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
that the power to enact laws has been 
conferred upon the Parliament subject to the above Constitutional 
I imitation. So also in terms of A1ticle 248, the residuary power to impose 
a tax not otherwise mentioned in the Concurrent List or the State List 
has been vested in the Parliament to the exclusion of the State legislatures, 
and the States' power to levy taxes limited to what is specifically reserved 
in their favour and no more. 
22. Article 249 similarly empowers the Parliament to legislate with 
respect to a matter in the State List for national interest provided the 
Council of States has declared by a resolution supported by not less than 
two-thirds of the members present and voting that it is necessary or 
expedient in national interest to do so. The power is available till such 
time any resolution remains in force in terms of Article 249 (2) and the 
proviso thereunder. 
185 
A 
B 
c 
D 
E 
F 
G 
H
186 
A 
B 
c 
D 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
23. Article 250 is yet another provision which empowers the 
Parliament to legislate with respect to any matter in the State List when 
there is a proclamation of emergency. In the event of an inconsistency 
between laws made by Parliament under A11icles 249 and 250, and laws 
made by legislature of the States, the law made by Parliament shall, to 
the extent of the inconsistency, prevail over the law made by the State in 
terms of Article 251. 
24. The power of Parliament to legislate for two or more States 
by consent, iii regard to matters not otherwise within the power of the 
Parliament is regulated by Article 252, while Article 253 starting with a 
11011-ohstante clause empowers Parliament to make any law for the 
whole country or any pa11 of the ten-itory oflndia for implementing any 
treaty, agreement or convention with any other country or countries or 
any decision made at any international conference, association or other 
body. 
25. Article 285 exempts the property of the Union from all taxes 
imposed by the States save in so far as the Parliament may by law 
provide. Article 286 places yet another Constitutional limitation on the 
State's power to collect any levy that imposes or authorises the imposition 
of a tax on the sale or purchase of goods where such sale or purchase 
takes place outside tbe State or in the course of import of the goods into 
or export of the goods outside the teJTitory
of India. It also makes any 
law of a State imposing tax on sale or purchase of goods of special 
importance in inter State trade or commerce or a tax on the sale or 
purchase of goods being a tax of the nature referred to in the relevant 
sub-clauses of clause 29(A) of Article 366 subject to such restrictions 
and conditions as to the system of levy, rates and other incidents of tax 
as the Parliament may by law specify. 
26. Article 287 places a Constitutional limitation on the State's 
legislative power to enact laws in so far as imposition of tax on 
consumption or sale of electricity consumed by the Government of India 
or sold to the Government of India for consumption by the Government 
or for consumption of the construction, maintenance or operation of any 
railway by the Government of India or a rail company etc. Similarly, 
Article 288 contains a Constitutional limitation on the power of the State 
in so far as imposition of a tax in respect of any water or electricity 
stored. generated, consumed, distributed or sold by any authority
.JINDAL STAINLESS LTD. v. STATE Of HARYANA 
187 
IT. S. THAKUR. CJJ I 
established by any existing law or any law made by the Parliament is 
A 
conccrnccl. 
27. It would thus appear that even when Article 246(2) and (3) 
confers exclusive power on the State legislatures to make laws with 
respect to matters in the Seventh Schedule such legislative power is 
exercisable subject to constitutional limitations refened to above. What 
is significant is tlrnt the power of the State legislatures to levy taxes is 
also subject to the limitations of Article 304(a) of the Constitution 
appearing in Part Xlll thereof. which part regulates trade, commerce 
and intercourse within the tenitory oflndia and comprises Articles 301 
to 307. The provisions of these Articles have been the subject matter of 
a series of decisions of this Court including several Constitution Bench 
decisions to some of which we shall presently refer. The language 
employed in the provisions and the 11011-ohstante clauses with which 
lhe same start have all the same given rise to several contentious issues 
for determination by this Court over the past five decades or so. The 
fact that the present batch of cases had to be refened to a Nine-Judge 
Bench to once again examine the very same issues as have been debated 
and determined in the previous judgments of this Court only shows that 
the task of interpreting the provisions is by no means easy and has in 
fact become more and more clifJicu lt on account of the
pronouncements 
of this Court taking different views not many of which have been 
urnmimous. The marked difference in the approach adopted by learned 
counsel for the parties in these appeals is also a measure of the 
complexities of issues that fall for determination. This is specially so 
because the prevailing legal position in ter111s of the judgment of this 
Court in Atiabari and A11to111obile cases (supra) holding that fiscal 
measures that are compensatory fall beyond the mischief of Article 301 
has been questioned by both sides. Mr~ Harish Salve who led the forensic 
exercise followed by Mis.Arvind Datar, Laxmi Kumaran, Ravindra 
Shrivastava, N. Venkataraman and others vehemently argued that the 
"Compensatory Tax Theory" propounded by the Seven Judges Bench 
of this Court in Automobile case (supra) had no legal basis or 
constitutional sanction and was neither acceptable nor workable. That 
is particularly so because the State legislatures had taken umbrage under 
the "Compensatory Tax Theory" and declared the fiscal levies imposed 
hy them to be compensatory in character and claimed the same to be 
outside the mischief of Article 30 I and consequently immune from any 
B 
c 
D 
E 
F 
G 
H
188 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
challenge on the ground that these taxes and levies were unreasonable 
restrictions on the right to free trade and commerce. The States who 
have enacted the laws providing for levy of taxes on the entry of goods 
into a local area within the meaning of Entry 52 of List ll have. on the 
other hand similarly contended that the Compensatory Tax Theory is 
bereft of any legal basis and that the decision in Atialmri anc\Automobile 
cases (supra) need to be revisited to restore and protect the sovereign 
power oflegislation of the States and the Federal character of our polity. 
Suffice it to say that except a feeble attempt made by some Counsel. 
there has been a general consensus that the compensatory tax theory 
deserves to be rejected and the issues examined afresh on a trut: and 
correct interpretation of the relevant constitutional provisions. We are 
mentioning all this only to show that even after fifty years and several 
illuminating pronouncements of this Court. the cleavage in the judicial 
opinion as to the true and correct legal position on the subject continues 
to loom large and haunt lawyers and litigants and, if we may say so, 
even Judges alike. The present reference to a larger Bench is in that 
backdrop expected to give a quietus to this raging legal controversy of 
considerable complexity. though given the perseverance of the litigants 
and the ingenuity of the bar a quietus is only a pious
hope which has and 
may even in future elude us. 
Constitutional Limitations must be Express: 
28. The power to levy taxes. being a sovereign power controlled 
only by the Constitution. any limitation on that power must be express. 
That proposition is well settled by the decisions of this Court in Maharaj 
Umeg Singh v. State of Bombay, AIR 1955 SC 540 and Firm 
Bansidhar Premsuklzdas v. State of Rajastlum AIR 1967 SC 40. In 
Umeg Singh 's case (.rnpra) this Court stated the legal position in the 
following words: 
"12 ....... The legislative competence of the State 
Legislature cun only be circumscribed by express 
prohibition contained in the Constitution itself and 
unless and until there is imy provision in the Constitution 
expressly prohibiting legislation 011 the su/1ject either 
absolutely or conditionally, there is 110 fetter or limitation
JINDAL STAINLESS !TD. v. STATE OF HARYANA 
189 
ITS. THAKUR, C.Jlj 
011 the ple11arv p01rers H'hich the State Legislature 
A 
enjoys to legislate on the topics e11umerated in the Lists 
JI & Ill of the Se1n11h Sched11/, w the Constitution . 
.YX.Y.\ XXXX XXXX 
13. 
The feller or /imitatio11 upon the legislatil"l' power 
of the Stale Legislat11re which hadplenwy powers of 
legisla1io11 withi11 the amhil of the legislative heads 
.1pecified in the Lists 11 & lll of the Seve11th Schedule to 
the Constitutio11 could 011ly he imposed hy the 
Constilulion itself and not hy any obligation which had 
heen 1111dertake11 hv either the Domi11io11 Government 
or the Province of /30111hay or eve11 !he State of Bmnhay. 
Under Article 146 the State Legislature was i11vested 
1rith the power to legislate on the topics e11u111erated i11 
Us ts 1 I & JJJ o{the Seventh Schedule to the Co11slitution 
a11d !his po1Ner was hy virtue of article 245( 1) subject 
lo the provisio11s of the Cons!ilutirm. 
The Constitution itself/aid down thefelters or li1nitatio11s 
011 !his powe1; e.g .. in /lrticle 303 or article 286(1). But 
unless and until the Court came to the conclusion !hat 
the Constitution itself had expressly prohihi!ed 
legislation on the suhject either ahsolutely or 
conditionallv the power of the State Legislature to enact 
legislation within its legislative competence 1vas plenary. 
Once the lopic of legislation was comprised irithi11 any 
of the entries in !he Lists lJ & 111 of the
Seventh Schedule 
to the Co11slit11tio11 the fetter or limitation on such 
legislative power had to he found within the Constitution 
itself' and if there 1-vas no such fetter or limitation to he 
found there the Stale Legislature had fi;ll competence 
to enact the impug11ed Act no matter ivhether such 
enactment was contrarv to the guarantee given. or the 
ohligation undertaken hy the Dominion Government or 
the ProFince of Bomlwr or even the State of Bombay. 
B 
c 
D 
E 
f 
G 
H
190 
SUPREME COURT REPORTS 
[2016] l 0 S.C.R. 
A 
29. Again in Bansidlzar'.\· case (supra) this Court reiterated the 
B 
legal position in the following words: 
"8 ... It is well-established that Parliament ur the State 
Legislatures are comperent lo enact u law altering the 
terms and conditions ofa previous contract or ofa f{:l'lllll 
under which the liabilitv of the Govern111e11/ of India or 
of the State Governments arises. The legislutive 
competence of Parliament or of the State Legislatures 
can only be circumscribed bl' express prohibition 
C 
contained in the Constitution itself and unless and until 
there is a11v provision in the Co11s/it11tio11 expresslv 
prohibiting legislation 011 the subject <'ither absolutdv 
or conditionallv. ther<' is no fetter o{ limitation on the 
plenarv powers which the Legislature is enduwed with 
D 
E 
F 
G 
H 
for legislating on the topics enumerated in the releva11t 
fists. This view is bome out bv the decision of the 
Judicial Committee in Thakur Jagannath Baksh Singh 
v. The United Provinces [19./6 FCR 111} in which a 
similar complaint was made by the taluqdars of' Oudh 
against the United Provinces Tenancy Act (U.P Act 17 
of 1939). 11 was held bv the Judicial Cummittee that the 
Crown cannot deprive itself of its legislatii•e authority 
by tile mere .fc1ct that in the exercise of its prerogative it 
makes a grant of land 1Fithi11 the territory over 1l'hich 
such legislative authority exists. and 1w court cw1 annul 
the enactment
of a legislative body acting wirhin the 
legitimate scope of its sovereign competence. fl 
therefore, it be found that the subject-nwtter o(a Crown 
grant is within the competence o(a Provincial legislature 
nothing can prevent that legislature from legisluti11g 
ahout it unless the Co11stitlllio11 Act itself expresslv 
prohibits legislatfrm 011 the subject either ahsolutelv or 
conditional!)'. 
According!;,~ in the absence of any such 
express prohibition, the United Pro1•inces Tenancy Act. 
1939, which in co11solidati11g and amending the law 
relating tu agricultural tenancies mill other matters
:1NDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJ!] 
eunnected therewirh in Agra and Oudh. dealt wirh 
111atlers wirhin rhe exclusive legislative competence uf 
the Provincial legislature under Item 21 of Lisi 11 of 
the Seventh schedule to the Government of India Act, 
1935, was intra vires the Provincial legislature 
notwithstanding that admiffedly some <~fits provisions 
cut down the absolute rights claimed by the appellant 
taluqdar to be comprised in the grant 11{ his estate as 
evidenced by the sanad granted by rhe Crown to his 
predeeesso1: The same principle has been reiterated br 
this Court in A1aharaj Umeg Singh and others v. The 
State of Bombay [1955 2 SCR 164]. It was pointed out 
that in view of Art. 246 of the Constitution, no 
c11rtai/111enl of legislative competence can be spelt out 
of the terms of clause 5 of the Leffers <If Guaranree 
given by the Dominion Government to the Rulers of 
"States" subsequent to the agree111e111s of iVferger. which 
guaranteed, inter alia. the continuance of .!agirs in the 
merged 'States'. Jhis principle also underlies the recent 
decision of this Court in 1\1aharaja Shree Umaid Mills 
Ltd. v. Union oflnJia fl 963 Supp 2 SCR 515 l in which 
it was pointed 0111 that there is nothing i11 Ari. 295 of 
the Consfifution which prohibits Parliament ji·om 
enacting a law alteri11g the terms. and cu11ditio11s of a 
contrncl or of a grant under ll'hich the liability of the 
Government of India arises .... " (Emphasis
Supplied) 
30. One other fundamental aspect which must always be kept in 
mind while interpreting the provisions ofthc Constitution is the federal 
structure envisaged by it. Whether or not the Constitution of India is 
truly federal in character has been the subject matter of debate not only 
in the Constituent Assembly but also in Courts for over 60 years. The 
character of the Constitutional scheme described in the Constituent 
Assembly Debates was that there were doubts expressed whether the 
Constitution really provided a federal structure in the governance of the 
country. The criticism was that the scheme underlying the Constitution 
was more unitary than federal, on account not only of several provisions 
191 
A 
B 
c 
[) 
E 
F 
G 
H
\92 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
in the Constitution that empowered the Centre to at times intervene and 
enact laws for tbe States but also on account of the Centre's power to 
take over the governance oftbe State. Repelling that criticism, Dr. B.R. 
Ambedkar speaking in the Constituent Assembly explained the true 
charncter of the Constitution oflnclia in the following significant words: 
B 
"There 11 0111)' one point of constitutional import to 
which I propose to make a reference. A serious complaint 
is made on the gro11nd that there is too much of 
ce/7/ralisation a11d that the States hal'e heen reduced to 
C 
1111111icipalities. It is clear that this view is not only an 
exaggeration. hut is alsofo11nded 011a111is11nderstandi11g 
of irhat exactlv the Constit11tio11 contrives to do. As to 
the relation hetween the Centre and the States, it is 
11eces.1·mJ' to hear in mind the fundamental principle on 
IJ 
V1-!1ich ii rests. The hash; principle of.federalism is that 
the legislative and executive authority is partitioned 
hetween the Centre and the States not hy any law to he 
made hy the Centre hut hy the Constitution itself This 
is ·what Constitution does. The States under our 
Constitution are in no H'av dependent 11pon the Centre 
.fi;r their legislative or executive aulhority. 771e Centre 
and the States are coequal in this ma/la It is difficult to 
see hml' such a Constitution can he called cenlralism. 
F 
(; 
H 
It may he that the Constitution
assigns to the Ce11tre too 
large a field for the operation of its legislative and 
executive authority than is to he found in any other 
fedeml Constilulion. It ma1· he !hat the residuary powers 
are given to the Centre and not to the States. But these 
fc'a/11re.1· do notj(mn the essence offederali.1·111. 771e chief' 
mark offedemlism as I said lies in the partition of the 
legislative and executive aulhority hetween the Centre 
and the 1111its hv the Consti111tio11. This is the principle 
emhodied in our Constitution. " 
3 J. To the same effect was the answer given to the criticism by 
Shri T.T. Krishnamachari during the ConstitnentAssembly Debates
JINDAL STAlNLESS LT'D. v. STATE OF 1-IARYANA 
\93 
jT. S. THAKUR, CJ\] 
on the draft Constitution. when he said: 
A 
"Si1~ J would like to go into afewjimdamentul ubjectiuns 
because as J said ii would not be right fur us lo leave 
these criticisms zmcontruverted. Lei me take up a matter 
which is perhaps partly theoretical but one which has a 
validity so far as the average 111011 in this country is 
concerned. Are we ji-aming a unilwy Constitution? Is 
this Co11stitutio11 centrnlising power i11 Delhi'.? ls there 
w1y way provided by means of which the position (if 
people in various areas co11ld be safeguarded. their 
voices heard in regard tu 111a/ters of their local 
admi11istratio11'! I think it is a verF big charge lo make 
that this Co11stit11tio11 is not a federal Co11stitutio11. a11d 
that ii is a zmilarv one. We should not fi1rget that this 
questim1 that the Indian Consti1uti011 should be a federal 
one has been settled bv our Leader who is no more with 
us. in the Round Table Conference in London eighteen 
vears buck. ,. 
"/ wo11ld ask 11/V honourable fi-iend 10 applv a verv 
simple test so far as this Constitution is concerned lo 
find out whether it is federal or 1101. Tile simple defi11ifio11 
J have got fi·om the German school o( political 
philosophy is that the first cri1erio11 is that the Stale must 
exerdse compulsive power in the enfi1rce111ent ofa given 
political orde1; !he second is that these powers must be 
regularly exercised over all the
inhabita11t.1· uf a given 
territory, and the third is the must important and that is 
that the activitv of the State must 1101 be cumpletelv 
circumscribed by orders handed down /(Jr execution bv 
lhe superior unit. The i111portu11t words are 'must nut be 
completely circumscribed', which envisages some 
powers of the State are bound to be circ11111scribed by 
/he exercise of federal authority. Hal'ing all these fi1ctors 
in view, J will urge that our Constitution is a federal 
Constitutio11. I will urge that our Co11stitutio11 is 011e in 
B 
c 
D 
E 
F 
G 
H
194 
SUPREME COURT REPORTS 
[2016] I 0 S.C.R. 
A 
irhich .we have given power Iv the 1111its which ure both 
substantial and significant i11 the legislative sphere a11d 
in the executive sphere. ·· (Emphasis Supplied) 
B 
c 
D 
E 
F 
32. Whether or not the Constitution provides a federal structure 
for the governance of the country has been the subject matter of a long 
line of decisions of this Court reference to all of which may be 
unnecessary but the legal position appears to be fairly well settled that 
the Constitution provides for a quasi federal character with a strong bias 
towards the Centre. The pronouncements recognised the proposition 
that even when Constitution may not be strictly federal in its character 
as the United States of America. where sovereign States came together 
to constitute a federal union. where each State enjoins a privilege of 
having a Constitution of its own. the significant feature of a federal 
Constitution are found in the Indian Constitution which makes it a <JUasi 
federal Constitution. if not truly federal in character and in stricto se11su 
federal. The two decisions which stand out in the long line of 
pronouncements of this Court on the subject may. at this stage, be briefly 
mentioned. The first of these cases is the celebrated decisions of this 
Court in Kesavanmtda Bharati ease (supra). wherein a thirteen Judges 
Bench of this Court. Sikri CJ (as His Lordship then was), being one of 
them talks about whether the Constitution of
India was federal in 
character and if so whether federal character of the Constitution formed 
the basic feature of the Constitution. Sikri CJ. summed up the basic 
feature of the Constitution in the following words: 
"292 . ......... The true position is thm ere1y provision 
(Jf the Constilutivn can he amended provided in the result 
the basic .finmdation and structure of the Constitution 
remains the same. The basic structure mav be said tu 
consist of' the fo!!owi11g features: 
G 
(I) Supremacy of the Constitution. 
(2) Republican and Democratic .f<Jrm <f Government. 
(3) Secular character r~f' the Co11stitutio11. 
(I) Separation (~f powers between the legislature, the 
H
JINDAL STAINLESS LJ'D. v. STATE OF HARYANA 
195 
[T. S. THAKUR, CJI] 
executive and the judiciarv; 
A 
(5) Fedr'ra! character of the Constitution. 
293. Tlw ahovr' structure is huilt 011 the basic.foundation 
i.r'. the dignitr a11d.fi·eedom of'the individual. This is of 
s11pre111e importance. 
This ca1111ot hy any form of 
B 
a111e11d111e11t he destroved. 
294. The a hove .frm11datio11 and the a hove hasic features 
arc easill' discernih/e 110/ 011/v .fimn the preamh!e hut 
the 1vl10/e scheme of the Constitution, which I have 
alreadv discussed " 
To the same effect me the views expressed by Shelat and Grover 
.I.I. who declared that the federal character of the Constitution is a part 
of its basic structure. 
33. In S.U. Bo111111ai v. l!11io11 of India 1994 (3) SCC 1, this 
Court had yet another occasion to examine whether the Constitution 
was federal in nature. Speaking for himself and Justice Kuldeep Singh, 
Sawant .I. while referring to ll.M Secrvai's commentary on 
"Constitutional Law of India" held that the principle of federalism 
has not bc:en watered down so as to make the Constitution unitary in 
character. The presence in the Constitution exclusive legislative powers 
conferred on the State and the provision that such powers may be 
exercised by the Parliament during an emergency may not affect and 
dilute the federal character of the Constitution. So also, the provisions 
of Article 355 imposing the duty on the Union to protect a State against 
internal
disorder are not inconsistent with the federal principles nor are 
the powers vested in the Central Government under Article 356 
inconsistent with the federal character of the Constitution. 
The Court, in particular, dealt with the question whether List 11 
contains unimportant matters thereby denuding the Constitution of its 
federal character. The Coult observed that List 11 contains very important 
subjects assigned to the State including the power to levy taxes which 
powers are made mutually exclusive so that ordinarily the States have 
independent source of revenue of their own. The following passages 
c 
D 
E 
F 
G 
H
196 
A 
B 
c 
D 
SUPREME LOURT REPORTS 
[2016] I 0 S.C.R. 
from the decision are apposite: 
97 (kl 771e view that 1111impurtant matters were assigned 
tu the States cannot be sustai11edi11 /(ice o( the verv 
important subjects assigned to the States i11 List 11 and 
the same applies lo taxing puwers o{ the Slates. which 
are made mutuallv exclusive o[/he fa.\'ili:.' powers of the 
Union so that ordi11arilv the States hal'e i11depe11de11l 
source of revenue of their own. The legislatil'e entries 
relating to taxes in List fl show that the sources of 
revenue available tu the States are substantial and 
would i11creasi11glv becom<' more substanrial. h1 addition 
to the exclusive laxiizg powers of !he States. the Stales 
become entitled either lo appropriate taxes collected 
bv the Union or lo a sharl! in the taxes collected bv the 
U11io11 .. 
99. The above discussion thus shows Iha! the Stales have 
an independent constitutional existence and rlze1' lzave 
as i111porta11t a role to plav ilz t/ze political, social, 
educational and cultural life ofthe peo/Jlc as the U11io11. 
