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

12. The second aspect of Article 301 in which a conscious D departure was made from the US and Australian Constitutions is that the freedom of trade, commerce and intercourse extends, in our Constitution, throughout the territory ofindia and not merely among the states. The expression 'among the states' would cover a movement inter-State or across State boundaries. In discarding the expression E "among the states" (which is used in Section 92 of the Australian Constitution) and "among several states"(which is used in Article I Section 8 of the US Constitution), Article 301 guarantees a more comprehensive coverage to the freedom to include both inter-State and intra-State trade, commerce and intercourse. 'Throughout the territory of India', means in every part of India. In other words, the freedom that F is conferred by Article 301 extends over but is not confined to inter-State movement across State boundaries.

13. The Constitution, while recognising the freedom of trade, commerce and intercourse throughout the territory of India makes that freedom subject to the provisions of Part XIII. Article 3026 empowers G "Article 302 : Power of Parliament to impose restrictions on trade, commerce and intercourse : Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part or the tenitory of India H as may be required in the public interest.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 509

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

Parliament to impose restrictions on the freedom of trade, commerce A and intercourse between one state and another or within any pa11 of the territory ofindia. This is subject to qualifications. First, restrictions have to be imposed by law. Second, they must be such as may be required in the public interest. However, the empowem1ent of Parliament under Atiicle 302 to impose restrictions on the freedom guaranteed by Article B 301 is subject to constitutional limitations prescribed in clause I ofArticle

303. Under clause 1 of Atticle 303 7, there is an absolute prohibition upon Parliament making any law giving or authorising the giving of preferences to one state over another or making a discrimination between one state and another, by vi11ue of any entry relating to trade and commerce in any of the lists of the Seventh Schedule. A similar limitation is imposed c on the state legislatures. The non-obstante provision in clause I of Article 303 is somewhat inapposite in its application to the legislature of a state. In its application to Parliament, the non-obstante provision which operates over Article 302 was intended to impose a constitutional limitation upon Parliament while legislating to impose a restriction in the public interest. D Since Article 302 applies only to Parliament and not to the state legislatures, the non-obstante provision contained in Article 303 is to that extent in artistic. Be that it is may, clause I of Article 303 imposes a constitutional limitation upon the law making power of Parliament and the state legislatures while enacting a law by virtue of any entry relating E to trade and commerce in the lists of the Seventh Schedule. The constitutional limitation prevents the grant of preferences or the making of discrimination between one state and another while enacting a law by virtue of any of the entries relating to trade and commerce in the lists of the Seventh Schedule. However, the constitutional limitation upon the 1 F Article 303: Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce : (i) Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorizing the giving of, any preference to one State over another, or making, or authoring the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. G

(ii) Nothing in clause (I) shall prevent Parliament from making any law giving, or authorizing the giving of, any preference or making, or authorizing the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. H

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A power of Parliament under clause 1 of Article 303 is lifted in clause 2 where Parliament enacts a law for dealing with a situation arising from the scarcity of the goods in any part of the territory oflndia. The freedom under Article 301 is thus subject to Parliamentary restrictions under Article

302. The power to impose restrictions is subject to the limitations in B clause I of A1iicle 303. However, those limitations can be relaxed in the situation contemplated by clause 2 of Article 303. The prohibition on the enactment oflaw which has the effect of granting preferences or making discrimination between states is, in relation to Parliament, lifted by clause 2 when it is necessary to deal with a situation of the scarcity of goods in any part of India. c

14. Article 304' commences with a non-obstante provision, "notwithstanding anything in Article 301 or Article 303". Under clause (a), a state legislature may by law impose on goods impo1ied from other states, a tax to which similar goods manufactured or produced in that state are subject. This has to be done in a manner that does not discriminate between the goods so imported and goods so manufactured or produced in the state which imposes the tax. Clause (a) of Article 304 subjects the taxing power of a state with reference to goods imported from other states to a constitutional limitation of non-discrimination. The prohibition of non-discrimination is in regard to the tax which is imposed on goods imported from another state. The equality of treatment is with reference to the tax imposed on goods manufactured or produced in the state. The non-obstante provision which refers to Article 301 carries the clear intendment that a tax of the nature within the contemplation of clause (a) of Article 304 would, but for that provision have fallen within the ambit of Article 30 l. The effect of the non-obstante provision is that notwithstanding Article 301 (which would otherwise bring within its

'Article 304 : Restrictions on trade commerce and intercourse among states :

Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law-(a) impose on goods imported from other States [or the Union ten-itories] any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature or a State without the previous sanction of the President. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 511

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

purview a tax of this nature),clause (a) of Article 304 enables the A imposition by a state of a tax on imported goods subject to the constitutional limitation of non-discrimination between the goods that are imported into the state with goods that are manufactured or produced within the state. Both clause (1) of Article 303 and clause (a) of A1ticle 304 embody principles of non-discrimination, though with different facets. B

15. Clause (1) of Article 303 deals with preferences or discrimination between one state and another. Article 304 (a) deals with a non-discriminatory tax imposed on goods imported into a state when a similar tax is imposed on goods produced or manufactured in the state. Article 302 refers to restrictions in general without any qualification as c regards the fiscal or non-fiscal nature of the restrictions. The constitutional limitation imposed by A1ticle 303 on the power to impose a restriction under Article 302 is also not defined with reference to a fiscal or non-fiscal provision. Article 304 (a) is a species ofrestriction namely, a non-discriminatory levy of tax. Clause (b) of Article 304 enables the legislature of a state to impose by law reasonable restrictions as may be required in the public interest on the freedom of trade, commerce or intercourse with or within that state. The expression "with or within that state" indicates that the state legislature in exercise of its power can impose restrictions both in regard to inter-State as well as intra-State trade, commerce and intercourse. The power of the state to do so is, however, conditioned by three limitations: the first is that the restriction must be reasonable; the second is that the restriction should be required in the public interest; and the third which is spelt out in the proviso, is that the Bill or an amendment for the purpose of clause (b) shall not be introduced or moved in the legislature of a state without the previous sanction of the President.

16. A plain construction of the provisions of clause (a) and clause (b) of Article 304 would indicate that clause (a) is not exhaustive of the universe of taxing legislation insofar as the state legislatures are concerned. Clause (a) of Article 304 embodies the principle of non-discrimination and prescribes it as a limitation subject to which a state may by law impose a tax on goods which are imported into the state. Clause (a) lifts the embargo arising from Article 301 on the power of a state to impose a tax on goods imported from other states subject to a condition: the State may impose any tax to which similar goods manufactured or H

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

A produced in that state are subject. Clause( a), in other words deals only with the taxation of goods which are imported from other states or union territories.

17. Clause (b) of Article 304 refers to reasonable restrictions on the freedom of trade, commerce or intercourse with or within the state. B An intra-State restriction is within the purview of clause (b) but not within clause (a). Clauses (a) and (b) are separated by the conjunctive 'and'. The use of the expression 'and' must however be read together with the prefatory part of Article 304. Article 304 provides that the legislature ofa state 'may' by Jaw impose a tax on goods imported from c other states, subject to the principle ofnon-discrimination [embodied in clause (a)]. The state legislature may also impose such reasonable resttictions as are required in the public interest [under clause (b )]. Clause (b) is, however, subject to the proviso.

18. The provisions of Part XIII of the Constitution contain an D elaboration of the freedom of trade, commerce and intercourse and the restrictions which the Constitution contemplates as being within the legislative powers of Parliament and the state legislatures. The legislative power conferred upon Parliament can restrict the ambit of the freedom to the extent that is specified in Articles 302 and 303. Similarly, the state legislatures are subject to the limitations contained in Article 303 ( 1) and E Article 304. Parliament as well as the state legislatures are subject to constitutional limitations on the exercise of their law making power in restricting the freedom of trade, commerce and intercourse.

19. The extent of the freedom under Article 301 has in this manner been made subject to the provisions of Part XIII. Those provisions of F Part XIII define the extent to which a restriction can be imposed by law as well as the limitations on the power of Parliament and the state legislatures while presc1ibing a restriction. C Constitutional history as a guide

G 20. The Constitution was enacted in a historical and comparative framework. Historically, there was the presence in India prior to independence of the British Indian territories on the one hand and the princely states on the other. The founding fathers intended while enacting Part Xlll to wield India into an economically integrated entity. In adopting Part XIII, the founding fathers did not intend to elaborate as much on H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 513

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

the notion of lassiez~/Crire as on the integration oflndia into an economic entity.

