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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to time to varv our provisions so far as aid and 
concessions to industries and other things are 
concerned. I therefore do not think that is right to 
bar all discrimination, as it is called (in fact it is 
not),barring all possibility of help to those who are 
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backward and who are unabk to compete with the 
more advanced, and who therefore stand in need of 
assistance. From that point of view, my amendment seeks 
to give Parliament a blank cheque and leave to it entirely 
the determination of the policy with regard to trade and 
commerce not only of the whole Union or in regard to any 
particular State or States, but so far as all States and their 
trade and commerce inter se is concerned. Therefore, 1 
have proposed a very simple provision as has been 
embodied in my amendment No. 340'. 
(emphasis supplied) 
Sir Alladi Krishnaswami lyer stated: 
'My friend Mr. Krishnamachari has pointed out that this 
freedom clause in the Australian Constitution has given rise 
to considerable trouble and to conflicting decisions of the 
highest Court. There has been a foeling in those paiis of 
Australia which depend for their well-being on agricultural 
conditions that their interests are being sacrificed to 
manufacturing regions, and there has been rivalry between 
manufacturing and agricultural interests. 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'.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
8 .16 To what extent economic unity in India and regional interests 
has to be kept in mind while meaningfully implementing free trade clause 
in Article 301? In Video Electronics79 this Court had an occasion to 
delve into these aspects. This Court even suggested that there could 
be differentiation among regions and among the goods exchanged 
between the regions without attracting the tag of discrimination. The 
following passage from Video Electronics is apposite: 
'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 hannonized 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 (b) should be understood and construed. Constitution 
is a living organism and the latent meaning of the 
expressions used can be 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 color in evolving 
dynamic situations. A backward State or a disturbed State 
cannot with parity engage in
competition with advanced or 
developed States. Even within a State, there are often 
backward areas which can be developed only if some 
special incentives are granted. If the incentives in the fonn 
of subsidies or grant are given to any part of 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 
Xlll of the Constitution. However, this is pennissible only 
if there is a valid reason, that is to say, if there are justifiable 
and rational reasons for differentiation. lfthere is none, it 
will amount to hostile discrimination'. 80 
"Video Electronics v. State of Punjab, (l 990) 3 SCC 87. 
'° Ibid. p. 113 
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8.17 There is a vital difference between mere 'differentiation' and 
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'discrimination. It is discrimination not differentiation that is sought to 
be prevented through Part XIII. Again reference to certain observations 
of this Court in Video Electronics would be pertinent: 
very differentiation is not discrimination. The word 
'discrimination' is not used in art. 14 but is used in Articles 
16, 303 & 304(a). When used in Article 304(a), it involves 
an element of intentional and purposeful differentiation 
thereby creating economic barrier and involves an element 
of an unfavorable bias. Discrimination implies an unfair 
classification. Reference may be made to the observations 
of this Court in Kathi Raning Rawat v. The State of 
Saurashtra, [1952] SCR 435 where Chief Justice Shastri 
at p. 442 of the report reiterated that all legislative 
differentiation is not necessarily discriminatory. At p. 448 
of the report, Justice Fazal Ali noticed the distinction 
between 'discrimination without reason' and 'discrimination 
with reason'. The whole doctrine of classification is based 
on this and on the well-known fact that the circumstances 
covering one set of provisions or objects may not 
necessarily be the same as these covering another set of 
provisions and objects so that the question of unequal 
treatment does not arise as between the provisions covered 
by different sets of circumstances'. 81 
8.18 In
the above case exemption and incentive granted by one 
State to its inhabitants was challenged as being violative of Article of 
304 (a). Recognizing the concept of economic equality, this Court held: 
'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 cease to be so 
at another point of time. It will be wrong to denude the 
" Ibid, p. I 06-107.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
people of the State of the right to grant exemptions which 
flow from the plenary powers oflegislative heads in list II 
of the 7th 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 
be held to be contrary to the concept of economic unity. 
The contents 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 equality 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 party to say that this should be 
done and this should not be done by either one way or the 
other. It cannot be disputed that it is open to the 
States to realize tax and thereafter remit the same 
or pay back to the local manufacturers in the shape 
of subsidies and that would neither discriminate nor 
be hit by art.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'. 
(emphasis supplied)
8. 19 Thus stated, the principle laid down in Video Electronics is 
that, if a backward area in a State needs impetus for the development, 
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and in such circumstances incentives are given for the industry to develop 
whether by way of subsidies or tax exemptions for a certain period of 
time as desired by the competent legislature, the same would be 
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pennissible and would fall outside the scope of Article 304 (a). Such 
State enactment is not inherently discriminatory, but rather aims to ensure 
economic equality which is a facet of economic unity. 
8.20 A State law directed towards development of a pa1ticular 
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region is pennissible under Part XIII. In support, we may again refer 
to the discussion in the Constituent Assembly debates dealing with the 
concepts of "public interest" and "interest of general public". Clause 13 
was introduced in Chapter dealing with Fundamental Rights making the 
right to free trade, commerce and intercourse as a Fundamental Right 
subject to reasonable restriction. Pandit Thakur Das Bhargava sought 
to move an amendment81 to substitute the words, 'public interest' for 
'interests of the general public' he said : 
'I maintain that there is great difference between the two 
expressions. 'Public interest' in regard to a State would only 
include the interests of the inhabitants of that State at the 
most though the word 'public' includes portions of the public. 
Therefore, the interests of a part of the inhabitants of a 
State would also mean 'public interest', whereas if you use 
the words "interests of the general public" they would have 
reference to the interests, of the. general public of India 
as a whole. It may be that on many occasions a conflict 
may arise. between the public interest as understood in the 
amendment of Dr. Ambedkar and 'the interests of the 
general public' as used in article 13. When that conflict 
arises it would be encouraging provincialism and the 
interests of a few as against the general interest if we 
accept the words 'public interest' in the place
of the words 
"in the interests of the general public'83 • 
8.21 This amendment was negatived. The fact that this amendment 
did not go through would indicate that 'public interest' could imply a 
regional interest that needs to be protected which may not be 'in the 
interests of the general public' but specific to a smaller region. Such an 
interpretation is supported by the manner in which the word 
" Constituent Assembly Debates, 1949, vol. IX, Page 1145. 
<That is amendment No. 269 of List IV (Seventh Week), in clause (b) of the proposed 
new Article 274-D, for the words 'in the public interest', the words 'interests of the 
general public and are not inconsistent with the provision of Article 13 be substituted.' 
"Constituent Assembly debates, 1949, Vol. IX, p. 1125.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
371 
[N. V. RAMANA, J.] 
'discrimination' has been interpreted by a three Judge bench of this Court 
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in Video Electronics. Thus it can be said that the common thread in 
Part XIII is the achievement of economic unity and parity which does 
not altogether preclude differentiation for justifiable and rational reasons 
wherever necessary. The heart and soul of Part XIII is to dissolve hostile 
discrimination within the territ01y of India. 
8.22 The second facet is that Article 304 (a) is a limitation to 
impose any tax on goods imp01ted from other States. This power is 
subject to the condition that the goods manufactured or produced within 
the State are also subjected to tax, so as not to discriminate between 
the goods imported from outside the State. Article 304(a) is not a 
limitation on the legislature of a State to impose such tax on goods 
imported. The only condition envisaged under Article 304 (a) is, same 
tax is imposable on the goods imported from other States as well as 
goods if manufactured in that State. 
8.23 The contention that the taxing power lies in Article 304 (a) 
and not in Article 245 r/w 246 is not correct. The words "may by law" 
appearing in Article 304 is not source oflegislative power. It is an option 
given to the States in case it decides to levy any tax on the goods 
imp01ted from other States. The source of legislative power resides in 
Article 245 r/w. Article 246 which is indisputable. This power
is not 
subject to any implied limitation. The plain reading would show that in 
a given situation, the State may by choice decide not to levy any tax 
imported from other States or opt to levy taxes on certain goods imported 
from other States. Indeed in all the entry tax laws, the charging section 
enables the levy of entry tax only on the scheduled goods. The 
scheduled goods are goods declared as attracting entry tax. 
8.24 Discrimination is a relative concept; in order to discriminate 
a reference point is required. Article 304(a) rather than being an enabling 
provision to allow the State to impose tax, is a restricting provision, which 
prevents such levy of tax on goods as would result in discrimination 
between goods imported from other States and similar goods 
manufactured or produced within the State. The object is to prevent 
discrimination against imported goods by imposing tax on such goods at 
a rate higher than that home by local goods since the difference between 
the two rates would constitute a tariff wall or fiscal barrier and thus 
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[2016] IO S.C.R. 
impede the free flow of inter-State trade and commerce. It does not 
prohibit levy of tax as such in the situation wherein the goods are not 
produced or manufactured in the State itself and does not affect the 
authority of the State to tax the imported goods. It only bars 
discrimination on the basis of taxing the products manufactured within 
the State vis-a-vis imported goods which will only occur if the 
precondition of manufacturing in the taxing State is satisfied. 
8.25 I agree with the conclusions and reasons given by the learned 
Chief Justice regarding the exemption/set otl/credit with respect to Sales 
tax. 
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8.26 There was good amount of debate on the doctrine of 
compensatory tax evolved by this Court in Automobile. I am in 
respectful agreement with the consideration, reasoning and conclusion 
in the judgment of the learned Chief Justice, who held that concept of 
compensatory tax has neither any juristic basis nor a part of Indian 
D Constitutional law. It is interesting and glaring to note that at the stage 
of drafting, at the stage of consideration by the Sub-Committee as well 
as Advisory Committee and when the Part XA (now Part Xlll) was 
adopted by the Constituent Assembly, never even for a moment, the 
principle of compensatory tax was thought of. 
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PART-IX:CONCLUSIONS 
9. l On an analysis and reasoning as herein above the following 
conclusions would emerge-
a. Part XIII does not
contemplate tax laws within its ambit except 
. to the extent of Article 304(a) of the Constitution. 
b. A11icle 304 (a) and (b) are disjunctive. 
c. Restrictions mentioned under A11icle 304(b) of the Constitution 
do not include tax. 
d. It is not correct to say that since goods being taxed are not 
produced in the State the power to levy a tax gets obliterated, 
that is to say, that Atiicle 304 (a) does not bar levy of tax if 
the goods are not manufactured or produced within the State.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
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e. A1ticle 304(a) of the Constitution protects from discrimination 
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(for protectionism) and not mere differentiation. 
9.2 Before parting with this case, I would like to express my 
appreciation for the way the hearing of the case took place before the 
Court. Attorney General needs to be specially mentioned and thanked, 
who had appeared and assisted the Court. Lastly, it was a wonderful 
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sight to see young practitioners ably assisting their seniors which only 
goes on to reflect vibrancy of Indian Supreme Cou1t Bar. 
R. BANUMATHI .J. I. I have perused the judgment of C 
Hon'ble the Chief Justice. I agree with the views taken by Hon'ble 
the Chief Justice on Question Nos. I and 4 with certain additions. On 
Question Nos. 2 and 3, while agreeing with the views of the Chief 
Justice over-ruling Jindal Stainless Ltd. (2), on the question of 
'Compensatory tax', I have recorded my reasonings which in my view 
is necessary to be clarified. 
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Since substantial questions of law arise for determination which 
is of considerable impottance from the point of view of trade, commerce 
and intercourse and economic unity of the nation, l would like to give my 
own reasonings for my conclusions. 
I (a). Question No. 1 :-
I agree with the conclusion of the Chief 
Justice holding that anon-discriminatory tax does not per se constitute a 
restriction on the right to free trade, commerce and intercourse 
guaranteed under Article 301 of
the Constitution. I also agree with the 
view over-ruling the decisions inAtiabari and Automobile Transport to 
the extent they declare that taxes generally are restrictions on the freedom 
of trade, commerce and intercourse. l also agree with the view taken by 
the Chief Justice over-ruling Jindal Stai11/es.\· Ltd. (2) & A11r. 11. State 
o( Harva11a & Ors. (2006) 7 SCC 24 l. Insofar as the concept of 
compensatory taxes evolved in Automobile Transport. I am of the 
view, abandoning compensatory tax in the subsequent judicial 
pronouncement like the present one, might prejudice the interest of the 
concerned States. 
l(b). Question No. 4:-
I agree with the view taken by the 
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Chief Justice on question No. 4 however, with the following additions:-
(i) When the entry tax is levied by the Entry Tax Act enacted 
by the State Legislature, the term ·a local area' 
contemplated by Entry 52 may cover the 'Whale State' or 
'a local area' as notified in the legislutio11. l agree with 
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the view taken in Bihar Cit amber of Commerce that from 
the point of view of entry tax that the Stak is a compendium 
of local areas and where the local areas contemplated by 
the Act cover the entire State, the difference between the 
State and ·a local area· practically disappears. 
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(ii) States have legislative competence to levy entry tax on 
the goods imported from other countries when those goods 
imported from other countries enter a local area for use, 
consumption or sale therein. 
(iii) Tax concessions/benefits/subsidies granted by the Stale 
for locally manufactured goods need not necessarily be 
limited for a specific period of time. 
l(c). Questions Nos. 2 and 3:-
lnsofar as compensatory taxes are concerned in the light of the 
conclusions on question No. l, I hold that the nomenclature of 
'compensatory' ascribed to the taxes levied by the State Government 
under Entry 52, List II pursuant to Automobile is unwarranted. The 
concept of compensatory tax was evolved fifty years back through judicial 
pronouncements. It has withstood the test of time and thus, any subsequent 
judicial
pronouncement like the present one should not prejudice the 
interest of the parties involved. The State Governments should not suffer 
any loss of revenue solely because of judicial interpretations and 
innovations in Automobile and the case subsequent to it. Subject to 
passing the muster of Art. 304(a), entry tax levied by the States under 
entry 52, List II even though termed as compensatory tax does not fall 
foul of Art. 301. In my view, Jindal Stainle.\-.~ Ltd. (2) & Anr. v. State 
o{Harva11a & Ors. (2006) 7 SCC 241 is not a correct view in adopting 
quantifiable data apprqach: for a tax, there is no requirement of proximate 
quid pro quo and Jindal Stainless Ltd. (2) is overruled. I agree with
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
375 
[R. BANUMATHI, J.] 
the view taken in Bhagatram and Bihm· Chamber of Commerce as 
the same is in harmony with the original design of compensatory tax laid 
down inAutomobile. 
l(d). For the above conclusions, I have put forth my views and 
reasonings under the following heads of discussions:-
> Introduction 
> Background to the reference 
> Scheme of the Constitution/ 
distribution of legislative powers · 
> Freedom of trade commerce and 
intercourse 
..... (Para Nos. 1-l(d)] 
..... (Para Nos. 2-7] 
..... (Para Nos. 8-14] 
..... [Para Nos. 15-27] 
> Freedom under Atiick 301 is subject to 
Pati Xlll and other parts of the Constitution 
viz. Part Ill, IV. Xll etc. 
..... [Para Nos. 28-35] 
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> Question No. 1 with incidental 
questions 
..... (Para Nos. 36-103] 
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>Question No.4 with incidental 
questions 
> Question Nos. 2 and 3 
> Unjust Enrichment 
>Conclusions 
..... [Para Nos. 104-177] 
..... [Para Nos. 178-191] 
..... [Para Nos. 192-198 ] 
..... [Para Nos. 199] 
BACKGROUND TO THE REFERENCE: 
2. In Automobile the concept of compensatory tax has been 
judicially evolved as an exception to the provisions of Art. 301. Pre-
1995 decisions have held that the entry tax imposed on the entry of 
goods into a local area for consumption, use or sale therein is in the 
nature of a compensation. to which, the cost of an existing facility made 
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available to the traders, or the cost of the specific facility planned to be 
provided to the traders, more or less, is to be commensurate with. Pre-
1995 decisions further emphasized that the imposition of tax is must for 
the definite purpose of meeting the expenses on account of providing or 
adding to the trading facilities, either immediately or in future; provided 
the tax sought to be generated is based on a reasonable relation to the 
actual or the projected expenditure on the cost of the service or facility. 
But the decisions in Bltagatram Rajeevkumar v. Commissioner o( 
Sales Tax, M.P. & Ors. 1995 Suppl. ( 1) SCC 673 a1id State ofBihar & 
Ors. v. Bi/1ar Chamber o( Commerce a11d Ors. ( 1996) 9 SCC 136 
held that even if the purpose of imposition of the tax is not to confer a 
special advantage on the traders, but to benefit the public in general 
including the traders, the levy can still be considered compensatory. In 
Bi/tar Chamber of Commerce, this Court reiterated the position that 
"some connection'' between the tax and the trading facilities is sufficient 
to characterize it as compensatory tax. The Court went on further to 
hold that an indirect or incidental benefit to traders by reason of stepping 
up the developmental activities in various local areas of the State can be 
legitimately brought within the concept of compensatory tax and the 
nexus between the compensatory tax and the
trading facility need not 
necessarily be either direct or specific. In Jindal Stripe Ltd. a11d Anr. 
v. State o(Harvana and Ors. (2003) 8 SCC 60, this Court referred the 
matter to the Constitution Bench to authoritatively lay down the principles 
vis-a-vis compensatory tax. 
3. In Jindal Stainless Ltd. (2) & Anr. v. State of Harvana & 
Ors. (2006) 7 SCC 241, Constitution Bench considered the various 
decisions relating to compensatory tax and held that whenever a law 
levying compensatory tax is impugned as violative of Art. 30 l of the 
Constitution, the Court has to see whether the impugned enactment 
facially indicates the proportionality to the quantifiable data on the basis 
of which the compensatory tax is sought to be levied. lt was further 
held: 
"46 . ... it must broadly indicate proportional it)! to the 
quantifiable benefit. If the provisions are ambiguous 
or even if the Act does not indicate facially the 
quantifiable benefit. the burden will be on the S~ate as
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
a service/facility provider to show by placing the 
material before the Court, that the payment of 
compensatory tax is a reimbursement/recompense for 
the quant(fiab!el measurable benefit provided or to be 
provided to its payer(.~). As soon as it is shown that the 
Act invades Feedom of trade it is necesswy to enquire 
whether the State has proved that the restrictions 
imposed by it by way of taxation are reasonable and in 
public interest within the meaning of Article 30./ (b) . .. 
4. The Constitution Bench further held that the test of "some 
connection'' enunciated in Blwgatram was not only contrary to the 
working test propounded in Automobile but obliterated the very basis of 
compensatory tax. It was, therefore, held that the test of "some 
connection" as propounded in Blwgatram was not a correct view and 
the judgments in Blwgatram and Bihar Chamber of Commerce were 
overruled. 
5. After the judgment of Constitution Bench in Ji11tlal Stainless 
(2) dated 13.04.2006, the matter went to a Division Bench which in turn 
by their order dated 14.07.2006, reported in Jindal Stai11le~·s Lttl. (3) 
am/Anr. I'. State o(Harvana & Ors. (2006) 7 sec 271, directed the 
High Courts to re-examine the challenge in the light of the principles laid 
down by the Constitution Bench. While doing so, this Court retained 
seisin of the appeals by directing the appeals to be listed in January, 
2007 and in the meantime
requested the High Courts to dispose of the 
challenge to the Act after granting opportunities to the respective parties 
to place materials on record. After the matter was so remanded, in 
pursuance of the parameters laid down by the Constitution Bench in 
Jindal Stainless Ltd. (2), the Punjab and Haryana High Court by 
judgment dated 14.03.2007, took the view that the levy under Haryana 
Local Area Development Act, 2000 was riot compensatory. The State 
ofHaryana challenged the aforesaid judgment dated 14.03.2007 in Civil 
Appeal No.4715 of2008 and filed certain other appeals challenging orders 
in separate cases. 
6. Considering the importance of the issues relating to Articles 
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301, 304 and other provisions of Part XIII of the Constitution, in 
Jaiprakasli Associates Ltd. vs. State of Madliva Pradesh and Ors 
(2009) 7 sec 339 [two Judges], the matter was referred to a larger 
Bench in terms of Art. 145(3) of the Constitution stating that the concept 
of compensatory tax is a judicially evolved concept and in a way provides 
a balancing factor between federal control and the State Taxing Board. 
It was observed that the concept had its matrix in transportation cases 
and did not apply to the general notion ofentry tax. The Cou1t considered 
it necessary to refer the batch of appeals to a larger Bench in terms of 
Art. 145(3) of the Constitution and framed ten questions for reference. 
Subsequently, in Jindal Stainless Ltd. & Am: v. State o(Jlarvana & 
Ors. (20 l 0) 4 SCC 595, after referring to the reference made in 
Jaiprakaslt Associates, the matter was referred to a larger Bench. 
Accordingly, the matters are now befrlre this larger Bench. 
