The concept of freedom of trade, commerce, and intercourse holds great
significance in the Indian constitutional framework established in 1950. This
abstract explores the constitutional provisions and legal interpretations
surrounding this fundamental right, emphasizing its relevance to economic
development, national integration, and fostering a unified market within India.
The Indian Constitution, in Article 19(1)(g), guarantees the fundamental right
to practice any profession, carry on any occupation, trade, or business. This
provision aims to facilitate economic growth and individual autonomy, enabling
citizens to engage in commercial activities of their choice. However, this right
is not absolute and subject to reasonable restrictions imposed in the interest
of the general public under Article 19(6).
The Constitution, recognizing the importance of a unified market, also ensures
freedom of trade, commerce, and intercourse across the country. Article 301
prohibits any restrictions on the movement of goods, services, or people that
hinder the smooth flow of trade between states. Nonetheless, the state has the
power to enact laws in the public interest, provided they do not
disproportionately burden trade or discriminate against other states.
The objective of this paper is to discuss the importance and nitty-gritty of
trade, commerce and intercourse that are given under Articles 301 to 307 and
further examine the importance of each of the specific provisions and elaborate
on when restrictions can be imposed on trade and when it cannot, questioning the
sole factor i.e. public interest.
Over the years, Indian courts have interpreted and clarified the scope of these
provisions. The Supreme Court has emphasized that restrictions on trade and
commerce must be reasonable, proportionate, and not arbitrary. It has upheld the
state's power to regulate trade to protect public health, morality, and the
environment, but has struck down measures that unduly impede the freedom of
trade without valid justification.
The concept of freedom of trade, commerce, and intercourse has played a pivotal
role in India's economic liberalization. The dismantling of inter-state trade
barriers, the introduction of Goods and Services Tax (GST), and the
establishment of a unified national market have fostered economic integration
and facilitated ease of doing business across the country.
Additionally, the Constitution empowers the central government to impose
restrictions on trade with foreign nations in the interest of national security,
public health, and international obligations.
Furthermore, freedom of trade and commerce has contributed to national
integration by promoting inter-state economic cooperation, breaking down
regional barriers, and encouraging cultural exchange. The Constitution envisions
a harmonious and unified India, where economic activities transcend state
boundaries, fostering a sense of collective progress and prosperity.
Thus, the Indian Constitution of 1950 guarantees the fundamental right to
freedom of trade, commerce, and intercourse, emphasizing the importance of
economic growth, national integration, and a unified market. While subject to
reasonable restrictions, this right has played a crucial role in shaping India's
economic policies, enabling inter-state trade, and fostering a sense of unity
among diverse regions. The ongoing interpretation and evolution of these
provisions by the judiciary continue to shape India's trade and commerce
Introduction To Trade And Its Adoption
Trade and commerce play a vital role in the economic development and well-being
of any nation. Recognizing the importance of trade, the Indian Constitution,
specifically Part XIII, contains provisions to regulate and facilitate trade and
commerce within the territory of India. These provisions, consisting of Articles
301 to 307, establish guidelines and principles for the smooth flow of trade and
allow for the imposition of reasonable restrictions, if necessary.
Article 301 of the Indian Constitution is considered the primary reference for
regulating trade and commerce within India. It states that trade, commerce, and
intercourse throughout the territory of India should be free. This article
ensures that there are no barriers or obstacles to the movement of goods,
services, and people within the country[i]. It promotes the concept of a single
economic unit by facilitating the free flow of trade across state boundaries.
This provision was included to prevent any discriminatory practices that could
impede trade and commerce within India.
Trade can be categorized into two distinct types:
- Interstate trade:
This refers to trade conducted between multiple states or between a foreign
country and an individual state within India. Interstate trade involves the
movement of goods and services across state borders, thereby contributing to
the overall economic development and integration of different regions.
- Intrastate trade:
This category pertains to trade and commerce conducted solely within the
territorial boundaries of a particular state. Intrastate trade predominantly
influences the local economy, promoting internal trade activities and
enhancing the economic well-being of the state.
Trade barriers, such as tariffs, quotas, or non-tariff restrictions, are widely
regarded as having adverse effects on a state's economy. These barriers impede
the free flow of goods and services, impinging upon the state's ability to
achieve its desired maximum output. It is important to recognize that each state
possesses its own set of rules and regulations, which are enacted in the
interest of the public.[ii]
However, while Article 301 guarantees the free flow of trade, it also recognizes
the need for certain restrictions in the interest of public welfare. Articles
302 to 307 elaborate on the reasonable restrictions that can be imposed by the
Parliament and State Legislatures on trade and commerce activities within the
scope of the Indian state.
These reasonable restrictions can be imposed on the following grounds:
- Public Order:
Restrictions can be placed on trade and commerce activities if they pose a
threat to public order, peace, or security. This ensures that trade does not
lead to disturbances or unrest in society.
- Health and Morality:
Restrictions can be imposed to protect public health, morality, and the
general welfare of the people. This includes measures such as regulating the
sale of hazardous goods or banning the trade of certain harmful substances.
