.JINDAL STA!NLESS TTD. & ANR. v. STATE OF HARYANA & ORS.

JINDAL STAINLESS LTD. v. STATE OF HARYANA 367

[N. V. RAMANA, J.]

8 .16 To what extent economic unity in India and regional interests A has to be kept in mind while meaningfully implementing free trade clause in Article 301? In Video Electronics 79 this Court had an occasion to delve into these aspects. This Court even suggested that there could be differentiation among regions and among the goods exchanged between the regions without attracting the tag of discrimination. The B following passage from Video Electronics is apposite: 'Economic unity is a desired goal, economic equilibrium and prosperity is also the goal. Development on parity is one of the commitments of the Constitution. Directive principles enshrined in Articles 38 and 39 must be hannonized with c economic unity as well as economic development of developed and under developed areas. In that light on Article 14 of the Constitution, it is necessary that the prohibitions in Article 301 and the scope of Article 304(a) and (b) should be understood and construed. Constitution is a living organism and the latent meaning of the expressions used can be given effect to only if a particular situation arises. It is not that with changing times the meaning changes but changing times illustrate and illuminate the meaning of the expressions used. The connotation of the expressions used takes its shape and color in evolving dynamic situations. A backward State or a disturbed State cannot with parity engage in competition with advanced or developed States. Even within a State, there are often backward areas which can be developed only if some special incentives are granted. If the incentives in the fonn of subsidies or grant are given to any part of units of a State so that it may come out of its limping or infancy to compete as equals with others, that, in our opinion, does not and cannot contravene the spirit and the letter of Part Xlll of the Constitution. However, this is pennissible only if there is a valid reason, that is to say, if there are justifiable and rational reasons for differentiation. lfthere is none, it will amount to hostile discrimination'. 80

"Video Electronics v. State of Punjab, (l 990) 3 SCC 87. '° Ibid. p. 113 H

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A 8.17 There is a vital difference between mere 'differentiation' and 'discrimination. It is discrimination not differentiation that is sought to be prevented through Part XIII. Again reference to certain observations of this Court in Video Electronics would be pertinent:

B very differentiation is not discrimination. The word 'discrimination' is not used in art. 14 but is used in Articles 16, 303 & 304(a). When used in Article 304(a), it involves an element of intentional and purposeful differentiation thereby creating economic barrier and involves an element c of an unfavorable bias. Discrimination implies an unfair classification. Reference may be made to the observations of this Court in Kathi Raning Rawat v. The State of Saurashtra, [1952] SCR 435 where Chief Justice Shastri at p. 442 of the report reiterated that all legislative differentiation is not necessarily discriminatory. At p. 448 of the report, Justice Fazal Ali noticed the distinction between 'discrimination without reason' and 'discrimination with reason'. The whole doctrine of classification is based on this and on the well-known fact that the circumstances covering one set of provisions or objects may not necessarily be the same as these covering another set of provisions and objects so that the question of unequal treatment does not arise as between the provisions covered by different sets of circumstances'. 81

F 8.18 In the above case exemption and incentive granted by one State to its inhabitants was challenged as being violative of Article of 304 (a). Recognizing the concept of economic equality, this Court held:

G 'Concept of economic barrier must be adopted in a dynamic sense with changing conditions. What constitutes an economic barrier at one point of time often cease to be so at another point of time. It will be wrong to denude the " Ibid, p. I 06-107. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 369

[N. V. RAMANA, J.]

people of the State of the right to grant exemptions which A flow from the plenary powers oflegislative heads in list II of the 7th Schedule of the Constitution. In a federal polity, all the States having powers to grant exemption to specified class for limited period, such granting of exemption cannot be held to be contrary to the concept of economic unity. B The contents of economic unity by the people of India would necessarily include the power to grant exemption or to reduce the rate of tax in special cases for achieving the industrial development or to provide tax incentives to attain economic equality in growth and development. When all the States have such provisions to exempt or reduce rates c the question of economic war between the States inter se or economic disintegration of the country as such does not arise. It is not open to any party to say that this should be done and this should not be done by either one way or the other. It cannot be disputed that it is open to the D States to realize tax and thereafter remit the same or pay back to the local manufacturers in the shape of subsidies and that would neither discriminate nor be hit by art.304(a) of the Constitution. In this case and as in all constitutional adjudications the substance of E the matter has to be looked into to find out whether there is any discrimination in violation of the constitutional mandate'. (emphasis supplied) F

8. 19 Thus stated, the principle laid down in Video Electronics is that, if a backward area in a State needs impetus for the development, and in such circumstances incentives are given for the industry to develop whether by way of subsidies or tax exemptions for a certain period of time as desired by the competent legislature, the same would be G pennissible and would fall outside the scope of Article 304 (a). Such State enactment is not inherently discriminatory, but rather aims to ensure economic equality which is a facet of economic unity. 8.20 A State law directed towards development of a pa1ticular H

370 SUPREME COURT REPORTS [2016] 10 S.C.R.

A region is pennissible under Part XIII. In support, we may again refer to the discussion in the Constituent Assembly debates dealing with the concepts of "public interest" and "interest of general public". Clause 13 was introduced in Chapter dealing with Fundamental Rights making the right to free trade, commerce and intercourse as a Fundamental Right subject to reasonable restriction. Pandit Thakur Das Bhargava sought B to move an amendment81 to substitute the words, 'public interest' for 'interests of the general public' he said :

'I maintain that there is great difference between the two c expressions. 'Public interest' in regard to a State would only include the interests of the inhabitants of that State at the most though the word 'public' includes portions of the public. Therefore, the interests of a part of the inhabitants of a State would also mean 'public interest', whereas if you use the words "interests of the general public" they would have reference to the interests, of the. general public of India as a whole. It may be that on many occasions a conflict may arise. between the public interest as understood in the amendment of Dr. Ambedkar and 'the interests of the general public' as used in article 13. When that conflict arises it would be encouraging provincialism and the interests of a few as against the general interest if we accept the words 'public interest' in the place of the words "in the interests of the general public' 83 •

r 8.21 This amendment was negatived. The fact that this amendment did not go through would indicate that 'public interest' could imply a regional interest that needs to be protected which may not be 'in the interests of the general public' but specific to a smaller region. Such an interpretation is supported by the manner in which the word G " Constituent Assembly Debates, 1949, vol. IX, Page 1145. <That is amendment No. 269 of List IV (Seventh Week), in clause (b) of the proposed new Article 274-D, for the words 'in the public interest', the words 'interests of the general public and are not inconsistent with the provision ofArticle 13 be substituted.' "Constituent Assembly debates, 1949, Vol. IX, p. 1125. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 371

[N. V. RAMANA, J.]

'discrimination' has been interpreted by a three Judge bench of this Court A in Video Electronics. Thus it can be said that the common thread in Part XIII is the achievement of economic unity and parity which does not altogether preclude differentiation for justifiable and rational reasons wherever necessary. The heart and soul of Part XIII is to dissolve hostile discrimination within the territ01y of India. B 8.22 The second facet is that Article 304 (a) is a limitation to impose any tax on goods imp01ted from other States. This power is subject to the condition that the goods manufactured or produced within the State are also subjected to tax, so as not to discriminate between the goods imported from outside the State. Article 304(a) is not a c limitation on the legislature of a State to impose such tax on goods imported. The only condition envisaged under Article 304 (a) is, same tax is imposable on the goods imported from other States as well as goods if manufactured in that State. 8.23 The contention that the taxing power lies in Article 304 (a) D and not in Article 245 r/w 246 is not correct. The words "may by law" appearing in Article 304 is not source oflegislative power. It is an option given to the States in case it decides to levy any tax on the goods imp01ted from other States. The source of legislative power resides in Article 245 r/w. Article 246 which is indisputable. This power is not subject to any implied limitation. The plain reading would show that in E a given situation, the State may by choice decide not to levy any tax imported from other States or opt to levy taxes on certain goods imported from other States. Indeed in all the entry tax laws, the charging section enables the levy of entry tax only on the scheduled goods. The scheduled goods are goods declared as attracting entry tax. F 8.24 Discrimination is a relative concept; in order to discriminate a reference point is required. Article 304(a) rather than being an enabling provision to allow the State to impose tax, is a restricting provision, which prevents such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods G manufactured or produced within the State. The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that home by local goods since the difference between the two rates would constitute a tariff wall or fiscal barrier and thus H

372 SUPREME COURT REPORTS [2016] IO S.C.R.

A impede the free flow of inter-State trade and commerce. It does not prohibit levy of tax as such in the situation wherein the goods are not produced or manufactured in the State itself and does not affect the authority of the State to tax the imported goods. It only bars discrimination on the basis of taxing the products manufactured within B the State vis-a-vis imported goods which will only occur if the precondition of manufacturing in the taxing State is satisfied. 8.25 I agree with the conclusions and reasons given by the learned Chief Justice regarding the exemption/set otl/credit with respect to Sales tax. C 8.26 There was good amount of debate on the doctrine of compensatory tax evolved by this Court in Automobile. I am in respectful agreement with the consideration, reasoning and conclusion in the judgment of the learned Chief Justice, who held that concept of compensatory tax has neither any juristic basis nor a part of Indian D Constitutional law. It is interesting and glaring to note that at the stage of drafting, at the stage of consideration by the Sub-Committee as well as Advisory Committee and when the Part XA (now Part Xlll) was adopted by the Constituent Assembly, never even for a moment, the principle of compensatory tax was thought of.

E PART-IX:CONCLUSIONS

9. l On an analysis and reasoning as herein above the following conclusions would emerge- F a. Part XIII does not contemplate tax laws within its ambit except .to the extent of Article 304(a) of the Constitution. b. A11icle 304 (a) and (b) are disjunctive. c. Restrictions mentioned under A11icle 304(b) of the Constitution G do not include tax. d. It is not correct to say that since goods being taxed are not produced in the State the power to levy a tax gets obliterated, that is to say, that Atiicle 304 (a) does not bar levy of tax if the goods are not manufactured or produced within the State. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 373

e. A1ticle 304(a) of the Constitution protects from discrimination A (for protectionism) and not mere differentiation. 9.2 Before parting with this case, I would like to express my appreciation for the way the hearing of the case took place before the Court. Attorney General needs to be specially mentioned and thanked, who had appeared and assisted the Court. Lastly, it was a wonderful B sight to see young practitioners ably assisting their seniors which only goes on to reflect vibrancy of Indian Supreme Cou1t Bar.

