.JINDAL STA!NLESS TTD. & ANR. v. STATE OF HARYANA & ORS.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 835

[ASHOK BHUSHAN, J.]

commonsense suggests a fairly clear and satisfactory answer. The reason is that they cannot fairly be said to . impose a burden on a trader or deter him from trading: it would be foolish. for example, to suggest that my freedom to trade between Melbourne and Albury is impaired or hindered by laws which require me to keep to the left of the road and not drive in a manner dangerous to the public. Of course, even rules of the kind which I have taken as examples could be 1nade to operate as a burden or deterrent in a high degree. Let me take an example. The c town of Wangaratta is in Victoria, some fifty miles by roadfrom the border between Victoria and New South Wales. It is on the Hume Highway, which is the busy main highway between Melbourne and Sydney. A law which provided that a motor car should not travel on that highway at greater speeds than thirty miles per hour · D within the limits of towns and sixty miles per hour outside towns would not impede or interfere with the trade of persons carrying good1· for reward between Melbourne and Sydney; their trade would remain free. ·But let me suppose a law that no person should drive a motor car between Wangaratta and the border at a speed exceeding one mile per how: We should instant~y say that such a law interfered with the freedom of inter- State trade. It would operate as a burden and a deterrent to the trader by making the journey economically impossihle. The examples which I have taken seem clear. On which side of the line a particular case falls will, of course, be a question of.fact.... "

333. The above opinion, expressed by Fullagar, J. was specifically approved by Privy Council in Hughes and Vale Proprietary Ltd. V. State of New South Wales and Others /1955/ A.C. 241. The Privy Council has noticed that the problem before the Australian High Court has bee:i to define the qualification in the Constitution which ~s left unqualified. It held that the expression free 'under Section 92 though H

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A emphasized by the accompanying, absolutely must receive some qualification'. Privy Council laid down following two general propositions:

"But it seems that two general propositions may he accepted: (1) that regulation of trade, commerce and B intercourse among the States is compatible with its absolute freedom, and (2) that section 92 is violated on(v when a legislative or executive act operates to restrict such trade, commerce and intercourse directly and immediatezv as distinct fi'om creating some indirect c or consequential impediment which may fairly he regarded as remote. In the application of these general propositions, in determining whether an enactment is regulatory or something more, or whether a restriction is direct or only remote or incidental, there cannot fail D to he differences of opinion. The proh!em to he solved will often he not so much legal as political, social, or economic, yet it must he solved by a court of law. "

334. In Armstrong and Others (supra), the provisions of E Commercial Goods Vehicle Act, 1955 were under challenge on the ground that it violated Section 92. The provisions require the owner of every commercial goods vehicle of loading capacity exceeding four tonnes and not engaged in conveying certain specified classes of goods to pay contribution towards the compensation for wear and tear costs to public high ways. The High Court held that imposition of charge for using the roads of State is not necessarily inconsistent with the freedom of interstate trade and commerce.

335. The Chief Justice Dixson has held that a State can not single out inter-State transport or transport generally for particular charge, such charge was held not to be compensatory for the use made of them. Following observations were made: "ft appears to me that on a proper scrutiny of Pt. II of the Motor Car Acts 1951-56 (Viet.) and the second schedule it must be seen that no room exists for the H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 837

[ASHOK BHUSHAN, J.]

grounds upon which it has heen sought to reconcile with s. 92 the imposition upon vehicles exclusively engaged in inter-State commerce of the rates contained in sub-par. (h) of par. B of the schedule. ( 1) The exaction cannot he regarded simp(v as a.fee contributing to the cost of registration a service in the interest of motor car owners and drivers and others so that it is nothing hut an incident or adjunct of the traffic. (2) It cannot he treated as another contribution to the maintenance of the highways compensatmy for the use made of them. (3) It cannot be justified as a tax upon the ownership or possession of a chattel considered c independently of the use of the chattel in the carriage of persons or goods, including the inter-State carriage ofpersons or good~. (4) It cannot he treated as involving no appreciahle hurden upon the possession of a motor vehicle as a means of inter-State carriage and D movement. "

336. Referring to an earlier judgment of the High Court, William, J. in his concurring opinion has referred to indicia presence of which may prove a charge as truly compensatory: E