- Restrictions in the Interest of the Indian State:
The government can impose restrictions on trade and commerce for the
protection and promotion of Indian industries. This includes imposing
tariffs, quotas, or other trade barriers to safeguard domestic industries
from unfair competition.
- Protection of Scheduled Tribes:
Restrictions can be imposed to protect the interests of scheduled tribes,
particularly in relation to trade and commerce activities in tribal areas.
This is aimed at preserving their culture, livelihoods, and economic
- Public Utility Services:
Restrictions can be imposed on trade and commerce activities that are
directly related to public utility services, such as electricity, water, or
transportation. This ensures the efficient provision of essential services
to the public
The imposition of legitimate trade restrictions by states should not be viewed
as curbing the freedom of trade and commerce within the country. Rather, such
restrictions are implemented to safeguard public welfare, maintain national
security, protect domestic industries, or fulfil international commitments.
These measures are in accordance with the principles of sovereignty, fiscal
policy, and the overall public interest.[iii]
From a legal standpoint, it is imperative to establish a balance between the
free flow of trade and the regulatory framework governing trade activities. This
necessitates careful consideration of constitutional provisions, international
trade agreements, domestic legislation, and judicial precedents. The regulatory
framework must aim to promote fair competition, protect consumer rights, ensure
the efficient functioning of markets, and maintain a conducive business
Furthermore, legal mechanisms such as dispute resolution mechanisms,
arbitration, and administrative procedures should be in place to address any
trade-related conflicts or grievances that may arise[iv]. This allows for the
resolution of disputes in a timely and impartial manner, thereby upholding the
integrity and stability of the trade ecosystem.
Therefore, the inclusion of Part XIII in the Indian Constitution was inspired by
Section 92 of the Australian Constitution. The framers of the Indian
Constitution recognized the significance of promoting the free flow of trade and
commerce across different geographical areas of the country. By adopting similar
provisions, they aimed to create a unified economic space within India, ensuring
equal opportunities for individuals from diverse regions.
The provisions from Articles 301 to 307 of Part XIII of the Indian Constitution
establish the guidelines and principles for regulating trade and commerce within
India. While Article 301 ensures the free flow of trade, the subsequent articles
allow for reasonable restrictions in the interest of public welfare, the
protection of Indian industries, and other vital considerations. These
provisions aim to strike a balance between facilitating trade and commerce and
regulating them for the overall development and welfare of the nation.
Article 301 Of The Indian Constitution, 1950
Article 301[v] of the Indian Constitution is a pivotal provision that guarantees
the liberty of trade, commerce, and intercourse throughout the country. To fully
comprehend the implications of this article, it is essential to delve deeper
into the meaning and scope of the key terms it employs: trade, commerce, and
In common parlance, trade generally refers to the act of buying and selling
goods or services to make a profit. However, within the context of Article 301,
trade assumes a broader and more structured meaning. It encompasses a systematic
and organized exchange of goods and services for commercial purposes. The term
trade is often used interchangeably with business, underscoring the commercial
aspect of economic activities.[vi]
Commerce, on the other hand, pertains to the transmission or movement of goods,
services, or information through various mediums such as air, water, telephone,
telegraph, or any other means of communication. Within the scope of Article 301,
commerce specifically relates to the transportation or transmission aspect and
does not solely focus on the aspect of financial gain or profit. It encompasses
the movement of goods, services, and information across different regions or
Intercourse, as understood within the context of Article 301, refers to the
movement of goods from one place to another. It encompasses both commercial and
non-commercial movements and transactions. Intercourse includes travel and all
forms of interactions and dealings between individuals and entities,
facilitating the exchange of goods, services, and ideas.
It is important to note that the use of the term "free" in Article 301 does not
imply absolute freedom from all laws and regulations governing the country. The
concept of "freedom" in this context signifies the absence of barriers or
restrictions that hinder the movement of persons, property, and goods. It
emphasizes the need for a smooth and unimpeded flow of trade, commerce, and
intercourse within the country.
However, it is crucial to understand that this freedom is not absolute or
unbounded. While Article 301 guarantees the liberty of trade, commerce, and
intercourse, it does not negate the existence of laws and regulations that
govern these activities. The Constitution recognizes the distinction between
laws that obstruct freedom and those that establish rules and regulations for
the proper conduct of trade activities. The purpose is to ensure that trade and
commerce operate within a framework that promotes fairness, transparency, and
the overall welfare of the nation.
Thus, Article 301 of the Indian Constitution upholds the liberty of trade,
commerce, and intercourse throughout the country. Trade involves the structured
exchange of goods and services, commerce encompasses the transmission or
movement of goods, services, or information, and intercourse encompasses the
movement of goods and all forms of interactions. The "freedom" mentioned in
Article 301 refers to the absence of barriers or restrictions on these
activities while acknowledging the need for laws and regulations to ensure fair
and proper conduct.
Activities That Are Not Under The Ambit Of Trade
Under the Indian Constitution, while trade and commerce play a crucial role in
economic growth and development, there are specific activities that do not fall
within the scope of trade. It is essential to understand and differentiate these
activities from trade to ensure clarity in their regulation and governance[vii].
