The Automobile Transport (Rajasthan) Ltd. vs The State of Rajasthan and Others

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

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 42 to 44 of 1959

Decision Date: 09/04/1962

Coram: J.R. Mudholkar, S.K. Das, Bhuvneshwar P. Sinha, J.L. Kapur, A.K. Sarkar, M. Hidayatullah, N. Rajagopala Ayyangar

In the matter titled The Automobile Transport (Rajasthan) Ltd. versus The State of Rajasthan and Others, the judgment was delivered on 9 April 1962 by a bench of the Supreme Court of India. The opinion was authored by Justice J. R. Mudholkar and was issued by a full bench comprising Justices J. R. Mudholkar, S. K. Das, Bhuvneshwar P. Sinha, J. L. Kapur, A. K. Sarkar, M. Hidayatullah, and N. Rajagopala Ayyangar. The case is reported in the 1962 AIR 1406 and the 1963 Supreme Court Reporter (1) 491. The decision has been cited in many subsequent judgments, including R 1963 SC 928 (paragraphs 8 and 9), F 1963 SC 1207 (paragraph 34), R 1963 SC 1667 (paragraphs 14 and 21), R 1964 SC 925 (paragraphs 2, 9, 12, 13, 14, 57), R 1964 SC 1006 (paragraph 9), R 1967 SC 1189 (paragraphs 5 and 7), F 1967 SC 1575 (paragraph 12), RF 1967 SC 1643 (paragraph 96), E 1968 SC 599 (paragraph 14), RF 1969 SC 147 (paragraphs 8, 9, 26, 33), E 1970 SC 1864 (paragraph 5), RF 1970 SC 1912 (paragraph 7), RF 1972 SC 1061 (paragraph 52), RF 1972 SC 1804 (paragraph 11), RF 1973 SC 1461 (paragraphs 887 and 1229), RF 1974 SC 1389 (paragraph 173), RF 1974 SC 1505 (paragraph 7), RF 1975 SC 17 (paragraph 15), R 1975 SC 583 (paragraphs 13, 19, 25, 27), E 1975 SC 594 (paragraph 4), RF 1975 SC 1443 (paragraphs 19 and 21), RF 1977 SC 1825 (paragraph 18), E&R 1978 SC 68 (paragraphs 252, 253, 254), RF 1979 SC 1459 (paragraph 33), RF 1981 SC 463 (paragraphs 24, 25, 26), RF 1981 SC 711 (paragraph 11), R 1981 SC 774 (paragraphs 9, 10, 11), RF 1982 SC 29 (paragraph 2), R 1983 SC 634 (paragraphs 12, 14, 15), OPN 1983 SC 1005 (paragraph 7), F 1983 SC 1283 (paragraph 5), D 1987 SC 56 (paragraph 1), F 1987 SC 1911 (paragraphs 6 and 7), RF 1988 SC 567 (paragraph 11), RF 1988 SC 2038 (paragraph 4), RF 1989 SC 1119 (paragraph 14), R 1989 SC 2015 (paragraph 8), RF 1990 SC 781 (paragraph 74), C 1990 SC 820 (paragraphs 12 and 20), RF 1991 SC 1650 (paragraph 3). The issues involved the constitutional validity of provisions of the Rajasthan Motor Vehicles Taxation Act, 1951, particularly sections 4 and 11 and the schedules, in relation to Articles 19, 245, 301 and 304 of the Constitution of India, and the placement of the matter under the Seventh Schedule List I entry 42 and List II entry 57.

Sub‑section (1) of section 4 of the Rajasthan Motor Vehicles Taxation Act, 1951 states that no motor vehicle may be used in any public place or be kept for use in Rajasthan unless the owner has paid the tax prescribed in schedule 5 of the Act within the time allowed. The petitioners were engaged in the business of operating stage‑carriage services in the former State of Ajmer. They possessed the necessary permits and operated buses on several routes. One of these routes lay principally within Ajmer State but crossed narrow strips of Rajasthan territory. Another route ran from Ajmer to Kishangarh, which was largely in Ajmer State, although roughly one‑third of the distance traversed Rajasthan. Earlier, an agreement existed between the former State of Ajmer and the former State of Kishangarh whereby neither State levied any tax or fee on vehicles registered in the other. Subsequently, Kishangarh was merged into Rajasthan. Following the enactment of the Rajasthan Motor Vehicles Taxation Act, 1951 and the promulgation of its rules, the Motor Vehicles Taxation Officer in Jaipur demanded that the petitioners pay tax for their vehicles for the period 1 April 1951 to 31 March 1954. Under section 4 read with the schedules, it was prohibited to use or keep a motor vehicle in Rajasthan without paying the appropriate tax, and failure to do so attracted penalties under section II of the Act. The petitioners challenged the demand, arguing that section 4 together with the schedules imposed a direct and immediate restriction on trade and commerce within Rajasthan because motor vehicles carrying passengers and goods through Rajasthan were required to pay a tax, thereby placing a financial burden on commercial activity.

In this case, the Motor Vehicles Taxation Officer in Jaipur demanded that the appellants pay the tax stipulated by the Rajasthan Motor Vehicles Taxation Act, 1951, for their motor vehicles for the period from 1 April 1951 to 31 March 1954. The demand arose because, under section 4 of the Act together with the attached Schedules, no motor vehicle could be used or kept in Rajasthan unless the owner paid the tax fixed in the Schedule, and failure to do so attracted the penalties prescribed in section II of the Act. The appellants contested the legality of this demand. They argued that section 4, read with the Schedules, created a direct and immediate restriction on the movement of trade and commerce both within and through Rajasthan, because every motor vehicle carrying passengers or goods had to pay a tax that imposed a monetary burden on a commercial activity. Consequently, they contended that the provision was violative of Article 301 of the Constitution of India and that it was not saved by Article 304(b), since the proviso to that article had not been complied with, nor had the Act received the President’s assent as required by Article 255. The respondents, on the other hand, maintained that a tax levied for the purpose of generating revenue or for maintaining roads was not covered by Article 301, and that the Act did not create an immediate or direct impediment to trade because the tax was a consolidated levy on the vehicle itself, although in some cases the amount was determined by reference to the vehicle’s seating or loading capacity. The Court, speaking through Justices S K Das, Kapur, Sarkar and Subba Rao, held that the Rajasthan Motor Vehicles Taxation Act, 1951, did not offend Article 301 of the Constitution. The Court explained that the taxes imposed under the Act were compensatory or regulatory in nature and therefore did not obstruct the freedom of trade, commerce and intercourse guaranteed by that article; such taxes were consequently lawful. The Court further observed that the freedom of trade, commerce and intercourse envisioned by Article 301 must be understood within the context of an ordinary society and a constitutional scheme that distributes powers between the Union and the States. Accordingly, the concept necessarily acknowledges the legitimacy of a certain degree of regulatory control, whether exercised by the Union or by a State. Measures of regulation or of imposing compensatory taxes for the use of trading facilities, the Court said, do not hinder trade but actually facilitate it, and therefore they are not barred by the freedom declared in Article 301, provided that they comply with the requirements of Article 304(b).

In considering Article 245, the Court observed that the limitations contained in Part VIII T of the Constitution were applicable to laws relating to taxation, and that such taxation statutes were not restricted solely to legislation dealing with the entries concerning trade and commerce that appear in any of the lists of the Seventh Schedule. The Court then turned to a proper interpretation of the Rajasthan Motor Vehicles Taxation Act and its accompanying schedules. It concluded that the levies imposed by the Act were essentially charges for the use of the roads within Rajasthan. By basing the assessment of the charge on the passenger‑carrying capacity or the loading capacity of a vehicle, the legislature had simply devised a method and a measure for the compensation that the State required; nevertheless, the levies remained compensation and a charge for regulation.

Justice Subba Rao explained that the freedom guaranteed under Article 301 of the Constitution of India meant the right to move trade freely without any obstacles, whether those obstacles were inter‑State or intra‑State barriers, or any other impediments that functioned as barriers. He further held that this freedom was not hindered by, but rather was advanced through, regulations that created conditions favorable to the free movement of trade. Examples of such regulations included police rules, provisions of public services, the maintenance of roads, the establishment of aerodromes, wharves and similar facilities, whether or not they involved compensation. The Justice added that Parliament could, by law, impose restrictions on this freedom in the public interest, and likewise the States could impose comparable restrictions when exercising their legislative powers, subject to the proviso contained in the Constitution.

The Court noted that taxation laws were not outside the ambit of the freedoms enshrined in either Article 19 or Article 301. Referring to the opinion of Justices Hidayatullah, Rajagopala Ayyangar and Mudholkar, it was stated that Section 4(1) of the Rajasthan Motor Vehicles Taxation Act, 1951, when read together with Schedules III, IV (Part I) and Schedule XI, contravened Article 301, and that, because the procedure mandated by Article 304(b) had not been observed, the Act was ultra vires the Constitution. The Court explained that the true substance of the Act was to impose a tax on motor vehicles in Rajasthan or on their use within the State, irrespective of the origin of the vehicles, and that the Act did not pertain to legislation concerning inter‑State trade or commerce. Consequently, the Act fell within entry 57 of the Seventh Schedule and not within entry 42 of the Union List.

The Court further observed that a tax which is made a condition precedent to the right to enter upon and carry on business amounts to a restriction on the right to engage in trade and commerce under Article 301. In the present matter, the trade consisted of employing motor vehicles for the carriage of passengers and goods, and such trade could be pursued only after the tax had been paid; therefore, the taxes imposed by Schedules III, IV(1) and XI operated directly upon trade and commerce. The Court held that the tax levied under the Act was not a genuine recompense for the wear and tear of roads but rather functioned as a restriction prohibited by Article 301. Finally, it was concluded that the Act, in its true character, was not regulatory because it contained no provision that could be regarded as regulating motor vehicles; instead, the Act plainly imposed a tax on the possession and use of motor vehicles.

In this case, the Court referred to the decision in Atiabari Tea Co., Ltd. v. The State of Assam and Others [1961] 1 S.C.R. 809, and it also considered decisions from the United States and Australia relating respectively to the Commerce Clause of the American Constitution and to section 92 of the Australian Constitution.

The matter fell under civil appellate jurisdiction and was filed as Civil Appeals Nos. 42 to 44 of 1959. These appeals challenged the final judgment and order dated 9 August 1957, issued by the Rajasthan High Court (Jaipur Bench) at Jaipur in Civil Writ Petitions Nos. 400 to 402 of 1954. The appellants were represented by counsel consisting of G. S. Pathak, J. B. Dadachanji, S. N. Andley, Rameshwar Nath and P. L. Vohra. The respondents were represented by G. C. Kasliwal, the Advocate‑General for the State of Rajasthan, together with A. V. Viswanatha Sastri, S. K. Kapur and P. D. Menon.

Several intervenor states were also involved. The State of Maharashtra was represented by H. M. Seervai, its Advocate‑General, and Naunit Lal for the State of Assam. The State of Madras was represented by V. K. T. Chari, its Advocate‑General, together with R. Ganapathy Iyer, T. M. Sen and P. D. Menon. The State of Punjab was represented by S. N. Sikri, Advocate‑General, together with N. S. Bindra, T. M. Sen and P. D. Menon. The State of Maharashtra again intervened through H. M. Seervai, T. M. Sen and P. D. Menon. The State of Andhra Pradesh intervened through K. Bhimsankaram, T. M. Sen and P. D. Menon. The State of West Bengal intervened through B. Sen, S. C. Bose and P. K. Bose. The State of Bihar was represented by Lal Narain Sinha, Lakshman, Saran, Singh, D. P. Singh, R. K. Garg, M. K. Ramamurthi and S. C. Aggarwal. The State of Orissa was represented by Dinbandhu Sahu, its Advocate‑General, together with B. K. P. Sinha, T. M. Sen and P. D. Menon. The State of Gujarat was represented by K. L. Hathi and P. D. Menon. The State of Madhya Pradesh was represented by M. Adhikari, its Advocate‑General, together with B. Sen, B. K. B. Naidu and I. N. Shroff. The intervenor M. A. Tulloch and Co. was represented by Ranadeb Chaudhuri, S. N. Andley, Rameshwar Nath and P. L. Vohra. The intervenors Nazeeria Motor Service, Motor and Andhra Pradesh Motor Union were represented by K. Srinivasmurty and D. Goburdhun. The Attorney‑General for India was represented by N. C. Chatterjee, S. C. Mazumdar and R. H. Dhebar.

The judgments were delivered on 9 April 1962. The judgment authored by S. K. Das, J., together with L. Kapur and A. K. Sarkar, JJ., was read out by S. K. Das, J. The judgment authored by M. Hidayatullah, N. Rajagopala Ayyangar and J. R. Mudholkar, JJ., was read out by M. Hidayatullah, J.

S. K. Das, J., observed that these three consolidated appeals stemmed from the judgment and order of a Division Bench of the Rajasthan High Court dated 9 August 1957. The appeals reached this Court on the basis of a certificate issued by that High Court under Article 132 of the Constitution, which certified that the matters raised involved a substantial question of law as

In this matter the Court observed that the appeals raised important questions concerning the interpretation of Article 301 and other related provisions dealing with trade, commerce and intercourse throughout India, which are found in Part XIII of the Constitution. The Appeals originated from a judgment and order of a Division Bench of the Rajasthan High Court dated 9 August 1957 and were brought before this Court under a certificate issued under Article 132 of the Constitution, indicating that substantial questions of law were involved. Initially a five‑Judge Bench considered the matters and, on 4 April 1961, ordered that because of the significance of the constitutional issues and in view of the principles set out in the Court’s decision in Atiabari Tea Co. Ltd. v. The State of Assam, the cases should be heard by a larger Bench. The matters were then placed before the Chief Justice for further directions, and pursuant to his instructions they were transferred to the present seven‑Judge Bench for final determination. Recognising that the constitutional questions affected the whole Union, notices were issued to the Advocates‑General of the concerned States and to the Attorney General on behalf of the Union of India. The States of Andhra Pe­desh, Assam, Bihar, Gujarat, Madras, Maharashtra, Orissa, Punjab, Uttar Pradesh and West Bengal intervened, each being represented either by their Advocate‑General or by other counsel. In addition, M. A. Tulloch & Co., the Andhra Pe­desh Motor Congress and Nazeeria Motor Service, Nellore, were permitted to intervene because they asserted that they would be directly impacted by the Court’s decision on the constitutional issues. Consequently the Court heard extensive arguments not only from counsel for the appellants and respondents but also from counsel representing the Union of India, the intervening State governments and the three private interveners previously mentioned.

The appellants in the three consolidated appeals are: (1) the Automobile Transport (Rajasthan) Ltd., Ajmer, filed as Civil Appeal No. 42 of 1959; (2) the Rajasthan Roadways Ltd., Ajmer, filed as Civil Appeal No. 43 of 1959; and (3) Framji C. Framji and others, filed as Civil Appeal No. 44 of 1959. The respondents are the State of Rajasthan, the Regional Transport Officer who also serves as the ex‑officio Motor Vehicles Taxation Officer in Jaipur, and the Collector of Jaipur. The first two appellants are private limited companies incorporated under the Indian Companies Act, 1913, with their registered offices located in Ajmer. The third appellant is a partnership firm, Framji Motor Transport, registered under the Indian Partnership Act. All three appellants were engaged in the carriage of passengers by stage‑coach. The Automobile Transport (Rajasthan) Ltd. operated nine vehicles that ran between two stations in the former State of Ajmer—Nasirabad and Deoli—and also between Ajmer and Kishangarh, a town in Rajasthan, during the relevant period. The road connecting Nasirabad to Deoli lay principally within the former State of Ajmer, although a short segment passed through narrow strips of Rajasthan’s territory. Similarly, the route from Ajmer to Kishangarh traversed both the former State of Ajmer and Rajasthan. The second and third appellants also owned vehicles that travelled on the Nasirabad‑Deoli line or from Kishangarh to Sarwar, a town situated on the Nasirabad‑Deoli road within Rajasthan.

In this case, the road that connected Ajmer to Kishangarh ran partly through the former State of Ajmer and partly through the State of Rajasthan, with roughly two‑thirds of the distance situated in Ajmer and one‑third in Rajasthan. The second appellant and the third appellant also owned some motor vehicles that operated on the Nasirabad‑Deoli route or travelled from Kishangarh to Sarwar, a town located on the Nasirabad‑Deoli road within the State of Rajasthan. After the Rajasthan Motor Vehicles Taxation Act, 1951 (Rajasthan Act XI of 1951) came into force and the accompanying rules were promulgated, the second respondent demanded that the appellants pay the tax due on their motor vehicles for the period beginning on 1 April 1951 and ending on 31 March 1954. Under rule 23 of the Rajasthan Motor Vehicles Taxation Rules, the first appellant was required to pay Rs 22,260, the second appellant Rs 6,540 and the third appellant Rs 10,260. When the appellants failed to make the required payments, the second respondent issued certificates under section 13 of the Act to the third respondent for the purpose of recovering the unpaid tax as arrears of land revenue. Upon receiving the demand notices, the second and third appellants each filed an appeal before the Transport Commissioner of Jaipur, invoking the provisions of section 14 of the Act. Both appeals were dismissed by an order of the Transport Commissioner dated 21 October 1953. The first appellant chose not to lodge any appeal. Subsequently, the three appellants each instituted a separate writ petition in the Rajasthan High Court. The principal contention in each petition was that the provisions of the Act that imposed a tax on their motor vehicles were unconstitutional and void because they violated the freedom of trade, commerce and intercourse throughout the territory of India guaranteed by Article 301 of the Constitution. Accordingly, the appellants argued that the demand for, and attempted collection of, such tax was illegal and should be restrained. The relief sought in their writ petitions comprised two main prayers: first, a declaration that the Rajasthan Motor Vehicles Taxation Act of 1951 and the rules made thereunder were invalid, inconsistent with the Constitution of India, and therefore null, void and inoperative; second, the issuance of a writ of prohibition, mandamus, or any other appropriate writ, direction or order directing the respondents not to collect any tax from the appellants under the provisions of the 1951 Act. The three writ petitions were heard together by a Division Bench consisting of Justices Bapna and Bhandari. While the Bench addressed and disposed of certain other objections to the validity of the Act, it expressly refrained from commenting on those matters. Concerning the alleged contravention of Article 301, the Bench observed that the questions involved were complex and that there appeared to be a conflict between decisions of other High Courts. Consequently, the Bench decided that the matter should be referred to a Full Bench for further consideration.

Accordingly, the Division Bench referred the question of whether sections 4 and 11 of the Rajasthan Motor Vehicles Taxation Act, 1951 infringed the right of freedom of trade, commerce, or intercourse guaranteed under Article 301 of the Constitution. The matter was then placed before a Full Bench, which examined the issue from two distinct perspectives. First, the Full Bench evaluated the validity of the Act in light of Article 19(1) of the Constitution, which guarantees to every citizen of India the right to move freely throughout the territory of India. Treating this as a matter of “freedom of intercourse” for the individual citizen, the Full Bench concluded that the restrictions imposed by the Act on an individual were reasonable, given the necessity of raising revenue for the maintenance of existing roads and for the construction of new roads within the State of Rajasthan.

Second, the Full Bench considered the validity of the relevant provisions of the Act from the standpoint of trade and commerce. It held that the regulation of trade, commerce, and intercourse within the territory of India, whether inter‑State or intra‑State, was not incompatible with the freedom guaranteed by Article 301. In doing so, the Court drew a distinction between restrictions that are direct and immediate and those that are indirect and consequential. The Court articulated its final conclusion as follows: “Transport vehicles are provided by individuals carrying on business in them and those who carry on trade and commerce as a whole can use these transport vehicles. The fact that, because of this taxation, the charges of transport vehicles are higher—let us say by an anna per maund—is, in our opinion, merely an indirect or consequential result of this Act, and such an impediment may fairly be called remote. It would be a different matter if the taxation were so high that it virtually killed trade and commerce by compelling traders to raise their prices to an exorbitant rate. But this is not the nature of the tax in this case, and the taxation is not directly on trade, commerce, or intercourse. We are of opinion that this taxation cannot be said to offend Article 301, for its effect on trade and commerce is only indirect and consequential and any impediment, if any, may fairly be regarded as remote.” In view of this reasoning, the Full Bench answered the referred question in the negative.

Having received the Full Bench’s answer, the cases returned to the Division Bench, which dismissed the writ petitions by judgment and order dated 9 August 1957. Subsequently, the three appellants applied to the High Court for a certificate under Article 132 of the Constitution, and the High Court granted the certificate by order dated 16 October 1957. It may be noted that neither the Division Bench nor the Full Bench of the High Court…

The Rajasthan High Court possessed the benefit of the Supreme Court’s ruling in the case of Atiabari Tea Co., citation (1), a decision that was rendered considerably later in chronological order. The principal contention raised by the appellants before this Court was that the statutory provisions of the Act, under which they were required to pay tax for motor vehicles operating on the Nasirabad‑Deoli or Kishangarh road, infringed the freedom guaranteed by Article 301 of the Constitution and that such provisions could not be saved by the exception contained in Article 304(b) of the Constitution. Before quoting the specific provision of the Act, the Court chose to make a brief preliminary observation to clarify the analytical framework that would guide the ensuing discussion. Article 305 of the Constitution, as it originally stood, declared that nothing in Articles 301 and 303 should affect (1) [1961] 1 S.C.R. 809 the operation of any existing law, except to the extent that the President might by order provide otherwise. This clause was later replaced by a newly crafted provision enacted through the Constitution (Fourth Amendment) Act, 1955, which broadened the scope of the original language. The substituted article retained the wording of the first part of the old Article 305 and, in its second part, stipulated that nothing in Article 301 should impede the operation of any law enacted before the commencement of the Constitution (Fourth Amendment) Act, 1955, insofar as such law relates to, or prevents, Parliament or a State Legislature from legislating on matters enumerated in sub‑clause (ii) of clause (6) of Article 19. That sub‑clause concerns the State—or a corporation owned or controlled by the State—carrying on any trade, business, industry or service, whether wholly or partially exclusive of citizens. The Court observed that the first segment of Article 305 does not apply to the present case because the term “existing law” refers exclusively to statutes, ordinances, orders, bye‑laws, and similar enactments that were passed before the Constitution came into force. The Act under scrutiny in these appeals was enacted in 1955, i.e., after the Constitution had commenced, and therefore falls outside that definition. Likewise, the second segment of Article 305 offers no assistance with respect to the questions that arise in these appeals. Consequently, whether in its original or amended form, Article 305 is irrelevant to the present considerations. The Court then proceeded to examine the relevant sections of the Act itself. The Act in question had been promulgated by the Rajpramukh of the State of Rajasthan on 1 April 1951. The historical background concerning the formation of the United State of Rajasthan and the authority of the Rajpramukh under the covenant that created the State had been detailed in Thakur Amar Singhji v. State of Rajasthan, citation (1), at pages 312 to 316 of that report; however, such historical narration was not material to the matters before this Court. The competence of the Rajpramukh to enact the Act, citation (1) [1955] 2 S.C.R. 303, had been contested before the High Court, but the High Court had rejected that challenge. The present appeal does not raise that issue again, and the Court therefore proceeds on the assumption that the Act was validly made by the Rajpramukh.

The Court observed that the question of whether the Rajpramukh possessed the authority to enact the Act had not been taken up before it, and consequently the Court proceeded on the premise that the Act had been validly made by the Rajpramukh. The provision that formed the centre of the present controversy was Section 4 of the Act, which the petitioners challenged on the ground that it infringed the freedom of trade, commerce and intercourse guaranteed by Article 301 of the Constitution. For the purpose of analysis, the Court reproduced the wording of Section 4. It reads: “4. Imposition of tax.–(1) Save as otherwise provided by this Act or by rules made thereunder or by any other law for the time being in force, no motor vehicle shall be used in any public place or kept for use in Rajasthan unless the owner thereof has paid in respect of it, a tax at the appropriate rate specified in the Schedules to this Act within the time allowed by section 5 and, save as hereinafter specified, such tax shall be payable annually notwithstanding that the motor vehicle may from time to time cease to be used. (2) An owner who keeps a motor vehicle of which the certificate of fitness and the certificate of registration are current, shall, for the purposes of this Act be presumed to keep such vehicle for use. (3) A person who keeps more than ten motor vehicles for use solely in the course of trade and industry shall be entitled to a deduction of ten per cent on the aggregate amount of tax to which he is liable. 4. Explanation.–The expression ‘trade and industry’ includes transport for hire.” The Court noted that Sections 5 to 7 of the Act dealt respectively with the manner of tax payment, the tax payable on first liability, and the refund of tax, but it clarified that those sections were not the subject of the present dispute and therefore would not be examined further.

The Court turned its attention to Section 8, which imposes on every motor‑vehicle owner an annual obligation to submit a declaration in the prescribed form containing the required particulars, and also mandates the owner to pay the tax that is due on the vehicle. The petitioners contended that Section 8 was unconstitutional, and the Court agreed that its validity was inseparably linked to that of Section 4; consequently, if Section 4 were held to be unconstitutional, the same result would follow for Section 8. Section 9, which provides for the levy of additional tax in certain situations, was mentioned only to the extent that its details were not necessary for the current reasoning. Section 10 concerns the issuance of receipts and tokens. Section 11 prescribes penalties, stating that any person who contravenes any provision of the Act or any rule made under it shall, on conviction, be liable to a fine which may extend to Rs 100, and if the person has previously been convicted of an offence under the Act or any rule made thereunder, the fine may extend to Rs 200. Section 12 deals with the compounding of offences, while Section 13 provides that when a person, without any reasonable cause, fails or refuses to pay the tax, the Taxation Officer may forward a certificate to the Collector of the concerned district, who shall recover the tax as if it were arrears of land revenue. The Court indicated that these provisions formed part of the statutory scheme under consideration.

The officer may transmit to the Collector of the relevant district a certificate bearing his signature that states the amount of tax owed by the identified person, and the Collector is then required to recover that tax in the same manner as he would recover arrears of land revenue. Section fourteen of the Act creates a right of appeal to the Transport Commissioner. Section sixteen provides that a person’s liability to pay the tax may be questioned or determined only in the manner prescribed by the Act or by rules made under the Act. Sections seventeen through twenty‑one deal with various ancillary matters, and section twenty‑two empowers the Government to make rules that give effect to the purpose of the Act. The Act contains four schedules, the detail of which will be considered later, but it is sufficient at this stage to note their general classification. Schedule I applies to vehicles other than transport vehicles that are used for hire or reward; Schedule II covers transport vehicles, which are further divided into passenger transport vehicles and goods vehicles; Schedule III deals with goods vehicles that are registered outside Rajasthan but that use Rajasthan roads; and Schedule IV concerns vehicles that carry goods in connection with a trade or business carried on by the owner of the vehicle under a private carrier’s permit. Each schedule sets out different rates of tax for the various categories of vehicles. The High Court observed that Schedule I relates to vehicles that fall within the term “intercourse” in Article 301 of the Constitution, whereas the remaining schedules relate to the term “trade and commerce” in the same article. Reading section 4 together with the schedules shows that a person may keep a motor vehicle in Rajasthan without paying the appropriate tax, but if he does so he becomes liable for the penalties prescribed in section 11 of the Act. In essence, this describes the scheme of the legislation.

The question presented to the Court is whether this legislative scheme conflicts with the constitutional guarantee of freedom of trade, commerce and intercourse throughout the territory of India, as embodied in Article 301 and the related provisions of Part XIII of the Constitution. To answer this, the Court must examine the relevant constitutional articles as they existed at the relevant time, namely Articles 301 to 304. Article 301 states: “Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free.” Article 302 provides that Parliament may, by law, impose restrictions on the freedom of trade, commerce or intercourse between States or within any part of the territory of India when such restrictions are required in the public interest. Article 303(1) then declares that, notwithstanding anything in Article 302, neither Parliament nor a State Legislature may make any law giving, or authorising the giving of, any preference to one State over another, nor may it make any law that discriminates between States by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. The Court therefore proceeds to interpret these constitutional provisions in order to determine whether the tax scheme established by the Act impermissibly infringes the freedom guaranteed by Article 301 and its companion articles.

The Court noted that Article 303(1) of the Constitution forbade the giving of any preference to one State over another, and also barred making or authorising any discrimination between States by virtue of any entry relating to trade and commerce in any of the Lists of the Seventh Schedule. The Court further observed that Article 303(2) allowed Parliament to enact a law that gave or authorised such preference or discrimination, provided the law declared that such measure was necessary to deal with a situation of scarcity of goods in any part of the territory of India. The Court then turned to Article 304, which, notwithstanding anything in Articles 301 or 303, permitted a State legislature to enact a law imposing on goods imported from other States any tax to which similar goods manufactured or produced in that State were subject, so long as the tax did not discriminate between imported goods and locally manufactured goods. The same article also authorised the State to impose reasonable restrictions on the freedom of trade, commerce or intercourse within that State when required in the public interest, subject to the condition that no bill or amendment concerning such restrictions could be introduced or moved in the State legislature without the prior sanction of the President. The Court mentioned that Article 305 was not relevant to the matter before it, and that Article 306, which had been repealed by the Constitution (Seventh Amendment) Act, 1956, was likewise immaterial for the consideration of the present problem. Article 307 was also held to be irrelevant because it concerned the appointment of an appropriate authority for implementing the purposes of Articles 301 to 304. The Court explained that the true scope and effect of this series of articles formed the basis of the difficulty before it, and that these provisions had been examined by this Court in the Atiabari Tea Co. case. In that earlier decision three different judicial views had been expressed, and the present case raised the question of whether the principle articulated in the majority view of that case required reconsideration or modification, or whether one of the other two views should be adopted as correct. A further connected question was whether, assuming the majority view was correct, the principle underlying it would apply to the facts of the present cases. Consequently, the Court found it necessary to briefly set out the facts of the Atiabari Tea Co. case and the three views expressed therein. The three appellants in that case were tea companies: two of them were engaged in the cultivation of tea in Assam, while the third carried on its trade in Jalpaiguri, West Bengal. All of them transported their tea to Calcutta so that it could be sold in the Calcutta market for domestic consumption or for export outside India. Tea produced in Jalpaiguri had to pass through a short stretch of territory in Assam, whereas tea produced in Assam had to travel through the entire length of the State in order to reach Calcutta.

