TaxTMI 
TaxTMI 
1962 (4) TMI 91
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.... decision of this Court in Atiabari Tea Co. Ltd. v. The State of Assam ([1961] 1. S. C. R. 809) the appeals should be heard by a larger Bench. The appeals were then placed before the learned Chief Justice for necessary orders, and on his orders have now come to this Bench of seven Judges for disposal. As the constitutional issues involved affect the state of the Union, notices were issued to the Advocates-General concerned. A notice was also issued to the Attorney General on behalf of the Union of India. The States of Andhra Pradesh, Assam, Bihar Gujrat, Madras, Maharashtra, Orissa, Punjab, Uttar Pradesh and West Bengal intervened and were represented before us either through their respective Advocates-General or other Counsel M/s. M. A. Tulloch & Co., Andhra Pradesh Motor Congress and Nazeeria Motor Service, Nellore, applied for intervention on the ground that they would be affected in a pending litigation by the decision of this Court on the constitutional issues involved. Those applications were allowed by us. The result has been that we have heard very full arguments not only from Counsel appear for the appellants and the respondents, but also from the learned Counsel appearing....
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....ed from them, the second respondent issued certificates under s. 13 of the Act to the, third respondent for the recovery of the tax due as arrears of land revenue. On receipt of the demand notices the second and the third appellants filed appeals before the Transport Commissioner, Jaipur, under s. 14 of the Act. These appeals were however, dismissed by an order of the Transport Commissioner dated October 21, 1953. The first appellant did not file any appeal. Thereafter the three appellants filed three separate writ petitions in the Rajasthan High Court in which their main contention was that the relevant provisions of the Act imposing a tax on their motor vehicles were unconstitutional and void as they contravened the freedom of trade, commerce and intercourse through out the territory of India declared by Art.301 of the Constitution and therefore the demand and attempted collection of such tax were illegal and should be prohibited. The prayers which the appellants made in their respective writ petitions were mainly there-(1) that it be declared that the Rajasthan Motor Vehicles Taxation Act of 1951 and the Rules made thereunder are invalid and not in accordance with the provisions....
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....cles. The fact that on account of this taxation, the charges of transport vehicles are higher, let us say by an anna a maund is, in our opinion, merely an indirect or consequential result of this Act, and such an impediment may fairly be called remote. It would be a different matter if the taxation is so high that it virtually kills trade and commerce by compelling the traders to raise their prices to an exorbitant rate. But this being not the nature of the tax in this case, and the taxation being not directly on trade, commerce or intercourse......... we are of opinion that this taxation can not be said to offend against Art. 301, for its effect on trade and commerce is only indirect and consequential and the impediment, if any, may fairly be regarded as remote." 3. In view of that conclusion the Full Bench answered the question referred to it in the negative. The cases then went back to the Division Bench with the answer given by the Full Bench and the writ petitions were dismissed by the Division Bench by its judgment and order dated August 9, 1957. The three appellants then moved the High Court for a certificate under Art. 132 of the Constitution which certificate the High C....
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....by the Rajpramukh of the State of Rajasthan on April 1, 1951. The history of the constitution of the United State of Rajasthan and the powers of the Rajpramukh under the covenant creating the State were stated in Thakur Amar Singhji v. State of Rajasthan([1955] 2. S.C.R. 303) at pp. 312 to 316 of the report. With that history ,we are not concerned in the present cases. The competence of the Rajpramukh to make the Act was challenged in the High Court but was decided against the appellants. That point has not been agitated before us and we must proceed on the footing that the Act was validly made by the Rajpramukh. Section 4 of the Act is the charging section, the validity of which has been challenged before us on the ground that it violates the freedom of trade, commerce and intercourse granted under Art. 301 of the Constitution. It is, therefore, necessary to quote s. 4. "4. Imposition of tax.-(1) Save as otherwise provided by this Act or by rules made thereunder or by any other law for the time being in force, no motor vehicle shall be used in any public place or kept for use in Rajasthan unless the owner thereof has paid in respect of it, a tax at the appropriate rate sp....
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....ability of a person to pay the tax shall not be questioned or determined otherwise than as provided in the act or in the rules made thereunder. Sections 17 to 21 deal with certain ancillary matters and s. 22 enables the Government to make rules for carrying into effect the purpose of the Act. There are four Schedules to the Act to which a more detailed reference will be made later. It is enough to state here that the Schedules divide motor vehicles into two parts Schedule I deals with vehicles other than transport vehicles plying for hire or reward; Schedule II deals with transport vehicles of two kinds transport vehicles and goods vehicles; Schedule III deals with goods vehicles registered outside Rajasthan but using roads in Rajasthan; and Schedule IV deals with vehicles used for the carriage of goods in connection with a trade or business carried on by the owner of the vehicle under a private carrier's permit. Various rates of tax are provided for various kinds of vehicles in these Schedules. The High Court has pointed out that Schedule I is concerned with vehicles other than transport vehicles and is mainly concerned with what would come within the term ",intercourse" in Ar....
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....merce 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". 9. Article 305 we have already stated is out of our way. Article 306, which was later repealed by the Constitution (Seventh Amendment) Act, 1956, is also not material for the consideration of the problem before us. Article 307 is also not material as it relates to the appointment of an appropriate authority for carrying out the purposes of Arts. 301 to 304. 10. The series of articles on the true scope and effect of which the decision of the problem before us depends were the subject matter of consideration of this Court in the Atiabari Tea Co. case (1), In that decision three views were expressed and one of the questions mooted and argued before us is whether the principle of the majority decision in that case requires reconsideration, or modification in any respect; or whether any of the other two views expressed therein is the correct view. Another connected question is that if the majority view is the co....
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....t of directly impeding the free flow of trade, commerce and intercourse; (3) the freedom envisaged in Art. 301 is subject to nondiscriminatory restrictions imposed by Parliament in public interest (Art. 392); (4) even discriminatory or preferential legislation may be made by Parliament for the purpose of dealing with an emergency like a scarcity of goods in any part of India (Art. 303(2)); (5) reasonable restrictions may be imposed by the Legislature of a State in the public interest (Art. 304(b)); (6) non-discriminatory taxes may be imposed by the Legislature of a State on goods imported from another State or other States, if similar taxes are imposed on goods produced of manufactured in that State (Art. 304(a); and lastly (7) restrictions imposed by existing laws have been continued, except in so far as the President may by order otherwise direct(Art. 305)." (pp. 831-832.) 11. The majority view differed from that of the learned Chief Justice in that it did not accept as correct the contention that tax laws were governed by the provisions of Part XII of the Constitution only and were outside Part XIII. The majority expressed the view that when Art. 301 provided that trade shall....
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.... background against which the problem before us has to be solved. We must now say a few words regarding the historical background. It is necessary to do this, because extensive references have been made to Australian and American decisions, Australian decisions with regard to the interpretation of s. 92 of the Australian Constitution and American decisions with regard to the Commerce Clause of the American Constitution. This Court pointed out in the Atiabari Tea Co. case ([1961] 1. S. C. R. 809.) that it would not be always safe to rely upon the American or Australian decisions in interpreting the provisions of our Constitution. Valuable as those decisions might be in showing how the problem of freedom of trade, commerce and intercourse was dealt with in other federal constitutions, the provisions of our Constitution must be interpreted against the historical background in which our Constitution was made; the background of problems which the Constitution makers tried to solve according to the genius of the Indian people whom the Constitution-makers represented in the Constituent Assembly. The first thing to be noticed in this connection is that the Constitution-makers were not writ....
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....f of the intervening States before us was that the majority view in the Atiabari Tea Co. case([1931] 1.S.C.R. 809) did not give sufficient importance to the power of the States under the Indian Constitution to raise revenue by taxes under the legislative heads entrusted to them, in interpreting the series of articles relating to trade, commerce and intercourse in Part XIII of the Constitution. It has been often stated that freedom of inter-State trade and commerce in a federation has been a baffling problem to constitutional experts in Australia, in America and in other federal constitutions. In evolving an integrated policy on this subject our Constitution-makers seem to have kept in mind three main considerations which may be broadly stated thus: first, in the larger interests of India there must be free flow of trade, commerce and intercourse, both inter-State and intra-State; second, the regional interests must not be ignored altogether; and third, there must be a power of intervention by the Union in any case of crisis to deal with particular problems that may arise in any part of India. As we shall presently show, all these three considerations have played their part in the s....
