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
120161 JO S.C.R. l 
.JINDAL STA!NLESS TTD. & ANR. 
v. 
STATE OF HARYANA & ORS. 
(Civil Appeal No. 3453 of 2002) 
NOVEMBER 11. 2016 
IT. S. THAKUR, C.ll, A. K. SIKRl, S. A. BOBDE, 
SHIVA KIRTI SINGH, N. V. RAMANA, R. BANUMATHI, 
A. M. KIJANWILKAR, DR. D. V. CIIANDRACIJUD AND 
ASllOK BHlJSHAN, .I.I.I 
Constitution of India: 
Arts.301. 304 · Taxes sirnpliciter are not within the 
contemplation o( Part XIII of the Constitution-· Word 'Free' used in 
:ln.301 does not mean "free .fim11 taxation" - Only such taxes as 
al'(' discriminalorr in nature are prohihired ''Y Art.304(a) - hfi>ll01r.1· 
that lny o( a no11-di.1·criminalon· tax would 110! co11stit11fe an 
infi·action of/lrt.301 -·Decisions o/thi.1· Court in Atiabari. Automobile 
Transport and .Jindal case.1· and all otherjudgmenrs that /bl/ow these 
pm11011nce111e11/s are to the extent o{ s1.1ch reliance overruled - Entry 
fox. (Per maiority) 
Art.30-'l{a).(h) - Clm1ses (a) and (h) of Art.301 to he read 
disiw1ctivelv. (Per majoritvj 
Art.304(a). (h) 
/I /ei:r that 1·iolates Art.304(a} cannot he 
sm·ed ei·e11 i( the pmcedure ul·lrt.31N(h) or the pro1·iso thereunder 
is satisfied. (Per majority) 
Cm11pen.1·atorv tax thenrv - Held: Th{' Compensatorv Jax 
theory evolved in Automobile Transport case and suhsequemly 
modified i11 Jinctars case hos no juristic basis and is rejected. (Per 
maf o ri I)') 
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ilrr . .l(M - .1 tax 011 entn· ofp,oods into a local area fbr use, 
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sale or consumption therein is pennissihle
even H'hen similar good' 
are nor produced wi1hi11 the taxing Stale - Art.301/ (a) .fi"mrns upon 
disai111i11ation (of a hostile nature in the protectio12ist sense) and 
not 011 mere differentiation -
Therefore. incentives. set-offs etc . 
. ~ra111ed to a specified class of dealers (or a limited period ·of rime 
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in a non-hostile fashion with a view to developing economical!)' 
backward areas would not violate ;lrt.304(a) - The question i,·hether 
the levies in the present case indeed satisfl' this test is !efi to he 
determined hv the i·egular benches hearing the matters. (Per 
majoritv) 
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llrt.304 - States are well within their right to design their 
fiscal legislations lo ensure that the lax hurden on good1· imported 
.fi·o111 other States and good~ produced within the State fall equallv 
- Such measures if taken would 1101 contravene Art. 304(a) - The 
q11es1irm · H·hether the le Pies in the present case indeed satislr this 
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test is left to he deter111ined by the regular benches hearing the 
matters. (Per majoritv) 
Sch. VJJ Dst II Entry 52 - E1111y Tax - 1/1e questions whether 
the entire State can he notified as a local area and whether entrv 
tax can he levied on ,<_?,oods entering the landmass of India fimn 
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another countrv left open to he determined in appropriate 
proceeding,.1·. (Per majoritv) 
Sovereignll' - Power to tax - Held: ft is essential attrihute of 
s0Fereig11tv - Exercise o( s01·ereign power is however subject to 
co11stit11tional li111i1atio11 - Poirer to le1y taxes heing a sovereign 
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pmver controlled 011/p /Jv Constitution, limitation on that poiver must 
/Jc express. (Per T S. Thak111; CJ/for himself and for A.K. Sikri and 
A.M. Khamrilkar. J.1.) 
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Arts.245, 246 and 304(a) - State\· power to
levy tax - Held: 
Crmstiwtionallr vested pmver to /epy tax can he regulated or 
controlled onlv hv specific Constitutional limitations, if any -
Applving this principle to the case at ha11d, there is 110 specific 
limitation on the State'.\· power to few taxes on the import of goods 
.fi"om other States except the one re/erred to in Art.304(a) - That 
limira1io11 is confined to lev.v of discriminatory taxes within the 
comprehension of Art.304(a) -
So long as taxes are 11011-
discriminarorr and. therefi1re, consistent with Art.304(a}, there is 
no limitation leave alone any express limitation on the States· 
legislative power to levv any tax 011 the import ofgood1ji·o111 another 
State - The pmver to /e1y a tax in terms of Arts.245 and 246 read 
v.oith E11t1T 52 of Us! Ii no/ heing in dispute in the cases at hand, the
JINDAL STAINLESS LTD. v. STATE Of HARYANA 
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ahsence of am• specific limitatio11 forhidding the exercise of' such 
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/!ower whether fiJr the sake o(fi-'ee rrade, commerce and i11tercourse 
or othenvise simplr 111ea11s that the Stare legislatures are ,fl-ee to le1~v 
laxes that are non-discriminatorr in nature (Per T S. Thak111; CJl 
j(Jr himself and for A.K. Sikri and A.M Khanwilkm; JJ.) 
An.301 -
Whether unreasonah!y high rate of' tax could hy 
i1sel/'co11.1·tit11te restriction offensh·e to ,.Jrt.301 - Held: Taxes whether 
high or 1011· do not constiture restricrion.1· on the freedom of' trade 
and co11m1erct' - Mert' .fact that a tax casts a heavy hurden is no 
reason .fin· holding that it is a restriction on the .fi'eedom of trade 
and commerce - Any such excessive tax hurden may he open to 
challenge under Part 111 of the Constitution hut the extent of /Jurden 
mmld not h1• itselfjustifi• the levv being srruck dmn1 as a restriction 
rnntrm:i· to Art.301 of the Constitution. (Per 'l: S. Thakw; CJlfor 
hi111sell a11d for A.K. Sikri and A.M. Khanwi!km; JJ.) 
Arrs.301, 304(h) .. ls the Entrv fox levied hy the States in 
the present hatch of cases violatiFe of' Art.301 of the Constiflltion 
and in particular have the impugned State enactments relating to 
rntrv tax to he tested wirh reference to hoth Arrs. 304(a} and 304(h) 
.for deter111i11ing their rnlidity - Held: The re.1·n·ictio11s referred to in 
ilrt.304(h) ore nr!/l~fiscal in nature - Constirutiona! validizv of anv
taxing statute has, theref{1re, to he tesred only on the anvil of' Art. 
304(a) and if the /cnr is found to he 11011-discriniinatory, it can he 
declared to he crmstitutional!]' valid without the legislation having 
to go through the test or the process envisaged /Jy Art.304(/1) -
Should, howeve1; the statute fc.1il the test of non-discrimination under 
.'1rt.304(a) it must he struck drn1:n fiJl· the same cannot he sustained 
e\'en if it had gone through 1he process stipulated hy Art.304(h) -
That is hccause H'hat is constitutionally impermissible in terms of' 
. lrr.304!a) cannot he validated and sanctioned through the medium 
of Art. 304 (h) - ,.f. fiscal statute shall he open to challenge only under 
Art.304(a) ·withow being suhjected to the te.1·1 of Art.304(h) either 
in rerms of rhe exis1ence of puh!ie interest or reasono/1lene.1·s of' the 
lev\' - Court ought to examine whether the differentiation made is 
intended or inspired hv an element of' zmf'avoura/Jle hias in favour 
of the good1· produced or manufactured in rhe Stote as against those 
imported fiwn outside. (Per T. S. Thakw: CJl for himself and for 
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/J. K. Sikri and A. M. Kharzwilkar; J.J.) 
Arts.3()1, 3()2, 3()3 and 3()4-Scope of-Held: A plain reading 
of Art.3()] 11'011ld show that fi·eedom of trade, commerce and 
intercourse is hr no means absolute, the same being subject to the 
other provisions of' Part Xiii ol the Constitution - The ahsolute 
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character of the .fi"eedom of trade, commerce and intercourse is lost 
hy reason of 11rt.302 itself empowering Parliament to impose such 
restrictions as it may consider necessarv in puhlic interest - Art.303, 
in turn. places restrictions 011 the legislative powers of the Parliament 
and of the States - A conjoint reading of Cl. (I) and (2) of Art.303 
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show.\· that 1-vhile Parliament/Legislature of' a State shall have no 
power to make a lmr imposing restriction on trade, .commerce and 
intercourse, hy giving or authorizing the giving of any preference 
to one State over the otho; such /imitation on the legislative power 
ol Parliament shall not extend to giving of any preference or making 
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or authori::.ing any discrimination il it is declared hy law that a 
situation has arisen out of scarcity ofgoodv that makes it necessarv 
to do so - Government ol india Act, 1935 - s.297. (Per 1: S. l71ak11r, 
CJ! for hi111sell and for A.K. Sikri and A.M. Khanwilkw; JJ.) 
Art.301 - !merpretation of - Held: Art.301 hegin.1· with the 
phrase 'Suhject to other provisions ol thi.1· Part.' - 171is phrase gives 
an initial
indication as to what to expect - The position of this phrase 
should he taken into consideration - Even hefi1re the declaration 
of.fi"eedom of Trade. Commerce and intercourse, it is heing suhjected 
to limitations - Further the opening words ol Art.301, namely, 
'suhject to the provisions of' this part· require that all the Articles of' 
the Part Xiii have to he read together so as to understand the width 
and meanini~ o(the Part )(]JJ - 'Suhject to' is the dominant expression 
so far as Art.301 is concerned - It indicates suhservience to at 
least Arts.302. 303 and 304 - Arts.302 to 304 embody a restatement 
ofpov.·ers uhlrt.246 r/w the State List under the VII Schedule -
Each restated power hv itself overrides the freedom of trade in 
Art.301. (Per N. V Ramana, J.) 
Art.301 - Legislative intent behind enactment - Held: The 
Co11stirution-maker.1· desired free flow ol trade and commerce in 
India as they realized that economic unity and integration of' the 
country provided the main sustaining force for the stahility and
JINDAi. STAINLESS LTD. \. STATF OF HA RY ANA 
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progress of the political anJ economic unity of the nation, and that A 
the count1}' shouldfimction as one sin;;le economic '1111i(v without 
harriers on internal trade -- A rt. 30 I was incorporated in the 
Co11sti111rio11, in order to ensure that the State Legislat11re.1· suhjected 
to local and regional pulls did not create trade harriers in fi1t11re. 
(Per f?. Ramnnathi, J.) 
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Art.301 - Entrr tax - J,evy. if violative of Art.301 - Held: 
l:'mrv tax is not collected at the hehest of m1111ir'ipality or a pa11chayat 
attached to a checkpost -
It is payahle hr the asses.1·ee hv filing 
!heir re111rn.1· - Imposition of En!!)' taY is not merely "on movement 
or transport of goods": consideratio11 o{Ent1T 52, /,ist fl of Seventh 
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Schedule shows tho! ta.rnhle event in the case of enlry tax is entrv 
of'gornl' into the local area where if is to he used. consumed or sold 
!herein -- !(the goods mcreir e!7ler inw a local area and then move 
10 another destination heyonJ that local area, no tax can he levied 
1111der Entrr 52 -- fo attract a levv under Entry 52. Ust 11. the good\· 
must come w rest in the local area where they are taxed in the sense 
1/wl their firrther mo1•e111ent and transport stands terminated and 
the goods are supposed to he used, consumed or sold in thal local 
area -
Since rn11:r tax is leviahle at the termination of the movement 
of' trade and the good1· have entered the local area fiJr the purpose 
or
use, {'0/1S11111ption or sale. the levv of entry tax does not restrict 
.flow of'trade, co1111nerce or intercourse and is not violative of Art.301 
of' the Constitution. (Per R. Banumathi, J.) 
Arts. 30/ lo 304 - interpretation ol- Held: Art.301 ought 
not to he read as .fi'eedom .fi'mn tax lent'.\' -
Tax legislation.1· can he 
challenged on the ground that they in/i'inge the Fundamental l?ight.1· 
1111der Part Ii 1 hut that does not however mean that there is fi'eedom 
fi·o111 toxation or that tax is per se a restriction on Fundamental 
Rights or ji·eedom of' trade. commerce and intercourse - Taxes nre 
levied i11 puhlir: interest and hence. cannot he considered a restriction 
per se on the enjoyment of' a11v fi-eedom contemplated hy the 
Constitution. (Per R. Ba1111111athi. J.) 
Art.303 -
Whether use of' the expression "hy virtue of any 
entrr relating to trade and commerce" appearing in Art.303 are· 
wide enough to include entries relating to levy of' laxes also - Held: 
'f/1c consfit11tio11ol scheme is s11ch that a taxing enflJ is disti11ctfi·om 
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other entries und levy of tax is possihle onZv if there is an entry 
vrhich authorises the competent legislature to levy the same - The 
entries relating to Trade. and Commerce hy themselves are 1101 
sufficient to empower the legislature to lev)' ta.~es. (Per T S. 77wkw; 
C.!Jj(Jr himself andfor A.K. Sikri and A.M Khanwilkm; JJ.) 
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Art. 303 - Scope of - Held: Art.303 is m1 exception to Art. 
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302, inasmuch as it limits the power co11ceded to the Parliament 
under Art. 302 to impose restrictions onji-eedom of Trade, Commerce 
and fnterco11rse in puh!ic interest - The power exercised hy Art.302 
cwmol he so exercised as to give preference to one State over 
a11other except under a situation covered by Art. 303(2) namely 
situation arising fi·o111 scarcity of good1· in any part of the territory 
of India. 
(Per T S 
/7wlw1~ CJ!j(H himself and for A.K.Sikri and 
A.M. Khanwilkar, JJ) 
Art.304(a) -
Whether Art.304(a) is violated if the goods 
suhjected to levy of entr)' tax are not produced or manufactured 
within the State le1ying the fax - Held: 771e essence of the guarantee 
in Art.304(a) lies in the same or similar good1· heing treated similarZv 
in the maffer of taxation - 771e guarantee is not violated if the goods 
suhjected to levy of Entrr tax are not produced or manufactured 
1dthi11 the State levvi11g the tax - ?his is hecause there is no question 
of anr discrimination if goods ji"Oln outside the State
are not al a 
disadvantage vis-a-vis good1· produced or 111am1factured within that 
State (Per T S lliakw: CJ! /(Jr himself andfilr A.K.Sikri and A.M. 
Khanwilkm: JJ.) 
Art.304(a) - Whether Art.304(h) treats taxes as a restriction 
so that anv such levy mayfctllfoul of Art.301 - Held: Art.304(u) far 
.fi·o111 freafinp, raxes as a restriction per se, .1pecifical11• recognises 
the State legislature:\' povo,>er to impose the same on good~ imported 
fimn other States or Union Territories - ft is true that the source of 
.power avai!ahle to the State legislature to levv a tax is frmnd in 
.-lrts.245 and 246 of the Constitution but, the availabi!i~J' of such 
power .frir raxinp, goods imported fi·om other Stares or Union 
Territories is c!earlv recognised hy Art.304(a) - The expression 'ma)' 
,r,y law impose· is certainlv nor a restriction 011 the pov.-'er 10 tax. 
(Per T S. Thakur, CJJ for himself and for A.K.Sikri and A.M. 
Kh«mv-:ilkm: JJ.)
JlNDAL STAINLESS IJ'D. v. STATE OF HARYANA 
Art.304(a) - !11te1pretatio11 al- J,evv al enfrJ tax ·when good~ 
similar to those imported are 1101 produced - Held: Art.304(a) 
imposes two conditions: .firstly, that a law 111av impose 011 goods 
i111ported fi'om other States, 'any tax' to which "'similar goods 
111mwfi1crured or produced' in that State are subject - This clearly 
implies that the good1· imported .fimn other States nwv he suhjected 
tn a tax Vl·here similar good\" are in fact, manufactured or produced 
in the i111por1i11g State and are suhjected to tax - Jn other words, (a) 
the good1· importedfi·om other States must be similar to (h) the good1· 
1111111u/"acl11red or produced in the importing State and (c) the goods 
so locallr m1111u/i.1ctured or produced must he suhject to tax - The 
sr'{"(md condition is the tax that is imposed on imported goods should 
no! discriminare hctwee11 the imported goods and goods 
mm111/i1ct11red or produced in the importing State. (Per SA. Bohde, 
J.) 
Art.3(N(a) - Leµ.islative intention hehind enactment -
Held: 
The inte11tio11 of" the 11rt.304(a) is that ivhere a tax exists on goods 
imported into a Stale, there should he no discrimination het1ree1z 
such a tax and u tax 011 similar good1· nw1111f"actured or produced in 
the importing State - The effect ol such a co11struction is that the 
imported goods cannot he taxed where similar goods are not 
111111111/"actured or produced in the importing State and are there(rJre, 
nor
suhjected to similar tax and that seems to he the clear intention 
of this Article - This interpretation would also .fi1rther economic 
prop,ress and the unhindered availahility of" goodv in States which 
dn not have 111an11/"acturing capacities and may not he ahle to 
de\'(: lop it. having regard to lack of natural resources or other 
,;;eo,f!,raphicc;l limitations. (Per SA. Bohde, J.) 
Arr. 304(a} - Compensatmy tax theorv - Held: Since, in the 
matter o/" levr of" taxes the compensatory rhemy is no more relevant. 
the State Legislatures arefi·ee to exercise their taxing powers without 
1hc 11eed of declaring and showing that taxes imposed hy them 011 
outside goods are f(Jr the henc/"it of concerned traders or 
11111mdil{"fl/rers - But such tax must he, in essence, 11011-discriminatorv, 
hoth, in the ultimate tax /Jurden and in 111achine1y provisions. (Per 
Shirn Kirti Singh, J) 
An.304(a) - interpretation of'- Held: Art.304(a) should he 
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interpreted keeping in mind the ha lanced ·development of the 
cou111rv. tt11ich is an impor/anf part o( economic integration -
Art.3(M(a) is not a limitation on the legislature of a State to impose 
such tax 011 goods imported - The onlv condition envisaged under 
Art.304 (a) is, same tax is imposahle on the good1· importedfi'0711 
other States as v.dl as good1· if manufaC!ured in that State 
It is not 
correct to say that since goods· heing taxed are not produced in the 
Slate, the power to levy a tax gets ohlitera/ed, that is lo say, that 
A rt. 3 () .. f (a) does nor lwr levr of tm· if the gooll.1· are not nwnufactured 
or prod11ced within the State. (Per N. V. Ramana, J.) 