E 
Thev are neither satellites nor agents o[ 1/!. '_·c:11tre. The 
fact that during emergencv um/ i11 cerrain other 
evenlualities their powers are overridden or i11vaded 
by the Centre is nut destructive o{ I he esse11fial federal 
nature o( our Cu11stif11fio11. The invasion o{ power in 
F 
G 
H 
such circumstances is not a 11or111al feature o{ the 
Constitution. They are exceplio11s and have to be
resorted to only occasionally to meet the exigencies of 
the special situations. The exceptions are not a rule. 
JOO. For our purpose. further it is really 1101 necessm:v 
lo determine ri1zether. i11 spite <Jf !he pruvisio11.1· o[ the 
Conslitutio11 referred tu above, our Co11stilutio11 is 
federal, quasi-federal or unitary in 11at11re. It is not the 
theoretical label given to the Co11stiturion hut the 
practical implications of the provisions of the 
Constitution ivlzich are <~f i111portm1ce to decide the
JINDAL STAINLESS LTD. v. S'TATE OF HARYANA 
[T. S. THAKUR. CJ!] 
question that ari:ses in the present context, viz., whether 
the powers u11der Article 356(1) can be exercised by 
the President arbitrurily and unmindful of its 
consequences lo the governance in the State crmcerned. 
So long us the States are not mere administrative units 
but in their own right c011stitutio11al potentates with the 
same para[Jhernalia as the U11io11. a11d with independent 
Legislature and the Executive co11stituted hi• the same 
process as the Union. whatever the bias in f(JVour o( 
the Centre, it cwmol be argued that merelv because (and 
assuming it is CO/Teel) the Co11Sfitution is labelled u11itarv 
or <111asi-(ederal or a mixture o( federal a11d 1111itarv 
.1·/rw.:ture, the President has 1111restricted power ofissuing 
Proclamatio11 1111der Article 356{! ). If the Presidential 
powers under the said pr<Jl'ision are subject to judicial 
review within the limits discussed above. those 
197 
A 
B 
c 
li111itatiu11s will have lo be applied strictly while 
D 
scrutinising the concerned 111alerial. " 
(Emphasis Supplied) 
34. What is important is that B.P. Jecvan Reddy. J. speaking for 
himself and Aggarwal L while holding the Constitution to be federal in 
character cautioned that the Centre cannot tamper with the powers 
confer'red upon the States. States are not mere appendages of the Centre 
within the sphere allotted to them. The States are supreme and the 
Centre cannot tamper with their
powers. 
35. Justice K. Ramaswamy, speaking for himself also accepted 
federalism of the Indian Constitution as a basic feature. One other 
decision that has dealt with the federal character of the Constitution of 
lndia is Ku/deep Nair I~ Union of India a11tl Ors. (2006) 7 sec 1 
wherein this Court held that nature offederalism in the Indian Constitution 
is no longer res integra. Relying upon the Constituent Assembly Debates 
to which we have referred earlier. The Court declared: 
"50. A lot of energy has been Jevoted on behalf of the 
petitioners to build up a case that the Co11stit11tio11 o( 
!11dia is federal. The nature offeJera!ism in the I11Jiw1 
E 
F 
G 
H
198 
A 
Fl 
.c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
l2016l 10 S.C.R. 
Constitution is 110 longer res integru. 
51. There can he no quarrel with the proposition that 
the Indian model is broadlv hased on federal form of 
governance. A11s11'ering the criticism of the tilt towards 
the Centre, Shri l: T Krishnamachari, during debates 
in the Constituent Assemh~v 011 the draft Constitution. 
had stated as jiJ11ows: 
.36. v\lhile parting with this aspect we must also refer to the 
decision of this Cowi in Re: Under Article 143, Constitution o.f India 
(Special Reference No.I of 1964) AIR 1965 SC 745 wherein this 
Court held: 
"'39. In dealing with this question, it is necessarv to 
hear in mind one fimdamental feature of a Federal 
Consti/lltion. Jn England, Parliament is sovereign; and 
in the word1· of Dicev. the three distinguishing features 
of the principle of Parliamentarv Sovereign~y are that 
Parliament has the right to make or un111ake any law 
whatever; that 110 person or body is recognised by the 
law of England as having a right to override or set 
aside the legislation of Parliament, and that the right 
or pmrer of Parliament extends to everv part of the 
Queen :1· dominions ( 1 ). On the other hand, the essential 
characteristic of.federalism is '"the distrihution of li111ited 
executive, legislative and judicial authority among 
hodie.1· which are coordinate ·with and independent of 
each other". The supremacy of the constitution is 
fimdamental to the existence
of" a federal State in order 
to prevent either the legislature of the federal unit or 
those olthe memher Statesfiwn destroying or impairing 
that delicate balance qf power which satisfies the 
particular requirements of States which are desirous of 
union. hut not prepared to merge their individuali(v in 
a unitv. This supremacy of the constitution is protected 
hy the authoritv of an independent judicial bod)' to act
JINDAL STAINLESS !TD. v. STATE Of HARYANA 
199 
[T. S. THAKUR, CJ!] 
ns tlw interpreter of' a scheme of distribution of powers. 
A 
Nor is any change possihle in the Constitution hy the 
01di11ar1· process offederal or State legislation (2). Thus 
the dominant characteristic of the British Constitution 
cannot he claimed hr a Federal Constitution like ours." 
3 7. Before we turn to the provisions of Articles 30 I to 307 
comprising Part Xlll of the Constitution, we need to also bear in mind 
the historical backdrop in which that part of the Constitution was enacted. 
While doing so we must at the threshold acknowledge that the historical 
perspective of Part XI lJ has been explored several times during the past 
in several pronouncements of this Court. The exposition of different 
stages of evolution and development of what comprises Part Xlll today 
has been both extensive as well as incisive. The decisions of the Court 
have gone into great details while examining the history of Part Xlll. It 
will, therefore, be presumptuous for us to suggest that the historical basis 
of Part XI ll is a virgin area being traversed for the first time. In fairness 
to the scholarly pronouncements that have preceded the present batch 
of cases, we must acknowledge with gratitude the usefulness of the in-
depth study and understanding of the Judges who have examined and 
traced the evolution of Part Xlll while drawing their conclusions from 
the same. no matter such inferences and
conclusions have more often 
than not been varied which is but natural when one examines history or 
the events that led to its making. 
:rn. It is. in our opinion. unnecessary to refer to all the decisions 
that have till now traced the development of the jurisprudence concerning 
Part Xlll from its inception. A reference to some of the decisions alone 
should, in our opinion. suffice. The first of these decisions to which we 
must make a reference is the Constitution Bench decision in M.P. V. 
Sundemramier v. State of Andlira Pradesh, AIR 1958 SC 468. That 
was a case filed under Article 32 of the Constitution of India for a Writ 
B 
c 
D 
E 
f 
of Prohibition restraining the State of Andhra Pradesh from imposing a 
G 
tax on inter-State trade of sale and purchase of yarn. The levy and 
collection of any such tax was according to the petitioner contrary to the 
provision contained in Article 282 (6) of the Constitution oflndia. One of 
the questions that fell for consideration of the Court was whether the 
States could impose a tax on inter-State sales having regard to the 
]-]
200 
SUPREME COURT REPORTS 
[2016] I 0 S.C.R. 
A 
provisions of Articles 246 and 301 of the Constitution of India. The 
argument was that the freedom guaranteed under Article 301 included 
freedom from taxation with the result that any tax on inter-State sales 
would offend that guarantee. The contention was rejected by this Court 
in unequivocal terms. The Court said: 
B 
"(50) This contention suffers, i11 uur opi11io11. from 
serious infirmities. it overlooks that our Co11stilutiu11 
l1'as 1/0f wriffen on a tabula-rasa. that a Federal 
Constirution had bee11 esrablished 1111der rhe Govemmellf 
C 
of India Act. 1935. a11d tlwugh rhat has 1111dentone 
considerable change bv wav of repeal. modification and 
addirion. it still remains the fi·amewurk un which the 
present Cu11stit11tio11 is built, and that the pruvisions o( 
the Constitutio11 must accordingfv be read in the light 
D 
of the wovisions of the Guvermnent o( India At'!. " 
E 
F 
G 
1-1 
(Emphasis supplied) 
39. Three years later came the Constitution Bench decision of 
this Court in Atiabari Tea Company Ltd. case (supra). The petitioner 
in that case questioned the constitutional validity of Assam Taxation (on 
Goods Carried by Roads or Inland Waterways) Act, (Assam Act XII! 
of l 954 ), before the High Cowi. The Writ Petition having failed. the 
matter was brought up in appeal before this Court which was heard 
alongwith several petitions filed under Article 32 of the Constitution of 
India. The impugned
legislation levied taxes on certain goods carried by 
road and inland waterways in the State of Assam. The levy under the 
legislation was challenged primarily on the ground that the same was 
ultra vires of the Constitution inter aila because of their repugnance 
with the provision of Article 301 of the Constitution. This Court by a 
majority struck down the Constitutional validity of the enactment holding 
that the impugned levy operated directly and immediately as a restriction 
on free trade. commerce and intercourse guaranteed under Article 30 I 
of the Constitution of India. The decision propounded three diffen:nt 
points of view. one each taken by B.P. Sinha. CJ. and J.C. Shah, J. and 
the third by majority comprising P.B. Gajendragadkar. K.N. Wanchoo
.JINDAL STAINLESS !TD. v. STATE OF HARYANA 
IT. S. THAKUR, CJL] 
and K.C. Das Gupta .. l.l. We shall presently deal with the rationale 
underlying the three vic:ws but before we do so, we may gainfully extract 
l'rom the decision rendered by Sinha. CJ., tl1e historical perspective in 
which Part XII I of the Constitution was enacted. In Para 9 of the Report, 
Sinha. CJ.. as His Lordship then was. traced the evolution of Part Xlll in 
th~ following words: 
.. 9. In order to fullr appreciale lize implicaliom of' the 
pmvisions olParl XIII olthe Comtit11tio11, it is necessary 
to hear in mind the historv and hackground of' those 
prm·1szu11s. 
lhe Constitution Act of' 1935 (Government 
of India Act. 26 ('Geo. 5, Ch. 2) which envisages the 
federal co11slitutin11 jar !he H-f10le of India, including 
it-!wt was then Indian Jndia in contradislinction to British 
India, H-11ich could not he fit!h· implemented and ivhich 
also introduced fiill provincial autonomy enacted 
Section 297 prohibiting certaill reslrictiolls on illfernal 
trade ill these terms: 
297. ( 1) No Provincial J,egislarure or Government shall-
(a) Br virtue of the ent1~v ill the Provincial Legislative 
List rel(Jfing lo trade and commerce within the Province, 
or the entry in that list relating to the production, supply, 
and distrihution of commodities, have power to pass 
a/ff law or toke any executive action prohibiting or 
reslricting the entry into, or export .fim11 lhe Province 
of" good\' of' am· class or
description; or 
(hJ 
By l'irt11e ol onything in this Act have power to 
impose om• tax, cess, toll or due which, as between good<; 
11w1111j'actured or produced in the Province and similar 
goodl' not so manufactured or produced, discriminates 
in favour of the former; or which, in the case of good1· 
man11f{1crured or produced outside the Province, 
discrimi11ates between good1· 1110m1factured or produced 
i11 one locality and similar goods 1nanufact11red or 
produced in an01her localil_v. 
(2) Anv law passed in contravention of' this section shall, 
201 
A 
B 
c 
D 
E 
f 
G 
H
202 
SUPREME COURT REPORTS 
[2016] I 0 S.C.R. 
A 
tu the extent of the cv11trave11tio11, be i11valid. ,. 
B 
c 
D 
10. It will be noticed that the prohibition contained in 
the section quoted above applied only lo Provi11cial 
Civvern111ents and Pruvi11cial Legislatures with reference 
tu entries in the Provincial Legislative List relating to 
trade and commerce within the Province and lo 
production. supp(v and distribution of commodities. T'/iat 
section dealt with prohibitions or restrictions in respect 
uf import info O/" export from a Province. u( goods 
generalh: It also dealt with the power lo impose taxes 
etc. and pruhibited discrimination against goods 
manufi1ctured ur produced outside a Province ur guods 
produced in different localities. Par/ XIII of the 
Cunstitution has introduced all those prohibitions, 1101 
only in respect o( State Legislatures, but of Parliament 
also . .... 
11. 111 this cu1111ection it has got to be remembered that 
before the co111me11ce111e11r of the Constitution about two-
rhirds of l11dia was directly under British rule and was 
called 'Britis/z India· and the remai11i11g about 011e-third 
E 
was being directly ruled by the l'ri11ces and was knm1•n 
as "Native States". There were a large number uf them 
ivith varying degrees of sovereignly vested in them. 
Those rulers had, broadly speaki11g, the trappings uf a 
Sovereign State with power to impose taxes and to 
F 
G 
H 
regulate the jlow <~f trade, commerce and intercourse. 
It is a
nutorious fact that many of them had erected 
trade barriers seriously impeding the free }low <if trade, 
commerce and intercourse, nut 011/y shutting out but also 
shutti11g in cummodities meant for mass consumptio11. 
Between the years 19-17 and 1950 almusl all the Indian 
States entered into engagements with the Ciover11111e11t 
1if India and ultimately merged their individualities into 
India as (Jlle political unit. 11·ith the result that what was 
called Britisl1 India, broadly speakinf!:. became, under 
the C'onstirution, Part A States, and subject to certain 
exceptions 1101 relevant to our purpose, the Native States
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR. CJI] 
became Part B States. We also know that before the 
Constitution introduced the categories of' Part A States, 
Part B Stares and Part C States (excluding Part D 
relating to other territories), Part B States themselves, 
be/ore their bei11g con.1·tiluted into so many units, 
contained many small Stales, which .fi1r111ed themselves 
into Unions <;/'a number of States, and had such trade 
barriers and custom posts. even inter se. But even after 
the 111erge1~ the Constitution had to take notice of the 
existence of' trade barriers and therefore had to make 
transitional provisions 11'ith the ultimate o~;ective ti( 
abolishing them all. A1ost of those Native St"tes, big or 
small, had their own taxes cesses tolls and other 
imposts and dwies meant nor onlv fur raising revenue, 
but also as trade barriers a11d tariff walls. It was in the 
background of these facts and circumstances that the 
203 
A 
B 
c 
Constitution bv Article 301 provided for the abolition 
[) 
of all those trade barriers and tariff' walls. fYhen fur 
the first time in the historv of India the entire territorv 
within the geographical boundaries of!mlia, minus what 
became Pakistan, was knit into one political unit. it was 
necessarv to abolish all those trade barriers and custom 
posts in the interest of national solidarilJ'. economic a11d 
cultural unity as also of freedom of trade. commerce 
and intercourse. " 
(Emphasis supplied) 
40. The
majority opinion offered by Gajendragadkar J.. also traced 
the history of Part XIII in the following words: 
"33. Let us first recall the political and co11stitutiom!I 
background of Part XIII. It is a matter of com111011 
knowledge that, befbre the Constitution was adopted, 
nearly two-thirds of the territory of India was subject 
to British Rule and was then known as British bidia, 
while the remaining part <~/the territory <~/India was 
E 
F 
G 
H
204 
B 
c 
D 
G 
1-1 
SUPREME COURT REPORTS 
[2016] !0 S.C.R. 
governed h1· Indian Princes and it consisted of several 
Indian States .. ·1 large nwnher of these States claimed 
sovereig11 rights within the 1imitatio11s imposed hy the 
paramount pml'er in that hehal(, and they purported to 
exercise their legislative power of imposing taxes in 
respect of' trade and commerce which inevitably led to 
the erection of' customs harriers betvveen themselves and 
th<' rest of' India. In the matter of such barriers British 
India was governed hy the provisions of Section 297 of 
the Constitution Act, I935. To the prorisions of this 
sectirm we ;vii/ have occasion later to refer during the 
course of thi.1 judgment. Thus, prior lo 1950 the flow of 
trade and commerce was impeded al several points which 
co11stit11ted the boundaries of Indian States. After lndia 
attained political .freedom in 1947 and hefore the 
Constitution was adopted the historical process ol the 
merger and integration of the several Indian States with 
the rest of' the co1111trv was speedily accomplished with 
the result that whe11 the Constitution was first passed 
the territories of' India consisted of Part A States v.•hich 
hroadlv stated represe11ted the provinces in British India, 
and Part B States which were made up ol lndian States. 
This merger or integration of' Indian States with the 
Union of' India >Fas preceded hy the merger and 
consolidation of some of' the States inter-se hetween 
thernselves.
It is with the knowledge of' the trade barriers 
which had heen raised hv the Indian States in exercise 
ol their legislative powers that the Constitution- makers 
Famed the Articles in Part Xll!. The main ohject of 
Article 301 obviousZv was to af!ow the free flow of the 
stream of' trade, commerce and intercourse throughout 
the territory of India. " 
41. Then came the decision of this Court in Automobile case 
(supra) wherein, this Court examined the challenge to the Rajasthan 
Motor Vehicles Act, inter aila, on the ground that levy of taxes imposed 
under the said Act were offensive to Article 301 of the Constitution of
JINDAL STAINLESS !TD. v. STATE OF HARYANA 
205 
[T. S. THAKUR, CJI] 
India. S.K. Das, J. speaking for the majority also traced the historical 
background of Part Xlll in the following words: 
·· 7. So far we have set out the factual and legal 
background against which the problem he.fore us has 
to he solved We must now say a few word~ regarding 
the historical background. It is necessm:v to do this. 
hecause extensive references have heen made to 
Australian and American decisions, Australian decisions 
with regard to the interpretation of Section 92 of the 
Australian Constitution a11d American decisions with 
regard lo the Commerce clause of the American 
Co11sti11.1tio11. This Court pointed out in the Atiabari Tea 
. Co. case (196IJ I SCR 809: (AIR I96I SC 232). that 
it vvould not he ahmvs safe to re~v upon the American 
or Australian decisions in interpreting the provisions 
ol our Constitution. Valuahle as those decisions might 
he in showing how the problem a/freedom of trade, 
co111111erre a11d intercourse was dealt with in other.federal 
co11stitutio11s, the provisions of our Constitution must 
he interpreted against the historical background in 
·which our Constitution was made; the background ol 
prohlems vvhich the Constitution-makers tried to solve 
according to the genius of the Indian people whom the 
Constitution-makers represented in the Constituent 
Assemh/)-: Thefir.1·t thing to he noticed in this connection 
is that the Constitution-makers were not
writing on a 
clean slate. 7/Jey had the Government o.lfndia Act, I935 
and they also hpd the administrative set up which that 
Act envisaged. India then consisted of various 
. 
. 
administrative units known as Provinces, each with its 
own administrative set up. There were differences of 
language, religion etc. Some of the Provinces were 
economically more developed than the others. Even 
inside the same Province, there were under developed, 
developed and highly developed areas from the point 
of view ol industries, communications etc. The problem 
A 
B 
c 
D 
E 
F 
G 
H
206 
A 
B 
c 
D 
E 
r 
G 
H 
SUPREME COURT REPORTS 
[20161 JO S.C.R. 
of economic integration with which the Constitution-
. makers 1rere faced was a prohlem ·with many facets. 
iko questions. howeve1; stood out: one question was 
how to achieve a federal, economic and fiscal 
integration, so that economic policies affecting the 
interests of'Jndia as a whole could he carried out without 
putting an ever-increasing strain on the unity of' India, 
particularly in the context ol a developing economy. 
The second question was how to foster the development 
of" areas which were under-deFeloped without creating 
too many preferential or discriminative harriers. Besides 
the Provinces, there were the Indian States also known 
as Indian India. After India attained political fi'eedmn 
in 194 7 and he/ore the Constitution was adopted, the 
process of' merger and integration ol the- Indian States 
t1·ith the rest ol the country had heen accon1plished so 
tha! when the Constitution 1rns first passed the territory 
ol/ndia consisted olPart A States, which hroad(v stated, 
represented the Provinces in British India, and Part B 
States which were made up ol Indian States. 771ere were 
trade harriers raised hy the Indian States in the exercise 
ol their legislative powers and the Constitution-makers 
had to make provisions with regard to those trade 
harriers as well. The evolution of" a federal structure or 
a quasifederal structure necessarilv involved, in the 
context of' the conditions
then prevailing, a distribution 
ol po11'er.1' and a hasic part ol our Constitution relates 
to that distrihution with the three legislative lists in the 
Seventh Schedule. ., . . . . . .. " 
42. Hidayatullah J., in a separate dissenting opinion traced at great 
length the historical evolution of not only the federal structure of the 
Government of India Act, 1915 but also the recommendations made by 
the Simon Commission and the Joint Parliamentary Committee on the 
Evolution of such federalism and for the protection of trade, commerce 
and intercourse. His Lordship referred to the backdrop in which the 
Government of India Act, 1935 was enacted, including the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJ!] 
recommendations made by the Butler Committee, the Round Table 
Conference, the Federal Structure Committee, the Federal Legislature 
and Provincial Legislature Committee and the Joint Parliamentary 
Committee to eventually conclude that the avowed object underlying all 
these recommendations and constitutional framework was to ensure that 
the accession of the State to the federation implies its acceptance of the 
principle that it will not set up a barrier to free interchange so formidable 
as to constitute a threat to the future of the federation. Based on the 
historical developments decades before the enactment of Government 
oflndia Act, 1935. his Lordship concluded: 
'"95. The detailed examination of the historv lving at 
the back of the Government of India Act. 1935 lays 
bare some fundamental facts and premises. It shows that 
the process through a whole centurv was the breakup 
207 
A 
B 
c 
of a highlv centralized Government and the creation of 
D 
auto11omo11s Provinces with distinct and separate 
political existence, to be combined inter se and with the 
Indian States. at a later period. in a federation. To 
achieve this. not only was there a division of the heads 
of legislation. but the fi11ancial resources were also 
divided and separate fiscs f(Jr the &deration and the 
Provinces were established. The fields of taxati011 were 
demarcated, amf those for the Provinces were chosen 
with special care
to make these units self-s11pporti11g as 
.fi1r as possible wirh enough to spare for "11ation-
buildi11g activities". !11 this arrangement. the door was 
open for the Indian States to join on the same basis and 
on terms of equalitv. The most important fuel was that 
unlike the American cmd the Canadian Constitutions 
the commerce power was divided between the Centre 
and the Provinces as the Entries quoted bv us clearly 
show. The commerce power of the Provinces was 
exercisable within the Provinces. The fetter on the 
commercial power of the Provinces was placed bv 
Section 297. This was in two directions. Clause (a) o[ 
sub-seclion (I) banned restrictions at the barriers o[ 
E 
F 
G 
H
208 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
(2016] I 0 S.C.R. 
the Provinces on the entrv and export u( goods. and 
clause (b) prohibited discriminatiu11 in taxing goods 
between goods munu(actured and produced in the 
Province as against goods 1101 su manufactured or 
produced and local discriminations. ·· 
(Emphasis supplied) 
43. In the opinion of Hidayatullah Las his Lordship then was, 
several pitfalls existed in the 1935 Act regarding trade and commerce 
which were sought to be remedied by the framers of the Constitution 
while maintaining its federal structure. The following passage is, in this 
regard, instructive: 
"96. When drajiing the Constitutio11 of India, the 
Constituent Assembly being aware of the problems in 
various countries where freedom of trade, commerce 
and intercourse has been provided dijfere11tly and also 
the way the Courts of those countries have viewed the 
relative provisions. must have attempted to evolve a 
pattern of such freedom suitable to Indian conditions. 
