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Published : April 23, 2010 | Author : arkodayroy1
Category : Constitutional Law | Total Views : 4407 | Unrated

  
arkodayroy1
Arkoday Roy BA.LLB. University of Petroleum and Energy Studies.
 

Trade & commerce may be domestic or foreign or international. Indian Constitution deals with domestic trade and commerce, i.e. within the territory of India. Such commerce may be of two types[1]:-
1. Intra-state, i.e. commerce which is confined within the territory of a State;
2. Inter-State, i.e. trade and commerce which overflows the boundary of one state and which extends to two or more States.

No federal country has an even economy. Some of its constituent units may be agricultural while others may be industrial. Some states may produce raw materials while the processing and manufacturing industries may be located in other States because of several factors, like availability of cheap labour or electric energy. The circumstance creates the possibility that the constituent units which have legislative powers of their own may, to serve their own narrow and parochial interests, seek to create trade barriers by restricting the flow of commodities either from outside or to other units.

Free flow of trade and commerce and intercourse within a federal country having a two-tier polity is a pre-requisite for promoting economic unity of the country. An attempt has, therefore, been made in all federations, through adopting of suitable constitutional formulae, to create and preserve a national economic fabric, transcending State boundaries, to minimize the possibility of emergence of local economic barriers, to remove impediments in the way of inter-State trade and commerce and thus helping in welding the whole country into one single economic unit so that the economic resources of all the various regions may be exploited, harnessed and pooled to the common advantage and prosperity of the country as a whole.[2]

Most federal constitutions contain special provisions to protect this freedom. The Indian Constitution also contains provisions guaranteeing freedom of commerce, trade and intercourse throughout the territory of India. The whole field of freedom of trade, commerce and intercourse bristles with complex questions not only in regard to constitutional aspects but also in respect of the working of the arrangements on account of impact of legislation of the Union on the powers of the States and the effect of legislation of both the Union and the States on free conduct of trade, commerce and intercourse.

However, no freedom can be absolute. Limitations for the common good are inherent in such freedom, lest it should degenerate into a self-defeating license.

Position-Trade & Commerce
Across The Developed Nations:-
Federalism has come to connote one big common internal market and an economic area irrespective of the State boundaries. This preferred national goal has provided the motive force, in part, for the creation of the federations of the USA, Canada and Australia.

1. USA: - The most significant provision in the USA, for this purpose, is the commerce clause,[3] which provides inter-alia that the Congress shall have power to regulate commerce among the several States. In the matter of Cooley v. Port Wardens[4] it was stated that the clause does not in terms restrict State protectionism, but by a process of judicial interpretation, it has come to have a restricted effect on the States in those matters in which the Supreme Court considers that uniformity is necessary for national economic well being, and, thus, the capacity of the States to interfere with the inter-state commerce has been very much restricted.

The commerce clause has also bestowed on the Central Government necessary power to regulate the Country’s economy.

The Courts have interpreted the words ‘inter-state commerce’ in a broad sense, and have held that the Congress can regulate not only inter-state commerce but even those intra-state activities which so affect inter-State commerce as to make their regulation appropriate.

2. Canada: - Here the provinces have been deprived of the power to levy indirect taxes so that they may not be able to create interprovincial trade barriers.[5] This was further strengthened by making “regulation of trade and commerce” a Central matter, although it never played any meaningful role. Sec. 121 of the BNA Act[6], which provides that “articles of growth produce or manufacture of any province shall be admitted free into each of the other provinces”, also curtailed the provisional power to put restrictions on entry of goods from other provinces.

3. Australia:  - Here, with a view to promote the economic unity of the Country, and discourage the States from raising trade barriers, the States have been debarred from levying excises.

The crucial provision, however, for the purpose in the Australian Constitution is sec. 92, according to which trade, commerce and intercourse among the States shall be absolutely free. The clause applies only to inter-state and not intra-state commerce, and restricts both the State and the Centre from interfering with trade and commerce.

In the matter of Commonwealth of Australia v. Bank of New South Wales[7], it was stated that the scope of Sec. 92 is unlimited and unqualified, but, as no freedom can be absolute, Courts evolved limitations as to which some regulation of inter-State trade, commerce and intercourse is compatible with its absolute freedom, and that Sec. 92 is violated only when a legislative or executive act operates to restrict inter-State trade, commerce and intercourse directly and immediately and not when it creates some indirect or inconsequential impediment which may fairly be regarded as remote.

In India: -
The Constitution makers desired to promote free flow of trade and commerce in India as they fully realized that economic unity and integration of the country provided the main sustaining force for the stability and progress of the political and cultural unity, and that the Country should function as one single economic unit without barriers on internal trade.

