Appeal No 1985 of 1969
Appeal from the judgment and order dated January 4 1969 of the patna High Court in Civil Writ Jurisdiction case No 520 of 1967
M C Chagla D P Singh and V J Francis for the appellant
L M Singhvi and U P Singh for respondents Nos
1 to 4
4 14 The Judgment of the Court was delivered by SHAH J
This appeal is filed with certificate granted by the High Court of Patna under article 133 1 a of the Constitution
The appellant Hansraj Bagrecha carries on business in jute
In the course of his business the appellant buys raw jute from producers in West Bengal transports it to Kishanganj Railway Station which is within the State of Bihar and then re exports it to purchasers in West Bengal
He also buys raw jute in Bihar and exports it to the merchants or mill owners in West Bengal by rail from Kishahganj Railway Station
The Bihar Sales Tax Act 1959 as originally enacted did not provide for levy of purchase tax
By the Bihar Finance Act 1966 with effect from April 1 1967 among others the following sections were incorporated in the Bihar Sales Tax Act 1959 S3A The State Government may from tune to time by notification declare any goods to be liable to purchase tax on turnover of purchase  Provided that general sales tax and special sales tax shall not be payable on the sale of goods or class of goods declared under this section
 section 5A The purchase tax on goods declared under section 3A shall be levied at the point of purchase made from a person other than a registered dealer
 By a notification dated September 14 1966 the Governor of Bihar declared jute  as a commodity liable to purchase tax at the rate specified in the notification
Section 42 of the Bihar Sales Tax Act by the first subsection provided  No person shall transport from any railway station steamer station air port post office or any other place whether of similar nature or otherwise notified in this behalf by the State Govt
 any consignment of such goods exceeding such quantity as may be specified in the notification except in accordance with such conditions as may be prescribed and such conditions shall be made with a view to ensuring that there is no evasion of tax payable under this Act
 Section 46 of the Act invested the State Government with power to make rules for all matters expressly required or allowed by the Act to be prescribed and generally for carrying out the purposes of the Act and regulating the procedure to be followed forms to 415 be adopted and fees to be paid in connection with proceedings under the Act and all other matters ancillary or incidental thereto
In exercise of the powers conferred under s 46 1 the State of Bihar promulgated under Rules 31 B and 8C Rule 31B which provided 1 No person shall tender at any railway station steamer station air port post office or any other place whether of similar nature or otherwise notified under section 42 any consignment of such goods exceeding such quantity as may be specified in the notification for transport to any place outside the State of Bihar unless such person has obtained a despatch permit in Form XXVIII D from the appropriate authority referred to in the Explanation to rule 31 and no person shall accept such tender unless the said permit is surrendered to him Rule 301 provided The first purchase of goods declared under section 14 of the  shall be leviable to tax in terms of sections 3 3A and 5A of the Act and no subsequent sales or purchases in respect of the said goods shall be liable to any tax under the Act  After the enactment of sections 3A and 5A the State Government issued
a notification dated December 26 1967 purporting to exercise power under section 42 of the Bihar Sales Tax Act 1959 read with r 31B of the Bihar Sales Tax Rules 1959 notifying that no person shall tender at any railway station mentioned in Sch
II and consignment of goods mentioned in Sch
I exceeding the quantity specified for transport to any place outside the State of Bihar and no person shall accept such tender in accordance with the conditions prescribed in r 31B of the Bihar Sales Tax Rules 1959
Under Sch
I Jute  exceeding 800 Kg
could not be tendered for transport without a despatch pen nit and Kishanganj was one of the Railway Stations mentioned in Sch
In July 1967 the Superintendent of Commercial Taxes addres sed a letter prohibiting the railway authorities from loading jute goods and despatching them from any railway station within the Purnea District of Bihar except on production of a registration certificate
By his letter dated July 10 1967 the Station Master Kishanganj called upon the Secretary Jute Merchants Association Kishanganj to produce a certificate as required in the letter of the Superintendent of Commercial Taxes before loading jute goods for despatch was commenced and informed them that in default wagons allotted to the jute merchants shall be cancelled and 416 registration fees forfeited and that demurrage win be charged