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....case([1961] 1. S. C. R. 809); it is argued that in the latter the tax was on the carriage of goods, whereas in the present cases the tax is a consolidated tax on the vehicle itself, like a property tax, and, therefore, it does not relate to the movement part of trade, commerce and intercourse, though it may have an indirect effect on trade, and commerce by raising the tariff or fare for passengers and goods. The learned Counsel for the respondents has in this way tried to distinguish the majority decision in the Atiabari Tea Co. case([1961] 1. S. C. R. 809), but he has mainly argued in favour of the view expressed by the learned Chief Justice. On behalf of the interveners, some have supported the majority view with or without modifications and some the other two views. Mr. N. C. Chatterjee appearing on behalf of the Union of India supported the majority view, though the stand taken by the Attorney General on behalf of the Union of India in the Atiabari Tea Co. case([1964] 1. S. C. R. 809) was somewhat different. Mr. Ranadeb Chaudhuri appearing on behalf of one of the interveners (M/s. M.A. Tulloch & Co.) has accepted the majority view with some modifications. He has stated that Art....
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.... not come within Part XIII except to the extent mentioned in Art. 304(a). Mr. Lalnarain Sinha appearing for the State of Bihar has supported the view of the learned Chief Justice in Atiabari Tea Co. case though the reasons given by him are somewhat different. His argument has been that Art. 301 secures for trade, commerce and intercourse throughout the territory of India a qualified freedom from restrictions based on geographical classifications only; the freedom thus secured is in regard to barriers (in the geographical sense) impeding trade, commerce and intercourse between one State and another or between one territory and another within or without the same State, and also against territorial discriminations in respect of trade, commerce and intercourse either inter-State or intra-state. With regard to taxation, his contention is that taxes (meant for raising revenue only and called fiscal taxes) do not operate as inter-State or inter-territorial barriers nor involve any territorial discriminations, and they do not come within Part XIII. Mr. D. Sahu appearing for the State of Orissa argued that the freedom granted by Art. 301 was confined to (i) inter-State barriers, and (ii) cu....
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....make any law giving any preference to any one State over another or discriminating between one State and another by virtue of any entry relating to trade and commerce in lists I and III of the Seventh Schedule. Article 303(1) which places a ban on Parliament against the giving of preferences to one State over another or of discriminating between one State and another, also provides that the same kind of ban should be placed upon the State Legislature also legislating by virtue of any entry relating to trade and commerce in lists II and III of the Seventh Schedule. Article 303 (2) again carves out an exception to the restriction placed by Art. 303(1) on the powers of Parliament, by providing that nothing in Art. 303(1) shall prevent Parliament from making any law giving preference to one State over another or discriminating between one State and another, if 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. This exception applies only to Parliament and not to the State Legislatures. Article 304 comprises two clauses and each clause operates as a proviso to Arts. 301 and 303. Clause (a) of that ar....
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....1) unless Parliament makes the declaration contained in Art. 303(2), the State's power contained in Art. 304(b) is made expressly free from the prohibition contained in Art. 303(1), because the opening words of Art. 304 contain a non obstante clause both to Art. 301 and Art. 303. The second difference springs from the fact that while Parliament's power to impose restrictions under Art. 302 upon freedom of commerce in the public interest is not subject to the requirement of reasonableness, the power of the States to impose restrictions on the freedom of commerce in the public interest under Art. 304 is subject to the condition that they are reasonable. 16. On the basis of the aforesaid textual construction, which is perhaps correct so far as it goes, the view expressed is that the freedom granted by Art. 301 is of the widest amplitude and is subject only to such restrictions as are contained in the succeeding articles in Part XIII. But even in the matter of textual construction there are difficulties. One of the difficulties which was adverted to during the Constituent Assembly debates related to the somewhat indiscriminate or inappropriate use of the expressions "subject....
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....cisions: (i) that regulation of trade, commerce and intercourse among the States is compatible with its absolute freedom, and (ii) that s. 92 of the Australian Constitution is violated only when a legislative or executive act operates to restrict such trade, commerce and intercourse directly and immediately as distinct from creating some indirect or inconsequential impediment which may fairly be regarded as remote. Lord Porter admitted "that in the application of these general propositions, in determining whether an enactment is regulatory or something more or, whether a restriction is direct or only remote or incidental, there cannot fail to be differences of opinion." It seems clear, however, that since "the conception of freedom of trade, commerce and intercourse in a community regulated by law presupposes some degree of restriction upon the individual", that freedom must necessarily be delimited by considerations of social orderliness. In one of the earlier Australian decisions (Duncan v. The State of Queensland) ([1916] 22 C.L.R. 556), Griffith, C.J., said : "'But the word "free" does not mean extra legem, any more than freedom means anarchy. We boast of being an ....
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....class of examples relates to making a charge for the use of trading facilities, such as, roads, bridges, aerodromes etc. The collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of an aerodrome is no barrier or burden or deterrent to traders who, in their absence, may have to take a longer or less convenient or more expensive route. such compensatory taxes are no hindrance to anybody's freedom so long as they remain reasonable; but they could of course be converted into a hindrance to the freedom of trade. If the authorities concerned really wanted to hamper anybody's trade, they could easily raise the amount of tax or toll to an amount which would be prohibitive or deterrent or create other impediments which instead of facilitating trade and commerce would hamper them. It is here that the contrast, between 'freedom' (Art. 301) and restrictions' (Arts. 302 and 304) clearly appears: that which in reality facilitates trade and commerce is not a restriction, and that which in reality hampers or burdens trade and commerce is a restriction. It is the reality or substance of the matter that has to be determined. It is not possi....
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....ill be entitled to raise revenue for their own purposes. If the widest view is accepted, then there would be for all practical purposes, an end of State autonomy even within the fields allotted to them under the distribution of powers envisaged by our Constitution. An examination of the entries in the lists of the Seventh Schedule to the Constitution would show that there are a large number of entries in the State list (list II) and the Concurrent list (list III) under which a State Legislature has power to make laws. Under some of these entries the State Legislature may impose different kinds of taxes and duties, such as property tax,, sales tax, excise duty etc., and legislation in respect of any one of these items, may have an indirect effect on trade and commerce. Even laws other than taxation laws, made under different entries in the lists referred to above, may indirectly or remotely affect trade and commerce. If it be held that every law made by the Legislature of a State which has repercussion on tariffs, licensing marketing regulations, price-control etc., must have the previous sanction of the President, then the Constitution in so far as it gives plenary power to the Sta....
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.... "by virtue of any entry relating to trade and commerce in any of the lists in the Seventh Schedule." It is argued that by reason of the connection between Art. 301 and Art. 303, the words "by virtue of any entry relating to trade and commerce etc." must be read into Art. 301 also so that Art. 301 will then be construed as a fetter on the commerce power i. e., the power given to the Legislature to make laws under entries relating to trade and commerce only. As to taxation being out of the provisions of Part XIIL of the Constitution except for Art. 304(a), the argument is that we must look to the historical background of s. 297 of the Government of India Act, 1935, and Arts. 274, 276 and 285 to 288 in Part XII of the Constitution. It is pointed out that the power to tax is an incident of sovereignty and it is divided between the Union and the States under the Constitution ; Part XII of the Constitution deals with several aspects of taxation and all the restrictions on the power to tax are contained in Part XII which, according to this interpretation, is self contained. Therefore, so it is argued, the freedom guaranteed by Art.301 does not mean freedom from taxation, because taxation....
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....l terms of Art. 301. It seems to us that so far as Parliament is concerned, Art. 303(1) carves out an exception from the relaxation given in favour of Parliament by Art. 302 ; the relaxation given by Art. 302 is itself in the nature of an exception to the general terms of Art. 301. It would be against the ordinary canons of construction to treat an exception or proviso as having such a repercussion on the interpretation of the main enactment so as to exclude from it by implication what clearly falls within its express terms. 21. After carefully considering the arguments advanced before us we have come to the conclusion that the narrow interpretation canvassed for on behalf of the majority of the State cannot be accepted, namely, that the relevant articles in Part XIII apply only to legislation in respect of the entries relating to trade and commerce in any of the lists of the Seventh Schedule. But we must advert here to one exception which we have already indicated in an earlier part of this judgment. Such regulatory measures as do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities are not hit by the freedom declare....
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....eral volume of trade, commerce and intercourse. We do not think that this distinction, if any such distinction at all exists, is material in the present cases, because an individual trade may complain of a violation of his freedom guaranteed under Art. 19(1)(g) and he may also complain if the freedom assured by Art. 301 has been violated. In a particular set of circumstances the two freedoms need not be the same or need not coalesce. In some of the Australian decisions a distinction was sought to be drawn between the free flow of the same volume of inter-State trade and the individual's right to carry on his trade in more than one State and it was argued that s. 92 of the Australian Constitution related to the free flow of the volume of trade as distinguished from an individual's right to carry on his trade. Such a distinction was negatived and the Privy Council pointed out that the redoubtable Mr. James who fought many a battle for the freedom, of his trade and occupation was after all an individual. Another aspect of this contrast between Art. 19 and Art. 301 of the Constitution which has been adverted to before us is this; it has been argued that if a law imposing a rest....
