Case: Jindal Stainless Ltd. and Ors Vs. State of Haryana and Ors

Authored By : T.S. Thakur, A.K. Sikri, A.M. Khanwilkar, S.A. Bobde, Shiva Kirti Singh, N.V. Ramana, R. Banumathi, D.Y. Chandrachud, Ashok Bhushan T.S. Thakur, C.J.I. (for himself and A.K. Sikri and A.M. Khanwilkar, JJ.) 1. These appeals bring to fore for our determination vexed questions touching the interpretation of Articles 301 to 307 comprising Part XIII of the Constitution which have been the subject matter of several Constitution Bench decisions of this Court, all but one, decided by majority. The questions assume in a great measure considerable public importance not only because the same deal with the powers of the State legislatures to levy taxes but also because any pronouncement of this Court is bound to impact the federal character of our policy and the Centre-State relationship in legislative and fiscal matters. There is no gainsaying that it is the importance of the questions that lies at the bottom of the present reference to a larger Bench made in the following circumstances. 2. In exercise of their legislative powers under Entry 52 of List II of the Seventh Schedule to the Constitution several States in the country, at least 14 of whom are parties to these proceedings, have enacted laws that provide for levy of a tax on the entry of goods into local areas comprising the States. The constitutional validity of these levies was questioned in different High Courts by assesses/dealers aggrieved of the same, inter alia, on the ground that the same were violative of the constitutionally recognised right to free trade commerce and intercourse guaranteed Under Article 301 of the Constitution of India. The levies were also assailed on the ground that the same were discriminatory and, therefore, violative of Article 304(a) of the Constitution of India. Absence of Presidential sanction in terms of Article 304(b) of the Constitution of India was also set-up as a ground of challenge to the levies imposed by the respective State legislatures. Writ Petition (Civil) No. 8700 of 2000 filed before the High Court of Punjab and Haryana was one such petition that assailed the constitutional validity of the Haryana Local Development Act, 2000. Relying upon the decisions of this Court in Atiabari Tea Co. Ltd. v. State of Assam and Ors. AIR 1961 SC 232 ; Automobile Transport (Rajasthan) Ltd. etc. v. State of Rajasthan and Ors. AIR 1962 SC 1406 ; M/s. Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M.P. and Ors. 1995 Supp [1] SCC 673; and State of Bihar and Ors. v. Bihar Chamber of Commerce and Ors. (1996) 9 SCC 136, a Division Bench of the High Court of Punjab and Haryana dismissed the said petition and connected matters on the ground that the levy was compensatory in character hence outside the purview of Article 301. 3. The correctness of the said order was assailed before this Court in Jindal Stripe Ltd. and Anr. v. State of Haryana and Ors. (2003) 8 SCC 60. A two-Judge Bench of this Court, however, referred the matter to a larger Bench as it noticed an apparent conflict between the pronouncements of this Court in Atiabari (supra) and Automobile Transport (supra) cases on the one hand and Bhagatram (supra) and Bihar Chamber of Commerce (supra) on the other. The Court after noticing the development of law on the subject observed: 25. To sum up: the pre-1995 decisions held that an exaction to reimburse/recompense the State the cost of an existing facility made available to the traders or the cost of a specific facility planned to be provided to the traders is compensatory tax and that it is implicit in such a levy that it must, more or less, be commensurate with the cost of the service or facility. The decisions emphasized that the imposition of tax must be with the definite purpose of meeting the expenses on account of providing or adding to the trading facilities either immediately or in future provided the quantum of tax sought to be generated is based on a reasonable relation to the actual or projected expenditure on the cost of the service or facility. 26. The decisions in Bhagatram and Bihar Chamber of Commerce now say that even if the purpose of imposition of the tax is not merely to confer a special advantage on the traders but to benefit the public in general including the traders, that levy can still be considered to be compensatory. According to this view, an indirect or incidental benefit to traders by reason of stepping up the developmental activities in various local areas of the State can be legitimately brought within the concept of compensatory tax, the nexus between the tax known as compensatory tax and the trading facilities not being necessarily either direct or specific. 27. Since the concept of compensatory tax has been judicially evolved as an exception to the provisions of Article 301 and as the parameters of this judicial concept are blurred, particularly by reason of the decisions in Bhagatram and Bihar Chamber of Commerce we are of the view that the interpretation of Article 301 vis-a-vis compensatory tax should be authoritatively laid down with certitude by the Constitution Bench Under Article 145(3). 28. In the circumstances let all these matters be placed before the Honble the Chief Justice for appropriate directions. 4. The matters were, pursuant to the above, placed before a Constitution Bench of this Court in Jindal Stainless Ltd. (2) and Anr. v. State of Haryana and Ors. (2006) 7 SCC 241 which resolved the conflict noticed in the reference order by holding that the working test propounded by seven Judges in Automobile Transport case (supra) was incompatible with the test of some connection enunciated by the three Judge Bench in Bhagatrams case (supra). The Court held that the test of some connection as propounded in Bhagatrams case (supra) had no application to the concept of compensatory tax. The Court, accordingly, overruled the decisions rendered in Bhagatram and Bihar Chamber of Commerce cases and held that the doctrine of direct and immediate effect of the impugned law on trade and commerce Under Article 301 as propounded in Atiabari (supra) and the working test enunciated in Automobile Transport (supra) cases for deciding whether a tax is compensatory or not will continue to apply. The Court observed: 53. We reiterate that the doctrine of direct and immediate effect of the impugned law on trade and commerce Under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan for deciding whether a tax is compensatory or not vide para 19 of the Report (AIR), will continue to apply and the test of some connection indicated in para 8 (of SCC) of the judgment in Bhagatram Rajeevkumar v. CST and followed in State of Bihar v. Bihar Chamber of Commerce is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject-matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment. 5. The matters were, in terms of the above direction, listed before a two-Judge bench for hearing of the appeals in the light of the above pronouncement of the Constitution Bench. The two-Judge Bench, however, noticed that although the basic issue in the appeals revolved around the concept of compensatory tax, the High Courts had not examined the same as they had considered themselves bound by the view taken in Bhagatram and Bihar Chamber of Commerce cases (supra). The Court further found that in the absence of relevant data before the High Courts, the issue whether the levies were compensatory could not have been considered and accordingly referred the matter back to the High Courts to decide the said aspect. The appeals were, in the meantime, adjourned to await the finding from the High Courts on the question whether the levies were indeed compensatory in nature having regard to the decisions of this Court in Atiabari and Automobile Transport cases (supra). 6. The matters were accordingly taken up by the High Courts, after the remand, who came to the conclusion that the impugned levies were neither compensatory in character nor was the procedure stipulated by Article 304(b) and the proviso to the same followed. The levies were on that basis held to be in violation of Article 301 being an impediment to free trade, commerce and intercourse and accordingly struck down. The High Courts of Assam, Arunachal Pradesh, Jharkhand, Kerala and Tamil Nadu struck down the levies imposed by their respective States also on the ground that they were discriminatory in nature hence violative of Article 304(a) of the Constitution. 7. All these judgments and orders of the High Courts, passed after the remand, then, came to be challenged by the States concerned in the appeals filed against the same. These appeals initially came-up before a two-Judge Bench of this Court comprising Justice Arijit Pasayat and Justice S.H. Kapadia. Their Lordships referred the same to a Constitution Bench for an authoritative pronouncement on as many as ten questions formulated in the reference order (Jaiprakash Associates Limited v. State of Madhya Pradesh and Ors. (2009) 7 SCC 339 ). The Court noticed the arguments advanced on behalf of the Assessees that entry taxes were, in essence and in the classical sense, in the nature of a fee and not a tax. It also noted the contention that all the cases on which the parties had placed reliance related to entry tax in the context of tax on vehicles in contradiction to taxes on entry of goods. The Court was of the view that while the Constitution Bench in Jindal Stainless Ltd. (2) (supra) had dealt with some aspects of the matter, certain other important constitutional issues remained to be examined especially because a conceptually and contextually different approach may be required vis-a-vis transport cases on the one hand and cases of entry tax on goods on the other. The questions formulated by the Court for determination by the Constitution Bench were in the following words: (1) Whether the State enactments relating to levy of entry tax have to be tested with reference to both Clauses (a) and (b) of Article 304 of the Constitution for determining their validity and whether Clause (a) of Article 304 is conjunctive with or separate from Clause (b) of Article 304? (2) Whether imposition of entry tax levied in terms of Entry 52 List II of the Schedule VII is violative of Article 301 of the Constitution? If the answer is in the affirmative whether such levy can be protected if entry tax is compensatory in character and if the answer to the aforesaid question is in the affirmative what are the yardsticks to be applied to determine the compensatory character of the entry tax? (3) Whether Entry 52 List II, Schedule VII of the Constitution like other taxing entries in the Schedule, merely provides a taxing field for exercising the power to levy and whether collection of entry tax which ordinarily would be credited to the Consolidated Fund of the State being a revenue received by the Government of the State and would have to be appropriated in accordance with law and for the purposes and in the manner provided in the Constitution as per Article 266 and there is nothing express or explicit in Entry 52 List II, Schedule VII which would compel the State to spend the tax collected within the local area in which it was collected? (4) Will the principles of quid pro quo relevant to a fee apply in the matter of taxes imposed under Part XIII? (5) Whether the entry tax may be levied at all where the goods meant for being sold, used or consumed come to rest (standstill) after the movement of the goods ceases in the local area? (6) Whether the entry tax can be termed a tax on the movement of goods when there is no bar to the entry of goods at the State border or when it passes through a local area within which they are not sold, used or consumed? (7) Whether interpretation of Articles 301 to 304 in the context of tax on vehicles (commonly known as transport) cases in Atiabari case and Automobile Transport case apply to entry tax cases and if so, to what extent? (8) Whether the non-discriminatory indirect State tax which is capable of being passed on and has been passed on by traders to the consumers infringes Article 301 of the Constitution? (9) Whether a tax on goods within the State which directly impedes the trade and thus violates Article 301 of the Constitution can be saved by reference to Article 304 of the Constitution alone or can be saved by any other article? (10) Whether a levy under Entry 52 List II, even if held to be in nature of a compensatory levy, must, on the principle of equivalence demonstrate that the value of the quantifiable benefit is represented by the costs incurred in procuring the facility/services (which costs in turn become the basis of reimbursement/recompense for the provider of the services/facilities) to be provided in the local area concerned and whether the entire State or a part thereof can be comprehended as local area for the purpose of entry tax? 8. The matter was accordingly placed before a five-Judge Bench of this Court (Jindal Stainless Limited and Anr. v. State of Haryana and Ors. (2010) 4 SCC 595 ) who briefly referred to the decisions in Atiabari, Automobile Transport cases (supra) and Keshav Mills Co. Ltd. v. CIT AIR 1965 SC 1636 and a few others and referred the matters to a larger Bench for reconsideration of the judgment of this Court in Atiabari and Automobile Transport (supra). The Court noted that the correctness of the view taken in the said two cases had been doubted as early as in the year 1975 in G.K. Krishnan v. State of Tamil Nadu (1975) 1 SCC 375. The reference order briefly set out some of the questions that required consideration by a larger Bench. The Court said: 11. Some of these aspects which need consideration by a larger Bench of this Court may be briefly enumerated. Interplay/interrelationship between Article 304(a) and Article 304(b). The significance of the word and between Articles 304(a) and 304(b). The significance of the non obstante Clause in Article 304. The balancing of freedom of trade and commerce in Article 301 vis-a-vis the States authority to levy taxes Under Articles 245 and 246 of the Constitution read with the appropriate legislative entries in the Seventh Schedule, particularly in the context of movement of trade and commerce. 12. Whether Article 304(a) and Article 304(b) deal with different subjects? Whether the impugned taxation law to be valid Under Article 304(a) must also fulfil the conditions mentioned in Article 304(b), including Presidential assent? Whether the word restrictions in Article 302 and in Article 304(b) includes tax laws? Whether validity of a law impugned as violative of Article 301 should be judged only in the light of the test of non-discrimination? Does Article 303 circumscribe Article 301? Whether internal goods would come Under Article 304(b) and external goods Under Article 304(a)? Whether per se test propounded in Atiabari case should or should not be rejected? Whether tax simpliciter constitutes a restriction under Part XIII of the Constitution? Whether the word restriction in Article 304(b) includes tax laws? Is taxation justiciable? Whether the working test laid down in Atiabari makes a tax law per se violative of Article 301? Interrelationship between Article 19(1)(g) and Article 301 of the Constitution? These are some of the questions which warrant reconsideration of the judgments in Atiabari Tea Co. Ltd. and Automobile Transport (Rajasthan) Ltd. by a larger Bench of this Court. 9. At the hearing before us learned Counsel for the parties agreed after a day-long exploratory exercise that the questions that fall for determination by this Court could be re-framed as under: 1. Can the levy of a non-discriminatory tax per se constitute infraction of Article 301 of the Constitution of India? 2. If answer to question No. 1 is in the affirmative, can a tax which is compensatory in nature also fall foul of Article 301 of the Constitution of India? 3. What are the tests for determining whether the tax or levy is compensatory in nature? 4. Is the Entry Tax levied by the States in the present batch of cases violative of Article 301 of the Constitution and in particular have the impugned State enactments relating to entry tax to be tested with reference to both Articles 304(a) and 304(b) of the Constitution for determining their validity? 10. We have heard learned Counsel for the parties at considerable length on the above questions which we shall now take up for discussion ad-seriatim. Re: Question No. 1 11. Whether non-discriminatory fiscal measures also impede free trade, commerce and intercourse and thereby fall foul of Article 301 of the Constitution can be answered only if one keeps in view the Constitutional scheme underlying separation of powers in a federal system of governance like the one chosen by us. The answer would also depend upon the way we look at, understand and interpret the provisions of the Constitution and in particular the provisions of Parts XI, XII and XIII thereof. Interpretation of these and indeed every other provision must have due regard to what are recognised as the basic features of the Constitution. In doing so, the approach of the Courts can neither be rigid nor wooden or pedantic. Being a living and dynamic document, the Constitution ought to receive an equally dynamic and pragmatic interpretation that harmonizes and balances competing aims and objectives and promotes attainment of national goals and objectives. It must, as observed by this Court, in Kihoto Hollohan v. Zachillhu (1992) Supp 2 SCC 651 be read as a logical whole. The Constitutional provisions cannot be read in isolation, nor can they be interpreted in a manner that renders another provision redundant declared this Court in T.M.A. Pai Foundation and Ors. v. State of Karnataka (2002) 8 SCC 481. If words used in the provision are imprecise, protean or evocative or can reasonably bear meaning more than one, it would be legitimate for the Court to go beyond the literal confines of the provision and to call in aid other well recognised Rules of construction such as legislative history, the basic scheme and framework of the statute as a whole, the object sought to be achieved and the consequence flowing from the adoption of one in preference to the other possible interpretation observed this Court in Chief Justice of Andhra Pradesh and Ors. v. L.V.A. Dixitulu and Ors. (1979) 2 SCC 34. Reference may also be made to the decision of this Court in Kesavananda Bharati v. State of Kerala (1973) 4 SCC 225 where this Court quoted with approval Lord Greenes observations in the following words: 56. ......It is not right to construe words in vacuum and then insert the meaning into an article. Lord Green observed in Bidie v. General Accident, Fire and Life Assurance Corporation [1948] 2 All E.R. 995: The first thing one has to do, I venture to think, in construing words in a Section of an Act of Parliament is not to take those words in vacuo, so to speak, and attribute to them what is sometimes called their natural or ordinary meaning. Few words in the English language have a natural or ordinary meaning in the sense that they must be so read that their meaning is entirely independent of their context. The method of construing statutes that I prefer is not to take particular words and attribute to them a sort of prima facie meaning which you may have to displace or modify. It is to read the statute as a whole and ask oneself the question: In this state, in this context, relating to this subject-matter, what is the true meaning of that word. 57. I respectfully adopt the reasoning of Lord Green in construing the expression the amendment of the Constitution.... xxxxxxxx 61. I may also refer to the observation of Gwyer, C.J., and Lord Wright: A grant of the power in general terms, standing by itself, would no doubt be construed in the wider sense; but it may be qualified by other express provisions in the same enactment, by the implications of the context, and even by considerations arising out of what appears to be the general scheme of the Act. (Per Gwyer, C.J.--The Central Provinces and Berar Act, 1939, FCR 18 at 42 MR). The question, then, is one of construction and in the ultimate resort must be determined upon the actual words used, read not in vacuo but as occurring in a single complex instrument, in which one part may throw light on another. The Constitution has been described as the federal compact, and the Construction must hold a balance between all its parts. (Per Lord Wright--James v. Commonwealth of Australia 1936 AC 578 at 613.) 12. It is trite that a narrow interpretation that may have the potential or tendency to subvert the delicate balance which the framers of the Constitution had in mind while distributing legislative businesses including the sovereign power to levy taxes must be avoided and a construction that is most beneficial for a harmonious relationship between different limbs of the State including that between the Centre and the States or States inter se adopted. This may, at times, involve ironing out of rough edges which exercise a Constitutional Court must necessarily undertake to avoid confusion and resultant negation of the Constitutional objectives. 13. Having said so, we must sail smooth on certain fundamentals before we address the question whether levy of taxes per se operate as an impediment or restriction on the right to free trade, commerce and intercourse. That is because a true and correct answer to Question No. 1 can be found only if we constantly keep those fundamentals in mind while attempting to resolve what has been found to be somewhat difficult to resolve. For instance, whether levy of a tax is an attribute of sovereignty and if so whether Article 246 of the Constitution recognises the sovereign power of the State to make laws including the power to levy taxes on subjects enumerated in List II of the Seventh Schedule of the Constitution is an important dimension that must be addressed as a part of the interpretative exercise. So also, we must examine whether power to tax if held to be subservient to Article 301, shall have the effect of denuding the States of their sovereignty in the matter of levy of taxes and in the process affect the federal structure of the policy envisaged by the Constitution. If levy of taxes is always presumed to be reasonable and in public interest, whether such levies could be said to be within the contemplation of Article 304(b) when it provided for imposition of reasonable restrictions in public interest is yet another aspect that must be explored especially when the reasonableness of any restriction within the comprehension of Article 304(b) is not free from judicial scrutiny by Courts. These are some of the broad and fundamental issues that need to be examined before we attempt to answer the question whether levy of taxes per se acts as an impediment for free trade, commerce and intercourse. We may now briefly refer to these fundamentals before adverting to the provisions of Part XIII that fall for our interpretation. Power to Tax: an Attribute of sovereignty 14. Power to levy taxes has been universally acknowledged as an essential attribute of sovereignty. Cooley in his Book on Taxation-Volume-1 (4th Edn.) in Chapter-2 recognises the power of taxation to be inherent in a sovereign State. The power, says the author, is inherent in the people and is meant to recover a contribution of money or other property in accordance with some reasonable Rule or apportionment for the purpose of defraying public expenses. The following passage from the book is apposite: 57. Power to tax as an inherent attribute of sovereignty. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government. It is possessed by the government without being expressly conferred by the people. The power is inherent in the people because the sustenance of the government requires contributions from them. In fact the power of taxation may be defined as the power inherent in the sovereign state to recover a contribution of money or other property, in accordance with some reasonable Rule or apportionment, from the property or occupations within its jurisdiction for the purpose of defraying the public expenses. Constitutional provisions relating to the power of taxation do not operate as grants of the power of taxation to the government but instead merely constitute limitations upon a power which would otherwise be practically without limit. This inherent power to tax extends to everything over which the sovereign power extends, but not to anything beyond its sovereign power. Even the federal governments power of taxation does not include things beyond its sovereign power. But where exclusive jurisdiction over land is granted to another state or country, the land remains subject to the taxing power of the state within whose boundaries it is located. 15. To the same effect is the decision of this Court in Raja Jagannath Baksh Singh v. State of U.P. and Anr. AIR 1962 SC 1563 where this Court observed: .... The power of taxation is, no doubt, the sovereign right of the State; as was observed by Chief Justice Marshall in MCulloch v. Maryland [4 Law Edn. 579 p. 607]: The power of taxing the people and their property is essential to the very existence of Government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the Government may choose to carry it. In that sense, it is not the function of the court to enquire whether the power of taxation has been reasonably exercised either in respect of the amount taxed or in respect of the property which is made the object of the tax. Article 265 of the Constitution provides that no tax shall be levied or collected, except by authority of law; and so, for deciding whether a tax has been validly levied or not, it would be necessary first to enquire whether the legislature which passes the Act was competent to pass it or not. (Emphasis supplied) 16. Reference may also be made to Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. (2000) 5 SCC 694 where this Court held: 8. The principle of priority of government debts is founded on the Rule of necessity and of public policy. The basic justification for the claim for priority of State debts rests on the well-recognised principle that the State is entitled to raise money by taxation because unless adequate revenue is received by the State, it would not be able to function as a sovereign Government at all. It is essential that as a sovereign, the State should be able to discharge its primary governmental functions and in order to be able to discharge such functions efficiently, it must be in possession of necessary funds and this consideration emphasises the necessity and the wisdom of conceding to the State, the right to claim priority in respect of its tax dues (see Builders Supply Corporation AIR 1965 SC 1061 (Emphasis supplied) 17. In Commissioner of Income Tax, Udiapur, Rajasthan v. MCdowell and Co. Ltd. (2009) 10 SCC 755 where this Court reiterated the legal position in the following words: 21. Tax, duty, cess or fee constituting a class denotes to various kinds of imposts by State in its sovereign power of taxation to raise revenue for the State. Within the expression of each specie each expression denotes different kind of impost depending on the purpose for which they are levied. This power can be exercised in any of its manifestation only under any law authorising levy and collection of tax as envisaged Under Article 265 which uses only the expression that no tax shall be levied and collected except authorised by law. It in its elementary meaning conveys that to support a tax legislative action is essential, it cannot be levied and collected in the absence of any legislative sanction by exercise of executive power of State Under Article 73 by the Union or Article 162 by the State. 22. Under Article 366(28) Taxation has been defined to include the imposition of any tax or impost whether general or local or special and tax shall be construed accordingly. Impost means compulsory levy. The well-known and well-settled characteristic of tax in its wider sense includes all imposts. Imposts in the context have following characteristics: (i) The power to tax is an incident of sovereignty. (ii) Law in the context of Article 265 means an Act of legislature and cannot comprise an executive order or Rule without express statutory authority. (iii) The term tax Under Article 265 read with Article 366(28) includes imposts of every kind viz. tax, duty, cess or fees. (iv) As an incident of sovereignty and in the nature of compulsory exaction, a liability founded on principle of contract cannot be a tax in its technical sense as an impost, general, local or special. (Emphasis Supplied) Power of Taxation under the Constitution: 18. We shall presently turn to the Constitutional limitations on the sovereign power to tax but before we do so we need to point out that while the power to levy taxes is an attribute of sovereignty, exercise of that power is controlled by the Constitution. This is evident from the provisions of Article 265 which forbids levy or recovery of any tax except by the authority of law. It reads: 265. Taxes not to be imposed save by authority of law-No tax shall be levied or collected except by authority of law. The authority of law referred to above must be traceable to a provision in the Constitution especially where the legislative powers are shared by the Centre and the States as is the case with our Constitution which provides for what has been described as quasi federal system of governance. The source of power to enact laws is contained in Articles 245 and 246 of the Constitution which read: 245. Extent of laws made by Parliament and by the Legislatures of States-(1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. (2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. 246. Subject-matter of laws made by Parliament and by the Legislatures of States-(1) Notwithstanding anything in Clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the Union List). (2) Notwithstanding anything in Clause (3), Parliament and, subject to Clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the Concurrent List). (3) Subject to Clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the State List). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included [in a State] notwithstanding that such matter is a matter enumerated in the State List. 19. Interpreting Articles 245 and 246, a three-Judge Bench of this Court in M/s. Hoechst Pharmaceuticals Ltd. and Ors. v. State of Bihar and Ors. (1983) 4 SCC 45 , held on a review of the available decisions that the Constitution effects a complete separation of taxing powers of the Union and the States Under Article 246 and that there is no overlapping anywhere in the exercise of that power. The sources of taxation are clearly delineated, observed the Court. The Court also held that there is a distinction between general subjects of legislation and taxation for the former are dealt within one group while the later is dealt with in a separate group. The result is that the power to tax cannot be deduced from a general legislative entry. That view was approved by a Constitution Bench of this Court in State of West Bengal v. Kesoram Industries Ltd. (2004) 10 SCC 201. The propositions stated in the two decisions must therefore be treated to be fairly well settled. Reference may also be made to the decision of this Court in State of Kerala and Ors. v. Mar Appraem Kuri Co. Ltd. and Anr. (2012) 7 SCC 106 where this Court explained the sweep and purport of Articles 245 and 246: 35. Article 245 deals with extent of laws made by Parliament and by the legislatures of States. The verb made, in past tense, finds place in the Head Note to Article 245. The verb make, in the present tense, exists in Article 245(1) whereas the verb made, in the past tense, finds place in Article 245(2). While the legislative power is derived from Article 245, the entries in the Seventh Schedule of the Constitution only demarcate the legislative fields of the respective legislatures and do not confer legislative power as such. While Parliament has power to make laws for the whole or any part of the territory of India, the legislature of a State can make laws only for the State or part thereof. Thus, Article 245 inter alia indicates the extent of laws made by Parliament and by the State Legislatures. 36. Article 246 deals with the subject-matter of laws made by Parliament and by the legislatures of States. The verb made once again finds place in the Head Note to Article 246. This Article deals with distribution of legislative powers as between the Union and the State Legislatures, with reference to the different Lists in the Seventh Schedule. In short, Parliament has full and exclusive powers to legislate with respect to matters in List I and has also power to legislate with respect to matters in List III, whereas the State Legislatures, on the other hand, have exclusive power to legislate with respect to matters in List II, minus matters falling in List I and List III and have concurrent power with respect to matters in List III. (See Subrahmanyan Chettiar v. Muttuswami Goundan) 37. Article 246, thus, provides for distribution, as between Union and the States, of the legislative powers which are conferred by Article 245. Article 245 begins with the expression subject to the provisions of this Constitution. Therefore, Article 246 must be read as subject to other provisions of the Constitution. 38. For the purposes of this decision, the point which needs to be emphasised is that Article 245 deals with conferment of legislative powers whereas Article 246 provides for distribution of the legislative powers. Article 245 deals with extent of laws whereas Article 246 deals with distribution of legislative powers. In these articles, the Constitution Framers have used the word make and not commencement which has a specific legal connotation. [See Section 3(13) of the General Clauses Act, 1897.] (Emphasis supplied) Limitations on the Exercise of Power 20. Exercise of sovereign power is, however, subject to Constitutional limitations especially in a federal system like ours where the States also to the extent permissible exercise the power to make laws including laws that levy taxes, duties and fees. That the power to levy taxes is subject to constitutional limitations is no longer res-integra. A Constitution Bench of this Court has in Synthetics and Chemicals Ltd. and Ors. v. State of U.P. and Ors. (1990) 1 SCC 109 recognised that in India the Centre and the States both enjoy the exercise of sovereign power, to the extent the Constitution confers upon them that power. This Court declared: 56 ... We would not like, however, to embark upon any theory of police power because the Indian Constitution does not recognise police power as such. But we must recognise the exercise of Sovereign power which gives the State sufficient authority to enact any law subject to the limitations of the Constitution to discharge its functions. Hence, the Indian Constitution as a sovereign State has power to legislate on all branches except to the limitation as to the division of powers between the Centre and the States and also subject to the fundamental rights guaranteed under the Constitution. The Indian States, between the Centre and the States, has sovereign power. The sovereign power is plenary and inherent in every sovereign State to do all things which promote the health, peace, morals, education and good order of the people. Sovereignty is difficult to define. This power of sovereignty is, however, subject to constitutional limitations. This power, according to some constitutional authorities, is to the public what necessity is to the individual. Right to tax or levy impost must be in accordance with the provisions of the Constitution. 21. What then are the Constitutional limitations on the power of the State legislatures to levy taxes or for that matter enact legislations in the field reserved for them under the relevant entries of List II and III of the Seventh Schedule. The first and the foremost of these limitations appears in Article 13 of the Constitution of India which declares that all laws in force in the territory of India immediately before the commencement of the Constitution are void to the extent they are inconsistent with the provisions of Part III dealing with the fundamental rights guaranteed to the citizens. It forbids the States from making any law which takes away or abridges, any provision of Part III. Any law made in contravention of the said rights shall to the extent of contravention be void. There is no gain saying that the power to enact laws has been conferred upon the Parliament subject to the above Constitutional limitation. So also in terms of Article 248, the residuary power to impose a tax not otherwise mentioned in the Concurrent List or the State List has been vested in the Parliament to the exclusion of the State legislatures, and the States power to levy taxes limited to what is specifically reserved in their favour and no more. 22. Article 249 similarly empowers the Parliament to legislate with respect to a matter in the State List for national interest provided the Council of States has declared by a resolution supported by not less than two-thirds of the members present and voting that it is necessary or expedient in national interest to do so. The power is available till such time any resolution remains in force in terms of Article 249(2) and the proviso thereunder. 23. Article 250 is yet another provision which empowers the Parliament to legislate with respect to any matter in the State List when there is a proclamation of emergency. In the event of an inconsistency between laws made by Parliament Under Articles 249 and 250, and laws made by legislature of the States, the law made by Parliament shall, to the extent of the inconsistency, prevail over the law made by the State in terms of Article 251. 24. The power of Parliament to legislate for two or more States by consent, in regard to matters not otherwise within the power of the Parliament is regulated by Article 252, while Article 253 starting with a non-obstante Clause empowers Parliament to make any law for the whole country or any part of the territory of India for implementing any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body. 25. Article 285 exempts the property of the Union from all taxes imposed by the States save in so far as the Parliament may by law provide. Article 286 places yet another Constitutional limitation on the States power to collect any levy that imposes or authorises the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place outside the State or in the course of import of the goods into or export of the goods outside the territory of India. It also makes any law of a State imposing tax on sale or purchase of goods of special importance in inter State trade or commerce or a tax on the sale or purchase of goods being a tax of the nature referred to in the relevant sub-clauses of Clause 29(A) of Article 366 subject to such restrictions and conditions as to the system of levy, rates and other incidents of tax as the Parliament may by law specify. 26. Article 287 places a Constitutional limitation on the States legislative power to enact laws in so far as imposition of tax on consumption or sale of electricity consumed by the Government of India or sold to the Government of India for consumption by the Government or for consumption of the construction, maintenance or operation of any railway by the Government of India or a rail company etc. Similarly, Article 288 contains a Constitutional limitation on the power of the State in so far as imposition of a tax in respect of any water or electricity stored, generated, consumed, distributed or sold by any authority established by any existing law or any law made by the Parliament is concerned. 