7. Even though ten questions were framed for reference, when 
the matters came up for consideration before this larger Bench, the 
issues for consideration were abridged to four questions as under:-
( 1) Can the levy of a non-discriminatory tax per se constitute 
infraction of Article 30 I of the Constitution oflndia? 
(2) If answer to Question No. l is in the affirmative, can a 
tax which is compensatory in nature also fall foul of A1ticle
30 I of the Constitution oflndia? 
(3) What are the tests for determining whether the tax or 
levy is compensatory in nature? 
(4) ls the entry tax levied by the States in the present batch 
of cases violative of Article 301 of the Constitution and 
in paiticular have the impugned State enactments relating 
to entry tax to be tested with reference to both Articles 
304(a) and 304(b) of the Constitution for determining 
their validity?
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
379 
[R. BANUMATHI, J.] 
SCHEME OF THE CONSTITUTION/DISTRIBUTION OF A 
LEGISLATIVE POWERS: 
8. Art: l of the Constitution describes India as a Union of States, 
thereby implying the indestructible nature of its unity. The country is 
divided into several units, known as States or Union Territories and the 
Constitution lays down not only structure of the Union Government but 
also the structure of the State Governments. 
9. Art. 245 of the Constitution deals with "Extent of laws made 
by Parliament and by the Legislators of State··. Art. 245( I) provides 
that the 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. As per subjects of legislation, all the 
conceivable subjects have been distributed between the Union and the 
States with reference to three Lists contained in the Seventh Schedule 
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to the Constitution. The three Lists are exhaustive, yet as a matter of D 
principle and also to meet unforeseen circumstances, Art. 248 and entry 
97, List I stipulate that the residuary power vests in the Union i.e., 
Parliament has exclusive power to make any law with respect to any 
matter not enumerated in the Concurrent or State List. 
I 0. Art. 246 stipulates that with respect to the matters enumerated 
in List I, Parliament has the cxclusivejurisdiction; with respect to those 
in List II, State Legislatures have
exclusive jurisdiction; and with respect 
to those in List III, both of them can legislate subject to the discipline 
enjoined in Art. 254. But the power of Parliament with respect to matters 
in List I is "notwithstanding anything in clauses (2) and (3)'" of A11. 246. 
In other words, List I has priority over Lists Ill and II; and List Ill has 
priority over List II. The Scheme of legislative relations between the 
Union and the State is inviolable. [A.K. Gopala11 v. State of Madras 
AIR 1950 SC 27] 
11. As the opening words of Art. 245(1) state, the legislative powers 
of both Union and State Legislatures are subject to other provisions of 
the Constitution even though their powers are plenary within the spheres 
assigned to them respectively by the Constitution. Legislative competence 
of State Legislature can only be circumscribed by express prohibition 
contained in the Constitution itself. Unless and until there is any provision 
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in the Constitution expressly prohibiting legislation on the subject either 
absolutely or conditionally, there is no fetter or limitation on the plenary 
powers which the State Legislatures enjoy to legislate on the topics 
enumerated in List II and List Ill of the Seventh Schedule to the 
Constitution. It is noteworthy that though Art. 245 is pre-fixed by the 
words 'Subject to the provisions of this Constitution ... '; Art. 246 is not. 
But because Art. 246 only provides for distribution of the legislative 
powers conferred under Art. 245, the words 'subject to the provisions of 
the Constitution' apply equally to Art. 246. 
12. The power of the Parliament and State Legislature to enact 
laws flows from Articles 245 and 246. Considering the source of 
legislative powers of the Union and the State in Maharaj Umeg Singh 
and Others v. Tiie State o{Bombav and Other.\', 1955 (2) SCR 164, it 
was held as under:-
"Under Article 246 the State Legislature was invested 
with the power to legislate on the topics enumerated in 
Lists II & III of the Seventh Schedule to the Constitution 
and this power was by virtue of Article 245(/) subject 
to the provisions of the Constitution. " 
13. A Constitution Bench of this Court in K. T. Pla11tatio11 Prfrate 
Limited and Another v. State of Kamataka (20 l l) 9 SCC I (Five 
Judges) observed as under: 
"186. A Constitution Bench of this Court in Hoechst 
Pharmaceuticals
Ltd. case. held that !he various entries in 
List III are not "powers" of legislation but "fields" of 
legislation. Later, a Constitution Bench <?f this Court in State 
of W.B. v. Kesoram lndustries Ltd. (2004) 1 SCC l 0 held that 
Article 245 of the Constitution is the fountain source of 
legislative powe1: It provides that 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. "
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
14. While interpreting Articles 245 and 246, in State o(Kera/a 
and Ors. v. Mar Appraem Kuri Compa11v Limited and A11r. (2012) 7 
SCC 106, this Court observed as under:-
"35. Article 245 deals with extent of laws made by 
Parliament and by the legislatures of States. The verb 
"made", in past tense, finds place in the Head Note to 
Article 245. The verb "make'", in the present tense, exists 
in Article 245 (I) whereas the verb "made", in the past 
tense, finds place in Article 245 (2). While the legislative 
power is derived from Article 245, the entries in the 
Seventh Schedule of the Constitution 011lv demarcate 
the legislati1•e fields of the respective legislatures and 
do not confer legislative power as such. While 
Parliament has power lo 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 there(~( 
Thus, Article 245 inter alia indicates the extent of laws 
made by Parliament and by the State Legislatures. 
37. Article 246, thus. provides for distribution, as between 
Union and the States, of the legislative powers which are 
conferred by Article 245. Article 245 begins with the 
expression "su~iect to the provisions of this Constitution". 
Therefore, Article 246 must be read as "subject .to other 
provisions of the Constitution". 
38. For the p1117Jose.1· of this decision, the point which needs 
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to be
emphasized is that Article 245 deals with conferment of 
legislative powers whereas Article 246 provides for 
distribution of the legislative powers. Article 245 deals with 
extent of!aws whereas Article 246 deals with distribution of G 
legislative powers. Jn these articles. the Co11stitution Framers 
have used the word "make" and not "commencement" which 
has a specific legal connotation. [See Section 3(13) of the 
General Clauses Act, 1897.] [Emphasis Supplied] 
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FREEDOM 
OF 
TRADE, 
COMMERCE 
AND 
INTERCOURSE: 
15. Art. 30 I of the Constitution provides for freedom of trade, 
commerce and intercourse throughout the territory of India, subject to 
the other provisions of Part Xlll, Articles 302-305 which pennit the 
imposition of reasonable restrictions on this freedom by Parliament and 
the State Legislatures. The underlining idea in making trade, commerce 
and intercourse throughout the territory oflndia free is to emphasize on 
the economic unity oflndia and to ensure that unity of the country may 
not be broken by internal barriers. 
16. The Constitution-makers desired free flow of trade and 
commerce in India as they realized that economic unity and integration 
of the country provided the main sustaining force for the stability and 
progress of the political and economic unity of the nation, and that the 
country should function as one single economic unity without barriers on 
internal trade. In order to ensure that the State Legislatures subjected 
to local and regional pulls did not create trade bairiers in future, Art. 301 
was incorporated in the Constitution. Art. 30 I in general enacts that 
"subject to the other provisions of this Part, trade, commerce. and 
intercourse throughout the territory of India shall be free". After 
having declared the general nature of the freedom of trade and 
commerce, Part Xlll of the Constitution sets out the
limitations to this 
freedom, in Articles 302 to 304 which re-state the powers of the 
Parliament and the State Legislatures in imposing restrictions on the 
freedom of trade, commerce and intercourse. Articles 302 to 304 are 
not exceptions to Art. 30 !. Articles 302 to 304 embody a statement of 
powers under Art. 246 and the Seventh Schedule with some limitations. 
Each re-stated power by itself overrides the freedom in Art. 301. 
17. Art.302 empowers the Parliament to impose restrictions on 
the freedom of trade, commerce and intercourse provided they are 
required in public interest. The purpose of this provision is to allow the 
Government oflndia to restrict the movement of goods so as to safeguard 
a well-balanced economy and for proper organization or supply of goods 
and services. Famine may be raging in one part of the country while 
there is plenty in another part, as has been the past experience of the 
country in regard to food. If Parliament has no effective powers to 
impose restrictions in such situations on freedom of trade and commerce,
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
383 
[R. BANUMATHI, J.] 
then it will undem1ine the unity of nation. It is reasonable to presume 
A 
that the Parliament, people's representative is a better judge of public 
interest and that its judgment must have primacy over any other judgment, 
including that of the courts. 
18. Although Parliament is empowered to restrict the free 
movement of articles in trade and commerce, nonnally the laws passed 
by Parliament in this context ought to be non-discriminatory in character. 
Art. 303(1) of the Constitution prohibits Parliament and the State 
Legislature from making "any law giving or authorizing the giving 
of, any preference to one State over another, or making or authorizing 
B 
c 
the making or, any discrimination between State and another, by 
virtue of any entry relating to trade and commerce in any of the 
Lists in Seventh Schedule". Preference or discrimination amounts to a 
restriction on the freedom guaranteed under Art. 301 of the Constitution 
only if it is a law made by the virtue of any entry relating to trade and 
commerce in any of the Lists in the Seventh Schedule. Application of 
Art. 303(1) is to specific entries on trade and commerce and not to be 
D 
confused with the general application of Art. 301 to all the legislative 
entries other than the entries relating to trade and commerce. But when 
any part of the country is suffering from scarcity of goods, Parliament 
may, to meet such a situation; pass even
a discriminatory law [Art. 
303(2)]. Art. 303(2) is an exception to Art. 303(1) inasmuch that the 
limitations of Art. 303 (I) lose operation when aforesaid preference and 
discrimination is made for the purpose of dealing with situation arising 
from scarcity of goods, and the Parliament may in these situations enact 
a law that gives or authorises giving preference or makes or authorises 
making of any discrimination. 
19. As per Art. 304( a), a State Legislature may impose any tax on 
goods imported from other States or Union Territories to which similar 
goods produced in that State are also subject, so as not to discriminate 
between the goods so imported and goods so manufactured or produced 
within the State. A State Legislature is also authorised to impose 
reasonable restrictions on the freedom of trade and commerce with or 
within that State as may be required in public interest, subject to the 
condition that no Bill or Amendment shall be moved in the Legislature of 
a State without previous sanction of the President [Art. 304(b )]. Art. 
304 begins with non-obstante clause and is intended to override both 
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Art. 301 and Art. 303. Art. 304(a) does not preventtaxation of goods; it 
only prohibits taxes that discriminate between the goods imported from 
other States and similar goods that are manufactured or produced within 
the taxing State. 
20. Under Art. 305, tax laws existing at the time of the 
commencement of the Constitution were safeguarded even if they 
violated the freedom of inter-State trade and commerce along with the 
power of Parliament to regulate them. At the same time, the President 
was empowered to make any changes to those laws as he thought fit. 
This Article in its present fom1 was added by the Fourth Amendment of 
the Constitution, 1955, and it saves all the existing laws providing for 
State monopolies which were passed before coming into effect of the 
Fourth Amendment. Under Art. 307, Parliament is empowered to appoint 
such authority as it considers appropriate for carrying out the purposes 
of Articles 30 I to 304 and to confer on that authority such powers and 
duties as it thinks necessary. 
21. Part XII and Part XIII of the Constitution lay down the 
parameters within which State Governments can exercise their right to 
enact laws/impose tax, restricting the freedom of trade, commerce and 
intercourse. Purpose of including Part Xlll (as it stands today) in the 
Constitution as emerges from Section 297 of the Government oflndia 
Act, 1935 was to confer a freedom of trade, commerce
and intercourse, 
subject to restrictions and non-discriminatory tax laws. In this respect, 
Art. 301 does not confer any higher right. Even the Constitutional 
Assembly Debates show that the framers did not intend to confer any 
absolute freedom of trade, commerce and intercourse. Be it noted that 
they did not adopt the expression "absolutely free" as found in the 
Australian Constitution. Reference to "Constituent Assembly Debates 
30.07.1949 to 18.09.1949" shows that Dr. B.R. Ambedkar while 
introducing Part XA: Trade, Commerce and Intercourse within the 
territory of India Articles 274A to 274D (which corresponds to Articles 
301to304 and 307) before the Constituent Assembly specifically noted 
that it is not the intention to make trade, commerce and intercourse 
absolutely free in India. Relevant extracts from the debate are as under:-
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
" .... /should also like, to say that according to the 
provisions contained in this part it is not the intention to 
make ~rade and commerce absolutely free, that is to 
say, deprive both Parliament as well as the States of 
any power to depart from the fundamental provisions 
that trade and commerce shall be 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 he 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 goods 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 ..... " (Constituent Assembly 
Debates (CAD) 30.07.1949 to 18.09.1949 page 1126) 
22. In fact, Shri T.T. Krishnamachari, while opposing to the idea 
of debarring States from imposing any kind of restriction on freedom of 
trade and commerce emphasized subjecting 'trade and commerce' to 
State's
direct regulation, so that the economic progress of the country 
was not hindered. Relevant extract is as under:-
"Shri T.T. Krishnamachari: .... Let me tell the House 
that so far as I am concerned I think this is about the 
maximum amount of liberty that we can give for trade 
and commerce, the maximum amount of concession that 
we can give to trade and commerce consistent with the 
future econpmic improvement of this country. Even as 
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it was originally suggested, that we should make it a 
matter of fundamental right, and even without the 
restriction that have been put in article 16, I am afraid 
the economic progress of the country will become 
well-nigh impossible. There is absolutely no use in the 
honourable Member trying to confuse a matter of civil 
liberty with a mater of rights in respect of trade and 
commerce. The world has well-nigh come to a position 
when trade and commerce cannot be run without control 
and somekind of direction by the Government. If my 
honorable friends think that we are in the days of the 
nineteenth celltury when the laissez faire enthusiast had 
practically the ordering of everything in the world I am 
afraid they are mistaken. "{CAD Page No.1140 dated 
08.09.1949/ 
23. Reiterating the views ofShri T.T. Krishnamachari, ShriAlladi 
Krishnaswami Ayyar pointed out that the Scheme as evolved has taken 
into account larger interest oflndia along with the interests of particular 
State, wide geography of the country where the interest of one region 
differs from the interest of another region, and future prosperity of our 
country. Relevant extract is as under:-
"Shri Alladi Krishnaswami Ayyar: .... It may be that 
manure and other things are required in one part of the 
country while profiteers from another part of the 
country may try to transport the goods from the part 
affected. At the same time, in
the interests of the larger 
economy and the filfure prosperity of our country, a 
certain degree of freedom of trade must be guaranteed. 
My Friend, Mr. Krishnamachari has pointed out that 
this freedom clause in the Australian Constitution has 
given rise to considerable trouble and to conflicting 
decisions of the highest Court. There has been a feeling 
in those parts of Australia which depend for their 
well-being on agricultural conditions that their interests
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
are being sacrificed to manufacturing regions, and there 
has been rivalry between manufacturing and 
agricultural interests. 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. "{CAD Page No.JJ43 dated 08.09.1949/ 
24. Referring to reasonable restrictions that may be imposed by 
the States and the necessity to obtain sanction from the President, Shri 
Alladi Krishnaswami Ayyar further observed as under:-
Shri Alladi Krishnaswami Ayyar: .... "Therefore, if on 
account of parochial patriotism or separatism, without 
consulting the larger interests of India as a whole if 
any Bill or amendment is introduced, it will be open to 
the President, namely, the Cabinet of India to withhold 
sanction. This is therefore a very restricted power that 
is conferred on the legislature of a State. After all what 
is the nature of the power given? The power is co1ifined 
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 grant sanction will have the 
opportunity to see that the legislation is in the public 
interest and that the restriction imposed is reasonable. 
It is not possible to devise a water tight formula for the 
purpose of de.fining these restrictions. " [CAD Page 
No.II44 dated 08.09.1949/ 
25. The purpose of including Part XIII in the Constitution as emerges 
from the Constituent Assembly Debates was to ensure the interest of 
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the larger economy of the nation and to prevent unreasonable trade 
barriers in the free flow of trade, commerce and intercourse, impeding 
economic growth. Framers of the Constitution considered flow of trade, 
commerce and intercourse throughout the territory oflndia as important 
for economic unity, but they did not deify trade, conunerce and intercourse 
nor they entertained any fetish for it. In fact, freedom of trade, commerce 
and intercourse was initially meant to be a fundamental right but was 
removed from the part pertaining to 'Fundamental Rights' as it was 
considered that it did not have any great content as a fundamental right. 
26. It was considered that freedom of trade, commerce and 
intercourse need not be kept at such a high pedestal. It is apposite to 
refer to the following relevant Debates of the Constituent Assembly. 
"Atul Chandra Gupta (Advocate, Calcutta High Court) 
has suggested that clause (b) of article 244 should be 
deleted as this clause negatives articles 16 and 243 by 
its vague generality. 
Note: Clause (b) of article 244 is based on the 
recommendation of the Advisory Committee as adopted 
by the Constituent Assembly. The Drafting Committee 
has considered it necessary to substitute for the words 
"in the interest of public order, morality or health" which 
occur in the said recommendation, the words "in the 
public interests". [The Framing of India's Constitution
(Vol. 4) (Page 328)] 
Shri C. Subramanian (Madras : General): " .... There 
are three.Articles 243, 244 and 245 which deal with 
this subject 'inter-state trade and commerce' in the body 
of the Dra,ft. Then in the list of legislative powers in 
the Union list, we find in entry 7 3 "inter-state trade 
and commerce subject to the provisions of entry 23 of 
List No. II". Then item 32 in List II is "trade and 
commerce within the state; markets and.fairs "; and item 
33 refers to the "regulation of trade, commerce and
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
intercourse with other States for the purposes of the 
provisions of article 244 of this Constitution." Therefore, 
you will find inter-state trade and commerce, subject to 
article 244, is a Union subject. Parliament can deal 
with it. Trade and commerce within the state and inter-
state commerce as provided in article 244 are given to 
the State Legislatures. You will .find, Sir, that in article 
244, even though it might be 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 commerce, the State Legislature has been given 
certain powers and that is not touched by 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 
lndia shall be free". I really fail to 11nderstand how 
this can be a f11ndamental 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 legislat11re either of the Union 
or of the State. To put it in other words, the sovereignty 
vests in the public, hut that sovereignty is delegated to 
the
legislatures or the sovereignty is expressed through 
the legislatures in respect of certain subjects. {CAD Page 
No. 798, 30.07.1949-18.09.1949] 
The Honourable Dr. B.R. Ambedkar: ... . Now, I quite 
appreciate the ar~ument that this article 16 is out of 
place in the list of fimdamental rights, and to some 
extent, I agree with Mr. Subramaniam. But I shall 
explain to him why it was found necessary to include 
this matter in the fundamental rights. My Friend. Mr. 
SUbramaniam will remember that when the Constituent 
Assembly began, we began under certain limitations. 
One of the limitations was that the Indian States would 
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join the Union only on 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 ..... Or to put it 
briefly and in a different language, they were not 
prepared to allow trade and commerce to be included 
as an entry in List No.I. 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 necessmy to bring 
trade and commerce under article 16, in the.fundamental 
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 purpose 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 hring it under 
.fimdamental rights. That is the reason why, awkward 
as it may seem, we thought that there was no other way . 
left to us, except to bring trade and commerce under 
fundamental rights. I think that will satis.fY my friend 
Mr. Suhramaniam why we gave this place to trade and
commerce in the list of fundamental rights, although 
theoretically, I agree that the subject is not germane to 
the subject-matter of.fundamental rights. 
With regard to the other argument, that since trade and 
commerce have heen made subject to article 244, we 
have practically destroyed the fundamental right, I 
think I may fairly say that my friend Mr. Subramaniam 
has either not read article 244, or has misread that 
artic(e .. 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
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
certain restrictions on the entry of goods manufactured 
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 good~ imported from 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 be free." [CAD Page No. 1125, 
30.07.1949 to 18.09.1949/ 
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27. After this discussion in the Constituent Assembly, Part XA, 
(presently Part Xlll of the Constitution) was moved and adopted in the 
present fonn. The fact that free trade and commerce in Part Xlll was 
initially introduced as a Fundamental Right and then shifted from the 
Part pertaining to Fundamental Rights indicates that the framers of the 
D 
Constitution considered that freedom of trade and commerce need not 
be exalted on par with Fundamental Rights. 
FREEDOM UNDER ART. 301 JS SUBJECT TO PART XIII 
AND OTHER PARTS OF THE CONSTITUTION PARTS III, 
JV AND Xll ETC.: 
28. An argument was advanced that Art. 301 is "subject only" to 
Part Xlll and the same cannot be restricted by general and special powers 
of the Constitution. In this regard, reliance was placed upon Constituent 
Assembly Debates where an amendment to Art. 274A was moved by 
Pandit Thakur Das Bhargav:"J want the word
'Part' to be substituted 
by the word 'Constitution '", which was not approved. Freedom under 
Art. 301 in the constitutional context does not mean freedom from all 
laws, it is subject to restrictions in Part XIII and also to other parts of the 
Constitution. 