21. The Constitution was framed in the context of a social, economic and political.upheaval. The Constituent Assembly debates provide an enrichir g insight into the problems and concerns that were present to the mimb of the draftsmen of the Constitution, as they adopted what became Part XIII. Dr B Shiva Rao in his seminal work titled 'The Framing oflndia's Constitution ' 9 explains the historical perspective which led to the attention of the Constituent Assembly being engaged towards the freedom of trade and commerce within the territories of the Union: c "Under the British Rule, freedom of trade was the established practice in British India, with no inter-provincial duties or other trade barriers. With the advent of provincial autonomy in April, 1937. it was considered necessary to place this mater on a statutory basis. Accordingly, section D 297 of the Government of India Act, 1935, prohibited Provincial Governments from imposing barriers on trade within the country; nor could they levy any tax, cess, toll or other due wl1ich discriminated between goods manufactured in one locality and similar goods manufactured elsewhere. E But this was far from ensuring freedom of internal trade throughout the sub-continent. Indian States could, and very often did, levy export and impoti duties at their frontiers and some of them derived considerable revenue from this source." F

22. On 29 March 1947, the Sub-committee on Fundamental Rights discussed and adopted the draft provisions submitted by B N Rau on the freedom of trade and commerce, which read thus: ''Subject to regulation by the law of the Union, trade, commerce and intercourse among the units, whether by G means of internal carriage or by ocean navigation, shall be free: Provided that any unit may by law impose reasonable

' (Chapter 22 Part 699) H

514 SUPREME COURT REPORTS [2016] IO S.C.R.

A restrictions thereon in the interest of public order, morality or health." (Id. at p.699)

23. While discussing the report of the Sub-committee Alladi Krishnaswami Ayvar opined that: (i) goods which enter a particular unit from other units of the of the union should not escape duties and taxes to B which goods produced in the concerned unit itself were subject; (ii) in an emergency a unit should be able to place restrictions on inter-State trade and commerce; (iii) the right should extend to non-citizens; and (iv) the freedom of trade should cover coastal trade specifically. After these suggestions were accepted, the Advisory Committee took up the issue for discussion. Commenting on these developments. B Shiva Rao (supra) c specifically adverts to the view of l:;_Rajagopalachari which was that the units of the Union must have the power to impose customs duties and other taxes for raising revenue. A contrary view was, however, expressed inter-alia by Alladi Krishnaswami Avvar. Shiva Rao·s statement of what transpired is extracted below: D

"During the discussions, Rajagopalachari expressed the view that units should be given power to impose customs duties and other taxes for genuine revenue purposes; if this was not conceded, the clause would wrest from them a substantial means of increasing their revenues and hamper the progress of the comparatively poorer ones amongst them. Alladi Krishnaswami Ayyar and K M Panikkar feared, on the other hand, that the grant of such taxing power to the . Provinces or States might encourage competition between them and thus weaken the federal idea and should. therefore, be prevented. The committee accepted the provisions as recommended by the sub-committee with one change; the sub-clause providing for central regulation of trade by or with non-citizens was dropped as being vague and unnecessary.'' (Id. at p.700)

24. The clause was debated in the Constituent Assembly. B N Rau incorporated the following clauses in the draft constitution of October 1947: H

JINDAL STAINLESS LfD. v. STATE OF HARYANA 515

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

"Subject to the provisions of any Federal law. trade, commerce and intercourse among the units shall, if between the citizens of the Federation, be free: Provided that nothing in this section shall prevent any unit from imposing on goods imported from other units any tax to which similar goods manufactured or produced in that unit are subject, so, however, as not to discriminate between goods so manufactured or produced: Provided further that no preference shall be given by any regulation of trade, commerce or revenue to one unit over another: Prvvided also that nothing in this section shall predude the Federal Parliament from imposing by Act restrictions on tht! freedom c of trade, commerce and intercourse among the units in the interests of public order, morality or health or in cases of emergency.·· (Id. at p.70 I)

25. The Drafting Committee thereafter redrafted the above provisos which came to be included as ind~pendent articles under the heading of "Inter-State Trade and Commerce'' in Part IX of the draft constitution. Article 16 (which formed a part of the Chapter on Fundamental Rights) provided that subject to the provisions of Article 244 and of any law made by Parliament. trade, commerce and intercourse E throughout the territory of India would be free. Article 243 prohibited preferences and discrimination between one state and another. Articles 244 permitted the imposition of a non-discriminatory tax by a state on goods imported from another state similar to a tax which goods manufactured in the state arc subject. F

26. A lladi Krishnaswami ;\\var had strong reservations to allowing the imposition of reasonable restrictions on inter-State trade, on the ground that this \\'Ould practically nullify the freedom of trade secured under draft Article 16, the expression ·•in the public interest" being vague. When draft Article 16 was taken up in the Constituent Assembly, objections G were raised to it being adopted as an A1iicle under the Fundamental Rights. Subjecting the freedom of trade under Article 16 to a law made by Parliament and to the power of the state to impose taxes and restrictions was in this view destroying the fundamental character of the freedom conferred and no residue would be left which could not be curtailed by H

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

A Parliament or the states.

27. Dr B R Ambedkar while responding to the inclusion of Article 16 drew attention to the history surrounding the article. The Indian states had initially agreed to join the Union only in respect of foreign affairs, defence and communications. They were unwilling to allow the Union B Parliament to have legislative authority over trade and commerce by its inclusion in the Union List of the Seventh Schedule. Shiva Rao"' states that on the other hand it was believed that the formation of an All-India Union would be without meaning if trade and commerce throughout the Union was not free. After the speech by Dr Ambedkar, draft Article 16 c was adopted to be added to the Constitution.

28. Subsequently, the Constituent Assembly accepted the view of Dr Ambedkar that a separate part, Part XA, exclusively devoted to trade. commerce and intercourse within the territory oflndia be adopted. Part XA was to consist of Articles 274A to 274E. Eventually, A1iicle 16 was D deleted from the Chapter on Fundamental Rights on the ground that with the inclusion of the right in Article 274A (corresponding to present Article 30 I), the retention of A1iicle 16 was rendered superfluous. Dr Ambedkar explained that different articles which were scattered in various parts were brought together in one part dealing with the freedom of trade, commerce and intercourse. Shiva Rao adverts to the observations E ofAlladi Krishnaswami Ayyar, which are significant:

"Alladi Krishnaswami Ayyar replied that the transfer of a provision in regard to freedom of inter-State trade from F one part of the Constitution to another did not alter or affect the nature of the right embodied in it: the mere placing of a provision in the chapter on fundamental rights did not carry with it any patticular sanctity, nor did its j usticiability depend on such placement." (Id. at p.706)

G Moreover, with the integration of the Indian states and with the strong federation having materialised there was no need felt to retain the provision for freedom of inter-State trade in the chapter on

'" (supra at page 703) H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 517

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

Fundamental Rights. A

29. Partition and the immense human suffering inflicted upon large segments of the population provided a strident political backdrop for the need to preserve the unity of the nation. In assigning the role of a strong centre in the federal polity, the founding fathers had a constitutional vision for preserving the political unity of free and democratic India. The B economic history of both the British and Indian states was marred by famines and scarcity. Present to the minds of the founding fathers were the inequalities of resources and disparities in development between various provinces, including those that constituted British India on one hand and Indian states on the other. The framers of the Constitution c contemplated that the provisions of draft Part XA (present Part XIII) should be an instrument for achieving economic progress under the rubric of one nation. Part XIII was the comer stone for fostering the economic development of the nation. In the vision of the founding fathers, India had to be· knit together in terms of an economic and fiscal union. D

30. In the social and political milieu that preceded the adoption of the Constitution, the emphasis in Part Xlll was not as much upon creating a market economy: laissez.faire was not an attractive political doctrine. In fact, responding to an amendment that was proposed by Pandit Thakur Das Bhargava that the freedom of trade should be absolute, T T Krishnamachari, responded by stating that the extent of freedom which E was allowed "is about the maximum amount ofliberty that we can give for trade and commerce, the maximum amount of concession that we can give to trade and commerce consistent with the future economic improvement of this country". He observed: F

"Even as it was originally suggested, that we should make it a matter of fundamental right, and even without the restrictions that have been put in Article 16, I am afraid the economic progress of the country will become well-nigh impossible. There is absolutely no use in the honourable G Member trying to confuse a matter of civil liberty with a matter or rights in respect of trade and commerce. The world has well-nigh come to a position when trade and commerce cannot be run without control and some kind of H

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

A direction by the Government. lfmy honourable friends think that we are in the days of the nineteenth century when the laissez faire enthusiast had practically the ordering of everything in the world. I am afraid they are mistaken.''

B In his address to the Constituent Assembiy, TT Krishnamachari emphasised the need to restrain the exen:ise of state powers which, it was apprehended. may be deployed to pursue narrow provincial interests:

c "A certain amount of freedom of trade and commerce has to be permitted. No doubt, restrictions by the State have to be prevented so that the particular idiosyncrasy of some people in power or narrow provincial policies of certain States should not be allowed to come into play and affect the general economy of the country.'' D

31. Yet regional concerns could not be ignored. Addressing the Constituent Assembly, Alladi Krishnaswami Avvar spoke about the diversity of interests, geographical position and economic attainments of various regions of the country. They required attention as well:

"My friend, Dr Ambedkar in the scheme has evolved and has taken into account the larger interests of India as well as the interest of particular states and the wide geography of this country in which the interests of one region differ from the interests of another region. There is no need to mention that famine may be raging in one part of the country while there is plenty in another part. It may be that manurt! and other things are required in one part of the country while profiteers from another part of the country may try to transport the goods from the part affected. At the same time, in the interests of the larger ecomm1y and the future prosperity of our country, a certain degree of freedom of trade must be guaranteed." 1-1

JINDAL STAINLESS LTD. v. STATE OF HARYANA 519

[DR. D. Y. CHANDRACHLJD. J.]

Consistent with the concern about enabling the country to achieve A economic prosperity, he spelt out the following priorities underlying Pait Xlll:

"Therefore in a federation what you have to do is, first you 13 will have to take into account the larger interests of India and permit freedom of trade and intercourse as far as possible. Secondly, you cannot ignore altogether regional interests. Thirdly, there must be the power of intervention of the Centre in any case of crisis to deal with peculiar problems that might arise in any part of India. All these c three factors are taken into account in the scheme that has been pl·aced before you."