The Constituent Assembly realised that the provisions 
of Section 297 and the Chapter on Discrimi11ations i11 
the Government of India Act, 1935 hardly met the case, 
and were inadequate. They had to decide the fi.1/lowing 
questions: (a) whether to give the commerce power only 
to Parliament or to divide it between Parliament and 
the State Legislatures: (b) whether to ensure freedom of 
trade, commerce and intercourse inter-State. that is to 
say, at the borders of the
States or to ensure it even 
intra-State; (c) whether to make the prohibition against 
restrictions absolute or qualified, and if so, in what 
manner: (d) if qualified, by whom was the restriction to 
be imposed and to what extent; (e) whether the ji·eedom 
should be to the individual or also to trade and 
commerce as a whole; (/) what to do with the existing 
laws in British India and more so, in the acceding l11dia11
JINDAL STAINLESS Ll'D. v. STATE OF HARYANA 
IT. S. THAKUR, CJI] 
States; (g) whether any special provisions were needed 
for emer.~l'ncies; (h) what should he the special 
provisio11s to enahle the States to levy taxes on sale of 
good1', which taxes were to be the main source of income 
for the States according to the experts. All these matters 
have, in fact, bee11 covered in Part XIII, and the pi(falls 
which were disclosed in the Law Reports of the 
Countries which had accepted freedom of trade and 
commerce have been attempted to he avoided by 
choosing language appropriate for the purpose. Jn 
addition to this. the hroad pattern of the political set-
up, namely, a federation of autonomous States vvas not 
lost sight of These autonomous condiiions had 
strengthened during the operation of the 1935 
Constitution and led to what Prol Coupland described 
as .. Provincial-patriotism··. for which the reason, 
according to the learned Professor was: 
"Jn the course of the last few years, moreover, the sense 
of Provincial patriotism has been strengthened hy the 
advent of a full Provincial self government. The people 
10ok a new pride in Governments that were now in a 
sense theirs. " (The Constitutional Prohlem in India, part 
ill p. 40) ... 
44. The historical backdrop painted by the decisions of this Court 
referred to above has not been challenged on a question of fact. 
Inferences drawn from the same may have, as noticed earlier, varied 
depending on the individual
perspective of the Judges about the said 
backdrop. The common thread that runs through the historical narratives 
in the pronouncements of this Court however is discernible and may be 
briefly summed-up at this stage. The first of these threads that runs 
through the historical perspective is the fact that before commencement 
of the Constitution nearly 2/3'd of the country was ruled by the British 
while the remaining l/3'd was ruled by the Princes also known as native 
States that enjoyed va1ying degrees of sovereignty over their respective 
territories. These rulers had the power to impose taxes and to regulate 
209 
A 
B 
c 
]) 
E 
F 
G 
H
210 
A 
B 
c 
D 
G 
H 
SUPREME COURT REPORTS 
12016] I 0 S.C.R. 
the flow of trade, commerce and intercourse. Some of them had erected 
trade barriers thereby impeding free flow of trade, commerce and 
intercourse. With the merger of these Princely States into the dominion 
of India to constitute one single political entity, that pait of the country 
that was ruled by the British came to be known as Part-A State while 
the native States became Part B States. What is significant is that even 
after the merger of these States, the Constitution had to acknowledge 
the existence of trade barriers and make transitional provisions with a 
view to eventually abolishing the same. 1t was in that background that 
the Constitution by A1ticle 30 I provided for the abolition of all such trade 
barriers consequent upon the entire geographical boundaries of India 
being knit into one political unit. The whole object underlying the removal 
of such barriers was to facilitate free trade, commerce and intercourse 
in the interest of national solidarity and economic unity of the country. 
The evolution of Articles 301 to 307 comprising Part Xlll of the 
Constitution is also punctuated by several events, twists and turns to 
which we may briefly refer at this stage, but, while we may do so, we 
need to remember that Section 297 of the Government of India Act. 
1935 dealt with the subject that eventually came.under the umbrella of 
Part Xlll and prohibited provincial governments from imposing
barriers 
on trade within the country. The said provision also prohibited levy of 
cess, tolls or other tax duties which discriminated between the goods 
manufactured in one locality as against similar goods manufactured 
elsewhere. It is because of the said provision that Vcnkatarama Iyer, J. 
in MPV Smu/eraramier ~~ case (supra) made the observation that the 
Constitution was not written on a tabula rasa. 
45. The first germ plasma for Article 30 l was located in what 
was introduced as Clause 13 in the draft submitted by the Sub-Committee 
on fundamental rights comprising Mr. K.M. Munshi, Sir Alladi 
Krishna swami Ayyar and Sir B.N. Rau amongst others. The clause 
was in the following words: 
"Suhjecr to regulation hy the law of' the U11io11, trade. 
commerce and intercourse among the units, i1:hether hy 
means <Jl internal carriage or hy ocean navigation, shall 
he fi"ee:
JINDAL STAINLESS Ll'D. v. STATE Of HARYANA 
211 
IT. S. THAKUR, CH] 
Provided that any unit may hy law impose reasonahle 
A 
restrictions thereon in the interest of ptiblic order, 
moralitv or health. " 
from the note of Sir B.N. Rau it is evident that the first part of 
clause 13 (supra) was adopted from Section 92 of the Australian 
Constitution while the proviso at the end of the clause was new. 
B 
46. Sir Alladi Krishnaswami Ayyar in the Draft Repmi of 101\ 
14'h and l 5'h April, 1947 in relation to Clause 13 suggested that it must 
be made clear that: 
"(I) good1·.fi·om other parts of India than in the units' 
concerned coming into the units cannot escape duties 
and taxes to which the goodv produced in the units in 
themsell·es are suhject. 
(2) it 11111st also he open to the unit in an emergency to 
c 
place restrictions on the rights declared hy the clause. " 
D 
47. The above suggestions were accepted and it was modified 
and incorporated as Clause 14 in the following words: 
"14. (1) Subject to regulation hy the law of the Union 
trade, commerce and intercourse among the units hy 
and henveen the citizens shall he free: 
Provided that any unit may by law impose reasonable 
restrictions in the interest of puhlic orde1; morality or 
health or in an emergency: 
Provided that nothing in this section shall prevent any 
unit .ftnm imposing 011 good~ imported.from other units 
the same duties and taxes to which the good~ produced 
in the unit are .rnhject: 
E 
f
Provided.further that no preference shall he given by 
G 
any regulation of commerce or revenue hy a unit to one 
unit over anothe1: 
/N.B. - A proviso will have to he added to meet the 
difficulty pointed out in para 6 of our report.] 
H
212 
SUPREME CULJRT REPORTS 
[2016] 10 S.C.R. 
A 
(2) Trade, cvmmerce or intercourse within the territories 
of the Union by or with any perso11 other tha11 the 
citizens shall be regulated and controlled by the law of 
the Uniort. 
· 
48. The above clause then came up for consideration before the 
B 
Advisory Committee where an elaborate debate ensued. What is of 
considerable importance is the statement of Sir Alladi Krishnaswami 
Ayyar where he explained the purpose of enabling a State to impose 
reasonable restriction in the interest of public order. mora I ity. health or in 
an emergency: 
c 
"Cltairnum: Then '.et. us take up clause 1-1 
C. Rajagopalacltari: I Think we should add to 1-1 (I) 
that this shall not be a bar to the imposition o( taxes for 
genuine purposes o[ reve11ue. 
D 
Many Members: That comes later 011: "N.B. A proviso 
will have to be added to meet the difficulty pointed out 
in para 6 of our report. " 
E 
F 
G 
H 
C. Rajagopa/acl1t1ri: That is wl1y f am adding it. 
Alladi Krisluwswami Ayyar: "Subject to regulation by 
the law of the Union, trade, commerce, and intercourse 
among the units by and between the citize11s shall be 
free. " That is the general principle. 
The11 come the 
exceptions, "Provided that any unit may by law impose 
reasonable restrictions in the interest of public orde1~ 
morality or health or in an emergency. " Suppose there 
is a general famine, and people are starved, that is what 
is meant here to be dealt with. 
And then
"Provided that nothing in this section shall 
prevent any unit from imposing on good~ i111poned from 
other units the same duties and taxes to which the goods 
produced in the unit are subject. " That is to say. we 
ought not to differentiate; but at the same time, goods 
coming in should not go scot-ji·ee; they should be su~ject 
to the same duty as goods produced in the area.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
213 
[T. S. THAKUR, C.ll! 
A 11d then .. Provided further that no preference shall he 
A 
given hy any regulation of commerce or revenue by a 
unit to one unit over another. " 
NOH'. kindly read 
paragraph 6 of the report, regarding adding a proviso. 
K.M. I:anikkar: Rajaji (C. Rajagopalachari) has raised 
the question of the right of the units to raise taxes, and 
says this right should not he denied I, howeve1; think 
this is a dangerous power to he given to the units. 111is 
mav result in the creatio11 of so many competing units. 
We have allmved /(Jr two things. 
We have allowed the 
unit to tax its own industries. 
We also allow things 
hrought in to he taxed. for the sake of parity. But out 
.fhe11ll\' want to go a little fiirther and say that the right 
to impose taxes, or transit duty or some other kind of 
duty mu.1·t he give11 to the units. That I am aji-aid, will 
he a 11egatio11 of the clause. There are certain rates 
and duties existing in Indian States which for budgetary 
and other reasons cannot now he extinguished 
immediately. It may be possible to extinguish them over 
a period of time. hy agreement, hut not immediateiy. 
C. Rajagopalachari: If the States everywhere can 
impose taxes and duties for revenue, cannot the 
provinces also do so? 
Alladi Krislmaswami AJyar: We do not give a carte 
hlanche to the States. It has been pointed out that 
B 
c 
D 
E 
certain condition of things ohtain at present in the 
F
States, and ... 
K.M. Panikkar: Let me explain the position. The 
position with regard to the internal customs in the States 
is complicated. 
Jn a large numher of States these 
customs or duties do not exist. For example for the 
G 
whole of" the Punjah States there is no right for internal 
customs. For Hyderahad they have the right to impose 
a tax up to 5% on~v. both on imports and exports. Jn 
7/"avancore and Cochin it is governed hy what is called 
H
214 
A 
B 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
inter-portal convention. A large nwnher of States have 
no right whatever even noV1· for imposing customs duty. 
hut a considerable numher of them do enjov this power 
and rheir hudgeta1y position today is based on the 
customs duties thev receive, hoth rhe maritime States and 
the internal States. Therefore arrangements will have 
lo he made with them hy agreement and contract for 
setting this matter. 
Alladi Krish11aswami Ayyar: The Union Powers 
Committee :1· attention was drmvn to this matter and it 
C 
was .rnggested hy Sir V 7: Krishnamachari and Sir B.L. 
[) 
E 
( ' 
.1 
H 
Mitter that some reference should he made to it in their 
report. 
fVe wanted to permit the States to enjoy the 
indulgence they have heen enjoying. But we should 
guard against ('011Verting the country into competing 
units; that will he against the federation idea. 
Chairman: What shall we do ahout the note? A proviso 
will have to he added to meet the difficulty pointed out 
in para 6 of the report. Shall we leave ii as it is or shall 
we draft i(! 
C. Raiagopalaclwri: 
I would request mernhers who 
have ;!,iven thou,e,ht to this suhject to please inform me 
how the unir.1· will raise their revenue. As it is, the Union 
does not contemplate the distrihution of subsidies to 
the proi·inccs. The proPinces or groups differ among 
themselves, some are rich and some are pom: Some are 
capahle of managing with their existing resources; but 
others
ma)! have to increase their revenue for managing 
their aff{1irs. ll.vou impose so many limitations on them, 
how can they do that? It is all very well to say fi"ee 
trade is 11eressar1·; hut how are the provinces to live? 
Alladi Krislmaswami Ayyar: So far as the provincial 
legislatures are concerned, there is provision in Sec. 
]97 of' the present Government al India Act itself' 
(Read1) "No Provincial Legislature or Government shall
JINDAL STAINLESS LrD. v. STATE OF HARYANA 
215 
IT. S. THAKUR, CJlj 
by virtue of entry *** have power to pass any law or 
A 
take any executive action ***description ... " 
C. Rajagopalachari: But at present we have the receipts 
fin111 customs and other rece1jJts. 
Alladi Krishnaswami Ayyar: The other day the Madras 
Premier said he could stop the import of textiles fimn 
!30111/wy and other places outside Madras: hut it was 
pointed out to him that until the constitution is altered 
he cannot do so. 
This theory of self-sufficiency of 
different units is dangerous in our cow1t1)', hecause we 
ha11e to depend upon one anothe1'. 
Govind Ba/labh Pant: 77iere is 11nani111ity ahout the bodv 
of this clause and it is clear that there should not be 
any discrimination against one unit hy another unit. 
Otherwise we ·will he going against the ve1;' sense of a 
Union or a Federal Constitution. If the units are to be 
discri111inated against, we will come to hlows more often 
than otherwise. Therefore this should be avoided. The 
onlv thing to he considered is how to give effect to the 
suggestion made in para 6 of the President:~ letter which 
we have received through the chairman. Should we 
append a note to the effect that the Constituent Assemb(v 
may consider ho1v best to give effect to this clause in 
relation to the States or shall we put up a draft. If we 
are not going to put up a draft, then the matter is simple 
enough. ·· 
49. The Advisory Committee accepted the
recommendation of 
the Sub-Committee in relation to Clause 14 with one change that the 
sub-clause providing for central regulation of trade by or with non-citizens 
was dropped as being vague and unnecessary. The Advisory Committee 
in its rep01i submitted on 23rd April, 1947 incorporated the above provision 
as Clause 10. Certain amendments to the said clause were suggested 
and adopted by the Constituent Assembly. 
B 
c 
D 
E 
F 
G 
H
21 (i 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
50. In the first Draft Constitution of October, 1947, Clause 17 
B 
c 
unde1went further amendments and eventually appeared in the Draft 
Constitution of 1948 as Clause 16 incorporated in the Fundamental Rights 
Chapter in the following words: 
·· 16. Suhject to the provisions of Article 244 of this 
Constitution and of' any lmr made hy Parliament. trade, 
commerce and intercourse throughout the territory of 
India shall he .fi'ee. " 
51. It is noteworthy to mention here that Inter-State trade and 
commerce was dealt with in Articles 243, 244 and 245 in the Draft 
Constitution of I 948 which Articles were in the following terms: 
''243. No prefere11ce shall be given to one State over . 
D 
a11other nor shall any discrimination he made hetween 
one State and another hy any law or regulation relating 
to trade or commerce, whether carried hy la11d, water 
or air. 
F 
CJ 
H 
244. Notwithstanding anything contained in article 16 
or in the last preceding article of this Constitution, it 
shall he lawfitl for any State -
(a) to impose 011 good importedfi'om other States 
any tax to which similar goods manufactured or 
produced in that State are suhject, so, hmvever, as 
not to discriminate hetween good1· so imported and 
goocl1· so manufactured or produced; and 
(h) to impose hy land such reasonahle restrictions 
on the fi"eedom of trade, commerce or intercourse 
with that State as may he required in the puhlic 
interests:
Provided that during a period of.five years from the 
co111me11ce111ent of' this Constitution the provisions of 
clause (h) of' this article shall not apply to trade or
JINDAL STAINLESS IJ'D. v. STATE OF HARYANA 
IT. S. THAKUR, CJ!] 
commerce in any of the commodities mentioned in 
clause (a) of" Article 306 of" this Constitution. 
24 5. Parliament shall hy law appoint such authority as 
it consider.1· appropriate for the carrving out of the 
provisions of Articles 243 and 244 of" this Constitution 
and confer 011 the authority so appointed such powers 
and such duties as it thinks necessm:v. " 
52. The Ministry of Industry and Supply expressed some 
reservation regarding clause (b) of Article 244 and demanded abolition 
of the said clause altogether. The Ministry appears to have argued that 
it was not possible to foresee the circumstances in which the freedom of 
trade, commerce or intercourse with a State will need to be interfered 
with by that State in the public interest, unless it be on the basis of 
discrimination between the residents of one State to another, and this 
would be wholly contrary to the spirit of the Constitution. [See: B. Shiva 
Rao; the Framing of' liidia :1· Constitution, Volume-IV, Page 329} 
53. The note in support of the proposed clause (b) to Article 244, 
however, clearly suggests that restrictions refeITed to in clause (b) were 
meant to be restrictions other than by way of taxation. The explanatory 
note which was appended by Sir B.N. Rau was in the following words: 
"Note: During a period of depression owing to 
desiruction by flood or otherwise of crops in any 
particular State, it may be necessm:v for the
State to 
impose restrictions on the export of" any crop from such 
State in the puhlic interests. Similarly on the outbreak 
ol any epidemic disease. like plague, in a State it may 
he necessary for a neighhouring State to impose 
restrictions rm the fi·eedom of' intercourse hetween the 
inhahitants of" that State with the inhahitants ol such 
neighhouring State. 
Clause (h) of" Article 244 is 
intended ro give power to the State to impose such 
restrictions. ·· 
217 
A 
B 
c 
D 
E 
F 
G 
H
218 
SUPREME COURT REPORTS 
[2016) 10 S.C.R. 
A 
54. On 8111 of September, 1949, Dr. B.R. Ambedkar moved an 
B 
c 
D 
F 
Ci 
!-I 
amendment seeking to delete Articles 243, 244 and 245 and the same 
was adopted. Simultaneously, a new Pa1i XA was introduced containing 
draft Article 274-A to E. Dr. Ambedkar informed the House that the 
Articles that were otherwise scattered were now brought together so as 
to ensure that members could get a holistic idea regarding trade and 
commerce. Article 274-A was a repetition of Article l 6 and laid down 
the general principle. Aliicle 274-B empowered Parliament to impose 
restrictions in public interest. Article 274-C prohibited Parliament and 
the State legislatures from making any law giving any preference to one 
State over another, or making any discrimination between one State and 
another, except when Parliament found it necessary to do so to deal 
with a situation arising from scarcity of goods; A1iicle 274-D vested 
with the State legislatures the power to impose non-discriminatory tax 
qua extemal goods and to impose reasonable restrictions in public interest 
and Article 274-E provided for an Inter-State Commission. 
55. The Constituent Assembly Debates suggests that the 
introduction of Articles 274A to 274E was severely criticized by several 
members of the Assembly including Thakur Das Bhargava and Dr. P.S. 
Deshmukh who moved several amendments to these clauses but the 
same were rejected and Articles 274-A to 274-E
including Articles 274 
DD and 274 DOD were adopted without any modification. These 
A!iicles are now renumbered and appear as Articles 301 to 307 of the 
Constitution oflndia. 
56. It is in the above backdrop that question No. l shall have to be 
answered which turns on a true and c01Tect interpretation of Article 301 
of the Constitution. We must at the threshold say that while attempting 
to answer the question we are not on virgin ground, for this Court has in 
Atiabari Tea Company case (supra) examined the matter at great 
length. The decision of this Court in Automobile case (,rnpra) has 
modified the view in Atiahari. by b1inging in the concept of compensatory 
taxes which this Collli held to be outside Paii Xlll of the Constitution. 
57. While J.C. Shah, J. took the view that all taxes regardless 
whether they are discriminatory or otherwise would constitute an 
impediment on free trade and commerce guaranteed under A1iicle 30 l 
of the Constitution of India, Sinha, CL held that taxes per se were 
totally outside the purview of Article 301 and could never constitute a
.llNDAL STAINLESS Ll'D. v. STATE OF HARYANA 
[T. S. THAKUR, CJl] 
restriction except where the same operated as a fiscal barrier that 
prevented free trade, commerce and intercourse. The view taken by 
.Justice Shah, .I. was not supported by any one of the counsel appearing 
for the parties for it was candidly accepted that the same was an extreme 
view that was legally unsupportable. What was all the same argued on 
behalf of the dealerslassessees was that the majority view that propounded 
the test of "direct and immediate'' effect on free trade, commerce and 
intercourse was the c01Tect view. Reliance, in particular, was placed by 
learned counsel for the dealers/assessees upon the following passages 
appearing in the majority judgment authored by Gajendragadkar, J. to 
contend that the same propounded the correct legal position: 
"50. Let us now revert to Article 301 and ascertain the 
width and amplitude of its scope. On a careful 
e.rnmination ol the relevant provisions ol Part XIII as a 
H1wle as well as the principle ol economic unitJ' which 
it is intended to sa{eguard hy making the said 
provisions, the conclusion appears to us to be inevitable 
that the content ol.fi"eedom provided for /Jy Article 301 
was larger than the fi'eedom contemplated by Section 
297 ol the Constitution Act o{ 1935, and whatever else 
it may or may not include, it certain~y includes movement 
of" trade which is of the ve1y essence of all trade and is 
its i11tegral part. fl the transport
or the movement of 
good1· is taxed solelv on the basis that the good1· are 
thus carried or transported that. in our opinion, direct~y 
affects the freedom of trade as contemplated hy Article 
301. I/the movement, transport or the can'.)Jing of goods 
is allowed to he impeded, ohstructed or hampered by 
taxation without satisfying the requirements ol Part XII! 
the fi-·eedom ol trade 011 which so much emphasis is laid 
hy Article 301 would turn to he illu.1·orv. When Article 
3111 provides that trade shall he fi·ee throughout the 
territmy of" India primari~y it is the movement part ol 
the trade that it has in mind and the movement or the 
transport parr ol trade must he fi'ee subject ol course 
to the limitations and exceptions provided hy the other 
219 
A 
B 
c 
]) 
E 
F 
G 
H
220 
SUPREME COURT REPORTS 
[2016) 10 S.C.R. 
A 
Articles of Part Xiii. l7wt we think is the result of Article 
301 read with the other Articles in Part XIII. 
B 
c 
I) 
E 
f 
c; 
H 
51. Thus the intrinsic evidence furnished by some of 
the Articles of Part XIII sh01vs that taxing laws are not 
cxcludedfiwn the operation o/Article 301: which means 
that tax laws can and do amount to restrictions freedom 
.fi'om which is guaranteed to trade under the said Part. 
