THE AUTOMOBILE TRANSPORT (RAJASTHAN) LTD. versus THE STATE OF RA.JASTHAN AND OTHERS

1 s.c.R. SUPREME COURT REPORTS

THE AUTOMOBILE TRANSPORT (RAJASTHAN) LTD.

THE STATE OF RA.JASTHAN AND OTHERS (And Connected Appeals)

(S. K. DAS, J. L. KAPUR, A. k. SARKAR, K. SUBBA. RAO, M. HIDAYATULLAH, N. RAJAGOPALA AYYANGAR and J. R. MUDHOLKAR1 JJ.)

Fre~om of Trade-State carriages-Tax on Vehicles--Btafe law imposing tax on vehicles used in public place. or kept for use--Oonstitutional validity-Rajasthan Motor Vehicles Tax· ation .Act, 1951 (Rajasthan 11 of 19.SZ), Rll, 4, 11, Bcher11ul~­Oonstitution of India, .Arts. 19, 245, 301, 304 Sevr:.nth Sch. List I, entry 42, List JI, entry 57.

Sub-section (1) of s. 4 of the Rajasthan Motor Vehicles Taxation Act, l 951. provided : " ...... No motor vehicle shall be used in any public place or kept for use in Rajasthan unless the owner thereof has paid in rcsper.t of it, tax at the appropriate rate specified in the schedules to this Act within the time allowed ...... " The appellants were carrying on the business of plying shge carriages in the State of Ajmer. They held permits and plied their buses on diverse routes. There was one route which lay mainly in Ajmcr State but it crossed narrow strips of the te1Titory of the State of Rajasthan. Another route, Ajmcr to Kishangarh, was substantially in the Ajmer State, but third of it was in Rajasthan. Formerly, there was an agreement between the Ajmer State and the former State ()f K.ishan~arh, by which neither State charged any tax or fees on vehicles registered in Ajmer or K.ishangarh. Later, Kishan-· garh became part of Rajasthan. On the passing ()f the Rajasthan Motor Vehicles Taxation Act, 1951, and the pr()mulgation of the rules made thcrcund~r, the Motor Vehicles Taxation Qfficcr,.Jaipur, demanded of the appellants payment of the tax due on their motor Vehicles for the period April 1, 1951, to March 3 l, 1954. By virtue of the provisions ()f s. 4 ()f the Act read with the Schedules no one could use or keep motor vehicle in Rajasthan without paying the appropriate . tax for it and if he did so he was made liable to the penalties imposed under s. I l of the Act. The appellants challenged the legality of the demand on the grounds that s. 4 of the Act read with the Schedules constituted direct and immediate

1962 April 9,

1962 Automobile Tf'ansp01t (R•Jast""") Ltd. v. Stall of Raa5tha n

492 SUPREME OOURT REPORTS [1963]

restriction on the movement of trade and commerce with and within Rajasthan inasmuch as motor vchiclr:S which carried passengers and goods within or through Raja•than had to pay the tax which imposed pecuniary burden on com· mercial activity and was, therefore, hit by Art. 301 of the Constitution of India and was not saved by Art. 304(b) inasmuch as the proviso to Art. 304(b) was not complied with, nor was the Act assented to by the President within the meaning of Art.· 255 of the Constitution. The respondents claimed that taxation for the purpose of raising revenue or for the maintenance of roads etc., was not hit by Art. 30 I and that the Act did not constitute an immediate or direct imp· edimcnt to the movement of trade and commerce inasmuch as the tax impnsed was consolidate tax on the vehicle itself though the quantum of ·the tax was fixed in some instances with reference to the seating capacity or loading capacity etc.

Held (per S. K. Das, Kapur, Sarkar and Subba Rao,

JJ.), that the Rajasthan Motor VehiclesT .. xation Act 1951, did not violatr, the provisions ot Art. 301 of the Constitu1ion of India and that the taxes imposed under the Act were comp· ensatory or rrgu1atory taxc~ which did not hinder the freedom of trade, commerce and intercourse assurcd __ by that Article. Such taxes, therefore, were legal.

Per S. K. Das, Kapur and Sarkar, JJ.-(1) The con·

cept of freedom of trade, commerce and intercourse postulated by Art. 30 I must be understood in the context of an ordinary society and as part of Constitution which envisaged distribution of powers between the States and the Union, and if so understood, the concept must recognised the n•ed and legitimacy of some de!!fCe of regulatory control, whether by the Union or the State!!!. Regulatory measures or measures impos• ing compensatory taxes for the use of trading faciliti~s did not hamper trade, commerce and intercourse but rather facilitated them and, therefore, were not hit by the freedom declared by Art. 301 ; such measures need out comply with the require· ments of the provisions of Art. 304(b) of the Constitution. (2) In view of the provisions of Art. 245; the restriciions in Part XIII of the Constitution applied to taxation laws ; and such laws were not confined only to legislation with res-pect to entries relating to trade and clJmmcrce in any of the lists in the Seventh Schedule. (3) On proper co~struction of the Act and the Schedules. the taxes imposed were really taxes for the use of the roads in Rajasthan. Jn basing the taxes on passenger capacity or loading capacity, the· legislat-ure had n.<rt ly evolved method and measure of compen-sation demanded by the State, but the taxes were still compensation and charge for regulation.

1 S.O.R.

Per Sobba Rao, J.-(1) The freedom declared under Art. 301 of the Constitution of India referred to the right of free movement of trade without any obstructions by way of barriers, inter-State or . intra-State, or other impediments operating as such barriers ; and the said freedom was not impeded, but on the other hand, promoted, by regulations creating conditions for the free movement of trade, such as, police regulations, provisions for services, maintenance of roads, provision for aerodromes, wharfs etc., with or without compensation. (2) Parliament. may by law impose restrict-ions on such freedom in the public interest, and the States also, in exercise of its _legislative power, may impose similar restrictions, subject to the proviso mentioned therein. (3) Laws of taxation were not outside the freedom enshrined either in Art. 19 or Art. 301.Per Hidayatullah, Rajagopala Ayyangar and Mudho-lkafl JJ.-(1) St>ction 4(1) of th Rajasthan Motor Vehicles Truta1ion Act, 1951, as rearl with Schs. · II, III and Part I of Sch. IV, offended. Art. 301 of the Constitution, and as resort to the procedure prescribed by Art 304(b) was not taken it was ultr:a tiires .the Constitution. (2) The pith and substance of the Act was the levy of tax on motor vehicles in Rajasthan or their use in that State irrespc:ctive of where the vehicles ca:me from and not legblation in respect of inter· State trade or commerce. The Act was ~ithia entry 57 of the List of the Seventh Schedule and not ·unt;ler .entry 42 of Union List. (3) tax which is made thc'e<;>ndition prece-dent of the right to enter upon and carry on business is restriction on the right , to carry on trade· and: commerce within Art. 301. In the present case, the. trade, which consisted in making use of . motor vehicles for carriage of· passengers and goods, could be carried on only ·if the tcx was paid, and, therefore, th~ taxes imposed by Schs.11, III and IV( I) operated on trade and commerce directly. ('~) The tax levied under the Act was not, truly fair recompense for wear and tear of roads, but restriction, which Art. 301 forbade. (5)' The Act was i:iot, in its true character, regulatory becau~e there was no provisioµ therein; which could be regarded as regulatory of motor vehicles. The Act plainly levied tax upon possession or use of motor vehieles. Atiabari Tea Oo., Lta. v. The State of Assam· ana Othera (1961] 1. S.C .R. 809, discussed. · · ·

American and Australian decisiens with .regard to the Commerce Clause or the American Constitution and s. 92 of the Australian Constitution, considered ..

19tll A.ulomobile Tr•11s/o'I (Rajastlum) Lli. v. S1at1 of Rojastha

Automobile Transpor' ( Rajasthcn) Ltd. •• State of Rajas;han

C1vIL APPELLATE JumsnrcTION : Civil Appeals Nos. 4~ to 44 of l!J50.

Appeals from the final judgment and order

dated August 0, 1957, of thn Rajasthan High Court (Jaipur Bench) at Jaipur in Cid] 'Vrit Petitions Nos. 40J to 402 of 1954.

G. S. Pathak, J.B. Dadachanji, S. N. And/ey, Rameshwar Nath and P. L. Vohra, for the appellants.

G. 0. Kasliwal, Advocate-General for the Stat~ of

Rajasthan, A. V. Viswanatha Sastri, S. K. Kap~tr and P. D. Menon, for the respondents.

H. M. Seervai, Advocate-General for the State of

Maharashtra and Naunit Lal, for the Nate of Assam (Intervener).

V. K. T. Chari, Advocate-General for the State of Madras, R. Ganapathy Iyer, T. J[. Sen and P. D. Menon, for the State of Madras (Intervener).

S. N. Sikri, Advocate-General for the State of

P.unj11J, N. 8. Bindra, T. JI. 8en and P. Menon, for the State of Punjab (Intcrvcr:er).

H. M. Seervai, Advocate-General for the State of

Maharashtra, T. JJf. Sen and P. . .lfcnon, for the State of Maharashtra (IntflTt•ner).

K. Bhimsankarom, 'l'. M. Sen and P. D. Menon,

for the State of Andhra l'rndesh (Int.e'1nmer).

B. Sen, S. 0. Bo-<e and P. K. Bose, for the Sta to of 'Ve8t BengH l (Tnterv<.>ner).

L<1l Narain Sinha, Ln.lcshma?>

Saran Singh.

D. P. Singh, R. K. Gara, 31. K. Ramn.mvrthi and

S. 0. Aggarwal. for the State of Bihar (Intervener).

Dinbandhit Sn.hit, Adi·ocate-Genrrnl for lh.e State of Orissu, B. K.P. Sinha, 'l'. M. Sen nrn1 P. r>. l1Ie11on, for the Stat<' of 01 isE9 (llltNv~ner).

K. D. Hathi and P. D. 2~enon, for the State of Gujarat (Intervener).

ft!. Adhikari, Advocate-General .for the Stale of

Madhya Pradesh, B. Sen, B. K. B. Naidu, and I. N. Shroff, for the State of Madhya Pradesh (Intervener).

Ranade.b Chaudhu1"i, S. N. Andley, Rameshwar Nath and P . .L. Vohra,, for M.A. Tulloch and Co. (Intervener).

K. Srinii•asniurty aud D. Gobu.rdhun, for Nazeeria Motor Service, Nellore, and Andhra Pradesh Motor Union (Interveners).

N. C. Chatterjee, S. O. ~laz'umdar and R.H.

Dhebar, for the Attorney-General for India. (intervener).

1.962. April 9. The following judgments were

delivered. The judgment of S. K. Das, J. L. J{apur and A. K. Sarkar, JJ., l\'as delivered by S. K. Das, J. The judgment ofM. Hidayatul1ah, N. H,ajagopala Ayyangar and J. R. Mudholkar, JJ., was delivered by .M:. Hidayatullah, J.

S. K. DAS, J.-These aro three consolidated·

appeals which arise from the judgment and order of Division Bench of Rajasthan High Court dated August, 9, 1957. They have been preferred to this Court on the strength of certificate granted by the said High Court under Art. J 32 of the Consti-tution certifying that the cases involve substantial question oflaw as to the interpretation of Art. 301 and other connected articles relating to trade, com-merce and intercouroe within the territory of India, contained in Part XIII of the Constitution. These appeals were originally heard by Bench of five Judges and on April 4, 1961, that Bench recorded an order to the effect that having regard to tho importance of the constitutional issues involved

Automobile Transport ( Rr.jasthun) L:d. y, State flf Rajastha11

DasJ.

19U .4Womo6il1 l'u.up.I (Rttiasllon) Lt4. s1a11 of •• a.;..,1,_ .D., J.

and the views expressed in the decision of this Court in Atiabari Tea Co. /.,Id. v. The State of AsBam (') the appeals should be heard by larger Bench. The appeals were then placed before the learned Chief Justice for necessary orders, and on his orders have now come to this Bench of seven Judges for disposal. As the constitutional issues involved alfect tho state of the Union, notices were issued to the Advocate1·General concerned. notice was also iasued to the Attorney General on behalf of the Union of India. The St3tes of Andhra Pradesh, .Asaam, Bihar Gujrat, Madras, Maharashtra, Orissa, Punjab, Uttai Pradesh and West Bengal intervened and were represented before u1 either through their respective Advooate1·General or other Counsel M/a. M. A. Tulloch & Co., Andhra Pradesh Motor CongreBS and Nazeeria Motor Service, Nellore, applied for intervention on the ground that they would be affected in pending litigation by the decision of this Court on the consututional iasuee involved. Those applications were allowed by ua. The reault has been that we have heard very full arguments not only from Counsel appear for the appellants and the respondents, but alao from the learned Counsel appearing on behalf of the Union of India, the learned Advocates·General or Counsel appearing for the intervening States and alao from learned Counsel appearing on behalf of the three int;erveners referred to above.

The appellants in the there appea~ are.( l) ~h.e

Automobile Transport (Raj.) Ltd., A1mer m C1v1l Appeal No. 42 of 1959. (2) the Rajasthan Roadways Ltd., Ajmer in Civil Appeal No. 43 of 1959, and (3) Framji C. Framji and others in Civil Appeal No .. 44 of 1959. The respondents are (1) the State of ~aJll.S· than, (2) the Regional Transport Officer w!io JS ex. officio Motor Vehicles Taxation Officer, J a1pur, and

(I) [11161] I. S. C.R. 809.

(3) the Collector of Jaipur. The first two Appel-

lants are priva.ta, limited liability companies regis-tered under the Indian Companies Aot, 1913 and having their reu;istered offices a.t Ajmer. The third appellant is partnership firm named Framji Motor Transport registered under the India Partnership Act. These three a.ppel-)ants carried on the business of plying stage carriages. The first appellant had nine transport vehicles plying between two .stations in the State of Ajmer and between Ajmer and Kishangarh, town in Rajasthan at the relevant period. The two stations in Ajmer were Na.sire.bad and DeoJi. The road from Nasirabad to Deoli was mainly in the former State of Ajmer but for some <listance it passed through certain narrow strips of territory of the State of Rajasthan. Similarly. the road from Ajmer to Kisbangarh was partly in the former State of Ajmer and partly in the State of Rajasthan, approximately two-thirds of the road lying in Ajmer and one-third in Ra.ja.sthan. The second and the third appellant also had some transport vehicles which plied on the Nasirabad-Deoli route or from Kisha.ngarh to Sarwar, a. town situated on the Nasiraba.d-Deoli road in the State of Rajasthan. On the passing of the Ra.jasthan Motor Vehicles Taxa-tion Act, 1951 (Ra.jasthan Act XI of 1951) (here-ina.fter referred to as the Act), and the promulgation of the rules made thereunder, the second respon-dent demanded of the appellants payment of the tax due on their motor Vehicles for the period beg-inning on April 1, 1951. and ending on March 31, 1954. The first appellant was called upon to pay Rs. 22,260, the second appellant Rs. 6,540 and the third appellant Rs. 10,260 under r. 23 of the Rajas-than Motor Vehicles Taxatian Rules. When the appellants failed to pay the tax demanded from them, the second rt~sponclent issued ct'rtificates under s. I:-3 of the Act to the third res11ondent for the recovery of the tax due as arrears

.A.utomol>ile Trans/1<1'e ( Rajaslli•n) Ltd. v. Stat1 of R.Jasthon DasJ.

J962 Auti,mobil• Trans/HP t .;asihan) Ltd. v. State of Rajc.5than DasJ.

of land revenue. On receipt of the demand notices the second and the third appellants filed appeals before the Transport Commissioner, Jaipur, under s. 14 of the Act. These appeals were however, dismissed by an order of the Transport Commissioner dated October 21, 1953. The first appellant did not file any appeal. Thereafter the three appellants filed three separate writ petitions in the Rajasthan High Court in which their main contention was that the relevant provisions of the Act imposing tax on their motor vehicles were unconstitutional and void as they contravened the freedom of trade, comme:r;ce and intercourse through ont the territory of India declared by Art. 30 I of t.he Constitution and therefore the demand and attempted collection of such tax were illegal and should be prohibited. The pra-yers which the appellants made in their respective writ petitions were mainly there-(1) that it be declared that the Rajasthan Motor Vehicles Tax· ation Act of 1951 and the Rules made thereunder are invalid and not in accordance with the provi-sions of the Constitution of India and consequently null and void and inoperative, and (2) that writ of prohibition or mandamus or any other approp· riate writ, direction or order directing the respon· dents not to realise any tax from the appellants under the provisions of the Rajasthan Motor Vehicles Taxation Act of 1951 be iEsued. The three writ petititions were heard together by Division Ben~h consisting of Bapna and Bhandari, JJ. They dealt with and disposed of certain other ob-jection to the validity of the Act, with which we are no longer concerned; but as to the contravention of Art. 30 l of the Constitution, they felt that in view of the complexity of the points involved and the apparent conflict between certain decisions of other High Courts, the question should be referred to Full Bench. Accordingly, they referred the question whether ss. 4 and 11 of the Act infringed

1 S.C.R.

the right of freedom of tra.de, commerce or inter-course granted under Art. 301 of the Constitution. The Full Bench dealt with the· question from two different stand points. Firstly. they considered the validity of the Act from the stand point of Act, 19 (1) of the Constitution which guarantees, to all citizens of India the right to move freely throughout the territory of India; this the Full Bench dealt with under the heading of freedom of intercourse from the stand point of the individual citizen and came to the conclusion that restrictions which the Act imposed on the individual citizen were reason-able restrictions having regard to the necessity of raising funds for the maintenance of roads and the making of new roads in the State of Ra.jasthan. Then the High Court considered the validity of the relevant provisions of the Act from the stand point of trade, commerce and came to the conclusion that the regulation of trade, comm-erce and intercourse within the territory of India, both inter-8tate and intra-State. was not incompati-ble with its freedom and in the matter of such regu-lation of trade, commerce and intercourse a. distin-ction must be drawn between restrictions which are direct and immediate and restrictions which are indirect and consequential. The High Court ex-pressed its final conclusion in the following words :

''Transport vehicles are provided by individuals carrying on business in them and those who carry on trade and com-merce as a. whole, can use these trans-port vehicles. The fact that on account of this taxation, the charges of transport vehicles are higher, let us say by an anna maund is, in our opinion, merely an indirect or consequential result of this Act, and such an impediment may fairly be called remote. It would be diffe. rent matter if the taxation is so high that

1962 AutomoWe Transp,,,1 (Rajaslhan) Ltd. v. State of R'j aslh 'n --DasJ.

1961 Automohrle 'TransptJri ( llqjaslhan) LJd. v. Stolt of Rajasthan DasJ

it virtually kills trade and commerce by compelling the traders to raise their prices to an exorbitant rate. But this being not the nature of the tax in this case, and the taxation being not directly on trade, commerce or intercourse ........ . we are of opinion that this taxation can not be said to offend against Art. 301, for its effeut on trade and commerce is only indirect and consequential and the impediment, if any, may fairly be regarded as remote."

In view of that conclusion the Full Bench answered the question referred to it in the negative. The cases then went back to the Division Bench with the answer given by tho Full Bench and the writ petitions were dismissed by the Division Bench by its judgment and order dated August 9, 1957. The three appellants then moved the High Court for certificate under Art. 132 of the Constitution whiah certificate the High Court granted by its order dated October 16, 195 7.

It may be here stated that neither the Divi-

sion Bench nor the Full Bench of the Rajasthan High Court had the advantage of the decision of this Court in Atiabari Te,a Co., case ('), which decision came much later in point of time. The main argu-ment on behalf of the appellants before us has been that the provisions of the Act under which the appellants were @ought to be taxed in respect of their motor vehicles plying on the Nasirabad-Deoli or Kishangarh road contravened Art. 301 of the Constitution and were not saved by Art. 304 (b) of the Constitution. We shall presently read the rele-vant provision of the Act, but before we do so we may breifly refer to one short point by way of olea· ring the ground for the diaouasion which will follow. Artie]., 30ii of the Constitution as it originally stood said tllat nothing in Arts, 30 l and 303 shall affect (1) [1961) 1. S. C.R. 809.

I S.C.R. SUPREME COURT REPORTS 501

the provisions of any existing law except in so far

as the President may by order otherwise provide. This article was substituted by another artiole, soz;.:ie what wider in scope, by the Const.itution (Fourth Amendment) Act, 1955. The new article repeated the words of the old article in the first p11.rt thereof and in the second part it said that nothing in Art. 301 shall affect the operation of any law made be-fore the commencement of the Constitution (Fourth Amendment) Act, 1955, in so far as it relates to, or prevent Parliament or the Legislature of State from making any law relates to, any such matter a.a is referred to in sub·cl. (ii) of cl. (6) of Art. l9 that sub·clau8e refers to the carrying on by the State or by corporation owned or controlled by the State, of any trade, businefls, industry or ser-vice, whether to the exclusion, complete or partial, of citizens or otherwise. The first _part of Art. 305 does not apply in the present cases be, cause the expression "existing law" means any law, ordinance, order, bye-law etc. passed or made be-fore the commencement of the Qonstitution. Tue Act which we are considering now in the present appeals was made in 1955, i.e., after the commencement of the Constitution. The second part of Art. 305 has also no bearing on the questions which we have to consider in these appeals. Article 3l!51 old or new, is, therefore1 out of our way.We now proceed to read th'e relevant pro-'\'isions of the Act. The Act was ma.de by the Ra.jpramukh of the State of Rajasthan on April 1, 195 i. The history of the constitution of the United State of Rajasthan and the powers of the Rajpra-mukh under the covenant creating the State were stated in Thakur Amar Singhji v. Staf,e of Ra}astkanC) at pp. 312 to 316 of the report~ With that history we a.re not concerned in the present cases. The competence of the Rajpramukh to make the Act (1) [1955] 2. S.C.R. 303.

L96S Autamobil1 Transport ( Rf!iasthan) Ltd. v. State of ttajasthan DasJ.

1962 ~utmnniile Trnnsport (Rojast'1an) Ltd, •• Stat~ of R<dasth'n D•s J.

was challenged in the High Court but was decided against the appellantK. That point has not been agitated before us and we must proceed on the footing that the Act was validly made by the R:i.j-pramukb. Section 4 of the Act is the charging section, the validity of which has been challenged before us on the ground that it violates the freedom of trade, commerce and intercourse granted under Art. 301 of the Constitution. It is, therefore, necessary to quote s. 4.

"4. Imposition of tax.-( l) Save as other-

wise provided by this Act or by rules made thereunder or by any other law for the time being in force, no motor vehiole shall be used in any public place or kept for use in Rajasthan unless the owner thereof has paid in respect of it, tax at the appropriate rate specified in the Schedules to this Act within the time allowed by section 5 and, save as hereinafter specified, such tax shall be payable annually notwithstanding that the motor vehicle may from time to time cease to be used.

(2) An owner who keeps motor vehicle

of which the certificate of fitness and the certificate of registration are current, shall, for the purposes of this Act be presumed to keep such vehicle for use.

(3) person who keeps more than ten

motor vehicles for use solely in the course of trade and industry shall be entitled to deduction of ten per cent on the aggregate amount of tax to which he is liable.

"4. Explanation.-The expression trade and

industry" includes transport for hire."

Sections 5 to 7 deal with (1) payment of tax, (2) tax

payable on first liability to tax, and (3) refund of tax. With these details we are not concerned here. Section 8 imposes on the owner of every motor

1 S .C.R. SUPREl'CE COURT REPORTS

vehicle an obligation to make declaration every

year in respect of the motor vehicle in the prescrib-ed form stating the prescribed particulars etc.; it also imposes an obligation on every owner to pay the tax which he is liable to pay in respect of the motor vehicle. This sectipn is also challenged as unconstitutional and it is obvious that it is connect-ed with s. 4. Ifs. 4 is unconstitutional, so must be s. 8. Section 9 deals with the payment of additional tax in circumstances which need not be stated here. Section 10 deals with the grant of receipt and token. Section 11 says :

.dut,moi11i Transport ( Raj111th4n) Ulf. v. Stat1 of Raja•than

''11. Penalties 'II/Mer this Act.-whoever

contravenes any of the provisions of this Act or of any rule made thereunder shall on con-viction be punishable with fine which may extend to Rs. 100 and in the event of such person having been previously convicted of an offence under this Act or under any rule made thereunder with fine which may extend to Rs. 2-00."

Section 12 deals with the compounding of offences

ands. 13 lays down that when any person without any reasonable cause fails orC"efuses to pay the tax, the Taxation Officer may forward to the Collflctor of the district concerned certificate over his sig-nature specifying the a.mount of tax due from such person and the· CoJlector shall recover the tax as if it were an arrear of land revenue. Section 14 provicies for appeals to the Transport Commissioner. Section 16 Jays down that the liability of person to pay the tax shall not be questioned or determi-ned otherwise than as provided in the act or in the rules made thereunder. Sections 17 to 21 deal with certain ancillary matters and s. 22 enables the Government to make rules fo:r carrying into effect the purpose of the Act. There are four Schedules to the Act to which more detailed reference will be made later. It is _enough to state here that the

JIG! Automobi11 T1a•s;o1e (R.iiutlum) Ltd. •• Stfll1 -.! Rojas,... DesJ.

Schedules divide motor vehicles into two parts : Schedule I deals with vehicles other than transport vehicles plying for hire or reward; Schedule II deals with transport vehicles of two kinds transport vehicles and goods vehicles; Schedule III deals with goods vehicles registered outside Rajasthan but using roads in Rajasthan; and Schedule IV deals with vehicles used for the carriage of goods in connection with trade or business carried on by the owner of the vehicle under private carrier's premit. Various rates of tax are provided for various kinds of vehicles in these Schedules. The High Court has pointed out that Schedule 1 is concerned with vehicles other than transport vehicles and is mainly concerned with what would come within the term "intercourse" in Art. 301 and the other :--chedules deal with what would come within the term "trade and commerce" in that article. The result of reading s. 4 of Act with the Schedules is that on one can use 01 keep motor vt·hicle in Rajasthan without paying the appropriate tax for it and if he does so he is made liable to the penalties imposed under s. 11 of the Act. In brief, this appears to be the scheme of the Act.

Is this scheme in conflict with the freedom

of trade, commerce and intercourse within the territory of India assured by Art. 301 anti other connect.ad articles in Part XIII of the Constitution ? That is tho problem before us. It is necessary, therefore. to read at this 8tage the relevant articles in Part XIII of the Constitution. For this purpose we must reatl Arts. 301 to 304 as they stood at the relevant time.

'•301. Subject to, the other provisions of

this Part, trade, commerce and intercourse throughout the territory of India shall bc free.

302. Parliament may by law impose

such restrictions on the freed om of trade,

1 s.c.R.

commerce or intercourse between one State and another or within any part of the terri-tory of India. as may be required in the public interest.

303. (1) Notwithstanding anything in Articles 302, neither Parliament nor the Legislature of State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another by virtue of any entry relating to trade and commerce in any of the Lists in the Se·venth Schedule.

(2) Nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it· is declared by such law that it is necessary to do so for the purpose of dealing with situation arising from scarcity of goods in any part of the territory of India.

304. Notwithstanding anything in Article 301 or Article 303, the Legislature of State may by law-

( a) impose on goods imported from other States any fi&x to which similar goods manufactured or proiuced in that State are subject, so, however.. as not to discriminate between goods so imported and goods so manufactured or produced; and

(b) impose suoh reasonable restric-

tions 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

IHI .4utomobile 'l'ronrport (RoJa1tfaa"} Ltd. v. Sta'1 of Rajasthan DGl.T;

1962 .Automobil1 Transport (Rajasthan) Ltd . •• State of RajasChan D1s I.

:iUPREME COURT REPORTS [1963J

the purposes of clause (b) shall be introduced or moved in the Legislature of State without the previous sanction of the President"

Article 301) we have already stated is out of our way. Article 306, which was later repealed by the Constitution (Seventh Amendment) Act, 1956, is also not material for the 0onsideration of the problem before us. Article 307 is also not material as it relates to the appointment of an appropriate authodty for carrying out the purposes of Arts. 301 to 304.

The series of articles on the true scope and effect of which the decision of the problem before us depends were the Au bject matter of consideration of this Court in the Atiabari Tea Co. case ('), In that decision three views were expressed and one of the questions mooted and argued before us is whether the principle of the majority decision in that oase requires reoons'idera-tion, or modification in any respect; or whether any of the other two views expressed therein is the cor-rect view. Another ccnnected question is that if the majority view is the correct view, does the prin-ciple underlying it apply to the facts of the present cases? It is, therefore, necessary to set out briefly the facts of the Atiabari Tea Co. case ([1]) and the three views expressed therein. The three appellants in that case were tea companies, two of which carried on the trade of growing tea in Assam and the other carried on its trade in Jalpaiguri in West Bengal. They carried their tea to Calcutta in order that it mi2'ht be sold in the Calcutta market for home consumption or export outside India. Tea produced in Jalpaiguri had to pass through few· mi!Ps of territory in Assam, while the tea produced in Assam had to go all the way through Assam to reach Calcutta. Besides the tea which was carried by rail, substantial quantity bad to go by road or by inland water-ways and as such (1) (1961) I S.C.R, 809.

1 S.C.R.

became liable to pay the tax leviable under the Assam Taxation (on goods carried by Roads or Inland Waterways) Act, 1954. That Act levied a. tax: on certain goods carried by road or inland waterways in the State of Assam and the validity of the levy of such tax: was in question in the Atiabar·i Te,a Go. case (1). The principal ground of attack was that the Assam Act violated the provi-sions of Art. 301 of the Constitution and was not sa\'ed by the provisions of Art. :104(b). We may now summarise the views expressed in that decision. First, al!I to the views of the learned Chief Justice: He expressed the view that taxation simpliciter was not within the tor ms of Art. 3f) l and tax on movement of !!·l01~ or pai;isengeri:1 did not neces-sarily conn_ote impedim..:nt or restnint in the matter of trade arid commerca. He drnw :t distinction bet-weon tax,l.tion a'I such for the purpose of revenue on the one hand and taxation for the purpose of making dlsorimina.tion or giving porfer.ance on the other hand; the letter, he said, could be treated aa impediment to free trade and commerce. He ex-pressed his final conclusion in these words.

"Thus, on fair construction of the pro-visions of Part XIII, the following propositions emerge: (l) trade, commerce, 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 dee.la-ted by Art. 30l does not mran freedom from taxation simpliciter, but dors mean freedom from taxation which has the effect of directly · impeding the free flow of trade, commerce and intercourse; (3) the freedom envisaged in · Art. 301 is s11bject to non·discriminatory res-trictions imposed by Parliament in public interest (Art. :392); (4) evep <~is0dniinatory or II> [l';l.il] I. S.C.R,809~

1962 ~utom,bi/1 Tr11mflo1 I ( Raj1Utllan) Lti. v. late •f Rajasthan DasJ.

196! Auromobile Tr111upo1t ( B'!/a.rllion) Lid, v. Sto.t1 oJ Raj•sthGtJ Dasi.

preferential legislation may be made by Par-liament. for the purpose of dealing with an emergency like scarcity of good~ in any part of India (Art. 303(2) l; (5) reasonable restrictions may be imposed by the Legislature of State in the public interest (Art. 304(b)); (6) non-dis-criminatory taxes may he imposed by the Legislature of State on goods imported from another State or other States, if similar taxes are impoaed on goods produced of manufactu-red in that State (Art. 30t(a l; and lastly (7) restrictions imposed by existing laws have been continued, except in so far as the Presi-dent may by order ot.herwise direct(Art. 305)." (pp. 831-832.)

The majority view differed from that of the learned Chief Justice in that it did not accept as correct the contention that tax laws were governed by th<i pro-visions of Part XII of the Constitution only and were outside Part XIII. The majority expressed the view that when Art. 301 provided that trade shall be free throughout the territory of India, it was the movement or transport part of the trade that must be free. The majority said:

••It is federal constitution which we are interpreting, and so the impact of Art. 301 must be judged accordingly. Besides, it is not irrf'levant to remember in this connection that the Article we are construing imposes cons-titutional limitation on the power of the Parliament and the State Legislatures to levy taxes, and generally, but for such limitation, the power of taxation would he presumed to be for public good and would not be subject to judioial review or sen.tiny. Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is

gua.ranteed by Art. 301, would be such restric-

tions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immedia-tely restrict trade that would fall within the purview of Art. 30 l. The argument that all taxes should be governed by Art. 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opi-nion, an extreme approach which cannot be upheld." (p. 860.)

