Atiabari Tea Co., Ltd vs The State Of Assam And Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Not extracted

Decision Date: 16 August 1960

Coram: Bhuvneshwar P. Sinha, P.B. Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta, J.C. Shah

In this case the Supreme Court of India pronounced its judgment on 16 August 1960. The decision was authored by Justice Bhuvneshwar P. Sinha and was delivered by a five‑judge bench comprising Justices Bhuvneshwar P. Sinha, P. B. Gajendragadkar, K. N. Wanchoo, K. C. Das Gupta and J. C. Shah. The petitioner was Atiabari Tea Co., Ltd. and the respondents were the State of Assam together with other parties. The case is reported in the 1961 All India Reporter at page 232 and in the 1961 Supreme Court Reporter (1) at page 809, and it has subsequently been cited in a long series of decisions, including R 1962 SC 562, R 1963 SC 928, R 1963 SC 1667, R 1964 SC 1006, RF 1967 SC 1, RF 1967 SC 1643, RF 1968 SC 599, RF 1968 SC 1277, F 1969 SC 147, E 1970 SC 1864, APL 1970 SC 1912, RF 1972 SC 1061, RF 1972 SC 1804, RF 1974 SC 1505, RF 1975 SC 17, E 1975 SC 583, D 1975 SC 1443, MV 1975 SC 2065, RF 1977 SC 1825, E&R 1978 SC 68, RF 1981 SC 463, RF 1981 SC 711, RF 1981 SC 774, R 1983 SC 634, F 1983 SC 1283, R 1986 SC 63, RF 1988 SC 567, RF 1988 SC 2038, RF 1989 SC 1119, RF 1989 SC 1949, R 1989 SC 2015, RF 1990 SC 313, C 1990 SC 772, RF 1990 SC 781, E&D 1990 SC 820, RF 1990 SC 2072 and many other citations. The substantive issue before the Court concerned the constitutional validity of the Assam Taxation (on Goods Carried by Roads and Inland Waterways) Act, 1954, which was enacted under Entry 56 of List II of the Seventh Schedule of the Constitution of India. The petitioner contended that the Act infringed the freedom of trade guaranteed by Article 301 of the Constitution and that, because it had not obtained the prior presidential sanction required by Article 304(b), the Act was ultra vires the constitutional scheme. The respondents argued that taxation statutes fell within the purview of Part XII of the Constitution rather than Part XIII, which contains Articles 301 and 304, and alternatively submitted that the provisions of Part XIII applied only to legislative entries that specifically dealt with trade, commerce and intercourse. The Court, by a majority opinion of Justices Gajendragadkar, Wanchoo and Das Gupta, held that the Assam Act indeed violated Article 301 and, having failed to comply with the sanction requirement of Article 304(b), was ultra vires and void. The Court further observed that the freedom of trade, commerce and intercourse secured by Article 301 was broader than the corresponding provision in Section 297 of the Government of India Act, 1935, and expressly encompassed protection from taxation that would impede the free flow of goods.

In this case, the Court observed that Article 301 required trade to move freely and without restriction, whether at state borders or within a state. It held that any law that directly restricted the movement of goods fell within Article 301 and could be valid only if it satisfied the conditions of Article 302 or Article 304. The Court further said that the scope of Article 301 was not limited to legislation that fell under the trade‑and‑commerce entries of the Seventh Schedule. The Assam Act directly affected the freedom guaranteed by Article 301. The Court referred to several earlier decisions, including Ramjilal v. Income‑tax Officer, Mohindargarh, [1951] S.C.R. 127; M. P. V. Sundararamier & Co. v. The State of Andhra Pradesh, [1958] S.C.R. 1422; James v. Commonwealth of Australia, (1936) A.C. 578; The State of Bombay v. The United Motors (India) Ltd., [1953] S.C.R. 1069; Saghir Ahmed v. The State of U.P., 810 [1955] 1 S.C.R. 707; James v. State of South Australia, (1927) 40 C.L.R. 1; and James v. Cowan, (1932) A.C. 542. Per Chief Justice Sinha, the Court held that the Assam Act did not violate Article 301 and was therefore not ultra vires. The Court rejected the extreme view that Article 301 barred all taxation and also rejected the opposite view that taxation lay completely outside Article 301. It explained that the freedom under Article 301 meant freedom from trade barriers, tariff walls and imposts that hindered the free flow of trade, commerce and intercourse, not freedom from taxation per se. Because the Assam Act was a pure taxing statute, it did not fall within the matters that Part XIII of the Constitution sought to prevent. The Court again cited Ramjilal v. Income‑tax Officer, Mohindargarh, [1951] S.C.R. 127. The Court further observed that the impugned Act was within the legislative competence of the State Legislature under Entry 56 of List II, did not conflict with the Parliament’s Tea Act of 1953, did not offend Article 14, and was not extra‑territorial. It relied on Tata Iron & Steel Co. Ltd. v. The State of Bihar, [1958] S.C.R. 1355. Conversely, Justice Shah held that the Assam Act infringed the guarantee of free trade and commerce under Article 301 and, because the Bill had not been passed with the President’s prior sanction required by Article 304(b) nor validated by presidential assent under Article 255(c), it was ultra vires and void. Justice Shah explained that Article 301 guaranteed freedom in its widest sense, covering freedom from prohibition, control, burden or impediment in commercial intercourse, including freedom from discriminatory tariffs, trade barriers and all taxation on commercial intercourse. He noted that Part XIII restricted legislative powers granted by Articles 245, 246 and 248 and that these restrictions encompassed burdens of a taxation nature, referring to James v. Commonwealth of Australia, (1936) A.C. 578.

In this case the Supreme Court exercised its jurisdiction over Petition No. 246 of 1956 and Petition No. 2 of 1959, both filed under Article 32 of the Constitution of India for the enforcement of fundamental rights, together with Civil Appeals Nos. 126 to 128 of 1958. The petitions were heard on 16 and 17 August 1960. Counsel N. C. Chatterjee, assisted by N. C. Chakravarti, Dipti Bose and S. C. Mazumdar, represented the petitioners in Petition No. 246 of 1956, while counsel P. Chaudhuri, D. N. Mukherji and B. N. Ghose appeared for the appellants in the civil appeals. The question before the Court was whether the Assam Taxation (on goods carried by road and inland waterways) Act was inconsistent with Article 301 of the Constitution. The Court observed that Article 301 enshrines a freedom from all restrictions on trade and commerce, including restrictions created by tax laws, and that Articles 245 and 246 are to be read subject to the guarantee of Article 301. Consequently, it is incorrect to assert that taxation lies outside the ambit of Article 301. The Court pointed out that Article 304(a) expressly contemplates the imposition of tax, and that Article 304(b) can also refer to tax in circumstances not covered by 304(a). When the Constituent Assembly drafted Article 301, it deliberately rejected Section 297 of the Government of India Act, 1935, and adopted the Australian provision of Section 92, thereby emphasizing that movement is an essential component of trade and commerce and must not be impeded; any tax would constitute such an impediment. The Court cited I.L.R. 1955 Bom. 680 and 683 to affirm that taxation is not beyond the reach of Article 301. It further referred to authorities that define “commerce,” including decisions reported in 6 L. Ed. 1 68, [1952] S.C.R. 572 578, 93 C.L.R. 127, 1936 A.C. 573 627 and A.I.R. 1954 Raj. 217. Counsel B. Sen and S. N. Mukherjee, appearing for petitioners in Petition No. 2 of 1959, emphasized that Article 301 provides a general freedom while Article 302 enumerates permissible restrictions, and that non‑discrimination is a core aspect of the freedom guaranteed by Article 301. The Court noted that the now‑repealed Article 306 had spoken of taxation or duty on the import or export of goods between states and that it had postulated the concept of “taxes” within Article 301, which would have been affected by Article 301 were it not for the non‑obstante clause. The Supreme Court’s discussion of the scope of Article 301 in [1953] S.C.R. 1069, 1079, 1081 and 1088 was mentioned, and it was observed that the judgment of Chief Justice Chagla in I.L.R. 1955 Bom. 680 on the scope of Article 301 had not been overturned. Additional authorities on the scope of Article 301 were cited, including A.I.R. 1954 Hyd. 207, A.I.R. 1958 M.P. 33, A.I.R. 1956 M.B. 214, I.L.R. 1952 Mad. 933, 55 C.L.R. 1 56, and the meaning of “export” as explained in I.L.R. 1955 Tr. Co. 123. Counsel M. C. Setalvad, Attorney‑General of India, assisted by S. M. Lahiri, Advocate‑General of Assam, and Naunit Lal, represented the respondents in Petition No. 246 of 1956, the civil appeals Nos. 126‑128 of 1958 and Petition No. 2 of 1959, while counsel T. M. Sen appeared for the intervener, the Attorney‑General of India. The Court reiterated that the power to levy tax is an incident of sovereignty and that this power is divided between the Union and the States.

In this case, the Court explained that the power to levy taxes was divided between the Union and the States, and that the entire scheme of taxation was set out in Part XII of the Constitution. The Court observed that Part XII contained every restriction that could be placed on the taxing authority, and that the part was self‑contained. It noted that Part XII‑1 dealt with matters other than taxation. Regarding trade, the Court said that Article 301 guaranteed freedom of inter‑State and intra‑State trade, but that this provision was distinct from section 92 of the Australian Constitution. The Court clarified that the freedom protected by Article 301 meant only freedom from trade barriers, and it explicitly did not include freedom from taxation. Consequently, the term “taxation” was not captured within the language of Article 301, and taxation was not a restriction within the meaning of Part XIII. The Court further examined Article 302, which used the expression “in the public interest”. It reasoned that if the restrictions contemplated by Article 302 were meant to include taxes, then every tax would have to be justified as being in the public interest, which would create a sweeping power of judicial review over all taxing measures. Citing Cooley’s Constitutional Limitations, the Court described taxation as a specifically legislative activity. It added that, had the Constitution’s framers intended to limit the power of taxation, they would have placed such a limitation in Part XII rather than leaving it to be inferred from Article 301. The Court referred to the authorities in [1951] S.C.R. 127, 136‑137 and [1955] 1 S.C.R. 765 to support this view. The Court concluded that the word “restriction” was inappropriate for describing taxation. Apart from Part III, all restrictions on taxation were to be found in Part XIII. Since Article 301 did not begin with the phrase “notwithstanding anything in this Constitution”, the Court held that it dealt only with a narrow sphere of trade freedom and not with taxation. In this context, “restriction” meant a restriction on movement of goods, not a fiscal imposition. The Court warned that if Article 301 were interpreted to cover taxes, then even intrastate taxes would have to be presented to the President and would be subject to judicial review. Moreover, if both Part III and Article 301 applied to taxes, the Court would have to choose between the “reasonable in the interest of the general public” test of Part III and the “in the interest of the public” test of Article 302. This conflict indicated that neither Part III nor Article 301 applied to taxing measures.

The Court also discussed Article 303, which addressed preference and discrimination between one State and another. It explained that Article 303 was limited to legislation dealing with the entries on trade and commerce within the State, such as entry 26 of List II and entries 33 and 42 of List III. Nothing in Article 303 suggested that the freedom it protected included freedom from taxation. Turning to Article 304(a), the Court observed that this provision dealt with discrimination, not with taxation per se, and that it imposed no restriction on a State’s power to tax goods within its own territory, as reflected in the decision reported in [1958] S.C.R. 1472. The Court stated that Article 304(a) could not be interpreted to illuminate the scope of Article 301. It noted that Section 297 of the Government of India Act, 1935, was the predecessor of Article 304, and that Article 304(a) assumed the existence of an existing tax on goods, which was not addressed by the provision. Consequently, Article 304(a) did not provide any guidance on whether taxation fell within the ambit of Article 301.

The Court observed that a tax levied under Article 304(a) is a specific kind of levy distinct from other forms of taxation. The Court also recognized an intermediate position concerning the scope of Article 301. It held that Article 301 should be limited to legislation that directly deals with trade and commerce, and not to statutes whose main substance is unrelated to trade yet affect it incidentally. Accordingly, the Assam Act enacted under entry 56 was characterized as legislation not concerned with trade and commerce. Counsel for the State of Bihar and counsel for the Intervener, State of Bihar, submitted that Article 301 merely addresses restrictions on the free movement of trade and commerce and that it concerns protection policy. They further argued that Article 302 also contemplates the movement and passage of goods, and that a restriction does not ordinarily equate to a tax. However, they maintained that if a tax is imposed with the purpose of restricting goods from passing between states, such a tax would become a restriction within the meaning of Article 301. The Court noted that Article 304(a) permits a tax on the entry of goods that is equal to the tax on similar goods already present within the state. Consequently, an octroi levy may fall foul of Article 301 unless it is saved by some other constitutional provision, because it constitutes a restriction when it obstructs trade movement.

Counsel for the State of Punjab and counsel for the Intervener, the State of Punjab, observed that it is impossible to determine definitively whether a particular tax imposes reasonable restrictions or serves the public interest. They added that Article 301 deals with the general right of passage in trade and commerce, whereas Article 19(1)(g) protects an individual’s right. References were made to earlier reports such as 1955 P.L.R. 304, I.L.R. 7 Raj. 794, and A.I.R. 1960 Andhra 234 to support this view. The Court also stated that Article 302 presupposes Parliament’s legislation falling under the trade and commerce entries. Counsel for Intervener No. 3, the State of Madras, adopted the submissions made by the Attorney‑General. Counsel for the State of Rajasthan and counsel for the Intervener, the State of Rajasthan, also adopted the Attorney‑General’s submissions. Counsel for Intervener No. 6, the State of Uttar Pradesh, likewise adopted the Attorney‑General’s submissions. Counsel in reply presented further arguments. The Court characterized Article 301 as an overriding provision that supersedes all other provisions and is considerably broader than section 297 of the Government of India Act. It applied to all monetary burdens and commanded that trade shall be free from any pecuniary burden, citing authorities such as 22 C.L.R. 566 and 1936 A.C. 573, 629‑630. The judgment of Justice Sinha, Chief Justice, was delivered by Justice Sinha. The judgments of Justices Gajendragadkar, Wanchoo, and Das Gupta were delivered by Justice Gajendragadkar, while Justice Shah delivered his own judgment. Chief Justice Sinha introduced the appeals that were filed on certificates under Article 132 of the Constitution and writ petitions under Article 32, challenging the constitutionality of the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act.

In this matter the appellants challenged the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, formally known as Assam Act XIII of 1954 and hereinafter referred to as the Act. The appellants initially approached the High Court of Judicature in Assam invoking Article 226 of the Constitution to contest the validity of the Act. The High Court, by its judgment and order dated 6 June 1955, dismissed the writ petitions filed by the appellants. Following that dismissal the appellants obtained certificates from the High Court stating that the disputes involved substantial questions of law concerning the interpretation of the Constitution. Consequently, the appellants filed petitions under Article 32 of the Constitution in this Court, seeking to challenge the constitutional validity of the Act. For convenience the Court referred to both the appellants and the petitioners collectively as the appellants. The respondents to the appeals and the writ petitions were the State of Assam, the Commissioner of Taxes appointed under section 6 of the Act, and the Superintendent of Taxes.

The factual background revealed that the appellants were tea growers operating either in West Bengal or in Assam. They transported their tea to the market in Calcutta, from where the tea was either sold for domestic consumption throughout the country or exported abroad. The volume of tea sold within Assam formed only a very small fraction of the total tea produced and manufactured by the appellants; the overwhelming majority of the tea was shipped out of Assam, either for internal consumption in other parts of India or for export. While a substantial portion of the tea was conveyed by rail, a large quantity was also moved by road and by inland waterways from Assam to Bengal. In certain cases the tea travelled by inland waterways from one part of West Bengal to another part of the same state, traversing only a few miles of the territory of Assam.

