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

Jn my opinion, another very cogent reason for holding that taxation simpliciter is not within the terms of Art. 301 of the constitution is that the very connotation of H

JINDAL STAINLESS LTD. v. SlATE OF HARYANA 415

[R. BANUMATH.I, J.]

taxation is the power of the Stale to raise monev for A public purposes by compelling the payment by' persons, both natural and juristic. of monies earned or possessed by the1ri, by virtue of the facilities and protection afforded by· the State. Such burdens or imposts. either direct or indirect, are in the ultimate analvsis meant as B a contribution by the citizens or persons residing in the State or dealing ivith the citizens of the State. for the support of the Government, with particular reference to their respective abilities lo make such contributions. Thus public purpose is implicit in even· taxation, as such. Therefore. when Part Xlll of the Constitution c speaks of imposition of reasonable restrictions in public interest it could not have intended lo include taxation within the generic term "reasonable restrictions" ......... [Page 828] D

.... The obiections against the contention that taxulion was included within the prohibition contained in Part Xll! may thus be summarized: (/) Taxation. as such, always implies that it is i11 public interest. Hence. it E would be outside particular restrictions. which may be characterized by the Courts as reasonable and in public interest. (2) The power is vested in a sovere1~~11 State to carry on Governme11t. Our Co11stit11tio11 has laid the foundations of a welfare State, which means very much expanding the scope of the activities of Government F and administration, thus making it necessary for the State to impose taxes 011 a much larger scale and in much wider flelcl.s. The legislative entries in the three lists referred lo above e111poweri11g the Union Government and the State Governments to impose G certain taxations with reference to movemems (~f gooi.l.1 and passengers would be rendered ineffective, if 110/ otiose, if ii were held that taxation simpliciter is within the terms of Art. 301. (3) {f the argument on behalf of the appellants were accepted, many taxes. for example, 1-1

416 SUPREME COURT REPORTS [2016) 10 S.C.R.

A sales tax by the Union and by the States, would have to go through the gamut prescribed in Articles 303 and 304, thus very much detracting from the limited sovereignty of the States, as envisaged by the Constitution. (4) Laws relating to taxation, which is B essentialZv a legislative function of the 5iate. will become justiciable and ever:v time a taxation law is challenged as unconstitutional, the State will have to satisfy the courts - a course which will seriously affect the division of powers on which modern constitutions. including ours. are based. (5) Taxation 011 movement <~f' goods c and passengers is not necessariZv an impediment. "[Page 829]

Article 301, with which Part Xlll commences. contains the crucial words "shall be free" and provides the key to the solution of the problems posed by the whole Part. The freedom declared by this Article is not an absolute freedom from all legislation. As alreadJ' indicated, the several entries in the three Lists would suggest that both Parliament and State Legislatures have been given the power to legislate in respect of trade, commerce and intercourse, but it is equally clear that legislation should not have the effect of putting impediments in the way of free flow of trade and commerce. In my opinion, it is equally clear that the freedom envisaged by the Article F is not an absolute freedom from the incidence of taxation in respect of trade. commerce and intercourse. as shown by Entries 89 and 92 A in List I, Entries 52, 54 and 56 to 60 in List II and Entr:v 35 in List III. All these entries in terms .1peak of taxation in relation to different aspects of trade, commerce and intercourse. The Union and Slate G Legislature, therefore, have the power to legislate bv way of taxation in respect of trade, commerce and intercourse, so as not to erect trade barriers, tariff walls or imposts. which have a deleterious effect 011 the free flow of trade, commerce and intercourse. That fi-eedom H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 417

[R. BANUMATHI. J.]

has further bee11 circumscribed bv the power vested i11 A Parliament or i11 the Legislature of a State to impose restrictions in the public interest. Parliament has further been authorised to legislate in the way of giving preference or making discrimi11ation in certain strictlv limited circumsta11ces indicated in cl. (2! of Art. 303. B Thus, 011 a (air construction of the provisions of Part XIII, the following propositions emerge: (!) trade, commerce and intercourse throughout the territorp of India are not abso!utelv free, but are subject to certain powers of legislation hv Parliament or the Legislature ofa State: (2) the fi·eedom declared bv Art.301 does not c mean freedom fi·o111 taxation si111p/icite1; but does mean fi·eedom fi·om taxation which has the effect o( directly impeding the free Oow of trade, commerce and intercourse: (3) the freedom envisaged in Art. 301 is subject to 11011-discriminatorv restrictio11s imposed by D Parliament i11 public interest (Art.302): (4) eve11 discriminatory or preferential legislation may be made by Parliament for the purpose of dealing with a11 emergency like a scarcity (d' goods i11 any part of India [Art. 303(2)]; (5) reasonable restrictions may he imposed by the Legislature of a State i11 the public interest [Art. 304(b)j; (6) non-discriminatory taxes may be imposed by the Legislature of a State on goods imported from another State or other States. if similar taxes are imposed on goods produced or manufactured i11 that State [Art. 304(a)]: and lastly (7) restrictions imposed by existing laws have been continued. except insofar as the President may by order otherwise direct (Art. 305). [Page 831-832] [Emphasis added]

67. A larger Bench of seven Judges was constituted in Automobile Transport (Rajastha11) Ltd. v. The State o(Raja.1·tfum and Ors. ( 1963) 1 SCR 491, in which the validity of Rajasthan Motor Vehicles Taxation Act, 1951 and the Rules made thereunder was under challenge. Section 4 of the Rajasthan Act required every owner of motor vehicle "used in H

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

A any public place or kept for use in Rajasthan" to pay tax at the appropriate rate specified in the Schedule to the Act. The appellants therein who were stage carriage operators challenged the validity of the Rajasthan Act on the ground that such levy contravened Art. 301 of the Constitution and was not saved by Art. 304(b) thereof. The validity of B the Rajasthan Act was upheld by a majority of 4:3. Justice S.K. Das who spoke for the majority, agreed with the majority view of Atiabari that only those restrictions which directly and immediately restrict or impede the free flow of trade, commerce and intercourse would be in violation of Art. 301. But the majority in Automobile added a clarification that a regulatory measure or measures imposing compensatory taxes c for the use of trading facilities would not come within the purview of reshictions contemplated by Art. 301 and such measures need not comply with the requirements of Art. 304(b ).

68. While concurring with the majority view that the provisions of the Rajasthan Motor Vehicles Taxation Act 1951, are regulatory in character, delivering a separate judgment. Justice Subba Rao widely referred to Section 92 of the Australian Constitution to hold that the Court will have to ascertain whether the impugned law in a given case affects the movement directly or indirectly. It was held that "only if a tax directly and immediately affects the movement of trade, it would be violating the freedom; on the other hand if the impact is indirect and remote it would be unobjectionable.

69. On behalf of the assessees, it has been argued before us that the majority judgments in Atiabari and Automobile held that State tax legislation must confonn to Art. 304(b) in addition to Art. 304(a). The F thrust of the submissions made is that entry tax falls within the expression 'restriction' under Art. 304(b ). They submit that the State legislation levying tax on the goods imported into the State may have to be justified under Art. 304(b), if they are challenged as excessive in amount, to such an extent that they operate as a restriction on the movement of goods or G persons and impose a burden on_the freedom of trade and commerce.

70. Mr. P.P. Rao, Mr. Rakesh Dwivedi, Mr. V. Giri, Mr. Shyam Divan and Mr. Ajit Kumar Sinha learned Senior Counsel and other counsel appearing for the States advanced meticulous arguments that there is erroneous approach in the judgments of Atiabari and Automobile and they made the following submissions to fortify their contentions that the H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 4I9 [R. BANUMATHI, J.]

majority views in Atiabari and Automobile are to be re-visited:- A

(i) Even though the majority refen-ed to Section 297 of the Government of India Act, 1935 and referred to the economic unity of the nation, no detailed discussion was done on the history of Part XIII and Constituent Assembly Debates which threw considerable light on B Part Xlll and consequently erred in holding that Art. 301 read in its proper context imposes constitutional limitations on the legislative powers of the Parliament and the State. [Page 848] Majority in Atiabari held that :- c " .... the freedom of the movement of trade cannot he suhject to any restrictions in the form of taxes imposed on the carriage of goods or their movement, all that is meant is that the said D restrictions can he imposed by the State Legislatures on~v after satisfying the requirement of Art. 304(b) .... " [Page 861}.

E Ii the said view of Atiabari is to be adopted then for each and every legislation, the State Legislatures will have to undergo the process of Art. 304(b). Tax is one important mode of raising revenue to enable the States to discharge its obligations as a Welfare State. Such plenary powers of the State legislature to impose taxes cannot be whittled down F or made subservient to Ai1. 301.

(ii) The majority read Art. 301 as subject only to the provisions of Part XIII. [Page 848]

(iii) Majority drew support from the Constitutions of G Australia and USA however one does not find any provision comparable to Part XIII in Australian and American Constitution. Even Australia and USA now reject the "direct and immediate test" and have adopted "discrimination theory". H

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

A 71. Learned Attorney General for India, Mr. Mukul Rohatgi has additionally submitted that bringing taxes within the purview ofArt. 304(b) is completely foreign to the constitutional scheme of federalism as it wouid empower the President to, by virtue of proviso to Art. 304(b), super-adjudicate over the sovereign power of the State and that the sovereign power of the State cannot be subjected to an implied limitation B as it would destroy sovereignty, federalism and economic unity of the country.

72. Art. 30 I guarantees freedom of trade and commerce from "restrictions" and not freedom from all "laws". With due respect, in C Atiabari, by application of "direct and immediate test", rather than examining the powers of the State Legislature to enact legislation with reference to the entries in List II, the majority has gone into the effects of the legislation. As per majority view ofAtiabari,Art. 301 is a limitation upon the exercise oflegislative powers of the State, which, in my view negates or limits the legislative power of the States expressly granted under various entries in List II of the Seventh Schedule. As rightly contended by the counsel for the States, in Atiabari and Automobile, there was no detailed reference to Constituent Assembly Debates which throw considerable light on the scope of Part XIII.