Economic unity is one of the constitutional aspirations and safeguarding its attainment and maintenance of that unity are objectives of the Indian Constitution.

Historical Background: -
In order to appreciate all aspects of the question in the right perspective it is necessary to have a look into the background of the provisions in Part XIII. It is well-known that before Independence, in 1947, nearly one-third of the territory of India consisted of numerous 'Native States' governed by Indian Princes. Many of these States claimed varying degrees of sovereign rights subject to limitations imposed by the paramount power. These States in exercise of their power imposed taxes and erected tariff barriers impeding the flow of trade, commerce and intercourse between themselves and the rest of India.

In this matter, British India was governed by the provisions of Section 297 of the Government of India Act, 1935. Between 1947 and 1950, the process of the merger and integration of the erstwhile Princely States with the rest of the country was accomplished. With this knowledge of the trade barriers and tariff walls which had been erected by the erstwhile Princely States, the imperative need for ensuring free flow of trade, commerce and intercourse throughout the territory of Indian became deeply impressed on the mind of the Constitution makers.

Motivation For The Constitution-Makers: -
In the matter of Atiabari Tea Co. Ltd. V. State of Assam[8], the Supreme Court explained in detail the motivations and aspirations of the framers of the Constitution in drafting the Article under Trade, Commerce and intercourse in Indian territory in the following words:

“In drafting the relevant Articles [Arts. 301-305] the makers of the Constitution were fully conscious that economic unity was absolutely essential for the stability and progress of the federal polity which had been adopted by the Constitution for the governance of the country. Political freedom had been won, and political unity which had been accomplished by the Constitution, had to be sustained and strengthened by the bond of economic unity. Local or regional fears or apprehensions raised by local or regional problems may persuade the State legislatures to adopt remedial measures intended solely for the protection of regional interests without due regard to their effect on the economy. The object of the Constitution-makers was to avoid such possibility. Free movement and exchange of goods throughout the territory of India is essential for the economy of the nation and for sustaining and improving living standards of the Country.”

The main provision framed is Art. 301. According to this article “trade, commerce and intercourse throughout the territory of India shall be free.” This constitutional provision imposes a general limitation on the exercise of legislative power, whether of the Centre or of the States, to secure unhampered free flow of trade, commerce & intercourse form one part of the territory to another. The purpose underlying Art. 301 is to promote economic unity of India and that there should not be any regional or territorial economic barriers.

The origins of Art 301 may be traced directly to sec. 92 of the Australian Constitution, but there are some significant differences between the two provisions like Coverage under Art. 301 is broader than that of Sec. 92 of the Australian Constitution. Similarly Indian Constitution does not give freedom of absolute nature although Australian freedom to trade and commerce and intercourse is regulated and relative.

Inter-relation between fundamental right to freedom of trade and commerce and trade, commerce and intercourse within the territory of India Article 19(1)(g) in Part III guarantees to every Indian citizen a fundamental right to carry on trade and business, subject to such reasonable restrictions as may be imposed in the interests of the general public. Apart from this and the Legislative Entries relating to trade and commerce, the other provisions relating to trade, commerce and intercourse within the territory of India are found in Articles 301 to 307 of Part XIII of the Constitution. Article 301 guarantees that trade, commerce and intercourse shall be free throughout the territory of India. It imposes a general limitation on the exercise of legislative power, whether of the Union or of the States, to secure unobstructed flow of trade, commerce and intercourse from one part of the territory of India to another.

In the matter of Saghir Ahmad v. State of U.P.[9], Mukherjea J. was of the view that while Art. 19(1)(g) deals with the rights of the individuals, Art. 301 provide safeguards for the carrying on trade as a whole distinguished from an individual’s right to do the same.

However in the matter of Dist. Collector, Hyderabad v. Ibrahim[10], the Supreme Court denounced the theory that Art. 301 guarantees freedom in the abstract and not of the individuals.

Another view which came in could be stated as that Art. 301 aims at preventing restrictions on the volume of trade flowing and, therefore, the effect of a law on individuals is irrelevant. Under this view, if ample provision is made for carrying on trade, and the volume of the trade remains as before, the mere fact that certain individuals have been prohibited from taking part therein would not contravene Art. 301.

Again in the matter of Motilal v. State of U.P.[11] and Bapubhai v. State of Maharashtra[12], there was a view that the difference between Art. 19(1)(g) and Art. 301 is that Art. 301 could be invoked only when an individual is prevented from sending his goods across the State, or from one point to another in the same state, while Art. 19(1)(g) can be invoked only when the complaint is with regard to the right of an individual to carry on business unrelated to, or irrespective of, the movement of goods, i.e. while Art 301 contemplates the right of trade in motion, Art 19(1)(g) secures the right at rest.

