UNITEDWORLD SCHOOL OF LAW

CONSTITUTIONAL LAW- I ASSIGNMENT

ON

“Freedom To Carry On Trade And Commerce”

For
Internal Evaluation
Submitted to
Dr. Ayaz Ahmad

Prepared by:

BHANVI JUVEKAR
Roll No. 1006AL0018

PALAK KATTA
Roll No.-1006AL0067
BBA-LLB SEM-2
Batch-2019-2024
1
 DECLARATION

The text reported in the project is the outcome of our own efforts and no part of this project assignment has
been copied in any unauthorized manner and no part of it has been incorporated without due acknowledgement.

BHANVI JUVEKAR
PALAK KATTA

2
Table of contents

3
 INTRODUCTION

In all the federacies, an attempt is made through constitutional provisions to prevent the growth of local and
regional interests which are not of the greater value to the interest of the nation as a whole. The problems of
each and every federal structure involves the problem of minimising inter- state barriers in every situation
possible, so that the citizens feel as the member of one nation and feel the sense of belongingness, though they
may, individually, be the residents of any of the units of the union.

The Constitutional framers were aware of the importance of maintaining the economic harmony and unity of
the Union of India. One of the ways to achieve this objective is to provide the guarantee to every citizen the
freedom of movement and residence across the country. This right is guaranteed by our Indian Constitution
under Art. 19(1)(d) and (e).

The Constitution framers knew how the other leading federations such as Australia, Canada and the United
States worked and they tried attempting to prevent the occurrence of some of the difficulties they accounted.
They knew that in order to strengthen the unity of the union, free movement of goods or passage of goods or
commodities and of commercial transactions not resting to inter- state but throughout the whole country i.e.
intra- state was of utmost importance.

For the progress of the country as a whole free flow of commerce and intercourse without any hindrances or
barriers is also required. This in particular is essential to strengthen the federal structure. For this most federal
states has some provisions in their constitution. Our Indian Constitution also contains provisions which goes
from Art. 301-307 in Part XIII of the Constitution. The source for adoption of these provisions was the
Constitution of Australia. These provisions are not confined to inter- state but include intra- state freedom too.
However, this freedom is not absolute. Limitations are provided for the common good of the nation and its
citizens.

Economic unity is one of the main goals of the constitution and to maintain it is one of the objective of our
Indian Constitution.

4
 Why the Constitution makers felt the need for such provisions?

In the case of Atiabari Tea Co. Ltd. V. State of Assam,1 the Supreme Court explained in detail the rational and
motivation of the framers of the Constitution in drafting the provisions under Trade, Commerce and intercourse
in Indian territory in the following words:

“In drafting the relevant Articles [Arts. 301-305] the makers of the Constitution were fully conscious that
economic unity was absolutely essential for the stability and progress of the federal polity which had been
adopted by the Constitution for the governance of the country. Political freedom 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. Local or regional fears or apprehensions raised by local or regional problems may persuade the
State legislatures to adopt remedial measures intended solely for the protection of regional interests without due
regard to their effect on the economy. The object of the Constitution-makers was to avoid such possibility. Free
movement and exchange of goods throughout the territory of India is essential for the economy of the nation
and for sustaining and improving living standards of the Country.”

ARTICLE – 302

Power of Parliament to impose restrictions on trade, commerce and intercourse

Art. 302.2 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.

As stated above, art. 302 puts certain restrictions on the rule as mentioned in art. 301. In the interest of the
general public, parliament can impose restrictions on the free movement of trade and commerce between one
state and another i.e. inter- state or within any part of territory of India. The power to decide whether something
is in the interest of the public or not is solely given to the Parliament. Only the Parliament possess the power to
decide whether something falls in the interest of the public or not. If a person thinks that the provision made is
not in the interest of the public, he must prove what the reason for his thinking is.

