DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

FREEDOM OF TRADE COMMERCE AND INTER COURSE

CONSTITUTIONAL LAW

Prof: NAGESEWAR RAO

DHANVANTH KOTA

2015060 – IV SEMESTER

CONTENTS
INTRODUCTION

REGULATION, PROHIBITION, TAXATION AND ARTICLE 301

INTER-RELATIONSHIP BETWEEN ARTICLE 301 AND ARTICLE 19(1)(G)

EXCEPTIONS TO FREEDOM OF TRADE AND COMMERCE

PARLIAMENTARY POWER TO REGULATE TRADE AND COMMERCE

STATES’ POWER TO REGULATE TRADE AND COMMERCE

SAVING OF EXISTING LAWS

COMPARATIVE STUDY OF FREEDOM OF TRADE COMMERCE AND INTERCOURSE IN

FEDERAL COUNTRIES

CONCLUSION

BIBLIOGRAPHY

CERTIFICATE
This is to certify that Dhanvanth kota, a student of semester IV, Damodaram Sanjivayya

National Law University, has successfully completed the research on the below mentioned

project under the guidance of NAGESEWAR RAO (Subject Teacher) during the year 2017-

18 in FREEDOM OF TRADE AND,COMMERECE AND INTER COURSE.

Signature of the Student.

Signature of the Teacher.

ACKNOWLEDGEMENT:

I am grateful to our constitutional law Professor NAGESEWAR RAO for his valuable

guidance, significant suggestions and help for accomplishing this project regarding

“FREEDOM OF TRADE, COMMERCE AND INTRA COURSE ”. I have tried my best to

collect information about the project in various possible ways to depict clear picture about the

given project topic.

INTRODUCTION:

The great problem of any federal structure is to prevent the growth of local and regional

interests which are not conducive to the interest of the nation as a whole. In order to avoid

such commercial rivalries and jealousies among the units, the framer of the federal

constitution takes it as absolutely necessary to incorporate a free trade clause which would

ensure the economic unity within the country. Generally speaking, trade means buying and

selling of goods while the term commerce includes all forms of transportation such as by

land, air or water.

Art 301 depends on the interpretation of three expressions used free viz trade commerce and

intercourse’, throughout the territory of India’. The word ‘trade’ means buying or selling of

goods. Commerce includes all forms of transportation such as by land, air or water. 1

Intercourse means movement of goods from one place to another place. The Framers of the

Indian Constitution, instead of leaving the idea of intercourse to be implied by the process of

judicial interpretations, expressly incorporated the same in Art 301.

COMPARATIVE STUDY OF FREEDOM OF TRADE COMMERCE AND

INTERCOURSE IN FEDERAL COUNTRIES

The Constitution of India secures the freedom of Trade, Commerce and Intercourse within the

Territory of India under Article 301, subject to reasonable restrictions & public interest ranging

from Article 302-307.

Since freedom of trade, commerce & intercourse is inextricable to the concept of federalism; it’s

worthy to note similar laws in three of the most federal countries in the world- USA, Canada &

Australia.

1
Explaining the word “Commerce” in the commerce clause of the U.S. constitution, Marshall, C.J. Stated as
early as 1824 in Gibbans v Ogden that commerce is traffic but it is something more it is intercourse.
USA: 

Article 1, Section, 8 Clause 3 in US’s constitution is referred to as Commerce clause in the

constitution of USA, which essentially lists the power of Congress, which by necessary

implication has been interpreted to have robbed the states of their power to tax interstate

commerce, while the Congress has the power to regulate commerce within states (also with

foreign nations & Indian Tribes). This constitutes the freedom of commerce in the United

States.

“Article 1 Section 8 Clause 3: The Congress shall have power to regulate commerce with

foreign nations, and among the several states, and with the Indian tribes.”

CANADA: Section 121 of the Constitution Act, 1867 (formerly the British North America Act, 1867:

a part of Canadian Constitution) entitles the Canadian Manufactures to have their growth, produce

or manufacture free admission into any of the provinces, thereby rendering the borders of the

provinces within Canada totally permeable.

“Section 121- All Articles of the Growth, Produce, or Manufacture of any one of the

Provinces shall, from and after the Union, he admitted free into each of the other Provinces.”

AUSTRALIA:

Section 92 of the Constitution of Australia ensures that the Trade, Commerce & interstate

intercourse via internal carriage or ocean navigation shall be absolutely free except for

imposition of Uniform duties of Customs. However newly created states have an additional

liability regarding the above for a period of two years. It appears that Section 92 also extends

to Exclusive Economic Zone (and possibly Continental Shelf) of Australia

SCOPE AND OBJECTIVE OF ARTICLE 301

Regarding the inter relation of Article 19 (1) and Article 301, the view that Art. 19 (1) (g)

deals with the right of the individuals and art. 301 provides safeguards for the carrying on
trade as a whole distinguished from an individual’s right to do the same 2 is hardly tenable.

