- Part XIII of the CONSTITUTION states the Articles based on Freedom of Trade, Commerce and Intercourse within the territory of India. Article 301 of the Indian Constitution specifically states about the Freedom of Trade, Commerce and Intercourse.
The word “Trade” means Buying or selling of goods including manufactured process.
“Commerce” includes all forms of transportation.
“Intercourse” means movement of goods from one place to another.
- Article 301 of the Constitution states freedom of trade, commerce and intercourse as subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. It means that there shall be no restraint on the trade. It also means that there shall be free movement and exchange of goods. As per Article 301, there shall be free movement of goods from one part to the other part of the country.
Article 301: Freedom of trade, commerce and intercourse
Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free.
Article 302: Power of Parliament to impose restrictions on trade, commerce and intercourse
Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest.
Article 303: Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce
(1)Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule.
(2)Nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India.
Article 304: Restrictions on trade, commerce and intercourse among States
Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law–
(a)impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and
(b)impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest:
Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President.
Article 305: Saving of existing laws and laws providing for State monopolies
Nothing in articles 301 and 303 shall affect the provisions of any existing law except in so far as the President may by order otherwise direct; and nothing in article 301 shall affect the operation of any law made before the commencement of the Constitution (Fourth Amendment) Act, 1955 , in so far as it relates to, or prevent Parliament or the Legislature of a State from making any law relating to, any such matter as is referred to in sub-clause (ii) of clause ( 6 ) of article 19 .
Object to these provisions under article 301-307:
- – To presume National Economic System;
- – To prevent local barrier in economic activities;
- – To breakdown the border barriers between states;
- – To sustain the progress of the country;
- – To encourage the free flow of trade;
The Constitution under article 301-305 deals with domestic trade and commerce, i.e., within the territory of India. This can be further divided into two:-
1. Inter-state:- commerce which overflows from one state to another
2. Intra-state:- commerce which carried within the territory of state.
RELEVANT CASE LAWS
Atiabari Tea Company ltd. vs State of Assam
Facts: In this case, the Assam legislature passed an act to levy taxes on certain goods carried by roads or inland waterways in the state of Assam. The appellant were the growers of tea and used to carry their tea to the market in Calcutta through the territory of Assam by roads or inland waterways from Assam to Bengal. The tea carried by the appellants was subjected to the tax under the “Assam Taxation (on goods carried by roads or inland waterways)Act, 1954”.
issue: Whether the restriction by the state legislature valid?
Judgement: It was held that the tax imposed on the goods directly restricted their transport or movement and therefore the act offended under article 301.
Automobile Transport Ltd. vs State of Rajasthan
Facts: In this case, State of Rajasthan imposed an annual tax on motor vehicles (Rs. 60 on motor vehicle and Rs. 200 on a goods vehicle per year). The appellant challenged the validity of tax kind under article 301.
Issue: Whether the tax levied was constitutionally valid?
Judgement : It was held that the tax imposed is valid as it is only a regulatory measure or a compensatory tax for the facilitation of the smooth running of trade, commerce and intercourse. The court commented that the taxes are the sole key for a state in order to preserve the financial health of the state at large. In this case, the concept of regulatory and compensatory taxes got sanction.
G.K. Krishnan vs State of Tamil Nadu
Facts: In this case, State of Tamil Nadu issued a notification increasing the MV tax on omnibus from Rs. 30 to Rs.100 to stop the unhealthy competition between omnibus and regular stage carriage buses and to reduce the misuse of omnibus.
Issue: Whether the notification was a barrier to the freedom of trade, commerce & intercourse or not?
Whether the tax was compensatory or regulatory?
Judgment: It was held that the tax was of compensatory or regulatory nature and was in therefore violation of Article 301. The court while explaining the rationale behind the judgement said that these taxes are not barrier but a medium that facilitates trade. Hence the increase in tax was held correct and valid in the eyes of law.
Shree Mahavir Oil Mills vs State of Jammu & Kashmir
Facts: The manufacturers of edible oil in other states were obligated to pay sales tax on the sales effected by them in the state of J&K @ 4 percent and the local manufacturers were totally exempted therefrom. In 1993-94, the rate of tax was raised to 8% and again the outstanding were obligated but locals were exempted fully. It is then, that some of the outstanding manufacturers including the appellants herein filed a suit.
Issue: Whether the order of the govt. of J&K exempting the local manufacturers from payment of sales tax unconditionally amounts to discrimination against out state manufacturers under article 301 & 304?
Judgement: It was held that, according to article 304(a), a state can impose any tax on goods imported from other states or union territories to which similar goods manufactured or produced in that state are subject to. But such tax shouldn’t discriminate between goods so imported and goods so manufactured. This clause is ltd. to one subject matter. A state can’t discriminate between goods imported from other states and goods manufactured in its territory in the matter of taxation. The object of this clause is to prohibit states from creating “tax barriers” at the boundaries. Hence, exemption given to locals are violative of article 304(a). Therefore J&K shares impose taxes on the locals.
Jindal Stainless ltd. vs State of Haryana
In this case, by a majority of 7:2, the court uphold the validity of entry tax legislations and unanimously rejected the “compensatory tax” theory propounded in Automobile case holding that “concept of compensatory tax” is faulty and has no justice basis.
The court laid down the following principles:-
1. The word “free” in article 301 did not mean “free from taxation”. The imposition of taxes either by state/center was prohibited by part 13 of the constitution (301-305).
2. Only such taxes were discriminatory under article 304(a) that constituted an infraction of article 301.
3. Clause (a) & (b) of 304 have to be read disjunctively.
4. Compensatory tax theory is rejected an dhas no jurisdiction basis.
5. A tax on entry of goods into local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing state.
6. Article 304(a) drawn upon discrimination and not mere differentiation. Therefore, setoff, incentives, etc. granted to develop economically backward areas would not violate article 304(a).
7. Measures taxes to ensure tax burden on goods imported & goods produced within the state fall equally wouldn’t violate article 304(a).
