CENTRAL UNIVERSITY OF SOUTH BIHAR

SCHOOL OF LAW AND GOVERNANCE

TOPIC: “INTERSTATE COMMERCE IN INDIA”

SUPERVISOR: “Mrs. POONAM KUMARI”

SUBMITTED BY:

ANKITA KUMARI
B.A.LLB (3rd SEM)
SECTION ‘A’
CUSB1813125017
2018-2023

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 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my teacher Mrs. Poonam

Kumari who gave me the golden opportunity to do this wonderful project on the
topic INTERSTATE COMMERCE IN INDIA which also helped me in doing a
lot of Research and I came to know about so many new things I am really thankful
to her.

I have taken lots of efforts by completing this project. However, it would not have
been possible without the kind support and help of many individuals and
organizations like Library and Computer Lab. I would like to extend my sincere
thanks to all of them.

Secondly, I would also like to thank my parents and friends who helped me a lot in
finalizing this project within the limited time frame.

I am highly indebted to Central University of South Bihar for their guidance and
constant supervision as well as for providing necessary information regarding the
project & also for their support in completing this project.

(ANKITA KUMARI)

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 LITERATURE REVIEW

BOOKS/STATUES REFERENCED

• V.N. Shukla Constitution of India, Mahendra Pal Singh, (thirteenth edition)

• Indian Constitutional law, M P Jain, (seventh edition)
• The Constitution of India, P M Bakshi, (thirteen edition)
• Constitutional law of India, H.M. Seervai, (fourth edition)
• B. Shiva Rao, “The Framing of India’s Constitution’ N. M. Tripathi Pvt. Ltd.
• Dr. J. N. Pandey, “The Constitutional Law of India”, 46th Edition 2009, Central
Law Agency.

LAW JOURNALS REFFERD

• Interstate trade and Commerce in India by-Arvind Kumar

• Freedom of interstate trade and commerce in India

RESEARCH METHODOLOGY
The project is basically based on the doctorial method of research as no
field work is done on this topic.
Source of data: The whole project is made with the use of secondary
sources i.e books.
RESEARCH HYPOTHESIS

• What is the purpose of interstate commerce in India?

• Is taxing an impediment to trade and commerce?

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 CHAPTERISATION

❖ INTRODUCTION………………………………………….6
❖ MEANING OF INTERSTATE TRADE AND
COMMERCE IN INDIA……………………………………7
❖ FREEDOM OF TRADE AND COMMERCE UNDER
➢ AUSTRALIAN CONSTITUTION…………………7-8
➢ INDIAN CONSTITUTION…………………………8-9
➢ COMPARISON BETWEEN THEM……………….9
❖ INTER-RELATIONSHIP BETWEEN ARTICLE 301 AND
ARTICLE 19 (1)(g) ………………………………………………9
❖ IS TAXING AN IMPEDIMENT TO TRADE AND
COMMERCE…………………………………………………10-11
❖ REGULATORY AND COMPENSTORY TAX………………11-12
❖ RESTRICTIONS ON TRADE AND COMMERCE………12-13
❖ SAVING OF EXISTING LAWS………………………………13
❖ AUTHORITY TO CARRY OUT THE PURPOSES OF
ARTICLES 301 AND 304……………………………………13-14
❖ RELEVENT CASES…………………………………………14-15
❖ CONCLUSION AND SUGGESTION…………………………16

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 TABLE OF CASES

1) Atiabari Tea Co. v State of Assam……………………….12

2) G.K. Krishna v state of Tamil Nadu…………………….12
3) Meenakshi v State of Karnataka…………………………12
4) Fatehchand v State of Maharashtra…………………….10
5) State of Tamil Nadu v. Sitalakshmi Mills……………….14
6) State of Madras v. Nataraja mudaliar………………….14
7) State of Bombay vs. RMDC………………………………15
8) Prag Rice and Oil Mills v. Union of India………………15