73. The view taken in Atiabari and Automobile that taxes may and do amount to restriction, is flawed. Taxing power of the State stands independently fortified by Part XII of the Constitution and can be challenged only on the ground ofreasonableness. Through a series of judicial pronouncements, it is accepted that even a challenge to the taxing Statute under Articles l 9(l)(g), 14 and under Part lII of the Constitution F has to be dealt with caution and only after great circumspection should the Statute be struck down.

Freedom in Art. 301 is not freedom from taxation- non-discriminatory taxes are outside the purview of Art. 301: G

74. In Atiabari, Sinha, C.J. took a different view of Art. 301 than the one taken by the majority and concluded as under:-

" ..... (2) the freedom declared by Art. 301 does not mean freedom from taxation simpliciter, hut does mean freedom H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 421

[R. BANUMATHI, J.]

from taxation which has the effect of directly impeding the free .flow of trade, commerce and intercourse; ... ... " [Page 831] "Jn my opinion, another very cogent reason for holding that taxation simpliciter is not within the terms of Article 301 of the Constitution is that the very connotation of taxation is the power of the State to raise money for public purposes by compelling the payment by persons, both natural and juristic, of monies earned or possessed by them, by virtue of the facilities and protection afforded by the State. Such burdens or imposts, either c direct or indirect, are in the ultimate analysis meant as a contribution by the citizens or persons residing in the State or dealing with the citizens of the State, for the support of the Government, with particular reference to their respective abilities to make such contributions. D Thus public purpose is implicit in every taxation, as such. Therefore, when Part XIII of the Constitution speaks of imposition of reasonable restrictions in public interest, it could not have intended to include taxation within the generic term "reasonable restrictions .... " [Page 828] E

According to Sinha C.J., every tax including a tax on 'movement ofgoods or passengers' was not necessarily an impediment or restraint in the matter of trade, commerce and intercourse. As per Sinha C.J., F taxation by its very nature could not be included within the tenn "reasonable restriction" used in Part XIII. The view of Sinha C.J. is a correct view and is in consonance with the consistent view taken by this Court that taxing statutes are not per se a 'restriction'.

G Atiabari and Automobile: Reference to Australian and American cases:

75. The Commonwealth of Australia Constitution Act came into being in 1900. Chapter I, Part V lays down the powers of the Parliament H

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

A wherein, by virtue of Section 51 (i), Parliament is empowered to legislate with respect to 'trade and commerce with other countries, and among the States'. Chapter IV, Sections 81-105Adeal with 'Finance and Trade'. The most relevant provision in this Chapter, for our purpose is Section 92 which has been consistently mooted upon and has evolved through several judicial pronouncements. Section 92 declares trade, commerce B and intercourse to be absolutely free, subject only to imposition of custom duties. Further, Section 99 mandates that the Commonwealth shall not give preference to one State or any part thereof over another State or any part thereof while making any law or regulation with respect to trade, commerce or revenue. Under Section 102, the Parliament is c authorised to make a law forbidding the States from making any preference or discrimination insofar as Railways are concerned, but with due regard to financial responsibilities incurred by States in connection with construction and maintenance of Railways.

76. The Constitution framers while ascertaining the scope of freedom of inter-State trade and commerce in India deliberated upon Section 92 of the Austrnlian Constitution. Pandit Thakur Das Bhargav was in favour of making trade and commerce absolutely free in India. However, Shri T.T. Krishnamachari speaking for the Draft Committee brought out the difficulties which could have been faced by guaranteeing absolute freedom of trade and commerce in India on par with Section 92 of the Australian Constitution.

77. The following observations of Shri T.T. Krishnamachari are relevant to be noted:

F " ... .I do not know if he realises that an ombnibus right such as the one that we recognise should not be given so far as freedom of trade and commerce is concerned, wl1ich perhaps has an echo in article 92 of the Australian Constitution, which has made the economic G position of Australia a very difficult one today. They in Australia find that by reason of the fact that their provisions for amendment of the Constitution are so difficult that they are not able to amend the Constitution, and article 92 stands as a bar to any progressive H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 423

[R. BANUMATHI, J.]

legislation which they have u11dertake11. It may be right or it may be wrong - the people ofA11stralia are behind the Government bu! when they wanted to nationalise banking, article 9:! of the Australian Constitution has been held as a bar to the Government '.1· power to nationalise the banks. There is no point in shutting the hands of the ftlfure Government in operating this Constitution." [Constitutional Assembly Debates, Volume IX, Page.1142, dated 30.07.1949-18.09.1949) c

78. Shri T.T. Krishnamachari highlighted how Section 92 stood in between the nationalisation of private banks in Australia. This observation was probably made taking note of the view taken by Australian High Court, which was later affirmed by Privy Council in Commonwealth of Australia v. BaIlk o(New South Wales ( 1949) 79 CLR 497:[ 1950) AC D 235, (famously known as Bank Natio11alisatio11 Case). In 1947, the Australian Government decided to nationalise private banks in Australia. In line of this process, the Banking Act, 194 7, was enacted. However, the policy faced several controversies and was ultimately challenged before the courts. The Bank of New South Wales challenged the E constitutional validity of Banking Act, 194 7. The High Court ofAustralia found certain provisions of the Act to be invalid and thus, struck them down. The Commonwealth Government appealed against the decision in the Privy Council, however, the Privy Council affirmed the decision of the Australian High Court.

79. Our Constitution framers noticed the problems which had emerged in relation to Hie trade and commerce provisions of the Australian Constitution. After deliberations, the phrase ''absolutely free" occurring in Section 92 of the Australian Constitution was not borrowed and incorporated in the Indian Constitution. While the framers oflndian Constitution took great caution to avoid the state of ambiguity faced in G Australia with regard to freedom of trade and commerce, due to the judicial development in Atiabari and Automobile, confusions were sown in Indian scenario also.

424 SUPREME COURT REPORTS [2016] 10 S:C.R.

A 80. Atiabari and Automobile adopted the ·Direct and Immediate test' which had evolved in Australia through a series of pronouncements [James v. State o(South Australia ( 1927) 40 CLR I; James v. Cowan (1932) A.C. 542; James v. Commo11wealth o(Australia ( 1936) A.C. 578] and was dominantly relied upon in the Bank Natio11alisatio11 Ca.ve. In the Bank Natio11alisatio11 Case, it was held that Section 92 would be B breached only where the law under challenge restricted trade and commerce directly and immediatelv. The Court observed that where the restriction is indirect or remote, the freedom provided by Section 92 would not be impaired. The test on which every impugned legislation ought to be examined was formulated in the following terms: Does the c law under challenge directly and immedialely, as opposed to incidentally, restrict the trade and commt!rce in which the individual was engagt!d? Atiabari and Automobile fundamentally concurred with the Australian cases to hold 'tax' as a r.:striction for the purposes of Part XIII of the Constitution of India. Gajendragadkar, J. in Atiabari observed: D

"It is commo11place to say that the political and historical background of the federal polity adopted by the A ustra/ian Com111011wealth, the setting ofthe Conslitution itself, the distribution of powers and the general scheme E of the Constitution are differe11t, and so it would to be safe to seek j(n· guidance or assistance from the Australian decisions when we are called upon lo co11strue the provisions of our Co11stitulio11. ".

F Gajendragadkar, J. further relied on the Bank N11tio11ali.rntio11 · Case to borrow the concept of 'direct a11d immediate impediment on the freedom of trade and commerce' from the Australian system. Relevant extract from Gajendragadkar J. 's judgment is as under:

G "111 the case lJ( Commonwealth of .1 us/ralia v. Ba11k of New South Wales (1927! 40 C.L.R. I to which reference has already been made in connection with the /es/ of pith and substance the Privy Council was examining H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 425

[R. BANUMATHI, J.]

the validity of s. 46 of Banking Act (Commonwealth) A (No. 57 of 1947) in the light of the provisions of s. 92 of the Australian Constitution. In deciding the said question one of the tests which was applied by Lord Porter was : "Does the act not remotely or incidentally (as to which they will say something later) hut directly restrict the B inter-State business of Banking", and he concluded that "two general propositions may he accepted, (1) that regulation of trade, commerce and intercourse among the States is compatible with its absolute freedom, and (2) that s. 92 is violated only when a legislative or c executive act operates to restrict such trade, commerce and intercourse directly and immediately as distinct.from creating some indirect or consequential impediment which may fairly he regarded as remote". "[Page 870 of SCR] D

81. Again in Automobile, reliance was placed on Australian and American cases, in particular on Commonwealth ofAustralia v. Bank of New South Wales and James v. Commonwealth of Australia to finally hold that 'tax' is a restriction for the purpose of Part Xlll of the E Constitution. Subba Rao J. concurring with the majority view pointed out thar Art. 301 was borrowed from Section 92 of the Australian Constitution, and after referring to the differences in the language of both the provisions and evolution of federation in both the countries, Subba Rao J. chose to concur with "doctrine of direct and immediate effect". Following observations ofSubba Rao J. clearly show that heavy reliance was placed by him on American and Australian decisions:-

"In this context, the principles evolved by American and Australian decision in their attempt to reconcile the commerce power and the State police power or the freedom of commerce and the Commonwealth power to make laws affecting that freedom can usefully be invoked with suitable modifications and adjustments.

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

A Of all the doctrines evolved, in my view, the doctrine of "direct and immediate effect" on the freedom would he a reasonahle solvent to the difficult situation that might arise under our Constitution. {fa law, whatever may have heen its source, direct~v and immediately affects B the free movement of trade, it would he restriction on the said.freedom. But a law which may have only indirect and remote repercussion on the said freedom cannot he considered to be a restriction on it. "

c 82. The above views taken in Atiabari and Automobile in the light of the Australian cases represent a mechanical implantation of a foreign concept into the Indian legal system, not keeping in view the distinct features ofindian Polity and the Constituent Assembly Debates. Majority view in Atiabari and Automobile do not appear to have taken D note of the historical background of merger of'Native States' with their individualities, with British India, and the federal nature of the Indian Constitution while discussing the fundamental question as to whether 'Freedom' in Art. 301 meant freedom from tax. The majority appears to have: begun with the presumption of tax laws being subservient to Art. 301 and later concluded that if all the tax laws are brought in Art. 301, E State's legislative power to tax would be destroyed. Thereafter, in an attempt to save the taxing power of the State, they borrowed the concepts of 'direct and immediate test' and 'compensatory tax' from the Australian and American Cases.