Here is a more elaborate explanation of activities that are not considered trade
under the Indian Constitution:
- Personal Transactions:
The Indian Constitution recognizes that certain
transactions are purely personal in nature and do not qualify as trade. These
transactions involve the exchange, gifting, or transfer of personal belongings,
services provided by individuals to their family members or friends without any
commercial motive, and activities undertaken for personal enjoyment or
satisfaction. These activities are outside the realm of commercial transactions
and are governed by personal laws rather than trade laws.
- Non-Profit Activities:
Activities conducted by charitable organizations,
NGOs, and other non-profit entities are not considered trade. These activities
are carried out with the primary objective of serving social or humanitarian
causes, rather than generating profits. Examples include providing free
education, healthcare services, conducting charitable events, or carrying out
community development projects. Such activities are subject to specific
regulations and laws governing non-profit organizations.
- Government Functions:
Various functions performed by the government are not
considered trade. These functions include the provision of public services,
regulation of markets, enforcement of laws and regulations, and maintenance of
law and order. Government activities are undertaken in the public interest and
are not driven by profit motives. They are governed by administrative and public
law frameworks, separate from trade regulations.
- Criminal Activities:
Illicit activities, such as smuggling, black market
operations, money laundering, and other illegal practices, do not fall within
the scope of trade. These activities are prohibited by law and are subject to
separate legal frameworks for their regulation and punishment. They are
considered criminal offences and are dealt with under criminal law provisions.
- Intellectual Property Rights:
The exercise of intellectual property rights,
including patents, copyrights, trademarks, and trade secrets, is not categorized
as trade. Intellectual property rights grant exclusive rights to creators or
owners of intangible assets, enabling them to control the use, reproduction, and
distribution of their creations or inventions. These rights are protected under
intellectual property laws, which are distinct from trade laws.
- Governmental Regulations and Powers:
The exercise of governmental powers and
regulatory functions, such as the imposition of taxes, duties, tariffs, and
trade restrictions, is not considered a trade. These activities are part of the
regulatory framework established by the government to maintain law and order,
promote economic stability, protect national interests, and ensure compliance
with legal obligations. They are governed by specific statutes and regulations
related to taxation, customs, and trade policy.
It is important to note that while these activities are not considered trade
under the Indian Constitution, they may still have legal implications and be
subject to specific laws and regulations. The distinction between trade and
these activities ensures that they are governed by appropriate legal frameworks
that address their unique characteristics and objectives.
Understanding this distinction helps provide clear and tailored legal frameworks
for the regulation and governance of these activities, contributing to a
well-functioning legal system and promoting overall socio-economic development
Distinction Between Article 19 And Article 301
Both Article 19[viii] and Article 301 of the Indian Constitution play
significant roles in safeguarding the freedom of trade, commerce, and
intercourse within the country. However, there are key distinctions between
these two provisions in terms of their scope and focus[ix]. Let's delve into a
detailed note on the distinction between Article 19 and Article 301:
Article 19 of the Indian Constitution guarantees the fundamental right to
freedom. It encompasses several freedoms, including the freedom of speech and
expression, the freedom to assemble peacefully, the freedom to form associations
or unions, the freedom to move freely throughout the territory of India, the
freedom to reside and settle in any part of the country, and the freedom to
practice any profession, occupation, trade, or business.
The freedom to practice any profession, occupation, trade, or business, as
mentioned in Article 19(1)(g), is closely related to trade and commerce. It
provides individuals with the liberty to engage in economic activities and
pursue their chosen occupations or businesses. However, this freedom is subject
to reasonable restrictions imposed by the state in the interest of public order,
morality, health, and the protection of the rights and interests of others.
These restrictions are outlined in Article 19(6) of the Constitution.
On the other hand, Article 301 specifically focuses on the liberty of trade,
commerce, and intercourse throughout the country. It emphasizes the need for a
smooth and unimpeded flow of trade and commerce within India's territories,
promoting economic unity and growth. Article 301 ensures that there are no
barriers or restrictions that impede the movement of goods, services, and people
across state boundaries.
Unlike Article 19, which encompasses a broader range of freedoms, Article 301
specifically addresses the economic aspect of freedom. It aims to create a
unified economic space by eliminating trade barriers and promoting the free
exchange of goods, services, and interactions between individuals and entities.
While Article 19 focuses on individual freedoms and rights, Article 301
emphasizes the collective interests of economic development and integration.
Another important distinction lies in the nature of restrictions applicable to
these provisions. Under Article 19, the state can impose reasonable restrictions
on the exercise of fundamental rights to ensure public welfare and the
protection of other individuals' rights. These restrictions are subject to
judicial review to determine their reasonableness and conformity with
In contrast, Article 301 places restrictions on the state's power to regulate
trade and commerce. It mandates that any law or regulation that seeks to
restrict trade and commerce must satisfy the test of reasonableness and be in
the public interest. The Constitution recognizes that restrictions on trade and
commerce can be imposed to safeguard public order, health, and the protection of
scheduled tribes, or for the operation of public utility services.