29. Art. 301 provides for freedom of trade, commerce and 
intercourse throughout the territory of India. It strikes an eco-political 
balance required for the working of a federal structure. Art. 301 cannot 
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be interpreted as to mean a restriction on the plenary power of the State 
to impose tax in respect of the relevant "fields" in List II of the Seventh 
Schedule·ofthe Constitution. What it means is that such plenaty power 
of taxation shall not be used to create trade barriers or to discriminate 
between "goods manufactured within the State'· and "goods imported''. 
The expression in Art. 30 I "subject to" is a dominant expression. It 
indicates subservience of the freedom to Articles 302, 303 and 304. 
30. Considering the scope of the expression "subject to" this Court 
in K. T. Pla11tatio11 (P) Ltd v. State o( /(amataka (20 I l) 9 SCC I, 
observed: 
"Section 110 of the Land Reforms Act empowers the 
State Government to withdraw the exemption granted 
to any land referred to in Sections 107 and 108. Section 
I 07 itself has been made "su~iect to" Section 110 of 
D 
the Act. The words "subject lo " conveys the idea of a 
provision yielding place to another provision or other 
provisions to which it is made subiect. 
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65. In Black :1· Law Dictionary, 5'" Edn. At p. 12 78. the 
expression "subject to" has been defined as under: 
"Subject to - Liable, subordinate, subservient, i11feri01~ 
obedient to: governed or effected by: provided that: 
provided; answerable for. " 
66. Since Section 107 is made su~ject to Section 110, 
the former section conveys the idea of yielding to the 
provision to which it is made
su~ject that is Section 110 
which is the will of the legislature .... " 
31. Interpretation of the Constitution should emerge from a reading 
of the whole of the Constitution to ensure that the overall objectives are 
achieved. Part XIII as a whole is based on a balanced scheme and it 
should be interpreted with reference to other parts of the Constitution 
including Part III, Part XII and Articles 3 8 and 39 of the Directive 
Principles of State Policy. Each of these Parts must be read not in 
isolation or as water tight compartments but harmoniously as a logical
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
whole. The Constitution must be treated as a logical whole and provisions 
arc not to be read in isolation. In Kesava11a11da Bharti v. State of 
Kera/a, (I 973) 4 SCC 225, the Court stated: · 
"56 . .... It is not right to construe words in vacuum and 
then insert the meaning into an article. Lord Green 
observed in Bidie v. General Accident. Fire and Life 
Assurance Corporation (1948) [All E.R. 995, 998] 
61. I may also refer to the observation of Gwye1: CJ., 
and Lord Wright: 
''A grant of the power in general terms, standing by 
itselj; would no doubt be construed in the wider sense: 
but it may be qualified by other express provisions in 
the same enactment, by the implications of the co/1/ext, 
and even by considerations arising out of what appears 
to be the general scheme of the Act. " (Per Giiye1: C.J. 
-
The Central Provinces and Berar Act. 1939, FCR 18 
at 42 MR). 
"The question, then, is one of constructio11 and in the 
ultimate resort must be determined upon the actual words 
used, read not in vacua hut as occurring in a single 
complex instrument, in which one part may throw light 
on another. The Constitution has been described as the 
federal compact, and the Construction must hold a 
balance between all its parts. " (Per Lord Wright -
James· v. Co111111011wealth ofAuS'tralia, 1936 AC 578 at 
613.) 
See also Kilwto Holloha11 v. Zachil/1111 and Ors. ( 1992) Supp 2 
SCC 651 [Paras 26 and 27]. 
32. In
T.M.A. Pai Fou11datio11 v. State of Karnataka, (2002) 8 
SCC 481, the Supreme Court stated:-
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"148 . .... When constitutional provisions are interpreted, 
it has to he borne in mind that the interpretation should 
be such as to further the object of their incorporation. 
They cannot be read in isolation and have to be read 
harmoniously to provide meaning and purpose. They 
cannot be interpreted in a manner that renders another 
provision redundant. If necessary, a purposive and 
harmonious interpretation should be given. " 
It follows from the above decisions that while interpreting the 
Constitution the emphasis must be on reading· it as a whole, and in a 
manner that the intent and object ofno part of the Constitution is defeated. 
In this regard, there must be a holistic approach towards the provisions 
of the Constitution. 
33. Object of Part XIII is not to make inter-State trade, commerce 
and intercourse absolutely free. Part XIII will have to be read along 
with other Parts of the Constitution namely, Parts III, IV and XII along 
with the basic features of sovereignty and federalism. Free trade, 
commerce and intercourse is subject to the other provisions of Part XIII 
as well as other constitutional provisions. Art. 301 does not use the 
word subject 'only' to Part Xlll. The word "free" in Art. 301 is to be 
read not in isolation or in the limited context of Part XIII, but has to be 
read as part of the Constitution as a whole. The word "free" cannot be 
given a meaning which renders the
legislative powers of the State 
" ineffective. For instance, Art. 301 cannot be held to employ freedom 
from giving minimum wage, gratuity, providentfund etc. to the workers 
employed. 
34. Articles 302 to 304 are neither exceptions nor provisos to Art. 
301 and therefore, the principles of interpreting a proviso cannot be applied 
to them. But both Atiabari and Automobile proceeded on the footing 
that Art. 302 is in the nature of exception to Art. 301. 
Gajendragdkar J. inAtiabariheld: 
"Thus, the effect of Art. 302 is to provide for an 
exception to the general rule prescribed by Article 
301 .... " [Pages 853-854]
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
395 
[R. BANUMATHI, J.] 
Similarly, Das J. in Automobile held: 
A 
" .... The fact of the matter is that there is such a mix up 
of exception upon exception in the series of articles in 
Part XIII that a purely textual interpretation may not 
disclose the true intendment of Articles .... " [Page 520] 
" ... It seems to us that so far as Parliament is concerned, 
Art. 303(1) carves out an exception from the relaxation 
given in favour of Parliament by Art. 302; the relation 
given by Art. 302 is itself in the nature of exception of 
the general terms of Art. 301. 
It would be against the 
ordinary canons of construction to treat an exception 
or proviso as having such a repercussion on the 
interpretation of the main enactment so as to exclude 
.fi·om it by implication what clearly falls within its express 
term .... " [Page 528] 
The above view inAtiabari and Automobile is not correct. Articles 
302 to 304 embody re-statement of powers under Art. 246 and the Seventh 
Schedule. Each re-stated power by itself overrides the freedom in Art. 
301. 
35. Further the majority inAtiabari held that: 
" ... The doctrine of freedom of trade, commerce and 
intercourse enunciated in Art. 301 is not subject to the 
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other provisions of the Constitution, but is made subject 
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only to the other provision of Part XIII, that means, once 
the width and amplitude o,ffreedom enshrined in Art. 
301 are determined, they cannot be controlled by
any 
provision outside Part XIII ... " [Page 848] 
The majority appears to have read Art. 301 as "subject only to 
Part Xlll". In the opinion ofleamed author H.M. Seervai too, the majority 
view in Atiabari that Art. 301 is subject "only to Part III" was not correct. 
It is apposite to quote the relevant passage from H.M. Seervai 's book 
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on Constitutional Law of India, 4'h Edition, Volui:ne 3: 
" ..... The reasons are -
(1) It read into Art. 301 after 
the word~ "subject" the word "only" which is not there 
and this is contrary to well-settled principles of 
interpretation. Further, the power to make rules, referred 
to in Arts. 302 to 305 is governed by Articles 245 and 
246, and, therefore, subject to the provisions of our 
Constitution. (2) The proviso to Art. 304(h) which 
requires the previous consent of the President to a bill 
for the purpose of clause (h), necessarily takes us out 
of Part Xlll to Part XI, since Art. 255 in that part 
provide that the failure to obtain the previous sanction 
of the President to the introduction of the hill can he 
made good by his subsequent assent. It follows 
therefore that the freedom guaranteed by Art. 301 is 
not limited to restriction permitted only by Art. 304(h) 
for the proviso to it is overridden by Art.255 (3). Trade 
is dealt with not only in Art. 301 hut also in Art.19(l)(g) 
and the relation of that Article is necessary for a proper 
interpretation of Part XIII. Article l 9(l)(g) guarantees 
to every citizen the right to carry on any trade or 
business. But trade cannot he carried on without goods 
or property and the right to acquire, hold and dispose 
of property which is guaranteed under Art; 19(1) (f). 
Again, it is not only Art.303 which speaks of 
discrimination "Arts. 14 and 15 do
likewise and the 
relation o.f this Article to 303 must he considered. " [Page 
2591] 
The States are right in submitting that the majority view, both in 
Atiabari and Automobile, is not correct. Part Xlll and Freedom of 
Trade, Commerce and Intercourse will have to be read with other Parts 
of the Constitution, particularly, Part UI, IV and Xll and basic features 
of sovereignty and federalism.
JINDAL STAINLESS LfD. v. STATE OF HARYANA 
397 
[R. BANUMATHI, J.] 
QUESTION NO.I: CAN THE LEVY OF A NON-
A 
DISCRIMINATORY TAX PER SE CONSTITUTE 
INFRACTION OF ARTICLE 301 OF THE CONSTITUTION_. 
OF INDIA? 
Power to Tax is a11 illcide11t of State Sovereig11(v:-
B 
36. Entries relating to taxation and levy of duty under the State 
List, Seventh Schedule are Entries 46-62 and under the Concurrent List, 
Seventh Schedule are Entries 35, 43 and 44. The power to tax is a 
sovereign right of the State and is essential to the very existence of a 
Government. Any fetters on the power of the State to generate revenue 
through taxes have a direct impact on the autonomy and governance of C 
the State. 
37. The term 'tax· is ordinarily used to express the exercise of the 
sovereign power to raise revenue for the expenses of the Government. 
Judge Cooley in his memorable work on the "Law of Taxation" stated 
that taxation is a mode of raising revenue for a public purpose; and the 
D 
power of taxation is an essential and inherent attribute of sovereignty, 
belonging as a matter of r.ight to every independent Government. He 
defined the power of taxation as the power inherent in the sovereign 
State to recover a contribution of money or other property in accordance 
with some reasonable rule of apportionment from the property or 
E 
occupations within its jurisdiction for the purpose of defraying the public 
expenses: -
" ... It is obvious that it is an incident of sovereignty. and 
is
co-extensive with that to which it is an incident. Alf 
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subjects over which the sovereign power of a State 
extends are objects of taxation, but those over which it 
does not extend are, upon the soundest principles, 
exempt tram taxation. This proposition mav almost be 
pronounced self-evident. 
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The power of taxation is an essential and inherent 
attribute of sovereigntv, belonging as a matter o( right 
to everv independent Government. It is possessed bv 
the Government without being expressly conferred by 
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the people. The power is inherent in the people because 
the sustenance of the government requires contributions 
ti-om them. In fact the power of taxation mav be defined 
as "the power inherent in the sovereign state to recover 
a contribution of money or other propertv, in 
accordance 
with 
some 
rea.1·01wbfr 
rule 
or 
apportionment, fi-oin the propertv or occupation within 
its jurisdiction for the purpose of Jefi·aving the public 
expenses". '' 
(Cooley, Taxation (4'h Edition) Pages. 72, 149 .. 150; 
Referred to i11 the Article Power to Tax by Herman M. 
Knoeller reported in Market Law Review Volume 22 
15-sue 3 April, 1938. ) 
38. This Hon'ble Court has held in a catena of cases that power 
to levy tax is a sovereign power of the State starting from Raia 
Jagannatlt Baksh Singh 1•. Tlte State of U.P. and Anr., ( 1963) I SCR 
220, where this Hon'ble Court observed that:-
The power of taxation is, no doubt, the sovereign 
right of the State; as was observed bv Chie( Justice 
Marshall in M'Culloch v. Marv/and [.I Law Edn. 579 
p. 6071 : "The power o( taxing the people and their 
property is essential to the verv existence of Government, 
and mav be legitimatelv exercised 011 the objects to which 
it is applicable to the utmost extent to which the 
Government may choose to carrv it. " In that sense. it is 
not the .fimctio11 of the Court to enquire whether the 
power of taxation has been reasonably
exercised either 
in respect of the amount taxed or in respect of the 
property which is made the o~jec/ of the tax. Article 
265 of the Constitution provides that no tax shall be 
levied or collected, except by authority of law; and so, 
for deciding whether a tax has been validly levied or 
not, it would be necessary first to enquire whether the 
legislature which passes the Act was competent to pass
JINDAL STAINLESS LfD. v. STATE OF 1-IARYANA 
399 
[R. BANUMATI-ll. J.] 
it or not. " [Emphasis Supplied] [Page 232-233] 
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39. Power to tax is a sovereign powerand is legislative in character 
and it has to be exercised within the constitutiondl limitation. In State o( 
W.B. v. Kesoram Industries Ltd. and Others (2004) 10 SCC 20 I, it 
was held as under:-
"109. The primary purpose of taxation is to co/lee/ 
revenue. Power to tax may be exercised/or the purpose 
of regulating an industry, commerce or any other 
activity; the purpose of levying such tax, an impost to 
be more correct, is the exercise of sovereign power for 
the purpose of eflectuating regulation though 
incidentally the le1y may contribute to the revenue .... " 
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Power of taxation has been regarded as an inherent attribute of D 
sovereignty emanating from necessity. Same view was reiterated in 
Yadlapati Veukateswarlu v. State ofA.P. (1992) Suppl. (I) SCC 74 
[Para 9], State o( U.P. & Anr. v. Synthetics and Chemicals Ltd. & 
Anr. ( 1991) 4 SCC 139 [Para 44],Amrit Banaspati Co. Ltd. andA11r. 
v. State o(Punjah and A11r. ( 1992) 2 SCC 411 [Para 1 O]. Dena Bank 
v. Bhikhahltai Prahhutlas Parekh & Co. anti Ors. (2000) 5 SCC 694 
[Para 8]. 
40. Subject to the Constitution and its inherent restrictions, the 
power of taxation is regarded as political and supreme. Power to levy 
tax is indispensable for the existence of any civilized Government as it is 
a necessity for its support and maintenance. Without
taxes, for lack of 
source of revenue, the Government would become paralyzed. !-low much 
revenue is to be drawn and from which source is a matter of fiscal 
policy and wholly depends on the needs of a State. In order to support 
the existence of the State and its welfare activities, as mandated by the 
Directive Principles of the State Policy, the State is empowered to raise 
revenue through, (i) taxes and duties: (ii) loans raised by the issue of 
treasury ~ills, loans or ways and means ofadvances; (iii) fees for licenses; 
(iv) fees for services rendered; and (v) fines or other pecuniary penalties 
(Articles 199, 207 and 266). On behalf of the State, it was submitted 
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that there are fiscal limitations against taking loans in view of debt 
servicing; even otherwise tax is preferable as it is a mode ofre-distributing 
wealth in the form of public welfare. 
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41. In Elel Hotels & l11vestme11ts Ltd. and Otlters 1'. Union of 
India ( 1989) 3 SCC 698, it was held:-
"20 .... Tax at ion is no! now a mere source of raising 
money to defray expenses of Government. It is a 
recognized fiscal tool to achieve fiscal and social 
objectives ... ·· 
42. Parts XI and XII of the Constitution deal with "Relations 
between the Union and the States'' and "Finance, Property, 
Contracts and Suits" respectively. Part XII dealing with finance etc. 
has been treated as Part dealing with the sovereign power of the States 
to impose taxes, which must always mean imposing burden on citizens 
and others in public interest. The power of taxation is vested in a sovereign 
State to carry on with the affairs of the Government. Our Constitution 
had laid the foundation of a Welfare State, very much extending the 
activities of the Government and the administration thus making it 
necessary for the State to impose taxes on a large scale and in much 
wider fields. The legislative competence of the Parliament or of the 
State Legislatures can only be circumscribed by express prohibition 
contained in the Constitution itself. The plenary powers of legislation 
vested in the Union and State Legislatures by the
Constitution are not 
subject to any limitations other than those imposed by the Constitution 
itself. 
43. In Maharaj Umeg Singh and Ors. '" The State o( Bomhav 
and Ors. AIR 1955 SC 540, this Court held that since the power of the 
State to legislate within its legislative competence is plenary and the 
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same cannot be curtailed in the absence of an express limitation placed 
on such power in the Constitution itself, there is no express prohibition 
on the legislative powers of the State to levy taxes on the goods entering 
into a local area for consumption, use or sale thereon. Taxes being the 
lifeblood of the State, they cannot be decimated by implication. 
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JINDAL STAINLESS LTD. v. STATE OF HARYANA 
401 
[R. BANUMATHI, J.] 
44. The power to tax is a sovereign power and is legislative in 
A 
character. In a federal system, the legislative power is exercised by 
distribution of powers between the Union and the States; both are 
supreme in their respective spheres. State's power despite the limited 
width of its field is plenary in nature. Except where the constitutional 
intent is express and clear, the State's plenary power ought not to be 
whittled down by interpretation. In the present reference, we are 
concerned with entry 52, List II "Taxes on the entry of good~ into a 
local area for consumption, use or sale therein". Entry tax is a tax 
levied on 'Entry of goods into a local area' for the purpose of consumption, 
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use or sale therein. States within their spheres are autonomous entities 
and have the competence to enact legislation in the fields enumerated in 
List II of Seventh Schedule. 
45. In the State List, there are eighteen entries on which the State 
Legislature has the power to levy taxes. States and only States have 
power to enact legislation in the above fields levying taxes and raise 
revenue. The above entries in List II relating to the imposition of taxes 
by the States, despite the limited width of its field are plenary in nature. 
States must have revenue to cany out their administration and the States 
are entitled to raise revenue by exercising its power to tax. Such an 
important power of taxation
expressly granted under the Constitution 
cannot be allowed to be whittled down and made subservient to trade, 
commerce and intercourse. 
46. Tax has always been treated as a distinct entity and is kept on 
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a pedestal separate from all the other legislative fields of the Seventh 
Schedule. It is worth repeating that the power of taxation is an inherent 
attribute of sovereignty emanating from necessity. As noted earlier, the 
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exaction is not merely fundamental for existence of the State but also to 
support the welfare activities, therefore, it fonns a pre-condition for 
exercise of other legislative power. The special status conferred on taxing 
statutes is evident from the following special provisions: Article 265 
provides that no tax shall be levied or collected except by the authority 
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of law; therefore there can be no levy or collection by exercise of 
executive power. Tax legislations are given the status of Money Bills 
under Articles 110 and 199 of the Constitution and, therefore, have a 
different laying procedure. They can originate only in the lower houses 
of the Parliament and the State Legislature as per Articles 109 and 198. 
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A · Being a Money Bill, all the revenue is sent to the Consolidated Fund and 
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Freedom in Art. 301 does not mean freedom from taxation:-
47. Historically, Art. 301 was meant to do away with barriers 
between 'Native States' and the rest oflndia. Thus, Art. 301 should be 
interpreted in the light of the object i.e. "economic integration of the 
nation", as opposed to being aimed at any or every action which can 
possibly have an impact on trade, commerce and intercourse. "Free" in 
Art. 301 does not mean freedom from taxation; taxation simpliciter is 
not within the purview of Art. 301. In a sense, every tax imposed~by a 
State Legislature may have an indirect effect on the flow of trade, 
commerce and intercourse. If the power of the State Legislature to 
enact any tax laws is held to be subject to the limitation under Art. 301, 
the legislative power of the State to levy taxes under various entries in 
List II would be rendered ineffective. 
48. In various provisions in Part XII of the Constitution certain 
restrictions have specifically been incorporated on State's power to levy 
tax. Restrictions as to imposition of tax on the sale or purchase of 
goods [Art. 286]; Taxes on professions, trades, callings and 
employments, in tenns of which power of the State Legislature is limited 
to levy tax on professions where the total amount
payable is not exceeding 
rupees two thousand and five hundred per annum [Art. 276(2)]; the 
limitation on State's taxing power imposed by the Constitution itself or 
power is given to Parliament to provide the limitations by a law [ Art.286 
(2) and (3)]; Exemption from taxation hy States in respect of water 
or electricity in certain cases and the power of the State Legislature 
to levy such tax after obtaining assent of the President [Articles 288, 
288 (1) and (2)]; Identically, there are at least five entries in List II 
[entries 50, 51, 54, 55 and 57] which specifically provide that they are 
subject to the limitations/principles prescribed by Parliament by law made 
under List I and List III. 