83. ln this regard, learned author H.M. Seervai in Constitutional F Law of India, 4•h Edition, Volume 3 has observed as under:

"It is suhmitted that the principles of interpretation adopted by the majority judgment in the Atiahari case G and hy all the judgments in the Automohile case depart widely from well settled principles of construction. They .first try to ascertain the intention of the framers of the Constitution, by reference to 'history' and then proceed to consider what construction would best effectuate that intention. But if an intention is to be first assumed, it is H

JfNDAL STAINLESS LTD. v. STATE OF HARYANA 427

[R. BANUMATHI, J.]

not difficult to read ii into the words to be interpreted. A It is submitted that words have to be interpreted according to I heir terms, or according to well known extrinsic aids to construction" [Page 2598]

B Mr. Seervai has a !so pointed out that the very observation that the Australian scenario is akin to the Indian scenario was flawed. It is obscure how the comparative study of the Australian and Indian Constitutions undertaken by this Court inAtiabari and Automobile lead to a conclusion that interpretation of Section 92 as done in .Bank Nationalisation Case can be suitably adopted in Indian set-up. Mr. Seervai at Page 2599 c observed as under:-

" ... provisions of part Xlll of our Constitution are radically different. The judges who cite the Australian D decisions repeat the warning that ii is not safe to interpret the provisions of the Constitution by reference to decisions on other Constitutions, nevertheless those decisions are not only referred to but are found to support the interpretation that a tax may amount to a restriction under Article 301. But it is submitted that the E decision in James v. Commonwealth of Australia. that a tax may amount to a 'restriction' cannot support the conclusion that a tax is included in Article 301 ... " [Page 2599] F

84. Interestingly,.the Australian cases relied upon inAtiabari and Automobile failed to withstand the test of time. As of today, by virtue of a seven Judges Bench, judgment of the High Court of Australia, the decisions in James v. Common Wealth and Bank Natirnwli.mtirm Cm·e stand overruled. In Cole v. Whitfield ( 1988) 78 ALR 42, the High Court G of Australia considered Section 92 and other ancillary provisions relating to freedom of trade and commerce and found the test of "direct and immediate effect" to be insignificant; the Court held as under:-

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

A "48. Departing now from the doctrine which has failed to retain general acceptance, we adopt the interpretation which, as we have shown, is favoured by history and context. Jn doing so, we must say something about the resolution of cases in which no impermissible B purpose appears on the face of the impugned law, but its effect is discriminatory in that it discriminates against inter-State trade and commerce and thereby protects intra-State trade and commerce of the same kind .... "

c 85. In Cole v. Whitfield, the High Court while disapproving of the "individual rights" approach authoritatively adopted in Bank Nationalisation Case held that Section 92 guarantees freedom ofinter- State trade and commerce only against the discriminatory protectionist burdens. This decision brouglit to an end the "quite unacceptable state D of affairs" then attending Section 92 of the Constitution, as the preceding eighty years of judicial development concerning freedom of inter-State trade, commerce and intercourse in Australia "had yielded neither clarity of meaning nor certainty of operation". Cole v. Whitfield laid down that for a burden to be 'protectionist' it must 'discriminate' against inter-State trade or commerce in a 'protectionist sense'. The E Court observed as under:

"A law which has as its real object the prescription of a standard for a product or a service or a norm of commercial conduct will not ordinarily be grounded in protectionism and will not be prohibited by s 92. But if a law, which may be otherwise justified by reference to an object which is not protectionist, discriminates against interstate trade or commerce in pursuit of that object in a way or to an extent which warrants characterization of the law as protectionist, a court will be justified in concluding that it nonetheless offends s

92. ·· [Page 66]

JINDAL STAINLESS LTD. v. STATE OF HARYANA 429

[R. BANUMATHI, J.]

86. This requirement was based on an appraisal of the history of A Section 92, which showed that its purpose was the achievement of inter- colonial free trade. As was observed in Bet(air Ptv Ltd v Western Australia (2008) 244 ALR 32:

B "S. 92 was not designed to create "'a laissezji1ire economy in Australia'"; rather, it had a more limited operation, to prevent the use of State boundaries as trade borders or barriers for the protection (~l intrastate players in a market from competition from inlerstate players in that market. " [Page 45) [Emphasis added] ('

While the reasoning in Cole~·. Whitfield has been explained and developed in subsequent cases, fundamentally the judgment has withstood the test of time. D

87. From the above it clearly emerge~ that the ramshackle cottage on which the decision in Atiabari and Automobile was based has itself fallen down. Even the idea of "freedom" in respect of trade and commerce inAustralia has considerably changed to suit the dynamics of the present day trade and commerce. E

88. Similarly, Article I, Section 8, Clause 3 of the \JS Constitution empowers the Congress "To regulate commerce with foreign nations, and among several sla/es, and with the Indian Tribes". The power of the Congress is not restricted to regulation of trade between the States only, rather it can regulate international trade as well. So far as inter- F state trade is concerned, Congress under the Commerce Clause is empowered to regulate broad areas of activities such as use of the channels of inter-State commerce, the protection of the instrumentalities of inter-State commerce, or persons or things in inter-State commerce, and activities that substantially affect inter-State commerce; whereas in the Indian Constitution, States have plenary power to legislate on the G subjects enumerated in List II subject to the. Constitutional limitations. Atiabari and Automobile erred in relying on Freeman 11• J/ewit 329 U.S. 249 (1946), which has been discarded by the US Supreme Court itself in Complete Auto Trmuit, inc. v. Charle.\· R. Bradv [1977] l-1

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

A U..'')SC 54: (1977) 430 US 274. In Complete Auto Transit, the US Supreme Court while dealing with an inter-State levy purported to be compensatory, formulated a four-part test to determine if a State tax violates the Commerce Clause: (i) Nexus: there must be a sufficient connection between the taxpayer and the State to warrant the imposition of State Tax Authority; (ii) Fair Apportionment: the State must not tax B more than its fair share of the income ofa taxpayer; (iii) No discrimination: the State must not treat out-of-State taxpayers differently than in-State taxpayers; and (iv) Related to services: the tax must be fairly related to services provided to the taxpayer by the State.

c 89. In view of the above, the position which stands good today is that the judgments of US Supreme Court, Privy Council and Australian High Court relied upon inAtiabari and Automobile have been overruled in Complete Auto Transit in USA and Cole v. Whitfield in Australia. The principle of'direct and immediate effect on the trade and commerce' has been rejected and it has been held that the norms of commercial D conduct shall not be 'protectionist' or 'discriminatory'. The principles of 'direct and immediate test' laid down in Atiabari and 'Compensatory Taxes' enunciated in Automobile arc to be overruled and minority judgment of Sinha, C .J. that' tax simpliciter' is not violative of Art. 30 I is to be affirmed. E

Art.304 (a) and (b) must be read di.\j1111ctive(p:

90. As the word "restrictions" in the marginal note of Art. 304 suggests plurality of powers and indicates that Clauses (a) and (b) of F Art. 304 confer distinct powers. Art. 304(a) deals with tax; Art. 304(b) deals with restrictions that are reasonable and in public interest. Constitution framers could not have intended to include tax in A rt. 304(b ); since the elements of "reasonableness" and "public interest'' are inherent in a tax. The use of the word "and" does not assist the interpretation that the provisions arc conjunctive. It only means that:- G (i) the State can impose taxes on goods coming from outside so as not to discriminate between the goods impotied and goods manufactured or produced within the State [Art. 304 (a)]

JINDAL STAINLESS LTD. v. STATE OF HARYANA 431

[R. BANUMATHI, J.]

-and- A (ii) It can also in addition impose other restrictions that are reasonable and in public interest [Art. 304 (b)] subject to the assent of the President. [Emphasis added]

B That Articles 304(a) and (b) are disjunctive, is also clear from the factthat the proviso to Art. 304(b) i.e. the presidential sanction is referable to A1i. 304(b) only and not to a law imposing tax on goods imported from other States contemplated under Art. 304(a). This is because, Art. 304(a) has an inbuilt safeguard, inasmuch the taxes imposed on the goods coming from another State cannot be discriminatory and, therefore, no presidential c sanction is required.

91. It is relevant to note that the word "and"' is used after semi colon in Art. 304(a). While it is correct to say that the word "and" normally is conjunctive, it is also often construed as disjunctive on the basis of the legislative intent as gathered from the words of the proviso under context in which it was used. Considering whether the word ''and"' is co1tjunctive or disjunctive, in relation to Section 4(i) ofMaharishi Mahesh Yogi Vedic Vislnvavidyalaya Adhiniyam, 1995, in Maltari.\·hi Ma/1esl1 Yogi Vedic Vi.~ltwavitlvalava v. State o( Mtufltva Prades/1 anti Others (2013) 15 SCC 677 and observing that the word "and" is used as disjunctive, this Cowi held as under:-

93. .... we also refer to the following decisions rendered by this Court in lshwar Singh Bindra v.State of UP., F AIR 1968 SC 1./50. wherein in para JI it has been held as under: (AIR p. 1454) "11 . ... It ·would be much more appropriate in the context to read it disconjunctively. Jn Stroud '.s Judicial Dictionarv, 3rd Ed11.. it is stated at p. 135 G that 'and' has generallv a cumulative sense, requiring the fulfilment of' all the conditions that it joins together, and herein it is the antithesis o( or. Sometimes, however, even in such a connection, it is. bv force o{ a context. read as 'or'. Similarlv in H

432 SUPREME COURT REPORTS [2016) I 0 S.C.R.

A Maxwell 011 Interpretation of Statutes. 1111!. Edn .. it has been accepted !hat 'to carry out the i11tention of the legislature ii is occasionallv found necessary to read the conjunctions "or" and "and" one f'or the other'. "[Emphasis supplied]

B 94. We may also refer to pare/ 4 of the decision rendered by this Court in Director of Mines Safety v. Tandur and Nayandgi Stone Quarries (P) Ltd. (1987) 3 SCC 208 (SCC p. 211, para 4)

"4. According to the plain meaning, the exclusionl11:v c clause in sub-section (1) of Section 3 of the Act read with the two provisos beneath clauses (a) and (b), the word 'and' at the end of para (b) of sub-clause (ii) of the proviso to clause (a) o,f Section 3(1) must in the context in which ii appears. be construed as D 'or'; and if so construed, the existence <d' a11y one of the three conditions stipulated in paras (a), (b) and (l) would al once attract the proviso lo clauses (a) and (b) of sub-section (1) o,f Section 3 and thereby make the mine subject to the provisio11s of the Act. E The High Court overlooked the fact that the use of the negative language in each of the three clauses implied that the word ·and' used at the end of clause (b) had to be read disjunctively. 17wt construction of ours is in keepii1g with the legislative intent manifested by the scheme of the Act which is primariZv F meant for ensuring the safety o,f workmen employed in the mines." [Emphasis supplied)

95. ..... we are not inclined to hold that the expression "and" used in the Preamble. as well as in Section 4 should be read conjunctively as con/ended by the G learned counsel for the State. On the other hand, in the context in which the said expression is used, it will have to be .read as "or" creating a disjunctive reading of the provision. "

JINDAL STAINLESS LTD. v. STATE OF HARYANA 433

[R. BANUMATHl, J.]

