CONSTITUTIONAL LAW II FREEDOM OF TRADE COMMERCE AND INTERCOURSE ATIABARI TEA CO LTD v STATE OF ASSAM, AIR 1961 SC 232

In this case the Supreme Court was concerned with the Assam Taxation (on goods carried by Roads and Inland Waterways) Act 1954 which was passed under Entry 56 of List II of the seventh Schedule of the Constitution. The appellants carried on the business of growing tea and exporting it to Calcutta via Assam. In the course of passing through Assam the tea was liable to tax under the Act. The Supreme Court held that the accent on Article 301 is on the movement aspect of trade. This Article requires that the flow of the trade throughout India shall run smooth and unhampered by any restriction on the free flow and movement of trade. It is the free movement and transport of goods from one part of the country to another part that is intended to be saved by Article 301 and if a law or tax imposes a direct restriction on the very movement of such goods, it attracts the provision of Article 301 and its validity can be sustained only if it satisfied the requirement of Article 304(b). The Court declared: Taxes may and do amount to restriction but it is only such taxes which directly and immediately restrict free movement of trade would fall within i the purview of Article 301. However, such regulatory measures as traffic regulations, licensing of vehicles, marketing and health regulations, price control, economic and social planning , prescribing minimum wages only indirectly impeded the free flow of trade. These are regulatory measures which promote and facilitate trade and are permissible for an orderly society. Since the impugned Act had not satisfied the requirement prior assent to the Bill by the President as required by Article 304(b) it was struck down as unconstitutional.

G K KRISHNAN v STATE OF TAMIL NADU (1975) 1 SCC 375 In this case the writ petition challenged the validity of a notification by Government of Tamil Nadu enhancing of motor vehicle tax on omnibuses from Rs 30 per seat per quarter to Rs 100 per seat per quarter, The question for consideration was whether the tax was a compensatory tax? It was found that Rs 19.51 crores had been spent not only for maintenance of the roads but also for the construction of new ones and that the receipt from the vehicle tax was only 16.38 crores. Following Autombile Transport Case (1962) the Supreme Court held that the impugned tax was a compensatory tax and did not violate Article 301. The working test propounded in Automobile case was whether the trades people are having trading facilities for better conduct
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of their business and paying not patently much more than what is required for providing trading facilities. A compensatory tax need not satisfy the requirements of Article 304(b). The writ petition was dismissed.

VIDEO ELECTRONICS (PVT) LTD v STATE OF PUNJAB (1980) 4 SCC 134 In this case the petitioners who carried on the business of selling cinematographic films and other equipment like projectors, sound recording and reproducing equipment, industrial X ray films, graphic art films etc challenged the notifications issued by the governments of UP and Punjab which had provided temporary exemption to the new electronic local industries from paying sales tax. The UP notification stipulated that the said benefit shall be available only to those new units who have commenced their production between the dates specified in the notification. The Punjab notification provided that the rate of sales tax payable by an electronic manufacturer unit existing in Punjab would be one percent as against normal 12 percent applicable to units from other States. In case of UP notification the Supreme Court held that in as much as it was a case of grant of exemption to a special class for a limited period on specified conditions and was not extended to all the products of those goods, it did not offend the freedom of trade guaranteed by Article 301and Article 304(a). Similarly in the case of Punjab notification it was held that the exemption was for a certain specified goods and overwhelmingly large number of local manufacturers of similar goods was subject to sales tax. It could not be said that the local manufacturers were favoured as against outside manufacturers. The Court observed: A state which is economically and technically weak on account of various factors should be allowed to develop economically by granting exemptions, concessions, subsidies to new industries, Accordingly the UP and Punjab Notifications were held to be not violative of Article 304(a). Thus a temporary exemption from sales tax to specified goods made within the State with a view to giving incentives and encouragement to the local industry does not infringe Article 304(a).

SRI MAHAVIR OIL MILLS LTD v STATE OF J&K (1996) 11 SCC 39 In this case the Supreme Court invalidated the imposition of 8% sales tax by the State of J&K on the edible oil imported from other States from which the Edible Oil produced with in J&K was exempted. The Court rejected the States plea that such arrangement was necessary to encourage the State oil industry and to subsidize high cost of oil production within the State. The Court held that the limited exception carved out in VIDEO ELECTRONICS case cannot be enlarged
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lest it eat up the main provision embodied in Article 304(a).By exempting unconditionally the edible oil produced within the State of J&K altogether from sales tax while subjecting the edible oil produced in other States to sales tax at 8%, the State of J&K has brought about discrimination by taxation prohibited by Article 304(a) of the Constitution. It was held that the exemption granted from payment of sales tax to local manufacturers /producers of edible oil is unconstitutional and violative of Article 304(a) of the Constitution.