The Court observed that the tea produced by the appellants had to travel through the State of Assam in order to reach Calcutta. While a portion of the tea was conveyed by rail, a substantial quantity also moved by road or by inland waterways. Consequently, the tea became liable to pay the tax imposed under the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, 1954. That Act imposed a levy on certain goods that were carried by road or inland waterways within Assam, and the validity of that levy was contested in the Atiabari Tea Co. case. The principal ground of attack asserted that the Assam Act contravened the provisions of Article 301 of the Constitution and that it was not saved by the provisions of Article 304(b). The Court then set out the various views expressed in that decision, beginning with the opinion of the learned Chief Justice. The Chief Justice held that a tax in the abstract did not fall within the ambit of Article 301 and that a tax on the movement of goods or on passengers did not necessarily constitute an impediment or restraint on trade and commerce. He distinguished between a tax that was levied purely for revenue purposes and a tax that was aimed at creating discrimination or giving preferential treatment; the latter, he said, could be regarded as an impediment to free trade. In his final conclusion, the Chief Justice articulated several propositions. First, he stated that trade, commerce and intercourse throughout the territory of India were not absolutely free but were subject to legislative powers of Parliament and of State Legislatures. Second, he explained that the freedom declared by Article 301 did not mean freedom from taxation per se, but rather freedom from taxation that directly impeded the free flow of trade, commerce and intercourse. Third, he noted that the freedom envisaged in Article 301 was subject to non‑discriminatory restrictions imposed by Parliament in the public interest under Article 392. Fourth, he observed that even discriminatory or preferential legislation could be made by Parliament to deal with an emergency such as a scarcity of goods in any part of India, as permitted by Article 303(2). Fifth, he affirmed that reasonable restrictions could be imposed by a State Legislature in the public interest under Article 304(b). Sixth, he held that non‑discriminatory taxes could be imposed by a State Legislature on goods imported from another State, provided that similar taxes were imposed on goods produced or manufactured within that State, as authorized by Article 304(a). Finally, he explained that existing restrictions imposed by law continued to operate, except to the extent that the President might by order otherwise direct under Article 305. The Court then noted that the majority view differed from that of the learned Chief Justice. The majority did not accept the contention that tax laws were governed solely by the provisions of Part XII of the Constitution and were outside the reach of Part XIII. Instead, the majority took a broader approach to the interpretation of Article 301, as will be discussed further in the subsequent analysis.

In its analysis, the Court held that Article 301 guarantees the freedom of trade throughout India and that this freedom necessarily includes the unhindered movement or transport of goods. The majority emphasized that the Constitution is a federal document, and therefore the effect of Article 301 must be assessed in that context. It noted that the article imposes a constitutional limitation on the taxing powers of both Parliament and the State Legislatures. Absent this limitation, taxation would be presumed to serve the public good and would not be subject to judicial scrutiny. Consequently, the Court reasoned that it was reasonable to conclude that the restrictions from which Article 301 shields the trade are those that directly and immediately impede the free flow of trade. While taxes can constitute restrictions, only those taxes that directly and immediately restrict trade fall within the scope of Article 301. The Court rejected the contention that every tax, irrespective of its indirect or remote impact on trade, should be governed by Article 301, describing such an approach as overly extreme and untenable.

Justice Shah offered a third perspective, asserting that the freedom protected by the Constitution embraces the entire spectrum of trade, commerce, and intercourse, not merely the movement of goods. He explained that the guarantee is not limited to prohibitions, whether total or partial, but also extends to tariffs, licensing requirements, marketing regulations, price controls, nationalisation, economic or social planning, discriminatory duties, compulsory appropriation of goods, freeze orders, and similar measures that directly and immediately affect commercial intercourse. According to this view, every step in the chain of commercial activity constitutes an act of trade, and any burden or impediment imposed on any such step represents a restriction on the freedom of trade and commerce. Thus, the Constitution guarantees freedom in its broadest sense—freedom from prohibition, control, burden, or any impediment to commercial intercourse.

The Court then turned to the historical context, noting that extensive references had been made to Australian and American jurisprudence, particularly decisions interpreting section 92 of the Australian Constitution and the Commerce Clause of the United States Constitution. It cautioned, as it had previously done in the Atiabari Tea Co. case, that reliance on foreign decisions is not always safe when interpreting the provisions of the Indian Constitution. While such foreign rulings can be valuable for understanding how other federations address the problem of freedom of trade, commerce, and intercourse, the Indian Constitution must be read against the historical backdrop in which it was drafted. The Constitution‑makers were not starting from a blank slate; they inherited the Government of India Act 1935 and its administrative framework, dealing with a nation composed of diverse provinces, languages, religions, and varying levels of economic development. The challenges of economic integration that the framers faced were complex and rooted in the specific conditions of the Indian subcontinent.

In interpreting the provisions of the Indian Constitution, the Court emphasized that they must be read against the historical circumstances prevailing when the Constitution was drafted, considering the specific problems that the framers sought to address on behalf of the Indian people represented in the Constituent Assembly. It was observed that the framers did not begin their work on a blank slate; they inherited the Government of India Act, 1935, together with the administrative framework that the Act had established for the country. At that time, India was divided into several administrative units called Provinces, each possessing its own separate administrative machinery, and these units varied widely in language, religion, and economic development. Even within a single Province, some areas were relatively advanced in industry and communications, while other parts remained under‑developed. Consequently, the task of achieving economic integration presented a complex set of facts for the Constitution‑makers to resolve. Two principal questions emerged from this situation. The first question concerned how to create a federal, economic and fiscal integration that would permit the adoption of economic policies for the benefit of the whole of India without imposing an ever‑increasing strain on the unity of the nation, an issue discussed in the citation (1) [1961] 1. S. C. R. 809. The second question related to the manner in which the under‑developed regions could be fostered without instituting excessive preferential or discriminatory barriers. In addition to the Provinces, there existed the Indian States, historically referred to as the princely States. Following India’s political emancipation in 1947 and prior to the adoption of the Constitution, a process of merger and integration brought these States into the Indian Union, resulting in a territorial composition that, at the commencement of the Constitution, comprised Part A States (essentially the former British Provinces) and Part B States (the former princely States). The former States had, in exercising their legislative authority, erected trade barriers which the framers were required to address through constitutional provisions. The development of a federal or quasi‑federal structure necessarily involved, under the conditions of the time, a deliberate distribution of powers, a feature prominently reflected in the three legislative lists contained in the Seventh Schedule of the Constitution. Article 1 of the Constitution declares India to be a Union of States, and any interpretation of the Constitution must therefore keep in view the essential character of a federal or quasi‑federal system, wherein both the Union and the constituent units possess distinct, yet overlapping, powers. Finally, the Court noted that a grievance raised on behalf of the intervening States before it concerned the view expressed in the majority opinion of the Atiabari Tea Co. case (1) which, according to the petitioners, failed to accord adequate importance to the power of the

In interpreting the provisions of Part XIII of the Constitution that relate to trade, commerce and intercourse, the Court observed that the Constitution assigns to each State the power to raise revenue by imposing taxes within the legislative heads that are entrusted to it. It has often been remarked that the freedom of inter‑State trade and commerce in a federation presents a puzzling problem for constitutional scholars not only in India but also in Australia, the United States and other federations. The framers of the Constitution appear to have kept three broad considerations in mind while formulating an integrated policy on this subject. First, the overall interest of the Union demands that trade, commerce and intercourse should flow freely both across State boundaries and within each State. Second, the framers recognized that the regional interests of the individual States could not be disregarded entirely. Third, they provided for a power of Union intervention in cases of emergency so that the central government could address particular problems that might arise in any part of the country. The Court noted that each of these considerations is reflected in the series of articles that constitute Part XIII. Accordingly, while giving effect to the relevant articles, the Court must keep in view the general scheme of the Constitution, especially the relationship between Part III, which contains the Fundamental Rights, and Part XII, which deals with finance, property and includes Articles 276 and 286. This approach is necessary because the Constitution establishes a federal or quasi‑federal structure in which the States retain certain powers, including the authority to levy taxes for their own purposes.

In the matter before it, counsel for the appellants contended that Section 4 of the impugned Act, taken together with its Schedules, imposes a direct and immediate restriction on the movement of trade and commerce both within and across the State of Rajasthan. The contention was based on the observation that motor vehicles carrying passengers or goods in Rajasthan are required to pay a tax that creates a monetary burden on a commercial activity. The appellants argued that this burden falls within the prohibition of Article 301 of the Constitution and is not protected by the exception in Article 304(b), because the proviso to Article 304(b) has not been satisfied and the Act has not been assented to by the President as required by Article 255. Counsel for the appellants further submitted that the correct interpretation of the relevant provisions of Part XIII is the one given by Justice Shah in the Atiabari Tea Co. case, and even assuming the majority view in that case, the present provisions still constitute a direct and immediate restriction on the movement aspect of trade, commerce and intercourse. On the other side, counsel for the respondents argued that a tax imposed solely for the purpose of raising revenue or for the maintenance of roads does not fall within the ambit of Article 301 and therefore does not constitute an unlawful restriction on trade and commerce.

In this case the Court observed that the provisions of the Act that were being challenged did not create an immediate or direct barrier to the movement of trade and commerce. The reason given was that the tax imposed under the Act was a consolidated levy on the vehicle itself, even though the amount of tax in certain instances was determined by reference to the seating capacity or the loading capacity of the vehicle. The learned Counsel for the respondents argued that the facts before the Court were materially different from those in the Atiabari Tea Co. case(1). In the Atiabari case the tax was imposed on the carriage of goods, whereas here the tax is applied to the vehicle as a whole, resembling a property tax. Because the levy is therefore on the vehicle rather than on the act of moving goods, the respondents asserted that the tax does not touch the “movement” component of trade, commerce and intercourse, although it may have an indirect impact by causing an increase in the fare or tariff charged for passengers and goods. The respondents’ counsel attempted to distinguish the majority judgment in the Atiabari case, but he primarily supported the view expressed by the learned Chief Justice. Several interveners also participated in the argument. Some interveners accepted the majority view, either in its original form or with certain modifications, while others endorsed one of the alternative viewpoints.

Mr. N. C. Chatterjee, appearing for the Union of India, endorsed the majority opinion, although the position taken by the Attorney General for the Union of India in the Atiabari case(1) had been somewhat different. Mr. Ranadeb Chaudhuri, representing one of the interveners, M.A. Tulloch and Co., also accepted the majority view but with certain modifications. He explained that Article 301 concerns the movement or carriage of trade and commerce and described this as the “channeling” of trade and commerce. He further attempted to harmonise the various provisions of Part XIII by suggesting that the part deals with two related yet distinct subjects. The first subject is the freedom of movement of trade, commerce and intercourse, which he also referred to as “channeling.” The second subject is protection against discrimination and preference, which does not necessarily relate to movement but may arise from subsidies or similar measures. According to him, these two ideas inspired the series of articles contained in Part XIII. Other interveners argued that the freedom guaranteed by Article 301 is not freedom from all regulatory measures that do not impede trade, commerce or intercourse, but rather freedom to facilitate such activities. They gave examples such as traffic regulations aimed at protecting public health, including prohibitions on the sale of adulterated food. From this perspective, taxes that are levied for the maintenance of roads on which traffic moves are regarded as compensatory in nature and do not fall within the restriction contemplated by Article 301. This was the position articulated by the Advocate‑General of Punjab, Mr. Sikri.

Mr. Seervai, appearing for the State of Maharashtra and several other States, argued that the scope of Part XIII of the Constitution is limited to legislative or executive actions that relate directly to the entries dealing with trade and commerce in any of the three lists of the Seventh Schedule. He identified the relevant entries as numbers 41 and 42 in List I, entry 26 in List II, and entry 33 in List III. According to his interpretation, the phrase “throughout the territory of India” in Article 301 refers to the geographical space of the country rather than to the movement of persons or goods within that space. Mr. Seervai suggested that the proper method of analysis should consider four aspects: first, the position of the States in the Constitution, each possessing plenary powers within its own field; second, the historical background provided by section 297 of the Government of India Act, 1935; third, the judgments of Australian cases decided up to the year 1950, which were contemporary with the making of the Indian Constitution; and fourth, a comparison of Part XIII with Part III and Part XII of the Constitution. On the question of taxation, he maintained that taxes do not fall within the ambit of Part XIII except insofar as they are covered by Article 304(a).

Mr. Lal Naray Sinha, appearing for the State of Bihar, endorsed the view expressed by the learned Chief Justice in the Atiabari Tea Co. case, although he offered different reasons. He contended that Article 301 guarantees a qualified freedom for trade, commerce and intercourse throughout the territory of India, freedom that is limited to restrictions based on geographical classifications. In his view, the protection extends to barriers—understood in a geographical sense—that impede trade, commerce or intercourse between one State and another, or between different territories within the same State, and also shields against any form of territorial discrimination in respect of inter‑State or intra‑State trade, commerce and intercourse. Regarding taxation, he argued that fiscal taxes, which are levied solely for revenue purposes, do not constitute inter‑State or inter‑territorial barriers, nor do they involve territorial discrimination, and therefore they are outside the scope of Part XIII. Mr. D. Sahu, representing the State of Orissa, maintained that the freedom guaranteed by Article 301 is confined to two categories: (i) inter‑State barriers and (ii) customs barriers that once existed between the Indian States and the adjacent British Indian territory. He further asserted that the intra‑State dimension of the freedom is limited to the old customs barriers previously imposed by several princely States that have since merged into present‑day Indian States. Finally, Mr. C. B. Agarwala, appearing for the State of Uttar Pradesh, argued that the subject matter of Article 301 is trade, commerce and intercourse, encompassing the entries relating to trade and commerce in any of the Seventh Schedule lists, and that the restrictions from which freedom is protected may arise from any source, not solely from the enumerated entries.

The Court observed that the arguments presented included the view that legislative or executive actions relating to other entries in the Constitution could also affect the freedom guaranteed by the relevant provisions. It then stated that it had set out the various positions and viewpoints that had been canvassed before it and that it would now proceed to determine which interpretation of the articles in Part XIII of the Constitution was correct. The Court first considered the most expansive approach, namely the view expressed by Justice Shah in the Atiabari Tea Co. case, a view that had been supported by the appellants and by one or two of the interveners. The Court explained that this approach rested on a purely textual reading of the provisions in Part XIII.

According to that textual approach, Article 301, which is framed in general terms and is subject to the remaining provisions of Part XIII, imposes a broad limitation on the exercise of legislative power by either the Union or the States with respect to any of the subjects—taxation matters as well as other matters—enumerated in the three lists of the Seventh Schedule, so as to ensure that “trade, commerce and intercourse throughout the territory of India shall be free.” After establishing this general limitation, Article 302 relaxes it in favour of Parliament by providing that Parliament may, by law, impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest.

The Court then turned to Article 303(1), which places a further restriction on the relaxation granted by Article 302. Article 303(1) prohibits Parliament from making any law that gives preference to one State over another or that discriminates between States on the basis of any entry relating to trade and commerce in Lists I and III of the Seventh Schedule. The same prohibition is extended to State legislatures with respect to any entry relating to trade and commerce in Lists II and III. Article 303(2) creates an exception to the rule in Article 303(1) for Parliament alone, stating that nothing in Article 303(1) shall prevent Parliament from making a law that gives preference to one State over another or discriminates between States if such a measure is necessary to address a scarcity of goods in any part of India. This exception does not apply to State legislatures.

Finally, the Court noted that Article 304 consists of two clauses, each of which operates as a proviso to Articles 301 and 303, thereby providing further qualifications to the freedoms and restrictions contemplated in those articles.

Clause (a) of Article 301 states that a State Legislature may levy on goods imported from other States any tax that is imposed on goods of the same kind that are manufactured or produced within that State, provided that the tax does not discriminate between the imported goods and the locally produced goods. In effect, this clause authorises a State to tax imported goods on the same basis as it taxes comparable goods that originate in the State itself. Consequently, goods coming from sister States are treated on an equal footing with similar goods produced inside the State for the purpose of State taxation within the field allocated to the State. This power enables Indian States to impose taxes that are comparable to the “use tax” or “gross receipts tax” found in American State legislation, as well as more familiar taxes such as property tax, so long as the tax is applied uniformly to all goods of the same description that are produced or manufactured in the State. Although such taxation inevitably places a burden on inter‑State trade and commerce, the Constitution expressly permits it. As observed by Patanjali Sastri, C.J., in State of Bombay v. United Motors (1), the principle of commercial unity of India yields before the State’s authority to levy any non‑discriminatory tax on goods imported from sister States.

Clause (b) of Article 301 provides that, notwithstanding anything contained in Articles 301 or 303, a State Legislature may, by law, impose reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State when such restrictions are required in the public interest. The proviso to clause (b) adds that no bill or amendment seeking to invoke clause (b) may be introduced or moved in a State Legislature without first obtaining the President’s prior sanction. This provision functions as the State counterpart to the Union Parliament’s authority defined in Article 302, even though Article 302 does not include the word “reasonable” before the term “restrictions.” Setting aside the requirement of prior Presidential approval for the validity of State legislation under clause (b), two important differences between Article 302 and Article 301(b) merit special attention.

First, Parliament’s power under Article 302 is constrained by the prohibition on preferences and discrimination contained in Article 303(1), unless Parliament makes a declaration under Article 303(2). By contrast, the State’s power under Article 304(b) is expressly exempt from the prohibition of Article 303(1) because the opening words of Article 304 contain a non‑obstante clause that supersedes both Article 301 and Article 303. Thus, the State’s authority to impose restrictions is not subject to the same preference‑discrimination ban that limits Parliament’s authority.

Second, while Parliament’s power to impose restrictions under Article 302 on the freedom of commerce in the public interest is not conditioned upon a requirement of reasonableness, the power of the States to impose such restrictions under Article 301(b) is expressly limited to reasonable measures. This distinction underscores that State legislation must satisfy a reasonableness test, whereas Parliament enjoys broader discretion in regulating trade for public purposes, subject only to the overarching limits of Articles 301 and 303.

The Court observed that the freedom of commerce in the public interest created by Article 304 is conditioned on the requirement that any restriction imposed must be reasonable. On the basis of this textual construction, which the Court regarded as correct insofar as it goes, it was expressed that the freedom granted by Article 301 enjoys the broadest possible scope and is limited only by the restrictions enumerated in the subsequent articles of Part XIII. Nevertheless, even a purely textual approach encounters difficulties. One difficulty highlighted during the debates of the Constituent Assembly concerned the rather indiscriminate or inappropriate use of the expressions “subject to” and “notwithstanding” in the relevant articles. Article 302, as earlier noted, provides a relaxation in favour of Parliament. Article 303 then imposes a restriction on that relaxation by using the phrase “notwithstanding anything in Article 302.” Although Article 303 applies both to Parliament and to State Legislatures, Article 302 grants no comparable relaxation to the State Legislature. Consequently, the non‑obstante clause in Article 303 appears somewhat misplaced. Clause (2) of Article 303 creates an exception to the restriction placed on Parliament by clause (1) of the same article; however, this clause (2) again relates only to Parliament and not to the State Legislature, even though clause (1) applies to both. Article 304 similarly commences with a non‑obstante clause that refers to both Article 301 and Article 303, although Article 304 itself pertains solely to a State Legislature. Since Article 303 concerns both the State Legislature and Parliament, the non‑obstante clause in Article 304 likewise seems inappropriate.

The Court further explained that the series of articles in Part XIII exhibits a tangled pattern of exceptions upon exceptions, making a purely textual interpretation insufficient to reveal the true intention of the provisions. This observation does not imply that the text of the articles or the specific words employed should be disregarded; on the contrary, the Court emphasized that the language of the articles remains a vital factor in their interpretation. At the same time, it was cautioned that the Constitution must be viewed as an integrated whole, and the inter‑connection of its various parts must not be lost. Even when examining the text, the Court asserted that it is necessary to determine the precise meaning of the term “free” used in Article 301. The Court posed the question of what burdens or restrictions the guaranteed freedom is meant to be free from, noting that this inquiry is of paramount importance for proper construction. The Court referred to the experience of the Australian Constitution, where Section 92 employs the expression “absolutely free,” and highlighted the extensive judicial deliberation over its meaning, without replicating the detailed history of those Australian cases.

In the discussion of Australian constitutional law, Lord Porter observed that two broad principles emerged from the case law. The first principle was that the regulation of trade, commerce and intercourse among the States could coexist with the notion of absolute freedom in those spheres. The second principle was that a violation of section 92 of the Australian Constitution occurred only when a legislative or executive act imposed a direct and immediate restriction on such trade, commerce or intercourse, as opposed to creating an indirect or inconsequential obstacle that might be regarded as remote. Lord Porter acknowledged that applying these general principles inevitably gave rise to disagreements, especially when courts had to decide whether a particular enactment was merely regulatory or something more, and whether a restriction was direct or merely remote or incidental.

The Court noted that the concept of freedom of trade, commerce and intercourse in a society governed by law necessarily presupposes a certain amount of restriction on individual actions. Consequently, the scope of that freedom must be limited by considerations of social orderliness. Citing an earlier Australian decision, Duncan v. The State of Queensland, the Court referred to the observation of Chief Justice Griffith that the word “free” does not mean “extra legem”, just as freedom does not equate to anarchy. He expressed that a claim of being absolutely free does not imply being exempt from law. Because Article 301 of the Indian Constitution uses the term “free” without qualification, the Court held that, in order to apply the provision within a well‑ordered society, it must necessarily be read as subject to qualifications that define the circumstances in which the freedom may be exercised.

The Court then referred to the dissenting opinion of Justice Fullagar in Mc Carter v. Brodie, an opinion that the Privy Council later endorsed in Hughes and Vale Proprietary Ltd. v. State of New South Wales. Justice Fullagar provided several examples to illustrate the line between permissible regulation and genuine interference with the freedom of trade and commerce. He explained that in most countries motor vehicles are required to be registered and a fee is payable on registration. He listed the usual statutory requirements that every motor vehicle must have front and rear lamps of a specified type, that the lamps must be illuminated during darkness when the vehicle is being driven on a road, that each vehicle must be equipped with a warning device such as a horn, and that vehicles must not be driven at a speed or in a manner that endangers public safety. He further noted that in certain localities a vehicle may be prohibited from exceeding a specified speed, and that the weight of cargo that may be carried on a public highway is limited. Justice Fullagar emphasized that such rules can be multiplied indefinitely and that no reasonable person would doubt that the application of these rules does not truly impair the freedom of trade. Rather, they facilitate the orderly conduct of trade and commerce.

In this case, the Court observed that the regulations concerning motor vehicles actually facilitated the free flow of trade and commerce rather than obstructed it. The Court explained that such rules could not reasonably be characterized as imposing a burden on a trader or as deterring a trader from engaging in business. It would be absurd, for example, to suggest that freedom of trade was impaired by statutes that require a motor vehicle to keep to the left side of the road or that prohibit a driver from operating the vehicle in a dangerous manner. The Court further commented that if the word “free” in Article 301 were interpreted to mean “freedom to do whatever one wishes,” the result could be chaos. For instance, one motor‑vehicle owner might wish to drive on the left side of the road while another might wish to drive on the right side. If the two vehicles approached each other from opposite directions, an inevitable clash would occur. Thus, the Court stressed that the purpose of the traffic rules was to ensure orderly movement, which is essential for commerce.

In the same passage, the Court considered another class of examples involving charges for the use of trading facilities such as roads, bridges, and aerodromes. The Court held that the collection of a toll or a tax for the use of a road, a bridge, or an aerodrome did not constitute a barrier, a burden, or a deterrent to traders. In the absence of such charges, traders might be forced to travel longer, less convenient, or more expensive routes. The Court described these charges as compensatory taxes that did not hinder anyone’s freedom, provided they remained reasonable. However, the Court warned that the same taxes could become a hindrance to the freedom of trade if they were raised to prohibitive levels or if other impediments were created that would hamper trade rather than facilitate it. The Court therefore drew a clear contrast between the “freedom” guaranteed by Article 301 and the “restrictions” embodied in Articles 302 and 304. According to the Court, measures that in reality facilitate trade and commerce are not restrictions, whereas measures that in reality hamper or burden trade and commerce are restrictions. The Court emphasized that the substance of the matter, not a formal label, must determine the character of a measure. It further observed that it is not possible, a priori, to draw a precise line between a genuine charge for a facility and a deterrent to trade, although the distinction, when drawn, is real and clear. The Court explained that a tax becomes a prohibited tax only when it is a direct tax whose effect is to hinder the movement of trade. So long as a tax remains compensatory or regulatory, it cannot operate as a hindrance. Finally, the Court noted the most serious objection to the broad interpretation advanced before it: such an interpretation ignored the fact that the concept of freedom of trade, commerce, and intercourse in a community governed by law must be understood within the context of an orderly society. The Court cautioned that the widest view treats Article 301 as imposing a general restriction on legislative power, which would in practice impede the State’s ability to enact necessary regulations.

In this case the Court observed that Article 301 of the Constitution conferred a freedom of trade, commerce and intercourse on the whole of the nation and that this freedom extended to every step in the chain of commercial activity, removing all barriers, restrictions and regulations, with the only qualification being the introductory clause that the freedom was subject to the other provisions contained in Part XIII. The Court explained that if this provision were given its literal effect, any State Legislature that wished to control or regulate trade, commerce or intercourse in order to facilitate their free movement would first have to legislate under Article 304(b), and that no such bill could be introduced or taken up in a State Assembly without obtaining prior sanction from the President of India. The Court pointed out that such a requirement would, in practice, halt or postpone the passage of legislation that might be urgently required. For illustration, the Court cited a hypothetical situation in which, for reasons of public health, it became necessary to enact immediately a law prohibiting the trade in goods harmful to health, such as the trade in diseased potatoes in Australia; under the literal reading the State would nevertheless need presidential approval before introducing the bill. The Court further noted that even ordinary traffic‑regulation statutes would be subject to the same prerequisite of presidential sanction. The Court held that this interpretation would, in its view, severely impinge upon the legislative competence of the State Legislatures, which have been described as having plenary power with respect to the subjects enumerated in List II of the Seventh Schedule. The Court added that the States also require revenue to discharge their administrative functions and that a number of entries in List II relate specifically to the power to levy taxes. Accordingly, the framers of the Constitution must have intended that the States be permitted to raise revenue for their own purposes under those entries. The Court warned that if the widest view were accepted, the practical result would be the disappearance of State autonomy even within the fields that the Constitution had allocated to them under its federal structure. An examination of the Seventh Schedule, the Court observed, revealed a large number of entries in both the State List (List II) and the Concurrent List (List III) that empower a State Legislature to enact laws. Under several of those entries the State may impose various taxes and duties, such as property tax, sales tax and excise duty, and legislation relating to any of those items may have an indirect impact on trade and commerce. Moreover, the Court stated that even non‑tax statutes made under other entries may affect trade and commerce in a remote or indirect manner. The Court concluded that if it were held that every State law having any repercussion on tariffs, licensing, marketing regulations, price control and similar matters must first obtain presidential prior sanction, then the Constitution’s grant of plenary power to the States and their Legislatures in the subjects assigned to them would become meaningless. In the Court’s view, therefore, the concept of freedom of trade, commerce and intercourse embodied in Article 301 must

The Court explained that the notion of freedom of trade, commerce and intercourse must be read in the setting of an orderly society and as part of a Constitution that apportions powers between the Union and the States; if the concept is so understood, it must acknowledge the necessity and legitimacy of a certain degree of regulatory control exercised by either the Union or a State, and this requirement exists regardless of the restrictions contained in the other articles of Part XIII of the Constitution. Consequently, the Court stated that it could not accept the broadest possible interpretation of the relevant provisions of Part XIII as the correct one. The Court then turned to consider an alternative reading of those provisions, which it described as the narrow interpretation. Under this narrow view, the Court said, laws relating to taxation are governed solely by the provisions of Part XII of the Constitution, and except for Article 304(a), none of the other provisions of Part XIII apply to taxing statutes. An additional argument advanced by counsel was that the provisions of Part XIII are applicable only to legislation enacted under entries in the Seventh Schedule that relate to trade, commerce and intercourse. According to that argument, entry 42 in List I, which concerns inter‑State trade and commerce, entry 26 in List II, which deals with trade and commerce within a State subject to entry 33 in List III, and entry 33 in List III itself, which governs trade and commerce as specified therein, are the sole entries whose legislation attracts the provisions of Part XIII; any law on other subjects would therefore fall outside the reach of those provisions. To support this line of reasoning, counsel pointed to the heading of Part XIII and to the expression “subject to” found in Article 301. It was observed that the title of Part XIII is “trade, commerce and intercourse”; the term “intercourse” was said to mean commercial intercourse, noting that there is no separate legislative entry in any of the three lists that refers specifically to intercourse, and that the word “throughout” in the title refers to geographical space rather than to movement. The expression “subject to” was interpreted as meaning “conditional upon”, which links the provisions of Article 303 with those of Article 301. Article 303, the Court noted, expressly uses the phrase “by virtue of any entry relating to trade and commerce in any of the lists in the Seventh Schedule.” It was argued that, because of this connection, the words “by virtue of any entry relating to trade and commerce …” should be read into Article 301 as well, so that Article 301 would be construed as a limitation on the legislative commerce power, i.e., the power to enact laws under entries that deal with trade and commerce only. Finally, concerning the claim that taxation falls outside Part XIII except for Article 304(a), counsel argued that the historical background of Section 297 of the Government of India Act, 1935, and Articles 274 (as well as the related provisions) must be examined to understand the proper placement of taxation powers.

