Tax evasion check-post controls upheld as valid regulation, not a direct restriction on trade.

Section 16A of the Orissa Sales Tax Act and rules 94 and 94A were examined as ancillary anti-evasion measures within the State's sales tax competence. The court held that the check-post machinery was not colourable legislation because it operated to prevent tax evasion rather than to disguise a restraint on trade. It also held that a temporary inspection or stoppage at check-posts is a regulatory measure and does not directly or immediately restrict trade, so it does not infringe article 301 or article 19(1)(g). The statutory check-post scheme was therefore upheld as a valid regulatory control.

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Issues: (i) Whether section 16A of the Orissa Sales Tax Act, 1947 and rules 94 and 94A of the Orissa Sales Tax Rules, 1947 were beyond legislative competence or amounted to colourable legislation. (ii) Whether the check-post and inspection mechanism infringed the freedom of trade under article 301 of the Constitution of India or the freedom under article 19(1)(g) of the Constitution of India.

Issue (i): Whether section 16A of the Orissa Sales Tax Act, 1947 and rules 94 and 94A of the Orissa Sales Tax Rules, 1947 were beyond legislative competence or amounted to colourable legislation.

Analysis: The provision was examined in the context of the State's power under entry 54 of List II of the Seventh Schedule to the Constitution of India to levy sales tax and to enact ancillary measures to prevent tax evasion. A colourable exercise arises only where a law, though apparently within competence, in substance transgresses the field outside competence. The check-post machinery was found to be directed to prevention and checking of sales tax evasion and not to a disguised restraint on trade.

Conclusion: The provision was held to be within legislative competence and not a colourable exercise of power, in favour of the Revenue.

Issue (ii): Whether the check-post and inspection mechanism infringed the freedom of trade under article 301 of the Constitution of India or the freedom under article 19(1)(g) of the Constitution of India.

Analysis: The freedom guaranteed by article 301 is not absolute and does not exclude all regulatory control. Only a measure that directly and immediately restricts trade falls within the constitutional prohibition, whereas a regulatory or incidental measure aimed at public interest and tax enforcement remains outside it. The impugned check-post provisions were treated as a regulatory device to detect evasion of tax, causing only a temporary stoppage and not a direct or immediate impediment to trade or commerce.

Conclusion: The impugned provisions were held not to offend article 301 or article 19(1)(g), in favour of the Revenue.

Final Conclusion: The statutory check-post scheme was upheld as a valid regulatory measure for prevention of tax evasion, and the writ petition failed.

Ratio Decidendi: A measure designed to prevent tax evasion and operating only as a regulatory check on movement of goods does not violate article 301 unless it directly and immediately restricts trade.

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