Thus, a law prohibiting the transmission of stolen or harmful substances would be saved under this exception.3

1
Atiabari Tea Co. Ltd. v. State of Assam, AIR [1961] SC 232.
2
Indian Constitution. Art. 302
3
Hipolite Engg. Co. v. United States, 55 L Ed 364: 220 US 45 (1911).
5
Similarly, transmission of women for immoral purposes can be prohibited.4 In the case of, Surajmal
Roopchand and Co v. The State of Rajasthan5, restrictions imposed on the movement of grain under the
Defence of Indian Rules are in the interests of the public.

By virtue of Art. 302, Parliament is, notwithstanding the protection conferred by Art. 301, authorized to impose
restrictions on the freedom of trade, commerce and intercourse in the public interest. Thus, Art. 302 relax the
restriction imposed by Art. 301 in favour of Parliament.6

The Sarkaria Commission7 justified the present position in the following words as: “The need for empowering
Parliament to place restrictions on trade and commerce even within a State is obvious. Ours is a vast country
with varying economic potentiality and considerable differences in regard to existing levels of development.
The Unions responsibility in respect of certain matters may, therefore, entail regulating trade and commerce
even within a State for achieving national objectives. For example there is the need to protect the interests of
the poor and weaker sections of our community like the tribal people etc. Indiscriminate exploitation of natural
resources in one State, for example denudation of forests, may have far reaching implications for other States
which may be affected by floods, silting up of reservoirs etc. Such situations may require imposition of
restrictions on trade even within the State. The importance of Parliamentary control over intra-State trade is
also significant where centres of production of certain commodities are situated entirely within a State but the
centres of consumption are located outside the State.”

‘Public interest’ being required in Art. 302 would not be of such a serious problem in the way of parliament
regulating trade and commerce because it is strongly presumed parliamentary legislation being in the interest of
the public.

The majority judgment in Atiabari case even suggested that prima facie the question of public interest
underlying a Parliamentary law imposing restrictions on the freedom of trade ‘may not be justiciable’. If this be
the correct approach, then Parliament’s power to decide what restrictions need be imposed under Art. 302 may
be said to be practically unlimited. But the correctness of the view was doubted in the matter of Kheyerbari8 by
the Supreme Court. In case of Art. 19(1)(g), the concept of public interest is justiciable and there appears to be
no reason why Art. 302 should be treated differently. From a practical point of view, however, to hold ‘public
interest’ as justiciable may not mean much for it is rare for a Court to hold that a legislation lacks public
interest.9

4
Hoke v. United States, 57 L Ed 523: 227 US 308 (1912).
5
Surajmal Roopchand and Co v. The State of Rajasthan, AIR [1967] (Raj) 104
6
http://www.grkarelawlibrary.yolasite.com/resources/FM-Jul14-CL-2-Muriel.pdf accessed 20 April 2020
7
] SARKARIA COMMISSION REPORT, 502 (1988)
8
Kheyerbari Tea Co V. State of Assam, AIR [1964] (SC) 925
9
http://www.grkarelawlibrary.yolasite.com/resources/FM-Jul14-CL-2-Muriel.pdf accessed 20 April 2020
6
A person challenging the law have to prove to the court why it does not fall under the domain of the public
interest or why does it lack the public interest and more of the private interest of the parliament.

Parliament enacted the Municipal Corporation Act, 195710, and empowered the Corporation to levy terminal tax
on all goods carried by railway or road in the Union territory of Delhi from any place outside thereof. The
Supreme Court declared the levy valid on two grounds, which are:11

1. It does not impose any direct and immediate impediment on the inter-State movement of goods and so was
not hit by Art. 301 which only hits direct and immediate impediments on intra-State or inter-State movements
of goods or persons. It is true that a tax may in certain cases, directly and immediately impede the movement or
flow of trade, but the imposition of the tax does not do so in every case.

2. Even if the act ‘directly and immediately’ impedes the movement of the goods, the statutory provision is
saved by Art. 302. There is a presumption that the imposition of a tax is in public interest12.

