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
- In Atiabari Tea Co. v. State of Assam 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."
- In Koteswar v. K.R.B. & Co, 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).
- In District Collector, Hyderabad v. Ibrahim, 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.
- In Fatehchand Himmatlal v. State of Maharashtra, the Supreme Court considered the
question that whether the Maharashtra debt relief act, 1976, was constitutionally valid vis-� vis
- 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
- 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
, 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
(i) Automobile Transport v. Rajasthan 
- 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.
(ii) Bolani Iron Ores v. State of Orissa
- 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
- 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.
(iii) G.K. Krishnan v. State of Tamil Nadu
- 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.
Direct and immediate restrictions
- 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
- 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
- But the Supreme Court upheld the tax.
Inter-relation between Articles 301 and 19(1)(g)
- The restrictions which will attract Article 301 must be those which
directly and immediately restrict or impede the free flow or movement of
- 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.
Is this freedom an absolute one?
- 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.
(i) Kalyani Stores v. State of Orrisa
- 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:
- Parliament is given power to regulate trade and commerce in public
interest under Article 302 subject to Article 303.
- 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.
- 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.
- The state legislatures are given power to regulate trade and commerce
under Article 304 subject to Article 303.
(ii) Video Electronics Pvt Ltd. v. State of Punjab
- 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.
(iii) ShriMahavir Oil Mills Ltd. v. State of J&K
- 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
Restrictions and regulations
- The Supreme Court further said that this clause bars states from
creating tax barriers/fiscal barriers and/or insulating themselves by
creating tariff walls.
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.
- AIR 1961 SC 232
- 1969 AIR 504
- 1970 AIR 1275
- 1977 AIR 1825
- 1967 AIR 1189
- AIR 1958 Raj 114
- AIR 1968 Ori 1
- 1975 AIR 583
- 1966 SCR (1) 865
- 1989 SCR Supl. (2) 731
- (1996) 11 SCC 39
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