In this case, the Court referred to Articles 276 and Articles 285 to 288 of Part XII of the Constitution. It observed that the power to impose taxes originates from sovereignty and is divided between the Union and the States by the constitutional scheme. Part XII, the Court noted, contains the several provisions dealing with taxation and, according to the interpretation advanced, all the restrictions on the power to tax are located within Part XII, rendering that part self‑contained. Consequently, the argument advanced was that the guarantee of freedom of trade and commerce contained in Article 301 does not amount to freedom from taxation, because taxation does not constitute a restriction within the meaning of the articles that are placed in Part XIII. The Court explained that the interpretation under consideration consists of two pillars. The first pillar maintains that a plain levy of tax does not fall within the terms of Article 301. The second pillar contends that Article 301 must be read in the colour of Article 303, which, according to the argument, is limited to legislation that deals with entries relating to trade and commerce in any of the lists of the Seventh Schedule. The Court then turned to the decision in the Atiabari Tea Co. case (1), wherein the Court examined the correctness of this narrow construction and, by a majority, rejected it. The majority judgment in Atiabari Tea Co. (1) examined the arguments supporting the narrow view in detail; the present Court, agreeing substantially with those reasons, felt that restating them would not add value. Nonetheless, the Court emphasized that while the power to levy tax is essential for the existence of government, its exercise may be subject to constitutional constraints. It rejected the proposition that the power to tax is free from any constitutional limitation. After a careful examination of the provisions of Part XII, the Court concluded that those provisions do not exhaust every limitation on the imposition of tax. The Court noted that the effect of Article 265, as considered in the majority decision, is that taxation may be levied only under the authority of law. Turning to Article 245, which deals with the territorial jurisdiction of laws made by Parliament and by State legislatures, the Court observed that the article expressly states that the law‑making power of Parliament and of State legislatures is “subject to the provisions of this Constitution.” The Court held that the phrase “subject to the provisions of this Constitution” is wide enough to incorporate the provisions of both Part XII and Part XIII, as indicated by the citation (1) [1961] 1. S. C. R. 809. Consequently, in view of Article 245, the Court found it difficult to accept the contention that the restrictions in Part XIII do not apply to taxation statutes. The Court also rejected the argument that Article 301 must be coloured by Article 303.

The Court was unable to accept the contention that the provisions of Article 303 must limit the general terms of Article 301. It appeared to the Court that, with respect to Parliament, Article 303(1) carved out an exception from the relaxation conferred on Parliament by Article 302, and that the relaxation created by Article 302 itself constituted an exception to the general terms of Article 301. The Court held that it would run contrary to ordinary principles of construction to treat an exception or proviso as having such a far‑reaching effect on the interpretation of the main provision that it would implicitly exclude from that provision matters that clearly fall within its express terms. After careful consideration of the submissions placed before it, the Court concluded that the narrow construction urged on behalf of the majority view of the State could not be accepted; that view proposed that the provisions of Part XIII applied only to legislation dealing with entries relating to trade and commerce in any of the lists of the Seventh Schedule. The Court noted, however, an exception already indicated earlier in the judgment: regulatory measures that do not impede the freedom of trade, commerce and intercourse, and compensatory taxes imposed for the use of trading facilities, are not struck down by Article 301. Such measures are excluded from the operation of Part XIII because they facilitate rather than hinder trade, commerce and intercourse. This observation resolved two of the principal interpretations that had been advanced. The Court rejected both the widest and the narrowest interpretations for the reasons previously set out. It then turned to other interpretations presented for consideration. Counsel for one party, Mr Lalnarain Sinha, had essentially argued that Article 301 is confined to freedom from geographical barriers only, while counsel for another party, Mr D Sahu, maintained that Article 301 is limited to (i) interstate barriers and (ii) customs barriers that once existed between the Indian States and the adjacent British Indian territory. In the Court’s opinion, both of these constructions proceeded on a somewhat narrow basis and were not supported by the general language employed in Article 301 and the other relevant provisions of Part XIII. The Court opined that the scope of the pertinent articles in Part XIII is broader than assumed by those narrow readings. While dealing with this point, the Court found it useful to refer to the contrast between Article 19 in Part III and Article 301 in Part XIII of the Constitution. Article 19 guarantees to all citizens certain rights that are succinctly described as the right to freedom, including (i) the right to move freely throughout the territory of India and (ii) the right to carry on any occupation, trade or business. The right to move freely throughout the territory of India

The Court noted that the freedom of movement guaranteed under Article 19(1)(d) is subject to reasonable restrictions in the interest of the general public or for the protection of any scheduled tribe. Likewise, the right to pursue any occupation, trade or business, which is also encompassed in Article 19(1)(g), is subject to reasonable restrictions that serve the public interest and, in particular, to any statute that regulates the conduct of trade or business by the State, whether such regulation results in total or partial exclusion of citizens or any other persons.

The Court then explained the first distinction between Article 19 and Article 301. Article 19 confers the right of freedom specifically upon citizens, whereas the freedom guaranteed by Article 301 is not limited solely to citizens. A further distinction that has been drawn by some authorities is that Article 19 approaches the right from the perspective of an individual, while Article 301 addresses the freedom of the collective volume of trade, commerce and intercourse. The Court expressed the view that, even if such distinctions exist, they are not material to the matters before it, because a trader may invoke a breach of his individual freedom under Article 19(1)(g) and at the same time claim that the freedom protected by Article 301 has also been infringed. In certain circumstances the two freedoms may not coincide or merge.

The Court referred to Australian case law where a distinction was attempted between the free flow of the aggregate volume of inter‑State trade and the individual’s right to conduct business in more than one State. It was argued that section 92 of the Australian Constitution concerned the free movement of trade as a whole, separate from an individual’s right to trade. That distinction was rejected by the Privy Council, which observed that the celebrated Mr James, who fought many battles for the freedom of his trade and occupation, was ultimately an individual.

Another aspect of the contrast between Article 19 and Article 301, which the Court noted had been raised before it, concerns the argument that a law restricting a citizen’s right to carry on a trade or business may be justified under clause (6) of Article 19 if it serves the public interest, and therefore the same law should not be subject to attack as violating Article 301. The argument advanced that allowing such a second attack would effectively strip away the protection that clause (6) of Article 19 gives, by using Article 301 to undo a constitutionally permitted restriction. The Court observed that the argument rests on the premise that a person must first be entitled to engage in a particular trade or business before he can complain about any impediment to that freedom. The Court indicated that this issue may require a more detailed and careful examination in a case specifically concerned with those questions.

Finally, the Court stated that it could not accept the contention advanced by Mr Sinha that the Constitution should be read to prohibit the crossing of geographical barriers in the manner he described. Accordingly, the submission of Mr Ranadeb Chaudhuri, who appeared on behalf of one of the interveners, was not accepted.

The Court accepted the view that had been endorsed by the majority of earlier decisions, namely that Article 301 of the Constitution was intended to protect the aspect of movement that is involved in trade, commerce and intercourse. This aspect of movement was described by the Court as the “channelling” of trade, commerce and intercourse. While accepting this position, counsel for one of the interveners, Mr Ranadeb Chaudhuri, raised an additional point concerning subsidies. He argued that Article 303, which deals with discrimination and preference, also addressed the problem of subsidies that might be granted by a State as a form of preference or discrimination. According to his submission, even if a subsidy did not relate directly to the movement aspect of trade and commerce, the mischief created by such a subsidy would still fall within the scope of Article 303. The Court observed that the present cases did not involve the question of subsidies, and therefore it was unnecessary to consider Mr Chaudhuri’s argument on that point.

The Court then turned to the interpretation of the word “intercourse” that appears in Article 301. Several arguments had been made on this point. Some of the States contended that the term “intercourse” should be understood narrowly, limited to commercial intercourse in the sense of buying and selling. On the other hand, the appellants argued that “intercourse” should be given a broader meaning that includes not only trade and commerce in the strict sense, but also activities such as the movement of persons for the purpose of friendly association, telephonic communications and other similar interactions. The Court held that, for the purposes of the matters presently before it, the precise breadth of the term “intercourse” was not decisive. Even if the term were interpreted broadly, the next issue would be the meaning of the word “free” in the constitutional provision. The Court asked whether “free” implied freedom from all regulation that might be required for an orderly society. It had already stated that the word “free” in Article 301 could not be given such an all‑encompassing meaning.

Consequently, the Court concluded that neither the widest possible interpretation nor the very narrow interpretation of “intercourse” presented by the parties was satisfactory. The Court affirmed the interpretation that had been adopted by the majority in the Atiabari Tea Co. case, but added a clarification to that view. The Court explained that regulatory measures or charges that are essentially compensatory taxes for the use of trading facilities do not fall within the category of restrictions contemplated by Article 301. Such measures, therefore, are not required to satisfy the conditions laid down in the proviso to Article 304(b) of the Constitution.

Having set out that principle, the Court posed two questions for resolution. First, it asked whether the provisions of the Act, read together with the Schedules, constitute permissible regulation that does not materially affect the freedom of trade, commerce and intercourse. Second, it considered whether the taxes imposed by those provisions should be characterised as compensatory taxes that merely compensate for the use of trading facilities such as roads, bridges and similar infrastructure, and consequently do not impede the freedom guaranteed by Article 301. The Court recalled a passage from Section 4 of the Act, which is the charging provision. That section makes clear that the tax is levied on a motor vehicle that is used in any public place or is kept for use therein. This description of the tax base formed part of the Court’s analysis in determining the nature of the tax and its compatibility with the constitutional guarantee of free trade, commerce and intercourse.

In Rajasthan the Act imposed a tax on every motor vehicle at rates that were laid down in the Schedules to the Act; except as saved by the Act, the tax had to be paid each year even if the vehicle later ceased to be used. Section 7 provided that where a vehicle for which tax had been paid was not used continuously for at least three months, the owner could claim a refund equal to one‑twelfth of the annual tax that had been paid. The Schedules showed that a vehicle which was not a transport vehicle attracted a single consolidated tax, the amount of which depended on whether the vehicle was fitted with pneumatic tyres. The rate of tax varied according to the nature of the vehicle – for example a motorcycle, a motor tricycle drawing a tractor or a side‑car – as noted in the citation [1961] 1. S. C. R. 809. Schedule I dealt with transport vehicles and further divided them into several categories, including those fitted with pneumatic tyres and those not, motor vehicles carrying passengers and light personal luggage, and goods vehicles operating under a public carrier’s permit. In many cases the quantum of tax was fixed by the seating capacity of the vehicle, while in other cases it was fixed by the loading capacity; some goods vehicles were taxed per day and others per annum. Schedule III was limited to goods vehicles and again classified them into different classes based on features such as pneumatic tyres or the presence of a trailer, the tax being levied as a per‑day usage charge. Schedule IV covered vehicles operating under a private carrier’s permit; it likewise classified vehicles by the presence of pneumatic tyres, by whether the permit was general for the whole of Rajasthan or restricted to a single region, and by loading capacity. A careful examination of all these provisions made clear that the taxes were essentially charges on motor vehicles that used the roads of Rajasthan or were kept for such use, whether throughout the entire state or only in part, and that every owner of a motor vehicle – trader or otherwise – was required to pay the tax. When the High Court considered whether these taxes amounted to unreasonable restrictions on the constitutional right of individuals to move freely throughout the territory of India, it observed that the State maintains existing roads and constructs new ones, and that these roads are available to all users of motor vehicles for private or commercial purposes. The Court noted that road maintenance and construction naturally incur costs for the State, which must raise funds for these purposes, and that such funds could be raised only through taxation; consequently, if the State taxes motor‑vehicle users in order to finance roads, the tax could not be said to impose an unreasonable restriction on the freedom of movement.

In the present case, the Court observed that imposing a tax to finance the construction and upkeep of roads does not amount to an unreasonable restriction on the constitutional right of individuals to travel freely throughout the territory of India, nor does it impede any person’s right to practice a profession or to carry on any occupation, trade or business. To assess the reasonableness of the tax, the Court examined the financial figures of the State of Rajasthan. It noted that for the fiscal year 1952‑53 the revenue generated from motor‑vehicle taxation under the relevant Act was roughly Rs. 34 lakhs, while the expenditure incurred for building new roads and maintaining existing ones in that same year was about Rs. 60 lakhs. For the later period of 1954‑55, the estimated revenue from the tax was approximately Rs. 35 lakhs, whereas the projected outlay for road work exceeded Rs. 65 lakhs. From these data the Court inferred that the State was charging the users of motor vehicles an amount close to half of the cost that it had to bear for providing and preserving the road network. The High Court further detailed the rate structure: a private motor car was taxed at Rs. 12 per seat, so that a typical five‑seater automobile attracted a yearly levy of Rs. 60. By paying this amount, the owner was entitled to use the vehicle anywhere within Rajasthan and the roads remained open to him. For a goods vehicle whose load capacity exceeded five tons (more than 135 maunds), the tax was fixed at Rs. 2 000 per annum. Assuming such a vehicle could be employed reasonably for 200 days in a year, the tax translated into Rs. 10 per day for transporting roughly 140 maunds of goods over any distance on Rajasthan roads. This computation further reduced to about Rs. 1 for every 14 maunds, which is essentially an anna per maund.

Having examined the Act and its accompanying Schedules, the Court concluded that the levy was, in substance, a charge for the use of Rajasthan’s roads and could not be said to obstruct the free movement of trade, commerce or interpersonal intercourse. The Court characterized these levies as compensatory taxes, meaning that rather than hindering commercial activity, they actually facilitated it by providing the necessary infrastructure and ensuring that roads were kept in good repair. The Court rejected the proposition that the compensatory nature of a tax could be determined solely by reference to the pre‑amble of the statute that imposed it. It also declined to accept the view that a tax ceases to be compensatory merely because the exact amount collected is not earmarked for the specific facilities that benefit the taxpayers. The Court warned that if the pre‑amble alone were decisive, the mercantile community would be left vulnerable, and legislators could easily undermine the freedom guaranteed by Article 341 by simply stating a different purpose in the pre‑amble. Moreover, the Court observed that the actual users of the roads are often unknown to the trading community, and consequently a particular user may at times be treated as compensatory and at other times not, depending on the circumstances.

In this case, the Court explained that the appropriate way to determine whether a tax is compensatory is to examine whether the traders actually receive facilities that help them conduct their business and whether they are required to pay only the reasonable cost of those facilities. The Court said that it is not feasible to apply an overly precise or technical test to assess the compensatory character of a tax, because such a meticulous approach is impractical in the nature of taxation. The Court further held that it does not matter if the revenue collected from the tax is not placed in a separate fund, provided that the facilities for which the traders pay are made available and that the State bears the expenses of providing those facilities from any of its sources. The Court observed that the instruments of commerce mentioned in the case do not infringe the freedom of inter‑State trade, because their nature and purpose are to serve trade. The Court noted that the public authority must maintain such instruments so that commerce can use them, and that requiring commerce itself to share or contribute to the cost of maintaining those instruments does not diminish the constitutional freedom of trade, commerce and intercourse between States (p. 43). The learned Chief Justice reiterated this view in Commonwealth Freighters Property Ltd. v. Sneddon (1). Consequently, the Court concluded that the Act did not offend Article 301 of the Constitution and that the taxes imposed under the Act were compensatory taxes which did not restrain the freedom of trade, commerce and intercourse guaranteed by that article. Accordingly, the taxes were lawful and the High Court was correct in dismissing the writ petitions filed by the appellants. The Court therefore dismissed the appeals, awarding costs and one hearing fee. Justice Subba Rao agreed with the conclusion reached by Justice S. K. Das, but because of the significance of the question, he offered his own reasoning on the interpretation of the relevant provisions of Part XIII of the Constitution. He framed the issue as determining the scope of the freedom enshrined in Article 301 and identifying the implicit or expressly provided limitations in the succeeding articles. He summarized the divergent arguments of counsel into several headings, beginning with the contention that “trade, commerce and intercourse” is a term of widest amplitude encompassing activities from production to the final commercial transaction, and that any restriction on any part of this integrated activity by law or executive action would violate Article 301. The second heading, drawn from counsel’s submissions, defined the expression “trade, commerce and intercourse” as referring solely to transportation in the course of trade across State or inter‑State boundaries, and asserted that any law, including taxation, directly affecting such transportation would infringe the freedom (1) (1959) 102 C. L. R. 280, 291.

One contention put forward was that the term “intercourse” should be understood to mean only the act of transporting goods in the course of trade when such transport crosses state or inter‑state barriers, and that any law, whether a tax or otherwise, which directly and materially affects that transportation would violate the freedom guaranteed by Article 301. Another contention held that the freedom recognised under Article 301 is limited to freedom from geographical barriers that are created by law between states or between intrastate units, and that any law, including discriminatory tax measures that creates such barriers, would offend Article 301. A further submission argued that the freedom envisaged by Article 301 is confined to protection against statutes that show preference for one state over another, and that discrimination between states can arise only by virtue of entry 42 of List I, entry 26 of List II and entry 33 of List III of the Seventh Schedule to the Constitution. Yet another position asserted that fiscal taxation lies entirely outside the domain of the freedom declared in Article 301. All counsel appearing in the case concurred, or at the very least did not dispute, the proposition that regardless of the precise content or scope of the freedom – which remains a point of disagreement – the freedom applies to both inter‑state and intra‑state trade.

Before analysing the provisions of the relevant articles, the Court considered several general observations. It noted that the Constitution was not drafted on a clean slate; many concepts were borrowed from the Government of India Act and from other national constitutions and were adapted to suit India’s conditions. The drafters included individuals who possessed deep knowledge of constitutional issues in other countries and were therefore assumed to be aware of how the highest courts in those jurisdictions had interpreted similar legal concepts. At the same time, it was reasonable to assume that those framers earnestly tried to incorporate the beneficial aspects of foreign experience while avoiding their defects, and to mould those ideas to fit Indian realities. Consequently, a brief survey of the relevant provisions of those foreign constitutions and the interpretations given by their supreme tribunals was not merely relevant but necessary for appreciating the proper scope of Article 301. The Constitution establishes a federal structure with a bias toward the central government, yet it confers real and substantial autonomy to the states within the fields allocated to them. Therefore, when construing the provisions of Part XIII, if the language of those provisions is not clear and unambiguous, it becomes the Court’s duty to interpret them in a way that does not disturb the constitutional framework. The Court indicated that it would now proceed to construe the relevant constitutional provisions.

It was appropriate at this stage to examine briefly the material from American and Australian law that relates to the present inquiry. Clause 3 of section 8 of article 1 of the Constitution of the United States declares that Congress shall have the power to regulate commerce with foreign nations, among the several States, and with the Indian tribes. This provision serves two functions: first, it supplies a source of national authority; second, it operates as a limitation on the powers of the States. The clause gave rise to two principal questions. The first question concerned the scope and content of the commerce power itself. The second question concerned the method of resolving conflicts that arose when a law enacted by Congress in the exercise of that power came into conflict with a law enacted by a State in the exercise of its police power, or other expressed or implied powers. An authoritative definition of the term “commerce” was offered by Chief Justice Marshall in Gibbons v. Oden (1), where he observed that the term should be restricted from being a vague expression applicable to many objects to one of its specific meanings, stating: “Commerce, undoubtedly, is traffic but something more— it is intercourse.” The decisions of the United States Supreme Court on this subject have not been uniform. Rather, the Court has repeatedly employed the commerce power to meet the various economic, commercial, industrial and transportation revolutions that have occurred in the United States. For the purposes of this case it is unnecessary to analyse every conflict or nuance in the jurisprudence, whether the concept of commerce was expanded or narrowed to suit particular circumstances; the common thread in the authorities is that transportation across borders, whether physical or conceptual, has been consistently held to be an essential component of the expression “commerce.” Willis, in his constitutional law textbook, summarises the current position at page 288: “today the correct definition of commerce is that it is traffic and commercial intercourse. This, of course, gives Congress power wherever traffic or intercourse concerns an inter‑State market. When ‘commerce’ is properly defined as traffic and the mental picture is formed, not of an isolated journey across a state boundary line, but of an onward coursing stream of business which knows no state lines, which is constantly fed and as constantly feeds the streams of production, and which debouches into the inter‑State market, then regulations of it by Congress, whether taking the form of a prohibition of certain phases of transportation or some other form, cease to be open to the charge of an ulterior intention to usurp their power, because it operates most upon the very subject‑matter entrusted to Congress or, at most, upon local incidents thereof, the fringe, so to speak, of a nation‑spread fabric.” In this context the following cases are instructive: Carter v. Carter Coal Company (1), Kidd v. Pearson (2), Welton v. State of Missouri (3).

In the United States, the case Public Utilities Commission v. Landon is frequently cited to illustrate that, in American law, the term “commerce” is broadly understood to designate traffic that operates across State boundaries. When the Supreme Court of the United States was confronted with the dilemma of reconciling federal statutes that regulated commerce with State enactments that were enacted under the police power, the Court adopted a practical methodology. To resolve the conflict between federal commerce‑regulating legislation and State police powers, the Court fashioned several doctrinal tools. Among these tools are the concepts known as the “original package” doctrine, the doctrine of the “silence of Congress,” the doctrine of “preemption,” the principle of an “undue and unreasonable burden,” and the distinction between “direct and indirect effect.” The Court’s discussion of “direct and indirect effect” upon inter‑State trade has been articulated in a series of decisions that remain instructive. Notable among those cases are M’Culloch v. The State of Maryland, John T. Hendrick v. The State of Maryland, Interstate Busses Corporation v. William H. Blodgett, Interstate Transit v. Dick Lindsey, and A. L. A. Schechter Poultry Corporation v. United States of America. These precedents demonstrate that, in the United States, a State regulation is not deemed to infringe the commerce clause unless it directly affects inter‑State commerce, and that a State may impose taxes provided the taxes are levied to fund services that facilitate trade.

The Constitution of the Commonwealth of Australia was enacted in 1900, and its framers were aware of the development of American jurisprudence concerning the commerce clause at the time of its drafting. The Australian Constitution therefore vests specific legislative powers in the Commonwealth with respect to trade and commerce. Section 51 of the Constitution confers the power to legislate on “trade and commerce with other countries and among the States.” Section 98 extends that power to navigation, shipping, and to railways that are the property of any State. Section 99 forbids the Commonwealth, by any law or regulation dealing with trade, commerce, or revenue, from giving preference to one State or any part of a State over another State or any part thereof. Section 100 protects the right of a State or its residents to make reasonable use of river waters for purposes of conservation or irrigation, preventing Commonwealth legislation from abridging that right. Additional legislative authority is granted to the Commonwealth over particular subjects related to trade and commerce, such as bounties, currency, coinage, bills of exchange, bankruptcy, copyrights, customs, excise, and related matters. Section 92 declares that, upon the imposition of uniform duties of customs, trade, commerce, and intercourse among the States—whether conducted by internal carriage or by ocean navigation—shall be absolutely free.

In this case, the Court observed that the Australian Constitution differs from the American Constitution in that it not only grants the Commonwealth Parliament authority to enact laws concerning trade and commerce with other countries and among the States, and also concerning particular subjects of trade and commerce, but it also contains an explicit declaration that trade, commerce and intercourse among the States shall be “absolutely free.” The Court pointed out that while the American document employs the single term “commerce,” section 92 of the Australian Constitution uses the broader phrase “trade, commerce and intercourse,” and that the Constitution employs the strongest possible language, namely “absolutely free,” to emphasize the intended liberty. This provision, like the commerce clause in the United States Constitution, has been the subject of extensive judicial examination and conflicting decisions. The interpretation of the sub‑section has been considered in relation to legislation affecting marketing, banking and transport, raising the question of whether State laws interfere with the guaranteed freedom. Paradoxically, Australian courts, and on appeal, the Privy Council, have developed the power of the States to impose restrictions on that freedom, despite the wording of absolute liberty. They reasoned that without any statutory limits, unchecked freedom in inter‑State commerce could lead to disorder, and therefore appropriate limitations were fashioned in order to preserve the essential freedom. The Court noted that the scope of those limitations is relevant for construing other constitutional provisions that expressly allow similar restrictions. The leading authorities that illuminate the scope of the freedom and its limitations include Smither’s case, W. & A. McArthur Ltd. v. State of Queensland, James v. Commonwealth of Australia, and Commonwealth of Australia v. Bank of New South Wales. In those decisions, the expression “trade, commerce and intercourse among the States” was interpreted in its widest sense, encompassing every form of trade that involves the movement of goods across State frontiers as well as non‑commercial intercourse. Regarding the second issue, the Court referred to several seminal Australian judgments that provide an informative exposition of jurisdictional conflict and offer useful guidance for its resolution. Those judgments comprise James v. Cowan, Commonwealth of Australia v. Bank of New South Wales, Hughes and Vale Proprietary Ltd. v. State of New South Wales, Hughes and Vale Private Limited v. State of New South Wales (No 2), Grannall v. Marrickville Margarine Proprietary Ltd., Armstrong v. State of Victoria (No 2), and Commonwealth Freighters Proprietary Ltd. v. Sneddon. These decisions collectively form the foundation for understanding both the breadth of the constitutional guarantee of free trade and the circumstances under which lawful State measures may be justified without breaching that guarantee.

The Court cited the Australian authorities Proprietary Ltd. (8), Armstrong v. State of Victoria [No. 2] (9) and Commonwealth Freighters Proprietary Ltd. v. Sneddon (10) and then observed that those decisions collectively articulated three substantive propositions. First, the Court explained that any law, whether it is fiscal in nature or otherwise, must directly and immediately restrict traffic across State borders before it can be said to offend the freedom guaranteed by section 92 of the Commonwealth of Australia Constitution Act. Second, the Court stated that measures which are intended to compensate for the regulation of commerce do not constitute a restriction on the protected freedom. Third, the Court noted that when a question arises about whether a fiscal statute amounts to a restriction on that freedom, a careful scrutiny of the statutory provisions may rebut the presumption that the impugned legislation is merely a compensatory measure for amenities or services rendered. The Court then listed the authorities that support this proposition, namely (1) (1912) 16 C.L.R. 99; (2) (1920) 28 C.L.R. 530; (3) [1936] A.C. 578; (4) [1950] A.C. 235; (5) [1930] 43 C.L.R. 386; (6) [1955] A.C. 241; (7) [1956] 93 C.L.R. 127; (8) [1955] 93 C.L.R. 155; (9) [1957] 99 C.L.R. 28; and (10) [1959] 102 C.L.R. 280, emphasizing that these authorities illustrate how meticulous examination can defeat the inference that the statute is simply a compensatory scheme. Turning to the principles that emerge from the American and Australian jurisprudence, the Court identified five key points. The first point observed that, although the United States commerce clause merely confers power upon Congress, the Australian Constitution enshrines the freedom of trade, commerce and intercourse in section 92 as a cherished liberty, and the composite expression in that provision was originally drawn from American case law. The second point explained that the phrase “trade, commerce and intercourse,” while not a technical term of art, has acquired a definite meaning in the constitutional law of both countries, namely the traffic and commercial intercourse that pertain to an inter‑State market and, in other words, the free flow of trade across State frontiers. The third point affirmed that the protected freedom must not be infringed by any law, whether it is a tax, a regulatory enactment, or an executive action. The fourth point clarified that a restriction may be imposed either before movement, constituting a prior restraint, or after movement, constituting a subsequent burden. The fifth point rejected the notion that “freedom” implies anarchy; instead it presupposes transactions conducted under the supervision of law, encompassing laws of contract, property and tort, safety regulations such as rules on speed, lighting and road conduct, and statutes that provide services or compensation for services, including the construction and upkeep of wharves, roads, aerodromes and the imposition of taxes to meet the expenses incurred in connection with those facilities, which are viewed not as restrictions but as measures that promote the freedom. Finally, the Court turned to Article 301 of the Constitution, quoting its wording: “Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free.” The Court observed that three groups of words within this article—“trade, commerce and intercourse,” “throughout the territory of India,” and “shall be free”—in their juxtaposition and interaction, provide the essential key to resolving the issue before it.