92. In A.K. Gopalan v. State o(Madra.\' AIR 1950 SC 27, in the A context of Art. 22(7)(a) of the Constitution oflndia. Constitution Bench observed that since it is an enabling provision the word ·and' should be read disjunctively and held as under:-

B "248 . .... . In fact clause (4) (b) contemplates the detention itse{f to be in accordance with 1he provisions of any law made by Parliament under sub-clause (a) and (b) of clause (7). Therefore, the detention can well be under the verv law which the Parliament makes under sub-clause (a) and (b) of clause (7). As lo the c second point the arg11menl is that Parliament has a discretion under clause (7) to make u law and ii is not obliged to make any law but when our Parliament chooses to make a law it must prescribe both the circumstances under which, and the class or classes of [) cases in tvhich, a person may be detained for a period longer than three months. I am unable to construe clause (7) (a) in the way suggested by teamed counsel for the petitioner. It is an enabling provision empowering Parliament to prescribe two things. Parliament may prescribe either or both. If' a father E tells his. delicate child that he mav plav tahle tennis and badminton but not the strenuous game of football, it obviouslv does not mean that the child, i( he chooses to plav at all, must play both table tennis and badminton. It is an option given to the child. Likewise, the F Constitution gives to Parliament the power of prescribing two things. Parliament is not obliged to prescribe at all but il it chooses to prescribe it mav prescribe either or both ...... " [Emphasis added] G Applying the ratio in the above decisions since th,e expression 'and' is used in A1t. 304 after semi-colon, it will have to be read as 'or' creating a disjunctive reading of Art. 304(a) and Art. 304(b) indicating that the State Legislature can exercise its power either under Art.304 (a) or Art. 304 (b) or both. H

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

A Whether Art. 304(b) coupled with the proviso is applicable to tax laws-Judicial Approach:

93. In Atiabari, majority held that "tax laws" fall within the comprehension of Art. 301 and, therefore, any legislation whether taxing or otherwise which imposes any direct restriction on the movement or B transpo1i of goods attracts the provisions of Art. 301, and its validity can be sustained only if it satisfies the requirements of Art. 302 or Art. 304. According to the above view in Atiabari, it is not possible for the State Legislature to pass any law at all with respect to some of the tax entries viz. sales tax (entry 54, List II); law relating to gambling (entry 34, List c 11) or tax on betting and gambling (entry 62, List II); and tax on the carriage of goods or passengers by road or inland waterways (entry 56, List II). lfthe legislations under the above entries are challenged on the ground that they operate as a direct restriction on the freedom of trade, commetce and intercourse, as per the view in Atiabari, these legislations may have to be justified under Art. 304(b). Atiabari approach would D totally take away the sovereign powers of the State Legislature to enact laws in exercise of its powers under various taxing entries of List II, which could not have been the intention of the framers of the Constitution.

E ART. 304(b) JS APPLICABLE ONLY TO NON-FISCAL LAWS AND NOT TO TAX LAWS:-

94. Art. 304(a) and Art. 304(b) are two distinct powers and freedom of trade, commerce and intercourse is subject to them. Art. 304(b) relates to reasonable restrictions imposed in public interest. Art. 304(b) deals F with non-fiscal legislation imposing reasonable restrictions in public interest and tax laws are not included under Art. 304(b). In this regard, reliance has been placed on 'Interim Report ofthe Advisory Committee on the Subject ofFundamental Rights' dated 23.04.1947, as published in "The Framing of India's Constitution Select Documents-The Project Committee" by Universal Law Publishing Co. Pvt. Ltd. Learned G Senior Counsel Mr. Rakesh Dwivedi has taken us through the chain of events leading to Art. 304(b) and the proviso's present form in Art. 304(b). Draft Article 10 of the "Justiciable Fundamental Rights"(page No.297 of the said book) presently Part XIII as 'originally proposed' read as under:- H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 435

[R. BANUMATHI, J.]

"I 0. Subject to regulation by the law of the Union, A trade, commerce, and intercourse among the units by and between the citizens shall be free: Provided that any unit may by law impose reasonable restrictions in the interest of public order, morality or health or in an emergency: B Provided that nothing in this section shall prevent any unit from imposing on goods imported from other units the same duties and taxes to which the good~ produced in t~e unit are subject: Provided further that no preference shall he given by c any regulation of commerce or revenue by a unit to one unit over another." [Emphasis added]

95. The first proviso to Draft Art. 10 corresponds to Art. 304(b) D and second proviso relates to Art. 304(a). That first proviso to Draft Art. l 0 [Art. 304(b)] relates only to "public order, morality or health or in an emergency" is also made clear from the Constituent Assembly Debates/Advisory Committee Proceedings. In this regard, we may refer to the speech of Shri Alladi Krishnaswami Ayyar E in the Constituent Assembly Debates, which is as under:-

"A/ladi Krislmaswami Ayyar: "Subject to regulation by the law of the Union, trade, commerce, and intercourse among the units by and between the citizens shall he free. " That is the general principle. Then come the exceptions, "Provided that any unit may by law impose reasonable restrictions in the interest of public order, morality or health or in an emergency." Suppose there is a general famine, and people are starved, that is what is meant here to be dealt with. And then "Provided that nothing in this section shall prevent any unit from imposing on goods imported from other units the same duties and taxes to which the goods produced in the unit are subject. '·' That is to say, we H

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

A ought not to differentiate; but at the same time, goods coming in should not go scot-free; they should be subject to the same duty as goods produced in the area." [Emphasis Added] (Page. 253 of the said book of Select Documents-Project Committee) B

96. In October 194 7, the Draft presented by the Drafting Committee shifted the then Art. 10 outside the Part on Fundamental Rights (Right of Freedom) to Articles 243 and 244 and the power under Art. 244(b) was kept within the States. A1t. 244(b) as adopted reads as c under:-

"244. Notwithstanding anything contained in article 16 or in the last preceding article of this Constitution, it shall be lawful for any State- D (a) to impose on goody imported.from other States any tax to which similar good~ manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goody so E mam1factured or produced; and (b) to impose by law such reasonable restrictions on the freedom of trade, commerce or intercourse with that State as may be required in the public interest. "

97. In this regard "Note to Art. 244 (b)" as referred to in Page 328 of the said book Framing of India's Constitution Select Documents-Project Committee reads as under:- "'Note: Clause (b) of article 244 is based on the recommendation of the Advisory Committee as adopted G by the Constituent Assembly. The Drafting Committee 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". [Page 328] H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 437

[R. BANUMATHI, J.]

The above note clearly shows that after Debate, based on the A recommendations of Advisory Committee the phrase "public order, morality or health or in an emergency" was substituted with the word "public interest". This clearly shows that the framers of the Constitution never intended to bring tax laws within the fold ofArt. 304(b).

98. After Debate, first proviso to Draft A1t. 10 was adopted as B Art. 274(D)(b) [present Art. 304(b)]. As seen from page 330 of the first Draft Constitution, the Committee was of the opinion that the first and second proviso should be transferred as independent clauses in the Chapter dealing with relation between the different States and the third proviso was found unnecessary in view of the opening words "subject to c the regtilation by the law of the Union and, accordingly, the same was adopted in Art. 274(D)(b) [Present Art. 304(b)] which reads as under:-

"(b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within D that State as may be required in the public interest. Provided that no Bill or amendment for the purposes of clause (b) of this article shall be introduced or moved in the legislat{1re of a State nor shall any Ordinance be promulgated for the purpose by the Governor or Ruler E of the State without the previous sanction of the President. "

99. If Art. 304(b) is also held to cover tax laws, it would amount F to empowering the States to make laws imposing tax even on the freedom of trade, commerce and intercourse. As such there is no such entry in List II of Seventh Schedule of the Constitution so empowering the States. Commenting on this, learned author H.M. Seervai in his Constitutional • Law of India 4'h Edition, Volume 3 observed as under:-.. G

"24.43. There are other reasons supporting the conclusion that a tax simpliciter is not a restriction on the freedom of trade. Article 304 itse(f makes a distinction between taxes and restrictions and the correct conclusion to draw from this H

438 SUPREME COURT REPORTS [2016) 10 S.C.R.

A fact is that restrictions in Art.304 (b) do not include a tax. Secondly, by virtue of the non obstante clause, Art.304 (b) enables even discriminatory restrictions to be imposed which are forbidden by Art. 303 (1). We have seen that Art. 303(1) cannot possibly refer to taxes. Thirdly, the whole scheme of B taxation in our Constitution would be complete~y dislocated if Art.304 (b) included a tax. The taxing powers of the Union and the States have been made mutually exclusive so that Parliament cannot deprive the States of their taxing powers as has happened in countries where the powers of taxation are concurrent. It would be swprising if the Union legislature, c i.e. Parliament could not take away the taxing powers of the State legislatures and yet it would be open to the Union executive under Art.304 (b) to deprive the State legislatures of their taxing powers. Again, if restrictions include a tax, two questions would arise. As a matter of language, Art.302 D would then run: "Parliament may, by law, impose such restrictions, including a tax, on the freedom of trade and commerce or intercourse ... " The Article would then become a source ofpower because there is no legislative entry relating to a tax "on the freedom of trade" unless the residuary entry is resorted to, Art. 304 (b) would raise the same question, E and there would be no residuary entry to resort to, and it would raise the .fi1rther question whether the reasonableness of taxes is made justiciable under our Constitution. " [Page 2607)

F Levy of taxes is the economic lifeline of the State. Framers of the Constitution never intended to include tax within the fold of Art. 304(b). To give the Centre a veto over the plenary power of the State to levy the tax would completely distort the Centre-State balance and cooperative federalism. Such an interpretation bas no basis in the Constitutional G Assembly Debates and is liable to be rejected. I 00. The rationale for the sanction of President contemplated by proviso to Art. 304(b) is apparent from the fact that trade and commerce with foreign countries and inter-State trade and commerce are subject matters in List I of the Seventh Schedule (entries 41 and 42, List I). H

JINDAL STAINLESS LTD. v. STATE OF 1-IARYANA 439 [R. 13ANUMATHI. J.]

