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Trade, Commerce and Intercourse (Arts. 301-305)

Trade, commerce and intercourse may be domestic or foreign or international. Arts. 301- 305, of the Indian constitution deals with domestic trade and commerce, i.e., within the territory of India. Such commerce may be of two types--(i) intra- State, i.e., commerce which is confined within the territory of a State; (ii) inter-State, i.e., trade and commerce which overflows the boundary of one State and which extends to two or more States.

Several circumstances like availability of cheap labour or electric energy creates the possibility that the constituent units which have legislative powers of their own may, to serve their own narrow and parochial interests, seek to create trade barriers by restricting the flow of commodities either from outside or to other units.

Creation of such regional trade barriers may prejudicially affect national interests as it may hamper the economic growth of the country as a whole, and this would be disadvantageous to all the units in the long run. Besides, the resources and industries of the units may be complimentary to each other. Free flow of trade, commerce and intercourse within a federal country having a two-tier polity is a pre-requisite for promoting economic unity of the country.

Position In India

The Constitution-makers desired to promote free flow of trade and commerce in India as they fully realized that economic unity and integration of the country provided the main sustaining force for the stability and progress of the political and cultural unity of the federal polity, and that the country should function as one single economic unit without barriers on internal trade.

Economic unity of India is one of the constitutional aspirations and safeguarding its attainment and maintenance of that unity are objectives of the Indian Constitution. In order to ensure that the State Legislatures subjected to local and regional pulls do not create trade barriers in future, Arts. 301- 305 have been incorporated into the Constitution. These provisions deal with trade, commerce and intercourse within the territory of India--whether intra-State or inter-State. The main provision is Art. 301.

According to Art. 301, "trade, commerce and intercourse throughout the territory of India shall be free."23. This constitutional provision imposes a general limitation on the exercise of legislative power, whether of the Centre or of the States, to secure unhampered free flow of trade, commerce and intercourse from one part of the territory to another. The purpose underlying Art. 301 is to promote economic unity of India and that there should not be any regional or territorial economic barriers.

The origins of Art. 301 may be traced directly to Section 92 of the Austalian Constitution, but there are some significant differences between the two provisions.
  1. Therefore, the coverage of Art. 301 is broader than that of Section 92. A reason to include both 'inter-State' and 'intra-State' commerce within Art. 301 may be that at times it becomes difficult to draw a line of demarcation between the two as these may be so inextricably mixed up that control of one may result in the control of the other as well.24
  2. Section 92 makes freedom of trade 'absolutely' free, whereas Art. 301 omits the word 'absolutely'. This is for a good reason viz. that no freedom can be absolute. Even in Australia, the freedom is not 'absolute' but 'regulated' and 'relative'.
  3. Section 92 is worded generally and contains no exceptions. It has been for the Courts to spell out the restrictions on it. In India, on the other hand, the exceptions to Art. 301 have been laid down in Arts. 302-305. The total impact of these exceptions is to make the position in India quite different from that in Australia in the area of freedom of trade and commerce.
  4. In Australia, the restriction applies both to the Centre as well as the States. In India, on the other hand, while the restraint applies formally both to the Centre and the States, the scheme of the constitutional provisions (Arts. 302-304) is such that, in effect, the Centre can dilute the restraint by its own legislative action but the States remain subject to the control of the Centre in this respect.

Inter-Relation Between Arts. 19(1)(G) And 301

Article 19(1)(g), a fundamental right, confers on the citizens the right to practise any profession or carry on any occupation, trade or business subject to reasonable restrictions in public interest.29 The question of inter-relationship between Arts. 19(1)(g) and 301 is somewhat uncertain.

One view is that while Art. 19(1)(g) deals with the right of the individuals, Art. 301 provides safeguards for the carrying on trade as a whole distinguished from an individual's right to do the same.30 This view, however, is hardly tenable. Art. 301 is based on Section 92 of the Australian Constitution which has been held to comprise rights of individuals as well,31 and the same should be the position in India. In actual practice, this view has never been enforced and individuals have challenged legislation on the ground of its effect on their right to carry on trade and commerce. The Supreme Court has denounced the theory that Art. 301 guarantees freedom "in the abstract and not of the individuals."32

A difference between Arts. 19(1)(g) and 301, it has been said, is that Art. 301 could be invoked only when an individual is prevented from sending his goods across the State, or from one point to another in the same State, while Art. 19(1)(g) can be invoked when the complaint is with regard to the right of an individual to carry on business unrelated to, or irrespective of, the movement of goods,34i.e., while Art. 301 contemplates the right of trade in motion, Art. 19(1)(g) secures the right at rest.35

It is true that the 'movement' aspect of commerce is of great importance, and that one of the dominant purposes underlying Art. 301 is to keep inter-State movement of goods and persons free and unhampered. It is also true that the Supreme Court has placed emphasis on the movement aspect.36 Nevertheless, it is difficult to accept the theory that Art. 301 is limited only to movement and not to trade at rest. The concept of 'trade at rest' has been countered by the Statement that "there is no rest for the businessmen; the essence of intercourse is coursing not sitting......37 There have been quite a few cases in which Courts have scrutinized under Art. 301 such aspects of trade, commerce and intercourse which may be regarded as "commerce at rest" and not "in motion".38

There thus appears to be no satisfactory way to explain the relation of the two Articles. A restriction on trade and commerce can be challenged under both these constitutional provisions. However, Art. 301 covers many interferences with trade and commerce which may not ordinarily come within Art. 19(1)(g), as for instance, levy of octroi. Freedom of trade and commerce is a wider concept than that of an individual's freedom to trade guaranteed by Art. 19(1)(g).

