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
operate as a 
restriction/impediment. 
116. Counsel for the parties were, in the course of arguments, 
repeatedly asked whether any objective standards and norms can be 
evolved to determine the height and the width of the wall referred to in 
the passage extracted above. They were, however, unable to suggest 
any such no1111s. They fairly conceded that it was difficult if not impossible 
to evolve any such norm applicable to myraid situations that would arise 
before the courts. This implies that the tariff wall theory actually breaks 
down and is not amenable to judicially manageable dimensions. What 
may sound a high tariff wall or a fiscal barrier to one may not be so to 
the other. What may constitute a fiscal wall or barrier for one 'category 
of traders may not be so for other categories. So also, the tax' at a given 
rate may be high on a particular commodity but reasonable qua another. 
Suffice it to say that the fiscal wall theory gets into serious difficulties 
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when it comes to enforcement or effectuating the same. The logic 
behind the theory in fact cracks and gives-up. Such being the position, 
we have little hesitation in holding that the fiscal wall theory propounded 
in Sinha, CJ's minority judgment is not really workable and has not 
commended itself to us. It follows that simply because the tax is high is 
no reason for it to change its character and take the fonn of a restriction 
within the meaning of Part XI!T, no matter any one aggrieved of such 
heavy burden shall have the liberty to assail the same on all such grounds 
as imy be available to him under Part III of the Constitution. We are 
conscious of the fact that some decisions of this Com1 in Rt!ia Jaga1111ath 
Baksh Singh v. State of UP AIR 1962 SC 1563; Federation of 
l/otel & Restaurant Assn. <~f India etc. v. Union of India & ors. 
(1989) 3 SCC 634; J' V Srinivasamurthy and ors. v. State of Mysore 
and Am: AIR 1959 SC 894; D G Gose & Co. (Agellfs) (P) Ltd. v. 
State of Kenda and anr. (1980) 2 SCC 410; A Suresh and others v. 
State of TN and another (1997) 1 SCC 319 have declared that just 
because a tax is heavy is no reason for it to be contrary to Part III, but 
we leave that question open to be examined in appropriate cases as and 
when any such challenge is mounted by anyone aggrieved of an unduly 
heavy tax rate. 
117. That brings us to the question whether the use of the 
expression
"by virtue of any entry relating to trade and commerce" 
appearing in Article 303 are wide enough to include entries relating to 
levy of taxes also. The argument advanced amongst others by Mr. 
Datar is that the expression "relating to trade and commerce" appearing 
in the said Anicle must be interpreted liberally so as to include not only 
E11try 42 in List 1, Entry 26 in List 11 and Entry 33 in List 111 but also 
other entries that empower the Parliament and State Legislatures to 
levy taxes. By that logic it was contended that levy of taxes is also 
treated as a restriction within the contemplation of Part XIIl making it 
necessary for the legislature to resort to Article 304(b) and the proviso 
for doing so. There is in our opinion no merit in that contention also. 
I 18. We say so for two precise reasons. Firstly because entries 
relating to Trade and commerce by themselves are not sufficient to 
empower the legislature to levy taxes. The constitutional scheme is 
such that a taxing entry is distinct from other entries and a levy of tax is 
possible only ifthere is an ent1y which authorizes the competent legislature
HNDAL STAINLESS LTD. v. STATE OF 1-!ARYANA 
[T. S. THAKUR, CJ!] 
to levy the same. This distinction has for long been maintained by judicial 
pronouncements of this Court. We may in this regard refer to M.P. V. 
Sunderaramier's case (supra) where this Cou11 has declared: 
"51. Jn List I. Entries l to 81 mentio11 the several matters 
over which Parliament has authority tu legislate. Entries 
82 tu Y2 enumerate the laxes which could he imposed 
by a law of Parliame11t. An examination rd· these two 
groups of Entries shows that while the main su~ject of 
legislation .figures in the first group, a flLr in relation 
thereto is separately mentioned in the second. Thus. 
Entry 22 in List I is "Railways". and Entry o9 is 
"Terminal taxes on goods or passengers. carried by 
railway. sea or air: taxes on railway fares and fi"eights ". 
if Entry 22 is to be construed as involving laxes to be 
imposed, then Enny 8Y would be supe1jl11ous. Entry ./ 1 
mentions "Trade and commerce with foreign countries: 
import and export across customs frontiers". lf these 
expressions are to be interpreted as including duties to 
be levied in re:,pect of that trade and commerce, then 
Entry 83 which is "Duties of customs including export 
duties" would be wholly redundant. Entries 43 and 44 
relate to inc01poralion, regulation and winding up of 
corporations. Entry 85 provides separa/ely for 
corporation tax. Turning to List fl, Enlries I lo ././form 
one group mentioning the su~jects on which the
Stutes 
could legislate. Entries ./5 tu 63 in that List.form another 
group, and they deal with laxes. En11y 18, for example, 
is "Land" and E11t1y 45 is "Land revenue". E111ry 23 is 
"Regula/ion of mines" and Entry 50 is "Tuxes on 
mineral rights". The above analysis -
and ii is not 
exhaustive of the Entries in the Lists -
leads lo the 
inference that taxation is not intended to be comprised 
in the main subject in which it might on an extended 
construction be regarded as included. bu/ is treated as 
a distinct matter for purposes of'/egislative competence. 
And this distinclion is also manifest in the language o( 
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Article 2./8, clauses (1) and 0) and of Entrv 97 i11 List 
I of the Constitution. Construing Emn· ./2 in the light 
of'the above scheme, it is difficult lo resist the c.:om:lusiu11 
that the power of Parliament tu legislate 011 i11ter-Sta/e 
trade and commerce under Entrv ./2 dues not include a 
B 
power to impose a tax un sales i11 the course uf such 
trade and commerce.'' 
xxx xxx xxx 
55. To sum up: (1) Entry 5./ is successor to E11t1:i: ./8 in 
the Govemment of India Act, and it would be legitimate 
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to construe it as including tax 011 inter-State sales 
unless, there is anything repug11a111 lo it in the 
Co11stitutio11 and there is 11011e wch. (2) 
Under the 
scheme of the Entries in the Lists, taxation is reRarded 
as a distinct maller and is separatelv set out. 
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.119. The above pronouncement is, in our opinion, the correct 
enunciation of the legal position in the light whereof it is difficult to 
appreciate how entries relating to trade and commerce could be 
understood to be including levy of taxes also. That apart, once taxes are 
held to be outside Part XIII for the reason that we have already set out 
earlier. there is no way we can bring them back into that Part by a 
tenuous interpretation or understanding of Article 303. As explained by 
us earlier, Article 303 is an exception to Article 302. inasmuch as it limits 
the power conceded to the Parliament under Article 302 to impose 
restrictions on
freedom of Trade. commerce and intercourse in public 
interest. The power exercised by Article 302 cannot be so exercised as 
to give preference to one state over another except under a situation 
covered by Article 303(2) namely situation arising from scarcity of goods 
in any part of the territory of India. 
We cannot add to this Article any 
artificially extended meaning the ingenuity of the bar in coining any such 
interpretation notwithstanding. 
120. Relying upon the decision in Mudaliar'~· case (supra) it was 
argued on behalf of the assessee that this Court has upheld the 
constitutional validity of the Central State Tax Act on the ground that 
such a tax was in public interest within the contemplation of Article 302
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
LT. S. THAKUR, CJl] 
of the Constitution oflndia, hence, validly leviable. This, according to 
the learned counsel, implied that the tax was recognised as a restriction 
which could be levied only if found to be in public interest as stipulated in 
Article 302. We have no difficulty in rejecting that contention. ln 
Mudaliar 's case, this Court was bound by and followed the 
pronouncement of the larger bench inAtiabari's case holding that taxes 
could also be restrictions on free trade and commerce if they directly 
and immediately impeded their free flow. We have, in the preceding pa11 
of this judgment, held that view to be legally unsustainable on a proper 
construction of the provision of Pa11 Xlll and the Constitutional scheme. 
Once the premise on which Atiabari '.~ case was decided is held to be 
!lawed, Mudaliar that simply followed the ratio of that decision cannot 
stand scrutiny. The argument that Central Sales Tax was valid in terms 
of Article 302 as such a tax was in public interest becomes academic if 
taxes are held to be outside the purview of Part Xlll. This incidentally 
will be true in respect of every other pronouncement where benches of 
smaller strength have dealt with similar other legislations and taken a 
view following the ratio in Atiabari'.1· case. 
121. We may at this stage deal with yet another contention urged 
on behalf of the assesses who argued that while Article 304(a) forbids 
discriminatory
fiscal legislation in respect of goods coming from another 
state there was no provision which prevented the States from levying 
discriminatory taxes within its territorial limits. The argument was that 
the absence of any provision against discriminatory taxation within a 
State must be understood to mean that taxes would generally be 
restrictions and unkss the States take recourse to A11icle 304(b) they 
cannot levy such ta\ cs upon trade and commerce within their tenitorial 
limits. The argument is, in our view, more in despair than substantial. lt 
is true that Part Xlll does not in tenns forbid the levy of discriminatory 
taxes on goods produced within the States but the fact that there is no 
such prohibition does not necessarily mean that if such discriminatory 
taxation does indeed take place the same is constitutionally pennissible. 
Whether or not there is hostile discrimination between goods from one 
part of the State and those from another part is a matter which will have 
to be judged on a case to case basis and on the touchstone of Article 14. 
Having said that we need to remind ourselves that Patt Xlll of the 
Constitution was aimed at addressing the mischief arising from fiscal 
and other barriers which the princely states had imposed and which 
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gravely impeded free trade and commerce. The Constituent Assembly 
Debates show that framers of the Constitution were concerned with the 
removal of such barriers. Discrimination intra-State in terms of levy of 
taxes was never considered to be a challenge for presumably the 
Constituent Assembly never considered the same to be a real possibility 
necessitating a specific provision prohibiting levy of discriminatory intra-
State taxes. 
J 22. On behalf of the assessees-dealers, it was next argued that 
levy of entry tax on import of goods from outside the local area in the 
State will be pl'!' se discriminatory if goods so imported or similar are not 
produced or manufactured within the State. That is, argued the learned 
counsel, because the levy will fall unequally thereby violating the guarantee 
against discrimination contained inA11icle 304(a). We have no difficulty 
in rejecting that submission as well. The reason is obvious. Article 304(a), 
in om opinion, strikes at discriminato1y taxation implying thereby that the 
levy falls unequally as between goods produced or manufactured within 
the State and those being imported from outside. The essence of the 
guarantee in Article 304(a) lies in the same or similar goods being treated 
similarly in the mntter of taxation. The question, therefore, is whether 
that guarantee is violated if the goods subjected to levy of entry tax are 
not produced or
manufactured within the Stnte levying the tax. Our 
answer is in tbe negative. This is because there is no question of any 
discrimination if goods from outside the State are not at a disadvantage 
vis-a-i:is goods produced or manufactured within that State. It is true 
that a levy on goods that are not produced or manufactured in the State 
is likely to make such goods costlier but that is not enough for the levy to 
be considered unconstitutional. A responsive Government aware of the 
needs of its constituents will be under tremendous pressure to keep such 
taxes low enough for its constituents to be able to afford the same. 
Democratic processes and pressures within the system of governance 
that we have will itself take care of any abe1Tation in this regard. What 
is absolutely clear, however, is that A11icle 304( a) will not frown at a 
levy simply because same or similar goods as are taxed are not produced 
or manufactured in the State. Reliance upon the decision in Kalyani 
Stores AIR 1966 SC 1686 does not, in our opinion, help the assessees. 
The majority judgment in that case looked at Article 304( a) as the source 
of power to levy a tax or duty. We have in the earlier parts of the 
judgment explained that the source of power to levy taxes/duties lies in
JINDAL STAINLESS ITD. v. STATE OF HARYANA 
[T. S. THAKUR, CJI] 
Articles 245 and 246 of the Constitution read with the entries in the 
three lists contained in Schedule VII. A1ticle 304(a), in that view, only 
places a constitutional restriction on the power to levy taxes or duties 
while recognizing the availability of such powers to the State legislatures. 
The restrictions as explained by us in the earlier paras to levy taxes/ 
duties is confined to levy of discriminatory taxes and duties alone. To 
the extent, Kalyani Stores takes the view that the power to levy taxes is 
traceable to Article 304(a) the decision, in our opinion. is not sound nor is 
it correct to say that since goods being taxed are not produced in the 
State, the power to levy a tax gets obliterated. 
123. Appearing for some of the assessees Mr. Venk.atraman argued 
that the Central Sales Tax Act was a classic example of the Union 
exercising its power under A1ticle 302 of Part XIII. He contended that 
the restrictions so imposed signify that tax and restrictions are synonymous 
within the contemplation of part XIII. 
124. The Central Sales Tax Act, 1956 was enacted pursuant to 
the Sixth Amendment Act, 1956 whereby taxes on sale and purchase of 
goods in the course of inter-state trade and commerce were expressly 
brought within the purview of the legislative competence of Parliament. 
This included the power to impose restrictions upon the power of the 
State legislature insofar as levy of taxes of
sale or purchase of goods of 
special importance is concerned. Entry 92-A added by the Sixth 
Amendment Act 1956 empowered the Parliament to levy taxes on the 
sale and purchase of the goods other than newspapers in the course of 
trade and commerce. Entry 54 of the State List by the same amendment 
was redrawn to make the taxes on the sale and purchase of goods subject 
to Entry 92-A of List I. The two entries read as under: 
"'92-A. 
Taxes 011 the sale or purchase of good1· other 
than newspapers, where such sale or purchase takes 
place in the course of imer-State trade or commerce. 
54. Taxes 011 the sale or purchase of goodv other than 
11ev1"spapers, suhjecr to the provisions of Enny 92-A of 
List-I . .. 
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125. The States' power it is evident is made subservient to the 
powers of the Parliament under Entry 92-A. Section 15 of the Central 
Sales Tax Act, therefore, has oveniding effect vis-a-vis any State Law 
authorizing imposition of taxes on sale/purchase of declared goods. Seen 
in the above perspective, Parliament has limited the legislative power of 
the State insofar as taxes on declared goods are concerned. We find it 
difficult to read into such restrictions the meaning sought to be drawn by 
the learned counsel that taxes themselves are restrictions within the 
comprehension of Part Xlll. The imposition ofrestrictions on the State's 
power of taxation in regard to declared goods is not, in our opinion, 
suggestive of taxes themselves being restrictions for purposes of Part 
Xlll of the Constitution. Not only that, Article 286(3) provides the source 
of power for the Parliament to impose any restriction on the State 
authority to levy a tax on goods of special iniportance declared by 
Parliament. Article 286 (3) reads as : 
"28().Restriction as to imposition of tax on the sale or 
purchase f~( goods: 
(I) ... , 
(2) "" 
(3) Any law of a State shall. in so far as it 
imposes. or authorises the imposition of.-
(a) a rax 011 the sale or purchase of goods 
declared hy Parliament hy Im;: to he o{ special 
importance in inter-State trade or commerce; or 
(b) a tax on the sale or purchase of good>, 
!wing a tax o{
the nature referred to in ·sub-clause (h), 
suh clause (c) or suh-clause (d) o{ clause (29A) of artide 
366, 
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he suhject to such restrictions and conditions in regard 
to the svsrem of levy, rates and other incidents of the 
tax as Parliament made hy law speci{y. " 
H
.... 
JINDAL STAINLESS IJ'D. v. STA!'E OF HARYANA 
IT. S. THAKUR, CJI] 
126. In the light of what we have said above, we answer Question 
No. l in the negative and declare that a non-discriminatory tax does not 
per se constitute a restriction on the right to free trade, commerce and 
intercourse guaranteed under Article 301. Decisions taking a contrary 
view in Atiabari'.1· case (supra) followed by a series of later decisions 
shall, therefore, stand overruled including the decision in Automobile 
Transport (supra) declaring that taxes generally are restrictions on the 
freedom of trnde, commerce and intercourse but such of them as are 
compensatory in nature do not offend Article 30 I. f,esultantly decisions 
of his Court in Jindal Stainless Limited(2) and anr. v. State of 
llmyana and ors. (2006) 7 sec 241 shall also stand overruled. 
127. Re. Question No.2 
ln view of our answer to Question No. I, Question No.2 does not 
arise for consideration. 
128. Re. Question No.3 
In tlie light of what we have said in Question Nos. I and 2, this 
question also does not survive for consideration. 
129. Re. Question No.4 
This question touching the constitutional validity of the impugned 
State enactments can be split into two parts. The first part which can be 
briefly dealt with at the outset is whether the constitutional validity of the 
impLigncd legislations has to be tested by reference to both Articles 304( a) 
and 304(b) as contended by learned counsel for the asses sees or
only by 
reference to Article 304(a) as argued by the States. lu the light of what 
we have said while dealing with question No. I we have no hesitation in 
holding that Article 304(b) does not deal with taxes as restrictions. At 
the risk of repetition, we may say that restrictions refe1Ted to in Article 
304(b) are non-fiscal in nature. Constitutional validity of any taxing statute 
has, therefore, to be tested only on the anvil of A1iicle 304(a) and if the 
law is found to be non-discriminatory, it can be declared to be 
constitutionally valid without the legislation having to go through the test 
or the process envisaged by Article 304(b ). Should, however, the statute 
fail the test of non-discrimination under Article 304(a) it must be struck 
down for the same caimot be sustained even if it had gone through the 
process stipulated by Article 304(b). That is because what is 
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constitutionally impermissible in terms of Article 304(a) cannot be 
validated and sanctioned through the medium of Article 304(b ). Suffice 
i1 to say that a fiscal statute shall be open to challenge only under A1iicle 
304(a) of the Constitution without being subjected to the test of Article 
304(b) either in terms of the existence of public interest orreasonableness 
of the levy. 
130. That brings us to the second part of question No.4 viz. whether 
the impugned State enactments violate Article 304(a) of the Constitution. 
That aspect will necessmily involve a careful reading of the impugned 
enactments and a proper appreciation of the scheme underlying the same. 
While we have at some length heard learned coun~el for the parties on 
th;it ;ispect, we do not propose to deal with all the dimensions of that 
challenge based on Article 304(a) except two of them that were argued 
at great length by learned counsel for the parties. The first of these two 
dimensions touches upon the State's power to promote industrial 
development by granting incentives including those in the nature of 
exemptions or reduced rates of levy on goods locally produced or 
manufactured. On behalf of the assesses it was contended that grant of 
exemptions and incentives in favour oflocally manufactured/produced 
goods is also one fo1111 of insidious disc1imination which was impe1111issible 
in terms of article 30<l(a) for such
exemptions and incentives had the 
effect of putting goods from another State at a disadvantage. Relying 
upon a decision of two-Judge Bench of this Cowi in Slzree A1alzavir 
Oil Mills and Anr. v. State of Ja11111111 and Kashmir and Ors. (1996) 
2 sec 39 it was argued that exemptions in favour of locally produced 
goods from payment of tilxes was constitutionally impermissible and 
offensive to miicle 304(a). That was a case where the State Government 
had totally exempted goods manufactured by small scale indusnies within 
the State from payment of sales tax even when the sales tax payable by 
other industries including manufacturers of goods in adjoining States 
was in the range of8%. This exemption was questioned by manufacturers 
of edible oils from other States on the ground that the same was 
discriminatory and violative of Articles 301and304 of the Constitution. 
131. This Court. held that the exemption given to manufacturers 
of edible oil was total and unconditional, while producers of edible oil 
from industries in adjoining states had to pay sales tax@ 8%. Grant of 
exemption to local oil producing units thereby put the former at a
JINDAL STAJNLESS ITD. v. STATE or HARYANA 
287 
[T. S. THAKUR. CJ!] 
disadvantage. I-laving said that, the Court exercised its powers under 
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Article 142 of the Constitution and struck down the exemption by 
moulding the reliefs to suit the exigencies of the situation. The Court no 
doubt noticed a three-Judge Bench decision in Video Electronics vs. 
State of P1miab ( 1990) 3 SCC 87 in which notifications issued by the 
States of U.P and Punjab providing for exemptions to new units 
established in certain areas for a prescribed period of 3 to 7 years were 
assailed as discriminatory. The challenge to the exemption was in that 
case also based on the alleged violation of Articles 301 and 304. This 
Court however upheld the notifications in question on the ground that 
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the same related to a specific class of industrial units and the benefit 
under the same was admissible for a limited period of time only. The 
Court observed that if an overwhelmingly large number of local 
manufacturers ''ere subject to sales tax, it could not be said that the 
local manufactures were favored as a class against outsiders. 
Adverting to the decision in Video Electronics (supra) this Court 
in Malrnvir (supra) held the same to be distinguishable on the ground 
that the Punjab and U .P notifications were qualitatively different from 
the one issued by the Government ofJammu and Kashmir in as much as 
while the former benefitted only specified u11its and limited the benefit to 
a specified
period, the latter was not subject to any such limitations. This 
declared the Court resulted in discrimination vis-a-vis. outside goods. 
What is important-- is that in Video Electronics (supra) this Court 
recognized the difference between differentiation and discrimination and 
held that every differentiation is not discrimination. This Com1 noted 
that the word discrimination was not used in Article 14 as it has been 
used in Article 16. Article 303 and Article 304 (a). The use of the word 
in .\04 (a) observed this Court involved an element of "intentional and 
unfavorable bias". So long as there was no such bias evident from the 
measure adopted by the state, mere grant of exemption-- or incentives 
aimed at supporting local industries in their growth, development and 
progress did not constitute discrimination. 