The Court has stated that only when the intra-State or inter-State movement of the persons or goods are
impeded directly and immediately as distinct from creating some indirect or inconsequential impediment by any
legislative or executive action, infringement of the freedom envisaged by Art. 301 can arise, without anything
more, a tax law, may not impair the said freedom. At the same time, it should be stated that a fiscal measure is
not outside the purview of Art. 301 of the Constitution13.

In order to be protected by Art. 302, the nexus of the law with public interest must be reasonable, even though
that word is not used in Art. 30214. This does not, however, imply any quasi-judicial obligation or compliance
with the rules of natural justice15.

If the condition of public interest is satisfied, Art. 302 would authorize both inter-State or intra-State
restriction16.

ARTICLE- 304

10
The Municipal Corporation Act 1957
11
http://www.grkarelawlibrary.yolasite.com/resources/FM-Jul14-CL-2-Muriel.pdf accessed 20 April 2020
12
Amrit Banaspati Co. Ltd v. Union of India AIR [1995] (SC) 1340
13
ibid
14
Prag Ice and Oil Mills v. Union of India, AIR [1978] (SC)1296
15
Saraswati Industrial syndicate Ltd. v. Union of India, AIR [1975] (SC) 460
16
State of Madras v. Nataraja Mudaliar AIR [1969] (SC) 147
7
Restrictions on trade, commerce and intercourse among States

Notwithstanding anything in Article 301 or Article 303, the Legislature of a State may by law-17
(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, as not to discriminate between goods so
imported and goods so manufactured or produced; and
(b) 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:

PROVIDED that no Bill or amendment for the purposes of clause shall be introduced or moved in the
Legislature of a State without the previous sanction of the President.

Article 304 provides two exceptions in the favour of the State Legislatures to the rule of free movement of
trade, commerce and intercourse. Article 304 (a) enabled a state legislature to impose taxes on goods from other
states, provided similar goods as are produced within the state are subjected to similar taxes. In other words, it
validates a taxation which undoubtedly fetters inter-state trade or commerce (i.e. a taxation which is violative of
article 301), provided such taxation is non-discriminatory. If such tax is ‘discriminatory’, it will be hit by article
303(1).18

Thus, article 304(a) has to be read with article 303(1). While article 303(1) prohibits discriminatory legislation
in general being made by a state legislature, article. 304(a) strikes at discriminatory tax laws being made by
state legislature.19

Discriminatory Tax- a tax on particular companies or products, for example, products from foreign countries,
that is intended to make it easier for other companies to compete.20

In the view of fresh appreciation of article 304(a) in G.K. Krishnan v. State of T.N.21 and State of Karnataka v.
Hansa Corpn.22, this article instead of enabling the states to impose any taxes not otherwise permitted under the
Constitution, restricts them to the imposition of non- discriminatory tax. Further, in Shree Mahavir Oil Mills v.
State of J&K23, the Supreme Court clearly stated that:

As a matter of fact, it can well be said that clause (a) of Article 304 is not really an exception to Article 301,
notwithstanding the non obstante clause in Article 304 and that it is but a restatement of a facet of the very
freedom guaranteed by Article 301, viz., power to taxation by the states.

17
Indian Constitution. Art. 304
18
https://www.legalbites.in/freedom-trade-commerce-intercourse/ accessed 20 April 2020
19
Ibid
20
https://dictionary.cambridge.org/dictionary/english/discriminatory-tax accessed 20 April 2020
21
G.K. Krishnan v. State of T.N. AIR [1975] (SC) 583.
22
State of Karnataka v. Hansa Corpn. AIR [1981] (SC) 463,474
23
Shree Mahavir Oil Mills v. State of J&K [1996] 11 SCC 39.
8
 In the case of State of Madhya Pradesh v/s Bhailal Bhai24, the State of Madhya Pradesh imposed taxes on
imported tobacco which was not even subject to tax in the very own State i.e State of Madhya Pradesh. The
Court disapproved of the tax statement that it was discriminatory in nature.