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Art. 30,1 -
Wonil' "mav hy law" - lnrerpretation of- State\· 
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pott·er ro levv tax · Held: The wordy "may hy lm..v" is an option 
,f!,iven to the Sia/es in case it decides to levy any lax on the good1· 
importedfi·o111 other States ·· The source of legislalive poiver resides 
in Art.245 rlw Arl.246 - This power is not suhject to any implied 
limitation ·· The plain reading would show that in a given situatio11, 
the State may hy choice decide not to levv any tax imported from 
other Stares or opt to levv taxes 011 certain goods imported fi'om 
other States. 
(Per NV. Ramana, J.) 
Art.304(a) - Difference in the rate of tax 011 goodv locally 
11w1111factured a11d those imported - Whether fall foul of Art.304(a} 
- Held: Every
differentiation is not discrimination -'Any difference 
in the rate of tax on good1· locally manufactured and those imported, 
such difj{!rence nor heing discriminat01:v does not fall foul under 
Al't.30-i(a) - Any incentivelhenefits of concession in the rate of tax 
given to the local 11wmifact11rers/producers in order to encourage 
the local 111anufauurers/production in the State cannot he said to 
he discriminarorv - Any difference in the rate of'tax on goocf.1· locally 
nw1111/{1ctured and those imported. such difference not heing 
discriminatorv does not fall foul of Art. 304(a}. (Per R. Banumathi, 
.J.) 
Art.304 (a) and (h} - Whether Cl. (a) and (hj have to he read 
conjunctivelv - Held: Cl. (a) and (h) o/Art.304 deal with two distinct 
suhjects and mus/, thaefore, he u11derstood to he independent of 
each other ... While Cl. (a) deals entirelv vvith imposition of taxes on 
go(}(/.1· importedji·om othel' States, Cl. (h} deals with imposition of 
rcasonahle restriction in puhlic i11terest - The use of the word 'and'
.TINDAi, STAINLESS r:rn. V, STATE Of HARYANA 
hl•t1we11 cl. (o) and (h) does 11ot admit of an interpretation that may 
impose an ol!ligation 11pon the legislat11re to necessarily impose a 
lax and a re.1·trie1ion together - The word 'and' can mean 'or' as 
irell as 'and· depemlin.~ upon the con/ext in which the law enacted 
In• the legisla!ure uses the some. (Per T S. Thakw; CJ! f(>r himself 
cmdji>r .1.K Sikri and .1.M. Kha11wil!a11: .!.!.) 
Art.301(a}, (h) -
Use of 11·ord 'and' afier semicolon -
ln!erpretation of: in the context o(Ar!.304 - Held: It ivifl have to he 
read as 'or· rTeatin,t; u disjunctive reading of' Art.304(a} und 
,.Jr1.3M(h! indicminp, thar the State Legislature can exercise ils poH·er 
cilher under 11rl.304(a) or Art.3M(h! or hoth. (Per R. Bammwthi, 
./) 
Ar!.301/(h). proviso - Requirement of' Presidential sanction in 
/erms u( pm1·i.1·0 - Held: Clause (h) dealing 1vith reaso11ah/e 
rcs1riuiom· mus/ 11ecessarilv applv to restriction.\· other tha11 those 
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h1· 11·av of/axes - !tfi.Jl!ows that.for /e1y of't(LlCS prior Presidenlial 
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.1·m1c1io11 in rer111s u( proviso under Art.304(h) is whollv w111ecessarv. 
(Per 7: S. Thakur, C.JJ .for himself and/or A.K. Sikri and A.M. 
Klwnwilkm; JJ.) 
Art.304(h) - Restrictions mentioned u/Art.304(h} do not 
include tax. (Per N. V Ramano, .!.) 
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.1rt.304(h! ·- Applicahilitv ol- Held: Applica/Jle 011~v to 11011-
fiscal laH·.1· ond nor 10 /ax laws - Arr.301(h) deals with 11011~/iscal 
i<'.~is/a1io11
i111posi11g rcaso1111h/e res1riclio11s i11 puhlic inreresl and 
lrn /a11·1· arl' 1101 included under //n.304(hi. (Per R. Banw11arhi, .!.) 
.·ln.3114(h) -
Presiclenrial assent - .Judicial review - Held: 
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Art.3114(/J) re/ares 10 11011~/isca/ laws of' the Srares -- The assen/ of' 
!he f'residen/ envisaged in proviso ro Arr.304(h) v.,·011/cl he some1vhar 
akin to rhe assent conternplated in Art254 - Such assents are not 
judicial!v reviewahle. (Per R. 13a11umathi . .!.) 
Arls.304(a), (h} - l"ocal area - When the entry tax is levied 
In· the Entl)' Tax //ct enacted In· the State Legislature, the term 'a 
local area' co111emplated hy Entry 52 may cover the 'whole Srate' or 
'a local area' as notified in the legislation - From the point of view 
of entn· tax. !he Sra1e is a compendium of local areas and 11·here the 
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local areas contemplated hy the Act cover the entire State, the 
diffi:rence hctwee11 the State and 'a local area' practically 
disappears. (Per R. Ban11111athi, J.) 
Taxi11g power of the Unio11 and the States - Held: Are 11111t11alzv 
excl11si1•e -
While the Parliament ca11no1 legislate 011 the sub;ects 
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re.1·e1Tedfor the States. the States ca1111ot similarZv tre.1pass onto the 
taxil1g prrwers of the Union - If the Constitutional scheme does not 
al!mt· !he Parlia111e111 lo usurp the taxing powers of" the Slate 
f,L',t,:islat11re1·. such process of usurpation cannot also he permitted 
lo lake place in the garh of making U11ion executive :1· concurrence 
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cm essential pre-req11isitefor any taxing !egis!ation.(Per 'l: S. 11wklll; 
CJ! for himself a11dfi1r A.K.Sikri and A. M. K!zanv.:ilkar, JJ.) 
Part XIII - Diffr;rence hetween Part XIJI and s.297 of 
Governmelll of India Act, 1935 - Held: 17ie essence offf"eedom of 
trade. commerce a11d intercourse as recognized in 1935 Act and in 
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!he Co11slit11tio11 under !,art XIJJ is same - The onlv difference is 
that 1he principles enunciated in s.297 were extended to Union 
Govern111ent and Union Parlia111el7/ and to the territory IVhich had 
after 111e1y,er hecome port of India - Government of India Act, 1935 
- s.]97. (Per T S. Thak111; CJI for himself and for A.K.Sikri and 
A. /If Kha1111·ilkw~ JJ.) 
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H 
Par! XII! - 'fo.r laH".\" - The co11111wn thread in Port XIII is the
achievcmrnl ol economic 1111itv and paril}' which does not altogether 
preclude differentiation .fin· j11s1ifiahle and rational reasons wherever 
11ece.1·rnn· - The heurt and soul of Part XIII is to dissolve hostile 
discri111inalio11 H"ilhin the territo1T ol India - Part Xlll does not 
contempla!e lax !mvs within i/.1· amhit except to the extent of 
Ar1.3(N(a) of" !he Constitution. (Per N. V Romana. J.) 
l'art Xi JI -
There is a vital difference he tween mere 
"dif/erenliation' and 'discriminalion' - fr is discrimination not 
differentiarion that is sought to he prevented rhrough Part XIII -
Ar1.304(a) prorects jimn discrimination (for protectionis111) and not 
mere diff'erentialion. (Per N. V Ramona. J.) 
Sevemh Schedule Ust ff Entrv 52 - Concept of Compensatory 
lax ewJ!ved in Automobile case - Held: 
The nomenclawre of 
·cmnpensa10rv · ascri hed to the taxes levied hy the State Govemment
JINDAL STAINLESS Ll'D. v. STATE Of HARYANA 
1111der E11trr 52 . .Ust II pursuant to Automobile is wnmrranted - The 
concept of' compensaton· tax was evolved 50 years hack through 
judicial pronou11ceme11ts - lt has withstood the test of" time and thus, 
any suhsc>quent judicial pro1101111cement like the instant case should 
1101 prejudice the in1ere.1·t o(lhe parties inl'Olved - State Go1•erm11ents 
should not suffer mJV loss of revenue solely hecause <~/"judicial 
i11rerpre1ations and innovation.1· in Automobile case and the cases 
\'llhsequent lo ii·· Suhject ro passing the muster of .lrt.304(a), e11trv 
lax let"ied hv the States under Enll} 52. Ust 11 even though termed 
a.1· rnmpensatory lax docs notfall.fiml o/Art. 301 - ft is not neces.1·m)' 
tlzal the 111011ey realized hy the levy should he put into a separate 
Fund or that the lev1• should he proportionate to the expe11dit11re -
There is no har to suhsumption ol the reve1n1e realized ji·om 
regulatorr!co111pensatorv taxes into the Consolidated Fund of' the 
Stiltc as thei· are 110 differenrfimn other taxes of a general nature -
Mnrem·c1: the quantum of' expenditure incurred in achievi11g the 
ohjecl hehind a compensatorv le1•v ca11not he inquired into. (Per R. 
!Ja111111w1hi, J.) 
Seventh Schedule Ust fl EntrJ' 52 - Import of goods and 
customs clearance and the entry of good1· into the local areas -
fo.Yah!e event 
f-feld: The 11vn events are disti11c/ - ]11 the case o/' 
r:11.1·101n.1· d11t1', the /Uxahle ei·ent is
entrv of' good1· i11to the territorv 
of Indio .. 1he /a.rnhle e1·ent ullder Em1y 52, List JI is the entrv ol 
.!!.nods ill to !oral area ./or conswnplioll, use or sale therein - The 
1n·o taxahle events are distinct in lavv and there is 110 overlap -
Ullder our Constitution, there is no overlapping ill the taxing power 
J71e Constitution gives indepe11dellt powers o/ taxation to the Unioll 
and the Siates - The /axing power of' the Ullion and of' the States 
ill'!' mutually e.Yclusive ·· This avoid1· the dilficul1ie.1··which have arisell 
1111der other Federal Constitutions. (Per R. Banumathi, .J.) 
Se1·enth Schedule List JI Enny 52 -- Entrv tax levied In· W1rious 
States termed as a 'co111pensatorv 1ax' 1vhe1herfa/l.fi)//l of'Art.301 --
f-leld: EllflY lax ji1/li11p, wit hill the domain ol Entrr 52, List 11, is a 
/(fX simplicitcr. even though hy nome11clat11re it is termed as a 
·compenrn1orv tax· - Suhiect to passing the muster of Art. 304(a), 
enn:r lax levied hv the States under Emrv 52, List JI even though 
lel"lned as C!il11pell.1·otm:i- tax does not fall.fi)U/ of' Art. 301. (Per 
11 
A 
B 
c 
D 
E 
F 
G 
H
12 
SUPREME COURT REPORTS 
[20161 JO S.C.R. 
A 
R. Ba1111mathi, J.) 
Seventh Schedule List I a11d 11 -· Taxation entries are to he 
.fimnd 01111• in Usts I a11d II. indicating that in our Co11stilutio11al 
schcnw. ta.rntirm pm1•ers o/ the Centre and the States are 11111/uallv 
exclusi1·e - There are 110 Entries in the Concurrent List which gives 
B 
poi1·cr o/ la:rntion 
This heing the case, the moment the levy 
c 
D 
F 
G 
H 
contained in a !axing slalute transgresses inlo a prohihitedfield, it 
is liahle to he .1·truck down. (Per N. V Ramano, J.) 
/17/erpretation of' Statutes: 
Interpretation which is hoth textual and c;ontextual has always 
heen found to he more acceptahle ~ An interpretation that makes 
the texlllal motch the contextual meaning of' the provision is preferred 
hy courts over one that prefers 011e at the cost of' tlze othe1: (Per 
7'. S. Thak111: CJ.I.for himself' and.for A.K.Sikri and A.M. Kha11wilka1; 
.IJ) 
An i111e1pretation that supports and p11m10tes federalism tt'hile 
upholding the Central supremacy as contemplated hy some ol the 
:1rticles 11111st he prelerred. (Per T S. Thakw; CJ! for himself' and 
for ,LK.Sikri. and A.M. Khanwilkm; JJ.) 
Ce11/re-Sta1c relationship in legislative and fiscal matters -
Harmonious relationship -
Held: A narrow interpretation that may 
have the potential or tendency to subvert the delicate halance which 
the .fi"m11ers of' the Consritution had in mind while distrihuting 
legislatiFe husinesses including the sovereign
power to levy taxes 
11111st he amided and a construction that is most heneficial for a 
harmonious relationship between different limhs of' the State 
i1ll'l11di11.'-' that het1veen rhe Cemre and the States or Stales inter se 
adopred. (Per T S. lhalun; CJ! for himself' and for A.K.Sikri and 
. .J.M. Khanwilkw: ./J.J 
Constitution of India -
fVhile interpreting the Constitution. 
the emphasis must he rm reading it as a whole. and in a manner that 
the intent and object of' no part ol the Co11stitlltio11 is defeated - In 
this regard. there 111u.1·t he a holistic approach toward~ the provisions 
of the Constiturion. ff'er R. Bammwthi, .!.) 
Proviso - Interpretation ol - Held: Proviso is i11fended to
JINDAL STAINLESS !TD. v. STATE OF 1-IARYANA 
13 
e.rploin rhe main op1n1rin.'.; /Jar! of rhc .·lrticle -- Jr is never used or A 
ifllcrprctcrl as expanding rlre operative part of" the provision. (Per 
.Y r-: /? m nwru. .!. ! 
.J11diciol Rei·iew· 
Poll er of Srate to erul("t tax laiu· 
l"egislatil'e p1H1·ers 
especial/\· taxin:' povt·crs cannot he tested hr implication -
L'n/rss 
rlrcrc is nprcss li111itation 011 tl1c JHJ11·er of the State to enact the 
S111t1' hm, ir 
not the p1rn·i11ce of' the Courr to curtail the power of" 
rlw Srore hy i111erprctaril·c pmcess. (Per N. V Ramano, ./.) 
fo.ri!lr:wrion: 
!:"sscnlial chara!"fcristics of" a tux -- Jr is imposed undi'I" a 
,·tofu/on poircr \\"i1ho111 rhe taxpayer\· <:onsent and the pav1111-'11f is 
rn/im·ed h1· /mr: it is an imposition nwdcfor puhlic purpose without 
1cfi.'!"!'11r·c ro onr spi'l"iol hcm:fir lo he conferred rm the payer of" rhe 
lo.\"." ond ii is pon of the co111mon huf"den. (Per R. Bamonathi, .!.) 
fo_y,""J(1xotwn: Pwpose o( imposing la.\" and essenrial elcmenr.\· 
o/ tm 
lli,1·1 ·11ssed. 
r !-'er 1V V Rm1w11a, .J.) 
f fi.~lr1i'.rnrhi111nt r11le of tux 
l111pnsition o/: propriel\' - Held: 
//!/Jou.eh .\"111/<'s on' c:1np01n'n·d lo lox under 1he Constil//lion, it does 
B 
c 
no1 11ecc.1·1m·il1· 111ea11 rha1 tin"\" should la.\" al exorbitant rates -- A 
E 
. 
. 
rcsponsii>I<' gm·r.,.11111c111 in a demo1;rarT should ahw1vs strive lo keep 
raxes as low os possihlc so Iha! no hean' burden is placed 011 tire
i11dh"iduals. 
(Per ;V. 1 '. l?m1w1w, J.) 
Unjust f'nrid11nenl 
The co11cep1 o( u11j11sl enric/r111c11r is applicahlc fiJr considering 
rhe 11uestio11 of refimd 
( l11les.1· rhe assessees estahlish 1hat ther 
iwn' nor pusscd 1111 1he rax lmrden lo rhc cn11.rn1ne1"s, they ca111101 
11/ukc a clai111 .for refinul and 1111j111·1h enrich 1/remselves. (Per 
I?. Hu1111111mlri . .!) 
fl>im/.1· and Plrrmes: 
"!Ji.1crimination' and 'difli'rel7liotion · - Distinction herii:een. 
u'i.1·1·11.1·sul. I fJeT" J: S. riwk.111; C:IJ /or himself' and.tin· A.K.Sikri and 
. I. M. l\ha1111·ilkar; .!.!.) 
H
14 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
Import - Mea11i11g of discussed. (Per R. Banumathi . .!.) 
B 
c 
D 
E 
F 
G 
H 
DISSENTING VIEW: 
Constitution of India: 
Arts.301. 30-1 - It is 1111/enable to postulate as a general 
pri11cip/e that it is 011/)1 a discriminatory tax falling withi11 the a111hit 
t!f Art.304(a) that is suhjecl lo Part X!ll of the Constitution -
Art.304(a) elaborates that a particular form of taxalion. a 1w11-
discrimina101:JJ lax on goods . .shall not be construed lo Fiolate Arl.301 
- But Art.304(a) ca11110/ be a basis for holding that every fiscal 
measure (apart ji·om a discriminatorv Im) lies outside the pun:iew 
<~f Part XIII - For one thing. the rate of tax is bw 011e eleme111 of 
taxation - There are other eleme111s in a jiscal exaction i11c!udi11g 
assessment, the machinery for culleL·tiun and set offs and exemptions 
·which can have a11 important hearing 011 whether the tax operates 
in a ma1111er that i111pedes the freedom of inter-State trade and 
commerce - Moreover, a discri111inatorv tax otherwise than 011 goods, 
does not a/tract the prol'isions of Arr. 304 (a) - Finally, a 11011-
discri111i11alory lax may also become an impediment on the ji·eedom 
of trade and commerce where the lax is so high as tu render it 
cu11.fiscatury - Hence, a discri111i11atoryfiscal i111positiu11 of the nature 
which offends Art.304{a) is illustrative <if hut not exhaustive of.fiscal 
impediments mt the freedom of trade and co11imerce. (Per D1'. D. Y.
Chandrachud. J.J 
Art.30./(b) - Reasonableness of restriction -- Held: A tax may 
amount to a restriction where its direct and inevitable effect is lo 
restrict the freed um of trade. c:ommerce and intercourse - The burden 
to establish this is on the person who seeks lo assail the validity (if 
a particular tax on the ground that it amounts to a restriction on the 
ji·eedom guaranteed by Art. 301 -- Unless this threslzo/d is crossed. 
the proviso to Arr.30./(b) will have no applicalion for, it is only 
whe11 there is a restriction that the question of its reaso11ahle11ess 
can arise. (Per Dr. D .. Y. Chandrachud, .!.) 
