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

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 = appeal accepted, 0 = rejected): 1

Explanation:
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