To differentiate, Art. 19(1)(g) can be taken advantage by a citizen, while Art. 301 can be invoked by a citizen as well as a non-citizen. Also, while Art. 19(1)(g) is not available to a corporate person, Art. 301 may be invoked by a corporation and even by a State on complaints of discrimination or preference which are outlawed by Art. 303.

In case of emergency, Art 19(1)(g) remains suspended and so the Courts can take recourse to Art. 301, to adjudge the validity of a restriction on trade, commerce and intercourse.

In some other situations, both provisions may be applicable and it may be possible to invoke both of them. Economic situations and conditions being unpredictable, it is not necessary to evolve any conceptualistic differentiation between the two Articles. Art. 301 is mandatory provision and any law contravening the same is ultra vires, but it is not a fundamental right and hence is not enforceable under Art. 32.

In the matter of S. Ahmad v. State of Mysore[13], it was held that the three possible alternatives where a petition will lie can be: -
1. A provision may be valid under Art 301-304, but may be invalid under Art. 19(10(g); or
2. It may be invalid under Art. 301-304 as well; or
3. It may be invalid under Art. 301-304, but not under Art. 19(1)(g) situations Art. 32 petitions will lie in situations (1) & (2), but not under situation (3).

The Concept Of ‘Trade-Commerce-Intercourse/ Free/ Throughout Territory Of India’
The scope and content of Art. 301 depends on the interpretation of these three expressions used therein, viz., “Trade-Commerce-Intercourse/ Free/ Throughout Territory Of India.”

1. Trade, Commerce & Intercourse: -
The words trade and commerce have been broadly interpreted. In most cases the accent has been given on the movement aspect.

In the matter of Madras v. Nataraja Mudaliar[14], the court stated that

“All restrictions which directly and immediately affect the movement of trade are declared by Article 301 to be ineffective.”

In the matter of Koteshwar v. K.R.B. & Co.[15], the Supreme Court held that

‘a power conferred on the state Government to make an order providing for regulating or prohibiting any class of commercial or financial transactions relating to any essential article, clearly permits imposition of restrictions on freedom of trade and commerce and, therefore, its validity has to be assessed with reference to Art. 304(b)’.

In Fatehchand v. State of Mahararshtra[16], the Supreme Court considered the question whether the Maharashtra Debt Relief Act, 1976, was constitutionally valid vis-à-vis Art. 301. This depended on the further question whether money-lending to the poor villagers which was sought to be prohibited by the Act could be regarded as trade, commerce and intercourse. The Court answered in the negative although it recognized that money-lending amongst the commercial community is integral to trade and is, therefore trade. The Court thus stated:

“In short, State action defending the weaker sections from social injustice and all forms of exploitation and raising the standard of living of the people, necessarily imply that economic activities, attired as trade or business, can be de-recognized as trade or business.”

2. Free: -
The Supreme Court emphasized in Atiabari [17]case that Art. 301 provides the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the State, or at any other point inside the State themselves. The majority judgment emphasized that free movement and exchange of goods throughout the territory of India is essential for sustaining the economy and living standards of the Country.

The word ‘free’ in Art. 301 cannot mean absolute freedom or that each and every restriction on trade and commerce is invalid. The Supreme Court has held in Atiabari that freedom of trade and commerce guaranteed by Art. 301 is freedom from such restrictions as directly and immediately restrict or impede the free flow or movement of trade.

In the matter of Amrit Banaspati Co. Ltd. V. Union of India[18], the Supreme Court observed that:
“Suffice it to say that it is only when the intra-state or inter-state movement of the persons or goods are impeded directly and immediately as distinct from creating some indirect or consequential impediment, by any legislative or executive action, infringement of the freedom envisaged by art. 301 can arise. Without anything more, a tax law, per se may not impair such freedom. At the same time, it should be stated that a fiscal measure is not outside the purview of Art. 301 of the Constitution.”

The Supreme Court has ruled that the imposition of sales tax on goods sold within the State cannot be considered as contravening Art. 301.

From the trend of case-law it appears that there is greater readiness on the part of the Courts to characterize an impediment on movement of commerce as ‘direct’ and so hold it bad under Art. 301[19], than the one not on movement which is usually held to be indirect or indirect and so valid, e.g. Octroi[20], Sales tax[21], purchase tax[22], etc.

