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TMI Blog1960 (9) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of this judgment, be referred to, for the sake of convenience, as the appellants. The State of Assam, the Commissioner of Taxes, appointed under s. 6 of the Act and the Superintendent of Taxes are the respondents to the appeals and the writ petitions. 2. It appears that the appellants are growers of tea in West Bengal or in Assam and carry their tea to the market in Calcutta from where the tea is sold for consumption in the country or is exported for sale out of the country. The sale of tea inside Assam bears a very small proportion to the tea produced and manufactured by the appellants. Thus the bulk of tea produced and manufactured is carried out of Assam, either for internal consumption in India or for export abroad. Besides the tea carried by rail, a large quantity of tea is carried by road or by inland waterways from Assam to Bengal and in some of these cases, from one part of West Bengal to another part of the same State through inland waterways, only a few miles of which pass through the territory of the State of Assam. The Assam legislature passed the Act which received the assent of the Governor of Assam on April 9, 1954, and came into force on and from June 1, 1954. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenged on the ground that it was discriminatory and thus void under Art. 14 of the Constitution. The competence of the Assam Legislature to legislate on the subject was also questioned. 3. The respondents opposed those petitions under Art. 226 of the Constitution in the High Court. It was denied by the State that the Act or the rules made thereunder or the notifications issued thereunder were ultra vires the Constitution or that the Act contravened the provisions of Art. 301 of the Constitution or that it was an encroachment on the sphere of the Union Legislature or was in any was in conflict with the provisions of the Tea Act XXIX of 1953. The case of the respondents was that the Act was in pith and substance, a legislation to levy tax on certain classes and types of goods carried by road or inland waterways, strictly within entry no. 56 of the State List. It was also asserted that the Act was within the legislative competence of the Assam Legislature and was not within the terms of the prohibition contained in Art. 301 of the Constitution. 4. These petitions were heard by a Special Bench of the Assam High Court, which, by its judgment and order dated June 6, 1955, dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of entry 56 of list II. He also examined the terms of the Union legislation, Tea Act No. XXIX of 1953, and came to the conclusion that the impugned Act did not trespass upon the field of controlled industry of tea. His conclusion with reference to the argument of discrimination based on Art. 14 was that there was no proof forthcoming of any real discrimination between persons and things. With these conclusions Deka, J., the third judge entirely agreed. From the judgment of the High Court the appellants have come up in appeal on certificates granted by the High Court. The two petitions under Art. 32 of the Constitution were filed on behalf of two other producers of tea. They raise the same questions as arise for determination in the three appeals from the decision of the Assam High Court. They have all been heard together and will be dealt with by a common judgment. 6. Mr. Chatterjee, on behalf of the appellants, contended that the impugned Act imposed fetters on the free flow of trade and commerce in respect of tea and jute, the two commodities dealt with by the Act and, therefore, contravened the provisions of Art. 301 of the Constitution; that the legislation was beyond the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcourse within the Territory of India". Article 301, which is the opening article in this Part is in very general terms, which are as under :- "Subject to the other provisions of this part, trade, commerce and intercourse throughout the territory of India shall be free". 9. It is clear that this Part is not subject to the other provisions of the Constitution and the generality of the words used in Art. 301 is cut down only by the provision of the other Articles of this Part ending with Art 307. It has not been and it could not be contended that the generality of the expression used on Art. 301 admit of any exception or explanations not occurring in this Part itself, nor has it been contended that trade, commerce and intercourse are subject to any other fetters. All parties are agreed that trade, commerce and intercourse throughout the territory of India have been emphatically declared by the Constitution to be free, but there is a wide divergence of views of the answer to the question "free from what ?" It has been contended on behalf of the appellants that the answer to this question must be that trade, commerce and intercourse throughout India, shall be free from everything inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, of goods generally. It also dealt with the power to impose taxes etc. and prohibited discrimination against goods manufactured or produced outside a Province or goods produced in different localities. Part XIII of the constitution has introduced all those prohibitions, not only in respect of State Legislatures, but of Parliament also. In other words, Part XIII enlarges the scope of the inhibitions and lays down the limits within which the Union Parliament or a State Legislature may legislate with reference to trade, commerce and intercourse inter-State, intra-State and throughout the territory of India. 