In summary, the definitive scope of distinction was elaborated by the Doctrine
of Res Extra Commercium[x] and in the case of Haji Usman Haji Mohammed v. State
of Madhya Pradesh
[xi] where it was concluded that both Article 19 and Article
301 uphold the freedom of trade, commerce, and intercourse, they differ in their
scope and focus. Article 19 guarantees a broader range of fundamental freedoms,
including the freedom to practice any profession, occupation, trade, or
Article 301 specifically addresses the economic aspect of freedom,
promoting the unimpeded flow of trade and commerce across state boundaries. The
restrictions applicable to these provisions also differ, with Article 19
allowing reasonable restrictions in the interest of public welfare, while
Article 301 limits the state's power to regulate trade and commerce to ensure
the smooth functioning of the economy.
Parliament's Power To Control Trade And Commerce Within The Public Interest
Article 302[xii] of the Indian Constitution empowers the Parliament to impose
restrictions on the liberty of trade, commerce, or intercourse within a state or
across states anywhere within the territory of India. These restrictions can
only be enforced if they are considered to be in the public interest. The
determination of whether a restriction is in the public interest or not lies
solely at the discretion of the Parliament.
In the landmark case of Surajmal Roopchand and Co v. The State of Rajasthan[xiii],
the issue at hand was the imposition of restrictions on the movement of grain
under the Defence of India Rules. The Defence of India Rules is legislation that
grants the government special powers to impose emergency measures during times
of war or national emergency.
In this case, the government imposed restrictions on the movement of grain in
the interest of the general public during a period of crisis or emergency. The
primary objective of such restrictions was likely to ensure the equitable
distribution of food supplies and prevent hoarding or black-marketing that could
lead to scarcity and price inflation.
The court, in its ruling, recognized the authority of the Parliament to impose
such restrictions under Article 302, as long as they are justified as being in
the public interest. The judiciary refrains from questioning the wisdom or
policy decisions of the Parliament when it comes to issues related to public
interest and emergencies. The courts generally adopt a deferential approach and
are cautious not to interfere with the legislative judgment unless there is a
clear violation of constitutional principles.
It is important to note that while the Parliament has the power to impose
restrictions on trade, commerce, or intercourse in the public interest, it must
ensure that such restrictions are reasonable, proportionate, and necessary to
address the specific concern at hand. Moreover, the restrictions should be
temporary and lifted as soon as the crisis or emergency abates.
The principle of proportionality ensures that any restriction imposed on
fundamental rights, including the freedom of trade and commerce, is not
excessive and does not go beyond what is necessary to achieve the stated
objective. This principle acts as a safeguard against potential abuse of power
and arbitrary actions.
State's Power To Control Trade And Commerce
Article 302 of the Indian Constitution grants the Parliament the power to impose
restrictions on the liberty of trade, commerce, or intercourse within a state or
across states anywhere in India. However, this power is subject to certain
limitations imposed by Article 303[xiv] and Article 304(a)[xv].
Article 303(1) restricts the Parliament from making any law that gives
preference to one state over another state in matters of trade and commerce,
under any entry in trade and commerce in any of the lists in the Seventh
Schedule. This provision ensures that no state is put in a more favourable or
advantageous position in trade and commerce compared to another state. It
prevents the Parliament from enacting laws that may discriminate against or
unfairly favour a particular state in trade-related matters.
Further, Article 304(a) allows states to impose taxes on goods transported or
imported from other states if similar goods manufactured or produced within the
state are also subject to taxation. The purpose of this provision is to ensure
that there is no discrimination between goods produced within the state and
goods imported from other states. It prevents states from imposing
discriminatory taxes on goods based on their origin.
In the case of the State of Madhya Pradesh v. Bhailal Bhai
[xvi], the State of
Madhya Pradesh imposed taxes on foreign tobacco, which was not subject to
taxation within its territory (State of Madhya Pradesh). The Supreme Court of
India censured this tax statement as discriminatory. The court held that such
discriminatory taxation violated the principles laid down in Article 304(a) and,
as a result, was unconstitutional.
The court's ruling emphasized the importance of avoiding discrimination between
goods produced or imported from other states and goods produced within the
state. The objective of Article 304(a) is to ensure a level playing field for
all goods, irrespective of their origin, within the country.
In summary, while Article 302 grants the Parliament the power to impose
restrictions on trade, commerce, or intercourse, this power is not absolute. It
is subject to the limitations imposed by Article 303 and Article 304(a). Article
303(1) prevents the Parliament from giving preferential treatment to one state
over another in trade matters, and Article 304(a) ensures that states cannot
impose discriminatory taxes on goods based on their origin. The case of Bhailal
Bhai v. The State of Madhya Pradesh
reaffirmed the importance of adhering to
these principles and upholding a fair and non-discriminatory trade environment
within the country.
