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

All legislative differentiation is not necessarily discriminatory. In fact, the word "discrimination'·' does not occur in Article 14. The expression "discriminate against" is used in Article 15(1) and Article 16(2), and it means, according to the Oxford Dictionary, "to make B an adverse distinction with regard to; to distinguish unfavourably from others··. Discrimination thus involves an element of 11nfavo11rable bias and it is in that sense that the expression has to be 11nderstood in this context. If such bias is disclosed and is based on c any of the grounds mentioned in Articles I 5 and 16, it may well be that the stat11e will, without more, incur condemnation as violating a ~pecific constitutional prohibition 11nless it is saved by one or other of the provisos to those article~~ But the position under Article D 14 is different. Equal protection claims under that Article are examined with the presumption that the State action is reasonable and justified. This presumption of constitutionality stems from the wide power of classification which the legislature must, of necessity, possess in making laws operating d/fferent~v as regards E different groups of persons in order to give effect to its policies. The power of the State to regulate criminal trials by constituting different courts with different procedures according to the need~ of different parts of its territory is an essential part of its police power - F (cf Missouri v. Lewis)(3). Though the differing (I) [1950] SCR 88 (3) 101 US 22 (92) AIR 1951 Hyderabad II. "

"Fazl Ali, J.: G ... / think that a distinction should be drawn between "discrimination without reason" and "discrimination with reason". The whole doctrine of classification is based on this distinction and on the well-known fact that the circumstances which govern one set of persons H

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

A or ohjects may not necessarily he the same as those governing another set of persons or ohjects, so that the question o{ unequal treatment does not rea!Zy arise as between persons governed by d(fferent conditions and different sets of circumstances .... " [Emphasis B added]

138. The desired objective of economic integration through checks and balances to encourage less developed parts of the country, so that they may compete as equals with others, does not contravene Part Xlll c of the Constitution. In Video Electronics, the three Judges Bench held as under:

"20. The question as we see is, how to harmonise the D construction of the several provisions of the Constitution, It is true that if a particular provision heing taxing provision or otherwise impedes directly or immediately the free flow of trade within the Union of India then it will he violative of Article 301 of the Constitution. It has further to he horne in mind that E Article 301 enjoins that trade, commerce and intercourse throughout the territory of India shall he free. The .first question, therefore, which one has to examine in this case is, whether the sales tax provisio11s (exemption etc.) in these cases directly and immediate~v restrict the free F flow of trade and commerce within the meaning ofArticle 301 of the Constitution. We have examined the scheme of Article 301 of the Constitution read with Article 304 and the observations of this Court in tiabari :1· case [1961} I SCR 809 (supra), as also the observations made hy this Court in Automohile Transport, Rajasthan :S G case [ 1963} 1 SCR 491 (.rnpra). Jn our opinion Part XIII ofthe Constitution cannot be read in isolation. It is part and parcel of a single constitutional instrument envisaging a federal scheme and containing general scheme conferring legislative powers in respect of the H

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[R. BANUMATHI, J.]

matters relating to list II of the 7th Schedule on the A States. It also confers plenary powers on States to raise revenue.for its purposes and does not require that every legislation of the State must obtain assent of the President. Constitution of India is an organic document. It must be so construed that it lives and adapts itself to the exigencies of the situation, in a growing and evolving society, economically, politically and socially. The meaning of the expressions used there must, therefore, be so .interpreted that it attempts to solve the present problem of distribution of power and rights of the d!IJ'erent States in the Union of India, and anticipate c the .fi1ture contingencies that might arise in a developing organism. Constitution must be able to comprehend the present at the relevant time and anticipate the future which is natural and necessary corollmy for a growing and living organism. That must be part of the constitutional adjudication. Hence, the economic development of States to bring these into equality with all other States and thereby develop the economic unity of India i~· one of the major commitments or goals of the constitutional aspirations of this land. For working of an orderzy society economic equality of all the States is as much vital as economic unity.

22. It has to be examined whether difference in rates per se discriminates so as to come within Articles 301 F and 304(a) of the Constitution. It is manifest that free flow of trade between two States does not necessari(y or generally depend upon the rate of tax alone. Many factors including the cost of goods play an important rnle in the movement of good~ from one State to another. G Hence the mere fact that there is a difference in the rate of tax on goods locally manufactured and those imported would not amount to hampering of trade between the two States within the meaning of Article 301 of the Constitution. As is manifest, Article 304 is an H

464 SUPREME COURT REPORTS [2016] JO S.C.R.

A exception to Article 301 of the Constitution. The need of taking resort to exception will arise only !f the tax impugned is hit hy Articles 301 and 303 of the Constitution. if it is not then Article 304 of the Constitution will not come into picture at all. See the observations in Nataraja Mudaliad· case [1968} 3 SCR B 829 of the report. It has to be borne in mind that there may be differentiatiom based on comideration of natural or business factors which are more or less in force in different localities. A State might be allowed to impose a higher rate of tax on a commodity either when c it is not consumed at all within the State or if it is felt that the burden falling 011 co11s111ners within the State, will be more than that and large benefit is derived by the revenue. The imposition of a rate of sales tax is influenced hy various political, economic and social D factors. Prevalence of differential rate of tax on sales of the same commodity cannot he regarded in isolation as determinative of the ohject to discriminate between one State and another. Under the Constitution originally fi"amed revenue from sales tax was reserved for the Stales. E

24. The object is to prevent discrimination against the imported goods hy imposing tax on such goods at a rate higher than that horne hy local good~. The question F as to when the levy of tax would constitute discrimination would depend upon a variety of factors including the rate of tax and the item of goods in respect of the sale on which it is levied. Every differentiation is not discrimination. The word 'discrimination' is not med in Article 14 but is used bi Articles 16, 303 & 304(a). G When used in Article 304(a), it involves an element of intentional and purposeful differeutiation thereby creating economic barrier and involves an element of an unfavourable bias. Discrimination implies an unfair classification. Reference may he made to the H observations of this Court in Kathi Raning Rawat v.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 465

[R. BANUMATHI, J.]

State of Saurashtra.1952 SCR 435 where Chief Justice A Shastri at p. 442 of the report reiterated that all legislative differentiation is not necessarily discriminatory. At p. 448 of AIR) of the report, Justice F azal Ali noticed the, distinction between 'discrimination without reason' and 'discrimination with B reason'. The whole doctrine of classification is based on this and on the well-known fact that the circumstances covering one set of provisions or objects may not necessarily he the same as these covering another set of provisions and objects so that the question of unequal treatment does not arise as between c the provisions covered by different sets of circumstances.

28. Concept of economic barrier must be adopted in a dynamic sense with changing conditions. What D constitutes an economic barrier at one point of time often cease to be so at another point of time. It will be wrong to denude the people of the State of the right to grant exemptions which flow from the plenary powers of legislative heads in List II of the 7rh Schedule of the E Constitution. Jn a federal polity, all the States having powers to grant exemption to specified class for limited period, such granting of exemption cannot be held to be contrary to the concept of economic unity. The contents of economic unity by the people of India would necessarily include the power to grant exemption or to F reduce the rate of tax in special cases/or achieving the industrial development or to provide tax incentives to attain economic equality in growth and development. When all the States have such provisions to exempt or reduce rates the question of economic war between the G States inter se or economic disintegration of the country as such does not arise. It is not open to any party to say that this should be done and this should not be done by either one way or the other. It cannot be disputed that it is open to the States to realise tax and thereafter remit H

466 SUPREME COURT REPORTS [2016] 10 S.C.R.

A tile same or pay back to the local ma1111fact11rer.s in tile shape of sub.sidies and that would neither discriminate nor be //it by Article 304(a) of tile Constitution. 111 this case and as in all co11stitutional udiudicatio11s the substance of the matter has to be looked into to }ind B out whether there is any discri111inatio11 in violation of the constitutional mandate." [Emphasis added)

Thus while considering the scope of"discrimination .. under Art. 304(a) in Video Electro11ics, this Court has carved out an exception that c States have powers to grant exemption to specific class for limited period and that such grant of exemption cannot be held to be discriminatory. To reduce the rate of tax in special cases or to provide tax incentives is for achieving the industrial development and attainment ofeconomic equality in growth and development. D

139. In S//ri Ma//al'ir Oil Mills and Anr. v. State o(J&K and Others ( 1996) l I SCC 39, a Division Bench of this Court, however, struck a contrary note. The State of Jammu and Kashmir granted exemption to the edible oil produced by small scale industries within the E State of Jammu and Kashmir from sales tax while subjecting the edible oil produced in other States to sales tax at 8 per cent. A subsequent Notification was issued on 20.12.1993 as a result of which the general rate of sales tax payable on edible oil became 8%. The manufacturers of edible oil from the adjoining States claimed that the exemption granted F from payment of tax to the local industries was discriminatory. The exemption given by the Government of Jammu and Kashmir to the manufacturers of the edible oil was absolute and the period of exemption was five years - which was later extended by another five years. The said legislation was struck down on the ground that the State has brought about discrimination prohibited by Art. 304(a) of the Constitution. The G Court declined to apply the limited exception carved out in Video Electro11ics and observed that the said exception in Video Electro11ic.\· cannot be widened or expanded to cover cases of a different kind. This Court held that the unconditional exemption granted to edible oil industries within the State of Jammu and Kashmir for a period of ten years and at H

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[R. BANUMAT'Hl, J.]

the same time subjecting edible oil imported from other States to sales A tax at 8% was discriminatory and violative of Art. 304(a) of the Constitution.