12. In this connection it has got to be remembered that before the commencement of the Constitution about two-third of India was directly under British rule and was called 'British India' and the remaining about one third was being directly ruled by the Princes and was known as 'Native States'. There were a large number of them with varying degrees of sovereignty vested in them. Those rulers had, broadly speaking, the trappings of a Sovereign State with power to impose taxes and to regulates the flow of trade, commerce and intercourse. It is a notorious fact th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to over with their goods and commodities throughout the length and breadth of the country. Movement of traffic in goods an commodities as also of persons can be by railway or airways, by road or by in land waterways etc. carriage of goods and passengers by railway, by sea or by air or by national waterways so covered by entry 30 of List I and taxes on railway fares and freights and terminal taxes on goods or passengers carried by railway, sea or air come under the purviews of entry 89 in the same List. On the other hand, taxes on goods and passengers carried by road or in land waterways come under entry 56 of List II (State List). It will thus be seen that the Constitution makers contemplated taxes on goods and passengers to be imposed by the parliament on journey is covered by railway or by sea or by air; and by State Legislatures on journeys by road or inland waterways. The power to tax is inherent in sovereignty. The sovereign State, in some cases the Union, in other cases the State, has the inherent power to impose taxes in order to raise revenue for purposes of State. Such a sovereign power ordinarily is not justiciable, simply because the State in its legislative departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the imposition by Parliament of such restricts between one State and another or within any part of the territory of India in public interest, contained in Art. 302. The provisions of Art. 303 further make it clear that the giving of preference to one State over another or discrimination between one State and another are clearly within the purview of Part XIII that is to say, they are calculated it impede the freedom of trade, commerce and intercourse. There is prohibition against Parliament as also against the Legislature of State making any law giving preference to one State one another or making or authorising the making of any discrimination between one State an another. But the most significant words in connection with giving preference or making discrimination as envisaged in Art. 303 are with reference to "any entry relating to trade and commerce in any of the lists in the Seventh Schedule" that is to say, entry 42 in List I, entry 26 in List II' and entry 33 in List III of the Seventh Schedule. Hence, any legislation under those entire which has the effect of directly interfering with trade, commerce and intercourse being free throughout the territory of India has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only in goods and commodities, but also transportation of men and animals by all means of transportation. Commerce would thus include dealings over the telegraph telephone or wireless and every kind of contract relating to sale, purchase, exchange etc. of goods and commodities. 15. Viewed in this all comprehensive sense taxation on trade, commerce and intercourse would have many ramifications and would cover almost the entire field of public taxation, both in the Union and in the State Lists. It is almost impossible to think that the makers of the Constitution intended to make trade, commerce and intercourse free from taxation in that comprehensive sense. If that were so, all laws of taxation relating to sale and purchase of foods on carriage of goods an commodities, men and animals, from one place to another, both inter-State and intra-State would come within the purview of Art. 301 and the proviso to Art. 304(b) would make it necessary that all bills or Amendments or pre-existing laws shall have to go thereof the gamut prescribed by that proviso. That will be putting too great an impediment to the power of taxation vested in the States and reduce the States' limited sov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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". This Court has laid down in the case of Ramjilal v. Income Tax Officer, Mohindargarh ([1951] S.C.R. 127, 136) that imposition and collection of taxes by authority of law envisaged by Art. 265 is outside the scope of the expression "deprivation of property" in Art. 31(1) of the Constitution. Reasonable restrictions as used in Part III or Part XIII of the Constitution would in most cases be less than total deprivation of property rights. Hence, Part XII dealing with finance etc. as already indicated, has been treated as a Part dealing with the sovereign power of the State to impose taxes, which must always mean imposing burdens on citizens and others, in public interest. If a law is passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 1956, contained, reference to taxation for certain purposes mentioned in those Articles. But Art. 306, which now stands repealed, contained references to tax or duty on the import of goods into one State from another or on the exports of goods from one State to another. Such imposts were really in the nature of impediments to the free flow of goods and commodities on account of customs barriers, which it was the intention of Art. 301 to abolish. Similarly, Art. 304 while recognising the power of a State Legislature to tax goods imported inter-State, insists that a similar tax is imposed on goods manufactured or produced within the State. The Article thus brings out the clear distinction between taxation as such for the purpose of revenue and taxation for purposes of making discrimination or giving preference, both of which are treated by the Constitution as impediments to free trade and commerce. In other words, so long as the impost was not in the nature of an impediment to the free flow of goods and commodities between one State and another, including in this expression Union territories also, its legality was not subject to an attack based on the provisions of Part XIII. But ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of trade, commerce and intercourse; (3) the freedom envisaged in Art. 301 is subject to non-discriminatory restrictions imposed by Parliament in public interest (Art. 302); (4) even discriminatory or preferential legislation may be made by Parliament for the purpose of dealing with an emergency like a scarcity of goods in any part of India (Art. 303(2)); (5) reasonable restrictions may be imposed by the Legislature of a State in the public interest (Art. 304(b)); (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 in that State (Art. 304(a)); and lastly (7) restrictions imposed by existing laws have been continued, except in so far as the President may by order otherwise direct (Art. 305). 