The third view held by Sh~h. J., was that the free-dom contemplated was freedom of trade, commerce and intercourse in all theit varied aspects inclusive of all activities which constitute commercial inter-course and not merely restrictions on the movement aspect. He said :

"The guarantee of freerlc1m of trade and commerce is not ad<lresl3ed merely against prohibitions, complete or partial; it is addres-sed to tariffs, licensing, marketing regulations, price-control, nationalisation, economic or social plaining, discriminatory tariffs, com-pulsory appropriation of goods, freezing or stand-stiJI orders and similar other impedi-ments operating directly and immediately on the freedom of commercial intercourse as well. Every sequence in the series of operations which constitutes trade or commerce is an act of trade or commerce and burdens or impedi-ments imposed on any such slep are restric-tions on the freed om of trade commerce and intercourse. What is guaranteed is freedom in its widest amplitude-freedom from prohi· bition, control, burden or impediment in com-mercial intercourse." (p. 874.)

So far we have set out the factual and legal

background againdt which the problem before us

JBll -..fulomobiU Transp.tt (RaJuthan) Lid. v. Stot1 •f lltJjosU.. D<J1J,

1963 tomt;bi/1 Tran.sport (Rajaslhao) ltd, v. State of RaJaathan DasJ.

has to be solved. We must now say a. few words regarding the historical background. It is necessary to do this, because exten~ive references have been made to Australian and American decisions, Aus-tralian decisions with regard to the interpretation of s. 92 of the Australian Constitution and Ameri-can decisions with regard to the Commerce Clause of the American Constitution. This Court pointed out in the Atiabari Tea Go. case ([1]) that it would not be always safe to r~ly upon the American or Australian decisions in interpreting the provisions of our Constitution. Valuable as those decisions might be in showing how the problem of freedom of t,rade, commerce and intercourse was dealt with in other federal constitutions, the provisions of our Constitution must be interpreted against the histo-rical back(lround in which our Constitution was madt>; the background of problems which the Cons-titution makers tried to solve according to the genius of the Indian people whom the Constitution· makers represented in the Constituent Aesembly. The first thing to be noticed in this connection is that the Constitution-makers were not writing on clean slate. They had the Government of India Act. 1935, and they also had the administrative set, up which that Act envisaged. India. then con-sisted of various administrative units known as Provinces, each with its own administrative set up. There were differences of language, religion etc. Some of the Provinces were euonomically more developed than the others. Even inside the same Province, there were under-developed, developed and highly developed areas from the point of view of industries, communications etc. The problem of economic integration with which the Constitution. makers were faced was problem with many facts. '.;rwo questions, however, stood out.; one question was how to achieve federal, economic and fiscal integration, so that economic policies affecting the interests of India. as whole could be carried out (I) [1961] I. S. C.R. 809.

1 s.c.R

without putting an ever-inorel.sing strain on the unity of [ndi 'l., pa.rtioularly in the oon'text of & devEr loping eol>nomy. The seoond question wa.s how to fo3ter the development of areas which were under-developed without creating too many pre-ferential or disoriminative barriers. Besides the Provinoe, there were the Indian States also known as Indian India. After India attained political freedom in 1947 and before the Constitution was adopted, the process of merger and integration of the Indian States with the rest of the country h11.d been accomplished so tha.t when the Constitution was first passed the territory of India consisted of Pa.rt States, which broadly stated, represented the Provinces in British India., and Pa.rt States which were ma.de up of Indian States. There were trade barriers raised by the Indian States in the exercise of their legislative powers and the Constitution·makers had to make provisions with regard to those trade barriers as well. The evolution of fe,dera.l structure or quasi-federal struoture necessarily involved, in the context of the conditions t.hen prevailing, distri-bution of powers and basic part of our Constitu-tion relates to that distribution with the three legis-lative lists in the Seventh Schedule. The Constitu-tion itself says by Art. 1 that India is Union of States and in interpreting the Constitution one must keep in view the essential structure of federal or qu!tsi-federal Constitution, namely, that the units of the Union have also certain powers as has the Union itself. One of th.e grievances made on behalf of the intervening States before us was.that the majority view in the Atiabari Tea Oo. case(1) did not give sufficient importance to the power of the States under the Indian Constitution to raise revenue by taxes under the legislative heads entrusted to them, in interpreting the series of articles relating to trade, oomm3rce and intercourse in Part XIII of the Cons. titution. It has been often stated that freedom of (I) [~951] I ,S.C'.R. 809.

198S .4utornobile r,.a'ISp>rl (R2jaslhan) ./.td. v. Sta!1 of Ryruthafl Dos J,

1961 .A.utomobi/1 Transporl (Raj.,lhan) Ltd, v. Sl•lt ~ Hajt1Jth1n --DasJ.

512 SUPREME OOURT REPORTS [19C13]

inter-State trade and commerce in federation has been a. baflling problem to constitutional experts in Australia., in America a.nd in other federal constitu-tions. In evolving an integrated policy on this subject our Constitution-makers seem to have kept in mind three main considerations which may be broadly stated thus: first, in the larger interests of India there must be free flow of trade, commerce and intercourde, both inter-State and intra-State; second, the regional interests must not be ignored altogether; and third, there must be power of intervention by the Union in any case of crisis to deal with particular problems that ma.y arise in any part of India, As we shall presently show, all these three considerations have played their part in the series of articles which we have to consider in Part XIII of the Constitution. Therefore, in interpreting the relevant articles in Part XIII we must have regard to the general scheme of the Constitution of India with special reference to Part III(Fundamental Rights), Part XII (Finance, Property etc. containing Arts. 276 and 286) and their inter-relation to Part XIII in the context of federal or quasi-federal constitution in which the l::itates ha.ve certain powers including the power to raise revenues for their purposes by taxation.

On behalf of the appellants it has been con-

tended before us that s. 4 of the Act read with the Schedules constitutes direct and immediate res-triction on the movement of trade and commerce with and within Rajasthan inasmuch as motor vehi-cles which carry passengers and goods within or through Rajasthan have to pay the tax which, it is stated, imposes pecuniary burden on commercial activity and is, therefore, hit by Art. 301 of. the Constitution and is not saved by Art. 30!(b) mas. much as the proviso to Art. 30-!(b) was not complied with nor was the Act assented to by the President within the meaning of Art. 255 of the Constitution.

Learned Counsel for the appellants has submitted before us tha.t the correct interpretation of the series of relevant articles in Part XIII of the Cons-titution is the one made by Shah, J., in the Atiabari Tea Go. case('). He has, however, submitted that even on the interpretation accep~ed by the majority of Judges in the Atiabari Tea Co. case(') he is entitled to succeed, because the relevant provisions of the Act constitute direct and immediate restriction on the movement par~ of trade, commerce and inter-course. On behalf of the respondents the argument has proceeded on the footing that taxation per se i.e. taxation for the purpose of raising revenue or for the maintenance of roads etc. is not hit by Art. 301 and the impugned provisions of the Act in ques-tion did not constitute an immediate or direct im-pP-diment on the movement of trade a.nd commerce inasmuch as the tax imposed was consolidated tax: on the vehicle itself though the quantum of the tax was fixed in some instances with reference to the seating cq,pa.city or loading capacity etc. The argu-ment is that in this respe.ct the factR of the present cases differ from the facts of the Atiabari Tea Co. caseC ); it is argued ~hat in the latter the tax was on the carriage of goods, whereas in the present cases the tax is consolidated tax on the vehicle itself, like property tax, and, therefore, it does not relate to the movement part of trade, commerce and intercourse, though it may have an indirect effect on trade and commerce by raising the tariff or fare for passengers and goods. The l~arned Counse.l for the respondents has in this way tried to distinguish the majority decision in the Atiabari Tea Co. case(1), but he has ma.inly argued in favour of the view expressed by the learned Chief Justice. On behalf of the interveners, some have supported the majority view with or without modifications and some the_ other two views. Mr. N. C: Chatterjee appearing on behalf of the Union of India supported the majority view, though the stand taken by the Attorney (1) [1961} l, S. C. R. 809.

1962 Autom.obile Trcnsport (Rdjosthan) Ltd, v. Stall of Rajasthan DasJ.

Autom1bif1 TronsjMI (Rl!iuthu) Ud. v. S1411 •f B•jOll,,.,, DasJ.

SUPREME OOURT REPORTS [1963]

General on behalf of the Union of India in the Atiabari Tea Oo. ca:Be(') was somewhat different. Mr. Rana.deb Chaudhuri appearing on behalf of one of the intervenera (M/a. M.A. Tulloch & Co.) has accepted the majority view with some modifications. He has stated that ,Art. 301 relates to movement or carriage; he bas ca.lied it the "channelling" of trade and commerce: He has, however, tried to reconcile the various provisions in Pa.rt XIII by suggesting that there a.re two connected but independent sub· jeots dealt with therein; one is freedom of movement of trade, and commerce and incourae (this, he has described, as "channelling" of trade, commerce and intercourse), and the second is protection from dis. crimination and preference which is not necessarily connected with movement but may a.rise from sub-sidy eto. These a.re the two idea.a which, according to him, inspired the relevant series of articles in Part XIII. On behalf of some of the interveners the argument bas been that the freedom declared under Art. 301 is not freedom from such regulatory measures as do not impede trade, commerce and intercourse but rather facilitate such trade, com-mercf'I and intercourse, e.g. traffic regulations, regu. la.tions for safeguarding public health, such as, prohibiting the •ale of adulterated food etc. This view suggests that in the matter of taxation, such taxes a.'re compensatory in nature. namely, those levied for the maintenance of roads on which traffic is to move, do not come within the restrio-tions freedom from which is contemplated by Art. 301. This is the view which Mr. Sikri, Advo-cate-General of Punjab, has mainly contended for. Mr, Seerva.i appearing on behalf of the State of Maharashtra. and some other States has contended that Part XIII of the Constitution is confined to such action, legislative or executive, as is taken in relation to any of the entries relating to trade and commerce in any of the lists in the Seventh Sche-dule, namely, entries relating to 41 and 42 in list (I) [1964) l• S. C. lt. 809.

l S.C.R. SUPREME COURT REPOHTS

I, entry 26 of list II, and entry 33 of list III. The expression "throughout the territory of India" occurring in Art. ;.ml h:i.s reforencc, according to this view, to space rather than to movement. According to .Mr. Seervai the mode of approach should be to consider (i) the position or the State8 in the Indian Constitution with plenary powers in their respective fields; (ii) the historical background of a. 297 of the Government of India Act, 1935; (iii) the decisions of the Australian cases upto 1950 when the Constitution of Indfo. was made; and (iv) Part XIII of the Constitution as compared and contras-ted with Part III and Part XII thereof. As to taxa-tion, his contention is that it does not come within Part XIII except to the extent mentionerl in Art. 304:{a). 1\1.r. Lalnarain Sinha appearing for the State of Bihar bas supported the view of the lear-ned Chief Justice in .A.tiaba.ri 'Pea Co. case(1) though the reasons given by him are somewhat different. His argument has been that Art. 30 l secures for trade, commerce and intercourse throughout the territory of India qualified freedom from restrictions based on geograpkioal classifications only; tho freedom thus secured is in regard to barriers (in the geogra-phical sense) impeding trade, commerce and inter-course between one State and another or between one territory and another within or without tho same State, and also against territorial discrimina-tions in respect of trade, commerce and intercourse either inter-State or intra-State. With regard to taxation, his contention is that taxes (meant for raising rev~nue on1y and called fiscal taxes) do not operate as inter-State or inter-territorial barriers nor involve any territorial discriminations, and they do not come within Part XIII. Mr. D. Sahu appear-ing for the State of Orissa argued that the freedom granted by Art. 301 was confined to ( i) inter-State barriers, and (ii) customs-barriers which at one time existed between the Indian States and adjacent (l) [ 1961] l S.C.R. 809,

1962 AutomohJe Tron·part ( Rojaslhan) Ltd v. Slate of R"ja,than

Dos J.

A.utom ohile T r410p01' I (RnjG.1thon) Lid. v. Stale of Rojasthan Do1J.

British Indian territory. According to him, the intra-State aspect of the freedom assured by Art. 301 was confined to old customs-barriers only which some of the Indian States which have now merged in particular States of the Indian J:tepublic had earlier imposed. Mr. C. B. Agarwala appearing for the State of Utta.r Pradesh argued that the subject matter of Art. 301 was trade, commerce and inter· course, namely, the entries relating to trade and commerce in any of the lists in the Seventh Schedule ; but the restrictions from which freedom was granted might come from any direction ; they might come from legislative or executive action relating to· other entries also.We have tried to summarise above the various stand points and views which were canvassed before us and we sh:1.ll now proceed to consider which, according to us, is the correct interpretation of the relevant articles in Part XIII of the Constitution. We m-iy first take the widest view, the view ex-pressed by Shah, J., in the Atiabari Tw Oo. OOBe([1]) view which has been supported by the 1.ppellants and one or two of the interveners before us. Thie view, we apprehend, is b11.sed on purely textual interpretatbn of the relevant articles in Part XIII of the Constitution and this textual interpretation proceeds in the following way. Article 301 wbich is in goneral terms and is made subject to the other provisions of Part XIII imposes general limitation on the exercise of legislative power, whether by the Union or the States, under any of the topics-tax-ation topics as well as other topics-enumerated in the three lists of the Seventh Schedule, in order to make certain that "trade, commerce and inter-course throught the territory of India shall be free". Having placed general limitation on the exercise of legislative powers by Parliament and the State Legislatures, Art. 302 relaxes that restriction in favour of Parliament by providing that that (1)[1961] 1. S. C.R. 809.

authority ''may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part the territory of India as may be required in the public interest". Having relaxed the restriction in respect of Parliament under Art. 302, restriction is put upon the relaxation by Art. 303(1) to the effect that Parliament shall not have the power to make any law giving any preference to any one State over another or discriminating between one State and another by virtue of any entry relating to trade and commerce in lists I and III of the Seventh Schedule. Article 303 (I) which places ban on Parliament against the giving of preferences to one State over another or of discriminating between one l:)tate and another, also provides that the same kind of ban should bf' placed upon the State Legislature also legislating by virtue of any entry relating to trade and commerce in lists II and III of the Seventh Schedule. Article 303 ( 2) again carves out an exception to the restriction placed by Art. 303(1) on the powers of Parliament, by pro-viding that nothing in Art. 303( l) shall prevent Parliament from making any law giving preference to one State over another or discriminating between one State and another, if it is necessary .to do so for the purpose of dealing with situation arising from scarcity of goods in any part of the territory of India. This exception applies only to Parliament and not to the ~tate Legislatures. Article 304 comprises ~wo clauses and each clause operates as proviso to Arts. 301 and 303. Clause (a) of that article provides that the Legislature of a. State may ''impose on goods imported from other States any tax to which similar goods manufactured or produc-ed in that State are subject. so, howe'ver, as not to discriminate between goods so imported and goods so manufactured or produced." This clause, there-fore, permits the levy on goods imported from

Automobile Transport (Raj2sthan) Ltd. v. State of !1ajasthan Das J.

A.utotnQb;f, Transport Ltd. (H•jast'1ari) v. St:ile of Hojaslhan

sistor States any tax which similar goods manu-factured or produced in that State are subject to under its taxing laws. In other words, goods imported from sister States are placed on par with similar goods manufactured or produced inside the State in regard to State taxation within the State allocated field. Thus the States in India have full power of imposing what in American State legislation is c:Llled the use tax, gross receipts tax etc., not to speak of the familiar property tax, subject only to the condition that ~uch tax is imposed on a'l goods of the same kind produced or manufactured in the taxing ::ltate, although such taxation is undoubtedly c:Llct1!.ted to fotter inter-8tate trade and commerce. As was observed liy Pat1njali Sa~tri, C.J., in State of Bomba;11 v. United Motors(') the commercial unity of India is made to give w.i.y before the State power of imposing 'any' non-discriminatory tax on goods imported from sister St>ttes. Now, cl. (b) of Art. 30! provides that notwithstanding anything in Art. 301 or Art. 303, tha L~gislature of State may by Jaw impose suc11 reasonable restrictions on the freedom of trade, commercu or intercourse with or within that State a~ m11.y be required in the public interest. The proviso to cl. (b) says that no bill or amend· ment for the purpose of cl. ( b) shall be introducad or move'l in tho Lsgislature of State without the previous sanction of the President. This provision appears to lio the State analogue to the Union Parliament's authority defined by Art. 30t, in spite of the omission of the word 'reasonable' before the word 'restrictions' in the latter article. Leaving aside the pre-requisite of previous Presidential sanction for the validity of State legislation undeir cl. (b) provided in the proviso thereto, there are two important differences between Art. 302 and Art. JO!(b) which require spacial mention. The firat is that while thti power of Parliament under (1) [1953] S.C.R. 1069.

1 S.C.R.

Art. 302 is subject to the prohibition of preferences and discrimina;tions decreed by Art. 303(1) unless Parliament makes the declaration contained in Art. 303(2), the State's power contained in Art. 304(b) is made expressly free from the pro-hibition contained in Art. 303(1), because the open-ing words of Art. 304 contain non obsta.nte clause both to Art. 301 and A:ft. 303. The second diffe. renoe springs from the fact that while Parliament's power to impose restrictions under Art. 302 upon freedom of commerce in the public interest is not subject to the requirement of reasonableness, the power of the States to impose restrictions on the freedom of commerce in the public interest under ~rt. 304 is subject to the condition that they are reasonable. .On the basis of the aforesaid textual construc-tion, which is perhaps correct so far as it goes, the view expressed is that the freedom granted by Art. 301 is of the widest amplitude and is subject only to such restrictions as are contained in the succeeding articles in Part XIII. But even in the matter of textual construction there are difficulties. One of the difficulties which was adverted to during the Constituent Assembly debates related to the somewhat indiscriminate or inappropriate use of the expressions "subject to" and ''notwithstanding" in the articles in question. Article 302, as we have seen, makes relaxation in favour of Parliament. Article 303 again imposes restriction on that relaxation "notwithstanding anything in Article 30~ but Art, 303 relates both to Parliament and the State Legish.ture, though Art. 302 makes no relaxa-tion in favour of the State Legislature. The non obstante clause in Art. 303 is, therefore, somewhnt inappropriate. Clause (2) of .Art. 303 carv[0]s out an exception from the restriction imposed on ParJia-ment by cl. (1) of .Art. 303. But again c1. (2) relates only to Parliament and not to the State Legislature even though ol. (I) relates to both. Article 304

1962 Automobil1 Transporl (Rajaslhan) Ltd V• S1at1 of R·ljaslhatr DasJ.

Aulomobil1 Transport { Rajaslhan) Lid. •• Stat1 of Ba}Qstho n DasJ.

again begins with non obstante clause mentioning both Art. 301 and Art. 303, though Art. 304 relates only to the Legislature of State. Article 303 relates to both the State Legislature and Parlia-ment and again the non obstante clause in Art. 30! is somewhat inappropriate. The fact of the mat-ter is that there is such mix up of exception upon exception in the series of articles in Part XIII that purely textual interpretation may not disclose the true intendmeut of the articles. This does not mean that the text of the- articles, the words used therein, should be ignored. Indeed, the text of the articles is vital consideration in interpreting them; but we must at the same time remember that we are dealing with the constitution of country and the inter-connection of the different parts of the constitution forming part of an integrated whole must not be lost sight of. Even textually, we must ascertain the true meaning of the word •free' occurring in Art. 301. From what burdens or restrictions is the freedom assured ? This is question of vital importance even in the matter of construction. In s. 92 of the Australian Constitu-tion the expresaion used was 'absolutely free' and repeatedly the question was posed as to what this freedom meant. We do not propose to recite the somewhat chequered history of the Australian decisions in respect of which Lord Porter, after review of the earlier cases, said in Commonwealth of Australia v. Bank of New South Wales ([1]) that in the "labyrinth of cases decidnd 1mder s. 92 there was no golden thread." What ie more important for our purpose is that he expressed the view that two general pro-positions stood out from the decisions: (i) that regulation of trade, commerce and intercourse among the States is compatible with its absolute freedom, and (ii) that s. 92 of the Australian Constitution is violated only when legislative or ii) [1950] A.C. 235,

I s.c.R.

SUPREME OOURT REPORTS

executive act oper11tes to restrict such trade, commerce and intercourse direct.ly and immediately as distinct from creating some indirect or inconse-quential impediment which may fairly be regarded as remoto. Lord Porter admitted "that in the application of these general propositions, in deter-mining whether an enactment is regulatory or some-thing more or, whether restriction is direct or only remote or incidental, there cannot fail to be differe-nce1' of opinion." It seems clear, however, that since "the conception of freedom of trade, commerce a.nd intercourse in community reguJated by law presupposes some degree of restriction upon the individual", that freedom must necessarily be delimited by consideratio~s of social orderliness. In one of the earlier Australian decisions (Duncan v. The State of Queensland) ([1]), Griffith, C.J., said :

"But the word "free" does not mean extra legem, any more than freedom means anarchy. We boast of being an absolutely free people, but that does not mean that we are not subject to law". (p. 573)

As the language employed in Art. 301 runs unqua]i-fied the Court, bearing in mind the fact that provi-sion bas to be applied in the working of an orderly society, has necessarily to add certain qualifications subject to which alone that freedom may be · ·exercised .. This point has been very lucidly discussed in the dissenting opinion which Fullagar, J., wrote in Mc Carter v. Brodie ([2]), an opinion which was substantial1y approved by the Privy Counoil in Hughes and Vale Propriewry Ltd. v. State of New South Wales ([3]). The learned Judge gave several examples to show the distinction between what was merely permitted regulation and what true inter-ference with freedom of trade and commerce. He pointed out that in the matter of motor vehicles

(1) [t9f6] 22 C.L.R. 556

556 (2) [1950) 80 C.L. R. 432. (3) (1955) A.C. 241.

1962 Automobile T1ansp rt ( Rajastlian) Ltd. v. St1t1 of Rajaslhan DasJ.

19111 Aut1mob:U Traruftorl (Rojasthan) Lid. v. Stat1 of Rojostlum DaJ.

522 SUPREME OOURT REPORTS [1963)

moat countries have legislation which requires the motor vehicle to be registered and fee to be paid on reghtration. Every motor vehicle must carry lamps of specified kind in front and at the rear and in the hours of darkness these lamps must be alight if the vehicle is beinit driven on the road, every motor vehicle must carry warning device, such as horn; it must not be driven at speed or in manner which is dangerous to the public. In certain localities motor vehicle must not be driven at more than certain speed. The weight of the load which may be carried on motor vehicle on public highway is limited. Such examples may be multiplied indefinitely. Nobody doubts that the application of rules like the above rloes not really affect the freedom of trade and commerce; on the con-trary they facilitate the free flow of trade and com· merce. The reason is that these rules cannot fairly be said to impose burden on trader or deter him from trading: it would be absurd, for example, to hug-gest that freedom of trade i~ impaired or hindered by la.we which require motor vehicle to keep to the left of the road and not drive in manner danger· ous to the public. If the word 'free' in Art. 30 l means •freedom to do whatever one wants to do, then chaos may be the result; for example, one owner of motor vehicle may wish to drive on the left of the road while another may wish to drive on the right of the road. If they come from opposite directions, there will be an inevitable clash. Another class of examples relates to making charge for the use of trading facilities, such as, roarls, bridges, aerodromes etc. The collection of toll or tax for the use of road or for the use of bridge or for tho use of an aerodrome is no barrier or burden or deterrent to traders who, in their absence, may have to take longer or Jess convenient or more expensive route. i-:uch compensatory taxes are no hindrance to anybody's freedom so long as they re· main reasonable; but they coulrl of cour~e be conver-ted into hindr1moe to the freedom of trade. If the

SUPREME COURT REPOJ;tTS

1 S.C.R.

authorities concerned really wanted to hamper any-body's trade, they could ea.gily raise the a.mount of tax or toll to an amount which would beprohibitive or deterrent or create other impediments which instead of facilitating trade and commeroe would hamper them. It is here that the contrast, between 'freedom' (Art. 301) and •restrictions' (Arts. 302 and 30t) clearly appears: that which in reality facilitates trade a.nd commerce is not restriction, and that which in reality hampers or burdens trade and commerce is restriction. It is the reality or sub-stance of the matter that has to be determined. It is not possible priori to draw dividing line between tba.t which would really be a. charge for a. facility provided· and that which would really be a. deterrent to trade; but the distinction: if it has to be drawn, is real and clear. For the tax to become prohibited tax it ha.1 to be direct tax the effect of which is to hinder the movement part of trade. So long as a. tax rem'\ins compensati)ry or regulatory it cannot operate as hindrance.The most serious objection to the widest view canvassed before us is that it ignores altogether that in the conception of freedom of trade, com-merce and intercourse in community regulated by law freedom must be understood in the context of the working of an orderly society. The widest view proceeds on the footing that Art. 301 ·imposes general restrtction on legi15lative power and grants freedom of trade, commerce and intercourse in all its series of operations, from all barriers, from all restricthns, from all regulation, and the only qualification that is to be found in the article is the openinf! clause, namely, subject to the other provi-sions of Part XHI. This in a1[otual practice will ]mean that if the State Legislature wishes to control or regulate trade, Cl)mmerce and in teroourse in such way as to faoilitat~ its free movement, it must yet proceed to make law under Art. 30!(b) and

I Ht Aulomobil1 TrGtJSport (Raja.rlhan) Lld. v. Slate of j11.11han DatJ.

A.1ti()m1bil T1ansp&rt (Raj.,than) ltd. v. St..i.te 11/ Rajasthan n.sJ.

no such bill can be introduced or moved in the Legislature of State without the previous sanction of the President. The praotioal effect would be to stop or delay effective legislation which may be urgently necessary. Take, for example, case where in the interests of public health, it is necessary to introduce urgently legislation stopping trade in goods which are deleterious to heal th, like the trade in diseased potatoes in Australia. If the State Legislature wishes to introduce such bill, it must have the sanction of the President. Even such legislation as imposes traffic regulations would require the sanction of the President. Such an interpretation would, in our opinion, seriously affect the l~gislative power of the State Legislatures wlii<-h power has been held to be plenary with regard to subjects in list II. The States must altto have revenue to carry out their administiation and there are several items relating to the imJ!osition of tans in list II. The Constitution-makers must have intended that under those items the States will be entitled to raise revenue for their own purposes. If the widest view is accepted, then there would be for all practical purposes, an end of State autonomy even within the fields allotted to them under the distribution of powers envisaged by our Constitution. An examination of the entries in the lists of the Seventh 1-icbedule to the Constitution would show that there are large number of entries in the State list (list II) and the Concurrent list (list III) under which State LPgislature has power to make laws. Under some of these entries the State Legislature may impose differ·ent kinds of taxes and duties, such as property tax, sales tax, excise duty etc., and legislation in respect of any one of these items may have an indirect effect on trade and commerce. Even laws other than taxation Jaws, made unrler different entries in the lists referred to above, may indirectly or remotely affect trade and commerce. If it b.i held that every Jaw made by

1 S.C.R. SUPREME COURT REPORTS

the T....~!?islature of State which has repercussion on tariffs, licensing, marketing regulations, price-control etc., must have the previous sanction of the President, then the Constitution in so far as it gives plenary power to the States and State Legislatures in the fields allocated to them would be meaning· less. In our view the concept of freedom of trade, commerce a.nd intercourse postulated by Art. 301 must be understood in the context of an orderly socie-ty and a.s part of Constitution which envisages 1t. distribution of powers between the Sta.tea and the Union, and if so understood, the concept must recog-nise the need and the legitimacy of some degree of re-gulatory control, whether by the Union or the States: th{s is irrespective of the r(>striotions imposed by the other articles in Part XIU of the Constitution. We are, therefore, unable to accept the widest view as the correct interpretation of the relevant articles in Part XIII of th~ Constitution.

We proceed now to deal with another interpretation of the relevant proYisions in Part XIII : this interpretation may be characterised as the narrow interpretation. According to this interpretation taxing Jaws are governed by the provisions of Part XII of the Constitution and except Art. 304(a) none of the other provisions of Part XIII extend to taxing laws. An additional argument is that the provi"ions of Part XIII apply only to such legislation as is made under entries in the Seventh Schedule which df'al with trade, commerce and intercourse. According to this argument entry 42 in list 1, which refers to inter-State trade and commerce, entry 2n in list II which deals with trade and commerce within the Sta.te subject to the provisions of entry 33 in list III, and entry 33 in list III which deals with trade and commerce as specified therein, are the only entries lc·gislation relating to which attracts the provisions of Part XHI, at1d legislation on oth0r topics is not affected by these pruvisions. ln support argument

196S Antomolil1 Transp11t (R•jastli11~) Lt4, v. Stall of Rojoslhtn

1162 Automohi/1 .Tr•11.SP°'' ( Rajasthan) Ltd, v. Stai1 of R ajastlum DasJ.

assistance has been sought from the heading of Part XTII and from the use of the expre>sion 'subject to' in Art.301. It has been pointed out th'1.t the title of Part XIII is trade, commerce and interoours11 ; intercourse, it is stated, means commercial intercourse there being no separate legislative entry in any of the three list relating to intercourse and the word 'throughout' has reference to spaoe rather than to movement. The expression •subjeot to' it is stated, means 'conditional upon', thus oonueotin~ the provisions of Art. 303 with the provisions of Art. 301. Article 303 specifically uses the expression "by virtue of any entry relating to trade and commorce in any of the lists in the S3venth Schedule." It is argued that by reason of th0 connection between Art. 30 I and Art. 303, the words "by virtue of any entry relating to trade and nommerce etc." must hs read into Art. 301 also so that Art. 301 will then ho construecl as fetter on the commerce power i. e., the power given to the Legislaturo to make laws under entries relating to trade and commerce only. As to taxa-tion bein.g out of the provisions of Part XIII of the Constitution except. for Art. 304(a l, the argument ia that we must look to the historical background of s. 297 of the Government of India Act, 1935, and Arts. 274, 27ll and 285 to 288 in Part XII of the Constitution. It is pointed out that t.he power to tax is an incident of sovereignty and it i~ divided between the Union and the States un<ler the Co11stitution ; Part XII of the Constitution deals with several aspects of taxation and all the restric-tions on the power to t11x are contained in Part XII which, accordin~ to this interpretation, is self-oontained. Therefore, so it is argued, the freedom guaranteed by Art. :;01 does not mean freedom from taxation, becau~e taxatiun is not restriction within the meaning of the relevant articles in Part XTII.

1 S.C.R.

It would appear from what we have stated above that this interpretation consists of two main parts : one pa.rt is that taxation simpliciter is not within the terms of Art. 301 and the second part is that Art, 30 l must take colour· from the pro vis· ions of Art. 303 whicb, it is said, is restricted to legislation with respect to entries relating to trado and commerce in any of the lists in the Seventh Schedule. In Atiabari Ten. Oo. Gase ([1]) thii'.1 Court deal with the correctness or otherwis~ of this narrow interpretation and by the majority decision held against it. The majorit.y judgement in tho Atiubari Te.a Co. Ca.se (1) deals, with tbe arguments advanced in support of the interpretation in detail and as we are substantially in ag1·eement with the reasons given in that judgment. we do not think that any useful purpose would be served by repeating them. It is enough to point out that though tho power of Jevying ta.x is essentially for the very existt'lnce of government, its exercifle may be controlled by constitutional provisions made in. that_behalf. It cannot be laid down as general proposition· that the power to tax is outside the purview of any constitutional Jimitations. We ha.ve carefully examined the provisions in Part XII of the Constitution and are unable to agree that those provisions exhaust all the limitations on the power to impose tax. The effect of Art. 265 was considered in tho majority decision and it was pointed out that the power of taxation under our Constitution was subject to the condition that no tax shall be Jevied or collected except by authority of law. Article 245 which deals with the extent of laws made by Parliament nnd by the Legislat-ures of States c~xpressly states that the power of Parliament and pf the State Legislatures to make laws is ,'subject to the provisions of this Constitu· tion." The Ax: press inn '[1]subj11ct to the provisions of this Constitution" is surely wide enough to takfl in (l) [19611 l. S. C.R. 809.

1962 --Aut1JmGbil1 Tran1,otl (Rojast~on) l.Jd. v. Seate of Rajosthan --

Aulomobil1 Tran•Jort (Rajaslh•n) ltd. v. St•le of Roja .tJ 1t11 D•sJ.

li28 SUPREME COURT REPORTS [1963]

the provisions of both Part XII and Part XIII. In view of the provisions of Art, 245, we find it difficult to accept the argument that the restrictions in Part XIII of the Constitution do not apply to taxation law~. As to the argument that Art. 301 must take colour from Art .. il03, we are unable to accept as correct the argument that the provisions of Art. 303 must delimit the general terms of Art. 301. It seems to us that so far as Parliament is concerned, Art. 303(1) carves out an exception from the relaxation given in favour of Parliament by Art. 302; the relaxation given by Art. 302 is itself in the nature of an exception to the general terms of Art. 301. It would be against the ordinary canons of construction to treat an exception or proviso as having such repercussion on the interpretation of the main enactment so as to exclude from it by implication what clearly falls within its express terms.