27. It would thus appear that even when Article 246(2) and (3) confers exclusive power on the State legislatures to make laws with respect to matters in the Seventh Schedule such legislative power is exercisable subject to constitutional limitations referred to above. What is significant is that the power of the State legislatures to levy taxes is also subject to the limitations of Article 304(a) of the Constitution appearing in Part XIII thereof, which part regulates trade, commerce and intercourse within the territory of India and comprises Articles 301 to 307. The provisions of these Articles have been the subject matter of a series of decisions of this Court including several Constitution Bench decisions to some of which we shall presently refer. The language employed in the provisions and the non-obstante clauses with which the same start have all the same given rise to several contentious issues for determination by this Court over the past five decades or so. The fact that the present batch of cases had to be referred to a Nine-Judge Bench to once again examine the very same issues as have been debated and determined in the previous judgments of this Court only shows that the task of interpreting the provisions is by no means easy and has in fact become more and more difficult on account of the pronouncements of this Court taking different views not many of which have been unanimous. The marked difference in the approach adopted by learned Counsel for the parties in these appeals is also a measure of the complexities of issues that fall for determination. This is specially so because the prevailing legal position in terms of the judgment of this Court in Atiabari and Automobile cases (supra) holding that fiscal measures that are compensatory fall beyond the mischief of Article 301 has been questioned by both sides. Mr. Harish Salve who led the forensic exercise followed by M/s. Arvind Datar, Laxmi Kumaran, Ravindra Shrivastava, N. Venkataraman and others vehemently argued that the Compensatory Tax Theory propounded by the Seven Judges Bench of this Court in Automobile case (supra) had no legal basis or constitutional sanction and was neither acceptable nor workable. That is particularly so because the State legislatures had taken umbrage under the Compensatory Tax Theory and declared the fiscal levies imposed by them to be compensatory in character and claimed the same to be outside the mischief of Article 301 and consequently immune from any challenge on the ground that these taxes and levies were unreasonable restrictions on the right to free trade and commerce. The States who have enacted the laws providing for levy of taxes on the entry of goods into a local area within the meaning of Entry 52 of List II have, on the other hand similarly contended that the Compensatory Tax Theory is bereft of any legal basis and that the decision in Atiabari and Automobile cases (supra) need to be revisited to restore and protect the sovereign power of legislation of the States and the Federal character of our policy. Suffice it to say that except a feeble attempt made by some Counsel, there has been a general consensus that the compensatory tax theory deserves to be rejected and the issues examined afresh on a true and correct interpretation of the relevant constitutional provisions. We are mentioning all this only to show that even after fifty years and several illuminating pronouncements of this Court, the cleavage in the judicial opinion as to the true and correct legal position on the subject continues to loom large and haunt lawyers and litigants and, if we may say so, even Judges alike. The present reference to a larger Bench is in that backdrop expected to give a quietus to this raging legal controversy of considerable complexity, though given the perseverance of the litigants and the ingenuity of the bar a quietus is only a pious hope which has and may even in future elude us. Constitutional Limitations must be Express: 28. The power to levy taxes, being a sovereign power controlled only by the Constitution, any limitation on that power must be express. That proposition is well settled by the decisions of this Court in Maharaj Umeg Singh v. State of Bombay AIR 1955 SC 540 and Firm Bansidhar Premsukhdas v. State of Rajasthan AIR 1967 SC 40 . In Umeg Singhs case (supra) this Court stated the legal position in the following words: 12.......The legislative competence of the State Legislature can only be circumscribed by express prohibition contained in the Constitution itself and unless and until there is any provision in the Constitution expressly prohibiting legislation on the subject either absolutely or conditionally, there is no fetter or limitation on the plenary powers which the State Legislature enjoys to legislate on the topics enumerated in the Lists II & III of the Seventh Schedule to the Constitution. xxxx xxxx xxxx 13. The fetter or limitation upon the legislative power of the State Legislature which had plenary powers of legislation within the ambit of the legislative heads specified in the Lists II & III of the Seventh Schedule to the Constitution could only be imposed by the Constitution itself and not by any obligation which had been undertaken by either the Dominion Government or the Province of Bombay or even the State of Bombay. Under Article 246 the State Legislature was invested with the power to legislate on the topics enumerated in Lists II & III of the Seventh Schedule to the Constitution and this power was by virtue of Article 245(1) subject to the provisions of the Constitution. The Constitution itself laid down the fetters or limitations on this power, e.g., in Article 303 or Article 286(2). But unless and until the Court came to the conclusion that the Constitution itself had expressly prohibited legislation on the subject either absolutely or conditionally the power of the State Legislature to enact legislation within its legislative competence was plenary. Once the topic of legislation was comprised within any of the entries in the Lists II & III of the Seventh Schedule to the Constitution the fetter or limitation on such legislative power had to be found within the Constitution itself and if there was no such fetter or limitation to be found there the State Legislature had full competence to enact the impugned Act no matter whether such enactment was contrary to the guarantee given, or the obligation undertaken by the Dominion Government or the Province of Bombay or even the State of Bombay. 29. Again in Bansidhars case (supra) this Court reiterated the legal position in the following words: 8. ... It is well-established that Parliament or the State Legislatures are competent to enact a law altering the terms and conditions of a previous contract or of a grant under which the liability of the Government of India or of the State Governments arises. The legislative competence of Parliament or of the State Legislatures can only be circumscribed by express prohibition contained in the Constitution itself and unless and until there is any provision in the Constitution expressly prohibiting legislation on the subject either absolutely or conditionally, there is no fetter of limitation on the plenary powers which the Legislature is endowed with for legislating on the topics enumerated in the relevant lists. This view is borne out by the decision of the Judicial Committee in Thakur Jagannath Baksh Singh v. The United Provinces 1946 FCR 111 in which a similar complaint was made by the taluqdars of Oudh against the United Provinces Tenancy Act (U.P. Act 17 of 1939). It was held by the Judicial Committee that the Crown cannot deprive itself of its legislative authority by the mere fact that in the exercise of its prerogative it makes a grant of land within the territory over which such legislative authority exists, and no court can annul the enactment of a legislative body acting within the legitimate scope of its sovereign competence. If therefore, it be found that the subject-matter of a Crown grant is within the competence of a Provincial legislature nothing can prevent that legislature from legislating about it unless the Constitution Act itself expressly prohibits legislation on the subject either absolutely or conditionally. Accordingly, in the absence of any such express prohibition, the United Provinces Tenancy Act, 1939, which in consolidating and amending the law relating to agricultural tenancies and other matters connected therewith in Agra and Oudh, dealt with matters within the exclusive legislative competence of the Provincial legislature under Item 21 of List 11 of the Seventh Schedule to the Government of India Act, 1935, was intra vires the Provincial legislature notwithstanding that admittedly some of its provisions cut down the absolute rights claimed by the Appellant taluqdar to be comprised in the grant of his estate as evidenced by the sanad granted by the Crown to his predecessor. The same principle has been reiterated by this Court in Maharaj Umeg Singh and Ors. v. The State of Bombay 1955 2 SCR 164. It was pointed out that in view of Article 246 of the Constitution, no curtailment of legislative competence can be spelt out of the terms of Clause 5 of the Letters of Guarantee given by the Dominion Government to the Rulers of States subsequent to the agreements of Merger, which guaranteed, inter alia, the continuance of Jagirs in the merged States. This principle also underlies the recent decision of this Court in Maharaja Shree Umaid Mills Ltd. v. Union of India 1963 Supp 2 SCR 515 in which it was pointed out that there is nothing in Article 295 of the Constitution which prohibits Parliament from enacting a law altering the terms and conditions of a contract or of a grant under which the liability of the Government of India arises.... (Emphasis Supplied) 30. One other fundamental aspect which must always be kept in mind while interpreting the provisions of the Constitution is the federal structure envisaged by it. Whether or not the Constitution of India is truly federal in character has been the subject matter of debate not only in the Constituent Assembly but also in Courts for over 60 years. The character of the Constitutional scheme described in the Constituent Assembly Debates was that there were doubts expressed whether the Constitution really provided a federal structure in the governance of the country. The criticism was that the scheme underlying the Constitution was more unitary than federal, on account not only of several provisions in the Constitution that empowered the Centre to at times intervene and enact laws for the States but also on account of the Centres power to take over the governance of the State. Repelling that criticism, Dr. B.R. Ambedkar speaking in the Constituent Assembly explained the true character of the Constitution of India in the following significant words: There is only one point of constitutional import to which I propose to make a reference. A serious complaint is made on the ground that there is too much of centralisation and that the States have been reduced to municipalities. It is clear that this view is not only an exaggeration, but is also founded on a misunderstanding of what exactly the Constitution contrives to do. As to the relation between the Centre and the States, it is necessary to bear in mind the fundamental principle on which it rests. The basic principle of federalism is that the legislative and executive authority is partitioned between the Centre and the States not by any law to be made by the Centre but by the Constitution itself. This is what Constitution does. The States under our Constitution are in no way dependent upon the Centre for their legislative or executive authority. The Centre and the States are coequal in this matter. It is difficult to see how such a Constitution can be called centralism. It may be that the Constitution assigns to the Centre too large a field for the operation of its legislative and executive authority than is to be found in any other federal Constitution. It may be that the residuary powers are given to the Centre and not to the States. But these features do not form the essence of federalism. The chief mark of federalism as I said lies in the partition of the legislative and executive authority between the Centre and the units by the Constitution. This is the principle embodied in our Constitution. 31. To the same effect was the answer given to the criticism by Shri T.T. Krishnamachari during the Constituent Assembly Debates on the draft Constitution, when he said: Sir, I would like to go into a few fundamental objections because as I said it would not be right for us to leave these criticisms uncontroverted. Let me take up a matter which is perhaps partly theoretical but one which has a validity so far as the average man in this country is concerned. Are we framing a unitary Constitution? Is this Constitution centralising power in Delhi? Is there any way provided by means of which the position of people in various areas could be safeguarded, their voices heard in regard to matters of their local administration? I think it is a very big charge to make that this Constitution is not a federal Constitution, and that it is a unitary one. We should not forget that this question that the Indian Constitution should be a federal one has been settled by our Leader who is no more with us, in the Round Table Conference in London eighteen years back. I would ask my honourable friend to apply a very simple test so far as this Constitution is concerned to find out whether it is federal or not. The simple definition I have got from the German school of political philosophy is that the first criterion is that the State must exercise compulsive power in the enforcement of a given political order, the second is that these powers must be regularly exercised over all the inhabitants of a given territory, and the third is the most important and that is that the activity of the State must not be completely circumscribed by orders handed down for execution by the superior unit. The important words are must not be completely circumscribed, which envisages some powers of the State are bound to be circumscribed by the exercise of federal authority. Having all these factors in view, I will urge that our Constitution is a federal Constitution. I will urge that our Constitution is one in which we have given power to the units which are both substantial and significant in the legislative sphere and in the executive sphere. (Emphasis Supplied) 32. Whether or not the Constitution provides a federal structure for the governance of the country has been the subject matter of a long line of decisions of this Court, reference to all of which may be unnecessary but the legal position appears to be fairly well settled that the Constitution provides for a quasi federal character with a strong bias towards the Centre. The pronouncements recognised the proposition that even when Constitution may not be strictly federal in its character as the United States of America, where sovereign States came together to constitute a federal union, where each State enjoins a privilege of having a Constitution of its own, the significant feature of a federal Constitution are found in the Indian Constitution which makes it a quasi federal Constitution, if not truly federal in character and in stricto sensu federal. The two decisions which stand out in the long line of pronouncements of this Court on the subject may, at this stage, be briefly mentioned. The first of these cases is the celebrated decisions of this Court in Kesavananda Bharati case (supra), wherein a thirteen Judges Bench of this Court, Sikri CJ (as His Lordship then was), being one of them talks about whether the Constitution of India was federal in character and if so whether federal character of the Constitution formed the basic feature of the Constitution. Sikri C.J. summed up the basic feature of the Constitution in the following words: 292..........The true position is that every provision of the Constitution can be amended provided in the result the basic foundation and structure of the Constitution remains the same. The basic structure may be said to consist of the following features: (1) Supremacy of the Constitution. (2) Republican and Democratic form of Government. (3) Secular character of the Constitution. (4) Separation of powers between the legislature, the executive and the judiciary; (5) Federal character of the Constitution. 293. The above structure is built on the basic foundation i.e. the dignity and freedom of the individual. This is of supreme importance. This cannot by any form of amendment be destroyed. 294. The above foundation and the above basic features are easily discernible not only from the preamble but the whole scheme of the Constitution, which I have already discussed. To the same effect are the views expressed by Shelat and Grover JJ. who declared that the federal character of the Constitution is a part of its basic structure. 33. In S.R. Bommai v. Union of India 1994 (3) SCC 1 , this Court had yet another occasion to examine whether the Constitution was federal in nature. Speaking for himself and Justice Kuldeep Singh, Sawant J. while referring to H.M. Seervais commentary on Constitutional Law of India held that the principle of federalism has not been watered down so as to make the Constitution unitary in character. The presence in the Constitution exclusive legislative powers conferred on the State and the provision that such powers may be exercised by the Parliament during an emergency may not affect and dilute the federal character of the Constitution. So also, the provisions of Article 355 imposing the duty on the Union to protect a State against internal disorder are not inconsistent with the federal principles nor are the powers vested in the Central Government Under Article 356 inconsistent with the federal character of the Constitution. The Court, in particular, dealt with the question whether List II contains unimportant matters thereby denuding the Constitution of its federal character. The Court observed that List II contains very important subjects assigned to the State including the power to levy taxes which powers are made mutually exclusive so that ordinarily the States have independent source of revenue of their own. The following passages from the decision are apposite: ....... 97. (k) The view that unimportant matters were assigned to the States cannot be sustained in face of the very important subjects assigned to the States in List II, and the same applies to taxing powers of the States, which are made mutually exclusive of the taxing powers of the Union so that ordinarily the States have independent source of revenue of their own. The legislative entries relating to taxes in List II show that the sources of revenue available to the States are substantial and would increasingly become more substantial. In addition to the exclusive taxing powers of the States, the States become entitled either to appropriate taxes collected by the Union or to a share in the taxes collected by the Union. 99. The above discussion thus shows that the States have an independent constitutional existence and they have as important a role to play in the political, social, educational and cultural life of the people as the Union. They are neither satellites nor agents of the Centre. The fact that during emergency and in certain other eventualities their powers are overridden or invaded by the Centre is not destructive of the essential federal nature of our Constitution. The invasion of power in such circumstances is not a normal feature of the Constitution. They are exceptions and have to be resorted to only occasionally to meet the exigencies of the special situations. The exceptions are not a rule. 100. For our purpose, further it is really not necessary to determine whether, in spite of the provisions of the Constitution referred to above, our Constitution is federal, quasi-federal or unitary in nature. It is not the theoretical label given to the Constitution but the practical implications of the provisions of the Constitution which are of importance to decide the question that arises in the present context, viz., whether the powers Under Article 356(1) can be exercised by the President arbitrarily and unmindful of its consequences to the governance in the State concerned. So long as the States are not mere administrative units but in their own right constitutional potentates with the same paraphernalia as the Union, and with independent Legislature and the Executive constituted by the same process as the Union, whatever the bias in favour of the Centre, it cannot be argued that merely because (and assuming it is correct) the Constitution is labelled unitary or quasi-federal or a mixture of federal and unitary structure, the President has unrestricted power of issuing Proclamation Under Article 356(1). If the Presidential powers under the said provision are subject to judicial review within the limits discussed above, those limitations will have to be applied strictly while scrutinising the concerned material. (Emphasis Supplied) 34. What is important is that B.P. Jeevan Reddy, J. speaking for himself and Aggarwal J., while holding the Constitution to be federal in character cautioned that the Centre cannot tamper with the powers conferred upon the States. States are not mere appendages of the Centre within the sphere allotted to them. The States are supreme and the Centre cannot tamper with their powers. 35. Justice K. Ramaswamy, speaking for himself also accepted federalism of the Indian Constitution as a basic feature. One other decision that has dealt with the federal character of the Constitution of India is Kuldeep Nair v. Union of India and Ors. (2006) 7 SCC 1 wherein this Court held that nature of federalism in the Indian Constitution is no longer res integra. Relying upon the Constituent Assembly Debates to which we have referred earlier. The Court declared: 50. A lot of energy has been devoted on behalf of the Petitioners to build up a case that the Constitution of India is federal. The nature of federalism in the Indian Constitution is no longer res integra. 51. There can be no quarrel with the proposition that the Indian model is broadly based on federal form of governance. Answering the criticism of the tilt towards the Centre, Shri T.T. Krishnamachari, during debates in the Constituent Assembly on the draft Constitution, had stated as follows: .......... 36. While parting with this aspect we must also refer to the decision of this Court in Re: Under Article 143, Constitution of India (Special Reference No. 1 of 1964) AIR 1965 SC 745 wherein this Court held: 39. In dealing with this question, it is necessary to bear in mind one fundamental feature of a Federal Constitution. In England, Parliament is sovereign; and in the words of Dicey, the three distinguishing features of the principle of Parliamentary Sovereignty are that Parliament has the right to make or unmake any law whatever; that no person or body is recognised by the law of England as having a right to override or set aside the legislation of Parliament, and that the right or power of Parliament extends to every part of the Queens dominions (1). On the other hand, the essential characteristic of federalism is the distribution of limited executive, legislative and judicial authority among bodies which are coordinate with and independent of each other. The supremacy of the constitution is fundamental to the existence of a federal State in order to prevent either the legislature of the federal unit or those of the member States from destroying or impairing that delicate balance of power which satisfies the particular requirements of States which are desirous of union, but not prepared to merge their individuality in a unity. This supremacy of the constitution is protected by the authority of an independent judicial body to act as the interpreter of a scheme of distribution of powers. Nor is any change possible in the Constitution by the ordinary process of federal or State legislation (2). Thus the dominant characteristic of the British Constitution cannot be claimed by a Federal Constitution like ours. 37. Before we turn to the provisions of Articles 301 to 307 comprising Part XIII of the Constitution, we need to also bear in mind the historical backdrop in which that part of the Constitution was enacted. While doing so we must at the threshold acknowledge that the historical perspective of Part XIII has been explored several times during the past in several pronouncements of this Court. The exposition of different stages of evolution and development of what comprises Part XIII today has been both extensive as well as incisive. The decisions of the Court have gone into great details while examining the history of Part XIII. It will, therefore, be presumptuous for us to suggest that the historical basis of Part XIII is a virgin area being traversed for the first time. In fairness to the scholarly pronouncements that have preceded the present batch of cases, we must acknowledge with gratitude the usefulness of the in-depth study and understanding of the Judges who have examined and traced the evolution of Part XIII while drawing their conclusions from the same, no matter such inferences and conclusions have more often than not been varied which is but natural when one examines history or the events that led to its making. 38. It is, in our opinion, unnecessary to refer to all the decisions that have till now traced the development of the jurisprudence concerning Part XIII from its inception. A reference to some of the decisions alone should, in our opinion, suffice. The first of these decisions to which we must make a reference is the Constitution Bench decision in M.P.V. Sunderaramier v. State of Andhra Pradesh AIR 1958 SC 468 . That was a case filed Under Article 32 of the Constitution of India for a Writ of Prohibition restraining the State of Andhra Pradesh from imposing a tax on inter-State trade of sale and purchase of yarn. The levy and collection of any such tax was according to the Petitioner contrary to the provision contained in Article 282(6) of the Constitution of India. One of the questions that fell for consideration of the Court was whether the States could impose a tax on inter-State sales having regard to the provisions of Articles 246 and 301 of the Constitution of India. The argument was that the freedom guaranteed Under Article 301 included freedom from taxation with the result that any tax on inter-State sales would offend that guarantee. The contention was rejected by this Court in unequivocal terms. The Court said: (50) This contention suffers, in our opinion, from serious infirmities. It overlooks that our Constitution was not written on a tabula-rasa, that a Federal Constitution had been established under the Government of India Act, 1935, and though that has undergone considerable change by way of repeal, modification and addition, it still remains the framework on which the present Constitution is built, and that the provisions of the Constitution must accordingly be read in the light of the provisions of the Government of India Act. (Emphasis supplied) 39. Three years later came the Constitution Bench decision of this Court in Atiabari Tea Company Ltd. case (supra). The Petitioner in that case questioned the constitutional validity of Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, (Assam Act XIII of 1954), before the High Court. The Writ Petition having failed, the matter was brought up in appeal before this Court which was heard alongwith several petitions filed Under Article 32 of the Constitution of India. The impugned legislation levied taxes on certain goods carried by road and inland waterways in the State of Assam. The levy under the legislation was challenged primarily on the ground that the same was ultra vires of the Constitution inter alia because of their repugnance with the provision of Article 301 of the Constitution. This Court by a majority struck down the Constitutional validity of the enactment holding that the impugned levy operated directly and immediately as a restriction on free trade, commerce and intercourse guaranteed Under Article 301 of the Constitution of India. The decision propounded three different points of view, one each taken by B.P. Sinha, C.J. and J.C. Shah, J. and the third by majority comprising P.B. Gajendragadkar, K.N. Wanchoo and K.C. Das Gupta, JJ. We shall presently deal with the rationale underlying the three views but before we do so, we may gainfully extract from the decision rendered by Sinha, CJ., the historical perspective in which Part XIII of the Constitution was enacted. In Para 9 of the Report, Sinha, CJ., as His Lordship then was, traced the evolution of Part XIII in the following words: 9. In order to fully appreciate the implications of the provisions of Part XIII of the Constitution, it is necessary to bear in mind the history and background of those provisions. The Constitution Act of 1935 (Government of India Act, 26 (Geo. 5, Ch. 2) which envisages the federal constitution for the whole of India, including what was then Indian India in contradistinction to British India, which could not be fully implemented and which also introduced full provincial autonomy enacted Section 297 prohibiting certain restrictions on internal trade in these terms: 297. (1) No Provincial Legislature or Government shall- (a) By virtue of the entry in the Provincial Legislative List relating to trade and commerce within the Province, or the entry in that list relating to the production, supply, and distribution of commodities, have power to pass any law or take any executive action prohibiting or restricting the entry into, or export from the Province of goods of any class or description; or (b) By virtue of anything in this Act have power to impose any tax, cess, toll or due which, as between goods manufactured or produced in the Province and similar goods not so manufactured or produced, discriminates in favour of the former, or which, in the case of goods manufactured or produced outside the Province, discriminates between goods manufactured or produced in one locality and similar goods manufactured or produced in another locality. (2) Any law passed in contravention of this Section shall, to the extent of the contravention, be invalid. 10. It will be noticed that the prohibition contained in the Section quoted above applied only to Provincial Governments and Provincial Legislatures with reference to entries in the Provincial Legislative List relating to trade and commerce within the Province and to production, supply and distribution of commodities. That Section dealt with prohibitions or restrictions in respect of import into or export from a Province, 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. .... 11. In this connection it has got to be remembered that before the commencement of the Constitution about two-thirds 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 regulate the flow of trade, commerce and intercourse. It is a notorious fact that many of them had erected trade barriers seriously impeding the free flow of trade, commerce and intercourse, not only shutting out but also shutting in commodities meant for mass consumption. Between the years 1947 and 1950 almost all the Indian States entered into engagements with the Government of India and ultimately merged their individualities into India as one political unit, with the result that what was called British India, broadly speaking, became, under the Constitution, Part A States, and subject to certain exceptions not relevant to our purpose, the Native States became Part B States. We also know that before the Constitution introduced the categories of Part A States, Part B States and Part C States (excluding Part D relating to other territories), Part B States themselves, before their being constituted into so many units, contained many small States, which formed themselves into Unions of a number of States, and had such trade barriers and custom posts, even inter se. But even after the merger, the Constitution had to take notice of the existence of trade barriers and therefore had to make transitional provisions with the ultimate objective of abolishing them all. Most of those Native States, big or small, had their own taxes, cesses, tolls and other imposts and duties meant not only for raising revenue, but also as trade barriers and tariff walls. It was in the background of these facts and circumstances that the Constitution by Article 301 provided for the abolition of all those trade barriers and tariff walls. When for the first time in the history of India the entire territory within the geographical boundaries of India, minus what became Pakistan, was knit into one political unit, it was necessary to abolish all those trade barriers and custom posts in the interest of national solidarity, economic and cultural unity as also of freedom of trade, commerce and intercourse. (Emphasis supplied) 40. The majority opinion offered by Gajendragadkar J., also traced the history of Part XIII in the following words: 33. Let us first recall the political and constitutional background of Part XIII. It is a matter of common knowledge that, before the Constitution was adopted, nearly two-thirds of the territory of India was subject to British Rule and was then known as British India, while the remaining part of the territory of India was governed by Indian Princes and it consisted of several Indian States. A large number of these States claimed sovereign rights within the limitations imposed by the paramount power in that behalf, and they purported to exercise their legislative power of imposing taxes in respect of trade and commerce which inevitably led to the erection of customs barriers between themselves and the rest of India. In the matter of such barriers British India was governed by the provisions of Section 297 of the Constitution Act, 1935. To the provisions of this Section we will have occasion later to refer during the course of this judgment. Thus, prior to 1950 the flow of trade and commerce was impeded at several points which constituted the boundaries of Indian States. After India attained political freedom in 1947 and before the Constitution was adopted the historical process of the merger and integration of the several Indian States with the rest of the country was speedily accomplished with the result that when the Constitution was first passed the territories of India consisted of Part A States which broadly stated represented the provinces in British India, and Part B States which were made up of Indian States. This merger or integration of Indian States with the Union of India was preceded by the merger and consolidation of some of the States inter-se between themselves. It is with the knowledge of the trade barriers which had been raised by the Indian States in exercise of their legislative powers that the Constitution-makers framed the Articles in Part XIII. The main object of Article 301 obviously was to allow the free flow of the stream of trade, commerce and intercourse throughout the territory of India. 41. Then came the decision of this Court in Automobile case (supra) wherein, this Court examined the challenge to the Rajasthan Motor Vehicles Act, inter alia, on the ground that levy of taxes imposed under the said Act were offensive to Article 301 of the Constitution of India. S.K. Das, J. speaking for the majority also traced the historical background of Part XIII in the following words: 7. So far we have set out the factual and legal background against which the problem before us has to be solved. We must now say a few words regarding the historical background. It is necessary to do this, because extensive references have been made to Australian and American decisions, Australian decisions with regard to the interpretation of Section 92 of the Australian Constitution and American decisions with regard to the Commerce Clause of the American Constitution. This Court pointed out in the Atiabari Tea Co. case (1961) 1 SCR 809 : (AIR 1961 SC 232 ), that it would not be always safe to rely upon the American or Australian decisions in interpreting the provisions of our Constitution. Valuable as those decisions might be in showing how the problem of freedom of trade, commerce and intercourse was dealt with in other federal constitutions, the provisions of our Constitution must be interpreted against the historical background in which our Constitution was made; the background of problems which the Constitution-makers tried to solve according to the genius of the Indian people whom the Constitution-makers represented in the Constituent Assembly. The first thing to be noticed in this connection is that the Constitution-makers were not writing on a clean slate. They had the Government of India Act, 1935 and they also had the administrative set up which that Act envisaged. India then consisted of various administrative units known as Provinces, each with its own administrative set up. There were differences of language, religion etc. Some of the Provinces were economically more developed than the others. Even inside the same Province, there were under developed, developed and highly developed areas from the point of view of industries, communications etc. The problem of economic integration with which the Constitution-makers were faced was a problem with many facets. Two questions, however, stood out; one question was how to achieve a federal, economic and fiscal integration, so that economic policies affecting the interests of India as a whole could be carried out without putting an ever-increasing strain on the unity of India, particularly in the context of a developing economy. The second question was how to foster the development of areas which were under-developed without creating too many preferential or discriminative barriers. Besides the Provinces, there were the Indian States also known as Indian India. After India attained political freedom in 1947 and before the Constitution was adopted, the process of merger and integration of the-Indian States with the rest of the country had been accomplished so that when the Constitution was first passed the territory of India consisted of Part A States, which broadly stated, represented the Provinces in British India, and Part B States which were made up of Indian States. There were trade barriers raised by the Indian States in the exercise of their legislative powers and the Constitution-makers had to make provisions with regard to those trade barriers as well. The evolution of a federal structure or a quasi-federal structure necessarily involved, in the context of the conditions then prevailing, a distribution of powers and a basic part of our Constitution relates to that distribution with the three legislative lists in the Seventh Schedule. ... ... ... 