The provision of the Constitution consisted of three distinct parts: first, the phrase “trade, commerce and intercourse”; second, the qualification “throughout the territory of India”; and third, the declaration that such activity “shall be free.” The Court observed that the expression “trade, commerce and intercourse” is a composite term that had attracted extensive judicial scrutiny in the United States and Australia. Although the words were not technical terms of art, the highest courts of those jurisdictions had given them a developed secondary meaning through the gradual evolution of law. The Court therefore accepted the meaning that had been acquired by that composite expression in those foreign legal systems. Turning to the words “shall be free,” the Court noted that three questions naturally arise: what is meant by “free,” from what it is free, and where the freedom operates. The Court explained that the composite expression refers to trade that crosses borders, and consequently the thing that is to be free is the trade itself. Freedom, the Court said, is always understood to exist in the presence of possible obstructions. In the present context those obstructions are barriers that hinder the freedom to trade across borders. Article 301 therefore guarantees freedom from such barriers or impediments that function as obstacles to trade. However, the Court stressed that this freedom cannot exist in a vacuum; it must be limited by geographic space. A barrier may be erected between two States at their mutual boundary, or between two districts, two taluks, two towns, or even between two parts of a single town. Such a barrier might be located at a particular point on a boundary or might take the form of a continuous impediment that persists until the boundary is crossed. Barriers may assume many shapes, and the restrictions they impose may occur either before movement begins or after it has taken place. In other words, a barrier may be a prior restraint or a subsequent burden. The essential idea, the Court held, is that a barrier constitutes an obstacle placed across trade in motion at one or more points, and the expression “shall be free” imposes a mandatory requirement that transport or movement be free from such obstacles.

The Court then examined the question of where the freedom operates. The second part of the constitutional provision, “throughout the territory of India,” defines the extensive field within which the freedom applies. Accordingly, the intercourse of trade is to be free throughout the entire territory of India. The Court observed that the use of the words “territory of India,” in contrast to expressions such as “among the several States” in the American Constitution or “among the States” in the Australian Constitution, eliminates any reference to inter‑State or intra‑State divisions. This linguistic choice indicates that, for the purpose of the constitutional guarantee, the whole nation must be regarded as a single unit. The Court explained that trade cannot be said to be free throughout the territory of India if any barrier exists anywhere in the country, whether that barrier is inter‑State or intra‑State. As long as an impediment to the freedom exists, the character or magnitude of that impediment is immaterial; the distinction lies only in degree, not in quality. Consequently, the freedom declared under Article 301 may be understood as a right to the unrestricted movement of persons or things—whether tangible or intangible, commercial or non‑commercial—without any barriers, whether inter‑State, intra‑State, or any other impediment that functions as a barrier.

In this judgment the Court explained that any obstruction or impediment of any kind that hinders the free flow or movement of trade is a violation of Article 301 of the Constitution, unless such obstruction is justified by a provision that follows in the Constitution. The matter before the Court did not involve non‑commercial intercourse, so the discussion was limited to trade. The Court then turned to the question of what the term “freedom” actually comprises. Although the word cannot be defined with exact precision, it is possible to describe the kinds of acts that would infringe or diminish that freedom. Before a statute can be said to infringe the freedom guaranteed by Article 301, it must first be determined whether the challenged provision operates as a restriction that blocks the free movement of trade or merely as a regulation that assists that movement. The Court distinguished restrictions, which impede freedom, from regulations, which promote it. For example, police regulations that at first glance seem to limit movement actually create the necessary conditions for free movement by prescribing lighting, speed limits, vehicle fitness, timing of travel, road rules and similar requirements. Likewise, a licensing system that includes compensatory fees is not a restriction but a regulatory measure, because without such a system the essential channels of communication—roads, waterways and airways—could not be properly maintained and the declared freedom would become meaningless. The Court also noted that regulations that provide services essential for the free flow of traffic, whether they are charged or free of charge, cannot be described as restrictions that hinder the freedom. However, this does not mean that every rule labelled as a regulation is automatically permissible; if a provision is presented as a regulation but in substance functions as a restriction, it must be examined carefully.

The Court asserted that it is the duty of the judiciary, on a case‑by‑case basis, to decide whether a provision that purports to regulate trade is in reality a restriction on the constitutional freedom. If a provision is found to be a colourable exercise of power—meaning it is disguise as a regulation but operates as a restriction—then, unless it falls within one of the permissible restrictions enumerated in the provisions that follow Article 301, the provision must be struck down. The Court observed that this approach is consistent with the principles laid down by the Australian High Court and the Privy Council when interpreting the phrase “absolutely free” in section 92 of the Commonwealth of Australia Constitution Act, a phrase that is stronger than the word “free” used in Article 301. The Constitution grants both Parliament and the State Legislatures wide authority to enact laws on various subjects. A review of the entries in the Seventh Schedule shows that virtually every law made under any entry can have some impact—direct or indirect—on the freedom guaranteed by Article 301. Taxes such as property tax, professional tax, sales tax, excise duty and other forms of taxation may affect the free flow of trade indirectly. Similarly, statutes that are not taxes but are enacted under different entries in the legislative lists may also influence trade, even if only remotely. The Court indicated that such considerations are part of the broader analysis required to determine whether a law infringes the constitutional freedom of trade.

In the discussion, it was observed that if any law which could affect the free flow of trade were required to be enacted only by Parliament or by a State Legislature after obtaining prior consent of the President, the result would be the extinction of provincial autonomy. Such a requirement, except for a few limited exceptions, would mean that all legislation of this kind would have to be passed either by Parliament or by a State Legislature only with the approval of the central executive government. By interpreting the provisions in this manner, the Court would be turning the legislature of a State, which is elected on the basis of adult franchise, into a subordinate instrument of the central executive. This approach would amount to rewriting the Constitution and would introduce an inadvertent form of autocracy into a field of legislation that the Constitution deliberately assigned to the States, even though the Constitution has been carefully drafted to safeguard democratic principles. Consequently, any construction that would lead to such an unintended outcome had to be avoided unless the Constitution explicitly commanded it, and there were no express words of compulsion to that effect. At the same time, the Court found it difficult to accept the position advanced by the States that only laws enacted under entry 42 of List I, entry 26 of List II and entry 33 of List III of the Seventh Schedule were subject to the freedom guaranteed by Article 301. First, the article did not limit the freedom to the subject matter covered by those particular entries; second, statutes made under other entries could affect the movement of trade more directly and effectively. The Court held that a statute which directly and immediately imposes a tax for general revenue purposes on trade would infringe the freedom, whereas a law whose impact was indirect and remote would not be objectionable. Accordingly, the Court would have to determine in each case whether the challenged law affected trade directly or only indirectly and remotely. In this context, the Court also noted an argument presented by counsel for the State. The counsel contended that the domain covered by Article 19 of Part III of the Constitution and the domain covered by Part XIII were distinct, observing that Article 19 dealt generally with the freedom of trade while Article 301 dealt with discriminatory barriers. The counsel further argued that fiscal statutes could not be characterised as restrictions under Article 19 and therefore could not simultaneously be treated as restrictions under Article 301. He maintained that, irrespective of whether a tax was described as “regulatory” or “destructive,” fiscal taxes were always imposed in the public interest and that it was not possible for a court to decide whether a particular tax was reasonable. Building on this premise, the counsel argued that a reasonable restriction was a restriction whose reasonableness could be ascertained by the court, and that in cases where a court could not assess the reasonableness of a restriction – for example, where a statute fixed a tax rate – the Constitution should be interpreted as having exempted such a restriction from the reach of the freedom. The counsel’s line of reasoning was therefore presented as a reversal of the usual approach, asserting that the freedom declared by the Constitution could not be governed by the ability of a court to evaluate the reasonableness of a restriction.

In this case, the Court observed that the reasoning process could not be limited by whether a court was able to determine the reasonableness of a restriction placed on a constitutional freedom. The Court stated that what the Constitution guaranteed to every citizen was a fundamental right to engage in business. The Court explained that if clause (5) of Article 19 had not been included in the Constitution, any restriction upon that right—whether it arose from a statute imposing a tax or from any other source—would automatically constitute a violation of the Constitution. The presence of Article 19(6), which allowed for reasonable restrictions, did not alter the essential content of the freedom; rather, it merely provided protection for certain statutes that incidentally limited the freedom. The Court further noted that if a construction of Article 19(6) led to the conclusion that a fiscal tax was not a restriction within the meaning of that clause, then every law imposing such a tax would infringe the fundamental right, a result that could not have been intended by the framers of the Constitution. Consequently, the Court rejected the argument that every law of taxation was automatically a reasonable restriction made in the public interest.

The Court rejected the proposition that taxation was always in the public interest and that a court could not assess the reasonableness of a tax rate. While the Court acknowledged that regulatory taxes or statutes designed to prohibit or restrict an activity—rather than to raise general revenue—could be examined under Article 19(6) to determine whether they satisfied the constitutional test, the discussion was confined to “fiscal taxation,” meaning taxes levied solely for raising revenue for the State. The Court recognized that unreasonable procedural requirements imposed by a taxation law could infringe the freedom guaranteed by Article 19(1)(g) and that a fiscal law might also violate the equality principle embodied in Article 14. The Court could not comprehend how a taxation law could violate Article 19(1)(g) with impunity. Referring to Article 13(2), the Court reiterated that the State was prohibited from making any law that took away or abridged the rights conferred by the Constitution, and that any law contravening this provision would be void to the extent of the contravention. The Court emphasized that a taxation law was enacted by Parliament or a State Legislature under the constitutional powers granted by the relevant entries, and that such a law was no different from any other law made under the Constitution. Citing the decisions in K. Thathunni Moopil Nair v. State of Kerala and Balaji v. I.T. Officer, the Court affirmed that a taxation law would be declared void if it infringed the fundamental right guaranteed under Article 19.

The Court observed that, since a taxing law is a law made under the Constitution, it must satisfy the two tests laid down in Article 19(6) of the Constitution. It rejected the sweeping proposition that a law of taxation is always in the public interest. While it is true that a tax may be intended to serve public good, the Court noted that there can be occasions when the rate or the mode of taxation is so contrary to the principles of natural justice or to well‑settled principles of taxation that it causes irreparable harm to the public rather than promotes public welfare, and in such cases the Court may be compelled to hold that the law is not in the public interest. The Court also refused to accept the contention that a court can never decide whether a particular rate of taxation is reasonable. It described that contention as unsound as a matter of law. Although it may be difficult for a court to reach a definite conclusion on the correctness of a rate fixed by the legislature, the Court referred to the observations of Dixon, C. J., in Commonwealth Freighters Proprietary Limited v. Sneddon, noting that “Highly inconvenient as it may be, it is true of some legislative powers limited by definition, whether according to subject‑matter to purpose or otherwise, that the validity of the exercise of the power must sometimes depend on facts, facts which somehow must be ascertained by the court responsible for deciding the validity of the law… All that is necessary is to make the point that if a criterion of constitutional validity consists in matter of fact, the fact must be ascertained by the court as best it can, when the court is called upon to pronounce upon validity.” The Court fully endorsed these observations. It further explained that courts regularly confront intricate problems involving science, medicine, engineering, geology, biology, economics, psychology and other specialised fields, and that no court has ever refused to decide such questions on the ground of difficulty. While acknowledging the challenges inherent in assessing a tax rate, the Court observed that experience shows a court applies certain presumptions, such as the wisdom, knowledge and good intentions of the legislature, and that it does not meticulously examine every detail but rather looks at the broad features of the law. Consequently, the Court concluded that it is permissible and possible for a court to ascertain whether a tax is fiscal or regulatory, and that determining the reasonableness of a fiscal tax, although perhaps difficult, is not impossible.

In considering how to determine whether a levy functions as a fiscal tax or as a regulatory measure, the Court observed that the task, while potentially demanding, is not beyond the capacity of judicial review. The Court affirmed that it remains possible, and indeed appropriate, for a court to evaluate the reasonableness of a fiscal tax. The distinction between fiscal and regulatory taxes, the Court explained, does not rest upon the type of inquiry undertaken but merely upon the degree to which the tax imposes a burden. Moreover, the Court held that an unreasonable restriction imposed by the State can be more detrimental to an individual’s liberty than the mere imposition of a fiscal charge, which in certain situations may even annihilate that liberty altogether. Accordingly, after a careful construction of the language of Article 19 of the Constitution, the Court concluded that it is neither feasible nor permissible to assert that tax statutes lie outside the ambit of the freedoms guaranteed by that article.

The Court noted that the premises underlying Mr. Lalnarain Sinha’s submissions lacked a reasonable foundation; consequently, his further contention that the freedom guaranteed under Article 301 excludes fiscal legislation must be dismissed. Having delineated the scope and substance of the freedom contemplated in Article 301, the Court turned to the subsequent provisions that impose limitations on that freedom. Article 302 permits Parliament, by law, to place restrictions on the freedom of trade, commerce, or intercourse between states or within any part of the territory of India when such restrictions are required in the public interest. This provision operates as an exception to Article 301, and the restrictions contemplated therein are themselves restrictions on the said freedom. However, such restrictions may be imposed by Parliament only through legislation, and Parliament’s authority to legislate emanates from Articles 245 and 246 of the Constitution. Under those articles, Parliament may enact laws concerning any matters enumerated in the Union List (List I) and the Concurrent List (List III) of the Seventh Schedule, as well as matters relating to territories not included in any state. By virtue of this constitutional power and the language of the relevant entries, Parliament is capable of enacting any law that imposes restrictions on the freedom contemplated in Article 301. The Court emphasized that neither the source nor the nature of the law—whether it is a tax law or otherwise—is decisive; rather, the critical factor is the effect of the law on the protected freedom. The Court further rejected the proposition that Article 302 confers an independent, additional power on Parliament apart from that derived from Articles 245 and 246. The phrase “by law” in Article 302 unmistakably refers to Parliament’s constitutional authority to make law. If the Constituent Assembly had intended to grant Parliament a fresh, distinct power, the wording would have employed language such as “shall have the power,” which it did not. Thus, under Article 302, Parliament may impose restrictions only within the confines of the subjects over which it is empowered to legislate.

The Court observed that Parliament may impose restrictions only by relying on entries in the constitutional Lists that authorize it to legislate. An examination of List I reveals that the majority of entries—including entries 22, 23, 24, 25, 27, 29, 42, 52, 53, 56, 81, 89, 91 and others—permit the making of laws that may limit the freedom in question. The existence of a restriction therefore does not hinge on which particular entry is invoked; rather, it depends on the actual effect of the law on the freedom. The Court noted that an attempt had been made to narrow this legislative power by confining it to the entries specified in Article 303. Article 303 bars Parliament from enacting a law that gives preference to one State over another or that discriminates between States, and this prohibition is limited to the entries dealing with trade and commerce. However, the Court held that Article 303 operates merely as an exception or proviso to Article 302. The proviso, the Court explained, leaves the general scope of the substantive enactment unchanged except as it concerns the specific subjects mentioned in the proviso. Where the language of the principal enactment is clear and unambiguous, a proviso cannot alter the interpretation of that enactment so as to implicitly exclude matters that fall within its expressed terms, as affirmed in M. & S. M. Railway v. Bezwada Municipality (A I R 1944 P.C. 71, 73). The wording of Article 302 is therefore clear and does not limit its operation to any particular entry, and consequently the restriction imposed by Article 303 cannot diminish the generality of Article 302’s provisions. The Court then turned to the more challenging question of the meaning of the term “restrictions” in Article 302. Dictionary definitions describe “restrict” as to confine, bind or limit. Accordingly, any limitation placed upon the freedom constitutes a restriction. Yet the Court stressed that such a limitation must be real, direct and immediate, not merely fanciful, indirect or remote. In this regard, the Court found it appropriate to look to principles developed in American and Australian jurisprudence that reconcile commerce powers with state police powers, adapting them where suitable. Among the doctrines considered, the Court favoured the “direct and immediate effect” test as a practical solution for constitutional difficulties. Under this test, any law—regardless of its source—that directly and immediately impacts the free movement of trade is a restriction on the freedom. Conversely, a law whose impact is only indirect or remote does not constitute a restriction. The Court illustrated this principle with a taxation example: a statute that imposes a tax directly on the movement of goods or persons by motor‑vehicle operates as a restriction on the free movement of trade.

In the discussion, the Court explained that a law imposing a tax on the free movement of trade would be regarded as a restriction on that freedom, except where the tax was intended to be compensatory or regulatory in nature. By contrast, a statute that levied a tax on a vehicle considered as property, or on the garage in which a conveyance vehicle was kept, produced only an indirect effect on the movement of trade and therefore did not constitute a direct restriction on the free movement of trade. The Court identified two difficulties that could arise in this context. First, a law that appeared to tax property or a motor‑vehicle might, in practical effect, operate as a tax on the movement itself; second, a law that taxed the property rather than the movement could impose such a heavy burden that it would indirectly impede the free flow of trade. In the first situation, the Court indicated that it would be necessary to scrutinise the specific provisions of the statute to determine whether the tax was genuinely on movement. If the provisions revealed that the tax was imposed on movement, the Court would treat the statute as a restriction within the meaning of Article 302. In the second situation, where the provisions showed that the tax was on property, the Court said that the reasonableness of the tax would have to be examined in light of the provisions of Article 19 of the Constitution.

The Court further clarified that the question of whether a law imposed a restriction depended on whether the law directly and immediately limited the freedom of movement of trade. If the law did so, the degree of the impediment concerned the extent of the restriction rather than its nature. Whenever a law was deemed to be a restriction, it had to satisfy the conditions laid down in Article 302. The Court then turned to Article 303, describing it as an exception or proviso to Article 302. Article 303 began with a non‑obstante clause, stating “Notwithstanding anything in article 302”. The Court explained that this phrase meant “in spite of article 302” or that “article 302 shall be no impediment to the operation of article 303”. The Court observed that the language of this article was widely regarded as defective. Article 303 prohibited both Parliament and a State Legislature from making a law that gave preference to one State over another or that created discrimination among States. Because the non‑obstante clause had no relevance to a State Legislature—Article 302 did not address State Legislatures—the Court concluded that the non‑obstante clause could only be applied to the limitation that it was intended to affect, namely the restriction imposed on Parliament under Article 303. Accordingly, the Court read the relevant portion of the article as follows: “Notwithstanding anything in article 302, the Parliament shall not have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating”.

In this case, the Court explained that the constitutional provision reads that neither Parliament nor a State Legislature may enact a law that imposes a restriction having the effect of giving preference to, or making discrimination among, the States, when such law is made “by virtue of the entries relating to trade and commerce in any of the Lists in the Seventh Schedule.” The Court noted that this language confines the prohibition to laws that are enacted on the basis of the specific entries concerning trade and commerce contained in the Seventh Schedule. Consequently, the provision expressly bars any law of the kind described from being made on the basis of those trade‑and‑commerce entries. The Court then considered whether the limitation applied only to statutes enacted under the trade‑and‑commerce entries themselves, or whether it extended to statutes enacted under any entry in the Seventh Schedule that might affect trade and commerce. It identified the relevant entries as entry 41 and entry 42 of List I, entry 26 of List II, and entry 33 of List III, which are the explicit trade‑and‑commerce entries. However, the Court observed that the phrase “by virtue of the entries relating to trade and commerce in any of the Lists in the Seventh Schedule” may be given a broader meaning than the narrower phrase “by virtue of the said entries.” The Court held that a liberal interpretation of the wording is appropriate because the language is wide‑ranging and the purpose of the exception supports such a reading. The Court reasoned that there can be no principled distinction, in terms of the mischief the provision seeks to prevent, between a law made on the face of an entry that expressly refers to trade and commerce and a law made on the basis of any other entry that nevertheless affects trade and commerce. For example, laws enacted under entries dealing with railways, highways, or shipping do not expressly mention trade and commerce, yet they can have a direct impact on it. Accordingly, if a law made under entry 26 of List II that gives preference or discriminates among the States is objectionable, a similar law made under any other entry that also affects trade and commerce should be regarded as objectionable as well. Therefore, the Court concluded that any law enacted by Parliament, by virtue of any entry in the Seventh Schedule, which imposes the prohibited discriminatory restriction, would be invalid under the article. The Court further noted that clause (2) of Article 303 lifts the prohibition in Article 303(1) only when a law imposing such discriminatory restrictions is necessary to deal with a situation of scarcity of goods in any part of the territory of India. The Court affirmed that the same construction applies to the portion of Article 303 that bars a State Legislature from making a law of the described nature, and observed that it is unnecessary to restate this point because clause (2) of Article 303 does not remove the ban for State Legislatures.

In this case, the Court observed that clause 2 of Article 303 did not remove the prohibition that applied to State Legislatures, and therefore the ban remained in force for them.

Turning to Article 304, the Court noted a defect in its wording because the article began with a non‑obstante clause stating, “Notwithstanding anything in Article 301 or Article 303.”

Under Article 301(a), a State Legislature could, by law, impose on goods imported from other States or Union territories any tax that similar goods produced within the State were subject to, provided the tax did not discriminate between them.

Article 304(b) authorized a State Legislature to impose reasonable restrictions on the freedom of trade, commerce, or intercourse with or without that State, whenever such restrictions were required in the public interest, but any bill or amendment for that purpose could be introduced only after obtaining prior presidential sanction.

The Court explained that clause (a) of Article 304 therefore merely permitted States to levy non‑discriminatory taxes on goods imported from other States or Union territories.

Regarding the non‑obstante clause in relation to Article 304(a), the Court said it could be relevant to Article 301 because it allowed a State to create an impediment to the free movement of trade despite the freedom declared in Article 301.

However, the Court held that the non‑obstante clause had no relevance to Article 303, which only barred a State Legislature from enacting a discriminatory law and did not forbid the imposition of a non‑discriminatory tax permitted under Article 304(a).

When considering Article 304(b), the Court found the non‑obstante clause significant because it lifted the ban imposed by Article 303, subject to the limitations expressly mentioned in that provision.

Consequently, the Court concluded that the non‑obstante clause must be deemed to apply solely to the portion of Article 304 that is appropriate to the clause in question, and this interpretation removed the difficulty in the construction.

Article 304(a) therefore lifted the general prohibition in Article 301 concerning the imposition of non‑discriminatory taxes on imported goods, indicating that without this provision, taxation in that area would have violated the freedom declared in Article 301.

Clause (b) of Article 304 empowered a State to enact laws imposing reasonable restrictions on the freedom of trade, commerce, and intercourse, and the Court interpreted the term “restrictions” in the same manner as it had interpreted the same expression in Article 302.

The Court rejected the contention that clause (b) merely lifted the ban imposed by Article 303 on a State Legislature’s power; instead, it affirmed that clause (b) enabled the State Legislature to impose all reasonable restrictions on the said freedom, subject to the proviso.

Finally, the Court reiterated its analysis in the context of Article 304(b), emphasizing that the clause allowed States to impose reasonable restrictions on trade and commerce within the parameters set by the Constitution.

In this case, counsel for the States presented a vigorous argument that the taxation statutes fell outside the scope of the constitutional provisions under discussion. The counsel relied on several other articles of the Constitution, specifically Articles 31(5)(b)(i), 248, 265, 276, 285, 287 and 288, to support the contention that the tax laws were beyond the reach of the provisions being examined. The Court indicated that it would not examine those arguments in detail, because in its view those articles and similar provisions did not directly address the question that had arisen before it. The Court observed that these provisions formed part of the overall constitutional scheme, which grants legislatures the authority to enact taxation measures, limits that authority by reference to the entries in the Seventh Schedule and other constitutional rules, and provides mechanisms for resolving conflicts of power.

According to the Court, the articles cited by the State counsel, except for Article 31(5)(b)(i) and Article 248, were situated in Chapter I of Part XII under the general heading “Finance.” Article 265, the Court explained, declares that no tax may be levied or collected except by authority of law, meaning that an executive agency cannot impose a tax without legislative backing. Article 276, the Court noted, imposes a ceiling on taxes payable to local boards on professions, trades, callings and employments. Article 285 exempts property belonging to the Union from taxation by the States, while Article 286 prohibits the States from imposing a tax on inter‑State sales, subject to a proviso. Article 287 provides an exemption for the Union from State taxation on electricity, and Article 288 extends a similar exemption to the Union concerning water or electricity in certain circumstances. The Court further described Article 31(5)(b)(i) as an exemption that shields a law imposing any tax from the constraints of the fundamental right in Article 31(2). Article 248, the Court added, preserves the residuary power of Parliament over any matter not enumerated in the Concurrent List or State List, including the power to impose taxes.

Consequently, the Court concluded that these provisions generally impose limitations on the legislative power of taxation possessed by the Union or the States, or they grant specific exemptions in particular situations. By and large, the Court said, such articles function as restrictions on the taxation authority granted under Article 246 of the Constitution. However, while exercising the power of taxation within those limits, the appropriate legislature may not enact a law that infringes the freedoms guaranteed by the Constitution. The Court emphasized that conditions prescribed for levying a tax or the ceilings fixed by the articles may shape the scope of the power but cannot legitimize an encroachment upon the freedom secured by Article 331, nor can they diminish that freedom.

The Court acknowledged that some conditions in Article 286 might appear to conflict with those in Article 304(b). In the Court’s view, no actual conflict existed because the provisions could be read together through a harmonious construction. In short, the Court held that while the cited articles may constrain the legislature’s authority to impose taxes, they cannot be invoked to restrict the breadth of the freedom guaranteed under Article 301 of the Constitution.

The judgment also referred to Article 26 of the Constitution, which declares that every religious denomination or any of its sections possesses, inter alia, the right to own and acquire movable and immovable property. It was observed that the liberty guaranteed by Article 26 does not bar the State from levying a tax on such property. By analogous reasoning, Article 301, which guarantees freedom of trade, does not prevent the legislature from imposing a tax that affects that freedom. Although the marginal heading of Article 26 reads “Freedom to manage religious affairs”, the subject matter of that provision is distinct from the trade freedom articulated in Article 301. The Court clarified that it was not expressing any opinion on the construction of Article 26 in the present matter. Article 305, as it existed before the Constitution (Fourth Amendment) Act, 1955, merely saved existing laws from the operation of Articles 301 and 303 and did not illuminate the interpretation of Article 301. Article 306, which was later omitted by the Constitution (Seventh Amendment) Act, 1956, had previously saved the operation of any law enacted by Part B States before the Constitution’s commencement. That provision protected taxes or duties on the import of goods into the State from other States or on the export of goods from the State to other States.

If a tax law could never, under any conceivable circumstance, be regarded as a restriction on the freedom of trade, the need for a saving clause in Article 306, within the group of articles in Part XIII, appears puzzling. It has been suggested that the saving clause became necessary because other provisions of the Constitution presented an impediment to the free imposition of taxes. Nevertheless, that circumstance does not diminish the effect of the non‑obstante clause contained in Article 301 when it is applied to the provisions of Part XIII. The presence of the saving clause indicates that the framers of the Constitution were aware that the restrictions contemplated in Part XIII included taxation, and therefore they saw fit to provide a temporary exemption for Part B States. The discussion may be distilled into two principal propositions. First, Article 301 declares a right of free movement of trade that must be free from any barriers, whether inter‑State, intra‑State or any other impediment that functions as a barrier. Second, that freedom is not only unimpeded but is also encouraged by regulations that create conditions conducive to the free flow of trade, such as

The Court explained that police regulations, provisions for services, maintenance of roads, provision for aerodromes, wharves and similar facilities could be imposed either with or without compensation. It then observed that Parliament could, in the public interest, impose restrictions on the freedom of trade, commerce and intercourse, and that such legislation could be enacted under any constitutional entry that conferred legislative power on Parliament. Likewise, the Court noted that a State, while exercising its own legislative authority, could impose comparable restrictions, provided it complied with the two conditions specified in Article 304(b) and with the proviso attached to that article. The Court further held that neither Parliament nor a State legislature was permitted to enact a law that gave preference to one State over another or that discriminated between States, insofar as such a law was based on any entry in the Union or State lists, because such discrimination would violate the constitutional freedom guaranteed by Article 301. The Court added that the prohibition on discrimination could be lifted for Parliament when it was necessary to deal with scarcity of goods in any part of the Indian territory, and that a similar exception applied to a State under Article 304(b), subject to the conditions laid down therein. Additionally, the Court stated that a State was authorized to levy a non‑discriminatory tax on goods imported from other States or Union territories, provided that goods of the same kind produced within the taxing State were liable to the same tax. The construction placed by the Court on the constitutional provisions demonstrated the harmony among the various articles of Part XIII and disclosed an integrated scheme that balanced the freedom of trade, commerce and intercourse with the principles of federalism and provincial autonomy. The Court agreed with the observations of the learned brother, Justice Dan, that the provisions of the Rajasthan Motor Vehicles Taxation Act (XI of 1951) were regulatory in character and did not infringe the freedom guaranteed by Article 301. Consequently, the appeals were dismissed with costs. In the judgment of Justice Hidayatullah, the Court reproduced the text of Section 4 of the Rajasthan Motor Vehicles Taxation Act, 1951 (No. XI of 1951), which provided that, save as otherwise provided by the Act, its rules or any other law in force, no motor vehicle could be used in any public place or kept for use in Rajasthan unless the owner had paid the tax specified in the schedules within the time allowed by Section 5, and that the tax remained payable even if the vehicle ceased to be used. The section further presumed that an owner who kept a vehicle with a current fitness and registration certificate was keeping it for use, and it allowed a ten‑percent deduction on the aggregate tax liability for a person who kept more than ten motor vehicles solely for the purpose of trade and industry, the expression “trade and industry” being explained to include transport for hire. The Schedules referred to in the section were then noted.