R. BANUMATHI .J. I. I have perused the judgment of C Hon'ble the Chief Justice. I agree with the views taken by Hon'ble the Chief Justice on Question Nos. I and 4 with certain additions. On Question Nos. 2 and 3, while agreeing with the views of the Chief Justice over-ruling Jindal Stainless Ltd. (2), on the question of 'Compensatory tax', I have recorded my reasonings which in my view is necessary to be clarified. D Since substantial questions of law arise for determination which is of considerable impottance from the point of view of trade, commerce and intercourse and economic unity of the nation, l would like to give my own reasonings for my conclusions. E

I (a). Question No. 1 :- I agree with the conclusion of the Chief Justice holding that anon-discriminatory tax does not per se constitute a restriction on the right to free trade, commerce and intercourse guaranteed under Article 301 of the Constitution. I also agree with the view over-ruling the decisions inAtiabari and Automobile Transport to the extent they declare that taxes generally are restrictions on the freedom of trade, commerce and intercourse. l also agree with the view taken by the Chief Justice over-ruling Jindal Stai11/es.\· Ltd. (2) & A11r. 11. State o( Harva11a & Ors. (2006) 7 SCC 24 l. Insofar as the concept of compensatory taxes evolved in Automobile Transport. I am of the view, abandoning compensatory tax in the subsequent judicial pronouncement like the present one, might prejudice the interest of the concerned States. l(b). Question No. 4:- I agree with the view taken by the H

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A Chief Justice on question No. 4 however, with the following additions:-

(i) When the entry tax is levied by the Entry Tax Act enacted by the State Legislature, the term ·a local area' contemplated by Entry 52 may cover the 'Whale State' or 'a local area' as notified in the legislutio11. l agree with B the view taken in Bihar Cit amber of Commerce that from the point of view of entry tax that the Stak is a compendium of local areas and where the local areas contemplated by the Act cover the entire State, the difference between the State and ·a local area· practically disappears. c (ii) States have legislative competence to levy entry tax on the goods imported from other countries when those goods imported from other countries enter a local area for use, consumption or sale therein.

(iii) Tax concessions/benefits/subsidies granted by the Stale D for locally manufactured goods need not necessarily be limited for a specific period of time.

l(c). Questions Nos. 2 and 3:- E lnsofar as compensatory taxes are concerned in the light of the conclusions on question No. l, I hold that the nomenclature of 'compensatory' ascribed to the taxes levied by the State Government under Entry 52, List II pursuant to Automobile is unwarranted. The concept of compensatory tax was evolved fifty years back through judicial pronouncements. It has withstood the test of time and thus, any subsequent judicial pronouncement like the present one should not prejudice the interest of the parties involved. The State Governments should not suffer any loss of revenue solely because of judicial interpretations and innovations in Automobile and the case subsequent to it. Subject to passing the muster of Art. 304(a), entry tax levied by the States under entry 52, List II even though termed as compensatory tax does not fall foul of Art. 301. In my view, Jindal Stainle.\-.~ Ltd. (2) & Anr. v. State o{Harva11a & Ors. (2006) 7 SCC 241 is not a correct view in adopting quantifiable data apprqach: for a tax, there is no requirement of proximate quid pro quo and Jindal Stainless Ltd. (2) is overruled. I agree with H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 375

[R. BANUMATHI, J.]

the view taken in Bhagatram and Bihm· Chamber of Commerce as the same is in harmony with the original design of compensatory tax laid down inAutomobile.

l(d). For the above conclusions, I have put forth my views and reasonings under the following heads of discussions:- > Introduction ..... (Para Nos. 1-l(d)] > Background to the reference ..... (Para Nos. 2-7] > Scheme of the Constitution/ c distribution of legislative powers · ..... (Para Nos. 8-14] > Freedom of trade commerce and intercourse ..... [Para Nos. 15-27] > Freedom under Atiick 301 is subject to D Pati Xlll and other parts of the Constitution viz. Part Ill, IV. Xll etc. ..... [Para Nos. 28-35] > Question No. 1 with incidental questions ..... (Para Nos. 36-103] E >Question No.4 with incidental questions ..... [Para Nos. 104-177] > Question Nos. 2 and 3 ..... [Para Nos. 178-191] > Unjust Enrichment ..... [Para Nos. 192-198 ] F >Conclusions ..... [Para Nos. 199]

BACKGROUND TO THE REFERENCE: G

2. In Automobile the concept of compensatory tax has been judicially evolved as an exception to the provisions of Art. 301. Pre- 1995 decisions have held that the entry tax imposed on the entry of goods into a local area for consumption, use or sale therein is in the nature of a compensation. to which, the cost of an existing facility made H

376 SUPREME COURT REPORTS [2016] 10 S.C.R.

A available to the traders, or the cost of the specific facility planned to be provided to the traders, more or less, is to be commensurate with. Pre- 1995 decisions further emphasized that the imposition of tax is must for the definite purpose of meeting the expenses on account of providing or adding to the trading facilities, either immediately or in future; provided the tax sought to be generated is based on a reasonable relation to the B actual or the projected expenditure on the cost of the service or facility. But the decisions in Bltagatram Rajeevkumar v. Commissioner o( Sales Tax, M.P. & Ors. 1995 Suppl. ( 1) SCC 673 a1id State ofBihar & Ors. v. Bi/1ar Chamber o( Commerce a11d Ors. ( 1996) 9 SCC 136 held that even if the purpose of imposition of the tax is not to confer a c special advantage on the traders, but to benefit the public in general including the traders, the levy can still be considered compensatory. In Bi/tar Chamber of Commerce, this Court reiterated the position that "some connection'' between the tax and the trading facilities is sufficient to characterize it as compensatory tax. The Court went on further to hold that an indirect or incidental benefit to traders by reason of stepping up the developmental activities in various local areas of the State can be legitimately brought within the concept of compensatory tax and the nexus between the compensatory tax and the trading facility need not necessarily be either direct or specific. In Jindal Stripe Ltd. a11d Anr. v. State o(Harvana and Ors. (2003) 8 SCC 60, this Court referred the matter to the Constitution Bench to authoritatively lay down the principles vis-a-vis compensatory tax.

3. In Jindal Stainless Ltd. (2) & Anr. v. State of Harvana & Ors. (2006) 7 SCC 241, Constitution Bench considered the various decisions relating to compensatory tax and held that whenever a law levying compensatory tax is impugned as violative of Art. 30 l of the Constitution, the Court has to see whether the impugned enactment facially indicates the proportionality to the quantifiable data on the basis of which the compensatory tax is sought to be levied. lt was further held: G

"46. ... it must broadly indicate proportional it)! to the quantifiable benefit. If the provisions are ambiguous or even if the Act does not indicate facially the quantifiable benefit. the burden will be on the S~ate as H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 377

[R. BANUMATHI, J.]

a service/facility provider to show by placing the material before the Court, that the payment of compensatory tax is a reimbursement/recompense for the quant(fiab!el measurable benefit provided or to be provided to its payer(.~). As soon as it is shown that the Act invades Feedom of trade it is necesswy to enquire whether the State has proved that the restrictions imposed by it by way of taxation are reasonable and in public interest within the meaning of Article 30./ (b) . ..

4. The Constitution Bench further held that the test of "some c connection'' enunciated in Blwgatram was not only contrary to the working test propounded in Automobile but obliterated the very basis of compensatory tax. It was, therefore, held that the test of "some connection" as propounded in Blwgatram was not a correct view and the judgments in Blwgatram and Bihar Chamber of Commerce were D overruled.

5. After the judgment of Constitution Bench in Ji11tlal Stainless (2) dated 13.04.2006, the matter went to a Division Bench which in turn by their order dated 14.07.2006, reported in Jindal Stai11le~·s Lttl. (3) am/Anr. I'. State o(Harvana & Ors. (2006) 7 sec 271, directed the E High Courts to re-examine the challenge in the light of the principles laid down by the Constitution Bench. While doing so, this Court retained seisin of the appeals by directing the appeals to be listed in January, 2007 and in the meantime requested the High Courts to dispose of the challenge to the Act after granting opportunities to the respective parties to place materials on record. After the matter was so remanded, in pursuance of the parameters laid down by the Constitution Bench in Jindal Stainless Ltd. (2), the Punjab and Haryana High Court by judgment dated 14.03.2007, took the view that the levy under Haryana Local Area Development Act, 2000 was riot compensatory. The State ofHaryana challenged the aforesaid judgment dated 14.03.2007 in Civil G Appeal No.4715 of2008 and filed certain other appeals challenging orders in separate cases.

6. Considering the importance of the issues relating to Articles

378 SUPREME COURT REPORTS [2016] I 0 S.C.R.

A 301, 304 and other provisions of Part XIII of the Constitution, in Jaiprakasli Associates Ltd. vs. State of Madliva Pradesh and Ors (2009) 7 sec 339 [two Judges], the matter was referred to a larger Bench in terms of Art. 145(3) of the Constitution stating that the concept of compensatory tax is a judicially evolved concept and in a way provides B a balancing factor between federal control and the State Taxing Board. It was observed that the concept had its matrix in transportation cases and did not apply to the general notion ofentry tax. The Cou1t considered it necessary to refer the batch of appeals to a larger Bench in terms of Art. 145(3) of the Constitution and framed ten questions for reference. Subsequently, in Jindal Stainless Ltd. & Am: v. State o(Jlarvana & c Ors. (20 l 0) 4 SCC 595, after referring to the reference made in Jaiprakaslt Associates, the matter was referred to a larger Bench. Accordingly, the matters are now befrlre this larger Bench.

D 7. Even though ten questions were framed for reference, when the matters came up for consideration before this larger Bench, the issues for consideration were abridged to four questions as under:-

E ( 1) Can the levy of a non-discriminatory tax per se constitute infraction of Article 30 I of the Constitution oflndia?