Formal and s11bstanti1•e equality - Art.3114(a) comprehemis 
both formal and substantive notiom of equality - Formal equality 
'rvould be met when the same rare of tax is prescribed fur goods 
imported from other Stales as is levied 011 goods produced cmd
JINDAL STATNLESS !TD. v. STATE OF HARYANA 
15 
11w11uf{1ctured 1rithin 
Suhstantive equality recognises the needfiJr 
A 
the develop111c111 of 1111derde1·eloped areas ol the cou11trv - A ha lance 
lws lo lw slmck he tween rite rn11eer11s ol hothfiJr111al and s11hs1antive 
equalitr. (!'er D1: JJ. Y Chamlrachud, J) 
Direct a11d immediale effecl lest - The States and the Union in 
the exercise o( their legislative pmrers, utilise taxation no/ onlv as 
B 
o means of raising rc1·e1111es to support their developmental activities 
h111 also as ll lll('llSllr!' or achieving social o/Jjecls -
Whether the 
p11rsuil of 1ho1·c social ohiects or the pursuit o( social regulation 
in/ring.es 11po11 the area oj"ji-ee trade and commerce cannot he 
decided a priori - The pmrer o/ taxation is capoble ol heing used ill 
C 
a manner which can constitute, ill a given case, a restraint or 
impediment on the freedom ol trade and commerce - Jn determining 
as to when taxes can constitl//e a restriction on the fi"eedo111 ol !rade 
ond commerce, !he direct and immediate eflect test (as refined 
s11hse11ue11tlr) pro1·ides a judicially manageable ji-mnework - The 
tes/ of direc/ and immediate effect was enunciated in the judgments 
in i\liabari and ;\ulomobik Trnnsport - The test isfirmlv entrenched 
as a par/ of our j11rispmdence. (Per D1: D. }'. Chamlrachud, J.) 
Art.301 
J,evr of a 11on-discri111i11a101y tax 1nay constitute 
infi·uction of"Art.301 if ii impedes the fi"eedom u/ trade, commerce 
and
intercourse 
A II taxes ll'hich contain restrictions to trade, 
commerce and intercourse. discriminator)' or non-discriminatory 
infi·in,c,e Arr.301 unless they are saved u!Arts.302 to 304 - Jn the 
event, the s11hmission is accep!ed that all taxes are outside Part Xlll 
except nm1-discrimina1on' taxes as pe11nitted u/Art.304(a}, the same 
ivill lead 10 giving righl ro the Parliament and State f,egisla!ure to 
pass f(1ciall.v 11011-discriminatmy lcrws but creating restrictions on 
trade and comnwrr·e hv other means hy providing arhitrary 
procedure and various other kind ol restraints - The taxation which 
can impede the trade. co111111erce and intercourse thus cannot he 
nmfined 011/r to 11011-di.1·1Tilni11aton· taxation. (Per Asl10k Bhushan, 
Ji 
.frrs 304(aJ and (h) - ls the Emrv Tax levied hy the States in 
the presem hatch of" cases violative of Arr.301 and in particular 
hm•e the i111p11gned State enac/rnents relating to ent1y tax to he tested 
irirh re/in·11ce to hoth Arts.304(a) and 304(h) for determining their 
D 
E 
F 
G 
H
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
rn/iditr ·· Held: li>fi77d 0111 m· to whether F,'ntry Tax levied hy different 
Stales in !he presenl ha1ch of cases viola/es Ar!.301, each slat11te 
has lo he looked info - A law made hy Slate Legislature complying 
clause( a) of Art.301 and 77ot containing any restriction on the 
.fi·eedom of trade, commerce and inlercourse need not comply 
B 
c 
!lrt.304(h) - Howeve1; a law evell !hough complies with Art.304(a) 
Im! l'077tai77s reslriclions 011 fi·eedom o/ trade. commerce and 
intercourse has lo he routed through prMiso to clause (h) o/Art.301 
The comp/ianr:c o/ Ari. 304(h) proviso whelher required or not 
shall depellll on !he 11alure and conlelll of the State legislation -
The proFiso o{ Arl.301(h} is part of Constitutional Scheme which is 
neither agaim·t the fi'deral stmr·rure of the Constitution nor affi'Cts 
the State '.v sovercig77tr · Word 'reszriclion' used ill Art.304(h) is wide 
e17011gh to include restrictions placed hoth hy fiscal or non~/isca/ 
/m1·, (Per :ls/wk !Jh11shol7, J) 
Can a ta.\' 11·hich is compensatorv in nature also fcill foul 
. .Jrt.301 of the Consliflltion and what are the tests for determinillJ!. 
1rhe1her the tax or /evv is cm!lpc11sui01T in nature -· Held: ft is an 
accepred proposition rlwt one of the charncteristics of tax is that it 
is an imposition made fi>r p11hlic purpose without reference to any 
special henefit lo he conferred on the payer of the tax -
The taxes 
E 
imposed hy the
Legislature, apart fi-0111 heing source of Revenue is 
also expended for various p11hlic welfare measures and 11·hc11 it\· 
ohjccr is in no Wal' connected H'ilh the puhlic interest or puhlic 
welf{ire it loses its character of taxation and hecomes a levy which 
is 1mr·onstilW ional - The ji'amers of the Conslit11tion after pmviding 
fi1r.freedo111 oftrnde. wm111erce and imercourse in Art.301 laid dmn1 
exceptions to the saidfi·eedmn in Art.302 to 31!() - The excep1io11s 
loid do11·11 in the constifl(/irmal scheme arc se/f~conrained and no 
ne11· exceprion can he added hy judicial interpretation "- Mere fan 
that a rm: stm111e compensates 1he paver of the 1m· does 1101 rake our 
the statute hewmd Parr Xiii. all laxes. heing ji;r one or other p11h/ic 
c; 
J!lll'}JO\'CS 
The tax legislation ,,.hich professes /0 co111pe11sare the 
paver cannot lake the lax /egis/a1ion m1 a higher pedestal heyond 
!he reach of Part XI//. 111akin5~ s11ch legislation "not suhject to 
Cons1i1111ion" -
!Vhen all legislative power is "sl(hjccl to 
Constitution" as per Arts.215 and 24() of' the Constitution. a 
H 
legislation, namelr. rn111pensato1:r tax legislation cannot be said to
JINDAL STAINLESS !TD.\'. STATE or HARYANA 
he hevond Part )Off·- A1n- swh interpretation is clearly against the 
co11stitutio11al sche1ne · Howeve1; it is always open to scrutinize the 
tmc nature 1111d character or legislatio11 to decipher as to whether it 
contains any restriction on ji·eedom of trade, commerce and 
intercourse vio/atinp, Arr.301 -·A legislatio11 which is compensatmy 
i11 nature may shed light while determining whether it contains 
restriction 011 trade, co111111erce and intercourse orfacilitate the trade, 
co111111erce and intercourse - But all legislations he it a co111pe11sat01y 
tax legislation or otherwise has to he tested in accordance with 
prrwisions of Port XJIJ of the Constitution. (Per Ashok Bhushan, J.) 
Answering the reference, the Court 
HELD: 
PER T. S. THAKCR, C.JI (FOR UJMSELF AND A. K. 
SIKH.I AND A. M. KllANWILKAR •. J.J.) 
Whether non-discriminatory fiscal measures impede free 
trade, commerce and intercourse and thereby fall foul of Article 
301 of the Constitution. 
1.1 While the power to levy taxes is an attribute of 
sovereignly, exercise of that power is col1trollecl by the 
Constitution. 
This is evident from the provisions of Article 265 
which forbids levy or recovery of any tax except by the authority 
of law. The authority of law must be traceable to a provision in 
the Constitution especially where the legislative powers are 
shared by the Centre and the States as is the case with our 
Constitution which provides for what has
been described as quasi 
federal system of governance. The source of power to enact laws 
is contained in Articles 245 and 246 of the Constitution. !Para 
1811181-A-B, DJ 
17 
A 
B 
c 
D 
E 
F 
Raja .Jagannath Baksh Singh v. State of UP & Am: 
G 
1963 SCR 220 : AlR 1962 SC 1563; Dena Bank v. 
Bhikhahhai Prahlmdas Parekh & Co. 2000 (3) SCR 
509 : (2000) 5 SCC 694; Income Tax. Udiapur, 
Rajasthan v. MC dowel! and Co. Ltd. 2009 (8) SCR 983 
: (2009) 10 SCC 755: State of West Bengal v. Kesoram 
H
l R 
SUPREME COT JRT REPORTS 
12016J 10 S.C.R. 
A 
Industries Ud. 2004 (1) SCR 564 : (2004) 10 SCC 201; 
State of Kera/a and ors. v. Mar Appraem Kuri Co. Ltd. 
and Am: 2012 (4) SCR 448 : (2012) 7 SCC 106 -
relied on. 
13 
c 
D 
Ta:w1io11 - ViJlu111e 1 (4'" Edition) Chapter 2 by Cooley 
-- re fer red to. 
1.2 Exercise of sovereign power is, however, sub,ject to 
Constitntional limitations especially in a federal system like ours 
where the States also to the extent permissible exercise the power 
to make laws including laws that levy taxes, duties and fees. The 
powe1- to levy taxes, being a sovereign power controlled only by 
the Constitution, any limitation on that power must be express. 
f Paras 20, 2811184-D; 188-R-Ff 
Svnthetics and Chemicals Ltd. and Ors. v. State of U.P 
and Ors. 1989 (l) Suppl. SCR 623 : (1990) 1 SCC 109 
- relied on. 
Mis. Hoechst Pharmaceuticals Ltd and Ors. v. State of 
E 
Bihar and Ors. 1983 (3) SCR 130: (1983) 4 SCC 45; 
Maharaj Umeg Singh v. State of Bombay 1955 SCR 
164 : AIR 1955 SC 540; Firm Bansidhar Premsukhdas 
v. State of Rajasthan 1966 Suppl. SCR 81 : AIR 1967 
SC 40 - affirmed. 
F 
G 
1-1 
1.3 Before commencement of the Constitution nearly 2/3"0 
of the country was rnled by the British while the remaining 1/3"" 
was ruled by the Princes also known as native States that enjoyed 
varying degrees of sovereignty over their respective territories. 
These rulers had the power to impose taxes and to regulate 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 part of the country that was ruled by the British came
JINDAi. STAJNLESS !TD. v. STATE Of HARYANA 
19 
to be known as Part A State while the native States became Part A 
I~ States. 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. It was in that background that the Constitution by Article 
301 provided for the abolition of all such trade barriers consequent 
upon the entire geographical boundaries of .India being knit into 
one political unit. IP;ua 4411209-G-II; 210-A-C] 
S. R. Bmnmai v. Union offndia 1994 (2) SCR 644 : 1994 
B 
(3) SCC I; Re: Under Article 143. Constitution olfndia 
C 
(5/x'cia! Reference No. 1 of 1964) 1965 SCR 413 : AlR 
1965 SC 745; M.P V S1111derara111ier v. State of Andhra 
Pradesh 1958 SCR 1422 : AIR 1958 SC 468 -- relied 
on. 
Constitutional validity of Compensatory Tax theory 
prnpoundcd by ma.iority judgment in Automobile Transport case. 
1.4 Compensatory taxes would fall outside Part XIII of the 
Constitution only if tax payers receive benefits and facilities 
commensurate to the levy. Any and every benefit howsoever 
remote or distant, would not save the levy from an attack on the 
ground of violation of Article 301. Three distinct aspects touching 
the question whether the Compensatory Tax Theory is indeed 
sustainable arc: Firstly, the concept of compensatory taxes is 
not recognised by the Constitution. A tax is a compulsory exaction 
of money for general
public good. If taxes are eventually meant 
to serve larger public good and for running the governmental 
machinery and providing to the people the facilities essential for 
civilized living, there is no question of a tax being non-
compensatory in character in the broader sense. 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 
prfl quo, a fee without that element cannot be validly levied. Thirdly, 
and lastly, the concept of Compensatory taxes being outside Part 
D 
E 
G 
l-1
20 
SUPREME COURT REPORTS 
(2016] IO S.C.R. 
A 
XUI, is difficult to apply in actual practice. 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 .\rticle 
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 
(' 
D 
E 
(I 
H 
legislation. This prncess is fraught with serious difficulties. Actual 
application of the Compensatory Tax Theory, therefore, runs into 
difficulties to an extent that the theory at some stage breaks down. 
The Compensatory Tax Theory was legally unsupportable and 
deserved to be abandoned. [Paras 63, 64 and 65)[238-E; 239-B; 
240-F-G; 241-C-Ei 
Co111111issirme1: Hindu Religious Endoivments, Madras 
\'. Sri !.aksh111indra Thirtlw Swamiar of Sri Shirur Mutt 
1954 SCR 1005 : AIR 1954 SC 282; Mahant Sri 
Ja,c,annalh Rama1111j Das & Am: v. 
Stale of Orissa & 
ilm: 1954 SCR 1046: AIR 1954 SC 400; 77ie Hingir-
Ramp11r Coal Co. Ltd. v. State of Orissa 1961 SCR 537 
: AIR 1961 SC 459; Co1poratio11 of Calcutta and am: 
1: !Jher1_1' Cinema 1965 SCR 477 : AIR 1965 SC 1107;
Kewal Krishna Puri and Am: v. State of Punjah 197'> 
(3) SCR 1217: (1980) I SCC 416; Krishi Upaj Mandi 
Samili and Ors. v. Orient Paper and Industries Ltd. 1994 
(5) Suppl. SCR 392 : (1995) 1 SCC 655; Stare of 
Gujarat and Anr. v. Akhil Gujarat Pravasi V.S. 
Mahamendal 2004 (3) SCR 956 : (2004) 5 SCC 155; 
Stale of' Wes/ Bengal v. Kesoram industries Ltd & Ors. 
2004 (1) SCR 564 : (2004) 10 SCC 201 - referred to. 
l71e /,m1· of foxarion by Thomas M Cooley; The Major 
/,aw Lexicon by P. Ramanatha Aiyar - Vol. 6 - 4'h 
Edition - Page Nos.6678 and 6679; Blackwell on Tax 
llrles as cited in 'Tata Iron & Steel Co. Ltd. v. State
JTNDAL STAJNLFSS LJ'D. v. STATE OF J-IARYANA 
21 
of Bihar, AIR 1991 Patna 75, 81; Black'.\' Law 
A 
Dictionmy, 7'" Edn., P. 1469; Seervai '.I' hook (Vol. 3, 
Page 2607) -· referred to. 
J .5. l A plain reading of Article 301 would show that freedom 
of trade, commerce and intercourse is by no means absolute, the 
same being subject to the other provisions of Part XIII of the 
Constitution. Amongst those provisions arc Articles 302, 303 
and 304 which have a direct bearing on the nature and the extent 
B 
of restrictions snhjcc.t to which only is the right to freedom of 
trade, commerce ancl intercourse referred to in Article 301 
C 
exercisable. Reading Articles 301 and 302 together, it is evident, 
that freedom of trndc, commerce and intercourse is subject to 
restrictions which Parliament may hy law impose in public interest. 
The absolute character of the freedom of trade, commerce and 
intercourse is flrns lost by reason of Article 302 itself empowcl"ing 
Parliament to impose such restrictions as it may consider 
necessary in public interest. Article 303, in turn, places 
restrictions on the legislative powers of the Parliament and of 
D 
the States. A careful reading of Article 303 would show that 
not withstanding 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 
E 
in any of the Lists in the Seventh Schedule. A conjoint reading of 
Clauses (1) and (2) of Article 303 would thus make it clear that 
F 
while Parliament/ Legislature of a State shall have no power to 
make a law imposing restriction on trade, commerce and 
intercourse, by giving or authorizing the giving of any preference 
to one State over the other, such limitation on the legislative 
power of Parliament shall not extend to giving of any preference 
or making or authorizing any discrimination if it is declared by 
law that a situation has arisen out of scarcity of goods that makes 
it necessary to do so. In other words, while the Parliament may 
impose restrictions in public interest under Article 302, the 
restriction so imposed shall not be in the nature of giving 
G 
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22 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
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. [Paras 66, 
68][242-B-C, F; 243-D-ll; 244-A-BI 
B 
c 
D 
E 
G 
H 
I.5.2 Article 304 starts with a "no11-obsta11te" clause. Article 
304(a) far from treating taxes as a restriction per se, specifically 
recognises the State legislature's power to impose the same on 
g,oods imported from other States or Union Territories. The 
expression 'may by law impose' is certainly not a restriction on 
the power to tax. That does not, however, mean that the power 
to tax goods imported from other States or Union Territories is 
unqualified or unrestricted. There are two restrictions on that 
power. The words "to which similar good.s manufactured or 
produced in that State are subject" impose the first restriction 
on the power of the State legislature to levy any such tax. These 
words would imply that a tax on import of goods from other States 
will be justified only if similar goods manufactured or produced 
in the State are also taxed. The second restriction comes from 
the expression "so, however, as not to discriminate between goods 
so imported and goods so manufactured or produced". The State 
legislature cannot in the matter of levying taxes discriminate 
between goods imported from other States and those 
manufactured or produced within the State
levying such a tax. 
The net effect of Article 304(a), therefore, is that while levy of 
taxes on goods imported from others State and Union territories 
is clearly recognised as constitutionally permissible, the exercise 
of such power is subject to the two restrictive conditions. 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. [Para 69] 1244-
E-F, G-11; 245-A-EJ 
1.6 Question is whether Clauses (a) and (b) have to be read 
conjunctively. 
Clauses (a) and (b) of Article 304 deal with two distinct 
subjects and must, therefore, be understood to be independent 
of each other. While Clause (a) deals entirely with imposition of
.JINDAL STAINLESS LTD. '. STATE OF HARYANA 
taxes on goods imported from other States, Clause (b) deals with 
imposition of reasonable restriction in public interest. It is trite 
that levy of a tax in terms of Article 304(a) may or may not be" 
accompanied by the imposition of any restriction whether 
reasonable or unreasonable. The use of the word 'and' between 
clauses (a) and (h) docs not admit of an interpretation that may 
impose an obligation upon the legislature to necessarily impose 
23 
A 
B 
a tax and a 1·es!riction together. The law may simply impose a tax 
without any restriction reasonable or otherwise or it may simply 
impose a reasonable restriction in public interest without imposing 
any tax whatsoever. lt 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. 