Does that mean that all tax laws attract the provisiom· 
of Part XIII whether their impact on trade or its 
movemelif is direct and immediate or indirect and remote? 
It is preciselv hecause the word1· used in Article 301 are 
verv wide. and in a sense vague and indefinite that the 
prohlem of co11strui11g them and determini11g their exact 
width and scope becomes complex a11d difficult. 
J-hnve1-er. in i11terpreti11g the provisions of the 
Conslilution we must ahvay.1· hear in mind that the 
relernnt pruvisio11 ""has to he read not in vacuo hut as 
occurring in a single complex instrument in which one 
part may throw light on another". (Vide: James v. 
CommonYi:ealth of Australia - 1936 A.C. 578 at pg. 
613). Jn construing Article 301 we nntst, therefore, have 
regard to the general scheme of our Constitution as well 
as the particular provisions in regard to taxing laws. 
J71e construction of Article 301 should not he determined 
on a pureZv academic or doctrinnaire considerations; 
in construing the said Article we
must adopt a realistic 
approach and hear in mind the essential features of the 
separation of powers on which our Constitution rests. 
It is a federal constitution which we are interpreting, 
and so the impact of Article 301 must he judged 
accordinglv. 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 
generallv, hut f(n· such limitation, the power of taxation 
would he presumed to he for public good and would 
not he subject to judicial review or scrutiny. Thus
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJl] 
considered we think it would be reasonable and proper 
to hold that restrictions freedom from "ll'hich is 
guaranteed hv Article 30I, would he such restrictions 
as direct~v and immediately restrict or impede the free 
flow or movement of trade. Taxes may and do amount 
to restrictions: hut it is onZv such taxes as directZv and 
immediately restrict trade that would fall within the 
purview of Article 301. The argument that all taxes 
should /Je governed hy Article 30I whether or not their 
impact on trade is immediate or mediate, direct or remote, 
adopts, in our opinion, an extreme approach which 
cannot he upheld. If the said argument is accepted it 
would mean, for instance, that even a legislative 
enactment prescribing the minimum 1vages to industrial 
employees may fall under Part XIII because in an 
economic sense an additional wage hill may indirectly 
affect 1rade or commerce. We are, therefore, satisfied 
that in determining the limits of the width and amplitude 
of the freedom guaranteed hy Article 30I a rational 
and workah/e test to apply would be: Does the 
impugned restriction operate direct(y or im1r1ediately on 
trade or its movement? It is in the light of this test that 
we propose to examine the validity of the Act under 
scrutiny in the present proceedings. " 
58. On behalf of the respondent-States it was per contra argued 
that the power to levy taxes is a sovereign power that remains
totally 
unaffected by Article 30 l of the Constitution of India. Free trade, 
commerce and intercourse was not, according to the learned counsel, to 
be understood as free from any restrictions, leave alone free from taxes 
which the State legislatures were otherwise competent to levy. 
Enunciation oflaw by Sinha, CJ. was according to the learned Attorney 
General for India and learned Counsel appearing for the States, the 
conect view which ought to be accepted in preference to the other two 
contrary views propounded in the judgment. Reliance, in particular, was 
placed by Mr. Rohatgi and learned Counsel for the respondent-States 
upon the following passages appearing in Sinha, CJ. 'sjudgment: 
221 
A 
B 
c 
D 
E 
F 
G 
H
222 
SUPREME COURT REPORTS 
[2016] IO S.C.R. 
A 
'' 14. Viewed i11 this all co111prehe11sive sense taxation 
on trade, c0111111crce and intercourse would have many 
ramifications and 1rnuld cover almost the entire field of 
pul1lic taxation, hoth in the Union and in the State Lists. 
It is almost impossi/Jle to think that the makers of the 
Constitution intended to make trade, commerce and 
intercourse fi"ee from raxa1io11 in thar comprehensil'e 
sense. If thar were so, all laws ol ra.wrio11 relaring to 
sale a11d purchase of good1· 011 carriage of goods and 
commodiries, men a11d a11imals, from 011e place lo 
(' 
D 
a11orhe1; hoth inter-State and infra-Srate, would come 
within rhe punieH' ol Article 301 and the proviso to 
Article 301 (h! would make it necessarv that all Bills or 
, I me1ul111eur.1· of pre-existi11:J, laws shall have. to g,o 
Through the gamut prescrihed hv that proviso. 7hat will 
he putting too great an impedi111e11t to the power of 
taxation vested i11 the States a11d reduce the States' limited 
sovereigntv under the Constitution to a 111ere.fiction. 77wt 
extreme position ha.1-, therefore. ro he rejected as 
li11SOZl/1d. 
15. /11 this crmnection. it is also pertinent to hear ill 
E 
mind that all taxation is 1101 11ecessari~v an impediment 
or a restraint in the matter of trade, commerce and 
intercourse. Instead of heing such impediments or 
reslraints, they may, 011 the other hand. provide the 
v.·herewithals to improve di{lerent kinds qf znea11s of
transport, for example. in cane growing areas. 1111less 
there are good ro(l(/.v. fc1cilitrfor tra11sport of sugarcane 
fi·om .rngarcm1e fields to sugar mills may he whollv 
lacking or insufficient. In order to make new road> as 
also ro improve old 011es, cess on the grower ol cane or 
( ' J 
H 
others illlerested in the /ra11.1port of this commodity has 
to he imposed, and has heen known in some parrs of 
l11dia to haFe heen imposed at a certain rate per md. or 
1011 of' sugarcane tra11sported to sugar factories. Such 
an imposition is a fax 011 transport ol sugarcane fiwn 
one place to anothe1; either intra-State or inter-State. ft
JJNDAL STAINLESS !TD. v. STATE Of HARYANA 
JT. S. THAKUR, CJl] 
is the tax thus realised that makes itfeasihlefor opening 
ne\\' means of communication or for improving old ones. 
It cannot. therefore. he said that taxation in eve1y case 
must mean an impediment or restraint against .fi·ee flow 
of trade and co111111erce. Similarly, for the facility of 
passenger.1· ond good1· hy motor transport or by railway, 
a s11r('harge 011 m11al fares or freights is levied, or may 
he levied in fi1t11re. But for such a surcharge, 
improvement in the means of communication may not 
he availahle at all. Hence, in my opinion, it is not correct 
lo characterise a tax 011 movement of goods or 
passengcr.1· as necessarily connoting an impediment, or 
a restraint, in the 11w//er of trade and commerce. That is 
another .~ood reason in support of the conclusion that 
taxation is not ordinarily included within the terms of 
Article 301 of the Constitution. 
16. In my opinion. another verv cogent reason for 
holding that taxation simpliciter is not within the terms 
of Article 301 of the Constitution is that the very 
connotation of taxation is the power of the State to raise 
money for public purposes by compelling the payment 
by persons, hoth natural and juristic. of monies earned 
or possessed hy them, hy virtue of the facilities and 
pmtection aff(Jrded by the State. Such burdens or 
imposts, either direct or indirect, are in the ultimate 
cmalvsi.1· meant as a contribution hy the citizens
or 
persons residing in the State or dealing with the citizens 
of the State, j(1r the support of the Government, with 
particular reference to their respective abilities to make 
such contrihutions. Thus public purpose is implicit in 
every taxation, as such. Therefore, when Part XIII of 
the Constitution speaks of imposition of reasonable 
restrictions in puhlic interest. it could not have intended 
to include taxation within the generic term "reasonable 
restrictions". This Court has laid it dov.·n in the case of 
Ramjilal v. Income Tax Office1; Mohindmgarh( 1951 SCR 
117 at page 136) (AIR 1951 SC 97 at page 100). that 
223 
A 
B 
c 
D 
E 
f 
G 
H
224 
A 
H 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
imposition and collection of taxes hy authority of law 
envisaged by Article 265 is outside the scope of the 
expression .. deprivation of property .. in Article 31 (1) 
of the Constitution. Reasonahle restrictions as used in 
Part 111 or Part XJJJ of the Constitution would in most 
cases he less than total deprivation of property rights. 
Hence, Part XII dealing with finance etc. as already 
indicated, has been treated as a Part dealing with the 
sovereign power of the State to impose taxes, which must 
always mean imposing burdens on citizens and others, 
in puhlic interest. If a law is passed hy the Legislature 
imposing a tax which in its true nature and effect is 
meant to impose an impedimellf to thefi"eeflov.• of trade, 
co111111erce and intercourse, for example, /Jy imposing a 
high tariff wall, or by preventing imports into or exports 
out of a State, such a lm1: is outside the significance of 
taxation, as such, hut assumes the character of a trade 
harrier which it was the intention of the Constitution-
makers to abolish hy Part XI!!. 1/ie objections against 
the contention that taxation was included within the 
prohibition contained in Part XIII may thus he 
s11111111arised: ( 1) Taxation, as such, alwavs implies that 
it is in puhlic interest. Hence, it irould he outside 
particular restrictions, which may he characterised hy 
the courts as reasonahle and in puh/ic interest. (2) The 
power is
vested in a sovereign State to carry on 
Government. Our Constitution has laid the foundations 
of a welfare State, which means very much expanding 
the scope of the acrivities of Government and 
administration, thus making it necessarv for the State 
to impose taxes on a much larger scale and in much 
v.·ider fields. The legislative entries in the three Lists 
referred to ahove empowering the Union Government 
and the State Governments to impose certain taxations 
with reference to movement of good~ and passengers 
would he rendered ineffective, if not otiose, if it were 
held that taxation simpliciter is within the terms of Article 
301. (3) If the argument on hehalf of the appellants
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJI] 
were accepted, many taxes, for example, sales tax by 
the Union and hy the States, would have to go through 
the gamut prescrihed in Articles 303 and 304, thus very 
much detracting from the limited sovereignty of the 
States, as envisaged hy the Constitution. (4) Laws 
relating to taxation, ivhich is essentially a legislative 
fi.111ctio11 of the State, will hecome justiciable and eve1y 
time a taxation la01: is challenged as unconstitutional, 
the State will have to satisfj; the courts -
a course which 
will seriously affect the division of powers on which 
modem constitutions, including ours. are hased. (5) 
Taxation on movement of good1· and passengers is not 
necessarily an impediment. 
17. 'J'hat conclusion leads to a discussion of the other 
extreme position that taxation is wholly out o.f the 
purview of Article 301. That extreme position is equalzv 
untenahle in view llf the fact that Article 304 contains, 
and Article 306, he/ore it was repealed in 1956, 
contained, reference to taxation for certain purposes 
mentioned in those Articles. But Article 306, which now 
stand~ repealed, contained references to tax or duty on 
the import of goods into one State .fi'om another or on 
the exports of good1· from one State to another. Such 
imposts were rea!lv in the nature of impediments to the 
.fi'ee flow of goods and commodities on account of 
customs harriers, which it was the intention of Article 
301 to
abolish. Similar~v. Article 304, while recognising 
the power of a State J,egislature lo tax good1· imported 
inter-State, insists that a similar tax is imposed on goods 
manufactured or produced within the State. 171e Article 
thus hring.1· out the clear distinction between taxation 
as such for the purpose of revenue and taxation for 
pwposes of making discrimination or giving preference, 
hoth of which are treated hy the Constitution as 
impediments to free trade and commerce. In other word~. 
so long as the impost was not in the nature of an 
impediment to the free .flow of good~ and commodities 
225 
A 
B 
c 
D 
E 
F 
G 
H
SUPREME C(;URT REPORTS 
[2016] 10 S.C.R. 
A 
hetwe!'n 011e State a11d a11other, including in this 
expressio11 Union territories also, its legality >rn.1· not 
s11hject to an attack hased 011 the provisions of Part 
Xiii. !J11t that does not mean that State Legislatures derive 
!heir pm1·er of" taxation hv virtue of ivhat is contained 
in Article 304. Article 304 onlv lefi intact such pmver 
ol taxation, hut contained the inhihition that such taxes 
slw11 not he permitted to hm·e the effect of impeding 
the .fi"ee flow of good1· and conmwdities." 
c 
]) 
F 
Ci 
II 
Sinha, CJ. concluded as follows: 
"18 . ..... 7/nrs, m1 a fair construction of the provisions 
of' Part Xlli, the following propositions emerge: ( 1) 
trade, commerce, and intercourse throughout the 
territorv of india are not ahsolutelv free, h11t are suhject 
to certain powers of legislation hy Parliament or the 
l,egislature ofa State; (2) thefreedom declared hyArtirle 
301 does not mean freedom fi"Oln taxation simplicite1: 
h11t does 111eanji·eedomfro111 taxatio11 which has the effect 
of" directly impeding the fi'ee .flow of trade, commerce 
and intercourse; (3) the ji-eedom e11visaged in Article 
301 is s11hjecl to 11011-discriminatorv restriction.\' imposed 
hv Parliament i11 puhlic interest (Article 302); (4) eve11 
dis('rimi11atu1T or preferrntial legislatirm may he made 
hy Parliament for the purpose of" dealing with an 
e111e1genc1· like a scarcity ol good\· in any part of India 
[Article 303(2)}; (5)
reasonable restriction.1· may he 
imposed hy the Legislawre ol a State in the puhlic 
interest {Article 304(b}j; (6) 11011-discri111i11atorv taxes 
may he imposed hy the Legislature of" a State on good1· 
imported fi'om a11other State or other States, if similar 
taxes are imposed on good\· produced or manufactured 
in that State /Article 304(a)j: and lastly (7) restrictions 
imposed hy existing laws have heen continued, except 
insofar as the Preside11t 111ay In· order otherwise direct 
(Arric!e 305). ··
JINDAL STAINLESS LTD. v. STATE OF I-IARYANA 
227 
[T. S. THAKUR, CJ!] 
59. Before we examine the rival submissions, we must also refer 
A 
to the decision of this Court in Automobile case (supra) which added a 
new dimension to the legal exposition inAtiabal'i case (supra) by decla1ing 
that taxes that were compensatory in nature fell outside Part Xlll and 
could never be treated as ·restrictions offensive to Article 301 of the 
Constitution. S.K. Das, .I. speaking for the majority explained the concept 
of compensatory taxes falling outside P~rt XIII in the following words: 
"10 ... As the language e111ployed in Article 301 nms 
unqualified the Court. hearing in mind the fact that that 
pmvision has to he applied in the working of an orderly 
society, has necessarily to add certain qualifications 
suhject to vi'i1ich alone that freedom may he exercised. 
This point has heen very lucidly discussed in the 
dissenting opi11io11 which Fullagar. J. wrote i11 M.cCarter 
v. Bl'odie (1950) 80 CLR 432 an opinion which was 
s11hsta11tiallr approved hy the Privy Council in Hughes 
and Vale Proprieta1J1 Ld. v. State of New South Wales 
1955 AC 241. 171e learned Judge gave several examples 
to shrnv the disti11ctio11 hetween what was merely 
permitted reg11la1ion and what irns true i11terference with 
fi·eedo111 of trnde a11d commerce. He pointed out that in 
the 111atter of 1110/or vehicles most countries have 
legislmion which requires the motor vehicle to he 
registered and a fee lo
he paid on registration. Eve1y 
motor vehicle must cm-rr lamps of a specified kind in 
.fi'ont and al the rear and in the hours of darkness these 
la111ps must he alight if the vehicle is heing driven on 
the road. Everv 1110/or vehicle must cany a warning 
device. such as a horn; it 111ust not be driven at a speed 
or in a manner which is dangerous to the pu/Jlic. In 
certain localities a 1110/or vehicle must not he driven at 
more than a certain .1peed. The weight of the load which 
nw1· he carrier! on a motor vehicle on a puhlic highway 
is limited. Such examples may he multiplied indefinite~\'. 
Nohodv douhts that the application of rules like the 
alwve does not really affect the freedom of trade and 
B 
c 
D 
E 
F 
G 
H
228 
A 
R 
c 
D 
E 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
commerce: mz the contrarv they facilitate the fi'ee flow 
of' trade and commerce. The reason is that these rules 
cannot fairlr he said to impose a hurden on a trader or 
deter himfi·om trading: it would he absurd, for example, 
to suggest that .fi·eedom of trade is impaired or hindered 
hy lmvs which require a motor vehicle to keep to the 
leli ol the road and not drive in a manner dangerous to 
the puhlic. fl the word 'fi"ee" in Article 301 means 
}i·eedom to do whatever one wants to do ", then chaos 
may he the result; for example, one owner of a motor 
vehicle may v.·ish to drive 011 the left of the road while 
another may wish to drive on the right of the road. If 
they come _fi-0111 opposite directions, there will he an 
inevitable clash. Another class of examples relates to 
making a charge for the use of trading facilities, such 
as, road1', hridges, aerodromes etc. The collection of a 
toll or a tax for the use of a road or .frJr the use of a 
hridge or .fi:Jr the use of an aerodrome is no harrier or 
hurden or deterrent to traders ·who, in their ahsence, 
mav have to take a longer or less convenient or more 
expensive route. Such compensatory taxes are no 
hindrance to anyhodr :, freedom so long as they remain 
reasonahle; hut they could of course he converted into 
a hindrance to the freedom ol trade. If the authorities 
concemed really wanted to hamper anybody'.> trade, 
they could easilv raise
the amoullf of tax or toll to an 
amount which would he prohihitive or deterrent or create 
other impediments which instead offacilitating trade 
and commerce v.:ould hamper them. It is here that the 
contrast, hetiree11 "freedom" (Articles 301) and 
··restrictions" (Articles 302 and 304) clearly appears: 
that which in reality facilitates trade and commerce is 
not a restriction, and that which in reality hampers or 
hurde11s Trade and commerce is a restriction. It is the 
reality or suhstance ol the matter that has to be 
determined. It is not possible a priori to draw a dividing 
line hetween that ·which would reulzv he a charge for a 
facility provided and thal which would really he a
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
229 
IT. S. THAKUR, CJI] 
deterrent to a trade; hut the distinction, if it has to be 
A 
drawn, is real and clear. For the tax to hecome a 
prohihited tax it has to he a direct tax the effect of which 
is to hinder the movement part o{ trade. So long as a 
tax remains compensatory or regulatory it cannot 
operate as a hindrance. 
B 
xxx xxx xxx 
I 4. Afrer carefulZv considering the arguments advanced 
he/ore us we have come to the conclusion that the 
narrow interpretation canvassed for on behalf of the 
majoritv o{ the States cannot be accepted, namely, that 
the relevant articles in Part XIII applv 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 
regulatmy measures as do not impede the freedom of 
trade, commerce and intercourse and compensat01y 
taxes fhr the use of trading facilities are not hit by the 
fi·eedo111 declared by Article 30 I. They are excluded 
fi'Oln the purview of the provisions o{ Part XIII of the 
Constitution for the simple reason that they do not 
hamper trade. commerce and intercourse but rather 
facilitate them. 
xxx xxx xxx 
I 7. /Ye have, therefr;re, come to the conclusion that 
neither the 'videst inte1pretation nor the narrow 
interpretations canvassed'be{ore us are acceptable. The 
interpretation which was
accepted by the majority in 
the Atiabari Tea Co. case is correct, hut subject to this 
c 
D 
E 
F 
clarification. Regulatory measures or measures 
G 
imposi11g compensato1y taxes for the use of trading 
facilities do not come within the purview of the 
restrictio11s contemplated hy Article 301 and such 
measures 11eed not comply with the requirements of the 
proviso to Article 304(/J) of the Constitution. " 
H
2:10 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
60. Hidayatullah. J. in his dissentingjudgment, however. took the 
8 
c 
J) 
F 
H 
view that even when a tax may be compensatory in character it would 
be a valid levy only it' it goes through the process of presidential assent i11 
terms of Article 304(b) of the Constitution of India and the proviso 
thereto. The following passage in this regard is relevant: 
"12 5. 77iat a tax is a restriction when it is placed upon 
a trnde direct!)' a11d immediatezv may he admitted. But 
there is a difference between a tax n·hich hurde11s a 
trnder i11 !his 111a1111er and a tax, which heing general, 
is paid hy trades111e11 in common with others. The first is 
a levv fi'Om the trade hy reason of its heing trade, the 
other is leviedfi·om all, a11d tradesmen pay it hecause 
everyone has to pay it. There is a viral dZ(fi:re11ce 
between the tivo, viewed .fi-0111 the angle of.freedom of 
/rade and commerce. The first is an impost on trade as 
such, and may he said to restrict it: the second may 
hurden the tradn: hut it is not a "restriction" of the 
trnclc. To refi.1.1·r:' to draw ,1·11ch a distinction would mean 
that there is no faxing ent1:r in Lists I and JI which is not 
suhject to Articles 301 and 304, however general the 
tax and hmvever non-discriminatorv its imposition. To 
hring all the taxes within the reach of'Article 301 and 
thus lo hring them also within the reach of Article 304 
is to overlook the concept o/a Federation,
;vhich al!OH'S 
fi'eedom of action to the States, suhjecl, h01veve1: to the 
needs of the unity of India. Just as unity cannot he 
al!o\·Fed to he fi'ittered away hy insular action rhe 
existence of separate States is 1101 to he sacrificed hy a 
.fi1sion heyond what the Constitution envisages. No 
dou/Jr. Parr XIII ensures economic unitv to India and 
combines the .federating Slates into the larger State 
ca!!ed India. 'f71e Consti111tio11 also permits independent 
powers of' wxatirm. What the Constitution does not 
permit is thar trade. commerce and intercourse should 
he rendered "unlree ". Trade and commerce remain free 
even ·when general taxes are paid hy tradesmen in
JINDAL STAINLESS LfD. Y. STATE or HARYANA 
IT. S. THAKUR, CJJ] 
common ·with 11011-tradesmen. The question ivhether a 
tax off'e11d1· Part )(]ff can 011lv arise when it seeks to tax 
trade, commerce and intercourse. Support for the 
conlrarv propositirm is not to he found in 1936 AC 578 
James v. Co111111011wealth. The Privy Council in James 
v. Cmmnomi·ealth did 11ot lay down: 
"Even• step in the series of operations which 
constitutes particular transaction is an act of 
trade, a11d contml under the Stale law of any of 
these steps 11111st he an i11terfere11ce with ifs 
fi'eedom as trade" (p.629) 
This passage represent.1· the view held in McArthur '.I· 
case 192() (28) CLR 530. That case was disapproved at 
p. 631. We have alreadv dealt with this view at some 
length. 
J 26. Fhus, taxation laws and taxes must he divided into 
two kinds. Taxes which are general and for revenue 
purposes which fc1ll on those engaged in trade, 
co111111erce and intercourse in the same way as they fall 
011 others not so engaged cannot normally he ·within 
the reach of Part Xiii. A motor transport owner cannot 
claim that he will not pay properly tax in respect of his 
garage h11ildi11g.1· or electricitv tax for the electricity he 
com11111e.1· i11 lighting them, or income tax on his profits. 