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 INTRODUCTION

From the very beginning of its deliberations the Constituent Assembly was keen to ensure the
freedom of inter-State trade and commerce throughout the Union. In fact, one of the primary
purposes of federal Union itself is the establishment of freedom of commerce. Part XIII of the
Indian Constitution contains the provisions relating to freedom of trade, commerce and
intercourse. The provision regarding these matters is drafted after taking into consideration
American and Australian experiences in this matter. Trade, commerce and intercourse may be
domestic, or foreign or international. The word trade means buying or selling of the goods
while the term commerce includes all forms of transportation by land air or water. The term
intercourse means the movement of goods from one place to another. Interstate commerce, in
U.S means, any commercial transaction or traffic that cross state boundaries or that involve
more than on state. According to Section 92 of the Australian Constitution, there should be
freedom of trade, commerce and intercourse which may be carried out by ocean navigation or
internal carriage. The framers of the Indian Constitution had the benefit of these experiences
at the time of drafting the provisions dealing with inter-State trade and commerce as embodied
in the Constitution. Article 301 to 307 of the Indian constitution deals with freedom of trade,
commerce and intercourse within the territory of India subject to certain limitations. It deals
with the domestic trade and commerce i.e within the territory of India. Such commerce is of
two types (i) intra-state, commerce which is confined within the territory of a state. (ii) inter-
state, trade and commerce which overflows the boundary of one state an which extends to two
or more states. The objective behind the principle of freedom of inter-State commerce is that
within the country trade and commerce should develop to the largest possible extent and it
should not be hindered by artificial barriers and restrictions imposed by the various States of
the federation. Accordingly, the Constitution has taken into account the largest interests of
India as a whole as well as the interests of particular States and the wide geography of this
country in which the interests of one region differ from those of another. Free flow of trade,
commerce and intercourse within a federal country having a two-tier polity is a pre-requisite
for promoting economic unity of the country. Therefor an attempt have been made, to minimise
the possibility of emergence of local economic barriers, to remove impediments in the way of
interstate trade, commerce and thus help in wielding the whole country into one single
economic unit so that economic resources of all the various regions may be exploited,
harnessed and pooled to the common advantage and prosperity of the country as a whole.

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MEANING OF INTERSTATE TRADE AND COMMERCE IN INDIA

Article 301 of the Indian Constitution states that "subject to the other provisions of this Part
(Part XIII) trade, commerce and intercourse throughout the territory of India shall be free "
This article does not use either the phrase "interstate" or the phrase "intrastate" to ~indicate
specifically as to what types of trade and commercial activities that are contemplated In this
article The marginal note mentions "freedom of trade, commerce and intercourse" This also
does not help much to understand the commercial activities comprehended by Article 301 of
the Constitution However, there is one ambiguous phrase, namely, "throughout the territory of
India" which has given rise to the speculation that Article 301 is intended to cover both
intrastate trade and Interstate trade. But such speculation seems to be of doubtful validity
because of the fact that Provisions in Part XIII of the Constitution have been made to ensure
economic unity of federal India by breaking the tariff walls at the borders of the constituent
States. Further the fact that the focal provision relating to freedom of trade and commerce was
removed from the part dealing with fundamental rights and was pieced In Part XIII of the
Constitution would show that Idea of guaranteeing freedom of trade and commerce as
fundamental right was given up by the Founding Fathers of the India Constitution,
Consequently what we get in Article 301 is freedom of Interstate trade, commerce and
~intercourse that IS free flow of all activities known as trade, commerce and ~intercourse
throughout the territory of India. Three terms of great significance in this article are trade,
commerce and intercourse They are not terms of art They are practical and hard terms of the
business world. Sir Ivor Jennings 1said that all Constitutions are heirs of the past as well as the
testator of the future Provisions of Article 301 fully confirms to the descriptions of Sir Ivor
Jennings statement because they are based very much on the provisions of American and
Australian Constitutions relating to interstate Trade and commerce Therefore it is necessary to
briefly examine the tenor of the interstate trade and commerce as explained and expounded by
the judiciary in those countries, which will help to throw light on the terms, trade and commerce
and intercourse in Article 301 of the Constitution of India.

