TaxTMI 
TaxTMI 
1962 (4) TMI 91
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.... 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 on behalf of the Union of India, the l....
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....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 of the Constitution of India and consequen....
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....he 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 Court granted by its order dated October 16, 1957. 4....
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....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 specified in the Schedules to this Act within the time allowed by....
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....ided 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 Art. 301 and the other Schedules deal with what would come within the term "trade and commerce" i....
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....f 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 correct view, does the principle underlying it apply to the facts of the present cases It is, therefore, necessary to set out briefly the facts of the Atiabari....
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....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 be free throughout the territory of India, it was the movement or transport part of the trade that must be free. The majority said: "It is a federal constitution w....
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....s 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 writing on a clean slate. They had the Government of India Act. 1935, and they also had the administrative set up which that Act envisaged. India then consisted of various administrative uni....
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.... 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 series of articles which we have to consider in Part XIII of the Constitution. Therefore, in interpreting the relevant articles in Part XIII we must have regard to the general scheme of t....
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.... 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. 301 relates to movement or carriage; he has called it the "channeling" of trade and commerce. He has, however, tried to reconcile the various provisions in Part XIII by suggesting that t....
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....ri 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) customs-barriers which at one time existed between the Indian States and adjacent British Indian territory. According to him, the intraState aspect of the freedom assured by Art. 301 was con....
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....he 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 article provides that the Legislature of a State may "impose on goods imported from other States any tax to which similar goods manufactured or produced in that State are subject, so, however,....
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....use 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 to" and ""notwithstanding" in the articles in question. Article 302, as we have seen, makes a relaxation in favour of Parliament. Article 303 again imposes a restriction on that relaxation "n....
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....en 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 absolutely free people, but that does not mean that we are not subject to law". (p. 573) 17. As the language employed in Art. 301 runs unqualified the Court, bearing in mind the fact that provision ....
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....ge 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 possible a priori to draw a dividing line between that which would really be a charge for a facility provided and that which would really be a deterrent to a trade; but the distinction: if it has to be draw....
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....nder 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 States and State Legislatures in the fields allocated to them would be meaningless. In our view the concept of freedom of trade, commerce and intercourse postulated by Art. 301 must be understood in the con....
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....y 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 is not a restriction within the meaning of the relevant articles in Part XIII. 20. It would appear from what we have stated above that this interpretation consists of two main parts : one part is that ta....
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....2 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 declared by Art. 301. They are excluded from the purview of the provisions of Part XIII of the Constitution for the simple reason that they do not hamper trade, commerce and intercourse but rather facilitate them. 2....
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....tion 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 restriction on the right of a citizen to carry on his trade or business is justified under el. (6) of Art. 19 as being in the interests of the general public, that law cannot again be impeached as being violative of....
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....ceptable. 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 s. 4 which is the charging section. That section makes it quite clear that the tax is imposed on a motor vehicle which shall be used in any public place or kept for use in Rajasthan; the tax is to be at appropriate r....
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.... 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 neighbourhood of 60 lakhs. In 1954-55, the estimated income from the tax was 35 lakhs, while the estimated expenditure was over 65 lakhs. It is obvious from these figures that the State is charging from the users of motor vehicles some....
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.... 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 these considerations necessarily determine whether the taxes are compensatory taxes or not. We must consider the substance of the matter and so considered, there can be no doubt that the taxes imposed are no hindrance to the freedom....
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....e 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 ? 34. The conflicting and sometimes mutually destructive arguments of learned counsel appearing for the various parties and interveners, omitting the immaterial variations, may conveniently be placed under following heads: (1) Trade, commerce and intercours....
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....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 the Constitution, it would be convenient at this stage to consider briefly the American and Australian law material to the present inquiry. 36. Clause 3 of s. 8 of Art. 1 of the Constitution of the United States of America says that the Congress shall have po....
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.... 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 power, the Supreme Court of America evolved certain doctrines, such as, "original package", ,silence of Congress", "preemption", "undue and unreasonable burden", and "direct and indirect effect". The following decisions dealing with 'direct and indirect effect" on inter-State tra....
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....her 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 interpretation of this sub-section fell to be considered in the context of marketing, banking and transport legislation. The question raised was whether the freedom of trade, commerce and intercourse was interfered by the laws made by the State. Paradoxically, the Courts of Australia and, in a....
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....ng 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 both the countries, namely, it is traffic and commercial intercourse concerning an inter-State market, or, to put it differently, the free flow or movement of trade across the State borders. (3) The said freedom should not ,be infringed by any law, whether taxation or otherwise or by execu....