49. In the Constitution, wherever exemption from taxes were 
contemplated, they were expressly provided for-Exemption of property 
of the Union from State taxation [Art. 285]; Exemption from taxes 
on electricity [Art. 287]; Exemption.from taxation hy States in respect
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
403 
[R. BANUMATHl, J.] 
of water or electricity in certain cases [Art. 288]: Exemption of A 
property and income of a State from Union taxation [Art. 289]. 
Exemption from tax power of Parliament/State Legislature must thus be 
provided expressly and unambiguously. Art. 289(2) shows that the trade 
or business carried on by, or on behalf of, the Government of the State, 
can also be subjected to tax and the tax could be "to such extent", if 
any, as Parliament may by law provide. When even the trade or business 
carried on by or on behalf of the Government of the State can also be 
subjected to tax, it would be erroneous to hold trade, commerce and 
intercourse carried on by private individuals and companies in the country 
free from tax; and that too, by implication. 
50. It is well-settled that even Fundamental Rights in Part III of 
the Constitution are not immune from taxation and taxation has been 
held to be "not a restriction''. In Indian Express Newspapers 
(Bombay) Pl't. Ltd. am/ Ors. etc. "· U11io11 of India and Ors. etc. 
( 1985) I SCC 641, levy of indirect tax on newspaper industry, through 
levies on imported newsprints was challenged as violative of Art. 
19(l)(a). Holding that press is not immune from taxes it was held:-
"49 • .... Yet the American courts have recognized the 
power of the State to levy taxes on newspaper 
establishments, of course, su~ject to judicial review by 
courts by the application of the due
process of law 
principle .... Taxation is the legal capacity of sovereignty 
or one of its governmental agents to exact or impose a 
charge upon persons or their property for the support 
of the government and for the payment for any other 
public purposes which it may constitutionalf-v carry out. 
65. Newspaper industry enjoys two of the fundamental 
rights, namely the freedom of speech and expression 
guaranteed under Article 19(1) (a) and the ji·eedom to 
engage in any profession. occupation. trade. industry 
or business guaranteed under Art. 19(1) (g) of the 
Constitution, the first because it is concerned ·with the 
field of expression and communication and the second 
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because communication has become a11 occupation or 
profession and because there is an invasion of trade, 
business and industry into that field where fi'eedo111 of 
expression is being exercised. While there cu11 be no 
tax on the right to exercise (i-eedom of expression. tax 
is leviahle on profession, occupation. trade, business 
and industrv. Hence tax is /eviable on newspaper 
imiustrv. But when such tax transgresses into the field 
of freedom o( expression and stifles that freedom, it 
becomes unconstitutional. As long as it is with in reasonable 
limits and does not impede freedom of expression it will 
not he contravening the limitation o(Art.19(2). The 
delicate task of determining when it crosses ti-om the 
area ofprofession, occupation, trade. business or industry 
into the area of freedom of expression and interferes with 
that freedom is entrusted to the courts. 
69. In the case of ordinarv taxing statutes, the laws mar 
. 
.. 
. 
be questioned on~v !f they are either openly co1?fiscato1:r 
or a colourable device to confiscate. 011 the other hand. 
in the case of a tax on newsprint. it may be sufficient to 
show a distinct and noticeable burdensomeness, clearly 
and directly attributable to the tax. " [Emphasis added] 
51. In All Bihar Schools Association anti A11r. v. State o(Bilwr 
and Ors. (1988) l SCC 206, it was held that religious minority institutions 
are not immune from general laws
including tax measures and social 
welfare legislations. Similarly, in Printer.\· (Mrsore) Ltd. and Am. 1•. 
Asstt. Commercial Tax Officer and Ors. ( 1994) 2 SCC 434, after 
referring to Express Newspapers case, it was held that press is not 
immune from taxation or general law. Thus when even Fundamental 
Rights are not free from taxation, trade, commerce and intercourse cannot 
claim immunity from taxation. 
52. A1i. 304(a) allows levy of tax on goods impo1ied from other 
States, any tax, to which similar goods manufactured or produced in that 
State are subject so as not to discriminate between goods so impmied
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
405 
[R. BANUMATHI, J.] 
and goods so manufactured or produced within the State. Art. ·304(a) 
A 
states non-discriminatory tax does not impede the flow of trade, 
commerce and intercourse. A1t. 304(a) applies where the following 
conditions are cumulatively satisfied:-
(a) the State Legislature by law imposes a tax; 
(b) tax is imposed on goods imported into that State from other 
States or Union Territories; 
( c) a tax is also imposed on similar goods manufactured or 
produced in that State; and 
( d) there is no discrimination between goods imported and goods 
manufactured or produced in that State. 
When these four conditions are fulfilled, A1t. 304(a) provides a 
constitutional route to levy non-discriminatory tax. Under Art. 304(b ), 
the ban under Art.301 stands lifted even if discriminatory restrictions 
are imposed by the State Legislatures, provided they fulfill the following 
conditions-(a) such restrictions are in public interest; (b) they are 
reasonable; and ( c) they are subject to obtaining of prior sanction of the 
President before introduction of the Bill or amendment. 
53. While the States have legislative power to levy taxes on goods 
imported from other States, Art. 304(a) imposes restrictions on this power 
of the States to levy a tax on goods that would result in discrimination 
between goods imported from other States and similar goods 
manufactured or produced within the States. The non-obstante clause 
in
Art. 304 with respect to Art. 301, actually indicates that since tax does 
not fall within the purview of Art. 301, therefore, Art. 304( a) was brought 
in to provide against discrimination based on source or destination of 
goods. Art. 304(a) is thus a restriction on the tax powers of the States, 
not to discriminate between the goods imported into the State with similar 
goods manufactured or produced within the taxing State. 
54. Constituent Assembly Debates indicate that the framers of 
the Constitution while intending to guarantee free flow of trade, commerce 
and intercourse did not deify it. As discussed earlier, at the time of drafting 
Constitution, provision containing freedom of trade, commerce and 
intercourse which was initially shown as Fundamental Rights; but after 
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debates, it was shifted to a separate Part [Part XIII]. The framers of 
the Constitution did not intend that trade, commerce and intercourse is 
free from taxation. Art. 304 provides for the power of the States to 
impose taxes, subject of course, the levy is not discriminatory. Hence, 
Art. 3 0 I ought not to be read as freedom from tax laws. 
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55. In this regard, we may usefully refer to Constituent Assembly 
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Debates/Framing oflndia 's Constitution: 
Sliri Alladi Krishna.nvami Arvar 
"And then. "Provided that nothing in this section shall 
prevent any unit jiYJm imposing on good~ imported from 
other units the same duties and taxes to which goods 
produced in the unit are su/1ject". That is to say we 
ought not to differentiate; hut at the same time, goods 
coming in should not go scot free: they should be su~ject 
to the same duty as goods produced in the area" (The 
framing of lndia:s Constitution,. Select Documents by 
Universal Law, Law Publishing PJJt. Co. Pvt. Ltd. Vol.2 
Page.253) 
Gobind Ballabh Pant 
"There is unanimizy about the body- of this clause and it 
is clear that there should not be any discrimination 
against one unit by another unit. Otherwise we will be 
going against the very sense of a Union r4 Federal 
Constitution. If the units are to be discriminated against 
we will come to blows more often than otherwise. 
Therefore this should he avoided. "(The framing of 
India's
Constitution, Select Documents by Unil•ersal 
Law, Law Publishing Pvt. Co. Pvt. Ltd. Vol.2 Page.254) 
Sltri Krislwaswami Avvar 
"So far as article I 6 is concerned, the substance of the 
freedom of trade guarantee is preserved. 
We have 
prohibited the States and the Centre fi·om passing
JINDAL STALNLESS LTD. v. STATE OF HARYANA 
407 
[R. BANUMATlH, J.] 
discriminatorv laws·· [Constituent Assemb(v Debates 
A 
dated 30.07.1949 to 18.09.1949 (Page 1144)] 
56. A tax legislation could be challenged on the ground oflegislative 
competence as well as violation of Fundamental Rights guaranteed under 
-Part Ill of the Constitution. In Rai Ramkrisltna and Ors. v. Tile State 
o(Bilwr (1964) l SCR 897, this Court while holding that tax Statutes 
B 
were not beyond the constitutional limitation prescribed by Articles 14 
and 19 held that the challenge must however be dealt with caution and 
circumspection: 
"13 ..... .that taxing statutes are not bevond the pale of 
the constitutional limitations prescribed by Articles 19 
and I 4. and he also concedes that the test of' 
reasonableness prescribed by Ari. 304(bJ is justiciable. 
fl is, of course. true that the power of taxing the people 
and their property is an essential attribute of the 
Government and Government may legitimately exercise 
the said power by reference to the obiects to 1vhich it is 
applicable to the utmost extl'nt to which Government 
thinks it expedient to do so. The obiects to bl' taxed so 
long as they happen to be Within !he !egislalii"<' 
competence of the legislalure can be /axed by the 
{egislature according to the exigencies of its needs. 
because there can be no doubt that the State is e11tit!ed 
to raise revenue by taxation. The quantum of tax levied 
by the taxing statute, the conditions
subject to which it 
is levied, the 111u1111er in whiclt it is sought to be 
recm•ered, are a/I matters within the competence <~(the 
legislature, and ill dealing witlt the contention raised 
by a citizen that tile taxing statute co11traw11es Art. 19, 
courts would naturally be circumspect and cautious. 
Where for instance, it appear,\' that tlte taxing statute is 
plainly discriminato1~v, or provides 1w procedural 
machinery for asses.~ment and le1'Y of the tax, or tllat it 
is confiscatory, Courts would be just(fled in striking 
down the impugned statute as 1mco11stitutio11al. In such 
cases, the character of the material pro11i~·io11s of the 
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impugned statute is such that the Court would feel 
justified in taking the view that, in substance, the taxing 
statute is a cloak adopted by tlte legislature for achieving 
its confiscatory purposes. This is illustrated by the 
decision of this Court in the case of K11n11athet 
Tlwthunni Moopil Nair v. State of Kera/a [1961) 3 SCR 
77, where a taxing statute was struck down because it 
suffered from several fatal il?flrmities. On the other hand, 
we may refer to the case of Raja Jagannath Baksh 
Singh v. State of Uttar Pradesh [1962) 46 ITR 169 (SC) 
, ·ivhere a challenge to the taxing statute on the ground 
that its provisions were unreasonable was rejected and 
it was observed that unless the infit·mities in the 
impugned statute were of such a serious nature as to 
justify its description as a co!ourable exercise of 
legislative power; the Court would uphold a taxing 
statute. " [Emphasis supplied] 
57. In Hari Krishna Blwrgav v. Union o{lmfia and A11r. AIR 
! 966 SC 619, the Bench noting the effect the series of decisions has had 
on Ramjilal, concluded that although the power to tax is not a power 
that transcends fundamental rights, a taxing Statute cannot merely be 
challenged on the ground that it is harsh and excessive. It was observed 
as under:-
"l 0. it was urged that even if the exercise of the powers 
to compel deposits be regarded as not unconstitutional, 
its exercise is harsh and the
demand~ made by the State 
are excessive. Exercise of the taxing power by the State 
has undoubtedly to be tested in the light of the 
fundamental freedoms guaranteed by Ch. III of the 
Constitution. It is llOt a power wltic/1 tra11sce11ds· the 
f u11dame11tal rights, as was assumed in cert a ill earlier 
decisions : Ramjila/ v. Income-tax Officer (1951) 19 
!TR 174 (SC) ; Laxmanappa Hanumantappa v. Union 
of India (UOI) (1954) 26 !TR 754 (.S'C) ; and the view
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
expressed by Venkatarama Ayyar J .. in S. Anantha 
Krishnan v. State of Madras I.L.R. [1952] Mad. 933. 
But it is now settled by decisions of this Court (e.g.) 
Kunnathat Thathunni Moopil Nair v. The State of Kera/a 
and Another (1961) 3 SCR 77 that a taxing statute is 
subject to the "conditions laid down in Art. 13 of the 
Constitution ". A taxing statute may accordingly by open 
to challenge on the ground that it is expropriatory; or 
that the statute prescribes no procedure or machine1y 
for assessing tax, but it is not open to challenge merely 
011 the ground that the tax is harsh or excessive. " 
[Emphasis supplied] 
Consistent view taken in the above series of decisions and other 
decisions is that tax legislations can be challenged on the ground that 
they infringe the Fundamental Rights under Part III but that does not 
however mean that there is freedom from taxation or that tax is per se 
a restriction on Fundamental Rights or freedom of trade, commerce and 
intercourse. 
Tax is not a restriction per se: 
58. The above Constituent Assembly Debates and the history of 
Art. 301 show that freedom envisaged in Art. 301 is not freedom from 
taxation but only freedom from trade barriers. So long as the tax remains 
non-discriminat01y, its validity cannot be judged under Art. 301. Under 
Art. 246(3) of the Constitution, a 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 of the Seventh Schedule. Art. 246(3) is subject to 
clauses ( 1) and (2) of Art. 246 i.e. matters enumerated in Lists I and Ill 
of the Seventh Schedule. As per Art. 265, a tax can be imposed only 
under authority of law and there is no role of the Executive. Taxation 
includes the imposition of any tax as defined under Art. 366(28): 
"taxation" includes the imposition of any tax or impost, whether 
general or local or special, and "tax·· shall be construed 
accordingly. It is a sovereign power of compulsory exaction as a part 
of any burden by public authority for public purposes enforceable by 
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law. Imposing a tax is a compulsory exaction made for a public purpose 
without reference to any special benefit to the taxpayers. 
59. The taxing power of the State stands independently fortified 
by Parts XI and XII of the Constitution oflndia and can only be challenged 
on the ground of reasonableness. It needs no reiteration that power of 
States to levy taxes for the purpose of governance and carrying out its 
welfare activities is a necessary attribute of State's sovereignty and in 
that sense it is a power of supreme attribute. It is well-settled that taxes 
are levied in public interest and hence, cannot be considered a restriction 
per se on the enjoyment ofany freedom contemplated by the Constitution. 
It would be highly unjustified to view a taxing Statute as a restriction on 
individual freedoms. 
60. The essential characteristics of a tax are that: (i) it is imposed 
under a statutory power without the taxpayer's consent and the payment 
is enforced by law: (ii) it is an imposition made for public purpose without 
reference to any special benefit to be conferred on the payer of the tax; 
and (iii) it is part of the common burden. In Commis.\'ioner Hindu 
Religious Endowment.\·, 1lfadras v. Sri Laksltmi11dra Tltirtlta 
Swamiar o(Sri Shirur Afutt 1954 SCR l 005, the Constitution Bench 
has laid down the characteristics ofa tax which has since been consistently 
followed and it is as under:-
"
.... A tax is a compulsory exaction of money bv a public 
authority for pub/ ic purposes <?1?/iJrceab/e by law and 
is 11ot payment ".for services rrndered''. This defi'11itio11 
brings out, i11 all opinion. the essrntia/ characteristics 
of a tax as distinguished ji-r1111 utherjim11s of imposition 
·which, in a 7eneral sense. are i11cluded within it. ft is 
said that the essence of taxation is comp11lsio11, that is 
to say, it is imposed under statuto1y power 11'ithoul the 
taxpayer :1· consent a11d the payment is e1?fiJrced by law. 
The second characteristic of tax is that it is a11 i111positio11 
made for puhlic purpose without reference to any .1pecia/ 
benefit to be conferred on the paver of the lax. This is 
expressed by saying that the levy of tax is for the 
purposes of general revenue. which when collected
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
411 
[R. BANUMATHI, J.] 
revenues of the State. As the o~ject ol a tax is not to 
confer any special benefit upon anv particular 
individual there is as it is said, no element of "quid pro 
quo" between the taxpayer and the public authority. 
Another feature of taxation is that as it is a par/ of the 
common burden, the quantum of imposition upon the 
taxpayer depends generally upon his capacity to pay. " 
The above decision was followed in Indian Medica/Associatio11 
v. V.P. Stmtlw and Ors. ( 1995) 6 SCC 651 and also in State of Gujarat 
and Ors. 1•. Akhil Gujarat Pravas·i V.S. Mahamanda/ and Ors. (2004) 
5 sec J55. 
61. A five Judges _Bench of this Court in Federation of Hotel 
and Restaurant Association of J11dia, Etc. v. Union of India and 
Ors. ( 1989) 3 SCC 634 has held that mere excessiveness of a tax or 
even the circumstance that its imposition might tend towards diminution 
of the earnings or profits oft he persons of incidence does not per se and 
without more, constitute violation of Art. 19( I )(g). The relevant extract 
from the judgment is as under: 
"62. A taxing statute is not, per se, a restriction of the 
fi'eedom under Article 19(J){g!. The policv of a tax, in 
its effectuation, mig/11, of course, bring in some hards· hip 
in some individual cases. But that is inevitable, so long 
as law represents a process of abstract ion from the 
generality <~f cases and reflects the highest common 
fact01: Every cause, it is
said, has its martyrs. Then 
again. the mere excessiveness of a tax or eve11 the 
circumstance that its imposition might tend towards the 
diminution of the earnings or profits of the persons of 
incidence does 1101, per se, and without more. constitute 
violation of the rights under Article J 9(l)(g;." 
62. Similar view was expressed in Express Hotels Private 
Limited v. State of Gujarat and A11r. (1989) 3 SCC 677. A taxing 
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Statute is not per se restriction of the freedom under A1t. 19( I )(g): 
"28. So far as the argument that Fundamental Rights 
. 
. 
under Article 19(l)(g) are violated by a levy on a mere 
provision for luxury. without its actual utilisation. is 
concerned ii is settled lcnv that the mere excessiveness 
of a tax or that it affects the earnings cannot. per se. 
be held to violate Article 19(l}(g) .... '' 
63. A1i. 304(a) authorizes a State Legislature to impose a non-
discriminatory tax on goods imported from other States. Art. 304(a) 
does not prevent levy of tax on goods; what it prohibits is such levy of 
tax on goods as would result in discrimination between goods imported 
from other States and similar goods manufactured or produced within 
the State. The object is to prevent imported goods from being 
discriminated by imposition of a higher tax thereon than the local goods. 
Under Art. 304(b), States can impose reasonable restrictions on the 
freedom of trade, commerce and intercourse with or within that State as 
may be required in public interest; provided they obtain prior sanction of 
the President before introduction of the Bill. As taxes are levied for the 
purpose of raising revenue, they are not restrictions and are presumed 
to be in public interest. Thus, tax simpliciter is not a restriction ori the 
freedom of trade and commerce and is outside the purview of Art. 301. 
Majority l'iew in
Atiabari and Automobile: Need of re-
appreciatio11:-
64. In Atiabari Tea Co. Ltd. v. The State o(Assam and Ors., 
1961 SCR 809, Assam Legislature enacted the Assam Taxation (On 
Goods Carried by Roads or Inland Waterways) Act, 1954 acting on 
entry 56 of the State List and imposed tax at a rate of one anna per 
pound of tea in chest box, carried through the State of Assam by any 
means other than the railways and the air. The appellant who carried 
their tea to Calcutta in the State of West Bengal through the State of 
Assam assailed the validity of the Act inter alia on the ground that it 
violated Art. 30 I of the Constitution. Contention of the appellant was
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
that words of Art. 301 are very wide and unambiguous and that it would 
be unreasonable to exclude from its ambit a taxing law which restricted 
trade, commerce or intercourse either directly or indirectly. The 
respondent-State of Assam urged that the provisions of sovereign power 
of the State to levy tax under Parts XI and Xll of the Constitution stood 
by themselves and that the tax would not fall foul of Part XIII. 
65. After discussing various provisions of Part Xlll and after 
tracing the constitutional background, speaking for the majority, Justice 
Gajendragadkar held as under:-
" ........ Thus considered we think it would be reasonable 
and proper to hold that restrictions ji-eedom from which 
is guaranteed by Art. 301 would be such restrictions as 
directly and immediately restrict or impede the free flow 
or movement of trade. Taxes mav and do amount to 
restrictions: but it is onlv such taxes as directlv and 
immediately restrict trade that would fall within the 
purview o(Art.301. The argument that all taxes should 
he governed by Article 301 whether or not their impact 
on trade is immediate or mediate. direct or remote. 
adopts. in our opinion. an extreme approach which 
cannot he upheld. If the said argument is· accepted it 
would mean, for instance, that even a legislative 
enactment prescribing the minimum wages to industrial 
employees may fall under Part XIII because in an 
economic sense an
additional wage bill may indirectly 
affect trade or commerce. 