Time in and again the Supreme Court has emphasized that the freedom envisaged by Art. 301 can be infringed only when the intra-state or inter-State movement of persons or goods are impeded directly and immediately as distinct from creating some indirect or inconsequential impediment, by any legislative or executive action. Without anything more, a tax law, per se, may not impair the freedom of trade. At the same time, it is to be noted that a fiscal measure is not outside the purview Art. 301. A tax may, in certain cases, directly and immediately impede the movement or flow of trade, but the imposition of a tax does not do so in every case. It depends on the context and circumstances. Measures impeding the freedom of trade, commerce and intercourse may be legislative or executive and may be fiscal or non-fiscal. Freedom may be impeded by impediments on the individuals carrying on trade or business, on the business itself, or on the vehicles, carriers, instruments and labour used in trade and commerce.

Any person aggrieved by infringement of Art. 301 can seek his remedy from the court against the offending legislative or executive action.

3. Throughout The Territory Of India: -
The view which is held now is that Art. 301 applies not only to inter-State, but also to intra-state, trade and commerce as well i.e. tarde within a State[23].

As according to State of Bombay v. R.M.D.C.[24], Art. 302 and 304 state the words “territory of India” in Art. 301 removes all inter-State or intra-State barriers, and brings out the idea that for the purpose of the freedom of trade and commerce, the whole country is one unit. Trade cannot be free throughout India if barriers exist in any part of India, be it inter-State or intra-State.

Regulatory Measures
Measures which impose compensatory taxes, or, are purely regulatory, do not come within the purview of 'restrictions' contemplated in Article 301 because they facilitate flow of trade, rather than hampering it. Such measures, therefore, need not comply with the requirement of the provisions of Article 304(b). Thus, a State law imposing a tax, per vehicle, on the owners of motor vehicles does not directly affect the freedom of trade or commerce even though it indirectly imposes a burden on the movement of passengers and goods within the territory of the taxing State.

Regulatory measures are not regarded as violative of the freedom guaranteed by Art. 301. The word ‘free’ in Art. 301 does not mean freedom from such regulation as is necessary for an orderly society. Regulatory measures do not fall within the purview of the restrictions contemplated by Art. 301.

In the matter of G.K. Krishnan v. State of Tamil Nadu[25], the Supreme Court observed:
“there is clear distinction between laws interfering with freedom to carry out the activities constituting trade and laws imposing on those engaged therein rules of proper conduct or other restraint directed to the due and orderly manner of carrying out the activities.”

The word ‘regulation’ does not have any fixed or inflexible meaning. It is difficult to define this word as it has no precise meaning. It is a word of broad import, having a broad meaning and is very comprehensive in scope. Every case has to be judged on its own fact and its own facts and in its own setting of time and circumstances. It may be that in some situations even a ‘prohibition’ may be regarded as being regulatory in nature and not hit by Art. 301.

In the matter of the State of Tamil Nadu v. Sanjeetha Tarding Co.[26], the Supreme Court observed: “According to us, the expression ‘free trade’ cannot be interpreted in an unqualified manner. Any prohibition on movement of any article from one State to another has to be examined with reference to the facts and circumstances of that particular case- whether it amounts to regulation only, taking into consideration the local conditions prevailing, the necessity for such prohibition and what public interest is sought to be served by imposition thereof.”

Parliamentary Power To Regulate Trade & Commerce
Art. 302 empowers Parliament to impose by law such restrictions on the freedom of trade, commerce and intercourse between one state and another, or within any part of the territory of India, as may be required in the public interest.

By virtue of Art. 302, Parliament is, notwithstanding the protection conferred by Art. 301, authorized to impose restrictions on the freedom of trade, commerce and intercourse in the public interest. Thus, Art. 302 relax the restriction imposed by Art. 301 in favor of Parliament.

The Sarkaria Commission[27] justified the present position in the following words as:
“The need for empowering Parliament to place restrictions on trade and commerce even within a State is obvious. Ours is a vast country with varying economic potentiality and considerable differences in regard to existing levels of development. The Union’s responsibility in respect of certain matters may, therefore, entail regulating trade and commerce even within a State for achieving national objectives. For example there is the need to protect the interests of the poor and weaker sections of our community like the tribal people etc. Indiscriminate exploitation of natural resources in one State, for example denudation of forests, may have far reaching implications for other States which may be affected by floods, silting up of reservoirs etc. Such situations may require imposition of restrictions on trade even within the State. The importance of Parliamentary control over intra-State trade is also significant where centers of production of certain commodities are situated entirely within a State but the centers of consumption are located outside the State.”

The requirement of ‘public interest’ in Art. 302 would not present any serious problem in the way of parliament regulating trade and commerce because of the strong presumption in favor of parliamentary legislation being in public interest.

The majority judgment in Atiabari[28] case even suggested that prima facie the question of public interest underlying a Parliamentary law imposing restrictions on the freedom of trade ‘may not be justiciable’. If this be the correct approach, then Parliament’s power to decide what restrictions need be imposed under Art. 302 may be said to be practically unlimited.