1 :12. We respectfully agree with the line of reasoning adopted in 
Video Electronics (supra). The expression "discrimination" has not been 
defined in the Constitution though the same has fallen for interpretation 
of this Court on several occasions. The earliest of these decisions was 
rendered in Kathi Raning Rawat v. The State of Saurashtra AIR 
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1952 SC 123, where a seven-Judge Bench of this Court held that all 
legislative differentiation is not necessarily discriminatory. Relying upon 
the meaning of the expression in Oxford Dictionary, Patanjali Sastri, CJ 
(as His Lordship then was) explained : 
"7. All legislative differentiation is not necessarily 
discriminatory. Jn fact. the word "discrimination" does 
not occur in Article 11. The expression "discriminate 
against" is used in Article I 5(1) and Article 16(2), and 
it means, according to the Oxford Dictionary, "to make 
an adverse distinction with regard to; to distinguish 
unfavourahly fi·om others". Discrimination thus 
involves an element of 1mfavourahle hias and it is in 
that sense that the expression has to be understood in 
this context. If such bias is disclosed and is based on 
any of the grounds mentioned in Articles I 5 and 16, it 
mav well he that the statute will, without more, incur 
co11de111natio11 as violating a specific 'constitutional 
prohihition unless it is saved by one or other of the 
provisos to those articles. But the position under Article 
I 4 is different. Equal protection claims under that article 
are examined with the presumption that the State action 
is reasonable and justified. This presumption of 
constirutionality stems from the wide power of 
classification which the legislature must, of necessit)!. 
possess in making laws operating differentfcv as
regard~ 
different groups olperson.1· in order to give effect to its 
policies ... 
133. Fazl Ali .I. in his concurringjudgment explained the concept 
in the following words: 
"J 9. I think that a distinction should be drawn he tween 
"'discrimination v.-ithout reason" and "discrimination 
1vith reason". The whole doctrine ol classification is 
... 
'··
.JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJI] 
hased on this distinction and 011 the well-known fact 
that the cirrwnstance.1· which govern one set of persons 
or ohjects may not necessarily be the same as those 
governing another set of persons or objects, so that 
the question of unequal treatment does not really arise 
as hetiveen persons governed by different conditions 
and different sets of circumstances. 711e main objection 
to the /Yest Bengal Act was that it permitted 
discri111i11alio11 '\vithout reason" or without any rational 
basis. " 
Any challenge to a fiscal enactment on the touchstone of Article 
304(a) must in our opinion be tested by the same standard as in Kathi\· 
case (supra). The Court ought to examine whether the differentiation 
made is intended or inspired by an element of unfavourable bias in favour 
of the goods produced or manufactured in the State as against those 
imported from outside. lf the answer be in the affirmative, the 
differentiation would fall foul of Article 304(a) and may tantamount to 
discrimination. Conversely, if the Court were to find that there is no such 
element of intentional bias favouring the locally produced goods as against 
those from outside, it may have to go further and see whether the 
differentiation would be suppo1ted by valid reasons. in the words ofFazl 
Ali, J. discrimination without reason would be unconstitutional whereas 
discrimination with reason may be legally acceptable. ln Video
Electro11ic 's case, this Court noted that the differentiation made was 
supported by reasons. This Comt held that if economic unity of lndia is 
one of the Constitutional aspirations and if attaining and maintaining such 
unity is a Constitutional goal, such unity and objectives can be achieved 
only if all parts of the Country develop equally. There is, if we may say 
so, with respect considerable merit in that line of reasoning. A State 
which is economically and industrially backward on account of several 
factors must have the opportunity and the freedom to pursue and achieve 
development in a measure equal to other and more fortunate regions of 
the country which have for historical reasons, developed faster and 
thereby acquired an edge over its less fortunate country cousins. Economic 
unity from the point of view of such underdeveloped or developing states 
will be an illusion if they do not have the opporttmity or the legal entitlement 
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to promote industries within their respective territories by granting 
incentives and exemptions necessary for such growth and development. 
The argument that power to grant exemption cannot be used by the 
State even in case where such exemptions are manifestly intended to 
promote industrial growth or promoting industrial activity has not appealed 
to us. The power to grant exemption is a part of the sovereign power to 
levy taxes which cannot be taken away from the States that are otherwise 
competent to impose taxes and duties. The conceptual foundation on 
which such exemptions and incentives have been held permissible and 
upheld by this Court in Video :v case is, in our opinion,juristically sound 
and legally unexceptionable. Video Electronics, therefore, conectly states 
the legal position as regards the approach to be adopted by the Courts 
while examining the validity oflevies. So long as the differentiation made 
by the States is not intended to create an unfavourable bias and so long 
as the differentiationis intended to benefit a distinct class of industries 
and the life of the benefit is limited in terms of period. the benefit must 
be held to flow from a legitimate desire to promote industries within its 
territory. Grant of exemptions and incentives in such cases must be 
deemed to have been inspired by considerations which in the larger 
context help achieve the Constitutional goal of
economic unity. 
134. Seen in the above context the decision in Mahabir Oil'.\· 
case is indeed distinguishable in as much as the manufactures of edible 
oil were exempt totally and unconditionally while other manufacturers 
from outside the State were not so exempt. Whether or not the impugned 
enactments in the present batch of cases satisfy the tests referred to 
above and elaborated in Video Electronics case is a matter on which 
we do not propose to express any opinion for that aspect is best left 
open to be considered by the regular benches hearing these matters 
after the reference is disposed off. 
135. The other dimension of what according to the assesses 
amounts to discrimination lies in goods coming from outside the State for 
sale, consumption or use within a local area of another State being 
subjected to an entry tax at a rate different from the one at which goods 
manufactured within the taxing State are taxed. We are not getting into 
the substantive or machinery provisions of the State enactments that 
levy entry tax 011 goods entering a local area. This can be done more 
appropriately by the bench hearing the matter after the reference has
JINDAL STAlNLESS LTD. v. STATE OF HARYANA 
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IT. S. THAKUR, CJI] 
been answered. What we propose to examine is whether grant of A 
exemption or adjustment/ setoff/ credit to goods produced or 
manufactured within the taxing State can vis a vis goods coming from 
outside the State constitute discrimination against such outside goods. 
According to the assessee it does constitute discrimination against such 
outside goods while according to the State any provision which is aimed 
B 
at equalizing the impact of taxes on goods after their production/ 
manufacture is legitimate and constitutionally permissible. 
1.36. The States argue that the grant of exemption to indigenous 
goods is aimed only at neutralizing the impact of entry tax on those 
goods, in cases where YArl Sales Tax payable on such goods is 
equivalent to the rate at which entry tax is chargeable. The exemption in 
such cases has the effect of rendering the locally produced goods free 
from entry tax liability. Jn cases where there is a difference in the rate of 
VAT/ Sales Tax and ent1y tax adjustment/credit of the amount paid towards 
VAT/ Sales tax has the effect of reducing the entry tax liability 
proportionately. It is argued that so long as similar credit/adjustment/ 
setoff is made admissible to goods coming from another state there is no 
question of any discrimination qua them. The rate of tax paid on such 
goods in the state from where they are brought including the Central 
Sales Tax, if any payable
on the same may be equal to the entry tax 
payable under the relevant statute in which case such outside goods also 
enjoy the same advantage as goods manufactured in the taxing state, 
dispelling any misconceived impression about any discrimination qua such 
goods. 
1.37. The legal position as to the approach that courts adopt towards 
fiscal measures while examining their constitutional validity is fairly well 
settled by a long line of decisions of this Court. The Jaw on the su~ject is 
so well settled that it calls for no elaborate discussion of the same. Cou1is 
have almost universally accepted the principle that keeping in view the 
inherent complexities of fiscal adjustments and the diverse elements and 
inputs that go into such exercise a greater latitude is due to the legislature 
in taxation related legislations. It is unnecessaty to refer to all the decisions 
in which this Court has conceded such play at the joints to the legislature. 
Reference to some of the decision of this Court should in our opinion 
suffice. In Mafatlal v. Union of India 1997(5) SCC 536 in a separate 
but concurring opinion Paripooman, J. held: 
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"343 ... . Jn the matter of taxation lav.,s, th.e Court permits 
a grear laritude to the discretion to rhe legislature. The 
Srate is allowed to pick and choose districrs, ohjects, 
persons, 111ethod1· and even rate fhr raxation if it does 
so reasonah/\'. The Courts view the laws relating to 
economic activities with greater latitude than other 
matters. /See Collector of Customs v. Nat hell a Sampathu 
Chell)" and Anr. AIR 1962 SC 316; Khyerhari Tea 
Company Ltd. and Am: i: State of Assam and Ors. AIR 
1961 SC 925; R.K. Garg v. U11io11 of India and Ors. 
AIR 1981 SC 2138; Gauri Shanker and Ors v. Union 
o{ India and Ors. 
( 1994) 6 SCC 349 a11d Unio11 of 
lndia and A111: v. A. Sanyasi Rao and Ors. (1996) 3 
sec 465Jetc." 
,I 38. Reference may also be made to the Constitution bench 
decision of this Court in Khandige Sham Bhat v: Agrl. ITO, AlR 1963 
SC 591 where this Court declared that a law may facially appear to be 
non discrimination and yet its impact on persons and property similarly 
situate may operate unequally in which event, the law would offend the 
equity clause. This implies that facial equality is not the only test for 
determining whether the law is constitutionally valid. What is equally 
important is tl1e impact of the legislation. This Court held: 
"7 ... 71zou,f!,h a Im\" ex facie appears to treat all that fall 
within a class alike, if in effect it operates uneven!]' 011 
persons or
property similarly situated, it may he said 
that the law offend1· the equality clause. Ir will then he 
the duty ol the court to scrutinise the effect of the law 
carefit!I)' to ascertain its real impact on the persons or 
property similarlv sitllated. Conver.1·el-y: a law may treat 
persons who appear to he similarly situate differently; 
hut on investigation they may hefound not to be similarlv 
situate. fo state it differently, it is not the phraseology 
of a statute that govems the situation hut the effect of 
the law thar is decisive. I{ there is equality and un!frmnity
JINDAL S"IAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJl] 
within each group, the law will not he condemned as 
discriminative, though due to some fortuitous 
circumstance arising out of" a peculiar situation some 
included in a class get an advantage over others, so 
long as they are not singled out for special treatment. 
Taxation law is not an exception to this doctrine vide 
Purshottam Govindji v. B.1\!l. Desai, and Kunnathat 
Thathuni Moopil Nair v. State ol Kera/a. But in the 
application of" the principles, the courts, in view of the 
inherent co111plexity of'fiscal adjustment of" diverse 
elements, permit a larger discretion to the legislature in 
the matter of' classification, so long it adheres to the 
fimda111ental principles underlying the said doctrine. 
The power of" the legislature to classi[y is of" "wide range 
andflexihiliy" so that it can adjust its system of taxation 
in all proper and reasonahle ways. " 
139. In V. G11r11vial1 Naidu and Sons and ors. v. 
State of 
Tamil Na du and ors, ( 1977) 1 SCC 234 the Court was examining 
whether levy of sales tax on hides and skins from within or outside the 
State was discriminatory and offensive to Article 304(a) of the 
Constitution. Repelling the contention that it was violative of Article 304(a), 
this Cou11 held: 
"8. None of" the circumstances which led this Court to 
strike down 
the 
relevant provisions 
in 
the 
ahovementioned rn10 cases exists in the present case. In 
111ehtab '.~ case
discriminarion was found to exist because 
of' the fact that tax was heing levied at the same rate in 
re.1pect of hoth raw hides and skins as well as dressed 
hides and skins, even though the price of" dressed hides 
and skins was much highe1: The position was worse in 
the case of" Hajee Ahdul Shukoor hecause in that case 
the sales tax wasfound to have heen charged at a higher 
rate in respect of" dressed hides and skins than that on 
the sale of" raw hides and skins in spite of" the fact that 
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the price of dressed hides and skin.1· H'as higher than 
that of mw hides and skins. The position in the present 
case is material!v different, jiH here the rate of sales 
tax fi;r mw hides and skins is 3 per cent, ·while that fi;r 
dressed hides and skins is 1112 per cent. It is plain that 
the lower rate of tax in the case of dressed hides and 
skins has heen prescrihed with a view to off1·et the 
difference between the higher price of dressed hides 
and skins and the lower price of raw hides and skins. 
No material has heen hrought on the record to shm1· 
that despite the lower rate of sales tax for dressed hides 
and skins, the imported hides and skins are heing 
suhjected to discrimination. 771e onus to show that there 
would he discrimination between the hides and skins 
which were purrhased locally in the ·raw form and 
thereafter tanned and the hides and skins which were 
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imported.from other States was upon the appellant. 771e 
appellant, we find, has failed to discharge such onus. 
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9. Article 304(a) does not prevent levv of tax on goods: 
what it prohihit.1· is such levy of tax 011 good1· as would 
result in discrimination between goody imported.from 
other States and similar goods manufactured or 
produced ·within the State. The ohiect is to preve11t 
discrimi11otio11 against imported goods hy imposing tax 
on such gooc/.1· at a rate higher than that home hy local 
good\' since the difference
betv\'een the two rates would 
constiwte a tariff wall or.fiscal harrier and thus impede 
the fi'ee flow of inter-State trade and commerce. The 
question as to when the levy of tax would constitute 
discrimination would depend upon a variety of.factors 
including the rate of tax and the item of' goods in re.1pect 
of rhe sale of which it is levied. The scheme of items 
7(a) and 7(h) of the Second Schedule to the State Act is 
that in case of rmv hides and skins which are purchased 
local~)' in the State, the levy of tax would he at the rate 
of 3 per cem ar the point of' last purchase in the State. 
Whe11 those lncal~v purchased raw hides and skins are 
tanned and ure sold locallv as dressed hides and skins.
-,. 
JINDAL STAINLESS Ll'D. v. STATE or HARYANA 
[T. S. THAKUR, CJI] 
no levy ivould he made on such sales as those hides 
a11d skins have already been suhjected to local tax at 
the rate of 3 per cent when they were purchased in raw 
form. As agai11st that, in the case of hides and skins 
ivhich have been importedfi'Oln other States in raw.form 
and are I hereafter tanned and then sold i11side the State 
as dressed hides and skins, the levv of the tax is at the 
rate of' 1112 per cent at the point of first sale in the 
State of the dressed hides and ski11s. This levy ca1111ot 
lie considered to he discriminat01:v as it takes into 
account the higher price of dressed hides and skins 
compared to the price of raw hides and ski11s. 'It also 
fill'ther takes 11ote of the fact that no tax under the State 
!let has heen paid in respect of those hides and skins. 
The legislature, it seems, calculated the price of hides 
and skins i11 dressed condition tri be double the price of 
such hides a11d skins in raw state. To ohviate and 
prevent any discrimination or differential treatment in 
the matter of levy of' tax, the legislature there.fore 
prescrihed a rate of tax for sale of dressed hides and 
skins which was half of that levied under Item 7(a) in 
re.1pect of' raw hides and skins. " 
140. In Malwa Bus Service (Private) Ltd. v. State of Puniah 
mu! others (I 983) 3 SCC 237 this Court held that a difference in the 
rate of tax by itself cannot be considered to be discriminatory
and 
offensive to the equality clause: 
"21. The next submission urged 011 hehalf of' the 
petitioners is based 011 hficle 14 of' the Constitution. It 
is contended hy the petitioners that the Act hv levying 
Rs 35, 000 as the annual fax on a motor vehicle used as 
a stage carriage hut only Rs 1500 per yem· on a motor 
vehicle used as a goods· carrier suffers .ftnm the vice C?f 
hostile discrimination and is, therefore, liahle to he 
stmck down. There is no dispute that even a fiscal 
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legislation is suhject to Article 14 o( the Constitution. 
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But it is well settled that a legislature in order to tax 
some need not tax all, It can adopt a. reasonable 
c;lass(ficatio11 of persons and things in imposing tax 
liahilities. A law of taxation cannot he tem1ed as being 
discriminatory hecause different rates of taxation are 
prr;scrihed in respect of dif(etellf items, provided it is 
possihle to hold that the said items belong to di.~tinct 
and separate groups and that there is a reasonable nexr" 
between the c/ass(fication and the object to he achieved 
hy the imposition of dijferellf rates o.f taxation. 171e mere 
fact. that a tax falls more heavi~v on certain goodv or 
persons may not result in its invalidity. As observed hy 
this Court in Klumdige Sham Bhat v. Agricultural 
lllcome Tax Officer in respect o.f taxation laws, the 
power of legislature to dlassify good5, things or persons 
are necessarily 11'ide and flexible so as to enahle it to 
adi11.1·t its svstem of taxation in all proper and reasonahle 
ways .. The Co11rts lean more readily in favour of 
upholding the constitutionality of a taxing law in view 
of' the wmplexities involved in the .1·ocial and economic 
life of' the comm11nity. It is one of the duties of a modern 
legislature to utilise the 111eas11res o.f' taxation i>lfroduced 
.• hy it for the p11rpo.\'e of achieving maximum social good 
and one has. to tr11st
the wisdom of the /egi.,lature ·in 
this regard. Unless the jiscal law in q11estion is 
manjf'estly discriminatory the court sho11ld refrain from 
striking it down on the ground o.f' discrimination. These 
are some of'the hroad principles laid down hy this Court 
ill several of' its decisions and it is unnecessary to 
/Jurden this judgment with· citations. Applying these 
principle.< it is seen that stage carriages which travel 
on an average ahout 260 kilometres every day on a 
spectfied route or routes with an almost assured quant11m 
o.l traffic which invariah/y is overcrowded helong to a 
class distinct and separate from puhlic carriers which 
earl}· good< on 11ndefined routes. Moreover the puhlic 
carrier.\· 111a_\' 1101 he operating eve1:r da)l in the State.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJI] 
There are also other economic considerations which 
distinguish stage carriages and public carriers from 
each other. The amount of wear and tear caused to the 
roads by any class of motor vehicles may not always be 
a determining factor in class!fYing motor vehicles for 
purposes of taxation. The reasons given by this Court 
in GK. Krishnan case for upholding the classification 
made hetween stage carriages and contract carriages 
both of which are engaged in carrying passengers are 
not relevant to the case of a classification made between 
stage carriages which carry passengers and public 
carriers which transport goods. The petitioners have 
not placed before the court sufficient material to hold 
that the impugned levy suffers from the vice of 
discrim"ination on the above ground. " 
141. Seen in the context of the above, we are inclined to accept 
the submission made on behalf of the State that so long as the intention 
behind the grant of exemption/adjustment/credit is to equalize the fall of 
the fiscal burden on the goods from within the State and those from 
outside the State such exemption or set off will not amount to hostile 
discrimination offensive to Article 304(a). Having said that, we leave 
open for examination by the regular benches hearing the matters whether 
the impugned enactment achieve the object of such equalization or lead 
to a situation that exposes goods from outside the state to
suffer any 
disadvantage vis-a-vis those produced or manufactured in the taxing 
State. 
142. We must, while parting, mention that learned counsel for the 
parties had attempted to raise c,ertain other issues like whether the entire 
State can be treated as a local area and whether entry tax can he levied 
on goods imported from outside the country. We do not, however, consider 
it necessary in the present reference to address all those issues which 
are hereby left open to be decided by the regular bench hearing the 
matter. 
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143. With that observation the reference is answered. The Registry 
shall now place the matters before regular benches for an expeditious 
disposal of the same in the light of what has been observed by us above. 
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S. A. BOBDE, J. 1. I am in respectful agreement with the 
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Judgment of the Chief Justice, on the question that taxes are not 
restrictions on the freedom of trade, commerce and intercourse 
guaranteed by Article 301. 
Taxes are not restrictions on Trade 
2. [n addition to the reasons stated in the judgment, it appears that 
there is a more fundamental reason why tax is not liable to be viewed as 
a restriction on the freedom of trade, commerce and intercourse. On 
the contrary it seems that a tax, such as the one we are concerned with 
is predicated on the freedom of trade and commerce. This is particularly 
true of an entry tax. [t is an impost levied on transactions which are 
entered into in the course of that freedom. ln fact, but for such freedom 
of trade there would be no transaction and no occasion for the levy of a 
tax. The levy of a tax is a distinct event from the transaction. Trade and 
commerce must take place to attract a tax. lJ ndoubtedly a tax may 
make the transaction less profitable to the extent of the tax. But that is 
far from being an impediment on the transaction which is part of trade, 
the freedom which is guaranteed under Article 301. It is not possible to 
readily conceive of a tax, which in itself, restricts or impedes the freedom 
of trade. The circumstances are much like the freedom of movement of 
an individual by a bus and the charge of a bus ticket for such movement. 
It
can hardly be contended that the charge of a bus ticket impedes the 
freedom of movement. 