20. After having discussed the arguments for and against the proposition that Art. 301 includes within its large sweeps taxation simpliciter, I now proceed to discuss the terms of the impugned Act in order in order to find out whether in the light of the discussion above, any of its provisions are liable to be struck down as unconstitutional, because they i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the arguments advanced at the Bar. It will be seen from the bare summary of the relevant provisions of the statute that it is a taxing statute simpliciter without the least suggestion even of any attempt at discrimination against dealers and producers outside the State of Assam or of preference in favour of those inside the State. On the face of it, therefore, the Act does not suffer from any of the vices against which Part XIII of the Constitution was intended. It has not been suggested that the Act imposes a heavy burden on the dealer or the producer as the case may be. On the terms of the Statute, it cannot be said that it is intended to put obstacles or impediments in the way of free flow of traffic in respect of jute and tea. On the face of it, it would not be in the interest of the State of Assam to put any such impediments, because Assam is a large producer of those commodities and the market for those commodities is mainly in Calcutta. In those circumstances, it is difficult, if not impossible, to come to the conclusion that the Act comes within the purview of Art. 301 of the Constitution. If that is so, no further consideration arising out of the other provisions of Part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a seller and not qua manufacturer or producer as pointed out in Boddu Paidanna's case (1942) F.C.R. 290. In the words of their Lordships of the Judicial Committee in Governor General v. Province of Madras, 72 I.A. 91 at p. 103, 'a duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax on goods not on sales or the proceeds of sale of goods'. If the goods produced or manufactured in Bihar were destroyed by fire before sale the manufacturer or producer would not have been liable to pay any tax under s. 4(1) read with s. 2(g), second proviso. As Gwyer, C.J., said in Boddu Paidanna's case, supra, at p. 102, the manufactures or producer would be liable, if at all, to a sales-tax because he sells and not because he manufactures or produces; and he would be free from liability if he chose to give away everything which came from his factory'." (See p. 1369 of the Report). 24. The observations quoted above completely cover the present controversy. The Legislature has chosen the dealer or the producer as the convenient agency for collection of the tax imposed by s. 3, but the occasion for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have been produced, packed and transported as merchandise from one part of West Bengal to another part of the same State. It is not denied that there is some real and substantial nexus to support the taxing statute, but it is contended that relatively to the whole journey to be covered by the merchandise, the portion of the territory of Assam covered in that journey is very small. But in judging the validity of a legislation with reference to the contention based on extra-territoriality it is not relevant to consider the question of the proportion between the extent of territorial nexus to the whole length of the journey. If goods belonging to or carried by the appellants traverse any of the territory of Assam the taxation cannot be successfully assailed on this ground, once it is held that it was within the legislative competence of the Legislature imposing the tax in question. See in this connection the observations of this Court in The Tata Iron and Steel Co. Ltd. v. The State of Bihar ([1958] S.C.R. 1353) at pp. 1369 to 1371, where Das, C.J., speaking for the majority of the Court, has examined the theory of nexus with reference to a large body of case-law bearing on the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose a tax in a form and in a way which it deems most convenient for the purposes of collection and calculation of the tax. 28. As all the grounds of attack raised against the constitutionality of the Act fail, the appeals and the petitions, in my opinion, should be dismissed with costs. 29. I have deliberately refrained from making references to or relying upon decisions from other countries like the U.S.A. or Australia, because the cases decided in those countries cannot be any guide for the solution of the problems raised in this case inasmuch as the framework of the Constitution in those countries is not in pari materia with ours. Any precedents deciding cases on the construction of statutes, which are worded differently from ours, cannot, in my opinion, be a safe guide for the decision of controversies raised in terms of our Constitution. 30. I regret to have to differ from the majority of the Court, but my only justification for taking a different view is that my reading of Part XIII of the Constitution does not justify the inference that taxation simpliciter is within the terms of Art. 301 of the Constitution. Gajendragadkar, J. 31. The vexed question posed by the constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and from otherwise enforcing it against the appellants. The petitioners also claimed alternatively a writ of prohibition or any other appropriate writ restraining the respondent and its officers from enforcing the Act against the appellants. That is how the validity of the Act cam before the Assam High Court for judicial scrutiny. 