The appellants request that jute booked by him be despatched from
Kishanganj was turned down by the railway authorities because the registration certificate issued by the Superintendent of Commercial Taxes Purnea for the movement of jute from the place was not produced
The appellant then moved a petition before the High Court of Patna on August 29 1967 challenging the validity of sections 3A 5A 42 and 46 and r 31B of the Bihar Sales Tax Rules 1959
The High Court of Patna dismissed the petition
With certificate granted by the High Court this appeal has been preferred by the appellant
In support of the appeal counsel for the appellant raised three contentions  1 that sections 3A  5A as incorporated 4th Finance Act of 1966 infringed the guarantee of freedom of trade under article 301 of the Constitution and since the amendment made by the Finance Act 1966 did not receive the assent of the President under article 304b the amendment was not saved 2 that sections 3A  5A and r 8C were contrary to section 15 of the and were void on that account and 3 that r 31B framed by the State Government and the notification issued on December 26 1967 were unauthorised and liable to
be struck down
Article 301 of the Constitution guarantees freedom of trade commerce and intercourse throughout the territory of India
By article 302 the Parliament is authorised by law to impose such restrictions on the freedom of trade commerce or intercourse between one State and another or within any part of the territory ofIndia as may be required in the public interest
article 3031 imposes restrictions upon the power which the Parliament or the Legislature of a State may exercise to make any law giving or authorising the giving of any preference to one State over another or making or authorising the making of any discrimination between one State and another by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule
But that clause does not operate to restrict the power of the Parliament to make any law giving or authorise the giving of any preference or making or authorising the making of any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from 417 scarcity of in any part of the territory of India Art 303 2
article 304 provides in so far as it is relevant Notwithstanding anything in article 301 or article 303 the Legislature of a State may by law a 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 purpose of clause b shall be introduced or moved in the pose Legislature of a State without the Previous sanction of the President
 article 304 is in terms a restriction on the freedom guaranteed by article 301
Notwithstanding the amplitude of the freedom of trade commerce and intercourse throughout the territory of India the Legislature of a State may by law impose among others such reasonable restrictions on the freedom of trade cow or intercourse with or within that State as may be required in the public interest
But that authority to impose reasonable restrictions on the freedom of trade may only be exercised by the Legislature of a State if the Bill or amendment for the Purpose of cl
b is introduced or moved in the Legislature of a State with the previous sanction of the President
It was contended that since section 3A providing for the of purchase tax imposes a restriction on the freedom of trade commerce and intercourse and on that account violates the freedom of trade guaranteed by article 301 it way be saved only if it is legislation of the nature contemplated by article 304b and the Bill which was enacted into the Act received the previous assent of the President
The assumption that the levy of purchase tax must be deemed in all circumstances to violate the 
guarantee under article 30 1 and the levy will be valid only if the Act is enacted by the State Legislature with the previous sanction of the President cannot be accepted as correct
This Court in The State of Madras vs N K Nataraja Mudaliar1 examined the validity of laws which impose taxes on sale in the light of article 301
It was observed at p 839 This Article article 301 is couched in terms of the widest amplitude trade commerce and intercourse am thereby declared free and unhampered throughout the story of India
The freedom of trade 1  so declared is against the imposition of barriers or obstructions within the state as well as inter State all restrictions which directly and immediately affect the movement of trade are declared by Art 301 to in effective
The extent to which article 301 operates to make trade
and commerce free has been considered by this Court in several cases In Atiabari Tea Co Ltd vs The State of Assam and others1 Gajendragadkar speaking for himself and Wanchoo and Das Gupta JJ observed at p 860   we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by art 301 would be such restrictions asdirectly and immediately restrict or impede the free flow or movement of trade In Automobile Transport Rajasthan Ltd vs The State of Rajasthan and others2 the view expressed by Gajendragadkar J in Atiabari Tea Co s case was accepted by the majority