Further, trade and commerce in production, supply and distribution of industry controlled by the Union, food stuff>, including edible oils, seeds and oils; cattle fodder; raw cotton, cotton seed; and raw jute arc subject matters in entry 33. List Ill. Entry 34, List III deals with price control. Only intra-State trade and commerce is in List II (entry 26, List ll) subject to entry 33, List Ill, as stated therein. Parliament has thus occupied an overwhelming space with respect to trade and commerce within the State also. It is in this backdrop that the State has been given power to impose reasonable restrictions on the freedom of trade, commerce and intercourse with or within that State with the proviso requiring presidential assent before the Bill is introduced. The rationale, therefore, is that a non-fiscal law of the State with respect to freedom of trade, commerce and intercourse would be entrenching upon either the exclusive legislative field of the Parliament in List I or the occupied field of the Parliament in List lll. It follows that Art. 304(b) relates to non- fiscal laws of the States. In the above context, the assent of the President envisaged in proviso to Art.304(b) would be somewhat akin to the assent contemplated in Art. 254. Such assents are not judicially reviewabie. [vi de Kaiser-i-Hind (P) Ltd. and Anr. 1•. National Textile Corpn. (Ma//{/rashtra Nortlt) Ltd. and Otlters (2002) 8 SCC 182. (Paras 23 to 27)) l 0 I. If the framers of the Constitution intended that State legislation required sanction of the President for tax laws pertaining to inter-State trade, commerce and intercourse, the Constitution would have made an express provision in the Constitution. Art.274 says that no Bill or Amendment which imposes or varies any tax or duty in which States arc interested; or which alters meaning of·'agricultural income" under F Income Tax Act or principles of distribution; or, imposes surcharge for Union purpose shall be introduced or moved in either House of Parliament except on the recommendation of the President''. This indicates the signifo:ance of revenue for States and also the limits on Union. If framers intended to have an identical framework in Art. 304 for State Tax Laws they would have expressly said so. Art. 288 also provides for the role of G President in the context of imposition of tax by States in respect of water and electricity. Under A1t. 288( I), the tax imposed by existing State laws would continue only subject to order passed by the President. Under Art. 288(2) the legislature of a State could impose a tax in respect of water or electricity stored, generated, consumed, distributed or sold H

440 SUPREME COURT REPORTS [2016] JO S.C.R.

A by an authority established under any existing law or any law made by Parliament for regulating or developing any inter-State river or river valley unless the law has been reserwd for the consideration of the President and has received his assent. This again shows that Presidential assent with respect to tax has to be specifically provided for. B I 02. In the light of the;: above disi:ussion, the majority view in Atiabari, at Page 861 that the freedom of movement of trade cannot be subject to any restriction in the form of taxes and that such a legislation can be passed only after specifying the requirements of Art. 304(b), is not a correct view. I find merit in the submission made by Mr. Rakesh Dwivedi, Senior Advocate, that the Parliament has occupied an c overwhelming space with respect to trade and commerce both with in and outside. the State and it is in this backdrop. that the State has been given power to impose such reasonable restrictions in "public i11teri:s(· on the trade, commerce and intercourst! with or within that State subject to the satisfaction of the proviso under Art. 304(b ). It follows, therefore, D that Art. 304(b) relates to non-fiscal laws of the States. To subject the State's sovereign legislative levying tax to Presidential assent would in effect erode the pillar of federalism which this country is built on. In the absence of an express provision in the Constitution, such presidential sanction for taxing laws cannot be read into the provision. E

Conclusion on Question No.l:

103Copy pinpoint103. Non-discriminatory taxes do not constitute infraction of Art. 30 I of the Constitution. With due respect, the view taken in Atiabari F and approved in Automobile Transport declaring that taxes do amount to restriction and that freedom of trade, commerce and intercourse cannot be subject to restriction in the form of taxes is not a correct view and are to be over-ruled. However, I am agreeing with the concept of compensatory tax evolved in the Automobile ca~·e for the reasons indicated while answering question Nos. 2 and 3. G

QUESTION NO. 4: IS THE ENTRY 1/l.X LEVIED BY THE STATES IN THE PRES~ENT BATCH OF CASES VIOLATIVE OF ART. 301 OF THE CONSTJTUTION AND IN H PARTJCULAR HAVE THE IMPUGNED STATE

TINDAL STAINLESS LTD. v. STATE OF HARYANA· 441 [R. BANUMATHI, J.]

ENACTMENTS RELATING TO ENTRY TAX TO BE A TESTED WITH REFERENCE TO BOTH ARTICLES 304(a) AND 304(b) OF THE CONSTITUTION FOR DETERMINING THEIR VALIDITY?

104Copy pinpoint104. The core question which needs to be addressed is whether the tax levied under entry 52, List II would impinge upon Article 301. B Entry 52, List 11 reads as: "Tax on the entry of goods into a local area or consumption or sale therein". A bare reading of the entry would show that entry tax can be levied only on the satisfaction of the conditions in entJy 52 of List II namely: (i) the tax to be levied on the entry of goods into local area; (ii) entry of goods into the local area is for consumption, C use or sale therein.

105Copy pinpoint105. There are two other entries in the Constitution which also authorize the levy of taxes which fall essentially on the movement of tradables within the country, viz., entry 56 of the State List and entry 89 of the Union List. Entry 56 of the State List empowers the State to levy D "taxes on goods and passengers carried by road or inland waterways"; while entry 89 of the Union List contemplates the levy of "terminal taxes on good~ or passengers carried by railway, sea or ail; taxes on railway fares and freights". While there are variations in the operational fonn of taxes under entry 52, essentially these constitute a levy on entry of goods into a local area for sale, consumption or use E therein. Under an entry tax regime, a company, trading firm or an individual would be liable to pay entry tax on goods brought into a local area for consumption, use or sale therein. The core question which needs to be addressed in respect of entry 52, List II of Seventh Schedule is whether the tax levied under the said entry would impinge upon Art. 301. F

History and Purpose of Entry Tax:

106Copy pinpoint106. The tenn "Entry Tax" traces its history back to a particular tax called "Octroi". The word "Octroi" comes from the French word G 'octroyer' which means 'to grant' and in its original use meant 'an import' or 'a toll' or 'a town duty' on goods brought into a town. At first, octroi were collected at ports but being highly productive, towns began to collect them by creating octroi limits. They came to be known as "town duties". The term "octroi" appeared in the Scheduled Tax Rules framed under H

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

A the Government oflndiaAct, 1919. The expression signified a tax levied on entry into an area of a unit of local administration. The entry was re- fashioned and enacted as item 49 of the Provincial Legislative List under the Government of India Act, 1935. Item 49 reads as "Cesses on the entry of good5 into a local area for consumption, use or sale therein". B In B11rmah Shell Oil Storage and Dist11rbi11g Co. of India Ltd. Belgaum v. Belgaum Borough Municipality Belga11m Cell, 1963 SCR Suppl. (2) 216, the Supreme Court of India while distinguishing tenninal tax and Octroi held that the Octroi's leviable in respect of goods brought into a municipal area for consumption or use of sale. ·

c 107. When Government oflndiaAct, 1935 was enacted, terminal taxes were separated from octroi and were included in the Union List while octroi was allocated to the provinces. The term "octroi" was avoided because terminal taxes are also 'octroi' in a sense. This scheme has been adopted in the Constitution with the difference that in the entry relating to 'octroi' the word 'tax' replaces the word 'cess'. Levy of octroi was also criticized for being an obsolete method of the collection, involving stoppage of vehicles at the check posts outside the city limits, thereby obstructing flow of vehicular traffic, and causing wastage of business hours, loss of fuel etc.

108. Entry tax like 'octroi' is a tax on entry of goods into a local area for consumption, use or sale therein. However, entry tax is different from octroi, inter alia, in the following respects:- Firstly, it is not collected at the checkpost; but is payable by furnishing returns of the purchases from outside the local area or the details of the goods entered into the local area. Entry tax is easier to administer as returns are filed on self- F assessment and it avoids the harassment associated with octroi. Secondly, it is !mposed as an ad valorem tax as against octroi, which is generally a combination of specific and ad valorem levies. Thirdly, entry tax is a State-level levy while octroi is a local levy; entry tax revenue is treated as State revenue and is spent on local bodies for their development and the State in general. G

109. On behalf of the assessees, it was contended that proper meaning attached to the words "local area" in Entry 52 is an area admmistered by a local body like a municipality, a district Board, a local Board, a Union Board, a Panchayat or the like. In this regard, reliance has been placed upon Diamond Sugar Mills Limited v. State of U.P. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 443

[R. BANUMATHI, J.]

[1961] 3 SCR 242, wherein this Court held as under:- A

"Whether the entire area of the State, as an area administered hy the State Government, was also intended to he included in the phrase "local area", we B need not consider in the present case. " ... We are of the opinion that the proper meaning to he attached to the word~ "local area" in Entry 52 of the Constitution, (when the area is a part of the State imposing the law) is an area administered hy a local body like a municipality, a district hoard, a local board, c a union. board, a Panchayat or the like. The premises of a faetory is therefore not a "local area"."