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....e word 'free' in Art. 301 cannot be given that wide meaning. 24. We have, therefore, come to the conclusion that neither the widest interpretation nor the narrow interpretations canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co. case is correct, but subject to this clarification. Regulatory measures or measures imposing compensatory taxes for the s use of trading facilities do not come within the purview of the restrictions contemplated by Art. 301 and such measures need not comply with the requirements of the proviso to Art. 304(b) of the Constitution. 25. Now the question is, do the relevant provisions of the Act read with the Schedules fall within what we have called permitted regulation which does not really or materially affect freedom of trade, commerce and intercourse; or do the taxes imposed by the relevant provisions of the Act read with the Schedules come within the category of compensatory taxes which are no hindrance to freedom of trade, commerce and intercourse, being taxes for the use of trading facilities in the shape of roads, bridges, etc. In an earlier part of this judgment we have quoted....
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....ions on the right of individuals to move freely throughout the territory of India etc. the High Court said: "In this connection, it is well to remember that the State maintains old roads, and makes new ones, and these roads are at the disposal of those who use motor vehicles either for private purposes or for trade or commerce. This naturally costs the State. It has, therefore, to find funds for making new roads and maintenance of those that are already in existence. These funds can only the raised through taxation, and if the State taxes the users of motor vehicles in order to make and maintain roads, it can hardly be said that the State is putting unreasonable restrictions on the individuals' right to move freely throughout the territory of India, or to practice any profession or to carry on any occupation, trade or business. We have looked into figures of income and expenditure in this connection of the Rajasthan State to judge whether this taxation is reasonable. We-find that in 1952-53 income from motor vehicles taxation under the Act was in neighbourhood of 34 lakhs. In that very year, the expenditure on new roads and maintenance of old roads was in the neighbour....
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....y much more than what is required for providing the facilities. It would be impossible to judge the compensatory nature of a tax by a meticulous test, and in the nature of things that cannot be done. 28. Nor do we think that it will make any difference that the money collected from the tax is not put into a separate fund so long as facilities for the trades people who pay the tax are provided and the expanses incurred in providing them are born by the State out of whatever source it may be. In the cases under our consideration the tax is based on passenger capacity of commercial buses and loading capacity of goods vehicles; both have some relation to the wear and tear caused to the roads used by the buses. In basing the taxes on passenger capacity or loading capacity, the Legislature has merely evolved a method and measure of compensation demanded by the State, but the taxes are still compensation and charge for regulation. 29. We were addressed at some length on the distinction between a tax, a fee and an excise duty. It was also pointed out to us that the taxes raised under the Act were not specially ear-marked for the building or maintenance or roads. We do not think that ....
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....eiterated the same view in Commonwealth Freighters Property Ltd. v. Sneddon ((1959) 102 C. L. R. 280, 291) 30. The learned Chief Justice reiterated the same view in Commonwealth Freighters Property Ltd. v. Sneddon (1959) 102 Cri.L.R. 280 31. We have therefore, come to the conclusion that the Act does not violate the provisions of Article 301 of the Constitution and the taxes imposed under the Act are compensatory taxes which do not hinder the freedom of trade, commerce and intercourse assured by that article. The taxes imposed were, therefore, legal and the High Court rightly dismissed the writ petitions filed by the Appellants. In the result the appeals fail and are dismissed with costs; one hearing fee. SUBBA RAO, J. 32. I agree with the conclusion arrived at by my learned brother, S. K. Das, J., but, in view of the importance of the question raised, I would prefer to give my own reasons for the construction of the relevant provisions of Part XIII of the Constitution. 33. The question in these appeals is, what is the ambit of the freedom enshrined in Art. 301 of the Constitution and what are the limitations implicit in it or envisaged in the succeeding articles ? ....
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....ation put upon certain legal concepts by the highest tribunals of those countries. At the same time, it can be reasonably assumed that they have made a sincere attempt to accept the good and to avoid the defects found by experience in the other constitutions and also to could them to suit our conditions. Further, a brief survey of the relevant provisions of those constitutions, which form the background of this article, and the interpretation put on them by the highest tribunals of the respective countries would not only be relevant but also be necessary for appreciating the correct scope of Art. 301 of our Constitution. Our Constitution provides for a federal structure with a bias towards a Central Government. But real and substantial autonomy was conferred on the States within the boundaries of the fields chalked out for them. Therefore, in approaching the problem of construing the provisions of Part XIII of our Constitution, unless the terms of the provisions of the said Part are clear and unambiguous, it would be the duty of this Court to construe them in such a manner as not to disturb the framework of the Constitution. Before I attempt to construe the relevant provisions of t....
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.... constantly fed and as constantly feeds the streams of production, and which debauches into the inter-state market, then regulations of it by Congress, J. whether taking the form of a prohibition of certain phases of transportation or some other form " ceases to be open to the charge of an ulterior intention to usurp their power, because it operates most upon the very subject matter entrusted to Congress or, at most, upon local incidents thereof, the fringe, so to speak, of a nation-spread fabric." 38. In this context the following references are instructive: Carter v. Carter Coal Company((1936) 298 U.S. 238. 80 L. ed.1160.), Kidd v. Pearson((1888) 128 U.S. 132 L. ed. 346), Welton v. State of Mussouri ((1876) 91 U.S. 27S; 23 L. ed. 347), Public Utilities Commission v. Landon ((1919) 249 U.S. 2 36; 63 L. ed. 577). It may be stated broadly that in America "commerce" means traffic in its operation across the State borders. 39. On the second question some of the American decisions adopted a pragmatic approach to resolve the conflict. To solve the conflict that arose between the laws made by the Congress regulating commerce and those made by the State in exercise of its police pow....
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....rse, among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free". Unlike the American Constitution, the Australian Constitution confers a legislative power on the Commonwealth Parliament to make laws in respect of trade and commerce with other countries and among the States, and also in respect of certain specific subjects of trade and commerce and then declares that trade, commerce and intercourse among the States shall be absolutely free. Unlike the American Constitution, in the Australian Constitution, there is a declaration of freedom of trade, commerce and intercourse among the States. While in America the expression used is "commerce", in a. 92 of the Australian Constitution the expression, "trade, commerce and intercourse" is used. The Australian Constitution Act not only does not provide for any restrictions on the freedom of trade, commerce and intercourse, but also used an expression of the widest amplitude, viz., "absolutely free" emphasizing the freedom declared by the section, This section, just like the commerce clause in the American Constitution, was the subject of judicial scrutiny and conflict of decision. The interpretat....
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....: (i) the impugned law, whether fiscal or otherwise, shall directly and immediately restrict traffic across the borders before it could be said to violate the freedom under a. 92 of the Commonwealth of Australia Constitution Act ; (ii) compensatory measures for the purpose of regulating commerce are not restrictions on the said freedom ; and (iii) when a question arises whether a fiscal statute amounts to a restriction on the said freedom, a careful scrutiny of the provisions may rebut the presumption that otherwise may arise that the impugned Act is really a compensatory measure for the amenities provided or services rendered. 42. The following principles emerge from the foregoing American and Australian decisions : (1) Though in American law the commerce clause only confers a power upon the Congress, under the Australian Constitution Act, freedom of trade, commerce and intercourse is enshrined in s. 92 as a cherished freedom : the composite expression in s. 92 of the said Act was borrowed from the American decisions. (2) The expression "trade commerce and intercourse", though it is not an expression of art, has acquired a definite signification in the constitutional law of bot....
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....o the freedom to trade across the borders. Article 301 provides for freedom from the said barriers or impediments in effect operating as barriers. This freedom from barriers cannot operate in vacuum and must be limited by space. A barrier may be put up between two States at the boundary of the States or between two districts, two taluks, two towns or between two parts of a town. The barrier may be at a particular point at a boundary or might take the form of a continuous impediment till the boundary is crossed. It may take different forms. The restrictions may be before or after movement. It may be a prior restraint or a subsequent burden. But the essential idea is that a barrier is an obstacle put across trade in motion at a particular point or different points. The expression "shall be free" declares in a mandatory from a freedom of such transport or movement from such barriers. 46. The next question is, where is it free ? The second expression "throughout the territory of India" demarcates the extensive field of operation of the said freedom. The said intercourse shall be free throughout the territory of India. The use of the words "territory of India" instead of "'among ....
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.... be described as restrictions impeding the freedom. To say all these is not to say that every provision couched in the form of regulation but in effect and substance a restriction can pass off as a permissible regulation. It is for the Court in a given case to decide whether a provision purporting to regulate trade is in fact a restriction on freedom. If it be a colourable exercise of power and the regulatory provision in fact a restriction, unless the said provision is one of the permissible restrictions under the succeeding articles, it would be struck down. This view is consistent with the principles laid down by the Australian High Court and the Privy Council in the context of interpretation of the words "absolutely free" in a. 92 of the Commonwealth of Australia Constitution Act, which is more emphatic than the word "free" in Art. 301 of our Constitution. 48. The Constitution confers on the Parliament and the State Legislatures extensive powers to make laws in respect of various matters. A glance at the entries in the Lists of the Seventh Schedule to the Constitution would show that every law so made may have some repercussion on the declared freedom. Property tax, Professi....