140. The decision in Vtdeo Electronics was, however. approvingly referred to by the ConstitutionBeneh in Sri Digvijav Cement Compa11r Limited and Ors. v. State of Rajast!tan and Others ('.WOO) I SCC B

688. In Digl'ijay, Section 8 of the Central Sales Tax Act came up for consideration. Section 8 of the Central Sales Tax Act stipulates that the State Governments were empowered to either exempt any goods from Central Sales Tax or to prescribe a lower rate of tax. The State of Rajasthan had redu~ed the rate to seven percent though stipulated local c sales tax was sixteen per cent. In consequence, cement in Rajasthan became cheaper in comparison to Gujarat and that increased the flow of cement from Rajasthan to other States. After referring to the cases Firm ATB Mehtab Majid & Co v. State of Madras & Anr. AIR 1963 SC 928 and State of Madras '" N.K. Nataraja Mudaliar ( 1968) 3 SCR 829, this Court held as under:- D

"24. We are unable to agree with the contention of the learned counsel for the petitioners that the impugned 11otificatio11 had the effect of prevc11ti11g or hinderi11g E the free movement of goods from one State to another. As far as the State of Rajasthan is concerned, ii had the opposite effect. Mere(1' because local rate of tax i11 the State of Gu}arat 011 the sale of cement was higher than the inter-State .mies tax 011 the cement sold from Ra}astltllll ct111110t lead to the co11clusio11 that the F impugned notification prevented or hindered the free 11101•ement of goods from one State to 1111othe1: In fact the impugned notification had the opposite effect, namely, it increased the mo11eme11t of cement from Ra}astlum to other States. It is not as if the im1111g11ed G notification created a barrier which may have had the effect of hindering free movement of goods but 011 the other hand, the sales tax barrier was lowered resulting in increased volume of inter-siate trade. " H

468 SUPREME COURT REPORTS [2016] 10 S.C.R.

A 141. It follows from the Constituent Assembly Debates and the decisions in Video Electronics and Digvijay that historical, cultural, geographical and other factors have an impact on trade and commerce. While insisting on economic integration of the nation, Courts are to keep in view the regional requirements so as to cater to the need of economic development of the nation as a whole. Government incentives to invest B in backward areas granting subsidies or tax concessions for a certain period of time would be permissible and would fall outside the scope of Part XIII and Art. 304(a). Such action of the State Government is not discriminatory; rather it aims at ensuring economic equality.

c 142. In Video Electronics and Digvijay, this Court held that it is constitutionally permissible for a State Legislature to make laws that promote and encourage local trade; a form of affinnative action to move beyond the concept of discrimination towards true and a stronger union which is the underlining objective of the Constitution. Although balanced growth and economic integration of the nation as a whole has been accepted as one of the major objectives of economic planning, it is to make a headway in achieving the object. The growing regional disparities have become a reality and hence may pose a barrier to India's future economic growth.

143. India is a union of States with federalism as a basic feature of the Constitution. However, revenue-wise Union has an edge over the States. All major taxes like income tax, wealth tax, service tax, excise duty etc. are with the Union. Taxes raised by the States are insufficient to discharge their mandate as a Welfare State. India still exists in villages and countryside. Substantial number of population is still below poverty level. Subjects like public order (entry 1, List II); public health and sanitation, hospital and dispensaries (entry 6, List II); Education (entry 25, List III); providing employment opportunities; roads, bridges etc. and other infrastructure (entry 30, List II) inter alia are subject matters for the State; and States have limited resources to provide for education, healthcare, civic amenities, infrastructure, communications, village industries, mral employment and technology and to ensure dignified human living of the people of the State, without access to an adequate source of revenue.

144. As discussed earlier, development of the country is seemingly unbalanced and unequal. Despite the economic reforms initiated in the H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 469

[R. BANUMATHI, J.]

country about twenty five years ago, entrepreneurs are hesitant to invest A in backward States because of varied reasons like inadequacy of power, lack of infrastructure and transportation, quality of human resources etc. Resultantly, few States continue to be backward States. In order to have a planned development for the benefit of the people and overall growth of the country as a nation, regional imbalances are to be removed. B While trade, commerce and intercourse is important for the economic unity of the nation, the Courts cannot be oblivious of the responsibilities of a Welfare State in raising its resources by levy of taxes to meet the challenges. Incentives to invest in backward areas, subsidies and tax concessions are some of the measures used by the State to guide the location of the industries in backward areas and to generate employment c opportunities for the people of the State. While power of taxation is indispensable, State also has the power to grant tax concessions or incentives to indigenous manufacturers/producers. Such incentives/tax concessions would certainly create differentiation between the locally produced goods and the goods that are imported into the State from the D sister States; but the same cannot be said to be discriminatory and falling foul of Art.304( a).

145. I summarise my conclusion on this point as under:- While I agree with the views of the Constitution Bench in Digvijay and Video Electronics, I do not endorse the views of Mahavir Oil E Mills. Accordingly, the law laid down in Laxmi Paper Mart which relies upon Mahavir Oils is also held bad in law. Moreover, Indian Cement needs no consideration as it has been specifically overruled in Digvijay. The conclusions in this regard could be summarized as under:- F

• Any difference in the rate of tax on goods locally manufactured and those imported, such difference not being discriminatory does not fall foul of Art. 304(a); G • Any incentive/benefits of concession in the rate of tax given to the indigenous manufacturers in order to encourage the manufacture/produc_tion in the State cannot be said to be discriminatory. H

470 SUPREME COURT REPORTS [2016] 10 S.C.R.

A Repercussions of Art. 304(a) wlte11 110 local goods are pro(/ueed:

146. The State may by law impose any tax on imported goods to which similar goods manufactured or produced in the State arc subject. B It is the submission of the assessees that when a State does not produce or manufacture goods within its territory then it cannot resort to the power conferred on it by Art.304(a) to impose a tax on similar imported goods. In support of their contentions, the assessees placed reliance upon Kal11ani Store.~· v. State o( Ori.\·sa ( 1966) I SCR 865, where no c foreign liquor was produced or manufactured in the State of Orissa but tax was levied on foreign liquor imported into the State ofOrissa. When the levy was challenged as violative of Art.30 I. it was held that:-

''7..... The notification levJ'ing duty at the enhanced rate is purely a fiscal measure and cannot be said to be a reasonable restriction on. the freedom of trade in the public interest. Article 301 has declared freedom of trade, commerce and intercourse throughout the territory of India, anti restriction on that freedom may only be justified if ii falls wilhin Article 30-1. Reasonableness of the restriclio11 would have lo be adjudged i11 the light of the purpose for irhic/1 the restriction is imposed, that is. "a.1· may he rey11ired in the public interest". Without entering upon an exhaustive categorization of what may he deemed "required in the public interest", ii may be said that restrictions which may validly be imposed under Article 304(b) are those which seek lo protect public health. safety, morals and property within the territorv. Exercise of/he power under Article 304(a) can only be effective if the tax or dulv imposed on goods imporled ti-om other States a11d the tax or dutv imposed on similar goods ma11uf(1ct11red or produced in that State are such that thae is 110 discrimination against imported goods. As 1io foreign liquor is produced or manuf'acrured in !he State of H

JINDAL STAINLESS Ll'D. v. STATE OF HARYANA 471

[R. BANUMATHI, J.]

Orissa the power lo legislate given bv Arlicle 304 is 1101 A available and !he restriction which is declared on the freedom of trade. commerce or intercourse by Article 301 of/he Constitution remains unfettered." [Emphasis supplied] B Learned Counsel for the assesses have relied on Ka/yani Stores to contend that Art. 304(a) is the only avenue for the State to impose entry tax and the same can be availed of only when there are similar goods being manufactured within the State so as to prevent discrimi11ation. However, the law laid down in Kalyani Stores cannot be applied in the C case of entry tax levied under entry 52, List II. The dictum of Ka/yani Stores has a limited application to counterveiling duties imposed on sale ofliquor levied under entry 51, List II and that too to the limited extent it is actually in force as of now. Power to impose counterveiling duties of excise on alcoholic beverages etc. manufactured or produced in the D State and counterveiling duties at the same or higher rates on similar goods manufactured or produced elsewhere in India, under entry 51, List II is materially distinct from a levy under entry 52, List II and thus, an interpretation of the law relating to the former cannot be applied to the latter. E 14 7. Furthermore, Kalyani Stores does not appear to have noticed the non-obstante clause in Art. 304 ''Notwithsta11di11g anything in Article 301 or Article 303 .... ". The non obs/ante clause should be understood in a manner appropriate to the substance of Articles 302 to

304. The true source of power of the State Legislature remains in Part XI, in Atticle 245 read with Article 246 and entries of List II. Art.304 is F not a source of power; it embodies a re-statement of powers conferred under Articles 245 and 246 read with the entries of List JI of Seventh Schedule with some limitations.

148. The rigorous view taken in Ka(l'lini Stores was diluted in State of Kera/a '" Abdul Qadir mu/ Others· ( 1969) 2 SCC 363. The G State of Kerala levied a tax on tobacco which was imported into the State from outside. No tobacco was manufactured or produced within the State of Kerala. The Court, upon a challenge to the tax law, upheld the levy of tax on tobacco and observed that the correct approach was H

472 SUPREME COURT REPORTS [2016] 10 S.C.R.

A to see whether the impugned tax impeded the free flow of trade and commerce under Art.301. The Court stated that levy of tax on tobacco did not impede the free flow of trade and commerce.

149. The first part of Art. 304(a) re-states the power of the State to impose a tax on goods imported from the other States. Second part of B Art. 304(a) places a limitation on the power of the State Legislature. It provides that a State may only tax imported goods so as not to discriminate them with the locally produced or manufactured similar goods i.e. the limitation ofnon-discrimination vis-a-vis similar internal goods. When a situation arises where no similar goods are manufactured or produced in c that State, the tax merely does not fall within the scope of Art.304(a); the limitation is taken away but the power to tax remains. The sovereign and plenary power of the State to tax cannot be emasculated and made subject to a limitation that a State can only tax those goods which are produced within its teJTitory also.