FREEDOM OF TRADE AND COMMERCE UNDER

AUSTRALIAN CONSTITUTION AND OTHER COUNTRIES
The legislative power of the Commonwealth relating to trade and commerce is contained in
Sections 51(i)and 98 which lays down the Parliament has power to make laws with respect to
trade and commerce with other countries and among the States and it extends to navigation and
shipping and railway property of any State respectively subject to the other provisions of the
Constitution. In this context Sections 99 and 1002 provided that the law relating to trade and
commerce shall not give preference to any State or part thereof and the Commonwealth shall
not curtailed the right of a State or the residents to the use of water or river for the purpose of
navigation or irrigation. In addition to this general legislative power relating to trade and
commerce the constitution contains legislative power with respect to certain specific subjects

1
Sir Ivor Jennings, Some Characteristics of the Indian Constitution",
2
“The Commonwealth shall not by any law or regulation of trade or commerce abridge the right of a state or of
the residents therein to the reasonable use of the waters or rivers for conservation or irrigation”

7
of trade and commerce such as currency and coinage, banking, insurance, bills of exchange
etc. These apart, there is a free trade clause under Section 92 which provides that “on the
imposition of uniform duties of customs, trade, commerce and intercourse among the States
whether by means of internal carriage or navigation shall be absolutely free. So, Section 92
added the word “intercourse” along with trade and commerce which are present in Section
51(i). Intercourse includes commercial as well as non-commercial intercourse. Once the act of
the inter-state trade, commerce or intercourse has begun, the protection of Sec. 92 came into
operation and continues till the completion of the act. However, the difficulty arises in
determination of the commencement and completion of the act. In short, Section 92 was
undoubtedly intended to achieve a degree of economic unity and a common market. But this
doctrine of free trade could not be considered in isolation without taking into consideration the
right of the individual. Individual right was not the object of Section 92 but it can be regarded
as a means to achieve the object declared by Section 92 i.e; freedom of trade and commerce
among the States. The most significant provisions in the U.S.A for this purpose, is the
Commerce Clause, which provide inter alia that the congress shall have power to regulate
commerce among the several states. The clause does not in terms restrict State protectionism,
but by a process of judicial interpretation, it has come to have a restrictive effect on the States
in those matters in which the supreme court considers that uniformity is necessary for national
economic well-being, and, thus, the capacity of the states to interfere with inter-State commerce
has been very much restricted. The commerce clause has also bestowed on the central
government necessary power to regulate the country’s economy. The courts have interpreted
the words ‘inter-State commerce in a broad sense, and have held that congress can regulate not
only inter State commerce but even those intra-State activities which so effect inter-state
commerce as to make their regulation appropriate.

FREEDOM OF TRADE AND COMMERCE IN INDIA

Pre-Constitutional Provision – The Indian federal structure was evolved from a colonial unitary
state. Prior to the integration of India and the framing of the constitution, there were in existence
a large number of Indian States which, in exercise of their sovereign power, had erected custom
barriers between themselves and the rest of India, thus hindering at several points the free flow
of trade. India had a thoroughly unitary constitution until the Government of India Act, 1935.
However, experimentation in the direction towards federalism was already started under the
Government of India Act, 1919, though the introduction of the system of Diarchy was not
federal in the true sense as it did not provide for division of powers between the Centre and the
States on the pattern of other federal countries like the United States or Canada. Further, it also
did not include the Indian States at all and in British India also, the provinces were no more
than administrative units and derived their power as a grant made by the Central Legislature to
the provinces. Therefore, provincial government was assigned with subjects which were less
important and of local nature such as local government, public health, police station, education
etc. and the residuary power fell to the Centre. Moreover, the provincial enactments could
become law only on receiving the assent of the Governor General. Thereafter in 1927, Simon
Commission recommended for a federal form of government and was also against the taxes

