JINDAL STAINLESS LTD. & ANR versus STATE OF HARYANA & ORS
[2016] 10 S.C.R. 1, Supreme Court of India, 2016
Outcome: Directions issued
Segment: Ratio
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"The proviso contemplates that a Unit can impose 
certain customs duty with a view to hring up the level 
of the price of goods imported to the level of the price 
of the goods manufactured in the Unit itself Otherwise, 
the goods produced in other Units will flood that 
particular Unit. With that view only has this proviso been 
added. Provinces, therefore, can impose certain duties 
and taxes on goods imported from other units with a 
view to bring up the value to the level of good 
manufactured in the Unit itself But it was felt, Sir, that 
this was incomplete. Such regulations and conditions 
may be made as to favour the goods produced in the 
Unit and therefore, the words 'and under regulations 
and conditions which are non-discriminatory' have to 
he added, so that conditions must not be such as to 
force up the price of the goods imported. Therefore, the 
whole point is that there should not he any regulation 
or any conditions of such a nature which would.favour 
the goods produced in the Unit as against those 
produced and imported.from outside." 
Certain amendments on 01" May 1947 were adopted. 
141. In the Draft Constitution finalized by Drafting Committee, 
freedom of trade, commerce and intercourse throughout the territory of 
India was incorporated as one of the fundamental rights in Clause 16 in 
following words: 
"16. Subject to provisions of Article 244 of this 
Constitution and any law
made by Parliament, trade, 
commerce and intercourse throughout the territory of 
India shall he free. ·· 
142. Another set of articles under heading 'inter-State trade and 
commerce' where articles 243, 244 and 245 which were to the following 
effect:
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
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243. 
Prohibition of 
preference or 
discrimination 
to one State 
over another 
by any/aw or 
regulation 
relating to 
trade or 
commerce. 
244. 
Restriction on 
trade, 
commerce and 
intercourse 
between States. 
245. 
Appointment of 
authority to 
carryout the 
provisions of 
articles 243 
and 244. 
[ASHOK BHUSHAN, J.] 
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 hy land. water or air. 
The committee is of opinion that the provisions 
contained in articles 243 and 244 should more 
appropriately he included in this Chapter than I 
Part III dealing with Fundamental Rights. 
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Notwithstanding anything contained in article 16 
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or in the last preceding article of this Constitution, 
it shall he lmvful for any State--
(a) to impose 011 goods imported.from other States 
any tax to which similar goods manufactured or 
produced in that State are suhject, so, however, as 
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not to discriminate he tween 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 
inter es ts: 
Provided that during a period of jive 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. 
Parliament shall hy law appoint such authority as it 
considers appropriate.for the carryin}? out of the 
provisions of articles 243 and 244 of this 
Constitution and confer on the authority so 
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appointed such powers and such duties as it thanks 
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necessary. 
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Draft Article 16 came for discussion before the Constituent 
Assembly on 03'd December 1948. 
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143. Shri C. Subramaniam raised the objection to the effect that 
powers given to the State Legislature have been in respect of interstate 
trade and commerce to impose certain taxes and Article 16 being subject 
to the law of the Parliament, how it can be fundamental right and whether 
there is any right at all reserved. 
144. Dr. B. R. Ambedkar replied the objections of Shri 
Subramaniam and explained as to why Article 16 was placed in 
fundamental rights. Dr. Ambedkar stated that Constituent Assembly when 
began its task, there were limitations since the States were to join the 
Union only on three subjects, namely, foreign affairs, defence and 
communication, said Dr. Ambedkar that it was realized that there would 
be no use and purpose in forming an All India Union if trade and 
commerce throughout India was not free. Hence it was decided to put 
article in fundamental rights. Following was stated by Dr. Ambedkar: 
"But I shall explain to him why it was found necessary 
to include this matter in the .fundamental rights. My 
friend, Mr. Suhramaniam will remember that when the 
Constituent Assembly began, we began under certain 
limitations. One of the limitations was that the Indian 
States would join the Union only 011 three subjects-
.foreign affairs, defence and communications. On no 
other matter they would agree to permit the Union 
Parliament to extend its legislative and executive 
jurisdiction.
So he will realise that the Constituent 
Assembly, as well as the Drafting Committee, was placed 
under a very serious limitation. On the one hand it was 
realised that there would he no use and no purpose 
served in forming an All-India Union if trade and 
commerce throughout India was not free. That was the 
general view. On the other hand, it was found that so 
far as the position of the States was concerned, to which 
I have already made a reference, they were not prepared 
to allow trade and commerce throughout India to be 
made subject to the legislative authority of the Union 
Parliament. Or to put it briefly and in a different 
language, they were not prepared to allow trade and
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
commerce to be included as an entry in List No. 1. If it 
was possible for us to include trade and commerce in 
List I, which means that Parliament will have the 
executive authority to make laws with regard to trade 
and commerce throughout India, we would not have 
found it necessary to bring trade and commerce under 
article 16, in the .fimdamental rights. But as that door 
was blocked, on account of the basic considerations 
which operated at the beginning of the Constituent 
Assembly, we had to find some place for the pu1pose of 
uniformity in. the matter of trade and commerce 
throughout India, under some head After exercising 
considerable amount of ingenuity, the only method we 
found of giving effect to the desire of a large majority 
of our people that trade and commerce should be free 
throughout India, was to bring it under fundamental 
rights. " 
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145. One more impo1tant statement made by Dr. Ambedkar was 
to the following effect: 
"Yes, but reasonable restrictions do not mean that the 
restrictions can be such as to altogether destroy the 
freedom and equality of trade. It does not mean that at 
all. " 
146. The Constituent Assembly resolved to adopt the motion making 
Article 16 as a part of the Constitution. On 081h September 1949, Dr. 
Ambedkar moved a motion for inserting a Part XA consisting of Article 
274A, 274B, 274C, 274D and 274E. Part XA included provisions as 
contained in Article 16
as Article 274Aas was passed in the fundamental 
rights and Article 274B to 274E as was earlier contained in provisions of 
Article 244- 245 in the Draft Constitution. Dr. Ambedkar, while moving 
a motion stated that articles dealing with the freedom 'Of trade and 
commerce were scattered in different parts of tlte Draft Constitution, as 
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article 16 was under fundamental rights and article 243, 244 and 245 
were in Part IX. Various amendments were proposed by Pandit Thakur 
Das Bhargava and other members. After a great discussion Part XA 
was passed to be included in the Constitution with certain minor 
amendments. 
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14 7. Subsequently, Dr. Ambedkar on 16'11 October 1949 moved a 
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motion for insertion of Article 274DD, which was to the following effect: 
2 7 4DD. Notwithstanding anything contained in 
Power of certain 
States in Pm·t III of 
the First schedule in 
impose restrictions 
on tradeand 
commerce hy the levy 
of certain taxes and 
duties on the import 
of goods into or the 
export of Roods from 
such States. 
theforeRoinR provisions of this Part or 
in any other provisions of this 
Constitution, any State which he/ore the 
commencement of this Comtitution was 
levying any tax or duty on the import of 
goods into the State from other States or 
on the export ofRood~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 sub;ect 
to the terms of such agreement and for 
such period not exceeding ten years 
from the commencement o(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 modifj; any such aweement if, after 
consideration of the report of the Finance Commission 
constituted under article 260 of this Constitution, he 
thinks it necessary to do so." 
148. While discussing Article 274DD, one of the Members of the 
Constituent Assembly Shri Raj Bahadur has expressed his concern about 
continuance of custom duties and taxation which according to him were
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
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[ASHOK BHUSHAN, J.] 
great restrictions to the trade and commerce. Following views were 
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expressed by Shri Raj Bahadur: 
"Shri Raj Bahadur (United State of Matsya): I have 
sought this opportunity, to take a few minutes of this 
House while this article is under consideration to give 
vent to the feeling of the common people in the States' 
Unions ahout these customs, .duties and taxation. As a 
matter of.fact, ever since political awakening dawned 
upon the people of the Indian States customs taxes have 
been a particular target of political opposition. It was 
not without reason that the people of the Indian States 
and their movements were set against the imposition of 
customs duties on both imports and exports. It was 
hecause of a particular feeling amongst the people that 
this opposition was there. We have felt all through that 
all our trade, our industries have been crippled because 
of these Customs Duties. Even today we are not going 
to be benefited by it. Somehow or other , because these 
States were not viable units and they had to balance 
their budget the customs taxation was resorted to. Apart 
from that it was also supposed to be a part of the 
sovereign rights of the States. But so far as the interests 
of the people were concerned, they were not served by 
the imposition of these customs duties. 
Constituent Assembly adopted Article 274DD." 
149. The debates on draft article 264(A) (Now Article 286 in
the 
Constitution) with regard to imposition of sales tax came for consideration 
on 16.10.1949 which are also relevant in the context of freedom of trade 
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and commerce. Dr. B.R. Ambedkar stated that imposition of sales tax 
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has created lot of difficulties in the matter of freedom of trade and 
commerce. Dr. B.R. Ambedkar further stated that imposition of sales 
tax shall not be in conflict with provisions of Part XA (Now Part Xlll). 
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Following was stated by Dr. Ambedkar: 
"Sir, as everyone knows, the sales tax has created a 
great deal of difficul~y throughout India in the matter 
of.freedom of trade and commerce. It has been found 
that the vei:v many sales taxes which are levied by the 
various Provincial Governments either cut into goods 
which are the subject matter of imports or exports, or 
cut into what is called inter-State trade or commerce. It 
is agreed that this kind of chaos ought not to be allowed 
and that while the provinces may be free to levy the 
sales tax there ought to be some regulations whereby 
the sales tax levied by the provinces would be confined 
within the legitimate limits which are intended to be 
covered by the sales tax. It is, therefore, felt that there 
ought to be some specific provisions laying down certain 
limitations on the power of the provinces to levy sales 
tax. 
The.first thing that I would like to point out to the House 
is that there are certain provisions in this article 264A 
which are mere(y reproductions of the different parts 
of the Constitution. For instance, in wb-clause(l) of 
article 264A as proposed by me, sub-clause (b) is merely 
a reproduction of the article contained in the 
Constitution, the entry in the Legislative List that 
taxation of imports and exports shall be the exclusive 
province of the Central Government. Consequently so 
far as sub-clause (1) (b) is concerned
there cannot be 
any dispute that this is in any sense an invasion of the 
right of provinces to levy as sales-tax. 
Similarly, sub-clause (2) is mere~y a reproduction of Part 
XA which we recently passed dealing with provisions 
regarding inter-State trade and commerce. Therefore so 
far as sub-clause(2) is concerned there is really nothing 
new in it. It mere~y says that if any sales tax is imposed 
it shall not be in conflict with the provisions of Part 
XA."
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN. J.] 
150. The moving idea and inspiration for framing relevant a1ticles 
pertaining to freedom of trade and commerce was and is the realization 
that a federal union needs the creation and the preservation of national 
economic fabric and the removal of or prevention of local barriers to 
economic unity so that competing economic units within unions shall not 
threaten the stability of the nation as a whole. The Unity of India was 
seen to some extent on above realization. 
I 51. From what we have noted above, it is clear that the 
Constitution framers gave great importance to the freedom of trade and 
commerce. In the beginning, when States had conceded to union, only 
foreign affairs, defence and communication, right of freedom of trade 
and commerce was placed in the Chapter of Fundamental Rights since 
it was thoughtthat making of All India Union will be useless iftrade and 
commerce is not free. Dr. Ambedkar on 08.09.1949. during the debates 
had stated that even though, there may be reasonable restriction on the 
right. however, the restriction can be such which altogether may not 
destroy the freedom and equality of trade. 
152. The Constitution framers were cons<..:ious of the fact that 
goal set-up for freedom of trade and commerce is to eliminate internal 
custom duties and States were conceded to impose limited taxes with 
restrictions as envisaged in the proposed articles. 
153. A1ticle 274DD as adopted
by the Constituent Assembly, which 
became Article 306 of the Constitution allowed the existing taxes and 
duties by the States on the impon into or export of goods for a period not 
exceeding I 0 years clearly indicates that taxes are restrictions on trade 
and commerce. hence period of I 0 years was allowed to abolish the 
same and the State to ensure free flow of trade and commerce. 
154. One more important fact is to be noticed from the Constituent 
Assembly Debates dated 8'11 September, 1949 in reference to A1ticle 
244 (now Article 304 ), which permitted the State to impose any tax on 
goods imported from other States. Dr. B.R. Ambedkar referred the above 
Article 244 as a provision giving limited power to impose certain 
restrictions on the entry of goods. Dr. Ambedkar in his statement in 
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the proceeding instead of repeating the word ·tax' as specifically 
mentioned in Article 244 used the word ·restriction'. The above also 
indicates that the use of word 'restriction' included the tax also. 
155. From the legislative history as noted above and the extent of 
freedom of trade and commerce as emerged from Constituent Assembly 
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Debates, it is abundantly clear that the taxes were treated as restriction 
on freedom of trade and commerce and it was further comprehended 
that restriction on freedom of trade and commerce can be put by taxation 
also. 
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B. Nature of Federalism in Constitution of India 
156. 'In the people ofindia', vests the legal sovereignty while the 
political sovereignty is distributed between Union and the States. We 
having adopted for ourselves a well thought, well deliberated written 
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Constitution, it is pertinent to know the structure of our Constitution. 
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Learned counsel for the parties during their respective submissions have 
referred to the federal structure of the Constitution and one of the 
submissions raised before us is that while interpreting the Constitution 
the federal structure ofthe Constitution has to be kept in mind, since, the 
framers of the Constitution must have never intended to dilute the federal 
structure of the Constitution. 
157. The Constituent Assembly of India consisting of illustrious 
members drawn from all parts of the country deliberated all
aspects of 
the new Constitution and took considerable pain and caution in drafting 
the Constitution which may fulfill the aspirations of independent India. 
Initially, it was perceived that the federal Government i.e. Union 
Government shall be responsible for Foreign Affairs, Defence and 
Communication. After declaration of Partition on yct June, 194 7, there 
was considerable change in the views of the Constituent Assembly. Union 
Constitution Committee on 61h June, 194 7 took a decision that Constitution 
would be federal with a strong Centre. Granville Austin in the l11di1111 
Co11stitutio11:Comers·to11e of a Nation has described the shift in the 
following words: 
"Mountbatten announced Partition on 3 June 1947. 
Within four days the Assembly had embarked on a
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
centralized federal union. On 5 June the Union and 
Provincial Constitution Comnuttees,having spent much 
of the .first month of their lives marking time, met in 
joint session and concluded that in the light of the June 
Third Statement the Cahinet Mission Plan no longer 
applied to the Assemhlv. The following day the Union 
Constitution Committee met alone. Present were Nehru. 
the Chairman, Prasad,Azad,Pant,Jagjivan Ram, 
Amhedkar. Ayyar, Munishi, Shah, S.P. Mookerjee. 
V T.Krishnamachari, Panikkm; N. G. Ayyangm;and P. 
Govinda Menon. These men took the following tentative 
decisions: 
That the Constitution would be federal with a strong 
centre; 
That there should he three 'exhaustive' legislative lists, 
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and that residuary powers should vest in the Union 
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Government; 
That the Princely States should he on a par with the 
provinces regarding the Federal List,subject to special 
matters; and 
That generally speaking the Executive authority of the 
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Union should be co-extensive with its legislative 
authority." 
158. The Drafting Committee which was charged with the duty 
of preparing a Constitution in accordance with the decision of the 
Constituent Assembly on the reports made by the various Committees 
prepared a Draft Constitution which was made public. The Draft 
Constitution was placed for discussion on 4'" November, 1948. Dr. B.R. 
Ambedkar while placing the Draft Constitution/while
moving the mqtion 
had deliberated over the nature of the Constitution. Dr. Ambedkar stated 
that the Draft Constitution is Federal Constitution in the following words: 
"Two principal forms of the Constitution are known 
to hist01y-one is called Unitary and other Federal. The 
two essential characteristics of a Unitary Constitution 
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are: (1) the supremacy of the Central Polity, and (2)the 
absence 
of 
subsidiary 
Sovereign 
politics. 
Contrariwise,a Federal Constitution is marked: (1) by 
the existence of a Central polity and subsidiary polities 
side by side, and (2)by each being sovereign in the.field 
assigned to it. In other word~. Federation means the 
establishment of a Dual Polity. The Draft Constitution 
is, Federal Constitution inasmuch as it establishes what 
may he called a Dual Polity. This Dual Polity under the 
proposed Constitution will consist of the Union at the 
Centre a.nd the States at the periphery each endowed 
with sovereign powers to he exercised in the field 
assigned to them respectively by the Constitution." 
159. Dr. Ambedkar also referred to the Constitution of USA and 
highlighted the difference between Indian Federation and American 
Federation. While speaking on the difference of Indian Federation to 
that of American Federation Dr. Ambedkar stated: 
"But there are some other special features of the 
proposed Indian Federation which mark it off not only 
from the American Federation but from all other 
Federations. Allfederal systems including the American 
are placed in a tight mould of federalism. No matter 
what the circumstances, it cannot change its form and 
shape. It can never be unitary. On the other hand the 
Draft Constitution can be both unitary as well as federal 
according to 
the
requirements of time and 
circumstances. In normal times. it is framed to work as a 
federal system. But in times of was it is so designed as 
to make it work as though it was a unitary system. " 
160. Dr. Ambedkar further stated that a Federal Constitution 
cannot but be a written Constitution. The following was stated: 
"A Federal Constitution cannot but he a written 
Constitution and a written Constitution must necessarily
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
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he a rigul Constitution. A Federal Constitution means 
division of Sovereignty by no less a sanction than that 
of the law of the Constitution between the Federal 
Government and the States, with two necessary 
consequences (J)that any invasion by the Federal 
Government in the field assigned to the States and vice 
versa is a breach of the Constitution (2)such breach is 
a justiciable mater to he determined hy the Judiciary 
only. ·· 
161. A.V. Dicey in his celebrated work "The Law of the 
Constitution" while dealing with the aim of Federation stated the 
following: 
"A federal state is a political contrivance intended to 
reconcile national unity and power with the maintenance 
of 'state rights'. The end aimed at fixes the essential 
character of.federalism. For the method hy which 
federalism attempts to reconcile the apparently 
inconsistent claims of national sovereignty and of state 
sovereigntv consists of the formation of a constitution 
under which the ordinary powers of sovereignty are 
elaborately divided between the common or national 
government and the separate States. The details of this 
division 
vary under every different federal 
constitution.hut the general principle on which it should 
rest is obvious. Whatever concerns the nation is a whole 
should be placed under the control of the national 
government. All matters which are not primariZv of 
common interest should remain in the hands of
the 
several States." 
162. A. V. Dicey further stated about three leading characteristics 
of federalism; 
"the supremacy of the constitution-
/he distribution among bodies with limited and 
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co-ordinate authority of the different powers of 
government-
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the authority of the Courts to act as interpreters of the 
constitution. " 
163. Shri Alladi Krislmaswami Ayyar while referring to Part XA 
i.e. trade, c01mnerce and intercourse (within the territory oflndia) referring 
to factors offederation in the context of trade, commerce and intercourse 
stated as follows: 
"Therefore, in a federation what you have to do is, first, 
you will have to take into account the larger interests 
of India and permit freedom of trade and intercourse 
as far as possible. Secondly, you cannot ignore 
altogether regional interests. Thirdly, there must be the 
power intervention of the Centre in any case of crisis 
to deal with peculiar problems that might arise in any 
part of India. All these three factors are taken into 
account in the scheme that has been placed· before 
you. 
164. The nature offederalism as contained in the Constitution of 
India came for consideration before this Court in large number of cases. 
Several larger Benches of this Court dealt with the issue and had 
deliberated and explained the principles offederalism as incorporated in 
the Constitution. A Seven Judge Bench in the Special Reference No.I 
of 1964: In the matter of: Under Article 143 of the Constitution of 
India, (1965) I SCR 413 referring to fundamental feature of a Federal 
Constitution laid down that supremacy of the Constitution
is fundamental 
to the existence of the Federal Constitution, following was stated: 
"fn_ dealing with this question, it is necessary to bear in 
mind one fundamental feature of a federal constitution. 