D 150. This is better explained by way of an example: Zinc is an important mineral resource used in galvanization of iron and steel. It is also used in automotive, electrical and machinery industries. Haryana does not have zinc ore, however, it does have the industries mentioned above. If zinc is imported from Odisha or Rajasthan, then State of Haryana can impose a tax on it, even though there is no local production of zinc. This does not mean that there is a discrimination against the imported zinc. Discrimination involves an element of intentional and purposeful differentiation; without a comparable good there cannot be a disparate treatment or discrimination of the imported zinc. Thus, a State law that imposes a tax on imported goods where similar goods are not manufactured or produced in that State, will meet the requirement of Art.304(a) and there would not arise any question of discrimination.

151. It is true that when similar goods are not manufactured inside the State, there are chances of a higher rate of tax on such goods brought into the taxing State from other States but that does not mean that there should be a blanket protection of such goods from tax. Power of the State to tax the goods imported cannot be whittled down on the ground that there are no similar goods manufactured or produced within the taxing State. Exorbitant taxation of such goods will remain open to challenge under Part III in Art. 19(1 )(g) read with Art. 19(6) and Art.

14. With these observations, I hold that the power to impose a tax on H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 473

[R. BANUMATHI, J.]

imported goods is not taken away when no similar local goods are A manufactured within the State and thus, the law laid down in Kalyani Stores is not a good law.

Levy of Entry Tax on Imported Goods B

152. Most of the States levy entry tax on the goods imported from outside the country when they enter into a local area for consumption, use or sale therein. The issue that arises is as to whether State Legislature is competent to levy entry tax on the goods imported from other countries when they enter into a local area for consumption, use or sale therein. c

153. Contention of the assessees is that import and export across the customs frontiers are covered by entry 41, List I; duties of customs including export duties are covered by entry 83, List I of the Seventh Schedule and thus transactions relating to "import/export across customs frontiers including duties of customs including export duties" fall within the exclusive domain of the Parliament. It is further contended that the mandate of Clause 1(d) of Art. 286 of the Constitution prevents the State from levying sales tax so as not to interfere with the Union's legislative power with respect to import and export across frontiers (entry 41, List I) and "the duties of customs including export duty" (entry 83, List I). It is contended that ifthe State is pennitted to levy entry tax under entry 52, List II on goods imported from outside the country, the same would amount to levy of 'tax on imported goods' which is a clear transgression of powers of the Parliament under entry 41 and entry 83 of List I.

154. Per contra, the States contend that once the imported goods are cleared on payment of customs duty, the goods are mixed with the mass of goods in India and when such imported goods enter into the local area, the States are well within their legislative competence to levy entry tax in exercise of their legislative power under entry 52, List II. Counsel for the States have submitted before us that the taxable event under entry 83, List I and that under entry 52, List II are distinct; taxable event with respect to entry 83, List I, is the act of import i.e. bringing of goods from a foreign country to India, whereas, the taxable event under entry 52, List 11 is the entry of goods into local area for consumption, use or sale therein. It was further argued that entry 41, H

474 SUPREME COURT REPORTS [2016] 10 S.C.R.

A List I which deals with trade and commerce with foreign countries, import and export across custom frontiers, and definition of custom frontiers has to be read along with entry 83, List I. Meaning of the word "Import":

155. "Import" means bringing or taking by sea or air across any B customs frontier. Import is defined in Section 2(23) and imported goods in Section 2(25) of the Customs Act as under:-

"(23) "import", with its grammatical variations and c cognate expressions, means bringing into India from a place outside India;

(25) "imported goods" means any goods brought into India from a place outside India but does not include D goods which have been cleared/or home consumption;

156. The meaning of the word "import" has been explained in P. Ramanatha Aiyar's "The Major Law Lexicon", 4'h Edition 2010 E as under:-

"The term "import" means to bring into a country merchandise from abroad and is the direct converse of the term "export" which means to. carry from a state or country, as wares in commerce. The term "export" sign/fies etymological~v "to carry out" and "import" means to "bring in". Its commercial meaning is directly contrary to the term "export". Goods brought into the country from abroad. The importation of certain goods, as authorized reprints of copyright books, false coin and indecent or obscene prints, is express~y forbidden and with regard to certain other goods, such as wine, spirits and tobacco, restrictions are imposed as to the place and manner of their importation. Goods or services brought into a country for sale, from abroad, H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 475

[R. BANUMATHI, J.]

or to bring in such goods or services. " (Trade Finance A & Banking) [Page 3207]

157. Similarly, as per Section 2(e) of the Foreign Trade (Development and Regulation) Act (22of1992), "Import" and "export" B means respectively bringing into, or taking out of India, any goods by land, sea or air.

158. "Import" and "export" across customs frontiers and definition of 'customs frontiers' are covered by entry 41, List I and "duties of customs including export duties" are covered by entry 83, List I of the Seventh Schedule. Entry 41 and entry 83 of List I of the Seventh Schedule read as under:-

"41. Trade and commerce with foreign countries; import and export across customs frontiers; definition of customs frontiers.

83. Duties of customs including export duties. "

159. As per Section 2(28) of the Customs Act, 1962 read with E Section 5(1) of the Territorial Waters Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, 'Indian Custo1ns Waters' mean water extending in sea upto the limit of contiguous zone, i.e., a line, every point of which is at a distance of 24 Nautical Miles from the nearest point of the base line. These definitions define the customs frontier. F

160. Goods imported in a vessel/aircraft require payment of customs duty before they are cleared into the country. Unless these are not meant for customs clearance at the port/airport of arrival by particular vessel/aircraft and are intended for transit by the same vessel/aircraft G or trans-shipment to another customs station or to any place outside India, detailed customs clearance fonnalities of the landed goods have to be followed by the importers. In respect of goods which are off- loaded, importers have the option to clear them for home consumption after payment of the duties leviable or to clear them for warehousing H

476 SUPREME COURT REPORTS (2016] IO S.C.R.

A without immediate discharge of the duties leviable in terms of the warehousing provisions as provided in the Customs Act. Sections 45 to 48 deal with clearance of imported goods for home consumption. In terms of Section 46. every impo1ier is required to file Bill of Entry for clearance of goods for home consumption or warehousing in the form as prescribed by regulations. In terms of Section 47 of the Customs Act, B proper officer on being satisfied that the goods entered for home consumption are not prohibited goods and the importer has paid the imprni duty and on being satisfied that the prescribed formalities have been duly completed, passes an order for clearance of goods for home consumption. Evidently Chapter IX of the Customs Act is a facility for c warehousing, deposit of imported goods and their clearance. Section 68 provides for clearance of warehoused goods for home consumption by the importer. Under Section 68, the warehoused goods can be cleared for home consumption by presenting Bill of Entry, paying import duty etc. and obtaining an order for cleararn.:e. ·

D 161. The moment imported goods are cleared for home consumption either under Section 47 of the Act or under Section 68 of the Customs Act, the imported goods mix up with the mass of goods in the country and enter into the local area. Import of goods into the territory oflndia and transit of goods within the country arc not integral. Import E of goods and customs clearance and the entry of goods into the local areas are two distinct events. In the. case of customs duty, the taxable event is entry of goods into the territory of India. The taxable event under ent1y 52, List II is the entry of goods into local area for consumption, use or sale therein. Two taxable events are distinct in law and there is no overlap. F

162. Under the Indian Constitution, the distribution of power with regard to tax has been done in a mutually exclusive manner and in great detail with reference to different aspects of property or goods. Considering an issue with regard to excise duty and sales tax payable by a manufacturer upon manufacture and sale in Province o(Madra.\' v. G Mis Boddu Paidamw and Sons AIR 1942 FC 33 = 1942 FCR 90, the Federal Court has held that:- "'If the taxpayer who pays a sales tax is also a manufacturer or producer of commodities subject lo a central dutv of excise, there may no doubt be an H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 477

[R. BANUMATHl, J.]

overlapping in one sense: but there is no overlapping in law. The n+·o taxes which he is called on to pc~v are economically /wo separate and dis/incl imposts. There is in theory nothing to prevenl the Central Legislature from imposing a duty (!f excise on a commodity us soon as if comes into existence, no matter what happens lo ii afterwards, whether it be sold, consumed. destroyed, or given away ... It is the fact of manufacture which attracts the duty, even though it may be collected later ... Jn the case of a sales tax. the liability to tax arises on the occasion of a sale. and a sale has no necessary connection with manufacture or production." c .... there are two comjJlementary powers, each expressed in precise and definite terms then there is no reason for extending the meaning of the expression 'duties of excise' at the expense of the provincial power to levy taxes on sale of goods. " [Page 101] D

163. Bod du Paidanna has been affirmed in Goveruor General of Co1111cil 11. Province of Madras AIR 1945 PC 98 = 58 LW 228 in following words:- E

"Here again their Lordships.find themselves in complete accord with the reasoning and ocnslusions of !he Federal Court in the Boddu Paidanna Case (1). The tlvo laxes, the one levied upon a manufacturer in respect F of his goods, the other upon a vendor in respect· of his sales. may, as is there pointed out, in 011e sense overlap. But in law there is no overlapping. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority. imposi11g a G duty of excise. finds it convenient to impose that duzv at the moment when the exciseable article leaves the factory or workshop for the first time upon the occasion of its sale. But that method of collecting the tax is an accident (~f administration, it is not of the essence of the duty (Jf H

478 SUPREME COURT REPORTS [2016) 10 S.C.R.

A excise which is attracted by the manufacturer itself' "

164. In Ram Krislwn Ram Natlt Agarwal v. Secretarv, Municipal Committee, Kamptee, Union of India A IR 1950 SC 11, a case relating to bidi manufacturer who was required to pay excise duty B and octroi, the Supreme Court approved the Federal Court judgment and held that the 'excise duty' was tax on the 'manufacturer' while 'octroi duty' was a 'tax' on the 'entry of goods' within a particular area. Tobacco becomes subject to excise duty when it reaches the stage of manufacture and it does not conflict with a levy on the entry of goods c within a certain area. It was observed that "it is wrong to think that two independent impost arising from two different sets of circumstances were not permitted i11 law".