The statute contained four sub‑sections in its first part. Those sub‑sections described which classes of vehicles were liable to pay the tax, the rate of tax that applied to each class, and additional conditions. The Court indicated that it would later refer to the schedules for a detailed explanation of those provisions. Section eleven of the Act created a penalty for any violation of the Act or of any rule made under it. The provision stated that a person convicted of such a violation could be fined up to one hundred rupees, and if the same person had previously been convicted of an offence under the Act or its rules, the fine could be increased to two hundred rupees. The petitioners, who possessed permits and operated buses from the State of Ajmer, travelled through Rajasthan and therefore were required to pay the Rajasthan tax. They challenged the tax demand by filing petitions under article 226 of the Constitution in the Rajasthan High Court, asserting that the demand infringed the provisions of Part thirteen of the Act and violated article 19 of the Constitution. A divisional bench of that High Court referred the matter to a full bench for decision on the question whether sections four and five of the Rajasthan Motor Vehicles Taxation Act, 1951, violated the constitutional guarantee of freedom of trade, commerce or intercourse contained in article 301. The full bench answered that the sections did not infringe article 301, and on that basis it dismissed the petitions. Nevertheless, the petitioners obtained a certificate under article 132 of the Constitution, and they subsequently filed the present appeals. In those appeals the petitioners contended that the Rajasthan Motor Vehicles Taxation Act, 1951, was beyond the legislative competence of the State because its true nature dealt with inter‑state trade and commerce, a subject placed in the Union List under entry 42. They further argued that the Act was void for contravening article 19(1)(d), (f) and (g), that it was ultra vires and illegal because it violated the freedom guaranteed by article 301, that even if it were permissible it was not a reasonable restriction under article 304, and that, lacking the prior sanction of the President, it could not be valid under article 265. During an earlier hearing the Constitution Bench was reminded of the decision in Atiabari Tea Co. Ltd. v. State of Assam, in which the majority struck down the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, 1954, on the ground that it infringed the freedom of trade, commerce and intercourse. In that case three separate opinions were expressed. Chief Justice Sinha held that article 301 barred trade barriers, tariff walls or imposts that adversely affected the free flow of trade, commerce and intercourse, but did not prohibit taxation per se. Justice Shah observed that the freedom guaranteed by article 301 was sufficiently broad to encompass any prohibition, control or impediment of any kind, including taxes that fell on the movement of trade or commerce. The majority opinion of Justices Gajendragadkar, Das Gupta and Wanchoo concluded that although taxes in themselves were not prohibited by part thirteen, taxes that impeded the free flow of trade and were directly levied on movement were covered by the prohibition. The petitioners relied on Justice Shah’s view and, failing that, on the majority view, asserting that it supported their position, while the State Government based its case on the opinion of the Chief Justice. The Constitution Bench therefore held that, given the significance of the constitutional questions and the opinions expressed in Atiabari Tea Co. Ltd. v. State of Assam, the matter should be heard by a larger bench, and consequently the present appeals were placed before this special bench. Certain other parties were granted leave to intervene and notices were issued to the Advocate‑General of the States.

The Court observed that the phrase “ban of prohibition, control or impediment of any kind whatever” was intended to include a prohibition on taxes whether those taxes were imposed on the movement of trade or commerce or on any other matter. The majority judgment, delivered by Justices Gajendragadkar, Das Gupta and Wanchoo, held that although taxes in themselves were not covered by the ban in Part XIII, taxes that obstructed the free flow of trade and were levied directly on the movement of goods fell within the prohibition. The appellants relied on the view expressed by Justice Shah, and, failing that, on the majority opinion, contending that the same principle applied to the present case. The State Government, on the other hand, based its arguments on the perspective of the learned Chief Justice. Consequently, the Constitution Bench expressed the opinion that “having regard to the importance of the Constitutional issues involved and the views expressed in Atiabari Tea Co. Ltd. v. State of Assam (1)”, the matter ought to be heard by a larger Bench, and therefore the appeals were placed before this special Bench. The Court noted that a number of other parties had obtained permission to intervene, that notices had been issued to the Advocate‑General of the States, and that arguments had been received from various standpoints.

The Court further recorded that the freedom of trade, commerce and intercourse secured by Article 301, subject to the other provisions of Part XIII, was not contested. The real dispute concerned the scope of that freedom and whether the legislative powers of Parliament and the State Legislatures to impose taxes under the sundry entries in the legislative lists were to be limited, and if so, to what extent. The Court pointed out that the language of Article 301 was largely modelled on section 92 of the Australian Commonwealth Act, 1900, and that numerous decisions of the High Court of Australia and, on appeal, of the Privy Council had been cited to define the content and breadth of the envisaged freedom. In addition, the Court mentioned that the Government of India Act, 1935 contained a provision in section 297 on the subject of freedom of trade and commerce, and that the State contended that Part XIII added little beyond what was already provided therein. Because the arguments heavily relied on these two analogies, the Court deemed it necessary first to set out certain well‑known and widely accepted principles concerning constitutional interpretation, principles that recognize fundamental limits on legislative power. In this regard, the Court quoted Lord Selborne’s statement in Queen v. Burah (1): “The established Courts of justice when a question arises whether the prescribed limits (1) (1878) 3 App.cas.889. have been exceeded, must of necessity determine that question; and the only way in which they can properly do so, is by looking to the terms of the instrument by which, affirmatively, the legislative powers were created, and by which, negatively, they are restricted.”

If what has been done constituted legislation that fell within the general scope of the affirmative words that conferred the power, and if such legislation did not breach any express condition or restriction that limited that power, then no Court of Justice was permitted to inquire further or to enlarge those conditions or restrictions by constructive interpretation. Accordingly, the Court explained that it was necessary to examine precisely what powers had been affirmatively conferred on the State legislatures and what limitations, if any, were imposed upon those powers. In doing so, the Court also recalled the important observations of Gwyer, C. J., in Bhola Prasad v. The King Emperor, where he stated: “We must again refer to the fundamental proposition enunciated in The Queen v Burah that Indian Legislatures within their own sphere have plenary powers of legislation as large and of the same nature as those of Parliament itself. If that was true in 1878, it cannot be less true in 1942. Every intendment ought therefore to be made in favour of a Legislature which is exercising the powers conferred on it.” The Court emphasised that the legislative powers of the States after the establishment of the Republic of India were certainly no less extensive, and it was necessary to recognise that, within the range of powers conferred by the entries in Schedule VII, the State legislatures were supreme, subject, of course, to any restrictions that might be found in the Constitution itself. The authorities cited included the 1942 report in the Federal Court Reports (pages 17 and 27) and the 1878 decision reported in the Appeal Cases (3 App. Cas. 889).

The Court then turned to the specific subject of taxation of motor vehicles, which is covered by Entry 57 in the State List. That entry reads: “Taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List III.” The Court explained that the words “suitable for use on roads” described the kinds of vehicles to which the entry applied, rather than their condition, and that the entry therefore excluded from its scope farm machinery, aeroplanes, railways and other mechanically propelled conveyances that were not suitable for use on roads. The inclusion of trams, which may run on tracks that are either on roads or off them, further clarified the distinction. Consequently, the Court held that the power to tax motor vehicles was plenary, but it was subject to Entry 35 of the Concurrent List or any other constitutional restriction that might apply. Entry 35 was quoted as follows: “Mechanically propelled vehicles including the principles on which taxes on such vehicles are to be levied.” The existence of this entry in the Concurrent List limited the supremacy of the State legislatures, because whenever Parliament laid down principles of taxation for mechanically propelled vehicles, any State law that conflicted with those principles would be void under Article 254 of the Constitution. The Court noted that the question of whether Parliament’s power to legislate and lay down such principles under Entry 35 would also have to be examined under Part XIII of the Constitution did not arise in the present case, since there was, as admitted, no parliamentary law covering the entry either before or after the impugned State Act.

The Court observed that there was no parliamentary legislation, before or after the State Act, that covered the entry. Consequently, concerning the State Legislature’s power to tax, the Court affirmed that the power was exercised under Entry 57 of the State List and that the exercise was proper. The remaining issue was whether the exercise of this power was limited by any constitutional provisions that had not been complied with. The Court identified three distinct constitutional limitations that might affect the validity of the impugned legislation under the Constitution. The first possible limitation could arise from Parliament’s legislative authority under Entry 42 of the Union List, which deals with inter‑State trade and commerce. The contention was that the impugned Act, in its pith and substance, amounted to legislation under that entry and therefore must be declared void. The second category could stem from Article 19, sub‑clauses (d), (f) and (g), if the law infringes freedoms. The alleged infringements would be the right to move freely throughout the territory of India and the right to acquire, hold and dispose of property. A further alleged infringement would be the right to practice profession, occupation, trade or business, which must be justified as reasonable to be permissible. The third category could arise from the provisions of Part XIII, which guarantee freedom of trade, commerce and intercourse throughout the territory of India, subject to the limitations contained in that part. These three contentions constitute the principal basis of the appeals, and the Court indicated that they could be resolved by examining each of these perspectives. The Court examined the argument that the impugned Act is invalid because it constitutes legislation directly under Entry 42 of the Union List. Entry 42 relates to inter‑State trade and commerce, not to taxation, and the legislative scheme places taxation entries in a separate category from other subjects. Although some entries permit the levying of fees, the power to impose taxes is confined to distinct entries. Accordingly, a statute that directly imposes a tax on motor vehicles falls squarely within Entry 57 of the State List. Even if the statute contains incidental provisions concerning regulation of a particular inter‑State trade carried out with motor vehicles, those provisions do not shift the legislation into Entry 42. Consequently, the legislation is within the competence of the State Legislature and does not exceed its constitutional authority. The fact that motor vehicles enter the taxing State from another State and are taxed because of their use or presence may raise issues under Part XIII, but this situation does not invoke the legislative power granted under Entry 42 of the Union List to the Union Parliament. The charging provision of the Act states that no motor vehicle may be used in any public place. It provides that a motor vehicle cannot be kept for use in Rajasthan unless its owner has paid a tax in respect of that vehicle. The tax must be paid at the rate that is specified in the Schedule annexed to the Act.

The provision states that the tax must be paid “at the appropriate rate specified in the Schedule to this Act…”. The essential purpose of the statute is to impose a tax on motor vehicles that are used in Rajasthan or that operate within that State, regardless of the place from which those vehicles originate. In effect, the law does not directly or immediately regulate inter‑State trade or commerce, nor does it forbid the entry of motor vehicles so long as the tax is paid; only a person who is discouraged by the tax might choose not to bring a vehicle into the State. Such a consideration could fall within Part XIII of the Constitution or even Article 19, but it does not fall under Entry 42 of the Union List. Even if the tax is said to affect inter‑State trade or commerce, the statute is not legislation that governs inter‑State trade or commerce itself. The Court, together with the Privy Council and the Federal Court, has repeatedly held that a law whose predominant character falls within an entry in one legislative list may incidentally touch upon a subject that falls within a rival list without being declared void or ultra vires. The Court considered this principle sufficient to resolve the first question raised. The next line of attack invoked Article 19 of the Constitution, which guarantees certain basic freedoms to Indian citizens. Freedom from taxation is not among those guaranteed freedoms. The Court found it unnecessary to analyse the matter from the perspective of Article 19, because any law that is valid under Article 19 must satisfy a reasonableness test. If the challenged sections were declared unreasonable restrictions on the freedom of trade, commerce, or intercourse, they would also be caught by Part XIII, making it unnecessary to decide whether taxation falls within the scope of Article 19 or whether the impugned provisions must undergo independent scrutiny under that article. The discussion then moved to the final point, which occupied the Court for several days. The Court noted that attempting to analyse the arguments, although they came from the same side, would be difficult because the arguments were often contradictory. The Court observed that the language borrowed from Section 92 of the Australian Constitution and incorporated into Article 301 of the Indian Constitution led to the citation of numerous Australian decisions. Those decisions were so numerous that a former Chief Justice of the High Court of Australia remarked that Section 92 was written on his heart. Nonetheless, the Court reasoned that the drafters of the Indian Constitution were likely aware of the conflicts of opinion that existed in Australia and must have intended to avoid those dangers. The Court also cautioned that the Privy Council’s decisions in cases such as Commonwealth of Australia v. Bank of New South Wales and Hughes and Vale Pty. Ltd. v. State of N.S.W., although decided after the Indian Constitution was framed, illustrate the distinct historical and constitutional contexts of the two countries and should not be presumed to have the same import in the Indian setting.

The Court noted that the judgments in Commonwealth of New South Wales (1) and Hughes and Vale Pty. Ltd. v. State of N.S.W. (2) have, to a certain degree, narrowed the controversy in Australia; however, those judgments were delivered after the draft Constitution had been framed and after the Constitution itself had been adopted. The Court emphasized that the historical development of federation in India and Australia is so markedly different that, despite the apparent similarity of language in comparable constitutional provisions, the two sets of provisions cannot be understood to have the same meaning. The Court warned that it would be dangerous to assume that the Indian Constitution was intended to guarantee freedom of trade, commerce and intercourse in the same manner as the Australian Commonwealth intended. The Court explained that these differences arise not only from the wording of the corresponding provisions but also from the distinct evolutionary paths of the two nations and from the different system of checks and balances incorporated in the Indian Constitution, which are absent in the Australian Constitution. The Court said it would briefly describe these differences before examining the checks and balances that the Indian Constitution provides. The Court described that the Commonwealth of Australia was created from a number of colonies that were separated by high tariff barriers and by a variety of inter‑colonial duties. The idea of federation emerged from a desire to obtain reciprocal free trade among the colonies. The Court observed that the federation was delayed because the parties could not reach agreement on the financial aspects of the Constitution. Numerous conventions were held in an attempt to resolve this problem, which the Court characterized as “the lion in the path of unity”. After overcoming many difficulties, the financial clauses were finally settled by agreement. The Court stated that this historical background informs the way the High Court of Australia has interpreted the provisions dealing with freedom of trade, commerce and intercourse. The Court explained that the Australian Constitution itself embodies the underlying agreements reached at the conventions. Sections 51, 88, 89, 90, 100 and 102 of the Australian Constitution require uniformity and prohibit discrimination in trade and commerce once uniform customs duties are imposed, a goal that was to be achieved within two years. Section 92 then captures the entire concept of unity and freedom from preferential treatment by providing 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.” The Court pointed out that the alternative wording “throughout the Commonwealth” was proposed as an amendment on several occasions but was never adopted. Finally, the Court observed that the provisions of the Australian Constitution concerning trade and commerce are essentially covenants that were formulated at the conventions and incorporated into the Constitution, whose success depended for a long period on securing agreement on uniform tariffs, customs, excises and related matters.

The judgment noted that the proclamation of freedom of trade, commerce and intercourse represented the logical conclusion of the negotiations that led to the formation of the Federation. Although the wording of section 92 was deliberately forceful, its exact meaning remained somewhat indeterminate. The Court quoted Viscount Haldane, L. C., in Attorney‑General for the Commonwealth of Australia v. Colonial Sugar Refining Company Limited (1), observing that “It is a matter of historical knowledge that Australia the work of fashioning the future Constitution was one which occupied years of preparation through the medium of conventions and conferences in which the most distinguished statesmen of Australia took part. Alternative systems were discussed and weighed against other with minute care. The Act of 1900 must accordingly be regarded as an instrument which was fashioned with great deliberation, and if there is as points obscurity in its language, this may be taken to be due not to any uncertainty as to the adoption of the stricter form of federal principle, but to that difficulty in obtaining ready agreement about phrases which attends the drafting of legislative measures by larger assemblages.” (1) [1914] A.C. 237. The Court further explained that any declaration contained in a Constitution, irrespective of its phrasing, must be given effect, especially when it limits legislative authority. Consequently, it was inevitable that the High Court of Australia would be called upon to determine which statutes rendered trade, commerce and intercourse “unfree” and which did not.

In the course of adjudicating these matters, the Court observed that a pronounced split of opinion emerged. One side argued that any burden imposed on inter‑State trade, commerce or intercourse was impermissible, while the opposite side sought to justify the impugned statutes. Various grounds for justification were articulated. Certain statutes survived on the basis that they were merely regulatory in nature, whereas others were struck down for overstepping the bounds of legitimate regulation. Some taxation statutes were sustained because, although they imposed a burden on trade or commerce, they were deemed compensatory in character. Even on this point, the Court noted divergent approaches to the tests required to determine when a law had exceeded permissible limits. The multitude of cases involved was described as “legion”, and the Court remarked that virtually any viewpoint could be supported by citation to some judgment within the Australian Law Reports. Lord Porter, speaking in Commonwealth of Australia v. Bank of New South Wales (1), aptly summarized the situation: “In this labyrinth there is no golden thread” (p. 310). The Court acknowledged that the complex body of law surrounding section 92 was certainly known to the framers of the Constitution, who understood that despite the strong language “absolutely free”, the freedom contemplated was in fact a qualified one. This understanding was reflected in Duncan v. State of Queensland (1), where Griffith, C. J., observed that the generally accepted principle was that “the word ‘free’ does not mean extra legem, any more than freedom means anarchy”. The task, the Court concluded, was to delineate the limits of that qualified freedom and to determine the extent to which legislative restrictions could be permitted.

In this matter, the bench together with the bar were tasked with determining the scope of the freedom guaranteed by the Constitution and, more precisely, the extent to which restrictions on that freedom could be permitted. The primary actor in this inquiry was the High Court of Australia, although the Privy Council also issued four judgments, two of which were rendered before the draft Constitution was prepared and two thereafter. Consequently, it became necessary to examine the position that was generally accepted around the year 1948 in order to assess whether any of the principles articulated at that time had been adopted, and if so, how they had been altered to fit the Indian constitutional framework in view of the nation’s own historical experience.

The analysis began with a review of the cases decided before the Indian Constitution was drafted in 1948. The first point of contention in Australian jurisprudence concerned whether section 92 of the Commonwealth of Australia Act applied solely to the States or also bound the Commonwealth itself. In W. & A. McArthur Ltd v State of Queensland (2) the majority held that the Commonwealth was not bound by the provision, whereas Justice Gavan Duffy, sitting alone, asserted that the wording of the section clearly regulated both the powers conferred on the Federal Parliament and those retained by the State Parliaments. The majority view was later rejected by the Privy Council in James v Commonwealth of Australia (3). Although the High Court of Australia had previously expressed doubts about the correctness of the majority view, it felt constrained by it. The Privy Council traced the evolution of this doctrine and observed that, despite the Commonwealth’s agreement in The King v Vizzard (4) to be bound within certain limits, the decision in the McArthur case had not been expressly overruled and, while reaffirmed periodically in Australian judgments, it was not applied in practice. The Board, however, declined to shelter behind the McArthur decision and concluded that the Commonwealth was also bound by section 92.

Accordingly, the opinion of Justice Isaacs in Foggitt Jones & Co Ltd v State of New South Wales (2), which held that section 92 “makes Australia one indivisible Country for the purpose of commerce and intercourse between Australians” and that “it is beyond the power of any State Parliament, or even of the Commonwealth Parliament, by any regulation of trade and commerce, to impair that fundamental provision,” was accepted at least in its first part. The second major issue concerned the meaning of the phrase “absolutely free.” The Attorney‑General for Australia, during arguments in James v Commonwealth of Australia (3), summarised six propositions advanced before the Privy Council: (1) “free” means free of all law of every description; (2) free of any restrictions imposed on trade and commerce because of their inter‑State character, that is, free of any discriminating trade law; (3) free as trade and commerce from all interference whether specially directed to it or not; (4) free of all laws whose pith and substance is a regulation of inter‑State trade or commerce; (5) freedom attaches to trade and commerce regarded as a whole and not distributively, meaning individuals are not guaranteed freedom in relation to their own trade so long as trade and commerce overall are not impaired; and (6) free from pecuniary imposts, which represents the narrowest interpretation of section 92. These six propositions accurately reflected the positions expressed in various Australian High Court judgments. Justice Isaacs, in Rex v Smithers (1), observed that the guarantee of inter‑State freedom of transit and access for persons and property under section 92 was absolute, constituting an absolute prohibition on both the Commonwealth and the States from treating State borders as barriers to intercourse.

The Court set out six propositions that it said captured the meaning of “freedom” in section 92 as understood by Australian decisions. The second proposition described freedom as having an interstate character, that is, it must be free of any trade law that discriminates between states. The third proposition said that freedom means trade and commerce are free from all interference, whether that interference is directed specifically at trade or not. The fourth proposition held that freedom is free of any law whose pith and substance is a regulation of interstate trade or commerce; the authorities cited for this proposition were (1) (1920) 28 C.L.R. 530, (2) (1916) 21 C.L.R. 557 and (3) [1936] A.C. 578. The fifth proposition explained that freedom attaches to trade and commerce taken as a whole rather than to individual participants, so that individuals do not have a guaranteed freedom in respect of their own trade unless the whole of trade and commerce is not impaired. The sixth proposition limited freedom to being free from pecuniary imposts, which the Court said is the narrowest meaning of section 92. The Court noted that these six propositions accurately reflect the view expressed in various judgments of the Australian High Court.

Isaacs, J., in Rex v. Smithers (1) was quoted as saying that, in his opinion, the guarantee of interstate freedom of transit and access for persons and property under section 92 is absolute; it imposes an absolute prohibition on both the Commonwealth and the States from treating state borders as barriers to movement between Australians. In McArthur’s case (2) the claim was made against all governmental control, and the majority of the judges held that this was the correct meaning of the provision. The Privy Council, when examining the scheme of the Australian Constitution, drew a line by stating that the true criterion is that freedom must exist at the frontier, or, using the language of section 112, in respect of “goods passing into or out of the State”. The Council explained that this required clarification and observed that federation in Australia was intended, among other things, to abolish frontiers between the states and to create a single Australia. That intention involved freedom from customs duties, imports, border prohibitions and every kind of restriction, so that the people of Australia could trade with each other and move freely among the states without any burden, hindrance or restriction merely because they were members of different states. After referring to several cases where burdens and hindrances appeared in varied forms and disguises, the Board concluded that each case required a factual determination of whether there was an interference with the freedom of passage. The Board further observed that, as a matter of language, freedom in section 92 must be understood as being limited, and the only limitation that emerges from the context and can be logically applied is that freedom concerns the crucial point in interstate trade, namely the state barrier. The language of section 92, especially the phrase “among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free”, when read together with the historical context previously discussed, appeared to settle the controversy. The Court noted, however, that this approach was later departed from in Commonwealth of Australia.

After the Constitution had been drafted, the Court turned to the question of what the expression “trade and commerce” meant. In the case known as McArthur’s Case the Court adopted a very expansive interpretation, stating that the term was not limited to the mere act of transporting merchandise across a frontier. The Court explained that every commercial arrangement in which transportation is a direct and necessary result falls within “trade and commerce.” It further described the concept as encompassing mutual communion, negotiations conducted either verbally or by correspondence, the bargain itself, as well as the transport and delivery of goods, all of which constitute, though not exclusively, the class of relations that the world calls trade and commerce. In reaching this conclusion, Chief Justice Knox referred to earlier authorities such as Bank of India v. Wilson and Commissioners of Taxation v. Kirk, where Lord Davey observed that the word “trade” primarily denotes traffic by way of sale, exchange, or commercial dealing, but that it may also possess a broader meaning. However, this expansive view was expressly rejected by the Privy Council in James v. Commonwealth of Australia. In that decision the Council held that the notion of inter‑State trade, commerce and intercourse should be regarded as commencing at any stage within the State of origin and continuing only until the point in the other State where the inter‑State transaction effectively ends, thereby attaching freedom only to the portion of the transaction that actually crosses a State barrier. The Council warned that the broader approach would grant immunity from law to an entire series of acts merely because they form part of an inter‑State transaction, and therefore limited the concept of trade and commerce to movements that cross State boundaries. Regarding the term “intercourse,” earlier case law had given it a wide meaning as well, raising the question of whether such intercourse had to be commercial. Earlier decisions held that the term conferred a personal right on an Australian citizen, independent of any commercial attributes, to traverse the continent irrespective of State borders, providing a reason for interference. This position was supported by Isaacs, J., in R. v. Smithers Ex Parte Benson, affirmed later in Duncan v. State of Queensland and again in McArthur’s Case. Subsequently, the Court noted that the combined concept of “trade, commerce and intercourse” was later understood to align with the definition of “commerce” as applied in the United States, as observed by Dixon, J., in the Bank case. The Court clarified that it was not presently concerned with pinpointing the exact definition of the word, and indicated that the next step would be to examine how the doctrine of freedom of trade, commerce and intercourse had been applied in practice, referencing three cases filed by an individual named James that challenged State marketing legislation.

In this context the Commonwealth took significant steps to resolve a number of disputes that had arisen concerning the regulation of dried fruits. Two earlier cases that were decided by the Privy Council before the draft Constitution were the result of the Commonwealth’s initiative. The first of those cases never actually reached the Privy Council; it is reported in James v. South Australia (5). Nonetheless, the principles advanced in that decision were later approved by the Privy Council in the subsequent case of James v. Cowan (6). A brief description of the two decisions follows. In James v. South Australia (5) the State had enacted legislation that created a Dried Fruits Board and gave the Board several powers. Under section 19 the Board could set a maximum price for dried fruits; under section 20 it could decide where and in what quantities dried fruits were to be marketed; and under section 28 it was authorised to acquire dried fruits from dealers on behalf of the Minister. All of these provisions were challenged as being inconsistent with section 92 of the Constitution. Section 28 was expressly made subject to section 92, and the High Court of Australia held that section 20 was invalid, while it upheld sections 28 and 29 as valid.

The later judgment in James v. Cowan (6) examined the compulsory acquisition of dried fruits in South Australia by the Minister of Agriculture acting through the Board. The Board, exercising absolute discretion, determined the quantities that were to be marketed locally and also fixed quotas for the other States, as reported in the authorities (1) (1912) 16 C. L. R. 99; (2) (1916) 22 C. L. R. 556; (3) (1925) 28 C. L. R. 530; (4) (1948) 76 C. L. R. 1, 380, 381; (5) (1927) 40 C. L. R. 1; and (6) [1932] A. C. 542. The central issue was whether this scheme interfered with the freedom of commerce among the States. The Privy Council answered in the affirmative, holding that the legislation did affect interstate trade. However, the Council observed that where the dominant purpose of a law is not directed at trade or commerce but at matters such as defence, famine, disease or similar concerns, any incidental impact on trade is immaterial. Consequently, the Minister’s action was declared ultra vires, and James was allowed to recover damages. After the State legislation was struck down, the Commonwealth enacted the Dried Fruits Act (1928‑35), which prohibited any person from sending dried fruit from one State to another unless the person first exported his quota outside Australia. James challenged this provision, and when the matter again reached the Privy Council, three principal points were considered. First, section 92 was held to bind the Commonwealth as well as the States; second, the provision created a prohibition against imposing burdens or restrictions at State frontiers; and third, it protected the free movement of commerce across State boundaries. Numerous additional cases were surveyed, illustrating that it is permissible for a law to impose a valid burden on trade and commerce in the exercise of legislative power, provided that such burdens do not impair the movement of trade at the borders. Those statutes have addressed a wide range of subjects, including monopolies, price fixing, health regulations, licensing schemes, the entry of goods or persons, and the regulation of transport. The final category of cases dealt with restrictions applicable to motor vehicles as components of trade and commerce or to their owners.

