{"id":98354,"date":"1960-09-26T00:00:00","date_gmt":"1960-09-25T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/atiabari-tea-co-ltd-vs-the-state-of-assam-and-ors-on-26-september-1960"},"modified":"2016-12-13T10:33:24","modified_gmt":"2016-12-13T05:03:24","slug":"atiabari-tea-co-ltd-vs-the-state-of-assam-and-ors-on-26-september-1960","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/atiabari-tea-co-ltd-vs-the-state-of-assam-and-ors-on-26-september-1960","title":{"rendered":"Atiabari Tea Co., Ltd. vs The State Of Assam And Ors. on 26 September, 1960"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Atiabari Tea Co., Ltd. vs The State Of Assam And Ors. on 26 September, 1960<\/div>\n
Equivalent citations: AIR 1961 SC 232, 1961 1 SCR 809<\/div>\n
Author: Sinha<\/div>\n
Bench: B S Shah, K Dasgupta, K Wanchoo, P Gajendragadkar<\/div>\n<\/p>\n
<\/pre>\n
JUDGMENT<\/p>\n
Sinha, C.J.<\/p>\n
1. These appeals on certificates granted under Art. 132 of the Constitution
\nby the High Court of Judicature in Assam and Writ Petitions under Art. 32 of
\nthe Constitution impugn the constitutionality of the Assam Taxation (on Goods
\nCarried by Roads or Inland Waterways) Act, (Assam Act XIII of 1954), which
\nhereinafter will be referred to as the Act. The appellants moved the High Court
\nunder Art. 226 of the Constitution challenging the validity of the Act. The
\nHigh Court by its judgment and order dated June 6, 1955, dismissed the writ
\npetitions. Thereupon, the appellants obtained the certificates that the cases
\ninvolved substantial questions of law as to the interpretation of the
\nConstitution. The petitions under Art. 32 of the Constitution were moved in
\nthis Court for the same purpose of challenging the vires of the Act. The
\nappellants and the petitioners will, in the course of this judgment, be
\nreferred to, for the sake of convenience, as the appellants. The State of
\nAssam, the Commissioner of Taxes, appointed under s. 6 of the Act and the
\nSuperintendent of Taxes are the respondents to the appeals and the writ
\npetitions.\n<\/p>\n
2. It appears that the appellants are growers of tea in West Bengal or in
\nAssam and carry their tea to the market in Calcutta from where the tea is sold
\nfor consumption in the country or is exported for sale out of the country. The
\nsale of tea inside Assam bears a very small proportion to the tea produced and
\nmanufactured by the appellants. Thus the bulk of tea produced and manufactured
\nis carried out of Assam, either for internal consumption in India or for export
\nabroad. Besides the tea carried by rail, a large quantity of tea is carried by
\nroad or by inland waterways from Assam to Bengal and in some of these cases,
\nfrom one part of West Bengal to another part of the same State through inland
\nwaterways, only a few miles of which pass through the territory of the State of
\nAssam. The Assam legislature passed the Act which received the assent of the
\nGovernor of Assam on April 9, 1954, and came into force on and from June 1,
\n1954. The purpose of the Act is to levy taxes on certain goods carried by road
\nor inland waterways in the State of Assam. On June 30, 1954, the second
\nrespondent, the Commissioner of Taxes, Assam, in exercise of the powers
\nconferred upon him by sub-s. (3) of s. 7 of the Act, published a notification
\nin the Assam Government Gazette bearing date June 21, 1954, by which he
\nnotified for general information that the return under the aforesaid Act and
\nthe rules made thereunder for the period commencing June 1, 1954 to September
\n30, 1954, should be furnished by October 30, 1954. The said notification also
\ndemanded the furnishing of quarterly returns before January 30, 1955 and April
\n30, 1955, for the quarters ending December 31, 1954 and March 31, 1955,
\nrespectively. The appellants in some of the cases, in pursuance of demand
\nnotices, submitted returns to the third respondent, the Superintendent of
\nTaxes. In the prescribed form in respect of tea despatched and carried up to
\nSeptember 30, 1954, under protest. They also paid the tax demanded under
\nprotest. The appellants moved the High Court of judicature in Assam under Art.
\n226 of the Constitution challenging the validity of the said Act and praying
\nfor the issue of a writ of mandamus directing the respondents to forbear from
\ngiving effect to the provisions of the Act and the notification issued under
\nthe Act and\/or a writ of prohibition or any other appropriate writ restraining
\nthem from taking steps under the provisions of the Act. The appellants
\nchallenged the validity of the Act mainly on the grounds that (1) the Act,
\nrules and the notifications under the Act were ultra vires the Constitution,
\nbecause the Act was repugnant to the provisions of Art. 301 of the Constitution
\nas the tax on carriage of tea through the State of Assam had the effect of
\ninterfering with the freedom of trade, commerce and intercourse; (2) that tea
\nbeing a controlled industry under the provisions of the Tea Act XXIX of 1953,
\nthe Union Government alone had the power to regulate the manufacture,
\nproduction, distribution or transport of tea and the jurisdiction of the Assam
\nlegislature was thus completely ousted; (3) that the tax under the Act was
\nnothing but a duty of excise, in substance, though not in form, and was thus an
\nencroachment on the Central legislative field within the meaning of entry 84 of
\nthe Union List. The impugned Act Was also challenged on the ground that it was
\ndiscriminatory and thus void under Art. 14 of the Constitution. The competence
\nof the Assam Legislature to legislate on the subject was also questioned.\n<\/p>\n
3. The respondents opposed those petitions under Art. 226 of the
\nConstitution in the High Court. It was denied by the State that the Act or the
\nrules made thereunder or the notifications issued thereunder were ultra vires
\nthe Constitution or that the Act contravened the provisions of Art. 301 of the
\nConstitution or that it was an encroachment on the sphere of the Union
\nLegislature or was in any was in conflict with the provisions of the Tea Act
\nXXIX of 1953. The case of the respondents was that the Act was in pith and
\nsubstance, a legislation to levy tax on certain classes and types of goods
\ncarried by road or inland waterways, strictly within entry no. 56 of the State
\nList. It was also asserted that the Act was within the legislative competence
\nof the Assam Legislature and was not within the terms of the prohibition
\ncontained in Art. 301 of the Constitution.\n<\/p>\n
4. These petitions were heard by a Special Bench of the Assam High Court,
\nwhich, by its judgment and order dated June 6, 1955, dismissed them holding
\nthat the Act was not unconstitutional. Two separate, but concurring judgments,
\nwere delivered by Sarjoo Prasad, C.J. and Ram Labhaya, J. The Learned Chief
\nJustice, the course of his judgment, held that the Act contemplated imposition
\nof a tax on transport or carriage of goods within the meaning of entry 56 of List
\nII and did not amount the interference with the freedom of trade and commerce
\nwithin the meaning of Art. 301 of the Constitution; that the pith and substance
\nof the impugned act was that is was a taxing legislation which was not directly
\nconcerned with trade and commerce, though it might indirectly entrench on the
\nfield of trade and commerce, and that Art. 301 was not directly concerned with
\ntaxing laws. He also held that the impost levied by the Act was not in the
\nnature of an excise duty and that there was no substance in the contention that
\nit encroached upon entry 84 of the Union List I. It was also held that the
\nimpugned Act did not, in any way, come in conflict with the control of the tea
\nindustry introduced by the Central Legislation, namely, the Tea Act XXIX of
\n1953.\n<\/p>\n
5. Ram Labhaya, J., examined the provisions of the impugned Act in great
\ndetail and came to the conclusion that the element of carriage was expressly
\nmade a condition of liability to tax under the impugned Act and it was,
\ntherefore, distinguishable from a duty of excise and came directly under entry
\n56 of List II. On the crucial question arising in this case, his conclusion was
\nthat taxation per se has not the effect of abridging or curtailing the freedom
\ncontemplated by Art. 301; that Arts. 302 and 304 restrict the powers of
\nParliament and the State Legislatures in the matter of legislation under
\nentries 42 of List I, 26 of List II and 33 of List III and that restrictions
\nproperly so called on the movement of goods and traffic must find their
\njustification from the provisions of Part XIII of the Constitution; that the
\nimpugned Act made provision for taxation which did not directly impinge upon
\nthat freedom of trade, commerce and intercourse within the meaning of Art. 301.
\nHis view also was that in some cases taxation may have the effect of placing
\nrestriction on movement of goods and traffic, and if it has that effect, it
\ncomes within the mischief of Art. 301. In the result, his conclusion was that
\nthe impugned Act in its pith and substance fell within the ambit of entry 56 of
\nlist II. He also examined the terms of the Union legislation, Tea Act No. XXIX
\nof 1953, and came to the conclusion that the impugned Act did not trespass upon
\nthe field of controlled industry of tea. His conclusion with reference to the
\nargument of discrimination based on Art. 14 was that there was no proof
\nforthcoming of any real discrimination between persons and things. With these
\nconclusions Deka, J., the third judge entirely agreed. From the judgment of the
\nHigh Court the appellants have come up in appeal on certificates granted by the
\nHigh Court. The two petitions under Art. 32 of the Constitution were filed on
\nbehalf of two other producers of tea. They raise the same questions as arise
\nfor determination in the three appeals from the decision of the Assam High
\nCourt. They have all been heard together and will be dealt with by a common
\njudgment.\n<\/p>\n
6. Mr. Chatterjee, on behalf of the appellants, contended that the impugned
\nAct imposed fetters on the free flow of trade and commerce in respect of tea
\nand jute, the two commodities dealt with by the Act and, therefore, contravened
\nthe provisions of Art. 301 of the Constitution; that the legislation was beyond
\nthe legislative competence of the Assam Legislature and was not authorised by
\nentry 56 in List II; that the tea industry was a controlled industry as
\ndeclared by Parliament and directly came under entry 52 of List I; that it was
\ncolourable piece of legislation which, in its true effect, was a levy of a duty
\nof excise which could only be done by the Union Legislature, and finally, that
\nit contravened Art. 14 of the Constitution.\n<\/p>\n
7. The Learned Attorney General on behalf of the State of Assam as also of the
\nUnion contended, on the other hand, that taxation simpliciter was not within
\nthe terms of Art. 301. Taxation as such is not a restriction within the meaning
\nof Part XIII. It is an attribute of sovereignty, which is not justiciable. The
\npower to tax is a peculiar legislative function with which the courts are not
\ndirectly concerned and that, therefore, the freedom contemplated by Art. 301
\ndoes not mean freedom from taxation and that taxation is not included within
\nthe connotation of the terms. “Restriction” in the context of Part
\nXIII meant legislation which had the effect of impeding the free flow of goods
\nand traffics by erection of tariff walls, for example, a tariff wall, if
\nerected by a legislature, may be justiciable, but not legislation simply imposing
\na tax for purposes of revenue. He further contended that Part XII of the
\nConstitution is a self contained part dealing with finance etc., even as Part
\nXIII is a self contained part dealing with trade, commerce and intercourse
\nwithin the territory of India. He emphasis that the American and Australian
\ndecision are no guide the decision of the points in controversy in the present
\ncase, was the framework of their respective constitutions was entirely
\ndifferent from the Indian Constitution. Particularly, the Australia
\nConstitution did not contain anything corresponding to Parts III and XII of our
\nConstitution. According to his contention “freedom” in Part XIII
\nmeant freedom from discriminatory taxation and freedom from trade barriers. The
\nAdvocate-General of the several States who appeared in this case supported the
\nview point stressed by the Learned Attorney-General.\n<\/p>\n
8. The most important question that falls to be determined in this batch of
\ncases is whether the impugned Act infringes the provision of Part XIII of the
\nConstitution, with particular reference Art. 301. Part XIII is headed
\n“Trade, Commerce and Intercourse within the Territory of India”.
\nArticle 301, which is the opening article in this Part is in very general
\nterms, which are as under :-\n<\/p>\n
“Subject to the other provisions of this part,
\ntrade, commerce and intercourse throughout the territory of India shall be
\nfree”.\n<\/p>\n
9. It is clear that this Part is not subject to the other provisions of the
\nConstitution and the generality of the words used in Art. 301 is cut down only
\nby the provision of the other Articles of this Part ending with Art 307. It has
\nnot been and it could not be contended that the generality of the expression
\nused on Art. 301 admit of any exception or explanations not occurring in this
\nPart itself, nor has it been contended that trade, commerce and intercourse are
\nsubject to any other fetters. All parties are agreed that trade, commerce and
\nintercourse throughout the territory of India have been emphatically declared
\nby the Constitution to be free, but there is a wide divergence of views of the
\nanswer to the question “free from what ?” It has been contended on
\nbehalf of the appellants that the answer to this question must be that trade,
\ncommerce and intercourse throughout India, shall be free from everything
\nincluding taxation. On the other hand, the contention on behalf of the Union
\nGovernment and the State Government is that the freedom envisaged by Art. 301
\ndoes not include immunity from taxation and that freedom means that there shale
\nbe no trade barriers or tariff walls shutting out commodities, traffic and
\nintercourse between individuals, and no shutting in.\n<\/p>\n
10. In order fully to appreciate the implications of the provisions of Part
\nXIII of the Constitution, it is necessary to bear in mind that history and
\nbackground of those provisions. The Constitution Act of 1935 (Government of
\nIndia Act, 26 Geo. 5, Ch. 2) which envisaged a federal constitution for the
\nwhole of India, including what was then Indian India in certain restrictions
\nBritish India, which could not be fully implemented and which also introduced
\nfull provincial autonomy enacted s. 297 prohibiting certain restrictions on
\ninternal trade in these terms :-\n<\/p>\n
“297. – (1) No Provincial
\nLegislature or Government shall –\n<\/p>\n
(a) by virtue of the entry in
\nthe Provincial Legislature List relating to trade and commerce within the
\nProvince, or the entry in that list relating to the production, supply, and
\ndistribution of commodities, have power to pass any law or take any executive
\naction prohibiting or restricting the entry into, or export from the province
\nof goods of any class or description; or <\/p>\n
(b) by virtue of anything in
\nthis Act have power to impose any tax, cess, toll or due which, as between,
\ngoods manufactured or produced in the Province and similar goods not so
\nmanufactured or produced, discriminates in favour of the former, or which, in
\nthe case of goods manufactured or produced outside the province, discriminates
\nbetween goods manufactured or produced in one locality and similar goods
\nmanufactured or produced another locality.\n<\/p>\n
(2) Any law passed in
\ncontravention of this Section shall, to the extent of the contravention, be
\ninvalid.”\n<\/p>\n
11. It will be noticed that prohibited contained in the section quoted above
\napplied only to Provincial Governments and Provincial Legislature with
\nreference to entries in the Provincial Legislative List relating to trade an
\ncommerce within the Province and to production, supply and distribution
\ncommodities. That section dealt with prohibitions or restrictions in respect of
\nimport into or export from a Province, of goods generally. It also dealt with
\nthe power to impose taxes etc. and prohibited discrimination against goods
\nmanufactured or produced outside a Province or goods produced in different
\nlocalities. Part XIII of the constitution has introduced all those
\nprohibitions, not only in respect of State Legislatures, but of Parliament
\nalso. In other words, Part XIII enlarges the scope of the inhibitions and lays
\ndown the limits within which the Union Parliament or a State Legislature may
\nlegislate with reference to trade, commerce and intercourse inter-State,
\nintra-State and throughout the territory of India.\n<\/p>\n
12. In this connection it has got to be remembered that before the
\ncommencement of the Constitution about two-third of India was directly under
\nBritish rule and was called ‘British India’ and the remaining about one third
\nwas being directly ruled by the Princes and was known as ‘Native States’. There
\nwere a large number of them with varying degrees of sovereignty vested in them.