We are. therefore, satisfied 
that in determining the limits of the width and amplitude 
of the freedom guaranteed bv Art. 301 a rational and 
workable test to apply would be: Does the impugned 
restriction operate directly or immediately on trade or 
its movement?" [Page 860] [Emphasis Supplied] 
The majority based its opinion on the reasoning that any legislation 
whether taxing or otherwise which imposed any restrictions that had 'the 
effect of directly offending the movement or transport of goods would 
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A ·attract the provisions of Art. 30 I and its validity could be sustained only 
ifit satisfied Art. 302 or Art. 304(b) of the Constitution. 
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66. Sinha, C.J. in his dissenting judgment referred to the integration 
of"Native States" with the Government ofindia and how the "Native 
States" ultimately merged their individualities into India to emerge as 
one political unit with the result that what was called British India became 
under the Constitution' Part-A States', and the "Native States" became 
'Pai1-B States'. Sinha, C.J. pointed out that most of the "Native States'', 
big or small had their own taxes, cesses, tolls and other imposts and 
duties meant not only for raising revenue but also as trade barriers and 
tariff walls. In the background of those circumstances, it was necessary 
to abolish all those trade barriers and custom posts as also in the interest 
of national solidarity, economic and cultural unity and freedom of trade 
and commerce guaranteed in the Constitution by Art. 301. Observing 
that the power to tax is inherentin sovereignty, public purpose is inherent 
in every taxation and tax simpliciter is not an impediment to the freedom 
of trade, commerce and intercourse, Sinha C.J. held as under:-
" .... If that were so, all laws of taxation relating to sale 
and purchase of goods on carriage of goods and 
commodities, men and animals, from one place to 
another, hoth inter-State and
intra-State would come 
within the purview of Art.301 and the proviso to Art. 
304(h) would make it necessary that all .Bills or 
Amendments of pre-existing laws shall have to go 
through the gamut prescribed by that proviso. That will 
he putting too great an impediment to the power of 
taxation vested in the States and reduce the States' limited 
sovereignty under the Constitution to a mere fiction. 
That extreme position has, therefore, to be rejected as 
unsound. " [Page 827] 
Jn my opinion, another very cogent reason for holding 
that taxation simpliciter is not within the terms of Art. 
301 of the constitution is that the very connotation of
JINDAL STAINLESS LTD. v. SlATE OF HARYANA 
[R. BANUMATH.I, J.] 
taxation is the power of the Stale to raise monev for 
public purposes by compelling the payment by' persons, 
both natural and juristic. of monies earned or possessed 
by the1ri, by virtue of the facilities and protection 
afforded by· the State. Such burdens or imposts. either 
direct or indirect, are in the ultimate analvsis meant as 
a contribution by the citizens or persons residing in the 
State or dealing ivith the citizens of the State. for the 
support of the Government, with particular reference 
to their respective abilities lo make such contributions. 
Thus public purpose is implicit in even· taxation, as 
such. Therefore. when Part Xlll of the Constitution 
speaks of imposition of reasonable restrictions in public 
interest it could not have intended lo include taxation 
within 
the 
generic 
term 
"reasonable 
restrictions" ......... [Page 828] 
.... The obiections against the contention that taxulion 
was included within the prohibition contained in Part 
Xll! may thus be summarized: (/) Taxation. as such, 
always implies that it is i11 public interest. Hence. it 
would be outside particular restrictions. which may be 
characterized by the Courts as reasonable and in public 
interest. (2) The power is vested in a sovere1~~11 State to 
carry on Governme11t. 
Our Co11stit11tio11 has laid the 
foundations of a welfare State, which means very much 
expanding the scope of the activities of Government
and administration, thus making it necessary for the 
State to impose taxes 011 a much larger scale and in 
much wider flelcl.s. 
The legislative entries in the three 
lists referred lo above e111poweri11g the Union 
Government and the State Governments to impose 
certain taxations with reference to movemems (~f gooi.l.1 
and passengers would be rendered ineffective, if 110/ 
otiose, if ii were held that taxation simpliciter is within 
the terms of Art. 301. (3) {f the argument on behalf of 
the appellants were accepted, many taxes .. for example, 
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sales tax by the Union and by the States, would have to 
go through the gamut prescribed in Articles 303 and 
304, thus very much detracting from the limited 
sovereignty of the States, as envisaged by the 
Constitution. (4) Laws relating to taxation, which is 
essentialZv a legislative function of the 5iate. will become 
justiciable and ever:v time a taxation law is challenged 
as unconstitutional, the State will have to satisfy the 
courts - a course which will seriously affect the division 
of powers on which modern constitutions. including 
ours. are based. 
(5) Taxation 011 movement <~f' goods 
and passengers is not necessariZv an impediment. "[Page 
829] 
Article 301, with which Part Xlll commences. contains 
the crucial words "shall be free" and provides the key 
to the solution of the problems posed by the whole Part. 
The freedom declared by this Article is not an absolute 
freedom from all legislation. As alreadJ' indicated, the 
several entries in the three Lists would suggest that both 
Parliament and State Legislatures have been given the 
power to legislate in respect of trade, commerce and 
intercourse, but it is equally clear that legislation should 
not have the effect of putting impediments in the way of 
free flow of trade and commerce. In my opinion, it is 
equally clear that the freedom envisaged by the Article 
is not an absolute freedom from the incidence of taxation 
in respect of
trade. commerce and intercourse. as shown 
by Entries 89 and 92 A in List I, Entries 52, 54 and 56 
to 60 in List II and Entr:v 35 in List III. All these entries 
in terms .1peak of taxation in relation to different aspects 
of trade, commerce and intercourse. The Union and Slate 
Legislature, therefore, have the power to legislate bv 
way of taxation in respect of trade, commerce and 
intercourse, so as not to erect trade barriers, tariff walls 
or imposts. which have a deleterious effect 011 the free 
flow of trade, commerce and intercourse. That fi-eedom
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI. J.] 
has further bee11 circumscribed bv the power vested i11 
Parliament or i11 the Legislature of a State to impose 
restrictions in the public interest. Parliament has further 
been authorised to legislate in the way of giving 
preference or making discrimi11ation in certain strictlv 
limited circumsta11ces indicated in cl. (2! of Art. 303. 
Thus, 011 a (air construction of the provisions of Part 
XIII, the following propositions emerge: (!) trade, 
commerce and intercourse throughout the territorp of 
India are not abso!utelv free, but are subject to certain 
powers of legislation hv Parliament or the Legislature 
ofa State: (2) the fi·eedom declared bv Art.301 does not 
mean freedom fi·o111 taxation si111p/icite1; but does mean 
fi·eedom fi·om taxation which has the effect o( directly 
impeding the free Oow of trade, commerce and 
intercourse: (3) the freedom envisaged in Art. 301 is 
subject to 11011-discriminatorv restrictio11s imposed by 
Parliament i11 public interest (Art.302): (4) eve11 
discriminatory or preferential legislation may be made 
by Parliament for the purpose of dealing with a11 
emergency like a scarcity (d' goods i11 any part of India 
[Art. 303(2)]; (5) reasonable restrictions may he 
imposed by the Legislature of a State i11 the public 
interest [Art. 304(b)j; (6) non-discriminatory taxes may 
be imposed by the Legislature of a State on goods 
imported from another State or other States. if
similar 
taxes are imposed on goods produced or manufactured 
i11 that State [Art. 304(a)]: and lastly (7) restrictions 
imposed by existing laws have been continued. except 
insofar as the President may by order otherwise direct 
(Art. 305). [Page 831-832] [Emphasis added] 
67. A larger Bench of seven Judges was constituted in Automobile 
Transport (Rajastha11) Ltd. v. The State o(Raja.1·tfum and Ors. ( 1963) 
1 SCR 491, in which the validity of Rajasthan Motor Vehicles Taxation 
Act, 1951 and the Rules made thereunder was under challenge. Section 
4 of the Rajasthan Act required every owner of motor vehicle "used in 
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any public place or kept for use in Rajasthan" to pay tax at the 
appropriate rate specified in the Schedule to the Act. The appellants 
therein who were stage carriage operators challenged the validity of the 
Rajasthan Act on the ground that such levy contravened Art. 301 of the 
Constitution and was not saved by Art. 304(b) thereof. The validity of 
the Rajasthan Act was upheld by a majority of 4:3. Justice S.K. Das 
who spoke for the majority, agreed with the majority view of Atiabari 
that only those restrictions which directly and immediately restrict or 
impede the free flow of trade, commerce and intercourse would be in 
violation of Art. 301. But the majority in Automobile added a clarification 
that a regulatory measure or measures imposing compensatory taxes 
for the use of trading facilities would not come within the purview of 
reshictions contemplated by Art. 301 and such measures need not comply 
with the requirements of Art. 304(b ). 
68. While concurring with the majority view that the provisions of 
the Rajasthan Motor Vehicles Taxation Act 1951, are regulatory in 
character, delivering a separate judgment. Justice Subba Rao widely 
referred to Section 92 of the Australian Constitution to hold that the 
Court will have to ascertain whether the impugned law in a given case 
affects the movement directly or indirectly. It was held that "only if a 
tax directly and immediately affects the movement of
trade, it would be 
violating the freedom; on the other hand if the impact is indirect and 
remote it would be unobjectionable. 
69. On behalf of the assessees, it has been argued before us that 
the majority judgments in Atiabari and Automobile held that State tax 
legislation must confonn to Art. 304(b) in addition to Art. 304(a). The 
F 
thrust of the submissions made is that entry tax falls within the expression 
'restriction' under Art. 304(b ). They submit that the State legislation 
levying tax on the goods imported into the State may have to be justified 
under Art. 304(b ), if they are challenged as excessive in amount, to such 
an extent that they operate as a restriction on the movement of goods or 
G 
persons and impose a burden on_the freedom of trade and commerce. 
H 
70. Mr. P.P. Rao, Mr. Rakesh Dwivedi, Mr. V. Giri, Mr. Shyam 
Divan and Mr. Ajit Kumar Sinha learned Senior Counsel and other counsel 
appearing for the States advanced meticulous arguments that there is 
erroneous approach in the judgments of Atiabari and Automobile and 
they made the following submissions to fortify their contentions that the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
4I9 
[R. BANUMATHI, J.] 
majority views in Atiabari and Automobile are to be re-visited:-
A 
(i) Even though the majority refen-ed to Section 297 of the 
Government of India Act, 1935 and referred to the 
economic unity of the nation, no detailed discussion was 
done on the history of Part XIII and Constituent 
Assembly Debates which threw considerable light on 
B 
Part Xlll and consequently erred in holding that Art. 301 
read in its proper context imposes constitutional limitations 
on the legislative powers of the Parliament and the State. 
[Page 848] Majority in Atiabari held that :-
" .... the freedom of the movement of trade cannot 
he suhject to any restrictions in the form of taxes 
imposed on the carriage of goods or their 
movement, all that is meant is that the said 
restrictions can he imposed by the State 
Legislatures on~v after satisfying the requirement 
of Art. 304(b) .... " [Page 861}. 
Ii the said view of Atiabari is to be adopted then for each 
and every legislation, the State Legislatures will have to 
undergo the process of Art. 304(b). Tax is one important 
mode of raising revenue to enable the States to discharge 
its obligations as a Welfare State. Such plenary powers of 
the State legislature to impose taxes cannot be whittled down 
or made subservient to Ai1. 301. 
(ii) The majority read Art. 301 as subject only to the 
provisions of Part XIII. [Page 848] 
(iii) Majority drew support from the Constitutions
of 
Australia and USA however one does not find any 
provision comparable to Part XIII in Australian and 
American Constitution. Even Australia and USA now 
reject the "direct and immediate test" and have adopted 
"discrimination theory". 
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71. Learned Attorney General for India, Mr. Mukul Rohatgi has 
additionally submitted that bringing taxes within the purview of Art. 304(b) 
is completely foreign to the constitutional scheme of federalism as it 
wouid empower the President to, by virtue of proviso to Art. 304(b ), 
super-adjudicate over the sovereign power of the State and that the 
sovereign power of the State cannot be subjected to an implied limitation 
as it would destroy sovereignty, federalism and economic unity of the 
country. 
72. Art. 30 I guarantees freedom of trade and commerce from 
"restrictions" and not freedom from all "laws". With due respect, in 
C 
Atiabari, by application of "direct and immediate test", rather than 
examining the powers of the State Legislature to enact legislation with 
reference to the entries in List II, the majority has gone into the effects 
of the legislation. As per majority view ofAtiabari,Art. 301 is a limitation 
upon the exercise oflegislative powers of the State, which, in my view 
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negates or limits the legislative power of the States expressly granted 
under various entries in List II of the Seventh Schedule. As rightly 
contended by the counsel for the States, in Atiabari and Automobile, 
there was no detailed reference to Constituent Assembly Debates which 
throw considerable light on the scope of Part XIII. 
73. The view taken in Atiabari and Automobile that taxes may 
and do amount to
restriction, is flawed. Taxing power of the State stands 
independently fortified by Part XII of the Constitution and can be 
challenged only on the ground ofreasonableness. Through a series of 
judicial pronouncements, it is accepted that even a challenge to the taxing 
Statute under Articles l 9(l)(g), 14 and under Part lII of the Constitution 
has to be dealt with caution and only after great circumspection should 
the Statute be struck down. 
Freedom in Art. 301 is not freedom from taxation-
non-discriminatory taxes are outside the purview of Art. 301: 
74. In Atiabari, Sinha, C.J. took a different view of Art. 301 than 
the one taken by the majority and concluded as under:-
" ..... (2) the freedom declared by Art. 301 does not mean 
freedom from taxation simpliciter, hut does mean freedom
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
from taxation which has the effect of directly impeding 
the free .flow of trade, commerce and intercourse; ... ... " 
[Page 831] 
"Jn my opinion, another very cogent reason for holding 
that taxation simpliciter is not within the terms of Article 
301 of the Constitution is that the very connotation of 
taxation is the power of the State to raise money for 
public purposes by compelling the payment by persons, 
both natural and juristic, of monies earned or possessed 
by them, by virtue of the facilities and protection 
afforded by the State. Such burdens or imposts, either 
direct or indirect, are in the ultimate analysis meant as 
a contribution by the citizens or persons residing in the 
State or dealing with the citizens of the State, for the 
support of the Government, with particular reference 
to their respective abilities to make such contributions. 
Thus public purpose is implicit in every taxation, as 
such. Therefore, when Part XIII of the Constitution 
speaks of imposition of reasonable restrictions in public 
interest, it could not have intended to include taxation 
within the generic term "reasonable restrictions .... " 
[Page 828] 
According to Sinha C.J., every tax including a tax on 'movement 
of goods or passengers' was not necessarily an impediment or restraint 
in the matter of trade, commerce and intercourse. As per Sinha C.J., 
taxation by its very nature could not be included within the
tenn 
"reasonable restriction" used in Part XIII. The view of Sinha C.J. is a 
correct view and is in consonance with the consistent view taken by this 
Court that taxing statutes are not per se a 'restriction'. 
Atiabari and Automobile: Reference to Australian and 
American cases: 
75. The Commonwealth of Australia Constitution Act came into 
being in 1900. Chapter I, Part V lays down the powers of the Parliament 
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wherein, by virtue of Section 51 (i), Parliament is empowered to legislate 
with respect to 'trade and commerce with other countries, and among 
the States'. Chapter IV, Sections 81-105Adeal with 'Finance and Trade'. 
The most relevant provision in this Chapter, for our purpose is Section 
92 which has been consistently mooted upon and has evolved through 
several judicial pronouncements. Section 92 declares trade, commerce 
and intercourse to be absolutely free, subject only to imposition of custom 
duties. Further, Section 99 mandates that the Commonwealth shall not 
give preference to one State or any part thereof over another State or 
any part thereof while making any law or regulation with respect to 
trade, commerce or revenue. Under Section 102, the Parliament is 
authorised to make a law forbidding the States from making any 
preference or discrimination insofar as Railways are concerned, but with 
due regard to financial responsibilities incurred by States in connection 
with construction and maintenance of Railways. 
76. The Constitution framers while ascertaining the scope of 
freedom of inter-State trade and commerce in India deliberated upon 
Section 92 of the Austrnlian Constitution. Pandit Thakur Das Bhargav 
was in favour of making trade and commerce absolutely free in India. 
However, Shri T.T. Krishnamachari speaking for the Draft Committee 
brought out the difficulties which could have
been faced by guaranteeing 
absolute freedom of trade and commerce in India on par with Section 92 
of the Australian Constitution. 
77. The following observations of Shri T.T. Krishnamachari are 
relevant to be noted: 
" ... .I do not know if he realises that an ombnibus right 
such as the one that we recognise should not be given 
so far as freedom of trade and commerce is concerned, 
wl1ich perhaps has an echo in article 92 of the 
Australian Constitution, which has made the economic 
position of Australia a very difficult one today. They in 
Australia find that by reason of the fact that their 
provisions for amendment of the Constitution are so 
difficult that they are not able to amend the Constitution, 
and article 92 stands as a bar to any progressive
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
423 
[R. BANUMATHI, J.] 
legislation which they have u11dertake11. It may be right 
A 
or it may be wrong - the people ofA11stralia are behind 
the Government bu! when they wanted to nationalise 
banking, article 9:! of the Australian Constitution has 
been held as a bar to the Government '.1· power to 
nationalise the banks. There is no point in shutting the 
B 
hands of the ftlfure Government in operating this 
Constitution." 
[Constitutional Assembly Debates, Volume IX, Page.1142, 
dated 30.07.1949-18.09.1949) 
78. Shri T.T. Krishnamachari highlighted how Section 92 stood in 
between the nationalisation of private banks in Australia. This observation 
was probably made taking note of the view taken by Australian High 
Court, which was later affirmed by Privy Council in Commonwealth of 
Australia v. Ba Ilk o(New South Wales ( 1949) 79 CLR 497:[ 1950) AC 
235, (famously known as Bank Natio11alisatio11 Case). In 1947, the 
Australian Government decided to nationalise private banks in Australia. 
In line of this process, the Banking Act, 194 7, was enacted. However, 
the policy faced several controversies and was ultimately challenged 
before the courts. The Bank of New South Wales challenged the 
constitutional validity of Banking Act, 194 7. The High Court ofAustralia 
found certain provisions of the Act to be invalid and thus, struck them 
down. The Commonwealth Government appealed against the decision 
in the Privy Council,
however, the Privy Council affirmed the decision of 
the Australian High Court. 
79. Our Constitution framers noticed the problems which had 
emerged in relation to Hie trade and commerce provisions of the 
Australian Constitution. After deliberations, the phrase ''absolutely free" 
occurring in Section 92 of the Australian Constitution was not borrowed 
and incorporated in the Indian Constitution. While the framers oflndian 
Constitution took great caution to avoid the state of ambiguity faced in 
Australia with regard to freedom of trade and commerce, due to the 
judicial development in Atiabari and Automobile, confusions were sown 
in Indian scenario also. 
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80. Atiabari and Automobile adopted the ·Direct and Immediate 
test' which had evolved in Australia through a series of pronouncements 
[James v. State o(South Australia ( 1927) 40 CLR I; James v. Cowan 
(1932) A.C. 542; James v. Commo11wealth o(Australia ( 1936) A.C. 
578] and was dominantly relied upon in the Bank Natio11alisatio11 Ca.ve. 
In the Bank Natio11alisatio11 Case, it was held that Section 92 would be 
breached only where the law under challenge restricted trade and 
commerce directly and immediatelv. The Court observed that where 
the restriction is indirect or remote, the freedom provided by Section 92 
would not be impaired. The test on which every impugned legislation 
ought to be examined was formulated in the following terms: Does the 
law under challenge directly and immedialely, as opposed to incidentally, 
restrict the trade and commt!rce in which the individual was engagt!d? 
Atiabari and Automobile fundamentally concurred with the Australian 
cases to hold 'tax' as a r.:striction for the purposes of Part XIII of the 
Constitution of India. Gajendragadkar, J. in Atiabari observed: 
"It is commo11place to say that the political and historical 
background of the federal polity adopted by the 
A ustra/ian Com111011wealth, the setting oft he Conslitution 
itself, the distribution of powers and the general scheme 
of the Constitution are differe11t, and so it would to be 
safe to seek j(n·
guidance or assistance from the 
Australian decisions when we are called upon lo 
co11strue the provisions of our Co11stitulio11. ". 
Gajendragadkar, J. further relied on the Bank N11tio11ali.rntio11 
· Case to borrow the concept of 'direct a11d immediate impediment on 
the freedom of trade and commerce' from the Australian system. 