Levy of taxes do not constitute a restriction under Part XHI except 
D 
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 b~' way of taxes. It follows that for levy of taxes 
prior Presidential sanction in terms of the proviso under
Article 
304(h) will be wholly unnecessary. 
This view is reinforced on 
c 
E 
the plain language of proviso to Article 304(b ), which is limited 
lo law relating to reasonable restrictions referred to in clause 
(b). [Paras 70, 711[245-F-G; 246-C-HJ 
2. An interpretation that makes the textual match the 
contextual meaning of the provision is preferred by Courts over 
one that prefers one at the cost of the other. The question is 
whether the textual interpretation placed on Articles 301 to 304 
matches the contextual. The contextual interpretation of Part 
XIII must, out of necessity, start with the historical perspective 
of that Part. Part XIJI 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 th~ 
limitations imposed by the paramount power. The power to levy 
G 
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24 
SUPREMF COURT RFPORTS 
[2016] 10 S.C.R. 
A 
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 harriers. It provided for a prohibition against enactment of 
any law or taking of any executive action by the provincial 
B 
c 
J) 
legislature that restricted the entry into or export from the 
province goods of any class or description. 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, ccss, toll or due which discriminated between goods 
manufactured or produced in the provinces and goods not so 
manufactm·ed or produced or between goods manufactured or 
produced outside the province discriminated between goods 
manufactured or produced in one locality and similar goods 
manufaclu1·cd or produced in another locality. With India attaining 
its freedom, Part XIII of the Constitution adopted by it, was aimed 
at bl"inging about economic unity. The object underlying Part 
XIII was to make movement and exchange of goods free 
throughout the territory of India. This was achieved by Article 
301 to Article 304 adopting substantially the scheme underlying 
the 1935 Ad. The only difference between the said provisions 
and Section 297 of the 1935 Act was that the principles enunciated 
in the latter were extended to the Union Government
and the 
Union Parliament and to the territory which had after merger 
become a 1rnrt of India. The essence of the freedom of trade 
commc1·cc and intercourse as recognized in the 1935 Aet and in 
the Constitution under Part XIU remained the same. !Paras 73, 
F 
76 and 77][248-C; 249-B-ll; 250-A-B) 
H 
Reserve Bank o(Jndia \'. Peerless General Finance and 
lnvestmrnt Co. /Jd. 1987 (2) SCR 1 : (1987) 1 SCC 
424 - relied on. 
Constit11rio11al Lmv ol lndia ( 4"' Edition) by H.M. 
Secrvai - referred to. 
3.1 Legislative competence of the State legislatures can
JlNDAL STAINLESS r:rD. v. STATE or HARYANA 
25 
be circumscribed only by exp1·ess provisions or the Constitution 
A 
and unless lhei-e is an express limitation on the plenary taxing 
power of the States. there is no other feHcr on the exercise of 
n1al power. Applyint: this principle to the case at hand, there is 
no specific limitation on the State's power to levy taxes on the 
import of goods from other States except the one referred to in 
Article 304(a) of the Constitution. That limitation is confined lo 
levy of disc.-iminatory taxes within the comprehension of Article 
304(a). The power to levy a tax in terms of A.rticles 245 and 246 
read with Entry 52 of list ll not being in dispnte 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 
arc free to levy taxes that arc non-discriminatory in nature. [Paras 
79, 80]!251-D-G] 
3.2 The provisions of our Constitution are aimed at vesting 
and maintaining with the States substantial and significant powers 
B 
c 
D 
in the kgislalivc and cxccntive fields so that Slates enjoy their 
share of autonomy and sovereignty in their sphere of governance. 
This e1n in turn be done by interpreting the prnvisions of the 
Constitution including those found in Part XIII in a manner that 
preserves and promotes the federal set-up instead of diluting or 
E 
undermining the same.
An approach which tends to dilute the 
federal characte1· of our Constitutional scheme must·. therefore, 
he avoided and one that supports and promotes the concept of 
federalism preferred hy the courts while interpreting the 
provisions of the Constitution. Taxing power of the Union and 
the States arc mutually exclusive. While the Parliament cannot 
kgislatc on the subjects reserved for the States, the States cannot 
similarly trespass onto the taxing powers of the Union. If the 
Constitutional scheme docs not allow the Parliament to us111·p 
F 
the taxing powers of the State Lcgislatun:s, such process of 
usurpation cannot also be permilled to take place in the garb of 
Ci 
making Union executive's concurrence an essential p1·c-rcquisitc 
for an~· taxing lq!i~latinn. [Paras 81. 83 and 841 1252-B-C; 254-E, 
C-H: 2:'i5-AI 
;\./1» lnremutio110/ fo11rist Corpom1i1m & ors. v. Sww 
H
26 
SUPREME COUR!' REPORTS 
[2016] IO S.C.R. 
A 
of Harvana a11d Ors. 1981 (2) SCR 364: (1981) 2 
SCC 318; ITC Umited ''· ilgricultuml Produce Market 
Co1111nittce and Ors. 2002 (1) SCR 441 : (2002) 9 SCC 
232 ·- relied on. 
Constirutirm Assemblv Debates (Vol. IX Page 1131) -
B 
rcfen-ed to. 
c 
I) 
E 
F 
3.3 The expression 'subject to other provisions of this Part' 
appearing in Article 301 and the non-obstante clause appearing 
in Article 304 do not traverse in different directions. There is no 
conllict in the two provisions on account of the use of the said 
expressions. Interpreted individnally or conjointly, the two 
expressions simply mean that Article 304 takes precedence over 
Article 301. [Para 9111260-F-Gl 
3.4 It is fairly well settled by now that Courts show 
considerable deference to the legislature in the matter of quantum 
of tax that may be levied as also the subjects and individuals 
upon whom the same may be levied. .Just because room for 
challenge to a fiscal statute is limited is 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 recogn'ize 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. [Para 9611264-C-E] 
Ramjilal v. IT7come fox Officer,
Mohindargarh 1951 
SCR 127: AIR 1951 SC 97: Kunnathat Thathu11ni 
Moo pi/ Nair v. 17ze State of' Kera/a & Anr. 1961 SCR 
G 
77: AIR 1961 SC 552; Laxmanappa Hanumantappa 
Jomkhandi v Union of India AIR 1955 SC 3 - relied 
on. 
l-l 
1\!l/1-. Bhugatrnm Rajee1' Kumar 
v. 
Commissioner of 
Sales Tax, MP and Ors. 1994 (6) Suppl. SCR 91 :
JINDAL STAINLESS ITD. v. STATE OF IIARYANA 
1995 Suppl. (l) SCC 673; State of Bihar and Ors. v. 
Rihar Cham her of Commerce and Ors. 1996 (2) SCR 
184 : (1996) 9 SCC 136; Jindal Stripe !JJ. and Am: 
v. 
State of Hwyana and Ors. 2003 (4) Suppl. SCR 154 : 
(2003) 8 sec 60: Jaiprakash Associates Limited v. State 
of /\i!adhya Pradesh and Ors. 2008 (17) SCR 1282 : 
(2009) 7 sec 339; Jindal Stainless Limited and Am: v. 
Stale off-Jarrana and Ors.2010 (4) SCR 743: (2010) 
4 SCC 595; Keshav Mills Co. Ltd. 
v. CIT 1965 
SCR 908: AlR 1965 SC 1636; GK. Krishnan v. State 
of fomil Nadu 1975 (2) SCR 715 : (1975) 1 SCC 375; 
Kihoto Hollo/um v. Zachillhu 1992 (1) SCR 686 : (1992) 
Supp 2 SCC 651; Tlv!A. Pai Foundation and others 1-: 
Stale of Karnataka 2002 (3) Suppl. SCR 587 : (2002) 
8 SCC 481; Chi el.Justice of Andhra Pradesh and others. 
v. L V A. Dixi111/11 and others 1979 (1) SCR 26 : (1979) 
2 SCC 34; Ke.rn\'Gnanda Bharati v. State ol Kera/a 
1973 Suppl. SCR 1 : (1973) 4 SCC 225; Ku/deep Nair 
v. Union of India and Ors. 2006 (5) Suppl. SCR 1 : 
(2006) 7 SCC l; Smt. U1)a111 Bai " State of Uttar 
Pradesh 1963 SCR 778: AlR 1962 SC 1621 - referred 
to. 
3.5 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. !Para 102]1268-B-Ci 
.James r. Cmmnmni:ealth o(Ausrralia (1936) A.C. 578; 
Cmmnomi:eallh of /1 l!Stralia and others F. Bank of Nnv 
South 
I-Vales 
m1d others 
119501 
A.C. 
235; 
Co111mrm11'calth ol Australia and Ors. v. Bank ol New 
South Wales and Ors. [1950] A.C. 235; McCulloch v. 
Marv/and, 17 US 316 (1819) - referred to. 
27 
A 
B 
c 
D 
E 
(.! 
H
28 
SUPRRME COURT FF!'ORTS 
[20l6l l0 S.C.R. 
;\ 
" I freatise 011 the Co11stit11/io11al J,imitation.1·" (8'" Edn. 
I l 
I) 
1927 
Vol. II Page 986) by Thomas M Cooley 
referred to. 
3.6 Simpl,v because the tax is high is no reason for it to 
change its character and take the form of a restriction within the 
meaning •tf Part XI 11, no matter any one aggrieved of such heavy 
burden shall have the liberty to assail the same on all such grounds 
a' may be available to him under Part Ill of the Constitution. 
!Para 1l6J J278-BJ 
St{{/e o/ lvf{{dru.1· '" 
J\'. K. i\'{{/{{raja Mudalior l 968 SCR 
829 : A IR 1 %9 SC 147 - relied on. 
Rojo .Joganno!h Hoksh Singh v. Stale of' UP 1963 
SC R 220 : A I H. l 962 SC 1563; Federa1io11 o( Hotel & 
Rc.1·taura11/ .·l.\·sn. of Indio etc. 1·. U11io11 ol l11dia & Ors. 
198'l (2) scR 918: (1989) 3 sec 634; Y v 
Sri11i1·asa11111rtln· and ors. 1·. Stoic of' 1'vlrsore and /lm: 
AIR 1959 SC 894; 0 G Gose & Co. (Agents) (P! Ltd v. 
Stole of Kera/a {//Id am: 1980 (I) SCR 804 : (1980) 2 
SCC 410; A S11resh and olilt'rs 1·. State o/11V and another 
I' 
1996 (8) Suppl. SCR 947: (1997) l SCC 319- referred 
(i 
II 
to. 
4.1 Whether the use of the expression "by virtue of any 
entry 1·clating to trade and commc1·cc" appearing in Article 303 
arc wide enough to include entries relating to lev:v of taxes also. 
The entries relating to Trade and Commerce by themselves 
are no! snfficicnl to cmpowc1· till' legislature lo levy taxes. The 
constitutional scheme
is such that a taxing entry is distinct from 
other entries and a levy of tax is possible on!~· if there is an entry 
which authorises lhP cornpcknt legislature to levy the same. 
:\rticle 303 is an exception lo Article 302, inasmuch as it limits 
the po\\ er conceded to the Parliament under Article 302 to impose 
restrictions on freedom of Trade, Commerce and Intercourse in 
public interest. The power exercised by Article 302 cannot be
JJNDAL STAINLESS !TD. v. STATE Of HARYANA 
so exercised as to give preference to one state over another 
except under a situation covered by Article 303(2) namely 
situation arising from scarcity of goods in any part of the territory 
of India. !Paras 117-11911278-E, G-H; 279-A; 280-E-F] 
M. P V Sunderammier \·'. State of Andhra Pradesh 1958 
SCR 1422 : AlR 1958 SC 468 - relied on. 
29 
A 
B 
4.2 Whether the levy of entry tax on import of goods from 
outside the local area i11 the State will be per sc discriminatory if C 
goods so imported or similar arc not produced or manufactured 
within the State. 
1\t-ticlr 304(a) strikes at discriminatory taxation implying 
thereby that the levy falls unequally as between goods produced 
or manufactured within the State and those being imported from 
outside. The essence of the guarantee in Article 304(a) lies in 
the same or similar goods being treated similarly in the matter of 
taxation. The question, therefore, is whether that guarantee is 
violated if the goods .rnbjected to levy of ei1try tax arc not 
produced or manufactured within the State levying the tax.Answer 
is in the negative. This is because there is no question of any 
discrimination if goods from outside the State are not at a 
disadvantage vis-a-vis goods produced or manufactured within 
that State. His true that a levy on goods that arc not produced or 
manufactured in the State is likely to make such goods costlier 
but that is not enough for the levy to be
considered 
unconstitutional. A responsive Government aware of the needs 
of its constituents will be under tremendous pressure to keep 
such taxes low enough for its constituents to be able to afford the 
same. Dcmocrat.ic processes and pressures within the system of 
governance that we have will itself take care of any aberration in 
this regard. What is absolutely clear, however, is that Article 
304(a) will not frown at a levy simply because same or similar 
goods as are taxed are not produced or manufactured in the State. 
!Para 1221[282-C-G] 
D 
E 
F 
G 
H
30 
;\ 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
Ka!rani Stores v. State of' Orissa (1966) 1 SCR 865 -
held inapplicable. 
ll 
4.3 The Central Sales Tax Act, 1956 was enacted pursuant 
c 
to the Sixth Amendment Act, 1956 whereby taxes on sale and 
purchase of goods in the course of inter-state trade and commerce 
were expressly brought within the purview of the legislative 
competence of Parliament. This included the 1wwcr to impose 
rcst.-ictions upon the power of the State legislature insofar as 
levy of taxes of sale or purchase of goods of special importance 
is concerned. F:ntry 92-A added by the Sixth .\mendment Act 
1956 empowered the Parliament to levy taxes on the sale and 
purchase of the goods other than newspapers in the course of 
trade and commerce. Entry 54 of the State List by the same 
D 
amendment was redrawn to make the taxes on the sale and 
purchase of goods subject to Entry 92-A of List I. The States' 
power is made subservient to the powers of the Parliament under 
Entry 92-A. Section 15 of the Central Sales Tax Act, t.herefore, 
has overriding effect vis-a-vis any State Law authorizing imposition 
E 
of taxes on sale/purchase of declared goods. In t.his perspective, 
Parliament has limited the legislative power of the Stat.c insofar 
as taxes on declared goods arc concerned. 
The imposition of 
restrictions on the State's power of taxation in regard to declared 
goods is not suggestive of taxes themselves being restrictions 
for purposes of Part XIII
oft he Constitution. Not only that, Article 
286(3) provides the source of power for the Parliament to impose 
any restriction on the State authority t.o leV)' a tax on goods of 
special importance declared by Parliament. A non-discriminatory 
tax does not per se constitute a rest1·iction on the right to free 
(i 
II 
trade, commerce and intercourse guaranteed under Article 301. 
!Paras 124-12611283-D-J•'; 284-A-C; 285-A-B] 
Atiuhari Tea Co. Ltd. 
\'. 
Srare of'Assam & Ors. 1961 
SCH 809 : Am 1961 SC 232; Automohile 1/'a11.1porf 
(Rajasrhan; Lrd. ere. v. Swre of' Rajastlwn & Ors.1963
JlNDAI. STAINl .FSS lTD. v. STATF OF HARYANA 
SC R 491 : A IR 1962 SC 1406; Jindal Swinless Ltd 
( J) and ,.Jnr. 1·. Swre ol Harvana and Ors. 2006 (3) 
SCR 1095: (2006) 7 SCC 241 - overruled. 
5.1 
ls the Entry Tax levied by the States in the present 
hatch of cases yiolativc of Article 301 of the Constitution and in 
particular have the impugned State enactments relating to entry 
tax lo be tested with reference to both Articles 304(a) and 304(b) 
of the Con.~titution for determining their validity? 
The restrictions referred to in Article 304(b) arc non-fiscal 
in nature. Constitutional validity of any taxing statute has, 
therefore, to he tested only on the anvil of Article 304(a) and if 
the law is found to be non-discriminatory, it can be declared to be 
constitutionally valid without the legislation having to go through 
31 
A 
B 
c 
I.he test or the process envisaged by Article 304(b ). Should, 
however, the statute fail the test of non-discrimination under 
D 
Article 304(a) it must he struck down for the same cannot be 
sustained even if it had gone through the process stipulated by 
Article 304(b). That is because what is constitutionally 
impermissible in terms of Article 304(a) cannot be validated and 
sanctioned through the medium of Article 304(b). A fiscal statute 
shall be open to challenge only under Article 304(a) of the 
Constitution without being subjected to the test of Article 304(b) 
either in terms of the existence of public interest or
rcasonah!rness of the lcv~·. !Para 12911174-C; 285-F-II; 286-A-
E 
BJ 
Video t.'lectronics v. State of Punjab 1989 (2) Suppl. 
SCR 731 : (1990) 3 SCC 87 - affirmed. 
5.2 The Court ought to examine whether the differentiation 
made is intended or inspired by an element of unfavourable bias 
in favour of the good~ produced or manufactured in the State as 
against those impor1ecl from outside. Sn long as the differentiation 
made b~· the States is not intended lo create an unfavourable bias 
and so long as the differentiation is intended to benefit a distinct 
G 
H
32 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
class of industries and the life of the benefit is limited in terms of 
period, the benefit must be held to flow from a legitimate desire 
to promote industries within its territory. Grant of exemptions 
and incentives in such cases must be deemed to have been 
inspired by considerations which in the larger context help 
B 
D 
E 
F 
H 
achieve the Constitutional goal of economic unity. !Pam 133] [289-
D; 290-C-DI 
Shree Mahavir Oil Mills and Anr. v. Stale of Jammu and 
Kashmir and Ors. (1996) 2 SCC 39 - distinguished. 
Kathi Raninp, Rawat l'. The State of Saurashtra 1952 
SCR 435: AJR 1952 SC 123 - affirmed. 
Mk Bhagatram Rajeev Kumar v. 
Commissioner of 
Sales Tax, MP. and Ors. 1994 (6) Suppl. SCR 91 : 
1995 Suppl. (1) sec 673; State of Bihar and Ors. V. 
Bihar Chamber of Commerce and Ors. 1996 (2) SCR 
184 : (1996) 9 sec 136; Ji11dal Stripe Ltd and Am: V. 
State of' Hwyana and Ors. 2003 ( 4) Suppl. SCR 154 : 
(2003) 8 SCC 60; Jaiprakash Associates Limited v. Stale 
of Madhva Pradesh and Ors. 2008 (17) SCR 1282 : 
(2009) 7 SCC 339; Jindal Stainless Limited and Am: v. 