42. Hidayatullah J., in a separate dissenting opinion traced at great length the historical evolution of not only the federal structure of the Government of India Act, 1915 but also the recommendations made by the Simon Commission and the Joint Parliamentary Committee on the Evolution of such Federalism and for the protection of trade, commerce and intercourse. His Lordship referred to the backdrop in which the Government of India Act, 1935 was enacted, including the recommendations made by the Butler Committee, the Round Table Conference, the Federal Structure Committee, the Federal Legislature and Provincial Legislature Committee and the Joint Parliamentary Committee to eventually conclude that the avowed object underlying all these recommendations and constitutional framework was to ensure that the accession of the State to the federation implies its acceptance of the principle that it will not set up a barrier to free interchange so formidable as to constitute a threat to the future of the federation. Based on the historical developments decades before the enactment of Government of India Act, 1935, his Lordship concluded: 95. The detailed examination of the history lying at the back of the Government of India Act, 1935 lays bare some fundamental facts and premises. It shows that the process through a whole century was the breakup of a highly centralized Government and the creation of autonomous Provinces with distinct and separate political existence, to be combined inter se and with the Indian States, at a later period, in a federation. To achieve this, not only was there a division of the heads of legislation, but the financial resources were also divided and separate fiscal for the federation and the Provinces were established. The fields of taxation were demarcated, and those for the Provinces were chosen with special care to make these units self-supporting as far as possible with enough to spare for nation-building activities. In this arrangement, the door was open for the Indian States to join on the same basis and on terms of equality. The most important fact was that unlike the American and the Canadian Constitutions the commerce power was divided between the Centre and the Provinces as the Entries quoted by us clearly show. The commerce power of the Provinces was exercisable within the Provinces. The fetter on the commercial power of the Provinces was placed by Section 297. This was in two directions. Clause (a) of Sub-section (1) banned restrictions at the barriers of the Provinces on the entry and export of goods, and Clause (b) prohibited discrimination in taxing goods between goods manufactured and produced in the Province as against goods not so manufactured or produced and local discriminations. (Emphasis supplied) 43. In the opinion of Hidayatullah J., as his Lordship then was, several pitfalls existed in the 1935 Act regarding trade and commerce which were sought to be remedied by the framers of the Constitution while maintaining its federal structure. The following passage is, in this regard, instructive: 96. When drafting the Constitution of India, the Constituent Assembly being aware of the problems in various countries where freedom of trade, commerce and intercourse has been provided differently and also the way the Courts of those countries have viewed the relative provisions, must have attempted to evolve a pattern of such freedom suitable to Indian conditions. The Constituent Assembly realised that the provisions of Section 297 and the Chapter on Discriminations in the Government of India Act, 1935 hardly met the case, and were inadequate. They had to decide the following questions: (a) whether to give the commerce power only to Parliament or to divide it between Parliament and the State Legislatures; (b) whether to ensure freedom of trade, commerce and intercourse inter-State, that is to say, at the borders of the States or to ensure it even intra-State; (c) whether to make the prohibition against restrictions absolute or qualified, and if so, in what manner; (d) if qualified, by whom was the restriction to be imposed and to what extent; (e) whether the freedom should be to the individual or also to trade and commerce as a whole; (f) what to do with the existing laws in British India and more so, in the acceding Indian States; (g) whether any special provisions were needed for emergencies; (h) what should be the special provisions to enable the States to levy taxes on sale of goods, which taxes were to be the main source of income for the States according to the experts. All these matters have, in fact, been covered in Part XIII, and the pitfalls which were disclosed in the Law Reports of the Countries which had accepted freedom of trade and commerce have been attempted to be avoided by choosing language appropriate for the purpose. In addition to this, the broad pattern of the political set-up, namely, a federation of autonomous States was not lost sight of. These autonomous conditions had strengthened during the operation of the 1935 Constitution and led to what Prof. Coupland described as Provincial-patriotism, for which the reason, according to the learned Professor was: In the course of the last few years, moreover, the sense of Provincial patriotism has been strengthened by the advent of a full Provincial self-government. The people took a new pride in Governments that were now in a sense theirs. (The Constitutional Problem in India, part III p. 40). 44. The historical backdrop painted by the decisions of this Court referred to above has not been challenged on a question of fact. Inferences drawn from the same may have, as noticed earlier, varied depending on the individual perspective of the Judges about the said backdrop. The common thread that runs through the historical narratives in the pronouncements of this Court however is discernible and may be briefly summed-up at this stage. The first of these threads that runs through the historical perspective is the fact that before commencement of the Constitution nearly 2/3rd of the country was ruled by the British while the remaining 1/3rd was ruled by the Princes also known as native States that enjoyed varying degrees of sovereignty over their respective territories. These rulers had the power to impose taxes and to regulate the flow of trade, commerce and intercourse. Some of them had erected trade barriers thereby impeding free flow of trade, commerce and intercourse. With the merger of these Princely States into the dominion of India to constitute one single political entity, that part of the country that was ruled by the British came to be known as Part-A State while the native States became Part B States. What is significant is that even after the merger of these States, the Constitution had to acknowledge the existence of trade barriers and make transitional provisions with a view to eventually abolishing the same. It was in that background that the Constitution by Article 301 provided for the abolition of all such trade barriers consequent upon the entire geographical boundaries of India being knit into one political unit. The whole object underlying the removal of such barriers was to facilitate free trade, commerce and intercourse in the interest of national solidarity and economic unity of the country. The evolution of Articles 301 to 307 comprising Part XIII of the Constitution is also punctuated by several events, twists and turns to which we may briefly refer at this stage, but, while we may do so, we need to remember that Section 297 of the Government of India Act, 1935 dealt with the subject that eventually came under the umbrella of Part XIII and prohibited provincial governments from imposing barriers on trade within the country. The said provision also prohibited levy of cess, tolls or other tax duties which discriminated between the goods manufactured in one locality as against similar goods manufactured elsewhere. It is because of the said provision that Venkatarama Iyer, J. in M.P.V. Sunderaramiers case (supra) made the observation that the Constitution was not written on a tabula-rasa. 45. The first germ plasma for Article 301 was located in what was introduced as Clause 13 in the draft submitted by the Sub-Committee on fundamental rights comprising Mr. K.M. Munshi, Sir Alladi Krishnaswami Ayyar and Sir B.N. Rau amongst others. The Clause was in the following words: Subject to Regulation by the law of the Union, trade, commerce and intercourse among the units, whether by means of internal carriage or by ocean navigation, shall be free: Provided that any unit may by law impose reasonable restrictions thereon in the interest of public order, morality or health. From the note of Sir B.N. Rau it is evident that the first part of Clause 13 (supra) was adopted from Section 92 of the Australian Constitution while the proviso at the end of the Clause was new. 46. Sir Alladi Krishnaswami Ayyar in the Draft Report of 10th, 14th and 15th April, 1947 in relation to Clause 13 suggested that it must be made clear that: (1) goods from other parts of India than in the units concerned coming into the units cannot escape duties and taxes to which the goods produced in the units in themselves are subject. (2) It must also be open to the unit in an emergency to place restrictions on the rights declared by the clause. 47. The above suggestions were accepted and it was modified and incorporated as Clause 14 in the following words: 14. (1) Subject to Regulation by the law of the Union trade, commerce and intercourse among the units by and between the citizens shall be free: Provided that any unit may by law impose reasonable restrictions in the interest of public order, morality or health or in an emergency: Provided that nothing in this Section shall prevent any unit from imposing on goods imported from other units the same duties and taxes to which the goods produced in the unit are subject: Provided further that no preference shall be given by any Regulation of commerce or revenue by a unit to one unit over another. [N.B.-A proviso will have to be added to meet the difficulty pointed out in para 6 of our report.] (2) Trade, commerce or intercourse within the territories of the Union by or with any person other than the citizens shall be regulated and controlled by the law of the Union. 48. The above Clause then came up for consideration before the Advisory Committee where an elaborate debate ensued. What is of considerable importance is the statement of Sir Alladi Krishnaswami Ayyar where he explained the purpose of enabling a State to impose reasonable restriction in the interest of public order, morality, health or in an emergency: Chairman: Then let us take up Clause 14 C. Rajagopalachari: I Think we should add to 14 (1) that this shall not be a bar to the imposition of taxes for genuine purposes of revenue. Many Members: That comes later on: N.B. A proviso will have to be added to meet the difficulty pointed out in para 6 of our report. C. Rajagopalachari: That is why I am adding it. Alladi Krishnaswami Ayyar: Subject to Regulation by the law of the Union, trade, commerce, and intercourse among the units by and between the citizens shall be free. That is the general principle. Then come the exceptions, Provided that any unit may by law impose reasonable restrictions in the interest of public order, morality or health or in an emergency. Suppose there is a general famine, and people are starved, that is what is meant here to be dealt with. And then Provided that nothing in this Section shall prevent any unit from imposing on goods imported from other units the same duties and taxes to which the goods produced in the unit are subject. That is to say, we ought not to differentiate; but at the same time, goods coming in should not go scot-free; they should be subject to the same duty as goods produced in the area. And then Provided further that no preference shall be given by any Regulation of commerce or revenue by a unit to one unit over another. Now, kindly read paragraph 6 of the report, regarding adding a proviso. K.M. Panikkar: Rajaji (C. Rajagopalachari) has raised the question of the right of the units to raise taxes, and says this right should not be denied. I, however, think this is a dangerous power to be given to the units. This may result in the creation of so many competing units. We have allowed for two things. We have allowed the unit to tax its own industries. We also allow things brought in to be taxed, for the sake of parity. But our friends want to go a little further and say that the right to impose taxes, or transit duty or some other kind of duty must be given to the units. That I am afraid, will be a negation of the clause. There are certain rates and duties existing in Indian States which for budgetary and other reasons cannot now be extinguished immediately. It may be possible to extinguish them over a period of time, by agreement, but not immediately. C. Rajagopalachari: If the States everywhere can impose taxes and duties for revenue, cannot the provinces also do so? Alladi Krishnaswami Ayyar: We do not give a carte blanche to the States. It has been pointed out that certain condition of things obtain at present in the States, and ... K.M. Panikkar: Let me explain the position. The position with regard to the internal customs in the States is complicated. In a large number of States these customs or duties do not exist. For example for the whole of the Punjab States there is no right for internal customs. For Hyderabad they have the right to impose a tax up to 5% only, both on imports and exports. In Travancore and Cochin it is governed by what is called inter-portal convention. A large number of States have no right whatever even now for imposing customs duty, but a considerable number of them do enjoy this power and their budgetary position today is based on the customs duties they receive, both the maritime States and the internal States. Therefore arrangements will have to be made with them by agreement and contract for setting this matter. Alladi Krishnaswami Ayyar: The Union Powers Committees attention was drawn to this matter and it was suggested by Sir V.T. Krishnamachari and Sir B.L. Mitter that some reference should be made to it in their report. We wanted to permit the States to enjoy the indulgence they have been enjoying. But we should guard against converting the country into competing units; that will be against the federation idea. Chairman: What shall we do about the note? A proviso will have to be added to meet the difficulty pointed out in para 6 of the report. Shall we leave it as it is or shall we draft it? C. Rajagopalachari: I would request members who have given thought to this subject to please inform me how the units will raise their revenue. As it is, the Union does not contemplate the distribution of subsidies to the provinces. The provinces or groups differ among themselves, some are rich and some are poor. Some are capable of managing with their existing resources; but others may have to increase their revenue for managing their affairs. If you impose so many limitations on them, how can they do that? It is all very well to say free trade is necessary; but how are the provinces to live? Alladi Krishnaswami Ayyar: So far as the provincial legislatures are concerned, there is provision in Section 297 of the present Government of India Act itself: (Reads) No Provincial Legislature or Government shall by virtue of entry *** have power to pass any law or take any executive action ***description... C. Rajagopalachari: But at present we have the receipts from customs and other receipts. Alladi Krishnaswami Ayyar: The other day the Madras Premier said he could stop the import of textiles from Bombay and other places outside Madras: but it was pointed out to him that until the constitution is altered he cannot do so. This theory of self-sufficiency of different units is dangerous in our country, because we have to depend upon one another. Govind Ballabh Pant: There is unanimity about the body of this Clause and it is clear that there should not be any discrimination against one unit by another unit. Otherwise we will be going against the very sense of a Union or a Federal Constitution. If the units are to be discriminated against, we will come to blows more often than otherwise. Therefore this should be avoided. The only thing to be considered is how to give effect to the suggestion made in para 6 of the Presidents letter which we have received through the chairman. Should we append a note to the effect that the Constituent Assembly may consider how best to give effect to this Clause in relation to the States or shall we put up a draft. If we are not going to put up a draft, then the matter is simple enough. 49. The Advisory Committee accepted the recommendation of the Sub-Committee in relation to Clause 14 with one change that the Sub-clause providing for central Regulation of trade by or with non-citizens was dropped as being vague and unnecessary. The Advisory Committee in its report submitted on 23rd April, 1947 incorporated the above provision as Clause 10. Certain amendments to the said Clause were suggested and adopted by the Constituent Assembly. 50. In the first Draft Constitution of October, 1947, Clause 17 underwent further amendments and eventually appeared in the Draft Constitution of 1948 as Clause 16 incorporated in the Fundamental Rights Chapter in the following words: 16. Subject to the provisions of Article 244 of this Constitution and of any law made by Parliament, trade, commerce and intercourse throughout the territory of India shall be free. 51. It is noteworthy to mention here that Inter-State trade and commerce was dealt with in Articles 243, 244 and 245 in the Draft Constitution of 1948 which Articles were in the following terms: 243. No preference shall be given to one State over another nor shall any discrimination be made between one State and another by any law or Regulation relating to trade or commerce, whether carried by land, water or air. 244. Notwithstanding anything contained in Article 16 or in the last preceding Article of this Constitution, it shall be lawful for any State- (a) to impose on good imported from other States 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) to impose by land such reasonable restrictions on the freedom of trade, commerce or intercourse with that State as may be required in the public interests: Provided that during a period of five years from the commencement of this Constitution the provisions of Clause (b) of this Article shall not apply to trade or commerce in any of the commodities mentioned in Clause (a) of Article 306 of this Constitution. 245. Parliament shall by law appoint such authority as it considers appropriate for the carrying out of the provisions of Articles 243 and 244 of this Constitution and confer on the authority so appointed such powers and such duties as it thinks necessary. 52. The Ministry of Industry and Supply expressed some reservation regarding Clause (b) of Article 244 and demanded abolition of the said Clause altogether. The Ministry appears to have argued that it was not possible to foresee the circumstances in which the freedom of trade, commerce or intercourse with a State will need to be interfered with by that State in the public interest, unless it be on the basis of discrimination between the residents of one State to another, and this would be wholly contrary to the spirit of the Constitution. [See: B. Shiva Rao; the Framing of Indias Constitution, Volume-IV, Page 329] 53. The note in support of the proposed Clause (b) to Article 244, however, clearly suggests that restrictions referred to in Clause (b) were meant to be restrictions other than by way of taxation. The explanatory note which was appended by Sir B.N. Rau was in the following words: Note: During a period of depression owing to destruction by food or otherwise of crops in any particular State, it may be necessary for the State to impose restrictions on the export of any crop from such State in the public interests. Similarly on the outbreak of any epidemic disease, like plague, in a State it may be necessary for a neighbouring State to impose restrictions on the freedom of intercourse between the inhabitants of that State with the inhabitants of such neighbouring State. Clause (b) of Article 244 is intended to give power to the State to impose such restrictions. 54. On 8th of September, 1949, Dr. B.R. Ambedkar moved an amendment seeking to delete Articles 243, 244 and 245 and the same was adopted. Simultaneously, a new Part XA was introduced containing draft Article 274-A to E. Dr. Ambedkar informed the House that the Articles that were otherwise scattered were now brought together so as to ensure that members could get a holistic idea regarding trade and commerce. Article 274-A was a repetition of Article 16 and laid down the general principle. Article 274-B empowered Parliament to impose restrictions in public interest. Article 274-C prohibited Parliament and the State legislatures from making any law giving any preference to one State over another, or making any discrimination between one State and another, except when Parliament found it necessary to do so to deal with a situation arising from scarcity of goods; Article 274-D vested with the State legislatures the power to impose non-discriminatory tax qua external goods and to impose reasonable restrictions in public interest and Article 274-E provided for an Inter-State Commission. 55. The Constituent Assembly Debates suggests that the introduction of Articles 274A to 274E was severely criticized by several members of the Assembly including Thakur Das Bhargava and Dr. P.S. Deshmukh who moved several amendments to these clauses but the same were rejected and Articles 274-A to 274-E including Articles 274DD and 274DDD were adopted without any modification. These Articles are now renumbered and appear as Articles 301 to 307 of the Constitution of India. 56. It is in the above backdrop that question No. 1 shall have to be answered which turns on a true and correct interpretation of Article 301 of the Constitution. We must at the threshold say that while attempting to answer the question we are not on virgin ground, for this Court has in Atiabari Tea Company case (supra) examined the matter at great length. The decision of this Court in Automobile case (supra) has modified the view in Atiabari, by bringing in the concept of compensatory taxes which this Court held to be outside Part XIII of the Constitution. 57. While J.C. Shah, J. took the view that all taxes regardless whether they are discriminatory or otherwise would constitute an impediment on free trade and commerce guaranteed Under Article 301 of the Constitution of India, Sinha, CJ., held that taxes per se were totally outside the purview of Article 301 and could never constitute a restriction except where the same operated as a fiscal barrier that prevented free trade, commerce and intercourse. The view taken by Justice Shah, J. was not supported by any one of the counsel appearing for the parties for it was candidly accepted that the same was an extreme view that was legally unsupportable. What was all the same argued on behalf of the dealers/Assessees was that the majority view that propounded the test of direct and immediate effect on free trade, commerce and intercourse was the correct view. Reliance, in particular, was placed by learned Counsel for the dealers/Assessees upon the following passages appearing in the majority judgment authored by Gajendragadkar, J. to contend that the same propounded the correct legal position: 50. Let us now revert to Article 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 Article 301 was larger than the freedom contemplated by Section 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 Article 301. If the movement, transport or the carrying of goods is allowed to be impeded, obstructed or hampered by taxation without satisfying the requirements of Part XIII the freedom of trade on which so much emphasis is laid by Article 301 would turn to be illusory. When Article 301 provides that trade shall be free throughout the territory of India primarily it is the movement part of the trade that it has in mind and the movement or the transport part of trade must be free subject of course to the limitations and exceptions provided by the other Articles of Part XIII. That we think is the result of Article 301 read with the other Articles in Part XIII. 51. Thus the intrinsic evidence furnished by some of the Articles of Part XIII shows that taxing laws are not excluded from the operation of Article 301; which means that tax laws can and do amount to restrictions freedom from which is guaranteed to trade under the said Part. Does that mean that all tax laws attract the provisions of Part XIII whether their impact on trade or its movement is direct and immediate or indirect and remote? It is precisely because the words used in Article 301 are very wide, and in a sense vague and indefinite that the problem of construing them and determining their exact width and scope becomes complex and difficult. However, in interpreting the provisions of the Constitution we must always bear in mind that the relevant provision has to be read not in vacuo but as occurring in a single complex instrument in which one part may throw light on another. (Vide: James v. Commonwealth of Australia-1936 A.C. 578 at pg. 613). In construing Article 301 we must, therefore, have regard to the general scheme of our Constitution as well as the particular provisions in regard to taxing laws. The construction of Article 301 should not be determined on a purely academic or doctrinaire considerations; in construing the said Article we must adopt a realistic approach and bear in mind the essential features of the separation of powers on which our Constitution rests. It is a federal constitution which we are interpreting, and so the impact of Article 301 must be judged accordingly. Besides, it is not irrelevant to remember in this connection that the Article we are construing imposes a constitutional limitation on the power of the Parliament and State Legislatures to levy taxes, and generally, but for such limitation, the power of taxation would be presumed to be for public good and would not be subject to judicial review or scrutiny. Thus considered we think 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. 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 Article 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 validity of the Act under scrutiny in the present proceedings. 58. On behalf of the Respondent-States it was per contra argued that the power to levy taxes is a sovereign power that remains totally unaffected by Article 301 of the Constitution of India. Free trade, commerce and intercourse was not, according to the learned Counsel, to be understood as free from any restrictions, leave alone free from taxes which the State legislatures were otherwise competent to levy. Enunciation of law by Sinha, C.J. was according to the learned Attorney General for India and learned Counsel appearing for the States, the correct view which ought to be accepted in preference to the other two contrary views propounded in the judgment. Reliance, in particular, was placed by Mr. Rohatgi and learned Counsel for the Respondent-States upon the following passages appearing in Sinha, CJ.s judgment: 14. 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 goods on carriage of goods and commodities, men and animals, from one place to another, both inter-State and intra-State, would come within the purview of Article 301 and the proviso to Article 304(b) would make it necessary that all Bills or Amendments of pre-existing laws shall have to go through 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 sovereignty under the Constitution to a mere fiction. That extreme position has, therefore, to be rejected as unsound. 15. In this connection, it is also pertinent to bear in mind that all taxation is not necessarily an impediment or a restraint in the matter of trade, commerce and intercourse. Instead of being such impediments or restraints, they may, on the other hand, provide the wherewithals to improve different kinds of means of transport, for example, in cane growing areas, unless there are good roads, facility for transport of sugarcane from sugarcane fields to sugar mills may be wholly lacking or insufficient. In order to make new roads as also to improve old ones, cess on the grower of cane or others interested in the transport of this commodity has to be imposed, and has been known in some parts of India to have been imposed at a certain rate per md. or ton of sugarcane transported to sugar factories. Such an imposition is a tax on transport of sugarcane from one place to another, either intra-State or inter-State. It is the tax thus realised that makes it feasible for opening new means of communication or for improving old ones. It cannot, therefore, be said that taxation in every case must mean an impediment or restraint against free flow of trade and commerce. Similarly, for the facility of passengers and goods by motor transport or by railway, a surcharge on usual fares or freights is levied, or may be levied in future. But for such a surcharge, improvement in the means of communication may not be available at all. Hence, in my opinion, it is not correct to characterise a tax on movement of goods or passengers as necessarily connoting an impediment, or a restraint, in the matter of trade and commerce. That is another good reason in support of the conclusion that taxation is not ordinarily included within the terms of Article 301 of the Constitution. 16. In my opinion, another very cogent reason for holding that taxation simpliciter is not within the terms of Article 301 of the Constitution is that the very connotation of taxation is the power of the State to raise money for public purposes by compelling the payment by persons, both natural and juristic, of monies earned or possessed by them, by virtue of the facilities and protection afforded by the State. Such burdens or imposts, either direct or indirect, are in the ultimate analysis meant as 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 it down in the case of Ramjilal v. Income Tax Officer, Mohindargarh 1951 SCR 127 at page 136., AIR 1951 SC 97 at page 100), that imposition and collection of taxes by authority of law envisaged by Article 265 is outside the scope of the expression deprivation of property in Article 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 Ors. in public interest. If a law is passed by the Legislature imposing a tax which in its true nature and effect is meant to impose an impediment to the free flow of trade, commerce and intercourse, for example, by imposing a high tariff wall, or by preventing imports into or exports out of a State, such a law is outside the significance of taxation, as such, but assumes the character of a trade barrier which it was the intention of the Constitution-makers to abolish by Part XIII. The objections against the contention that taxation was included within the prohibition contained in Part XIII may thus be summarised: (1) Taxation, as such, always implies that it is in public interest. Hence, it would be outside particular restrictions, which may be characterised by the courts as reasonable and in public interest. (2) The power is vested in a sovereign State to carry on Government. Our Constitution has laid the foundations of a welfare State, which means very much expanding the scope of the activities of Government and administration, thus making it necessary for the State to impose taxes on a much larger scale and in much wider fields. The legislative entries in the three Lists referred to above empowering the Union Government and the State Governments to impose certain taxations with reference to movement of goods and passengers would be rendered ineffective, if not otiose, if it were held that taxation simpliciter is within the terms of Article 301. (3) If the argument on behalf of the Appellants were accepted, many taxes, for example, sales tax by the Union and by the States, would have to go through the gamut prescribed in Articles 303 and 304, thus very much detracting from the limited sovereignty of the States, as envisaged by the Constitution. (4) Laws relating to taxation, which is essentially a legislative function of the State, will become justiciable and every time a taxation law is challenged as unconstitutional, the State will have to satisfy the courts--a course which will seriously affect the division of powers on which modern constitutions, including ours, are based. (5) Taxation on movement of goods and passengers is not necessarily an impediment. 17. That conclusion leads to a discussion of the other extreme position that taxation is wholly out of the purview of Article 301. That extreme position is equally untenable in view of the fact that Article 304 contains, and Article 306, before it was repealed in 1956, contained, reference to taxation for certain purposes mentioned in those Articles. But Article 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 Article 301 to abolish. Similarly, Article 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 that does not mean that State Legislatures derive their power of taxation by virtue of what is contained in Article 304. Article 304 only left intact such power of taxation, but contained the inhibition that such taxes shall not be permitted to have the effect of impeding the free flow of goods and commodities. Sinha, C.J. concluded as follows: 18. ..... Thus, on a fair construction of the provisions of Part XIII, the following propositions emerge: (1) trade, commerce, and intercourse throughout the territory of India are not absolutely free, but are subject to certain powers of legislation by Parliament or the Legislature of a State; (2) the freedom declared by Article 301 does not mean freedom from taxation simpliciter, but does mean freedom from taxation which has the effect of directly impeding the free flow of trade, commerce and intercourse; (3) the freedom envisaged in Article 301 is subject to non-discriminatory restrictions imposed by Parliament in public interest (Article 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 [Article 303(2)]; (5) reasonable restrictions may be imposed by the Legislature of a State in the public interest [Article 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 [Article 304(a)]; and lastly (7) restrictions imposed by existing laws have been continued, except insofar as the President may by order otherwise direct (Article 305). 59. Before we examine the rival submissions, we must also refer to the decision of this Court in Automobile case (supra) which added a new dimension to the legal exposition in Atiabari case (supra) by declaring that taxes that were compensatory in nature fell outside Part XIII and could never be treated as restrictions offensive to Article 301 of the Constitution. S.K. Das, J. speaking for the majority explained the concept of compensatory taxes falling outside Part XIII in the following words: 10... As the language employed in Article 301 runs unqualified the Court, bearing in mind the fact that that provision has to be applied in the working of an orderly society, has necessarily to add certain qualifications subject to which alone that freedom may be exercised. This point has been very lucidly discussed in the dissenting opinion which Fullagar, J. wrote in McCarter v. Brodie (1950) 80 CLR 432 an opinion which was substantially approved by the Privy Council in Hughes and Vale Proprietary Ld. v. State of New South Wales 1955 AC 241. The learned Judge gave several examples to show the distinction between what was merely permitted Regulation and what was true interference with freedom of trade and commerce. He pointed out that in the matter of motor vehicles most countries have legislation which requires the motor vehicle to be registered and a fee to be paid on registration. Every motor vehicle must carry lamps of a specified kind in front and at the rear and in the hours of darkness these lamps must be alight if the vehicle is being driven on the road. Every motor vehicle must carry a warning device, such as a horn; it must not be driven at a speed or in a manner which is dangerous to the public. In certain localities a motor vehicle must not be driven at more than a certain speed. The weight of the load which may be carried on a motor vehicle on a public highway is limited. Such examples may be multiplied indefinitely. Nobody doubts that the application of Rules like the above does not really affect the freedom of trade and commerce; on the contrary they facilitate the free flow of trade and commerce. The reason is that these Rules cannot fairly be said to impose a burden on a trader or deter him from trading: it would be absurd, for example, to suggest that freedom of trade is impaired or hindered by laws which require a motor vehicle to keep to the left of the road and not drive in a manner dangerous to the public. If the word free in Article 301 means freedom to do whatever one wants to do, then chaos may be the result; for example, one owner of a motor vehicle may wish to drive on the left of the road while another may wish to drive on the right of the road. If they come from opposite directions, there will be an inevitable clash. Another class of examples relates to making a charge for the use of trading facilities, such as, roads, bridges, aerodromes etc. The collection of a toll or a tax for the use of a road or for the use of a bridge or for the use of an aerodrome is no barrier or burden or deterrent to traders who, in their absence, may have to take a longer or less convenient or more expensive route. Such compensatory taxes are no hindrance to anybodys freedom so long as they remain reasonable; but they could of course be converted into a hindrance to the freedom of trade. If the authorities concerned really wanted to hamper anybodys trade, they could easily raise the amount of tax or toll to an amount which would be prohibitive or deterrent or create other impediments which instead of facilitating trade and commerce would hamper them. It is here that the contrast, between freedom (Articles 301) and restrictions (Articles 302 and 304) clearly appears: that which in reality facilitates trade and commerce is not a restriction, and that which in reality hampers or burdens trade and commerce is a restriction. It is the reality or substance of the matter that has to be determined. It is not possible a priori to draw a dividing line between that which would really be a charge for a facility provided and that which would really be a deterrent to a trade; but the distinction, if it has to be drawn, is real and clear. For the tax to become a prohibited tax it has to be a direct tax the effect of which is to hinder the movement part of trade. So long as a tax remains compensatory or regulatory it cannot operate as a hindrance. xxx xxx xxx 14. After carefully considering the arguments advanced before us we have come to the conclusion that the narrow interpretation canvassed for on behalf of the majority of the States cannot be accepted, namely, that the relevant articles in Part XIII apply only to legislation in respect of the entries relating to trade and commerce in any of the lists of the Seventh Schedule. But we must advert here to one exception which we have already indicated in an earlier part of this judgment. 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. They are excluded from the purview of the provisions of Part XIII of the Constitution for the simple reason that they do not hamper trade, commerce and intercourse but rather facilitate them. xxx xxx xxx 17. We have, therefore, come to the conclusion that neither the widest interpretation nor the narrow interpretations canvassed before us are acceptable. The interpretation which was accepted by the majority in the Atiabari Tea Co. case is correct, but subject to this clarification. Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Article 301 and such measures need not comply with the requirements of the proviso to Article 304(b) of the Constitution. 