PETITIONER: THE AUTOMOBILE TRANSPORT(RAJASTHAN) LTD. Vs. RESPONDENT: THE STATE OF RAJASTHAN AND OTHERS(And Connected Appeals) DATE OF JUDGMENT: 09/04/1962 BENCH: MUDHOLKAR, J.R. BENCH: MUDHOLKAR, J.R. DAS, S.K. SINHA, BHUVNESHWAR P.(CJ) KAPUR, J.L. SARKAR, A.K. SUBBARAO, K. HIDAYATULLAH, M. AYYANGAR, N. RAJAGOPALA CITATION: 1962 AIR 1406 1963 SCR (1) 491 CITATOR INFO : R 1963 SC 928 (8,9) F 1963 SC1207 (34) R 1963 SC1667 (14,21) R 1964 SC 925 (2,9,12,13,14,57) R 1964 SC1006 (9) R 1967 SC1189 (5,7) F 1967 SC1575 (12) RF 1967 SC1643 (96) E 1968 SC 599 (14) RF 1969 SC 147 (8,9,26,33) E 1970 SC1864 (5) RF 1970 SC1912 (7) RF 1972 SC1061 (52) RF 1972 SC1804 (11) RF 1973 SC1461 (887,1229) RF 1974 SC1389 (173) RF 1974 SC1505 (7) RF 1975 SC 17 (15) R 1975 SC 583 (13,19,25,27) E 1975 SC 594 (4) RF 1975 SC1443 (19,21) RF 1977 SC1825 (18) E&R 1978 SC 68 (252,253,254) RF 1979 SC1459 (33) RF 1981 SC 463 (24,25,26) RF 1981 SC 711 (11) R 1981 SC 774 (9,10,11) RF 1982 SC 29 (2) R 1983 SC 634 (12,14,15) OPN 1983 SC1005 (7) F 1983 SC1283 (5) D 1987 SC 56 (1) F 1987 SC1911 (6,7) RF 1988 SC 567 (11) RF 1988 SC2038 (4) RF 1989 SC1119 (14) R 1989 SC2015 (8) RF 1990 SC 781 (74) C 1990 SC 820 (12,20) RF 1991 SC1650 (3) ACT: Freedom of Trade-State carriages-Tax on Vehicles--State law imposing tax on vehicles used in public place or kept for use--Constitutional validity-Rajasthan Motor Vehicles Tax- ation Act, 1951 (Rajasthan 11 of 1951),ss. 4, 11, Schedules--Constitution of India, Arts. 19, 245, 301, 304 Seventh Sch. List, I, entry 42, List II, entry 57. HEADNOTE: Sub-section (1) of s. 4 of the Rajasthan 'Motor Vehicles Taxation Act, 1951, provided : "...... 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 schedule 5 to this Act within the time allowed......." The appellants were carrying on the business of plying stage carriages in the State of Ajmer. They held permits and plied their buses on diverse routes. There was one route which lay mainly in Ajmer State but it crossed narrow strips of the territory of the State of Rajasthan. Another route, Ajmer to Kishangarh, was substantially in the Ajmer State, but a third of it was in Rajasthan. Formerly, there was an agreement between the Ajmer State and the former State of Kishangarh, by which neither State charged any tax or fees on vehicles registered in Ajmer or Kishangarh. Later, Kishangarh became a part of Rajasthan. On the passing of the Rajasthan Motor Vehicles Taxation Act, 1951, and the promulgation of the rules made thereunder, the Motor Vehicles Taxation Officer Jaipur, demanded of the appellants payment of the tax due on their motor Vehicles for the period April 1, 1951, to March 31, 1954. By virtue of the provisions of s. 4 of the Act read with the Schedules no one could use or keep a motor vehicle in Rajasthan without paying the appropriate tax for it and if he did so he was made liable to the penalties imposed under s. II of the Act. The appellants challenged the legality of the demand on the grounds that s. 4 of the Act read with the Schedules constituted a direct and immediate 492 restriction on the movement of trade and commerce with and within Rajasthan inasmuch as motor vehicles which carried passengers and goods within or through Rajasthan had to pay the tax which imposed a pecuniary burden on a com mercial activity and was, therefore, hit by Art. 301 of the Constitution of India and was not saved by Art. 304(b) inasmuch as the proviso to Art. 304(b) was not complied with, nor was the Act assented to by 'the President within the meaning of Art. 255 of the Constitution. The respondents claimed that taxation for the purpose of raising revenue or for the maintenance of roads etc., was not hit by Art. 301 and that the Act did not constitute an immediate or direct impediment to the movement of trade and commerce inasmuch as the tax imposed was a consolidate tax on the vehicle itself though the quantum of the tax was fixed in some instances with reference to the seating capacity or loading capacity etc. Held (per S. K. Das, Kapur, Sarkar and Subba Rao, jj.), that the Rajasthan Motor Vehicles Taxation Act 195 1, did not violate the provisions of Art. 301 of the Constitution of India and that the taxes imposed under the Act were comp- ensatory or regulatory taxes which did not hinder the freedom of trade, commerce and intercourse assured by that Article. Such taxes, therefore, were legal. Per S. K. Das, Kapur and Sarkar, JJ--(1) The concept of freedom of trade, commerce and intercourse postulated by Art. 301 must be understood in the context of an ordinary society and as part of a Constitution which envisaged a distribution of powers between the States and the Union, and if so understood, the concept must recognised the need and legitimacy of some degree of regulatory control, whether by the Union or the States. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities did not hamper trade, commerce and intercourse but rather facilitated them and, therefore, were not hit by the freedom declared by Art. 301 ; such measures need out comply with the requirements of the provisions of Art. 304(b) of the Constitution. (2) In view of the provision,.; of Art. 245, the restrictions in Part XIIT of the Constitution applied to taxation laws ; and such laws were not confined only to legislation with respect to entries relating to trade and commerce in any of the lists in the Seventh Schedule. (3) On a proper construction of the Act and the Schedules, the taxes imposed were really taxes for the use of the roads in Rajasthan. In basing the taxes on passenger capacity or loading capacity, the legislature had merely evolved a method and measure of compensation demanded by the State, but the taxes were still compensation and charge for regulation. 493 Per Subba Rao, J.--(1) The freedom declared under Art. 301 of the Constitution of India referred to the 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 ; and the said freedom was.not impeded, but on the other hand, promoted, by regulations creating conditions for the free movement of trade, such as, police regulations, provisions for services, maintenance of roads, provision for aerodromes, wharfs etc., with or without compensation. (2) Parliament may by law impose restrictions on such freedom in the public interest, and the States also, in exercise of its legislative power, may impose similar restrictions, subject to the proviso mentioned therein. (3) Laws of taxation were not outside the freedom enshrined either in Art. 19 or Art. 301. Per Hidayatullah, Rajagopala Ayyangar and Mudholkar, JJ.--(1) Section 4(1) of the Rajasthan Motor Vehicles Taxation Act, 1951, as read with Schs. 11, III and Part I of Sch. IV, offended Art. 301 of the Constitution, and as resort to the procedure prescribed by Art. 304(b) was not taken it was ultra vires the Constitution. (2) The pith and substance of the Act was the levy of tax on motor vehicles in Rajasthan or their use in that State irrespective of where the vehicles came from and not legislation in respect of interState trade or commerce. The Act was within entry 57 of the List of the Seventh Schedule and not under entry 42 of Union List. (3) A tax which is made the condition precedent of the right to enter upon and carry on business is a restriction on the right to carry on trade and commerce within Art. 301. In the present case, the trade, which consisted in making use of motor vehicles for carriage of passengers and goods, could be carried on only if the tax was paid, and, therefore, the taxes imposed by Schs. 11, III and IV(1) operated on trade and commerce directly. (4) The tax levied under the Act was not, truly a fair recompense for wear and tear of roads, but a restriction, which Art, 301 forbade. (5) The Act was not, in its true character, regulatory because there was no provision therein, which could be regarded as regulatory of motor vehicles. The Act plainly levied a tax upon possession or use of motor vehicles. Atiabari Tea Co., Ltd. v. The State of Assam and Others [1961] 1. S.C.R. 809, discussed. American and Australian decisions with regard to the Commerce Clause or the American Constitution and s. 92 of the Australian Constitution, considered. 494 JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 42 to 44
of 1959.
Appeals from the final judament and order dated August 9,
1957, of the Rajasthan High Court (Jaipur Bench) at Jaipur
in Civil Writ Petitions Nos. 400 to 402 of 1954.
G. S. Pathak, J. B. Dadachanji, S. N. Andley, Rameshwar
Nath and P. L. Vohra, for the appellants.
G. C. Kasliwal, Advocate-General for the State of
Rajasthan, A. V. Viswanatha Sastri, S. K. Kapur and P. D.
Menon, for the. respondents.
H. M. Seervai, Advocate-General for the State of
Maharashtra and Naunit Lal, for the State of Assam’
(Intervener).
V. K. T. Chari, Advocate-General for the State of Madras,
R. Ganapathy Iyer, T. M. Sen and P. D. Menon, for the State
of Madras (Intervener)
S. N. Sikri, Advocate-General for the State of Punjab, N.
S. Bindra, T. M. Sen and P. D. Menon, for the State of
Punjab (Intervener).
H. M. Seervai”. Advorate-General for the State of
Maharashtra, T. M. Sen and P. D. Menon, for the State of
Maharashtra (Intervener).
K. Bhimsankaram, T. M. Sen and P. D. Menon, for the State of
Andhra Pradesh (Intervener).
B. Sen, S. C. Bose and P. K. Bose, for the State of West
Bengal (Intervener).
Lal Narain Sinha, Lakshman, Saran, Singh, D. P. Singh, R. K.
Garg, M. K. Ramamurthi and S. C. Aggarwal, for the State of
Bihar (Intervener).
Dinbandhu Sahu, Advocate-General for the State of Orissa, B.
K.P. Sinha, T. M. Sen and P. D. Menon, for the State of
Orissa (Intervener).
495
K. L. Hathi and P. D. Menon, for the State of Gujarat
(Intervener).
M. Adhikari, Advocate-General for the State of
Madhya Pradesh, B. Sen, B. K. B. Naidu, and I. N. Shroff,
for the State of Madhya Pradesh (Intervener).
Ranadeb Chaudhuri, S. N. Andley, Rameshwar Nath and P. L.
Vohra, for M. A.Tulloch and Co. (Intervener).
K. Srinivasmurty and D. Goburdhun, for Nazeeria Motor
Service, Motor, and Andhra Pradesh Motor Union
(Interveners).
N. C. Chatterjee, S. C. Mazumdar and R. H.
Dhebar, for the Attorney-General for India (Intervener).
1962. April 9. The following judgments were delivered. The
judgment of S. K. Das, J. L. Kapur and A. K. Sarkar, JJ.,
was delivered by S. K. Das, J. The judgment of M.
Hidayatullah, N. Rajagopala Ayyangar and J. R. Mudholkar,
JJ., was delivered by M. Hidayatullah, J.
S. K. DAS, J.-These are three consolidated appeals which
arise from the judgment and order of a Division Bench of
Rajasthan High Court dated August, 9, 1957. They have been
preferred to this Court on the strength of a certificate
granted by the said High Court under Art. 132 of the Consti-
tution certifying that the cases involve a substantial
question of law as to the interpretation of Art. 301 and
other connected articles relating to trade, commerce and
intercourse within the territory of India, contained in Part
XIII of the Constitution. These appeals were originally
heard by a Bench of five Judges and on April 4, 1961, that
Bench recorded an order to the effect that having regard to
the importance of the constitutional issues involved
496
and the views expressed in the decision of this Court in
Atiabari Tea Co. Ltd. v. The State of Assam (1) 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
learned Advocates General or Counsel appearing for the
intervening States and also from learned Counsel appearing
on behalf of the three interveners referred to above.
The appellants in the there appeals are (1) the Automobile
Transport (Raj.) Ltd., Ajmer in Civil Appeal No. 42 of 1959.
(2) the Rajasthan Roadways Ltd., Ajmer in Civil Appeal No.
43 of 1959, and (3) Framji C. Framji and others in Civil
Appeal No. 44 of 1959. The respondents are (1) the State of
Rajasthan, (2) the Regional Transport Officer who is ex-
officio Motor Vehicles Taxation Officer, Jaipur, and
(1) [1961] 1. S. C. R. 809.
497
(3) the Collector of Jaipur. The first two Appellants are
private, limited liability companies registered under the
Indian Companies Act, 1913 and having their registered
offices at Ajmer. The third appellant is a partnership firm
named Framji Motor Transport registered under the India
Partnership Act. These three appellants carried on the
business of plying stage carriages. The first appellant
bad nine transport vehicles plying between two stations in
the State of Ajmer and between Ajmer and Kishangarh, a town
in Rajasthan at the relevant period. The two stations in
Ajmer were Nasirabad and Deoli. The road from Nasirabad to
Deoli was mainly in the former State of Ajmer but for some
distance it passed through certain narrow strips of
territory of the State of Rajasthan. Similarly, the road
from Ajmer to Kishangarh was partly in the former State of
Ajmer and partly in the State of Rajasthan, approximately
two-thirds of the road lying in Ajmer and one-third in
Rajasthan. The second and the third appellant also had some
transport vehicles which plied on the Nasirabad-Deoli route
or from Kishangarh to Sarwar, a town situated on the
Nasirabad-Deoli road in the State of Rajasthan. On the
passing of the Rajasthan Motor Vehicles Taxation Act, 1951
(Rajasthan Act XI of 1951) (hereinafter referred to as the
Act), and the promulgation of the rules made thereunder, the
second respondent demanded of the appellants payment of the
tax due on their motor Vehicles for the period beginning on
April 1, 195 1, and ending on March 3 1, 1954. The first
appellant was called upon to pay Rs. 22,260, the second
appellant Rs. 6,540 and the third appellant Rs. 10,260 under
r. 23 of the Rajasthan Motor Vehicles Taxation Rules. When
the appellants failed to pay the tax demanded from them, the
second respondent issued certificates under s. 13 of the Act
to the, third respondent for the recovery of the tax due as
arrears
498
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 consequently null and void and inoperative, and (2) that
a writ of prohibition or mandamus or any other appropriate
writ, direction or order directing the respondents not to
realise any tax from the appellants under the provisions of
the Rajasthan Motor Vehicles Taxation Act of 1951 be issued.
The three writ petition were heard together by a Division
Bench consisting of Bapna and Bhandari, JJ. They dealt with
and disposed of certain other objection to the validity of
the Act, with which we are no longer concerned; but as to
the contravention of Art. 301 of the Constitution, they felt
that in view of the complexity of the points involved and
the apparent conflict between certain decisions of other
High Courts, the question should be referred to a Full
Bench. Accordingly, they referred the question whether ss.
4 and 11 of the Act infringed
499
the right of freedom of trade, commerce or intercourse
granted under Art. 301 of the Constitution. The Full Bench
dealt with the question from two different stand points.
Firstly, they considered the validity of the Act from the
stand point of Act, 19 St (1) of the Constitution which
guarantees, to all citizens of India the right to move
freely throughout the territory of India; this the Full
Bench dealt with under the heading of’ freedom of
intercourse from the stand point of the individual citizen
and came to the conclusion that restrictions which the Act
imposed on the individual citizen were reasonable
restrictions having regard to the necessity of raising funds
for the maintenance of roads and the making of new roads in
the State of Rajasthan. Then the High Court considered
the validity of the relevant provisions of the
Act from the stand point of trade, commerce and came to
the conclusion that the regulation of trade, commerce and
intercourse within the territory of India, both inter-State
and intra-State. was not incompatible with its freedom and
in the matter of such regulation of trade, commerce and
intercourse a distinction must be drawn between restrictions
which are direct and immediate and restrictions which are
indirect and consequential. The High Court expressed its
final conclusion in the following words :
“Transport vehicles are provided by
individuals carrying on business in them and
those who carry on trade and commerce as a
whole, can use these transport vehicles. The
fact that on account of this taxation, the
charges of transport vehicles are higher, let
us say by an anna a maund is, in our opinion,
merely an indirect or consequential result of
this Act, and such an impediment may fairly be
called remote. It would be a different matter
if the taxation is so high that
500
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.”
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.
It may be here stated that neither the Division Bench nor
the Full Bench of the Rajasthan High Court had the advantage
of the decision of this Court in Atiabari Tea Co., case (1),
which decision came much later in point of time. The main
argument on behalf of the appellants before us has been that
the provisions of the Act under which the appellants were
sought to be taxed in respect of their motor vehicles plying
on the Nasirabad-Deoli or Kishangarh road contravened Art.
301 of the Constitution and were not saved by Art. 304 (b)
of the Constitution. We shall presently read the relevant
provision of the Act, but before we do so we may briefly
refer to one short point by way of clearing the ground for
the discussion which will follow. Article 305 of the
Constitution as it originally stood said that nothing in
Arts, 301 and 303 shall affect
(1) [1961] 1. S. C. R. 809.
501
the provisions of any existing law except in so far as the
President may by order otherwise provide. This article was
substituted by another article, some what wider in scope, by
the Constitution (Fourth Amendment) Act, 1955. The new
article repeated the words of the old article in the first
part thereof and in the second part it said that nothing in
Art. 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 relates to,
any such matter as is referred to in sub-cl. (ii) of cl. (6)
of Art. 19 that sub-clause refers to the carrying on by the
State or by a corporation owned or controlled by the State,
of any trade, business, industry or service, whether to the
exclusion, complete or partial, of citizens or otherwise.
The first part of Art. 305 does not apply in the present
cases because the expression “existing law” means any law,
ordinance, order, bye-law etc. passed or made before the
commencement of the Constitution. The Act which we are
considering now in the present appeals was made in 1955,
i.e., after the commencement of the Constitution. The
second part of Art. 305 has also no hearing on the questions
which we have to consider in these appeals. Article 305,
old or new, is, therefore, out of our way.
We now proceed to read the relevant provisions of the Act.
The Act was made by the Rajpramukh of the State of Rajasthan
on April 1, 1951. The history of the constitution of the
United State of Rajasthan and the powers of the Rajpramukh
under the covenant creating the State were stated in Thakur
Amar Singhji v. State of Rajasthan(1) 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
(1) [1955] 2. S.C.R. 303.
502
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 section 5 and, save as
hereinafter specified, such tax shall be
payable annually notwithstanding that the
motor vehicle may from time to time cease to
be used.
(2) An owner who keeps a motor vehicle of
which the certificate of fitness and the
certificate of registration are current,
shall, for the purposes of this Act be
presumed to keep such vehicle for use.
(3) A person who keeps more than ten motor
vehicles for use solely in the course of trade
and industry shall be entitled to a deduction
of ten per cent on the aggregate amount of tax
to which he is liable.
“4. Explanation.-The expression trade and
industry” includes transport for hire,”
Sections 5 to 7 deal with (1) payment of tax, (2) tax
payable on first liability to tax, and (3) refund of tax.
With these details we are not concerned here. Section 8
imposes on the owner of every motor
503
vehicle an obligation to make a declaration every year in
respect of the motor vehicle in the prescribed form stating
the prescribed particulars etc.; it also imposes an
obligation on every owner to pay the tax which he is liable
to pay in respect of the motor vehicle. This section is
also challenged as unconstitutional and it is obvious that
it is connected with s. 4. If s. 4 is unconstitutional, so
must be s. 8. Section 9 deals with the payment of additional
tax in circumstances which need not be stated here. Section
10 deals with the grant of receipt and token. Section 11
says :
“11. Penalties under this Act.-whoever
contravenes any of the provisions of this Act
or of any rule made thereunder shall on con-
viction 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.”
Section 12 deals with the compounding of offences and s. 13
lays down that when any person without any reasonable cause
fails or refuses to pay the tax, the Taxation Officer may
forward to the Collector of the district concerned a
certificate over his signature specifying the amount of tax
due from such person and the Collector shall recover the tax
as if it were an arrears of land revenue. Section 14
provides for appeals to the Transport Commissioner. Section
16 lays down that the liability of a person to pay the tax
shall not be questioned or determined otherwise than as
provided in the act or in the rules made thereunder.
Sections 17 to 21 deal with certain ancillary matters and s.
22 enables the Government to make rules for carrying into
effect the purpose of the Act. There are four Schedules to
the Act to which a more detailed reference will be made
later. It is enough to state here that the
504
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” in that
article. The result of reading s. 4 of Act with the
Schedules is that on one can use ox keep a motor vehicle in
Rajasthan without paying the appropriate tax for it and if
he does so he is made liable to the penalties imposed under
s. 11 of the Act. In brief, this appears to be the scheme
of the Act.
Is this scheme in conflict with the freedom of trade,
commerce and intercourse within the territory of India
assured by Art. 301 and other connected articles in Part
XIII of the Constitution ? That is the problem before us.
It is necessary, therefore, to read at this stage the
relevant articles in Part XIII of the Constitution. For
this purpose we must read Arts. 301 to 304 as they stood at
the relevant time.
“301. Subject to the other provisions of this
Part, trade, commerce and intercourse
throughout the territory of India shall be
free.
302. Parliament may by law impose such
restrictions on the freedom of trade,
505
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.
303. (1) Notwithstanding anything in Articles
302, neither Parliament nor the Legislature of
a State shall 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.
(2) Nothing in clause (1) shall prevent
Parliament from making any law giving or
authorising the giving of, any preference or
making, or authorising the making of, any
discrimination if it is declared by such law
that it is necessary to do so for the purpose
of dealing with a situation arising from
scarcity of goods in any part of the territory
of India.
304. Notwithstanding anything in Article 301
or Article 303, the Legislature of a State may by
law-
(a) impose on goods imported from other
States any tax to which similar goods
manufactured or produced in that State are
subject, so, however, as not to discriminate
between goods so imported and goods so
manufactured or produced; and
(b) impose such reasonable restrictions on
the freedom of trade, commerce or intercourse
with or within that State as may be required
in the public interest :
Provided that no Bill or amendment for
506
the purposes of clause (b) shall be introduced
or moved in the Legislature of a State without
the previous sanction of the President”.
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.
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 Tea Co. case (1) and the three views
expressed therein. The three appellants in that case were
tea companies, two of which carried on the trade of growing
tea in Assam and the other carried on its trade in
Jalpaiguri in West Bengal. They carried their tea to
Calcutta in order that it might be sold in the Calcutta
market for home consumption or export outside India. Tea
produced in Jalpaiguri had to pass through a few miles of
territory in Assam, while the tea produced in Assam had to
go all the way through Assam to reach Calcutta. Besides the
tea which was carried by rail, a substantial quantity had to
go by road or by inland water-ways and as such
(1) (1961) 1 S.C.R. 809.