State of Harvana and Ors. 2010 (4) SCR 743: (2010) 
4 SCC 595; [<eshav ivlil!.1· Co. Ltd. 
v. CIT 1965 
SCR 908 : AIR 1965 SC 1636: GK Krishnan v. State 
of fomil Nadu 1975 (2) SCR 715 : (1975) 1 SCC 375; 
Kihoto Hollo/um v. 
Zachi/lhu 1992 (1) SCR 686 : 
(1992) Sup1>l. 2 SCC 651; TM.Ii. Pai Foundation and 
others l'. State ofKamataka 2002 (3) Suppl. SCR 587 :
(2002) 8 SCC 481; Chief Justice of Andhra Pradesh 
and others. v. L. V. A. Dixitulu a11d others 1979 (1) SCR 
26 : (1979) 2 SCC 34; Kesavananda Blwrati v. State 
of Kera/a 1973 Suppl. SCR l : (1973) 4 SCC 225; 
Ku/deep Nair v. Union ojlndia and Ors. 2006 (5) Suppl. 
SCR 1 : (2006) 7 SCC l; S1111. Ui/am Bai v. Stale uf 
U1tar Pradesh 1963 SCR 778 : AIR 1962 SC 1621 -
referred to.
.JJNDAL STAINLESS LTD. \'. STATE or HARYANA 
5.3 Courts have almost universally accepted the principle 
that keeping in view the inherent complexities of fiscal 
adjustments and the diverse elements and inputs that go into 
such exercise a greater latitude is due to the legislature in taxation 
·related legislations. So long as the intention behind the grant of 
exemption/adjustment/credit is to equalize the fall of the fiscal 
burden on the goods from within the State and those from outside 
the State such exemption or set off will not amount to hostile 
rliscrirninati.on offensive to Article 304(a). Whether the impugned 
enactment achieve the object of such equalization or lead to a 
sit nation that exposes goods from outside the state to suffer any 
disadvantage vis-a-vis those produced or manufactured in the 
taxing State is left open for examination by the regular benches 
hearing the matters. !Paras 137, 1411[291-G; 297-E] 
Ma/i1tlal i: Union of India 1996 (10) Suppl. SCR 585: 
l 997 (5) SCC 536; Khandige Sham Bhat v. Agrl. 
/JV 1963 SCR 809 : AIR 1963 SC 591; V Gun1viah 
Naidu and Sons and Ors. 
v. 
State of Tamil Nadu and 
Ors.1977 (1) SCR 1065 : (1977) 1 SCC 234; Malwa 
/3111· Se111ice (Private) Ltd. v. State of P.unjah and Others 
1983 (2) SCR 1009: (1983) 3 SCC 237; Maharaj 
Umeg Singh v. State of !3omhav, 1955 SCR I 64 : AIR 
1955 SC 540 - referred to. 
Cole v. Whitfield (1988) 165 CLR 360 - referred to. 
PER S. A. BOBDE, .J. (Concurring) 
Taxes arc not
restrictions on Trade. 
1. Tax is predicated on freedom of trade and commerce. It 
33 
A 
B 
c 
D 
E 
F 
is pa1·ticularly true of entry tax. Entry tax is an impost levied on 
G 
transactions which are entered into in the course of that freedom. 
In fact, but for such freedom of trade, there would be no 
transaction and no occasion for the levy of a tax. The levy of a 
tax is a distinct event from the transaction. Trade and commerce 
must take place to attract a tax. Undoubtedly a tax may make 
H
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the transacHon less profitable to the extent of the tax. Bnt that 
is rar from being an impediment on the transaction which is part 
of trade, the freedom which is guaranteed under Article 301. It 
is not possible to readily conceive of a tax, which in itself, restricts 
or impedes the freedom of trade. !Para 2] [298-C-D] 
c 
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2. Article 304(a). 
The levy of entry tax on import of goods from outside the 
local area in the State will be per se discriminatory if goods similar 
to those imported are not produced or manufactm·ed within the 
State. Article 304 recognizes the power of a Legislature to a State 
to impose the tax on the imported goods so, however, as not to 
discdminatc between goods so imported and goods so 
manufactured or produced. The Article imposes two conditions: 
firstly. that a law may impose a tax on goods imported from other 
States, "any tax' to which "similar goods manufactured or 
produced' in that Stale are subject. This clearly implies that the 
goods imported from other States may be subjected to a tax where 
simib1r goods a1·c in fact, manufactured or produced in the 
imporfing State and arc subjected to tax. In other words, (a) the 
goods imported from other States must be similar to (b) the goods 
manufactured or produced in the importing State and (c) the goods 
so locally manufactured or produced must be subject to tax. The 
second condition is the tax that is imposed on imported goods
should not discriminate between the imported goods and goods 
manufactured or produced in the importing State. The intention 
of the Article thus, clearly is that where a tax exists on goods 
impot"ted into a State, there should be no discrimination between 
such a tax and a tax on similar goods manufactured or produced 
in the importing State. The reference point for tax on imported 
goods is the tax on locally manufactured goods. It is not possible 
to construe the prohibition against discrimination where there is 
no tax upon similar goods manufactured or produced in the 
importing State. Undoubtedly, the effect of such a construction 
is that the imported goods cannot be taxed where similar goods 
are not manufactured or produced in the importing State and arc 
therefo1·e, not subjected to similar tax and that seems to be the 
clear· intention of this Article. !Paras 4, 6 and 711299-C; 300-D-
JINDAL STAINLESS LTD. v. STA.TE OF HARYA.NA. 
3) 
II; 301-A-BI 
A 
3. Jn the normal course, a State in which certain goods arc 
not manufactured would rely on the supply of such goods from 
other States and the effect of this provision would he to make the 
goods so imported available without the additional burden of tax. 
In sum, the premise on which lax can be imposed is the existence 
of no! mere taxes on goods produced or manufactured locally, or 
the thcon:tical possibility of taxation, to avoid the prohibition 
under Article 304 (a), hut the actual production or manufacture 
of similar goods, that are subject to like or similar tax. Absent 
this condition, the levy would fall foul of Article 304 (a) since it 
would constitute an additional burden (the goods already having 
suffered some form of taxation in the producing state). This 
interpretation would also further economic progress and the 
unhindered availahili!y of goods in states which do not have 
manufacturing capacities and may not be able to develop it, having 
regard to lack of natural resources or other geographical 
limitations. I! also furthers the aims underlying Article 301 of the 
Constitution of India. (Para 8]1301-C-F] 
f1riahari ](,a Co. Ud. 
1: 
Stall' of'Assam & Ors. 1961 
SCR 809 : AIR 1961 SC 232 - referred to. 
McC11lloch v. Mwyla11d. 17 lJS 316 (1819) - referred 
to. 
PER SHIVA KIRTI SINGH, .I. (Concurring) 
Challenge to various taxing statutes enacted by several 
States to impose Entry Tax on
goods in exercise of specific power 
available lo the State legislature under· Entry 52 of List II in the 
7th Schedule of the Constitution. 
I. Since, in the matter of levy of taxes the compensatory 
theory is no more relevant, the State Legislatures are free to 
('Xercise their taxing powers without the need of declaring and 
showing that taxes imposed by them oi1 outside goods arc for the 
benefit of concerned traders or manufacturers. But such tax must 
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be, in essence, non-discriminatory, both, in the ultimate tax burden 
and in machinery provisions. To muster compliance with Part XIII 
of the Constitution, the lax must pass the twin tests embodied in 
Article 304(a) - (i) Similar goods produced locally must also be 
subjected lo similar tax and (ii) such state action should not attract 
the vice of discrimination between the two varieties of goods. 
I Para 611303-0-Fl 
2. The entire discussion leads to a fair conclusion that the 
views summarized by Sinha, CJI in paragraph 18 of his judgment 
in Atiabari case depict the law emanating from Part XIII of the 
Constitution in the correct perspective. However same cannot 
he said of observations in paragraph 16 where His Lordship used 
the expression - "If a law is passed by the legislature ...... . 
imposing a high tariff wall----------assumes the character of a trade 
barrier which it was the intention of the Constitution makers to 
abolish by Part XUJ." These observations do create practical 
difficulties of insurmountable proportions. Hence these deserve 
to be treated as obiter or interpreted in the light of the entire 
passage, to mean such taxes which impose an impediment to the 
free flow of trade, commerce and intercourse by creating 
discriminatory tariff wall/trade barrier (emphasis supplied). For 
Part Xlll there can be no real impediment through tax unless 
the so called wall or barrier is one of
hostile discrimination 
between local goods aud outside goods. !Para 711303-G-ll; 304-
A-Bl 
Atiahari Tea Co. Ltd. 
v. 
State of Assam & Ors. 1961 
SCR 809 : AIR 1961 SC 232; Auromobi!e Transport 
(Rajasthan) Ud etc. v. State of Rajasthan & Ors. 1963 
SCR 491 : AIR 1962 SC 1406 - not good law. 
PER N. V. RAMANA, J. (Concurring) 
1.1 It is a settled proposition that generally the construction 
of the Constitution must be most beneficial and widest possible 
amplitude. The court must gather from the spirit of the
.JINDAL STAINLESS !TD. v. STATE OF HARYANA 
Constitution and 1he language must not be construed in a narrow 
and pedantic manner. Equally important point is that legislative 
powers especially taxing powers cannot be tested by implication. 
Unless there is express limitation on the power of the State to 
enact the State law, it is not the province of the court to curtail 
the power of the slate by interpretative process. Every law must 
he tested with reference to preamble and Directive Principles of 
State Policy. !Paras 5.2, 5.3]1316-D-E, G; 317-A] 
Kesavananda Bharti v. State o( Kera/a 1973 Suppl. 
SCR l : 1973 (4) SCC 225 · relied on. 
RH/ v. Pearle.1·.1· General Finance AIR 1987 SC 1023: 
1987 (2) SCR 1: In re CP and Berar Act, 1938, 1939 
FCR 18; Aram Prakash v. State of Harvana 1986 (1) 
SCR 399 : 1986 (2) SCC 249; State o( 11/est Bengal v. 
Kesoram Industries Ltd. 2004 (1), SCR 564 : AIR 2005 
S.C. 1646; Ci. K. Krishnan v. State of Tamil Nadu 1975 
(2) SCR 715: AIR 1975 S.C 583; RC Cooper v. UOJ, 
1970 (3) SCR 530 : (1970) l SCC 248; Madho Rao 
.Jimii Scimlia l'. Cnion oflndia 1971 (3) SCR 9: (1971) 
1 sec 85 - referred to. 
Constituent Asscmhly Dehote Vol. IX, September 8, 
1949 - referred to. 
1.2 In a democratic system, the elected Governments are 
always responsible for its people. If there is any high taxation 
which is affecting their life, this puts pressure on the Governments 
lo reduce taxes and elected Governments are answerable to 
public every five years.
No Government can raise tax which would 
cause public inconvenience. In this context, Sovereignty is no 
more endless power, rather it is responsibility. A responsible 
government in a democracy should always strive to keep taxes 
as low as possible, so that no heavy burden is placed on tbe 
individuals. Although States arc empowered to tax under the 
Constitution. it does not necessarily mean that they should tax at 
37 
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exorbitant rates. Tax is a way uf apportioning the cost of 
government among those who in some measure are privileged 
to enjoy the benefits and must therefore bear its burdens. A tax 
is a burden or charge imposed by a competent legislature upon 
persons or property, to raise money for public purposes. 
Important clements of a tax may be said to be first, that it is a 
compulsory exaction; secondly, it is payable to the State or to 
some public authority on its behalf; and thirdly, that it is an exaction 
. for purposes of public interest. Our Constitution has demarcated 
the taxing powers between the Center and States. Taxing power 
of the Union as well as the States resides in Article 245 read with 
246 of the Constitution. Article 246 of the Constitution, lays down 
that Parliament has exclusive power to make laws with respect 
to any matter enumerated in Union List (List I of schedule VII). 
The States have complete power to make laws with respect to 
~my matter enumerated in the State List (List II of schedule VII) 
and both Parliament and State Legislature have power to make 
laws with respect to any matter enumerated in the Concurrent 
List (List IU of schedule VU). As per Article 265, no taxes shall 
be levied or collected except by the authority of law. Taxation 
entries are to be found only in lists I and II, indicating that in our 
Constitutional scheme, taxation powers of the Centre and the
States are mutually exclusive. There ar·c no Entries in the 
Concurrent List which gives power of taxation. This being the 
case, the moment the levy contained in a taxing statute 
transgresses into a prohibited field, it is liable to be struck down. 
!Paras 6.1, 6.211324-C-F; 325-A-E) 
Raja .!agannath Baksh Singh v. State of U.P & Am: 
1963 SCR 220: AIR 1962 SC 1563; Dena Bank v. 
Bhikhahhai Prahhudas Parekh & Co. 2000 (3) SCR 
509 : (2000) 5 sec 694; c.rr.. Udaipur Rajasthan V. 
McdoH·e!l & Co. Lrd. 2009 (8) SCR 983 : 2009 (10) 
sec 755 - referred to. 
Coole1' on taxation Vol. 1, 4'" ed., Ch.2 - referred to.
JINDAL STATNLESS ITD. v. STATE Of HARYANA 
39 
2.1 The freedom of tniclc, commerce and intercourse A 
throughout the territory of India is assured, but such freedom of 
trade is subject to Part XIII of the Constitution. 'When evaluating 
the impact of Article 301 on the plenary taxing power of the 
Sovereign State, the opening words become significant. The 
dissi;ct.ion of A1·tielc 301 shows that it bas three significant parts 
or p h rascs. T hcse are, 's ul~iect to other provisions of this part', 
and 'Trade, Commerce and intercourse throughout territory (}( 
India', '.~hall befi·ee'. \Vhichever way one r·eads, the plain meaning 
of this is that trade, commerce and intercourse, shall be free, 
subject to Articles 302 to 307 of the Constitution. The two sets 
or the provisions which are mainl:o-· contemplated in the phrase 
'subject to other provisions' are Articles 302, 303 and 304 (a) 
and (h). The Pl1rliamcnt may by law restrict the freedom of trade 
in puhlic interest and such law would lJe free from Article 301. 
Article 301 of the Constitution begins with the phrase 'Subject 
tn othl'r prnvisions of this Part'. This phrase gins an initial 
indication as lo what to expect? The position of this phrase should 
be taken into consideration. Even before the declaration of 
freedom of Trade, Commerce and Lntercourse, it is being 
sub.iected to limitations. Further the opening words of Article 
301, namely, 'sub.ice! to the provisions of this part' require that 
all the
Articles of the Part XIII have to be read together so as to 
understand the width and meaning of the Part Xlll. 'Subject to' 
is the dominant expression so far as Article 301 is concerned. It 
indicates subservience to at least Articles 302, 303 and 304. 
Articles 302 to 304 embody a restatement of powers under Article 
246 r/w the State List under the VII Schedule. Each restated 
power by itself overrides the freedom of trade in Article 301. 
[Paras 7.3-7.511328-D, E-H; 329-A-BI 
2.2 A1·ticlc 301 loses its prime place, if States make laws 
under any of the taxing entries, erecting reasonable restrictions 
B 
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or imposing tax on the free trade. Such power oYer-ridcs freedom 
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of trade and commerce. Thus, the general declaration by Article 
301 is relaxed in favor of Parliament by Article 302 and in favor 
of the States by Articles 303 and 304. Article 304 starts with a 
11011-ohstallle clause whereas Article 302 does not have a non-
obstanle clause. As the freedom of trade in Article 301 is itself H
40 
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subjecl to 302 and 304, the intention of the framers appears to 
be clear. The Constitution guards and protects the State 
legislations under Arliclc 304(a) and (b) from overemphasized 
effect on freedom of trade under Article 301.IPara 7.6] 1329-C-DJ 
3. It is a sound principle of jurisprudence that entire statute 
R 
has to be construed as a whole and not in isolation. While doing 
so, no clause in any provision can be ignored especially when 
interpreting the Constitution which is 's11pre111a lex'. The 
difference between the power of the Union and the States vis-a-vis 
Article 301 is that Article 302 does not have application to tax 
C 
laws like Article 304(a), but under Article 304(a), tax can be 
imposed on the goods imported from other States. From the 
legislative history and Constituent Assembly Debates, 
propositions that emerge arc: It is clear from a comparison of 
Clause 16, 243, 244 and 245 of the draft Constitution with Articles 
D 
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in Part XA (now Part XIII) that they were not merely arranged in 
seriatim but were substantially altered. That freedom of trade, 
commerce and intercourse is not a fundamental right. That trade, 
commerce and intercourse in India is not absolutely free. That 
the discriminatory tax (like erstwhile custom duties imposed by 
certain independent states) is harmful for the federation. [Paras 
7.7, 7.1711329-E-F; 335-B-EJ 
F1111dame11tal Rights by Dr. K. M. Munshi B. Shiva
Rao. The Fmming of India :1· Co11stit111ion, Vol. II, p. 69 
(1967) (B. Shiva Rao); Sir Alladi Krislmaswami Jye1; 
B. Shiva Rao, p.68; Co11stitue111 Assemhlv Dehate, Vol. 
IX, 8th September 1949 - referred to. 
4. The main inspiration for Part XIII has been American 
and Austrnlian models. These models present before the 
Constituent Assembly were re-designed and expanded by the 
framers of the Constitution in India according to the needs of 
Indians. The interpretation provided by other countries are Just 
indicative. They may have persuasive value because the context 
and history has been quite different as compared to India. At
JINDAL STAINLESS LTD. v. STATE Of HARYANA 
least in relation to Part XUJ of the Constitution an indigenous 
interpretation should be provided without placing heavy reliance 
on the foreign cases as they may be subject to change which will 
inevitably stir !he matter once again. Moreover, our constitutional 
~tructm·e is quite different from those provided under Australian 
and American Constitutions. ln Australia and the U nitcd States 
of America, giving textual meaning to the applicable 
Constitutional provisions, the Courts interpreted the 'commerce 
clause' or 'free trade clause' in such a manner that the (federal 
units) were completely barred lo levy any taxes o·n inter-state 
trade and commerce. Fortunately off late, in these jurisdictions, 
the law has been dilutl'd to enable the· federal units to regulate 
inter-state trade and commerce even by imposing levies. This 
would be clear by bi-icf reference lo !he case law governing inter-
state trade in Australia, Canada and the United States of America. 
!Paras 7.19, 7.201[336-B-Ej 
Gold Seal Ud. 1·. Alherta AG (1921) 62 SCR 424 --
referred to. 