Jn England, Parliament is sovereign; and in the words 
of Dicey, the three distinguishing features of the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
principle of Parliamentary Sovereignty are that 
Parliament has the right to make or unmake any law 
whatever: that 110 person or hody is recognised by the 
law of England is hf!ving 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 Queen:~ 
dominions (Dicey, The Law of the Constitution I 0th ed. 
pp. xxxiv, xxxv). On the other hand, the essential 
characteristic of federalism is "the distrihution o.f limited 
executive, legislative and judicial authority among 
hodies which are co-ordinate with an independent of 
each others. " The supremacy of the constitution is 
fundamental to the existence o.f a federal State in order 
to prevent either the legislature of the federal unit or 
those o.f 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 o.f powers. " 
165. In the landmark judgment of this Court in His Holiness 
Kesavanand Bharati Sripadagalvaru vs. State of Kera/a and 
another,(1973) 4 sec 225 a new dimension was given to the 
Constitutional principles. This Court by majority judgment declared that 
the
basic feature of the Constitution could not be amended by a 
constitutional amendment. Chief Justice, Sikri while delivering the majority 
judgment had held that federal character of the Constitution is one of the 
basic structures of the Constitution. 
166. Shelat and Grover, JJ. while delivering concurring opinion 
had also stated that our Constitution has all essential elements of federal 
structure. In paragraph 486 following was stated: 
"The Constitution has all the essential elements of a 
federal structure as was the case in the Government of 
India Act, 1935, the essence o.ffederalism being the 
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distribution of powers between the federation or the 
Union and the States or. the provinces. All the legislatures 
have plenary powers but these are controlled by the 
basic concepts of the Constitution itself and they 
function within the limits laid down in it Per 
Gajendragadkar C.J. in Special Reference No. I of 
1964, [1965] I S. C.R. 413. All the functionaries, be 
they legislators, members of the executive or the 
judiciary take oath of allegiance to the Constitution 
and derive their authority and jurisdiction from its 
provisions. The Constitution has entrusted to the 
judicature in this country the task of construing the 
provisions of the Constitution and of safeguarding the 
fundamental rights Ibid p. 446. It is a written and 
controlled Constitution. " 
167. Again a Seven Judge Bench in State of Rajastha11 and others 
vs. Union of India and others, (1977) 3 SCC 592 had an occasion to 
consider the nature ofindian Constitution .. M.H. Beg, CJ, while delivering 
majority decision in paragraph 57 following was stated: 
"57. The two conditions Dicey postulated for the 
existence offederalism were: .firstly, "a body of countries 
such as the Cantons of Switzerland, the Colonies of 
America, or the Provinces of Canada, so .closely 
connerted by locality, hy history, hy race, or the like. 
as he capable of bearing, in the eyes of their inhabitants 
an impress of common nationality"; and, secondly,
absolute~y essential to the founding of a federal system 
is the "existence of a very peculiar state of sentiment 
among the inhabitants of the countries". He pointed 
out that, without the desire to unite there could be no 
basis for federalism. But, if the desire to unite goes to 
the extent of forming an integrated whole in all 
substantial matters of Government, it produces a unitary 
rather than a federal constitution. Hence, he said, a
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
federal State "Is a political contrivance intended to 
reconcile national unity with the maintenance of State 
rights. ·· The degree to which the State rights are 
separateZv preserved and safeguarded gives the extent 
to which expression is given to one of the two 
contradictory urges so that there is a union without a 
unity in matters of government. In a sense, therefore, 
the Indian union is federal. But, the extent of federalism 
in it is largezy watered down hy the needs of progress 
and development of a country which has to he nationally 
integrated, politicalZv and economically coordinated, 
and socialZv. intellectualZv and spiritually up-lifted. In 
such a system. the States cannot stand in the way of 
legitimate and comprehensively planned development 
of the country in the manner directed by the Central 
Government ...... " 
168. Further in paragraph 60 referring to Dr. Ambedkar following 
was stated: 
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"60. Although Dr. Amhedkar thought that our 
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Constitution is federal "inasmuch as it establishes what 
may be called a Dual Polity, " he also said, in the 
Constituent Assemhly, that our Constitution makers had 
avoided the 'tight mould of federalism' in which the 
American Constitution was forged. Dr. Ambedkar, one 
F 
of the principal architects of our Constitution, 
considered our Constitution to he both unitary as well 
as federal according to the requirements of time and
circumstances '. " 
169. A Nine Judge Bench had occasion to elaborately consider 
the nature of Constitution oflndia in S.R. Bommai and others vs. Union 
of India and others, (1994) 3 SCC l, Ahmadi, J. referring to federal 
character of the Constitution in paragraph 14 following was stated: 
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"I 4.111 order to understand whether our Constitution 
is truly federal, it is essential to know the true concept 
offedcralism. Dicey calls it a political contrivance for 
a hody of States which desire Union hut not unity. 
Federalism is, therefore, a concept which unites 
separate States into a Union without sacrificing their 
own .fimdamental political integrity. Separate States, 
therefore, desire to unite so that all the member-States 
may share in formulation of the basic policies 
applicable to all and participate in the execution of 
decisions made in pursuance of such basic policies. 
Thus the essence of a federation is the existence of the 
Union and the States and the distribution of powers 
between them. Federalism, therefore, essentianv implies 
demarcation of powers in a federal compact. " 
170. Ahmadi, J. further stated that the Constitution of India is 
differently described, more appropriately as 'quasi-federal' because it is 
a mixture of the federal and unitary elements, leaning more towards the 
latter. 
171. B.P. Jeevan Reddy, J., held that the founding fathers wished 
to establish a strong a Center. In the light of the past history of this sub-
continent, this was probably a natural and necessary decision. In 
paragraphs 275 and 276 following was stated: 
"275. A review of the provisions of the Constitution 
shows unmistakably that while creating a federation, 
the Founding Fathers
wished to establish a strong 
Centre. In the light of the past history of this sub-
continent. this was probab~y a natural and necessary 
decision. In a land as varied as India is, a strong Centre 
is perhaps a necessity. This bias towards Centre is 
reflected in the distribution of legislative head1· between 
the Centre and States. All the more important head5 of 
legislation are placed in List I. Even among the 
legislative heads mentioned in List II, several of them,
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
e.g., Entries 2, 13, 17, 23, 24, 26, 27, 32, 33, 50, 57 
and 63 are either limited by or made subject to certain 
entries in List I to some or the other extent. Even in the 
Concurrent List (List III), the parliamentary enactment 
is given the primacy, irrespective of the fact whether 
such enactment is earlier or later in point of time to a 
State enactment on the same subject-matter. Residuary 
powers are with the Centre. By the 42nd Amendment, 
quite a few of the entries in List II were omitted and/or 
tran.~ferred to other lists. Above all, Article 3 empowers 
Parliament to form new States out of existing States either 
hy merger or division as also to increase, diminish or 
alter the boundaries of the States ..... 
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 
he it the result of advances in technological/scientific 
fi.eldv or otherwise, and
that even in USA the Centre 
has become far more powerful notwithstanding the 
ohvious 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 
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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 
industJ:v. have all been dealt with anaZvtically. 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 toward~ Centre vis-a-vis the States 
Automobile Transport (Rajasthan) Ltd. v. State of 
Rajasthan, (1963) 1 SCR 491, 540: AIR 1962 SC 1406. 
It is equal~v necessary to emphasise that courts should 
he careful not to upset the delicately-crafted 
constitutional scheme by a process of interpretation. " 
172. A Constitution Bench in Ku/dip Nayar vs. Union of India, 
(2006) 7 SCC 1, held that India is not a federal State in the traditional 
sense of the tenn and it is not a true federation fom1ed by agreement 
between various States and it has been described as quasi-federation 
and similar other concepts. 
Dr. Justice Durga Das Basu in his Treatise "Comparative 
Federalism" by tracing the history of framing of our Constitution stated 
following in Chapter IV "Indian Federation in particular" -
"The strong centralising tendency of the Indian 
federation which has attracted the notice of.foreign 
observers, can be properly appreciated on~v if its genesis 
is understood. Federation, under our
Constitution, is 
the resultant of conflicting forces. The political tradition 
of the country was unitary, but it was not possible to 
adopt a unitary Constitution, since it was necessmy to 
fit in the Indian States (about 600 in number) which 
had practica!Zv become independent since the lapse of 
paramountcy, as a result of the Indian Independence 
Act, 1947. On the other hand, it was not possible to 
make the Union the 'exceptional· government as in the 
United States, because all the units of the federation
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
were not equally developed.and central control was 
necessa1y to secure uniform development of the country 
as well as of the backivard classes of the population. 
Above all, a strong Central Government had been 
necessitated by the situation created by the partition of 
the country. It may be recalled that the Objectives 
Resolution adopted by the Constituent Assembly at the 
outset envisaged that the units of the Union of India 
should be 'autonomous 'and vested with residuary power. 
But the fi"amers of the Draft Constitution had to depart 
fi'om the federal concept emhodied in the Objectives 
Resolution owing to a change in the political situation 
which had taken place i11 the meantime. 
The object of the framers of our Constitution.thus, was 
to build a strong central authori~v which might resist 
external aggression and also to check internal disruptive 
forces that might tend to undermine the nascent State. 
This object has been sought to be attained.not only by 
endowing larger enumerated powers upon the Union 
than elsewhere and by giving it the residue [Art.248] 
(as in Canada), but also by enabling the Centre itself 
to assume control of the units whenever there is any 
threat of disruption either from outside or from within. " 
173. The law declared by this Court as noted above clearly indicate 
that the Indian Constitution is basically federal in fonn and is marked 
traditional characteristics ofa
federal system, namely, supremacy of the 
Constitution, division of power between the Union and States and 
existence of an independent judiciary. Federalism is one of the basic 
features of Indian Constitution. However, the history of Constitution 
including the Debates in the Constituent Assembly indicate that the 
distribution of powers was given shape with creating a strong Centre 
with the object of unity and integrity of India. The States are sovereign 
in the allotted fields. The Indian Constitution cannot be put in traditional 
mould of federalism. The traditional concept of federalism has been 
adopted with necessary modification in the framework of the Constitution 
to suit the country's necessity and requirement. The sum total of above 
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discussion is that federalism in the Constitution is limited and controlled 
by the Constitution and the exercise of powers of both the States and 
the Centre arc controlled by express provisions of the Constitution. 
174. The submission that while interpreting Part Xlll of the 
Constitution federal nature of the Constitution has not to be tinkered 
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with shall be adverted hereinafter while dealing with interpretation of 
different A1ticles of Part Xlll of the Constitution specially Article 304. 
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C. LIMITATION ON THE LEGISLATIVE POWER OF THE 
STATE UNDER THE CONSTITUTION 
175. Thomas M. Cooley in ''A Treatise on the Constitutional 
Limitations'' defines a Constitution in the following words: 
"A co11stitution is sometimes defi11ed 
as the 
fundamental law of a state, co11tai11ing the principles 
upon which the government is founded, regulating the 
division of the sovereign powers. and directing to what 
persons each of these powers is to be confided. and the 
manner in which it is to be exercised. Perhaps an equallv 
complete defi11itio11 would be,that bodv of rules and 
maxims in accordance with which the powers of 
sovereign(v are habitually exercised. " 
176. The Indian Constitution has adopted federal structure as noted 
above. Three characteristics of federal system are : ( l) supremacy of 
the Constitution; (2) division of powers between the Union and State 
Governments: and (3) existence of an
independent judiciary. The 
Constitution operates as a fundamental law. Organs of the States, i.e., 
executive Legislature and judiciary derive their authority and discharge 
their responsibilities within the framework of the Constitution. Neither 
the Union Parliament nor State Legislature are sovereign. The legislative 
power given to Parliament and State Legislature is provided for and 
dealt in the Constitution. The State is sovereign to legislate on any subject 
in conformity with the Constitutional limitations. What are the limitations 
envisaged by the Constitution in exercise of the legislative pow,er of the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
State, is one of the issues for consideration before us. Learned counsel 
appearing for the States contend that the power to legislate as on the 
subjects as enumerated in List II is a sovereign power which also includes 
power of State to impose taxes in which no limitation can be read from 
Part XIII of the Constitution. It is contended that it is only by a specific 
prohibition or limitation in the Constitution which has to be read as limiting 
the sovereign power of the State. On the other side, the petitioners contend 
that State Legislature while exercising its power of taxation exercise the 
same legislative power as it does while enacting any other law which it 
is competent to enact and there is no qualitative distinction between the 
exercise of legislative power enacting a law levying tax or enacting a 
non-fiscal law. In making of any law, all limitations envisaged by the 
Constitution shall apply. Learned counsel appearing for the States have 
submitted that limitations on taxing power of the State Legislature are all 
contained only in Part XII of the Constitution and no other limitation in 
exercise of State legislative power can be read. 
177. Article 13 sub-clause (2) in Part lll of the Constitution 
provides express prohibition in making of law by the State. Article 13 
sub-clause (2) is as follows: 
"13(2). The State shall not make any law which takes 
away or abridges the rights conferred hy
this Part and 
any law made in contravention of this clause shall, to 
the extent of the contravention, he void. " 
178. Part XI of the Constitution deals with "Relations between 
the Union and the States". Chapter I of which contains heading 
"Legislative Relations". Chapter I contains Article 245 to Article 255. 
Article 245 begins with the words : 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 or any part of the State. Article 246 deals with the subject-
matter of the laws made by Parliament .and by the Legislatures of States. 
Articles 245 and 246 are as follows: 
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"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 anti 
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. " 
179. During submissions before us, one of the issues raised is as 
to whether Article 245 is source oflegislative power or it is Article 246. 
Some of the counsel appearing on behalf of the States contend that the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
word "subject to the provisions ofthis Constitution" is there only in Article 
245 which does not govern, Article 246 under which Legislature of any 
State has exclusive power to make law. Articles 245 and 246 both cover 
the same subject i.e. law making by the Parliament and the Legislature. 
Article 245 deals with the extent of laws whereas Article 246 deals 
with the subject-matter of laws. Both the Aiiicles together define and 
demarcate the legislative powers to be exercised by the Parliament and 
the States. The issue is no longer res integra. The Constitution Bench 
of this Court in Maharaj Umeg Singh and others vs. The State of 
Bombay and otlters,(1955) 2 SCR 164, had occasion to consider the 
extent and limitations on the legislative powers as provided under A11icles 
245 and 246. Following was laid by this Cotui in the above case: 
"The fetter or limitation upon the legislative power of 
the Stale Legislature which had plenary powers of 
legislation within the amhit of the legislatire heads 
spec(fied in the Lists II & III of the Seventh Schedule to 
the Constitution could only be imposed hy the 
Constitution itself and not by any obligation which had 
been undertaken by either the Dominion Government 
or the l'rovi11ce of Bombay or even the State of Bombay. 
Under Article 246 the State Legislature was invested 
with the power to legislate 011 the topics enumerated in 
Lists Ii & III of the Seventh
Schedule to the Co11stil11tion 
and this power was by virtue of article 2../5(/ )subject 
to the provisions ()f the Constitutio11. The Constitution 
itself laid down the fetters or limitations 011 this powe1: 
e.g., in article 303 or article 286(2) .. , 
It is relevant to note that Constitution Bench has noticed Article 
303 as one of the A1iicles by which limitations were put on the legislative 
powers of the State. 
180. The above view has been reiterated in a large number of 
judgments of this Cou1i. It will be sufficient to refer only one more 
Constitution Bench judgment of this Court in Stllte o/Keralt11111d other.~ 
vs. Mllr Appraem Kuri Compllny Limited llfl(f llnother, (2012) 7 
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SCC 106. This Court again had occasion to consider A1ticles 245 and 
246. The Constitution Bench held in the said case that while the legislative 
power is derived from Article 245, 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. Following 
observations were made in paragraph 35: 
"35 ..... While the legislative power is derived.from Article 
245,the entries in the Seventh Schedule of the 
Constitution onlv 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. " 
181. In paragraph 3 7 it was laid down that the expression "subject 
to other provisions of the Constitution" has also to be read in Article 246, 
following was laid down in paragraph 37: 
"Article 246, thus, provides for distribution, as between 
Union and the States, of the legislative powers which 
are conferred hy Article 245. Article 245 begins with 
the expression "subject to the provisions of this 
Constitution". There.fore, Article 246 must he read as 
"subject to other provisions of the
Constitution". 
182. Thus, it is well settled that legislative power of the State is 
subject to the provisions of the Constitution. The words 'subject to the 
provisions of this Constitution' had to give its full meaning and content. 
Thus, limitation of the legislative powers wherever found in the 
Constitution has to be given effect to. There can be no doubt that Part 
XU of the Constitution deals with "Finance, Property, Contracts and
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
Suits" and there are various express limitations provided in Part XII, 
namely, Articles 276, 286 and certain other Articles but can Part XII be 
treated as the only limitations on the legislative powers of the States, the 
answer has to be in negative. We have already extracted Article 13 
sub-clause (2) and there are more than one Constitution Bench judgments 
which held that taxing legislation has also to confonn Article 13 sub-
clause(2). In Kunnatltat Thathunni Moopil Nair vs. The State of 
Kerala and another, (1961) 3 SCR 77, Constitutional validity of 
Travancore-Cochin Land Tax Act, 1955 was challenged. Following 
contention was raised by the petitioners: 
"On the legal aspect of the controversy raised on behalf 
of the petitioners, it was argued that the Act has its 
justification in Art.265 of the Constitution, which was 
not subject to the provisions of Part III of the 
Constitution and that, therefore, Arts. 14, 19, 31 could 
not he pressed in aid of the petitioners. It was also 
contended that even if the Act is, in effect, confiscatory, 
it cannot be questioned, being a taxing statute.'·' 
183. Repelling the contention the Constitution Bench held that 
tax legislation is also subject to Article 13. Following was held: 
"It has to be done by authority of law, which must mean 
valid law. In order that the law may he valid, the tax 
proposed to be levied must he within the legislative 
competence of
the Legislature imposing a tax and 
authorizing the collection thereof and, secondly, the tax 
must he subject to the conditions laid down in Art.13 of 
the Constitution. One of such conditions envisaged hy 
Art.13 (2) is that the Legislature shall not make any law 
which takes away or abridges the equality clause in 
Art.14 which enjoins the State not to deny to any person 
equality before the law or the equal protection of the 
laws of the countly. " 
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184. Another Constitution Bench judgment in Hari Krishna 
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Bhargav vs. Union of India and another, 1966 AIR SC 619, held 
that exercise of taxing power is also to be tested in the light of the 
fundamental freedoms guaranteed under Chapter Ill of the Constitution. 
Following was observed in paragraph 7: 
"7 .... Exercise of the taxing power to the State has 
undouhtedly to be tested in the light of the fundamental 
freedoms guaranteed hy Ch.III of the Constitution. It is 
not a power which transcend~ the .fimdamental rights, 
as was assumed in certain earlier decisions. Ramjilal 
v. Income-tax Officer Mohinder Garh, 1951 SCR 127: 
(AIR 1951 SC 97): Laxmanappa Hanumantappa v. 
Union of lndia,1955-1 SCR 769: (AIR 1955 SC 3): and 
the view expressed by VenkatarammaAyyar, J., inAnantha 
Krishnan v. State of Madras, JLR (1952) Mad 933: (AIR 
1952 Mad 395). But it is now settled by decisions of the 
Court (e.g.), Kunnathat Thathunni Moopil Nair v.State 
of Kera/a, 1961-3 SCR 77: (AIR 1961 SC 552), that a 
taxing statute is subject to the "conditions laid down in 
Art.13 of the Constitution". A taxing statute may 
accordingly he open to challenge on the ground that it 
is expropriatary, or that the statute prescribes no 
. procedure or machinery for assessing tax. hut it is not 
open to challenge merely on the ground that the tax is 
harsh or excessive. " 
185. All legislative power5 is su~ject to limitations in
the Constitution, 
be it fiscal statutes or non-fiscal statutes. 