The Assam Legislature enacted the Act, which received the Governor’s assent on 9 April 1954 and came into force on 1 June 1954. The purpose of the Act was to levy taxes on specified goods carried by road or inland waterways within the State of Assam. Pursuant to the powers conferred on him by subsection (3) of section 7 of the Act, the Commissioner of Taxes, Assam, issued a notification in the Assam Government Gazette dated 21 June 1954. The notification, published on 30 June 1954, informed the public that returns required under the Act and the rules made thereunder for the period from 1 June 1954 to 30 September 1954 had to be filed by 30 October 1954. It further required the filing of quarterly returns before 30 January 1955 and before 30 April 1955 for the quarters ending 31 December 1954 and 31 March 1955 respectively. In response to demand notices issued under the Act, the appellants submitted the required returns to the Superintendent of Taxes in the prescribed form for tea dispatched and carried up to 30 September 1954, doing so under protest. They also paid the tax demanded, again under protest.

The appellants filed petitions in the Assam High Court invoking Article 226 of the Constitution, contesting the validity of the Assam Tax on Carriage of Goods Act and the accompanying notification. They sought a writ of mandamus requiring the respondents to refrain from implementing the Act and the notification, or alternatively a writ of prohibition or any other suitable writ to restrain the respondents from taking steps under the statutory provisions. Their challenge rested on several principal grounds. First, they asserted that the Act, its rules and the notifications were ultra vires the Constitution because the tax on the carriage of tea within Assam infringed the freedom of trade, commerce and intercourse guaranteed by Article 301, thereby rendering the legislation repugnant to that provision. Second, they contended that tea, being a controlled industry under the Tea Act XXIX of 1953, could be regulated only by the Union Government; consequently, the Assam Legislature’s jurisdiction over the matter was completely displaced. Third, they argued that the levy imposed by the Act was, in substance, an excise duty although labelled otherwise, and thus encroached upon the Union’s legislative field described in entry 84 of the Union List. The appellants further maintained that the Act was discriminatory and therefore void under Article 14, and they questioned the competence of the Assam Legislature to enact such a law.

The respondents opposed the petitions, denying that the Act, its rules or the notifications were unconstitutional. They asserted that the legislation did not contravene Article 301, nor did it infringe upon the Union’s legislative competence, and it was not in conflict with the Tea Act XXIX of 1953. Their position was that the Act was, in substance, a tax on specified classes and types of goods carried by road or inland waterways and therefore fell squarely within entry 56 of the State List, a matter within the legislative authority of the Assam Legislature. The petitions were heard by a Special Bench of the Assam High Court, which delivered a judgment and order on June 6, 1955 dismissing the challenges and holding that the Act was not unconstitutional. Two separate but concurring judgments were rendered by the Chief Justice, Sarjoo Prasad, and Justice Ram Labbaya. The Chief Justice, in his judgment, explained that the Act contemplated the imposition of a tax on the transport or carriage of goods within the meaning of entry 56 and did not amount to interference with the freedom of trade and commerce as contemplated by Article 301; he further observed that the pith and substance of the legislation was a tax measure not directly concerned with trade, and that Article 301 did not directly address taxing statutes. He concluded that the levy was not an excise duty and did not intrude upon entry 84 of the Union List, nor did it conflict with the central Tea Act XXIX of 1953. Justice Ram Labbaya examined the provisions in detail and reached a similar conclusion regarding the element of carriage being a condition of liability under the Act.

The Court observed that the provision under entry 56 of List II dealt exclusively with taxation and did not interfere with the freedom of trade and commerce as contemplated by Article 301 of the Constitution. It held that the essential character of the challenged Act was that it imposed a tax, which, although it might have an indirect impact on trade and commerce, was not itself a regulation of trade. Consequently, Article 301, which does not directly address taxing statutes, was not infringed. The Court further found that the levy imposed by the Act was not an excise duty and that the contention that it encroached upon entry 84 of the Union List had no substance. Moreover, the Act was held not to conflict with the central legislation governing the tea industry, namely the Tea Act XXIX of 1953.

Justice Ram Labhaya examined the Act in detail and concluded that the liability to tax was expressly conditioned upon the element of carriage, thereby distinguishing the tax from an excise duty and placing it squarely within entry 56 of List II. He stated that taxation in itself does not abridge the freedom guaranteed by Article 301, while Articles 302 and 304 limit the legislative powers of Parliament and the States concerning entries 42 of List I, 26 of List II and 33 of List III. Any restriction on the movement of goods must be justified under Part XIII of the Constitution. The Act, according to him, imposed a tax that did not directly affect the freedom of trade, commerce and intercourse as defined by Article 301, although he acknowledged that tax measures might sometimes restrict the movement of goods, thereby falling within the scope of Article 301. He therefore concluded that, in its true substance, the Act fell within the ambit of entry 56 of List II. After reviewing the Tea Act XXIX of 1953, he found no encroachment upon the central control of the tea industry. Regarding the allegation of discrimination under Article 14, he noted that no evidence of actual discrimination between persons or goods was presented. Justice Deka concurred fully with these conclusions. From the High Court’s decision, the appellants have appealed on certificates granted by that Court. Two petitions filed under Article 32 on behalf of other tea producers raise the

In this batch of cases the same questions that arose for determination in the three appeals from the decision of the Assam High Court were presented. All of the matters were heard together and the Court indicated that they would be resolved by a single judgment. Counsel for the appellants argued that the Act under challenge placed restraints on the free movement of trade and commerce with respect to tea and jute, the two commodities covered by the legislation, and therefore violated Article 301 of the Constitution. The counsel further maintained that the legislation exceeded the legislative competence of the Assam Legislature because it was not authorised by entry 56 of List II. He also contended that the tea industry had been declared by Parliament to be a controlled industry and therefore fell within entry 52 of List I. Moreover, the counsel asserted that the Act was a colourable piece of legislation that in its true effect operated as a levy of an excise duty, a power that could be exercised only by the Union Legislature, and finally, that the Act infringed Article 14 of the Constitution. The learned Attorney General, appearing for the State of Assam and for the Union, put forward an opposite view. He argued that a pure imposition of tax was not covered by the terms of Article 301. In his view taxation per se was not a restriction within the meaning of Part XIII; it was an attribute of sovereignty and therefore not justiciable. He said that the power to tax is a special legislative function that courts do not normally examine, and consequently the freedom guaranteed by Article 301 does not imply freedom from taxation, nor is taxation encompassed within the meaning of the word “restriction”. According to him, “restriction” in the context of Part XIII refers to legislation that impedes the free flow of goods and traffic by creating tariff barriers, such as a tariff wall erected by a legislature, which may be subject to judicial review, but not legislation that merely imposes a tax for revenue purposes. He further maintained that Part XII of the Constitution is a self‑contained part dealing with finance, while Part XIII is a self‑contained part dealing with trade, commerce and intercourse within the territory of India. He emphasized that decisions of American and Australian courts are not applicable to the present dispute because the constitutional frameworks of those countries differ fundamentally from the Indian Constitution; in particular, the Australian Constitution contains no provisions corresponding to Parts III and XII of the Indian Constitution. According to his submission, “freedom” in Part XIII signifies freedom from discriminatory taxation and freedom from trade barriers. The Advocate‑General of several States who appeared in the matter endorsed the position advanced by the Attorney General. The central issue that the Court needed to resolve in this group of cases was whether the impugned Act violated the provisions of Part XIII of the Constitution, with specific reference to Article 301, which heads Part XIII, titled “Trade, Commerce and Intercourse within the Territory of India”.

The Court observed that the first article of Part XIII is expressed in very broad language, stating: “Subject to the other provisions of this part, trade, commerce and intercourse throughout the territory of India shall be free.” It further explained that this part is not subordinate to other provisions of the Constitution; the wide‑ranging wording of Article 301 is narrowed only by the other articles that belong to the same part and extend up to Article 307. The Court noted that it could not be argued, nor was any argument made, that the general language of Article 301 permits any exceptions or explanations that are found outside this part, nor that trade, commerce and intercourse may be subjected to additional restraints. All parties concurred that the Constitution emphatically declares that trade, commerce and intercourse throughout India are to be free, but there was a substantial disagreement over the question “free from what.” Counsel for the appellants maintained that the freedom contemplated by Article 301 must be understood to mean freedom from all impediments, including any form of taxation. In contrast, the representatives of the Union Government and the State Government contended that the freedom guaranteed by Article 301 does not include immunity from taxation; rather, it signifies that no trade barriers, tariff walls, or other obstacles shall prevent the movement of commodities, traffic, or personal intercourse, and that there shall be no “shutting‑in” of trade. To fully grasp the effect of the provisions of Part XIII, the Court emphasized the importance of considering their historical background. It recalled that the Constitution Act of 1935 (the Government of India Act, 26 May 1935, Chapter 2) had envisioned a federal constitution for the entire Indian territory, distinguishing “Indian India” from “British India.” Although this scheme was never completely implemented, the Act introduced full provincial autonomy and contained Section 297, which prohibited certain restrictions on internal trade. Section 297(1) barred any provincial legislature or government, by virtue of entries in the Provincial Legislative List relating to trade, commerce, production, supply or distribution of commodities, from passing laws or taking executive action that prohibited or restricted the entry into or export from the province of any class of goods, and also barred the imposition of any tax, cess, toll or due that discriminated in favour of provincial goods or between goods produced in different localities. Section 297(2) provided that any law contravening this provision would, to the extent of the contravention, be invalid.

The Court observed that the provision quoted earlier rendered any act that violated the section invalid to the extent of the violation. It noted that the prohibition contained in that section was directed solely at Provincial Governments and Provincial Legislatures, based on entries in the Provincial Legislative List dealing with trade and commerce within the Province and with the production, supply and distribution of commodities. The section addressed prohibitions or restrictions on the import into or export from a Province of goods in general, and also regulated the power to levy taxes, cesses, tolls or other dues, prohibiting discrimination against goods manufactured or produced outside a Province or against goods produced in different localities within a Province. The Court then explained that Part XIII of the Constitution extended those prohibitions beyond State Legislatures to include the Parliament of India as well. In other words, Part XIII broadened the scope of the limitations and defined the boundaries within which either the Union Parliament or a State Legislature may legislate concerning trade, commerce and intercourse that is inter‑State, intra‑State or throughout the territory of India. The Court reminded that, prior to the Constitution’s commencement, roughly two‑thirds of India was directly administered by the British and termed “British India,” while the remaining one‑third comprised territories ruled by native princes, known as the Native States. These princely territories possessed, in a broad sense, the attributes of sovereign states, including the authority to impose taxes and to regulate the flow of trade, commerce and intercourse. It was a well‑known fact that many of these native rulers had erected trade barriers that seriously obstructed the free movement of trade, commerce and intercourse, effectively both excluding and restricting commodities intended for mass consumption. Between 1947 and 1950, virtually all Indian States entered into agreements with the Government of India and merged their separate identities into a single political entity. Consequently, the area formerly called British India became, under the Constitution, Part A States, while, subject to certain exceptions not pertinent here, the Native States became Part B States. The Court further noted that before the Constitution introduced the categories of Part A, Part B and Part C States (excluding Part D), the former Part B States themselves comprised many small states that had formed unions and maintained internal trade barriers and customs posts, even among themselves. Even after the merger, the Constitution had to recognise the existence of these trade barriers and therefore incorporated transitional provisions aimed at ultimately abolishing them. Most of those native states, regardless of size, levied their own taxes, cesses, tolls and other duties, not merely for revenue purposes but also as trade barriers and tariff walls. The Court concluded that this historical background formed the context within which the Constitution, by Article 301, sought to eliminate all such trade barriers and tariff walls, thereby ensuring a unified national market.

In this case the Court explained that the Constitution, by means of Article 301, was intended to bring about the removal of every trade barrier and tariff wall that had previously existed among the various territories that later formed the Union of India. When, for the first time in Indian history, the entire land area within the geographical limits of India—except for the portion that subsequently became Pakistan—was united into a single political entity, it was necessary to abolish all remaining trade barriers and customs posts. The Court said that this abolition was required in order to promote national solidarity, economic and cultural unity, and the freedom of trade, commerce and intercourse throughout the country. These historical facts and circumstances, the Court observed, provide the background against which the scope of the freedom guaranteed by Article 301 must be determined. Accordingly, the Court held that the article contemplates not only the free flow of trade and commerce between different parts of India, but also the freedom of individuals to move in connection with their trade and other activities across the whole nation.

The Court then described the extensive range of movement that Article 301 covers. It noted that the provision relates not merely to trade and commerce as understood in everyday language, but also to persons who must travel with their goods and commodities throughout the length and breadth of the country. Such movement of goods, commodities and persons may occur by railway, by air, by road or by inland waterways, among other possible modes of transport. The Court pointed out that the carriage of goods and passengers by railway, by sea, by air or by national waterways falls within entry 30 of List I of the Seventh Schedule, and that taxes on railway fares, freight charges and terminal fees for goods or passengers carried by railway, sea or air are covered by entry 89 of the same List. By contrast, taxes on goods and passengers conveyed by road or by inland waterways are placed under entry 56 of List II, which is the State List. From this classification the Court inferred that the framers of the Constitution envisaged that taxes on journeys made by railway, sea or air would be levied by Parliament, whereas taxes on similar journeys made by road or inland waterways would be imposed by State legislatures.

Finally the Court turned to the nature of the power to tax. It held that the power to impose taxes is an inherent attribute of sovereignty. Both the Union and the States, as sovereign entities, possess the inherent authority to levy taxes in order to raise revenue for governmental purposes. The Court observed that this sovereign power is ordinarily not subject to judicial review because the determination of tax policy and incidence belongs to the legislative branch of the State. It is the State, through its legislature, that decides what taxes to impose, on whom, and to what extent, and the judicial department is not expected to interfere with those decisions. The Court further noted that the Constitution deals with the State’s power to raise finances in Part XII. Part XII contains the absolute prohibition on the levy or collection of any tax except by authority of law, as expressed in Article 265, and also provides for the distribution of revenue between the Union and the States. However, Part XII does not give a clear demarcation of the taxing authority between the Union and the States, leaving that issue to be resolved in the context of the other constitutional provisions examined by the Court.

In this case, the Court observed that Part XII of the Constitution required the Union and the States to specify in detail which taxes would be levied for the benefit of the Union, which would be levied for the benefit of the States, and which taxes could be collected by the Union for the benefit of the States, together with the principle governing the distribution of those revenues among the constituent States. The Court explained that, in essence, Part XII constituted a self‑contained series of provisions dealing with the finances of the Union and the States and the adjustments between them, aside from the provisions in Chapter 2 concerning borrowing and Chapter 3 relating to property contracts. The Court further noted that, like Part XIII, Part XII was not expressed as being subject to any other provisions of the Constitution, and therefore each Part was intended to operate independently within its respective field. Consequently, the Court held that it could not be said that one Part was subordinate to the other.

The Court then addressed the argument advanced on behalf of the appellants that Article 304 indicated that taxation fell within the scope of the overriding provisions characterised as Article 301. Upon close examination, the Court found that Article 304 is divided into two distinct parts: the first part deals with the imposition of discriminatory taxes by a State Legislature, and the second part concerns the imposition of reasonable restrictions. This division, the Court reasoned, shows that the power to levy taxes—whether discriminatory or not—is separate from the power to impose reasonable restrictions on the freedom of trade, commerce and intercourse. The Court further explained that the second part of Article 304, which allows a State Legislature to impose reasonable restrictions on the freedom of trade, commerce and intercourse, aligns with the power given to Parliament under Article 302 to impose such restrictions between States or within any part of the territory of India in the public interest.

