UNIVERSITY OF ALLAHABAD

Department of Law
Stream: BA LLB (Hons.)
Semester: 3rd
Subject: Constitutional Law
Topic: Trade & Commerce is free throughout the territory of
India: A critical study
Roll No: 145
Section: B

Submitted by: Submitted to:

Vipul Prajapati Ms. Srishti Singh,
(Constitutional Law)
Department of Law.
 Acknowledgement
I would like to express my special thanks of gratitude to my teacher
Ms. Srishti Singh, who gave me the opportunity to do this wonderful
project of Political Science IV on the topic “Trade & Commerce is free
throughout the territory of India: A critical study”, who also helped me in
completing my project. I came to know about so many new things I am
really thankful to her. Secondly I would also like to thank Internet who
helped me a lot in finalizing this project within the limited time frame.

Vipul Prajapati,
BALLB, Sem 3,
University of Allahabad.
 TABLE OF CONTENTS
INTRODUCTION................................................................................................................................. 3
MEANING OF FREEDOM OF TRADE, COMMERCE AND INTERCOURSE ......................... 3
SCOPE OF FREEDOM OF TRADE, COMMERCE & INTERCOURSE ..................................... 3
CONCEPT OF FREEDOM OF TRADE, COMMERCE AND INTERCOURSE IN INDIAN
CONSTITUTION ................................................................................................................................. 3
ARTICLE-301 ....................................................................................................................................... 4
REGULATORY TAX .......................................................................................................................... 4
COMPENSATORY TAX ..................................................................................................................... 5
EXCEPTION TO FREEDOM OF TRADE, COMMERCE AND INTERCOURSE ..................... 5
RESTRICTIONS ON FREEDOM OF TRADE UNDER PARLIAMENTARY LAW (Article 302) 5
LIMITATION UPON POWER OF PARLIAMENT UNDER ARTICLE 302 (ARTICLE 303) ...... 6
RESTRICTION ON FREEDOM OF TRADE AND COMMERCE UNDER A STATE LAW
(ARTICLE-304) .................................................................................................................................. 6
SAVING OF EXISTING LAW: (ARTICLE 305) ............................................................................. 6
CONCLUSION: .................................................................................................................................... 7
BIBLIOGRAPHY ................................................................................................................................. 7
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 Indian Union. In fact, one
of the primary purposes of a federal union itself is the establishment of freedom of trade and
intercourse within the federal territory.
The framers of the Indian Constitution had this view at the time of drafting the provisions
dealing with inter-state trade and commerce as embodied in the Constitution.
Part XIII of the Constitution contains provisions relating to the freedom of trade, commerce
and intercourse within the territory of India.

MEANING OF FREEDOM OF TRADE, COMMERCE AND

INTERCOURSE
Freedom of trade, commerce and intercourse means the free movement and exchange
of goods. It means that there shall be no prior restraint upon and commerce.

In Automobile Transport Ltd. v. State of Rajasthan, AIR 1962 SC 1406, the Supreme Court
explained: "The freedom declared under Article 301 may be defined as a right to free movement
of persons or things, tangible or intangible, commercial or non-commercial, unobstructed by
barriers, inter-State or intra-State or any ether impediment operating as such barriers."

SCOPE OF FREEDOM OF TRADE, COMMERCE & INTERCOURSE

• Freedom of trade, Commerce and intercourse has made trade, commerce and
intercourse free throughout the territory of India, inter-State as well as intra-State.
• Article 301, thus, constitutes a general limitation on Legislative power and competence
of Parliament as well as of the State Legislatures. The expression "throughout the
territory of India", in Article 301 means throughout the various regions comprising the
territory of India.

CONCEPT OF FREEDOM OF TRADE, COMMERCE AND

INTERCOURSE IN INDIAN CONSTITUTION

• Article 301 declares that "trade, commerce and intercourse throughout the territory of
India shall be free".
This freedom is subject to the other provisions of this Part, i.e., Articles 302 to 305. The
freedom provided in Article 301 is subject to
• Non-discriminatory restrictions imposed by Parliament in public interest [Articles 302,
303 (1)]
 • Discriminatory or preferential legislation by Parliament for the purpose of dealing with
scarcity of goods in any part of India [Article 303 (2)];
• Reasonable restrictions imposed by the Legislature of a State in the public interest
[Article 304 (b)];
• Non of discriminatory taxes imposed by the Legislature of a State goods imported from
other States [Article 304 (a)] and;
• Restrictions imposed by pre-Constitution laws continued in force (Article 305).

ARTICLE-301
Article 301 gives the freedom of trade, commerce, and intercourse but there are certain
activities which may be covered under the ambit of the trade, commerce or intercourse
activities but are not protected by the freedom guaranteed under Article 301 of the Indian
Constitution.
Case:
Atiabari tea Co. v. the state of Assam AIR 1961 SC 232: this case the validity of the Assam
taxation act 1954 was challenged as it was said that it is violative of Article 301 of the Indian
Constitution. Supreme Court held that this act was void as the movement of goods was directly
taxed. Also held that freedom of trade and commerce guaranteed by article 301 is freedom from
such restrictions as directly and immediately restrict the flow or movement of trade.