Restrictions On Trade, Commerce, And Intercourse Among States
Clause (2) of Article 304 of the Indian Constitution guides the states regarding
the imposition of reasonable restrictions on the freedom of trade, commerce, and
intercourse. While the states have the authority to impose such restrictions in
the interest of the public, certain conditions need to be met, and the
Parliament's supremacy in regulating trade and commerce is emphasized.
The key points to consider are as follows:
- Approval from the President:
Before a state can propose any bill or amendment to regulate trade and
commerce, it must seek approval from the President of India. This ensures
that any proposed restriction is subjected to a higher level of scrutiny and
is consistent with the broader interests of the nation.
- Reasonable and Rational Restrictions:
Any restrictions imposed by the state
must be reasonable and rational. This means that the restrictions should not be
excessive, disproportionate, or arbitrary. They should be carefully designed to
achieve a legitimate public interest objective, and their impact on trade and
commerce should be balanced and proportionate.
- In the Interest of the Public:
The primary condition for imposing
restrictions on trade and commerce is that they must be in the interest of the
public. This criterion ensures that any measures taken by the state do not
undermine public welfare or create unnecessary barriers to economic activity.
It is important to note that while the states have the power to impose
reasonable restrictions on trade and commerce, the Parliament's authority in
this matter remains superior. This is because the Constitution grants the
Parliament the power to regulate trade and commerce, as stipulated in Article
301, subject to certain limitations and exceptions.
The Parliament's authority in regulating trade and commerce is not absolute, as
it is restricted by Article 302, which allows for the imposition of restrictions
in the interest of the public. However, Article 304 further reinforces the
Parliament's supremacy by requiring state laws imposing such restrictions to
receive the President's approval.
By requiring states to seek approval from the President and ensuring that the
restrictions are reasonable and in the public interest, the Constitution strikes
a balance between the states' autonomy and the need for a unified and coherent
national trade policy. It acknowledges the importance of local considerations
while also safeguarding the overall economic interests of the country.
In conclusion, Clause (2) of Article 304 guides the states in imposing
reasonable restrictions on trade and commerce. The conditions specified in this
clause, including seeking approval from the President, ensuring reasonableness,
and serving the public interest, underscore the Parliament's superior authority
in regulating trade and commerce. This approach strikes a balance between state
autonomy and national economic interests and fosters a harmonious and cohesive
trade environment in the country.
Saving Of Existing Laws
Article 305[xvii] of the Indian Constitution serves to protect existing laws and
laws that provide for State monopolies. It ensures that these laws remain valid
and effective until and unless the President issues an order to the contrary or
unless they are modified or repealed by a subsequent law.
In the case of Saghir Ahmad v. The State of UP[xviii], the Supreme Court raised
the question of whether an Act that establishes a State monopoly in a specific
trade or commerce would be considered as offending the Constitution of India
under Article 301.
Article 301 of the Indian Constitution guarantees the freedom of trade,
commerce, and intercourse throughout the territory of India. It ensures that
trade and commerce flow freely across state borders without any undue
restrictions or barriers. However, Article 302 provides an exception, allowing
the Parliament to impose reasonable restrictions on this freedom in the interest
of the public.
Article 305 comes into play to protect existing laws that may conflict with the
principles of free trade and commerce under Article 301. If there is a State law
that establishes a monopoly in a particular trade or commerce, it will be saved
by Article 305, and its validity will not be questioned under Article 301. This
means that the State law providing for a monopoly will continue to operate until
and unless it is challenged and struck down for being unconstitutional.
Additionally, Article 307[xix] of the Indian Constitution empowers the
Parliament to appoint an authority for the effective implementation of the
provisions laid down in Articles 301, 302, 303, and 304, which deal with the
freedom of trade, commerce, and intercourse and the imposition of reasonable
restrictions. The Parliament has the discretion to designate such authority and
bestow it with functions and powers as it deems necessary.
The authority appointed under Article 307 plays a crucial role in ensuring the
proper implementation and enforcement of the provisions related to trade and
commerce. It helps in harmonizing the interests of different states and ensuring
that the trade and commerce activities within the country operate smoothly and
in compliance with the constitutional framework.
In conclusion, Article 305 of the Indian Constitution protects existing laws and
State monopolies from being invalidated under Article 301. However, these laws
must not be contrary to the Constitution as a whole or any specific provisions.
The appointment of an authority under Article 307 ensures effective
implementation and enforcement of the provisions related to trade, commerce, and
the imposition of reasonable restrictions. This framework helps in maintaining a
balance between the freedom of trade and the interests of the public and the
Landmark Judgments And Case Laws
- Atiabari Tea Co. Ltd. v/s The State of Assam
In the case of Atiabari Tea Co. Ltd. v. The State of Assam[xx], the
constitutional validity of the Assam Taxation Act was brought before the Supreme
Court for examination. The Act in question imposed taxes on goods transported
through inland waterways and roads in the state of Assam. The petitioner,
Atiabari Tea Co. Ltd., was involved in the business of transporting tea to
Kolkata through Assam and contended that the Act violated Article 301 of the
Indian Constitution, which guarantees the freedom of trade, commerce, and
intercourse throughout the territory of India. Additionally, the petitioner
raised the question of whether the Act could be saved from being
unconstitutional by falling under the ambit of Article 304(b) of the
Article 301 of the Indian Constitution forms a cornerstone in promoting economic
unity and integration within the country by ensuring the free flow of trade and
commerce across state borders without any internal barriers or restrictions. It
empowers individuals and businesses to engage in trade activities without undue
hindrance, fostering economic growth and development.