(2) If answer to Question No. l is in the affirmative, can a tax which is compensatory in nature also fall foul ofA1ticle 30 I of the Constitution oflndia? F (3) What are the tests for determining whether the tax or levy is compensatory in nature?

(4) ls the entry tax levied by the States in the present batch of cases violative of Article 301 of the Constitution and in paiticular have the impugned State enactments relating to entry tax to be tested with reference to both Articles 304(a) and 304(b) of the Constitution for determining their validity?

JINDAL STAINLESS LTD. v. STATE OF HARYANA 379

[R. BANUMATHI, J.]

SCHEME OF THE CONSTITUTION/DISTRIBUTION OF A LEGISLATIVE POWERS:

8. Art: l of the Constitution describes India as a Union of States, thereby implying the indestructible nature of its unity. The country is B divided into several units, known as States or Union Territories and the Constitution lays down not only structure of the Union Government but also the structure of the State Governments.

9. Art. 245 of the Constitution deals with "Extent of laws made by Parliament and by the Legislators of State··. Art. 245( I) provides that the Parliament may make laws for the whole or any part of the c territory of India, and the legislature of a State may make laws for the whole or any part of the State. As per subjects of legislation, all the conceivable subjects have been distributed between the Union and the States with reference to three Lists contained in the Seventh Schedule to the Constitution. The three Lists are exhaustive, yet as a matter of principle and also to meet unforeseen circumstances, Art. 248 and entry 97, List I stipulate that the residuary power vests in the Union i.e., Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent or State List. I 0. Art. 246 stipulates that with respect to the matters enumerated in List I, Parliament has the cxclusivejurisdiction; with respect to those in List II, State Legislatures have exclusive jurisdiction; and with respect to those in List III, both of them can legislate subject to the discipline enjoined in Art. 254. But the power of Parliament with respect to matters in List I is "notwithstanding anything in clauses (2) and (3)'" of A11. 246. F In other words, List I has priority over Lists Ill and II; and List Ill has priority over List II. The Scheme of legislative relations between the Union and the State is inviolable. [A.K. Gopala11 v. State of Madras AIR 1950 SC 27]

11. As the opening words ofArt. 245(1) state, the legislative powers G of both Union and State Legislatures are subject to other provisions of the Constitution even though their powers are plenary within the spheres assigned to them respectively by the Constitution. Legislative competence of State Legislature can only be circumscribed by express prohibition contained in the Constitution itself. Unless and until there is any provision H

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A in the Constitution expressly prohibiting legislation on the subject either absolutely or conditionally, there is no fetter or limitation on the plenary powers which the State Legislatures enjoy to legislate on the topics enumerated in List II and List Ill of the Seventh Schedule to the Constitution. It is noteworthy that though Art. 245 is pre-fixed by the words 'Subject to the provisions of this Constitution ... '; Art. 246 is not. B But because Art. 246 only provides for distribution of the legislative powers conferred under Art. 245, the words 'subject to the provisions of the Constitution' apply equally to Art. 246.

12. The power of the Parliament and State Legislature to enact c laws flows from Articles 245 and 246. Considering the source of legislative powers of the Union and the State in Maharaj Umeg Singh and Others v. Tiie State o{Bombav and Other.\', 1955 (2) SCR 164, it was held as under:-

D "Under Article 246 the State Legislature was invested with the power to legislate on the topics enumerated in Lists II & III of the Seventh Schedule to the Constitution and this power was by virtue of Article 245(/) subject to the provisions of the Constitution. " E

13. A Constitution Bench of this Court in K. T. Pla11tatio11 Prfrate Limited and Another v. State of Kamataka (20 l l) 9 SCC I (Five Judges) observed as under:

F "186. A Constitution Bench of this Court in Hoechst Pharmaceuticals Ltd. case. held that !he various entries in List III are not "powers" of legislation but "fields" of legislation. Later, a Constitution Bench <?f this Court in State of W.B. v. Kesoram lndustries Ltd. (2004) 1 SCC l 0 held that G Article 245 of the Constitution is the fountain source of legislative powe1: It provides that subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India. and the legislature of a State may make laws for the whole or any part of the State. " H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 381

[R. BANUMATHI, J.]

14. While interpreting Articles 245 and 246, in State o(Kera/a A and Ors. v. Mar Appraem Kuri Compa11v Limited and A11r. (2012) 7 SCC 106, this Court observed as under:-

"35. Article 245 deals with extent of laws made by B Parliament and by the legislatures of States. The verb "made", in past tense, finds place in the Head Note to Article 245. The verb "make'", in the present tense, exists in Article 245 (I) whereas the verb "made", in the past tense, finds place in Article 245 (2). While the legislative power is derived from Article 245, the entries in the c Seventh Schedule of the Constitution 011lv demarcate the legislati1•e fields of the respective legislatures and do not confer legislative power as such. While Parliament has power lo make laws for the whole or any part of the territory of India, the legislature of a D State can make laws only for the State or part there(~( Thus, Article 245 inter alia indicates the extent of laws made by Parliament and by the State Legislatures.

37. Article 246, thus. provides for distribution, as between E Union and the States, of the legislative powers which are conferred by Article 245. Article 245 begins with the expression "su~iect to the provisions of this Constitution". Therefore, Article 246 must be read as "subject .to other provisions of the Constitution". F

38. For the p1117Jose.1· of this decision, the point which needs to be emphasized is that Article 245 deals with conferment of legislative powers whereas Article 246 provides for distribution of the legislative powers. Article 245 deals with extent of!aws whereas Article 246 deals with distribution of G legislative powers. Jn these articles. the Co11stitution Framers have used the word "make" and not "commencement" which has a specific legal connotation. [See Section 3(13) of the General Clauses Act, 1897.] [Emphasis Supplied]

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A FREEDOM OF TRADE, COMMERCE AND INTERCOURSE:

15. Art. 30 I of the Constitution provides for freedom of trade, commerce and intercourse throughout the territory of India, subject to the other provisions of Part Xlll, Articles 302-305 which pennit the B imposition of reasonable restrictions on this freedom by Parliament and the State Legislatures. The underlining idea in making trade, commerce and intercourse throughout the territory oflndia free is to emphasize on the economic unity oflndia and to ensure that unity of the country may not be broken by internal barriers. c 16. The Constitution-makers desired free flow of trade and commerce in India as they realized that economic unity and integration of the country provided the main sustaining force for the stability and progress of the political and economic unity of the nation, and that the country should function as one single economic unity without barriers on internal trade. In order to ensure that the State Legislatures subjected to local and regional pulls did not create trade bairiers in future, Art. 301 was incorporated in the Constitution. Art. 30 I in general enacts that "subject to the other provisions of this Part, trade, commerce. and intercourse throughout the territory of India shall be free". After having declared the general nature of the freedom of trade and commerce, Part Xlll of the Constitution sets out the limitations to this freedom, in Articles 302 to 304 which re-state the powers of the Parliament and the State Legislatures in imposing restrictions on the freedom of trade, commerce and intercourse. Articles 302 to 304 are not exceptions to Art. 30 !. Articles 302 to 304 embody a statement of powers under Art. 246 and the Seventh Schedule with some limitations. Each re-stated power by itself overrides the freedom in Art. 301.

17. Art.302 empowers the Parliament to impose restrictions on the freedom of trade, commerce and intercourse provided they are required in public interest. The purpose of this provision is to allow the G Government oflndia to restrict the movement of goods so as to safeguard a well-balanced economy and for proper organization or supply of goods and services. Famine may be raging in one part of the country while there is plenty in another part, as has been the past experience of the country in regard to food. If Parliament has no effective powers to impose restrictions in such situations on freedom of trade and commerce, H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 383

[R. BANUMATHI, J.]

then it will undem1ine the unity of nation. It is reasonable to presume that the Parliament, people's representative is a better judge of public interest and that its judgment must have primacy over any other judgment, including that of the courts.

18. Although Parliament is empowered to restrict the free movement of articles in trade and commerce, nonnally the laws passed by Parliament in this context ought to be non-discriminatory in character. Art. 303(1) of the Constitution prohibits Parliament and the State Legislature from making "any law giving or authorizing the giving of, any preference to one State over another, or making or authorizing the making or, any discrimination between State and another, by c virtue of any entry relating to trade and commerce in any of the Lists in Seventh Schedule". Preference or discrimination amounts to a restriction on the freedom guaranteed under Art. 301 of the Constitution only if it is a law made by the virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. Application of Art. 303(1) is to specific entries on trade and commerce and not to be confused with the general application of Art. 301 to all the legislative entries other than the entries relating to trade and commerce. But when any part of the country is suffering from scarcity of goods, Parliament may, to meet such a situation; pass even a discriminatory law [Art. 303(2)]. Art. 303(2) is an exception to Art. 303(1) inasmuch that the limitations of Art. 303 (I) lose operation when aforesaid preference and discrimination is made for the purpose of dealing with situation arising from scarcity of goods, and the Parliament may in these situations enact a law that gives or authorises giving preference or makes or authorises making of any discrimination. F

19. As per Art. 304( a), a State Legislature may impose any tax on goods imported from other States or Union Territories to which similar goods produced in that State are also subject, so as not to discriminate between the goods so imported and goods so manufactured or produced within the State. A State Legislature is also authorised to impose G reasonable restrictions on the freedom of trade and commerce with or within that State as may be required in public interest, subject to the condition that no Bill or Amendment shall be moved in the Legislature of a State without previous sanction of the President [Art. 304(b)]. Art. 304 begins with non-obstante clause and is intended to override both H

384 SUPREME COURT REPORTS [2016] 10 S.C.R.

A Art. 301 and Art. 303. Art. 304(a) does not preventtaxation of goods; it only prohibits taxes that discriminate between the goods imported from other States and similar goods that are manufactured or produced within the taxing State.