"Jn the joint judgment of Dixon C.J.. McTiernan and Webb JJ. in Hughes & Vale Pty. Ltd. v. State of New South Wales [No. 2] (3) the following passage appears: F "Prima facie it" (that is the legislation imposing the charge" ''will present that appearance" (that is the appearance of a real attempt to fix a reasonable recompense for the use of the highway) "if it is based on the nature and extent of the use made of the road~ (as for example if it is a mileage or ton-mileage charge G or the like): if the proceeds are devoted to the repair, upkeep, maintenance and depreciation of relevant highways, if inter-State transportation bears no greater burden than the internal transport of the State and if H

838 SUPREME CGJRT REPORTS [2016] 10 S.C.R.

A the collection of the exaction involves 110 substantial interference with the journey. The absence of one or all of these indicia need not necessarily prove fat.ii, but in the presence of them the conclusion would naturally be reached that the charge was truly B compensatory. "

337. From the above, it is clear that Australian High Court have read qualifications under Section 92 of the Act. The statutes r~gulating the trade which have no direct effect on trade and commerce and levying c compensatory charge were held to be compatible with freedom under Section 92.

338. Another judgment of the Privy Council which have been referred to by Das, J. was judgment in Commonwealth of A;istra/ian and Others V. Bank of New South Wales and Others /1950/ A.C.

D 235. The Privy Council laid down as following:

"But it appears to their Lordships that, if these two tests are applied: .first, whether the effect of the Act is in a particular respect direct or remote; and, secondly, E whether in its true character it is regulatory, the area of dispute may be considerably narrower. It is beyond hope that it should be eliminated."

339. After referring to above cases, Das, J. recorded the conclusion in following words:

"We have, therefore, come to the conclusion that neither the wide interpretation nor the narrow interpretatiuns G canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co. case is correct, hut subject to this clarification. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 839

[ASHOK BHUSHAN, J.]

not come within the purview of the restrictions A contemplated hy Article 301 and such measures need not comp~v with the requireme4nts of the proviso to Article 304(h) of the Constitution."

340. The law that if a statute is compensatory in nature, it is beyond Part XIII and does not violate Article 301, was consistently foEowed after the above pronouncement in Automobile Transport. All State Legislations, after the above pronouncement have been challenged and saved on many grounds including on the above exceptions, as laid down in Alltomobile Transport. There have been various tests laid down in c different cases decided by this Court to find out as to whether State Legislation is compensatory in nature or not. In Messers Bliagatram Rajiv kumar, this Court had held that ifthere is some link betwe<;:n the tax and trading facility, directly or indirectly, the statute is compensatory and is not open to challenge under Article 301. State of Bihar and D Others (supra) following the earlier judgment again reiterated the test of some connection between the tax and trading facility provided: Both the above judgmer.ts were doubted and refened to a Constitution Bench. A Constitution Bench of this Court in Jindal Stainless Steel Ltd. Vs. State o/Haryana (supra) had already ovem1led the aforesaid two judgments. Even the test as laid down by the Constitution Bench in E Jindal Stainless Steel Ltd.(2) did not quell the controversy and in the reference made by the Constitution Bench in Jaiprakash Associates(Supra), one of the questions refened was with regard to the test to prove whether levy is compensatory levy.

341. At this juncture, it is also relevant to refer to concept of F "compensatory tax" as developed in United States of America.

342. The first case to be noticed is Hinson v. Lott, 8 Wr.11, 75 U.S. 148 (1869). The State of Alabama passed a statute by Section 13 of whicn all dealers on sale of liquor within the limit of the State were required to pay tax of 50 cent per gallon. A merchant of another state G against whom collection of tax was sought to be enforced, questioned the tax. Tax was held to be valid by Supreme Court of Alabama and the matter was taken by the merchant to the Supreme Court of the United States. The Supreme Court held that tax is not violative of inter-State H

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A trade and commerce. It was noticed that no greater tax is held on the liquor brought into the State than on those manufactured out of the State and the tax on the liquor brought in from other State was only comjJlimentary provision necessary to make tax equal on all liquors sold in the States. Following was laid down: B "A tax is imposed by the previous sections of the same act of.fifty cents per gallon on all whiskey and all brandy from fruits manufactured in the State. In order

c .. to collect' this tax, everv distiller is compelled to tcke our a license and to make regular returns of the amount of distilled spirits manufactured by him. On this he pays fifty cents per gallon. So that when we come in the light of these earlier sections of the act. to examine the JJ'h, J41h. and l 51h sections. it is found that no greater tax is laid on liquors brought into the State than on those manufactured within it. And it is clear that whereas collecting the tax of the distiller was supposed to he the most expedient mode of securing its payment, as to liquors manufactured within the State, the tax on those who sold liquors brought in from other States was only the complementary provision necessary to make the tax equal on all liquors sold in the State. As the effect of the act is such as we have described, and it institu:es no legislation which discriminates against the products of sister States, hut merely subjects them to the same rate of taxation which similar articles pay that are manufactured within the State, we do not see in it an attempt to regulate commerce, hut an appropriate and legitimate exercise of the taxing power of the States. "