This Court in M.O. Shamsudhin v. State of Kerala (1995) 3 D sec 351 has also held that:

"the expression local area has been used in various Articles of the Constitution nameZv 3(b) 12, 245(1). 246, E 277, 321, 323-A and 371-D. They indicate that the constitutional intention was to understand the 'local area' in the sense of any area which is administered by a local body. may be corporation, municipal board, district board etc. The High Court on this aspect held and in our opinion rightZv that the definition does not comprehend entire State as local area as the use of word 'a' hefore 'local area' in the section is significant. "

110. As discussed above, entry tax is not collected at the behest of municipality or a panchayat attached to a checkpost. It is payable by the assesses by filing their returns. Entry tax is a State level levy, levied by State Legislature upon entry of goods into a local area for consumption, use or sale therein. The local authorities themselves cannot le•;y the tax. The power is that of State Legislature and of no one. In Bihar H

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

A Chamber of Commerce, this Court was faced with the task of . interpreting the tenn "local area" in the context of entry 52, List IL The Court observed that where State Legislature has levied a tax covering the entire State and proceeds of such tax are spent for common welfare activities of the State, the distinction between the State and the local areas practically disappears. In Bihar Chamber of Commerce, it was B held as under:-

"12. .... Where the local areas contemplated hy the Act cover the entire States the distinction between the State c and the local areas practically disappears. (The situation would, no doubts he different if the local areas are co1?fined to a few cities or towns in the State and the levy is upon the entry of goods into those local areas alone. This is an important distinction which should he D kept in mind while appreciating the aspect and also while examining the decisions of this Court rendered in fifties and sixties). The facilities provided in the State are the facilities provided in the local areas as well. Interests of the State and the interests of the local authorities are, in essence, no different .... E 36.... Entry 52 empowers the State Legislature to levy this tax. The local authorities cannot themselves levy this tax. The power is that of the State Legislature and of none else. So long as the tax is levied upon the entry· of goods into a local area for the purpose of F consumption, use or sale therein, the requirement of Entry 52 is sati.~fied. The character of the tax so levied is that of entry tax - by whatever name it is called ........ From the point of view of the entry tax, one may say that the State is a compendium of local areas. G Spending for the purposes of the State is thus spending for the purposes of local areas. Situation may perhaps be different where the local areas are confined to a few cities or towns in the State. But where the local areas span the entire State. it cannot be argued that money spent for welfare schemes for improvement of roads, H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 445

[R. BANUMATHI, J.]

rivers and other means of transport and communication A is not spent on or for the purposes of local areas. The purposes and need~ of local areas are no different from the purposes and need~ of the State - not at any rate to any appreciahle degree ..... " B The Entry tax is a State level levy and the entry tax revenue is treated as the State Revenue. As held in Bihar Chamber of Commerce, "the State is a compendium oflocal areas .... the purposes and needs of local areas are no different from the purposes and needs of the State." As entry tax levy being a State-level entry, it is spent on the development C oflocal bodies and the State in general. 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 'whole State' or 'a local area' as notified in the legislation. I agree with the views taken in Bihar Chamber of Commerce that from the view of Entry Tax, the State is a D compendium of local areas and where the local areas cover the entire State, the difference between the 'State' and 'a local area' practically disappears.

111. Counsel appearing for the States contend that the burden of entry tax, if any, on the trader cannot by itself constitute a restriction on E the inter-State movement of goods. To constitute a restriction per se on the freedom of trade, commerce and intercourse, levy of tax, in conjunction with other factors should actually create a substantial advantage in favour of the persons who indigenously manufacture or produce goods as compared to the similar goods which are imported from outside the State. The sovereign power available to the State F Legislature to levy tax cannot be decimated by every inconvenience that may be caused to a trader. If the tax is of such a character, that the burden, if any, borne by the dealer, can be absorbed by him as a part of his trade and business, then the trader will have to bear the same. It does not then make the tax discriminatory or create a restriction on the G flow of goods from one State to another.

112. Imposition of enfry tax is not merely "on movement or transport of good~"; consideration of entry 52, List II of Seventh Schedu:e shows that taxable event in the case of entry tax is entry of H

446 SUPREME COURT REPORTS (2016] 10 S.C.R.

A goods into the local area where it is to be used, consumed or sold therein. If the goods mere]y enter into a local area and then move to another destination beyond that local area, no tax can be levied under entry 52. To attract a levy under entry 52, List IL the goods must come to rest in the local area where they are taxed in the sense that their further movement and transport stands terminated and the goods are supposed B to be used, consumed or sold in that local area. Since the taxable event under entry 52 is not the mere entry of the goods into the local area, but the fact that the goods are also to be used, consumed or sold, the necessary sequiter is that the movement of goods is tenninated in that local area. Power to levy entry tax lies within the competence of a State Legislature. c Since entry tax is leviable at the tennination of the movement of trade and 'the goods have entered the local area for the purpose of use, consrnnption or sale, the levy of entry tax does not restrict flow of trade, commerce or intercourse and is not violative of Arti. 301 of the Constitution.

D 113. Taking us through various States' legislations, Senio:- Counsel Mr. Harish Salve on behalf of the assessees contended that the entry tax li:vied by State legislations are discriminatory and broadly classified the Entry Tax Statutes on discrimination into four different categories as undtr:- E States Alleged discrimination Tamil Nadu/Andhra Pradesh/ En try tax levied only on Kerala/Jharkhand goods imported from other States; no levy of entry tax on the goods manufactured inside the State which is discriminatory. F Assam/B ih ar/H aryan a/Kera la Facially. the legislations (Post)Jharkhand/West state that all goods are taxed; Bengal/Tamil but grant exemption to the N adu/M izoram/ Arunachal locally produced goods Pradesh/ Andhra Pradesh G Orissa/M adhya Pradesh Local manufacturers are given the set- off of entry tax paid on raw materials and thus preferential treatment given to locally produced goods. H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 447

[R. BANUMATHI, J.]

A Chhattisgarh Excessive delegation to the executive to levy entry taxes up to 50% who in turn levy higher rate of entry tax on certain goods and lesser rate for similar goods which is B discriminatory.

Entry Tax levied only 011 goods imported from other States: No levy of EntlJ' Tax 011 the goods ma1111fact11red inside the c State-Whether discriminatory.

114. Contention of the assessees is that entry tax is levied only on goods entering the local area from other States and there is no levy of entry tax on the locally produced goods when they move from one local area to another; as goods imported from other States are being discriminated against, such levy is not saved under Art. 304(a). It is their contention that entry tax only on goods coming from outside the State and not intra-State entry of goods from one local area to another local ar~a or on movement of goods is a clear case of discrimination, offending Att. 304(a).

115. The assessees seek to nan-ow down the wide purport of the tenn ·any tax' used in Art. 304(a) by contending that equivalence should be brought about in the imposition of entry tax itself. By contending so, the appellants have become oblivious of the fact that the State Legislature F is always free to provide for equivalence in the Entry Tax Act, and alternately make provisions for adjustments and set-offs in other enactments of Sales Tax or Value Added Tax Acts.

116. The tem1 'any tax' means any exaction by any impost or levy. The effect of all the taxes levied on the goods imported from other G States and the ones manufactured within the State must be such that no discrimination is caused either to the imported goods or locally manufactured goods. Unlike Section 92 of the Australian Constitution, Ati. 304(a) does not talk of unifotmity. Section 92 of the Australian H

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

A Constitution reads as follows:- "On the imposition of uniform duties of customs, trade, commerce, and intercourse among the States. whether by means of internal carriage or ocean navigation, shall he absolutely free." No such restriction is imposed on the legislative pow~r of the States in India to ensure uniformity in levy of a particular

B tax. The raison d ·etre for use of the expression "so, however, as not to discriminate" is to prohibit protectionism. Moreover, Constitution oflndia does not contain a provision similar to Section 55 of the Australian Constitution which mandates one tax law on one subject. In India, the State Legislature is nowhere obligated by the Constitution to ensure that the law imposing tax deals with one subject of taxation only. c

117. The chargeable event in the case of entry tax is entry of goods into a local area. By its very nature, entry tax does not contemplate impost on indigenous goods. Goods imported into a local area from another State are subjected to entry tax but goods entering into a local area from another local area of the same State do not attract entry tax. D In this way, it may appear that goods imported from outside the State are put to a disadvantageous position but in tenns of tax treatment there is no discrimination. The essence of Art. 304(a) lies in ensuring equality of fiscal burden and absence of discrimination. In terms of Art. 304(a), the only requirement is that the goods imported into the local area should E not be discriminated against. As discussed infra, in tax treatment there is no discrimination between the goods.

118. The expression 'any tax' used in Art. 304(a) is generic in nature and covers all taxes on goods which a State is competent to impose by virtue of Articles 245 and 246 read with List II of Seventh F Schc,dule. A Scheme adopted by a State Legislature whereby several taxes are levied on the goods (either locally produced or imported from other States) under different heads, cannot be faulted with if it confom1s to the principle of equivalence and non-discrimination. For e.g., both sales tax levied under entry 54, List 11 and entry tax levied under entry 52, List II are taxes on goods. lt is the burden of the tax which can G discriminate and not the fonn. States are free to equalise the burden of entry tax on the goods imported from other States by giving them set-off against the sales tax paid by them in the exporting State. In such a manner, equivalence can be brought about in the tax burden borne by the goods imported from other States and the locally manufactured/ H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 449

[R. BANUMATHI, J.]

produced goods. The contention of the assessees that the term 'any tax' A used in A1i. 304(a) refers to every tax distinctly, thereby prohibiting imposition of entry tax on imported goods unless, entry tax is imposed on locally manufactured/produced goods, does not lead to just and reasonable interpretation of Art. 304(a). The wholesome effect of the taxes levied under distinct heads needs to be taken into account. The tax burden B borne by the goods fonn a part of the price of the goods and if both, locally manufactured/produced goods and imported goods are subjected to similar tax burdens, irrespective of the heads under which the taxes are levied, say entry tax or sales tax etc., then no discrimination can be said to have been caused. c