\nThose rulers had, broadly speaking, the trappings of a Sovereign State with
\npower to impose taxes and to regulates the flow of trade, commerce and
\nintercourse. It is a notorious fact that many of them had erected trade
\nbarriers seriously impeding the free flow of trade, commerce and intercourse,
\nnot only shutting out but also shutting in commodities meant for mass
\nconsumption. Between the years 1947 and 1950 almost all the Indian States
\nentered into managements with the Government of India and ultimately merged
\ntheir individualities into India tax one political unit, with the result that
\nwhat was called British British India, broadly speaking, became under the
\nConstitution, Part A States, and subject to certain exceptions not relevant to
\nour purpose, the native States became Part B States. We also know that before
\nthe Constitution introduced the categories of Part A States, Part B States and
\nPart C States (excluding Part D relating to other territories), Part B Stated themselves,
\nbefore their being constituted into so many units, contained many small States,
\nwhich formed themselves into Unions of number of States, and had such trade
\nbarriers and customs posts, even inter se. But even after the merger, the
\nConstitution had to take notice of the existence of trade barriers an therefore
\nhad to make transitional provisions with the ultimate objective of abolishing
\nthem all. Most of those Native States, big or small, had their own taxes,
\ncases, tolls and others imposts and duties meant not only for raising revenue,
\nbut also as trade barriers and tariff walls. It was in the back ground of these
\nfactors and circumstances that the Constitution by Art. 301 provided for the
\nabolition of all those trade barriers and tariff walls. When for the first time
\nin the history of India the entire territory within the geographical boundaries
\nof India, minus what became Pakistan, was knit into one political unit, it was
\nnecessary to abolish all those trade barriers and custom posts in the interest
\nof national solidarity, economic and cultural unity as also of freedom of
\ntrade, commerce intercourse.\n<\/p>\n
13. It is in the background of those facts an circumstances that we have to
\ndetermine the ambit of the freedom contemplated by Art. 301. That Article envisages
\nfreedom of trade and commerce with reference to different parts of India as
\nalso freedom of movement of individuals in relation to their trade and other
\nactivities. Hence, Art. 301 has reference not only to trade an commerce, a
\nordinarily understood in common parlance, by also in relation to individuals
\nwho have to over with their goods and commodities throughout the length and
\nbreadth of the country. Movement of traffic in goods an commodities as also of
\npersons can be by railway or airways, by road or by in land waterways etc.
\ncarriage of goods and passengers by railway, by sea or by air or by national
\nwaterways so covered by entry 30 of List I and taxes on railway fares and
\nfreights and terminal taxes on goods or passengers carried by railway, sea or
\nair come under the purviews of entry 89 in the same List. On the other hand,
\ntaxes on goods and passengers carried by road or in land waterways come under
\nentry 56 of List II (State List). It will thus be seen that the Constitution
\nmakers contemplated taxes on goods and passengers to be imposed by the
\nparliament on journey is covered by railway or by sea or by air; and by State
\nLegislatures on journeys by road or inland waterways. The power to tax is
\ninherent in sovereignty. The sovereign State, in some cases the Union, in other
\ncases the State, has the inherent power to impose taxes in order to raise
\nrevenue for purposes of State. Such a sovereign power ordinarily is not
\njusticiable, simply because the State in its legislative department has to
\ndetermine the policy and incidence of taxation. It is the State which
\ndetermines, through the Legislature, what taxes to impose, on whom and to what
\nextend. The judicial department of the State is not expected to deal with such
\nmatters, because it is not for the courts to determine the policy and incidence
\nof taxation. This power of the State to raise finances for Government purposes
\nhas been dealt with by Part XII of the Constitution, which contains the total
\nprohibition of levy or collection of tax, except by authority of law (Art.\n<\/p>\n
265). This Part also deals with the distribution of revenue between the Union
\nand the States. It does not clearly demarcate the taxing authority as between
\nthe Union and the States and therefore had to indicate in great detail what taxes
\nshall be levied for the benefit of the Union for the benefit of the States and
\nwhat taxes may be levied and collected by the union or for the benefit of the
\nStates and the principle according to which those revenues have to be
\ndistributed amongst the constituent states of the Union. In short, Part XII is
\na self contained series of provisions relating to the finances of the Union and
\nof the States and their inter relation and adjustments (ignoring the provisions
\nin Chapter 2 of that pay relating to borrowing and Chapter 3 relating to
\nproperty contracts etc.). Likes Part XIII, Part XII also is not expressed to be
\nsubject to the other provisions of the Constitution. Hence, both Parts XII and
\nXIII are meant to be self contained in their respective fields. It cannot,
\ntherefore, be said that the one is subject to the other. But it has been argued
\non behalf of the appellants that the provisions of Art. 304 indicate that
\ntaxation is within the purviews of the overriding provisions, as they have been
\ncharacterised, of Art. 301. But a close examination of the provisions of Art.
\n304 would show that it is divided into two parts, viz., (1) dealing with
\nimposition of discriminatory taxes by a state Legislature; and (2) relating to
\nimposition of reasonable restrictions, thus showing that imposition of taxes,
\ndiscriminatory or otherwise, is a class part from, imposition of reasonable
\nrestrictions on freedom of trade, commerce and intercourse. The second part of
\nArt. 304 dealing with imposition of reasonable restrictions on freedom of
\ntrade, commence and intercourse by a States Legislature is on a line with the
\nimposition by Parliament of such restricts between one State and another or
\nwithin any part of the territory of India in public interest, contained in Art.\n<\/p>\n
302. The provisions of Art. 303 further make it clear that the giving of
\npreference to one State over another or discrimination between one State and
\nanother are clearly within the purview of Part XIII that is to say, they are
\ncalculated it impede the freedom of trade, commerce and intercourse. There is
\nprohibition against Parliament as also against the Legislature of State making
\nany law giving preference to one State one another or making or authorising the
\nmaking of any discrimination between one State an another. But the most
\nsignificant words in connection with giving preference or making discrimination
\nas envisaged in Art. 303 are with reference to “any entry relating to
\ntrade and commerce in any of the lists in the Seventh Schedule” that is to
\nsay, entry 42 in List I, entry 26 in List II’ and entry 33 in List III of the
\nSeventh Schedule. Hence, any legislation under those entire which has the
\neffect of directly interfering with trade, commerce and intercourse being free
\nthroughout the territory of India has to be struck down as infringing the
\nprovisions of Art. 301. But in this matters also the Constitution makers had
\nbefore them situations of emergency, say for example, created by brought or
\nover flooding resulting in scarcity of commodities like foodgrains etc. In such
\na situation, Parliament has been armed with the power to grant preference to
\none State over another or to make a discrimination as between two and more
\nStates if the Law dealing with such a situation declares with it is necessary
\nto do so in order to deal with an emergency like the one referred to above. In
\nthis connection it may not be emphasised that Art. 303 has to been very
\naccurately worded inasmuch as the non obstante clause, with which the Article
\nopens, has reference only to Art.\n<\/p>\n
302, which empowers Parliaments to impose by
\nlaw restrictions on the freedom of trade, commerce or intercourse, inter-State
\nor intra-State in public interest. But the non obstante clause is immediately
\nfollowed by reference not only to Parliament but also to the Legislature of a
\nState which are armed with the power of giving preference or making
\ndiscrimination as aforesaid in respect of the entries relating to trade and
\ncommerce in any of the lists in the Seventh Schedule. Here, no reference is
\nmade to intercourse. But as the present controversy is not concerned with the
\nfreedom of inter course, a distinguished from the freedom of trade and
\ncommerce, no more need be said about that omission.\n<\/p>\n
14. Learned counsel for the appellants vehemently argued that the freedom,
\ncontemplated by Art. 301 must be construed in its most comprehensive sense of
\nfreedom from all kinds of impediments, restraints and trade barriers, including
\nfreedom from all taxation. In my opinion, there is no warrant for such an
\nextreme position. It has to be remembered that trade, commerce an intercourse
\ninclude individual freedom of movement of every citizen of India from State to
\nState, which is also guaranteed by Art. 19(1)(d) of the Constitution. The three
\nterms used in Art. 301 include not only free buying and selling, but also the
\nfreedom of bargain and contract and transmission of information relating to
\nsuch bargains and contract as also transport of goods and commodities for the
\npurposes of production, distribution and consumption in all their aspects, that
\nis to say, transportation by land, air or water. They must also include
\ncommerce not only in goods and commodities, but also transportation of men and
\nanimals by all means of transportation. Commerce would thus include dealings
\nover the telegraph telephone or wireless and every kind of contract relating to
\nsale, purchase, exchange etc. of goods and commodities.\n<\/p>\n
15. Viewed in this all comprehensive sense taxation on trade, commerce and
\nintercourse would have many ramifications and would cover almost the entire
\nfield of public taxation, both in the Union and in the State Lists. It is
\nalmost impossible to think that the makers of the Constitution intended to make
\ntrade, commerce and intercourse free from taxation in that comprehensive sense.
\nIf that were so, all laws of taxation relating to sale and purchase of foods on
\ncarriage of goods an commodities, men and animals, from one place to another,
\nboth inter-State and intra-State would come within the purview of Art. 301 and
\nthe proviso to Art. 304(b) would make it necessary that all bills or Amendments
\nor pre-existing laws shall have to go thereof the gamut prescribed by that
\nproviso. That will be putting too great an impediment to the power of taxation
\nvested in the States and reduce the States’ limited sovereignty under the
\nConstitution to a mere fiction. That extreme position has, therefore, to be
\nrejected as unsound.\n<\/p>\n
16. In this connection, it is also pertinent to bear in mind that all
\ntaxation is not necessarily an impediment or a restraint in the matter or
\ntrade, commerce and intercourse. Instead of being such impediments or
\nrestraints, they may, on the other hand, provide the wherewithals also to
\nimprove different kinds of means of transport, for example, in cane growing
\nareas, unless there are good roads, facility for transport of sugarcane from
\nsugarcane fields to sugar mills may be wholly lacking or insufficient. In order
\nto make new roads as also to improve old ones, cess on the grower of cane or
\nothers interested in the transport of this commodity has to be imposed, and has
\nbeen known in some parts of India to have been imposed at a certain rate per
\nmaund or ton of sugarcane transported to sugar factories. Such an imposition is
\na tax on transport of sugarcane from one place to another, either inter-State
\nor intra-State. It is the tax thus realised that makes it feasible for opening
\nnew means of communication or for improving old ones. It cannot therefore, be
\nsaid that taxation in every case must mean an impediment or restraint against
\nfree flow of trade and commerce. Similarly, for the facility of passengers and
\ngoods by motor transport or by railway, a surcharge on usual fares or freights
\nis levied, or may be levied in future. But for such a surcharge, improvement in
\nthe means of communication may not be available at all. Hence, in my opinion,
\nit is not correct to characterise a tax on movement of goods or passengers as
\nnecessarily connoting an impediment, or a restraint, in the matter of trade and
\ncommerce. That is another good reason in support of the conclusion that
\ntaxation is not ordinarily included within the terms of Art. 301 of the
\nConstitution.\n<\/p>\n
17. In my opinion, another very cogent reason for holding that taxation
\nsimpliciter is not within the terms of Art. 301 of the Constitution is that the
\nvery connotation of taxation is the power of the State to raise money for
\npublic purposes by compelling the payment by persons, both natural and
\njuristic, of monies earned or possessed by them, by virtue of the facilities
\nand protection afforded by the State. Such burdens or imposts, either direct or
\nindirect, are in the ultimate analysis meant as a contribution by the citizens
\nor persons residing in the State or dealing with the citizens of the State, for
\nthe support of the Government, with particular reference to their respective
\nabilities to make such contributions. Thus public purpose is implicit in every
\ntaxation, as such. Therefore, when Part XIII of the Constitution speaks of
\nimposition of reasonable restrictions in public interest, it could not have
\nintended to include taxation within the generic term “reasonable
\nrestrictions”. This Court has laid down in the case of
\nRamjilal v. Income
\nTax Officer, Mohindargarh<\/a> ([1951] S.C.R. 127, 136) that imposition and
\ncollection of taxes by authority of law envisaged by Art. 265 is outside the
\nscope of the expression “deprivation of property” in Art. 31(1) of
\nthe Constitution. Reasonable restrictions as used in Part III or Part XIII of
\nthe Constitution would in most cases be less than total deprivation of property
\nrights. Hence, Part XII dealing with finance etc. as already indicated, has
\nbeen treated as a Part dealing with the sovereign power of the State to impose
\ntaxes, which must always mean imposing burdens on citizens and others, in
\npublic interest. If a law is passed by the Legislature imposing a tax which in
\nits true nature and effect is meant to impose an impediment to the free flow of
\ntrade, commerce and intercourse, for example, by imposing a high tariff wall,
\nor by preventing imports into or exports out of a State, such a law is outside
\nthe significance of taxation, as such, but assumes the character of a trade
\nbarrier which it was the intention of the Constitution makers to abolish by
\nPart XIII. The objections against the contention that taxation was included
\nwithin the prohibition contained in Part XIII may thus be summarised : (1)
\nTaxation, as such, always implies that it is in public interest. Hence, it
\nwould be outside particular restrictions, which may be characterised by the
\ncourts as reasonable and in public interest. (2) The power is vested in a
\nsovereign State to carry on Government. Our Constitution has laid the
\nfoundations of a welfare State, which means very much expanding the scope of
\nthe activities of Government and administration, thus making it necessary for
\nthe State to impose taxes on a much large scale and in much wider fields. The
\nlegislative entries in the three Lists referred to above empowering the Union
\nGovernment and the State Governments to impose certain taxations with reference
\nto movements of goods and passengers would be rendered ineffective, if not
\notiose, if it were held that taxation simpliciter is within the terms of Art.\n<\/p>\n
301. (3) If the argument on behalf of the appellants were accepted, many taxes,
\nfor example, sales tax by the Union and by the States, would have to go through
\nthe gamut prescribed in Arts. 303 and 304, thus very much detracting from the
\nlimited sovereignty of the States, as envisaged by the Constitution. (4) Laws
\nrelating to taxation, which is essentially a legislative function of the State,
\nwill become justiciable and every time a taxation law is challenged as
\nunconstitutional, the State will have to satisfy the courts – a course which
\nwill seriously affect the division of powers on which modern constitutions,
\nincluding ours, are based. (5) Taxation on movement of goods and passengers is
\nnot necessarily an impediment.\n<\/p>\n
18. That conclusion leads to a discussion of the other extreme position that
\ntaxation is wholly out of the purview of Art. 301. That extreme position is
\nequally untenable in view of the fact that Art. 304 contains, and Art. 306,
\nbefore it was repealed in 1956, contained, reference to taxation for certain
\npurposes mentioned in those Articles. But Art. 306, which now stands repealed,
\ncontained references to tax or duty on the import of goods into one State from
\nanother or on the exports of goods from one State to another. Such imposts were
\nreally in the nature of impediments to the free flow of goods and commodities
\non account of customs barriers, which it was the intention of Art. 301 to
\nabolish. Similarly, Art. 304 while recognising the power of a State Legislature
\nto tax goods imported inter-State, insists that a similar tax is imposed on
\ngoods manufactured or produced within the State. The Article thus brings out
\nthe clear distinction between taxation as such for the purpose of revenue and
\ntaxation for purposes of making discrimination or giving preference, both of
\nwhich are treated by the Constitution as impediments to free trade and commerce.
\nIn other words, so long as the impost was not in the nature of an impediment to
\nthe free flow of goods and commodities between one State and another, including
\nin this expression Union territories also, its legality was not subject to an
\nattack based on the provisions of Part XIII. But that does not mean that State
\nLegislatures derive their power of taxation by virtue of what is contained in
\nArt. 304. Article 304 only left intact such power of taxation, but contained
\nthe inhibition that such taxes shall not be permitted to have the effect of
\nimpeding the free flow of goods and commodities.\n<\/p>\n
19. Article 301, with which Part XIII commences, contains the crucial words
\n“shall be free” and provides the key to the solution of the problems
\nposed by the whole Part. The freedom declared by this Article is not an
\nabsolute freedom from all legislation. As already indicated, the several
\nentries in the three Lists would suggest that both Parliament and State
\nLegislatures have been given the power to legislation respect of trade,
\ncommerce and intercourse, but it is equally clear that legislation should not
\nhave the effect of putting impediments in the way of free flow of trade and
\ncommerce. In my opinion, it is equally clear that the freedom envisaged by the
\narticle is not an absolute freedom from the incidence of taxation in respect of
\ntrade, commerce and intercourse, as shown by entries 89 and 92 A in List I,
\nentries 52, 54 and 56 to 60 in List II and entry 35 in List III. All these
\nentries in terms speak of taxation in relation to different aspects of trade,
\ncommerce and intercourse. The Union and State Legislature, therefore, have the
\npower to legislate by way of taxation in respect of trade, commerce and
\nintercourse, so as to erect trade barriers, tariff walls or imposts, which have
\na deleterious effect on the free flow of trade, commerce and intercourse. That
\nfreedom has further been circumscribed by the power vested in Parliament or in
\nthe Legislature of a state to impose restrictions in the public interest. Parliament
\nhas further been authorised to legislate in the way of giving preference or
\nmaking discrimination in certain strictly limited circumstances indicated in
\nclause (2) of Art. 303. Thus, on a fair construction of the provisions of Part
\nXIII, the following propositions emerge : (1) trade, commerce, and intercourse
\nthroughout the territory of India are not absolutely free, but are subject to
\ncertain powers of legislation by Parliament or the Legislature of a State; (2)
\nthe freedom declared by Art. 301 does not mean freedom from taxation
\nsimpliciter, but does mean freedom from taxation which has the effect of
\ndirectly pending the free flow of trade, commerce and intercourse; (3) the
\nfreedom envisaged in Art. 301 is subject to non-discriminatory restrictions imposed
\nby Parliament in public interest (Art.\n<\/p>\n
302); (4) even discriminatory or
\npreferential legislation may be made by Parliament for the purpose of dealing
\nwith an emergency like a scarcity of goods in any part of India (Art. 303(2));
\n(5) reasonable restrictions may be imposed by the Legislature of a State in the
\npublic interest (Art. 304(b)); (6) non-discriminatory taxes may be imposed by
\nthe Legislature of a State on goods imported from another State or other
\nStates, if similar taxes are imposed on goods produced or manufactured in that
\nState (Art. 304(a)); and lastly (7) restrictions imposed by existing laws have
\nbeen continued, except in so far as the President may by order otherwise direct
\n(Art. 305).\n<\/p>\n
20. After having discussed the arguments for and against the proposition
\nthat Art. 301 includes within its large sweeps taxation simpliciter, I now
\nproceed to discuss the terms of the impugned Act in order in order to find out
\nwhether in the light of the discussion above, any of its provisions are liable
\nto be struck down as unconstitutional, because they infringe Art. 301, as
\ncontended on behalf of the appellants. The Act, as the preamble shows, is
\nintended to “impose a tax on certain goods carried by road or inland
\nwaterways”. “Dealer” has been defined in s. 2(4) as under :-\n<\/p>\n
“‘Dealer’ means a person who owns jute in bales
\nbefore it is carried by motor vehicle, cart, trolley, boat, animal and human
\nagency or any other means except railways or airways and includes his
\nagent.”\n<\/p>\n
21. Producer has been defined by clause (12) of s. 2 as follows :-\n<\/p>\n
“‘Producer’ means a producer of tea and includes
\nthe person in charge of the garden where tea is produced”.\n<\/p>\n
22. Section 3, which is the charging section, provides that manufactured tea
\nin chests carried by motor vehicle, etc., except railways and airways, shall be
\nliable to a tax at a certain rate per pound of such tea and that this tax shall
\nbe realised from the producer. It also provides that jute carried in bales by
\nmotor vehicle, etc., except railways and airways, shall be liable to a tax at a
\ncertain rate per maund on such jute, which shall be realised from the dealer.