The Supreme Court, in its analysis of the disputed law, found that the Assam
Taxation Act indeed imposed taxes on goods being transported through the state's
inland waterways and roads. These taxes directly and immediately hindered the
movement of goods, and as such, the Act fell within the purview of Article 301.
However, Article 304(b) of the Constitution provides an exception to the freedom
of trade and commerce by allowing states to impose taxes on goods imported from
other states if similar goods produced or manufactured within the state are also
subjected to taxation. But, crucially, such imposition of taxes requires the
sanction of the President before any state can enact such a law.
In the present case, the Supreme Court determined that the requirements of
Article 304(b) were not fulfilled. The Assam Taxation Act, which levied taxes on
goods passing through the state, had not obtained the requisite sanction of the
President. Therefore, the Act could not be protected under Article 304(b).
The Court underscored the paramount importance of preserving the freedom
guaranteed under Article 301. It emphasized that the constitutional guarantee of
free trade and commerce would lose its significance if the transmission of goods
was obstructed without adhering to the standards outlined in Articles 302 to 304
of the Constitution.
In conclusion, the Supreme Court's ruling in the Atiabari Tea Co. Ltd. case
reinforced the vital importance of upholding the freedom of trade and commerce
as enshrined in Article 301. It clarified that any taxes or regulations that
impede the movement of goods must meet the conditions specified in the relevant
provisions of the Constitution, including Article 304(b). The ruling served as a
reminder that the seamless flow of goods is a fundamental aspect of national
economic unity and integration, and any restrictions on this freedom should be
meticulously scrutinized and in compliance with the constitutional framework.
- Automobile Transport Ltd. v. State of Rajasthan
In the case of Automobile Transport Ltd. v. State of Rajasthan[xxi], the State
of Rajasthan imposed an annual tax on motor automobiles, with different tax
rates for motor vehicles and goods vehicles. The appellant challenged the
validity of this tax under Article 301 of the Indian Constitution, which
guarantees the freedom of trade, commerce, and intercourse throughout the
territory of India. The central question was whether this tax was
constitutionally valid and whether it violated the freedom of trade and
The Supreme Court, in its analysis of the disputed tax, held that in the present
case, the tax imposed was valid. It was considered to be a regulatory measure or
a compensatory tax aimed at facilitating the smooth functioning of trade,
commerce, and intercourse. The Court emphasized that taxes are essential tools
for a state to maintain its economic health and stability. The concept of
"Compensatory or Regulatory Taxes" has evolved to ensure that the state can levy
taxes that serve the purpose of compensation for public interests and regulatory
purposes if required.
Compensatory or regulatory taxes are imposed with the intention of compensating
the public for any specific benefits or services provided by the government that
contribute to facilitating trade and commerce. They are designed to offset any
costs incurred by the government in providing infrastructure, services, or
facilities that aid the smooth operation of trade activities.
The Supreme Court further clarified that if such a tax or regulatory measure is
challenged in court as an infringement or a violation of the freedom guaranteed
under Article 301, it would not be considered as such. This means that the
imposition of compensatory or regulatory taxes, which aim to serve public
interests and facilitate trade, would not be viewed as impeding the freedom of
trade and commerce and would not require validation under Article 304(b) of the
In essence, the Automobile Transport Ltd. case established the validity of
compensatory or regulatory taxes and affirmed that they serve essential purposes
in maintaining the economic well-being of the state and promoting the smooth
functioning of trade and commerce. Such taxes, which are designed to compensate
for public benefits and support regulatory measures, are constitutionally sound
and do not infringe upon the freedom of trade and commerce guaranteed by Article
301. Therefore, they do not require further validation under Article 304(b) of
- H. Sanjeeviah v. State of Mysore
In the case of H. Sanjeeviah v. The State of Mysore[xxii], the issue before the
Supreme Court was the constitutionality of a regulation imposed under the Mysore
Forest Act, of 1900. This regulation banned the movement of forest produce
between dawn and sunset, essentially restricting the transportation and trade of
such goods during specific hours of the day. The key question before the court
was whether this regulation violated the freedom guaranteed under Article 301 of
the Indian Constitution.
Article 301 of the Constitution ensures the freedom of trade, commerce, and
intercourse throughout the territory of India. It is a fundamental right that
allows individuals and businesses to engage in trade and transportation of goods
and services without any internal barriers or restrictions imposed by the state.
In its ruling, the Supreme Court held the regulation void and declared it as
violating the freedom assured under Article 301. The Court made a clear
distinction between restrictive measures and regulatory measures. Regulatory
measures are those that are imposed in the public interest to facilitate trade
and commerce or to maintain the smooth functioning of economic activities. On
the other hand, restrictive measures directly hinder or impede the movement of
goods and services, thus infringing upon the freedom of trade.