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....refore, they could not equally be restrictions under Art. 301. He would say that whatever might be said of "regulatory taxes" or ','destructive ones". fiscal taxes are always in public interest and it is not possible for a court to decide whether a particular tax is reasonable or not. On this premises, the argument proceeds, a reasonable restriction is a restriction, the reasonableness whereof can be ascertained by court, and in a case where the reasonableness of a particular restriction is impossible of ascertainment by a court, such as a law fixing a rate, the Constitution must be deemed to have released such a restriction from the impact of the concept of the freedom. This is an argument in reverse gear. The freedom declared by the Constitution cannot be controlled by an involved process of reasoning. It is not permissible to limit the content of the freedom by the criterion of a court's ability to ascertain the reasonableness of a restriction imposed thereon. What is guaranteed to a citizen by the Constitution is a fundamental right to carry on business. If cl. (5) of Art. 19 were not in the Constitution, every restriction on that right, be it by a law of taxation o....
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....void if it infringed the fundamental right guaranteed under Art. 19 of the Constitution. Therefore, the law of taxation also should satisfy the two tests laid down in Art. 19(6) of the Constitution. It is said that a law of taxation is always in public interest. Ordinarily it may be so, but it cannot be posited that there cannot be any exceptions to it. A taxing law may be in public interest in the sense that the income realised may be used for public good, but there may be occasions, when the rate or the mode of taxation may be so abhorrent to the principles of natural justice or even to well settled principles of taxation that it may cause irremediable harm to the public rather than promote public good, that the Court may have to hold that it is not in public interest. Nor can I agree with the contention that it is impossible for a court to hold in any case that a rate of taxation is reasonable or not. As a proposition it is unsound. It may be legitimately contended that it is difficult for a court to come to a definite conclusion on the correctness of a rate fixed by the Legislature. Dixon, C. J., in Commonwealth Freighters Proprietary Limited v. Sneddon ((1959) 102 C. L.R. 280,....
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....easonable basis his further argument that the freedom in Art. 301 excludes from its scope fiscal laws must be rejected. 52. Having ascertained the scope and content of the freedom envisaged in Art. 301 of the Constitution, let us look at the succeeding provisions which place limitations on the said freedom. Under Art. 302. "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." 53. This is an exception to Art. 301. The restrictions contemplated therein are restrictions on the said freedom. But the restrictions can be imposed by Parliament only by law. Parliament's power to make law is derived from Arts. 245 and 246 of the Constitution. Thereunder it can make laws with respect to any of the matters enumerated in Lists I and III of the Seventh Schedule and in respect of a territory not included in a States with respect to matters enumerated in any of the three Lists. Therefore, in exercise of the said power and by virtue of the language of the entries correlated to that power, Parliament can make any law im....
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....re, the limitation imposed under Art. 303 cannot curtail the generality of the provisions of the said article. 54. But the more difficult question is, what does the word ",restrictions" mean in Art. 302? The dictionary meaning of the word ,'restrict" it "to confine, bound, limit." Therefore, any limitations placed upon the freedom is a restriction on that freedom. But the limitation must be real, direct and immediate, but not fanciful, indirect or remote. In this context, the principles evolved by American and Australian decision in their attempt to reconcile the commerce power and the State police power or the freedom of commerce and the Commonwealth power to make laws affecting that freedom can usefully be invoked with suitable modifications and adjustments. Of all the doctrines evolved, in my view, the doctrine of "direct and immediate effect" on the freedom would be a reasonable solvent to the difficult situation that might arise under our Constitution. If a law, whatever may have been its source, directly and immediately affects the free movement of trade, it would be restriction on the said freedom. But a law which may have only indirect and remote repercussion on the ....
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....State is concerned, for Art. 302 does not deal with Legislature of a State. In these circumstances, the non-obstante clause can only be made applicable to that to which it is appropriate i.e., only to the limitations imposed on Parliament under Art. 303. The article, so far as it relates to Parliament, may be read : "Notwithstanding anything in article 302, the Parliament shall not 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". 56. Now this provision prohibits the making of laws of the nature mentioned therein only by virtue of the entries relating to trade and commerce in any of the Lists in the Seventh Schedule. This article clearly says that neither Parliament nor the Legislature of a State can make a law imposing a restriction which has the effect of giving preference or making discrimination as the case may be, among the States. But a difficulty that confronts one is whether the limitation on the laws is confined only ....
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.... are again confronted with a defect in phraseology. The article opens out again with a nonobstante clause, namely, "Notwithstanding anything in article 301 or article 303". Under Art. 301 (a), the Legislature of a State may by law 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 them; and Art. 304 (b) enables the State Legislature to impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or without that State as may be required in the public interest. But no Bill or amendment for the purpose St. of cl. (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. Clause (a), therefore, only enables the Legislature of a State to impose non-discriminatory taxes on goods imported from other States or the Union territories. The non-obstante clause vis-a-vis Art. 304 (a) may have some relevance so far as Art. 301 is concerned, for it enables the Legislature of a State to impose an impediment on the free movement of trade in spite of the freedom declared under Ar....
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....neral heading Finance", Article 265 declares that no tax shall be levied or collected except by authority of law; that is to say, tax cannot be levied or collected by an executive flat. Article 276 fixes a ceiling on taxes payable to local boards on professions, trades, callings and employments. Article 285 exempts property of the Union from State taxation Article 286 prohibits the States from imposing a tax on inter-State sales, subject to a proviso. Article 287 exempts the Union from the State law of taxation on electricity; and Art. 288 gives a similar exemption to the Union from taxes by States in respect of water or electricity in certain cases. Article 31(5)(b)(i) exempts a law imposing or levying any tax from the impact of the fundamental rights enshrined in Art. 31(2) of the Constitution. Article 248 preserves the residuary power of the Parliament in respect of any matter not enumerated in the Concurrent-List or the State-List, including the power to impose taxes. These articles, therefore, generally impose limitations on the appropriate legislative power of taxation of States or give exemption in special cases. By and large, the said articles and similar others operate as ....
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....overnment of India and the Government of that State in that behalf, the said tax or duty might be levied or collected for such period not exceeding ten years from the commencement of the Constitution, subject to the terms of the said agreement. If a law of taxation cannot, under any conceivable circumstances, be a restriction on the freedom of trade, why did it become necessary to introduce a saving clause in terms of Art. 306 in the group of articles in Part XIII? It is suggested that the saving clause might have become necessary as there was an impediment under the other provisions of the Constitution. But that circumstance cannot deprive the force of the non-obstante clause in Art. 301 in its application to the provisions of Part XIII. This article indicates the consciousness of the makers of the Constitution that restrictions contemplated in that Part take in restrictions by way of taxation and, therefore, it was necessary to provide for an exemption in the case of Part B States for a specified period of time. 62. The foregoing discussion may be summarized in the following propositions (1) Art. 301 declared a right of free movement of trade without any obstructions by way of....
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....id in respect of it, a tax at the appropriate rate specified in the schedules to this Act within the time allowed by section 5 and, save as hereinafter specified, such tax shall be payable actually notwithstanding that the motor vehicle may from time to time cease to be used. (2) An owner who keeps a motor vehicle of which the certificate of fitness and the certificate of registration are current shall, for the purposes of this Act be presumed to keep such vehicle for use. (3) A person who keeps more than ten motor vehicles for use solely in the course of trade and industry shall be entitled to a deduction of ten per cent on the aggregate amount of tax to which he his liable. Explanation.-The expression "trade and industry" includes transport for hire." The Schedules referred to in the first subsection are four in number. They specify the kind of vehicles liable to the tax, the rates of the tax applicable to each kind, and some other conditions. A detailed reference to the Schedules will be made by us later. Section 11, which created penalties for contravention of the Act, was follows: "Whoever contravenes any of the provisions of this Act or of ....
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.... deleterious effect on the free flow of trade, commerce and intercourse" but not against taxation Simpliciter. Shah, J., held that the freedom envisaged was wide enough to comprehend within itself a ban of prohibition, control or impediment of any kind whatever and of taxes whether they fell on movement of trade or commerce or otherwise. The majority (Gajendragadkar, Das Gupta and Wanchoo, JJ.) hold that though taxes as such were not within the ban of Part XIII, such taxes as impeded the free flow of trade and were directly placed on movement were included in it. The appellants relied on the views of Shah, J., and failing that, on the majority view which, they contended, also held good here, while the State Government based its case upon the views of the learned Chief Justice. The Constitution Bench was thus of the opinion that "having regard to the importance of the Constitutional issues involved and the views expressed in Atiabari Tea Co. Ltd. v. State of Assam ([1961] 1 S.C.R. 809)", this case should be heard by a larger Bench, and these appeals have thus come before this special Bench.' Certain other parties obtained permission to intervene, and notices having issued to the....