Turning to Article 303, the Court pointed out that this provision makes it clear that giving preference to one State over another or discriminating between States falls within the domain of Part XIII, because such measures are intended to impede the freedom of trade, commerce and intercourse. The Court emphasized that both Parliament and a State Legislature are prohibited from making any law that gives preference to one State over another or authorises discrimination between States. The Court highlighted the most significant wording in Article 303, which links the prohibition to “any entry relating to trade and commerce in any of the Lists in the Seventh Schedule.” Specifically, the Court identified entry 42 in List I, entry 26 in List II and entry 33 in List III of the Seventh Schedule as the relevant entries. Accordingly, the Court concluded that any legislation falling under those entries that directly interferes with the free flow of trade, commerce and intercourse throughout India must be struck down as violative of Article 301.

In this case the Court observed that the Constitution‑makers had anticipated emergencies such as drought or severe flooding that could create shortages of essential commodities, for example food grains. The Court explained that, in such circumstances, Parliament possessed the authority to give preference to one State over another or to discriminate among two or more States, provided that a law dealing with the emergency explicitly declared such measures necessary to address the situation. The Court then turned to the wording of Article 303, noting that the non obstante clause at the beginning of the article referred only to Article 302, which authorises Parliament to impose by law restrictions on the freedom of trade, commerce or intercourse, whether inter‑State or intra‑State, in the public interest. Immediately after, the article extended the reference to both Parliament and the legislatures of the States, granting them the power to give preference or make discrimination with respect to entries relating to trade and commerce in any of the lists of the Seventh Schedule. The Court pointed out that the article did not mention intercourse, but said that because the present dispute did not concern the freedom of intercourse as distinguished from the freedom of trade and commerce, the omission required no further comment. Counsel for the appellants had vigorously contended that the freedom guaranteed by Article 301 should be understood in its most expansive sense, encompassing freedom from every sort of impediment, restraint and trade barrier, including all forms of taxation. The Court disagreed with that extreme interpretation. It recalled that the terms trade, commerce and intercourse also embraced the individual right of every citizen to move freely from State to State, a right protected by Article 19(1)(d). Moreover, the Court explained that these three terms covered not only the unrestricted buying and selling of goods, but also the freedom to negotiate, conclude contracts, transmit information relating to such contracts, and transport goods and commodities for production, distribution and consumption by land, air or water. They also included the transport of people and animals by any mode of conveyance and the conduct of commercial dealings through telegraph, telephone or wireless communication, as well as every contract concerning sale, purchase or exchange of goods. In view of this broad description, the Court held that a literal reading which made trade, commerce and intercourse entirely free from taxation would have far‑reaching consequences, essentially encompassing the whole field of public taxation in both the Union and State lists. The Court found it improbable that the Constitution‑makers intended such an all‑encompassing exemption, because it would require that every law imposing tax on the sale, purchase or carriage of goods, or on the movement of people and animals, fall within Article 301 and would subject all bills or amendments of existing taxation statutes to the procedure laid down in the proviso to Article 304(b). That, the Court said, would unduly curtail the taxation powers of the States and reduce their limited sovereignty to a mere fiction. Consequently, the Court rejected the appellants’ extreme position as unsound. Finally, the Court observed that not all taxation necessarily constitutes an impediment to trade, commerce or intercourse; rather, taxes may provide the necessary resources to improve means of transport, such as building better roads for the conveyance of sugarcane from the fields, thereby facilitating commerce rather than obstructing it.

In the present case, the Court explained that a tax which related to the sale and purchase of goods, the carriage of goods, commodities, men or animals from one place to another – whether the movement was between states or within a single state – would fall within the ambit of Article 301. If that were so, the proviso to Article 304(b) would require that any bill or amendment affecting existing laws on such taxation had to pass through the procedure laid down in that proviso. The Court observed that imposing such a requirement would place an excessive obstacle in the way of the States’ power to levy taxes, and would effectively reduce the limited sovereignty that the Constitution gave to the States to a mere fiction. Consequently, the Court rejected the view that every tax on movement of goods or persons must be treated as an impediment to free trade, commerce and intercourse. The Court further noted that taxation is not always a restraint on trade; rather, taxes can provide the necessary funds for improving various means of transport. For example, in cane‑growing regions, without good roads the transport of sugarcane from fields to mills would be impossible or severely limited. In such areas, a cess on cane growers or on parties interested in transporting the cane has been imposed at a specified rate per maund or per ton of sugarcane delivered to factories. This levy, which is a tax on the movement of sugarcane either within a state or across state borders, generates revenue that can be used to construct new roads or upgrade existing ones, thereby enhancing the infrastructure needed for commerce.

The Court continued by observing that similar levies are applied to passenger and freight services, such as a surcharge on ordinary motor‑vehicle or railway fares, and that such surcharges may be imposed even when they do not directly result in improvements to the means of communication. Nonetheless, the Court held that it was incorrect to characterize any tax on the movement of goods or passengers as automatically implying a restriction or restraint on trade and commerce. This reasoning supported the broader conclusion that taxation, in its ordinary sense, does not fall within the terms of Article 301 of the Constitution. The Court further explained that the very nature of taxation is the power of the State to raise money for public purposes by compelling individuals and corporate entities to pay amounts earned or possessed by them, amounts that exist because of the facilities and protection that the State provides. Whether imposed directly or indirectly, taxes and imposts are ultimately intended as contributions from citizens and residents of the State, or from those dealing with its citizens, to support governmental functions in accordance with each person’s capacity to contribute. Because the purpose of taxation is inherently public, the Court concluded that when Part XIII of the Constitution speaks of reasonable restrictions in the public interest, it could not have intended to include taxation within the generic phrase “reasonable restrictions”. Accordingly, taxation was held not to be encompassed by Article 301.

In this case the Court explained that taxation represents a contribution made by citizens, by persons who reside in the State, or by those who deal with the State’s citizens, and that such contribution is intended to support the Government in proportion to the contributors’ ability to pay. Consequently, the Court held that every tax inherently carries a public‑purpose element. Because of this, when Part XIII of the Constitution refers to the imposition of reasonable restrictions in the public interest, the Constitution could not have meant to include ordinary taxation within the generic term “reasonable restrictions.” The Court cited the decision in Ramjilal v. Income Tax Officer, Mohindargarh (1) which held that the power to impose and collect taxes under the authority of law described in Article 265 lies outside the expression “deprivation of property” found in Article 31(1). The Court further noted that the reasonable restrictions contemplated in Part III or Part XIII are usually less extensive than a total deprivation of property rights, as indicated in the same precedent ([1951] S.C.R. 127,136). Accordingly, Part XII, which deals with finance, has been treated as the portion of the Constitution that acknowledges the sovereign power of the State to levy taxes, a power that necessarily imposes burdens on citizens and others in the public interest. The Court warned that when a legislature passes a law imposing a tax that, in its true nature, functions as an impediment to the free flow of trade, commerce, or intercourse—such as by creating a high tariff barrier or by barring imports into or exports out of a State—that law ceases to be a mere tax and instead becomes a trade barrier, which the framers of the Constitution intended to eliminate through Part XIII. The Court then outlined four principal objections to the view that taxation falls within the prohibition of Part XIII. First, because taxation always implies a public‑interest purpose, it cannot fall within the category of particular restrictions that courts may characterize as reasonable and in the public interest. Second, the power to impose taxes resides in a sovereign State that must administer government functions; the Constitution establishes a welfare State, expanding governmental activities and requiring taxation on a broader scale and across wider fields. If taxation were viewed as encompassing the prohibition of Article 301, the legislative entries in the Union and State Lists that empower both levels of government to tax movements of goods and passengers would become ineffective or pointless. Third, accepting the appellants’ argument would compel many taxes, such as sales taxes imposed by the Union and the States, to be subjected to the procedures outlined in Articles 303 and 304, thereby undermining the limited sovereignty of the States envisioned by the Constitution. Fourth, if laws relating to taxation—which are essentially a legislative function of the State—were made justiciable each time they were challenged as unconstitutional, the State would be forced to defend its fiscal measures before the courts constantly, a situation that would seriously disturb the division of powers on which the modern Constitution is based.

The Court observed that taxation, being fundamentally a legislative function of a State, would become justiciable, and that each time a taxation law is challenged as unconstitutional the State would be required to satisfy the courts. Such a requirement, the Court said, would seriously affect the division of powers on which modern constitutions, including ours, are based. The Court then addressed point five, noting that taxation on the movement of goods and passengers is not necessarily an impediment. That observation led to a discussion of the opposite extreme, namely that taxation is wholly outside the reach of Article 301. The Court held that this extreme view is equally untenable because Article 304 contains, and Article 306, before its repeal in 1956, contained, references to taxation for certain purposes mentioned in those articles. Although Article 306 has now been repealed, it formerly referred to a tax or duty on the import of goods from one State into another or on the export of goods from one State to another. Such imposts were, the Court explained, essentially impediments to the free flow of goods and commodities created by customs barriers, which Article 301 was intended to abolish. Similarly, Article 304, while recognising the power of a State Legislature to tax goods imported inter‑State, insists that a comparable tax be imposed on goods manufactured or produced within that State. In this way the article draws a clear distinction between taxation as a source of revenue and taxation employed for discrimination or preferential treatment, both of which the Constitution treats as impediments to free trade and commerce. In other words, so long as an impost is not in the nature of an impediment to the free flow of goods and commodities between one State and another—including Union territories—the legality of that impost is not open to attack on the basis of the provisions of Part XIII. The Court cautioned, however, that this does not mean State Legislatures derive their taxation power solely from Article 304. Article 304 merely preserves the existing power of taxation but inserts a prohibition that such taxes shall not have the effect of impeding the free flow of goods and commodities. Article 301, with which Part XIII begins, contains the decisive words “shall be free” and provides the key to resolving the problems raised by the entire Part. The freedom declared by that article is not an absolute freedom from all legislation. As the Court noted, the various entries in the three Lists suggest that both Parliament and State Legislatures have been given authority to legislate on trade, commerce and intercourse, but it is equally clear that legislation must not create impediments to the free flow of trade and commerce. In the Court’s view, the freedom contemplated by Article 301 is therefore not an absolute freedom from the incidence of taxation in respect of trade, commerce and intercourse.

The text of the Constitution shows that entries 89 and 92A in List I, entries 52, 54 and 56 to 60 in List II, and entry 35 in List III all relate to taxation of various aspects of trade, commerce and intercourse. These entries therefore confirm that both the Union Parliament and the State Legislatures possess the authority to impose taxes connected with trade, commerce and intercourse, provided that such taxes do not create trade barriers, tariff walls or imposts that would harm the free movement of trade, commerce and intercourse. This constitutional freedom is not unlimited; it is constrained by the power given to Parliament or a State Legislature to impose restrictions that serve the public interest. Moreover, Parliament may, in the limited circumstances specified in clause (2) of Article 303, enact legislation that gives preference to certain persons or makes permissible discriminatory measures. By interpreting Part XIII fairly, the following principles emerge: (1) trade, commerce and intercourse throughout India are not absolutely free but may be regulated by legislation of Parliament or a State Legislature; (2) the freedom declared in Article 301 does not amount to a blanket exemption from taxation, but rather prevents taxation that directly impedes the free flow of trade, commerce and intercourse; (3) the freedom of Article 301 is subject to non‑discriminatory restrictions that Parliament may impose in the public interest under Article 302; (4) Parliament may also enact discriminatory or preferential legislation to address emergencies such as a scarcity of goods in any part of India, as allowed by Article 303(2); (5) a State Legislature may impose reasonable restrictions in the public interest under Article 304(b); (6) a State Legislature may levy non‑discriminatory taxes on goods imported from another State or States if it imposes comparable taxes on goods produced or manufactured within its own territory, in accordance with Article 304(a); and (7) existing restrictions under earlier laws continue to operate unless the President, by order, directs otherwise pursuant to Article 305.

Having examined the arguments for and against the proposition that Article 301 encompasses a general power of taxation, the Court turned to the specific provisions of the statute under challenge to determine whether any clause of that Act contravenes Article 301 as alleged by the appellants. The Act, as indicated by its preamble, aims to impose a tax on certain goods that are transported by road or inland waterways. Within the Act, the term “Dealer” is defined in section 2(4) to mean a person who owns jute in bales before the jute is conveyed by motor vehicle, cart, trolley, boat, animal, human agency or any other means, except by railways. This definition explicitly excludes transportation by railways from the scope of the dealer’s liability under the statute.

The statute defines a “Dealer” in section 2(4) as any person who owns jute in bales before it is conveyed by motor vehicle, cart, trolley, boat, animal, human agency or any other means, except by railways or airways, and also includes that person’s agent. The term “Producer” is defined in clause (12) of section 2 to mean a producer of tea and to include the individual who is in charge of the garden where the tea is produced. Section 3, which is the charging provision, states that manufactured tea packed in chests and carried by motor vehicle or other non‑rail, non‑air means shall be liable to a tax calculated at a specified rate per pound of tea, and that this tax shall be recovered from the producer. The same section further provides that jute transported in bales by motor vehicle or other non‑rail, non‑air means shall be liable to a tax at a specified rate per maund of jute, and that this tax shall be recovered from the dealer. The exact rates of these taxes are not set out in this discussion because no argument was raised suggesting that the rates are oppressive or excessive. The tax on manufactured tea in chests is to be paid by the producer, a term that includes the person in charge of the tea garden; this clause has prompted the contention that the levy is, in substance, an excise duty disguised as a tax, an issue that will be considered later in the judgment. The tax on jute in bales is to be recovered from the dealer, meaning the person who owns the jute in bales. Section 6 prescribes the authorities that are empowered to assess and collect the taxes. Section 7 obliges every producer and dealer to submit returns showing the quantities of tea or jute that have become liable to tax under section 3. Section 8 provides for the licensing of balers, that is, persons who own or possess a pressing machine used for compressing jute into bales. Section 9 delineates the procedure for assessment, while section 10 sets out the method for cancelling an assessment under certain circumstances. Section 11 describes the procedure to be followed in cases where assessment has escaped or where there has been an evasion of the tax. The remaining provisions of the Act are not examined here because they are not relevant to the arguments presented by counsel. From the concise summary of the pertinent provisions it is evident that the Act is a pure taxing statute and contains no indication of any discrimination against dealers or producers located outside the State of Assam, nor does it provide any preference for those situated within the State. On its face, therefore, the Act does not display any of the defects that Part XIII of the Constitution was intended to prevent. No allegation has been made that the Act imposes an unduly heavy burden on either the dealer or the producer. According to the terms of the statute, it cannot be said that its purpose is to create obstacles or impediments to the free flow of traffic concerning jute and tea. On its face, the legislation does not appear to hinder the movement of these commodities.

The Court observed that it would be contrary to the interests of the State of Assam to create any obstacles to the movement of jute and tea, because Assam is a major producer of these commodities and the principal market for them lies in Calcutta. Consequently, the Court found it difficult, if not impossible, to hold that the Act fell within the scope of Article 301 of the Constitution. Since the Act could not be said to violate Article 301, the Court concluded that there was no necessity to examine any other provisions of Part XIII of the Constitution in connection with that ground of challenge.

Having therefore dismissed the principal attack on the Constitutionality of the Act that was based on Article 301, the Court turned to the additional submissions raised on behalf of the appellants. The appellants contended that the Act was beyond the legislative competence of the Assam Legislature. To resolve this issue, the Court examined whether the Act fell within any of the items listed in List II of the Seventh Schedule. Entry 56 of List II, which reads “Taxes on goods and passengers carried by rail or in inland waterways,” was found to squarely encompass the impugned legislation. The Court noted that there was no occasion to invoke the doctrine of pith and substance because the Act was a straightforward taxing enactment intended to levy a tax on the transportation of goods—specifically jute and tea—by road or by inland waterway.