507
became liable to pay the tax leviable under the Assam
Taxation (on goods carried by Roads or Inland Waterways)
Act, 1954. That Act levied a tax on certain goods carried
by road or inland waterways in the State of Assam and the
validity of the levy of such a tax was in question in the
Atiabari Tea Co. case. (1). The principal ground of attack
was that the Assam Act violated the provisions of Art. 301
of the Constitution and was not saved by the provisions of
Art. 304(b). We may now summarise the views expressed in
that decision. First, as to the views of the learned Chief
Justice: He expressed the view that taxation simpliciter was
not within the terms of Art. 301 and a tax on movement of
or passenger did not necessarily connote impediment or
restraint in the matter of trade and commerce. He draw a
distinction between taxation as such for the purpose of
revenue on the One hand and taxation for the purpose of
making discrimination or giving preference on the other
hand; the letter, he said, could be treated as impediment to
free trade and commerce. He expressed his final conclusion
in these words.
“Thus, on a fair construction of the pro-
visions of Part XIII, the following
propositions emerge: (1) trade, commerce, and
intercourse throughout the territory of India
are not absolutely free, but are subject to
certain powers of legislation by Parliament or
the Legislature of a State; (2) the freedom
declared by Art. 301 does not mean freedom
from taxation simpliciter, but does mean
freedom from taxation which has the effect of
directly impeding the free flow of trade,
commerce and intercourse; (3) the freedom
envisaged in Art. 301 is subject to non-
discriminatory restrictions imposed by
Parliament in public interest (Art. 392); (4)
even discriminatory or
(1) [1961] 1.S.C.R.809.
508
preferential legislation may be made by Par-
liament 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.)
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 which we are
interpreting, and so the impact of Art. 301
must be judged accordingly. Besides, it is
not irrelevant to remember in this connection
that the Article we are construing imposes a
constitutional limitation on the power of the
Parliament and the State Legislatures to levy
taxes, and generally, but for such limitation,
the power of taxation would be presumed to be
for public good and would not be subject to
judicial review or scrutiny. Thus considered
we think it would be reasonable and proper to
hold that restrictions freedom from which is
509
guaranteed by Art. 301, would be such restric-
tions as directly and immediately restrict or
impede the free flow or movement of trade.
Taxes may and do amount to restrictions; but
it is only such taxes as directly and immedia-
tely restrict trade that would fall within the
purview of Art. 301. The argument that all
taxes should be governed by Art. 301 whether
or not their impact on trade is immediate or
mediate, direct or remote, adopts, in our opi-
nion, an extreme approach which cannot be
upheld.” (p. 860.)
The third view held by Shah, J., was that the
freedom contemplated was freedom of trade,
commerce and intercourse in ill their varied
aspects inclusive of all activities which
constitute commercial intercourse and not
merely restrictions on the movement aspect.
He said :
“The guarantee of freedom of trade and
commerce is not addressed merely against
prohibitions, complete or partial; it is
addressed to tariffs, licensing, marketing
regulations, price-control, nationalization,
economic or social planning, discriminatory
tariffs, compulsory appropriation of goods,
freezing or stand-still orders and similar
other impediments operating directly and
immediately on the freedom of commercial
intercourse as well. Every sequence in the
series of operations which constitutes trade
or commerce is an act of trade or commerce and
burdens or impediments imposed on any such
step are restrictions on the freedom of trade
commerce and intercourse. What is guaranteed
is freedom in its widest amplitude-freedom
from prohibition, control, burden or
impediment in commercial intercourse.” (p.
874.)
So far we have set out the factual and legal background
against which the problem before us
510
has to be solved. We must now say a few words regarding the
historical background. It is necessary to do this,
because extensive references have been made to Australian
and American decisions, Australian decisions with regard to
the interpretation of s. 92 of the Australian Constitution
and American decisions with regard to the Commerce Clause of
the American Constitution. This Court pointed out in the
Atiabari Tea Co. case (1) 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 units known
as Provinces, each with its own administrative set up.
There were differences of language, religion etc. Some of
the Provinces were economically more developed than the
others. Even inside the same Province, there were under-
developed and highly developed areas from the point of view
of industries, communications etc. The problem of economic
integration with which the Constitution-makers were faced
was a problem with many facts. Two questions, however,
stood out,; one question was how to achieve a federal,
economic and fiscal integration, so that economic policies
affecting the interests of India as a whole could be carried
out
(1) [1961] 1. S. C. R. 809.
511
without putting an ever-increasincg strain on the unity of
India, particularly in the context of a developing economy.
The second question was how to foster the development of
areas which were under developed without creating too many
preferential or discriminative barriers. Besides the
Province, there were the Indian States also known as Indian
India. After India attained political freedom in 1947 and
before the Constitution was adopted, the process of merger
and integration of the Indian States with the rest of the
country had been accomplished so that when the Constitution
was first passed the territory of India consisted of Part A
States, which broadly stated, represented the Provinces in
British India, and Part B States which were made up of
Indian States. There were trade barriers raised by the
Indian States in the exercise of their legislative powers
and the Constitution-makers had to make provisions with
regard to those trade barriers as well. The evolution of a
federal structure or a quasi-federal structure necessarily
involved, in the context of the conditions then prevailing,
a distribution of powers and a basic part of our Constitu-
tion relates to that distribution with the three legislative
lists in the Seventh Schedule. The Constitution itself says
by Art. 1 that India is a Union of States and in
interpreting the Constitution one must keep in view the
essential structure of a federal or quasi-federal
Constitution, namely, that the units of the Union have also
certain powers as has the Union itself One of the grievances
made on behalf of the intervening States before us was that
the majority view in the Atiabari Tea Co. case(1) did not
give sufficient importance to the power of the States under
the Indian Constitution to raise revenue by taxes under the
legislative heads entrusted to them, in interpreting the
series of articles relating to trade, commerce and
intercourse in Part XIII of the Constitution. It has been
often stated that freedom of
(1) [1931] 1.S.C.R. 809.
512
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 the Constitution of India with special reference
to Part III (Fundamental Rights), Part XII (Finance,
Property etc. containing Arts. 276 and 286) and their inter-
relation to Part XIII in the context of a federal or quasi-
federal constitution in which the States have certain powers
including the power to raise revenues for their purposes by
taxation.
On behalf of the appellants it has been contended before us
that s. 4 of the Act read with the Schedules constitutes a
direct and immediate restriction on the movement of trade
and commerce with and within Rajasthan inasmuch as motor
vehicles which carry passengers and goods within or through
Rajasthan have to pay the tax which, it is stated, imposes a
pecuniary burden on a commercial activity and is, therefore,
hit by Art. 301 of the Constitution and is not saved by Art.
304(b) in as much as the proviso to Art. 304(b) was not
complied with nor was the Act assented to by the President
within the meaning of Art. 255 of the Constitution.
513
Learned Counsel for the appellants has submitted before us
that the correct interpretation of the series of relevant
articles in Part XIII of the Constitution is the one made by
Shah, J., in the Atiabari Tea Co. case(1). He has, however,
submitted that even on the interpretation accepted by the
majority of Judges in the Atiabari Tea Co. case(1) he is
entitled to succeed, because the relevant provisions of the
Act constitute a direct and immediate restriction on the
movement part of trade, commerce and intercourse. On behalf
of the respondents the argument has proceeded on the footing
that taxation per so i.e. taxation for the purpose of
raising revenue or for the maintenance of roads etc. is not
hit by Art. 301 and the impugned provisions of the Act in
question did not constitute an immediate or direct im-
pediment on the movement of trade and commerce inasmuch as
the tax imposed was a consolidated tax on the vehicle itself
though the quantum of the tax was fixed in some instances
with reference to the seating capacity or loading capacity
etc The argument is that in this respect the facts of the
present cases differ from the facts of the Atiabari Tea Co.
case(1); it is argued that in the latter the tax was on the
carriage of goods, whereas in the present cases the tax is a
consolidated tax on the vehicle itself, like a property tax,
and, therefore, it does not relate to the movement part of
trade, commerce and intercourse, though it may have an
indirect effect on trade, and commerce by raising the tariff
or fare for passengers and goods. The learned Counsel for
the respondents has in this way tried to distinguish the
majority decision in the Atiabari Tea Co. case(1), 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
(1) [1961] 1. S. C. R. 809.
514
General on behalf of the Union of India in the Atiabari Tea
Co. case(1) 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 there are
two connected but independent subjects dealt with therein;
one is freedom of movement of trade, and commerce and
in course (this, he has described, as “channeling” of trade,
commerce and intercourse), and the second is protection from
discrimination and preference which is not necessarily
connected with movement but may arise from subsidy etc.
These are the two ideas which, according to him, inspired
the relevant series of articles in Part XIII. On behalf of
some of the interveners the argument has been that the
freedom declared under Art. 301 is not freedom from such
regulatory measures as do not impede trade, commerce and
intercourse but rather facilitate such trade, commerce and
intercourse, e.g. traffic regulations for safeguarding
public health, such as, prohibiting the sale of adulterated
food etc. This view suggests that in the matter of
taxation, such taxes are compensatory in nature, namely,
those levied for the maintenance of roads on which traffic,
is to move, do not come within the restrictions freedom from
which is contemplated by Art. 301. This is the view which
Mr. Sikri, Advocate-General of Punjab, has mainly contended
for. Mr, Seervai appearing on behalf of the State of
Maharashtra and some other States has contended that Part
XIII of the Constitution is confined to such action,
legislative or executive, as is taken in relation to any of
the entries relating to trade and commerce in any of the
lists in the Seventh Schedule, namely, entries relating to
41 and 42 in list
(1) [1964] 1. S. C. R. 809.
515
I, entry 26 of list II, and entry 33 of list III. The
expression “throughout the territory of India” occurring in
Art. 301 has reference, according to this view, to space
rather than to movement. According to Mr. Seervai the mode
of approach should be to consider (i) the position of the
States in the Indian Constitution with plenary powers in
their respective fields; (ii) the historical background of
s. 297 of the Government of India Act, 1935; (iii) the
decisions of the Australian cases upto 1950 when the
Constitution of India was made; and (iv) Part XIII of the
Constitution as compared and contrasted with Part III and
Part XII thereof. As to taxation, his contention is that it
does not come within Part XIII except to the extent
mentioned in Art. 304(a). Mr. Lalnarain Sinha appearing for
the State of Bihar has supported the view of the learned
Chief Justice in Atiabari Tea Co. case(1) 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
(1) [1961] 1 S.C.R. 809.
516
British Indian territory. According to him, the intraState
aspect of the freedom assured by Art. 301 was confined to
old customs-barriers only which some of the Indian States
which have now merged in particular States of the Indian
Republic had earlier imposed. Mr. C. B. Agarwala appearing
for the State of Uttar Pradesh argued that the subject
matter of Art. 301 was trade, commerce and intercourse,
namely the entries relating to trade and commerce in any of
the lists in the Seventh Schedule ; but the restrictions
from which freedom was granted might come from any direction
; they might come from legislative or executive action
relating to other entries also.
We have tried to summarise above the various stand points
and views which were canvassed before us and we shall now
proceed to consider which, according to us, is the correct
interpretation of the relevant articles in Part XIII of the
Constitution. We may first take the widest view, the view
expressed by Shah, J., in the Atiabari Tea Co. case(1) a
view which has been supported by the appellants and one or
two of the interveners before us. This view, we apprehend,
is based on a purely textual interpretation of the relevant
articles in part XIII of the Constitution and this textual
interpretation proceeds in the following way. Article 301
which is in general terms and is made subject to the other
provisions of Part XIII imposes a general limitation on the
exercise of legislative power, whether by the Union or the
States, under any of the topics-taxation topics as well as
other topics-enumerated in the three lists of the Seventh
Schedule, in order to make certain that “trade, commerce and
intercourse thought the territory of India shall be free”.
Having placed a general limitation on the exercise of
legislative powers by Parliament and the State Legislatures,
Art. 302 relaxes that restriction in favour of Parliament by
providing that
(1) [1961] 1. S. C. R. 809.
517
authority “may by law impose such restrictions on the
freedom of trade, commerce or intercourse between one State
and another or within any part the territory of India as may
be required in the public interest”. Having relaxed the
restriction in respect of Parliament under Art. 302, a
restriction is put upon the relaxation by Art. 303(1) to the
effect that Parliament shall not have the power to make any
law giving any preference to any one State over another or
discriminating between one State and another by virtue of
any entry relating to trade and commerce in lists I and III
of the Seventh Schedule. Article 303(1) which places a ban
on Parliament against the giving of preferences to one State
over another or of discriminating between one State and
another, also provides that the same kind of ban should be
placed upon the State Legislature also legislating by virtue
of any entry relating to trade and commerce in lists II and
III of the Seventh Schedule. Article 303 (2) again carves
out an exception to the restriction placed by Art. 303(1) on
the powers of Parliament, by providing that nothing in Art.
303(1) shall prevent Parliament from making any law giving
preference to one State over another or discriminating
between one State and another, if it is necessary to do so
for the purpose of dealing with a situation arising from
scarcity of goods in any part of the territory of India.
This exception applies only to Parliament and not to the
State Legislatures. Article 304 comprises two clauses and
each clause operates as a proviso to Arts. 301 and 303.
Clause (a) of that 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, as not to discriminate
between goods so imported and goods so manufactured or
produced.” This clause, therefore, permits the levy on goods
imported from
518
sister States any tax which similar goods manufactured or
produced in that State are subject to under its taxing laws.
In other words, goods imported from sister States are placed
on a par with similar goods manufactured or produced inside
the State in regard to State taxation within the State
allocated field. Thus the States in India have full power
of imposing what in American State legislation is called the
use tax, gross receipts tax etc., not to speak of the
familiar property tax, subject only to the condition that
such tax is imposed on all goods of the same kind produced
or manufactured in the taxing State, although such taxation
is undoubtedly calculated to fetter interState trade and
commerce. As was observed by Patinjali Sastri, C.J., in
State of Bombay v. United Motors(1) the commercial unity of
India is made to give way before the State power of imposing
‘any’ non-discriminatory tax on goods imported from sister
States. Now cl. (b) of Art. 301 provides that
notwithstanding anything in Art. 301 or Art. 303, the
Legislature of a State may by law impose such reasonable
restrictions on the freedom of trade, commerce or
intercourse with or within that State as may be required in
the public interest. The proviso to el. (b) says that no
bill or amendment for the purpose of cl. (b) shall be
introduced or moved in the Legislature of a State without
the previous sanction of the President. This provision
appears to be the State analog to the Union Parliament’s
authority defined by Art. 302, in spite of the omission of
the word “reasonable’ before the word restrictions’ in the
latter article. Leaving aside the prerequisite of previous
Presidential sanction for the validity of State legislation
under cl. (b) provided in the proviso thereto, there are two
important differences between Art. 302 and Art. 301(b) which
require special mention. The first is that while the power
of Parliament under
(1) [1953] S.C.R. 1069.
519
Art. 302 is subject to the prohibition of preferences and
discriminations decreed by Art. 303(1) unless Parliament
makes the declaration contained in Art. 303(2), the State’s
power contained in Art. 304(b) is made expressly free from
the prohibition contained in Art. 303(1), because the open-
ing 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.
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 “notwithstanding
anything in Article 302 but Art. 303 relates both to
Parliament and the State Legislature, though Art. 302 makes
no relaxation in favour of the State Legislature. The non
obstante clause in Art. 303 is, therefore, somewhat
inappropriate. Clause (2) of Art. 303 carves out an
exception from the restriction imposed on Parliament by cl.
(1) of Art. 303. But again cl. (2) relates only to
Parliament and not to the State Legislature even though cl.
(1) relates to both. Article 304
520
again begins with a non obstante clause mentioning both Art.
301 and Art. 303, though Art. 304 relates only to the
Legislature of a State. Article 303 relates to both the
State Legislature and Parliament and again the non obstante
clause in Art. 304 is somewhat inappropriate. The fact of
the matter is that there is such a mix up of exception upon
exception in the series of articles in ]Part XIII that a
purely textual interpretation may not disclose the true
intendment of the articles. This does not mean that the
text of the articles, the words used therein, should be
ignored. Indeed, the text of the articles is a vital
consideration in interpreting them; but we must at the same
time remember that we are dealing with the Constitution of a
country and the inter-connection of the different parts of
the constitution forming part of an integrated whole must
not be lost sight of. Even textually, we must ascertain the
true meaning of the word “free’ occurring in Art. 301. From
what burdens or restrictions is the freedom assured ? This
is a question of vital importance even in the matter of
construction. In s. 92 of the Australian Constitution the
expression used was ‘absolutely free’ and repeatedly the
question was posed as to what this freedom meant. We do not
propose to recite the somewhat checkered history of the
Australian decisions in respect of which Lord Porter, after
a review of the earlier cases, said in Commonwealth of
Australia v. Bank of New South Wales (1) that in the
“labyrinth of cases decided under s. 92 there was no golden
thread.” What is more important for our purpose is that he
expressed the view that two general propositions stood out
from the decisions: (i) that regulation of trade, commerce
and intercourse among the States is compatible with its
absolute freedom, and (ii) that s. 92 of the Australian
Constitution is violated only when a legislative or
(1) [1950] A.C. 235,
521
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) (1), 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)
As the language employed in Art. 301 runs unqualified the
Court, bearing in mind the fact that provision has to be
applied in the working of an orderly society, has
necessarily to add certain qualifications subject to which
alone that freedom may be exercised. This point has been
very lucidly discussed in the dissenting opinion which
Fullagar, J., wrote in Mc Carter v. Brodie (2), an opinion
which was substantially approved by the Privy Council in
Hughes and Vale Proprietary Ltd. v. State of New South Wales
(3). The learned Judge gave several examples to show the
distinction between what was merely permitted regulation and
what true interference with freedom of trade and commerce.
He pointed out that in the matter of motor vehicles
(1) [1916] 22 C.L.R. 556 (2) [1950] 80 C.L.R. 432.
(3) [1955] A.C. 241.
522
most countries have legislation which requires the motor
vehicle to be registered and a fee to be paid on
registration. Every motor vehicle must carry lamps of a
specified kind in front and at the rear and in the hours of
darkness these lamps must be alight if the vehicle is being
driven on the road, every motor vehicle must carry a warning
device, such as a horn; it must not be driven at a speed or
in a manner which is dangerous to the public. In certain
localities a motor vehicle must not be driven at more than a
certain speed. The weight of the load which may be carried
on a motor vehicle on a public highway is limited. Such
examples may be multiplied indefinitely. Nobody doubts that
the application of rules like the above does not really
affect the freedom of trade and commerce; on the contrary
they facilitate the free flow of trade and commerce. the
reason is that these rules cannot fairly be said to impose a
burden on a trader or deter him from trading: it would be
absurd, for example, to suggest that freedom of trade is
impaired or hindered by laws which require a motor vehicle
to keep to the left of the road and not drive in a manner
dangerous to the public. If the word ‘free’ in Art. 301
means ‘freedom to do whatever one wants to do, then chaos
may be the result; for example, one owner of a motor vehicle
may wish to drive on the left of the road while another may
wish to drive on the right of the road. If they come from
opposite directions, there will be an inevitable clash.
Another class of examples relates to making a charge for the
use of trading facilities, such as, roads, bridges,
aerodromes etc. The collection of a toll or a tax for the
use of a road or for the use of a bridge or for the use of
an aerodrome is no barrier or burden or deterrent to traders
who, in their absence, may have to take a longer or less
convenient or more expensive route. such compensatory taxes
are no hindrance to anybody’s freedom so long as they remain
reasonable; but they could of course be converted into a
hindrance to the freedom of trade. If the
523
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 drawn, is real and clear. For the tax to become a
prohibited tax it has to be a direct tax the effect of which
is to hinder the movement part of trade. So long as a tax
remains compensatory or regulatory it cannot operate as a
hindrance.
The most serious objection to the widest view canvassed
before us is that it ignores altogether that in the
conception of freedom of trade, commerce and intercourse in
a community regulated by law freedom must be understood in
the context of the working of an orderly society. The
widest view proceeds on the footing that Art. 301 imposes a
general restriction on legislative power and grants a
freedom of trade, commerce and intercourse in all its series
of operations, from all barriers, from all restrictions,
from all regulation, and the only qualification that is to
be found in the article is the opening clause, namely,
subject to the other provisions of Part XIII. This in
actual practice will mean that if the State Legislature
wishes to control or regulate trade, commerce and
intercourse in such a way as to facilitate its free
movement, it must yet proceed to make a law under Art.
304(b) and
524
no such bill can be introduced or moved in the Legislature
of a State without the previous sanction of the President.
The practical effect would be to stop or delay effective
legislation which may be urgently necessary. Take, for
example, a case where in the interests of public health, it
is necessary to introduce urgently legislation stopping
trade in goods which are deleterious to health, like the
trade in diseased potatoes in Australia. If the State
Legislature wishes to introduce such a bill, it must have
the sanction of the President. Even such legislation as
imposes traffic regulations would require the sanction of
the President. Such an interpretation would, in our
opinion, seriously affect the legislative power of the State
Legislatures which power has been held to be plenary with
regard to subjects in list 11. The States must also have
revenue to carry out their administration and there are
several items relating to the imposition of taxes in list
11. The Constitution-makers must have intended that under
those items the States will be entitled to raise revenue for
their own purposes. If the widest view is accepted, then
there would be for all practical purposes, an end of State
autonomy even within the fields allotted to them under the
distribution of powers envisaged by our Constitution. An
examination of the entries in the lists of the Seventh
Schedule to the Constitution would show that there are a
large number of entries in the State list (list II) and the
Concurrent list (list III) under which a State Legislature
has power to make laws. Under some of these entries the
State Legislature may impose different kinds of taxes and
duties, such as property tax,, sales tax, excise duty etc.,
and legislation in respect of any one of these items, may
have an indirect effect on trade and commerce. Even laws
other than taxation laws, made under different entries in
the lists referred to above, may indirectly or remotely
affect trade and commerce. If it be held that every law
made by
525
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 context of an orderly
society and as part of a Constitution which envisages a
distribution of powers between the States and the Union, and
if so understood, the concept must recognise the need and
the legitimacy of some degree of regulatory control, whether
by the Union or the States: this is irrespective of the
restrictions imposed by the other articles in Part XIII of
the Constitution. We are, therefore, unable to accept the
widest view as the correct interpretation of the relevant
articles in Part XIII of the Constitution.
We proceed now to deal with another interpretation of the
relevant provisions in Part XIII : this interpretation may
be characterised as the narrow interpretation. According to
this interpretation taxing laws are governed by the
provisions of Part XII of the Constitution and except Art.