165. In GujaratAmhuja Cement Ltd. v. Union oflndia (2005) 4 sec 214, the levy of service tax on carriage of goods by transport D operators was challenged as being legislatively beyond the competence of Parliament. This Court held that there is a distinction between the object of tax, the incidence of tax as well as collection machinery. The legislative competence is to be determined with reference to object of the levy. It was held that the service tax and the tax under entry 56, List E II are distinct.

166. As already noted, under our Constitution, there is no overlapping in the taxing power. The Constitution gives independent powers of taxation to the Union and the States. The taxing power of the Union and of the States are mutually exclusive. This avoids the F difficulties which have arisen underother Federal Constitutions as rightly observed in Hoechst Pltt1r111aceutica/5· v. State o(Bi//ar ( 1983) 4 SCC 45 and State of West Bengal r. Kesoram Industries (2004) I 0 SCC 201.

167. The other contention of the appellants is that the doctrine of G 'Unbroken Package' should be applied in the context of entry 83, List I as was initially applied by US courts. Doctrine of' Unbroken Package· postulates that import of goods continues even after crossing customs barrier until the package imported is broken up at the importer's destination and the goods are taken out. This argument was pressed upon mainly to save the foreign goods from suffering entry tax at the H

JfNDAL STAINLESS LTD. v. SlATE OF HARYANA 479

[R. BANUMATHL J.]

instance of State authorities. The appellants contended that no entry tax can be levied under entry 52, List II by the State authorities before the package is broken. t 68. Such a contention does not find force in the light of the fact that doctrine of' Unbroken Package' has not only been discredited by Indian Couits, but also by the American Courts. In the American context, reference can be made to Prof. Tribe on American Constitutional Law States, in which the learned Professor has criticized the doctrine of 'Unbroken Package· in the following words:

'"in the dormant commerce clause context. the court long c ago disparaged the 'unbroken-package doctrine as applied to interstate commerce ........ as more artificial than sound· and·the court has concluded that taxes imposed on goods while in transit through the taxing state are in effect potentially repeatable taxes on D interstate commerce itself and are thus barred by the commerce clause. But non-discriminatory taxes imposed on goods prior to their movement into interstate transit, or subsequent to the completion of such transit, are taxes incapable of multiple application and are thus E s11jficientll' local to survive jurisdiction scrutiny." [Page. 1162-1163]

169. Learned counsel on behalf of the States rightly contended that the 'original package doctrine' or 'unbroken package doctrine' F as propounded in Brown v. State ofMaryland by Chief Justice M·arshall has been expressly disapproved by Indian courts as well. In this regard, reliance has been placed upon Province ofMadras v. Bot/du Paidt11111a & Sons AIR 1942 FC 33 = 1942 FCR 90; State o[Bombav 1•. F.N. Balsara (CB) AIR I 95 l SC 318; State of Trava11core-Cocl1in 1•. G S/1a11mugha Vilas Cashew Nut Factor!' (1954) SCR 53.

170. In Gramophone Companv of India Ltd. v. Bire11dra Baltadur Pandev ( l 984) 2 SCC 534, this Court while interpreting the word "import" in Section 53 of the Copyright Act 1957, discredited the H

480 SUPREME COURT REPORTS [2016] 10 S.C.R.

A 'Doctrine of Unbroken/original Package' in the following tenns:

"37. The Calcutta High Court thought that goods may be said to he imported into the country onzv if there is an incorporation or mixing up of the good~ imported B with the mass of the property in the local area. In other words the High Court relied on the 'original package doctrine' as enunciated by the American Court. Reliance was placed by the High Court upon the decision of this Court in the Central India Spinning and Weaving and c Manufacturing Co. Ltd. The Empress Mills, Nagpur v. Municipal Committee, Wardha [1958]1SCRJJ02. That was a case which arose under the C.P. and Berar Municipalities Act and the question was whether the power to impose 'a terminal tax on goods or animals imported into or exported from the limits of a municipali~v' included the right to levy tax on goods which 'were neither loaded or unloaded at Wardha hut were mere~)' carried across through the municipal area'. This Court said that it did not. The word 'import', it was thought meant not merely the bringing into hut comprised something more, that is 'i11co1porating and mixing up of the goods with the mass of the property in local area', thus accepting the enunciation of the 'Original Package Doctrine' by Chief Justice Marshall in Brown v. State of Maryland 6 L. Ed. 78. Another F reason given hy the learned Judges to arrive at the conclusion that they did, was that the very levy was a 'terminal tax' and, therefore the words 'import and export', in the given context, had something to do with the idea of a terminus and not an intermediate stage of a journey. We are afraid the case is realZv not of any G guidance to us since in the context of a 'terminal tax' the word1· 'imported and exported' could he construed in no other manner than was done hy the Court. We must however say that the 'original package doctrine' as enunciated by Chief Justice Marshall on which H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 481

[R. BANUMATHI, J.]

reliance was placed was expressly disapproved first by A the Federal Court in the Province of Madras v. Boddu Paidanna:l942 FCR 90 and again by the Supreme Court in State of Bombay v. F.N. Balsara,. Apparently these decisions were not hrought to the notice of the Court which decided the case of Central India Spinning B and Weaving and Manufacturing Co. Ltd., The Empress Mills, Nagpur v. Municipal Committee, Wardha. So we derive no help .fi-om this case. As we said, we prefer to interpret the word 'import' as it is.found in the Copyright Act rather than search for its meaning by referring to other statutes where it has been used. " c

171. Chapter Vlll of Customs Act deals with goods in Transit. Section 54 deals with trans-shipment of goods without payment of duty upon presentation of bill of trans-shipment. The inland container depot and land custom station are creatures of Statute. They are not detenninative of the taxable event for imposition of custom duty on imports. Many of the provisions are facilitative and/or intended for purposes of valuation and fixation of rates. The crucial aspect is that according to entry 83, List I as well as the Customs Act, 1962 the taxable event is 'import' or 'hringing of the goods into India' and it is distinct from the taxable event of entry 52, List II.

172. The assessees contended that a factory unit may have a warehouse where goods are deposited and are kept under a bond which may even pennit sale or manufacture. It was even contended that the warehouse itself may be in the same local area, illustratively in Delhi/ F Mumbai.

173. Sections 2(43), 2(44) and 2(45) deal with warehouse, warehoused goods and warehousing station. Section 9 requires the Board to issue a Notification in the Official Gazette declaring places to be warehousing stations at which alone public warehouses may be appointed G and private warehouses may be licensed. The public warehouses are appointed under Section 57 and private warehouses are licensed under Section 58.

482 SUPREME COURT REPORTS [2016] 10 S.C.R.

A 174. On behalf of the States, it was submitted that there is no submission by any of the assessees that there is a warehousing station in their factory units or in the local area where they are located or that there is any public warehouse or private warehouse so located. Our attention was drawn to SLPs pertaining to Indian Oil Corporation, Vedanta and NALCO to contend that the assessees have not produced any B evidence nor is there any pleading that the Bill of Entry is filed in the factory units or in a land custom station which is located in the same local area as the assessees' unit. Hence, it is submitted that the warehouse and warehouse bond based contentions have been advanced without any basis in pleadings and facts. c

175. A comparison of Sections 58 and 57 shows that a licensed private warehouse is different from a public warehouse. Section 58 deploys the expression "dutiable goods imported by or on behalf of the licensee, or any other imported goods". Similar expression is not used in Section 57 with respect to public warehouses wherein dutiable goods may be deposited. It is clear that the goods deposited in private warehouses are considered to be goods which have already been imported. Further, 'warehousing bond' is dealt with in Section 59 which is issued where the goods have been entered for warehousing and after assessment of the duty, the bond is executed for a sum twice the amount of the duty assessed. When the requirements in Section 59 are complied with then pennission to deposit the goods in warehouse is granted. This indicates that both in public warehouses and private warehouses the deposits are pennitted only for goods which are already imported. Stringent provision is made in Section 59(2) to pay all duties or interest on or before the date of demand. Under Section 62, the proper custom officer exercises control over all the warehoused goods and he may cause any warehouse to be locked. The owner of the goods can with the sanction of the proper officer deal with the goods, show the goods for sale and even carry on any manufacturing process or other operations in the warehouse in relation to such goods. G

176. Such warehousing or warehousing bond cannot prevent the levy of entry tax, especially where warehouse is established in a factory unit. On the basis of the law laid down above, I hold that the taxable events under entry 83, List I and entry 52, List II are distinct; any movement of the imported goods to the warehouse in the factory· unit H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 483

[R. BANUMATHl, J.]

would not prevent the State from levying and collecting entry tax when A such goods enter a local area of the State for consumption, use or sale therein.

177. Summarily, the conclusion on question No.4 is as under:- 8 •Entry tax with reference to entry 52, List II of Seventh Schedule is not violative of A1i. 30 I subject to the levy being non- discriminatory i.e. passing the muster of Art. 304(a). A levy sustainable under Art. 304(a), being non-discriminatory would ipso facto be out of the purview of Art. 30 I. c • When the entry tax is levied by the Entry Tax Act enacted by the State Legislature, the term 'a local area' contemplated by Entry 52 may cover the 'Whole State' or ·a local area· as notified in the legislation. l agree with the view taken in Bihm· Cit amber of Commerce that from the point of view of entry tax that the State is a compendium of local areas and where the local areas contemplated by the Act cover the entire State, the difference between the State and 'a local area' practically disappears.