After carefully considering the arguments

advanced before us we have come to the conclusion that the narrow interpretation canvassed for on behalf of the majority of the State cannot be accepted, namely, that the relevant articles in Part XIII apply only to legislation in respect of the entries relating to trade and commrrce in any of the lists of the Seventh SchPdnle. But we must advert here to one exception which we have already indicated in an earlier part of this judgment. Such regulatory measures as do not impede the freedom of trade, commerce and intercourse and compensa· tory taxes for the use of trading facilities are not hit by the freedom declared by Art. 301. They are excluded from the purview of the provisions of Part XIII of the Constitution for the simple reason that they do not hamper trade, commerce and intercourse but rather facilitate them.This disposes of two of tlw main inte1pret. at·

ions which have been canvassed before us.

I S.C.R. SUPREME COURT REPORTS

accept neither the widost interpretation nor the narrow interpretation for the reasons which we ha.ve alrea.dy indicated. It remains now to oonsider some of the other interpretations which have been canvassed before us. Mr. Lalnarain Sinha. has in substance contended th!i.t Art. 301 is restricted to freedom from geographical barriers only; Mr. D. Sahu has contrnded that Art. 301 is confined to (i) inter-State barriers, and (ii) customs-barriers which at one time existed between the Indian States and the adjacent British Indian territory. In our opinion both these interpretations proceed on somewhat narrow basis and are not justified by the general words used in Art. 301 and the other relevant articles in Part XIII of the Constitution. In our opinion the ambit of the relevant articles in Part XIII is wider than what these interprf-\ta-tions assume it to be. While on this point it may be advisable to refer to the contrast between Art. 19 in Part III and Art. 301 in Part XIII of the Constitution. Article 19 guarantees to all citizens certain rights which are c:impendiously stated to be the right to freedom ; two such rights are (i) to move freely throughout the territory of India and (ii) to carry on any occupation, trade or business. The right to move freely throughout the territory of India is' subject to reasonable restrictions in the interests of the general public or for the protection of any scheduled tribe. The right to carry on any occupation, trade or business is subject to reason-able restrictions in the interests of the general public a.nd in particular to any law relating to the carrying on by the State, of any tradeJ business etc., whether to the exclusion, complete or partial, of citizens or otherwise. The first contrast between Art. 19 and Art. 301 is that Art. 19 guarantees the right to freedom to citizen where-as freedom granted by Art. 301 is not confined to eitizens. Another distinction which has been <lra.wn is that Art. 19 looks at the right from the

1962 Aut1m1iil1 T111ns;1rt ( Ra,j1.Sth.a) Lti. v. St•le •f R•i• thin D1sJ.

Automo6Ue TrattJftorl (l!•j•slhan) ltd. v. 81•te '1/ Rajastlum JJuJ.

530 SUPREME OOURT REPORTS (1963)

point of view of an individual. whereas Art. 301 looks at the matter from the point of freedom of the general volume of trade, commerce and intercourse. We do not think that this distinction, if anv such distinction at all exist1, is material in the present cases, because an individual trade may complain of violation of hi~ freedom guaranteed under Art. 19(1)(,z) and he may also complain if the freedom assured by Art. 301 has been violated. In particular set of circums· tances the two freedoms need not be the same or need not coalesce. In some of the Australian decisions distinction was sought to be drawn between the frea flow of the same volume of inter.State trade and the individual's right to carry on his trade in more than one State and it was argued that s. 92 of the Australian Constitution related to the free flow of the volume of trade as distinguished from an individual's right to oarry on his trade. Such distinction was negatived and the l'rivy Council pointed out th~t the redoubtable Mr. James who fought many battlo for the freedom of his trade and occupation was after all an individual. Another aspect of this contrast between Art. 19 and Art. 301 of the Constitution which has been adverted to before us is this; it has been argued that if law impos-ing restriction on the right of citizen to carry on his trade or business is justified under cl. (6) of Art. 19 as being in the interests of the general public, that law oanaot again be impeached as being violative of Art. 301; otherwise, so it is argued, the Constitution will be taking away by Art. 301 what it has granted by el. (6) of Art. 19. The argument is that tra:le or business must be such as person is entitled to carry on before he can complain of any impediment to the freedom of that trade or business. This is an aspect of the problem which may require more detailed and careful examination in an appropriate case. If wea.re right in the view which we are expressing that the freedom granted by Art. 301 does not take in regulatory measures or compensatory taxt s for the use of trading facilities, then whethor we look at such measures from the point of view of Art. 19(l)(g) or from the point of view of Al't. 301, the result will be the same. It is not poesiblo, however, to say from contrast of Art. 19 with Art. 301 that the Jatter article relates only to freedom from geographical barriers as was contended by Mr. Lalnarain Sinha. By geographical barrier Mr. Sinha apparently meant something like customs barrier. His point was that the freedqm assured by Art. 30 l was freedo;n from any restriction for goods crossing that barrier in the course of trade. He said that that barrier might be put up anywhere, that is, either at the State border or even within the territories of State. Thus, according to him, it was only when restriction was put upon goods crossing such a. barrier either in the shape of an imposition or otherwise, .that Art. 301 was violated. It seems to us that this will be restricting too much the freedom which Art. 301 is intended to assure. Suppose that instead of saying that tax will be paid upon goods carried in the course of trade over a. certain imaginary line drawn across any part of India, it was said that if contract was made for the sale of goods lying or to be manufactured at place and to be delivered at place situated across the line, there would then be no restriction put upon the goods crossing any imaginary line or any geographical barrier. We think that Art. 301 contemplated that trade in the given illustration would be free from the restriction mentioned. If Art. 301 is intended to protect trade in movement from restrictions, with which view we think Mr. Laina.rain Sinha also agreed, then it would be impossible to interpret Art. 301 as conteiaplating only freedom from restrict.ions against movement of goods in the course of trade

Automobile Transpo1I (Rajasthon) Lkl, v. Stale of Rajasthan DasJ,

i962 Autom•bile Tr•n•pnt (R•j<sthan) Ltd. v. Sltte •f R•jasth,111

DasJ.

SUPRE~ COURT REPORTS [1963]

across geographical barriers. We are for this reason unable to accept l\Ir. Sinha's contention. Mr. Ranadeb Chaudhuri appearing on behalf of one of the interveners accepted the majority view that Art. 301 was aimed at tho movement aspect of trade, commerce and intercourse; this he called the "channelling" of trade, commerce and intercourse. But he raised the question of subsidy and said that Art. 303 which related to discrimina-tion and preference also aimed at the mischief of subsidy which might be given to State by way of perference or discrimination; that mischief, he saicl, would come within Art. 30 l even if it did not rela.te to the movement aspect of trade and commerce. We are not concerned in the present cases with the question of subsidy and need not, therefore, consider the argument of llfr. Ranadeb Chaudhuri with regard to it.

As to the word "intercourse" there has also

been some argument before us. On behalf of some of the States it has been contended that the word 'intercourse' in the context in which it occurs in Art. 30 l means commercial intercourse. On beha.lf of the appellants it has been argued that the word •intercourse' takes in not merely trade and com· merce in the strict st>nse, but also activities, such as, movement of persons for the purpose of friendly association with one another, telephonic communi· cations etc. For the purpose of the cases which we are considering nothing very much turns upon whether we take the word 'intercourse' in wide sense or in narrow sense. Even taking the word •intercourse' in wide sense, the question will still be what does the word 'free' mean? Does it mean free from all regulation which is necessv.ry for an orderly society? Wo have already stated that the word •free' in Art. 301 cannot be given that wido meaning.

We have, therefore, come to the conclusion that

neither the widest interpretation nor the narrow

I s.c.R.

interpretations canvassed before us are acceptable. The interpretation which was accepted by the majo-rity in the Atiabar-i Tea, Co. case (1) is correct, but subject to this clarification. 1-<.egulatory measures or measures imposing compensatory taxeR for. the use of trading facilities do not come within the pur-view of the restrictions contemplated by Art. ~O l and such measures need not comply· with the requirements of the proviso to Art. 304(b) .of the Constitution.

Now the qt1estion is, <lo the relevant provi-sions of the Act reaa with the Schedules fall within what we have called permitted regulation which does not really or materially affect freedom of trade, commerce and intf"rcourse; or do the taxes imposed by the relevant provisions of the Act read with the Schedules come within the category of compensatory taxes which are no hindrance to free-dom of .trade, commerce and intercourse, being taxes for the m.e of trading facilities in the shape of roads, bridges, etc. In an earlier part of this judg-ment we have quoted s. 4 which is the charging section, Th~t section makes it quite clear that the tax is imposed· on motor vehicle which shall be used in any public place or kept ,for use in Rajas-than; the tax is to be at appropriate rates specified in the Schedules to the Act and sA.ve as specified in the Act the tax shall be payable annually notwith-standing that the motor vehicle may, from time to time, cease to be used. Section 7 says in effect· that if the motor vehicle in respect of which such tax has been paid has not 'been used for continuous period of not less than three months, then the owner shall be entitled to refund of an amount equal to 1/12 of the annual rate of the tax paid. It appears from the Schedules that vehicle other than transport vehicle is charged with a. consoli-dated tax, according as the motor vehicle is fitted with pneumatic tyres or not. The rate of tax varies {l) [1961] 1. S. C.R. 809,

196S ,fot~m••il• Trasport (RaJast'l•n) Lei. v. S at1 •f R•jaslh•n D.sJ.

A1Jtomohi!t Transport Rajastn ,,, Ltd. v. S /ate of Ra, asthan D!l.> J.

according to the nature of the vehicle, whether it is motor cycle, or motor tricycle drawing tractor, or side car etc. Schedule II relates to transport vehicles with again are classified into various cate-gories, those fitted with pneumatic tyres and those not so fitted, motor vehicles plying for conveyance of passengers and light personal luggage, goods vehicles plying under public carrier's permit etc. The qui.ntum of tax fixed with regard to the seating capacity in some c&ses and loading capacity in other cases. The tax on some goods vehicles is fixed per day or per annum. Schedule III relates the goods vehicles only. classfication is again made between different claeses of goods vehicles fitted with pneumatic tyres, conveying trailer etc. The tax fixed is tax for use per day. Schedule IV deals with vehicles plying with private carrier's permit. Here again classfication is made of vehicles fitted with pneumatic tyres, with general permit for use in Rajasthan and those with permit for plying within the limits of one region only. The tax varies according to the loading capacity etc.

An examination of these provisions indicates clearly enough that the taxes imposed are really taxes on motor vehicles which use the roads in Rajasthan or are kept for use therein, either throughout the whole area er parts of it. The tax is payable by all owners of motor vehicles, traders or otherwise. In dealing with the queotion whether these taxes were reasonable restrictions on the right of individuals to move freely throughout the territory of India etc. the High Court said:

"In this connection, it is well to remem-ber that the State maintains old roads, and makes new ones, and these roads are at the disposal of those who use motor vehicles Pither for private purposes or for trade or commerce. This naturally costs the State. '\ It has, therefore, to find funds for making

1 S.C.R. SUPREME COURT REPORTS

new roads and maintenance of those that a.re already in existence. These funds can only the ra.iserl through ta.xa.tion, and if the State taxes the users of motor vehicles in order to make a.nd maintain roads, it can hardly be said that the State is putting unreasonable restrictions on the individuals' right to move freely throughout the territory of India., or to practise any profession or to carry on any occupation, trade or busineRS. We have look-ed into figures of income and 'expenditure in this connection of the Rajasthan Stu.te to judge whether this taxation is reasonable. We find that in 1952-53 income from motor vehicles taxation under the Act was in neighbourhood of 34 lakhs. ·In that very year, the expenditure on new roads and maintena-nce of old roads was in the neighbourhood of 60 lakhs. In 1954-55, the estimated income from the tax was 35 lakhs1 while the estimated expenditure was ov:er 65 lakhs. It is obvious from these figures that the State is charging from the users of motor vehicles something in the neighbourhood of 50% of the cost it has to incur in maintaining and making roads."

The High Court further pointed out that in the case of private motor ca.rs the tar was Rs. 12 per seat and for an ordinary five-seater car, it came to Rs. 60 per year. On payment of this amount the owner of the motor vehicle could use the car any-where in Rajasthan and the roads were open to him. In the case of goods vehicle, the tax was Rs. 2000 per year for goods vehicle with load capacity of over five tons i.e. over 135 maunds. Assuming that such vehicle could be l'easonably used for 2ff0 days in year, the ta'I: amounted to Rs. 10 per day for a.bout 140 maunds of goods carri-ed over any length of the road in Rajasthan. This worked out to about Rs. 1 for 14 maunds i. e. almost

1961 A.utomobi/1 Tronspore (R ;josthan) Ltd. v. State of RojaotAan Da1J

11162 Automobile T1a11spM't (Rnjosthon) Ltd . •• Stale of Rajasth•n Das J.

an anna maund. If the Act and the Schedules appended thereto are examined in this manner, it will be noticed that the tax imposed is really tax for the use of the roads in Rajasthan and it cannot be said that it hinders the free movement of trade, commerce and intercourse. The taxes are compensatory taxeF which instead of hindering trade, commerce and intercourse facilitate them by providing roads and maintaining the roads in good state of repairs. Whether tax is compen-satory or nor cannot be made to depend on the preamble of the statute imposing it. Nor do we think that it would be right to say that tax is not compensatory because the preuise or specific amount collected is not actually used to providing any facilities. It is obvious that if the preamble decided th0- matter, then the mercantile community would be helpless and it would be the easiest thing for the Legislature to defeat the freedom assured by Art. 341 by stating in the preamble that it is meant to provide facilities to the tradesmen. Like-wise actual user would often be unknown to trades-men and such user may at some time be compen-satory and at others not so. It seems to us that working test for deciding whether tax is compensatory or not is to enquire whether the trad~s people are having the use of certain facilities for the better conduct of their business and paying not patently much more than what is required for providing the facilities. It would be impossible to judge the compensatory nature of tax by meticulous test, and in the rniture of things that cannot be done.

Nor do we think that it "ill make any diffe-

rence that the money collected from the tax is not put into separate fund so Jong as facilities for the trades people who pay the tax are provided and the expenses incurred in providing them are born by the State out of whatever source it may be. In

1 S.C.R.

the cases under our consideration the tax is based on passenger capacity of commercial buses and load-ing capacity of goods vehicles; both have some relation to the wear and tear caused to the roads used by the buses. In basing the taxes on passen-ger capacity or loading ca.pa.city, the Legislature has merely evolved method and measure of com-pensation demanded by the State, but the taxes are still compensation and oharge for regulation.

We were addressed at some length on the distinction between tax, fee and an excise duty. It was also pointed out to us that the taxes raised under the Act were not specially ear-marked for the building or maintenance of roads. W'e do not think that thf~se considerations necessarily determine whether the taxes are compensatory taxes or not. We must consider the substance of the matter and so considered, there can be no doubt that the taxes imposed are no hindrance to the freedom of trade, commerce and intercourse. If statute fixes charge for convenience or service provided by the State or an agency of the State, and imposes it upon those who choose to avail themselves of the service or convenience, the freedom of trade and commerce may well be considered unimpaired. In such case the imposition assumes the charactm of remuneration or consideration charged in respect of an advantage sought and received. In Armstrong v. St,ate of Victoria No. 2 (1) Dixon, C.J., said;

"The reason, as I venture to suggest, sim-ply is that, without the bridge, the aerodromes and airways, the wharves and the sheds, the res-pective inter-State operations could not he car-ried out and t.hat the charges serve no purpose save to maintain these necessary things at standard by which they may continue. However it may be stated the ultimate ground why the exaction of the paym<"nts for using (1),(1957).99 C. L. R. 28

1941 Automobile 'I' ran.sport Raj 1st/, an LtJ. v. Stat1 of Rajaslhan Das J.

196t Autcimohile r,a-.sport R,,jasf/urn Ltd. •• Stat1 of Rajasthan Das J.

Su6!c Rao J.

the instruments of commerce that ha.ye been mentioned is no violation of the freedom of inter-State trades lies in the relation to inter-state trade which their nature and pur-pose give them. The reason why public authClrity must maintain them is in order that the commerce may use them, and so for the commnrce to bear or contribute to the cost of their upkeep can involve no detrac-tion from the freedom of commercial inter-course between States." (p. 43)

The learned Cheif Justice reiterated the same view in Commonwealth Freighters Property Ltd. v. Sneddon ([1])

We have, therefore, come to the conclusion

that the Aot does not vi0late the provisions of Art. :!01 of the Constitution and the taxes imposed under the Act are compensatory taxes which do not hinder the frceckm of trade, commerce and intercours'' assured by that article. 'l'he taxes imposed were, therefore, legal and the High Court rightly di~mi•Red the writ petitions filPd by the appell>tnts. In the result the appeals fail and a.re dismiPsed with costs ; one hearing fee.

SOBBA RAO, J.-I agree with the conclusion arriv(lr\ at by my learned brother, S. K. Das, J., but, in view of the importan~-e of the question raised. I wou Id prefer to giv" my own reasons for the construct.ion of the releva.nt provisions of Part XIII of the Constitution.

The qnestion in these appeals is, what is the

ambit of the fre .. d0m emihrinecl in Art. :101 of the Constitution and what arA the limitations h1plicit in it or envisaged in the succeeding artides ?

Tho onnflicting and sometimes mutually des-

tructive arguments of learned counsel appearing for the various parties and interveners, omitting the (1) (1959) 102 C. L. R. 2RO, 291.

1 S.C.:R.

immaterial variations, may conveniently be pla.oed under following heads: (l) ''Trade, commerce and intercourse" is term of widest amplitude ta.king in the gamut of activities starting from production or manufacture and ending with the completion of a. particular commercial transactions ; and every restriction imposed by any law or executive action on any part of the said integrated ac-tivity would be violative of the freedom under Art. 301. (2) The expression "trade, commerce and intercourse" means only transportation in the course of trade across the State or inter-State barriers, and any law be, it taxation or otherwise, directly and materially affecting the said transportation, would infringe the freedom. ( 3) The freedom rocognized under Art. ~01 is only the freedom against geographical barriers between States or intra-State units created by law ; and laws, including only discriminatory laws of taxation, crea-ting the said barriers would offend against Art. 301. (4) The freedom envisaged by Art. 301 is only freedom from Jaws showing preference to one State over another and discrimination between one State and another made only by virtue of entry, 42 of List I entry 26 of List II and entry 33 of List III of the Seventh Schedule to the Constitution. (5) The law of fiscal taxation is entirely outside the domaiµ of freedom dec~ared hY. Art. 301. All the learned counsel a.pp, earmg in the case has a.greed, or at any rate no argument was advanced to the contrary, that the freedom, whatever may be its content or scope on which there is difference of opinion, relates to both inter-State and intra-State trade.Before considering the provisions of the said articles, it will be useful to make certain general observations. We have to bear in mind in approach-ing the problem presented before us that our Con-stitution was not written on clean slate. Many of the concepw were borrowed from the Government

1961 AulamobU1 Transporl (Baja1tllon) LU. v. State of Rajasl,,.,, Subba Bao J.

1962 Automobi't 'l'ransport (Rajas!h,n) Ltd, •• St:.itt of RfljaJthan SubhrJ Rao J.

of India Aot or from other Constitutions and adap· ted to suit tho conditions of our country. We can-not ignore the fact that the Constitution was drafted by persons some of whom had deep knowledge of the constitutional problems of other countries; and therefore, they must be assumed to have had the knowledge of the interpretation put upon certain legal concepts by the highest tribunals of those countries. At the same time, it can be reasonably assumed that they have made sincere attempt to accept the good and to avoid the defects found by experience in the other constitutions and also to mould them to suit our conditions. ]forther, brief survey of the relevant provisions of thoso constitutions, which form the background of this article, and the interpretation put on them by the highest tribunals of the respec-tive countries would not only be relevant but also be necessary for appreciating the correct ~cope of Art. 301 of our Constitution. Our Constitution provides for federal structure with bias towards Central Govemment. But real and subctantial autonomy was conferred on the States withtn the boundaries of tho fields chalked out for them. Therefore, in approaching the problem of construing the provis-ions of Part XIII of our Constitution, unless the terms of the provisions of thl) said Part are clear and unambiguous, it would be thn duty of this Court to construe them in such manner as not to disturb the framework uf the Constitution. Before I attempt to construe the relevant provisions of the Constitution, it would be convenient at this stage to consider briefly the American and Australian Jaw material to the present inquiry.

Clause 3 of s. 8 of Art. I of the Constitution of

the United States of America says that the Congress shall havo power to regulate commerce with foreign nations Rnd among the several States and with the Indian tribes. This clause has two aspects, namely, (i) it is source of national power and (ii) it opera-tes as curb on state power. This clause gave rise,

I S.C.R.

among others, to two questions, namely, (i) what

was the scope and content of the commerce power? and (ii) bow to resolve the oonflicts that arose bet-ween the law made by the Congress in exercise of that power and the law made by the State in exer-cise of its police power, or their powers expressed or implied, when they came into conflict with each other? An authoritative definition of the word "commerce" was given by Marshall, C. J., in Gibbons v. Ogrlen ([1]), wherein he observed:

"This would restrict general term appli-cable to many objects to one ofits significations Commerce, undoubtedly, is traffic, but some-thing more-it is intercourse."

The decisions of the Supreme Court of the United

States of America on the subject are not uniform. Indeed, they have adopted the commerce power to meet all the d('mands, namely, economic, commercial, industrial and transport revolutions of that country. It is not necessary for the purpose of this case to consider the conflict or the various nuances of the decision-the concept of commerce was enlarged or reduced to meet the exigencies of different situations; but the common thread was that transportation across the borders, either physically or conceptually, was uniformly held to be necessary ingredient of the expression ."commerce". After noticing the conflict, Willis in his book on Constitutional Law, summarizes the latest position thus, at p. 288:" ............... today the correct definition of commerce is that it is traffic and commercial intercourse. This, of course, gives Congress power wherever traffic or intercourse concerns an inter-State market. When "commerce'' is properly defined as traffic, and the mental picture is formed, not of an isolated journey across state boundary line, but of an onward

(1) (1824) 9 Wheat T; 6 L. ed. 23.

1962 tomobi/1 Transport ( Rajasthan) Ltd. v. State of Rajasthan Subba Rao J,

1962 Automobilt Transport (Rajasthan) Ltd, v. Stat1 of Rajasthan Subba Rao J.

coursing stream of business which knows no state lines, which is constantly fed and as constantly feeds tho streams of production, and which debouches into the inter-state market, then regulations of it by Congress, whether taking the form of prohibition of cortR,in phases of transportation or some other form, ceases to be open to the charge of an ul~rior intention to usurp their power, because it operates most upon tho very subject matter entrusted to Congress or, at most upon local incidents thereof, the fringe, so t~ speak, of nation-spread fabric."

In this context the following references are instruc-tive: Carter v. Carter Coal Company('), Kidd v. Pear-son('), Welton v. State of Mussouri ('),Public Utilities Commission v. Landon\'). It may be stated broadly that in America "commerce" means traffic in its operation across the State borders.

On the second question some of the American decisions adopted vragmatic approach to resolve the conflict. To solve the conflict that a.rose between the laws made by the Congress r.egulating commerce and those made by the State in exercise ofits police power, the Supreme Court of America evolved cer-tain doctrines, such as, "original package", "silence of Congress", "pre-emption", 'undue and unreason-able burden", and "direct and ir.diroct effect". The following decisions dealing with "direct and indirect effect" on inter-State trade can be usefully referred to in this regard, for, in my view, they ·afford some guide to resolve the difficulties that might ari8e under our Constitution: M' Cul[()(;h v. The State of Mary-land('), John T. Hendrick v. The State of Maryland('),

(I) (1936\ 298 U.S. 238: 80 L. cd.1160.

\2) 0888\ 128 U.S. 1: 32 L. ed. 346.

(SJ (1876) 91 U.S. 275; 2' L. ed. 347.

(4) (191912<9U.S. 216: 63 L. ed. 577.

(SJ (1819, 17 U.S. 316; 4 L. ed. 579.

(6) (1915) 235 TJ.S. 610; S9 L. ed. 385.

I s.C.R.

Interstate B'usses Corporation v. William H. Blodgett([1]), Interstate :Transit v.DfokLindsey([2]), and A.L.A. Schech-ter Poultry Corporation v.United 8tc1,te of America(3). The said decisions show that in America the principle accepted was that every restriction imposed by a. State law did not offend the commerce clause, un-less it directly affected it, and that even taxation was permissible, if it was for services rendered by the State to promote trade.

The Commonwealth of Australia Constitution Act was pa.ssed in 1900. At 1.he time that Act was. made, the framers of that Act ha.d the background of the evolution of the American law on the com· merce clause. Under that Act, oert.ain defined powers of legislation are conferred on the Common-wealth in respect of trade and commerce. Section 51 reads: "Trade and commerce with other coun-tries :.md among the States''. Section 98 says: ''The power of the Parliament to make laws with respect to trade and commerce extends to navigation and shipping and to railways the property of any State". Section ~9 prnhibit.s the Commonwealth, by any law or regulation of trade, commerce, or revenue, from giving preference to one State or any part thereof over another State or any part thereof. Section 100 prohibits the Commonwealth from abridging, the right of State or of the residents therein to the reasonable use of the waters of rivers for conserva-tion or irrigation. Other legislative powers are con-ferred in respect of specific subjects of trade and commerce, such as, bounties, currency, coinage, bills of exchange, bankruptcy, copy-rights, customs, excise, etc. Section 92 says: '[1]0n the imposition of uniform duties of customs, trade, commerce, and intercourse, among the States, whether by means of internal carriage or ocean navigation, shall be

(I) (1928) 276 U.S. 245; 72 L. ed, 551.

('.>) (1931) 283 U.S. 1113; 75 L. ed. 953.

(3) (1935) 72 U.S 495; 79 L. ed. 1570.

Automobile Transport (Rajast~an) Ltd. v. S1a·e of Rajasthan Subba Rao J.

Automohtle Trarspnrt (Rqjasthon) Ltd. v. Stat1 of Rojasthan Subba Ruo J.

absolutely free". Unlike the American Constitu-.., tion, the Australian Constitution confers legisla-tive power on the Commonwealth Parliament to make laws in respect of trade and commerce with other countries and among the States, and also in respect of certain specific subjects of trade and commerce and then declares that trade, commerce and intercourse among the States shall be absolute-t ly free. Unlike the American Constitution, in the Australian Constitution, there is declaration of freedom of trade, commerce and intercourse among the States. While in America the expression used is "commerce", ins. 92 of the Australian Constitu-tion the expression, "trade, commerce and inter-course" is used. The Australian Constitution Act not only does not provide for any restrictions on the freedom of trade, comm"lrce ,.. and intercourse, but also used an expression of the widest amplitude, viz., "absolutely free" emphasizing the freedom declared by the section. This section, just like the commerce clause in the American Constitution, was the subject of judicial scrutiny and conflict of decision. The interpreta-tion of this sub-section fell to be considered in the ~ context of marketing, banking and transport legis-lation. The question raised was whether the freedom of trade, commerce and intercourse was interfered by the laws made by the State. Paradoxi-cally, the Com-ts of Australia and, in appeals from some decisions of those Courts, the Privy Council evolved the power to restrict the said freedom by ..-the States from the concept of absolute freedom itself. This was necessitated because there were no statutory provisions limiting the absolute freedom and, as uncontrolled freedom in the field of inter-State Commerce may lead to chaos, limitations on the freedom were evolved to save the said freedom. The scope of the limitations so evolved would be useful to construe the relevant provisions of our_ -4, Constitution which expressly provides for similar limitations. The scope of the freedom and it s

I S.C.R. SUPREME COURT REPORTS

limitations are found in the leading decisions on the subject, wb1ch throw considerable light on the question now raised, and they are : Smither' s case([1]), W. & A. McArthur Ltd. v. The State of Queensland (2), James v. Commonwealth of AitStralia ([3]), Common-wealth of Australia v. flank of New South Wales ([4]). In the aforeRaid Australian decisions the expression ''trade. commerce, and intercourse among the States" has been understood in the widest sense as including trade in all its manifestations involving transporta-tion or movement across the frontiers of the State ; it also includes non-commercial intercourse.On the seeond question, some of the leading Australian decisions contain an interesting and instructive exposition of the conflict of jurisdiction and useful suggestions for resolving it. In this context the following decisions may usefully be consulted: James v. Cowan {[6]), Commonwealth of Australia v. Bank of New South Wales ([4]), Hughes and Vale Proprietary Ltd. v. State, of New South Wales ([6]), Hughes and Vale Private Limited v. The State, of New South Wales [No. 2) ([7]), Grannall v. Marrickville Margarine Proprietary Ltd. ([8]), Armstrong v. State of Victoria [No. 2] ([9]), Common-wealth Freighters Proprietary Ltd. v. Snedrlon ([10]). The Australian decisions broadly laid down the following three propositions : (i) the impugned law, whether fiscal or otherwise. shall directly and immediately restrict traffic across the borders before it could be said to violate the freedom under s. 92 of the Commonwealth of Australia ·constitution Act ; (ii) compensatory measures for the purpose of regulating oommerce are not restrictions on the said freedom ; and (iii) when question arises whether fiscal statute amounts to .restriction on

(1) (1912) 16 C.L.R.. 99. 13) [19361 A.C. 578. (S) [1930] 43 C.t.R. 31!6. 171 [1956) 93 C.L.R. 127. (9) [1957J 99 C.L.R. 28.

(21 (1920) 28 C.L.R. 530. (4) [1950] A.C. 235. (6) [1955] AC. 241. (8) [1955] 93 C.T .• R. 155. (l_O) [1959J 102 C.L.R. 280.

1962 A.utomobi11 Transport (Rajisthan) Ltd. v. State of Rojaslhan Subba Ruo ,T.

196~ Automobile Tr•nsPw' (RojGslhan} Ltd. v. State of Rr.,jasthm

the said freedom, careful scrutiny of the provi-sions may rebut the presumption that otherwise may arise that the impugned Act is really com-pensatory measure for the amenities provided or services rendered.

The following principles emerge from the foregoing American and Australian decisions : ( 1) Though in American law the commerce clause only confers power upon the Congress, under the Australian Constitution Act, freedom of trade, commerce and intercourse is enshrined in s. 92 as cherished freedom : the composite expression in s. 92 of the said Act was borrowed from the American decisions. (2) The expression "trade, commerce and intercourse", though it is not an expression of art, has acquired definite significar tion in the constit.utional law of both the countries, namely, it is traffic and commercial intercourse concerning an inter-State market, or, to put it diffe-rently, the free flow or movement of trade across the State borders. (3) The said freedom should not be infringed by any law, whether taxation or other-wise or by executive action. ( 4) The restriction may be before or after movement : it may be prior restraint or subsequent burden. (5) The word «freedom" does not mean anarchy, but assumes transactions based on law and carried out under the superintendence and direction of law : such laws are, (11) laws of contract, property, tort, etc., (b) regulations for preserving and maintaining the freedom, sun.h as, police regulations about safety, speed, lighting, rule of the road, etc., ( c) laws providing for services and for compensation for services rendered, namely, the construction and maintenance of wharfs, toads, aerodromes, etc., and the levy of taxes to meet the expenditure incurred in connection therewith ; the said laws are not restrictions on the said freedom but only facilities to promote the same.

1 S.O.R. SUPREME OOURT REPORTS

Now, let us look at the provisions of Art. 301

of the Constitution. The article reads :

"Subject to the other provisions of this Pa.rt, trade, commerce and intercourse throughout the territory of India shall be free."

Three groups of words in the said article, in their

juxtaposition and interaction, furnish the key to the problem, and they are : (i) trade, commerce and intercourse, (ii) throughout the territory of India, and (iii) shalJ be free. The' expression ''trade, commerce and intercourse" is composite one ancl has received, as already noticed. the fullest judicial attention from the highest courts of America and Australia : though they may not be words of art, they have acquired secondary meaning or significance. I shall accept the meaning acquired by that expression by the gradual evolution of law in those. countries.

Now, let us analyse the words "shall be free".

Three questions occur to one's mind in regard to this, namely, (i) what is free ? {ii) free from what ? and (iii) where is it free ? As I· have already indicated, the said composite expression means trade across the borders: what is free is that trade. It is implicit in the concept of freedom that there will be obstructions to it. ~uch obstructions or barriers may be, in the present context, to the freedom to trade across the borders. Article 301 provides for frdedom from the said barriers or impediments in effect operating as barriers. This freedom from barriers cannot operate in vacuum and must be limited by space. barrier may be put up between two States at the boundary of the States or between two districts, two taluks, two towns or bet· ween two parts of town. The barrier may be at particular point at boundary or might take the form of continuous impediment till the boundary is

196! Aulomobil6 TrarulO'I ( lajo.rtlaan) Ltd • •• Sia '8 ,.j Rojas,han

Sublla Rao J.