60. Hidayatullah, J. in his dissenting judgment, however, took the view that even when a tax may be compensatory in character it would be a valid levy only if it goes through the process of presidential assent in terms of Article 304(b) of the Constitution of India and the proviso thereto. The following passage in this regard is relevant: 125. That a tax is a restriction when it is placed upon a trade directly and immediately may be admitted. But there is a difference between a tax which burdens a trader in this manner and a tax, which being general, is paid by tradesmen in common with others. The first is a levy from the trade by reason of its being trade, the other is levied from all, and tradesmen pay it because everyone has to pay it. There is a vital difference between the two, viewed from the angle of freedom of trade and commerce. The first is an impost on trade as such, and may be said to restrict it; the second may burden the trader, but it is not a restriction of the trade. To refuse to draw such a distinction would mean that there is no taxing entry in Lists I and II which is not subject to Articles 301 and 304, however general the tax and however non-discriminatory its imposition. To bring all the taxes within the reach of Article 301 and thus to bring them also within the reach of Article 304 is to overlook the concept of a Federation, which allows freedom of action to the States, subject, however, to the needs of the unity of India. Just as unity cannot be allowed to be frittered away by insular action the existence of separate States is not to be sacrificed by a fusion beyond what the Constitution envisages. No doubt. Part XIII ensures economic unity to India and combines the federating States into the larger State called India. The Constitution also permits independent powers of taxation. What the Constitution does not permit is that trade, commerce and intercourse should be rendered unfree. Trade and commerce remain free even when general taxes are paid by tradesmen in common with non-tradesmen. The question whether a tax offends Part XIII can only arise when it seeks to tax trade, commerce and intercourse. Support for the contrary proposition is not to be found in 1936 AC 578 James v. Commonwealth. The Privy Council in James v. Commonwealth did not lay down: Every step in the series of operations which constitutes particular transaction is an act of trade, and control under the State law of any of these steps must be an interference with ifs freedom as trade (p. 629) This passage represents the view held in McArthurs case 1920 (28) CLR 530. That case was disapproved at p. 631. We have already dealt with this view at some length. 126. Thus, taxation laws and taxes must be divided into two kinds. Taxes which are general and for revenue purposes which fall on those engaged in trade, commerce and intercourse in the same way as they fall on others not so engaged cannot normally be within the reach of Part XIII. A motor transport owner cannot claim that he will not pay property tax in respect of his garage buildings or electricity tax for the electricity he consumes in lighting them, or income tax on his profits. Part XIII has nothing to do with such taxes even though they fall upon tradesmen. xx xxx xxx xxx 132. In our judgment, the first test to apply is what is the object and scope of the legislation? A Regulation of trade and commerce may achieve some public purpose which affects trade and commerce incidentally but without impairing the freedom. Sometimes, however, the Regulation itself may amount to a restriction, and if such a stage is reached, then under our Constitution the restriction must be reasonably in the public interest, and the Presidents prior sanction must be obtained, if the law imposing such restriction is made by the State Legislature, If, however, it does not reach the stage of restriction of trade and remains only a Regulation incidentally touching trade and commerce, the Regulation is outside the operation of Articles 301 and 304. It is on this ground that laws prescribing the Rule of the road and like provisions already referred to as well as a Regulation that the height to which trucks may be loaded must be such as not to endanger the overhead bridges or wires, do not have to go before the President, since they do not affect the freedom guaranteed. The object of such laws cannot be regarded as a restriction of trade and commerce. Freedom in Article 301 does not mean anarchy. Similarly, a demand for a tax from traders in common with others is not a restriction of their right to carry on trade and commerce. A system of licensing of motor vehicles is a Regulation, but does not impair the freedom of trade and commerce unless the licensing is made to depend upon arbitrary discretion of the licensing authority. Similarly, a fee for administrative purposes may also be viewed as a part of Regulation. Such licensing and fees fall outside Article 301, because they cannot be viewed as restrictions, and therefore do not need to be processed Under Article 304. Such Regulations are designed to give equal opportunity to everyone, subject to a certain standard. The object being a public object, such Regulations cannot be questioned unless they amount to restrictions. A tax, however, which is made the condition precedent of the right to enter upon and carry on business at all is a very different matter. It is a restriction on the right to carry on trade and commerce, and the restriction is released on the payment of the tax, which is the price of such release. It is from this point of view that the impugned provisions in this case must be examined. 61. Subbarao J. as His Lordship then was, agreed with the majority view but added the following passage to the same: 37. The next question is, what is the content of the concept of freedom? The word freedom is not capable of precise definition, but it can be stated what would infringe or detract from the said freedom. Before a particular law can be said to infringe the said freedom, it must be ascertained whether the impugned provision operates as a restriction impeding the free movement of trade or only as a Regulation facilitating the same. Restrictions obstruct the freedom, whereas Regulations promote it. Police Regulations, though they may superficially appear to restrict the freedom of movement, in fact provide the necessary conditions for the free movement. Regulations such as provision for lighting, speed, good condition of vehicles, timings, Rule of the road and similar others, really facilitate the freedom of movement rather than retard it. So too, licensing system with compensatory fees would not be restrictions but regulatory provisions; for without it, the necessary lines of communication, such as roads, water-ways and air-ways, cannot effectively be maintained and the freedom declared may in practice turn out to be an empty one. So too, Regulations providing for necessary services to enable the free movement of traffic, whether charged or not, cannot also be described as restrictions impeding the freedom. To say all these is not to say that every provision couched in the form of Regulation but in effect and substance a restriction can pass of as a permissible Regulation. It is for the Court in a given case to decide whether a provision purporting to regulate trade is in fact a restriction on freedom. If it be a colourable exercise of power and the regulatory provision in fact is a restriction, unless the said provision is one of the permissible restrictions under the succeeding articles, it would be struck down. This view is consistent with the principles laid down by the Australian High Court and the Privy Council in the context of interpretation of the words absolutely free in Section 92 of the Commonwealth of Australia Constitution Act, which is more emphatic than the word free in Article 301 of our Constitution. xxx xxx xxx 39. But the more difficult question is, what does the word restrictions mean in Article 302? The dictionary meaning of the word restrict is to confine, bound, limit. Therefore, any limitation placed upon the freedom is a restriction on that freedom. But the limitation must be real, direct and immediate, but not fanciful, indirect or remote. In this context, the principles evolved by American and Australian decisions in their attempt to reconcile the commerce power and the State police power or the freedom of commerce and the Commonwealth power to make laws affecting that freedom can usefully be invoked with suitable modifications and adjustments of all the doctrines evolved, in my view, the doctrine of direct and immediate effect on the freedom would be a reasonable solvent to the difficult situation that might arise under our Constitution. If a law, whatever may have been its source, directly and immediately affects the free movement of trade, it would be restriction on the said freedom. But a law which may have only indirect and remote repercussions on the said freedom cannot be considered to be a restriction on it. Taking the illustration from taxation law, a law may impose a tax on the movement of goods or persons by a motor-vehicle; it directly operates as a restriction on the free movement of trade, except when it is compensatory or regulatory. On the other hand, a law may tax a vehicle as property, or the garage wherein the vehicle used for conveyance is kept. The said law may have indirect repercussion on the movement, but the said law is not one directly imposing restrictions on the free movement. In this context, two difficulties may have to be faced: firstly, though a law purporting to impose a tax on a property or a motor-vehicle, as the case may be, may in fact and in reality impose a tax on the movement itself; secondly, a law may not be on the movement of trade, but on the property itself, but the burden may be so high that it may indirectly affect the free flow of trade. In the former case, the court may have to scrutinize the provisions of a particular statute to ascertain whether the tax is on the movement. If the provisions disclose a tax on the movement, it will be a restriction within the meaning of Article 302. In the latter case, if the provisions show that the tax is on property, the reasonableness of the tax may have to be tested against the provisions of Article 19 of the Constitution. The question whether a law imposes a restriction or not depends on the question whether the said law imposes directly and immediately a limitation on the freedom of movement of trade. If it does, the extent of the impediment relates to the question of degree rather than to the nature of it. If it is a restriction, it must satisfy the conditions laid down in Article 302 of the Constitution. xxx xxx xxx 46. The foregoing discussion may be summarized in the following propositions: (1) Article 301 declares a 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. (2) The said freedom is not impeded, but, on the other hand, promoted, by Regulations creating conditions for the free movement of trade, such as, police Regulations, provision for services, maintenance of roads, provision for aerodromes, wharfs etc., with or without compensation. (3) Parliament may by law impose restrictions on such freedom in the public interest; and the said law can be made by virtue of any entry with respect whereof Parliament has power to make a law. (4) The State also, in exercise of its legislative power, may impose similar restrictions, subject to the two conditions laid down in Article 304(b) and subject to the proviso mentioned therein. (5) Neither Parliament nor the State Legislature can make a law giving preference to one State over another or making discrimination between one State and another, by virtue of any entry in the Lists, infringing the said freedom. (6) This ban is lifted in the case of Parliament for the purpose of dealing with situations arising out of scarcity of goods in any part of the territory of India and also in the case of a State Under Article 304(b), subject to the conditions mentioned therein. And (7) the State can impose a non-discriminatory tax on goods imported from other States or the Union territory to which similar goods manufactured or produced in that State are subject. 62. The net effect of the decision in Automobile case (supra) is that taxes, if the same are compensatory in character, do not offend the guarantee of free trade, commerce and intercourse Under Article 301 of the Constitution. The further question whether the compensatory character of a tax has to be determined by reference to the direct and substantial benefits/facilities provided by the State to the tax payer was examined and answered in the affirmative in Jindal Stainless Steel case (supra), where this Court while overruling the decisions in Bhagatram and Bihar Chamber of Commerce cases (supra) declared that it is not just a remote benefit to the tax payer but only a direct and substantial benefit that would justify levy of compensatory taxes without offending Article 301 of the Constitution of India. Speaking for the Court, Kapadia, J. observed: 49. The concept of compensatory taxes was propounded in Automobile Transport in which compensatory taxes were equated with regulatory taxes. In that case, a working test for deciding whether a tax is compensatory or not was laid down. In that judgment, it was observed that one has to enquire whether the trade as a class is having the use of certain facilities for the better conduct of the trade/business. This working test remains unaltered even today. 50. As stated above, in the post 1995 era, the said working test propounded in Automobile Transport stood disrupted when in Bhagatram case, a Bench of three Judges enunciated the test of some connection saying that even if there is some link between the tax and the facilities extended to the trade directly or indirectly, the levy cannot be impugned as invalid. In our view, this test of some connection enunciated in Bhagatram case is not only contrary to the working test propounded in Automobile Transport case but it obliterates the very basis of compensatory tax. We may reiterate that when a tax is imposed in the Regulation or as a part of regulatory measure the controlling factor of the levy shifts from burden to reimbursement/recompense. The working test propounded by a Bench of seven Judges in Automobile Transport and the test of some connection enunciated by a Bench of three Judges in Bhagatram case cannot stand together. Therefore, in our view, the test of some connection as propounded in Bhagatram case is not applicable to the concept of compensatory tax and accordingly to that extent, the judgments of this Court in Bhagatram Rajeevkumar v. CST and State of Bihar v. Bihar Chamber of Commerce stand overruled. xxx xxx xxx xxx 52. In our opinion, the doubt expressed by the referring Bench about the correctness of the decision in Bhagatram case followed by the judgment in Bihar Chamber of Commerce was well founded. 53. We reiterate that the doctrine of direct and immediate effect of the impugned law on trade and commerce Under Article 301 as propounded in Atiabari Tea Co. Ltd. v. State of Assam and the working test enunciated in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan for deciding whether a tax is compensatory or not vide para 19 of the Report (AIR), will continue to apply and the test of some connection indicated in para 8 (of SCC) of the judgment in Bhagatram Rajeevkumar v. CST and followed in State of Bihar v. Bihar Chamber of Commerce is, in our opinion, not good law. Accordingly, the constitutional validity of various local enactments which are the subject-matters of pending appeals, special leave petitions and writ petitions will now be listed for being disposed of in the light of this judgment. 63. The legal position that today holds the field in light of the above is that compensatory taxes would fall outside Part XIII of the Constitution only if tax payers receive benefits and facilities commensurate to the levy. Any and every benefit howsoever remote or distant, would not save the levy from an attack on the ground of violation of Article 301. Having said that we must mention to the credit of the learned Counsel for the dealers/Assessees that except a feeble attempt made by Mr. A.K. Ganguly, learned Counsel appearing for Sony India Pvt. Ltd. and Mr. Bagaria, learned Counsel appearing for Steel Authority of India Limited (SAIL) the rest of the counsel fairly accepted that there was no constitutional or juristic basis for the Compensatory Tax Theory propounded by the majority judgment in Automobile Transport case (supra). Mr. Salve, who led the team of lawyers appearing for the dealers/Assessees also did not support the compensatory tax theory propounded in Automobile case (supra). Mr. Rohatgi, learned Attorney General for India and M/s. Rakesh and Dinesh Dwivedi who appeared for some of the States also argued that the Compensatory Tax Theory has no basis whatsoever and that the same ought to be abandoned not only because of lack of any juristic support but also because of the problems that beset the application of the said theory in practice. It may, in the light of the concessions made at the Bar, have become unnecessary for us to deal with this aspect at any length but since M/s. Ganguly and Bagaria have not fully subscribed to the views urged by their colleagues appearing for the dealers, we are left with no option but to squarely deal with the question whether the Compensatory Tax Theory is indeed sustainable. Three distinct aspects touching the question need be noticed straightaway. The first and the foremost of these aspects is that the concept of compensatory taxes is not recognised by the Constitution. A tax is a compulsory exaction of money for general public good and is defined as under by Thomas M Cooley in his book The Law of Taxation at page 61(Clark A. Nichols ed., 4th ed. 1924) as: Taxes are the enforced proportional contributions from persons and property, levied by the state by virtue of its sovereignty for the support of government and for all public needs. This definition of taxes, often referred to as Cooleys definition, has been quoted and endorsed, or approved, expressly or otherwise, by many different courts. While this definition of taxes characterizes them as contributions, other definitions refer to them as imposts, duty or impost, charges, burdens, or exactions,; but these variations in phraseology are of no practical importance. xxx xxx xxx xxx xxx xxx xxx xxx The term is defined also in The Major Law Lexicon by P. Ramanatha Aiyar-Vol. 6-4th Edition-Page Nos. 6678 and 6679 in the following words: The term tax and taxes have been defined as a rate or sum of money assessed on the person or property of a citizen by government for the use of the nation or state; burdens or charges imposed by the legislative power upon persons or property to raise money for public purposes, and the enforced proportional contribution of persons and property levied by authority of the state for the support of government and for all public needs. xxx xxx xxx xxx xxx xxx xxx xxx Taxes are public burdens, of which every individual may be compelled to bear his part, and that in proportion to the extent of protection he receives or the amount of property held by him, as the will of the Legislature may direct. The power of taxation is said to be an incident of sovereignty, and co-extensive with that of which it is incident. Blackwell on Tax Titles as cited in Tata Iron & Steel Co. Ltd. v. State of Bihar AIR 1991 Patna 75, 81 has the following to say about taxes: Taxes are defined to be burdens or charges imposed by the legislative power upon persons or property to raise money for public purposes. Blacks Law Dictionary, 7th Edn., P. 1469 defines tax as under: A monetary charge imposed by government on persons, entities or property to yield public revenue, If taxes are eventually meant to serve larger public good and for running the governmental machinery and providing to the people the facilities essential for civilized living, there is no question of a tax being non-compensatory in character in the broader sense. 64. Secondly, because the concept of compensatory tax obliterates the distinction between a tax and a fee. The essential difference between a tax and a fee is that while a tax has no element of quid pro quo, a fee without that element cannot be validly levied. The difference between a tax and the fee has been examined and elaborated in a long line of decisions of this Court. (See: Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt., AIR 1954 SC 282 , Mahant Sri Jagannath Ramanuj Das and Anr. v. State of Orissa and Anr., AIR 1954 SC 400 , The Hingir-Rampur Coal Co. Ltd. v. State of Orissa ., AIR 1961 SC 459 ), Corporation of Calcutta and Anr. v. Liberty Cinema., AIR 1965 SC 1107 , Kewal Krishna Puri and Anr. v. State of Punjab., (1980) 1 SCC 416 , Krishi Upaj Mandi Samiti and Ors. v. Orient Paper and Industries Ltd., (1995) 1 SCC 655 ), State of Gujarat and Anr. v. Akhil Gujarat Pravasi V.S. Mahamandal., (2004) 5 SCC 155 : State of West Bengal v. Kesoram Industries Ltd. and Ors. (2004) 10 SCC 201. 65. Thirdly, and lastly, the concept of Compensatory taxes being outside Part XIII, is difficult to apply in actual practice. Experience in the present batch of cases has amply demonstrated that difficulty. Most of the legislations enacted by the States in these cases have described the entry tax levied under the same to be compensatory in character. This may have been done to take the levy outside the mischief of Article 301 of the Constitution. The question however is whether tax amount collected in terms of the said legislation is really used by the State for the purpose of providing or maintaining services and benefits to the tax payers and whether the Courts can follow the money trail to determine whether the State concerned has actually used the amount for the avowed purpose underlying the legislation. This process is fraught with serious difficulties, a fact that was not disputed by learned Counsel for the Assessees/dealers. Actual application of the Compensatory Tax Theory, therefore, runs into difficulties to an extent that the theory at some stage breaks down. M/s. Salve, Rohatgi and Dwivedi were in that view perfectly justified in submitting that the Compensatory Tax Theory was legally unsupportable and deserved to be abandoned. We have no hesitation in agreeing with that submission, the arguments of M/s. Ganguly and Bagaria to the contrary notwithstanding. 66. With the Compensatory Tax Theory no longer found acceptable, we are left with only two competing view points, one expressed by Gajendragadkar, J. and the other by B.P. Sinha, C.J. Which one is the correct view is the critical question that falls for our determination having regard to the Constitutional scheme and the language employed in Articles 301 to 307 to which we must now turn for a closer look. Article 301 is as under: 301. Freedom of trade, commerce and intercourse.-Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. A plain reading of the above would show that freedom of trade, commerce and intercourse is by no means absolute, the same being subject to the other provisions of Part XIII of the Constitution. Amongst those provisions are Articles 302, 303 and 304 which have a direct bearing on the nature and the extent of restrictions subject to which only is the right to freedom of trade, commerce and intercourse referred to in Article 301 exercisable. Article 302 reads thus: 302. Power of Parliament to impose restrictions on trade, commerce and intercourse.-- 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. 67. The above leaves no manner of doubt that Parliament is empowered to impose such restrictions on the freedom of trade, commerce and intercourse between one State and another or within any part of the territory of India as may be required in public interest. Reading Articles 301 and 302 together, it is evident, that freedom of trade, commerce and intercourse is subject to restrictions which Parliament may by law impose in public interest. The absolute character of the freedom of trade, commerce and intercourse is thus lost by reason of Article 302 itself empowering Parliament to impose such restrictions as it may consider necessary in public interest. Article 303, in turn, places restrictions on the legislative powers of the Parliament and of the States, when it says: 303. Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce.--(1) Notwithstanding anything in Article 302, neither Parliament nor the Legislature of a State shall have power 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. (2) Nothing in Clause (1) shall prevent Parliament from making any law giving, or authorising 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 scarcity of goods in any part of the territory of India. 68. A careful reading of the above would show that notwithstanding the power vested in the Parliament Under Article 302, it shall not 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. From Clause (2) of Article 303 (supra) it is manifest that the restriction on the power vested in Parliament in terms of Clause (1) of Article 303 shall not extend to Parliament making any law with a view to giving or authorising 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 out of scarcity. A conjoint reading of Clauses (1) and (2) of Article 303 would thus make it clear that while Parliament/Legislature of a State shall have no power to make a law imposing restriction on trade, commerce and intercourse, by giving or authorizing the giving of any preference to one State over the other, such limitation on the legislative power of Parliament shall not extend to giving of any preference or making or authorizing any discrimination if it is declared by law that a situation has arisen out of scarcity of goods that makes it necessary to do so. In other words, while the Parliament may impose restrictions in public interest Under Article 302, the restriction so imposed shall not be in the nature of giving preference or discrimination between one State or the other except when the law declares that scarcity of goods in any part of India necessitates such preference or discrimination. 69. That brings us to Article 304 of the Constitution which too like Articles 302 and 303 deals with restrictions on the freedom of trade, commerce and intercourse. It reads: 304. Restrictions on trade, commerce and intercourse among States.--Notwithstanding anything in Article 301 or Article 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, 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 (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. The Article starts with a non-obstante Clause which has been the subject matter of forensic debates in several cases. We do not for the present propose to address the effect of the non-obstante Clause at this stage or the interplay between the expression subject to appearing in Article 301 and the non obstante Clause in Article 304. We shall turn to that aspect a little later. What we wish to examine is whether Article 304(a) treats taxes as a restriction so that any such levy may fall foul of Article 301. The answer to that question, we say without any hesitation is in the negative. Article 304(a) far from treating taxes as a restriction per se, specifically recognises the State legislatures power to impose the same on goods imported from other States or Union Territories. The expression the legislature of a State may by law impose on goods imported from other States (or Union Territories) any tax are much too clear and specific to be capable of any equivocation or confusion. It is true that the source of power available to the State legislature to levy a tax is found in Articles 245 and 246 of the Constitution but, the availability of such power for taxing goods imported from other States or Union Territories is clearly recognised by Article 304(a). The expression may by law impose is certainly not a restriction on the power to tax. That does not, however, mean that the power to tax goods imported from other States or Union Territories is unqualified or unrestricted. There are, in our opinion, two restrictions on that power. The words to which similar goods manufactured or produced in that State are subject impose the first restriction on the power of the State legislature to levy any such tax. These words would imply that a tax on import of goods from other States will be justified only if similar goods manufactured or produced in the State are also taxed. The second restriction comes from the expression so, however, as not to discriminate between goods so imported and goods so manufactured or produced. The State legislature cannot in the matter of levying taxes discriminate between goods imported from other States and those manufactured or produced within the State levying such a tax. The net effect of Article 304(a) therefore is that while levy of taxes on goods imported from others State and Union territories is clearly recognised as Constitutionally permissible, the exercise of such power is subject to the two restrictive conditions referred to above. That does not however detract from the proposition that levy of taxes on goods imported from other States is constitutionally permissible so long as the State legislatures abide by the limitations placed on the exercise of that power. To put it differently, levy of taxes on import of goods from other States is not by itself an impediment under the scheme of Part XIII or Article 301 appearing therein. 70. That brings us to the question whether Clauses (a) and (b) have to be read conjunctively. It was contended on behalf of the dealers/Assessees that even when a tax in terms of Article 304(a) is not forbidden being non-discriminatory, it may still constitute a restriction under Clause (b) thereof. The argument is that just because a tax passes muster under Clause (a) of Article 304 being non-discriminatory does not mean that the levy of such a tax is not a restriction on the freedom of trade, commerce and intercourse. It was contended that while a discriminatory tax must be treated as a restriction by itself the reasonableness of a non-discriminatory tax will have to be seen by the President in terms of the Proviso to Clause (b). It was argued that Article 304(a) does not exhaust the universe in so far as levy of taxes is concerned for even when the law complies with the requirement of Clause (a), it may fail to pass the test of reasonableness and of public interest under Clause (b) in which event the President may decline the sanction for introduction of any Bill aimed at levying such a tax. 71. There is, in our opinion, no merit in any of the contentions noted above. Clauses (a) and (b) of Article 304 deal with two distinct subjects and must, therefore, be understood to be independent of each other. While Clause (a) deals entirely with imposition of taxes on goods imported from other States, Clause (b) deals with imposition of reasonable restriction in public interest. It is trite that levy of a tax in terms of Article 304(a) may or may not be accompanied by the imposition of any restriction whether reasonable or unreasonable. There is, in our opinion, no rationale in the contention that the legislature of a State cannot levy a tax without imposing one or more reasonable restrictions or that a law that is simply imposing restrictions in terms of Clause (b) to Article 304 must be accompanied by the levy of a tax on the import of goods. The use of the word and between Clauses (a) and (b) does not admit of an interpretation that may impose an obligation upon the legislature to necessarily impose a tax and a restriction together. The law may simply impose a tax without any restriction reasonable or otherwise or it may simply impose a reasonable restriction in public interest without imposing any tax whatsoever. It may also levy a tax and impose such reasonable restriction as may be considered necessary in public interest. All the three situations are fully covered and permissible Under Article 304 in view of the phraseology used therein. The word and can mean or as well as and depending upon the context in which the law enacted by the legislature uses the same. Suffice it to say that levy of taxes do not constitute a restriction under Part XIII except in cases where the same are discriminatory in nature. Once Article 304(a) is understood in that fashion, Clause (b) dealing with reasonable restrictions must necessarily apply to restrictions other than those by way of taxes. It follows that for levy of taxes prior Presidential sanction in terms of the proviso Under Article 304(b) will be wholly unnecessary. This view is reinforced on the plain language of proviso to Article 304(b), which is limited to law relating to reasonable restrictions referred to in Clause (b). 72. The sum total of what we have said above regarding Articles 301, 302, 303 & 304 may be summarized as under: 1. Freedom of trade, commerce and intercourse in terms of Article 301 is not absolute but is subject to the Provisions of Part XIII. 2. Article 302 which appears in Part XIII empowers the Parliament to impose restrictions on trade, commerce and intercourse in public interest. 3. The restrictions which Parliament may impose in terms of Article 302 cannot however give any preference to one State over another by virtue of any entry relating to trade and commerce in any of the lists in the Seventh Schedule. 4. The restriction that the Parliament may impose in terms of Article 302 may extend to giving of preference or permitting discrimination between one State over another only if Parliament by law declares that a situation arising out of scarcity of goods warrants such discrimination or preference. 5. Article 304(a) recognizes the availability of the power to impose taxes on goods imported from other States, the legislative power to do so being found in Articles 245 and 246 of the Constitution. 6. Such power to levy taxes is however subject to the condition that similar goods manufactured or produced in the State levying the tax are also subjected to tax and that there is no discrimination on that account between goods so imported and goods so manufactured or produced. 7. The limitation on the power to levy taxes is entirely covered by Clause (a) of Article 304 which exhausts the universe in so far as the State legislatures power to levy of taxes is concerned. 8. Resultantly a discriminatory tax on the import of goods from other States alone will work as an impediment on free trade, commerce and intercourse within the meaning of Article 301. 9. Reasonable restrictions in public interest referred to in Clause (b) of Article 304 do not comprehend levy of taxes as a restriction especially when taxes are presumed to be both reasonable and in public interest. 73. The inferences enumerated above are based on a textual interpretation of the provisions of Article 301 to Article 304. An interpretation which is both textual and contextual has always been found to be more acceptable. That is so because it is only when both the text and the context are kept in view that the statutory provisions can be best understood. An interpretation that makes the textual match the contextual meaning of the provision is preferred by Courts over one that prefers one at the cost of the other. 74. In Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. 1987) 1 SCC 424 this Court pithily summed up the law on the subject in the following words: 33. Interpretation must depend on the text and the context. They are the basis of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. The interpretation is best which makes the textual interpretation match the contextual... ... ... 75. We may also refer to the following passage of Constitutional Law of India (4th Edition) by H.M. Seervai where the distinguished author has adverted to the golden Rule of interpretation applicable to Constitutional provisions in the following words: 2.12. The golden Rule of interpretation is that words should be read in their ordinary, natural and grammatical meaning subject to the rider that in construing words in a Constitution conferring legislative power the most liberal construction should be put upon the words so that they may have effect in their widest amplitude. 76. Let us then see whether the textual interpretation placed on Articles 301 to 304 matches the contextual. The contextual interpretation of Part XIII must, out of necessity, start with the historical perspective of that Part. We have with great advantage extracted in the earlier part of this judgment the historical backdrop as set out in the decisions of this Court both in Atiabari and Automobile cases (supra). While it is unnecessary to recall the said passages over again, we need to remember that Part XIII had a historical precursor in the form of Section 297 of the Government of India Act, 1935 that governed what was then called the British India comprising the territory of India subject to British Rule. The rest of the territories were at that time Princely States who claimed sovereign rights within the limitations imposed by the paramount power. The power to levy taxes was one such power wielded by the Princely States which led to erection of customs barriers impeding the flow of trade, commerce and intercourse. Section 297 aimed at removing such trade barriers. It provided for a prohibition against enactment of any law or taking of any executive action by the provincial legislature that restricted the entry into or export from the province goods of any class or description. 77. More importantly, in terms of Clause (b) of Section 297(1) of Government of India Act, 1935 no provincial legislature or Government could impose any tax, cess, toll or due which discriminated between goods manufactured or produced in the provinces and goods not so manufactured or produced or between goods manufactured or produced outside the province discriminated between goods manufactured or produced in one locality and similar goods manufactured or produced in another locality. With India attaining its freedom, Part XIII of the Constitution adopted by it, was aimed at bringing about economic unity. The object underlying Part XIII was to make movement and exchange of goods free throughout the territory of India. This was achieved by Article 301 to Article 304 adopting substantially the scheme underlying the 1935 Act. The only difference between the said provisions and Section 297 of the 1935 Act was that the principles enunciated in the latter were extended to the Union Government and the Union Parliament and to the territory which had after merger become a part of India. Notably, the essence of the freedom of trade commerce and intercourse as recognized in the 1935 Act and in the Constitution under Part XIII remained the same. It was for that reason that Justice Venkatarama Iyer had in M.P.V. Sunderaramiers case (Supra) observed and if we may say so rightly that the Constitution of India was not written on a tabula rasa. The common feature which the two provisions share is that the provincial legislatures power to impose taxes is recognized subject only to the limitation that there is no discrimination between goods manufactured or produced within the Province or State vis-a-vis those imported from outside. In Atiabaris case (supra), the majority speaking through Gajendragadkar, J. noticed the co-relation between Section 297 of 1935 Act, and Article 301 of the Constitution of India but concluded that Article 301 did not simply adopt Section 297 of the 1935 Act but widened and enriched the same in content. The Court did not, however, elaborate as to how much richer and wider did Article 301 make the freedom of trade, commerce and intercourse then what was envisaged Under Section 297. The Court said: 42. ... ... ...That is why we are inclined to hold that the broad and unambiguous words used in Article 301 are intended to emphasize that the freedom of trade, commerce and intercourse guaranteed was richer and wider in content than was the case Under Section 297; how much wider and how much richer can be determined only on a fair and reasonable construction of Article 301 read along with the rest of the articles in Part XIII. In our opinion therefore, the argument that tax laws are outside Part XIII cannot be accepted. (Emphasis supplied) 78. We have with great respect to the distinguished Judges failed to persuade ourselves to subscribe to the above view. The argument that Article 301 had enriched and widened the content of trade, commerce and intercourse beyond what is evident from a comparison of the language between the two provisions namely (a) extending the prohibition against discrimination to the Union Government and the Parliament and (b) making the provision applicable to the territory of India as defined by the Constitution, has not impressed us. The textual interpretation placed by us upon Articles 301-304 instead gets considerable support from the contextual and the historical perspective of Part XIII. 79. We may now turn to yet another contextual feature that has a bearing on the true and correct interpretation of Part XIII namely the sovereign character of the power to tax available to the State legislature. It is now fairly well settled that the Constitutionally vested power to levy tax can be regulated or controlled only by specific Constitutional limitations, if any. We have in the earlier part of this judgment elaborated how the power to levy taxes is a sovereign power with several limitations specifically stipulated by the Constitution itself. We have also explained at some length how legislative competence of the State legislatures can be circumscribed only by express provisions of the Constitution and unless there is an express limitation on the plenary taxing power of the States, there is no other fetter on the exercise of that power. 