32. The introduction of the proviso to draft Article 274 (D) D [corresponding to the proviso to the present Artide 304 (b )] was justified as being necessary "if on a..:count of parochial patriotism or separntism without consulting the larger interest of India as a whole,'' a bill or amendment was introduced by a state legislature. This was regarded by Alladi Krishnaswami Avyar as "a very restricted power that is conferred on the legislation of a state'' to impose reasonable restrictions on the E freedom of trade, commerce and intercourse with or within that state as may be required in the public interest. Therefore, it was envisaged that the President who had to grant sanction will have the opportunity to see that the legislation is in the public interest and that the restriction imposed is reasonable. Moreover,hc observed "it is not possible to devise a F watertight formula for defining these restrictions.''

33. The deliberations in the Constituent Assembly surrounding . the. introduction of Pait Xlll leave little ambiguitv about the constitutional ~

philosophy underlying the introduction of the guarantee of free trade, commerce and intercourse. The guarantee of that freedom was guided G by the object of fostering economic development. Towards achieving that goal, the founding fathers recognised the need to weave the nation into one e..:onomic entity. At the same time. regional interests representing the diversity prevalent within the states had to be recognised by allowing a regulatory role for the states. While recognising the impoitance of the H

520 SUPREME COURT REPORTS [2016] IO S.C.R.

A state legislatures in relation to trade, commerce and intercourse, the founding fathers had evident concerns about what they described as parochial interests or naiww provincial policies posing a danger to the economic development of the nation. Hence, the Union Government was conferred with a power of intervention which was qualitatively B different from the regulatory power conferred upon the states.To the Union Government was assigned the role of ensuring that the goal of pursuing economic development of the nation as one economic entity was not destroyed by the pursuit of parochial interests. It was in that background that the proviso to Alticle 304 (b) mandated the prior sanction of the President to a bill or amendment introduced in the state legislature c for imposing reasonable restrictions in the public interest on the freedom that was guaranteed by Pait XIII.

34. The founding fathers were careful when they noted that it was not possible to elucidate by a watertight fonnula,the fom1 in which such restrictions may take. The nature of the Indian economy on the D eve of the adoption of the Indian Constitution was radically different from the economy which has emerged in the era of trade liberalism and beyond. I shall deal with the impact of those changes in a subsequent part of this judgment. At this stage, it would suffice to note that the guarantee of freedom for trade, commerce and intercourse which the E Constitution adopted in Pait XIII was an instrument of fostering economic progress as an important facet of national policy.

D. The trend-setting decisions : Atiabari and Automobile Transport

F 35. Two decisions rendered over five decades ago have shaped constitutional jurisprudence under Part XIII. They form the fulcrum of the reference in these proceedings. The first is the decision of a Constitution Bench in Atiabari Tea Company Ltd. v. The State of Assam 11 • The second is a decision of seven Judges in the The G Automobile Transport (Rajasthan) Ltd. v. The State ofRajasthan 12 .

II (1961) I SCR 809 '°(1963) 1 SCR 491 H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 521

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

36. In Atiabari, the Assam Taxation (on goods carried by roads A and inland waters ways) Act,1954 was enacted by the state legislature under entry 56 of the State List to the Seventh Schedule. The law provided for the levy of a tax on manufactured tea in chests carried by motor vehicles (except by railways and airways) at a specified rate per pound. B

37. A Special Bench of the High Court dismissed the petitions challenging the validity of the Act. By a judgment of the Supreme Court rendered by a majority, the appeals and petitions filed under A1iicle 32 by producers of tea were allowed. The majority held the Act to Qe ultra- vires. c

38. Justice P B Gajendragadkar delivered the leading majority judgment on behalf of Justices KN Wanchoo and KC Dasgupta, while Justice JC Shah delivered a separate judgment. Justice Gajendragadkar held that the Act imposed a direct restriction on the freedom of trade and in the absence of compliance with the provisions of Article 304(b), it was unconstitutional. Justice Shah held that Part Xlll imposes restrictions on the legislative powers of Parliament and state legislatures under Articles 245, 246 and 248 read with the lists of the Seventh Schedule. According to this view, restrictions on freedom of trade and commerce include burdens in the nature of taxation. The Act was held as having infringed A1iicle 301 and failing compliance with the proviso to Article 304 (b ), it was found to be unconstitutional. Chief Justice BP Sinha differed with the majority on the grou.nd that Part Xlll of the Constitution did not justify the inference that taxation simpliciter is within Article 301 of the Constitution.

39. The c01Tectness of the view in Atiabari was reconsidered by F a larger bench of seven Judges in Automobile Transport (supra). The Rajasthan Motor Vehicles Taxation Act, 1951 provided for the levy of a tax on motor vehicles used in any public places or kept for use in Rajasthan. The Rajasthan High Court, in view of a judgment rendered by its Full Bench negatived a challenge to the provisions of the Act. The G decision of the Rajasthan High Court had been. rendered before the judgment in Atiabari was pronounced.When a Bench of seven Judges considered the matter in this Court, Justice SK Das, delivered the leading majority judgment on behalf of himself and Justices Kapoor and Sarkar. H

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

A 40. The view of the three judges was that the Act did not violate the provisions of Article 301 because the taxes imposed were compensatory in nature which did not hinder the freedom of trade, commerce and intercourse. The interpretation placed by the majority in Atiabari was held to be "correct, but subject to this clarification" that B regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not fall within the purview of the restrictions contemplated by Article 30 I and need not comply with the requirements of the proviso to Article 304(b) of the Constitution. Justice B Subba Rao agreed with the view of Justice S K Das, in a concurring judgment.

c 41. Justice M Hidayatullah delivered a dissenting judgment for and on behalf of himself and Justices Rajagopala Ayyangar and Mudholkar. In the view of the minority a tax which is made a condition precedent to the right to enter upon and carry on business is a restriction on the right to caITy on trade and commerce. The tax, it was held, was not a fee for administrative purposes, its object being to raise revenue.The D judgment of the minority held that the tax was directly upon trade and on its movement.

42. In order to facilitate an analysis of the varying and divergent lines of thought in the three judgments in Atiabari and the three judgments in Automobile Transport (supra), it would be necessary to consider the views expressed under the following heads:

D.1 Atiabari : Article 301 and taxation

43. Chief Justice Sinha in his judgment inAtiabari held that freedom under Article 301 could not be constrned in such a comprehensive manner asto include freedom from all impediments, restraints and barriers, including freedom from all taxes:

G "I 3. Learned counsel for the appellants vehem.:ntly argued that the freedom contemplated by Article 30 I must be construed in its most comprehensive sense of freedom from all kinds of impediments, restraints and trade barriers, including freedom from all taxation. In my opinion, there is no warrant for such an extreme position." (Id. at p. 826) H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 523

[DR. D. Y. C'HANDRACHUD. J.]

Defining the expressions trade, commerce and intercourse. Chief A Justice Sinha held that:

'' 13 ..... The three terms used in Article 30 I include not only free buying and selling, but also the freedom ofbargainand B contract and transmission of information relating to such bargains and contracts as also transport of goods and commodities for the purposes of production, distribution and consumption in all their aspects, that is to say, transpo1iation by land, air or water. They must also include commerce not only in goods and commodities, but also transportation of c men and animals by all means of transportation. Commerce would thus include dealings over the telegraph, telephone or wireless and every kind of contract relating to sale. purchase, exchange etc. of goods and commodities.'' (Id. at p. 826-827) D

44. In the view of Chief Justice Sinha, in this comprehensive sense, taxation of trade, commerce and intercourse would cover almost the entire field of public taxation both in the Union and in the State lists. Hence, ''it is almost impossible to think that the makers of the Constitution E intended to make trade, commerce and intercourse free from taxation in that comprehensive sensc".(emphasis supplied)

45. The first reason adduced in Chief Justice Sinha"s judgment for not adopting such a comprehensive definition of the freedom under Article 30 I is that the power to tax in order to raise revt:nue is a F manifestation of sovereignty. Being a sovereign power, it is not ordinarily justiciable. Second, the power of the states to raise finances for the purpose of government is elucidated in Part XII of the Constitution. Article 265 imposes a prohibition on the levy or collection of a tax except by authority of law. Pati XII of the Constitution which deals with finances G and Part Xlll are self-contained provisions, one not being subject to the other: "Hence, both Parts Xll and XIII arc meant to be self~ . contained in their respective fields. It cannot. therefore, be H

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

A said that the one is subject to the other." (Id. at p. 824)

The third reason adduced in the judgment of Chief Justice Sinha for not adopting such a comprehensive definition of the freedom conferred by Article 301 is the dilution of the power of the states to impose taxes, 8 which would result from adopting such a construction :

"14 .. .It is almost impossible to think that the makers of the Constitution intended to make trade, commerce and c intercourse free from taxation in that comprehensive sense. If that were so, all laws of taxation relating to sale and purchase of goods on carriage of goods and commodities, men and animals, from one place to another, both inter- State and intra-State, would come within the purview of Article 30 I and the proviso to A1ticle 304(b) would make it D necessary that all Bills or Amendments of pre-existing laws shall have to go through the gamut prescribed by that proviso. That will be putting too great an impediment to the power of taxation vested in the States and reduce the States' limited sovereignty under the Constitution to a mere fiction. That E extreme position has, therefore, to be rejected as unsound." (Id. at p. 827)

Fourthly, Chief Justice Sinha held that Article 304 is divided into two parts:(i) clause( a) which deals with the imposition of discriminatory F taxes by a state legislature; and (ii) clause(b) which relates to the imposition ofreasonable restrictions. This, in the view of the Chief Justice, indicates that the imposition of taxes is not within the fold of reasonable restrictions on the freedom of trade, commerce and intercourse:

G "12 ..... But a close examination of the provisions of A1ticle 304 would show that it is divided into two parts viz. (1) dealing with imposition of discriminatory taxes by a State Legislature; and (2) relating to imposition of reasonable restrictions, thus showing that imposition of taxes, H

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discriminatory or otherwise, is a class apart from imposition of reasonable restrictions on freedom of trade, commerce and intercourse.'' (Id. at p. 824)

Fifthly, Chief Justice Sinha opined that "not all taxes constitute necessarily an impediment or restraint in the matter of trade, commerce and intercourse'':

"15 ..... all taxation is not necessarily an impediment or a restraint in the matter of trade, commerce and intercourse. c Instead of being such impediments or restraints, they may, on the other hand, provide the wherewithals to improve different kinds of means of transport, for example, in cane growing areas, unless there are good roads, facility for transport of sugarcane from sugarcane fields to sugar mills may be wholly lacking or insufficient. In order to make new roads as also to improve old ones, cess on the grower of cane or others interested in the transport of this commodity has to be imposed, and has been known in some parts of India to have been imposed at a certain rate per maund or ton of sugarcane transported to sugar factories. Such an imposition is a tax on transport of sugarcane from one place to another, either intra-State or inter-State. It is the tax thus realised that makes it feasible for opening new means of communication or for improving old ones. It cannot, therefore, be said that taxation in every case must mean an impediment or restraint against free flow of trade and commerce. Similarly. forthe facility of passengers and goods by motor transport or by railway, a surcharge on usual fares or freights is levied, or may be levied in future. But for such a surcharge, improvement in the means of communication may not be available at all. Hence, in my opinion, it is not correct to characterise a tax on movement of goods or passengers as necessarily connoting an impediment, or a restraint, in the matter of trade and commerce. That is another good reason in support of the conclusion that H

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

A taxation is not ordinarily included within the tenns ofArticle 301 of the Constitution." (ld. at p. 827-828) Sixthly, in the view of the Chief Justice Sinha "taxation simpliciter" is not within the terms of Article 301 since the very purpose underlying the taxing power is the ability of the state to raise money for public 8 purposes by compelling the payment by those who are taxed of moneys earned or possessed by them, by virtue of the facilities and protection offered by the state. A public purpose is implicit in every taxation. Part Xlll when it refers to 'reasonable restrictions in the public interest' could not have intended to include taxation within the ambit of the expression.

C 46. At the same time, Chief Justice Sinha rejected the 'extreme proposition' that taxation would be wholly outside the purview of Article 30 I. That position was rejected on the ground that firstly, Article 304 contains a specific reference to taxation and secondly, Article 305 prior to its repeal made a specific reference to taxation for certain purposes. D Chief Justice Sinha made a distinction in the following observations:

"17 ..... The Article thus brings out the clear distinction between taxation as such for the purpose of revenue and taxation for the purpose of making discrimination or giving E preference, both of which are treated by the C~mstitution as impediments to free trade and commerce. In other words, so long as the impost was not in the nature of an impediment to the free flow of goods and commodities between one State and another, including in this expression F Union tenitories also, its legality was not subject to an attack based on the provisions of Part XIII." (Id. at p. 830)

4 7. In this view, a Jaw which imposes an impediment to the free G flow of trade, commerce and intercourse such as by a high tariff wall is not a measure of taxation but assumes a character of a h·ade banier : "16 .... .If a Jaw is passed by the Legislature imposing a tax which in its true nature and effect is meant to impose an impediment to the free flow of trade, commerce and H

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

intercourse, for example, by imposing a high tariff wall, or A by preventing imports into or exports out of a State, such a law is outside the significance of taxation, as such, but assumes the character of a trade barrier which it was the intention of the Constitution-makers to abolish by Pait XIII." (Id. at p. 829) B

The conclusions of the Chief Justice are restated in the following propositions :

c "16 .... The objections against the contention that taxation was included within the prohibition contained in Part Xlll may thus be summarised: (1) Taxation, as such, always implies that it is in public interest. Hence, it would be the outside particular restrictions, which may be characterised by the courts as reasonable and in public interest. (2) The power is vested in a sovereign State to carry on Government. Our Constitution has laid the foundations of a welfare State, which means very much expanding the scope of the activities of Government and administration, thus making it necessary for the State to impose taxes on a much larger scale and in much wider fields. The legislative entries in the three Lists referred to above empowering the Union Government and the State Governments to impose ce1tain taxations with reference to the movement of goods and passengers would be rendered ineffective, if not otiose, if it were held that taxation simpliciter is within the terms ofArticle 301. (3) If the argument on behalf of the appellants were accepted, many taxes, for example, sales tax by the Union and by the States, would have to go through the gamut prescribed in Articles 303 and 304, thus very much detracting from the limited sovereignty of the States, as envisaged by the G Constitution. ( 4) Laws relating to taxation, which is essentially a legislative function of the State, will become justiciable and every time a taxation law is challenged as unconstitutional, the State will have to satisfy the courts - H

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A a course which will seriously affect the division of powers on which modern constitutions, including ours, are based. (:i) Taxation on movement of goods and passengers is not necessarily an impediment." (Id. at p. 829-830)

B The basic principle which is enunciated in the judgment of the Chief Justice Sinha is that:

48. The test, in the view of Chief Justice Sinha, is whether a tax has the effect of directly impeding the free flow of trade, commerce and intercourse. If it does. it falls within the ambit of Article 30 l. The test is of the true nature and effect of the tax. Does it impose an impediment to the free flow of trade, commerce & intercourse? An illustration of E such an impediment is a high tariff wall which then assumes the character of a trade barrier. A high tariff wall is an example of an impediment under taxing laws to the freedom of trade, not an exhaustive elaboration. Those taxes which impede the free flow of trade and commerce are within Article 30 l.

F 49. The judgment of Justice Gajcndragadkar, for the majority holds that the power of taxation is subject to constitutional provisions:

"35 ... Basing himself on this character of the taxing power of the State. the learned Attorney General has asked us to G hold that Part XIII that can have no application to any statute imposing a tax. In our opinion, this contention is 'not' well- founded .... .''therefore. the true position appears to be that, though the power of levying tax is essential for the very existence of the government, its exercise must inevitably H

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

be controlled by the constitutional provisions made in that A behalf. It cannot be said that the power of taxation per se is outside the purview of any constitutional limitations." (ld. at p. 846)

50. Justice Gajendragadkar noted first, that the power under Article 265 of the Constitution to levy a tax under the authority oflaw is referable to Article 245 read with the corresponding legislative entries in the Seventh Schedule. Since Article 245 is subject to the provisions of the Constitution, the power of Parliament and of the state legislatures to impose taxes is subject to the application of constitutional provisions, c which must include Pa11 Xlll:

"37 .... Now, if we look atArticle 245 which deals with the extent of laws made by Parliament and by the Legislatures D of States, it begins with the words "subject to the provisions of this Constitution"; in other words, the power of Parliament and the Legislatures of the States to make laws including laws imposing taxes is subject to the provisions of this Constitution and that must bring in the application of the provisions of Part Xlll." (ld. at p. 847-848) E

Second, in this view, the freedom of trade, commerce and intercourse under A11icle 301 is subject only to the provisions of Part Xlll which means that the amplitude of the freedom cannot be controlled outside Pai1 Xlll. Thirdly, in the view of Justice Gajendragadkar,the freedom guaranteed by A11icle 301 is a freedom from all restrictions except those which are contemplated under Part Xlll:

"42 .... Stated briefly trade even in a narrow sense would include all activities in relation to buying and selling, or the interchange or exchange of commodities and that movement from place to place is the very soul of such trading activities. When Article 301 refers to the freedom of trade, it is necessary to enquire what freedom means. Freedom from H

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A what? is the obvious question which falls to be dete1111ined in the context. At this stage, we would content ourselves with the statement that the freedom of trade guaranteed by Article 30 l is freedom from all restrictions except those which are provided by the other Articles in Part XIII." (Id. at p. 853) B

Fourthly, Justice Gajendragadkar adverts to the effect of the non- obstante clause in Article 304 which enables the imposition of a tax notwithstanding the provisions of Article 30 l: c "46 ..... How a tax can be levied on internal goods is, however, provided by Article 304(b ). The non-obstante clause referring to Article 301 would go with A11icle 304(a), and that indicates that tax on goods would not have been permissible but for Article 304(a) with the non-obstante clause. This incidentally helps to determine the scope and width of the freedom guaranteed under Article 30 l; in other words, Article 304(a) is another exception to Article 301." (Id. at p. 856) E

In this view, Article 304(a) and Article 304(b) have to be read together.That tax legislation is included in A1iicle 301 is an inference from the use of the non-obstante clause in Article 304. Finally, Justice Gajendragadkar held that movement of trade is the essence of the F freedom guaranteed by Article 301. If transport or movement of goods is taxed solely on the basis that goods are carried or transported, that would affect directly the freedom of trade under Article 30 I:

G "49 ..... it certainly includes movement of trade which is of the very essence of all trade and its integral part. If the transport or the movement of goods is taxed solely on the basis that the goods are thus caiTied or transported that, in our opinion, directly affects the freedom of trade as contemplated by Article 301. lfthe movement, transport or H

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

the carrying of goods is allowed to be impeded, obstructed or hampered by taxation without satisfying the requirements of Part XIII, the freedom of trade on which so much emphasis is laid by Article 301 would tum to be illusory. When Article 301 provides that trade shall be free throughout the territory of India, primarily it is the movement part of the trade that it has in mind and the movement or the transport pa11 of trade must be free subject of course to the limitations and exceptions provided by the other Articles of Part Xlll." (Id. at p. 859)

51. Justice Gajendragadkar did notice the need to draw a balance for preserving the powers of the states in a federal constitution. The test which he fommlated is that the restrictions which fall within Article 301 are those which directly and immediately restrict or impede the free flow or movement of trade: D

"50 ..... Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 301. The argument that all taxes should be governed by Article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld." (ld. at p. 860)

52. Justice Gajendragadkar, in the ultimate analysis also shuns an interpretation under which all taxes would be brought within the ambit of Article 301. The principle which the learned judge adopts is that taxing laws are not excluded from the operation of Article 301 and that they can and do amount to restrictions on freedom. Yet, tax laws which directly and immediately restrict trade or its movement are alone within the ambit H

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

A of Article 301.