8
levied by the provinces on the free flow of trade and commerce. Soon after the Commission’s
Report; there were three Round Table Conferences which suggested that the federal structure
is the only solution to the Indian Constitutional problem. In the third session of the Conference,
the member agreed that the federal legislature was to be entrusted with the exclusive power
over foreign trade and it could impose terminal taxes on goods and passengers carried by rail,
water or air. The provincial legislature could legislate with respect to the control of production,
supply distribution of commodities and trade and commerce within the province. Finally, in
April, 1933, a Joint Committee was appointed to examine the working basis of the new Indian
Constitution. On the basis of the Joint Committee’s Report, the Government of India Act, 1935
was passed which introduced federal form of Government and recognises three lists namely;
federal list, provincial list and concurrent list and the residuary power was vested to the
Governor-General. In this Act, trade and commerce was given to provinces under Entry 27 of
List II. But, none of the list provided for the power over inter-provincial trade and commerce
and it could be regulated by the Governor-General under his residuary powers, vested under
Section 104. Further, Section 297 of the 1935 Act imposed limitation on the legislative as well
as the executive power of the provincial government in two ways –1) It prohibited the provinces
from imposing trade barriers on the entry and export of goods 3and 2) It also prohibited them
from levying taxes which discriminated between goods manufactured and produced in the
province and goods not so manufactured and produced.
COMPARISON BETWEEN AUSTRALIA AND INDIA: Though Article 301 of
the Indian Constitution has been adopted from Section 92 of the Constitution, still there are
some apparent distinctions between the two. Firstly, in the historical context, Section 92 of the
Australian Constitution was intended to abolish State custom barriers. However, as a result of
judicial decisions, it applies to both the Commonwealth as well as the States. This was
recognised in the decision of James vs. Commonwealth of Australia4, in which a
Commonwealth statute requiring a licence for inter-state shipments of dried fruits was declared
unconstitutional by the Privy Council. On the other hand, in India, Article 301 of the
Constitution includes both the freedom of inter-state and intra-state i.e; within the territory of
State trade and commerce. That is, it imposes a restriction on the legislative power of both
Parliament and the State Legislature. Secondly, the presence of the word “absolutely free” in
the Australian Constitution presented many difficulties. Trade and commerce could not be
regulated by the centre. The restriction was to be spelled out by the Court whereas; in India the
Constitution itself lays down restrictions on Article 301. The restrictions are contained in
Article 302 to 305. This is necessary because no freedom is absolute but regulated and relative.
Thirdly, Australian Constitution did not have any provision like 19(1)(g) of the Indian
Constitution.

INTER-RELATIONSHIP BETWEEB ARTICLE 301 AND ARTICLE

19(1)(g): The word trade means buying or selling of the goods while the term commerce
includes all forms of transportation by land air or by water. The term intercourse means the
movement of goods from one place to another. Intercourse will cover all those activities which

3
Freedom of trade and commerce by Faisal
4
AIR 1936 AC 578

9
might not be included in the ambit of trade and commerce.
5
Article 19 (1) (g), a fundamental right confers on the citizens the right to carry any profession
or carry on any occupation trade or business. The question of relationship between 301 and art.
19 are somewhat uncertain. One view that while Article 19 (1) (g) deals with the rights of the
individual, whereas art. 301 provide safeguards for carrying trade as a whole distinguished
from individuals right to do the same. But this view is hardly tenable. Article 301 is based
section 92 of the Australian Constitution which has been held to compromise rights of
individuals as well, and the same should be position in India. The Supreme Court has
denounced then theory that Article 301 guarantees freedom “in abstract and not on the
individuals”.
Freedom of trade commerce and intercourse is a wider concept than that of an individual’s
freedom to trade guaranteed by Article 19(1) (g). Art. 19(1) (g) can be taken advantage by the
citizens whereas the freedom of trade commerce and intercourse enshrined under art. 301 can
be invoked by a corporation and even by State on complaints of discrimination as under Art.
303. In Emergency Art. 19(1) (g) is suspended and so the courts may take recourse to Article
301 to adjudge the validity of restriction on Trade and Commerce. There appears to be no
satisfactory way to explain the relationship between the two articles.
Article 301 is a mandatory provision and a law contravening the same is ultra vires, but it is
not a Fundamental Right and hence is not enforceable under Art.32.6 But if the right under Art.
19(1)(g) is also infringed, then Art.32 petition lie.
The three alternative situations:
a. A provision mat be valid under Arts. 301 to 304, but may be invalid under Art. 19
(1)(g).
b. It may be invalid under Arts 301 to 304 as well.
c. It may be invalid under Arts. 301to 304 but not under Art 19(1)(g) situations.
Article 32 petition will lie in situations a and b but not in c.7