186. Now, we come to the question as to whether Part Xlll also 
contains limitations on the legislative power of the State. Part Xlll of the 
Constitution has been included in the Constitution after great deliberation 
and debates in the Constituent Assembly as noted above. Part XIII 
contains one of the most important right and principle on which country 
was to march to attain economic freedom. Justice Gajendragadkar, J. 
has beautifully explained the nature and contents of right guaranteed
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
under Part XIII in following words: -
"The provision contained in Article 301 guaranteeing 
the freedom of trade, commerce and intercourse is not 
a declaration of a mere platitude, or the expression of 
a pious hope of a declaratory character; it is not also 
a mere statement of a directive principle of State policy; 
it embodies and enshrines a principle of paramount 
important that the economic unity of the country will 
provide the main sustaining force for the stability and 
progress of the political and cultural unity of the 
country. " 
187. Justice Gajendragadkar speaking for majority in the above 
case has also held that Article 301 is a Constitutional limitation on the 
legislative power of the Parliament and the States in following words:-
"That is why it seems to us that Article 301, read in its 
proper context and subject to the limitations prescribed 
by the other relevant Articles in Part Xlll, must by 
regarded as imposing a constitutional limitation on the 
legislative power of Parliament and the Legislatures of 
the States. " 
188. While discussing the "limitation on the legislative power of 
the State under the Constitution" we have already concluded thatArticle 
245 which is a source of all legislative power puts a general limitation on 
all legislative power which has been expressly made 'subject to the 
provisions of this Constitution'. When all legislative powers are subject 
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to the provision of Constitution, Part Xlll being also a part of the 
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Constitution, all legislative power has also to be subject to Part XIII. 
189. A textual interpretation of Part XIll also lead to the same 
conclusion. Article 303 is an express provision which provides for 
'restriction on the legislative power of the Union and the States with 
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regard to trade and commerce'. Article 304 is another provision which 
although empowers the legislature of the State to put restriction on trade, 
commerce and intercourse among the States by law, but law to be 
made by the State is hedged by various restrictions as contained in Article 
304(a) and 304(b). Thus Article 304 is also a limitation on legislative 
power of the State. 
190. This Court in State of Karnataka mu/ Another Vs. Han.m 
Corporation, (1980) 4 SCC 697, has held in Para 30: 
"Article 304(a) imposes a restriction on the power of 
the legislature of a State to levy tax ....... ". 
191. Article 30 l contains a general limitation on all legislative 
power. A Constitutional Bench of this Court in State of Tamil Nad11 
and Others Vi·. Sitolaxmi Mills and Others (1974) 4 SCC 408 
111 
para 7 as Stated: 
" .... In other words Article 301 imposes a general 
limitation on all legislative power in order to secure that 
trade. commerce and intercourse in the territory of India 
shall be free". 
· 
192. Justice K. Mathew in G K. Krishnan and Other.1 Vi'. State 
of Tamil Nadu anti Other.1 (1975) I SCC 375 had again reiterated 
that Article 304 imposes a general limitation on all legislative power, he 
states that 'Article 301 imposes a general limitation on all legislative 
power in order to secure that trade, commerce and intercourse throughout 
the territory oflndia shall be free'. In view of the
aforesaid discussion, 
we conclude that Part XIII of the Constitution contains limitation on the 
legislative power of the State and all legislative power of the State whether 
fiscal or non-fiscal has to conform Part XII of the Constitution. 
D. Whether Part XIII of the Constitution l'OVers "tax 
legislation" and word "restriction" used therein includes tax 
legislation.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
755 
[ASHOK BHUSHAN . .J.] 
193. The above subject is being considered in two parts. Firstly, 
A 
whether Part XIII of the Constitution covers tax legislation and secondly. 
whether word restriction used in Pati XIII includes tax legislation. 
Whether Part XIII covers tax legislation 
194. Learned counsel for both the parties have to make different 
submissions on the above subject. Learned counsel for the petitioners 
on the one hand contends that all tax legislation which restrict freedom 
of trade, commerce and intercourse are covered by Pati XIII whereas 
learned counsel appearing for the States contend that Part XIII only 
covers non-discriminatory taxes as referred to under Article 304(a) and 
no other tax legislation is covered under Paii Xlll. 
J 95. Gajendragadkar J.. speaking for majority in Atiabari Tea 
Co. Ltd. has rejected the argument that tax laws are outside Paii XIII. 
Even Sinha C.J., having expressed the following opinion at Page 828: 
" ... 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' .... " 
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In the same Paragraph further observed: 
E 
" ... 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 .fi'ee .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, 
r 
such a law is outside the sig11(ficance 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 XIIJ ... " 
196. Shah J .• inAtiahari Tea Company has held that all taxations 
which imposed restriction are hit by Article 30 l. The Automobile 
Tramport (supra) where correctness of Atiahari Tea Co. was 
questioned reiterated that taxation is included in Part XIII. Following 
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was observed by Das J. 
" ... in view of the provisions of Article 245, we find it 
difficult to accept the argument that the restrictions in 
Part XIII of the Constitution do not apply to taxation 
laws ... " 
197. Both K. SubbaRao, J. and M. Hidayatullah, J. in their separate 
opinions have held that restriction by law of taxation is also hit by Article 
301. 
198. Learned Counsel for the States in support of their submission 
further contends that both the words i.e. 'tax' and 'restriction' have 
been used in Article 304( a) and Article 304(b) separately. Both the words 
are not interchangeable nor the scheme of Article 304 indicates that the 
word 'restriction' includes taxation. Learned counsel further submits 
that reading taxation into word 'restriction' as used in Part XIII is 
accepting an interpretation which fetters the plenary powers oflegislation 
granted to the States under the Constitution. 
199. All subsequent judgments of this Court have also proceeded 
on the premise that a tax legislation which impedes the freedom of trade, 
commerce and intercourse and is not saved by Article 302 to 304 is 
invalid. Apart from the reason which found favour in Atiabari Tea 
Company and Automobile Transport the following reasons reinforce~ 
our view that Part Xlll covers all tax legislations which impede the 
freedom of trade, commerce and intercourse: 
(a) The express use of word tax in Article 304(a) and 306
(as it 
existed before its repeal by Constitution's 7th Amendment Act, 1956) 
indicates that taxes were expressly included in Part XIII. Had the taxes, 
apart from as mentioned in 304(a) were not to be covered under Part 
G 
XIII, Article 306 ought not to have been engrafted which permitted 
continuance of tax or duty on the import and export of the goods, in Part 
B States for a period not exceeding ten years from the commencement 
of the constitution. The framers of the Constitution were conscious that 
unless an overriding effect is given to taxes which are continuing in the 
State the same shall fall foul to Article 301. 
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JINDAL STAINLESS LTD. v. STATE OF HARYANA 
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[ASHOK BHUSHAN, J.] 
(b) Article 302 uses the phrase, "Parliament may by law''. Whereas 
A 
Article 303 uses the phrase "neither Parliament nor the legislature of the 
State shall have power to make any law ..... " Article 304 uses the phrase 
the legislature of a State "may by law". All laws framed by Parliament 
or State in exercise of legislative entries under VI11h Schedule are law. 
Article 302 - 304 contain exception according to which, freedom of 8 
trade, commerce and intercourse as guaranteed under Article 30 l can 
be overridden. The word law is wide enough to include both fiscal and 
non-fiscal legislations. 
(c) Article 303 imposes restriction on the legislative power of the 
Union as well as of the State with regard to trade and commerce. Article 
303(1) provides that a State shall have no powers to make any law 
giving or authorising the giving oJ~ any preference to one State over 
another, or making or authorising the making of, any discrimination 
between one State or another, by virtue of any entry relating to trade 
and commerce in any Lists of the Vll'h Schedule. The legislative power 
of the State, which is restricted under 303( I) cannot be held to be confined 
only to law as referred to in 304(a) rather it can extend to a legislation by 
virtue of any entry relating to the trade and commerce in List II. From 
this. it is clear that tax legislation which are covered under Part XIII are 
not confined to only
Article 304(a). 
· 
( d) In the event, the submission is accepted that all taxes are 
outside Part Xlll except non-discriminatory taxes as permitted under 
Article 304(a), the same will lead to giving right to the Parliament and 
State Legislature to pass facially non-discriminatory laws but creating 
restrictions on trade and commerce by other means by providing arbitrary 
procedure and various other kind of restraints. The taxation which can 
impede the trade, commerce and intercourse thus cannot be confined 
only to non-discriminatory taxation. Even, non-discriminatory taxes which 
create restraint on trade have to be held to fall foul to Article 301. In the 
event of accepting the above submission, the restraint in trade by other 
means of taxation shall be out of reach of Part XIII, which is never the 
intention of the framers of the Constitution. 
(e) A11icle 304(a) covers imposition of taxes ori goods imported 
from other States. Article 304(a) does not apply to imposition of taxes 
on intra-State trade. Can it be presumed that intra-State taxation, if it 
contains restraint on trade between one local area to another local area 
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or is discriminatory. the same is outside the reach of Article 30 l? The 
answer is obviously no. Trade and commerce throughout the territory of 
India is to be free. Thus reach of Article 301 is not confined to taxation 
as contemplated by 304(a) rather Part XIII embraces in itself all kind of 
tax legislation, which contains restraint on trade. commerce and 
intercourse. 
(f) Atiicle 304(a) only covers taxes on goods imported from other 
State and Union Territories. List II of Vll'h Schedule contains various 
other entries which empower the State to levy taxes. Entry 49 to Entry 
62 enumerate various fields of taxing legislation. In the event, the 
submission is accepted that it is only taxes referred to under Article 
304(a), are covered by Part Xlll, all taxing legislations as enumerated 
in List II shall go out of reach of Part XIII. Whether Constitlltion framers 
contemplated that restriction in freedom of trade, commerce and 
intercourse can be imposed by the State by taxing legislation other than 
those referred to in 304(a), answer has to be negative. Other taxing 
legislation apart from those, mentioned in Atiicle 304(a) are not immuned 
from restriction contained in Part XIII. For example, Entry 49 provides 
'taxes on lands and buildings'. A State Legislation is passed imposing 
taxes on buildings where trade and commerce is carried, the effect of 
which is to impede the trade and commerce, can it
be said that such tax 
legislation cannot be questioned as violating Article 30 I. The answer is 
that such legislation has also to comply with Article 30 I. Thus. Article 
304(a) is not the only taxation which is covered by Pati XII!. But it is 
only species of taxation which has been expressly indicated for carving 
out gateway for the State Legislature to impose tax which may not impede 
Article 30 I. 
(g) Lastly, there are no provision in Part Xlll which negate the 
applicability of Part XIII on taxes which operates as restriction to trade, 
commerce and intercourse. Something which is not expressly excluded 
in Pati XIII cannot be excluded by way of interpretation. 
G 
Whether restriction used under Part XIII includes tax 
H 
legislation 
200. While discussing the subject' Legislative History and Debates 
in Constituent Assembly' on freedom of trade, commerce and intercourse. 
we have already found that taxes were treated as restrictions on freedom
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
759 
[ASHOK BHUSHAN, J.] 
of trade and commerce and it was further comprehended that restrictions 
A 
on freedom of trade and commerce can be put by taxation also. Apart 
from above, there are following reasons which support our conclusion 
that word 'restriction' used in Part Xlll includes tax legislation: 
(i) The textual interpretation of Part Xlll itself indicates that taxes 
were contemplated to be included in word 'restriction'. The heading 
B 
of Article 304 reads 'restrictions on trade, commerce and intercourse 
among States'. Although the heading refers to 'restrictions' but Article 
304(a) uses the word 'any tax'. 
(ii) The same conclusion is drawn from the Article 306 as it was 
enacted. Article 306 also contained a heading 'power of certain States 
C 
in Part B of the l" Schedule to impose restriction on 'trade and 
commerce'.' 
Article 306 contained a non ohstante clause empowering Part 
B, States to continue to levy and collect such tax, subject to an agreement 
with the Government of India which was being levied at the time of D 
commencement of the Constitution. 
The heading only referred to restrictions on trade and commerce 
whereas section referred to imposition of taxes. Thus textual 
interpretation of Article 304 and 306 clearly -indicates that word 
'restriction' was used as inclusive of taxes. 
E 
(iii) The word 'restriction' has been used in Part III, in Article 
19(2) to Article 19(6). The word 'restriction'
has also been used in Part 
XIII. The word 'restriction' appearing in Part III and Part XIII have the 
same meaning and should be construed as such. It is well known principle 
of statutory interpretation of Constitution that when the same words or 
F 
phrases are used in different parts of the Constitution, the same meaning 
should be ascribed to such word unless the context demands otherwise. 
It is sufficient to refer to judgment of this Court in Kesavananda Bharati 
Versus State of Kera/a, (1973) 4 SCC 225. Justice "Hegde and 
Mukherjea" in Para 640 had reiterated the above principle as: 
G 
" ... it is one of the accepted rules of construction that 
the courts should presume that ordinarily the Legislature 
uses the same words in a statute to convey the same 
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meaning. {f d(fferent words are used in the same statute, 
it is reasonable to assume that, unless the context 
othen1Jise indicates. the Legislature intended to convey 
different meanings of those words. This rule of 
interpretation is applicable in construing a Constitution 
as well ... " 
(iv) This Cou1i had occasion to consider the word 'restriction' as 
used in Part Ill in context of taxing legislation, namely. Travancore-
Cochin Land Tax Act, 1955 in KT. Moopil Ntiir Versus State of Kera/a 
and Anr., 1961 (3) SCR 77. When word 'restriction' as used in Part 
III has been held to include restriction by tax legislation also, we see no 
reasons for not reading tax legislation in word 'restriction• in Part XIIL 
also. The word restriction has to be given same meaning as contained in 
Part Xlll. 
(v) Article 302 contains a heading 'power of Parliament to impose 
restrictions on trade, commerce and intercourse'. Article further provides 
that the Parliament by laws impose such restrictions on the freedom of 
trade, commerce and intercourse. 
Under Article 302 tax laws enacted by the Parliament. namely, 
Central Sales Tax Act 1956 has been saved by this Court in State of 
Madras Vs. N. K. Nataraja Mudaliar 1968 (3) SCR 829. Bachawat, 
J., agreeing with the majority opinion stated as following: 
"I may add that even assuming that the Central Sales 
Tax Act. 1956 is within the mischief (~f Art. 301, it is
certainly a law made by Parliament in the public interest 
and is saved by Art. 302. find nothing in the Act which 
offends Art. 303(1)." 
(vi) The word 'restriction' used in A1iicle 304(b) has also to be 
interpreted in the same manner. As noted above, Article 304(a) covers 
limited field to taxes on goods imported from other States. Article 304(a) 
does not cover intra-State taxation. An Intra-State Tax Legislation. 
impeding the freedom of trade, commerce and intercourse between one 
local area to another local area, has also to fall foul to Article 301. There
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
may be val id reasons for State legislature to impose restriction with regard 
to intra-State taxation and there may be reasons for fixing different rate 
of taxes with regard to different local areas, which may be a restriction 
on the trade, commerce and intercourse. A1iicle 304(b) is a window by 
which a State can impose reasonable restriction in public interest. In the 
event, it is held that Article 304(b) does not cover taxes, the State will 
have no mechanism to impose restriction on intra-State trade and with 
regard to imposition of taxes other than goods impmted from other States, 
which can not be the intention of framers of the Constitution. 
From the foregoing discussion, we arrive at following 
conclusions: 
i. Part XIII of the Constitution covers tax legislation which restrict 
freedom of trade, commerce and intercourse. 
ii.The word 'restriction' used in Part XIII includes tax legislations 
also. 
E. LEGISLATIVE HISTORY AND CONSTITUENT ASSEMBLY 
DEBATES RELATING TO ARTICLE 304(a)AND 304(b) 
20 I. By Section 297 of Government oflndiaAct, 1935, the certain 
restrictions on the Provincial Legislature and the Government were 
imposed to ensure freedom of trade, as has already been noted above. 
When the Constituent Assembly proceeded to finalise the provisions of 
the Constitution on freedom of trade and commerce, the Legislative 
Scheme as such under Section 297 was already enforced. By Section
297(l)(a) the State Legislature and Government were prohibited from 
restricting the entry into. or export from, the Province of goods of any 
class or description; and further by Section 297( 1 )( b) imposition of any 
tax, cess, toll, or due which was discriminatory in nature was prohibited. 
As noted above the Sub-Committee on the fundamental rights in its report 
dated 3"1 April, 194 7 has proposed the following clause with regard to 
trade, commerce and intercourse: 
"13.Subject to regulation by the/aw of the Union, 
trade,commerce, and intercourse among the units, 
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whether hy means of internal carriage or hy ocean 
navigation, shall he free: 
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Provided that any unit may by law impose reasonable 
restrictions thereon in the interest of puhlic order, 
morality or health. " 
202. Shri Alladi Krishnaswami Ayyar put a note on the above 
Clause 13 which was to the following effect: 
"Clause 13. Though I have heen in some measure 
responsible for the inclusion of this clause I feel it must 
he 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 themselves are subject. " 
203. While submitting the report of the Sub-Committee dated 16'11 
April, 1947, Chainnan ofFundamental Rights Sub-Cmmnittee stated that 
although every citizen is entitled to free trade, commerce and intercourse 
within the territories of the Union unburdened by any internal duties or 
taxes of customs but many Indian States depend upon such duties and 
taxes for a considerable part of their revenue and cannot do without it all 
at once. It was stated that some agreement had to be made with those 
States in the light of their existing rights with a view to their ultimate 
elimination within a period to be prescribed by the Constitution. 
204. Thus, with regard to the taxes.the above view was reiterated 
by Shri Vallabhbhai Patel in the report of Advisory Committee submitted 
on 231d April,
1947. Shri C. Rajagopalachari in Advisory Committee 
proceeding had stated : "I think we should add to 14( 1) that this shall not 
G 
be a bar to the imposition of taxes for genuine purposes of revenue." 
H 
Before the Constituent Assembly the Advisory Committee had 
recommended Clause 10 regarding trade, commerce and intercourse to 
the following effect: 
"JO. Suhject to regulation by the law of the Union
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
763 
[ASHOK BHUSHAN, J.] 
trade, commerce, and intercourse among the Units by 
A 
and between the citizens shall he free: 
Provided that any Unit may by law impose reasonable 
restrictions in the interest of public order, morality or 
health in or in an emergency: 
Provided that nothing in this section shall prevent any 
Unit from imposing on good~ imported from other Units 
the same duties and taxes to which the good~ produced 
in the Unit are subject: 
Provided further that no preference shall be given by any 
regulation of commerce revenue by a Unit to one Unit over 
another." 
205. The above Clause 10 came for discussion before the 
Constitution Assembly on 1st May, 194 7. Shri K.M. Munshi before the 
Constituent Assembly placed amendment for adding the words 'and 
under regulations and conditions which are non-discriminatory'. The 
Constituent Assembly approved Clause IO by accepting amendment 
proposed by Shri K.M. Munshi. Third proviso thus was approved as 
follows: 
"Provided that nothing in this section shall prevent 
any Unit from imposing on good~ imported from either 
Units the same duties and taxes to which the goods 
produced in the Unit are subject and under regulations 
and conditions which are non-discriminatory. " 
206. The above proviso was included in the Draft Constitution 
published in October, 194 7 and thereafter draft as finalised by Drafting 
Committee provided for restriction on trade, commerce and
intercourse 
by Article 244 which was of the following effect: 
"244. Notwithstanding anything contained in Article 16 
or in the last preceding Article of this Constitution, it shall 
be lawful for any State-
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(a) to impose on goods 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 law 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." 