\nIt is not necessary to set out the rate of taxes aforesaid, because no argument
\nwas advanced to the effect that they were oppressive or excessive. The tax on
\nmanufactured tea in chests is to be paid by the producer, which term includes
\nthe person in charge of the garden where tea is produced. This provision has
\noccasioned the argument that it is an excise duty in the garb of a tax and will
\nbe dealt with later in the course of this judgment. The tax on jute carried in
\nbasis made realisable from the dealer which means person who owns the jute in
\nbales. Section 6 lays down the taxing authorities. Section 7 requires every
\nproducer and dealer to furnish returns of such tea or such jute as have been
\nmade liable to tax under s. 3, as aforesaid. Section 8 makes provision for
\nlicensing of balers, which means persons who own or possess a pressing machine
\nfor the compression of jute into bales. Section 9 lays down the procedure of
\nassessment and s. 10 the procedure for cancellation of assessment in certain
\ncircumstances. Section 11 lays down the procedure for assessment in such cases
\nas have escaped assessment or there has been an evasion of the tax. It is not necessary
\nto refer to the other provisions of the Act, because they are not relevant to
\nthe arguments advanced at the Bar. It will be seen from the bare summary of the
\nrelevant provisions of the statute that it is a taxing statute simpliciter
\nwithout the least suggestion even of any attempt at discrimination against
\ndealers and producers outside the State of Assam or of preference in favour of
\nthose inside the State. On the face of it, therefore, the Act does not suffer
\nfrom any of the vices against which Part XIII of the Constitution was intended.
\nIt has not been suggested that the Act imposes a heavy burden on the dealer or
\nthe producer as the case may be. On the terms of the Statute, it cannot be said
\nthat it is intended to put obstacles or impediments in the way of free flow of
\ntraffic in respect of jute and tea. On the face of it, it would not be in the
\ninterest of the State of Assam to put any such impediments, because Assam is a
\nlarge producer of those commodities and the market for those commodities is mainly
\nin Calcutta. In those circumstances, it is difficult, if not impossible, to
\ncome to the conclusion that the Act comes within the purview of Art. 301 of the
\nConstitution. If that is so, no further consideration arising out of the other
\nprovisions of Part XIII of the Constitution calls for any decision.\n<\/p>\n
23. Having thus disposed of the main ground of attack against the
\nconstitutionality of the Act based on Art. 301 of the Constitution, it is
\nnecessary to advert to the other contentions raised on behalf of the
\nappellants. It has been contended that the Act is beyond the legislative
\ncompetence of the Assam Legislature. We have, therefore to address ourselves to
\nthe question whether or not it is covered by any of the entries in List II of
\nthe Seventh Schedule. Entry 56, in its very terms, “Taxes on goods and
\npassengers carried by rail or in inland waterways”, completely covers the
\nimpugned Act. There is no occasion in this case to take recourse to the
\ndoctrine of pith and substance, inasmuch as the Act is a simple piece of taxing
\nstatute meant to tax transport of goods, in this case jute and tea, by road or
\non inland waterways. In my opinion, it is a very simple case of taxation
\ncompletely covered by entry 56, but the argument against the competence of the
\nAssam Legislature has been sought to be supported by the subsidiary contention
\nthat though in form it is a tax on the transport of goods within the terms of
\nentry 56, in substance it is an imposition of excise duty within the meaning of
\nentry 84 in List I of the Seventh Schedule, but, in my opinion, there is no
\nsubstance in this contention for the simple reason that so long as jute or tea
\nis not sought to be transported from one place to another, within the State or
\noutside the State, no tax is sought to be levied by the Act. It is only when
\nthose goods are put on a motor truck or a boat or a steamer or other modes of
\ntransport contemplated by the Act, that the occasion for the payment of tax
\narises. A similar argument was advanced in the case of
\nThe Tata Iron &
\nSteel Co. Ltd. v. The State of Bihar<\/a> ([1958] S.C.R. 1355), and Das, C.J.,
\ndelivering the majority judgment of the Court, disposed of the argument that
\nthe tax in that case was not on sale of goods, but was, in substance, a duty of
\nexcise, in these terms :\n<\/p>\n
“This argument, however, overlooks the fact that
\nunder clause (ii) the producer or manufacturer became liable to pay the tax not
\nbecause he produced or manufactured the goods, but because he sold the goods.
\nIn other words the tax was laid on the producer or manufacturer only qua seller
\nand not qua manufacturer or producer as pointed out in Boddu Paidanna’s case
\n(1942) F.C.R. 290. In the words of their Lordships of the Judicial Committee in
\nGovernor General v. Province of Madras, 72 I.A. 91 at p. 103, ‘a duty of excise
\nis primarily a duty levied on a manufacturer or producer in respect of the
\ncommodity manufactured or produced. It is a tax on goods not on sales or the
\nproceeds of sale of goods’. If the goods produced or manufactured in Bihar were
\ndestroyed by fire before sale the manufacturer or producer would not have been
\nliable to pay any tax under s. 4(1) read with s. 2(g), second proviso. As
\nGwyer, C.J., said in Boddu Paidanna’s case, supra, at p. 102, the manufactures
\nor producer would be liable, if at all, to a sales-tax because he sells and not
\nbecause he manufactures or produces; and he would be free from liability if he
\nchose to give away everything which came from his factory’.” (See p. 1369
\nof the Report).\n<\/p>\n
24. The observations quoted above completely cover the present controversy.
\nThe Legislature has chosen the dealer or the producer as the convenient agency
\nfor collection of the tax imposed by s. 3, but the occasion for the imposition
\nof the tax is not the production or the dealing, but the transport of those
\ngoods. It must, therefore, be held that the Act does what it sets out to do,
\nnamely to impose a tax on goods carried by road or on inland waterways.\n<\/p>\n
25. Another line of argument directed to the same end, namely, of attacking
\nthe competence of the Assam Legislature was that it impinged on the provisions
\nof the Tea Act, XXIX of 1953. It was argued that the tea industry was a
\ncontrolled one within the competence the Union Legislature. The Tea Act declared
\nthat it was expedient in the public interest that the Union should take the tea
\nindustry under its control. With a view to controlling the industry in public
\ninterest the Act established the Tea Board (s. 4) whose function it was, inter
\nalia, to regulate the production and extent of cultivation of tea, of improving
\nthe quality of tea, of promoting co-operative effort among growers and
\nmanufacturers of tea, etc., etc. (s. 10). With the objectives aforesaid,
\nChapter III lays down provisions for the control over the extension of tea
\ncultivation and Chapter IV deals with provisions for control over the export of
\ntea and tea seed. Chapter V lays down provisions for the imposition of duty of
\ncustoms on export of tea outside India and the proceeds of the cess thus levied
\nhave to be credited to the Consolidated Fund of India. Out of that Fund, called
\nthe Tea Fund, the expenses of the establishment created by the Tea Act have to
\nbe met. The rest of the provisions of the Act are meant to implement the main
\nprovisions of the Act. There are no provisions of the Tea Act which can be said
\nto come into conflict with the provisions of the impugned Act. In our opinion,
\ntherefore, this ground of attack also fails.\n<\/p>\n
26. A third line of argument against the constitutionality of the Act was
\nthat it is extra-territorial in its operation in so far as it purports to tax
\nproducers and dealers who may not be residents of the State of Assam. This
\nargument has been advanced in the interest of the appellants and petitioners
\nfrom West Bengal, who have to carry their goods by road or on waterways passing
\nthrough the territory of Assam, from one part of West Bengal to another. So far
\nas this group of cases is concerned, the main grievance of the appellants is
\nthat no doubt their goods have to pass through a portion of the territory of
\nAssam, but the goods have been produced, packed and transported as merchandise
\nfrom one part of West Bengal to another part of the same State. It is not
\ndenied that there is some real and substantial nexus to support the taxing
\nstatute, but it is contended that relatively to the whole journey to be covered
\nby the merchandise, the portion of the territory of Assam covered in that
\njourney is very small. But in judging the validity of a legislation with
\nreference to the contention based on extra-territoriality it is not relevant to
\nconsider the question of the proportion between the extent of territorial nexus
\nto the whole length of the journey. If goods belonging to or carried by the
\nappellants traverse any of the territory of Assam the taxation cannot be
\nsuccessfully assailed on this ground, once it is held that it was within the
\nlegislative competence of the Legislature imposing the tax in question. See in
\nthis connection the observations of this Court in
\nThe Tata Iron and Steel Co.\n<\/p>\n
Ltd. v. The State of Bihar ([1958] S.C.R. 1353) at pp. 1369 to 1371, where Das,
\nC.J., speaking for the majority of the Court, has examined the theory of nexus
\nwith reference to a large body of case-law bearing on the question. I respectfully
\nadopt that line of reasoning and hold that the Act does not suffer from the
\nvice of extra-territoriality. It is true that the incidence of taxation may
\nfall upon persons not ordinarily residing in the State of Assam or upon goods
\nnot produced in Assam, but, in this connection, it is enough to point out that
\nwhat has been said above in respect of the tax being in the nature of a duty of
\nexcise applies which equal force to this part of the argument also. The tax is
\nleviable from such goods as traverse in their journey any part of the territory
\nof Assam, not because the owners or the producers are residents of Assam, but
\nbecause the waterway or the roadway situate in the territory of Assam has been
\nutilised for a portion of the journey. It is clear, therefore, that there is no
\ninfirmity attaching to the Act on the ground that it is extra-territorial in
\nits operation.\n<\/p>\n
27. It only remains to consider the last ground of attack, namely, that the
\nAct is discriminatory in character and thus infringes Art. 14 of the
\nConstitution. In this connection, it has been argued that only tea in chests
\nand jute in bales have been selected for taxation, leaving the same commodities
\nin other hands or in other forms, or in other receptacles free from the
\nincidence of the taxation in question. The Legislature has chosen to tax the
\ntransport over land or over waterways of those commodities, in chests or in
\nbales, apparently because those are the most convenient and usually employed
\nmethods of packing for carriage of those goods to long distances. Hence, it is
\nnot a case of choosing for the purposes of taxation one class of goods in
\npreference to another class of the same variety. The Legislature was out to tax
\nthe transport of those commodities and must be presumed to have selected the
\nmost convenient way of doing it. It has not been suggested that any large
\namount of such commodities is transported over long distances, otherwise than
\nin chests or bales. Furthermore, if the Legislature has to tax something, it is
\nnot bound to tax that thing in all its forms and varieties. It may pick and
\nchoose with a view to raising such amount of revenue as it sets out to do. It
\nis not for the courts to say that there were other ways of doing the thing or
\nthat all forms and varieties should have been brought under the scope of the
\ntaxation. It is open to the Legislature to impose a tax in a form and in a way
\nwhich it deems most convenient for the purposes of collection and calculation
\nof the tax.\n<\/p>\n
28. As all the grounds of attack raised against the constitutionality of the
\nAct fail, the appeals and the petitions, in my opinion, should be dismissed
\nwith costs.\n<\/p>\n
29. I have deliberately refrained from making references to or relying upon
\ndecisions from other countries like the U.S.A. or Australia, because the cases
\ndecided in those countries cannot be any guide for the solution of the problems
\nraised in this case inasmuch as the framework of the Constitution in those
\ncountries is not in pari materia with ours. Any precedents deciding cases on
\nthe construction of statutes, which are worded differently from ours, cannot,
\nin my opinion, be a safe guide for the decision of controversies raised in
\nterms of our Constitution.\n<\/p>\n
30. I regret to have to differ from the majority of the Court, but my only
\njustification for taking a different view is that my reading of Part XIII of
\nthe Constitution does not justify the inference that taxation simpliciter is
\nwithin the terms of Art. 301 of the Constitution.\n<\/p>\n
Gajendragadkar, J.\n<\/p>\n
31. The vexed question posed by the construction of the provisions of Part
\nXIII of the Constitution which has been incidentally discussed in some reported
\ndecisions of this Court falls to be considered in the present group of cases.
\nThis group consists of three appeals brought to this Court with a certificate
\nissued by the Assam High Court under Art. 132 and two petitions filed under
\nArt. 32. The three appellants are tea companies, two of which (Civil Appeal No.
\n126 of 1958 and Civil Appeal No. 128 of 1958) carry on their trade of growing
\ntea in the District of Sibsagar in Assam while the third (Civil Appeal No. 127
\nof 1958) carries on its trade in Jalpaiguri in West Bengal. All the three
\ncompanies which would be described hereafter as the appellants carry their tea
\nto Calcutta in order that it may be sold in the Calcutta market for home
\nconsumption or export outside India. Tea produced in Jalpaiguri has also to
\npass through a few miles of territory in the State of Assam, while the tea
\nproduced in Assam has to go all the way through Assam to reach Calcutta. It
\nappears that a very small proportion of tea produced and manufactured in Assam
\nfinds a market in Assam itself; bulk of it finds its custom in the market at
\nCalcutta. Besides the tea which is carried by rail substantial quantity has to
\ngo by road or by inland waterways and as such it becomes liable to pay the tax
\nleviable under the Assam Taxation (on goods carried by Roads or Inland
\nWaterways) Act, 1954 (Act XIII of 1954) (hereafter called the Act). The Act has
\nbeen passed by the Assam Legislature in order to provide for the levy of a tax
\non certain goods carried by road or inland waterways in the State of Assam and
\nit has received the assent of the governor on April 9, 1954. On behalf of the
\nState of Assam, which will be described hereafter as respondent, its officers
\nrequired the appellants to comply with the several requirements imposed by the
\nAct, and made tax demands on them in respect of the tea carried by them. The
\ntax thus demanded was paid by the appellants under protest, and soon thereafter
\npetitions were filed in the Assam High Court under Art. 226 challenging the
\nvalidity of the Act as well as the tax demands made by the officers of the
\nrespondent. By their respective petitions the appellants prayed that a writ of
\nmandamus should issue directing the respondent and its officers to forbear from
\ngiving effect to the provisions of the Act and from otherwise enforcing it
\nagainst the appellants. The petitioners also claimed alternatively a writ of
\nprohibition or any other appropriate writ restraining the respondent and its
\nofficers from enforcing the Act against the appellants. That is how the
\nvalidity of the Act cam before the Assam High Court for judicial scrutiny.\n<\/p>\n
32. The appellants challenged the vires of the Act on several grounds. The
\nprincipal ground, however, was that the Act had violated the provision of Art.
\n301 of the Constitution and since it did not comply with the provisions of Art.