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.... must also bear in mind the weighty observations of Gwyer, C. J., in Bhola Prasad v. The King Emperor ([1942] F.C.R. 17, 27) "We must again refer to the fundamental proposition enunciated in The Queen. v. Burah((1878) 3 App. cas. 889) that Indian Legislatures within their own sphere have plenary powers of legislation as large and of the same nature as those of Parliament itself. If that was true in 1878, it cannot be less true in 1942. Every intendment ought therefore to be made in favour of a Legislature which is exercising the powers conferred on it." 73. The legislative powers of the States after the establishment of the Republic of India are certainly not any the less; and it must be conceded at once that within the range of their powers as conferred the legislative entries in Sch. VII, the State Legislatures are supreme, subject, of course, to such restrictions as are to be found in the Constitution itself. The power to tax motor vehicles is the subject of Entry 57 in the State List, and it reads:- "Taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List III." ....
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.... The third may arise from the provisions of Part XIII where freedom of trade, commerce and intercourse throughout the territory of India has been ,guaranteed', subject only to the provisions of that Part. These, in the main, are also the contentions. and these appeals can be effectively disposed of from these three view points. 77. The first contention that the impugned Act is bad because it is legislation directly under Entry 42 of the Union List need not detain us long. The subject of Entry 42 of the Union List is not taxation but "inter-State trade and commerce". The scheme of the Legislative Lists shows that taxation entries are separate from other entries, and the other entries do not include a power to impose a tax, though the power to levy fees is included as it is expressly so stated. The subject of Entry 57 of the State List is taxation on vehicles. An Act which seeks directly to levy a tax on motor vehicles even though there may be incidental and subsidiary provisions about the regulation of a particular inter-State trade carried on with the aid of or in motor vehicles is legislation really within Entry 57 and not within the other Entry though it may, touch it, and....
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....ied the Court for several days. It would be necessary (if not, impossible) to try to discuss the arguments which, though proceeding from the same side, were often conflicting. The use of language borrowed from a. 92 of the Australian Constitution in Art. 301 of our Constitution led to the citation of many Australian rulings. Those rulings are so numerous that they provoked a former Chief Justice of the High Court of that Country to say that when he died, s. 92 would be found to be written on his heart But it is reasonable to suppose that those who borrowed the language in India were fully aware of the conflict of opinion in Australia. It is reasonable to assume that the framers of our Constitution must have sought to avoid there dangers. It must not also be overlooked that the decisions of the Privy Council in Commonwealth of Australia v. Bank of New South Wales([1950] A.C. 235) and Hughes and Vale Pty. Ld. v. State of N.S.W. ([1955] A.C. 241), which to some extent have narrowed down the controversy in Australia, were not rendered when the draft Constitution was framed or the Constitution was adopted. A note has, however, to be taken of the fact that the history of the establishmen....
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....ent more than once. The provisions of the Australian Constitution such as bear on trade and commerce, are no more than covenants entered into at the Conventions, which have been introduced bodily into the Australian Constitution, the fate of which depended for a long time on how to secure an agreement about uniform tariffs customs, excises and bounties. The declaration of freedom of trade, commerce and intercourse was the logical culmination of the negotiations for the establishment of the Federation. The language of s. 92 was thus made emphatic, even though its full purport remained vague. As observed by Viscount Haldane, L. C., in Attorney-General for the Commonwealth of Australia v. Colonial Sugar Refining Company Limited ([1914] A.C. 237) : "It is a matter of historical knowledge that Australia the work of fashioning the future Constitution was one which occupied years of preparation through the medium of conventions and conferences in which the most distinguished statesmen of Australia took part. Alternative systems were discussed and weighed against other with minute care. The Act of 1900 must accordingly be regarded as an instrument which was fashioned with....
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.... Council also delivered four judgments. Of these, two were before our draft Constitution and two, thereafter. It is, therefore necessary to investigate, to find out what was the accepted position in about 1948 to be able to see if any of the principles so laid down were accepted and to what extent they were modified to suit our Constitution in the light of our own history. We shall first notice those cases which were decided before our Constitution was drafted in 1948. 83. This first point on which difference arose in Australia was whether s. 92 of the Commonwealth of Australia Act was addressed only to the States, or whether it bound the Commonwealth as well. In W. & A. McArthur Ltd v. State of Queensland ((920) 20 C. L. R. 530) the majority held that the Commonwealth was not bound.' Gavan Duffy, J., alone held that the language of the section clearly controlled both the powers conferred on the Federal Parliament and those reserved to State Parliament. The view of the majority was negatived by the Privy Council in James v. Commonwealth of Australia ([1936] A. C. 578). Indeed, the High Court of Australia had already doubted the correctness of the view, but it felt itself bou....
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....er a. 92 is absolute-that is, it is an absolute prohibition on the Commonwealth and States alike to regard State borders as in themselves possible barriers to intercourse between Australians." In McArthur'a Case ([1920] 28 C. L. R. 533), the claim was made against all Governmental control and the majority also held that to be its meaning. The Privy Council examined the scheme of the Constitution of Australia and drew the line thus : "The true criterion seems to be that what is meant is freedom as at the frontier or, to use the words of s. 112, in respect of 'goods passing into or out of the State'. What is meant by that needs explanation, The idea starts with the admitted fact that federation in Australia was intended (inter alia) to abolish the frontiers between the different States and create one Australia. That conception involved freedom from customs duties, imports, border prohibitions and restrictions of every kind: the people of Australia were to be free to trade with each other, and to pass to and fro among the States, without any burden, hindrances or restrictions based merely on the fact that they were no members of the same State." After referr....
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....freedom attaching to every stop in the transaction from beginning to end. It was said that such a view would lead to an immunity from law of a whole body of acts or dealings by the mere fact "that they are parts of an interState transaction." The concept of trade and commerce was thus limited to that movement to which crosses a State barrier. 87. As regards "intercourse" also, the earlier meaning was wide. The question was whether such "intercourse" must be "commercial". It was held in earlier cases that this conferred a personal right on an Australian and "independent of any commercial attributes he may possess, to pass over the Continent irrespective of any State border as a reason in itself for interference" (per Isaacs, J., in R. v. Smithers Ex Parte Benson ((1912) 16 C. L. R. 99.). This view was affirmed in Duncan v. State of Queensland ((1916) 22 C. L. R. 556 573) and also in McArthur's case ((1925) 28 C.L.R. 530.). Later, it was held that the concept of "'trade, commerce and intercourse " meant what was held to be included in the concept of "commerce" as understood in the United States: (per Dixon, J., in the Bank case) ((1948) 76 C.L. R. 1, 380, 381). With the ex....
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....nd was that it created a ban against prohibitions or burdens at the frontier, and lastly, that it protected commerce in motion and passing the frontiers of the States. A large number of cases were noticed in which it was decided that trade and commerce was validly burdened in the exercise of power to make laws without impairing movement of trade at the borders. These laws dealt with various subjects like monopolies, price fixation, health regulations, licensing systems, entry of goods or persons and transport. 92. The last group consisted of cases in which restrictions applying to motor vehicles as integers of trade and commerce or their owners were considered. Willard v. Raw-ion ((1933) 48 C.L.R. 31 S.) was concerned with a law which required registration of all motor vehicles on payment of a fee. The King v. Vizzard ((1933) 50 C L. R. 30.) was concerned with the licensing of motor vehicles acting as common carriers. O' Gilpin's case ((1935) 52 C.L.R. 189) was concerned with owners of vehicles carrying their own goods, and Bessell v. Dayman ((1935) 52C.L.R.215) was concerned with law affecting inter. State journeys. These laws were declared valid by the High Court, and ....
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....bserved: "I venture to repeat what I said in the former case (Milk Board case) ((1939) 62 C. L. R. 116, 127): 'One proposition which I regard as established is hat simple legislative prohibition (Federal or State), as distinct from regulation, of inter State trade and commerce is invalid. Further a law which is directed against' inter-State trade and commerce is invalid. Such a law does not regulate such trade, it merely prevents it. But a law prescribing rules & is to the manner in which trade (including transport) is to be conducted is not a mere prohibition and may be valid in its application to inter-State, notwithstanding s. 92." 93. One other important case was decided by the High Court of Australia before our draft Constitution was prepared, and to that we next turn. That case is Bank of New South Wales v. The Commonwealth ((1948) 76 C. L. R. 1, 180, 38). The question was about the constitutionality of the Banking Act, 1947, and alternatively of some of its sections. The Act provided for the acquisition of shares in certain private banks by the Commonwealth Bank by agreement or compulsion and generally for their closure and management by the Comm....