Relevant extract from Gajendragadkar J. 's judgment is as under: 
"111 the case lJ( Commonwealth of .1 us/ralia v. Ba11k of 
New South Wales (1927! 40 C.L.R. I to which reference 
has already been made in connection with the /es/ of 
pith and substance the Privy Council was examining
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
the validity of s. 46 of Banking Act (Commonwealth) 
(No. 57 of 1947) in the light of the provisions of s. 92 of 
the Australian Constitution. In deciding the said question 
one of the tests which was applied by Lord Porter was : 
"Does the act not remotely or incidentally (as to which 
they will say something later) hut directly restrict the 
inter-State business of Banking", and he concluded that 
"two general propositions may he accepted, (1) that 
regulation of trade, commerce and intercourse among 
the States is compatible with its absolute freedom, and 
(2) that s. 92 is violated only when a legislative or 
executive act operates to restrict such trade, commerce 
and intercourse directly and immediately as distinct.from 
creating some indirect or consequential impediment 
which may fairly he regarded as remote". "[Page 870 
of SCR] 
81. Again in Automobile, reliance was placed on Australian and 
American cases, in particular on Commonwealth of Australia v. Bank 
of New South Wales and James v. Commonwealth of Australia to 
finally hold that 'tax' is a restriction for the purpose of Part Xlll of the 
Constitution. Subba Rao J. concurring with the majority view pointed 
out thar Art. 301 was borrowed from Section 92 of the Australian 
Constitution, and after referring to the differences in the language of 
both the provisions and evolution of federation in both the countries, 
Subba Rao J. chose to concur
with "doctrine of direct and immediate 
effect". Following observations ofSubba Rao J. clearly show that heavy 
reliance was placed by him on American and Australian decisions:-
"In this context, the principles evolved by American and 
Australian decision in their attempt to reconcile the 
commerce power and the State police power or the 
freedom of commerce and the Commonwealth power to 
make laws affecting that freedom can usefully be 
invoked with suitable modifications and adjustments. 
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Of all the doctrines evolved, in my view, the doctrine of 
"direct and immediate effect" on the freedom would he 
a reasonahle solvent to the difficult situation that might 
arise under our Constitution. {fa law, whatever may 
have heen its source, direct~v and immediately affects 
the free movement of trade, it would he restriction on 
the said.freedom. But a law which may have only indirect 
and remote repercussion on the said freedom cannot he 
considered to be a restriction on it. " 
82. The above views taken in Atiabari and Automobile in the 
light of the Australian cases represent a mechanical implantation of a 
foreign concept into the Indian legal system, not keeping in view the 
distinct features ofindian Polity and the Constituent Assembly Debates. 
Majority view in Atiabari and Automobile do not appear to have taken 
note of the historical background of merger of'Native States' with their 
individualities, with British India, and the federal nature of the Indian 
Constitution while discussing the fundamental question as to whether 
'Freedom' in Art. 301 meant freedom from tax. The majority appears to 
have: begun with the presumption of tax laws being subservient to Art. 
301 and later concluded that if all the tax laws are brought in Art. 301, 
State's legislative power to tax would be destroyed. Thereafter, in an 
attempt to save the taxing power of the State, they borrowed the concepts 
of
'direct and immediate test' and 'compensatory tax' from the 
Australian and American Cases. 
83. ln this regard, learned author H.M. Seervai in Constitutional 
Law of India, 4•h Edition, Volume 3 has observed as under: 
"It is suhmitted that the principles of interpretation 
adopted by the majority judgment in the Atiahari case 
and hy all the judgments in the Automohile case depart 
widely from well settled principles of construction. They 
.first try to ascertain the intention of the framers of the 
Constitution, by reference to 'history' and then proceed 
to consider what construction would best effectuate that 
intention. But if an intention is to be first assumed, it is
JfNDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
not difficult to read ii into the words to be interpreted. 
It is submitted that words have to be interpreted 
according to I heir terms, or according to well known 
extrinsic aids to construction" [Page 2598] 
Mr. Seervai has a !so pointed out that the very observation that the 
Australian scenario is akin to the Indian scenario was flawed. It is obscure 
how the comparative study of the Australian and Indian Constitutions 
undertaken by this Court inAtiabari and Automobile lead to a conclusion 
that interpretation of Section 92 as done in .Bank Nationalisation Case 
can be suitably adopted in Indian set-up. Mr. Seervai at Page 2599 
observed as under:-
" ... provisions of part Xlll of our Constitution are 
radically different. The judges who cite the Australian 
decisions repeat the warning that ii is not safe to interpret 
the provisions of the Constitution by reference to 
decisions on other Constitutions, nevertheless those 
decisions are not only referred to but are found to 
support the interpretation that a tax may amount to a 
restriction under Article 301. But it is submitted that the 
decision in James v. Commonwealth of Australia. that a 
tax may amount to a 'restriction' cannot support the 
conclusion that a tax is included in Article 301 ... " [Page 
2599] 
84. Interestingly,.the Australian cases relied upon inAtiabari and 
Automobile failed to withstand the test of time. As of today, by virtue of
a seven Judges Bench, judgment of the High Court of Australia, the 
decisions in James v. Common Wealth and Bank Natirnwli.mtirm Cm·e 
stand overruled. In Cole v. Whitfield ( 1988) 78 ALR 42, the High Court 
of Australia considered Section 92 and other ancillary provisions relating 
to freedom of trade and commerce and found the test of "direct and 
immediate effect" to be insignificant; the Court held as under:-
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"48. Departing now from the doctrine which has failed 
to retain general acceptance, we adopt the 
interpretation which, as we have shown, is favoured by 
history and context. Jn doing so, we must say something 
about the resolution of cases in which no impermissible 
purpose appears on the face of the impugned law, but 
its effect is discriminatory in that it discriminates against 
inter-State trade and commerce and thereby protects 
intra-State trade and commerce of the same kind .... " 
85. In Cole v. Whitfield, the High Court while disapproving of 
the "individual rights" approach authoritatively adopted in Bank 
Nationalisation Case held that Section 92 guarantees freedom ofinter-
State trade and commerce only against the discriminatory protectionist 
burdens. This decision brouglit to an end the "quite unacceptable state 
of affairs" then attending Section 92 of the Constitution, as the preceding 
eighty years of judicial development concerning freedom of inter-State 
trade, commerce and intercourse in Australia "had yielded neither 
clarity of meaning nor certainty of operation". Cole v. Whitfield 
laid down that for a burden to be 'protectionist' it must 'discriminate' 
against inter-State trade or commerce in a 'protectionist sense'. The 
Court observed as under: 
"A law which has as its real object the prescription of a 
standard for a product or a service or a norm of 
commercial conduct will
not ordinarily be grounded in 
protectionism and will not be prohibited by s 92. But if 
a law, which may be otherwise justified by reference to 
an object which is not protectionist, discriminates 
against interstate trade or commerce in pursuit of that 
object in a way or to an extent which warrants 
characterization of the law as protectionist, a court will 
be justified in concluding that it nonetheless offends s 
92. ·· [Page 66]
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
429 
[R. BANUMATHI, J.] 
86. This requirement was based on an appraisal of the history of A 
Section 92, which showed that its purpose was the achievement of inter-
colonial free trade. As was observed in Bet(air Ptv Ltd v Western 
Australia (2008) 244 ALR 32: 
"S. 92 was not designed to create "'a laissezji1ire 
economy in Australia'"; rather, it had a more limited 
operation, to prevent the use of State boundaries as 
trade borders or barriers for the protection (~l intrastate 
players in a market from competition from inlerstate 
players in that market. " [Page 45) [Emphasis added] 
While the reasoning in Cole~·. Whitfield has been explained and 
developed in subsequent cases, fundamentally the judgment has withstood 
the test of time. 
87. From the above it clearly emerge~ that the ramshackle cottage 
on which the decision in Atiabari and Automobile was based has itself 
fallen down. Even the idea of "freedom" in respect of trade and 
commerce inAustralia has considerably changed to suit the dynamics of 
the present day trade and commerce. 
88. Similarly, Article I, Section 8, Clause 3 of the \JS Constitution 
empowers the Congress "To regulate commerce with foreign nations, 
and among several sla/es, and with the Indian Tribes". The power 
of the Congress is not restricted to regulation of trade between the States 
only, rather it can regulate international trade as well. So far as inter-
state trade is concerned, Congress
under the Commerce Clause is 
empowered to regulate broad areas of activities such as use of the 
channels of inter-State commerce, the protection of the instrumentalities 
of inter-State commerce, or persons or things in inter-State commerce, 
and activities that substantially affect inter-State commerce; whereas in 
the Indian Constitution, States have plenary power to legislate on the 
subjects enumerated in List II subject to the. Constitutional limitations. 
Atiabari and Automobile erred in relying on Freeman 11• J/ewit 329 
U.S. 249 (1946), which has been discarded by the US Supreme Court 
itself in Complete Auto Trmuit, inc. v. Charle.\· R. Bradv [1977] 
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U..'')SC 54: (1977) 430 US 274. In Complete Auto Transit, the US 
Supreme Court while dealing with an inter-State levy purported to be 
compensatory, formulated a four-part test to determine if a State tax 
violates the Commerce Clause: (i) Nexus: there must be a sufficient 
connection between the taxpayer and the State to warrant the imposition 
of State Tax Authority; (ii) Fair Apportionment: the State must not tax 
more than its fair share of the income ofa taxpayer; (iii) No discrimination: 
the State must not treat out-of-State taxpayers differently than in-State 
taxpayers; and (iv) Related to services: the tax must be fairly related to 
services provided to the taxpayer by the State. 
89. In view of the above, the position which stands good today is 
that the judgments of US Supreme Court, Privy Council and Australian 
High Court relied upon inAtiabari and Automobile have been overruled 
in Complete Auto Transit in USA and Cole v. Whitfield in Australia. 
The principle of'direct and immediate effect on the trade and commerce' 
has been rejected and it has been held that the norms of commercial 
conduct shall not be 'protectionist' or 'discriminatory'. The principles of 
'direct and immediate test' laid down in Atiabari and 'Compensatory 
Taxes' enunciated in Automobile arc to be overruled and minority 
judgment of Sinha, C .J. that' tax simpliciter' is not violative of Art. 30 I 
is to be affirmed. 
Art.304
(a) and (b) must be read di.\j1111ctive(p: 
90. As the word "restrictions" in the marginal note of Art. 304 
suggests plurality of powers and indicates that Clauses (a) and (b) of 
F 
Art. 304 confer distinct powers. Art. 304(a) deals with tax; Art. 304(b) 
deals with restrictions that are reasonable and in public interest. 
Constitution framers could not have intended to include tax in A rt. 304(b ); 
since the elements of "reasonableness" and "public interest'' are 
inherent in a tax. The use of the word "and" does not assist the 
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interpretation that the provisions arc conjunctive. It only means that:-
(i) the State can impose taxes on goods coming from outside 
so as not to discriminate between the goods impotied and 
goods manufactured or produced within the State [Art. 304 
(a)]
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
431 
[R. BANUMATHI, J.] 
-and-
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(ii) It can also in addition impose other restrictions that are 
reasonable and in public interest [Art. 304 (b)] subject to 
the assent of the President. [Emphasis added] 
That Articles 304(a) and (b) are disjunctive, is also clear from the 
factthat the proviso to Art. 304(b) i.e. the presidential sanction is referable 
to A1i. 304(b) only and not to a law imposing tax on goods imported from 
other States contemplated under Art. 304(a). This is because, Art. 304(a) 
has an inbuilt safeguard, inasmuch the taxes imposed on the goods coming 
from another State cannot be discriminatory and, therefore, no presidential 
sanction is required. 
91. It is relevant to note that the word "and"' is used after semi 
colon in Art. 304(a). While it is correct to say that the word "and" 
normally is conjunctive, it is also often construed as disjunctive on the 
basis of the legislative intent as gathered from the words of the proviso 
under context in which it was used. Considering whether the word 
''and"' is co1tjunctive or disjunctive, in relation to Section 4(i) of Maharishi 
Mahesh Yogi Vedic Vislnvavidyalaya Adhiniyam, 1995, in Maltari.\·hi 
Ma/1esl1 Yogi Vedic Vi.~ltwavitlvalava v. State o( Mtufltva Prades/1 
anti Others (2013) 15 SCC 677 and observing that the word "and" is 
used as disjunctive, this Cowi held as under:-
93 . .... we also refer to the following decisions rendered 
by this Court in lshwar
Singh Bindra v.State of UP., 
AIR 1968 SC 1./50. wherein in para JI it has been held 
as under: (AIR p. 1454) 
"11 . ... It ·would be much more appropriate in the 
context to read it disconjunctively. Jn Stroud '.s 
Judicial Dictionarv, 3rd Ed11.. it is stated at p. 135 
that 'and' has generallv a cumulative sense, requiring 
the fulfilment of' all the conditions that it joins 
together, and herein it is the antithesis o( or. 
Sometimes, however, even in such a connection, it 
is. bv force o{ a context. read as 'or'. Similarlv in 
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Maxwell 011 Interpretation of Statutes. 1111!. Edn .. it 
has been accepted !hat 'to carry out the i11tention of 
the legislature ii is occasionallv found necessary to 
read the conjunctions "or" and "and" one f'or the 
other'. "[Emphasis supplied] 
94. We may also refer to pare/ 4 of the decision rendered 
by this Court in Director of Mines Safety v. Tandur and 
Nayandgi Stone Quarries (P) Ltd. (1987) 3 SCC 208 
(SCC p. 211, para 4) 
"4. According to the plain meaning, the exclusionl11:v 
clause in sub-section (1) of Section 3 of the Act read 
with the two provisos beneath clauses (a) and (b), 
the word 'and' at the end of para (b) of sub-clause 
(ii) of the proviso to clause (a) o,f Section 3(1) must 
in the context in which ii appears. be construed as 
'or'; and if so construed, the existence <d' a11y one 
of the three conditions stipulated in paras (a), (b) 
and (l) would al once attract the proviso lo clauses 
(a) and (b) of sub-section (1) o,f Section 3 and thereby 
make the mine subject to the provisio11s of the Act. 
The High Court overlooked the fact that the use of 
the negative language in each of the three clauses 
implied that the word ·and' used at the end of clause 
(b) had to be read disjunctively. 17wt construction 
of ours is in keepii1g with the legislative intent 
manifested by the scheme of the Act which is primariZv 
meant for ensuring the safety o,f workmen employed 
in the mines."
[Emphasis supplied) 
95 . ..... we are not inclined to hold that the expression 
"and" used in the Preamble. as well as in Section 4 
should be read conjunctively as con/ended by the 
learned counsel for the State. On the other hand, in the 
context in which the said expression is used, it will have 
to be .read as "or" creating a disjunctive reading of the 
provision. "
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
433 
[R. BANUMATHl, J.] 
92. In A.K. Gopalan v. State o(Madra.\' AIR 1950 SC 27, in the 
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context of Art. 22(7)(a) of the Constitution oflndia. Constitution Bench 
observed that since it is an enabling provision the word ·and' should be 
read disjunctively and held as under:-
"248 . .... . In fact clause (4) (b) contemplates the 
detention itse{f to be in accordance with 1he provisions 
of any law made by Parliament under sub-clause (a) 
and (b) of clause (7). Therefore, the detention can well 
be under the verv law which the Parliament makes 
under sub-clause (a) and (b) of clause (7). As lo the 
second point the arg11menl is that Parliament has a 
discretion under clause (7) to make u law and ii is not 
obliged to make any law but when our Parliament 
chooses to make a law it must prescribe both the 
circumstances under which, and the class or classes of 
cases in tvhich, a person may be detained for a period 
longer than three months. I am unable to construe 
clause (7) (a) in the way suggested by teamed counsel 
for the petitioner. 
It is an enabling provision 
empowering Parliament to prescribe two things. 
Parliament may prescribe either or both. If' a father 
tells his. delicate child that he mav plav tahle tennis and 
badminton but not the strenuous game of football, it 
obviouslv does not mean that the child, i( he chooses to 
plav at all, must play both table tennis and badminton. 
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It is an option given to
the child. Likewise, the 
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Constitution gives to Parliament the power of 
prescribing two things. Parliament is not obliged to 
prescribe at all but il it chooses to prescribe it mav 
prescribe either or both ...... " [Emphasis added] 
Applying the ratio in the above decisions since th,e expression 
'and' is used in A1t. 304 after semi-colon, it will have to be read as 'or' 
creating a disjunctive reading of Art. 304(a) and Art. 304(b) indicating 
that the State Legislature can exercise its power either under Art.304 
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(a) or Art. 304 (b) or both. 
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Whether Art. 304(b) coupled with the proviso is applicable to 
tax laws-Judicial Approach: 
93. In Atiabari, majority held that "tax laws" fall within the 
comprehension of Art. 301 and, therefore, any legislation whether taxing 
or otherwise which imposes any direct restriction on the movement or 
transpo1i of goods attracts the provisions of Art. 301, and its validity can 
be sustained only if it satisfies the requirements of Art. 302 or Art. 304. 
According to the above view in Atiabari, it is not possible for the State 
Legislature to pass any law at all with respect to some of the tax entries 
viz. sales tax (entry 54, List II); law relating to gambling (entry 34, List 
11) or tax on betting and gambling (entry 62, List II); and tax on the 
carriage of goods or passengers by road or inland waterways (entry 56, 
List II). lfthe legislations under the above entries are challenged on the 
ground that they operate as a direct restriction on the freedom of trade, 
commetce and intercourse, as per the view in Atiabari, these legislations 
may have to be justified under Art. 304(b). Atiabari approach would 
totally take away the sovereign powers of the State Legislature to enact 
laws in exercise of its powers under various taxing entries of List II, 
which could not have been the intention of the framers of the Constitution. 
ART. 304(b) JS APPLICABLE ONLY TO NON-FISCAL 
LAWS AND NOT TO TAX LAWS:-
94. Art. 304( a)
and Art. 304(b) are two distinct powers and freedom 
of trade, commerce and intercourse is subject to them. Art. 304(b) relates 
to reasonable restrictions imposed in public interest. Art. 304(b) deals 
F 
with non-fiscal legislation imposing reasonable restrictions in public 
interest and tax laws are not included under Art. 304(b ). In this regard, 
reliance has been placed on 'Interim Report of the Advisory Committee 
on the Subject of Fundamental Rights' dated 23.04.1947, as published 
in "The Framing of India's Constitution Select Documents-The 
Project Committee" by Universal Law Publishing Co. Pvt. Ltd. Learned 
G 
Senior Counsel Mr. Rakesh Dwivedi has taken us through the chain of 
events leading to Art. 304(b) and the proviso's present form in Art. 304(b ). 
Draft Article 10 of the "Justiciable Fundamental Rights"(page No.297 
of the said book) presently Part XIII as 'originally proposed' read as 
under:-
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"I 0. Subject to regulation by the law of the Union, 
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trade, commerce, and intercourse among the units by 
and between the citizens shall be free: 
Provided that any unit may by law impose reasonable 
restrictions in the interest of public order, morality or 
health or in an emergency: 
Provided that nothing in this section shall prevent any 
unit from imposing on goods imported from other units 
the same duties and taxes to which the good~ produced 
in t~e unit are subject: 
Provided further that no preference shall he given by 
any regulation of commerce or revenue by a unit to one 
unit over another." [Emphasis added] 
95. The first proviso to Draft Art. 10 corresponds to Art. 304(b) 
and second proviso relates to Art. 304(a). That first proviso to Draft 
Art. l 0 [Art. 304(b)] relates only to "public order, morality or health 
or in an emergency" is also made clear from the Constituent 
Assembly Debates/Advisory Committee Proceedings. In this 
regard, we may refer to the speech of Shri Alladi Krishnaswami Ayyar 
in the Constituent Assembly Debates, which is as under:-
"A/ladi Krislmaswami Ayyar: "Subject to regulation 
by the law of the Union, trade, commerce, and 
intercourse among the units by and between the citizens 
shall he free. " That is the general principle. Then come 
the exceptions, "Provided that any unit may by law 
impose reasonable restrictions in the interest of public 
order,
morality or health or in an emergency." Suppose 
there is a general famine, and people are starved, that 
is what is meant here to be dealt with. 
And then "Provided that nothing in this section shall 
prevent any unit from imposing on goods imported from 
other units the same duties and taxes to which the goods 
produced in the unit are subject. '·' That is to say, we 
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ought not to differentiate; but at the same time, goods 
coming in should not go scot-free; they should be subject 
to the same duty as goods produced in the area." 