Automobile r,.,'/sport ( Rajuth•n) Lia, .. Stat1 of Rojos.han SubJa Ra1 J.

crossed. It may take different forms. The restric-tions may be before or after movement. It may be pi·ior reslrnint or ti subsequent burden. But the essential idea is that barrier is an obstacle put across trade in motion at particular point or diffe. rent points. The expression "shall be free" decla"·es in mandatory from freedom of such transport or movement from such barriers.

The next question is, where is it free ? The second expression "throughout the territory of India" demarcates the extensive field of operation of the said freedom. l'he said intercour1e shall be free throughout the territory of India. The use of the words "territory of India" instead of "among the several States" found in the American Consti-tution or "among the States" found in the Australian Constitution, removes all inter-State or intra-State barriers and brings out the idea that for the purpose of the freedom declared, the whole country is one unit. Trade cannot be free through-out the territory of India, if there are barriers in any part of India, be it inter-State or intra-State. So long as there is impediment to that freedom, its nature or extent is irrelevant. The difference will be in degree and not in quality. The freedom declared under Art. 301 may be defined as aright to free move· ment of persons or things, tangible or intangible, com-mercial or non-commercial, unobstructed by barriers, inter-State or intra-State or any other impediment operating as such barriers. To State it differently all obstructions or impediments whatever shape they may take, to the free flow or movement of trade, or non-commercial intercourse, offend .Art. 301 of the Constitution execpt in so far as they are saved by the succeeding provisions. But we are not concerned in this case with non·commer· cial intercourse.

The next question is, what is the content of the concept of freedom ? The word ''freedom" is

I S.C.R. SUPREME COURT REPORTS

not capable of precise definition, but it can be stated what would infringe or detract from the said free-dom. Before particular law can be said to infringe the said freedom, it must be ascertained whether the impugned provision operates as restriction impe<ling the free movement of trarle or only as regulation facilitating the same. Restrictions obstruct the free-dom, whereas regulations promote it. Polico regula-tions, though they may superficially appear t(' restrict the freedom of movement, in ,fact provide the ueces· aary conditions for the free movement. Regula· tions such provision for lighting, speed, good condition of vehicles, timings, rule of the road and similar others, really facilitate the freedom of move-ment rather than retard it. So too, licensing syfltem with compensatory fees would not bo restrictions but regulatory provisions ; for without it, the neces-sary lines of communication, su1.:h as roads, water-ways and air-ways cannot effectively be maintained and the freedom declared may in practice turn out to be an empty one. So too, regulations providing for necessary services to enable the free movement of traffic, whether charged or not, cannot also be described as restrictions impeding the freedom. To say all these is n~t to say that every provision couched in the form of r,egulation but in effect and substance restriction can pass off as permissible regulation. It is for the Court in given case to decide whether provision purporting to regulate trade is in fact restriction on freedom. .If. it be coloura.ble exercjse of power and the regulatory provision in fact restriction, unless the said pro-vision is one of the permissible restrictions under the succeeding articles, it would be struck down. This view is consistent with the principles laid down by the Australian High Court ·and the Privy Council in the· context of interpretation of the words "absolutely free" ins. 92 of the Commonwealth of Australia Constitution . Act, which is more empha-tic than the word ufree" in Art. 301 of our Consti-tution.

Aut~mobil1 Transpo1> (Rajt1sthAri) Ltd. v. S1alt of Rajaathan Subla Rao J.

1961 ..4.utnrnoiJlt1 Tr•nsporl (Rojastlwl) Lid. •• Slalt1 of HojatMn. Sul>hR .. J.

SUPREME OOURT REPORTS [1963]

The Constitution confers on the Parliament and the State Legislatures extensive powers to make laws in respect of various matters. glance at the entries in the Lists of the Seventh Schedule to the Constitution would show that every law so made may have some repercussion on the declared free· dom. Properly tax, Profession tax, sales-tax, excise duty and other taxes may all have a.n indirect effect on the free flow of trade. So too, laws, other than those of taxation, ma.de by virtue of different entries in the Lists, ma.y remotely affect trade. Should it be held that any law which may have such repercussion must either be passed by the Parliament or by the State Legislature with the previous consent of tho President, there would be. a.n end of provincial autonomy, for in that event, with some exceptions, all the said laws should either be made by the Parliament or by the State Legislature with the consent of the Oen· tral Executive Government. By so construing, we would be making the Legislature of State elected on adult franchise the handmaid of the Cen-tral executive. We would be re·writting the Cons-titution and introducing by sidewind autocracy in the field of legislation allotted to the States, while our Consititution has provided meticulously for democracy. Therefore, any construction which may bring about mob an unexpected result shall be avoided, unless the Constitution compels us by ex-pre88 words to do so. There are admittedly no such words of compulsion. At the same time it is also difficult to accept the argument advanced by the States that the laws made under entry 42 of List I, entry 26 of List II and entry 33 of List III, of the Seventh Schedule to the Constitution only are subject to that freedom ; for firstly, the article does not restrict the freedom to the area covered by those entries, and, secondly, laws made under the other entries may more effectively and directly affect the movement of trade. If law direotl;y

SUPR.EME COURT REPORTS

1 S.C.R.

and immediately imposes tax for general re-venue purposes on the movement of trade, it would be violating the -freedom. On the other hand, if the impact is indirect and remote, it would be un-objectionable. The Court will have to ascertain whether the impugned law in a" given case affects directly the said movement or indirectly and remo-tely affects it.

At this stage, an argument elaborated by Mr.

Lalnarain Sinha may also be noticed. The learned Advocate said that the filed occupied by Art. 19 of Part III of the Constitution and that occupied by Part XIII thereof are distinct, that Art. 19 deals generally with freedom of trade and that Art. 301 with discriminatory barriers and that fiscal statutes could not be restrictions under Art. 19 and, there-fore, they could not equally be restrictions under Art. 301. He would say that whatever might be said of "regulatory taxes'' or "destructive ones", fiscal taxes are always in public interest and it is not possible for court to decide whether particular tax is reasonable or not. On this premises, the argument proceeds, reasonable restriction is restriction, the reasonableness whereof oan be as-certained by court, and in & ·case where the reason· ableness of particular restriction is impossible of as-certainment by court, suoh as law fixing rate, the Constitution must be deemed to have released such _a restriction from the impact of the concept of the freedom. This is an argument in reverse gear. The freedom declared by the Constitution cannot be controlJed by . an involved process of reasoning. It is not permissible to limit the con-tent of the freedom by the criterion of court's ablity to ascertain the reasonableness of restriction imposed thereon. What is guaranteed to citizen by the Constitution is fundamental right to carry on business. If cl. ( 5) of Art. 19 were not in the Con-stitution, every restriction on that right, be it by

1951 .Aulomo/Jil1 TraN/Jorl ( Rojaslllim) Lltl. v. State oJ Rojasllion Su6baRao J,

1961 A."tmob;le Tran.spt1rl (Raiastlian) Lid. v. Slate of R·jasthan Subba Rao J.

SUPREME OOURT REPORTS [1963]

law of taxation or otherwise, which limited the

freedom, would certainly violate the sa.me. The fact that the Constitution saves laws made imposing reasonable restrictions on the freedom has no rele-vance to the content of the freedom, though it pro-tects certain laws ~de infringing that freedom. If on construction of the provisions of Art. 19(6), it should be held that fiscal ta:1:ation was not res-triction within the meaning of the sa.id clause, every law imposing such tax would infringe the funda· mental right. This result could not have been intend· ed by the makers of the Constitution. Therefore, the contention should be that every law of taxation is reasonable restriction in public interest. There are no merits in the contention either. It is sa.id that taxation is always in public interest, and that it is not possible for any court to ascertain on the material placed before it that. rate is reasonable or not. It is conceileil that regulatory taxes or laws of taxation intended to prohibit or restrict an activity and not to raise general tax in the interest of revenue may be restriction and court may be in position to see whether such laws pass the test laid down in Art. 19 (6) of Constitution. The arguments is confined only to what is describOO a8 "fiscal taxation" that is taxation soleiy intended for raising revenue for the State. It is also not denied that unreaaonable procedural restrictions imposed by law of taxation would infringe the freedom. It is also admitted that fiscal law may offend the fundamental right enshrined in Art. 14 of the Con. sitution. If so, it is beyond my comprehension on what principle the law of taxation could offend with impunity the freedom enshrined in Art. 19 (1) (g). Article 13(2) says in express terms:

"The State shall not make any law which

takes away or abridges the rights conferred by this Part and any Jaw made in contraven-tion of this clause shall to the extent of the contravention, be void."

1 S.C.R. SUPREME COURT REPORTS

law of taxation is made by Parliament or the Legislature of State, as the case may be, in exer-cise of the power conferred under the Constitution by virtue of the entries, found therein. It is law just like any other Jaw made under the Constitution. This Court, in K. Thatkunni Moopi,l Nair v. SflJte of Kerala (1) and in Balaji v. I. P. O.tficer ([1]), held that law of taxation would be void if it infringed the fundamental right guaranteed under Art. 19 of the Constitution. Therefore, the law of taxation also should satisfy the two teats laid down in Art. 19(~) of the Consti-tution. It is said that law of taxation is always in public interest. Ordinarily it may be so, but it cannot be posited that there cannot be any except-ions to it. taxing law may be in public interest in the sense that the. income realised may be used for public good, but there may be occa.sions, when the rate or the mode of taxation m'ly be so abhor-rent to the principles of natural justice or even to well settled principles of taxation that it may ca.use irremediable harm to the public rather than pro-mote public good, that the Court may have to hold that it is not in public interest. Noc can I agree with the contention that it is impossible for court to hold in any case that rate of taxation is reasonable or not. As proposition it is unsound. It may be legitimately contended that it is difficult for court to come to definite conclusion on the correctneM of rate fixed by the Legislature. Dixon. C. J., in OommonweaUh Freighters Proprie-t,ary Limite.d v. Smddon ([8]), gives very cogent answer to such an argument in different con text. The learned Chief Justice said:

11Highly inconvenient as it may be, it is true o.f some legislative powera limited by definition, whether according to subject-matter to purpose or otherwise, that the validity of (1) [1961] 3 S.C.R. 77. (2) [1962] 2 S.C.R. 983. (3) (1959) 102 C. L.R. 280, 292.

19~1 ~utomobiu Trans/ml (R~aslhon) Lid. Vo

Stal1 of R ijutha11 Subba R'o J.

Automobil• Trarport [)d. ( R•jaslhan) v. Sl•I• of R•Jasthan Su66a Ra• J.

the exercise or the power must sometimes depend on facts, facts which some how muat be ascertained by the court responsible for deci-ding the validity or the law ..........•.........••.• All that is necessary is to make the point that if criterion of constitutional validity con· sists in matter of fa.ct, the fact must be ascer-tained by the court as best it can, when the court is called upon to pronounce upon validity."

I entirely agree with these observations. It is common place to point out that intricate problems come before a. court involving decision on different and complicated aspects of human activity. Ques-tions involving science, medicine, engineering, geology, ~iology, economiflll, Psychology, etc. all come for judicial scrutiny, and I have never heard any court saying that it is difficult to decide upon such question and, therefore, the proceeding rai-sing such a. question is outside the jurisdiction of such court. In saying this, I am not ignoring the difficulties inherent in problem of fixing the rate of taxes by court. Experience shows that the court applies certain presumptions, such as that of the wisdom, knowledge and the good inten-tions of the Legislature, and does not a.110 meti-culously go in to the question, but only looks at the broad features. On the argument of lea.med counsel when it is permissible and possible for court to ascertain whether tax is fiscal or regulatory, I do not 11ee how it becomes impossible, though it may be difficult, to hold whether fisc.al tax is reason· able or not. The distinction lies not in the nature of the enquiry but only in degree. That a.pa.rt, no restriction, if it is unreasonable, can be more delet-erious to the freedom than the imposition of fiscal burden on it, which may in certain circumstances destroy the very freedom. I, therefore, hold, on true construction of the expressed words of Art. 19

l S.C.B. SUPREME COURT REPORTS

of the Constitution, that it is not possible or even

permissible to hold that laws of taxation are outside the scope of the freedom enshrined therein. As the premises of Mr. La.Ina.rain Sinha's argument lack a. reasonable basis, his further argument that the freedom in Art. 301 excludes from its scope fiscal laws must be rejeoted.

Having ascertained the scope and content of

the freedom envisaged in Art. 301 of the Constitu-tion, let us look at the succeeding provisions which place limitations on the said freedom. Under Art. 302.

"Parliament may by law impose such

restrictions on the freedom of trade, com-merce or interoourse between one State and another or within any p~rt of the territory of India., as may be required in the public inter-est."

This is a.n exception to Art. 301. The restrictions contemplated therein are restrictions on the said freedom. But the restrictions can be imposed by Parliament only by law. Parliament's power to make law is derived from Arts. 245 and 246 of the Constitution. Thereunder, it can make laws with respect to any of the matters enumerated in Lists I and III of the Seventh Schedule and in respect of territory not included in States with respect to matters enumerated in any of the .three Lists. Therefore, in exercise of the said power and by virtue of the language of the entries correlated to that power, Parliament can make any law imposing restrictions on the said freedom. The article in terms, or even by necessary implication, does not ~xclude restrictions by way of taxation. It is not the source or the nature of the law that matters but the impact of that law, be it law of taxation or otherwise, on the freedom that is crucial. It is

1981 Automobile rra•·spo•t (R1jasthan) Lti. v. Stale of "a.i•slba

SubJa Ra• J.

..iutomobi/1 Trans/JO'' (Bojruthon) Ltd. v. 11 td< of Bojaslha• Bubi• Roo J.

SUPREME OOURT REPORTS [1963]

also not possible to accept the argument that .Art: 302 confers an independent power on the Parlia-ment, that ill, power in addition to that conferred on it by Arts. 245 and 246. There is no room for this argument, for the words "by law" in the article clearly refer to the power of the Parliament to make law under the Comtitution. That apart, if it was the intention of the Constituent Assembly to confer fresh power, those world not have been ueed in Art. 302, but instead world suitable to confer new power, namely, "shall have the power" would have been used. Therefore, under this article the Parliament can only impose restrictions by virtue of any of the entries in the Lists in respect of which it can make laws. perusal of the entries in List I shows that laws can be made restricting the said freedom under most of the entries, for instance, entries 22, 23, 24, 25, 27, 29, 42, 52, 53, 56, 81, 89, 91, etc. Whether there is restriction or not, does not depend upon the relevant entry, but on the nature of the impact of the law on the freedom. But limitation is 1ought to be placed upon this power by an attempt to confine it to the entries mentioned in Art. 303. Article 303, which prohibits ~he Parliament from making law giving preference to one State over another or makin~ any discrimination between one State and another, is confined only to the entries relating to trade and commerce. But Art. 303 is in the nature of an exception or proviso to Art. 302. "The proviso leaves the generality of the substantive enactment unqualified except in so far as it concerns the parti· cular subjects to which the proviso relatee." "Where the language of the ma.in enactment is clear and unambiguous, proviso can have no re}lf'rcussion on the interpretation of the main enactment so as to exclude from it, by implication, what clearly fa.Ha within ita expressed term11": 11ee M. & 8. JI. Railway v. Bet:W(Jda Municipality ('). The worcis

(I) A. J. R. 19# P. C. 71, 73.

1 S.C.R.

in Art. 302 are clear a.nd unambiguous a.nd they do not confine its operation to any particular entries a.nd, therefore, the limitation imposed under Art. 303 cannot curtail the generality of the provisions of the said article.

But the more, difficult question is, what does the word "reatriotions" mean in Art. 302? The dictionary meaning .. of the word ''restrict" it "to confine, bound, limit." Therefore, any limita-tions placed upon the freedom is restriction on that freedom. But the limitation must be real, direct and immediate, but not fanciful, indirect or remote. In this context, the principles evolved by Amerioa.n and Australian decision in their attempt to reconcile the commerce power and the State police power or the freedom of commerce and the Commonwealth power to make laws affecting; that freedom can usefully be invoked with suitable modifications and adjustments. Of all the doctrines evolved, in my view, the doctrine of "direct and immediate effect" on the freedom would be reasonable solvent to the difficult situation that might arise under our Constitution. If law, what-ever may have been its source, directly and imme-diately a.ffect8 the free movement of trade, it would be restriction on the said freedom. But law which may bave only indirect and remote repercus-sion on the said freedom cannot be considered to be restriction on it. Taking the illustration from taxation law, law may impose tax on the movement of goods or persons by motor-vehicle it directly operates as restriction on the free movement of trade, except when it is compensatory or regulatory. On the other hand, law may ta.x vehicle as property, or the garage wherein the Tehicle uaed for conveyance is kept. The said law ma.y haYe indirect repercussion on the moYement but the said law is not one directly imposing restrictions on the free movement. In this oontext, two difficulties may have to lie faced: firstly, though a. law purporting

J911 Aut11mebil1 Transport (R1Jjasthan) Lti. v. Stale •f daj1u•~a11 Subia R!IO J.

dutomehi/, TrOllSfJOl'I (Rajasthan) Lid, v. 81•11. qf R'!f111lh,. --

to impose tax on property or motor-vehicle, as the case may be, may in fact and in reality impose tax on the movement itself; secondly, law may not be on the movement of trade, but on the property itself, but the burden may be so high that it may indirectly affect the free flow of trade. In the former casa, the court may have to scrutinize the provisions of a. particular statute to ascertain whether the tax: is on the movement. If the provi-sions disclose tax on the movement, it will be restriction within the meaning of Art. 302. In the latter case, if the provisions show that the tax is on property, the reasona.bleneBB of the tax may have to be tested against the provisions of Art. 19 of the Constitution. The question whether law impose& restriction or not depends on the question whe· ther the said law imposes directly and immediately a. limitation on the freedom of movement of trade. If it does, the extent of the impediment relates to the question of degree rather than to the nature of it. If it is restriction, it must satisfy the condi-tions laid down in Art. 302 of the Constitution.

Article 303 is a.n exception or proviso to

Art. 302. Article 303 opens out with non-obstanle clause, namely, "Notwithstanding anything in article 302". This phrase is equivalent to saying that "in spite of article 302" or that ·"article 302 shall be no impediment to the operation of article 303". It is accepted on a.II hands that there is defect in the phraseology used in this article. This article prohibits both Parliament and the State Legislature from making law giving preference to State or Sta.tee or making dieorimination among the States. The non-obst,ante clause bas no relevance so far as the Legislature of State is concerned, for Art. 302 does not deal with Legislat· ura of State. In these circumstances, the non· obstante clause can only be made applicable to that to which it is appropriate i. e., only to the limits.· tions imposed on Parliament under Art. 303. Tb.e

1 S.C.R.

article, so far a.s it relates to Parliament, may be read:

"Notwithstanding anything in article 302, the Parliament shall not have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule".

Now this provision prohibits the ma.king of laws of the nature mentioned therein only by virtue of the entries relating to trade and commerce in any of the Lists in the Seventh Schedule. This article clearly says that neither Parliament nor the Leg~­lature of State can make law imposing restric-tion which has the effeot of giving preference or ma.king discrimination, as the case may be, among the States. But difficulty that ,confronts one is whether the limitation on the laws is confined only to the law made by virtue of the entries referring to trade anj commerce or by virtue of any entry in the Seventh Schedule, which may affect trade and commerce. The entries which refer to trade and commerce are entries 41 and 42 of List I, entry 26 of List II and entry 33 of_ List Ill of the Seventh Schedule, to the Constitution. But it is contended that the words "by virtue of the entries relating to trade and commerce in any of the Lists in the Seventh Schedule" are of wider import than the words "by virtue of the said entries" and, therefore, any law specified in Art. 303 made by virtue of any entry in any of the Lists in ~he Seventh Schedule, if it relates to trade and commerce, would- be cover-ed by the exception. The words "any entry relat-ing to trade and commer<>..e in any of the Lists" are of the widest import and they yield to a. ~ery liberal .interpretation. . The phraseology used supports

19~! Autamobill Transpfltt (R4)aslhan) Ltd. v. Stat1 of Raj11st1'ot1 SubboRuJ.

1911 Aut1m1hi/1 TrMis,.,t Jta;aslhan v. St•I• •! R11j,Jthan

this interpretation. The reason for the exception also sustains it. There cannot be any distinction on principle, from the standpoint of the mischief sought to be averted, between Jaw made by Tirtue of an entry ex facie referring to trade and commerce and that made by virtue of any entry affecting trade and commerce. For instance, law may be made by Pariiament under entries relating to rail-way~, highways, shipping etc.-these entries do not expressly refer to trade and commerce, though they may directly affect trade and commerce. If law made under entry 26 of List II giving preference or makmg discrimination among the States is objec-tionable, it should also be objectionable, if made by virtue of any other entry. I would, therefore, hold that any law made by l:'arliament by virtue of any entry imposing the said discriminatory restric-tions would be bad under the said article.Article 303 t2) lifts the ban imposed on Parlia-ment under Art. 303 (!), if law made by Parlia-ment imposing such discriminatory restrictions i11 necessary for the purpose of dealing with situation arising out of scarcity of goods in any part of the territory of India. That part of Art. 303, which prohibits the Legislature of State from making law of the 11ature mentioned therein, also bears the same constructions and it is not necessary to re1tate it, except to mention that clause (2) of Art. 303 does not lift the ban in re3pect of the State Legislature.

Coming to Art. 304, we are again confronted

with defoct in phraseology. The article opens out again with non-ob8tante clause, namely, "Not-withstanding anything in article 301 or article 303"" Under Art. 301 (a), the Legislature of State may by law impose on goods imported from other States or the Union territories any tax to which eimilar iooda manufactured or produced in that State are 11ubjeot 10, however, a.a not to discriminate between

them; and Art. 304 (b) enables the State Legisla.ture to impose such reasonable restrictions on the free· dom of tra.de, commerce or . intercourse with or without that State as may be required in the public interest. B11t no Bill or &mendment for the purpose of cl. ( b} shall be introduced or moved in the Legislature of State without the previous sanction of the President. Clause (a), .therefore, only ena-bles the Legislature of Sta.te to impose non-discri-minatory taxes on goods imported from other Sta~es or the Union territories. The non-obstante clause vis-a.vis Art. 30! (a) may have some relevance so far as Art. 301 is concerned, for it enables the Legislature of State to impose an impediment on the free movement of trade in spite of the freedom. declared under Art. 30 !. But it has no relevance to Art. 303, which <?nly prohibits the State Legisla-ture from making discriminatory law and it does not in any way prohibit the State Legislature from imposing non-discriminatory tax permitted under Art. 304: (a). But, with reference to Art. 304 (b ), the non-obstante clause has significance and meaning even in regard to Art. 303, as cl. (b) lifts the ban imposed by Art. 303, subject to the limitations mentioned therein., Therefore, the rion-obstiante clause must be deemed to apply only to tha.t part of Art. 304 appropriate· to the said ola.use. If so read, the difficulty in the construction . disappears. Article :~04 (a) lifts the general ban imposed by Art. 301 in respect of imposition of non-discrimina-tory taxes on goods imported, which indica.tes that but for the said provision the law of taxation in that regard would infringe the freedom declared under Art. 301. Clause (b) of Art. 304 enables State to make laws imposing reasonable restrictions on the freedom of trade, commerce and intercourse; and I would interpret the word ''restrictions" in the same way aa I have interpreted the said expresaion in Art. 302. It cannot be 8&id, &8 it is oontonded, that cl. (b) only lifts the ban imposed by Art. 303

1912 A.utem1•;1, Trenap,,1 ( fi11Jt1s,han) Lei, 8tat1 of "· Rt1ja6'h•1t S111'1'eltuJ.

1162 Auttmobilt Tranf/Jort (Ri!i,,lhon) LtJ. SW. •f .. dajasth .. -.....-Su66• Ratt J.

on the power of the Legislature of a. State, but it does more than that. It enables the State Legisla-ture to impose a.II reasonable restriotions on the said freedom in the sense I have already explained, subjeot to the proviso.

Again, in the context of Art. 304 (b), a. strong plea is made by some of the learned Advocates appearing for the States, relying upon the other vrovisions of the Constitution for holding that taxation laws a.re outside the ken of the said provi· sions. Reference is made to Arts. 31 (5) (b) (i), 248, 265, 276, 285, 287 a.nd 288. I do not propose to consider the argumPnts based on the said articles in detail, a.s, in my view, these and similar articles of the Constitution do not even remotely touch the question raised before us. They fit in the scheme of the Constitution. The Constitution confers power on the Legislatures to make laws of taxation, oir-cumscribes that power with reference to the entries in the Seventh Sohedule and other constitutional provisions, and provides for resolving confliot of powers. The aforesaid articles, except Art. 31 (5) (b) (i) and Art. 248, appear in Cb. I of Pa.rt XII under the general heading Finance", Article 265 declares that no tax shall be levied or collected except by authority of law; that is to say, tax cannot be levied or collected by a.n executive fiat. Article 276 fixes a. ceiling on taxes pa.ya.hie to looal boards on professions, trades, callings and employ-ments. Article 285 exempts property of the Union from State taxation Article 286 prohibits the States frum imposing tax on inter-State sales, subjeot to a. provillo. Article 287 exempts the Union from the State law of taxation on electricity; and Art. 288 gives a. 1imila.r exemption to the Union from taxes by States in respect of water or eleotri-city in certain oases. Artiole 31(5)(b)(i) exempts a. Ia. w imposing or levying any tax from the im pa.ot. of the fundamental rights enshrined in Art. 31(2)

1 S.C.R.

of the Constitution. Article 248 preserves the residuary power of the Parliament in respect of any matter not enumerated in the Concurrent-List or the State-List, including the power to impose taxes. These artioles, therefore, generally impose limita-tions on the appropriate legislative power of taxa-tion of States or give exemption in special cases. By and large, the said articles and similar others Qperate as limitations, or restrictions on the power of taxation conferred upon Parliament and the appropriate Legislatures under Art. 246 of the Cons-titution. But, in exercise of the power of taxation, subject to these limitations, the appropriate I~gisla­ture cannot make law infringing the freedoms conferred under the Constitution. The conditions prescribed for imposing tax or the ceilings .fixed thereon may affect the ambit of the power but can-not either sanction encroachment on the freedom guaranteed by Art. 331 or curtail the same. Assu-ming that some of the conditions prescribed in Art. 286 appear to come into conflict with those in Art. 304(b)-in my view, there is no such conflict---the said articles can co-exist by process of harmonious oonsbruotion. In short, these articles may limit the power of the appropr.iate legislature in imposing tax, but cannot be relied upon to curtail the ambit of the freedom under Art. 301 of .the ConJtitution.Reliance is also placed on Art. 26 which pro-vides that every religious denomination or any sec-tion thereof shall have the right, inter alia, to own and acquire movable and immovable property. It is said that the freedom conferred by that article cannot preclude the State from imposing tax on the said property, and that, by the same parity of reasoning, Art. 301 which coQfers the freedom cannot preclude the Legislative power imposing tax affecting that freedom. It is true that the mar-ginal heading of this article is "Freedom to manage religious affairs'', but the. subject-matter of Art. 26 a.nnot be equated to thMi of the freedom of trade

JIH

Automobil" Tr1mpm (Rt1jasehan) Lti. v. Stal1 of Rojasl/ian SubbaRuJ.

.J.ut•mojil • Trans;Q•t (/!•j<Ulhcnl Ltc . •• S t•tt "/ Raa,th•n s.u. l! .. J.

declared under Art. 301. I should not be under-stood to have expressed any view on the construc-tion of that article in the present case.

Article 305, as it stood before the Constitu-

tion (Fourth Amendment) Art. 1955, only saves the existing Ia ws from the operation of Art. 30 I, and Art. 303, and it does not throw any light on the construction of Art. 301. Article 306 was omitted by the Constitution (Seventh Amendment) Act, 1956; but the said article saved the operation of any law made by any States specified in Part in the First Schedule before the commencement of the Constitution levying any ta.x or duty on the import of any goods in to the State from other States or on the export of goods from the State to other States and enacted th'!.t if there be an agreement between the Government of India and the Government of that State in that behalf, the said ta.x · or d11ty might be levied or collected for such period not exceeding ten years from the commencement of the Constitution, subject to the terms of the said agree-ment. If law of t&xation cannot, undn any con-ceivable circumstances, be restriction on the free-dom of trade, why did it become necessary to intro-duce saving clause in terms of Art. 306 in the group of articles in Part XIII? It is suggested that the saving clause might have become necessary as there was an impediment under the other proyi-sions of the Constitution. But that circumstance cannot deprive the force of the non-obstante clause in Art. 301 in its application to the provisions of Part XIII. This article indicates the consciousness of the makers of the Constitution that restrictions contemplated in that Part take in restrictions by way of taxation and, therefore, it was necessary to provide for an exemption in the case of Part States for specified period of time.

The foregoing discussion may be summarized

in tbs following propositions: (1) Art. 301 dHlars11

• • • • •

• • • • l

1 s.c.R.

a. right of free movement of trade without a.ny obs-tructions by way of barriers, inter-State, or intra-State or other impediments operating a.a such bar-riers. (2) The said freedom is not impeded, but, on the other hand, promoted, by regulations creating condi-tions for the free movement of trade, such as, police regulationH, provision for services, maintenance of roads, provision for aerodromes, Wharfs etc., with or without compensation. (3} Parliament may be law impose restrictions on such freedom in the pub-lic interest; and the said law can be made by virtue of any entry with respect where of Parliament has power to make law. (4) The State also, in exer-cise of its legislative power, may impose similar restrictions, subject to the two conditions laid down in Art. 304 (b) and subject to the proviso mentio-ned therein. (5) Neither Parliament nor the State Legislature can make law giving preference to one State over another or making discrimination between one State and another, by virtue of any entry in the Lists, infringing the said freedom. (6) This ban is lifted in the case of Parliament for the purpose of dealing with situations arising out of scarcity of goods in any part of the territory of India and also in the oase of State under Art. 304 (b}, subject to the conditions men-tioned therein. And (7) The State can impose non-discriminatory tax on goods imported from other States or the Union territory to which similar goods manufactured or produced in that State are subject.

The ·construction I have placed on the provi-

sions of the Constitution brings out the harmony between the various articles in Pa.rt XIII of the Constitution and also discloses an integrated scheme of freedom of trade, commerce and intercourse maintaining balance between federalism and pro· .-facial autonomy.

I agree with my learned bruthor, Das, J., tha.t the provisions of the Raja.sthan Motor Vehicles Tax-ci.tion Act {XI of 1951) a.re regulatory in ohara.ote r

1962 .Aut-1118iile ( trcj•stlr•n) Tr11.is/"t Lt•. Stru •f .... Rdjutha Su6j• l't.H J.

1911 Aulomobil1 Trtlflspote (Raja1t"'1n) Lid • .. &oi. of Roja.o•ht.n of Roja.o•ht.n Roja.o•ht.n

&oi. of Roja.o•ht.n of Roja.o•ht.n Roja.o•ht.n Bo/Jbo Rao J.

and that they do not infringe the freedom enshri- . ·

ned in Art. 301 of the Constitution.

The appeals fa.ii a.nd are dismissed with eosts.

HIDAYATULLAH, J.-The Ra.jasthan Motor

Vehicles Tf\xation Act, 1951 (No. XI of 1951), in s. 4 provided:

"( 1) Save as otherwise provided by this

Act or by rules ma.de thereunder or by any other law for the time being in force, no motor vehicle shall be used in any public pla.oe or kept for use in Ra.jastha.n unless the owner thereof ha.s paid in respect of it, a. ta.x at the appropriate rate specified in the schedules to this Act within the time allowed by section 5 and save as hereinafter specified, such tax she.II 'be payable actually notwithstanding that the motor vehicle may from time to timi> cease to be used.

(2) An owner who keeps motor vehicle

of which the certificate of fitness and the certificate of registration a.re current shall, for the purposes of this Act be presumed to keep such vehicle for use.

(3) person who keeps more than ten

motor vehicles for use solely in the course of trade and industry shall be entitled to dedu-ction of ten per cent on the aggregate amount of tax to which he his liable.

Explanation.-The expression "trade and

industry" includes transport for hire."

The Schedules referred to in the first sub-section

a.re four in number. They specify the kind of vehicles liable to the tax, the rates of the ta.x appli-cable to each kind, and some other conditions. detailed reference to the Schedules will be made by

1 S.C.R. SUPREME COURT REPORTS

us later. Section 11, which created penalties for contravention of the Act, was follows:

''Whoever contravenes any of the provi·

sions of this Act or of any rule made there-under shall on conviction be punishable with fine which may extend to Rs. 100 and in the event of such person ha.Ting been previously convicted of an offence under this Act or under any rule made thereunder with fine which may extend to Rs. 200."