Part XIJJ has nothing to do tvith such taxes even though 
they fal! upon tradesmen. 
xx xxx xxx xxx 
l 32. !11 our judgment. the first tesr to appl)I is what is 
the ohject and scope of the
legislation'! A regulation of' 
Trade and commerce may achieve some p11h!ic purpose 
·which affecTs Trade and commerce incidentally hut 
without impairing thefi'eedom. Sometimes, however, the 
regulation itself' mm· amount lo a resTriction, and if such 
-
. 
. 
. 
a stage is reached. then under our Constitution the 
restriction must he reaso11ah11• in the puhlic interest, and 
231 
A 
B 
c 
D 
E 
F 
G 
H
232 
A 
B 
c 
]) 
E 
r 
G 
J-j 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
the President :1· prior sanction must be ohtained, if the 
lmv i111posi11g such restriction is made by the State 
J"egislature, ff; howeve1; it does not reach the stage of 
restriction of trade and remains only a regulation 
incidentallv touchinr; trade and commerce, the 
regularion is outside the operation of Articles 301 and 
304. ft is 011 this ground that laivs prescribing the rule 
of the road and like provisions alreaczv referred to as 
well as a regulation that the height to which truck\- may 
he loaded must he such as not to endanger the overhead 
hrid::;es or wires, do not hm·e to go before the President. 
since they do not affect the freedom guaranteed. The 
ohject of such laws cannot he regarded as a restriction 
of trade and commerce. Freedom in Article 301 does 
not mean anarchy Similarlv, a demand for a tax .fi"om 
traders in common with others is not a restriction of 
their right to cany on trade and commerce. A system of 
licensing of motor vehicles is a regulation, but does not 
impair the fi'eedom of trade and commerce unless the 
licensing is made to depend upon arbitrary discretion 
of the licensing authorit_v. Similarly, a fee for 
administrative purposes may also he viewed as a part 
of regulation. Such licensing and.fees fall outside Article 
301, hecause they cannot he 1·iewed as restrictions, and 
therefiire do not need to he processed under Article 304. 
Such regulations are
designed to give equal opportuni(V 
to evervone, suhiect to a certain standard. The ohject 
heing a puhlic ohject, such regulations cannot be 
questioned unless they amount to restrictions. A tax, 
however, which is made the condition precedent of the 
right to enter upon and carry on business af all is a 
ve1T different mattei: It is a restriction on the right to 
carrv 011 trade and commerce, and the restriction is 
released on the payment of the tax, ·which is the price 
of such release. It is from this point of view that the 
impugned provisions in this case must he examined. "
JINDAL STAINLESS ITD. v. STAI'E or HARYANA 
233 
IT. S. THAKUR, CJI] 
61. Subbarao J. as His Lordship then was, agreed with the majority 
A 
view but added the following passage to the same: 
"3 7. The next question is, what is the content of the 
concept offi'eedo111'! The word ''.fi'eedom" is not capable 
o{ precise definition, hut it can be stated what would 
i11;{ri11ge or detract fi·om the said freedom. Before a 
particular law can he said to i1?fringe the said.freedom, 
it must he ascertained whether the impugned provision 
operates as a restrictio11 impeding the free movement of 
trade or only as a regulation facilitating the same. 
Restrictions ohstruct the fi·eedom, whereas regulations 
promote it. Police regulations, though they may 
superficially appear to restrict thefreedom of movement, 
in fact provide the necessarv conditions for the fi'ee 
movement. Reg11la1io12.1· such as provision for lighting, 
speed, good condilion o{ vehicles, limings, rule o{ the 
road and similar others, reallv facilitate the .freedom of 
movement rather than retard it. So too, licensing system 
with compensatorv fees would not be restrictions but 
regulatory provisions: for without it, the necessary lines 
of communication, such as roadv, water-ways and air-
ways, cannot effectivezy be maintained and the fi·eedom 
declared mav in practice turn out to be an empty one. 
So too, regulations providing for necessary services to 
enable the fi·ee movement o{ traffic, whether charged 
or
not, cannot also be ·described as restrictions 
impeding the freedom. To say all these is not to say that 
everv provision couched in the form of regulation hut 
in effecl and suhstance a restriction can pass off as a 
pen11issihle regulation. ft is for the Court in a given 
case to decide whether a provision purporting to 
regulate trade is in fact a restriction on freedom. ff it he 
a colourable exercise of power and the regulatmy 
provision in fact is a restriction, unless the said 
provision is one of the permissihle restrictions under 
the succeeding articles, it would be struck down. This 
B 
c 
D 
E 
r 
G 
H
A 
B 
c 
D 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C. R. 
view is co11siste/1/ with the pri11cipl.e.1· laid down hv the 
A111·1rcilian High Court and the Privv Council in the 
context of inte1pre!atio11 of the words "ahsol11telv free" 
in Section <)] of the Commonwealth of Australia 
. 
. 
Constitution ,·lei, which is more emphatic than the irord 
"fi·ee" in drtic!e 301 of our Constitution. 
XXX .\'XX XXX 
39. 
But the more diflicu!t question is, what does the 
'vvord "restrictions" mean in /lrticle 302! 77ie dictionw)' 
1JJeani11g of' the word "restrict" is "to confine, hound, 
limit". Therefi;re, am· limitation placed upon thefi'eedom 
is a restriction 011 that fi·eedom. But the !imitation must 
he real, direct and immediate, hut not fc111cif11!, indirect 
or remote. Jn !his co11text, the principles evolved hr 
. lmerican and Australian decisions in their a/fempt 10 
reconcile the commerce power and the State police 
p011·er or !he .fl·eedom of' commerce and the 
Commo11wea!th power to make laws affecting that 
.fi·eedom can 11sefitl/y he i11voked with suitable 
modification.1· a11d adjustme11ts. Ol all the doctri11e.1· 
enJlved, i11 my view. the doctrine of "direct and imJ11ediate 
effect" on the .fi'eedom would he a reasonah!e solvent 
to the dif(icu!t situation that might arise 1111der our 
Constitution. If a !a11.: whatever may ha1'e been its source, 
directly and iJ11111ediatelv affects the ji-ce movement of 
trade, it 11•ould he restrictio11 on the saidfi·eedom.
But a 
la\\' which may have only indirect and remote 
reperc11ssion.1· 011 the saidfi·eedom cannor he co11sidered 
to he a restriclion 011 it. Taking the illustration from 
taxatio11 law. a law mav impose a tax on the movement 
of goods or persons hy a motor-vehicle; it directly 
opera1es a.1· a restrictio11 011 the free movement of trade, 
except when it is compensatorv or regulatm:v. On the 
other hand, a law may tax a vehicle as property, or the 
garage 11·herei11 the vehicle usedfor conveya11ce is kept. 
The said law mm· have indirect reperc11ssio11 011 the 
nwvement, hut The said law is not 011e directlv imposing
JINDAL STAINLESS LrD. v. STATE Of HARYANA 
235 
[T. S. THAKUR, C.11] 
restnct10111· 011 the fi'ee movement. Jn this context, two 
A 
difficulties may have to he faced: .firstly, though a law 
purporting to il/lpose a tax 011 a property or a 111otor-
vehic/e, as the case may he, may in fact and in reality 
i111pose a la.Y on the 111ovement itself;- second(v. a law 
mm• not he on the movement o{trade, hut 011 the property 
itself. hut !he /Jurden may he so high thal it may 
indirectlv a/feel the fi'ee flow ol !rade. In the former 
case. the court may have to scrutinize the provisions ol 
a particular statute to ascertain whe!her the tax is 011 
the 11101·eme11t. fl the provisions disclose a tax on the 
mm·el/lenl, it 1vill he a restriction within the meaning ol 
Article 302. In the lat/er case, il the provisions show 
that the tax is 011 propertJ', the reasonableness of the 
lax may have to he tested against the provisions of Article 
19 of the Constitution. The question whether a law 
imposes a restriction or not depends on the question 
11)1elher the said law imposes directly and immediatelv 
a limilan. 1n 011 the fi'eedom of 111ovement of lrade. If it 
does, the c:xtent of the impediment relates to the question 
ol degree rather than to the nature of it. If it is a 
restriction, it must satisfj· the conditions laid down 111 
Article 302 of the Constitution. 
xxx xxx xxx 
46. The foregoing discussion may he summarized in the 
following propositions: ( 1) Article 301 declares
a right 
o(fi·ee movement ol trade without any obstructions hy 
way of harriers, inter-State or intra-State, or other 
impediment.1· operating as such harriers. (2) The said 
ji·eedom is not impeded, but, 011 the other ha11d. 
promoted, hy reguhitions creating conditions for the fi'ee 
movement ol trade, such as, police regulations, provision 
/(Jr services. maintenance of roads. provision for 
aerodromes, wharfi· etc., with or without compensation. 
( 3) Parliament mm• hy !mt· impose restrictions on such 
fi'eedom i11 the puh!ic interest: and the said law can he 
made hy virtue ol anv entry with respect whereof 
B 
c 
D 
E 
f 
G 
H
236 
A 
B 
c 
D 
E 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
Parliament has power to make a lm1-'. (4) The State also, 
in exercise of its legislative powo; may impose similar 
restrictions, suhject lo the two conditions laid down in 
Article 304(h) and subject to the provi.1·0 mentioned 
therein. (5) Neither Parliament nor the State Legislature 
can make a lcrw giving preference to one Stale over 
another or making discrimination hetween one State 
and another, hy virtue of any entry in the Lists, 
inff"inging the saidf;·eedom. (6) 7/1is han is lifted in the 
case ol Parliament j(1r the purpose of dealing with 
situatio11s arising out of scarci(y of goods in any part 
ol the terrifOI)' of India and also in the case ol a Stale 
under Article 304(/J), subject to the conditio11s 
mentioned therein. And (7) the State can impose a 11011-
discriminato1:v tax on good1· imported.fiwn other States 
or the Unio11 territory to which similar goods 
manuf"actured or produced in that Stale· are subject. " 
62. The net effect of the decision in Automobile case (supra) is 
th<it taxes, if the same are compensatory in character, do not offend the 
guarantee of free trade, commerce and intercourse under Article 301 of 
the Constitution. The further question whether the compensatory 
character of a tax has to be determined by reference to the direct and 
substantial benefits/ facilities provided by the State to the tax payer was 
ex;imined and answered in the affirmative in Jindal Stainless
Steel 
case (supra), where this Court while overruling the decisions in 
r 
Bhagatram and Bihm· Chamber of Commerce cases (supra) declared 
that it is not just a remote benefit to the tax payer but only a direct and 
substantial benefit that would justify levy of compensatory taxes without 
offending A1iicle 301 of the Constitution oflndia. Speaking for the Comi, 
Kapadia, J. observed: 
G 
H 
"49. The concepl of compensatory taxes was 
propounded in Automobile Transport in which 
compensatorv taxes were equated with regulatmy taxes. 
In that case, a working test for deciding whether a tax
,NDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJI] 
is compeusatmy or not was laid down. In that judgment, 
it was observed that oi1e has to enquire whether the 
trade as a class is having the use of certain facilities 
for the heller conduct ol the trade/business. This 
working test remains unaltered even today. 
50. As stated ahove, in the post 1995 era, the said 
working test pmpounded in Automohile 1l·amport stood 
disrupted when i11 Bhagatram case, a Bench al three 
Judges enunciated the test ol "some connection'·' saying 
that even if' there is some link between the tax a11d the 
facilities exte11ded to the trade directly or indirectly, the 
levy cannot he impugned as invalid. Jn our view, this 
test of "some .connection" enunciated in Bhagatram case 
is not 011/y contrary to the working test propounded in 
Automohile Transport case hut it obliterates the very 
has is of' compensatory tax. We may reiterate that when 
a tax is imposed in the regulation or as a part of 
regulatmy measure the controlling factor of the le1~y 
shifis fr'om burden to reimbursement/recompense. The 
vvorking test propounded hy a Bench ol seven Judges 
in Automobile Transport and the test of "some 
co11nection " enunciated by a Bench of three Judges in 
Bhagatram case cannot stand together. Therefore, in 
our view, the test of' "some connection " as propounded 
in Bhagatram case is not applicable to the concept ol 
compensatory tax and accordingly to that extent, the 
judgments of'
this Court in Bhagatram Rajeevkumar v. 
CST and State of' Bihar v. Bihar Chamber of Commerce 
stand overruled. 
xxx xxx xxx xxx 
52. Jn our opinion. the doubt expressed by the referring 
Bench about the correctness of the decision in 
Bhagatram case followed by the judgment in Bihar 
Chamber of Commerce was well founded. 
53. We reiterate that the doctrine of "direct and 
237 
A 
B 
c 
D 
E 
F 
G 
H
238 
A 
B 
c 
D 
r 
G 
I-! 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
immediate effect·· of the impugned law on trade and 
commerce under Article 301 as propounded in Atiabari 
Tea Co. Ltd. v. State of Assa111 and the working test 
enunciated in Automobile 11-cmsport (Rajasthan) Ltd. v. 
State of Rajasthan for deciding whether a tax is 
compensatory or not vide para 19 of the Report (AlR), 
will col7finue to apply and the test of "'some connection" 
indicated in para 8 (of SCC) of the judgment in 
Bhagatram Rajeevkumar v. CST and followed in State 
of Bihm· v. Bihar Chamher of Commerce is, in our 
opi11ion, not good law. Accordingly, the constitutio11al 
validity of various local enactments which are the 
suhject-matters o.f pending appeals, special leave 
petitions and writ petitions will now he listed for being 
disposed of in the light of this judg111e11t. " 
63. The legal position that today holds the field in light of the 
above is that compensatory taxes would fall outside Part Xlll of the 
Constitution only if tax payers receive benefits and facilities 
commensurate to the levy. Any and every benefit howsoever remote or 
distant, would not save the levy from an attack on the ground of violation 
of Article 30 I. Having said that we must mention to the credit of the 
learned counsel for the dealers/assessees that except a feeble attempt 
made by Mr.A.K. Ganguly, learned counsel appearing for Sony India 
Pvt. I .td. and Mr. Bagaria, learned counsel appearing for Steel
Authority 
of India Limited (SAIL) the rest of the counsel fairly accepted that 
there was no constitutional or juristic basis for the Compensatory Tax 
Theory propounded by the majority judgment in Automobile Tramport 
case (supra). Mr. Salve, who led the team oflawyers appearing for the 
dealers/assessees also did not support the compensatory tax theory 
propounded in Automobile case (supra). Mr. Rohatgi, leamedAttomey 
General for India and M/s. Rakesh and Dinesh Dwivedi who appeared 
for some of the States also argued that the Compensato1y Tax Theory 
has no basis whatsoever and that the same ought to be abandoned not 
only because of lack of any juristic support but also because of the 
problems that beset the application of the said theory in practice. It may, 
in the light of the concessions made at the Bar, have become unnecessaiy
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
lT. S. THAKUR, CJI] 
for us to deal with this aspect at any length but since Mis. Ganguly and 
Bagaria have not fully subscribed to the views urged by their colleagues 
appearing for the dealers, we are left with no option but to squarely deal 
with the question whether the Compensatory Tax Theory is indeed 
sustainable. Three distinct aspects touching the question need be noticed 
straightaway. The first and the foremost of these aspects is that the 
concept ofcompensatory taxes is not recognised by the Constitution. A 
tax is a compulsory exa~tion of money for general public good and is 
defined as under by Thomas M Cooley in his book 11ie Law of Taxation 
at page 61(Clark A. Nichols ed., 411' ed. 1924) as: 
"1bxe.1· are the enforced proportional colltributions fi·om 
persons and property, levied by the state by virtue of its 
sovereignty for the support of government and for all 
puhlic need~. This definition of taxes, often referred to 
as 
"Cooley:~ definition," has heen quoted and 
endorsed, or approved, expressly or otherwise, by many 
different courts. 
While this definition of taxes 
characterizes them as 'contributions', other definitions 
refer to them as 'imposts', 'duty or impost', 'charges', 
'lmrdens ', or 'exactions', ; hut these variations in 
phraseology are of no practical importance. " 
xxx xxx xxx xxx 
xxx xxx xxx xxx 
The term is defined also in The Major Law Lexicon by P. 
Ramanatha Aiyar - Vol. 6 - 41,,
Edition - Page Nos.6678 and 6679 
in the following words: 
The term "tax" and "taxes'' have been defined as a 
rate or sum of money assessed on the person or property 
ol a citizen by government for the use of the nation or 
state; burdens or charges imposed by the legislative 
power upon persons or proper~v to raise money for 
pu/Jlic purposes, and the enforced proportional 
239 
A 
B 
c 
D 
E 
F 
G 
H
240 
SUPREME COURT REPORTS 
[2016) 10 S.C.R. 
A 
contrihutio11 o{persons and propertv levied hy authority 
(<l the state for the support of government a11d for all 
puhlic need\'. 
B 
c 
xxx xxx xxx xxx 
xxx xxx xxx xxx 
Taxes are puhlic hurdens. of which everv individual may 
·-
. 
. 
he compelled to hear his part, and that in proportion to 
the extent of protection he receives or the amount of 
property held hy him, as the v.:il/ of the Legislature may 
direct. The prxwer of taxation is said to. he an incident 
of sovereignt}; a11d co-extensive with that of which it is 
incident. " 
Blackwell on Tax Titles as cited in 'Tata Iron & Steel Co. 
D 
Ltd. 
v. State of Bilwr, AIR 1991 Patna 75, 81 has the following to 
say about taxes: 
'Taxes are defined to he burdens or charges imposed 
hy the legislatil'e power upon persons or property to 
raise money .fhr public purposes. ' 
Black'.s Law Dictionary, 7'" Edn., P. 1469 defines tax as under: 
"A 111onetm); charge imposed hy govern111e11t on persons, 
e11tities or property to yield puhlic revenue," 
If taxes are eventually meant to serve larger public good and for 
F 
running the governmental machinery and providing to the people the 
facilities essential for civilized llving, there is no question of a tax being 
non-compensatory in character in the broader sense. 
G 
1-1 
64. Secondly, because the concept of compensatory tax obliterates 
the distinction between a tax and a fee. The essential difference between 
a tax and a fee
is that while a tax has no element of quid pro quo, a fee 
without that element cannot be validly levied. The difference between a 
tax and the fee has been examined and elaborated in a long line of 
decisions of this Court. (See: Commissioner, Hindu Religious 
Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri 
Shirur Mutt (AIR 1954 SC 282), Mahant Sri Jagamwth Ramanuj
JINDAL STAINLESS Ll'D. v. STATE OF HARYANA 
241 
[T. S. THAKUR, CJI] 
Das & Am: v. State of Orissa & Am: (AIR 1954 SC 400), The 
A 
/Ji11gir-Ra111pur Coal Co. Ltd. 1•. State of Orissa (AIR 1961 SC 459), 
Corporation of Calcuita and am: v. Liberty Cinema (AIR 1965 SC 
1107), Kewal Kris/ma Puri and Am: v. State of Punjab (1980) 1 
sec 416, Kris/ti Upaj Mandi Samiti and Ors. v. Orient Paper and 
Industries Ltd. (1995) l SCC 655), State of Gujarat and Am: v. 
B 
Akhil G1~jarat Pravasi V.S. Malwmendal (2004) 5 sec 155: State 
of West Bengal v. Kesoram Industries Ltd. & ors. (2004) 10 SCC 
201. 
65. Thirdly, and lastly, the concept ofCompe11satory taxes being 
outside Part Xlll, is difficult to apply in actual practice. Experience in 
the present batch of cases has amply demonstrated that difficulty. Most 
of the legislations enacted by the States in these cases have described 
the entry tax levied under the same to be compensatory in character. 
This may have been done to take the levy outside the mischief of Article 
301 of the Constitution. The question however is whether tax amount 
collected in terms of the said legislation is really used by the State for the 
purpose of providing or maintaining services and benefits to the tax payers 
and whether the Courts can follow the money trail to determine whether 
the State concerned has actually used the amount for the avowed purpose 
underlying the legislation. This process is fraught with serious difficulties, 
a fact that was not
disputed by learned Counsel for the assessees/dealers. 
Actual application of the Compensatory Tax Theory, therefore, runs into 
difficulties to an extent that the theory at some stage breaks down. M/ 
s. Salve, Rohatgi and Dwivedi were in that view perfectly justified in 
submitting that the Compensatory Tax The01y was legally unsupportable 
and deserved to be abandoned. We have no hesitation in agreeing with 
that submission, the arguments of M/s. Gangl1ly and Bagaria to the 
contrary notwithstanding. 
66. With the Compensatory Tax Theory no longer found 
acceptable, we are left with only two competing view points, one 
expressed by Gajendragadkar, J. and the other by B.P. Sinha, CJ. Which 
one is the conect view is the critical question that falls for our detem1ination 
having regard to the Constitutional scheme and the language employed 
in Articles 301 to 307 to which we must now turn for a closer look. 
c 
D 
E 
F 
G 
H
242 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
Article 30 I is as under: 
B 
c 
D 
E 
r 
G 
H 
".Wl. Freedom of trade, commerce and intcrcourse.-
Suhject ro the other provisions of this Part, trade, 
commerce and intercourse throughout the territorJ' of 
India shall he free" 
A plain reading of the above would show that freedom of trade, 
commerce and intercourse is by no means absolute, the same being 
subject to the other provisions of Part Xlll of the Constitution. Amongst 
those provisions are Articles 302, 303 and 304 which have a direct bearing 
on the nature and the extent of restrictions subject to which only is the 
right to freedom of trade, commerce and intercourse refeJTed to in Article 
30 I exercisable. 
Article 302 reads thus: 
"302. Power of Parliament to impose restrictions 011 
trade, commerce and intercourse.- Parlialnent may hy 
lcni· impose s11ch restrictions on the freedom of trade. 
commerce or intercourse hetween one State and another 
or within any part of the territory of India as may he 
req11ired in the puhlic interest. " 
67. The above leaves no manner of doubt that Parliament is 
empowered to impose such restrictions on the freedom of trade, 
commerce and intercourse between one State and another or within any 
part of the territory of India as may be required in public interest. Reading 
Articles 30 I and 302 together, it is evident, that freedom of trade, 
commerce and intercourse is subject to restrictions which Parliament 
may by law
impose in public interest. The absolute character of the 
freedom of trade, commerce and intercourse is thus lost by reason of 
Article 302 itself empowering Parliament to impose such restrictions as 
it may consider necessary in public interest. Article 303, in tum, places 
restrictions on the legislative powers of the Parliament and of the States, 
when it says : 
"303. Restrictions on the legislative powers of the Union 
and of the States with regard to trade and commerce.-
(!) Notwithstanding anythinK in article 302, neither
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
IT. S. THAKUR, CJI] 
Parliame11t nor the Legislature of a State shall have 
poi1·er to make any lmv giving, or authorising the giving 
of. any preference to one State over anothe1; or making, 
or authorisi11g the making of; any discrimination 
between one State a11d another, hy virtue of any entry 
relating to trade and commerce in any of the Lists in the 
Seventh Schedule. 
