ATIABARI TEA CO., LTD. versus THE STATE OF ASSAM AND OTHERS. (AND CONNECTED PETITION AND APPEALS)

l S.C.R. SUPREME COURT REPORTS

ATIABARI TEA CO., LTD.

September 26.

THE .STATE OF ASSAM AND OTHERS.

(AND CO.~NECTED PETITION AND APPEALS)

(B. P. SINHA, c. J., P. B. GAJENDRAGADKAR,

IC N. WANCHOO, K. C. DAs GUPTA and J. c. SHAH, JJ.)

Freedom of Trade-If includes freedom from laxation·-State Law imposing tax on goods carried by road or inland waterways--Constitutionaly of-Constitution of India, Arts. JOI and 304-Assani Taxation (on goods carried by Roads and Inland Waterways) Act, Ip54 (Ass. XIII of I954).

The Assam Taxation (on goods carried by Roads and Inland Waterways) Act, 1954, was passed under Entry 56 of List II of Seventh Schedule to the Constitution. The appellants contend-ed that the "Act violated the freedom of trade guaranteed by Art. 301 of the Constitution and as it was not passed after ob-taining the previous sanction of the President as required by Art. 304(b) it was ultra vires. The respondent urged that taxing Jaws were not governed by Part XIII (which contained Arts. 301 and 304) but only by Part XII and in the alternative thatthe provisions of Part XIII applied only to such legislative entries in the Seventh Schedule as dealt specifically with trade, com-raerce ·and intercourse.

Held, (per Gajendragadkar, Wanchoo and Das Gupta, JJ.) that the Act violated Art. 301 and since it did not comply with the provisions of Art. 304(b) it was ultra vires and void. The freedom of trade, con1metce and intercourse guaranteed by Art. J.Ol was wider than that contained in s. 297 of the Govern-ment of India Act, 1935, and it included freedom from tax laws also. Article 3or provides that the flow of trade shall run smooth and unhampered by any restriction either at the bounda-ries of the States or at any other points inside the States them-selves; and if any Act imposes any direct restrictions on the movetnent of goods it attracts the provisions of Art. 301, and its validity can be sustained only if it satisfied the requirements of Art. 302 or Art. 304. The operation of Art. 301 cannot be restricted to legislation under the Entries dealing with trade and commerce. The Assam Act directly affected the freedom contemplated by Art. 3or.

Ramjilal v. Income-tax Officer, Mohindargarh, [1951] S.C.R. 127, M. P. V. Sundararamier Co. v. The State of Andhra Pra-desh, [r958] S.C.R. 1422, James v. Commonwealth of Aitstralia, (1936) A.C. 578, The State of Bombay v. The United Motors (Indio) Ltd., [1953] S C.R. 1069, Saghir Ahmed v. The State of U.P.,

At1abari Tea Co., Ltd. v.

The Stal~ of · ssan1 6- Others

[1955] r S.C.R. 707, James v. Stale of South Australia, (1927) 40 C.L.R. land James v. Cowan, (1932) A.C. 542, referred to.

Per Sinha, C. ].-The Assam Act did not contravene Art. 301 and was not ultra vires. ~either the one extreme posi-tion that Art. 301 included freedom from all taxation nor the other that taxation was wholly outside the purview of Art. 301 was correct. The freedom conferred by Art. 301 did not mean freedom from taxation simpliciter but only from the erection of trade barriers, tariff walls and imposts which had deleterious effect on the free flow of trade, commerce and intercourse. The Assam Act was taxing statute simpliciter and did not suffer from any of the vices against which Part XIII of the Constitu-tion was intended.

Ramjilal v. Income-lax Officer, Mohi11dargarh, [1951] S.C.R. 127, referred to.

Further, the impugned Act was within the competence of the State Legislature and fell directly within Entry 56 of List II; it was not in conflict with the Tea Act of 1953 enacted by Parliament; it did not contravene Art. 14 and it was not extra-territorial in operation.

The Tata Iron & Steel Co. Ltd. v. The State of Bihar, [1958] S.C.R. 1355, followed.

Per Shah, ].-The Assam Act infringed the guarantee of freedom of trade and commerce under Art. 301 and as the Bill was not moved with the previous sanction of the President as required by Art. 304\b) nor was it validated by the assent of the President under Art. 255(c), it was ultra vires and void. Arti-cle 301 guarantees freedom in its widest amplitude, freedom from prohibition, control, burden or impediment in commercial intercourse. The freedom includes not only freedom from dis-criminative tariffs and trade barriers hut also from all taxation on commercial intercourse. Part XIII of the Constitution places restrictions upon the legislati\'f power granted by Arts. 245, 246 and 248 and the Lists and these restrictions include burdens in the nature of taxation.

James v. Commonwealth of Australia, L.R. (1936) A.C. 578, referred to.

ORIGINAL JURISDICTION: Petitions Nos. 246 of 1956 and 2 of 1959 (Under Article 32 of the Constitu-tion of India for enforcement of Fundamental Rights) with C. As. Nos. 126 to 128 of 1958.

1960. August 16, 17. N. C. Chatterjee, with N. C. Chakravarti, Dipti Bose and S. C. Mazumdar for th~ petitioners in Petition No. 246 of 1956 and with P. Chaudhuri, D. N. Mukherji and B. N. Ghose, for the appellants in C. As. Nos. 126-128 of 1958. The Assam

Taxation (on goods carried by road and inland water-

ways) Act, contravenes Art. 301 of the Constitution. Article 301 means freedom from all restrictions includ-ing tax laws. Articles 245 aud 246 are subject to Art. 301. It is wrong to say that taxation is outside the scope of Art. 301. Article 304(a) itself contem-plates the imposition of tax. Article 304(b) may also refer to tax in certain circumstances, in cases other than those covered by Art. 304(a). In enacting Art. 301 the Constituent Assembly rejected s. 297 of the Government of India Act, 1935, and deliberately adopted the Australian s. 92. Movement is an essen-tial ingredient of trade and commerce and there must be no fetter on it; any taxation would be fetter. Taxation is not outside the ambit of Art. 301; I.L.R. 1955 Born. 680, 683. What is commerce· is brought out in the following decisions : 6 L. Ed. 1, 68; [1952] S.C.R. 572, 578; 93 C.L.R. 127; 1936 A.C. 573, 627; A.LR. 1954 Raj. 217.

B. Sen and S. N. Mukherjee, for the petitioners in

Petn. No. 2/59. Article 301 sets out the general free-dom and Art. 302 the restrictions that can be placed on this freedom. Non-discrimination is one of the aspects of the freedom in Art. 301. Article 306 as it stood before its deletion, spoke of taxation or duty on import or export of goods between States. It postu. lated 'taxes' in . Art. 301 ; ·but for the non.obstante clause it would have been affected by Art. 301. . The Supreme Court has discussed the scope of Art. 301 in [1953] S.C.R. 1069, 1079, 1081, 1088. The decision of Chagla, C. J., in I.L.R. 1955 Born. 680 regarding scope of Art. 301 was not reversed by the Supreme Court.

B. K. P. Sinha and A. G. Ratnaparkhi.-With

regard to the scope of Art. 301 reference is invited to the decision in A.LR. 1954 Hyd. 207, A.LR. 1958 M.P. 33, A.LR. 1956 M.B. 214, LL.R. 1952 Mad. 933, 55 C.L.R. 1, 56 and regarding the meaning of export to the decision in LL.R. 1955 Tr. Co. 123.

M. G. Setalvad, Attorney-General of India, with

S. M. Lahiri, Advocate-General of Assam a.nd Naunit

I9[60 ]Atiabari Tea Co., Ltd. v.

The State of Assam & Others

Atiaba1i Ita Co., Ltd.

1 he Stale of .1s11m 0- (Jtiirn•

Lal, for the respondents in Petition I\ o. 246 of 1956 and Civil Appeals Xos. 126-128 of 1958 and Petition !\o. 2 nf 1959, and with T. M. Sen, for the Intervener, Attorney-General of India. Power to tax is an inci-dent of so\·.,reignty. The Power is divided lwtwe"n th,· Union aud the States. Part Xll of the Constit11-tio11 deals with taxatiou-sc1·eral aspects of it. All resuictions on the powers to tax are contaiued iu Part XII which is self-contaiucd. P,u'L Xlll deals with something else. Art. 301 deals with freedom of inter-St.ate as well as intra.~tate trade and is different from s. 92 of the Australian Constitution. In Article 301 freedom of trade onlv mean~ free-dom from trade barriers-it does not: meari freedom from taxation. Taxation simpliciter was not within the terms of Art. 301. Taxation is not restric-tion wit.bin the meaning of .Part Xlll. Article 302 uses the words "in the public interest". If I he res-triction:; contemplated there.in included t.ax, then every tax will have to be justified tu be in the public interest. Hestrictions do uot include taxing measures, utherwise there will be power of judicial review in respect of a.II stH:h taxing measures. Cooley's Cunsti-tutinnal Limitations, 8Lb Edition, Veil. II, p. 986-!J88. Taxation is » peculiarly legislative activity. 1t is likely that if the Constitution makors wanted to put bar on the taxation power, it would barn been pl.-ced in P:~rt XI [ and not left to be inforred from Art. 301; (19.'il] S.C.H. 127, 136-137: [1955] l 8.C.H. 765. The word "r"st.rict.io11" ia very inapt to describe t:txatio11. Apart from Part Ill all restrictions must be found in l'art Xlll so far as taxatiun ia concerned. Article 301 does not start witb the words "notwit,h-sta.oc.Jing anything i11 this Constitution" because it is eonccrned only with small sphere of freedom of trade and commerce and not with taxation. Hestric-tion in these Articles means restriction on movement. The rcstdt of holding ot berwisc would be that even for intra-stale taxes the States will have to go to the Prnsident. and the legislation will be subject to judicial review. If Part 111 as well as Art. 301 apply to tax-ing measures, the question will arise which test would

the Court apply-" reasonable in the interest of the general public " as en visaged by Part III or " in the interest of the public" envisaged by Art. 302. This indicates that neither Part III nor Art. 301 applies to taxiug measures. Article 303 deals with preference and discrimination between one State and another. It is restricted to legislation with respect to the entries regarding trade and commerce within the State, like entry 26, list II and the entries 33 and 42 of list III. Nothing in Art. 303 indicates that the freedom there includes freedom from taxation. Article 304(a) deals with discrimination and not with taxation simpliciter. It lays no restriction on the State taxing goods in its own territory: [1958] S.C.H. 1472. Article 304(a) cannot be interpreted as throwing any light on the scope of Art.. 301. Section 297 of the Government of India Act, 1935, was the predecessor ()f Art. 304, Article 304(a) assumes that there is an existing tax on goods which is not levied under 304(a).

.d t iabari Tea Co., Lid. v.

The State. of Assam &- Others

There is an intermediate position also. Article 301 should be restricted to legislation which is directly with respect to trade and commerce and not to legis-lation, which is in pith and substance not with res-pect to trade but only incidentally or indirectly affects trade and commerce. The Assam Act passed under entry 56 is not legislation with respect to trade and commerce.

Mahabir Prasad, Advocate-General for the State of Bihar, B. K. Saran and K. L. Mehta for the Inter-vener, State of Bihar.-Article 301 merely concerns itself with the restrictions on the free flow of trade and commerce. It deals with policy of protection. Article 302 also contemplates movement and passage of goods. Restriction does not as rule imply taxa-tion. If taxation is imposed with view to restrict goods passing from one State to another, it will become restriction under Art. 301. Article 304(a) permit.s tax on entry of goods equal to the tax on such goods which are in the State. Octroi may be hit by Art. 301 if it is not saved by other provisions. It

Alialuri Te1i

Co., Ltd. v. TJ,e State o/ A.i:s1011 6- Others

Si"h" c. J.

is a. restriction "ithin Art. 301 when it obstructs the movement of trnde.

S. M: Sikri, Advocate.General for the State of Punjab, N. S. Bindra awl T .• V. Sen for the Intervener, the State of Pu11jab. It is impossible lo determine whe-ther panicular tax places reaso11able restrictions and whether it is in-tho public interrst. Article 301 is coucerned with the right of pas•age ge.nerally with respect to tradl' and c<,mmerce and Art. l9(l)(g) with the right. of au individual: 1955 P.L.R. 304: l.L.H. 7 Haj. 7!!4; A.LR. 1960 Andhra 234. Article 302 assumes legislation of Parliament under the entries r~l.i.ting to trade and commerce.

R. Ganapathi Iyer and T. 1l1. Sen, for Intcr\'Cncr

No. 3, the State of Madras adopted the submissio11s rnad<J by the Attorney -General.

G. C. Kasliwal, Adi:ocate-General for the Stale of Raja.sthan and 1'. M. Sen for the Intcrveuer, the State of Hajasthan adopted the submissions mac.le by the Attorney-General.

G. C. li!athur and C. P. Lal, for the Intervener

No. 6, the State of Uttar Prac..lesh, adoptec..I the sub-missions made by t h11 Attorney -General.

N. C. Chatterjee i11 reply. Article 301 is an over-riding provision over all other provisions. It is much wider than R. 297 of the Government of India Act. It applies to all pecuni1~ry burc..lsns and commauc..ls that trade shall be free from all pecuniary burdens: 22 C.L.R. 566; 1936 A.C. 573, 629-630.

1960. September 26. The ,Judgment of Sinha,

C. J., was dcliverec..I by Sinha, C. J. The judgment of Gajendragadkar, \Vanchoo and Das Gupta, JJ., was dMiv«red by Ga.jendraga.dkar, J. and Shah, ,J., deli-vered his own judgment.

SINHA C. J.-These appeals on certificates granted under Art. 132 of the Constitution by the High Court of Judicature in Assam and Writ Petitions under Art. 32 of the Constitution impugn the constituf iona-lity of the Assam Taxation (on Gooc..ls Carried hy Roads or Inland Waterways) Act, (Assam Act XIII

of 1954), which hereinafter will be referred to as the

Act. The appellants moved the High Court under Art. 226 of the Constitution challenging the validit.y of the Act. ·The High Court by its judgment and order dated June 6, 1955, dismissed the writ petitions. Thereupon, the appellants obtained the certificates that the cases involved substantial questions of law as to the interpretation of tbe Constitution. Tbe peti. tions under Art. 32 of the Constitution were moved in this Court for the same purpose of challenging the vires of the Act. Tbe appellants and the petitioners will, in the course of this judgment, be referred to, for tbe sake of convenience, as the appellants: The State of Assam, the Commissioner of TaxeP, appointed under s. 6 of the Act, and the Superintendent of Taxes are the respondents to the appeals and the writ peti-~m, . .It appears that the appellants are growers of tea in West Bengal or in Assam and carry their tea to the market in Calcutta fi;.om where the tea is sold for con-sumption in the country or is exported for sale out of the country. The sale of tea inside Assam bears very small proportion to the tea produced and manu-factured by the appellants. ThuR the. bulk of tea produced atid manufactured is carri~ out of Assam, either for internal consumption in I dia or for export abroad. Besides the tea carried by ail,·a large quan-tity of tea is carried by road or by inland waterwavs from Assam to Bengal and in some of these cas;s, from one part of West Bengal to another part of the same State through inland waterways, only few miles of which pass through the territory of the State ·of Assam. The Assam Legislature passed the Act which received the assent of the Governor of Assam on April 9, 1954, and came into force on and from June 1, 1954. The purpose of the Act is to levy tax-es on certain goods carried by road or inland water-ways in the State of Assam.· On June 30, 1954, the second respondent, the Commissioner of Taxes, Assam, in exercise of the powers conferred upon him by sub. s. (3) of s. 7 of the Act, published notification in the Assam Government Gazette bearing date June 21,

Atiabari Tea Co., Ltd. v.

The State of Assani & Others

Sinha C. ].

1954, by which he notifird for general information that the return uuder the aforesaid Act and the rules Atirr: .. ~; 1'ra Ct· .. Lid. made tl1ereunder for tho period commencing June 1, 1954 to September 30, 1954, Rbould be furnishrd hy '" ,.,,, s""' nf Or.tobor 30, 1954. The said notifil'ation also dema11d-A""'" 1~ Oihm ed the furnishing of quarterly returns before ,January Si11h11 . .f. 30, 1955 and April 30, 1955, for t.hP qnarters Pnding Dect>mber 31, 1954 and Mareh 31, 1!155, resp•·ctirdy. The appellants in some of the casPs, in pursuance of demand noticeR, submittPd returns to the third rPs-pondent, the Superintf·ndent of Taxes, in the pn~scrib­ed form in respect of tea dcspat.ched a11d <'n.rried up to September 30, 1954, under protest. They alsn paid the tax demanded undn protl'st. The apprllar.t~ moved the High Court of Judicature in A~sam_ undrr Art. 226 of the Constitution challenging the \'alidit.y of the said Act. and praying for tht>. i;sue of writ of mandamus directing the respondents to forbear from iriving elfei:~ to the prO\·isionH of the Act and the noti-fication issued under the Act anq/or writ of prohibi-tion or any other appropriate writ restraining t\\i;m from taking steps under the provision" of the Aet. The appellants challenged the validity of the Act mainly on the grounds that (l) the Act, rult-s and the notifications under the Act were ultra vires the Cons-titution, b<,ca.use the Act was repugnant to the pro,·i-~ions of Art. 301 of the Constitution as the tax on carriage of tea through the State of Assam ha<l the effect of interfering with the freedom of trade, com-merce and intercourse; (2) tbat tea being controlled industry under the provisions of the Tea Act XXIX of 1953, tho Union Government alone had the power to regulate the manufacture, production, distribution or transport of tea and the jurisdiction of the Assam Legislature was thus completely ousted; (3) that the tax under the Act was nothing but duty of excise, in substance, though not in form, and was thus an encroachment on the Cent.ral legislative field within the meaning of entry 84 of thP Union List. The im-pugned Act was also challenged on the ground that it was discriminatory and thus void under Art. 14 ofthe Constitution. The competence of the Assam Legis-lature to legislate on the subject was also questioned. The respondents opposed those petitions under Art. 226 of the Constitution in the High Court. It was denied by the State that the Act or the rules made thereunder or the notifications issued thereunder were ultra vires the Constitution or that the Act contraven-ed the provisions of Art. 301 of the Constitution or that it was an encroachment on the sphere of the Union Legislature or was in a.ny way in conflict with the provisions of the Tea Act XXIX of 1953. The case of the respondents was that the Act was in pith a.nd substance, legislation to levy tax on certain classPs and types of goods carried by road or inland waterways, strictly within entry 110. 56 of the State List. It was also asserted that the Act was within the legislative competence of the Assam Legislature and wa.s not within the terms of the prohibition con-tained in Art. 301 of the Constitution.