\n304(b) it was ultra vires. It was also urged that tea was a controlled industry
\nunder the provisions of Act 29 of 1953, and so it was the Union Government
\nalone which was competent to regulate the manufacture, production, distribution
\ntransport of the said commodity; that being so the Assam Legislature was not
\ncompetent to pass the Act. The validity of the Act was further challenged on
\nthe ground that, through the Act purported to have been passed under Entry 56
\nof list II, in substance and in reality it was a duty of excise and as such it
\ncould be enacted only under Entry 84 of List I. According to the appellants the
\nAct also suffered from the vice that it was violative of the fundamental right
\nof equality before the law guaranteed by Art. 14.\n<\/p>\n
33. The correctness of these contentions was disputed by the respondent. It
\nurged that the Act was perfectly within the competence of the Assam Legislature
\nunder Entry 56 of List II and that the provisions of Part XIII were wholly
\ninapplicable to it. The respondent further pleaded that Art. 14 had not been
\nviolated and that there was no substance in the argument that a controlled
\nindustry it is only the Union Government which could deal with it or that in
\nreality the act had imposed a duty of excise.\n<\/p>\n
34. The petitions filed by the appellants were heard by a Special Bench of
\nthe Assam High Court. All the pleas raised by the appellants were rejected by
\nSarjoo Prasad, C.J. and Ram Labhaya, J., who delivered separate by concurring
\njudgments. The appellants then applied for and obtained a certificate from the
\nHigh Court under Art. 132; that is how the three appeals have come to this
\nCourt, and they raise for our decision all the points which were argued before
\nthe High Court. Naturally the principal contention which has been urged before
\nus at length enters round the applicability of Part XIII.\n<\/p>\n
35. The two petitions filed under Art. 32 raise substantially the same
\nquestion. The petitioners are tea companies which carry on the trade of growing
\nand manufacturing tea in Jalpaiguri in West Bengal. The respondent has
\nattempted to subject the petitioners to the provisions of the Act, and the
\npetitioners have challenged the authority of the respondent to levy a tax
\nagainst them under the Act on the ground that the Act is ultra vires. Since the
\nprincipal question raised in these appeals appeared to be of considerable
\nimportance in which other States may also be interested we directed that notice
\nshould be issued to the Attorney-General of India and the Advocates-General in
\nall the States of India. Accordingly the Attorney General appeared before us
\nand the States of Bihar, Madras, Punjab, Rajasthan and Uttar Pradesh have also
\nbeen heard.\n<\/p>\n
36. The challenge to the vires of the Act on the ground that it contravenes
\nArt. 301 necessarily raises the question about the construction of the relevant
\nprovisions is the said Part. Art. 301 with which Part XIII begins provides that
\n“subject to the other provisions of this Part trade, commerce and
\nintercourse throughout the territory of India shall be free”. The
\nappellants contend that this provision imposes a limitation on the Legislature
\npower of the State Legislature as well as the Parliament, and the vires of the
\nAct will have to be judged on that basis. The words used in Art. 301 are wide
\nand unambiguous and it would be unreasonable to exclude from their ambit a
\ntaxing law which restricts trade, commerce or intercourse either directly or
\nindirectly. On the other hand the respondent the Attorney General, and the
\nother States have urged that taxing laws stand by themselves; they are governed
\nby the provisions of Part XII and no provision of Part XIII can be extended to
\nthem. In the alternative it has been suggested that the provisions of Part XIII
\nshould be applied only to such Legislative entries in the Seventh Schedule
\nwhich deal with trade, commerce and intercourse. This alternative argument would
\nbring within the purview of Part XIII Entry 42 in List I which refers to
\ninter-State trade and commerce, Entry 26 in List II which deals with trade and
\ncommerce, within the State subject to the provisions of Entry 33 in List III,
\nand Entry 33 in List III which deals with trade and commerce as therein
\nspecified. The arguments thus presented by both the parties appear prima facie
\nto be logical and can claim the merit of attractive simplicity. The question
\nwhich we have to decide is which of the contentions correctly respondents the
\ntrue position in law. Does truth lie in one or the other contention raised by
\nthe parties, or does it lie midway between those contentions ? This problem has
\nto be resolved primarily by adopting a fair and reasonable constructions of the
\nrelevant articles in Part XIII; but before we attempt that task it would be
\nrelevant to deal with some general considerations.\n<\/p>\n
37. Let us first recall the political and constitutional background of Part
\nXIII. It is a matter of common knowledge that, before the Constitution was
\nadopted, nearly two thirds of the territory of India was subject to British
\nRule and was then known as British India, while the remaining part of the
\nterritory of India was governed by Indian princes and it consisted of several
\nIndian States. A large number of these States claimed sovereign rights within
\nthe limitations imposed by the paramount power that behalf, an duty purported
\nto exercise their legislative power of imposing taxes in respect of trade and
\ncommerce which inevitably led to the erection of customs barriers between
\nthemselves an the rest of India. In the matter of such barriers British India
\nwas governed by the provisions of s. 297 of the Constitution Act, 1935. To the
\nprovisions of this section we will have occasion later to refer during the
\ncourse of this judgment. Thus, prior to 1950 the flow of trade an commerce was
\nimpeded at several points which constituted the boundaries of Indian States.
\nAfter India attained political freedom in 1947 and before the Constitution was
\nadopted the process of the merger and integration of the several Indian states
\nwith the rest of the country was speedily accomplished with the result that
\nwhen the Constitution was first passed the territories of India can State of
\nPart A States which broadly stated represented the provinces in British India,
\nand Part B states which were made up of Indian States. This merger or
\nintegration of Indian States with the Union of India was preceded by the merger
\nand consolidation of some of the States interests between themselves. It is
\nwith the knowledge of the trade barriers which had been raised by the Indian
\nStates in exercise of their legislative powers that the Constitution-makers
\nframed the Articles in Part XIII. The main object of Art. 301 obviously was to
\nallow the free flow of the stream of trade, commerce and intercourse throughout
\nthe territory of India.\n<\/p>\n
38. In drafting the relevant Articles of Part XIII there makers of the
\nConstitution were fully conscious that economic unity was absolutely essential
\nfor the stability and progress of the federal policy which has been adopted by
\nthe constitution for the governance of the country. Political freedom which had
\nbeen won, and political unity which had been accomplished by the Constitution,
\nhad to be sustained and strengthened by the bond of economic unity. It was
\nrealised that in course of time different political parties believing in
\ndifferent economic theories or ideologies may come in power in the several
\nconstituent units of the Union, and that may conceivably give rise to local and
\nregional pulls and pressures in economic matters. Local or regional fears or
\napprehensions raised by local or regional problems may persuade the State
\nLegislature to adopt remedial measures intended solely for the protection of
\nregional interests without due regards to the their effect on the economy of
\nthe nation as a whole. The object of Part XIII was to avoid such a possibility.
\nFree movement and exchange of goods throughout the territory of India is
\nessential for the economy of the nation and for sustaining and improving
\nlicensing standards of the country. The provision contained in Art. 301
\nguaranteeing the freedom of trade, commerce and intercourse is not a
\ndeclaration of mere platitude, or the expression of a pious hope of a
\ndeclaratory character; it is not also a mere statement of direction principle
\nof state policy; it embodies and enshrines a principle of paramount importance
\nthat the economic unity of the country will provide the main sustaining force
\nfor the stability and progress of the political and cultural unity of the
\ncountry. In appreciating the significance of these general considerations were
\nmay profitably refer to the observations made by Cardozo, J., in C.A.F. Seelig
\nInc. v. Charles H. Baldwin (294 U.S. 511, 523; 79 L. Ed. 1033, 1038) while he
\nwas dealing with the commerce clause contained in Art. 1, s. 8, clause 3 of the
\nAmerican Constitution. “This part of the Constitution”, observed
\nCardozo J., “was framed under the dominion of a political philosophy less
\nparochial in range. It was framed upon the theory that the peoples of the
\nseveral states must sink or swim together and that in the long fun prosperity
\nand salvation are in union and not division”.\n<\/p>\n
39. There is another general consideration which has been pressed before us
\nby the learned Attorney General and the States to which reference must be made.
\nIt is argued that in determining the scope and reach of the freedom embodied in
\nArt. 301 we should bear in mind the fact that to the extend to which the
\nfrontiers of this freedom are widened to that extent is the legislative power
\nof the States curtailed or limited. The Legislatures of the States have plenary
\npowers to legislate in respect of topics covered by the legislative entries in
\nparts II and III. If the words used in Art. 301 receive the widest
\ninterpretation as contended by the appellants it would obviously mean that the
\nstates Legislature would not be able to legislate on several entries in the
\nsaid Lists without adopting the procedure prescribed by Art. 304(b). In fact it
\nwould be unreasonable to impose such a limitation on the legislation power of
\nthe State Legislatures and thereby affect their freedom of action. Whilst
\nappreciating this argument it may be pertinent to observe that what appears as
\ncurtailment of, or limitation on, the powers of the State Legislatures
\nprescribed by Art. 304(b) may, from the point of view of national economy, be
\ncharacterised as a safeguard deliberately evolved to protect the economic unit
\nof the country; even so it may be assumed that in interpreting the provisions
\nof Art. 301 and determining the scope and effect of Part XIII we should bear in
\nmind the effect of our decision on the legislative power of the States and also
\nof Parliament.\n<\/p>\n
40. Having thus referred to some general considerations let us now proceed
\nto examine that question as to whether as laws are wholly outside the purview
\nof Part XIII. In support of the argument that Part XIII does not apply to tax
\nlaws the Learned Attorney-General had emphasis the fact that the power to law a
\ntax is an essential part of sovereignty itself, and he has suggested that this
\npower is not subject top judicial review and revenue has been held to be so. In
\nthis connection he has invited our attention to the observations made in
\nCooley’s “Constitutional Limitations” on the power of taxation.
\n“The power impose taxes”, says the author, “is one so unlimited
\nin force and so searching in extent, that the courts scarcely venture to
\ndeclare that it is subject to any restriction whatever, except such as test in
\nthe discretion of the authority which exercises it.” (Cooley’s
\n“Constitutional Limitations”, Vol. 2, 8th Ed., p. 986). The author
\nthan has cited the observations of Marshall, C.J., in McCulloch v. Maryland (4 Wheat.
\n316, 428 : 4 L. Ed. 579, 607) where the Learned Chief Justice has stated that
\n“the power of taxing the people an their property is essential to the very
\nexistence of the government, and may be legitimately exercised on the objects
\nto which it is applicable to the utmost extent to which the Government may
\nchoose to carry it. The only security against the abuse of this power is found
\nin the structure of the Government itself”. Basing himself on this
\ncharacter of the taxing power of the state the Learned Attorney-General has
\nasked us to hold that Part XIII can have no application to any statue imposing
\na tax. In our opinion this contention is well-founded. The statement of the law
\non which reliance has been placed is itself expressed to be subject to the
\nrelevant provisions of the constitution; for instance, the same author has
\nobserved “It is also believed that that provision in the Constitution of
\nthe United States which declares that the citizens of each states shall be
\nentitled to all the privileges and immunities of the citizens of the several
\nstates will preclude any state from imposing upon the property which citizens
\nof other states may own, or the business which they may carry on within its
\nlimits, any higher burdens by way of taxation than are imposed upon corresponding
\nproperty or business of its own citizens” (p. 1016). Putting the same
\npropositions in terms of our Constitution it cannot be suggested that the power
\nof taxation can, for instance, violate the equality before the law guaranteed
\nby Art. 14 of the constitution. Therefore the true position appears to be that,
\nthough the power of levying tax is essential for the very existence of the
\ngovernment, its exercise must inevitably be controlled by the constitutional
\nprovisions made in that behalf. It cannot be said that the power of taxation
\nper se is outside the purview of any constitutional limitations.\n<\/p>\n
41. It is true that in
\nRamjilal v. Income-tax Officer, Mohindargarh<\/a> ([1951]
\nS.C.R. 127) it has been held that “since there is a special provision in
\nArt. 265 of the Constitution that no tax shall believed or collected except by
\nauthority if law, clause (1) of Art. 31 must be regarded as concerned with
\ndeprivation of property otherwise than by the imposition or collection of tax,
\nand inasmuch as the right conferred by Art. 265 is not a right confer by Part
\nIII of the Constitution, it could not be enforced under Art. 32 “. It is
\nclear the effect of this decision is no more than this that the protection
\nagainst the imposition and collection of taxes, save by the authority of law,
\ndirectly comes under Art. 265 and cannot be said to be covered by clause (1) of
\nArt. 31. It would be unsafe to assume that this decision is, or was intended to
\nbe, an authority for the proportion that the levy of a tax by taxing statue can
\nfor instance, violate Art. 14 of the Constitution.\n<\/p>\n
42. The next question which need examination is whether tax laws are
\ngoverned only by Part XII of the Constitution and not by Part XIII. The
\nargument is that Part XII is a self contained do; it makes all necessary
\nprovisions, and so the validity of any taxing statute can be judged only by
\nreference to the provisions of the said Part. Article 265 provides that
\n“no tax shall be levied or collected except be authority of law”. It
\nis emphasised that this Article does not contemplate that its provision is
\nsubject to the other provisions of the constitution, and so there would be no
\njustification of applying Part XIII to the taxing statutes. It is also pointed
\nout that restrictions and other exceptions which the Constitution wanted to
\nprescribe in respect of taxation have been provided for by Arts. 274, 276, 285,
\n287 and 288 and so we need not look behind the provisions of this part in
\ndealing with tax laws. In our opinion this arguments fails to take notice of the
\nfact that Art. 265 itself inevitably takes in Art. 245 of the Constitution when
\nin substance it says that a tax shall believed by authority of law. The
\nauthority of law to which it refers and under which alone a tax an be levied is
\nto be found in Art. 245 read with the corresponding legislative entries in
\nSchedule VII. Now, if we look at Art. 245 which deals with the extent of laws
\nmade by Parliament and by the Legislatures of States it begins with the words
\n“subject to the provisions of this Constitution”; in other words, the
\npower of Parliament and the Legislatures of the States to make laws including
\nlaws imposing taxes is subject to the provisions of this Constitution and that
\nmust bring in the application of the provisions of Part XIII. Therefore the argument
\nbased on the theory that tax laws are governed by the provisions of Part XII
\nalone cannot be accept. The power to levy taxes is ultimately based on Art.
\n245, and said power in terms subject to the provision of the Constitution.\n<\/p>\n
43. On the other hand, the opening words of Art. 301 are very significant.
\nThe doctrine of the freedom of trade, commerce and intercourse enunciated by
\nArt. 301 is not subject to the other provisions of the Constitution but is made
\nsubject only to the other provisions of Part XIII; that means that once the
\nwidth and amplitude of the freedom enshrined in Art. 301 are determined they
\ncannot be controlled by any provision outside Part XIII. This position
\nincidentally brings out in bold relief the important part which the Constitution-makers
\nwanted the doctrine of freedom of trade to play in the future of the country.
\nIt is obvious that whatever may be the content of the said freedom it is not
\nintended to be an also freedom; absolute freedom in matters of trade, commerce
\nand intercourse would lead to economic confusion, if not chaos and anarchy; and
\nso the freedom guaranteed by Art. 301 is made subject to the exceptions
\nprovided by the other Articles in Part XIII. The freedom guaranteed is limited
\nin the manner specified by the said Articles but it is not limited by any other
\nprovisions of the constitution outside Part XIII. That is why it seems to us
\nthat Art. 301, read in its proper context and subject to the limitations
\nprescribed by the other relevant Articles in Part XIII, must be regarded as
\nimposing a constitutional limitation on the legislative power of Parliament and
\nthe Legislatures of the States. What entries in the Legislative lists will
\nattract the provisions of Art. 301 is another matter; that will depend upon the
\ncontent of the freedom guaranteed; but whether it is held that Art. 301 applies
\nthe Legislature competence of the Legislature in question will have to be
\njudged in the light of the relevant Articles of Part XIII; this position
\nappears to us to be inescapable.\n<\/p>\n
44. On behalf of the respondent it was suggested before was that the scope
\nand extent of the application of Art. 301 can well be determined in the light
\nof s. 297 of the Constitution Act of 1935. Section 297 reads thus :\n<\/p>\n
“297(1). No Provincial
\nLegislature or Government shall –\n<\/p>\n
(a) by virtue of the entry in
\nthe Provincial Legislature List relating to trade and commerce with in the
\nProvince, or the entry in that List relating to the production, supply, and
\ndistribution of commodities, have power to pass any law or take any executive
\naction prohibiting or restricting the entry into, or export from the Province
\nof goods of any class or description; or <\/p>\n
(b) by virtue of anything in
\nthis Act have power to impose any tax, case, toll, or due which, as between goods
\nmanufactured or produced in the province and similar goods not so manufactured
\nor produced, discriminates in favour of the former, or which, in the case of
\ngoods manufactured or produced outside the Province, discriminates between
\ngoods manufactured or produced in one locality and similar goods manufactured
\nor produced in another locality.\n<\/p>\n
(2) Any law passed in
\ncontravention of this section shall, to the contravention, be invalid.\n<\/p>\n
45. There is no doubt that the prohibition prescribed by this section was
\nconfined to the Provincial Governments and Provincial Legislatures and did not
\napply to the Central Government or Central Legislature. It is also true that he
\nsaid prohibition had reference to the entries in the Provincial Legislature
\nlist relating to trade and commerce, and to production, supply and
\ndistribution, of commodities. The section also deals with prohibitions and
\nrestrictions in respect of import of goods into, or their export from a
\nProvince. Likewise discrimination against goods manufactured or produced
\noutside the Province or goods produced in other localities is also prohibited.