(2) Nothing in clause (I) shall prevent Parliament from 
making any law giving, or authorising the giving of. 
any preference or making, or authorising the making 
of," any discrimination if it is declared by such law that 
it is necesswy to do so f(Jr the pwpose of dealing with 
a situation arising fi'om scarcity of good~ in any part of 
the territory or 111dia . .. 
68. A carefol reading of the above would show that notwithstanding 
the power vested in the Parliament under Article 302, it shall not make 
any law giving, or authorising the giving of any preference to one State 
over another, or making, or authorising the making of, any discrimination 
between one State and another, by virtue of any entry relating to trade 
and commerce in any of the Lists in the Seventh Schedule. From Clause 
(2) of Article 303 (supra) it is manifest that the restriction on the power 
vested in Parliament in terms of Clause (1) of Article 303 shall not extend 
to Parliament making any law with a vic:w to giving or authorising the 
giving ot~ any preference or making, or
authorising the making of, any 
discrimination if it is declared by such law that it is necessary to do so 
for the purpose of dealing with a situation arising out of scarcity. A conjoint 
reading of Clauses ( 1) and (2) of Article 303 would thus make it clear 
that while Parliament/ Legislature of a State shall have no power to 
make a law imposing restriction on trade, commerce and intercourse, by 
giving or authorizing the giving of any preference to one State over the 
other. such limitation on the legislative power of Parliament shall not 
extend to giving of any preference or making or authorizing any 
discrimination if it is declared by law that a situation has arisen out of 
scarcity of goods that makes it necessary to do so. In other words, 
while the Parliament may impose restrictions in public interest under 
243 
A 
B 
c 
D 
E 
F 
G 
H
244 
SUPREME COURT REPORTS 
(2016) 10 S.C.R. 
A 
A11icle 302, the restriction so imposed shall not be in the nature of giving 
preference or discrimination between one State or the other except when 
the law declares that scarcity of goods in any part of India necessitates 
such preference or discrimination. 
69. That brings us to Article 304 of the Constitution which too like 
R 
Articles 302 and 303 deals with restrictions on the freedom of trade, 
commerce and intercourse. lt reads: 
c 
[) 
E 
F 
G 
H 
''304. Restrictions on trade, commerce and intercourse 
among States.-Notwithstanding anything in Article 301 
or Article 303, the Legislature of a State mew by law-
( a) impose on good1· imported.from other States or the 
Union territories any tax to which similar goods 
11wnuf(1ctured or produced in that State are suhject, so, 
however. as not to discriminate hetween goods so 
imported and good1· so manufactured or produced; and 
(h) impose such reasonable restriction.1· on the ,fi-eedom 
of' trade. commerce or intercourse with or within that 
State as nwy he required in the puhlic interest: Provided 
that no Bill or amendment for the purposes of clause 
(h) shall he introduced or moved in the Legislature of a 
State without the previous sanction of' the President." 
The Article starts with a "non-ohstante" clause which has been 
the subject matter of forensic debates in several cases. We do not for 
the present propose to address the effect of the non-ohstante clause at
this stage or the interplay between the expression "subject to" appearing 
in Article 301 and the non obstante clause in Article 304. We shall tum 
to that aspect a little later. What we wish to examine is whether A11icle 
304(a) treats taxes as a 1:estriction so that any such levy may fall foul of 
A11icle 301. The answer to that question, we say without any hesitation 
is in the negative. Article 304(a) far from treating taxes as a restriction 
per se, specifically recognises the State legislature's power to impose 
the same on goods imported from other States or Union Territories. The 
expression "the legislature of a State may by law impose on goods 
imported from other States (or Union Territories) any tax" are much too
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
IT. S. THAKUR, CJl] 
clear and specific to be capable of any equivocation or confusion. It is 
true that the source of power available to the State legislature to levy a 
tax is found in Articles 245 and 246 of the Constitution but, the availability 
of such power for taxing goods imported from other States or Union 
Territories is clearly recognised by Article 304 (a). The expression 'may 
hy law impose' is certainly not a restriction on the power to tax. That 
does not, however, mean that the power to tax goods imported from 
other States or Union Territories is unqualified or unrestricted. There 
are, in our opinion, two restrictions on that power. The words "to which 
similar goods manufactured or produced in that State are subject" impose 
the first restriction on the power of the State legislature to levy any such 
tax. These words would imply that a tax on imp01t of goods from other 
States will be justified only if similar goods manufactured or produced in 
the State are also taxed. The second restriction comes from the 
expression "so. howeve1; as not to discriminate between goods so 
imported and goods so nwmifactured or produced". The State 
legislature cannot in the matter of levying taxes discriminate between 
goods imported from other States and those manufactured or produced 
within the State levying such a tax. The net effect of Article 304 (a) 
therefore is that while levy of taxes on goods imported from others
State 
and Union territories is clearly recognised as Constitutionally pennissible, 
the exercise of such power is subject to the two restrictive conditions 
refe1Ted to above. That does not however detract from the proposition 
that levy of taxes on goods imported from other States is constitutionally 
permissible so long as the State legislatures abide by the limitations placed 
on the exercise of that power. To put it differently, levy of taxes on 
import of goods from other States is not by itself an impediment under 
the scheme of Part Xlll or A1ticle 30 I appearing therein. 
70. That brings us to the question whether Clauses (a) and (b) 
have to be read conjunctively. It was contended on behalf of the dealers/ 
assessees that even when a tax in tenns of Article 304 (a) is not forbidden 
being non-discriminatory, it may still constitute a restriction under Clause 
(b) thereof. The argument is that just because a tax passes muster 
under Clause (a) of A1ticle 304 being non-discriminatory does not mean 
that the levy of such a tax is not a restriction on the freedom of trade, 
commerce and intercourse. It was contended that while a discriminatory 
tax must be treated as a restriction by itself the reasonableness of a non-
discriminatory tax will have to be seen by the President in tenns of the 
245 
A 
B 
c 
D 
E 
F 
G 
H
246 
A 
B 
c 
D 
F 
G 
H 
SUPREME COURT REPORTS 
!2016110 S.C.R. 
Provjso to Clause (b ). It was argued that Article 304(a) does not exhaust 
the universe in so far as levy of taxes is concerned for even when the 
law complies with the requirement of Clause (a), it may fail to pass the 
test of reasonableness and of public interest under Clause (b) in which 
event the President may decline the sanction for introduction of any Bill 
aimed at levying such a tax. 
71. There is, in our opinion, no merit in any of the contentions 
noted above. Clauses (a) and (b) of A11icle 304 deal with two distinct 
subjects and must, therefore, be understood to be independent of each 
other. While Clause (a) deals entirely with imposition of taxes on goods 
impo1ted from other States, Clause (b) deals with imposition of reasonable 
restriction in public interest. It is trite that levy of a tax in tenns of Article 
304(a) may or may not be accompanied by the imposition of any resh·iction 
whether reasonable or unreasonable. There is, in our opinion, no rationale 
in the contention that the legislature of a State cannot levy a tax without 
imposing one or more reasonable restrictions or that a law that is simply 
imposing restrictions in terms of Clause (b) to Article 304 must be 
accompanied by the levy ofa tax on the impo11 of goods. The use of the 
word 'and' between clauses (a) and (b) does not adinit ofan interpretation 
that may impose an obligation upon the legislature to necessarily
impose 
a tax and a restriction together. The Jaw may simply impose a tax without 
any restriction reasonable or otherwise or it may simply impose a 
reasonable restriction in public interest without imposing any tax 
whatsoever. It may also levy a tax and impose such reasonable restriction 
as may be considered necessary in public interest. All the three situations 
are fully covered and permissible under Article 304 in view of the 
phraseology used therein. The word 'and' can mean 'or' as well as 
'and' depending upon the context in which the law enacted by the 
legislature uses the same. 
Suffice it to say that levy of taxes do not 
constitute a restriction under Part XIII except in cases where the same 
are discriminatory in nature. Once Article 304 (a) is understood in that 
fashion, Clause (b) dealing with reasonable restrictions must necessarily 
apply to restrictions other than those by way of taxes. It follows that for 
levy of taxes prior Presidential sanction in terms of the proviso under 
Article 304(b) will be wholly unnecessary. This view is reinforced on 
the plain language of proviso to Article 304(b ), which is limited to law 
relating to reasonable restrictions referred to in clause (b ).
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
247 
IT. S. THAKUR, CJI] 
72. The sum total of what we have said above regarding Articles 
A 
301, 302, 303 & 304 may be summarized as under: 
I. freedom of trade, commerce and intercourse in terms 
of Article 301 is not absolute but is subject to the 
Provisions of Part XUI. 
2. Article 302 which appears in Part Xlll empowers the 
Parliament to impose restrictions on trade, commerce 
and intercourse in public interest. 
3. The restrictions which Parliament may impose in te1111s 
of Article 302 cannot however give any preference to 
one State over another by virtue of any entry relating to 
trade and commerce in any of the lists in the Seventh 
Schedule. 
4. The restriction that the Parliament may impose in tenns 
of Article 302 may extend to giving of preference or 
pe1111itting discrimination between one State over another 
only if Parliament by law declares that a situation arising· 
out of scarcity of goods wanants such discrimination or 
preference. 
5. A1ticle 304(a) recognizes the availability of the power to 
impose taxes on goods impo1ted from other States, the 
legislative power to do so being found in A1ticles 245 
and 246 of the Constitution. 
6. Such power to levy taxes is however subject to the 
condition that similar goods manufactured or produced 
in the State levying the tax are also subjected to tax and 
that there is no discrimination on that account bet\veen 
goods so imported and goods so manufactured or
produced. 
7. The limitation on the power to levy taxes is entirely 
covered by Clause (a) of Article 304 which exhausts the 
universe in so far as the State legislature's power to levy 
of taxes is concerned. 
8. Resultantly a discriminatory tax on the import of goods 
from other States alone will work as an impediment on 
B 
c 
D 
E 
F 
G 
H
248 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] I 0 S.C.R. 
free trade, commerce and intercourse within the meaning 
of Atiicle 301. 
9. Reasonable restrictions in public interest referred to in 
Clause (b) of Article 304 do not comprehend levy of 
taxes as a restriction especially when taxes are presumed 
to be both reasonable and in public interest. 
73. The inferences enumerated above are based on a textual 
interpretation of the provisions of Article :lO l to Article 304. 
An 
interpretation which is both textual and contextual has always been found 
to be more acceptable. That is so because it is only when both the text 
and the context are kept in view that the statutory provisions can be best 
understood. An inte1vretation that makes the textual match the contextual 
meaning of the provision is preferred by Courts over one that prefers 
one at the cost of the other. 
74. In Reserve Bank of India v. Peerless General Finance 
and Investment Co. Ltd. (1987) I SCC 424 this Court pithily summed 
up the law on the subject in the following words: 
"33. Interpretation must depend on the text and the 
context. 7/1ev are the has is of inte17Jretatio11. One may 
we!l say if the text is the texture, context is what gives . 
the colour. Neither can he ignored. Both are important. 
The i11te1pretatio11 is best which. makes the textual 
interpretation match the contextual... .. . . .. " 
75. We may also refer to the following passage of Co11stit11tio11a/ 
Law of India
(4'11 Edition) by H.M. Seervai where the distinguished 
author has adverted to the golden rule of interpretation applicable to 
Constitutional provisions in the following words: 
"2.12. The golden rule of interpretation is that words 
should he read in their ordinary, natural and 
grammatical meaning subject to the rider that in 
construing word1· in a Constitution conferring legislative
JINDAL STAINLESS lTD. v. STATE OF HARYANA 
IT. S. THAKUR, CJl] 
power the most liheral constructio11 should be put upon 
the word~ so tlwi they may have effect in their widest 
amplitude. " 
76. Let us then see whether the textual interpretation placed on 
Articles 30 I to 304 matches the contextual. The contextual interpretation 
of Part XllT must, out of necessity, start with the historical perspective 
of that Part. We have with great advantage extracted in the earlier part 
of this Judgment the historical backdrop as set out in the decisions of this 
Court both in Atiabari and Automobile cases (supra). While it is 
unnecessary to recall the said passages over again, we need to remember 
that Part Xlll had a historical precursor in the form of Section 297 of the 
Government of India Act, 1935 that governed what was then called the 
British India comprising the territory of India subject to British Rule. 
The rest of the territories were at that time Princely States who claimed 
sovereign rights within the limitations imposed by the paramount power. 
The power to levy taxes was one such power wielded by the Princely 
States which led to erection of customs barriers impeding the flow of 
trade, commerce and intercourse. Section 297 aimed at removing such 
trade barriers. It provided for a prohibition against enactment of any 
law or taking of any executive action by the provincial legislature that 
restricted the entry into or export from the province goods of any class 
or
description. 
77. More importantly, in terms of clause (b) of Section 297(1) of 
Government of India Act, 1935 no provincial legislature or Government 
could impose any tax, cess, toll or due which discriminated between 
goods manufactured or produced in the provinces and goods not so 
manufactured or produced or between goods manufactured or produced 
outside the province discriminated between goods manufactured or 
produced in one locality and similar goods manufactured or produced in 
another locality. With India attaining its freedom, Part Xlll of the 
Constitution adopted by it, was aimed at bringing about economic unity. 
The object underlying Part Xlll was to make movement and exchange 
of goods free throughout the territory of India. This was achieved by 
Aiiicle 30 I to Article 304 adopting substantially the scheme underlying 
the 1935 Act. The only difference between the said provisions and 
Section 297 of the 1935 Act was that the principles enunciated in the 
249 
A 
B 
c 
D 
E 
F 
G 
H
250 
A 
8 
c 
D 
E 
SUPREME COURT REPORTS 
[2016] l 0 S.C.R. 
latter were extended to the Union Government and the Union Parliament 
and to the territory which had after merger become a part of India. 
Notably, the essence of the freedom of trade commerce and intercourse 
as recognized in the 1935 Act and in the Constitution under Part Xlll 
remained the same. It was for that reason that Justice Venkatarama 
Iyer had in M.P.V. Sunderaramier's case (Supra) observed and if we 
may say so rightly that the Constitution of India was not written on a 
tabula rasa. The common feature which the two provisions share is that 
the provincial legislature's power to impose taxes is recognized subject 
only to the limitation that there is no discrimination between goods 
manufactured or produced within the Province or State vis-a-vis those 
imported from outside. InAtiabari's case (supra), the majority speaking 
through Gajendragadkar, J. noticed the co-relation between Section 297 
of 1935 Act, and Article 30 l of the Constitution oflndia but concluded 
that Article 30 I did not simply adopt Section 297 of the 1935 Act but 
widened and enriched the same in content. The Court did not, however, 
elaborate as to how much richer and wider did Attic le 30 I make the 
freedom of trade, commerce and intercourse then what was envisaged 
under Section 297. The Court said: 
"-12 . ......... That is why we are inclined lo hold that the 
broad and unambiguous words used i11 Article 301 are 
intended
lo emphasize that the freedom of trade, 
commerce and intercourse guaranteed was richer and 
wider in content than was the case under Section 297; 
how much wider and how much richer can be determined 
F 
only on a fair and reasonable construction o[Article 
301 read along with the rest o{lhe articles in PartX!ll 
In our opinion therefore, the argument that lax laws are 
outside Part XIII cannot be accepted. " 
G 
H 
(emphasis supplied) 
78. We have with great respect to the distinguished Judges failed 
to persuade ourselves to subscribe to the above view. The argument 
that Article 30 I had enriched and widened the content of trade, commerce 
and intercourse beyond what is evident from a comparison of the language
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
IT. S. THAKUR, CH] 
between the two provisions namely (a) extending the prohibition against 
dis~rimination to the Union Government and the Parliament and (b) 
making the provision applicable to the territory oflndia as defined by the 
Constitution, has not impressed us. The textual interpretation placed by 
us upon Articles 301-304 instead gets considerable support from the 
contextual and the historical perspective of Part XIII. 
79. We may now turn to yet another contextual feature that has a 
bearing on the true and correct interpretation of Part Xlll namely the 
sovereign character of the power to tax available to the State legislature. 
lt is now fairly well settled that the Constitutionally vested power to levy 
tax can be regulated or controlled only by specific Constitutional 
limitations, if any. We have in the earlier part of this judgment elaborated 
how the power to levy taxes is a sovereign power with several limitations 
specifically stipulated by the Constitution itself. We have also explained 
at some length how legislative competence of the State legislatures can 
be circumscribed only by express provisions of the Constitution and unless 
there is an express limitation on the plenary taxing power of the States, 
there is no other fetter on the exercise of that power. 
80. Applying the above principle to the case at hand, we do not 
see any specific limitation on the State's power to levy taxes on the 
import of
goods from other States except the one refe1Ted to in Article 
304(a) of the Constitution. That limitation we have sufficiently explained 
is confined to levy of discriminatory taxes within the comprehension of 
Article 304(a). So long as taxes are non-discriminatory and, therefore, 
consistent withAlticle 304(a), there is no limitation leave alone any express 
limitation on the States' legislative power to levy any tax on the import of 
goods from another State. The power to levy a tax in terms of Articles 
245 and 246 read with Entry 52 of list 11 not being in dispute in the cases 
at hand, the absence of any specific limitation forbidding the exercise of 
such power whether for the sake of free trade, commerce and intercourse 
or otherwise simply means that the State legislatures are free to levy 
taxes that are non-discriminatory in nature .• 
251 
A 
B 
c 
D 
E 
F 
G 
81 . That brings us to the third contextual feature relevant to the 
interpretation of Part XIII. We have in the earlier part of this judgment 
referred to the decisions of this Court in Ku/dip Nayyar 's case and 
S.R. Bommai \ case apart from the decisions of this Co mt in Special 
Reference No. J of J 964 (supra) to hold that the Indian Constitution if H
252 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
(2016] I 0 S.C.R. 
not federal in the strict sense of the term is at least quasi federal in 
character. That proposition has not been disputed even by the counsel 
for the assesses/dealers, and must be held to be fairly well settled. Equally 
well settled is the proposition that India's federal strncture is one of the 
basic features of the Constitution. Relying upon the settled legal position 
Mr. Mukul Rohtagi. Attorney General, followed by Mr. Rakesh Dwivedi, 
Mr. PP Rao, Mr. AK Sinha and Mr. Devdatt Karnath strenuously argued. 
and in our opinion rightly so that the provisions of our Constitution are 
aimed at vesting and maintaining with the States substantial and significant 
powers in the legislative and executive fields so that States enjoy their 
share of autonomy and sovereignty in their sphere of governance. This 
can in turn be done by interpreting the provisions of the Constitution 
including those found in Part XIII in a manner that preserves and promotes 
·the federal set-up instead of diluting or undermining the same. In ITC 
Limited v. Agriculturu/Procluce Market Committee and Ors. (2002) 
9 SCC 232 this Court ruled that the Constitution of India must be 
interpreted in a manner that does not whittle down the powers of the 
State legislature. An interpretation that supports and promotes federalism 
while upholding the Central supremacy as contemplated by some of the 
Articles must be preferred. To the same
etrect is the nine judge Bench 
decision of this Court in S.R. Bommai'~· case (supra) where this Court 
cautioned against adoption of an interpretation that has the effect of 
whittling down the powers reserved to the States. This Court said: 
"276. The fi1ct that under the scheme o(our Constitution. 
greater power is conferred upon the Ce11t1'e vis-a-vis 
the States does nut mean that States are mere appendages 
o( the Centre. Within the sphere allotted to them. States 
are supreme. The Centre ca1111ot tamper with their 
powers. Jvlore particularlv. the Courts should not adopt 
an approach. an interpretation, which has the effect of 
or tends to have the effect of whittling down the powers 
reserved to the States. It is a matter of common knowledge 
that over the last several decades, the trend the world 
over is towards strengthening of Central Governments 
be it the result of advances i11 technolugicallscient(fic 
fields or otherwise, and that even in USA the Centre
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJI] 
has become far more powe1ful notwithstanding the 
obvious bias in that Constitution in favour of the States. 
All !his mus! pul !he cow·/ on guard against anv 
conscious whittling down of the powers of the States. 
Let it be said that the federalism in the Indian 
Constitution is not a mat/er of administrative 
convenience, but one o( principle - the outcome of our 
own historical process and a recognition of the ground 
realities. This aspect has been dealt with elaborately by 
Shri MC. Setalvad in his Tagore Law Lectures "Union 
and State relations under the Indian Constitution" 
(Eastem Law House. Calcutta, 197'1). The nature of 
the lndian federation with reference to its historical 
background, the distribution of legislative powers, 
financial and administrative relations, powers <~f 
taxation, provisions rela,ring to trade, commerce and 
industry, have all been dealt with analytically. It is 1101 
possible nor is ii necesswy for the present purposes to 
refer to them. It is enough to note that our Comtitution 
has certainly a bias towards Centre vis-a-vis the States: 
Automobile Il·ansporl (Rajastha11) Ltd. v. State of 
Rajastha11. It is equallv necessarv to emphasise that 
courts should he careful not to upset the delicatelv-
crafted constitutional scheme bv a orocess o( 
interpretation. " 
(emphasis supplied) 
253 
A 
B 
c 
D 
E 
82. Reference may also be made to Kesavananda Bltarati'.\' 
F 
case
(supra) where a Bench of thirteen Judges cautioned that the process 
of interpretation should not diminish or whittle down the provisions of 
the original contract upon which the federation was founded nor is it 
legitimate to impose by a process of judicial construction a new contract 
upon the federating states. To the same effect is the decision of this 
G 
Court in MA. International Tourist Corporation & ors. I'. State of 
Haryt1t1a and Ors. (1981) 2 SCC 318 where this Court observed: 
"6A. There is a patent fallacy in the submission of 
Shri Sorabji. Before exclusive legislative competence 
H
254 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
can be claimed for Parliament by resort to the residuary 
power, the legislative incompetence of the State 
legislature must be clearly established. Entry 97 itself 
is .1pecijic that a matter can be brought under that entry 
on(y if it is not enumerated i11 Lisi l1 or List Ill w1d in 
the case of a tax if it is nut me11tio11ed in either of those 
lists. Jn a Federal Constitution like ours where there is 
a division of!egislative subjects but the residuary power 
is vested in Parliamenl, such residuarv power cannot 
be so expansively interpreted. as to whittle down the 
power of the State le<tislature. That mi<,£ht afject and 
Jeopardize the veo1 federal principle. The federal 1wture 
of the Constitution demands that m1 i11ferpretation which 
would allow the exercise of legislative power hv 
Parliament pursuant to t/1e residuarv powers vested in 
it to trench upo11 State legislation and which would 
therebv destroy or belittle state autonomv 111ust be 
rejected. " 
(emphasis supplied) 
83. An approach which tends to dilute the federal character of 
our Constitutional scheme must, therefore. be avoided and one that 
supports and promotes the concept of federalism pn:ferred by the courts 
while interpreting the provisions of the Constitution. 