The appellants who held permits, plied their

buses from the State of Ajmer. Their routes passed through the territory of Raja.stha.n, and /.they were required to pay the tax in Raja.Sthan. They filed petitions under Art. 226 of the Constitution in the High Court of Rajasthan, im-pugning the demand as contravention of the provisions of Part XIII and of Art. 19 of the Con-stitution. Divisional Bench of the High Court, which heard the petition, referred for the decision of Full Bench the following question:

•'Whether ss. 4 and 11 of the Ra.jasthan Motor Vehicles Taxation Act, 1951, infringe the right of freedom of trade. commerce or intercourse grant"" "'lder Article 301 of the Constitution?''

The Fall Bench answered the question in the nega-tive, and in vbw of the answer, the petitions were dismissed. The appellants were, however, granted certificate under Art. 132 of the Constitution, and the present a.ppoals hav~ been filed.

The appellants contend that the Rajasthan Motor Vehicle!!! Taxatio·J Act. 1951, is outside the compe-tence of the,Stnte Legislature inasmuch as its pith and substance is "Inter-State trade and com-merc~". which is Union subject under Entry 42 of

1911 Aut111110bi1' TrOllSJWrl (Rojostlla,,) Lii. v. St•ll of Rajoitho ida.1awllah J •

Automobif1 Tra1v1port ( Rajasthan) Lid. v. 8IGl1 of RajaJlhan Hii•ytitullaA I.

568 SUPREME OOURT RE.PORTS [1963]

Union List; that it is null and void being in viol&· tion of Art. 19(1) (d), (f) and (g) of the Constitution; that it is ultra vire.9 and illegal, as it contravenes the freedom guaranteed under Art. 301; that even if permissible, it is not reasonable restriction of trade and commerce within Art. 304, and that not having been enacted with the previous sanction of the President, it is not effective as law under Art. 265.

At an earlier hearing, the attention of the Constitution Bench of this Court was drawn to Atiabari Tea C'o. Ltd. v. State of Assam ('),where this Court struck down by majority the Aeaam Tax-ation (on Goods Carried by Roads or Inland Water-ways) Act, 1954, as offending against the freedom of trade, commerce and intercourse. On that occas-ion, three views were expressed. Sinha, C. J.. held that the freedom guaranteed by Art. 301 was against "trade barriers, tariff walls, or imposts which have deleterious effect on the free flow of trade, com-merce and intercourse" but not against taxation Sim· pliciter. Shah, J., held that the freedom envisaged wae wide enough to comprehend within itself ban of prohibition, control or impediment of any kind whatever and of taxes whether they fell on move-ment of trade or commerce or otherwise. The majorit.y(Gajendragadkar, Das Gupta and Wanchoo, JJ.) held that though taxes as such were not within the ban of Part XIII, such taxes as impeded the free flow of trade and were directly placed on movement were included in it. The appellant• relied on the views of Shah, J., and failing that, on the majority view which, they contended, also held good here, while the State Government haeed its case upon the views of the learned ChiP.f Justice. The ConAtitution Bench was thus of the opinion that "ha~ing regard to the importance of the Constitu-tional issues involved and the views expreesed in .Atiabari Tea Co. Lt,d. v. State of .4ssam ([1])'', tJiia cue

(I) 11961] I s.c.R.809.

1 s.c.R.

should be heard by larger Bench, and these appeals have thus come before this special Bench. Certain other parties obtained permission to inter-vene, and notices having issued to the Advocates-Genera.l of States, we have had the benefit of argu-ments from various angles.

That freedom of trade, commerce and inter-

course is secured by Art. 301, subject to the other provisions of Part XIII, has not been disputed in this case. The dispute is · only as to what is com-prehended within that freedom, and a. further question is whether the powers of Parliament and the State Legislatures to levy taxes according to the Sundry Entries in the Legislative Lists are meant to be circumscribed in any way, and if so, to what extent.

Art. 301 of the Constitntion, so far as its

language goes, is fairly modelled on s. 92 of the Australian Commonwealth Act, 1900, and numerous decisions of the High Court of Australia and on appeal, by the Privy Council, were cited before us to define the content and extent of the freedom en-visaged. Besides, the Government of India. Act, 1935, also containP-d in s. 297 provision on the subject of freedom of tratle and commerce, and the contention of the State partly has been that Part XIII enacts little more than wha.t was contained -there.

Sinoe the arguments made much of these two

analogies, it is necessary to state first certain well-k ·1own and well-accepted propositions relating to the interpreta.Lion of Constitutions, in which there are fundamental limits upon the power to legislate. In Queen v. Burah (1), Lord Selborne laid down proposit.ion which in its exposition of the subject and the manner of expression ca.n hardly be impro-ved. Lord Selborne said :

"ThA established Courts of justice when ftUestifJn arises whether the prescribed limits (1) (1178) 3 App. Cu. 8 89.

.Automobile Transport {Rojasthan) Ltd. v. Stal• of Rajasthen Hidayaiullah J.

JHI A.utomobil1 Tyaruporl Rajadhan Ltd. v. S1at1 of Rojostlum n;a.,,,.11 .i. J.

570 SUPREME OOURT REPORTS [1963]

have been exceeded, must of necessity deter-mine that question; and the only way in which they can properly do so, is by looking to the terms of the instrument by which, affirmati-vely, the legislative powers were created, and by which, negatively, they are restricted. If. what has been done is legislation within the general scope of the affirmative words which give the power, and if it violates no express condition or restriction by which that power is limited ... it is not for any Court of justice to inquire further, or two enlarge constru-ctively those conditions or restrictions."

We have thus to see what powers have affirmati-

vely been conferred on the legislatures of the State and what are the restrictions on that power. In this connection, we must also bear in mind the weighty ohservations of Gwyer, C. J., in BhoT,a Prasad v. The King Emperor (1)

''We must again refer to the fundamental

proposition enunciated in The Queen v. Burak(•) that Indian Legislatures within their own sphere have plenary powers of legislation as large and of the same nature as those of Parliament itself. If that was true in 1878, it cannot be less true in 1942. Every intend· rnent ought therefore to be ma.de in favour of Legislature which is exercising the powers conferred on it."

The legislative powers of the States after the

establishment of the Republic of India are certainly not any the less; and it must be conceded at once that within the range of their powers as conferred the legislative entries in Sch. VII, the State Legis-latures are supreme, subject, of course, to such res-trictions as are to be found in the Constitution itself (!) [1942] F.C.R. 17, 27. (21 ( 1878) 3 App. Cas. 889

1 S.C.R.

SUPREME OOURT REPORTS

The power to tax motor vehicles is the subject of

Entry 57 in the State List, and it reads:-

''Ta:x:es on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List IIT."

The words "suitable for use on roads" describe the

kinds of vehicles and not their condition. They exclude from the Entry, farm machinery, aeroplanes, Railways etc. which though mechanically propelled are not suitable for use on roads. The inclusion of trams using tracks which may be on roads or off them, makes the distinction still more apparent. It is thus clear tha.t the power to tax motor vehicles is plenary, subject to Entry 35 of the Concurrent List or any other restriction to be found elsewhere in the Cons~itution. Entry 35 ahove referred to reads:

''35. Mechanically propelled vehicl~s

including the principles on which taxes on such vehicles are to be levied."

The existence of such an Entry in the Concurrent

List cuts down the supremacy of the State Legisla-\ures, and in respect of taxation of motor vehicles, if the principles of ta.xtion are laid down by ParJia-mentary legislation, the State laws repugnant there-to must, be void, in view of the provision of Art. 254 of the Constitution. The question whether the power of Parliament to legislate and lay down prin-ciples of taxation under Entry 35 of the Concurrent List would also have to be considered under Part XIII, does not arise in this case, .for admittedly there is no law by ParHa.ment that Entry either prior or subsequent to the State Act. Thus, so f~r as the taxing power of the State Legislature is concer-ned, it must be admitted that it was not only exerci-flP.d under Entry 57, but, if judged solely under that Entry, that it was properly exercised.

1961 ..4.u1amobil1 Tramputl (Rajasthan} 1.l4, v. S 1411 of Bqjalhd ida.JOlulz.h J.

196! Automobil• Trans/Jori (8ajaalh<n) Ltd. v. State of Rajasihm Hidayalullah J.

The question thus is whether on the exercise of this power there are to be found other curbs in other parts of the Constitution, and whether those curbs have not been observed. Such curbs may be of three kinds. The first may arise from the operation of the power of legislation granted to Parliament by Entry 42 of the Union List, and the contention in this connection is that the present impugned Act in its pith and substance is legislation under that Entry and thus void. The second may arise from Art. 19; sub-cl11. (d), (f) and (g), if the law deprives the motor operators of the right (a) to move freely throughout the territory of India, (b) to acquire, hold and dispose of property, and ( c) to practise any profession, or to 0&rry on any occupation, trade or business, and the restric-tion is incapable of being justified as reasonable. The third may arise from the provisions of Part XIII where freedom of trade, commerce and inter-course throughout the territory of India has been 'guaranteed', subject only to the provisions of that Part. These, in the main, are also the contentions. and these appeals can be effectively disposed of from these three Tiew points.

The first contention that the impugned Act is

bad because it is legislation directly under Entry 42 of the Union List need not detain us long. The subject of Entry 42 of the Union List i8 not taxa-tion but "inter-State trade and commerce". The scheme of the Legislative List11 shows that taxation entries are separate from other entries, and the other entries do not include power to impose tax, though the power to levy fees is included as it is expressly so stated. •The subject of Entry 57 of the State List is taxation on vehicles. An Act which seeks directly to levy tax on motor vehicles even though there may be incidental and subsidiary provisions about the regulation of particular inter-State trade carried on with the aid of or in

I S.C.R. SUPREME COURT REPORTS

motor vehicles is legislation really within Entry 57 and not within the other Entry though it may. touch it, and is thus within the competenc~ of the State Legi~lature. That these motor vehicles come into the taxing State from an extra. State point and are taxed within the taxing State by reason of their use or presence there, may raise problems under Part XIII but not under Entry 42 of the Union List. The words of the charging sec-tion are:

"No motor vehicle shall be 1used in any public place or kept for use in Ra.jasthan unless the owner thereof has paid, in respect of i~. tax at the appropriate rate specified in the Schedule to this Act ...... ''

The pith and substance of the Act is the levy of tax on motor vehicles in Rajasth~n or their use in that State irrespective of where the vehicles come from. In one sense, it · does not seek directly or immediately to legislate on inter-~tate trade or com-merce or to prohibit the entry of such motor vehi-cles if the tax be paid, except in so far as person deterred by the 'tax m~y k,eep out. This may be point for consideration under Part XIII or even Art. 19 of the Constitution, but not under Entry 42 of the Union List. Even if the levy of the tax may be said to touch inter-State trade or commerce, it is not legislation in respect of inter-State trade .or commerce. Tt has been held consistently by this Court, the Privy Council and the Federal Court that law substantially in its pith and substance under an Entry in one List may touch incidentally on topic of legislation in rival List without being void or 'Ultra 'Vires. This, in our opinion, is sufficient to dispose of the first point.

The next attack is with the aid of Art. 19 of the Constitution. That Article guarantees to the citizens of India cartain basic freedoms. Freedom from taxation is not one of them. It is hardly

1981 Automobil• Transpa1I (Raja than} Lid. v. Stal1 of Rajaslluz•. Hid~IUUah J •

Automobllt Transport (Ilojaslh•n) Ltd. •• Btf,. of Rajoithon Bida.!"lullaA ,/,

574 SUPREME OOURT REPORTS [1963)

necessary in this case to examine the subject from the angle of Art. 19, because law to be good under that Article must satisfy the test of reasonable-ness. If the impugned sections here are declared to be unreasonable restrictions upon the freedom of trade, commerce and intercourse, they would fall also under Part XIII. If this were to ha.ppen, it would be wholly unnecessary to decide whether taxation laws are within the reach of Art. 19 and also whether the impugned provisions have to pass the independent scrutiny of Art. 19 before they can be sustained.

This brings us to the consideration of the last point on which argnments occupied the Court for several days. It would be necessary (if not, impos-sible) to try to discuss the arguments which, though proceeding from the same side, were often conflict-ing. The use of language borrowed from s. 92 of the Australian Constitution in Art. 301 of our Con-stitution led to the citation of many Australian rulings. Those rulings are so numerous that they provoked former Chief Justice of the High Court of that Country to say that when he died, s. 9~ would he found to be written on his heart ! But it is reasonable to suppose that those who borrowed the language in India were fully aware of the con-flict of opinion in Australia. It is reasonable to assume that the framers of our Constitution must have sought to avoid there dangers. It must not also be overlooked that the decisions of the Privy Council in Comrrwnwealth of Australia v. Bank of New South Wales([1]) and Hughes and Vale Pty. Ld. v. State of N.S.W. ('),which to some extent have narrowed down the controversy in Australia, were not rendered when the draft Constitution was framed or the Constitution was adopted. note baa, however, to be taken of the fa.ct that the history of the e1tabliahment of federation in the two Countries is so vastly diffe1·ent that in spite of (I) [1950J A,C, 235. (2) [1955] A,C, 2fl,

1 S.C.R. SUPREME COURT REPORTS

certa.in resemblance in the language employed in the comparable provisions of the two Constitutions, they cannot mean the same thing. Indeed, thfly differ in so many respects tbat nothing is more dangerous than to suppose that the Indian Constitu-tion wished to secure freedom of trade, commerce and intercourse in t.he same way as did the Austra-lian Commonwealth. These differences are not to be found solely in the language of the corresponding provisions but in the evolution of the two Countries and the checks and balances provided in our Constitution which are not to be found in the Australian Constitution. We shall refer to these differences briefly before examining what checks and balances have been provided in our Constitu· tion.The Commonwealth of Australia was formed out of number of Colonies which were separated by high tariff walls ·and numc rous differential inter-Colonial duties. The idea of federation was born out of desire to secure free trade on a. reciprocal basis between the Colonies. The Federa-tion was, however, delayed by the failure to reach agreement on the financial aspects of the Constitu· tion. Numerous conventions took place which tried unsuccessfully to solve the problem which was aptly described "as the lion in the path of unity". It was after surmounting many diffiou)ties that the financial clauses were settled by agree· ment. It is in the background of these historical facts that the provisions relating to freedom of trade, commerce and intercourse have been inter· preted by the High Court of Australia. The provi-sions of the Australian Constitution themselves enaot the underlying agreements. Sections 51, 88, 89, 90, 100 and 102 insist upon uniformity and the absence of discrimination in matters of trade and commerce after the imposition of uniform duties of customs whioh was to be achieved in two years.

Aulomobil 1 Transpar& (Rajastllan) Lti. v. S1a11 of Roja•lh u Hii11,J1.Ml.Ji J.

A.utomobi/1 TrtlttSfttwl (R•jaslhan) Ltd, v. St.te of njosllian

Section 92 then epitomizes the whole concept of this unity and freedom from preferential treatment by enacting :

"On the imposition of uniform duties of customs, trade, commerce and intercourse among the States, '"hether by means of inter-nal carriage or ocean navigation, shall be absolutely free."

It may be pointed out here tha,t the alternative phrase "throughout the Commonwealth" was not accepted, though it was suggested as an amendment more than once.

The provisions of the Australian Constitution such as bear on trade and commerce, are no more than covenants entered into at the Conventions, which have been introduced bodily into the AU!tra-lian Constitution, the fate of which depended for long time on how to secure an agreement about uniform tariffs, customs, excises and bounties. The declaration of freedom of trade, commerce and intercourse was the logical culmination . of the negotiations for the establishment of the Federa-tion. The language of s. 92 was thus made emphatic, even though its full purport remained vague. As observed by Viscount Haldane, L. C., in Attorney-General for the Comnwnwealth of Australia v. Colonial Sugar Refining C<Ympany Limit,e,d (1) :

"It is matter of historical knowledge that Australia the work of fashioning the future Constitution was one which occupied years of preparation through the medium of conven-tions and conferences in which the most dis-tinguished statesmen of Australia. took pa.rt. Alternative systems were discussed and weigh-ed against other with minute care. The Act of 1900 must accordingly be regarded as an instrument which was fashioned with great (1) [1914] A.C. 237.

1 S.C.R. SUPREME COURT REPORTS

deliberation, and if there is as points obs-curity in its language, this may be taken to be due not to any uncertainty as to the ado-ption of the stricter from of federal principle, hut to that difficulty in obtaining ready agree-ment about phrases which1 attends the draft-ing of legislative measures by larger assembl-ages.''

But declle.rations in Constitution, however worded, must be given effect to, and they always loom large on the horizen of law-making, if they curtail legis-lative power, and it is not surprising that t.he Aus-tralian High Court was faced with the problem of de<'iding which laws rendered trade, commerce and intercourse unfree and which did not. In the course of these decisionR, wide cleavage in opinion soon appeared- one view holding that any burden on trade, commerce or intercourse between the States was bad.. and the other view attempting justifica-tion to s;a.ve laws which were impugned. Various grou~ds for such justification were evolved. Some laws were upheld on the ground that they were merely regulatory but some others were declared void as having cro8sed the Jine of legitimate regu-latory action. Some taxation laws were upheld on the ground that though they burdened trade or commerce, they were compensatory in character. Even th4~re, differences arose about the test.a to be applied to discover when such laws could be said to have e,xoeeded the limits. The number of such cases is fogion, and almost any view can be support-ed by cita.tions from some judgment or other from the Au1tralian law Reports. Lord Porter in Oom-monweal,tJ.~ of AUAtralia v. Bank of New South Jf aks (1) aptly summed up: ''In this labyrinth there is no golden thread!" (p. 310). The maze of law round a: 92 was, of course, something of which the framers of our Constitution were not unaware. They knew (1) [195CJ1] A. C. 235.

J962 Automobile Transpo1e (Rajasthan) Ltd. v. Stale of Rajasthan

J91t .itu&omohi/1 Tr1Jnspt»t (R.j.slh•n) Ltd. v. SW1 of R j a~ll.an Hiiayatulla!t J.

that in spite of the foroe of the words "absolutely free", it was well-settled that the freedom so con-templated was qualified freedom. In Duncan v. St,ate of Queensland(') Griffith, C. J., had observed, what was generally accepted, that "the word •free' does not mean extrµ legem, any more than freedom means anarchy". The task of the Bench as also the Bar was to ascertain the limits of freedom or more appropriately, the limits to which restrictions could go. In this, the Au3tralian High Court was the actor in the main ; but the Privy Council also delivered four judgments. Of these, two were be-fore our draft Constitution and two, thereafter. It is, therefore necessary to investigate, to find out what was the accepLed position in about 19!8 to be able to see if any of the principles so laid down were accepted and to what extent they were modified to suit our Constitution in the light of our own history. We shall first notice those cases which were decided before our Const·itution was drafted in 1948.

This first point on which difference arose in

Australia was whether s. 92 of the Commonwealth of Australia Act was addressed only to the States, or whether it bound the C0mmonwealth as well. In W. & A. McArth1ir Ltd v. State of QU£ensland (') the majority held that the Commonwealth was not bound. Gavan Duffy, J., alone held that the lang-uage of the section clearly controlled both the powers conferred on the Federal Parliament and those reserved to State Parliament. The view of the majority was negatived by the Privy Council in James v. Commonwealth of Australia('). Indeed, the IDgh Court of Australia had already doubted the correctneBB of the view, but it felt itself bound by it. The Privy Council traced the development of that view and pointed out that though in The King v. Vizzard (') the Commonwealth agreed to be (I) (1916) 22 C. L. R. 656, 573 (2) (920) 20 C. L. R. 530. (3; (1936] A. C. 578. {f) (1933) 50 C.L.R. 30.I s.o.R.. SUPREME COURT REPORTS

bound within certain limits, the ruling in McA.rtkur's case (1) was not departed from and that though the view was reaffirmed in Australia from time to time,/ it was not applied in practice. The Board, however, did not "shelter under the decision in JJf cArt11;u1·'s r.ase (1), and decided that the Common'!ealth was also bound. Thus, the opinion of Issacs, J., in Foggitt J()'ftes & Co. LuJ,. v. The Bta,te of New South Wales (2) thats. 92 ·

"makes Australia one indivisible Country

for the purpose of commerce and intercourse between Australians" and that it was "beyond the power of any State Parliament, or even of the Commonwealth Parliament, by any regulation of trade and commerce, to impair that fundamental provision"

·Was accepted at least in its first part.

The .second point was what was meant by "a.bsolutely free''. The Attorney-General for Aus-tralia in the course of his arguments in James v. Commonwealth of Australia (3) summarised the pro-positious which were urged and supported by autho-rities in the arguments before the Privy Council in that case, and· they were six, as follows :

"(l ) The first meaning of 'free' is free of all law of every description ;

(2) Free of any restiriotfons imposed upon trade and commerce by . reason of its inter-State character. That is, free of &ny discrimi-nating trade law;

(3) Free as trade and commerce of all interference whether specially directed to it or not;

(4) Free of all laws the pith and substance (lJ (1920) 28 C.L.R. 530. (2) { 1916) 21 C. L.R. !57.. 13) (19~] A.C. S78.

1911 .A.ulomobil1 Transpt>'ll Rojastlum Lti. v. Stat. of Rqjaslhan Hid':1atullah J.

1962 A·~tomobife TransftMI R·ijastla .n Lid. v. Staee of R~ asthan lli'd~11otullah J.

580 SUPREME COURT RE.PORTS {1963)

of which is regulation of inter-;:,tiite trade or commerce;

(5) :Freedom attaches to trade and com-

merce regaided as whole and not distribu-tively. Individuals are not guaranteed free-dom in relation to their trade and commerce so long as trade and commerce as whole are not impaired.

(U) Free from pecuniary imposts-that is the narrowest meaning of s. \)2."

'fhese six propositions fairly represent the view in

the various judgments of the Australian High Court. Isaacs, J., in Rex v. Smithers(') had observed:

"In my opinion, the guarantee of inter-State

freedom of transit and access for persons and prnperty under s. 92 is absolute-that is, it is an absolute prohibition on the Commonwealth and States alike to regard State borders as in th~mselves possible barriers to intercour~c between Australians."

In 1}fcArtlmr's ca.s' ('), the claim was made against

all Governmental control and the majority also held that to bo its meaning. The Privy Council examined the scheme of the Constitution of Australia and drew the line thus :

"The true criterion seems to be that what

is meant is freedom as at the frontier or, to use the words of s. 112, in respect of 'goods passing into or out of the State'. What is meant by that needs explanation. 'l'he idea starts with the admitted fact that federation in Australia was intended (inter alia) to abolish the frontiers between the different States and create •me Australia. That conception invol-ved freedom from customs duties, imports, border prohibitions arnl restrictions of every (1) [1"11] 16 C. L. R.Y9. (2i [1920] 28 C. L. R. 533.

l S.C.R. SUPREME COURT REPORTS 581

kind : the people of Australia were to be free to tra.de with each other, and to pa.s;) to and fro among the States, without any burden, hindrances or restrictions based merely on the fact that they were no members of the same State."

After referring to some cases in which the burdens and hindrances took diverse forms and appeared under various disguises, the Board observed that it must be question of fact in every case whether there was an interference with the freedom of pas-sage, and finally observed :

"As matter of actual language, freedom

in s. 92 must be somehow limited, and the only limitation which emerges from the con-text, and which can logically and realistically be applied, is freedom at what is the crucial point in inter-State tradt>, that it is at the State barrier."

The language of .s. 92, particu]arJy "among tho States, whether by meaus of internalcarriage or ocean navigation, shall be absolutely free", taken with the history to which we have already referred appa-rently decided the controversy. This was departed from later in Comnionwealth of Australia v. Bank of New Sauth Wales ( [1]), but after our Constitution was drafted.

The next question decided was: what was meant by ''trade and commerce". Again, in McArtl1,ur's case (2), the meaning given was very wide one. It was not confined to the "mere act of transportation of merchandise over the frontier.'' It was said that "all the commercial arrangements of which transportation is the direct and necessary result from part of ''trade an<l commerce''. 111 <I) [1950] A. C. 235. (2) (1920] 82 C. L. R. 530

.Automobile Translort (Rojastlian) Ltd. v. Slate of Rajasthan --Hida.JafU/la/z J,

1111 Aut•mobil1 r • .._, (~a.rlhon) Lti. v. Stat, of. R•jastflr.n Hit91Mla/o J,

the concept of "trade and commerce" were thua included-

"the mutual communings, the negotia. tions, verbal and by correspondence, the bargain, the transport and the delivery are a.II, but not exclusively, parts of that class of relations between mankind which the world calls 'trade and commerce'."

In reaching · this conclusion, Knox, C.J., referred to Bank of India v. Wilson (1) and Oommissianers of Taxation v. Kirk('), where Lord Davey obser-ved:

"The word 'trade' no doubt primarily

means traffic by way of sale or exchange or commercial dealing," but also added that "it may have large meaning."

The view of Knox, C.J., was expressly disapproved

by Privy Council in James v. Oommonwe,a/,th of AUBtralia (') involving, as it did, conception of inter-State trade, commerce and intercourse com-mencing at whatever stage in the State of origin, and continuing until the moment in the other State when the operation of inter-State trade could be said to end, the freedom attaching to every step in the transaction from beginning to end. It was said that such view would lead to an imm· unity from law of whole body of acts or dealings by the mere fa.ct "that they are parts of an inter. State transaction." The concept of trade and commerce was thus limited to that movement to which crosses State barrier.

As regards "intercourse" also, the earlier

meaning was wide. The question was whether such "intercourse" must be "commercial". It was held in ear lier cases that this conferred persona.I right on an Australian and "independent of any commer-cial attributes he may possess, to pass over the (I) (1817) 3 Ex. D· 10~. 12) (1900] A.C. 588 592. (3) [1936) A.C 578.

1 S.C.R.

Continent irrespective of any State border as reason in itself for interference" (per Isaacs, J,, in R. v. Smithers Ex Parte Benson ([1]). This view was affirmed in Duncan v. 8t,ate. of Quunsl.and (1[1]) and also in McArthur's case ([3]). Later, it wa.s held that the concept of "trade, commerce and inter-course'' meant what was held to be included in the concept of "commerce'' as uuderstood in the United States: (per Dixon, J., in the Bank case) ([4]). With the exact meaning of the word, we are not presently concerned.

We shall next see how the doctrine of the

freedom of trade, commerce and intercourse was applied in practice. In this connection, three oases filed by one J a.mes to question the marketin~ legislation of the States and the Comrnonwea.lth did much to settle some of the controversies. The two oases decided by the Privy Council before our draft Constitution were due to his efforts. His first case did not reach the Privy Council, ani is reported in James v. South Australia ([6]), but it was approved by the Privy Council in James v. Oowan ('). These oases may be noticed briefly.

In James v. South Australia ([6]), State legis-lation creating Dried Fruits Board and em-powering it to five maximum prices (s. 19) and to determine where and in what quantities dried fruits should be marketP.d (s. 20), and to acquire on behalf of the Minister dried fruits from dealers (.s. 28), was challenged under e. 92. Section 28 was expressly made subject to s. 92. Section 20 was deol&red invalid by the High Court of Austra· · lia, but ss. 28 and 29 were held to be valid. In James v. Cowan('), the question was the compulsory acquisition of dried fruits in South Australia. by the Minister of Agriculture through Boa.rd, after

(1) (19121 16 C. L. R.. 99.

(2) (1916) 22 C. L. R.. 568. S73.

(3) ( 192') 28 C.L.R.. 530. (5) (1927) 40C.L.R. J.

(4) (1948) 76 C.L.R. I, 380, 181.

(6) [1932) A.C. 542.

11161 .Automobi/1 Transp,,,.t (Rajasthan) Ltd. Stale of '" Rqjasthan Hid.:gatullah J.

196Z A.utomobil1 TransfJof'I (Raja.'than) Lttl. v. State o.f Raja thon Hidayi.lullJh J,

determination by the Board in its absolute disore-tion what quantities should be marketed locally and fixing quotas for the other States. The question was whether thi.B affected freedom of commerce among the States. 'Jhe Privy Council emphatically answered thnt it did. But it ma.de remarks which showed that if the primary object of the legislation was not directed to trade or commerce but such matters as defence, fa.mine, disease and the like, the incidental effect on the trade and commerce waa immaterial. The action of the Minister was declared ultra vires, and James was held entitled to succeed in his claim for damages.

The legislation by the State having been rlPclared invalid, the Commonwealth ma.de the Dried Fruits Act (192S-:l5). Under that law, no person could send dried fruit from one State to another unle8s he exported his quota outside Australia. This was challenged by James. When the case reached the Privy Council, three points were "onsidered b:v the Privy Council and decided. The first was that s. 92 bound also the Common-. wealth, the second was thttt it created ban again-st prohibitions or burdens at the frontier, and lastly, that it protected commerce in motion and passing the frontiers of the States. large num-ber of cases were noticed in which it was decided that trade and commerce was validly burdened in the exercise of power to make laws without im-pairing movement of trade at the borders. These laws dealt with various subjects like monopolies price fixation, health regulations, licensing systems: entry of goods or persons and transport.

The last group consisted of cases in which res-trictions applying to motor vehicles as integers of trade and commerce or their owners were consider§d. Willard v. Raw8on (1) was concemlld (!) (19331 48 C.t.R. 315.

I S.C.R. SUPREME COURT REPORTS

with a. law which required registration of all motor vehicies on payment of fee. The. King v. Vizzard (1) was concerned with the licensing of motor vehicles acting as common carriers. O' Gilpin's case (2) was concerned with owners of vehicles carrying their own goods, and Besadl v. Dayman ([3]) was concerned with law affecting inter. State journeys. These laws were declared valid by the High Court, and special leave to appeal having been refused, it was understood that the Privy Council had approved them. In all these cases, the deoisions were by majority, but Dixon and Starke, JJ., dissented. In James v. Oomrn<YnJ-weaUh of Australia ([4]), the Privy Council selected The King v. Vizzard (1) as t.he best example. In that case, the question was whether the State Transport (Co-ordination) Act, 1931 (N.S.W.) contravened s. 92. Under that Act, no public motor vehicle could operate in the State unless the motor vehicle was licensed. Licensing was by Boa.rd which had complete discretion, and a. fee had to be paid. The lorry of the appellant in that case plying between Melbourne and New South Wales was unlicensed, and the driver was convic-ted for br*"ach of the Act. The Australian High Court held by majority that the Act did not oon-travene s. 92. The Privy Council described the judgment of Evatt, J., as of great importance and quoted the following passage from it:

''Section 92 does not guarantee that, in

ea.oh anrl every part of transaction which includes the inter-State carriage of comm-Pdities, the owner of the commodities, to-gether with his servant and agent and each and every independent contractor co·opera-ting in the delivery and marketing oflthe com-modities, and each of his servants a.nd

( 1 \ {1933) 50 L. R. 30. (3) (1935) 52 C. L. R. 215.

(2) (1935) 52 C.L.R. 189.

(4) [1936] A.C. 578,

1962 A.utomo6il1 Transport { Rajastbon) Ltd. v, Stat• of Rajasthon Hiday. tullah J.

.A.ut,mobile T'ansport (Rajos<hon) Ltd. v. Sr.i. of liajaaehan Hid<17•tullah J.

agents, possesses, until delivery and market-

ing are completed, right to ignore State transport or marketing regulations, ltlld to choose how, when and where each of them will transport and market the commodities."

This was before the decision of Riverina Transport

Pty. Ltd v. Victoria (1), which was decided on the basis of Rex. v. Vizzard (') though not without some doubts.

In 1945, the Australian High Court decided

Australian National Airways Pty. Ltd. v. The Oommon-1urolth ('). Under the Airlines Act, 1945, authority was given to establish State-mana~ed services to the exclusion of exisiting commercial lines whose business was to terminate, whenever Jin" was effectively started by the Government Airlines Commission. The validity of the entire Act was ohallenged by private operators who stood excluded from field, on the ground of an infringement of s. 92 of the Commonwealth of Australia Act. The establishment of the Air-lines Commission was upheld, but the creation of monopoly was held to be invalid. Latham, C.J., observed:

"I venture to repeat what I said in the

former case (Milk Board case) ('): 'One proposition which I regard as established is tltat simple legislative prohibition (Federal or Statej, as distinct from regulation, of inter· State trade and commerce is invalid. Further law which is 'directed against' inter-State trade and commerce is invalid. Such law does not regulate such trade, it mePly pre· vente it. But law prescribing rules a.a to (I' (1937) 57 C. L. R. 327. 12) (1933) 50 C. L. R. ,0, (3) tl945)71 C. L. R. 29. (4) (1939) 62 C. L. R. 116, 127,

1 s.c.n..