The cases cited included (1) (1933) 48 C.L.R. 31 S., which upheld a statute that required the registration of every motor vehicle upon payment of a fee; (1) The King v. Vizzard, which dealt with the licensing of motor vehicles that operated as common carriers; (2) O’Gilpin’s case, which concerned owners of vehicles that transported their own goods; and (3) Bessell v. Dayman, which addressed a law affecting inter‑State journeys. All of these statutes were declared valid by the High Court, and because special leave to appeal was refused, it was understood that the Privy Council had affirmed those decisions. In each of these judgments a majority of the judges supported the rulings, while Justices Dixon and Starke dissented. The Privy Council, in James v. Commonwealth of Australia (4), selected The King v. Vizzard as the most illustrative authority. The issue in that matter was whether the State Transport (Co‑ordination) Act, 1931 (N.S.W.) infringed section 92 of the Constitution. The Act provided that no public motor vehicle could operate within the State unless it held a licence issued by a Board that exercised absolute discretion and required the payment of a fee. The appellant’s lorry, which was engaged in a route between Melbourne and New South Wales, had not been licensed, and the driver was convicted for violating the Act. The Australian High Court, by a majority, held that the Act did not contravene section 62. The Privy Council described Justice Evatt’s judgment as highly significant and reproduced his observation that “Section 92 does not guarantee that, in each and every part of a transaction which includes the inter‑State carriage of commodities, the owner of the commodities, together with his servant and agent and each and every independent contractor co‑operating in the delivery and marketing of the commodities, and each of his servants and agents, possesses, until delivery and marketing are completed, a right to ignore State transport or marketing regulations, and to choose how, when and where each of them will transport and market the commodities.” This pronouncement pre‑dated the decision in Riverina Transport Pty. Ltd. v. Victoria (1), which was decided on the basis of Rex v. Vizzard (2) although some doubts remained. Subsequently, in 1945 the High Court decided Australian National Airways Pty. Ltd. v. The Commonwealth (3). Under the Airlines Act, 1945, the legislation authorized the establishment of State‑managed airline services to the exclusion of existing private commercial lines whenever a line was effectively commenced by the Government Airlines Commission. Private operators, who were excluded by this scheme, challenged the entire Act on the ground that it infringed section 92 of the Commonwealth of Australia Act. The Court upheld the creation of the Airlines Commission but held that the statutory grant of a monopoly was invalid. Chief Justice Latham observed, “I venture to repeat what I said in the former case (Milk Board case) (4): ‘One proposition which I regard…’”

It was observed that a simple legislative prohibition, whether made by the Federal Parliament or a State legislature, that outright bans inter‑State trade and commerce is invalid. Such a prohibition is distinct from a regulation because it does not merely prescribe how trade should be carried out, but seeks to prevent the trade altogether. Consequently, a law that is expressly directed against inter‑State trade and commerce is invalid, for it functions only as a ban rather than as a regulatory scheme. In contrast, a statute that lays down rules governing the manner in which trade, including the transport of goods, is to be conducted does not constitute a mere prohibition. A rule‑making law of this sort may be valid even when it applies to inter‑State transactions, and it does not offend section 92 of the Constitution. The principle was supported by earlier authorities, namely (1) (1937) 57 C.L.R. 327; (2) (1933) 50 C.L.R. 30; (3) (1945) 71 C.L.R. 29; and (4) (1939) 62 C.L.R. 116, 127.

Another significant decision, decided before the drafting of the present Constitution, was Bank of New South Wales v. The Commonwealth (1). The case examined the constitutionality of the Banking Act 1947 and, alternatively, of specific sections of that Act. The legislation authorized the Commonwealth Bank to acquire shares in certain private banks either by agreement or by compulsion, and it also provided for the closure and management of those banks by the Commonwealth Bank. The Act was challenged on five grounds, one of which alleged that the provisions for acquisition, management and prohibition contravened section 92 of the Australian Constitution. Latham, C.J., holding that banking is not itself trade or commerce, nevertheless regarded banking as an instrument employed in inter‑State trade and commerce. He concluded that, after the Privy Council's overruling of McArthur's case (2), the legislative control exercised by the Act was a general control and did not target any inter‑State element, and therefore did not offend section 92. McTiernan, J., concurred with this conclusion. The majority, however, reached a different view. Rich and Williams, JJ., held that the freedom guaranteed by section 92 is a personal right attaching to each individual, and that a banker operating in more than one State is engaged in trade, commerce and intercourse among the States. They further argued that James v. Commonwealth (3) could not be read as limiting section 92 to the physical movement of goods or persons, and that the Act’s prohibition of such trade, commerce or intercourse therefore offended section 92. Starke, J., noted that judicial decisions had considerably weakened the freedom of trade, commerce and intercourse envisaged by section 92. He summarised the contemporary position as follows: (1) the prohibition under section 92 applies to both the States and the Commonwealth Parliament; (2) the freedom is shielded from both legislative and executive control; and (3) the freedom extends to individuals as well as to trade and commerce viewed as a whole. The citations for these authorities are (1) (1948) 76 C.L.R. 1, 180, 38; (2) (1920) 28 C.L.R. 530; and (3) (1936) A.C. 578.

In the judgment, the Court explained that the freedom guaranteed by section 92 required individuals to conduct their commercial activities without regard to State boundaries, meaning that each person could trade and conduct business across State lines as an independent right. The Court further clarified that this freedom extended not only to tangible goods but also to intangible items. Accordingly, the wording of the section, which mentions “by means of internal carriage or ocean navigation,” was not to be interpreted as limiting protection solely to tangible property. Justice Starke observed that the expressions “trade, commerce and intercourse” were sufficiently broad to encompass intangibles, and he supported this view by citing American decisions that had held insurance to fall within the scope of the Commerce power.

The Court noted that although the freedom articulated in section 92 was situated at the frontiers of the States, any restriction imposed upon trade, commerce or intercourse even before a tangible item left its State of origin was also contemplated within the prohibition. Justice Dixon, referring to his earlier dictum in the O’Gilpin case, emphasized that not every regulation of commerce or movement necessarily constituted an impairment of the constitutional freedom. He illustrated this point by listing examples such as traffic regulations governing vehicle lighting and speed, tolls imposed for bridge use, prohibitions against fraudulent descriptions of goods, and provisions ensuring the safe carriage of dangerous substances, all of which were regarded as regulatory measures rather than strict restrictions prohibited by section 92.

Justice State further observed that previous Transport cases that relied on Willard v. Rawson had been wrongly decided. He characterized the Willard v. Rawson decision as a straightforward instance of traffic regulation. In contrast, he argued that in other cases where burdens were placed directly and immediately on the transport and movement of passengers and goods—whether in domestic inter‑State trade or other commercial activities—the courts had incorrectly held such measures to be merely regulatory and not a restriction of the constitutional freedom. Justice Dixon, while interpreting the phrase “trade, commerce and intercourse,” explained that the term “commerce” was evidently intended to include a wide range of inter‑State transactions, whether they arose from commercial dealings or from personal conversation or passage. He also affirmed that intangibles such as insurance and banking fell within this concept, agreeing with the view that regulation compatible with the freedom of inter‑State passage or conversation was permissible, but any measure that restricted such intercourse was excluded by section 92.

The Court then turned to the analysis of the Banks case as presented in the High Court judgment of Justice Starke. That analysis, the Court said, adequately reflected the views that had been entertained concerning the freedom of trade, commerce and intercourse under section 92 of the Australian Constitution as it existed before the Indian Constitution was framed. The cited authorities included the 1933 decision reported in volume 48 of the Commonwealth Law Reports and the 1948 decision reported in volume 76 of the Commonwealth Law Reports. Having examined these Australian authorities, the Court indicated that it would temporarily set aside the Australian perspective, with a view to later returning to it in order to demonstrate how the difficulties that arose in Australia from these settled views were resolved, first by the Privy Council and subsequently by the High Court of Australia. The Court also mentioned that later cases decided in reference to section 92 of the Australian Commonwealth Act would be considered, although those cases were not available to the Constituent Assembly of India when the Indian Constitution was being drafted.

The Court observed that the material concerning the freedom of trade and commerce was not available to the Constituent Assembly at the time the Indian Constitution was drafted. It noted that one could therefore examine how the Australian experience resolved comparable difficulties and how the Indian legislature attempted to anticipate and address such problems through statutory measures. Before turning to an analysis of the Indian constitutional provisions and their historical development, the Court said it would first consider the relevant provisions in the constitutions of Canada and the United States, since those documents also served as reference points for the framers of the Indian Constitution. In the British North America Act of 1867, section 91(2) assigns the exclusive authority to regulate trade and commerce to the Parliament of Canada. Complementarily, section 121 declares that “All articles of the growth, produce or manufacture of any one of the provinces shall, from and after the Union, be admitted free into each of the other provinces.” The Court then indicated that several important decisions of the Judicial Committee of the Privy Council are pertinent and must be examined. In Citizens Insurance Co. v. Parsons (1) and, subsequently, in Bank of Toronto v. Lambe (3), the Privy Council held that the broad language of subsection 2 of section 91 must be interpreted to leave room for powers that are expressly vested in the provincial legislatures. A similar conclusion was reached in City of Montreal v. Montreal Street Railway (3). The judgments cited include the reports (1) 1881 7 App. Cas. 96, (2) 1887 12 App. Cas. 575, and (3) 1912 A.C. 333, 344. Furthermore, in Attorney‑General for Ontario v. Attorney‑General for the Dominion (1), Lord Halsbury remarked that the words require a “statutory meaning.” Although no precise definition of the limits was articulated, the Court explained that, as a general rule, the regulation of trade and commerce within a province is sustained under clause 16 of section 92, which empowers provinces to legislate on “all matters of a merely local or private nature in the province.” This principle applies even when certain prohibitions or restrictions affect the import, export, manufacture, storage, sale, purchase, or use of goods and thereby incidentally affect commercial activities that extend beyond provincial borders.

The Court proceeded to discuss further judicial pronouncements that clarify the scope of provincial authority. In Bank of Toronto v. Lambe (2) at page 586, the Privy Council observed that if Parliament’s general power to regulate trade and commerce were construed to bar provincial taxation of persons or things within the regulated field, such an interpretation would stretch the language to its most expansive possible meaning. The Court also cited the Liquor Prohibition Appeal of 1895 (2), in which Lord Watson posed the question, “Do you regulate a man when you tax him?” The Court reproduced Lord Herschel’s response, which urged a consideration of whether the legislation’s purpose is to achieve a public objective that incidentally places a burden on trade and commerce, or whether the legislation directly deals with trade and commerce for the purpose of regulating it. The Court emphasized that this distinction is crucial for determining the extent to which provincial statutes may impose taxes or restrictions without transgressing the constitutional limits on the regulation of inter‑provincial trade and commerce.

The Court recalled a passage in which a question was posed about whether, in one instance, a measure could be said not to regulate trade and commerce, while in another instance it could be said to do so, even though in both cases trade and commerce might be affected (see 1896 A. C. 348; 1817 12 App. Cas. 575). Lord Watson then observed that it would be difficult to read from those words an intention to regulate trade and commerce when the power of direct taxation was granted to the province, and that the provisions must be read together in a reasonable manner. He explained that it would be hard to suppose that the phrase “regulating commerce” meant that the Dominion Parliament could pass an Act exempting banks from provincial taxation, a view that had effectively been argued in the case of Bank of Toronto v. Lambe, where it was suggested that regulation of commerce implied a power to exempt a bank from provincial tax or to shield it from taxation by the provincial legislature. The Court cited Lefroy’s “Canada’s Federal System” (1913, p. 391) for this point. The Court then stated that it was not necessary to cite additional cases at this stage, though it would later refer again to the remarks of Lord Watson and Lord Herschell that had been quoted earlier. Turning to the United States, the Court noted that Article 1, section 8 of the U.S. Constitution confers the power to regulate commerce in very concise terms: “The Congress shall have power … to regulate commerce with foreign nations, among the several states, and with the Indian tribes.” The Court referenced the well‑known 1824 case of Gibbons v. Ogden, in which Chief Justice Marshall defined commerce as not merely traffic but as intercourse, describing commercial intercourse between nations and parts of nations in all its branches and indicating that it is regulated by prescribing rules for conducting that intercourse (see 1837 12 App. Cas. 575; 1824 9 Wheat 16 L. ed. 23). The Court explained that the American principle of federation holds that sovereign states have transferred a portion of their authority to the federal government, and that, except for powers expressly surrendered or prohibited by the state constitutions, the remaining powers belong to the United States, as articulated in the Tenth Amendment: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.” The Court observed that most American case law deals with the allocation of rights between the states and the extent of congressional power to regulate commerce, a subject that was not relevant to the present enquiry. Finally, the Court turned to the Indian context, recalling the observation of Justice Venkatarama Aiyar in M. P. V. Sundararamier & Co. v. State of Andhra Pradesh that the Indian Constitution was not created on a blank slate; rather, it was built upon the federal framework established by the Government of India Act, 1935, which, although subsequently altered by repeal and amendment, remains the foundation upon which the current Constitution must be interpreted.

The Court observed that, although the Constitution has been amended and supplemented, the Government of India Act of 1935 continues to provide the basic framework on which the present Constitution is constructed, and consequently the provisions of the Constitution must be interpreted in the context of the provisions of that Act. The Court then turned to the historical evolution of India over the past century, describing it as a period of continual transition. It noted that the political structure moved from a completely centralized administration centred at the Union and its provinces, to a system of partial responsibility for the provinces known as dyarchy. The Court cited the report “(1) [1958] S. C. R. 1422, 1478” in reference to this stage. From dyarchy, the system progressed to provincial autonomy within a federation of administrative units that were expected to incorporate the Indian princely States. The Court further traced the development from that stage to the establishment of a Dominion under the Crown, and finally to the emergence of a Republic composed of a Union of States. It stressed that these successive stages constitute transitions that remain vivid in collective memory.

Earlier in the colonial era, the Court recounted that the East India Company exercised authority on behalf of the Crown through the Secretary of State for India and the Governor‑General. Consequently, the Indian experience of constitutional change ran in the opposite direction to that of Australia, where several independent colonies united to form a federation with a central government. In India, the movement was from a highly centralized regime toward a federation of States that were gradually granted autonomous status. The Court highlighted that over the last hundred years or more, self‑governing States arose, each possessing its own legislature, executive, and financial resources, although they remained under the overall control of the Centre. The union of these States, the Court said, makes them members of a sovereign democratic republic.

To illustrate the steps of this transformation, the Court explained that the survey must begin slightly before the Government of India Act, 1935, but should focus on the degree of legislative and financial independence that emerged. Under the East India Company, the idea of a central government did not appear until the Company’s charter was renewed in 1833, at which time the Governor‑General and his council in Bengal began to assert authority over the presidencies of Madras and Bombay, indicating a move toward a unitary form of government. In view of the adverse experiences of Warren Hastings’s administration, the Charter Act of 1833 authorized the Governor‑General to overrule his council, a power that persisted until 1935. Thus, in reality there was a single government, and the so‑called governments of the presidencies and provinces functioned merely as agents of the central authority.

After the transfer of power in 1858, the Court noted that the Government of India was conducted in the name of the Queen through her Secretary of State for India, and the overall pattern of central control remained, although democratic institutions gradually emerged over time. When the reforms of 1919 introduced a system of local governments, the Court observed that the process represented reconcentration rather than true decentralisation, a phenomenon comparable to that observed in France. The councils at both the centre and the provinces were substantially enlarged, with many nominated members added. When elections were eventually held, they allowed representation of certain special interests. Nevertheless, the Court emphasized that legislation during this period continued to originate from the centre, either in the form of regulations or through directives issued by the central authority, unless the subject matter was entirely local in character.

The Court noted that legislation could be issued in the form of Regulations or through instructions from the Centre, except where the matter was wholly local. It chose not to elaborate on the details of the preparatory periods. When Parliament later sought to modify the existing arrangement, its purpose was to grant the Provinces a distinct existence while maintaining a strong central authority. The amendment of the Government of India Act, 1915 resulted in a clear division of the legislative machinery into two parts, leading to the creation of a Legislative Assembly and separate local Legislatures. In these local Legislatures, the first experiments with democratic processes were undertaken. To provide separate powers, a classification of subjects between the Centre and the Provinces was introduced, separating the spheres of legislation, taxation and administration. This classification was made under Section 45A, and the accompanying rules, known as the Devolution Rules and their Schedules, served as precursors to the Lists later incorporated in the Government of India Act, 1935 and the present Constitution. The only distinction was the absence of a third List, which was considered unnecessary because the residual power remained with the Centre. The Court emphasized that the powers of the local Legislatures were not unlimited. In addition to the limitations arising from the subject allocation under the Devolution Rules, the Centre retained control. Any Act passed by a local Legislature could be disallowed by the Governor‑General or the Crown, and, in certain situations, could be repealed by the Indian Legislature. Consequently, although the seed of federation had been sown, there was no real semblance of a federation. The Court then turned to an analysis of the financial arrangements, including taxation, during the period under consideration. It observed that the finances of India in the early stages were also centralised. The Provinces received what was deemed to be their “needs,” and both provincial taxation and expenditure were controlled centrally. Nevertheless, the process of financial decentralisation could be traced to an earlier date. The Act of 1858, which terminated the rule of the East India Company, vested India’s revenues in the Crown, with necessary oversight by the Secretary of State. The Court referenced Mr Wilson, founder of the Economist and the first Member for Finance, who advocated that Provinces should not rely on grants but should possess independent resources. Wilson’s suggestions materialised during Lord Mayo’s administration, when, besides fixed grants, certain revenue sources were “provincialised.” By 1882 a bifurcation of revenue had emerged, described as “divided heads of revenue,” a phrase that continued in use for many years. The Court identified the Montagu‑Chelmsford Report as the next major milestone, noting that it led to genuine provincial enfranchisement. The Report declared that the existing financial relations between the Central and Provincial Governments must be altered if the popular principle of fair play in the Provinces were to be upheld, and that the primary aim was to find a way of completely separating the resources of the Central and Provincial Governments.

In the judgment, the Court explained that the India Act contained Devolution Rules, specifically Rules two and fourteen, which provided for the separation of resources between the centre and the provinces. However, the Court stressed that this provision did not imply that the provinces possessed an independent fiscal system. Rule sixteen of the Devolution Rules required that all monies be paid into a single account that was kept under the custody of the Governor‑General. The Governor‑General, acting with the sanction of the Secretary of State, formulated rules and issued both general and special orders governing payments, withdrawals and disbursements from that account. The majority of the Devolution Rules dealt with these financial procedures, and a large number of additional rules and instructions were also issued to give effect to the scheme. Taxation in the provinces was governed by Entry forty‑eight in Part Two of the First Schedule of the Devolution Rules. That entry provided that sources of provincial revenue which were not included under any previous heads could be either (a) taxes listed in the schedule to the Scheduled Tax Rules, or (b) taxes not listed in those schedules but imposed by provincial legislation that had obtained the general previous sanction of the Governor‑General. The Scheduled Tax Rules, made by the Governor‑General in Council under section eighty‑A sub‑section three (a) of the Government of India Act, divided the heads of taxes into two distinct parts. The first part covered taxes that Legislative Councils could impose without needing the prior sanction of the Governor‑General for the purpose of local government. This first part comprised eight heads: six specific taxes, one registration fee and one stamp duty. The six taxes were a tax on land used for non‑agricultural purposes, a tax on succession, a tax on betting and gambling, a tax on advertisements, a tax on amusements and a tax on specified luxuries. The second part dealt with taxes that local legislatures could impose or could authorize the imposition of, again without prior sanction of the Governor‑General, for local authority purposes. The heads in this second part included tolls, taxes on vehicles or boats, octroi, terminal taxes where octroi had not been levied in a particular area before a specified date, taxes on trades, professions or callings, and a tax on private markets. In addition, the local authorities could levy taxes and fees for certain services that they rendered. The six taxes in the second part were essentially taxes on trade and commerce in motion; although they were intended for local authorities, the Indian Legislature, the Governor‑General and ultimately the Crown retained the power to annul any such law if it was deemed unacceptable. The Court then noted that it would not discuss the Report of the Committee of Inquiry chaired by Lord Mestan, which had recommended the amounts payable to local governments from income‑tax, nor the reports of the Reforms Inquiry Committee chaired by Sir Alexander Muddiman and by Lord Incheape. It observed that, following the recommendations of the first committee and the fiscal retrenchment recommended by the second, the contributions by the provinces ceased in the financial year 1927‑28. Consequently, just before the formation of the Indian Statutory Commission in 1927, the system of dyarchy was still operative, although the financial contributions from the provinces had already been discontinued.

The Court noted that at the time under discussion the sources of revenue were split between the Central Government and the Provincial Governments. It was at this juncture that the Indian Statutory Commission, commonly known as the Simon Commission, was constituted. The Commission put forward the view that the Organic Instrument to be prepared should contain provisions allowing it to evolve over time; in other words, the Court explained that the Commission argued for a flexible rather than a rigid Constitution, and it stressed that any development should consider India as a whole rather than only British India. The Court observed that this approach echoed the language of the Montagu‑Chelmsford Report, which had stated: “Our conception of the eventual future of India is a sisterhood of States, self‑governing in all matters of purely local or provincial interest. In this picture there is a place for the Native States.” The Commission placed particular emphasis on a single economic observation. It observed: “Economic forces are such that the States and British India must stand or fall together. The increasing importance of industry brings problems that must be faced by both together. The States themselves have their own tariff policies, and there is a serious possibility that, unless provision can be made for the reconciliation of divergent interests, numerous tariff walls will be perpetuated in an area where fiscal unity is most desirable.” The Commission further suggested that the future Constitution should keep an “open door” so that, when they deemed it appropriate, the ruling princes might join on just and reasonable terms. Consequently, the Commission recommended a federal Constitution comprising British India and the Indian States. It expressed the view: “We are inclined ourselves to think that the easier and more speedy approach to the desired end can be obtained by reorganising the Constitution of India on a federal basis in such a way that individual States or groups of States may have the opportunity of entering as soon as they wish to do so.” When the Government of India Act, 1935 was being drafted, the Court noted that a Financial Adviser, Mr. (later Sir) Walter Leyton, assisted the Committee in devising a scheme that would secure adequate revenues for the Provinces. The Court recorded that the Indian States, should they join the Federation, also demanded protection of their position. Mr. Leyton pointed out that, prior to the Indian States Committee of 1928‑29—commonly called the Butler Committee—the Indian States had pressed for a share of customs revenue that had by then risen to about Rs. 50 crores, and the Butler Committee had recommended that this claim be examined by a panel of experts. The Court further observed that the issue of the States’ share in customs and excise revenue was raised again during the Round Table Conference. Subsequently, a Federal Structure Committee was constituted, among other tasks, to report on the powers of the Federal Legislature, while a Provincial Constitution Committee was tasked with reporting on the powers of the Provincial Legislatures. In the report of the Federal Structure Committee, the subject of

The discussion of trade and its taxation before the Conference was examined only from the perspective of discrimination, with the emphasis placed primarily on British trade and the fiscal conventions that governed it. Consequently, the debates were framed around two principal questions: first, the protection of British interests, and second, the avoidance of commercial discrimination on the basis of race or similar grounds. When the Joint Parliamentary Committee on the Indian Constitutional Reforms addressed these matters, it recommended abolishing dyarchy in the federating units and establishing provincial autonomy. The Committee, however, warned that transferring a large number of governmental powers to the provinces and encouraging them to develop a vigorous and independent political life carried the inevitable risk of weakening or even destroying the unity of India. It observed that provincial autonomy could be imagined only if the structure of the Central Legislature were adapted in such a way that it would bind the autonomous units together. The Committee further noted that the unity of India, which it had emphasized, remained dangerously imperfect as long as the Indian States lacked any constitutional relationship with British India.

Recognising the difficulties of economic connections between the provinces among themselves, between British India as a whole, and the Indian States, the Committee made several observations. It stated that, with certain exceptions, the States were free to impose their own internal customs policies, which inevitably obstructed the free flow of trade. Even at maritime ports located within the States, the administration of tariffs was not well coordinated with that of the British Indian ports, while the separate rights of the States in these matters were protected by long‑standing treaties or usages acknowledged by the Crown. Conversely, tariff policies affecting the entire country were formulated by the Government of India and the British Indian Legislature, bodies in which no Indian State had representation, despite the fact that the States comprised slightly less than half of India’s area and one‑quarter of its population. Moreover, when the Government of India exercised its powers to impose internal indirect taxes or to control economic development—examples being the taxes on salt and opium—such actions generated considerable friction and often left the States with a sense of injustice. The Committee suggested means by which internal trade and commerce could enjoy a greater degree of freedom, and it insisted that its recommendations be quoted verbatim. In paragraph 264 of the Report, it observed that it would be highly desirable for the States that joined the Federation to, like the provinces, accept the principle of internal freedom for trade throughout India and to allow the Federal Government alone to impose tariffs and other trade restrictions, noting that many States derived substantial revenue from internal customs duties.

Customs duties that are collected at the frontiers on goods brought into a State from other parts of India are commonly described as internal customs duties. In many of the smaller States these duties resemble octroi and terminal taxes more than they do genuine customs levies, while in some of the larger States the authority to impose such duties is expressly limited by treaty. The Court recognized that it would be impossible to deprive States of the revenue on which they rely for balancing their budgets, and therefore the States must be permitted to modify existing duty rates in response to changing circumstances. Nevertheless, the Court observed that internal customs barriers conflict with the principle of free interchange that a fully developed Federation should enjoy. Accordingly, the Court expressed a strong opinion that every effort should be made to replace internal customs duties with other forms of taxation, and that the accession of a State to the Federation should entail acceptance of the principle that it will not create a barrier to free interchange so severe as to threaten the future of the Federation.

When the matter of commercial discrimination was examined, the Joint Parliamentary Committee focused primarily on the issue of British imports and the Fiscal Convention, which was expected to cease when the new Constitution came into force. The Committee therefore suggested that the Governor‑General and the Governors be given the power to withhold their assent to Bills that were discriminatory in fact or showed a tendency to discriminate. In addition, the Committee recommended that statutory prohibitions be enacted against certain specified kinds of discrimination. It further added that such statutory prohibitions would open the way for challenges in the Courts on the ground that any legislative enactment inconsistent with these prohibitions would be ultra vires, even if the Governor‑General or a Governor had already given assent to it. These recommendations formed part of the broader effort to secure freedom of trade and commerce within the proposed Federal Constitution.

The Committee’s suggestions concerning the freedom of trade and commerce were incorporated into the draft Federal Constitution. It was also acknowledged that the Provinces would be responsible for carrying out national building activities and would consequently require additional financial resources. The need for greater finances for the Provinces was recognised as acute. Various bodies, including the Federal Structure Committee, the Federal Finance Committee, the Sir Walter Leyton Committee, the Davidson Committee, as well as experts such as Sir Malcolm Hailey and Sir Otto Niemeyer, examined issues related to the establishment of self‑governing units, the creation of deficit Provinces, the incorporation of Burma, and the costs associated with establishing a Federation. Guidance was also drawn from the Report of the First Taxation Inquiry Committee of 1926. As legislative subjects were allocated between the Centre and the Provinces, so too were the sources of revenue. The intention was to create financially stable governments with clearly defined taxation powers, a necessity for autonomous Provinces to exist without reliance on subventions that would otherwise be required to support deficit Provinces. Consequently, the legislative heads were wholly divided between the Centre and the Provinces.

The Constitution placed the subjects of legislation into three separate lists. The first two lists were intended to be exclusive to either the Centre or the Provinces, while a third list was added to contain subjects that would fall under the concurrent jurisdiction of both levels of government. The purpose of this arrangement was to minimise the allocation of residual powers. As observed by Chief Justice Gwyer in In re The Central Provinces and Berar Act No. XIV of 1938 (1), this structure “made the Indian Constitution Act unique among federal Constitutions in the length and detail of its Legislative Lists.” The Government of India Act, 1935 contained a provision in section 5 directing that His Majesty, by proclamation, would declare that, from a date to be fixed, there shall be a Federation under the Crown called the Federation of India, composed of (a) the Provinces and (b) the Indian States which have or may thereafter accede to the Federation. That proclamation was never issued. The matter of freedom of trade and commerce, which had attracted intense discussion, received only brief treatment in the 1935 Act. Chapter III in Part V (Legislative Powers) dealt with discrimination in a series of sections that Dr Keith described as “liable to be regarded as oppressive and unfair.” Although the text nominally paid lip‑service to considerations of caste, creed and colour, the provisions were in reality designed to protect British interests.

Freedom of internal trade in its simplest form was addressed in Part XII (Miscellaneous and General) by section 297, which provided that 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 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; and (b) by virtue of anything in this Act have power to impose any tax, cess, toll, or due which, as between goods manufactured or produced in the Provinces and similar goods not so manufactured or produced, discriminates in favour of the former, or, which, in the case of goods manufactured or produced outside the Provinces, discriminates between goods manufactured or produced in one locality and similar goods manufactured or produced in another locality. (2) Any law passed in contravention of this section shall, to the extent of the contravention, be invalid. By this section, provincial legislatures were denied the authority under two specific entries—Entry 27, “Trade and Commerce within the Province,” and Entry 29, “Production, supply and distribution of goods”—to impair the free entry and export of goods in the Provinces. The original White Paper used the term “commodities” instead of “goods,” and the substitution with “goods” appears to have been overlooked in the wording of section 297(1). Nevertheless, the definition of “goods” was understood to encompass commodities, and the phrase “goods of any class or description” was sufficiently broad to convey the intended meaning.

The Court observed that the phrase “class or description” in the relevant provision was sufficiently broad to convey its intended meaning. It noted that the question of taxation was not addressed in clause (a) of the provision but in clause (b), which expressly required that taxation within the provinces could not be based on a differential basis. In support of this observation, reference was made to several entries in List I—specifically entries 19, 20, 21, 22, 23, 24 and 26—and to entries 20 and 32 in List III, all of which in various ways pertain to the regulation of trade, commerce and intercourse.

The Court then turned to a detailed examination of the historical background of the Government of India Act, 1935. It explained that over the course of a century, India moved from a highly centralized form of government toward the creation of autonomous provinces that possessed distinct political identities. These provinces were later intended to be combined, both among themselves and with the Indian States, in a federal structure. To achieve this transformation, the Constitution makers not only divided legislative powers but also separated fiscal resources, establishing distinct financial arrangements for the federation and for each province. The fields of taxation were carefully demarcated so that provincial revenues would be sufficient to render the provinces largely self‑supporting, leaving surplus capacity for nation‑building activities. This fiscal design was intended to allow the Indian States to accede on terms of equality with the provinces.