' 
. 
84. Dealing in particular with the scope and meaning of Article 
304 (b) of the Constitution on a true and correct interpretation Seervai 
in his treatise
Constitutional Law of India (.rnpra) sounded a note of 
caution and observed that if Article 304(b) was interpreted in a manner 
that would include levy of taxes as a restriction within the meaning of 
that Article, it wou Id totally dislocate the scheme under our Constitution. 
The celebrated author, in our opinion, was right in saying so for the 
taxing power of the Union and the States an: mutually exclusive. While 
the Parliament cannot legislate on the subjects reserved for the States, 
the States cannot similarly trespass onto the taxing powers of the Union. 
If the Constitutional scheme does not allow the Parliament to usurp the 
taxing powers of the State Legislatures, such process of usurpation cannot
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJ!] 
also be permitted to take place in the garb of making Union executive's 
concurrence an essential pre-requisite for any taxing legislation. The 
following passage from Seervai 's book (Vol. 3, Page 2607) is in this 
regard instructive: 
"23 .43. Thirdly, the whole scheme of taxation in our 
Constitution ·would be completely dislocated if Article 
304(b) included a tax. The taxing powers of the Union 
and the States have been made mutually exclusive so 
that Parliament cannot deprive the States of their taxing 
powers as has happened in countries where the powers 
of taxation are concurrent. It would be surprising if 
the Union legislature. i.e. Parliament could not take 
away the taxing powers of the State legislatures and yet 
it would be open to the Union executive under Article 
304(b) to deprive the State legislatures of their taxing 
powers. 
85. To the same effect are the following observations made by 
Mathew'.s, J. in GK. Kri.shmm :~ case (supra): 
"27 ....... ... Article 304(a) prohibits 011/y i111positio11 
of a discri111inato1y tax. It is not clear from the article 
that a tax simpliciter can be treated as a restriction 011 
the freedom of internal trade. Article 304(a) is intended 
to prevent discrimination against imported goods by 
imposing on them tax at a higher rate than that borne 
by goods produced in the State. A discriminat01y tax 
against outside goods is not a tax simplicifer but is a
barrier to trade and commerce. Articled 304 itself 
makes a distinction between tax and restriction. That 
apart. taxing powers of the Union and States are 
separate and mutuallv exclusive. It is rather strange 
that power to tax given to states. say. for instance under 
entn' 54 of List II to pass a law imposing tax 011 sale of 
255 
A 
B 
c 
D 
E 
F 
G 
1-1
256 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
goods should depend upon the goodwill o[ the Union 
executive. " 
B 
c 
D 
E 
F 
G 
H 
86. Suffice it to say that the interpretation of any provision of the 
Constitution will be true and perfect only when the Court looks at the 
Constitution holistically and keeps in view all important and significant 
features of the Constitutional scheme constantly reminding itself of the 
need for a harmonious construction lest interpretation placed on a given 
provision has the effect of diluting or whittling down the effect or the 
importance of any other provision or feature of the Constitution. So 
interpreted Article 301 appearing in Part Xlll does not, in our opinion, 
work as an impediment on the States' taxing powers except in situations 
where such taxes fall foul of Article 304(a) of the Constitution. The 
contextual approach thus fully matches the textual interpretation which 
we have placed on Part XII!. 
87. On behalf of the dealcrs/assessecs it was contended with 
considerable amount of tenacity that since Article 304 starts with a 
11011-obstante clause the inference was that the framers of the 
Constitution treated taxes as impediments for free trade, commerce and 
intercourse. The argument was that unless Article 301 was understood 
to mean that taxes could also be restrictions on free trade and commerce, 
there was no need for the framers of the Constitution to start Article 304 
with a 11011-ubsta11te clause inasmuch as
a 11m1-obstante clause is meant 
to be only an exception to the generality of the provision. Similar 
contentions urged in the past have been noticed by this Court and by 
jurists alike while attempting interpretation of Part XIII. This is evident 
from the passages which have dealt with the anomaly arising out of the 
use of the expression 'subject to' in Article 30 l and the 11011-ubsta11/e 
clause in Article 304 of the Constitution. This Court has often found the 
use of the 11011-ubstanle clause in Article 304 to be either confusing or 
an unnecessary surplusage. But the problem with the use of 
non-ohstante clauses in Part Xlll has been the subject matter of criticism 
even in the Constituent Assembly as is evident from the following 
passages from the debates:
JINDAL STAINLESS LID. v. STATE OF HARYANA 
IT. S. THAKUR, CJl] 
Constitution Assembly Debates (Vol. IX Page 1131): 
"D1: PS Desh11111kh: If we ana~v.~e the new articles that 
have hee11 proposed, it is very difficult to understand 
them and I 1hink the comment is ahsolutely justified that 
this is going to he a lawyers' constitution, a "paradise 
for laH'}'ers" where there ·will he so many innumerable 
loophole.1· that we will he wasting years and years before 
H'e could come to the final and correct interpretation of 
many clauses. lf"we read this article 274, you will.find, 
Sil; that this is one of the most wonder/iii articles in the 
·whole Constitution. This is not the only one; there are 
many others. If we count the use of the word 
'notwithstanding' in this Constitution, I am certain that 
the 1111111/Jer of' times that word is used will far exceed 
the use of' the word 'Parliament' or 'Constitution' in the 
whole Constitution. If' you will permit me, Si1; I will 
descrihe the situation a little graphically. We first of' all 
pmvide and say or declare that a certain person is a 
man. Then, we say, notwithstanding this declaration, 
you shall wear a sari and nothing hut a sari. 
Shri 1: 1: Krislmamachari : There is no har to that. 
D1: P.S. Deslwmkh : Then, notwithstanding the fact that 
you are considered a man, and notwithstanding the fact 
that you 1vec1r nothing else hut saris, you will wear a 
Gandhi 
cap 
also. 
Then 
we 
have 
another 
'notwithstanding'.
Not1vithsta11di11g that you are a man, 
notwithstanding that you shall wear nothing hut a sari, 
11of\vith.1·1andi11g that you shall also wear a Gandhi cap, 
you will he at liher(v to describe yourself as a woman. 
(/,a11ghter) Something of that sort, as funny and as 
amusing, is really the situation so far as this article 
2 7 4 is concerned. If you read through it, you will see 
that as soon as the first part is ove1~ we start with 
"11otwithsta11ding whatever is said in the .first part, such 
and such a thing will happen". In the next clause, we 
say not onlv notwithstanding what is contained in the 
first clause, together with notwithstanding what is 
257 
A 
B 
c 
D 
E 
F 
G 
H
258 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
contai11ed i11 the other clauses' and then add something 
more. I think there is a better method of drafting. Even 
if it is necessary to cope with complex situations and to 
provide something on the li11es proposed, there should 
he a simpler and more direct WCf;V of drafting and making 
a provision which is not so ummderstandable that onlv 
supermen could read this constit11tion, even ass11ming 
that onlv supermen are to be born in India hereafta If 
this Constitution is made for the ai•erage man, if it is 
going to affect the rights and privileges of the ordinary 
common man, it is necessm:v that the drafters of this 
constitution should he more clear and use phraseology 
which is more easi!v understandahle and simp!e1: 
xxx xxx xxx xxx 
I hope therefore that the whole chapter will be made 
simp!e1: l11stead Cl( tving the hand\' of both the States as 
well as of Parliament, it would he far better not to 
commit ourselves to any policy, hut to leave the whole 
thi11g to Parliamelll. Otherwise, the situation which has 
arise11 already in respect of article 16 may arise in 
respect of article 274 itself It is, therefore, better to 
have simpler provisions and I have given them the 
simplest form. 1 hope that this will appeal to the drafters 
of the Comtitution and if thev accept it, I can tell them 
that they ·will he out of much of the trouble. But !f they 
i11sist upon the draft that they have produced,
it will he 
Ferv difficult.for trade and commerce llOt only to prvsper 
hut even to exist. ·· 
·88. Jn Automobile Tramport case (supra), SK Das, J. speaking 
for the majority noticed the anomaly arising out of the use of the 11011-
ohstallfe clause in Article 304 and described the same to be "somewhat 
inappropriate". The majority judgment in Automobile 7/·ansport case 
(supra) in fact took the view that the mix up of exception upon exception 
in the series of Articles in Part XIII makes a purely textual interpretation 
difficult. The following passage is in this regard apposite:
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
IT. S. THAKUR, CJI] 
"J 0. Art. 304 agai11 begins with a 11011 obstinate clause 
mel1lioning hoth Art. 301 and Article 303, though Article 
301 relates only to the Legislature of a State. Article 
303 relates to hath the State Legislature and Parliament 
and again the non ohstante clause in Article 304 is 
.rnmewlwt inappmpriate. The fact of the matter is that 
there is such a mix up of exception upon exception in 
the series of' articles in Part XJJJ that a purely textual 
i11terpretatio11 may not disclose the true i11te11dment of 
the articles. " 
89. Subba Rao, J.. as His Lordship then was, in a separate judgment 
delivered in A11to111obile Transport case (supra) also found the use of 
the 11011-ohstante clause to be a "defect in phraseology''. His Lordship 
held that the 11011-ohstante clause has no relevance to Article 303 even 
when the Article is mentioned alongwith the 11011-ohstante clause. The 
importance of the 11011-ohstante clause was then confined to Article 
304(b) as is clear from the following paragraph of the judgment : 
"42 . ......... The 11011-ohstante clause vis-a-vis Article 
304(a) may have some relevance so far as Article 301 
is concerned. for it enaMes the Legislature of a State to 
impose an i111pedi111e11t on the fi'ee movement of trade in 
spite of the fi'eedom declared under Article 301. Buf it 
has no relevance to Article 303. which onzv prohibits 
the State f,egislature fi'om making a discriminatory
law 
and it does not in any way prohihit the State Legislature 
ji·mn imposing a no11-discrimi11atorv tax permitted under 
Art. 304(a). But. with re/ere11ce to Art. 304(/J), the 11011-
ohswnte clause has significance and meaning even in 
regard to Art. 303. as clause (b) lif'ts the ban imposed 
hy Art. 303, suhject to the limitation mentioned therein. 
Therefore. the non-ohstante clause must he deemed to 
applv only to that part of' Art. 304 appropriate to the 
said clause. if' so read. the difficulty in the construction 
disappears. Art. 304(a) lifts the general han imposed 
259 
A 
B 
c 
D 
E 
F 
G 
H
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
/\. 
hy ,·1rticle 301 in respect of imposition of 11011-
discriminatory taxes 011 good1· imported, which indicates 
that hut for the said provision the law of taxation in 
that regard v.·ould i11fi'i11ge the fi·eedom declared under 
Art. 301." 
B 
c 
D 
F 
G 
H 
90. Hidayatullah, J. also found the 11011-ohstante clause in Article 
304 to be somewhat anomalous and described the same as "inaccurate 
drafiing o/ the Constitution". 
91. Suffice it to say that the use of the non-obstante clause in 
Article 304 has had its share of criticism from the very inception which 
criticism !ms to an extent been prophetic for the interpretation of Part 
Xlll has indeed been a lawyer's paradise over the past fifty years or so. 
Seervai has in his treatise adverted to this anomaly arising from the use 
of the non-obstante clause and said that the same covers both the clauses 
(a) and (b) of Article 304. He argues with considerable forensic force 
that reference to A11icle 30 I in the non-obstante clause is meaningless 
having regard to the fact that the freedom granted thereunder is itself 
subject to other provisions of PartXlll including Article 304. This would 
necessarily imply that Article 304 (a) and (b) do not subtract anything 
from Article 30 l. That appears to us to be the correct view on the subject. 
While it is true that legislature does not waste words and that no part of 
a legislation can be rendered a su1vlusage, the only rational
meaning that 
can be attributed to the 11011-oh.1·1ante clause appearing in Article 304 is 
that the same was used only as a manner of abundant caution and a 
possible reassurance that A11icle 301 is indeed subordinate to A11icle 
304 which it was even otherwise without the use of that clause. The net 
effect of the discussion therefore is that the expression 'subject to other 
provisions of this Part' appearing in Article 30 I and the 11011-ohstante 
clause appearing in Article 304 do not traverse in different directions. 
There is no conflict in the two provisions on account of the use of the 
said expressions. Interpreted individually or conjointly, the said two 
expressions simply mean thatA11icle 304 takes precedence over Article 
JO 1. While Article 304(a) recognizes the power of the State Legislatures 
to tax goods imported from other State, it also imposes limitations on the 
exercise of that power. On the other hand clause (b) to Article 304 
permits imposition of reasonable restrictions subject to the proviso
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
IT. S. THAKUR, CH] 
appearing below that clause. We have thus no hesitation in rejecting the 
argument that the use of the non-ohstante clause in Article 304 is 
suggestive of the Constitution recognizing taxes as restrictions under 
Article 301 or that the power to impose a reasonable restriction under 
Article 304(b) is meant to include the power to levy taxes so that levy of 
taxes may be permissible only in case the procedure provided under the 
proviso is followed. 
92. On behalf of the dealers/assessee it was argued that the State 
kgislatures may levy taxes that may operate as fiscal baniers and thereby 
prevent or restrict inter State trade, commerce and intercourse. It was 
urged that if such statutory fiscal barrier is also held not to be a restriction 
upon the freedom of trade, commerce and intercourse guaranteed under 
Part XIII, a citizen whose right under that Part is affected may have no 
redress against such levies. Relying upon the decision of this Court in 
Ramiilal v. Jncome 1(i:.; (~[freer, Moliindargarh, AIR 1951 SC 97, it 
was contended that a challenge to a fiscal statute shall not be maintainable 
even under Part lll of the Constitution, thereby, not only violating the 
citizen's constitutional rights of free trade and commerce but also denying 
them the remedy against such violation. This according to the learned 
counsel was one among other reasons why levy of taxes ought to be 
treated as restrictions on
free trade, commerce and intercourse. 
93. In Ramjilal's case (supra), a petition under A1ticle 32 of the 
Constitution was filed before this Comt by the petitioner who was canying 
on business in the State of Nabha. With the merger of Nabha into the 
State of Pepsu, the petitioner was required by the assessing authority to 
file return and pay income tax for the income earned by him during the 
previous years. AggTieved. the petitioner challenged the proceedings inter 
alia on the ground that the assessment of tax for previous year violated 
his right guaranteed under A1ticle 14. 111is Colllt repelled the contention 
founded on Article 14 holding that there was reasonable classification of 
assessee under the relevant statute and thatthe petitioner's challenge to 
the proceedings under Article 14 was untenable. Having said that, the 
Court examined the question whether the taxing statute violated Right to 
Property guaranteed under A1ticle 3 1 ( 1) of the Constitution. Repelling 
the contention this Court held that if collection of taxes amounted to 
deprivation of property within the meaning of Article 31 (1), there was 
261 
A 
B 
c 
D 
E 
f 
G 
H
262 
A 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016) 10 S.C.R. 
no point in making a separate provision regarding the same as is made in 
Article 265. This Court declared that Article 31 ( 1) must be regarded as 
a guarantee against deprivation of property otherwise, than by imposition 
of tax for otherwise Article 265 would become wholly redundant. The 
Court declared that the Constitution had treated taxation as distinct from 
compulsory acquisition of property and has made independent provisions 
giving protection against taxation. 
94. Then came Kunnathat Thatlmnni Moopil Nair v. The State 
ti( Keuzla & Am:, AIR 1961SC552, where again one of the questions 
that fell for consideration was whether Article 265 of the Constitution 
was a complete answer to the attack against the Constitutionality of a 
taxing statute. This Court held that in order that a taxing law may be 
valid, the tax proposed to be levied must be within the legislative 
competence of the legislature imposing the tax and authorizing the 
collection thereof and that the tax must be subject to the condition laid 
down under Article 13 of the Constitution. One of such conditions 
declared by this Court was that the legislature shall not make any law 
that takes away or abridges the equality clause in Article 14. The Court 
declared that the guarantee of equal protection of la~s must extend 
even to taxing statutes. It clarified that every person may not be taxed 
equally but property of the same character
has to be taxed, the taxation 
must be by the same standard so that the burden of taxation may fall 
equally on all persons holding that kind and extent of property. If the 
taxation, generally speaking, imposes similar burden on everyone with 
reference to that particular kind and extent of property on the basis of 
such taxation, the law shall not be open to attack on the ground of 
inequality even though the result of taxation may be that the total burden 
on different persons may be unequal. The Court summed up that taxing 
statute is not fully immune from an attack on the ground that it infringes 
equality clause under Article 14, no matter the Courts are not concerned 
with the policy underlying tl1e taxing statute or whether a pa11icular tax 
could have been imposed in a different way or a way that the Court 
might think would have been more equitable in the interest of equity. 
' 
. 
95. To the same effect is the decision in Laxmanappa 
lla1111111a11tappa Jamkhandi v. Union of India, AIR 1955 SC 3. 
Reference may also be made to Smt. Ujjam Bai v. State of Uttar 
Pradesh, AIR 1962 SC 1621 which took note of the pronouncements
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[T. S. THAKUR, CJl] 
of this Court in the three cases mentioned above to examine wliether 
there was any conflict between the view taken in Moopil Nair case on 
the one hand and Ramiilal and Laxmanappa cases on the other, the 
Court found on a closer examination that there was no such conflict and 
clarified that the observation made in Ramjilal and Laxmanappa cases 
must in the context bear reference to abrogation of A1ticle 31 ( 1) only in 
so far as the admissibility of a challenge to taxation law with reference 
to Part lll is concerned. The Court explained that in Moopil Nair~~ 
case this Court has held that a taxing statute was not immune from 
challenge under A1ticle J 4 just because the legislature that imposed the 
tax was competent to levy the tax in tenns of A1ticle 265. This Court 
summed up the legal position in the follo~ing words: 
" The result of the authorities may thus he summed up: 
263 
A 
B 
c 
( l) A tax will he valid only if it is authorized hy a law 
D 
enacted hy a competent legislature. That is Article 265. 
(2) A law which is authorized as aforesaid must further 
he not repugnant to any of the provisions of the 
Constitution. 
17ms, a law which contravenes Articles 
J 4 will he had, Moopil Nair :5 case. 
E 
(3) A law which is made hy a competent legislature and 
which is not otherwise invalid. is not open to attack 
under Article 3 J (1 ). Ramjilal :5 case and Laxmanappa :5 
case. 
(4) A lmv which is ultra
vires either h.ecause the 
legislature has no competence over it or it contravenes, 
.l'Olne constiflltional inhibition, has no legal exisrence, 
and an1• action taken thereunder will he an i11fi·inge111e111 
ofArticle 19 (1) (~) Himmatlal:s- case and Laxmanappa :1· 
case. The result will he the same when the law is a 
colourahle piece of legislation. 
(5) Where assessment proceedings are taken without the 
authority of law, or where the proceedings are 
repugnant to rules of natural justice, there is an 
F 
G 
H
2(,4 
SUPREME COURT REPORI'S 
[2016] I 0 S.C.R. 
A 
i11fi·inge111ent of the right guara11teed under Article 
19(1)(() a11d Artide 19(l}(g); Tata Iron & Steel Co. Ltd: 
11 
c 
D 
F 
G 
J-1 
Moo pi! Nair :1 case and Shri Madan Lal Arora '.1 case. " 
96. The above statement of Jaw in our view 1s legally 
unexceptionable. The argument that Ramji!al and Laxmanappa '.1 cases 
place taxing statute beyond the purview of challenge under Part Ill has 
been correctly repelled and fiscal statutes are also held to be open to 
challenge on the touchstone of Article 14 of the Constitution. The 
contention that an aggrieved citizen may have no remedy against a taxing 
statute does not, therefore, hold good. · Whether or not a challenge to 
such a statute succeeds is, however, a different matter. It is fairly well 
settled by now that Courts show considerable deference to the legislature 
in the matter of quantum of tax that may be levied as also the subjects 
and individuals upon whom the same may be levied. Just because room 
for cha l!enge to a fiscal statute is limited is in our view no reason to hold 
that levy of taxes otherwise within the competence of the legislature 
imposing the same should be seen as a restriction on free trade and 
commerce guaranteed under Article 301 which Article does not either 
textually or contextually recognize levy of taxes as impediments except 
in cases where the same are discriminatory in nature thereby being 
offensive to Article 304 (a) of the
Constitution. 
97. On behalf of the States it was argued by the learned Attorney 
General, and M/s. Rao and Dwivedi that the decisions of this Court in 
Atiabari and Automobile Tramport cases had drawn support for their 
conclusion on the Australian and American decisions. It was urged that 
although the view taken by the majority decision in the former had 
recognized that decisions from other jurisdictions may not be helpful 
while interpreting the provisions of our Constitution, yet the Court bad 
referred to and relied upon those decisions to buttress its conclusions. 
The Australian decisions relied upon by the majority have, it was 
contended, been reversed by subsequent pronouncements of the 
Australian High Court, which pronouncements are now gravitating 
towards the theory that discriminatory taxes alone will operate as 
restrictions against free trade. commerce and intercourse. It was in that 
view argued that the theoretical basis borrowed from the foreign 
judgments by this Court in Atiabari case stood demolished or atleast
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
265 
[T. S. THAKUR, CJ!] 
substantially eroded by the subsequent pronouncements of the Australian 
A 
High Courts, thereby, rendering the correctness of the view taken by the 
majority in Atiabari 's case open to serious doubts. 
98. There is. in our view. considerable merit in that submission. In 
Atiabari's case (supra), Gajendragadkar J ., speaking for the majority 
while referring to the American and Australian decisions observed: 
B 
"59 .... ...... We have deliberately nut referred lo these 
decisions earlier because we thought it would be 
unreasonable to refer to or rely on the said section or 
the decisions thereon for the purpose of construing the 
relevant Articles of Part Xll! of our Constitution. ft is 
commonplace to sav that the political and historical 
background of the federal politv adopted by the 
Australia11 Com111011wealth. the setting o(the Constitution 
itsell the distribution of powers and the general scheme 
o( the Constitution are different. and so it would not be 
safe to seek for guidanc.:e or assistance from the 
Australian decisions when we are called upon to 
construe the provisions of our Co11stitution. 