53. Justice Shah joined the conclusion of the majority in holding that the Assam enactment violated the guarantee of freedom under Article 30 I and had not passed muster under the proviso to Article 304(b ). But Justice Shah agreed with the conclusion oflhe majority on a much wider B premise that all laws of taxation fall within the purview of Article 30 I. In his view, trade and commerce comprehends traffic in goods and much more. In this view, while movement of goods may be an important ingredient of effective commerce, movement itself is not an essential ingredient of commerce. In his view: c "66 ..... What is guaranteed is freedom in its widest am pl itudc -freedom fron1 prohibition, control, burden or impedirncntin commercial intercourse. Not merely discriminative tariffs restricting movement of goods which arc included in the restrictions and are hit by Article 30 I, but all taxation on commercial intercourse, even imposed as a measure for collection ofrevenue is so hit. Between discriminatory tariffs and trade barriers on the one hand and taxation for raising revenue on commercial intercourse, the difference is one of purpose and not of quality. Both these forms of burden on commercial intercourse trench upon the freedom guaranteed by Article 30 I." (Id. at p. 874-875)

The freedom under Article 30 I, in the judgment of Justice Shah, F connotes freedom from tax burdens as well as other impediments but is subject to Part Xlll of the Constitution.

54. The distinction between the judgment of the miijority and the view of Justice Shah is precisely in the extent to which tax laws are held to fall within the ambit of Article 30 I. For the majority, movement G constitutes the soul of trade whereas for Justice Shah, it is not an essential ingredient in all situations. For the majority, it is the movement or the transport part of trade that must be free subjcet to thc limitations in Part Xlll. However, it was only such taxes as directly and immediately impede trade that fall within the purview of Article 30 I. Justice Gajendragadkar H

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rejected the contention that all taxes should be governed by Article 301 A whether or not their impact on trade is immediate and direct on the one hand or whether it is remote and "mediate "on the other. For Justice Shah every law of taxation of commercial intercourse, even when it is a measure for the collection of revenue is hit by Article 301.

55. Having said this, it is necessary also to note that there was at B the same time an agreement on principle on certain crucial aspects of Part Xlll between the views expressed in the judgment of the majority and the views of Justice Shah. Firstly, the majority (as noted earlier) spoke of constitutional restrictions and limitations on the legislative powers of Parliament and the state legislatures, a11d emphasised that Part Xlll c is a source of such a limitation. Justice Shah agreed with this premise in the following observations:

''64 .... On the exercise of the legislative power to tax trade, commerce and intercourse, restrictions are prescribed by D certain provisions contained in Part Xll, e.g., Articles 276, 286, 287, 288 and 289: but these restrictions do not exhaustively delimit the periphery of that power. The legislative power to tax is restricted also by the fundamental freedoms contained in Part III, e.g., Articles 14, 15(1), E 19( 1)(g) and 31 (I) and is further restricted by Part Xlll. Article 245, clause (1 ), of the Constitution expressly provides that the legislative powers of the Parliament and the State Legislatures to make laws are subject to the provisions of the Constitution; andArticle 301 is undoubtedly one of the provisions to which the legislative powers are F subject." (ld. at p. 873)

Secondly, Justice Shah like the majority emphasized the non- obstante provision of Article 304 which operates with reference to Article G

301. In his view, if Article 301 did not deal with the burdens of taxation, there was no reason to incorporate a non-obstante provision in Article 304:

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

A "74 .... If Article 301 and Article 303 did not deal with the restrictions or burdens in the nature of tax, the reason for incorporating the non-obstante clause to which Article 304, clause (1 ), is subject, cannot be appreciated. Undoubtedly, the provisions of Part XIII of the Constitution do not impose additional or independent powers of taxation; the powers B of taxation are to be found conferred by Articles 245, 246 and 248 read with the Lists in the Seventh Schedule, and the provisions of Part XIII are !imitative of the exercise of legislative power. The circumstance that the Constitution has chosen to deal with a specific field of taxation as an c exception to Articles 301 and 303 (which should really be Article 303(1 )) strongly supports the inference that taxation was one of the restrictions from the imposition of which by the guarantee of Article 301, trade, commerce and intercourse are declared free." (Id at p. 881) D

Thirdly, Justice Shah adopts the same position as the majority did in holding that the expression 'restrictions' in clause (b) of Article 304 includes a restriction in the nature of a tax:

E "75 ..... Clause (b) deals with a general restriction which includes a restriction by the imposition of a burden in the nature of tax. Clause (a) deals with a specific burden of taxation in a limited field." (ld. at p. 881) F

56. The basic difference between the judgment of the majority and the decision of Justice Shah lies in the extent to which the taxing power is regarded as being within or outside the purview of Article 301. For the majority every taxing legislation is not within the ambit ofArticle

G 301. The guarantee under Article 301 is against such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Only those taxes which directly and immediately restrict trade would fall within Article 301. For Justice Shah all taxation on c01m11ercial intercourse would attract the provisions of Article 30 I. H

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57. A comparison of the view that was adopted by the majority with the judgment of ChiefJustice Sinha would indicate differences of substance on some issues and essentially of degree on other aspects. Chief J usticc Sinha prefaced his discussion with the premise that taxation is governed by Part XII and that Part XII and Part XIII are self-contained and independent provisions. Moreover, Chief Justice Sinha held that taxation being an essential attribute of sovereignty, it would not be appropriate in a federal structure to make the state power of taxation subservient by the application of Article 304 (b) to all taxing legislation. However, Chief Justice Sinha ultimately accepts the position that not all but some tax legislation is subject to the mandate of Article 30 l. In his view, so long as a tax imposition is not an impediment to the free flow of c trade, commerce and intercourse, it must pass muster and would not fall within Article 301. Justice Gajendragadkar also held (speaking for the majority) that a tax law which directly and immediately restricts trade will fall within the ambit of Article 30 I. The test in the judgment of Chief Justice Sinha is whether a tax law "has the effect of directly imposing the free flow of trade". The test adopted by the majority of"such taxes as directly and immediately restrict trade" find a broad co-relation to the test adopted by Chief Justice Sinha. The difference in the view of the majority from that of the learned Chief Justice on this aspect was essentially a difference of degree. Chief Justice Sinha noted that he differed with the majority on the ground that the Constitution does not justify the inference that taxation simpliciter is with in the terms ofA1tic le 30 l. In his view, the Assam legislation in that case was a taxing statute simpliciter without any discrimination against dealers or producers outside the state. The majority held the tax to be unconstitutional since its object was to collect taxes on goods solely on the ground that they are carried by road or by inland waterways within the area of the state. This,for the majority, was a restriction within the ambit of Article 301 which could have been achieved lawfully only by satisfying the requirements ofArticle 304 (b). On the other hand, Chief Justice Sinha would regard only a discriminatory tax as a restriction on trade. G

D.2 Automobile Transport

58. The seven Judge bench in Automobile Transport dealt, in the three judgments which were delivered, with: (i) the nature and extent H

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

A of the freedom guaranteed by A1ticle 301; (ii) the power to impose taxes; (iii) constitutional limitations or restrictions on the power to tax; (iv) the necessity of interpreting the provisions of Pait XIII so as not to eviscerate the sovereignty of the states; and(v) whether, and if so, the extent to which Part XIII controls fiscal legislation. B D.2.1 Freedom and regulation

59. Justice SK Das, in the leading judgment of the majority held that though Article 301 "runs unqualified", the freedom must necessarily be delimited by considerations of social orderliness : c

"10 .... As the language employed in Article 301 runs unqualified the Court, bearing in mind the fact that that provision has to be applied in the working of an orderly society, has necessarily to add ce1tain qualifications subject to which alone that freedom may be exercised." (Id. atp. 521)

60. Justice Subba Rao in a concurring judgment held that the freedom conferred by Article 30 l is a freedom of trade across borders. The freedom is to trade unrestricted by barriers :

"35 ..... the said composite expression means trade across the borders: what is free is that trade. It is implicit in the concept of freedom that there will be obstructions to it. Such obsh·uctions or ba1Tiers may be, in the present context, to the freedom to trade across the borders. Article 301 provides for freedom from the said barriers or impediments in effect operating as barriers. This freedom from barriers cannot operate in vacuum and must be limited by space. A barrier may be put up between two States at the boundary of the States or between two districts, two taluks, two towns or between two parts of a town. The barrier may be at a paiticular point, at a boundary or might take the form of a H

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continuous impediment till the boundary is crossed. It may A take different fon11S. The restrictions may be before or after movement. It may be a prior restraint or a subsequent burden. But the essential idea is that a barrier is an obstacle put across trade in motion at a particular point or different points. The expression "shall be free" declares in a B mandatory fonn a freedom of such transport or movement from such barriers." (Id. at p. 547-548)