207. Article 244 which was subsequently approved as Article 274D 
in Part XA and was adopted as Article 304 of the Constitution. The 
above indicates that initially the provisions empowered the State "to 
impose on goods imported from other States any tax to which similar 
goods manufactured or produced in that State are subject", and by an 
amendment another resttiction i.e. "so, however, as not to discriminate 
between goods so imported and goods so manufactured or produced" 
was added. Article 304(a) contains both the above restrictions on the 
legislative power of the State. The proceedings of the Constituent 
Assembly, thus, clearly indicate that both the above conditions have been 
added in the provision as separate conditions and the second
condition 
was added by way of amendment in addition to the first condition which 
already existed. Now coming to Article 304(b) which was similar to 
draft Article 244(b ), Constituent Assembly debated the above Article 
threadbare. 
208. Dr: Ambedkar had moved motion for inclusion of a separate 
G 
Part XA wherein Article 244 was deleted and substituted by a draft 
Article 274D which was to the similar effect. In the Constituent Assembly 
Debates dated 3rd December, 1948 the draft Article 16 which was included 
in the fundamental rights came for consideration. In the context of the 
above discussion objections were raised to Article 244 by Shri C. 
H 
Subramanian. Shri C. Subramanian raised objection that a State
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
Legislature has been given power to impose certain taxes and impose 
certain restrictions which clearly means that no fundamental right is 
reserved for free trade and commerce. The objection of Shri C. 
Subramanian was taken in the following words: 
"You will find, Sir, that in article 244, even though it 
might he inter-state trade and commerce, the State 
Legislature is given certain powers to impose certain 
taxes and impose certain restrictions. Having this in 
mind, if we come to Article 16, we.find the words "subject 
to the provisions of article 244 of this Constitution'', 
that is, even in respect of inter-state trade and coinmerce, 
the State Legislature has heen given certain powers and 
that is not touched hy this article. Therefore leaving 
that, the article would read "subject to the provisions 
of any law made by Parliament, trade and commerce 
and intercourse through the territory of India shall be 
free". 1 really fail to understand how this can be a 
fundamental right and whether there is any right at all 
reserved. The very conception of a fundamental right 
is that there is a certain right taken out of the province 
of the legislature either of the Union or of the State. " 
209. Dr. Ambedkar replying to the above objection with regard to 
Article 244 stated as follows: 
"With regard to the other argument, that since trade 
and commerce have been made subject to article 244, 
we have
practically destroyed the fundamental right, I 
think 1 may fair~y say that my friend Mr: Subramaniam 
has either not read article 244, or has misread .that 
article. Article 244 has a very limited scope. All that it 
does is to give powers to the provincial legislatures in 
dealing with inter-state commerce and trade, to impose 
certain restrictions on the entry of good~ manufactured 
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or transported from another State, provided the 
legislation is such that it does not impose any disparity, 
discrimination between the good~ manufactured within 
the State and the goody imported/ram outside the State. 
Now, I am sure he will agree that that is a very limited 
law. It certainly does not take away the right of trade 
and commerce and intercourse throughout India which 
is required to he free. " 
210. As stated above Article 244 was akin to Article 274D which 
was sought to be added in new Chapter and came for discussion on 81h 
September, 1949 before the Constituent Assembly. Dr. B.R. Ambedkar 
by moving a motion in support of Chapter XA giving a complete picture 
of the A1iicles now put at one place stated as follows: 
"I should also like, to say that according to the 
provisions contained in this part it is not the intention 
to make trade and commerce absolutely free, that is to 
say, deprive both Parliament as well as the States of 
any power to depart from the fundamental provision 
that trade and commerce shall he free throughout India. 
The freedom of trade and commerce has been made 
subject to certain limitations which may be imposed by 
Parliament or which may be imposed by the Legislatures 
of various States, subject to the fact that the limitation 
contained in the power of Parliament to invade the 
freedom of trade and commerce is confined to cases 
arising from scarcity of
goody in any part of the territory 
of India and in the case of the States it must he justified 
on the ground of public interest. The action of the States 
in invading the freedom of trade and commerce in the 
public interest is also made subject to a condition that 
any Bill affecting the freedom of trade and commerce 
shall have the previous sanction of the President; 
otherwise, the State would not be in a position to 
undertake such legislation. "
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
211. Pandit Thakur Das Bhargava raised various amendments. 
Pandit Bhargava moving his amendments stated: 
"Now, in regard to these amendments my submission is 
that the way in which I look at the subject is different 
from the way in which D1: Amhedkar look at it. 
According to me, these rights of trade and commerce 
and intercourse should he absolute and only 
circumscribed hy provisions relating to emergencies 
while in his view, the power of the Central Government 
as well as of the provincial Governments should he 
there, and these rights should be qualified We have 
already passed article 16 which runs thus: 
"Subject to the provisions of article 244 of this 
Constitution and of any law made by Parliament, trade, 
767 
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commerce and intercourse throughout the territory of 
D 
India shall he free. " 
This article yet stands as it is. There has so far been 
no amendment that it stands abrogated. The existence 
of this article in the Chapter on Guaranteed Rights 
assures us that this is a fundamental right. The nature 
E 
of this .fundamental right has been, I know, curtailed to 
a great extent by the use of the words "and of any law 
made by Parliament". Subject to this, this fundamental 
right has been guaranteed to the citizens of India by the 
Constitution we have already passed. 
F 
212. With regard to Article 274D, Pandit Thakur Das Bhargava 
raised serious objections to sub-cluase (b ),
following was stated by Pandit 
Bhargava" 
"Similarly Si1; in regard to article 274D, I have no 
objection to clause (a): hut so far as (h) is concerned, 
this is the clause to which I object most seriously. I think 
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this is unnecessary because when the powers are given 
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to the Parliament as originally they were given to the 
Parliament, I have no objection. The Parliament shall 
have to consider it from the general standpoint, from 
the standpoint of the whole of India, whereas a State is 
bound to consider it from a parochial point of view, 
from the point of view of the State and there.fore, this 
mutual jealousy is bound to arise if we allow these 
powers to the State. There.fore, the policy of the 
Government should be that so far as the State is 
concerned, they should not be allowed to exercise that 
power unless it be through Parliament. ff a State is 
empowered to use its powers under clause (a) I have no 
quarrel as it will he a salutary power; hut if you allow 
clause (b) to remain as it is, I do not understand what it 
may lead to." 
213. Prof.Shibban Lal Saksena also supported the amendments 
moved by Pandit Bhargava. 
214. Shri T.T. Krishnamachari replying the objections of Pandit 
Bhargava stated following with regard to Article 274D: 
"So far as 274D is concerned, my honourable Friend 
Pandit Thakur Das Bhargava will either wholly amend 
it in such a way as to completely change its shape or 
completely eliminate it. I feel that it arises-I have no 
douht--from a particular bitter experience of his in 
which a Provincial Government has not executed its duty 
towards its people in the proper way. But hard cases do 
not always mean bad law. There is not reason
for us to 
completely shut out discretion or the States in so far as 
the Central Government will have enough power not 
mere~v to have a uniform fiscal policy but also as far as 
possihle to have a uniform economic policy. And that is 
provided by the fact that the President'.~ previous 
sanction is necessary in regard to any legislation 
undertaking by the State under clause (b) of 274D.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
769 
[ASHOK BHUSHAN, J.] 
Pandit Thakur Das Bhargava: Is it not exactly the 
A 
reason why the Provinces and the State Legislatures 
should not he given the power? 
Shri T. T. Krislmamachari: That is exactly the reason 
why they should he given the power. The State should 
he given a certain amount of right in this matter and 
B 
the onzv reason why the Centre should interfere is to 
see that the economic and .fiscal policy of the Centre is 
not unduzv interfered with, and to the extent that it cannot 
he inte1:fered with the State must he given a reasonable 
amount of power to order its own affairs. " 
C 
215. Shri Alladi Krishnaswami Ayyar replying the objections of 
Pandit Bhargava with regard to Article 274D stated as follows: 
"Then I am surprised at exception being taken to the 
terms of article 274D. It does not give any unfettered 
power to the States. The proviso clearly lays down-
" No Bill or amendment for the purposes of clause (b) 
of this article shall be introduced or moved in the 
legislature of the State nor shall any Ordinance he 
promulgated.for the purpose by the Governor or Ruler 
of the State without the previous sanction of the 
President". 
Therefore, if on account of parochial patriotism or 
separatism, without consulting the larger interests of 
India as a whole !f any Bill or amendment is introduced, 
it will be open to the President, namezv, the Cabinet of 
India to withhold sanction. This is therefore a
very 
restricted power that is COl?ferred on the legislature of 
a State. After all what is the nature of the power given ? 
The power is confined to imposing such reasonable 
restrictions on the freedom of trade, commerce or 
intercourse with or within that State as may be required 
in the public interest therefore the President who has to 
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grant sanction will have the opportunity lo see !hat the 
legislation is in !he public interes/ and that the restriction 
imposed is reasonable. It is not possih/e to devise a 
water-tight formula for the purpose of' defining these 
restrictions. " 
B 
216. Replying the Debate, Dr. B.R. Ambedkar stated that he cannot 
usefully add anything to what Shri T.T. Krishnamachari and Shri Alladi 
KrishnaswamiAyyar had said. Article 274D was added to the Constitution 
by negating the amendments. From the above, it is clear that objections 
C 
with regard to Article 2740 sub-clause (b) which is now Article 304( b) 
were raised before the Constituent Assembly but the objections were 
overruled by retaining Article 274D sub-clause (b) which is now Article 
304(b), thus, inclusion of Article 304(b) in the Constitution was consequent 
to well deliberated Constitutional Scheme and was accepted as restriction 
D 
on the power of State to have uniform fiscal policy and uniform an 
economic policy. 
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F. INTERPRETATION, SCOPE AND AMBIT OF ARTICLE 
304(a) AND ARTICLE 304(b) 
217. Article 304 of the Constitution reads as follows: 
"304. Restrictions on trade, commerce and intercourse 
among States.-Notwithstanding anything in article 301 
or article 303, the Legislature of a Stale 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 sulJject, so. 
however, as not to discriminate between goods so 
imported and goods so 111anuj(1c/ured or produced: and 
(b) impose such reasonable restrictions 011 the ji-eedom 
of trade, commerce or intercourse with or within that 
State as may be required in the public interest:
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
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. " 
218. 'Article begins with a non ohstante clause i.e. 
'notwithstanding anything in Aiticle 301 or 303'. Article 301 declare:; 
that trade, commerce and intercourse throughout the territory of India 
shall be free. Article 304 has overriding effect over Article 301, Article 
304 provides for 'restrictions on trade, commerce and intercourse' 
amongst States, as is clear by its heading, which otherwise would not 
have been permissible under 301. Article 304 also overrides restrictions 
on the legislative power of the State as provided for in Article 303. 
219. Article 304 empowers legislature of a State by law to impose 
on goods imported from other States or Union Territories any tax. A 
plain reading of Article 304( a) indicates that it contains certain conditions 
for imposition of taxes on goods imported from other States. Article 
304(a) can be divided in following parts:-
i . Impose on goods imported from other States or Union Territories; 
ii.Any tax to which similar goods manufactured or produced in 
that State are subject; 
iii. So, however, as not to discriminate between goods so imported 
and so manufactured or produced; 
220. We have already noted, while noticing the proceeding before 
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Assembly that in the initial draft corresponding to 304(a) 
F 
the condition iii, i.e., "as not to discriminate between goods so imported 
and goods so manufactured or produced" was not there which was 
added by an amendment brought by Shri K. M. Munshi. Thus (ii) and 
(iii) Part of Article 304, as noted above contains two sepan1te and 
independent conditions for invoking 304(a). Learned counsel for the States 
G 
have submitted that the main content of Article 304(a) is imposition of 
non-discriminatory taxes. It is contended that in event, there are no similar 
goods manufactured or produced in the State to the goods which are / 
imported there is no question of discrimination and State is· free to tax 
imported goods, which are not produced or manufactured in the State. 
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On first blush, the submission appears to be attractive but on a deeper 
scrutiny it merits rejection. Article 304 is, in nature of enabling provisions 
to the State, to impose taxes on goods imported from other States. 
Framers of the Constitution had stated that the goods coming from other 
parts of the India in the units concerned cannot escape duties and taxes 
to which the goods produced in the units are subject. There is specific 
purpose and object in enabling the State to impose tax on goods imported 
from other States only when similar goods manufactured or produced in 
that State are subject. The object is that trade and commerce throughout 
the territory of India has to be free, as required by Article 301 and limited 
power to State was given to tax the outside goods when local goods are 
subject to taxes. In event, locally manufactured or produced goods are 
not subject to any tax, State has no jurisdiction to impose tax on similar 
goods coming from other States. Tax on the locally manufactured or 
produced goods is condition precedent for imposing tax on similar goods 
coming from other States. Idea is that when State does not tax its locally 
manufactured or produced goods, similar goods coming from out of the 
State be pennitted a free flow which is a part of freedom guaranteed 
under Article 301. 
221. The last condition that 'so, however, as not to discriminate 
between goods so imported and
goods so manufactured or produced ... " 
is another limb of restriction which prohibits the State from discriminating 
in imposing taxes on imp01ted goods as compared to goods manufactured 
or produced locally. The question of discrimination shall arise only when 
first condition that is locally manufactured or produced goods are taxed 
by a State. In event, a patticular good is not produced or manufactured 
in a State, State cannot be allowed to impose tax on goods coming from 
othe;· States. First condition that is, taxing of the local goods being not 
fulfilled, the question of discrimination, does not arise. We are thus of 
the considered opinion that power under Article 304(a) for imposing 
taxes on the impotted goods can be exercised by a State only when 
similar goods manufactured or produced locally are subject to tax. When 
G 
the similar goods are not subject to tax or similar goods are not available 
in the State, the State is obliged to pennit free flow of goods from other 
States which is cardinal principle enshrined in Article 301 and the 
relaxation to the States has been given only on a condition that State 
imposes taxes both on local goods and outside goods. Article 304(a) 
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came for consideration before this Court in several cases including the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
Constitution Bench of this Court in State of Madhya Pradesh Vs. 
Bhailal Bhai and Others 1964 6 SCR 261, in the above case the 
State has filed an appeal against judgment of the High Court ofM.P. by 
which judgment High Court had allowed the writ petition filed by the 
assessee permitting the refund of the tax assessed and collected from 
them hclding assessment and collection as violative of Article 301 and 
not being saved by 304(a). The writ petitioners were carrying business 
of sale of tobacco in accordance with the notifications issued by the 
State Government, in the notification in question the tax was imposed 
only on imported tobacco and not on home grown tobacco which was 
noticed by the High Court in the judgment in following words: 
"The High Court was of opinion on a consideration of 
the notification under which the tax was assessed that 
it imposed a tax only on imported tobacco and not on 
home grown tobacco and so it did not come within the 
special provisions of Art. 304(a) of the Constitution and 
consequently the infringement of Art. 301 of the· 
Constitution which resultedFom the imposition of a tax 
on import of goods made the provisions void in law. 
The prayer for refund was allowed in the applications 
out of which C.A. Nos. 362-377, C.A. Nos. 861-867 of 
1962 and C.A. No. 25 of 1963 have arisen. The prayer 
was rejected in the remaining applications. 
In the present appeals the State
of Madhya Pradesh 
challenges the correctness of the High Court :s decision 
that the taxing provision was unconstitutional and void 
and also the orders for refund made in some of the 
petitions mentioned above. ·· 
222. This Court came to conclusion that similar goods 
manufactured or produced in the State of the Madhya Bharat have not 
been subject to the tax which tobacco imported from other States have 
to pay hence tax was not saved under 304(a), affirming the judgment of 
the High Court this Court held as follows: 
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"There can, therefore, be 110 escape from the conclusion 
that similar good5 mant!factured or produced in the Sate 
of Madhya Bharat have not heen subjected to the tax 
which tobacco leaves, mam!factured tobacco and 
tobacco used for Bi di manufacturing, imported from 
other States have to pay on sale hy the importer. This 
tax is, therefore, not within the saving provisions of Art. 
304(a). As already pointed out it contravenes the 
provisions of Art. 301 of the Constitution. The tax has 
therefore been rightly held by the High Court to he 
invalid. It is clear that the assessment of tax under these 
notifications was thus invalid in law. " 
223. In another Constitution Bench judgment, Kalyani Stores Vs. 
State of Orissa and Others 1966 1 SCR 865 Article 304(a) again 
came for consideration. In the above case, the petitioners have challenged 
the notification dated 31 March 1961 issued under Bihar & Orissa Excise 
Act, 1915 by which duty was enhanced from Rs. 40 to 70 per LP Gallon. 
224. The petitioners were asked to pay duty at the rate of Rs. 30, 
in respect of stocks of liquor found in the shop after April l, 1961. The 
petitioners challenged the legality of the levy by filing a w1it petition, the 
following contention was raised before this Court: 
"The appellants contended, inter alia that the State 
could levy under s.2 7 of the Bihar and Orissa Act duty 
on excisable articles produced or
manufactured in the 
State and a countervailing duty on excisable articles 
imported into the State, imposed with a view to equalize 
the burden on the imported articles with the burden on 
manufactured articles in the State, hut no countervailing 
duty on liquor imported could he levied if there was in 
the year of licence no liquor, similar to the imported 
liquor, manufactured within the State, and as there was 
no distillery in the State manufacturing 'foreign liquor" 
the levy of countervailing duty was without authority 
of law."
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
775 
[ASHOK BHUSHAN, J.] 
225. The writ petition was dismissed by the High Court justifying A 
the levy of duties of excise as countervailing duties under Entry 51 List 
II in VII1h Schedule. The judgment came to be challenged before this 
Court. This Court negativated the view of the High Court, justifying the 
levy as countervailing duty in following words: 
"The fact that countervailing duties may he imposed at 
the same or lower rates suggests that they are meant to 
counterhalance the duties of excise imposed on good5 
manufactured in the State. They may be imposed at the 
same rate as excise duties or at a lower rate, preswnahly 
to equalise the hurden after taking into account the cost 
of transport from the place of manufacture to the taxing 
State. It seems, therefore, that countervailing duties are 
meant to equalise the burden on alcoholic liquors 
imported from outside the State and the burden placed 
by excise duties on alcoholic liquors manufactured or 
produced in the State. If no alcoholic liquors similar to 
those imported into the State are produced or 
manufactured, the right to impose counterbalancing 
duties of excise levied on the goods manufactured in 
the State will not arise. It may, therefore, be accepted 
that countervailing duties can only be levied if similar 
goods are actually produced or mam1factured in the 
State on which excise duties are being levied. " 
226. This Court held that exercise of power
under Article 304(a) 
can only be effective if the tax duty is imposed on goods imported from 
other States and the tax or duty imposed on similar goods manufactured 
or produced in that State are such. This Court held as no foreign liquor is 
manufactured or, produced in the State of Orissa, power to legislate 
given under Article 304(a) is not valid and following was laid down: 
"Exercise of the power under Art. 304(a) can on~v he 
effective if the tax or duty is imposed on goods imported 
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from other Sates and the tax or duty imposed on similar 
goods mam!factured or produced in that State are such 
that there is no discrimination against imported good~. 
As no foreign liquor is produced or manufactured in 
the State of Orissa the power to legislate given by 'Art. 
304 is not available and the restriction which is declared 
on the freedom of trade, commerce or intercourse by 
Art. 301 of the Constitution remains unfet.tered." 
227. ln the above two Constitution Bench judgments, this Court 
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have clearly struck down levy of taxes on import of goods, when there 
was no taxes levied by State on the goods locally manufactured or 
produced or those goods were not locally available. 
228. The question of discrimination between tax imposed on the 
imported goods and that of locally manufactured or produced goods is 
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another factor, on which the levy can fall foul. In Firm A. T.B. 
Mehtabmajid and Company Vs. State of Madras and Anothers 1963 
SCR Supl.(2) 435 a question of discriminatory levy under Article 304(a) 
was considered. 