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....mmerce and intercourse even before some tangible property leaves the State of origin was also contemplated. (7) Dixon, J's dictum in O' Gilpin's case((1935) 52 C. L. R. 189) where he observed "It is not, therefore every regulation of commerce or of movement that involves a restriction or burden constituting an impairment of freedom. Traffic regulations affecting the lighting and speed of vehicles, tolls for the use of a bridge, prohibition of fraudulent descriptions upon s goods, and provisions for the safe carriage of dangerous things, supply examples of regulatory provisions not strictly restrictions within s. 92. 94. According to State, J., all Transport cases precept Willard v. Rawson ((1933) 48 C.L.R. 316) were wrongly decided. Willard v. Rawson ((1948) 76 C.L.R. 1, 380, 381), according to the learned judge was a pure case of traffic regulation, but in a other cases the burdens imposed directly and immediately upon the transport and movement of passengers and goods whether engaged in domestic inter-State or other trade or commerce, were wrong held to be merely regulatory of the freedom had not its restriction. 95. Dixon, J., in dealing with the words....
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....) the Privy Council found it necessary to limit the general words of No. 2 of s. 91 'to afford scope for powers given exclusively to the Provincial Legislatures'. In City of Montreal v. Montreal Street Railway ((1912) A. C. 333, 344), the same was observed again. Lord Halsbury, L. C., in Attorney-General for Onterio v. Attorney General for the Dominion ([1896] A. C. 348) said that the words must be given 'a statutory meaning'. There is, however no definite statement of the limits to be placed but generally the exercise of regulation of trade and commerce within the Provinces is upheld under No. 16 of s. 92, which gives the following power to the Provinces: "Generally all matters of a merely local or private nature in the Province." 99. And this is even where some prohibitions and restrictions affect the importation, exportation, manufacture, keeping sale, purchase and use of commodities and must in some way interfere with business operations beyond the Province. In Bank of Toronto v. Lambe (2) at p. 586, the Privy Council said that if the general power of regulation given to Parliament could be said to prohibit provincial taxation on the persons or thing....
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....ourse." The principle of federation as understood in the United States is that sovereign States have surrendered a part of their power to the United states and barring what has been surrendered and what is prohibited by the constitution of the States, the residue belongs to the United States. This is brought, out in the Tenth Amendment: "The powers not delegated to the United States by the Constitution nor prohibited by it to the States, are reserved to the States respectively, or to the people." Most of the cases in the American Reports are concerned with what rights belong to the States and how far the Congress can regulate commerce. That is not a subject with which we are concerned in the present enquiry. We now come to the Indian scene. In M. P. V. Sundararamier & Co. v. The State of Andhra Pradesh Venkatarama Aiyar, J., rightly pointed out that "Our Constitution was not written on a tabula rasa, that a Federal Constitution bad been established under the Government of India Act, 1935, and though that has under. gone considerable change by way of repeal, modification and addition, it still remains the framework on which the present Co....
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....e Queen through her Secretary of State for India. The general pattern was, however, the same, though as time passed, democratic institutions in Government slowly emerged. 103. When the Reforms came in 1919 and introduced a system of local governments, the process was not decentralisation but reconcentration, as is known in France. By stages, the Councils at the Centre and in the Provinces were greatly expanded, a large number of nominated members being added. When elections came, they included the representation of some special interests. Legislation was even then from the Centre in the shape of Regulations or under instructions from the Centre, unless it was of a wholly local character. We shall. pass over the details of the preparatory periods. When Parliament began to modify all this, the aim was to give to the Provinces a separate existence, though under a strong Centre. When the Government of India Act, 1915 was amended, there was a definite break up of the legislative machinery into two. There emerged then the Legislative Assembly and local Legislatures. In the field of local Legislatures, the first experiments in Democracy were tried. To invest separate powers, there was ....
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....en to find some means of entirely separating the resources of the Central and Provincial Governments." Under the Government of India Act, the Devolution Rules (Rules 2 and 14) made the separation of the resources. From this, it is not to be gathered that the Provinces had a separate fisc. By R. 16, it was provided that all moneys were to be paid into an account in the custody of the Governor-General and he made rules with the sanction of the Secretary of State and issued orders, both general and special, for payments, withdrawals or disbursements from that account. By far the greater part of the Devolution Rules dealt with these matters and, in addition, there were congeries of rules and instructions. Taxation in the Provinces was under Entry 48 in Part II of the First Schedule of the Devolution Rules, which read: "48. Sources of Provincial Revenue not included under previous heads, whether- (a) taxes included in the Schedule to the Scheduled Tax Rules or (b) taxes, not included in those schedules, which are imposed by or under provincial legislation which has received the general previous sanction of the Governor-General" 10....
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....hole and not merely British India. In this, there was the echo of what the Montagu-Chelmsford Report said: "Our conception of the eventual future of India is a sisterhood of States, selfgoverning in all matters of purely local or provincial interest In this picture there is a place for the Native States." The Commission emphasised one fact more than any other. They observed: "Economic forces are such that the States and British India must stand or fall together. The increasing importance of industry brings problems that must be faced by both together The States themselves have their own tariff policies, and there is a serious possibility that, unless provision can be made for the reconciliation of divergent interests, numbers of tariff walls will be perpetuated in an area where fiscal unity is most desirable." The Commission also suggested that- "the now Constitution should provide an open door whereby, when it seems good to them, the Ruling Princes may enter on just and reasonable terms." The Commission, therefore, recommended a federal Constitution composed of British India and the Indian States. They said: "We are in....
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....t is accompanied by such an adaptation of the structure of the Central Legislature as will bind these autonomous units together". They also pointed out that the unity of India on which they had laid so much emphasis was dangerously imperfect so long as the Indian States had no constitutional relationship with British India. The Committee recognised the difficulties of economic ties between the Provinces inter se and also British India as a whole on the one hand, and the Indian States on the other, and observed : "On the one band, with certain exceptions, the States are free themselves to impose internal customs policies, which Cannot but obstruct the flow of trade. Even at the maritime ports situated in the States, the administration of the tariffs is imperfectly coordinated with that of the British Indian ports, while the separate rights of the States in these respects are safeguarded by long standing treaties or usage acknowledged by the Crown. On the other hand, tariff policies, in which every part of India is interested, are laid down by a Government of India and British India Legislature in which no Indian State has a voice, though the States constitute only ....
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....t certain specified kinds of discrimination, and added : "We need hardly add that the effect of our recommendation for the statutory prohibition of certain specified forms of discrimination would lay open to challenge in the Courts as being ultra vires any legislative enactment which is inconsistent with these prohibitions, even if the Governor-General or Governor has assented to it." 108. With these suggestions in respect of the freedom of Grade and commerce, a Federal Constitution was recommended. It was also recognised that it would be the Provinces which would carry on the ,national building activities' and the need for more finances 'or the Provinces was acutely recognised. The establishment of self-governing units and self-governing constitutions, the creation of deficit Provinces, the corporation of Burma and the cost of establishment of a Federation, were matters which were gone into by the Federal Finance Committee. The Federal Structure Committee, Sir Walter Leyton, the Davidson Committee and experts like Sir Malcolm Hailey and Sir Otto Niemeyer. The Report of the First Taxation Inquiry Committee (1926) was also available from which guidance was taken,....
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....ything in this Act have power to impose any tax, cess, toll, or due which, as between goods manufactured or produced in the Provinces and similar goods not so manufactured or produced, discriminates in favour of the former, or, which, in the case of goods manufactured or produced outside the Provinces, discriminates between goods manufactured or produced in one locality and similar goods manufactured or produced in another locality. (2) Any law passed in contravention of this section shall, to the extent of the contravention, be invalid" By this section, power was denied to the Provincial Legislatures under two Entries in the Provincial List to impair free entry and export of goods in the Provinces. The two Entries were referred to separately and expressly by their content and were "27. Trade and Commerce within the Province" and 29. Production, supply and distribution of goods." 110. The word ,'commodities" was used instead of "goods" in the White Paper, and the change to "goods" appears to have been lost sight of in s. 297(1). However, the definition of "goods" took in commodities, and the words "goods of any class or description" were wide en....
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....y realised that the provisions of s. 297 and the Chapter on Discriminations in the Government of India Act, 1935, hardly met the case, and were inadequate. They had to decide the following questions : (a) whether to give the commerce power only Parliament or to divide it between Parliament and the State Legislatures ; (b) whether to ensure freedom of trade, commerce and intercourse interState, that is to say, at the borders of the States or to ensure it even intra-States ; (c) whether to make the prohibition against restrictions absolute or qualified, and if so, in what manner ; (d) if qualified by whom was the restriction to be imposed and to what extent; (e) whether the freedom should be to the individual or also to trade and commerce as a whole ; (f) what to do with the existing laws in British India and more so, in the acceding Indian States ; (g) whether any special provisions were needed for emergencies; (h) what should be the special provisions to enable the States to levy taxes on sale of goods, which taxes were to be the main source of income for the States according to the experts. All-these matters have, in fact, been covered in Part XIII, and the pitfalls which were dis....