The Supreme Court has denounced the theory that Art 301 guarantee freedom “in the

abstract.

State of Bombay v. R.M.D.C’s

That Article 19 (1) (g) and 301, are two facets of the same thing” the freedom of trade, Art 19

(1) (g) looks at the matter from the point of view of the individual citizen and protect their

individual right to carry on their trade or business. Art 301 looks at the matter from the point

of view of the country’s trade and commerce as whole, as distinct from the individual

interests of the citizens and it relates to trade, commerce or intercourse both with and within

the states

Madras v. Nataraja Mudalr3

The court stated that all restrictions which directly and immediately after the movement of

trade are declared by Art 301 to be ineffective.

Koteswar v. K.R.B.A & co.4

the Supreme Court has held that a power conferred on the State Government to make an order

providing for regulating or prohibiting any class of commercial or financial transactions

relating to any essential article, clearly permits imposition of restriction on freedom of trade

and commerce and, hence, its validity has to be assessed with reference to Art 304 (b)” In this

case, a restriction on forward contracts was held to be violative Art 301.

Har Shankar v Dy. E.T. Commissioner

2
Reference has been made to this view, without finally deciding by Mukherjee J. in Saghir Ahmed v. U.P.; AIR
1954 SC 728; Das, C.J. in Bombay v. Charibungwala; AIR 1958 SC 699, Wanchoo, C.J. Automobile Transport v.
Rajasthan AIR 1938 Raj. 114.
3
AIR 1969 SC 147
4
AIR 1969 SC 504 Bombay v R.M.D.C. AIR 1957 SC 699
After reviewing the previous case-law, the Court observed that there is no Fundamental Right

to do trade or business in intoxicants, The state under its regulatory powers has the right to

prohibit absolutely every from of activity in relation to intoxicants-its manufacture, storage,

export, import, sale and possession.

KRISHNA KUMAR V STATE OF JAMMU AND KASHMIR 5 the Supreme Court

refuses to countenance the argument that dealing in noxious and dangerous goods like liquor

was dangerous to the community and subversive of its morals and therefore, was not trade,

The Court stated that the acceptance of such a broad argument “involves the position that the

meaning of the expression ‘trade or business’ depends upon, and varies with, the general

acceptance of the standards of the morality obtaining at a particular point of time in our

country”.

REGULATION, PROHIBITION, TAXATION AND ARTICLE 301

The measures as traffic regulations, licensing of vehicles, charging for the maintenance of

roads, equipments weight, size of load, lights, marketing and health regulations, price control

economic and social planning, prescribing minimum wages are purely regulatory measures.

A law which levies a tax or toll for the use of a road or bridge is not a barrier or burden on a

trade but in reality helps the free-flow of trade by enabling the provision of a more

convenient and less expensive route, Such compensatory taxes have to be charged within-

reasonable limits; and if the amount of such taxes is unduly high it certainly would hamper

trade. In this connection the court has pointed out that the distinction between freedom in

Article 301 and restriction in Articles 302 and 304 must be kept in mind, and that which in

reality facilitates trade cannot be a restriction but actually which hampers trade will be a

restriction.

5
AIR 1966 SC 1368
State of Mysore v. Sanjeeviah 6 the Government rule under the Mysore Forest Act, to ban

movement of forest produce between the sunset and sunrise, was held as void as it was not a

regulatory but restrictive measure which infringed the right guaranteed under Article 301.

Atiabari Tea Co. v. State of Assam7

The validity of the Assam Taxation (on Goods carried by Roads or inland waterways) Act

1954 was challenged on the ground that it violated Article 301 of the Constitution and was

not saved by Article 304 (b). The petitioner carried on the business of growing tea and

exporting it to Calcutta via Assam, while passing through Assam the tea was liable to be

taxed under the Art. The Supreme Court held that the impugned law undoubtedly levied a tax

directly and immediately on the movement of goods and therefore came within the purview

of Article 301. The Act was therefore, held void. The court did not take into consideration the

quantum of tax burden which by no means was excessive, simply because the tax levied on

movement of goods, for one place to another, it was held to offend Art 301 The Court said

that taxes may amount to restriction if they directly and immediately restrict trade.

The majority judgment in the Atiabari Tea Co.’s case8 read with majority judgment in the

Automobile’s case9 lead to the following principles relating to Article 301:

(1) Article 301 assures freedom of inter-state as well as intra-state trade, commerce and

intercourse.