The Court highlighted a crucial difference between the Indian constitutional scheme and those of the United States and Canada. In India, the power over commerce was divided between the centre and the provinces, as demonstrated by the quoted entries. Provincial commerce power could be exercised only within the territorial limits of a province. Section 297 imposed two principal restraints on that provincial commercial authority. Clause (a) prohibited provinces from imposing restrictions at their borders on the entry into or export from the province of goods. Clause (b) barred any discriminatory levy of tax on goods based on whether the goods were manufactured or produced within the province as opposed to elsewhere, and it also prohibited local discriminations of a similar kind.

Finally, the Court explained that the Constituent Assembly, aware of the varied approaches adopted by other countries to freedom of trade, commerce and intercourse, sought to fashion a pattern suited to Indian conditions. It recognized that the provisions of section 297 and the related chapter on discrimination in the Government of India Act, 1935, were inadequate for the new constitutional framework. Consequently, the Assembly had to resolve several fundamental questions: whether the commerce power should be vested solely in Parliament or shared with state legislatures; whether freedom of trade should be guaranteed only at inter‑state borders or also within states; and whether any prohibition on restrictions should be absolute or qualified. The discussion of these issues formed the basis for the constitutional provisions later incorporated in Part XIII.

The Court examined whether a restriction on trade should be qualified, and if so, in what manner such qualification might operate. It considered who should be empowered to impose the restriction and the extent to which that power could be exercised. The inquiry also addressed whether the freedom guaranteed by the Constitution should apply solely to individuals or extend to trade and commerce collectively. Questions were raised concerning the fate of existing statutory regimes inherited from British India and those applicable in the newly acceding Indian States. The Court further explored whether special provisions were necessary to address emergencies that could disrupt normal commercial activity. It also examined what special measures should enable the States to levy taxes on the sale of goods, identifying which taxes experts regarded as the principal source of State revenue. All of these issues have, in fact, been incorporated in Part XIII of the Constitution, which attempts to avoid the pitfalls observed in foreign law reports on trade freedom. The drafters selected language they believed suitable for Indian conditions while keeping in view the broader political structure of a federation of autonomous States. These autonomous features were reinforced during the operation of the 1935 Constitution, giving rise to what Professor Coupland described as “Provincial patriotism.” According to the professor, recent years had strengthened provincial patriotism because of the advent of full provincial self‑government, and people began to take pride in governments they considered their own. With this historical background, the Court proceeded to examine the Constitution in order to ascertain the meaning of the various articles contained in Part XIII. The Court began by presenting Part XIII, titled ‘Trade, Commerce and Intercourse within the Territory of India,’ and indicating the amendments and dates applicable to each article. Article 301 states that, subject to other provisions of the Part, trade, commerce and intercourse throughout India shall be free. Article 302 provides that Parliament may, by law, impose restrictions on the freedom of trade, commerce or intercourse between states or within any part of India when required in the public interest. Article 303(1) declares that, notwithstanding Article 302, neither Parliament nor a State Legislature may enact any law that gives or authorises a preference between states. Such a law also cannot discriminate between states by virtue of any entry relating to trade and commerce in the Seventh Schedule. Clause (2) of Article 303 clarifies that nothing in clause (1) shall prevent Parliament from making a law that gives or authorises a preference or discrimination if the law declares such action necessary.

In this provision, the Constitution allowed a State to address a shortage of goods in any part of the country. Where this clause related to the State of Jammu and Kashmir, clause (1) of article 303 omitted the phrase “by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule.” Article 304 then provided that, notwithstanding the requirements of articles 301 or 303, a State legislature could, by law, impose on goods imported from other States or Union territories a tax that was the same as the tax imposed on comparable goods manufactured or produced within that State, provided that the law did not discriminate between imported and locally produced items. The same article also permitted the State to impose reasonable restrictions on the freedom of trade, commerce or intercourse inside or outside the State when such restrictions were required in the public interest. However, any bill or amendment dealing with these restrictions could be introduced or moved in the State legislature only after obtaining prior sanction from the President, as authorized by the Constitution (Seventh Amendment) Act, 1956, section 29 and the accompanying schedule.

Article 305 clarified that nothing in articles 301 and 303 would affect the provisions of any existing law, except to the extent that the President might by order provide otherwise. It further stated that article 301 would not affect the operation of any law that had been enacted before the commencement of the Constitution (Fourth Amendment) Act, 1955, insofar as that law related to, or prevented, Parliament or a State legislature from making any law on matters referred to in sub‑clause (ii) of clause (6) of article 19. The text of article 305 replaced an earlier version which had simply said that articles 301 and 303 would not affect existing law except as the President might direct. Article 306 was subsequently deleted; the original wording had allowed any State listed in Part B of the First Schedule, which before the Constitution’s commencement had levied a tax or duty on imports from other States or on exports to other States, to continue levying such taxes or duties under an agreement with the Government of India. That agreement could last for a maximum of ten years, and the President could, after five years, terminate or modify the agreement if, after considering the Finance Commission’s report under article 280, he deemed it necessary. Finally, article 307 provided that Parliament could, by law, appoint any authority it considered appropriate to carry out the purposes of articles 301, 302, 303 and 304 and to confer on that authority such powers and duties as it thought necessary.

In this case, the Court observed that the Constitution empowered the legislature to appoint any authority it deemed suitable for implementing the objectives set out in Articles 301, 302, 303 and 304. The legislature could also vest in the appointed authority such powers and duties as it considered necessary to fulfil those constitutional purposes. The Court further noted that Part XIII, unlike several foreign constitutions examined earlier, consolidated the provisions relating to the freedom of trade, commerce and intercourse in a single section of the Constitution. The Court explained that the power to regulate commerce was treated as a distinct head of legislation and was deliberately distributed among the three constitutional Lists. In addition to numerous other entries that could affect trade and commerce and that appear in each of the three Lists, the Constitution contained two specific entries in the Union List, two in the State List and one in the Concurrent List that dealt directly with trade and commerce. The Union List entries were numbered 41, which covered trade and commerce with foreign countries, as well as import and export across customs frontiers, and 42, which dealt with inter‑State trade and commerce. The State List contained entry 26, which addressed trade and commerce within a State subject to the provisions of entry 33 of List III, and entry 27, which concerned the production, supply and distribution of goods, again subject to entry 33 of List III. The Concurrent List featured entry 33, which related to trade and commerce and the production, supply and distribution of certain categories of goods, namely: (a) the products of any industry whose control by the Union had been declared by parliamentary law to be expedient in the public interest, together with imported goods of the same kind; (b) food‑stuffs, including edible oilseeds and oils; (c) cattle fodder, including oilcakes and other concentrates; (d) raw cotton, whether ginned or unpinned, and cotton seed; and (e) raw jute. The Court pointed out that the wording shown in brackets reflected the entry as it existed before the amendment effected by the Constitution (Third Amendment) Act, 1954, when the term “industry” was replaced by the plural “industries.”

The Court explained that by dividing the commerce power among the three Lists and by enacting the detailed provisions of Part XIII, the Constitution avoided the difficulties that had arisen in the United States of America and Canada. In Canada, the Court had previously examined whether provincial legislation infringed upon the Dominion’s commerce power under section 91(2) of the Canadian Constitution, and conversely whether Dominion regulation of trade encroached upon provincial powers. The Indian Constitution, the Court held, could still give rise to conflicts between the two rival Lists, but such conflicts were unlikely to arise with respect to the exercise of the commerce power because of the clear division of authority. In the United States, the controversy centred on the competing powers of Congress and the individual States. By separating the commerce power, the Indian Constitution intentionally sidestepped the reliance on American and Canadian precedents. The Court further observed that the framers deliberately adopted the Australian model for Article 301, while also incorporating additional provisions to prevent the kind of controversy that had erupted in Australia. Article 301, similar to section 92 of the Australian Constitution, declared in general terms that trade, commerce and intercourse shall be free. However, the Court noted that the introductory wording of Article 301 was crafted to modify the scope of that freedom, a point that would be addressed in the subsequent discussion.

In this case, the Court explained that the words “Subject to the other provisions of this Part” serve to draw attention to the provisions that follow immediately afterwards. These words achieve two results. First, they convey that the guarantee of freedom is not absolute but is conditioned upon the subsequent provisions. Second, they indicate that the primary limitations on freedom of trade and commerce are to be found in Part XIII. The Court further noted that the phrase “throughout the territory of India” was inserted to avoid the kind of disputes that had arisen in Australia until the Banks case (1) was decided by the Privy Council, namely whether the freedom applied only at the frontiers of the States or also within the States. The Constitution’s wording “throughout the territory” had been suggested to Australia as an amendment but was not accepted, and the Privy Council in James v. Commonwealth (2) was understood to have endorsed the view that freedom existed only at the barriers of the States. By adopting the rejected Australian formulation, the Indian Constitution anticipated the decision of the Privy Council in the Banks case, even though that case had not been decided when the Constitution was drafted. Consequently, the freedom in India is intended to be both inter‑State and intra‑State, and it is addressed to Parliament as well as to the State Legislatures, as the next Article makes clear.

The Court observed that Article 302 then creates the first exception to the freedom guaranteed in Article 301. This article empowers Parliament to impose restrictions on that freedom, demonstrating that Parliament is nevertheless bound by Article 301. By providing separate exceptions for Parliament and the State Legislatures, the Constitution prevents the controversy that had been hotly debated in Australia over whether the Commonwealth was bound by the freedom provision. Under Article 302, Parliament may place restrictions on trade, commerce and intercourse in two distinct ways: (a) between one State and another, which refers to the inter‑State character of trade across State frontiers, and (b) within any part of the territory of India. The phrase “any part of the territory of India” gives Parliament the authority to legislate not only generally but also locally. The Court pointed out that the definition of “the territory of India” is found in Article 1(3), which states that the territory shall comprise (a) the territories of the States, (b) the Union territories specified in the First Schedule (before the Constitution (Seventh Amendment) Act, 1956 this clause read “the territories specified in Part D of the First Schedule”), and (c) such other territories as may be acquired. Thus, the words “within any part of the territory of India” empower Parliament to make laws affecting any portion of the nation. This power, however, is subject to two restrictions. The first restriction, as the Court noted, is that any such restriction must be made by

In this portion of its analysis the Court explained that the constitutional power to legislate is conditioned first by the requirement of a valid law; without such a law the power cannot be exercised. The Court further observed that the second condition is that the law must be made in the public interest. Because a law is a prerequisite for action, the Court held that a mere executive action, unbacked by legislation, is not permissible. This principle, the Court noted, defeats the argument that had been strongly rejected by the Privy Council in James v. Cowan (1) where it was contended that the executive was not bound by section 92 of the Australian Commonwealth Act. The Court pointed out that the word “required” in the constitutional provision limits any restrictions to what is necessary in the circumstances and prevents a liberal interpretation of the Article as a free charter. The Court also observed that the term “reasonable,” cited in the case (1) (1932) A. C. 542, is not inserted as a qualifying restriction as it is in Article 304; nevertheless, it would be absurd to allow the freedom guaranteed by Article 301 to be undermined by permitting Parliament to impose unreasonable restrictions. The Court affirmed that Parliament is ordinarily the best judge of what constitutes the public interest and that questions of policy are rarely suitable for adjudication by the Courts. However, the Court added that if a question arises whether Parliament, under the guise of Article 302, has encroached upon the freedom guaranteed by Article 301, such a matter may be justified only in exceptional circumstances, and invoking Parliament’s voice would be futile in that context. The Court then turned to Article 303, noting that it begins with a non‑obstructive clause stating “non‑obstante anything in Article 302.” The effect of this clause, the Court explained, is to remove the power granted to Parliament to limit the freedom affirmed in the preceding Article in the situations described in Article 303. While some have criticised this non‑obstructive clause as being unrelated to the provisions that follow, the Court rejected that criticism and indicated that the answer to the objection would become clear from the ensuing discussion. The Court summarized Article 303 by stating that neither Parliament nor a State Legislature shall have the authority (i) to enact any law that gives, or (ii) to enact any law that authorises the giving of, (A) any preference to one State over another, or (B) any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists of the Seventh Schedule. The underlying purpose of this Article, the Court said, is to prohibit preference and discrimination among States concerning trade, commerce and intercourse. The Court emphasized that the principle of uniformity is so strong that, by the non‑obstante clause, the powers of Parliament under Article 302 are completely nullified, and consequently, any derivative powers of State Legislatures that operate under a parliamentary declaration that a restriction is in the public interest are also nullified, referring to Entry 33(a). The Court further noted that when Entry 35 of the Concurrent List or Entry 57 of List I is read together with Entry 35 of List I, the citation is confined to the entries primarily at issue. Finally, the Court observed that the Seventh Schedule of the Constitution contains, in addition to Entries 41 and 42 of List I, Entries 26 and 27 of List II, and Entry 33 of List III, many other entries that regulate special trades.

In some of the provisions, the phrase ‘law made by Parliament’ is reiterated out of abundant caution. The Court explained that the expression in Article 303 ‘by virtue of any entry relating to trade and commerce’ does not refer only to the five entries previously mentioned, but also includes other entries such as Entry 8 of List II, Entries 29, 30 and 81 of List I, and Entry 15 of List III, among others. By embracing these additional entries, the provision achieves the paramount purpose of ensuring that the power of commerce, regardless of its source, may not be exercised to create preference or discrimination between one State and another, whether the action originates from Parliament, a State Legislature, or a combined effort of both. The Court emphasized that no question of the content or origin of the power arises, because the prohibition is absolute. The Court further observed that Article 303 represents a substantial advancement over Section 297 of the Government of India Act, 1935, which limited the restriction to the Provincial Legislature or Government. In contrast, the present provision extends the prohibition to include Parliament and the Central executive. Consequently, the executive branch is rendered powerless, because any restriction must stem from law; without legislative authority, executive action would be ineffective. While Section 297 dealt only with differential taxation of goods, Article 303 encompasses not only the movement and taxation of goods but all matters inherent in free trade, commerce and intercourse. The Court noted a parallel in Article 99 of the Australian Constitution, which prohibits the Commonwealth from giving preference to one State over another through any law or regulation of trade, commerce or revenue, and must be read together with Section 102, which empowers Parliament to forbid State preferences. Article 303 goes further by disallowing any legislative action, whether by Parliament or a State Legislature, from creating a single preference or discrimination in trade, commerce or intercourse, thereby securing equality for all peoples of India irrespective of their place of origin or residence. However, the Court recognized an exception contained in clause (2), which permits Parliament to enact a law that gives or authorises a preference or discrimination if the law declares that such action is necessary to address a scarcity of goods in any part of India. The wording of clause (2) was quoted in full to illustrate the scope of this limited exception.

In this case the Court observed that the primary concern attached to the constitutional provision was the problem of famine, while a secondary concern was the need to readjust or evenly distribute goods when there was an economic imbalance. The Court described clause (2) of the relevant article as plain and self‑explanatory. It explained that matters such as fixing quotas for dried fruits or ensuring an even distribution of those fruits both within the domestic market and in export markets – issues that had caused dissatisfaction among Australian interests – could be dealt with by Parliament using the authority granted by clause (2). The Court then turned to article 304 and noted that the article begins with a non‑obstante clause stating, “Notwithstanding anything in article 301 or article 303.” The Court recorded that some commentators had argued that the reference to article 301 could be understood, but the reference to article 303 could not, and therefore claimed that the drafting of article 304 was inaccurate. The Court replied that article 303 already mentions the power of State legislatures, and that unless article 303 were also set aside by article 304, a conflict would arise between the two provisions. To avoid such a conflict, the Court explained that both articles 301 and 303 have been expressly excluded from the operation of article 304.

The Court explained that article 304 is divided into two parts. The first part authorises State legislatures to enact laws that affect trade, commerce and intercourse. Clause (a) of the article permits the taxation of goods brought from other States on a basis that is equal to the taxation of similar goods produced within the State, provided that the taxation does not discriminate between them. In this way the prohibition contained in article 301 is removed, but a requirement of uniformity is imposed. The Court compared this provision with section 297(1)(b) of the earlier law, observing that article 304 is narrower in its empowering language and has a more limited reach. Section 297 had prohibited “tax, cess, tolls or dues” on the movement of goods, covering all kinds of imposts, whereas article 304 only authorises the imposition of taxes on goods on a non‑discriminatory basis between States and says nothing about other imposts. Moreover, unlike section 297, article 304 does not refer to local areas, thereby treating strictly inter‑State matters on a separate footing. The Court then turned to clause (b) of article 304, which permits the restriction of trade, commerce and intercourse in two situations: first, in the inter‑State context, expressed by the words “with … that State,” and second, in the intra‑State context, expressed by the words “within that State.” Both types of restriction are permissible only if they are reasonable and required in the public interest. The Court stressed that the use of the word “reasonable” introduces a question of justiciability. While legislative intent creates a strong presumption in favour of the law and places a heavy burden on anyone challenging it, the Court indicated that the extent of the restriction and its proportionality to the public interest – although initially a matter for the legislature – may ultimately have to be examined by the courts. The Court added that legislatures may enact laws that do not directly affect trade, commerce and intercourse, and such laws need not be referred to the President for sanction nor be processed under the proviso. Only a law that directly and immediately affects trade, commerce and intercourse falls within the scope of article 304.

The Court noted that any restriction on trade, commerce or intercourse that required submission to the President for his sanction would still remain vulnerable to judicial scrutiny, because the President’s approval would not shield the restriction from being questioned. In its Report, the Joint Committee on Indian Constitutional Reform (para 367) observed that “we need hardly add that the effect of our recommendations for the statutory prohibition of certain specified forms of discrimination would lay open to challenge in the Courts as being ultra vires any legislative enactment which is inconsistent with these prohibitions, even if the Governor‑General or the Governor has assented to it.” The Court explained that the same principle would apply even when the President gives his sanction. Article 305 of the Constitution was intended to protect existing laws at the moment the Constitution came into force, and the Fourth Amendment Act of 1955 created space for statutes that permitted a State or a State‑controlled corporation to carry on any trade, business, industry or service, whether as a monopoly or otherwise. The Court held that Article 305 did not apply to the statute under challenge because the statute was not an “existing law.” Article 306 was identified as a temporary provision that allowed certain Part B States to continue levying existing taxes or to restrict trade, commerce and intercourse for a limited period notwithstanding the provisions of Part XIII; the Court stated that it was not concerned with this provision after its repeal in 1955. Article 307, which deals with the appointment of an authority to implement Articles 301‑304 and mirrors section 101 of the Australian Constitution, was deemed immaterial to the present case.

The Court then turned to the foreign authorities cited by the parties. It referred to decisions of the High Court of Australia and the Privy Council that had been urged in support of the rival submissions. After the Indian Constitution became effective on 26 January 1950, the Privy Council decided the case of Commonwealth of Australia v. Bank of New South Wales (1). In that judgment the Privy Council departed from some of its earlier opinions. While affirming that the test was whether an impugned law directly and immediately restricted inter‑State banking business, rather than merely “remotely or incidentally,” the Council observed that expressions such as “freedom at the frontier… in respect of goods passing into or out of the State” and “freedom of what is the crucial point in inter‑State trade, that is at the State harbour,” which had been used in James v. The Commonwealth (2), must be read secundum subjectam materiam, that is, in the context in which they occurred. The Privy Council cited (1) (1950 A.C. 23 S.) and (2) (1936) A.C. 578 and warned that these phrases could not be interpreted as limiting the protection of section 92 solely to the passage of goods or only to the frontier. It emphasized that a restriction applied at a stage before or after the border could still offend section 92, and that the protection of inter‑State trade, commerce and intercourse was not confined to the movement of goods at the frontier.

In the judgment the Court observed that a restriction which is not imposed at the border but is applied at an earlier or later stage of inter‑State trade, commerce or intercourse can still contravene section 92. It further noted that, contrary to the long‑standing view in Australia, the protection afforded by section 92 is not limited solely to the movement of goods. The Privy Council also corrected the Australian perception that the opinion of Justice Evatt in The King v. Vizzard had received an unqualified endorsement by the Board of Appeal in the case of James v. The Commonwealth. The Privy Council remarked that it was not apparent that the entire reasoning of the learned judge had been formally approved by the Board. Subsequently, the Privy Council endorsed a passage from the Australian National Airways case, which had earlier been quoted in these proceedings. In that passage the learned judge reiterated a principle first stated in the Milk case, namely that a simple legislative prohibition—whether made by the Federal or a State legislature—distinct from regulation, of inter‑State trade and commerce is invalid. Any law that is “directed against” inter‑State trade and commerce is likewise invalid because it does not regulate the trade but merely prevents it. By contrast, a law that prescribes the manner in which trade, including transport, is to be conducted is not a mere prohibition and may be valid even in its application to inter‑State trade, notwithstanding section 92. The Court noted that this statement both restated the general proposition and precisely clarified that simple prohibition does not constitute regulation, a view with which the Privy Council agreed. The Privy Council further clarified that, in certain circumstances, regulation may take the form of prohibition, thereby endorsing the observation of Harrison Moore that legislative power is not confined to regulation alone but extends from creation to destruction, allowing both establishment and prohibition. The Advocates‑General of Bombay and the Punjab, together with Mr G S Pathak, relied upon numerous decisions of the Australian High Court that were rendered after the Banks case. Although, strictly speaking, those decisions could not have influenced the framing of the Indian Constitution because the Constitution had already been drafted, the Banks case distinguished between regulation and simple prohibition. Subsequent Australian cases began to permit a broader scope for regulation of trade and commerce. Because there was no mechanism for implementing reasonable restrictions, any restriction had to fall within the limits of regulation to be valid. This approach of presenting otherwise restrictive legislation as regulatory had already been adopted before the Banks case, and both the Banks case and the later Transport cases illustrated the justification of many statutes as regulatory. In certain Transport cases, taxes that burdened trade and commerce were justified on the ground that they were compensatory, serving as recompense for the wear and tear of roads.

In this discussion, the Court observed that the levy imposed on motor‑vehicle owners was described as compensatory, meaning it was presented as a reimbursement for the wear and tear caused to the public roads. The Court cited the authority (1) (1948) 76 C.L.R. 1, 380, 381 for that description. It then stated that it would briefly notice a series of earlier decisions, because the parties had sought to justify the sections challenged in the present petition on the ground that those provisions were either merely regulatory or merely compensatory. The Court explained that those cases could be divided into two distinct phases for analytical purposes. In the first phase, the case of McCarter v. Brodie (1) – a transport‑related matter – invited the High Court of Australia to overrule the earlier Transport cases and to declare that the minority judgments throughout the series had been correct. Relying on the earlier Banks’ case (2), the Chief Justice expressed the view that the Privy Council had finally decided that statutes directly affecting persons engaged in inter‑State trade and commerce did not breach section 92 if they could fairly be described as regulation. He added that where a law directly regulated the subject‑matter of trade and commerce and went beyond regulation into prohibition, such a law would be invalid. Accordingly, the law under review was upheld, while Justices Dixon and Fullagar dissented.

In the second phase, the Court turned to the decision of the Privy Council in Hughes and Vale Pty. Ltd. v. State of N.S.W. (3). That decision overturned Rex v. Vizzard (4), disapproved all Transport cases decided after that decision, and rejected the majority judgment in McCarter v. Brodie (1), thereby giving effect to the dissenting opinions of Justices Dixon and Fullagar in that earlier case. The Court noted that a close examination of the Privy Council’s ruling in Hughes and Vale was necessary. It observed that the earliest Transport cases had been decided after the Privy Council’s judgment in James v. Cowan (5) but before the later decision in James v. The Commonwealth (6). Moreover, the Riverina case (7) and the Australian National Airways case (8) had been decided before the Banks’ case (2), whereas McCarter v. Brodie (1) followed them. The citations for those authorities were recorded as follows: (1) (1950) 80 C.L.R. 432; (2) (1948) 76 C.L.R. 1, 380, 381; (3) (1955) A.C. 241; (4) (1933) 50 C.L.R. 30; (5) (1932) A.C. 542; (6) (1936) A.C. 579; (7) (1937) 57 C.L.R. 327; (8) (1945) 71 C.L.R. 29. After those developments, the appeal in Hughes and Vale was taken to the Privy Council, while leave to appeal in McCarter v. Brodie (2) was refused.

Before analysing the Privy Council’s reasoning, the Court recalled the main factual holdings of the earlier cases for clarity. In James v. South Australia (3), the High Court struck down the executive’s determination of the places and quantities in which dried fruit could be marketed, holding that action to be a contravention of section 92. In James v. Cowan (4), the Court similarly held that the Minister’s expropriation of surplus dried fruit violated section 92. In James v. The Commonwealth (5), the Court affirmed that section 92 applied not only to the States but also to the Commonwealth, and it interpreted the term “free” to mean freedom at the frontiers of trade. The Court concluded this summary by referring to an extract from the judgment of Justice Evatt.

In the judgment of The King v. Vizzard (6) the Court observed that “freedom did not attach itself to each and every part of a transaction, and the other parts were not free from regulation or control.” The subsequent decision in the Bank’s case (7) clarified that regulation of trade, commerce and intercourse among the States was not inconsistent with the constitutional guarantee of absolute freedom. According to that judgment a breach of section 92 occurred only when the legislature or the executive acted to restrict such trade, commerce or intercourse directly and immediately, as opposed to creating an indirect or consequential impediment that could be regarded as remote. Consequently, regulation was described as the antithesis of “simple prohibition.” The transport‑related cases that followed typically involved four features: (i) a licensing system for motor‑transport vehicles administered by a Board; (1) (1955) A.C. 241. (3) (1927) 40 C.L.R. 1. (5) (1936) A.C. 578. (2) [1950] 8 O.C.L.R. 432. (4) (1932) A.C. 542. (6) (1933) 50 C.L.R. 30. (7) (1948) 76 C.L.R. 1, 380, 381; (ii) a discretionary power vested in the Board to grant or refuse a licence; (iii) a licence fee that was subject to a prescribed maximum limit; and (iv), in certain cases such as O’ Gilpin’s case (1), a mileage charge imposed on the licensed operator.

The effect of the Privy Council’s pronouncements on these transport cases was a matter of considerable debate. An earlier view held that The King v. Vizzard (2) had been approved by the Privy Council in James v. The Commonwealth (3). That view collapsed when the Privy Council, in the Bank’s case (4), expressly disavowed it. The Court also noted that the Australian National Airways case (5) had received approval from the Privy Council, and the consequences of that approval required careful consideration. These issues came before the High Court in McCarter v. Brodie (6). In that matter the Transport Regulation Acts of 1933‑47 provided for the licensing of commercial goods vehicles by a Board possessing discretionary authority and for the levying of a fee. Counsel for the respondents argued that the Bank’s case should render the transport licensing scheme invalid, contending that it must be overruled. The majority, however, applied the principles articulated in Rex v. Vizzard (2) and the Riverina case and upheld the validity of the scheme. Judges Dixon and Fullagar, JJ., dissented. In summarising the dissent, the Court borrowed the language of the dissenting judges, as the Privy Council had also done. According to Justice Dixon, the Bank’s case (4) disproved three propositions: (1) that section 92 did not guarantee freedom of the individual; (2) that “if the same volume of trade … flowed from State to State before as after the interference with the individual trader then the freedom of trade among the States remained unimpaired”; and (3) that a law applying equally to inter‑State commerce and to a State’s domestic commerce might…

In the judgment the Court explained that an objection could not succeed simply because a law prohibited, restricted or placed a burden on inter‑State commerce. The Court then set out two additional principles that the Bank case had settled. First, it held that the purpose or object of a statute challenged under section 92 must be determined by looking at the actual wording of the enactment and the legal effect that the law necessarily produces, not by considering any ulterior social or economic consequences that might follow. Second, the Court said that the doctrine of “pith and substance”, although useful for deciding whether a law merely regulates a particular class of transactions that form part of trade and commerce, becomes irrelevant when the law operates as a prohibition or when the question of regulation cannot be fairly raised. Dixon, J. observed that the Transport cases required a pragmatic approach. He identified the principal error as treating trade and commerce as a mere aggregate of activities and ignoring the individual’s inter‑State commercial activities and his right to engage in them. He noted that the courts had attached excessive importance to the absence of discrimination against inter‑State trade taken as a whole. Adding a sixth point to the five previously discussed, Dixon, J. rejected the distinction drawn between motor vehicles as elements of traffic and the trade of carrying goods by motor vehicle, calling that separation invalid. Fullagar, J., in a concurring judgment, illustrated how a regulation that is too severe can turn into a prohibition. He observed that traffic regulations and even the licensing of motor vehicles, including commercial vehicles, must be reasonable so as not to impair freedom. The same requirement of reasonableness and non‑discrimination, he said, applies to licence fees and similar charges, lest they cross the line from regulation into the simple prohibition described by the Privy Council. Although the majority view ultimately prevailed, it did not endure for long. Subsequent cases such as Hughes and Vale Pty. Ltd. v. State of New South Wales, following McCarter v. Brodie, saw the High Court adhering to the earlier decision, but Dixon, C.J. remarked that a clear and wide distinction existed between levies and provisions that prohibited transportation without a licence on the one hand, and the regulations, registrations, and registration fees for motor traffic on the other. He further explained that a broad separation also existed between such provisions and a licensing system intended to ensure that motor vehicles used for carrying passengers or goods for reward complied with safety and efficiency standards, did not damage highways by excessive weight or improper use, and did not interfere with other highway traffic.