\nThe argument is that when the Constitution adopted Art. 301 it had s. 297 in
\nview and the only substantial change which it intended to make was to extend
\nthe application of the principles enunciated in the said section to the Union
\nGovernment and the Union parliament, and to apply it to the territory which had
\nsubsequently become a part of India as indicated by the relevant Articles; the
\nessential content of freedom of trade and commerce as prescribed by the said
\nsection, however, continues to be the same.\n<\/p>\n
46. In support of this argument reliance has been placed on the observations
\nmade by Venkatarama Aiyar, J., in the case of
\nM.P.V. Sundararamier & Co. v.\n<\/p>\n
The States of Andhra Pradesh ([1958] S.C.R. 1422, 1483-84). In that case the
\nvires of some of the provisions of the Sales Tax laws Validation Act, 1956 (7
\nof 1956), were challenged on several grounds. In dealing with one of the points
\nraised in support of the said challenged Venkatarama Aiyar, J., who delivered
\nthe majority judgment, considered the content of Entry 42 in List I. It had
\nbeen urged before the Court that the said entry should be liberally construed
\nand should be held, to include the power to tax, and in support of this
\ncontention reliance was placed on certain American and Australian decisions.
\nThis argument was repelled and it was held that Entry 42 in List I is not to be
\ninterpreted as including taxation. In coming to this conclusion the learned
\njudge made certain general observations pointing out that it would not be
\nalways safe to rely upon America or Australian decisions in interpreting the
\nprovision of our Constitution. Said the Learned judge, “the threads of our
\nConstitution were no doubt taken from other Federal Constitution but when they
\nwere woven into the fabric of our Constitution their reach and their complexion
\nunderwent changes. Therefore, valuable as the American decisions are as showing
\nhow the question is dealt with in sister Federal Constitution great care should
\nbe taken in applying them in the interpretation of our Constitution”. He
\nmade a similar comment about s. 92 of the Commonwealth of Australia Constitution
\nAct and the decisions thereunder, and in that connection he observed : “We
\nshould also and that Art. 304(a) of the Constitution cannot be interpreted as
\nthrowing any light on the scope of Art. 301 with reference to the question of
\ntaxation as it merely reproduce s. 297(1)(b) of the Government of India Act,
\nand as there was no provision therein corresponding to Art. 301 s. 297(1)(b)
\nrelied have implied what is now sought to be ignored from Art. 304(a)”.
\nThe Learned Attorney-General has relied on these observations. It would be
\nnoticed that, incidental as these observation are, what the learned judge was
\nconsidering was the scope and effect of s. 297(1)(b) of the Government of India
\nAct, 1935, and he held that the content of the said section cannot be enlarged in
\nthe light of the provisions of Art. 304(a). No doubt the observations would
\nseem to show that the learned judge thought that Art. 304(a) cannot throw any
\nlight on the scope of Art. 301 with reference to the question of taxation; but
\nit is clear that the question of construing the said Articles did not fall to
\nbe considered, and was not obviously argued before the Court. With respect, it
\nmay be pointed out that in the happy phraseology adopted by the learned judge
\nitself, in the setting of Part XIII and particularly in the light of the wide
\nwords used in Art. 301, the reach and complexion of Art. 304(a) is wider than
\ns. 297(1)(b) and does include reference to taxation.\n<\/p>\n
47. Then as to the merits of the argument that s. 297 of the constitution
\nAct of 1935 should virtually determine the scope of Art. 301, we are reluctant
\nto accept the assumption that the only change which the Constitution makers
\nintended to make by adopting Art. 301 was to extend the application of s. 297
\nto the Union Government and the parliament. Just as the Constitution-makers had
\nbefore them the said section they were also similar with corresponding clauses
\nincluded in the Federal Constitutions of other countries. The history of
\njudicial decisions interpreting s. 92 of the Australian Constitution must have
\nbeen present to their minds as also the history of the growth and development
\nof the American Law under the commerce clauses in the American Constitution.
\nBesides, we feel considerable hesitation in accepting the view that the makers
\nof the Constitution did not want to enrich and widen the content of freedom
\nguaranteed by s. 297. They knew that the Constitution would herald a new and in
\nspring era in the history of India and they were fully conscious of the
\nimportance of manager the economic unity of the Union of India in order that
\nthe federal form of Government adopted by the Constitution should progress in a
\nsmooth and harmonious manner. That is why we are include to hold that the broad
\nand unambiguous words used in Art. 301 are intended to emphasise that the
\nfreedom of trade, commerce and intercourse guaranteed was richer and wider in
\ncontent than was the case under s. 297; how much wider and how much richer can
\nbe determined only on a fair and reasonable construction of Art. 301 read along
\nwith rest of the Articles in Part XIII. In our opinion, therefore, the argument
\nthat tax laws are outside Part XIII cannot be accepted.\n<\/p>\n
48. That takes us to the question as to whether Art. 301 operates only in
\nrespect of the entries relating to trade and commerce already specified. Before
\nanswering this question it would be necessary to examine the scheme of Part
\nXIII, and construe the relevant Articles in it. It is clear that Art. 301
\napplies not only to inter-State trade, commerce and intercourse but also
\nintra-State trade, commerce and inter course The words “throughout the
\nterritory of India” clearly indicate that trade and commerce whose freedom
\nis guaranteed has to move freely also from one place to another in the same
\nState. This conclusion is further supported by Arts.\n<\/p>\n
302 and 304(b) as we will
\npresently point to. There is no doubt that the sweep of the concept of trade,
\ncommerce and intercourse is very wide; but in the present case we are concerned
\nwith trade, and so we will leave out of consideration commerce and intercourse.
\nEven as to trade it is really not necessary to discuss or determine what trade
\nexactly means; for it is common ground that the activity carried on by the
\nappellants amounts to trade, and it is not disputed that transport of goods or
\nmerchandise from one place to another is so essential to trade that it can be
\nregarded as its integral part. Stated briefly trade even in a narrow sense
\nwould include all activities in relation to buying and selling, or the
\ninterchange or exchange of commodities and that movement from place to place is
\nthe very soul of such trading activates. When Art. 301 refers to the freedom of
\ntrade it is necessary to enquire what freedom means. Freedom from what ? is the
\nobvious question which falls to be determined in the content. At this stage we
\nwould content ourselves with the statement that the freedom of trade guaranteed
\nby Art. 301 is freedom from all restriction except those which are provided by
\nthe other Articles in Part XIII. What these restrictions denote may raise a
\nlarger issue, but in the present case were will confine our decision to that
\naspect of the matter which arises from the provisions of the Art under
\nscrutiny. It is hardly necessary to emphasise that in dealing with
\nconstitutional questions courts should be slow to embark upon unnecessarily
\nwide or general enquiry and should confine their decision as far as may be
\nreasonably practicable within the narrow limits of the controversy arising
\nbetween the parties in that particular case. We will come back again to Art.
\n301 after examining the other Articles in Part XIII.\n<\/p>\n
49. Art.\n<\/p>\n
302 confers on the Parliament power to impose restrictions on
\ntrade, commerce and intercourse. It provided that parliament may by law impose
\nsuch restrictions on the freedom of trade, commerce or intercourse between one
\nState and another or within any part of the territory of India as may be
\nrequired in the public interest. It would be immediately noticed that the
\nreference made to a restriction on the freedom of trade within any part of the
\nTerritory of India as distinct from freedom of trade between one State and
\nanother clearly indicates that the freedom in question covers not only
\ninter-State trade but also intra-State trade. Thus the effect of Art.
\n302 is to
\nprovide for an exception to the general rule prescribed by Art. 301.
\nRestrictions on the freedom of trade can be imposed by Parliament if they are
\nrequired in the public interest so that the generality of freedom guaranteed by
\nArt. 301 is subject to the exception provided by Art.\n<\/p>\n
302. <\/p>\n
50. That takes us to Art. 303. It reads thus :\n<\/p>\n
“303. (1) Notwithstanding
\nanything in article
\n302, neither Parliament nor the Legislature of a State
\nshall have power to make any law giving, or authorising the giving of, any
\npreference to one State over another, or making, or authorising the making of,
\nany discrimination between one state and another, by virtue of any entry
\nrelating trade and commerce in any of the Lists in the Seventh Schedule.\n<\/p>\n
(2) Nothing in clause (1) shall
\nprevent Parliament from making any law giving, or authorising the giving, of,
\nany preference or making, or authorising the making of, any discrimination if
\nit is declared by such law that it is necessary to do so forth purpose of
\ndealing with a situation arising from scarcity of goods in any part of the
\nterritory of India.”\n<\/p>\n
51. The first part of this Article is in terms an exception or a proviso to
\nArt.\n<\/p>\n
302 as is indicated by the non obstante clause. This clause probities
\nparliament from making any law which would give any preference to one state
\nover another or would make any discrimination between one State and another by
\nvirtue of the relevant entries specified in it. In other words, in regard to
\nthe entries there specified, the power to impose restrictions cannot be used
\nfor the purpose of giving any preference to one State over another or making
\nany discrimination in that manner. It is obvious that the reference to the
\nLegislature of the State in this clause cannot be reconciled with the
\nnon-obstante clause; but the object of including the Legislature of a state
\nappears to be to emphasise that like Parliament even the Legislature of a state
\ncannot give any preference or make any discrimination.\n<\/p>\n
52. Sub-Article (2) is an exception to sub-Art. (1) of Art. 303. It empowers
\nthe Parliament to make a law giving or authorising to give any preference or
\nmaking any discrimination, but this power can be exercised only if it is
\ndeclared by law made by the Parliament that it is necessary so to do for the
\npurpose of dealing with a situation arising from scarcity of goods in any part
\nof the territory of India; in other words, it is only the parliament is faced
\nwith the task of meeting on emergency created by the scarcity of goods in any
\nparticular part of India that it is authorised to make a law making
\ndiscrimination, or giving preference, in favour the part thus affected.\n<\/p>\n
53. On behalf of the states strong reliance is placed on the fact that Art.
\n303(1) expressly refers to the entries relating to trade and commerce in any of
\nthe list in the Seventh Schedule, and it is urged that this gives a clear
\nindication as to scope of the provision of Art. 301 itself. There is some force
\nin this contention; but on the whole we are not prepared to hold that the
\nreference to the said entries should govern the construction of Art. 301. The
\nsetting in which the said entries are referred would of course determine the
\nscope an extent of the prohibition prescribed by Art. 303(1); but that cannot
\nbe pressed into service in determining the scope of Art. 301 itself. It is
\nsignificant that Art. 303(1) does not refer to in course and in that sense
\ninter course outside its sphere. It is likely that having authorised Parliament
\nto impose restrictions by Art.\n<\/p>\n
302 it was thought expedient to prohibit expressly
\nthe said power of imposing restrictions from being used for the purpose of
\ngiving any preference in so far as the relevant entries are concerned. It may
\nalso be that the primary object of confining the operation of Art. 303(1) to
\nthe said entries was to introduce a corresponding limitation on the power of
\nParliament to discriminate under Art.\n<\/p>\n
302. However that may be, in our opinion
\nlimitation thus introduced in Art. 303(1) cannot circumscribe the scope of Art.
\n301 or otherwise affect its construction. Besides, as we will presently point
\nout, there are other Articles in this part which indicate that tax laws are
\nincluded within Art. 301, and if that be so, the reference to the said entries
\nin Art. 303(1) cannot limit the application of Art. 301 to the said entries
\nalone.\n<\/p>\n
54. Articles 304 reads thus :\n<\/p>\n
“Notwithstanding anything in
\narticle 301 or article 303, the Legislature of a State may by law –\n<\/p>\n
(a) impose on goods imported
\nfrom other States or the Union territories any tax to which similar goods manufactured
\nor produced in that state are subject, so, however, as not to discriminate
\nbetween goods so imported any goods so manufactured or produced; and <\/p>\n
(b) impose such reasonable
\nrestrictions on the freedom of trade, commerce or intercourse with or within
\nthat State a may be required in the public interest :\n<\/p>\n
Provided that no Bill or
\namendment for the purposes of clause (b) shall be introduce or moved in the
\nLegislature of State without the previous sanction of the President.”\n<\/p>\n
55. The effect of Art. 304(a) is to treat imported goods on the same basis
\nas goods manufactured or produced in any states; and it authorises tax to be
\nlevied on such imported goods in the manner and to the same extent and may
\nbelieved on goods manufactured or produced inside the State. We ought to add
\nthat this sub-Article assumes that taxation can be levied by the State
\nLegislature on goods manufactured or produced within its territory and it
\nprovides that outside goods cannot be treated any worse. How a tax can be
\nlevied on internal goods is, however, provided by Art. 304(b). The non-obstante
\nclause referring to Art. 301 would go with Art. 304(a), and that indicates that
\ntax on goods would not have been permissible but for Art. 304(a) with the
\nnon-obstante clause. This incidentally helps to determine the scope and width
\nof the freedom guaranteed under Art. 301; in other words Art. 304(a) is another
\nexception to Art. 301.\n<\/p>\n
56. Article 304(b) empower the State Legislature to impose reasonable
\nrestrictions on the freedom trade with other States or within its own
\nterritory. Again, the reference to the territory within the State supports the
\nconclusion that Art. 301 covers the movement of trade both inter-State. Article
\n304(b) is to be read with the non-obstante clause relating to Art. 301 as well
\nas Art. 303, and in substance it gives power to the State Legislature somewhat
\nsimilar to the power conferred on the Parliament by Art.\n<\/p>\n
302. The reference to
\nArt. 303 in the non-obstante clause has presumably been made a matter of
\nabundant caution since the Legislature of a state has been included in Art.
\n303(1). There are, however, obvious differences in the powers of the parliament
\nand State Legislatures. In regard to an act which the State Legislature intends
\nto pass under Art. 304(b) no bill can be introduced without the previous
\nsanction of the President, and this requirement has obviously been inserted in
\norder that regional economic pressures which may inspire legislation under the
\nsaid clause should be duly examined in the light of the interest of national
\neconomy; such legislation must also be in the public interest which feature is
\ncommon with the provision contained in Art.\n<\/p>\n
302; such legislation must also
\nsatisfy the further test that the restrictions imposed by it are reasonable.