In this case, the Court found that the regulation banning the movement of forest
produce between dawn and sunset was not a regulatory measure aimed at promoting
the efficient functioning of trade. Instead, it was a restrictive measure that
directly hindered the movement of goods during specific hours of the day. This
restriction was considered unreasonable and unnecessary, as it did not serve any
valid public interest or regulatory purpose.
By declaring the regulation void, the Supreme Court reaffirmed the significance
of preserving the freedom of trade and commerce guaranteed under Article 301. It
emphasized that any restrictions on trade must be carefully scrutinized to
ensure they are reasonable, proportionate, and genuinely serve public welfare or
regulatory objectives. Restrictions that unreasonably impede the free movement
of goods and services may be deemed violative of the constitutional right to
trade and commerce.
In summary, the State of Mysore v. Sanjeeviah case underscores the importance of
upholding the freedom of trade and commerce as enshrined in Article 301 of the
Constitution. It reminds the government and authorities that any regulations or
restrictions on trade should be reasonable and in the public interest, without
unduly hindering the free flow of goods and services within the country. The
ruling serves as a safeguard to ensure that trade and commerce can thrive
unimpeded, promoting economic unity and integration across different states and
regions of India.
- G.K. Krishna v. State of Tamil Nadu
In the case of G.K Krishna v/s State of Tamil Nadu[xxiii], the issue at hand was
the validity of a government notification under the Madras Motor Vehicles Act
that increased the motor vehicle tax on omnibuses from Rs.30 to Rs.100. The
government's rationale behind implementing this tax hike was to curb unhealthy
competition between omnibuses and regular stage carriages and to reduce the
misuse of omnibuses for commercial purposes. The petitioner raised two key
questions: (a) Whether the tax was compensatory or regulatory in nature, and (b)
Whether it constituted a barrier to the freedom of trade, commerce, and
intercourse guaranteed under Article 301 of the Indian Constitution.
The Supreme Court, in its ruling, held that the tax increase on carriage
expenses was of a compensatory or regulatory nature and thus did not violate the
freedom assured under Article 301. The Court explained the basis for its
judgment, stating that taxes, when designed as compensatory or regulatory
measures, are not restrictions but rather a means to facilitate trade.
A compensatory tax seeks to compensate the government for providing specific
services or facilities that aid in the smooth functioning of trade and commerce.
In this case, the tax increase was related to the maintenance of safe and
efficient roads, which are essential for the smooth operation of public motor
vehicles such as omnibuses. The Court recognized that the maintenance of such
roads incurs costs to the government, and the use of public motor vehicles
directly contributes to the wear and tear of these roads. Therefore, the
implementation of the tax was considered reasonable and not an unreasonable
restriction on trade.
The Court further clarified that no citizen has the right to avail of specific
services without reimbursing the state for the cost of providing those services.
Compensatory taxes are imposed to ensure that those benefiting from particular
services or infrastructure contribute their fair share to maintain those
services. It is not an additional burden but a fair reimbursement for the use of
The judgment emphasized that the tax increase did not constitute a barrier to
the freedom of trade, commerce, and intercourse. Instead, it served the
legitimate purpose of compensating the government for maintaining roads that
facilitated trade and commerce. The Court acknowledged the importance of having
secure and efficient roads for the smooth functioning of automobiles, including
public transport, and held that the tax increase was accurate and legitimate
under the law.
In conclusion, the G.K Krishna v/s State of Tamil Nadu case reinforces the
concept of compensatory or regulatory taxes and their role in facilitating trade
and commerce. Such taxes, when designed to compensate for specific services or
facilities, do not impede the freedom of trade. They ensure that those
benefiting from particular services contribute their fair share, which is
essential for maintaining a conducive environment for trade and commerce within
the country. The ruling serves as a reminder that taxes, when reasonably imposed
and not unduly burdensome, are instrumental in promoting economic stability and
maintaining essential infrastructure for the smooth functioning of trade and
Therefore, it can be derived that the rulings discussed in various cases have
played a pivotal role in safeguarding the relationship between freedom of trade
and commerce in India. Through these judgments, the judiciary has emphasized the
significance of upholding the constitutional guarantee provided by Article 301,
which ensures the free movement of goods and services across the country.
The courts have distinguished between regulatory measures that promote trade and
compensatory taxes aimed at facilitating economic activities and those
restrictive measures that directly hinder the free flow of goods and services.
By declaring restrictive regulations void and validating compensatory measures,
the judiciary has reinforced the notion that trade and commerce should thrive
unimpeded within the country.
These rulings have acted as a safeguard to prevent undue restrictions on trade
and commerce, ensuring economic unity and integration across different states
and regions of India. As a result, the freedom of trade and commerce remains a
fundamental right, fostering economic growth and development while upholding the
principles of fairness, efficiency, and the public interest.
In conclusion, while the Indian Constitution guarantees the freedom of trade,
commerce, and intercourse through Article 301, this freedom is not absolute and
may be subject to reasonable regulations. Articles 302 to 305 play a crucial
role in imposing such regulations and ensuring that trade is conducted lawfully
both within states and across the country.