61. Freedom under Article 301, being throughout the territory of India, Justice Subba Rao held that Article 301 removes both inter-State c and intra-State barriers, making the country as a whole into one unit :

"36 ..... The freedom declared under Article 301 may be defined as a right to free movement of persons or things, D tangible or intangible, commercial or non-commercial, unobstructed by barriers, inter-State or intra-State or any other impediment operating as such barriers. "(Id. at p. 548)

62. Yet, the judgment of the majority posits that freedom under E Article 301 is not impaired by facilitative regulations. Such regulations are facilitative because they promote trade and are not restrictive of it. The concept of facilitative regulations is in tandem with the view that the right under Article 301 is capable of regulation so as to preserve an orderly society. Regulations such as those defining limits of speed for transport vehicles, permissible loads or requiring the registration of vehicles do not impede trade. Adverting to these examples Justice S K Das held:

"10 ..... that the application of rules like the above does not really affect the freedom of trade and commerce; on the contrary they facilitate the free flow of trade and c01m11erce. The reason is that these rules cannot fairly be said to impose a burden on a trader or deter him from trading: it would be absurd, for example, to suggest that freedom of trade is H

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

A impaired or hindered by laws which require a motor vehicle to keep to the left of the road and not drive in a manner dangerous to the public. If the word "free" in Article 301 means "freedom to do whatever one wants to do", then chaos may be the result." B (Id. at p. 522)

Justice Subba Rao adopted the same position. Facilitative regulations, in his view, do not restrict trade :

c "37 ... Before a particular law can be said to infringe the said freedom, it must be ascertained whether the impugned provision operates as a restriction impeding the free movement of trade or only as a regulation facilitating the same. Restrictions obstruct the freedom, whereas regulations promote it. Police regulations, though they may superficially appear to restrict the freedom of movement, in fact provide the necessary conditions for the free movement. Regulations such as provision for lighting, speed, good condition of vehicles, timings, rule of the road and similar others, really facilitate the freedom of movement rather than retard it. So too, licensing system with compensatory fees would not be restrictions but regulatory provisions; for without it, the necessary lines of communication, such as roads, water-ways and air-ways, cannot effectively be maintained and the freedom declared may in practice turn out to be an empty one. So too, regulations providing for necessary services to enable the free movement of traffic, whether charged or not, cannot also be described as restrictions impeding the freedom." (Id. at p. 549) G

Significantly, these observations of Justice Subba Rao indicate that fees for the use of facilities or as charges for regulations which facilitate trade do not hinder or obstruct the free flow of trade. For, H

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

without those facilities, trade would be rendered difficult. A D.2.2 Taxation and constitutional limitations

63. Justice S K Das held that the power to impose taxes is essential for the existence of government. Yet, in his view, it can be controlled by constitutional provisions. Part XII of the Constitution controls the power B to levy taxes. But, Part XII does not exhaust the limitations on the power to tax:

"13 .... though the power of levying tax is essential for the very existence of government, its exerdse may be controlled c by constitutional provisions made in that behalf. It cannot be laid down as a general proposition that the power to tax is outside the purview of any constitutional limitations. We have carefully examined the provisions in Part Xll of the Constitution and are unable to agree that those provisions D exhaust all the limitations on the power to impose a tax." (Id. at p. 527)

64. Justice Subba Rao dealt with the issue from the perspective of whether the power of taxation is subject to limitation. Justice Subba E Rao analysed the legal presumption that taxation is in the public interest and that it is not possible for a court to detennine whether a particular rate of tax is reasonable. Considering the matter, Justice Subba Rao observed thus: F "39 ..... A law of taxation is made by Parliament or the Legislature of a State, as the case may be, in exercise of the power conferred under the Constitution by virtue of the entries found therein. Ihs a law just like any other law made under the Constitution. This Court, in K. Thathunni G Moopil Nairv. State ofKerala [AIR (1962) SC 552] and in Balaji v. LT. Officer [AIR (1962) SC 123] , held that a law of taxation would be void if it infringed the fundamental right guaranteed under Article 19 of the Constitution. 'Therefore, the law of taxation also should satisfy the two H

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A tests laid down inArticle 19(6) of the Constitution. It is said that a law of taxation is always in public interest. Ordinarily, it may be so, but it cannot be posited that there cannot be any exceptions to it. A taxing law may be in public interest in the sense that the income realised may be used for public B good, but there may be occasions, when the rate or the mode of taxation may be so abhorrent to the principles of natural justice or even to the well settled principles of taxation that it may cause irremediable hann to the public rather than promote public good, that the court may have to hold that it is not in public interest. Nor can I agree with the c contention that it is impossible for a court to hold in any case that a rate of taxation is reasonable or not". (Id. at p. 553)

D In this view, no restriction, if it is unreasonable, can be more deleterious to freedom than the imposition of a fiscal burden on it, which may in certain circumstances destroy the very freedom. Consequently, Justice Subba Rao rejected the notion that laws of taxation are outside the scope of the freedom guaranteed by Article 30 I. The presumption of the fiscal law being in the public interest does not exclude judicial review where the law has transgressed those boundaries.

65. Justice Hidayatullah was explicit in holding that "taxation is within the prohibition contained in Part XIII 13 ."

66. The basic premise of the majority is that tax legislation is subject to constitutional limitations or restrictions. Under Article 265, a tax can be levied only with the authority of law. Article 245 which empowers Parliament to enact legislation for the territory of India and the state legislatures, for the territories of the respective states, is "subject to the provisions of this Constitution." This expression would include Parts XII and XIII. Justice S K Das held thus : G "13 .... Article 245 which deals with the extentoflaws made by Parliament and by the Legislatures of States expressly states that the power of Parliament and of the State

13 Id. at p-637 H

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

Legislatures to make laws is "subject to the provisions of A this Constitution". The expression "subject to the provisions of this Constitution" is surely wide enough to take in the provisions of both Part XII and Part Xlll. In view of the provisions of Article 245, we find it difficult to accept the argument that the restrictions in Part XIII of the Constitution B do not apply to the taxation laws." (Id. at p. 527-528)

67. Having held that the power of taxation is subject to constitutional c limitations which include Part XIII, Justice S K Das rejected what he described as a "narrow interpretation" which postulates that save and except for Article 304(a), none of the other provisions of Part XIII extend to taxing statutes. That submission was also not accepted by Justice Subba Rao. D

D.2.3 State sovereignty

68. The majority was conscious of the need to preserve the sovereignty of the states. State autonomy would be impaired by an extensive construction of Article 301 and if all measures of taxation were E brought within its ambit. Adopting such a view would lead to a situation where every law passed by the state legislature would be subject to the proviso to Article 304(b ). Justice S K Das observed that a construction which would bring about such a result must be avoided : F "11 ..... Such an interpretation would, in our opinion, seriously affect the legislative power of the State Legislatures which power has been held to be plenary with regard to subjects in List II. The States must also have revenue to carry out their administration and there are several items relating to G the imposition of taxes in List II. The Constitution-makers must have intended that under those items, the States will be entitled to raise revenue for their own purposes. If the widest view is accepted, then there would be for all practical purposes, an end of State autonomy even within the fields H

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A allotted to them under the distribution of powers envisaged by our Constitution. An examination of the entries in the Lists of the Seventh Schedule to the Constitution would show that there are a large number of entries in the State List (List II) and the Concurrent List (List III) under which B a State Legislature has power to make laws. Under some of these entries, the State Legislature may impose different kinds of taxes and duties, such as property tax, profession tax, sales tax, excise duty etc., and legislation in respect of any one of these items may have an indirect effect on trade and commerce. Even laws other than taxation laws, made c under different entries in the Lists referred to above, may indirectly or remotely affect trade and commerce. If it be held that every law made by the Legislature of a State which has a repercussion on tariffs, licencing, marketing regulations, price-control etc. must have the previous sanction of the D President, then the Constitution insofar as it gives plenary power to the States and State Legislatures in the fields allocated to them would be meaningless". (Id. at p. 524-525)

E 69. Justice Subba Rao in the concurring judgment also noted that conceivably,every law enacted by a state legislature in pursuance of its legislative power may remotely affect trade. If every Bill introducing such a legislation were to be subjected to the prior sanction of the President under the proviso to Article 304 (b) that would result in a serious dilution of the autonomy of the states:

"38. The Constitution confers on the Parliament and the State Legislatures extensive powers to make laws in respect of various matters. A glance at the entries in the Lists of the Seventh Schedule to the Constitution would show that every law so made may have some repercussion on the declared freedom. Property tax, profession tax, sales tax, excise duty and other taxes may all have an indirect effect on the free flow of trade. So too, laws, other than those of H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 543

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

taxation, made by virtue of different entries in the Lists, A may remotely affect trade. Should it be held that any law which may have such repercussion must either be passed by the Parliament or by the State Legislature with the previous consent of the President, there would be an end of provincial autonomy, for in that event, with some B exceptions, all the said laws should either be made by the Parliament or by the State Legislature with the consent of the Central Executive Government. By so construing, we would be making the Legislature of a State elected on adult franchise the handmaid of the Central executive." (Id. at p. 550) c

70. Justice Hidayatullah was also concerned about the consequence on state autonomy of the adoption of a view which subjugated all state legislations having a conceivable, if even remote, impact upon trade to D Presidential sanction :