If a state tax law accords identical treatment in the matter of levy and collection of tax on goods manufactured
within the State and identical goods imported from outside the state, Article 304(a) would be complied with. So
long as the rate is the same Article 304(a) is satisfied.25

A temporary exemption from sales tax to specified goods made within the State with a view to giving incentive
and encouragement to the local industry does not violate Article 304(a).26

Article 304(b) empowers a state legislature to impose such “reasonable restrictions” on the freedom of trade,
etc., as may be required in the “public interest”. The word ‘reasonable’ enables the court to interfere where the
state, under the pretense of preventing injury to the welfare of the citizens, intends to prevent the flow of
legitimate articles of inter-state commerce or to impose needlessly burdensome conditions so as to substantially
obstruct the commerce. The restrictions which may be validly imposed under article 304(b) are those which
seek to protect public health, safety, morals and property within the territory of state.27

Any restriction which does not impede the movement of goods but only facilitates their passage cannot be held
to be unreasonable merely because they cause some inconvenience example insisting on a transit pass the
requirement of permit was intended to prevent evasion and to facilitate assessment of sales tax. Similarly, a tax,
which is regulatory or compensatory in nature, cannot be held to constitute an ‘unreasonable’ restriction,
merely because a business rendered uneconomical by reason of the imposition.28

There are three conditions which must be satisfied in passing an Act under Article 304(b):

1. The previous sanction of the President must be obtained;

2. The legislation must be in the public interest; and
3. It must impose restrictions which are reasonable.

The defect of not obtaining the previous sanction of the Parliament may be cured, if the assent of the President
to the Act has been obtained after it has been enacted as provided in Article 255.29

Proviso to Article 304(b): president’s sanction

24
State of Madhya Pradesh v/s Bhailal Bhai AIR 1964 (SC) 1006
25
Rattan Lal and Co. v. Assessing Authority AIR [1970] (SC) 1742
26
Video Electronics (P) Ltd. V. State of Punjab AIR [1990] (SC) 820
27
https://www.legalbites.in/freedom-trade-commerce-intercourse/ accessed 20 April 2020
28
https://www.legalbites.in/freedom-trade-commerce-intercourse/ accessed 20 April 2020
29
A.B. Abdul Kadir v. State of Kerala AIR [1976] SC 182
9
The proviso says that though a state legislature is empowered by cl. (b) to impose reasonable restrictions on the
freedom of trade in the public interest, no law or amendment for this purpose may be introduced in the state
legislature without the previous assent of the president.30

Unless the presidential assent has been obtained, a law restricting trade or commerce cannot be upheld even if it
imposes reasonable restriction or restriction which is merely regulatory with a view to facilitating trade.
However, if the imposition of tax is compensatory or regulatory in nature, it will not be hit by article 301 or
article 303, and thus, article 304 will not come into picture at all. In that case, there would be no question of
obtaining the assent of the president under article 304(b).31

The defect owing to want of previous assent may, however, be cured if the bill subsequently receives the
president’s assent, by reason of article 255. Where the original act received the president’s sanction under
article 304(b), no fresh sanction is required where the amending act, without imposing any additional
restriction, merely varied the form of restriction. Also, sanction for the rules framed under the act is not
necessary.32

ARTICLE- 307

Appointment of authority for carrying out the purposes of Articles 301-304

Parliament by law may appoint such authority as it considers appropriate for carrying out the purposes of
articles. 301-304, and confer on the authority so appointed such powers and such duties as it thinks necessary.33
The exact composition of the authority to be established is left to the parliament.
Since the matters relating to trade, commerce and intercourse are more economic in content than legal, a body
consisting of experts such as economists, businessmen and lawyers, may do a much better job in this area than a
court having merely legal expertise.34

30
https://www.legalbites.in/freedom-trade-commerce-intercourse/ accessed 20 April 2020
31
ibid
32
ibid
33
Indian Constitution. Art. 307
34
https://www.legalbites.in/freedom-trade-commerce-intercourse/ accessed 20 April 2020
10
11