Subba Rao J who agreed with the majority observed that the freedom declared under article 301 of the Constitution of India referred to the right of free movement of trade without any obstructions by way of barriers inter State or intra State or other impediments operating as such barriers
The same view was expressed in Firm ATB Mehtab Majid and Company vs State of Madras and Another3 by a unanimous Court
It must be taken as settled law that the restrictions or impediments which directly and immediately impede or hamper the free flow of trade commerce and intercourse fall within the prohibition imposed by article 301 and subject to the other provisions of the Constitution they may be regarded as void
But it is said that by imposing tax on sales no restriction hampering trade is imposed
In the Atiabari Tea Company s case Gajendragadkar J observed 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 30 1
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
 In a recent judgment of this Court in The Andhra Sugars Ltd and Another vs The State of Andhra Pradesh
and others4 1  31963 1 SCR 491
21963 Supp
2 section C R 435
4 21 STC 212 419 Bachawat J speaking for the Court after referring to the observations made by Gajendragadkar J in Atiabari Tea Company s case1 observed This interpretation of Article 301 was not dissented from in Automobile Transport Rajasthan Ltd vs State of Rajasthan 2 
Normally a tax on sale of goods does not directly impede the free movement or transport of goods
Section 21 is no exception
it does not impede the free movement or transport of goods and is not violative of Article 301
 Section 21 of the Andhra Pradesh Sugar Cant Regulation of Supply and Purchase Act which was referred to in the judgment authorised the State Government to levy a tax at such rate not exceeding five rupees per metric tonne as may be prescribed on the purchase of cane required for use consumption or sale in a factory
It must therefore be regarded as settled law that a tax may in certain cases directly and immediately restrict or hamper the flow of trade but every imposition of tax does
not do so
 Imposition of tax of the nature of purchase tax does not by itself restrict freedom of trade commerce or intercourse
Imposition of tax may in certain circumstances impede free flow oftrade commerce or intercourse
But every tax doesn t have that effect
Imposition of a purchase tax by the State does not by itself infringe the guarantee of freedom under Art301
The argument that imposition of sales or purchase tax must be regarded in all cases as infringing the guarantee of freedom under article 301 cannot be accepted as correct
The appellant filed the petition out of which their appeal arises soon after the Station Master informed the Jute Merchants Association about his inability to book consignments of jute
He has made no averments in the petition which support the plea that imposition of purchase tax directly and immediately restricts or impedes the free flow of trade
Since power to impose purchase tax under section 3A on notified goods is not shown to restrict or impede the free flow of trade directly and immediately it need not seek to derive for its validity support from article 304b
The contention that sections 3A  5A are inconsistent with section 15 of the is without substance
By section 14 of the  certain classes of goods are declared goods of special importance in inter State trade or commerce
Jute is one of such classes of goods
By section 15 as 1   2 1963 1 section C R 491
420 amended by the Central Sales Tax Second Amendment Act XXXI of 1958 it is provided Every sales tax law of a State shall in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods be subject to the following restrictions and conditions namely a the tax payable under that law in respect of any sale of purchase of such goods inside the state shall not exceed three per cent of the sale or purchase price thereof and such tax shall not be levied at more than one stage b where a tax has been levied under that law in respect of the sale or purchase inside the state of any declared goods and such goods are sold in the course of inter state trade or commerce the tax so levied shall refunded to such person in such manner and subject to such conditions as may be provided in any law in force in that State
 By section 15 of the in respect of the declared goods on transactions of sale or purchase the tax leviable is restricted to 3  and is not leviable at more than one stage
There is no dispute that the purchase tax on jute is leviable at the first point of purchase under section 3A of the Bihar Sales Tax Act and the rate of tax also is not shown to exceed the maximum prescribed by section 15 of the 