But the correctness of the view was doubted in the matter of Kheyerbari[29] by the Supreme Court. In case of Art. 19(1)(g), the concept of public interest is justiciable and there appears to be no reason why Art. 302 should be treated differently. From a practical point of view, however, to hold ‘public interest’ as justiciable may not mean much for it is rare for a Court to hold that a legislation lacks public interest.

A person challenging the law will have to show to the Court why it is not required in public interest, and this, is a difficult task except in the rare case where the law is seen on its face to have been passed for a private purpose.[30]

In another turn, Parliament enacted the Municipal Corporation act, 1957, and empowered the Corporation to levy terminal tax on all goods carried by railway or road in the Union territory of Delhi from any place outside thereof. The Supreme Court declared the levy valid on two grounds, viz.

1. It does not impose any direct and immediate impediment on the inter-State movement of goods and so was not hit by Art. 301 which only hits direct and immediate impediments on intra-State or inter-State movements of goods or persons. It is true that a tax may in certain cases, directly and immediately impede the movement or flow of trade, but the imposition of the tax does not do so in every case.

2. Even if the act ‘directly and immediately’ impedes the movement of the goods, the statutory provision is saved by Art. 302. There is a presumption that the imposition of a tax is in public interest[31].

The Court has stated that only when the intra-State or inert-State movement of the persons or goods are impeded directly and immediately as distinct from creating some indirect or inconsequential impediment by any legislative or executive action, infringement of the freedom envisaged by Art. 301 can arise, without anything more, a tax law, without anything more, may not impair the said freedom. At the same time, it should be stated that a fiscal measure is not outside the purview of Art. 301 of the Constitution.

Limitations on Power of Parliament—Article 303 (1) and (2): -
This guarantee of freedom is expressly subject to the other provisions of Part XIII (Articles 302 to 305) of the Constitution. Article 302 enables Parliament to impose restrictions, by law, on the freedom of trade, commerce and intercourse between one State and another or within any part of the territory of India as may be required in public interest. But, this power to place restrictions cannot be used by Parliament to make any law which discriminates between one State and another or gives preference to one State over another, “by virtue of any Entry in the Seventh Schedule relating to trade and commerce” [Article 303(1)]. Clause (2) of the Article engrafts an exception to the limitation contained in clause (1), in as much as it permits Parliament to make a law giving preference, or making discrimination between one State and another, if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India.

It was argued in State of Madras v. Nataraja Mudaliar[32], that as it hampered trade and commerce by giving preference to one State over another, or by making discrimination between one State and another, Arts. 301 and 303(1) were infringed. The Court rejected the argument holding that an act enacted for the ‘purpose of imposing tax which is to be collected and retained by the State’ does not amount to a law giving preference to one State over another, or making any discrimination between one State and another, merely because of varying rates of tax prevailing in different States. Several reasons adduced in support of the view stated:

1. The flow of trade does not necessarily depend upon the rates of sales tax and various other factors also are relevant.

2. Referring to Australian cases[33] , the Court derived the principle applicable in the Nataraja case, viz. ‘where differentiation is based on considerations not dependent upon natural or business factors which operate with more or less force in different localities that the Parliament is prohibited from making a discrimination’.

Art. 302 thus authorize Parliament to mitigate the effect of Art. 301 and Art. 303 does not cut into Art. 302 much. In the end result, Parliament is left with an abundant capacity to regulate trade and commerce and it is more akin to the American congress in this respect than to the Australian Parliament. Art. 301 is worded on the model of Sec. 92 of the Australian Constitution, and both provisions restrict Parliament, but then Art. 302, to a very large extent, frees the Indian Parliament from the restraints of Art. 301.

State’s power to regulate trade and commerce
Article 303(1) imposes limitation on State Legislatures also Article 304 two exceptions in favour of State Legislatures: -
Limitations imposed by Article 303(1) on the legislative power of Parliament apply to that of the State Legislatures, also. But, the State Legislatures do not have the exceptional power to enact discriminatory laws, which is available to Parliament by virtue of Article 303(2). Article 304 carves out two exceptions in favor of the State Legislatures, to the freedom guaranteed under Article 301:

1. A State legislature may by law impose on goods imported from other States or the Union Territories, any tax to which similar goods manufactured or produced in that State are subject, however, not so as to discriminate between goods so imported and goods so manufactured or produced. [Clause (a) of Article 30]4.

2. The legislature of a State may by law impose such reasonable restrictions on the freedom of trade, commerce and intercourse with or within that State as may be required in the public interest [Clause (b) of Article 304]. But, the exercise of this power is subject to the proviso that no Bill or amendment for the purposes of Article 304(b) shall be introduced or moved in the State Legislature without obtaining the previous sanction of the President.