SUPREME OOURT REPORTS

the manner in which trade (including trans· port) is to be conducted is not mere prohi-bition and may be valid in its application to inter-State, notwithstanding s. 92." One other important cllSe was deci<led by the. High Court of Australia before our draft Constitu-tion was prepared, and to that we next turn. That case is Bank of New South Wales v. The Oomrrwn· wealth('). The question wa,s about the c~nstitut­ionality _of the Banking Act, 1947, and alternatively of some ofits sections. The Act provided for the acquisition of shares in certain private banks by the Commonwealth Bank by agreement or compul• sion and generally for their closure and manage-ment by the Commonwealth Bank. Five grounds were taken in atta.cking the :A.ct. One such ground was that the acquitiition proviskns, the manage· ment provisions and the prohibition provisions were concrary to s. 92 of the Australian Constitu· tion. Latham, C. J:, after holding that banking was not trade or commerce, held that banking was an instrument which was used in inter-State trade and commerce. He held, thf)refore that since the overthrow of McArthur's case ([2]) by the Privy Conn· oil, the legislative control by the Act did not offend s. 92, because it was gen~ral control and not control of any inter-State element. l\foTiernan, J., agreed in this conclusion. The majority, how-ever held otherwise. Riob and 'Villiams, JJ., in their judgemellt la.id down that the freedom in s.92 was a. personal right attaching to the individual, that banker who carried on business in more than one State was engaged in trade, commerce and intercourse among the StBtes, that James v. Oom-· monwealth ([3]) could not be understoGd to have laid down tha~ s. 92 protected only the actual passage of goods or persons from one State to another and the Act prohibiting such trade, commerce or inter-

( i) (19'48) 76 c. L. R. I, mo, 3Pr (2) (1920) 28 c. L. R. s3o. {3) {1936) A. C.578.

Aut?mobi/1 Transporl (Rajuft,on) Ltd. v. State of Rajasthan --Hi !r.iyatu/lah J.

1962 .iuta '· obilt Tran1p0f't (Rnj<Jth•n) Lid, v. Stal1 cf !loj[1].st .. att. HidayJtUlluh J.

couree offended s. 92. Starke, J., began his judg-ment on this part by saying "s. 92 of the Constitu-tion prescribes but judicial derisions have mu('h weakened" the freedom of trade commerce and . ' mtercourse. He then summarised the position as at that date as follows:

(I) The prohibition of s. 92 was addressed

to the States as well as to Commonwealth Parliament.

(2) The freedom was from both legis-lative and executive control.

The freedom was

available to the

individual as also to trade and commerce viewed as whole.

The individuals were

to conduct

t.heir commPrcial ii Palings independently of State boundaries.

(ii\ Tbe freedom was assured not only to

tangibles but also to intangibles, and the words of the section "by means of internal carriage or ocean navigation" in s. 92 could not be held to mean only tangibles. Starke, J., himself said that these words "trade, commerce and intercourse" were wide enough to include intangibles and took the aid of some American deciaions which had held that insurance was within tbe Commerce power.

(6) Though the freedom was at the

frontiers of the States but any restraint put upon trade, commerce and intercourse even before some tangible property leaves the State of origin was also contemplated.

(7) Dixon, J's dictum in O' Gilpin's M3e([1])

where he observed "It is not, therefore every regulation of C')mmerce or of movement (I) (1935) 5'20.L. R.18L

that involves restriction or burden constit-uting an impairment of freedom. Traffic regn1ations affecting the lighting and speed of vehicles, tolls for the use of bridge, prohibition of fraudulent descriptions upon goods, and provisions for the safe carriage of dangero·1s things, supply examples of reg-ulatory provisions not stri~tly restrictions within s. 92.

According to Starke, J., a.1! Transport cases

except Willard v. Rawson ( [1 ]) were wrongly decided. Willard v. Rawson ([2]), according to t.he learned Judge was pure case of traffic regulation, but in the other ca.ses the burdens imposed directly and immediately upon the transpo1 t and movement of passengers and goods whether engag0d in domestic inter-State or other trade or commc>rr>e, were wrong-ly held to be merely regulatory <•f the freedom and not its restriction.

Dixon, J., in dealing with the words ''trade, commerce and intercourse" stated that the compen-dious expression was evidently used to "include all forms and variety of inter·State transactions whether by way of 'Jommercial dealmg or all per-sonal converse or passage". He also held that in-tangibles like insurance, banking, ete. were irrcluded in that concept, and agreed with the view that though regulation of trade, commerce and inter-course was compatible with freedom of inter-State passage or converse, anything which restricted the freedom of such an intercourse was excluded by s. 92. The analysis of the Banks' case ([2]) in the High Court in the judgment of Starke, J., represents adequately the views entertained on the subject of freedom of trade, commerce and intercourse in relation to s. 92 of the Commonwealth of Australia Act before our Constitution was framed.

{I) (1933) 48 G-L.R. 316. r2) (1943) 76 C.L,R. 11 380, 381.

Automoiile Transport (Rajasthan) Ltd. v. State of Rojaslhan Hidoyatullah J.

a4utomobile Transp,,1 ( R<ti41thanl Lid. .. !. ta II ,.j R•jaJtllan

590 SUPREME OOURT REPORTS (1963)

We shall now leave the Australian scene for the time being, but will revert to it to show how further difficulties arising in Australia from these settled views were solved, to begin with by the Privy Council and subsequently thereto, by the High Court of Australia. We shall also refer to the labir cases that were decided in reference to s. 92 of the Australian Commonwealth Act, but which were not available to the Constituent Assembly in India when our Constitution was framed. We shall then be in position to see how in Australia the difficulties were surmounted and how in India those difficulties were envisaged and tried to be met by proper legislative enactments:

Before we proceed to an examination of the

provisions in the Indian Constitution and their evolution, we will refer to the provisions on the subject of freedom of trade and commerce in the Constitutions of Canada and the United States of America because they were aleo precedents which were available. In the British North America Act, 1867 s. 91(2) places "The Regulation of Trade and Commerce'' in the exclusive power of Parliament. Section 121 then provides:

"All Article of the Growth, Produce or

Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces."

Several important decisions were rendered by

the Privy Council and to some of them we find it necessary to refer. In Citizens Insurance Oo. v. Parssons ([1]) and again in Bank of Toronto v. Lamb(') the Privy Council found it necessary to limit the general words of No. 2 ofs. 91 'to afford scope for powers given exclusively to the Provincial Leg-islatures'. In Oity of Montreal v. MontrtAll Strut Railway ('), the same was observed again. Lord (I) (1881) 7 App. cas. 96. (2) (1887) 12 App. Cas. 575. (3) (1912) A. C. 333, 344.

Halsbury, L. C., in Attorney.General for Ont,er·io v. Attorney General for the Dominion ( [1]) said that the words must be given 'a statutory meaning'. There is, however no definite statement or the limits to be placed but generally the exercise of regulation of trade and commerce within the Provinces is upheld under No. 16 of s. 92, which gives the follow-ing power to the Provinces:

"Generally all matters of merely local or private nature in the Province."

And this is even where some prohibitions and restrictions affect the importation, exportaf;ion, ma.nufacture, keeping sale, purchase and usu of commodities and must in some way interfere with business operations . beyond the Province. In Bank of Toronto v. Lambe ([2 ]) at p. 586, the Privy Council said that if the general power of regulation given to Parliament could be said to prohibit pro-vincial taxation on the persons or things regulated, it could only be by straining those general words to their widest extent. In the Uquor Prohibitwn Appeal 1895 ([2]), Lord Watson asked the question which we may well ask: ''Do you regulate man when you tax him?" and Lord Herschell said thereupon:

"l\fay it not be necessary to. regard it from thi~ point of view, to find what is within regulation of trade and commerce, what is the object and scope of the legislation ? Is it some public object whioh incidentally involves some fetter on trade or commerce or is it the dealing with trade and commerce for the pm·pose of regulating it ? May it not be that, in the former case, it is :QOt rogula~ion of trade and commerce, while in the latter it is, though in each case trade and commerce in & sense may be u.ff ected ?''

(I) [1896] A. C. 348 (21 (1817 J 12 App. Cas. 575,

190! A.u1omobi/1 TronspGrl (Rajas1ha11) Ltd. v. Stat1 of Bajasthan

1962 Automobile TranspnTt (llajasthon) Ltd. v, State of (,j.Jsth .m Hidayutull 1h J.

Lord Watson then said:

"lt would be difficult to imply from these words 'the regulation of trade and commerce', whilst the power of direct taxation is given to the province-the clauses must be reasonably read together-it would be difficult to suppose that regulating commerce meant the passing of an Act by the Dominion legislature exempting banks from provincial taxation, for prr.ctically that is what the argument in that case" [Banlc of Toronto v. Lambe (1)] had come to; that nnder the words 'regulating commerce' was implied power of exempting bank from provincial taxation, 01· the liability to be taxed by the provincial parliament." (Lefroy, Canada's Federal System (1913) p. 391).

We do not oonsider it necessary to refer to more cases but would refer later to the words of Lord Watson and Lord Herschell, which we have quoted here.

The law in United States of America need not detain us long. Article I. s. 8 gives tho commerce power in the following terse words :

"The Congress shall have power ...... ; .. To regulate Commerce with foreign NatiCJDR, and among the several States, and with the Indian Tribee."

In 1824, in t.he well-known

case of Gibbone v.

Ogden ('), this clause w11s considered. Mar~hall, C.J., gave the definition of commerce :

«Commerce, undoubtedly, is traffic, but

it is something more; it is intercourse. It describes the commercial intercourse between nations, and parts of nations, in all its branehAs, and is regulated by prescribing rules for carrying on that intercouree."

[IJ [18~7J 12 App, Cas. 575. (2) (1824, 9 Wbear I; 6 L. ed. 23.

The principle of federation as understood in the United Statea is that sovereign States have surren-dered part of their power to the United States and barring what has been surrendered and wha.t is prohibited by the constitution of t.be States, the residue belongs to the United States. This is brought out in the Tenth Amendment:

"The powers not delegated to the United

~States by the Constitution nor prohibited by it to the States, are reserverl to the States respectively, or to the people."

Most of the cases in the American Reports are concerned with what rights belong to the States and bow far the Congress can regulate commerce. That is not subject with which wo are concerned in the present enquiry.

We now come to the Indian scene. In M. P. V. Sundararamier & Oo. v. The State of Andkra Pradesh ( 1), Venkatarama Aiyar, J., rightly pointed out tha.t :

"Our Constitution was not written on

tabula rasa, that Federal Constitution l1ad · been established under the Government of India Act, 1935, and though that has under· gone considera!Jle change by way of repeal, modification and addition, it still remains the framework on which the present Constitution is built, and that the provisions of the Consti-tution must accordingly be read in the light of the provisions of the Government of India Act {1935).''

The history of India during the last hundred years

was one of continual transition .• From the fuJJy centralised Government at the Centre and in the administrative units then called provincrs to partial responsil>ility in the provinces called Dyarchy, from

(I) [19S!IJ S. C.R. 1422, 147ll.

1962 Automobil1 Transport (Rnjosthon} lt,r. v. State of Rojnsthan idoyatul ! ah J •

1961 AulomoHle Tra-:sp01t (Rajarth.,,) Ltd, .. State of Rajastlv..n Hid•J••rdlah J,

59! SUPREME COURT REPORTS [1963)

Dyarchy to provincial Autonomy in federation of mere administrative units in which the Indian St&tes were expected to join, and from thence to & Dominion under the Crown and lastly to a. Republic of Union of States are transitions within one's memory. Earlier still, there was the rule of East India Company under the Crown through the Secretary of State for India and the Govornor-General.

The transition in India was thus in the con-verse order. Whereas several independent units joined together in Australia to form federation to evolve Central Government, in India the transi-tion was from highly centralised Government to foderation of States which were mil.de autonomous unita. The history of the last hundred years or more thus saw the emergence of self.governing States with separate legislatures, executives and financial resources, albeit controlled by the Centre. The union of these States makes them members of Sovereign Democratic Republic. We shall briefly notice the steps in this transformation. Our survE1y must begin somewhat earlier than the Government of India Act, 11135, but it need only embrace the degree of independence in the legislative aud finan-cial fields.

Under the East India Company, the notion of

Central Government did not emerge till the Charter of the Company was renewed in 1833, and the Governor-General and his Council in Bengal began to exercise control over the Pr£sidenci1 s of Madras and Bomb9y. There was thus move to-wards unita'ry form of government. In view of the bitter lessons learnt in the days of Warren Hastings, the Govcrnor-G\Jneral was also authorised by the Charter Act of 1833 to ovenule his Council, power which he continued to exercise down to 1935. There was thus, in truth and reality, only one Government and the so-called Governments of

1 S.C.R.

the Presidencies and Provinces were agents of the Central Government. After 1858, the Government of the C:)untry \VJ.;;i carried on in the name of the Queen through her Secretary of State for India. The general pattern was, however, the same, though as time passed, democratic institutions in Govern-ment slowly emerged.

When the Reforms came in 1919 and iutroduc-

P.d system of local governments, the process was not decentralisation but deconcentration, as is known in France. By stages, the Councils a.t the Centre and in the Provinces were greatly expanded, large number of nominated members being added. When elections came, they included the represen-tation of some special interests. Legislation was even then from the Centre in the shape of Regul~­tions Ol" under instructions from tho Centre, unless it was of wholly local oharacter. j

\Ve sha.H. pass over the details of the prepara-tory periods. When .Parliament began to modify alt this, the aim was to give to the Provinc3s separate existence, though under strong Centre. When the Government of India Act. 1915 wa.s amended, there was definite break up of the legista.tive machinery into two. There emerged then th~ Legislative Assembly and local Legisla-tures. In the field of local Legislatures, the first experiments in Democracy were tried.

To invest separate powers, there was classi-fication of subjects between the Centre and the Provinces, and the topics of legislation, taxation and administration were separated to distinguish the different spheres. Such provision was to be ma.de under s. 45A and the rules that were framed, go under the name of the Devolution Rules and its Schedules were the precursors of the Lists under the Government of India Act, 1935 and the present Constitution. The only difference was that there

1962 Automoiile Trenspore ( R•jut~1n) LU, S1e 1 of "· R.jutlten Hid91tuil•h J.

1968 Au...,.bi/1 Transport ( Rojasthan) Ltd .. Staie of Rajaslhan Hidd} tJtu/lah '·

was no third List, which was hardly necessary, as the residual power was in the Centre. The powers of the local Legislatures were, however, not unli-mited. Apart from the limitations arising from the allotment of subjects undn the Devolution Rules, there was control of the Centre. Any Act passed bv the local Legislature could be disallowed by the Governor-General or the Crown. In certain circumstances, it could be repealed by the Indian Legislature. Thus, though the seed of federation was sowed, there was no semblance of federation.We shall now analyse the financial arrange-ments, including taxation, during the period cove-red by us already. The finances of India during the early stages were also centrali~ed. The Pro-vinces were given what was considered to be their 'needs' and L'rovincial taxation as well as Provin-cial expenditure were ce11trally controlled. The process of decentralisation in finance, however, may be said to ha.Ye commenced earlier. The Act of 1858 by which the rule of the East India Com-pany was terminated also vested the revenues of India in the Crown with the necessary control in the Secretary of State. Mr. Wilson, the founder of the 'Economist' and th'3 ~rst Member for Finance, advocated that the Provmces should not depend on "grants" but should have independent resources. His suggestions bore fruit in Lord Mayo's regime, when in addition to fixed grants some sources of revenue were "provincialised". By 1882 there came to exist bifurcation which wa.s described in the phrase "divided heads of revenue"-a phrase used for years afterwards. The Montagu-Chelms-ford Report was the next important landmark and led to proper provincial enfranchisement. The Report said:

"Tile existing financial relations between

the Central and Provincial Governments must

be changed if the popular principle in Govern-ment h1 to have fair play in the Provinces ..... . ... Our first aim has therefore been to find some means of entirely separating the reso-urces of the Central and Provincial Govern-ments."

Under the Government of India Act, the

Devolution Rules (Rules 2 an<l 14) made the separa-tion of the resources. From this, it is not to be gathered that the Provinces had separate fisc. By R. 16, it was provided that aJl moneys were to be p11.id into an account in the custody oft.he Governor· General and he made rules with the tianction oft.he Secretary of State and issued orders, both general and special, for payments, withdrawals or disburse-ments from that account. By far the greater pa.rt of the Devolution Rules rlealt \vith these matters and, in addition, there were congeries of rules and instructions.

Taxation in the Provinces was under Entrv

48 in Part II of the First Schedule of the Devolu-tion Rules, which read:

"48. Sources of P1ovincial Revenue not

included under previous heads, whether-

( a) taxes included in the Schedule to the Scheduled Tax Rules

(b) taxes, not included in those sche-dules, which are imposed by or under provin-cial legislation which has received the previous sanction of the Governor-General."

The Scheduled Tax Rules made by the Governor-General in Council under s. 80A (3)(a) of the Government of India Act divided the heads of taxes into two parts. The first part dealt with taxes

1912 Automobilt Transpo,t (Rajasth,m) Ltd. v. S1ate of Bajasthan ida1atull•h J.

.A.11torr.obile Tr•nsptrl (R11Ja1fan) Lti. •• Slc'1 oJ Rojut1ia Hid4lJ<ltol/u J.

598 SUPRE.ME COURT REPORTS [1963J

which the Legislative Councils could impose with-out the prnvious sanction of the Governor. General for the purpo8es of Local Government. The second part dealt with taxes which the local Legislatures could impose or authorise the imposi-tion of, without the previous sanction of the Go-vernor-General for purposes of local authority. The first contained eight heads: six taxes, one registration fee and one stamp duty. The six taxes were (a) tax on land put to non-agri<iultural uses, (b) tax on succession, (c) tax on betting and gambl-ing, (d) tax on advertisements, (e) tax on amuse-ments and (f) tax on specified luxuries. In the second part were (a) tolls, (b) taxes on vehicles or boats, (c) octroi, (d) terminal taxes if ootroi was not levied in that area before particular date, ( e) taxes on trades, professions or callings, and ( f) tax on private markets. There were also taxes and fees on certain services which the local autho-rities render. The six taxes in the second part were taxes 011 trade and commerce in motion. They were of course taxes for local authorities, but the Indian Legislature, the Governor-General and finally the Crown uould annul any law if not accep-table to them. We shall pa!!S over the Report of the Committee of Inquiry presided over by Lord .l\iestan, which recommended the amounts payable to Local Governments from income-tax etc. We shall also pass over the Reforms Inquiry Committee presided over by Sir Alexander Muddiman and that presided over by Lord Incheape. Under the recom-mendations of the first and as result of the retre-nchment mad~ by the second, in 1927-28 the con-tributions by the Provinces ceased. Thus, just before the establiRhment of the Indian Statutory Commission in 1927 there was not only Dyarchy working, but the sources of revenue were divided botween the Centre and the Provinces.

It was at this stage that the Indian Statutory

1 S.C.R.

Commission (popula.rly known as the Simon Com·

mission) was appointed. The Commission recom-mended tha.t the Organic Instrument to be framed should have provisions for its own development; in other words, that India should have ~ flexible and not rigid Constitution, and that a.ny c1evelop-ment should have regard to India as whole and not merely British India. In this, there was the echo of what the Montagu-CheJmsford Report said:

''Our conception of the eventual future

of India is sisterhood of States, self-govrrn-ing in all matters of purely local or provincial interest ............... In this picture there is place for the Native States."

The Commission emphasised one fact more than

any other. They observed:

"Economic forces are such t.hat the States

and British India must stand or fall togetb.er ........... The increasing importance of indus-try brings problems that must be faced by both together ............ The States themselves have their own tariff policies, and there is serious possibility that, unless provision can be made for the reconciliation of divergent interests.. numbers of tariff wal1s will be per-petuated in au area whero fi~cal · unity is most desirable."

The Commission also suggested that-

"the new Constit~tion should provide an «Jpen door whereby, when it seems good to them, the Ruling Princes ma.y enter on just aud reasonable terms."

The Commission, therefore, recommended a. federal Constitution composed of British India and th6 Indian States. They said:

''We are inclined ourselves to think that the easier and more speedy approach to the

lHI ~utomobil1 Tr1111sporl ( Rajasthcn) L!d. v. Stat1 1J Raj11S.ha11 Hiio.J4tullah J.

196i Automobil 1 Tramport (Raj.,than) Ltd. v. St.11 of liaja.rlhan HU/ay~tullah J.

desired end can be obtained by reorganising the Constitution of India on a. federal ha.sis in such way that individual States or groups of States may have the opportunity of entering as soon as they wish to do so.''

When the Gov-irnment of India Act, 1935, wa.s bein~ fashioned, the Committee was assisted by Financial Adviser in Mr. (later, Sir) Walter Leyton, whose task was to evolve some scheme under whioh the Provinces could get adequate revenues. The Indian States, if they were to join in the Federation, also insisted that their position be safeguarded. Mr. Leyton then pointed out that before the Indian States Committee, 1928-29 (com-monly known as the Butler Committee) the Indian States had urged that they must receive share of thl'I customs which had by then risen tons much as Rs. 50 crores, a.nd the Butler Committee had also suggested that this claim should be examined by a. panel of experts. When the Round Table Confere-nce met, the question of the shares of the Indian States in the customs a.nd excise revenues wa.s again raised. The Federal Structure Committee was commissiconeil, among other matters, to report on the powers of Fed'lral Legislature a.nd the Provin-cial Constitution Committee, to report in the 1a.me wa.y on the powers of tho Provincial Legislatures. In the report of the Federal Structure Committee, the subject of trade nnd taxes on it was dealt with only from the angle of discrimination, hut emphasis appears to have been placed only on British trade and the fiscal conventions. Thns, the discusEions before the Conference also centred round two questions: (a.) the protection of Britsh interests a.nd (b) no commercial discrimination on the ground of race etc.

When the Joint Parliamentary Committee on the Indian Constitutional Reforms went into these questions, and recommended the abolition of

I S. C.R. SCJP.R.EM:E COURT REf.ORTS

Dyarchy in the federating units and the establish-ment of Provincial Autonomy, the Committee sensed the dangers of breaking up the unity of India and sa.id:

" ... in transferring so many of the powers of Government to the Provinces, and in encou-raging them to develop vigorous and inde-pendent political life of their own, we have been running the inevitable risk of weakening or even destorying that unity. Provincial AU· tonomy is, in fact, an inconceivable policy unless it is accompanied by such an adaptation of the structure of the Central Legislature as will bind these autonomous units torrether''.

They also pointed out that the unity of India on which they had laid so much emphasis was dangerc.u-sly imperfect so long as the Indian States had no comtitutioni.l relationship with British India. The Committee recognised tbe difficulties of economiJ tics between the Provinces inter se and also Britsh India as whole on the one hand, and the Indian States · on the other, and observed :

''On the one hand, with certain excep-tions, the States are free themselves to impose internal c11st0ms pulides, which cannot but obstruct the flow of trade. Even at the maritime portR situated in the States, the ad-ministration of the tariffs is imperfectly co-ordinated with that of the British Indian ports, while the separate rights of the States in these respects are safeguarded by long standing trea-ties or usage acknowledged by the Crown. On the other hand, tariff policies, in which every part of India is interested, are laid down by Government of India and British-India LPgislature in which no Indian State has voice, though the States constitute

196J Jfutomobi/11 TransPtJT' (Rojaslhan) Ltd. v. Stat11 oj Rajostl.an R'ida.1atullah J.

1961 A.utomob,J1 TrtJ11sP•' (~srh"") Llt/. •• S1'tl •/ RajasthtJn Hii1J•t&illah J.

only slightly less than half the area, and one-fourth of the populatio.a of India. Even where the Government of India has adequate powers to impose internal indirect taxation or to control economic development, as in the case of salt and opium, the use of these powers has caused much friction and hns often lt•ft behind it, in the States, sense of in· justice."

They suggested the means by which internal trade and commer\Je could be secured some measure of freedom and their rec<•mmendations must be quoted in e.xtenso. In para 264 of the Report, they ob-served:

' [1]It is greatly to be desired that States adhering to the Federation should, like the Provinces, &.ccept the principle of internal free-dom for t1 a.de in India and that the Federal Government alone should have the power to impose tariffs and other restrictions on trade. Many States, however, derive substantial reve-nues from customs duties levied at the fron· tiers on goods entering the State from other parts of India.. These duties are usually re-frerred to ae internal cu8toms duties, but in many of the smaller Sta.tee are often more akin to octroi and terminal taxe8 than to onstomP. In some of the larger States the right to impose them is specifically limited by treaty. We recognise that it is impossible to deprive Sta.t<'s of revenue upon which they depend for balancing their budgets and that they must be free to alter existing rates of duty to suit varying conditions. But internal customs barriers are in principle inconsistent with the freetlom of interchange of fully developed Fe<lera.tiou, and we are strongly of the opinion that every effort should be made to substi tute other forms of taxation for these internal"

SUPREME OOURT REPORTS

1 S.C.R.

customs .•• the aooession of & State to the Fede· ration should imply its acceptance of the prin-ciple tha.t it will not set up barrier to free interchange so formidable as to constitute threat to the future of Federation ..• ''

However, in dealing with commercial discrimina-tion, the Joint Parliamentary Committee was more concerned with British Imports and the Fiscal Con· vention which it was anticipated, wouJd lapse on the new Constitution coming into force. The Committee, therefore, suggested that the Governor-Gcneral and the Governors should be empowered to withhold their assent to Bills whfoh were discri· minatory in fact or had that tendency. They also recommended statutory prohibition against certain specified kinds of discrimination, and added:

••We nl•ed hardly add that the effect of

our recommendation for the statutory prohibi-tion of certain specified forms of discrimina-tion would lay open to challenge in the Courts as being ultra vires any legislative enactment whioh is inconsistent with these prohibitions, even if the Governor-General or Governor has assented to it."

With these saggestions in respect of th ~ freedom of t!'ade .and commerce, Federal Constitution was recommended. It was also r JC'Ognised that it would be the Provinces whieh would carry on the 'nation-building activities' and the need for more :finances for the ProvincPs was acutely recognised. The esta-blishment of self.governingunits and sc>lf-governing institutions, the orea.tion of deficit P1·ovinoes, the separation of Burma and the cost of establishment of Federation, were m i.tter:1 wh ioh were gone into by the Federal Finance Committee. 'fhe Federal Structure · Committee, Sir Walter Liwton, the D.i.vidson Commit.tee and expPrts Jike Sir Malcolm Hailey and Sir Otto Niemeyer. The Report

lfft A.ulom,bi/1 Transport (R11josthan) Lit/, v. Slll1 of R •ja~than HiJaJalul/ili J.

A.uHtnobi/1 TratUPort (R.jasth.m) Ltd. y, Slall of Raj:isthan Hid~1al•llah J,

of th.e First Taxation Inquiry Committee (1926) was also available from which guidance was taken, and just as the topics of legislation were demarcat-ed between the Centre and the Provinces, so also the sources of revenue were allocated between the Centre and the Provinces. The intention was to create financially stable governments with well. defined powers of taxation. This was, of course, absolutely necessary if the autonomous Provinces were to exist without subventions, which were necessary to support the deficit Provinces. The legislative heads were, therefore, completely divid-ed between the Centre and the Provinces -one List being exclusive to each and third List was added by '~hich certain subjects were to be within their concurrent jurisdiction. The intention was to avoid the assignment of residual powers to mini· mum, and as observed by Gwyer, C. J., in In re The Central Pro'ltinces and Berar Act No. XIV of 1938 (1), this ''made the Indian Constitution Act unique among federal Constitutions in the length and detail of its Legislative Lists." The Govern-ment of India Act, l 9;j5, provided by s. 5 that His M3.jesty was to declare by proclamation that 1111 from date to be appointed "thero shall be united in Federation under the Crown, by name of the l!'ederation of India,-

( a) Provinces ......

(b) The Indian States which have or may thereafter accede to the Federa. tion ...... "

The proclamation never issued.

Tho freedom of tradfl and commerce which

was the'.'subject of such anxious thought received short treatment in the Government of India Act, I 935. Chapter III in Part V (Lt•gisla.tive Powers) (I) [ 19)9] F.C.R. 18, 38,

1 S.C.R. SUPREME COURT REPORTS

dealt with discrimination in series of sections which Dr. Keith described as "liable to be regarded as oppressive and unfair.'' Though lip service was paid to caste, creed, colour etc. the provisions were really designed to protect British interests. The freedom of internal trad~ simpliciter was dealt with in Pa.rt XII (Miscellaneous and General), and s. 297 provided: ·

"297 (I). No Provincial Legislature or

Government shall-

( a) by virtue of the entry in the Pro·

vincial Legislative List relating to trade and commerce within the Province, or the ent.ry in that list relating to the pro-duction, supply, and distribution of com-modities have power to pass any law nr tak~ any executive action prohibiting or restricting the entry into or export from, the Province of goods of any class or des· cription:

(b) by virtue of anyt';ing in this Act

have power to impose any tax, cess, toll, or due which, as between goods manu-factured or produced in the Provinces and similar goods not so manufactured or pl'Odticed, discriminates in favour of the former, or, whi0h, in the case of goods manufactured or produced outside the Pl'Oviuces, discriminates bf'ltween goods manufactured or produced in one locality and similar goodR manufactured or pro· dured in another locality.

(2) Any law passed in contravention of

thi:; section shall, to the extent of the contra· vention, be bvalid."

By thh~ SPction, power was <lenied to the

Provincial Legi8la.tures under two Entries in the

1962 Automobi/1 Transport (Rajaslhan) Ltd. v. State of Roja1than H;doy,tul/d J.

606 SUPREME OOURT REPORTS (1963]

Provincial List to impair free entry and export of goods in the Provinces. The two Entries were referred to separately and expressly by their content and were : "27. Trade a.nd Commerce within the Province" nnd

1111! Tro.-1 .Au1 .... bil1 ( R°""'I""") Lid. v. llal1 •f Blfiaslh•n Bil'IJ•t,Uah J,

29. Production, supply a.nd distribution of goods."

The word "commodities" was used instead of

••goods" in the White Pa.per, a.nd the change to "goods" appears to have been lost sight of in s. 297(1). However, the definition of "goods" took in commodities, a.nd the words "goods of a.ny class or description" were wide enough to show wha.t wa.s mea.nt. The subject of taxation was not dealt with in cl. (a) but cl. (b), andtha.t provided that taxation in the Provinces was not to have differential basis. In this connection, reference may also be made to Entries 19, 20, 21, 22, 23, 24 a.nd 26 of List I and Entries 20 and 32 in Lht III, which, in some measure, involve regulation of trade, commerce a.nd intercourse.

The detailed examination of the history lying

a.t the back of the Government of India. Act, 1935, lays bare some fundamental facts and premises. It shows that the process through whole century was the breakup of highly centralised Govern. ment a.nd the creation of autonomous Provinces with distinct and separate political existence, to be combined inter se and with the Indian States, at later period, in federation. To achieve this, not only was there division of the heads of legislation but the financial resources were also divided and separate fiscs for the federation and the Provinces were established. The fields of taxation were demarcated, and those for the Provinces were chosen with special care to make these units self-supporting as far as possible with enough to spare

I S.C.R.

for "nation-building d.ctivities." In this arra.nge- ·

ment, the door was open for the India.n States to join on the same basis and on terms of equality. The most important fact was that unlike the American and the Canadian Constitutions the commerce power was divided between the Centre and the Provinces as the Entries quoted by us clearly show. The commerce powfr of the Pro-vinces was exercisable within t6.e Provinces. The fetter on the commercial power of the Previnoes was placed bys. 297. This was in two directions. Ola.use (a) of sub-s. (1) banned restrictions at the barriers of the Provinces on the entry and export or goods, and cl. (b) prohibited discrimination in taxing goods between goods manufactured and produced in the Province as against goods not so manufactured or produced and local discrimina-tions.When drafting the Constitution of India., the Constituent Assembly being a.ware of the problems in various countries where freedom of trade, com· merce and intercourse has been provided differently and also the way the Courts of those countries have viewed the relative provisions, must have attempted to ev_olve pattern of such freedom suitable to Indian conditions. The Constituent Assembly realised that the provisions of s. 297 and. the Chap-ter on Discriminations in the Government of India Act, 1935, hardly met the case, and were inadequ-ate. They had to decide the following questions : {a) whether to give the commerce power only Parliament or to divide it between Parliament and the State Legis]atures; (b) whether to ensure freedom of trade, commerce and intercourse inter· State, that is to 1ay, at the borders of the States or to ensure .it even intra-States; (o} whether to make the prohibition against restrictions absolute or qualified, and if so, in what manner ; ( d} if qualified by whom was the restriction to be imposed and to

..t•tomobil1 Tran1p11TI (Rai•s,han) Lil. v. Side of Rajaalf11111 HiJayotullah J,

AultJm,.b i~ Tra•1sp •rt (Ruj2slhon) Ltd. '· ~late of Raj· stli·m Hid'l)'e.tul/"h J.

what extent; (e) whether the freedom should be to the individual or also to trade and commerce as whole ; (f) what to do with tbe existing laws in British India and more so, in the acceding Indian States ; (g) whether any special provisions were needed for emergencies ; (h) what should be the special provisions to enable the States to levy taxes on sale of goods, which taxes wero to be tbe main source of income for tl1e States according to the experts. All-these matters have, in fact, been covered in Part XIII, and the pitfalls which were disclosed in the Law Reports of the Countries which had accepted freedom of trade and commerce have been attempted to be avoided by choosing language appropriate for the purpose. In addition to this, the broad pattern of the political set-up, namely, federation of autonomous States was not lost, sight of. Theee autonomous conditions had strengthened dAiring the operation of the 1935 Constitution and led to what Prof. Coupland described as "Pro-vincial patriotism"', for which the reason, accord-ing to the Ioarned Professor was :

"In the course of the last few years

the sense of Provincial patriotism has been• strengthened by the advent of full Pro-vincial self-government. The peoples took new pride in Governments that were now in sense theirs." (The Constitutional 1 roblem in India, part III. p. 40.)

