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Freedom of Trade and Commerce within the Territory Of India: Chapter XVIII, Article 301

The framers of the Indian constitution, instead of leaving the idea of 'intercourse' to be implied by the process of judicial pronouncements, expressly incorporated the same in Article 301. The words trade and commerce have been broadly interpreted.

Case Laws:
  1. In Atiabari Tea Co. v. State of Assam[1] 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 is its integral part," and, further, that "primarily it is the movement part of the trade" which Article 301 has in its mind, that "the movement or the transport of the 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. In Koteswar v. K.R.B. & Co[2], a restriction on forward contracts was held to be violative of Article 301.The Supreme Court held that a power conferred on the state government to make an order providing for regulating or prohibiting any class of commercial or financial transactions relating to any essential Article, clearly permits restrictions on freedom of trade and commerce and, therefore, its validity has to be assessed with reference to Article 304(b).
     
  3. In District Collector, Hyderabad v. Ibrahim[3], the Supreme Court has invalidated under Article 301 an attempt by a state to create by an administrative order a monopoly to deal in sugar in favor of cooperative societies. The order was issued while the proclamation of emergency was operative and so Article 19 (1)(g) could not be invoked. The court therefore took recourse to Article 301.
     
  4. In Fatehchand Himmatlal v. State of Maharashtra[4], the Supreme Court considered the question that whether the Maharashtra debt relief act, 1976, was constitutionally valid vis-Ć vis Article 301
    • Certain activities may not be regarded as trade, commerce and intercourse although the usual forms and instruments are employed therein, as for example, gambling, and thus an Act restricting betting and gambling is not bad under Article 301.
    • After an elaborate study of the scope of the meaning of these words, it can be said that the word "trade" cannot be confined to the movement of goods but extends to transactions linked with merchandise or flow of goods, the promotion of buying and selling, advances, borrowings, discounting bills and mercantile documents, banking and other forums of supply of funds.
    • Money lending and trade financing also constitutes trade.
    • The word 'free' in Article 301 cannot mean an absolute freedom or that each and every restriction on trade and commerce is invalid.
    • The Supreme Court has held in Atiabari that freedom of trade and commerce guaranteed by Article 301 is freedom from such restrictions as directly and immediately restrict or impede the free flow or movement of trade.
    • Therefore Article 301 would not be attracted if a law creates an indirect or inconsequential impediment on trade, commerce and intercourse which may be regarded as remote.

1. State of Mysore v. Sanjeeviah[5], A rule banning movement of forest produce within the state between 10 p.m; and sunrise was held to be void under Art. 301 as it was not 'regulatory' but 'restrictive

Regulatory and Compensatory Tax
  • To smoothen the movement of interstate 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.
  • If a charge is imposed not for the purpose of obtaining a proper contribution to the maintenance and upkeep of the road, but for the purpose of adversely affecting trade or commerce, then it would amount to, a restriction on the freedom of trade, commerce and intercourse.
  • 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.
(i) Automobile Transport v. Rajasthan [6]
  • The court ruled that the tax was not hit by Art. 301, as it was a compensatory tax having been levied for use of the roads provided for and maintained by the state
  • Thus, to this extent, the majority view in Atiabari was now overruled by Automobile.
  • Since then the concept of regulatory and compensatory taxes has become established in India with reference to entries 56 and 57, List II, and the concept has been applied in several cases, and progressively the courts have liberalised the concept so as to permit state taxation at a higher level.

(ii) Bolani Iron Ores v. State of Orissa[7]
  • A compensatory tax is levied to raise revenue to meet the expenditure for making roads, maintaining them and for facilitating the movement and regulation of traffic.
  • The Supreme Court held that taxation under entry 57, List II, cannot exceed the compensatory nature which must have some nexus with the vehicles using the roads.
  • The regulatory and compensatory nature of the tax is that taxing power should be used to impose taxes on motor vehicles which use the roads in the state or are kept for use thereon.
(iii) G.K. Krishnan v. State of Tamil Nadu[8]
  • Facts: The State of Tamil Nadu increased the motor vehicles tax from Rs. 30 to 100 per seat per quarter and this was challenged as being violative of Art. 301.
  • Issue: whether a non-discriminatory tax levied by a state should be regarded as a restriction on trade and commerce because of the feeling that this would curtail state autonomy to levy taxes falling in the state legislative sphere?
  • But the Supreme Court upheld the tax.