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....of goods in any part of the territory of India. (In its application to the State of Jammu and Kashmir, in cl. (1) of art. 303, the words "by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule" shall be omitted). 304. Notwithstanding anything in Art. 301, or Art. 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 good 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. Ins. by the Constitution (Seventh Amendment) Act, 1956, s. 29 and Sch.) 305. Nothing in articles 301 and 303 shall affect the provisions of any existing law except in so far an the President may ....
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....ent List, which bear directly upon trade and commerce. Union List 41. Trade and commerce with foreign, countries, import and export across custom s frontiers; 42. Inter-State trade and commerce. State List : 26. Trade and Commerce within the State subject to the provisions of entry 33 of List III. 27. Production, supply and distribution of goods subject to the provisions of entry 33 of List III. Concurrenl List 33. (Trade and Commerce in, and the production, supply and distribution of : (a) the products of any industry where the control of such industry by the Union is declared by Parliamentary law to be expedient in the public interest) and imported goods of the same kind as such products ; (b) food-stuffs, including edible oilseeds and oils; (c) cattle fodder, including oilcakes and other concentrates; (d) raw cotton, whether ginned or unpinned and cotton seed or (e) raw jute. The words in brackets show the entry as it was prior to its amendment by the Constitution (Third Amendment) Act, 1954. The word industries' occurred in place of the word industry' the....
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.... intrastate. This freedom is addressed to Parliament as well as to the State Legislatures, as the next Article clearly show. 117. Article 302 then makes the first exception to the freedom. That, Article gives power to Parliament to put restrictions on this freedom. This shows clearly that Parliament is bound by Art. 301. Disputes similar to those which took place in Australia in which it was hotly debated whether the Commonwealth was bound or not have thus been avoided. By providing separate releases from Art. 301 for Parliament and the State Legislatures, that controversy can never arise. Parliament which is authorised by Art. 302 can impose restrictions on trade, commerce and intercourse in two aspects. They are : (a) between one State and another; or (b) within any part of the territory of India. 118. By the first is meant trade and commerce in motion across the frontiers of States. It means the inter-State character of trade, commerce and intercourse. By the second, the power is made more general. Parliament may put restriction in " any part' of the territory of India. The territory of India is defined by Art. 1(3), which says : "(3) The ter....
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....ng of- (A) any preference to one State over an; other (B) 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. The main idea underlying this Article is to ban preference and discrimination between one State and another in matters of trade, commerce and intercourse. This principle of uniformity is is high that by the non-obstante clause the powers of Parliament under Art. 302 are completely nullified and along with the powers of Parliament, all derivative powers of the State Legislatures where Parliament declares by law that a restriction is in the public interest and the State Legislature (legislates under the shelter of such a declaration, are also nullified, see Entry 33(a). Entry 35 of the Concurrent List or Entry 57 of List If read with Entry 35 of List 111, to confine the citation to Entries, with which we are primarily concerned here. In the Seventh Schedule to the Constitution in addition to Entries 41 and 42 (List 1), 26 and 27 (List II) and 33 (List III) there are many other Entries regulating special trades. In some of them, the formula by law made by Parliame....
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.... appears from the words of cl. (2), which are explicit in themselves. Let us quote them again : "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." 123 The question of famine is primarily in mind. and secondarily the readjustment or even distribution of goods due to some economic imbalance. Clause (2) is self-explanatory, and questions such as fixing of quotas of dried fruits or their even distribution in home and outside markets which agitated the Australians can hardly &rise, and similar questions can adequately be dealt with by Parliament under this power. 124. Next comes Art. 304. It beings with the non-obstante clause "Notwithstanding anything in article 301 or article 303." It is contended that one can understand the mention of Art. 301 but not of Art. 303, and the Article is thus said to be inaccurately drafted. We have already shown why in Art. 303 the State Le....
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....l not save it from being questioned. The Joint Committee on Indian Constitutional Reform in its Report (para 367) correctly pointed out: "We need hardly add that the effect of our recommendations for the statutory prohibition of certain specified forms of discrimination would lay open to challenge in the Courts as being ultra vires any legislative enactment which is inconsistent with these prohibitions, even if the Governor-General or the Governor has assented to it." 126. The same will operate even if the President gives his sanction. 127. Article 305 saved existing laws to start with, and at the time of the passing of the Constitution (Fourth Amendment) Act, 1955, room was made for the operation of laws by which a State or a corporation owned or controlled by the State carries on any trade, business, industry or service whether as a monopoly or otherwise. Article 305 does not apply to the statute here impugned as it was not an ,existing law'. 128. Article 306 was a transitory provision which enabled certain Part B States to Continue levy of existing taxes or to restrict trade, commerce and intercourse for a period, notwithstanding the provisions of Part XIII....
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....pproved of the following passage from the Australian National Airways case ((1945) 71 C.L.R. 29) which has already been quoted by us: "I venture to repeat what I said in the former case (the Milk case) ((1939) 62. C.L.R. 116, 127): 'One proposition which I regard as established is that simple legislative prohibition (Federal or State), as distinct from regulation, of interState trade and commerce is invalid. Further law which is "directed against" inter-State trade and commerce is invalid. Such a law does not regulate such trade, it merely prevents it. But a law prescribing rules at to the manner in which trade (including transport) is to be conducted is not a mere prohibition and may be valid in its application to inter-State trade, notwithstanding s. 92'.", observing: "With this statement, which both repeats the general proposition and precisely states that simple prohibition is not regulation, their Lordships agree." 130. The Privy Council also made it clear that in some cases "'regulation" may take the form of prohibition, thus endorsing the statement of Harrison Moore that the power of legislation, is not merely a power to regulate; it ranges f....
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....ollowing that decision and the majority judgment in McCarter v. Brodie (1) were overruled and the opinions of Dixon and Fullagar, JJ., in the last mentioned case were upheld. The decision of the Privy Council in Hughes and Vale Pty. Ltd. v. State of N. S. W. ((1955) A.C. 241) must be examined a little closely. All the earliest Transport cases were decided after the decision of the Privy Council in James v. Cowan ((1932) A.C. 542) but before James v. The Commonwealth ((1936) A.C. 579) was decided. The Riverina case ((1937) 57 C.L.R. 327) and the Austrailan National Airways case ((1945) 71 C.L.R. 29.) preceded the Banks' case and McCarter v. Brodie ((1955) A. C. 241.) followed it, and then came Hughes and Vale Pty. Ltd. v. State of N.S.W. ((1955) A. C. 241.) from which the appeal went to the Privy Council. Leave to appeal in McCarter v. Brodie [1950] 8 0C.L.R.432) was refused. 132. Before we examine the decision of the Privy Council, lot us recall and re-state the main events in brief. In James v. South Australia ((1927) 40 C.L.R. 1), what was struck down by the High Court as. a contravention of s. 92 was the executive determination of where and in what quantities dried fruit ....
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....hat they must be overruled, but the majority applying Rex v.Vizzard ((1933) 50 C.L.R. 30) and the Riverina case held the law to be valid. Dixon and Fullagar, JJ., however dissented. In describing what was hold by these learned Judges, we shall borrow their language, as was also done by the Privy Council. 135. According to Dixon, J., the Banks' case ((1948) 76 C.L.R. 1, 380, 38 1) had proved wrong three propositions, and they were : (1) that s. 92 did not guarantee freedom of the individual; (2) "that' if the same volume of trade flowed from State to State before as after the interference with individual trader then the freedom of trade among the States remained unimpaired.' (3) that because a law applied alike to inter-State commerce and to domestic commerce of a State, it might escape objection notwithstanding that it prohibited, restricted or burdened inter-State commerce. Next, according to him two further points were settled by the Bank's case: ([1948] 76 C.L.R. 1. 380,381). (1) That the object or purpose of an Act, challenged as contrary to s. 92 was to be ascertained from what was enacted and consisted in the nec....
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....ance of passengers or goods for reward conform with specified conditions affecting the safety and efficiency of the service offered and do not injure the highways by excessive weight or immoderate use or interfere with the use of the highways by other traffic. The validity of such laws must depend upon the question whether they impose a real burden or restriction upon inter-State traffic". 139. When the case reached the Privy Council, it was contended that where the tax was on the movement itself, the tax could not be regarded as regulatory and the reasons in the judgments of Dixon, C.J., and Fullagar, J., were urged. This was accepted by the Privy Council. On the other side, it was contended that the provisions which were State-wide were regulatory and were imposed on all vehicles, and the effect on inter-State trade or commerce was indirect or consequential. This was not accepted. Even the other side conceded that : "the imposition of charges in respect of vehicles used on inter-State journeys would infringe section 92 if the charges (a) discriminated against inter-State road transport or vehicles engaged therein; (b) were imposed at such a rate as to be prohibitive o....