With this historical background of our coun-

try and the historical setting in which other Fed-erations have dealt with the problems of trade and commerce, we now proceed to examine the Constit-ution to discover the meaning of the various Articles in Part XIII. We begin by reading Part XIII here indicating in each Article the changes made and the relevant dates on which they were made:

i s.c.tt.

·--·-- ..

''Part XIII

Trade, Commerce and Intercourse within the Territory of India.

301. Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India sha.11 be free.

302. 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 ter-ritory of India as may be required in the public interest.

303. (1) Notwithstanding anything in article 302, neither Parliament nor the Legis-lature of State shall have power to make any law giving, or authorising the giving of, any preference to _ one State over another, or making or authorising the making of,· any discrimination between one 8tate and another, by virtue of any entry relating to trade 11.nd commerce in any of the Lists in the Seventh Schedule.

(2) Nothing in clause (I) shalJ prevent Parliament from making any law giving, or authorising the giving of, any preference or making, of authorising the making of, any discrimination of it ·is declared by such law that it is necessary to do so for the purpose of dealing with situation arising from scarcity of goods in any pa.rt of the territorl of India. '

(In its application to tht! State_of-J:ammu

and Kashmir, in cl. (I) of art. 303, the words "hy virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule'' shall be omitted).

J90J! ' ' utomobi/s '.L'rcnsporl . Rajasthan Lttl. v. Stolt of Roiasthan HidayiJtull® J,

19fl --AtJtomohi/1 Transport ( Roiosthnn) Lli. v. Stct1 •J Htljo~lhan

304. Notwithstanding anything in Art. 301, or Art. 303, the Legislature of State may by la.w-

(a} impose on goods imported from

other States (or the Union territories) any tax to which similar goods manufactured or produced in that State are subject, so, how-ever as not to discriminate between goods so imported and goods so manufactured or produced, and

(b} impose such reasonable restrict-

iom1 on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest ;

Provided that no Bill or amendment for the purposes of clause ( b) shall be introduced or moved in the Legislature of State without the previous sanction of.the .President.

Ins. by the Constitution (Seventh Amendment) Act, J 956, s. 29 and Sch.)

305. Nothing in articles :':01 and 303

shall affect the provisions of any existing law except in so far aa the President may by order otherwise direct, and nothing in article 301 shall affect the operation of any law made before the commencement of the Constitution (Fourth Amendment) Act, 1955, in so far as it relates to, or prevent Parliament or the Legislature of State from making any law relating to any such matter as is referred to in sub-clause (ii) of clause (6) of article 19 .

• (This Article was substituted for original Article which was as follows :

•Nothing in Articles 30 l and 303 shall affect the provisions of any existing law ex-

l S.C.R. SUPREME COURT REPORTS

cept in so far a.s the President may by order otherwise provide.')

306. Deleted.

(The original Article before its deletion read:

'Notwithstanding anything in the forego-

ing provisions of this Pa.rt or in any other provisions of this Constitution, any State specified in Part of the First Schedule which before the commencement of this Con-stitution was levying any tax or duty on the import of goods into the Mate from other States or on the export of goods from the State to other States may, if .an agreement in that behalf has been entered into bet\Teen the Government vf India and the Govern-ment of that State, continue to levy and co-llect such tax or duty subject to the terms of such agreement and for such period not exceeding ten years as may be specified in the agreement :

Provided that the President may at any time after the expiration of five years from such commencement terminate or modify any such agreement if, after C'onsideration of the report of, the Finance Commission constituted under . Article 280, he thinks it necessary to do so').

307. Parliament may by law appoint such authority as it considers appropriate for carrying 9ut the purposes of Articles 301, :::·02, ;i03 and 304, and confer on the authority so appointed such powers and suoh du.ties as it thinks necessary.

Part XIII, unlike some of the Constitutions

which we have considered, contains within itself

A. .t•m.b1/1 ( Raj41ll1llft) Tr11nsp•rl I"· v. Stat, of R.J·•tla11t1

A.ut 1m11h;l1 Transport (R•i4't\on) LI/. v. Stall of R"ja.it~a Hido;atullolt. J'

and in one place the provisions regarding the free-dom of trade, commerce and intercourse. The commerce power as head of legislation is divided in the Constitution, and figures in all the three Lists. Apa.rt from other Entrie1 uuder which trade and commerce can be affected and which are to be found in all the three Lists, there are two En-tries in 1he Union List, two in the State List and one in the Concurrent List, which bear directly up-on trade and commerce.

Union List:

41. Trade and commerce with foreign, countries, import and export across customs frontiers;

42. Inter-State trade and commerce.

State Lisi:

26. Trade and Commerce within the State

subject to the provisions of entry 3:1 of List III.

27. Production, supply and distribution

of goods subject to the provisions of entry

:rn of List III.

Concurrenl List :

33. (Trade and Commerce in, and the

production, supply and distribution of: (a) the products of any industry where tho con-trol of such industry by the Union is declar-ed by Parliamentary law to be expedient in the public interest) and imported goods of the same kind as such products ;

(b) food-stuffs, including edible oil--seeds and oils;

(c} cattle fodder, including oilcakes and other concentrates;

1 s.c.R. SUPREME COURT REPORTS

(d) raw cotton, whether ginned or unginned and cotton seed or

( e) raw jute. ' 'rhe words in brackets show the entry as it was prior to its amendment by the Consti· tution (Third Amendment) Act, 1954. The word 'industries' occurred in place of the word 'industry' there.

By dividing the commerce power and by

enacting the provisions of Part XfII, the problems which arose in the United St11tts of America arid Canada have been avoided. In Canada, as we have shown already, the question wa:-J whether in passing law the Provinces were encroaching upon the commerce power of the Dominion given by No. 2 of s. 91 and conversely, whether the regulation of trade by the Dominion meant an encroach~ ment of the pow~rs of the Provinces. In our Constitution, questions ·of conflict under two rival Lists may arise, but on the plane of exercise of commerce power, such questions can hard1y arise. In the United States, the controversy is between the powers of the Congress and the powers of the States. American and Canadian ptecedents were thus avoided by dividing the commerce power.

The constitution deliberately chose the Aus-tralian pattern in Art. 301, but made certain other provisions, and this was done to avoid the con-troversy ~l:l it had raged in Australia.. Article 301 states in general words (like s. 92 of the Australian Constitution) that trade, commerce and .inter-course shall be free. But the opening words "Subject to the other provisions of this Pa.rt'' serve , · to direct attention to the provisions next -following. These words achieve two purposes. They indicate- :

(a) freedom is not absolute but subject

to what is next provided ; and

J96S Automobile Transport (Rajasthan) Lit/. v. Stal1 of Hlljaseh11n --HidayJtullah J.

1962 .AU1cmobi/1 T1nrpo't (R<J.,lh•n) Lli. •• St11le •l R•j•st1 on

SUPl\EME COURT REPORTS [1963]

(b) that the curbs on freedom of trade and commerce are primarily to be found in .Part XIII.

Next, the words ''throughout the territory of India"

avoid disputes which took place in Australia till the it Banks' case ( ') was decided by the Privy Council namely whether freedom is secured only at the frontiers of the States or also· within the States. The form of words adopted by our Cons ti· tution ("throughout the territory") was suggested Australia as an amendment but was not accepted, and the Privy Council in James v. Common-wealth \ ') was understood to have endorsed the view that freedom only at the barriers of the States was meant. Our Constitution chose the form which was rejected io Australia thereby an-ticipating the decision of the Privy Council in the Banks' case. ([1]) It must be remembered that the Banks' case \!) was not decide.d by the Privy Conn. oil when our Constitution was drafted. The free-dom in India is inter.State as well as intra-State. This freedom is addre1sed to Parliament as well as to the l:ltate Legislatures, &s the next Article clear-ly show.

Article 302 then makes the first exception to

the freedom. That Article gives power to Parlia-ment to put restrictions on this freedom. This shows clearly that Parliament is bound by Art. 30I. Disputes similar to those which took place in Australia in which it was hotly debated whether the Commonwealth was bound or not have thus been avoided. By providing separate releases from Art. 301 for Parliament and the State Legislatures, that controversy can never arise. Parliament which is authorised by Art. 302 can impose rest-rictions on trade, commerce and intercourse in two aspects. They are :

(a) between one State and another; or (I} [19t8] 76 C. L, R. I, 38, 381. (2) (1936) A:C. 578,

1 S.C.R. SUPREME OOURT REPORTS

(b) within any part of the territory of

India.

By the fir~t is meant trade and commerce in motion across the frontiers of States. It means the inter-State character of trade, commerce and intercourse. By the second, the power is made more general. Parliament may put restriction in 'any put' of the territory of India. The territory of India is defined by Art. 1.(3), which says :

"(3) The ·territory of India. shall com-

prise-

(a) the territories of States;

(b) the Union territories specified in the

First Schedule ;

(Before the Constitution (Seventh Amend-

ment) Aot, 1956 the clause read 'the territo-ries specified in Part of the First Sche-dule')

and (c) suoh other territories as may be acquired."

The words "within any part of the territory of

India" give power to Parliament to, legislate for 'any part' not only generally but also Jooally. This power is su b)ect to two restrictions. The first is that this must be done by 'law', which means that without valid Jaw t.he power cannot be exercised~ The second is th~t the law must be in the 'public interest.' Since law is made the prerequisite of action, mere executive action is out of the question. This obviates the argument emphatically rejected by the Privy Council in James v. Oowan (1) that the executive was not under the fetter of s. 92 of the Australian Commonwealth Act. The word 'required' limits the restrictions to -the necessities of the 1itua.tion so that the Article may not be liberally . construed as free ohl),rter. The word (l) il932) A.. c. 541.

--~ulomdil• • Tr•~s/o'I (Rt1jasllian) Lti. \', State of RcJ•,tlla ,,Hiiayatull• J,

.Autamobil' Tranaporl (Bojaslhan). LU. •• Slate of Rajaslhon Bid•}"tulld J.

'reasonable' is not included as qualifying 'restrict-ions' as it does in Art. 304; but it is impossible that the freedom granted in Art. 301 was to be •mocked ot' by makin~ 'unreasonable' restrictions }lf'rmissible at the hands of Parliament. Normally Parliament is the best judge of public interests, and question of policy can hardly arise before the Courts. But if question ariaes whether Parlia-ment has under colour of Art. 302 encroached upon Art. 301, the matter may in exceptionable circum-stances be jnsticiable. It will be useless in this connection to invoke the voice of Parliament.

Next comes Art. 303. It begins with the n<m· OOstnnte clause "notwitbetanding anything in Article 302." The effect of these words is to take away th1> power granted to Parliament to fotter freedom in t.his prec~ding ArticlA in the circ•1mstances stated in this Article. This non-ob8lante Clause has been criticised as not being wholly r<'lated to what follows. 'Ve do not agree. The answer to the objection will appear from what we say next. The Article say9 that neither (a) Parliament nor (b) Legislature of State shall have power (il to make any law giving or (ii) to make law authorising the giving of-

(A) any preference to one State over an. other;

(B) any discrimination between one State and another,

by virtue of any Entry relating to trade and com-merce in anv of the Lists in the Seventh Sehedule. The main ·idea underlying this Article is to ban preferen<",e and discrimination between one State and another in matters of trade, commerce and intf'rcourse. This principle of uniformity is 10 high that by the nan.ob8t,ante clause the powers of Parliament under Art. 302 are completely nullified and along with the powers of Parliament, ali

1 S.C.R.

derivative powers of the State Legislatures where Parliament deola.res by law that restriction is in the publio interest and the State Le.si;istature (legislates -under the shelter of such declaration, are also nullified, see Entry 33(a). Entry 35 of the Concurrent List or Entry 57 of List II read with Entry 35 of List III, to confine the citation to Entries, with which we are primarily oonoerned here. In the Seventh Schedule to the Cc;>nstitution in addition to Entries 41 and 42 (List I), 26 and 27 (List II) ~nd 33 (List III) there are many other Entries regulating special trades. In some of them, the formula 'by law made by Parliament' is again repeated out of abundant caution. By the words of Art. 303 'by virtue of any entry relating to trade and commerce' is meant not thf.'I five Ent·ries last named by us but otheTs also, e.g., Entry 8 of List II, Entries 29, 30, 81 of List I, Entry 29, 15 of List III (to mention only a. few from each List), Thus is achieved one purpose which is paramount v:_~., that the exercise of the commerce power, however derived, . is not to be exercised to create preferences and ·discrimination between one State and other whether the action proceeds from Parlia-ment or State Legislature or both acting in union. No question of the content of the power or its source can a.rise in this context, beoa.use the pro-hibition js absolute. The article makes ~reat advance upon s. 297 of the Government of India Act, 1935. In the section, the inhibition was only against Provincial Legislature or Government. Here the inhibitions embraces not only these but is also against Parliament and the Central executive. The executive limb has been made powerless, because the source of restrictions must be 'law,' and if law cannot be made, executive action per se would be ineffective without more. Future, s. 297 was oonoerned only with goods and their taxation differentially. The Article takes in its stride not only the passage of goods or their taxation but all196! A11tqmnbi/1 Trnru~art ( R111jast~'lll) Ltd. y, s IOllOf Bajastli.r. Hi<Jayatulleh J.

111111 .Automobil1 Tr••sp1rt (Bi!i•s•hon) Lto •• Sl•I• •f Bojasth1n Hid•JOlu//oh J.

other ma.tters inherent in free trade, commerce a.nd intercourse. The Article ha.a its echo s. 99 of the Austra.lia.n Constitution, which rea.ds;

"99. Commonwea.lth not to give prefer .

enca.-The Commonwea.lth sha.11 not, by a.ny la.w or regula.tjon of trade, commerce or rev-enue, give preferenoa to one State or any pa.rt thereof over a.nether Sta.te or any pa.rt thereof."

It is to be read with s. 102, under wl1ich Parlia.ment

can forbid preferences by State. Article 303, however, goes much further. It ema.scula.tes the total legisla.tive power in the country from achiev-ing a. single preference or discrimina.tion in trade, comm~rcJ an<! intercourse by a. united or concartecl a.ction by P<1.rlia.ment and State L,gi~la,ture thu• ensuring equ'l.!ity to a.11 peoples of Iadia. frorn whatever p::i.rt they ma.y be dra.wn an<i wherever they me.y be living.

There is, however, one exception to it, a.nd

that it. is c1>nta.ined in cl. (2). Pceferenca or dis-crimina.tion may be ma.de in one insta.nce by Parlia.m mt by la.w. The ambit of that exception plainly appaara from the words of cl. (2), which are explicit in th imselves. L'3t us quote thern again :

"Nothing in ola.use (I) shall prevent

Parliament from making any law giving, or authorising the giving of, any preferenca or ma.king, or a.utborising the ma.king of. any discrimin'l.tion if it is decla.red by such law that it is necassa.ry to do so for the purpose of dealing with situation arising from sca.rcity of goods in any part of the territory of India.''

The question of famine is primarily in miii.d. and

aeoondatjly the readjustment or even distribution of goods due to some economic imbalance. Clause (2) is self-explanatory, and questions such as fixing

of quotas of dried fruits or their even distribution in home and outside markets which agitated the Australians oan hardly arise, and similar questions ca.n adequately be dealt with by Parliament tinder this power.

Next comPs Art. 304. It beings with the non-obst,ant,e olause "Notwithstanding anything in artiole 301 or article 303." It is contended that one oan understand the mention of Art. 301 but not of Art. 303, and the Article 'is thus said to be inaoourately drafted. We have already shown why in Art. a03 the Sta.ta Legislatures found mention, a.nd unless Art. 303 was also put a.side in Art. 304, there would a.rise a. question of balancing it against Art. 304. To avoid this, both Arts. 301 and 303 have bec·n excluded from consideration.

Article 304: is divided into two parts. It

enables the Legislatures of States to pass la.we which affect trade, cummerce and intercourse. Clause (a) of the Article enables taxation of good from other States pari passu taxation of similar goods in the State but so as not to discriminate between them. The ban of Art. 301 is lifted but uniformity is imposed. Compared withs. 297(l)(b) the Article is narrower in its enabling portion and shorter in its reach. Section 297 inhibited 'tax, cess, tolls or due' taking in its reach all kind1,1 of imposts on movement, but the Article gives per-mission to impose only taxes ,on goods oli rion-differential basis between Statf' and State, saJing nothing about other imposts. Further, unlike the seotion, local areas are not mentioned in the Artiole trf•nting the purely intra-State matters on different footing. Trade, commerce and inter-course generally are next enabled by cl. (b) to be restricted. They can be restricted on two planes-the first in their inter-State aspect denoted by the words ''with ...... that State" and second, in their intra-State aspect denoiied by the words ''within

1962 .Automobile Transport (Rojosthan) Ltl v. State of Rafaslhar. --H idayatullah J.

196Z Aulomo6i/1 TransfJtwt (Roja11ha•) •. Lia. Stat1 of RajOJlhan Hidayatullah J.

that State." Both these aspects are open to restrictions provided that the restrictions are "reasonable" and are "required in thfl public interest." The use of the word "reasonable" brings in the justicability of the law. It is useless in this context to invoke the voice of the legisla-ture. The opinion of the legislature as expressed in the law may of course raise strong presumption, and create heavy burden for one challenging the law, hut the LXtent of the restriction and whether it is commensurate with the requirements of the public interest (though matter for the legisJa.ture to decicle in the first instance) may have to be decided u JtimatP Iv by the Courts. Of cour8f\ laws can be made without affecting trade, commerce and intercourse directly without. having to be consider-ed by Courts or processed under the proviso. It is only law which directly and immediately affects trade, commerce and intercourse which will need to be submitted to the President for his sanction, though the sanction of the President will not save it from being questioned. The Joint Committee on Indian Constitutional Reform in its Report (para 367) correctly pointed out:

"We need hardly add that the effect of our recommendations for the Mtatntory prohi-bition of certain specified forms of discrimina-. tion would lay open to challenge in the Courts as being ultra vires any legislative enactment which is inconsistent with these prohibitions, even if the Governor-General or the Governor has assented to it."

The same will operate even if the President gives

his sanctfon.

Article 305 saved existing Jaws to start with,

and at the time of the passing of the Constitution (Fourth Amendment) Act, 1955, room was made for the operation of laws by which State or cor-poration owned or controlled by the State carries

1 S. C.R. SUPREME COURT REPORTS

r.. on any trade, business, industry or service whether

'L as monopoly or otherwise. Article 305 does not apply to the statute here impugned as it was not an 'existing law'.

Article 306 was transitory provision which enabled certain Part States to continue levy of

• , existing taxes or to restrict trade, commerce and • intercourse for period, notwithstanding the pro-visions of Part XIII. With that, we are not con· ct"rned 11.fter 1955 due to the repeal of that Arti-cle. Article 307 also is immaterial in this case. It provides for the appointment of an authority for carrying out the purposes of Arts. 301.304, and is counterpart of s. 10 I of the Australian Constitu ·

" tion.

We shall now notice some cases which were

decided by the High Court of A•1stralia and the Privy Council, hecause it is these ea8es which have been cited o ns in support by he rival parties. After the Constitution of India came into force on January 26 1950, came the df'cisiun of the Privy '" Council in ,f!ommonwealth of Australia v. Bank of .:.New South Wales('). In that case, the Privy Council departed fnm what had b0en understood to be some of its former opinions. While adhering to its view that the test was whether an impugned law not 'remotely or incidentally' but directly and immediately restricted the inter-State business of banking at the barriers of the States, the Privy '-Council observed that such phrases as "freedom at the frontier ...... in respect of goods passing into or out of the StatP" and "freedom of what is the crucial point in inter-State trade, that is at the State harrier" which it had used in James v. The Commonwealth ([2]) were to be read secundum sub· ject,am materiam, and in the context in which they occurred, and observed:

(I) (1950 A.C. 235.

(21 '1936) A.C. 578.

1962 Aut(;mobi/1 Transport (Roiasthan) Ltd. v State of Raj"slhan Hidayotu/lah J.

11112 Ai.tomohill Tram/Jori (Raja•thco) Lid. v. S1al1 of Raja1tlum Hit/1,70lu/lali J.

"They cannot be interpreted as deci· sion either that it is only the passage of goods which is protected by s. 92 or that it is only at the frontier that the stipulated freedom may be impaired. It is not to be doubted that restriction, applied not at the border but at prior or subsequent stage of inter-State trade, commerce or intercourse, may offend against s. 92. Nor, as their Lord-ships hold, in accordance with the view long entertained in Australia, is it in respect of the passage of goods only that such trade, commerce and intercourse is protected."

The Privy Council also corrected the view enter-tained in Australia that full and unqualified approval was given to the opinion of Evatt, J., in The King v. Vizzard (1), bv Lord Wright in .James v. The Commonwealth ('). The Privy Council oLser-ved:

"But it does not appl·ar to their Lord· ships that the whole of the learned Judge's reasoning received the considered approval of the Board."

The Pri~y Council next approved of the following pas~age from the Australian National, Airways case(•) which has already been quoted by us:

"l venture to repeat what I said in the

former case 1 the "Uilk case)('): 'Ono proposi-tion which I regard as established is that simple legislative prohibition \Federal or State), as distinct from regulation, of inter. State trade and commerce is invalid. Fu ther, law which is "directed against" inter-.State trade and commcl'ce is invalid. Such law does not regulate such trade, it merely prevents it. But law prescribing rules at to the manner in which trade (inc!ri-ding transport) is to be conducted is not (l) (1933PO c.r .R. so. (2) (1936) Ac. 578. !3) 11945) 71C.L.R,29. (4) (1939)62,C.L.R. 116, 127.

1 S. C. R. SUPREME COURT REPORTS

mere prohibition and may be valid in its application to inter-State trade. notwithstand-mg . s. 92' " . ,

observing:

'•With this statement, which both repeats

the general proposition and precisely states that simple prohibition is not regulation, their Lordships' agree."

The Privy Council also made it clear that in some cases "regulation'' may take the form of prohibition, thus endorsing the statement of Harrison Moore that the power of legislation, is not merely power to regulate; it ranges from creation to dest-ruction, it may establish as well as prohibit: The Commonwealth of Australia, 2nd Edn., p. 280.

The Advocates-General of Bombay and the

Punjab and Mr. G. S. PP,thak relied upon many decisions of the Australian High Court after the Banks' case. (') Strictly speaking, these decisions could not have influenced the framing of our Cons-titution, because by the time they were rendered, our Constitution had already been framed. The Banks' case,(') having drawn the distinction bet-ween regulation and simple prohibition, the later Australian cases began to allow play for regula-tion of trade and commerce. There being no machi-nery for achieving restrictions, reasonable in them· selve1, restrictions to be valid had to be within the limits of regulation. Indeed, thie way of justifying legislation, otherwise restrictive; as regulatory was being adopted even before the Banks' case, ([1]) and the Transport cases were all examples of justifica-tion of many laws as regulatory. In some Transport cases, taxes which burdened trade •and commerce were justified as compensatory being, it was said, & recompense for the wear and tear of roads. We (1) (1948) 76 C.L.R. I, 380, 381.

1968 Autumobil~ Tronsport (Rajasllicn) Ltd. \I. State of Rajasth1111 Bida:111tull"h J.

Au!omo"ilt--rrn spo" (R11ja.ftl1ar1J I•·l.

shall notice these cases briefly, since justification for the sections impugned here was attempted on the ground that the provisions wete merely regulatory or compensatory. We shall examine these cases as representing two different phases:

Jn blcCarter v. Brodie('), whi<'h wa]l trans-

port case, t.he High Court of Australia was invited Ln overrule the 'l'ransport cases and to deolartl that 1.he minority judgments throughout had been right. The Chief Justice basing himself on the B1inks' C!tSe (') opined that the Privy Council had finally decided that laws directly operating upon persons engaging in inter-State trade and commerce were not infringements of s. 92 if they were what could fairly be described as •regulation'. If, however, they were laws which directly dealt with thP. sub-ject-matter of trnde and commerce and exceeded regulation and passed into prohibition, they were invalid. Tho law was thus upheld, but Dixon and .Fullagar, JJ., dissented.

Then came the decision of the Privy Council in Ilughe,s and Vale Pty. Ltd. v. State of N.S.J.V. ('). By that deciaion, Rex v. Vizzard (') and all 'l'rans-port cases following that decision and the majority judgment in M cGarter v. Brodie (') were ov1>rruled and the opinions of Dixon and Fullagar, JJ., in the la.st mentioned case were upheld. The decision of the Privy Council in Hughes and ValePty. Ltd. v. State of N. S. W. (") must be examined little closely. All the e$rliest Transport cases were deci-ded after the decision of the Privy Council in James v. Cowan(') but before James v. 'l'he Gomriwnwealth('} wa.ij decided. The Riverina case (') and the AuB· trailan National Ai1'Ways caae (') preceded the Banks' case ('J and McOarter v. Brodie(') followed

(2) (1948) 76 C.L.R. J, 380, 381,

(1) (1950) 80 C.L.R, 432.

(41 ( 1933) SO f'.L.R. 30.

(3) (1955) A.C. 241.

(6) ( 1936) A.C. 579.

(5) ( 1932) A.C. 542. . ~ \7) (1937) 57 C.L.R. 327.

(8) (1945) 71 C.L.R, 29 •

it, and then came Hughes and Vale Pty. Ltd. v. St,ate of N.S. W. (1) from which tho appeal went to the Privy Council. Leave to appeal in McOarter v. Brodie (2) was refused.

Before we examine the decision of the Privy Council, let us recall and re-state the main events in brief. In James v. South Australia (3), what was struck down by the High Court a.s contravention of s. 92 was the executive determination of where and in what quantities dried fruit were to be marketed. In .James v. Cowan ('), the action of the Minister expropriating the surplus dried fruits was also held to be contravention. In James v. ·The Commonwealth ([0]), it was held that s. 92 bound not only the States but also the Common-wealth. The last case was also generally understood as laying down that by ''free" was meant freedom at the frontiers. An extract from the judgment of Evatt, J., in The King v . . Vizzard ([8]J was quoted to show that freedom did not 'attach itself to each and every part of transaction, and the other parts were not free from regulation or control. Then came the Bank'a case, (7) wh~ch laid down that regulation of trade, commerce and intercourse among the States was not incompatible with their absolute freedom, and that there was breach of s. 92 only when the legislature or the executive acted to restrict such trade, commerce or intercourse directly and immediately as.distinct from creating some indirect or consequential impediment, which could only be regarded as remote. Thus, regulation was considered as the antithesis of 'simple prohibition'.

The Transport oases involved a.Jmost always:

(i) licensing system of motor transport

vehicles by Board;

(I) (195S) A. C. 241. (2) [1950] 80 C.L.R. 432. (!!) (1927) 40 C.L.R 1. C4l (1932) A. 542. (5) (1936) A. C. S78. (6) <1933) 50 C.L.R. SO. (7} (1948) 76 C.L.R. 1, 380, 381.

1962 Automohil• 1 ra11spo1t (Rajasthan} Lid, v.

Stale of Ra.jiuChaa

Automobile Tranaport (H.ajastkan) Ltd. •• State of Rajas1ht1n Hidoyatulloh J •

(ii) discretion to tile Board to grant licence or not;

(iii) payment of licence fee which had

maximum limit;

and

(iv) sometimes mileage charge as in O' Gilpitt 'B case ([1 ]) •

How were these cases affected by the pronounce-

ment of the Privy Council ? The earlier view that The King v. Vizzard (') was approved by the Privy Council in James v. The Commonwealth(') fell to the ground when the Privy Council in the Bank's case (') abjured this. There was also the approval given to the Australian National Airways case ('), to which we have referred. The implications of this approval had also to be considered. These questions arose before the High Court in Mc Carter v. Brodie ('). In that case, the Transport Regulation Acts, 1933-47 provided for licensing of commercial goods vehicles by Board with discretionary powers and for payment of fee. The effect of the Bank'& case upon the Transport cases was urged, and it was contended that they must be overruled, but the majority applying Rex v .V izzard (') and the Riverina case ('I held the law to he valid. Dixon and Fullagar, JJ., however dissented. In describing what was held by these learned Judges, we shaII borrow their language, as was also done by the Privy Council.

According to Dixon, J., the Banks' case (') had proved wrong three propositions, and they were:

(1) thats. 92 did not guarantee freedom of the individual;

(2) 'that' if the same volume of trade

(I) (1935) 52 C.L.R.189. (2) (1933) 50 C.L.R. 30. (3) {1936J A.C. 578. (4) (1948) 76 C'.L.R. I, 380, 381. (S) (194S) 71C.L.R.29. (6) (1950) 80 C.L.R. 432.

(7) (1937) 501C.L,R,327.

flowed from State to State before as after the interference with individual trader then the freedom of trade among the States remained unimpaired.'

( 3) that because law applied ~like to

inter-State commerce and to domestic com-merce of State, it might escape objection not-withstanding that it prohibited, restricted or burdened inter-State commerce.

Next, according to him two further points were

settled by the Bank's case: {[1]).

(1) That the object or purpose of an Act

challenged as contrary to s. 92 w~s to be ascertained from what was enacted and con-sisted in the necessary leg.1.1 effect of the Jaw itself and not in its ulterior effect socially or economica,lly; and

(2) that the doctrine of 'pith and sub-

stance' though of help to find out whether it was nothing but regulation of class of transactions forming part of trade and com-merce was beside the point when the law amounted ·to prohibition or the question of regulation could· not fairly arise.

According to Dixon, J., the Transport cases involved pragmatical solution. The main reason of the error according to him was that trade and commerce was treated •as sum of activities' and "the inter-State commercial activities of the individual, and his right to engage in them were ignored", and much importance was attached to absence of discrimina-tion against inter-State trade considered as whole. Dixon, J., then added to the five points sixth, viz., ''the distinction taken between, on the one hand, motor vehicles as integers of traffic, and, on th~ other hand, the trade of carrying by motor vehicle (1) (1948] 76 C.L.R. I, 380, 381.

Automobile Transpo't (R•jasthan) Lid, v. Stare rj Rajarthan Hidayatullah J.

A.uto-nnhil1 Tnr•up(11t ( R•jaslhan) Ltd, v. Statt ofi Rajasl~an Hidayatullah J.

ll28 St'PRE1"1E COURT REPORTS [1963]

as part of commerce." This distinction, aooording to him, was not valid.

Fullagar, J., in concurring judgment drew

good picture of how regulation by its severity cvuld become prohibition. He observed that though traffic regulationR and even licensing· of motor vehicles including commercial vehicles could be said uot to cross the line of regulation but both had to be reasonable so as not to impair the free· dom. And the same could be said also about licence fees, etc. which had to be reasonable and non-discriminatory, lest they passed from regulation into what the Privy Council called simple prohibi· tion. The majority opinion, of course, prevailed but not for long.

The case of Hughes and Vale Pty. Ltd. v. State

of N. S. W. (')came after McCarter v. Brodie('). The Hiµh Court followed the earlier decision, but Dixon, C.J., ob8erved :

" ...... to my mind the distinction appears

both clear and wide between, on the one hand, such levies and such provisions prohibi-ting transportation without licence as the foregoing and on the other hand the regula-tions and registrations of motor traffic using the roads and the imposition of registration fees. In the same way the distinction is wide between such provisions and the use of system of licensing to ensure that motor vehicles used for the conveyance of passengers or goods for reward conform with specified conditions affecting the safety and efficiency of the service offered and do not injure the highways by excessive weight or immoderate use or interfere with the use of the highways by other traffic. The validity of such laws must depend upon the question whether t.hey (I) [1955] A.C. 241. (2) [1950] 80 C.L.R. 432.