The Court characterized the matter as a simple case of taxation that is fully covered by Entry 56. The appellants had attempted to support their lack‑of‑competence argument by alleging that, although the Act appears in form to be a tax on the transport of goods within the ambit of Entry 56, in substance it amounted to an excise duty as defined in Entry 84 of List I. The Court rejected this contention, explaining that the Act does not impose a tax on jute or tea merely because the goods exist or are produced. A tax liability arises only when the goods are placed on a motor truck, boat, steamer, or any other mode of transport contemplated by the Act. Thus, no tax is levied unless the goods are actually moved. The Court cited the earlier decision in The Tata Iron & Steel Co. Ltd. v. The State of Bihar, where Chief Justice Das had dismissed a similar argument, observing that the argument overlooked the fact that under clause (ii) the producer or manufacturer became liable to pay tax not because of production but because of the sale of the goods. This reasoning reinforced the view that the Assam Act is a valid tax on transportation and does not constitute an excise duty beyond the legislature’s competence.

The Court explained that the tax was imposed on the producer or manufacturer only in the capacity of a seller, not in the capacity of a producer, as previously indicated in Boddu Paidanna’s case (1942) F.C.R. 290. In the words of the Judicial Committee in Governor General v. Province of Madras, 72 I.A. 91 at p. 103, a duty of excise is fundamentally a duty levied on a manufacturer or producer in respect of the commodity that has been manufactured or produced; it is a tax on goods themselves rather than on the sale of goods or the proceeds of such sale. Consequently, if goods manufactured in Bihar were destroyed by fire before any sale took place, the manufacturer or producer would not be liable to pay any tax under section 4(1) read with section 2(g), second proviso. As Gwyer, C. J., observed in the same Boddu Paidanna judgment at p. 102, the manufacturer or producer would be liable only to a sales‑tax because he sells, not because he manufactures; and he would be completely exempt from liability if he chose to give away everything produced in his factory, a point affirmed on p. 1369 of the Report. The Court held that these observations fully address the controversy before it. While the Legislature selected the dealer or the producer as a convenient agency for collecting the tax created by section 3, the occasion for imposing the tax is not the act of production or dealing but the transportation of those goods. Accordingly, the Act accomplishes its purpose, namely to levy a tax on goods carried by road or inland waterways. The Court also considered an argument that challenged the competence of the Assam Legislature on the ground that the Act interfered with the Tea Act XXIX of 1953, which purportedly placed the tea industry under the exclusive control of the Union. The Tea Act declared that, in the public interest, the Union should assume control over the tea industry, establishing a Tea Board under section 4 with functions including regulation of tea production and cultivation, improvement of tea quality, and promotion of cooperative efforts among growers and manufacturers, as set out in section 10. Chapter III of the Act provides for control over the extension of tea cultivation, Chapter IV deals with control over the export of tea and tea seed, and Chapter V imposes a customs duty on tea exported from India, directing the proceeds to the Consolidated Fund of India. The revenue collected under this duty is placed in a Tea Fund, which is used to meet the expenses of the institutions created by the Tea Act. The remaining provisions of the Tea Act are intended to implement these core objectives, and the Court found no provision of the Tea Act that conflicts with the provisions of the impugned Act. Consequently, this line of attack on the Act’s constitutionality was rejected.

The Court observed that the provisions of the Tea Act were intended solely to give effect to the principal provisions of the statute and that none of its sections conflicted with any part of the impugned legislation. Consequently, the Court concluded that the argument challenging the constitutionality of the Act on the basis of such a conflict failed. The Court then turned to a third contention advanced against the Act, namely that the legislation operated extra‑territorially because it sought to tax producers and dealers who might not be residents of the State of Assam. This line of attack had been raised by appellants and petitioners from West Bengal who were required to move their goods by road or by inland waterways through a portion of Assam’s territory in order to transport the merchandise from one part of West Bengal to another. The appellants acknowledged that their goods necessarily passed through a segment of Assam, but emphasized that the goods were produced, packed and shipped wholly within West Bengal, moving from one location in that State to another location in the same State. While the Court recognized that a real and substantial nexus existed to support the tax, the appellants argued that the stretch of Assam’s territory covered by the journey was proportionally small compared with the entire distance travelled by the merchandise. The Court held, however, that in assessing the validity of a statute on the ground of extra‑territoriality, it was not appropriate to weigh the relative size of the territorial nexus against the total length of the journey. The Court stated that once it was established that the Legislature possessed the competence to impose the tax, the tax could not be successfully challenged merely because the goods of the appellants crossed a part of Assam’s territory. In support of this view the Court referred to its earlier observations in The Tata Iron and Steel Co. Ltd. v. The State of Bihar, where the Chief Justice had examined the theory of nexus in a broad body of case law. Adopting that reasoning, the Court held that the Act did not suffer from any extra‑territorial defect. The Court further noted that although the incidence of the tax might fall upon persons who did not ordinarily reside in Assam or upon goods not produced in Assam, the same reasoning applied as to a duty of excise, which the Court had already discussed. Consequently, the tax was deemed leviable on any goods that, in the course of their journey, traversed any part of Assam’s territory, not because their owners or producers were residents of Assam, but because the waterway or road used for transportation lay within Assam’s borders.

The Court observed that the portion of the journey during which the waterway or road was used was only a part of the overall transit, and therefore concluded that there was no defect in the Act on the basis that it operated beyond the territorial limits of the State. Having resolved the question of extra‑territoriality, the Court turned to the remaining contention, namely that the Act was discriminatory and consequently violated Article 14 of the Constitution. In support of this contention, it was argued that the statutory scheme taxed only tea that was packed in chests and jute that was packed in bales, while the same commodities, when held in other hands, placed in other containers, or fashioned in other forms, escaped the reach of the levy as indicated in the citation [1958] S.C.R. 1353. The Court explained that the Legislature deliberately chose to impose a tax on the over‑land and waterway conveyance of those commodities when they were packaged in chests or in bales because these methods represent the most convenient and commonly employed means of packing goods for long‑distance carriage. Consequently, the Court held that the statutory scheme did not amount to a preferential selection of one class of goods over another class of the same variety for the purpose of taxation. The legislative intent, according to the Court, was to tax the transportation of the commodities, and the choice of chests and bales was presumed to be the most practical manner of achieving that aim. No evidence was presented to suggest that a substantial quantity of the commodities was conveyed over long distances in forms other than chests or bales. Moreover, the Court stated that when the Legislature decides to tax a particular thing, it is not obligated to tax every possible form or variety of that thing; it may select certain forms in order to raise the revenue it seeks. It is not the function of the courts to dictate that all alternative methods or all possible forms should be brought within the tax’s ambit. The Legislature retains the discretion to impose a tax in the manner and form it considers most convenient for collection and assessment.

Having found that each of the attacks on the constitutional validity of the Act failed, the Court concluded that the appeals and petitions should be dismissed, with costs awarded to the respondents. The Court expressly noted that it refrained from citing or relying upon decisions from foreign jurisdictions such as the United States or Australia, because the constitutional frameworks of those countries are not comparable to the Indian Constitution and therefore cannot guide the resolution of the issues in this case. The Court further observed that precedents dealing with the construction of statutes that are worded differently from Indian law do not constitute reliable guidance for deciding controversies that arise under the Indian Constitution. Finally, the Judge expressed regret at having to dissent from the majority view of the Court, explaining that the dissent was based on a reading of Part XIII of the Constitution which does not support the inference that a blanket power of taxation falls within the scope of Article 301.

In this matter, the Court observed that the difficult question concerning the interpretation of the provisions of Part XIII of the Constitution, which has been mentioned incidentally in some reported decisions of this Court, required examination in the present set of cases. The present group comprises three appeals that reached this Court on certificates issued by the Assam High Court under Article 132, together with two petitions filed under Article 32. The three appellants are tea companies; two of them, identified as Civil Appeal No 126 of 1958 and Civil Appeal No 128 of 1958, conduct their tea‑growing operations in the district of Sibsagar in Assam, while the third, Civil Appeal No 127 of 1958, conducts its business in Jalpaiguri in the State of West Bengal. All three companies transport their tea to Calcutta for sale in the Calcutta market, either for home consumption or for export from India. Tea produced in Jalpaiguri must pass through a short distance of territory belonging to the State of Assam, whereas tea produced in Assam must traverse the entire length of Assam before reaching Calcutta. Only a very small proportion of the tea manufactured in Assam finds a market within Assam itself; the overwhelming majority is sold in the Calcutta market. Although a portion of the tea is conveyed by rail, a substantial quantity is moved by road or by inland waterways, and consequently it becomes liable to the tax imposed under the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, 1954 (Act XIII of 1954), hereinafter referred to as the Act. The Act was enacted by the Assam Legislature to provide for a tax on certain goods carried by road or inland waterways within the State of Assam and received the Governor’s assent on 9 April 1954. On behalf of the State of Assam, described hereafter as the respondent, its officials required the appellants to comply with the various requirements of the Act and issued tax demands on the tea they were transporting. The appellants paid the tax demands, but they did so under protest. Shortly thereafter, the appellants filed petitions in the Assam High Court under Article 226 challenging both the validity of the Act and the tax demands made by the respondent’s officers. In those petitions the appellants prayed that a writ of mandamus be issued directing the respondent and its officers to refrain from giving effect to the provisions of the Act and from otherwise enforcing it against the appellants. Alternatively, they sought a writ of prohibition or any other appropriate writ restraining the respondent and its officers from enforcing the Act against them. Thus the question of the Act’s validity was presented before the Assam High Court for judicial review. The appellants challenged

In the proceedings before the Assam High Court, the petitioners challenged the constitutional validity of the Assam Tea Act on several distinct grounds. Their primary argument was that the Act violated Article 301 of the Constitution, and because it failed to comply with the requirements of Article 304(b), it was beyond the legislative competence of the state. They further contended that tea was designated as a controlled industry under Act 29 of 1953, a classification that, in their view, vested exclusive regulatory authority in the Union Government for matters of manufacture, production, distribution, or transport of the commodity; consequently, they asserted that the Assam Legislature lacked the power to enact the Act. Another point of attack focused on the basis of the legislative entry invoked by the Act: although the Act claimed to be made under Entry 56 of List II, the petitioners argued that, in substance, it imposed an excise duty, which could be legislated only under Entry 84 of List I. Finally, they alleged that the Act infringed the fundamental right to equality before the law guaranteed by Article 14. The respondent contested each of these contentions. It maintained that the Act fell squarely within the competence of the Assam Legislature under Entry 56 of List II and that the provisions of Part XIII of the Constitution were completely inapplicable to the legislation. The respondent also asserted that Article 14 had not been breached and rejected the claim that a controlled industry could be regulated only by the Union or that the Act effectively imposed an excise duty. The petitions were adjudicated by a Special Bench of the Assam High Court comprising the Chief Justice and another Justice, who each delivered separate but agreeing judgments, and they dismissed all of the petitioners’ pleas. After the High Court’s decision, the petitioners secured a certificate under Article 132, thereby elevating three separate appeals to the Supreme Court. The Supreme Court was thus asked to consider every issue that had been raised before the High Court, with the central question revolving around the applicability of Part XIII of the Constitution. Concurrently, two petitions filed under Article 32 presented substantially the same issue. The petitioners, identified as tea companies engaged in growing and manufacturing tea in Jalpaiguri, West Bengal, contested the authority of the State of Assam to levy tax upon them under the disputed Act, maintaining that the legislation was ultra vires. Recognizing the broader significance of the matter for other states, the Court directed that notice be issued to the Attorney‑General of India and to the Advocates‑General of every State. Accordingly, the Attorney‑General appeared before the Court, and the Advocates‑General of the States of Bihar, Madras, Punjab, Rajasthan and Uttar Pradesh were also heard on the arguments presented.

Rajasthan and Uttar Pradesh also presented their arguments before the Court. The challenge to the validity of the Act on the ground that it violates Article 301 necessarily raises the issue of how the relevant provisions of Part XIII should be interpreted. Article 301, which introduces Part XIII, states that “subject to the other provisions of this Part trade, commerce and intercourse throughout the territory of India shall be free.” The appellants argue that this provision places a limitation on the legislative authority of both State Legislatures and Parliament, and therefore the validity of the Act must be assessed according to that limitation. They contend that the language of Article 301 is broad and clear, and it would be unreasonable to exclude from its scope a taxing law that restricts trade, commerce, or intercourse, whether directly or indirectly.

Conversely, the respondent, the Attorney‑General, together with the other States, maintains that taxing statutes stand on their own footing, are governed by the provisions of Part XII, and that no clause of Part XIII may be extended to cover them. In an alternative line of reasoning, they propose that Part XIII should be applied only to those entries in the Seventh Schedule that specifically deal with trade, commerce, or intercourse. Such an approach would bring within the ambit of Part XIII Entry 42 of List I, which relates to inter‑State trade and commerce; Entry 26 of List II, which concerns trade and commerce; and Entry 33 of List III, which also addresses trade and commerce as defined therein.

The submissions advanced by both sides appear, at first glance, to be logical and possess an appealing simplicity. The Court must now determine which of the contentions accurately reflects the true position of law. It must decide whether the correct answer lies wholly with one party, with the other, or somewhere in between the two positions. Resolving this problem requires a fair and reasonable construction of the relevant Articles contained in Part XIII. However, before undertaking that construction, it is appropriate to consider some general background. Historically, prior to the adoption of the Constitution, roughly two‑thirds of the Indian territory was under British rule, known as British India, while the remainder comprised numerous princely States governed by Indian princes. Many of these States claimed sovereign rights within the limits imposed by the paramount power and exercised legislative authority to levy taxes on trade and commerce. Their taxation policies inevitably led to the creation of customs barriers between the princely States and the rest of India, thereby impeding the free flow of trade across the subcontinent.

India had been governed by the provisions of section 297 of the Constitution Act of 1935, a point to which the Court would later refer. Before the year 1950, the movement of trade and commerce across the country was obstructed at numerous locations that corresponded to the borders of the Indian princely States. After political freedom was achieved in 1947 and before the Constitution was formally adopted, the process of merging and integrating the various princely States with the remainder of the nation proceeded rapidly. Consequently, when the Constitution was finally enacted, the territories of India were classified into Part A States, which largely represented the former provinces of British India, and Part B States, which comprised the former princely States. This unification of the princely States with the Union of India was itself preceded by earlier mergers and consolidations among some of those States. The framers of the Constitution were aware of the trade barriers that had been erected by the princely States in the exercise of their legislative powers, and this awareness shaped the drafting of the provisions contained in Part XIII. The principal purpose of Article 301 was to ensure the free flow of trade, commerce and interpersonal intercourse throughout the entire territory of India.

The drafters of the relevant Articles in Part XIII were fully cognizant that economic unity was indispensable for the stability and progress of the federal system envisioned by the Constitution. They recognized that political freedom and political unity, newly secured by the Constitution, needed reinforcement through an economic bond. It was also foreseen that, over time, different political parties adhering to varying economic theories might assume power in the various constituent units of the Union, potentially giving rise to local or regional pressures on economic matters. Such local apprehensions could persuade State legislatures to adopt measures intended solely to protect regional interests, without regard to the impact on the national economy. Part XIII was intended to preclude that outcome. Free movement and exchange of goods across the country were deemed essential for the nation’s economy and for improving living standards. The guarantee of freedom in Article 301 was therefore not a mere platitude, hopeful statement, or merely a directive principle of State policy; it embodied a fundamental principle that the economic unity of the country would serve as the chief sustaining force for the stability and progress of its political and cultural unity.