The provisions of sections 3A  5A of the Bihar Sales Tax Act are not therefore inconsistent with the provisions of section 15 of the 
But in our judgment r 31B of the Bihar Sales Tax Rules 1959 and the notification issued on December 26 1967 are unauthorised and must be struck down
The Bihar Sales Tax Act is enacted by the Legislature to consolidate and amend the law relating to the levy of tax on the sale and purchase of goods in Bihar
The State Legislature is competent in enacting sales tax legislation to make a provision which is ancillary or incidental to any provision relating to levy collection and recovery of sales tax and purchase tax
_ A provision which is made by the Act or by the Rules which seeks to prevent evasion of liability to pay tax on intra State sales or purchase would therefore be within the competence of the Legislature or the authority competent to make the rules 
But the State Legislature has no power to legislate for the levy of tax on transactions which are carried on in the course of inter State trade or commerce or in the course of export
Section 42 of the Bihar Sales Tax Act 1959 prevents any person from transporting from any railway station steamer station 421 air port post office or any other place any consignment of such goods exceeding thequantity specified with a view to ensuring that there is no evasion of tax payable under the Act
But the power under section 42 can only be exercised in respect of levy collection and recovery of intra State or purchase tax
It cannot be utilised for the purpose of ensuring the effective levy of Inter State sales or purchase tax
The appellant purchased jute both within and without the State of Bihar
In respect of transactions of purchase within the State of Bihar and despatch of goods liability to pay purchase tax at the point of purchase may arise
In respect of goods which are purchased in the State of West Bengal and brought within the State of Bihar and then despatched to other States in the course of inter State transactions no question of levy of purchase tax under the Bihar Sales Tax Act arises
R 31 B framed by the State Government seeks to prohibit transport in pursuance of transactions which are inter State for in terms it prohibits transporting of goods to any place outside the State of Bihar
Again transport of goods for personal consumption oil use or of goods gifted pledged or dealt with otherwise than by sale falls within the injunction contained in r 31B The power of the State Legislature is restricted to legislate in respect of intra state transactions of sale and purchase and to matters ancillary or incidental thereto  it has no power to legislate for levy of tax on sales and purchase in the course of inter State transactions
The power conferred by section 42 authorising the imposition of restriction on transport or movement of goods may only be exercised in respect of transactions which facilitate levy collection and recovery of tax on transactions of intra State sale or purchase
When r 31B prohibits transport of goods to any place outside the State of Bihar unless a certificate is obtained from the appropriate authority it seeks to prohibit transport of goods pursuant to transactions which may not even be of the nature of sale or purchase transactions in any case it restricts transport pursuant to transactions in the course of inter Statetrade and commerce
The operation of the rule is not restricted only to transactions in the course of intra State trade and commerce
The rule authorises restrictions on inter State transactions and is on that account unauthorised
For the same reasons the notification issued on December 26 1967 must be regarded as also unauthorised
In the view we have taken r 31B and the notification issued bythe State Government on December 26 1967 must be declared ultra vires and since r 31B and the notification are ultra vires the communication issued by the Superintendent of Commercial 4 22 Taxes to the Railway Authorities must also be declared unauthorised A writ will therefore issue declaring r 31B and the notification issued by the Government of Bihar on December 26 1967 ultra vires and the letter written by the Superintendent of Commercial Taxes to the Railway Authorities is also declared unauthorised
Having regard to the circumstances we think there should be no order as to costs


Summary:
Under section 5A of the Bihar Sales Tax Act 1959 as amended by the Bihar Finance Act 1966 the purchase tax on goods declared under section 3A was to be levied at the point of purchase made from a person other than a registered dealer
By a notification dated September 14 1966 the Governor of Bihar declared jute as a commodity liable to purchase tax at the rate specified in the notification
The appellant carried on business in jute In the course of his business he
purchased raw jute from producers in West Bengal transported it to Kishenganj Railway Station in Bihar and then re exported it to purchasers in West Bengal