Art. 304, consists of two clauses, and each clause operates as a proviso to Arts. 301 and 303.
Art. 304 empower the States, notwithstanding anything in Arts. 301 and 303, to make laws and regulate and restrict the freedom of trade and commerce to some extent. A restriction imposed by a State law on freedom of trade and commerce declared by Art. 301 cannot be valid unless it falls within Art. 304.

Art. 304(a) imposes no ban, but lifts the ban imposed by arts. 301 and 303, subject to one condition. Art. 304(a) is thus enabling and prospective. According to Art. 304(a), a State legislature may by law impose on goods imported from other States any tax to which similar goods manufactured or produced within that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced.

In Guruviah[34], the Court explained the purport of Art. 304(a) as follows:
“Art. 304(a) does not prevent levy of tax on goods; what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the difference between the two rates would constitute a tariff wall or fiscal barrier and thus impede the free flow of inter-State trade and commerce. The question as to when the levy of tax would constitute discrimination would depend upon a variety of factors including rate of tax and the item of goods in respect of the sale of which it is levied”.

In State of Karnataka V. Hansa corporation[35], the Supreme court said that a tax levied within the constraints of Art. 304(a) would not be violative of Art. 301. If a State tax law accords identical treatment in the matter of levy and collection of tax on the goods on the goods manufactured within the State and identical goods imported from outside the State, Art. 304(a) will be complied with. The effect of Art. 304(a) is to treat imported goods on the same basis as goods manufactured or produced within the State. The State tax was held valid in the instant case under Art. 304(a) as it was levied both on manufactured goods and similar goods imported from outside in a local area.

Notwithstanding anything in Arts.301 to 303, Art. 304(b) authorizes a State legislature to impose by law such reasonable restrictions on the freedom of trade, commerce or intercourse with or within the State as may be required in public interest.

The proviso to Art. 304(b) says that no bill or amendment for this purpose shall be introduced in the State legislature without the previous sanction of the President.

For application of Art. 304(b) to a tax on trade, three conditions need to be fulfilled:
1. The Bill has to be introduced or moved in the State legislature with the prior sanction of the president, or that the Bill has been assented to by the President.
2. The tax in question constitutes a reasonable restriction.
3. The tax has been levied in public interest.

In Automobile Transport[36], the Supreme Court compared Art. 304(b) with Art. 302 in the following words:
“This provision [Art. 304(b)] appears to the State analogue to the Union Parliament’s authority defined by art. 302. Leaving aside the pre-requisite of presidential sanction for the validity of State legislation under clause (b) provided in the proviso thereto, there are two important differences between Art. 302 & Art. 304(b). The first is that while the power of Parliament under Art. 302 is subject to the prohibition of preferences and discriminations decreed by Art. 303(1) unless Parliament makes the declaration contained in Art. 303(2), the State’s power contained in Art. 304(b) is made expressly free from the prohibition contained in Art. 303(1), because the opening words of Art. 304 contain a non-obstanate clause both to Art. 301 and Art. 303. The second difference springs from the fact that while Parliament’s power to impose restrictions upon Art 302 upon freedom of commerce in the public interest is not subject to the requirement of reasonableness, the power of the States to impose restrictions on the freedom of commerce in the public interest under Art. 304 are subject to the condition that they are reasonable”.

Omission of 'Reasonable' from Article 302, effect of The suggestion of insertion of the word 'reasonable' as a pre-fix to the expression 'restriction' in Article 302 postulates that the omission to qualify the expression 'restriction' by the word 'reasonable' in Article 302 not only amounts to denial of parity of powers to Parliament and the State Legislatures in regard to trade and commerce, but also enables Parliament to negate the freedom guaranteed under Article 301 and the fundamental right guaranteed under Article 19(1)(g) by imposing unreasonable restrictions thereon. This proposition is not based on an empirical analysis of any laws affecting freedom of trade, passed by Parliament under Article 302. No instance of any such law made under Article 302, which tends to nullify Article 301, or which under colour of 'public interest', makes unreasonable incursion into the exclusive State field has been brought to our notice. In Atiabari Case, , there is an obiter by one of the learned Judges4 that “where Parliament exercises its power under Article 302 and passes a law imposing restrictions on the freedom of trade in public interest, whether or not the given law is in the public interest, may not be Justiciable”. As against this, another learned Judge in Automobile Transport Case[37], observed that

“it is impossible that the freedom granted in Article 301 was to be mocked at by making unreasonable restrictions permissible at the hands of Parliament. Normally, Parliament is the best judge of the 'public interest'. The word 'required' in Article 302 limits the restrictions to the necessities of the situation so that the Article may not be liberally construed as a free Charter”.