Direct and immediate restrictions
  • The restrictions which will attract Article 301 must be those which directly and immediately restrict or impede the free flow or movement of trade
  • Only those taxes which directly and immediately restrict trade would fall within the purview of Article 301.
  • The rational and workable test to apply would be: does the impugned restrictions operate directly or immediately on trade or its movement?
  • What is prohibited is a tax whose direct effect is to hinder the movement of trade.

Inter-relation between Articles 301 and 19(1)(g)
  • Article 19(1)(g) deals with the right of the individuals, Article 301 provides safeguards for the carrying on trade as a whole distinguished from an individuals right to do the same.
  • 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 carryon business unrelated to, or irrespective of, the movement of goods, i.e., while Art. 301 contemplates the right of trade in motion, Art. 19(1)(g) secures the right at rest.
  • Art. 301 covers many interferences with trade and commerce which may not ordinarily come within Art. 19(1)(g),
  • Freedom of trade and commerce is a wider concept than that of an individual's freedom to trade guaranteed by Art. 19(1)(g).
  • Art. 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.
  • In emergency, Art. 19(1)(g) is suspended and so courts may take recourse to Art. 301 to adjudge the validity of a restriction on commerce.
  • 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 Article 32.

Is this freedom an absolute one?
  • For an absolute freedom of trade, commerce and intercourse may lead to economic confusion and misuse of the same.
  • Therefore the wide amplitude of the freedom granted by Article 301 is limited by Articles 302-305. the exceptions to Article 301 are:
    1. Parliament is given power to regulate trade and commerce in public interest under Article 302 subject to Article 303.
       
    2. Article 302 empowers parliament to impose restrictions on the freedom of trade, commerce and intercourse between one state and another, or within any part of the territory of India, in the public interest. The reference of Article 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 Article 301 covers both interstate and intra state trade and commerce, as Article 302 is in the very nature of an exception to Article 301.
       
    3. The Essential Commodities Act has been held to impose reasonable restrictions on the right to carry on trade and commerce as guaranteed by Articles 19(1)(g) and 301.
       
    4. The state legislatures are given power to regulate trade and commerce under Article 304 subject to Article 303.

(i) Kalyani Stores v. State of Orrisa[9]
  • The state of Orrisa levied a duty on foreign liquor.
  • No such liquor was produced within the state and the whole of it was imported from other states.
  • The Supreme Court ruled that if the goods of a particular description were not produced within a state, the power to legislate under Article 304(a) would not available to it.
(ii) Video Electronics Pvt Ltd. v. State of Punjab[10]
  • The Supreme Court held that Article 304(a) enjoins the state not to discriminate with respect to imposition of tax on imported goods and locally made goods.
(iii) ShriMahavir Oil Mills Ltd. v. State of J&K[11]
  • The Supreme Court further said that this clause bars states from creating tax barriers/fiscal barriers and/or insulating themselves by creating tariff walls.
Restrictions and regulations
The contrast between "freedom under Article 301 and "restrictions€¯ under Article 302 and 304 clearly appears: "that which in reality facilitates trade and commerce is not a restriction and that which in reality hampers or burdens trade and commerce is a restriction." it is the reality or the substance that has to be looked into and determined.

End-Notes:
  1. AIR 1961 SC 232
  2. 1969 AIR 504
  3. 1970 AIR 1275
  4. 1977 AIR 1825
  5. 1967 AIR 1189
  6. AIR 1958 Raj 114
  7. AIR 1968 Ori 1
  8. 1975 AIR 583
  9. 1966 SCR (1) 865
  10. 1989 SCR Supl. (2) 731
  11. (1996) 11 SCC 39

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