• Articles 304(a) and. 304(b) are to be read disjunctively; both apply to different subject matters; while Art. 304(a) deals with tax, A1i. 304(b) deals only with non-fiscal matters. Conclusions on the incidental questions arising under Question No.4:- • Where there is equivalence in terms of tax treatment between the locally produced goods and the ones imported from other States, levy of entry tax on the goods imported from other States when there is no such levy on the locally produced goods is not discriminatory. G • Every differentiation is not discrimination. Any difference in the rate of tax on goods locally manufactured and those imported, such difference hot being discriminatory does not fall foul under Art.304(a). Any incentive/benefits of concession in the rate of tax given to the local manufacturers/producers in order to H

484 SUPREME COURT REPORTS [2016] 10 S.C.R.

A encourage the local manufacturers/production in the State cannot be said to be discriminatory. Digvijay and Video Electronics have laid down the correct law. Mahavir Oil Mills is not a con-ect view. • Levy of ent1y tax on the goods imported from the other States is B not discriminatory merely on the ground that there are no similar goods manufactured or produced within the taxing State. The law laid down in Kalyani Stores is not a good law. • Levy of entry tax on the goods imported from outside India which enter into local area for consumption, use or sale therein c is within the legislative competence of the State.

QUESTION NO. 2: IF ANSWER TO QUESTION N0.1 IS IN THE AFFIRMATIVE, CAN A TAX WHICH IS D COMPENSATORY IN NATURE ALSO FALL FOUL OF ARTICLE 301 OF THE CONSTITUTION OF INDIA?

QUESTION NO. 3: WHAT ARE THE TESTS FOR DETERMINING WHETHER THE TAX OR LEVY IS E COMPENSATORY IN NATURE?

178. The concept of 'compensatory tax' is a judicially evolved concept. Majority in Atiabari held that taxes may and do amount to restrictions and hence tax legislation is subject to scrutiny under Art.

301. In Atiabari, the test of "direct and immediate effect on trade, F commerce and intercourse" was evolved. The majority in Atiabari had thus completely read down State's taxing power under entry 52, List II thereby holding that State's legislative power is subject to the freedom clause in Art. 301. This had an adverse effect on the legislative power of the State to levy tax and its financial autonomy.

G 179. lnAutomobile, while the Supreme Court affinned the views of Atiabari, compensatory taxes were carved out as an exception to Art. 301. In Automobile, this Court evolved the concept ofcompensatory taxes and held that "regulatory measures or measures imposing compe11sat01:v taxes for the use of trading facilities do not come H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 485

[R. BANUMATHI, J.]

within the purview of the restrictions contemplated by Article 301". A Compensatory taxes were held to be ones which did not hinder the· freedom of trade, commerce and intercourse, instead facilitated the same. Further, the Court laid down a "working test" to ascertain whether a tax is compensatory or not in the following tenns:- B

"27 .... It seems to us that a working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required C for providing the facilities. It would be impossible to judge the compensatmy nature of a tax by a meticulous test, and in the nature of things that cannot be done."

180. InAutomobile, the Bench negating the requirement of setting up a separate fund for the taxes collected in the name of compensatory tax, held that the State need not maintain a separate fund for the compensatory taxes so collected from the traders enjoying the benefit of the services provided by the State; rather it is sufficient if the State provides certain facilities for better conduct of traders' business. This E Court held as under:-

"28. Nor do we think that it will make anv difference that the money collected from the tax is not put into a F separate fund so long as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are borne by the State out of whatever source it may he ... "

G Having observed so, in Automobile itself, this Court had ruled out the element of quid pro quo from the ambit of compensatory tax. While stressing on the need for ensuring that the assessees are not 'paying much more than what is required for providing the facilities', the Court merely intended to prohibit levy of an exorbitant tax. It was nowhere H

486 SUPREME COURT REPORTS [2016] 10 S.C.R.

A intended by the Court to authorise levy of 'fee' in the name of 'compensatory tax'.

181. In various cases, this Court has repeatedly held that regulatory measures like licensing or price control or compensatory measures cannot be treated as violative of freedom of trade, commerce B and intercourse within the territory of India. While upholding the enhancement of the motor vehicles tax, in GK. Kris/man 1>. State of Tamil Nadu (1975) I SCC 375, this Court held that a compensatory tax is not a restriction upon the movement part of trade and commerce. Neither should the tax go beyond a proper recompense to the State for .C the actual use made of the physical facilities provided in the shape of a road nor it is necessary that there should be a separate fund or express allocation of money for the maintenance of roads to prove the compensatory purpose, when such purpose is proved by alternative evidence.

D 182. The decision in Krishnan 's case was reiterated in l11ter11ational Tourists Corporation and Or.~-. v. State of H arva11t1 and Ors.. ( 1981) 2 SCC 318, in which levy of tax on passengers and goods under The Punjab Passengers and Goods Taxation Act, 1952 and similar other enactments of other States were under challenge. State of Haryana levied a tax on transporters plying motor vehicles between E Delhi and Jammu and Kashmir. The transporters would use national highway, pass through Haryana, without picking up or setting down passengers in the State. Since, the responsibility to construct and maintain the highways is with the National Highways Authority of India, it was contended by the transporters that the tax could hardly be regarded as compensatory. But the Court rejected this contention and held that if the taxes were to be proportionate to the expenditure on regulation and service, it would not be a tax but a fee. It was pointed out that in the case of a fee, it may be possible to precisely identify and measure the benefits received from the Government and in the case of regulatory and compensatory tax, it would be well-nigh impossible to identify and measure the benefits received and the expenditure incurred and to levy the tax in accordance with such benefits. It was held as under:- "9. While in the case of a fee it may be possible to precisely identifji and measure the benefits received fi'om the Government and levy the fee according to the H

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[R. BANUMATHI. J.]

benefits received and the expenditure incurred, in the case of a regulatory and compensatory tax it would ordinarily be wellnigh impossible to identify and measure, with any exactitude, the benefits received and the expenditure incurred and levy the tax according to the benefits received and the expenditure incurred. What B is necessary to uphold a regulatory and compensatorv tax is the existence of a specific. identifiable object behind the levy and a nexus between the subject and the object o( the levv. If the object behind the levy is identifiable and i( there is su{ficient nexus between the subject and the object of the levy. it is not necessarv c that the monev realised bv the levv should be put into a separate fund or that the levv should he proportionate to the expenditure. There can he no bar to an intermingling of the revenue realised ti-om regulatiwv and compensatorv taxes and from other taxes o( a D general nature nor can there be anv objection to more or less expenditure being incurred on the object behind the compensatory and regulaton• levv than the realisation (rom the levv." [Emphasis added] E

183. In Mis. Bltagatram Rajeevkumar v. Commissioner of Sales Tax, M.P. and Ors. 1995 Supp ( 1) SCC 673, it was held that even if there is some link or some connection between the tax and the facilities extended to the trade directly or indirectly the levy cannot be challenged as invalid. F

184. The same dictum was followed in State o{Bilwr and Ors. v. Bilwr Chamber of Commerce and Ors. ( 1996) 9 SCC 136, wherein this Court considered the challenge to a legislation in which the State of Bihar levied entry tax on the goods entering into a local area for consumption, use or sale therein. The Act was challenged as violative of G Art.301 of the Constitution. After referring to Blwgatram. it was held as under:-

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

A "18. In this connection. it is necessarr to notice a few decisions brought to our notice. Jn Bhagatram Rajeevkumar (1995) Suppl. 1 SCC 673. a three-judge Bench of this Court has rejected the argumem that to be compensatory, the tax must j(1cilitate the trade. The reason is obvious: (fa measure facilitates the trade, it would not be a restriction on trade but an encouragement to it. It was observed: [SCC Page 678, Para 8]

" ... The submission of Shri As/10k Sen, leamed Senior c Counsel that compensation is that which fi1cilitates the trade only does not appear to be so1111d. The concept <~f compensatO!y nature of tax has been widened and u· there is substantial or even some link between the tax and the facilities extended to such dealers directlv or indirectly the levy cannot be impugned as invalid. The D stand of the State that the revenue earned is being made over to the local bodies to compensate them for the loss caused, makes the impost compensatory in nature, as augmentation of their finance would enable them to provide mu11icipal services more efficiently, which would E help or ease free flow of trade and commerce. because <!/which the impost has to be regarded as compensarory in nature, in view of what has been stated in the aforesaid decisions, more particularly in Hansa Corpn. Case (1980) 4 SCC 697". [Emphasis supplied) F

185. The Constitution Bench in Jindal Stainle.\·s Ltd. (2) after placing reliance on A11to111obile concluded that there is difference between a taxing Statute whose purpose is collection ofrevenue, and a taxing Statute whose purpose is regulation. The Court formulated a G working test to determine whether the impugned law is a product of the exercise of regulatory power or taxing power: "if the impugned law seeks to control the conditions under which an activity like trade is to take place then such law is regulatory.,. The Bench concluded that the only way to reconcile a compensatory tax Statute that chooses H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 489

[R. BANUMATHI, J.]

movement of trade and commerce as a criterion and in effect impedes it, is by holding it as regulatory and, therefore, outside the scope ofArticles 301, 302 & 304.

"38 .... If the impugned law seeks to control the conditions under which an activity like trade is to take place then such law is regulatory. Payment for regulation is different fi"om payment for revenue. If the impugned taxing or non-taxing law chooses an activity, say, movement of trade and commerce as the criterion of its operation and if the effect of the operation of such c a law is to impede the activity, then the law is a restriction under Article 301. However, if the law enacted is to enforce discipline or conduct under which the trade has to per/orm or if the payment is for regulation of conditions or incidents of trade or manufacture then D the levy is regulatory. This is the way of reconciling the concept of compensatory tax with the scheme ofArticles 301, 302 and 304. ... "

The Bench further held: E

"45. To sum up. the has is of every levy is the controlling factor. Jn the case of "a tax", the levy is a part of common hurden hased on the principle of abili~y or capacity to pay. In the case of "a fee", the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of "burden" to the concept of measurable/ quantifiable benefit and then it becomes "a compensatory tax" and its payment is then not for revenue but as reimbursement/ recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature H

490 SUPREME COURT REPORTS [2016] 10 S.C.R.

A hybrid but it is more closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/ recompense. If the impugned law chooses an activi(Y like trade and commerce as the criterion o.f its operation B and {f the effect o.f the operation of the enactment is to impede trade and commerce then Article 301 is violated.