304(a) none of the other provisions of Part XIII extend to
taxing laws. An additional argument is that the provisions
of Part XIII apply only to such legislation as is made under
entries in the Seventh Schedule which deal with trade,
commerce and intercourse. According to this argument entry
42 in list 1, which refers to inter. State trade and
commerce, entry 26 in list II which deals with trade and
commerce within the State subject to the provisions of entry
33 in list III, and entry 33 in list III which deals with
trade and commerce as specified therein, are the only
entries legislation relating to which attracts the
provisions of Part XIII, and legislation on other topics is
not affected by these provisions. In support argument
526
assistance has been sought from the heading of Part XIII and
from the use of the expression “subject to’ in Art.301. It
has been pointed out that the title of Part XIII is trade,
commerce and an intercourse ; intercourse, it is stated,
means commercial intercourse there being no separate
legislative entry in any of the three list relating to
intercourse and the word throughout’ has reference to space
rather than to movement. The expression ,subject to’ it is
stated, means conditional upon’, thus connecting the
provisions of Art. 303 with the provisions of Art. 301.
Article 303 specifically uses the expression “by virtue of
any entry relating to trade and commerce in any of the lists
in the Seventh Schedule.” It is argued that by reason of the
connection between Art. 301 and Art. 303, the words “by
virtue of any entry relating to trade and commerce etc.”
must be read into Art. 301 also so that Art. 301 will then
be construed as a fetter on the commerce power i. e., the
power given to the Legislature to make laws under entries
relating to trade and commerce only. As to taxation being
out of the provisions of Part XIIL of the Constitution
except for Art. 304(a), the argument is that we must look to
the historical background of s. 297 of the Government of
India Act, 1935, and Arts. 274, 276 and 285 to 288 in Part
XII of the Constitution. It is pointed out that the power
to tax is an incident of sovereignty and it is divided
between the Union and the States under the Constitution ;
Part XII of the Constitution deals with several aspects of
taxation and all the restrictions on the power to tax are
contained in Part XII which, according to this
interpretation, is self contained. Therefore, so it is
argued, the freedom guaranteed by Art.301 does not mean
freedom from taxation, because taxation is not a restriction
within the meaning of the relevant articles in Part XIII.
527
It would appear from what we have stated above that this
interpretation consists of two main parts : one part is that
taxation simpliciter is not within the terms of Art. 301 and
the second part is that Art. 301 must take colour from the
provisions of Art. 303 which, it is said, is restricted to
legislation with respect to entries relating to trade and
commerce in any of the lists in the Seventh Schedule, In
Atiabari Tea Co. Case ( 1) this Court deal with the
correctness or otherwise of this narrow interpretation and
by the majority decision held against it. The majority
judgement in the Atiabari Tea Co. Case (1) deals, with the
arguments advanced in support of the interpretation in
detail and as we are substantially in agreement with the
reasons given in that judgment, we do not think that any
useful purpose would be served by repeating them. It is
enough to point out that though the power of levying tax is
essentially for the very existence of government, its
exercise may be controlled by constitutional provisions made
in that behalf. It cannot be laid down as a general
proposition that the power to tax is outside the purview of
any constitutional limitations. We have carefully examined
the provisions in Part XII of the Constitution and are
unable to agree that those provisions exhaust all the
limitations on the power to impose a tax. The effect of
Art. 265 was considered in the majority decision and it was
pointed out that the power of taxation under our
Constitution was subject to the condition that no tax shall
be levied or collected except by authority of law. Article
245 which deals with the extent of laws made by Parliament
and by the Legislatures of States expressly states that the
power of Parliament and of the State Legislatures to make
laws is `subject to the provisions of this Constitution.”
The expression “subject to the provisions of this
Constitution” is surely wide enough to take in
(1) [1961] 1. S. C. R. 809.
528
the provisions of both Part XII and Part XIII. In view of
the provisions of Art, 245, we find it difficult to accept
the argument that the restrictions in Part XIII of the
Constitution do not apply to taxation laws. As to the
argument that Art. 301 must take colour from Art. 303, we
are unable to accept as correct the argument that the
provisions of Art. 303 must delimit the general terms of
Art. 301. It seems to us that so far as Parliament is
concerned, Art. 303(1) carves out an exception from the
relaxation given in favour of Parliament by Art. 302 ;
the relaxation given by Art. 302 is itself in the nature of
an exception to the general terms of Art. 301. It would be
against the ordinary canons of construction to treat an
exception or proviso as having such a repercussion on the
interpretation of the main enactment so as to exclude from
it by implication what clearly falls within its express
terms.
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.
This disposes of two of the main interpretations which have
been canvassed before us. We
529
accept neither the widest interpretation nor the narrow
interpretation for the reasons which we have already
indicated. It remains now to consider some of the other
interpretations which have been canvassed before us. Mr.
Lalnarain Sinha has in substance contended that Art. 301 is
restricted to freedom from geographical barriers only ; Mr.
D. Sahu has contended that Art. 301 is confined to (i)
interstate barriers, and (ii) customs-barriers which at one
time existed between the Indian States and the adjacent
British Indian territory. In our opinion both these
interpretations proceed on a somewhat narrow basis and are
not justified by the general words used in Art. 301 and the
other relevant articles in Part XIII of the Constitution.
In our opinion the ambit of the relevant articles in Part
XIII is wider than what these interpretations assume it to
be. While on this point it may be advisable to refer to the
contrast between Art. 19 in Part III and Art. 301 in Part
XIII of the Constitution. Article 19 guarantees to all
citizens certain rights which are compendiously stated to be
the right to freedom ; two such rights are (i) to move
freely throughout the territory of India and (ii) to carry
on any occupation, trade or business. The right to move
freely throughout the territory of India is subject to
reasonable restrictions in the interests of the general
public or for the protection of any scheduled tribe. The
right to carry on any occupation, trade or business is
subject to reasonable restrictions in the interests of the
general public and in particular to any law relating to the
carrying on by the State, of any trade, business etc.,
whether to the exclusion, complete or partial, of citizens
or otherwise. The first contrast between Art. 19 and Art.
301 is that Art. 19 guarantees the right to freedom to a
citizen whereas freedom granted by Art. 301 is not confined
to citizens. Another distinction which has been drawn is
that Art. 19 looks at the right from the
530
point of view of an individual, whereas Art. 301 looks at
the matter from the point of freedom of the general volume
of trade, commerce and intercourse. We do not think that
this distinction, if any such distinction at all exists, is
material in the present cases, because an individual trade
may complain of a violation of his freedom guaranteed under
Art. 19(1)(g) and he may also complain if the freedom
assured by Art. 301 has been violated. In a particular set
of circumstances the two freedoms need not be the same or
need not coalesce. In some of the Australian decisions a
distinction was sought to be drawn between the free flow of
the same volume of inter-State trade and the individual’s
right to carry on his trade in more than one State and it
was argued that s. 92 of the Australian Constitution related
to the free flow of the volume of trade as distinguished
from an individual’s right to carry on his trade. Such a
distinction was negatived and the Privy Council pointed out
that the redoubtable Mr. James who fought many a battle for
the freedom, of his trade and occupation was after all an
individual. Another aspect of this contrast between Art. 19
and Art. 301 of the Constitution which has been adverted to
before us is this; it has been argued that if a law imposing
a 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 Art. 301;
otherwise, so it is argued, the Constitution will be taking
away by Art. 301 what it has granted by cl. (6) of Art. 19.
The argument is that trade or business must be such as a
person is entitled to carry on before be can complain of any
impediment to the freedom of that trade or business. This
is an aspect of the problem which may require a more
detailed and careful examination in an appropriate case. If
we
532
across geographical barriers. We are for this reason unable
to accept Mr. Sinha’s contention. Mr. Ranadeb Chaudhuri
appearing on behalf of one of the interveners accepted the
majority view that Art. 301 was aimed at the movement aspect
of trade, commerce and intercourse; this lie called the
“channelling”. of trade, commerce and intercourse. But he
raised the question of subsidy and said that Art. 303 which
related to discrimination and preference also aimed at the
mischief of subsidy which might be given to a State by way
of preference or discrimination; that mischief, he said,
would come within Art. 303 even if it did not relate to the
movement aspect of trade and commerce. We are not concerned
in the present cases with the question of subsidy and need
not, therefore, consider the argument of Mr. Ranadeb
Chaudhuri with regard to it.
As to the word ,intercourse” there bar, also been some
argument before us. On behalf of some of the States it has
been contended that the word ,intercourse’ in the context in
which it occurs in Art. 301 means commercial intercourse.
On behalf of the appellants it hat; been argued that the
word ,intercourse’ takes in not merely trade and commerce in
the strict sense, but also activities, such as, movement of
persons for the purpose of friendly association with one
another, telephonic communications etc. For the purpose of
the cases which we are considering nothing very much turns
upon whether we take the word intercourse’ in a wide sense
or in a narrow sense. Even taking the word ,intercourse’ in
a wide sense, the question will still be what does the word
,free’ mean? Does it mean free from all regulation which is
necessary for an orderly society? We have already stated
that the word ‘free’ in Art. 301 cannot be given that wide
meaning.
We have, therefore, come to the conclusion that neither the
widest interpretation nor the narrow
533
interpretations canvassed before us are acceptable. The
interpretation which was accepted by the majority in the
Atiabari Tea Co. case (1) 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.
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 rates specified in the Schedules
to the Act and save as specified in the Act the tax shall be
payable annually notwithstanding that the motor vehicle may,
from time to time, cease to be used. Section 7 says in
effect that if the motor vehicle in respect of which such
tax has been paid has not been used for a continuous period
of not less than three months, then the owner shall be
entitled to a refund of an amount equal to 1/12 of the
annual rate of the tax paid. It appears from the Schedules
that a vehicle other than a transport vehicle is charged
with a consolidated tax, according as the motor vehicle is
fitted with pneumatic tyres or not. The rate of tax varies
(1) [1961] 1. S. C. R. 809.
534
according to the nature of the vehicle, whether it is a
motor cycle, or a motor tricycle drawing a tractor, or a
side car etc. Schedule If relates to transport vehicles
with again are classified into various categories, those
fitted with pneumatic tyres and those not so fitted, motor
vehicles plying for conveyance of passengers and light
personal luggage goods vehicles plying under public
carrier’s permit etc. The quantum of tax fixed with regard
to the seating capacity in some cases and loading capacity
in other cases. The tax on some goods vehicles is fixed per
day or per annum. Schedule III relates the goods vehicles
only. A classification is again made between different
classes of goods vehicles fitted with pneumatic tyres,
conveying a trailer etc. The tax fixed is a tax for use per
day. Schedule IV deals with vehicles plying with a private
carrier’s permit. Here again a classification is made of
vehicles fitted with pneumatic tyres, with a general permit
for use in Rajasthan and those with a permit for lying
within the limits of one region only. The tax varies
according to the loading capacity etc.
An examination of these provisions indicates clearly enough
that the taxes imposed are really taxes on motor vehicles
which use the roads in Rajasthan or are kept for use
therein, either throughout the whole area or parts of it.
The tax is payable by all owners of motor vehicles, traders
or otherwise. In dealing with the question whether these
taxes were reasonable restrictions on the right of
individuals to move freely throughout the territory of India
etc. the High Court said:
“In this connection, it is well to remember
that the State maintains old roads, and makes
new ones, and these roads are at the disposal
of those who use motor vehicles either for
private purposes or for trade or commerce.
This naturally costs the State. It has,
therefore, to find funds for making
535
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 something in the
neighbourhood of 50% of the cost it has to
incur in maintaining and making roads.”
The High Court further pointed out that in the case of
private motor cars the tax was Rs. 12 per seat and for an
ordinary five-seater car, it came to Rs. 60 per year. On
payment of this amount the owner of the motor vehicle could
use the car anywhere in Rajasthan and the roads were open to
him. In the case of a goods vehicle, the tax was Rs. 2000
per year for a goods vehicle with a load capacity of over
five tons i.e. over 135 maunds. Assuming that such a
vehicle could be reasonably used for 200 days in a year, the
tax amounted to Rs. 10 per day for about 140 maunds of goods
carried over any length of the road in Rajasthan. This
worked out to about Rs. 1 for 14 maunds i. e. almost
536
an anna a maund. If the Act and the Schedules appended
thereto are examined in this manner, it will be noticed that
the tax imposed is really a tax for the use of the roads
in Rajasthan and it cannot be said that it hinders the
free movement of trade, commerce and intercourse. The taxes
are compensatory taxes which instead of hindering trade,
commerce and intercourse facilitate them by providing roads
and maintaining the roads in a good state of repairs.
Whether a tax is compensatory or nor cannot be made to
depend on the preamble of the statute imposing it. Nor do
we think that it would be right to say that a tax is not
compensatory because the precise or specific amount
collected is not actually used to providing any facilities.
It is obvious that if the preamble decided the matter, then
the mercantile community would be helpless and it would be
the easiest thing for the Legislature to defeat the freedom
assured by Art. 341 by stating in the preamble that it is
meant to provide facilities to the tradesmen. Likewise
actual user would often be unknown to trades. men and such
user may at some time be compensatory and at others not so.
It seems to us that a working test for deciding whether a
tax is compensatory or not is to enquire whether the trades
people are having the use of certain facilities for the
better conduct of their business and paying not patently
much more than what is required for providing the
facilities. It would be impossible to judge the
compensatory nature of a tax by a meticulous test, and in
the nature of things that cannot be done.
Nor do we think that it xi ill 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 expenses incurred in providing them are
born by the State out of whatever source it may be. In
538
the instruments of commerce that have been mentioned is no
violation of the freedom of inter-State trades lies in the
relation to inter-state trade which their nature and purpose
give them. The reason why public authority must maintain
them is in order that the commerce may use them, and so for
the commerce to bear or contribute to the cost of their
upkeep can involve no detraction from the freedom of
commercial inter. course between States.” (p. 43)
The learned Chief Justice reiterated the same view in
Commonwealth Freighters Property Ltd. v. Sneddon (1)
We have, therefore, come to the conclusion that the Act does
not violate the provisions of Art. 301 of the Constitution
and the taxes imposed under the Act are compensatory taxes
which do not binder 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.-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.
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 ?
The conflicting and sometimes mutually destructive arguments
of learned counsel appearing for the various parties and
interveners, omitting the
(1) (1959) 102 C. L. R. 280, 291.
539
immaterial variations, may conveniently be placed under
following heads: (1) Trade, commerce and intercourse” is a
term of widest amplitude taking in the gamut of activities
starting from production or manufacture and ending with the
completion of a particular commercial transactions ; and
every restriction imposed by any law or executive action on
any part of the said integrated activity would be violative
of the freedom under Art. 301. (2) The expression “trade,
commerce and intercourse” means only transportation in the
course of trade across the State or interState barriers, and
any law be, it taxation or otherwise, directly and
materially affecting the said transportation, would infringe
the freedom. (3) The freedom recognized under Art. 301 is
only the freedom against geographical barriers between
States or intrastate units created by law ; and laws,
including only discriminatory laws of taxation, creating the
said barriers would offend against Art. 301. (4) The freedom
envisaged by Art. 301 is only a freedom from laws showing
preference to one State over another and discrimination
between one State and another made only by virtue of entry,
42 of List I entry 26 of List If and entry 33 of List III of
the Seventh Schedule to the Constitution. (5) The law of
fiscal
taxation is entirely outside the domain of freedom declared
by Art. 301. All the learned counsel appearing in the case
has agreed, or at any rate no argument was advanced to the
contrary, that the freedom, whatever may be its content or
scope on which there is difference of opinion, relates to
both inter-State and intra-State trade.
Before considering the provisions of the said articles, it
will be useful to make certain general observations. We
have to bear in mind in approaching the problem presented
before us that our Constitution was not written on clean
slate. Many of the concepts were borrowed from the
Government
540
of India Act or from other Constitutions and adapted to suit
the conditions of our country. We cannot ignore the fact
that the Constitution was drafted by persons some of whom
had a deep knowledge of the constitutional problems of other
countries; and therefore, they must be assumed to have had
the knowledge of the interpretation put upon certain legal
concepts by the highest tribunals of those countries. At
the same time, it can be reasonably assumed that they have
made a sincere attempt to accept the good and to avoid the
defects found by experience in the other constitutions and
also to could them to suit our conditions. Further, a brief
survey of the relevant provisions of those constitutions,
which form the background of this article, and the
interpretation put on them by the highest tribunals of the
respective countries would not only be relevant but also be
necessary for appreciating the correct scope of Art. 301 of
our Constitution. Our Constitution provides for a federal
structure with a bias towards a Central Government. But
real and substantial autonomy was conferred on the States
within the boundaries of the fields chalked out for them.
Therefore, in approaching the problem of construing the
provisions of Part XIII of our Constitution, unless the
terms of the provisions of the said Part are clear and
unambiguous, it would be the duty of this Court to construe
them in such a manner as not to disturb the framework of the
Constitution. Before I attempt to construe the relevant
provisions of the Constitution, it would be convenient at
this stage to consider briefly the American and Australian
law material to the present inquiry.
Clause 3 of s. 8 of Art. 1 of the Constitution of the
United States of America says that the Congress shall have
power to regulate commerce with foreign nations and among
the several States and with the Indian tribes. This clause
has two aspects, namely, (i) it is a source of national
power and (ii) it operates as a curb on state power. This
clause gave rise,
541
among others, to two questions, namely, (i) what was the
scope and content of the commerce power? and (ii) bow to
resolve the conflicts that arose between the, law made by
the Congress in exercise of that power and the law made by
the State in exercise of its police power, or their powers
expressed or implied, when they came into conflict with each
other? An authoritative definition of the word “commerce”
was given by Marshall, C. J., in Gibbons v. Oden (1),
wherein he observed:
“This would restrict a general term applicable
to many objects to one of its significations
Commerce, undoubtedly. is traffic but some-
thing more-it is intercourse.”
The decisions of the Supreme Court of the United States of
America on the subject are not uniform. Indeed, they have
adopted the commerce power to meet all the demands, namely,
economic, commercial, industrial and transport revolutions
of that country. It is not necessary for the purpose of
this case to consider the conflict or the various
nuances of the decision the concept of commerce was
enlarged or reduced to meet the exigencies of different
situations; but the common thread was that transportation
across the borders, either physically or conceptually, was
uniformly held to be a necessary ingredient of the
expression “commerce”. After noticing the conflict, Willis
in his book on Constitutional Law, summarizes the latest
position thus, at p. 288:
“…………… today the correct definition
of commerce is that it is traffic and
commercial intercourse. This, of course,
gives Congress power wherever traffic or
intercourse concerns an inter-State market.
When “commerce” is properly defined as
traffic, and the mental picture is formed, not
of an isolated journey across a state boundary
line, but of an onward
(1) (1824) 9 Wheat 1; 6 L. ed. 23.
542
coursing stream of business which knows no
state lines, which is constantly fed and as
constantly feeds the streams of production,
and which debauches into the inter-state
market, then regulations of it by Congress, J.
whether taking the form of a prohibition of
certain phases of transportation or some other
form ” ceases to be open to the charge
of an ulterior intention to usurp their power,
because it operates most upon the very subject
matter entrusted to Congress or, at most, upon
local incidents thereof, the fringe, so to
speak, of a nation-spread fabric.”
In this context the following references are instructive:
Carter v. Carter Coal Company(1), Kidd v. Pearson(2), Welton
v. State of Mussouri (3), Public Utilities Commission v.
Landon (4). It may be stated broadly that in America
“commerce” means traffic in its operation across the State
borders.
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 trade can be usefully referred to in this
regard, for, in my view, they afford some guide to resolve
the difficulties that might arise under our Constitution: M’
Culloch v. The State of Maryland (5) John T. Hendrick v. The
State of Maryland(6),
(1) (1936) 298 U.S. 238. 80 L. ed.1160.
(2) (1888) 128 U.S. 132 L. ed. 346.
(3) (1876) 91 U.S. 27S; 23 L. ed. 347.
(4) (1919) 249 U.S. 2 36; 63 L. ed. 577.
(5) (1819) 17 U.S. 316; 4 L. ed. 579.
(6) (1915) 235 U.S. 610; 59 L. ed. 385,
543
Interstate Busses Corporation v. William H. Blodgett(1),
Interstate Transit v Dick Lindsey(2), and A. L.A. Schechter
Poultry Corporation v. United State of America(3). The said
decisions show that in America the principle accepted was
that every restriction imposed by a State law did not offend
the commerce clause, unless it directly affected it, and
that even taxation was permissible, if it was for services
rendered by the State to promote trade.
The Commonwealth of Australia Constitution Act was passed in
1900. At the time that Act was made, the framers of that
Act had the background of the evolution of the American law
on the commerce clause. Under that Act, certain defined
powers of legislation are conferred on the Commonwealth in
respect of trade and commerce. Section 51 reads: “Trade and
commerce with other countries and among the States”.
Section 98 says: “The power of the Parliament to make laws
with respect to trade and commerce extends to navigation and
shipping and to railways the property of any State”.
Section 99 prohibits the Commonwealth, by any law or
regulation of trade, commerce, or revenue, from giving
preference to one State or any part thereof over another
State or any part thereof. Section 100 prohibits the
Commonwealth from abridging, the right of a State or of the
residents therein to the reasonable use of the waters of
rivers for conservation or irrigation. Other legislative
powers are conferred in respect of specific subjects’ of
trade and commerce, such as, bounties, currency, coinage,
bills of exchange, bankruptcy, copy-rights, customs, excise,
etc. Section 92 says: “On the imposition of uniform duties
of customs, trade, commerce, and intercourse, among the
States, whether by means of internal carriage or ocean
navigation, shall be
(1) (1928) 276 U.S. 245; 72 L. ed. 551.
(2) (1931) 283 U.S. 183; 75 L. ed. 953.
(3) (1935) 72 U.S 495; 79 L. ed. 1570.
544
absolutely free”. Unlike the American Constitution, the
Australian Constitution confers a legislative power on the
Commonwealth Parliament to make laws in respect of trade and
commerce with other countries and among the States, and also
in respect of certain specific subjects of trade and
commerce and then declares that trade, commerce and
intercourse among the States shall be absolutely free.
Unlike the American Constitution, in the Australian
Constitution, there is a declaration of freedom of trade,
commerce and intercourse among the States. While in America
the expression used is “commerce”, in a. 92 of the
Australian Constitution the expression, “trade, commerce and
intercourse” is used. The Australian Constitution Act not
only does not provide for any restrictions on the freedom of
trade, commerce and intercourse, but also used an expression
of the widest amplitude, viz., “absolutely free” emphasizing
the freedom declared by the section, This section, just like
the commerce clause in the American Constitution, was the
subject of judicial scrutiny and conflict of decision. The
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
appeals from some decisions of those Courts, the Privy
Council evolved the power to restrict the said freedom by
the States from the concept, of absolute freedom itself.
This was necessitated because there were no statutory
provisions limiting the absolute freedom and, as
uncontrolled freedom in the field of interState Commerce may
lead to chaos, limitations of the freedom were evolved to
save the said freedom The scope of the limitations so
evolved would be useful to construe the relevant provisions
of all Constitution which expressly provides for similar
limitations. The scope of the freedom and it
545
limitations are found in the leading decisions on the
subject, which throw considerable light on the question now
raised, and they are : Smither’s case(1), W. & A. McArthur
Ltd. v. The State of Queensland (2), James v. Commonwealth
of Australia (3) Commonwealth of Australia v. Bank of New
South Wales (4). In the aforesaid Australian decisions the
expression “trade, commerce, and intercourse among the
States” has been understood in the widest sense as including
trade in all its manifestations involving transportation or
movement across the frontiers of the State it also includes
non-commercial intercourse.