343. The next case needs to be noted is judgment of the U.S. Supreme Court in Harold H. Henneford et al., V. Silas Mason Company, Inc., 300 U.S. 577.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 841

[ASHOK BHUSHAN, J.]

344. Justice Cardozo delivered the opinion of the Court and upheld the compensatory tax. The facts of the case had been noted in the judgment which reads as follows:

"A statute of Washington taxing the use of chattels in that state is assailed in this suit as a violation of the crJTnmerce clause (Constitution of the United States, article I, 8) in so far as the tax is applicable to chattels purchased in another state and used in Washington thereafie1: " c "OnZv two o{ these taxes are important for the purposes of the case at hand, the 'tax on retail sales, ' imposed by title Ill and the 'compensating tax, ' imposed hy title IV on the privilege of use. Title Ill provides that after May D 1, 1935, every retail sale in Washington, with a few enumerated exceptions, shall he subject to a tax of 2% of the selling price. Title IV with the heading 'compensating tax, 'provides that there shall he collected from evelJ' person in the state 'a tax or excise for the privilep;e of using within this state any article o.l tangible E personal property purchased subsequent to April 30, 1935, 'at the rate of 2% o{ the purchase price, including in such price the cost of transportation fi'Om the place vvhere the article was purchased. '·' F

345. However, there were several exceptions. Sub Division(b) provides that the use tax shall not be laid unless the property has been ·brought at retail and ( c) tax shall not apply to the use of any article of tangiblt personal ·property, the sale or use of which had already been subject to a tax equal to or in excess of that imposed. Those users of the G State who have produced in the State were thus not to pay the me tax whereas use tax was always payable where the user had acquired the property by retail purchase in or from another State, Unless he has paid sales or use tax elsewhere before bringing it to Washington. Challenge H

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A was made on the ground that it violates the commerce class of the U.S. Constitution. Justice Cardozo held that the equality is a theme that runs through the above sections. Following are the reasons which were given for l'pholding the above compensating tax:

B "Equality is the theme that runs through all the sections of the statute. There shall he a tax upon the use, hut subject *to an offset !f another use or sales tax has been paid for the same thing. This is true where the offsetting tax hecame payable to Washington by reason c of purchase or use within the state. It is true in exact~y the same measure where the offsetting tax has been paid to another state hy reason of use or purchase there. No one who uses proper(y in Washington after buying it at retail is to be exempt from a tax upon the privilege of D enjoyment except to the extent that he has paid a use or sales tax somewhere. Every one who has paid a use or sales tax anywhere, or, more accurately, in any state, is to that extent to he exempt from the payment of another tax in Washington.

E When the account is made up, the stranger from afar is subject to no greater burdens as a consequence of ownership than the dweller within the gates. The one pays upon one activity or incident, and the other upon another, hut the sum is the same when the reckoning is closed. Equality exists when the chattel subjected to the use tax is bought in another state and then carried into Washington. It exists when the imported chattel is shipped.from the state of origin under an order received directly from the state of destination. In each situation the burden borne by the owner is balanced by an equal burden where the sale is strictly local. "

346. The contents of the compensatory tax doctrine were reiterated by the U.S. Supreme Court in Associated Industries Of Missouri, et al., V. Janette M. Lohman 128 L Ed 2d639. ln the above H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 843

[ASHOK BHUSHAN, J.]

cases State of Missouri imposed a unifom1 state-wide use tax on all goods purchased outside the State and stored, used or consumed within the State. The tax was purportedly designed to compensate for sales tax imposed by local jurisdiction on sales of goods in the State. Local sales tax varied very widely, on several occasions the use tax exceeded the sales tax. The tax was challenged, as violating interstate commerce on the gromd that it placed greater burden on interstate trade, referring to judgment of Justice Cardozo in Silas Mason; Following was stated:

''Jn Silas Mason, Justice Cardozo was explicit in explaining for the Court that the compensat01y tax c doctrine requires precision to ensure that, upon the ''.reckoning" of "account(s)," the "sum" on the interstate side of the ledger is "the same" as that on the intrastate side. 300 US, at 584, 81 L Ed 814, 57 S Ct

524. More recent~v. we have reiterated that strict parity D is demanded by the co111pensat01y tax doctrine as we have explained that a compensatory tax leaves a consumer .free to make choices "without regard to the fox consequences"; !f he purchases within the State he may pay a tax, hut if he purchases from outside the State he will pay a "tax of the same amount. " E

347. Another case which needs to be noted is Oregon Waste Systems V. Department of Environmental Quality of the State of Oregon 511 U.S. 93 (1994). The U.S. Supreme Court noticed that F compensatory tax doctrine has been recognised at least since 1869. Following was stated by the U.S. Supreme Court:

"At least since our .decision in Hinson V. Lott, 8 Wall. 148 (1869), these principles have found expression in· G the "compensatory'' or "complementary" tax doctrine. Though our cases sometimes discuss the concept of the compensatory tax as if it were a doctrine unto itself. it is merely a spec(fic way of just(fving a facially H

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A discri111inatory tax as achieving a legitimate local purpose that cannot he achieved through non- discriminatory means. See Chemical Waste, supra, at 346, 11. 9 (referring to the compensatory tax doctrine as a "justification" for a facially discriminatory tax). B Under that doctrine, a facially discriminatory tax that imposes on interstate commerce the rough equivalent of an identifiahle and "substantial~v similar" tax 011 intrastate commerce does not offend the negative Commerce Clause. Maryland, supra, at 758-759. See also 1.J;ler Pipe Industries. Inc. v. Washington State Dept. c of Revenue, MANUIUSSC/005811987: 483 U.S. 232, 242-243(1987); Armco, U.S .. AT 643. To just!fv a charge on interstate com111erce as a compensatory tax, a State must, as a threshold matter, "identify... the [intrastate tax] burdenfor which the State D is attempting to compensate. " Maryland, supra, at 758. Once that hurden has been identified, the tax 011 interstate commerce must be shown roughly to approximate - hut not exceed - the amount of the tax on intrastate commerce. See. e.g.. Alaska v. Arctic Maid, E MANUIUSSC/006211961 : 366 U.S. 199, 204-205 (1961). Finally, the events on which the interstate and intrastate taxes are imposed must he "substantially equivalent"; that is. they must be sufficient~v similar in substance to serve as mutually exclusive "proxies" for each other. Ar111co, supra, at 643. As Justice Cardozo F explained for the Court in Henneford, under a truly compensatory tax scheme, "the stranger from afar is suhject to no greater burdens as a consequence of ownership than the dweller within the gates."

348. Another judgment which needs to be noted is Fulton Corporation V. Jenice H. Folkner, Secretary of Revenue of North Carolina 516 US 325, 133 L Ed 2d 796. For valid compensatory tax three conditions were noticed by the U.S. Supreme Court in following worcls: H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 845

[ASHOK BHUSHAN, J.]

"Since Silas Mason, our cases have distiled three conditions A necessary for a valid compensatory tax. First, "a State must, as a threshold matter, 'identify ... the [intrastate tax] burden for which the State is attempting to compensate."' Oregon Waste, supra, at 103 .. 128 L Ed 2d 13, 114 S Ct 1345 (quoting Maryland v Louisiana, 451US725, 758, 68 L B Ed 2d 576, 101 S Ct 2114 (1981 ). Second, "the tax on interstate commerce must be shown roughly to approximate- but not exceed-the amount of the tax on intrastate [516 US 333] commerce." Oregon Waste, 511 US, at 1103, 128 L Ed 2d 13, 114 S Ct 1345. "Finally, the events on which the interstate and intrastate taxes are imposed must be c 'substantially equivalent'; that is, they must be sufficiently similar in substance to serve as mutually exclusive 'proxies· for each other."

349. The above cases of Supreme Corn1 give different concept of compensatory tax as compared to cases in Australia as well as in Automobile Tramport. In U.S., The compensatory tax doctrine was invoked to save facially discriminatory taxes imposed on interstate trade, to make interstate commerce bear a burden already borne by intrastate commerce. In Automobile Transport compensatory tax has been refen-ed to a tax or charge to provide for trade facilities like construction of road, bridges etc. which was treated as recompense to the traders who were required to pay tax.