20. Under Art. 305, tax laws existing at the time of the B commencement of the Constitution were safeguarded even if they violated the freedom of inter-State trade and commerce along with the power of Parliament to regulate them. At the same time, the President was empowered to make any changes to those laws as he thought fit. This Article in its present fom1 was added by the Fourth Amendment of c the Constitution, 1955, and it saves all the existing laws providing for State monopolies which were passed before coming into effect of the Fourth Amendment. Under Art. 307, Parliament is empowered to appoint such authority as it considers appropriate for carrying out the purposes of Articles 30 I to 304 and to confer on that authority such powers and duties as it thinks necessary. D

21. Part XII and Part XIII of the Constitution lay down the parameters within which State Governments can exercise their right to enact laws/impose tax, restricting the freedom of trade, commerce and intercourse. Purpose of including Part Xlll (as it stands today) in the Constitution as emerges from Section 297 of the Government oflndia E Act, 1935 was to confer a freedom of trade, commerce and intercourse, subject to restrictions and non-discriminatory tax laws. In this respect, Art. 301 does not confer any higher right. Even the Constitutional Assembly Debates show that the framers did not intend to confer any absolute freedom of trade, commerce and intercourse. Be it noted that they did not adopt the expression "absolutely free" as found in the Australian Constitution. Reference to "Constituent Assembly Debates 30.07.1949 to 18.09.1949" shows that Dr. B.R. Ambedkar while introducing Part XA: Trade, Commerce and Intercourse within the territory of India Articles 274A to 274D (which corresponds to Articles 301to304 and 307) before the Constituent Assembly specifically noted that it is not the intention to make trade, commerce and intercourse absolutely free in India. Relevant extracts from the debate are as under:-

JINDAL STAINLESS LTD. v. STATE OF HARYANA 385

[R. BANUMATHI, J.]

" .... /should also like, to say that according to the A provisions contained in this part it is not the intention to make ~rade and commerce absolutely free, that is to say, deprive both Parliament as well as the States of any power to depart from the fundamental provisions that trade and commerce shall be free throughout India. B The freedom of trade and commerce has been made subject to certain limitations which may be imposed by Parliament or which may he imposed by the Legislatures of various states, subject to the fact that the limitation contained in the power of Parliament to invade the freedom of trade and commerce is confined to cases c arising from scarcity ofgoods in any part of the territory of India and in the case of. the States it must he justified on the ground ofpublic interest. The action of the States in invading the freedom of trade and commerce in the public interest is also made subject to a condition that D any Bill affecting the freedom of trade and commerce shall have the previous sanction of the President; otherwise, the State would not be in a position to undertake such legislation ..... " (Constituent Assembly Debates (CAD) 30.07.1949 to 18.09.1949 page 1126) E

22. In fact, Shri T.T. Krishnamachari, while opposing to the idea of debarring States from imposing any kind of restriction on freedom of trade and commerce emphasized subjecting 'trade and commerce' to State's direct regulation, so that the economic progress of the country was not hindered. Relevant extract is as under:-

"Shri T.T. Krishnamachari: .... Let me tell the House that so far as I am concerned I think this is about the maximum amount of liberty that we can give for trade and commerce, the maximum amount of concession that we can give to trade and commerce consistent with the future econpmic improvement of this country. Even as

386 SUPREME COURT REPORTS [2016] 10 S.C.R.

A it was originally suggested, that we should make it a matter of fundamental right, and even without the restriction that have been put in article 16, I am afraid the economic progress of the country will become well-nigh impossible. There is absolutely no use in the B honourable Member trying to confuse a matter of civil liberty with a mater of rights in respect of trade and commerce. The world has well-nigh come to a position when trade and commerce cannot be run without control and somekind of direction by the Government. If my honorable friends think that we are in the days of the c nineteenth celltury when the laissez faire enthusiast had practically the ordering of everything in the world I am afraid they are mistaken. "{CAD Page No.1140 dated 08.09.1949/

23. Reiterating the views ofShri T.T. Krishnamachari, ShriAlladi Krishnaswami Ayyar pointed out that the Scheme as evolved has taken into account larger interest oflndia along with the interests of particular State, wide geography of the country where the interest of one region differs from the interest of another region, and future prosperity of our country. Relevant extract is as under:-

"Shri Alladi Krishnaswami Ayyar: .... It may be that manure and other things are required in one part of the country while profiteers from another part of the country may try to transport the goods from the part affected. At the same time, in the interests of the larger economy and the filfure prosperity of our country, a certain degree of freedom of trade must be guaranteed.

G My Friend, Mr. Krishnamachari has pointed out that this freedom clause in the Australian Constitution has given rise to considerable trouble and to conflicting decisions of the highest Court. There has been a feeling in those parts of Australia which depend for their well-being on agricultural conditions that their interests H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 387

[R. BANUMATHI, J.]

are being sacrificed to manufacturing regions, and there has been rivalry between manufacturing and agricultural interests. Therefore, in a federation what you have to do is first, you will have to take into account the larger interests of India and permit freedom of trade and intercourse as far as possible. Secondly, you cannot ignore altogether regional interests. Thirdly, there must be the power intervention of the Centre in any case of crisis to deal with peculiar problems that might arise in any part of India. All these three factors are taken into account in the Scheme that has been placed before you. "{CAD Page No.JJ43 dated 08.09.1949/ c

24. Referring to reasonable restrictions that may be imposed by the States and the necessity to obtain sanction from the President, Shri Alladi Krishnaswami Ayyar further observed as under:-

D Shri Alladi Krishnaswami Ayyar: .... "Therefore, if on account of parochial patriotism or separatism, without consulting the larger interests of India as a whole if any Bill or amendment is introduced, it will be open to the President, namely, the Cabinet of India to withhold sanction. This is therefore a very restricted power that is conferred on the legislature of a State. After all what is the nature of the power given? The power is co1ifined to imposing such reasonable, restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest therefore the President who has to grant sanction will have the opportunity to see that the legislation is in the public interest and that the restriction imposed is reasonable. It is not possible to devise a water tight formula for the purpose of de.fining these restrictions. " [CAD Page G No.II44 dated 08.09.1949/

25. The purpose of including Part XIII in the Constitution as emerges from the Constituent Assembly Debates was to ensure the interest of H

388 SUPREME COURT REPORTS [2016] 10 S.C.R.

A the larger economy of the nation and to prevent unreasonable trade barriers in the free flow of trade, commerce and intercourse, impeding economic growth. Framers of the Constitution considered flow of trade, commerce and intercourse throughout the territory oflndia as important for economic unity, but they did not deify trade, conunerce and intercourse B nor they entertained any fetish for it. In fact, freedom of trade, commerce and intercourse was initially meant to be a fundamental right but was removed from the part pertaining to 'Fundamental Rights' as it was considered that it did not have any great content as a fundamental right.

26. It was considered that freedom of trade, commerce and c intercourse need not be kept at such a high pedestal. It is apposite to refer to the following relevant Debates of the Constituent Assembly.

"Atul Chandra Gupta (Advocate, Calcutta High Court) has suggested that clause (b) of article 244 should be D deleted as this clause negatives articles 16 and 243 by its vague generality.

Note: Clause (b) of article 244 is based on the recommendation of the Advisory Committee as adopted by the Constituent Assembly. The Drafting Committee E has considered it necessary to substitute for the words "in the interest ofpublic order, morality or health" which occur in the said recommendation, the words "in the public interests". [The Framing of India's Constitution (Vol. 4) (Page 328)] F Shri C. Subramanian (Madras : General): " .... There are three.Articles 243, 244 and 245 which deal with this subject 'inter-state trade and commerce' in the body of the Dra,ft. Then in the list of legislative powers in the Union list, we find in entry 73 "inter-state trade G and commerce subject to the provisions of entry 23 of List No. II". Then item 32 in List II is "trade and commerce within the state; markets and.fairs "; and item 33 refers to the "regulation of trade, commerce and

JINDAL STAINLESS LTD. v. STATE OF HARYANA 389

[R. BANUMATHI, J.]

intercourse with other States for the purposes of the provisions of article 244 of this Constitution." Therefore, you will find inter-state trade and commerce, subject to article 244, is a Union subject. Parliament can deal with it. Trade and commerce within the state and inter- state commerce as provided in article 244 are given to the State Legislatures. You will .find, Sir, that in article 244, even though it might be inter-state trade and commerce, the State Legislature is given certain powers to impose certain taxes and impose certain restrictions. Having this in mind. if we come to Article 16, we .find the words, "subject to the provisions of article 244 of c this Constitution", that is, even in respect of inter-state trade and commerce, the State Legislature has been given certain powers and that is not touched by this article. Therefore leaving that, the article would read "subject to the provisions of any law made by Parliament, trade and commerce and intercourse through the territory of lndia shall be free". I really fail to 11nderstand how this can be a f11ndamental right and whether there is any right at all reserved. The very conception of a fundamental right is that there is a certain right taken out of the province of the legislat11re either of the Union or of the State. To put it in other words, the sovereignty vests in the public, hut that sovereignty is delegated to the legislatures or the sovereignty is expressed through the legislatures in respect of certain subjects. {CAD Page No. 798, 30.07.1949-18.09.1949] F

The Honourable Dr. B.R. Ambedkar: ... .Now, I quite appreciate the ar~ument that this article 16 is out of place in the list of fimdamental rights, and to some extent, I agree with Mr. Subramaniam. But I shall explain to him why it was found necessary to include G this matter in the fundamental rights. My Friend. Mr. SUbramaniam will remember that when the Constituent Assembly began, we began under certain limitations. One of the limitations was that the Indian States would H

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A join the Union only on three subjects- foreign affairs, defence and communications. On no other matter they would agree to permit the Union Parliament to extend its legislative and executive jurisdiction ..... Or to put it briefly and in a different language, they were not B prepared to allow trade and commerce to be included as an entry in List No.I. If it was possible for us to include trade and commerce in List I, which means that Parliament will have the executive authority to make laws with regard to trade and commerce throughout India, we would not have found it necessmy to bring c trade and commerce under article 16, in the.fundamental rights. But as that door was blocked, on account of the basic considerations which operated at the beginning of the Constituent Assembly, we had to find some place, for the purpose of uniformity in the matter of trade and commerce throughout India, under some head. After exercising considerable amount of ingenuity, the only method we found of giving effect to the desire of a large majority of our people that trade and commerce should be free throughout India, was to hring it under .fimdamental rights. That is the reason why, awkward as it may seem, we thought that there was no other way . left to us, except to bring trade and commerce under fundamental rights. I think that will satis.fY my friend Mr. Suhramaniam why we gave this place to trade and commerce in the list of fundamental rights, although theoretically, I agree that the subject is not germane to the subject-matter of.fundamental rights. With regard to the other argument, that since trade and commerce have heen made subject to article 244, we have practically destroyed the fundamental right, I G think I may fairly say that my friend Mr. Subramaniam has either not read article 244, or has misread that artic(e.. Article 244 has a very limited scope. All that it does is to give powers to the provincial legislatures in dealing with inter-state commerce and trade, to impose H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 391

[R. BANUMATHI, J.]

certain restrictions on the entry of goods manufactured or transported from another State, provided the legislation is such that it does not impose any disparity, discrimination between the good~ manufactured within the State and the good~ imported from outside the State. Now, I am sure he will agree that that is a very limited law. It certainly does not take away the right of trade and commerce and intercourse throughout India which is required to be free." [CAD Page No. 1125, 30.07.1949 to 18.09.1949/

27. After this discussion in the Constituent Assembly, Part XA, (presently Part Xlll of the Constitution) was moved and adopted in the present fonn. The fact that free trade and commerce in Part Xlll was initially introduced as a Fundamental Right and then shifted from the Part pertaining to Fundamental Rights indicates that the framers of the D Constitution considered that freedom of trade and commerce need not be exalted on par with Fundamental Rights.