On the second question, some of the leading Australian
decisions contain an interesting and instructive exposition
of the conflict of jurisdiction and useful suggestions for
resolving it. In this context the following decisions may
usefully be consulted : James v. Cowan (5), Commonwealth of
Australia v. Bank of New South Wales (4),Hughes and Vale
Proprietary Ltd. v. State of New South Wales (6), Hughes and
Vale Private Limited v. The State of New South Wales [No. 2]
(7) Grannall v. Marrickville Margarine Proprietary Ltd.
(8), Armstrong v. State of Victoria [No. 2] (9), Common-
wealth Freighters Proprietary Ltd. v. Sneddon (10). The
Australian decisions broadly laid down the following three
propositions : (i) the impugned law, whether fiscal or
otherwise, shall directly and immediately restrict traffic
across the borders before it could be said to violate the
freedom under a. 92 of the Commonwealth of Australia
Constitution Act ; (ii) compensatory measures for the
purpose of regulating commerce are not restrictions on the
said freedom ; and (iii) when a question arises whether a
fiscal statute amounts to a restriction on
(1) (1912) 16 C.L.R. 99.(2) (1920) 28 C.L.R. 530.
(3) [1936] A.C. 578. (4) [1950] A.C. 235.
(5) [1930] 43 C.L.R. 386.(6) (1955] A.C. 241.
(7) [1956] 93 C.L.R. 127.(8) [1955] 93 C.L.R. 155.
(9) [1957] 99 C.L.R. 28.(10) [1959] 102 C.L.R. 280.
546
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.
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 significa-
tion 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 executive action. (4) The
restriction may be before or after movement : it may be a
prior restraint or a subsequent burden. (5) The word
“freedom” does not mean anarchy, but assumes transactions
based on law and carried out under the superintendence and
direction of law : such laws are, (a) laws of contract,
property, tort, etc., (b) regulations for preserving and
maintaining the freedom, such as, police regulations about
safety, speed, lighting, rule of the road, etc., (e) laws
providing for services and for compensation for services
rendered, namely, the construction and maintenance of
wharfs, roads, aerodromes, etc., and the levy of taxes to
meet the expenditure incurred in connection therewith ; the
said laws are not restrictions on the said freedom but only
facilities to promote the same.
547
Now, let us look at the provisions of Art. 301 of the
Constitution. The article reads :
“Subject to the other provisions of this Part, trade,
commerce and intercourse throughout the territory of India
shall be free.”
Three groups of words in the said article, in their
juxtaposition and interaction, furnish the key to the
problem, and they are : (i) trade, commerce and intercourse,
(ii) throughout the territory of India, and (iii) shall be
free. The expression “trade, commerce and intercourse” is a
composite one and has received, as already noticed, the
fullest judicial attention from the highest courts of
America and Australia : though they may not be words of art,
they have acquired a secondary meaning or significance. I
shall accept the meaning acquired by that expression by the
gradual evolution of law in those countries.
Now, let us analyse the words “shall be free”. Three
questions occur to one’s mind in regard to this, namely, (i)
what is free ? (ii) free from what ? and (iii) where is it
free ? As I have already indicated, the said composite
expression means trade across the borders: what is free is
that trade. It is implicit in the concept of freedom that
there will be obstructions to it. Such obstructions or
barriers may be, in the present context, to the freedom to
trade across the borders. Article 301 provides for freedom
from the said barriers or impediments in effect operating as
barriers. This freedom from barriers cannot operate in
vacuum and must be limited by space. A barrier may be put
up between two States at the boundary of the States or
between two districts, two taluks, two towns or between two
parts of a town. The barrier may be at a particular point
at a boundary or might take the form of a continuous
impediment till the boundary is
548
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.
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 territory of India, if there
are barriers in any part of India, be it inter-State or
intra-State. So long as there is impediment to that
freedom, its nature or extent is irrelevant. The difference
will be in degree and not in quality. The freedom declared
under Art. 301 may be defined as a right to free movement of
persons or things, tangible or intangible, commercial or
non-commercial, unobstructed by barriers, inter-State or
intra-State or any other impediment operating as such
barriers. To State it differently all obstructions or
impediments whatever shape they may take, to the free
flow or movement of trade, or non-commercial intercourse,
offend Art. 301 of the Constitution except in so far as
they are saved by the succeeding provisions. But we are not
concerned in this case with non-commercial intercourse.
The next question is, what is the content of the concept of
freedom ? The word “freedom” is
549
not capable of precise definition, but it can be stated what
would infringe or detract from the said freedom. Before a
particular law can be said to infringe the said freedom, it
must be ascertained whether the impugned provision operates
as a restriction impeding the free movement of trade or only
as a regulation facilitating the same. Restrictions
obstruct the freedom, whereas regulations promote it.
Police regulations, though they may superficially appear to
restrict the freedom of movement, in fact provide the neces-
sary conditions for the free movement. Regulations such a
provision for lighting, speed, good condition of vehicles,
timings, rule of the road and similar others, really
facilitate the freedom of movement rather than retard it.
So too, licensing system with compensatory fees would not be
restrictions but regulatory provisions ; for without it, the
necessary lines of communication, such as roads, waterways
and air-ways cannot effectively be maintained and the
freedom declared may in practice turn out to be an empty
one. So too, regulations providing for necessary services
to enable the free movement of traffic, whether charged or
not, cannot also be described as restrictions impeding the
freedom. To say all these is not to say that every
provision couched in the form of regulation but in effect
and substance a restriction can pass off as a permissible
regulation. It is for the Court in a given case to decide
whether a provision purporting to regulate trade is in fact
a restriction on freedom. If it be a colourable exercise of
power and the regulatory provision in fact a restriction,
unless the said provision is one of the permissible
restrictions under the succeeding articles, it would be
struck down. This view is consistent with the principles
laid down by the Australian High Court and the Privy Council
in the context of interpretation of the words “absolutely
free” in a. 92 of the Commonwealth of Australia Constitution
Act, which is more emphatic than the word “free” in Art. 301
of our Constitution.
550
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 passed by
the Parliament or by the State Legislature with the previous
consent of the President, there would be an end of
provincial autonomy, for in that event, with some
exceptions, all the said laws should either be made by the
Parliament or by the State Legislature with the consent of
the Central Executive Government. By so construing, we
would be making the Legislature of a State elected on adult
franchise the handmaid of the Central executive. We would
be re-writting the Constitution and introducing by sidewind
autocracy in the field of legislation allotted to the
States, while our Constitution has provided meticulously for
democracy. Therefore, any construction which may bring
about such an unexpected result shall be avoided, unless the
Constitution compels us by express words to do so. There
are admittedly no such words of compulsion. At, the same
time it is also difficult to accept the argument advanced by
the States that the laws made under entry 42 of List I,
entry 26 of List II and entry 33 of List III, of the Seventh
Schedule to the Constitution only are subject to that
freedom ; for firstly, the article does not restrict the
freedom to the area covered by those entries, and, secondly,
laws made under the other entries may more effectively and
directly affect the movement of trade. If a law directly
551
and immediately imposes a tax for general revenue purposes
on the movement of trade, it would be violating the freedom.
On the other hand, if the impact is indirect and remote, it
would be unobjectionable. The Court will have to ascertain
whether the impugned law in a given case affects directly
the said movement or indirectly and remotely affects it.
At this stage, an argument elaborated by Mr. Lalnarain Sinha
may also be noticed. The learned Advocate said that the
filed occupied by Art. 19 of Part III of the Constitution
and that occupied by Part XIII thereof are distinct, that
Art. 19 deals generally with freedom of trade and that Art.
301 with discriminatory barriers and that fiscal statutes
could not be restrictions under Art. 19 and, therefore, they
could not equally be restrictions under Art. 301. He would
say that whatever might be said of “regulatory taxes” or
‘,’destructive ones”. fiscal taxes are always in public
interest and it is not possible for a court to decide
whether a particular tax is reasonable or not. On this
premises, the argument proceeds, a reasonable restriction is
a restriction, the reasonableness whereof can be ascertained
by court, and in a case where the reasonableness of a
particular restriction is impossible of ascertainment by a
court, such as a law fixing a rate, the Constitution must be
deemed to have released such a restriction from the impact
of the concept of the freedom. This is an argument in
reverse gear. The freedom declared by the Constitution
cannot be controlled by an involved process of reasoning.
It is not permissible to limit the content of the freedom by
the criterion of a court’s ability to ascertain the
reasonableness of a restriction imposed thereon. What is
guaranteed to a citizen by the Constitution is a fundamental
right to carry on business. If cl. (5) of Art. 19 were not
in the Constitution, every restriction on that right, be it
by a
552
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
provisions of Art. 19(6), it should be held that a fiscal
taxation was not a restriction within the meaning of the
said clause, every law imposing such a tax would infringe
the fundamental right. This result could not have been
intended by the makers of the Constitution. Therefore, the
contention should be that every law of taxation is a
reasonable restriction in public interest. There are no
merits in the contention either. It is said that taxation
is always in public interest, and that it is not possible
for any court to ascertain on the material placed before it
that a rate is reasonable or not. It is conceded that
regulatory taxes or laws of taxation intended to prohibit or
restrict an activity and not to raise a general tax in the
interest of revenue may be a restriction and a court may be
in a position to see whether such laws pass the test laid
down in Art. 19 (6) of Constitution. The arguments is
confined only to what is described as “fiscal taxation” that
is taxation solely intended for raising revenue for the
State. It is also not denied that unreasonable procedural
restrictions imposed by law of taxation would infringe the
freedom. It is also admitted that a fiscal law may offend
the fundamental right enshrined in Art. 14 of the
Constitution. If so, it is beyond my comprehension on what
principle the law of taxation could offend with impunity the
freedom enshrined in Art. 19 (1) (g). Article 13(2) says in
express terms
“The State shall not make any law which takes
away or abridges the rights conferred by this
Part and any law made in contravention of this
clause shall to the extent of the
contravention, be void.”
553
A law of taxation is made by Parliament or the Legislature
of a State, as the case may be, in exercise of the power
conferred under the Constitution by virtue of the entries,
found therein. It is a law just like any other law made
under the Constitution. This Court, in K. Thathunni Moopil
Nair v. State of Kerala (1) and in Balaji v. I. T. Officer
(2), hold that a law of taxation would be void if it
infringed the fundamental right guaranteed under Art. 19 of
the Constitution. Therefore, the law of taxation also
should satisfy the two tests laid down in Art. 19(6) of the
Constitution. It is said that a law of taxation is always
in public interest. Ordinarily it may be so, but it cannot
be posited that there cannot be any exceptions to it. A
taxing law may be in public interest in the sense that the
income realised may be used for public good, but there may
be occasions, when the rate or the mode of taxation may be
so abhorrent to the principles of natural justice or even to
well settled principles of taxation that it may cause
irremediable harm to the public rather than promote public
good, that the Court may have to hold that it is not in
public interest. Nor can I agree with the contention that
it is impossible for a court to hold in any case that a rate
of taxation is reasonable or not. As a proposition it is
unsound. It may be legitimately contended that it is
difficult for a court to come to a definite conclusion on
the correctness of a rate fixed by the Legislature. Dixon,
C. J., in Commonwealth Freighters Proprietary Limited v.
Sneddon (3), 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 subject-
matter to purpose or otherwise, that the
validity of
(1) [1961] 3 S.C.R.77. (2) [1962] 2
S.C.R. 98 3.
(3) (1959) 102 C. L.R. 280, 292.
554
the exercise of the power must sometimes
depend on facts, facts which some how must be
ascertained by the court responsible for deci-
ding the validity of the
law…………………… All that is
necessary is to make the point that if a
criterion of constitutional validity consists
in matter of fact, the fact must be ascer-
tained by the court as best it can, when the
court is called upon to pronounce upon
validity.”
I entirely agree with these observations. It is common
place to point out that intricate problems come before a
court involving decision on different and complicated
aspects of human activity. Questions involving science,
medicine, engineering, geology, biology, economics,
Psychology, etc. all come for judicial scrutiny, and I have
never heard any court saying that it is difficult to decide
upon such a question and, therefore, the proceeding raising
such a question is outside the jurisdiction of such a court.
In saying this, I am not ignoring the difficulties inherent
in a problem of fixing the rate of taxes by a court.
Experience shows that the court applies certain
presumptions, such as that of the wisdom, knowledge and the
good intentions of the Legislature, and does not also meti-
culously go in to the question, but only looks at the broad
features. On the argument of learned counsel when it is
permissible and possible for a court to ascertain whether a
tax is fiscal or regulatory, I do not see how it becomes
impossible, though it may be difficult, to hold whether a
fiscal tax is reasonable or not. The distinction lies not
in the nature of the enquiry but only in degree. That
apart, no restriction, if it is unreasonable, can be more
deleterious to the freedom than the imposition of fiscal
burden on it, which may in certain circumstances destroy the
very freedom. I, therefore, hold, on a true construction of
the expressed words of Art. 19
555
of the Constitution, that it is not possible or even
permissible to hold that laws of taxation are outside the
scope of the freedom enshrined therein. As the premises of
Mr. Lalnarain Sinha’s argument lack a reasonable basis his
further argument that the freedom in Art. 301 excludes from
its scope fiscal laws must be rejected.
Having ascertained the scope and content of the freedom
envisaged in Art. 301 of the Constitution, let us look at
the succeeding provisions which place limitations on the
said freedom. Under Art. 302.
“Parliament may by law impose such restrictions on the
freedom of trade, commerce or intercourse between one State
and another or within any part of the territory of India, as
may be required in the public interest.”
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
556
also not possible to accept the argument that Art. 302
confers an independent power on the Parliament, that is, a
power in addition to that conferred on it by Arts. 245 and
246. There is no room for this argument, for the words ,,by
law” in the article clearly refer to the power of the
Parliament to make law under the Constitution. That apart,
if it was the intention of the Constituent Assembly to
confer a fresh power, those world not have been used in Art.
302, but instead world suitable to confer a new power,
namely, ‘”shall have the power” would have been used.
Therefore, under this article the Parliament can only impose
restrictions by virtue of any of the entries in the Lists in
respect of which it can make laws. peruse on the entries in
List I shows that laws can be made restricting the said
freedom under most of the entries, for instance, entries 22,
23, 24, 25, 27, 29, 42, 52, 53, 56, 81, 89, 91, etc.
Whether there is a restriction or not, does not depend upon
the relevant entry, but on the nature of the impact of the
law on the freedom. But a limitation is sought to be placed
upon this power by an attempt to confine it to the entries
mentioned in Art. 303. Article 303, which prohibits the
Parliament from making a law giving preference to one State
over another or making any discrimination between one State
and another, is confined only to the entries relating to
trade and commerce. But Art. 303 is in the nature of an
exception or proviso to Art. 302. “The proviso leaves the
generality of the substantive enactment unqualified except
in so far as it concerns the particular subjects to which
the proviso relates.” “Where the language of the main
enactment is clear and unambiguous, a proviso can have no
repercussion on the interpretation of the main enactment so
as to exclude from it, by implication, what clearly falls
within its expressed terms”: see M. & S. M. Railway v.
Bezwada Municipality (1). The words
(1) A. I. R. 1944 P. C. 71, 73.
557
in Art. 302 are clear and unambiguous and they do not
confine its operation to any particular entries and,
therefore, the limitation imposed under Art. 303 cannot
curtail the generality of the provisions of the said
article.
But the more difficult question is, what does the word
“,restrictions” mean in Art. 302? The dictionary meaning of
the word ,’restrict” it “to confine, bound, limit.”
Therefore, any limitations placed upon the freedom is a
restriction on that freedom. But the limitation must be
real, direct and immediate, but not fanciful, indirect or
remote. In this context, the principles evolved by American
and Australian decision in their attempt to reconcile the
commerce power and the State police power or the freedom of
commerce and the Commonwealth power to make laws affecting
that freedom can usefully be invoked with suitable
modifications and adjustments. Of all the doctrines
evolved, in my view, the doctrine of “direct and immediate
effect” on the freedom would be a reasonable solvent to the
difficult situation that might arise under our Constitution.
If a law, whatever may have been its source, directly and
immediately affects the free movement of trade, it would be
restriction on the said freedom. But a law which may have
only indirect and remote repercussion on the 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 as property, or the
garage wherein the vehicle used for conveyance is kept. The
said law may have indirect repercussion on the movement but
the said law is not one directly imposing restrictions on
the free movement. In this context, two difficulties may
have to be faced: firstly, though a law purporting
558
to impose a tax on a property or a motor-vehicle, as the
case may be, may in fact and in reality impose a tax on the
movement itself, secondly, a law may not be on the movement
of trade, but on the property itself, but the burden may be
so high that it may indirectly affect the free flow of
trade. In the former case, the court may have to scrutinize
the provisions of a particular statute to ascertain whether
the tax is on the movement. If the provisions disclose a
tax on the movement, it will be a restriction within the
meaning of Art. 302. In the latter case, if the provisions
show that the tax is on property, the reasonableness of the
tax may have to be tested against the provisions of Art. 19
of the Constitution. The question whether a law imposes a
restriction or not depends on the question whether the said
law imposes directly and immediately a limitation on the
freedom of movement of trade. If it does, the extent of the
impediment relates to the question of degree rather than to
the nature of it. If it is a restriction, it must satisfy
the conditions laid down in Art. 302 of the Constitution.
Article 303 is an exception or a proviso to Art. 302.
Article 303 opens out with a non-obstante clause, namely,
“Notwithstanding anything in article 302”. This phrase is
equivalent to saying that “in spite of article 302” or that
“article 302 shall be no impediment to the operation of
article 303”. It is accepted on all hands that there is a
defect in the phraseology used in this article. This
article prohibits both Parliament and the State Legislature
from making a law giving preference to a State or States or
making a discrimination among the States. The non-obstante
clause has no relevance so far as the Legislature of a State
is concerned, for Art. 302 does not deal with Legislature of
a State. In these circumstances, the non-obstante clause
can only be made applicable to that to which it is
appropriate i.e., only to the limitations imposed on
Parliament under Art. 303. The
559
article, so far as it relates to Parliament, may be read :
“Notwithstanding anything in article 302, the
Parliament shall not have power to make any
law giving, or authorising the giving of, any
preference to one State over another, or
making, or authorising the making of, any
discrimination between one State and another,
by virtue of any entry relating to trade and
commerce in any of the Lists in the Seventh
Schedule”.
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 contended that the
words “by virtue of the entries relating to trade and
commerce in any of the Lists in the Seventh Schedule” are of
wider import than the words ,by virtue of the said entries”
and, therefore, any law specified in Art. 303 made by virtue
of any entry in any of the Lists in the Seventh Schedule, if
it relates to trade and commerce, would be covered by the
exception. The words “any entry relating to trade and
commerce in any of the Lists” are of the widest import and
they yield to a very liberal interpretation. The
phraseology used supports
560
this interpretation. The reason for the exception also
sustains it. There cannot be any distinction on principle,
from the standpoint of the mischief sought to be averted,
between a law made by virtue of an entry ex facie referring
to trade and commerce and that made by virtue of any entry
affecting trade and commerce. For instance, a law may be
made by Parliament under entries relating to railways,
highways, shipping etc.-these entries do not expressly refer
to trade and commerce, though they may directly affect trade
and commerce. If a law made under entry 26 of List If
giving preference or making discrimination among the States
is objectionable, it should also be objectionable, if made
by virtue of any other entry. I would, therefore, hold that
any law made by Parliament by virtue of any entry imposing
the said discriminatory restrictions would be bad Under the
said article.
Article 303 (2) lifts the ban imposed on Parliament under
Art. 303 (1), if a law made by Parliament imposing such
discriminatory restrictions is necessary for the purpose of
dealing with a situation arising out of scarcity of goods in
any part of the territory of India. That part of Art. 303,
which prohibits the Legislature of a State from making a law
of the nature mentioned therein, also bears the same
constructions and it is not necessary to restate it, except
to mention that clause (2) of Art. 303 does not lift the ban
in respect of the State Legislature.
Coming to Art. 304, we are again confronted with a defect in
phraseology. The article opens out again with a non-
obstante clause, namely, “Notwithstanding anything in
article 301 or article 303”. Under Art. 301 (a), the
Legislature of a State may by law impose on goods imported
from other States or the Union territories any tax to which
similar goods manufactured or produced in that State are
subject so, however, as not to discriminate between
561
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 to Art. 303, as cl. (b) lifts the ban
imposed by Art. 303, subject to the limitations mentioned
therein. Therefore, the non-obstante clause must be deemed
to apply only to that part of Art. 304 appropriate to the
said clause. If so read, the difficulty in the construction
disappears. Article 304 (a) lifts the general ban imposed
by Art. 301 in respect of imposition of non-discriminatory
taxes on goods imported, which indicates that but for the
said provision the law of taxation in that regard would
infringe the freedom declared under Art. 301. Clause (b) of
Art. 304 enables a State to make laws imposing reasonable
restrictions on the freedom of trade, commerce and
intercourse; and I would interpret the word “restrictions”
in the same way as I have interpreted the said expression in
Art. 302. It cannot be said, as it is contended, that cl.
(b) only lifts the ban imposed by Art. 303
562
on the power of the Legislature of a State, but it does more
than that. It enables the State Legislature to impose all
reasonable restrictions on the said freedom in the sense I
have already explained, all subject to the proviso.
Again, in the context of Art. 304 (b), a strong plea is made
by some of the learned Advocates appearing for the States,
relying upon the other provisions of the Constitution for
holding that taxation laws are outside the ken of the said
provisions. Reference is made to Arts. 31 (5) (b) (i), 248,
265, 276, 285, 287 and 288. I do not propose to consider
the arguments based on the said articles in detail, as, in
my view, these and similar articles of the Constitution do
not even remotely touch the question raised before us. They
fit in the scheme of the Constitution. The Constitution
confers power on the Legislatures to make laws of taxation,
circumscribes that power with reference to the entries in
the Seventh Schedule and other constitutional provisions,
and provides for resolving conflict of powers. The
aforesaid articles, except Art. 31 (5) (b) (i) and Art. 248,
appear in Ch. I of Part XII under the general heading
Finance”, Article 265 declares that no tax shall be levied
or collected except by authority of law; that is to say, tax
cannot be levied or collected by an executive flat. Article
276 fixes a ceiling on taxes payable to local boards on
professions, trades, callings and employments. Article 285
exempts property of the Union from State taxation Article
286 prohibits the States from imposing a tax on inter-State
sales, subject to a proviso. Article 287 exempts the Union
from the State law of taxation on electricity; and Art. 288
gives a similar exemption to the Union from taxes by States
in respect of water or electricity in certain cases.