Article 19(1)(g) can be taken advantage of by a citizen, while Art. 301 can be invoked by a citizen as well as a non-citizen. Also, while Art. 19(1)(g) is not available to a corporate person, Art. 301 may be invoked by a corporation and even by a State on complaints of discrimination or preference which are outlawed by Art. 303, discussed below. In emergency,39 Art. 19(1)(g) is suspended and so Courts may take recourse to Art. 301 to adjudge the validity of a restriction on commerce. In certain situations, only one of the two may be relevant, as for example, when there is no direct burden on a trade but it may be a restriction in terms of Art. 19(1)(g) read with Art. 19(6).

In some other situations, both provisions may become applicable and it may be possible to invoke them both. Economic situations and conditions being unpredictable, it is not necessary to evolve any conceptualistic differentiation between the two Articles. Art. 301 is a mandatory provision and a law contravening the same is ultra vires, but it is not a Fundamental Right and hence is not enforceable under Art. 32.40 But if the right under Art. 19(1)(g) is also infringed, then Art. 32 petition may lie.

Content Of Art. 301

The object of Art. 301 is to obviate any such possibility and to ensure free movement of goods throughout the Indian territory which is essential for developing a national economy.

The scope and content of Art. 301 depends on the interpretation of three expressions used therein, viz., trade, commerce and intercourse', 'free' and 'throughout the territory of India'.
  1. Trade, Commerce And Intercourse

    Explaining the word 'commerce' in the Commerce Clause of the U.S. Constitution, Marshall, C.J., Stated as early as 1824 in Gibbons v. Ogden44 that "commerce, undoubtedly, is traffic but it is something more; it is intercourse". The framers of the Indian Constitution, instead of leaving the idea of 'intercourse' to be implied by the process of judicial interpretation, expressly incorporated the same in Art. 301.

    The words trade and commerce have been broadly interpreted. In most of the cases, the accent has been on the movement aspect. For example, in the Atiabari case, the Court emphasized: "Whatever else it (Art. 301) may or may not include, it certainly includes movement of trade which is of the very essence of all trade and is its integral part," and, further, that "primarily it is the movement part of the trade" which Art. 301 has in mind, that "the movement or the transport part of trade must be free," and that "it is the free movement or the transport of goods from one part of the country to the other that is intended to be saved."
  2. 'FREE'

    The Supreme Court emphasized in Atiabari58 that Art. 301 provides that the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the State, or at any other point inside the States themselves. The majority judgment emphasized that free movement and exchange of goods throughout the territory of India is essential for sustaining the economy and living standards of the country.

    Art. 301 guaranteeing freedom of trade and commerce and intercourse embodies and enshrines a principle of paramount importance that the economic unity of the country would provide the main sustaining force for the stability and progress of the political and cultural unity of the country.
  3. Throughout The Territory Of India

    The view is definitely held now that Art. 301 applies not only to inter-State, but also to intra-State, trade and commerce as well, i.e., trade within a State.78 This view is also supported by the wordings of Arts. 302 and 304. The words "territory of India" in Art. 301 removes all inter-State or intra-State barriers, and bring out the idea that for the purpose of the freedom of trade and commerce, the whole country is one unit. Trade cannot be free throughout India if barriers exist in any part of India, be it inter-State or intra-State.

Regulatory And Compensatory Tax

It has been Stated that Art. 301 does not confer absolute freedom from taxation in respect of trade, commerce and intercourse. A number of entries in the three Lists, e.g., entries 89 and 92A in List I, entries 52, 54, 56 to 60 in List II and entry 35 in List III, confer taxing powers on the Centre and the States in relation to different aspects of trade, commerce and intercourse.80 But taxation should not be used to erect barriers, tariff walls or impede free flow of trade and commerce. To reconcile the freedom of trade and commerce and the power of taxation, the Supreme Court has evolved the concept of regulatory and compensatory tax. This means that a regulatory or compensatory tax is not hit by Art. 301.

To smoothen the movement of inter-State trade and commerce, the State has to provide many facilities by way of roads etc. The concept of regulatory and compensatory taxation has been evolved with a view to reconcile the freedom of trade and commerce guaranteed by Art. 301 with the need to tax such trade at least to the extent of making it pay for the facilities provided to it by the State, e.g., a road net-work and other infrastructural facilities.