32. The appellants challenged the vires of the Act on several grounds. The principal ground, however, was that the Act had violated the provision of Art. 301 of the Constitution and since it did not comply with the provisions of Art. 304(b) it was ultra vires. It was also urged that tea was a controlled industry under the provisions of Act 29 of 1953, and so it was the Union Government alone which was competent to regulate the manufacture, production, distribution transport of the said commodity; that being so the Assam Legislature was not competent to pass the Act. The validity of the Act was further challenged on the ground that, through the Act purported to have been passed under Entry 56 of list II, in substance and in reality it was a duty of excise and as such it could be enacted only under Entry 84 of List I. According to the appellants the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se throughout the territory of India shall be free". The appellants contend that this provision imposes a limitation on the Legislature power of the State Legislature as well as the Parliament, and the vires of the Act will have to be judged on that basis. The words used in Art. 301 are wide and unambiguous and it would be unreasonable to exclude from their ambit a taxing law which restricts trade, commerce or intercourse either directly or indirectly. On the other hand the respondent the Attorney General, and the other States have urged that taxing laws stand by themselves; they are governed by the provisions of Part XII and no provision of Part XIII can be extended to them. In the alternative it has been suggested that the provisions of Part XIII should be applied only to such Legislative entries in the Seventh Schedule which deal with trade, commerce and intercourse. This alternative argument would bring within the purview of Part XIII Entry 42 in List I which refers to inter-State trade and commerce, Entry 26 in List II which deals with trade and commerce, within the State subject to the provisions of Entry 33 in List III, and Entry 33 in List III which deals with trade and com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise of their legislative powers that the Constitution-makers framed the Articles in Part XIII. The main object of Art. 301 obviously was to allow the free flow of the stream of trade, commerce and intercourse throughout the territory of India. 38. In drafting the relevant Articles of Part XIII there makers of the Constitution were fully conscious that economic unity was absolutely essential for the stability and progress of the federal policy which has been adopted by the constitution for the governance of the country. Political freedom which had been won, and political unity which had been accomplished by the Constitution, had to be sustained and strengthened by the bond of economic unity. It was realised that in course of time different political parties believing in different economic theories or ideologies may come in power in the several constituent units of the Union, and that may conceivably give rise to local and regional pulls and pressures in economic matters. Local or regional fears or apprehensions raised by local or regional problems may persuade the State Legislature to adopt remedial measures intended solely for the protection of regional interests without due regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y affect their freedom of action. Whilst appreciating this argument it may be pertinent to observe that what appears as curtailment of, or limitation on, the powers of the State Legislatures prescribed by Art. 304(b) may, from the point of view of national economy, be characterised as a safeguard deliberately evolved to protect the economic unit of the country; even so it may be assumed that in interpreting the provisions of Art. 301 and determining the scope and effect of Part XIII we should bear in mind the effect of our decision on the legislative power of the States and also of Parliament. 40. Having thus referred to some general considerations let us now proceed to examine that question as to whether as laws are wholly outside the purview of Part XIII. In support of the argument that Part XIII does not apply to tax laws the Learned Attorney-General had emphasis the fact that the power to law a tax is an essential part of sovereignty itself, and he has suggested that this power is not subject top judicial review and revenue has been held to be so. In this connection he has invited our attention to the observations made in Cooley's "Constitutional Limitations" on the power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer, Mohindargarh ([1951] S.C.R. 127) it has been held that "since there is a special provision in Art. 265 of the Constitution that no tax shall believed or collected except by authority if law, clause (1) of Art. 31 must be regarded as concerned with deprivation of property otherwise than by the imposition or collection of tax, and inasmuch as the right conferred by Art. 265 is not a right confer by Part III of the Constitution, it could not be enforced under Art. 32 ". It is clear the effect of this decision is no more than this that the protection against the imposition and collection of taxes, save by the authority of law, directly comes under Art. 265 and cannot be said to be covered by clause (1) of Art. 31. It would be unsafe to assume that this decision is, or was intended to be, an authority for the proportion that the levy of a tax by taxing statue can for instance, violate Art. 14 of the Constitution. 