229. In a writ petition under Article 32 of the Constitution filed in 
E 
this Court, rule 16 of Madras General Sales Tax (Turnover and 
Assessment Rules, 1939) was under challenge. Petitioner was a dealer 
in hides and skins who used to sell the hides and skins taken from outside 
the State of Madras as well as those taken from inside the State. Case 
of the petitioner was to the
following effect: 
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"ft is contended.for the petitioner that the effect of this 
rule is that tanned hides or skins imported.from outside 
the State and sold within the State are subject to a higher 
rate of tax than the tax imposed on hides or skins tanned 
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and sold within the State, in as much as sales tax on the 
imported hides or skins tanned outside the State is on 
their sale price while the tax on hides or skins tanned 
within the State, though ostensibly on their sale price, 
is, in view of the proviso to cl. (ii) of sub-r. (2) of r. 16. 
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JINDAL STAINLESS LTD. v. STATE OF HARYANA 
777 
[ASHOK BHUSHAN, J.] 
really on the sale price of these hides or skins when 
they are purchased in the raw condition and which is 
suhstantial~v less than the sale price of tanned hides or 
skins. Furthe1; for similar reasons. hides or skins 
importedfrom outside the State after purchase in their 
raw condition and then tanned inside the State are also 
subject to higher taxation than hides or skins purchased 
in the raw condition in the State and tanned within the 
State, as the tax on the former is on the sale price of the 
tanned hides or skins and on the latter is on the sale 
price of the raw hides or skins. Such a discriminatory 
taxation is said to offend the provisions of the Art. 304(a) 
of the Constitution. Similar are the contentions for the 
intervenes in the case. " 
230. This Court held that taxing laws can be restrictions on the 
trade, commerce and intercourse and the tax which is affecting and 
discriminating goods of one State and goods of another may affect the 
free flow of trade and offend Article 301 and will be followed only if it 
comes within the tenn of Article 304(a). This Court held as follows: 
"ft is therefore now well settled that taxing laws can 
he restrictions on trade, commerce, and intercourse, if 
they hamper the flow of trade and if they are not what 
can be termed to he compensatory taxes or regulatory 
measures. Sales tax, of the kind under consideration 
here. cannot he said to he a
measure regulating any 
trade or a compensatory tax levied/or the use of trading 
facilities. 
Sales tax, which has the effect of 
discriminating between goods of one State and goods 
of another, may affect the free .flow of trade and it will 
then offend against Art. 301 and will be valid only if it 
comes within the terms of Art. 304(a). 
Article 304(a) enables the Legislature of a State to make 
laws affecting trade, commerce and intercourse. It 
enables the imposition of taxes on good~ from other 
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States ifsimilar good~ in the State are subjected to similar 
taxes, so as not to discriminate between the goods 
manufactured or produced in that State and the goods 
which are imported.from other States. This means that 
if the effect of the sales-tax on tanned hides or skins 
imported.from outside is that the latter becomes subject 
to a higher tax by the application of the proviso to suh-
rule of r. 16 of the Rules, then the tax is discriminatory 
and unconstitutional and must be struck down. " 
231. This Couii allowed the petition by recording the following 
conclusion: 
"We are therefore of opinion that the provisions of 1: 
16(2) discriminate against the imported hides or skins 
which had been purchased or tanned outside the State 
and that therefore they contravene the provisions of Art. 
304(a) of the Constitution. 
232. The law laid down by the above Constitution Bench judgment 
of this Court reaffim1s our view that for enabling a State to make a law 
under Article 304( a), following two preconditions, which are independent 
of each other have to be satisfied: 
a. Imposes on goods imported from other States or the Union 
Territories any tax to which similar goods manufactured or 
produced in that State are subject. 
b. So, however, as not to discriminate between goods so imported 
and goods so manufactured and produced; 
233. During the course of his submission Shri Salve has referred 
to
enactments of State of Tamil Nadu, States of Kerala, State of Assam 
and State of Andhra Pradesh. Referring to Tamil Nadu Entry Tax on
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
779 
[ASHOK BHUSHAN, J.] 
Entry of Goods into Local Areas Tax Act, 2001, Shri Salve has contended 
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that under Section 3 sub-section 2, tax is payable by an importer. Entry 
of goods into local area was defined as entry of scheduled goods into a 
local area from any place outside the State for consumption, use or sale. 
therein. His contention was that enactment clearly imposes Entry Tax 
only on goods imported and there was no Entry Tax on the local goods 
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which clearly violates Article 304(a) of the Constitution oflndia. 
234. We find force in the submission of Shri Salve, which is 
supported by the Constitution Bench judgments in State of Madras Vs. 
Bhailal Balli and Kalyani Stores Vs. State of Orissa and Others. 
Imposition of tax only on imported goods when no such tax is levied on 
C 
local goods violates Article 304(a). The Division Bench of the Madras 
High court in ITC Ltd. Vs. State of Tamil Nadu and Others /2007/ 7 
VST 367 Madras has struck down the enactment. To the same effect, 
submissions have been made by Shri Salve with regard to Entry Tax 
enactments of State of Kerala, State of Andhra Pradesh and State of 
Assam. 
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235. Articles 304(a) and 304(b) are joined with conjunction 'and'. 
Learned counsel for the petitioners who have challenged the various 
enactments of various States contend that clauses (a) and (b) of Article 
304 have to be read conjunctively as they are not mutually exclusive. It 
is
contended that tax Legislation by State has to comply both clauses (a) 
and (b) whereas learned counsel for the States contends that word 'and' 
has to be read disjunctively. Legislation which is in accordance with 
Article 304(a) need not be in compliance of A1ticle 304(b). Learned 
counsel for the States has further contended that in fact Article 304(b) 
does not include tax legislation, hence, it is another reason to contend 
that tax legislation complying A1ticle 304(a) need not to comply Article 
304(b). 
236. We need to first advert to true meaning and purpose of word 
'and' which joins both clauses (a) and (b) of Article 304. According to 
the principles of statutory interpretation the word 'and' is normally used 
conjunctively and word 'or' is nonnally used disjunctively but at times 
they are used as vice versa to give effect to the manifest intention of 
the Legislation as disclosed in the context of the Legislation. This Court 
in large number of cases have read word 'and' as 'or'. In 1969(1) SCR 
219, this Court had occasion to consider the word 'and' as used in Section 
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3(b) of the Drugs Act, 1940. Section 3(b)(I) which defines the Drug 
provided as: 
"The definition of "drug" contained in S.3(b) is i11 the 
following terms :-
(ij all medicines for internal or exlernal use of human 
beings or animals and all substances intended to be 
used for or (in !he diagnosis, treatment), mitigation or 
prevention of disease in human beings or animals other 
than medicines and .substances exclusively used or 
prepared for use in accordance with Ayurvedic or Unani 
systems of medicine ............... " 
237. The issue before this Court as to whether word 'and' used in 
the Section 3(b )(I) between words "medicines and substances'' be read 
as 'or', this Court laid down the following: 
"Now if the, expression "subs lances" is to be taken to 
mean something other than "medicine" as has been held 
in our previous decision it becomes difficult to 
understand how the word "and" as used in the definition 
of drug in Ll_(b) (i) between "medicines., and 
"substances" could have been intended to hal'e been 
used conjunctively. It would be much more appropriate 
in the context to read it disjunctively. In Stroud :5 Judicial 
Dictionmy, 3rd Ed. ii is stated at page 135 that "and" 
has Generally a cumulative, sense, requiring. the 
fulfillment <~(all the conditions that it joins toget!Je1: 
and herein it is the antithesis of "or". Sometimes. 
however; even in such a connection, it is, by force
of a 
contents, read as "or". Similarly in Maxwell on 
interpretation of Statutes, 11th Ed. it has been accepted 
that "to can:y out the intention of the legislature it is 
occasionally found necessary to read the conjunclions 
'or ' and ·and' one for the other".
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
781 
[ASHOK BHUSHAN, J.] 
238. We may revert to the Constitutional Scheme to find out the 
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true purpose and object of the provision. Article 304 is an exemption 
granted to the State when State can impose taxes and impose restrictions 
on the freedom of trade and commerce which freedom is guaranteed 
under Atticle 301 of the Constitution of India. Article 304 begins with 
the words "Notwithstanding anything in Article 301 or Article 303, the 
Legislature ofa State may by law-". Two sub-clauses (a) and (b) are 
enabling powers given to the State by which taxes can be imposed on 
imported goods and restrictions can be imposed on the freedom of trade, 
commerce or intercourse. In the event, we tend to read conjunction 
'and' as 'or' it may mean that the State may exercise only one of the 
enabling powers as given in the clauses (a) and (b ). It is not the intention 
of Article 304 to empower the State to only exercise either of the powers, 
the clear intendment of the State is that the State may by law impose on 
goods imported from other States any tax- clause (a);and impose 
reasonable restrictions on the freedom of trade, commerce or intercourse 
with or within that State - clause (b). The use of word 'may' in the 
beginning of Article 304 indicates that the power is enabling and States 
are entitled to exercise either or both the powers as may be required in 
the facts of the case. 
239. Further, there is no compulsion on the
State to exercise powers 
given in clauses (a) and (b) both. The State may choose to exercise only 
power given in clause (a) or power given in clause (b ). We, thus, are not 
persuaded to accept the contention that whenever State makes a law 
under clause (a) it has necessarily to comply clause (b) also. ShriArvind 
P. Datar, learned senior couusel, has submitted that use of word 'and' 
between clauses (a) and (b) of Article 304 is joint and several and has to 
be read as and/or. In support of his submission he has placed reliance 
on the ~tatutory Interpretation, Second Edition by RUTH SULLIVAN. 
Learned Author has expressed following views on 'And' or 'Or': 
"2) "And" and "Or" 
a) Joint or Joint and Several "and" 
Both "and" and "or" are inherentzv amhiguous. "And" 
is always conjunctive in the sense that it always signals 
the cumulation of the possihilities listed hefore and qfier 
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the "and". However, "and" is ambiguous in that it may 
be joint or joint and several. Jn the case of a joint 
"and'', every listed possibility must be included: both 
(a) and (b); all of (a), (b), and (c). Jn the case of a joint 
and several "'and", all the possibilities may be, but need 
not be, included: (a) or (b) or both; (a) or (b) or (c), or 
any of two. or all three. Jn other word~, the joint and 
several ··and" is equivalent to "and/or". 
Which meaning is appropriate depends· on the context. 
When "and" is used before the final item in a list of 
powers, for example, it is joint and several: 
To carry out the purposes of this Act, the Governor 
in Council may make regulations respecting 
(a) the conditions on which licences may be issued; 
(b) the information and fees that firearm vendors 
may be required to fimiish; and 
(c) the annual fees that firearm owners may be 
charged. 
, In this provision the Governor in Council is empowered 
to make regulations on any one or more of the listed 
subjects. However, notice what happens if "may" is 
replaced by "shall". If the Governor in Council is 
obliged to make regulations respecting (a) conditions 
(b) information and (c) fees, the joint and several "and" 
becomes joint. " 
240. We find force in the submission and we are of the view that 
word 'and' between clauses (a) and (b) has to be read as joint and 
several, both meaning can be assigned as per
requirement of a State 
Legislature. One of the submissions raised by the learned counsel of the 
petitioners as noted above is that whenever State Legislature imposes a 
tax by law under clause (a), it has necessarily to go through the procedure 
provided under clause 304(b), since both the clauses are conjunctive 
and require compliance. We are not inclined to accept the extreme 
submission that in each and every case whenever law is framed under
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
783 
[ASHOK BHUSHAN, J.] 
clause (a) procedure under clause (b) has to be complied with. The 
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proviso to clause (b) 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, is confined to clause (b) 
which indicates that Constitutional Scheme does not provide that it is 
necessary to comply for framing law under clause (a) the requirement 
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of clause (b) also. We, however, hasten tn add that there may be cases 
where a law which may confonn the requirement under sub-clause (a) 
but still contains restrictions on the freedom of trade, commerce and 
intercourse, in that event, compliance of clause (b) may also be 
necessary, but a law framed in accordance with clause (a) imposing a 
tax which does not contain any restriction on the freedom of trade, 
commerce and intercourse as envisaged in clause (b) need not go through 
the procedure as contemplated by clause (b ). We thus come to the· 
conclusion that with regard to law made by State Legislature exercising 
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the power under clause (a) of Article 304 which does not impose any 
restriction on the freedom of trade, commerce and intercourse need not 
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comply with Article 304(b). However, a law even though may comply 
with Article 304(a) but contains restrictions on the freedom of trade, 
commerce and intercourse has to obtain sanction of the President as 
contemplated
by proviso to clause (b ). The requirement of obtaining 
previous sanction of the President has to be decided in accordance with 
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the nature and content of the State Legislation. 
241. One of the submissions which has been emphatically pressed 
by Shri P.P. Rao and Shri Rakesh Dwivedi, learned senior counsel 
appearing for the States is that requirement of obtaining previous sanction 
of the President by the State Legislature erodes the sovereignty of the 
State Legislature of making law in the field allocated to them included in 
the VU'h Schedule read with Article 246. It is contended that a State's 
taxing power is a sovereign power granted to the State and insisting for 
previous sanction of the President for framing a taxing legislation by the 
State erodes their sovereignty and is also against the federal structure of 
the Constitution. We in the foregoing paragraphs have elaborately 
considered the nature of federal structure of the Constitution of India, 
which is not a federal Constitution, as it is traditionally understood. This 
Court tenned the Constitution oflndia as quasi-federal, mixture offederal 
·ai:id unitary elements, leaning more towards the latter, as noted above. 
The division of powers between Union and the Stat~ Legislatures is 
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clearly defined and demarcated in the Constitutional Scheme. The 
Constitutional Scheme delineates the scheme of check and balances 
between the Union and States. Apatt from Article 304(b) following are 
the ether Constitutional provisions where Presidential sanction has been 
contemplated: 
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(1) 31-A. Saving of laws providing for acquisition of 
estates, etc.-
(1) Notwithstanding anything contained in Article 
13, no law providing for-
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Provided that where such law is a law made hy 
the Legislature of a State, the provisions of this article 
shall not apply thereto unless such law, having been 
rese1Ted for the consideration of the President, has 
received his assent. 
(2) 31-C. Saving of laws giving effect to certain directive 
principles.-
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Provided that where such law is made by the 
Legislature of a State, the provisions of this Article 
shall not apply thereto unless such law, having been 
reserved for the consideration of the President, has 
received his assent. 
(3) 213. Power of Governor to promulgate Ordinances 
during recess of Legislature.-
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Provided that the Governor shall not, without 
instructions from the President, promulgate any such 
Ordinance if -
(a) a Bill containing the same provisions would 
under this Constitution have required the previous 
sanction of the President for the introduction thereof
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
785 
[ASHOK BHUSHAN, J.] 
inio the Legislature; or 
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(b) he would have deemed it necessary to reserve 
a Bill containing the same provisions for the 
consideration of the President; or 
(c) an Act qf the Legislature of the State containing 
the same provisions would under this Constitution 
have been invalid unless, having been reserved for 
the consideration of the President, it had received 
the assent of the Presidellf; or 
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(4) 254. Inconsistency between laws made by Parliament 
and laws made by tlte Legislature of States.-
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(2) Where a law made by the Legislature of a State 
with respect to one of the matters enumerated in the 
Concurrent List contains any provision repugnant 
to the provisions of an earlier law made by 
Parliament or an existing law with respect to that 
matter, then the law so made by the Legislature of 
such State shall, !fit has been reserved for the 
consideration of the President and has received his 
assent, prevail in that State: 
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(5) 274. Prior recommendation of President required 
to Bills affecting taxation ill wlticlt States are 
interested.-
(1) No Bill or amendment which imposes or varies 
u11y tax or duty in which States are interested, or 
which varies the meaning of the expression 
"agricultural income" as defined for the purposes 
of the enactments relating to Indian income-tax, or 
which affects the principles on which under any qf
the foregoing provisions qf this Chapter moneys are 
or may distributable to States, or which imposes any 
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[2016] 10 S.C.R. 
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such surcharge for the purposes of the Union as is 
mentioned in the foregoing provisions of this 
Chapter, shall be introduced or moved in either 
House of Parliament except on the recommendation 
of the President. 
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(6)288. Exemption from taxation by States in respect 
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of water or electricity in certain cases.-
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(3) The Legislature of a State may by law impose, or 
authorize the imposition of. any such tax as is 
mentioned in clause (J), but no such law shall have 
any effect unless it has, cifier having been reserved 
for the consideration of the President, received his 
assent; and if any such law provides for the fixation 
of the rates and other incidents of law by any 
authority, the law shall provide for the previous 
consent of the President being obtained to the 
making of any such rule or order. 
242. The above provisions are part of our Constitutional Scheme 
and could not be wished away by saying that such provisions impinge 
upon the sovereign power of the State. Power of a State Legislature to 
the above extent is expressly limited by Constitutional Scheme. Article 
304(b) proviso is one of such Constitutional Schemes where the State 
power is restricted and limited to the above extent. The Constituent 
Assembly Debates, as noticed above, clearly bring about the rationale 
of introduction of the requirement of Presidential assent in respect of 
certain laws by which
State Legislature'!Jut restriction on the freedom 
of trade, commerce and intercourse. We have noted above that in the 
Constituent Assembly there was serious objection raised against clause 
(b) of Article 304 and amendment was moved for deletion of clause (b) 
from the Constitution. The above amendment after great discussion was 
negatived by approving the limited restraint put on the State Legislature 
as engrafted in Article 304(b) proviso. 
243. A Constitution Bench of this Court in Kaiser-I-Hind Pvt. 
Ltd. and another vs. National Textile Corpn. (Maharashtra North)
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
787 
[ASHOK BHVSHAN, J.] 
Ltd. and others, (2002) 8 SCC 182, has held that the power exercised 
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by the President under Article 304(b) is in consonance with the federal 
strncture of the Constitution. Doraiswamy Raju, J. agreeing with majority 
judgment stated following in paragraph 77: 
" .... The powers actually exercised by the President, at 
any rate under Articles 31-A, 31-C, 254(2) and 304(h) 
are a special constituent power vested with the Head of 
the Union, as the protector and defender of the. 
Constitution and safety valve to safeguard the 
fundamental rights of citizens and federal structure of 
the country:~ polity as adopted in the Constitution ..... " 
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244. The Sarkaria Commission was constituted to have re-look 
over the Centre-State relations under the Constitution oflndia. Sarkaria 
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Commission dealt with "Legislative Relations" in Chapter II. The 
objections of State Governments were noted in para 2.40.01 to the 
following effect: 
"2.40.01 Some State Governments and a political party 
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have asked for omission of Article 304, and, in the 
alternative, for deletion of the Proviso to Article 304(b). 
The arguments advanced are: 
"Whether the restrictions imposed by an Act of a State 
Legislature 011 the fi"eedom of trade and commerce are 
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reasonable and whether they are in the public interest 
for purposes of Article 304(b) are questions to he 
decided ultimately by the High Court or Supreme Court.
If the High Court finds that the restrictions are 
unreasonable or opposed to the public interest, previous 
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sanction of the President or his subsequent assent 
cannot cure the infirmity. If the legislation is otherwise 
valid and the restrictions are reasonable and in the 
public interest, his previous sanction will he a superfluity. 
Jn any case the requirement relating to the previous 
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sanction of the President direct~v encroaches on the .field 
assigned to the State Legislature ... ". 
245. The objects of Article 304(b) and its contents were noted in 
para 2.40.06 to the following effect: 
"2.40. 06 The broad object of the provisions of Articles 
301 and 304 is to ensure that the commercial unity of 
India is not broken up by physical and.fiscal barriers 
erected by the State Legislatures through parochial or 
discriminatory exercise of their powers. The proviso to 
Article 304(h) enahles the President to ensure, at the 
initial stage, that the State Legislation does not, by 
imposing unreasonable restrictions on trade, commerce 
or intercourse, endanger the commercial unity of the 
nation. It is true that clause (b) is not co11;fined to inter-
State trading activities, it extends to trade within the 
State, also. But intra-State trading activities often have 
a close and substantial relation to inter-State trade and 
commerce. State laws, though purporting to regulate 
trade within a State, may have inter-State implications. 