FREEDOM UNDER ART. 301 JS SUBJECT TO PART XIII AND OTHER PARTS OF THE CONSTITUTION PARTS III, E JV AND Xll ETC.:

28. An argument was advanced that Art. 301 is "subject only" to Part Xlll and the same cannot be restricted by general and special powers F of the Constitution. In this regard, reliance was placed upon Constituent Assembly Debates where an amendment to Art. 274A was moved by Pandit Thakur Das Bhargav:"J want the word 'Part' to be substituted by the word 'Constitution '", which was not approved. Freedom under Art. 301 in the constitutional context does not mean freedom from all laws, it is subject to restrictions in Part XIII and also to other parts of the G Constitution.

29. Art. 301 provides for freedom of trade, commerce and intercourse throughout the territory of India. It strikes an eco-political balance required for the working of a federal structure. Art. 301 cannot I H

392 SUPREME COURT REPORTS [2016] l 0 S.C.R.

A be interpreted as to mean a restriction on the plenary power of the State to impose tax in respect of the relevant "fields" in List II of the Seventh Schedule·ofthe Constitution. What it means is that such plenaty power of taxation shall not be used to create trade barriers or to discriminate between "goods manufactured within the State'· and "goods imported''. The expression in Art. 30 I "subject to" is a dominant expression. It B indicates subservience of the freedom to Articles 302, 303 and 304.

30. Considering the scope of the expression "subject to" this Court in K. T. Pla11tatio11 (P) Ltd v. State o( /(amataka (20 I l) 9 SCC I, observed: c "Section 110 of the Land Reforms Act empowers the State Government to withdraw the exemption granted to any land referred to in Sections 107 and 108. Section I 07 itself has been made "su~iect to" Section 110 of D the Act. The words "subject lo " conveys the idea of a provision yielding place to another provision or other provisions to which it is made subiect.

65. In Black :1· Law Dictionary, 5'" Edn. At p. 12 78. the expression "subject to" has been defined as under: E "Subject to - Liable, subordinate, subservient, i11feri01~ obedient to: governed or effected by: provided that: provided; answerable for. "

66. Since Section 107 is made su~ject to Section 110, the former section conveys the idea of yielding to the provision to which it is made su~ject that is Section 110 which is the will of the legislature .... "

31. Interpretation of the Constitution should emerge from a reading of the whole of the Constitution to ensure that the overall objectives are achieved. Part XIII as a whole is based on a balanced scheme and it should be interpreted with reference to other parts of the Constitution including Part III, Part XII and Articles 3 8 and 39 of the Directive Principles of State Policy. Each of these Parts must be read not in isolation or as water tight compartments but harmoniously as a logical H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 393

[R. BANUMATHI, J.]

whole. The Constitution must be treated as a logical whole and provisions arc not to be read in isolation. In Kesava11a11da Bharti v. State of Kera/a, (I 973) 4 SCC 225, the Court stated: ·

"56 . .... It is not right to construe words in vacuum and then insert the meaning into an article. Lord Green observed in Bidie v. General Accident. Fire and Life Assurance Corporation (1948) [All E.R. 995, 998]

61. I may also refer to the observation of Gwye1: CJ., c and Lord Wright: ''A grant of the power in general terms, standing by itselj; would no doubt be construed in the wider sense: but it may be qualified by other express provisions in the same enactment, by the implications of the co/1/ext, and even by considerations arising out of what appears to be the general scheme of the Act. " (Per Giiye1: C.J. - The Central Provinces and Berar Act. 1939, FCR 18 at 42 MR). "The question, then, is one of constructio11 and in the ultimate resort must be determined upon the actual words used, read not in vacua hut as occurring in a single complex instrument, in which one part may throw light on another. The Constitution has been described as the federal compact, and the Construction must hold a F balance between all its parts. " (Per Lord Wright - James· v. Co111111011wealth ofAuS'tralia, 1936 AC 578 at 613.) See also Kilwto Holloha11 v. Zachil/1111 and Ors. ( 1992) Supp 2 SCC 651 [Paras 26 and 27]. G

32. In T.M.A. Pai Fou11datio11 v. State of Karnataka, (2002) 8 SCC 481, the Supreme Court stated:-

394 SUPREME COURT REPORTS [2016] 10 S.C.R.

A "148 . .... When constitutional provisions are interpreted, it has to he borne in mind that the interpretation should be such as to further the object of their incorporation. They cannot be read in isolation and have to be read harmoniously to provide meaning and purpose. They cannot be interpreted in a manner that renders another B provision redundant. If necessary, a purposive and harmonious interpretation should be given. "

It follows from the above decisions that while interpreting the c Constitution the emphasis must be on reading· it as a whole, and in a manner that the intent and object ofno part of the Constitution is defeated. In this regard, there must be a holistic approach towards the provisions of the Constitution.

33. Object of Part XIII is not to make inter-State trade, commerce and intercourse absolutely free. Part XIII will have to be read along with other Parts of the Constitution namely, Parts III, IV and XII along with the basic features of sovereignty and federalism. Free trade, commerce and intercourse is subject to the other provisions of Part XIII as well as other constitutional provisions. Art. 301 does not use the word subject 'only' to Part Xlll. The word "free" in Art. 301 is to be read not in isolation or in the limited context of Part XIII, but has to be read as part of the Constitution as a whole. The word "free" cannot be given a meaning which renders the legislative powers of the State " ineffective. For instance, Art. 301 cannot be held to employ freedom from giving minimum wage, gratuity, providentfund etc. to the workers employed.

34. Articles 302 to 304 are neither exceptions nor provisos to Art. 301 and therefore, the principles of interpreting a proviso cannot be applied to them. But both Atiabari and Automobile proceeded on the footing that Art. 302 is in the nature of exception to Art. 301. G Gajendragdkar J. inAtiabariheld: "Thus, the effect of Art. 302 is to provide for an exception to the general rule prescribed by Article 301 .... " [Pages 853-854] H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 395

[R. BANUMATHI, J.]

Similarly, Das J. in Automobile held: A " .... The fact of the matter is that there is such a mix up of exception upon exception in the series of articles in Part XIII that a purely textual interpretation may not disclose the true intendment of Articles .... " [Page 520] B " ... 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 relation given by Art. 302 is itself in the nature of exception of the general terms of Art. 301. It would be against the ordinary canons of construction to treat an exception c or proviso as having such a repercussion on the interpretation of the main enactment so as to exclude .fi·om it by implication what clearly falls within its express term .... " [Page 528] D The above view inAtiabari and Automobile is not correct. Articles 302 to 304 embody re-statement of powers under Art. 246 and the Seventh Schedule. Each re-stated power by itself overrides the freedom in Art. 301. E

35. Further the majority inAtiabari held that: " ... The doctrine of freedom of trade, commerce and intercourse enunciated in Art. 301 is not subject to the other provisions of the Constitution, but is made subject F only to the other provision of Part XIII, that means, once the width and amplitude o,ffreedom enshrined in Art. 301 are determined, they cannot be controlled by any provision outside Part XIII ... " [Page 848] G The majority appears to have read Art. 301 as "subject only to Part Xlll". In the opinion ofleamed author H.M. Seervai too, the majority view in Atiabari that Art. 301 is subject "only to Part III" was not correct. It is apposite to quote the relevant passage from H.M. Seervai 's book H

396 SUPREME COURT REPORTS [2016] 10 S.C.R.

A on Constitutional Law of India, 4'h Edition, Volui:ne 3: " ..... The reasons are - (1) It read into Art. 301 after the word~ "subject" the word "only" which is not there and this is contrary to well-settled principles of interpretation. Further, the power to make rules, referred to in Arts. 302 to 305 is governed by Articles 245 and 246, and, therefore, subject to the provisions of our Constitution. (2) The proviso to Art. 304(h) which requires the previous consent of the President to a bill for the purpose of clause (h), necessarily takes us out c of Part Xlll to Part XI, since Art. 255 in that part provide that the failure to obtain the previous sanction of the President to the introduction of the hill can he made good by his subsequent assent. It follows therefore that the freedom guaranteed by Art. 301 is not limited to restriction permitted only by Art. 304(h) D for the proviso to it is overridden by Art.255 (3). Trade is dealt with not only in Art. 301 hut also in Art.19(l)(g) and the relation of that Article is necessary for a proper interpretation of Part XIII. Article l 9(l)(g) guarantees to every citizen the right to carry on any trade or E business. But trade cannot he carried on without goods or property and the right to acquire, hold and dispose of property which is guaranteed under Art; 19(1) (f). Again, it is not only Art.303 which speaks of discrimination "Arts. 14 and 15 do likewise and the relation o.f this Article to 303 must he considered. " [Page F 2591]

The States are right in submitting that the majority view, both in Atiabari and Automobile, is not correct. Part Xlll and Freedom of G Trade, Commerce and Intercourse will have to be read with other Parts of the Constitution, particularly, Part UI, IV and Xll and basic features of sovereignty and federalism.