In this case, the Court observed that the importance of maintaining national economic unity can be illustrated by the remarks of Cardozo, J., in C.A.F. Seelig, Inc. v. Charles H. Baldwin, where he explained that the commerce clause of the United States Constitution was fashioned under a political philosophy that was not narrowly provincial. He stated that the clause was based on the idea that the peoples of the various states must succeed or fail together, and that long‑term prosperity and salvation are achieved through union rather than division. The Court then turned to another general consideration advanced by the Attorney‑General and the State governments. They argued that, when determining the breadth of the freedom guaranteed by Article 301 of the Indian Constitution, one must keep in mind that expanding the scope of that freedom inevitably reduces the legislative authority of the States. The State legislatures possess plenary power to legislate on matters listed in Parts II and III of the Seventh Schedule. If Article 301 were given the widest possible construction, as the appellants suggest, the result would be that the State legislatures could not legislate on many entries in those lists without following the procedure prescribed by Article 304(b). The Court found that imposing such a restriction on State legislative power would be unreasonable and would unduly curtail their freedom of action. While recognizing the argument, the Court noted that what appears to be a limitation under Article 304(b) should, from the perspective of the national economy, be seen as a safeguard deliberately created to protect the country’s economic unity. Nevertheless, the Court agreed that any interpretation of Article 301 and the determination of the scope and effect of Part XIII must consider the impact on both State and Parliament’s legislative powers. Having discussed these general considerations, the Court proceeded to examine whether tax statutes lie wholly outside the reach of Part XIII. The Attorney‑General supported the view that Part XIII does not apply to tax laws, emphasizing that the power to levy taxes is a fundamental element of sovereignty and, in his view, is not subject to judicial review. He drew the Court’s attention to observations in Cooley’s “Constitutional Limitations,” which describe the power to impose taxes as so extensive that courts rarely find it subject to any restriction beyond the discretion of the taxing authority. The Attorney‑General also cited the judgment of Chief Justice Marshall in McCulloch v. Maryland, in which the Chief Justice described the taxing power as essential to the existence of government and said that the only protection against its abuse is the structure of the government itself. Relying on this characterization, the Attorney‑General urged the Court to hold that Part XIII should not be applied to taxation matters.

In the material presented to the Court, the author was quoted as describing the power to tax “as 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 such as rest in the discretion of the authority which exercises it” (1). The same author then referred to the observations of Chief Justice Marshall in the case of McCulloch v. Maryland, noting that the learned Chief Justice had stated that “the power of taxing the people and their property is essential to the very existence of the government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the government may choose to carry it. The only security against the abuse of this power is found in the structure of the government itself” (2). On the basis of this characterization of the taxing power of the State, the Attorney‑General argued that Part XIII of the Constitution could not be applied to any statute that imposed a tax. The Court, however, considered this contention to be without merit.

The Court observed that the statement of law relied upon by the Attorney‑General was itself expressed as being subject to the relevant constitutional provisions. For example, the same author had earlier observed that “it is also believed that that provision in the Constitution of the United States which declares that the citizens of each state shall be entitled to all the privileges and immunities of the citizens of the several states will preclude any state from imposing upon the property which citizens of other states may own, or the business which they may carry on within its limits, any higher burdens by way of taxation than are imposed upon corresponding property or business of its own citizens” (p. 1016). Translating that principle into the context of the Indian Constitution, the Court concluded that it could not be suggested that the power of taxation might, for instance, contravene the guarantee of equality before the law contained in Article 14.

Accordingly, the Court held that although the power to levy taxes is essential for the very existence of government, its exercise must inevitably be governed by the constitutional limitations that have been expressly provided for that purpose. The power of taxation, therefore, cannot be said to lie entirely outside the scope of any constitutional restrictions. The Court further referred to the earlier decision in Ramjilal v. Income‑Tax Officer, Mohindargarh, where it was held that because Article 265 of the Constitution provides that “no tax shall be levied or collected except by authority of law,” Article 31(1) must be interpreted as dealing with deprivation of property other than by the imposition or collection of tax, and that the right conferred by Article 265 is not a right conferred by Part III of the Constitution and therefore cannot be enforced under Article 32. This reasoning reinforced the view that the power to tax is subject to constitutional control and cannot be placed beyond the reach of Part XIII.

The Court observed that the earlier decision merely confirms that protection against the imposition and collection of taxes, unless authorised by law, is found directly in Article 265 and is not covered by clause (1) of Article 31. It warned that it would be unsafe to treat that decision as establishing the proposition that a taxing statute could, by its very levy, contravene Article 14 of the Constitution. The Court then turned to the next issue, namely whether tax legislation is governed solely by the provisions of Part XII of the Constitution and is exempt from the application of Part XIII. One argument advanced was that Part XII constitutes a self‑contained code, containing all necessary rules, and therefore the validity of any tax law should be examined only in reference to the provisions contained in that Part. Article 265 states that “no tax shall be levied or collected except by authority of law.” The argument further emphasized that this article does not envisage its provisions being subject to any other constitutional provisions, and consequently there would be no reason to apply Part XIII to tax statutes. It was also pointed out that the Constitution already provides specific restrictions and exceptions relating to taxation in Articles 274, 276, 285, 287 and 288, and that therefore it is not necessary to look beyond Part XII when dealing with tax legislation. The Court rejected this line of reasoning, noting that it fails to recognise that Article 265 inevitably incorporates Article 245, because the substance of Article 265 is that a tax may be levied only by “authority of law.” The “authority of law” referred to in Article 265 is identified in Article 245 together with the corresponding legislative entries in Schedule VII. When Article 245, which governs the territorial extent of laws made by Parliament and by State Legislatures, is read, it begins with the words “subject to the provisions of this Constitution.” In other words, the power of Parliament and the State Legislatures to enact laws, including tax laws, is itself limited by the Constitution, and this limitation brings the provisions of Part XIII into play. Consequently, the Court held that the theory that tax laws are governed exclusively by Part XII cannot be sustained. The power to impose taxes ultimately rests on Article 245, and that power is itself subject to the Constitution’s provisions. Finally, the Court noted that the introductory words of Article 301 are highly significant. The doctrine of freedom of trade, commerce and intercourse articulated in Article 301 is not subject to the general provisions of the Constitution but is made subject only to the other provisions of Part XIII, meaning that

In the present matter, the Court observed that once the breadth and scope of the freedom guaranteed by Article 301 are defined, that freedom cannot be regulated by any constitutional provision that lies outside Part XIII. This observation highlights the intention of the Constitution‑makers that the doctrine of free trade should occupy a pivotal role in the nation’s future. The Court stressed that the freedom protected by Article 301 is not meant to be absolute; an unrestricted liberty in matters of trade, commerce and intercourse would inevitably generate economic disorder and could devolve into chaos or anarchy. Consequently, the freedom enshrined in Article 301 is subject to the specific exceptions enumerated in the other Articles of Part XIII. The limitation operates solely within the framework of those Articles and is barred from being curtailed by any other constitutional provision beyond Part XIII. Accordingly, the Court held that, when read in its proper context and qualified by the limitations laid down in the relevant Articles of Part XIII, Article 301 imposes a constitutional constraint on the legislative authority of both Parliament and the State Legislatures. Determining which entries in the respective legislative lists fall within the ambit of Article 301 is a separate issue that depends upon the content of the freedom guaranteed; however, wherever Article 301 is applicable, the legislative competence of the concerned legislature must be assessed in light of the pertinent Articles of Part XIII, a position the Court found unavoidable.

The respondent submitted that the extent and reach of Article 301 could be construed by reference to Section 297 of the Constitution Act of 1935. Section 297 provides: “(1) No Provincial Legislature or Government shall— (a) by virtue of the entry in the Provincial Legislative List relating to trade and commerce within the Province, or the entry in that List relating to the production, supply, and distribution of commodities, have power to pass any law or take any executive action prohibiting or restricting the entry into, or export from the Province of goods of any class or description; 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 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 manufactured or produced in another locality. (2) Any law passed in contravention of this section shall, to the extent of the contravention, be invalid.” The Court noted that this prohibition was expressly confined to Provincial Governments and Provincial Legislatures and did not extend to the Central Government or the Central Legislature. The Court also accepted that the restriction in Section 297 was directed at the entries in the Provincial Legislative List concerning trade, commerce, and the production, supply and distribution of commodities, as well as prohibitions on the import or export of goods and discriminatory fiscal measures. This acknowledgment formed part of the Court’s analysis of the respondent’s argument that Article 301 was intended to broaden the principles of Section 297 to apply to the Union Government and Parliament, while retaining the essential content of the freedom of trade and commerce.

The Court observed that the prohibition mentioned in the provision referred specifically to entries in the Provincial Legislative List that concerned trade and commerce, as well as the production, supply and distribution of commodities. The provision further encompassed prohibitions and restrictions relating to the import of goods into a Province or their export from a Province. In addition, the provision barred any discrimination against goods that were manufactured or produced outside the Province, and likewise prohibited discrimination between goods produced in different localities within the Province. The argument advanced by the petitioners was that when the Constitution adopted Article 301, it had Section 297 in view, and that the only substantial modification intended was to extend the application of the principles set out in that section to the Union Government and the Union Parliament, and to apply those principles to the territory that subsequently became a part of India as indicated by the relevant Articles. According to this view, the essential content of the freedom of trade and commerce embodied in Section 297 continued to remain the same despite the constitutional transition. To support this contention, the petitioners relied on observations made by Justice Venkatarama Aiyar in the case of M. P. V. Sundararamier & Co. v. The State of Andhra Pradesh (1). In that case the validity of certain provisions of the Sales Tax Laws Validation Act, 1956 (7 of 1956) was challenged on several grounds, and one of the points raised concerned the scope of Entry 42 in List I. The counsel for the respondents urged that Entry 42 should be interpreted liberally to include a power to tax, relying on certain decisions of American and Australian courts. Justice Venkatarama Aiyar rejected that submission and held that Entry 42 in List I could not be read as conferring a taxing power. In reaching that conclusion the Judge made several general observations, emphasizing that reliance on American or Australian decisions was not always safe for interpreting the Indian Constitution. He remarked that “the threads of our Constitution were no doubt taken from other Federal Constitutions but when they were woven into the fabric of our Constitution their reach and their complexion underwent changes. Therefore, valuable as the American decisions 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 Constitution.” The Judge made a similar comment regarding Section 92 of the Commonwealth of Australia Constitution Act and the decisions rendered under it, and observed that “Art. 304(a) of the Constitution cannot be interpreted as throwing any light on the scope of Art. 301 with reference to the question of taxation as it merely reproduces s. 297(1)(b) of the Government of India Act, and as there was no provision therein corresponding to Art. 301 s. 297(1)(b).”

The Attorney‑General placed reliance on the earlier observations, but it must be noted that those remarks were made in the very narrow context of interpreting the scope and effect of section 297(1)(b) of the Government of India Act, 1935. The learned judge concluded that the substance of that provision could not be expanded by reference to article 304(a). Although the observations might be read as indicating that the judge believed article 304(a) offered no guidance on the reach of article 301 in relation to taxation, the court never framed the issue of construing those articles, nor was such a construction expressly argued before the bench. Respectfully, the language employed by the judge himself, when viewed in the setting of Part XIII and especially against the broad wording of article 301, suggests that article 304(a) possesses a wider reach than section 297(1)(b) and indeed embraces taxation matters. Turning to the contention that section 297 of the 1935 Constitution Act should virtually determine the scope of article 301, the court is unwilling to accept the premise that the Constitution‑makers intended merely to extend the operation of section 297 to the Union Government and Parliament. The framers were conscious not only of the British‑origin provision but also of comparable clauses in other federal constitutions, including the jurisprudence on section 92 of the Australian Constitution and the development of the commerce clause in the United States Constitution. Moreover, the court hesitates to adopt the view that the drafters sought to keep the freedom guaranteed by section 297 narrow. They were aware that the Constitution would usher in a new era for India and that preserving the economic unity of the Union was essential for the federal structure to function smoothly and harmoniously. Consequently, the court holds that the plain and expansive language of article 301 is intended to signal that the freedom of trade, commerce and intercourse guaranteed by the Constitution is richer and broader than the freedom contemplated under section 297. Determining exactly how much broader requires a fair and reasonable interpretation of article 301 in conjunction with the remaining provisions of Part XIII. In the court’s opinion, therefore, the proposition that tax legislation lies outside the ambit of Part XIII cannot be sustained. This brings the discussion to

The Court first examined whether Article 301 applied only to the trade and commerce entries that had already been enumerated in the Constitution. Before answering that issue, the Court stated that it was necessary to study the overall scheme of Part XIII and to interpret the relevant articles contained therein. The Court found that Article 301 was intended to cover not merely inter‑State trade, commerce and intercourse but also trade, commerce and intercourse that occur within a single State. The phrase “throughout the territory of India” was read to mean that the guaranteed freedom must also permit movement of trade and commerce from one place to another inside the same State. This interpretation received additional support from Article 302 and from Article 304(b), as the Court indicated it would explain later. While acknowledging that the concept of trade, commerce and intercourse is exceptionally broad, the Court limited its present analysis to the notion of trade, leaving commerce and intercourse aside. The Court observed that it was unnecessary to provide a precise definition of trade, because it was undisputed that the activities carried out by the appellants amounted to trade. It further noted that the transportation of goods or merchandise from one location to another is an essential component of trade and can therefore be regarded as an integral part of it. In the Court’s view, even a narrow conception of trade includes all activities related to buying and selling, or the exchange of commodities, and that such movement is the very essence of trading. When Article 301 mentions “freedom of trade,” the Court said it must inquire into the meaning of the term “freedom.” The Court identified the immediate question as “freedom from what,” and explained that this question must be resolved in the factual context of the case. For the present purpose, the Court confined itself to the proposition that the freedom of trade guaranteed by Article 301 means freedom from all restrictions except those expressly provided by other articles of Part XIII. Although the nature of those permissible restrictions could raise broader issues, the Court limited its decision to the aspect that arose from the provisions of the Act that were under scrutiny. The Court emphasized that, in constitutional matters, judges should avoid embarking on unnecessarily wide enquiries and should restrict their judgment to the narrow controversy between the parties. The Court indicated that it would return to a detailed discussion of Article 301 after it had examined the remaining articles of Part XIII.

The Court then examined Article 302, which it explained grants Parliament the power to place limitations on trade, commerce and intercourse. Under Article 302, Parliament may, by statute, impose restrictions on the freedom of trade, commerce or intercourse between one State and another. The provision also enables Parliament to impose such restrictions within any part of the territory of India, provided that the restrictions are necessary in the public interest. The Court noted that this reference to a restriction on the freedom of trade was immediately evident from the wording of the Article. The Court emphasized that this power to restrict was an exception to the general rule of free trade laid down in Article 301. It further explained that any law enacted under Article 302 must still conform to the requirement that the restriction be justified by a public interest objective. The Court indicated that the scope of such permissible restrictions would be examined in relation to the specific provisions of the Act that were being challenged. The Court also observed that the language of Article 302 makes clear that restrictions may be applied either to trade between different States or to trade occurring wholly within a single State. Consequently, the provision underscores that the constitutional guarantee of free trade is not absolute, but is subject to reasonable limitations prescribed by Parliament in the public interest.

In this passage the Court observed that the phrase “within any part of the territory of India,” when read as distinct from the phrase referring to freedom of trade between one State and another, makes it clear that the freedom contemplated includes not only inter‑State trade but also trade that occurs wholly within a single State. Consequently, the effect of Article 302 is to create an exception to the general rule set out in Article 301. The Court explained that Parliament may impose restrictions on the freedom of trade whenever such restrictions are required in the public interest, and therefore the broad freedom guaranteed by Article 301 is subject to the exceptions provided by Article 302. The discussion then moved to Article 303, which the Court recited in full: “303. (1) Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. (2) Nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India.” The Court noted that the first part of Article 303 functions as an exception or proviso to Article 302, as signaled by the use of the non‑obstante clause. This proviso bars Parliament from enacting any law that would give preference to one State over another or discriminate between States in respect of the entries specifically mentioned in the article. In other words, concerning those entries, the power to impose restrictions cannot be exercised to favour one State or to discriminate against another. The Court also pointed out that the reference to the Legislature of a State in the same clause cannot be reconciled with the non‑obstante language; rather, its inclusion emphasizes that, like Parliament, a State Legislature is likewise precluded from granting any preference or discrimination. Sub‑Article (2) was described as an exception to Sub‑Article (1) of Article 303. It authorises Parliament to enact a law that gives or authorises a preference or discrimination, but only when Parliament expressly declares, through that law, that such a measure is necessary to address a situation of scarcity of goods in any part of the territory of India. In essence, Parliament may exercise this power only when confronted with an emergency created by a shortage of goods in a particular region of the country.