46. Burden on the State: Applying the above tests/ parameters, whenever a law is impugned as violative of Article 301 o.f the Constitution, the Court has to see c whether the impugned enactment facially or patently indicates quantifiable data on the basis of which the compensato1:y tax is sought to be levied. The Act must facial~y indicate the benefit which is quantifiable or measurable. It must broadly indicate proportionaliry to the quantifiable benefit. If the provisions are ambiguous or even !f the Act does not indicate facially the quantifiable bene.fit, the burden will be on the State as a service(facility provider to show by placing the material before the Court, that the payment of compensatory tax is a reimbursement/recompense for the q11antifiable!meas11rable benefit provided or to be provided to its payer(s). As soon as it is shown that the Act invades freedom of trade it is necessary to enquire whether the State has proved that the restrictions imposed by it by way of taxation are reasonable and in public interest within the meaning of Article 304(b) [see para 35 (o.f AIR) of the decision in Khyerbari Tea Co. Ltd. and Am: v. State of Assam]."

For compensatory tax, Jindal Stainless Ltd. (2) thus ingrained the tests of(i) facial declaration; and (ii) proportionality to the quantifiable benefits provided to its payers, as an essential element. It was held that compensatory taxes like fees always have to be proportionate to the benefits and the decisions rendered in Bhagatram and Bihar Chamber of Commerce were declared bad in law. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 491

[R. BANUMATHI, J.]

492 SUPREME COURT REPORTS [20 I6] l 0 S.C.R.

A taxes: but apart fi·om !he power ro /evv taxes thus conferred each List spec(ficallv refers lo the power to levy fee:,; in respect <!f any of the matters covered in the said Lisi excluding of course the fees taken i11 u11y Court." B The same view was reiterated in State o( Tamil Nadu 1·. TVL South Indian Sugar MillsAsmciatio11(2015) 13 SCC 748, Kris/ti Upaj Mandi Samiti and Otlter.v 1'. Orient Paper & Industries Ltd. ( 1995) I SCC 65 5 and .Krislt11a Da.v v. Town Area Committee, C/1irgao11 c (1990) 3 sec 645.

187. It must be reiterate.cl that all the taxes are intended for public purpose and are levied in public interest. Levy of tax is not to fi II the State coffers but to perform various functions including public welfare for which said funds are required. Taxation is not a profit-making ext:rcise for the States; as stated earlier, the States perform several functions for which they require fonds and have the power to levy tax to raise revenues and thus virtually all taxes are monies paid for services or facilities provided by the State. Art. 266( I) provides that all revenue including that from taxes received by a State Government shall form one consolidated fund-the Consolidated Fund of the State. This fund is a reservoir and resources placed in it are a part of the whole. All revenue is subsumed in it and cannot be delineated. The Consolidated Fund of a State is a single unified account for the Stat<:: and withdrawal of money from the same is protected by th·· :quirement of passing an Appropriation Act. Further, Art. 266(3) by stating that ·110 mo11ey out of any F Consolidated Fund shall be appropriated except in accordance with law -- for the purposes and in the manner provided in the Co11stit11tio11 'provides another safeguard in lieu of ensuring legitimate use of public money. The manner of appropriation of money collected in the Consolidated Fund of the State falls under Part VI. Chapter Ill. G ranging from Articles 202 to 206 of the Constitution. There are sufficient constitutional safeguards for the appropriation of money collected in Consolidated Fund. The revenue generated by the States in the form of entry tax has to necessarily form pa1t of th is Fund, and once it so subsumed, States cannot be asked to show a 'proximate quid pro quo' by furnishing 'quantifiable data' as to their expenditure. It may not be H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 493

[R. BANUMATHI, J.)

possible for the States to show with mathematical precision a direct link between the expenditure incurred in individual cases and the corresponding levy imposed.

188. I hold that the entry tax levied by various States, falling within the domain of entry 52, List 11, is a tax simpliciter, even though by nomenclature it is tenned as a 'compensatory tax'. Subject to passing the muster of Art. 304(a), entry tax levied by the States under entry 52, List 11 even though tem1ed as compensatory tax does not fall foul of Art.

301. The ratio laid down in Jindal Stainless Ltd. (2) equating compensatory taxes to fee had wide ramifications. Some High Courts viz., Orissa, Chhattisgarh and Madhya Pradesh upheld the levy of entry c tax as compensatory. Many other High Courts struck down the levy applying the test laid down in Jindal Stainless Ltd. (2). In those cases where the levy was struck down, High Courts held that the State could not show what were the benefits provided to the traders who imported goods from outside the States to recompense the tax payer. D

189. I disagree with the narrow approach in Jindal Stainless Ltd. (2) equating compensatory taxes to 'fee' and mandating the States to prove 'proximate quid pro quo' by 'quantifiable data approach'. Since now we have held that taxes are outside the purview of Art. 301, taxes in the name of' compensatory taxes' are also outside the purview of Art. 30 I. To uphold a regulatory or compensatory tax, comprehensive E parameters cannot be laid down as they may vary depending upon the nature of the levy. Automobile case itself has laid down parameters of compensatory taxes (Das J. at Pages 536-537). It is not necessary that the money so collected should be put into a separate fund or that the levy should be proportionate to the expenditure. F

190. Insofar as levy of entry tax is concerned, enactments of some States facially declare that they are compensatory. The compensatory tax so levied is subsumed in the Consolidated Fund of the State. Once there is intenningling in the Fund and money is spent for public purposes of development of various local areas like construction, G maintenance of roads and bridges, and for other amenities which facilitate trade, there will always be a link between the liability of the tax bome by the traders and benefits enjoyed by them either directly or indirectly.

494 SUPREME COURT REPORTS [2016] I 0 S.C.R.

A 191. To summarise the conclusions on question Nos. 2 ancl 3:- • In so far as compensatory taxes are concerned in the light of the conclusion on question No.1, I holcl that the nomenclature of 'compensatory' ascribed to the taxes B levied by the State Government under Entry 52, List II pursuant to Automobile is unwarranted. The concept of compensatory tax was evolved fifty years back through judicial pronouncements. It has withstood the test of time and thus, any subsequent juclicial pronouncement c like the present one should not prejudice the interest of the parties involved. The State Governments should not suffer any loss of revenue solely because of judicial interpretations and innovations in Automobile and the cases subsequent to it.

D • Subject to passing the muster of Art. 304(a), entry tax levied by the States under entry 52, List II even though termed as compensatory tax docs not fall foul of Art. 301. It is not necessary that the money realized by the levy should be put into a separate .Fund or that the levy should be proportionate to the expenditure. There is no bar to subsumption of the revenue realized from regulatory/ compensatory taxes into the Consolidated Fund of the State as they arc no different from other taxes of a general nature. Moreover, the quantum of expenditure incurred in achieving the object behind a compensatory levy cannot be inquired into.

•Jindal Stainless Ltd. (2) & A11r. v. State o(Harvmw & Ors. (2006) 7 sec 241 is not a correct view in adopting quantifiable data approach; for a tax, there is no requirement of proximate quid pro quo an cl Jilulal Stainless G Ltd. (2) is overruled. The view taken in Blwgatram and Billar Chamber of Commerce is correct as the same is in harmony with the original design of compensatory tax laid clown in Automobile.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 495

[R. BANUMAnH. J.]

REFUND AND UNJUST ENRICHMENT:- A

192. Lastly, it is necessary to consider an important issue raised by the asscssees on the payment of tax/refund of tax in case the validity of the legislations is upheld or otherwise as the case may be. It has B come on record that many Entry Tax legislations of the State arc t'tiacted pursuant to Blwgatram and Bi/tar Cltamber of Commerce. But Jindal Stai11less Ltd. (2) which we have now over-ruled, has led to a scenario of discordant judicial pronouncements, whereby some High Courts have struck down the impugned legislation as being non-compensatory, while the others have upheld the laws declaring them compensatory. In some c States, the High Courts have passed interim orders directing petitioners to pay 33'% of the demand and in some cases 50% of the demand. When the matters were admitted by the Court, interim orders were passed directing the assessees to pay 50% of the demand. But, this Court cannot lose sight of the fact that assessees have not pleaded and produced [) evidence to establish that they have not passed on the tax burdens to the consumers. In absence of sui.:h a submission, the normal presumption is that they have passed on the tax burden. Had they contended otherwise, burden would have been on them to allege and establish the same. In the absence of any such allegation and proof, the claim of refund is not called for. E

193. Learned Senior Counsel Mr. Giri has argued that the payment effected under the Entry Tax Act can be legitimately taken into account for the purpose of fixing the price of goods that can be collected by the same person as a dealer under the Sales Tax Act, just as in the case of Sales Tax. It is thus submitted that the burden suffered by the goods in question have actually been passed on to the consumer and that at any rate the assesses would not be entitled to any refund.

194. Learned Senior Counsel Mr. Rakcsh Dwiwdi has submitted that the doctrine of unjust enrichment is invoked in cases where the States have acted on the basis of earlier Supreme Court judgments or where the laws have been operating for a very long time and the rights and liabilities of the people have crystallised on the basis of such laws, and where the laws are subsequently declared ultra vires and previous judgments are over-ruled. It is futther submitted that in such cases, H

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A particularly in tax matters, law is declared prospectively and the reason behind such prospective application is to save the taxes which has been already collected. In order to support his contentions, he relied on the decisions of this Court in Sy11tlietics & Chemicals v. State of U.P. (1990) 1SCC109; Bel.rnnd Sugar Co. Ltd. "·State <dBi/tar (1999) B 9 SCC 620; Ma/at/al illdustries Ltd vs U11io11 of l11dit1 (1997) 5 sec 536 etc.