JINDAL STAINLESS LfD. v. STATE OF HARYANA 397

[R. BANUMATHI, J.]

QUESTION NO.I: CAN THE LEVY OF A NON- A DISCRIMINATORY TAX PER SE CONSTITUTE INFRACTION OF ARTICLE 301 OF THE CONSTITUTION_. OF INDIA? Power to Tax is a11 illcide11t of State Sovereig11(v:- B

36. Entries relating to taxation and levy of duty under the State List, Seventh Schedule are Entries 46-62 and under the Concurrent List, Seventh Schedule are Entries 35, 43 and 44. The power to tax is a sovereign right of the State and is essential to the very existence of a Government. Any fetters on the power of the State to generate revenue through taxes have a direct impact on the autonomy and governance of the State.

37. The term 'tax· is ordinarily used to express the exercise of the sovereign power to raise revenue for the expenses of the Government. Judge Cooley in his memorable work on the "Law of Taxation" stated that taxation is a mode of raising revenue for a public purpose; and the power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of r.ight to every independent Government. He defined the power of taxation as the power inherent in the sovereign State to recover a contribution of money or other property in accordance with some reasonable rule of apportionment from the property or occupations within its jurisdiction for the purpose of defraying the public expenses: -

" ... It is obvious that it is an incident of sovereignty. and is co-extensive with that to which it is an incident. Alf F subjects over which the sovereign power of a State extends are objects of taxation, but those over which it does not extend are, upon the soundest principles, exempt tram taxation. This proposition mav almost be pronounced self-evident. G The power of taxation is an essential and inherent attribute of sovereigntv, belonging as a matter o( right to everv independent Government. It is possessed bv the Government without being expressly conferred by H

398 SUPREME COURT REPORTS [2016] IO S.C.R.

A the people. The power is inherent in the people because the sustenance of the government requires contributions ti-om them. In fact the power of taxation mav be defined as "the power inherent in the sovereign state to recover a contribution of money or other propertv, in B accordance with some rea.1·01wbfr rule or apportionment, fi-oin the propertv or occupation within its jurisdiction for the purpose of Jefi·aving the public expenses". '' (Cooley, Taxation (4'h Edition) Pages. 72, 149.. 150; c Referred to i11 the Article Power to Tax by Herman M. Knoeller reported in Market Law Review Volume 22 15-sue 3 April, 1938. )

38. This Hon'ble Court has held in a catena of cases that power to levy tax is a sovereign power of the State starting from Raia Jagannatlt Baksh Singh 1•. Tlte State of U.P. and Anr., ( 1963) I SCR 220, where this Hon'ble Court observed that:-

The power of taxation is, no doubt, the sovereign right of the State; as was observed bv Chie( Justice Marshall in M'Culloch v. Marv/and [.I Law Edn. 579 p. 6071 : "The power o( taxing the people and their property is essential to the verv existence of Government, and mav be legitimatelv exercised 011 the objects to which it is applicable to the utmost extent to which the Government may choose to carrv it. " In that sense. it is not the .fimctio11 of the Court to enquire whether the power of taxation has been reasonably exercised either in respect of the amount taxed or in respect of the property which is made the o~jec/ of the tax. Article 265 of the Constitution provides that no tax shall be levied or collected, except by authority of law; and so, for deciding whether a tax has been validly levied or not, it would be necessary first to enquire whether the legislature which passes the Act was competent to pass H

JINDAL STAINLESS LfD. v. STATE OF 1-IARYANA 399 [R. BANUMATI-ll. J.]

it or not. " [Emphasis Supplied] [Page 232-233] A

"109. The primary purpose of taxation is to co/lee/ revenue. Power to tax may be exercised/or the purpose of regulating an industry, commerce or any other activity; the purpose of levying such tax, an impost to be more correct, is the exercise of sovereign power for c the purpose of eflectuating regulation though incidentally the le1y may contribute to the revenue .... "

Power of taxation has been regarded as an inherent attribute of D sovereignty emanating from necessity. Same view was reiterated in Yadlapati Veukateswarlu v. State ofA.P. (1992) Suppl. (I) SCC 74 [Para 9], State o( U.P. & Anr. v. Synthetics and Chemicals Ltd. & Anr. ( 1991) 4 SCC 139 [Para 44],Amrit Banaspati Co. Ltd. andA11r. v. State o(Punjah and A11r. ( 1992) 2 SCC 411 [Para 1O]. Dena Bank E v. Bhikhahltai Prahhutlas Parekh & Co. anti Ors. (2000) 5 SCC 694 [Para 8].

40. Subject to the Constitution and its inherent restrictions, the power of taxation is regarded as political and supreme. Power to levy tax is indispensable for the existence of any civilized Government as it is F a necessity for its support and maintenance. Without taxes, for lack of source of revenue, the Government would become paralyzed. !-low much revenue is to be drawn and from which source is a matter of fiscal policy and wholly depends on the needs of a State. In order to support the existence of the State and its welfare activities, as mandated by the Directive Principles of the State Policy, the State is empowered to raise G revenue through, (i) taxes and duties: (ii) loans raised by the issue of treasury ~ills, loans or ways and means ofadvances; (iii) fees for licenses; (iv) fees for services rendered; and (v) fines or other pecuniary penalties (Articles 199, 207 and 266). On behalf of the State, it was submitted H

400 SUPREME COURT REPORTS [2016] 10 S.C.R.

A that there are fiscal limitations against taking loans in view of debt servicing; even otherwise tax is preferable as it is a mode ofre-distributing wealth in the form of public welfare.

41. In Elel Hotels & l11vestme11ts Ltd. and Otlters 1'. Union of India ( 1989) 3 SCC 698, it was held:- B

"20 .... Tax at ion is no! now a mere source of raising money to defray expenses of Government. It is a recognized fiscal tool to achieve fiscal and social objectives ... ·· c

42. Parts XI and XII of the Constitution deal with "Relations between the Union and the States'' and "Finance, Property, Contracts and Suits" respectively. Part XII dealing with finance etc. D has been treated as Part dealing with the sovereign power of the States to impose taxes, which must always mean imposing burden on citizens and others in public interest. The power of taxation is vested in a sovereign State to carry on with the affairs of the Government. Our Constitution had laid the foundation of a Welfare State, very much extending the activities of the Government and the administration thus making it necessary for the State to impose taxes on a large scale and in much wider fields. The legislative competence of the Parliament or of the State Legislatures can only be circumscribed by express prohibition contained in the Constitution itself. The plenary powers of legislation vested in the Union and State Legislatures by the Constitution are not subject to any limitations other than those imposed by the Constitution itself.

43. In Maharaj Umeg Singh and Ors. '" The State o( Bomhav and Ors. AIR 1955 SC 540, this Court held that since the power of the State to legislate within its legislative competence is plenary and the same cannot be curtailed in the absence of an express limitation placed on such power in the Constitution itself, there is no express prohibition on the legislative powers of the State to levy taxes on the goods entering into a local area for consumption, use or sale thereon. Taxes being the lifeblood of the State, they cannot be decimated by implication. H

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44. The power to tax is a sovereign power and is legislative in character. In a federal system, the legislative power is exercised by distribution of powers between the Union and the States; both are supreme in their respective spheres. State's power despite the limited width of its field is plenary in nature. Except where the constitutional intent is express and clear, the State's plenary power ought not to be whittled down by interpretation. In the present reference, we are concerned with entry 52, List II "Taxes on the entry of good~ into a local area for consumption, use or sale therein". Entry tax is a tax levied on 'Entry of goods into a local area' for the purpose of consumption, use or sale therein. States within their spheres are autonomous entities and have the competence to enact legislation in the fields enumerated in c List II of Seventh Schedule.

45. In the State List, there are eighteen entries on which the State Legislature has the power to levy taxes. States and only States have power to enact legislation in the above fields levying taxes and raise revenue. The above entries in List II relating to the imposition of taxes by the States, despite the limited width of its field are plenary in nature. States must have revenue to cany out their administration and the States are entitled to raise revenue by exercising its power to tax. Such an important power of taxation expressly granted under the Constitution cannot be allowed to be whittled down and made subservient to trade, commerce and intercourse.

46. Tax has always been treated as a distinct entity and is kept on a pedestal separate from all the other legislative fields of the Seventh Schedule. It is worth repeating that the power of taxation is an inherent attribute of sovereignty emanating from necessity. As noted earlier, the exaction is not merely fundamental for existence of the State but also to support the welfare activities, therefore, it fonns a pre-condition for exercise of other legislative power. The special status conferred on taxing statutes is evident from the following special provisions: Article 265 provides that no tax shall be levied or collected except by the authority of law; therefore there can be no levy or collection by exercise of executive power. Tax legislations are given the status of Money Bills under Articles 110 and 199 of the Constitution and, therefore, have a different laying procedure. They can originate only in the lower houses of the Parliament and the State Legislature as per Articles 109 and 198. H

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A · Being a Money Bill, all the revenue is sent to the Consolidated Fund and can only be taken out through Appropriation Bills (Articles 114 and 204).

Freedom in Art. 301 does not mean freedom from taxation:-

B 47. Historically, Art. 301 was meant to do away with barriers between 'Native States' and the rest oflndia. Thus, Art. 301 should be interpreted in the light of the object i.e. "economic integration of the nation", as opposed to being aimed at any or every action which can possibly have an impact on trade, commerce and intercourse. "Free" in Art. 301 does not mean freedom from taxation; taxation simpliciter is c not within the purview of Art. 301. In a sense, every tax imposed~by a State Legislature may have an indirect effect on the flow of trade, commerce and intercourse. If the power of the State Legislature to enact any tax laws is held to be subject to the limitation under Art. 301, the legislative power of the State to levy taxes under various entries in D List II would be rendered ineffective.