80. Applying the above principle to the case at hand, we do not see any specific limitation on the States power to levy taxes on the import of goods from other States except the one referred to in Article 304(a) of the Constitution. That limitation we have sufficiently explained is confined to levy of discriminatory taxes within the comprehension of Article 304(a). So long as taxes are non-discriminatory and, therefore, consistent with Article 304(a), there is no limitation leave alone any express limitation on the States legislative power to levy any tax on the import of goods from another State. The power to levy a tax in terms of Articles 245 and 246 read with Entry 52 of list II not being in dispute in the cases at hand, the absence of any specific limitation forbidding the exercise of such power whether for the sake of free trade, commerce and intercourse or otherwise simply means that the State legislatures are free to levy taxes that are non-discriminatory in nature. 81. That brings us to the third contextual feature relevant to the interpretation of Part XIII. We have in the earlier part of this judgment referred to the decisions of this Court in Kuldip Nayyars case and S.R. Bommais case apart from the decisions of this Court in Special Reference No. 1 of 1964 (supra) to hold that the Indian Constitution if not federal in the strict sense of the term is at least quasi federal in character. That proposition has not been disputed even by the counsel for the assesses/dealers, and must be held to be fairly well settled. Equally well settled is the proposition that Indias federal structure is one of the basic features of the Constitution. Relying upon the settled legal position Mr. Mukul Rohtagi, Attorney General, followed by Mr. Rakesh Dwivedi, Mr. P.P. Rao, Mr. A.K. Sinha and Mr. Devdatt Kamath strenuously argued, and in our opinion rightly so that the provisions of our Constitution are aimed at vesting and maintaining with the States substantial and significant powers in the legislative and executive fields so that States enjoy their share of autonomy and sovereignty in their sphere of governance. This can in turn be done by interpreting the provisions of the Constitution including those found in Part XIII in a manner that preserves and promotes the federal set-up instead of diluting or undermining the same. In ITC Limited v. Agricultural Produce Market Committee and Ors.(2002) 9 SCC 232 this Court ruled that the Constitution of India must be interpreted in a manner that does not whittle down the powers of the State legislature. An interpretation that supports and promotes federalism while upholding the Central supremacy as contemplated by some of the Articles must be preferred. To the same effect is the nine judge Bench decision of this Court in S.R. Bommais case (supra) where this Court cautioned against adoption of an interpretation that has the effect of whittling down the powers reserved to the States. This Court said: 276. The fact that under the scheme of our Constitution, greater power is conferred upon the Centre vis-a-vis the States does not mean that States are mere appendages of the Centre. Within the sphere allotted to them, States are supreme. The Centre cannot tamper with their powers. More particularly, the Courts should not adopt an approach, an interpretation, which has the effect of or tends to have the effect of whittling down the powers reserved to the States. It is a matter of common knowledge that over the last several decades, the trend the world over is towards strengthening of Central Governments be it the result of advances in technological/scientific fields or otherwise, and that even in USA the Centre has become far more powerful notwithstanding the obvious bias in that Constitution in favour of the States. All this must put the court on guard against any conscious whittling down of the powers of the States. Let it be said that the federalism in the Indian Constitution is not a matter of administrative convenience, but one of principle-the outcome of our own historical process and a recognition of the ground realities. This aspect has been dealt with elaborately by Shri M.C. Setalvad in his Tagore Law Lectures Union and State relations under the Indian Constitution (Eastern Law House, Calcutta, 1974). The nature of the Indian federation with reference to its historical background, the distribution of legislative powers, financial and administrative relations, powers of taxation, provisions relating to trade, commerce and industry, have all been dealt with analytically. It is not possible nor is it necessary for the present purposes to refer to them. It is enough to note that our Constitution has certainly a bias towards Centre vis-a-vis the States: Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan. It is equally necessary to emphasise that courts should be careful not to upset the delicately-crafted constitutional scheme by a process of interpretation. (Emphasis supplied) 82. Reference may also be made to Kesavananda Bharatis case (supra) where a Bench of thirteen Judges cautioned that the process of interpretation should not diminish or whittle down the provisions of the original contract upon which the federation was founded nor is it legitimate to impose by a process of judicial construction a new contract upon the federating states. To the same effect is the decision of this Court in M/s. International Tourist Corporation and Ors. v. State of Haryana and Ors. (1981) 2 SCC 318 where this Court observed: 6A. There is a patent fallacy in the submission of Shri Sorabji. Before exclusive legislative competence can be claimed for Parliament by resort to the residuary power, the legislative incompetence of the State legislature must be clearly established. Entry 97 itself is specific that a matter can be brought under that entry only if it is not enumerated in List II or List III and in the case of a tax if it is not mentioned in either of those lists. In a Federal Constitution like ours where there is a division of legislative subjects but the residuary power is vested in Parliament, such residuary power cannot be so expansively interpreted, as to whittle down the power of the State legislature. That might affect and jeopardize the very federal principle. The federal nature of the Constitution demands that an interpretation which would allow the exercise of legislative power by Parliament pursuant to the residuary powers vested in it to trench upon State legislation and which would thereby destroy or belittle state autonomy must be rejected. (Emphasis supplied) 83. An approach which tends to dilute the federal character of our Constitutional scheme must, therefore, be avoided and one that supports and promotes the concept of federalism preferred by the courts while interpreting the provisions of the Constitution. 84. Dealing in particular with the scope and meaning of Article 304(b) of the Constitution on a true and correct interpretation Seervai in his treatise Constitutional Law of India (supra) sounded a note of caution and observed that if Article 304(b) was interpreted in a manner that would include levy of taxes as a restriction within the meaning of that Article, it would totally dislocate the scheme under our Constitution. The celebrated author, in our opinion, was right in saying so for the taxing power of the Union and the States are mutually exclusive. While the Parliament cannot legislate on the subjects reserved for the States, the States cannot similarly trespass onto the taxing powers of the Union. If the Constitutional scheme does not allow the Parliament to usurp the taxing powers of the State Legislatures, such process of usurpation cannot also be permitted to take place in the garb of making Union executives concurrence an essential pre-requisite for any taxing legislation. The following passage from Seervais book (Vol. 3, Page 2607) is in this regard instructive: 23.43. Thirdly, the whole scheme of taxation in our Constitution would be completely dislocated if Article 304(b) included a tax. The taxing powers of the Union and the States have been made mutually exclusive so that Parliament cannot deprive the States of their taxing powers as has happened in countries where the powers of taxation are concurrent. It would be surprising if the Union legislature, i.e. Parliament could not take away the taxing powers of the State legislatures and yet it would be open to the Union executive Under Article 304(b) to deprive the State legislatures of their taxing powers. 85. To the same effect are the following observations made by Mathews, J. in G.K. Krishnans case (supra): 27. ... ... ...Article 304(a) prohibits only imposition of a discriminatory tax. It is not clear from the Article that a tax simpliciter can be treated as a restriction on the freedom of internal trade. Article 304(a) is intended to prevent discrimination against imported goods by imposing on them tax at a higher rate than that borne by goods produced in the State. A discriminatory tax against outside goods is not a tax simpliciter but is a barrier to trade and commerce. Articled 304 itself makes a distinction between tax and restriction. That apart, taxing powers of the Union and States are separate and mutually exclusive. It is rather strange that power to tax given to states, say, for instance under entry 54 of List II to pass a law imposing tax on sale of goods should depend upon the goodwill of the Union executive. 86. Suffice it to say that the interpretation of any provision of the Constitution will be true and perfect only when the Court looks at the Constitution holistically and keeps in view all important and significant features of the Constitutional scheme constantly reminding itself of the need for a harmonious construction lest interpretation placed on a given provision has the effect of diluting or whittling down the effect or the importance of any other provision or feature of the Constitution. So interpreted Article 301 appearing in Part XIII does not, in our opinion, work as an impediment on the States taxing powers except in situations where such taxes fall foul of Article 304(a) of the Constitution. The contextual approach thus fully matches the textual interpretation which we have placed on Part XIII. 87. On behalf of the dealers/Assessees it was contended with considerable amount of tenacity that since Article 304 starts with a non-obstante Clause the inference was that the framers of the Constitution treated taxes as impediments for free trade, commerce and intercourse. The argument was that unless Article 301 was understood to mean that taxes could also be restrictions on free trade and commerce, there was no need for the framers of the Constitution to start Article 304 with a non-obstante Clause inasmuch as a non-obstante Clause is meant to be only an exception to the generality of the provision. Similar contentions urged in the past have been noticed by this Court and by jurists alike while attempting interpretation of Part XIII. This is evident from the passages which have dealt with the anomaly arising out of the use of the expression subject to in Article 301 and the non-obstante Clause in Article 304 of the Constitution. This Court has often found the use of the non-obstante Clause in Article 304 to be either confusing or an unnecessary surplusage. But the problem with the use of non-obstante clauses in Part XIII has been the subject matter of criticism even in the Constituent Assembly as is evident from the following passages from the debates: Constitution Assembly Debates (Vol. IX Page 1131): Dr. P.S. Deshmukh: If we analyse the new articles that have been proposed, it is very difficult to understand them and I think the comment is absolutely justified that this is going to be a lawyers constitution, a paradise for lawyers where there will be so many innumerable loopholes that we will be wasting years and years before we could come to the final and correct interpretation of many clauses. If we read this Article 274, you will find, Sir, that this is one of the most wonderful articles in the whole Constitution. This is not the only one; there are many others. If we count the use of the word notwithstanding in this Constitution, I am certain that the number of times that word is used will far exceed the use of the word Parliament or Constitution in the whole Constitution. If you will permit me, Sir, I will describe the situation a little graphically. We first of all provide and say or declare that a certain person is a man. Then, we say, notwithstanding this declaration, you shall wear a sari and nothing but a sari. Shri T.T. Krishnamachari: There is no bar to that. Dr. P.S. Deshmukh: Then, notwithstanding the fact that you are considered a man, and notwithstanding the fact that you wear nothing else but saris, you will wear a Gandhi cap also. Then we have another notwithstanding. Notwithstanding that you are a man, notwithstanding that you shall wear nothing but a sari, notwithstanding that you shall also wear a Gandhi cap, you will be at liberty to describe yourself as a woman. (Laughter) Something of that sort, as funny and as amusing, is really the situation so far as this Article 274 is concerned. If you read through it, you will see that as soon as the first part is over, we start with notwithstanding whatever is said in the first part, such and such a thing will happen. In the next clause, we say not only notwithstanding what is contained in the first clause, together with notwithstanding what is contained in the other clauses and then add something more. I think there is a better method of drafting. Even if it is necessary to cope with complex situations and to provide something on the lines proposed, there should be a simpler and more direct way of drafting and making a provision which is not so ununderstandable that only supermen could read this constitution, even assuming that only supermen are to be born in India hereafter. If this Constitution is made for the average man, if it is going to affect the rights and privileges of the ordinary common man, it is necessary that the drafters of this constitution should be more clear and use phraseology which is more easily understandable and simpler. xxx xxx xxx xxx I hope therefore that the whole chapter will be made simpler. Instead of tying the hands of both the States as well as of Parliament, it would be far better not to commit ourselves to any policy, but to leave the whole thing to Parliament. Otherwise, the situation which has arisen already in respect of Article 16 may arise in respect of Article 274 itself. It is, therefore, better to have simpler provisions and I have given them the simplest form. I hope that this will appeal to the drafters of the Constitution and if they accept it, I can tell them that they will be out of much of the trouble. But if they insist upon the draft that they have produced, it will be very difficult for trade and commerce not only to prosper but even to exist. 88. In Automobile Transport case (supra), S.K. Das, J. speaking for the majority noticed the anomaly arising out of the use of the non-obstante Clause in Article 304 and described the same to be somewhat inappropriate. The majority judgment in Automobile Transport case (supra) in fact took the view that the mix up of exception upon exception in the series of Articles in Part XIII makes a purely textual interpretation difficult. The following passage is in this regard apposite: 10. Article 304 again begins with a non obstinate Clause mentioning both Article 301 and Article 303, though Article 304 relates only to the Legislature of a State. Article 303 relates to both the State Legislature and Parliament and again the non obstante Clause in Article 304 is somewhat inappropriate. The fact of the matter is that there is such a mix up of exception upon exception in the series of articles in Part XIII that a purely textual interpretation may not disclose the true intendment of the articles. 89. Subba Rao, J., as His Lordship then was, in a separate judgment delivered in Automobile Transport case (supra) also found the use of the non-obstante Clause to be a defect in phraseology. His Lordship held that the non-obstante Clause has no relevance to Article 303 even when the Article is mentioned alongwith the non-obstante clause. The importance of the non-obstante Clause was then confined to Article 304(b) as is clear from the following paragraph of the judgment: 42. ... ... ...The non-obstante Clause vis-a-vis Article 304(a) may have some relevance so far as Article 301 is concerned, for it enables the Legislature of a State to impose an impediment on the free movement of trade in spite of the freedom declared Under Article 301. But it has no relevance to Article 303, which only prohibits the State Legislature from making a discriminatory law and it does not in any way prohibit the State Legislature from imposing a non-discriminatory tax permitted Under Article 304(a). But, with reference to Article 304(b), the non-obstante Clause has significance and meaning even in regard to Article 303, as Clause (b) lifts the ban imposed by Article 303, subject to the limitation mentioned therein. Therefore, the non-obstante Clause must be deemed to apply only to that part of Article 304 appropriate to the said clause. If so read, the difficulty in the construction disappears. Article 304(a) lifts the general ban imposed by Article 301 in respect of imposition of non-discriminatory taxes on goods imported, which indicates that but for the said provision the law of taxation in that regard would infringe the freedom declared Under Article 301. 90. Hidayatullah, J. also found the non-obstante Clause in Article 304 to be somewhat anomalous and described the same as inaccurate drafting of the Constitution. 91. Suffice it to say that the use of the non-obstante Clause in Article 304 has had its share of criticism from the very inception which criticism has to an extent been prophetic for the interpretation of Part XIII has indeed been a lawyers paradise over the past fifty years or so. Seervai has in his treatise adverted to this anomaly arising from the use of the non-obstante Clause and said that the same covers both the Clauses (a) and (b) of Article 304. He argues with considerable forensic force that reference to Article 301 in the non-obstante Clause is meaningless having regard to the fact that the freedom granted thereunder is itself subject to other provisions of Part XIII including Article 304. This would necessarily imply that Article 304(a) and (b) do not subtract anything from Article 301. That appears to us to be the correct view on the subject. While it is true that legislature does not waste words and that no part of a legislation can be rendered a surplusage, the only rational meaning that can be attributed to the non-obstante Clause appearing in Article 304 is that the same was used only as a manner of abundant caution and a possible reassurance that Article 301 is indeed subordinate to Article 304 which it was even otherwise without the use of that clause. The net effect of the discussion therefore is that the expression subject to other provisions of this Part appearing in Article 301 and the non-obstante Clause appearing in Article 304 do not traverse in different directions. There is no conflict in the two provisions on account of the use of the said expressions. Interpreted individually or conjointly, the said two expressions simply mean that Article 304 takes precedence over Article 301. While Article 304(a) recognizes the power of the State Legislatures to tax goods imported from other State, it also imposes limitations on the exercise of that power. On the other hand Clause (b) to Article 304 permits imposition of reasonable restrictions subject to the proviso appearing below that clause. We have thus no hesitation in rejecting the argument that the use of the non-obstante Clause in Article 304 is suggestive of the Constitution recognizing taxes as restrictions Under Article 301 or that the power to impose a reasonable restriction Under Article 304(b) is meant to include the power to levy taxes so that levy of taxes may be permissible only in case the procedure provided under the proviso is followed. 92. On behalf of the dealers/Assessee it was argued that the State legislatures may levy taxes that may operate as fiscal barriers and thereby prevent or restrict inter State trade, commerce and intercourse. It was urged that if such statutory fiscal barrier is also held not to be a restriction upon the freedom of trade, commerce and intercourse guaranteed under Part XIII, a citizen whose right under that Part is affected may have no redress against such levies. Relying upon the decision of this Court in Ramjilal v. Income Tax Officer, Mohindargarh., AIR 1951 SC 97 , it was contended that a challenge to a fiscal statute shall not be maintainable even under Part III of the Constitution, thereby, not only violating the citizens constitutional rights of free trade and commerce but also denying them the remedy against such violation. This according to the learned Counsel was one among other reasons why levy of taxes ought to be treated as restrictions on free trade, commerce and intercourse. 93. In Ramjilals case (supra), a petition Under Article 32 of the Constitution was filed before this Court by the Petitioner who was carrying on business in the State of Nabha. With the merger of Nabha into the State of Pepsu, the Petitioner was required by the assessing authority to file return and pay income tax for the income earned by him during the previous years. Aggrieved, the Petitioner challenged the proceedings inter alia on the ground that the assessment of tax for previous year violated his right guaranteed Under Article 14. This Court repelled the contention founded on Article 14 holding that there was reasonable classification of Assessee under the relevant statute and that the Petitioners challenge to the proceedings Under Article 14 was untenable. Having said that, the Court examined the question whether the taxing statute violated Right to Property guaranteed Under Article 31(1) of the Constitution. Repelling the contention this Court held that if collection of taxes amounted to deprivation of property within the meaning of Article 31(1), there was no point in making a separate provision regarding the same as is made in Article 265. This Court declared that Article 31(1) must be regarded as a guarantee against deprivation of property otherwise, than by imposition of tax for otherwise Article 265 would become wholly redundant. The Court declared that the Constitution had treated taxation as distinct from compulsory acquisition of property and has made independent provisions giving protection against taxation. 94. Then came Kunnathat Thathunni Moopil Nair v. The State of Kerala and Anr., AIR 1961 SC 552 , where again one of the questions that fell for consideration was whether Article 265 of the Constitution was a complete answer to the attack against the Constitutionality of a taxing statute. This Court held that in order that a taxing law may be valid, the tax proposed to be levied must be within the legislative competence of the legislature imposing the tax and authorizing the collection thereof and that the tax must be subject to the condition laid down Under Article 13 of the Constitution. One of such conditions declared by this Court was that the legislature shall not make any law that takes away or abridges the equality Clause in Article 14. The Court declared that the guarantee of equal protection of laws must extend even to taxing statutes. It clarified that every person may not be taxed equally but property of the same character has to be taxed, the taxation must be by the same standard so that the burden of taxation may fall equally on all persons holding that kind and extent of property. If the taxation, generally speaking, imposes similar burden on everyone with reference to that particular kind and extent of property on the basis of such taxation, the law shall not be open to attack on the ground of inequality even though the result of taxation may be that the total burden on different persons may be unequal. The Court summed up that taxing statute is not fully immune from an attack on the ground that it infringes equality Clause Under Article 14, no matter the Courts are not concerned with the policy underlying the taxing statute or whether a particular tax could have been imposed in a different way or a way that the Court might think would have been more equitable in the interest of equity. 95. To the same effect is the decision in Laxmanappa Hanumantappa Jamkhandi v. Union of India AIR 1955 SC 3 . Reference may also be made to Smt. Ujjam Bai v. State of Uttar Pradesh AIR 1962 SC 1621 which took note of the pronouncements of this Court in the three cases mentioned above to examine whether there was any conflict between the view taken in Moopil Nair case on the one hand and Ramjilal and Laxmanappa cases on the other, the Court found on a closer examination that there was no such conflict and clarified that the observation made in Ramjilal and Laxmanappa cases must in the context bear reference to abrogation of Article 31(1) only in so far as the admissibility of a challenge to taxation law with reference to Part III is concerned. The Court explained that in Moopil Nairs case this Court has held that a taxing statute was not immune from challenge Under Article 14 just because the legislature that imposed the tax was competent to levy the tax in terms of Article 265. This Court summed up the legal position in the following words: The result of the authorities may thus be summed up: (1) A tax will be valid only if it is authorized by a law enacted by a competent legislature. That is Article 265. (2) A law which is authorized as aforesaid must further be not repugnant to any of the provisions of the Constitution. Thus, a law which contravenes Articles 14 will be bad, Moopil Nairs case. (3) A law which is made by a competent legislature and which is not otherwise invalid, is not open to attack Under Article 31(1). Ramjilals case and Laxmanappas case. (4) A law which is ultra vires either because the legislature has no competence over it or it contravenes, some constitutional inhibition, has no legal existence, and any action taken thereunder will be an infringement of Article 19(1)(g) Himmatlals case and Laxmanappas case. The result will be the same when the law is a colourable piece of legislation. (5) Where assessment proceedings are taken without the authority of law, or where the proceedings are repugnant to Rules of natural justice, there is an infringement of the right guaranteed Under Article 19(1)(f) and Article 19(1)(g); Tata Iron & Steel Co. Ltd.; Moopil Nairs case and Shri Madan Lal Aroras case. 96. The above statement of law in our view is legally unexceptionable. The argument that Ramjilal and Laxmanappas cases place taxing statute beyond the purview of challenge under Part III has been correctly repelled and fiscal statutes are also held to be open to challenge on the touchstone of Article 14 of the Constitution. The contention that an aggrieved citizen may have no remedy against a taxing statute does not, therefore, hold good. Whether or not a challenge to such a statute succeeds is, however, a different matter. It is fairly well settled by now that Courts show considerable deference to the legislature in the matter of quantum of tax that may be levied as also the subjects and individuals upon whom the same may be levied. Just because room for challenge to a fiscal statute is limited is in our view no reason to hold that levy of taxes otherwise within the competence of the legislature imposing the same should be seen as a restriction on free trade and commerce guaranteed Under Article 301 which Article does not either textually or contextually recognize levy of taxes as impediments except in cases where the same are discriminatory in nature thereby being offensive to Article 304(a) of the Constitution. 97. On behalf of the States it was argued by the learned Attorney General, and M/s. Rao and Dwivedi that the decisions of this Court in Atiabari and Automobile Transport cases had drawn support for their conclusion on the Australian and American decisions. It was urged that although the view taken by the majority decision in the former had recognized that decisions from other jurisdictions may not be helpful while interpreting the provisions of our Constitution, yet the Court had referred to and relied upon those decisions to buttress its conclusions. The Australian decisions relied upon by the majority have, it was contended, been reversed by subsequent pronouncements of the Australian High Court, which pronouncements are now gravitating towards the theory that discriminatory taxes alone will operate as restrictions against free trade, commerce and intercourse. It was in that view argued that the theoretical basis borrowed from the foreign judgments by this Court in Atiabari case stood demolished or atleast substantially eroded by the subsequent pronouncements of the Australian High Courts, thereby, rendering the correctness of the view taken by the majority in Atiabaris case open to serious doubts. 98. There is, in our view, considerable merit in that submission. In Atiabaris case (supra), Gajendragadkar J., speaking for the majority while referring to the American and Australian decisions observed: 59.... ... ... We have deliberately not referred to these decisions earlier because we thought it would be unreasonable to refer to or rely on the said Section or the decisions thereon for the purpose of construing the relevant Articles of Part XIII of our Constitution. It is commonplace to say that the political and historical background of the federal policy adopted by the Australian Commonwealth, the setting of the Constitution itself, the distribution of powers and the general scheme of the Constitution are different, and so it would not be safe to seek for guidance or assistance from the Australian decisions when we are called upon to construe the provisions of our Constitution. In this connection we have already referred to the note of warning struck by Venkatarama Aiyar, J., against indiscriminate reliance being placed on Australian and American decisions in interpreting our Constitution in the case of M.P.V. Sundararamier & Co. The same caution was expressed by Gwyer, C.J., as early as 1939 when he observed in The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938. In the matter of AIR 1939 F.C. 1 at P. 5; there are few subjects on which the decisions of other Courts require to be treated with greater caution than that of federal and provincial powers, for in the last analysis the decision must depend upon the words of the Constitution which the Court is interpreting; and since no two Constitutions are in identical terms it is extremely unsafe to assume that a decision on one of them can be applied without qualification to another. This may be so even where the words or expressions used are the same in both cases, for a word or a phrase may take a colour from its context and bear different senses accordingly. (Emphasis supplied) 99. Having said that Gajendragadkar J., referred to these decisions with a view to supporting his conclusions by reference to Judges in other jurisdiction responding to similar challenges posed by interpretation of what His Lordship described as sister constitutions. He said: 59. ... ... ...When you are dealing with the problem of construing a constitutional provision which is none-too-clear or lucid you feel inclined to inquire how other judicial minds have responded to the challenge presented by 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 Section 92 of the Australian Constitution. 100. The Court, then, relied upon the decisions of the Australian High Court in James v. Commonwealth of Australia (1936) A.C. 578 and Commonwealth of Australia and Ors. v. Bank of New South Wales and Ors. [1950] A.C. 235 to hold that the test of direct and immediate effect evolved by the Australian High Court pronouncements, while interpreting Section 92 of the Australian Constitution, was the correct test applicable even to our Constitution including interpretation of Article 301 thereof. The Court said: Commonwealth of Australia v. Bank of New South Wales 61. ... ... ... In deciding the said question one of the tests which was applied by Lord Porter was: Does the act not remotely or incidentally (as to which they will say something later) but directly restrict the inter-State business of banking, and he concluded that two general propositions may be accepted, (1) that Regulation of trade, commerce and intercourse among the States is compatible with its absolute freedom, and (2) that Section 92 is violated only when a legislative or executive act operates to restrict such trade, commerce and intercourse directly and immediately as distinct from creating some indirect or consequential impediment which may fairly be regarded as remote. This decision thus justifies the conclusion we have reached about the scope and effect of Article 301. (Emphasis supplied) 101. In Automobiles case (supra) also Das, J. while speaking for the majority followed the direct and immediate effect test relying upon the pronouncements of the High Court of Australia in Commonwealth of Australia and Ors. v. Bank of New South Wales and Ors. [1950] A.C. 235. This is evident from the following passage: 10. ... ... ...In Section 92 of the Australian Constitution the expression used was absolutely free and repeatedly the question was posed as to what this freedom meant. We do not propose to recite the somewhat chequered history of the Australian decisions in respect of which Lord Porter, after a review of the earlier cases, said in Commonwealth of Australia v. Bank of New South Wales that in the labyrinth of cases decided Under Section 92 there was no golden thread. What is more important for our purpose is that he expressed the view that two general propositions stood out from the decisions: (i) that Regulation of trade, commerce and intercourse among the States is compatible with its absolute freedom, and (ii) that Section 92 of the Australian Constitution is violated only when a legislative or executive act operates to restrict such trade, commerce and intercourse directly and immediately as distinct from creating some indirect or inconsequential impediment which may fairly be regarded as remote. ... ... ... 102. On behalf of the States it was contended and, in our opinion, rightly so that the direct and immediate effect test evolved by the pronouncement of the Australian High Court has itself been watered down and diluted. The current view in Australia is that only such taxes as are discriminatory introduced by way of a protectionist measure operate as restrictions on the freedom of trade, commerce and intercourse. This is evident from the decisions of the Australia High Court in Cole v. Whitfield (1988) 165 CLR 360. The Court in that case reviewed the case law on the subject and rejected the argument that if Section 92 of the Australian Constitution was interpreted to be forbidding only discriminatory burdens it would have the effect of denying the freedom of trade, commerce and intercourse. The Court said: .......Plainly, however, the construction which treats Section 92 as being concerned to guarantee the freedom of inter-State trade and commerce from discriminatory burdens does not involve the consequence that the grant of legislative power with respect to inter-State trade and commerce is deprived of its essential content. 103. The Court noticed the evolution of the law on the subject and held that it is only discriminatory burdens that are forbidden by Section 92 and that the question whether a burden is indeed discriminatory is a question of fact and degree to be answered upon judicial interpretation and impressions. The following passage is, in this regard, instructive. Departing now from the doctrine which has failed to retain general acceptance, we adopt the interpretation which, as we have shown, is favoured by history and context. In doing so, we must say something about the resolution of cases in which no impermissible purpose appears on the face of the impugned law, but its effect is discriminatory in that it discriminates against inter-State trade and commerce and thereby protects intra-State and commerce of the same kind. We mention first Commonwealth laws enacted Under Section 51(i) which govern the conduct of inter-State trade and commerce. Such laws will commonly not appear to discriminate in a relevant sense if they apply to all transactions of a given kind within the reach of the Parliament. It is, however, possible for a general law enacted Under Section 51(i) to offend Section 92 if its effect is discriminatory and the discrimination is upon protectionist grounds. Whether such a law is discriminatory in effect and whether the discrimination is of a protectionist character are questions raising issues of fact and degree. The answer to those questions may, in the ultimate, depend upon judicial impression. (Emphasis supplied) 104. The Court also held that it is only if the discrimination is of a protectionist character that Section 92 of the Australian Constitution would stand violated. The Court said: In the case of a State law, the resolution of the case must start with a consideration of the nature of the law impugned. If it applies to all trade and commerce, inter-State and intra-State alike, it is less likely to be protectionist than if there is discrimination appearing on the face of the law. But where the law in effect, if not in form, discriminates in favour of intra-State trade, it will nevertheless offend against Section 92 if the discrimination is of a protectionist character. A law which has as its real object the prescription of a standard for a product or a service or a norm of commercial conduct will not ordinarily be grounded in protectionism and will not be prohibited by Section 92. But if a law, which may be otherwise justified by reference to an object which is not protectionist, discriminates against inter-State trade or commerce in pursuit of that object in a way or to an extent which warrants characterization of the law as protectionist, a court will be justified in concluding that it nonetheless offends Section 92. (Emphasis supplied) 105. The above passage signifies a paradigm shift in the judicial opinion in Australia as regards the interpretation of Section 92 of the Australian Constitution. The earlier view that any impediment including one in the nature of a tax which directly and immediately affects free trade, commerce and intercourse would violate Section 92 has been evidently abandoned by the Australian jurists. It follows that whatever support may have been available from the earlier decisions for the view taken in Atiabari (supra) and Automobile(supra) cases as to the true test applicable for interpreting Part XIII, has, if we may use that expression, fizzled out with the passage of time. 106. We may, at this stage, deal with yet another contention urged on behalf of the dealers in support of their case that taxes were, in the scheme of Part XIII, treated as restrictions. It was argued that the presence of Article 306 of the Constitution which now stands repealed by Constitution 7th Amendment Act, 1956 was itself suggestive of the fact that taxes were intended to be restrictions on free trade, commerce and intercourse, for otherwise, there was no reason why a provision like Article 306 should have been incorporated by the framers of the Constitution. Article 306, as it stood, before its deletion, was in the following terms: Article 306. Power of certain States in Part B of the First Schedule to impose restrictions on trade and commerce.