In the arguments presented by the States, it was emphasized that Article 303(1) expressly refers to the entries dealing with trade and commerce that appear in any of the Lists contained in the Seventh Schedule, and it was contended that this reference provides a clear indication of the scope of Article 301 itself. While there is a measure of force in that contention, the Court is not prepared to conclude that the reference to those particular entries should govern the construction of Article 301. The context in which those entries are mentioned would, of course, determine the scope and extent of the prohibition contained in Article 303(1); however, that context cannot be pressed into service to determine the scope of Article 301. It is significant that Article 303(1) does not refer to “intercourse,” and in that sense intercourse lies outside the sphere of Article 303(1). It is likely that, having authorized Parliament to impose restrictions under Article 302, it was thought expedient to expressly prohibit the use of that power for the purpose of giving any preference with respect to the relevant entries. It may also be that the primary object of limiting the operation of Article 303(1) to those entries was to introduce a corresponding limitation on Parliament’s power to discriminate under Article 302. Whatever the underlying purpose, the limitation introduced in Article 303(1) cannot be read as narrowing the scope of Article 301 or as affecting its construction. Moreover, as will be pointed out later, other provisions in this Part indicate that tax legislation falls within the ambit of Article 301; consequently, the reference to the said entries in Article 303(1) cannot be taken to confine the application of Article 301 solely to those entries. Article 304 reads as follows: “Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law—(a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President.” The effect of clause (a) is to treat imported goods on the same basis as goods manufactured or produced in any State, and it authorizes a tax to be levied on such imported goods in the same manner and to the same extent as may be levied on goods manufactured or produced within the State. We ought to add that this

In this passage the Court explained that the sub‑article assumes that a State Legislature may levy tax on goods that are manufactured or produced within its own territory, and it further provides that goods coming from outside the State may not be treated any less favorably than the internal goods. The manner in which a tax can be imposed on internal goods is supplied by article 304(b). The non‑obstante clause that refers to article 301 is read together with article 304(a); this shows that a tax on goods would not have been permissible but for the authority granted by article 304(a) together with the non‑obstante clause. This observation also assists in defining the scope and breadth of the freedom guaranteed under article 301, meaning that article 304(a) operates as another exception to article 301.

Article 304(b) empowers a State Legislature to impose reasonable restrictions on the freedom of trade with other States or within the State itself. The reference to “the territory within the State” confirms that article 301 covers trade movements both inter‑State and intra‑State. Article 304(b) must be read with the non‑obstante clause relating to article 301 as well as article 303, and in substance it confers on the State Legislature a power that is somewhat similar to the power given to Parliament by article 302. The mention of article 303 in the non‑obstante clause appears to be a precaution, since the Legislature of a State is already included in article 303(1). Nevertheless, there are clear differences between the powers of Parliament and those of State Legislatures. In respect of any legislation that a State Legislature intends to pass under article 304(b), no bill may be introduced without first obtaining the President’s prior sanction. This requirement has been inserted to ensure that any regional economic pressures that may motivate legislation under this clause are examined in light of the national economy’s interests. Such legislation must also be in the public interest, a feature it shares with article 302, and it must impose restrictions that are reasonable, which adds an additional limitation on State legislative power. Consequently, three conditions must be satisfied for an act under article 304(b): the President’s prior sanction, a demonstration that the legislation serves the public interest, and that any imposed restrictions are reasonable. If the President’s sanction is not obtained, the defect can be remedied by following the procedure authorized by article 255.

The combined reading of articles 304(a) and 304(b) leads to the conclusion that a State Legislature may levy a tax on goods that are manufactured, produced, or imported within the State, and may also impose reasonable restrictions on the freedom of trade either with another State or among different areas of the same State. Tax legislation thus authorised is to be regarded as falling within article 301, an inference that follows plainly from the operation of the non‑obstante clause.

The Court examined the effect of the non‑obstante clause and noted that Article 305 preserved existing statutes and statutes establishing State monopolies. It observed that it was unnecessary to discuss that article further because its purpose was plainly to avoid disturbing the operation of those existing laws, except where the President might order otherwise. The Court then turned to Article 306, which read in full as follows: “Notwithstanding anything in the foregoing provisions of this Part or in any other provisions of this Constitution, any State specified in Part B of the First Schedule which before the commencement of this Constitution was levying any tax or duty on the import of goods into the State from other States or on the export of goods from the State to other States may, if an agreement in that behalf has been entered into between the Government of India and the Government of that State, continue to levy and collect such tax or duty subject to the terms of such agreement and for such period not exceeding ten years from the commencement of this Constitution as may be specified in the agreement: Provided that the President may at any time after the expiration of five years from such commencement terminate or modify any such agreement if, after consideration of the report of the Finance Commission constituted under article 280, he thinks it necessary to do so.” The Court pointed out that Article 306 had later been removed by section 29 and the schedule to the Constitution (Seventh Amendment) Act, 1956, but its original inclusion in Part XIII illuminated the reach of Article 301. It explained that statutes of any State listed in Part B that imposed a tax or duty on imports from other States or on exports to other States were expressly saved by Article 306 because, without that safeguard, those statutes would have been struck down by Article 301. In other words, tax statutes or statutes imposing duties on goods would, but for Article 306, have fallen within the prohibition of Article 301. The Court then returned to Article 301 to determine its breadth. After a careful review of all relevant provisions of Part XIII and the principle of economic unity that those provisions aimed to protect, the Court concluded that the freedom guaranteed by Article 301 was broader than the freedom contemplated in section 297 of the Constitution Act of 1935. The Court held that Article 301 certainly encompassed the movement of trade, which is an essential and integral component of all trade. Consequently, if the transport or movement of goods were taxed solely because the goods were being carried or transported, such a tax would directly impinge on the freedom of trade protected by Article 301. The Court further observed that any tax on the movement, transport, or carrying of goods, unless it satisfied the conditions laid down in Part XIII, would render the freedom of trade guaranteed by Article 301 illusory.

The Court observed that if the imposition of a tax is permitted to impede, obstruct or hamper the carrying of goods without satisfying the conditions laid down in Part XIII, then the freedom of trade emphasized by Article 301 would become merely illusory. It explained that when Article 301 declares that trade shall be free throughout the territory of India, the primary focus of that guarantee is the movement or transport aspect of trade, which must remain free except for the specific limitations and exceptions enumerated in the other provisions of Part XIII. The Court therefore concluded that this view results from reading Article 301 together with the remaining articles of Part XIII. It further noted that the intrinsic evidence supplied by several articles of Part XIII demonstrates that taxing statutes are not automatically excluded from the operation of Article 301; consequently, tax statutes can constitute restrictions on the freedom that the article guarantees to trade. The Court then asked whether this reasoning implies that every tax law, regardless of whether its effect on trade or its movement is direct and immediate or indirect and remote, must fall within Part XIII. It remarked that the language of Article 301 is deliberately wide, somewhat vague, and indefinite, which makes the task of interpreting its exact breadth a complex exercise. Nevertheless, the Court cautioned that constitutional provisions must not be read in isolation but as part of a single, integrated instrument in which one provision may illuminate another, citing the principle articulated in James v Commonwealth of Australia. Accordingly, the Court stated that the interpretation of Article 301 must consider both the overall scheme of the Constitution and the specific provisions relating to taxation. It warned against a purely academic or doctrinaire analysis and urged a realistic approach that respects the essential separation of powers embedded in the federal Constitution. Recognising that the Constitution imposes a constitutional limitation on the power of Parliament and State Legislatures to levy taxes, the Court emphasized that, but for this limitation, the power of taxation would ordinarily be presumed to serve the public good and would not be subject to judicial scrutiny. In light of these considerations, the Court found it reasonable to hold that the restrictions from which Article 301 guarantees freedom are those that directly and immediately restrict or impede the free flow or movement of trade.

The Court further explained that while taxes can and do create restrictions, only those taxes that directly and immediately curtail the movement of trade fall within the ambit of Article 301. Indirect, remote, or merely incidental effects on trade do not, in the Court’s view, constitute a breach of the freedom guaranteed by the article. Consequently, the constitutional protection of free trade is intended to shield the trade‑movement from tax measures that impose an immediate barrier, whereas tax measures whose impact is indirect or secondary remain outside the scope of Article 301. This interpretation, the Court concluded, balances the need to protect the essential freedom of trade with the legitimate authority of the legislature to impose taxes that do not directly obstruct the movement of goods.

The Court observed that the contention that every tax must fall within the ambit of Article 301 irrespective of whether its effect on trade is immediate, indirect, direct or remote represents an overly extreme view that cannot be sustained. Accepting such a proposition, the Court explained, would lead to absurd results, for example, a statute fixing minimum wages for industrial workers could be brought within Part XIII because the resulting increase in wage costs might, in an economic sense, have an indirect impact on trade or commerce. Accordingly, the Court held that a reasonable and practical test for determining the scope of the freedom guaranteed by Article 301 is to ask whether the impugned restriction operates directly and immediately on trade or its movement. Applying this test, the Court indicated that it would assess the validity of the statute presently before it. The Court further stated that it was neither necessary nor advisable to speculate on how other statutes might be affected by the interpretation it was giving to Article 301, nor to identify other legislative entries that might fall within Part XIII. The decision would therefore be confined to the specific Act that was the subject of the present challenge, and any other statutes similarly questioned would have to be examined according to the provisions applicable to those statutes. The Court concluded that when Article 301 declares that trade shall be free throughout the territory of India, it intends that the flow of trade be smooth and unimpeded, whether at state boundaries or at any point within a state. The provision protects the free movement and transport of goods from one part of the country to another; any law that imposes a direct restriction on that movement falls within the scope of Article 301 and can be sustained only if it complies with the conditions laid down in Article 302 or Article 304 of Part XIII. At this juncture the Court reiterated that the prohibition on restrictions to the freedom of movement of trade does not ban all restrictions, but merely bars taxes on the carriage or movement of goods unless a State Legislature imposes such taxes after satisfying the requirements of Article 304(b). The Court noted that the distinction between Article 302 and Article 304(b) suggests that when Parliament exercises its power under Article 302 to enact a law restricting the freedom of trade in the public interest, the question of whether the law truly serves the public interest may not be justiciable, thereby granting Parliament a broader discretion in this area.

In the discussion, the Court observed that Article 302 granted Parliament the exclusive authority to determine what restrictions could be imposed in the public interest, whereas Article 304(b) required that a law not only serve the public interest and obtain prior presidential sanction but also that any restrictions it imposed be reasonable. The Court noted that, prima facie, the public‑interest requirement might be deemed non‑justiciable and satisfied merely by presidential approval, while the reasonableness of the restrictions remained subject to judicial review, thereby potentially exposing State legislation to scrutiny. However, the Court clarified that this particular point would not be addressed in the present proceedings and that no definitive opinion would be expressed on it. Turning to the substantive provisions of the Assam Act, the Court described that the Act imposed a tax on certain goods transported by road or inland waterways within the State of Assam. Section 2(11) defined “producer” to mean a tea producer, including the person in charge of the garden where the tea was produced. Section 3, the charging provision, stipulated that manufactured tea packed in chests and carried by motor vehicles, excluding railways and airways, was liable to tax at a specified rate per pound, and that the tax would be collected from the producer; analogous provisions for jute were noted but set aside as irrelevant to the present case. Section 6 dealt with the appointment and powers of taxing authorities. Section 7 required every producer to submit returns concerning manufactured tea carried in chests, in the form and to the authority prescribed. Section 8 provided for the licensing of balers, defined as persons owning or possessing machines for compressing jute into bales. Section 9 prescribed the procedure for levying assessments, while Section 10 allowed for the cancellation of assessments under certain circumstances. Section 11 addressed assessments in cases of evasion or escape, Section 12 covered rectification, and Section 13 imposed penalties for failure to submit returns and for tax evasion. Section 19 dealt with the issuance of demand notices, and Section 20 specified the point at which tax became payable. The Court noted that the Act was enacted by the Assam Legislature under Entry 56 of List III, thereby characterising it as a tax on goods carried by road or inland waterways. Consequently, the Court concluded that the purpose and object of the Act were to raise revenue solely on the basis that the goods were being transported within the State, making the restriction on the free movement of goods explicit on its face.

The Court noted that the legislation was aimed at enabling the State Government to raise money for repairing its roads and waterways, but that the same objective could be accomplished by adopting a different legislative scheme. The Court further explained that if the intended means of achieving that objective was to levy a tax on the carriage of goods, then such a tax could be imposed only by complying with the procedure laid down in Article 304(b) of the Constitution.

The Court observed that it was a matter of common knowledge that, prior to the introduction or moving of the bill in the State Legislature, the required prior sanction of the President had not been obtained, and that the defect had not been remedied by invoking Article 255 of the Constitution. Consequently, the Court expressed its inability to sustain the validity of the tax under those circumstances.

In the Court’s view, the High Court erred by giving an unduly narrow interpretation to the relevant words of Article 301. The Court explained that the High Court’s narrow construction appeared to have been, at least in part, influenced by a concern about the possible consequences of adopting a broader construction of Article 301. The Court expressly declined to venture any opinion on the ultimate consequences of the approach it was adopting in the present proceedings.

The matter before the Court involved an Act passed by the State Legislature that imposed a restriction in the form of a tax on the carriage or movement of goods. The Court held that such a restriction could be imposed by a State Legislature only if the Act was enacted in accordance with the procedure prescribed by Article 304(b). The Court added that this issue could be examined from another perspective.

When a State Legislature enacts a law under Entry 56 of List II, the Court observed that the legislature’s initial competence to legislate is not contested. What is contested, the Court said, is whether that competence is subject to the limitations set out in Part XIII of the Constitution. The Court asked what the purpose of an Act enacted under that entry is. It explained that the purpose is to place a restraint, in the form of a tax, on the movement of trade. If the movement of trade is regarded as an integral part of trade itself, then the Act, in substance, places a restriction on trade itself.

The Court emphasized that the effect of the Act on the movement of trade is direct and immediate, not indirect or remote. Accordingly, legislation enacted under Entry 56 must be held to fall directly under Article 301 as legislation dealing with trade and commerce. The Court referred to several decisions of this Court in which the validity of legislation was examined by asking whether the impugned law was directly in respect of the subject matter covered by a particular constitutional provision. The Court cited the test applied by Chief Justice Kania in A. K. Gopalan v. State of Madras and the test adopted in Ram Singh v. State of Delhi, indicating that the same test leads to the conclusion that the present Act is invalid.