350. Law of compensatory charge as developed in Australia was due to the fact that Section 92 did not contain any qualification to the absolute freedom of trade and commerce granted therein. Various qualifications and restrictions to the above freedom were culled out by judicial decisions of the High Court of Australia and Privy Council to justify the said qualifications and restrictions. The ratio contained in various judgments of the High Court of Australia and the Privy Council G on Section 92 of the Constitution of Australia cannot be a guiding factor for interpreting Part XIII of the Constitution of India. 3 51. The Constitution Bench of this Court in State ofBombay v. R.M.D. Chamarbaugwala and another, AIR 1957 SC 699 had H

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A sounded a caution in paragraph 35:

"35. In construing the provisions of our Constitution the decisions of the American Supreme Court on the commerce clause and the decisions of the Australian B High Court and of the Privy Council on Section 92 of the Australian Constitution should, for reasons pointed out hy this Court in State of Travancore-Cochin v. Bombay Co. Ltd. he used with caution and circumspection. Our Constitution differs from hoth c American and Australian Constitutions. There is nothing in the American Constitution corresponding to our Article 19(l)(g) or Article 301. In the United States the problem was that if gambling did not come within the commerce clause, then neither the Congress nor any State Legislature could interfere with or regulate inter- State gambling. Our Constitution, however, has provided adequate safeguards in clause (6) of Article 19 and in Articles 302-305. The scheme of the Australian Constitution also is different from that of ours, for in the Australian Constitution there is no such provision as we have in Article 19(6) or Articles 302-304 of our Constitution. The provision of Section 92 of the Australian Constitution heing in terms unlimited and unqualified the judicial authorities interpreting the same had to import certain restrictions and limitations dictated hy common sense and the exigencies of modern society. This they did, in some cases, hy holding that certain activities did not amount to trade, commerce or intercourse and, in other cases, by appZving the doctrine of pith and substance and holding that the impugned law was not a law with respect to trade, commerce or intercourse. The difficulty which faced the judicial authorities interpreting Section 92 of the Australian Constitution H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 847

[ASHOK BHUSHAN, J.]

cannot arise 11nder our Constitution, for our A Constitution did not stop at declaring by Article 19(J)(g) a fimdamental right to cany on trade or business or at declaring hy Article 301 the freedom of trade, commerce and intercourse but proceeded to make provision by Article 19(6) and Articles 302-305 for imposing in the B interest of the general public reasonable restrictions on the exercise of the rights guaranteed and declared by Article 19(l)(g) and Article 301."

352. Hidayatullah, J. in Automobile Transport itself held that the c technique justifying laws as regulatory as evolved in Australia is not applicable while interpreting Article 301 of Constitution. Following observations were made by Hidayatullah, J. at page 639:

D "The techniq11e ofjustifying laws as regulatory was evolved in Australia in view of the intractable language of s. 92 without any indication of the circumstances in which the absolute freedom could he curtailed. The detailed provisions contained in Part XJll render such a construction of Art. 301 at once unnecessary and impermissible. "

353. Gajendragadkar, J. inKhyerbari Tea Company Ltd.(s11pra) had also expressed opinion that compensatory or regulatory tax theory as introduced in the Australian decisions is not to be made applicable in Part XIII. Following· was observed:

"The majori~v view in the Atiabari case proceeded on the hasis that the Australian decisions which dealt with the scope and effect of s. 92 of the A11stralian Constitution would he of no assistance in constructing the effect of the provisions in Part Xlll of our Constit11tion, because the legislative, historical and political background, the structure and the effect of the relevant provisions H

848 SUPREME COURT REPORTS [2016] 10 S.C.K

A contained in Part XIII were in material particulars different from those of s. 92 of the Australian Constitution; s. 92 is absolute in terms and on its literal construction, admits of no exceptions. The Australian decisions, therefore, had to introduce distinctions, such B as compe11sato1y or regulatory tax laws in order to take laws answering the said description out of the purview o{ s. 92. Jn our Constitution, howeve1; though Art. 301 is 1rnrded suhstantial(v in the same way ass. 92, Art.302 and 304 provide for reasonahle restrictions being imposed 011 the freedom of. trade subject to the c requirements of the said two Articles, and so, the problem facing of the said two Articles, and so, the problem facing judicial decisions in Australia and in this cou1111y in regard to the freedom of trade and the restrictions which it may he per111issihle to impose on it, is not exactly the same."