-Notwithstanding anything in the foregoing provisions of this Part or in any other provisions of the Constitution, any State specified in Part B of the First Schedule which before the commencement of this 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 an agreement in that 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 and for such period not exceeding ten years from the commencement of this Constitution as may be specified in the agreement. Provided that the President may at any time after the expiration of five years from such commencement terminate or modify any such agreement if, after consideration of the report of the Finance Commission constituted Under Article 280, he thinks it necessary to do so. 107. A careful reading of the above would show that the provision started with a non-obstante Clause and made it constitutionally permissible for any State specified in Part B of the First Schedule to continue levying taxes or duties on the import of goods into the State from other States or on the export of goods from the State to other States, if an agreement in that behalf has been entered into between the Government of India and the Government of that State for such period not exceeding ten years as has been stipulated in the agreement. 108. The historic rationale behind incorporation of Article 306 lay in the fact that some States were imposing taxes/duties on the import of goods into their territory and on the export of goods from their territory, which taxes and levies were inconsistent with the Scheme of Part XIII, but, since the States were heavily relying upon the revenue so collected, the tax barriers set-up for such collection could not be completely taken away in one go. The framers of the Constitution in that view considered it necessary in the interest of stability of revenue to preserve the power exercised by the States for a limited period subject to the conditions stipulated in Article 306. The true effect of Article 306, therefore, was that while the States had no power under the Constitutional Scheme to levy customs duties on the import and export of goods to and from a State and even when such taxes and levies were discriminatory vis-a-vis goods produced/manufactured from outside the State, the discriminatory duties and levies were in larger interest of stability of revenue of the concerned States permitted, but, conditionally for a limited period. The marginal note of Article 306, therefore, rightly mentions such levies and duties to be restrictions on trade, commerce and intercourse. The reason for such description being the discriminatory nature of such taxes and levies. Seen in the historical perspective, it is futile to argue that Article 306 lends any assistance for determining whether taxes act as restrictions on free trade, commerce and intercourse. Seervai has correctly summed-up the true import of Article 306 in the following passage from his treatise (supra): 24.42. Again, Article 306 enabled the former Native States, which became Part B States, to continue to levy any tax or duty on the import of goods into such States from other States and to impose a duty on the export of goods out of such States for a limited period of time. The reason for enacting this provision is simple. First, Part B States claimed to be sovereign States vis-a-vis British India, and vis-a-vis other Native States so that the provinces of British India were in relation to Native States, and the Native States were foreign States to one another. The duties of import and export levied by Native States were thus duties of customs which are well known for creating tariff barriers. Thus a customs duty on the import of goods creates a tariff wall which the outside goods must surmount since there is no obligation on the Native State imposing such duty to impose any corresponding duty on similar goods manufactured and produced in the other States. And the same is true of duties of export for they can effectively prevent goods going out of the State by making them unsaleable in States where goods bear no such tax or bear a very much smaller tax. This scheme of taxation is basically opposed to the scheme of our Constitution because the States of India are not foreign States to one another, and no State can levy a duty or customs on goods imported from another, for no State has power to levy a duty of customs. That power belongs exclusively to Parliament in relation to foreign countries. Secondly, such duties would ordinarily contravene Article 304(a) so far as import from other States is concerned. However, as the revenues of the Native States were to a greater or smaller extent dependent on duties of customs, to have prohibited them at once would have dislocated the finances of those States. So, for a limited period of time, these duties were allowed to continue. For all that we have said above we have no hesitation in rejecting the contention urged on behalf of the dealers. 109. It was next argued on behalf of the dealers that an unreasonably high rate of tax could by itself constitute a restriction offensive to Article 301 of the Constitution. This was according to learned Counsel for the dealers acknowledged even in the minority judgment delivered by Sinha, CJ in Atiabaris case (supra). If that be so, the only way such a restriction could meet the constitutional requirements would be through the medium of the proviso to Article 304(b) of the Constitution. There is, in our opinion, no merit in that contention either and we say so for two precise reasons. Firstly, because taxes whether high or low do not constitute restrictions on the freedom of trade and commerce. We have held so in the previous paragraphs of the judgment based on our textual understanding of the provisions of Part XIII which is matched by the contextual interpretation. That being so the mere fact that a tax casts a heavy burden is no reason for holding that it is a restriction on the freedom of trade and commerce. Any such excessive tax burden may be open to challenge under Part III of the Constitution but the extent of burden would not by itself justify the levy being struck down as a restriction contrary to Article 301 of the Constitution. 110. Secondly because, levy of taxes is both an attribute of sovereignty and an unavoidable necessity. No responsible government can do without levying and collecting taxes for it is only through taxes that governments are run and objectives of general public good achieved. The conceptual or juristic basis underlying the need for taxation has not, therefore, been disputed by learned Counsel for the dealers and, in our opinion, rightly so. That taxation is essential for fulfilling the needs of the government is even otherwise well-settled. A reference to A Treatise on the Constitutional Limitations (8th Edn. 1927-Vol. II Page 986) by Thomas M Cooley brings home the point with commendable clarity. Dealing with power of taxation Cooley says: Taxes are defined to be burdens or charges imposed by the legislative power upon persons or property, to raise money for public purposes. The power to tax rests upon necessity, and is inherent in every sovereignty. The legislature of every free State will possess it under the general grant of legislative power, whether particularly specified in the constitution among the powers to be exercised by it or not. No constitutional government can exist without it, and no arbitrary government without regular and steady taxation could be anything but an oppressive and vexatious despotism, since the only alternative to taxation would be a forced extortion for the needs of government from such persons or objects as the men in power might select as victims. 111. Reference may also be made to the following passage appearing in McCulloch v. Maryland 17 US 316 (1819) where Chief Justice Marshall recognized the power of taxation and pointed out that the only security against the abuse of such power lies in the structure of the government itself. The court said: 43. .......It is admitted that the power of taxing the people and their property is essential to the very existence of government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the government may choose to carry it. The only security against the abuse of this power is found in the structure of the government itself. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 44. The people of a State, therefore, give to their government a right of taxing themselves and their property; and as the exigencies of the government cannot be limited, they prescribe no limits to the exercise of this right, resting confidently on the interest of the legislator, and on the influence of the constituents over their representative, to guard them against its abuse. 112. To the same effect is the decision of this Court in State of Madras v. N.K. Nataraja Mudaliar ., AIR 1969 SC 147 where this Court recognized that political and economic forces would operate against the levy of an unduly high rate of tax. The Court said: 16.... ... ...Again, in a democratic constitution political forces would operate against the levy of an unduly high rate of tax. The rate of tax on sales of a commodity may not ordinarily be based on arbitrary considerations, but in the light of the facility of trade in a particular commodity, the market conditions internal and external-and the likelihood of consumers not being scared away by the price which includes a high rate of tax. Attention must also be directed Sub-section (5) of Section 8 which authorizes the State Government, notwithstanding anything contained in Section 8, in the public interest to waive tax or impose tax on sales at a lower rate on inter-State trade or commerce. It is clear that the legislature has contemplated that elasticity of rates consistent with economic forces is clearly intended to be maintained. 113. Also apposite is the following passage from the said decision where this Court held that free flow of trade does not necessarily depend upon the rate of taxes but upon a variety of factors which the Court identified in the following words: 14. ... ... ... The flow of trade does not necessarily depend upon the rates of sales tax: it depends upon a variety of factors, such as the source of supply, place of consumption, existence of trade, channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade. Instances can easily be imagined of cases in which notwithstanding the lower rate of tax in a particular part of the country goods may be purchased from another part, where a higher rate of tax prevails. Supposing in a particular State in respect of a commodity, the rate of tax is 2 per cent but if the benefit of that low rate is offset by the freight which a merchant in another State may have to pay for carrying that commodity over a long distance, the merchant would be willing to purchase the goods from a nearer State, even though the rate of tax in that State may be higher. Existence of long standing business relations, availability of communications, credit facilities and a host of other factors-natural and business-enter into the maintenance of trade relations and the free flow of trade cannot necessarily be deemed to have been obstructed merely because in a particular State the rate of tax on sales is higher than the rates prevailing in other States. 114. Reliance by the counsel for the dealers upon the judgment of Sinha, CJ is also, in our opinion, of no avail to them. After holding taxes to be outside the purview of Part XIII of the Constitution, His Lordship made the following observations: 17. ... ... ... If a law is passed by the Legislature imposing a tax which in its true nature and effect is meant to impose an impediment to the free flow of trade, commerce and intercourse, for example, by imposing a high tariff wall, or by preventing imports into or exports out of a State, such a law is outside the significance of taxation, as such, but assumes the character of a trade barrier which it was the intention of the Constitution makers to abolish by Part XIII. 115. A careful reading of the above would show that Sinha, CJ had two situations in mind. One, where the State prevents imports into and exports out of the State and the other where the State imposes the high tariff wall with a view to imposing an impediment to the free flow of trade, commerce and intercourse. Insofar as the first category viz. laws that forbid imports into and exports out of a State are concerned, the same would work as a restriction in terms of restrictions within the contemplation of Part XIII and may be permissible in the manner and to the extent the said Part permits to do so, but, in the second case, viz. legislature imposing a high tariff wall so as to operate as an impediment to free flow of trade, commerce and intercourse, there are considerable difficulties. That is so because the judgment does not elaborate as to what would constitute a high tariff wall for the tax to operate as a restriction/impediment. 116. Counsel for the parties were, in the course of arguments, repeatedly asked whether any objective standards and norms can be evolved to determine the height and the width of the wall referred to in the passage extracted above. They were, however, unable to suggest any such norms. They fairly conceded that it was difficult if not impossible to evolve any such norm applicable to myriad situations that would arise before the courts. This implies that the tariff wall theory actually breaks down and is not amenable to judicially manageable dimensions. What may sound a high tariff wall or a fiscal barrier to one may not be so to the other. What may constitute a fiscal wall or barrier for one category of traders may not be so for other categories. So also, the tax at a given rate may be high on a particular commodity but reasonable qua another. Suffice it to say that the fiscal wall theory gets into serious difficulties when it comes to enforcement or effectuating the same. The logic behind the theory in fact cracks and gives-up. Such being the position, we have little hesitation in holding that the fiscal wall theory propounded in Sinha, CJs minority judgment is not really workable and has not commended itself to us. It follows that simply because the tax is high is no reason for it to change its character and take the form of a restriction within the meaning of Part XIII, no matter any one aggrieved of such heavy burden shall have the liberty to assail the same on all such grounds as may be available to him under Part III of the Constitution. We are conscious of the fact that some decisions of this Court in Raja Jagannath Baksh Singh v. State of U.P.., AIR 1962 SC 1563 ; Federation of Hotel & Restaurant Assn. of India etc. v. Union of India and Ors., (1989) 3 SCC 634 ; Y.V. Srinivasamurthy and Ors. v. State of Mysore and Anr., AIR 1959 SC 894 ; D.G. Gose & Co. (Agents) (P) Ltd. v. State of Kerala and Anr. (1980) 2 SCC 410 ; A. Suresh and Ors. v. State of T.N. and Anr. (1997) 1 SCC 319 have declared that just because a tax is heavy is no reason for it to be contrary to Part III, but we leave that question open to be examined in appropriate cases as and when any such challenge is mounted by anyone aggrieved of an unduly heavy tax rate. 117. That brings us to the question whether the use of the expression by virtue of any entry relating to trade and commerce appearing in Article 303 are wide enough to include entries relating to levy of taxes also. The argument advanced amongst others by Mr. Datar is that the expression relating to trade and commerce appearing in the said Article must be interpreted liberally so as to include not only Entry 42 in List I, Entry 26 in List II and Entry 33 in List III but also other entries that empower the Parliament and State Legislatures to levy taxes. By that logic it was contended that levy of taxes is also treated as a restriction within the contemplation of Part XIII making it necessary for the legislature to resort to Article 304(b) and the proviso for doing so. There is in our opinion no merit in that contention also. 118. We say so for two precise reasons. Firstly because entries relating to Trade and commerce by themselves are not sufficient to empower the legislature to levy taxes. The constitutional scheme is such that a taxing entry is distinct from other entries and a levy of tax is possible only if there is an entry which authorizes the competent legislature to levy the same. This distinction has for long been maintained by judicial pronouncements of this Court. We may in this regard refer to M.P.V. Sunderaramiers case (supra) where this Court has declared: 51. In List I, Entries 1 to 81 mention the several matters over which Parliament has authority to legislate. Entries 82 to 92 enumerate the taxes which could be imposed by a law of Parliament. An examination of these two groups of Entries shows that while the main subject of legislation figures in the first group, a tax in relation thereto is separately mentioned in the second. Thus, Entry 22 in List I is Railways, and Entry 89 is Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights. If Entry 22 is to be construed as involving taxes to be imposed, then Entry 89 would be superfluous. Entry 41 mentions Trade and commerce with foreign countries; import and export across customs frontiers. If these expressions are to be interpreted as including duties to be levied in respect of that trade and commerce, then Entry 83 which is Duties of customs including export duties would be wholly redundant. Entries 43 and 44 relate to incorporation, Regulation and winding up of corporations. Entry 85 provides separately for corporation tax. Turning to List II, Entries 1 to 44 form one group mentioning the subjects on which the States could legislate. Entries 45 to 63 in that List form another group, and they deal with taxes. Entry 18, for example, is Land and Entry 45 is Land revenue. Entry 23 is Regulation of mines and Entry 50 is Taxes on mineral rights. The above analysis--and it is not exhaustive of the Entries in the Lists--leads to the inference that taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of Article 248, Clauses (1) and (2) and of Entry 97 in List I of the Constitution. Construing Entry 42 in the light of the above scheme, it is difficult to resist the conclusion that the power of Parliament to legislate on inter-State trade and commerce under Entry 42 does not include a power to impose a tax on sales in the course of such trade and commerce. xxx xxx xxx 55. To sum up: (1) Entry 54 is successor to Entry 48 in the Government of India Act, and it would be legitimate to construe it as including tax on inter-State sales unless, there is anything repugnant to it in the Constitution and there is none such. (2) Under the scheme of the Entries in the Lists, taxation is regarded as a distinct matter and is separately set out. ... ..... 119. The above pronouncement is, in our opinion, the correct enunciation of the legal position in the light whereof it is difficult to appreciate how entries relating to trade and commerce could be understood to be including levy of taxes also. That apart, once taxes are held to be outside Part XIII for the reason that we have already set out earlier, there is no way we can bring them back into that Part by a tenuous interpretation or understanding of Article 303. As explained by us earlier, Article 303 is an exception to Article 302, inasmuch as it limits the power conceded to the Parliament Under Article 302 to impose restrictions on freedom of Trade, commerce and intercourse in public interest. The power exercised by Article 302 cannot be so exercised as to give preference to one state over another except under a situation covered by Article 303(2) namely situation arising from scarcity of goods in any part of the territory of India. We cannot add to this Article any artificially extended meaning the ingenuity of the bar in coining any such interpretation notwithstanding. 120. Relying upon the decision in Mudaliars case (supra) it was argued on behalf of the Assessee that this Court has upheld the constitutional validity of the Central State Tax Act on the ground that such a tax was in public interest within the contemplation of Article 302 of the Constitution of India, hence, validly leviable. This, according to the learned Counsel, implied that the tax was recognised as a restriction which could be levied only if found to be in public interest as stipulated in Article 302. We have no difficulty in rejecting that contention. In Mudaliars case, this Court was bound by and followed the pronouncement of the larger bench in Atiabaris case holding that taxes could also be restrictions on free trade and commerce if they directly and immediately impeded their free flow. We have, in the preceding part of this judgment, held that view to be legally unsustainable on a proper construction of the provision of Part XIII and the Constitutional scheme. Once the premise on which Atiabaris case was decided is held to be flawed, Mudaliar that simply followed the ratio of that decision cannot stand scrutiny. The argument that Central Sales Tax was valid in terms of Article 302 as such a tax was in public interest becomes academic if taxes are held to be outside the purview of Part XIII. This incidentally will be true in respect of every other pronouncement where benches of smaller strength have dealt with similar other legislations and taken a view following the ratio in Atiabaris case. 121. We may at this stage deal with yet another contention urged on behalf of the assesses who argued that while Article 304(a) forbids discriminatory fiscal legislation in respect of goods coming from another state there was no provision which prevented the States from levying discriminatory taxes within its territorial limits. The argument was that the absence of any provision against discriminatory taxation within a State must be understood to mean that taxes would generally be restrictions and unless the States take recourse to Article 304(b) they cannot levy such taxes upon trade and commerce within their territorial limits. The argument is, in our view, more in despair than substantial. It is true that Part XIII does not in terms forbid the levy of discriminatory taxes on goods produced within the States but the fact that there is no such prohibition does not necessarily mean that if such discriminatory taxation does indeed take place the same is constitutionally permissible. Whether or not there is hostile discrimination between goods from one part of the State and those from another part is a matter which will have to be judged on a case to case basis and on the touchstone of Article 14. Having said that we need to remind ourselves that Part XIII of the Constitution was aimed at addressing the mischief arising from fiscal and other barriers which the princely states had imposed and which gravely impeded free trade and commerce. The Constituent Assembly Debates show that framers of the Constitution were concerned with the removal of such barriers. Discrimination intra-State in terms of levy of taxes was never considered to be a challenge for presumably the Constituent Assembly never considered the same to be a real possibility necessitating a specific provision prohibiting levy of discriminatory intra-State taxes. 122. On behalf of the Assessees-dealers, it was next argued that levy of entry tax on import of goods from outside the local area in the State will be per se discriminatory if goods so imported or similar are not produced or manufactured within the State. That is, argued the learned Counsel, because the levy will fall unequally thereby violating the guarantee against discrimination contained in Article 304(a). We have no difficulty in rejecting that submission as well. The reason is obvious. Article 304(a), in our opinion, strikes at discriminatory taxation implying thereby that the levy falls unequally as between goods produced or manufactured within the State and those being imported from outside. The essence of the guarantee in Article 304(a) lies in the same or similar goods being treated similarly in the matter of taxation. The question, therefore, is whether that guarantee is violated if the goods subjected to levy of entry tax are not produced or manufactured within the State levying the tax. Our answer is in the negative. This is because there is no question of any discrimination if goods from outside the State are not at a disadvantage vis-a-vis goods produced or manufactured within that State. It is true that a levy on goods that are not produced or manufactured in the State is likely to make such goods costlier but that is not enough for the levy to be considered unconstitutional. A responsive Government aware of the needs of its constituents will be under tremendous pressure to keep such taxes low enough for its constituents to be able to afford the same. Democratic processes and pressures within the system of governance that we have will itself take care of any aberration in this regard. What is absolutely clear, however, is that Article 304(a) will not frown at a levy simply because same or similar goods as are taxed are not produced or manufactured in the State. Reliance upon the decision in Kalyani Stores AIR 1966 SC 1686 does not, in our opinion, help the Assessees. The majority judgment in that case looked at Article 304(a) as the source of power to levy a tax or duty. We have in the earlier parts of the judgment explained that the source of power to levy taxes/duties lies in Articles 245 and 246 of the Constitution read with the entries in the three lists contained in Schedule VII. Article 304(a), in that view, only places a constitutional restriction on the power to levy taxes or duties while recognizing the availability of such powers to the State legislatures. The restrictions as explained by us in the earlier paras to levy taxes/duties is confined to levy of discriminatory taxes and duties alone. To the extent, Kalyani Stores takes the view that the power to levy taxes is traceable to Article 304(a) the decision, in our opinion, is not sound nor is it correct to say that since goods being taxed are not produced in the State, the power to levy a tax gets obliterated. 123. Appearing for some of the Assessees Mr. Venkatraman argued that the Central Sales Tax Act was a classic example of the Union exercising its power Under Article 302 of Part XIII. He contended that the restrictions so imposed signify that tax and restrictions are synonymous within the contemplation of part XIII. 124. The Central Sales Tax Act, 1956 was enacted pursuant to the Sixth Amendment Act, 1956 whereby taxes on sale and purchase of goods in the course of inter-state trade and commerce were expressly brought within the purview of the legislative competence of Parliament. This included the power to impose restrictions upon the power of the State legislature insofar as levy of taxes of sale or purchase of goods of special importance is concerned. Entry 92-A added by the Sixth Amendment Act 1956 empowered the Parliament to levy taxes on the sale and purchase of the goods other than newspapers in the course of trade and commerce. Entry 54 of the State List by the same amendment was redrawn to make the taxes on the sale and purchase of goods subject to Entry 92-A of List I. The two entries read as under: 92-A. Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A of List-I. 125. The States power it is evident is made subservient to the powers of the Parliament under Entry 92-A. Section 15 of the Central Sales Tax Act, therefore, has overriding effect vis-a-vis any State Law authorizing imposition of taxes on sale/purchase of declared goods. Seen in the above perspective, Parliament has limited the legislative power of the State insofar as taxes on declared goods are concerned. We find it difficult to read into such restrictions the meaning sought to be drawn by the learned Counsel that taxes themselves are restrictions within the comprehension of Part XIII. The imposition of restrictions on the States power of taxation in regard to declared goods is not, in our opinion, suggestive of taxes themselves being restrictions for purposes of Part XIII of the Constitution. Not only that, Article 286(3) provides the source of power for the Parliament to impose any restriction on the State authority to levy a tax on goods of special importance declared by Parliament. Article 286(3) reads as: 286. Restriction as to imposition of tax on the sale or purchase of goods: (1).... (2).... (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of,-- (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in Sub-clause (b), sub Clause (c) or Sub-clause (d) of Clause (29A) of Article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament made by law specify. 126. In the light of what we have said above, we answer Question No. 1 in the negative and declare that a non-discriminatory tax does not per se constitute a restriction on the right to free trade, commerce and intercourse guaranteed Under Article 301. Decisions taking a contrary view in Atiabaris case (supra) followed by a series of later decisions shall, therefore, stand overruled including the decision in Automobile Transport (supra) declaring that taxes generally are restrictions on the freedom of trade, commerce and intercourse but such of them as are compensatory in nature do not offend Article 301. Resultantly decisions of his Court in Jindal Stainless Limited (2) and Anr. v. State of Haryana and Ors. (2006) 7 SCC 241 shall also stand overruled. 127. Re. Question No. 2 In view of our answer to Question No. 1, Question No. 2 does not arise for consideration. 128. Re. Question No. 3 In the light of what we have said in Question Nos. 1 and 2, this question also does not survive for consideration. 129. Re. Question No. 4 This question touching the constitutional validity of the impugned State enactments can be split into two parts. The first part which can be briefly dealt with at the outset is whether the constitutional validity of the impugned legislations has to be tested by reference to both Articles 304(a) and 304(b) as contended by learned Counsel for the Assessees or only by reference to Article 304(a) as argued by the States. In the light of what we have said while dealing with question No. 1 we have no hesitation in holding that Article 304(b) does not deal with taxes as restrictions. At the risk of repetition, we may say that restrictions referred to in Article 304(b) are non-fiscal in nature. Constitutional validity of any taxing statute has, therefore, to be tested only on the anvil of Article 304(a) and if the law is found to be non-discriminatory, it can be declared to be constitutionally valid without the legislation having to go through the test or the process envisaged by Article 304(b). Should, however, the statute fail the test of non-discrimination Under Article 304(a) it must be struck down for the same cannot be sustained even if it had gone through the process stipulated by Article 304(b). That is because what is constitutionally impermissible in terms of Article 304(a) cannot be validated and sanctioned through the medium of Article 304(b). Suffice it to say that a fiscal statute shall be open to challenge only Under Article 304(a) of the Constitution without being subjected to the test of Article 304(b) either in terms of the existence of public interest or reasonableness of the levy. 130. That brings us to the second part of question No. 4 viz. whether the impugned State enactments violate Article 304(a) of the Constitution. That aspect will necessarily involve a careful reading of the impugned enactments and a proper appreciation of the scheme underlying the same. While we have at some length heard learned Counsel for the parties on that aspect, we do not propose to deal with all the dimensions of that challenge based on Article 304(a) except two of them that were argued at great length by learned Counsel for the parties. The first of these two dimensions touches upon the States power to promote industrial development by granting incentives including those in the nature of exemptions or reduced rates of levy on goods locally produced or manufactured. On behalf of the assesses it was contended that grant of exemptions and incentives in favour of locally manufactured/produced goods is also one form of insidious discrimination which was impermissible in terms of Article 304(a) for such exemptions and incentives had the effect of putting goods from another State at a disadvantage. Relying upon a decision of two-Judge Bench of this Court in Shree Mahavir Oil Mills and Anr. v. State of Jammu and Kashmir and Ors. (1996) 2 SCC 39 it was argued that exemptions in favour of locally produced goods from payment of taxes was constitutionally impermissible and offensive to Article 304(a). That was a case where the State Government had totally exempted goods manufactured by small scale industries within the State from payment of sales tax even when the sales tax payable by other industries including manufacturers of goods in adjoining States was in the range of 8%. This exemption was questioned by manufacturers of edible oils from other States on the ground that the same was discriminatory and violative of Articles 301 and 304 of the Constitution. 131. This Court held that the exemption given to manufacturers of edible oil was total and unconditional, while producers of edible oil from industries in adjoining states had to pay sales tax @ 8%. Grant of exemption to local oil producing units thereby put the former at a disadvantage. Having said that, the Court exercised its powers Under Article 142 of the Constitution and struck down the exemption by moulding the reliefs to suit the exigencies of the situation. The Court no doubt noticed a three-Judge Bench decision in Video Electronics v. State of Punjab (1990) 3 SCC 87 in which notifications issued by the States of U.P and Punjab providing for exemptions to new units established in certain areas for a prescribed period of 3 to 7 years were assailed as discriminatory. The challenge to the exemption was in that case also based on the alleged violation of Articles 301 and 304. This Court however upheld the notifications in question on the ground that the same related to a specific class of industrial units and the benefit under the same was admissible for a limited period of time only. The Court observed that if an overwhelmingly large number of local manufacturers were subject to sales tax, it could not be said that the local manufactures were favored as a class against outsiders. Adverting to the decision in Video Electronics (supra) this Court in Mahavir (supra) held the same to be distinguishable on the ground that the Punjab and U.P notifications were qualitatively different from the one issued by the Government of Jammu and Kashmir in as much as while the former benefited only specified units and limited the benefit to a specified period, the latter was not subject to any such limitations. This declared the Court resulted in discrimination vis-a-vis. outside goods. What is important is that in Video Electronics (supra) this Court recognized the difference between differentiation and discrimination and held that every differentiation is not discrimination. This Court noted that the word discrimination was not used in Article 14 as it has been used in Article 16, Article 303 and Article 304(a). The use of the word in 304(a) observed this Court involved an element of intentional and unfavorable bias. So long as there was no such bias evident from the measure adopted by the state, mere grant of exemption or incentives aimed at supporting local industries in their growth, development and progress did not constitute discrimination. 132. We respectfully agree with the line of reasoning adopted in Video Electronics (supra). The expression discrimination has not been defined in the Constitution though the same has fallen for interpretation of this Court on several occasions. The earliest of these decisions was rendered in Kathi Raning Rawat v. The State of Saurashtra AIR 1952 SC 123 , where a seven-Judge Bench of this Court held that all legislative differentiation is not necessarily discriminatory. Relying upon the meaning of the expression in Oxford Dictionary, Patanjali Sastri, CJ (as His Lordship then was) explained: 7. All legislative differentiation is not necessarily discriminatory. In fact, the word discrimination does not occur in Article 14. The expression discriminate against is used in Article 15(1) and Article 16(2), and it means, according to the Oxford Dictionary, to make an adverse distinction with regard to; to distinguish unfavourably from others. Discrimination thus involves an element of unfavourable bias and it is in that sense that the expression has to be understood in this context. If such bias is disclosed and is based on any of the grounds mentioned in Articles 15 and 16, it may well be that the statute will, without more, incur condemnation as violating a specific constitutional prohibition unless it is saved by one or other of the provisos to those articles. But the position Under Article 14 is different. Equal protection claims under that Article are examined with the presumption that the State action is reasonable and justified. This presumption of constitutionality stems from the wide power of classification which the legislature must, of necessity, possess in making laws operating differently as regards different groups of persons in order to give effect to its policies....... 