It is undisputed that the matters decided in the earlier cases of Delhi were concerned with fundamental rights under Articles 19, 21 and 22, yet the Court cites those decisions solely to illustrate that the test applied in those cases would, if followed here, render the present Act invalid. According to Chief Justice Kania, the proper method is to examine only the directness of the legislation. When the directness of a statute is assessed, it is evident that the Act imposes a tax on the carriage of goods, and that characteristic places the statute squarely within the scope of Part XIII of the Constitution. During the arguments, the counsel for the Government urged the Court to employ the “pith and substance” test, contending that adopting that test would uphold the validity of the Act. To support this submission, the counsel relied upon the observations of Chief Justice Das in the case of State of Bombay v. R.M.D. Chamarbaugwala (3). In that case, the Court was called upon to examine the constitutionality of the Bombay Lotteries and Prize Competitions Control and Tax (Amendment) Act, 1952. The challenge to that statute was founded on two grounds: first, that it infringed the fundamental right guaranteed by Article 19(1)(g); and second, that it contravened the provisions of Article 301. The Court dismissed the first ground by holding that gambling could not be characterized as trade or business within the meaning of Article 19(1)(g). That determination automatically nullified the second ground, because if gambling does not constitute trade or business under Article 19(1)(g), it likewise does not amount to trade or commerce under Article 301. Having arrived at the conclusion that gambling is not a trade, the position was self‑evident. Nonetheless, the Chief Justice also applied the “pith and substance” analysis and observed that the impugned legislation was, in its essence, an enactment concerning betting and gambling. Since betting and gambling are not trade, commerce or business, the Court stated that the statute’s validity should not be assessed using the reasonableness and public‑interest standards set out in Articles 19(6) and 304. In this context the Court notes that the passage presented as a quotation from Lord Porter’s judgment in Commonwealth of Australia & Ors. v. Bank of New South Wales has not been reproduced accurately. Lord Porter, when referring to the expression “pith and substance,” remarked that the phrase “undoubtedly raises, in convenient form, an appropriate question 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….”

Lord Porter explained that the doctrine of pith and substance can be useful when a statute interferes with trade, commerce or the movement of persons between States, yet may escape the reach of section 92 if it is essentially regulatory in nature (pp. 312‑313). Those observations suggest that the pith‑and‑substance test is most appropriately employed when a question arises concerning the legislative competence of the authority that enacted the law. In such a circumstance the court must examine the specific entries in the legislative lists to which the impugned enactment may relate. Where two entries conflict—so that the legislation would be valid if read in terms of one entry but invalid if read in terms of the other—the doctrine is invoked to discover the genuine nature and character of the law. This approach was illustrated in the decisions of Prafulla Kumar Mukherjee v. Bank of Commerce Ltd., Khulna and Subrahmanyan Chettiar v. Muttuswami Goundan. Applying the same analytical framework to the present matter leads to the same conclusion: the essential character of the legislation under review is that it imposes a tax on the carriage of goods, and such a tax plainly falls within the ambit of Article 301 of the Constitution.

At the beginning of the judgment it was noted that the problem before the Court is complex and has been mentioned incidentally in several reported decisions. Two especially relevant cases are cited. First, in The State of Bombay v. The United Motors (India) Ltd., Chief Justice Patanjali Sastri observed that the freedom of inter‑State trade and commerce guaranteed by Article 301 is expressly subordinate to a State’s authority to levy taxes on goods imported from other States, provided that the tax does not discriminate in favour of similar locally produced goods. The Chief Justice further explained that the commercial unity of India yields to a State’s power to impose any non‑discriminatory tax on such imports, an observation which indicates that Articles 304(a) and (b) deal with taxation and therefore contradicts the argument that tax statutes lie outside Part XIII. The second decision referred to is Saghir Ahmed v. The State of U. P., in which the challenged provisions of the Uttar Pradesh Road Transport Act, 1951 (U. P. Act II of 1951) were held unconstitutional on two grounds unrelated to the Part XIII challenge. Nevertheless, Justice Mukherjea, speaking for the Court, acknowledged that the issues raised by Part XIII are “not quite free from difficulty” and discussed the advantages and disadvantages of the constitutional provisions involved. These authorities collectively support the view that the tax on the carriage of goods, as examined in the present case, is within the constitutional scope of Article 301 and is therefore a valid exercise of legislative power.

In the proceedings before the Court, counsel argued that Article 301 of the Constitution set out safeguards for trade in its entirety, which differed from the rights of any single person to engage in trade. According to that argument, Article 301 concerned the movement of goods or people either inside or outside state boundaries, and it did not directly regulate the activities of individuals who conduct trade or commerce. The individual’s right to trade, the counsel said, fell within the scope of Article 19(1)(g). Consequently, the two articles were drafted to achieve distinct purposes. Similar observations were made by the Chief Justice in the earlier case of R M D Chamarbaugwala. The Court noted that it was not necessary at this stage to decide whether the domains covered by Article 19(1)(g) and Article 301 could be neatly separated as suggested in those observations. It was recognised that trade as a whole inevitably relies on human agents, and therefore protection granted to trade might also extend to the individuals who conduct that trade. In that sense the two freedoms could overlap, but the Court deemed it unnecessary to pursue that point further in the present matter.

Before concluding, the Court referred to two judgments that examined the meaning and effect of section 92 of the Australian Constitution. The Court explained that it had deliberately avoided citing those decisions earlier because it would have been unreasonable to rely on that foreign provision or the attendant case law when interpreting the relevant articles of Part XIII of the Indian Constitution. It is a common observation that the political and historical background, the constitutional setting, the allocation of powers and the overall scheme of the Australian federation differ markedly from those of India, and consequently it would not be safe to look to Australian decisions for guidance on the construction of Indian constitutional provisions. The Court recalled a warning expressed by Justice Venkatarama Aiyar in the case of M P V Sundararamier & Co., cautioning against indiscriminate reliance on Australian and American authorities when interpreting the Indian Constitution. The same caution had been voiced earlier by Chief Justice Gwyer in 1939, when he noted that few subjects required greater care than those concerning federal and provincial powers, because the ultimate decision must rest on the specific wording of the Constitution being interpreted; since no two constitutions are identical in wording, it is extremely unsafe to assume that a decision under one constitution automatically applies to another without qualification.

In considering the difficulty of applying a definition that was used in one constitutional context to another without qualification, the Court observed that even identical words or expressions may acquire different meanings because a word or phrase can take on a particular colour from its surrounding context. The Court noted, however, that the reported decisions of this Court frequently refer to Australian and American authorities when resolving constitutional questions, and that such references illustrate a characteristic feature of the judicial process. When judges are called upon to interpret a constitutional provision that is not perfectly clear, they often feel compelled to examine how other judicial minds have addressed comparable provisions in sister Constitutions. In that spirit, the Court decided to discuss two Privy Council decisions that dealt with the construction of section 92 of the Australian Constitution. The opening paragraph of section 92, which Lord Porter had described as “a labyrinth where there is no golden thread,” reads: “On the imposition of uniform duties of customs, trade, commerce, and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free.” The Court highlighted the role of Frederick Alexander James, a trader in the cultivation and processing of dried fruits, in securing important judicial pronouncements on the true scope and effect of that section. James engaged in three significant legal battles in which he successfully asserted his trading rights against legislative intrusion. In James v State of South Australia, section 20 of the Dried Fruits Export Control Act, 1924, was struck down. In James v Cowan, section 28 was challenged, and in the later case James v Commonwealth of Australia, James sought a declaration that the Dried Fruits Acts of 1928 and 1935, together with the regulations made under them, were invalid because they offended against section 92 of the Constitution. The Court indicated that it will refer to the observations made by the Privy Council in that last case. The Privy Council, through Lord Wright, observed that the word “free” in section 92 is inherently vague and indeterminate and must therefore acquire its meaning from the context in which it appears. While “free trade” ordinarily signifies freedom from tariffs, Lord Wright added that the term “free” in section 92 cannot be confined to that narrow sense. The judgment further explained that every step in the series of operations that constitute a particular transaction constitutes an act of trade, and that any State law that controls any of those steps interferes with the freedom of trade. In the same connection, the Court noted that little assistance is gained by pointing out that trade may still be “free” even though the trader must pay for various operations such as tolls, railway rates, and similar charges.

The Court observed that although a trader must pay for various operations such as tolls and railway rates, those payments could interfere with the freedom of trade guaranteed by section 92. This observation led the Court to conclude that the imposition of tolls, railway rates, and similar charges might constitute a restriction on trade, thereby supporting the view that a tax may amount to a restriction under Article 301. The Court referred to authorities including (1) (1927) 40 C.L.R. 1, (3) (1936) A.C. 578,613, and (2) (1932) A.C. 542 to illustrate the principle. The Court then examined the Privy Council decision in Commonwealth of Australia v. Bank of New South Wales, previously cited for the pith and substance test, where section 46 of the Banking Act (Commonwealth) No. 57 of 1947 was evaluated against section 92 of the Australian Constitution. Lord Porter formulated a test asking whether the legislation directly restricts inter‑State banking business, and he stated two general propositions: first, regulation of trade, commerce and intercourse among the States can coexist with absolute freedom; second, section 92 is violated only when a legislative or executive act directly and immediately restricts such trade, not when it creates a remote or consequential impediment. The Court held that this decision affirmed its earlier conclusion concerning the scope and effect of Article 301. Accordingly, the Court found that the impugned Act imposed a direct restriction on the freedom of trade and, because it failed to satisfy the requirements of Article 304(b), the Act must be declared void. In view of this finding, the Court deemed it unnecessary to examine the remaining arguments supporting the challenge to the Act’s validity. Consequently, the three appeals and the two petitions were allowed, and the writs or orders sought were directed to be issued as prayed. The Court ordered that the appellants and petitioners be awarded their costs against the respondent.

Justice Shah addressed the challenge brought by certain tea producers from West Bengal and Assam against the Assam Taxation (on Goods carried by Roads or Inland Waterways) Act of 1954. The Act, hereinafter referred to as the Act, was enacted by the Assam Legislature and received the Governor’s assent on 9 April 1954. At the time the Bill was introduced in the State Legislature, the required prior sanction of the President had not been obtained, nor did the President subsequently give assent to the Act. Section 3 of the Act provides, inter alia, that manufactured tea in chests carried by motor vehicles, cart, trolley, boat, animal and human agency or any other means except railways and airways shall be. The Court noted that the absence of the President’s prior sanction raised a question of constitutional compliance with the provisions governing the enactment of State legislation. Moreover, the fact that the President never gave assent to the Act further underscored the procedural irregularity alleged by the petitioners. The petitioners, who are tea growers, argued that the tax imposed under the Act interfered with their freedom to trade their product and therefore violated constitutional guarantees. The respondents contended that the Act fell within the legislative competence of the State and that the tax was a legitimate exercise of fiscal power. The Court observed that the statutory language of section 3 expressly enumerated the modes of conveyance that were subject to tax, excluding only railways and airways, thereby indicating a broad tax base. The Court further indicated that the definition of “producer” in section 2 clause (2) encompassed any person in charge of a tea garden, thereby extending liability to a wide class of individuals. After considering the arguments and the constitutional framework, the Court proceeded to evaluate whether the Act directly restricted the freedom of trade protected by Article 301.

The Act imposed a tax of one anna per pound on manufactured tea carried in chests, and the tax was to be collected from the producer. The term “producer” was defined in section 2 clause (2) to mean a tea producer and also included the person responsible for the garden where the tea was produced. According to section 4, the tax was levied on the total net weight of tea carried during each return period. Section 7 required every producer and dealer to file a return showing the manufactured tea that had been carried in chests. Section 23 clause (3) empowered the Commissioner of Taxes to recover taxes and any penalties due under the Act as arrears of land revenue. Sections 27 and 28 placed on the producers a duty to keep accounts in the forms prescribed by the Act, to preserve those accounts, and to produce them whenever the Commissioner or any other person appointed by the Government demanded them. The rules made under the Act further obligated producers to submit quarterly returns to the Superintendent of Taxes and to keep registers in the prescribed formats; failure to keep such registers attracted a penalty. Exercising the authority conferred by section 7 sub‑section (3), the Commissioner of Taxes issued a notification in the Assam Government Gazette informing the public that returns for the period from 1 June 1954 to 30 September 1954 had to be filed on or before 30 October 1954, and that returns for each subsequent quarter must be filed by the dates specified in the notification.

Three tea producers who had transported their tea by road or by inland waterways to Calcutta, West Bengal, filed petitions under article 226 of the Constitution in the High Court of Assam, challenging the authority of the Assam Legislature to enact the Act on the ground that it violated the constitutional guarantee of free trade, commerce and intercourse contained in article 301. The High Court dismissed the petitioners’ plea. In response, the three petitioners filed appeals with certificates of fitness under article 132 of the Constitution. Additionally, two other producers filed petitions under article 32 of the Constitution before this Court, contesting the validity of the Act. The central issue in all of these proceedings was whether the Assam Legislature possessed the competence to enact the tax provision. The producers argued that article 301 declares trade, commerce and intercourse to be free throughout India, and that any statute imposing a restriction or burden on that freedom by levying a tax without satisfying the constitutional conditions is invalid. They pointed to item 56 of List II in the Seventh Schedule of the Constitution, which authorises State legislatures to levy taxes on goods and passengers carried by road or inland waterways, and asserted that the tax imposed by the Act fell within that competence.

The Court observed that the statute in question imposed a tax on goods carried by road and by inland waterways, and that this levy did not constitute a duty of excise. The Court noted that if the validity of the Act were to be examined only on the basis of the authority given by Article 246 clause (3) together with item 56 of List II of the Seventh Schedule, the tax would fall within the legislative competence of the State. However, the Court emphasized that the power to legislate granted to both Parliament and the State Legislatures by the respective entries in the legislative lists is not absolute; it is limited by a range of constitutional provisions. The Court referred to Article 301, which declares that, subject to the provisions of Part XIII of the Constitution, trade, commerce and intercourse throughout the territory of India shall be free. The language of that article is broad and admits no implication or exception other than those expressly provided in Part XIII. The provision thus sets out a comprehensive guarantee of freedom of trade, commerce and intercourse, meaning that such activities may not be prohibited, controlled, burdened or impeded except to the extent that the Constitution itself expressly permits it. The Court further explained that the Constitution, although federal in form, contains numerous provisions that promote the unity of India, and that freedom of trade, commerce and intercourse is guaranteed for that purpose, subject only to specific restrictions.

The Court continued that Article 301 is not a mere statement of policy like the Directive Principles in Part IV, which are not enforceable by courts, but rather it imposes a direct restriction on both executive and legislative action. Accordingly, it limits the legislative powers given to Parliament and the State Legislatures under Articles 245, 246 and 248 and the relevant entries in the Seventh Schedule. The Court observed that when the legislature exercises its power to tax matters relating to trade, commerce and intercourse, the Constitution imposes further limitations through provisions in Part XII, such as Articles 276, 286, 287, 288 and 289, although these do not exhaustively define the scope of the power. In addition, the fundamental freedoms enshrined in Part III—namely Articles 14, 15(1), 19(1)(g) and 31(1)—and the provisions of Part XIII also restrict the power to tax. Article 245 clause (1) expressly states that the legislative authority of Parliament and the State Legislatures is subject to the Constitution, and Article 301 is unquestionably one of those constitutional constraints. Finally, the Court described taxation as an attribute of the sovereignty of the State, exercised not for the purpose of providing protection or benefit to citizens or aliens, but as a sovereign power that must be exercised within the constitutional limits.