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....s 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 the several States" found in the American Constitution or "among the States" found in the Australian Constitution, removes all inter-State or intra-State barriers and brings out the idea that for the purpose of the freedom declared, the whole country is one unit. Trade cannot be free throughout the te....
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....gulate 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, Profession tax, sales-tax, excise duty and other taxes may all have an indirect effect on the free flow of trade. So too, laws, other than those of taxation, made by virtue of different entries in the Lists, may remotely affect trade. Should it be held that any law which may have such repercussion must either be ....
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....es, 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 or otherwise, which limited the freedom, would certainly violate the same. The fact that the Constitution saves laws made imposing reasonable restrictions on the freedom has no relevance to the content of the freedom, though it protects certain laws made infringing that freedom. If on a construction of the p....
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.... 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, 292), gives a very cogent answer to such an argument in a different context. The learned Chief Justice said : "Highly inconvenient as it may be, it is true of some legislative powers limited by definition, whether according to subjectmatter to purpose or otherwise, that the validity of the exercise of the power m....
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.... "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 imposing restrictions on the said freedom. The article in terms, or even by necessary implication, does not exclude restrictions by way of taxation. It is not the source or the nature of the law that matters but the impact of that law, be it a law of taxation or otherwise, on the freedom that is crucial. It is also not possible to accept....
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.... 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 said freedom cannot be considered to be a restriction on it. Taking the illustration from taxation law, a law may impose a tax on the movement of goods or persons by a motor-vehicle it directly operates as a restriction on the free movement of trade, except when it is compensatory or regulatory. On the other hand, a law may tax a vehicle....
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....hing 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 to the law made by virtue of the entries referring to trade and commerce or by virtue of any entry in the Seventh Schedule, which may affect trade and commerce. 'The entries which refer to trade and commerce are entries 41 and 42 of List I, entry 26 of List II and entry 33 of List III of the Seventh Schedule to the Constitution. But it is conte....
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.... 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 Art. 301. But it has no relevance to Art. 303, which only prohibits the State Legislature from making a discriminatory law and it does not in any way prohibit the State Legislature from imposing a non-discriminatory tax permitted under Art. 304 (a). But, with reference to Art. 304 (b), the non-obstante clause has significance and meaning even in regard t....
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....on 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 limitations, or restrictions on the power of taxation conferred upon Parliament and the appropriate Legislatures under Art. 246 of the Constitution. But, in exercise of the power of taxation, subject to these limitations, the appropriate legislature cannot make a law infringing the freedoms conferred under the Constitution. The conditions prescribed for ....
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.... 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 barriers, inter-State, or intra State or other impediments operating as such barriers. (2) The said freedom is not impeded, but, on the other hand, promoted, by regulations creating conditions for the free movement of trade, such as, police regulations, provision for services, maintenance of roads, provision for aerodromes, Wharfs etc., with or without compen....
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....gistration 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 any rule made thereunder shall on conviction be punishable with fine which may extend to Rs. 100 and in the event of such person having been previously convicted of an offence under this Act or under any rule made thereunder with fine which may extend to Rs. 200." The appellants who held permits, plied their buses from the State of Ajmer. Their routes passed through the territory of Rajasthan, and they....
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.... 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 Advocate-General of States, we have had the benefit of arguments from various angles. 70. That freedom of trade, commerce and intercourse is secured by Art. 301, subject to the other provisions of Part XIII, has not been disputed in this case. The dispute is only as to what is comprehended within that freedom, and a further question is whether the powers of Parliament and the State Legislatures to levy taxes accord....
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..... 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." 74. The words "suitable for use on roads" describe the kinds of vehicles and not their condition. They exclude from the Entry, farm machinery, aeroplanes, Railways etc. which though mechanically propelled are not suitable for use on roads. The inclusion of trams using tracks which may be on roads or off them, makes the distinction still more apparent. It is thus clear that the power to tax motor vehicles is plenary, subject to Entry 35 of the Concurrent ....
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....ain 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 is thus within the competence of the State Legislature. That these motor vehicles come into the taxing State from an extra State point and are taxed within the taxing State by reason of their use or presence there, may raise problems under Part XIII but not under Entry 42 of the Union List. The words of the charging section are : "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 ....
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.... 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 establishment of federation in the two Countries is so vastly different that in spite of certain resemblance in the language employed in the comparable provisions of the two Constitutions, they cannot mean the same thing. Indeed, they differ in so many respects that nothing is more dangerous than to suppose that the Indian Constitution wished to secure freedom of trade, commerce and intercourse in the same way as did the Australian Commonwealth. These differences are not to be found solely....