42. The next question which need examination is whether tax laws are governed only by Part XII of the Constitution and not by Part XIII. The argument is that Part XII is a self contained do; it makes all necessary provisions, and so the validity of any taxing statute can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not intended to be an also freedom; absolute freedom in matters of trade, commerce and intercourse would lead to economic confusion, if not chaos and anarchy; and so the freedom guaranteed by Art. 301 is made subject to the exceptions provided by the other Articles in Part XIII. The freedom guaranteed is limited in the manner specified by the said Articles but it is not limited by any other provisions of the constitution outside Part XIII. That is why it seems to us that Art. 301, read in its proper context and subject to the limitations prescribed by the other relevant Articles in Part XIII, must be regarded as imposing a constitutional limitation on the legislative power of Parliament and the Legislatures of the States. What entries in the Legislative lists will attract the provisions of Art. 301 is another matter; that will depend upon the content of the freedom guaranteed; but whether it is held that Art. 301 applies the Legislature competence of the Legislature in question will have to be judged in the light of the relevant Articles of Part XIII; this position appears to us to be inescapable. 44. On behalf of the respondent it was suggested before was that the scope and exte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... katarama Aiyar, J., in the case of M.P.V. Sundararamier & Co. v. The States of Andhra Pradesh ([1958] S.C.R. 1422, 1483-84). In that case the vires of some of the provisions of the Sales Tax laws Validation Act, 1956 (7 of 1956), were challenged on several grounds. In dealing with one of the points raised in support of the said challenged Venkatarama Aiyar, J., who delivered the majority judgment, considered the content of Entry 42 in List I. It had been urged before the Court that the said entry should be liberally construed and should be held, to include the power to tax, and in support of this contention reliance was placed on certain American and Australian decisions. This argument was repelled and it was held that Entry 42 in List I is not to be interpreted as including taxation. In coming to this conclusion the learned judge made certain general observations pointing out that it would not be always safe to rely upon America or Australian decisions in interpreting the provision of our Constitution. Said the Learned judge, "the threads of our Constitution were no doubt taken from other Federal Constitution but when they were woven into the fabric of our Constitution their reach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been present to their minds as also the history of the growth and development of the American Law under the commerce clauses in the American Constitution. Besides, we feel considerable hesitation in accepting the view that the makers of the Constitution did not want to enrich and widen the content of freedom guaranteed by s. 297. They knew that the Constitution would herald a new and in spring era in the history of India and they were fully conscious of the importance of manager the economic unity of the Union of India in order that the federal form of Government adopted by the Constitution should progress in a smooth and harmonious manner. That is why we are include to hold that the broad and unambiguous words used in Art. 301 are intended to emphasise that the freedom of trade, commerce and intercourse guaranteed was richer and wider in content than was the case under s. 297; how much wider and how much richer can be determined only on a fair and reasonable construction of Art. 301 read along with rest of the Articles in Part XIII. In our opinion, therefore, the argument that tax laws are outside Part XIII cannot be accepted. 48. That takes us to the question as to whether A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after examining the other Articles in Part XIII. 49. Art. 302 confers on the Parliament power to impose restrictions on trade, commerce and intercourse. It provided that parliament may by law 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. It would be immediately noticed that the reference made to a restriction on the freedom of trade within any part of the Territory of India as distinct from freedom of trade between one State and another clearly indicates that the freedom in question covers not only inter-State trade but also intra-State trade. Thus the effect of Art. 302 is to provide for an exception to the general rule prescribed by Art. 301. Restrictions on the freedom of trade can be imposed by Parliament if they are required in the public interest so that the generality of freedom guaranteed by Art. 301 is subject to the exception provided by Art. 302. 50. That takes us to Art. 303. It reads thus : "303. (1) Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged that this gives a clear indication as to scope of the provision of Art. 301 itself. There is some force in this contention; but on the whole we are not prepared to hold that the reference to the said entries should govern the construction of Art. 301. The setting in which the said entries are referred would of course determine the scope an extent of the prohibition prescribed by Art. 303(1); but that cannot be pressed into service in determining the scope of Art. 301 itself. It is significant that Art. 303(1) does not refer to in course and in that sense inter course outside its sphere. It is likely that having authorised Parliament to impose restrictions by Art. 302 it was thought expedient to prohibit expressly the said power of imposing restrictions from being used for the purpose of giving any preference in so far as the relevant entries are concerned. It may also be that the primary object of confining the operation of Art. 303(1) to the said entries was to introduce a corresponding limitation on the power of Parliament to discriminate under Art. 302. However that may be, in our opinion limitation thus introduced in Art. 303(1) cannot circumscribe the scope of Art. 301 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State Legislature somewhat similar to the power conferred on the Parliament by Art. 302. The reference to Art. 303 in the non-obstante clause has presumably been made a matter of abundant caution since the Legislature of a state has been included in Art. 303(1). There are, however, obvious differences in the powers of the parliament and State Legislatures. In regard to an act which the State Legislature intends to pass under Art. 304(b) no bill can be introduced without the previous sanction of the President, and this requirement has obviously