195. By catena of judicial pronouncements, this Court has fairly laid down the concept of'unjust enrichmenf in respect of tax laws. The doctrine of'unjust enrichment' is that no person can be allowed to enrich c inequitably at the expense of another. A right of recovery/payment under the doctrine of'unjust enrichment' arises where retention ofa bent:fit is considered contrary to justice or against equity. The concept of' unjust enrichment' is applicable for the purpose of grant of refund. The concept provides that if a person pays tax/duty to the Government in terms of the prevailing tax Statutes and passes it on to the consumers and, D subsequently, the tax/duty is found not payable. refund cannot be claimed from the Government authorities, as whatever liability he had incurred has already been recovered. And, if he gets the refund, he would be unjustly enriched.

196. In Mafatlal l11d11Mries Ltd v. Union of India ( 1997) 5 SCC

E 536. a nine-judge Bench of this Court considered the scopt: and ambit of the s~ud doctrine in detail. The Court held that Central Excise and Salt Act is a self-contained Code which also provides for determination of claim of refund. The Act was found to have expressly declared that no refund shall be made except in accordance there\vith. The Court further F held that even in regard to exercise ofjurisdiction under Articles 32 and 226, Court would certainly take note of the legislative intent manifested in the provision in the Act. The Court further dealt extensively with the scope of refund in a case where the burden of tax has been passed on to the consumers. An excerpt from the majority view reads as under: G "108. A claim for refund. whether made under the provisions of the Act as contemplated in proposition ... (i) above or in a suit or writ petition in the situations contemplated by proposition (ii) ahove. can succeed H

JINDAL STAINLESS LfD. v. STATE OF HARYANA 497

[R. BANUMATHI. J.]

u11/J' (f the petitioner/plaintiff' alleges an d establishes that he has not passed on the burden of duty to another person/other persons. His refund claim shall be a/1owed1 decreed only when he establishes that he has 1101 passed 011 the burden <i the duly or the extent he has not so

passed on. as the case may be. Whether the cfaim for restitution is treated as a co11stitutional imperath'e or us a statutory requirement, it is neither m1 absolute right nor an unconditional obligation but is su~ject lo the ahove requirement. as explained in the body of' I he judgment. Where the burden of the duty has been possed on, the claimant ca1111ot .wv that he has s14Jer.;d any c r.;al loss or prejudice. The real loss or prejudice is suffered in such a case by the persrm who has ultimately borne the burden and it is only that person who cm1 legitimate~v claim its refund. But where such person does not come forward or where ii is 1101 possible to reji111d D the amount to him jar one or the other reason. it is just a11d appropriate that amount is retained by the State, that is, by the people. There is no immorality or impropriety involved in such o proposition. E The doctrine of unjust enrichment is a just and salutary doctrine. No person ca11 seek to collect the duty from both ends. In other words, he cannot collect the duty from the purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to !cm: The power of the court is 11ot 111ea111 to be exercised for u11j11stly enriching a person. The doctrine of unjust enrichment is, hou•eve1; inapplicable to the State. State represents the people <if the co11nt1:v. No one can speak of the people being unjustly enriched. "

197. In Godfrey Philips India Ltd. r. State of U.P. (2005) 2 sec 515, the constitutional validity of the Uttar Pradesh Tax Oil Luxuries H

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A Act, 1995 as also other State Acts was challenged inter alia on the ground of legislative competence of the State Legislatures. The Court allowed the petition and held that the State Legislatures were not competent to impose luxury tax on tobacco and tobacco products and the Acts were declared ultra vires and unconstitutional. In the intervening period, however, tax was collected by the appellants from consumers B and also paid to the State Governments. The Court held as under:

"94. It was stated on beha(f of the State Governments that after obtaining interim orders from this Court c against recovery of luxury tax, the appellants continued to charge such tax from consumers/customers. It is alleged that they did not pay such tax to respective State Governments. It was, therefore, submitted that if the appellants are allov.·ed to retain the amounts collected D by them towards luxury tax from consumers, it would amount to "unjust enrichment" by them.

95. In our opinion, the submission is well founded and deserves to be upheld. If the appellants have collected any amount towards luxury tax from consumers/ E customers after obtaining interim orders.from this Court, they will pay the said amounts to the respective State Governments."

From the above decision in Godfrey Philips India Ltd., it is clear that even when the legality of a tax has been challenged successfully, there can be no question of the State tax being retained by the dealer/manufacturer notwithstanding its illegality.

198. It is well-settled that a claim of refund can be allowed only when the claimant establishes that he has not passed on the tax burden to the consumers. No refund can be granted so as to cause windfall gain to any person when he has not suffered the burden of tax. The possibility of the tax burden having been passed on to the consumers by the assessees cannot be ruled out in the present case. Applying the law laid down above to the present case, it emerges that the assessees cannot H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 499

[R. BANUMAlTH, J.]

claim refund irrespective of whether the impugned legislations arc A declared valid or unconstitutional. Unless the asscssees establish that they have not passed on the tax burden to the consumers, they cannot make a claim for refund and unjustly enrich the111selws.

199. Summary of the conclusions on Question Nos. 1 to 4 are as under:- B

Question No. 1: Non-discriminatory taxes do not constitute infraction of Art. 30 I of the Constitution. With due respect, the view taken in Atiabari and c approved in Automobile Transport that taxes do amount to restriction and that freedom of trade, commerce and intercourse cannot be subject to restriction in the form of taxes is not a correct view and are to be over ruled. However, I am agreeing with the theory of compensatory tax evolved in the Automobile case for the reasons indicated hereunder D while answering Question Nos. 2 and 3.

Question No.4:- • Entry tax with reference to entry 52, List II of Seventh Schedule is not violative of Art. 30 I subject to the lt!vy bt!ing non- E discriminatory i.e. passing the muster of Art. 304(a). A levy sustainable under Art. 304(a), being non-discriminatory would ipso facto be out of the purview of Art. 30 I. • When the entry tax is levied by the Entry Tax Act enacted by F the State Legislature, the term 'a local area' contemplated by Entry 52 may cover the 'Whole State' or ·a local area' as not/fled in the legislation. I agree with the view taken in Bilmr Chamber of Commerce that from the point of view of entry tax that the State is a compendium of local areas and where the local areas contemplated by the Act cover the entire G State, the difference between the State and 'a local area' practically disappears. •Articles 304(a) and 304(b) are to be read disjunctively: both apply to different subject matters; while Art. 304(a) deals with H

500 SUPREME COURT REPORTS [2016] 10 S.C.R.

A tax, Art. 304(b) deals only with non-fisca I matters. •Where there is equivalence in terms of tax treatment between the locally produced goods and the ones imported from other States, levy ofcntry tax on the goods imported from other States when there is no such levy on the locally produced goods is not discriminatory. •Every differentiation is not discrimination. Any difference in the rate of tax on goods locally manufactured and those imported, such difference not being discriminatory docs not fall foul under Art.304(a). Any incentive/benefits of concession in the rate of tax given to the local manufacturers/producers in order to encourage the local manufacturers/production in the State cannot be said to be discriminatory. Digvijay and Video Electronics have laid down the correct law. Mal1t1vir Oil Mills is not a correct view. D • Levy of entry tax on the goods imported from the other States is not discriminatory merely on the ground that there are no similar goods manufactured or produced within the taxing State. The law laid down in Kalyani Stores is not a good law. • Levy of entry tax on the goods imported from outside India E which enter into local area for consumption. use or sale therein is within the legislative competence of the State.

Question Nos. 2 and 3:- f • In so far as compensatory taxes are concerned in the light of the conclusion on question No.1. I hold that the nomenclature of 'compensatory' ascribed to the taxes levied by the State Government under Entry 52, List II pursuant to A11to111ohile is unwarranted. The concept of compensatory tax was evolved fifty years back through judicial pronouncements. It has withstood the test of time and tlrns. any subsequent judicial pronouncement like the present one should not prejudice the interest of the parties involved. The States should not suffer any loss of revenue solely because of judicial interpretations and innovations inAutonwhile and the decisions subsequent to it.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 501

• Subject to passing the muster of Art. 304(a), entry tax levied by the States under entry 52, List 11 even though termed as compensatory tax does not fall foul of Art. 3 0 l. It is not necessary that the money realized by the levy should be put into a separate Fund or that the kvy should be proportionate to the expenditure. There is no bar to subsumption of the revenue realized from regulatory/compensatory taxes into the Consolidated Fund of the State as they are no different from other taxes of a general nature. Moreover, the quantum of expenditure incurred in achieving the object behind a compensatory levy cannot be inquired into. c •Jindal Stai11les·s Ltd. (2) & Anr. v. State o(Harpana & Ors. (2006) 7 sec 241 is not a correct view in adopting quantifiable data approach; for a tax, there is no requirement of proximate quid pro quo and Jindal Stainless Ltd. (2) is overruled. The view taken in Bhagatram and Bihar Chamber of Commerce is correct as the same is in harmony with the original design of compensatory tax laid down in Automobile.

Unjust Enrichment: The concept of unjust enrichment is applicable for considering the question of refond. Unless the assessees establish that they have not passed on the tax burden to the consumers, they cannot make a claim for refund and unjustly enrich themselves.

F DR. D. Y. CHANDRACHUD, J. This judgment is structured to consist of the following parts: A Introduction; B Part XIII of the Constitution: text and context; G C Constitutional history as a guide; D The trend-setting decisions : Atiabari and Automobile Transport;

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A D.1 Atiabari: Article 30 I and taxation D.2 Automobile Transport E Compensatory taxes; E.1 Original understanding B E.2 Khyerbari E.3 Subsequent applications E.4 The breaking point E.5 Doctrinal concerns and inconsistencies c F The content of freedom : goods, services, persons and capital; G Taxation and Federalism; H Taxing powers; H.1 Article 245 and constitutional limitations D H.2 Sovereignty and constitutional limitations H.3 Part XIII and taxation H.3.1 All taxes are not impediments

E H.3.2 A1ticles 302, 303 and 304 H.3.3 ConstruingA1ticle 304 H.3.4 Conjunctive or disjunctive: 'may'; 'and' H.3.5 Article 304(a) not the universe of taxation F I Tax legislation : Judicial review and Part XIII; I. I Taxation and Part XII I.2 The standard ofjudicial review 1.3 Limitations of Sinha CJ's view·inAtiabari G 1.4 Presidential Sanction: the proviso to Article 304(b) J Article 304(a): the principle of non-discrimination; J.1 Precedent - 1963 to 1980 J.2 Exemptions and incentives: Video Electronics and H Mahavir

JINDAL STAINLESS LTD. v. STATE OF HARYANA 503

[DR. D. Y. Cl-IANDRACHUD. J.]

