l S.C.R. SUPREME COURT REPORTS 809

ATIABARI TEA CO., LTD.

v.

THE .STATE OF ASSAM AND OTHERS.

(AND

CO.~NECTED PETITION

AND APPEALS)

(B. P. SINHA, c. J., P. B. GAJENDRAGADKAR,

IC N. WANCHOO, K. C. DAs GUPTA and

J. c. SHAH, JJ.)

Freedom of Trade-If includes freedom from laxation·-State

Law imposing tax on goods carried by road or inland waterways-­

Constitutionaly of-Constitution of India, Arts. JOI and 304-

Assani Taxation (on goods carried by Roads and Inland Waterways)

Act, Ip54 (Ass. XIII of I954).

The Assam Taxation (on goods carried by Roads and Inland

Waterways) Act, 1954, was passed under Entry 56 of List II of

Seventh Schedule

to

the Constitution. The appellants contend­

ed

that the

"Act violated the freedom of trade guaranteed by

Art. 301 of the Constitution and as it was not passed after ob­

taining the previous sanction of the President as required by

Art. 304(b) it was ultra vires. The respondent urged that taxing

Jaws were not governed by

Part XIII (which contained Arts.

301

and 304) but only by Part XII and in the alternative thatthe

provisions of Part XIII applied only to such legislative entries

in the Seventh Schedule as dealt specifically with trade, com­

raerce ·and intercourse.

Held, (per Gajendragadkar, Wanchoo and Das Gupta, JJ.)

that the Act violated Art. 301 and since it did not comply with

the provisions of Art. 304(b) it was ultra vires and void. The

freedom of trade, con1metce and intercourse guaranteed by

Art. J.Ol was wider than that contained in s. 297 of the Govern­

ment of India Act, 1935, and it included freedom from tax laws

also. Article 3or provides

that the flow of trade shall run

smooth and unhampered by any restriction either at the bounda­

ries of the

States or at any other points inside the States them­

selves; and if any Act imposes any direct restrictions on the

movetnent of goods it attracts the provisions of Art. 301, and its

validity can be sustained only if it satisfied the requirements of

Art. 302 or Art. 304. The operation of Art. 301 cannot be

restricted to legislation under

the Entries dealing with trade

and commerce. The Assam Act directly affected the freedom

contemplated by Art. 3or.

Ramjilal v. Income-tax

Officer, Mohindargarh, [1951] S.C.R.

127, M. P. V. Sundararamier G Co. v. The State of Andhra Pra­

desh, [r958] S.C.R. 1422, James v. Commonwealth of Aitstralia,

(1936) A.C. 578, The State of Bombay v. The United Motors (Indio)

Ltd., [1953] S C.R. 1069, Saghir Ahmed v. The State of U.P.,

September 26.

1960

At1abari Tea

Co., Ltd.

v.

The Stal~ of

· A ssan1 6-Others

810 SCPREME COURT REPORTS [ 1961]

[1955] r S.C.R. 707, James v. Stale of South Australia, (1927) 40

C.L.R. land James v. Cowan, (1932) A.C. 542, referred to.

Per Sinha, C. ].-The Assam Act did not contravene

Art. 301 and was not ultra vires. ~either the one extreme posi­

tion that Art. 301 included freedom from all taxation nor the

other that taxation was wholly outside the purview of Art. 301

was correct. The freedom conferred by Art. 301 did not mean

freedom from taxation simpliciter but only from the erection of

trade barriers, tariff walls and imposts which had a deleterious

effect on

the free flow of trade, commerce and intercourse. The

Assam Act was a

taxing statute simpliciter and did not suffer

from any of

the vices against which Part XIII of the

Constitu­

tion was intended.

Ramjilal v. Income-lax Officer, Mohi11dargarh, [1951] S.C.R.

127, referred to.

Further, the impugned Act was within the competence of

the State Legislature and fell directly within Entry 56 of

List

II; it was not in conflict with the Tea Act of 1953 enacted

by Parliament; it did not contravene Art. 14 and it was not

extra-territorial in operation.

The

Tata Iron & Steel Co. Ltd. v. The State of Bihar, [1958]

S.C.R. 1355, followed.

Per Shah, ].-The Assam Act infringed the guarantee of

freedom of

trade and commerce under Art.

301 and as the Bill

was not moved

with the previous sanction of the

President as

required by Art. ㌰㐈⤠nor was it validated by the assent of the

President under Art. 255(c), it was ultra vires and void. Arti­

cle 301 guarantees freedom in its widest amplitude, freedom

from prohibition, control, burden or impediment in commercial

intercourse. The freedom includes not only freedom from dis­

criminative tariffs and trade barriers hut also from all taxation

on commercial intercourse. Part XIII of the Constitution places

restrictions upon

the

legislati\'f power granted by Arts. 245,

246 and 248 and the Lists and these restrictions include burdens

in the nature of taxation.

James v. Commonwealth of Australia, L.R. (1936) A.C. 578,

referred to.

ORIGINAL JURISDICTION: Petitions Nos. 246 of

1956 and 2 of 1959 (Under Article 32 of the Constitu­

tion of India for enforcement of Fundamental Rights)

with C. As. Nos. 126 to 128 of 1958.

1960. August 16, 17. N. C. Chatterjee, with N. C.

Chakravarti, Dipti Bose and S. C. Mazumdar for th~

petitioners in Petition No. 246 of 1956 and with P.

Chaudhuri, D. N. Mukherji and B. N. Ghose, for the

appellants in C. As. Nos. 126-128 of 1958. The Assam

1 S.C.R. SUPREME COURT REPORTS 811

Taxation (on goods carried by road and inland water-I9

60

ways) Act, contravenes Art. 301 of the Constitution. Atiabari Tea

Article 301 means freedom from all restrictions includ-

Co., Ltd.

ing tax laws. Articles 245 aud 246 are subject to v.

Art. 301. It is wrong to say that taxation is outside The State of

the scope of Art. 301. Article 304(a) itself contem-Assam & Others

plates the imposition of tax. Article 304(b) may also

refer to

tax in certain circumstances, in cases other

than those covered by Art.

304(a). In enacting Art.

301 the Constituent Assembly rejected s. 297 of the

Government

of India Act, 1935, and deliberately

adopted the Australian

s. 92. Movement is an

essen-

tial ingredient of trade and commerce and there must

be no fetter on

it; any taxation would be

a fetter.

Taxation is not outside the

ambit of Art.

301; I.L.R.

1955 Born. 680, 683. What is commerce· is brought

out in the following decisions : 6 L. Ed. 1, 68; [1952]

S.C.R. 572, 578; 93 C.L.R. 127; 1936 A.C. 573, 627;

A.LR. 1954 Raj. 217.

B. Sen and S. N. Mukherjee, for the petitioners in

Petn.

No. 2/59. Article

301 sets out the general free­

dom and Art. 302 the restrictions that can be placed

on this freedom. Non-discrimination is one

of the

aspects

of the freedom in Art.

301. Article 306 as it

stood before its deletion, spoke of taxation or duty on

import

or export of goods between States. It postu.

lated

'taxes' in . Art.

301 ; ·but for the non.obstante

clause it would have been affected by Art. 301. . The

Supreme Court has discussed the scope of Art. 301 in

[1953] S.C.R. 1069, 1079, 1081, 1088. The decision of

Chagla, C. J., in I.L.R. 1955 Born. 680 regarding

scope

of Art.

301 was not reversed by the Supreme

Court.

B. K. P. Sinha and A. G. Ratnaparkhi.-With

regard to the scope of Art. 301 reference is invited to

the decision in A.LR. 1954 Hyd. 207, A.LR. 1958

M.P. 33, A.LR. 1956 M.B. 214, LL.R. 1952 Mad. 933,

55 C.L.R. 1, 56 and regarding the meaning of export

to the decision in

LL.R. 1955 Tr.

Co. 123.

M. G. Setalvad, Attorney-General of India, with

S. M. Lahiri, Advocate-General of Assam a.nd Naunit

Atiaba1i Ita

Co., Ltd.

v.

1 he Stale of

A .1s11m 0-(Jtiirn•

812 SUPRE~IE COCRT llEPORTS [ 1961]

Lal, for the respondents in Petition I o. 246 of 1956

and Civil Appeals Xos. 126-128 of 1958 and Petition

!\o. 2 nf 1959, and with T. M. Sen, for the Intervener,

Attorney-General of India. Power to tax is an inci­

dent of so\·.,reignty. The Power is divided lwtwe"n

th,· Union

aud

the States. Part Xll of the Constit11-

tio11 deals with taxatiou-sc1·eral aspects of it. All

resuictions on the powers to tax are contaiued iu

Part XII which is self-contaiucd. P,u'L Xlll deals

with

something

else. Art. 301 deals with freedom of

inter-St.ate as well as intra.~tate trade and is different

from s. 92 of the Australian Constitution. In

Article 301 freedom of trade onlv mean~ free­

dom from trade barriers-it does not: meari freedom

from

taxation. Taxation simpliciter was

not within

the terms of Art. 301. Taxation is not a restric­

tion wit.bin the meaning of .Part Xlll. Article 302

uses the words "in the public interest". If I he res­

triction:;

contemplated there.in included

t.ax, then

every tax will have to be justified tu be in the public

interest. Hestrictions do uot include taxing measures,

utherwise

there will

be a power of judicial review in

respect of a.II stH:h taxing measures. Cooley's Cunsti­

tutinnal Limitations, 8Lb Edition, Veil. II, p. 986-!J88.

Taxation is » peculiarly legislative activity. 1t is

likely

that if the Constitution makors wanted to put a bar on the taxation power, it would barn been

pl.-ced in P:~rt XI [ and not left to be inforred from

Art. 301; (19.'il] S.C.H. 127, 136-137: [1955] l 8.C.H.

765. The word "r"st.rict.io11" ia very inapt to describe

t:txatio11.

Apart from

Part Ill all restrictions must

be found in l'art Xlll so far as taxatiun ia concerned.

Article 301 does not start witb the words "notwit,h­

sta.oc.Jing anything i11 this Constitution" because it is

eonccrned only with a small sphere of freedom of

trade and commerce and not with taxation. Hestric­

tion in these Articles means restriction on movement.

The rcstdt of holding ot berwisc would be that even

for intra-stale taxes the States will have to go to the

Prnsident. and the legislation will be subject to judicial

review.

If

Part 111 as well as Art. 301 apply to tax­

ing measures, the question will arise which test would

1 S.C."j.'t. SUPREME COURT REPORTS 813

the Court apply-" reasonable in the interest of the

general public " as en visaged by Part III or " in the

interest

of the

public" envisaged by Art. 302. This

indicates

that neither Part III nor Art.

301 applies to

taxiug measures. Article 303 deals with preference

and discrimination between one State and another. It

is restricted to legislation with respect to the entries

regarding trade and commerce within the State, like

entry

26, list II and the entries 33 and 42 of list III.

Nothing in Art.

303 indicates that the freedom there

includes freedom from taxation. Article 304(a) deals

with discrimination and not with taxation simpliciter.

It lays no restriction on the State taxing goods in its

own

territory: [1958]

S.C.H. 1472. Article 304(a)

cannot be interpreted as throwing any light on the

scope of Art.. 301. Section 297 of the Government of

India Act, 1935, was the predecessor ()f Art. 304,

Article 304(a) assumes that there is an existing tax on

goods which

is not levied under

304(a).

There is an intermediate position also. Article 301

should be restricted to legislation which is directly

with respect to

trade and commerce and not to

legis­

lation, which is in pith and substance not with res­

pect to trade but only incidentally or indirectly

affects trade and commerce. The Assam Act passed

under entry

56 is not a legislation with respect to trade

and commerce.

Mahabir

Prasad, Advocate-General for the State of

Bihar, B. K. Saran and K. L. Mehta for the Inter­

vener, State of Bihar.-Article 301 merely concerns

itself with the restrictions on the free

flow of trade

and commerce.

It deals with policy of protection.

Article

302 also contemplates movement and passage

of goods. Restriction does not as a rule imply taxa­

tion. If taxation is imposed with a view to restrict

goods passing from one State to another, it will

become a restriction under Art. 301. Article 304(a)

permit.s tax on entry of goods equal to the tax on

such goods which are in

the

State. Octroi may be hit

by Art. 301 if it is not saved by other provisions. It

104

1960

.d t iabari Tea

Co., Lid.

v.

The State. of

Assam &-Others

Alialuri Te1i

Co., Ltd.

v.

TJ,e State o/

A.i:s1011 6-Others

814 SUPRE::IIE COl'RT REPORTS [1961]

is a. restriction "ithin Art. 301 when it obstructs the

movement of trnde.

S. M: Sikri, Advocate.General for the State of Punjab,

N. S. Bindra awl T .• V. Sen for the Intervener, the

State of Pu11jab. It is impossible lo determine whe­

ther a panicular tax places reaso11able restrictions

and whether it is in-tho public interrst. Article 301

is coucerned with the right of pas•age ge.nerally with

respect to tradl' and c<,mmerce and Art. l9(l)(g) with

the right. of au individual: 1955 P.L.R. 304: l.L.H. 7

Haj. 7!!4; A.LR. 1960 Andhra 234. Article 302

assumes legislation of Parliament under the entries

r~l.i.ting to trade and commerce.

R. Ganapathi Iyer and T. 1l1. Sen, for Intcr\'Cncr

No. 3, the State of Madras adopted the submissio11s

rnad<J by the Attorney -General.

G. C. Kasliwal, Adi:ocate-General for the Stale of

Raja.sthan and 1'. M. Sen for the Intcrveuer, the State

of Hajasthan adopted the submissions mac.le by the

Attorney-General.

G. C. li!athur and C. P. Lal, for the Intervener

No. 6, the State of Uttar Prac..lesh, adoptec..I the sub­

missions made by t h11 Attorney -General.

N. C. Chatterjee i11 reply. Article 301 is an over­

riding provision over all other provisions. It is much

wider than R. 297 of the Government of India Act. It

applies to all pecuni1~ry burc..lsns and commauc..ls that

trade shall be free from all pecuniary burdens: 22

C.L.R. 566; 1936 A.C. 573, 629-630.

1960.

September

26. The ,Judgment of Sinha,

C. J., was dcliverec..I by Sinha, C. J. The judgment of

Gajendragadkar, \Vanchoo and Das Gupta, JJ., was

dMiv«red by Ga.jendraga.dkar, J. and Shah, ,J., deli­

vered his own judgment.

Si"h" c. J. SINHA C. J.-These appeals on certificates granted

under Art. 132 of the Constitution by the High Court

of Judicature in Assam and Writ Petitions under

Art. 32 of the Constitution impugn the constituf iona­

lity

of the Assam Taxation (on

Gooc..ls Carried hy

Roads or Inland Waterways) Act, (Assam Act XIII

1 S.C.R. SUPREME COURT REPORTS 815

of 1954), which hereinafter will be referred to as the

Act. The appellants moved the High Court under

Art. 226

of the Constitution challenging the validit.y

of the Act.

·The High Court by its judgment and

order dated June 6, 1955, dismissed the writ petitions.

Thereupon,

the appellants obtained the certificates

that the cases involved substantial questions of law

as to the interpretation

of tbe Constitution. Tbe peti.

tions under Art. 32 of

the Constitution were moved in

this

Court for the same purpose of challenging the

vires of the Act. Tbe appellants and the petitioners

will, in the course of this judgment, be referred to, for

tbe sake

of convenience, as the appellants: The

State

of Assam, the Commissioner of TaxeP, appointed

under

s. 6 of the Act, and the Superintendent of Taxes

are the respondents to

the appeals and the writ peti-

~m, . .

It appears that the appellants are growers of tea in

West Bengal or in Assam and carry their tea to the

market in Calcutta fi;.om where the tea is sold for con­

sumption in the country or is exported for sale out of

the country. The sale of tea inside Assam bears a

very small proportion to the tea produced and manu­

factured by the appellants. ThuR the. bulk of tea

produced atid manufactured is carri~ out of Assam,

either for internal consumption in I dia or for export

abroad. Besides

the tea carried by

ail,·a large quan­

tity of tea is carried by road or by inland waterwavs

from Assam to Bengal and in some of these cas;s,

from one part of West Bengal to another part of the

same State through inland waterways, only a few

miles of which pass through the territory of the State

·of Assam. The Assam Legislature passed the Act

which received

the assent of the Governor of Assam

on April 9, 1954,

and came into force on and from

June 1, 1954. The purpose of the Act is to levy

tax­

es on certain goods carried by road or inland water­

ways in the State of Assam.· On June 30, 1954, the

second respondent, the Commissioner of Taxes, Assam,

in exercise of

the powers conferred upon him by sub.

s. (3) of s. 7 of the Act, published a notification in the

Assam Government Gazette bearing date June 21,

Atiabari Tea

Co., Ltd.

v.

The State

of

Assani & Others

Sinha C. ].

Atirr: .. ~; 1'ra

Ct· .. Lid.

'"

Slfi SUPRE~!E COCRT HEPORT~ [191ll]

1954, by which he notifird for general information

that the return uuder the aforesaid Act and the rules

made tl1ereunder for tho period commencing June 1,

1954 to September 30, 1954, Rbould be furnishrd hy

,.,,, s""' nf Or.tobor 30, 1954. The said notifil'ation also dema11d­

A""'" 1~ Oihm ed the furnishing of quarterly returns before ,January

Si11h11 C . .f.

30, 1955 and April 30, 1955, for t.hP qnarters Pnding

Dect>mber 31, 1954 and Mareh 31, 1!155, resp•·ctirdy.

The appellants in some of the casPs, in pursuance of

demand noticeR, submittPd returns to the third rPs­

pondent, the Superintf·ndent of Taxes, in the pn~scrib­

ed form in respect of tea dcspat.ched a11d <'n.rried up to

September 30, 1954, under protest. They alsn paid

the tax demanded undn protl'st. The apprllar.t~

moved the High Court of Judicature in A~sam_ undrr

Art. 226 of the Constitution challenging the \'alidit.y

of the said Act. and praying for tht>. i;sue of a writ of

mandamus directing the respondents to forbear from

iriving elfei:~ to the prO\·isionH of the Act and the noti­

fication issued under the Act anq/or a writ of prohibi­

tion or any other appropriate writ restraining t\i;m

from taking steps under the provision" of the Aet.

The appellants challenged the validity of the Act

mainly on the grounds that (l) the Act, rult-s and the

notifications under the Act were ultra vires the Cons­

titution, b<,ca.use the Act was repugnant to the pro,·i­

~ions of Art. 301 of the Constitution as the tax on

carriage of tea through the State of Assam ha<l the

effect of interfering with the freedom of trade, com­

merce and intercourse; (2) tbat tea being a controlled

industry under the provisions of the Tea Act XXIX

of 1953, tho Union Government alone had the power

to regulate the manufacture, production, distribution

or transport of tea and the jurisdiction of the Assam

Legislature was thus completely ousted; (3) that the

tax under the Act was nothing but a duty of excise,

in substance, though not in form, and was thus an

encroachment on the Cent.ral legislative field within

the meaning of entry 84 of thP Union List. The im­

pugned Act was also challenged on the ground that it

was discriminatory and thus void under Art. 14 of

l S.C.R. SUPREME COURT REPORTS 817

the Constitution. The competence of the Assam Legis­

lature to legislate on the subject was also questioned.

The respondents opposed those petitions under

Art. 226 of the Constitution in the High Court. It was

denied by

the

State that the Act or the rules made

thereunder or the notifications issued thereunder were

ultra vires the Constitution or that the Act contraven­

ed the provisions of Art. 301 of the Constitution or

that it was an encroachment on the sphere of the

Union Legislature or was in a.ny way in conflict with

the provisions of the Tea Act XXIX of 1953. The

case of the respondents was that the Act was in pith

a.nd substance, a legislation to levy tax on certain

classPs and types of goods carried by road or inland

waterways, strictly within entry 110. 56 of the State

List. It was also asserted that the Act was within

the legislative competence of the Assam Legislature

and wa.s not within the terms of the prohibition con­

tained in Art. 301 of the Constitution.