been inserted in order that regional economic pressures which may inspire legislation under the said clause should be duly examined in the light of the interest of national economy; such legislation must also be in the public interest which feature is common with the provision contained in Art. 302; such legislation must also satisfy the further test that the restrictions imposed by it are reasonable. That is another additional restriction imposed on the powers of the State Legislatures. Thus there are three conditions which must be satisfied in passing an Act under Art. 304(b), - the previous sanction of the President must be obtained, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the State to other States were expressly saved by a Art. 306 because it was realised that they would otherwise be hit by Art. 301. In other words, taxing statutes or statutes imposing duties on goods would, but for Art. 306, have attracted the application of Art. 301. 59. Let us now revert to Art. 301 and ascertain the width and amplitude of its scope. On a careful examination of the relevant provisions of Part XIII as a whole as well as the principle of economic unity which it is intended to safeguard by making the said provisions, the conclusion appears to us to be inevitable that the content of freedom provided for by Art. 301 was larger than the freedom contemplated by s. 297 of the Constitution Act of 1935, and whatever else it may or may not include, it certainly includes movement of trade which is of the very essence of all trade and is its integral part. If the transport or the movement of goods is taxed solely on the basis that the goods are thus carried or transported that, in our opinion, directly affects the freedom of trade as contemplated by Art. 301. If the movement, transport or the carrying of goods is allowed to be impeded, obstructed or hampered by taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Art. 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Art. 301. The argument that all taxes should be governed by Art. 301 whether or not their impact on trade is immediate or mediate direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage bill may indirectly affect trade or commerce. We are, therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by Art. 301 a rational and workable test to apply would be : Does the impugned restriction operate directly or immediately on trade or its movement ? It is in the light of this test that we propose to examine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be deemed to be satisfied by the sanction of the President; but whether or not the restrictions imposed are reasonable would be justiciable and in that sense laws passed by the State Legislatures may on occasions have to face judicial scrutiny. However, this point does not fall to be considered in the present proceedings and we wish to express no definite opinion on it. 63. Let us then examine the material provisions of the Act. As we have already pointed out the Act had been passed providing for the levy of tax on certain goods carried by roads or inland waterways in the State of Assam. Section 2(11) defines a producer as meaning a producer of tea and including the person in charge of the garden where it is produced. Section 3 is the charging section. It provides that manufactured tea in chests carried by motor vehicles etc., except railways and airways shall be liable to tax at the specified rate per lb. of such tea and this tax shall be realised from the producer. It also makes similar provisions for jute with which we are not concerned in the present proceedings. Section 6 provides for taxing authorities and their powers. Section 7 provides, inter alia, that every producer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h an Act passed by the State Legislature which imposes a restriction in the form of taxation on the carriage or movement of goods, and we hold that such a restriction can be imposed by the State Legislature only if the relevant Act is passed in the manner prescribed by Art. 304(b). 64. This question can be considered from another point of view. When a State Legislature passes an Act under Entry 56 of List II its initial legislative competence is not in dispute. What is in dispute is whether or not such legislative competence is subject to the limitations prescribed by Part XIII. Now what does an act passed under the said Entry purports to do ? It purports to put a restraint in the form of taxation on the movement of trade, and if the movement of trade is regarded as an integral part of trade itself, the Act in substance puts a restriction on trade itself. The effect of the Act on the movement of trade is direct and immediate; it is not indirect or remote; and so legislation under the said Entry must be held to fall directly under Art. 301 as legislation in respect of trade and commerce. In some of the decisions of this Court, in examining the validity of legislation it has been co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not trade, commerce or business "the validity of the Act had not to be decided by the yardstick of reasonableness and public interest laid down in Arts. 19(6) and 304". In this connection it may with respect, be pointed out that what purports to be a quotation from Lord Porter's judgment in Commonwealth of Australia & Ors. v. Bank of New South Wales ([1950] S.C.R. 88) has not been accurately reproduced. In fact, referring to phrases such as 'pith and substance' Lord Porter has observed that "they no doubt raise in convenient form an appropriate question in cases where the real issue is one of subject-matter, as when the point is whether a particular piece of legislation is a law in respect of some subject within the permitted field. They may also serve useful purpose in the process of deciding whether an enactment which works some interference with trade, commerce and intercourse among the States is nevertheless untouched by s. 92 as being essentially regulatory in character" (pp. 312, 313). These observations would indicate that the test of pith and substance is generally and more appropriately applied