Article 31(5)(b)(i) exempts a law imposing or levying any
tax from the impact of the fundamental rights enshrined in
Art. 31(2)
563
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 imposing a tax or the ceilings
fixed thereon may affect the ambit of the power but cannot
either sanction encroachment on the freedom guaranteed by
Art. 331 or curtail the same. Assuming that some of the
conditions prescribed in Art. 286 appear to come into
Conflict with those in Art. 304(b) in my view, there is no
such conflict-the said articles can co-exist by a process of
harmonious construction. In short, these articles may limit
the power of the appropriate legislature in imposing tax,
but cannot be relied upon to curtail the ambit of the
freedom under Art. 301 of the Constitution.
Reliance is also placed on Art. 26 which provides that every
religious denomination or any section thereof shall have the
right, inter alia, to own and acquire movable and immovable
property. It is said that the freedom conferred by that
article cannot preclude the State from imposing a tax on the
said property, and that, by the same parity of reasoning,
Art. 301 which confers the freedom cannot preclude the
Legislative power imposing a tax affecting that freedom. It
is true that the marginal heading of this article is
“Freedom to manage religious affairs”, but the subject-
matter of Art. 26 cannot be equated to that of the freedom
of trade
564
declared under Art. 301. I should not be understood to have
expressed any view on the construction of that article in
the present case.
Article 305, as it stood before the Constitution (Fourth
Amendment) Art. 1955, only saves the existing laws from the
operation of Art. 301, and Art. 303, and it does not throw
any light on the construction of Art. 301. Article 306 was
omitted ‘by the Constitution (Seventh Amendment) Act, 1956;
but the said article saved the operation of any law made by
any States specified in Part B in the First Schedule before
the commencement of the Constitution levying any tax or duty
on the import of any goods in to the State from other States
or on the export of goods from the State to other States and
enacted that if there be an agreement between the Government
of India and the Government of that State in that behalf,
the said tax or duty might be levied or collected for such
period not exceeding ten years from the commencement of the
Constitution, subject to the terms of the said agreement.
If a law of taxation cannot, under any conceivable
circumstances, be a restriction on the freedom of trade, why
did it become necessary to introduce a saving clause in
terms of Art. 306 in the group of articles in Part XIII? It
is suggested that the saving clause might have become
necessary as there was an impediment under the other provi-
sions 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.
The foregoing discussion may be summarized in the following
propositions (1) Art. 301 declared
565
a right of free movement of trade without any obstructions
by way of barriers, inter-State, or intraState 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 compensation. (3) Parliament may be law
impose restrictions on such freedom in the public interest;
and the said law can be made by virtue of any entry with
respect where of Parliament has power to make a law. (4) The
State also, in exercise of its legislative power, may impose
similar restrictions, subject to the two conditions laid
down in Art. 304 (b) and subject to the proviso mentioned
therein. (5) Neither Parliament nor the State Legislature
can make a law giving preference to one State over another
or making discrimination between one State and another, by
virtue of any entry in the Lists,, infringing the said
freedom. (6) This ban is lifted in the case of Parliament
for the purpose of dealing with situations arising out of
scarcity of goods in any part of the territory of India and
also in the case of a State under Art. 304 (b), subject to
the conditions mentioned therein. And (7) The State can
impose a non-discriminatory tax on goods imported from other
States or the Union territory to which similar goods
manufactured or produced in that State are subject.
The construction I have placed on the provisions of the
Constitution brings out the harmony between the various
articles in Part XIII of the Constitution and also discloses
an integrated scheme of freedom of trade,, commerce and
intercourse maintaining a balance between federalism and
provincial autonomy.
I agree with my learned brother., Dan, J… that the
provisions of the Rajasthan Motor Vehicles Taxation Act (XI
of 1951) are regulatory in character
566
and that they do not infringe the freedom enshrined in Art.
301 of the Constitution.
The appeals fail and are dismissed with costs.
HIDAYATULLAH, J.-The Rajasthan Motor Vehicles Taxation Act,
1951 (No. XI of 1951), in s. 4 provided:
“(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 section 5
and, save as hereinafter specified, such tax
shall be payable actually notwithstanding that
the motor vehicle may from time to time cease
to be used.
(2)An owner who keeps a motor vehicle of
which the certificate of fitness and the
certificate of registration are current shall,
for the purposes of this Act be presumed to
keep such vehicle for use.
(3)A person who keeps more than ten motor
vehicles for use solely in the course of trade
and industry shall be entitled to a deduction
of ten per cent on the aggregate amount of tax
to which he his liable.
Explanation.-The expression “trade and
industry” includes transport for hire.”
The Schedules referred to in the first sub-
section 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
567
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 were required to pay the tax in
Rajasthan. They filed petitions under Art.
226 of the Constitution in the High Court of
Rajasthan, impugning the demand as a
contravention of the provisions of Part XIII
and of Art. 19 of the Constitution. A
Divisional Bench of the High Court, which
heard the petition, referred for the decision
of a Full Bench the following question:
“Whether ss. 4 and II of the Rajasthan Motor
Vehicles Taxation Act, 1951, infringe the
right of freedom of trade, commerce or
intercourse granted under Article 301 of the
Constitution?”
The Full Bench answered the question in the negative, and in
view of the answer, the petitions were dismissed. The
appellants were, however, granted a certificate under Art.
132 of the Constitution, and the present appeals have been
filed.
The appellants contend that the Rajasthan Motor Vehicles
Taxation Act, 1951, is outside the competence of the State
Legislature inasmuch as its pith and substance is “,Inter-
State trade and commerce which is a Union subject under
Entry 42 of
568
Union List; that it is null and void being in violation of
Art. 19(1) (d), (f) and (g) of the Constitution; that it is
ultra vires and illegal, as it contravenes the freedom
guaranteed under Art. 301; that even if permissible, it is
not a reasonable restriction of =and commerce within Art.
304, and that not having been enacted with the previous
sanction of the President, it is not effective as law under
Art. 265.
At an earlier hearing, the attention of the Constitution
Bench of this Court was drawn to Atiabari Tea Co. Ltd. v.
State of Assam (1), where this Court struck down by majority
the Assam Taxation (on Goods Carried by Roads or Inland
Waterways) Act, 1954, as offending against the freedom of
trade, commerce and intercourse. On that occasion, three
views were expressed. Sinha, C. J.. held that the freedom
guaranteed by Art. 301 was against “trade barriers, tariff
walls, or imposts which have a deleterious effect on the
free flow of trade, commerce and intercourse” but not
against taxation Simpliciter. Shah, J., held that the
freedom envisaged was wide enough to comprehend within
itself a ban of prohibition, control or impediment of any
kind whatever and of taxes whether they fell on movement of
trade or commerce or otherwise. The majority
(Gajendragadkar, Das Gupta and Wanchoo, JJ.) hold that
though taxes as such were not within the ban of Part XIII,
such taxes as impeded the free flow of trade and were
directly placed on movement were included in it. The
appellants relied on the views of Shah, J., and failing
that, on the majority view which, they contended, also held
good here, while the State Government based its case upon
the views of the learned Chief Justice. The Constitution
Bench was thus of the opinion that “having regard to the
importance of the Constitutional issues involved and the
views expressed in Atiabari Tea Co. Ltd. v. State of Assam
(1)”, this case
(1) [1961] 1 S.C.R. 809.
569
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.
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 according to the Sundry Entries
in the Legislative Lists are meant to be circumscribed in
any way, and if so, to what extent.
Art. 301 of the Constitution, so far as its language goes,
is fairly modelled on s. 92 of the Australian Commonwealth
Act, 1900, and numerous decisions of the High Court of
Australia and on appeal, by the Privy Council, were cited
before us to define the content and extent of the freedom
envisaged. Besides, the Government of India Act, 1935, also
contained in a. 297 a provision on the subject of freedom of
trade and commerce, and the contention of the State partly
has been that Part XIII enacts little more than what was
contained there.
Since the arguments made much of these two analogies, it is
necessary to state first certain well. known and well-
accepted propositions relating to the interpretation of
Constitutions, in which there are fundamental limits upon
the power to legislate. In Queen v. Burah (1), Lord
Selborne laid down a proposition which in its exposition of
the subject and the manner of expression can hardly be
improved. Lord Selborne said:
“The established Courts of justice when a
question arises whether the prescribed limits
(1) (1878) 3 App.cas.889.
570
have been exceeded, must of necessity deter-
mine that question; and the only way in which
they can properly do so, is by looking to the
terms of the instrument by which, affirmati-
vely, the legislative powers were created, and
by which, negatively, they are restricted. If
what has been done is legislation within the
general scope of the affirmative words which
give the power, and if it violates no express
condition or restriction by which that power
is limited it is not for any Court of Justice
to inquire further, or two enlarge constru-
ctively those conditions or restrictions.”
We have thus to see what powers have
affirmatively been conferred on the
legislatures of the State and what are the
restrictions on that power. In this
connection, we must also bear in mind the
weighty observations of Gwyer, C. J., in Bhola
Prasad v. The King Emperor (1)
“We must again refer to the fundamental
proposition enunciated in The Queen. v.
Burah(2) that Indian Legislatures within their
own sphere have plenary powers of legislation
as large and of the same nature as those of
Parliament itself. If that was true in 1878,
it cannot be less true in 1942. Every
intendment ought therefore to be made in
favour of a Legislature which is exercising
the powers conferred on it.”
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
(1) [1942] F.C.R. 17, 27. (2) (1878) 3 App. cas. 889
571
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.”
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
List or any other restriction to be found elsewhere in the
Constitution. Entry 35 above referred to reads:
“35. Mechanically propelled vehicles
including the principles on which taxes on
such vehicles are to be levied.”
The existence of such an Entry in the Concurrent List cuts
down the supremacy of the State Legislatures, and in respect
of taxation of motor vehicles, if the principles of taxation
are laid down by Parliamentary legislation, the State laws
repugnant thereto must be void, in view of the provision of
Art. 254 of the Constitution. The question whether the
power of Parliament to legislate and lay down principles of
taxation under Entry 35 of the Concurrent List would also
have to be considered under Part XIII, does not arise in
this case, for admittedly there is no law by Parliament that
Entry either prior or subsequent to the State Act. Thus, so
far as the taxing power of the State Legislature is concer-
ned, it must be admitted that it was not only exercised
under Entry 57, but, if judged solely under that Entry, that
it was properly exercised.
572
The question thus is whether on the exercise of this power
there are to be found other curbs in other parts of the
Constitution, and whether those curbs have not been
observed. Such curbs may be of three kinds. The first may
arise from the operation of the power of legislation granted
to Parliament by Entry 42 of the Union List, and the
contention in this connection is that the present impugned
Act in its pith and substance is legislation under that
Entry and thus void. The second may arise from Art. 19,
sub-cls. (d), (f) and (g) if the law deprives the motor
operators of the right (a) to move freely throughout the
territory of India’ (b) to acquire, hold and dispose of
property, and (c) to practice any profession, or to carry on
any occupation, trade or business, and the restriction is
incapable of being justified as reasonable. The third may
arise from the provisions of Part XIII where freedom of
trade, commerce and intercourse throughout the territory of
India has been ,guaranteed’, subject only to the provisions
of that Part. These, in the main, are also the contentions.
and these appeals can be effectively disposed of from these
three view points.
The first contention that the impugned Act is bad because it
is legislation directly under Entry 42 of the Union List
need not detain us long. The subject of Entry 42 of the
Union List is not taxation but “inter-State trade and
commerce”. The scheme of the Legislative Lists shows that
taxation entries are separate from other entries, and the
other entries do not include a power to impose a tax, though
the power to levy fees is included as it is expressly so
stated. The subject of Entry 57 of the State List is
taxation on vehicles. An Act which seeks directly to levy a
tax on motor vehicles even though there may be incidental
and subsidiary provisions about the regulation of a
particular inter-State trade carried on with the aid of or
in
573
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
tax at the appropriate rate specified in the
Schedule to this Act……..”
The pith and substance of the Act is the levy of a tax on
motor vehicles in Rajasthan or their use in that State
irrespective of where the vehicles come from. In one sense,
it does not seek directly or immediately to legislate on
inter-State trade or commerce or to prohibit the entry of
such motor vehicles it the tax be paid, except in so far as
a person deterred by the tax may keep out. This may be a
point for consideration under Part XIII or even Art. 19 of
the Constitution, but not under Entry 42 of the Union List.
Even if the levy of the tax may be said to touch inter-State
trade or commerce, it is not legislation in respect of
interstate trade or commerce. It has been held consistently
by this Court, the Privy Council and the Federal Court that
a law substantially in its pith and substance under an Entry
in one List may touch incidentally on a topic of legislation
in a rival List without being void or ultra vires. This, in
our opinion, is sufficient to dispose of the first point.
The next attack is with the aid of Art. 19 of the
Constitution. That Article guarantees to the citizens of
India certain basic freedoms. Freedom from taxation is not
one of them. It is hardly
574
necessary in this case to examine the subject from the angle
of Art. 19, because a law to be good under that Article must
satisfy the test of reasonableness. If the impugned
sections here are declared to be unreasonable restrictions
upon the freedom of trade, commerce and intercourse, they
would fall also under Part XIII. If this were to happen, it
would be wholly unnecessary to decide whether taxation laws
are within the reach of Art. 19 and also whether the
impugned provisions have to pass the independent scrutiny of
Art. 19 before they can be sustained.
This brings us to the consideration of the last point on
which arguments occupied the Court for several days. It
would be necessary (if not, impossible) to try to discuss
the arguments which, though proceeding from the same side,
were often conflicting. The use of language borrowed from
a. 92 of the Australian Constitution in Art. 301 of our Con-
stitution led to the citation of many Australian rulings.
Those rulings are so numerous that they provoked a former
Chief Justice of the High Court of that Country to say that
when he died, s. 92 would be found to be written on his
heart But it is reasonable to suppose that those who
borrowed the language in India were fully aware of the con-
flict 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(1) and Hughes and Vale
Pty. Ld. v. State of N.S.W. (2), 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
(1) [1950] A.C. 235.
(2) [1955] A.C. 241.
575
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 Austra-
lian Commonwealth. These differences are not to be found
solely in the language of the corresponding provisions but
in the evolution of the two Countries and the checks and
balances provided in our Constitution which are not to be
found in the Australian Constitution. We shall refer to
these differences briefly before examining what checks and
balances have been provided in our Constitution.
The Commonwealth of Australia was formed out of a number of
Colonies which were separated by high tariff walls and
numerous differential inter-Colonial duties. The idea of a
federation was born out of a desire to secure free trade on
a reciprocal basis between the Colonies. The Federation
was, however, delayed by the failure to reach agreement on
the financial aspects of the Constitution. Numerous
conventions took place which tried unsuccessfully to solve
the problem which was aptly described “,as the lion in the
path of unity”. It was after surmounting many difficulties
that the financial clauses were settled by agreement. It is
in the background of these historical facts that the
provisions relating to freedom of trade, commerce and
intercourse have been interpreted by the High Court of
Australia. The provisions of the Australian Constitution
themselves enact the underlying agreements. Sections 51,
88, 89, 90, 100 and 102 insist upon uniformity and the
absence of discrimination in matters of trade and commerce
after the imposition of uniform duties of customs which was
to be achieved in two years.
576
Section 92 then epitomizes the whole concept of this unity
and freedom from preferential treatment by enacting :
“On the imposition of uniform duties of
customs, trade, commerce and intercourse among
the States, whether by means of internal
carriage or ocean navigation, shall be
absolutely free.”
It may be pointed out here that the
alternative phrase “throughout the
Commonwealth” was not accepted, though it was
suggested as an amendment more than once.
The provisions of the Australian Constitution
such as bear on trade and commerce, are no
more than covenants entered into at the
Conventions, which have been introduced bodily
into the Australian Constitution, the fate of
which depended for a long time on how to
secure an agreement about uniform tariffs
customs, excises and bounties. The
declaration of freedom of trade, commerce and
intercourse was the logical culmination of the
negotiations for the establishment of the
Federation. The language of s. 92 was thus
made emphatic, even though its full purport
remained vague. As observed by Viscount
Haldane, L. C., in Attorney-General for the
Commonwealth of Australia v. Colonial Sugar
Refining Company Limited (1) :
“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 dis-
tinguished 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
(1) [1914] A.C. 237.
577
deliberation, and if there is as points obs-
curity in its language, this may be taken to
be due not to any uncertainty as to the ado-
ption 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.”
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
not surprising that the Australian High Court was faced with
the problem of deciding which laws rendered trade, commerce
and intercourse unfree and which did not. In the course of
these decisions, a wide cleavage in opinion soon appeared.
one view holding that any burden on trade, commerce or
intercourse between the States was bad, and the other view
attempting justification to save laws which were impugned.
Various grounds for such justification were evolved. Some
laws were upheld on the ground that they were merely
regulatory but some others were declared void as having
crossed the line of legitimate regulatory action. Some
taxation laws were upheld on the ground that though they
burdened trade or commerce, they were compensatory in
character. Even there, differences arose about the tests to
be applied to discover when such laws could be said to have
exceeded the limits. The number of such cases is legion,
and almost any view can be supported by citations from some
judgment or other from the Australian law Reports. Lord
Porter in Commonwealth of Australia v. Bank of New South
Wales (1) aptly summed up : “In this labyrinth there is no
golden thread” (p. 310). The maze of law round s. 92 was,
of course, something of which the framers of our
Constitution were not unaware. They knew (1) [1950] A. C.
235.
578
that in spite of the force of the words “absolutely free”,
it was well-settled that the freedom so contemplated was a
qualified freedom. In Duncan v. State of Queensland (1)
Griffith, C. J., had observed, what was generally accepted,
that “the word free’ does not mean extra legem, any more
than freedom means anarchy”. The task of the Bench as also
the Bar was to ascertain the limits of freedom or more
appropriately, the limits to which restrictions could go.
In this, the Australian High Court was the actor in the main
; but the Privy Council also delivered four judgments. Of
these, two were before our draft Constitution and two,
thereafter. It is, therefore necessary to investigate, to
find out what was the accepted position in about 1948 to be
able to see if any of the principles so laid down were
accepted and to what extent they were modified to suit our
Constitution in the light of our own history. We shall
first notice those cases which were decided before our
Constitution was drafted in 1948.
This first point on which difference arose in Australia was
whether s. 92 of the Commonwealth of Australia Act was
addressed only to the States, or whether it bound the
Commonwealth as well. In W. & A. McArthur Ltd v. State of
Queensland (2) 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 (3).
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 (4) the
Commonwealth agreed to be
(1) (1916) 22 C. L. R. 536, 573
(2) (920) 20 C. L. R. 530.
(3) [1936] A. C. 578.
(4) (1933) 50 C.L.R. 30.
579
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 (1), and decided that
the Commonwealth was also bound. Thus, the opinion of
Issacs, J., in Foggitt Jones & Co. Ltd. v. The State of New
South Wales (2) that s. 92
“makes Australia one indivisible Country for
the purpose of commerce and intercourse
between Australians” and that it was “beyond
the power of any State Parliament, or even of
the Commonwealth Parliament, by any regulation
of trade and commerce, to impair that
fundamental provision”
was accepted at least in its first part.
The second point was what was meant by
$(absolutely free”. The Attorney-General for
Australia in the course of his arguments in
James v. Commonwealth of Australia (3)
summarised the propositions which were urged
and supported by authorities in the arguments
before the Privy Council in that case, and
they were six, as follows :
“(1) The first meaning of ‘free’ is free of
all law of every description ;
(2)Free of any restrictions imposed upon
trade and commerce by reason of its interState
character. That is, free of any discrimi-
nating trade law ;
(3)Free as trade and commerce of all
interference whether specially directed to it
or not ;
(4) Free of all laws the pith and substance
(1) (1920) 28 C.L.R. 530. (2) (1916) 21
C.L.R. 557.
(3) [1936] A.C. 578.
580
of which is a regulation of interstate trade
or commerce;
(5)Freedom attaches to trade and commerce
regarded as a whole and not distributively.
Individuals are not guaranteed freedom in
relation to their trade and commerce so long
as trade and commerce as a whole are not
impaired.
(6)Free from pecuniary imposts-that is the
narrowest meaning of s. 92.”
These six propositions fairly represent the
view in the various judgments of the
Australian High Court. Isaacs, J., in Rex v.
Smithers (1) had observed :
“In my opinion, the guarantee of inter-State
freedom of transit and access for persons and
property under a. 92 is absolute-that is, it
is an absolute prohibition on the Commonwealth
and States alike to regard State borders as in
themselves possible barriers to intercourse
between Australians.”
In McArthur’a Case (2), the claim was made
against all Governmental control and the
majority also held that to be its meaning.
The Privy Council examined the scheme of the
Constitution of Australia and drew the line
thus :
“The true criterion seems to be that what is
meant is freedom as at the frontier or, to use
the words of s. 112, in respect of ‘goods
passing into or out of the State’. What is
meant by that needs explanation, The idea
starts with the admitted fact that federation
in Australia was intended (inter alia) to
abolish the frontiers between the different
States and create one Australia. That
conception involved freedom from customs
duties, imports, border prohibitions and
restrictions of every
(1) [1912] 16 C. L. R.99.
(2) [1920] 28 C. L. R. 533
581
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.”
The language of s. 92, particularly “among the States,
whether by means of internal carriage or ocean navigation,
shall be absolutely free”, taken with the history to which
we have already referred apparently decided the controversy.
This was departed from later in Commonwealth of Australia v.
Bank of New South Wales (1), but after our Constitution was
drafted.
The next question decided was: what was meant by “trade and
commerce”. Again, in McArthur’s Case (2), the meaning given
was a very wide one. It was not confined to the “mere act
of transportation of merchandise over the frontier.” It was
said that “all the commercial arrangements of which
transportation is the direct and necessary result from part
of “trade and commerce”. In
(1) [1950] A. C. 235.
(2) [1920] 82 C. L. R. 530
582
the concept of “trade and commerce” were thus included-
“the mutual communing, the negotiations,
verbal and by correspondence, the bargain, the
transport and the delivery are all, but not
exclusively, parts of that class of relations
between mankind which the world calls trade
and commerce’.”
In reaching this conclusion, Knox, C.J.,
referred to Bank of India V. Wilson (1) and
Commissioners of Taxation v. Kirk(2), where
Lord Davey observed:
“The word trade’ no doubt primarily means
traffic by way of sale or exchange or
commercial dealing,” but also added that “it
may have a large meaning.”
The view of Knox, C.J., was expressly disapproved by a Privy
Council in James v. Commonwealth of Australia (3) involving,
as it did, a conception of inter-State trade, commerce and
intercourse commencing at whatever stage in the State of
origin, and continuing until the moment in the other State
when the operation of inter-State trade could be said to
end, the freedom attaching to every stop in the transaction
from beginning to end. It was said that such a view would
lead to an immunity from law of a whole body of acts or
dealings by the mere fact “that they are parts of an inter-
State transaction.” The concept of trade and commerce was
thus limited to that movement to which crosses a State
barrier.