J.3 Artick; 304(a) and reasonable classification A J .3. I Formal and substantive equality J.4 Production and manufacture within the home state K Entry tax; K. I Octrois and terminal taxes B

K.2 Entry taxes and Article 304(a) K.3 Meaning of 'Local area' K.4 Severability c K.5 Equalising tax burdens K.6 Entry tax and imported goods M Direct and inevitable effect test: N Conclusion. D

A Introduction I. References to Benches of nine Judges, or at any rate decisions by nine, are a comparative rarity. Despite a prolific tradition of precedent in our judicial institutions, there have been only eight reported decisions by a Bench of nine Judges since the adoption of the Constitution'. The present reference traverses an area of constitutional law which is fraught with unresolved complexity. The draft-persons of the Constitution perceived the freedom of trade, commerce and intercourse to Iie at the heart of the economic unity of the nation. They were keenly aware that parochial pressures emanating from within the states could pose real

1 l) Judg_es decisions: Ahmedabad St. Xavicrs College Sockty '. State ol"Gujarat ( 1974) I SCC 717: Indra Sawhncy v. Union of India 1992 Supp (3) sec 217: Supreme Court Advocate.s-on-Rccord Association V, Union of India ( 1993) 4 sec 441: S.R.Btimmai G v. Union of India (1994) 3 SCC !:Attorney General of India v. Amratlal Prajivandas ( 1994) 5 SCC 54: Mafatlal Industries Ltd v. Union oflndia ( 1997) 5 SCC 536: Special Rcfrrcncc No. I of 1998 ( 1998) 7 SCC 739: I. R. Coelho versus State of"fomil Nadu 12001) 2 sec 1.

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A challenges to the creation of a pan- India common market. The dangers of protectionist policies within the states had nonetheless to be balanced with the need to meet the aspirations for develooment of all areas within the country. Levels of economic attainment in the provinces and erstwhile princdy states were far from uniform at the eve oflndependence. Many B of the erstwhile princely states had concerns about ceding their control over trade and commerce to a national entity. Part XIII was formulated in this background. lt represents the balancing vision of the framers and seeks to create an equilibrium between free trade and regulation, state and federal control and between provincial autonomy and national interests in an area closely related to economic growth and development. c

2. Yet, the semantics of the provisions adopted in framing all of six constitutional articles which comprised Part XIII-Articles 30 I to 306 - attracted criticism within the Constituent Assembly. One member complained of several provisions threatening to become a "paradise for lawyers where there will be so many innumerable loopholes that we will be wasting years and years before we could come to the final and correct interpretation of many clauses'". Many years later, a distinguished Judge of this court spoke of the "mix up of exception upon exception in the series of articles in Part XIII that a purely textual interpretation may not disclose the true intendment of the articles 3".Those remarks continue to be relevant even now. The law in the area of free trade and commerce has remained in a state of flux despite successive decisions by Constitution benches of this cou1t. A similar judicial cri de coeur has found expression in Australia4 .That this is so should not seem surprising: this is an area of the Constitution which cuts across major concerns about the federal structure, the states' power to tax and, the relationship between growth. F development and free trade.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 505

[DR. D. Y. CHANDRACHUD, J.]

for a Goods and Services Tax. When the hearings began, many of the counsel had reservations on the continued relevance of the reference. With the passage of the one hundred and first constitutional amendment, the distribution of the legislative power to tax goods and services has undergone a significant change. The taxing entry for the levy of Entry tax (Entry 52 of List II of the Seventh Schedule), which lies at the core of the dispute in the present reference, stands deleted as part of a constitutional process by which several taxes are being subsumed under the GST. Yet, the reference has to be answered, not the least of the reasons for which is the detennination of past liabilities and entitlements. But more fundamentally, the reference raises important issues of constitutional principle about the relationship of the freedom of trade and commerce· with the fiscal and regulatory concerns of the states over the need to bring growth and development within. The issues raised have a vital bearing on the intersection of the Constitution with free trade one hand and growth and development on the other.

4. This judgment will explore the socio-economic and political compulsions which led the founding fathers of the Constitution to adopt the guarantee under Article 301. The political backdrop of partition with its attendant social suffering provided a powerful rationale for a constitutional structure which would knit the nation together as a cohesive unit. The instrumentalities of trade and commerce were conceived, in the vision of the draftsmen of the Constitution, as a means for bringing about economic integration. The economic integration of India into a common market was to be achieved by guaranting the freedom of trade throughout the te1Tit01y oflndia. Yet, at its birth the new nation comprised of different regions, with disparate social attainments and economic development. They had their own concerns, be they the erstwhile princely states or the states which fonned part of British India. Part Xlll reflected an attempt by the framers to draw a balance between freedom on one hand and the need to regulate to protect diverse aspects of public interest both of a national and regional character, on the other. The regulatory power under Article 302 would enable the national legislative body to perceive and regulate aspects of public interest of a national character. Within the area ofregulation a distribution was envisaged between the Centre and the States to preserve the balance within the newly created federation. The attention that was bestowed to the regulatory requirements of the states in relation to trade and commerce reflected H

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A the need for bringing the states on board for producing a viable and acceptable social compact that the constitutional document embodies.

5. Part Xlll of the Constitution reflects a consciously crafted constitutional superstructure which looks upon the freedom to trade and to engage in commerce not merely from the perspective of trade and B commerce itself, but from a wider national perspective that incorporates both the needs of the nation as reflected in regulatory powers of the centre and the concerns of the federating states to preserve their interests and obligations as well as their commitments to their people.

6. The debates of the Constituent Assembly provide a valuable c insight, grounded in history, which helps us in illuminating the meaning and content of the text of Part Xlll. History constitutes a seminal value in interpreting the words of the Constitution since the events which were a forerunner to the adoption of the Constitution shed light on the concerns which led to the adoption of the text. Yet, as our contemporary 0 jurisprudence recognises, the text of the Constitution cannot be frozen by the context of history which produced the language of the text. The concerns that motivated the framers provide a historical context which is an aid to constitutional interpretation. But, it is important to realise that the Constitution as an organic document has to evolve with societal change. The challenges to governance which India has faced over the last seven decades cannot be ignored in giving present meaning to the constitutional text. The words of the Constitution cannot be frozen in their content with reference to the intent of its framers. To succeeding generations lies the task of imparting a meaning that would, while ensuring a sense of continuity, infuse the constitutional document with the ability to meet the challenges of the present and foreseeable future.

7. I have had the privilege of reading the draft of the judgment of the learned and distinguished Chief Justice. My judgment has been necessitated by my inability to agree with some of the crucial issues raised there, especially on its conclusion that taxes( except for discriminatory taxes) can never be restrictions within the meaning of Part XIII. On the aspects on which we agree, I have adduced my own reasons. B Part XIIJ of the Constitution : Text and Context

8. Part XIII of the Constitution has more than an abundant share H

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[DR. D. Y. CHANDRACHUD, J.]

of constitutional intricacies. Despite a judicial discourse of more than five decades, the debate on the true meaning of its provisions continues to be devil academics, lawyers and judges who have had occasion to visit its provisions.

9. The ambit of Part Xlll is trade, commerce and intercourse within the territory of India. Article 301 5 mandates that trade, commerce and intercourse throughout the territory of India shall be free, "subject to the other provisions" of Part XIII. The freedom thus conferred is subject to the restrictions that are contemplated in the provisions of Part XIII that follow. The sources of the restrictions, the extent of the restrictions and the limitations or qualifications upon the power to restr·ict are defined c in Part XIII.

10. In framing Article 301, the framers of the Constitution made a deliberate departure from the text of the Australian and US Constitutions. Article 1 Section 8 of the US Constitution confers upon Congress the power "to regulate commerce with foreign nations and D among the several states" (besides the Indian tribes). Section 92 of the Australian Constitution stipulates that "on the imposition of unifonn duties of customs, trade, commerce and intercourse among the states whether by means of internal carriage or ocean navigation shall be absolutely free". The expression 'absolutely free' occurring in the Australian Constitution was consciously not adopted in the framing of India's E Constitution. A simpler expression, "free", was preferred to "absolutely free".

11. Dr B R Ambeclkar while moving the introduction of draft Part XA of the Constitution (c01Tesponding to Part XIII) emphasised the impact of the deletion of the qualification "absolutely" in defining the extent of the freedom. Dr Ambedkar observed that:

"I should also like to say that according to the provisions contained in this part, it is not the intention to make trade and commerce absolutely free, that is to say, deprive both Parliament as well as the States of any power to depart 'Article 301: Freedom of trade, commerce and intercourse : Subject to the other provisions of this Part, trade, commerce and intercourse throughout the ten-it01y oflndia shall be free. H

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A from the fundamental provision that trade and commerce shall be free throughout India."

At a certain level, the expression"absolutely free" adds little by way of substantive content to 'free'. However, in the context of B comparative constitutional history, the deletion of the word 'absolute' ca1Tied significance. Absolute freedom may carry the meaning that the freedom is not subject to restrictions. The use of the word 'absolute' was liable to give rise to an inference that the freedom was unqualified. The observations of Dr Ambedkar indicate that while trade, commerce c and intercourse are to be free, that freedom is not unqualified but that it is subject to the provisions of Part Xlll. While conferring the freedom, the Constitution recognises expressly that the freedom which it confers would be subject to the provisions of Part Xlll.