48. In various provisions in Part XII of the Constitution certain restrictions have specifically been incorporated on State's power to levy tax. Restrictions as to imposition of tax on the sale or purchase of goods [Art. 286]; Taxes on professions, trades, callings and E employments, in tenns of which power of the State Legislature is limited to levy tax on professions where the total amount payable is not exceeding rupees two thousand and five hundred per annum [Art. 276(2)]; the limitation on State's taxing power imposed by the Constitution itself or power is given to Parliament to provide the limitations by a law [Art.286 F (2) and (3)]; Exemption from taxation hy States in respect of water or electricity in certain cases and the power of the State Legislature to levy such tax after obtaining assent of the President [Articles 288, 288 (1) and (2)]; Identically, there are at least five entries in List II [entries 50, 51, 54, 55 and 57] which specifically provide that they are subject to the limitations/principles prescribed by Parliament by law made G under List I and List III.

49. In the Constitution, wherever exemption from taxes were contemplated, they were expressly provided for-Exemption ofproperty of the Union from State taxation [Art. 285]; Exemption from taxes on electricity [Art. 287]; Exemption.from taxation hy States in respect H

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[R. BANUMATHl, J.]

of water or electricity in certain cases [Art. 288]: Exemption of property and income of a State from Union taxation [Art. 289]. Exemption from tax power of Parliament/State Legislature must thus be provided expressly and unambiguously. Art. 289(2) shows that the trade or business carried on by, or on behalf of, the Government of the State, can also be subjected to tax and the tax could be "to such extent", if any, as Parliament may by law provide. When even the trade or business carried on by or on behalf of the Government of the State can also be subjected to tax, it would be erroneous to hold trade, commerce and intercourse carried on by private individuals and companies in the country free from tax; and that too, by implication. c

50. It is well-settled that even Fundamental Rights in Part III of the Constitution are not immune from taxation and taxation has been held to be "not a restriction''. In Indian Express Newspapers (Bombay) Pl't. Ltd. am/ Ors. etc. "· U11io11 of India and Ors. etc. ( 1985) I SCC 641, levy of indirect tax on newspaper industry, through levies on imported newsprints was challenged as violative of Art. D 19(l)(a). Holding that press is not immune from taxes it was held:-

"49 • .... Yet the American courts have recognized the power of the State to levy taxes on newspaper establishments, of course, su~ject to judicial review by courts by the application of the due process of law principle .... Taxation is the legal capacity of sovereignty or one of its governmental agents to exact or impose a charge upon persons or their property for the support of the government and for the payment for any other public purposes which it may constitutionalf-v carry out.

65. Newspaper industry enjoys two of the fundamental rights, namely the freedom of speech and expression guaranteed under Article 19(1) (a) and the ji·eedom to engage in any profession. occupation. trade. industry or business guaranteed under Art. 19(1) (g) of the Constitution, the first because it is concerned ·with the field of expression and communication and the second H

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A because communication has become a11 occupation or profession and because there is an invasion of trade, business and industry into that field where fi'eedo111 of expression is being exercised. While there cu11 be no tax on the right to exercise (i-eedom of expression. tax B is leviahle on profession, occupation. trade, business and industrv. Hence tax is /eviable on newspaper imiustrv. But when such tax transgresses into the field of freedom o( expression and stifles that freedom, it becomes unconstitutional. As long as it is with in reasonable limits and does not impede freedom of expression it will c not he contravening the limitation o(Art.19(2). The delicate task of determining when it crosses ti-om the area ofprofession, occupation, trade. business or industry into the area of freedom of expression and interferes with that freedom is entrusted to the courts. D

69. In the case of ordinarv. taxing.. statutes, the laws mar . be questioned on~v !f they are either openly co1?fiscato1:r or a colourable device to confiscate. 011 the other hand. in the case of a tax on newsprint. it may be sufficient to E show a distinct and noticeable burdensomeness, clearly and directly attributable to the tax. " [Emphasis added]

51. In All Bihar Schools Association anti A11r. v. State o(Bilwr F and Ors. (1988) l SCC 206, it was held that religious minority institutions are not immune from general laws including tax measures and social welfare legislations. Similarly, in Printer.\· (Mrsore) Ltd. and Am. 1•. Asstt. Commercial Tax Officer and Ors. ( 1994) 2 SCC 434, after referring to Express Newspapers case, it was held that press is not immune from taxation or general law. Thus when even Fundamental G Rights are not free from taxation, trade, commerce and intercourse cannot claim immunity from taxation.

52. A1i. 304(a) allows levy of tax on goods impo1ied from other States, any tax, to which similar goods manufactured or produced in that State are subject so as not to discriminate between goods so impmied H

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[R. BANUMATHI, J.]

and goods so manufactured or produced within the State. Art. ·304(a) A states non-discriminatory tax does not impede the flow of trade, commerce and intercourse. A1t. 304(a) applies where the following conditions are cumulatively satisfied:-

(a) the State Legislature by law imposes a tax; B (b) tax is imposed on goods imported into that State from other States or Union Territories;

( c) a tax is also imposed on similar goods manufactured or produced in that State; and c (d) there is no discrimination between goods imported and goods manufactured or produced in that State. When these four conditions are fulfilled, A1t. 304(a) provides a constitutional route to levy non-discriminatory tax. Under Art. 304(b), the ban under Art.301 stands lifted even if discriminatory restrictions are imposed by the State Legislatures, provided they fulfill the following conditions-(a) such restrictions are in public interest; (b) they are reasonable; and (c) they are subject to obtaining of prior sanction of the President before introduction of the Bill or amendment.

53. While the States have legislative power to levy taxes on goods imported from other States, Art. 304(a) imposes restrictions on this power of the States to levy a tax on goods that would result in discrimination between goods imported from other States and similar goods manufactured or produced within the States. The non-obstante clause in Art. 304 with respect to Art. 301, actually indicates that since tax does not fall within the purview of Art. 301, therefore, Art. 304(a) was brought in to provide against discrimination based on source or destination of goods. Art. 304(a) is thus a restriction on the tax powers of the States, not to discriminate between the goods imported into the State with similar goods manufactured or produced within the taxing State. G

54. Constituent Assembly Debates indicate that the framers of the Constitution while intending to guarantee free flow of trade, commerce and intercourse did not deify it. As discussed earlier, at the time of drafting Constitution, provision containing freedom of trade, commerce and intercourse which was initially shown as Fundamental Rights; but after H

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A debates, it was shifted to a separate Part [Part XIII]. The framers of the Constitution did not intend that trade, commerce and intercourse is free from taxation. Art. 304 provides for the power of the States to impose taxes, subject of course, the levy is not discriminatory. Hence, Art. 3 0 I ought not to be read as freedom from tax laws.

B 55. In this regard, we may usefully refer to Constituent Assembly Debates/Framing oflndia 's Constitution:

Sliri Alladi Krishna.nvami Arvar c "And then. "Provided that nothing in this section shall prevent any unit jiYJm imposing on good~ imported from other units the same duties and taxes to which goods produced in the unit are su/1ject". That is to say we ought not to differentiate; hut at the same time, goods D coming in should not go scot free: they should be su~ject to the same duty as goods produced in the area" (The framing of lndia:s Constitution,. Select Documents by Universal Law, Law Publishing PJJt. Co. Pvt. Ltd. Vol.2 Page.253) E Gobind Ballabh Pant

"There is unanimizy about the body- of this clause and it is clear that there should not be any discrimination against one unit by another unit. Otherwise we will be going against the very sense of a Union r4 Federal F Constitution. If the units are to be discriminated against we will come to blows more often than otherwise. Therefore this should he avoided. "(The framing of India's Constitution, Select Documents by Unil•ersal Law, Law Publishing Pvt. Co. Pvt. Ltd. Vol.2 Page.254) G Sltri Krislwaswami Avvar "So far as article I 6 is concerned, the substance of the freedom of trade guarantee is preserved. We have prohibited the States and the Centre fi·om passing H

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[R. BANUMATlH, J.]

discriminatorv laws·· [Constituent Assemb(v Debates A dated 30.07.1949 to 18.09.1949 (Page 1144)]

56. A tax legislation could be challenged on the ground oflegislative competence as well as violation of Fundamental Rights guaranteed under -Part Ill of the Constitution. In Rai Ramkrisltna and Ors. v. Tile State o(Bilwr (1964) l SCR 897, this Court while holding that tax Statutes B were not beyond the constitutional limitation prescribed by Articles 14 and 19 held that the challenge must however be dealt with caution and circumspection:

c "13 ..... .that taxing statutes are not bevond the pale of the constitutional limitations prescribed by Articles 19 and I 4. and he also concedes that the test of' reasonableness prescribed by Ari. 304(bJ is justiciable. fl is, of course. true that the power of taxing the people and their property is an essential attribute of the D Government and Government may legitimately exercise the said power by reference to the obiects to 1vhich it is applicable to the utmost extl'nt to which Government thinks it expedient to do so. The obiects to bl' taxed so long as they happen to be Within !he !egislalii"<' E competence of the legislalure can be /axed by the {egislature according to the exigencies of its needs. because there can be no doubt that the State is e11tit!ed to raise revenue by taxation. The quantum of tax levied by the taxing statute, the conditions subject to which it is levied, the 111u1111er in whiclt it is sought to be recm•ered, are a/I matters within the competence <~(the legislature, and ill dealing witlt the contention raised by a citizen that tile taxing statute co11traw11es Art. 19, courts would naturally be circumspect and cautious. Where for instance, it appear,\' that tlte taxing statute is plainly discriminato1~v, or provides 1w procedural machinery for asses.~ment and le1'Y of the tax, or tllat it is confiscatory, Courts would be just(fled in striking down the impugned statute as 1mco11stitutio11al. In such cases, the character of the material pro11i~·io11s of the H

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57. In Hari Krishna Blwrgav v. Union o{lmfia and A11r. AIR !966 SC 619, the Bench noting the effect the series of decisions has had on Ramjilal, concluded that although the power to tax is not a power that transcends fundamental rights, a taxing Statute cannot merely be challenged on the ground that it is harsh and excessive. It was observed as under:-

F "l 0. it was urged that even if the exercise of the powers to compel deposits be regarded as not unconstitutional, its exercise is harsh and the demand~ made by the State are excessive. Exercise of the taxing power by the State has undoubtedly to be tested in the light of the fundamental freedoms guaranteed by Ch. III of the G Constitution. It is llOt a power wltic/1 tra11sce11ds· the f u11dame11tal rights, as was assumed in certa ill earlier decisions : Ramjila/ v. Income-tax Officer (1951) 19 !TR 174 (SC) ; Laxmanappa Hanumantappa v. Union of India (UOI) (1954) 26 !TR 754 (.S'C) ; and the view H

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expressed by Venkatarama Ayyar J .. in S. Anantha A Krishnan v. State of Madras I.L.R. [1952] Mad. 933. But it is now settled by decisions of this Court (e.g.) Kunnathat Thathunni Moopil Nair v. The State of Kera/a and Another (1961) 3 SCR 77 that a taxing statute is subject to the "conditions laid down in Art. 13 of the B Constitution ". A taxing statute may accordingly by open to challenge on the ground that it is expropriatory; or that the statute prescribes no procedure or machine1y for assessing tax, but it is not open to challenge merely 011 the ground that the tax is harsh or excessive. " [Emphasis supplied] c

Consistent view taken in the above series of decisions and other decisions is that tax legislations can be challenged on the ground that they infringe the Fundamental Rights under Part III but that does not D however mean that there is freedom from taxation or that tax is per se a restriction on Fundamental Rights or freedom of trade, commerce and intercourse.

