Article 301 and taxing measures: mere tax imposition does not automatically violate free trade; direct impediment must be shown.

A taxing measure infringes Article 301 only if it directly and immediately restricts the free flow of trade, commerce or intercourse; the mere imposition of tax does not, by itself, attract the constitutional prohibition. The Supreme Court noted that the Kerala High Court had struck down the Luxury Tax on Tobacco (Validation) Act, 1964 and the notification without first determining whether they actually operated as a direct and immediate impediment to trade. It further clarified that Kalyani Stores turned on its special facts and did not establish a general rule that every tax on imported goods violates Article 301. The High Court's invalidity finding could not stand and the matter required reconsideration on the correct constitutional test.

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Issues: Whether the Kerala High Court was right in striking down the Luxury Tax on Tobacco (Validation) Act, 1964 and the related notification on the assumption that Article 304 could not apply in the absence of local production of tobacco, without first determining whether the levy directly and immediately restricted the freedom of trade under Article 301.

Analysis: The governing principle is that Article 301 is infringed only by a restriction that directly and immediately impedes the free flow of trade, commerce or intercourse. A tax does not, by its mere existence, necessarily amount to such a restriction. The earlier decision in Kalyani Stores was based on the special facts of that case and did not lay down a general proposition that every tax or duty on imported goods automatically violates Article 301. The High Court had not examined whether the impugned validation Act and notification actually operated as a direct and immediate impediment to trade. Without such a finding, the further question of justification under Article 304 did not arise.

Conclusion: The High Court's view on invalidity could not be sustained, and the matter required reconsideration on the correct constitutional test.

Ratio Decidendi: A taxing measure infringes Article 301 only if it directly and immediately restricts the free flow of trade, commerce or intercourse; the mere imposition of a tax does not, by itself, attract the prohibition.

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