354. The answer to the question as to whether a compensatory tax is out ofreach of Article 30 I has to be found out from the Scheme of Part XIII of the Constitution itself and not from the theory of compensatory charge as evolved in Australia or United States of America. Two fundamental principles of taxes are:

(i) that it is an imposition made for public purpose, r (ii) without reference to any special benefit to be confeJTed on the payer of the tax.

355. The compensatory doctrine evolved in Automobile Transport is that compensatory tax is to compensate for facility extended, for G example, wear and tear of the Road. The compensatory tax can be imposed only for public purpose which fact is not denied by any of the parties before us. Can it be said that a tax which is a compensatory in nature need not to be subject to restriction as contained in part Xlll? lf it is accepted that once a tax is held compensatory tax it goes out of H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 849

[ASHOK BHUSHAN, J.]

reach of Part XIII, it will be carving a new exception to Article_ 301 A which is not contemplated in the constitutional scheme. The framers of the Constitution after providing for freedom of trade, commerce and intercourse in Article 301 laid down exceptions to the said freedom in Article 302 to 306. The exceptions laid down in the constitutional scheme are self-contained and no new exception can be added by judicial B interpretation. Can a compensatory tax not impede trade, commerce and intercourse even if it is a non-discriminatory tax? We take an example to illustrate the point. Entry Tax is imposed on vehicles carrying goods in a local area to the extent of 50% of the value of goods, the statute further declares that entire amount received from tax will be expended for providing facilities to the entrants in the local area, i.e., on roads, c lights, free footling, free lodging, facility for free servicing, repairs of the vehicles, etc.etc. Can the mere fact that entire amount collected is expended for providing facilities shall take out the statute from the scrntiny of Pati Xlll ? Answer has to be in negative. The fact that a tax statute compensates the payer of the tax does not take out the statute beyond D Part Xlll, all taxes, being for one or other public purposes. The tax legislation which professes to compensate the payer cannot take the tax legislation on a higher pedestal beyond the reach of Part Xlll, making such legislation "not subject to Constitution". When all legislative power is "subject to Constitution" as per Article 245 and 246 of the Constitution, E a legislation, namely, compensatory tax legislation cannot be said to be beyond Part Xlll. Any such interpretation is clearly against the constitutional scheme.

356. Thus the judgments of the High Co mi of Australia and the Privy Council relied in Automobile Transport did not furnish a foundation for evaluation of compensatory tax theory in part Xlll of the Constitution. F

357. The scheme of Constitution oflndia indicates that wherever it was contemplated to insulate any provision from challenge, expressed provisions have been made to provide for such insulation. Article 31 B is one of such examples which provides that none of the Acts and G Regulations specified in IXth Schedule shall be deemed to be void or ever to have become void on the ground of such Act, Regulation or provision is inconsistent with or takes away or abridges any of the rights conferred by Part lll. The Constitutional Scheme as delineated by Part Xlll does not indicate that a particular type of legislation, i.e., H

850 SUPREME COURT REPORTS [2016] I0 S.C.R.

A compensatory tax is out of Paii X llJ. Reading any such protection to compensatory tax legislation is against the constitutional provision. We, thus, are of the opinion that the compensatory theory as evolved in Automobile Transport (rnpra) is not compatible to the constitutional scheme and a compensatory tax legislation cannot be insulated from B challenge under Part Xl!I of the Constitution.

358. We may, however. observe that it is always open to scrutinize the true nature and character of legislation to decipher as to whether it contains any restriction on freedom of trade, commerce and intercourse violatingArticle 30 I. A legislation which is compensatory in nature may c shed light while determining whether it contains restriction on trade. commerce and intercourse or facilitate the trade. commerce and intercourse. But all legislations be it a compensatory tax legislation or otherwise has to be tested in accordance with provisions of Part XIII of the Constitution. The ratio of judgment of Automobile Transport is overruled in so far as it lays down that the compensatory tax legislations D are out of part Xlll of the Constitution.

PARTV "OUR CONCLUSIONS" E I. All legislative powers of the State are "subject to the Constitution" as per article 245 of the Constitution of India. Legislative power of the State is also subject to the limitation as provided in Part XIII of the Constitution.

2. Pa1i XUl of the Constitution covers tax legislation which restrict freedom of trade, commerce and intercourse.

3. Word 'restriction' as used in Pan XIII as well as in Article 304(b) of the Constitution includes tax legislation also.

4. For enabling a State to make a law under Article 304(a) following two pre-conditions which are independent of each other have to be satisfied:- (i) It may impose on goods imported from other States or the Union Territory any tnx to which similar goods manufactured or produced in that State are subject. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 851

[ASHOK BHUSHAN, J.)