These petitions were heard by a Special Bench of

the Assa.m High Court, which, by its judgment and

order dated June 6, 1955, dismissed them holding that

the A6t was not unconst.itut.ional. Two separate, but

concurring judgments, were delivered by Sarjoo Pra­

sad, C. J. and Ram Labhaya, J. The learned Chief

Justice, in the course of his judgment,, held that the

Act contem11lated imposition of a tax on transport or

c<1rriage of goods within the meaning of entry 56 <>f

List II and did not amount to interference with the

freedom of t.radc and commerce within the meaning

of Art. 301 of the Constitution ; that the pith iwd

substance of the impugned Act was that it was a tax­

ing legislation which was not directly concerned with

trade and commerce, though it might indirect'ly en­

trench on the field of trade and commerce and that

Art. 301 was not directly concerned with taxing laws.

He also held that the impost levied by the A-ct was

not in the nature of an excise duty and that there was

no

substance in the contention

,that it encroached

upon entry 84 of the Union List I. It was also held

that the impugned Act did not, in any way, come

in conflict with the control of the tea industry

.r960

Atiaba1'i Tea

Co., .Ltd.

v.

The Slate of

Assatt1 0--Others

.5inha· C. ].

Atiaba-rr 'le(t

Co, Ltd.

v.

The Stalt of

Assam &-Othos

SiPJ!ta C. }.

818 SUPREJ\lE COCRT REPORTS [ 1961]

introduced by the Central Legislation, namely, the

Tea Act XX IX of 1953.

Ram Labhaya, J., examined t.he provisions of the

impugned Act in great detail and came to the conclu­

sion that the element of C"arriage was expressly made

a condition of liability to tax under the impugned

Act and it was, therefore, distinguishabhi from a duty

of cxci'e and came directly under l•nt.ry 56 of Li8t II.

On the crucial g11eHtion arising in t.his c:ise, his con­

clusion was I hat taxation per se has not the effpct of

abridgi11g or curtailing thB freedom con tern plated by

Art. 301; that Arts. 302 and 304 restrict the powers

of Parliament and the State Ll·gislatures in the matter

of legislation under cntriPs 42 of List I, 26 of List II

and 33 of List III and that restrictionR properly AO

called on the movement of goods and traffic must find

their justification from t.he provisions of Part XIII of

the Constitution; that the impugned Act made prod~

sion for taxation which did not directly impinge upon

the freedom of trade, commerce and intercom>'e within.

the meaning of Art. 301. His view also was that in

some casrs taxation may have the effect. of placing

restrictions 011 m1wement of goods Qnd traffic, and if

it has that effect, it comes within the mischief of

Art. 301. In the result., his conclusion was that the

impugned Act in its pith and substance fell within

the ambit of entry 56 of List II. Ile also examined

the terms of the Union logislation, Tea A<·t Xo. XXlX

of 1953, and came to the conclusion that the impugn­

ed Act did not trespass upon the field of the controll­

ed in<lutitry of tt·a. His conclusion with reference to

the argument of discrimination based on Art. 14 was

that there was no proof forthcoming of any real dis­

crimination between persons and t.hiugs. With tb<>se

conclusions Deka, J., the third Judge, entirely agreed.

From the judgment of the High Court the appellants

have come up in appeal on certificates granted by the

High Court. The two petitions under Art. 32 of the

Constitution were filed on behalf of two other produ­

cers of tea. They raise the same questions a.s a.rise

for

determination in the three appeals from the

deci­

sion of the Assam High Court. They ba.ve all been

I

1 S.C.R. SUPREME COURT REPORTS 819

heard together and will be dealt with by a common

judgment.

Mr. Chatterjee, on behalf of

the appellants,

con­

tended that the impugned Act imposed fetLers on the

free

flow of trade and commerce in respect of tea and

jute, the two commodities dealt with by the Act and,

therefore, .contravened the provisions of Art.

301 of

the Constitution ; that the legislation was .ieyond the

legislative competence of the Assam Legislatnre and

was not authorised

by entry 56 in List lI; that the

tea industry was a controlled industry as declared by

Parliament

and directly came under entry 52 of

List I; that it was a colourable piece of legislation

which, in its true effect, was a levy

of a duty of excise

which could only be done by the

Union Legislature,

and finally, that it contravened Art. 14 of the

Constitution. ·

The learned Attorney General on behalf of the State

of Assam as also

of the

Union contended, on the other

hand,

that taxation simpliciter was not within the

terms

of Art.

301. Taxation as such is not a restriction

within the meaning of Part XIII. It is an attribute

of so~ereignty, which is not justiciable. The power

to tax is a peculiar legislative function with which the

courts are not directly concerned

and that, therefore,

the freedom contemplated by Art.

301 does not mean

freedom from taxation

and that taxation is not

includ­

ed within the connotation of the term. " Restriction "

in the context of Part XIII meant legislation which

had the effect of impeding the free flow of goods

and traffic by erection of tariff walls, for example,

a tariff wall,

if erected by a Legislature, may be

justiciable, hut not legislation simply imposing a tax

for purposes of revenue. He further contended that Part XII of the Constitution is a self-contained part

dealing with finance etc., even as Part XIII is a self.

contained

part dealing with trade, commerce and

intercourse within the territory

of India. He

emphasis­

ed that the American and Australian decisions are no

guide to the decision of the points in controversy in

the present case, as the framework

of their respective

constitutions was entirely different from the

Indian

I960

Atiabari Tea

Co., Ltd.

·v.

The State of

Assa11i 0-Others

Sinha C. J.

Atiabari Tea

Co., Ltd.

v.

The State of

Assani &-Others

Sinha C. ].

820 SUPREME COURT REPORTS [1961]

Constitution. Particularly, the Australiau Constitu­

tion did not contain anything corresponding to Parts

III and XII of our Constitution. According to his

contention" freedom" in Part XIII meant freedom

from discriminatory taxation and freedom from trade

barriers. The Advocate-General of the several States

who appea.red in this case supported the viewpoint

stressed by the learned Attorney General.

The most important question

that falls to be

deter­

mined in this batch of cases is whether the impugned

Act infringes the provisions of

Part XIII of the

Con­

stitution, with particular reference to Art. 301. Part

XIII is headed "Trade, Commerce and Intercourse

within.the Territory

of

India". Article 301, which is

the opening Article in this Part is in very general

terms, which are as

under:-"Subject to the other provisions of this part,

trade, commerce and intercourse throughout the terri­

tory of India shall be free".

It is clear that this Part is not subject to the other

provisions of the Constitution and the generality

of

the words used in Art

.. 301 is cut down only by the

provisions of the other Articles of this Part ending

with Art. 307. It has not been and it could not be

contended that the generality of the expressions used

in Art. 301 admit of any exceptions or explanations

not occurring in this Part itself, nor has it been con­

tended that trade, commerce and intercourse are

subject to any other fetters.

All parties are agreed

that trade, commerce and intercourse throughout the

territory of India have been emphatically declared by

the Constitution to

be free, but there is a wide

diver­

gence of views on the answer to the question "free

from what?" It has been contended on behalf of the

appellants

that the answer to this question must be

that trade, commerce and intercourse throughout

India, shall

be free from everything including

taxa­

tion. On the other hand, the contention on behalf of

the Union Government and the State Government is

that the freedom. envisaged by Art. 301 does not

include immunity from taxation and

that freedom

means

that there shall be no trade barriers or tariff

1 S.C.R. SUPREME COURT REPORTS 821

walls shutting out commodities, traffic and intercourse

between individuals, and no shutting in.

Atiabari Tea Co., Ltd.

v.

ln order fully to appreciate tho implications of the

provisions of Part XIII of the Constitution, it is neces­

sary to bear in mind the history and background of The State of

those provisions. The Constitution Act of 1935 Assam & Othm

(Government of India Act, 26 Geo. 5, Ch. 2) which

envisaged a federal constitution for

the whole of India,

including what was then

Indian India in contradis-

tinction to British India, which could not be folly

implemented and which also introduced full provincial

autonomy enacted s.

297 prohibiting certain restric-

tions on internal trade in these

terms:-

" 297.-(1) No Provincial Legislature or Govern­

ment shal!-

(a) by virtue of the entry in the Provincial Legis­

lative List relating to trade and commerce within the

Province, or the entry in that list relating to the pro­

duction, supply, and distribution of commodities, have

power to pass

any law or take any executive action

prohibiting or restricting the

entry into, or export

from

the Province of goods of any class or

descrip­

tion; or

· (b) by virtue of anything in this Act have power

to impose

any

t.ax, cess, toll or due which, as between

goods manufactured or produced in the Province and

similar goods

not so manufactured or produced,

discriminates in

favour of the former, or which, in the

case of goods manufactured or produced outside the

Province, discriminates between goods manufactured

or produced in one locality

and similar goods

manu­

factured or produced in another locality.

(2) Any law passed in contravention of this sec.

tion shall, to

the extent of the contravention, be invalid."

It will be noticed that the prohibition contained in

the section quoted above applied only to Provincial

Governments and Provincial Legislatures with refe­

rence to entries in. the

1

Provincial Legislative List

relating to trade and commerce within

the Province

and to productiqn, supply and

distribution of com­

modities. That' section dealt with pi:ohibitions or

I05

Sinha C. ].

1960

Aliabari Tea

Co., Ltd.

v.

822 SUPREME COt:RT REPORTS (1961)

restrictions in respect of import into or export from a

Province, of goods generally. It also dealt with the

power to impose taxes etc. and prohibited discrimina­

tion against goods manufactured or produced outside

n,, Stat• of a Province or goods produced in different localities.

Assam b Othm Part Xlll of the Constitution has introduced all thoso

Sinha C. J.

prohibitions, not only in respect of Stato Legislatures,

hut of Parliament also. In other words, Part XIII

enlarges the scope of tho inhibitions and lays down

the limits within which the Union Parliament or a

State Legislature ma.y legislate with reference to trade,

commerce and intercourse inter-State, int.ra-State and

throughout tho territory of India.

In this connection it has got to bo remembered that

before the commencement of the Const.it ution about

two-thirds of India was directly under British rule

and was called ' British India; and the remaining

about one.third was being directly ruled by the Prin­

ces and was known as' Native States'. There were a.

large number of them with var_ying degrees of sove­

reignty vested in them. Thoso rulers had, broadly

speaking, the trappings

of

a Sovereign Stato with

power to impose taxes and to regulate the

flow of

trade, commerce and intercourse.

It

is a notorious

fa.ct that many of them had erected trade barriers

seriously impeding the free

flow of

trade, commerce

and intercourse, not only shutting

out but also

shutting

in commodities meant for mass

consum­

ption. Between the yea.rs 1947 and 1950 almost

all the

Indian

States entered into engagements with

the Government of India and ultimately merged

their individualities into India as one political unit,

with the result

that what

was ca.lied British India,

broadly speaking, became, undor the Constitution,

Pa.rt A Stat.es, and subject tc» certain exceptions not

relevant to our purpose, the Xa.tive States became

Pa.rt B States. We also kuow that before the Consti­

tution introduced the categories of Pa.rt A States, Part

B States and Part C States (excluding Part D relating

to other territories), Pa.rt B States themselves, before

their being constituted into so many units, contained

many small . States, which formed themselves into

I S.C.R. SUPREME COURT REPORTS 823

Unions of a number

of States, and had such trade

barriers

and custom posts, even inter

se~ But even

after the merger, the Constitution

had to take notice

of the existence of trade barriers and therefore had to

make transitional provisions

with the ultimate objec­

tive of abolishing them all. Most of those Native

States, big

or small, had their own taxes, ceases, tolls

and other imposts and duties meant not only for

rais­

ing revenue, but also as trade barriers and tariff walls.

It was in the background of these facts and circums­

tances that the Constitution by Art. 301 provided for

the abolition

of all those trade barriers and tariff

walls. When for the first time in

the history of India

the entire territory within the geographical boundaries

of India, minus what became Pakistan, was knit into

one political unit,

it was necessary to abolish all those

trade barriers and custom posts in the interest of

national solidarity, economic and cultural unity as also

of freedom of trade, commerce and intercourse.

It is in the background of these facts and

circums­

tances that we have-to determine the ambit of the

freedom contemplated by Art. 301. That Article

envisages freedom of

trade and commerce with

refe­

rence to different parts of India as also freedom of

movement of individuals in relation to their trade

and other activities. Hence, Art. 301 has reference

not only to trade _and commerce, as ordinarily under­

. stood in common parlance, but also in relation to

individuals who have to move with their goods and

commodities throughout the length

and breadth of the

country. Movement

of traffic in goods and

commodi­

ties as also of persons can be by railway or airways,

by road or by inland waterways etc., etc. Carriage of

goods and passengers by rail way, by sea or by air

or by national waterways is covered by entry 30

of List I and taxes on rail way fares and freights and .

terminal taxes on goods or passengers carried by rail­

way, sea or air come under the purview of entry 89 in

the same List. On the other hand, taxes on goods and

passengers carried by" road or inland waterways come

under entry 56

of List II

(State List). It will thus be

seen

that the Constitution makers contemplated taxes

Atiabari

Tea

Co., Ltd.

v.

The State of

Assam &,. Others

Sinha C. J.

Aliahan [ta

Co., Ltd.

v.

Tht Sia/a of

Assan1 6-Others

Sinha C. ).

824 SCPHE:IIE COURT HEPORTS [ l!J(i I J

on goods and passengers to bo imposed by the Parlia­

ment on journeys covt>red by railway or by sra or by

a.ir;

and by State

Legislatures on journeys by road or

inland waterways. Tho powPr to tax is inl.ierent in

sovereignty.

The sovereign Stato, in

Aome cases the

Union, in other ca.sea the Stat~'• has the inherent power

to impose taxes in order to raise re\"e11ue for purposes

of State. Such a. sovereign power ordinarily is not

justiciable, simply because the State in its legislative

department has to determine the policy and incidence

of taxation. It is the State which dotermincs, through

the Legislature, what taxes to impose, on whom and

to what extent. The judicial department of the State

i• not expected to deal wit.h such u1attern, because it

is not for the courts to determine the policy and

incidence of taxation. This power of the Stat~ to raise

finances for Government purposes ha.s been dealt wit.h

by Part XII of the Constitution, which contains the

total prohibition of levy or collection of tax, except by

authority of law (Art. 265). This Part also deals with

the distribution of revenue between the Union and the

States. It does not clearly demarcate the taxing

authority as bet weon the Union and t.he States a.nd

therefore bad to indicate in great detail what taxes

shall be levied for the benefit

of the

l:nion or for tho

benefit of tho Statrs and what taxes may be levied

and collected by the union for the benefit of tho

States and the principle according to w bi ch those

revenue8 have to he distributed amongst the con­

stituent States of the Union. In short, Pa.rt X ll is a

self.contained series

of provisions relating to tho tina.ncoH of the Union and of tho Statl'B and their

inttir-relation and adju;tments (ignoring the provisions

in Chapter 2 of that Part relating tu borrowing and

Chapter 3 relating to property cont mets etc.). Like

Pa.rt

XllI, Part

XII also is not expressed to be subject

to

the other provisions of the Constitution. Houce,

both

Parts XII and XIII are meant to be self contain.

ed in

their respective fields. It cannot, therefore, be said that the one is subject to the other. But it lias

been argued on behalf of the appellants that tho pro­

visions of Art. 30! indicate that taxation is within

'

1 S.C.R. SUPREME COURT REPORTS 825

the purview of the overriding provisions, as they have

been characterised, of Art. 301. But a close examina­

tion of the provisions of Art. 304 would show that it

is divided into two parts, viz., (1) dealing with imposi­

tion of discriminatory taxes by a State Legislature;

and (2) relating to imposition of reasonable restric­

tions, thus showing that imposition of taxes, discrimi­

natory or otherwise, is a class apart from imposition

of reasonable restrictions on freedom of trade, com­

merce and intercourse. The second part of Art. 304

dealing with imposition of reasonable restrictions on

freedom of

trade, commerce and intercourse by a

State

Legislature is on a line with the imposition by Parlia­

ment of such restrictions between one State and

another or within any part of the territory of India in

public interest, contained in Art. 302.

The provisions

of Art. 303

further make it clear that the giving of

preference to one State over another or discrimination

between one

State and another are clearly within the

purview of Part XIII, that is to say, they are

calculat­

ed to impede the freedom of trade, commerce and

intercourse. There is a prohibition against Parliament

as also against the Legislature of a State making any

law giving preference to one State over another or

making or authorising

the making of any discrimina­

tion between one

State and another. Bnt the most

significant words in connection with

giving preference

or

making discri,mination as envisaged in Art. 303 are

with reference to

" any entry relating to trade and

commerce in any of the Lists in the Seventh Schedule'',

that is to say, entry 42 in List I, entry 26 in List II

and entry 33 in List III of the Seventh Schedule.

Hence, any legislation nnder those entries wbicb has

the effect of directly interfering with trade, commerce

and intercourse being free throughout the territory of

India has to be struck down as infringing the pro­

visions of Art. 301. But in this matter also the Con­

stitution makers bad before them situations of emerg­

ency, say for example, created by drought or overflood­

ing resulting in .scarcity of commodities like food grains

etc. In such a situation,. Parliament has bet'n armed

with the power to grant preference to one State over

19·60

Atiaba~i Tea

Co., Ltd.

v.

The State o-f

Assani 6-Others

Sinha C. ].

Atia'"1a1i Tra

Co., Ltd.

v.

The State of

Assa1n 6-Othrrs

Sinha C. }.

826 SCPRE:\IE COCRT REPORTS [1961]

another or to mako a discrimination as between two

and more States if the Law dealing with such a situa­

tion declares that it is necessary tu do so in order tu

deal with

an emergency like the one referred to above.

In this connect ion it

may not be ompha.sised that Art.

303 has not been rnry accurately worded inasmuch as

the non obs/ante clause, with which the Article opens,

has reference only to Art. 302, which empowers Parlia­

ment to impose by law restrictions on the freedom of

trade, commerce or intercourse, inter-State or intro.­

State, in public interest. But the non obstante clause

is immediately followed by reference not only to

Parliament hut also tu the Lt•gislature of a State which

are armed .with the power of giving preference or

making discrimination as aforesaid in respect of the

e11trics relating to trade and commerce in any of tho

lists in the l:it,venth Schedule. Here, no',reforence is

ma.de to intercourse. But as the present controversy

is not concerned with

the freedom of intArcourse,

as

distinguished from thH freedom of trade and com­

merce, no more need be said about that omission.

Learned counsel fur the appellants vehemently

.argued that the freedom cont~mpla.ted by Art. 301

must be construed iu its most comprehensi,·e sense of

freedom from a.II kinds of impediments, restraints and

trade barriers, inrl11ding freedom from all taxation.

In my opinion, there is no warrant for Huch an

extrt,me position. It has to be rt>membercd that trade,

commerce and iut~rcourse include individual freedom

of movement of evnv citizen of India. from State to

State, which is also guirantced by Art. 19(l)(d) of the

Const.itution. The three terms used iu Art. 301 include

not only free buying and selling, but also the freedom

of bargain and contra.ct and transmission of informa­

tion relating to such bargains and contmcts as also

transport of goods and commodities for tho purposes of

production, distribution and coneumption in all their

aspects, that is to say, tmnsporta.tion by land, air or

w1tt.er. They must also include commerce not only in

goods and commodities, but also transportation of men

aud animals by all means of transportation. Com­

merce would thus include dealings over the telegraph,

1 S.C.R. SUPREME COURT REPORTS S27

telephone or wireless and every kind of contract relat.

ing to sale, purchase, exchange etc.

of goods and

com­

modities.