[Emphasis Added] (Page. 253 of the said book of Select 
Documents-Project Committee) 
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96. In October 194 7, the Draft presented by the Drafting 
Committee shifted the then Art. 10 outside the Part on Fundamental 
Rights (Right of Freedom) to Articles 243 and 244 and the power under 
Art. 244(b) was kept within the States. A1t. 244(b) as adopted reads as 
under:-
"244. Notwithstanding anything contained in article 16 
or in the last preceding article of this Constitution, it 
shall be lawful for any State-
( a) to impose on goody imported.from other States any 
tax to which similar good~ manufactured or produced 
in that State are subject, so, however, as not to 
discriminate between goods so imported and goody so 
mam1factured 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 interest. " 
97. In this regard "Note to Art. 244 (b)" as referred to in Page 
328 of the said book Framing of India's Constitution Select 
Documents-Project Committee reads as under:-
"'Note: Clause (b) of article 244 is based on the 
recommendation of the Advisory Committee as adopted 
by the Constituent Assembly. The Drafting Committee 
has considered
it necessary to substitute for the words 
"in the interest of public order, morality or health" which 
occur in the said recommendation, the words "in the 
public interests". [Page 328]
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
The above note clearly shows that after Debate, based on the 
recommendations of Advisory Committee the phrase "public order, 
morality or health or in an emergency" was substituted with the 
word "public interest". This clearly shows that the framers of the 
Constitution never intended to bring tax laws within the fold of Art. 304(b ). 
98. After Debate, first proviso to Draft A1t. 10 was adopted as 
Art. 274(D)(b) [present Art. 304(b)]. As seen from page 330 of the first 
Draft Constitution, the Committee was of the opinion that the first and 
second proviso should be transferred as independent clauses in the 
Chapter dealing with relation between the different States and the third 
proviso was found unnecessary in view of the opening words "subject to 
the regtilation by the law of the Union and, accordingly, the same was 
adopted in Art. 274(D)(b) [Present Art. 304(b)] which reads as under:-
"(b) impose such reasonable restrictions on the 
freedom of trade, commerce or intercourse with or within 
that State as may be required in the public interest. 
Provided that no Bill or amendment for the purposes 
of clause (b) of this article shall be introduced or moved 
in the legislat{1re of a State nor shall any Ordinance be 
promulgated for the purpose by the Governor or Ruler 
of the State without the previous sanction of the 
President. " 
99. If Art. 304(b) is also held to cover tax laws, it would amount 
to
empowering the States to make laws imposing tax even on the freedom 
of trade, commerce and intercourse. As such there is no such entry in 
List II of Seventh Schedule of the Constitution so empowering the States. 
Commenting on this, learned author H.M. Seervai in his Constitutional 
• 
Law of India 4'h Edition, Volume 3 observed as under:-.. 
"24.43. There are other reasons supporting the conclusion 
that a tax simpliciter is not a restriction on the freedom of 
trade. Article 304 itse(f makes a distinction between taxes 
and restrictions and the correct conclusion to draw from this 
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fact is that restrictions in Art.304 (b) do not include a tax. 
Secondly, by virtue of the non obstante clause, Art.304 (b) 
enables even discriminatory restrictions to be imposed which 
are forbidden by Art. 303 (1). 
We have seen that Art. 303(1) 
cannot possibly refer to taxes. Thirdly, the whole scheme of 
taxation in our Constitution would be complete~y dislocated 
if Art.304 (b) included a tax. The taxing powers of the Union 
and the States have been made mutually exclusive so that 
Parliament cannot deprive the States of their taxing powers 
as has happened in countries where the powers of taxation 
are concurrent. It would be swprising if the Union legislature, 
i.e. Parliament could not take away the taxing powers of the 
State legislatures and yet it would be open to the Union 
executive under Art.304 (b) to deprive the State legislatures 
of their taxing powers. Again, if restrictions include a tax, 
two questions would arise. As a matter of language, Art.302 
would then run: "Parliament may, by law, impose such 
restrictions, including a tax, on the freedom of trade and 
commerce or intercourse ... " The Article would then become 
a source of power because there is no legislative entry relating 
to a tax "on the freedom of trade" unless the residuary entry 
is resorted to, Art. 304 (b) would raise the same question, 
and there would be no residuary entry to resort to, and it 
would raise the
.fi1rther question whether the reasonableness 
of taxes is made justiciable under our Constitution. " [Page 
2607) 
Levy of taxes is the economic lifeline of the State. Framers of the 
Constitution never intended to include tax within the fold of Art. 304(b ). 
To give the Centre a veto over the plenary power of the State to levy the 
tax would completely distort the Centre-State balance and cooperative 
federalism. Such an interpretation bas no basis in the Constitutional 
Assembly Debates and is liable to be rejected. 
I 00. The rationale for the sanction of President contemplated by 
proviso to Art. 304(b) is apparent from the fact that trade and commerce 
with foreign countries and inter-State trade and commerce are subject 
matters in List I of the Seventh Schedule (entries 41 and 42, List I).
JINDAL STAINLESS LTD. v. STATE OF 1-IARYANA 
439 
[R. 13ANUMATHI. J.] 
Further, trade and commerce in production, supply and distribution of A 
industry controlled by the Union, food stuff>, including edible oils, seeds 
and oils; cattle fodder; raw cotton, cotton seed; and raw jute arc subject 
matters in entry 33. List Ill. Entry 34, List III deals with price control. 
Only intra-State trade and commerce is in List II (entry 26, List ll) 
subject to entry 33, List Ill, as stated therein. Parliament has thus 
B 
occupied an overwhelming space with respect to trade and commerce 
within the State also. It is in this backdrop that the State has been given 
power to impose reasonable restrictions on the freedom of trade, 
commerce and intercourse with or within that State with the proviso 
requiring presidential assent before the Bill is introduced. The rationale, 
therefore, is that a non-fiscal law of the State with respect to freedom of C 
trade, commerce and intercourse would be entrenching upon either the 
exclusive legislative field of the Parliament in List I or the occupied field 
of the Parliament in List lll. It follows that Art. 304(b) relates to non-
fiscal laws of the States. In the above context, the assent of the President 
envisaged in proviso to Art.304(b) would be somewhat akin to the assent 
D 
contemplated in Art. 254. Such assents are not judicially reviewabie. 
[vi de Kaiser-i-Hind (P) Ltd. and Anr. 1•. National Textile Corpn. 
(Ma//{/rashtra Nortlt) Ltd.
and Otlters (2002) 8 SCC 182. (Paras 23 
to 27)) 
l 0 I. If the framers of the Constitution intended that State legislation 
required sanction of the President for tax laws pertaining to inter-State 
trade, commerce and intercourse, the Constitution would have made an 
express provision in the Constitution. Art.274 says that no Bill or 
Amendment which imposes or varies any tax or duty in which States 
E 
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arc interested; or which alters meaning of·'agricultural income" under 
Income Tax Act or principles of distribution; or, imposes surcharge for 
Union purpose shall be introduced or moved in either House of Parliament 
except on the recommendation of the President''. This indicates the 
signifo:ance of revenue for States and also the limits on Union. If framers 
intended to have an identical framework in Art. 304 for State Tax Laws 
they would have expressly said so. Art. 288 also provides for the role of G 
President in the context of imposition of tax by States in respect of 
water and electricity. Under A1t. 288( I), the tax imposed by existing 
State laws would continue only subject to order passed by the President. 
Under Art. 288(2) the legislature of a State could impose a tax in respect 
of water or electricity stored, generated, consumed, distributed or sold 
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by an authority established under any existing law or any law made by 
Parliament for regulating or developing any inter-State river or river 
valley unless the law has been reserwd for the consideration of the 
President and has received his assent. This again shows that Presidential 
assent with respect to tax has to be specifically provided for. 
I 02. In the light of the;: above disi:ussion, the majority view in 
Atiabari, at Page 861 that the freedom of movement of trade cannot 
be subject to any restriction in the form of taxes and that such a legislation 
can be passed only after specifying the requirements of Art. 304(b), is 
not a correct view. I find merit in the submission made by Mr. Rakesh 
Dwivedi, Senior Advocate, that the Parliament has occupied an 
overwhelming space with respect to trade and commerce both with in 
and outside. the State and it is in this backdrop. that the State has been 
given power to impose such reasonable restrictions in "public i11teri:s(· 
on the trade, commerce and intercourst! with or within that State subject 
to the satisfaction of the proviso under Art. 304(b ). It follows, therefore, 
that Art. 304(b) relates to non-fiscal laws of the States. To subject the 
State's sovereign legislative levying tax to Presidential assent would in 
effect erode the pillar of federalism which this country is built on. In the 
absence of an express provision in the Constitution,
such presidential 
sanction for taxing laws cannot be read into the provision. 
Conclusion on Question No.l: 
103. Non-discriminatory taxes do not constitute infraction of Art. 
30 I of the Constitution. With due respect, the view taken in Atiabari 
and approved in Automobile Transport declaring that taxes do amount 
to restriction and that freedom of trade, commerce and intercourse cannot 
be subject to restriction in the form of taxes is not a correct view and are 
to be over-ruled. However, I am agreeing with the concept of 
compensatory tax evolved in the Automobile ca~·e for the reasons 
indicated while answering question Nos. 2 and 3. 
QUESTION NO. 4: IS THE ENTRY 1/l.X LEVIED BY THE 
STATES IN THE PRES~ENT BATCH OF CASES VIOLATIVE 
OF ART. 301 OF THE CONSTJTUTION AND IN 
PARTJCULAR 
HAVE 
THE 
IMPUGNED 
STATE
TINDAL STAINLESS LTD. v. STATE OF HARYANA· 
441 
[R. BANUMATHI, J.] 
ENACTMENTS RELATING TO ENTRY TAX TO BE A 
TESTED WITH REFERENCE TO BOTH ARTICLES 304(a) 
AND 
304(b) 
OF 
THE 
CONSTITUTION 
FOR 
DETERMINING THEIR VALIDITY? 
104. The core question which needs to be addressed is whether 
the tax levied under entry 52, List II would impinge upon Article 301. 
B 
Entry 52, List 11 reads as: "Tax on the entry of goods into a local area 
or consumption or sale therein". A bare reading of the entry would 
show that entry tax can be levied only on the satisfaction of the conditions 
in entJy 52 of List II namely: (i) the tax to be levied on the entry of goods 
into local area; (ii) entry of goods into the local area is for consumption, 
C 
use or sale therein. 
105. There are two other entries in the Constitution which also 
authorize the levy of taxes which fall essentially on the movement of 
tradables within the country, viz., entry 56 of the State List and entry 89 
of the Union List. Entry 56 of the State List empowers the State to levy 
"taxes on goods and passengers carried by road or inland 
waterways"; while entry 89 of the Union List contemplates the levy of 
"terminal taxes on good~ or passengers carried by railway, sea or 
ail; taxes on railway fares and freights". While there are variations 
in the operational fonn of taxes under entry 52, essentially these constitute 
a levy on entry of goods into a local area for sale, consumption or use 
therein. Under an entry
tax regime, a company, trading firm or an individual 
would be liable to pay entry tax on goods brought into a local area for 
consumption, use or sale therein. The core question which needs to be 
addressed in respect of entry 52, List II of Seventh Schedule is whether 
the tax levied under the said entry would impinge upon Art. 301. 
History and Purpose of Entry Tax: 
106. The tenn "Entry Tax" traces its history back to a particular 
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tax called "Octroi". The word "Octroi" comes from the French word 
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'octroyer' which means 'to grant' and in its original use meant 'an import' 
or 'a toll' or 'a town duty' on goods brought into a town. At first, octroi 
were collected at ports but being highly productive, towns began to collect 
them by creating octroi limits. They came to be known as "town duties". 
The term "octroi" appeared in the Scheduled Tax Rules framed under H
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the Government oflndiaAct, 1919. The expression signified a tax levied 
on entry into an area of a unit of local administration. The entry was re-
fashioned and enacted as item 49 of the Provincial Legislative List under 
the Government of India Act, 1935. Item 49 reads as "Cesses on the 
entry of good5 into a local area for consumption, use or sale therein". 
In B11rmah Shell Oil Storage and Dist11rbi11g Co. of India Ltd. 
Belgaum v. Belgaum Borough Municipality Belga11m Cell, 1963 SCR 
Suppl. (2) 216, the Supreme Court of India while distinguishing tenninal 
tax and Octroi held that the Octroi's leviable in respect of goods brought 
into a municipal area for consumption or use of sale. 
· 
107. When Government oflndiaAct, 1935 was enacted, terminal 
taxes were separated from octroi and were included in the Union List 
while octroi was allocated to the provinces. The term "octroi" was 
avoided because terminal taxes are also 'octroi' in a sense. This scheme 
has been adopted in the Constitution with the difference that in the entry 
relating to 'octroi' the word 'tax' replaces the word 'cess'. Levy of 
octroi was also criticized for being an obsolete method of the collection, 
involving stoppage of vehicles at the check posts outside the city limits, 
thereby obstructing flow of vehicular traffic, and causing wastage of 
business hours, loss of fuel etc. 
108. Entry tax like 'octroi' is a tax on entry of
goods into a local 
area for consumption, use or sale therein. However, entry tax is different 
from octroi, inter alia, in the following respects:- Firstly, it is not collected 
at the checkpost; but is payable by furnishing returns of the purchases 
from outside the local area or the details of the goods entered into the 
local area. Entry tax is easier to administer as returns are filed on self-
assessment and it avoids the harassment associated with octroi. Secondly, 
it is !mposed as an ad valorem tax as against octroi, which is generally 
a combination of specific and ad valorem levies. Thirdly, entry tax is a 
State-level levy while octroi is a local levy; entry tax revenue is treated 
as State revenue and is spent on local bodies for their development and 
the State in general. 
109. On behalf of the assessees, it was contended that proper 
meaning attached to the words "local area" in Entry 52 is an area 
admmistered by a local body like a municipality, a district Board, a local 
Board, a Union Board, a Panchayat or the like. In this regard, reliance 
has been placed upon Diamond Sugar Mills Limited v. State of U.P.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
[1961] 3 SCR 242, wherein this Court held as under:-
"Whether the entire area of the State, as an area 
administered hy the State Government, was also 
intended to he included in the phrase "local area", we 
need not consider in the present case. 
" ... We are of the opinion that the proper meaning to he 
attached to the word~ "local area" in Entry 52 of the 
Constitution, (when the area is a part of the State 
imposing the law) is an area administered hy a local 
body like a municipality, a district hoard, a local board, 
a union. board, a Panchayat or the like. The premises 
of a faetory is therefore not a "local area"." 
This Court in M.O. Shamsudhin v. State of Kerala (1995) 3 
sec 3 51 has also held that: 
"the expression local area has been used in various 
Articles of the Constitution nameZv 3(b) 12, 245(1). 246, 
277, 321, 323-A and 371-D. They indicate that the 
constitutional intention was to understand the 'local 
area' in the sense of any area which is administered by 
a local body. may be corporation, municipal board, 
district board etc. The High Court on this aspect held 
and in our opinion rightZv that the definition does not 
comprehend entire State as local area as the use of word 
'a' hefore 'local area' in the section is significant. " 
110. As discussed above, entry tax is not collected at the behest 
of municipality or a panchayat attached to a checkpost. It is payable by 
the assesses by
filing their returns. Entry tax is a State level levy, levied 
by State Legislature upon entry of goods into a local area for consumption, 
use or sale therein. The local authorities themselves cannot le•;y the 
tax. The power is that of State Legislature and of no one. In Bihar 
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Chamber of Commerce, this Court was faced with the task of 
. interpreting the tenn "local area" in the context of entry 52, List IL The 
Court observed that where State Legislature has levied a tax covering 
the entire State and proceeds of such tax are spent for common welfare 
activities of the State, the distinction between the State and the local 
areas practically disappears. In Bihar Chamber of Commerce, it was 
held as under:-
"12. . ... Where the local areas contemplated hy the Act 
cover the entire States the distinction between the State 
and the local areas practically disappears. (The 
situation would, no doubts he different if the local areas 
are co1?fined to a few cities or towns in the State and 
the levy is upon the entry of goods into those local areas 
alone. This is an important distinction which should he 
kept in mind while appreciating the aspect and also 
while examining the decisions of this Court rendered in 
fifties and sixties). The facilities provided in the State 
are the facilities provided in the local areas as well. 
Interests of the State and the interests of the local 
authorities are, in essence, no different .... 
36 .... Entry 52 empowers the State Legislature to levy 
this tax. The local authorities cannot themselves levy 
this tax. The power is that of the State Legislature and 
of none else. So long as the tax is levied upon the entry· 
of goods into a local area
for the purpose of 
consumption, use or sale therein, the requirement of 
Entry 52 is sati.~fied. The character of the tax so levied 
is that of entry tax -
by whatever name it is 
called ........ From the point of view of the entry tax, one 
may say that the State is a compendium of local areas. 
Spending for the purposes of the State is thus spending 
for the purposes of local areas. Situation may perhaps 
be different where the local areas are confined to a few 
cities or towns in the State. But where the local areas 
span the entire State. it cannot be argued that money 
spent for welfare schemes for improvement of roads,
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
445 
[R. BANUMATHI, J.] 
rivers and other means of transport and communication 
A 
is not spent on or for the purposes of local areas. The 
purposes and need~ of local areas are no different from 
the purposes and need~ of the State - not at any rate to 
any appreciahle degree ..... " 
The Entry tax is a State level levy and the entry tax revenue is 
treated as the State Revenue. As held in Bihar Chamber of Commerce, 
"the State is a compendium oflocal areas .... the purposes and needs of 
local areas are no different from the purposes and needs of the State." 
B 
As entry tax levy being a State-level entry, it is spent on the development 
C 
oflocal bodies and the State in general. When the entry tax is levied by 
the Entry Tax Act enacted by the State Legislature, the term 'a local 
area' contemplated by Entry 52 may cover the 'whole State' or 'a local 
area' as notified in the legislation. I agree with the views taken in Bihar 
Chamber of Commerce that from the view of Entry Tax, the State is a 
D 
compendium of local areas and where the local areas cover the entire 
State, the difference between the 'State' and 'a local area' practically 
disappears. 
111. Counsel appearing for the States contend that the burden of 
entry tax, if any, on the trader cannot by itself constitute a restriction on 
the inter-State movement of goods. To constitute a restriction per se on 
the freedom of trade, commerce and intercourse, levy of tax, in
conjunction with other factors should actually create a substantial 
advantage in favour of the persons who indigenously manufacture or 
produce goods as compared to the similar goods which are imported 
from outside the State. The sovereign power available to the State 
Legislature to levy tax cannot be decimated by every inconvenience 
that may be caused to a trader. If the tax is of such a character, that the 
burden, if any, borne by the dealer, can be absorbed by him as a part of 
his trade and business, then the trader will have to bear the same. It 
does not then make the tax discriminatory or create a restriction on the 
flow of goods from one State to another. 
112. Imposition of enfry tax is not merely "on movement or 
transport of good~"; consideration of entry 52, List II of Seventh 
Schedu:e shows that taxable event in the case of entry tax is entry of 
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goods into the local area where it is to be used, consumed or sold therein. 
If the goods mere]y enter into a local area and then move to another 
destination beyond that local area, no tax can be levied under entry 52. 
To attract a levy under entry 52, List IL the goods must come to rest in 
the local area where they are taxed in the sense that their further 
movement and transport stands terminated and the goods are supposed 
to be used, consumed or sold in that local area. Since the taxable event 
under entry 52 is not the mere entry of the goods into the local area, but 
the fact that the goods are also to be used, consumed or sold, the necessary 
sequiter is that the movement of goods is tenninated in that local area. 
Power to levy entry tax lies within the competence of a State Legislature. 
Since entry tax is leviable at the tennination of the movement of trade 
and 'the goods have entered the local area for the purpose of use, 
consrnnption or sale, the levy of entry tax does not restrict flow of trade, 
commerce or intercourse and is not violative of Arti. 301 of the 
Constitution. 
113. Taking us through various States' legislations, Senio:- Counsel 
Mr. Harish Salve on behalf of the assessees contended that the entry 
tax li:vied by State legislations are discriminatory and broadly classified 
the Entry Tax Statutes on discrimination into four different categories as 
undtr:-
States 
Alleged
discrimination 
Tamil Nadu/Andhra Pradesh/ 
En try tax levied only on 
Kerala/Jharkhand 
goods imported from other 
States; no levy of entry tax 
on the goods manufactured 
inside the State which is 
discriminatory. 
Assam/B ih ar/H aryan a/Kera la 
Facially. 
the 
legislations 
(Post)Jharkhand/West 
state that all goods are taxed; 
Bengal/Tamil 
but grant exemption to the 
N adu/M izoram/ Arunachal 
locally produced goods 
Pradesh/ Andhra Pradesh 
Orissa/M adhya Pradesh 
Local 
manufacturers 
are 
given the set- off of entry tax 
paid on raw materials and 
thus preferential treatment 
given to locally produced 
goods.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
447 
Chhattisgarh 
[R. BANUMATHI, J.] 