The concept of regulatory and compensatory taxation has been applied by the Indian Courts to the State taxation under entries 56 and 57 of List II. Measures which impose compensatory taxes, or, are purely regulatory, do not fall with the purview of restrictions contemplated in Art. 301. The reason is that they facilitate, rather than hamper, the flow of trade and commerce.

Regulatory Measures
Regulatory measures are not regarded as violative of the freedom guaranteed by Art. 301. The word 'free' in Art. 301 does not mean freedom from such regulation as is necessary for an orderly society. Regulatory measures do not fall within the purview of the restrictions contemplated by Art. 301. As the Supreme Court has observed: "There is a clear distinction between laws interfering with freedom to carry out the activities constituting trade and laws imposing on those engaged therein rules of proper conduct or other restraints directed to the due and orderly manner of carrying out the activities".26

As regards regulatory measures, these may be of diverse nature or of various kinds such as traffic regulations, filing of returns, making of declarations, regulation of hours equipment, weight, size of load, lights, traffic laws, etc. These are some examples of regulatory laws which are not hit by Art. 301.27 Regulations like rules of traffic facilitate exercise of freedom of trade and commerce whereas restrictions impede that freedom. It is for the Court to decide whether a provision purporting to regulate trade and commerce is in fact regulatory or restrictive of the freedom guaranteed under Art. 301.

Similarly, regulation in the interest of public health and order takes the case out of Article 301, and regulation for the purpose of Article 301 is not confined to such regulations alone which will facilitate the trade.28 Such measures cannot be challenged unless they are shown to be of a colourable nature designed to restrict the free flow of trade, commerce and intercourse.

Exceptions To Freedom Of Trade And Commerce

No freedom can be absolute as absolute freedom of trade, commerce and intercourse may lead to economic confusion and it may degenerate into a self-defeating licentiousness in trade and commerce. The framers of the Constitution realized that under some circumstances freedom of trade and commerce may have to be curbed or curtailed. Therefore, the wide amplitude of the freedom granted by Art. 301 is expressly limited by Arts. 302 to 305.

The exceptions to Art. 301 are:
  1. Parliament is given power to regulate trade and commerce in public interest under Art. 302 subject to Art. 303.
  2. The State Legislatures are given power to regulate trade and commerce under Art. 304 subject to Art. 303.
  3. Art. 305 protects existing laws from the operation of Arts. 301 and 303.
  4. Art. 305 also saves nationalization laws from the operation of Art. 301.

The purport of these provisions is two-fold. One, Parliament is entitled by itself to impose restrictions on trade and commerce. Two, the power of the States to do so is restricted. The Centre can prevent a State from imposing a restriction if it is against national interest.

Before, however, Arts. 302 to 304 come into play, the Court has to decide whether the 'restriction' imposed is of a 'regulatory' nature or not. As Stated above, if it is of a regulatory nature, its validity need not be assessed with respect to any of the constitutional provisions contained in Arts. 302 to 304.
  1. Article 302

    Article 302 empowers Parliament to impose by law such restrictions on the freedom of trade, commerce and intercourse between one State and another, or within any part of the territory of India, as may be required in the public interest.

    By virtue of Art. 302, Parliament is, notwithstanding the protection conferred by Art. 301, authorised to impose restrictions on the freedom of trade, commerce and intercourse in the public interest. Thus, Art. 302 relaxes the restriction imposed by Art. 301 in favour of Parliament.

    The reference in Art. 302 to restriction on the freedom of trade within any part of the territory of India as distinct from freedom of trade between one State and another clearly indicates that the freedom granted by Art. 301 covers both intra-State as well as: inter-State commerce and trade, as Art. 302 is in the nature of an exception to Art. 301.
  2. Article 303

    Article 303(1), is in terms an exception to Art. 302. It restricts the power of Parliament to impose restrictions on trade and commerce under Art. 302. Art. 303(1) lays down that notwithstanding anything in Art. 302, Parliament shall not pass any law giving any preference to any one State over another, or discriminate between the States "by virtue of any entry relating to trade and commerce" in any of the three Lists.52 But, then, Art. 303(2) engrafts an exception to the restriction placed by Art. 303(1) on the powers of Parliament.

    Art. 303(2) says that nothing in Art. 303(1) shall prevent Parliament from making any law, or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law if it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. This exception applies only to Parliament and not to the State Legislatures.
Article 303(1) expressly forbids discrimination relating to trade and commerce. The words in italics in Art. 303(1) give rise to difficulties of interpretation. One possible view may be that this expression refers to such entries only as 41 and 42 in List I, 26 and 27 in List II and 33 in List III, and not to other general entries affecting trade and commerce, or to tax entries.53 A broader view would include within the expression all those entries in the various Lists which "deal with the power to legislate directly or indirectly in respect of activities in the nature of trade and commerce."54

In the former case, discrimination among the States will not be barred by Parliamentary tax legislation; in the latter case, it will be, as a tax operating on trade and commerce would be covered by Art. 303(1). Obviously, the latter view is the better of the two, for it bars preferential treatment of a State through any legislation affecting trade and commerce, and many a time the effect of a tax measure may be much more pervasive on the economy than that of a non-tax legislation.

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