Viewed in this all comprehensive sense taxation on

trade, commerce and intercourse would have many

ramifications and would cover almost the entire field

of public taxation, both in the Union and in the State

Lists. . It is almost impossible to think that the

makers of the Constitution intended to make trade,

commerce and intercour,<;e f~ee from taxation in that

comprehensive sense. If that were so, all laws of

taxation relating to sale and purchase of goods on

carriage of goods and commodities, men and animals,

from one place to another,

both inter.State and

intra­

State, would come within the purview of Art. 301 and

the proviso to Art. 304 (b) would make it necessary

that all Bills or Amendments of pre-existing laws

shall

have to go through the gamut prescribed by that

proviso. That will be putting too great an

impedi­

ment to the power of taxation vested in the States

and reduce the States' limited sovereignty under t be

Constitution to a mere fiction. That extreme position

has, therefore, to be rejected as unsound.

In this connection, it is also pertinent to bear in

mind that all taxation is not necessarily an

impedi­

ment or a restraint in the matter of trade, commerce

and intercourse. Instead of being such impediments

or restraints,

they may, on the other hand, provide

the wherewithals to improve different kinds of means

of transport, for example, in cane growing areas,

un­

less there are good roads, facility for transport of

sugarcane from sugarcane fields to sugar mills may be

wholly lacking or insufficient.

In order to make new

roads as also to improve old ones, cess on

the grower

of cane or

others interested in the transport of this

commodity

has to be imposed, and has been known in

some

parts of India to have been imposed at a certain

rate per maund or ton of sugarcane transported to

sugar factories.

Such an imposition is a tax on trans­

port of sugarcane from one place to another, either

intra-State or inter-State. It is the tax thus realised

that makes it feasible for opening new means of

Atiabari Tea

Co., Ltd.

v.

The State of

Assam & Others

Sinha C. ].

Atiabt11i T~a

Co., I.Id.

,.

Tlit Sl<Ht (lj

Assam 6-Otlit1·_.;

Sinha C. J.

828 SUPl{E~!E COUR.T REPORTS [ 1961]

communication or for improving old ones. It cannot,

t.lwrrfol'e, be said that taxation in every case must

mean au impediment or restraint against, free flow of

trade a.nd comnwrcc. l:'imilarly, for I he faeility of

passengers and goods by motor trnnsport or by rail­

way, a surchal'g,1 on usua.l fares or freights is Je,·ied,

or may be levied in future. But for such a 8Urchargc,

improvement in tho mea.ns of communication may not

be available at all. Hence, in my opinion, it is not

correct to characterise a tax on movement of goods or

passengers as necessarily connoting

a.n impediment,

or a

restraint, in the matter of trade and commerce.

That is another good reason in support of the conclu­

sion that taxation is not ordinarily included within

the terms of Art. 301 of the Constitution.

In my opinion, another very cogent reason for hold­

ing that taxation simpliciter is not within the terms of

Art. 301 of the Constitution is that the vory connota­

tion of taxation is the power of the State to raise

money for public purposes by compelling the payment

by persons, both natural and juristic, of monies earned

or possessed by them, by virLUe of the facilities and

protection afforded by the State. Such burdens or

imposts,

either direct or indirect,

are in the ultimate

analysis meant as a contribution by the citizenA or

per8ons residing in

the

State or dealing with the

citizens of the State, for the support of the Govern­

ment, with particul<ir reference to their respective

abilities to make such contributions. Thus public

purpose is implicit. in every taxation, as such. There­

fore, when Part XIII of tho Constitution speaks of

imposition of reasonable restriction>! in public interest,

it could not have intended to include taxation within

the generic term "reasonable restrictions''. This

Court has la.id it down in the case of Ramjilal v. In­

come 'J'ax Officer, Jlfohindargarh (')that imposition and

collection of taxes by authority of law envisaged by

Art. 265 is outside the scope of the expression "depri­

vation of property" in Art. 31(1) of the Constitution.

H.ea~onable restrictions as used in Pa.rt II I or Pa.rt

XI II of the Constitution would in most cases be less

lt) (1951] S.C.R. 127, 136.

1 S.C.R. SUPREME COURT REPORTS 829

than total deprivation of property rights. Hence,

Part XII dealing with finance etc. as already indicat­

ed, has been treated as a Part dealing with the sove­

reign power of the State to impose taxes, which must

always mean imposing burdens on citizens

and others,

in public interest.

If a law is passed by the

Legis­

lature imposing a tax .which in its true nature and

effect is meant to impose an impediment to the free

flow of trade, commerce and intercourse, for example,

by imposing a high tariff wall, or by preventing

imports into or exports

out of

a State, such a law is

outside

the significance of taxation,

as such, but

assumes the character of a trade barrier which it was

the intention of the Constitution makers to abolish by

Part XIII. The objections against the contention

that taxation was included within the prohibition con­

tained in Part XIII may thus be summarised : (1)

Taxation, as such, always implies that it is in public

interest. Hence,

it would be outside particular

restric­

tions, which may be characterised by the courts as

reasonable

and in public interest. (2) The power is

vested in a sovereign

State to carry on Government.

Our Constitution has laid the foundations of a welfare

State, which means very much expanding the scope of

the activities of Government and administration, thus

making it necessary for the State to impose taxes on

a much larger scale and in much wider fields. The

legislative entries in the three Lists referred to above

empowering

the Union Government

and the State

Governments to impose certain taxations with refe­

rence to movement of goods and passengers would be

rendered ineffective, if not otiose, if it were held that

taxation simpliciter is within the terms of Art. 301.

(3) If the argument on behalf of the appellants were

accepted,

many taxes, for example, sales tax by the

Union and by the

States, would have to go through

the gamut prescribed in Arts. 303 and 304, thus very

much detracting from the limited sovereignty

of the States, as envisaged by the Constitution. (4) Laws

relating to taxation, which is essentially a legislative

function

of the

State, will become justiciable and every

106

A tiabari Tea

Co., Ltd.

v.

The State of

Assam &-Others

Sinha C. ].

Atu1'.iari Tta

Co., l.td

Th:' Stair ~,(

A.ssam ~~ (J1h~t~

Su.Jui C_ J.

830 Sl"PREiliE COURT REPORTS I 1961]

time a taxation law is challenged as unconstitutional,

the State will have to Hatisfv the courts-a eonrse

which will seriously affect the division of powers on

which modern constitutiorrn, including ours, are based.

(5)

Taxation on movement of

goo<ls and passengers is

not necessarily an impediment.

That conclusion leads to a discussion of tlu, other

extreme positiou that taxation is wholly out of tho

purview

of Art.

301. Th:J.t extreme position i:; equally

untenable in view of the fact that Art. :J04 contains,

and Art. 306, before it was repealed in 1956, cun­

taiuo<l, reforeuce tu taxation fur certain purposos men­

tioned in those Art.icll•S. But Art. 306, which now

stands repealed, contained references to tax or duty on

the import of goods into one State from another or on

the exports of goods from one State to another. Such

imposts were really in the nature of impediments to

the .free

flow of goods and commodities on account of

customs barriers, which it

was the intention of Art..

301 to abolish. Similarly, Art. 304 while recognising

the power of a Sta.to Legislature to tax goods imported ·

inter-State, insists that a similar tax is imposed on

goods manufactured or produced within the State.

The Article thus brings out t.he clear di8tinction· bet­

een

taxation

as such for the purpose of revenue and

taxation for purposes of making discrimination or

gi\·ing preference, both of which are treated by the

Constitution as impediments to free trade and com­

merce. In other words, so long as the impost was not

in the nature of an impediment to the free flow of

goods and commodities between one S~ate and

another, including in this expression Union territories

also, its legality was not subject to an attack based on

tho provisions

of

Part XIII. But that does not mean

that State Legislatures derive their power of taxation

by virtue of what is contained in Art. 304. Article

304 only left intact such power of taxation, but con­

tained the inhibition that such taxes shall not be

permitted to have the effect of impeding the free flow

of goods and commodities.

Article 301, with which Part XIII commences, con­

tains the crucial words "shall be free " and prov ides

1 S.C.R. SUPREME COURT REPORTS 831

the kev to the solution of the problems posed by the

whole ·Part. The freedom declared by this Article is

not an abso.lute freedom from all legislation. As

already indicated, the several entries in the three

Lists would suggest

that both. Parliament and

State

Legislatures have been given the power to legislate in

respect

of trade, commerce and intercourse, but it is

equally clear

that legislation should not have the

effect of putting impediments in the way of free flow

of trade and commerce. In my opinion, it is equally

clear

that the freedom envisaged by the Article is not

an absolute freedom from the incidence of taxation in

respect of trade, commerce and intercourse, as shown

by entries 89 and

92 A in List I, entries 52, 54 and 56

to

60 in List II and entry 35 in List Ill. All these

entries in terms speak of taxation in relation to

different aspects

of trade, commerce and intercourse.

The

Union and State Legislature, therefore, have the

power to legislate by way of taxation in respect of

trade, commerce and intercourse, so as not to erect

trade barriers, tariff walls or imposts, which have a

deleterious effect on the free flow of trade, commerce

and intercourse. That freedom bas further been

circumscribed by

the power vested in Parliament or

in the

Legislature of a State to impose restrictions in

the public interest. Parliament has further been

authorised to legislate in the way of giving preference

or making diserimination in certain strictly limited

circumstances indic:ited in cl. (2) of Art. 303. ThuR,

on a fair construction of the provisions of Part XIII,

the following propositions emerge: (1) trade, com­

merce, and intercourse throughout the territory of

India are not absolutely free, but are subject to

certain powers

of legislation by Parliament or the

Legislature of a

State; (2) the freedom declared by

Art. 301 does not mean freedom from taxation simpli­

citer, but. does mean freedom from taxation which has

the effect of directly . impeding the free flow of trade,

cOiilmerce and intercourse; (3) the freedom envisaged

in Art. 301 is subject to non-discriminatory restric­

tions imposed by Parliament in public interest (Art.

302); (4) even discriminatory or preferential legisla-

Atiabari Tea

Co., Lid.

v.

The Stale of

Assani & Others

Sinha C. ].

.-4tiabaYi J"eu

C()., LJd.

v.

The Stale of

Assam 6-Others

Sinha C. ].

832 SVPREME COUHT REPOHTS [ 1961]

tion ma.y be made by Parliament for t.hc purpose of

dealing with a.n emergency like a. scarcity of goods in

a.ny pa.rt of India. (Art. 303(2)); (5) reasonable restric­

tions ma.y be imposed by the Legislature of a Sta.te in

the public interest (Art. 304(b)); (6) non-discrimina­

tory taxes ma.y be imposed by the Legislature of a.

Sta.te on goods imported from another State or other

Sta.tea,

if similar ta.xes a.re imposed on goods pro-'

duced or ma.nufa.ctured in that Sta.te (Art. 304(a.));

a.nd lastly (7) restrictions imposed by existing la.ws

ha.ve been continued, except in so far a.s the President

ma.y by order otherwise direct (Art.

305).

After having discussed the arguments for a.nd

against the proposition that Art. 301 includes within

its large sweep ta.xa.tion simpliciter, I now proceed to

discuss the terms

of the impugned Act. in order to find

out whether in the light of the discussion

abovt>, any

of its provisions are liable to be struck down as

unconstitutional, because they infringe Art.. 301, as

contended on behalf of the appellants. The Act, as

the preamble shows, is intended to " impose a tax on

certain goods carried by road or inland waterways".

"DealEll' "·has been defined in s. 2(4) as under:-

" 'Dea.ler' means a person who owns jute in bales

before

it is carried by motor vehicle, cart, trolley,

boat, a.nimal and human agency or any other

means

except railways or airways and includes his a.gent."

Producer has boon defined by cl. (12) of s. 2 as

follows:-

"'Producer' means a producer -0f tea. and includes

the person in charge of the garden where tea is pro­

duced".

Section 3, which is the charging section, provides that

manufactured tea in chests carried by motor vehicle,

etc., except railways and a.irwa.ys, shall be liable to a

tax at a. certain rate per pound of such tea. and that

this tax shall be realised from the producer. It also

provides

that jute carried in bales by motor vehicle,

etc., except railways

and airways, shall ho liablu to a.

tax at a. certain rate per maund on such jute, which

shall be realised from the dealer.

It is not necessary

1 S.C.R. SUPREME COURT REPORTS 833

to set out the rate of taxes aforesaid, because no argu- r96o

·ment was advanced to the effect that they were

A liabari T ~a

oppressive or exc~ssive. The tax on manufactured co., Ltd.

tea in chests is to be paid by the producer, which v.

term includes the person in charge of the garden where Th• Stal• of

tea is produced. This provision has occasioned the Assam .s. Othm

argument that it is an excise duty in the garb of a tax

and will be dealt with later in the course of this Sinha c. f.

judgment. The tax on jute carried in bales is made

realisable from the dealer which means a person who

owns the jute in bales. Section 6 lays down the taxing

authorities. Section 7 requires every producer and dea-

ler to furnish returns of such tea or such jute as have

been made liable to

tax under s. 3,

as aforesaid. Sec-

tion. 8 makes provision for licensing of balers, w hioh

means persons who own or possess a pressing machine

for the compression

of jute into bales. Section 9

lays

down the procedure of assessment and s. 10 the pro.

cedure for cancellation of assessment in certain cir­

cumstances. Section 11 lays down the procedure for

assessment in such cases as have escaped assessment

or there has been an evasion of the tax. It is not

necessary to refer to the other provisions

of the Act,

because they are not relevant to the arguments

ad-

vanced at the Bar. It will be seen from the bare

summary of the relevant provisions

of the statute

that it is

a taxing statute simpliciter without the least

suggestion even . of any attempt at discrimination

against ·dealers and producers outside the State of

Assam or of preference in favour of those inside the

State. On the face of it, therefore, the Act does no,t

suffer from any of the vices against which Part XIII~

of the Constitution was intended. It has not been sug.

gested

that the Act imposes

a heavy burden on the

dealer or the producer as the case may be. On the

terms of the Statute, it cannot be said that it is in-

tended to put obstacles or impediments in the way

of

free flow of traffic in respect of jute

and tea. On the

face of it, it would not be in the interest of the State

of Assam to put any such impediments, because Assam

is a large producer of those commodities and the

market for those commodities is mainly in Calcutta.

A tiabari T ta

Co, l.td.

v.

Tise State of

Assan1 6-OU1ers

Sinha C. ].

834 SUPREME COURT REPORTS [1961]

In those circumstances, it is difficult, if not impossible,

to come to

the conclusion that the Act comes within

the purview of Art.

301 of the Constitution. If th&t

is so, no further consideration a.riRrng out of t.he other

provisions of Pa.rt XIII of the Constitution ca.Ila for

a.uy deciRion.

Having thus disposed of the ma.in ground of attack

a.gs.inst the constitutionality of the Act based on

Art. 301 of the Constitution, it is necessary to advert

to the other contentions raised on behalf of the appel­

lants. It has been contended that the Act is beyond

the legislative competence

of tho

Assam Legislature.

We have, therefore, to address ourselves to the ques­

tion whether or not it is covered by any of the entries

in List

II of the Seventh Schedule. Entry 56, in its

very terms,

" Taxes on goods and passengers carried

by rail or in inland waterways", completely covers

the impugned Act. There is no occasion in this case

to take recourse to the doctrine of pith and substance,

inasmuch as the Act is a simple piece of taxing statute

meant to tax transport of goods, in this case jute a.ad

tea, by road or on inland waterways. In my opinion,

it

is

a very simple case of taxation completely cover­

ed by entry 56, but the argument a.gs.inst the compe­

tence of the Assam Legislature has been sought to be

supported by the subsidiary contention

that though

in form it

is a tax on the transport of goods within

the terms of

entry 56, in

substance it is a.n imposition

of excise

duty within the meaning of entry 84 in List

I of the Seventh Schedule, but, in my opinion, there

is no substance in this contention for the simple

rell.­

son that so long a.s jute or tea. is not sought to be

transported from one

pla.c'e to another, within the State or outside the Ste.te, no te.x is sought to be levied

by

the Act. It is only when those goods

a.re put on

a motor truck or a. brat or a steamer or other modes

of

transport contemplated by the Act,

that the occa­

sion for the payment of tax arises. A similar argu­

ment was ·Ava.need in the case of The Tata Iron &

Steel Co. Lid. v. The State of Bihar ('),and Das, C. J.,

delivering the majority judgment of the Court, dispos­

ed of the argument that the tax in that case was not

(2) [19,8] S.C.R. 13,,.

1 S.C.R. SUPREME COURT REPORTS 835

on sale of goods, but was, in substance, a. duty of i96o

excise, in these terms: Atiabari T•"

"This argument, however, overlooks the fact co., Ltd.

that under cl. (ii) the producer or manufacturer be- v.

ca.me liable to pay the tax not because he produced Th• Stat• •!·

or manufactured the goods, butr because he sold the Assam .s-Others

goods. In other words the tax was la.id on the pro-

ducer or manufacturer only qua. seller and not qua. Sinha c. f.

manufacturer or producer as pointed out in Boddu

Pa.ida.nna.'s case (1942) lf.C.R. 290. In the words of

their Lordships of the J udicia.l Committee in Governor

Genera.I v. Province of Madras, 72 I.A. 91 at p. 103,

' a. duty of excise is primarily a. duty levied on a. manu-

facturer or producer in respect of the commodity

manufactured or produced.

It is

a. tax on goods not

on sales or the proceeds of sale of goods '. If the goods

produced or manufactured in Biha.r were destroyed

by

fire before

sale the manufacturer or producer would

not have been liable to pay any tax under s. 4(1) read

with s. 2(g), second proviso. As Gwyer, C. J., said in

Boddu Pa.ida.nna.'s case, supra., at p. 102, the manu-

facturer or producer would be 'liable, if at a.II, to' a.

sales-tax because he sells and not because he manu-

factures or produces; and he would be free from

liability if he chose to give a.way everything ·which

came from his factory'." (See p.1369 of the Report).

The observations quoted a.hove completely cover the

present controversy. The Legislature has chosen thti

dealer or the producer as the convenient agency for

collection

of the

tax imposed by s. 3, but the occasion

for the imposition of the tax is not the production or

the dealing, but the transport of those goods. It must,

therefore,

be held

that the Act does what it sets out

to do, namely to impose a. tax · on goods carried by

road or on inland waterways.

Another line of argument directed to the same end,

namely,

of attacking the competence of the

Assam

Legislature was that it impinged on the provisions of

the Tea. Act, XXIX of 1953. It was argued that the

tea. industry was a. controlled one within the compet­

ence the Union Legislature. The Tea. Act declared

that it was. expedient in ~he public interest that the

Atiabari Tea

Co., Lid.

v.

Tlte Stalt of

Assan1 tS-Othtrs

Sinho C. ].

836 SUPREME COURT REPORTS [1961]

Union should take the tea industry under its control.

With a view to controlling the industry in public

interest the Act established the

Tee. Boe.rd (s. 4) whose

function

it was, inter alia, to regulate the production

e.nd extent of cultivation of tea, of improving the

quality of

tee., of promoting co-operative effort e.mong

growers

and manufacturers of tea, etc., etc. (s. 10). With

the objectives aforesaid, Chapter III le.ys down pro­

visions for the control over the extension of tea culti­

vation and Chapter IV deals with provisions for con­

trol. over the export of tea and tea seed. Chapter V

le.ys down provisions for the imposition of duty of

customs on export of

tee. outside Indie.

and the pro­

ceeds of the oeBB thus levied have to be credited to

the Consolidated Fund of India. Out of the.t Fund,

ce.lled the Tea Fund, the expenses of the establish.

ment created by the

Tee. Act he.ve to be met. The

rest of the provisions of the Act

are mee.nt to impJe.

ment the main provisions of the Act. There are no

provisions of the Tea Act which ce.n be said to come

into conflict with the provisions of the impugned Act.

In our opinion, therefore, this ground of

attack e.lso

fails.

