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Trade, Commerce And Intercourse Within The Territory Of India

Provisions regarding trade, commerce and intercourse within the territory of India have been incorporated in the Constitution so that uninterrupted trade and commerce can be realized throughout territory of India leading to economic growth and prosperity.

What is freedom of freedom of trade, commerce and intercourse within India ?

Article 301 provides that trade, commerce and intercourse throughout the territory of India shall be free. The freedom of trade and commerce as provided in Article 301 is subject to  Article 302 to 307.

Whether tax laws impacting trace and commerce are covered under Article 301 have frequently raised before courts. State of Assam has levied tax on the carriage to tea by road or inland waterways, which was challenged   before the Supreme Court in  Atiyabari Tea Co. Ltd. Vs. the State of Assam & Ors ( AIR 1961 SC 232). The Supreme Court observed that it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Article 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 Article 301. The argument that all taxes should be governed by Article 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.

Atiyabari was reconsidered in Automobile Transport (Rajasthan ) Ltd. Vs. State of Rajasthan  & Ors  (1962 AIR 1406). The Supreme Court concurred with the ratio of Atiyabari but introduced concept of regulatory and compensatory taxes. The Supreme Court held that such regulatory measures as do not impede the freedom of trade, commerce and intercourse and compensatory taxes for the use of trading facilities are not hit by the freedom declared by Article 301.Atiyabari and Automobile Transport have been overruled by the Supreme Court in Jindal Steel Ltd. Vs. State of Haryana (Civil Appeal No. 3453 of 2002). The Supreme Court held that tax simpliciter does not fall under Part XIII of the constitution. The word “free” used in Article 301 does not mean free from taxation. The Supreme Court held that the compensatory tax theory evolved in Automobile Transport case and subsequently modified in Jindal’s case has no juristic basis and is therefore rejected.

Under Article 302, Parliament by law can impose restriction on freedom of trade, commerce and intercourse in public interest.

Article 303 prohibits Union Legislature or State Legislature to enact  any law which can authorize giving preference to a state from another in the matter of trade, commerce and intercourse. But Parliament or State Legislature can make laws authorizing giving preference to one from another in case of scarcity of goods in any part of the country.

What is Section 304 of the Constitution ?

Article 304 provides that the Legislature of a State can impose tax on imported goods from other States or Union Territories similar to goods manufactured or produced in that state. State Legislature can also impose reasonable restrictions on the freedom of trade or commerce or intercourse with or within that state in the public interest. Such bill can only be introduced or moved with the previous sanction of the President.

Article 307 provides that Parliament may appoint an authority for carrying out purposes of Article 301, 302, 303 and 304.  No such authority has been created under this provision.

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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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