Cole 1·. Whitfield (1988) I 63 CLR 360; Castlemaine 
foohey.1· Ud v. South A 1.11·tralia ( 1990) 169 CLR 436; 
Bct/(1ir Pty Ud v. Western Australia (2008) 234 CLR 
418; Common wealth\'. Bank ofrww South H'ltlcs, (1949) 
79 CLR 497; Brmvn v. Mw).Zand 25 lJ.S. (12 Wheat.) 
419 (1827); i'vicCulloch 4 Wheal. 316 (1819); Freeman 
1·. Hc11·irt. 329 U.S. 249 (1946); Comp/Pie Auto
fransit 
'" Hrndr 430 U.S. 274 (I 977); D.H. Holmes C01npa11v 
Lid. 
1·. Shirln Mc1Vamara 486 lJ.S. 24 (1988); 
C11111111om1·ealrh Edison Company '" Srate of lvlontana 
453 U.S. 609 (1981) - referred to. 
Constitutiomt! /,aw of Canada, Peter rV Hogg. Vol.l, 
pg. 857 
referred lo. 
5. There is no gainsaying that the law made by Parliament 
or State legislature is subject to Constitutional limitations. A law 
41 
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which abridges fundamental rights is rendered void by reason of 
Article 13. ;\ law hy the Union or the States relating to a sub.ice! 
matter outside the powers assigned under Articles 245 read with 
Article 246 and relevant legislative entries in the Seventh 
Schedule would be ultra vires as legislatively incompetent. Apart 
from these limitations, the law of the Union or the States is also 
subject to other Constitutional limitations. The provisions of Part 
XIII, especially, Article 304(a) and (b) also act as a limitation on 
the legislative .i uriscliction of the Union and the States. The power 
endowed under Articles 245 and Article 246 to a competent 
legislature to make laws is 'subject to the provisions of the 
Constitution'. Nonetheless, if a State makes law under Article 
245( 1) read with A1·ticle 246(3) in respect of the subjects 
enumerated in Entries 45 to 63 of List II in the Seventh Schedule, 
it is doubtful whether it can be invalidated only on the ground 
that it does not comply with Articles 301 and 304(a). Indeed 
various provisions of the Constitution dealing with fiscal measures 
in Part XII, for instance Articles 265, 269, 276 and 286, 
spccilically deal with taxes, but in Part XJJI, except A1·ticle 304(a), 
no other Article deals with taxes. Further Chapter I of Part XII 
of the Constitution specifically deals with provisions regarding 
•Finance', whereas Part XIII deals with ·Tracie,
Commerce and 
Intercourse' within the territory of India. Thus, these two Parts 
are kept distinctly separate. Though every law is made subject 
to all provisions of the Constitution, it does not mean that every 
tax law made by the State must be made answerable to the general 
provisions relating to trnde, commerce and intercourse. The 
F 
JJro,·isions of the Constitution, the Constituent Assembly Debates 
and the p1·eccdents, lead to such a conclusion.IPara 7.40]1351-F-
ll; 352-A-C I 
Maharaj Umeg Singh and Others v. The State al 
Bomhar and Others 1955 (2) SCR 164; Khverbari Tea 
G 
Company v. State of'Assam (1964) 5 SCR 975 : AIR 
1964 SC 925 - referred to. 
H 
Concise OxfiJrd Dictionarv, p. 474 (10th Ed.) - referred 
to.
JINDAL STAlNLFSS LTD. v. S IArE OF HARYANA 
43 
PART-VIII : ARTICLE 304 OF THE CONSTITUTION 
A 
6.1 Whether a law levying tax on cntr~· of goods needs to 
he test.ed with reference to Article 304(a) and (b) of the 
Constitution'? In order to appreciate the implication of Article 
:104 of the Constitution, it is necessary to hear in mind the 
historical background of these provisions. The Government of 
B 
l ndia Act. 1935 envisaged a federal Constitution for the whole of 
British India. The Government imposed restriction on the 
legislature of the States to legislate in relation to internal trade 
1111de1· Section 297. The prohibition contained in section 297 
applied only to I'n>Vincial Governments and Provincial 
C 
legislatures with reference to entries in the legislative list relating 
lo trnde and commerce and to production, supply and distribution 
of commodities. This section dealt with prohibitions or restrictions 
in respect of import into or export from a Province, of goods 
generally. It also dealt with the power lo impose laxes etc. and 
prohibited discrimination against goods manufactured or produced 
outside a Province or goods produced in different localities. The 
proviso empowered the 'Unit' to impose by Jaw, reasonable 
restrictions in the interest of the public order, morality or health. 
!Paras 8.1, 8.2 and 8.4] [354-G-IJ; 355-A, F-G; 356-C] 
6.2 
Another important question is whether State 
enactments relating lo levy of entry tax have to be tested with
reference to both clauses (a) and (b) of Article 304 or only with 
reference to clause (a) of Article 304 of the Constitution'! The 
history, the context and the plain words indicate that Article 304 
(a) and (h) an'. disjunctive in nature. A levy of tax need not be 
tested with reference lo Article 304 (b) of the Constitution. The 
n~asons for reading Article 304 (a) and (b) of the Indian 
Constitution disjunctively arc: First, the legislative history and 
the intention of the framers clearly point out that taxes were never 
treated as restrictions in the first place. Secondly, Article 304(a) 
docs not bar or limit State power to levy non-discriminatory taxes 
on the goods imported from other States. What is restricted is 
levy of discriminatory tax only, so to say, similar goods 
manufactured or produced in that State are also subjected to tax, 
so as not to discriminate between the goods imported and goods 
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SUPREME COURT Rf~PORTS 
12016110 S.C.R. 
manufactured or produced in the State. Thirdly, the two clauses 
of Article 304 are connected by the word 'and'. Sub-clause (a) 
puts a restriction on the State to not impose a discriminatory tax, 
whereas sub-clause (b) deals with other restrictions relating to 
trade, commerce and intercourse. Fourthly, Article 304 (a) and 
(b), on a careful reading would show that Article 304 (a) and (b) 
are disjunctive. This is made clear by the proviso, which is to the 
effect that a Bill for the purpose of Article 304 (b) can be moved 
by the Legislature of the States, only by the previous sanction of 
the President. If Clauses (a) and (b) are not disjunctive, then the 
language of the proviso would have been certainly different and 
the Bill for the purpose for Clause (a) would have been mentioned. 
Conspicuous absence of reference to 304(a) in the proviso would 
certainly lend support to the view that Clause (a) and (b) of Article 
304 are distinct and dis,junctivc. The proviso, it is well settled, is 
intended to explain the main operating part of the Article. lt is 
never used or interpreted as expanding the operative part of the 
provision. Fifthly, if one reads Clauses (a) and (b) of Article 304 
conjunctively, then it would not subserve the federal nature of 
the Constitution which is a basic structure. [Para 8.141 [364-B-
ll; 365-A-B] 
B. Shiva Rao. Fmming of Jndia :\' Constitution, A Study 
(2"" Ed.), p. 699 to
707; R. Shiva Rao, Fm111ing of India :1· 
Co11sri111tio11, Vol. Ill, p.9 (2"" Ed.); R. Shiva Rao, 
Frn111i11g of Jndia '.\· Constitution, Vol. IV, p.329 -
I' 
refetTcd to. 
G 
H 
6.3 There is a vital difference between mere 'differentiation' 
and "discrimination. It is discrimination not differentiation that is 
sought to he prevented through Part XIII. . The principle laid 
down in Video Electronics is that. if a backward area in a State 
needs impetus for the development, and in such circumstances 
incentives are given for the industry to develop whether by way 
of subsidies or tax exemptions for a certain period of time as 
desi1·ed by the competent legislature, the same would be
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
permissible and would fall outside the scope of Article 304 (a). 
Such State enactment is not inherently discriminatory, but rather 
aims to ensure economic equality which is a facet of economic 
unity. A State law directed towards development of a particular 
region is permissible under Part XIII. The common thread in 
Part XII.I is the achievement of economic unity and parity which 
does not altogether preclude differentiation for justifiable and 
rational reasons wherever necessary. The heart and soul of Part 
XIII is to dissolve hostile discrimination within the territory of 
India. T!Je second facet is that Article 304 (a) is a limitation to 
impose any tax on goods imported from other States. This power 
is subject to the condition that the goods manufactured or 
produced within the State are also subjected to tax, so as not to 
discriminate between the goods imported from outside the State. 
Article 304(a) is not a limitation on the legislature of a State to 
impose such tax on goods imported. The only condition envisaged 
under Article 304 (a) is, same tax is imposable 011 the goods 
imported from other States as well as goods if manufactured in 
that State. (Paras 8.17, 8.19, 8.20, 8.21 and 8.22] (368-A; 369-F-
ll; 370-A; 371-A-C] 
Video 
Electronics 
v. 
State of Punjah 1989 
(2) Suppl. SCR 731 : (1990) 3 SCC 87 - affirmed. 
Constituent Assemh/y Dehates, 1949. Vol. IX, Pages 
1125, 1145 - referred to. 
6.4 Taxing power
lies in Article 245 read with 246. 
The words "may by law'' appearing in Article 304 is not 
source of legislative power. ll is an option given to the Stales in 
case it decides to levy any tax on the goods imported from other 
States. The source of legislative power resides in Article 245 
read with Article 246 which is indisputable. This power is not 
subject to any implied limitation. The 1>lain reading would show 
that in a given situation, the State may by choice decide not to 
levy any tax imported from other States or, 'opt to levy taxes on 
certain goods imported from other States. Indeed in all the entry 
tax laws, the charging section enables the·levy'of entry tax only 
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SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
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on the scheduled goods. The scheduled goods are goods declared 
as attracting entry tax. [Para 8.23) [371-D-F'I 
6.5 Discrimination is a relative concept; in order to 
discriminate a reference point is required. Article 304(a) rather 
than being an enabling provision to allow the State to impose tax, 
B 
is a restricting provision, which prevents such levy of tax on 
goods as would result in discrimination between goods imported 
from other States and similar goods manufactured or produced 
within the State. The object is to p1·cvent discrimination against 
imported goods by imposing tax on such goods at a rate higher 
C 
than that borne by local goods since the difference between the 
two rates would constitute a tariff wall or fiscal barrier and thus 
impede the free flow of inter-State trade and commerce. It does 
not prohibit levy of tax as such in the situation wherein the goods 
are not produced or manufactm·ed in the Stale itself and does not 
D 
affect the authority of the State to tax the imported goods. It only 
bars discrimination on the basis of taxing the products 
manufactured within the Slate v;s-1i-vis imported goods which will 
only occur if the precondition of manufacturing in the taxing State 
is satisfied. [Para 8.24] (371-G-ll; 372-A-B] 
7. There was good amount of debate on the doctrine of 
compensatory tax evolved by this Court in Automobile. The 
concept of compensatory tax has neithe1· any juristic basis
nor a 
part of Indian Constitutional law. At the stage of drafting, at the 
stage of consideration by the Sub-Commillcc as well as Advisory 
Committee and when lhe Part XA (now Part XIII) was adopted 
F 
by the Constituent Assembly, never even for a moment, the 
principle of compensatory tax was thought of. f Para 8.26] (372-
C-E] 
pl 
H 
.lriahari Tea Co. J.td. 
v. 
Srate of Assam & Ors. 1961 
.SCR 809 : AIR 1961 SC 232; Automohile Transport 
r1?(1j{;,·th111iJ L1d.
1 ere v. _\·1ate pf Rajas1ha11 & Ors. 1963 
·s~:R 491 :. Ali{ '1962 ~f 1406'- not good ~~~v. 
Blwgatram Rajee1· Kumar v. en: .MP 1994 (6)·SuppL. 
SCR 91 : 1995 Suppl. (l) SCC 1636; State of Bihar E
JINDAL STAINLESS !TD. v. STATE OF HARYANA 
Bihar Chamher oj' Commerce and Ors. 1996 (2) SCR 
184: (1996) 9 SCC 136; Jindal Stainless Ltd. And Am: 
v. SI ale of Haryana and Ors. 2006 (3) SCR 1095 : AIR 
2006 SC 2550; Jaiprakash Associates v. Slate of MP 
2008 (17) SCR 1282 : 2009 (7) sec 339; Jindal 
Stainless Ud. and .Im: v. Slate of J-farvana 2010 (4) 
SCC 595; Jindal S1rips Lrd. v. Srare of Ha1Jana 12003 j 
129 S.'J'.C 534; .Jindal S1ripe Ud. v. Slate of Harvana 
2003 (4) Suppl. SCR 154: 2003 (8) SCC 60; Jindal 
S1rip.1· Limited 1·: Stale of Har)'ana 2006 (3) Suppl. 
SCR 569 : 2006 (7) SCC 271; Indian Oil Cmporation 
1: Stale of' Harvana (2009) 21 V.S.T 10 (P&ll); A. 
Laksluninarh, PrecC'denl in India (3"• Ed.} p.178 (2009); 
In re Sea Customs 1lct 1964 SCR 787 : AIR 1963 SC 
J 760; Stale Trading, Corp. o( India Ltd. v. CTO 1964 
SCR 99 : AIR .1963 SC 1811; Golaknath v. State of 
47 
A 
B 
c 
P1111jah 1967 SCR 762: AIR 1967 SC 1643; Naresh 
D 
Shridhar Mirajkar v. Stale of Maharastra 1966 
SCR 744 : AIR 1967 SC 1; S11ptd. And Remembrancer 
o(' f,e,'..!,al Affc1ir v. Corp. of Calculla 1967 SCR 170 : 
AIR 1967 SC 997; Ahmedahad Sr. Xavier College 
Sociclv v. State of Gujarat 11)75 (1) SCR 173 : (1974) 
1 SCC 717; Indira Sa11 hney 1.: UOJ 1992 Supp. (3) SCC 
215; Supreme Co11rl Advocalc.1· on Record Association 
\'. UOI 1993 (3) SCR 669 : (1993) 4 sec 441; SR 
Ho111111ai v. UOJ (1994) 3 SCC I; Attorney General of 
India 1.: Amritlal Pmjvandm· (1994) 5 SCC 54; Mafatlal 
E
llld11stries v. UOJ 1996 (10) Suppl. SCR 585 : 1997 
f 
(5) SCC 536; <Vi'v!DC v. Stare of Punjab 1996 
(10) Suppl. SCR 472 : (1997) 7 sec 339; TMA Pai 
Foundation Case 2002 (3) Suppl. SCR 587 : (2002) 8 
SCC 481 (11 .iudge bench); J.R. Coelho v. State of 
TN 2007 (1) SCR 706 : (2007) 2 SCC 1; Central Board 
G 
of DaV1·oodi Bohra Community & ,Jnr. v. State of 
!vlaharashtrn & Am: 2004 (6) Suppl. SCR 1054 : 2005 
(2) SCC 673: Keshav .\!fills Co. Ltd. 
v. CIT 1965 
SCR 908 : A.IR I 965 SC I 636; Minerva Mills Ltd. & 
Ors. 1'. Union Of India & Ors. 1980 AIR 1789: 1981 
H
48 
A 
8 
c 
I) 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
(1) SCR 206; State of West Bengal v. U11ion of India 
119641 1 SCR 371; S.R. Bommai v. Union of India 
119781 2 SCR 1; Special Reference No.I of 1964) 1965 
SCR 413: AIR 1965 SC 745; ITC Limited v. Agricultural 
Produce Market Committee and Ors. 2002 (1) 
SCR 441 : (2002) 9 SCC 232 - referred to. 
J,ord De1111i11g, Familv Storv, p. 207 (1999) - referred 
lo. 
PER R. HANUMATill, .J. (Concurring) 
1.1 The underlining idea in making trade, commerce and 
intercourse throughout lhe territory of India free is to emphasize 
on the economic unity of India and to ensure that unity of the 
country may no! be broken by internal barriers. In order to ensure 
that the Slate Legislatures sub.jected to local and regional pulls 
did no! create trade barriers in future, Art. 301 was incorporated 
in !he Constitution. Art. 301 in general enacls that "subject to 
the other provisions of this Part, trade, commerce and intercourse 
throughout the territory of India shall be free". After having 
declared the general nature of the freedom of trade and 
commerce, Part XIII of the Constitution sets out the limitations 
to this freedom, in Articles 302 to 304 which re-state the powers 
of the Parliament and the State Legislatures in imposing 
restrictions on the freedom of trade, commerce and intercourse. 
!Paras 15, 161 1382-A-H, D-EI 
f 
Ji11dal Stai11/ess Ltd. (2) and Am'. v. State of Haryana 
and Ors. 2006 (3) SCR 1095 : (2006) 7 SCC 241 -
overruled. 
K. T Plantation Private Limited and Another v. State of 
Karnataka 2011 (13) SCR 636 : (2011) 9 SCC 1; State 
G 
of Kera/a a11d Ors. v. ivlar Appraem Kuri Company 
Limited and .for. 2012 (4) SCR 448 : (2012) 7 SCC 
106; Ma hara; Umeµ; Singh and Ors. v. The State of 
Bomhay a11d Ors. 1955 SCR 164: AIR 1955 SC 540 -
referred to. 
H
JINDAL STAINLESS r;rD. v. STATE or HARYANA 
49 
1.2 Ar!.302 empowers the Parliament to impose restrictions 
A 
on the freedom of trade, commerce and intercourse provided 
1 hey arc required in pnhlic interest The purpose of this provision 
is lo allow !he Government of India to restrict the movement of 
goods so as to safeguard a well-balanced economy and for proper 
organization or supply of goods and services. Famine may be 
B 
raging in one par! of the country while there is plenty in another 
part, as has been the past experience of the country in regard to 
food. If Parliament has no effective powers to impose restrictions 
in such situations on freedom of trade and commerce, then it will 
undermine the unity of nation. It is reasonable to presume that 
!he Parliament, people's representative is a bet!er judge of public 
interest and that its Judgment must have primacy over any other 
judgment, including that of the courts. !Para 17] [382-G-H; 383-
Al 
1.3 Ar!. 303(1) of the Constitution prohibits Parliament 
and the Slate Legislature from making "any law giving or 
authorizing the giving of, any preference to one State over another, 
or making or authorizing the making or, any discrimination 
het ween Slate and another, by virtue of any entry relating to trade 
and commerce in any of the Usts in Seventh Schedule". 
P1·cfcrence or discrimination amounts to a restriction on the 
freedom guaranteed under Ar!. 301 of the Constitution only if it 
is a law made by virtue of
any entry relating to trade and commerce 
in any of the Lists in the Seventh Schedule. Application of Art. 