IS.C.R. SUPREM:E COURT REPORTS

impose real bnrden or restriction upon inter-State traffic".

When the case reached the Privy Council, it was contended that where the tax was on the move-ment itself, the tax could not be regarded as regu-latory and the reasons in the judgments of Dixion, C.J., and Fullagar, J., were urged. This wa accPpt-ed-by the Privy Council. On the other side, it was contended that the provisions which were State-wide were regulatory and were impot-< on all vehicles, and the effect on inter-State trade or com-merce was indirect or consequential. This was not accepted. Even the other side conceded that :

"the imposition of charges in respect of vehicles used on inter-State journeys would infringe section 92 if the charges (a) discrimi-nated against inter-State road transport or vehicles engaged therein; (b) were imposed at such rate as to be prohibitive of inter-State road transport, whether alone or in common with all road transport".

The Privy Council pointed out that in the 'l'ransport cases, (1) sufficient weight was not given to Jarnes v. Cowan ([2]), where determinations of exe-cutive in its discretion were said to be invalid. It accepted the six propositions of Dixon, J., and followed the unusual practice of quoting in extenso the opinions of Dixon and Fullagar, JJ., in M cCarter v. Brodie ([3]) and expreEsed them as their own. The Board overruled the Transport cases, and observed:

'•In their opinion it follows that if the validity of the Transport Act is to be established in the present case, it can only be upon the ground that the restrictions contain-ed . therein are 'reguhtory' in the sense in whwh that word is used in the Bank case." (!) [1938) 57 C.L.R. 327. (2) [1932) A.C. 542. (3) [1950] 80 C.L.R.. 432,

Autnmobilt Tra.,sport

(Ryasthan) Ltd. v.

State of Rajasthan idayatullah J.

.A.utomobi/t Tran porl (R•jasthan) Ltd. v. State of R•Jasthan Hidayatullah J.

We now come to the last phase. The distinc-tion between laws which merely regulate and those that restrict or prohibit having thus been establish-ed at the cost of all the Transport cases except Willard v. Rawson ('), new method was adopted by the Australian Legislatures. Wynes in "Legis-lative Executive anq Judicial Powers in Australia" (1956), tells us th11.t the transport legislation was amended by four of the States and the amended law was challenged in several cases! We shall not trouble ourselves with them or with those in which lawB in bar of claims arising out of the decision of the Privy Council were considered, but must draw attention to the difference between "regulation" and "restriction'' made in Hughe,s and Vale Pty Ltd. v. The St,ate of New South Wales [No. 2] ('). For the present purpose, however, we borrow the following summary, inadequate though it is, form Wynes:

"Speaking of 'regulation', their Honours said that sec. 92 of course assumed that the transactions protected would be carried out in accordance with the general law ; merely because transaction was part of inter-State trade, commerce or intercourse, the persons engaging in it were not excluded from the operation of that law. What was precluded were restrictions of rea.J character prevent-ing or obstructing the dealing across the bor-der or the inter-State passage or interchange. There was !\ clear distinction in conception between laws interfering with freedom to carry out the very activity constituting inter· State trade and Jaws imposing on those angaged therein rules of proper conduct or other restraints directed to the due and order-ly manner of carrying it out. This distinction was naturally described as 'regulation', word (I) [1933] 48 C.L.R- Sl6. (2) [1955] 93 C.L.R. 125 159-162.

1 S.C.R.

of anything but fixed legal import which differed according to the nature of the thing to which it applied. Perhaps the true solution in any given case could be found by distingui-shing between the features of the activity in virtue of which it fell within the category of trado, commerce and intercourse among the States and those features which, though inva-riably found to occur in some form or another in the activity, were not essential to the conception."

It was pointed out also that under the guise of what may legitimately be regulation, real burdens and restrictions could be placed.

There was divergence of opinion again over

the question of licence charges and registration fees. The ma_jority was prepitre<l to sustain charges if imposed "as real attempt to fix a. reasonable recompense or c')mpensation for the use of the highwa:v and for contribution to the wear and tear which the vehicle may be expected to make.'' The minority thought that (except for fee for specific service) no chargAs could be levied. In two cases viz., Nilson v. The State of South Australia ([1]) and Pioneer Tou,rist Coaches Pty. Ltd. v. The State of Smtth Australi:a ([2]), it was held that State could not require commercial motor vehicles to register and pay fee exc3eding mere administrative char-ges.

There i<i vet anot.her line of cases recently decid~d · in Australia. The taxing of commercial vehicles employed in inter-State or intra-State transport has been justified in some cases on th•} ~rn1md that such taxes are compensatory, and the tax is recom-pense for the wear and tear of roads. In Armstrong v. The State, of Victoria, [No. 2] ([3]), Part II of the (I) [19551 93 C'.L.R 292. (2) (1955] 93 C.L.R. 3()7. (3) [1957199 C.L.R. 2~;

Automr,bil• T,.m,>011 (Rojastn~n) Ltd. v. State of Rajosthan Hidayatu/lah J,

Automol>il1 Trans/lorl (liaja'1/u.n) Lid. •• S .. t«of Rojullla Hidayatulln S.

Commercial Goods Vehicles Act, 1955 (Victoria.) was challenged. 'l'hat Act required the owner of every commercial vehicle of load capacity exceeding four tons to pay compensation for the wear and tear ca.nsed to the roads. There was a. schedule under which th11 payment was determined. Every vehicle pa.id one-third of & penny per ton of the sum of-(a) the tare weight of the vehicle and ( b) forty per cent Qf the load capacity of the vehicle- per mile of public highway along which the vehicle travelled in Victoria. The receipts were paid to the credit of special account and applied solely for the maintenance of the highway. This law was upheld under s. 92 by narrow majority of 4 to 3 in its application to inter-State trade. In the same, case, R. 3 of the Motor Car Act, 1951 (Viet.), which levied fees on motor car used for carrying goods for hire or in the course of tra.ile according to the power-weight and varyinjl according to the numher of wheels and types of tyres etc., was upheld by majority of 6 to 1. The main reasun given was what these payments served to maintain roads at standard by which inter-State operations of trade, commerce and intercourse were improved. It was, however, said that the charge must not be more than fair recompense for the actual use of the road~. l\IcTierman. J., relied on passage in Adam Rmith's "The Wealth of Nationals", where public works as roads, bridges, etc. are discussed al! facili-ties of commerce.

The question was again considered in rom-monwealth Freighters Pty. LU],. v. Sneddon('), where the Roar! Maintenance (Contribution) Act, 1958 (N. S. W.) which imposed upon owners of commer-cial goods vehicles 4 road charge at rate per mile was upheld. It will thus appear that tax IE>gislation in Australia has now to resort to the creation of S•'parate fond to which State collections have to go

(I) [1959] l02 C.L.R. 280.

I S.C.R.

ear-marked for the maintenance of roads and to provide elaborate criteria. for determining the amount payable. On this subject as well as on the subject of regulations as described by Fullagar, J., ia McOarter v. Brodie (l), the law for the time being seems settled.

H"ving dealt with the historical background of the Constitution, the possible models which were consl<lered in the drafting of Part XIII, we procP.ed to consider the three views expressed in the Atiabari Tea Company case ([2]). These views are not sharply divided. The majority accept!I the view expressed by the learned Chief Just.ice, but goes beyond it, while Shah, J., accepts the views of the majority but goes still further. The main question that arose then as it has arisen here, is : Do taxa-tion laws come within the reach of Art. 301 ? Now, it cannot be laid down as general proposition that all ta'<es are hit by that Article. We have shown a.hove that the financial independence of the States was secured by an elaborate division of heads of taxation, which were well-thought out to provide tne Rhtes with the means of independent existR.nce and the wherewithal of nation-building activities. There is hardly any tax which tho Stat.es are antho· rised to colleet which coulu not be said to fall on traders. Property t·u, sales tax, municipal taxes, electricity taxes (to mention only few) are paid by traders as well ris by non-traders. To say that. all these taxPs arf\ so many restrictions upon t.he freedom of t.ran~, commerce and intercourse is to make the entire Constitutional document subordi· nate to trade and commerce. Since it is axiomatie that all taxes which tradeflman pays must burden him, any tax which t•Juches him must fall within Art. 304, if the word ''restriotion" is given such wide m~aning. Evel'y such legislation will then be within the pleasure of the President, and this could (l) [19'.iOJ no L.R. 432. (2) [1961] I. S.C.R. :lOC!.

1962 Automobile Transpcrl Rajast11 •n Ltd. v. ~tale of Ril; asthan Hida;votul/ah J.

not have been intended. "Restriction" must, there· fore, mean something more than mere tax burden . In our opinion, the issue of taxation cannot be made justiciable with reference to Art. 301 in those cases where the tax is a. general tax which a. trader pays in common with others. We would, therefore, respectfully disagree with the view of Shah, J., when he holds :

/962 .Automobile TranBport (Raiaslhan) Ltd· v. State of Rajasthan

"Not merely discriminative tariffs restric· ting movement of goods a.re included in the restrictions which are bit by Article 301, but all taxation on commercial intercourse even imposed as measure for collection of revenue is so hit. Between di~r.riminatory ta.riffs and trade barriers on the one hand and taxation for raising revenue on commercial intercourse, the difference is one of purpose and not of yuality. Both these forms of burdens on commercial intercour~e trench upon the free· <lorn guaranteed by Artinle 301."

That a. tax is a. restriction when it is placed

upon a. trade directly and immediately may be admitted. But there is difference between tax wbieh burdens a. trader in this manner and tax, which being general, is paid by tradesmen in common with others. The first is levy from the trade by reason of its being trade, the other is levied from all, and tradesmen pay it because every one ha.a to pay it. There is vital difference hetwe~n the two, viewed from the angle of freedom o! trade and commerce. The first is an impost on trade as sueh, and may be said to restrict it; the second may burden the trader, but it is not •restric-tion' of the trade. To refuse to draw such distinc. tion would mean that there is no taxing entry in Lists I and II which is not subject to Arts. 301 and 304, however general the tax and however non-discriminatory its imposition. To bring all the taxes within the reach of Art. 301 and thus to bring them

1 S.C.R. SUPREME COURT REPORTS

also within the reach of Art. 304 is to overlook the concept of Federation, which allows freedom of action to the States, subject, however, to the needs of the unity of India. Just as unity cannot be allowed to be frittered away by insular aotion, the existence of separate States is not to be sacrificed by fusion beyond what the C,onstitution envi1mges. No doubt, Part XIII en-sures economic unity to India and combines the federating States into the larger State called India. The Constitulion also permits independent powers of taxation. What the Constitution does not per-mit is that trade, commerce and intercourse should be rendered 'unfree'. Trade and commerce remain free even when general taxes are paid by trades-men in common with non-tradesmen. The question whether tax offends Part XIII can only arise when it seeks to tax trade, commerce and inter-course. Support for the contrary proposition is not to be found in James v. The Commonwealth ([1]) The Privy Council in James v. The Commonwealth ([1]) did not lay down:

"Every step in the series of operations which constitutes the particular transaction is an act of trade, and control under the State law of a.ny of these steps must be an interference with its freedom as trade." (p. 629)

The paesage represents the view held in McArthur's case ([1]). That case wa1:1 disapproved at p. 631. We have already dealt with this view at some length.

Thus, taxation laws and taxes must be divid-

ed into two kinds. Taxes which, are general and for revenue purposes which fall on those engaged in trade, commerce and intercourse in the same way a!\ they fall on others not so engaged cannot {l) (1'361 A.C. 578. (2) (1920) 28 C.L.R. S!JO.

1901 ..4.utomobile Transport (Rajasthsn) Ltd. v. Stat• of .Rajasl'han

Jf61 Aui.rirabiu Transp.rl (R<fia.s1h,.) Ltd. •• Stall •f Rajas1h .. Hid4.1a-ullah .T,

SUPREME OOURT REPORTS [1963]

normally be within the reach of Part XIII. motor transport owner cannot claim that be will not pay property tax in respect of his garage build-ings or electricity tax for the electricity he con-sumes in lighting them, or income.tax on his profits. Part XIII has nothing to do with such taxes even though they fall upon tradesmen.

But this is not to say that we accept the vie~ that all taxes or taxing laws are outside the reach of Part XIII. We find ourseives unable to accept the argument that there must be discernible point in the operations of trade, commerce and intercourse at which the tax becomes barrier to the freedom of the movement of trade before it will offend the freedom guaranteed. This argument considers the subject of freedom in terms of bar-riers, tariff walls and imposts, erected in the way of the free flow of trade, commerce and intercourse. Of course, if the tax does create b11rriers, tariff walls and imposts at some discernible point, the rastriction is easy to detect. But restrictions may be diverse, subtle and disguised, and tax may be direct and immediate restriction witho~t ap pearing to be so at particular point in the move· ment of trade. law which prohibits trade, com-merce and intercourse and releases them on the fulfilment of some unreasonable condition including the payment of an unreasonable or discriminatory tax will just as much be restriction offending the freedom as tariff wall or any other barrier. No question of pith and substance in thi11 context arises, as was pointed out by the Priyy Council in the Banks' case. The nature of the tax and its relation to trade, commerce and intercourse are the mat ten to consider.

In trying to establish that taxation entries

are entirely outside the reach of Part XIII, it is contended that Part XII, which deals with taxa-

1 S.C.R.

SUPR.EME COURT REPORTS

tion, is code by itself and taken with the Legisla-tive Lists, lays down the power of taxation which ca.nnot be ta.ken away by the pr whions of Part XIII. The power of taxation is, therefore, said to be not subject to the declaration of freedom in Art. 301. The imposition of tax is c0nditionecl on the existence of law. Article 265 lays down that ••no tax shall be levied or collected except by authority of law". Article 301 is curb on the law-ma.king power, because by the unambigu-ous declaration contained in it, the freedom of trade, commerce and intercourse is secured. The prohibition is addressed not only to the Executive but also to the Legislature, because Arts. 302 and 304 lift the ban which has been imposed in favour of action by law made by Parliament and the State Legislatures respectively. Article 301 expressly mentions the power to impose taxes which must include at least excise duties and sales tax, and from this, aleo, it is quite clear that taxation is within the prohibition contained in Part XIII. This argument was also rejected by the majority in Atiabari Tea Oqmpany case ([1]), and we respect-fulJy agree.

Before, however, tax can 1-:e struck down, the incidence of the tax and the method of its collection must be examined, If the tax falls upon trade, commerce and intercourse as such, irres-pective of whether it falls on trade viewed as who1e or upon individual traders, and restricts th~ freedom guaranteed, question will immediately arise about the legality of the tax. In this C·On-nection, even trade not in motion and more so trade in mot.ion will be protected unless the law, if ma.de by Par1iament is in the public interest, and if made by the Sta.ta Legislature it is reaso:i-ably in the public interest and the previous sanc-tion of the President has been obtained. What we have said about taxation and taxes is also (1) (1961) 1. S.C.R. 809.

1962 .Automobile Transport (Raj2Sthon) Lil. v. State of Rajasthat1 Hidayatull.1.h J.

Auromcbil 1 Trans/nrl (!iaja~tlznn) Lid. v. Stat1 of Rajasrtzan Hid·J.1U.!u/lall J.

true of other restrictions though not of pecuniary character. restriction from whatever source it may proceed, must be backed by law made in the manner indicated and the law must comply equally with those conditions. It may be stated there that it is not open under Part XIII to rourts to devfo<~ their own technique for exempting patent and palpabh interferences with the freedom of trade and commerce. In th~ Australian Consti-tution, there was no machinery for determining what freedom of trade, commerce and intercourse meaut; in given circumstances, and the Courts stepped in with its own interpretation of s. 92 of the Commonwealth of Australia Act. In our Constitution, many problems which a.gitated the Australian High Court have been obviated, and in so far as restriction of the freedom is concerned, it can only be achieved by law made in the public iutncst and in the minner indicated. In so far as State legislation is concerned, the law must be reasonably in the public interest, and the sanction of the President must be obtained. Thus, the President in the first instance and finally the courts will be the judges of the reasonableness of the restriction and the existence of public interest.

Part XIII, which has created the freedom,

has thus also shown the way for restricting the freedom. Tho Privy Council in the Banh' case (1) obsen·ed:

"If these two teats are applied : first

whether the effect of the Act is in parti-cular respect direct or remote; and secondly, wheth!lr in its true charact·er it is regulatory, the area of dispute may be considerably narrower."

This mav be true where the law attempts ti) regu-

late freedom but not true where the law re.stricts

(I) [1978] 76. C.L.R. T, 3RO, 381,

freedom. 'rhere is real difference between regulation and restriction. Traffic rules are regulations, not restrictions. Trade, commerce and intercourse are regulated so that they may flow freely. The rule of the road is not restriction of commercial traffic, but is one <lesigned to make the flow of traffic smooth. The prescription that cars should have reliable brakes or lights or sound device are not restrictions of trade. These regulations are need-ed both for ensuring safety for those engaged in traffic as also for securing that every one engaged in traffic might equally enjoy that right. The classification of heavy transport vehicles, the tare weight, the kinds of tyres they must have, the seat-ing capacity of buses and ·so on a.nd so forth are not normally restrictions of trade, commerce and inter<>ourse but are meant for the better and more effective flow of trade, commerce and inter-course. Such laws can not be viewed as res-trictions at all, and do not come within the free-dom angle, nor do they require the process under which freedom can be curtailed. Just as tax of general character payable by all and sundry and not placed upon trade directly and immediately cannot be considered as restriction of trade even though it burdens trader, so also regulations of trade without hampering it or impairing its freedom cannot be described as restrictions. regulation, when it ceases to be regulation and becomes prohibi-tion may require justification as reasonable rest-riotion. Fullagar, J., in Mc Oart,er v. Brodie ([1]) pointed out that regulation of speed on the high ways does not offend the freedom guaranteed, but rule that commercial vehicles should travel at one miles per hour ceases to be regulation and becomes restriction. Here, the question is not one of degree but of the essence of the purpose. The technique of justifying laws as regulatory was

(I) [1950] 80 C.L.R. 432,

.Auwmobi/1 Transport (Rajasthan) Ltd. v. State of Rajtislhan Hidoyatult.11 J,

6(0 SUPREME COURT REPORTS [1963)

evolved in Australia in view of the intractable language of s. 92 without Bny indiC'ation of the circumstances in which the absolute freedom could be curtailed. The detailed pro· visions contained in Part XIII render such construction of Art. 301 at once unnecessary and impermissible. Let us now see whether the validity of taxa· tion laws directly impinging on trade and com· merce can be upheld on the ground that they are - regulatory. Here, distinction must be made between fees and taxes. Fees charged as quid pro quo for services rendered or as representing adminis-trative charges are quite different from taxes, pure and 3imple. Fees may partake of regulation when they are demanded to enable Government to meet the cost of administration. But the tax, with which we are concerned, is hardly fee in that narrow sense. It is tax for raising revenue. Of such tax, Lord Watson asked the question: "Do you regulate man when you tax him ?" As was pointed out by Lord Herschell during the arguments in the .Uquor Prohibition Appeal 1895 ([1]) in passage which we have quoted earlier, the matter may be looked at in two ways. Lord Herschell observed:

19&2 Ai.tent oUile T,atisporl (Rajasthan) Ltd. v. Stale of Rajusthan HidaytJfullah J.

"May it not be necessary to regard it

fr(lm this point of view, to find what is within regulation of trade and commerce, what is the object and scope of the legislation ? Is it some public object which incidentally involves some fetter on trade or commerce or is it the dealing with trade and commerce for the purpose of regulating it ? May it not be that, in the former case, it is not regula-tion of trade and commerce, while in the (I) [1896] A.C. 348.

1 S.C.R~

latter it is, though in tach case trade and commerce in sense may be affected?"

In our judgment, the first test to apply is what is the object and scope of the legislation? regulation of trade and com?lerce may achieve some public purpose which affects trade and commerce incidentally but without impairing the freedom. Sometimes, however, the regulation it-self may amount to restriction, and if such stage is reached, then under our Constitution the restriction must be reasonably in the public inter· est, and the Presjdent's prior sanction must be . obtained, if the law imposing such restriction is made by the State Legislature. If, however, it does not reach the stage of restriction of trade and remains only regulation incidentally touching ·trade and commerce, the regulation is outside the operation of Arts. 301 and 304. · It is on this ground that laws prescribing the rule of the road and like provisions already referred to as well as regulation that the height to which trucks may be loaded must be such as not to endanger the overhead bridges or wires, do not h'3.ve to go before the President, since they do hot affect the freedom guaranteed. The object of such laws can-not be regarded as a. restriction of trade and comm-erce. Freedom in Art. 301 does not mean anarchy. Similarly, demand for tax from traders in common with others is not restriction of their right to oarry on trade and commerce. system of licensing of motor vehicles is a. regulation, but does not impair the freedom of trade and commerce unless the licensing is made to depend upon arbitrary discretion of the licensing au-thority. Similarly, fee for administrative pur-poses may also be viewed as pa.rt && regulation. Such licensing and fees fall outside Art. 301, because they cannot be viewed as restrictions, and there-fore do not need to be processed under Art. 304.

1111 .,{uJomobilf Transflor& (Iajasllum) Lltl. v. Slal1 of Bajast/lan Hidaralull.A J •

A.ut<Jmobil1 Transpor~ lR•Jasthan) lt11. v. S/fJlt of Rajastli"" idayatultah .f .

Such regulations are designed to give equal oppor-tunity to everyone, subject to certain standar<l. The object being public object, such regulations cannot be questioned unless they amount to res-trictions. tax, however, which is made the condition precedent of the right to enter upon and carry on businl"ss at all is very different matter. It is restriction on the right to carry on trade and commerce, and the restriction is released on the payment of the tax, which is the price of such release. It is from this point of view th·it the impugned provisions in this case must be examined.

We have to examine the precise nature of the

tax imposed, which has to be gathering from the charging section read with the Schedules, and the plain question is whether so read, there can be said to be anything other than tax on trader and on his activity as trader. The Act consists of 24 sections, and 4 Schedules. Section 4( I) which imposes the tax is the charging section and has, on its terms, to be read with each of the Schedules to the Act. Apa.rt from the usual sections gene-rally found in every taxing measure such as pres-cribing the time the tax has to be paid, cases in which refund may be had, declarations which have to be made, and provisions for recovery of tax, appeals, etc. there are provisions for penalties and for compounding. There is one other provision, to which attention may be drawn and that i1 e. 20, which reads:

"20. Levy of toll on certain bri.dges.'-Notwithetanding anything contained in this Act it shall be lawful for the Government to levy tolls on motor vehicles under any law or usage for the time being in force, such rates as it may from time to time fix-

(i) for the use of any bridges, or

(ii) on any bridge constructed, recomi-

tru•Jted or rep..1.ired after the commencement of this Act."

The four Schedules, as their headings amply

show, deal with differe11t subjects. t>chedule I iH divided into two parts and B. They deal with the subjects indicated in tho headings.

"A. Vehicles (other than

Transport

Vehicles plying for hire or required) if fitted solely with pneumatic tyres.

B. If the above motor vehicles arc

fitted with resilient or non-resilient tyre", extra tax: will be levied at 5% of tho above rate."

Part is then divided into three sections dealing with different classes of vehicles and prescribe different rates for each such class. We are not at present concerned with vehicles which are not used as transport vehicles plying for hire. Schedule II is also divided into two parts dealiag respec-tively with vehicles fitted with pneumatic tyres and vehicles not so fitted. The first part' deals with two categories marked respectively "A" and "B". "A" comprises motor vehicles plying for hire for the conveyance of passengers and light personal luggage of passengers, while "B" com· prises goo<ls vehicles plying under .Public Carrier's Permit. There are further sub-divisions in each category "A" and '[1]B'' according to the seating capacity of the vehicles on the basis of which different rates of tax are imposed, but it is not necessary to go into their details.

Schedule III comprises goods vehicles regis-

tered outside the State using roads in Rajasthan, and they are required to pay tax ca.foulated at specified sum per day. Schedule IV is headed: "Vehicles used for the carriage of goods

1962 Automobile Transpo•t ( Rajasthun) Lid. v. S,ate of Hajastha11 Hidayatu/lah J.

J96Z Aulomobi/1 TrcnJport (b•iasth,.) Lti .. St1J1 of R"jasthan

in connection with trade or business carri-ed on by the owner of the vehicle under Private Carrier's Permit."

These vehicles are again classified according to the kind of tyres with which they are fitted as well as by their load capacity and different amo-unts of tax are payable by each class. Part II of this Schedule specified the tax payable by dealers in or manufacturers of motor vehicle, which is described as payment "for general licence" dependent upon the number of vehicles which they manufacture or deal in.

From the above analysis, it will be seen that

the tax in Schs.II to IV is laid upon trade and commerce directly and immediately. It cannot be described as property tax. Motor Vehicles em-ployed by trader for transport of passengers and goods are integers of trade and commerce. The tax is not like the property tax which transport operator pays on buildings employed by him in his business. There, the tax is payable also but not as condition precedent to the business. The tax, with which we are concerned, is one directly and immediately laid on trade and commerce and also on trade and commerce in movement. In this connection, Sch. I and Part II of Sch. IV need not be considered for we are dealing with motor vehicles used as integers of trade and commerce. The tax is evidently not fee for administrative purposes; therefore, it cannot be justified as re-presenting payment for services. Its object is the raising of revenue, which distinguishes tax from fep.

We may next consider whether the tax can be justified as regulatory or compensatory, For thi11 purpose, some facts mu9t be stated. The 11ppel!ants are three. They owned buses which were registered in the former State of

I S.C.R.

Ajmer. They plied on diverse routes. There was one route. Nasirabad to Deoli, which lay mainly in Ajmer State, but it crossed narrow strips of the territory of Rajasthan. Another route, Ajmer to Kishengarh, was substantially in the Ajmer State, one-third of which was only in Rajas-than. Kishengarh was, at the material time, part of Rajasthan. The appellants were required to charge fares prescribed by the Ajmer authorities, and could not change them to cover extra expendi-ture in the shape of taxes, which they had to bear in Rajasthan. Formerly, there was an agreement between the Ajmer State and Kishengarh State, by which either State did not charge any tax or fees on vehicle registered in the respective States. Later, Kishengarh became part of Rajasthan, and the tax was demanded from these appellants for the period, Aprill, 1951, to March 31, 1954. The de-mand was made by virtue of s. 4, the charging sec-tion, under pain of the application of s. 11, which provides of penalties.

The taxes, which are imposed by tlchs. II, III

and IV(I), operate on trade and commerce directly. It is not denied that the carriage of passengers and goods amounts to trade. It was, in fact, so help in the Transport cases in Australia and also by the Privy Council. Under the Act, this trade can only be carried on, if the tax is paid. The Act, therefore, involves prohibition against trade, which prohi-bition is ruleased on payment of tax. The Schedules affect motor vehicles for carriage of passengers and goods on hire in Rajasthan and also similar vehicles coming from outside. In so far as vehicles coming from outside are concerned, their entry into the State is barred unless the tax is paid. The tax is thus not incidental to trade but is directly on it and is on its movement. This i1 not tax which the trader ha1 to bear in common with other!, and the tax is1962 Automniile Tr•nsport (Rojas h•n) Lt«. y Stah 1f Roj osthcn HdoyJtullch J.

"-utomobil6 Transp01'l (Raj.,thon) Ltd, v. Stat1 of Hojasthan Hidayatultah J.

for revenue purposes. This is case in which if the tax is not paid, the trade is destroyed. The char-ging provisions do not take into account what dis· tanae particular veb.icle travels within the State. vehicle travelling hundred miles and another travelling only one mile have to pay an identical sum as tax. How then can it be said that it involves fair recompense for the wear and tear of roads? To say that such tax is compensatory and is recom-pense for the wear and tear of the roads is to mis-describe it. Section ~O, which we quoted earlier, may be compensatory for use of hl'idge and may even be described a:; regulatory within the decision of Fullagar, J ., in J.li cGarter v. Brodie (1) but not the taxing provisions which even in Austmlia would not be regarded either as compensatory or regula-tory. It is impossible, therefore, to turn to the Australian precedents for help.

l!'urther, the duty of maintaining roads is duty of the State, and it performs it not from any special fund which is created from the receipt of these taxes but from its gPneral funds. The wear a:1d tear of the roads is not caused by the transport vehicles only but other vehicles not employed in the trade of transport. The tax which is levied is not based on any theory of recompense, which has been evolved in Australia. There, the distance travelled, the load carried are taken into account, and charge is payable by each operator according to the distanc" actually travelled by him in con8o-nance with the weight c:arried. further circums-tance which goes into the determination of the amount payable is the kind of tyres and the number of wheels which the vehicle has. To say that the im-pugned tax is compensatory without any attempt to apportion the charge e.ccording to the achual wear and tear, is to borrow theory for justification, which does not apply to the facts here.

(I) [l9SOJ UO C.L·R. 432.

l.S.C.R. SUPREME COURT REPORTS

The only other question is whether the Act is, in its true character, regulatory. There is no pro-vision in the Act which can be regarded ~s regula-tory of motor vehicles or their use. The Act plainly levies a. tax upon the possession or use of motor vehicles. tax does not regulate trade ordinarily; it imposes charge on trade. The question thus remains: does the tax burden trade or impair the free flow of trade and commerce aa contemplated Art: 301? It is clear that the tax is on trade. It is also clear that it is on t.he movement of trade. It is further clear that it creates barrier between one State and another, which trade cannot cross except on heavy payment. The tax is not truly fair recompense for wear and tear of roads even if juetification on the doctrine of compensatory taxes is applied. It is nothing except restriction, which Art. 301 forbids. Tbe Rill wliich beeame the Act, was not submitted to the President for his previous sanction, nor was it assented to sub1:1equently after it passed the Legislature. The question, therefore, whether t,he restriction imposed by the Act is reaso-nable or not, does not arise.We are-, therefore, of opinion that s. 4(1) as read with :-)chs. II, III and Part I of Sch. IV offen· ds Art. 301 of the Constitution, and as resort to the procedure prescribed by Art. 30!(b) was not t.aken, it is ultra vire~ the Constitution. We wish to make it clear that we pronounce no opinion about the constitutional valiJity of s. 4( 1) as read with Sch. I or the .. wcoud P<1.rt of Sch. IV. The first raises q11estion as to the meaning of the expression ''inter-course" in Part XIII and as tha.t matter is not relevant for the appr·al before us, and thus no argu-ments were heard on that point, we refrain from expressing any opi11ion on it. The second involves many ot.her questions, which a.re far remote from the controversy with which we are now concerned, and therefore need not be considered here.

1962 Aulomobile TranspOt't ( Rajaslhan) Ltt. v, Stat1 of Rajasthan Hiday tul/ah J.

19oi .A.utomoln'l1 Transport (RaJJSthan) Ltd. v. State of Rajasth1n Hidayc.tull ih J.

i962 Apil 11,

We would, therefore, allow the appeals, and quash the demand made upon the appellants .

BY CoURT: In accordance with the opinion of the majority, these appeals are dismissed with costs one hearing fee. '

Appwl dismisaed.

RADHAKRISHNADAS

KALURAM

(A. K. SARKAR, K. SuBBA RAo and J. R. MuDHOLKAR, JJ.)

Hindu Law-J<in.t f~n,ily p•~plrly-Sale by fatl"r and minor son-Whel~.er b1.nd111g on ~mo; sor:- ~egal nec'8sily /Jr part of sale consideration-If alienatwn ,iu.[0]tified- Inttrpretic'lt of sale deed-If transfers cultivatory right• in Sir also-0. P. Tenancy Act,-1920 (0. P. 1of1920), s. 49 (1).

R and his father executed sale for Rs. 50,000/· transfer-ring 16 annas in~rrcs~ in two villages belonging to the joint family "together with sir and khudkashat lands ........ as well as the cultivated and the uncultivated lands in the village wilh all the rights and privileges". Subsequently. R filed suit to set aside the sale on the grounds that actually he was minor when he executed the sale deed and that the legal necessity was only for Rs. 45,000/-. He further contended that the cultivatory rights in the sir lands were not transferred and claimed possession over them.

Held, that the alienation was for leg:>.! necessity and was valid and binding. The alience was only required to e;tab'i>h legal necessity for the transaction and it was not necessary for him to show that every bit of the consideration was applied for meeting family necessity. The transaction being for leg:>.! necessity the father was competent to execute the sale deed binding on the entire family :>.nd the joining of R, even though he was minor, did not aff<ct its validity or binding character.