As regards “intercourse” also, the earlier meaning was wide.
The question was whether such ,,intercourse” must be
“commercial”. It was held in earlier cases that this
conferred a personal right on an Australian and “independent
of any commercial attributes he may possess, to pass over
the
(1) (1877) 3 Ex. D FOR. (2) [1900] A.C. 588 592.
(3) [1936] A.C 578.
583
Continent irrespective of any State border as a reason in
itself for interference” (per Isaacs, J., in R. v. Smithers
Ex Parte Benson (1). This view was affirmed in Duncan v.
State of Queensland (2) and also in McArthur’s case (3).
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) (4). With the exact
meaning of the word, we are not presently concerned.
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
(5), but it was approved by the Privy Council in James v.
Cowan (6). These cases may be noticed briefly.
In James v. South Australia (5), State legislation creating
a Dried Fruits Board and empowering it to five maximum
prices (s. 19) and to determine where and in what quantities
dried fruits should be marketed (s. 20), and to acquire on
behalf of the Minister dried fruits from dealers (s. 28),
was challenged under s. 92. Section 28 was expressly made
subject to s. 92. Section 20 was declared invalid by the
High Court of Australia, but ss. 28 and 29 were hold to be
valid.
In James v. Cowan(6), the question was the compulsory
acquisition of dried fruits in South Australia by the
Minister of Agriculture through a Board, after
(1) (1912) 16 C. L. R. 99.
(2) (1916) 22 C. L. R. 556 573.
(3) (1925) 28 C.L.R. 530.
(4) (1948) 76 C.L. R. 1, 380, 381.
(5) (1927) 40 C.L.R. 1.(6) [1932] A.C. 542.
584
determination by the Board in its absolute discretion what
quantities should be marketed locally and fixing quotas for
the other States. The question was whether this affected
freedom of commerce among the States. The Privy Council
emphatically answered that it did. But it made remarks
which showed that if the primary object of the legislation
was not directed to trade or commerce but such matters as
defence., famine, disease and the like., the incidental
effect on the trade and commerce was immaterial. The action
of the Minister was declared ultra vires, and James was held
entitled to succeed in his claim for damages.
The legislation by the State having been declared invalid,
the Commonwealth made the Dried Fruits Act (1928-35). Under
that law, no person could send dried fruit from one State to
another unless he exported his quota outside Australia.
This was challenged by James. When the case reached the
Privy Council, three points were Considered by the Privy
Council and decided. The first was that. 92 bound also the
Commonwealth, the second was that it created a ban against
prohibitions or burdens at the frontier, and lastly, that it
protected commerce in motion and passing the frontiers of
the States. A large number of cases were noticed in which
it was decided that trade and commerce was validly burdened
in the exercise of power to make laws without impairing
movement of trade at the borders. These laws dealt with
various subjects like monopolies, price fixation, health
regulations, licensing systems, entry of goods or persons
and transport.
The last group consisted of cases in which restrictions
applying to motor vehicles as integers of trade and commerce
or their owners were considered. Willard v. Raw-ion (1) was
concerned
(1) (1933) 48 C.L.R. 31 S.
585
with a law which required registration of all motor vehicles
on payment of a fee. The King v. Vizzard (1) was concerned
with the licensing of motor vehicles acting as common
carriers. O’ Gilpin’s case (2) was concerned with owners of
vehicles carrying their own goods, and Bessell v. Dayman (3)
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 (4) 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 in that case plying between Melbourne and Now
South Wales was unlicensed, and the driver was convicted for
breach of the Act. The Australian High Court held by
majority that the Act did not contravene s. 62. The Privy
Council described the judgment of Evatt, J., as of great
importance and quoted the following passage from it:
“Section 92 does not guarantee that, in each
and every part of a transaction which includes
the inter-State carriage of commodities, the
owner of the commodities, together with his
servant and agent and each and every
independent contractor co operating in the
delivery and marketing of the commodities, and
each of his servants and
(1) (1933) 50 C L. R. 30.
(2) (1935) 52 C.L.R. 189.
(3) (1935) 52C.L.R.215.
(4) [1936] A.C. 5 78.
586
agents, possesses, until delivery and market-
ing are completed, a right to ignore State
transport or marketing regulations, and to
choose how, when and where each of them will
transport and market the commodities.”
This was before the decision of Riverina
Transport Pty. Ltd v. Victoria (1), which was
decided on the basis of Rex. v. Vizzard (2)
though not without some doubts.
In 1945, the Australian High Court decided
Australian National Airways Pty. Ltd. v. The
Commonwealth (3). Under the Airlines Act,
1945, authority was given to establish State-
managed services to the exclusion of existing
commercial lines whose business was to
terminate, whenever a line, was effectively
started by the Government Airlines Commission.
The validity of the entire Act was challenged
by private operators who stood excluded from
field, on the ground of an infringement of s.
92 of the Commonwealth of Australia Act. The
establishment of the Airlines Commission was
upheld, but the creation of monopoly was held
to be invalid. Latham, C.J observed:
“I venture to repeat what I said in the former
case (Milk Board case) (4): ‘One proposition
which I regard as established is hat simple
legislative prohibition (Federal or State), as
distinct from regulation, of inter State trade
and commerce is invalid. Further a law which
is directed against’ inter-State trade and
commerce is invalid. Such a law does not
regulate such trade, it merely prevents it.
But a law prescribing rules &is to
(1) (1937) 57 C. L. R. 327.
(2) (1933) 50 C. L. R. 30.
(3) (1945) 71 C. L. R. 29.
(4) (1939) 62 C. L. R. 116, 127.
587
the manner in which trade (including trans-
port) is to be conducted is not a mere prohi-
bition and may be valid in its application to
inter-State, notwithstanding s. 92.”
One other important case was decided by the High Court of
Australia before our draft Constitution was prepared, and to
that we next turn. That case is Bank of New South Wales v.
The Commonwealth (1). 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 (2) 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 inter-
State element. McTiernan, J., agreed in this conclusion.
The majority, however held otherwise. Rich and Williams,
JJ., in their judgement laid down that the freedom in s.92
was a personal right attaching to the individual, that a
banker who carried on business in more than one State was
engaged in trade, commerce and intercourse among the States,
that James v. Commonwealth (3) could not be understood to
have laid down that s. 92 protected only the actual passage
of goods or persons from one State to another and the Act
prohibiting such trade, commerce or inter-
(1) (1948) 76 C. L. R. 1, 180, 38
(2) (1920) 28 C. L. R. 530.
(3) (1936) A. C. 578.
588
course offended s. 92. Starke, J., began his judgment on
this part by saying Is. 92 of the Constitution prescribes
but judicial decisions have much weakened” the freedom of
trade, commerce and intercourse. He then summarised the
position as at that date as follows:
(1) The prohibition of a. 92 was addressed
to the States as well as to Commonwealth
Parliament.
(2) The freedom was from both legislative
and executive control.
(3) The freedom was available to the
individual as also to trade and commerce
viewed as a whole.
(4) The individuals were to conduct their
commercial dealings independently of State
boundaries.
(5) The freedom was assured not only to
tangibles but also to intangibles, and the
words of the section by means of internal
carriage or ocean navigation” in s. 92 could
not be hold to mean only tangibles. Starke,
J., himself said that these words “‘trade,
commerce and intercourse” were wide enough to
include intangibles and took the aid of some
American decisions which had held that
insurance was within the Commerce power.
(6) Though the freedom was at the frontiers
of the States but any restraint put upon
trade, commerce and intercourse even before
some tangible property leaves the State of
origin was also contemplated.
(7) Dixon, J’s dictum in O’ Gilpin’s case(1)
where he observed “It is not, therefore every
regulation of commerce or of movement
(1) (1935) 52 C. L. R. 189.
589
that involves a restriction or burden constit-
uting an impairment of freedom. Traffic
regulations affecting the lighting and speed
of vehicles, tolls for the use of a bridge,
prohibition of fraudulent descriptions upon s
goods, and provisions for the safe carriage of
dangerous things, supply examples of reg-
ulatory provisions not strictly restrictions
within s. 92.
According to State, J., all Transport cases precept Willard
v. Rawson (1) were wrongly decided. Willard v. Rawson (2),
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.
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 in-
tangibles like insurance, banking, etc. were included that
concept, and agreed with the view that though regulation of
trade, commerce and interCoarse 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(1) in the High
Court in the judgment of Starke, J., represents adequately
the views entertained on the subject of freedom of trade,
commerce and intercourse in action to s. 92 of the
Commonwealth of Australia it before our Constitution was
framed.
(1) (1933) 48 C.L.R. 316.
(2) (1948) 76 C.L.R. 1, 380, 381
590
We shall now leave the Australian scene for the time being,
but will revert to it to show how further difficulties
arising in Australia from these settled views were solved,
to begin with by the Privy Council and subsequently thereto,
by the High Court of Australia, We shall also refer to the
late cases that were decided in reference to s. 92 of the
Australian Commonwealth Act, but which were not available to
the Constituent Assembly in India when our Constitution was
framed. We shall then be in a position to see how in
Australia the difficulties were surmounted and how in India
those difficulties were envisaged and tried to be met by
proper legislative enactments:
Before we proceed to an examination of the provisions in the
Indian Constitution and their evolution, we will refer to
the provisions on the subject of freedom of trade and
commerce in the Constitutions of Canada and the United
States of America because they were also precedents which
were available. In the British North America Act, 1867 s.
91(2) places “The Regulation of Trade and Commerce” in the
exclusive power of Parliament. Section 121 then provides:
“All Article of the Growth, Produce or
Manufacture of any one of the Provinces shall,
from and after the Union, be admitted free
into each of the other Provinces.”
Several important decisions were rendered by the Privy
Council and to some of theme we find it necessary to refer.
In Citizens Insurance Co. v. Parssons (1) and. again in Bank
of Toronto v. Lamb(3) the Privy Council found it necessary
to limit the general words of No. 2 of s. 91 ‘to afford
scope for powers given exclusively to the Provincial Leg-
islatures’. In City of Montreal v. Montreal Street Railway
(3), the same was observed again. Lord
(1) (1881) 7 App. Cas. 96.
(2) (1887) 12 App. Cas. 575.
(3) (1912) A. C. 333, 344.
591
Halsbury, L. C., in Attorney-General for Onterio v. Attorney
General for the Dominion (1) said that the words must be
given ‘a statutory meaning’. There is, however no definite
statement of the limits to be placed but generally the
exercise of regulation of trade and commerce within the
Provinces is upheld under No. 16 of s. 92, which gives the
following power to the Provinces:
“Generally all matters of a merely local or private nature
in the Province.”
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 (2), 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 commerce in a
sense may be affected ?”
(1) [1896] A. C. 348 (2) (1817) 12 App.
Cas. 575.
592
Lord Watson then said:
“It would be difficult to imply from these
words the regulation of trade and commerce’
whilst the power of direct taxation is given
the province the clauses must be reasonable
read together it would be difficult to suppose
that regulating commerce meant the passing of
an Act by the Dominion legislator exempting
banks from provincial taxation, for
practically that is what the argument in that
case” [Bank of Toronto v. Lambe (1)] had come
to; that under the words regulating commerce
was implied a power of exempting a bank from
provincial taxation, or the liability to by
taxed by the provincial parliament.” (Lefroy
Canada’s Federal System (1913) p. 391).
We do not consider it necessary to refer to
more cases but would refer later to the words
of Lord, Watson and Lord Herschell, which we
have quote, here.
The law in United States of America need not
detain us long. Article 1. s. 8 gives the
commerce power in the following terse words :
“The Congress shall have power……… T
regulate Commerce with foreign Nations, an,
among the several States, and with the India
Tribes.”
In 1824, in the well-known case of Gibbone
Ogden (2), this clause was considered.
Marshall, C.J gave the definition of commerce
:
“Commerce, undoubtedly, is traffic, but it is
something more; it is intercourse. I
describes the commercial intercourse between
nations and parts of nations, in all it
branches, and is regulated by prescribing rule
for carrying on that intercourse.”
(1) [1837] 12 App, Cas. 575.
(2) (1824) 9 Wheat 16 L. ed. 23.
593
The principle of federation as understood in
the United States is that sovereign States
have surrendered a part of their power to the
United states and barring what has been
surrendered and what is prohibited by the
constitution of the States, the residue
belongs to the United States. This is
brought, out in the Tenth Amendment:
“The powers not delegated to the United States
by the Constitution nor prohibited by it to
the States, are reserved to the States
respectively, or to the people.”
Most of the cases in the American Reports are
concerned with what rights belong to the
States and how far the Congress can regulate
commerce. That is not a subject with which we
are concerned in the present enquiry.
We now come to the Indian scene. In M. P. V.
Sundararamier & Co. v. The State of
Andhra Pradesh Venkatarama Aiyar, J., rightly
pointed out that
“Our Constitution was not written on a tabula
rasa, that a Federal Constitution bad been
established under the Government of India Act,
1935, and though that has under. gone
considerable change by way of repeal,
modification and addition, it still remains
the framework on which the present
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)”
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
(1) [1958] S. C. R. 1422, 1478.
594
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.
The transition in India was thus in the converse order.
Whereas several independent units joined together in
Australia to form a federation to evolve a Central
Government, in India the transition was from a highly
centralised Government to a federation of States which were
made autonomous units. The history of the last hundred
years or more thus saw the emergence of self governing
States with separate legislatures, executives and financial
resources, albeit controlled by the Centre. The union of
these States makes them members of a Sovereign Democratic
Republic. We shall briefly notice the steps in this
transformation. Our survey must begin somewhat earlier than
the Government of India Act, 1935, but it need only embrace
the degree of independence in the legislative and financial
fields.
Under the East India Company, the notion of a Central
Government did not emerge till the Charter of the Company
was renewed in 1833, and the Governor-General and his
Council in Bengal began to exercise control over the
presidential of Madras and Bombay. There was thus a move
towards a unitary form of government. In, view of the
bitter lessons learnt in the days of Warren Hastings, the
Governor-General was also authorised by the Charter Act of
1833 to overrule his Council, a power which he continued to
exercise down to 1935. There was thus, in truth and
reality, only one Government and the so-called Governments
of
595
the Presidencies and Provinces were agents of the Central
Government. After 1858, the Government of the country was
carried on in the name of the Queen through her Secretary of
State for India. The general pattern was, however, the
same, though as time passed, democratic institutions in
Government slowly emerged.
When the Reforms came in 1919 and introduced a system of
local governments, the process was not decentralisation but
reconcentration, as is known in France. By stages, the
Councils at the Centre and in the Provinces were greatly
expanded, a large number of nominated members being added.
When elections came, they included the representation of
some special interests. Legislation was even then from the
Centre in the shape of Regulations or under instructions
from the Centre, unless it was of a wholly local character.
We shall. pass over the details of the preparatory periods.
When Parliament began to modify all this, the aim was to
give to the Provinces a separate existence, though under a
strong Centre. When the Government of India Act, 1915 was
amended, there was a definite break up of the legislative
machinery into two. There emerged then the Legislative
Assembly and local Legislatures. In the field of local
Legislatures, the first experiments in Democracy were tried.
To invest separate powers, there was 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
596
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
circumstances, it could be repealed by the Indian
Legislature. Thus, though the seed of federation was sowed,
there was no semblance of a federation.
We shall now analyse the financial arrangements, including
taxation, during the period covered by us already. The
finances of India during the early stages were also
centralised. The Provinces were given what was considered
to be their `needs’ and provincial taxation as well as
Provincial expenditure were centrally controlled. The
process of decentralisation in finance, however, may be said
to have commenced earlier. The Act of 1858 by which the
rule of the East India Company was terminated also vested
the revenues of India in the Crown with the necessary
control in the Secretary of State. Mr. Wilson, the founder
of the ‘Economist’ and the first Member for Finance,
advocated that the Provinces should not depend on “,grants”
but should have independent resources. His suggestions bore
fruit in Lord Mayo’s regime, when in addition to fixed
grants some sources of revenue were “provincialised”. By
1882 there came to exist a bifurcation which was described
in the phrase “divided heads of revenue”-a phrase used for
years afterwards. The Montagu-Chelmsford Report was the
next important landmark and led to proper provincial
enfranchisement. The Report said:
“The existing financial relations between the
Central and Provincial Governments must
597
be changed if the popular principle in Govern-
ment is to have fair play in the Provinces.
Our first aim has therefore been to find some
means of entirely separating the resources of
the Central and Provincial Governments.”
Under the Government of India Act, the
Devolution Rules (Rules 2 and 14) made the
separation of the resources. From this, it is
not to be gathered that the Provinces had a
separate fisc. By R. 16, it was provided that
all moneys were to be paid into an account in
the custody of the Governor-General and he
made rules with the sanction of the Secretary
of State and issued orders, both general and
special, for payments, withdrawals or
disbursements from that account. By far the
greater part of the Devolution Rules dealt
with these matters and, in addition, there
were congeries of rules and instructions.
Taxation in the Provinces was under Entry 48
in Part II of the First Schedule of the
Devolution Rules, which read:
“48. Sources of Provincial Revenue not
included under previous heads, whether-
(a) taxes included in the Schedule to the
Scheduled Tax Rules
or
(b) taxes, not included in those schedules,
which are imposed by or under provincial
legislation which has received the general
previous sanction of the Governor-General”
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
598
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 imposi-
tion 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 taxes if octroi was not levied in that
area before a particular date, (e) taxes on trades,
professions or callings, and (f) tax on private markets.
There were also taxes and fees on certain services which the
local authorities render. The six taxes in the second part
were taxes on trade and commerce in motion. They were of
course taxes for local authorities, but the Indian
Legislature, the Governor-General and finally the Crown
could annul any law if not acceptable to them. We shall
pass over the Report of the Committee of Inquiry presided
over by Lord Mestan, which recommended the amounts payable
to Local Governments from income-tax etc. We shall also
pass over the Reforms Inquiry Committee presided over by Sir
Alexander Muddiman and that presided over by Lord Incheape.
Under the recommendations of the first and as a result of
the retrenchment made by the second, in 1927-28 the con-
tributions by the Provinces ceased. Thus, just before the
establishment of the Indian Statutory Commission in 1927
there was not only Dyarchy working but the sources of
revenue were divided between the Centre and the Provinces.
It was at this stage that the Indian Statutory
599
Commission (popularly known as the Simon Commission) was
appointed. The Commission recommended that the Organic
Instrument to be framed should have provisions for its own
development; in other words, that India should have act
flexible and not a rigid Constitution, and that any
development should have regard to India as a whole and not
merely British India. In this, there was the echo of what
the Montagu-Chelmsford Report said:
“Our conception of the eventual future of
India is a sisterhood of States, self-
governing in all matters of purely local or
provincial interest In this picture there is a
place for the Native States.”
The Commission emphasised one fact more than
any other. They observed:
“Economic forces are such that the States and
British India must stand or fall together. The
increasing importance of industry brings
problems that must be faced by both together
The States themselves have their own tariff
policies, and there is a serious possibility
that, unless provision can be made for the
reconciliation of divergent interests, numbers
of tariff walls will be perpetuated in an area
where fiscal unity is most desirable.”
The Commission also suggested that-
“the now Constitution should provide an open
door whereby, when it seems good to them, the
Ruling Princes may enter on just and
reasonable terms.”
The Commission, therefore, recommended a
federal Constitution composed of British India
and the Indian States. They said:
“We are inclined ourselves to think that the
easier and more speedy approach to the
600
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. ”
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 examined by a panel of
experts. When the Round Table Conference met, the question
of the shares of the Indian States in the customs and excise
revenues was again raised. The Federal Structure Committee
was commissioned among other matters, to report on the
powers of Federal Legislature and the Provincial
Constitution Committee, to report in the same way on the
powers of the Provincial Legislatures. In the report of the
Federal Structure Committee, the subject of trade and taxes
on it was dealt with only from the angle of discrimination,
but emphasis appears to have been placed only on British
trade and the fiscal conventions. Thus, the discussions
before the Conference also centered round two questions: (a)
the protection of British interests and (b) no commercial
discrimination on the ground of race etc.
When the Joint Parliamentary Committee on the Indian
Constitutional Reforms went into these questions, and
recommended the abolition of
601
Dyarchy in the federating units and the establishment of
Provincial Autonomy, the Committee sensed the dangers of
breaking up the unity of India and said:
“…in transferring so many of the powers of
Government to the Provinces, and in encou-
raging them to develop a vigorous and inde-
pendent political life of their own, we have
been running the inevitable risk of weakening
or even destroying that unity. Provincial
Autonomy is, in fact, an inconceivable policy
unless it is accompanied by such an adaptation
of the structure of the Central Legislature as
will bind these autonomous units together”.
They also pointed out that the unity of India
on which they had laid so much emphasis was
dangerously imperfect so long as the Indian
States had no constitutional relationship with
British India. The Committee recognised the
difficulties of economic ties between the
Provinces inter se and also British India as a
whole on the one hand, and the Indian States
on the other, and observed :
“On the one band, with certain exceptions, the
States are free themselves to impose internal
customs policies, which Cannot but obstruct
the flow of trade. Even at the maritime ports
situated in the States, the administration of
the tariffs is imperfectly coordinated with
that of the British Indian ports, while the
separate rights of the States in these
respects are safeguarded by long standing
treaties or usage acknowledged by the Crown.
On the other hand, tariff policies, in which
every part of India is interested, are laid
down by a Government of India and British
India Legislature in which no Indian State has
a voice, though the States constitute
602
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 in-
justice. ”
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 duties
are usually referred to as internal customs
duties, but in many of the smaller States are
often more akin to octroi and terminal taxes
than to customs. In some of the larger States
the right to impose them is specifically
limited by treaty. We recognise that it is
impossible to deprive States of revenue Upon
which they depend for balancing their budgets
and that they must be free to alter existing
rates of duty to suit varying conditions. But
internal customs barriers are in principle
inconsistent with the freedom of interchange
of a fully developed Federation, and we are
strongly of the opinion that every effort
should be made to substitute other forms of
taxation for these internal-
603
customs the accession of a State to the Fede-
ration should imply its acceptance of the
principle that it will not set up a barrier to
free interchange so formidable as to
constitute a threat to the future of
Federation…”
However, in dealing with commercial
discrimination, the Joint Parliamentary
Committee was more concerned with British
Imports and the Fiscal Convention which it was
anticipated, would lapse on the new
Constitution coming into force. The
Committee, therefore, suggested that the
Governor-General and the Governors should be
empowered to withhold their assent to Bills
which were discriminatory in fact or bad that
tendency. They also recommended statutory
prohibition against certain specified kinds of
discrimination, and added :
“We need hardly add that the effect of our
recommendation for the statutory prohibition
of certain specified forms of discrimination
would lay open to challenge in the Courts as
being ultra vires any legislative enactment
which is inconsistent with these prohibitions,
even if the Governor-General or Governor has
assented to it.”