A third line of argument against the constitutiona­

lity of the Act we.s that it is extra. territ-0rial in its

operation in

so

far as it purports to tax producers e.nd

dealers who may not be residents of the State of

Assam. This argument bas been advanced in the in­

terest of the appellants and petitioners from West

Bengal, who have to carry their goods by

roe.d or on

we.terwe.ys pe.ssing through the territory of Asse.m,

from one part of

West Benge.I to e.nother. So far as

this group of cases is concerned, the main grieve.nee

of the appellants is that no doubt their goods have to

pe.ss through a portion of the territory of Assam, but

the goods have been produced, pe.cked and transport­

ed as merchandise from one part of West Bengal to

e.nother part of the se.me State. It is not denied that

there is some ree.l e.nd subste.ntie.J nexus to support

the taxing ste.tute, but it is contended that rele.tively

to the whole journey to

be covered by the

merchan­

dise, the portion of the territory of Assam covered in

1 S.C.R. SUPREME COURT REPORTS 837

that journey is very small. But in jndging the vali~

dity of a legislation with reference to the contention

based on extra.territoriality

it is not relevant to

coq­

sider the question of the proportion between the

extent of territorial nexus to the whole length of the

journey.

If goods belonging to or carried by

the

appellants traverse any of the territory of Assam the

taxation cannot be successfully assailed on this

ground, once

it is held that it was within the

legisla­

tive competence of the Legislature imposing the tax

in question. See in this connection the observations

of this Court in The Tata Iron and Steel Co. Ltd. v. The

State of Bihar (1) at pp. 1369to1371, where Das, C. J.,

speaking for the majority of the Court, has examined

the theory

of nexus with reference to a large body of

case.Jaw bearing on the question. I respectfully adopt

that line of reasoning and hold that the Act does not

suffer from .the vice

of extra-territoriality. It is true

that the incidence of the taxation may fall upon

per­

sons not· ordinarily residing in the State of Assam or

upon./goods not produced in Assam, but, in this con­

nection, it is enough to point out that what has been

said above in respect of the

tax being in the nature of

a duty of excise applies which equal force to this pa.rt -of the argument also. The tax is leviable from such

goods as traverse in their journey any pa.rt of the

territory of Assam, not because the owners

or the

pro­

ducers are residents of Assam, but because the water­

way or the roadway situate in the territory of Assam

has been utilised for a portion

of the

journey.· It is

clear, therefore,

that there is no infirmity attaching

to the Act on

the ground that it is extra-territorial in

its operation ..

It only remains to consider the last ground of

attack, namely, that the Act is discriminatory in

character and

thus infringes Art. 14 of the Constitu­

tion. In this connection, it has been argued that only

tea in chests

and jute in bales have been selected for

taxation, leaving the same commodities in other

hands or

in other forms, or in · other receptacles

(1) [1958] S.C.R. 1353.

107

Atiabari Tea

Co., Ltd.

v.

The State of

Assam & Others

Sinha C. ].

Jftiabari Tea

Co., Lid.

v.

Tiet Stale of

.fssan1 IS-Others

Sid• C. J.

838 SUPREME g>URT REPORTS [1961]

free from the incidence

of the te.xa.tion in question.

The Legislature

he.s chosen to tax the transport over

land or over waterways of those commodities, in

chests

or in bales,

e.ppe.rently because those a.re the

most convenient and usually employed methods of

pa.eking for ca.rrie.ge of those goods to long distances .

Hence,

it is not

a. ce.se of choosing for tho purposes of

taxation one class of goods in preference to a.nothor

class of tho same variety. The Legislature w11.s out to

tax the transport of those commodities e.nd must be

presumed to he.1te selected the most conveuiont wa.y

of doing it. It has not been suggested the.t e.ny le.rge

a.mount of such commodities is transported o\·er long

distances, otherwise

than in chests or

be.Jes. Furl.her.

more,

if the Legislature

has to te.x something, it i~

not bound to tax that thing in all its forms a.nd va.rie.

ties.

It

me.y pick and choose with a view to raising

suoh amount of revenue as it sets out to do. It is not

for the courts

to

say that. there were other ways of

doing the

thing or that

a.II forms a.nd v arities should

have been brought under the scope

of the .taxation.

It is open to the Legislature to

impose a. .ta.x in a. form

and in a. wa.y which it deems most convenient for the

purposes

of collection

a.nd calculation of the te.x.

As e.11 the grounds of a.tta.ck raised age.inst the con.

stitutiona.lity

of the Act fa.ii, the

appeals and the

petitions, in my opinion, should be dismissed with

costs.

I have deliberately refrained from me.king referen.

ces

to or relying upon decisions from other countries

like

the

U. S. A. or Australia, because the cases deci­

ded in those countries cannot be any guide. for the

solution

of the problems

raised in this case iuasmuch

a.s the framework of the Constitution in those coun­

tries is not in pari materia with ours. Any precedents

deciding cases on the construction of statutes, which

a.re worded differently from ours, cannot, in my opi­

nion, be a. safe guide for the decision of ~ontroversies

raised in terms of our Constitution.

I regret

to have to differ

from the majority of thP

Court, but my only justification for ta.king a. different

view ia that my reading of Part XIII of the

1 S.C.R. SUPREME COURT REPORTS 839

Constitution does not justify the inference

that taxation

simpliciter

is within the terms of Art. 301 of the Con­

stitution.

Aliabari Tea'

Co ... Ltd.

GAJENDR.A.G.A.DK.A.R J.-The vexed question posed The ;,~,, of

by the construction of the provisions of Part XIII of Assam & 01hers

the Constitution which has been incidentally discussed .

in some reported decisions of this Court falls to be Gaj•Mfagadkar J.

considered in the present group of cases. This group· · ·

consists of three appeals brought to this Court with a

certificate issued by the Assam High Court under

Art. 132 and two petitions

filed under Art. 32. The

three appellants are tea companies, . two of which

(Civil Appeal No. 126 of 1958 and Civil Appeal

No.

128 of 1958) carry on their trade of growing tea

in the District of Sibsagar in Assam while the third

(Civil Appeal No.

127 of 1958) carries on its trade in

Jalpaiguri in West Bengal. All the three companies

which would be described hereafter as the appellants

carry their tea to

Calcutta in order that it may be

sold in the Calcutta market for home consumption or

expQ.rt;outside India..-Tea. produced in Jalpaiguri has

also to pass through a

few miles of territory in the

State of Assam, while the tea produced in Assam has

to

go all the way through Assam to reach

Calcutta.

It appears that a very small proportion of tea produc-

ed and manufactured in Assam finds a market in

Assam itself; bulk of

it finds its custom in the market

at

Calcutta. Besides the tea which is carried by rail

a substantial quantity has to go by road or by inland

waterw&ys and as such it becomes liable to pay the

tax leviable under the Assam Taxation (on goods car-

ried by Roads or

Inland Waterways) Act, 1954 (Act

XIII of 1954) (hereafter called the Act). The Act has been passed by the Assam Legislature in order to

provide for the levy of a tax on certain goods carried

by road or inland waterways in the State of Assam

and it has received the assent of the Governor on

April 9, 1954. On behalf of the State of Assam, which

will be described hereafter as respondent, its officers

required the appellants

to comply. with the several

requirements imposed by the Act,

and made tax

840 SUPREME COURT REPORTS [ 1961]

1

96o demands on them in respect of the tea carried by

them. The tax thus demanded was J>aid bv the

Aliabari 1·ta .;

appellants under protest, and soon thereafter petitions

Co., Ltd.

v. were filed in the Assam High Court under Art. 226

The State of challenging the validity oft he Act aR well as the tax

Assam .s. Othm demands made by the officers of the respondent. By

G .

4

dk

1

their respective petitions the appellants prayed that a

a

1e•

raga ar ·writ of mandamus should issue directing the respond­

ent and its officers to forbear from giving effect to the

provisions of the Act and from otherwise enforcing it

against the appellants. The petitioners also claimed

alternatively a writ of prohibition or any ot.her appro­

priate writ restraining the respondent and its officers

from enforcing the Act against the appellants. That

is how the validity of the Act came before the Assam

High Court.for judicial scrutiny.

The appellants challenged

th.e vires of the Act on

several grounds. The principal ground,

howe1·er, was

that the Act had violated the provisions of Art. 301

of the Constitution, and since it did not comply with

the provisions of Art. 304(b) it was ultra vires. It was

also urged that tea. was a controlled industry under

the provisions

of Act 29 of 1953, and so it was the Union Government alone which was competent to

regulate the manufacture, production, distribution

or

transport of the said commodity ; that be;'lg so tho

Assam Legislature was not competent to pass the Act.

The validity

of the Act

was further challenged on tho

ground

that, though the Act purported to have been

passed under

Entry 56 of List II, in substance

and in

reality

it

was a duty of excise and as such it could be

enacted only under Entry 84 of List I. According to

the appellants

the Act also suffered from the vice that

it

was violative of tho fundamental right of equality

before the law guaranteed by Art. 14.

The correctness

of these contentions

was disputed

by the respondent. It urged that the Act was per­

fectly within the competence of the Assam Legisla­

ture under Entry 56 of List II and that the provisions

of Part XIII were wholly inapplicable to it. The

respondent further pleaded that Art. 14 had not

been violated and that therP was no substance in the

1 S.C.R. SUPREME COURT REPORTS 841

argument that as controlled industry it is only the '9

60

Union Government which could deal with it or that

· A tiabari Tea

in reality the Act had imposed a dutv of excise .

.J Co., Ltd.

The petitions_ filed by the appellants were beard by v.

· a Special Bench of the Assam High Court. All the The State of

pleas raised by the appellants were rejected by Sarjoo Assam & Others

Prasad, C. J. and Ram Labbaya, J., who delivered, _ -dk

b

. . d

t Th ll t Ga;endraga

aY ].

separate ut concurrmg JU gmen s. e appe an .s

then applied for and obtained a certificate from the

High Court under Art. 132 ; that is how the three

appeals have come to this Court, and they raise for

our decision all the points which were argued before

the High Court. Naturally the principal contention

which has been urged before us

at length centres

round

the applicability of

Part XIII.

The two petitions filed under Art. 32 raise substan­

tially the same question. The petitioners are tea com­

panies which carry on the trade of growing and

manufacturing tea in Jalpaiguri in West Bengal. The

respondent has attempted to subject the petitioners to

the provisions of the Act, and the petitioners have

challenged the authority of

the respondent to levy a

tax against them

·under the Act on the ground that

the Act is ultra ~·ires. Since the principal question

raised in these appeals a.ppcared to be of considerable

importance in which other States may also be inte­

rested we directed that notice should be issued to the

Attorney-General of

India atid the Advocates-General

in all the

States of India. Accordingly the Attorney.

General appeared before us and the States of Bjhar,

Madras,,Punjab, Rajasthan and Uttar Pradesh have

also been heard.

The challenge to the

vires of the Act on the ground

that it contravenes Art. 301 necessarily

raises· the

question about the construction of the relevant provi­

sions in the said Part. Art. 301 with which Part XIII

begins provides that "subject to the other provisions

of this Part trade, commerce and intercourse through­

out the territory of India shall be free". The appel­

lants contend that this provi8ion imposes a limitation

;)<; the legislative power of the State Legislatures as

well as,the Parliament, and the vires of the Act will

842 SGPRE~IE COt:RT REPORTS [1961]

1

9

60

have to be judged on that basis. Tho words used in

Atiahan rm A rt. 301 a.re wide and unambiguous and it would be

co, I.id. unroaeona.ble to exclude from their ambit a. taxing

v. law which restricts trade, commerce or intercourse

The Stale of either direct.ly or indirectly. On the other hand, the

Assam 6-Othm respondent -the Attorney.General, and the other States

G

.

-d

have urged that taxing laws stand by themselves;

a;e>1draga kar ].th db I . . f p" XII d

ey

a.ro governe y t 1e prov1s1ons o a.rt

an

no provision of Part XIIl can be extended to them.

In the alternative it has been suggested that the pro.

visions of Part Xlll should be applied only to such

legislative entries in the Seventh Schedule which deal

with trade, commerce and intercourse. This alterna­

tive a.rgumPnt would bring within the purview of

Pa.rt X Ill Entry 42 in List I which refers to inter­

State trade and commerce, Entry 26 in List 11 which

des.ls wit.h tea.de and commerce, within the State sub­

ject to the provisions of Entry 33 in List III, and

Ent-ry 33 in List III which deals with trade and com­

merce as therein specified. The arguments thus

presented by both the parties appear prima facie to

be logical

and can claim the merit of

attractive sim­

plicity. The question which we have to decide is

which of the content.ions correctly represents the

true position in law. Does truth lie in one or tho

other contention raised by the parties, or docs it liti

mid way betwe~n those contentions? This problem

has to be resolved primarily by adopting a fair and

reasonable construction of the relevant Artidcs in

Part XII [; but beforo we attempt-that task it would

be

relevant to deal with some general considerations.

Let us first recall

the political and constitutional

background

of

Part XIII. It is a matter of common

knowledge

that, before the Constitution was adopted,

nearly two-thirds

of the

territory of India was subject

to British Rule

and

was then known a.s British India,

while the remaining part of the territory of India was

governed by Indian Princes and it consisted of several

lndian States. A largo number of these States claim­

ed sovereign rights within the limitations imposed by

the paramount power in that behalf, and they pur­

ported to exercise their legislative power of imposing

l S.C.R. SUPREME COURT REPORTS 843

taxes in respect

of trade

and commerce which inevit. I96o

ably Jed to the erection of customs barriers between

themselves

and the rest of India. In the matter of

Atiabari Tea

Co., Ltd.

such barriers British India

was governed by the pro. v.

visions of s. 297 of the Constitution Act, 1935. To the The State of

provisions of this section we will have occasion later Assam b Others

to refer during the course of this judgment. Thus, . -

· 9 O h fl f d d Ga;endrngadkar J.

pr10r to 1 5 t e ow o tra e an commerce was

impeded at . several points which constituted the

boundaries of Indian States. After India attained

political freedom in 194 7 and before the Constitution

was adopted the historical process of the merger and

integration of the several Indian States with the rnst

of the country was speedily accomplished with the

result that when the Constitution was first passed the

territories

of India consisted of

Part A States which

broadly stated represerited the Provinces in British

India, and Part B States which were made up of

Indian States. This merger or integration of Indian

States with the Union of India waa preceded by

the merger and consolidation of some of the States

interse between themselves. It is with the know ledge

of the trade barriers. which had been raised by the

Indian States in exercise of their legislative powers

that the Constitution-makers framed the Articles in

Part XIII. The main object of Art. 301 obviously

was

to allow the free flow

of the streri.m of trade, com.

meroe and intercourse throughout the territory of

India.

In drafting the relevant Articles of Part XIII the.

makers of the Constitution were fully conscious that

economic unity was absolutely essential for the stabi­

lity and progress of the federal policy which had been

adopted by

the Constitution for the governance of the

country.

Political freedom which had been won, and

political unity which had been accomplished.by the

Constitution,

had to be sustained

and strengthened by

the bond of economic unity. It was realised that in

course

of time different political parties believing in

different economic theories or idealogies

may come in

power in the several constituent units of the Union,

and that may conceivably give riae to local and

844 SUPRE:ME COURT REPORTS [1961]

1

Y

60

regional pulls and pressures in economic matters.

Atiaban T.a Local or regional fears or apprehensions raised by local

co. l.td. or regional problems may persuado the State Leg isle.-

"· turcs to adopt remedial measures intended solely for

The State of the protection of regional interests without due n·gard

A""'" & 0

11

·"'' to their effect on tho economy ·ofthe natiu11 as a whole.

G d

·--

1

•

1

'The objec•t of Pa.rt XlII was to avoid such a. p088ibi-

•Je" '"("''"' ·1· v 1 I f d h · 1ty. i· ree movement all( exc w.nge o g110 ~ t rough-

out the territory of India is essc11tiu.l for the economy

of the nation and for sustaining and improving living

standards of the country. The provision contained in

Art. :!01 guaranteeing the freedom oft rade, commerce

and intercourse is not a declaration of a mere platitude,

or the ox pression of a pious hope of a declaratory

character; it is nut also a mere statement of a direc­

tive principle of State policy; it embodies and

enshrines a principle of paramount importance that

the economic unity of the country will provide the

main sustaining force for

the stability and

progress of

the political and cultural unity of the country. In

appreciating the significance of these general consi­

derations we may profitably refer to the observations

ma.de by Cardozo, J., in C.A.F. Seelig, Inc. v. Charles

H. Baldwin(') while he was dealing with the com­

merce els.use contained in Art. I, s. 8, cl. 3 of the

American Constitution. "This pa.rt of the Constitu­

tion ", obtterved Cardozo J., " was framed under the

dominion of a. political philosophy less parochial in

range.

It

was framed upon the theory that the

peoples of the severe.I states must sink or swim togo­

ther and that in the long run-prosperity and salvation

a.re in union and not division".

There is another genera.I consideration which has

been pressed before us by the learned Attoruey­

General a.nd tho States to which reference must bo

ma.de. lt is argued that in detormining the scope and

reach of the freedom embodied in Art. 301 we should

bear in mind the fact that to the uxtent to which the

frontiers of this freedom are widened to that extent is

the legislative power of the States curtailed or limited.

The Legislatures of the 8ta.tes have plenary powers to

(1) 294 U.S. ,11, ,23; 79 L. Ed. 1033, 1038.

1 S.C.R. SUPREME COURT REPORTS 845

legisl~te in respect of topics covered by the legislative

1

9

60

entries in Parts II and Ill. If the words nsed in Art. Atiabad Tea

301 receive the widest interpretation as contended by co., Ltd.

the appellants it would obviously mean that the State v.

Legislatures would not be able to legislate on several The State of

entries in the said Lists without adopting the pro-Assam <>-Others

.cedure prebs

1

cribe~ by Art. 3h04(li~) .. In_fact itthwo

1

ul?

1

be Gajendragadkar J.

unreasona e to impose sue a m1tat1on on e eg1s a-

tive power of the State Legislatures and thereby affect

their freedom of action. Whilst appreciating this argu-

ment it

may be pertinent to observe that what appears

as a curtailment

of, or limitation on, the powers of the

State Legislatures prescribed by Art. 304(b) may, ·

from the point of view of national economy, be charac-

terised as a safeguard deliberately evolved to protect

the economic unity of the country ; even

so it may be

assumed

that in interpreting the provisions of Art.

301 and determining the scope and effect of Part

XIII we should bear in mind the effect of our decision

on the legislative power of the States and also of

Parliament.

Having thus referred to some general considerations '

let us now proceed to examine the question as to w he­

ther tax laws are wholly outside the purview of Part

XIII. In support of the argument that Part XIII does

not apply to

tax laws the learned Attorney-General

has emphasised the fact

that the power to levy a tax

is an essential

part of sovereignty itself, and he has

suggested

that this power is not subject to judicial

review

and never has been held to be so. In this

con­

nection lie has invited our attention to the observa­

tions made in Cooley's " Constitutional Limitations "

on the power of taxation. "The power to impose

taxes", says the author," is one so unlimited in force

and so searching in extent, that the courts scarcely

venture to declare

that it is subject to any restriction

whatever, except

8uch as rest in the discretion of the

authority which exercises it" (

1

). The author then has

cited the observations ofMars)lall, C. J., in McCulloch

v. Maryland(') where the learned Chief Justice has

(1) Cooley's" Constitutional Limitations", Vol. 2, 8th Ed., p. 986.

·· 2) 4 Wheat. 316, 428: 4 L. Ed. 579, 607.

108 .

846 SUPREME COURT RF.PORTS [ 1961)

I960 stated that" the power of taxing the people and their

property

is essential to the

very· existence of the

Alial:ari Tea ·

government, and may be legitimately exercised on the

Co., Lrrl.

v. objects to which it is applicable to the utmost extent

Tl" State a/ to which ·;he government may choose to carry it. The

Assam & Othm only security against the abuse of this power is found

.