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....eration. 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 great deliberation, and if there is as points obscurity in its language, this may be taken to be due not to any uncertainty as to the adoption of the stricter from of federal principle, but to that difficulty in obtaining ready agreement about phrases which attends the drafting of legislative measures by larger assemblages." 82. But declarations in a Constitution, however worded, must be given effect to, and they always loom large on the horizon of law-making, if they curtail legislative power, and it is no....
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....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 bound by it. The Privy Council traced the development of that view and pointed out that though in The King v. Vizzard ((1933) 50 C.L.R. 30) the Commonwealth agreed to be bound within certain limits, the ruling in McArthur's case (1) was not departed from and that though the view was reaffirmed in Australia from time to time, it was not applied in practice. The Board, however, did not "shelter under the decision in McArthur's case ((1920) 28 C.L.R. 530), and decided that the Commonwealth was also bound. Thus,....
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....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 referring to some cases in which the burdens and hindrances took diverse forms and appeared under various disguises, the Board observed that it must be a question of fact in every case whether there was an interference with the freedom of passage, and finally observed : "As a matter of actual language, freedom in s. 92 must be somehow limited, and the only limitation which emerges from the context, and which can logically and realistically be applied, is freedom at what is the crucial point in inter-State trade, that it is at the State barrier." 84. The language of s. 92, particularly "among the S....
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....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 exact meaning of the word, we are not presently concerned. 88. We shall next see how the doctrine of the freedom of trade, commerce and intercourse was applied in practice. In this connection, three cases filed by one James to question the marketing legislation of the States and the Commonwealth did much to settle some of the controversies. The two cases decided by the Privy Council before our draft Constitution were due to his efforts. His first case did not reach the Privy Council, and is reported in James v. South Australia ((1927) 40 C.L.R. 1), but it was approved by the Privy Council in James v. Cowan (6). These cases may be ....
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....r 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 special leave to appeal having been refused, it was understood that the Privy Council had approved them. In all these cases, the decisions were by majority, but Dixon and Starke, JJ. dissented. In James v. Commonwealth of Australia ([1936] A.C. 5 78) the Privy Council selected The King v. Vizzard as the best example. In that case, the question was whether the State Transport (Co-ordination) Act, 1931 (N.S.W.) contravened s. 92. Under that Act, no public motor vehicle could operate in the State unless the motor vehicle was licensed. Licensing was by a Board which had complete discretion, and a fee had to be paid. The lorry of the appellant ....
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....r 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 Commonwealth Bank. Five grounds were taken in attacking the Act. One such ground was that the acquisition provisions, the management provisions and the prohibition provisions were contrary to s. 92 of the Australian Constitution. Latham, C. J., after holding that banking was not trade or commerce, held that banking was an instrument which was used in inter-State trade and commerce. He held, therefore that since the overthrow of McArthur's case ((1920) 28 C. L. R. 530.) by the Privy Council, the legislative control by the Act did not offend s. 92, because it was a general control and not a control of any interState element. McTiernan, J., agreed in this conclusion. The majorit....
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....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 "trade, commerce and intercourse" stated that the compensations expression was evidently used to "include I forms and variety of inter State transactions whether byway of commercial dealing or all personal converse or passage". He also held that intangibles like insurance, banking, etc. were included that concept, and agreed with the view that though regulation of trade, commerce and inter Coarse was compatible with freedom of inter-State passage or converse, anything which restricted the freedom of such an intercourse was excluded by 1992. The analysis of the Banks' case((1933) 48 C.L.R. 316) in the High Court in the judgment of Starke, J., represents adequately the views entertained on the subject of freedom of trade, co....
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....ce." 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 things regulated, it could only be by straining those general words to their widest extent. In the Liquor Prohibition Appeal 1895 ((1817) 12 App. Cas. 575), Lord Watson asked the question which we may well ask: "Do you regulate a man when you tax him?" and Lord Herschel said thereupon: "May it not be necessary to regard it from this point of view, to find what is within regulation of trade and commerce, what is the object and scope of the legislation.? 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 ease, it is not a regulation of trade and commerce, while in the latter it is, though in each case trade and co....
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.... 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 Constitution is built, and that the provisions of the Constitution must accordingly be read in the light of the provisions of the Government of India Act (1935)" 100. The history of India during the last hundred years was one of continual transition. From the fully centralised Government at the Centre and in the administrative units then called provinces to partial responsibility in the provinces called Dyarchy, from Dyarchy to provincial Autonomy in a federation of mere administrative units in which the Indian States were expected to join, and from thence to a Dominion under the Crown and lastly to a Republic of a Union of States are transitions within one's memory. Earlier still, there was the rule of East India Company under the Crown through the Secretary of State for India and the Governor-General. 101. The transition in India ....