119. In case if entry tax not levied to equalize tax burden ori the local goods and goods imported from outside, there will be huge trade diversion to low-rate tax State, causing loss ofrevenue to the high-rate tax States, where the goods are used or consumed. Let us take an example of entry tax in the case of motor vehicles. System of sales tax on motor vehicles varies from one State to another. Rates of tax also vary ac;:ording to the category of the vehicles viz., car, jeep, scooter, motorcycle, truck, tractor etc. Inter-State sales tax differential is large enough to induce trade diversions from high-rate tax States to low-rate tax States. These trade diversions have their impact on the collection of sales tax and results in loss of tax revenue to the State and the local area where the vehicles are used; but there is tax gain to the exchequer of the low-rate tax State where the vehicles are shown to have been purcha~ed. Thus levy of entry tax by the importing State where the vehicles are used is justified to accord equal treatment to vehicles purchased within the State and those purchased from outside. F l20. Often the diversion occurs merely on paper; for instance, manufacturers of vehicles in Tamil Nadu may employ local dealers in low-rate tax State/Union territories to sell their products to consumers all over the country. Where the tax rates differ widely in adjoining States/ Union Territories, dealers located in low-rate tax territories act as agents G for purchasers from the State with high-rate tax areas/territories. The vehicles do not move physically but the sales are shown to have taken place outside the high-rate tax State. The State where sale is said to have taken place stands to gain but the State where the vehicle is used loses the revenue of its sales tax. The extent of differentiation in tax H

450 SUPREME COURT REPORTS [2016)-10 S.C.R.

A rates is evidently large enough to induce trade diversion from high-rate tax States to low-rate tax territories. In such cases, levy of entry tax equalizes the revenue loss to the State where the vehicle is used, and at the same time prevents discrimination between the locally purchased vehicles and vehicles purchased in other States/Union Territories.

B 121. Entry of goods into a local area from another local area of the State can be effected either by a dealer who purchased the goods from the manufacturer or by an individual. A dealer who effects entry of goods into a local area from another local area in the same State would be taxed in the fonn of sales tax/VAT; so also the individual would C have already paid the sales tax in another local area, where he bought the goods. In case of entry tax levied on goods imported from other State, set-off like in the cases of State enactments of Tamil Nadu and Andhra Pradesh is given to the extent of the sales tax/VAT paid in the purchasing State; in few of the States like Kerala, after levy of entry tax, to the extent entry tax paid, input credit is given from the sales tax/ D VAT payable in the State where the goods are imported. Tax burden is more or less the same, for both indigenous goods and outside goods. This is because, where an entry tax is imposed on goods brought from outside, the benefit of credit of the amount already paid as entry tax is given as input credit for the purpose of payment of VAT. Moreover, if a E State enactment provides for set-off and statutory exemptions to goods paying local sales tax, thereby equalising the net tax burden on the imported goods and local goods, it does not fall foul under Art. 304(a), so long as it is balancing sales tax against the entry tax.

122. The question as to whether entry tax in a particular case constitutes an impediment will always have to be decided with reference to the comparison of burdens that are cast on persons who bring the goods into the taxing State and that which is suffered by the persons who manufacture or produce the goods within the State. A1i. 304(a) does not prevent levy of tax on goods imported from other States. The expression used is 'any tax'; what is prohibited 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 against by imposing a higher tax thereon than on local goods. If the tax burden on both the categories are almost the same, then the entry tax H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 451

[R. BANUMAfHl, J.]

obviously cannot constitute an impediment to the very flow of trade and commerce across the borders of the State. There is no merit in the contention of the asscssees that the levy of entry tax only on goods imported from other States and not on indigenous goods is discriminatory and violative of Art. 304(a).

123. ln a catena of decisions. this Cou1i has struck down the levy of entry tax on the imported goods holding that the levy is discriminatory and not saved by Art. 304(a). In Indian Cement and Ors. v. State o( A11dhra Pradesh and Or.~. (1988) 1 SCC 743, the Government of Andhra Pradesh issued a Notification reducing the rate of sales tax on sale of locally produced cement to bulk consumers to 4%, on the other c hand, the sales tax imposed on sale of cement imported from the other States was levied at 13. 75%. Thus, the indigenous cement producers had a benefit of 9.75%. Levy of sales tax imposed on sale of cement imported from other States was challenged as impeding free flow of trade and commerce. The Supreme Court held the Notification invalid as it was hit by Art. 304(a) affecting inter-State trade and commerce. D

124. ln We.\·tern Electronic and Anr. v.\·, State of Gujarat and Ors. (1988) 2 SCC 568, State of Gujarat imposed sales tax at 15% on all electronic goods whether locally manufactured or imported from outside. After sometime, the State reduced the tax to I 0% on goods imported from outside and to I% on locally manufactured goods with a view to E give incentive to encourage local manufacturing units. The Supreme Court held that by applying different rates of tax. between goods imported into the State of Gujarat and goods manufactured within that State is discriminatory and violative of Art. 304(a) and, accordingly, quashed the Notification. F

125. ln State o( U.P. and Anr. 1'. laxmi Paper Mart am/ Ors. ( 1997) 2 SCC 697, State Government had exempted the exercise-books made from paper purchases within Uttar Pradesh from the levy of sales tax. Whereas, exercise-books produced outside the State of Uttar Pradesh were subjected to sales tax at the rate of 5%. The said G exemption granted to indigenously manufactured exen.:ise-books was challenged. The challenge was upheld by this Court and the exemption granted to locally manufactured exercise-books was held to be discriminatory within the meaning of Art. 304(a) of the Constitution of India. 1-1

452 SUPREME COURT REPORTS [2016] JO S.C.R.

A Preferential treatment for /ocal(v produced goods by grant of exemption or set-off etc. and no11-gra11t of suclt exemption or set-off to goods imported from other States - Not- di~·criminatory:

126. While States have the sovereign power to levy taxes to raise revenue, difference in rates of taxes by itself or granting tax incentive or concession to local manufacturer by itself, cannot amount to discrimination. The word "discrimination'' involves an element of "intentional and purposeful differentiation". It creates economic and c regional imbalances in India and is an area of concern.

127. Contention of States is that apart from legislative power to levy taxes, States also have the power to grant exemptions, tax concessions or incentives to the goods manufactured within the State so as to encourage the manufacturing units and traders within the State, D and also to attain economic growth and development. Reiterating the same, the learned Attorney General has submitted that such fiscal measures are necessary for economic parity as also for further strengthening of the economic unity of the nation which the assessees themselves desire. Placing reliance upon Video E/ectro11ics Pl't. Ltd. E a11dA11r. v. State ofPunjab andAnr. ( 1990) 3 SCC 87, it was submitted that every differentiation in the tax rebate, exemption or tax concession granted to indigenous goods which may result in differentiation in the rate of tax on goods imported into the State, would not amount to discrimination falling foul under A1t.304(a). The States submit that every differentiation is not discrimination, and only those restrictions which impede the flow of trade, commerce and intercourse would fall foul under Art.304 (a). The above contention of the States has been favourably considered by the Supreme Court over the years. The Supreme Court has taken note of the differentiation on consideration of natural or economic factors prevailing in different regions which need to be encouraged by providing tax incentives to attain economic equality in growth and development.

128. Part XIII envisages a two-fold object:- (i) facilitation of a common market through case of trade, commerce and intercourse by removal of barriers; and (ii) development of economically backward regions through regulations or restrictions which may incidentally

JINDAL STAINLESS LTD. v. STATE OF HARYANA 453

[R. BANUMATH!, J.]

differentiate between States or regions. Part XIII is not abour'freedom" A alone but is a code of checks and balances on inter-State trade, commerce and intercourse intended to achieve economic integrntion of the country and parity. Balanced development of the country is an equally vital facet of economic integration. The "freedom"' referred to in Art. 30 l must take flavour from the expression "throughout the territory oflndia"; the B Union was envisaged not only as a political union but also an economic union. The grand vision was to unify the country, not only politically but also by creation of an economic union of hitherto disparate Provinces and Princely States. Freedom of movement of goods and services and the creation of a common market must be understood in this context. Thus. the spirit of Part Xlll must be seen in the context of achieving a c balance between a cohesive economic union having due regard for the federal character of the Constitution and not in the sense of a handicap for State ·s individual development.

129. We may usefully refer to the following passage authored by Prof. D.D. Basu in Comparatfre Federalism, Prentice Hall of India, D 1987, which reads as under:

"The great problem of any federal structure is to prevent the growth of sectional and local interests which are inimical to the interests of the nation as a whole. The strength of the Union may be achieved 011ly by minimizing inter-State barriers as much as possible. so that the people may feel that they are the members of one nation. though they may, for the time being, be residents of particular geographical divisions of the country. One of the means to achieve this obiect is to guarantee to every citizen the freedom of movement throughout the territory of the Union. and also lo reside and settle in any part thereof G

While a federation is formed to preserve or secure regional autonomy, that is not done at the sacrifice of notional interests. Unless the national interests are safeguarded. the countrv would be divided into pieces. 1-1

454 SUPREME COURT REPORTS (2016] 10 S.C.R.

A resulting in a weak government unable to maintain itself from foreign aggression, and would also create economic chaos in an age when apparently local disturbances have a wide repercussion. It is this last mentioned economic strength of the federation which is B intended to he ensured hy the safeguard.for maintaining .fi'eedom of' trade, commerce and intercourse throughout the federal territory, which safeguard the Union and the States are hoth enjoined not to violate. " [Page 613]

c Part XlII and the provisions therein are to be interpreted in a manner that encourages a backward region or creates a level playing field for those parts of the countTy that may not have reached the desired level of development.