IS TAXING AN IMPEDIMENT TO TRADE AND COMMERCE

Tax is a compulsory Contribution and is the sovereign attribute of the State based on the
Principle of No quid Pro Quo.8 It is a branch of Public Finance of every Economy. Taxation is
collection of revenue and Public expenditure is the application of the revenue so collected. Tax
is necessary for the Functioning of Every Economy of the World, without it all the duties and
the obligations of the state will be undone and power unused.
Article 302 authorizes Parliament to impose restrictions in the public interest. Article 303
prohibits state preference or discrimination on regional basis, but makes an exception for
Parliament in order to meet a situation of scarcity in any part of the country. Article 304
prohibits the states from making any discrimination against goods 'imported' from other states
in taxing them. It only authorizes the states to impose 'reasonable' restrictions in the public
interest with the sanction of the President. Article 305 removes the laws, as they existed on

5
M.P. Jain Indian Constitutional Law 7th edition
6
Ram Chandra Palai v. State of Orissa, AIR 1956 SC 298
7
S. Ahmed v. State of Mysore, AIR 1975 SC1443
8
Legal Service India.com

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January 26, 1950, and later at the commencement of the Fourth Amendment, 1955, from the
operation of Article 301 and 303. Article 306, now repealed, dealt with the former Native States
authorizing them to levy import-export duties on the goods to and from the rest of country in
accordance with the terms of their accession. Article 307 envisages an authority appointed by
Parliament to carry out the objectives of the first four Articles of this Part. No such authority
has ever been constituted. Part XIII allows reasonable restrictions imposed by the states in the
'public interest.' One is strongly inclined to think that a tax is always in the public interest and,
therefore, the prohibition does not apply to it.
It is also pertinent to bear in mind that all taxation is not necessarily an impediment or a restraint
in the matter or trade, commerce and intercourse. Instead of being such impediments or
restraints, they may, on the other hand, they also provide for improvement of different kinds
of means of transport, for example, in cane growing areas, unless there are good roads, facility
for transport of sugarcane from sugarcane fields to sugar mills may be wholly lacking or
insufficient. In order to make new roads as also to improve old ones, cess on the grower of cane
or others interested in the transport of this commodity has to be imposed.
It is the tax thus realized that makes it feasible for opening new means of communication or
for improving old ones. It cannot therefore, be said that taxation in every case must mean an
impediment or restraint against free flow of trade and commerce. The Supreme Court in the
Atiabari Tea Co9. case held that taxes which hampered free flow of trade and commerce
contravened Part XIII and, therefore were unconstitutional. The Court qualified this decision
in the Automobile Transport case and ruled that regulatory and compensatory' taxes did not
come within the purview of Article 301. Trade and Commerce that are protected by Art. 301
are only those activities which are regarded as lawful trade activities and not against public
polity. The Supreme Court held that Gambling is not trade but res extra commercium. In this
Case Court held that prize Competition being gambling of nature, they cannot be regarded as
trade and commerce, thus violative of Art. 19(1) (g) and 301.
Later in the case of Fatehchand v State of Maharashtra 10, a question arose whether money
lending is a trade and protected and subjected to restrictions under Art. 301. Supreme court
keeping in regards the position of Moneylenders vis a vis the humble beneficiaries of Law, that
is the marginal farmers, rural artisans, rural laborers, workers and small farmers held that the
exploiting money landing to poor and weak cannot be classified as trade and Art. 301 would
not apply.

REGULATORY AND COMPENSTORY TAX

To smoothen the movement of interstate trade, commerce and intercourse, the State has to
provide much facility as to the roads etc. The Concept of Regulatory and Compensatory
Taxation have been evolved with a view to reconcile the freedom of trade and commerce
Guaranteed by Art. 301 with a need to tax such trade at least to extent of making it pay for the
facilities provided to it by the State, for e.g. a road network. The Concept of Compensatory