.r960 Atiaba1'i Tea Co., .Ltd. v. The Slate of Assatt1 0-- Others

.5inha· C. ].

These petitions were heard by Special Bench of the Assa.m High Court, which, by its judgment and order dated June 6, 1955, dismissed them holding that the A6t was not unconst.itut.ional. Two separate, but concurring judgments, were delivered by Sarjoo Pra-sad, C. J. and Ram Labhaya, J. The learned Chief Justice, in the course of his judgment,, held that the Act contem11lated imposition of tax on transport or c<1rriage of goods within the meaning of entry 56 <>f List II and did not amount to interference with the freedom of t.radc and commerce within the meaning of Art. 301 of the Constitution ; that the pith iwd substance of the impugned Act was that it was tax-ing legislation which was not directly concerned with trade and commerce, though it might indirect'ly en-trench on the field of trade and commerce and that Art. 301 was not directly concerned with taxing laws. He also held that the impost levied by the A-ct was not in the nature of an excise duty and that there was no substance in the contention ,that it encroached upon entry 84 of the Union List I. It was also held that the impugned Act did not, in any way, come in conflict with the control of the tea industry

Atiaba-rr 'le(t Co, Ltd. v. The Stalt of Assam &- Othos SiPJ!ta C. }.

introduced by the Central Legislation, namely, the Tea Act XX IX of 1953.

Ram Labhaya, J., examined t.he provisions of the impugned Act in great detail and came to the conclu-sion that the element of C"arriage was expressly made condition of liability to tax under the impugned Act and it was, therefore, distinguishabhi from duty of cxci'e and came directly under l•nt.ry 56 of Li8t II. On the crucial g11eHtion arising in t.his c:ise, his con-clusion was I hat taxation per se has not the effpct of abridgi11g or curtailing thB freedom con tern plated by Art. 301; that Arts. 302 and 304 restrict the powers of Parliament and the State Ll·gislatures in the matter of legislation under cntriPs 42 of List I, 26 of List II and 33 of List III and that restrictionR properly AO called on the movement of goods and traffic must find their justification from t.he provisions of Part XIII of the Constitution; that the impugned Act made prod~ sion for taxation which did not directly impinge upon the freedom of trade, commerce and intercom>'e within. the meaning of Art. 301. His view also was that in some casrs taxation may have the effect. of placing restrictions 011 m1wement of goods Qnd traffic, and if it has that effect, it comes within the mischief of Art. 301. In the result., his conclusion was that the impugned Act in its pith and substance fell within the ambit of entry 56 of List II. Ile also examined the terms of the Union logislation, Tea A<·t Xo. XXlX of 1953, and came to the conclusion that the impugn-ed Act did not trespass upon the field of the controll-ed in<lutitry of tt·a. His conclusion with reference to the argument of discrimination based on Art. 14 was that there was no proof forthcoming of any real dis-crimination between persons and t.hiugs. With tb<>se conclusions Deka, J., the third Judge, entirely agreed. From the judgment of the High Court the appellants have come up in appeal on certificates granted by the High Court. The two petitions under Art. 32 of the Constitution were filed on behalf of two other produ-cers of tea. They raise the same questions a.s a.rise for determination in the three appeals from the deci-sion of the Assam High Court. They ba.ve all been

heard together and will be dealt with by common

judgment.

Mr. Chatterjee, on behalf of the appellants, con-tended that the impugned Act imposed fetLers on the free flow of trade and commerce in respect of tea and jute, the two commodities dealt with by the Act and, therefore, .contravened the provisions of Art. 301 of the Constitution ; that the legislation was .ieyond the legislative competence of the Assam Legislatnre and was not authorised by entry 56 in List lI; that the tea industry was controlled industry as declared by Parliament and directly came under entry 52 of List I; that it was colourable piece of legislation which, in its true effect, was levy of duty of excise which could only be done by the Union Legislature, and finally, that it contravened Art. 14 of the Constitution. ·The learned Attorney General on behalf of the State of Assam as also of the Union contended, on the other hand, that taxation simpliciter was not within the terms of Art. 301. Taxation as such is not restriction within the meaning of Part XIII. It is an attribute of so~ereignty, which is not justiciable. The power to tax is peculiar legislative function with which the courts are not directly concerned and that, therefore, the freedom contemplated by Art. 301 does not mean freedom from taxation and that taxation is not includ-ed within the connotation of the term. " Restriction " in the context of Part XIII meant legislation which had the effect of impeding the free flow of goods and traffic by erection of tariff walls, for example, tariff wall, if erected by Legislature, may be justiciable, hut not legislation simply imposing tax for purposes of revenue. He further contended that Part XII of the Constitution is self-contained part dealing with finance etc., even as Part XIII is self. contained part dealing with trade, commerce and intercourse within the territory of India. He emphasis-ed that the American and Australian decisions are no guide to the decision of the points in controversy in the present case, as the framework of their respective constitutions was entirely different from the Indian

Atiabari Tea Co., Ltd. ·v.

The State of Assa11i 0- Others Sinha C. J.

Atiabari Tea Co., Ltd. v. The State of Assani &- Others Sinha C. ].

Constitution. Particularly, the Australiau Constitu-tion did not contain anything corresponding to Parts III and XII of our Constitution. According to his contention" freedom" in Part XIII meant freedom from discriminatory taxation and freedom from trade barriers. The Advocate-General of the several States who appea.red in this case supported the viewpoint stressed by the learned Attorney General.

The most important question that falls to be deter-mined in this batch of cases is whether the impugned Act infringes the provisions of Part XIII of the Con-stitution, with particular reference to Art. 301. Part XIII is headed "Trade, Commerce and Intercourse within.the Territory of India". Article 301, which is the opening Article in this Part is in very general terms, which are as under:-

"Subject to the other provisions of this part, trade, commerce and intercourse throughout the terri-tory of India shall be free".

It is clear that this Part is not subject to the other provisions of the Constitution and the generality of the words used in Art .. 301 is cut down only by the provisions of the other Articles of this Part ending with Art. 307. It has not been and it could not be contended that the generality of the expressions used in Art. 301 admit of any exceptions or explanations not occurring in this Part itself, nor has it been con-tended that trade, commerce and intercourse are subject to any other fetters. All parties are agreed that trade, commerce and intercourse throughout the territory of India have been emphatically declared by the Constitution to be free, but there is wide diver-gence of views on the answer to the question "free from what?" It has been contended on behalf of the appellants that the answer to this question must be that trade, commerce and intercourse throughout India, shall be free from everything including taxa-tion. On the other hand, the contention on behalf of the Union Government and the State Government is that the freedom. envisaged by Art. 301 does not include immunity from taxation and that freedom means that there shall be no trade barriers or tariff

walls shutting out commodities, traffic and intercourse between individuals, and no shutting in.

Atiabari Tea Co., Ltd. v. The State of & Sinha C. ].

ln order fully to appreciate tho implications of the provisions of Part XIII of the Constitution, it is neces-sary to bear in mind the history and background of those provisions. The Constitution Act of 1935 (Government of India Act, 26 Geo. 5, Ch. 2) which envisaged federal constitution for the whole of India, including what was then Indian India in contradis-tinction to British India, which could not be folly implemented and which also introduced full provincial autonomy enacted s. 297 prohibiting certain restric-tions on internal trade in these terms:-

Act of 1935 Assam & Othm

" 297.-(1) No Provincial Legislature or Govern-ment shal!-

(a) by virtue of the entry in the Provincial Legis-

lative List relating to trade and commerce within the Province, or the entry in that list relating to the pro-duction, supply, and distribution of commodities, have power to pass any law or take any executive action prohibiting or restricting the entry into, or export from the Province of goods of any class or descrip-tion; or

· (b) by virtue of anything in this Act have power

to impose any t.ax, cess, toll or due which, as between goods manufactured or produced in the Province and similar goods not so manufactured or produced, discriminates in favour of the former, or which, in the case of goods manufactured or produced outside the Province, discriminates between goods manufactured or produced in one locality and similar goods manu-factured or produced in another locality.

(2) Any law passed in contravention of this sec. tion shall, to the extent of the contravention, be invalid."

It will be noticed that the prohibition contained in the section quoted above applied only to Provincial Governments and Provincial Legislatures with refe-rence to entries in. the 1 Provincial Legislative List relating to trade and commerce within the Province and to productiqn, supply and distribution of com-modities. That' section dealt with pi:ohibitions or

restrictions in respect of import into or export from Province, of goods generally. It also dealt with the power to impose taxes etc. and prohibited discrimina-tion against goods manufactured or produced outside Province or goods produced in different localities. Part Xlll of the Constitution has introduced all thoso Xlll of the Constitution has introduced all thoso of the Constitution has introduced all thoso the Constitution has introduced all thoso prohibitions, not only in respect of Stato Legislatures, hut of Parliament also. In other words, Part XIII enlarges the scope of tho inhibitions and lays down the limits within which the Union Parliament or State Legislature ma.y legislate with reference to trade, commerce and intercourse inter-State, int.ra-State and throughout tho territory of India.

Aliabari Tea Co., Ltd. v.

n,, Stat• of Province or goods produced in different localities. Assam Othm Part Xlll of the Constitution has introduced all thoso Xlll of the Constitution has introduced all thoso of the Constitution has introduced all thoso the Constitution has introduced all thoso prohibitions, not only in respect of Stato Legislatures, Sinha C. J.

In this connection it has got to bo remembered that before the commencement of the Const.it ution about two-thirds of India was directly under British rule and was called ' British India; and the remaining about one.third was being directly ruled by the Prin-ces and was known as' Native States'. There were a. large number of them with var_ying degrees of sove-reignty vested in them. Thoso rulers had, broadly speaking, the trappings of Sovereign Stato with power to impose taxes and to regulate the flow of trade, commerce and intercourse. It is notorious fa.ct that many of them had erected trade barriers seriously impeding the free flow of trade, commerce and intercourse, not only shutting out but also shutting in commodities meant for mass consum-ption. Between the yea.rs 1947 and 1950 almost all the Indian States entered into engagements with the Government of India and ultimately merged their individualities into India as one political unit, with the result that what was ca.lied British India, broadly speaking, became, undor the Constitution, Pa.rt Stat.es, and subject tc» certain exceptions not relevant to our purpose, the Xa.tive States became Pa.rt States. We also kuow that before the Consti-tution introduced the categories of Pa.rt States, Part States and Part States (excluding Part relating to other territories), Pa.rt States themselves, before their being constituted into so many units, contained many small . States, which formed themselves into

Unions of number of States, and had such trade barriers and custom posts, even inter se~ But even after the merger, the Constitution had to take notice of the existence of trade barriers and therefore had to make transitional provisions with the ultimate objec-tive of abolishing them all. Most of those Native States, big or small, had their own taxes, ceases, tolls and other imposts and duties meant not only for rais-ing revenue, but also as trade barriers and tariff walls. It was in the background of these facts and circums-tances that the Constitution by Art. 301 provided for the abolition of all those trade barriers and tariff walls. When for the first time in the history of India the entire territory within the geographical boundaries of India, minus what became Pakistan, was knit into one political unit, it was necessary to abolish all those trade barriers and custom posts in the interest of national solidarity, economic and cultural unity as also of freedom of trade, commerce and intercourse.

Atiabari Tea Co., Ltd. v.

The State of Assam &,. Others

Sinha C. J.

It is in the background of these facts and circums-tances that we have- to determine the ambit of the freedom contemplated by Art. 301. That Article envisages freedom of trade and commerce with refe-rence to different parts of India as also freedom of movement of individuals in relation to their trade and other activities. Hence, Art. 301 has reference not only to trade _and commerce, as ordinarily under-. stood in common parlance, but also in relation to individuals who have to move with their goods and commodities throughout the length and breadth of the country. Movement of traffic in goods and commodi-ties as also of persons can be by railway or airways, by road or by inland waterways etc., etc. Carriage of goods and passengers by rail way, by sea or by air or by national waterways is covered by entry 30 of List I and taxes on rail way fares and freights and . terminal taxes on goods or passengers carried by rail-way, sea or air come under the purview of entry 89 in the same List. On the other hand, taxes on goods and passengers carried by" road or inland waterways come under entry 56 of List II (State List). It will thus be seen that the Constitution makers contemplated taxes

Aliahan [ta Co., Ltd. v. Tht Sia/a of Assan1 6- Others Sinha C. ).

on goods and passengers to bo imposed by the Parlia-ment on journeys covt>red by railway or by sra or by a.ir; and by State Legislatures on journeys by road or inland waterways. Tho powPr to tax is inl.ierent in sovereignty. The sovereign Stato, in Aome cases the Union, in other ca.sea the Stat~'• has the inherent power to impose taxes in order to raise re\"e11ue for purposes of State. Such a. sovereign power ordinarily is not justiciable, simply because the State in its legislative department has to determine the policy and incidence of taxation. It is the State which dotermincs, through the Legislature, what taxes to impose, on whom and to what extent. The judicial department of the State i• not expected to deal wit.h such u1attern, because it is not for the courts to determine the policy and incidence of taxation. This power of the Stat~ to raise finances for Government purposes ha.s been dealt wit.h by Part XII of the Constitution, which contains the total prohibition of levy or collection of tax, except by authority of law (Art. 265). This Part also deals with the distribution of revenue between the Union and the States. It does not clearly demarcate the taxing authority as bet weon the Union and t.he States a.nd therefore bad to indicate in great detail what taxes shall be levied for the benefit of the l:nion or for tho benefit of tho Statrs and what taxes may be levied and collected by the union for the benefit of tho States and the principle according to w bi ch those revenue8 have to he distributed amongst the con-stituent States of the Union. In short, Pa.rt X ll is self.contained series of provisions relating to tho tina.ncoH of the Union and of tho Statl'B and their inttir-relation and adju;tments (ignoring the provisions in Chapter 2 of that Part relating tu borrowing and Chapter 3 relating to property cont mets etc.). Like Pa.rt XllI, Part XII also is not expressed to be subject to the other provisions of the Constitution. Houce, both Parts XII and XIII are meant to be self contain. ed in their respective fields. It cannot, therefore, be said that the one is subject to the other. But it lias been argued on behalf of the appellants that tho pro-visions of Art. 30! indicate that taxation is withinthe purview of the overriding provisions, as they have been characterised, of Art. 301. But close examina-tion of the provisions of Art. 304 would show that it is divided into two parts, viz., (1) dealing with imposi-tion of discriminatory taxes by State Legislature; and (2) relating to imposition of reasonable restric-tions, thus showing that imposition of taxes, discrimi-natory or otherwise, is class apart from imposition of reasonable restrictions on freedom of trade, com-merce and intercourse. The second part of Art. 304 dealing with imposition of reasonable restrictions on freedom of trade, commerce and intercourse by State Legislature is on line with the imposition by Parlia-ment of such restrictions between one State and another or within any part of the territory of India in public interest, contained in Art. 302. The provisions of Art. 303 further make it clear that the giving of preference to one State over another or discrimination between one State and another are clearly within the purview of Part XIII, that is to say, they are calculat-ed to impede the freedom of trade, commerce and intercourse. There is prohibition against Parliament as also against the Legislature of State making any law giving preference to one State over another or making or authorising the making of any discrimina-tion between one State and another. Bnt the most significant words in connection with giving preference or making discri,mination as envisaged in Art. 303 are with reference to " any entry relating to trade and commerce in any of the Lists in the Seventh Schedule'', that is to say, entry 42 in List I, entry 26 in List II and entry 33 in List III of the Seventh Schedule. Hence, any legislation nnder those entries wbicb has the effect of directly interfering with trade, commerce and intercourse being free throughout the territory of India has to be struck down as infringing the pro-visions of Art. 301. But in this matter also the Con-stitution makers bad before them situations of emerg-ency, say for example, created by drought or overflood-ing resulting in .scarcity of commodities like food grains etc. In such situation,. Parliament has bet'n armed with the power to grant preference to one State over

Atiaba~i Tea Co., Ltd. v.

The State o-f Assani 6- Others Sinha C. ].

Atia'"1a1i Tra Co., Ltd. v.

The State of Assa1n 6- Othrrs Sinha C. }.

another or to mako discrimination as between two and more States if the Law dealing with such situa-tion declares that it is necessary tu do so in order tu deal with an emergency like the one referred to above. In this connect ion it may not be ompha.sised that Art. 303 has not been rnry accurately worded inasmuch as the non obs/ante clause, with which the Article opens, has reference only to Art. 302, which empowers Parlia-ment to impose by law restrictions on the freedom of trade, commerce or intercourse, inter-State or intro.-State, in public interest. But the non obstante clause is immediately followed by reference not only to Parliament hut also tu the Lt•gislature of State which are armed .with the power of giving preference or making discrimination as aforesaid in respect of the e11trics relating to trade and commerce in any of tho lists in the l:it,venth Schedule. Here, no',reforence is ma.de to intercourse. But as the present controversy is not concerned with the freedom of intArcourse, as distinguished from thH freedom of trade and com-merce, no more need be said about that omission.Learned counsel fur the appellants vehemently .argued that the freedom cont~mpla.ted by Art. 301 must be construed iu its most comprehensi,·e sense of freedom from a.II kinds of impediments, restraints and trade barriers, inrl11ding freedom from all taxation. In my opinion, there is no warrant for Huch an extrt,me position. It has to be rt>membercd that trade, commerce and iut~rcourse include individual freedom of movement of evnv citizen of India. from State to State, which is also guirantced by Art. 19(l)(d) of the Const.itution. The three terms used iu Art. 301 include not only free buying and selling, but also the freedom of bargain and contra.ct and transmission of informa-tion relating to such bargains and contmcts as also transport of goods and commodities for tho purposes of production, distribution and coneumption in all their aspects, that is to say, tmnsporta.tion by land, air or w1tt.er. They must also include commerce not only in goods and commodities, but also transportation of men aud animals by all means of transportation. Com-merce would thus include dealings over the telegraph,

telephone or wireless and every kind of contract relat. ing to sale, purchase, exchange etc. of goods and com-modities.