3. The other related contentions have been adequately dealt with 
by the Judgment of the Chief Justice and I fully subscribe to the same. I 
would also agree in this regard with the view of Sinha, CJ, in Atiabari 
that a tax is not a restriction. Sinha, CJ, observed that" ....... if a law is 
passed by the Legislature imposing a tax which in its true nature and 
effect is meant to impose an impediment to the free flow of trade, 
commerce and intercourse, for example, by imposing a high tariff wall. 
or by preventing imports into or exports out of a State, such a law is 
outside the significance of taxation, as such, but assumes the character 
of a trade barrier which it was the intention of the Constitution makers 
to abolish by Part-XIII". However, it is difficult to implement such a 
test since it does not disclose any objective standard for determining: 
when such a law would assume the character of a trade barrier. In 
principle, a tax cannot constitute a restriction on the freedom of trade,
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[S. A. BOBDE, J.] 
commerce and intercourse as held by Sinha, CJ. Therefore, it would not 
be possible to construe a tax as a trade barrier merely because the rates 
are high. As regards apprehensions expressed regarding high rates of 
taxation, it would be apposite to rely on the observations of Marshall, CJ, 
in McCul/oclt v. Maryland, 17 US 316 (1819), that the only security 
against the abuse of such power lies in the structure of the government 
itself. 
Article 304 (a) 
4. In regard to the question whether the levy ofentry tax on import 
299 
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of goods from outside the local area in the State will be per se 
discriminatory if goods similar to those imported are not produced or 
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manufactured within the State, I find it difficult to agree with the 
conclusion that a tax on goods imported into a State can be levied even 
if similar goods are not manufactured or produced in the importing State. 
I would agree with the conclusion drawn by Ashok Bhushan, J ., in this 
regard. 
D 
Article 304 reads as follows: 
"Restrictions 011 trade, commerce and intercourse 
anwng States.- Notwithstanding anything in Article 30 I 
or Article 303, the Legislature of a State may by law-
(a) impose on goods imported/ram other States [or the 
Union territories} any tax to which similar goods 
manufactured or produced in that State are su~ject. so, 
however, as not to discriminate between goods so 
imported and goods so manufactured or
produced; and 
(b) impose such reasonable restrictions on the freedom 
of trade, commerce or intercourse with or within that 
State as may be required in the public interest: 
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Provided that no Bill or amendment for the purposes of 
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clause (b) shall be introduced or moved in the 
Legislature of a State without the previous sanction of 
the President. " 
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5. The non-discriminatory principle is embedded in two provisions 
of Part Xlll: Article 303 (1) - Parliament cannot impose restrictions 
under Article 302 and make a discriminatory law under any entry relating 
to trade and commerce; the other is Article 304 (a) which (unlike Section 
297 of the erstwhile Government ofindia Act, 1935 which prohibited -
through a negative mandate, discriminatory treatment) empowers State 
Legislatures to impose non-discriminatory taxes on goods. Thus, Article 
3 04 (a) differentiates between discriminatory and non-discriminatory 
taxes. The premise underlying this provision is the paramount aim of 
Part Xlll to establish and foster economic unity of the country. Non-
discrimination, or parity of treatment is therefore at the core of its purpose, 
which Shri T. T Krishnamachari stressed, in his speech in the Constituent 
Assembly. He said that "restrictions by the State have to he prevented 
so that the particular idiosyncrasy of some people in power or 
narrow provincial policies of certain States should not he allowed 
to come into play and affect the general economy of the country. " 
[Constituent Assembly Debates, 1139 (1949)]. 
6. The Article, therefore, recognizes the power of a Legislature 
to a State to impose the tax on the imported goods so, however, as not to 
discriminate between goods so imported and goods so manufactured or 
produced. While there is no doubt that
this Article recognizes the power 
to legislate on a State, it equally qualifies that power with the condition 
that such a law must comply with. That condition is that the law which 
imposes a tax on imported goods cannot "discriminate" between goods 
so imported and the goods so manufactured or produced. It also postulates 
that the tax on import is a "tax to which similar goods manufactured or 
produced in that State are subject." The Article thus imposes two 
conditions: firstly, that a law may impose a tax on goods imported from 
other States, 'any tax' to which "similar goods manufactured or produced' 
in that State are subject. This clearly implies that the goods imported 
from other States may be subjected to a tax where similar goods are in 
fact, manufactured or produced in the importing State and are subjected· 
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to tax. In other words, (a) the goods imported from other States must be 
similar to (b) the goods manufactured or produced in the importing State · 
and (c) the goods so locally manufactured or produced must be subject 
to tax. The second condition is the tax that is imposed on imported goods 
should not discriminate between the imported goods and goods 
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manufactured or produced in the importing State.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
7. The intention of the Article thus, clearly is that where a tax 
exists on goods imported into a State there should be no discrimination 
between such a tax and a tax on similar goods manufactured or produced 
in the importing State. The reference point for tax on imported goods is 
the tax on locally manufactured goods. lt is not possible to construe the 
prohibition against discrimination where there is no tax upon similar goods 
manufactured or produced in the importing State. Undoubtedly, the effect 
of such a construction is that the imported goods cannot be taxed where 
similar goods are not manufactured or produced in the importing State 
and are therefore, not subjected to similar tax and that seems to be the 
clear intention of this Article. 
8. In the normal course, a State in which certain goods are not 
manufactured would rely on the supply of such goods from other States 
and the effect of this provision would be to make the goods so imported 
available without the additional burden of tax. In sum, the premise on 
which tax can be imposed is the existence of not mere taxes on goods 
produced or manufactured locally, or the theoretical possibility of taxation, 
to avoid the prohibition under Article 304 (a), but the actual production 
or manufacture of similar goods, that are subject to like or similar tax. 
Absent this condition, the levy would fall foul of Article 304 (a) since it 
would constitute an additional
burden (the goods already having suffered 
some form of taxation in the producing state). This interpretation, in my 
opinion would also further economic progress and the unhindered 
availability of goods in states which do not have manufacturing capacities 
and may not be able to develop it, having regard to lack of natural 
resources or other geographical limitations. It also furthers the aims 
underlying Article 301 of the Constitution ofindia. 
Conclusion . 
9. I answer Question No. I in the negative and I agree with the 
conclusions drawn by the Chief Justice. I would also answer Question 
Nos. 2, 3 and 4 in agreement with the Chief Justice. 
SHIVAKIRTI SINGH,J. I. Since lam in respectful agreement 
with the judgment by T.S. Thakur, CJI, I do not propose to go into whole 
gamut of documents, materials, relevant constitutional provisions and 
the precedents which have already been noticed not only by T.S. Thakur, 
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CJI, but also by N.V. Ramana, R. Banumathi, D.Y. Chandrachud, and 
Ashok Bhushan, JJ. in their separate detailed judgments, which I had 
the privilege to go through. 
2. While recording my agreement with judgment ofT.S. Thakur, 
CJI and other similar views, in the light of some of the differing judgments, 
I feel it necessary to underline my understanding of the core issues and 
why they need to be answered in a particular way. 
3. The basic issue which has generated the present litigation arises 
out of a challenge to various taxing statutes enacted by several States to 
impose Entry Tax on goods in exercise of specific power available to the 
State legislature under Entry 52 of List II in the 7'h Schedule of the 
Constitution. If the Constitution Bench judgments in Atiabari's case 
and in Automobile Transport's case were not under doubt, then as 
per majority view in Atiabari's case one was required to apply the test 
of "direct or immediate" effect of Entry Tax. If it restricts freedom of 
trade and commerce, it had to be struck down. Since such a view did 
not pennit certain levies imposed by the State legislature to provide better 
facilities for interstate trade and commerce, the concept of regulatory 
and compensatory taxation was advanced as a pennissible exception, 
by the majority view in Automobile Transport case. The purpose 
was to reconcile the freedom of trade and commerce stipulated by Article
301 with the need ofresources for the States through imposition of taxes 
on trade and commerce. Such tax was held permissible if it was to 
provide facilities which would improve and help freedom of trade and 
commerce through activities such as construction and upkeep of roads 
and other similar facilities. 
4. As discussed in detail in the other judgments, ultimately States 
felt the need to exercise their legislative power to impose taxes even for 
general welfare measures and police duties. Resultantly it became more 
and more difficult to justify such tax as compensatory tax and such 
attempts brought excessive strain on the very concept of regulatory and 
compensatory tax. On the one side Trade and Industry seriously criticised 
such attempts, inter-alia, on the ground that it blurs the distinction between 
compensatory tax and regular tax. On the other hand, the States 
comprising the Indian Union are clearly unhappy with the law settled in 
Atiabari's case as well as in Automobile Transport case which 
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permits them·to impose taxes affecting freedom of trade and commerce
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[SHIVA KIRT! SINGH, J.] 
but on the condition that it is actually by way of a fee, justified by some 
sort of quid pro quo. 
5. In the above factual background the heavy burden that has 
befallen on this nine Judges Bench is to interpret Articles 301 to 304 
comprising Part Xlll of the Indian Constitution in a manner which is 
justified both by the text as well as the historical context and also effects 
the desired balance between the need of the country to have free 
movement of trade and commerce on one hand and the sovereign taxing 
powers of the States given to them by the Constitution on the other. 
Limitation on such power must be explicit in the Constitution. For 
safeguarding freedom of trade and commerce, such limitation is to be 
found only in Article 304(a) of Part XIII of the Constitution. 
6. Answering the question No. 1 in the negative or in other words 
declaring that levy of a non-discriminatory tax per-se does not violate 
Article 301, in my opinion means that the majority view in respect of 
limits in imposition of tax through legislation in Atiabari case (supra) as 
well as in Automobile Transport case is no longer a good law. Since, 
in the matter oflevy of taxes the compensatory theory is no more relevant, 
the State Legislatures are free to exercise their taxing powers without 
the need of declaring and showing that taxes imposed by them on outside 
goods are for the benefit of concerned traders or
manufacturers. But 
such tax must be, in essence, non-discriminatory, both, in the ultimate 
tax burden and in machinery provisions. To muster compliance with 
Part XIII of the Constitution, the tax must pass the twin tests embodied 
in Article 304(a) - (i) Similar goods produced locally must also be 
subjected to similar tax and (ii) such state action should not attract the 
vice of discrimination between the two varieties of goods. 
7. The entire discussion in my view leads to a fair conclusion that 
the views summarized by Sinha, CJI in paragraph 18 of his judgment in 
Atiabari case depict the law emanating from Part XIII of the Constitution 
in the correct perspective. However same cannot be said of observations 
in paragraph 16 where His Lordship used the expression - "If a law is 
passed by the legislature ....... imposing a high tariff wall--------assumes 
the character of a trade barrier which it was the intention of the 
Constitution makers to abolish by Part XIII." These observations do 
create practical difficulties of insurmountable proportions. Hence these 
deserve to be treated as obiter or interpreted ill the. light of the entire 
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A 
passage, to mean such taxes which impose an impediment to the free 
flow of trade, commerce and intercourse by creating discriminatory tariff 
wall/trade barrier (emphasis supplied). For Part XIII there can be no 
real impediment through tax unless the so called wall or barrier is one of 
hostile discrimination between local goods and outside goods. 
B 
N. V. RAMANA, J. 
TABLE OF CO:l'TL\1S 
PART-I:I!'iTRODFCTIO:'i 
P. 4R. 4 1.1-l.3 
c 
PART-II: CASIIIlSTORY 
PARA 2.1-2.3 
PART-Ill: ARGl11El\IS CA7\TASED 
P.4R.43.l-3.10 
D 
PART-IV: ~1£D FORRI\1EW 
P.4RA 4.l-4.2 
PART-V: CO:\STITiiTIO:\ • .\l. L\IIRI'RITATIOK 
PAR.J 5.1-5.9 
PARr.\l:IXTRODt-CTIOXTOTAXATIOX Al\1HT$n!PORTi\:'iCE 
PARA6.H.2 
E 
PART· \lI: FRilDOM OF TRADE, COli\!ERCEAXD 
PAR.47.l-7.41 
INTIRCOURSE 
PARMID:ARTICLE3040FIHECO:\STITFITO:'i 
P.4R.4 8.1-8.26 
F 
PART-IX:COXCLUSIOXS 
PAR.J9.l-9.2 
PART - 1 : INTRODUCTION 
l. l I have had the privilege of going through the draft judgments 
G 
prepared by the learned Chief Justice T.S. Thakur and my brother/sister 
judges. r am broadly in agreement with the conclusion of the learned 
Chief Justice on most of the issues. The erudite draft judgment of learned 
Chief Justice would in the usual course may not have warranted another 
concurring judgment. But when a Bench of nine judges of this Court 
has been assembled to consider the seminal issues that have been 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
bothering the nation for about fifty years and such issues have been 
debated in the Court over a period of four weeks, many aspects having 
a bearing, canvassed about a constitutional question, a concurring 
judgment cannot be treated as a repetitive burden or a superfluous legal 
exercise.' Therefore I propose to deliver a brief judgment concurring 
with the judgment of the learned Chief Justice, giving my own reasons. 
1.2 As a caveat, I may mention that the contentious matter herein 
is important not on! y from the legal point of view but also for a common 
man who ultimately bears the tax burden. Secondly in constitutional 
matters, judgment with clarity is preferable to a judgment of wandering 
complexities. It is appropriate to quote Lord Denning2 He said-
' ... I avoid long sentences like the plague: because 
they lead to obscurity. It is no good ifthe hearers cannot 
follow them ... I refer sometimes to previous authorities. I 
have to do so because I know people are prone not to 
accept my views unless they have support from the books. 
But never at much length. Only a sentence or two ... I 
finish with a conclusion - and epilogue - again as the chorus 
does in Shakespeare. In it, I gather the threads together 
and give the result'. 
(emphasis supplied) 
Although I have tried in this Judgment to keep it as simple as 
possible yet sometimes legal jargon becomes unavoidable to keep the 
1 Journey Started
from Atiabari Tea Co., Ltd. Y. The State of Assam and Ors., A.LR 
1961 S.C 232 [hereinajier 'Atiahari '];continued in Automobile Transport (Rajasthan) 
Ltd. Y. The State ofRajasthan,A.l.R 1962 S.C 1406 [hereinafter 'Automohilel Doubted 
for first time in G. K. Krishnan v. State of Tamil Nadu, A.1.R 1975 S.C 583 [hereinafter 
' 'GK Krishnan l Dilution of compensatory tax took place in Bhagatram Rajeev Kumar 
v. CIT, MP, 1995 Supp.(!) S.C.C 673 [hereinafter 'Baghatram ']and State of Bihar v. 
Bihar Chamber of Commerce and Otr., (1996) 9 S.C.C 136 [hereinafter 'Bihar Chamber 
of Commerce']. Further went back to old fonnulation in Jindal Stainless Ltd. And Anr. 
Y. State ofHaryanaand Ors.,A.l.R2006 S.C 2550 [hereinafter Jindal (2)]. Referred to 
larger Bench in JaiprakashAssosiates v. State of MP, 2009 (7) S.C.C 339 [hereinafter 
'Jaiprakash ']; further Constitution Bench has referred the matter before us in Jindal 
Stainless Ltd. And Anr. Y. State ofHaryana, 2010 (4) S.C.C 595 [hereinafter 'Jindal 
(3) ']. 
'Lord Denning, Family Story, p. 207 (1999) 
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[2016) 10 S.C.R. 
A 
essence of the law. 
B 
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1.3 As detailed by the learned Chief Justice below the referral 
order formulated as many as twelve (12) questions. Nonetheless on very 
fir~t day with the consent of the learned counsels, we reframed these 
questions as under-
!. Can levy of a non-discriminatory tax per se constitute infraction 
of Article 301 of the Constitution of India? 
2. If the answer to Question No. I is in the affirmative, can a tax 
which is compensatory in nature also fall foul of Article 301 
of the Constitution of India? 
3. What _are the tests for determining whether the tax or levy is 
compensatory in nature? 
4. Is the entry tax levied by the states in the present batch of 
cases is violative of Article 30 I of the Constitution and in 
particular have the impugned State enactments relating to entry 
tax to.be tested with reference to Articles 304(a) and 304(b) 
of the Constitution for determining their validity? 
·\ 
PART II : CASE HISTORY 
If 
2.1 Let me take up the first case in the batch of appeals (Civil 
E 
Appeal No. 3453 of 2002 (Jindal Stainless Steel Ltd. v. State of 
Haryana.). On May 5, 2000, the State of Haryana issued the Haryana 
, Local Area Development Tax Ordinance, 2000 (Ordinance No. 10 of 
2000). The Ordinance was later replaced by the Haryana Local Area 
Development Tax Act, 2000. Therein, a provision was made for levy 
F 
and collection of tax on entry of goods into local area. The validity of
the said Act was challenged on the ground that it violated Articles 30 I 
and 304 of the Constitution. C. W.P. No. 6630 of 2000 (Jindal Strips 
Limited v. State of Haryana) and connected petitions were dismissed 
by the High Court on December 21, 2001 3• Following the judgments of 
G 
this Court, inter alia, in Bhagatram and Bihar Chamber (~f Commerce, 
the High Court upheld the validity of the said Act. !twas held that the 
entry tax was compensatory as per parameters laid down by this Court 
·in the said judgments and thus, did not violate Articles 301/304 of the 
Constitution. On appeal to this Court, the matter was referred to the 
H 
3Jindal Strips Ltd. v. State ofHaryana, [2003] 129 S.T.C 534
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
Constitution Bench in Civil Appeal No. 3453 of 2002 vide order dated 
September 26, 2003. The said order is reported as Jindal Stripe Ltd. v. 
State of Haryana [hereinqfter 'Jindal (1)1 4• On April 13, 2006, the 
Constitution Bench delivered its judgment in Jindal (2), and 'reversed the 
earlier judgments in Bhagatram and Bihar Chamber of Commerce. 
The Constitution Bench laid down the ingredients of compensatory tax 
as being value of direct, measurable and quantifiable special benefits 
provided by the State to tax-payers on the basis of equivalence. The 
matter was thereafter placed before a Division Bench of this Court for 
decision in the light of judgment of the Constitution Bench. On July 14, 
2006, the Division Bench of this court in its order in Jindal Stainless 
Ltd. v. State of Haryana5, observed that relevant data had not been 
placed before the High Court for detennining the nature of tax and asked 
the High Court to deal. with the basic issue whether the levy was 
compensatory in nature. Accordingly, the State filed data by means of 
affidavits and vide order dated March 14, 2007 (reported as Jindal 
Strips Limited v. State of Haryana, a Division Bench of High Court 
held that the levy was not compensatory in character and amounted to 
restriction on free flow of trade and commerce and violated Articles 
301 and 304 of the Constitution of India. On April 16, 2008, the State 
of Haryana repealed the
2000 Act and enacted the Haryana Tax on 
Entry of Goods into Local Areas Act, 2008, impugned in this Appeal. 
The High Court in Indian Oil Corporation v. State of Haryana6, declared 
that the provisions of the Haryana Tax on Entry of Goods into Local 
Areas Act, 2008 to be unconstitutional and void. The Punjab and Haryana 
High Court invalidated the Haryana Act, the matters again came to this 
Court in a connected matter being Jaiprakash Associates1 (A two judge 
bench) referred ten questions to the constitutional bench. 8 
42003 (8) s.c.c 60 
'2006 (7) s.c.c 271 
°(2009) 21 V.S.T 10 (P&H) 
7 2009 (7) s.c.c 339. 
R Questions are-
1. Whether the State enactments relating to levy of Entry Tax have to be tested 
with reference to both Clauses (a) and (b) of Article 304 of the Constitution for 
determining their validity and whether Clause (a) of Article 304 is conjunctive 
with or separate from Clause (b) of Article 304? 
2.Whether imposition of Entry Tax levied in terms of Entry 52 List II of 7th 
Schedule is violative of Article 301 of the Constitution? If the answer is in the 
affirn1ative whether such levy can be protected if Entry Tax is compensatory in 
chara,cter and if the answer to the aforesaid question is in the affinnative what are 
the yardsticks to be applied to determine the compensatory character of the 
Entry Tax. 
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2.2 One of the questions is whether State enactment relating to 
levy of entry tax has to be tested with reference to both Articles 304 
(a) and 304(b). When the matter was placed before the constitutional 
bench along with Jindal (3)9, the constitutional bench was confronted 
with the arguments by the State that the tests propounded by the Atiabari 
and Automobile failed to strike a balance between freedom of trade and 
commerce under Article 301 and taxing power of the State under Article 
246 r/w relevant legislative entries to the Constitution of India. The 
constitutional bench, found merit to refer to suitable larger bench for 
reconsideration of Atiahari and Automobile. For doing so support was 
3.Whether Entry 52, List II, 7th Schedule of the Constitution like other taxing 
entries in the Schedule, merely provides a taxing field for exercising the power 
to levy and whether collection of Entry tax which ordinarily would be credited 
to the Consolidated Fund of the State being a revenue received by the 
Government of the State and would have to be appropriated in accordance with 
law and for the purposes and in the manner provided in the Constitution as per 
A11icle 266 and there is nothing express or explicit in Entry 52, List II, 7th 
Schedule which would compel the State to spend the tax collected within the 
local area in which it was collected? 
4. Will the principles of quid pro quo relevant
to a fee apply in the matter of 
taxes imposed under Part Xlll?. 
5. Whether the Entry Tax may be levied at all where the goods meant for being 
sold, used or consumed come to rest (standstill) after the movement of the 
goods ceases in the 'local area'? 
6. Whether the Entry Tax can be termed a tax on the movement of goods when 
there is no bar to the entry of goods at the State border or when it passes 
through a local area within which they are not sold, used or consumed? 