With these suggestions in respect of the freedom of Grade
and commerce, a Federal Constitution was recommended. It
was also recognised that it would be the Provinces which
would carry on the ,national building activities’ and the
need for more finances ‘or the Provinces was acutely
recognised. The establishment of self-governing units and
self-governing constitutions, the creation of deficit
Provinces, the corporation of Burma and the cost of
establishment of a Federation, were matters which were gone
into by the Federal Finance Committee. The Federal
Structure Committee, Sir Walter Leyton, the Davidson
Committee and experts like Sir Malcolm Hailey and Sir Otto
Niemeyer. The Report
604
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. 5 that His Majesty was to declare by
proclamation that as from a date to be appointed “there
shall be united in a Federation under the Crown, by name of
the Federation of India,-
(a) Provinces……
(b) The Indian States which have or may thereafter accede
to the Federation……..
The proclamation never issued.
The freedom of trade and commerce which was the subject of
such anxious thought received short treatment in the
Government of India Act, 1935. Chapter III in Part V
(Legislative Powers)
(1) [1939] F.C.R. 18, 38.
605
dealt with discrimination in a series of sections which Dr.
Keith described as “liable to be regarded as oppressive and
unfair.” Though lip service was paid to caste, creed, colour
etc. the provisions were really designed to protect British
interests. The freedom of internal trade simpliciter was
dealt with in Part XII (Miscellaneous and General), and s.
297 provided :
“297 (1). No Provincial Legislature or
Government shall-
(a) by virtue of the entry in the Provincial
Legislative List relating to trade and
commerce within the Province, or the entry in
that list relating to the production, supply,
and distribution of commodities have power to
pass any law or take any executive action
prohibiting or restricting the entry into or
export from, the Province of goods of any
class or description :
(b) by virtue of anything in this Act have
power to impose any tax, cess, toll, or due
which, as between goods manufactured or
produced in the Provinces and similar goods
not so manufactured or produced, discriminates
in favour of the former, or, which, in the
case of goods manufactured or produced outside
the Provinces, discriminates between goods
manufactured or produced in one locality and
similar goods manufactured or produced in
another locality.
(2) Any law passed in contravention of this
section shall, to the extent of the contra-
vention, be invalid”
By this section, power was denied to the
Provincial Legislatures under two Entries in
the
606
Provincial List to impair free entry and export of goods in
the Provinces. The two Entries were referred to separately
and expressly by their content and were
“27. Trade and Commerce within the Province” and
29. Production, supply and distribution of goods.”
The word ,’commodities” was used instead of “goods” in the
White Paper, and the change to “goods” appears to have been
lost sight of in s. 297(1). However, the definition of
“goods” took in commodities, and the words “goods of any
class or description” were wide 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.
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
Provinces were chosen with special care to make these units
self supporting as far as possible with enough to spare
607
for “nation-building activities.” In this arrangement, the
door was open for the Indian States to join on the same
basis and on terms of equality. The most important fact was
that unlike the American and the Canadian Constitutions the
commerce power was divided between the Centre and the
Provinces as the Entries quoted by us clearly show. The
commerce power of the Provinces was exercisable within the
Provinces. The fetter on the commercial power of the
Provinces was Placed by s. 297. This was in two directions.
Clause (a) of sub-s. (1) banned restrictions at the barriers
of the Provinces on the entry and export of goods, and cl.
(b) prohibited discrimination in taxing goods between goods
manufactured and produced in the Province as against goods
not so manufactured or produced and local discriminations.
When drafting the Constitution of India, the Constituent
Assembly being aware of the problems in various countries
where freedom of trade, commerce and intercourse has been
provided differently and also the way the Courts of those
countries have viewed the relative provisions, must have
attempted to evolve a pattern of such freedom suitable to
Indian conditions. The Constituent Assembly realised that
the provisions of s. 297 and the Chapter on Discriminations
in the Government of India Act, 1935, hardly met the case,
and were inadequate. They had to decide the following
questions : (a) whether to give the commerce power only
Parliament or to divide it between Parliament and the State
Legislatures ; (b) whether to ensure freedom of trade,
commerce and intercourse interState, that is to say, at the
borders of the States or to ensure it even intra-States ;
(c) whether to make the prohibition against restrictions
absolute or qualified, and if so, in what manner ; (d) if
qualified by whom was the restriction to be imposed and to
608
what extent; (e) whether the freedom should be to the
individual or also to trade and commerce as a whole ; (f)
what to do with the existing laws in British India and more
so, in the acceding Indian States ; (g) whether any special
provisions were needed for emergencies; (h) what should be
the special provisions to enable the States to levy taxes on
sale of goods, which taxes were to be the main source of
income for the States according to the experts. All-these
matters have, in fact, been covered in Part XIII, and the
pitfalls which were 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 Pro-
vincial 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)
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 reading Part
XIII here indicating in each Article the changes made and
the relevant dates on which they were made
609
“Part XIII
Trade, Commerce and Intercourse within the Territory of
India.
301. Subject to the other provisions of this Part,
trade, commerce and intercourse throughout the territory of
India shall be free.
302. Parliament may by law impose such restrictions on the
freedom of trade, commerce or intercourse between one State
and another or within any part of the territory of India as
may be required in the public interest.
303. (1) Notwithstanding anything in article 302, neither
Parliament nor the Legislature of a State shall 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.
(2) Nothing in clause (1) shall prevent Parliament from
making any law giving, or authorising the giving of, any
preference or making, of authorising the making of, any
discrimination of it is declared by such law that it is
necessary to do so for the purpose of dealing with a
situation arising from scarcity of goods in any part of the
territory of India.
(In its application to the State of Jammu and Kashmir, in
cl. (1) of art. 303, the words “by virtue of any entry
relating to trade and commerce in any of the Lists in the
Seventh Schedule” shall be omitted).
610
304. Notwithstanding anything in Art. 301, or Art.
303, the Legislature of a State may by law-
(a) impose on goods imported from other States (or the
Union territories) any tax to which similar goods
manufactured or produced in that State are subject, so, how-
ever as not to discriminate between goods so imported and
good so manufactured or produced, and
(b) impose such reasonable restrictions on the freedom of
trade, commerce or intercourse with or within that State as
may be required in the public interest ;
Provided that no Bill or amendment for the purposes of
clause (b) shall be introduced or moved in the Legislature
of a State without the previous sanction of the President.
Ins. by the Constitution (Seventh Amendment) Act, 1956, s.
29 and Sch.)
305. Nothing in articles 301 and 303 shall affect the
provisions of any existing law except in so far an the
President may 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 ex-
611
cept 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 Con-
stitution 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
or duty subject to the terms of such agreement
and for such period not exceeding ten years as
may be specified in the agreement :
Provided that the President may at any time
after the expiration of five year,% from such
commencement terminate or modify any such
agreement if, after consideration of them
report of the Finance Commission constituted
under Article 280, he thinks it necessary to
do so’).
307. Parliament may by law appoint such
authority as it considers appropriate for
carrying out the purposes of Articles 301,
‘302, 303 and 304, and confer on the authority
so appointed such powers and such duties as it
thinks necessary.
Part XIIL unlike some of the Constitutions which we have
considered, contains within itself
612
and in one place the provisions regarding the freedom of
trade, commerce and intercourse. The commerce power as a
head of legislation is divided in the Constitution, and
figures in all the three Lists. Apart from other Entries
under which trade and commerce can be affected and which are
to be found in all the three Lists, there are two Entries in
the Union List, two in the State List and one in the
Concurrent List, which bear directly upon trade and
commerce.
Union List
41. Trade and commerce with foreign,
countries, import and export across custom
s
frontiers;
42. Inter-State trade and commerce.
State List :
26. Trade and Commerce within the State
subject to the provisions of entry 33 of List
III.
27. Production, supply and distribution of
goods subject to the provisions of entry 33 of
List III.
Concurrenl List
33. (Trade and Commerce in, and the
production, supply and distribution of : (a)
the products of any industry where the control
of such industry by the Union is declared by
Parliamentary law to be expedient in the
public interest) and imported goods of the
same kind as such products ;
(b) food-stuffs, including edible oilseeds
and oils;
(c) cattle fodder, including oilcakes
and other concentrates;
613
(d) raw cotton, whether ginned or unpinned
and cotton seed or
(e) raw jute.
The words in brackets show the entry as it was
prior to its amendment by the Constitution
(Third Amendment) Act, 1954. The word
industries’ occurred in place of the word
industry’ there.
By dividing the commerce power and by enacting the
provisions of Part XIII, the problems which arose in the
United States 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.
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 inter-
course 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 absolute but subject to
what is next provided ; and
614
(b) that the curbs on freedom of trade and
commerce are primarily to be found in Part
XIII.
Next, the words “throughout the territory of India” avoid
disputes which took place in Australia till the Banks case
(1) was decided by the Privy Council namely whether, freedom
is secured only at the frontiers of the States or also
within the States. The form of words adopted by our Consti-
tution (,”throughout the territory “) was suggested
Australia as an amendment but was not accepted, and the
Privy Council in James v. Commonwealth (2) was understood to
have endorsed the view that freedom only at the barriers of
the States was meant. Our Constitution chose the form which
was rejected do Australia thereby anticipating the decision
of the Privy Council in the Banks’s case. It must be
remembered that the Banks’ case was not decided by the
Privy Cousteau when our Constitution was drafted. The
freedom in India is inter-State as well as intrastate. This
freedom is addressed to Parliament as well as to the State
Legislatures, as the next Article clearly show.
Article 302 then makes the first exception to the freedom.
That, Article gives power to Parliament to put restrictions
on this freedom. This shows clearly that Parliament is
bound by Art. 301. Disputes similar to those which took
place in Australia in which it was hotly debated whether the
Commonwealth was bound or not have thus been avoided. By
providing separate releases from Art. 301 for Parliament and
the State Legislatures, that controversy can never arise.
Parliament which is authorised by Art. 302 can impose rest-
rictions on trade, commerce and intercourse in two aspects.
They are :
(a) between one State and another; or
(1) [1948] 76 C. L. R. I. 38, 381.
(2) (1936) A. C. 578.
615
(b) within any part of the territory of
India.
By the first is meant trade and commerce in motion across
the frontiers of States. It means the inter-State character
of trade, commerce and intercourse. By the second, the
power is made more general. Parliament may put restriction
in ” any part’ of the territory of India. The territory of
India is defined by Art. 1(3), which says :
“(3) The territory of India shall comprise-
(a) the territories of States;
(b) the Union territories specified in the
First Schedule ;
(Before the Constitution (Seventh Amendment)
Act, 1956 the clause read the territories
specified in Part D of the First Schedule’)
and (c) such other territories as may be
acquired.”
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.
616
“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’ restrictions permissible at the hands of
Parliament. Normally Parliament is the best judge of public
interests, and a question of policy can hardly arise before
the Courts. But if a question arises whether Parliament has
under color of Art. 302 encroached upon Art. 301, the matter
may in exceptionable circumstances be justifiable. It will
be useless in this connection to invoke the voice of
Parliament.
Next comes Art. 303. It begins with the nonobstructive
clause “Dotwithetanding anything in Article 302.” The effect
of these words is to take away the power granted to
Parliament to fetter freedom in this preceding Article in
the circumstances stated in this Article. This
nonobstructive Clause has been criticised as not being
wholly related to what follows. We do not agree. The
answer to the objection will appear from what we say next.
The Article says that neither (a) Parliament nor (b)
Legislature of a State shall have power (i) to make any law
giving or (ii) to make a law authorising the giving of-
(A) any preference to one State over an; other
(B) any discrimination between one State and another,
by virtue of any Entry relating to trade and commerce in any
of the Lists in the Seventh Schedule. The main idea
underlying this Article is to ban preference and
discrimination between one State and another in matters of
trade, commerce and intercourse. This principle of
uniformity is is high that by the non-obstante clause the
powers of Parliament under Art. 302 are completely nullified
and along with the powers of Parliament, all
617
derivative powers of the State Legislatures where Parliament
declares by law that a restriction is in the public interest
and the State Legislature (legislates under the shelter of
such a declaration, are also nullified, see Entry 33(a).
Entry 35 of the Concurrent List or Entry 57 of List If read
with Entry 35 of List 111, to confine the citation to
Entries, with which we are primarily concerned here. In the
Seventh Schedule to the Constitution in addition to Entries
41 and 42 (List 1), 26 and 27 (List II) and 33 (List III)
there are many other Entries regulating special trades. In
some of them, the formula by law made by Parliament’ is
again repeated out of abundant caution. By the words of
Art. 303 ‘by virtue of any entry relating to trade and
commerce’ is meant not the five Entries last named by us but
others also, e.g., 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 againstt 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
618
other matters inherent in free trade, commerce and
intercourse. The Article has its echo in a. 99 of the
Australian Constitution, which reads;
“99. Commonwealth not to give preference. The
Commonwealth shall not, by any law or
regulation of trade, commerce or revenue, give
preference to one State or any part thereof
over another State or any part thereof.”
It is to be read with s. 102, under which Parliament can
forbid preferences by State. Article 303, however, goes
much further. It emasculates the total legislative power in
the country from achieving a single preference or
discrimination in trade, commerce and intercourse by a
united or concerted action by Parliament and State
Legislature thus insuring equality to all peoples of India
from whatever part they may be drawn and wherever they may
be living.
There is, however, one exception to it, and that it is
contained in cl. (2). Preference or discrimination may be
made in one instance by Parliament by law. The ambit of
that exception plainly appears from the words of cl. (2),
which are explicit in themselves. Let us quote them again :
“Nothing in clause (1) shall prevent
Parliament from making any law giving, or
authorising the giving of, any preference or
making, or authorising the making of, any
discrimination if it is declared by such law
that it is necessary to do so for the purpose
of dealing with a situation arising from
scarcity of goods in any part of the territory
of India.”
The question of famine is primarily in mind. and secondarily
the readjustment or even distribution of goods due to some
economic imbalance. Clause (2) is self-explanatory, and
questions such as fixing
619
of quotas of dried fruits or their even distribution in home
and outside markets which agitated the Australians can
hardly &rise, and similar questions can adequately be dealt
with by Parliament under this power.
Next comes Art. 304. It beings with the non-obstante clause
“Notwithstanding anything in article 301 or article 303.” It
is contended that one can understand the mention of Art. 301
but not of Art. 303, and the Article is thus said to be
inaccurately drafted. We have already shown why in Art. 303
the State Legislatures found a mention, and unless Art. 303
was also put aside in Art. 304, there would arise a question
of balancing it against Art. 304. To avoid this, both Arts.
301 and 303 have been excluded from consideration.
Article 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
nondifferentiation 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 places-
the 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
620
that State.” Both these aspects are open to restrictions
provided that the restrictions are “reasonable” and are
“required in the public interest.” The use of the word
‘reasonable” brings in the justicability of the law. It is
useless in this context to invoke the voice of the legisla-
ture. The opinion of the legislature as expressed in the
law may of course raise a strong presumption, and create a
heavy burden for one challenging the law, but the extent of
the restriction and whether it is commensurate with the
requirements of the public interest (though a matter for the
legislature to decide in the first instance) may have to be
decided ultimately by the Courts. Of course, laws can be
made without affecting trade, commerce and intercourse
directly without having to be considered by Courts or
processed under the proviso. It is only a law which
directly and immediately affects trade, commerce and
intercourse which will need to be submitted to the President
for his sanction, though the sanction of the President will
not save it from being questioned. The Joint Committee on
Indian Constitutional Reform in its Report (para 367)
correctly pointed out:
“We need hardly add that the effect of our
recommendations for the statutory prohibition
of certain specified forms of discrimination
would lay open to challenge in the Courts as
being ultra vires any legislative enactment
which is inconsistent with these prohibitions,
even if the Governor-General or the Governor
has assented to it.”
The same will operate even if the President gives his
sanction.
Article 305 saved existing laws to start with, and at the
time of the passing of the Constitution (Fourth Amendment)
Act, 1955, room was made for the operation of laws by which
a State or a corporation owned or controlled by the State
carries
621
on any trade, business, industry or service whether as a
monopoly or otherwise. Article 305 does not apply to the
statute here impugned as it was not an ,existing law’.
Article 306 was a transitory provision which enabled certain
Part B States to Continue levy of existing taxes or to
restrict trade, commerce and intercourse for a period,
notwithstanding the provisions of Part XIII. With that, we
are not concerned after 1955 due to the repeal of that Arti-
cle. Article 307 also is immaterial in this case. It
provides for the appointment of an authority for carrying
out the purposes of Arts. 301-304, and is a counterpart of
s. 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(1). 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 (2)
were to be read secundum subjectam materiam, and in the
context in which they occurred, and observed:
(1) (1950 A.C. 23S.
(2) (1936) A.C. 578.
622
“They cannot be interpreted
as a decision either that it is only the
passage of goods which is protected
by s. 92 or that it is only at the
frontier that the stipulated freedom may be
impaired. It is not to be doubted that
a restriction, applied not at the border but
at a prior or subsequent stage of inter State
trade, commerce or intercourse, may offend
against s. 92. Nor, as their Lord ships
hold, in accordance with the view long entertained
in Australia, is it in respect of the
passage of goods only that such trade commerce
and intercourse is protected.”
The Privy Council also corrected the view entertained in
Australia that a full and unqualified approval was
given to the opinion of Evatt,J., in The King v.
Vizzard (1), by Lord Wright in Jaimes v. The commonwealth
The Privy Council observed:
“But it does not appear to their Lord,ships
that the whole of the learned Judge’s
reasoning received the considered approval of
the Board.”
The Privy Council next approved of the
following passage from the Australian National
Airways case (3) which has already been quoted
by us:
“I venture to repeat what I said in the former
case (the Milk case) (4): ‘One proposition
which I regard as established is that simple
legislative prohibition (Federal or State), as
distinct from regulation, of interState trade
and commerce is invalid. Further law which is
“directed against” inter-State trade and
commerce is invalid. Such a law does not
regulate such trade, it merely prevents it.
But a law prescribing rules at to the manner
in which trade (including transport) is to be
conducted is not a
(1) (1933) 50 C.T.R. 30.
(3) (1945) 71 C.L.R. 29.
(2) (1936) A, C. 578.
(4) (1939) 62. C.L.R. 116, 127.
623
mere prohibition and may be valid in its
application to inter-State trade,
notwithstanding s. 92′.”,
observing:
“With this statement, which both repeats the
general proposition and precisely states that
simple prohibition is not regulation, their
Lordships agree.”
The Privy Council also made it clear that in some cases
“‘regulation” may take the form of prohibition, thus
endorsing the statement of Harrison Moore that the power of
legislation, is not merely a power to regulate; it ranges
from creation to destruction, it may establish as well as
prohibit: The Commonwealth of Australia, 2nd Edn., p. 280.
The Advocates-General of Bombay and the Punjab and Mr. G. S.
Pathak relied upon many decisions of the Australian High
Court after the Banks’ case. (1) Strictly speaking, these
decisions could not have influenced the framing of our Cons-
titution, 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 Bank8′ case., (1) 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
(1) (1948) 76 C.L.R. 1, 380, 381.
624
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 (1), which was a transport case, the
High Court of Australia was invited to overrule the
Transport cases and to declare that the minority judgments
throughout had been right. The Chief Justice basing himself
on the Banks’ case (2) opined that the Privy Council had
finally decided that laws directly operating upon persons
engaging in inter-State trade and commerce were not
infringements of a. 92 if they were what could fairly be
described as regulation’. If, however, they were laws which
directly dealt with the subject-matter of trade and commerce
and exceeded regulation and passed into prohibition, they
were invalid. The law was thus upheld, but Dixon and
Fullagar, JJ., dissented.
Then came the decision of the Privy Council in Hughes and
Vale Pty. Ltd. v. State of N. S.W.( 3) By that decision,
Rex v. Vizzard (4) and all Transport cases following that
decision and the majority judgment in McCarter v. Brodie (1)
were overruled and the opinions of Dixon and Fullagar, JJ.,
in the last mentioned case were upheld. The decision of the
Privy Council in Hughes and Vale Pty. Ltd. v. State of N.
S. W. (3) must be examined a little closely. All the
earliest Transport cases were decided after the decision of
the Privy Council in James v. Cowan(5) but before James v.
The Commonwealth(6) was decided. The Riverina case (7) and
the Austrailan National Airways case (8) preceded the Banks’
ease (2) and McCarter v. Brodie (1) followed
(1) (1950) 80 C.L.R. 432.(2) (1948) 76 C.L.R. 1, 380,
38 1.
(3) (1955) A.C. 241.(4) (1933) 50 C.L.R. 30.
(5) (1932) A.C. 542.(6) (1936) A.C. 579.
(7) (1937) 57 C.L.R. 327.(8) (1945) 71 C.L.R. 29.
625
it, and then came Hughes and Vale Pty. Ltd. v. State of
N.S.W. (1) from which the appeal went to the Privy Council.
Leave to appeal in McCarter v. Brodie (2) was refused.
Before we examine the decision of the Privy Council, lot us
recall and re-state the main events in brief. In James v.
South Australia (3), what was struck down by the High Court
as. a contravention of s. 92 was the executive determination
of where and in what quantities dried fruit were to be
marketed. In James v. Cowan (4), the action of the Minister
expropriating the surplus dried fruits was also held to be a
contravention. In James v. The Commonwealth (5), it was
held that s. 92 bound not only the States but also the
Commonwealth. The last case 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 (6) 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, (7) 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’.
The Transport cases involved almost always:
(i) a licensing system of motor transport
vehicles by a Board;
(1) (1955) A. C. 241.
(3) (1927) 40 C.L.R. 1.
(5) (1936) A. C. 578.
(2) [1950] 8 0C.L.R.432.
(4) (1932) A. C 542.
(6) (1933) 50 C.L.R. 30.
(7) (1948) 76 C. L.R. 1, 380, 381.
626
(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 (1).
How were these cases affected by the pronouncement of the
Privy Council ? The earlier view that The King v. Vizzard
(2) was approved by the Privy Council in James v. The
Commonwealth (3) fell to the ground when the Privy Council
in the Bank’s case (4) abjured this. There was also the
approval given to the Australian National Airways case (5),
to which we have referred. The implications of this
approval had also to be considered. These Questions arose
before the High Court in McCarter v. Brodie (6). In that
case, the Transport Regulatiou Acts, 1933-47 provided for
licensing of commercial goods vehicles by a Board with
discretionary powers and for payment of a fee. The effect
of the Bank’s case upon the Transport cases was urged, and
it was contended that they must be overruled, but the
majority applying Rex v.Vizzard (2) and the Riverina case
held the law to be valid. Dixon and Fullagar, JJ., however
dissented. In describing what was hold by these learned
Judges, we shall borrow their language, as was also done by
the Privy Council.