9
AIR 1961 SC232
10
AIR 1977 SC 1825

11
taxation has been borrowed from Australia where it has been evolve to dilute section 92 of the
Constitution.
The Concept of Regulatory and compensatory taxation has been applied by the Indian Courts
to the State taxation under entries 56 and 57 of the list II. In case of Atiabari Tea Co. v State
of Assam,11 a tax levied by the State of Assam on the carriage of tea by road or inland
waterways was held bad for as a restriction on the freedom of trade, commerce an
intercourse and was not held as a regulatory taxation or measure. In case of G.K. Krishna v
state of Tamil Nadu,12 the petitioner challenged the validity of a Government notification
under Madras Motor Vehicle Taxation Act, 1931, enhancing the motor vehicle taxation on
omnibuses from Rs. 30 to Rs. 100 per quarter per seat. It was claimed that the taxation was
neither regulatory nor compensatory and therefore was acting as a restriction on the freedom
contemplated under Art. 301. The Court held that the Tax so levied on the omnibuses is not
violative of the Freedom under Art. 301 and are covered under Regulatory and Compensatory
taxes. The Court stated that the Regulatory Measures such as rules of traffic, collection of toll
tax or tax for use of roads and bridges or Aerodromes etc. do not operate as a barrier to trade
and commerce. For a Tax to Become a Prohibited Tax it has to become a Direct Tax, the effect
of which is to hinder the part of trade commerce and intercourse. Further in case of Meenakshi
v State of Karnataka, 13the Court upheld the increase in the passenger tax on the vehicles of
Bus Operators even though the imposition was made to compensate the loss of revenue due to
abolition of Octoroi. In the course of exempting the tax laws from the purview of Art. 301. The
Court has even relaxed the limitation of Art. 304(a). Upholding the validity of State
Notifications giving tax exemptions to or imposing lower rate of tax on certain goods made
within the State, the Court held that the notifications do not violate Art. 301 and therefore do
not violate Art. 304(a) also. Further in the case of State of Mysore v H. Sanjeev, section 39 of
the Mysore forest Act was in question as violative of the freedom under Art. 301. It was held
by the Court that the provision is invalid on the ground that it totally prohibits the movement
of forest produce during the period between Sunset and Sunrise is prohibitory of right to
transport Forest produce. The court held that the rule cannot be called valid because “ A rule
regulating transport in its essence, certain to certain conditions devised to promote transport;
such a rule aims at making the transport orderly, so that it does not harm other person carrying
the same vocation, and enables transport to function for the public good.”

RESTRICTIONS ON TRADE AND COMMERCE

1. Parliament’s power to regulate trade and commerce in the public interest – Article 302
authorizes Parliament to impose such restrictions on the freedom of trade, commerce or
intercourse between one state and another or within any part of the territory of India as may be
required in public interest. The question whether a restriction imposed by Parliament by law is
in public interest or not is a justifiable issue. In this respect, it has been held in Atiabari’s case14

11
AIR 1961 SC 232
12
AIR 1975 SC583
13
AIR 1983 SC 1283
14
Atiabari Tea Co. v. State of Assam, AIR 1961 SC 232

12
that Parliament is given the sole power to decide what restrictions can be imposed in the public
interest as authorized by Article 302. Therefore, it has been held in Surajmal Roopchand and
Co. vs. State of Rajasthan, that restrictions imposed on the movement of grain under the
Defence of India Rules are in the interest of general public. The power of Parliament under
Article 302 is limited by 303(1). Article 303(1) provides that Parliament shall not have power
to make any law giving any preference to any one State over another by virtue of any Entry
relating to trade and commerce in any one of the List in the 7th Schedule. But under Clause (2)
of this Article the Parliament may, however, discriminate among States if it is declared by a
law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity
of goods in any part of the territory of India. The question whether there is a scarcity of goods
in any part of India is for the Parliament to decide.
2. State’s Power to regulate trade and commerce – Article 304(a) empowers the State to
impose any tax on goods imported from other State if similar goods in the State are subject to
similar tax so as to discriminate between goods so imported and goods manufactured or
produced in the State. In State of Madhya Pradesh vs. Bhailal Bhai 15, a State of law-imposed
sales tax on imported tobacco but locally produced tobacco was not subject to such sales tax.
The Court invalidated the tax as discriminatory. Clause (2) of this Article authorizes the State
to impose such reasonable restrictions on the freedom of trade, commerce and intercourse as
may be required in the public interest. But no Bill or amendment for this purpose can be
introduced in the legislature of State without the previous sanction of the President.16 A law
passed by a State to regulate inter-state trade and commerce must satisfy the following time
conditions under Article 304(b)
i) Previous sanction of the President must be obtained;
ii) The law must be in the public interest and
iii) Restrictions imposed by such a law must be reasonable.
Saving of existing Laws– Article 305 saves existing laws and laws providing for State
monopolies in so far as the President may by order otherwise direct and Article 307 empowers
Parliament to appoint such authority as it considers appropriate for carrying out purposes of
Articles 301 to 304. It can confer on such authority such powers and duties as it thinks
necessary.
Thus, the general idea inspiring Part XIII of the Indian Constitution is the removal or
prevention of local barriers to economic activity as well as to passage of persons and goods
from region to another. But at the same time the framers of the Constitution did not intend to
restrict the power of the States to regulate purely intra-state commerce. The object was to
remove geographical barriers.