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....nce, 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 a classification of subjects between the Centre and the Provinces, and the topics of legislation, taxation and administration were separated to distinguish the different spheres. Such provision was to be made under S. 45A and the rules that were framed, go under the name of the Devolution Rules and its Schedules were the precursors of the Lists under the Government of India Act, 1935 and the present Constitution. The only difference was that there was no third List, which was hardly necessary, ax the residual power was in the Centre. The powers of the local Legislatures were, however, not unlimited. Apart from the limitations arising from the allotment of subjects under the Devolution Rules, there was a control of the Centre. Any Act passed by the local Legislature could be disallowed by the Governor-General or the Crown. In certain circumstanc....
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....e 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" 105. The Scheduled Tax Rules made by the Governor-General in Council under s. 80A (3)(a) of the Government of India Act divided the heads of taxes into two parts. The first part dealt with taxes which the Legislative Councils could impose without the previous sanction of the Governor General for the purposes of Local Government. The second part dealt with taxes which the local Legislatures could impose or authorise the imposition of, without the previous sanction of the Governor General for purposes of local authority. The first contained eight heads: six taxes, one registration fee and one stamp duty. The six taxes were (a) tax on land put to non-agricultural uses, (b) tax on succession, (c) tax on betting and gambling, (d) tax on advertisements, (e) tax on amusements and (f) tax on specified luxuries. In the second part were (a) tolls, (b) taxes on vehicles or boats, (c) octroi, (d) terminal taxe....
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....pen 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 inclined ourselves to think that the easier and more speedy approach to the desired end can be obtained by reorganising the Constitution of India on a federal basis in such a way that individual States or groups of States may have the opportunity of entering as soon as they wish to do so. " 106. When the Government of India Act, 1935, was being fashioned, the Committee was assisted by a Financial Adviser in Mr. (later, Sir) Walter Leyton, whose task was to evolve some scheme under which the Provinces could get adequate revenues. The Indian States, if they were to join in the Federation, also insisted that their position be safeguarded. Mr. Leyton then pointed out that before the Indian States Committee, 1928-29 (commonly known as the Butler Committee) the Indian States had urged that they must receive a share of the customs which bad by then risen to as much as Rs. 50 crores, and the Butler Committee had also suggested that this claim should be ....
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....he 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 slightly less than half the area, and one-fourth of the population of India. Even where the Government of India has adequate powers to impose internal indirect taxation or to control economic development, as in the case of salt and opium, the use of these powers has caused much friction and has often left behind it, in the States, a sense of injustice. " They suggested the means by which internal trade and commerce could be secured some measure of freedom and their recommendations must be quoted in extenso. In para 264 of the Report, they observed : "It is greatly to be desired that States adhering to the Federation should, like the Provinces, accept the principle of internal freedom for trade in India and that the Federal Government alone should have the power to impose tariffs and other restrictions on trade. Many States, however, derive substantial revenues from customs duties levied at the frontiers on goods entering the State from other parts of India. These d....
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....e 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, and just as the topics of legislation were demarcated between the Centre and the Provinces, so also the sources of revenue were allocated between the Centre and the Provinces. The intention was to create financially stable governments with well defined powers of taxation. This was, of course, absolutely necessary if the autonomous Provinces were to exist without subventions, which were necessary to support the deficit Provinces. The legislative heads were, therefore, completely divided between the Centre and the Provinces one List being exclusive to each and a third List was added by which certain subjects were to be within their concurrent jurisdiction. The intention was to avoid the assignment of residual powers to a minimum, and as observed by Gwyer, C. J., in In re The Central Provinces and Berar Act No. XIV of 1938 (1), this ",made the Indian Constitution Act unique among federal Constitutions in the length and detail of its Legislative Lists." The Government of India Act, 1935, provided by s....
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....er, the definition of "goods" took in commodities, and the words "goods of any class or description" were wide enough to show what was meant. The subject of taxation was not dealt with in cl. (a) but cl. (b), and that provided that taxation in the Provinces was not to have a differential basis. In this connection, reference may also be made to Entries 19, 20, 21, 22, 23, 24 and 26 of List I and Entries 20 and 32 in List III, which 'in some measure) involve regulation of trade, commerce and intercourse. 111. The detailed examination of the history lying at the back of the Government of India Act, 1935, lays bare some fundamental facts and premises. It shows that the process through a whole century was the breakup of a highly centralised Government and the creation of autonomous Provinces with distinct and separate political existence, to be combined inter se and with the Indian States, at a later period, in a federation. To achieve this, not only was there a division of the heads of legislation but the financial resources were also divided and separate fiscs for the federation and the Provinces were established. The fields of taxation were demarcated, and those for the Province....