State of Bombay v. RMDC: this case Supreme Court held that gambling is not a trade but is
extra commercial. Court also held that prize competition being of gambling nature could not
be regarded as ad trade or commerce hence it is not protected under Article 19(1)(g) or 301 of
the constitution.

REGULATORY TAX
Regulations like rules of traffic facilitate freedom of trade and commerce, whereas
restrictions impede that freedom. Requirement of export permit pass for the removal of timber
from the forest. The authorities being bound to permit transportation of timber covered by the
pass, was held to be valid as regulatory and not restrictive in nature.
However, it is not that regulatory measures cannot, in any case, be challenged as interfering
with the freedom guaranteed by article. 301. These can be challenged when they are colourable
measures to restrict the flow of trade, commerce and intercourse. Thus, if the amount of a
compensatory tax is unduly high or the regulatory measure is too burdensome or is
discriminatory. It certainly would hamper trade.
COMPENSATORY TAX
The very idea of a 'compensatory tax' is service more or less commensurate with the
tax levied. Trade, commerce and intercourse must pay for the facilities provided by the state
by way of constructing, maintaining and regulating roads, bridges and other means of
transportation necessary for such trade, commerce or intercourse. All that is necessary to
uphold a tax as compensatory is the 'existence of a specific, identifiable object behind the levy
and a nexus between the subject and object of levy, though the exact determination of benefit
received and expenditure incurred and levying the tax accordingly is not necessary. Once the
nexus between the levy and service is seen, the levy must be upheld, unless the compensatory
character is shown to be wholly or partly, a mere mockery and in truth restrictive of the freedom
of trade.

EXCEPTION TO FREEDOM OF TRADE, COMMERCE AND

INTERCOURSE
Under the Indian Constitution Article 301 declares the freedom of trade and commerce
throughout the whole territory of India. This freedom is not the absolute freedom as certain
restriction has been made which are enumerate between article 302 305 of the Indian
Constitution.

RESTRICTIONS ON FREEDOM OF TRADE UNDER PARLIAMENTARY LAW

(Article 302)

Article 302 provides that "Parliament may 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 the public interest."
Restrictions under Article 302 may be imposed by Parliament by law in the exercise of its
Legislative power. Thus, no restrictions can be imposed upon the freedom by a mere executive
action. However, restrictions may be imposed by an executive action if taken in the exercise of
power delegated by the Parliament.

Case law:
Surajmal Roopchand and Co. vs. State of Rajasthan:
In this case, it was held 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.
LIMITATION UPON POWER OF PARLIAMENT UNDER ARTICLE 302
(ARTICLE 303)

Article 303(1) states that the Parliament does not have the power to make any law which
will keep one State at a more preferable position than the other State, by virtue of any entry in
trade and commerce in any one of the lists in 7th Schedule. However, Clause (2) states that the
Parliament can do so if it is proclaimed by law that it is essential to make such provisions or
regulations, as there is indeed a scarcity of goods in some parts of the country. The power to
decide whether there is a scarcity of goods in some parts of the territory or not is vested in the
hands of the Parliament.

RESTRICTION ON FREEDOM OF TRADE AND COMMERCE UNDER A

STATE LAW (ARTICLE-304)

Clause (2) of Article 304 guides the States to impose certain reasonable restrictions on the
freedom of trade, commerce, and intercourse as may suit the public interest. But no Bill or
Amendment for such shall be put forward in the State Legislature without the prior approval
of the President.

Case law:
A.B. Abdul Kadir v. State of Kerala:
The Kerela Luxury Tax on Tobacco Act, 1964 provided for the regulation of the sale and
stocking of an article like tobacco, which was hazardous to the health and was considered to
be an article of luxury, by imposing a license fee for the same. It was held to be permissible
restriction in public interest within the meaning of article 304(b).

SAVING OF EXISTING LAW: (ARTICLE 305)

Article 305 of the Indian constitution saves already formed laws and laws providing for
State monopolies. Article 305 can only do so until the President is not ordering something
opposite to it or otherwise to the law already formed.

Case law:
Saghir Ahmad v. The State of UP (1954):
In this case, the Supreme Court raised the query that whether an Act that provides for State
monopoly in a specific trade or commerce would be held violative of the Constitution of India
under Article 301.
CONCLUSION:
Under the Indian constitution though the Freedom of Trade, Commerce and intercourse
have been provided but they are not absolute as certain restrictions can be placed on these
rights. Free movement and exchange of goods throughout the territory of the country are
important for the economic unity in the nation. This freedom helps to retain the progress in the
country. These provisions create and preserve a national economic fabric to remove the barrier
between the states and to lead the country towards development.

BIBLIOGRAPHY

1. GOVERNMENT OF INDIA. Legislative Department. https://legislative.gov.in/. [Online] 01 April

2019. https://legislative.gov.in/sites/default/files/COI-updated.pdf.

2. Laxmikanth, M. Indian Polity. 6. s.l. : McGraw Hill, 2020.

3. Jain, M P. INDIAN CONSTITUTIONAL LAW. 8. Gurgaon : LexisNexis, 2021.