictions on trade, commerce and intercourse in two  aspects. They are :               (a)   between one State and another; or               (1) [1948] 76 C. L. R. I. 38, 381.               (2) (1936) A. C. 578.               615               (b)   within  any  part of  the  territory  of               India. 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  nonobstructive clause "Dotwithetanding 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 71 of 88  

the   circumstances   stated   in   this   Article.     This nonobstructive  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 say  next. 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 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  againstt  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 72 of 88  

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 again :               "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 consideration. 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 nondifferentiation  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 intera-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  intera-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  legisla- ture.   The opinion of the legislature as expressed  in  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 73 of 88  

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 Arti- cle.   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 subjectam 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 74 of 88  

             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 C.T.R. 30.               (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. 280. 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 Cons- titution,  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 75 of 88  

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. 29.  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 refused. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 76 of 88  

not attach itself to each and every part of transaction, and the  other parts were not free from regulation  or  control. 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)   [1950] 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               maximum limit;                                    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               the individual;               (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.’

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 77 of 88  

             (3)   that  because  a law  applied  alike  to               inter-State commerce and to domestic  commerce               of  a  State, it might escape  objection  not-               withstanding that it prohibited, restricted or               burdened inter-State commerce.               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  con-               sisted  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  com-               merce  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)  [1948] 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  free- dom.   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 for long. 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  regula-               tions 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 78 of 88  

             other traffic.  The validity of such laws must               depend upon the question whether they               (1) [1955] A.C. 241.                          (2) [1950]80 C.L.R. 432.               629               impose  a  real  burden  or  restriction  upon               inter-State traffic". 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) [1938] 57 C.L.R. 327.  (2) [1932]A.C. 542. (3) [1950] 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 79 of 88  

             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 prevent-               ing or obstructing the dealing across the bor-               der 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) [1933]48 C.L.R. 316. (2) [1955] 93  C.L.R.               125 1S9-162.               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  char- ges. 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)[1955]93C.L.R 292.  (2) (1955] 93 C.L.R. 307. (3)  [1957] 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 was determined. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 80 of 88  

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 powerweight 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)  [1959] 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) [1950] 80 C. L.R. 432.  (2) [1961] 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 81 of 88  

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 every one 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  non- tradesmen.  The Question whether a tax offends Part XIII can only  arise when it seeks to tax trade, commerce and  inter- course.   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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 82 of 88  

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 taxa- 637 tion,  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 respectfully agree. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 83 of 88  

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 interest. 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  parti-               cular 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)  [1978] 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 inter- course.  Such laws can not 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  curtailed. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 84 of 88  

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)  [1950] 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  adminis- trative  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)   [1896] 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 85 of 88  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 86 of 88  

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 their details. 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  deal in. 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 of  Rajasthan. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 87 of 88  

for  the period, April 1, 1951, to March 31, 1954.  The  de- mand 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  misdescribe  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 or  regulatory. 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  circums- tance  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 here. (1)  [1950] 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 88 of 88  

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,. Appeal dismissed.