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....ing to the experts. All-these matters have, in fact, been covered in Part XIII, and the pitfalls which were disclosed in the Law Reports of the Countries which had accepted freedom of trade and commerce have been attempted to be avoided by choosing language appropriate for the purpose. In addition to this, the broad pattern of the political set-up, namely, a federation of autonomous States was not lost sight of. These autonomous conditions had strengthened during the operation of the 1935 Constitution and led to what Prof. Coupland described as "Provincial patriotism", for which the reason, according to the learned Professor was : "In the course of the last few years the sense of Provincial patriotism has been, strengthened by the advent of a full Provincial self-government. The peoples took a now pride in Governments that were now in a sense theirs." (The Constitutional problem in India, part III. p. 40) 112. With this historical background of our country and the historical setting in which other Federations have dealt with the problems of trade and commerce, we now proceed to examine the Constitution to discover the meaning of the various Articles in Part XIII. We begin by rea....
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....sident may by order otherwise direct, and nothing in article 301 shall affect the operation of any law made before the commencement of the Constitution (Fourth Amendment) Act, 1955, in so far as it relates to, or prevent Parliament or the Legislature of a State from making any law relating to any such matter as is referred to in sub-clause (ii) of clause (6) of article 19. (This Article was substituted for original Article which was as follows: Nothing in Articles. 301 and 303 shall affect the provisions of any existing law except in so far as the President may by order otherwise provide.') 306. Deleted. (The original Article before its deletion read : 'Notwithstanding anything in the foregoing provisions of this Part or in any other provisions of this Constitution, any State specified in Part B of the First Schedule which before the commencement of this Constitution was levying any tax or duty on the import of goods into the State from other States or on the export of goods from the State to other States may, if an agreement in that behalf has been entered into between the Government of India and the Government of that State, continue to levy and collect such tax....
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.... of America and Canada have been avoided. In Canada, as we have shown already, the question was whether in passing a law the Provinces were encroaching upon the commerce power of the Dominion given by No. 2 of s. 91 and conversely, whether the regulation of trade by the Dominion meant an encroachment of the powers of the Provinces. In our Constitution, questions of conflict under two rival Lists may arise, but on the plane of exercise of commerce power, such questions can hardly arise. In the United States, the controversy is between the powers of the Congress and the powers of the States. American and Canadian precedents were thus avoided by dividing the commerce power. 115. The constitution deliberately chose the Australian pattern in Art. 301, but made certain other provisions, and this was done to avoid the controversy as it had raged in Australia. Article 301 states in general words (like s. 92 of the Australian Constitution) that trade, commerce and intercourse shall' be free. But the opening words "Subject to the other provisions of this Part" serve to direct attention to the provisions next following. These words achieve two purposes. They indicate (a) freedom is not....
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....956 the clause read the territories specified in Part D of the First Schedule') and (c) such other territories as may be acquired." 119. The words ",within any part of the territory of India" give power to Parliament to legislate for 'any part' not only generally but also locally. This power is subject to two restrictions. The first is that this must be done by law', which means that without a valid law the power cannot be exercised. The second is that the law must be in the 'public interest.' Since law is made the prerequisite of action, mere executive action is out of the question. This obviates the argument emphatically rejected by the Privy Council in James v. Cowan (1) that the executive was not under the fetter of a. 92 of the Australian Commonwealth Act. The word 'required' limits the restrictions to the necessities of the situation so that the Article may not be liberally construed as a free charter. The word (1) (1932) A. C. 542. "reasonable' is not included as qualifying restrictions' as it does in Art. 304 ; but it is impossible that the freedom granted in Art. 301 was to be ,mocked at' by making "unreasonable' restrictio....
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....Entry 8 of List II, Entries 29, 30, 81 of List 1 Entry 29, 15 of List III (to mention only a few from each List), Thus is achieved one purpose which is paramount viz., that the exercise of the commerce power, however derived, is not to be exercised to create preferences and discrimination between one State and other whether the action proceeds from Parliament or a State Legislature or both acting in union. No question of the content of the power or its source can arise in this context, because the prohibition is absolute., The article makes a great advance upon a. 297 of the Government of India Act, 1935. In the section, the inhibition was only against I Provincial Legislature or Government. Here the inhibitions embraces not only these but is also against Parliament and the Central executive. The executive limb bag been made powerless, because the source of restrictions must be law,' and if a law cannot be made, executive action per se would be ineffective without more. Future, S. 297 was concerned only with goods and their taxation differentially. The Article takes in its stride not only the passage of goods or their taxation but all other matters inherent in free trade, comme....