According to Dixon, J., the Banks’ case (4) had proved wrong
three propositions, and they were :
(1) that s. 92 did not guarantee freedom of
the individual;
(2) “that’ if the same volume of trade
(1) (1935) 52 C.L.R. 189.
(3) (1936) A.C. 578.
(5) (1945) 71 C.L.R. 29.
(2) (1933) 50 C.L.R. 30.
(4) (1948) 76 C.L.R. 1, 380, 38 1.
(6) (1990) 80 C.L.R. 432.
(7) (1937) 501 C.L.R. 327.
627
flowed from State to State before as after the
interference with individual trader then the
freedom of trade among the States remained
unimpaired.’
(3) that because a law applied alike to
inter-State commerce and to domestic commerce
of a State, it might escape objection not-
withstanding that it prohibited, restricted or
burdened inter-State commerce.
Next, according to him two further points were
settled by the Bank’s case: (1).
(1) That the object or purpose of an Act,
challenged as contrary to s. 92 was to be
ascertained from what was enacted and con-
sisted in the necessary legal effect of the
law itself and not in its ulterior effect
socially or economically and
(2) that the doctrine of ‘pith and sub
stance though of help to find out whether it
Wag nothing but a regulation of a class of
transactions forming part of a trade and com-
merce was beside the point when the law
amounted to a prohibition or the question of
regulation could not fairly arise.
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
(1) [1948] 76 C.L.R. 1. 380,381.
628
as part of commerce.” This distinction, according to him,
was not valid.
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 free-
dom. And the same could be said also about licence fees,
etc. which had to be reasonable and nondiscriminatory, lest
they passed from regulation into what the Privy Council
called simple prohibition. The majority opinion, of course,
prevailed but not for long.
The case of Hughes and Vale Pty. Ltd. v. State of N. S. W.
(1) came after McCarter v. Brodie (1). The High Court
followed the earlier decision,, but Dixon, C.J., observed :
“…… to my mind the distinction appears
both clear and wide between, on the one hand,
such levies and such provisions prohibiting
transportation without licence as the
foregoing and on the other hand the regula-
tions and registrations of motor traffic using
the roads and the imposition of registration
fees. In the same way the distinction is wide
between such provisions and the use of a
system of licensing to ensure that motor
vehicles used for the conveyance of passengers
or goods for reward conform with specified
conditions affecting the safety and efficiency
of the service offered and do not injure the
highways by excessive weight or immoderate use
or interfere with the use of the highways by
other traffic. The validity of such laws must
depend upon the question whether they
(1) [1955] A.C. 241.
(2) [1950]80 C.L.R. 432.
629
impose a real burden or restriction upon
inter-State traffic”.
When the case reached the Privy Council, it was contended
that where the tax was on the movement itself, the tax could
not be regarded as regulatory and the reasons in the
judgments of Dixon, C.J., and Fullagar, J., were urged.
This was accepted by the Privy Council. On the other side,
it was contended that the provisions which were State-wide
were regulatory and were imposed on all vehicles, and the
effect on inter-State trade or commerce was indirect or
consequential. This was not accepted. Even the other side
conceded that :
“the imposition of charges in respect of
vehicles used on inter-State journeys would
infringe section 92 if the charges (a)
discriminated against inter-State road
transport or vehicles engaged therein; (b)
were imposed at such a rate as to be
prohibitive of inter-State road transport,
whether alone or in common with all road
transport”.
The Privy Council pointed out that in the Transport cases,
(1) sufficient weight was not given to James v. Cowan (2 ),
where determinations of executive in its discretion were
said to be invalid. It accepted the six propositions of
Dixon, J., and followed the unusual practice of quoting in
extenso the opinions of Dixon and Fullagar, JJ., in McCarter
v. Brodie (3 ) 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.”
(1) [1938] 57 C.L.R. 327. (2) [1932]A.C. 542.
(3) [1950] 80 C.L.R. 432.
630
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 (1), 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 Hughes and Vale Pty Ltd. v. The State
of New South Wales [No. 2] (2). For the present purpose,
however, we borrow the following summary, inadequate though
it is, form Wynes:
“Speaking of ‘regulation’, their Honours said
that see. 92 of course assumed that the
transactions protected would be carried out in
accordance with the general law ; merel
y
because a transaction was apart of inter-State
trade, commerce or intercourse, the persons
engaging in it were not excluded from the
operation of that law. ‘What was precluded
were restrictions of a real character prevent-
ing or obstructing the dealing across the bor-
der or the inter-State passage or interchange.
There was a clear distinction in conception
between laws interfering with freedom to carry
out the very activity constituting interState
trade and laws imposing on those engaged
therein rules of proper conduct or other
restraints directed to the due and orderly
manner of carrying it out. This distinction
was naturally described as ‘regulation’, a
word
(1) [1933]48 C.L.R. 316. (2) [1955] 93 C.L.R.
125 1S9-162.
631
of anything but fixed legal import which
differed according to the nature of the thing
to which it applied. Perhaps the true
solution in any given case could be found by
distinguishing between the features of the
activity in virtue of which it fell within the
category of trade, commerce and intercourse
among the States and those features which,
though invariably found to occur in some form
or another in the activity, were not essential
to the conception.”
It was pointed out also that under the guise of what may
legitimately be regulation, real burdens and restrictions
could be placed.
There was a divergence of opinion again over the question of
licence charges and registration fees. The majority was
prepared to sustain charges if imposed “as a real attempt to
fix a reasonable recompense or compensation for the use of
the highway and for a contribution to the wear and tear
which the vehicle may be expected to make.” The minority
thought that (except for a fee for a specific service) no
charges could be levied. In two cases viz., Nilson v. The
State of South Australia (1) and Pioneer Tourist Coaches
Pty. Ltd. v. The State of South Australia (2), it was held
that a State could not require commercial motor vehicles to
register and pay a fee exceeding mere administrative char-
ges.
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] (3), Part
II of the
(1)[1955]93C.L.R 292. (2) (1955] 93 C.L.R. 307.
(3) [1957] 99 C.L.R. 28.
632
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 vehicle- per 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 car used for carrying goods for hire or in the course
of trade according to the powerweight and varying according
to the number of wheels and types of types etc., was upheld
by a majority of 6 to 1. The main reason given was what
these payments served to maintain roads at a standard by
which inter-State operations of trade, commerce and
intercourse were improved. It was, however, said that the
charge must not be more than a fair recompense for the
actual use of the roads. McTierman, J., relied on a passage
in Adam Smith’s “The Wealth of Nationals”, where public
‘works as roads, bridges, etc. are discussed as facilities
of commerce.
The question was again considered in (commonwealth
Freighters Pty. Ltd. v. Sneddon where the Road Maintenance
(Contribution) Act, 1958 (N. S. W.) which imposed upon
owners of commercial goods vehicles a, road charge at a rate
per mile was upheld. It will thus appear that tax
legislation in Australia has now to resort to the creation
of a separate fund to which State collections have to go
(1) [1959] 102 C.L.R. 280.
633
ear-marked for the maintenance of roads and to provide
elaborate criteria for determining the amount payable. On
this subject as well as on the subject of regulations as
described by Fullagar, J., in McCarter v. Brodie (1), the
law for the time being seems settled.
Having dealt with the historical background of the
Constitution, the possible models which were considered in
the drafting of Part XIIL we proceed to consider the three
views expressed in the Atiabari Tea Company case (1). These
views are not sharply divided. The majority accepts the
view expressed by the learned Chief Justice, but goes beyond
it, while Shah, J., accepts the views of the majority but
goes still further. The main question that arose then, as
it has arisen here, is : Do taxation laws come within the
reach of Art. 301 ? Now, it cannot be laid down as a general
proposition that all taxes are hit by that Article. We have
shown above that the financial independence of the States
was secured by an elaborate division of heads of taxation,
which were. well-thought out to provide the States with the
means of independent existence and the wherewithal of
nation-building activities. There is hardly any tax which
the States are authorised to collect which could not be said
to fall on traders. Property tax, sales tax, municipal
taxes, 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
(1) [1950] 80 C. L.R. 432. (2) [1961] 1. S.C.R. 309.
634
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 barriers on the one hand and taxation
for raising revenue on commercial intercourse,
the difference is one of purpose and not of
quality. Both these forms of burdens on
commercial intercourse trench upon the freedom
guaranteed by Article 301.”
That a tax is a restriction when it is placed upon a trade
directly and immediately may be admitted. But there is
difference between a tax which burdens a trader in this
manner and a tax, which being general, is paid by tradesmen
in common with others. The first is a levy from the trade
by reason of its being trade, the other is levied from all,
and tradesmen pay it because every one has to pay it. There
is a vital difference between the two, viewed from the angle
of freedom of trade and commerce. The first is an impost on
trade as such, and may be said to restrict it; the ,second
may burden the trader, but it is not a restriction’ of the
trade. To refuse to draw such a distinction would mean that
there is no taxing entry in Lists 1 and 11 which is not
subject to Arts. 301 and 304, however general the tax and
however non. discriminatory its imposition. To bring all
the taxes within the reach of Art. 301 and thus to bring
them
635
also within the reach of Art. 304 is to overlook the concept
of a Federation, which allows freedom of action to the
States, subject, however, to the needs of the unity of
India. Just as unity cannot be allowed to be frittered away
by insular action, the existence of separate States is not
to be sacrificed by a fusion beyond what the Constitution
envisages. No doubt, Part XIII ensures economic unity to
India and combines the federating States into the larger
State called India. The Constitution also permits
independent powers of taxation. What the Constitution does
not permit is that trade, commerce and intercourse should be
rendered ‘unfree’. Trade and commerce remain free even when
general taxes are paid by tradesmen in common with non-
tradesmen. The Question whether a tax offends Part XIII can
only arise when it seeks to tax trade, commerce and inter-
course. Support for the contrary proposition is not to be
found in James v. The Commonwealth The Privy Council in
James v. The Commonwealth did not lay down:
“Every step in the series of operations which
constitutes the particular transaction is an
act of trade, and control under the State law
of any of these steps must be an interference
with its freedom as trade.” (p. 629)
The passage represents the view hold in McArthur’s case (2).
That case was disapproved at p. 631. We have already dealt
with this view at some length.
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
(1) (1936) A.C. 578.
(2) (1920) 28 C.L.R. 530.
636
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 income-
tax on his profits. Part XIII has nothing to do with such
taxes even though they fall upon tradesmen.
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 subject of
freedom in terms of barriers, tariff walls and imposts,
erected in the way of the free flow of trade, commerce and
intercourse. Of course, if the tax does create barriers,
tariff walls and imposts at some discernible point, the
restriction is easy to detect. But restrictions may be
diverse, subtle and disguised, and a tax may be a direct and
immediate restriction without appearing to be so at a
particular point in the movement of trade. A law which
prohibits trade, commerce and intercourse and releases them
on the fulfillment of some unreasonable condition including
the payment of an unreasonable or discriminatory tax will
just as much be a restriction offending the freedom as a
tariff wall or any other barrier. No question of pith and
substance in this context arises, as was pointed out by the
Privy Council in the Banks’ case. The nature of the tax and
its relation to trade, commerce and intercourse are the
matters to consider.
In trying to establish that taxation entries are entirely
out side the reach of Part XIII, it is contended that Part
XII, which deals with taxa-
637
tion, is a code by itself and taken with the Legislative
Lists, lays down the power of taxation which cannot be taken
away by the provisions of Part XIII. The power of taxation
is, therefore, said to be not subject to the declaration of
freedom in Art. 301. The imposition of a tax is conditioned
on the existence of a law. Article 265 lays down that “no
tax shall be levied or collected except by authority of
law”. Article 301 is a curb on the law-making power,
because by the unambiguous declaration contained in it, the
freedom of trade, commerce and intercourse is secured. The
prohibition is addressed not only to the EXecutive but also
to the Legislature, because Arts. 302 and 304 lift the ban
which has been imposed in favour of action by law made by
Parliament and the State Legislatures respectively. Article
304 expressly mentions the power to impose taxes which must
include at least excise duties and sales tax, and from this,
also, it is quite clear that taxation is within the
prohibition contained in Part XII. This argument was also
rejected by the majority in Atiabari Tea Company case (1),
and we respectfully agree.
Before, however, a tax can be struck down, the incidence of
the tax and the method of its collection must be examined.
If the tax falls 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
(1) (1961) 1. S.C.R. PC(1).
638
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 s. 92 of the
Commonwealth of Australia Act. In our Constitution, many
problems which agitated the Australian High Court have been
obviated, and in so far as restriction of the freedom is
concerned it can only be achieved by law made in the public
interest and in the manner indicated. In so far as State
legislation is concerned, the law must be reasonably in the
public interest, and the sanction of the President must be
obtained. Thus, the President in the first instance and
finally the courts will be the judges of the reasonableness
of the restriction and the existence of public interest.
Part XIII, which has created the freedom has thus also shown
the way for restricting the freedom. The Privy Council in
the Banks’ case observed:
“If these two tests are applied : first
whether the effect of the Act is in a parti-
cular respect direct or remote; and secondly,
whether in its true character it is
regulatory, the area of dispute may be
considerably narrower.”
This may be true where the law attempts to regulate freedom
but not true where the law restricts
(1) [1978] 76. C.L.R. 1, 380, 38 1,
639
freedom. There is a real difference between regulation and
restriction. Traffic rules are regulations, not
restrictions. Trade, commerce and intercourse are regulated
so that they may flow freely. The rule of the road is
not a restriction of commercial traffic, but is one
designed to make the flow of traffic smooth. The
prescription that cars should have reliable brakes or lights
or a sound device are not restrictions of trade. These
regulations are needed both for ensuring safety for those
engaged in traffic as also for securing that every one
engaged in traffic might equally enjoy that right. The
classification of heavy transport vehicles, the tare weight,
the kinds of tares they must have, the seating capacity of
buses and go on and so forth are not normally restrictions
of trade, commerce and intercourse but are meant for the
better and more effective flow of trade, commerce and inter-
course. Such laws can not be viewed as restrictions at all,
and do not come within the freedom angle, nor do they
require the process under which freedom can be curtailed.
Just as a tax of a general character payable by all and
sundry and not placed upon a trade directly and immediately
cannot be considered as a restriction of trade even though
it burdens a trader, so also regulations of trade without
hampering 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 (1) 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
(1) [1950] 80 C.L.R. 432.
640
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.
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 adminis-
trative charges are quite different from taxes, pure and
simple. Fees may partake of regulation when they are
demanded to enable Government to meet the cost of
administration. But the tax, with which we are concerned,
is hardly a fee in that narrow sense. It is a tax for
raising revenue. Of such a tax, Lord Watson asked the
question: “Do you regulate a man when you tax him ?” As was
pointed out by Lord Herschell during the arguments in the
Liquor Prohibition Appeal 1895 (1) in a passage which we
have quoted earlier, the matter may be looked at in two
ways. Lord Herschell observed:
“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 case, it is not a regulation of
trade and commerce, while in the
(1) [1896] A.C. 348.
641
latter it is, though in each case trade and
commerce in a sense may be affected ?”
In our judgment, the first test to apply is what is the
object and scope of the legislation? A regulation of trade
and commerce may achieve some public purpose which affects
trade and commerce incidentally but without impairing the
freedom.Sometimes, however, the regulation it self may amount
to a restriction, and if such a stage is reached, then
under our Constitution there striation must be reasonably in
the public interest, and the President’s prior sanction must
be obtained, if the law imposing such restriction is made by
the State Legislature. If, however, it does not reach the
stage of restriction of trade and remains only a regulation
incidentally touching trade and commerce, the regulation is
outside the operation of Arts. 301 and 304. It is on this
ground that laws prescribing the rule of the road and like
provisions already referred to as well as a regulation that
the height to which trucks may be loaded must be such as not
to endanger the overhead bridges or wires, do not have to go
before the President, since they do hot affect the freedom
guaranteed. The object of such laws cannot be regarded as a
restriction of trade and commerce. Freedom in Art. 301 does
not mean anarchy. Similarly, a demand for a tax from
traders in common with others is not a restriction of their
right to 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.
642
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.
We have to examine the precise nature of the tax imposed,
which has to be gathering from the charging section read
with the Schedules, and the plain question is whether so
read, there can be said to be anything other than a tax on a
trader and on his activity as a trader. The Act consists of
24 sections, and 4 Schedules. Section 4(1) which imposes
the tax is the charging section and has, on its terms, to be
read with each of the Schedules to the Act. Apart from the
usual sections generally found in every taxing measure such
as prescribing the time the tax has to be paid, cases in
which refund may be had, declarations which have to be made,
and provisions for recovery of tax, appeals, etc. there are
provisions for penalties and for compounding. There is one
other provision, to which attention may be drawn and that is
s. 20, which reads:
“20. Levy of toll on certain bridges.-
Notwithstanding anything contained in this Act
it shall be lawful for the Government to levy
tolls on motor vehicles under any law or usage
for the time being in force, such rates as i
t
may from time to time fix-
(i) for the use of any bridges, or
643
(ii) on any bridge constructed, reconstructed
or repaired after the commencement of this
Act.”
The four Schedules, as their headings amply show, deal with
different subjects. Schedule 1 is divided into two parts A
and B. They deal with the subjects indicated in the
headings.
“A. Vehicles (other than Transport Vehicles
plying for hire or required) if fitted solely
with pneumatic tyres.
B. If the above motor vehicles are fitted
with resilient or non-resilient tyres, extra
tax will be levied at 5% of the above rate.”
Part A is then divided into three sections dealing with
different classes of vehicles and prescribe different rates
for each such class. We are not at present concerned with
vehicles which are not used as transport vehicles plying for
hire. Schedule II is also divided into two parts dealing
respectively with vehicles fitted with pneumatic tyres and
vehicles not so fitted. The first part deals with two
categories marked respectively “A” and “B”. ,A” comprises
motor vehicles plying for hire for the conveyance of
passengers and light personal luggage of passengers, while
“B” cornprises goods vehicles plying under Public Carrier’s
Permit. There are further sub-divisions in each category
“A” and “B” according to the seating capacity of the
vehicles on the basis of which different rates of tax are
imposed, but it is not necessary 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
644
in connection with a trade or business carried
on by the owner of the vehicle under a Private
Carrier’s Permit.”
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.
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.
There, the tax is payable also but not as a condition
precedent to the business. The tax, with which we are
concerned, is one directly and immediately laid on trade and
commerce and also on trade and commerce in movement. In
this connection, Sch. 1 and Part 11 of Sch. IV need not be
considered for we are dealing with motor vehicles used as
integers of trade and commerce. The tax is evidently not a
fee for administrative purposes; therefore, it cannot be
justified as representing payment for services. Its object
is the raising of revenue, which distinguishes a tax from a
fee.
We may next consider whether the tax can be justified as
regulatory or compensatory. For this purpose, some facts
must be stated. The appellants are three. They owned buses
which were registered in the former State of
645
Ajmer. They plied on diverse routes. There was one route.
Nasirabad to Deoli, which lay mainly in Ajmer State, but it
crossed narrow strips of the territory of Rajasthan.
Another route, Ajmer to Kishengarh, was substantially in the
Ajmer State, one-third of which was only in Rajasthan.
Kishengarh was, at the material time, a part of Rajasthan.
The appellants were required to charge fares prescribed by
the Ajmer authorities, and could not change them to cover
extra expenditure in the shape of taxes, which they had to
bear in Rajasthan. Formerly, there was an agreement between
the Ajmer State and. Kishengarh State, by which either
State did not charge any tax or fees on vehicle registered
in the respective States. Later, Kishengarh became a part
of Rajasthan, and the tax was demanded from these appellants
for the period, April 1, 1951, to March 31, 1954. The de-
mand was made by virtue of s. 4, the charging section, under
pain of the application of s. 1 1, which provides of
penalties.
The taxes, which are imposed by Schs. II, III and IV(1),
operate on trade and commerce directly. It is not denied
that the carriage of passengers and goods amounts to trade.
It was, in fact, so help in the Transport cases in Australia
and also by the Privy Council. Under the Act, this trade
can only be carried on, if the tax is paid. The Act,
therefore, involves a prohibition against a trade, which
prohibition is released on payment of tax. The Schedules
affect motor vehicles for carriage of passengers and goods
on hire in Rajasthan and also similar vehicles coming from
outside. In so 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
646
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
(1) 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.
Further, the duty of maintaining roads is a duty of the
State, and it performs it not from any special fund which is
created from the receipt of these taxes but from its general
funds. The wear and tear of the roads is not caused by the
transport vehicles only but other vehicles not employed in
the trade of transport. The tax which is levied is not
based on any theory of recompense, which has been evolved in
Australia. There, the distance traveled, the load carried
are taken into account, and a charge is payable by each
operator according to the distance actually travelled by him
in consonance with the weight carried. A further circums-
tance which goes into the determination of the amount
payable is the kind of tyres and the number of wheels which
the vehicle has. To say that the impugned tax is
compensatory without any attempt to apportion the charge
according to the actual wear and tear, is to borrow a theory
for justification which does not apply to the facts here.
(1) [1950] 80 C.L.R.432.
647
The only other question is whether the Act is, in its true
character, regulatory. There is no provision in the Act
which can be regarded as regulatory of motor vehicles or
their use. The Act plainly levies a tax upon the possession
or use of motor vehicles. A tax does not regulate trade
ordinarily; it imposes a charge on trade. The question thus
remains: does the tax burden trade or impair the free, flow
of trade and commerce as contemplated Art: 301? It is clear
that the tax is on trade. It is also clear that it is on
the movement of trade. It is further clear that it creates
a barrier between one State and another, which trade cannot
cross except on a heavy payment. The tax is not truly a
fair recompense for wear and tear of roads even if a
justification on the doctrine of compensatory taxes is
applied. It is nothing except a restriction, which Art. 301
forbids. The Bill which became the Act, was not submitted
to the President for his Previous sanction, nor was it
assented to subsequently after it passed the Legislature.
The question, therefore, whether the restriction imposed by
the Act is reasonable or not,, does not arise.
We are, therefore, of opinion that s. 4(1) as read with
Schs. IT, III and Part 1 of Sch. IV offends Art. 301 of
the Constitution, and as resort to the procedure prescribed
by Art. 301(b) was not taken, it is ultra vires the
Constitution. We wish to make it clear that we pronounce no
opinion about the constitutional validity of s. 4(1) as read
with Sch. 1 or the second Part of Sch. TV. The first
raises a question as to the meaning of the expression
“intercourse” in Part XIII and as that matter is not
relevant for the appeal before us, and thus no arguments
were heard on that point, we refrain from expressing any
opinion on it. The second involves many other questions,
which are far remote from the controversy with which we are
now concerned, and therefore need not be considered here.
648
We would, therefore, allow the appeals, and quash the demand
made upon the appellants.
By COURT: In accordance with the opinion of the majority,
these appeals are dismissed with costs, one hearing fee,.
Appeal dismissed.