133. Fazl Ali J. in his concurring judgment explained the concept in the following words: 19. I think that a distinction should be drawn between discrimination without reason and discrimination with reason. The whole doctrine of classification is based on this distinction and on the well-known fact that the circumstances which govern one set of persons or objects may not necessarily be the same as those governing another set of persons or objects, so that the question of unequal treatment does not really arise as between persons governed by different conditions and different sets of circumstances. The main objection to the West Bengal Act was that it permitted discrimination without reason or without any rational basis. Any challenge to a fiscal enactment on the touchstone of Article 304(a) must in our opinion be tested by the same standard as in Kathis case (supra). The Court ought to examine whether the differentiation made is intended or inspired by an element of unfavourable bias in favour of the goods produced or manufactured in the State as against those imported from outside. If the answer be in the affirmative, the differentiation would fall foul of Article 304(a) and may tantamount to discrimination. Conversely, if the Court were to find that there is no such element of intentional bias favouring the locally produced goods as against those from outside, it may have to go further and see whether the differentiation would be supported by valid reasons. In the words of Fazl Ali, J. discrimination without reason would be unconstitutional whereas discrimination with reason may be legally acceptable. In Video Electronics case, this Court noted that the differentiation made was supported by reasons. This Court held that if economic unity of India is one of the Constitutional aspirations and if attaining and maintaining such unity is a Constitutional goal, such unity and objectives can be achieved only if all parts of the Country develop equally. There is, if we may say so, with respect considerable merit in that line of reasoning. A State which is economically and industrially backward on account of several factors must have the opportunity and the freedom to pursue and achieve development in a measure equal to other and more fortunate regions of the country which have for historical reasons, developed faster and thereby acquired an edge over its less fortunate country cousins. Economic unity from the point of view of such underdeveloped or developing states will be an illusion if they do not have the opportunity or the legal entitlement to promote industries within their respective territories by granting incentives and exemptions necessary for such growth and development. The argument that power to grant exemption cannot be used by the State even in case where such exemptions are manifestly intended to promote industrial growth or promoting industrial activity has not appealed to us. The power to grant exemption is a part of the sovereign power to levy taxes which cannot be taken away from the States that are otherwise competent to impose taxes and duties. The conceptual foundation on which such exemptions and incentives have been held permissible and upheld by this Court in Videos case is, in our opinion, juristically sound and legally unexceptionable. Video Electronics, therefore, correctly states the legal position as regards the approach to be adopted by the Courts while examining the validity of levies. So long as the differentiation made by the States is not intended to create an unfavourable bias and so long as the differentiation is intended to benefit a distinct class of industries and the life of the benefit is limited in terms of period, the benefit must be held to flow from a legitimate desire to promote industries within its territory. Grant of exemptions and incentives in such cases must be deemed to have been inspired by considerations which in the larger context help achieve the Constitutional goal of economic unity. 134. Seen in the above context the decision in Mahabir Oils case is indeed distinguishable in as much as the manufactures of edible oil were exempt totally and unconditionally while other manufacturers from outside the State were not so exempt. Whether or not the impugned enactments in the present batch of cases satisfy the tests referred to above and elaborated in Video Electronics case is a matter on which we do not propose to express any opinion for that aspect is best left open to be considered by the regular benches hearing these matters after the reference is disposed of. 135. The other dimension of what according to the assesses amounts to discrimination lies in goods coming from outside the State for sale, consumption or use within a local area of another State being subjected to an entry tax at a rate different from the one at which goods manufactured within the taxing State are taxed. We are not getting into the substantive or machinery provisions of the State enactments that levy entry tax on goods entering a local area. This can be done more appropriately by the bench hearing the matter after the reference has been answered. What we propose to examine is whether grant of exemption or adjustment/setoff/credit to goods produced or manufactured within the taxing State can vis-a-vis goods coming from outside the State constitute discrimination against such outside goods. According to the Assessee it does constitute discrimination against such outside goods while according to the State any provision which is aimed at equalizing the impact of taxes on goods after their production/manufacture is legitimate and constitutionally permissible. 136. The States argue that the grant of exemption to indigenous goods is aimed only at neutralizing the impact of entry tax on those goods, in cases where VAT/Sales Tax payable on such goods is equivalent to the rate at which entry tax is chargeable. The exemption in such cases has the effect of rendering the locally produced goods free from entry tax liability. In cases where there is a difference in the rate of VAT/Sales Tax and entry tax adjustment/credit of the amount paid towards VAT/Sales tax has the effect of reducing the entry tax liability proportionately. It is argued that so long as similar credit/adjustment/setoff is made admissible to goods coming from another state there is no question of any discrimination qua them. The rate of tax paid on such goods in the state from where they are brought including the Central Sales Tax, if any payable on the same may be equal to the entry tax payable under the relevant statute in which case such outside goods also enjoy the same advantage as goods manufactured in the taxing state, dispelling any misconceived impression about any discrimination qua such goods. 137. The legal position as to the approach that courts adopt towards fiscal measures while examining their constitutional validity is fairly well settled by a long line of decisions of this Court. The law on the subject is so well settled that it calls for no elaborate discussion of the same. Courts have almost universally accepted the principle that keeping in view the inherent complexities of fiscal adjustments and the diverse elements and inputs that go into such exercise a greater latitude is due to the legislature in taxation related legislations. It is unnecessary to refer to all the decisions in which this Court has conceded such play at the joints to the legislature. Reference to some of the decision of this Court should in our opinion suffice. In Mafatlal v. Union of India 1997(5) SCC 536 in a separate but concurring opinion Paripoornan, J. held: 343.....In the matter of taxation laws, the Court permits a great latitude to the discretion to the legislature. The State is allowed to pick and choose districts, objects, persons, methods and even rate for taxation if it does so reasonably. The Courts view the laws relating to economic activities with greater latitude than other matters. [See Collector of Customs v. Nathella Sampathu Chetty and Anr. AIR 1962 SC 316 ; Khyerbari Tea Co. Ltd. and Anr. v. State of Assam and Ors. AIR 1964 SC 925 ; R.K. Garg v. Union of India and Ors. AIR 1981 SC 2138 ; Gauri Shanker and Ors v. Union of India and Ors. (1994) 6 SCC 349 and Union of India and Anr. v. A. Sanyasi Rao and Ors. (1996) 3 SCC 465 ] etc. 138. Reference may also be made to the Constitution bench decision of this Court in Khandige Sham Bhat v. Agrl. ITO., AIR 1963 SC 591 where this Court declared that a law may facially appear to be non discrimination and yet its impact on persons and property similarly situate may operate unequally in which event, the law would offend the equity clause. This implies that facial equality is not the only test for determining whether the law is constitutionally valid. What is equally important is the impact of the legislation. This Court held: 7...Though a law ex facie appears to treat all that fall within a class alike, if in effect it operates unevenly on persons or property similarly situated, it may be said that the law offends the equality clause. It will then be the duty of the court to scrutinise the effect of the law carefully to ascertain its real impact on the persons or property similarly situated. Conversely, a law may treat persons who appear to be similarly situate differently; but on investigation they may be found not to be similarly situate. To state it differently, it is not the phraseology of a statute that governs the situation but the effect of the law that is decisive. If there is equality and uniformity within each group, the law will not be condemned as discriminative, though due to some fortuitous circumstance arising out of a peculiar situation some included in a class get an advantage over others, so long as they are not singled out for special treatment. Taxation law is not an exception to this doctrine vide Purshottam Govindji v. B.M. Desai, and Kunnathat Thathuni Moopil Nair v. State of Kerala. But in the application of the principles, the courts, in view of the inherent complexity of fiscal adjustment of diverse elements, permit a larger discretion to the legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine. The power of the legislature to classify is of wide range and flexibility so that it can adjust its system of taxation in all proper and reasonable ways. 139. In V. Guruviah Naidu and Sons and Ors. v. State of Tamil Nadu and Ors. (1977) 1 SCC 234 the Court was examining whether levy of sales tax on hides and skins from within or outside the State was discriminatory and offensive to Article 304(a) of the Constitution. Repelling the contention that it was violative of Article 304(a), this Court held: 8. None of the circumstances which led this Court to strike down the relevant provisions in the abovementioned two cases exists in the present case. In Mehtabs case discrimination was found to exist because of the fact that tax was being levied at the same rate in respect of both raw hides and skins as well as dressed hides and skins, even though the price of dressed hides and skins was much higher. The position was worse in the case of Hajee Abdul Shukoor because in that case the sales tax was found to have been charged at a higher rate in respect of dressed hides and skins than that on the sale of raw hides and skins in spite of the fact that the price of dressed hides and skins was higher than that of raw hides and skins. The position in the present case is materially different, for here the rate of sales tax for raw hides and skins is 3 per cent, while that for dressed hides and skins is 1 1/2 per cent. It is plain that the lower rate of tax in the case of dressed hides and skins has been prescribed with a view to offset the difference between the higher price of dressed hides and skins and the lower price of raw hides and skins. No material has been brought on the record to show that despite the lower rate of sales tax for dressed hides and skins, the imported hides and skins are being subjected to discrimination. The onus to show that there would be discrimination between the hides and skins which were purchased locally in the raw form and thereafter tanned and the hides and skins which were imported from other States was upon the Appellant. The Appellant, we find, has failed to discharge such onus. 9. Article 304(a) does not prevent levy of tax on goods; what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the difference between the two rates would constitute a tariff wall or fiscal barrier and thus impede the free flow of inter-State trade and commerce. The question as to when the levy of tax would constitute discrimination would depend upon a variety of factors including the rate of tax and the item of goods in respect of the sale of which it is levied. The scheme of Items 7(a) and 7(b) of the Second Schedule to the State Act is that in case of raw hides and skins which are purchased locally in the State, the levy of tax would be at the rate of 3 per cent at the point of last purchase in the State. When those locally purchased raw hides and skins are tanned and are sold locally as dressed hides and skins, no levy would be made on such sales as those hides and skins have already been subjected to local tax at the rate of 3 per cent when they were purchased in raw form. As against that, in the case of hides and skins which have been imported from other States in raw form and are thereafter tanned and then sold inside the State as dressed hides and skins, the levy of the tax is at the rate of 1 1/2 per cent at the point of first sale in the State of the dressed hides and skins. This levy cannot be considered to be discriminatory as it takes into account the higher price of dressed hides and skins compared to the price of raw hides and skins. It also further takes note of the fact that no tax under the State Act has been paid in respect of those hides and skins. The legislature, it seems, calculated the price of hides and skins in dressed condition to be double the price of such hides and skins in raw state. To obviate and prevent any discrimination or differential treatment in the matter of levy of tax, the legislature therefore prescribed a rate of tax for sale of dressed hides and skins which was half of that levied under Item 7(a) in respect of raw hides and skins. 140. In Malwa Bus Service (Private) Ltd. v. State of Punjab and Ors. (1983) 3 SCC 237 this Court held that a difference in the rate of tax by itself cannot be considered to be discriminatory and offensive to the equality clause: 21. The next submission urged on behalf of the Petitioners is based on Article 14 of the Constitution. It is contended by the Petitioners that the Act by levying Rs. 35,000 as the annual tax on a motor vehicle used as a stage carriage but only Rs. 1500 per year on a motor vehicle used as a goods carrier suffers from the vice of hostile discrimination and is, therefore, liable to be struck down. There is no dispute that even a fiscal legislation is subject to Article 14 of the Constitution. But it is well settled that a legislature in order to tax some need not tax all. It can adopt a reasonable classification of persons and things in imposing tax liabilities. A law of taxation cannot be termed as being discriminatory because different rates of taxation are prescribed in respect of different items, provided it is possible to hold that the said items belong to distinct and separate groups and that there is a reasonable nexus between the classification and the object to be achieved by the imposition of different rates of taxation. The mere fact that a tax falls more heavily on certain goods or persons may not result in its invalidity. As observed by this Court in Khandige Sham Bhat v. Agricultural Income Tax Officer in respect of taxation laws, the power of legislature to classify goods, things or persons are necessarily wide and flexible so as to enable it to adjust its system of taxation in all proper and reasonable ways. The Courts lean more readily in favour of upholding the constitutionality of a taxing law in view of the complexities involved in the social and economic life of the community. It is one of the duties of a modern legislature to utilise the measures of taxation introduced by it for the purpose of achieving maximum social good and one has to trust the wisdom of the legislature in this regard. Unless the fiscal law in question is manifestly discriminatory the court should refrain from striking it down on the ground of discrimination. These are some of the broad principles laid down by this Court in several of its decisions and it is unnecessary to burden this judgment with citations. Applying these principles it is seen that stage carriages which travel on an average about 260 kilometres every day on a specified route or routes with an almost assured quantum of traffic which invariably is overcrowded belong to a class distinct and separate from public carriers which carry goods on undefined routes. Moreover the public carriers may not be operating every day in the State. There are also other economic considerations which distinguish stage carriages and public carriers from each other. The amount of wear and tear caused to the roads by any class of motor vehicles may not always be a determining factor in classifying motor vehicles for purposes of taxation. The reasons given by this Court in G.K. Krishnan case for upholding the classification made between stage carriages and contract carriages both of which are engaged in carrying passengers are not relevant to the case of a classification made between stage carriages which carry passengers and public carriers which transport goods. The Petitioners have not placed before the court sufficient material to hold that the impugned levy suffers from the vice of discrimination on the above ground. 141. Seen in the context of the above, we are inclined to accept the submission made on behalf of the State that so long as the intention behind the grant of exemption/adjustment/credit is to equalize the fall of the fiscal burden on the goods from within the State and those from outside the State such exemption or set of will not amount to hostile discrimination offensive to Article 304(a). Having said that, we leave open for examination by the regular benches hearing the matters whether the impugned enactment achieve the object of such equalization or lead to a situation that exposes goods from outside the state to suffer any disadvantage vis-a-vis those produced or manufactured in the taxing State. 142. We must, while parting, mention that learned Counsel for the parties had attempted to raise certain other issues like whether the entire State can be treated as a local area and whether entry tax can be levied on goods imported from outside the country. We do not, however, consider it necessary in the present reference to address all those issues which are hereby left open to be decided by the regular bench hearing the matter. 143. With that observation the reference is answered. The Registry shall now place the matters before regular benches for an expeditious disposal of the same in the light of what has been observed by us above. S.A. Bobde, J. 144. I am in respectful agreement with the judgment of the Chief Justice, on the question that taxes are not restrictions on the freedom of trade, commerce and intercourse guaranteed by Article 301. Taxes are not restrictions on Trade 145. In addition to the reasons stated in the judgment, it appears that there is a more fundamental reason why tax is not liable to be viewed as a restriction on the freedom of trade, commerce and intercourse. On the contrary it seems that a tax, such as the one we are concerned with is predicated on the freedom of trade and commerce. This is particularly true of an entry tax. It is an impost levied on transactions which are entered into in the course of that freedom. In fact, but for such freedom of trade there would be no transaction and no occasion for the levy of a tax. The levy of a tax is a distinct event from the transaction. Trade and commerce must take place to attract a tax. Undoubtedly a tax may make the transaction less profitable to the extent of the tax. But that is far from being an impediment on the transaction which is part of trade, the freedom which is guaranteed Under Article 301. It is not possible to readily conceive of a tax, which in itself, restricts or impedes the freedom of trade. The circumstances are much like the freedom of movement of an individual by a bus and the charge of a bus ticket for such movement. It can hardly be contended that the charge of a bus ticket impedes the freedom of movement. 146. The other related contentions have been adequately dealt with by the judgment of the Chief Justice and I fully subscribe to the same. I would also agree in this regard with the view of Sinha, CJ, in Atiabari that a tax is not a restriction. Sinha, CJ, observed that .......if a law is passed by the Legislature imposing a tax which in its true nature and effect is meant to impose an impediment to the free flow of trade, commerce and intercourse, for example, by imposing a high tariff wall, or by preventing imports into or exports out of a State, such a law is outside the significance of taxation, as such, but assumes the character of a trade barrier which it was the intention of the Constitution makers to abolish by Part-XIII. However, it is difficult to implement such a test since it does not disclose any objective standard for determining when such a law would assume the character of a trade barrier. In principle, a tax cannot constitute a restriction on the freedom of trade, commerce and intercourse as held by Sinha, C.J. Therefore, it would not be possible to construe a tax as a trade barrier merely because the rates are high. As regards apprehensions expressed regarding high rates of taxation, it would be apposite to rely on the observations of Marshall, CJ, in McCulloch v. Maryland 17 US 316 (1819), that the only security against the abuse of such power lies in the structure of the government itself. Article 304(a) 147. In regard to the question whether the levy of entry tax on import of goods from outside the local area in the State will be per se discriminatory if goods similar to those imported are not produced or manufactured within the State, I find it difficult to agree with the conclusion that a tax on goods imported into a State can be levied even if similar goods are not manufactured or produced in the importing State. I would agree with the conclusion drawn by Ashok Bhushan, J., in this regard. Article 304 reads as follows: Restrictions on trade, commerce and intercourse among States.-Notwithstanding anything in Article 301 or Article 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, 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 (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. 148. The non-discriminatory principle is embedded in two provisions of Part XIII: Article 303(1)-Parliament cannot impose restrictions Under Article 302 and make a discriminatory law under any entry relating to trade and commerce; the other is Article 304(a) which (unlike Section 297 of the erstwhile Government of India Act, 1935 which prohibited-through a negative mandate, discriminatory treatment) empowers State Legislatures to impose non-discriminatory taxes on goods. Thus, Article 304(a) differentiates between discriminatory and non-discriminatory taxes. The premise underlying this provision is the paramount aim of Part XIII to establish and foster economic unity of the country. Non-discrimination, or parity of treatment is therefore at the core of its purpose, which Shri T.T. Krishnamachari stressed, in his speech in the Constituent Assembly. He said that restrictions by the State have to be prevented so that the particular idiosyncrasy of some people in power or narrow provincial policies of certain States should not be allowed to come into play and affect the general economy of the country. [Constituent Assembly Debates, 1139 (1949)]. 149. The Article, therefore, recognizes the power of a Legislature to a State to impose the tax on the imported goods so, however, as not to discriminate between goods so imported and goods so manufactured or produced. While there is no doubt that this Article recognizes the power to legislate on a State, it equally qualifies that power with the condition that such a law must comply with. That condition is that the law which imposes a tax on imported goods cannot discriminate between goods so imported and the goods so manufactured or produced. It also postulates that the tax on import is a tax to which similar goods manufactured or produced in that State are subject. The Article thus imposes two conditions: firstly, that a law may impose a tax on goods imported from other States, any tax to which similar goods manufactured or produced in that State are subject. This clearly implies that the goods imported from other States may be subjected to a tax where similar goods are in fact, manufactured or produced in the importing State and are subjected to tax. In other words, (a) the goods imported from other States must be similar to (b) the goods manufactured or produced in the importing State and (c) the goods so locally manufactured or produced must be subject to tax. The second condition is the tax that is imposed on imported goods should not discriminate between the imported goods and goods manufactured or produced in the importing State. 150. The intention of the Article thus, clearly is that where a tax exists on goods imported into a State there should be no discrimination between such a tax and a tax on similar goods manufactured or produced in the importing State. The reference point for tax on imported goods is the tax on locally manufactured goods. It is not possible to construe the prohibition against discrimination where there is no tax upon similar goods manufactured or produced in the importing State. Undoubtedly, the effect of such a construction is that the imported goods cannot be taxed where similar goods are not manufactured or produced in the importing State and are therefore, not subjected to similar tax and that seems to be the clear intention of this Article. 151. In the normal course, a State in which certain goods are not manufactured would rely on the supply of such goods from other States and the effect of this provision would be to make the goods so imported available without the additional burden of tax. In sum, the premise on which tax can be imposed is the existence of not mere taxes on goods produced or manufactured locally, or the theoretical possibility of taxation, to avoid the prohibition Under Article 304(a), but the actual production or manufacture of similar goods, that are subject to like or similar tax. Absent this condition, the levy would fall foul of Article 304(a) since it would constitute an additional burden (the goods already having suffered some form of taxation in the producing state). This interpretation, in my opinion would also further economic progress and the unhindered availability of goods in states which do not have manufacturing capacities and may not be able to develop it, having regard to lack of natural resources or other geographical limitations. It also furthers the aims underlying Article 301 of the Constitution of India. Conclusion

Decision:
1[ds]Re: Question No. 111. Whether non-discriminatory fiscal measures also impede free trade, commerce and intercourse and thereby fall foul of Article 301 of the Constitution can be answered only if one keeps in view the Constitutional scheme underlying separation of powers in a federal system of governance like the one chosen by us. The answer would also depend upon the way we look at, understand and interpret the provisions of the Constitution and in particular the provisions of Parts XI, XII and XIII thereof. Interpretation of these and indeed every other provision must have due regard to what are recognised as the basic features of the Constitution. In doing so, the approach of the Courts can neither be rigid nor wooden or pedantic. Being a living and dynamic document, the Constitution ought to receive an equally dynamic and pragmatic interpretation that harmonizes and balances competing aims and objectives and promotes attainment of national goals and objectives.12. It is trite that a narrow interpretation that may have the potential or tendency to subvert the delicate balance which the framers of the Constitution had in mind while distributing legislative businesses including the sovereign power to levy taxes must be avoided and a construction that is most beneficial for a harmonious relationship between different limbs of the State including that between the Centre and the States or States inter se adopted. This may, at times, involve ironing out of rough edges which exercise a Constitutional Court must necessarily undertake to avoid confusion and resultant negation of the Constitutional objectives.13. Having said so, we must sail smooth on certain fundamentals before we address the question whether levy of taxes per se operate as an impediment or restriction on the right to free trade, commerce and intercourse. That is because a true and correct answer to Question No. 1 can be found only if we constantly keep those fundamentals in mind while attempting to resolve what has been found to be somewhat difficult to resolve. For instance, whether levy of a tax is an attribute of sovereignty and if so whether Article 246 of the Constitution recognises the sovereign power of the State to make laws including the power to levy taxes on subjects enumerated in List II of the Seventh Schedule of the Constitution is an important dimension that must be addressed as a part of the interpretative exercise. So also, we must examine whether power to tax if held to be subservient to Article 301, shall have the effect of denuding the States of their sovereignty in the matter of levy of taxes and in the process affect the federal structure of the policy envisaged by the Constitution. If levy of taxes is always presumed to be reasonable and in public interest, whether such levies could be said to be within the contemplation of Article 304(b) when it provided for imposition of reasonable restrictions in public interest is yet another aspect that must be explored especially when the reasonableness of any restriction within the comprehension of Article 304(b) is not free from judicial scrutiny by Courts. These are some of the broad and fundamental issues that need to be examined before we attempt to answer the question whether levy of taxes per se acts as an impediment for free trade, commerce and intercourse. We may now briefly refer to these fundamentals before adverting to the provisions of Part XIII that fall for our interpretation.Power to Tax: an Attribute of sovereignty14. Power to levy taxes has been universally acknowledged as an essential attribute of sovereignty. Cooley in his Book on Taxation-Volume-1 (4th Edn.) in Chapter-2 recognises the power of taxation to be inherent in a sovereign State.17. In Commissioner of Income Tax, Udiapur, Rajasthan v. MCdowell and Co. Ltd. (2009) 10 SCC 755  where this Court reiterated the legal position in the following words:21. Tax, duty, cess or fee constituting a class denotes to various kinds of imposts by State in its sovereign power of taxation to raise revenue for the State. Within the expression of each specie each expression denotes different kind of impost depending on the purpose for which they are levied. This power can be exercised in any of its manifestation only under any law authorising levy and collection of tax as envisaged Under Article 265 which uses only the expression that no tax shall be levied and collected except authorised by law. It in its elementary meaning conveys that to support a tax legislative action is essential, it cannot be levied and collected in the absence of any legislative sanction by exercise of executive power of State Under Article 73 by the Union or Article 162 by the State.22. Under Article 366(28) Taxation has been defined to include the imposition of any tax or impost whether general or local or special and tax shall be construed accordingly. Impost means compulsory levy. The well-known and well-settled characteristic of tax in its wider sense includes all imposts. Imposts in the context have following characteristics:(i) The power to tax is an incident of sovereignty.(ii) Law in the context of Article 265 means an Act of legislature and cannot comprise an executive order or Rule without express statutory authority.(iii) The term tax Under Article 265 read with Article 366(28) includes imposts of every kind viz. tax, duty, cess or fees.(iv) As an incident of sovereignty and in the nature of compulsory exaction, a liability founded on principle of contract cannot be a tax in its technical sense as an impost, general, local or special.Power of Taxation under the Constitution:18. We shall presently turn to the Constitutional limitations on the sovereign power to tax but before we do so we need to point out that while the power to levy taxes is an attribute of sovereignty, exercise of that power is controlled by the Constitution. This is evident from the provisions of Article 265 which forbids levy or recovery of any tax except by the authority of law.The result is that the power to tax cannot be deduced from a general legislative entry. That view was approved by a Constitution Bench of this Court in State of West Bengal v. Kesoram Industries Ltd. (2004) 10 SCC 201. The propositions stated in the two decisions must therefore be treated to be fairly well settled.19. Interpreting Articles 245 and 246, a three-Judge Bench of this Court in M/s. Hoechst Pharmaceuticals Ltd. and Ors. v. State of Bihar and Ors. (1983) 4 SCC 45 , held on a review of the available decisions that the Constitution effects a complete separation of taxing powers of the Union and the States Under Article 246 and that there is no overlapping anywhere in the exercise of that power. The sources of taxation are clearly delineated, observed the Court. The Court also held that there is a distinction between general subjects of legislation and taxation for the former are dealt within one group while the later is dealt with in a separate group.The result is that the power to tax cannot be deduced from a general legislative entry. That view was approved by a Constitution Bench of this Court in State of West Bengal v. Kesoram Industries Ltd. (2004) 10 SCC 201. The propositions stated in the two decisions must therefore be treated to be fairly well settled.Reference may also be made to the decision of this Court in State of Kerala and Ors. v. Mar Appraem Kuri Co. Ltd. and Anr.(2012) 7 SCC 106  where this Court explained the sweep and purport of Articles 245 and 246:35. Article 245 deals with extent of laws made by Parliament and by the legislatures of States. The verb made, in past tense, finds place in the Head Note to Article 245. The verb make, in the present tense, exists in Article 245(1) whereas the verb made, in the past tense, finds place in Article 245(2). While the legislative power is derived from Article 245, the entries in the Seventh Schedule of the Constitution only demarcate the legislative fields of the respective legislatures and do not confer legislative power as such. While Parliament has power to make laws for the whole or any part of the territory of India, the legislature of a State can make laws only for the State or part thereof. Thus, Article 245 inter alia indicates the extent of laws made by Parliament and by the State Legislatures.36. Article 246 deals with the subject-matter of laws made by Parliament and by the legislatures of States. The verb made once again finds place in the Head Note to Article 246. This Article deals with distribution of legislative powers as between the Union and the State Legislatures, with reference to the different Lists in the Seventh Schedule. In short, Parliament has full and exclusive powers to legislate with respect to matters in List I and has also power to legislate with respect to matters in List III, whereas the State Legislatures, on the other hand, have exclusive power to legislate with respect to matters in List II, minus matters falling in List I and List III and have concurrent power with respect to matters in List III. (See Subrahmanyan Chettiar v. Muttuswami Goundan)37. Article 246, thus, provides for distribution, as between Union and the States, of the legislative powers which are conferred by Article 245. Article 245 begins with the expression subject to the provisions of this Constitution. Therefore, Article 246 must be read as subject to other provisions of the Constitution.38. For the purposes of this decision, the point which needs to be emphasised is that Article 245 deals with conferment of legislative powers whereas Article 246 provides for distribution of the legislative powers. Article 245 deals with extent of laws whereas Article 246 deals with distribution of legislative powers. In these articles, the Constitution Framers have used the word make and not commencement which has a specific legal connotation. [See Section 3(13) of the General Clauses Act, 1897.](Emphasis supplied)20. Exercise of sovereign power is, however, subject to Constitutional limitations especially in a federal system like ours where the States also to the extent permissible exercise the power to make laws including laws that levy taxes, duties and fees. That the power to levy taxes is subject to constitutional limitations is no longer res-integra.27. It would thus appear that even when Article 246(2) and (3) confers exclusive power on the State legislatures to make laws with respect to matters in the Seventh Schedule such legislative power is exercisable subject to constitutional limitations referred to above. What is significant is that the power of the State legislatures to levy taxes is also subject to the limitations of Article 304(a) of the Constitution appearing in Part XIII thereof, which part regulates trade, commerce and intercourse within the territory of India and comprises Articles 301 to 307. The provisions of these Articles have been the subject matter of a series of decisions of this Court including several Constitution Bench decisions to some of which we shall presently refer. The language employed in the provisions and the non-obstante clauses with which the same start have all the same given rise to several contentious issues for determination by this Court over the past five decades or so. The fact that the present batch of cases had to be referred to a Nine-Judge Bench to once again examine the very same issues as have been debated and determined in the previous judgments of this Court only shows that the task of interpreting the provisions is by no means easy and has in fact become more and more difficult on account of the pronouncements of this Court taking different views not many of which have been unanimous. The marked difference in the approach adopted by learned Counsel for the parties in these appeals is also a measure of the complexities of issues that fall for determination. This is specially so because the prevailing legal position in terms of the judgment of this Court in Atiabari and Automobile cases (supra) holding that fiscal measures that are compensatory fall beyond the mischief of Article 301 has been questioned by both sides. Mr. Harish Salve who led the forensic exercise followed by M/s. Arvind Datar, Laxmi Kumaran, Ravindra Shrivastava, N. Venkataraman and others vehemently argued that the Compensatory Tax Theory propounded by the Seven Judges Bench of this Court in Automobile case (supra) had no legal basis or constitutional sanction and was neither acceptable nor workable. That is particularly so because the State legislatures had taken umbrage under the Compensatory Tax Theory and declared the fiscal levies imposed by them to be compensatory in character and claimed the same to be outside the mischief of Article 301 and consequently immune from any challenge on the ground that these taxes and levies were unreasonable restrictions on the right to free trade and commerce. The States who have enacted the laws providing for levy of taxes on the entry of goods into a local area within the meaning of Entry 52 of List II have, on the other hand similarly contended that the Compensatory Tax Theory is bereft of any legal basis and that the decision in Atiabari and Automobile cases (supra) need to be revisited to restore and protect the sovereign power of legislation of the States and the Federal character of our policy. Suffice it to say that except a feeble attempt made by some Counsel, there has been a general consensus that the compensatory tax theory deserves to be rejected and the issues examined afresh on a true and correct interpretation of the relevant constitutional provisions. We are mentioning all