303(1) is to specific entries on trade and commerce and not to be 
confused with the general application of Art. 301 to all the 
legislative entries other than the entries relating to trade and 
commerce. But when any part of the country is suffering from 
scarcity of goods, Parliament may, to meet such a situation; pass 
even a discriminatory law [Art. 303(2)]. Art. 303(2) is an exception 
c 
]) 
E 
to Art. 303(1) inasmuch that the limitations of Art. 303(1) lose 
operation when aforesaid preference and discrimination is made 
G 
for the purpose of dealing with situation arising from scarcity of 
goods, and the Parliament may in these situations enact a law 
that gives or authorises giving preference or makes or authorises 
making of any discrimination. [Para 18] [383-C-E] 
H
50 
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SUPREME CDURT REPORTS 
[2016110 S.C.R. 
1.4 As per Art. 304(a), a State Legislature may impose any 
tax on goods imported from other States or Union Territories to 
which similar goods produced in that State are also subject, so as 
not to discriminate between the goods so imported and goods so 
manufactured or produced within the Stale. A State Legislature 
is also authorised to impose reasonable restrictions on the 
freedom of trade and commerce with or within that State as may 
be required in public interest, subject to the condition that no 
Hill or Amendment shall be moved in the Legislature of a State 
without previous sanction of the President !Art. 304(b)I. Art. 
304 begins with non-obstantc clause and is intended to override 
both Art. 30 I and Art. 303. Art. 304(a) does not prevent taxation 
of goods; it only prohibits taxes that discriminate between the 
goods imported from other States and similar goods that are 
manufactured or produced within the taxing State. [Para 19] [383-
F-ll; 384-Al 
1.5 Part XII and Part XIII of the Constitution lay down the 
parameters within which State Governments can exercise their 
right to enact laws/impose tax, restricting the freedom of trade, 
commerce and intercourse. Puq>0se of including Part XIII (as it 
stands today) in the Constitution as emerges from Section 297 of 
the Government of India Act, 1935 was to confer a freedom of 
trade, commerce and intercourse, subject to restrictions and non-
discriminatory tax laws. In this respect, Art.301 does not confer 
any higher right. Even the Constitutional Assembly Debates show 
that the framers did not intend to confer any absolute freedom of 
trade, commerce and intercourse. They did not adopt the 
expression "absolutely free" as found in the Australian 
Constitution. The purpose of including Part XIII in the 
Constitution as emerges frqm the Constituent Assembly Debates 
was to ensure the interest of the larger economy of the nation 
and to prevent unreasonable trade barriers in the free flow of 
trade, commerce and intercourse, impeding economic growth. 
Framers of the Constitution considered flow of trade, commerce 
and intercourse throughout the territory of India as important 
for economic unity, but they did not deify trade, commerce and 
intercourse nor they entertained any fetish for it. In fact, freedom 
of trade, commerce and intercourse was initially meant to be a
JlNDAL STAINLESS LTD. v. STATE OF HARYANA 
51 
fundamental right but was removed from the part pertaining to 
A 
'Fundamental Rights' as it was considered that it did not have 
any great content as a fundamental right. !Paras 21, 25]1384-E-
F; 387-U; 388-A-B] 
Jindal Stripe Ltd. and Am: v. State of Haryana and Ors. 
2003 (4) Suppl. SCR 154 : (2003) 8. sec 60; 
B 
Jaiprakash Associates Limited v. 
State of Madhya 
Pradesh and Ors. 2008 (17) SCR 1282 : (2009) 7 SCC 
339; Jindal Stainless Limited and Anr. v. State of 
Harvana and Ors. 2010 (4) SCR 743: (2010) 4 SCC 
595 - referred to. 
"'Constituent Assemhly De hates 30. 07. 1949 to 
18. 09. 19,19 " -
referred to. 
Freedom under Art. 301 is sub.iect to Part Xlll and other 
parts of the Constitution Parts viz. III, IV and XII etc.: 
2.1 Interpretation of the Constitution should emerge from 
a reading of the whole of the Constitution to ensure that the 
overall objectives are achieved. Part XIII as a whole is based on 
a balanced scheme and it should be interpreted with reference to 
other parts of the Constitution including Part Ill, Part XII and 
Articles 38 and 39 of the Directive Principles of State Policy. Each 
of these Parts must be read not in isolation or as water tight 
compartments but harmoniously as a logical whole. The 
Constitution must be treated as a logical whole and provisions 
are not to be read in isolation. !Para 31 I [392-G-H; 393-A) 
2.2 Object of Part Xlll is not to make inter-State trade, 
commerce and
intercourse absolutely free. Part XIII will have 
to be rcl!d along with other Parts of the Constitution namely, Parts 
Ill, IV and XII along with the basic features of sovereignty and 
federalism. Free trade, commerce and intercourse is subject to 
the other provisions of Part XIII as well as other constitutional 
provisions. A1·t. 301 does not use the word subject 'only' to Part 
XIII. The word "free" in Art. 301 is to be read not in isolation or 
in the limited context of Part XIII, but has to be read as part of 
c 
D 
E 
F 
G 
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52 
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B 
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SUPREME r::)lJRT REPOR!'S 
[2016] 10 S.C.R. 
the Constitution as a whole. The word "free" cannot be given a 
meaning which renders the legislative powers of the State 
ineffective. Articles 302 to 304 are neither exceptions nor 
provisos to Art. 301 and therefore, the principles of interpreting 
a proviso cannot be applied to them. But both Atiabari and 
A utomohile proceeded on the footing that Art. 302 is in the nature 
of exception to Art. 301. [Paras 33, 34] J394-D-E, G] 
Kesavananda Bharati v. State of Kera/a 1973 Suppl. 
SCR 1 : (1973) 4 SCC 225 - followed. 
Kihoto Hollohan v. 
Zachillhu 1992 (1) SCR 686 : 
(1992) Suppl. 2 SCC 651; TM.A. Pai Foundation and 
others F. State of Karnataka 2002 (3) Suppl. SCR 587: 
(2002) 8 sec 481 - relied on. 
Can the levy of a non-discriminatory tax per se constitute 
infraction of Article 301 of the Constitution of India? 
Power to Tax is an incident of State Sovereignty:-
3.1 Entries relating to taxation and levy of duty under the 
State List, Seventh Schedule are Ent.ries 46-62 and under the 
Concurrent List, Seventh Schedule arc Entries 35, 43 and 44. 
The power to tax is a sovereign right of the State and is essent.ial 
to the very existence of a Government. Any fetters on the power 
of the State to generate revenue through taxes have a direct 
r · impact on the autonomy and governance of the State. The term 
'tax' is ordinarily used to express the exercise of the sovereign 
power to raise revenue for the
expenses of the Government. 
Subject t.o the Constitution and its inherent restrictions, the power 
of taxation is regarded as political and supreme. Without taxes, 
G 
H 
for lack of source of revenue, the Government would become· 
paralyzed. How much revenue is to be drawn and from which 
source is a matter of fiscal policy and wholly depends on the needs 
of a State. [Paras 36, 37 and 40) J397-B-C; 399-F)
.JINDAL STAINLESS LfD. v. STATE or HARYANA 
Raja Jagamwth Baldi Singh v. The State of U.P and 
Anr. (1963) 1 SCR 220; State of WB. v. Kesoram 
Industries Ltd. and Others 2004 (1) SCR 564 : (2004) 
10 SCC 201; Yadlapati Ve11kateswarl11 v. State of A.P. 
1990 (1) Suppl. SCR 381 : 1992 Suppl. (1) SCC 74, 
Stale of U. I' & Am: v. Synthetics and Chemicals Ltd. & 
,Jnr. ( 1991) 4 SCC 139; Amrit Banaspmi Co. Ltd. and 
Anr. v. State of Pun/ah and .1nr. 1992 (2) SCR 13 : 
(1992) 2 sec 411; Dena Bank V, Bhikhahhai 
Prahhudas Parekh & Co. and Ors. 2000 (3) SCR 509 : 
(2000) 5 sec 694 - relied on. 
Constilutional Law of India. 4'h Edition, Volume 3; 
Coole_\', fo.wlion (4'h E(lition) Pages. 72, 149, 150; 
Referred to in the Article Power to Tax by Herman 
M. Knoellcr reported in Market Law Review Volume 
22 Issue 3 April, 1938 - referred to. 
3.2 Parts XI and XII of the Constitution deal with "Relations 
between the Union and the States" and "Finance, Property, 
Contracts and Suits" respectively. Part XII dealing with finance 
53 
A 
B 
c 
D 
etc. has been treated as Part dealing with the sovereign power of E 
the States to impose taxes, which must always mean imposing 
hurden on citizens and others in public interest. The power of 
taxation is vested in a sovereign State to carry on with the affairs 
of the Government. Our Constitution had laid the foundation of a 
Welfare State, very much extending the activities of the 
Government and the administration thus making it necessary for
the State to impose taxes on a large scale and in much wider 
fields. The legislative competence of the Parliament or of the 
State Legislatures can only be circumscribed by express 
prohibition contained in the Constitution itself. The plenary 
powers of legislation vested in the Union and State Legislatures 
by the Constitution are not subject to any limitations other than 
those imposed by the Constitution itself. !Para 42] 1400-D-F] 
G 
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54 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
Elel Hotels & Investments Lrd. and Others v. Union of 
117dia J 989 (2) SCR 880 : (1989) 3 SCC 698 - referred 
to. 
B 
c 
D 
E 
Freedom in Art. 301 does not mean freedom from taxation. 
3.3 Exemption from tax power of Parliament /State 
Legislature must be provided expressly and unambiguously. 
Art.289(2) shows that the trade and business carried on by or on 
behalf of the Government of the State can also be subjected to 
tax and the tax could be "to such an extent'', if any, as Parliament 
may by law provide. When even the trade or business carried on 
by or on behalf of the Government of the State can also be 
subjected to tax, it would be erroneous to hold trade, commerce 
and intercourse carried on by private individuals and companies 
in the country free from tax; and that too, by implication. Even 
Fundamental Rights in Part HI of the Constitution are not immune 
from taxation and taxation has been held to be "not a restriction". 
[Paras 49, 50] [403-A-C] 
Indian Express Newspapers (Bomhay) Pvt. Ltd and Ors. 
etc. v. Union of India and Ors. etc. 1985 (2) SCR 287 : 
(1985) 1 sec 641 - relied on. 
3.4 While the States have legislative power to levy taxes 
r: 
on goods imported from other States, Art. 304(a) imposes 
restrictions on this power of the States to levy a tax on goods 
that would result in discrimination between goods imported from 
other States and similar goods manufactured or produced within 
the States. The
non-obstante clause in Art. 304 with respect to 
G Art. 301, actually indicates that since tax does not fall within the 
purview of Art. 301, therefore, Art. 304(a) was brought in to 
provide against discrimination based on source or destination of 
goods. Art. 304(a) is thus a restriction on the tax powers of the 
States, not to discriminate between the goods imported into the 
State with similar goods manufactured or produced within the 
H
.TlNDAL STAINLESS ITD. v. STATE Of HARYANA 
55 
taxing State. [Para 531 1405-E-FI 
A 
3.5 The Constituent Assembly Debates indicate that the 
framers of the Constitution while intending to guarantee free flow 
of trade, commerce and intercourse did not deify it. At the time 
nf drafting Constitution, provision containing freedom of trade, 
commerce and intercourse which was initially shown as 
B 
Fundamental Rights; but after debates, it was shifted to a separate 
Part !Part XIII!. The framers of the Constitution did not intend 
that trade, commerce and intercourse is free from taxation. Art. 
304 provides for the power of the States to impose taxes, subject 
of course, the levy is not discriminatory. Hence, Art. 301 ought 
not to be read as freedom from tax laws. A tax legislation could 
be challenged on the ground of legislative competence as well as 
violation of Fundamental Rights guaranteed under Part Ill of the 
Constitution. Tax legislations can be challenged on the ground 
that they infringe the Fundamental Rights under Part Ill but that 
docs not however mean that there is freedom from taxation or 
that tax is per sc a restriction on Fundamental Rights or freedom 
of trade, commerce and intercourse. !Paras 54, 56 and 57] [405-
G, II; 406-A; 407-B; 409-DJ 
All Bihar Schools Association and Am: v. State of Bihar 
and Ors. 1988 (2) SCR 49 : (1988) l SCC 206; Printers 
(Mrsore) Ltd. and Am: 1.: Asstt. Commercial Tax Officer 
and Ors. 1994 (1) SCR 682 : (1994) 2 SCC 434
-
affirmed. 
Tax is not a restriction per sc. 
c 
D 
E 
r 
4. Under Art. 246(3) of the Constitution, a State has 
exclusive power to make laws for such State or any part thereof 
with respect to any of the matters enumerated in List 11 of the 
Seventh Schedule. Art. 246(3) is subject to clauses (1) and (2) of G 
Art. 246 i.e. matters enumerated in Lists l and Ill of the Seventh 
Schedule. As per Art. 265, a tax can be imposed only under 
authority of law and there is no role of the Executive. It is a 
sovereign power of compulsory exaction as a part of any burden 
hy public authority for public purposes enforceable by law. The 
H
56 
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SUPREME COURT REPORTS 
[2016] JO S.C.R. 
taxing power of the State stands independently fortified by Parts 
XI and XII of the Constitution of India and can only be challenged 
on the ground of reasonableness. Power of States to levy taxes 
for the purpose of governance and carrying out its welfare 
activities is a necessary attribute of State's sovereignty and in 
that sense it is a power of supreme attribute. It is well-settled 
that taxes are levied in public interest and hence, cannot be 
considered a restriction per se on the enjoyment of any freedom 
contemplated by the Constitution. The essential characteristics 
of a tax arc that: (i) it is imposed under a statutory power without 
the taxpayer's consent and the payment is enforced by law; (ii) it 
is an imposition made for public purpose without reference to 
any special benefit to be conferred on the payer of the tax; and 
(iii) it is part of the common burden. [Paras 58-60] [409-F-G, H; 
410-A-DJ 
Commissioner Hindu Religious Endowments, Madras 
v. Sri f,akshmindra l71irtha Swamiar of Sri Shirur Mutt 
1954 SCR 1005; Indian Medical Association v. VP 
Santha and Ors. 1995 (5) Suppl. SCR 110 : (1995) 6 
SCC 651; State of Gujarat and Ors. v. Akhil Gujarat 
Pravasi VS. Mahama11da! and Ors. 2004 (3) SCR 956 : 
(2004) 5 SCC 155; Federation of Hotel a11d Restaurant 
Association of Jndia. Etc. v. Union of India and Ors. 
J 989 (2) SCR 918 : (1989) 3 SCC 634; Express Hotels 
Private Umited v. State of
Gujarat and Am: 1989 (2) 
SCR 893: (1989) 3 SCC 677; Hari Krishna Bhargav 
v. Union of India and Anr. 1966 SCR 22 : AIR 1966 
SC 619; Rai Ramkrislma and Ors. V. me State of Bihar 
(1964) 1 SCR 897 - relied on. 
MaJority view in Atillbari and Automobile: Need of 
re-appreciation. 
5.1 Art. 301 guarantees freedom of trade and commerce 
from "restrictions" and not freedom from all "laws". In Atiabari, 
by application of "direct and immediate test", rather than
JINDAL STAlNLESS !TD. v. STATE Of HARYANA 
examining the powers of the State Legislature to enact legislation 
with reference to the entries in List II, the majority has gone 
into the effects of the Iegislat.ion. As per ma.iority view of Atiabari, 
Art. 301 is a limitation upon the exercise of legislative powers of 
the State, which negates or limits the legislative power of the 
States expressly granted under various entries in List ll of the 
Seventh Schedule. In Atiabari and A11tomobile, there was no 
detailed n'ference lo Constituent Assembly Debates which throw 
considerable light on the scope of Part XIU. The view taken in 
Atiabari and A11to111obile that taxes may and do amount to 
restriction, is flawed. Taxing power of the State stands 
independently fortified by Part XII of the Constitution and can be 
challenged only on the ground of reasonableness.[Paras 72, 
731[420-C-E] 
Freedom in Art. 301 is not freedom from taxation-
non-discriminatory taxes are outside the purview of Art. 301. 
5.2 The views taken in Atiabari and Automobile in the light 
of the Australian cases represent a mechallical implantation of a 
foreign concept into the Indian legal system, not keeping in view 
the distinct features of Indian Polity and the Constituent Assembly 
Debates. Majority view in Atiabari and A11to111obile do not appear 
to have taken note of the historical background of merger of 
'i'<ative States' with their individualities, with British India, and 
the federal nat111·e
of the Indian Constitution while discussing 
the fundamental question as lo whether 'Freedom' in Art. 301 
meant freedom from tax. The majority appears to have begun 
with the presumption of tax laws being subservient to Art. 301 
and later concluded that if all the tax laws are hr.ought in Art. 301, 
State's legislative power to tax would be destroyed. Thereafter, 
in an attempt to save the taxing power of the State, they borrowed 
1 he concepts of 'direct and immediate test' and 'compensatory 
tax' from the Australian and American Cases. [Para 82] [426-C-
li:I 
Com111omveal1h of Australia v. Bank of New South Wales 
(1949) 79 CLR 497 : 119501 AC 235: James v Stale of 
So1//h llustralia (1927) 40 CLR 1; James v. Cou.·m1 
(1932) AC 542; James v. Commo1rwealth o('Australia 
57 
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F 
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58 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
(1936) AC 578; Cole v. Whitfield (1988) 78 ALR 42; 
Betfc1ir Pty Ud v We.item Australia (2008) 244 ALR 
32; Freeman v. Hewit 329 US 249 (1946), Complete 
Auto Transit. Inc. v. Charles R. Brady [19771 USSC 54: 
(1977) 430 lJS 274 · referred to. 
H 
Constitutional Assembly Debates, Volume IX,· 
I'agc.1142, dated 30.07.1949- 18.09.1949 - referred 
to. 
(' 
D 
Art.304 (a) and (b) must be read disjunctively. 
5.3 As the word "restrictions" in the marginal note of Art. 
304 suggests plurality of powers and indicates that Clauses (a) 
and (b) of Art. 304 confer distinct powers. Art. 304(a) deals with 
tax; Art. 304(b) deals with restrictions that are reasonable and in 
public interest. Constitution framers could not have intended to 
include tax in Art. 304(b ); since the elements of "reasonableness" 
and "public interest". are inhe1·cnt in a tax. The use of the word 
"and" does not assist the interpretation that the provisions are 
conjunctive. It only means that:- (i) the State can impose taxes 
on goods coming from outside so as not to discriminate between 
E 
the goods imported and goods manufactured or produced within 
the State [Art. 304 (a)I -and- (ii) It can also in addition impose 
other restrictions that arc reasonable and in public interest [Art. 