"124 ... the financial independence of the States was secured by an elaborate division of heads of taxation, which were well thoughtout to provide the States with the means of independent existence and the wherewithal of nation- building activities. There is hardly any tax which the States are authorised to collect which could not be said to fall on traders. Property tax, sales tax, municipal taxes, electricity taxes (to mention only a few) are paid by traders as well as by non-traders. To say that all these taxes are so many, restrictions upon the freedom of trade, commerce and intercourse is to make the entire Constitutional document subordinate to trade and commerce. Since it is axiomatic that all taxes which a tradesman pays must burden him, any tax which touches him must fall within Article 304, if the word "restriction" is given such a wide meaning, every such legislation will then be within the pleasure of the President, and this could not have been intended. "Restriction" must, therefore, mean something more than a mere tax burden." (Id. at p. 633-634) H

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

A Every burden of tax, in this view would not be a restriction of trade and commerce. Justice Hidayatullah too shared this concern when he observed :

B "125 ... To bring all taxes within the reach of Article 301 and thus to bring them also within the reach of Article 304 is to overlook the concept of a Federation, which allows freedom of action to the States, subject, however, to the needs of the unity of India. Just as unity cannot be allowed to be frittered away by insular action. The existence of c separate States is not to be sacrificed by a fusion beyond what the Constitution envisages." (Id. at p. 634-635)

E.Compensatory Taxes D E.1 Original understanding

71. The judgment of the majority evolved the concept of compensatory taxes in response to its felt concern to preserve state autonomy. Compensatory taxes which are in the nature of a charge for the use of trading facilities would not be regarded as being a hindrance E to the freedom of trade, so long as they are reasonable. By first devising the concept and then placing it beyond the pale of Article 301, the Court in Automobile Transport ensured that compensatory taxes would not be subject to the constitutional grind of A11icle 304(a). A class of tax legislation bearing a compensatory character was carved out of Part F Xlll.

72. What are compensatory taxes? Explaining the concept, Justice S K Das in the judgment of the majority held that :

G "10 ... Another class of examples relates to making a charge for the use of trading facilities, such as, roads, bridges, · aerodromes etc. The collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of an aerodrome is no ba1Tier or burden or deterrent to traders who, in their absence, may have to take a longer or less H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 545

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

convenient or more expensive route. Such compensatory A taxes are no hindrance to anybody's freedom so long as they remain reasonable; but they could of course be converted into a hindrance to the freedom of trade." (Id. at p. 522) B In this view, for a tax to become prohibited, it has to be a tax, the effect of which is to directly hinder "the movement part oftrade"14 . So long as a tax remains compensatory or regulatory, it does not operate as a hindrance. Again, this was elaborated in the following observations : c "14 .... But we must advert here to one exception which we have already indicated in an earlier part of this judgment. Such regulatory measures as do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities are not hit by the freedom declared by A1ticle 301." (Id. at p. 528) In the view of the majority : "17 .... Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Article 30 I and such measures need not comply with the requirements of the proviso to Article 304 (b) of the Constitution." (Id. at p. 533) F Compensatory taxes were held to lie outside Article 301. Not being 'restrictions' which hamper the freedom of trade, compensatory taxes would not fall within the ambit of Article 30 I and were not subject to the rigours of the proviso to Article 304(b ). G

73. The tax imposed by the State of Rajasthan was held to be compensatory since it facilitated trade and commerce :

"Id. at p-523 H

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

A "19 .... The taxes are compensatory taxes which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads in a good state of repairs." (ld. at p. 536)

B A tax would not cease to be compensatory merely because the precise or specific amount which is calculated is not actually used to provide facilities. TI1e test on whether a tax is compensatory is fonnulated thus:

c "19 ... 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 for providing the facilities." D (ld. at p. 536)

Even if the proceeds from the tax are not credited to a separate fund that would make no difference so long as facilities are provided for trades' people who pay the tax. In his concurring judgment, Justice Subba Rao also adopted the 'direct and immediate effect' test. Justice Subba Rao held that :

"38 .. .If a law directly and immediately imposes a tax for general revenue purposes on the movement of trade, it would be violating the freedom. On the other hand, ifthe impact is indirect and remote, it would be unobjectionable. The Court will have to ascertain whether the impugned law in a given case affects directly the said movement or indirectly and remotely affects it." (ld. at p. 550-551)

A law which directly and immediately affects the free movement of trade in this view is a restriction on freedom. However, a measure

JINDAL STAINLESS LTD. v. STATE OF HARYANA 547

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

which is compensatory or regulatory does not hinder trade : A

"40 .... Of all the doctrines evolved, in my view, the doctrine of "direct and immediate effect" on the freedom would be a reasonable solvent to the difficult situation that might arise B under our Constitution. If a law, whatever may have been its source, directly and immediately affects the free movement of trade, it would be restriction on the said freedom. But a law which may have only indirect and remote repercussions on the said freedom cannot be considered to be a restriction on it. Taking the illustration from taxation c law, a law may impose a tax on the movement of goods or persons by a motor-vehicle; it directly operates as a restriction on the free movement of trade, except when it is compensatory or regulatory. On the other hand, a law may tax a vehicle as property, or the garage wherein the vehicle used for conveyance is kept. The said law may have indirect repercussions on the movement, but the said law is not one directly imposing restrictions on the free movement."

74. Justice Hidayatullah adopted the position that a tax would amount to a restriction when it is placed upon trade directly and immediately. But, in his view, a distinction would have to be drawn between a tax which is paid by tradesmen in common with non-tradesmen and a tax upon trade. A tax which is imposed upon trade, as such, must be distinguished from general taxes imposed for the purposes of revenue. F The latter are nomrnlly not within the reach of Part Xlll :

"125. That a tax is a restriction when it is placed upon a trade directly and immediately may be admitted. But there is difference between a tax which burdens a trader in this G manner and a tax, which being general, is paid by tradesmen in common with others. The first is a levy from the trade by reason of its being trade, the other is levied from all, and tradesmen pay it because everyone has to pay it. There is H

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

A a vital difference between the two, viewed from the angle of freedom of trade and commerce. The first is an impost on trade as such, and may be said to restrict it; the second may burden the trader, but it is not a restriction' of the trade. To refuse to draw such a distinction would mean that there is no taxing entry in Lists I and II which is not subject to B Articles 301 and 304, however general the tax and however non-discriminatory its imposition."

75. Justice Hidayatullah accepted the notion of facilitative regulations such as traffic rules and rules of the road. Such regulatory provisions, in his view, are not restrictions at all since they do not hamper trade or impair its freedom. Consequently, a fee for rendering services to the trade would not hamper or restrict it. Similarly, an administrative fee may also be viewed as a part of regulation and would not fall to be classified as a restriction. A tax however, which is a condition precedent to the right to enter upon and carry on business stands on a different footing:

"131. Let us now see whether the validity of taxation laws directly impinging on trade and commerce can be upheld on the ground that they are regulatory. Here, a distinction must be made between fees and taxes. Fees charged as quid pro quo for services rendered or as representing administrative charges are quite different from taxes, pure and simple. Fees may partake of regulation when they are demanded to enable Government to meet the cost of administration. But the tax, with which we are concerned, is hardly a fee in that narrow sense. It is a tax for raising revenue."

Justice Hidayatullah dissented from the judgment of the majority on the ground that the tax in question was evidently not a fee for administrative purposes nor could it be justified as representing a payment for services. The object of the tax was to raise revenue, which H distinguished it from a fee.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 549

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

76. The correctness of the decision in Automobile Transport - A as indeed of the earlier decision in Atiabari - lies at the heart of this reference. At this stage, it would be necessary to recapitulate the basic principles which emerged from Automobile Transport. The decision and the principles which it proceeds to fommlate have their own logic. First, Automobile Transport enunciates that the freedom under Article B 301 is consistent with facilitative regulations which enhance, rather than hinder trade. Second, though the power to tax is an essential attribute of government, it is subject to constitutional limitations including amongst them Part Xlll of the Constitution. As a consequence, tax laws are not as a matter of principle outside the ambit of Article 301. Third, the test to be applied in detem1ining whether a law infringes the freedom guaranteed c by Article 30 I is whether the direct and immediate effect is to hinder the movement of trade. A law which has that effect, including a tax law must, where it has been enacted by the state legislature be subject to the provisions of A1ticle 304. Fourth, compensatory taxes which are imposed in consideration of the facilities which are provided by the state to trade D and commerce are outside the ambit ofA1ticle 30 I. Fifth, a compensatory tax does not hinder the freedom of trade and commerce and need not comply with the requirements of the proviso to A1ticle 304(b) of the Constitution.

E E.2 Khyerbari

77. In Atiabari, an enactment of 1954 legislated by the State of Assam was found to be invalid. The state legislature then obtained the previous sanction of the President under A1ticle 304(b) and proceeded to enact the Assam Taxation (on goods carried by road or on inland F wate1ways) Act - 1961. A Constitution Bench dealt with the challenge to the new law in Khyerbari Tea Co. Ltd. v. State of Assam".