The Court explained that the validity of the statutes in question had to be judged on the basis of whether they imposed a genuine burden or restriction on inter‑State traffic. When the matter was finally taken before the Privy Council, one side argued that a tax levied directly on the movement of goods could not be characterized as a regulatory measure, and it relied upon the reasoning set out in the opinions of Dixon, C.J., and Fullagar, J. The Privy Council accepted this contention. The opposing side, however, maintained that the provisions applied uniformly across the State to all vehicles and that any impact on inter‑State trade or commerce was only indirect or consequential, and the Council rejected that position. Even the opposing party admitted that the imposition of charges on vehicles engaged in inter‑State journeys would contravene section 92 if the charges (a) discriminated against inter‑State road transport or the vehicles involved, or (b) were set at a level that effectively prohibited inter‑State road transport, whether taken alone or in combination with charges affecting all road transport. The Privy Council observed that, in the earlier Transport cases, insufficient weight had been given to the decision in James v. Cowan, where discretionary executive determinations were held invalid. The Council nevertheless accepted the six propositions advanced by Dixon, J., and proceeded to quote in full the opinions of Dixon and Fullagar, JJ., as expressed in McCarter v. Brodie, presenting them as its own. Consequently, the Board overruled the Transport cases and declared that, in order for the Transport Act to be deemed valid in the present dispute, it could only be sustained on the premise that the restrictions it contained were “regulatory” in the sense employed in the Bank case.

The discussion then moved to the final phase of the analysis. The Court noted that the distinction between statutes that merely regulate and those that restrict or prohibit had been clarified, effectively overturning all the Transport decisions except for Willard v. Rawson. In response, Australian legislatures adopted a new approach. According to Wynes in “Legislative Executive and Judicial Powers in Australia” (1956), four States amended their transport legislation, and those amended statutes were subsequently challenged in a number of cases. The Court declined to examine those challenges or the cases that dealt with statutes barring claims arising from the Privy Council’s decision, choosing instead to focus on the contrast between “regulation” and “restriction” as articulated in Hughes and Vale Pty Ltd. v. The State of New South Wales [No. 2]. For the purpose of the present judgment, the Court cited Wynes’s brief summary, which, although acknowledged as incomplete, observed that the Honourable judges had explained that section 92 presumed that protected transactions would be conducted in accordance with general law, and that the real objection lay to measures that imposed an actual impediment to inter‑State trade rather than rules governing the orderly conduct of such trade.

In the discussion, the Court observed that when a law regulated trade, commerce or intercourse, the individuals who engaged in such activities were not excluded from the operation of that law. The Court clarified that what was prohibited were restrictions of a genuine character that prevented or obstructed dealing across the border or the inter‑State passage or interchange. A clear conceptual distinction existed between statutes that interfered with the freedom to carry out the activity that constituted inter‑State trade and statutes that imposed on the participants rules of proper conduct or other restraints directed to the due and orderly manner of carrying out the activity. The Court described this distinction as “regulation,” a term whose legal import varied according to the nature of the subject to which it applied. The Court suggested that the appropriate solution in any case could be found by distinguishing between those features of the activity that placed it within the category of trade, commerce and intercourse among the States and those features that, although commonly present in the activity, were not essential to its conception. The Court also noted that, under the appearance of legitimate regulation, real burdens and restrictions could be imposed. A further divergence of opinion arose concerning licence charges and registration fees. The majority was prepared to sustain such charges if they were imposed “as a real attempt to fix a reasonable recompense or compensation for the use of the highway and for a contribution to the wear and tear which the vehicle may be expected to make.” The minority, however, held that, except for a fee for a specific service, no charges could be levied. In the cases of Nilson v. The State of South Australia (1) and Pioneer Tourist Coaches Pty. Ltd. v. The State of South Australia (2), the Court held that a State could not require commercial motor vehicles to register and pay a fee exceeding mere administrative charges. The Court then referred to a newer line of Australian cases in which the taxation of commercial vehicles used in inter‑State or intra‑State transport was justified on the ground that such taxes were compensatory, providing recompense for road wear and tear. In Armstrong v. The State of Victoria [No. 2] (3), Part II of the Commercial Goods Vehicles Act, 1955 (Victoria) was challenged. That Act required the owner of every commercial vehicle with a load capacity exceeding four tons to pay compensation for the wear and tear caused to the roads. A schedule determined the payment, requiring each vehicle to pay one‑third of a penny per ton of the sum of (a) the tare weight of the vehicle and (b) forty per cent of the vehicle’s load capacity, for each mile of public highway travelled in Victoria. The receipts were paid to

The Court observed that the payments were credited to a special account that was used exclusively for the maintenance of the highway. It noted that the statute was upheld under section 92 by a narrow majority of four votes to three when it was applied to inter‑State trade. In the same case, section 3 of the Motor Car Act, 1951 (Victoria), which imposed fees on a motor car used for carrying goods for hire or in the course of trade according to its power‑weight and varying according to the number of wheels and other characteristics, was upheld by a majority of six to one. The principal justification given for these levies was that the payments were intended to maintain roads at a standard that would improve inter‑State operations of trade, commerce and intercourse. However, the Court stressed that the charge must not exceed a fair recompense for the actual use of the roads. Justice McTierman relied on a passage in Adam Smith’s The Wealth of Nations in which public works such as roads and bridges are described as facilities of commerce. The issue was revisited in Commonwealth Freighters Pty Ltd. v. Sneddon, where the Road Maintenance (Contribution) Act, 1958 (New South Wales) imposed on owners of commercial goods vehicles a road charge at a specified rate per mile, and that provision was also upheld. The Court therefore concluded that Australian tax legislation now tends to create a separate fund to which State collections must be directed, a fund earmarked for road maintenance and governed by detailed criteria for determining the amount payable (see [1959] 102 C.L.R. 280). On this point, as well as on the matter of regulations discussed by Justice Fullagar in McCarter v. Brodie, the Court found the law to be settled. Having examined the historical background of the Constitution and the various models that were contemplated during the drafting of Part VIII, the Court turned to the three views expressed in the Atiabari Tea Company case. It observed that the views were not sharply divided: the majority accepted the view expressed by the learned Chief Justice but went beyond it, while Justice Shah accepted the majority’s view and proceeded still further. The central question that arose then, and that also arose in the present matter, was whether taxation laws fall within the reach of Article 301. The Court declined to affirm a general proposition that all taxes are caught by that article. It reiterated that the financial independence of the States was secured by an elaborate division of heads of taxation, carefully designed to provide the States with the means of independent existence and the resources for nation‑building activities. The Court noted that there is scarcely any tax that the States are authorized to collect which could be said not to fall on traders. For example, property tax, sales tax, municipal taxes and electricity taxes, among others, are paid by traders as well as by non‑traders. Consequently, to describe all of these taxes as numerous restrictions upon the freedom of trade, commerce and intercourse would be inaccurate.

The Court observed that to subordinate the whole Constitution to the protection of trade and commerce would be unreasonable. It noted that every tax paid by a trader necessarily imposes a burden on that trader, and if the term “restriction” were interpreted so broadly that any such tax fell within Article 304, then every piece of legislation imposing a tax would be subject to the President’s discretion, a result not intended by the Constitution. Consequently, the Court held that “restriction” must signify something more than a mere fiscal burden. In the Court’s view, taxation cannot be justified under Article 301 when the tax in question is a general levy that traders pay together with non‑traders. The Court therefore disagreed respectfully with the opinion of Shah, J., who had asserted that not only discriminatory tariffs but also all taxation on commercial intercourse, even when imposed merely to raise revenue, fall within the prohibitions of Article 301. Shah, J. had argued that the distinction between discriminatory tariffs and revenue‑raising taxes lay only in purpose, not in quality, and that both types of impositions infringed the freedom guaranteed by Article 301. The Court accepted that a tax directly and immediately imposed on trade could be regarded as a restriction. However, it emphasized a clear difference between a tax that specifically burdens a trader because of his trade and a tax that is generally levied on all persons, with traders paying it because everyone else does. The former is a levy on the trade itself and may thus be called a restriction; the latter, although it may burden traders, is not a restriction on trade. To ignore this distinction would imply that no entry in the taxation lists of the Constitution’s Schedule I and Schedule II could escape the application of Articles 301 and 304, irrespective of how general or non‑discriminatory the tax might be. Extending all taxes to the reach of Article 301 and consequently Article 304 would disregard the federal structure that permits states to act independently while preserving national unity. Just as the unity of India must not be fragmented by parochial actions, the existence of separate states must not be sacrificed by an excessive fusion beyond what the Constitution envisages.

The Court explained that the constitutional guarantee of freedom of trade, commerce and intercourse cannot be taken to mean that these activities become unfree merely because general taxes are imposed. It noted that trade and commerce continue to be free even when traders, like other citizens, pay ordinary taxes that are levied on the public at large. Accordingly, the question of whether a particular tax violates Part XIII of the Constitution arises only when the tax is directed specifically at trade, commerce or intercourse. The Court rejected any suggestion that the position advanced in James v. The Commonwealth supports the contrary view. It pointed out that the Privy Council in that case did not state that “every step in the series of operations which constitutes the particular transaction is an act of trade, and control under the State law of any of these steps must be an interference with its freedom as trade” (p. 629). The passage cited reflects the view expressed in McArthur’s case (2), a view that was expressly disapproved on page 631. Having already examined that reasoning at length, the Court turned to the classification of taxes.

The Court held that taxation statutes and the taxes they create fall into two distinct categories. First, there are general taxes imposed for revenue purposes that fall on persons engaged in trade, commerce and intercourse in the same manner as they fall on persons who are not engaged in such activities. Such general taxes, including property tax on a motor‑transport owner’s garage, electricity tax on the power used to light the garage, and income tax on the owner’s profits, cannot normally be brought within the operation of Part XIII. The Court emphasized that Part XIII does not govern these taxes even though they are borne by traders. It clarified, however, that this observation does not amount to an acceptance of the broader proposition that every tax or taxing law lies outside the scope of Part XIII.

The Court further expressed its inability to adopt the argument that a tax must reach a clearly identifiable stage in the process of trade, commerce or intercourse before it becomes a barrier to the freedom guaranteed by the Constitution. That argument treats freedom solely in terms of visible barriers such as tariff walls or imposts that obstruct the free flow of trade. While a tax that creates an obvious barrier at a definite point is easy to recognise, the Court warned that restrictions can be varied, subtle and concealed. A tax may operate as a direct and immediate restriction on trade without appearing to do so at any particular moment in the movement of goods or services. Accordingly, a law that prohibits trade, commerce or intercourse and conditions the removal of that prohibition on the payment of an unreasonable or discriminatory tax is equally a restriction that offends the constitutional freedom, just as a tariff wall would be.

In this context, the Court noted that there is no need to examine the pith and substance of the law, as was observed by the Privy Council in the Banks’ case. What matters, the Court said, is the character of the tax and its connection with trade, commerce and intercourse. The Court concluded that attempts to place every taxation entry wholly outside the reach of Part XIII are untenable, and that each tax must be assessed on the basis of its nature and its relationship to the freedom guaranteed by the Constitution.

It was argued that Part XII, which contains the provisions relating to taxation, constitutes a self‑contained code and, together with the entries in the Legislative Lists, delineates the authority to levy taxes that cannot be withdrawn by the provisions of Part XIII. Consequently, it was submitted that the power to impose taxes is not subject to the guarantee of freedom of trade, commerce and intercourse found in Article 301. The argument further held that the imposition of any tax is dependent upon the existence of a law, because Article 265 expressly provides that “no tax shall be levied or collected except by authority of law”. In contrast, Article 301 operates as a limitation on the power to make law, for by its clear declaration it secures the freedom of trade, commerce and intercourse. This prohibition, the submission observed, is directed not only at the Executive but also at the Legislature, since Articles 302 and 304 remove the bar when the restriction is authorised by a law made by Parliament or by a State Legislature respectively. Article 304 expressly confers the power to impose taxes, which must include at least excise duties and sales tax, and thus it is evident that taxation falls within the prohibition contained in Part XII. The majority in the Atiabari Tea Company case (1) rejected this line of reasoning, a position with which we concur. Before a tax can be invalidated, however, the incidence of the tax and the method of its collection must be examined. If the tax is levied upon trade, commerce or intercourse themselves, whether it targets the trade as a whole or individual traders, and it restricts the guaranteed freedom, the legality of the tax immediately comes into question. In this regard, even trade that is not in motion, and especially trade that is in motion, will be protected unless a law made by Parliament is shown to be in the public interest, or a law made by a State Legislature is reasonably in the public interest and has obtained the prior sanction of the President. The observations made regarding taxation and taxes are also applicable to other restrictions that are not of a pecuniary nature. Any restriction, irrespective of its source, must be supported by law enacted in the manner prescribed, and that law must satisfy the same conditions. It may be noted that Part XIII does not empower courts to create their own methods for exempting patent and palpable interferences with the freedom of trade, commerce and intercourse. Unlike the Australian Constitution, which lacked a mechanism for determining the meaning of freedom of trade, commerce and intercourse in specific situations and consequently required the Courts to interpret s. 92 of the Commonwealth of Australia Act, our Constitution has removed many of those difficulties. Accordingly, any restriction on the freedom can only be effected by law made in the public interest and following the prescribed procedure. In the case of State legislation, the law must be reasonably in the public interest and must receive the President’s sanction. This ensures that the President initially, and ultimately the courts, evaluate the reasonableness of the restriction and the existence of a public interest. Part XIII, which creates the freedom, also delineates the manner in which that freedom may be limited.

In relation to State legislation, the Court explained that the law must be reasonably in the public interest and that the sanction of the President must first be obtained. Accordingly, the President initially, and ultimately the courts, served as the judges of both the reasonableness of any restriction and the existence of a public interest justification. The Court observed that Part XIII, which enshrines the freedom of trade, commerce and intercourse, also delineates the manner in which that freedom may be limited. Referring to the Privy Council’s observation in the Banks’ case, the Court quoted that “If these two tests are applied: first whether the effect of the Act is in a particular respect direct or remote; and secondly, whether in its true character it is regulatory, the area of dispute may be considerably narrower.” The Court noted that this principle may apply where a statute seeks to regulate the freedom but not where the statute actually restricts it, citing [1978] 76 C.L.R. 1, 380, 381. A clear distinction, the Court stressed, exists between regulation and restriction. Traffic rules, for example, are regulations rather than restrictions, because they are intended to ensure that trade, commerce and intercourse flow freely. The rule of the road is not a restriction on commercial traffic; rather, it is designed to smooth the movement of traffic. Likewise, requirements that vehicles be equipped with reliable brakes, lights or a horn do not constitute restrictions on trade. Such regulations are necessary both for the safety of those using the roads and for guaranteeing that every road user can enjoy the same right to travel. Classifications concerning heavy‑transport vehicles, such as tare weight standards, required tare specifications and bus seating capacities, are likewise intended to promote a more effective flow of trade, commerce and intercourse and are not normally considered restrictions. Consequently, these laws cannot be viewed as restrictions, do not fall within the “freedom” analysis, and do not require the special procedure applicable when freedom is curtailed. The Court analogized this to a general tax payable by all persons that is not directly imposed on a particular trade; although it burdens traders, it is not a restriction of trade. Similarly, regulations of trade that do not impede or diminish freedom cannot be described as restrictions. However, when a regulation transforms into a prohibition, it may need justification as a reasonable restriction. The Court referred to Fullagar, J., in Mc Carter v. Brodie, who observed that a speed regulation on highways does not offend the guaranteed freedom, but a rule requiring commercial vehicles to travel at one mile per hour ceases to be a regulation and becomes a restriction. The Court emphasized that the issue is not one of degree but of the essential purpose of the law. The technique of portraying laws as regulatory, the Court noted, originated in Australia in response to the rigid language of section 92, which gave no guidance on circumstances in which absolute freedom could be limited. The detailed provisions contained in Part XIII therefore render this approach unnecessary.

The Court held that construing Article 301 in the manner suggested would be unnecessary and would create an impermeable barrier. It then examined whether taxation statutes that directly affect trade and commerce could be sustained on the premise that they are merely regulatory. The Court stressed that a clear distinction must be drawn between fees and taxes. Fees that are charged as a quid‑pro‑quo for services rendered or that represent administrative charges differ fundamentally from pure taxes. Fees may be part of regulation when they are levied to enable the Government to meet the costs of administration. In contrast, the tax under consideration was not a fee in that narrow sense; it was a revenue‑raising levy. Regarding such a tax, Lord Watson had asked, “Do you regulate a man when you tax him?” The Court also recalled Lord Herschell’s observations made during the arguments in the Liquor Prohibition Appeal 1895, wherein he suggested that the issue could be viewed in two ways. Lord Herschell asked whether the legislation’s object and scope pertained to a public purpose that incidentally imposes a burden on trade or commerce, or whether it dealt with trade and commerce for the purpose of regulating it. He noted that in the former situation the law was not a regulation of trade and commerce, whereas in the latter it was, although in both cases trade and commerce might be affected. The Court affirmed that the first test to apply is to determine the object and scope of the legislation. A regulation of trade and commerce may serve a public purpose that incidentally impacts trade without impairing the constitutional freedom. However, when the regulation itself becomes a restriction, the Constitution requires that the restriction be reasonable, serve a public interest, and obtain the President’s prior sanction if enacted by a State Legislature. Conversely, if the measure does not rise to the level of a restriction and merely incidentally touches trade and commerce, it lies outside the operation of Articles 301 and 304. On this basis, the Court explained that statutes prescribing road rules or regulations limiting the height to which trucks may be loaded, so as not to endanger overhead bridges or wires, do not require presidential approval because they do not affect the guaranteed freedom. The purpose of such laws cannot be characterized as a restriction of trade and commerce, and the freedom guaranteed by Article 301 does not imply anarchy. Similarly, a demand for a tax from traders, applied generally to all, does not constitute a restriction of their right to conduct trade.

In this case the Court noted that a system of licensing motor vehicles constitutes a regulatory measure rather than an impairment of the constitutional freedom of trade and commerce, provided that the licensing does not rest on arbitrary discretion exercised by the licensing authority. The Court further explained that a fee imposed for administrative purposes can likewise be regarded as part of such regulation. Because these licensing requirements and administrative fees are not intended to restrict trade but to ensure equal opportunity for all participants subject to prescribed standards, they lie outside the operation of Article 301 and consequently do not fall within the scope of Article 304. The Court emphasized that the purpose of these regulations is public, and they may be questioned only if they amount to a genuine restriction of trade. By contrast, a tax that is made a condition precedent to the very right to engage in business represents a different kind of measure. Such a tax functions as a restriction on the freedom to trade, and the restriction is lifted only upon payment of the tax, which therefore represents the price of that release. Accordingly, the Court held that the provisions under challenge must be examined with reference to the nature of the tax imposed, as read with the charging section and the accompanying Schedules. The Act in question contains twenty‑four sections and four Schedules. Section 4(1) is the charging provision and must be read together with each Schedule. In addition to the standard provisions typically found in any taxing enactment—such as the time for payment, circumstances in which a refund may be claimed, mandatory declarations, mechanisms for tax recovery, rights of appeal, and provisions relating to penalties and compounding—there is a specific clause, Section 20, which states: “Levy of toll on certain bridges. Notwithstanding anything contained in this Act it shall be lawful for the Government to levy tolls on motor vehicles under any law or usage for the time being in force, such rates as it may from time to time fix—(i) for the use of any bridges, or (ii) on any bridge constructed, reconstructed or repaired after the commencement of this Act.” The four Schedules, as indicated by their headings, address different categories. Schedule 1 is divided into Part A and Part B. Part A deals with vehicles other than transport vehicles that ply for hire or are required, provided they are fitted solely with pneumatic tyres. Part B provides that if those motor vehicles are fitted with resilient or non‑resilient tyres, an additional tax of five per cent of the rate applicable under Part A will be imposed. Furthermore, Part A is subdivided into three sections that cover distinct classes of vehicles, each subject to its own rate.

In the statutes examined, the different schedules each set out distinct rates of tax for particular classes of motor vehicles. Schedule I, which is not the subject of the present discussion, deals with vehicles that are not used as transport vehicles for hire and therefore is omitted from further consideration. Schedule II is divided into two parts, the first part addressing motor vehicles equipped with pneumatic tyres and the second part addressing those that are not so equipped. Within the first part, two categories are identified, labelled “A” and “B”. Category “A” comprises motor vehicles that are employed for hire to convey passengers together with the passengers’ light personal luggage. Category “B” comprises goods‑carrying vehicles that operate under a Public Carrier’s Permit. Each of these two categories is further subdivided according to the seating capacity of the vehicle, and the tax rates vary according to those sub‑divisions; however, the detailed tables of those rates are not reproduced here because they are not essential to the argument. Schedule III applies to goods vehicles that are registered outside the State of Rajasthan but that use Rajasthan’s roads; these vehicles are required to pay a tax that is calculated as a fixed sum for each day of use. Schedule IV is headed “Vehicles used for the carriage of goods in connection with a trade or business carried on by the owner of the vehicle under a Private Carrier’s Permit.” Vehicles falling within this schedule are again classified according to the type of tyres they carry and according to their load‑carrying capacity, and each class is assessed a different amount of tax. Part II of Schedule IV specifies the tax that is payable by dealers in or manufacturers of motor vehicles; this payment is described as a “general licence” fee that depends upon the number of vehicles the dealer manufactures or deals in. From this analysis it follows that the taxes imposed by Schedules II, III and IV are levied directly and immediately upon trade and commerce. They are not characterised as a property tax because the vehicles involved are not being taxed as immovable assets but as living instruments of trade. A property tax, for example, is payable on a building used by a transport operator, and although that tax is also obligatory, it is not a condition that must be satisfied before the business can commence. By contrast, the taxes under discussion are imposed as a condition precedent to the operation of the trade itself; they are therefore taxes on the activity of trade and commerce rather than on a property interest. Accordingly, Schedule I and Part II of Schedule IV, which relate to other matters, need not be examined because the present inquiry concerns only motor vehicles that function as integral parts of trade and commerce. The tax in question is clearly not a fee for administrative services, because its purpose is not to compensate for the performance of a specific governmental function but rather to raise revenue for the State. Consequently, it cannot be justified as a fee for services rendered. The next issue is whether the tax might be justified as a regulatory or compensatory measure. In order to assess that point, certain factual circumstances must be set out. The appellants in this case are three individuals who owned a number of buses that were registered in the former State of Ajmer. These buses were operated on several routes. One of the routes ran from Nasirabad to Deoli; although the bulk of that route lay within the former State of Ajmer, it crossed narrow strips of territory that belonged to Rajasthan. Another route ran from Ajmer to Kishengarh; the majority of that line was situated in Ajmer State, but roughly one‑third of it passed through territory that at the relevant time was part of Rajasthan, where Kishengarh itself was located. The appellants were obliged to charge the fares prescribed by the Ajmer authorities and were not permitted to increase those fares in order to offset any additional expenses, such as the taxes that they were required to pay while operating in Rajasthan. Previously, an agreement existed between the State of Ajmer and the State of Kishengarh under which each State refrained from levying any tax or fee on vehicles that were registered in the other State. After Kishengarh was incorporated into Rajasthan, however, the tax was demanded from the appellants for the period from 1 April 1951 to 31 March 1954. The demand was made under Section 4 of the relevant Act, which authorises the imposition of the tax, and the law provided for penalties under Section 11 for non‑payment. The taxes imposed under Schedules II, III and IV(1) therefore operate directly on trade and commerce, and it is not disputed that the carriage of passengers and goods constitutes trade.

The Court described that the appellants operated buses whose routes primarily lay in the former Ajmer State but also passed through small portions of Rajasthan. One route ran from Nasirabad to Deoli, largely within Ajmer State, while another extended from Ajmer to Kishengarh, of which only one‑third lay in Rajasthan. At the relevant time, Kishengarh was a territory that formed part of Rajasthan, and the appellants were required to charge fares fixed by the Ajmer authorities. The fare rates could not be increased to compensate for additional tax expenses that the appellants had to bear while operating in Rajasthan. Previously, an agreement between the Ajmer State and the Kishengarh State prohibited either state from levying any tax or fee on vehicles registered in the other state. After Kishengarh merged into Rajasthan, the Rajasthan authorities demanded the tax from the appellants for the period from 1 April 1951 to 31 March 1954. The demand was made pursuant to section 4 of the Act, which prescribed the charging provision, and the threat of penalties under section 11 for non‑payment. The taxes imposed by Schedules II, III and IV(1) applied directly to trade and commerce, and the Court noted that carriage of passengers and goods constitutes trade. The Court observed that Australian transport cases and decisions of the Privy Council had affirmed that passenger and goods carriage amounted to trade. Under the Act, the trade could proceed only upon payment of the tax, making the tax a condition precedent to the continuation of the business. The schedules covered motor vehicles used for hire of passengers or goods in Rajasthan as well as similar vehicles entering from outside the State. For vehicles coming from outside, entry into the State was prohibited unless the tax had been paid, showing that the tax was not merely incidental to trade. The Court held that the tax was imposed for revenue purposes, not as a fee for services, and that failure to pay would effectively destroy the trade. The charging provisions did not consider the distance travelled by each vehicle, so a vehicle covering one hundred miles and another covering only one mile paid the same amount. Consequently, the Court concluded that the tax could not be characterized as a fair recompense for road wear and tear. The Court noted that section 20 might be compensatory for bridge use, but the present taxing provisions could not be described as compensatory or regulatory even by Australian standards. The Court rejected reliance on Australian precedents because those jurisdictions required charges to be based on distance travelled, load carried and vehicle characteristics, which the present tax ignored. Finally, the Court emphasized that the duty of road maintenance belonged to the State and was funded from general revenues, not from a special fund created by the tax.

The Court observed that the deterioration of the highways is not produced solely by vehicles engaged in the transport trade; rather, it is also caused by other kinds of vehicles that are not used for commercial transport. It further noted that the tax imposed by the statute is not founded on any principle of compensation that has been developed in Australian law. In Australia, the assessment of a charge takes into account the distance actually travelled by the vehicle and the load it carries, and each operator is required to pay a fee that corresponds to the mileage covered in proportion to the weight transported. In addition, Australian calculations also consider other factors such as the type of tyres fitted to the vehicle and the number of wheels it possesses. The Court held that describing the present tax as compensatory, without any effort to allocate the charge in accordance with the real wear and tear caused by each vehicle, merely imports a justificatory theory that is unsuitable for the present facts. The Court referred to the decision reported in 1950 at 80 C.L.R. 432 to support this observation.

The Court then turned to the alternative issue of whether the statute, in its true nature, is regulatory. It found that the Act contains no provision that can be characterized as a regulation of motor vehicles or of their use. Instead, the Act plainly imposes a tax on the possession or use of motor vehicles. The Court explained that a tax ordinarily does not regulate trade; it simply imposes a monetary charge upon trade. Consequently, the Court considered whether the tax impedes trade or restricts the free flow of trade and commerce as envisioned in Article 301 of the Constitution. The Court concluded that the tax is indeed a tax on trade, that it is a tax on the movement of trade, and that it creates a barrier between one State and another which trade can cross only by paying a substantial sum. The Court affirmed that, even if the doctrine of compensatory taxes were applied, the tax does not amount to a fair recompense for the wear and tear of the roads; it is essentially a restriction, which Article 301 forbids.

The Court noted that the Bill which gave rise to the Act had not been submitted to the President for his prior sanction, nor had it received his assent after passage by the Legislature. Because the procedural requirement for presidential sanction was absent, the Court held that the question of whether the restriction created by the Act is reasonable does not arise. Accordingly, the Court expressed the opinion that section 4(1), when read together with Schedules I, III and Part 1 of Schedule IV, violates Article 301 of the Constitution, and because the procedure prescribed by Article 301(b) was not followed, the provisions are ultra vires the Constitution. The Court clarified that it does not express any view on the constitutional validity of section 4(1) read with Schedule I or with the second part of Schedule V. The first of those raises a question about the meaning of the term “intercourse” in Part XIII, which is not relevant to the appeal before the Court, and no arguments were heard on that point, so the Court refrains from commenting. The second part involves many issues that are remote from the present controversy, and therefore those issues are not considered. The Court therefore concluded its analysis.

The Court issued an order that the appeals should be allowed and that the demand which had been made against the appellants was to be set aside. In delivering that part of the judgment, the Court stated that the demand made upon the appellants would be quashed and that the relief sought through the appeals would be granted. Following that directive, the Court then turned to the view expressed by the majority of the judges hearing the matter. Acting in accordance with that majority opinion, the Court announced that the appeals were to be dismissed. The dismissal order also required the parties to bear the costs of the proceedings. In addition, the Court fixed a single hearing fee to be paid in connection with the disposal of the appeals. Finally, the Court recorded that the appeal stood dismissed. Thus, the judgment comprised two components: first, a directive to allow the appeals and overturn the demand, and second, a final order, based on the majority view, dismissing the appeals, allocating costs, imposing one hearing fee, and confirming that the appeal was dismissed.