\nThat is another additional restriction imposed on the powers of the State
\nLegislatures. Thus there are three conditions which must be satisfied in
\npassing an Act under Art. 304(b), – the previous sanction of the President must
\nbe obtained, the legislation must be in the public interest, and it must impose
\nrestrictions which are reasonable. It is of course true that if the previous
\nsanction of the president is not obtained that infirmity may be cured by
\nadopting the course authorised by Art. 255. The result of reading Art. 304(a)
\nand (b) together appears to be that a tax an be levied by a State Legislature
\non goods manufactured or produced or imported in the State and thereby
\nreasonable restrictions can be placed on the freedom of trade either with
\nanother State or between different areas of the same state. Tax legislation
\nthus authorised must therefore be deemed to have been include in Art. 301, for
\nthat is the obvious inference from the use of the non-obstante clause.\n<\/p>\n
57. Article 305 saves existing laws and laws providing for State monopolies.
\nIt is unnecessary to deal with this Article. Its object clearly was not to
\ninterrupt or to affect the operation of the existing laws except in so far as
\nthe President may by order otherwise direct. Article 306 is relevant. It reads
\nthus :\n<\/p>\n
“Notwithstanding anything in
\nthe foregoing provisions of this Part or in any other provisions of this
\nConstitution, any State specified in Part B of the First Schedule which before
\nthe commencement of this Constitution was levying any tax or duty on the import
\nof goods into the State from other States or on the export of goods from the
\nState to other States may, if an agreement in that behalf has been entered into
\nbetween the Government of India and the Government of that State, continue to
\nlevy and collect such tax or duty subject to the terms of such agreement and
\nfor such period not exceeding ten years from the commencement of this
\nConstitution as may be specified in the agreement :\n<\/p>\n
Provided that the President may
\nat any time after the expiration of five years from such commencement terminate
\nor modify any such agreement if, after consideration of the report of the
\nFinance Commission constituted under article 280, he thinks it necessary to do
\nso.”\n<\/p>\n
58. This Article has been subsequently deleted by s. 29 and Schedule to the
\nConstitution (Seventh Amendment) Act, 1956, but its initial inclusion in Part
\nXIII throws some light on the scope of Art. 301. Laws made by any State
\nspecified in Part B of the First Schedule levying any tax or duty on the import
\nof goods into the State from other States or the export of goods from the State
\nto other States were expressly saved by a Art. 306 because it was realised that
\nthey would otherwise be hit by Art. 301. In other words, taxing statutes or
\nstatutes imposing duties on goods would, but for Art. 306, have attracted the
\napplication of Art. 301.\n<\/p>\n
59. Let us now revert to Art. 301 and ascertain the width and amplitude of
\nits scope. On a careful examination of the relevant provisions of Part XIII as
\na whole as well as the principle of economic unity which it is intended to
\nsafeguard by making the said provisions, the conclusion appears to us to be
\ninevitable that the content of freedom provided for by Art. 301 was larger than
\nthe freedom contemplated by s. 297 of the Constitution Act of 1935, and
\nwhatever else it may or may not include, it certainly includes movement of
\ntrade which is of the very essence of all trade and is its integral part. If
\nthe transport or the movement of goods is taxed solely on the basis that the
\ngoods are thus carried or transported that, in our opinion, directly affects
\nthe freedom of trade as contemplated by Art. 301. If the movement, transport or
\nthe carrying of goods is allowed to be impeded, obstructed or hampered by
\ntaxation without satisfying the requirements of Part XIII the freedom of trade
\non which so much emphasis is laid by Art. 301 would turn to be illusory. When
\nart. 301 provides that trade shall be free throughout the territory of India
\nprimarily it is the movement part of the trade that it has in mind and the
\nmovement or the transport part of trade must be free subject of course to the
\nlimitations and exceptions provided by the other Articles of Part XIII. That we
\nthink is the result of Art. 301 read with the other Articles in Part XIII.\n<\/p>\n
60. Thus the intrinsic evidence furnished by some of the Articles of Part
\nXIII shows that taxing laws are not excluded from the operation of Art. 301;
\nwhich means that tax laws can and do amount to restrictions freedom from which
\nis guaranteed to trade under the said Part. Does that mean that all tax laws
\nattract the provisions of Part XIII whether their impact on trade or its
\nmovement is direct and immediate or indirect and remote ? It is precisely
\nbecause the words used in Art. 301 are very wide, and in a sense vague and
\nindefinite that the problem of construing them and determining their exact
\nwidth and scope becomes complex and difficult. However, in interpreting the
\nprovisions of the Constitution we must always bear in mind that the relevant
\nprovision “has to be read not in vacuo but as occurring in a single
\ncomplex instrument in which one part may throw light on another”. (Vide :
\nJames v. Commonwealth of Australia ((1936) A.C. 578, 613)). In construing Art.
\n301 we must, therefore, have regard to the general scheme of our Constitution
\nas well as the particular provisions in regard to taxing laws. The construction
\nof Art. 301 should not be determined on a purely academic or doctrinaire
\nconsiderations; in construing the said Article we must adopt a realistic
\napproach and bear in mind the essential features of the separation of powers on
\nwhich our constitution rests. It is a federal constitution which we are
\ninterpreting, and so the impact of Art. 301 must be judged accordingly.
\nBesides, it is not irrelevant to remember in this connection that the Article
\nwe are construing imposes a constitutional limitation on the power of the
\nParliament and State Legislatures to levy taxes, and generally, but for such
\nlimitation, the power of taxation would be presumed to be for public good and
\nwould not be subject to judicial review or scrutiny. Thus considered we think
\nit would be reasonable and proper to hold that restrictions freedom from which
\nis guaranteed by Art. 301, would be such restrictions as directly and
\nimmediately restrict or impede the free flow or movement of trade. Taxes may
\nand do amount to restrictions; but it is only such taxes as directly and
\nimmediately restrict trade that would fall within the purview of Art. 301. The
\nargument that all taxes should be governed by Art. 301 whether or not their
\nimpact on trade is immediate or mediate direct or remote, adopts, in our
\nopinion, an extreme approach which cannot be upheld. If the said argument is
\naccepted it would mean, for instance, that even a legislative enactment
\nprescribing the minimum wages to industrial employees may fall under Part XIII
\nbecause in an economic sense an additional wage bill may indirectly affect
\ntrade or commerce. We are, therefore, satisfied that in determining the limits
\nof the width and amplitude of the freedom guaranteed by Art. 301 a rational and
\nworkable test to apply would be : Does the impugned restriction operate
\ndirectly or immediately on trade or its movement ? It is in the light of this
\ntest that we propose to examine the validity of the Act under scrutiny in the
\npresent proceedings.\n<\/p>\n
61. We do not think it necessary or expedient to consider what other laws
\nwould be affected by the interpretation we are placing on Art. 301 and what
\nother legislative entries would fall under Part XIII. We propose to confine our
\ndecision to the Act with which we are concerned. If any other laws are
\nsimilarly challenged the validity of the challenge will have to be examined in
\nthe light of the provisions of those laws. Our conclusion, therefore, is that
\nwhen Art. 301 provides that trade shall be free throughout the territory of
\nIndia it means that the flow of trade shall run smooth and unhampered by any
\nrestriction either at the boundaries of the States or at any other points inside
\nthe States themselves. It is the free movement or the transport of goods from
\none part of the country to other that is intended to be saved, and if any Act
\nimposes any direct restrictions on the very movement of such goods it attracts
\nthe provisions of Art. 301, and its validity can be sustained only if it
\nsatisfies the requirements of Art.\n<\/p>\n
302 or Art. 304 of Part XIII. At this stage
\nwe think it is necessary to repeat that when it is said that the freedom of the
\nmovement of trade cannot be subject to any restrictions in the form of taxes
\nimposed on the carriage of goods or their movement all that is meant is that
\nthe said restrictions can be imposed by the State Legislatures only after
\nsatisfying the requirements of Art. 304(b). It is not as if no restrictions at
\nall can be imposed on the free movement of trade.\n<\/p>\n
62. Incidentally we may observe that the difference in the provisions
\ncontained in Art.\n<\/p>\n
302 and Art. 304(b) would prima facie seem to suggest that
\nwhere Parliament exercises its power under Art.\n<\/p>\n
302 and passes a law imposing
\nrestrictions on the freedom of trade in the public interest, whether or not the
\ngiven law is in the public interest may not be justiciable, and in that sense
\nParliament is given the sole power to decide what restrictions can be imposed
\nin public interest as authorised by Art.\n<\/p>\n
302. On the other hand Art. 304(b)
\nrequires not only that the law should be in the public interest and should have
\nreceived the previous sanction of the President but that the restrictions
\nimposed by it should also be reasonable. Prima facie the requirement of public
\ninterest can be said to be not justiciable and may be deemed to be satisfied by
\nthe sanction of the President; but whether or not the restrictions imposed are
\nreasonable would be justiciable and in that sense laws passed by the State
\nLegislatures may on occasions have to face judicial scrutiny. However, this
\npoint does not fall to be considered in the present proceedings and we wish to
\nexpress no definite opinion on it.\n<\/p>\n
63. Let us then examine the material provisions of the Act. As we have
\nalready pointed out the Act had been passed providing for the levy of tax on
\ncertain goods carried by roads or inland waterways in the State of Assam.
\nSection 2(11) defines a producer as meaning a producer of tea and including the
\nperson in charge of the garden where it is produced. Section 3 is the charging
\nsection. It provides that manufactured tea in chests carried by motor vehicles
\netc., except railways and airways shall be liable to tax at the specified rate
\nper lb. of such tea and this tax shall be realised from the producer. It also
\nmakes similar provisions for jute with which we are not concerned in the
\npresent proceedings. Section 6 provides for taxing authorities and their powers.
\nSection 7 provides, inter alia, that every producer shall furnish returns of
\nthe manufactured tea carried in tea chests in such form and to such authority
\nas may be prescribed. Section 8 makes a provision for licensing of balers who
\nare persons owning or possessing pressing machines for the compression of jute
\ninto bales. Section 9 prescribes the procedure for levying the assessment; and
\ns. 10 provides for the cancellation of assessment in cases specified. Section
\n11 deals with the assessment in cases of evasion and escape; s. 12 with
\nrectification, and s. 13 with penalty for non-submission of returns and evasion
\nof taxes. Section 19 provides for notice of demand, and s. 20 lays down when
\ntax becomes payable. This Act has been passed by the Assam Legislature under
\nEntry 56 in List II and naturally it purports to be a tax on goods carried by
\nroads or by inland waterways. It is thus obvious that the purpose and object of
\nthe Act is to collect taxes on goods solely on the ground that they are carried
\nby road or by inland waterways within the area of the State. That being so the
\nrestriction placed by the Act on the free movement of the goods is writ large
\non its face. It may be that one of the objects in passing the Act was to enable
\nthe State Government to raise money to keep its roads and waterways in repairs;
\nbut that object may and can be effectively achieved by adopting another course
\nof legislation; if the said object is intended to be achieved by levying a tax
\non the carriage of goods it can be so done only by satisfying the requirements
\nof Art. 304(b). It is common ground that before the bill was introduced or
\nmoved in the State Legislature the previous sanction of the President has not
\nbeen obtained; nor has the said infirmity been cured by recourse to Art. 255 of
\nthe Constitution. Therefore we do not see how the validity of the tax can be
\nsustained. In our opinion the High Court was in error in putting an unduly
\nrestricted meaning on the relevant words in Art. 301. It is clear that in
\nputting that narrow construction on Art. 301 the High Court was partly, if not
\nsubstantially, influenced by what it thought would be the inevitable
\nconsequence of a wider construction of Art. 301. As we have made it clear
\nduring the course of this judgment we do not propose to express any opinion as
\nto the possible consequence of the view which we are taking in the present
\nproceedings. We are dealing in the present case with an Act passed by the State
\nLegislature which imposes a restriction in the form of taxation on the carriage
\nor movement of goods, and we hold that such a restriction can be imposed by the
\nState Legislature only if the relevant Act is passed in the manner prescribed
\nby Art. 304(b).\n<\/p>\n
64. This question can be considered from another point of view. When a State
\nLegislature passes an Act under Entry 56 of List II its initial legislative
\ncompetence is not in dispute. What is in dispute is whether or not such
\nlegislative competence is subject to the limitations prescribed by Part XIII.
\nNow what does an act passed under the said Entry purports to do ? It purports
\nto put a restraint in the form of taxation on the movement of trade, and if the
\nmovement of trade is regarded as an integral part of trade itself, the Act in
\nsubstance puts a restriction on trade itself. The effect of the Act on the
\nmovement of trade is direct and immediate; it is not indirect or remote; and so
\nlegislation under the said Entry must be held to fall directly under Art. 301
\nas legislation in respect of trade and commerce. In some of the decisions of
\nthis Court, in examining the validity of legislation it has been considered
\nwhether the impugned legislation is not directly in respect of the subject
\nmatter covered by a particular Article of the Constitution. This test was
\napplied for instance by Kania, C.J., in the case of
\nA. K. Gopalan v. The State
\nof Madras<\/a> ([1950] S.C.R. 88). It was also adopted by this Court in the case of
\nRam Singh v. The State of Delhi ([1951] S.C.R. 451). It is no doubt true that
\nthe points which arose for decision in those cases had reference to the
\nfundamental rights guaranteed by Arts. 19, 21 or 22; but we are referring to
\nthose decisions in order to emphasise that the test there adopted would in the
\npresent case lead to the conclusion that the Act with which we are concerned is
\ninvalid. The true approach according to Kania, C.J., is only to consider the
\ndirectness of legislation. Now, if the directness of legislation has to be
\nconsidered it is clear that the Act imposes a tax on the carriage of goods and
\nthat immediately takes it within the purview of Part XIII.\n<\/p>\n
65. In the course of arguments the Learned Attorney-General invited us to
\napply the test of pith and substance, and he contended that if the said test is
\napplied the validity of the Act can be sustained. In support of his argument he
\nhas relied on the observations made by Das, C.J., in the case of
\nThe State of
\nBombay v. R. M..D. Chamarbaugwala<\/a> ([1957] S.C.R. 874). In that case the Court
\nwas called upon called upon to consider the validity of the Bombay Lotteries and
\nPrize Competitions Control and Tax (Amendment) Act, 1952. The challenge to the
\nAct proceeded on two grounds, (1) that it violated the fundamental right
\nguaranteed under Art. 19(1)(g) and (2) that it offended against that provisions
\nof Art. 301. The challenge on the first ground was repelled because it was held
\nthat gambling cannot be treated as trade or business under Art. 19(1)(g). This
\nconclusion was sufficient to repel also the other ground on which the validity
\nof the Act was challenged because, if gambling was not trade or business under
\nArt. 19(1)(g), it was also not trade or commerce under Art. 301. On the
\nconclusion reached by this Court that gambling is not a trade this position
\nwould be obvious. Even so, the Learned Chief Justice incidentally applied the
\ntest of pith and substance, and observed that the impugned act was in pith and
\nsubstance an act in respect of betting and gambling, and since betting or
\ngambling was not trade, commerce or business “the validity of the Act had
\nnot to be decided by the yardstick of reasonableness and public interest laid
\ndown in Arts. 19(6) and 304”. In this connection it may with respect, be
\npointed out that what purports to be a quotation from Lord Porter’s judgment in
\nCommonwealth of Australia & Ors. v. Bank of New South Wales ([1950] S.C.R.\n<\/p>\n
88) has not been accurately reproduced. In fact, referring to phrases such as
\n‘pith and substance’ Lord Porter has observed that “they no doubt raise in
\nconvenient form an appropriate question in cases where the real issue is one of
\nsubject-matter, as when the point is whether a particular piece of legislation
\nis a law in respect of some subject within the permitted field. They may also
\nserve useful purpose in the process of deciding whether an enactment which
\nworks some interference with trade, commerce and intercourse among the States
\nis nevertheless untouched by s. 92 as being essentially regulatory in
\ncharacter” (pp. 312, 313). These observations would indicate that the test
\nof pith and substance is generally and more appropriately applied when a
\ndispute arises as to the legislative competence of the legislature, and it has
\nto be resolved by reference to the entries to which the impugned legislation is
\nrelatable. When there is a conflict between two entries in the legislative lists,
\nand legislation be reference to one entry would be competent but not by
\nreference to the other, the doctrine of pith and substance is invoked for the
\npurpose of determining the true nature and character of the legislation in
\nquestion (Vide : Prafulla Kumar Mukherjee v. Bank of Commerce Ltd., Khulna
\n((1947) L.R. 74 I.A. 23)and Subrahmanyan Chettiar v. Muttuswami Goundan ([1940]
\nF.C.R. 188). But even the application of the test of pith and substance yields
\nthe same result in the present proceedings. The pith and substance of the
\nlegislation is taxation on that carriage of goods and that clearly falls within
\nthe terms of Art. 301.\n<\/p>\n
66. At the commencement of this judgment we have stated that the complexity
\nof the problem which we are called upon to decide in the present proceedings
\nhas been incidentally mentioned or considered in some of the reported decisions
\nof this Court. We may in that connection refer to two of such decisions at this
\nstage. In The State of Bombay v. The United Motors (India) Ltd.<\/a> ([1953] S.C.R.
\n1069), Patanjali Sastri, C.J., observed that the freedom of State trade and
\ncommerce declared in Art. 301 is expressly subordinated to the State power of
\ntaxing goods imported from sister Stated provided only no discrimination is
\nmade in favour of similar goods of local origin. According to the Learned Chief
\nJustice the commercial unity of India is made to give way before the State
\npower of imposing any non-discriminatory tax on goods imported from sister
\nStates. This observation would suggest that Art. 304(a) and (b) deal with taxes
\nand to that extent it is inconsistent with the argument that tax laws are
\noutside Part XIII.\n<\/p>\n
67. The next case in which this question has been incidentally discussed is
\nin Saghir Ahmed v. The State of U. P. . (In that case the
\nimpugned provisions of the U.P. Road Transport Act, 1951 (U.P. Act II of 1951),
\nwere declared to be unconstitutional on two other grounds which had no direct
\nconnection with the challenge under Part XIII of the Constitution. Even so
\nMukherjea, J., as he then was, who spoke for the Court, has referred to the
\nproblem raised by Part XIII as “not quite free from difficulty” and
\nhas indicated its pros and cons which were urged before the court. One of the
\npoints thus urged was that Art. 301 provides safeguards for carrying on trade
\nas a whole as distinct from the rights of an individual to carry it on. In
\nother words the said Article was concerned with the passage of commodities or
\npersons either within or without the State frontiers but not directly with
\nindividuals carrying on the trade or commerce. The right of individuals, it was
\nsaid, was dealt with under Art. 19(1)(g) so that the two Articles had been
\nframed in order to secure two different objects. To the same effect are some of
\nthe observations made by Das, C.J., in the case of R. M. D. Chamarbaugwala
\n([1957] S.C.R. 874). It is unnecessary on the present occasion to consider
\nwhether the fields covered by Art. 19(1)(g) and Art. 301 can be distinguished
\nin the manner suggested in the said observations. It may be possible to urge
\nthat trade as a whole moves inevitably with the aid of human agency, and so
\nprotection granted to trade may involve protection even to the individuals
\ncarrying on the said trade. In that sense the two freedoms may overlap.