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....e 304 is divided into two parts. It enables the Legislatures of States to pass laws which affect trade, commerce and intercourse. Clause (a) of the Article enables taxation of good from other States pari passu taxation of similar goods in the State but so as not to discriminate between them. The ban of Art. 301 is lifted but uniformity is imposed. Compared with s. 297(1)(b) the Article is narrower in its enabling portion and shorter in it reaches. Section 297 inhibited 'tax, cess, tolls or due' taking in its reach all kinds of imposts on movement, but the Article gives per. mission to impose only taxes on goods on non differentiation basis between State and State, saying nothing about other imposts. Further, unlike the ,section, local areas are Dot mentioned in the Article treating the purely intera-State matters on a different footing. Trade, commerce and intercourse generally are next enabled by cl. (b) to be restricted. They can be restricted on two placesthe first in their inter-State aspect denoted by the words "with...... that State" and second, in their intera-State aspect denoted by the words ,within that State." Both these aspects are open to restrictions provided ....
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.... 101 of the Australian Constitution. We shall now notice some cases which were decided by the High Court of Australia and the Privy Council, because it is these cases which have been cited to us in support by the rival parties. After the Constitution of India came into force on January 26 1950, came the decision of the Privy Council in Commonwealth of Australia v. Bank of New South Wales((1950 A.C. 235). In that case, the Privy Council departed from what had been understood to be some of its former opinions. While adhering to its view that the test was whether an impugned law not 'remotely or incidentally' but directly and immediately restricted the inter-State business of banking at the barriers of the States, the Privy Council observed that such phrases as "freedom at the frontier...... in respect of goods passing into or out of the State," and "freedom of what is the crucial point in inter-State trade, that is at the State harrier" which it had used in James v. The Commonwealth ((1936) A.C. 578.) were to be read secundum subjectam materiam, and in the context in which they occurred, and observed: "They cannot be interpreted as a decision either that it is only the pass....
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....ng, these decisions could not have influenced the framing of our Constitution, because by the time they were rendered, our Constitution had already been framed. The Banks case, (1) having drawn the distinction between regulation and simple prohibition, the later Australian cases began to allow a play for regulation of trade and commerce. There being no machinery for achieving restrictions, reasonable in them. selves, restrictions to be valid had to be within the limits of regulation. Indeed, this way of justifying legislation, otherwise restrictive, as regulatory was being adopted even before the Bank case., ((1948) 76 C.L.R. 1, 380, 381) and the Transport cases were all examples of justification of many laws as regulatory. In some Transport cases, taxes which burdened trade and commerce were justified as compensatory being, it was said, a recompense for the wear and tear of roads. We shall notice these cases briefly, since justification for the sections impugned here was attempted on the ground that the provisions were merely regulatory or compensatory. We shall examine these cases as representing two different phases: In McCarter v. Brodie ((1950) 80 C.L.R. 432), which was a tr....
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....se was also generally understood as laying down that by "free" was meant freedom at the frontiers. An extract from the judgment of Evatt, J., in The King v. Vizzard ((1933) 50 C.L.R. 30) was quoted to ,show that freedom did not attach itself to each and every part of transaction, and the other parts were not free from regulation or control. Then came the Bank's case, ((1948) 76 C. L.R. 1, 380, 381) which laid down that regulation of trade, commerce and intercourse among the States was not incompatible with their absolute freedom; and that there was a breach of s. 92 only when the legislature or the executive acted to restrict such trade, commerce or intercourse directly and immediately as distinct from creating some indirect or consequential impediment, which could only be regarded as remote. Thus, regulation was considered as the antithesis of ',simple prohibition'. 133. The Transport cases involved almost always: (i) a licensing system of motor transport vehicles by a Board; (ii) a discretion to the Board to grant a licence or not; (iii) a payment of a licence fee which had a maximum limit; and (iv) sometimes a mileage charge as in O' Gilpin's case ....