Atiabari Tea Co., Ltd. v.

Viewed in this all comprehensive sense taxation on trade, commerce and intercourse would have many ramifications and would cover almost the entire field of public taxation, both in the Union and in the State Lists. . It is almost impossible to think that the makers of the Constitution intended to make trade, commerce and intercour,<;e f~ee 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 Art. 301 and the proviso to Art. 304 (b) would make it 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 impedi-ment to the power of taxation vested in the States and reduce the States' limited sovereignty under t be Constitution to mere fiction. That extreme position has, therefore, to be rejected as unsound.

The State of Assam & Others

Sinha C. ].

In this connection, it is also pertinent to bear in mind that all taxation is not necessarily an impedi-ment or restraint in the matter of trade, commerce and intercourse. 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, un-less 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 certain rate per maund or ton of sugarcane transported to sugar factories. Such an imposition is tax on trans-port 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

Atiabt11i T~a Co., I.Id. ,. Tlit Sl<Ht (lj Assam 6- Otlit1·_.; Sinha C. J.

communication or for improving old ones. It cannot, t.lwrrfol'e, be said that taxation in every case must mean au impediment or restraint against, free flow of trade a.nd comnwrcc. l:'imilarly, for I he faeility of passengers and goods by motor trnnsport or by rail-way, surchal'g,1 on usua.l fares or freights is Je,·ied, or may be levied in future. But for such 8Urchargc, improvement in tho mea.ns of communication may not be available at all. Hence, in my opinion, it is not correct to characterise tax on movement of goods or passengers as necessarily connoting a.n impediment, or restraint, in the matter of trade and commerce. That is another good reason in support of the conclu-sion that taxation is not ordinarily included within the terms of Art. 301 of the Constitution.

In my opinion, another very cogent reason for hold-ing that taxation simpliciter is not within the terms of Art. 301 of the Constitution is that the vory connota-tion of taxation is the power of the State to raise money for public purposes by compelling the payment by persons, both natural and juristic, of monies earned or possessed by them, by virLUe of the facilities and protection afforded by the State. Such burdens or imposts, either direct or indirect, are in the ultimate analysis meant as contribution by the citizenA or per8ons residing in the State or dealing with the citizens of the State, for the support of the Govern-ment, with particul<ir reference to their respective abilities to make such contributions. Thus public purpose is implicit. in every taxation, as such. There-fore, when Part XIII of tho Constitution speaks of imposition of reasonable restriction>! in public interest, it could not have intended to include taxation within the generic term "reasonable restrictions''. This Court has la.id it down in the case of Ramjilal v. In-come 'J'ax Officer, Jlfohindargarh (')that imposition and collection of taxes by authority of law envisaged by Art. 265 is outside the scope of the expression "depri-vation of property" in Art. 31(1) of the Constitution. H.ea~onable restrictions as used in Pa.rt II I or Pa.rt XI II of the Constitution would in most cases be less

lt) (1951] S.C.R. 127, 136.

1 S.C.R. SUPREME COURT REPORTS

than total deprivation of property rights. Hence, Part XII dealing with finance etc. as already indicat-ed, has been treated as Part dealing with the sove-reign power of the State to impose taxes, which must always mean imposing burdens on citizens and others, in public interest. If law is passed by the Legis-lature imposing tax .which in its true nature and effect is meant to impose an impediment to the free flow of trade, commerce and intercourse, for example, by imposing high tariff wall, or by preventing imports into or exports out of State, such law is outside the significance of taxation, as such, but assumes the character of trade barrier which it was the intention of the Constitution makers to abolish by Part XIII. The objections against the contention that taxation was included within the prohibition con-tained in Part XIII may thus be summarised : (1) Taxation, as such, always implies that it is in public interest. Hence, it would be outside particular restric-tions, which may be characterised by the courts as reasonable and in public interest. (2) The power is vested in sovereign State to carry on Government. Our Constitution has laid the foundations of 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 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 certain taxations with refe-rence to movement of goods and passengers would be rendered ineffective, if not otiose, if it were held that taxation simpliciter is within the terms of Art. 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 Arts. 303 and 304, thus very much detracting from the limited sovereignty of the States, as envisaged by the Constitution. (4) Laws relating to taxation, which is essentially legislative function of the State, will become justiciable and every 106

tiabari Tea Co., Ltd. v.

The State of Assam &- Others

Sinha C. ].

Atu1'.iari Tta Co., l.td

Th:' Stair ~,( A.ssam ~~ (J1h~t~ Su.Jui C_ J.

time taxation law is challenged as unconstitutional, the State will have to Hatisfv the courts-a eonrse which will seriously affect the division of powers on which modern constitutiorrn, including ours, are based. (5) Taxation on movement of goo<ls and passengers is not necessarily an impediment.

That conclusion leads to discussion of tlu, other extreme positiou that taxation is wholly out of tho purview of Art. 301. Th:J.t extreme position i:; equally untenable in view of the fact that Art. :J04 contains, and Art. 306, before it was repealed in 1956, cun-taiuo<l, reforeuce tu taxation fur certain purposos men-tioned in those Art.icll•S. But Art. 306, which now stands repealed, contained references to tax or duty on the import of goods into one State from another or on the exports of goods from one State to another. Such imposts were really in the nature of impediments to the .free flow of goods and commodities on account of customs barriers, which it was the intention of Art.. 301 to abolish. Similarly, Art. 304 while recognising the power of Sta.to Legislature to tax goods imported · inter-State, insists that similar tax is imposed on goods manufactured or produced within the State. The Article thus brings out t.he clear di8tinction· bet-\feen taxation as such for the purpose of revenue and taxation for purposes of making discrimination or gi\·ing preference, both of which are treated by the Constitution as impediments to free trade and com-merce. 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 S~ate and another, including in this expression Union territories also, its legality was not subject to an attack based on tho provisions of Part XIII. But that does not mean that State Legislatures derive their power of taxation by virtue of what is contained in Art. 304. Article 304 only left intact such power of taxation, but con-tained the inhibition that such taxes shall not be permitted to have the effect of impeding the free flow of goods and commodities.

Article 301, with which Part XIII commences, con-tains the crucial words "shall be free " and prov ides

the kev to the solution of the problems posed by the whole ·Part. The freedom declared by this Article is not an abso.lute freedom from all legislation. As already indicated, the several entries in the three Lists would suggest that both. Parliament and State Legislatures have been given the power to legislate in respect of trade, commerce and intercourse, but it is equally clear that legislation should not have the effect of putting impediments in the way of free flow of trade and commerce. In my opinion, it is equally clear that the freedom envisaged by the Article is not an absolute freedom from the incidence of taxation in respect of trade, commerce and intercourse, as shown by entries 89 and 92 in List I, entries 52, 54 and 56 to 60 in List II and entry 35 in List Ill. All these entries in terms speak of taxation in relation to different aspects of trade, commerce and intercourse. The Union and State Legislature, therefore, have the power to legislate by way of taxation in respect of trade, commerce and intercourse, so as not to erect trade barriers, tariff walls or imposts, which have deleterious effect on the free flow of trade, commerce and intercourse. That freedom bas further been circumscribed by the power vested in Parliament or in the Legislature of State to impose restrictions in the public interest. Parliament has further been authorised to legislate in the way of giving preference or making diserimination in certain strictly limited circumstances indic:ited in cl. (2) of Art. 303. ThuR, on fair construction of the provisions of Part XIII, the following propositions emerge: (1) trade, com-merce, and intercourse throughout the territory of India are not absolutely free, but are subject to certain powers of legislation by Parliament or the Legislature of State; (2) the freedom declared by Art. 301 does not mean freedom from taxation simpli-citer, but. does mean freedom from taxation which has the effect of directly . impeding the free flow of trade, cOiilmerce and intercourse; (3) the freedom envisaged in Art. 301 is subject to non-discriminatory restric-tions imposed by Parliament in public interest (Art. 302); (4) even discriminatory or preferential legisla-

Atiabari Tea Co., Lid. v.

The Stale of Assani & Others

Sinha C. ].

.-4tiabaYi J"eu C()., LJd. v.

The Stale of Assam 6- Others Sinha C. ].

tion ma.y be made by Parliament for t.hc purpose of dealing with a.n emergency like a. scarcity of goods in a.ny pa.rt of India. (Art. 303(2)); (5) reasonable restric-tions ma.y be imposed by the Legislature of Sta.te in the public interest (Art. 304(b)); (6) non-discrimina-tory taxes ma.y be imposed by the Legislature of a. Sta.te on goods imported from another State or other Sta.tea, if similar ta.xes a.re imposed on goods pro-' duced or ma.nufa.ctured in that Sta.te (Art. 304(a.)); a.nd lastly (7) restrictions imposed by existing la.ws ha.ve been continued, except in so far a.s the President ma.y by order otherwise direct (Art. 305).

After having discussed the arguments for a.nd against the proposition that Art. 301 includes within its large sweep ta.xa.tion simpliciter, I now proceed to discuss the terms of the impugned Act. in order to find out whether in the light of the discussion abovt>, any of its provisions are liable to be struck down as unconstitutional, because they infringe Art.. 301, as contended on behalf of the appellants. The Act, as the preamble shows, is intended to " impose tax on certain goods carried by road or inland waterways". "DealEll' "·has been defined in s. 2(4) as under:-

" 'Dea.ler' means person who owns jute in bales

before it is carried by motor vehicle, cart, trolley, boat, a.nimal and human agency or any other means except railways or airways and includes his a.gent."

Producer has boon defined by cl. (12) of s. 2 as follows:-

"'Producer' means producer -0f tea. and includes the person in charge of the garden where tea is pro-duced".

Section 3, which is the charging section, provides that manufactured tea in chests carried by motor vehicle, etc., except railways and a.irwa.ys, shall be liable to tax at a. certain rate per pound of such tea. and that this tax shall be realised from the producer. It also provides that jute carried in bales by motor vehicle, etc., except railways and airways, shall ho liablu to a. tax at a. certain rate per maund on such jute, which shall be realised from the dealer. It is not necessary

to set out the rate of taxes aforesaid, because no argu-r96o ·ment was advanced to the effect that they were liabari T ~a oppressive or exc~ssive. The tax on manufactured co., Ltd. tea in chests is to be paid by the producer, which v. term includes the person in charge of the garden where Th• Stal• of tea is produced. This provision has occasioned the Assam .s. Othm argument that it is an excise duty in the garb of tax and will be dealt with later in the course of this Sinha c. f. judgment. The tax on jute carried in bales is made realisable from the dealer which means person who owns the jute in bales. Section 6 lays down the taxing authorities. Section 7 requires every producer and dea-ler to furnish returns of such tea or such jute as have been made liable to tax under s. 3, as aforesaid. Sec-tion. 8 makes provision for licensing of balers, w hioh means persons who own or possess pressing machine for the compression of jute into bales. Section 9 lays down the procedure of assessment and s. 10 the pro. cedure for cancellation of assessment in certain cir-cumstances. Section 11 lays down the procedure for assessment in such cases as have escaped assessment or there has been an evasion of the tax. It is not necessary to refer to the other provisions of the Act, because they are not relevant to the arguments ad-vanced at the Bar. It will be seen from the bare summary of the relevant provisions of the statute that it is taxing statute simpliciter without the least suggestion even . of any attempt at discrimination against ·dealers and producers outside the State of Assam or of preference in favour of those inside the State. On the face of it, therefore, the Act does no,t suffer from any of the vices against which Part XIII~ of the Constitution was intended. It has not been sug. gested that the Act imposes heavy burden on the dealer or the producer as the case may be. On the terms of the Statute, it cannot be said that it is in-tended to put obstacles or impediments in the way of free flow of traffic in respect of jute and tea. On the face of it, it would not be in the interest of the State of Assam to put any such impediments, because Assam is large producer of those commodities and the market for those commodities is mainly in Calcutta.

tiabari T ta Co, l.td. v.

Tise State of Assan1 6- OU1ers Sinha C. ].

In those circumstances, it is difficult, if not impossible, to come to the conclusion that the Act comes within the purview of Art. 301 of the Constitution. If th&t is so, no further consideration a.riRrng out of t.he other provisions of Pa.rt XIII of the Constitution ca.Ila for a.uy deciRion.

Having thus disposed of the ma.in ground of attack a.gs.inst the constitutionality of the Act based on Art. 301 of the Constitution, it is necessary to advert to the other contentions raised on behalf of the appel-lants. It has been contended that the Act is beyond the legislative competence of tho Assam Legislature. We have, therefore, to address ourselves to the ques-tion whether or not it is covered by any of the entries in List II of the Seventh Schedule. Entry 56, in its very terms, " Taxes on goods and passengers carried by rail or in inland waterways", completely covers the impugned Act. There is no occasion in this case to take recourse to the doctrine of pith and substance, inasmuch as the Act is simple piece of taxing statute meant to tax transport of goods, in this case jute a.ad tea, by road or on inland waterways. In my opinion, it is very simple case of taxation completely cover-ed by entry 56, but the argument a.gs.inst the compe-tence of the Assam Legislature has been sought to be supported by the subsidiary contention that though in form it is tax on the transport of goods within the terms of entry 56, in substance it is a.n imposition of excise duty within the meaning of entry 84 in List I of the Seventh Schedule, but, in my opinion, there is no substance in this contention for the simple rell.-son that so long a.s jute or tea. is not sought to be transported from one pla.c'e to another, within the State or outside the Ste.te, no te.x is sought to be levied by the Act. It is only when those goods a.re put on motor truck or a. brat or steamer or other modes of transport contemplated by the Act, that the occa-sion for the payment of tax arises. similar argu-ment was ·Ava.need in the case of The Tata Iron & Steel Co. Lid. v. The State of Bihar ('),and Das, C. J., delivering the majority judgment of the Court, dispos-ed of the argument that the tax in that case was not (2) [19,8] S.C.R. 13,,.

on sale of goods, but was, in substance, a. duty of excise, in these terms:

i96o Atiabari T•" co., Ltd. v. Th• Stat• •!· .s- Others Sinha c. f.

"This argument, however, overlooks the fact co., Ltd. that under cl. (ii) the producer or manufacturer be-v. ca.me liable to pay the tax not because he produced Th• Stat• •!· or manufactured the goods, butr because he sold the Assam .s- Others goods. In other words the tax was la.id on the pro-ducer or manufacturer only qua. seller and not qua. Sinha c. f. manufacturer or producer as pointed out in Boddu Pa.ida.nna.'s case (1942) lf.C.R. 290. In the words of their Lordships of the J udicia.l Committee in Governor Genera.I v. Province of Madras, 72 I.A. 91 at p. 103, ' a. duty of excise is primarily a. duty levied on a. manu-facturer or producer in respect of the commodity manufactured or produced. It is a. tax on goods not on sales or the proceeds of sale of goods '. If the goods produced or manufactured in Biha.r were destroyed by fire before sale the manufacturer or producer would not have been liable to pay any tax under s. 4(1) read with s. 2(g), second proviso. As Gwyer, C. J., said in Boddu Pa.ida.nna.'s case, supra., at p. 102, the manu-facturer or producer would be 'liable, if at a.II, to' a. sales-tax because he sells and not because he manu-factures or produces; and he would be free from liability if he chose to give a.way everything ·which came from his factory'." (See p.1369 of the Report). The observations quoted a.hove completely cover the present controversy. The Legislature has chosen thti dealer or the producer as the convenient agency for collection of the tax imposed by s. 3, but the occasion for the imposition of the tax is not the production or the dealing, but the transport of those goods. It must, therefore, be held that the Act does what it sets out to do, namely to impose a. tax · on goods carried by road or on inland waterways.

Another line of argument directed to the same end, namely, of attacking the competence of the Assam Legislature was that it impinged on the provisions of the Tea. Act, XXIX of 1953. It was argued that the tea. industry was a. controlled one within the compet-ence the Union Legislature. The Tea. Act declared that it was. expedient in ~he public interest that the

Atiabari Tea Co., Lid. v. Tlte Stalt of Assan1 tS- Othtrs Sinho C. ].