The Court explained that the power to tax is not measured by the apparent need for the amounts sought to be collected, nor does its incidence depend on the ability of citizens to meet the demand. Nevertheless, the power is not unlimited. Under Article 265 of the Constitution, taxation may be exercised only by authority of law, and the Constitution expressly grants the power of taxation under the various heads enumerated in the three lists of the Seventh Schedule. Consequently, the Legislature must exercise the power of taxation strictly within the constitutional limits, and any alleged transgression of those limits by either Parliament or a State Legislature is subject to judicial review. The Court further observed that “trade and commerce” does not refer merely to the traffic in goods, that is, the exchange of commodities for money or other commodities. In modern conditions, the term embraces a wide spectrum of activities, including the carriage of persons and goods by road, rail, air and waterways; contracts; banking; insurance transactions in stock exchanges and forward markets; communication of information; supply of energy; postal and telegraphic services; and many other activities too numerous to be exhaustively listed, all of which may be described as commercial intercourse. While the movement of goods from one place to another may sometimes be an important element of effective commercial intercourse, it is not an essential element; transactions that do not involve movement are equally part of trade and commerce. The guarantee of freedom of trade and commerce is therefore not directed solely against prohibitions, whether total or partial. It also covers tariffs, licensing requirements, marketing regulations, price controls, nationalisation, economic or social planning measures, discriminatory tariffs, compulsory appropriation of goods, freezing or stand‑still orders, and similar impediments that operate directly and immediately on the freedom of commercial intercourse. Every step in the sequence of operations that constitutes trade or commerce is itself an act of trade or commerce, and any burden or impediment imposed on any such step is a restriction on the freedom of trade, commerce, and intercourse. What is guaranteed is freedom in its widest amplitude—freedom from prohibition, control, burden, or impediment in commercial intercourse. Not only discriminatory tariffs that restrict the movement of goods fall within the restrictions addressed by Article 301, but also taxation on commercial intercourse, even when imposed solely as a revenue‑raising measure, is covered. The distinction between discriminatory tariffs and trade barriers on the one hand and taxation for revenue purposes on the other lies in purpose, not in quality; both forms of burden on commercial intercourse infringe the freedom guaranteed by Article 301. The guarantee of freedom is therefore not limited merely to burdens or impediments on inter‑State movement, nor is it confined to restrictions on trade, commerce, and intercourse as such. The Court indicated that Articles 302, 303, 304, and 306, which will be considered presently, make it abundantly clear that the freedom contemplated includes all varied aspects of trade, commerce, and intercourse, encompassing every activity that constitutes commercial intercourse, and is not restricted to the mere absence of prohibitions on “trade, commerce and intercourse as such.”

It was made clear that the freedom spoken of in Article 301 is the freedom of trade, commerce and intercourse in all of its varied aspects, covering every activity that forms part of commercial intercourse, and not merely freedom from restrictions on “trade, commerce and intercourse as such”. The provision, as earlier observed, places a limitation on the exercise of legislative power under the entries in the Seventh Schedule that relate to trade, commerce and intercourse. The basic principle underlying Article 301 appears to have been taken from the Constitution of the Australian Commonwealth. In the United States Constitution, Article 1, Section 8, power to regulate commerce is granted; however, a guarantee of freedom of commerce comparable to that in our Constitution is not expressed in the United States Constitution. Section 92 of the Constitution of the Commonwealth of Australia, in its first paragraph, declares that “on the imposition of uniform duties of customs, trade, commerce and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free”. That guarantee of freedom of trade, commerce and intercourse, although not as extensive as the guarantee enshrined in our Constitution, follows the same pattern. Our Constitution, however, departs significantly from the Australian Constitution. While Section 92 of the Australian Constitution guarantees freedom of trade, commerce and intercourse only among the States—that is, at the inter‑State level—our Constitution makes trade, commerce and intercourse free throughout the whole territory of India. Thus the freedom guaranteed by our Constitution is more pervasive: it covers intra‑State as well as inter‑State trade, commerce and intercourse. This wider reach does not change the substance of the freedom; it remains freedom from tax burdens and other impediments. Section 92 of the Australian Constitution does not contain the broad freedom guaranteed by our Constitution; it protects trade, commerce and intercourse only from restrictions in inter‑State commerce. Nevertheless, in my view, the interpretation given by the Judicial Committee of the Privy Council in James v. Commonwealth of Australia (1) of the expression “free” in Section 92 is not less illuminating for interpreting Article 301, which is largely based on that Australian provision. Lord Wright, delivering the Board’s judgment in James v. Commonwealth of Australia (1) (supra) at pages 627‑628, observed that “‘Free’ in Section 92 cannot be limited to freedom in the last mentioned sense (freedom from tariffs). There may at first sight appear to be some plausibility in that idea, because of the starting point in time specified in the section, because of the sections which surround Section 92, and because the proviso to Section 92 relates to customs duties. But it is clear that much more is included in the term; customs duties and other like matters constitute a merely pecuniary burden; there may be different…”

In the passage cited, the Court explained that interference with the freedom to move goods may be accomplished not only through tariffs but also by more severe measures such as restricting, partially prohibiting, or wholly forbidding the entry into or exit from a State. The Court further clarified that the term “free” does not automatically imply that there is no discrimination between trade that occurs across State boundaries and trade that takes place within a single State. While it is true that conditions which limit inter‑State trade often involve some form of discrimination, the presence of discrimination is not a defining or decisive characteristic of the limitation. The Court referred to the decision in L.R. (1936) A.C. 578, noting that a compulsory seizure of goods may affect, without distinction, items intended for intra‑State commerce as well as those meant for inter‑State transactions. Moreover, the Court emphasized that freedom cannot be understood solely as freedom from legislative regulation; it must also encompass freedom from executive control. Each individual act that constitutes a step in a commercial transaction is itself a trade activity, and any State law that regulates any of those steps constitutes an interference with the freedom of trade. These observations were made while considering a constitutional guarantee that seeks to prevent obstruction of the flow of inter‑State trade and commerce. The Court described this guarantee as embodying a broad “conception” of freedom that includes exemption from customs duties, imports, border prohibitions, and any form of restriction. Under this conception, the people were intended to be able to trade freely with one another and to move freely between States without any burden, hindrance, or restriction that merely arose because they did not belong to the same State. However, the freedom secured by Article 301 of the Constitution is not unlimited; it is subject to the provisions contained in Part XIII of the Constitution.

Article 302 empowers Parliament to place restrictions on the freedom of trade, commerce, and intercourse between one State and another or within any part of the territory of India, whenever such restrictions are deemed necessary in the public interest. By this provision, the Constitution has deliberately limited the guarantee provided by Article 301, allowing Parliament to impose reasonable restrictions. These restrictions may apply to both inter‑State and intra‑State trade, the sole condition being that they must serve the public interest. The learned Attorney‑General argued that the courts lack competence to evaluate whether the amount and impact of a tax imposed by a legislature are in the public interest, and therefore suggested that Articles 301 and 302 do not address freedom from taxation or the limits that may be placed on it. Counsel, on the other hand, contended that modern political thought views the sovereign power of taxation as extending beyond mere revenue collection for government purposes; it is also employed for varied objectives, often aimed at achieving social order that ensures justice, liberty, and equality among citizens. Counsel further asserted that the courts, when reviewing the validity of a parliamentary restriction, should not shy away from examining whether the amount sought to be recovered and its incidence truly serve the public interest. This, according to counsel, is not a sufficient reason to hold that Article 302 does not cover restrictions that may be imposed on trade, commerce, and intercourse.

In this case the Court observed that courts generally trusted the wisdom of Parliament and assumed that taxes were imposed in the public interest, but that presumption did not remove the court’s power to examine whether a challenged law satisfied the constitutional test. The Court explained that if a court could inquire into the validity of a burden or impediment placed on the freedom of trade, commerce and intercourse when it was not created by a taxing statute, then the same jurisdiction could not be barred by a presumption of constitutionality when the burden arose from a tax law; such a presumption could not become a fetter on judicial authority. By clause (b) of Article 304 the State Legislatures possessed a similar authority to impose restrictions on the freedom of trade, commerce and intercourse within the State whenever such restrictions were required in the public interest. The Court noted that the territorial reach of the laws made under Articles 302 and 304(b) need not be identical, yet both Parliament and the State Legislatures were entrusted, in the exercise of their legislative powers, with the ability to restrict the said freedoms. The Court said that it was difficult to discern why the Constitution required a separate formulation stating that Parliament could impose restrictions required in the public interest while State law could impose reasonable restrictions required in the public interest, and it was unnecessary for the present cases to analyse any substantive distinction between the quality of restrictions that could be enacted by Parliament and by State Legislatures under Articles 302 and 304(b). Both articles, the Court affirmed, declared that a restriction on trade, commerce and intercourse must satisfy the primary test of being “required in the public interest”. Clause (b) of Article 304 was subject to a proviso that no Bill or amendment falling within that clause could be introduced or moved in a State Legislature without first obtaining the President’s previous sanction. Consequently, the authority of a State Legislature to enact legislation imposing such restrictions was conditioned on securing that presidential sanction before the Bill or amendment was moved. Legislative power of Parliament to impose restrictions on the freedom of trade, commerce and intercourse could therefore be validly exercised provided the restrictions were required in the public interest. Regarding the exercise of power by State Legislatures, the Court identified two conditions: first, the restriction must be reasonable and required in the public interest; second, the Bill or amendment imposing the restriction could be moved or introduced in the Legislature only after obtaining the President’s prior sanction.

In this case the Court observed that the requirement of previous sanction of the President applies only when a Bill or amendment that falls within clause (b) of Article 304 is moved or introduced in a State Legislature. The Court then referred to Article 255, which, to the extent that it is relevant, provides that an Act of a State Legislature is not rendered invalid merely because the Constitution‑mandated prior sanction was not obtained, if the Act has received assent under clause (c) whereby the President, as the required sanctioning authority, has given his assent. Accordingly, even where the President’s prior sanction was not secured before the Bill or amendment covered by clause (b) of Article 304 was moved, the resulting Act would still retain its validity so long as the President later affirms the Act by granting his assent.

The Court further explained that Article 303(1) constitutes an exception to both Article 302 and clause (b) of Article 304. Although Articles 302 and 304(b) broadly restore to Parliament and to State Legislatures the power to enact laws that restrict the freedom of trade, commerce and intercourse, Article 303(1) imposes a prohibition on the exercise of that power when the law seeks to give preference to one State over another or to permit any discrimination between States by virtue of any entry relating to trade and commerce in any of the Lists of the Seventh Schedule. Clause (1) of Article 303 therefore underscores the constitutional objective of preserving the economic unity of the nation and of preventing discrimination among the constituent States in matters of trade and commerce.

The Court noted that under clause (1) of Article 302 the prohibition on discrimination applies to laws made under an entry that expressly relates to trade and commerce in the Seventh Schedule. However, the Court clarified that the prohibition is not confined solely to those entries that are expressly labelled as trade‑and‑commerce matters. The expression “relating to trade and commerce” in Article 302(1), according to the Court’s interpretation, embraces all entries in the Seventh Schedule that confer the power to legislate, directly or indirectly, over activities that are of a trade‑or‑commerce nature.

By reference to clause (2) of Article 303, the Court observed that the strictness of clause (1) is somewhat relaxed with respect to legislation enacted by Parliament. That clause authorises Parliament—not the State Legislatures—to make laws that contravene the prohibition in clause (1) when a law declares it necessary to create a discrimination that would otherwise be prohibited, for the purpose of dealing with a shortage of goods in any part of the territory of India.

Finally, the Court turned to Article 304, holding that insofar as it is relevant, the provision states that notwithstanding anything contained in Article 301 or Article 303, a State Legislature may, by law, impose a tax on goods imported from other States or Union territories, provided that such tax does not result in discrimination between the imported goods and similar goods manufactured or produced within the State.

The Court observed that the provision allows a State to levy any tax that is also imposed on similar goods manufactured or produced within that State, provided that the tax does not create discrimination between goods that are imported and goods that are produced locally. In other words, the clause makes clear that, notwithstanding anything contained in Article 301 or Article 303, a State Legislature may impose a tax on imported goods only when the same tax is applied to comparable goods made in the State, and the taxation must be applied without discriminatory treatment of the imported items.

The Court further explained that if Articles 301 and 303 did not address restrictions or burdens of a fiscal nature, the reason for inserting the “non‑obstante” language in Article 304(1) would be difficult to understand. The Court affirmed that the provisions of Part XIII of the Constitution do not create new or independent powers of taxation; instead, the power to tax is derived from Articles 245, 246 and 248 together with the subject‑matter lists in the Seventh Schedule. Part XIII therefore serves to limit the exercise of legislative authority. The Constitution’s decision to treat a specific field of taxation as an exception to Articles 301 and 303 supports the inference that taxation itself is a type of restriction that the guarantee of freedom of trade, commerce and intercourse in Article 301 seeks to eliminate. Clause (b) of Article 304 is subject to a proviso requiring prior presidential sanction before a bill or amendment imposing restrictions on the freedom of trade, commerce or intercourse can be introduced. No such presidential approval is required for laws that impose non‑discriminatory tariffs under clause (a). Nevertheless, the Court noted that the nature of the restrictions contemplated in clauses (a) and (b) is not fundamentally different. Clause (b) addresses a general restriction that may include a tax burden, while clause (a) deals with a specific tax burden limited to a particular field. The Court then turned to Article 305, which protects existing laws unless the President, by order or otherwise, directs otherwise; it also validates certain enactments made before the Constitution’s commencement and authorises future legislation by Parliament and State Legislatures on matters referred to in sub‑clause (2) of clause (6) of Article 19. Finally, the Court mentioned Article 306, which was repealed by the Constitution (Seventh Amendment) Act 1956, and which, to the extent it was relevant, had provided that, notwithstanding any provisions of Part XIII or any other constitutional provision, a State listed in Part B of the First Schedule that, before the Constitution came into force, levied any tax or duty on the import of goods from other States or on the export of goods could, if an agreement with the Government of India existed, continue to levy and collect such tax or duty subject to the terms of that agreement.

The Court observed that the provision allowing a State listed in Part B of the First Schedule to continue levying a tax or duty on goods moving between States, provided an agreement existed between the Government of India and that State, was expressly retained. The marginal note to the repealed Article 306 indicated that the power of those States to impose such taxes constituted a restriction on trade and commerce, and it supported the view that the freedom guaranteed by Article 301 encompassed freedom from taxation. Moreover, the restrictions contemplated by Articles 302 and 304 were understood to include the imposition of burdens of a fiscal nature. By carefully reviewing the relevant constitutional provisions, the Court concluded that Part XIII placed limitations on the legislative authority granted by Articles 245, 246 and 248, as well as on the subjects enumerated in the Seventh Schedule for both Parliament and the State Legislatures. Those limitations expressly encompassed fiscal burdens. Consequently, the authority to tax commercial transactions that derived from the legislative lists of either Parliament or a State Legislature was circumscribed by Part XIII, and any exercise of that authority that failed to meet the requirements of Part XIII would be deemed invalid.

The Court further held that the Assam Legislature had not obtained the prior presidential sanction required for the enactment of the impugned statute, even though Item 56 of the Seventh Schedule conferred legislative competence to impose the tax. Because the President had never assented to the Act after its passage by the Assam Legislature, the tax imposed on goods and passengers remained invalid and could not be cured by later assent. The argument that this position unduly curtailed the “sovereignty” of the State was found to be unpersuasive. A review of the constitutional scheme revealed that the Constituent Assembly intended to create a strong central government aimed at fostering a healthy economy and uniting the former provinces and princely States by subordinating parochial interests to the national interest. Therefore, when assessing the validity of a statute, any perceived impact on the cherished notion of State sovereignty must be set aside. In this light, the Assam Taxation (on Goods carried by Roads or Inland Waters) Act, 1954 was held to infringe the guarantee of freedom of trade and commerce under Article 301, because the Bill that introduced it had not received the presidential assent mandated by the proviso to Article 304(b), and the Act had not been validated under Article 255(c).

The judgment recorded that the Assam Taxation (on Goods carried by Roads or Inland Waters) Act, 1954 had not been validated by the assent of the President as required under Article 255(c). The judge stated that, after considering the material before the court, it was unnecessary to address a number of subsidiary arguments that had been raised during the proceedings. Those subsidiary arguments comprised the possible application of the pith and substance doctrine to the interpretation of the relevant statutory provisions, the claim that the Act infringed the equal protection clause of the Constitution, and the alleged impact of Act XXIX of 1953 passed by Parliament, all of which had been debated by counsel at the Bar. The judge further observed that, based on the principal issue already decided, there was no need to delve into these ancillary points. Accordingly, the judge concluded that the appeals should be allowed and that the rule governing the two applications should be made absolute, with the parties ordered to bear costs. The court’s final order reflected the majority judgment, directing that both the appeals and the writ petitions be allowed and that each party should pay the costs, specifically a single set of hearing fees.