\nHowever, it is unnecessary to pursue this point any further in the present
\nproceedings.\n<\/p>\n
68. Before we conclude we would like to refer to two decisions in which the
\nscope and effect of the provisions of s. 92 of the Australian Constitution came
\nto be considered. We have deliberately not referred to these decisions earlier
\nbecause we thought it would be unreasonable to refer to or rely on the said
\nsection or the decisions thereon for the purpose of construing the relevant
\nArticles of Part XIII of our Constitution. It is commonplace to say that the
\npolitical and historical background of the federal polity adopted by the
\nAustralian Commonwealth, the setting of the Constitution itself, the
\ndistribution of powers and the general scheme of the Constitution are
\ndifferent, and so it would to be safe to seek for guidance or assistance from
\nthe Australian decisions when we are called upon to construe the provisions of
\nour Constitution. In this connection we have already referred to the note of
\nwarning struck by Venkatarama Aiyar, J., against indiscriminate reliance being
\nplaced on Australian and American decisions in interpreting our Constitution in
\nthe case of M. P. V. Sundararamier & Co. The same caution was expressed by
\nGwyer, C.J., as early as 1939 when he observed in The Central Provinces and
\nBerar Sales of Motor Spirit and Lubricants Taxation Act, 1938 A.I.R. 1939 F.C.
\n1, 5) “there are few subjects on which the decisions of other Courts
\nrequire to be treated with greater caution than that of federal and provincial
\npowers, for in the last analysis the decision must depend upon the words of the
\nConstitution which the Court is interpreting; and since no two Constitutions
\nare in identical terms it is extremely usage to assume that a decision on one of
\nthem can be applied without qualification to another. This may be so even where
\nthe words or expressions used are the same in both cases, for a word or a
\nphrase may take a colour from its context and bear different senses
\naccordingly”. Even so the reported decisions of this Court show that in
\ndealing with constitutional problems reference has not infrequently been made
\nto Australian and American decisions; and that, we think, brings out the
\ncharacteristic feature of the working of the judicial process. When you are
\ndealing with the problem of construing a constitutional provision which is
\nnone-too-clear or lucid you feel inclined to inquire how other judicial minds
\nhave responded to the challenge presented by similar provisions in other sister
\nConstitutions. It is in that spirit that we propose to refer to two Privy
\nCouncil decisions which dealt with the construction of s. 92 of the Australian
\nConstitution.\n<\/p>\n
69. The first paragraph of s. 92 of the Australian Constitution, around
\nwhich has grown, in the words of Lord Porter a “labyrinth where there is
\nno golden thread”, reads thus : “On the imposition of uniform duties
\nof customs, trade, commerce, and intercourse among the States, whether by means
\nof internal carriage or ocean navigation, shall be absolutely free”. The
\npart played by Frederick Alexander James, who carried on the trade of growing
\nand processing dried fruits, in securing judicial pronouncements on the true
\nscope and effect of the said section is wellknown. He fought three valiant
\nlegal battles in which he successfully asserted his right as a trader against
\nlegislative encroachment. In James v. State of South Australia ((1927) 40
\nC.L.R. 1) s. 20 of the Dried Fruits Export Control Act, 1924, was struck down.
\nIn James v. Cowan ((1932) A.C. 542) s. 28 was challenged, whereas in the last
\ncase of James v. Commonwealth of Australia ((1936) A.C. 578, 613) James had
\nclaimed a declaration that the Dried Fruits Act 11 of 1928 and 5 of 1935 and
\nthe regulations framed thereunder were invalid as offending against s. 92 of
\nthe Constitution. It is to the observations made by the Privy Council in the
\nlast case to which we wish to refer. Referring to the word “free”
\nissued in the said section Lord Wright observed that the said word in itself is
\nvague and indeterminate; it must take its colour from the context. Then he
\nreferred to the fact that “‘free trade’ ordinarily means freedom from
\ntariffs”, but he immediately added that “free” in s. 92 cannot
\nbe limited to freedom in the last mentioned sense. According to this judgment
\nevery step in the series of operations which constitute the particular
\ntransaction is an act of trade, and control under the State law of any of these
\nsteps must be an interference with its freedom as trade. In this connection it
\nwas also observed that not much help is to be got by reflecting that trade may
\nstill be free though the trader has to pay for the different operations such as
\ntolls, railway rates and so forth; it would thus appear that the result of this
\ndecision is that imposition of tolls, railway rates and so forth might impede
\nthe freedom of trade contemplated by s. 92, which in other words supports our
\nconclusion that a tax may amount to a restriction under Art. 301.\n<\/p>\n
70. In the case of Commonwealth of Australia v. Bank of New South Wales
\n((1927) 40 C.L.R. 1) to which reference has already been made in connection
\nwith the test of pith and substance the Privy Council was examining the
\nvalidity of s. 46 of Banking Act (Commonwealth) (No. 57 of 1947) in the light
\nof the provisions of s. 92 of the Australian Constitution. In deciding the said
\nwould one of the tested which was applied by Lord Porter was : “Does the
\nact not remotely or incidentally (as to which they will say something later)
\nbut directly restrict the inter State business of Banking”, and he
\nconcluded that “two general propositions may be accepted, (1) that
\nregulation of trade, commerce and intercourse among the States is compatible
\nwith its absolute freedom, and (2) that s. 92 is violated only when a
\nlegislative or executive act operates to restrict such trade, commerce and
\nintercourse directly and immediately as distinct from creating some indirect or
\nconsequential impediment which may fairly be regarded as remote”. This
\ndecision thus justifies the conclusion we have reached about the scope and
\neffect of Art. 301.\n<\/p>\n
71. In the result we hold that the Act has put a direct restriction on the
\nfreedom of trade, and since in doing so it has not complied with the provisions
\nof Art. 304(b) to must be declared to be void. In view of this conclusion it is
\nunnecessary to consider the other points urged in support of the challenge
\nagainst the validity of the Act. The three appeals and the two petitions are
\naccordingly allowed and writs or orders directed to be issued as prayed. The
\nappellants and the petitioners will be entitled to their costs from the
\nrespondent.\n<\/p>\n
Shah, J.\n<\/p>\n
72. The validity of the Assam Taxation (on Goods carried by Roads or Inland
\nWaterways) Act, 1954 – hereinafter referred to as the Act, is challenged by
\ncertain producers of tea in the States of West Bengal and Assam. The Act was
\npassed by the Assam Legislature and received the assent of the Governor of
\nAssam on April 9, 1954. To the introduction of the Bill (which was enacted into
\nthe Act) in the State Legislature, the previous sanction of the President was
\nnot obtained : nor did the President assent to the Act. By s. 3 of the Act, it
\nis provided inter alia that “manufactured tea in chests carried by motor
\nvehicles, cart, trolley, boat, animal an human agency or any other means except
\nrailways and airways shall be liable to a tax of one anna per pound of such tea
\nand this tax shall be realised from the producer”. “Producer” is
\ndefined by s. 2 clause (2) as meaning a producer of tea and included a person
\nin charged of the garden where tea is produced. By s. 4, tax is charged on the
\ntotal net weight carried during the return period. Section 7 provides that
\nevery producer and dealer shall furnish a return of manufactured tea carried in
\nchests. By s. 23, clause (3), the Commissioner of Taxes is authorised to
\nrecover taxes and penalties due under the Act as arrears of land revenue.
\nSections 27 and 28 impose a duty upon the producers to maintain accounts in the
\nforms prescribed under the Act and to preserve them and to produce them wherever
\ncalled upon, to the commissioner or other persons as may be appointed by the
\nGovernment in that behalf. The rules framed under the Act make it obligatory
\nupon the producers to submit quarterly returns to the Superintendent of Taxes
\nand to maintain the registers in the forms prescribed and failure to maintain
\nregisters is penalised.\n<\/p>\n
73. In exercise of the powers conferred by s. 7, sub-s. (3), the
\nCommissioner of Taxes issued a notification in the Assam Government Gazette
\nnotifying for general information that returns under the Act and the Rules
\nthereunder for the period between June 1, 1954 and September 30, 1954, shall be
\nfurnished on for before October 30, 1954, and for the subsequent quarters on or
\nbefore the dates specified therein. Three producers who transported their tea
\nby road or by in Inland waterways to Calcutta in the State of West Bengal
\nchallenged by petitions under Art. 226 of the Constitution filed in the High
\nCourt of Assam, the authority of the Legislature of the State of Assam to enact
\nthe Act on the plea that the Act violated the guarantee of freedom of trade,
\ncommerce and intercourse under Art. 301 of the Constitution. The High Court
\nrejected the plea raised by the petitioners, and against the orders passed,
\nthree appeals with certificates of fitness under Art. 132 of the Constitution
\nhave been referred. Two other producers have challenged the vires of the Act by
\npetitioner under Art. 32 of the Constitution presented to this court.\n<\/p>\n
74. The principal question canvassed in these proceedings is about the
\ncompetence of the Assam Legislature to enact the Act. The producers contend
\nthat by Art. 301 of the Constitution trade, commerce and intercourse being
\ndeclared free throughout the territory of India, the Statue authorising
\nimposition of restriction or burdens on that freedom by levying tax under the
\nauthority of an Act which does not conform to the conditions prescribed by the
\nConstitution is invalid. Item 56 of List II of the seventh schedule to the
\nConstitution authorises the State Legislature to impose taxes on goods and
\npassengers carried by road or on inland waterways. In terms, the tax imposed by
\nthe Act is a tax on goods carried by road and inland waterways and is not of
\nthe nature of a duty of excise. If the vires of the Act are to be adjudged
\nsolely in the light of the power conferred by Art. 246 clause (3) read with
\nitem 56 of List II of the seventh schedule, the tax must be regarded as within
\nthe competence of the State. But the exercise of legislative power of the
\nParliament and the State Legislatures conferred by the legislative lists is
\nrestricted by diverse provisions of the Constitution. By Art. 301, it is
\ndeclared that subject to the provisions of Part XIII of the Constitution,
\ntrade, commerce and intercourse throughout the territory of India shall be
\nfree. The language of the Article is general; it admits of no implications and
\nof no exceptions bar those expressly imposed by Part XIII. It comprehensively
\nsets out the guarantee of freedom and defines in terms, clear and precise, that
\ntrade, commerce and intercourse throughout the territory of India subject to
\nthe provisions of Part XIII, shall be free, i.e., trade, commerce and inter
\ncause shall not, except to the extent expressly permitted, be prohibited,
\ncontrolled, burdened or impeded. Our Constitution even though in form federal,
\nhas in diverse provisions thereof, emphasised the unity of India; and with view
\nto promote that unity appears to have guaranteed, subject to specific
\nrestrictions, freedom of trade, commerce and intercourse throughout the
\nterritory. The Article is not merely declaratory of State policy like the
\ndirective principles defined by Part IV of the Constitution which are expressly
\nnot made enforceable by any court though the principles are “fundamental in
\nthe governance of the country”. It incorporates a restriction on the
\nexercise of power by Governmental agency – legislative as well as executive.
\nBesides placing an irremovable ban on the executive authority, it restricts the
\nlegislative power of the parliament and the State legislatures conferred by
\nArts. 245, 246 and 248 and the relevant items in the legislative lists relating
\nto trade, commerce and intercourse. On the exercise of the legislative power to
\ntax trade, commerce and intercourse, restrictions are prescribed by certain
\nprovisions contained in Part XII, e.g., Arts. 276, 286, 287, 288 and 289 : but
\nthese restrictions do not exhaustively delimit the periphery of that power. The
\nlegislative power to tax is restricted also by the fundamental freedoms
\ncontained in Part III, e.g., Arts. 14, 15(1), 19(1)(g) and 31(1) and is further
\nrestricted by Part XIII. Article 245, clause (1), of the Constitution expressly
\nprovides that the legislative powers of the parliament and the State
\nLegislatures to make laws are subject to the provisions of the Constitution;
\nand Art. 301 is undoubtedly one of the provisions to which the legislative
\npowers are subject.\n<\/p>\n
75. The power of taxation is essentially an attribute of the sovereignty of
\nthe State and is not exercised in consideration of the protection it affords or
\nthe benefit that it confers upon citizens and aliens. Its content is not
\nmeasured by the apparent need of the amount sought to be collected, and its
\nincidence does not depend upon the ability of the citizens to meet the demand.
\nBut it is still not an unrestricted power. By Art. 265 of the Constitution, the
\npower to tax can be exercised by authority of law alone and the Constitution
\naffirmatively grants the power of taxation under diverse heads under the three
\nlists of the seventh schedule. The power of taxation has therefore to be
\nexercised by the Legislature strictly within the limits prescribed by the
\nConstitution, and any alleged transgression either by Parliament or the State
\nLegislature of the limits imposed by the Constitution is justiciable.\n<\/p>\n
76. Trade and commerce do not mean merely traffic in goods, i.e., exchange
\nof commodities for money or other commodities. In the complexities of modern
\nconditions, in their wide sweep are included carriage of persons and goods by
\nroad, rail, air and waterways, contracts, banking, insurance, transactions in
\nthe stock exchanges and forward markets, communication of information, supply
\nof energy, postal and telegraphic services and many more activities – too
\nnumerous to be exhaustively enumerated – which may be called commercial
\nintercourse. Movement of goods from place to place may in some instances be an
\nimportant ingredient of effective commercial intercourse, but movement is not
\nan essential ingredient thereof. Dealings in goods and other commercial
\nactivities which do not import a concept of movement are as much part of trade
\nand commerce as transactions involving movement of goods. The guarantee of
\nfreedom of trade and commerce is not address merely against prohibitions,
\ncomplete or partial; it is addressed to tariffs, licensing, marketing
\nregulations, price control, nationalisation, economic or social planning,
\ndiscriminatory tariffs, compulsory appropriation of goods, freezing or stand
\nstill orders and similar other impediments operating directly and immediately
\non the freedom of commercial intercourse as well. Every sequence in the series
\nof operations which constitutes trade or commerce is an act of trade or
\ncommerce and burdens or impediments imposed on any such step are restrictions
\non the freedom of trade, commerce and intercourse. What is guaranteed is
\nfreedom in its widest amplitude – freedom from prohibition, control, burden or
\nimpediment in commercial intercourse. Not merely discriminative tariffs
\nrestricting movement of goods are included in the restrictions which are hit by
\nArt. 301, but all taxation on commercial intercourse, even imposed as a measure
\nfor collection of revenue is so hit. Between discriminatory tariffs and trade
\nbarriers on the one hand and taxation for raising revenue on commercial
\nintercourse, the difference is one of purpose an not of quality; both these
\nforms of burden on commercial intercourse trench upon the freedom guaranteed by
\nArt. 301.\n<\/p>\n
77. The guarantee of freedom is again not merely against burdens or
\nimpediments on inter-State movement : nor does the language of Art. 301
\nguarantee freedom merely from restrictions on trade, commerce and intercourse
\nas such. Articles
\n302, 303, 304 and 306, which I will presently advert to, make
\nit abundantly clear that the freedom contemplated was freedom of trade,
\ncommerce and intercourse in all their varied aspects inclusive of all
\nactivities which constitute commercial intercourse and not merely from
\nrestrictions on “trade, commerce and intercourse as such”.\n<\/p>\n
78. Article 301 as has already been observed enunciates a fetter upon the
\nexercise of legislative power under the entries in the lists of the servant
\nschedule concerning or relating or trade, commerce and intercourse. The basic
\nprinciple underlying Art. 301 appear to have been adopted from Constitution of
\nthe Australian Commonwealth. In the American Constitution, by the 8th section,
\nArt. 1, power to regulate commerce is granted; but the freedom of commerce as
\nguaranteed by our Constitution is not found enunciated in the Constitution of
\nthe United States. Section 92 of the Constitution of the Commonwealth of
\nAustralia provides by the 1st paragraph that “on the imposition of uniform
\nduties of customs, trade, commerce and intercourse among the States, whether by
\nmeans of internal carriage or ocean navigation, shall be absolutely free”.
