Regulatory and compensatory taxes on road use may fall outside Article 301 if they do not directly restrain trade flow.

Article 301 does not bar every tax; only measures that directly and immediately impede the free flow of trade, commerce and intercourse. A levy that is regulatory in character, or compensatory for use of trading facilities such as roads, is treated as outside the mischief of Article 301. On the stated facts, the motor vehicles tax was imposed on vehicles using or kept for use on Rajasthan roads and was regarded as a charge for road use and maintenance rather than a tax on trade itself. The majority treated it as valid without Article 304(b) compliance, while the dissent viewed it as a direct restriction requiring presidential sanction.

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Issues: Whether the levy under section 4 read with the relevant Schedules of the Rajasthan Motor Vehicles Taxation Act, 1951, was a regulatory or compensatory impost outside the mischief of Article 301 of the Constitution, or whether it imposed a direct and immediate restriction on the freedom of trade, commerce and intercourse and was invalid for want of compliance with Article 304(b).

Analysis: The majority held that Article 301 does not exclude every tax, but only laws that directly and immediately impede the free flow of trade, commerce and intercourse. A levy that is regulatory in character, or compensatory for the use of trading facilities such as roads, is not a restriction within Article 301. On the facts, the tax was imposed on motor vehicles using the roads in Rajasthan or kept for use there, applied to all owners of such vehicles, and was treated as a charge for the use and maintenance of roads rather than as a tax on trade as such. The majority therefore regarded the levy as compensatory and regulatory, not as a barrier to movement of trade requiring compliance with the special procedure under Article 304(b). The dissent treated the levy as a tax directly on transport activity and as a restriction on trade and commerce.

Conclusion: The levy was held to be valid and not to offend Article 301; the challenge failed and the appeals were dismissed.

Dissenting Opinion: Hidayatullah, J. would have held that section 4(1) read with Schedules II, III and Part I of Schedule IV imposed a direct restriction on trade and commerce, was not truly compensatory, and was therefore unconstitutional for want of presidential sanction under Article 304(b).

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