They may impose discriminatory taxes or unreasonable 
restrictions which impede the freedom of inter-State 
trade and commerce. That is why, both inter-State and 
intra-State trade have been made the subject of 
limitations on State legislative power under Article 
304(b) ... 
246. The Sarkaria Commission in para 2.40.07 has also recorded 
: "However, no instance
of a Bill reserved under the Proviso to clause 
(b) of Article 304, which might have been vetoed by the President, has 
been cited." In para 2.40.08 it was concluded: 
"2.40. 08. For these reasons, we cannot support the 
demand for amendment of Article 304, or omission of 
the Proviso to its clause (b) . ..
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
789 
[ASHOK BHUSHAN, J.] 
247. The Sarkaria Commission after hearing the States' point of A 
view had specifically adverted to on Constitutional provisions contained 
in Part XIII of the Constitution. After elaborate consideration on the 
subject in Part XIII "trade, commerce and intercourse within the Te!Titory 
oflndia" in paragraph 18.3.14 and 18.3.15 following was stated: 
"18.3.14. We have observed in the Chapter on 
"Legislative Relations" that intra-State trading activities 
often have a close and substantial relation to inter-State 
trade and commerce. State laws though purporting to 
regulate intra-State trade, may have implications for 
inter-State trade and commerce. These may impose 
discriminatory taxes or unreasonable restrictions, 
impeding the.freedom of intra-State trade and commerce. 
If clause (h) of Article 304 is deleted, the commercial 
and economic unity of the country may he broken up 
hy State laws setting up harriers to free fl.ow of trade 
an inter-course through parochial or discriminatory use 
of their powers. The suggestion of the State Government 
i.~ not workable even from a fimctional standpoint. 
18.3.15. From a broad conceptual angle, the suggestion 
for excluding intra-State trade and commerce from the 
purview of Article 302 and.for deletion of the Proviso 
to Article 304(/J) does not stand close scrutiny. It is not 
in consonance with the prevailing concept o.ffedera!ism. 
It presumably draws,
inspiration from the antiquated 
and obsolete theory of federalism, according to which 
two levels of government were supposed to fimction in 
water-tight compartments in isolation from each other. 
Such a "dual" federalism is nowhere a.functional reality 
in the modern world. Even in the so-called classical 
federation of the United States of America federalism is 
now a dynamic process of government, a system of shared 
responsibilities and cooperative action between the 
three tiers of government. The Constitution~framers were 
conscious of this reality. Indeed, the very scheme of 
Articles 301 to 304 which imposes limitations on the 
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legislative powers of the Union and of the States, both 
with respect of inter-State and intra-State commerce and 
intercourse, is expected to he worked in cooperation 
by the Union and the States. The mere fact that Article 
303(2) gives an exclusive power to Parliament to m ake 
a discriminatory law for dealing with a situation of 
scarcity of goods, or that the Proviso to Article 304(b) 
gives a supervisory power to the President (i.e. Union 
Council of Ministers) over a State legislation seeking 
to impose restrictions on inter-State or intra-State trade, 
is not a good enough argument to hold that these are 
anti:federal features making unjustifiahle encroachment 
- on the autonomy of the States. No doubt, these features 
give due weightage to the Union. But the scheme of the 
Articles in Part XIII considered as a whole, is well-
halanced. ft reconciles the imperative of economic unity 
of the Nation with interests of State autonomy by carving 
out in clauses (a) and (h) of Article 304, two exceptions 
in favour of State legislature to the freedom guaranteed 
under Article 301." 
248. Now one more limb of submissions with regard to Article 
304(b) needs to be considered. The submission on behalfof the States 
is that Article 304 sub-clause (b) does not contemplate taxing legislation. 
It is contended that Article 304(a) has specifically used word 'tax' and 
absence of word 'tax' in Article 304(b) clearly
indicates that the 
Constitution framers have intended to cover restrictions other than tax. 
Learned counsel for the petitioners have refuted the submission and 
their contention is that word 'restrictions' used in Article 304(b) is vide 
enough to include tax legislation. Gajendragadkar, J. speaking for majority 
in Atiabari Tea Co.Ltd. (supra) has expressly held at page 856 "how 
G 
tax can be levied on internal goods, is, however, provided by Article 
304(b )". Shri P.P. Rao, learned senior counsel appearing for the States, 
in the context of the above observation submits that the above 
observations made in majority judgment are only obiter. neither the issue 
was before the Court nor it can be said that after due consideration the 
law was laid down. In GK. Krishnan & ors. v.~. State of Tamil Nadu 
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JINDAL STAINLESS LTD. v. STATE OF HARYANA 
791 
[ASHOK BHUSHAN, J.] 
(.mpra) a doubt was expressed by Justice Mathew that as to whether A 
Article 304(b) would include levy by a non-discriminatory tax was a 
matter on which there was scope for difference of opinion. Justice 
Mathew did not express his opinion that tax legislation is not included in 
Article 304(b ). 
249. Article 304(a) as noted above is only with regard to the 
imposition of tax on goods imported from other States. Article 304(a) 
does not refer to taxes imposed on the local goods. In the event, the 
State Legislature imposes restrictions on the freedom of trade and 
commerce by taxing legislation covering local goods, whether the validity 
of it cannot be tested on anvil of Article 30 l. Further, State in public 
interest requires imposition of reasonable restriction by imposing tax on 
the local goods, what procedure it has to follow so as to not impede 
Article 30 I. There cannot be any dispute that power to legislate including 
tax legislation is the power allocated to State Legislature under the 
Constitutional Scheme under A1ticle 245 and 246. Article 304 is not a 
source of power of legislation by State rather as the heading of the 
section indicates that it is a "Restriction on trade, commerce and 
intercourse among States." As we have noted above, Article 304(a) 
only deals with goods imported from other States hence for imposing 
reasonable restrictions in the public interest on trade, commerce
and 
intercourse with regard to local goods, only way out for a State to save 
its legislation is to go through the route as provided under Article 304(b ). 
We cannot imagine that merely because State Legislature has 
competence to frame tax law with regard to local goods, it can impose 
taxes which amount to impeding the freedom of trade and commerce, 
whereas the Constitution does not provide any exemption to State 
Legislature in that regard. 
250. There are few more reasons due to which we are of the 
<;>pinion that word 'restriction' uses in Article 304(b) also includes taxation 
iaw. 
. 251. A State Legislature in exercise of its legislative power 
referable to any of the Entries of List II can frame law both fiscal or 
non-fiscal. When Article 304 uses words "by law" and the law is a 
wider tenn which embraces both fiscal and non-fiscal legislation with 
regard to clause (b ), it cannot be limited as only non-fiscal law. If we 
have to hold that Article 304(b) does not refer to tax law, we have to 
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give different meaning to words "by law" used in the beginning of Article 
304 which governs both clauses (a) and (b). The mere fact that clause 
(a) uses the words 'any tax' and clause (b) does not use the word 'tax' 
is not of much significance since the word restrictions used in clause (b) 
is wide enough to cover any kind of restriction by fiscal law. Neither 
Article 302 nor Article 303 uses the word 'tax'. Both Articles are dealing 
with freedom of trade and commerce, non-use of word 'tax' in Article 
304(b) is also inconsequential. We thus are of the opinion that the word 
'restrictions' under Article 304(b) is vi de enough to include restrictions 
placed both by fiscal or non-fiscal law. 
252. At this stage, we will like to clarify one aspect of the matter, 
the submission has been advanced by learned counsel for the State that 
in the event, it is accepted that word 'restriction' in Article 304(b) includes 
taxation, it will be a serious restraint on the legislative power of the 
State, which is plenary and sovereign power. It is to be clarified that 
Article 304(b) does not cover each and every legislative exercise of a 
State. The legislation which contains restriction on freedom of trade, 
commerce and intercourse only need to be routed through Article 304(b ). 
In the event, a State legislation does not contain any restriction to freedom 
of trade, commerce and intercourse, there is no
necessity of routing 
through Article 304(b) in which, case Article 304(b) is not at all required 
to be resorted to. The State legislation, when it impedes the freedom of 
trade, commerce and intercourse and imposes reasonable restrictions 
by fiscal or non-fiscal legislation it needs to go through the routes of 
Article 304(b) to insulate it from the wrath of Article 30 I. 
~ ·· 
253. Article 304(b) thus operates in a very limited field, as 
explained above and plenary legislative power of the State, in no manner, 
is restricted by Article 304(b). We are thus of the view that apprehension 
of the learned counsel for the State that Article 304(b) operates serious 
restraint on the legislative power is misplaced. We thus conclude that 
word 'restriction' as used in Part Xlll as well as in Article 304(b) at the 
Constitution includes tax legislation also. 
254. With reference to Article 304(a), one of the aspects on which 
learned counsel for the parties have taken different stand is as to whether 
exemptions granted in tax by a State Legislature to the local goods does 
or does not violate Article 304(a). Shri Salve while elaborating his 
challenge to Entry Tax legislation of different States has referred to the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
793 
[ASHOK BHUSHAN, J.] 
second group of enactments in which an entry tax is imposed on the 
goods coming from outside and local goods but legislation contains device 
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by which there is set off/ exemptions to the local goods which result in 
non-imposition of Entry Tax to the local goods leading to discrimination 
violating A1ticle 304(a). On the other hand, counsel appearing for the 
States submit that a State is not, in any manner, precluded from granting 
exemption to specified class of goods to give a helping hand for 
development of a 'particular industry specially in a State which is not so 
developed and State patronage for development is necessary. It is 
contended that all States are not equal in its economic and industrial 
development and backward State needs a special treatment by way of 
exemption in tax in deserving cases for coming up at level playing field 
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with other States. It is contended that State's protection by way of 
exemption/set off in such cases cannot be tenned as discrimination. It is 
contended that discrimination is one when it is a hostile discrimination. 
255. Learned counsel for the parties have placed reliance on 
various pronouncements of this Comt in support of their respective 
submissions which we shall notice hereinafter. 
256. A Constitution Bench of this Court in Firm A.T.B. Mehtab 
Majid and Co. vs. State of Madras and another, (1963) Suppl (2) 
SCR 435, had occasion to consider
Article 301 and Article 304 in the 
context of Madras General Sales Tax Act, 1939 and Madras General 
Sales Tax Rules, 1939. The writ petition was filed under Article 32 by a 
dealer who was dealing in hides and skins tanned outside the State of 
Madras, as well as those tanned inside the State. The dealer was assessed 
to sales tax for the year 1955-56 representing the sales of tanned hides 
and skins which were obtained from the outside of the State of Madras. 
Rule 16 was challenged by the petitioner raising following contention: 
"6. It is contended.for the petitioner that the effect of 
this Rule is that tanned hides or skins imported from 
outside the State and sold within the State are subject 
to a higher rate of tax than the tax imposed on hides or 
skins tanned and sold within the state, inasmuch as sales 
tax on the imported hides or skins tanned outside the 
State is on their sale price while the tax on hides or 
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skins tanned within the State, though ostensibly on their 
sale price, is, in view of the proviso to clause (ii) of 
sub-rule (2) of Rule 16, real~y on the sale price of these 
hides or skins when they are purchased in the raw 
condition and which is substantially less than the sale 
price of tanned hides or skins, Further, for similar 
reasons, hides or skins imported.from outside the State 
after purchase in their raw condition and then tanned 
inside the State are also subject to higher taxation than 
hides or skins purchased in the raw condition in the 
State and tanned within the State, as the tax on the 
former is on the sale price of the tanned hides or skins 
and on the latter is on the sale price of the raw hides or 
skins. Such a discriminatory taxation is said to offend 
the provisions of Article 304(a) of the Constitution. 
Similar are the contentions for the interveners in the 
case. 
257. This Court after considering the respective submissions held 
that tax on hides and skins imported from outside being higher, it is 
discriminatory and unconstitutional. Following was held: 
"10. It is therefore now well settled that taxing laws 
can he restrictions on trade, commerce and intercourse, 
!f they hamper the .fl.ow of trade and !f they are not 
what can be termed to be compensatory taxes or 
regulatory measures. Sales tax, of the kind under 
consideration here, cannot he said to be a measure
regulating any trade or a compensatory tax levied for 
the use of trading facilities. Sales tax, which has the 
e.ffect ql discriminating he tween good~ qf one State and 
good1· of another, may affect the free .fl.ow of trade and 
it will then qffend against Article 301 and will he valid 
on~v if it comes within the terms qf Article 304(a). 
11. Article 304(a) enables the legislature qf a State to 
make laws a,jfecting trade, commerce and intercourse.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
It enables the imposition of taxes on goods from other 
States if similar good~ in the State are subjected to similar 
taxes, so as not to discriminate between the goods 
mant{factured or produced in that State and the goods 
which are imported.from other States. This means that if 
the effect of the sales tax on tanned hides or skins 
imported.from outside is that the latter becomes subject 
to a higher tax by the application of the proviso to sub-
ru le of Rule 16 of the Rules, then the tax is 
discriminatory and unconstitutional and must be struck 
down. " 
258. Petitioners rely on Weston Electronics and another vs. State 
of Gujarat and others, (1988) 2 SCC 568. Under Section 49 sub-
Section (2) of Gujarat Sales Act, 1969 the State was empowered to 
exempt, in the public interest, any specified class of sales from sales tax. 
ln 1981, while the rate for electronic goods entering the Gujarat State 
for sale therein was maintained at 15%, the rate in respect of locally 
manufactured goods was reduced to 6% by notification. By further 
notification in the year 1986, the rate of tax on imported television was 
reduced from 15% to 10% whereas rate of tax on manufactured 
television within the State was reduced from 6% to 1 %.The petitioners, 
manufacturers of electronic goods including televisions whose factories 
are located at Delhi, and goods are sold in all over India including Gujarat, 
challenged the
exemption granted to the goods manufactured in the State 
of Gujarat as violative of Article 301and304. 
259. The State submitted before this Court that the rate of tax 
was reduced in the case of goods manufactured locally in order to provide 
an incentive for encouraging local manufacturing units. This Court 
referring to earlier judgments of this Court held that discrimination by 
applying different rates of tax is not sustainable, following was stated: 
"6. In answer to the writ petition. the respondents point 
out that the rate of tax was reduced in the case of goods 
manufactured localzv in order to provide an incentive 
for encouraging local manufacturing units. Reference 
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is made to clauses (b) and (c) of Article 39 of the 
Constitution. We do not think that any support can be 
derivedfrom the two clauses of Article 39. Clause (a) 
of Article 304 is clear in meaning. An exception to the 
mandate declared in Article 301 and the prohibition 
contained in clause (1) of Article 303 can be sustained 
on the basis of clause (a) of Article 304 only if the 
conditions contained in the latter provision are satisfied. 
7. In the result, the discrimination effected by app~ying 
different rates of tax between good~ imported into the 
State of Gujarat and goods manufactured within that 
State must be struck down. " 
260. Another two Judge Bench judgment in Indian Cement and 
others vs. State of Andhra Pradesh and others, (I988) I SCC 743, 
had a occasion to consider notification issued under Section 9( 1) of Andhra 
Pradesh General Sales Tax Act, 1957 whereby rate of tax in respect of 
sales made by indigenous cement manufacturers to manufacturers of 
cement products in the State ofAndhraPradesh was reduced. Notification 
tmderSection 8(5) of Central Sales Tax Act, 1956 was also issued reducing 
rate of tax on the sale of cement made in the course of inter-State trade 
or commerce. Two Judge Bench of this Court referring to Atiabari Tea 
Co. Ltd. and Automobile Transport Ltd. Stated following in paragraph 
12: 
"12. There can be no dispute that taxation is a deterrent 
against free
flow. As a result of favourable or 
unfavourahle treatment by way of taxation, the course 
of.flow of trade gets regulated either adversely or 
favourably. If the scheme which Part XIII guarantees 
has to be preserved in national interest. it is necessary 
that the provisions in the article must be strictly complied 
with. One has to recall the farsighted observations of 
Gajendragadkar, J. in Atiabari Tea Co. case [AIR 1961 
SC 232 : (1961) I SCR 809] and the observations then 
made obviously apply to cases of the type which is now 
before us. "
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
797 
[ASHOK BHUSHAN, J.] 
251. This Court held both the notifications issued by Andhra 
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Pradesh Government unsustainable in law. Following was stated in 
paragrph 14: 
"14 ..... Variation of the rate of interstate sales tax does 
affect free trade and commerce and creates a local 
r·e.ference which is contrary to the scheme of Part XIII 
of the Constitution. The notification extends the bene.fit 
even to unregistered dealers and the observations of 
Hegde, J. on this aspect of the matter are relevant. Both 
the notifications of the Andhra Pradesh Government 
are, therefore, bad and are hit by the provisions of Part 
Xlll of the Constitution. They cannot he sustained in 
law." 
262. Now, we come to a three Judge Bench judgment on which 
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much reliance has been placed by the counsel for the State, i.e. Video 
Electronics Pvt. Ltd. And another vs. State of Pubjab and another, 
(1990) 3 SCC 87. In the above case this Court had occasion to consider 
notifications issued by Uttar Pradesh Government under Section 4-A of 
Uttar Pradesh Sales Act, 1948. Constitutional validity of Section 4-A of E 
the Act and Section 8(5) of Central Sales Tax, 1956 was also challenged. 
The petitioner carry on the business of selling cinematographic films and 
other equipments like projectors, sound films, photo films etc. 
manufactured outside the State of Uttar Pradesh. New units of 
manufacturer as defined in 1948 Act in the State of U .P. were
exempted 
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for different periods ranging from 3 to 7 years on conditions set out in 
the notification. Petitioner challenged the notification as violative of rights 
guaranteed under Part Xlll as well as Article 14 and 19(1 )(g) of the 
Constitution. 
263. This Court held that the power to grant exemption is always 
G 
inherent in all taxing statutes. The reasons for notification as submitted 
on behalf of the State i.e. economic encouragement and growth found 
favour and it was held that exemption do not violate Article 304. This 
Court laid down following in paragraph 26 at page 108: 
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"26 . .......... Economic unity of India is one of the 
constitutional aspirations of India and safeguarding the 
attainment and maintenance of that unity. are objectives 
of the Indian Constitution. It would he wrong, howeve1; 
to assume that India as a whole is already an economic 
unit. Economic uni~v can only be achieved if all parts 
of whole of Union of India develop equally, 
economicalZv. Indeed, in the affidavits of opposition 
various ground~ have heen indicated on heha(f of the 
respondents suggesting the need for incentives and 
exemptions, and these were suggested to he absolutely 
necessary for economic viability and survival for these 
industries in these States. These were hayed on cogent 
and intelligihle reasons of economic encouragement and 
growth. There was a rationale in these which is 
discernible. The power to grant exemption is always 
inherent in all taxing statutes. If the suggestions/ 
submissions as advanced hy the petitioners are 
accepted, it was averred, and in our opinion rightly, 
that it will destroy completeZv or make nugatory the 
plenary powers of the States. If the exemption is hased 
on natural and business factors and does not involve 
any intentional hias, the impugned notifications to grant 
exemption of limited period on certain specific 
conditions cannot he. held to be had. Judged hy that 
yardYtick, the present notifications cannot he held to 
be violative of
the constitutional provisions. An 
examination of Article 304(a) would reveal that what is 
being prohibited hy this article which is really an 
exception to Article 301 will not apply if Article 301 
does not apply. " 
264. This Court further held that grant of exemption to specified 
class for limited period, such granting of exemption cannot be held to be 
contrary to the concept of economic unit. Following was stated:
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
"28. Concept of economic barrier must be adopted in 
a dynamic sense with changing conditions. What 
constitutes an economic barrier at one point of time 
often ceases to he so at another point of time. It will he 
wrong to denude the people of the State of the right to 
grant exemptions which flow from the plenary powers 
of legislative head~ in List II of the Seventh Schedule 
of the Constitution. In a federal polity, all the States 
having powers to grant exemption to specified class for 
limited period, such granting of exemption cannot he 
held to be contrary to the concept of economic uni~y. 