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....to carry out the very activity constituting interState trade and laws imposing on those engaged therein rules of proper conduct or other restraints directed to the due and orderly manner of carrying it out. This distinction was naturally described as 'regulation', a word of anything but fixed legal import which differed according to the nature of the thing to which it applied. Perhaps the true solution in any given case could be found by distinguishing between the features of the activity in virtue of which it fell within the category of trade, commerce and intercourse among the States and those features which, though invariably found to occur in some form or another in the activity, were not essential to the conception." 142. It was pointed out also that under the guise of what may legitimately be regulation, real burdens and restrictions could be placed. 143. There was a divergence of opinion again over the question of licence charges and registration fees. The majority was prepared to sustain charges if imposed "as a real attempt to fix a reasonable recompense or compensation for the use of the highway and for a contribution to the wear and tear which the vehicle m....
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....bution) Act, 1958 (N. S. W.) which imposed upon owners of commercial goods vehicles a, road charge at a rate per mile was upheld. It will thus appear that tax legislation in Australia has now to resort to the creation of a separate fund to which State collections have to go ear marked for the maintenance of roads and to provide elaborate criteria for determining the amount payable. On this subject as well as on the subject of regulations as described by Fullagar, J., in McCarter v. Brodie ((1936) A.C. 578), the law for the time being seems settled. 46. Having dealt with the historical background of the Constitution, the possible models which were considered in the drafting of Part XIIL we proceed to consider the three views expressed in the Atiabari Tea Company case ([1950] 80 C. L.R. 432.). These views are not sharply divided. The majority accepts the view expressed by the learned Chief Justice, but goes beyond it, while Shah, J., accepts the views of the majority but goes still further. The main question that arose then, as it has arisen here, is : Do taxation laws come within the reach of Art. 301 ? Now, it cannot be laid down as a general proposition that all taxes are hit b....
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.... impost on trade as such, and may be said to restrict it; the ,second may burden the trader, but it is not a restriction' of the trade. To refuse to draw such a distinction would mean that there is no taxing entry in Lists 1 and 11 which is not subject to Arts. 301 and 304, however general the tax and however non. discriminatory its imposition. To bring all the taxes within the reach of Art. 301 and thus to bring them also within the reach of Art. 304 is to overlook the concept of a Federation, which allows freedom of action to the States, subject, however, to the needs of the unity of India. Just as unity cannot be allowed to be frittered away by insular action, the existence of separate States is not to be sacrificed by a fusion beyond what the Constitution envisages. No doubt, Part XIII ensures economic unity to India and combines the federating States into the larger State called India. The Constitution also permits independent powers of taxation. What the Constitution does not permit is that trade, commerce and intercourse should be rendered 'unfree'. Trade and commerce remain free even when general taxes are paid by tradesmen in common with nontradesmen. The Quest....
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.... and substance in this context arises, as was pointed out by the Privy Council in the Banks' case. The nature of the tax and its relation to trade, commerce and intercourse are the matters to consider. 151. In trying to establish that taxation entries are entirely out side the reach of Part XIII, it is contended that Part XII, which deals with taxation, is a code by itself and taken with the Legislative Lists, lays down the power of taxation which cannot be taken away by the provisions of Part XIII. The power of taxation is, therefore, said to be not subject to the declaration of freedom in Art. 301. The imposition of a tax is conditioned on the existence of a law. Article 265 lays down that "no tax shall be levied or collected except by authority of law". Article 301 is a curb on the law-making power, because by the unambiguous declaration contained in it, the freedom of trade, commerce and intercourse is secured. The prohibition is addressed not only to the EXecutive but also to the Legislature, because Arts. 302 and 304 lift the ban which has been imposed in favour of action by law made by Parliament and the State Legislatures respectively. Article 304 expressly mentions ....
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....bserved: "If these two tests are applied : first whether the effect of the Act is in a particular respect direct or remote; and secondly, whether in its true character it is regulatory, the area of dispute may be considerably narrower." 154. This may be true where the law attempts to regulate freedom but not true where the law restricts freedom. There is a real difference between regulation and restriction. Traffic rules are regulations, not restrictions. Trade, commerce and intercourse are regulated so that they may flow freely. The rule of the road is not a restriction of commercial traffic, but is one designed to make the flow of traffic smooth. The prescription that cars should have reliable brakes or lights or a sound device are not restrictions of trade. These regulations are needed both for ensuring safety for those engaged in traffic as also for securing that every one engaged in traffic might equally enjoy that right. The classification of heavy transport vehicles, the tare weight, the kinds of tares they must have, the seating capacity of buses and go on and so forth are not normally restrictions of trade, commerce and intercourse but are meant for the better ....
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....tion ? Is it some public object which incidentally involves some fetter on trade or commerce or is it the dealing with trade and commerce for the purpose of regulating it ? May it not be that, in the former case, it is not a regulation of trade and commerce, while in the latter it is, though in each case trade and commerce in a sense may be affected ?" 156. In our judgment, the first test to apply is what is the object and scope of the legislation? A regulation of trade and commerce may achieve some public purpose which affects trade and commerce incidentally but without impairing the freedom. Sometimes, however, the regulation it self may amount to a restriction, and if such a stage is reached, then under our Constitution there striation must be reasonably in the public interest, and the President's prior sanction must be obtained, if the law imposing such restriction is made by the State Legislature. If, however, it does not reach the stage of restriction of trade and remains only a regulation incidentally touching trade and commerce, the regulation is outside the operation of Arts. 301 and 304. It is on this ground that laws prescribing the rule of the road and like provi....
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.... 20, which reads: "20. Levy of toll on certain bridges.Notwithstanding anything contained in this Act it shall be lawful for the Government to levy tolls on motor vehicles under any law or usage for the time being in force, such rates as it may from time to time fix- (i) for the use of any bridges, or (ii) on any bridge constructed, reconstructed or repaired after the commencement of this Act." 159. The four Schedules, as their headings amply show, deal with different subjects. Schedule 1 is divided into two parts A and B. They deal with the subjects indicated in the headings. "A. Vehicles (other than Transport Vehicles plying for hire or required) if fitted solely with pneumatic tyres. B. If the above motor vehicles are fitted with resilient or non-resilient tyres, extra tax will be levied at 5% of the above rate." 160. Part A is then divided into three sections dealing with different classes of vehicles and prescribe different rates for each such class. We are not at present concerned with vehicles which are not used as transport vehicles plying for hire. Schedule II is also divided into two parts dealing respectively with vehicl....
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....satory. For this purpose, some facts must be stated. The appellants are three. They owned buses which were registered in the former State of Ajmer. They plied on diverse routes. There was one route. Nasirabad to Deoli, which lay mainly in Ajmer State, but it crossed narrow strips of the territory of Rajasthan. Another route, Ajmer to Kishengarh, was substantially in the Ajmer State, one-third of which was only in Rajasthan. Kishengarh was, at the material time, a part of Rajasthan. The appellants were required to charge fares prescribed by the Ajmer authorities, and could not change them to cover extra expenditure in the shape of taxes, which they had to bear in Rajasthan. Formerly, there was an agreement between the Ajmer State and. Kishengarh State, by which either State did not charge any tax or fees on vehicle registered in the respective States. Later, Kishengarh became a part of Rajasthan, and the tax was demanded from these appellants for the period, April 1, 1951, to March 31, 1954. The demand was made by virtue of s. 4, the charging section, under pain of the application of s. 1 1, which provides of penalties. 164. The taxes, which are imposed by Schs. II, III and IV(1)....
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.... determination of the amount payable is the kind of tyres and the number of wheels which the vehicle has. To say that the impugned tax is compensatory without any attempt to apportion the charge according to the actual wear and tear, is to borrow a theory for justification which does not apply to the facts here. 166. The only other question is whether the Act is, in its true character, regulatory. There is no provision in the Act which can be regarded as regulatory of motor vehicles or their use. The Act plainly levies a tax upon the possession or use of motor vehicles. A tax does not regulate trade ordinarily; it imposes a charge on trade. The question thus remains: does the tax burden trade or impair the free, flow of trade and commerce as contemplated Art: 301? It is clear that the tax is on trade. It is also clear that it is on the movement of trade. It is further clear that it creates a barrier between one State and another, which trade cannot cross except on a heavy payment. The tax is not truly a fair recompense for wear and tear of roads even if a justification on the doctrine of compensatory taxes is applied. It is nothing except a restriction, which Art. 301 forbids. T....