Although Article 302 does not speak of reasonable restrictions yet it is evident that the restrictions contemplated by it must bear a reasonable nexus with the need to serve public interest. In several recent decisions where the constitutional validity of a law imposing restrictions under Article 302 was challenged, the Supreme Court did apply the test of reasonableness to uphold the validity of those ‘restrictions’.

Be that as it may, the point is merely of academic significance. From a practical stand-point, the non-qualification of the 'restriction' by 'reasonable' in the text of Article 302 has lost much of its importance, for almost in every case wherein the Constitutional validity of such law is questioned on the ground of Article 301, the challenge is buttressed by additional grounds of Articles 14 and 19 (1)(g) and the question of reasonableness of the restriction always arises under these additional grounds. The proposal for insertion of the word 'reasonable' before the word 'restriction' in the Article 302 is thus merely of theoretical significance and we cannot support it.

Need For An Authority Under Article 307
Several State Governments are in favour of setting up an authority contemplated in Article 307. Some of them consider that such an 'authority' may be useful in the context of enforcement of laws relating to essential commodities and settling questions of taxation, cesses, duties, octroi rates, etc. One of them has also referred to the need for continuous appraisal of the various fiscal laws as well as executive decisions and measures which the Union and the States took from time to time and which impinge on unfettered trade, commerce and intercourse within the country. The Chambers of Commerce interviewed by us have also emphasised the need for setting up of an authority contemplated by Article 307, specially for recommending measures to rationalise or modify restrictions imposed by the different States.

Two States have suggested that the Inter-State Council proposed by them under Article 263, can perform the functions of the 'authority' contemplated in Article 307, and, therefore, there is no need for setting up a separate authority for this purpose.

The Government of India does not consider it necessary to set up such an authority. The Department of Civil Supplies has expressed its view as follows[38]:
“Since the situations keep on changing from time to time in the country, the Ministries at the Centre should be able to respond to such situations more promptly and appropriately because they have the readily available advice with them of experts, legal opinion, information from various parts of the country and views of the producing and consuming States, etc. The establishment of an authority under Article 307, would only cause delays, conflicts and controversies among the various States/regions. Moreover, the authority if established, can only be a data collecting, deliberative and advisory body but not a decision making authority which still shall have to rest with the Central Government. The Department, therefore, does not consider the necessity of setting up of an authority under Article 307 of the Constitution to settle issues among the various States.”

The whole field of freedom of trade, commerce and intercourse bristles with complex questions not only in regard to Constitutional aspects but also in respect of the working arrangements on account of impact of legislation of the Union on the powers of the States and the effect of legislation of both the Union and the States on free conduct of trade, commerce and intercourse. Trade, Commerce and intercourse cover a multitude of activities. Actions of the Union and State Governments have wide-ranging impact on them. Legislative and executive actions in the field of licencing, tariffs, taxation, marketing regulations, price controls, procurement of essential goods, channelisation of trade, and controls over supply and distribution, all have a direct and immediate bearing on trade and commerce. Innumerable laws and executive orders occupy the field today. This has led to an immensely complex structure. Many issues of conflict of interests arise every day. It is not inconceivable that measures instituted at a given point of time to meet specific situations continue to hold the field notwithstanding the fact that either the need for them has disappeared, making them redundant, or changed circumstances call for drastic modifications[39].

We are, therefore, of the view that it would be advantageous to constitute an authority under Article 307. It should be an expert body. Being removed from the pressures of day to day administration it would be able to formulate objective views, taking into account the long term perspective, in regard to various intricate problems relating to trade, commerce and intercourse. Being an expert constitutional body it would also inspire confidence among the various States and other interests. Such an expert body would be eminently suited to strike a proper balance between freedom of trade and the need for restrictions in order to foster development with social justice.

Conclusion & Suggestion
Free flow of trade, commerce and intercourse within and across inter-State borders is an important pre-requisite for ensuing economic unity, stability and prosperity of a country having a two-tier polity. Limitations for the common good are inherent in such freedom, least it should de-generate into a self-defeating license[40].

Notwithstanding the fact that the word 'reasonable' is not used in Article 302, a low imposing restrictions under Article 302 would be open to judicial review on the ground that it has no reasonable nexus with the public interest alleged. The proposal for insertion of the word 'reasonable' before the world 'restriction' in Article 302 is thus merely of theoretical significance and cannot be supported.