Union should take the tea industry under its control. With view to controlling the industry in public interest the Act established the Tee. Boe.rd (s. 4) whose function it was, inter alia, to regulate the production e.nd extent of cultivation of tea, of improving the quality of tee., of promoting co-operative effort e.mong growers and manufacturers of tea, etc., etc. (s. 10). With the objectives aforesaid, Chapter III le.ys down pro-visions for the control over the extension of tea culti-vation and Chapter IV deals with provisions for con-trol. over the export of tea and tea seed. Chapter V le.ys down provisions for the imposition of duty of customs on export of tee. outside Indie. and the pro-ceeds of the oeBB thus levied have to be credited to the Consolidated Fund of India. Out of the.t Fund, ce.lled the Tea Fund, the expenses of the establish. ment created by the Tee. Act he.ve to be met. The rest of the provisions of the Act are mee.nt to impJe. ment the main provisions of the Act. There are no provisions of the Tea Act which ce.n be said to come into conflict with the provisions of the impugned Act. In our opinion, therefore, this ground of attack e.lso fails.

third line of argument against the constitutiona-

lity of the Act we.s that it is extra. territ-0rial in its operation in so far as it purports to tax producers e.nd dealers who may not be residents of the State of Assam. This argument bas been advanced in the in-terest of the appellants and petitioners from West Bengal, who have to carry their goods by roe.d or on we.terwe.ys pe.ssing through the territory of Asse.m, from one part of West Benge.I to e.nother. So far as this group of cases is concerned, the main grieve.nee of the appellants is that no doubt their goods have to pe.ss through portion of the territory of Assam, but the goods have been produced, pe.cked and transport-ed as merchandise from one part of West Bengal to e.nother part of the se.me State. It is not denied that there is some ree.l e.nd subste.ntie.J nexus to support the taxing ste.tute, but it is contended that rele.tively to the whole journey to be covered by the merchan-dise, the portion of the territory of Assam covered in

that journey is very small. But in jndging the vali~ dity of legislation with reference to the contention based on extra.territoriality it is not relevant to coq-sider the question of the proportion between the extent of territorial nexus to the whole length of the journey. If goods belonging to or carried by the appellants traverse any of the territory of Assam the taxation cannot be successfully assailed on this ground, once it is held that it was within the legisla-tive competence of the Legislature imposing the tax in question. See in this connection the observations of this Court in The Tata Iron and Steel Co. Ltd. v. The State of Bihar (1) at pp. 1369to1371, where Das, C. J., speaking for the majority of the Court, has examined the theory of nexus with reference to large body of case.Jaw bearing on the question. I respectfully adopt that line of reasoning and hold that the Act does not suffer from .the vice of extra-territoriality. It is true that the incidence of the taxation may fall upon per-sons not· ordinarily residing in the State of Assam or upon./goods not produced in Assam, but, in this con-nection, it is enough to point out that what has been said above in respect of the tax being in the nature of duty of excise applies which equal force to this pa.rt - of the argument also. The tax is leviable from such goods as traverse in their journey any pa.rt of the territory of Assam, not because the owners or the pro-ducers are residents of Assam, but because the water-way or the roadway situate in the territory of Assam has been utilised for portion of the journey.· It is clear, therefore, that there is no infirmity attaching to the Act on the ground that it is extra-territorial in its operation ..

Atiabari Tea Co., Ltd. v. The State of Assam & Others Sinha C. ].

It only remains to consider the last ground of attack, namely, that the Act is discriminatory in character and thus infringes Art. 14 of the Constitu-tion. In this connection, it has been argued that only tea in chests and jute in bales have been selected for taxation, leaving the same commodities in other hands or in other forms, or in · other receptacles (1) [1958] S.C.R. 1353. 107

Jftiabari Tea Co., Lid. v. Tiet Stale of .fssan1 IS- Others Sid• C. J.

free from the incidence of the te.xa.tion in question. The Legislature he.s chosen to tax the transport over land or over waterways of those commodities, in chests or in bales, e.ppe.rently because those a.re the most convenient and usually employed methods of pa.eking for ca.rrie.ge of those goods to long distances . Hence, it is not a. ce.se of choosing for tho purposes of taxation one class of goods in preference to a.nothor class of tho same variety. The Legislature w11.s out to tax the transport of those commodities e.nd must be presumed to he.1te selected the most conveuiont wa.y of doing it. It has not been suggested the.t e.ny le.rge a.mount of such commodities is transported o\·er long distances, otherwise than in chests or be.Jes. Furl.her. more, if the Legislature has to te.x something, it i~ not bound to tax that thing in all its forms a.nd va.rie. ties. It me.y pick and choose with view to raising suoh amount of revenue as it sets out to do. It is not for the courts to say that. there were other ways of doing the thing or that a.II forms a.nd v arities should have been brought under the scope of the .taxation. It is open to the Legislature to impose a. .ta.x in a. form and in a. wa.y which it deems most convenient for the purposes of collection a.nd calculation of the te.x.

As e.11 the grounds of a.tta.ck raised age.inst the con. stitutiona.lity of the Act fa.ii, the appeals and the petitions, in my opinion, should be dismissed with costs.

I have deliberately refrained from me.king referen.

ces to or relying upon decisions from other countries like the U. S. A. or Australia, because the cases deci-ded in those countries cannot be any guide. for the solution of the problems raised in this case iuasmuch a.s the framework of the Constitution in those coun-tries is not in pari materia with ours. Any precedents deciding cases on the construction of statutes, which a.re worded differently from ours, cannot, in my opi-nion, be a. safe guide for the decision of ~ontroversies raised in terms of our Constitution.

I regret to have to differ from the majority of thP

Court, but my only justification for ta.king a. different view ia that my reading of Part XIII of the

Constitution does not justify the inference that taxation

simpliciter is within the terms of Art. 301 of the Con-stitution.

Aliabari Tea' Co ... Ltd. The ;,~,, of & . Gaj•Mfagadkar · ·

GAJENDR.A.G.A.DK.A.R J.-The vexed question posed The ;,~,, of by the construction of the provisions of Part XIII of Assam & 01hers the Constitution which has been incidentally discussed . in some reported decisions of this Court falls to be Gaj•Mfagadkar J. considered in the present group of cases. This group· · · consists of three appeals brought to this Court with certificate issued by the Assam High Court under Art. 132 and two petitions filed under Art. 32. The three appellants are tea companies, . two of which (Civil Appeal No. 126 of 1958 and Civil Appeal No. 128 of 1958) carry on their trade of growing tea in the District of Sibsagar in Assam while the third (Civil Appeal No. 127 of 1958) carries on its trade in Jalpaiguri in West Bengal. All the three companies which would be described hereafter as the appellants carry their tea to Calcutta in order that it may be sold in the Calcutta market for home consumption or expQ.rt;outside India..-Tea. produced in Jalpaiguri has also to pass through few miles of territory in the State of Assam, while the tea produced in Assam has to go all the way through Assam to reach Calcutta. It appears that very small proportion of tea produc-ed and manufactured in Assam finds market in Assam itself; bulk of it finds its custom in the market at Calcutta. Besides the tea which is carried by rail substantial quantity has to go by road or by inland waterw&ys and as such it becomes liable to pay the tax leviable under the Assam Taxation (on goods car-ried by Roads or Inland Waterways) Act, 1954 (Act XIII of 1954) (hereafter called the Act). The Act has been passed by the Assam Legislature in order to provide for the levy of tax on certain goods carried by road or inland waterways in the State of Assam and it has received the assent of the Governor on April 9, 1954. On behalf of the State of Assam, which will be described hereafter as respondent, its officers required the appellants to comply. with the several requirements imposed by the Act, and made tax

1 96o demands on them in respect of the tea carried by them. The tax thus demanded was J>aid bv the Aliabari 1·ta .; Co., Ltd. appellants under protest, and soon thereafter petitions v. were filed in the Assam High Court under Art. 226 The State of challenging the validity oft he Act aR well as the tax Assam .s. Othm demands made by the officers of the respondent. By . dk 4 1 [their respective petitions the appellants prayed ][that ][a ]a[[1]]e• raga ar ·writ of mandamus should issue directing the respond-ent and its officers to forbear from giving effect to the provisions of the Act and from otherwise enforcing it against the appellants. The petitioners also claimed alternatively writ of prohibition or any ot.her appro-priate writ restraining the respondent and its officers from enforcing the Act against the appellants. That is how the validity of the Act came before the Assam High Court.for judicial scrutiny.

Aliabari 1·ta Co., Ltd. v. The State of Assam .s. . dk 4 a[[1]]e• raga ar

The appellants challenged th.e vires of the Act on several grounds. The principal ground, howe1·er, was that the Act had violated the provisions of Art. 301 of the Constitution, and since it did not comply with the provisions of Art. 304(b) it was ultra vires. It was also urged that tea. was controlled industry under the provisions of Act 29 of 1953, and so it was the Union Government alone which was competent to regulate the manufacture, production, distribution or transport of the said commodity ; that be;'lg so tho Assam Legislature was not competent to pass the Act. The validity of the Act was further challenged on tho ground that, though the Act purported to have been passed under Entry 56 of List II, in substance and in reality it was duty of excise and as such it could be enacted only under Entry 84 of List I. According to the appellants the Act also suffered from the vice that it was violative of tho fundamental right of equality before the law guaranteed by Art. 14.

The correctness of these contentions was disputed

by the respondent. It urged that the Act was per-fectly within the competence of the Assam Legisla-ture under Entry 56 of List II and that the provisions of Part XIII were wholly inapplicable to it. The respondent further pleaded that Art. 14 had not been violated and that therP was no substance in the

argument that as controlled industry it is only the '9[60 ]Union Government which could deal with it or that · tiabari Tea in reality the Act had imposed dutv .J of excise . Co., Ltd. The petitions_ filed by the appellants were beard by v. · Special Bench of the Assam High Court. All the The State of pleas raised by the appellants were rejected by Sarjoo Assam & Others Prasad, C. J. and Ram Labbaya, J., who delivered, _ -dk . . t Th ll t Ga;endraga aY separate ut concurrmg JU gmen s. appe an .s then applied for and obtained certificate from the High Court under Art. 132 ; that is how the three appeals have come to this Court, and they raise for our decision all the points which were argued before the High Court. Naturally the principal contention which has been urged before us at length centres round the applicability of Part XIII.

_ -dk t Ga;endraga aY ].

The two petitions filed under Art. 32 raise substan-tially the same question. The petitioners are tea com-panies which carry on the trade of growing and manufacturing tea in Jalpaiguri in West Bengal. The respondent has attempted to subject the petitioners to the provisions of the Act, and the petitioners have challenged the authority of the respondent to levy tax against them ·under the Act on the ground that the Act is ultra ~·ires. Since the principal question raised in these appeals a.ppcared to be of considerable importance in which other States may also be inte-rested we directed that notice should be issued to the Attorney-General of India atid the Advocates-General in all the States of India. Accordingly the Attorney. General appeared before us and the States of Bjhar, Madras,,Punjab, Rajasthan and Uttar Pradesh have also been heard.

The challenge to the vires of the Act on the ground that it contravenes Art. 301 necessarily raises· the question about the construction of the relevant provi-sions in the said Part. Art. 301 with which Part XIII begins provides that "subject to the other provisions of this Part trade, commerce and intercourse through-out the territory of India shall be free". The appel-lants contend that this provi8ion imposes limitation ;)<; the legislative power of the State Legislatures as well as,the Parliament, and the vires of the Act will1960 have to be judged on that basis. Tho words used in Atiahan rm rt. 301 a.re wide and unambiguous and it would be co, I.id. unroaeona.ble to exclude from their ambit a. taxing v. law which restricts trade, commerce or intercourse The Stale of either direct.ly or indirectly. On the other hand, the Assam 6- Othm respondent -the Attorney.General, and the other States -d have urged that taxing laws stand by themselves; a;e>1draga [. ]kar ].th ey a.ro governe db y t I 1e prov1s1ons o . . p" a.rt XII an no provision of Part XIIl can be extended to them. In the alternative it has been suggested that the pro. visions of Part Xlll should be applied only to such legislative entries in the Seventh Schedule which deal with trade, commerce and intercourse. This alterna-tive a.rgumPnt would bring within the purview of Pa.rt X Ill Entry 42 in List I which refers to inter-State trade and commerce, Entry 26 in List 11 which des.ls wit.h tea.de and commerce, within the State sub-ject to the provisions of Entry 33 in List III, and Ent-ry 33 in List III which deals with trade and com-merce as therein specified. The arguments thus presented by both the parties appear prima facie to be logical and can claim the merit of attractive sim-plicity. The question which we have to decide is which of the content.ions correctly represents the true position in law. Does truth lie in one or tho other contention raised by the parties, or docs it liti mid way betwe~n those contentions? This problem has to be resolved primarily by adopting fair and reasonable construction of the relevant Artidcs in Part XII [; but beforo we attempt- that task it would be relevant to deal with some general considerations. Let us first recall the political and constitutional background of Part XIII. It is matter of common knowledge that, before the Constitution was adopted, nearly two-thirds of the territory of India was subject to British Rule and was then known a.s British India, while the remaining part of the territory of India was governed by Indian Princes and it consisted of several lndian States. largo number of these States claim-ed sovereign rights within the limitations imposed by the paramount power in that behalf, and they pur-ported to exercise their legislative power of imposing

taxes in respect of trade and commerce which inevit. I96o ably Jed to the erection of customs barriers between Atiabari Tea themselves and the rest of India. In the matter of Co., Ltd. such barriers British India was governed by the pro. v. visions of s. 297 of the Constitution Act, 1935. To the The State of provisions of this section we will have occasion later Assam Others to refer during the course of this judgment. Thus, . -pr10r to · 1 9 O 5 t fl ow o tra an commerce was Ga;endrngadkar impeded at . several points which constituted the boundaries of Indian States. After India attained political freedom in 194 7 and before the Constitution was adopted the historical process of the merger and integration of the several Indian States with the rnst of the country was speedily accomplished with the result that when the Constitution was first passed the territories of India consisted of Part States which broadly stated represerited the Provinces in British India, and Part States which were made up of Indian States. This merger or integration of Indian States with the Union of India waa preceded by the merger and consolidation of some of the States interse between themselves. It is with the know ledge of the trade barriers. which had been raised by the Indian States in exercise of their legislative powers that the Constitution-makers framed the Articles in Part XIII. The main object of Art. 301 obviously was to allow the free flow of the streri.m of trade, com. meroe and intercourse throughout the territory of India.

The State of Assam Others . -Ga;endrngadkar J.

In drafting the relevant Articles of Part XIII the. makers of the Constitution were fully conscious that economic unity was absolutely essential for the stabi-lity and progress of the federal policy which had been adopted by the Constitution for the governance of the country. Political freedom which had been won, and political unity which had been accomplished.by the Constitution, had to be sustained and strengthened by the bond of economic unity. It was realised that in course of time different political parties believing in different economic theories or idealogies may come in power in the several constituent units of the Union, and that may conceivably give riae to local and

1Y60 regional pulls and pressures in economic matters. Atiaban T.a Local or regional fears or apprehensions raised by local co. l.td. or regional problems may persuado the State Leg isle.-"· turcs to adopt remedial measures intended solely for The State of the protection of regional interests without due n·gard A""'" & 0[[11]]·"'' to their effect on tho economy ·ofthe natiu11 as whole. •Je" d'"("''"' [[·--]]· 1[[• ]]1 ·1· ['The objec•t ]1ty. i· v ree [of ]movement [Pa.rt ][XlII ]all( exc [was to avoid such ]1 I w.nge o g110 ~ [a. ]t rough-h [p088ibi-]out the territory of India is essc11tiu.l for the economy of the nation and for sustaining and improving living standards of the country. The provision contained in Art. :!01 guaranteeing the freedom oft rade, commerce and intercourse is not declaration of mere platitude, or the ox pression of pious hope of declaratory character; it is nut also mere statement of direc-tive principle of State policy; it embodies and enshrines principle of paramount importance that the economic unity of the country will provide the main sustaining force for the stability and progress of the political and cultural unity of the country. In appreciating the significance of these general consi-derations we may profitably refer to the observations ma.de by Cardozo, J., in C.A.F. Seelig, Inc. v. Charles H. Baldwin(') while he was dealing with the com-merce els.use contained in Art. I, s. 8, cl. 3 of the American Constitution. "This pa.rt of the Constitu-tion ", obtterved Cardozo J., " was framed under the dominion of a. political philosophy less parochial in range. It was framed upon the theory that the peoples of the severe.I states must sink or swim togo-ther and that in the long run-prosperity and salvation a.re in union and not division".

The State of A""'" & 0[[11]]·"'' •Je" d'"("''"' [[·--]]· 1[[• ]]1 ·1·

There is another genera.I consideration which has been pressed before us by the learned Attoruey-General a.nd tho States to which reference must bo ma.de. lt is argued that in detormining the scope and reach of the freedom embodied in Art. 301 we should bear in mind the fact that to the uxtent to which the frontiers of this freedom are widened to that extent is the legislative power of the States curtailed or limited. The Legislatures of the 8ta.tes have plenary powers to (1) 294 U.S. ,11, ,23; 79 L. Ed. 1033, 1038.

legisl~te in respect of topics covered by the legislative

entries in Parts II and Ill. If the words nsed in Art. Atiabad Tea 301 receive the widest interpretation as contended by co., Ltd. the appellants it would obviously mean that the State v. Legislatures would not be able to legislate on several The State of entries in the said Lists without adopting the pro-Assam <>- Others .cedure prebscribe~ by Art. 3h04(li~) .. In_fact itthwoul? be Gajendragadkar J. unreasona to impose sue 1m1tat1on on 1eg1s 1a-tive power of the State Legislatures and thereby affect their freedom of action. Whilst appreciating this argu-ment it may be pertinent to observe that what appears as curtailment of, or limitation on, the powers of the State Legislatures prescribed by Art. 304(b) may, · from the point of view of national economy, be charac-terised as safeguard deliberately evolved to protect the economic unity of the country ; even so it may be assumed that in interpreting the provisions of Art. 301 and determining the scope and effect of Part XIII we should bear in mind the effect of our decision on the legislative power of the States and also of Parliament.

Having thus referred to some general considerations ' let us now proceed to examine the question as to w he-ther tax laws are wholly outside the purview of Part XIII. In support of the argument that Part XIII does not apply to tax laws the learned Attorney-General has emphasised the fact that the power to levy tax is an essential part of sovereignty itself, and he has suggested that this power is not subject to judicial review and never has been held to be so. In this con-nection lie has invited our attention to the observa-tions made in Cooley's " Constitutional Limitations " on the power of taxation. "The power to impose taxes", says the author," is one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restriction whatever, except 8uch as rest in the discretion of the authority which exercises it" ([1]). The author then has cited the observations ofMars)lall, C. J., in McCulloch v. Maryland(') where the learned Chief Justice has

(1) Cooley's" Constitutional Limitations", Vol. 2, 8th Ed., p. 986.