--in the structure of

the government itself". Basing

Ga1e"drngadka• ]. h" )f h" h f · f h

1mse 011 t 1s c aracter o the ta.xmg power o t e

State the learned Attorooy-Gcnera.l has asked us to

hold

that

Pa.rt XIII can have no application to any

statute imposing a. tax. In our opinion this conten­

tion is not wellfounded. The statement- of the law on

which reliauce has been placed is itself expressed to

be subject to the relevant provisions of the Constitu­

tion; for instance, t.he same author has observed "It

is also believed that that provision in the Constitution

of the United States which declares that the citizens

of ea.ch state shall be entitled to a.II the privileges and

immunities of the citizens of the several states will

preclude ;~ny state from imposing upon the property

which citizens

of other states may own, or the business

which

th(ly may "carry on within its limits, any higher

burdens

by way of taxation than

a.re imposed upon

corresponding property or business

of its own

citizens"

(p. 1016). Putting the same propositions in terms of

our Constitution it cannot be suggested that the power

of taxation can, for instance, violate the equality be­

fore the law guaranteed by Art. 14 of the Constitution.

Thereforo the true position appears to be that, though

the power of levying tax is essential for the very

existence of

the government, its exercise must

inevit­

ably be controlled by the constitutional provisions

ma.de in

that behalf. It cannot be said that the

po..-er

of ta.xa.t.ion per se is outside the purview of any con­

stitutional limitations.

It is true that in Ramjilal v. Income-tax Officer,

Mohindargarh (')it has been held that" since there is

a special provision in Art. 265 of the Constitution that

no tax shall be levied or collected except by authority

of Jaw, cl. (l) of Art. 31 must be regarded as concern­

ed with deprivation of property otherwise than by the

(1) (1951] S.C.R. 127.

· 1 S.C.R. SUPREME COURT REPORTS 847

' .

imposition or collection of tax, and inasmuch as the z96o

right conferred by Art. 265 is not a right conferred by Atiabari Tea

Part III of the Constitution, it could not be enforced

Co., Ltd.

under Art. 32''. It is clear that the effect of this deci- v.

sion is no more than this that the protection against the The State of

imposition and collection of taxes, save by the autho, Assam & Dthm

rity of law, directly comes under Art. 265 and cannot G . d-dk

1

be said to be covered by cl. (1) of Art. 31. It would

01

'" raga ar •

be unsafe to assume that this decision is, or was

intended to be,

an authority for the proposition that

the levy of a tax by taxing statute can, for instance,

violate Art.

14 of the Constitution.

The next question which needs examination is

whether tax laws

are governed only by

Part XII of

the Constitution and not by Part XIII. The argument

is

that

Part XII is a self-contained code; it makes all

necessary provisions, and

so the validity of any

taxing

statute can be judged only by reference to· the prov·i­

sions of the said Part. Article 265 provides that "no

tax shall be levied or collected except by authority of

law". It is emphasised that this Article does not con­

template that its provision is subject to the other pro­

visions of the Constitution, and so there would be no

justification for applying Part XIII to the taxing

statutes.

It is also pointed out that restrictions and

other exceptions which the

Constitution wanted to pre­

scribe in respect of taxation have been provided for

by Arts. 274, 276, 285, 287 and 288, and so we need

not look beyond the provisions

of this

Pa.rt in dealing

with

tax laws. In our opinion this argument fails to

take

n~tice of the fact that Art. 265 itself inevitably

takes rn Art. 245· of the Constitution when in sub­

stance it says that a tax shall be levied by authority

of law.. The authority of law to which it refers and

under-which alone a tax can be levied is to be found

in Art,

245 read with the corresponding legislative

entries in Schedule

VII. Now, if we look at Art. 245

which deals with the extent of laws made by

Parlia­

ment and by the Legislatures of States· it begins with

the words" subject to the provisions of this Constitu­

tion "; in other words, the power of Parliament and

the Legislatures of the States to make laws including

848 SCPRE:\!E COCRT REPORTS [ 1961 J

r96o laws imposing taxes is subject to the provisions of this

Allaban T•a Constitution and that must bring in the application of

the provisions of Part XIII. Therefore the argument

Co., Ltd.

v. based on the theory that tax laws a.re governed by the

Th• s1a1e of provisions of Part XII alone cannot be a.ccept~d. The

Assam 6-Others power to levy taxes is ultimately based on Art. 245,

-and the said power in terms is subject to the provi-

Gaj.ndragadhar J. sions of the Constitution.

On the other hand, the opening words of Art. 301

are very significant. The doctrine of the freedom of

trade, commerce and intercourse enunciated by Art.

301 iB not subject to the other provisions of the Con­

stitution but is made subject only to the other provi­

sions of Part XIII; that means that once the width

and amplitude of the freedom enshrined in Art. 301

a.re determined they cannot be controlled by any

provision outside Part XIII. Thi8 position inciden­

tally brings out in bold relief the important part

which the Constitut.ion-ma.kers wanted the doctrine

of freedom of trade to play

in the future of the

coun­

try. It iH obvious that whatever may be the content .

of the said freedom it is not intended to be an abso­

lute freedom; absolute freedom in matters of trade,

commerce and intercoursH would lead to economic

confusion, if not chaos and anarchy; and so the

freedom guaranteed by Art. 301 is ma.do subject to the

exceptions provided by the other Articles in Part

XIII. The freedom guaranteed is limited in the

manner specified by the said Articles but it is not

limited by any other provisions of the Constitution

outside Part XIII. That is why it seems to us that

;t. 301, read in its proper context and subject to the

limitations prescribed by the other rele\·ant Articles

in Pa.rt XIII, must be regarded as imposing a consti­

tutional limitation on the legislative power of Parlia..

ment and the Legislatures of the States. What

entries in the legislative lists will attract the provi­

sions of Art. 301 is a.not.her matter; that will depend

upon the content of the freedom guaranteed; but

wherever it is held that Art. 301 applies the legisla..

t.ive compelon2e of the Lcgi•lature in quest ion will

have

to b!

j.i.lg.·cl i .. ,Ii,; light of the relevant Articles

1 S.C.R. SUPREME COURT REPORTS 849

of Part XIII ; this position appears to us to be '96°

inescapable.

d b

E Atiabati Tea

On behalf of the respondent it was suggeste eiore

f 1 f

Co., Ltd.

us that the scope and extent o the app icatfon .o v.

Art. 301 can well be determined in the light of s. 297 The Stat' of

of the Constitution Act of 1935. Section 297 reatls Assam & Others

thus:

" 297( I). No Provincial Legislature or Govern- Gajendragadkar J.

ment shall-

(a) by virtue of the entry in the Provincial

Legislative List relating to tra~e and commerce with­

in the Province, or the entry in that List relating to

the production, supply, and distribution of commodi­

ties, have power to pass any law or take any execu­

tive aclion prohibiting or restricting the entry into,

or export from the Province

of goods of any

cl~s or

description; or

(b) by virtue of anything in this Act have

power to impose any 'tax, cess, toll, or due which, as

between goods manufactured or produced in the Pro­

vince and similar goods not so manufactured or

produced, discrfminates in favour of the former, or

which, in the case

of goods manufactured or produced

outside the Province, discriminates between goods

manufactured or produced in one locality

and similar

. goods manufactured or produced in another locality

..

(2) Any

law passed in contravention of this sec­

tion shall, to the extent of the contravention, be

invalid.

There is no doubt

that. the prohibition prescribed by

this section was confine.! to the Provincial Govern­

ments and Provincial Legislatures and did not apply

to the Central Government or Central Legislature. It

is also true that the said prohibition had reference to

the entries

in the Provincial Legislative List relating

to

trade and commerce, and to production, supply.

and distribution of commodities. The section also

deals with prohibitions

and restrictions in respect of

import of goods into, or their export from, a Province.

Likewise discrimination against goods manufactured

or produced outside the Province or goods produced

in other localities is also prohibited. The argument

850 SUPREME COURT REPORTS [1961]

z96o is that when the Constitution adopted Art. 301 it had

Atiabari Tea s. 297 in view and the only substantial change which

it intended to make was to extend the application of

Co., Lid.

v. the principles enunciated in the said section to the

Th• Stat• of Union Government and the Union Parliament, and

Assam 6-01hm to apply it to the territory which had subsequently

a- become a part of India as indicated by the 11·elevant

Gaj,. ragadka• f. Articles; the essential cont{'nt of freedom of trade and

commerce as prescribed by the said section, however,

continues to be the same.

In support of this argument reliance

has been

placed on the observations marle by Venkatarama

Aiyar,

J., in the

case of M. P. V. Sundararamfrr & Co.

v. The State of Andhra Prade.!h {'). In that case the

vires of some of the provisions of the Sales Tax Laws

Valia'ation Act, 1956 (7 of 1956), were challenged on

several grounds.

In dealing with one of the points

raised in support of the said challenge Venkatarama

Aiyar,

J., who delivered the majority judgment, con.

sidered the content of Ent.ry

'42 in List I. It had

been urged before the Court that the said entry

should be liberally construed and should be held to

include the power to tai(, and in support of this con­

tention reliance was placed on certain American and

Australian decisions. This argument was repelled

and it was held

that Entry 42 in List I is not to be

interpreted

as including taxation. In coming to this

conclusion the learned judge made certain general

observations pointing out

that it would not be always

safe to rely upon American or Australian decisions

in

int~rpreting the provisions"' our Constitution. Said

the learned judge, " the threads of our Constitution

were

no doubt taken from other Federal Constitutions

but when they were woven into the

fabric of our Con.

stitution their reach and their complexion underwent

changes. Therefore, valuable as the American deci­

sions are as showing how the question is dealt with in

sister Federal Constitution great care should be taken

in applying them in the interpretation of our Consti­

tution". He made a similar comment about e. 92 of

the Commonwealth of Australia Constitution Act and

(1) [1958] S.C.R. 1422, 1483-84.

'•·

..

1 S.C.R. SUPREME COURT REPORTS 851

the decisions thereunder, and in that connection he r960

observed : " We should also add that Art. 304(a) of Atial>ari Tea

the Constitution cannot be interpreted as throwing

f

Co., Ltd.

any light on the scope o Art. 301 with reference to v.

the question of taxation as it merely reproduces The State of

s. 297(l)(b) of the Government of India Act, and as Assam & Others

there was no provision therein corresponding to Art. . -

.301 s. 297(l)(b) could not have implied what is now Ga;endragadkar f.

sought to be inferred from Art. 304(a) ". The learned

.Attorney-General has relied on these observations.

It

would be noticed that, incidental

as these observa-

tions are, what the learned judge was considering was

the scope and effect

of s. 297(l)(b) of the Government

of India Act, 1935, and he held that the content of

the. said section cannot be enlarged in the light of the

provisions of Art.

304(a). No doubt the observations

would seem to show

that the learned judge thought

that Art.

304(a) cannot throw any light on the scope

of Art. 301 with reference to the question of taxation;

but it is clear that the question of construing the said

Articles did not fa.II to be considered, and was not

obviously argued before

the

Court. With respect, it

may be pointed out that in the happy; phraseology

adopted by

the learned judge himself, in the setting

of

Part XIII and particularly in the light of the wide

words used in Art. 301, the reach and complexion of

Art. 304(a) is wider than s. 297(l)(b) and does include

reference to taxation.

Then

as to the merits of the.argument that s. 297 of

the Constitution Act of 1935 should virtually

deter­

mine the scope of Art. 301, we are reluctant to accept

the assumption that the only change which the Cons­

titution. makers intended to make by adopting Art.

301 was to extend the application of s. 297 to the

Union Government

and the Parliament. Just

as the

Constitution-makers had before them the said section

they were also familiar with corresponding clauses

included in the Federal Constitutions

of other

count­

ries. The history of judicial decisions interpreting

s. 92 of the Australian Constitution must have been

present to their minds as . also the history of the

growth and development of the American Law under

852 SUPRE;\IE COURT REPORTS [1961]

i96o the eommerco clause in the American Constitution.

Atiabari Tea Besides, we feel considora.ble hesitation in accepting

the view that the makers of the Coustitufion did not

Co., Ltd.

v. want to onrich and widen tho content of freedom

The State oJ guaranteed by s. 297. They knew that the Constitu.

As.<am & 01hm tion would herald a riew and inspiring era. in the

ca·e•drugadk"' J. ?istory of India. .and. t~cy were fully ~ouscious of the

. J importance of ma111ta111111g the economic unity of the

Union of India in order that the federal form of

govt1rnment adopted by the Constitution should pro.

gr088 in a smooth and harmonious manner. That. is

why we are inclined to hold that the broad and un­

ambiguous words used in Art. 301 are intended to

emphasise

that the freedom of trade, commerce

and

intercourse guaranteed was richer and wider in con­

tent than was the case under s. 297; how much

wider and how much richer can be determined only

on a. fair and reasonable construction of Art. 301 read

a.long with the rest of the Articles in Part Xiii. In

our opinion, therefore, the argument that tax laws

a.re outside Part XIII cannot be accepted.

That takes us to the question as to whether Art.

301 operates only in res.pect of the entries relating to

trade and commerce already specified. Before ans.

wering this question it would be necessary to examine

the scheme of Part XIII, and construe the relevant

Articles in it.

It is clear that Art.

i!Ol applies not

onlv to inter-State trade, commerce and intercourse

but also intra-State trade, commerce and intercourse.

The words " throughout the territory of India. "

clearly indicate that trade and commerce whose free­

dom is guaranteed has to move freely also from one

pla.ee to another in the same State. Thia conclusion

is further supported by Arts. 302 and 304(b) as we

will presently point out. There is no doubt that the

sweep of the concept of trade, commerce and inter.

course is very wide; but in the present case wo a.re

concerned with trade, and so we will leave out of con.

sidcra.tion commerce and intercourse.

Even

as to

tmde it is really not necessary to discuss or determine

w h:~t trade exactly moans ; for it is common ground

that the activity carried on hy the appellants

1 S.C,R. SUPREME COURT REPORTS 853

amounts to trade, and it is not disputed that trans-I9

60

port of goods or merchandise from one place to an-Atiaba>i Tea

other is so essential to trade that it can be regarded co., Ltd.

as its integral part. Stated. briefly trade even in a v.

narrow sense would include all activities in relation · The State of

to buying and selling, or the interchange Of ~xchange Assam & Others

of commodities and .that movement from place toG . ,-dk

1

1 f h d

. . . ,

Wh

a1enoraga ar •

place is the very sou o sue tra mg act1v1ties. en

Art. 301 refers to the freedom of trade it is necessary

to enquire

what freedom means. Freedom from

what

? is the obvious question which

falls to be

determined iu. the context. At this stage we would

content ourselves with

the statement that the

free­

dom of trade guaranteed by Art. 301 is freedom from

all restrictions except those which are provided by

the other Articles in Part XIII. What these restric­

tions denote may raise a larger issue, but in the·pre­

sent case we will confine our decision to that aspect of

the matter which arises from the provisions of the

Act under scrutiny. It is hardly necessary to empha­

sise th'at in dealing with constitutional questions

courts should be slow to

embark upon an

unneces­

sarily wide or general enquiry and should confine .

their decision as far as may be reasonably practicable

within

the narrow limits of the controversy arising

between

the parties in the particular case. We will

come back

·. again to Art. 301 after examining the

other Articles in Part XIII. .

Art. 302 confers on the Parliament power to impose /

restrictions on trade, commerce and intercourse. It I

provides that Parliament may by law impose such

restrictions on

the freedom of trade, commerce or

intercourse between one State

and another or within

any part of the territory of India as may be required

in the public interest.

It would be immediately

notic­

ed that the reference made to a restriction on the

freedom

of trade within any part of the territory of

India as distinct from freedom of trade between one

State and another clearly indicates that the freedom

in question covers not

only inter-State

trade but also

intra-State trade.

Thus the effect of Art.

302 is to

109

854 SUPREME COURT REPORTS [1961]

provide for a.n exception to the genera.I rule prescribed

Ati•ba,; Tea by Art. 301. Restrictions on the freedom of trade can

co. I.td. be imposed by Parliament if they are required in the

v.

Tiu Stare of

Assam 6-0/hers

public interest so that the generality of freedom

guaranteed by Art. 301 is subject to the excrption

provided by Art. 302.

That takes us to Art. 303. lt reads thus:

Gajtt1drngadka1 J.

"303. (1) Notwithstanding anything in article

302, neither Parliament nor the Legislature of a State

shall have power to ma.kc any law giving, or authoris­

ing the giving of, any preference to one State over

another, or ma.king, or authorising the ma.king of, 1rny

discrimination between one State a.nd another, by

virtue of a.ny entry relating to trade and commerce in

any of the Lists in the Seventh Scheel ule.

(2) Nothing in clause (1) shall prevent l'a.rlia.ment

from

making a.ny la.w giving, or authorising the giving

of, any preference or ma.king, or authorising the

ma.k­

iiig of, a.ny discrimination if it is declared by such law

that; it is necessary to do so for the purpose of <lea.ling

with a. situation a.rising from scarcity of goods in a.ny

pa.rt

of the territory of

India.." ·

The first pa.rt of this Article is in terms a.n exception

or 1~ proviso to Art. 302 a.s is indicated by the non­

obsLante clause. This clause prohibits Parliament

from ma.king any la.w which would give any prefer­

ence to one State over another or would make any

discrimination between one Sta.to a.nd another by

virt.ue of the relevant entries specified in it. In other

words, in regard to the entries there specifi<,d, the

power to impose restrictions cannot be used for the

purpose of giving a.ny preference to one State over

another or ma.king any discrimirrn.tion in that manner.

It is obvious that the reference to the Legislature of

the State in this clause cannot be reconciled with the

non-obsta.nto clause; but the object of including tho

Legisle.ture of a. State appears to be to emphasise that

Jik(' Parliament even the Legisla.t ure of a. State cannot

give a.ny preforenco or make a.ny discrimina.t.ion.

Sub-Article

(2) is an except.ion

to sub-Art. (1) of

Art .. 303. H empowers the Pa.rlia.ment to make a. la.w

giving or a.uthoriaing to give a.ny preference or ma.king

1 S.C.R. SUPREME COURT REPORTS 855.

any discrimination, but this power can be exercised

1

9

60

only if it is declared by law made by the Parliament Atiabari T•a

that it is necessary so to do for the purpose of dealing co., Ltd.

with a situation arising from scarcity of goods in any v.

part of the territory of. India ; in other words, it is Th• Stat• of

only when Parliament is faced with the task of meet. Assam <So 0111"'

ing an emergency created by the scarcity of goods in . -.

any particular part of India that it is authorised to Ga1•ndra,eadkar J

make a law making a discrimination, or giving prefer-

ence, in favour of the

part thus affected. ·On behalf of the States strong reliance is placed on

the fact that A rt. 303(1) expressly refers to the entries

relating to trade and commerce in any of the Lists in

the Seventh Schedule, and it i.s urged .that this gives

a clear indication as to the scope of the provisions of

Art. 301 itself. There is some force in this contention ;

but on the whole we are not prepared to hold that the

reference to the said entries should govern the con­

struction of Art. 301. The setting in which the said

entries a;re referred to would of course determine the

scope ind extent of the prohibition prescribed by Art.

303 (1); but that cannot be pressed into service in

determining the scope of Art. 301 itself. It is signifi­

cant that Art. 303(1) does not refer to intercourse and

in

that sense intercourse is outside its sphere. It is

likely

that having authorised Parliament to impose

restrictions

by Art.

302 it was thought expedient to

proribit expressly the said power of imposing restric­

tions from being used for the purpose ofgiving any

preference in

so

.far as the relevant entries are con­

cerned. It may also be that the primary. object of

confining the operation

of Art.

303(1) to the said

entries was to introduce a corresponding !imitation on

the power of Parliament to discriminate undE'lr Art.