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....uld not fairly arise. 136. According to Dixon, J." the Transport cases involved a pragmatical solution. The main reason of the error according to him was that trade and commerce Was treated 'as a sum of activities' and "the interState commercial activities of the individual, and his right to engage in them were ignored", and much importance was attached to absence of discrimination against inter-State trade considered as a whole. Dixon, J., then added to the five points a sixth, viz., "the distinction taken between, on the one hand, motor vehicles as integers of traffic, and, on the other hand, the trade of carrying by motor vehicle as part of commerce." This distinction, according to him, was not valid. 137. Fullagar, J., in a concurring judgment drew a good picture of how a regulation by its severity could become a prohibition. He observed that though traffic regulations and even licensing of motor vehicles including commercial vehicles could be said not to cross the line of regulation but both had to be reasonable so as not to impair the freedom. And the same could be said also about licence fees, etc. which had to be reasonable and non-discriminatory, lest they passed....
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....oting in extenso the opinions of Dixon and Fullagar, JJ., in McCarter v. Brodie ([1950] 80 C.L.R. 432) and expressed them as their own. The Board overruled the Transport, cases, and observed : "In their opinion it follows that if the validity of the Transport Act is to be established in the present case, it can only be upon the ground that the restrictions contained therein are regulatory' in the sense in which that word is used in the Bank case." 141. We now come to the last phase. The distinction between laws which merely regulate and those that restrict or prohibit having thus been established at the cost of all the Transport cases except Willard v. Rawson ([1933]48 C.L.R. 316), a new method was adopted by the Australian Legislatures. Wynes in "Legislative Executive and Judicial Powers in Australia" (1956), tells us that the transport legislation was amended by four of the States and the amended law was challenged in several cases We shall not trouble ourselves with them or with those in which laws in bar of claims arising out of the decision of the Privy Council were considered, but must draw attention to the difference between "regulation" and "restriction" made in Hugh....
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....ges. 144. There is yet another line of cases recently decicided in Australia. The taxing of commercial vehicles employed in inter-State or intrastate transport has been justified in some cases on the ground that such taxes are compensatory, and the tax is a recompense for the wear and tear of roads. In Armstrong v. The State of Victoria [No. 2] ([1957] 99 C.L.R. 28), Part II of the Commercial Goods Vehicles Act, 1955 (Victoria) was challenged. That Act required the owner of every commercial vehicle of load capacity exceeding four tons to pay compensation for the wear and tear caused to the roads. There was a schedule under which the payment was determined. Every vehicle paid one-third of a penny per ton of the sum of-(a) the tare weight of the vehicle and (b) forty per cent of the load capacity of the vehicleper mile of public highway along which the vehicle traveled in Victoria. The receipts were paid to the credit of a special account and applied solely for the maintenance of the highway. This law was upheld under s. 92 by a narrow majority of 4 to 3 in its application to inter-State trade. in the same, case. s. 3 of the Motor Car Act, 1951 (Viet.), which levied fees on a motor ....
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....axes, electricity taxes (to mention only a few) are paid by traders as well as by non-traders. To say that all these taxes are so many restrictions upon the freedom of trade, commerce and. intercourse is to make the entire Constitutional document subordinate to trade and commerce. Since it is axiomatic that all taxes which a tradesman pays must burden him, any tax which touches him must fall within Art. 304, if the word "restriction" is given such a wide meaning. Every such legislation will then be within the pleasure of the President, and this could not have been intended. Restriction" must, there fore, mean something more than a mere tax burden In our opinion, the issue of taxation cannot made justifiable with reference to Art. 301 in those cases where the tax is a general tat which a trade pays in common with others, We would, therefore respectfully disagree with the view of Shah, J. when he holds : "Not merely discriminative tariffs restricting movement of goods are included in the restrictions which are bit by Article 301, but all taxation on commercial intercourse even imposed as a measure for collection of revenue is so hit. Between discriminatory tariffs and trade barrier....
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.... with its freedom as trade." (p. 629) 148. The passage represents the view hold in McArthur's case ((1920) 28 C.L.R. 530). That case was disapproved at p. 631. We have already dealt with this view at some length. 149. Thus, taxation laws and taxes must be divided into two kinds. Taxes which are general and for revenue purposes which fall on those engaged in trade, commerce and intercourse in the same way as they fall on others not so engaged cannot normally be within the reach of Part XIII. A motor transport owner cannot claim that be will not pay property tax in respect of his garage buildings or electricity tax for the electricity he consumes in lighting them, or incometax on his profits. Part XIII has nothing to do with such taxes even though they fall upon tradesmen. 150. But this is not to say that we accept the view that all taxes or taxing laws are outside the reach of Part XIII. We find ourselves unable to accept the argument that there must be a discernible point in the operations of trade, commerce and intercourse at which the tax becomes a barrier to the freedom of the movement of trade before it will offend the freedom guaranteed. This argument considers the subj....