·· 2) 4 Wheat. 316, 428: 4 L. Ed. 579, 607. 108

I960 stated that" the power of taxing the people and their Alial:ari Tea property is essential to the very· existence · of the Co., Lrrl. government, and may be legitimately exercised on the v. objects to which it is applicable to the utmost extent Tl" State a/ to which ·;he government may choose to carry it. The Assam & Othm only security against the abuse of this power is found . --in the structure of the government itself". Basing Ga1e"drngadka• ]. h" 1mse )f 011 t h" 1s aracter o the ta.xmg power o · t State the learned Attorooy-Gcnera.l has asked us to hold that Pa.rt XIII can have no application to any statute imposing a. tax. In our opinion this conten-tion is not wellfounded. The statement- of the law on which reliauce has been placed is itself expressed to be subject to the relevant provisions of the Constitu-tion; for instance, t.he same author has observed "It is also believed that that provision in the Constitution of the United States which declares that the citizens of ea.ch state shall be entitled to a.II the privileges and immunities of the citizens of the several states will preclude ;~ny state from imposing upon the property which citizens of other states may own, or the business which th(ly may "carry on within its limits, any higher burdens by way of taxation than a.re imposed upon corresponding property or business of its own citizens" (p. 1016). Putting the same propositions in terms of our Constitution it cannot be suggested that the power of taxation can, for instance, violate the equality be-fore the law guaranteed by Art. 14 of the Constitution. Thereforo 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 inevit-ably be controlled by the constitutional provisions ma.de in that behalf. It cannot be said that the po..-er of ta.xa.t.ion per se is outside the purview of any con-stitutional limitations.

It is true that in Ramjilal v. Income-tax Officer,

Mohindargarh (')it has been held that" since there is special provision in Art. 265 of the Constitution that no tax shall be levied or collected except by authority of Jaw, cl. (l) of Art. 31 must be regarded as concern-ed with deprivation of property otherwise than by the (1) (1951] S.C.R. 127.

· 1 S.C.R. SUPREME COURT REPORTS ' .

imposition or collection of tax, and inasmuch as the z96o right conferred by Art. 265 is not right conferred by Atiabari Tea Part III of the Constitution, it could not be enforced Co., Ltd. under Art. 32''. It is clear that the effect of this deci-v. sion is no more than this that the protection against the The State of imposition and collection of taxes, save by the autho, Assam & Dthm rity of law, directly comes under Art. 265 and cannot . d-dk 1 be said to be covered by cl. (1) of Art. 31. It would [01]'" raga ar be unsafe to assume that this decision is, or was intended to be, an authority for the proposition that the levy of tax by taxing statute can, for instance, violate Art. 14 of the Constitution.

The State of & Dthm . d-dk 1 '" raga ar •

The next question which needs examination is whether tax laws are governed only by Part XII of the Constitution and not by Part XIII. The argument is that Part XII is self-contained code; it makes all necessary provisions, and so the validity of any taxing statute can be judged only by reference to· the prov·i-sions of the said Part. Article 265 provides that "no tax shall be levied or collected except by authority of law". It is emphasised that this Article does not con-template that its provision is subject to the other pro-visions of the Constitution, and so there would be no justification for applying Part XIII to the taxing statutes. It is also pointed out that restrictions and other exceptions which the Constitution wanted to pre-scribe in respect of taxation have been provided for by Arts. 274, 276, 285, 287 and 288, and so we need not look beyond the provisions of this Pa.rt in dealing with tax laws. In our opinion this argument fails to take n~tice of the fact that Art. 265 itself inevitably takes rn Art. 245· of the Constitution when in sub-stance it says that tax shall be levied by authority of law.. The authority of law to which it refers and under-which alone tax can be levied is to be found in Art, 245 read with the corresponding legislative entries in Schedule VII. Now, if we look at Art. 245 which deals with the extent of laws made by Parlia-ment and by the Legislatures of States· it begins with the words" subject to the provisions of this Constitu-tion "; in other words, the power of Parliament and the Legislatures of the States to make laws including

r96o laws imposing taxes is subject to the provisions of this Allaban T•a Constitution and that must bring in the application of Co., Ltd. the provisions of Part XIII. Therefore the argument v. based on the theory that tax laws a.re governed by the Th• s1a1e of provisions of Part XII alone cannot be a.ccept~d. The Assam 6- Others power to levy taxes is ultimately based on Art. 245, -and the said power in terms is subject to the provi-Gaj.ndragadhar J. sions of the Constitution.

On the other hand, the opening words of Art. 301 are very significant. The doctrine of the freedom of trade, commerce and intercourse enunciated by Art. 301 iB not subject to the other provisions of the Con-stitution but is made subject only to the other provi-sions of Part XIII; that means that once the width and amplitude of the freedom enshrined in Art. 301 a.re determined they cannot be controlled by any provision outside Part XIII. Thi8 position inciden-tally brings out in bold relief the important part which the Constitut.ion-ma.kers wanted the doctrine of freedom of trade to play in the future of the coun-try. It iH obvious that whatever may be the content . of the said freedom it is not intended to be an abso-lute freedom; absolute freedom in matters of trade, commerce and intercoursH would lead to economic confusion, if not chaos and anarchy; and so the freedom guaranteed by Art. 301 is ma.do subject to the exceptions provided by the other Articles in Part XIII. The freedom guaranteed is limited in the manner specified by the said Articles but it is not limited by any other provisions of the Constitution outside Part XIII. That is why it seems to us that ;\rt. 301, read in its proper context and subject to the limitations prescribed by the other rele\·ant Articles in Pa.rt XIII, must be regarded as imposing consti-tutional limitation on the legislative power of Parlia.. ment and the Legislatures of the States. What entries in the legislative lists will attract the provi-sions of Art. 301 is a.not.her matter; that will depend upon the content of the freedom guaranteed; but wherever it is held that Art. 301 applies the legisla.. t.ive compelon2e of the Lcgi•lature in quest ion will have to b! j.i.lg.·cl i .. ,Ii,; light of the relevant Articles

1 S.C.R. SUPREME COURT REPORTS

of Part XIII ; this position appears to us to be

inescapable.

Atiabati Tea Co., Ltd. v.

Atiabati Tea On behalf of the respondent it was suggeste eiore Co., Ltd. us that the scope and extent o the app icatfon 1 .o v. Art. 301 can well be determined in the light of s. 297 The Stat' of of the Constitution Act of 1935. Section 297 reatls Assam & Others thus:

" 297( I). No Provincial Legislature or Govern- Gajendragadkar J.

ment shall-

(a) by virtue of the entry in the Provincial

Legislative List relating to tra~e and commerce with-in the Province, or the entry in that List relating to the production, supply, and distribution of commodi-ties, have power to pass any law or take any execu-tive aclion prohibiting or restricting the entry into, or export from the Province of goods of any cl~s or description; or

(b) by virtue of anything in this Act have

power to impose any 'tax, cess, toll, or due which, as between goods manufactured or produced in the Pro-vince and similar goods not so manufactured or produced, discrfminates in favour of the former, or which, in the case of goods manufactured or produced outside the Province, discriminates between goods manufactured or produced in one locality and similar . goods manufactured or produced in another locality ..

(2) Any law passed in contravention of this sec-tion shall, to the extent of the contravention, be invalid.

There is no doubt that. the prohibition prescribed by this section was confine.! to the Provincial Govern-ments and Provincial Legislatures and did not apply to the Central Government or Central Legislature. It is also true that the said prohibition had reference to the entries in the Provincial Legislative List relating to trade and commerce, and to production, supply. and distribution of commodities. The section also deals with prohibitions and restrictions in respect of import of goods into, or their export from, Province. Likewise discrimination against goods manufactured or produced outside the Province or goods produced in other localities is also prohibited. The argument

is that when the Constitution adopted Art. 301 it had

Atiabari Tea s. 297 in view and the only substantial change which Co., Lid. it intended to make was to extend the application of v. the principles enunciated in the said section to the Th• Stat• of Union Government and the Union Parliament, and Assam 6- 01hm to apply it to the territory which had subsequently a-become part of India as indicated by the 11·elevant Gaj,. ragadka• f. Articles; the essential cont{'nt of freedom of trade and commerce as prescribed by the said section, however, continues to be the same.In support of this argument reliance has been placed on the observations marle by Venkatarama Aiyar, J., in the case of M. P. V. Sundararamfrr & Co. v. The State of Andhra Prade.!h {'). In that case the vires of some of the provisions of the Sales Tax Laws Valia'ation Act, 1956 (7 of 1956), were challenged on several grounds. In dealing with one of the points raised in support of the said challenge Venkatarama Aiyar, J., who delivered the majority judgment, con. sidered the content of Ent.ry '42 in List I. It had been urged before the Court that the said entry should be liberally construed and should be held to include the power to tai(, and in support of this con-tention reliance was placed on certain American and Australian decisions. This argument was repelled and it was held that Entry 42 in List I is not to be interpreted as including taxation. In coming to this conclusion the learned judge made certain general observations pointing out that it would not be always safe to rely upon American or Australian decisions in int~rpreting the provisions"' our Constitution. Said the learned judge, " the threads of our Constitution were no doubt taken from other Federal Constitutions but when they were woven into the fabric of our Con. stitution their reach and their complexion underwent changes. Therefore, valuable as the American deci-sions are as showing how the question is dealt with in sister Federal Constitution great care should be taken in applying them in the interpretation of our Consti-tution". He made similar comment about e. 92 of the Commonwealth of Australia Constitution Act and (1) [1958] S.C.R. 1422, 1483-84.

the decisions thereunder, and in that connection he r960 observed : " We should also add that Art. 304(a) of Atial>ari Tea the Constitution cannot be interpreted as throwing Co., Ltd. any light on the scope o Art. 301 with reference to v. the question of taxation as it merely reproduces The State of s. 297(l)(b) of the Government of India Act, and as Assam & Others there was no provision therein corresponding to Art. . -.301 s. 297(l)(b) could not have implied what is now Ga;endragadkar f. sought to be inferred from Art. 304(a) ". The learned .Attorney-General has relied on these observations. It would be noticed that, incidental as these observa-tions are, what the learned judge was considering was the scope and effect of s. 297(l)(b) of the Government of India Act, 1935, and he held that the content of the. said section cannot be enlarged in the light of the provisions of Art. 304(a). No doubt the observations would seem to show that the learned judge thought that Art. 304(a) cannot throw any light on the scope of Art. 301 with reference to the question of taxation; but it is clear that the question of construing the said Articles did not fa.II to be considered, and was not obviously argued before the Court. With respect, it may be pointed out that in the happy; phraseology adopted by the learned judge himself, in the setting of Part XIII and particularly in the light of the wide words used in Art. 301, the reach and complexion of Art. 304(a) is wider than s. 297(l)(b) and does include reference to taxation.

Then as to the merits of the.argument that s. 297 of the Constitution Act of 1935 should virtually deter-mine the scope of Art. 301, we are reluctant to accept the assumption that the only change which the Cons-titution. makers intended to make by adopting Art. 301 was to extend the application of s. 297 to the Union Government and the Parliament. Just as the Constitution-makers had before them the said section they were also familiar with corresponding clauses included in the Federal Constitutions of other count-ries. The history of judicial decisions interpreting s. 92 of the Australian Constitution must have been present to their minds as . also the history of the growth and development of the American Law underi96o the eommerco clause in the American Constitution. Atiabari Tea Besides, we feel considora.ble hesitation in accepting Co., Ltd. the view that the makers of the Coustitufion did not v. want to onrich and widen tho content of freedom The State oJ guaranteed by s. 297. They knew that the Constitu. As.<am & 01hm tion would herald riew and inspiring era. in the ca·e•drugadk"' J. ?istory of India. .and. t~cy were fully ~ouscious of the . J importance of ma111ta111111g the economic unity of the Union of India in order that the federal form of govt1rnment adopted by the Constitution should pro. gr088 in smooth and harmonious manner. That. is why we are inclined to hold that the broad and un-ambiguous words used in Art. 301 are intended to emphasise that the freedom of trade, commerce and intercourse guaranteed was richer and wider in con-tent than was the case under s. 297; how much wider and how much richer can be determined only on a. fair and reasonable construction of Art. 301 read a.long with the rest of the Articles in Part Xiii. In our opinion, therefore, the argument that tax laws a.re outside Part XIII cannot be accepted.

That takes us to the question as to whether Art. 301 operates only in res.pect of the entries relating to trade and commerce already specified. Before ans. wering this question it would be necessary to examine the scheme of Part XIII, and construe the relevant Articles in it. It is clear that Art. i!Ol applies not onlv to inter-State trade, commerce and intercourse but also intra-State trade, commerce and intercourse. The words " throughout the territory of India. " clearly indicate that trade and commerce whose free-dom is guaranteed has to move freely also from one pla.ee to another in the same State. Thia conclusion is further supported by Arts. 302 and 304(b) as we will presently point out. There is no doubt that the sweep of the concept of trade, commerce and inter. course is very wide; but in the present case wo a.re concerned with trade, and so we will leave out of con. sidcra.tion commerce and intercourse. Even as to tmde it is really not necessary to discuss or determine w h:~t trade exactly moans ; for it is common ground that the activity carried on hy the appellants

amounts to trade, and it is not disputed that trans-I9[[60 ]]port of goods or merchandise from one place to an-Atiaba>i Tea other is so essential to trade that it can be regarded co., Ltd. as its integral part. Stated. briefly trade even in v. narrow sense would include all activities in relation · The State of to buying and selling, or the interchange Of ~xchange Assam & Others of commodities and .that movement from place . . , Wh toG a1enoraga . ,-dk ar ar 1 place is the very sou o sue 1 tra dmg act1v1ties. [. ]en Art. 301 refers to the freedom of trade it is necessary to enquire what freedom means. Freedom from what ? is the obvious question which falls to be determined iu. the context. At this stage we would content ourselves with the statement that the free-dom of trade guaranteed by Art. 301 is freedom from all restrictions except those which are provided by the other Articles in Part XIII. What these restric-tions denote may raise larger issue, but in the·pre-sent case we will confine our decision to that aspect of the matter which arises from the provisions of the Act under scrutiny. It is hardly necessary to empha-sise th'at in dealing with constitutional questions courts should be slow to embark upon an unneces-sarily wide or general enquiry and should confine . their decision as far as may be reasonably practicable within the narrow limits of the controversy arising between the parties in the particular case. We will come back ·. again to Art. 301 after examining the other Articles in Part XIII. .

I9[[60 ]]Atiaba>i Tea co., Ltd. v. The State of Assam & Others a1enoraga . ,-dk ar ar 1 •

Art. 302 confers on the Parliament power to impose / restrictions on trade, commerce and intercourse. It I provides that Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. It would be immediately notic-ed that the reference made to restriction on the freedom of trade within any part of the territory of India as distinct from freedom of trade between one State and another clearly indicates that the freedom in question covers not only inter-State trade but also intra-State trade. Thus the effect of Art. 302 is to

provide for a.n exception to the genera.I rule prescribed by Art. 301. Restrictions on the freedom of trade can be imposed by Parliament if they are required in the public interest so that the generality of freedom guaranteed by Art. 301 is subject to the excrption provided by Art. 302.

Ati•ba,; Tea co. I.td. v.

Tiu Stare of Assam 6- 0/hers Gajtt1drngadka1 J.

That takes us to Art. 303. lt reads thus:

"303. (1) Notwithstanding anything in article 302, neither Parliament nor the Legislature of State shall have power to ma.kc any law giving, or authoris-ing the giving of, any preference to one State over another, or ma.king, or authorising the ma.king of, 1rny discrimination between one State a.nd another, by virtue of a.ny entry relating to trade and commerce in any of the Lists in the Seventh Scheel ule.

(2) Nothing in clause (1) shall prevent l'a.rlia.ment

from making a.ny la.w giving, or authorising the giving of, any preference or ma.king, or authorising the ma.k-iiig of, a.ny discrimination if it is declared by such law that; it is necessary to do so for the purpose of <lea.ling with a. situation a.rising from scarcity of goods in a.ny pa.rt of the territory of India.." ·

The first pa.rt of this Article is in terms a.n exception or 1~ proviso to Art. 302 a.s is indicated by the non-obsLante clause. This clause prohibits Parliament from ma.king any la.w which would give any prefer-ence to one State over another or would make any discrimination between one Sta.to a.nd another by virt.ue of the relevant entries specified in it. In other words, in regard to the entries there specifi<,d, the power to impose restrictions cannot be used for the purpose of giving a.ny preference to one State over another or ma.king any discrimirrn.tion in that manner. It is obvious that the reference to the Legislature of the State in this clause cannot be reconciled with the non-obsta.nto clause; but the object of including tho Legisle.ture of a. State appears to be to emphasise that Jik(' Parliament even the Legisla.t ure of a. State cannot give a.ny preforenco or make a.ny discrimina.t.ion.

Sub-Article (2) is an except.ion to sub-Art. (1) of Art .. 303. empowers the Pa.rlia.ment to make a. la.w giving or a.uthoriaing to give a.ny preference or ma.king

any discrimination, but this power can be exercised

1960 Atiabari T•a co., Ltd. v. Th• Stat• of <So . -.

only if it is declared by law made by the Parliament Atiabari T•a that it is necessary so to do for the purpose of dealing co., Ltd. with situation arising from scarcity of goods in any v. part of the territory of. India ; in other words, it is Th• Stat• of only when Parliament is faced with the task of meet. Assam <So 0111"' ing an emergency created by the scarcity of goods in . -. any particular part of India that it is authorised to Ga1•ndra,eadkar J make law making discrimination, or giving prefer-ence, in favour of the part thus affected.·On behalf of the States strong reliance is placed on the fact that rt. 303(1) expressly refers to the entries relating to trade and commerce in any of the Lists in the Seventh Schedule, and it i.s urged .that this gives clear indication as to the scope of the provisions of Art. 301 itself. There is some force in this contention ; but on the whole we are not prepared to hold that the reference to the said entries should govern the con-struction of Art. 301. The setting in which the said entries a;re referred to would of course determine the scope ind extent of the prohibition prescribed by Art. 303 (1); but that cannot be pressed into service in determining the scope of Art. 301 itself. It is signifi-cant that Art. 303(1) does not refer to intercourse and in that sense intercourse is outside its sphere. It is likely that having authorised Parliament to impose restrictions by Art. 302 it was thought expedient to proribit expressly the said power of imposing restric-tions from being used for the purpose ofgiving any preference in so .far as the relevant entries are con-cerned. It may also be that the primary. object of confining the operation of Art. 303(1) to the said entries was to introduce corresponding !imitation on the power of Parliament to discriminate undE'lr Art. 302. However that may be, in our opinion the limita-tion thus introduced in Art. 303(1) cannot circumscribe the scope of Art. 301 or otherwise affect its construc-tion. Besides, as we will presently point out, there are other Articles in this Part which indicate that tax laws are included within Art. 301, and if that be llo, the reference to the said entries in Art. 303(1) cannot

limit the application of Art. 301 to the so.id entries

alone.