302. However that may be, in our opinion the limita­

tion thus introduced in Art. 303(1) cannot circumscribe

the scope of Art. 301 or otherwise affect its construc­

tion. Besides, as we will presently point out, there

are other Articles in this Part which indicate that tax

laws are included within Art. 301, and if that be llo,

the reference to the said entries in Art. 303(1) cannot

856 SUPREME COURT REPORTS [1961]

1

9

60

limit the application of Art. 301 to the so.id entries

alone.

Aliabari Tta

Artide 304 reads thus:

Co .• Ltd.

v. "Notwithstanding anything in article 301 or

n, State of • e.rtide 303, the Legislature of e. State may by le.w­

Assam <So Others (a) impose on goods imported from other States

G . d-dk

1

or t.he Union territories any tax to which similar

a;en raga ar ·goods manufactured or produced in that State are

subject, so, however, e.s not to discriminate between

goods so imported and goods so manufactured or pro­

duced; and

· (b) impose such reasonable restrictions on the

freedom of trade, commerce or intercourse with or

within that State as may be required in the public

interest:

Provided that no Bill or amendment for the pur­

poses of clause (b) shall bo introduced or moved in the

Legislature of a State without the. previous sanction

of the President."

Thl' effect of Art. 304(a) is to treat imported goods on

the so.me be.sis e.s goods manufactured or produced in

any State ; and it authorises tax to be levied on such

imported goods in the same manner and to the same

extent e.s may be levied on goods manufactured or

produced inside the State.

We ought to add

that this

sub-Article assumes that taxation can be levied by

the

State

Legislature on goods manufactured or pro­

duced within its territory. and it provides that outside

goods cannot

be treated

any worse. How a tax can

be levied on internal goods is, however, provided by

Art. 304(b). The non-obste.nte clause referring to

Art

..

301 would go with Art. 304(a), and that indicates

that tax on goods would not have been permissible

but for Art. 304(a) with the non-obstante clause. This

incidentally helps to determine. the scope and width

of the freedom guaranteed under Art. 301 ; in other

words Art. 304(e.) is another exception to Art. 301.

Article 304(b) empowers the State Legislature to

impose reasonable restrictions on the freedom of trade

with other States or within its own territory. Age.in,

the. reference to the territory within the State supports

the conclusion

that Art.

301 covers the movement of

1 S.C.R. SUPREME COURT REPORTS 857

trade both inter-State and intra-State. Article 304(b) I96o

is to be read with the non-obstante clause relating to Atiabari Tea

Art. 301 as well as Art. 303, and in substance it gives co., Ltd.

power to the State Legislature somewhat similar to v.

the power conferred on the Parliament by Art. 302. The State of

The reference to Art. 303 in the non-obstante clause· Assam & Others

has presumably been made as a matter of .abundantG . d-dk

1 , h L . l f S h b . l a1en raga ar .

caution smce t e eg1s ature o a tate as een rnc u-

ded in Art. 303(1). There are, however, obvious differ-

ences in the powers

of the Parliament and State

Legislatures. In regard 'to au act which the State

Legislature intends to pass under Art. 304(b) no

bill

can be introduced without the previous sanction of

the President, and this requirement has obviously been

inserted in order

that regional economic pressures

which may inspire legislation under the said clause

should be duly examined in the light

of the interest

of national economy ; such legislation must also be in

the public interest which feature is common with the

provision contained in Art.

302; such legislation must

also satisfy the further test that the restrictions im-

posed by

it are reasonable. That is another additional

restriction imposed on the powers of the

State

Legis-

latures. Thus there are three conditions which must

be satisfied in passing

an Act under Art.

304(b ),-the

previous sanction of the President must be obtained,

the legislation must be in the public interest, and it

must impose restrictions which are reasonable. It is

of course true that if the previous sanction of ·the

President is not obtained that infirmity may be cured

by adopting the course authorised by Art. 255. The

result of reading Art. 304(a) and (b) together appears

to be

that a tax can be levied by a State Legislature

on goods manufactured or produced or imported in

the State and thereby reasonable restrictions can be

placed on the freedom

of trade either with another

State or between different areas of the same State.

Tax legislation thus authorised must therefore be

deemed to have been included in Art. 301, for that is

the obvious inference from the use of the non-obstante

clause.

Article 305 saves existing laws and laws providing

858 SUPHEME COURT REPORTS [1961]

'9

60

for State monopolies. It is unnecessary to deal with

Atia;•d ·r,. thi~ Artich~. Its object clearly wss not to interrupt

co .. Ltd. or to affect the operation of the existing lsws except

"· in so far as the President mav by order otherwise

Th• State of di\·ect.. Article 306 is relevsnt. ·It resds thus:

Assam & Othm "N'otwithstsn<ling anything in the foregoing pro­

Gaj'"d;agadkar J. visions of this Psrt or in sny other provisions of this

Constitution, any State specified in Part B of the

First Schedule which before the commencement of this

Constitution was levying sny tax or duty on the

import

of goods into the

State from other States or on

the export of goods from the State to oth11r States

may, if an agreement in that behalf has been ent~red

into between the Government of India and the

Government of that Stste, continue to levy a.n<l collect

such tax or duty subject to the terms of such sgree­

ment a.n<l for such period not exceeding ten years from

the commencement

of this Constitution

as ma.,· be

specified in the agreement :' ·

Provided that the President may at any time

after the expiration of five years from such com­

mencement terminate or modify any such agreement

if,

after

consideration of the report of the Fina.nre

Commission constituted under article 280, he thinks it

nncessa.ry to do so."

Thi8 Article has been subsequently deleted by s. 29

and ScbPdule to the Constitution (Sen1nth Amend­

ment) Act, 1956, bnt its initial inclusion in Part XIII

throws some light on the scope of Art. 301. Laws

made by any State specified in Part B of the First

Schedule levying any ta.x or duty on the import of

goods into the State from other States or the export

of goods from the Sta.re to other Sta.tes were expressly

saved by a. Art. 306 beca.uso it was rca.liRed tha.t they

would otherwise

be hit by Art.

301. In other words,

ta.xing

statutes or

statutes imposing duties on goods

would,

but for Al't.

306, have attracted the a.pplica.­

tion of Art. 301.

Let us now revert to Art. 30 l a.nd ascertain the

width a.nd amplitude of it.s scope. On a. careful exami­

nation of the relevant provisions of Pa.rt XIII a.s a.

whole as well a.a the principle of economic unity

1 S.C.R. SUPREME COURT REPORTS 859

which it is intended to safeguard by making the said r96o

P

rovisions, the conclusion appears to us

to be inevit-

Atiaba1'i Tea

able that the content of freedom provided for by A rt. co , J.td.

301 was larger than the freedom contemplated. by v.

s. 297 of the Constitution Act of 1935, and whatever J'he State of

else it may or may not include, it certainly includes Assam & Others

movement of trade which is of the very essence of all G . a-a

. trade and is its integral part. If the transport or the

01

'" ,·aga kar J.

movement of goods is taxed solely on the bitsis that

the goods are thus carried or transported that, in our

opinion, directly affects the freedom

of trade as

con-

templated by Art. 301. If the movement, transport

or

the carrying of goods is allowed to be impeded,

obstructed or hampered by taxation without satisfy-

ing

the requirements of Part XIII the freedom of

trade on which so much emphasis is laid by Art.

301

would turn to be illusory. When Art. 301 proyides

that trade shall be free throughout the territory of

India primarily it is the movement part of the trade

that it bas in mind and the movement or the trans-

port pa.rt of trade must be free subject of course to

the limitations and exceptions provided by the other

Articles

of Part XIII. That we think is the result of

Art.

301 read with the other Articles in Part XIII.

Thus the intrinsic evidence furnished by some of

the Articles of Part XIII .shows that taxing laws are

not excluded from the operation of Art. 301 ; which

means

that tax laws can and do amount to

restric­

tions freedom from which is guaranteed to trade under

the said Part. Does that mean that all tax laws

attract the provisions of Part XIII whether their

impact on

trade or its movement is direct and

imme­

diate or indirect and remote ? It is precisely because

the words used in 'Art. 301 are very wide, and in a

sense vague and indefinite

that the problem of

con­

struing them and determining their exact width and

scope becomes complex and difficult. However, in

interpreting the provisions of the Constitution

we

must always bear in mind that the relevant provision " has to be read not in -vacuo but. as occurring in a

single complex instrument in which one

part may

860 SUPREME COURT REPORTS [l!J61]

'9

60

throw light on another". (Vide: James v. Common·

Atiaban Tea wealth nf Australia(')). In construing Art. 301 we

co., Lid.· must, therefore, have regard to the general scheme of

v. our Constitution as well as the particular provisions

Ihe State u/ in regard to taxing laws. The coustruction of Art. 301

Assam & Oii<m should not be determined on a purely academic or

G

. d

-dk

1

doctrinnaire

consideratim1s; in construing the said

aie" 'ag" ., • A . 1 d 1· .

rtic e we must a opt a rea 1St1c approach and bear

in mind

the essential features of the

separation of

powers on which our Constitution rests. It is a. fede­

ral constitution which we a.re interpreting, and so the

impact of Art. 301 must be judged accordingly.

Besides,

it is not irrelevant to

rememb~r in this

connection that the Article we are construing imposes

a constitutional limitation on tho power of the Parlia­

ment and State Legislatures to levy taxes, and gene­

rally, but for such limitation, the power of taxation

would be presumed to be for public good and would

not be subject to judicial review or scrutiny. Thus

considered we think it would be reasonable and proper

to hold

that restrictions freedom from which is

guaranteed by Art.

301, would be such restrictions as

directly and immediately restrict or impede the free

flow or movement of trade. Taxes way and do

amount to restrictions; but it is only such taxes as

directly and immediately restrict trade that would

fall within

the purview of Art.

301. Tho argument

that all taxes should be governed by Art. 301 whether

or not their impact on trade is immediate or mediate,

direct or remoto, adopts, in our opinion,

an extreme

approach which cannot be upheld. If the said

argu­

ment is accepted it would mean, for instance, that

even a legislative enactment prescribing the minimum

wages to

industrial employees

may fa.II under Pa.rt

Xlll because in an economic sense an additional

wage bill may indirectly affect trado or commerce.

We are, thoreforo, satisfied that in determining the

limits of the width and amplitude of the freedom

guaranteed by Art. 301 a rational and workable test

to

apply would be: Does the impugned

restriction

operate directly or immediately on trade or its

(1) (1936) A.G. 378, 613.

1 S.C.R. SUPREME COURT REPORTS 861

movement ? . It is in the light of this test that '9

60

we propose to examine the validity of the Act under Atiabad Tea

f:crutiny in the present proceedings. ca., Ltd.

We do not think it necessary or exp_edient to consi- v.

der what other laws would be affected by the inter-The State of

pretation we are placing on Art. 301 and what other Asrnm °' Othm

legislative 'entries would fall under Part XIII. WeG . d-dl

1 . . h A . h h' ·h a;en raga '"' .

propose to confine otir dec1s10n to t e ct wit w JC

. we are concerned. If any other laws are similarly

challenged the validity

of the challenge will have to

be examined in

the light of the provisions of those

laws.

Our conclusion, therefore, is that when Art. 301

provides that trade shall be free throughout the terri­

tory of India it means that the flow of trade shall run

smooth

and unhampered by any restriction either at

the boundaries of the

States or at any other points

inside

the

States themselves. It is the free movement

or the transport of goods from one part of the coun­

try to the other that is intended to be saved, and if

any Act imposes any direct restrictions on the very

movement of such goods

it attracts the provisions of

Art.

301, and its validity can be sustained only if it

satisfies the requirements of Art. 302 or Art. 304 of

Part XIII. At this stage we think it is necessary to

lleJ.l'lat that when it is said that the freedom of t.he

mm: ement of trade cannot be subject to any restric­

tions m the form of taxes imposed ori the ca~riage of

goods

or their movement all that is meant is that

the

said restrictions can be imposed by the State Legisla­

tures only after satisfying the requirements of Art.

· 304(b) .. It is not as if no restrictions at all can be

imposed on

the free movement of trade.

1

• Incidentally we may observe that the difference in

the provisions contained in Art. 302 and Art. 304(b)

would prima facie seem to suggest that where Parlia­

ment exercises its power under Art. 302 and passes a

law imposing'restrictions on

the freedom of trade in

the public interest, whether or not the given law is in

the pv.blic interest may not

-be justiciable, and in that

sense Parliament is given the sole power to d~cide

-what restrictions can be imposed in public interest as

no

862 SUPREME COURT REPORTS [1961]

1

9

60

authorised by Art. 302. On the other hand Art. 304(b) . ,

Atinba,; Tea requires not only that the law should be in tho public

co., Ltd. interest e.nd should have received the previous se.nc-

v. tion of the President but that the restrictions impos-

The State of ed by it should also b!' reasonable. Prima focie the

Aosam .s. Othm requirement of public interest can be said to be not

. - just.iciable and may be deemed to be satisfied by the

Ga1endrngadka' /.sanction of the President; but whether or not the res­

trictions imposed are ree.sone.ble would be justiciable

and in that sense le.ws passed by the Stat!' Legisla­

tures

may

on occasions have to face judicial scrutiny.

However ,this point does not fall to be considered in the

present proceedings e.nd we wish to express no definit~

opinion on it.

Let us then examine the material provisions

of the

Act.

As we have already pointed out the Act has

been

passed providing for the levy of tax on certain

goods carried by roads or inland waterways in

the State of Assam. Section 2(11) defines a producer as ·

meaning a producer of tea e.nd including the person

in charge

of the garden where it is produced.

Sec­

tion 3 is the charging section. It provides that manu­

factured tea in chests carried by motor vehicles etc.,

except railways and airways she.II be liable to tax at

the specified rate per lb. of such tea e.nd this tax shall

be realised from the producer. It also makes similar

provisions for jute with w hich._a'e are not concerned

in the present proceedings. Section 6 provides for

taxing authorities

and their powers. Section 7 pro­

v ides, inter alia, that every producer shall furnish

returns

of the manufactured tea carried in tea chests

in such form

and to such authority

as may be preP.­

cribed. Section 8 makes a provision for licensing ·Jf

balers who are persona owning or possessing pressing

machines for the com press ion of jute int-0 be.Jes. Sec­

tion 9 prescribes the procedure for levying t.he assess­

ment; ands. IO provides for the cancellation of assess­

ment in the cases specified. Section 11 deals with the

assessment in cases of evasion and escape; s. U with

rectification, and s. 13 with penalty for non-submis­

sion of returns and evasion of taxes. Section 19 pro­

vides for notice of demand, ands. 20 lays down when

1 S.C.R. SUPREME COURT REPORTS 863

ta.x becomes payable. This Act has been passed by

1

9

60

the Assam Legislature under Entry 56 in List II and Atiaba•i Tea

naturally it purports to be a tax on goods carried by co. Ltd.

roads or by inland waterways. It is thus obvious that v.

the purpose and object of the Act is to collect taxes The State of

on goods solely on the ground that they a.re carried by Assam & Others

road or by inland waterways within the area of the c·ajendragadkar ].

State. That being so the restriction placed by the Act

on the free movement of the goods is writ large on

its

face. It may be that one of the objects in passing the

Act was to enable the

State Government to raise

money to keep its roads and waterways in repa.irs;

but that object may and can be effectively achieved

by adopting another course of legislation ; if the said

object is intended to be achieved by levying a

tax on

the carriage

of goods it can be so done only by satisfy-

ing the requirements

of Art. 304(b). It is common

ground

that before

the· bill was introduced or moved

in

the

State Legislature the previous sanction of the

President has not been obtained ; nor has the said

infirmity been cured by recourse to Art.

255 of the

Constitution. Therefore

we do not see how the. validity

of the tax can

be ~ustained, · In: our opinion the High

Court was in error in putting an unduly restricted

meaning on the relevant words in Art. 301. It is clear

that in putting that narrow construction on Art. 301

the High Court was partly, if not substantially, in flu.

enced by

what it thought would be the inevitable

conseguence of a wider construction of Art.

301. As

we have made it clear during the course of this judg-

ment

we do not propose to express any opinion as to

the possible consequence of the view which we are

taking in the present proceedings. We are dealing in

the present case with an Act passed by the

State

Legislature which imposes a restriction in the form of

taxation on the carriage or movement of goods, and

we hold that such a restriction can be imposed by the

State Legislature only if the relevant Act is passed in

the manner preAcribed

by Art. 304(b ).

This question can be considered from another point

of view. When a

State Legislature passes an Act

under

Entry 56 of List

II its initial legislative

864 SCP.P.E~JF. COCRT REPORTS [ 1961 J

comp11tcnce is not in rliRputc. What is in rliHf>Ute is whe­

Atiaiwi Tea ther or not Huch l<'pislative cornpet.enee is subject to the

limifu.tions prescribed by Part. XIII. Now what does

au act passed under the said Ent1 y purport to do? It

Tl" siaie nf purportR to put a restraint. in the form of taxation on

A~sa111 <.;.. 01:uts

the movement. of trade, iind if the movem,.nt of trade

Co., l.td.

Gafoid,:;.dl:a• J. is regarded as an integral pa.rt of trade itself, the Act

in substance pnt R a rest.riction on trade itself. The

effect. of the Act nn the movement. oft rad<.' is direct

and immediate; it is nut indirect or remote; and so

legislation

under the

Raid Entry must be held to fall

directly under Art. 301 as legi~la.tion in respect of

trade and commerce. In some of the decisions oft.his

Court, in examining the va.lidit.y of legislation it has

been considered whether tLe impugned legislation is

not directly in rPspect of the suhjeet. matter covered hy

a pa.rticular Article of tlw Const11 ution. This test was

applied for instance by Kania., C. J., in the case of

A. K. Gopalan v. The Stale of .Madras('). It was also

adopted by this Court in tl1e case of Ram Singh v.

The State of Delhi('). h i' no douht true that the

points which a.rose for decision iu those cases had

rl'ference to the fundamental rights guaranteed by

Arts. 19, 21 or 22; hut we ure referring to those deci­

si011s in order to rm11hn,sise that the test there adopt­

ed would in the· present case lead to the c0nelusio11

t.l1a.t the Ad with which we are coneerned is invalid.

The true a.µproa.eh according to Kania, C.J., is only to

consider thti directness of the legislation. Now, if the

directness l>f legiRlation has t-0 he considered it is clear

that thr, Act imposes a tax on the carriage of goods

and that immediately takes it wit.hin the purview of

Pa.rt XIII.

In the course of a.rgump,nts the learned Attorney.

General invited us to apply the test of pith and suh­

st.ance, and he comended that, if the said test is appli­

ed f;he validity of the Act can be sustained. In support

of his argument be has relied on the observations

ma.de by Das, C. J ., in the case of The State of Bombay

v. R.!JJ.D. Ghamarbaugwala ('). In that case the Court

(l) [1950] S..C.H. BB. (2) [1951] S.C..R. 451.

(3) [1957] S C.R.

B74·

1 S.C.R. SUPREME COURT REPORTS 86.5

was called upon to consider the validity of the '9

60

Bombay Lotteries and Prize Competit.ions Control and

Atiahriri Tea

Tax (Amendment) Act, 1952. The challenge to the Co .• Ltd.

Act proceeded on ~wo grounds, (1) that it violated the v.

fundamental right guaranteed .under ArC 19(l)(g) and The State of

(2) that it offended against the provisions of Art. 301. Assam & Others

The challenge on the first ground was repelled because . -dk

1 · Jd h · b d d Ga1endraga ar .

1t was he t at gambling cannot e treate as tra e

or business under Art. 19(l)(g). This conclusion was

sufficient to repel a];;o the other ground on which the

validity

of the Act was challenged because, if garn bl-

ing was not trade or business under Art. 19(l)(g), it

was also not

trade or commerce under Art.