111 this 
connection ·we have already referred to !he note of 
warning struck by Venkalarama Aiyar, J .. against 
indiscriminate reliance being placed 011 Australian and 
American decisions in i11terpreti11g our Constitution in 
the case of M.P. v: Su11darara111ier & Co. 
The same 
caution was
expressed by Uwyer, C.J, as early as 1939 
when he observed in The Central Provinces and Berar 
Sales of Motor Spirit and Lubricants Taxation Act, 1938. 
In the matter of AIR 1939 FC. 1 at P.5: ''there are few 
subjects on which the decisions <!f other Courts require 
to be treated with greater caution than !hat of federal 
and provincial powers, for in the last analysis the 
decision must depend upon the words of the Constitution 
which the Court is interpreting; and since no two 
Constitutions are in identical terms it is extremely unsafe 
to assume that a decision on one of them can be applied 
without qualification to another. This may be so even 
c 
D 
E 
F 
G 
H
266 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
where the wvrd1· vr expressivns used are the same in 
both cases. for a word vr a phrase may take a cvlvur 
from its cvntexl and bear dijfere111 senses accordingly. ·· 
B 
c 
(emphasis supplied) 
99. Having said that Gajendragadkar J., referred to these decisions 
with a view to supporting his conclusions by reference to Judges in other 
jurisdiction responding to similar challenges posed by interpretation of 
what His Lordship described as "sister constitutions". He said: 
"59 . ......... When you are dealing wilh the problc!m of 
construing a constitutional provision which is nune-tuo-
clear or lucid you feel inclined to inquire how other 
judicial minds have responded lo 1he challenge 
D 
presented by similar provisions in olher sisler 
Constitulions. It is in thal spiril !hat we propose to refer 
to two Privy Council decisions which dealt with the 
construction of Section 92 
1~/ the Australian 
E 
F 
G 
H 
· Constitution. " 
I 00. The Court, then, relied upon the decisions of the Australian 
High Court in James 
1•. Commonwealth of Australia (1936) A.C. 
578 and Commonwealth ofAustmlia mu/ others 
1•. 
Bank of New 
South Wales and others /1950/ A.C. 235 to hold that the test of direct 
and immediate effect evolved by the Australian High Court 
pronouncements. while interpreting Section 92 of the Australian 
Constitution, was the correct test applicable even to our Constitution 
including interpretation of Article 301
thereof. The Court said: 
Commonwealth o(Australia 1•. Bank o(New South Wales 
"61 . ......... !11 deciding the said quesriu11 011e 11( the 
tests which was applied by Lord Porter was: .. Dues the 
act not remotez)I or incidentally (as to which they will 
say something later) bur directly restrict the inter-State
JINDAL STAINLESS LTD. v. S'fATE OF HARYANA 
IT. S. THAKUR, CJ!] 
business of banking". and he concluded that "two 
general propositions may be accepted. (1) that 
regulation of trade, commerce and intercourse among 
the States is compatible with its absolute fi·eedom, and 
(2) that Section 92 is violated univ when a legislative 
or executive a<.:/ operates to restrict such trade, 
commerce and intercourse directlv and i111111ediatelv as 
distinct [rum creating some indirect or consequential 
impediment which mav fairly be regarded as remote". 
This decision thus justifies the co11clusion we have 
reached about the scope and effect of' Article 301. ·· 
(emphasis supplied) 
I 0 I. In Automobile's case (supra) also Das, J. while speaking for 
the majority followed the direct and immediate effect test relying upon 
the pronouncements of the High Court of Australia in Commonwealth 
ofAmtralia and Ors. v. Bank of New South Wales and Ors. /195()/ 
A.C. 235. This is evident from the following passage: 
"10. 
. .....
... In Section 92 
c~f the Australian 
Constitution the expression used was "absolutely free" 
and repeatedly the question was posed as to what this 
freedom meant. 
We do not propose to recite the 
somewhat chequered history of the Australian decisions 
in re5pect of which Lord Porle1: ajier a review (?f the 
earlier cases, said in Commonwealth of Australia v. 
Bank cif New South 1Yales that in the ::/abyrinlh (?f cases 
decided under Section 92 there was no golden
thread". 
What is more important for our purpose is that he 
expressed the view that two general propositions stood 
out from the decisions: (i) that regulation o( trade. 
commerce and intercourse among the Stales is 
compatible with its absolute fi·eedom. and (ii) that 
Section 9? o(/he Australian Co11stit11tio11 is violated onlv 
when a legislative or executive act operates to restrict 
such trade, commerce and intercourse directlv and 
267 
A 
B 
c 
D 
E 
F 
G 
H
268 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
irnmediatelv as disti11ct from creating some indirect or 
inconseque11tia/ impedi111e111 which mav fi1irlv be 
B 
c 
D 
E 
F 
G 
H 
regarded as remote . ......... '' 
102. On behalf of the States it was contended and. in our opinion, 
rightly so that the "direct and immediate" effect test evolved by the 
pronouncement of the Australian High Court has itself been watered 
down and diluted. The current view in Australia is that only such taxes 
as are discriminatory introduced by way of a protectionist measure 
operate as restrictions on the freedom of trade. commerce and 
intercourse. This is evident from the decisions of the Australia High 
Court in Cole v. Whitfield (1988) 165 CLR 360. The Court in that 
case reviewed the case law on the subject and rejected the argument 
that if Section 92 of the Australian Constitution was interpreted to be 
forbidding only discriminatory burdens it would have the effect of denying 
the freedom of trade. commerce and intercourse. The Court said: 
.. .. Plainly. howeve1; the constructi<m which treats 
Sectio11 92 as hei11g concerned to guarantee the.fi·eedom 
of inter-State trade and commerce from discriminatory 
burdens does not involve the co11seque11ce Iha! the gm11t 
of legislative power with re.1pect lo inter-State trade and 
commerce is deprived of its essential content. " 
I 03. The Court noticed the evolution of the law on the subject and 
held that it is only discriminatory burdens
that are forbidden by Section 
92 and that the question whether a burden is indeed discriminatory is a 
question of fact and degree to be answered upon judicial interpretation 
and impressions. The following passage is, in this regard, instructive. 
" Departing now from the doctrine which has ji1i!ed to 
retain general acceptance. we adopt the inte1pretatio11 
which. as we have shown. is favoured by history and 
context. In doing so. we must say something about the 
resolution of cases in which no impermissible pw1Jose
JINDAL STAINLESS LTD. v. STA.TE OF HARYANA 
269 
[T. S. THAKUR, CJ!] 
appears on the face of the impugned law, but its effect 
A 
is discriminatory in that ii discriminates against inler-
State trade and commerce and thereby protects intra-
State and commerce of the same kind. We mention first 
Com111onwealth /mi's enacted under Section 51 (i) which 
govern rhe conduct of inter-State trade and commerce. 
Such laws will commonly not appear to discri111i11ate in 
a relevant sense if they apply to all tra11sactio11s c1f a 
given kind within the reach of the Parliament. 
It is. 
howeve1; possible for a general law enacted under 
Section 51 fi) tu offend Sec/ion 92 if its effect is 
discriminatory and the discrimination is upon 
protectionist grounds. 
Whether such a law is 
discrimina/orv in effect and whether the discri111inalio11 
is of a protectionist character are questions raising 
issues of fact and degree. The answer tu those question.1· 
mav. in the ultimate. depend upon judicial impression. " 
(emphasis supplied) 
I 04. The Court also held that it is only if the discrimination is ofa 
protectionist character that Section 92 of the Australian Constitution would 
stand violated. The Court said: 
"Jn the case of a Slate law. the reso/11tio11 of the case 
mus/ start with a consideration of the nature of the law 
impugned. I{ ii apvlies to all trade and co111merce. inter-
State and intra-State alike, ii is less likelv lo he 
protectionist than if there is discrimination
appearing 
on the face of the law. But where the law in effect. if 
no/ in furm. discriminates in favour ofintra-State trade. 
it will nevertheless offend against Section 92 if !he 
discrimination is of a protectionist characte1: A law 
which has as its real object the prescription of a 
standard for a product or a service or a 11or111 of 
commercial conduct will not ordinarily be grounded in 
protectio111:m1 and will 11ot be pmhibited hv Section 92. 
B 
c 
D 
E 
F 
G 
!-I
270 
SUPREME COURT REPORTS 
(2016] 10 S.C.R. 
A 
But i( a law, w'1ich mav be otherwise justified b!' 
reference tu an object which is nut prutectiu11ist. 
discriminates against inter-State trade or commerce in 
pursuit of' that object in a wav or to an extent which 
warrants charac:terizatiu11 o( the law as prutectiu11is1. a 
B 
c 
D 
E 
F 
G 
H 
court will be justified in concluding that it 11u11etheless 
offends· Section 92." 
(emp!ta.\·i.\· .rnpplied) 
105. The above passage signifies a paradigm shift in the judicial 
opinion in Australia as regards the interpretation of Section 92 of the 
Australian Constitution. The earlier view that any. impediment including 
one in the nature of a tax which directly and immediately affects free 
trade, commerce and intercourse would violate Section 92 has been 
evidently abandoned by the Australian jurists. It follows that whatever 
support may have been available from the earlier decisions for the view 
taken in Atiabari (supra) and Automobile(supra) cases as to the true 
test applicable for interpreting Part Xlll, has. if we may use that 
expression, "fizzled out" with the passage of time. 
l 06. We may, at this stage, deal with yet another contention urged 
on behalf of the dealers in support of their case that taxes were. in the 
scheme of Part XIII. treated as restrictions. It was argued that the 
presence of Article 306 of the Constitution which now stands repealed 
by Constitution 7'h Amendment Act. 1956 was itself suggestive
of the 
fact that taxes were intended to be restrictions on free trade, commerce 
and intercourse, for otherwise, there was no reason why a provision I ike 
Article 306 should have been incorporated by the framers of the 
Constitution. Article 306, as it stood, before its deletion, was in the 
following terms: 
"Article 306. Power of certain States in Part B of the 
First Schedule to impose restrictions 011 trade and 
commerce. - Notwithstanding anything in the fi1regoing 
provisions of this Par/ or in any other provisions of the 
Constitution, any State specified i11 .Part B of t/Je First
JJNDAL STAINLESS LJ'D. v. STATE OF HARYANA 
[T. S. THAKUR, Cll] 
Schedule which he.fore the commencement of this 
Constitution was levving any tax or duty on the import 
of'good1· into the State fi-om other States or 011 the export 
of' goods from the State to other States may, if an 
agreeme11t in that he half has heen entered into bef\veen 
the Government of' India and the Government of that 
Stale, conti11ue to levy and collect such tax or duty 
suhjecl to the /erms o{ such agreement a11d for such 
period not exceeding ten years fi"om the commencement · 
of' this Constitution as 111ay he specified in the agreement. 
271 
A 
B 
Provided that the President may at any time after the 
C 
expirntion of fi1•e years from such com111enceme11t 
terminate or modi/.}• any such agreement ij; after 
consideration of the report of the Finance Commission 
constituted under Article 280, he think\- it necessary to 
do so." 
107. A careful reading of the above would show that the provision 
started with a 11011-ohstante clause and made it constitutionally 
permissible for any State specified in Part B of the First Schedule to 
continue levying taxes or duties on the import of goods into the State 
from other States or on the export of goods from the State to other 
States. if an agreement in that behalf has been entered into between the 
Government of India and the Government of that State for such period 
not exceeding ten years as has been stipulated in .the agreement. 
l 08. The
historic rationale behind incor1M .1: 1<'11 of Article 306 lay 
in the fact that some States were imposing taxes/duties on the import of 
goods into their territory and on the export of goods from their ten-itory, 
which taxes and levies were inconsistent with the Scheme of Part Xlll, 
but, since the States were heavily relying upon the revenue so collected, 
the tax barriers set-up for such collection could not be completely taken 
away in one go. The framers of the Constitution in that view considered 
it necessary in the interest of stability of revenue to preserve the power 
exercised by the States for a limited period subject to the conditions 
stipulated in A1ticle 306. The true effect of Article 306, therefore, was 
that while the States had no power under the Constitutional Scheme to 
D 
E 
F 
G 
H
272 
A 
B 
c 
D 
E 
G 
H 
SUPREME COURr REPORl'S 
[2016] 10 S,CR. 
levy customs duties on the import and export of goods to and from a 
State and even when such taxes and levies were discriminatory vis-a-
vis goods produced/manufactured from outside the State, the 
discriminatory duties and levies were in larger interest of stability of 
revenue of the concerned States permitted, but, conditionally for a limited 
period. Themarginal note of Article 306, therefore, rightly mentions such 
levies and duties to be restrictions on trade, commerce and intercourse, 
The reason for such description being the discriminatory nature of such 
taxes and levies. Seen in the historical perspective, it is futile to argue 
that Article 306 lends any assistance for determining whether taxes act 
as restrictions on free trade, commerce and intercourse. Seervai has 
correctly summed-up the true import of Article 306 in the following 
passage from his treatise (supra): 
"24.42. Again, Article 306 enabled the farmer Native 
States, which hecame Part B States, to continue to levy 
any tax or duty on the import of' good I' imo such States 
jimn nther States and to illlpose a dw1· on the export of 
goods out of such States for a limited period of time. 
771e reasn11 .fi>r enacting this provision is simple. First, 
Part B States claimed to he sovereign States vi.1·-ll-vis 
British !11dia, and vis-a-vis other Native States so that 
the provin('es of British India Vl'ere i11 relation to Native 
States,
and the Native States were foreign States to one 
another. 17ie duties of import and export levied by Native 
States were thus duties of' cusrom.1· which are vvel! known 
jiJr creating tariff harriers. 77ws a customs duty on the 
import ol !;()()111· creates a tariff wall which the outside 
,1!,onds mus! surmount since there is no obligation on 
the Native State imposing such duty to impose any 
corresponding d11tv 011 similar gond1' manufacrured and 
produced in the other States. And the same is true of 
duties o{ export for thev can effectiveZ11 prevent goods 
going out ol the State hy making them unsaleable in 
States where goods hear no such tax or hear a very 
much smaller tax. This scheme of taxation is hasical!v 
opposr>d to the scheme of our Constitution hecause the
JINDAL STAINLESS LrD. v. STATE OF HARYANA 
JT. S. THAKUR, CH] 
States of India are not foreign States to one another, 
and no State can levy a duty or customs on goods 
i111portedfi"Om a11othe1; for no State has power to levy a 
duty of customs. 
That power he/ongs exclusii·ely to 
Parliamenl in relation to foreig11 countries. Second!)', 
such duties would ordinarily contravene Article 304(a) 
so far as import ji-om other States is co11cerned. 
Hmveve1; as 1he revenues o/' lhe Native States were to a 
greater or smaller extent depende11t on duties of customs, 
lo have prohihited them al once 1~011/d have dislocated 
the .finawes of those States. So, for a limited period of 
time, these duties \-Vere a/lovl'ed to continue. " 
For all that we have said above we have no hesitation in rejecting 
the contention urged on behalf of the dealers. 
I 09. It was next argued on behalf of the dealers that an 
unreasonably high rate of tax could by itself constitute a restriction 
otfonsive to Article 30 I of the Constitution. This was according to learned 
counsel for the dealers acknowledged even in the minority judgment 
delivered by Sinha, CJ in Atiabari's case (supra). If that be so, the only 
w:iy such a restriction could meet the constitutional requirements would 
be through the medium of the proviso to Article 304(b) of the Constitution. 
There is, in our opinion, no merit in that contention either and we say so 
for two precise reasons. Firstly, because taxes whether high or low
do 
not constitute restrictions on the freedom of trade and commerce. We 
have held so in the previous paragraphs of the judgment based on our 
textual understanding of the provisions of Part XJ11 which is matched by 
the contextual interpretation. That being so the mere fact that a tax 
rnsts a heavy burden is no reason for holding that it is a restriction on the 
freedom of trade and commerce. Any such excessive tax burden may 
be open to challenge under Part Ill of the Constitution but the extent of 
burden would not by itselfjustify the levy being struck down as a restriction 
contrary to Article 30 I of the Constitution. 
110. Secondly because, levy of taxes is both an attribute of 
sovereignty and an unavoidable necessity. No responsible government 
can do without levying and collecting taxes for it is only through taxes 
273 
A 
B 
c 
D 
E 
F 
G 
H
274 
A 
B 
c 
D 
E 
SUPREME COURT REPORTS 
(2016] l 0 S.C.R. 
that governments are run and objectives of general public good achieved. 
The conceptual or juristic basis underlying the need for taxation has not, 
therefore, been disputed by learned counsel for the dealers and, in our 
opinion, rightly so. That taxation is essential for fulfilling the needs of 
the government is even otherwise well-settled. A reference to "A 
Treati~·e on the Constit11tio11al Limitations" (8
11' Edn. 1927 - Vol. II 
Page 986) by Thomas M Cooley brings home the point with 
commendable clarity. Dealing with power of taxation Cooley says: 
"Taxes are defined to be burdens or charges imposed 
bj1 the legislative power upon persons or property, to 
raise money for public purposes. The power to lax rests 
upon necessity, and is inherent in eve1y sovereignty. The 
legislature of every free Stale will possess it under tlze 
general grant of legislative fHJWe1; whether particularly 
specified in the constitution among the powers to be 
exercised by it or not. No constituticmal government 
can exist without it, and no arl!itrarv government without 
regular and steadv taxation could be anything but an 
oppressive and vexatious despotism. since the onlv 
alternative to taxation would be a forced extortion fi;r 
the needs o{ government kom such persons or objects 
as the men in power might select as victims. ·· 
111. Reference may also be made to the following passage 
F 
appearing in McCulloch 1'.
Maryland, 17 US 316 (1819) where Chief 
Justice Marshall recognized the power of taxation and pointed out that 
the only security against the abuse of such power lies in the structure of 
the government itself. The court said: 
G 
"43 ...... . .it is admitted that the power of taxing the 
people and their property is essential to the very 
existence of government, and may be legitimately 
exercised on the objects lo which it is applicable to the 
utmost extent to which the gover11111e11t may choose to 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
275 
[T. S. THAKUR, CJl] 
can:v it. The univ security against the abuse of this 
A 
power is found in the structure of the government itself' 
In imposing a tax. the legislature acts upon its 
constituents. This is. in general, a sufficient securitv 
against erroneous and oppressive taxation. 
44. The people of a State. therefore, give to their 
B 
government a right of taxing themselves and their 
property: and as the exigencies of the government 
cannot be limited, they prescribe 110 limits to the exercise 
of this right, resting contldentlv on the interest o( the 
legislat01; and on the influence ol the constituents over 
C 
their representative. to guard them against its abuse." 
112. To the same effect is the decision of this Court in State of 
Madras v. N.K. Nataraja Mudaliar (AIR 1969 SC J.17) where this 
Court recognized that political and economic forces would operate against 
the levy of an unduly high rate of tax. The Court said: 
''16 ....... ... Again, in a democratic constitution political 
forces would operate against the levv of an undu/1• high 
rate of tax. 
The rate of tax on sales of a commoditv 
mav not ordinarilv be based on arbitrary considerations. 
but in the light of the (acilitv ol trade in a particular 
commoditv. the market conditions internal and external 
- and the likelihood of consumers not being scared awav 
D 
E 
hv the price which includes a high rate o(tax. Attention 
F 
must also he directed
sub-Section (5) <~f Sec ti rm 8 which 
authorizes the State Government, 11otwithsta11di11g 
anything contained in Section 8. in the public interest 
to waive lax or impose tax on sales at a lower rate on 
inter-State trade or commerce. lt is clear that the 
G 
legislature has contemplated that elasticity of rates 
consistent with economic forces is clearly intended lo 
be maintained. " 
H
276 
A 
B 
c 
D 
F 
G 
H 
SUPREME COURT REPORTS 
(2016] 10 S.C.R. 
I 13. Also apposite is the following passage from the said decision 
where this Court held that free flow of trade does not necessarily depend 
upon the rate of taxes but upon a variety of factors which the Court 
identified in the Jollowing words: 
··; 4_ ......... The flow of trade does not necessari~v 
depend upon the rates of sales tax: it depe11d1· upon a 
w1riety olfactors, such as the source of supply, place 
o/ consumption, existence of trade, channels, the rates 
o/ji-eight, trading facilities. availahility ol efficient 
transport and other facilities for carrving on trade. 
Instances can easily be imagined of cases in ·which 
notwithstanding the lower rate o/ tax in a particular 
part o{ the country goods may be purchased ji-0111 
another part, u·here a higher rate o{ tax prevails. 
Suppo.,.ing in a particular State in respect o{ a 
commodity, the rate of tax is 2 per cent hut if"the benefit 
ol that low rate is offvet hy the freight which a merchant 
in another State may have to pay for can:ving that 
conmwdizv over a long distance, the merchant would 
he willing to purchase the good1· .fi'om a nearer State. 
even though the rate of tax in that State mav he higher. 
Existence o{ long standing husiness relations, 
availahilitv of communications, credit facilities and a 
host of other factors - natural and husi11ess - C11ler 
into the mainte11a11ce of trade relatio11s and the .fi'ee flow 
of trade
ca1111ot necessarilv he deemed to have heen 
ohsrructed merely because in a particular State the rate 
of tax on sales is higher than the rates prevaili11g in 
other States. " 
114. Reliance by the counsel for the dealers upon the judgment of 
Sinha, CJ is also, in our opinion, of no avail to them. After holding taxes 
to be outside the purview of Part Xlll of the Constitution, His Lordship 
made the following observations:
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
277 
[T. S. THAKUR, CH] 
"'17 . ......... If a !av.· is passed b.v the Legislature 
A 
imposi11g 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' 1rnll, or hy preventing imports i11to or exports 
out of a State, such a law is outside the significance of 
B 
taxation, as such. hllf assumes the character of a trade 
harrier which it was the intention of the Constitution 
makers to aholish hy Part XIII. " 
115. A careful reading of the above would show that Sinha, CJ 
had two situations in mind. One, where the State prevents imports into 
and exports out of the State and the other where the State imposes the 
high tariff wall with a view to imposing an impediment to the free flow 
of trade, commerce and intercourse. Insofar as the first category viz. 
laws that forbid imports into and exports out of a State are concerned, 
the same would work as a restriction in terms of restrictions within the 
contemplation of Part Xlll and may be permissible in the manner and to 
the extent the said Part permits to do so, but, in the second case, viz. 
legislature imposing a high tariff wall so as to operate as an impediment 
to free flow of trade, commerce and intercourse, there are considerable 
difficulties. That is so because the judgment does not elaborate as to 
what would constitute a high tariff wall for the tax to