The contents (sic concept) of economic unity by the 
people of India would necessarily include the power to 
grant exemption or to reduce the rate of tax in special 
cases for achieving the industrial development or to 
provide tax incentives to attain economic equali(y in 
growth and development. When all the States have such 
provisions to exempt or reduce rates the question of 
economic war between the States inter se or economic 
disintegration of-the country as such does not arise. It . 
is not open to any parry to say that this should he done 
and this should not he done by either one way or the 
other. It cannot be disputed that it is open to the States 
to realise tax and thereafter remit the same or pay hack 
to the local manufacturers in the shape of subsidies and 
that would neither discriminate nor be hit
by Article 
304(a) of the Constitution. In this case and as in all 
constitutional adjudications the substance of the matter 
has to be looked into to .find out whether there is any 
discrimination in violation of the constitutional 
mandate.'' 
265. This Court also referred to Article 38 and 39. Earlier two 
judgments in Indian Cement Ltd. (supra) and Weston Electronics 
(.mpra) were noticed by this Court and it was held that these cases 
were not at all concerned to a special class, had a specific condition of 
maintaining the general rate of tax, hence they were not applicable. This 
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Court further held that if the power of exemption is in exercise of 
colourable manner to create unfavourable bias by prescribing general 
lower rate on locally manufactured goods either in the shape of general 
exemption to locally manufactured goods or in the shape of lower rate 
of tax, such an exercise of power can always be struck down by the 
Courts. 
266. The Court also considered the notification issued by the Punjab 
Government whereby two different rates of tax were provided 
differentiating between the manufacturers of electronic goods outside 
the State and within the State. In paragraph 36 following was stated: 
"36. It has to be reiterated that sales tax laws in all 
the States provide for exemption. It is well settled that 
the different entries in Lists I, II and III of the Seventh 
Schedule deal with the field~ of legislation, and these 
should he construed widely, liberally and harmoniously. 
And these entries have been construed to include 
ancillary or incidental power. Power to grant exemption 
is inherent in all taxing legislations. Economic unity is 
a desired goal, economic equilibrium and prosperity is 
also the goal. Development on parity is one of the 
commitments of the Constitution. Directive principles 
enshrined in Articles 38 and 39 must be harmonised 
with economic unity as well as economic development 
of developed and under developed areas. In that light 
on Article 14 of
the Constitution, it is necessary that 
the prohibitions in Article 301 and the scope of Article 
304(a) and (h) should he understood and construed. 
Constitution is a living organism and the latent meaning 
of the expressions used can he given effect to only if a 
particular situation arises. It is not that with changing 
times the meaning changes but changing times illustrate 
and illuminate the meaning of the expressions used. The 
connotation of the expressions used takes its shape and 
colour in evolving dynamic situations. A backward State 
or a disturbed State cannot with parity engage in 
competition with advanced or developed States. Even
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
within a State, there are often backward areas which 
can he developed onzy if some special incentives are 
granted. If the incentives in the form of subsidies or 
grant are given to any part of ~~ic or) units of a State 
so that it may come out of its limping or infancy to 
compete as equals with others, that, in our opinion, does 
not and cannot contravene the spirit and the letter of 
Part XIII of the Constitution. However, this is permissible 
only !f there is a valid reason, that is to say, !f there are 
justifiable and rational reasons for differentiation. /.f 
there is none, it will amount to hostile discrimination. 
Judged in this light, despite the submissions of Mr 
Sanjay Parikh and Mr Vaidyanathan, we are unable to 
accept the contentions that the petitioners sought to urge 
in this application 
The three Judge Bench, thus, upheld the exemption in both the 
notifications as noted above. 
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267. In the judgment of Video Electro11ics the opinion was 
expressed by Sabyasachi Mukherji, CJ. Soon after the judgment of Video 
Electronics (supra) a three Judge Bench of this Comt also consisting 
E 
of Sabyasachi Mukherji, CJ in Andhra Steel Corporation vs. 
Commissioner of Commercial Taxes in Karnataka, 1990 (Suppl.) 
sec 617, had occasion to consider exemption granted under Kamataka 
Sales Tax Act. ln the above case the assessee purchases iron scrap 
from inside and outside the State of
Karnataka for the purpose of 
manufacturing iron ingots, iron steel rounds and tor-steel. The main point 
F 
urged before this Court challenging the exemption as violative Article 
304(a) was noted in paragraph 4 to the following effect: 
"4. The main point was urged in this appeal was that 
Section 5(4) of the Act insofar as it pertains to Item 2 in 
Schedule IV read with the Explanation II is violative of 
Article 304(a) of the Constitution as under that provision 
the sale of.finished goods manufactured out of imported 
raw material is taxed but the sale of finished goods 
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manufactured out of locally purchased raw material is 
not taxed and that amounts to hostile discrimination in 
the rate of tax or quantum of tax." 
This Court took the view that the case in hand was fully covered 
by the decision of A. T.B. Mehtab Majid (supra). Following was stated 
in paragraph 22 and 23: 
"22 . ............ The tax was levied under the State Act in 
respect of steel semis. The State Act exempted steel semis 
which have been manufactured out of iron scrap which 
have Sl!ffered tax but not the other categories where 
the scrap had not suffered tax at that stage. This is 
directly covered by the decision in A. TB. Mehtab 
case [1963 Supp 2 SCR 435: AIR 1963 SC 928: (1963) 
14 STC 355} and that decision has not been dissented 
in Nataraja Mudaliar case[(l968) 3 SCR 829 : AIR 
1969 SC 147: (1968) 22 STC 376} or Rattan Lal & 
Co. case [(1969) 2 SCR 544: AIR 1970 SC 1742: (1970) 
25 STC 136}. The decision in A. T.B. Mehtab case [1963 
Supp 2 SCR 435 : AIR 1963 SC 928 : (1963) 14 STC 
355} is by a Constitution Bench and had not been 
dissented so far in any case. The ratio of the judgment 
being fully applicable, the judgment of the High Court 
under appeal is not acceptable. 
23. We accordingly hold that the provision which is 
impugned in this case is ultra vires and according~y set 
aside the judgment of the High Court and allow the 
writ petition filed by the assessee in the High Court.
There will be no order as to costs. 
268. Now we come to two Judge Bench judgment of this Court in 
Shree Mahavir Oil Mills and another vs. State of J & Kand others, 
(1996) 11 SCC 39. In the above case notification under Section 5 of 
the J & K General Sales Tax Act, 1962 dated 7.3.1991 was issued
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
exempting small scale industrial units in the State for a period of five 
years. The rate of sales tax was 4% which was raised to 8%. The 
manufacturers brining edible oil from outside the State found tax 
discriminatory in so far as exemption was granted to all small scale 
industrial units in the State. The writ petitions and letters patent appeals 
filed before the High Court were dismissed and the matter was carried 
to this Court. 
269. After noticing the scheme under Part Xlll and specifically 
Article 304, this Court while interpreting Article 304(a) stated following: 
"8 ...... The wording of this clause is of crucial 
significance. The .first half of the clause would make it 
appear at the.first blush that it merezv states the obvious: 
one may indeed say that the power to levy tax on goods 
imported.from other States or Union Territories flows 
from Article 246 read with Lists II and Ill in the Seventh 
Schedule and not from this clause. That is of course so, 
but then there is a meaning and a very sign(ficanl 
principle under~ving the clause, if one reads it in its 
entirezv The idea was not real~v to empower the State 
Legislatures to levy tax 011 goods imported fi'om other 
States and Union Territories -
that they are already 
empowered by other provisions in the Constitution -
but to declare that that power shall not be so exercised 
as to discriminate against the imported goods vis-a-vis 
locally
manufactured goods. The clause, though worded 
in positive language has a negative aspect. It is, in truth, 
a provision prohibiting discrimination against the 
imported goodv. In the matter of levy of tax -
and this 
is important to bear in mind -
the clause tells the State 
Legislatures -
"tax you may the goods imported.from 
other States/Union Territories but do not, in that process, 
discriminate against them vis-a-vis goods manufactured 
localzv ". In short, the clause says: levy of tax on both 
ought to he at the same rate. This was and is a ringing 
declaration against the States creating what may he 
called "tax harriers" -
or "fiscal harriers"', as they 
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may he called -
at or along their boundaries in the 
interest o.ffreedom of trade, commerce and intercourse 
throughout the territory of India, guaranteed by Article 
301. As we shall present~v point out, this clause does 
not prevent in any manner the States from encouraging 
or promoting the local industries in such manner as they 
think fit so long as they do not use the weapon of 
taxation to discriminate against the imported goods vis-
a-vis the locally manufactured goods. To repeat, the 
clause bars the States from creating tax harriers -
or 
fiscal harriers, as they can he called -
around 
themselves and/or insulate themselves from the 
remaining territories of India by erecting such "tariff 
walls". Part Xlll is premised upon the .assumption that 
so long as a State taxes its residents and the residents 
of other States uniformly, there is no infringement of 
the freedom guaranteed by Article 301; no State would 
tax its people at a higher level mere~v with a view to tax 
the people of other States at that level. And it is this 
clause which has a crucial hearing on this case ..... " 
270. Two Judge Bench noticed earlier cases as well as three 
Judge Bench judgment in Video Electronics (supra). In paragraph 23 
this Court came to the conclusion that the total exemption granted in 
favour of small-scale industries in Jammu & Kashmir producing edible 
oil is not sustainable in law. The Court held
that States are free to 
encourage and promote the establishment and growth of industries within 
their States by all such means as they think proper but they cannot, in 
that process, subject the goods imported from other States to a 
discriminatory rate of taxation, i.e., a higher rate of sales tax vis-a-vis 
similar goods manufactured/produced within that State. This Court 
noticed that although a limited exception has no doubt been carved out in 
Video Electronics but that exception cannot be enlarged lest it eat up 
the main provision. The Court while declaring the exemption as violative 
of Article 304(a) directed in paragraph 27 as follows:
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
"27. 
We declare that the exemption granted by 
Notification No.SRO 93 of 1991 to local manufacturers/ 
producers of edible oil is violative of the provisions 
contained in Articles 301 and 304(a). At the same time, 
we direct that: (a) the appellants shall not he entitled to 
claim any amounts by way of refund or otherwise by 
virtue of or, as a consequence of. the declaration 
contained herein and (b) that the declaration of 
invalidity of the impugned notification shall take effect 
on and from 1-4-1997. Till that date, i.e., up to and 
inclusive of 31.3.1997, the impugned notification shall 
continue to be effective and operative. Appeal allowed 
in the above terms. " 
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271. The State exercises legislative power under Article 246 read 
with List 11 which is plenary in nature, when it has power to levy tax it 
D 
is also entitled to grant of exemption/remission of tax. There cannot be 
any dispute to the power of a State Legislature in providing for exemption/ 
remission in tax to a specified class based on an intelligible differentia. A 
Constitution Bench in State of Madhaya Pradesh vs. Abdeali, AIR 
1963 SC 1237 need also to be noted. 
272. In the above case, in exercise of power under Section 4(3) 
of Madhya Bharat Sales Tax Act, 1950 exemption was granted from 
payment of Sales Tax in the following manner: 
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"2 ............ In exercise of the powers conferred by Section 
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4, sub-section
(3) of the Madhya Bharat Sales Tax 
Act, Samvat 2007 the Rajpramukh in supersession of the 
Notification 59(c)(t) P.R. 412-54, dated 27-5-1955 of this 
department has exempted from the payment of sales tax, 
in case of sale by the manufacturer or any member of his 
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family, the sale of all such shoes, chappals, country shoes 
and footwears which are hand-made and which are not 
manufactured on power machine and whose sale price does , 
not exceed Rs 12-8-0." 
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2 7 3. The respondent was carrying on business of importing and 
selling different style of footwear in the State ofMadhaya Pradesh. The 
respondent contended before the Sales Tax Officer that he was not 
liable to pay any sales tax on sale of hand-made shoes, chappals and 
other types of footwear whose sale price did not exceed Rs 12-8-0 per 
pair. The claim of the respondent was rejected that the respondent does 
not fulfill the conditions of the notification. In the writ petition filed by 
the respondent in the High Com1 one of the contentions was raised to 
the following effect: 
"3 ................ ..... The respondent further averred that if 
the exemption were held to he in favour of sales by a 
manufacturer or a member of his family and not on sales 
by an importer, then the notification would be 
discriminatory in nature and would contravene the 
provisions of Article 304(a) of the Constitution. On these 
grounds the respondent prayed that the assessment 
order dated March 25, 1958 be quashed and the Sales 
Tax Officer be directed to exempt from tax such sales 
by the respondent as were covered by the exemption 
granted by the notification dated January 28, 1956. In 
their reply to the writ petition the appellants pointed 
out that the notification dated January 28, 1956 did 
not in any way discriminate between footwear 
manufactured or produced in the State of Madhya 
Pradesh and footwear
imported from outside, because 
the conditions laid down in the notification were equally 
applicable to both types of goods and one of these 
conditions was that the sale which was to he exempted 
from tax must he by the manufacturer or a member of 
his family" 
274. The High Court allowed the writ petition. The State carried 
the matter to this Court. This Court noted that notification dated January 
28, 1956 makes no discrimination between footwear manufactured or 
produced in the State of Madhya Pradesh and footwear imported from
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
807 
[ASHOK BHUSHAN, J.] 
other States and the exemption granted by the notification depends on 
A 
the fulfillment of three conditions mentioned therein. Following was held 
by this Court in paragraph 8: 
"8. We now proceed to consider these alternative 
submissions of learned counsel for the appellants. We 
do not think that the notification dated Janumy 28, 
1956 makes any such discrimination between foonvear 
manufactured or produced in the State of Madhya 
Pradesh and footwear imported from other States as is 
prohibited by Article 304(a) of the Constitution. We have 
already pointed out that the exemption granted by the 
notification in question depend~ on the fulfillment of 
three conditions and all the three conditions are equally 
applicahle to footwear manufactured or produced in 
the State andfootlvear imported.from other States. It is 
ohvious that the exemption is for the protection and 
benefit of small manufacturers who make hand-made 
shoes of small value and who may he unahle to compete 
with large-scale manufacturers o.ffootwear made on 
machines. Such a classification in the interests of small 
manufacturers has often heen made and upheld hy this 
Court. (See Orient Weaving Mills (P) Ltd 1~ Union of 
India [Petition No. 110 of 1961 decided on February 
28, 
1962.}; and British India 
Corporation 
Ltd. v. Collector of Central Excise, Allahabad [Petition 
No. 94 of 1955 decided on August 20, 1962.]." 
275. In the
above case submission of the assessee was that in the 
event benefit of exemption is not granted to the asses see the exemption 
notification may itself be invalid creating a discrimination between similar 
manufacturer of outside the State traveling in the State and selling hand-
made shoes wherein small manufacturer has not to travel in order to get 
the benefit of the exemption. The Comi rejected the above argument 
stating that it is really an argument ofinconvenience. In any view of the 
matter, this Court in the above case held that assessee did not fulfill the 
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condition of the notification, i.e., sale was exempted only when it is by a 
manufacturer or a family member of his family. Hence, there was no 
error in assessing him to the tax. The issue whether it was pem1issible to 
grant exemption to local goods and not to grant such exemption to the 
goods coming from outside was not the issue in the above case. In the 
above case, this Court has noticed that there was no discrimination with 
regard to the exemption in regard to the goods manufactured outside the 
State or within the State. The above case, thus, does not decide the 
issue which has cropped up before us. 
276. The power of exemption flows from legislation enacted by 
tl~e State Legislature, wherever exemptions are granted, nommlly, statutes 
so provide with legislative policy. What is exemption, has been succinctly 
explained by this Court in Union of India and others vs. Wood Papers 
Ltd. And another, 1990(4) SCC 256 following was stated in paragraph 
4: 
"4 ..... Literally exemption is freedom from liability. tax 
or duty. Fiscally it may assume varying shapes, 
specially, in a growing economy. For instance tax 
holiday to new units, concessional rate of tax to goods 
or persons for limited period or with the specific 
objective etc. That is why its construction, unlike 
charging provis,ion, has to be tested on different 
touchstone. In fact an exemption provision is like an 
exception and on normal
principle of construction or 
interpretation of statutes it is construed strictly either 
because of lr!gislative intention or on economic 
justification of inequitable burden or progressive 
approach of.fiscal provisions intended to augment State 
revenue. 
277. Reverting to provision of304(a), for a legislation to be within 
four comers of 304(a), two conditions are necessary to be fulfilled (1) 
State can impose on goods imported from other States any tax to which 
similar goods manufactured or produced are subject, (2) so however, as 
· not to discriminate between goods so imported and goods so manufactured 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
809 
[ASHOK BHUSHAN, J.] 
or produced. The first condition is that goods manufactured or produced 
A 
in the State are subject to tax, when exemption is granted in payment of 
tax to a specified category on fulfillment of certain condition, it pre-
supposes that goods are subject to tax. The exemption granted on a 
specified class of goods, subject to condition, does not militate against 
the tax to which the goods are subject. Thus in cases of grant of exemption 
to a specified category on conditions mentioned therein, first condition 
as noted above is not breached. Now coming to the second condition i.e. 
so, however, as not to discriminate goods exported and goods locally 
manufactured or produced. Goods exempted fall in a different category 
then the bulk of goods produced and manufactured in the State. 
Exemptions under different statutes have been upheld due to legislative 
policy as delineated in a particular statute. In the Video Electronics, 
three Judge Bench upheld the exemption noticing the fact that the 
exemption granted was to a special class for limited period on specific 
conditions of maintaining the general rate of tax on the goods 
manufactured by all those producers in the State who do not fall within 
that category. Video Electronics, however, further states that if tax is 
imposed in a colourable manner intentionally or purposely to create 
unfavourable bias by prescribing a general lower rate on locally
manufactured goods either in the shape either of general exemption to 
locally manufactured goods or in the shape oflower rate of tax, such an 
exercise of power can always be struck down by the Courts. Following 
was observed in paragraph 30: 
"These cases were not at all concerned with granting 
of exemption to a special class for a limited period on 
specific conditions of maintaining the general rate of 
tax on the good1· manufactured by all those producers 
in the State who do not.fall within the exempted category 
at par with the rate applicable to import- ed goods as 
we have read these cases. Hence, it was not necessary 
in those decisions to consider the problem in its present 
aspect. I(. however, the said power is exercised in a 
colourahle manner intentionally or purpose~v to create 
unfavorable bias by prescribing a general lower rate 
on locallv manufactured goods either in the shape of 
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general exemption to local~v manufactured goods or in 
the shape of lower rate of tax, such an exercise of power 
can always be struck down by the courts. That is not 
the situation in the instant cases. The aforesaid decisions, 
therefore, are not authorities for the general proposition 
that while, maintaining the general rate at par, special 
rates for certain industries for a limited period could 
not be prescribed by the States. " 
278. Two Judge Bench in Shree Mahavir Oil Mills had noticed 
earlier cases including Video Electronics. It was observed that exception 
carved out in Video Electronics cannot be widened or expanded to 
cover cases of a different kind, following observation was made in Shree 
Mahavir Oil Mills in paragraph 23: 
"For the purpose of this case, it is not necessary for us 
to say anything about the correctness of Video 
Electronics. Suffice it to say that the limited exception 
carved out therein cannot be widened or expanded to 
cover cases of a different kind. It must be held that the 
total exemption granted in favour of small scale 
industries in Jammu & Kashmir producing edible oil 
[there are no large scale industries in that State 
producing edible oil] is not sustainable in law. " 
279. The exception carved out in Video Electronics upheld 
exemption notification where it is limited to specified type with short 
period. The general exemption and exemption in wider ten11 has
never 
been approved. The ratio of Video Electronics has to be read as justifying 
only exemption limited to a specified category for a short period. 
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Exemption in general terms of unlimited in nature cannot be approved. 