Tax is not a restriction per se: E

58. The above Constituent Assembly Debates and the history of Art. 301 show that freedom envisaged in Art. 301 is not freedom from taxation but only freedom from trade barriers. So long as the tax remains non-discriminat01y, its validity cannot be judged under Art. 301. Under Art. 246(3) of the Constitution, a State has exclusive power to make F laws for such State or any part thereof with respect to any of the matters enumerated in List II of the Seventh Schedule. Art. 246(3) is subject to clauses ( 1) and (2) of Art. 246 i.e. matters enumerated in Lists I and Ill of the Seventh Schedule. As per Art. 265, a tax can be imposed only under authority of law and there is no role of the Executive. Taxation G includes the imposition of any tax as defined under Art. 366(28): "taxation" includes the imposition of any tax or impost, whether general or local or special, and "tax·· shall be construed accordingly. It is a sovereign power of compulsory exaction as a part of any burden by public authority for public purposes enforceable by H

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A law. Imposing a tax is a compulsory exaction made for a public purpose without reference to any special benefit to the taxpayers.

59. The taxing power of the State stands independently fortified by Parts XI and XII of the Constitution oflndia and can only be challenged on the ground of reasonableness. It needs no reiteration that power of B States to levy taxes for the purpose of governance and carrying out its welfare activities is a necessary attribute of State's sovereignty and in that sense it is a power of supreme attribute. It is well-settled that taxes are levied in public interest and hence, cannot be considered a restriction per se on the enjoyment ofany freedom contemplated by the Constitution. c It would be highly unjustified to view a taxing Statute as a restriction on individual freedoms.

60. The essential characteristics of a tax are that: (i) it is imposed under a statutory power without the taxpayer's consent and the payment is enforced by law: (ii) it is an imposition made for public purpose without D reference to any special benefit to be conferred on the payer of the tax; and (iii) it is part of the common burden. In Commis.\'ioner Hindu Religious Endowment.\·, 1lfadras v. Sri Laksltmi11dra Tltirtlta Swamiar o(Sri Shirur Afutt 1954 SCR l 005, the Constitution Bench has laid down the characteristics ofa tax which has since been consistently followed and it is as under:- E

" .... A tax is a compulsory exaction of money bv a public authority for pub/ ic purposes <?1?/iJrceab/e by law and is 11ot payment ".for services rrndered''. This defi'11itio11 F brings out, i11 all opinion. the essrntia/ characteristics of a tax as distinguished ji-r1111 utherjim11s of imposition ·which, in a 7eneral sense. are i11cluded within it. ft is said that the essence of taxation is comp11lsio11, that is to say, it is imposed under statuto1y power 11'ithoul the taxpayer :1· consent a11d the payment is e1?fiJrced by law. G The second characteristic of tax is that it is a11 i111positio11 made for puhlic purpose without reference to any .1pecia/ benefit to be conferred on the paver of the lax. This is expressed by saying that the levy of tax is for the purposes of general revenue. which when collected H

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revenues of the State. As the o~ject ol a tax is not to confer any special benefit upon anv particular individual there is as it is said, no element of "quid pro quo" between the taxpayer and the public authority. Another feature of taxation is that as it is a par/ of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay. "

The above decision was followed in Indian Medica/Associatio11 v. V.P. Stmtlw and Ors. ( 1995) 6 SCC 651 and also in State of Gujarat and Ors. 1•. Akhil Gujarat Pravas·i V.S. Mahamanda/ and Ors. (2004) c 5 sec J55.

61. A five Judges _Bench of this Court in Federation of Hotel and Restaurant Association of J11dia, Etc. v. Union of India and Ors. ( 1989) 3 SCC 634 has held that mere excessiveness of a tax or even the circumstance that its imposition might tend towards diminution D of the earnings or profits oft he persons of incidence does not per se and without more, constitute violation of Art. 19( I )(g). The relevant extract from the judgment is as under:

E "62. A taxing statute is not, per se, a restriction of the fi'eedom under Article 19(J){g!. The policv of a tax, in its effectuation, mig/11, of course, bring in some hards· hip in some individual cases. But that is inevitable, so long as law represents a process of abstract ion from the generality <~f cases and reflects the highest common F fact01: Every cause, it is said, has its martyrs. Then again. the mere excessiveness of a tax or eve11 the circumstance that its imposition might tend towards the diminution of the earnings or profits of the persons of incidence does 1101, per se, and without more. constitute G violation of the rights under Article J 9(l)(g;."

62. Similar view was expressed in Express Hotels Private Limited v. State of Gujarat and A11r. (1989) 3 SCC 677. A taxing 1-1

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A Statute is not per se restriction of the freedom under A1t. 19( I )(g):

"28. So far as the argument . that Fundamental Rights . under Article 19(l)(g) are violated by a levy on a mere provision for luxury. without its actual utilisation. is B concerned ii is settled lcnv that the mere excessiveness of a tax or that it affects the earnings cannot. per se. be held to violate Article 19(l}(g) .... ''

c 63. A1i. 304(a) authorizes a State Legislature to impose a non- discriminatory tax on goods imported from other States. Art. 304(a) does not prevent levy of tax on goods; what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. The object is to prevent imported goods from being discriminated by imposition of a higher tax thereon than the local goods. Under Art. 304(b), States can impose reasonable restrictions on the freedom of trade, commerce and intercourse with or within that State as may be required in public interest; provided they obtain prior sanction of the President before introduction of the Bill. As taxes are levied for the purpose of raising revenue, they are not restrictions and are presumed to be in public interest. Thus, tax simpliciter is not a restriction ori the freedom of trade and commerce and is outside the purview of Art. 301.

Majority l'iew in Atiabari and Automobile: Need of re- F appreciatio11:-

64. In Atiabari Tea Co. Ltd. v. The State o(Assam and Ors., 1961 SCR 809, Assam Legislature enacted the Assam Taxation (On Goods Carried by Roads or Inland Waterways) Act, 1954 acting on entry 56 of the State List and imposed tax at a rate of one anna per G pound of tea in chest box, carried through the State of Assam by any means other than the railways and the air. The appellant who carried their tea to Calcutta in the State of West Bengal through the State of Assam assailed the validity of the Act inter alia on the ground that it violated Art. 30 I of the Constitution. Contention of the appellant was H

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that words of Art. 301 are very wide and unambiguous and that it would A be unreasonable to exclude from its ambit a taxing law which restricted trade, commerce or intercourse either directly or indirectly. The respondent-State of Assam urged that the provisions of sovereign power of the State to levy tax under Parts XI and Xll of the Constitution stood by themselves and that the tax would not fall foul of Part XIII. B

65. After discussing various provisions of Part Xlll and after tracing the constitutional background, speaking for the majority, Justice Gajendragadkar held as under:-

" ........ Thus considered we think it would be reasonable c and proper to hold that restrictions ji-eedom from which is guaranteed by Art. 301 would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes mav and do amount to restrictions: but it is onlv such taxes as directlv and immediately restrict trade that would fall within the purview o(Art.301. The argument that all taxes should he governed by Article 301 whether or not their impact on trade is immediate or mediate. direct or remote. adopts. in our opinion. an extreme approach which cannot he upheld. If the said argument is· accepted it would mean, for instance, that even a legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage bill may indirectly affect trade or commerce. We are. therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed bv Art. 301 a rational and workable test to apply would be: Does the impugned restriction operate directly or immediately on trade or its movement?" [Page 860] [Emphasis Supplied] G

The majority based its opinion on the reasoning that any legislation whether taxing or otherwise which imposed any restrictions that had 'the effect of directly offending the movement or transport of goods would fl H f

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A ·attract the provisions of Art. 30 I and its validity could be sustained only ifit satisfied Art. 302 or Art. 304(b) of the Constitution.

66. Sinha, C.J. in his dissenting judgment referred to the integration of"Native States" with the Government ofindia and how the "Native States" ultimately merged their individualities into India to emerge as B one political unit with the result that what was called British India became under the Constitution' Part-A States', and the "Native States" became 'Pai1-B States'. Sinha, C.J. pointed out that most of the "Native States'', big or small had their own taxes, cesses, tolls and other imposts and duties meant not only for raising revenue but also as trade barriers and c tariff walls. In the background of those circumstances, it was necessary to abolish all those trade barriers and custom posts as also in the interest of national solidarity, economic and cultural unity and freedom of trade and commerce guaranteed in the Constitution by Art. 301. Observing that the power to tax is inherentin sovereignty, public purpose is inherent in every taxation and tax simpliciter is not an impediment to the freedom of trade, commerce and intercourse, Sinha C.J. held as under:-

" .... If that were so, all laws of taxation relating to sale and purchase of goods on carriage of goods and commodities, men and animals, from one place to another, hoth inter-State and intra-State would come within the purview of Art.301 and the proviso to Art. 304(h) would make it necessary that all .Bills or Amendments of pre-existing laws shall have to go through the gamut prescribed by that proviso. That will he putting too great an impediment to the power of taxation vested in the States and reduce the States' limited sovereignty under the Constitution to a mere fiction. That extreme position has, therefore, to be rejected as unsound. " [Page 827] G