Excessive delegation to the 
executive to levy entry taxes 
up to 50% who in turn levy 
higher rate of entry tax on 
certain goods and lesser rate 
for similar goods which is 
discriminatory. 
Entry Tax levied only 011 goods imported from other States: 
No levy of EntlJ' Tax 011 the goods ma1111fact11red inside the 
State-Whether discriminatory. 
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114. Contention of the assessees is that entry tax is levied only on 
goods entering the local area from other States and there is no levy of D 
entry tax on the locally produced goods when they move from one local 
area to another; as goods imported from other States are being 
discriminated against, such levy is not saved under Art. 304(a). It is 
their contention that entry tax only on goods coming from outside the 
State and not intra-State entry of goods from one local area to another 
local ar~a or on movement of goods is a clear case of discrimination, 
offending Att. 304(a). 
E 
115. The assessees seek to nan-ow down the wide purport of the 
tenn ·any tax' used in Art. 304( a) by contending that equivalence should 
be brought about in the imposition of entry tax itself. By contending so, 
the appellants have become oblivious of the fact that the State Legislature 
is always free to provide for equivalence in the Entry Tax Act, and 
alternately make provisions for adjustments and set-offs in other 
enactments of Sales Tax or Value Added
Tax Acts. 
116. The tem1 'any tax' means any exaction by any impost or 
levy. The effect of all the taxes levied on the goods imported from other 
States and the ones manufactured within the State must be such that no 
discrimination is caused either to the imported goods or locally 
manufactured goods. Unlike Section 92 of the Australian Constitution, 
Ati. 304(a) does not talk of unifotmity. Section 92 of the Australian 
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Constitution reads as follows:- "On the imposition of uniform duties 
of customs, trade, commerce, and intercourse among the States. 
whether by means of internal carriage or ocean navigation, shall 
he absolutely free." No such restriction is imposed on the legislative 
pow~r of the States in India to ensure uniformity in levy of a particular 
tax. The raison d · etre for use of the expression "so, however, as not to 
discriminate" is to prohibit protectionism. Moreover, Constitution oflndia 
does not contain a provision similar to Section 55 of the Australian 
Constitution which mandates one tax law on one subject. In India, the 
State Legislature is nowhere obligated by the Constitution to ensure that 
the law imposing tax deals with one subject of taxation only. 
117. The chargeable event in the case of entry tax is entry of 
goods into a local area. By its very nature, entry tax does not contemplate 
impost on indigenous goods. Goods imported into a local area from 
another State are subjected to entry tax but goods entering into a local 
area from another local area of the same State do not attract entry tax. 
In this way, it may appear that goods imported from outside the State 
are put to a disadvantageous position but in tenns of tax treatment there 
is no discrimination. The essence of Art. 304(a) lies in ensuring equality 
of fiscal burden and absence of discrimination. In terms of Art. 304(a),
the only requirement is that the goods imported into the local area should 
not be discriminated against. As discussed infra, in tax treatment there 
is no discrimination between the goods. 
118. The expression 'any tax' used in Art. 304(a) is generic in 
nature and covers all taxes on goods which a State is competent to 
impose by virtue of Articles 245 and 246 read with List II of Seventh 
Schc,dule. A Scheme adopted by a State Legislature whereby several 
taxes are levied on the goods (either locally produced or imported from 
other States) under different heads, cannot be faulted with if it confom1s 
to the principle of equivalence and non-discrimination. For e.g., both 
sales tax levied under entry 54, List 11 and entry tax levied under entry 
52, List II are taxes on goods. lt is the burden of the tax which can 
discriminate and not the fonn. States are free to equalise the burden of 
entry tax on the goods imported from other States by giving them set-off 
against the sales tax paid by them in the exporting State. In such a 
manner, equivalence can be brought about in the tax burden borne by 
the goods imported from other States and the locally manufactured/
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
449 
[R. BANUMATHI, J.] 
produced goods. The contention of the assessees that the term 'any tax' 
used in A1i. 304(a) refers to every tax distinctly, thereby prohibiting 
imposition of entry tax on imported goods unless, entry tax is imposed on 
locally manufactured/produced goods, does not lead to just and reasonable 
interpretation of Art. 304(a). The wholesome effect of the taxes levied 
under distinct heads needs to be taken into account. The tax burden 
borne by the goods fonn a part of the price of the goods and if both, 
locally manufactured/produced goods and imported goods are subjected 
to similar tax burdens, irrespective of the heads under which the taxes 
are levied, say entry tax or sales tax etc., then no discrimination can be 
said to have been caused. 
119. In case if entry tax not levied to equalize tax burden ori the 
local goods and goods imported from outside, there will be huge trade 
diversion to low-rate tax State, causing loss ofrevenue to the high-rate 
tax States, where the goods are used or consumed. Let us take an 
example of entry tax in the case of motor vehicles. System of sales tax 
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on motor vehicles varies from one State to another. Rates of tax also 
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vary ac;:ording to the category of the vehicles viz., car, jeep, scooter, 
motorcycle, truck, tractor etc. Inter-State sales tax differential is large 
enough to induce trade diversions from high-rate tax States to low-rate 
tax States.
These trade diversions have their impact on the collection of 
sales tax and results in loss of tax revenue to the State and the local area 
where the vehicles are used; but there is tax gain to the exchequer of 
the low-rate tax State where the vehicles are shown to have been 
purcha~ed. Thus levy of entry tax by the importing State where the 
vehicles are used is justified to accord equal treatment to vehicles 
purchased within the State and those purchased from outside. 
l20. Often the diversion occurs merely on paper; for instance, 
manufacturers of vehicles in Tamil Nadu may employ local dealers in 
low-rate tax State/Union territories to sell their products to consumers 
all over the country. Where the tax rates differ widely in adjoining States/ 
Union Territories, dealers located in low-rate tax territories act as agents 
for purchasers from the State with high-rate tax areas/territories. The 
vehicles do not move physically but the sales are shown to have taken 
place outside the high-rate tax State. The State where sale is said to 
have taken place stands to gain but the State where the vehicle is used 
loses the revenue of its sales tax. The extent of differentiation in tax 
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rates is evidently large enough to induce trade diversion from high-rate 
tax States to low-rate tax territories. In such cases, levy of entry tax 
equalizes the revenue loss to the State where the vehicle is used, and at 
the same time prevents discrimination between the locally purchased 
vehicles and vehicles purchased in other States/Union Territories. 
B 
121. Entry of goods into a local area from another local area of 
the State can be effected either by a dealer who purchased the goods 
from the manufacturer or by an individual. A dealer who effects entry 
of goods into a local area from another local area in the same State 
would be taxed in the fonn of sales tax/VAT; so also the individual would 
C 
have already paid the sales tax in another local area, where he bought 
the goods. In case of entry tax levied on goods imported from other 
State, set-off like in the cases of State enactments of Tamil Nadu and 
Andhra Pradesh is given to the extent of the sales tax/VAT paid in the 
purchasing State; in few of the States like Kerala, after levy of entry 
tax, to the extent entry tax paid, input credit is given from the sales tax/ 
D 
VAT payable in the State where the goods are imported. Tax burden is 
more or less the same, for both indigenous goods and outside goods. 
This is because, where an entry tax is imposed on goods brought from 
outside, the benefit of credit of the amount already paid as entry tax is 
given as
input credit for the purpose of payment of VAT. Moreover, if a 
E 
State enactment provides for set-off and statutory exemptions to goods 
paying local sales tax, thereby equalising the net tax burden on the 
imported goods and local goods, it does not fall foul under Art. 304(a), so 
long as it is balancing sales tax against the entry tax. 
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122. The question as to whether entry tax in a particular case 
constitutes an impediment will always have to be decided with reference 
to the comparison of burdens that are cast on persons who bring the 
goods into the taxing State and that which is suffered by the persons 
who manufacture or produce the goods within the State. A1i. 304(a) 
does not prevent levy of tax on goods imported from other States. The 
expression used is 'any tax'; what is prohibited is such levy of tax on 
goods as would result in discrimination between goods imported from 
other States and similar goods manufactured or produced within the 
State. The object is to prevent imported goods from being discriminated 
against by imposing a higher tax thereon than on local goods. If the tax 
burden on both the categories are almost the same, then the entry tax
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
451 
[R. BANUMAfHl, J.] 
obviously cannot constitute an impediment to the very flow of trade and 
A 
commerce across the borders of the State. There is no merit in the 
contention of the asscssees that the levy of entry tax only on goods 
imported from other States and not on indigenous goods is discriminatory 
and violative of 
Art. 304(a). 
123. ln a catena of decisions. this Cou1i has struck down the levy 
of entry tax on the imported goods holding that the levy is discriminatory 
and not saved by Art. 304(a). In Indian Cement and Ors. v. State o( 
A11dhra Pradesh and Or.~. (1988) 1 SCC 743, the Government of 
Andhra Pradesh issued a Notification reducing the rate of sales tax on 
sale of locally produced cement to bulk consumers to 4%, on the other 
hand, the sales tax imposed on sale of cement imported from the other 
States was levied at 13. 75%. Thus, the indigenous cement producers 
had a benefit of 9.75%. Levy of sales tax imposed on sale of cement 
imported from other States was challenged as impeding free flow of 
trade and commerce. The Supreme Court held the Notification invalid 
as it was hit by Art. 304(a) affecting inter-State trade and commerce. 
124. ln We.\·tern Electronic and Anr. v.\·, State of Gujarat and 
Ors. (1988) 2 SCC 568, State of Gujarat imposed sales tax at 15% on all 
electronic goods whether locally manufactured or imported from outside. 
After sometime, the State reduced the tax to I 0% on goods
imported 
from outside and to I% on locally manufactured goods with a view to 
give incentive to encourage local manufacturing units. The Supreme 
Court held that by applying different rates of tax. between goods imported 
into the State of Gujarat and goods manufactured within that State is 
discriminatory and violative of Art. 304(a) and, accordingly, quashed the 
Notification. 
125. ln State o( U.P. and Anr. 1'. laxmi Paper Mart am/ Ors. 
( 1997) 2 SCC 697, State Government had exempted the exercise-books 
made from paper purchases within Uttar Pradesh from the levy of sales 
tax. Whereas, exercise-books produced outside the State of Uttar 
Pradesh were subjected to sales tax at the rate of 5%. The said 
exemption granted to indigenously manufactured exen.:ise-books was 
challenged. The challenge was upheld by this Court and the exemption 
granted to locally manufactured exercise-books was held to be 
discriminatory within the meaning of Art. 304(a) of the Constitution of 
India. 
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Preferential treatment for /ocal(v produced goods by grant of 
exemption or set-off etc. and no11-gra11t of suclt exemption or 
set-off to goods imported from other States - Not-
di~·criminatory: 
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126. While States have the sovereign power to levy taxes to raise 
revenue, difference in rates of taxes by itself or granting tax incentive or 
concession to local manufacturer by itself, cannot amount to 
discrimination. The word "discrimination'' involves an element of 
"intentional and purposeful differentiation". It creates economic and 
regional imbalances in India and is an area of concern. 
127. Contention of States is that apart from legislative power to 
levy taxes, States also have the power to grant exemptions, tax 
concessions or incentives to the goods manufactured within the State so 
as to encourage the manufacturing units and traders within the State, 
and also to attain economic growth and development. Reiterating the 
same, the learned Attorney General has submitted that such fiscal 
measures are necessary for economic parity as also for further 
strengthening of the economic unity of the nation which the assessees 
themselves desire. Placing reliance upon Video E/ectro11ics Pl't. Ltd. 
a11dA11r. v. State of Punjab andAnr. ( 1990) 3 SCC 87, it was submitted 
that every differentiation in the tax rebate, exemption or tax concession 
granted to indigenous goods which may result in differentiation
in the 
rate of tax on goods imported into the State, would not amount to 
discrimination falling foul under A1t.304(a). The States submit that every 
differentiation is not discrimination, and only those restrictions which 
impede the flow of trade, commerce and intercourse would fall foul 
under Art.304 (a). The above contention of the States has been favourably 
considered by the Supreme Court over the years. The Supreme Court 
has taken note of the differentiation on consideration of natural or 
economic factors prevailing in different regions which need to be 
encouraged by providing tax incentives to attain economic equality in 
growth and development. 
128. Part XIII envisages a two-fold object:- (i) facilitation of a 
common market through case of trade, commerce and intercourse by 
removal of barriers; and (ii) development of economically backward 
regions through regulations or restrictions which may incidentally
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATH!, J.] 
differentiate between States or regions. Part XIII is not abour'freedom" 
alone but is a code of checks and balances on inter-State trade, commerce 
and intercourse intended to achieve economic integrntion of the country 
and parity. Balanced development of the country is an equally vital facet 
of economic integration. The "freedom"' referred to in Art. 30 l must 
take flavour from the expression "throughout the territory oflndia"; the 
Union was envisaged not only as a political union but also an economic 
union. The grand vision was to unify the country, not only politically but 
also by creation of an economic union of hitherto disparate Provinces 
and Princely States. Freedom of movement of goods and services and 
the creation of a common market must be understood in this context. 
Thus. the spirit of Part Xlll must be seen in the context of achieving a 
balance between a cohesive economic union having due regard for the 
federal character of the Constitution and not in the sense of a handicap 
for State ·s individual development. 
129. We may usefully refer to the following passage authored by 
Prof. D.D. Basu in Comparatfre Federalism, Prentice Hall of India, 
1987, which reads as under: 
"The great problem of any federal structure is to prevent 
the growth of sectional and local interests which are 
inimical to the interests of the nation as a whole. 
The 
strength of the Union may be achieved 011ly by
minimizing inter-State barriers as much as possible. so 
that the people may feel that they are the members of 
one nation. though they may, for the time being, be 
residents of particular geographical divisions of the 
country. One of the means to achieve this obiect is to 
guarantee to every citizen the freedom of movement 
throughout the territory of the Union. and also lo reside 
and settle in any part thereof 
While a federation is formed to preserve or secure 
regional autonomy, that is not done at the sacrifice of 
notional interests. Unless the national interests are 
safeguarded. the countrv would be divided into pieces. 
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resulting in a weak government unable to maintain itself 
from foreign aggression, and would also create 
economic chaos in an age when apparently local 
disturbances have a wide repercussion. It is this last 
mentioned economic strength of the federation which is 
intended to he ensured hy the safeguard.for maintaining 
.fi'eedom of' trade, commerce and intercourse throughout 
the federal territory, which safeguard the Union and 
the States are hoth enjoined not to violate. " [Page 613] 
Part XlII and the provisions therein are to be interpreted in a 
manner that encourages a backward region or creates a level playing 
field for those parts of the countTy that may not have reached the desired 
level of development. 
130. Historically, regional imbalances in India started from the 
British regime. During that time, industrialists started development in a 
few earmarked regions of the country like the metropolitan cities of 
Kolkata, Mumbai, Chennai that possessed rich potential for manufacturing, 
trading and transport facilities. This resulted in an uneven growth 
amongst the States, keeping few States less developed. The regional 
imbalances and general economy of the country were taken note of by 
the f;·amers of the Constitution. The Constituent Assembly was conscious 
of the uneven development in different parts of the country and the need 
to create a level playing field by removal of trade barriers
as well as by 
affording avenues for economic opportunity and economic equality for 
less developed parts of the country. Significant observations have been 
made in Constituent Assembly Debates justifying certain amount of 
flexibility to the States. ln this regard, reference to Constituent 
Assembly Debates dated 30.07.1949 to 18.09.1949 whereby Dr. 
P.S. Deshmukh proposed a series of amendments in Part Xlll granting 
powers to the States, is relevant to be noted:-
Dr. P.S. Deshmukh: "Trade and commerce are not things 
which are decided once, for all; they are things that 
arise and grown .from day to day. . They may he varied; 
there may he circumstances and situations when the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
whole thing will have to he revised. This may arise so 
far as a particular State is concerned or in respect of 
more than one State. How pompously did we decide 
that there shall be 'free trade" everywhere. It is not 
such an easy thing as that and I hope that this is now 
hmadly realized. For instance, we know that the stage, 
of advancement and progress of the various units of 
the Union varies considerably. Some of them are 
backward like Assam or Orissa where there are, very 
ft:w industries and very little trade is in the hands, at 
least of the indigenous population. 
We may have 
prohahly to give them some protection in order that they 
may rapidly come on par with other units. It may he 
necessmy also from time to time to vary our provisions 
so far as aid and concessions to industries and other 
things are concerned. I therefore do not think that is 
right to bar all discrimination, as it is called (in fact it 
is not), barring all possibility of help to those who are 
hackward and who are unable to compete with the more 
advanced, and who therefore, stand in need of 
'assistance. ' From that point of view, my amendment 
seeks to give Parliament a blank cheque and leave to it 
entire~v the determination of the policy. With regard to 
tlze trade and commerce not only of the whole Union or 
in regard to any particular State or States, but so far as 
all States and their trade and commerce inter se is
concerned. Therefore, I have proposed a very simple 
provision as has been embodied in my amendment No. 
340." [Page No. 1133) 
While the proposed amendments were not accepted, the debate 
acknowledged that flexibility to allow certain amount ofleverage to the 
States was necessary and also desirable. It is apposite to refer to the 
following observation by Shri Alladi Krishnaswami Ayyar in Constituent 
Assembly Debates dated 30.07.1949 to 18.09.1949:-
455 
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Sltri Al/adi Kris/111aswami Ayyar: " .... .ivfy Friend D1: 
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Ambedkar, in the sche111e he has evolved. has taken into 
account the larger interests of India ({S well as the 
interests of particular Sla/e and the wide geography of 
this country in which the inrerests of one region differ 
fi·om the interests of another region..... Mv Friend Mr. 
Kris/111a111achari has pointed oul that this freedom clause 
in the Australian Constitution has given rise to 
considerable trouble and to co1?flicting decisions qf !he 
highest Court. There has been a feeling in those parts 
of Australia which de/Jend for their well-being on 
agricultural conditions that their interests are being 
sacrificed to manufacturing regions. and there has been 
rivalry between manufacturing and agricullural 
interests. Therefore. in a federation what !'(Ill have to 
do is, first, vou will have to take i11to account the larger 
interests of India and permit freedom o( trade and 
intercourse as far as possible. Secondh'. vou cmmot 
ignore altogether regional interests. 171irdly, there must 
be the power intervention of the Centre in any case <~( 
crises 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. " 
[Emphasis added] [Page No. 1143] 
13 I. Similar was the concern expressed by Shri C. Rajagopalachari 
in his observations on
the proposed draft Article I 0: 
"C. Rajagopalachari: I would request members who 
have given thought to this subiect to please inform 111e 
how the units will raise !heir revenue. As it is, the Union 
does not contemplate !he distribution of subsidies to 
the provinces. The provinces or groups differ among 
themselves. some are rich and so111e are pom: Some are 
capable of managing with their existing resources; but 
others may have to increase their revenue for managing
HNDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMAfHI, J.] 
their affairs. ([you impose so many limitatio11s on them, 
how can they do that? It is all very well to say free 
trade is necessary; but how are the provinces lo live?'' 
[Page No.254 of the Framing of India's Constitution 
Select Documents-The Project Committee, Volume 
2 by the Indian Institute of Public Administration 
Universal Law Publishing Co. Pvt. Ltd.] 
132. There are considerable regional disparities in India attributable 
to a variety of reasons. Economically speaking, of these reasons, the 
ones that are most apparent are geography and consequent economic 
inadequacy. States with access to seacoasts and natural resources 
including mineral wealth, water resources have a definite edge over the 
other States. Whereas States that have terrains that make access to a 
region difficult, including hills, rivers and dense forests, show lesser signs 
of economic development. Lack of perennial sources of water or water 
scarcity due to lower precipitation cai1 also constrain the development 
ofa region. Historically, more development opportunities have been made 
available to already forward States that had the initial geographic 
advantage. It is the natural tendency of the private sector to set up 
industries in already developed regions, which provide infrastructural 
support required to maintain those industries. This has accelerated the 
development in these forward States; and the backward regions, unable
to attract significant investment have not seen much gr0\~1h. To counter-
balance this tendency, various incentive and disincentive schemes have 
.been introduced to direct investments to backward regions. However, 
the success of these policies has been limited because often the States 
with these backward regions are unable to meet their expenses and 
provide economic overheads, such as transport, communication, power, 
banking & insurance etc. This has widened the gaps between the States 
where investments of the past have created adequate social and 
economic infrastructure to attract private investments and the States 
that were neglected in the past and are unable to attract investments 
due to lack of infrastructure. [Reference: N J Kur,ian, "Regional 
Disparities in India", Planning Commission oflndia, 200 l available at: 
http://planni ngcomm iss ion .n ic. in/reports/sercport/ser/vision-
2025/regdsprty. 
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