7. Whether interpretation of Articles 301 to 304 in the context of Tax on vehicles 
(commonly known as 'transport') cases in Atiabari's (supra) and Automobile 
Transport's case (supra) apply to Entry Tax cases and if so, to what extent. 
8. Whether the non discriminatory indirect State Tax which is capable of being 
passed on and has been passed on by 'traders to the consumers infringes 
Article 301 of the Constitution? 
9. Whether a tax on goods within the State which directly impedes the trade and_ 
thus violates Article 301 of the Constitution can be saved by reference to 
Article 304 of the Constitution alone or can be saved by any other Article? 
10. Whether a levy under Entry 52, List II, even if held to be in the nature of a 
compensatory levy, it must, on the principle of equivalence demonstrate that 
the value of the quantifiable benefit is represented by the costs incurred in 
procuring the facility/services (which costs in turn become the basis of re-
imbursement/recompense for the provider
of the services/facilities) to be 
provided in the concerned 'local area' and whether the entire State or a part 
thereof can be comprehended as local area for the purpose of Entry Tax? 
92010 (4) s.c.c 595
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
309 
[N. V. RAMANA, J.] 
drawn from Keshav Mills 10, GK Krishnan. Dawoodi Bora 11 • That's 
A 
how the matter is before us. 
2.3 Entry tax is levied by the State ofHaryana under the provisions 
ofHaryana tax on Entry of Goods into Local Areas Act, 2008. Section 
3 of the Act contains the charging the provision which states that the 
tax is levied 'for the purpose of development of trade, commerce and 
B 
industry and for creation and maintenance of infrastructure facilities for 
free flow of trade and commerce in State'. Section 25 of the Act 
provides that the proceeds of the levy shall be appropriated to a fund 
notified by the Government and shall be exclusively utilized for the 
development or facilitating the trade, commerce and industry in the State 
C 
and also inter alia provides benefits towards which the proceeds may 
be applied. Most of the States in appeal have enacted similar provisions 
under the impugned enactments. 
PART-III : ARGUMENTS CANVASSED 
ARGUMENTS OF PETITIONERS/APPELLANTS 
D 
(ASSESSEE(S)) 
3.1 Mr. Harish Salve, learned senior counsel argued as below-
~ That taxes generally amount to restriction but it is only such 
taxes that directly and immediately restrict trade that will fall 
within the Article 30 I. Applying this test the court can strike 
E 
down the law as violative of Article 30 I unless saved by 
Atiicle 304(b). 
~The result of reading Article 304(a) and (b) together appears 
to be that a tax
can be levied by State on goods manufactured/ 
produced or irnpo1ied in the State and thereby reasonable 
F 
restrictions can be placed on the freedom of trade either with 
another State or between different areas of the same State. 
~ The vital federal safeguard provided in the proviso is pervious 
sanction of the President. Article 30 I operates to restrict 
legislative power of State. Lastly, he argues that proviso of G 
Article 304 can be read down in appropriate cases. 
~In rejoinder he argues that as Article 304(a) of the Constitution 
10 A.l.R 1965 S.C 1636 
112005 (2) s.c.c 673 
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[2016] 10 S.C.R. 
envisages the rule of per se violation there is no question of impact 
test or comparative tax burden test under it as the text of the same 
does not accept such imterpretation. 
3.2 Mr. A. K. Ganguli, his main contentions are-
~ The Reference Order to a larger bench to 'reconsider' the 
decisions in Atiahari and Automobile is not warranted and 
nms contrary to the settled law laid down by this Hon'ble Court 
as it constitutes a binding precedent under Article 141 of the 
Constitution. 
~ Regarding the construction of Article 304 of the Constitution 
he submits that it is inherent in the drafting of the clause (a) 
itself that both clauses (a) and (b) of article 304 are not 
mutually exclusive. It is submitted that clause (b) acts as a 
gateway to protect those laws which don't satisfy the dual 
conditions laid down in clause (a). 
~ Further he supported the concept of compensatory tax which 
has stood the test of time. 
3.3 Mr. T.R. Andhyarujina, learned senior counsel argues as 
follows-
~ That there is no requirement of reference to a larger bench 
as there is no public mischief being caused by the prior 
Judgment. In alternative he submits that the compensatory 
taxes levied by the States would in a large measure negative 
the freedom of trade and commerce guaranteed by Article 301 
because there is no proof that the State will utilize the tax for 
.the improvement of trade facilities etc. Even assuming a
State 
in the Act that the tax collected will be used for that particular 
purpose. A declaration to that effect would only mean a clever 
device to refute the abridgment of free trade. 
~ Hence, it i.s his submission that where a State claims to have 
imposed a compensatory tax, it should not be permitted to 
impose a tax without complying with the requirement of Article 
304(b). Otherwise according to him all taxes would be outside 
the purview of the freedom of trade by mere assertion as is 
done by 22 States that the tax is compensatory. 
3.4 Mr. Arvind P. Datar contends-
~That Concept of compensatory tax may be confined to Entry 
H 
no. 56 and 57 and not applied to any other tax/duty in
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
311 
[N. V. RAMANA, J.] 
State List. 
A 
> Further the working test contemplated in Automobile Case has 
not worked satisfactorily. 
> Neither the "direct or immediate effect" test of Atiahari nor 
the "working test" of Automobile Case is feasible in practice. 
> He suggested the bench to adopt "Appreciable Adverse Effect 
on Trade & Commerce [AAETC]" borrowed from section 3 
of the Competition Act, 2002. The difference between 
enactment of AAETC before and after the impugned Law will 
provide the impact on Trade & commerce. 
> The Burden of Proof will be on the petitioner to establish, prima 
facie, to prove actual or potential_ AAETC. 
3.5 Mr. S.K. Bagaria, learned senior advocate, Mr. J. Dhankar, 
learned senior advocate, Mr. N. Venkatraman, learned senior advocate, 
Mr. R. Srivastava, learned senior advocates, Mr. Dhruv Aggrawal, 
learned senior advocate, Mr. Gopal Jain, learned senior advocate, Mr. 
Tushar Mehta, learned Additional Solicitor General, Mr. Dilip Tandon, 
Smt. Suruchi Aggrawal, Mr. V. Lakshmikumaran for assesses have 
either adopted the submissions made by the above named advocates or 
provided alternative reasons for the conclusions reached by the 
abovementioned advocates. 
3.6 Mr. Mukul Rohatgi, learned Attorney General of India 
submits-
> That that power to tax is an incident of sovereignty provided 
under specific entries in List II. It is to be noted that such 
power cannot be suppressed even by the
Parliament of India 
under our Constitution. 
> Part XIII generally does not deal with Taxes except in so far 
as Article 304(a). Part XIII is only concerned with deliberate 
discrimination. If discrimination is done for alleviation of 
economic condition than such a measure would not be covered 
under the mischief of Article 304(a). 
>Furthermore 304(a) and 304(b) are disjunctive in which only 
(a) applies to taxes and (b) applied to non-fiscal measures. It 
is always assumed taxes are imposed in public interest and is 
reasonable. Therefore inclusion of taxes under Article 304(b) 
would be an exercise in redundancy which will never be the 
B 
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[2016] 10 S.C.R. 
A 
intention of our Constitution framers. Therefore, Sovereign 
power of the State cannot be made a plaything of Executive. 
~ Federalism is to be disjointed from economic unity. Patt XIII 
and Part 111 are at different pedestal. Part Ill is individualistic 
in nature and has sufficient remedies to cover excessive 
B 
taxation and other burdens. 
c 
D 
E 
~ Moreover, Hon'ble C .J Sinha's View in Atiahari has not 
required any reconsideration and the same should be followed 
even by this court. He submits that any test under attic le 301 
will have to draw a line as to when taxes become Trade 
barriers. Such examination by Courts is not warranted. 
»Part XIII has its origin in section 297 of Government of India 
Act 1935. It is to be noticed that earlier Atticle 301 was present 
as Article 16 under Part III of Constitution which was 
subsequently taken out. 
~ The source of Power to tax is present both under Article 245 
as well as Article 246. We should not separate Article 246 and 
read taxing power only under 246. He argues that our 
Constitution is organic and flexible document which was 
considerate about providing level playing field to various States. 
He lastly argues that Video Electronic Case should be upheld. 
ARGUMENTS OF RESPONDENTS (STATES/ 
AUTHORITIES) 
3.7 Mr. P. P. Rao, learned senior counsel contends-
F 
~ that scope of Entry 52 of the Stak List cannot be reduced. 
~ Discrimination only arises if goods are
available. If no tax can 
be imposed on the ground that there is no production that 
consumer state loses their revenue and the same is detrimental 
to the existence of very State itself. Therefore, the 
G 
interpretation that sub-serves the intent and autonomy of State 
should be adopted in a Federal Constitution. 
>- that 304 (a) is not a patt of 301 and the only restriction on 
imposition of ta...: is article 304(a) of Constitution. 
~He argues that inclusion of taxes under article 304(b) was never 
H 
argued before the bench of Atiahari. The observation in
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
313 
[N. V. RAMANA, J.] 
Atiahari is per in curium as there was no discussion or A 
deliberation regarding the same. 
3.8 Mr. Rakesh Dwivedi, learned counsel submits-
>-That Part XllI is not a basic feature of the Constitution and 
every provision of Constitution though important cannot be 
elevated to the pedestal of basic feature. Economic Unity is 
B 
not defined and for trade, commerce and intercourse political 
unity is equally important. 
>- If Article 19(1)(g) is explicitly given to citizens, Article 301 
cannot be expanded to give same right to foreigners. 
>-"Free" in Art 301 does not mean free from Taxation. 
C 
>-"Subject to" is the dominant expression inArt 301 and indicates 
subservience to at least Art 302, 303 and 304. Art 302-304 
are mere restatement of powers under Art 246 r/w VII 
schedule with some limitations. Each restated power by itself 
ovetTides the freedom in Art 301. 
D 
>-The equation between compensatory tax and fee is inconsistent 
with the Scheme of our Constitution which specifically draws 
distinction between two concepts. 
>- The judgments of Atiahari and Automobile etTed in reaching 
the concepts of direct and immediate impediment and 
E 
compensatory Tax. 
>- Further subjecting taxing power to executive clearance under 
Article 304(b) will not be justifiable as assent of the President 
cannot be reviewed. 
3.9 Mr. Shyam Divan, learned senior counsel argues that-
>- The wordings of Article 301 are
free from protectionist barriers. 
>- Tax is obviously a restriction which would require this court 
to examine the height of the batTier on a case to case basis. 
F 
3 .10 Mr. Dinesh Dwivedi, learned senior counsel, Mr. S. V. Giri, 
G 
learned senior counsel, Mr. A. K. Sinha, learned senior advocate, Mr. 
J. K. Gilda, learned Advocate General of State of Chhattisgarh, Mrs. 
Madhvi Divan, assisting the learned Attorney General of India, Mr. 
Devdutt Karnath, learned Additional Advocate General for the State of 
H
314 
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[2016] JO S.C.R. 
A 
Karnataka, Mr. S. S. Shamshery, learned Additional Advocate General 
for the State of Rajasthan, have either adopted the submissions made 
by the above named advocates or provided alternative reasons for the 
conclusions reached by the abovementioned advocates. 
B 
c 
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E 
F 
G 
H 
PART - IV : NEED FOR REVIEW 
4.1 The learned counsel for the dealers/assesses argued for 
rejection of the reference itself. Shri T.R. Andhyarujina and Shri A.K. 
Ganguli, Learned Senior Counsel submitted that the doctrine of direct 
and immediate effect as well as compensatory tax which furnish a 
workable test vis-a-vis validity of a tax law in the context of inter-State 
trade are sound. Therefore, there is no need to review the decisions in 
Atiabari and Automobile. They would urge that these two decisions 
have been followed by this Court in half a dozen judgments and by 
various High Courts, and therefore, the ratio therein acquired the status 
of stare decisis. According to them, in the absence of any compelling 
changes in the Constitution or the law, the reference may not be 
necessary. They would point out that after the decision in Automobile, 
every State which made law for the levy of tax on entry of goods, 
declaring such tax to be compensatory so as to save such law from the 
effect of Articles 301 and 304 of the Constitution. We have given our 
earnest and anxious consideration to these submissions and arc not able 
to agree with
any of these contentions. 
4.2 This Cou11 has over-ruled approximately 60 Constitutional 
judgments in its 60 years of existence", which is an impressive rate in 
itself, considering the fact that our nation is comparatively young and is 
developing jurisprudence in many aspects. Fmther it is interesting to note 
that there are only Seventeen Judgments of this Com1 with nine or higher 
beneh strength. 13 [t is further important to note that most of the times 
A. Lakshminalh. Precedent in lndia (3rd Ed.) p. 178 (2009) 
"Jn re Sea Customs Act. A.LR l 963 S.C 1760 (9 judge bcrn;h): State Trnding Corp. of 
India Ltd. v. C"l'O, A.LR l 963 S.C 181 l (9 judge bench): Golaknath v. State of Punjab. 
A.LR 1967 S.C 1643 (hereinafier '(iolak Nath') (l l judge bench): Naresh 
ShridharMin\jkar v. State ofMaharastra. A.LR 1967 S.C I (9judgc bench): Suptd. And 
Remembrancer of Legal Affair v. Corp. of Calcutta. A.LR 1967 S.C 997 (9 judge 
bench); RC Cooper v. UOl. ( l 970) l S.C.C 248 (I I judge bench); Madho Rao Jiv;\jiScindia 
v. Union oflndia. ( 197 l) I S.C.C 85 ( 11 judge bench): Kcsavananda Bharti v. State of 
Kerala, 1973 4 S.C.C 225 (hereinafter Keshdvananda Bharti) ( 13 Judge 
bench): Ahmedabad St. Xavier Collage Society v. Stale of Gujarat, ( 1974) l S.C.C 7 l 7 
(9 judge bench); Indira Sawhncy '" Uol, 1992 Supp. (3) S.C.C 215 (9 judge 
bcnd1): Supreme Court Advocates on Record Association v. Uol. ( 1993) 4 S.C.C 441
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
315 
[N. V. RAMANA, J.] 
nine judge bench decisions have led to change in law by legislative 
A 
measure like Madhav Rao Scindia14, R.C. Cooper15 etc. All this points 
out that the exercise of constituting higher bench strength has taken place 
where there is grave need for settling the issue which caused grave 
mischief to the general-public at large. These numbers speak ofrestraint 
in over-ruling its own decisions. When Atiahari was decided, States 
sovereign power to levy tax within its permissible Constitutional 
competence stood curtailed. Probably, for this reason, two years after 
the decision in Atiabari came the decision in Automobile on the premise 
that the ruling in Atiabari was insufficient. Indeed, Automobile added 
new dimension to the tax by introducing the doctrine of compensatory 
tax which is very conspicuous in the Constitutional scheme by its 
absence. The judicial innovation of compensatory tax was seemingly 
to unfetter the State's power to some extent the levy of taxes on entry 
of goods. There is no gainsaying that Part Xlll nowhere, much less 
Article 301 either expressly or impliedly contemplate compensatory tax. 
The workable test of compensatory tax to comply with the Constitutional 
principle was doubted within a decade of the decision in GK. Krishnan 
(1974), followed by the decisions in Bhagat Ram and Bihar Chamber 
of Commerce. From 1960 to 1996, there remained uncertainty with 
regard to the power
of the State to levy tax as per entry 52 of the State 
List and principle of compensatory tax to immunize such entry tax from 
the perceived injunctive rigor of Articles 301 and 304(a). Thus, it would 
not be sound to argue that the principle laid down in Atiabari that is 
"direct and immediate effect" and doctrine of "compensatory tax" 
evolved in Automobile attained any finality. Further even in Jindal (2), 
the aspect of compensatory tax was doubted by Justice S. H. Kapadia 
also (as his lordship then was). Therefore, this cannot be a ground to 
doubt the sound reasoning in the referral order of five Judges Bench of 
this Court in Jindal (3). Thus there is a need for review. 
(9 judge bench); SR Bommai v. Uol, (I 994) 3 S.C.C I (hereinaper 'S.R. BonmaiJ(9 
judge bench); Attorney General of India v. AmritlalPrajvandas (1994) 5 S.C.C 54 (9 
judge bench); Mafatlal Industries v. Uol, 1997 (5) S.C.C 536 (9 judge bench); NMDC 
v. State of Punjab, (I 997) 7 S.C.C 339 (9 judge bench); TMA Pai Foundation Case, 
(2002) 8 S.C.C 481 (II judge bench); LR. Coelho v. State of TN, (2007) 2 S.C.C 1 (9 
judge bench). 
14 A.LR 1971 S.C 530 
i; A.LR 1970 S.C 564 
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PART-V: CONSTITUTIONAL INTERPRETATION 
5.1 The resolution of constitutional litigation ultimately rests upon 
the plain language of the text. In the event of vagueness in the language 
or when the language is capable of two different meanings it is not a 
bar to analyze the context"'. In interpreting the constitutional text the 
court may not feel shy of using all the tools and employing all the aids 
of construction. The Learned Chief Justice has elaborately analyzed 
various provisions in Pa11 Xlll and dealt with contextual aspects to see 
whether the contextual aspects match the textual. I am in respectful 
agreement with the nine postulations summarized by the Learned Chief 
Justice regarding the purport of Article 30 I, 302, 303 and 304. 
5.2 Apart from the general principles of interpretations in my 
considered opinion, the relevant provisions of the Constitution especially 
those relating to legislative powers, the provisions limiting those powers. 
the external aids like Constituent Assembly Debates, other documents 
and the pi:.ecedents are required to be considered. Be that as it is, it is 
a settled proposition that generally the construction of the Constitution 
must be most beneficial and widest possible amplitude. The court must 
gather from the spirit of the Constitution and the language must not be 
construed in a narrow and pedantic manner. In re CP and Berar Act, 
1938' 7, Gwayer CJ.,
summed up this principle in the following manner-
... the Court should seek to ascertain the meaning and 
intention of Parliament from the language of the statute 
itself; but with the motives of Parliament it has no 
concern .... The Constitution is not to be construed in any 
narrow and pedantic sense .... A broad and liberal spirit 
should inspire those whose duty it is to interpret it; but I 
do not imply by this that they are free to stretch or pervert 
the language of the enactment in the interests of any legal 
or constitutional theory, or even for the purpose of supplying 
omissions or of correcting supposed errors. 
5.3 Equally important point is that legislative powers especially 
taxing powers cannot be tested by implication. Unless there is express 
"RBI v. Pearless General Finance, A.LR 1987 S.C l 023 
17 1939 F.C.R 18
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
317 
[N. V. RAMANA, J.] 
limitation on the power of the State to enact the State law, it is not the 
A 
province of the court to curtail the power of the state by interpretative 
·process. We have reached a stage that every law must be tested with 
reference to preamble and Directive Principles of State Policy. As held 
in Atam Prakash v. State of Haryana [herein after 'Atam PrakashT 8 
, if preamble is the guiding light Directive Principles of State Policy is 
the book of interpretation, this was lucidly explained in A tam Prakash. 
'The Preamble embodies and expresses the hopes and 
aspirations of the people. The Directive Principles set out 
proximate goals. When we go about the task of examining 
statutes against the Constitution, it is through these glasses 
that we must look, 'distant vision' or 'near vision'. The 
Constitution being sui-generis, where Constitutional issues 
are under consideration, narrow interpretative rules which 
may have relevance when legislative enactments are 
interpreted may be misplaced. Originally the Preamble to 
the Constitution proclaimed the resolution of the people of 
India to constitute India into 'a Sovereign Democratic 
Republic' and set forth 'Justice, Liberty, Equality and 
Fraternity', the very rights mentioned in the French 
Declarations of the Rights of Man as our hopes and 
aspirations. That was in 1950 when we had just emerged 
from the colonial-feudal rule. Time passed. The people's
hopes and aspirations grew. In 1977 the 42nd amendment 
proclaimed India as a Socialist Republic. The word 
'socialist' was introduced into the Preamble to the 
Constitution. The implication of the introduction of the word 
'socialist', which has now become the center of the hopes 
and aspirations of the people a beacon to guide and inspire 
all that is enshrined in the articles of the Constitution, is 
clearly to set up a "vibrant throbbing socialist welfare 
society" in the place of a "Feudal exploited society". 
Whatever article of the Constitution it is that we seek to 
interpret, whatever statute it is whose constitutional validity 
" (1986) 2 s.c.c 249 
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SUPREME COURT REPORTS 
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is sought to be questioned, we must strive to give such an 
interpretation as will promote the march and progress 
towards a Socialistic Democratic State.' 19 
5.4 Our constitutional history shows that we at one point had 
rigorously defended individualistic rights rror ex. Right to Property]. 
Slowly we have moved towards community rights by invoking Directive 
Principles of State Policy as a tool to judicially interpret Part Ill of the 
Constitution. Directive Principles of State Policy is a normative goal in 
the Constitution. Such important part cannot be restricted to only Part 
III interpretation and reduced to two wheels of Chariot20 rather it is 
like a bright sun which should shine in every part of the Constitution. 
5.5 Before consideration of legal aspects, we need to passingly 
refer to certain factual scenarios which may be pertinent to the issues 
of economic unity, balanced growth and development of all regions of 
India. India that is Bharath is said to be a Country with economic unity. 