Intra-State trading activities often have a close and substantial relation to inter-State trade and commerce. State laws though purporting to regulate intra-State trade may have implications for inter-State trade and commerce. These may impose discriminatory taxes or unreasonable restrictions impeding the freedom of inter-State trade and commerce. If clause (b) of Article 304 is deleted, the commercial and economic unity of the country may be broken up by State laws setting up barriers to free flow of trade and intercourse through parochial or discriminatory use of their powers.

The scheme of the Articles in Part XIII, considered as a whole, is well-balanced. It reconciles the imperative of economic unity of the Nation with interests of State autonomy by carving out in clauses (a) and (b) of Article 304, two exceptions in favour of State legislatures to the freedom guaranteed under Article 301.

The whole field of freedom of trade, commerce and intercourse bristles with complex questions not only in regard to constitutional aspects but also in respect of the working of the arrangements on account of impact of legislation of the Union on the powers of the States and the effect of legislation of both the Union and the States on free conduct of trade, commerce and intercourse. Considering the intricate nature and the need for objective examination of the wide-ranging issue connected with the freedom of trade, commerce and intercourse, it is recommended, that an expert authority should be constituted under Article 307. Among other things, such an authority may be enabled to:

(a) Survey and bring out periodically a report on the restrictions imposed on intra-State and inter-State trade and commerce by different governments and their agencies;
(b) Recommend measures to rationalize or modify the restrictions imposed to facilitate free trade and commerce;
(c) Examine complaints from the public and the trade in this regard; and
(d) Suggest reforms in the matter of imposition, levying and sharing of taxes for purposes of Part XIII of the Constitution.

The ambit of Article 307 is wide enough to bring all matters relevant to freedom and regulation of trade, commerce and intercourse within the purview of such an authority 'for carrying out the purposes of Articles 301, 302, 303 and 304'. It is entirely left to the judgment of parliament to clothe the 'authority' under Article 307 with such powers and duties as may be considered necessary. Such an 'authority' may have both an advisory and executive, role with decision-making powers. To begin with such an authority may be assigned an advisory role. In course of time in the light of experience gained, such additional powers as may be found necessary can be conferred on it.
--------------------------------------------------------------------------------
[1] M.P Jain, Indian Constitutional Law 736 ( LexisNexis Butterworths Wadhwa Nagpur, Fifth Edition, Reprint 2009)
[2] Bowie, Studies In Federalism, 296-357 (1954)
[3] Art. 1, Sec 8, Cl. 3 of the US constitution.
[4] 12 How 299;
[5] ROYAL COMM., REPORT, 30 (1939)
[6] British North America Act 1867
[7] 1950 AC 235
[8] AIR 1961 SC 232, 247
[9] AIR 1954 SC 728, 742
[10] AIR 1970 SC 1725
[11] AIR 1951 SC 257
[12] AIR 1956 BOM 21
[13] AIR 1975 SC 1443
[14] AIR 1969 SC 147
[15] AIR 1969 SC 504
[16] AIR 1977 SC 1825
[17] AIR 1961 SC 232
[18] AIR 1995 SC 925
[19] Kheyerbari Tea Co. Ltd. V. State of Assam, AIR 1964 SC 925
[20] Octroi is levied mostly by municipalities and is being criticized on the ground that it creates trade barriers; Rajasthan High Court held Octroi invalid in Gauri Shanker v. Municipal Board, AIR 1958 Raj 198
[21] Andhra Sugars Ltd. V. Andhra Pradesh, AIR 1968 SC 599
[22] Walker Anjaria v. State of Rajasthan, AIR 1969 Raj 162
[23] SHAH, J., in State of Madras v. Nataraja Mudaliar, AIR 1969 SC 147 at 154
[24] AIR 1957 SC 699
[25] AIR 1975 SC 583, 587
[26] AIR 1993 SC 237, 243
[27] SARKARIA COMMISSION REPORT, 502 (1988)
[28] Atiabari Tea Co. Ltd. V. State of Assam, AIR 1961 SC 232
[29] Kheyerbari Tea Co V. State of Assam, AIR 1964 SC 925
[30] DERHAM, Problems in Part XIII of the Consti., 1 JILI, 523, 526
[31] Amrit Banaspati Co. Ltd v. Union of India, AIR 1995 SC 1340
[32] AIR 1969 SC 147
[33] King v. Barger, 6 CLR 41
[34] V. Guruviah Naidu & Sons V. State of Tamil Nadu, AIR 1977 SC 548
[35] AIR 1981 SC 463
[36] Automobile Transport v. State of Rajasthan, AIR 1962 SC 1406
[37] AIR 1962 SC 1406
[38]CHAPTERXVIII, <www.interstatecouncil.nic.in/> at 15th February 2010.
[39] ibid
[40] CHAPTERXVIII, <www.interstatecouncil.nic.in/> at 15th February 2010

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