AUTHORITY TO CARRY OUT THE PURPOSES OF ARTICLES 301

AND 304
Problems concerning trade and commerce are more economic in content than legal. A body
consisting of economist, businessmen, and lawyers may be able to do a much better job in thus
area than a court having legal expertise. It is with this idea that Art.307 has been incorporated

15
AIR 1964 SC 1006
16
Legal Services India.com

13
in the constitution. Article 307 in The Constitution Of India 1949,appointment of authority for
carrying out the purposes of Articles 301 to 304 Parliament may by law appoint such authority
as it considers appropriate for carrying out the purposes of Articles 301, 302, 303 and 304, and
confer on the authority so appointed such powers and such duties as it thinks necessary.17 The
origins of the idea contained in Art.307 can be traced to Ss.101-104 of the Australian
Constitution which contemplate the establishment of an inter-state commission “with such
powers of adjudication and administration as the parliament deems necessary for the execution
and maintenance within the Commonwealth, of the provisions of this Constitution relating to
trade and commerce, and of all laws thereunder.
Speaking on this provision, Ambedkar said, “(It) is merely an article which would enable
Parliament to establish an authority such as the Inter-State Commission as it exists in the U.S.A.
Without specifically mentioning any such authority it is thought desirable to leave the matter
in a fluid state so as to leave Parliament freedom to establish any kind of authority that it may
think fit.” Australia too has such an Inter-State Commission which renders valuable service in
the field of inter-State trade and commerce.

RELEVENT CASES
1. State of Tamil Nadu v. Sitalakshmi Mills,18 in this case the court held that, that even
where a restriction imposes a direct burden on the freedom of trade and commerce under
Article 301, it would be constitutionally valid if it were deemed to be in public interest.
In this case, Section 8(2)(b) of the Central Sales Tax Act was challenged because under
it, Parliament provided for a higher amount of tax to be paid by an unregistered dealer
engaged in inter-State trade. The Supreme Court accepted the Government’s plea that
the law was in place to canalize inter-State trade through registered dealers over whom
the Government could exercise supervision and therefore could act as an effective
deterrent to income tax evasion. Hence, the law was accepted to be in public interest and
for that reason it was not in violation of Article 301 but in total conformity with Articles
302 and 303. Article 302 relaxes the restrictions imposed by Art.301 in favour of
Parliament. Parliament can therefore legitimately impose restrictions on both inter-State
as well as intra-State commerce.
2. Nataraja Mudaliar case 19also revolved around the legitimacy of the Central Sales Tax
legislation and questioned the differential rates of taxation in different States. In this
case, the Supreme Court asserted that there was no doubt as to the fact that exercise of
power to tax could normally be presumed to be in public interest. Thus Article 302 as
used as both a sword and a shield to put forward the presumption that there is always a
strong chance that any Parliamentary law on taxes would be in public interest. Another
essential condition to declaring the law. under Art.302 to be valid is to ensure that it is
in accordance with the conditions in Art.303 viz. that such Union law should not be
discriminatory as between different States except where it is necessary for dealing with
an extraordinary situation which may arise such as scarcity of goods. It is useful to note

17
M.P. Jain Indian Constitutional Law 7th edition
18
AIR 1974 SC 105
19
State of Madras v. Nataraja mudaliar, A.I.R. 1969 Sc 147