But such asse1iion cannot be sustained for the reason that 82.5° Meridian 
or Indian Standard Time line seems to starkly divide India broadly as 
atTiuent West and destitute East. Top 5 states share 44.87% of India's 
total economy.2 ' Five states of South India share 25.98%.22 Eight States 
of North-East India share only 2.64% ofeconomy.23 13 States/UTs have 
Gross State Domestic Product less than Rs. I
lakh Crore?' While the 
gro\\ih in 2013-14 in Maharashtra was pegged at 8. 71 % while Rajasthan 
recorded mere 4.6% gro\\ih at 2004-2005 prices. 25 As per Tendulkar 
formulation Bihar has 54.4% population below poverty line while Jarnmu 
Kashmir has only 13.2%."' Population in Uttar Pradesh was pegged at 
19 Ibid. 
"'Minerva Mills v. Union of India. A.LR 1980 S.C' 1789 
21 NIT! A:iyog (last visited on 15.10.2016): http://niti.gov.in/statc-statistics. Relevant 
table is http:/ /niti.gov. in/content/gsJp-constant-2004-05 priccs-2004-05-20 14-15 
"Ibid. 
13 Ibid. 
" Ibid. 
2
; NitiAayog, GSDP and at constant prices, percent growth available at table (last 
visited on 15. l 0.2016): http://niti.gov.in/content/gsdp-constant2004-05prin:s-perccnt-
growth-2004-05-2014-15 
"' Tendulkar committee report. The table is available at PRS website (last visited on 
15. l 0.2016 ), http://www.prsindia.org/theprsblog/?tag=tendulkar-eommittec
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
199,812,341 while Kerala is 33,406,061, as per Census 2011.27 Literacy 
Rate in Kerala is 94% while in Bihar its 61 %.28 Sex ratio in Kerala is 
1084 while in Haryana is 879.'9 In Andhra Pradesh 12.04% live in slums 
whereas in Assam only 0.63% live in slums."' The Utility of the Union 
to attain political and economic prosperity does not reflect in the figures 
or statistics so portrayed above. All is not lost in what we have achieved. 
We have stood with each other and for what is right? We have enacted 
laws and struck them down for right reasons. We have been beaten 
down but never gave up. We have braved poverty and hunger. We have 
cared about neighbors and have strived to be a welfare State. We have 
constructed great many things and achieved many more. We have 
advanced on scientific fronts and reached distances in universe which 
were unfathomable five decades back. We have earned a respectable 
name in the international scenario. We have produced great artists, many 
leaders and great men. We were not scared so easily by any adverse 
situation. First step in solving any problem troubling the present is 
recognizing that there is one India but India as a union of States. States 
being independent entities under the Constitution require resource to 
perform their duties under the Constitution. 
5.6 Before a detailed discussion on legal fronts of this Case it is 
necessary to consider certain
Constitutional principles and ethos. On 
considering the scheme of the Constitution, the power of Union and State 
are parallel. The Parliament as a super-legislature over State assemblies 
cannot be accepted. On legislative front, demarcation of power is 
apparent from the language of Article 246 read with VII Schedule of 
the Constitution. People have vested the power in States to administer 
and provide welfare measures. For this process it is the State 
27 Uttar Pradesh. Census of111dia (last visited 011 15. I 0.20 16) 
http://c~nsusindia.gov. i n/20 11 census/ccnsusi nfodashboard/slock/pro fi I cs/en/ 
IND009 Uttar%20Pradcsh.pdf 
Kerala 
http:/ /censusind ia. gov. in/2011 census!ccnsusin fodashboard/stock/profi !cs/en/ 
!ND032 Keraln.pdf 
"(last visited on 15.10.2016) http://ccnsusindia.gov.i11/201 l-prov-rcsulls/data Jiles/ 
india/Final PPT 2011 chapter6.pdf 
29 Kcrala Slate Profile. Census of India (last visited 011 15.10.2016) 
http:// census ind i a. gov. i n/20 I I census/census in fodash board/stock/pro fi ks/ en/ 
IND032 Kcrala.pdf 
Haryana state profile, Census of India 
http://censusindia.gov. in/20 11 ccnsusiccnsusin fodash board/stock/profi ks/en/ 
IND006 Haryana.pdf 
30 (Last visited on 15.10.2016) htlp://www.ccnsus2011.co.in/slums.php. 
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[2016) 10 S.C.R. 
Government which has been elected by the people to administer by 
taking into consideration priorities and peculiarities of that particul.ar 
region. 
5. 7 This Constitutional principle should not be ignored while 
imposing restrictions on the State. While feeling happy that we are one 
nation, we must not ignore the State rights. The facts and realities cannot 
be forgotten in the first place. The Union does not exist in isolation 
rather it is a co-operative association of the States. Taking into 
consideration of various problems faced and differences which exists 
between the States, importance of State's power to tax cannot be 
ignored or stifled. Poverty, unemployment, backwardness and adverse 
climate etc. are running amok within our Country. Natural calamities, 
insurgencies and extremism are confronted by certain States. Over-
growth and industriallzation have taken place only in some places whereas 
rest of the country is reeling under under-development because of 
various facts such as geographical positioning, colonial establishments 
and discriminatory policies that have resulted in concentration of wealth 
in only certain affluent areas. No State, in this grand Union, should be 
made to feel discriminated and embarrassed because of the mere fact 
that history has not been congenial to them and have remained under-
developed. Any restriction imposed should not come in the way of natural
development of a State on the ground that it creates barriers for free 
movement of the goods and trade. All States must be provided an equal 
level playing field for development and opportunities. This was the grand 
intention of the framers of our Constitution to not make a lassiezfaire 
State.31 Detem1ined to make our Country a co-operative federalist, our 
framers set definite rules to achieve the objective. Through 
interpretation, Constitution cannot be re-constructed so that the goal 
envisaged by our framers will be more fully achieved by such 
construction. Such measure would not be justified in light of clear 
demarcation of functions bequeathed by our Constitution. 
5.8 The Union and the States are co-equal in the Indian Federal 
structure. Our framers created a unique federal structure which cannot 
be abridged in a sentence or two. The nature of our federalism can 
only be studied having a thorough understanding of all the provisions of 
the Constitution. Confinnation that the Union and States are co-equals 
31 Constituent Assembly Debate, Vol. IX, September 8, 1949.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
in the Indian federal structure. can beJ:Ound in the speeches of Hon'blc 
P.S. Deshmukh, Shri T. T. Krishnamachari and Hon'ble Dr. B. R . 
. 
~ ... ; ... -
Ambedkar32 before the Constituent Assembly. Common philosophy 
which runs through our Constitution is that both Center and States have 
been vested with the substantial powers which are necessary to 
preserve our unique federation wit~ clear demarcation of power. Calling 
India as quasi-federal might not be advisable as our features are unique 
and quite different from other Countries like United States of America 
etc. Courts in India should strive to preserve this unique balance which 
our framers envisaged, any interference into this balancing act would 
be detrimental for grand vision proscribed by our makers.33 Amphibious 
nature of our federalism has been even noted by the Sarkaria 
Commission Report on Center-State relationship. Co-operative 
federalism envisaged under our Constitution is a result of pick and choose 
policy which our framers abstracted from the wisdom of working 
experience of other Constitutions. Some Judgments which are illustrative 
of nature of federalism in India are (i)West Bengal (6 Judge Bench), a 
case relating to the power of Union to acquire land and right in and 
over the land, which are vested in State. This case produced two 
32 There is on~v one point of Constitutional import to which I propose to make a rejerence. 
A
serious co1nplaint is nlade on the ground that there is too niuch of centralization and 
that the States have been reduced to Mu11ic1j1alities. ft is clear that this view is not only 
an exaggeration. but is also founded on a misunderstanding of what exoctly the 
Constitution contrives to do. As to the relation belll'een the center and the States. it is 
necessary to bear in mind the fundamental principle on which it rests. The bf/sic principle 
o(Federa/ism is that the legislative and executive a11tlwritv is partitioned betwee11 
the center 111111 the States not bv 1111r law to be made hi' the center but the Co11stitutio11 
itself.This is wit at the Constitution does. Tlte States, under our Co11stitutio11. are i11 
no wav dependent upon the center for tlteir legislative or executive authoritr. The 
center mu/ t/Je States are CO·EOUAI. in this matter.It is difficult to see !tow such a 
Co11stit11tio11 can be called centralism. It may be that the Constitution assigns to the 
center too large afield/or the operation ofit.1· legislative and executive authority than is 
to befotmd in any other Federal Constitution. ft may be that the residua~v po1,.ers are 
given to the center and 110/ to the States. But these features do not form the essence 
ojfederalism. The chi~f'mark of federalism, as I said lies in the partition a/the legislative 
and executive authority benveen the centre and the Units by the Constitution This is tl1e 
principle embodied in our Constitution. 
(Emphasis
Supplied) 
•
13 State of West Bengal v. Union of India. [1964[ I S.C.R 371 [herei1111/ter 'fl'est 
Bengal'), S. R. Bommai, State of Karnataka v. Union of India and Anr .. [1978) 2 
S.C.RI. (Special Reference No. l of 1964) AIR I 965 SC 745. ITC Ltd. v. Agricultural 
Produce Market Committee and Ors, (2002) I S.C.R 441 [hereinajier 'ITC']. 
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opinions, one by"t. J. B.P. Sinha (majority opinion) and other by K. 
Subba Rao J. (dissenting opinion). As per the majority, there is 
undoubtedly distribution of powers between the Union and the States 
in matters legislative and executive; but distribution of powers is not 
always an index of political sovereignty. The exercise of powers 
legislative and executive in the allotted fields is hedged in by numerous 
restrictions, so that the powers of the States are not coordinate with 
the Union and are not in many respects independent. Minority Judgment 
held that the Indian Constitution accepts the federal concept and 
distributes the sovereign powers between the co-ordinate constitutional 
entities, namely, the Union and the States. This concept implies that one 
cannot encroach upon the governmental functions or instrumentalities 
of the other, unless the Constitution expressly provides for such 
interference. ln (ii) Kesavanada Bharathi v. State of Kera/a 
[hereinafter 'Keshvanada Bharathi']34, majority held that the power 
conferred under Article 368 of the Constitution was not absolute. They 
took the view that by an amendment, the basic structure of the 
Constitution cannot be damaged or destroyed. And, as to what are the 
basic structures of the Constitution, illustrations were given by each of 
these Judges. They include supremacy of the Constitution, democratic, 
republican fonn of Government,
secular character of the Constitution, 
separation of powers among the legislature, executive and judiciary, the 
federal character of the Constitution, Rule of Law, equality of status 
and of opportunity; justice, social, economic and political; unity and 
integrity of the nation and the dignity of the individual secured by the 
various provisions of the Constitution. ln (iii) S.R. Bommai, this Court 
while detennining the constitutional validity of emergency proclamations 
issued by the Centre in various States observed that federalism, as 
understood by the American Scholars is absent in Indian Constitution 
which is more of a hybrid of pure federalist character and pure unitary 
character. However, the distribution of powers must not be rubbished 
out as being absent. It was observed by Ahmadi J. that in order to 
maintain the unity and integrity of the nation our founding fathers appear 
to have leaned in favour of a strong Centre while distributing the powers 
and functions between Centre and the States. But the essential 
characteristics can be understood by knowing the "effects" of such a 
system. As per Sawant and Kuldip Singh JJ: The features in the 
14 1973 (4) S.C.C 225
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
Constitution which provide the Centre with overriding powers 
over the states is only an exception and are not normal features 
of the Constitution. K. Ramaswamy J., observed that Indian 
Federalism places the nation as a whole under control of a national 
Government, while States are allowed to exercise their sovereign power 
within their legislative sphere. As per Jeevan Reddy and Agrawal, JJ. 
the bias in favour of the Centre does not make the states mere 
appendages of the Centre. States are supreme in the sphere allotted 
to them. The ultimate conclusion reached by this Court was that the 
fundamental feature of federalism being that irrespective of each list, 
each legislature is supreme. In (iv) ITC, the majority led by Justice Ruma 
Pal held that the Constitution of India deserves to be interpreted in a 
manner that· it does not whittle down the powers of State Legislatures 
and preserves the federalism while also upholding the central supremacy 
as contemplated by some of the Articles. In (v) State of West Bengal 
v. Kesoram Industries Ltd. 35, it was concerned with Entries 52, 54 and 
97 in List I and Entries 23, 49, 50 and 66 in List II of the Seventh 
Schedule to the Constitution of India as also the extent and purport of 
the residuary power of legislation vested in the Union of India. Wherein 
it was observed therein that federalism is one of the basic pillars of the 
Indian Constitution and that
having regard to Articles 245, 248, 250, 256, 
257, 356 and Entry 97 in list I of the seventh Schedule of the Constitution, 
it is not possible to say that India is not a subscriber to federalism but 
although having unique federal character it can, be said to be quasi-
federal or hybrid federal State. Thus constitutional courts have 
interpreted that India has a federal polity and that each State has 
independent constitutional existence assigned with important role of 
Constitutional governance. 
5. 9 In view of these aspects, we need to consider the 
controversies in these cases and interpret relevant provisions of the 
Constitution in light of following rules and principles, which are-
1. That Directive Principles of State Policy should be utilized for 
interpreting every part of the Constitution. and 
2. In a federal Constitution, an interpretation which preserves the 
State's power should be preferred. 
"A.LR 2005 S.C 1646 
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PART-VI: INTRODUCTION TO TAXATION AND ITS 
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IMPORTANCE 
6.1 The States in the modern era are not strictly confined to 
political activities and law making functions. They function in a welfare 
society. Such working of States was visualized by our framers also, who 
were aware of responsibilities a State must shoulder and discharge. This 
is the ve1y reason for existence of Directive Principles of State Policy 
and which sets normative and positive standards for the Government. 
When the State is burdened with such normative goals as its primary 
respo11sibility, such activities are inevitably dependent on availability of 
monitory resources. The definition of Sovereignty has acquired a new 
flavor in the recent past, 'Sovereignty is responsibilitv'. In a 
democratic system the elected Governments are always responsible for 
its people. If there is any high taxation which is affecting their life. this 
puts pressure on the Governments to reduce taxes and e leckd 
Governments are answerable to public every five years. No Government 
can raise tax which would cause public inconvenience. In this context, 
Sovereignty is no more endless power, rather it is responsibility. A 
responsible government in a democracy should always strive to keep 
taxes as low as possible, so that no heavy burden is placed on the 
individuals. Although States are empowered to tax under the Constitution, 
it does not necessarily mean
that they should tax at exorbitant rates. 
Tax is a way of apportioning the cost of government among those who 
in some measure are privileged to enjoy the benefits and must therefore 
bear its burdens. Fundamentally the exercise of sovereignty also includes 
lawful taxation as its incident. Assesses/dealer on the other hand stated 
that all powers exercised by the state such as police powers, power of 
eminent domain and power to tax are also incidents of sovereignty.'" 
There is nothing which mandates this Court to deny latitude in use of 
taxing powers in comparison to other similar powers. Although all 
powers exercised by State are incidents of sovereignty, there is need 
to treat taxation on a different pedestal to sustain the Government at 
the current level and to achieve the Constitutional goals set by our 
framers. 
"·Jaganathbaksh Singh v. State of UP. (1963) I S.C.R 220: Dena Bank v. 
BhikhabhaiPrabhudas Parekh & Co .. (2000) 5 S.C.C 694: Commissioner of Income 
I-I 
Tax, Udaipur, Rajasthan v. McDowell and co. Ltd .. (2009) I 0 S.C.C 755.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
6.2 A tax is a burden or charge imposed by a competent 
legislature upon persons or property, to raise money for public 
purposes.37 Important elements of a tax may be said to be first, that it 
is a compulso1y exaction; secondly, it is payable to the State or to some 
public authority on its behalf; and thirdly, that it is an exaction for 
purposes of public interest. Our Constitution has demarcated the taxing 
powers between the Center and States. Taxing power of the Union as 
well as the States resides in Article 245 read with 246 of the Indian 
Constitution. The Article 246 of the Constitution, lays down that 
Parliament has exclusive power to make laws with respect to any matter 
enumerated in Union List (List [ of schedule Vil). The States have 
complete power to make laws with respect to any matter enumerated 
in the State List (List II of schedule Vil) and both Parliament and State 
Legislature have power to make laws with respect to any matter 
enumerated in the Concurrent List (List III of schedule VII). As per 
Article 265, no taxes shall be levied or collected except by the authority 
oflaw. It is important to note that taxation entries are to be found only 
in lists I and II, indicating that in our Constitutional scheme, taxation 
powers of the Centre and the States are mutually exclusive. There are 
no Entries in the Concurrent List which gives power of taxation. This 
being the case, the moment the
levy contained in a taxing statute 
transgresses into a prohibited field, it is liable to be struck down. 
PART-Vil: FREEDOM OF TRADE, COMMERCE AND 
INTERCOURSE 
7. I To consider the question as to whether the tax laws come 
under the ambit of Article 301 vis-a-vis freedom of trade, commerce 
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and intercourse, it is necessa1y to refer to the constitutional provisions, 
F 
Constituent Assembly Debates and precedents. To begin with, I will first 
consider the relevant Articles, by extracting Part XIII verbatim. 
PART XIII 
TRADE, COMMERCE AND INTERCOURSE 
WITHIN THE TERRITORY OF INDIA 
i; Cooley on taxation-volume l. 4'" ed ... Ch. 2. 
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301.Freedom of trade, commerce and intercourse.-
Subject to the other provisions of this Part, trade, 
commerce and intercourse throughout the territory of India 
shall be free. 
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302. Power of Parliament to impose restrictions on 
trade, commerce and intercourse.-
Parliament may by law impose such restrictions on the 
freedom of trade, commerce or intercourse between one 
State and another or within any part of the territory of India 
as may be required in the public interest. 
303. Restrictions on the legislative powers of the 
Union and of the States with regard to trade and 
commerce.-
(1) Notwithstanding anything in article 302, neither 
Parliament nor the Legislature of a State shall have power 
to make any law giving, or authorising the giving of, any 
preference to one State over another, or making, or 
authorizing the making of, any discrimination between one 
State and another, by virtue of any entry relating to trade 
and commerce in any of the Lists in the Seventh Schedule. 
(2) Nothing in clause (1) shall prevent Parliament from 
making any law giving, or authorizing the giving of, any 
preference or making, or authorizing the making of, any 
discrimination if it is declared by such law that it is 
necessary to do so for the purpose of dealing with a 
situation arising from scarcity of goods in any part of the 
territory of India. 
304. Restrictions on trade, commerce and 
intercourse among
States.-notwithstanding anything in 
article 301 or article 303, the Legislature of a State may 
by law-
(a) impose on goods imported from other States or the Union 
territories any tax to which similar goods manufactured or 
produced in that State are subject, so, however, as not to 
discriminate between goods so imported and goods so
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
327 
[N. V. RAMANA, J.] 
manufactured or produced; and 
A 
(b) impose such reasonable restrictions on the freedom of 
trade, commerce or intercourse with or within that State 
as may be required in the public interest: 
Provided that no Bill or amendment for the purposes of 
clause (b) shall be introduced or moved in the Legislature 
of a State without the previous sanction of the President. 
305. Saving of existing laws and laws providing for 
State monopolies.-
Nothing in articles 301 and 303 shall affect the provisions 
of any existing law except in so far as the. President may 
by order otherwise direct; and nothing in article 301 shall 
affect the operation of any law made before the 
commencement of the Constitution (Fourth Amendment) 
Act, 1955, in so far as it relates to, or prevent Parliament 
or the Legislature of a State from making any law relating 
to, any such matter as is referred to in sub-clause (ii) of 
clause (6) of article 19. 
306.[Power of certain States in Part B of the First 
Schedule to impose restrictions on trade and 
commerce.)38 
Rep. by the Constitution (Seventh Amendment) Act, 1956, 
s. 29 and Sch. 
" Repealed Article 306-
"Notwithstanding anything in the foregoing provisions of this Part or in any other 
provisions of this Constitution, any State specified in Part B of the First Schedule 
which before the commencement of this Constitution was levying any tax or duty on 
the import of goods into the
State from other States or on the export of goods from the 
State to other States may, if an agreement in that behalf has been entered into between 
the Government oflndia and the Government of that State, continue to levy and collect 
such tax or duty subject to the tem1s of such agreement and for such period not 
exceeding ten years from the commencement of this Constitution as may be specified 
in the agreement : 
Provided that the President may at any time after the expiration of five years from such 
commencement tenninate or modify any such agreement if, after consideration of the 
report of the Finance Commission constituted under article 280, he thinks it necessary 
to do so." 
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307. Appointment of authority for carrying out the 
purposes of articles 301 to 304.-
Parliament may by law appoint such authority as it 
considers appropriate for carrying out the purposes of 
articles 301, 302, 303 and 304, and confer on the authority 
8 
so appointed such powers and such duties as it thinks 
necessary. 
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7.2 Needless to mention that when the language of the provision 
is clear and unambiguous that, the intention of the law makers should 
be inferred from a plain reading of the provision itself. Ordinarily, we 
need not go beyond the clear language of the provision to interpret the 
Statute. 
7.3 The freedom of trade, commerce and intercourse throughout 
the territory of India is assured, but such freedom of trade is subject to 
Part Xlll of the Constitution. When we evaluate the impact of Article 
301 on the plenary taxing power of the Sovereign State, the opening 
words become significant. Be that as it may, Article 301 only guarantees 
throughoutness of trade and commerce, the freedom, however, is not 
absolute freedom nor is it free from regulations. 