(2) Trade, commerce and intercourse have the widest connotation and take in movement of

goods and persons.

6
AIR 1967 SC 1189
7
AIR 1961 SC 232 Sinha C.J. gave a dissenting judgment. He held that taxation implicate as opposed to
discriminatory taxation was not within Article 301.
8
Supra
9
Supra
(3) The freedom is not only from laws enacted in the exercise of the powers conferred by the

legislative entries relating to trade and commerce or production, supply and distribution of

goods, but also to all laws including tax laws.

(4) Only those laws whose direct and immediate effect is to limit the compensatory taxes,

intended to facilitate freedom of trade, are kept outside the scope of Article 301.

Malwa Bus Service v. State of Punjab10 when it held that the burden on the stage carriage

should not disproportionately exceed the cost of facilities provided by the state. An exact

correlation between the receipts and expenditure incurred on providing facilities for smooth

transport service cannot be insisted because “such a correlation is in the very nature

impossible to attain”.

SECTION 92 OF THE AUSTRALIAN CONSTITUTION SAYS, “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”. The wording used in Article 301- “throughout the territory of

India” allows a State legislature by law to “impose such reasonable restrictions on the freedom of

trade, commerce or intercourse with or within that state as may be required in the public interest”.

This wording is wider than the expression “among the states”, used in section 92 of the Australian

Constitution or “among the several states” used in Article 1, section 8, clause (3) of the Constitution

of the United States.

state of Tamil Nadu v. M/s Sanjeeth Trading Co11 by a notification, timber was declared to be an

essential article and a total ban was imposed on movement from the state of Tamil Nadu to any

place outside the state. It was held that it was a regulatory measure for ensuring the availability of

timer to a common man with a reasonable price, authorized under Art. 301 and 304 (b)

INTER-RELATIONSHIP BETWEEN ARTICLE 301 AND ARTICLE 19(1)(G)

10
AIR 1983 SC 634 In Ambala Bus Syndicate (Pvt.) Ltd.v State 1983 P & M 220, the High Court upheld the same
tax. B.A. Jayaram V India AIR 1983 SC 1005 K. Mahadevapa v State; AIR 1982, Knt. 113
11
Rai Ramakrishna v Bihar, AIR 1963 SC 1667
The word trade means buying or selling of the goods while the tem 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 might not

be included in the ambit of trade and commerce.

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 individual’s 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

EXCEPTIONS TO FREEDOM OF TRADE AND COMMERCE

The freedom guaranteed under Art 301 is freedom from all restrictions on trade, commerce,

intercourse but the restrictions are specified in Art 302-305 in Part XIII of the Constitution

and not subject to the provision of the other parts of the constitution. These provisions clearly

show that the guarantee under Art 301 cannot be taken away by an executive action as it is
imposition of a constitutional limitation on the legislative power of parliament and State

legislatures.12

PARLIAMENTARY POWER TO REGULATE TRADE AND COMMERCE

The freedom granted by Article 301 covers both interstate and intra-state commerce and

trade, and Article 302 is in the nature of an exception to Article 301. In fact the majority

judgment in Atiabari13 suggests that prima facie the question of public interest underlying a

parliamentary law imposing restrictions on the freedom of trade may not be justifiable’. But

in case of Article 19(i)(g), the concept of public interest is justifiable. A person challenging

the law will have to show to the court why it is not required in the public interest, and this,

indeed, is a difficult task except in the rare case where the law is seen on its face to have been

passed for a private purpose. But in Surajmal Roopchand & Co. vs. state of Rajasthan It is

held that restrictions imposed on the movement of grain under the Defense of India Rules are

in the interest of general public.

FOR ART 302, ART 303 (1) IS AN EXCEPTION:

Art 303 (1) lays down that the Parliament while imposing restrictions under Art 302, may not

give any preference to one state over another, by virtue of any entry relating to trade and

commerce”89 in any of the Lists.

The rigours of the limitation imposed on the Parliament by Art 303 (1) are relaxed somewhat

by Art 303 (2) as under it the Parliament may prefer one state over another or discriminate

between the states, if it is declared by law made by parliament that it is necessary to do so for

12
District Collector, Hyderabad v Ibrahim & Co.; AIR 1970 SC 1255
13
Supra
dealing with an exceptional situation having arisen from scarcity of goods in any part of

India.

States’ Power to Regulate Trade and Commerce:

Art 304 consists of two clauses, empowers the states to make laws to regulate and restrict the

freedom of trade and commerce to some extent. According to Art. 304 (a) state Legislature

may by law impose on goods imported from other states any tax to which similar goods

manufactured or produced within that state are subject, however, not discriminate between

goods so imported and goods so manufactured or produced. This provision is limited to one

subject-matter only, viz tax on imported goods. A state is debarred from treating goods of

other states the worse than it treats its own goods.