(ii) So, however, as not to discriminate between goods so imported A and goods so manufactured and produced.

5. Word "and" between Clause( a) and Clause(b) of Article 304 has to be read as joint and several. Both the meaning can be assigned, as per requirement of State legislation. B

6. A law made by State legislature exercising the power under Clause( a) in Article 304, which does not impose any restriction on the freedom of trade, commerce and intercourse need not comply with Article 304(b), however, a Jaw even though complying with Article 304(a) containing restriction on freedom of trade, commerce and intercourse is to obtain sanction of the President, as contemplated by proviso to c Clause(b ). The requirement of obtaining the previous sanction of the president has to be decided in accordance with the nature and content of the State Legislation. ·

7. The proviso of A1ticle 304(b) is part of Constitutional Scheme which is neither against the federal structure of the Constitution nor affects the State's sovereignty.

8. Word 'restriction' used in Article 304(b) is wide enough to include restrictions placed both by fiscal or non-fiscal law.

9. State Legislature in exercise of its taxing power can grant exemption\set off to locally produced and manufactured goods only to a limited extent based on intelligible differentia which is not in nature of general\unspecified exemption.

10. The ratio of judgment of Video Electro11ics(s11pra) has to be read as justifying only exemption limited to specified category for a short period. Exemption in general terms for unlimited period cannot be approved. Any exemption can not be used as measure of discrimination between goods imported from other States and goods manufactured or produced in the State.

11. A law passed by State Legislature imposing tax only on the imported goods coming from other States and Union Territories and there being no similar tax imposed to the locally produced\manufactured goods, the law is not saved by Article 304(a) and violates Atticle 301.

12. A Jaw imposing tax on goods imported from other States and Union TelTitories, facially taxing goods locally manufactured and produced H

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A but granting set off\excmption in general terms is discriminatory and violates A1ticle 30 I.

13. What have been expressly prohibited under Article 302, 303 and 304 are restrictions in the freedom of trade and commerce violating A1ticle 30 I. A law containing restriction impeding freedom oftrndc and B commerce and intercourse which is not saved by Article 302, 303 and 304 violates A1ticle 30 I.

14. The compensatory tax theory as judicially evolved in Automobile Tmmport is not compatible with the Constitutional provisions contained in Patt Xlll. The ratio in judgment of this Coutt in Automobile C Transport to the extent that the legislation which is compensatory in nature is out of Article 30 l, cannot be approved and is overruled

15. All legislation. including a compensatory or regulatory has to be examined in accordance with Constitutional Scheme. as contained in Pait Xlll of the Constitution. The nature and content of legislatioi1 at D best may shed light on the aspect as to whether it impede/restrict the freedom of trade, commerce and intercourse or facilitate the same.

PART VI E OUR ANSWERS QUESTION NO.l Levy of a non-discriminatory tax may constitute infraction of Article 30 l of the Constitution of India if it impedes the freedom of trade, commerce and intercourse. All taxes which contain restrictions to F. trade, commerce and intercourse, discriminatory or non-discriminatory infringe A1ticle 30 I unless they are saved under Article 302- 304.

Question N0.2 and Question No.3 G The compensatory tax theory as judicially evolved in Automobile Tramport is not compatible to constitutional scheme as delineated by Part Xlll of the Constitution. The Automobile Transport case in so far as it lays down that compensatory taxes are out of the reach of Article 30 l cannot be approved. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 853

[ASHOK BHUSHAN, J.]

The nature and content of taxation at best may throw light on the A aspect as to whether it contains restriction on freedom of trade, commerce and intercourse. The compensatory tax theory being not compatible with the Constitution, it is not necessary to answer Question No.3.

B Question No.4 To find out as to whether Entry l~1x levied by different States in the present batch of cases violates Article 30 l of the Constitution, each statute has to be looked into and examined as per our discussions and conclusions as above. c A law made by State Legislature complying clause( a) of Article 304 and not containing any restriction on the freedom of trade, ccimmerce and intercourse need not comply Article 304(b). However, a law even though complies with Article 304(a)but contains restrictions on freedom of trade, commerce and intercourse has to be routed through proviso to D clause (b) of Article 304 of the Constitution. The compliance of Article 304(b) proviso whether required or not shall depend on the nature and content of the State legislation.