7.4The dissection of Article 301 shows that it has three significant 
parts or phrases. These are, 'subject to other provisions of this part', 
and 'Trade, Commerce and Intercourse throughout territory of 
India', 'shall be.free'. Which everway one reads, the plain meaning of 
this is that trade, commerce and intercourse, shall be free,
subject to 
Articles 302 to 307 of the Constitution. The two sets of the provisions 
which are mainly contemplated in the phrase 'subject to other provisions' 
are Articles 302, 303 and 304 (a) and (b). Article 303. The Parliament 
may by law restrict the freedom of trade in public interest and such 
law would be free from Article 301. 
7 .5 Article 301 of the Constitution begins with the phrase 'Subject 
to other provisions of this Part'. This phrase gives an initial indication 
as to what to expect? The position of this phrase should be taken into 
consideration. Even before the declaration of freedom of Trade, 
Commerce and Intercourse, it is being subjected to limitations. Further
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
329 
[N. V. RAMANA, J.] 
the opening words of Article 301, namely, 'subject to the provisions of A 
this part' require that all the Articles of the Part Xlll have to be read 
together so as to understand the width and meaning of the Part XIII. 
'Subject to' is the dominant expression so far as Article 30 I is concerned. 
It indicates subservience to at least Articles 302, 303 and 304. Articles 
302 to 304 embody a restatement of powers under Article 246 r/w the 
State List under the VII Schedule. Each restated power by itself 
overrides the freedom of trade in Article 301. 
7.6 Article 301 loses its prime place, if States make laws under 
any of the taxing entries, erecting reasonable restrictions or imposing 
tax on the free trade. Such power over-rides freedom of trade and 
commerce. Thus, the general declaration by A1iicle 301 is relaxed in 
favor of Parliament by Article 302 and in favor of the States by Articles 
303 and 304. It is interesting to note that Article 304 starts with a non-
ohstante clause whereas Article 302 does not have a non-ohstante 
clause. As the freedom of trade in Article 301 is itself subject to 302 
and 304, the intention of the framers, to my mind, appears to be clear. 
The Constitution guards and protects the State legislations under Article 
304( a) and (b) from overemphasized effect on freedom of trade under 
Article 301. 
7.7 It is a sound principle of jurisprudence that entire statute has 
to be
construed as a whole and not in isolation. While doing so, no clause 
in any provision can be ignored especially when we interpret the 
Constitution which is '.rnprema lex'. The difference between the power 
of the Union and the States vis-a-vis Article 301 is that Article 302 does 
not have application to tax laws like Article 304(a), but under Article 
304(a), tax can be imposed on the goods imported from other States. 
From the understanding of the Articles 301, 302, 303 and 304, what 
emerges is summarized below-
1. Article 302 is an exception to Article 301. 
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2. The limitation under Article 302 is again subject to Article 303. 
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3. Articles 302 and 303 do not refer to laws under taxing entries. 
4. Article 304 can be an exception to be generally construed as 
dealing with non-tax discriminatory tax and restrictions. 
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7 .8 In addition to plain reading, an analysis of the relevant 
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provisions and the legislative history of Article 301, is also relevant, in 
understanding the free trade clause in our Constitution. This can be 
considered also with reference to Constituent Assembly Debates and 
the legislative history which are equally important external aids. 
7 .9 In this connection, it has to be remembered that before the 
conunencement of the Constitution, about two-thirds of India was directly 
under the British rule and was called 'British India' and the remaining 
about one third was being directly ruled by the native Princes and was 
known as 'Native States'. There were a large number of them with 
varying degrees of sovereignty vested in them. Those rulers had, broadly 
speaking, the trappings of a Sovereign State with power to impose taxes 
and to regulate· inter-State trade. It is well known fact that many of 
them had erected trade barriers seriously impeding the free flow of trade, 
commerce and intercourse, thereby not only shutting out but also shutting 
in commodities meant for mass consumption. Between the years 1947 
and 1950, almost all the Indian States entered into agreements with the 
Government of India and merged into India as one political unit, with 
the result that what was called British India, broadly speaking, came 
under the Constitution. The native States became Part 'B' States. These 
Part
'B' States, in tum, were some sort of unions of small States or 
individual princely States. They erected, more often than not, trade 
barriers and customs posts even amongst themselves. lt was in this 
background, India for the first time, was constituted as one political unit. 
Hence, it was necessary to abolish all those trade barriers and custom 
posts in the interest of national solidarity, economic and cultural unity 
as also of freedom of trade. 
7.10 One of the early tasks to engage the attention of the 
Constituent Assembly in 1947 was freedom of trade and commerce 
within territories of the Union. It is important to note that in the Draft 
Constitution, the freedom of trade, commerce and intercourse which was 
a part of fundamental right, was dropped as such. Basic principles were 
fonnulated in the notes submitted to the sub-committee on Fundamental
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
Rights by Dr. K.M. Munshi39 and Sir Alladi Krishnaswami Iyer'0• The 
Sub-Committee discussed Sir B.N. Rau's draft provision on the subject 
on March 29, 1947 and was adopted in the following form: 
Subject to regulation by the law of the Union, trade, 
commerce, and intercourse among the units, whether by 
means of internal carriage or by ocean navigation, shall be 
free: 
Provided that any unit may by law impose reasonable 
restrictions thereon in the interest of public order, morality 
or health. 
331 
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7 .11 Commenting on the Clause when the draft of the sub-
committee's report was under Consideration. Sir Alladi Krishnaswami 
Iyer suggested that goods entering a particular unit from other units of D 
the Union should not escape duties and taxes to which goods produced 
in the concerned unit itself were subjected to. These suggestions were 
accepted by the Sub-committee and incorporated in the report submitted 
to the Advisory Committee on April 16, 1947. On April 21, 1947 the 
clause came up for debate before the Advisory Committee. Shri C. 
E 
Rajgopalchari expressed his view that the units must be allowed to raise 
some kind of custom duties for genuine revenue purposes, for which 
the reply of Shri K. M. Panikkar is relevant for our discussion: 
K. M. Panikkar: Rajaji (C. Rajgopalchari) has raised the 
question of the right of the units to raise taxes, and to say 
F 
39 B. Shiva Rao, The Framing
oflndia 's Constitution, Vol.II, p. 69 (1967). [hereinafte,. 
'B. Shiva Rao '] 
Extract from the Note and draft Articles on Fundamental Rights by Dr. K. M. Munshi, 
dt. March 17, 1947 -
Article V- (I) Every Citizen within the limits of the law of the Union and in 
accordance therewith has : 
(i)The right of free movement and trade within the ten-itories of the Union. 
40 B. Shiva Rao, p. 68 
Extract from the Note on Fundamental Rights by Alladi Krishnaswami Iyer, dt. March 
14, 1947-
'The Union powers being restricted in scope, care will have to be taken to 
bring in (a) the freedom oflnter-state and inter-provincial trade, (b.) inter-state 
and inter-provincial movement. .. ' 
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this right should not be denied. I, however, think this is 
dangerous power to be given to the units. This may result 
in creation of competing units. We have allowed two things. 
We have allowed the unit to tax its own industries. We also 
allow things brought in to be taxed, for sake of parity. But 
our friend wants go little further and say that the right to 
impose taxes or transit duty or some kind of duty must be 
given to the units. That, I am afraid, will be a negation of 
the clause. 41 
7 .12 In the interim report of the Advisory Committee 
dt.23.04.194 7 placed by Shri Sardar Vallabhai Patel, the fol1owing 
recommendations were made : 
"While agreeing in principle with this clause we reconunend 
that instead of being included in Fundamental Rights, it 
should find a place in some other part of the Constitution." 
7 .13 Taking into consideration above deliberations and decisions 
of the Assembly, Sir B.N. Rau incorporated the following clause in his 
draft Constitution of October, 1947 under Part Ill-Fundamental Rights 
including Directive Principles of State Policy":-
17. Provided that nothing in 
this section shall prevent any 
unit from imposing on goods 
manufactured or produced in 
that 
unit 
are 
subject, so, 
however, as not to discriminate 
between goods so imported 
and goods so manufactured or 
produced: 
Provided 
further 
that 
no 
preference shall be given by 
any 
regulation 
of
trade, 
commerce or revenue to one 
unit over another: 
41 B. Shiva Rao, p. 253 
4:! 
• 
B. Sluva Rao, p. 70 I 
Freedom of trade, 
commerce and 
intercourse among the 
units. 
[Cf. Common wealth 
of Australia 
Constitution Act. Ss. 
92 and 99, 
Government oflndia 
Act, 1935, s. 297
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
333 
[N. V. RAMANA, J.] 
Provided also that nothing in 
this section shall preclude the 
Federal 
Parliament 
from 
imposing by Act restnct1ons 
Oil 
the freedom of trade, 
commerce 
and 
intercourse 
among the units in the interests 
of public order, morality or 
hea Ith 
or 
in 
cases 
of 
emergency. 
7 .14 With some modifications, this clause was retained in the 
Fundamental Rights chapter in the draft Constitution of February 21, 
1948. The proviso was redrafted and included as an independent Article 
under a separate heading, namely, "Inter-state trade and commerce" in 
Part IX of the Draft Constitution pertaining to relations between the 
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Union and the States.43 
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7 .15 Further when the draft Constitution was published and 
circulated for suggestions and opinions, Sir Alladi Krishnaswami Iyer 
commented in the following manner:-
• 
"Comments of AlladiKrishnaswamiAyyar: In this regard to 
interstate trade there are three main provisions in the Draft Constitution : 
I. The freedom of inter-state trade secured by Article 16: 
II. Subject to an interference by federal law :. 
!II. An interference by a provision or state law to the extent 
provided in item 33,44 List II. 
The power of interference under Sub-clause (b) of the 
Article 244 is too drastic and much wider than that 
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provided in the Original Draft. Would not this 
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provision practically nullify the freedom of trade 
43 B. Shiva Rao, p. 524 and p. 610
" Draft of Constitution, Fcbruarv 21. 1948-Scventh Schedule. List 11- State List 
33. Regulation of trade, commerce and intercourse with other states for the purposes 
of the provisions of Article 244 of this Constitution. 
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secured by the Article 16 as the expression 'interests 
of public is vague and uncertain and cannot be 
subject to judicial review." 
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7 .16 Draft Articles relating to trade and commerce were scattered 
in different parts of the draft Constitution (i.e., Clause 16 and Articles 
243 to 245) and the purpose was to string together all these scattered 
provisions under one head. Dr. Ambedkar stated before the Constituent 
Assembly that.: 
Sir, all that I need do at this stage is to inform the House 
that originally the articles dealing with freedom of trade and 
commerce were scattered in different parts of the Draft 
Constitution. One article found its place in the list of 
Fundamental Rights, namely, article 16, which said that 
trade and commerce, subject to any law made by 
Parliament, shall be free throughout the territory of India. 
The other articles, namely, 243, 244 and 245 were included 
in some other part of the Draft Constitution. it was found 
in the course of discussion that a large number of members 
of the House were not in a position to understand the 
implications of articles 243, 244 and 245, because these 
articles were dissociated from article 16. In order, 
therefore, to give the House a complete picture of 
all the provisions. relating to freedom of trade and 
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commerce the Drafting Committee felt that it was 
much better to assemble all these different articles 
scattered in the different parts
of the Draft 
Constitution into one single part and to set them out 
seriatim, so that at one glance it would be possible 
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to know what are the provisions with regard to the 
freedom of trade and commerce throughout India. [ 
should also like, to say that according to the provisions 
contained in this part it is not the intention to make trade 
and commerce absolutely free, that is to say, deprive both 
Parliament as well as the States of any power to depart
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
335 
[N. V. RAMANA, J.] 
from the fundamental provision that trade and commerce 
A 
shall be free throughout India.45 
(Emphasis Supplied) 
7.17 From the above legislative history and Constituent Assembly 
Debates, four propositions would emerge:-
a. It is clear from a comparison of Clause 16, 243, 244 and 245 
of the draft Constitution with Articles in Part XA (now Part 
XIII) that they were not merely arranged in seriatim but were 
substantially altered. 
b. That freedom of trade, commerce and intercourse is not a 
fundamental right. 
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c. That trade, commerce and intercourse in India is not absolutely 
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free. 
d. That the discriminatory tax (like erstwhile custom duties 
imposed by certain independent states) is harmful for the 
federation. 
PLAINS OF GANGES CAN NEVER BE FERTILIZED BY 
WATER OF MURRAY OR POTMAC RIVERS 
E 
7.18 The precedents as well support the view that tax laws are 
F 
not contemplated in Article 301. Before considering the relevant 
precedents, a brief reference to the extent and scope of right to free 
trade as enforced in Australia, USA and Canada may be refereed to. 
It is to be kept in mind that the plains of Ganges can never be fertilized 
by waters ofMurray46 or Potmac47• But it is important to see the course 
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which they have sailed and taken their countries to glory. It is imperative 
4
45 Constituent Assembly Debate, Vol. IX, gth September 1949 
6 Longest River of Australia 
47 River in United
States of America 
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to mention that during the drafting process of Article 301, foot note for 
the same had reference to Australian Constitution. It is no gainsaying 
that our framers were learned men who drew our Constitution having · 
hindsight of the wisdom of these great federations. 
7. 19 The main inspiration for Part Xlll has been American and 
Australian models. These models present before the Constituent 
Assembly were re-designed and expanded by the framers of the 
Constitution in India according to the needs of Indians. It is important 
to note that the interpretation provided by other countries are just 
indicative. They may have persuasive value because the context and 
history has been quite different as compared to India. At least in relation 
to Part XIII of the Constitution an indigenous interpretation should be 
provided without placing heavy reliance on the foreign cases as they 
may be subject to change which will inevitably stir the matter once again. 
Moreover, our constitutional structure is quite different from those 
provided under Australian and American Constitutions. 
7 .20 In Australia and the United States of America, giving textual 
meaning to the applicable Constitutional provisions, the Courts interpreted 
the 'commerce clause' or 'free trade clause' in such a manner that the 
(federal units) were completely barred to levy any taxes on inter-state 
trade and commerce, Fortunately offlate, in these
jurisdictions, the law 
E . has been diluted to enable the federal units to regulate inter-state trade 
and commerce even by imposing levies. This would be clear by brief 
reference to the case law governing inter-state trade in Australia, 
Canada and the United States of America. 
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COMMONWEALTH OF AUSTRALIA 
7 .21 Section 92 of the Australian Constitution declares 'that '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 be absolutely free. ln Cole v Whiffield[Herein 
after 'Cole'}48 , and later in CastlemaineTooheys Ltd v South 
Australia 49 and, most recently, in Bet.fair Pty Ltd v Western 
Australiti50, the Court observed that Section 92 of the Australian 
"(1988) 165 C.L.R 360 
49 (1990) 169 C.L.R 436 . 
50 (2008) 234 C.L.R 418
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
Constitution only meant that Australia was free from those measures 
which were discriminatory and protectionist burdens. Cole insisted that 
Section 92 proscribes both direct and indirect protectionist 
discrimination: -
'The concept of discrimination in its application to interstate 
trade and commerce necessarily embraces factual 
discrimination as well as legal operation. A law will 
discriminate against interstate trade or commerce if the law 
on its face subjects that trade or commerce to a disability 
or disadvantage or if the factual operation of the law 
produces such a result'. 51 
337 
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7.22 Earlier to this, Australian Courts have grappled to achieve 
unifonnity until 1988 [Cole]. Earlier Judgments had taken a right based 
approach, wherein a single trader who was burdened, could claim 
violation of Section 92 of the Australian Constitution.51 Such wide 
interpretation given in the earlier case laws led to development of 
narrower test by the High Court in Cole. Earlier Case laws were 
available and were cited in the Atiabari and Automobile also. It is 
interesting to note that our framers drawing experience of Bank 
E 
Nationalization Case 53 , were concerned about stifling the natural 
growth of the Country by broad law such as Section 92 of Australian 
Constitution. 54 
UNITED STATES OF AMERICA 
7.23 Article 1 Section 8 Clause 3 of the U.S. Constitution states 
that "The Congress shall
have the legislative power to regulate 
commerce, with foreign nations and among several States, and with 
Indian Tribes. " This Clause also known as the 'Commerce Clause' has 
been under judicial scmtiny for a long time. The plain reading of this 
Article means that the Federal Legislature is empowered to regulate 
the inter-state trade. 
" Ibid, p. 399 
" Common wealth v. Bank of new South Wales, (1949) 79 C.L.R 497. 
53 Ibid. 
" Constituent Assembly Debate, Vol. IX, gth September 1949 
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7.24 In Brown v. Marylancf'5, a case involving the constitutionality 
of a Maryland law requiring all importers and wholesalers of foreign 
articles to obtain a license, Chief Justice Marshall reasoned that the 
rationale of McCulloch56 was "entirely applicable" to state taxation of 
private enterprises engaged in inter-state commerce. Thus, holding the 
Maryland statute unconstitutional, Justice Marshall stated: 
'We admit this power (of a State to tax its own citizens on 
their property within its territory) to be sacred .... We cannot 
admit that it may be used so as to obstruct or defeat 
(Congress') power to regulate commerce. It has been 
observed that the powers remaining with the States may 
be so exercised as to come in conflict with those vested in 
Congress. When this happens, that which is not supreme 
must yield to that which is supreme'. 
7.25 The Supreme Court in Freeman v. HewitP, put a bar on 
the States to tax such activities which directly affected inter-state 
commerce as federal government was the sole authority to regulate these 
matters. Following extract may be relevant-
'The Commerce Clause was not. merely an authorization 
to Congress to enact laws for the protection and 
encouragement of commerce among the States, but by its 
own force created an area of trade free from interference 
by the States. In short, the Commerce Clause even without 
implementing legislation by Congress
is a limitation upon 
the power of the States .... This limitation on State power 
.. . does not merely forbid a State to single out interstate 
commerce for hostile action. A State is also precluded from 
taking any action which may fairly be deemed to have the 
effect of impeding the free flow of trade between States. 
"25 U.S. (12 Wheat.) 419 (1827) 
56 4 Wheat. 316 (1819) 
"329 U.S. 249 (1946)
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
339 
(N. V. RAMANA, J.] 
It is immaterial that local commerce is subjected to a 
A 
similar encumbrance'. 
7 .26 In 1977 in a landmark judgment in Cumplete Auto Transit 
vs. Brady58 , the Supreme Court went back on the above approach and 
adopted practical effects approach, according to \Vhich, a State law 
which is "applied to an activity with a substantial nexus with the taxing 
state, fairly apportioned, non-discriminatory against inter-state commerce, 
and fairly related to the services provided by the State" shall not be 
invalidated on the ground that States lack legislative competence. 
Subsequently the Supreme Cowt has further empowered the States to 
adopt legislations and it now only requires that there should be a fair 
relation or connection between the tax imposed and the general benefits 
provided to the taxpayers which include civic services as maintenance 
of public roads and running of mass transits (refer D.J!. Holmes 
Company Ltd. vs. Shirley 1\1cNamara59). In the Commonwealth 
Edison Company vs. State of Montana60 the Supreme Court has 
observed that-
'when a general revenue tax does not discriminate against 
interstate commerce and is apportioned to activities 
occurring within the State. the State is free to pursue its 
own fiscal policies unembarrassed by the Constitution.' 
It is obvious from the line of cases that America has been moving 
towards empowering States to develop their own fiscal policy under the
Commerce Clause. Our Constitution, on the other hand, has achieved 
directly what the US Coutts are trying to achieve by way of judicial 
interpretation. 
CANADA 
7 .27 Canadian Constitution envisages freedom of trade under 
Section 121 as follows 'All Articles of the Growth, Produce, or 
"430 U.S. 274(1977) 
"'486 U.S. 24 (1988) 
'"453 u .s. 609 ( 1981) 
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Manufacture of any one of the Provinces shall, from and after the Union, 
be admitted free into each of the other Provinces'. It is important to 
note the federal scheme before referring to interpretation provided by 
the Courts in Canada. Under Section 92(2) provincial power to tax is 
restricted by three limitations i. The tax must be 'direct' ii. The tax must 
be 'within the province' iii. The tax must be for 'provincial purposes'.01 
Federal and Provincial powers overlap in the field of direct taxation. 
which includes the two most lucrative taxes, namely, income tax and 
the sales tax. Section 121 has been interpreted by the Supreme Court 
in Gold Seal Case ( 1921 )6', In this Case the Supreme Court of Canada 
speaking through Duff J. observed that: 
'The capacity of the Parliament of Canada to enact the 
amendment of 1919 is denied. With this I do not agree. And. 
first, I am unable to accept the contention founded upon 
D 
Section 121 of the B.N.A. Act; the phraseology adopted, 
when the context is considered in which this section is 
found, shews, I think, that the real object of the clause is 
to prohibit the establishment of customs duties affecting 
interprovincial trade in the products of any province of the 
Union.'''3 
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Similarly, Mignault J. stated: 
'I think that like the enactment I have just quoted. the object 
of section 121 was not to decree that all articles of the 
growth, produce or
manufacture of any of the provinces 
should be admitted into the others, but merely to secure 
that they should be admitted "free," that is to say without 
any tax or duty imposed as a condition of their admission. 