when a dispute arises as to the legislative competence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re urged before the court. One of the points thus urged was that Art. 301 provides safeguards for carrying on trade as a whole as distinct from the rights of an individual to carry it on. In other words the said Article was concerned with the passage of commodities or persons either within or without the State frontiers but not directly with individuals carrying on the trade or commerce. The right of individuals, it was said, was dealt with under Art. 19(1)(g) so that the two Articles had been framed in order to secure two different objects. To the same effect are some of the observations made by Das, C.J., in the case of R. M. D. Chamarbaugwala ([1957] S.C.R. 874). It is unnecessary on the present occasion to consider whether the fields covered by Art. 19(1)(g) and Art. 301 can be distinguished in the manner suggested in the said observations. It may be possible to urge that trade as a whole moves inevitably with the aid of human agency, and so protection granted to trade may involve protection even to the individuals carrying on the said trade. In that sense the two freedoms may overlap. However, it is unnecessary to pursue this point any further in the present proceedings. 68. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar provisions in other sister Constitutions. It is in that spirit that we propose to refer to two Privy Council decisions which dealt with the construction of s. 92 of the Australian Constitution. 69. The first paragraph of s. 92 of the Australian Constitution, around which has grown, in the words of Lord Porter a "labyrinth where there is no golden thread", reads thus : "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 be absolutely free". The part played by Frederick Alexander James, who carried on the trade of growing and processing dried fruits, in securing judicial pronouncements on the true scope and effect of the said section is wellknown. He fought three valiant legal battles in which he successfully asserted his right as a trader against legislative encroachment. In James v. State of South Australia ((1927) 40 C.L.R. 1) s. 20 of the Dried Fruits Export Control Act, 1924, was struck down. In James v. Cowan ((1932) A.C. 542) s. 28 was challenged, whereas in the last case of James v. Commonwealth of Australia ((1936) A.C. 578, 613) James had claimed a decla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tifies the conclusion we have reached about the scope and effect of Art. 301. 71. In the result we hold that the Act has put a direct restriction on the freedom of trade, and since in doing so it has not complied with the provisions of Art. 304(b) to must be declared to be void. In view of this conclusion it is unnecessary to consider the other points urged in support of the challenge against the validity of the Act. The three appeals and the two petitions are accordingly allowed and writs or orders directed to be issued as prayed. The appellants and the petitioners will be entitled to their costs from the respondent. Shah, J. 72. The validity of the Assam Taxation (on Goods carried by Roads or Inland Waterways) Act, 1954 - hereinafter referred to as the Act, is challenged by certain producers of tea in the States of West Bengal and Assam. The Act was passed by the Assam Legislature and received the assent of the Governor of Assam on April 9, 1954. To the introduction of the Bill (which was enacted into the Act) in the State Legislature, the previous sanction of the President was not obtained : nor did the President assent to the Act. By s. 3 of the Act, it is provided inter ali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n canvassed in these proceedings is about the competence of the Assam Legislature to enact the Act. The producers contend that by Art. 301 of the Constitution trade, commerce and intercourse being declared free throughout the territory of India, the Statue authorising imposition of restriction or burdens on that freedom by levying tax under the authority of an Act which does not conform to the conditions prescribed by the Constitution is invalid. Item 56 of List II of the seventh schedule to the Constitution authorises the State Legislature to impose taxes on goods and passengers carried by road or on inland waterways. In terms, the tax imposed by the Act is a tax on goods carried by road and inland waterways and is not of the nature of a duty of excise. If the vires of the Act are to be adjudged solely in the light of the power conferred by Art. 246 clause (3) read with item 56 of List II of the seventh schedule, the tax must be regarded as within the competence of the State. But the exercise of legislative power of the Parliament and the State Legislatures conferred by the legislative lists is restricted by diverse provisions of the Constitution. By Art. 301, it is declared that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercised in consideration of the protection it affords or the benefit that it confers upon citizens and aliens. Its content is not measured by the apparent need of the amount sought to be collected, and its incidence does not depend upon the ability of the citizens to meet the demand. But it is still not an unrestricted power. By Art. 265 of the Constitution, the power to tax can be exercised by authority of law alone and the Constitution affirmatively grants the power of taxation under diverse heads under the three lists of the seventh schedule. The power of taxation has therefore to be exercised by the Legislature strictly within the limits prescribed by the Constitution, and any alleged transgression either by Parliament or the State Legislature of the limits imposed by the Constitution is justiciable. 76. Trade and commerce do not mean merely traffic in goods, i.e., exchange of commodities for money or other commodities. In the complexities of modern conditions, in their wide sweep are included carriage of persons and goods by road, rail, air and waterways, contracts, banking, insurance, transactions in the stock exchanges and forward markets, communication of information, supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch". 