He also bought raw jute in Bihar and exported it to merchants and mill owners in West Bengal by rail from Kishenganj Railway Station
After the enactment of sections 3A and 5A the State Government issued a notification dated December 26 1967 purporting to exercise power under section 42 of the Bihar Sales Tax Act 1959 read with r 31B of the Bihar Sales Tax Rules 1959 notifying that no person shall tender at any railway station mentioned in Sch
11 any consignment of goods mentioned in Sch
I exceeding the quantity specified for transport to any place inside the State of Bihar and no person shall accept such tender in accordance with the conditions laid down in the said R 31B Under Sch
I jute exceeding 800 kg
could not be tendered for transport without a despatch Permit and Kishenganj was one of the railway stations mentioned in Sch
In July 1967 the Superintendent of Commercial Taxes prohibited the railway authorities from loading and despatching jute goods from any railway station in Purnea district without the production of a registration certificate
For non production of such certificate the railway authorities refused to despatch from Kishenganj the jute goods booked by the appellant
The appellant moved a writ petition in the High Court of Patna challenging inter alia the validity of sections 3A and 5A of the Bihar Sales Tax Act and of R31B
The High Court dismissed the petition
With certificate the present appeal was filed
In support of the petition it was urged i that sections 3A and 5A infringed the guarantee of freedom of trade under article 301 of the Constitution and since the amendment by the Finance Act 1966 introducing these sections did not receive the assent of the President under article 304b the amendment was not saved ii that sections 3A and 5A were contrary to  section 15 of the and accordingly void iii that P 31B framed by the State Government and the notification issued on December 26 1967 were unauthorised and liable to be struck down
HELD i The assumption that the levy of purchase tax must be deemed in all circumstances to violate the guarantee under article 301 and 413 the levy will be valid only if the Act is enacted by the State Legislature with the previous sanction of the President cannot be accepted as correct
Imposition of tax may in certain circumstances impede free flow of trade commerce and intercourse
But every tax does not have that effect417 G 419 E State of Madras vs N K Nataraja Mudaliar 1968 3 SCR 829 Atiabari Tea Co Ltd vs State of Assam and The Andhra Sugars Ltd vs State of Andhra Pradesh 21 STC 212 applied
In the present case the petitioner has made no averments in his petition which supported the plea that imposition of purchase tax directly and immediately restricts or impedes the free flow of trade
Since power to impose purchase tax under section 3A was not shown to restrict or impede the free flow of trade directly and immediately it need not seek to derive for its validity support from article 304b
419 G ii By section 15 of the  tax liable in respect of declared goods on transactions of sale or purchase is restricted to 3 and is not leviable at more than one stage
There was no dispute that the purchase tax on jute was leviable at the first point of purchase under section 3A of the Bihar Sales Tax Act and the rate of tax was not shown to exceed the maximum prescribed by section 15 of the 
The provisions of sections 3A and 5A of the Bihar Sales Tax Act are not therefore inconsistent with the provisions of section 15 of the 
420 E iii Rule 31B of the Bihar Sales Tax Rules must however be struck down as ultra vires
420 F The power of the State Legislature is restricted to legislate in respect of intra State transactions of sale and purchase and to matters ancillary or incidental thereto  it has no power to legislate for levy of tax on sales and purchase in the course of inter State transactions
The power conferred by section 42 authorising the imposition of restriction or transport or movement of goods may only be exercised in respect of transactions which facilitate levy collection and recovery of tax on transactions of intra State sale or purchase
When r 31B prohibits transport of goods to any place outside the State of Bihar unless a certificate is obtained from the appropriate authority it seeks to prohibit transport of goods pursuant to transactions which may not even be of the nature of sale or purchase transactions in any case it restricts transport pursuant to transactions in the course of inter State trade and commerce
The operation of the rule is not restricted only to transactions in the course of intra State trade and commerce
The rule authorises restrictions on inter State transactions and is on that account unauthorised
For the same reasons the notification issued on December 26 1967 must be regarded as also unauthorised
421 E G