78. Justice Gajendragadkar who delivered the judgment of the maj01ity held that the judgment in Automobile Transport introduced a "clarificatory rider" to the majority view in Atiabari 16 and that it had G "substantially accepted" the earlier decision 17 •

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

A 79. The opinion of Justice Gajendragadkar in Khyerbari seems to indicate an element of reservation in regard to the concept of compensat01y taxes. Compensatory taxes, the judge noted, were evolved in conceptual tenns in Australia in the context of Section 92 which is "absolute in terms" and on its "literal construction, admits of no exceptions". Justice Gajendragadkar indicated that the constitutional B compulsions which led to the notion of compensatory taxes not being a hindrance to freedom being adopted in Australia were absent in India. Articles 302 to 304 specifically provide for the imposition of restrictions on the freedom guaranteed by Article 301. Justice Gajendragadkar adverted to the minority view of Justice Hidayatullah in Automobile c Transport on this aspect. His observations on the concept of compensatory taxes are as follows :

"13... Section 92 is absolute in tenns and on its literal D construction, admits of no exceptions. The Australian decisions, therefore, had to introduce distinctions, such as compensatory or regulatory tax laws in order to take laws answering the said description out of the purview of Section

92. In our Constitution, however, though Article 30 I is worded substantially in the same way as Section 92,Articles E 302 and 304 provide for reasonable restrictions being imposed on the freedom of trade subject to the requirements of the said two articles, and so, the problem facing judicial decisions in Aush·a!ia and in this country in regard to the freedom of trade and the restrictions which it may be permissible to impose on it, is not exactly the same. The minority view expressed by Hidayatullah, J. has pointedly refe1Ted to this aspect of the matter."

80. In Khyerbari, the judgment of the Supreme Court noted in more than one place that the tax in question had not been supported by the State of Assam on the ground that it was compensatory. Justice Gajendragadkar held that ifthe enactment had been claimed by the state to be compensatory, it would have been necessary to constitute a larger Bench to reconsider the position. This was because the state law of H 1954 was enacted as a consequence of the earlier law having been

HNDAL STAINLESS LTD. v. STATE OF HARYANA 551

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

invalidated in Atiabari. In Atiabari, the view of the majority was that A such a tax (even if compensato1y) could be sustained only after complying with Article 304(b). The earlier law had been struck down 'though it was compensatory'. Justice Gajendragadkar found that it would be unfair to preclude the petitioners from contending that the compensatory character of the levy was not material to its validity under Part XIII. B Justice Gajendragadkar accordingly held as follows:

"14 .... If in the present case, it had been urged before us that the tax levied by the Act is compensatory in character, it would have been necessary to consider the question once c again by constituting a larger Bench. It will be recalled that the Act with which we are concerned has been passed by the Assam Legislature directly as a result of the decision of this Court in Atiabari Tea Co. case [( 196 l) 1 SCR 809] ; that decision was that if the tax imposed by the Act was compensatory in character, then the Act could be sustained only if it was passed afrer complying with the provisions of Article 304(b ). The Assam Legislature has accordingly adopted the said procedure and passed the Act. If the Act had been compensatory in character, it would have become m:..:essary for us to consider the whole position once again, because it would obviously be unfair and unjust that the earlier Act should have been struck down though it was compensatory in character and in testing the validity of the present Act, it should be open to the petitioners to contend that its compensatory character is irrelevant to the enquiry under Article 304(b).''

81. A reference to the larger bench was however obviated since the High Court had held that Act not to be compensatory and no submission to the contrary was urged by the state. The new enactment of the Assam G Legislature was upheld against the challenge that it violated A1iicles 14, l9and301:

"45. It is, of course. true that the validity of tax laws can be questioned the light of the provisions of Articles 14. 19 and H

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

A 301 if the said tax direct and immediately imposes a restriction on the freedom of trade; but the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Articles 14, 19 or 301 has to be exercised with circumspection bearing in mind that the power of the State to levy taxes for the purpose, governance and for B carrying out its welfare activities is a necessary attribute sovereignty and in that sense it is a power of paramount character. In what case a taxing statute can be struck down as being unconstitutional is illustrated in the decision of this Court in K.T. Moopil Nair v. State ofKerala. [(1961) 3 SCR c 77] ....... It is in regard to such a taxing statute which can properly be regarded a purely confiscatory that the power of the court can be legitimately invoked and exercised".

D The law enacted by the state legislature was upheld in Khyerbari not on the ground that it was compensatory- such a justification having not been pressed by the state - but on the ground that its provisions were not violative of Articles 14, 19 and 301. The Act was not confiscatory and was held to pass muster under Articles 14, 19 and 301.

E E.3 Subsequent applications

82. Between 1962 and 1995, the working test adopted in Automobile Transport for detem1ining whether a tax is compensatory was adopted largely in the context of motor vehicle taxes. See in this F context the decisions in S K Madar Saheb v. State of A P 18 ; Boiani Ores Ltd v. State of Orissa 19 ; G K. Krishnan v. State of T N20 ; International Tourist Corpn. v. State of Haryana 21 ; Malwa Bus Service (P) Ltd. v. State of Punjab 22 ; Meenakshi v. State of Karnataka 23 ; B.A. Jayaram v. Union of lndia 24 and State of G "[1972] 4 sec 635 "[1974] 2 sec 777 '°[1975J 1 sec 375 "(1981] 2 sec 318, 1981 sec (Tax) 103 "(1983] 3 sec 237, 1983 sec (Tax) 162 "AIR (1983) sc 1283. (1984) Supp sec 326, (1984) sec (Tax) 206 H "(1984] I sec !68

JINDAL STAINLESS LTD. v. STATE OF HARYANA 553

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

Maharashtra v. Madhukar Balkrishna Badiya 25. A

83. In International Tourist Corporation v. State of Haryana26 , Justice 0. Chinnappa Reddy speaking for a Bench of two Judges of this Court refined the test of a regulatory and compensatory tax by stipulating that there must exist a specific or identifiable object behind the levy and a nexus between the subject and the object. This Court held: B

"9. While in the case of a fee it may be possible to precisely identify and measure the benefits received from the Government and levy the fee according to the benefits received and the expenditure incun-ed, in the case of a c regulatory and compensatory tax it would ordinarily be well nigh impossible to identify and measure, with any exactitude, the benefits received and the expenditure incmTed and levy the tax according to the benefits received and the expenditure incurred. What is necessary to uphold a D regulatory and compensatory tax is the existence of a specific, identifiable object behind the levy and a nexus between the subject and the object of the levy. If the object behind the levy is identifiable and ifthere is sufficient nexus between the subject and the object of the levy, it is not E necessary that the money realised by the levy should be put into a separate fund or that the levy should be proportionate to the expenditure." (Id. at p. 328)

F Reading the nexus requirement into a compensatory tax r,epresented the effo11 of this Court to bring clarity to the otherwise vague and uncertain core of a judicially evolved doctrine.

84. In GK Krishnan v. State of Tamil Nadu 27 , a tax on motor vehicles under the Motor Vehicle Taxation Act, 1931 was under challenge G on the ground of a violation of Article 301. By a notification, the rate of

"(1988] 4 sec 290. ( 1988) sec (Tax) 506 "(1981) 2 sec 318 21 (1975] 1 sec 375 H

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

A tax which was imposed on a quarterly basis was enhanced. Justice K K Mathew who delivered the judgment of a Bench of three Judges of this Court observed that the judgment in AutomolJile Transport ·'practically overruled" the decision in Atiabari:

B "13 .... .insofar as it held that if a State Legislature wanted to impose tax to raise moneys necessnry in order to maintain roads, that could only be done after obtaining the sanction of the President as provided in Article 304(b)". (Id. at p. 380) c Justice Mathew held that there is a clear distinction between a Jaw which interferes with the freedom to trade and a law which merely regulates: D "14 .... The word "free" in Article 30 I docs not mean freedom from regulation. There is a clear distinction between Jaws interfering with freedom to carry out the activities constituting trade and laws imposing on those engaged therein rules of proper conduct or other restraints directed to the due and orderly manner of carrying out the activities. This distinction is described as regulation. The word "regulation" has no fixed connotation. Its mening differs according to the nature of the thing to which it is applied. The true solution, perhaps, in any given case, could be found by distinguishing between features of the transaction or activity in vi11ue of which it fell within the category of trade, commerce and intercourse and those features which, though invariably found to occur in some form or another in the transaction or action are not essential to the conception. What is relevant is the contrast between the essential attribute of trade and commerce and the incidents of the transaction which do not give it necessarily the character of trade and commerce. Such matters relating • I to hours, equipment, weight/size of load, lights, which form H

JINDAL STAINLESS LTD. v. SlATE OF HARYANA 555

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

the incidents of transportation, even if inseparable, do not A give the transaction its essential character of trade or commerce. Laws for Government of such incidents "regulate". (Id. at p. 381)

85. The Bench of three Judges, following the line of precedent in Automobile Transport held that for a law to become a prohibited tax, it has to be a direct tax, the effect of which is to hinder the movement part of trade. A tax which is compensatory or regulatory does not however operate as a restriction on the freedom under Atiicle 301. The nature of a compensatory tax was considered in the following c observations :

"17. Strictly speaking, a compensatory tax is based on the nature and the extent of the use made of the roads, as for example, a mileage or ton-mileage charge or the like, and if the proceeds are devoted to the repair, upkeep, maintenance and depreciation of relevant roads and the collection of the exaction involves no substantial interference with the movement. The expression "reasonable compensation" is convenient but vague. The standard of reasonableness can only lie in the severity with which it bears on traffic and such evidence of extravagance in its assessment as comes from general considerations. What is essential for the purpose of securing freedom of movement by road is that no pecuniary burden should be placed upon it which goes beyond a proper recompense to the State for the actual use made of the physical facilities provided in the shape of a road. The difficulties are very great in defining this conception. But the conception appears to be based on a real distinction between remuneration for the provision of a specific physical service of which patiicular use is made and a burden placed upon transpmiation in aid of the general expenditure of the State. It is clear that the motor vehicles require, for their safe, efficient and economical use, roads of considerable width, hardness and durability: the H