301. On

the conclusion reached by this Court that gambling is

not a trade this position would be obvious. Even so,

. the learned Chief Justice incidentally applied the test

of

pith and substance, and observed that the

impugn­

ed act was in pith and substance an act in respect of

betting and gambling,

and since betting or gambling

was not trade, commerce or business

"the validity of

·the Act had not to be decided by the yardstick of

reasonableness

and public interest laid down in Arts. HJ(6) and 304 ". ln this connection it may, with

respect, be pointed

out

thn,t wh:1t purports to be a

q notation from Lord Porter's judgment in Common­

wealth of Australia & Ors. v. Bank of New Sonth

Wrtles (') has not been accurately reproduced. ln

fact, referring to phrases such as ' pith and substance'

Lord

Porter has observed that

"they no doubt raise

in convenient form

an

:i,ppropriate <Juestion in cases

where the real issue is one of subject-matter, as when

the point is whether a particular piece of legislation is

a law in respect of some subject within the permitted

field. They may also serve useful purpose in the

process

of deciding whether an enactment which

works

some interference with trade, commerce and inter­

course among the F'.t.ates is nevertlieless untouched by

s. 92 as being essentially regulatory in clia.racter"

(pp. 312, 313). These <•bservations would indica.\e that

the test of pith and substance is generally and more

&ppropri:ttely ap1ilied when a dispute nrises as to t.hn

866 SllPREME COURT REPORTS [1961]

legi~lativc competence of the legislature, and it has to

he resolved by reference to

the entries to which the

Ahubar1 Tea

C

impugned legiHlation is relatable. When there iH a con-

o., Lld.

v. flict between two entries in the legislative lists, and

The State of legislation by reference to one entry would be com­

Assam & Othm petent but not by reference to the other, the doctrine

G

.

d-d'

1

of pith and substance is invoked for

the purpose of

"

1'" •a~o "

0

' • d · · h d h f h etermmmg t e true nature an c arii.cter o t e

I

legidation in quest.ion (Vide: Prafulla Kumar Mukher-

jee v. Bank of Comm~rcP. Ltil., Khulna(') and Subrah­

manyan Chettiar v. Muttuswami Goundan ('). But

even the application of the test of pith and substance

yields the same result in the present proceedings. Tho

pith and substance oft.he legislation is taxatinn on the

carriage of goods and that clearly falls within the

terms of A rt. 301.

At t.he commencement of this judgment we have

stated that the complexity of the problem which we

a.re called upon to decide in the present proceedings

has been incidentally mentioned or considered in some

of the reported decisions of this Court. We ma.y in

that connertion refor tot.woof such decisions at this

staire. I u The State of Bombay v. The United Jfotors

(bul1'.a) Ltd. ('), Patanja.li SaHtri, C. J ., observed that

the freedom of inter.Stat.e trnrle and commerce dec­

lared in Art .. 301 is expressly subordinated to the

State power of taxing goodA imported from sister

States provided only no discrimination is made in

favour of similar goods

of local origin. According to

the learned

Chief .Justice the commercial unity of

India is ma.de to give way before the State power of

imposing a.ny non.discriminatory ta.x on goods import­

ed from sister St ates. This observation would sug-.

gest that Art. 304(a.) and (b) deal with taxes and to

tha.t extent it is inconsistent with the argument that

tax laws are outside Part XII I.

The next case in which this question has been

incidentally discussed

is in Saghir Ahmed v. The

State

of U. I'.('). In that case the impugned provisions

of the U. P. lh1ad Transport Act., l\J51 (l:. P. Act II of

{I) {1947) LR. 74 IA. 23.

(3) [1953] S.C.R. 1009.

(2) (1940] !·-.C.H. 188.

(4) [1955] t S.C.H. 707.

1 S.C.R. SUPREME COURT REPORTS 867

1951), were declared to be unconstitutional on two r960

other grounds which had no direct connection with the

1

Atiabari Tea

cha lenge under Part XIII of the Constitution. Even

so, Mukherjea, J., as he then was, who spoke for the Co.~Ltd.

Court, has referred to the problem raised by Part XIII The State of

as " not quite free from difficulty " and has indicated Assam & Others

its pros and cons which were urged before the Court. . --

One of the points thus urged was that Art. 301 pro-Gayendragadkar J.

vides safeguards for carrying on trade as a whole as

distinct from the rights

of an individual to carry it

on. In other words the said Article was concerned

with the passage of commodities or persons either

within or without the State frontiers but not directly

with individuals carrying on the trade or commerce.

The right of individuals, it was said, was dealt with

under Art. 19(l)(g)

so that the two Articles had been

framed in order to secure two different objects. To

the same effect are some of the observations made by

Das,

C. J., in the case of R. M. D. Chamarbaugwala (').

It is unnecessary on the present occasion to consider

whether the fields covered

by Art. 19(l)(g) and Art. 301 can be distinguished in the manner suggested in

the said observations. It may be possible to urge

that trade as a whole moves inevitably with the aid

of human agency, and so protection granted to trade

may involve protection even to the individuals carry-

ing on the said trade.

In that sense the two freedoms

may overlap. However,

it is unnecessary to pursue

this point any further in the present proceedings.

Before

we conclude we would like to refer to two

decisions in which the scope and effect of the

provi­

sions of s. 92 of the Australian Constitution came to

be considered. We have deliberately not referred to

these decisions earlier because

we

thought it would be

unreasonable to refer to or rely on the said section or

the decisions thereon for

the purpose of construing the

relevant Articles

of Part XIII of our Constitution. It

is commonplace to say that the political and historical

background of the federal polity adopted by

the

Australian

Common wea.lth, the setting of the Consti­

tution itself, the distribution of powers and the gene­

ral scheme of the Constitution are different, and so it

(1) [1957] s.c.R. 874.

868 SUPREME COURT REPORTS [1961]

1960 would not be safe to seek for guidance or assistance

from the Australian decisions when

we are called

up­

Atiabari Tea

on to construe the provisions of our Constitution. In

Co., Ltd. h l d

v. this connection we ave a rea y referred to the note

The State of of warning struck by Venkatarama Aiyar, J., against

Assam &. Others indiscriminate reliance being placed on Australian

- and American decisions in interpreting our Constitu-

Gajendragadkar f. tion in the case of M. P. V. Sundararamier & Co. (

1

).

The same caution was expressed by Gwyer, C. J., as

early as

1939 when he observed in The

Central Pro­

vinces and Berar Sales of Motor Spirit and Lubricants

Taxation

Act, 1938 (')

"there are few subjects on

which the decisions of other Courts require to be

treated with greater caution

than that of federal and

provincial powers, for in the last analysis the

deci­

sion must depend upon the words of the Constitution

which the Court is interpreting ; and since no two

Constitutions are in identical terms it

is extremely

unsafe to assume

that a decision on one of them can

be applied without qualification to another. This may

be so even where the words or expressions used are

the same in both cases, for

a word or a phrase may

take a colour from its context and bear different sen­

ses accordingly ". Even so the reported decisions of

this Court show that in dealing with constitutional

problems reference has not infrequently been made to

Australian and American decisions ; and

that, we

think, brings out the characteristic feature of the

working of the judicial process. When you are

deal­

ing with the problem of construing a constitutional

provision which

is none-too-clear or lucid you feel

in­

clined to inquire how other judicial minds have

responded to the challenge presented by similar pro­

visions in other sister Constitutions. It is in that

spirit that we propose to refer to two Privy Council

decisions which dealt with the construction

of s. 92 of

the Australian Constitution.

The first paragraph of

s. 92 of the Australian

Con­

stitution, around which has grown, in the words of

Lord Porter a "labyrinth where there is no golden

thread", reads thus:" On the imposition of uniform

(2) A.I.R. 1939 F.C. 1, 5.

I S.C.R. SUPREME COURT REPORTS 869

duties of customs, trade, commerce, and intercourse r960

amoug the States, whether by means of internal

Atiabari Tea

carriage or ocean navigation, shall be absolutely

free"; The part played by Frederick Alexander Co .... Ltd.

James, who carried on the trade of growing and pro- The State of

ceasing dried fruits, in securing judicial pronounce-A;sam & Others

ments OB the true scope and effect of ,the said section -

is wellknown. He fought three valiant legal battles Gajendragadkar f.

in which he successfully asserted his right as a trader .

against legislative encroachment.

In James v. State

of

fJouth Australia (

1

)

s.

20 of the Dried Fruits Export

Control Act, 1924, was struck down. In James v.

Gowan (

2

)

s. 28 was challenged, whereas in the last

case of

James v. Commonwealth of Australia(') James

had claimed a declaration

~hat the Dried Fruits Act

11 of 1928 and 5 of 1935 and the regulations framed

thereunder were invalid as offending against

s. 92 of

the Constitution. It is to the observations made by

the Privy

Council in the last case to which we wish

to refer. Referring to the word " free" used in the

said section Lord Wright observed

that the said word

in itself

is vague and indeterminate; it must take its

colour from the context. Then

he referred to the

fact

that

"'free trade' ordinarily means freedom

from tariffs", but he immediately added that "free"

in s. 92 cannot be limited to freedom in the last-men-

tioned sense. According to this judgment, every step

in the series

of operations which constitute the parti-

cular transaction is an act of trade, and control under

the

State law of any of these steps must be an inter-

ference with its freedom as trade.

In this connection

it was also observed

that not much help is to be got

by

reftecLing that trade may still be free though the

trader has to pay for the different operations such as

·tolls, railway rates and so forth; it would thus appea~

that the result of this decision is that imposition of

tolls, railway rates and so forth might impede the

freedom of trade contemplated by

s. 92, which in

other words supports our conclusion

that a tax may

amount to a restriction under Art.

301.

(x) (1927) 40 C.L.R. x. (2) (1932) A.C. 542.

(3) (1936) A.C. 578, 613.

III

870 Sl:PREME COURT IlEPORTS [1!)61]

z96o In the case of CommonweaUh of Auatralia v. Bank

·of New South Wales(') to which reference has already

A liabari T ta

been made in connection with the test of pith and

Co., Ltd.

v. substance the Privy Council was examining the vali-

n, s1a11 of dity.of s. 46 of Banking Act (Commonwealth) (No.·57

Assa .. .s-Othm of 1947) in the light of the provisions of s. 92 of the

i

. - 1 Australian .Constitution. In deciding the 8aid qucs­

·•iud•agadka. 't' f h } ' h ]' d b L I

1011 on<1 o t e tests w uc was a.pp 1e y or<

Porter was : " Does the act not remotely or inciden-

tally (e.s to which they will sa.y something le.ter) but

directly restrict the inter-Ste.te business of banking",

and he concluded tbe.t ''two general propositions

may be accepted, ( 1) that regulation of trade, com­

merce and intercourt;e among the Ste.tea is compatible

with its.e.bsolute freedom,

and (2) thats. 92

is violated

only when a legisle.tivc or executive act operates to

restrict such trade, commerce e.nd intercourse directlv

e.nd immediately a.s distinct from creating som"e

indirect or consequential impediment which ma.y

fairly be regarded a.s remote". This decision thus

justifies the conclusion we have ree.ched about the

scope and effect of A rt. 30 I.

In the result we hold that the Act he.a put a. direct

restriction on the froedom of trade, a.nd since in doing

so it has not complied with the provisionH of Art.

304(b) it must he declared to be void. Jn view of this

conclusion it is unnecessary to consider the other

points urged in support of the challenge a.go.inst the

validity of the Act. The three appeals a.nd the two

petitions a.re accordingly allowed a.nd writs or orders

directed to bo issued a.s prayed. The a.ppellant8 and

tho petitioners will be entitled tu their coats from the

respondent.

SJ.alt J. SHAH J.-The ve.lidit.y uf the AHs1'm Taxation (un

Goods carried by Road8 or Inland Waterways) Act,

1954-hereinafter referred to a.s the Act, is challenged

by oorta.in producers of tea. in tho States uf West

Bengal

and Assam.

The Act wa.8 passed by the

Assam Legislature a.nd received tho assent of the

Governor of Assam on April 9, 1954. To the introduc­

tion of thu Bill (which was enacted into the Aet) in

1 S.C.R. SUPREME COURT REPORTS 871

the State Legislature, the previous sanction of the

President was not obtained : nor did the President

assent to the Act. By s. 3 of the Act, it is provided

inter alia that " manufactured tea in chests carried by

motor vehicles, cart, trolly, boat, animal and human

agency or any other means except railways and

airways

sh!Lll

be liable to a tax of one auua per pound

·of such tea and this tax shall be realised from the pro-

ducer". "Producer" is defined bys. 2 cl. (2) as mean­

ing a producer of tea and included a person in charge

of the garden where tea is produced. By s. 4, tax is

charged on the

total net weight carried during the

return period. Section 7 provides

that every producer

and

dealer shall furnish a return of manufactured tea

carried in chests. By s. 23, cl. (3), the Commissioner

of Taxes is authorised to recover taxes and penalties

due under the Act as arrears of land revenue. Sec­

tions 27 and 28 impose a duty upon the producers to

maintain accounts in the forms prescribed under the

Act

e.nd to preserv:e the same . and to produce them

whenever called upon,

to the Commissioner or other

persons

a.s me.y be appointed by the Government in

that behalf; The rules framed under the Act make

it obligatory upon the producers to submit quarterly

returns to the Superintendent of Taxes e.nd to me.in­

to.in the registers in the forms prescribed and failure

to maintain registers is penalised.

In exercise of.the powers .conferred by s. 7, sub-s. (3),

the Commissioner of Taxes issued a notification in the

Assam Government· Gazette notifying for general

information

that returns under the Act

and the Rules

thereunder for

the period between June 1, 1954 e.nd

Septem

her 30, 1954, she.II be furnished on or before

October 30, 1954, and for the subsequent quarters on

or before the dates specified therein. Three producers

· who transported their tee. by road or by inland water­

ways to Calcutta. in the State of West Benge.I challeng­

ed by petitions under Art. 226 of the Constitution

filed in the High Court of Assam, the authority of the

Legislature of

the

State of Assam to enact the Act on~

the plea that the Act violated the guarantee . of

freedom of trade, commerce and intercourse under

Atiabari Tea

Co .• Ltd.

v.

The S1a11 of

Assam & Oth1rs

Shah ].

AJiabati 1-e11

Co., Ltd.

v.

The Slate c>f

Assam 6-Others

Shah j.

872 SUPREME COURT REPORTS (1961]

Art

..

301 of the f',.onstitut.ion. The High Court reject­

ed tho plea. raised by the petitioners, a.nd a.gs.inst the

orders passed, three appeals with certificates of fitness

under Art.

132 of tho

Constitution have been preferred.

Two other producers have challenged

t.he vires of the AcL by petitions under Art. 32 of the Constitution

presented to this court.

The principal question canvassed in these proceed.

ings is a.bout the competence

of the

ABBa.m Legislature

to enact the Act. The producers contend that by

Art. 301 of the Constitution, trade, commerce a.nd

intercourse being declared free throughout the terri.

tor.Y of India., the statute authorising imposition of

restrictions or burdens on that freedom by levying ta.x

under the authority of a.n Act which does not conform

to the conditions prescribed by the Constitution iH

invalid. Item 56 of List II of the seventh schedule to

the Constitution authorises the State Legislature t-0

impose taxes on goods a.nd pa.SBengers carried by roa.d

or on inland wa.terwa.ys. In terms, the ta.x imposed by

the Act is a. ta.x on goods carried by road a.nd inland

wa.terwa.ys

a.nd is not of the nature of

a. duty of excise.

If t.he vires of the Act a.re to be adjudged solely in the

light of the power conferred by Art. 246 cl. (3) read

with item 56 of List II of the seventh schedule, the

tax must be regarded a.s within the competence of the

State.

But the

oxl'rcise of legislative power of the

Pa.rlia.ment a.nd the State Legislatures conferred hy the

legislative lists is restricted by diverse provisions of

the Constitution. By Art. 301, it is declared that

subject to the provisions of Pa.rt XlII of the Constitu.

tion, trade, commerce and intercourse throughout the

te~ritory of India. shall be free. The language of the

.Article is genera.I; it admits of no implications and of

no, JlXor.ptjons ba.r those expressly imposed by Pa.rt

XlII. Ii .comprehensively sets out the guarantee o~

freedom and defines in terms, clear and precise, that

trade, commerce and ,intercourse throughout the terri·

tory of India subject to the provisions of Pa.rt XllI,

shall be free, i.e., trade, commerce and intercourse

shall not, except to the extent expressly permitted, be

prohibited, controlled, burcltined or impeded. Our

...

•

•

1 S.C.R. SUPREME COURT REPORTS 873

Constitution even though in form federal, has in

diverse provisions thereof, emphasised the unity

of

India; and with a view to promote that unity appears

to have

guara.nteed, subject to specific restrictions,

freedom

of trade, commerce and intercourse throughout

the territory. The Article is not merely

declaratory'

of State policy like the directive principles defined by

Part IV of the Constitution which are expressly not

made enforceable

by any

court·though the principles

are" fundamental in the governance of the country'.

It incorporates a restriction on the exercise of power

by Governmental agency-legislative as well as execu­

tive. Besides placing an irremovable ban on the

executive authority,

it restricts the legislative power

of the Parliament and the

State legislatures conferred

by Arts. 245, 246 and 248 and the relevant itetiis in

the legislative lists relating to trade, commerce

and

intercourse.

On the exercise of the legislative power

to

tax trade, commerce and intercourse, restrictions

are prescribed by certain provisions contained in

Part

XII, e.g., Arts. 276, 286, 287, 288 and 289: but these

restrictions

do not exhaustively delimit the periphery

of that power. The legislative power to tax is restrict­

ed

also by the fundamental freedoms contained in

Part III, e.g., Arts. l4,l5(l),l9(l)(g) and 31(1) and is

further restricted by

Part XIII. Article 245, cl. (1), of

the Constitution expressly provides that the

legisla­

tive powers of the Parliament and the 'State Legisla­

tures to make laws are subject to the provisions of the

Constitution; and Art. 301 is undoubtedly one ofthe

provisions to which the legislative powers are subject.

The power

of taxation is essentially an attribute

of the sovereignty of the

State and is not exercised in

consideration

of the protection it affords or the benefit

that it confers upon citizens and aliens. Its content

is not measured by the apparent need of the amounts

sought to

be collected, and its incidence does not

depend upon the ability

of the citizens to meet the

demand.

But it is still not an unrestricted power .

By Art. 265

of the Constitution, the power to tax can

be exercised by authority

of law alone. and the

Con­

stitution affirmatively grants the power of taxation

Atiaba1'i Tea

Co., I.Id.

·v.

The Stat~ of

Assa111 C'>' Othets

Shah ].

Atiabari Tra

Co., Ltd.

"·

Th• State of

.Asscan1 6-Others

Shah }.

874· SUPREME COURT REPORTS (1961]

under diverse heads under the three lists of the

seventh schedule. The power of taxation he.a there­

fore to be exercised by the Legislature strictly within

the limits prescribed by the Constitution, and any

alleged· transgression eithl•r by Parliament or tha

Ste.te Legislature of the limits imposed by tho Consti­

tution is justiciable.

