Inter-State trade restrictions: permit and declaration requirements struck down as an impermissible restraint on goods movement.

Permit and declaration requirements for goods moved through Bihar in inter-State trade were treated as substantial restraints on free movement of goods, not as a mere regulatory check against tax evasion. The Patna HC held that the notification under the Bihar Finance Act, 1981 violated Articles 301 and 304 because it imposed onerous pre-transport conditions and applied to goods brought into and sent out of the State. The Court also held that the scheme did not amount to a tax on inter-State goods under Article 269(1), and the penalty operated only as enforcement of the declaration regime. The contrary view was rejected and the notification was struck down.

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Issues: (i) Whether Notification No. S.O. 1432 dated 28 December 1985, issued under section 31(2a) of the Bihar Finance Act, 1981, imposing declaration and permit requirements for goods transported through Bihar in inter-State trade, violates Articles 301 and 304 of the Constitution of India. (ii) Whether the notification can be upheld as a mere regulatory measure or as a valid incident of taxing power, including the challenge based on Article 269(1) and Entry 92B of List I.

Issue (i): Whether Notification No. S.O. 1432 dated 28 December 1985, issued under section 31(2a) of the Bihar Finance Act, 1981, imposing declaration and permit requirements for goods transported through Bihar in inter-State trade, violates Articles 301 and 304 of the Constitution of India.

Analysis: The notification required a permit and declaration forms to be carried and filled in before transport, applied to goods moving into and out of Bihar in inter-State commerce, and treated incomplete compliance as a violation attracting serious penalty. The requirement operated not merely as a check on intra-State sales tax evasion but as a substantial restraint on movement of goods in inter-State trade. The Court held that the situation was covered by the controlling precedent which struck down similar restrictions as unauthorised where they impeded inter-State movement of goods.

Conclusion: The issue is answered against the State and in favour of the assessee. The notification is violative of Articles 301 and 304.

Issue (ii): Whether the notification can be upheld as a mere regulatory measure or as a valid incident of taxing power, including the challenge based on Article 269(1) and Entry 92B of List I.

Analysis: The Court held that the impugned scheme did not levy tax on inter-State goods and therefore did not fall within Article 269(1). The penalty attached to non-compliance was treated as a sanction for enforcing the declaration requirement, not as a tax. The reliance placed on regulatory-pass cases was distinguished because the present notification imposed much more onerous pre-transport conditions on inter-State movement and was not confined to intra-State transactions. The reading-down attempt was rejected because the text expressly extended to goods brought into and sent out of the State.

Conclusion: The challenge on this ground fails and the notification cannot be sustained as a valid regulatory measure.

Final Conclusion: The declaration and permit regime was struck down as an impermissible restraint on inter-State trade, the contrary view was overruled, and the writ petitions were allowed with consequential relief.

Ratio Decidendi: A State cannot, under the guise of regulating transport or preventing tax evasion, impose permit and declaration requirements that operate as substantial restrictions on the free movement of goods in inter-State trade where no State tax is leviable on the transaction.

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