Aliabari Tta

Artide 304 reads thus:

Co .• Ltd.

"Notwithstanding anything in article 301 or

n, State of • e.rtide 303, the Legislature of e. State may by le.w-

(a) impose on goods imported from other States

Assam <So Others

. d-dk or t.he Union territories any tax to which similar 1 a;en raga ar ·goods manufactured or produced in that State are subject, so, however, e.s not to discriminate between goods so imported and goods so manufactured or pro-

duced; 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 pur-

poses of clause (b) shall bo introduced or moved in the Legislature of State without the. previous sanction of the President."

Thl' effect of Art. 304(a) is to treat imported goods on

the so.me be.sis e.s goods manufactured or produced in any State ; and it authorises tax to be levied on such imported goods in the same manner and to the same extent e.s may be levied on goods manufactured or produced inside the State. We ought to add that this sub-Article assumes that taxation can be levied by the State Legislature on goods manufactured or pro-duced within its territory. and it provides that outside goods cannot be treated any worse. How tax can be levied on internal goods is, however, provided by Art. 304(b). The non-obste.nte clause referring to Art .. 301 would go with Art. 304(a), and that indicates that tax on goods would not have been permissible but for Art. 304(a) with the non-obstante clause. This incidentally helps to determine. the scope and width of the freedom guaranteed under Art. 301 ; in other words Art. 304(e.) is another exception to Art. 301.

Article 304(b) empowers the State Legislature to impose reasonable restrictions on the freedom of trade with other States or within its own territory. Age.in, the. reference to the territory within the State supports the conclusion that Art. 301 covers the movement of

trade both inter-State and intra-State. Article 304(b)

is to be read with the non-obstante clause relating to Atiabari Tea Art. 301 as well as Art. 303, and in substance it gives co., Ltd. power to the State Legislature somewhat similar to v. the power conferred on the Parliament by Art. 302. The State of The reference to Art. 303 in the non-obstante clause· Assam & Others has presumably been made as matter of .abundantG . d-dk caution smce t , L . l eg1s ature o tate as een rnc S . l u-a1en raga ar 1 . ded in Art. 303(1). There are, however, obvious differ-ences in the powers of the Parliament and State Legislatures. In regard 'to au act which the State Legislature intends to pass under Art. 304(b) no bill can be introduced without the previous sanction of the President, and this requirement has obviously been inserted in order that regional economic pressures which may inspire legislation under the said clause should be duly examined in the light of the interest of national economy ; such legislation must also be in the public interest which feature is common with the provision contained in Art. 302; such legislation must also satisfy the further test that the restrictions im-posed by it are reasonable. That is another additional restriction imposed on the powers of the State Legis-latures. Thus there are three conditions which must be satisfied in passing an Act under Art. 304(b ),-the previous sanction of the President must be obtained, the legislation must be in the public interest, and it must impose restrictions which are reasonable. It is of course true that if the previous sanction of ·the President is not obtained that infirmity may be cured by adopting the course authorised by Art. 255. The result of reading Art. 304(a) and (b) together appears to be that tax can be levied by State Legislature on goods manufactured or produced or imported in the State and thereby reasonable restrictions can be placed on the freedom of trade either with another State or between different areas of the same State. Tax legislation thus authorised must therefore be deemed to have been included in Art. 301, for that is the obvious inference from the use of the non-obstante clause.

Article 305 saves existing laws and laws providing

'9[60 ]

for State monopolies. It is unnecessary to deal with thi~ Artich~. Its object clearly wss not to interrupt or to affect the operation of the existing lsws except in so far as the President mav by order otherwise di\·ect.. Article 306 is relevsnt. ·It resds thus:

Atia;•d ·r,. co .. Ltd. "· Th• State of Assam & Othm

"N'otwithstsn<ling anything in the foregoing pro-

Gaj'"d;agadkar J. visions of this Psrt or in sny other provisions of this Constitution, any State specified in Part of the First Schedule which before the commencement of this Constitution was levying sny tax or duty on the import of goods into the State from other States or on the export of goods from the State to oth11r States may, if an agreement in that behalf has been ent~red into between the Government of India and the Government of that Stste, continue to levy a.n<l collect such tax or duty subject to the terms of such sgree-ment a.n<l for such period not exceeding ten years from the commencement of this Constitution as ma.,· be specified in the agreement :' ·

Provided that the President may at any time

after the expiration of five years from such com-mencement terminate or modify any such agreement if, after consideration of the report of the Fina.nre Commission constituted under article 280, he thinks it

nncessa.ry to do so."

Thi8 Article has been subsequently deleted by s. 29

and ScbPdule to the Constitution (Sen1nth Amend-ment) Act, 1956, bnt its initial inclusion in Part XIII throws some light on the scope of Art. 301. Laws made by any State specified in Part of the First Schedule levying any ta.x or duty on the import of goods into the State from other States or the export of goods from the Sta.re to other Sta.tes were expressly saved by a. Art. 306 beca.uso it was rca.liRed tha.t they would otherwise be hit by Art. 301. In other words, ta.xing statutes or statutes imposing duties on goods would, but for Al't. 306, have attracted the a.pplica.-tion of Art. 301.

Let us now revert to Art. 30 l a.nd ascertain the

width a.nd amplitude of it.s scope. On a. careful exami-nation of the relevant provisions of Pa.rt XIII a.s a. whole as well a.a the principle of economic unity

which it is intended to safeguard by making the said r96o P[rovisions, the conclusion appears to us ][to ][be inevit-]Atiaba1'i Tea able that the content of freedom provided for by rt. co , J.td. 301 was larger than the freedom contemplated. by v. s. 297 of the Constitution Act of 1935, and whatever J'he State of else it may or may not include, it certainly includes Assam & Others movement of trade which is of the very essence of all . a-a . trade and is its integral part. If the transport or the [01]'" ,·aga kar J. movement of goods is taxed solely on the bitsis that the goods are thus carried or transported that, in our opinion, directly affects the freedom of trade as con-templated by Art. 301. If the movement, transport or the carrying of goods is allowed to be impeded, obstructed or hampered by taxation without satisfy-ing the requirements of Part XIII the freedom of trade on which so much emphasis is laid by Art. 301 would turn to be illusory. When Art. 301 proyides that trade shall be free throughout the territory of India primarily it is the movement part of the trade that it bas in mind and the movement or the trans-port pa.rt of trade must be free subject of course to the limitations and exceptions provided by the other Articles of Part XIII. That we think is the result of Art. 301 read with the other Articles in Part XIII.

Thus the intrinsic evidence furnished by some of the Articles of Part XIII .shows that taxing laws are not excluded from the operation of Art. 301 ; which means that tax laws can and do amount to restric-tions freedom from which is guaranteed to trade under the said Part. Does that mean that all tax laws attract the provisions of Part XIII whether their impact on trade or its movement is direct and imme-diate or indirect and remote ? It is precisely because the words used in 'Art. 301 are very wide, and in sense vague and indefinite that the problem of con-struing them and determining their exact width and scope becomes complex and difficult. However, in interpreting the provisions of the Constitution we must always bear in mind that the relevant provision " has to be read not in -vacuo but. as occurring in single complex instrument in which one part may

'9[60 ]throw light on another". (Vide: James v. Common· Atiaban Tea wealth nf Australia(')). In construing Art. 301 we co., Lid.· must, therefore, have regard to the general scheme of of v. our Constitution as well as well as the particular provisions provisions Ihe State u/ in regard to taxing laws. regard to taxing laws. taxing laws. laws. The coustruction coustruction of Art. 301 Art. 301 Assam & Oii<m should not be determined on purely academic or or aie" [. ][d ]'ag" [-dk ]., 1 • [[doctrinnaire ]]A . 1 rtic [[consideratim1s; in construing ]]d opt 1· 1St1c . . [[the ]][[said ]]throw light on another". (Vide: James v. Common· wealth nf Australia(')). In construing Art. 301 we must, therefore, have regard to the general scheme of of our Constitution as well as well as the particular provisions provisions in regard to taxing laws. regard to taxing laws. taxing laws. laws. The coustruction coustruction of Art. 301 Art. 301 should not be determined on purely academic or or [[doctrinnaire ]]A . 1 rtic we must [[consideratim1s; in construing ]]a opt rea 1· 1St1c . approach and [[the ]]bear [[said ]]in mind the essential features of the separation of powers on which our Constitution rests. It is a. fede-ral constitution which we a.re interpreting, and so the impact of Art. 301 must be judged accordingly. Besides, it is not irrelevant to rememb~r in this connection that the Article we are construing imposes constitutional limitation on tho power of the Parlia-ment and State Legislatures to levy taxes, and gene-rally, but for such limitation, the power of taxation would be presumed to be for public good and would not be subject to judicial review or scrutiny. Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Art. 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes way and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Art. 301. Tho argument that all taxes should be governed by Art. 301 whether or not their impact on trade is immediate or mediate, direct or remoto, adopts, in our opinion, an extreme approach which cannot be upheld. If the said argu-ment is accepted it would mean, for instance, that even legislative enactment prescribing the minimum wages to industrial employees may fa.II under Pa.rt Xlll because in an economic sense an additional wage bill may indirectly affect trado or commerce. We are, thoreforo, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by Art. 301 rational and workable test to apply would be: Does the impugned restriction operate directly or immediately on trade or its (1) (1936) A.G. 378, 613.

movement ? . It is in the light of this test that we propose to examine the validity of the Act under f:crutiny in the present proceedings.

'9[60 ]Atiabad Tea ca., Ltd. v.

We do not think it necessary or exp_edient to consi-v. der what other laws would be affected by the inter-The State of pretation we are placing on Art. 301 and what other Asrnm °' Othm legislative 'entries would fall under Part XIII. WeG . d-dl propose to confine otir dec1s10n . . to t ct wit . w h' JC ·h a;en raga '"' 1 . . we are concerned. If any other laws are similarly challenged the validity of the challenge will have to be examined in the light of the provisions of those laws. Our conclusion, therefore, is that when Art. 301 provides that trade shall be free throughout the terri-tory of India it means that the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves. It is the free movement or the transport of goods from one part of the coun-try to the other that is intended to be saved, and if any Act imposes any direct restrictions on the very movement of such goods it attracts the provisions of Art. 301, and its validity can be sustained only if it satisfies the requirements of Art. 302 or Art. 304 of Part XIII. At this stage we think it is necessary to lleJ.l'lat that when it is said that the freedom of t.he mm: ement of trade cannot be subject to any restric-tions m the form of taxes imposed ori the ca~riage of goods or their movement all that is meant is that the said restrictions can be imposed by the State Legisla-tures only after satisfying the requirements of Art. · 304(b) .. It is not as if no restrictions at all can be imposed on the free movement of trade.1 the • Incidentally provisions contained we may observe in Art. 302 that the difference and Art. 304(b) in would prima facie seem to suggest that where Parlia-ment exercises its power under Art. 302 and passes law imposing'restrictions on the freedom of trade in the public interest, whether or not the given law is in the pv.blic interest may not -be justiciable, and in that sense Parliament is given the sole power to d~cide -what restrictions can be imposed in public interest as

1 960 authorised by Art. 302. On the other hand Art. 304(b) Atinba,; Tea requires not only that the law should be in tho public co., Ltd. interest e.nd should have received the previous se.nc-v. tion of the President but that the restrictions impos-The State of ed by it should also b!' reasonable. Prima focie the Aosam .s. Othm requirement of public interest can be said to be not . -just.iciable and may be deemed to be satisfied by the Ga1endrngadka' /.sanction of the President; but whether or not the res-trictions imposed are ree.sone.ble would be justiciable and in that sense le.ws passed by the Stat!' Legisla-tures may on occasions have to face judicial scrutiny. However ,this point does not fall to be considered in the present proceedings e.nd we wish to express no definit~ opinion on it.

Let us then examine the material provisions of the

Act. As we have already pointed out the Act has been passed providing for the levy of tax on certain goods carried by roads or inland waterways in the State of Assam. Section 2(11) defines producer as · meaning producer of tea e.nd including the person in charge of the garden where it is produced. Sec-tion 3 is the charging section. It provides that manu-factured tea in chests carried by motor vehicles etc., except railways and airways she.II be liable to tax at the specified rate per lb. of such tea e.nd this tax shall be realised from the producer. It also makes similar provisions for jute with w hich._a'e are not concerned in the present proceedings. Section 6 provides for taxing authorities and their powers. Section 7 pro-v ides, inter alia, that every producer shall furnish returns of the manufactured tea carried in tea chests in such form and to such authority as may be preP.-cribed. Section 8 makes provision for licensing ·Jf balers who are persona owning or possessing pressing machines for the com press ion of jute int-0 be.Jes. Sec-tion 9 prescribes the procedure for levying t.he assess-ment; ands. IO provides for the cancellation of assess-ment in the cases specified. Section 11 deals with the assessment in cases of evasion and escape; s. U with rectification, and s. 13 with penalty for non-submis-sion of returns and evasion of taxes. Section 19 pro-vides for notice of demand, ands. 20 lays down when160 ta.x becomes payable. This Act has been passed by 9the Assam Legislature under Entry 56 in List II and Atiaba•i Tea naturally it purports to be tax on goods carried by co. Ltd. roads or by inland waterways. It is thus obvious that v. the purpose and object of the Act is to collect taxes The State of on goods solely on the ground that they a.re carried by Assam & Others road or by inland waterways within the area of the c·ajendragadkar ]. State. That being so the restriction placed by the Act on the free movement of the goods is writ large on its face. It may be that one of the objects in passing the Act was to enable the State Government to raise money to keep its roads and waterways in repa.irs; but that object may and can be effectively achieved by adopting another course of legislation ; if the said object is intended to be achieved by levying tax on the carriage of goods it can be so done only by satisfy-ing the requirements of Art. 304(b). It is common ground that before the· bill was introduced or moved in the State Legislature the previous sanction of the President has not been obtained ; nor has the said infirmity been cured by recourse to Art. 255 of the Constitution. Therefore we do not see how the. validity of the tax can be ~ustained, · In: our opinion the High Court was in error in putting an unduly restricted meaning on the relevant words in Art. 301. It is clear that in putting that narrow construction on Art. 301 the High Court was partly, if not substantially, in flu. enced by what it thought would be the inevitable conseguence of wider construction of Art. 301. As we have made it clear during the course of this judg-ment we do not propose to express any opinion as to the possible consequence of the view which we are taking in the present proceedings. We are dealing in the present case with an Act passed by the State Legislature which imposes restriction in the form of taxation on the carriage or movement of goods, and we hold that such restriction can be imposed by the State Legislature only if the relevant Act is passed in the manner preAcribed by Art. 304(b ).

This question can be considered from another point of view. When State Legislature passes an Act under Entry 56 of List II its initial legislative

comp11tcnce is not in rliRputc. What is in rliHf>Ute is whe-Atiaiwi Tea ther or not Huch l<'pislative cornpet.enee is subject to the Co., l.td. limifu.tions prescribed by Part. XIII. Now what does au act passed under the said Ent1 y purport to do? It Tl" siaie nf purportR to put restraint. in the form of taxation on A~sa111 <.;.. 01:uts the movement. of trade, iind if the movem,.nt of trade Gafoid,:;.dl:a• J. is regarded as an integral pa.rt of trade itself, the Act in substance pnt R rest.riction on trade itself. The effect. of the Act nn the movement. oft rad<.' is direct and immediate; it is nut indirect or remote; and so legislation under the Raid Entry must be held to fall directly under Art. 301 as legi~la.tion in respect of trade and commerce. In some of the decisions oft.his Court, in examining the va.lidit.y of legislation it has been considered whether tLe impugned legislation is not directly in rPspect of the suhjeet. matter covered hy pa.rticular Article of tlw Const11 ution. This test was applied for instance by Kania., C. J., in the case of A. K. Gopalan v. The Stale of .Madras('). It was also adopted by this Court in tl1e case of Ram Singh v. The State of Delhi('). i' no douht true that the points which a.rose for decision iu those cases had rl'ference to the fundamental rights guaranteed by Arts. 19, 21 or 22; hut we ure referring to those deci-si011s in order to rm11hn,sise that the test there adopt-ed would in the· present case lead to the c0nelusio11 t.l1a.t the Ad with which we are coneerned is invalid. The true a.µproa.eh according to Kania, C.J., is only to consider thti directness of the legislation. Now, if the directness l>f legiRlation has t-0 he considered it is clear that thr, Act imposes tax on the carriage of goods and that immediately takes it wit.hin the purview of Pa.rt XIII.

In the course of a.rgump,nts the learned Attorney. General invited us to apply the test of pith and suh-st.ance, and he comended that, if the said test is appli-ed f;he validity of the Act can be sustained. In support of his argument be has relied on the observations ma.de by Das, C. J ., in the case of The State of Bombay v. R.!JJ.D. Ghamarbaugwala ('). In that case the Court

(l) [1950] S..C.H. BB. (2) [1951] S.C..R. 451.