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The exemption cannot be used as measure of discrimination between 
goods imported from other States and goods manufactured or produced 
in the State. The exemption has to be a limited exemption to the tax 
which is imposed on the similar goods. ln the event exemption is total
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
81 I 
[ASHOK Bl-IUSHAN, J.] 
and general in nature, the said exemption is clearly violative of Article 
A 
304(a). Similarly, set off of a paiiicular tax which is general and not 
limited to specified category has also to be disapproved. In view of above, 
the ratio of three Judge Bench judgment in Video Electronics have to 
be read to the above extent and with the limitation as noticed above. 
280. We, thus, come to the conclusion that State Legislature in 
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exercise of its taxing power can grant exemption/set off to local goods. 
only to a limited extent based on intelligible differentia which is not in the 
nature of general/unspecified exemption. The exemption/set off which 
tend to become general exemption violates Article 304(a). 
G. ENTRY 52 OF LIST II OF VIITH SCHEDULE OF THE 
CONSTITUTION 
281. Legislative field under State List, Entry 52 is 'taxes on the 
entry of goods into a local area for consumption, use or sale therein'. 
The Entry 52 itself demonstrate that there are inherent limitations as 
regard the nature and character of the levy. ln order to have a levy of 
tax to come within the purview of Entry 52, such levy has to satisfy 
three conditions: 
(i) The levy under the State Entry must be 'on the entry of goods' 
which constitutes the taxable events. 
(ii) The levy in question must be in respect of'into a local area'. 
The local area has been defined as ' an area administered by 
local body like a municipality,
a district board, a local board, a 
union board, a panchayat or the like'. 
(iii) The goods must enter into the local area for the purpose of 
'consumption. use or sale therein'. 
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282. The expression Entry Tax has to be understood in its plain 
meaning and also in the backdrop of historical imposition of taxes of this 
kind. The tax commonly known as octroi was in force in l 90 I and it 
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was subsequently included in VI11h Schedule of List II of Government of 
India Act, 1935. The Constitution oflndia does not use the word octroi. 
List I Entry 89 provides for 'terminal tax on goods and passengers carried 
by railways, sea or air; taxes on railway fares and flights'. 
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283. Taxes levied under Entry 52 is commonly known as entry 
tax. While noticing the Constituent Assembly debates, we have seen 
that freedom of trade and commerce was envisaged as freedom from 
border taxes, custom barriers etc., which was prevalent in Indian States. 
Section 297of1935 Act had contained a prohibition for imposing tax.es 
on entry of goods from other States. The Constitution framers decided 
that States have to be conceded some taxing powers for revenue purposes 
and for purpose of carrying out various development projects. Article 
301 provides freedom of trade, commerce and intercourse throughout 
the.ten-itory of India, simultaneously, exception to such freedom have 
been engrafted in Article 302 - 306. 284. Article 304(a), although 
pennits the State to levy tax but it is hedged with two important conditions, 
which we have already noticed above. Article 304(a) thus expressly 
pem1its the State to impose any tax which includes entry tax also subject 
to conditions mentioned therein. 
285. The Entry Tax is related to movement of goods. Movement 
of goods have been treated to be an integral part of trade and commerce. 
InAtiabari, referring to the content of freedom provided by Article 301, 
it was held that it certainly includes movement of trade following was 
observed by Gajendragadkar, J., at Page 859: 
"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 s. 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. lf the transport or the movement of goods is taxed 
solely on the basis that goods are thus carried or 
transported that. in our opinion. directly affects the 
freedom of trade as contemplated by Article 301." 
286. This Court, while construing the Karnataka tax on entry of 
goods into local area for consumption, use or sale therein Act, 1979 in 
State of Karnataka Vs. Hansa Corporation 1980 4 SCC 697 has 
held that the tax on the entry of goods falls within the inhibition of
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
Article 301. Following was observed: 
"To the extent the impugned tax is levied on the entry 
of goods in a local area it cannot be gainsaid that its 
immediate impact would be on movement of goods and 
the measure would fall within the inhibition of Article 
301." 
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would thus clearly be a tax on the movement of goods and thus would 
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fall within the purview of the inhibition of Article 301 and the said law 
can only be saved if it complies with the Article 304. Learned counsel 
for the States have contended that Entry Tax does not prohibit the entry 
of goods and tax is collected, only subsequently and nonnally, on the 
basis of returns filed by the persons taking the goods into a local area. 
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Hence, there is no restriction on the borders of a State or border of a 
local area. It is contended that on the entry of goods merely a transit slip 
is given hence there is no barrier to the flow of goods. It is well settled 
that there is a clear distinction between incidence of a levy and the 
machinery provisions contained in law to give effect to such levy. The 
incidence oflevy is on entry of goods hence incidence of tax is complete 
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as the goods enters into the local area, whether the tax. is collected 
immediately or subsequently has no relevance with th.e incidence of 
taxation. 
288. The trade and commerce being contemplated to
be free 
.. throughout the territory of India, any restriction on movement of goods 
per se has to be treated as violating Article 301 unless the tax is saved 
by exceptions provide(fin )'art Xlll. However, there may be a tax which 
though complies Article 304(a) but still contains the restriction to trade 
and commerce which is an area where much difficulty has been felt. 
We have already concluded that all taxes which comply with Article 
304(a) need not to be routed through Article 304(b) and it is only those 
taxes which contain restrictions on trade, commerce and intercourse 
which need to be routed through 304(b ). This can be demonstrated by 
taking a simple example. An Entry tax legislation is passed complying 
Article 304(a) levying Entry Tax on goods imported from outside the 
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State as well as local goods at the rate of one percent of value of goods. 
Normally, such levy cannot be treated as any restriction on the trade and 
commerce and shall pass muster of Article 304(a) and need no compliance 
of A1iicle 304(b ). But in a case where, Entry Tax is levied to the extent 
of hundred per cent of the value of goods both on imported goods and 
locally produced or manufactured goods, the said levy is clear restril.:tion 
on trade and commerce and has to be routed through Article 304(b). For 
taking out such levy, from the effect of Article 301 both 304(a) and 
304(b) needs to be complied with. 
289. We thus conclude that Entry Tax legislation which is a tax on 
movement of goods, trade and commerce is inhibited by Article 30 I and 
such State legislation can be saved under Article 304. Whether a 
paiiicular Entry Tax Legislation is valid and does not contravene Part 
XIII of the Constitution, can be decided only after looking into the nature, 
content and extent of legislation and its impact on trade. commerce and 
intercourse. 
H. MEANING OF "RESTRICTION" AS USED IN PART 
XIII 
290. Freedom of trade, commerce and intercourse throughout the 
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territory of India is guaranteed under Article 301. The framers of the 
Constitution were conscious that the freedom cannot be absolute and it 
may be necessary in several circumstances to restrict the freedom in 
public interest. Article 302 - 3 06
enumerates exceptions to the freedom 
as guaranteed under A1iicle 30 l. What is the meaning and contents of 
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word 'restriction' as used in Paii XIII? The word 'restriction' has also 
been used under Article 19 (2) to 19 (6) while empowering the State to 
impose reasonable restrictions on the fundamental rights guaranteed 
under A1iicle 19( I )(a) to 19 (I )(g). 
The word 'restriction' is defined- in New Webster Dictionary in 
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the following manner: 
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"The act of restricting, or state of being restricted; 1ha1 
which restricts: a restraint: limitatio11."
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
815 
[ASHOK BHUSHAN, J.] 
291. The Black's Law Dictionary also defines 'restriction' in 
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following manner: 
"restriction. I. Confinement within hound1· or limits; a 
limitation or qualification. 2.A limitation (esp. in a deed) 
placed on the use or enjoyment of property. " 
292. The restriction thus is an act to limit, confine and restrain. 
The 'restriction', in Part XIII has been used in the context of restriction 
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to freedom of trade, commerce and intercourse. The law, which restrict 
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or limit such right are called restrictions. 
293. In the present case, since we are concerned with the taxing 
legislation, our discussions shall confine to find out the nature ofreshiction 
which can be put on the freedom of trade and commerce by tax legislation. 
The Constitution Bench of this Court in Firm A. T.B. Mehtab and Majid D 
and Company V. State of Madras and Others 1963 2 SCR 435 at P. 
442 has stated 'it is, therefore, now well settled that taxing laws can be 
restrictions if they hamper the flow of trade and if there are not what 
can be tenned to be compensatory tax or regulatory measures ........... ". 
In Indian Cement and Others V. State of Andhra Pradesh 1988 1 
SCC 743 this Court has held that as a result of favourable or unfavourable 
treatment by way of taxation the course of flow of trade gets restricted:-
either adversely or favourably. Following observations were made in 
para 12, 14:-
"12. There can he no
di.1pute that taxation is a deterrent 
against free flow. 
As a result of favourable or 
unfavourable treatment hy way of taxation, the course 
of.flow of trade gets regulated either adversely or 
favourably. lf the scheme which Part Xlll guarantees 
has to be preserved in national interest, it is necessary 
that the provisions in the article must he strictly complied 
with. One has to recall the farsighted observations of 
Gajendragadkar, J. in Atiabari Tea Co. case and the 
observations then made ohvious~y apply to cases of the 
type which is now hefore us. " 
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"14. Variation of the rate of interstate sales tax does affect 
free trade and commerce and creates a local preference which is 
contrary to the scheme of Part XIII of the Constitution. The 
notification extend~ the benefit even to unregistered dealers and 
the observations of Hegde, J. on this aspect of the matter are 
relevant. Both the notifications of the Andhra Pradesh Government 
are, therefore, had and are hit hy the provisions of Part XIII of the 
Constitution. They cannot he sustained in law. " 
294. Now, we proceed to efamine Pait Xlll of the Constitution 
in so far as it expressly refer to various acts, actions which are treated 
to be restrictions in freedom of trade and commerce. Article 302 - 306 
contain provisions, by which restriction can be put on the freedom of 
trade and commerce. Some restrictions have been expressly mentioned 
in said articles. Article 303 provides for 'restrictions on the legislative 
powers of the Union and of the States with regard to the trade and 
commerce'. As per Article 303, sub-article Clause 1 following are treated 
to be restrictions:-
(i) Any law giving or authorising the giving of any preference to 
one State over another, 
(ii) Any law making or authorising the making of, any discrimination 
between one State and another. 
295. Thus preferences and discrimination both are treated as 
restriction in the context of freedom of trade and commerce. Coming to
Article 304(a) any law framed by legislature is restriction on freedom of 
trade and.commerce which:-
a). lmposes on goods imported from other State, any tax when no 
such tax is imposed on similar goods manufactured or produced 
in that State, 
b). Imposes on goods imported from other States any tax which 
discriminates between goods so imported and goods so 
manufactured or produced.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
817 
[ASHOK BHUSHAN, J.] 
296. Again in Article 304 sub-clause(b) State is empowered to 
impose reasonable restrictions in the public interest. Article 306, as it 
was initially enacted, contained heading 'power of certain States in Part 
B of the Schedule to impose restriction on trade and commerce'. Article 
306 pern1itted any tax on duty on import of goods into the State from 
other States or on the export of goods from the State to another States 
which was being imposed by a State specified in Part B to continue by 
an agreement between Government of India and Government of States 
for a period, not exceeding ten years. The article contemplates 
continuance of tax or duty which was treated to be restriction and was 
allowed to continue only with an agreement for a maximum period of 
ten years. 
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297. We have already noticed a series of judgments of this Court 
holding that imposition of discriminatory taxes violates Article 304(a). 
Such discriminatory tax imposed by State have been struck down as 
being violative of Article 304(a) reference is made to the judgment of 
this Court in State of Madhya Pradesh V. Bhailal Bhai and Others 
D 
1964 (6) SCR 261, Shree Mahavir Oil Mills and Another Vs. State 
of Jammu & Kashmir and Others 1996 11 SCC 39. 
298. The restriction which can be imposed, as contemplated by 
above provisions oflaw, have to be such limitation on the right of freedom 
of trade and commerce which should
not be arbitrary or of excessive 
nature beyond what is required in the context of the power. The 
Constitution Bench, speaking through Patanjali Sastri, CJ., in State of 
Madras Vs. V. G Row 1952 SCR 607 while considering the concept of 
reasonable restriction under Article 19 has stated:-
"ft is important in this context to hear in mind that the 
test of reasonahleness. wherever prescrihed, should he 
applied to each individual statue impugned. and no 
ahstract standard, or general pattern of reasonableness 
can he laid down as applicahle to all cases. The nature 
of the right alleged to have been infringed, the 
underlying purpose of the restrictions imposed, .the 
extent and urgency of the evil sought to he remedied 
thereby, the disproportion of the imposition, the 
prevailing conditions at the time. should all enter into 
the judicial verdict. " 
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299. Although the word 'restriction' may also in certain 
circumstances includes prohibitions but restriction is not to be understood 
with complete prohibition or stoppage of business, effect of tax when it 
hinders the trade & commerce, it becomes restriction and prohibited 
under Aiiicle 301. This Court in Laxmi Khandsari Etc. Vs. State of 
U.P. 1981 (3) SCR 92. While considering the concept of reasonable 
restriction has held that reasonable restriction would depend on the nature 
and circumstances of the case following was laid down in page 105: 
"As to what are reasonahle restrictions would naturally 
depend on the nature and circumstances of the case, 
the character of the statute, the ohject which it seeks to 
serve, the existing circumstances, the extent of the evil 
sought to be remedied as also the nature of restraint or 
restriction placed on the rights of the citizen. It is difficult 
to lay down any hard or.fast rule of universal application 
hut this Court has consistently held that in imposing 
such restrictions the State must adopt an objective 
standard amounting to a social control by restricting 
the rights of the citizens where the necessities of ihe 
situation demand. " 
300. Further, it was held in Laxmi Khandsari Etc. Etc. Vs. State 
of U.P. 1981 (3) SCR 107 that incun-ing of the loss in trade is not a 
ground to trade restrictions as un-reasonable. Following was laid down: 
"Finally. in
determining the reasonableness of 
restrictions imposed by law in the.field of industry, trade 
or commerce, the mere fact that some of the persons 
engaged in a particular trade may incur loss due to the 
G 
imposition of restrictions will not render them 
unreasonable hecause it is manifest that trade and 
industry pass through periods of prosperity and 
adversity on account of economic. social or political 
factors. Jn a free economy controls have been introduced 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
819 
[ASHOK BHUSHAN, J.] 
to ensure availahility of consumer goods like food-
A 
stufj.i·, cloth or the like at a fair price and the fixation 
of such a price cannot he said to be an unreasonable 
restriction in the circumstances. " 
301. This Court, in G K. Krishnan and Others Vs. State of 
Tamil Nadu and Others, (1975) 1 SCC 375 has held that the regulation 
like rules of traffic facilitate the freedom of trade whereas restriction 
impede that freedom, it was held that a discriminatory tax against outside 
goods is not a tax simpliciter but is a barrier to trade and commerce. 
Following was laid down in para 15 and 27: 
"15. Regulations like rules of traffic facilitate freedom 
of trade and commerce whereas restrictions impede that 
freedom. 
The collection of toll or tax for the use of 
roads, hridges, or aerodromes, etc., do not operate as 
harriers or hindrance to trade. For a tax to hecoine a 
prohihited tax, it has to be a direct ax, the effect of 
which is to hinder the movement part of the trade. ff 
the tax is compensatory or regulatory, it cannot operate 
as a restriction on the freedom of trade or commerce. " 
"2 7. A discriminatory tax against outside goods is not 
a tax simpliciter but is a barrier to trade and commerce. " 
302. A Constitution Bench in Federation of Hotel and Restaurant 
Association of lndia, Etc. Vs. Union of lndia and Others (1989) 3 
sec 634 was considering the validity of a taxing law in the
context of 
Article 14 of the Constitution. The Constitution Bench held that legislature 
enjoys a wide latitude in the matter of selection of persons, subject matter, 
events etc. for taxation. Further, it was held that some excessiveness of 
taxation or its imposition tends towards diminution of earnings or profits, 
does not violate rights under Article 19 (1) (g): 
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"46. It is now well settled that though taxing laws are 
not outside Article 14, howeve1; having regard to the 
wide variezv of diverse economic criteria that go into 
the formulation of a fiscal policy legislature enjoys a 
wide latitude in the matter of selection of persons, 
subject matter, events etc., for taxation. The tests of the 
vice of discrimination in a taxing law are, accordingly, 
less rigorous. " 
Further in para 52 following was stated: 
"62. Then again, the mere excessiveness of a tax or 
even the circumstance that its imposition might tend 
toward~ the diminution of the earnings or profits of the 
persons of incidence does not, per se, and without more, 
constitute violation of the rights under Article 19(l)(g)." 
303. lt is, however, relevant to note that the issue as to whether 
the restriction contained in any taxing statute impede the freedom of 
trade and commerce is a question which will vary from case to case. 
The, nature of restriction and the magnitude of the restriction are all 
relevant factors to detennine whether trade is impeded or not. It is well 
settled that provisions in a statute which is regulatory in nature which 
facilitates the trade have not been treated as restriction impeding the 
freedom of trade and commerce. Traffic regulations, registration of 
motor vehicles for plying in the State, collection of toll have not been 
treated to be restriction in freedom of trade
and commerce. 
304. The above discussion makes it clear that what has been 
expressly prohibited inArticle 302- 306 are all restrictions in the freedom 
of trade and commerce which shall obviously contravene Article 301, 
but there may be other instances when a law is treated to be restriction 
although not expressly enumerated in Part 302 to 306. We may clarify 
G 
that Article 301 is not attracted in a legislation which does not contain 
any kind of restriction to the freedom of trade and commerce. The 
question of applicability of Part Xlll arises only when the kgislation 
contains restrictions which hamper, restrict, impede and adversely affect 
the freedom of trade and commerce directly & immediately. 
H
JfNDAL STAINLESS Lro. v. STATE OF HARYANA 
821 
[ASHOK BHUSHAN. J.] 
I. WHETHER 'DIRECT AND IMMEDIATE EFFECT TEST' 
A 
AS LAID DOWN IN ATIABARI AND APPROVED IN 
AUTOMOBILE TRANSPORT IS NO LONGER A CORRECT 
TEST 
305. Gajendragadkar, J., speaking for majority in Atiabari Tea 
Company laid down that the restrictions. which directly and immediately 
impede the trade are hit by Article 301. Following was held at page 860: 
"Thus considered we think it would be reasonable and 
proper to hold that restrictions fi'eedom 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 direct~v and 
immediately restrict trade that would fall within the 
purview of Article 301." 
306. Das J .,in Automobile Transport also approved the direct 
and immediate effect test. Following was stated at page 523: 
" .... 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. " 
307. Subba Rao, J., concurring with the above view has also stated 
at page 550: 
" .... If a law directly and immediatefcy imposes a tax for 
general reFenue purposes 011 the movement of trade, it 
would be violating the freedom. Qn the other hand, if 
the impact i11 indirect and remote. it would be 
unobjectionable. " 
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308. Gajendragadkar, J., in Atiabari Tea Company had also 
referred to two Privy Council judgments, namely, James Vs. 
Commonwealth of Australia (1936) A.C. 578 and judgment of Lord 
Porter in, Commonwealth of Australia and Others Vs. Bank of New 
South Wales and Another (1950) A.C. 235. It is further relevant to 
note that Gajendragadkar, J., was conscious of the fact that political and 
historical background of the federal polity adopted by Australian 
C01mnonwealth and the setting of the Constitution of India, the distribution 
of powers and general scheme is entirely different. The caution noted 
by Gajendragadkar, J., was in following words: 
"Before we conclude we would like to refer to two 
decisions in which the scope and effect of the provisions 
of S. 92 of the Australian Constitution came to he 
considered. We have deliheratelv not referred to these 
decisions earlier because we thought it would be 
unreasonahle 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 polity adopted by the 
Australian Commonwealth, the setting of the Constitution 
itself, the distrihution of powers and the general scheme 
of the Constitution are different, and so it would not he 
safe to seek for guidance or assistance from the