Answer to incidental g uestions. E ( l) Levy of taxes is an attribute of a sovereign State as per Constitutional scheme and limited to the extent as provided in the Constitution. (2) Article 245 read with Article 246 recognises the exclusive power of the State to make laws including law oflevying taxes on subject matter enumerated in List II of VI!th Schedule in accordance with limitations and restrictions contained in the Constitution of India. (3) The power to make law and levy taxes reserved in favour of the State under Article 246 read with List II ofV!lth Schedule is subject to Part XIII of the Constitution. Article 245 has to be read along with Article 246 for finding out the source of the legislative power. (4) Part XIII (including Article 30 l) of the Constitution to which legislative power of State is subject, does not have effect of denuding any sovereign power of the State or effecting the federal structure of H

854 SUPREME COURT REPORTS (2016] 10 S.C.R.

A the Constitution. (5) The levy of taxes is presumed to be in public interest. (6) Levy of taxes which may be presumed to be in public interest still has to comply with Part Xlll of the Constitution for it to be justified as reasonable restriction. B (7) Imposition ofrestriction by way of tax legislation under Article 304(b) is paii of constitutional scheme and Presidential sanction has been provided to keep a check on the legislative power of the State impeding freedom of trade, commerce and intercourse. All legislative powers under the Constitution are subject to judicial review and the c mere fact that a legislation passed under Article 304(b) is also subject to judicial review, in no manner, militants against the Constitutional scheme. (8) There is no question of affecting the separation of power between the Legislature and judiciary on the ground that levy of taxes under Article 304(b) which contains restriction to the freedom of trade, commerce and intercourse have to be routed through the President of India as per the Constitutional scheme. The Constitution contains large number of provisions including A11icle 304(b) where a State legislation is subject to Presidential sanction which provisions are in accordance with the Constitutional scheme and does not affect the separation of power between the Legislature and judiciary. Article 304(b) enables the State Legislature to frame legislations containing restriction on freedom of trade, commerce and intercourse after routing the legislation through proviso to Article 304(b). The question of judicial review arises only when there is challenge to such legislation. Judicial review of such legislation in no manner affects the separation of power. (9) The compensatory tax theory as propounded in A11tomobile Transport is not compatible with the Constitutional scheme as delineated in the Part Xlll of the Constitution. Framers of the Constitution have provided for all exceptions under which freedom of trade, commerce and intercourse guaranteed under Article 30 I can be overridden, the compensatory tax not being included as one of the exceptions, the same cannot be added as an exception by any judicial interpretation. The compensatory tax theory brings dichotomy which is inconsistent with the language employed in Article 30 I.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 855

ORDER A By majority the CoU11 answers the reference in the following terms: I. Taxes simpliciter are not within the contemplation of Pat1 XIII of the Constitution of India. The word 'Free' used in A1ticle 30 I does not mean "free from taxation". B

2. Only such taxes as arc discriminatory in nature arc prohibited by A11iclc 304(a). It follows that levy of a non-discriminatory tax would not constitute an infraction of Article 30 J.

3. Clauses (a) and (b) of Article 304 have to be read disjunctively.

4. A levy that violates 304(a) cannot be sawd even if the procedure c under Article 304(b) or the proviso there under is satisfied.

5. The compensatory tax theory evolved in Automobile Tramport case and subsequently modified in Jindal '.5 case has no juristic basis and is therefore rejected. D

6. Decisions of this Cou11 in Atiabari. A11to111obile Tramport a11d Jindal cases (supra) and all other judgments that follow these pronouncements are to the extent of such reliance over ruled.

7. A tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing state.

8. A11icle 304 (a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation. Therefore, incentives, set-offs etc. granted to a specified class of dealers for a limited period of time in a non-hostile fashion with a view to developing economically backward areas would not violate Article 304(a). The question whether the ievies in the present case indeed satisfy this test is left to be determined by the regular benches hearing the matters. G

9. States are well within their right to design their fiscal legislations to ensure that the tax burden on goods im po11ed from other States and goods produced within the State fall equally. Such measures if taken would not contravene A1ticle 304(a) of the Constitution. The question whether the levies in the present H

856 SUPREME COUKf REPORTS [2016] 10 S.C.R.

A case indeed satisfy this test is left to be determined by the regular benches hearing the matters.

10. The questions whether the entire State can be notified as a local area and whether entry tax can be levied on goods entering the landmass of India from another country are left open to be B detennined in appropriate proceedings.

Devika Gujral Referred question answered.