130. Historically, regional imbalances in India started from the D British regime. During that time, industrialists started development in a few earmarked regions of the country like the metropolitan cities of Kolkata, Mumbai, Chennai that possessed rich potential for manufacturing, trading and transport facilities. This resulted in an uneven growth amongst the States, keeping few States less developed. The regional imbalances and general economy of the country were taken note of by the f;·amers of the Constitution. The Constituent Assembly was conscious of the uneven development in different parts of the country and the need to create a level playing field by removal of trade barriers as well as by affording avenues for economic opportunity and economic equality for less developed parts of the country. Significant observations have been made in Constituent Assembly Debates justifying certain amount of flexibility to the States. ln this regard, reference to Constituent Assembly Debates dated 30.07.1949 to 18.09.1949 whereby Dr. P.S. Deshmukh proposed a series of amendments in Part Xlll granting powers to the States, is relevant to be noted:- G

Dr. P.S. Deshmukh: "Trade and commerce are not things which are decided once, for all; they are things that arise and grown .from day to day. . They may he varied; there may he circumstances and situations when the H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 455

[R. BANUMATHI, J.]

whole thing will have to he revised. This may arise so far as a particular State is concerned or in respect of more than one State. How pompously did we decide that there shall be 'free trade" everywhere. It is not such an easy thing as that and I hope that this is now hmadly realized. For instance, we know that the stage, of advancement and progress of the various units of the Union varies considerably. Some of them are backward like Assam or Orissa where there are, very ft:w industries and very little trade is in the hands, at least of the indigenous population. We may have prohahly to give them some protection in order that they c may rapidly come on par with other units. It may he necessmy also from time to time to vary our provisions so far as aid and concessions to industries and other things are concerned. I therefore do not think that is right to bar all discrimination, as it is called (in fact it is not), barring all possibility of help to those who are hackward and who are unable to compete with the more advanced, and who therefore, stand in need of 'assistance. ' From that point of view, my amendment seeks to give Parliament a blank cheque and leave to it entire~v the determination of the policy. With regard to tlze trade and commerce not only of the whole Union or in regard to any particular State or States, but so far as all States and their trade and commerce inter se is concerned. Therefore, I have proposed a very simple provision as has been embodied in my amendment No. F 340." [Page No. 1133)

While the proposed amendments were not accepted, the debate acknowledged that flexibility to allow certain amount ofleverage to the G States was necessary and also desirable. It is apposite to refer to the following observation by Shri Alladi Krishnaswami Ayyar in Constituent Assembly Debates dated 30.07.1949 to 18.09.1949:-

456 SUPREME COURT' REPORTS [2016) JO S.C.R.

A Sltri Al/adi Kris/111aswami Ayyar: ".... .ivfy Friend D1: Ambedkar, in the sche111e he has evolved. has taken into account the larger interests of India ({S well as the interests of particular Sla/e and the wide geography of this country in which the inrerests of one region differ fi·om the interests of another region..... Mv Friend Mr. B Kris/111a111achari has pointed oul that this freedom clause in the Australian Constitution has given rise to considerable trouble and to co1?flicting decisions qf !he highest Court. There has been a feeling in those parts of Australia which de/Jend for their well-being on c agricultural conditions that their interests are being sacrificed to manufacturing regions. and there has been rivalry between manufacturing and agricullural interests. Therefore. in a federation what !'(Ill have to do is, first, vou will have to take i11to account the larger interests of India and permit freedom o( trade and intercourse as far as possible. Secondh'. vou cmmot ignore altogether regional interests. 171irdly, there must be the power intervention of the Centre in any case <~( crises 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. " [Emphasis added] [Page No. 1143]

13 I. Similar was the concern expressed by Shri C. Rajagopalachari F in his observations on the proposed draft Article I 0:

"C. Rajagopalachari: I would request members who have given thought to this subiect to please inform 111e how the units will raise !heir revenue. As it is, the Union G does not contemplate !he distribution of subsidies to the provinces. The provinces or groups differ among themselves. some are rich and so111e are pom: Some are capable of managing with their existing resources; but others may have to increase their revenue for managing H

HNDAL STAINLESS LTD. v. STATE OF HARYANA 457

[R. BANUMAfHI, J.]

their affairs. ([you impose so many limitatio11s on them, A how can they do that? It is all very well to say free trade is necessary; but how are the provinces lo live?'' [Page No.254 of the Framing of India's Constitution Select Documents-The Project Committee, Volume 2 by the Indian Institute of Public Administration B Universal Law Publishing Co. Pvt. Ltd.]

132. There are considerable regional disparities in India attributable to a variety of reasons. Economically speaking, of these reasons, the ones that are most apparent are geography and consequent economic c inadequacy. States with access to seacoasts and natural resources including mineral wealth, water resources have a definite edge over the other States. Whereas States that have terrains that make access to a region difficult, including hills, rivers and dense forests, show lesser signs of economic development. Lack of perennial sources of water or water scarcity due to lower precipitation cai1 also constrain the development ofa region. Historically, more development opportunities have been made available to already forward States that had the initial geographic advantage. It is the natural tendency of the private sector to set up industries in already developed regions, which provide infrastructural support required to maintain those industries. This has accelerated the development in these forward States; and the backward regions, unable to attract significant investment have not seen much gr0\~1h. To counter- balance this tendency, various incentive and disincentive schemes have .been introduced to direct investments to backward regions. However, the success of these policies has been limited because often the States F with these backward regions are unable to meet their expenses and provide economic overheads, such as transport, communication, power, banking & insurance etc. This has widened the gaps between the States where investments of the past have created adequate social and economic infrastructure to attract private investments and the States G that were neglected in the past and are unable to attract investments due to lack of infrastructure. [Reference: N J Kur,ian, "Regional Disparities in India", Planning Commission oflndia, 200 l available at: http://planni ngcomm iss ion .n ic. in/reports/sercport/ser/vision- 2025/regdsprty. II

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

A 133. A recent news article published in 'The Hindu', titled "The gap between rich and poor States", delineates this economic disparity between the States. The authors propose that since contrary to global experiences, India continues to show trends of divergence among its large States, it is time to accept the country's economic diversity. Amid such economic disparity among States with varying future needs and B priorities, the way forward is greater devolution of fiscal and legislative powers on the States to create a level playing field. Relevant portion of this article reads as under:-

c " ... per capita net domestic productfiwn I960 to 20I4 of India:~ I 2 largest States, that accounted for 85 per cent of the total population, shows that economic disparity within India :1· States is among the largest in the world. .. D This gap of.four times between the richest and the poorest large State in India is among the highest in the world. A similar ratio in other federal polities such as the U.S., European Union and China is between two and three times. Our convergence analysis shows that E this economic disparity among States is only widening and not narrowing. India is the only large country in the world today that is experiencing an economic divergence among its States am/ not convergence, as economic theory would posit. " F " ... .. Pre-1990 and post-I 990 look like al must two different eras in India s history of economic diversity among States. Economic themy would suggest that the poorer regions grow faster to catch up with the richer States to cause an eventual convergence, as is G happening globally. Contrary to global experiences of narrowing disparity, hath across and within nations, India actually shows trends of an exacerbating divergence among its large States, implying the richer States will continue to grow faster. " H

JINDAL STAINLESS LTD. v. STATE OF HARYANA 459

[R. BANUMATHI, J.]

"Whatever he the reasons, it is quite evident that the priorities of a more prosperous State will he quite different from those that are still very pom: /lldia 's cultural and political diversity is a well-entrenched fact. It is time to accept its economic diversity too. Amid such economic disparity among States with varying future needs and priorities, a Delhi-based one-size-fits-all policy regime for all of India is entirely anachronistics . ..... the struggles of the European Union in balancing common market policies for economicalZv diverse nations should serve as a gentle reminder for an even more diverse India. " [emphasis added} c [By Pravee11 Chakravarty and Vivek Dehejia /New Delhi Edition dated 5'" September, 2016]

134. Since economic unity of the nation is the underlying object for freedom in Art. 301, it would be necessaty to define the concept of economic unity adopted by the Constitution of India. Firstly, economic unity cannot but be federal in nature; it must involve the even development of all the States. All States, particularly, the underdeveloped and far- flung border-States have a right to develop themselves so as to secure the welfare of their residents. Secondly, the object of freedom of trade, commerce and intercourse is to foster economic unity by contribution to the development of all the States. Thirdly, as per the Directive Principles of State Policy, the States are to sub-serve common good; secure and protect a social order which stands for the welfare of the people; endeavour to provide an adequate means oflivelihood; and also secure, within the limits of its economic capacity the right to work, education and public assistance.

135. Re-organisation of States is yet another factor which has to be borne in mind. Creation of State ofUttarakhand from the undeveloped hilly area ofUttar Pradesh; State of Jharkhand from the predominantly tribal areas of the State of Bihar, State of Chhattisgarh from the State of Madhy~ Pradesh and the recent bifurcation of the State of Telangana from the State of Andhra Pradesh comes to mind. The newly bifurcated States have to develop their new capitals, create new State infrastructure H

460 SUPREME COURT REPORTS [20 I 6] 10 S.C .R.

A including High Courts in due course. They have to develop their own industrial bases for manufacture and production and for creating job opportunities. To attract capital investment, they have to provide infrastructure like transport, communication, power and technology. Re- organisation of States apart. as a Welfare State, a State is under an B obligation to create job oppo1tunities and promote welfare of the people by securing standard of living and economic justice. Having regard to the multifarious activities of a Welfare State, it is necessary that the States must have leverage/flexibility in exercise of their power to levy taxes and, therefore, steps taken by the States that result in differentiation cannot amount to discrimination that impedes the free flow of trade. c commerce and intercourse.

136. Manufacturing activities within the State involve several activities right from sourcing of raw-materials. manul:idure of goods, marketing of the manufactured goods, and export of the manufactured goods. Manufacturing activities convert the State from a mere trade D hub to a manufacturing hub, creating employment opportunities for the locals, thereby giving impetus to the growth of the State. Manufacturing is a giant step for boosting the economy of the State: it brings in opportunities and socio-economic benefits to the residents of the respective States. Per contra, goods coming in from outside the State E only tap the market potential of the State without creating any employment opportunities or boosting the economy of the State. Titus gra11ti11g e.xemptiom/set-offltax incentive.\' to locally produced good~· and not gra11ti11g .melt exemption to goods coming from outside ca11110t be said to be discriminatory.

F 137. Furthermore, every differentiation is not necessarily discriminatory. The word 'discrimination' used in Art. 304(a) requires an element of intentional and purposeful differentiation that creates an economic barrier. It involves an element of an intentional difference between the treatment of locally produced goods and goods imported from other States. The distinction between "differentiation and G discrimination" has been culled out in Kathi Ra11i11g Rawat"· The State o(Saura~11tra ( 1952) SCR 435, wherein the Constitution Bench held as under:-

JINDAL STAINLESS LTD. v. STATE OF HARYANA 461

[R. BANUMATHI, J.]

"Patan.iali Shastri J: .... A