Articles 302 and 304 empower the Parliament and the state legislatures to impose
reasonable restrictions on the freedom of trade and commerce in the interest of
the public, while Article 303(1) prevents the Parliament from favouring one
state over another in matters of trade and commerce. Article 305 saves existing
laws and laws providing for State monopolies from being invalidated under
Together, these provisions work harmoniously to strike a balance between the
free flow of trade and the need for necessary regulations to safeguard public
interest, economic stability, and fair competition. They ensure that trade is
conducted within a framework that is conducive to the overall well-being of the
nation and its citizens.
These constitutional provisions collectively uphold the importance of the
freedom of trade, commerce, and intercourse as a fundamental aspect of economic
unity and development within the country. They protect businesses and
individuals engaged in trade from arbitrary and unreasonable interference,
ensuring that trade activities are not hindered based on geographical variations
or other arbitrary limitations.
While these provisions provide a robust framework for regulating trade, they
also emphasize that any restrictions imposed must be reasonable, proportionate,
and in the interest of the public. They prevent undue barriers to economic
activities while allowing the government to take necessary measures to address
specific concerns in trade and commerce.
Thus, it can be finally concluded that the Constitution ensures the provision of
constitutional recognition to the freedom of trade, commerce, and intercourse.
Articles 302 to 305 create a comprehensive structure that guarantees a lawful
and balanced environment for trade and commerce. This framework ensures that
trade can flourish without unreasonable interference, enabling economic growth
and integration across states and the nation as a whole.
- Trentmann, F., 'Free Trade Nation: Commerce, Consumption, And Civil Society In Modern Britain' Vol.53, (2010), https://doi.org/10.2979/victorianstudies.53.1.139 (Last Visited on Jul. 20, 2023).
- Sanjay Rawat, Freedom to Trade, Commerce and Intercourse, https://sociallawstoday.com/freedom-to-trade-commerce-and-intercourse/ (Last Visited on Jul. 19, 2023)
- Aneri Shah, 'Analysis of Freedom of Trade and Commerce in India under Indian Constitution', Vol.3, (2018), https://thelawbrigade.com/wp-content/uploads/2019/06/Aneri-Shah.pdf (Last Visited on Jul. 18, 2023).
- Schoenbaum, T.J., 'Free International Trade and Protection of the Environment: Irreconcilable conflict?', Vol. 86, (1992), https://doi.org/10.2307/2203788 (Last Visited on Jul. 19, 2023)
- The Constitution Of India, Art. 301, No.1, Act Of Parliament, 1950 (India).
- Sandhya Prabakaran, Freedom of Trade and Commerce- A Constitutional Viewpoint, Vol.1 (2021) https://lawcolloquy.com/journals/pdf%206.pdf (Last Visited on Jul. 21, 2023)
- Aastha Roy, 'Whether Trade, Commerce, Intercourse Free', Vol.9 (2020) https://www.ijsr.net/archive/v9i9/SR20923191620.pdf (Last Visited on Jul. 20, 2023).
- The Constitution Of India, Art. 19, No.1, Act Of Parliament, 1950 (India).
- Aparajitha Priyadarshini, Inter-relation Between Article 301 and Article 19(1)(g), https://www.indiclegal.com/post/inter-relation-between-article-301-and-article-19-1-g (Last Visited on Jul.20, 2023)
- Advocate Khoj, https://www.advocatekhoj.com/library/lawreports/legalframework/14.php, (Jul. 22, 2023)
- Haji Usman Haji Mohammed v. State of Madhya Pradesh, AIR 1958 MP 33; 1958 CriLJ 181.
- The Constitution Of India, Art. 302, No.1, Act Of Parliament, 1950 (India).
- Surajmal Roopchand and Co v. the State of Rajasthan, AIR 1967 Raj 104; 1967 CriLJ 809.
- The Constitution Of India, Art. 303, No.1, Act Of Parliament, 1950 (India).
- The Constitution Of India, Art. 304(a), No.1, Act Of Parliament, 1950 (India).
- Bhailal Bhai v. State of Madhya Pradesh, 1960 11 STC 511 MP.
- The Constitution Of India, Art. 305, No.1, Act Of Parliament, 1950 (India).
- Saghir Ahmad v. The State of UP, 1954 AIR 728; 1955 SCR 707.
- The Constitution Of India, Art. 307, No.1, Act Of Parliament, 1950 (India).
- Atiabari Tea Co. Ltd. v. The State of Assam, AIR 1961 SC 232; 1961 1 SCR 809.
- Automobile Transport Ltd. v. State of Rajasthan, 1962 AIR 1406, 1963 SCR (1) 491.
- H. Sanjeeviah v. State of Mysore, 1967 AIR 1189, 1967 SCR (2) 361.
- G.K Krishna v. State of Tamil Nadu, 1975 AIR 583, 1975 SCR (2) 715.
Award Winning Article Is Written By: Mr.Rakshith Mukund
Authentication No: AG358119937155-3-0823