The essential word here is "free" and what is prohibited is 
the levying of custom duties or other charges of a like 
nature in matters of interprovincial trade.'"" 
'''Constitutional Law of Canada, Peter \V. Hogg, Vol. 1. pg. 857. 
"'Gold Seal Ltd. V. Alberta AG ( 1921 l 62 S.C.R 424. 
'" Ibid. at 456 
"Ibid. at 470.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
7.28 The Conspectus of law in Australia and the United States 
of America which have federal Constitutions would show that initially 
the highest courts in those countries interpreted their respective 
constitutional provisions as totally prohibiting the States (federal Units) 
from levying any tax or regulating on inter-State trade and commerce, 
but subsequently there is a paradigm shift even in these jurisdictions and 
currently the existing provisions have been interpreted so as not to deny 
such powers to States. 
INDIAN CASE LAW 
7 .29 Returning to the main controversy in the case, it may be 
noted that apart from the two leading judgments on the entry tax and 
compensatory tax in the context of transportation Cases, we have large 
number of cases decided by the various High courts and this Court. It 
is however not necessary to refer to all cases. It would be suffice to 
refer to a few. 
7.30 In Atiahari, the validity of Assam Taxation (on Goods 
Carried by Roads and Inland Waterways) Act, 1954, which squarely 
comes under Entry 56 of List II fell for consideration. It was assailed 
as violating Article 301, and as not saved by Article 304(b ). The 
challenge was upheld. It is necessary to extract the following from the 
Atiahari.: 
' ... It is obvious that whatever may be the content of the 
said freedom it is not intended to be an absolute freedom; 
absolute freedom in matters of trade, commerce and 
341
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intercourse would lead to economic confusion, if not chaos 
F 
and anarchy; and so the freedom guaranteed by A1ticle 301 
is made subject to the exceptions provided by the other 
Articles in Part XIII. The freedom guaranteed is limited in 
the manner specified by the said Articles but it is not limited 
by any other provisions of the Constitution outside Part 
G 
Xlll. That is why it seems to us that Article 301, read in 
its proper context and subject to the limitations prescribed 
by the other relevant Articles in Part Xlll, must be regarded 
as imposing a constitutional limitation on the legislative 
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power of Parliament and the Legislatures of the States. 
What entries in the legislative lists will attract the provisions 
of Article 30 I is another matter; that will depend upon the 
content of the freedom guaranteed; but wherever it is held 
that Atiicle 30 I applies the legislative competence of the 
Legislature in question will have to be judged in the light 
of the relevant Articles of Part XIII; this position appears 
to us to be inescapable. 
50. Let us now revert to Article 301 and asce1tain the width 
and amplitude of its scope. On a careful examination of 
the relevant provisions of Part XIII as a whole as well as 
the principle of economic unity which it is intended to 
safeguard by making the said provisions, the conclusion 
appears to us to be inevitable that the content of freedom 
provided for by Article 30 I .... 
51. certainly includes movenie.nt of free trade which is of 
the very essence of all trade and is its integral part. If the 
transport or the movement of goods is taxed solely on the 
basis that the goods are thus carried or transported that in 
our opinion, directly affects the freedom of trade as 
contemplated by Article 30 I. If the movement, transpoti 
or the carrying of goods is allowed to be impeded, 
obstructed or hampered by taxation without satisfying the 
requirements of Paii Xlll the freedom of trade on which 
so much emphasis is laid by A1iicle 30 I would turn to
be 
illusory. When Article 301 provides that trade shall be free 
throughout the territory of India. primarily it is the 
movement part of the trade that it has in mind and the 
movement or the transport part of trade must be free 
subject of course to the limitations and exceptions provided 
by the other Articles of Part Xlll.. .. Besides, it is not 
irrelevant to remember in this connection that the 
Article we are construing imposes a constitutional 
limitation on the power of the Parliament and State 
Legislatures to levy taxes, and generally, but for such 
limitation, the power of taxation would be presumed 
to be for public good and would not be subject to
JINDAL STAINLESS LTD. v. S'IATE OF HARYANA 
343 
IN. V. RAMANA, J.] 
judicial review or scrutinv. Thus considered we think 
A 
it would be reasonable and proper to hold that 
restrictions freedom from which is guaranteed by 
Article 301, would be such restrictions as directly 
and immcdiatelv restrict or impede the free flow or 
movement of trade. Taxes may and do amount to 
restrictions; but it is onlv such taxes as directly and 
immediately restrict trade that would fall within the 
purview of Article 301.' 
(Emphasis Supplied) 
7.31 Tn Atiabari, Chief Justice B. P. Sinha wrote a dissenting 
opinion holding that any inference that the taxation simpliciter is within 
the terms of Article 30 I cannot be justified under the Constitution. 
Indeed, it is observed that, it is only such taxes which directly and 
immediately affect trade would fall within the purview of Article 301, 
though both the Learned Judges used different languages. the purports 
appears to be same. It is only such laws which operate in a restrictive 
manner, right to free trade that are prohibited. Be that as it is, rejecting 
the submission that Article 30 l must be construed as freedom from all 
kinds of impediments, restraints and trade barriers including freedom 
from all taxation, the Learned Chief Justice said as follows: 
'In my opinion, there is no warrant for such an extreme 
position. It has to be rem.:mbcrcd that trade, commerce 
an intercourse include individual freedom of movement of 
every
citizen of India from State to State, which is also 
guaranteed by Art.19( I)( d) of the Constitution. The three 
terms used in Art. 30 I include not only free buying and 
selling, but also the freedom of bargain and contract and 
transmission of information relating to such bargains and 
contract as also transport of goods and commodities for 
the purposes of production, distribution and consumption in 
all their aspects, that is to say, transportation by land, air 
or water. They must also include commerce not only in 
goods and commodities, but also transportation of men and 
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animals by all means of transportation. Commerce would 
thus include dealings over the telegraph, telephone or 
wireless and every kind of contract relating to sale, 
purchase, exchange etc. of goods and commodities. 
15. Viewed in this, all comprehensive sense, taxation on 
trade, commerce and intercourse would have many 
ramifications and would cover almost the entire field of 
public taxation, both in the Union and in the State Lists. It 
is almost impossible to think that the makers of the 
Constitution intended to make trade, commerce and 
intercourse free from taxation in that comprehensive sense. 
If that were so, all laws of taxation relating to sale and 
purchase of goods on can-iage of goods and commodities, 
men and animals, from one place to another, both inter-State 
and intra-State, would come within the purview of Art. 30 I 
and the proviso to Art. 304(b) would make it necessary that 
all bills or Amendments or pre-existing Jaws shall have to 
go thereof the gamut prescribed by that proviso. That will 
be putting too great an impediment to the power of taxation 
vested in the States and reduce the States' limited 
sovereignty under the Constitution to a mere fiction. That 
extreme position has, therefore, to be rejected as unsound.' 
7.32 Dealing with the importance of taxing power of the State to 
raise money the learned Chief Justice. opined thus :-
'Jn my opinion, another very cogent
reason for holding that 
taxation simpliciter is not within the tenns of Art. 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
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
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"' 
7.33 In Automobile, the challenge was to the Rajasthan Motor 
Vehicles Taxation Act, 1951. The Appellants were unsuccessful before 
345 
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the Rajasthan High Court, which upheld the said Act. By majority of C 
4:3 this Court affinned the judgment of the High Court. Justice S.K.Das 
who wrote the lead judgment observed that Part Xlll is intended to 
achieve the federal economic and fiscal integration and addresses the 
questions of economic unity. He held that, "regulatory measures or 
measures imposing compensatory taxes for the use of trading facilities 
D 
do not come within the purview of the restrictions contemplated by 
Article 301 and such measures need not comply with the requirements 
of the proviso to Article 304(b) of the Constitution, (and) that the relevant 
Articles in Part Xlll apply only to legislation in respect of the entries 
relating to trade and commerce in any of the lists of the Seventh 
Schedule. But we must advert here to one exception which we have 
already indicated in an earlier
part of this Judgment. Such regulatory 
measures do not impede the freedom of trade, commerce and 
intercourse and compensatory taxes for the use of trading facilities are 
not hit by the freedom declared by Article 301. They are excluded from 
the purview of the provisions of Part Xlll of the Constitution for the 
simple reason that they do not hamper trade, commerce and intercourse 
but rather facilitate them". 
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7.34 Justice K .• Subba Rao (as his lordship then was) in a 
separate opinion concurred with the majority and summarized the 
following principles that are to be applied while testing a law under 
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challenge as violating Article 301 of the Constitution (1) Article 301 
declares a right of free movement of trade without any obstructions by 
way of barriers, inter-State or intra-State, or other impediments operating 
as such bal1'iers. (2) The said freedom is not impeded, but, on the other 
hand, promoted, by Regulations creating conditions for the free movement 
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of trade, such as, police Regulations, provision for services, maintenance 
of roads, provision for aerodromes, wharfs etc., with or without 
compensation. (3) Parliament, may by law, impose restrictions on such 
freedom in the public interest; and the said law can be made by virtue 
of any entry with respect whereof Parliament has power to make a 
law.( 4) The State also, in exercise of its legislative power, may impose 
similar restrictions, subject to the two conditions laid down in Article 
304(b) and subject to the proviso mentioned therein. (5) Neither 
Parliament nor the State Legislature can make a law giving preference 
to one State over another or making discrimination between one State 
and another, by virtue of any entry in the Lists, infringing the said 
freedom. ( 6) This ban is lifted in the case of Parliament for the purpose 
of dealing with situations arising out of scarcity of goods in any part of 
the territory of India and also in the case of a State under Article 304(b ), 
subject to the conditions mentioned therein; and (7) The State can 
impose a non-discriminatory tax on goods i111p01ted from other States 
or the Union te1Titory to which similar goods manufactured or produced 
in that State are subject. 
7.35 As discussed above, a Constitution Bench of this Court in 
Atiahari had struck down the Assam Act levying the tax on goods 
carried by road or inland waterways. Making certain
additional 
provisions, Assam Assembly enacted the Assam Act No. 10 of 1961, 
coming under Entry 56 of the State List, with the previous sanction of 
the President with the same nomenclature, which was impeached as 
unreasonable under Article 32 of the Constitution, in Khyerhari Tea 
Company v. State of Assam65 • By the time, this Court took up the case, 
the scope and effect of provisions contained in Part XIII of the 
Constitution came to be considered in Automohile. Rejecting the 
challenge this Court observed that the freedom can be restricted by a 
law satisfying the two conditions in Article 304. ln examining the 
constitutionality of the statute, it must be assumed that the legislature 
understands and appreciates the needs of the people and the laws it 
enacts are directed to problems which are made manifest by experience 
and that the legislature enacts the laws which the people's 
representatives consider to be reasonable for the purpose for which they 
are enacted. The presumption is in favor of the constitutionality of 
"(1964) 5 SCR 975: AIR 1964 SC 925
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.) 
enactment. However, when it is shown that an Act invades the freedom 
of trade, it is necessary to enquire whether the State has proved that 
the restrictions imposed by way of taxation are reasonable and in public 
interest within the meaning of Article 304(b ). It was also held that a 
law passed under Article 304(b) can be made to have retrospective 
effect. 
7.36 In Jindal (2), the law was summarized by the Constitutional 
Bench as under: 
'Aliicle 30 I is binding upon the Union Legislature and the 
State Legislatures, but Parliament can get rid of the 
limitation imposed by Article 301 by enacting a law under 
Article 302. Similarly, a law made by the State Legislature 
in compliance with the conditions imposed by Article 304 
shall not be hit by Article 301. Article 301 thus provides 
for freedom of inter-State as well as intra-State trade and 
commerce subject to other provisions of Part XIII and 
correspondingly it imposes a general limitation on the 
legislative powers, which is relaxed under the following 
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(a) Limitation is relaxed in favour of Parliament under 
Article 302, in which case Parliament can impose 
restrictions in public interest. Although the fetter is 
limited enabling Parliament to impose by Jaw restrictions 
on the freedom of trade in public interest under Article 
F 
302, nonetheless, it is clarified in Clause (I) of Article 
303 that notwithstanding
anything contained in Article 
302, Parliament is not authorised even in public interest, 
in the making of any law, to give preference to one State 
over another. However, the said clarification is subject 
G 
to one exception and that too only in favour of 
Parliament, where discrimination or preference is 
admissible to Parliament in making of laws in case of 
scarcity. This is provided in Clause (2) of Article 303. 
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(b) As regards the State Legislatures, apart from the 
limitation imposed by Article 301, Clause (I) of Article 
303 imposes additional limitation, namely, that it must not 
give preference or make discrimination between one 
State or another in exercise of its powers relating to 
trade and commerce under Entry 26 of List 11 or List 
III. However, this limitation on the State Legislatures 
is lifted in two cases, namely, it may impose on goods 
imported from sister State(s) or Union Territories any 
tax to which similar goods manufactured in its own State 
are subjected but not so as to discriminate between the 
imported goods and the goods manufactured in the State 
[see Clause (a) of Article 304]. In other words, Clause 
(a) of Article 304 authorises a State Legislature to 
impose a non-discriminatory tax on goods imported from 
sister State(s), even though it interferes with the 
freedom of trade and commerce guaranteed by Article 
301. Secondly, the ban under Article 303(1) shall stand 
lifted even if discriminatory restrictions are imposed by 
the State Legislature provided they fulfil the following 
three conditions, namely, that such restrictions shall be 
in public interest; they shall be reasonable; and lastly, 
they shall be subject to the procurement of prior sanction 
of the President before introduction of the Bill.' 
7.37 One need to note that Atiabari dealt with the challenge to 
an
enactment which squarely comes under Entry 56 whereas 
Automobile is a case concerned with the challenge to Rajasthan Motor 
Vehicle Taxation Act. Taxes on motor vehicles is a subject which falls 
under Enny 57. The cases which were subsequently decided by this 
court in relation to Part Xlll, were decided by this Court were not 
concerned with Entries 56 and 57. Be that as it may, deviating a little, 
Jet me now examine the scope of Entry 52 and the nature of the tax 
contemplated there under. Entry 52 of the State list deals with 'taxes 
on the entry of the goods for consumption use or sale therein'. A 
law made under this entry like various Acts which are impugned in these 
appeals levy tax on entry of goods from one State to other. The taxable
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
349 
[N. V. RAMANA, J.] 
event is the entry into local area in another State. As defined in Concise A 
Oxford Dictionary the verb 'enter' means 'to come or go into and entry 
as a noun is act of coming or going'. "There is a palpable difference 
between the entiy of goods and sale of goods. Many enactments levying 
tax on sale define the sale as 'transfer of property from one person to 
another in course of business for cash or defen-ed payment.' When 
goods enter the State it may be for consumption, use or sale. The factum 
of entry and sale may not happen at the same time and, therefore, entry 
of goods is one thing and consumption, use or sale is another thing. 
Therefore, the mere fact that the goods are intended for sale is no 
significance to the taxable event in law on the entry of goods. 
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7.38 In Han.rn Corp. 67, the Constitutional validity of Kamataka 
Tax on Entry of Goods into Local Areas for Consumption, Use or Sale 
Therein Act, 1979 was challenged before this Court. This Court upheld 
the validity of the Act and pointed out that the fonnulation in Atiahari 
and Automobile was even applicable for Entry Tax under Entry 52 of 
the State List. This Court summed up the position of law as below-
D 
'Entry 52 in State List read with Article 246 of the 
Constitution confers power on the State legislature to enact 
a law to levy tax on the entry of goods into a local area 
for consumption, use or sale therein. This tax in
common 
parlance is known as 'octroi'. Octroi was leviable by the 
municipality under the power delegated to it under various 
laws providing for setting up of and administration of 
municipal corporations and municipalities. Octroi thus 
understood was being levied by various municipalities and 
municipal corporations in Kamataka State. Since some time 
a feeling had grown that octroi was obnoxious in character 
and impeded the development of trade and commerce and 
there was a clamour for its abolition. Taking note of the 
resentment of the business community, Kamataka State 
abolished octroi with effect from April 1, 1979. However, 
no one was in doubt that octroi was a major source of 
"'Concise Oxford Dictionary, p. 474 (10•" Ed.) 
"' 1980 ( 4) s.c.c 463 
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revenue to municipalities and its abolition would cause such 
a dent on municipal finances that compensation for the loss 
would be inevitable. Accordingly, the State Government 
undertook a policy of compensating the municipalities year 
by year. For generating funds for this compensation, rates 
of sales tax were raised and in some cases a surcharge 
was levied. The amount so collected was not sufficient to 
bridge the gap in municipal budget. To further augment the 
fmances for compensating the municipalities, additional fund 
was sought to be generated by levy of tax under the 
impugned legislation. No doubt, the tax levied was one on 
entry of scheduled goods in local areas meaning thereby it 
had an the broad features of octroi, yet the manner of levy, 
the method of collection and the persons liable to pay the 
same were so devised by the impugned Act as to remove 
the obnoxious features of octroi. As the charging section 
shows, the tax was to be levied on entry of scheduled goods 
in a local area at a rate to be specified by the Government 
not exceeding 2% ad valorem. The taxing event would be 
the entry of scheduled goods in a local area. In fact, octroi 
was being levied on almost all conceivable goods entering 
into a local area for consumption, use or sale therein. There 
appears to be a discernible policy in selecting the goods 
set out in the schedule, the entry of which in a local area
would provide the taxing event. The goods selected for levy 
are textiles, tobacco and sugar. Way back in 1957 there 
was a demand for abolition of sales tax on the scheduled 
goods and at the instance of the Union Government the 
State Gove1m11ents agreed to forego their right to levy sales 
tax on the aforementioned scheduled goods on the condition 
that the Union Government would levy additional excise 
duty on them and distribute the net proceeds of such duty 
amongst the consenting States. Parliament accordingly has 
enacted the Additional Duties on Goods (Goods of Special 
Importance) Act, 1957. Therefore, while raising rates of 
sales tax and levying surcharge in respect of some other 
items the State Government could not have levied sales tax 
on the scheduled goods. They were, therefore, selected for
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
351 
[N. V. RAMANA, J.] 
the levy of the tax under the impugned Act on their entry 
A 
into a local area'. 
xxx 
'On a conspectus of these decisions it appears well settled 
that if a tax is compensatory in character it would be 
immune from the challenge under Article 301. If on the 
other hand the tax is not shown to be compensatory in 
character it would be necessary for the party seeking to 
sustain the validity of the tax law to show that the 
requirements of Article 304 have been satisfied'. 
7.39 In Atiahari, majority held that the legislative competence 
of the legislature will have to be judged in the light of relevant Articles 
of Part Xlll and that what entries will attract Article 301 will depend 
on the content of freedom guaranteed. In Jaiprakash, this Court ruled 
that concept of compensatory tax evolved in Automobile does not apply 
to general notion of entry tax. As pointed out earlier Atiahari is a case 
dealing with tax under Entry 56, whereas Automobile is a case under 
Entry 57. In view of this it would not be safe to apply the majority opinion 
in Atiahari and Automobile while dealing with entry tax. I am therefore 
compelled to hold that tax law simpliciter is not contemplated in Article 
30 I of the Constitution. 
7.40 There is no gainsaying that the law made by Parliament or 
State legislature is subject to Constitutional limitations. A law which 
abridges fundamental rights is rendered void by reason of
Article 13. A 
law by the Union or the States relating to a subject matter outside the 
powers assigned under Articles 245 read with Article 246 and relevant 
legislative entries in the Seventh Schedule would be ultra vires as 
legislatively incompetent. Apart from these limitations, the law of the 
Union or the States is also subject to other Constitutional limitations. 
The provisions of Part XIII, especially, Article 304(a) and (b) also act 
as a limitation on the legislative jurisdiction of the Union and the States. 
The power endowed under Articles 245 and Article 246 to a competent 
legislature to make laws is 'subject to the provisions of the Constitution. 
Nonetheless, if a State makes law under Article 245(1) r/w. Article 
246(3) in respect of the subjects enumerated in Entries 45 to 63 of List 
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II in the Seventh Schedule, it is doubtful whether it can be invalidated 
only on the ground that it does not comply with Articles 301 and 304( a). 
Indeed various provisions of the Constitution dealing with fiscal measures 
in Part XII, for instance Articles 265, 269, 276 and 286, specifically deal 
with taxes, but in Part XIII, except Article 304(a), no other Article deals 
with taxes. Further Chapter I of Part XII of the Constitution specifically 
deals with provisions regarding 'Finance', whereas Part XIII deals with 
'Trade, Commerce and Intercourse' within the ten-itory of India. Thus, 
these two Parts are kept distinctly separate. Though every law is made 
subject to all provisions of the Constitution, it does not mean that every 
tax law made by the State must be made answerable to the general 
provisions relating to trade, commerce and intercourse. The provisions 
of the Constitution, the Constituent Assembly Debates and the 
precedents, lead us to such a conclusion. The reasons for this conclusion 
are summarized as below-
First, Taxation is an incident of sovereignty, which cannot 
be curtailed by any implied limitations.68 
Secondly, It is part of any sovereign government to ensure 
a welfare State. To achieve the same, tax is the only course 
E 
available to the government to generate revenue for 
purposes of welfare activities. Courts, therefore, cannot 
abridge the taxing power of the sovereign State.
Thirdly, the very conception of Part Xlll was only to 
prevent discriminatory taxes under Article 304(a). 