this only to show that even after fifty years and several illuminating pronouncements of this Court, the cleavage in the judicial opinion as to the true and correct legal position on the subject continues to loom large and haunt lawyers and litigants and, if we may say so, even Judges alike. The present reference to a larger Bench is in that backdrop expected to give a quietus to this raging legal controversy of considerable complexity, though given the perseverance of the litigants and the ingenuity of the bar a quietus is only a pious hope which has and may even in future elude us.Constitutional Limitations must be Express:28. The power to levy taxes, being a sovereign power controlled only by the Constitution, any limitation on that power must be express.32. Whether or not the Constitution provides a federal structure for the governance of the country has been the subject matter of a long line of decisions of this Court, reference to all of which may be unnecessary but the legal position appears to be fairly well settled that the Constitution provides for a quasi federal character with a strong bias towards the Centre. The pronouncements recognised the proposition that even when Constitution may not be strictly federal in its character as the United States of America, where sovereign States came together to constitute a federal union, where each State enjoins a privilege of having a Constitution of its own, the significant feature of a federal Constitution are found in the Indian Constitution which makes it a quasi federal Constitution, if not truly federal in character and in stricto sensu federal.55. The Constituent Assembly Debates suggests that the introduction of Articles 274A to 274E was severely criticized by several members of the Assembly including Thakur Das Bhargava and Dr. P.S. Deshmukh who moved several amendments to these clauses but the same were rejected and Articles 274-A to 274-E including Articles 274DD and 274DDD were adopted without any modification. These Articles are now renumbered and appear as Articles 301 to 307 of the Constitution of India.56. It is in the above backdrop that question No. 1 shall have to be answered which turns on a true and correct interpretation of Article 301 of the Constitution. We must at the threshold say that while attempting to answer the question we are not on virgin ground, for this Court has in Atiabari Tea Company case (supra) examined the matter at great length. The decision of this Court in Automobile case (supra) has modified the view in Atiabari, by bringing in the concept of compensatory taxes which this Court held to be outside Part XIII of the Constitution.57. While J.C. Shah, J. took the view that all taxes regardless whether they are discriminatory or otherwise would constitute an impediment on free trade and commerce guaranteed Under Article 301 of the Constitution of India, Sinha, CJ., held that taxes per se were totally outside the purview of Article 301 and could never constitute a restriction except where the same operated as a fiscal barrier that prevented free trade, commerce and intercourse. The view taken by Justice Shah, J. was not supported by any one of the counsel appearing for the parties for it was candidly accepted that the same was an extreme view that was legally unsupportable.59. Before we examine the rival submissions, we must also refer to the decision of this Court in Automobile case (supra) which added a new dimension to the legal exposition in Atiabari case (supra) by declaring that taxes that were compensatory in nature fell outside Part XIII and could never be treated as restrictions offensive to Article 301 of the Constitution.62. The net effect of the decision in Automobile case (supra) is that taxes, if the same are compensatory in character, do not offend the guarantee of free trade, commerce and intercourse Under Article 301 of the Constitution. The further question whether the compensatory character of a tax has to be determined by reference to the direct and substantial benefits/facilities provided by the State to the tax payer was examined and answered in the affirmative in Jindal Stainless Steel case (supra), where this Court while overruling the decisions in Bhagatram and Bihar Chamber of Commerce cases (supra) declared that it is not just a remote benefit to the tax payer but only a direct and substantial benefit that would justify levy of compensatory taxes without offending Article 301 of the Constitution of India.63. The legal position that today holds the field in light of the above is that compensatory taxes would fall outside Part XIII of the Constitution only if tax payers receive benefits and facilities commensurate to the levy. Any and every benefit howsoever remote or distant, would not save the levy from an attack on the ground of violation of Article 301. Having said that we must mention to the credit of the learned Counsel for the dealers/Assessees that except a feeble attempt made by Mr. A.K. Ganguly, learned Counsel appearing for Sony India Pvt. Ltd. and Mr. Bagaria, learned Counsel appearing for Steel Authority of India Limited (SAIL) the rest of the counsel fairly accepted that there was no constitutional or juristic basis for the Compensatory Tax Theory propounded by the majority judgment in Automobile Transport case (supra).Mr. Salve, who led the team of lawyers appearing for the dealers/Assessees also did not support the compensatory tax theory propounded in Automobile case (supra).It may, in the light of the concessions made at the Bar, have become unnecessary for us to deal with this aspect at any length but since M/s. Ganguly and Bagaria have not fully subscribed to the views urged by their colleagues appearing for the dealers, we are left with no option but to squarely deal with the question whether the Compensatory Tax Theory is indeed sustainable. Three distinct aspects touching the question need be noticed straightaway. The first and the foremost of these aspects is that the concept of compensatory taxes is not recognised by the Constitution.If taxes are eventually meant to serve larger public good and for running the governmental machinery and providing to the people the facilities essential for civilized living, there is no question of a tax being non-compensatory in character in the broader sense.64. Secondly, because the concept of compensatory tax obliterates the distinction between a tax and a fee. The essential difference between a tax and a fee is that while a tax has no element of quid pro quo, a fee without that element cannot be validly levied. The difference between a tax and the fee has been examined and elaborated in a long line of decisions of this Court. (See: Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt., AIR 1954 SC 282 , Mahant Sri Jagannath Ramanuj Das and Anr. v. State of Orissa and Anr.,AIR 1954 SC 400 , The Hingir-Rampur Coal Co. Ltd. v. State of Orissa ., AIR 1961 SC 459 ), Corporation of Calcutta and Anr. v. Liberty Cinema., AIR 1965 SC 1107 , Kewal Krishna Puri and Anr. v. State of Punjab., (1980) 1 SCC 416 , Krishi Upaj Mandi Samiti and Ors. v. Orient Paper and Industries Ltd., (1995) 1 SCC 655 ), State of Gujarat and Anr. v. Akhil Gujarat Pravasi V.S. Mahamandal., (2004) 5 SCC 155 : State of West Bengal v. Kesoram Industries Ltd. and Ors. (2004) 10 SCC 201. 65. Thirdly, and lastly, the concept of Compensatory taxes being outside Part XIII, is difficult to apply in actual practice. Experience in the present batch of cases has amply demonstrated that difficulty. Most of the legislations enacted by the States in these cases have described the entry tax levied under the same to be compensatory in character. This may have been done to take the levy outside the mischief of Article 301 of the Constitution. The question however is whether tax amount collected in terms of the said legislation is really used by the State for the purpose of providing or maintaining services and benefits to the tax payers and whether the Courts can follow the money trail to determine whether the State concerned has actually used the amount for the avowed purpose underlying the legislation. This process is fraught with serious difficulties, a fact that was not disputed by learned Counsel for the Assessees/dealers. Actual application of the Compensatory Tax Theory, therefore, runs into difficulties to an extent that the theory at some stage breaks down. M/s. Salve, Rohatgi and Dwivedi were in that view perfectly justified in submitting that the Compensatory Tax Theory was legally unsupportable and deserved to be abandoned. We have no hesitation in agreeing with that submission, the arguments of M/s. Ganguly and Bagaria to the contrary notwithstanding.68. A careful reading of the above would show that notwithstanding the power vested in the Parliament Under Article 302, it shall not 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. From Clause (2) of Article 303 (supra) it is manifest that the restriction on the power vested in Parliament in terms of Clause (1) of Article 303 shall not extend to Parliament making any law with a view to giving or authorising 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 out of scarcity. A conjoint reading of Clauses (1) and (2) of Article 303 would thus make it clear that while Parliament/Legislature of a State shall have no power to make a law imposing restriction on trade, commerce and intercourse, by giving or authorizing the giving of any preference to one State over the other, such limitation on the legislative power of Parliament shall not extend to giving of any preference or making or authorizing any discrimination if it is declared by law that a situation has arisen out of scarcity of goods that makes it necessary to do so. In other words, while the Parliament may impose restrictions in public interest Under Article 302, the restriction so imposed shall not be in the nature of giving preference or discrimination between one State or the other except when the law declares that scarcity of goods in any part of India necessitates such preference or discrimination.69. That brings us to Article 304 of the Constitution which too like Articles 302 and 303 deals with restrictions on the freedom of trade, commerce and intercourse.The Article starts with a non-obstante Clause which has been the subject matter of forensic debates in several cases. We do not for the present propose to address the effect of the non-obstante Clause at this stage or the interplay between the expression subject to appearing in Article 301 and the non obstante Clause in Article 304. We shall turn to that aspect a little later.What we wish to examine is whether Article 304(a) treats taxes as a restriction so that any such levy may fall foul of Article 301. The answer to that question, we say without any hesitation is in the negative. Article 304(a) far from treating taxes as a restriction per se, specifically recognises the State legislatures power to impose the same on goods imported from other States or Union Territories. The expression the legislature of a State may by law impose on goods imported from other States (or Union Territories) any tax are much too clear and specific to be capable of any equivocation or confusion. It is true that the source of power available to the State legislature to levy a tax is found in Articles 245 and 246 of the Constitution but, the availability of such power for taxing goods imported from other States or Union Territories is clearly recognised by Article 304(a). The expression may by law impose is certainly not a restriction on the power to tax. That does not, however, mean that the power to tax goods imported from other States or Union Territories is unqualified or unrestricted. There are, in our opinion, two restrictions on that power. The words to which similar goods manufactured or produced in that State are subject impose the first restriction on the power of the State legislature to levy any such tax. These words would imply that a tax on import of goods from other States will be justified only if similar goods manufactured or produced in the State are also taxed. The second restriction comes from the expression so, however, as not to discriminate between goods so imported and goods so manufactured or produced. The State legislature cannot in the matter of levying taxes discriminate between goods imported from other States and those manufactured or produced within the State levying such a tax. The net effect of Article 304(a) therefore is that while levy of taxes on goods imported from others State and Union territories is clearly recognised as Constitutionally permissible, the exercise of such power is subject to the two restrictive conditions referred to above. That does not however detract from the proposition that levy of taxes on goods imported from other States is constitutionally permissible so long as the State legislatures abide by the limitations placed on the exercise of that power. To put it differently, levy of taxes on import of goods from other States is not by itself an impediment under the scheme of Part XIII or Article 301 appearing therein.71. There is, in our opinion, no merit in any of the contentions noted above. Clauses (a) and (b) of Article 304 deal with two distinct subjects and must, therefore, be understood to be independent of each other. While Clause (a) deals entirely with imposition of taxes on goods imported from other States, Clause (b) deals with imposition of reasonable restriction in public interest. It is trite that levy of a tax in terms of Article 304(a) may or may not be accompanied by the imposition of any restriction whether reasonable or unreasonable. There is, in our opinion, no rationale in the contention that the legislature of a State cannot levy a tax without imposing one or more reasonable restrictions or that a law that is simply imposing restrictions in terms of Clause (b) to Article 304 must be accompanied by the levy of a tax on the import of goods. The use of the word and between Clauses (a) and (b) does not admit of an interpretation that may impose an obligation upon the legislature to necessarily impose a tax and a restriction together. The law may simply impose a tax without any restriction reasonable or otherwise or it may simply impose a reasonable restriction in public interest without imposing any tax whatsoever. It may also levy a tax and impose such reasonable restriction as may be considered necessary in public interest. All the three situations are fully covered and permissible Under Article 304 in view of the phraseology used therein. The word and can mean or as well as and depending upon the context in which the law enacted by the legislature uses the same. Suffice it to say that levy of taxes do not constitute a restriction under Part XIII except in cases where the same are discriminatory in nature. Once Article 304(a) is understood in that fashion, Clause (b) dealing with reasonable restrictions must necessarily apply to restrictions other than those by way of taxes. It follows that for levy of taxes prior Presidential sanction in terms of the proviso Under Article 304(b) will be wholly unnecessary. This view is reinforced on the plain language of proviso to Article 304(b), which is limited to law relating to reasonable restrictions referred to in Clause (b).72. The sum total of what we have said above regarding Articles 301, 302, 303304 may be summarized as under:1. Freedom of trade, commerce and intercourse in terms of Article 301 is not absolute but is subject to the Provisions of Part XIII.2. Article 302 which appears in Part XIII empowers the Parliament to impose restrictions on trade, commerce and intercourse in public interest.3. The restrictions which Parliament may impose in terms of Article 302 cannot however give any preference to one State over another by virtue of any entry relating to trade and commerce in any of the lists in the Seventh Schedule.4. The restriction that the Parliament may impose in terms of Article 302 may extend to giving of preference or permitting discrimination between one State over another only if Parliament by law declares that a situation arising out of scarcity of goods warrants such discrimination or preference.5. Article 304(a) recognizes the availability of the power to impose taxes on goods imported from other States, the legislative power to do so being found in Articles 245 and 246 of the Constitution.6. Such power to levy taxes is however subject to the condition that similar goods manufactured or produced in the State levying the tax are also subjected to tax and that there is no discrimination on that account between goods so imported and goods so manufactured or produced.7. The limitation on the power to levy taxes is entirely covered by Clause (a) of Article 304 which exhausts the universe in so far as the State legislatures power to levy of taxes is concerned.8. Resultantly a discriminatory tax on the import of goods from other States alone will work as an impediment on free trade, commerce and intercourse within the meaning of Article 301.9. Reasonable restrictions in public interest referred to in Clause (b) of Article 304 do not comprehend levy of taxes as a restriction especially when taxes are presumed to be both reasonable and in public interest.73. The inferences enumerated above are based on a textual interpretation of the provisions of Article 301 to Article 304. An interpretation which is both textual and contextual has always been found to be more acceptable. That is so because it is only when both the text and the context are kept in view that the statutory provisions can be best understood. An interpretation that makes the textual match the contextual meaning of the provision is preferred by Courts over one that prefers one at the cost of the other.With India attaining its freedom, Part XIII of the Constitution adopted by it, was aimed at bringing about economic unity. The object underlying Part XIII was to make movement and exchange of goods free throughout the territory of India. This was achieved by Article 301 to Article 304 adopting substantially the scheme underlying the 1935 Act. The only difference between the said provisions and Section 297 of the 1935 Act was that the principles enunciated in the latter were extended to the Union Government and the Union Parliament and to the territory which had after merger become a part of India. Notably, the essence of the freedom of trade commerce and intercourse as recognized in the 1935 Act and in the Constitution under Part XIII remained the same. It was for that reason that Justice Venkatarama Iyer had in M.P.V. Sunderaramiers case (Supra) observed and if we may say so rightly that the Constitution of India was not written on a tabula rasa. The common feature which the two provisions share is that the provincial legislatures power to impose taxes is recognized subject only to the limitation that there is no discrimination between goods manufactured or produced within the Province or State vis-a-vis those imported from outside. In Atiabaris case (supra), the majority speaking through Gajendragadkar, J. noticed the co-relation between Section 297 of 1935 Act, and Article 301 of the Constitution of India but concluded that Article 301 did not simply adopt Section 297 of the 1935 Act but widened and enriched the same in content. The Court did not, however, elaborate as to how much richer and wider did Article 301 make the freedom of trade, commerce and intercourse then what was envisaged Under Section 297.The Court did not, however, elaborate as to how much richer and wider did Article 301 make the freedom of trade, commerce and intercourse then what was envisaged Under Section 297.The Court said:42. ... ... ...That is why we are inclined to hold that the broad and unambiguous words used in Article 301 are intended to emphasize that the freedom of trade, commerce and intercourse guaranteed was richer and wider in content than was the case Under Section 297; how much wider and how much richer can be determined only on a fair and reasonable construction of Article 301 read along with the rest of the articles in Part XIII. In our opinion therefore, the argument that tax laws are outside Part XIII cannot be accepted.(Emphasis supplied)78. We have with great respect to the distinguished Judges failed to persuade ourselves to subscribe to the above view. The argument that Article 301 had enriched and widened the content of trade, commerce and intercourse beyond what is evident from a comparison of the language between the two provisions namely (a) extending the prohibition against discrimination to the Union Government and the Parliament and (b) making the provision applicable to the territory of India as defined by the Constitution, has not impressed us. The textual interpretation placed by us upon Articles 301-304 instead gets considerable support from the contextual and the historical perspective of Part XIII.79. We may now turn to yet another contextual feature that has a bearing on the true and correct interpretation of Part XIII namely the sovereign character of the power to tax available to the State legislature. It is now fairly well settled that the Constitutionally vested power to levy tax can be regulated or controlled only by specific Constitutional limitations, if any. We have in the earlier part of this judgment elaborated how the power to levy taxes is a sovereign power with several limitations specifically stipulated by the Constitution itself. We have also explained at some length how legislative competence of the State legislatures can be circumscribed only by express provisions of the Constitution and unless there is an express limitation on the plenary taxing power of the States, there is no other fetter on the exercise of that power.80. Applying the above principle to the case at hand, we do not see any specific limitation on the States power to levy taxes on the import of goods from other States except the one referred to in Article 304(a) of the Constitution. That limitation we have sufficiently explained is confined to levy of discriminatory taxes within the comprehension of Article 304(a). So long as taxes are non-discriminatory and, therefore, consistent with Article 304(a), there is no limitation leave alone any express limitation on the States legislative power to levy any tax on the import of goods from another State. The power to levy a tax in terms of Articles 245 and 246 read with Entry 52 of list II not being in dispute in the cases at hand, the absence of any specific limitation forbidding the exercise of such power whether for the sake of free trade, commerce and intercourse or otherwise simply means that the State legislatures are free to levy taxes that are non-discriminatory in nature.81. That brings us to the third contextual feature relevant to the interpretation of Part XIII. We have in the earlier part of this judgment referred to the decisions of this Court in Kuldip Nayyars case and S.R. Bommais case apart from the decisions of this Court in Special Reference No. 1 of 1964 (supra) to hold that the Indian Constitution if not federal in the strict sense of the term is at least quasi federal in character. That proposition has not been disputed even by the counsel for the assesses/dealers, and must be held to be fairly well settled. Equally well settled is the proposition that Indias federal structure is one of the basic features of the Constitution.In ITC Limited v. Agricultural Produce Market Committee and Ors.(2002) 9 SCC 232  this Court ruled that the Constitution of India must be interpreted in a manner that does not whittle down the powers of the State legislature. An interpretation that supports and promotes federalism while upholding the Central supremacy as contemplated by some of the Articles must be preferred. To the same effect is the nine judge Bench decision of this Court in S.R. Bommais case (supra) where this Court cautioned against adoption of an interpretation that has the effect of whittling down the powers reserved to the States. This Court said:276. The fact that under the scheme of our Constitution, greater power is conferred upon the Centre vis-a-vis the States does not mean that States are mere appendages of the Centre. Within the sphere allotted to them, States are supreme. The Centre cannot tamper with their powers. More particularly, the Courts should not adopt an approach, an interpretation, which has the effect of or tends to have the effect of whittling down the powers reserved to the States.It is a matter of common knowledge that over the last several decades, the trend the world over is towards strengthening of Central Governments be it the result of advances in technological/scientific fields or otherwise, and that even in USA the Centre has become far more powerful notwithstanding the obvious bias in that Constitution in favour of the States. All this must put the court on guard against any conscious whittling down of the powers of the States. Let it be said that the federalism in the Indian Constitution is not a matter of administrative convenience, but one of principle-the outcome of our own historical process and a recognition of the ground realities. This aspect has been dealt with elaborately by Shri M.C. Setalvad in his Tagore Law Lectures Union and State relations under the Indian Constitution (Eastern Law House, Calcutta, 1974). The nature of the Indian federation with reference to its historical background, the distribution of legislative powers, financial and administrative relations, powers of taxation, provisions relating to trade, commerce and industry, have all been dealt with analytically. It is not possible nor is it necessary for the present purposes to refer to them. It is enough to note that our Constitution has certainly a bias towards Centre vis-a-vis the States: Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan. It is equally necessary to emphasise that courts should be careful not to upset the delicately-crafted constitutional scheme by a process of interpretation82. Reference may also be made to Kesavananda Bharatis case (supra) where a Bench of thirteen Judges cautioned that the process of interpretation should not diminish or whittle down the provisions of the original contract upon which the federation was founded nor is it legitimate to impose by a process of judicial construction a new contract upon the federating states. To the same effect is the decision of this Court in M/s. International Tourist Corporation and Ors. v. State of Haryana and Ors. (1981) 2 SCC 318  where this Court observed:6A. There is a patent fallacy in the submission of Shri Sorabji. Before exclusive legislative competence can be claimed for Parliament by resort to the residuary power, the legislative incompetence of the State legislature must be clearly established. Entry 97 itself is specific that a matter can be brought under that entry only if it is not enumerated in List II or List III and in the case of a tax if it is not mentioned in either of those lists. In a Federal Constitution like ours where there is a division of legislative subjects but the residuary power is vested in Parliament, such residuary power cannot be so expansively interpreted, as to whittle down the power of the State legislature. That might affect and jeopardize the very federal principle. The federal nature of the Constitution demands that an interpretation which would allow the exercise of legislative power by Parliament pursuant to the residuary powers vested in it to trench upon State legislation and which would thereby destroy or belittle state autonomy must be rejected.(Emphasis supplied)83. An approach which tends to dilute the federal character of our Constitutional scheme must, therefore, be avoided and one that supports and promotes the concept of federalism preferred by the courts while interpreting the provisions of the Constitution.84. Dealing in particular with the scope and meaning of Article 304(b) of the Constitution on a true and correct interpretation Seervai in his treatise Constitutional Law of India (supra) sounded a note of caution and observed that if Article 304(b) was interpreted in a manner that would include levy of taxes as a restriction within the meaning of that Article, it would totally dislocate the scheme under our Constitution.The celebrated author, in our opinion, was right in saying so for the taxing power of the Union and the States are mutually exclusive. While the Parliament cannot legislate on the subjects reserved for the States, the States cannot similarly trespass onto the taxing powers of the Union. If the Constitutional scheme does not allow the Parliament to usurp the taxing powers of the State Legislatures, such process of usurpation cannot also be permitted to take place in the garb of making Union executives concurrence an essential pre-requisite for any taxing legislation.86. Suffice it to say that the interpretation of any provision of the Constitution will be true and perfect only when the Court looks at the Constitution holistically and keeps in view all important and significant features of the Constitutional scheme constantly reminding itself of the need for a harmonious construction lest interpretation placed on a given provision has the effect of diluting or whittling down the effect or the importance of any other provision or feature of the Constitution. So interpreted Article 301 appearing in Part XIII does not, in our opinion, work as an impediment on the States taxing powers except in situations where such taxes fall foul of Article 304(a) of the Constitution. The contextual approach thus fully matches the textual interpretation which we have placed on Part XIII.91. Suffice it to say that the use of the non-obstante Clause in Article 304 has had its share of criticism from the very inception which criticism has to an extent been prophetic for the interpretation of Part XIII has indeed been a lawyers paradise over the past fifty years or so. Seervai has in his treatise adverted to this anomaly arising from the use of the non-obstante Clause and said that the same covers both the Clauses (a) and (b) of Article 304. He argues with considerable forensic force that reference to Article 301 in the non-obstante Clause is meaningless having regard to the fact that the freedom granted thereunder is itself subject to other provisions of Part XIII including Article 304. This would necessarily imply that Article 304(a) and (b) do not subtract anything from Article 301. That appears to us to be the correct view on the subject. While it is true that legislature does not waste words and that no part of a legislation can be rendered a surplusage, the only rational meaning that can be attributed to the non-obstante Clause appearing in Article 304 is that the same was used only as a manner of abundant caution and a possible reassurance that Article 301 is indeed subordinate to Article 304 which it was even otherwise without the use of that clause. The net effect of the discussion therefore is that the expression subject to other provisions of this Part appearing in Article 301 and the non-obstante Clause appearing in Article 304 do not traverse in different directions. There is no conflict in the two provisions on account of the use of the said expressions. Interpreted individually or conjointly, the said two expressions simply mean that Article 304 takes precedence over Article 301. While Article 304(a) recognizes the power of the State Legislatures to tax goods imported from other State, it also imposes limitations on the exercise of that power. On the other hand Clause (b) to Article 304 permits imposition of reasonable restrictions subject to the proviso appearing below that clause. We have thus no hesitation in rejecting the argument that the use of the non-obstante Clause in Article 304 is suggestive of the Constitution recognizing taxes as restrictions Under Article 301 or that the power to impose a reasonable restriction Under Article 304(b) is meant to include the power to levy taxes so that levy of taxes may be permissible only in case the procedure provided under the proviso is followed.95. To the same effect is the decision in Laxmanappa Hanumantappa Jamkhandi v. Union of India AIR 1955 SC 3 . Reference may also be made to Smt. Ujjam Bai v. State of Uttar Pradesh AIR 1962 SC 1621 which took note of the pronouncements of this Court in the three cases mentioned above to examine whether there was any conflict between the view taken in Moopil Nair case on the one hand and Ramjilal and Laxmanappa cases on the other, the Court found on a closer examination that there was no such conflict and clarified that the observation made in Ramjilal and Laxmanappa cases must in the context bear reference to abrogation of Article 31(1) only in so far as the admissibility of a challenge to taxation law with reference to Part III is concerned. The Court explained that in Moopil Nairs case this Court has held that a taxing statute was not immune from challenge Under Article 14 just because the legislature that imposed the tax was competent to levy the tax in terms of Article 265. This Court summed up the legal position in the following words:The result of the authorities may thus be summed up:(1) A tax will be valid only if it is authorized by a law enacted by a competent legislature. That is Article 265.(2) A law which is authorized as aforesaid must further be not repugnant to any of the provisions of the Constitution. Thus, a law which contravenes Articles 14 will be bad, Moopil Nairs case.(3) A law which is made by a competent legislature and which is not otherwise invalid, is not open to attack Under Article 31(1). Ramjilals case and Laxmanappas case.(4) A law which is ultra vires either because the legislature has no competence over it or it contravenes, some constitutional inhibition, has no legal existence, and any action taken thereunder will be an infringement of Article 19(1)(g) Himmatlals case and Laxmanappas case. The result will be the same when the law is a colourable piece of legislation.(5) Where assessment proceedings are taken without the authority of law, or where the proceedings are repugnant to Rules of natural justice, there is an infringement of the right guaranteed Under Article 19(1)(f) and Article 19(1)(g); Tata IronSteel Co. Ltd.; Moopil Nairs case and Shri Madan Lal Aroras case.96. The above statement of law in our view is legally unexceptionable. The argument that Ramjilal and Laxmanappas cases place taxing statute beyond the purview of challenge under Part III has been correctly repelled and fiscal statutes are also held to be open to challenge on the touchstone of Article 14 of the Constitution. The contention that an aggrieved citizen may have no remedy against a taxing statute does not, therefore, hold good. Whether or not a challenge to such a statute succeeds is, however, a different matter. It is fairly well settled by now that Courts show considerable deference to the legislature in the matter of quantum of tax that may be levied as also the subjects and individuals upon whom the same may be levied. Just because room for challenge to a fiscal statute is limited is in our view no reason to hold that levy of taxes otherwise within the competence of the legislature imposing the same should be seen as a restriction on free trade and commerce guaranteed Under Article 301 which Article does not either textually or contextually recognize levy of taxes as impediments except in cases where the same are discriminatory in nature thereby being offensive to Article 304(a) of the Constitution.97. On behalf of the States it was argued by the learned Attorney General, and M/s. Rao and Dwivedi that the decisions of this Court in Atiabari and Automobile Transport cases had drawn support for their conclusion on the Australian and American decisions. It was urged that although the view taken by the majority decision in the former had recognized that decisions from other jurisdictions may not be helpful while interpreting the provisions of our Constitution, yet the Court had referred to and relied upon those decisions to buttress its conclusions. The Australian decisions relied upon by the majority have, it was contended, been reversed by subsequent pronouncements of the Australian High Court, which pronouncements are now gravitating towards the theory that discriminatory taxes alone will operate as restrictions against free trade, commerce and intercourse. It was in that view argued that the theoretical basis borrowed from the foreign judgments by this Court in Atiabari case stood demolished or atleast substantially eroded by the subsequent pronouncements of the Australian High Courts, thereby, rendering the correctness of the view taken by the majority in Atiabaris case open to serious doubts.98. There is, in our view, considerable merit in that submission.In Atiabaris case (supra), Gajendragadkar J., speaking for the majority while referring to the American and Australian decisions observed:59.... ... ... We have deliberately not referred to these decisions earlier because we thought it would be unreasonable to refer to or rely on the said Section or the decisions thereon for the purpose of construing the relevant Articles of Part XIII of our Constitution. It is commonplace to say that the political and historical background of the federal policy adopted by the Australian Commonwealth, the setting of the Constitution itself, the distribution of powers and the general scheme of the Constitution are different, and so it would not be safe to seek for guidance or assistance from the Australian decisions when we are called upon to construe the provisions of our Constitution. In this connection we have already referred to the note of warning struck by Venkatarama Aiyar, J., against indiscriminate reliance being placed on Australian and American decisions in interpreting our Constitution in the case of M.P.V. SundararamierCo. The same caution was expressed by Gwyer, C.J., as early as 1939 when he observed in The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938. In the matter of AIR 1939 F.C. 1 at P. 5; there are few subjects on which the decisions of other Courts require to be treated with greater caution than that of federal and provincial powers, for in the last analysis the decision must depend upon the words of the Constitution which the Court is interpreting; and since no two Constitutions are in identical terms it is extremely unsafe to assume that a decision on one of them can be applied without qualification to another. This may be so even where the words or expressions used are the same in both cases, for a word or a phrase may take a colour from its context and bear different senses accordingly.(Emphasis supplied)99. Having said that Gajendragadkar J., referred to these decisions with a view to supporting his conclusions by reference to Judges in other jurisdiction responding to similar challenges posed by interpretation of what His Lordship described as sister constitutions. He said:59. ... ... ...When you are dealing with the problem of construing a constitutional provision which is none-too-clear or lucid you feel inclined to inquire how other judicial minds have responded to the challenge presented by 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 Section 92 of the Australian Constitution.100. The Court, then, relied upon the decisions of the Australian High Court in James v. Commonwealth of Australia (1936) A.C. 578 and Commonwealth of Australia and Ors. v. Bank of New South Wales and Ors. [1950] A.C. 235 to hold that the test of direct and immediate effect evolved by the Australian High Court pronouncements, while interpreting Section 92 of the Australian Constitution, was the correct test applicable even to our Constitution including interpretation of Article 301 thereof.The Court said:Commonwealth of Australia v. Bank of New South Wales