(3) [1957] S C.R. B74·

was called upon to consider the validity of the '9[60 ]Bombay Lotteries and Prize Competit.ions Control and Atiahriri Tea Tax (Amendment) Act, 1952. The challenge to the Co .• Ltd. Act proceeded on ~wo grounds, (1) that it violated the v. fundamental right guaranteed .under ArC 19(l)(g) and The State of (2) that it offended against the provisions of Art. 301. Assam & Others The challenge on the first ground was repelled because . -dk ar 1t · was he Jd t at gambling cannot · treate as tra Ga1endraga ar or business under Art. 19(l)(g). This conclusion was sufficient to repel a];;o the other ground on which the validity of the Act was challenged because, if garn bl-ing was not trade or business under Art. 19(l)(g), it was also not trade or commerce under Art. 301. On the conclusion reached by this Court that gambling is not trade this position would be obvious. Even so, . the learned Chief Justice incidentally applied the test of pith and substance, and observed that the impugn-ed act was in pith and substance an act in respect of betting and gambling, and since betting or gambling was not trade, commerce or business "the validity of ·the Act had not to be decided by the yardstick of reasonableness and public interest laid down in Arts. HJ(6) and 304 ". ln this connection it may, with respect, be pointed out thn,t wh:1t purports to be q notation from Lord Porter's judgment in Common-wealth of Australia & Ors. v. Bank of New Sonth Wrtles (') has not been accurately reproduced. ln fact, referring to phrases such as ' pith and substance' Lord Porter has observed that "they no doubt raise in convenient form an :i,ppropriate <Juestion in cases where the real issue is one of subject-matter, as when the point is whether particular piece of legislation is law in respect of some subject within the permitted field. They may also serve useful purpose in the process of deciding whether an enactment which works some interference with trade, commerce and inter-course among the F'.t.ates is nevertlieless untouched by s. 92 as being essentially regulatory in clia.racter" (pp. 312, 313). These <•bservations would indica.\e that the test of pith and substance is generally and more &ppropri:ttely ap1ilied when dispute nrises as to t.hn

Ga1endraga . -dk ar 1 .

866 SllPREME COURT REPORTS

legi~lativc competence of the legislature, and it has to Ahubar1 Tea he resolved by reference to the entries to which the o., Lld. impugned legiHlation is relatable. When there iH con-v. flict between two entries in the legislative lists, and The State of legislation by reference to one entry would be com-Assam & Othm petent but not by reference to the other, the doctrine "[1][. ]'" [d-d' ]•a~o "0' 1 • [of pith ]etermmmg · · [and ][substance ]t true nature [is ][invoked for ]an arii.cter o t [the ][purpose ]f [of ]legidation in quest.ion (Vide: Prafulla Kumar Mukher-jee v. Bank of Comm~rcP. Ltil., Khulna(') and Subrah-manyan Chettiar v. Muttuswami Goundan ('). But even the application of the test of pith and substance yields the same result in the present proceedings. Tho pith and substance oft.he legislation is taxatinn on the carriage of goods and that clearly falls within the terms of rt. 301.

At t.he commencement of this judgment we have

stated that the complexity of the problem which we a.re called upon to decide in the present proceedings has been incidentally mentioned or considered in some of the reported decisions of this Court. We ma.y in that connertion refor tot.woof such decisions at this staire. I u The State of Bombay v. The United Jfotors (bul1'.a) Ltd. ('), Patanja.li SaHtri, C. J ., observed that the freedom of inter.Stat.e trnrle and commerce dec-lared in Art .. 301 is expressly subordinated to the State power of taxing goodA imported from sister States provided only no discrimination is made in favour of similar goods of local origin. According to the learned Chief .Justice the commercial unity of India is ma.de to give way before the State power of imposing a.ny non.discriminatory ta.x on goods import-ed from sister St ates. This observation would sug-. gest that Art. 304(a.) and (b) deal with taxes and to tha.t extent it is inconsistent with the argument that I tax laws are outside Part XII I.

The next case in which this question has been incidentally discussed is in Saghir Ahmed v. The State of U. I'.('). In that case the impugned provisions of the U. P. lh1ad Transport Act., l\J51 (l:. P. Act II of

(2) (1940] !·-.C.H. 188.

{I) {1947) LR. 74 IA. 23.

(4) [1955] t S.C.H. 707.

(3) [1953] S.C.R. 1009.

1 S.C.R. SUPREME COURT REPORTS

1951), were declared to be unconstitutional on two r960 other grounds which had no direct connection with the cha lenge under 1 Part XIII of the Constitution. Even Atiabari Tea so, Mukherjea, J., as he then was, who spoke for the Co.~Ltd. Court, has referred to the problem raised by Part XIII The State of as " not quite free from difficulty " and has indicated Assam & Others its pros and cons which were urged before the Court. . --One of the points thus urged was that Art. 301 pro- Gayendragadkar J. vides safeguards for carrying on trade as whole as distinct from the rights of an individual to carry it on. In other words the said Article was concerned with the passage of commodities or persons either within or without the State frontiers but not directly with individuals carrying on the trade or commerce. The right of individuals, it was said, was dealt with under Art. 19(l)(g) so that the two Articles had been framed in order to secure two different objects. To the same effect are some of the observations made by Das, C. J., in the case of R. M. D. Chamarbaugwala ('). It is unnecessary on the present occasion to consider whether the fields covered by Art. 19(l)(g) and Art. 301 can be distinguished in the manner suggested in the said observations. It may be possible to urge that trade as whole moves inevitably with the aid of human agency, and so protection granted to trade may involve protection even to the individuals carry-ing on the said trade. In that sense the two freedoms may overlap. However, it is unnecessary to pursue this point any further in the present proceedings. Before we conclude we would like to refer to two decisions in which the scope and effect of the provi-sions of s. 92 of the Australian Constitution came to be considered. We have deliberately not referred to these decisions earlier because we thought it would be unreasonable to refer to or rely on the said section or the decisions thereon for the purpose of construing the relevant Articles of Part XIII of our Constitution. It is commonplace to say that the political and historical background of the federal polity adopted by the Australian Common wea.lth, the setting of the Consti-tution itself, the distribution of powers and the gene-ral scheme of the Constitution are different, and so it

(1) [1957] s.c.R. 874.

1960 would not be safe to seek for guidance or assistance from the Australian decisions when we are called up-Atiabari Tea on to construe the provisions of our Constitution. In Co., Ltd. l v. this connection we ave rea y referred to the note The State of of warning struck by Venkatarama Aiyar, J., against Assam &. Others indiscriminate reliance being placed on Australian -and American decisions in interpreting our Constitu-Gajendragadkar f. tion in the case of M. P. V. Sundararamier & Co. ([1]). The same caution was expressed by Gwyer, C. J., as early as 1939 when he observed in The Central Pro-vinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 (') "there are few subjects on which the decisions of other Courts require to be treated with greater caution than that of federal and provincial powers, for in the last analysis the deci-sion must depend upon the words of the Constitution which the Court is interpreting ; and since no two Constitutions are in identical terms it is extremely unsafe to assume that decision on one of them can be applied without qualification to another. This may be so even where the words or expressions used are the same in both cases, for word or phrase may take colour from its context and bear different sen-ses accordingly ". Even so the reported decisions of this Court show that in dealing with constitutional problems reference has not infrequently been made to Australian and American decisions ; and that, we think, brings out the characteristic feature of the working of the judicial process. When you are deal-ing with the problem of construing constitutional provision which is none-too-clear or lucid you feel in-clined to inquire how other judicial minds have responded to the challenge presented by similar pro-visions in other sister Constitutions. It is in that spirit that we propose to refer to two Privy Council decisions which dealt with the construction of s. 92 of the Australian Constitution.

The first paragraph of s. 92 of the Australian Con-stitution, around which has grown, in the words of Lord Porter "labyrinth where there is no golden thread", reads thus:" On the imposition of uniform

(2) A.I.R. 1939 F.C. 1, 5.

duties of customs, trade, commerce, and intercourse r960 amoug the States, whether by means of internal Atiabari Tea carriage or ocean navigation, shall be absolutely free"; The part played by Frederick Alexander Co .... Ltd. James, who carried on the trade of growing and pro-The State of ceasing dried fruits, in securing judicial pronounce-A;sam & Others ments OB the true scope and effect of ,the said section -is wellknown. He fought three valiant legal battles Gajendragadkar f. in which he successfully asserted his right as trader . against legislative encroachment. In James v. State of fJouth Australia ([1]) s. 20 of the Dried Fruits Export Control Act, 1924, was struck down. In James v. Gowan ([2]) s. 28 was challenged, whereas in the last case of James v. Commonwealth of Australia(') James had claimed declaration ~hat the Dried Fruits Act 11 of 1928 and 5 of 1935 and the regulations framed thereunder were invalid as offending against s. 92 of the Constitution. It is to the observations made by the Privy Council in the last case to which we wish to refer. Referring to the word " free" used in the said section Lord Wright observed that the said word in itself is vague and indeterminate; it must take its colour from the context. Then he referred to the fact that "'free trade' ordinarily means freedom from tariffs", but he immediately added that "free" in s. 92 cannot be limited to freedom in the last-men-tioned sense. According to this judgment, every step in the series of operations which constitute the parti-cular transaction is an act of trade, and control under the State law of any of these steps must be an inter-ference with its freedom as trade. In this connection it was also observed that not much help is to be got by reftecLing that trade may still be free though the trader has to pay for the different operations such as ·tolls, railway rates and so forth; it would thus appea~ that the result of this decision is that imposition of tolls, railway rates and so forth might impede the freedom of trade contemplated by s. 92, which in other words supports our conclusion that tax may amount to restriction under Art. 301.

(x) (1927) 40 C.L.R. x.

(2) (1932) A.C. 542.

(3) (1936) A.C. 578, 613.

870 Sl:PREME COURT IlEPORTS

[1!)61]

z96o In the case of CommonweaUh of Auatralia v. Bank liabari T ta ·of New South Wales(') to which reference has already Co., Ltd. been made in connection with the test of pith and v. substance the Privy Council was examining the vali-n, s1a11 of dity.of s. 46 of Banking Act (Commonwealth) (No.·57 Assa .. .s- Othm of 1947) in the light of the provisions of s. 92 of the -In deciding the 8aid qucs-i·•iud•agadka. [. ]1 't' [Australian .Constitution. ]1011 on<1 o t tests w uc } ' was a.pp ]' L 1e y or< I Porter was : " Does the act not remotely or inciden-tally (e.s to which they will sa.y something le.ter) but directly restrict the inter-Ste.te business of banking", and he concluded tbe.t ''two general propositions may be accepted, ( 1) that regulation of trade, com-merce and intercourt;e among the Ste.tea is compatible with its.e.bsolute freedom, and (2) thats. 92 is violated only when legisle.tivc or executive act operates to restrict such trade, commerce e.nd intercourse directlv e.nd immediately a.s distinct from creating som"e indirect or consequential impediment which ma.y fairly be regarded a.s remote". This decision thus justifies the conclusion we have ree.ched about the scope and effect of rt. 30 I.In the result we hold that the Act he.a put a. direct restriction on the froedom of trade, a.nd since in doing so it has not complied with the provisionH of Art. 304(b) it must he declared to be void. Jn view of this conclusion it is unnecessary to consider the other points urged in support of the challenge a.go.inst the validity of the Act. The three appeals a.nd the two petitions a.re accordingly allowed a.nd writs or orders directed to bo issued a.s prayed. The a.ppellant8 and tho petitioners will be entitled tu their coats from the respondent.

SJ.alt J. SHAH J.-The ve.lidit.y uf the AHs1'm Taxation (un Goods carried by Road8 or Inland Waterways) Act, 1954-hereinafter referred to a.s the Act, is challenged by oorta.in producers of tea. in tho States uf West Bengal and Assam. The Act wa.8 passed by the Assam Legislature a.nd received tho assent of the Governor of Assam on April 9, 1954. To the introduc-tion of thu Bill (which was enacted into the Aet) in

the State Legislature, the previous sanction of the President was not obtained : nor did the President assent to the Act. By s. 3 of the Act, it is provided inter alia that " manufactured tea in chests carried by motor vehicles, cart, trolly, boat, animal and human agency or any other means except railways and airways sh!Lll be liable to tax of one auua per pound ·of such tea and this tax shall be realised from the pro-ducer". "Producer" is defined bys. 2 cl. (2) as mean-ing producer of tea and included person in charge of the garden where tea is produced. By s. 4, tax is charged on the total net weight carried during the return period. Section 7 provides that every producer and dealer shall furnish return of manufactured tea carried in chests. By s. 23, cl. (3), the Commissioner of Taxes is authorised to recover taxes and penalties due under the Act as arrears of land revenue. Sec-tions 27 and 28 impose duty upon the producers to maintain accounts in the forms prescribed under the Act e.nd to preserv:e the same . and to produce them whenever called upon, to the Commissioner or other persons a.s me.y be appointed by the Government in that behalf; The rules framed under the Act make it obligatory upon the producers to submit quarterly returns to the Superintendent of Taxes e.nd to me.in-to.in the registers in the forms prescribed and failure to maintain registers is penalised.

In exercise of.the powers .conferred by s. 7, sub-s. (3), the Commissioner of Taxes issued notification in the Assam Government· Gazette notifying for general information that returns under the Act and the Rules thereunder for the period between June 1, 1954 e.nd Septem her 30, 1954, she.II be furnished on or before October 30, 1954, and for the subsequent quarters on or before the dates specified therein. Three producers · who transported their tee. by road or by inland water-ways to Calcutta. in the State of West Benge.I challeng-ed by petitions under Art. 226 of the Constitution filed in the High Court of Assam, the authority of the Legislature of the State of Assam to enact the Act on~ the plea that the Act violated the guarantee . of freedom of trade, commerce and intercourse under

Atiabari Tea Co .• Ltd. v. The S1a11 of Assam & Oth1rs

Shah ].

AJiabati 1-e11 Co., Ltd. v. The Slate c>f Assam 6- Others

Shah j.

Art .. 301 of the f',.onstitut.ion. The High Court reject-ed tho plea. raised by the petitioners, a.nd a.gs.inst the orders passed, three appeals with certificates of fitness under Art. 132 of tho Constitution have been preferred. Two other producers have challenged t.he vires of the AcL by petitions under Art. 32 of the Constitution presented to this court.

The principal question canvassed in these proceed. ings is a.bout the competence of the ABBa.m Legislature to enact the Act. The producers contend that by Art. 301 of the Constitution, trade, commerce a.nd intercourse being declared free throughout the terri. tor.Y of India., the statute authorising imposition of restrictions or burdens on that freedom by levying ta.x under the authority of a.n Act which does not conform to the conditions prescribed by the Constitution iH invalid. Item 56 of List II of the seventh schedule to the Constitution authorises the State Legislature t-0 impose taxes on goods a.nd pa.SBengers carried by roa.d or on inland wa.terwa.ys. In terms, the ta.x imposed by the Act is a. ta.x on goods carried by road a.nd inland wa.terwa.ys a.nd is not of the nature of a. duty of excise. If t.he vires of the Act a.re to be adjudged solely in the light of the power conferred by Art. 246 cl. (3) read with item 56 of List II of the seventh schedule, the tax must be regarded a.s within the competence of the State. But the oxl'rcise of legislative power of the Pa.rlia.ment a.nd the State Legislatures conferred hy the legislative lists is restricted by diverse provisions of the Constitution. By Art. 301, it is declared that subject to the provisions of Pa.rt XlII of the Constitu. tion, trade, commerce and intercourse throughout the te~ritory of India. shall be free. The language of the .Article is genera.I; it admits of no implications and of no, JlXor.ptjons ba.r those expressly imposed by Pa.rt XlII. Ii .comprehensively sets out the guarantee o~ freedom and defines in terms, clear and precise, that trade, commerce and ,intercourse throughout the terri· tory of India subject to the provisions of Pa.rt XllI, shall be free, i.e., trade, commerce and intercourse shall not, except to the extent expressly permitted, be prohibited, controlled, burcltined or impeded. Our

Constitution even though in form federal, has in diverse provisions thereof, emphasised the unity of India; and with view to promote that unity appears to have guara.nteed, subject to specific restrictions, freedom of trade, commerce and intercourse throughout the territory. The Article is not merely declaratory' of State policy like the directive principles defined by Part IV of the Constitution which are expressly not made enforceable by any court·though the principles are" fundamental in the governance of the country'. It incorporates restriction on the exercise of power by Governmental agency-legislative as well as execu-tive. Besides placing an irremovable ban on the executive authority, it restricts the legislative power of the Parliament and the State legislatures conferred by Arts. 245, 246 and 248 and the relevant itetiis in the legislative lists relating to trade, commerce and intercourse. On the exercise of the legislative power to tax trade, commerce and intercourse, restrictions are prescribed by certain provisions contained in Part XII, e.g., Arts. 276, 286, 287, 288 and 289: but these restrictions do not exhaustively delimit the periphery of that power. The legislative power to tax is restrict-ed also by the fundamental freedoms contained in Part III, e.g., Arts. l4,l5(l),l9(l)(g) and 31(1) and is further restricted by Part XIII. Article 245, cl. (1), of the Constitution expressly provides that the legisla-tive powers of the Parliament and the 'State Legisla-tures to make laws are subject to the provisions of the Constitution; and Art. 301 is undoubtedly one ofthe provisions to which the legislative powers are subject. The power of taxation is essentially an attribute of the sovereignty of the State and is not exercised in consideration of the protection it affords or the benefit that it confers upon citizens and aliens. Its content is not measured by the apparent need of the amounts sought to be collected, and its incidence does not depend upon the ability of the citizens to meet the demand. But it is still not an unrestricted power . By Art. 265 of the Constitution, the power to tax can be exercised by authority of law alone. and the Con-stitution affirmatively grants the power of taxation

Atiaba1'i Tea Co., I.Id. ·v.

The Stat~ of Assa111 C'>' Othets

Shah ].

Atiabari Tra Co., Ltd. "· Th• State of .Asscan1 6- Others Shah }.

under diverse heads under the three lists of the seventh schedule. The power of taxation he.a there-fore to be exercised by the Legislature strictly within the limits prescribed by the Constitution, and any alleged· transgression eithl•r by Parliament or tha Ste.te Legislature of the limits imposed by tho Consti-tution is justiciable.