78. Article 301 as has already been observed enunciates a fetter upon the exercise of legislative power under the entries in the lists of the servant schedule concerning or relating or trade, commerce and intercourse. The basic principle underlying Art. 301 appear to have been adopted from Constitution of the Australian Commonwealth. In the American Constitution, by the 8th section, Art. 1, power to regulate commerce is granted; but the freedom of commerce as guaranteed by our Constitution is not found enunciated in the Constitution of the United States. Section 92 of the Constitution of the Commonwealth of Australia provides by the 1st paragraph that "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 be absolutely free". That guarantee of freedom of trade, commerce and intercourse though not as extensive as the guarantee enshrined in our Constitution, is of the same pattern. But our Constitution has made a significant departure from the Australian Constitution. Whereas by s. 92 of the Australian Constitution, freedom of trade, commerce and intercourse is guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very step in the series of operations which constitute the particular transaction is an act of trade; and control under the State law of any of these steps must be an interference with its freedom as trade." These observation made in the context of a guarantee against obstruction to the flow of inter state trade and commerce, involved the "conception" of "freedom from customs duties, imports, border prohibitions and restrictions of every kind : the people ........ were to be free to trade with each other, and to pass to and fro among the States, without any burden hindrance or restriction based merely on the fact that they were not members of the same State". 81. Freedom guaranteed by Art. 301 is however not absolute : it is subject to the provisions contained in Part XIII of the Constitution. Article 302 authorises Parliament to impose restriction the freedom of trade, commerce an intercourse between one State and another or within any part of the territory of India as may be required in the public interest. The Constitution has therefore circumscribed the guarantee under Art. 301 by authorising the Parliament to impose restrictions thereon. Such restrictions on trade, commerce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are entrusted in exercise of legislative authority with power to restrict freedom of trade, commerce and intercourse. Why the Constitution should have enacted that the Parliamentary law may impose restrictions as may be required in the public interest and the State law may impose reasonable restrictions as may be required in the public interest, it is difficult to appreciate. It is unnecessary for the purpose of these cases to enter upon a discussion whether there is any real distinction between the quality of restrictions which may be imposed by legislation by the parliament and State Legislatures exercising authority respectively under Arts. 302 and 304(b) of the Constitution. The two Articles enact that to cirucmscribe effectively the freedom of trade, commerce and intercourse, the restriction must satisfy the primary test that it is "required in the public interest". Clause (b) of Art. 304 is subject to a proviso that no Bill or amendment for the purpose of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. The authority of the State Legislature to enact legislation imposing restrictions on trade, commerce and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is prohibited is not limited to discrimination under laws made under items expressly relating to the trade and commerce items of the seventh schedule. The expression "relating to trade and commerce" used in Art. 302(1) in my judgment includes all those entries in the lists of the seventh schedule which deal with the power to legislate, directly or indirectly in respect of activities in the nature of trade and commerce. By clause (2) of Art. 303, the rigour of clause (1) in the matter of laws to be enacted by Parliament is to a certain extent reduced. That clause authorises to the Parliament, but not the State Legislatures, to make laws not with standing clause (1) when it is declared by law that it is necessary to make discrimination which is prohibited for the purpose of dealing with the situation arising from scarcity of goods in any part of the territory of India. 83. Article 304, in so far as it is material, provides that not withstanding anything in Art. 301 or Art. 303, the Legislature of a State may by law, (a) impose on goods imported from other States (or the Union territories) any tax to which similar goods manufactured or produced in that State are subject, so, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 306 of the Constitution which was repealed by the Constitution (Seventh Amendment) Act, 1956, provided, in so far as it is material, that notwithstanding anything in the foregoing provisions of Part XIII or any other provision of the Constitution, a State specified in Part B of the first Schedule which before the commencement of the Constitution was levying any tax or duty on the import of goods into the State from other states or on the export of goods from the State to other States may, if any agreement in than behalf has been entered into between the Government of India and the Government of that State continue to levy and collect such tax or duty subject to the terms of such agreement .......... The marginal note of the Article refers to the power of the States specified in Part B of the First Schedule to levy tax as power to impose restrictions on trade and commerce, and clearly supports the view that within the meaning of Art. 301, freedom was to include freedom from taxation and the restrictions contemplated by Arts. 302 and 304 contemplated imposition of burdens of the nature of taxation. 86. On a careful review of the various Articles, in my judgment, by Part XIII, restr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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