F 
Fourthly, argument of inconvenience cannot affect the 
interpretation of Article 30 I to bring in new tests and 
expand the provision beyond what was imagined by the 
framers of our Constitution. Article 304 (a) is an isolated 
provision which only deals with the discriminatory taxes. 
G 
Existence of such provision cannot furnish evidence to say 
that Article 301 is not subject to taxing power of the State. 
I-I 
Fifthly, the taxing entries are specifically provided for in 
the Seventh Schedule. lt is settled principle under our 
" Maharaj Umeg Singh v. State of Bombay, A.LR 1955 S.C 540.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
Constitution that taxing power cannot be derived from a 
general entry. 69 In light of this principle the Constituent 
Assembly passed the Articles and Entries in the following 
time line: On 13 June, 1949 present Article 245 which was 
Article 217 (in the draft Constitution) was passed. On 
September 02, 1949 Entry 52 of State List (which was entry 
61 in the draft Constitution) was passed. On September 
08, 1949 PART Xlll (which was PART XA in the draft 
Constitution) was passed. This shows that our Constitution 
framers are presumed to be aware of the inter-play of 
taxing provisions. Therefore, the only explicit limitation 
imposed on the taxing power of the State is Article 304(a) 
of the Constitution. 
Sixthly, we cannot ignore the legislative journey of Article 
301 in Part Xlll. At the stage of drafting, free trade, 
commerce and intercourse was in fact sought to be made 
a fundamental right but it was not accepted. Ultimately it 
was resolved to bring all the provisions relating to free 
trade, commerce and intercourse at one place. What started 
as a fundamental right came to be enacted as a 
constitutional right? Thus, there is abundant guidance from 
the legislative history in regard to incorporation of Article 
301 only as a constitutional right. 
Seventhly, That Article 306 cannot have an impact on the 
interpretation of Article 301, as it only saved certain 
discriminatory taxes. Since the framers
wanted to preserve 
the imposition of such discriminatory taxes for a limited 
period, which otherwise would have been beyond the 
competence of State legislature to impose tax on import 
or on export of goods. Therefore taxes are not covered 
under the Article 301 only inter-state discriminatory taxes 
are barred under Article 304(a) of the Indian Constitution. 
Eighthly, Tax management is a province of political sphere. 
Judiciary should provide certain latitude for the government 
as taxes are lifeline of the Governments. 
" M.P.V. Sundararamier & Co. vs. The State ofAndhra Pradesh andAnr.,AIR 1958 SC 
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Ninthly, Article 301 of the Indian Constitution uses the tem1 
'free'. The word 'free' means 'which is not confined or 
restricted'. Either the trade is 'free or not free'. To state 
that trade, commerce and intercourse throughout the 
territory in India is free and then qualify this Article 301 
with subsequent Articles under 302, 303 and 304 only 
portrays that Article 301 is merely clarificatory in nature. 
If trade was, indeed, free then majority of Articles in the 
Constitution would have been redundant. From the history, 
context and interpretation it is clear that Article 301 is just 
a fonn to be understood subject to other provisions of Part 
Xlll. If no other motive for its insertion can be suggested, 
a sufficient one is found in the desire to remove all doubts 
i.e., the wordings of Article 301 is beyond any doubt a 
clarificatory provision and the extent of freedom is limited 
to those discriminatory taxes, restrictions (other than 
taxation simpliciter) and prohibitions provided explicitly under 
Articles 302, 303 and 304. 
7.41 In Atiahari and Automobile this Court relied on a 11011-
obsta11te clause in Article 304 to hold that, by necessary implication, 
tax law come within the purview of Article 301. This view is not sound 
because one has to read the text and context while interpreting the 
constitutional provisions. In this regard, I respectfully agree with the 
reasoning and conclusions
reached by Hon'ble the Chief Justice that 
non-obstante clause in Article 304 (a) is not determinative in the 
interpretation of Article 30 I. 
PART-VIII: ARTICLE 304 OF THE CONSTITUTION 
8.1 Whether a law levying tax on entry of goods needs to be 
tested with reference to Article 304(a) and (b) of the Constitution? In 
order to appreciate the implication of Article 304 of the Constitution, it 
is necessary to bear in mind that historical background of these 
provisions. The Government of India Act, 1935 envisaged a federal 
Constitution for the whole of British India. The Government imposed 
restriction on the legislature of the States to legislate in relation to internal
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
355 
[N. V. RAMANA, J.] 
trade under Section 297 in the following tem1s:-
A 
'297. (!)No Provincial Legislature or Government shall. 
(a) by virtue of the entry in the Provincial Legislative List 
relation to trade and commerce within the Province, or the 
entry in that list relating to the production, supply, and 
distribution of commodities, have power to pass any law 
or take any executive action prohibiting or restricting the 
entry into or export from, the Province of goods of any class 
or description; or 
(b) by virtue of anything in this Act have power to impose 
any tax, cess, toll, or due which, as between goods 
manufactured, or produced in the Province and similar 
goods not so manufactured or produced, discriminates in 
favour of the former or which, in the case of goods 
manufactured or produced outside that Province, 
discriminates between goods manufactured or produced in 
another locality. 
(2)Any law passed in contravention of this section shall, 
to the extent of the contravention, be invalid.' 
8 .2 It may be noticed that prohibition contained in the section 
quoted above applied only to Provincial Governments and Provincial 
legislatures with reference to entries in the legislative list relating to trade 
and c01m11erce and to production, supply and distribution of c01mnodities. 
This section dealt with prohibitions or restrictions in respect of import 
into or export from a Province, of goods generally. It also
dealt with 
the power to impose taxes etc. and prohibited discrimination against 
goods manufactured or produced outside a Province or goods produced 
in different localities. 
8.3 The Sub Committee on Fundamental Rights comprising of 
Shri. K. M. Munshi, Sir Alladi Krishnaswami Iyer and Sir. B. N. Rau 
on March, 29 1947 introduced Clause 13 in the following form:-
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'Subject to regulation by the law of the Union, trade, 
commerce and intercourse among the units, whether by 
means of internal carriage or by Ocean Navigation, shall 
be free: 
Provided that anv unit may bv law impose reasonable 
B 
restrictions thereon in the interest of public order. moralitv 
or health.''" 
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(Emphasis supplied) 
8.4 The proviso herein above empowered the 'Unit' to impose 
by law, reasonable restrictions in the interest of the public order, morality 
or health. Sir B. N. Rau in his comments to the aforesaid draft discussed 
by the Sub Committee stated that 'the first paragraph of Clause 13 is 
adopted from the Australian Constitution (Sec. 92) while the proviso was 
ne\\1. Further, Sir Alladi Krishnaswami Iyer in his comments on Draft 
Report of 10'", 14"'& 15'" April, 1947, in relation to Clause 13 suggested 
that it must be made clear that : 
'( l) Goods from other parts of India than in the units' 
concerned coming into the units cannot escape duties and 
taxes to which the goods produced in the units in themselves 
are subject. 
(2) lt must also be open to the unit in an emergency to 
place restrictions on the rights declared by the clause"'' 
8.5 The suggestions of Sir. Alladi Krishnaswami Iyer were 
accepted and the Clause was accordingly modified and incorporated as 
Clause 14 as below: 
G 
14. (1) Subject to regulation by the law of the Union trade, 
commerce and intercourse among the
units by and between 
the citizens shall be free: 
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"'B. Shiva Rao. Framing. of India's Constitution. A Study (2"' Ed.), p. 699 to 707 
"fbid .. p. 157-161
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
357 
[N. V. RAMANA, J.] 
Provided that any unit may by law impose reasonable 
A 
restrictions in the interest of public order, morality or health 
or in an emergency: 
Provided that nothing in this Section shall prevent any unit 
from imposing on goods imported from other units the same 
duties and taxes to which the goods produced in the unit 
B 
are subject: 
Provided further that no preference shall be given by any 
regulation of commerce or revenue by unit to one unit over 
another. 72 
c 
8.6 It may be relevant to note that while imposing reasonable 
restriction in the first Proviso, the imposition of non-discriminatory tax 
was· in the second Proviso. The third Proviso was a pre-cursor of 
Article 303. On 21.04.1947, the aforesaid Clause 14 came up for 
D 
consideration of the Advisory Committee. Explaining the purpose of 
enabling a State to impose reasonable restr·iction in the interest of public 
order, morality, health or in emergency, Sir Alladi Krishnaswamy Iyer 
said: 
'Suppose there is a general famine and people are starved 
that is what is meant here to be dealt with' 
The advisory Committee accepted the recommendation of 
the Sub-Committee in relation to Clause 14 with 'one 
E 
change; the sub-clause providing for central regulation of 
F 
trade by or with non-citizens was dropped as being vague 
and unnecessary. 73 
8.7 The Advisory Committee submitted its report on 23.04.1947 
wherein Clause 10 provided as under:
"Ibid. 
'10. Subject to regulation by the law of the Union, trade, 
commerce and intercourse among the units by and between 
73 Ibid., p. 253 
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A 
the citizens shall be free: 
B 
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E 
Provided that any unit may by law impose reasonable 
restrictions in the interest of public order, morality or health 
or in any emergency: 
Provided that nothing in this section shall prevent any unit 
from imposing on goods imported from other units the same 
duties and taxes to which the goods produced in the unit 
are subject: 
Provided further that no preference shall be given by any 
regulation of commerce or revenue by a unit to one unit 
over the another'.74 
8.8 On 01.05.1947 certain amendments were suggested which 
were adopted by the Constituent Assembly. Clause 10, as amended, 
reads as follows: 
'10. Subject to regulation by the law of the Union, trade, 
commerce, and intercourse among the units by and between 
the citizens shall be free: 
Provided that any unit may by law impose reasonable 
restrictions in the interest of public order, morality or health 
or m any emergency: 
Provided that nothing in this section shall prevent any unit 
f 
from imposing on goods imported from other units the same 
duties and taxes to which the goods produced in the unit 
are subject: 
Provided further that no preference shall be given by any 
regulation of commerce or revenue by a unit to one unit 
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over another. 
H 
8. 9 In the first Draft Constitution of October, 194 7, Clause 17 
reads as follows: 
" Ibid., P. 297
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
'17. Subject to the provisions of any Federal Law, trade, 
commerce and intercourse among the units shall, if between 
the citizens of the federation, be free: 
Provided that nothing in this section shall prevent ny unit 
from imposing goods imported from other unit from imposing 
goods imported from other units any tax to which similar 
. goods manufactured or produced in that unit are subject, 
so, however, as not to discriminate between goods so 
imported and goods so manufactured or produced: 
Provided further that no preference shall be given by any 
regulation of trade, commerce or revenue to one unit over 
another: 
Provided also that nothing in this section shall preclude the 
Federal Parliament from imposing by Act restrictions on 
the freedom of trade, commerce and intercourse among 
the units in the interests of public order, morality or health 
or in cases of emergency'. 75 
8.10 On 01.11.1947, the Drafting Committee considered Clause 
17 and was of the opinion that 'the first and second provisos to this 
clause should be transfeJTed as independent clauses in the chapter dealing 
with relations between the different States and the third proviso was 
unnecessary. 76 
8.11 On 28.01.1948, the Drafting Committee decided to introduce 
three new clauses, namely Clause 192 E, 192 F & 192 G, relating to 
trade, commerce and intercourse. Clause 192 E, 192 F and 192 G as 
introduced by the Drafting Committee on
28.01.1948, reads as follows: 
'l 92E. No Preference shall be given by any regulation of 
trade, commerce or revenue to one State or any part 
7; B. Shiva Rao, Framing oflndia's Constitution, Vol. III, p. 9 (2"' Ed.) 
"Ibid, p. 330 
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thereof over another State or any part thereof. 
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c 
D 
E 
F 
192-F. Notwithstanding anything contained in Article 17 or 
in the last preceding Article of this Constitution, it shall be 
lawful for any state-
To impose on goods imported from other State any tax to 
which similar goods manufactured or produced in that State 
are subject, so, however, as not to discriminate between 
goods so imported and goods so manufactured or produced: 
and 
To impose by law any restrictions on the freedom of trade, 
commerce or intercourse with that State in the interests 
of public order, morality and health or in cases of 
emergency. 
*The committee is of opinion that the provisions contained 
in Articles 192-E and 192-F should more appropriately be 
included in this Chapter than in Part Ill dealing with 
fundamental rights. 
192-G (1) there shall be an Inter-State Commerce 
Commission consisting of such members as the president 
may think fit to appoint for the execution and maintenance 
within the territory of India of the provisions of this 
Constitution relating to Trade and Commerce. 
(2) The term of the office of the members of the 
commission, and the remuneration to be paid to them shall 
be such as the President may by Order detennine. 
(3) The procedure of the commission shall be defined by 
the President by the Order and the Commission shall have 
such powers including the power of adjudication as the 
President may, from time
to time, by Order, confer on it. 
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( 4) It shall be the duty of the Commission to decide any 
dispute relating to Trade or Commerce between the States 
referred to it by the President for adjudication and the 
decision of the Commission shall be final and shall not be 
questioned in any Court'. 
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JINDAL STAINLESS LTD. v. STATE OF HARYANA 
361 
[N. V. RAMANA, J.] 
On 29.01.1948, the said clause was further revised and the revised 
A 
clause reads as follows: 
'*192-E. No preference shall be given to nor shall any 
discrimination be made between one state or any part 
thereof and another State or any part thereof by ay 
regulation of trade or commerce, whether by means of 
internal carriage through roads, railways or rivers or by 
means of navigation through seas. 
* 192-F Notwithstanding anything contained in Article 17 or 
in the last preceding Article of this Constitution, it shall be 
lawful for any State-
(a) to impose on goods imported from other State any tax 
to which similar goods manufactured or produced in that 
State are subject, so, however, as not to discriminate 
between goods so imported and goods so manufactured or 
produced; and 
(b) To impose by law such reasonable restrictions on the 
freedom of trade, commerce or intercourse with that State 
as may be required in the public interests. 
*The committee is of opinion that the provisions contained 
in Articles 192-E and 192-F should more appropriately be 
included in this Chapter than in Part-III dealing with the 
fundamental rights. 
B 
c 
D 
E 
* 192-G. Parliament shall by law appoint such authority as 
F 
it considers appropriate for the carrying out of the 
provisions of Article 192-E and 192-F of this Constitution 
and confer on the authority so appointed such powers and 
such duties as it thinks
necessary. 
In the Draft Constitution of 1948, Clause 16 was incorporated in 
the Fundamental rights Chapter which reads as under: 
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'16. Subject to the provisions of Article 244 of this 
Constitution and of any law made by the Parliament, trade; 
commerce and intercourse throughout the ten'itory of India 
shall be free. 
Inter-State trade and Commerce was dealt with in Article 243, 
Article 244 and Article 245 which reads as below: 
'*243. No preference shall be given to one State over 
another nor shall any discrimination be made between one 
state and another by any law or regulation relating to trade 
or commerce, whether carried by land, water or air. 
*244. Notwithstanding anything contained in Article 16 or 
in the last preceding Article of this Constitution, it shall be 
lawful for any State-
( a) to impose on goods impmted from other States any tax 
to which similar goods manufactured or produced in that 
State are subject, so, however, as not to discriminate 
between goods so imported and goods so manufactured or 
produced: and 
(b) To impose by land such reasonable restrictions on the 
freedom of trade, commerce or intercourse with that State 
as may be required in public interests: 
Provided that during a period of five years from the 
commencement of this Constitution the provisions of Clause 
(b) of this Article shall not apply to trade or commerce in 
any of the Commodities mentioned in Clause (a) of Article 
306 of this Constitution. 
245. Parliament shall by law appoint such authority as it 
considers appropriate for
the carrying out of the provisions 
of Articles 243 and 244 of this Constitution and confer on 
the authority so appointed such powers and such duties as 
it thinks necessary.77 
77 Ibid., p. 453 to 454
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
363 
[N. V. RAMANA, J.] 
8.12 In the comments and suggestions to the Draft Constitution A 
of February, 1948, the note to the comment of the Ministry of Industry 
and Supply is relevant. The Ministry of Industry and Supply has 
expressed the view that Clause (b) of Article 244 is open to serious 
objection on principle and should be deleted altogether. The Ministry has 
pointed out that it is not possible to foresee the circumstances in which 
B 
the freedom of trade, commerce or intercourse with a State will need 
to be interfered with by the State in the Public interest, unless it be on 
the basis of discrimination between the residents of one State and 
another, and this would be wholly contrary to the spirit of the 
Constitution. 78 
c 
8.13 On 08.09.1949, Hon'ble Dr. Ambedkar moved for the 
deletion of these Articles and the motion was adopted by the Constituent 
Assembly without any opposition. The substance of these Articles was 
however, embodied in another amendment moved by Hon'ble Dr. 
Ambedkar inunediately thereafter on the same day. All these Articles 
were added in Part XA. The events at the stage of drafting the 
D 
Constitution, especially Pru1 XIII would show the following which I may 
summarize at the cost of repetition: 
First, initially the right to free trade was a Fundamental Right, 
but it was not accepted by the Advisory Committee and not even 
moved in the Constituent Assembly for adoption. 
Second, though
the precursor clause to Article 304 underwent 
repeated changes before the Advisory Committee and the Drafting 
Committee, never it was suggested that freedom of trade was 
meant to be freedom from payment of taxes. 
Third, the power offederal unit to levy tax on the goods imported 
from other units was specifically adumbrated to dispel any doubt 
about taxing power of the State. The logical conclusion is that 
the power of the State to levy any tax on goods imported is 
specifically saved and declared in the final clause, therefore it 
would be impennissible to test a law imposing entry tax with 
reference to Article 304(b ). 
"B. Shiva Rao, The Framing of India's Constitution, Vol. IV, pg. 329 
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Fourth, taxes were never intended to be a restriction on freedom 
of trade. 
8.14 Another important question which needs to be answered as 
a part of this reference is whether State enactments relating to levy of 
entry tax have to be tested with reference to both clauses (a) and (b) 
of Article 304 or only with reference to clause (a) of Article 304 of the 
Constitution? In other words is Clause (a) and (b) of Article 304 is 
conjunctive or disjunctive? The answer must be that the history, the 
context and the plain words indicate that Article 304 (a) and (b) are 
disjunctive in nature. A levy of tax need not be tested with reference to 
Article 304 (b) of the Constitution. Following are the reasons for reading 
Article 304 (a) and (b) of the Indian Constitution disjunctively. 
First, the legislative history and the intention of the framers as 
elucidated above clearly point out that taxes were never treated 
as restrictions in the first place. 
Secondly, Article 304(a) does not bar or limit State power to levy 
non-discriminatory taxes on the goods imported from other States. 
What is restricted is levy of discriminatory tax only, so to say, 
similar goods manufactured or produced in that State are also 
subjected to tax, so as not to discriminate between the goods 
imported and goods manufactured or produced in the State. 
Thirdly, the two clauses of Article 304 are connected by the word 
'and'. Sub-clause
(a) puts a restriction on the State to not impose 
a discriminatory tax, whereas sub-clause (b) deals with other 
restrictions relating to trade, commerce and intercourse. 
Fourthly, Article 304 (a) and (b), on a careful reading would show 
that Article 304 (a) and (b) are disjunctive. This is made clear 
G 
by the proviso, which is to the effect that a Bill for the purpose 
of Article 304 (b) can be moved by the Legislature of the States, 
only by the previous sanction of the President. If Clauses (a) 
and (b) are not disjunctive, then the language of the proviso would 
have been certainly different and the Bill for the purpose for 
Clause (a) would have been mentioned. Conspicuous absence of 
H
JINDAL STAINLESS LrD. v. STATE OF HARYANA 
[N. V. RAMANA, J.] 
reference to 304(a) in the proviso would certainly lend support 
to the view that Clause (a) and (b) of Article 304 are distinct 
and disjunctive. The proviso, it is well settled, is intended to explain 
the main operating part of the Article. It is never used or 
interpreted as expanding the operative part of the provision. 
Fifthly, if one reads Clauses (a) and (b) of Article 304 
conjunctively, then it would not subserve the federal nature of the 
Constitution which is a basic structure. 
8.15 I will now deal with the purport and scope of the word 
"discrimination" used in Article 304(a) by making some general 
observations. Article 304(a) should be interpreted keeping in mind the 
balanced development of the country, which is an important part of 
economic integration. To achieve the economic unity of the country, 
allowing trade and commerce without imposing taxes is not the only 
solution but it can also be achieved by bringing in overall prosperity. Part 
XIII of the Constituti0n permits some forms of differentiation, for 
example, to encourage a backward region or to create a level playing 
field for parts of the Country that may not have reached the desired 
level of economic development. Therefore, Part Xlll envisions a twofold 
object: (i) facilitation of a common market through ease of trade, 
commerce and intercourse by erasing barriers; and (ii) regulations (or 
restrictions) which may be necessary
for development of backward 
regions or in public interest. A brief reference to the Constituent 
Assembly debates would amply demonstrate the same. Hon'ble Member 
Shri P. S. Deshmukh said: 
'How pompously did we decide that there shall be "free 
trade" everywhere! It is not such an easy thing as that and 
[ hope 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 few industries 
and very little trade is in the hands, at least of the indigenous 
population. We may have probably to give them some 
protection in order that they mav rapidlv come on par 
with other units. It may be necessary also from time 
365 
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