Trade

e.ud commerce do not

mean merely traffic in

goods,

i. e., exchange of commodities for money or

other commodities. In the complexities of modern

conditions, in their wide sweep

a.re included ca.rria.ge

of persons e.nd goods by ro&d, ro.il, air e.nd we.terwe.ys,

contracts, banking, insure.no~, tre.nse.ctions in the

stock excha.nges a.nd forward markots, communication

of information, supply of energy, posts.I e.nd telegra­

phic services and many more activities-too numerous

to

be exhaustively enumera.ted-which ma.y be co.lied

commercial intercourse. Movement of goods from

place to place

ma.y in some insta.nces be

an important

ingredient of effective commercial intercourse, but

mornment is not an essential ingredient thereof. Dea.l­

ings in goods a.nd other commercial activities which do

not import a. concept of movement a.re as much

po.rt of trade and commerce e.s tre.use.ctions in­

volving movement of goods. The guarantee of freedom

of

trade e.nd commerce is not

addressed merely age.inst

prohibitions, complete or pe.rtie.l; it is addressed to

to.riffs, licenoing, marketing regulations, price-control,

ne.tione.li811.tion, economic or social planning, discrimi­

natory tariffs, compulsory appropriation of goods,

freezing or ste.nd-still orders

e.nd similar other

impedi­

ments opera.ting directly a.nd immediately on the free­

dom of commercial intercourse e.s well. Every sequence

in the series of operations which constitutes trade or

commerce is e.u a.ct of trade or commerce e.nd burdens

or impediments imposed on

any such step

a.re restric­

tions on the freedom of trade, commerce e.nd inter­

course. Whe.t is gue.re.nteed is freedom in its widest

e.mplitude-freedom from prohibition, control, burden

or impediment in commercial intercourse. Not merely

discriminative to.riffs restricting movement of goods

a.re included in the restrictions which a.re hit by

-

-

1 s.c.R. SUPREME COURT REPORTS 875

Art. 301, but e.11 taxation on commercial intercourse,

even imposed e.s e. mee.sure for collection of r.evenue

is so hit. Between discriminatory tariffs

and trade

barriers on

the one hand and taxation for raising

revenue on commercial intercourse, the difference

is

one of purpose and not of quality. Both these forms

of burden on commercial intercourse trench upon the ·

freedom guaranteed by Art. 301.

The guarantee of freedom is again not merely

against burdens or impediments on inter-State move­

ment : nor does the language of A rt. 30 l guarantee

freedom mere.ly from restrictions on trade, ·commerce

and intercourse as such. Articles 302, 303, 304 and

306, which I will presently advert to, make it abund­

antly clear that the freedom contemplated was free­

dom of trade, commerce and intercourse in all their

varied aspects. inclusive of all activities which con­

stitute commercial intercourse and not merely from

restrictions on " trade, commerce and intercourse as

such".

Article 301 as has already been observed enunciates

a fetter upon the exercise of legislative power under

the entries in the lists of the seventh schedule con­

cerning or relating to trade, commerce and interco.urse.

The basic principle underlying Art.· 301 appears to

have been adopted from

the Constitution of the

Aust­

ralian Commonwealth. In the American Constitu­

tion, by the 8th section, Art. 1, power tci regulate com­

merce is granted; but the freedom of commerce a~

guaranteed by our Constitution is not found enunciat­

ed in the Constitution of the United 8tates. Section 92

of the Constitution of the Commonwealth of Australia

provides by the 1st paragraph that " on the\' 'imposi­

tion of uniform duties of customs, trad!', commerce

and intercourse among the States, whether by means

of internal carriage or ocean navigation, shall be

absolutely free''. That guarantee of freedom of trade,

commerce and intercourse though not as extensive as

the guarantee enshrined in our Constitution, is of the

same pattern.

But our

Constitution has made a sig­

nificant departure from the Australian Constitution.

Whereas. by s. 92 of the Australian Constitution,

Alia/Jari Tea

Co., Ltd.

v ..

The Slate of

Assam &-Ot)1ers

Shah ].

At1r.1la1i tui

Co., J.td.

The Stu!< o}

Asl!J111 ~i:.-Utiu>s

.'·i/i:1I, ).

87u SUPREl\IE COURT HEPORTS [l!l61]

freed om of trade, commorcc and intercourse is guaran­

hied among the .States, i.e., at intcr . .State level, our

Const i: u t ion has made trade, commerce and intercourse

frt•e throughout tho territory of India, The freedom

guaranteed by our Constitution is more pervasive: it

is freedom of trade, commerce and intercourse intra­

.State as well as inter-State. But this extension of the

area of its operation does not alter tho content of that

freedom. It is freedom from tax burdenH as well as

other impediments.

Section 92

of the

Commonwealth of Australia Act

does not encompass the wide freedom guaranteed by

our

Constitution-it protects trade, commerce and intercourne from restrictions in inter-State commerce;

but in my judgment, the interpretation put by the

,Judicial Committee of the Privy Council in James v.

Commonwealth of Australia(') upon the meaning of

the ex press ion " free " in s. 92 is not on that account

less illuminating in the interpretation of Art. 301 of

our Constitution which is largely based on that section

of the Australian Constitution.

Lord Wright in ddil'tiring the judgment of the

Boa.rd in James v. Commonwealth of Australia(')

(8upra) at pp. 627-628 observed:

"' Free' in s. 92 cannot be limited to freedom in

the litst mentioned sense (freedom from tariffs).

There may at first sight appear to be some plausibi­

lity iu that idea, because of the starting point in time

spPeilied in the sectiou, because of the sections which

surround s. 92, and because proviso to s. 92 relates to

customs dutit•s. But it is clear that much more is

include<! in the term; customs duties and other like

· mattt•rs coustitutc a murely pecuniary burden; there

may be different and perhaps more drastic ways of

intcrforiug with freedom, as by restriction or partial.

or compl(•te prohibition of passing into or out of the

State.

X or does "free" necessarily conuote absence of

d ii;crimina.tiou between inter.t:ltate and iutra.-State

trade.

~o

doubt conditions restrictive of freedom of

tra.d(l amo11g the .States will frequently involve a dis­

crimination; but that is not essential or decisive .......

(t) L.R. (1936) A.C. ~18.

1 s.c.R. SUPREME COURT REPORTS . 877

A compulsory seizure of goods ...... may include

indifferently goods 'intended for intra-State trade and

goods intended for

trade among the States. Nor can

freedom be limited to freedom from legislative

con­

trol; it must equally include executive control.

Every step in the series of operations which consti­

tute the particular transaction is an act of trade; and

control under the State law of any of these steps must

be an interference with its freedom as trade."

These observations made in the context of a gua­

rantee against obstruction to the flow of inter-State

trade and commerce, involved the "conception" of

"freedom from customs duties, imports, border prohi­

bitions and restrictions of every kind: the people ...... ·

were to be free to trade with each other, and to pass

to

and fro among the States, without any burden,

hindrance or restriction based merely on the fact

that

they were not members of the

same State ".

Freedom guaranteed by Art. 301 is however not

absolute:

it is subject to the provisions contained in

Part XIII of the Constitution. Article 302 authorises

Parliament to impose restrictions on the freedom

of

trade, commerce and intercourse between one State

and another or within any part of the territory of

India as may be required in the public interest. The

Constitution has therefore circumscribed the guaran­

tee under Art. 301 by authorising the Parliament to

impose restrictions thereon. Such restrictions on

trade, commerce and intercourse

may be intra-State

as well as inter-State: the only condition which the

restrictions must fulfil is that they must be imposed

in the public interest. The learned Attorney-General

urged

that the courts are incompetent to adjudge

whether the quantum,

and the incidence of

a tax im­

posed by a Legislature in exercise of its powers are in

the public interest, and therefore it must be inferred

that Arts. 301 and 302 do not deal with freedom from

taxation and the limits which may be placed thereon.

Counsel urged that in the modern political thought,

exercise of the sovereign power

of taxation is not

res­

tricted· to collection of revenue for governmental

112

Atiabari Tea

Co., Ltd.

v.

The State of

Assam & Othe1s

Shah ].

Atiabari Tta

Co., Ltd.

v.

Tiu Stat~ of

Assan1 {::>-Othtrs

Shah ].

878 SUPREME COURT REPORTS [1961]

p~rposes ! it is resorted to for diverse purposes, often

with a new to secure a pattern of social order ensur­

ing justice, liberty and equality amongst citizens.

That the courts may not in adjudging upon the vali­

dity of a restriction imposed by a parliamentary

statute, lightly enter upon an investigation whether

the amount sought to

be recovered and its incidence

are in the public interest,

is not

a ground for holding

tbat Art. 302 does not deal with restrictions which

may be placed upon trade, commerce and intercourse

by

the imposition of taxes. The courts will normally

rely upon the wisdom of the

Parliament and presume

that taxes are generally imposed in the public inte­

rest: but that does not exclude the jurisdiction of the

court in a given case to enter upon an enquiry whe­

ther an impugned legislation satisfies the constitutio­

nal test. If an enquiry into the validity of a burden

or impediment impolled on the freedom of trade, com­

merce and intercourse imposed otherwise than by

levying a tax is within the competence of the

court, the restraint which the courts

put upon

their own functions by raising

a presumption of

constitutionality in dealing with a burden imposed

by a taxing statute cannot be forged into a fetter

upon their jurisdiction. By

cl. (b) of Art.

304, the

State Legislatures are invested with Aimilar authority

to impose restrictions on the freedom

of trade,

com­

merce and intercourse with or within the State

as may be required in the public interest. The

territorial extent of the operation of the laws ·which

may be made under Arts. 302 and 304(b) may not

from the very nature

of the jurisdiction

exercised by

the Legislatures

be co-extensive, but subject thereto,

the

Parliament and the State Legislatures are entrus­

ted in exercise of legislative authority with powers to

restrict freedom of trade, commerce

and intercourse.

Why the Constitution should have enacted that the Parliamentary law may impose restrictions as may be

required in the public interest and the State law may

impose reasonable restrictions as may be required in

the public interest, it is difficult to appreciate. It is

unnecessary for the purpose of these cases

to enter

I S.C.R. SUPREME COURT REPORTS 879

upon a discussion whether there is

any real distinc-

z96o

tion between the quality of restrictions which may be Atiabafi Tea

imposed by legislation by the Parliament and State co., Ltd.

Legislatures exercising authority respectively unde'r v.

Arts. 302 and 304(b) of the Constitution. The two The State of

Articles enact that to cirucmscribe effectively the Assam "' Others

freedom of trade, commerce and intercourse, the rest--

. Shah ].

riction must satisfy the primary test that it is" requir-

ed in the public interest". Clause (b) of Art. 304 is

subject to a proviso that no Bill or amendm.ent for the

purpose of

cl. (b) shall be introduced or moved in the

Legislature of a

Staite without the previous sanction

of the President.

The authority of the

State Legisla-

ture to enact legislation imposing restrictions on trade,

commerce and intercourse is therefore subject to the

condition that before the Bill or amendment of a sta-

tute

is moved, the previous sanction of the President

must be obtained. Legislative power

of the

Parlia-

ment imposing resljrictions on the freedom oftrade,

commerce and iutercourse may therefore be validly

exercised if the restrictions are required in the public

interest. On the exercise of authority in that behalf

by the State Legislatures, there are placed two restric-

tions,

(1) that the restriction must be reasonable and

required in the public interest, (2) that the Bill

or

amendment imposing restriction can be moved or

introduced in the Legislature only with the previous

sanction of the President.

In this context, I may

refer to Art.

255 which provides, in so

far as it is

material,

that no Act of the Legislature of a

Stnte

shall be invalid by reason only that the previous sanc-

tion required by the Constitution was not given,.

if

assent to that Act was given under cl. (c) where the

previous sanction required was

that of the President,

by the President. Even

if the previous sanction of

the President has not been obtained to the moving or

introduction of the Bill or amendment falling within

cl. (b) of Art.

304, the Act still would not be in valid if

the President has signified his assent to the Act enac-

ted by the Legislature. .

Article 303(1) is an exception to Art. 302 as well as

Art. 304(b). Notwithstanding the wide sweep of the

Atiabati Tra

Co., Ltd.

'"

1 he State of

As-~am l>,. Ollie's

S/i'lli J.

880 SCPRE:llE COVP.T REPORTS [1961]

legislati,·e power restored by Arts. 302 and 304(b) lo

the Parliament and the State Legislatures to make

laws imposing restrictions on the freedom of trade,

commerce and intercourse, prohibition is imposed on

the exercise of the power in ma.king laws giving or

authorising

the giving of,

any preference to one State

over another or making, or nuthorising the making of,

any discrimination between one State and another, by

virtue of any entry relating lo trade and commerce

in

a.ny of the Lists in the seventh

schedule. CI. (1) of

Art. 303 emphasises the object of the Constitution.

makers to safeguard the economic unity of the nation

and to prevent discrimination bet ween the constituent

States in the ma.lter of trade and commerce. It is

true that under cl. (I) of Art. 302, the discrimination

which is prohibited is under a law made by virtue of

a.11 entry relating to trade and commerce in the

seventh schmlule. But thereby, discrimination which

is prohibited is not limited to discrirni111~tion under

laws ma.de under items expressly relating to the trade

and commerce items of the seventh schedule. The

ox prnssion " relat.ing to tr a.de and commerce " used in

Art. :302(1) in my judgment include8 a.II those entries

in the lists of the seveuth schedulo which deal with

the power to legislate, directly or indirectly in respect

of a.ctivitieH in the nature of tmdo aud commerce. lly

cl. (l!) of Art. 303, the rigour of cl. (I) in the matt.er of

laws to he enacted by Parliament iH to a certain extent

reduced. That clause authorises the l'arlia.me11t, but

not the StMe Legislatures, to make laws notwith­

Htanding cl. (I) when it is declared by law that it is

necessary to ma.ko discrimination which is prohibited

for

the

purpose of dealing with the situation arising

from scarcity of goods in any part of tho territory of

India.

Article 304, in so far a." it is materi1.d, provides that

11otwithstandi11g anything in Art. 301 or Art. 30:l, the

Legislature of IL State rna.y by law, (a) impose 011 goods

iJnported from

other States (or the

Union territories)

any tax to which similar goods manufactured or pro.

duccd in

that

State a.re subject, so, however, as not to

dio<-rirninate between goods so imported and goods so

1 S.C.R. SUPRE]M:E COVRT REPORTS 881

manufactured or produced. · This clause implies that

notwithstanding anything contained in Art. 301 or

Art. 303, the State Legislature ha.s the power to im­

pose ta.x on the import of goods tow hi ch similar goods

manufactured or produced in the State a.re subject,

provided. that hy taxing the goods imported from

another State or Union territory, no discrimination is

practised. If Art. 301 a.nd Art. 303 did not deal with

restrictions or burdens in the nature of

tax, the reason

for incorporating the non-obsta.nte clause to which

Art.

304, cl. (1), is subject, cannot be appreciated. Un­

doubtedly, the provisions of Pa.rt XIII of the Cons­

ti'tution do not impose a.dditiona.l or independent

powers of taxation; the powers

of

ta.xa.tion a.re to be

found conferred by Arts.

245,

241l and 248 read with

the lists in the seventh schedule, and the provisions of

Pa.rt

XIII

a.re !imitative of the exercise of legislative

power. The circumstance that the C6nstitution has

chosen to deal with.a specific

field of taxation

a.s an

exception to Arts. 301 and 303 (which .>hould really be

Art. 303(1) ) strongly supports tbe inference that­

ta.xatioo wa.s one of the restrictions from the impmli­

tion of which by the guarantee of Art. 301, trade,

commerce and intercourse a.re declared free.

Cla.!'se (b) of Art. 304 is subject to the proviso pres­

cribing tha.t the previous sanction of the President

shall be obtained to the moving or introduction of a

Bill or amendment imposing restrictions on the free­

dom of trade, commerce and intercourse. There is

however no'such condition imposed in the matter of

enactment of laws imposing non-discriminative tariffs·

under cl. (a). But on that account, the nature of the

restrictions contemplated by els. (a) and

(b) is not in a.ny manner different. Ola.use (b) deals with a genera.I

restriction whic.h includes a. restriction by the imposi­

tion of a burden in the nature of tax. Clause (a)

deals with a specific burden of taxation in a. limited

field.

Article 305 protects existing laws except in so far

as the President may by order or otherwise direct,

and it also validates certain enactments ma.de before

the commencement of the Constitution (Fourth

Amendment) Aot, 1955, and authorises the Parliament

Atiabari Tea

Co., Ltd.

y.

The State of

Assam &.. Olhers

Shah ].

..

A1iaba11 Tea

Co., l.td.

v.

1 ht Stale vf

Assam «Y Othrr.~

882 SUPRE~!F. COURT REPORTS [1!)61]

and the State Legislatures in future to make laws

relating

to

matters referred to in sub.cl. (2) of cl. (6) of

Art. 19. Article 306 of the Constitution which was

repealed by

the

Constitution (Seventh Amendment)

Act, 1956, provided, in

so

far as it is material, that

notwithstanding· anything in the foregoing provisions

of Part XIII or any other provisions of the Constitu­

t.ion, a

State

specified in Part B of the First Schedule

which before

the commen·cemont of the Constitution

was levying

any tax or duty on the import of

good8

into the State from other St!!.les or on the export of

goods from the State to other States may, if an agree­

ment in that behalf has been entered into between

the Go,·ernment of India and the Government of that

State continue to levy and collect such tax or duty

aubject to the terms of such agreement......... . Tho

marginal notn of the Article refers to the power of the

States specified in Part B of tho F'irst Schedule to levy

tax as a power to impose restriction" on trade and

commerce, and clearly 8upports the view that within

tlw meaning of Art. 301, freedom was to include free­

dom from taxation and the restrictions contemplated

by Arts. :J02 and 304 contemplated imposition of bur­

dens of the nature of taxation.

On a careful review of the various Articles, in mv

judgment, by Part XIII, restrictions have been im­

posed upon the legislati,·e pow~r granted Ly Arts. 245,

246 and 248 and tho lists in the se\·enth schedule to

the Parliament and the State Legislatures and those

restrictions include burdens of the nature of taxation.

Therefore, the power to tax commercial intercourse

vested by

the legislative lists in the Parliament or

the

Stato Legislatures, is circumscribed by Part XIII

of the Constitution and if tho exorcise of that power

does

not conform to the requirement.a of

Part XIII, it

would be regarded as im·alid.

As observed horeinbefore, the previous sanction of

the President was not obtained to tho moving of the

Bill which was enacted as the impugned Act. Even

though tho Assam Logislaturc had by item 56 of tho

sovonth ~chedule l(•gislative authority to impose this

tax, the State could uot exercise this authority in the

absence of the previous sanction of tho President and

-

.·

1 S.C.R. SUPREME COURT REPORTS 883

the invalidity of the Act imposing the tax on goodH

and passengers is not cured, the President not having

t\ssented to the Act at any time after it was passed by

the Assam Legislature. The argument that this view

seriously restricts the " sovereignty " of the States

has, in my view, little force. Even a cursory review

of our constitutional provisions clearly shows that the

primary object of the Constifiuent Assembly was to

erect a governmental m,achinery with a strong cen­

tral Government, with /the object of building up a

healthy economy, and unifying the various component

States, consisting of the former British Indian Pro­

vinces and the merged Indian States, by· subordinat­

ing local and parochial _interests to the wider national

interest.

In any event, in adjudging the vires of a

statute, the impact of the view which the

interpreta­

tion placed by the court may produce on some cherish­

ed notion of sovereignty of the component States

must be ignored.

In that view, the Assam Taxation (on Goods carri­

ed by_ Roads or Inland Waters) Act, 1954, must ,I>~

regar'ded as infringing the guarantee of freedom of

trade and commerce under Art. 301, because the Bill

moved in the Assembly

had not received the assent of

the President as required under Art. 304(b) proviso,

and the Act has not been validated by the assent

of

the President under Art. 255( c ).

In the view expressed by me, I do not deem it

necessary to enter upon certain subsidiary contentions

such as

the application of the

"pith and substance

doctrine " to the interpretation of the relevant clauses,

the alleged violation by the Act of the equal protec­

tion clause of the Constitution, and the effect of Act

XXIX of 1953 enacted by the Parliament, which

were debated

at the Bar.

In the view taken, the appeals must be allowed

and the Rule in the two applications made absolute,

with costs.

ORDER OF COURT: In view of the majority

judgment, the appeals

and the writ petitions are

allowed with

costs-one set, of hearing fees.

Atiabari-Tea

Co., Ltd.

v.

J'he State of

Assa11i c ... Others

Shah ].