STATE OF MADHYA PRADESH V. BHAILAL BHAI14

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. Moreover if a particular article is

not produced within the state. It cannot use its Legislative power under section 304 (a)

Article 304(b) 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 by the Legislature of State without the previous sanction of the

President as it ensures that a state legislation enacted under pressures of regional economic interest

is duty examined by the Centre form the point of view of national economy. A law passed by a state

to regulate inter-state trade and commerce must satisfy the following conditions under Art 304(b).

(1) Previous sanction of the president must be obtained even when a state imposes a restriction

only on intra state commerce although intrastate commerce falls within exclusive state

legislative purview

14
AIR 1964 SC 1006
 (2) The law must be in the public interest.

(3) Restrictions imposed by such a law must be reasonable, Thus, it is obvious that Parliament

has been vested with wide powers to regulate trade and commerce.

Kalyani Stores v. State of Orissa15

It was held that a state may validly impose restrictions under Article 304(b) (as on liquor, luxury tax

on tobacco) to protect public wealth, health, safety, morals and property within state. Illustrations of

unreasonable taxes are: discriminatory tax, confiscatory tax, with no machinery for assessment, levy

of tax.

The Presidential assent cannot be regarded affording tax immunity from challenge of being too

onerous, unreasonable because it is only one of the 3 conditions which must be fulfilled for a law to

be valid under section 304(b) The test of “public interest” appears to be the same as in Article 19101

a factor considered relevant by the court in holding a tax in public interest, in Khyerbari102 was that

the tax levied was to raise general revenue for the state (compensatory, a public purpose), and for

keeping the waterways, roads in good condition in the state i.e public interest In Muni Lal Jain Vs.

state Of Orissa103the Supreme Court upheld the validity of the Act while recognizing that the power

to legislate carries with it power to legislate retrospectively as well as prospectively

SAVING OF EXISTING LAWS

15
AIR 1966 SC 1686
The guarantee under Art 301 cannot be taken away be mere executive action. When power of

legislation is restricted by Art 301, but within limits provided by Arts 302 to 305 it would be

impossible to hold that the state by an executive order can do something which it is incompetent to

do by legislation.104 A monopoly in favour of the state cannot be created by a mere administrative

order. Art 305 protects a law and not mere executive action unsupported by law.

Art 305 does not protect creation of monopoly in favour of a corporation which the state neither

owns nor controls. 105 It is the duty of the Court to examine whether the impugned provisions

(state Act imposing Tax) amounts to a restriction directly or indirectly on the movement of trade and

commerce106 Article 305 saves the law’s enacted before the commencement of the Constitution

from the operation of Arts. 301 to 303, except in so far as the President may by order otherwise

direct 107 So long the President does not act in this matter, burdens on trade and commerce that

were existing on the eve of the Constitution, would continue to operate.

Thus it is clear that the conditions laid down in Art 304 would apply only to that state. laws which is

enacted after the commencement of the Constitution. The rules made after the commencement of

the constitution under a pre-constitution act, cannot be deemed to be existing law The mere fact

that there was authority in the state under a pre-Constitution act to make rules which may impose

restriction on trade and commerce., will not render the rule made in exercise of the authority invalid

after the constitution under existing law.

Saghir Ahmed v. State of U.P.16

The Supreme Court left undecided the question whether a state monopoly would conflict with Art

301. Art 305 was amended by the Constitution (Fourth Amendment) Act, 1955, Art 305 saves from

Art. 301, both retrospectively and prospectively, for the carrying on by the state, or by a corporation

owned or controlled by the state, of any trade, business, industry or service, whether to the

exclusion, complete or partial, of citizens or otherwise.

16
AIR 1954 SC 728 p. 742
Thus, a state or the Centre can now run any business on a monopolistic basis without infringing Art

301 A law providing for acquisition of banks by the state is protected under Art 305. and so cannot

be challenged under Art 301.

CONCLUSION:

Direct tax acting as a restraint to freedom so contemplated under the Fabric of the freedom of

trade commerce and intercourse is ultra- virus of the Constitution. Whether the tax is

prohibitory or compensatory has been left to facts and circumstances of each and every 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.

BIBLIOGRAPHY

BOOKS: -

# Jain, M.P., Indian Constitutional Law, 738, (Nagpur: Wadhwa & Co., 1987, 4th edition,
reprint 2002). 

# Pandey, Dr. J.N., The Contitutional Law of India, (Central Law Agency, 48th edition,

2011) 

# Saharay, H.K., The Constitution of India, (Kolkata, Eastern Law House,3rd Edition).