Trade e.ud commerce do not mean merely traffic in goods, i. e., exchange of commodities for money or other commodities. In the complexities of modern conditions, in their wide sweep a.re included ca.rria.ge of persons e.nd goods by ro&d, ro.il, air e.nd we.terwe.ys, contracts, banking, insure.no~, tre.nse.ctions in the stock excha.nges a.nd forward markots, communication of information, supply of energy, posts.I e.nd telegra-phic services and many more activities-too numerous to be exhaustively enumera.ted-which ma.y be co.lied commercial intercourse. Movement of goods from place to place ma.y in some insta.nces be an important ingredient of effective commercial intercourse, but mornment is not an essential ingredient thereof. Dea.l-ings in goods a.nd other commercial activities which do not import a. concept of movement a.re as much po.rt of trade and commerce e.s tre.use.ctions in-volving movement of goods. The guarantee of freedom of trade e.nd commerce is not addressed merely age.inst prohibitions, complete or pe.rtie.l; it is addressed to to.riffs, licenoing, marketing regulations, price-control, ne.tione.li811.tion, economic or social planning, discrimi-natory tariffs, compulsory appropriation of goods, freezing or ste.nd-still orders e.nd similar other impedi-ments opera.ting directly a.nd immediately on the free-dom of commercial intercourse e.s well. Every sequence in the series of operations which constitutes trade or commerce is e.u a.ct of trade or commerce e.nd burdens or impediments imposed on any such step a.re restric-tions on the freedom of trade, commerce e.nd inter-course. Whe.t is gue.re.nteed is freedom in its widest e.mplitude-freedom from prohibition, control, burden or impediment in commercial intercourse. Not merely discriminative to.riffs restricting movement of goods a.re included in the restrictions which a.re hit by

Art. 301, but e.11 taxation on commercial intercourse, even imposed e.s e. mee.sure for collection of r.evenue 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 Art. 301.

Alia/Jari Tea Co., Ltd. v .. The Slate of Assam &- Ot)1ers Shah ].

The guarantee of freedom is again not merely against burdens or impediments on inter-State move-ment : nor does the language of rt. 30 l guarantee freedom mere.ly from restrictions on trade, ·commerce and intercourse as such. Articles 302, 303, 304 and 306, which I will presently advert to, make it abund-antly clear that the freedom contemplated was free-dom of trade, commerce and intercourse in all their varied aspects. inclusive of all activities which con-stitute commercial intercourse and not merely from restrictions on " trade, commerce and intercourse as such".Article 301 as has already been observed enunciates fetter upon the exercise of legislative power under the entries in the lists of the seventh schedule con-cerning or relating to trade, commerce and interco.urse. The basic principle underlying Art.· 301 appears to have been adopted from the Constitution of the Aust-ralian Commonwealth. In the American Constitu-tion, by the 8th section, Art. 1, power tci regulate com-merce is granted; but the freedom of commerce a~ guaranteed by our Constitution is not found enunciat-ed in the Constitution of the United 8tates. Section 92 of the Constitution of the Commonwealth of Australia provides by the 1st paragraph that " on the\' 'imposi-tion of uniform duties of customs, trad!', commerce and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free''. That guarantee of freedom of trade, commerce and intercourse though not as extensive as the guarantee enshrined in our Constitution, is of the same pattern. But our Constitution has made sig-nificant departure from the Australian Constitution. Whereas. by s. 92 of the Australian Constitution,

freed om of trade, commorcc and intercourse is guaran-hied among the .States, i.e., at intcr . .State level, our Const i: u t ion has made trade, commerce and intercourse frt•e throughout tho territory of India, The freedom guaranteed by our Constitution is more pervasive: it is freedom of trade, commerce and intercourse intra-.State as well as inter-State. But this extension of the area of its operation does not alter tho content of that freedom. It is freedom from tax burdenH as well as other impediments.

At1r.1la1i tui Co., J.td.

The Stu!< o} Asl!J111 ~i:.- Utiu>s .'·i/i:1I, ).

Section 92 of the Commonwealth of Australia Act does not encompass the wide freedom guaranteed by our Constitution-it protects trade, commerce and intercourne from restrictions in inter-State commerce; but in my judgment, the interpretation put by the ,Judicial Committee of the Privy Council in James v. Commonwealth of Australia(') upon the meaning of the ex press ion " free " in s. 92 is not on that account less illuminating in the interpretation of Art. 301 of our Constitution which is largely based on that section of the Australian Constitution.

Lord Wright in ddil'tiring the judgment of the Boa.rd in James v. Commonwealth of Australia(') (8upra) at pp. 627-628 observed:

"' Free' in s. 92 cannot be limited to freedom in

the litst mentioned sense (freedom from tariffs). There may at first sight appear to be some plausibi-lity iu that idea, because of the starting point in time spPeilied in the sectiou, because of the sections which surround s. 92, and because proviso to s. 92 relates to customs dutit•s. But it is clear that much more is include<! in the term; customs duties and other like · mattt•rs coustitutc murely pecuniary burden; there may be different and perhaps more drastic ways of intcrforiug with freedom, as by restriction or partial. or compl(•te prohibition of passing into or out of the State.

X or does "free" necessarily conuote absence of ii;crimina.tiou between inter.t:ltate and iutra.-State trade. ~o doubt conditions restrictive of freedom of tra.d(l amo11g the .States will frequently involve dis-crimination; but that is not essential or decisive ....... (t) L.R. (1936) A.C. ~18.

compulsory seizure of goods ...... may include indifferently goods 'intended for intra-State trade and goods intended for trade among the States. Nor can freedom be limited to freedom from legislative con-trol; it must equally include executive control. Every step in the series of operations which consti-tute the particular transaction is an act of trade; and control under the State law of any of these steps must be an interference with its freedom as trade."

Atiabari Tea Co., Ltd. v.

The State of Assam & Othe1s

Shah ].

These observations made in the context of gua-rantee against obstruction to the flow of inter-State trade and commerce, involved the "conception" of "freedom from customs duties, imports, border prohi-bitions and restrictions of every kind: the people ...... · were to be free to trade with each other, and to pass to and fro among the States, without any burden, hindrance or restriction based merely on the fact that they were not members of the same State ".

Freedom guaranteed by Art. 301 is however not absolute: it is subject to the provisions contained in Part XIII of the Constitution. Article 302 authorises Parliament to impose restrictions on the freedom of trade, commerce and intercourse between one State and another or within any part of the territory of India as may be required in the public interest. The Constitution has therefore circumscribed the guaran-tee under Art. 301 by authorising the Parliament to impose restrictions thereon. Such restrictions on trade, commerce and intercourse may be intra-State as well as inter-State: the only condition which the restrictions must fulfil is that they must be imposed in the public interest. The learned Attorney-General urged that the courts are incompetent to adjudge whether the quantum, and the incidence of tax im-posed by Legislature in exercise of its powers are in the public interest, and therefore it must be inferred that Arts. 301 and 302 do not deal with freedom from taxation and the limits which may be placed thereon. Counsel urged that in the modern political thought, exercise of the sovereign power of taxation is not res-tricted· to collection of revenue for governmental

Atiabari Tta Co., Ltd. v. Tiu Stat~ of Assan1 {::>- Othtrs Shah ].

p~rposes ! it is resorted to for diverse purposes, often with new to secure pattern of social order ensur-ing justice, liberty and equality amongst citizens. That the courts may not in adjudging upon the vali-dity of restriction imposed by parliamentary statute, lightly enter upon an investigation whether the amount sought to be recovered and its incidence are in the public interest, is not ground for holding tbat Art. 302 does not deal with restrictions which may be placed upon trade, commerce and intercourse by the imposition of taxes. The courts will normally rely upon the wisdom of the Parliament and presume that taxes are generally imposed in the public inte-rest: but that does not exclude the jurisdiction of the court in given case to enter upon an enquiry whe-ther an impugned legislation satisfies the constitutio-nal test. If an enquiry into the validity of burden or impediment impolled on the freedom of trade, com-merce and intercourse imposed otherwise than by levying tax is within the competence of the court, the restraint which the courts put upon their own functions by raising presumption of constitutionality in dealing with burden imposed by taxing statute cannot be forged into fetter upon their jurisdiction. By cl. (b) of Art. 304, the State Legislatures are invested with Aimilar authority to impose restrictions on the freedom of trade, com-merce and intercourse with or within the State as may be required in the public interest. The territorial extent of the operation of the laws ·which may be made under Arts. 302 and 304(b) may not from the very nature of the jurisdiction exercised by the Legislatures be co-extensive, but subject thereto, the Parliament and the State Legislatures are entrus-ted in exercise of legislative authority with powers to restrict freedom of trade, commerce and intercourse. Why the Constitution should have enacted that the Parliamentary law may impose restrictions as may be required in the public interest and the State law may impose reasonable restrictions as may be required in the public interest, it is difficult to appreciate. It is unnecessary for the purpose of these cases to enter

upon discussion whether there is any real distinc-z96o tion between the quality of restrictions which may be Atiabafi Tea imposed by legislation by the Parliament and State co., Ltd. Legislatures exercising authority respectively unde'r v. Arts. 302 and 304(b) of the Constitution. The two The State of Articles enact that to cirucmscribe effectively the Assam "' Others freedom of trade, commerce and intercourse, the rest--. Shah ]. riction must satisfy the primary test that it is" requir-ed in the public interest". Clause (b) of Art. 304 is subject to proviso that no Bill or amendm.ent for the purpose of cl. (b) shall be introduced or moved in the Legislature of Staite without the previous sanction of the President. The authority of the State Legisla-ture to enact legislation imposing restrictions on trade, commerce and intercourse is therefore subject to the condition that before the Bill or amendment of sta-tute is moved, the previous sanction of the President must be obtained. Legislative power of the Parlia-ment imposing resljrictions on the freedom oftrade, commerce and iutercourse may therefore be validly exercised if the restrictions are required in the public interest. On the exercise of authority in that behalf by the State Legislatures, there are placed two restric-tions, (1) that the restriction must be reasonable and required in the public interest, (2) that the Bill or amendment imposing restriction can be moved or introduced in the Legislature only with the previous sanction of the President. In this context, I may refer to Art. 255 which provides, in so far as it is material, that no Act of the Legislature of Stnte shall be invalid by reason only that the previous sanc-tion required by the Constitution was not given,. if assent to that Act was given under cl. (c) where the previous sanction required was that of the President, by the President. Even if the previous sanction of the President has not been obtained to the moving or introduction of the Bill or amendment falling within cl. (b) of Art. 304, the Act still would not be in valid if the President has signified his assent to the Act enac-ted by the Legislature. .

Article 303(1) is an exception to Art. 302 as well as Art. 304(b). Notwithstanding the wide sweep of the

Atiabati Tra Co., Ltd. '" 1 he State of As-~am l>,. Ollie's S/i'lli J.

legislati,·e power restored by Arts. 302 and 304(b) lo the Parliament and the State Legislatures to make laws imposing restrictions on the freedom of trade, commerce and intercourse, prohibition is imposed on the exercise of the power in ma.king laws giving or authorising the giving of, any preference to one State over another or making, or nuthorising the making of, any discrimination between one State and another, by virtue of any entry relating lo trade and commerce in a.ny of the Lists in the seventh schedule. CI. (1) of Art. 303 emphasises the object of the Constitution. makers to safeguard the economic unity of the nation and to prevent discrimination bet ween the constituent States in the ma.lter of trade and commerce. It is true that under cl. (I) of Art. 302, the discrimination which is prohibited is under law made by virtue of a.11 entry relating to trade and commerce in the seventh schmlule. But thereby, discrimination which is prohibited is not limited to discrirni111~tion under laws ma.de under items expressly relating to the trade and commerce items of the seventh schedule. The ox prnssion " relat.ing to tr a.de and commerce " used in Art. :302(1) in my judgment include8 a.II those entries in the lists of the seveuth schedulo which deal with the power to legislate, directly or indirectly in respect of a.ctivitieH in the nature of tmdo aud commerce. lly cl. (l!) of Art. 303, the rigour of cl. (I) in the matt.er of laws to he enacted by Parliament iH to certain extent reduced. That clause authorises the l'arlia.me11t, but not the StMe Legislatures, to make laws notwith-Htanding cl. (I) when it is declared by law that it is necessary to ma.ko discrimination which is prohibited for the purpose of dealing with the situation arising from scarcity of goods in any part of tho territory of India.

Article 304, in so far a." it is materi1.d, provides that 11otwithstandi11g anything in Art. 301 or Art. 30:l, the Legislature of IL State rna.y by law, (a) impose 011 goods iJnported from other States (or the Union territories) any tax to which similar goods manufactured or pro. duccd in that State a.re subject, so, however, as not to dio<-rirninate between goods so imported and goods so

manufactured or produced. · This clause implies that notwithstanding anything contained in Art. 301 or Art. 303, the State Legislature ha.s the power to im-pose ta.x on the import of goods tow hi ch similar goods manufactured or produced in the State a.re subject, provided. that hy taxing the goods imported from another State or Union territory, no discrimination is practised. If Art. 301 a.nd Art. 303 did not deal with restrictions or burdens in the nature of tax, the reason for incorporating the non-obsta.nte clause to which Art. 304, cl. (1), is subject, cannot be appreciated. Un-doubtedly, the provisions of Pa.rt XIII of the Cons-ti'tution do not impose a.dditiona.l or independent powers of taxation; the powers of ta.xa.tion a.re to be found conferred by Arts. 245, 241l and 248 read with the lists in the seventh schedule, and the provisions of Pa.rt XIII a.re !imitative of the exercise of legislative power. The circumstance that the C6nstitution has chosen to deal with.a specific field of taxation a.s an exception to Arts. 301 and 303 (which .>hould really be Art. 303(1) ) strongly supports tbe inference that-ta.xatioo wa.s one of the restrictions from the impmli-tion of which by the guarantee of Art. 301, trade, commerce and intercourse a.re declared free.

Atiabari Tea Co., Ltd. y. The State of Assam &.. Olhers Shah ].

Cla.!'se (b) of Art. 304 is subject to the proviso pres-cribing tha.t the previous sanction of the President shall be obtained to the moving or introduction of Bill or amendment imposing restrictions on the free-dom of trade, commerce and intercourse. There is however no'such condition imposed in the matter of enactment of laws imposing non-discriminative tariffs· under cl. (a). But on that account, the nature of the restrictions contemplated by els. (a) and (b) is not in a.ny manner different. Ola.use (b) deals with genera.I restriction whic.h includes a. restriction by the imposi-tion of burden in the nature of tax. Clause (a) deals with specific burden of taxation in a. limited field.

Article 305 protects existing laws except in so far as the President may by order or otherwise direct, and it also validates certain enactments ma.de before the commencement of the Constitution (Fourth Amendment) Aot, 1955, and authorises the Parliament

A1iaba11 Tea Co., l.td. v. 1 ht Stale vf Assam «Y Othrr.~

and the State Legislatures in future to make laws relating to matters referred to in sub.cl. (2) of cl. (6) of Art. 19. Article 306 of the Constitution which was repealed by the Constitution (Seventh Amendment) Act, 1956, provided, in so far as it is material, that notwithstanding· anything in the foregoing provisions of Part XIII or any other provisions of the Constitu-t.ion, State specified in Part of the First Schedule which before the commen·cemont of the Constitution was levying any tax or duty on the import of good8 into the State from other St!!.les or on the export of goods from the State to other States may, if an agree-ment in that behalf has been entered into between the Go,·ernment of India and the Government of that State continue to levy and collect such tax or duty aubject to the terms of such agreement......... . Tho marginal notn of the Article refers to the power of the States specified in Part of tho F'irst Schedule to levy tax as power to impose restriction" on trade and commerce, and clearly 8upports the view that within tlw meaning of Art. 301, freedom was to include free-dom from taxation and the restrictions contemplated by Arts. :J02 and 304 contemplated imposition of bur-dens of the nature of taxation.

On careful review of the various Articles, in mv judgment, by Part XIII, restrictions have been im-posed upon the legislati,·e pow~r granted Ly Arts. 245, 246 and 248 and tho lists in the se\·enth schedule to the Parliament and the State Legislatures and those restrictions include burdens of the nature of taxation. Therefore, the power to tax commercial intercourse vested by the legislative lists in the Parliament or the Stato Legislatures, is circumscribed by Part XIII of the Constitution and if tho exorcise of that power does not conform to the requirement.a of Part XIII, it would be regarded as im·alid.

As observed horeinbefore, the previous sanction of the President was not obtained to tho moving of the Bill which was enacted as the impugned Act. Even though tho Assam Logislaturc had by item 56 of tho sovonth ~chedule l(•gislative authority to impose this tax, the State could uot exercise this authority in the absence of the previous sanction of tho President and

the invalidity of the Act imposing the tax on goodH and passengers is not cured, the President not having t\ssented to the Act at any time after it was passed by the Assam Legislature. The argument that this view seriously restricts the " sovereignty " of the States has, in my view, little force. Even cursory review of our constitutional provisions clearly shows that the primary object of the Constifiuent Assembly was to erect governmental m,achinery with strong cen-tral Government, with /the object of building up healthy economy, and unifying the various component States, consisting of the former British Indian Pro-vinces and the merged Indian States, by· subordinat-ing local and parochial _interests to the wider national interest. In any event, in adjudging the vires of statute, the impact of the view which the interpreta-tion placed by the court may produce on some cherish-ed notion of sovereignty of the component States must be ignored.

In that view, the Assam Taxation (on Goods carri-

ed by_ Roads or Inland Waters) Act, 1954, must ,I>~ regar'ded as infringing the guarantee of freedom of trade and commerce under Art. 301, because the Bill moved in the Assembly had not received the assent of the President as required under Art. 304(b) proviso, and the Act has not been validated by the assent of the President under Art. 255( ).

In the view expressed by me, I do not deem it

necessary to enter upon certain subsidiary contentions such as the application of the "pith and substance doctrine " to the interpretation of the relevant clauses, the alleged violation by the Act of the equal protec-tion clause of the Constitution, and the effect of Act XXIX of 1953 enacted by the Parliament, which were debated at the Bar.

In the view taken, the appeals must be allowed and the Rule in the two applications made absolute, with costs.

ORDER OF COURT: In view of the majority judgment, the appeals and the writ petitions are allowed with costs-one set, of hearing fees.

Atiabari-Tea Co., Ltd. v.

J'he State of Assa11i ... Others Shah ].