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....ls upon trade, commerce and intercourse as such, irrespective of whether it falls on trade viewed as a whole or upon individual traders, and restricts the freedom guaranteed, a question will immediately arise about the legality of the tax. In this connection, even trade not in motion and more so trade in motion will be protected unless the law, if made by Parliament is in the public interest, and if made by the State Legislature it is reasonably in the public interest and the previous sanction of the President has been obtained. What we have said about taxation and taxes is also true of other restrictions though not of a pecuniary character. A restriction from whatever source it may proceed, must be backed by law made in the manner indicated and the law must comply equally with those conditions. It may be stated there that it is not open under Part XIII to courts to devise their own technique for exempting patent and palpable interferences with the freedom of trade and commerce. In the Australian Constitution, there was no machinery for determining what freedom of trade, commerce and intercourse meant in given circumstances, and the Courts stepped in with its own interpretation of ....
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....it or impairing its freedom cannot be described as restrictions. A regulation, when it ceases to be a regulation and becomes a prohibition may require justification as a reasonable restriction. Fullagar, J., in Mc Carter v. Brodie ([1950] 80 C.L.R. 432.) pointed out that a regulation of speed on the high ways does not offend the freedom guaranteed, but a rule that commercial vehicles should travel at one miles per hour ceases to be regulation and becomes a restriction. Here, the question is not one of degree but of the essence of the purpose. The technique of justifying laws as regulatory was evolved in Australia in view of the intractable language of s. 92 without any indication of the circumstances in which the absolute freedom could be curtailed. The detailed pro-visions contained in Part XIII render such a construction of Art. 301 at once unnecessary and impermeable. 155. Let us now see whether the validity of taxation laws directly impinging on trade and commerce can be upheld on the ground that they are regulatory. Here, a distinction must be made between fees and taxes. Fees charged as quid pro quo for services rendered or as representing administrative charges are quite di....
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....carry on trade and commerce. A system of 'licensing of motor vehicles is a regulation, but does not impair the freedom of trade and commerce unless the licensing is made to depend upon arbitrary discretion of the licensing authority. Similarly, a fee for administrative purposes may also be viewed as a part as regulation. Such licensing and fees fall outside Art. 301, because they cannot be viewed as restrictions, and therefore do not need to be processed under Art. 304. 157. Such regulations are designed to give equal opportunity to everyone, subject to a certain standard. The object being a public object, such regulations cannot be questioned unless they amount to res trictions. A tax, however, which is made the condition precedent of the right to enter upon and carry on business at all is a very different matter. It is a restriction on the right to carry on trade and commerce, and the restriction is released on the payment of the tax, which is the price of such release. It is from this point of view that the impugned provisions in this case must be examined. 158. We have to examine the precise nature of the tax imposed, which has to be gathering from the charging section re....
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....ary to go into their details. Schedule III comprises goods vehicles registered outside the State using roads in Rajasthan, and they are required to pay a tax calculated at a specified sum per day. Schedule IV is headed: "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." 161. These vehicles are again classified according to the kind of tyres with which they are fitted as well as by their load capacity and different amounts of tax are payable by each class. Part II of this Schedule specified the tax payable by dealers in or manufacturers of motor vehicle, which is described as a payment "for a general licence" dependent upon the number of vehicles which they manufacture or deal in. 162. From the above analysis, it will be seen that the tax in Schs.II to IV is laid upon trade and commerce directly and immediately. It cannot be described as a property tax. Motor Vehicles employed by a trader for transport of passengers and goods are integers of trade and commerce. The tax is not like the property tax which a transport operator pays on buildings employed by him in his business.....
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.... far as vehicles coming from outside are concerned, their entry into the State is barred unless the tax is paid. The tax is thus not incidental to trade but is directly on it and is on its movement. This is not tax which the trader has to bear in common with others, and the tax is for revenue purposes. This is a case in which if the tax is not paid, the trade is destroyed. The charging provisions do not take into account what distance a particular vehicle travels within the State. A vehicle traveling a hundred miles and another traveling only one mile have to pay an identical sum as tax. How then can it be said that it involves a fair recompense for the wear and tear of roads? To say that such tax is compensatory and is a recompense for the wear and tear of the roads is to misdescribe it. Section 20, which we quoted earlier, may be compensatory for use of a bridge and may even be described as regulatory within the decision of Fullagar, J., in McCarter v. Brodie ([1950] 80 C.L.R.432) but not the taxing provisions which even in Australia would not be regarded either as compensatory or regulatory. It is impossible, therefore, to turn to the Australian precedents for help. 165. Furthe....