\nThat guarantee of freedom of trade, commerce and intercourse though not as
\nextensive as the guarantee enshrined in our Constitution, is of the same
\npattern. But our Constitution has made a significant departure from the
\nAustralian Constitution. Whereas by s. 92 of the Australian Constitution,
\nfreedom of trade, commerce and intercourse is guaranteed among the States,
\ni.e., at inter-State level, our Constitution has made trade, commerce and
\nintercourse free throughout the territory of India. The freedom guaranteed by
\nour Constitution is more pervasive : it is freedom of trade, commerce and
\nintercourse intra-State as well as inter-State. But this extension of the area
\nof its operation does not alter the content of that freedom. It is freedom from
\ntax burdens as well as other impediments.\n<\/p>\n
79. Section 92 of the commonwealth of Australia Act does not encompass the
\nwide freedom guaranteed by our Constitution-it protects trade, commerce and
\nintercourse from restrictions in inter -State commerce; but in my judgment, the
\ninterpretation by the judicial committee of the Privy Council in James v.
\nCommonwealth of Australia (L.R. (1936) A.C. 578) upon the meaning of the
\nexpression “free” in s. 92 is not on that account less illuminating
\nin the interpretation of Art. 301 of our Constitution which is largely based on
\nthat section of the Australian Constitution.\n<\/p>\n
80. Lord Wright in delivering the judgment of the Board in James v. Commonwealth
\nof Australia (L.R. (1936) A.C. 578) (supra) at pp. 627-628 observed :\n<\/p>\n
“‘Free’ in s. 92 cannot be
\nlimited to freedom in the last mentioned sense (freedom from tariffs). There
\nmay at first sight appear to be some plausibility in that idea, because of the
\nstarting point in time specified in the section, because of the sections which
\nsurround s. 92, and because proviso to s. 92 relates to customs duties. But it
\nis clear that much more is included in the term; customs duties and other like
\nmatters constitute a merely pecuniary burden; there may be different and
\nperhaps more drastic ways of interfering with freedom, as by restriction or
\npartial or complete prohibition of passing into or out of the State.\n<\/p>\n
Nor does “free”\n<\/p>\n
necessarily connote absence of discrimination between inter-State and
\nintra-State trade. No doubt conditions restrictive of freedom of trade among
\nthe States will frequently involve and discrimination; but that is not
\nessential or decisive ………. A compulsory seizure of goods ……… may
\ninclude indifferently goods intended for intra-State trade and goods intended
\nfor trade among the States. Nor can freedom be limited to freedom from
\nlegislative control; it must equally include executive control …… Every
\nstep in the series of operations which constitute the particular transaction is
\nan act of trade; and control under the State law of any of these steps must be
\nan interference with its freedom as trade.”\n<\/p>\n
These observation made in the
\ncontext of a guarantee against obstruction to the flow of inter state trade and
\ncommerce, involved the “conception” of “freedom from customs
\nduties, imports, border prohibitions and restrictions of every kind : the
\npeople …….. were to be free to trade with each other, and to pass to and
\nfro among the States, without any burden hindrance or restriction based merely
\non the fact that they were not members of the same State”.\n<\/p>\n
81. Freedom guaranteed by Art. 301 is however not absolute : it is subject
\nto the provisions contained in Part XIII of the Constitution. Article
\n302<\/span>
\nauthorises Parliament to impose restriction the freedom of trade, commerce an
\nintercourse between one State and another or within any part of the territory
\nof India as may be required in the public interest. The Constitution has
\ntherefore circumscribed the guarantee under Art. 301 by authorising the
\nParliament to impose restrictions thereon. Such restrictions on trade, commerce
\nand intercourse may be intra-State as well as inter-State : the only condition
\nwhich the restrictions must fulfill is that they must be imposed in the public
\ninterest. The Learned Attorney-General urged that the courts are incompetent to
\nadjudge whether the quantum, and the incidence of a tax imposed by a
\nLegislature in exercise of its powers are in the public interest, and therefore
\nit must be inferred that Arts. 301 and
\n302 do not deal with freedom from
\ntaxation and the limits which may be placed thereon. Counsel urged that in the
\nmodern political thought, exercise of the sovereign power of taxation is not
\nrestricted to collection of revenue for governmental purposes; it is resorted
\nto for diverse purposes, often with view to secure a pattern of social order
\nensuring justice, liberty and equality amongst citizens. That the courts may
\nnot in adjudging upon the validity of a restriction imposed by a parliamentary
\nstatue, lightly enter upon an investigation whether the amount sought to be
\nrecovered and its incidence are in the public interest, is not a ground for
\nholding that Art.\n<\/p>\n
302 does not deal with restrictions which may be placed upon
\ntrade, commerce and intercourse by the imposition of taxes. The courts will
\nnormally upon the wisdom of the Parliament and presume that taxes are generally
\nimposed in the public interest : but that does not exclude the jurisdiction of
\nthe court in a given case to enter upon an enquiry whether an impugned
\nlegislation satisfied that constitutional test. If an enquiry into the validity
\nof a burden or impediment imposed on the freedom of trade, commerce and
\nintercourse imposed otherwise than by levying a tax is within the competence of
\nthe court, the restraint which the courts put upon their own functions by
\nraising a presumption of constitutionality in dealing with a burden imposed by
\na taxing statute cannot be forged into a fetter upon the jurisdiction. By
\nclause (b) of Art. 304, the State Legislature are invested with similar
\nauthority to impose restrictions on the freedom of trade, commerce and
\nintercourse with or within the state as may be required in the public interest.
\nThe territorial extent of the operation of the laws which may be made under
\nArts.\n<\/p>\n
302 and 304(b) may not from the very nature of the jurisdiction exercised
\nby the Legislature be co-extensive, but subject thereto, the Parliament and the
\nState Legislatures are entrusted in exercise of legislative authority with
\npower to restrict freedom of trade, commerce and intercourse. Why the
\nConstitution should have enacted that the Parliamentary law may impose
\nrestrictions as may be required in the public interest and the State law may
\nimpose reasonable restrictions as may be required in the public interest, it is
\ndifficult to appreciate. It is unnecessary for the purpose of these cases to
\nenter upon a discussion whether there is any real distinction between the
\nquality of restrictions which may be imposed by legislation by the parliament
\nand State Legislatures exercising authority respectively under Arts.
\n302 and
\n304(b) of the Constitution. The two Articles enact that to cirucmscribe
\neffectively the freedom of trade, commerce and intercourse, the restriction
\nmust satisfy the primary test that it is “required in the public
\ninterest”. Clause (b) of Art. 304 is subject to a proviso that no Bill or
\namendment for the purpose of clause (b) shall be introduced or moved in the
\nLegislature of a State without the previous sanction of the President. The
\nauthority of the State Legislature to enact legislation imposing restrictions
\non trade, commerce and intercourse is therefore subject to the condition the
\nbefore the Bill or amendment of a statute is moved, the previous sanction of
\nthe President must be obtained. Legislative power of the Parliament imposing
\nrestrictions on the freedom of trade, commerce and intercourse may therefore be
\nvalidly exercised if the restrictions are required in the public interest. On
\nthe exercise of authority in that behalf by the State Legislatures, there are
\nplaced two restrictions, (1) that the restrictions must be reasonable and
\nrequired in the public interest, (2) that the Bill or amendment imposing
\nrestriction can removed or introduced in the Legislature only with the previous
\nsanction of the President. In this context, I may refer to Art. 255 which
\nprovides, in so far as it is material, that no Act of the Legislature of a
\nState shall be invalid by reason only that the previous sanction required by
\nthe Constitution was not given, if assent to that Act was given under clause\n<\/p>\n
(c) where the previous sanction required was that of the President, by the
\nPresident. Even if the previous sanction of the President has not been obtained
\nto the moving or introduction of the Bill or amendment falling within clause\n<\/p>\n
(b) of Art. 304, the Act still would not be invalid if the President has
\nsignified his assent to the Act enacted by the Legislature.\n<\/p>\n
82. Article 303(1) is an exception to Art.\n<\/p>\n
302 as well as Art. 304(b).\n<\/p>\n
Notwithstanding the wide sweep of the legislative power restored by Arts.\n<\/p>\n
302<\/span><\/p>\n
and 304(b) to the Parliament and the State Legislatures to make laws imposing
\nrestrictions on the freedom of trade, commerce and intercourse, prohibition is
\nimposed on the exercise of the power in making laws giving or authorising the
\ngiving of, any preference to one State over another or making, or authorising
\nthe making of, any discrimination between one State and another, by virtue of
\nany entry relating to trade and commerce in any of the Lists in the seventh
\nschedule. Clause (1) of Art. 303 emphasises the object of the Constitution,
\nmakers to safeguard the economic unity of the nation and to prevent
\ndissemination between the constituent States in the matter of trade and
\ncommerce. It is true that under clause (1) of Art.\n<\/p>\n
302, the discrimination
\nwhich is prohibited is under a law made by virtue of an entry relating to trade
\nand commerce in the seventh schedule. But thereby, discrimination which is prohibited
\nis not limited to discrimination under laws made under items expressly relating
\nto the trade and commerce items of the seventh schedule. The expression
\n“relating to trade and commerce” used in Art. 302(1) in my judgment
\nincludes all those entries in the lists of the seventh schedule which deal with
\nthe power to legislate, directly or indirectly in respect of activities in the
\nnature of trade and commerce. By clause (2) of Art. 303, the rigour of clause
\n(1) in the matter of laws to be enacted by Parliament is to a certain extent
\nreduced. That clause authorises to the Parliament, but not the State
\nLegislatures, to make laws not with standing clause (1) when it is declared by
\nlaw that it is necessary to make discrimination which is prohibited for the
\npurpose of dealing with the situation arising from scarcity of goods in any
\npart of the territory of India.\n<\/p>\n
83. Article 304, in so far as it is material, provides that not withstanding
\nanything in Art. 301 or Art. 303, the Legislature of a State may by law, (a)
\nimpose on goods imported from other States (or the Union territories) any tax
\nto which similar goods manufactured or produced in that State are subject, so,
\nhowever, as not to discriminate between goods so imported an goods so
\nmanufactured or produced. This clause implies that notwithstanding anything
\ncontained in Art. 301 or Art. 303, the State Legislature has the power to
\nimpose tax on the import of goods to which similar goods manufactured or
\nproduced in the State are subject, provide that by taxing the goods imported
\nfrom another State or Union territory, no discrimination is practiced. If Art.
\n301 and Art. 303 did not deal with restrictions or burdens in the nature of
\ntax, the reason for incorporating the non-obstante clause to which Art. 304, clause
\n(1), is subject, cannot be appreciated. Undoubtedly, the provisions of Part
\nXIII of the Constitution do not impose additional or independent powers of
\ntaxation; the powers of taxation are to be found conferred by Arts. 245, 246
\nand 248 read with the lists in the seventh schedule, and the provision of Part
\nXIII are limited of the exercise of legislative power. The circumstance that
\nthe Constitution has chosen to deal with a specific field of taxation as an
\nexception to Arts. 301 and 303 (which should really be Art. 303(1)) strongly
\nsupports the inference that taxation was one of the restrictions from the
\nimposition of which by the guarantee of Art. 301, trade, commerce and
\nintercourse are declared free.\n<\/p>\n
84. Clause (b) of Art. 304 is subject to the proviso prescribing that
\nprevious sanction of the President shall be obtained to the moving or
\nintroduction of a bill or amendment imposing restrictions on the freedom of
\ntrade, commerce and intercourse. There is however no such condition imposed in
\nthe matter of enactment of laws imposing non-discriminative tariffs under
\nclause (a). But on that account, the nature of the restrictions contemplated by
\ncls. (a) and (b) is not in any manner different. Clause (b) deals with a
\ngeneral restriction which includes a restriction by the imposition of a burden
\nin the nature of tax. Clause (a) deals with a specific burden of taxation in a
\nlimited field.\n<\/p>\n
85. Article 305 protects existing laws except in so far as the President may
\nby order or otherwise direct, and it also validates certain enactments made
\nbefore the commencement of the Constitution (Fourth Amendment) Act, 1955, and
\nauthorises the Parliament and the State Legislatures in future to make laws
\nrelating to matters referred to in sub-clause (2) of clause (6) of Art. 19.
\nArticle 306 of the Constitution which was repealed by the Constitution (Seventh
\nAmendment) Act, 1956, provided, in so far as it is material, that
\nnotwithstanding anything in the foregoing provisions of Part XIII or any other
\nprovision of the Constitution, a State specified in Part B of the first
\nSchedule which before the commencement of the Constitution was levying any tax
\nor duty on the import of goods into the State from other states or on the
\nexport of goods from the State to other States may, if any agreement in than
\nbehalf has been entered into between the Government of India and the Government
\nof that State continue to levy and collect such tax or duty subject to the
\nterms of such agreement ………. The marginal note of the Article refers to the
\npower of the States specified in Part B of the First Schedule to levy tax as
\npower to impose restrictions on trade and commerce, and clearly supports the
\nview that within the meaning of Art. 301, freedom was to include freedom from
\ntaxation and the restrictions contemplated by Arts.\n<\/p>\n
302 and 304 contemplated
\nimposition of burdens of the nature of taxation.\n<\/p>\n
86. On a careful review of the various Articles, in my judgment, by Part
\nXIII, restrictions have been imposed upon the legislative power granted by Arts.
\n245, 246 and 248 and the lists in the seventh schedule to the Parliament and
\nthe State Legislatures and those restrictions include burdens of the nature of
\ntaxation. Therefore, the power to tax commercial intercourse vested by the
\nlegislative lists in the Parliament or the State Legislatures, is circumscribed
\nby Part XIII of the Constitution and if the exercise of the power does not
\nconform to the requirements of Part XIII, it would be regarded as invalid.\n<\/p>\n
87. As observed hereinbefore, the previous sanction of the President was not
\nobtained to the moving of the Bill which was enacted as the impugned Act. Even
\nthough the Assam Legislature had by item 56 of the seventh schedule legislative
\nauthority to impose this tax, the State could not exercise this authority in
\nthe absence of the previous sanction of the President and the invalidity of the
\nAct imposing the tax on goods and passengers is not cured, the President not
\nhaving assented to the Act at any time after it was passed by the Assam
\nLegislature. The argument that this view seriously restricts the
\n“sovereignty” of the States has, in my view, little force. Even a
\ncursory review of our constitutional provisions clearly shows that the primary
\nobject of the Constituent Assembly was to erect a Governmental machinery with a
\nstrong Central Government, with the object of building up a healthy economy,
\nand unifying the various component State, consisting of the former British
\nIndian Provinces and the merged Indian States, by subordinating local on
\nparochial interest to the wider national interest. In any event, in adjudging
\nthe vires of a statue, the impact of the view which the interpretation placed
\nby the court may produce on some cherished notion of sovereign of the component
\nStates must be ignored.\n<\/p>\n
88. In that view, the Assam Taxation (on Goods carried by Roads or Inland
\nWaters) Act, 1954, must be regarded a infringe the guarantee of freedom of
\ntrade and commerce under Art. 301, because the Bill moved in the Assembly had
\nnot received the assent of the President as required under Art. 304(b) proviso,
\nand the Act has not been validated by the assent of the President under Art.
\n255(c).\n<\/p>\n
89. In the view expressed by me, I do not deem it necessary to enter upon
\ncertain subsidiary contentions such as the application of the “pith and
\nsubstance doctrine” to the interpretation of the relevant clauses, the
\nalleged violation by the Act of the equal protection clauses of the
\nConstitution, and the effect of Act XXIX of 1953 enacted by the Parliament,
\nwhich were debated at the Bar.\n<\/p>\n
90. In the view taken, the appeals must be allowed and the Rule in the two
\napplications made absolute, with costs.\n<\/p>\n
ORDER OF COURT <\/p>\n
91. In view of the majority judgment, the appeals and the writ petitions are
\nallowed with costs – one set of hearing fees.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Atiabari Tea Co., Ltd. vs The State Of Assam And Ors. on 26 September, 1960 Equivalent citations: AIR 1961 SC 232, 1961 1 SCR 809 Author: Sinha Bench: B S Shah, K Dasgupta, K Wanchoo, P Gajendragadkar JUDGMENT Sinha, C.J. 1. These appeals on certificates granted under Art. 132 of the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-98354","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nAtiabari Tea Co., Ltd. vs The State Of Assam And Ors. on 26 September, 1960 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/atiabari-tea-co-ltd-vs-the-state-of-assam-and-ors-on-26-september-1960\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Atiabari Tea Co., Ltd. vs The State Of Assam And Ors. on 26 September, 1960 - 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