14
 that in several cases, where the constitutional validity of a law imposing restrictions
under Article 302 has been challenged, the Supreme Court has applied the test of
reasonableness to hold the validity of those restrictions. Even though the word
‘reasonable’ has not been explicitly mentioned in Art.302, the Supreme Court has
chosen to read it into the provision in order to give more legitimacy to any tax law made
with the intent to further public interest.
3. State of Bombay vs. RMDC,20In this case, the Bombay lotteries and Prize
Competitions Control and Tax (amendment) Act, 1952, imposing restrictions on prize
competition was upheld as not violative of article 301 for, being of gambling nature,
holding of lotteries and prize competitions, could not be regarded as trade or commerce.
In ‘lottery’, there is no skill but only an element of chance, it falls outside the realm of
res commercial. The right of sale of lottery tickets is not a right under article. 301. Even
state lotteries cannot be said to constitute “trade” as contemplated by article. 301. since
state lotteries cannot be construed to be trade and commerce within the meaning of
article. 301, there could possibly be no question of any discrimination or violation of
article. 303. Therefore, the central lotteries (regulation) act under which power is
conferred on states to ban sale of lotteries of other states does not violate articles 301-
303 of the constitution and is, thus, valid. It has been held that the protection offered by
article 301 is confined to such activities as may be regarded a lawful trading activity and
does not extend to activities which are res extra commercial i.e. activities which could
not be said to be trade or commerce or business.
4. Prag Rice and Oil Mills v. Union of India,21 where the Apex Court noted that
“Although Art.302 does not speak of reasonable restrictions yet it is evident that the
restrictions contemplated by it must bear a reasonable nexus with the need to serve
public interest.” This case involved the validity of certain Sections of the Essential
Commodities Act in the backdrop of the Government imposing a Price Control Order
on certain commodities. The majority in this case held that the Order was passed solely
for the benefit of the public and would therefore fall under the category of ‘reasonable
restriction.’ Article 303 of the Constitution provides for restrictions on the legislative
powers of the Union and the States with regard to trade and commerce. This Article is
an exception to Art.302 and essentially lays down that Parliament shall not pass any law
giving any preference to any State over another, or discriminate between the States by
virtue of any entry relating to trade and commerce in any of the three lists. It must be
read along with Art.301 especially since Art.302 (2), an as an exception itself to Clause
1 of the same provision, authorizes Parliament to; make discriminatory laws and to
discriminate between the States in times of emergencies.

20
AIR1957 SC 699
21
Prag Rice and Oil Mills v. Union of India, A.I.R. 1978 SC 1295

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 CONCLUSION AND SUGGESTION

Free movement and exchange of goods throughout the territory of the country is essential for
the economic unity of the nation which alone could sustain the progress of the country. This
has become more important after the globalisation of the economy. Therefore in all federation
an attempt is made through constitutional provisions to create and preserve a national economic
fabric to remove and prevent local barriers to economic activity, to remove the impediments in
the way of inter-state trade and commerce and thus to make the country as one single economic
resources of all the various units may be utilized to the common advantage of all. In other
words, proper regulations of the trade promote equality and unity among the regions. It is very
clear by now that any direct tax acting as a restraint to freedom so contemplated under the
Fabric of the freedom of trade commerce and intercourse is ultra- vires of the Constitution.
Whether the tax is prohibitory or compensatory has been left to facts and circumstances of each
and very case. With so many judicial decisions regarding freedom of trade commerce and
intercourse still there has been no evolution of any straightjacket formulae to decide the nature
of tax and judicial decision because of lack of set criteria has varied in this respect. Thus, we
can conclude that the freedom under the fabric of Art. 301 is for interstate as well. Trade
commerce and intercourse have the widest connotation and cover almost all the commercial
activities. The freedom guaranteed is not only from the laws enacted in the exercise of the
powers conferred by the related legislative entries but also the tax laws. Further it has to be
concluded that only those taxes that directly hampers the trade or business will be void
otherwise not. Laws, which are purely regulatory and compensatory in nature, are not violative
of the Freedom so guaranteed. To an extent the Article 301 of the Indian Constitution could be
said to the derived or influenced from such a philosophy with the objective to protect the
National integrity and unity with the help of hassle free flow of trade throughout the country.
An intention to unify different fields and different regions with the help of this freedom
guaranteed in Art. 301. Thus, if effectively implemented, the invoking of Art. 307 may prove
crucial to the success Indian economy coupled with a entirely new legislation like GST to deal
with the complications of regulating and Taxing inter-state trade. As much of the reasons for
slow progress of the economic reforms can be attributed to inefficient restrictions and outdated
regulations.

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