304 (b) I subject to the assent of the President. That Articles 304(a) 
and (b) are dis,junctive, is also clear from the fact that the proviso 
F 
to A1·t. 304(b) i.e. the
p1·csidential sanction· is referable to Art. 
304(b) only and nol to a law imposing tax on goods imported 
from other States contemplated under Art. 304(a). This is 
because, Art. 304(a) has an inbuilt safcguanl, inasmuch the taxes 
imposed on the goods coming from another State cannot be 
c; 
II 
discriminatory and, therefore, no presidential sanction is required. 
The word "and" is used after semi colon in Art. 304(a}. While it 
is correct to say that the word "and" normally is conjunctive, it is 
also often constrned as disjunctive on the basis of the legislative 
intent as gathc1·ed from the wm·ds of the prnviso under context 
in which it was used. Since the expression ·and' is used in Art.
.11NDAL STAINLESS LTD. v. STATE Of HARYANA 
59 
304 after semi-colon, it will have to be read as 'or' creating a 
A 
disjunctive reading of Art. 304(a) and Art. 304(b) indicating that 
the State Legislature can exercise its power either under Art.304 
(a) or Art. 304 (b) or both. [Paras 90-92] [430-F-H; 431-A-D; 
433-G-U] 
lvfalwrishi Mahesh Yogi Vedic Vislrwavidvalaya v. State 
of Afadhya Pradesh and Others 2013 (13) SCR 464 : 
(2013) 15 SCC 677; A.K. Gopa/011 v. State of Madras 
1950 SCR 88 : AIR 1950 SC 27 - relied on. 
Whether A1·t. 304(b) coupled with the proviso is applicable 
to tax laws-.! udicial Approach. 
5.4 In Atiabari, majority held that "tax laws" fall within the 
comprehension of Art. 301 and, therefore, any legislation whether 
taxing or otherwise which imposes any direci restriction on the 
movement or transport of goods attracts the provisions of Art. 
301, and its validity can be sustained only if it satisfies the 
requirements of Art. 302 or Art. 304. According to the above 
view in Atiabari, it is not possible for the State Legislature to 
pass any law at all with respect to some of the tax entries viz. 
sales tax (entry 54, List II); law relating to gambling (entry 34, 
List 11) or tax on betting and gambling (entry 62, List 11); and tax 
on the can-iage of goods or passengers by road or inland 
waterways (entry 56, List II). If the legislations under the above 
entries arc challenged on the ground that they operate as a direct 
restriction on the
freedom of trade, commerce and intercourse, 
as per the view in Atiabari, these legislations may have to be 
justified under Art. 304(b). Atiabari approach would totally take 
away the sovereign powers of the State Legislature to enact laws 
in exercise of its powers under various taxing entries of List II, 
which could not have been the intention of the framers of the 
Constitution. [Para 93] 1434-B-D] 
Art.304(b) is applicable only to non-fiscal laws and not to 
lax la,vs. 
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6. Art.304(a) and Art.304(b) are two distinct powers and 
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freedom of trade, commerce and intercourse is sub,jcct to them. 
Art. 304(b) relates to reasonable restrictions imposed in public 
interest. Art. 304(b) deals with non-fiscal legislation imposing 
reasonable restrictions in public interest and tax laws are not 
included under Art. 304(b). Levy of taxes is the economic lifeline 
of the State. Framers of the Constitution never intended to include 
tax within the fold of Art. 304(b). To give the Centre a veto over 
the plenary power of the State to levy the tax would completely 
distort the Centre-State balance and cooperative federalism. Such 
an interpretation has no basis in the Constitutional Assembly 
Debates and is liable to be rejected. The rationale for the sanction 
of President contemplated by proviso to Art. 304(b) is apparent 
from the fact that trade and commerce with foreign countries and 
inter-State trade and commerce are subject matters in List I of 
the Seventh Schedule (entries 41 and 42, List I). Further, trade 
and commerce in production, supply and distribution of industry 
controlled by the Union, food stuffs, including edible oils, seeds 
and oils; cattle fodder; raw cotton, cotton seed; and raw jute are 
subject matters in entry 33, List HI. Entry 34, List Ill deals with 
price control. Only intra-State trade and commerce is in List II 
(entry 26, List II) subject to entry 33,
List III, as stated therein. 
Parliament has thus occupied an overwhelming space with respect 
to trade and commerce within the State also. It is in this backdrop 
that the State has been given power to impose reasonable 
restrictions on the freedom of trade, commerce and intercourse 
with or within that State with the proviso requiring presidential 
assent. before the Bill is introduced. The rationale, therefore, is 
that a non-fiscal law of the State with respect to freedom of trade, 
commerce and intercourse would be entrenching upon either the 
exclusive legislative field of the Parliament in List I or the 
occupied field of the Parliament in List Ill. It follows that Art. 
304(b) relates to non-fiscal laws of the States. In the above context, 
the assent of the President envisaged in proviso to Art.304(b) 
would be somewhat akin to the assent contemplated in Art. 254. 
Such assents are not judicially reviewablc. IParns 94, 99 and 1001 
1434-E-F; 438-F-H; 439-A-H]
JINDAL STAINLESS Ll'D. \'.STATE or HARYANA 
61 
Kaiser-i-l!i11d (P) Ud. a11d A111: v. National Textile 
A 
Corp11. (Maharashtrn North) Ltd. and Others (2002) 8 
sec 182 - affirmed. 
Atiahari Tea Co. Ud. v. State ofAssam & Ors. 1961 
SCR 809 : AIR 1961 SC 232; Auto111ohil.e Transport 
(Rajasthan) Ud. etc. v. State of Rajasthan & Ors. 1963 
B 
SCR 491 : AIR 1962 SC 1406; Jindal Stainless Ltd. 
(2) & A11r. v. State of Harvana & Ors. 2006 (3) 
SCR 1095: (2006) 7 SCC 241 - overruled. 
Consti111tional Law o( India. 4th Edition, Volume 3 -
referred to. 
ls the entry tax levied by the States in the present batch of 
cases violative of Ari. 301 of the Constitution and in particular 
have the impugned slate enactments relating to entry tax to be 
tested with reference to both Articles 304(a) and 304(b) of the 
constitution for determining their validity? 
7.1 A bare reading of Entry 52, List ll would show that 
entry tax can be levied only on the satisfaction of the conditions 
in l~ntry 52 of List II namely: (i) the tax to be levied on the entry 
of goods into local area; (ii) entry of goods into the local area is 
for consumption, use or sale therein. Entry tax is not collected at 
the behest of municipality or a panchayat attached to a checkpost. 
It is payable by the assesses by filing their returns. Ent.ry tax is a 
Stale level levy, levied by Slate Legislature upon entry of goods 
into a local area for consumption, use or sale therein. The local 
authorities themselves cannot
levy the tax. The power is that of 
State Legislature and of no one. Imposition of entry tax is not 
n1crcly "on movement or transport of goods"; consideration of 
Entry 52, Lisi II of Seventh Schedule shows that taxable event in 
lhe case of entry tax is entry of goods into the local area where it 
is to be used, consumed or sold therein. If the goods merely 
enter into a local area and then move to another destination 
beyond that local area, no tax can be levied under Entry 52. Since 
lhc taxable event under Entry 52 is not the mere entry of the 
goods into the local area, but the fact that the ·goods are also to 
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be used, consumed or sold, the necessary sequiter is that the 
movement of goods is terminated in that local area. Power to 
levy entry tax lies within the competence of a State Legislature. 
Since entry tax is leviable at the termination· of the movement of 
trade and the goods have entered the local area for the purpose 
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of use, consumption or sale, the levy of entJ·y tax does not restrict 
flow of trade, commerce or intercourse and is not violative of 
Article 301 of the.Constitution. [Paras 104, 110 and 1121 1440-G-
ll: 441-A, C; 443-G-II; 445-H; 446-A-Cj 
Diamond Sugar Mills Limited v. State of U.P 1961 (3) 
SCR 242; M. 0. Sha111sudhi11 v. State of' Kera/a 1995 
(2) SCR 900 : (1995) 3 SCC 351; Bzmnah Shell Oil 
Storage and Disturhing Co. of' India Ltd. Belgaum v. 
Belgaum Borough M1111ir:ipalitv Helga11111 Ce/11963 SCR 
Suppl. (2) 216 - referred to. 
Rn try Tax levied only on goods imported from other States: 
No levy of Entry Tax on the goods manufactured inside the 
State - Whether discriminatory. 
7.2 The term 'any tax' means any exaction by any impost 
F 
or levy. The effect of all the taxes levied on the goods imported 
from other States and the ones manufactured within the State 
must be such that no discrimination is caused either to the 
imported goods or locally manufactured goods. Unlike Section 
92 of t.he Australian Constitution, Art. 304(a) does not talk of 
F 
uniformity. Section 92 of the Australian
Constitution reads as 
follows:- "On the imposition of uniform duties of customs, trade, 
commerce, and intercourse among the States, whether by means 
of internal carriage or ocean navigation, shall be absolutely free." 
No such restr-iction is imposed on the legislative power of the 
States in India to ensure uniformity in levy of a particular tax. 
The raison cl' etre for use of the expression "so, however, as not 
to discriminate" is to prohibit protectionism. Moreover, 
Constitution of India does not contain a provision similar to 
Section 55 of the Australian Constitution which mandates one 
tax law on one subject. In India, the State Legislature is nowhere 
H
JINDAL STAINLESS !TD. v. STAl'E Of HARYANA 
obligated by the Constitution to ensure that the.law imposing tax 
deals with one subject of taxation only. !Paras 114, 116] 1447-C, 
G-H; 448-A-B] 
J11dia11 Cnnent and Ors. v. State of".1.ndhra Pradesh and 
Ors. 1988 (2) SCR 574 : (1988) 1 SCC 743; Western 
Electronic and Am: v. State al Gujarat and Ors. 1988 
(3) SCH 768 : (1988) 2 SCC 568 - referred to. 
7.3 The chai·gcablc event in the case of entry tax is entry 
of goods into a local area. By its very nature, entry tax does not 
contemplate impost on indigenous goods. Goods imported into 
a local area from another State are subjected to entry tax but 
goods entering into a local area from another local area of the 
same State do not attract entry tax. In this way, it may appear 
that goods imported from outside the State are put to a 
disadvantageous position but in terms of tax treatment the1·e is 
no discrimination. The essence of Art. 304(a) lies in ensuring 
equality of fiscal burden and absence of discrimination. In terms 
of Art. 304(a), the only requirement is that the goods imported 
into the local area should not be discriminated against. In tax 
treatment there is no discrimination between the goods. !Para 
117][448-C-E] 
7.4 The expression 'any tax' used in Art. 304(a) is generic 
in nature and covers all taxes on goods which a State is competent 
to impose by virtue of Articles 245 and 246 read with List II of 
Seventh Schedule. A Scheme adopted by a State
Legislature 
whereby several taxes are levied on the goods (either locally 
Jlroduced or imported from other States) under different heads, 
cannot be faulted with if it conforms to the principle of equivalence 
and non-discrimination. For e.g., both sales tax levied under Entry 
54, List II and entry tax levied under Entry 52, List II are taxes 
on goods. It is the burden of the tax which can discriminate and 
not the form. States are free to equalise the burden of entry tax 
on the goods imported from other States by giving them set-off 
against the sales tax paid by them in the exporting State. In such 
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a manner, equivalence can be hrought about in the tax burden 
borne by the goods imported from other States and the locally 
manufactured/produced goods. The contention of the assessees 
that the term 'any tax' used in Art. 304(a) refers to every tax 
distinctly, thereby prohibiting imposition of entry tax on imported 
goods unless, entry tax is imposed on locally manufactured/ 
(Hoduced goods, does not lead to just and reasonable 
interpretation of Art. 304(a). The wholesome effect of the laxes 
levied under distinct heads needs to be taken into account. The 
lax burden borne by the goods form a part of the price of the 
goods and if both, locally manufactured/produced goods and 
imported goods are subjected lo similar tax burdens, irrespective 
of the heads under which the taxes are levied, say entry tax or 
sales tax etc., then no discrimination can be said to have been 
caused. In case if entry tax not levied to equalize tax burden on 
the local goods and goods imported from outside, there will be 
huge trade diversion to low-rate tax State, causing loss of revenue 
to the high-rate tax Stales, where the goods are used or consumed. 
!Paras 118, 119] 1448-F-H; 449-A-C] 
7 .5 Any difference in the rate of tax on goods locally 
manufactured and those imported, such difference not being 
discriminatory does not fall foul of Art. 304(a). Any incentive/ 
benefits of concession in the rate of tax given to the
indigenous 
manufacturers in order to encourage the manufacture/production 
in the State cannot be said to be discriminatory.f Para 1451 1469-
G! 
Kathi Ra11i11g Rawat v. 777e State ol Saurashtra (1952) 
SCR 435 - affirmed. 
Firm ATB Mehtah Majid & Co v. State of Madras & 
Am: I 963 Suppl. SCR 435 : AIR 1963 SC 928; State 
of Madras v. N.K. Nataraja Muda!iar (1968) 3 SCR 
829; State ol Kera/a v. Ahdul Qadir and Others 1970 
(1) SCR 700 : (1969) 2 SCC 363 - referred to. 
Prof: D.D. Basu in Comparative Federalism. Prentice 
Hall of India, 1987 ·-referred to.
JINDAL STAINLESS TTD. v. STA.TE OF HARYANA 
65 
Repercussions of Art. 304(a) when no local goods are 
A 
produced. 
8. A State law that imposes a tax on imported goods where 
similar goods arc not manufactured or produced in that State, 
will meet the requirement of Art.304(a) and there would not arise 
any question or discrimination. lt is true that when similar goods 
B 
arc not manufactured inside the State, there are chances of a 
higher rate of lax on such goods brought into the taxing State 
from other States but that docs not mean that there should be a 
blanket protection of such goods from tax. Power of the State to 
lax the goods imported cannot be whittled down on the ground 
C 
that there are no similar goods manufactured or produced within 
the taxing State. Exorbitant taxation of such goods will remain 
open to challenge under Part Ill in Ari. 19(1)(g) read with Art. 
19(6) and Art. 14. !Paras 150, 1511 1470-A; 472-F-ll] 
Kolwmi Stores v. State of' Grisso and Others 1966 1 
SCR 865 - not good law. 
Levy of Entry Tax on lm1Jorted Goods. 
9.1 "Import" means bringing or taking by sea or air across 
any customs frontier. Goods imported in a vessel/aircraft require 
payment of customs duty before they are cleared into the country. 
I mporl of goods and customs clearance and the entry of goods 
into the local areas are two distinct events. In the case of customs 
duty, the taxable event is entry of goods into the territory of India. 
The taxable event under Entry 52,
List 11 is the entry of goods 
into local area for consumption, use or sale therein. Two taxable 
t'venh are distinct in law and there is no overlap. Under our 
Constitution, there is no overlapping in the taxing power. The 
Constitution gives independent powers of taxation to the Union 
and the States. The taxing power of the Onion and of the States 
are mutually cxclusin. This avoids the difficnlties which have 
arisen under other J•'edcral Constitutions. !Paras 155, 160, 161 
and 1661 [473-B; 474-H; 475-F-G; 476-E-F; 478-.FI 
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Hoechst Pharmaceuticals v. Stale of Bihar l 983 (3) SCR 
130 : (1983) 4 sec 45; Stale of rVi:st Bengal V. Kesoram 
!11d11slries 2004 (1) SCR 564 : (2004) IO SCC 201; 
G11jara1 /lni/111/a Ce111e11t J,td. v. Union of India 2005 
(2) SCR 1038: (2005) 4 sec 214 - relied on. 
Fl 
P Ramanatha Aivar \· "17ze Major J,aw Lexicon", 4'" 
l<:dition 2010 - referred to. 
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9.2 According to F:ntry 83, List I as well as the Customs 
Act, 1962 the taxable event is 'import' or 'bringing of the goods 
into India' and it is distinct from the taxable event of Entry 52, 
List IL The taxable events under F:nlry 83, List I and I<:ntry 52, 
List II are distinct; any movement of the imported goods to the 
warehouse in the factory unit would not prevent the State from 
levying and collecting entry tax when such goods enter a local 
area of the Slate for consumption, use or sale therein. !Paras 
171, 1761 1481-F:; 482-G-II; 483-AI 
Province of Madras v. Bodd11 Paidanna & Sons AIR 
1942 FC 33 : l 942 FCR 90; State of Bomhay v. FN. 
Balsam (CB) AIR 1951 SC 318; State of Travancore-
Cochin v. S!za111n11gha Vilas Cashew Nut Facton' (1954) 
SCR 53; Gramophone Company of India Ltd. v. 
Birendra Bahad11r Pander 1984 (2) SeR 664 : (1984) 
2 sec 534 - relied on. 
Prol frihe 011 American Co11stitutio11al Law States -
referred to. 
9.3 When the entry tax is levied by the Entry Tax Act 
G 
enacted by the State Legislature, the term 'a local area'
contemplated by Entry 52 may cover the 'Whole State' or 'a local 
area' as notified in the legislation .. From the point of view of 
entry tax that the Stale is a compendium of local areas and whe1·c 
the local areas contemplated by the Acl cover the entire State, 
H 
the diffei-cncc between lhe State and 'a local area' practically
JINDAL STAINLESS LTD. v. STATE Of I-IARYANA 
disappears. 
Articles 304(a) and 304(h) are to be read 
dis.iunctivcly; both apply to different sub.ice! matters; while Art . 
.104(a) deals with tax, Ar!. 304(b) deals only with non-fiscal 
matters. !Para 1771 1483-C-EI 
State of fJihar and Ors. v. Bihm· Chamber of Commerce 
and Ors. 1996 (2) SCR 184 : (1996) 9 SCC 136 -
affirmed. 
9.4 Where there is equivalence in terms of tax treatment 
between the locally produced goods and the ones imported from 
other States, levy of entry tax on the goods imported from other 
States when there is no such levy on the locally produced goods 
is not discriminatory. Every differentiation is not discrimination. 
Any difference in the rate of tax on goods locally manufactured 
and those imported, such difference not being discriminatory does 
67 
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not fall foul under Art.304(a). Any incentive/benefits of concession 
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in the rate of tax given to the local manufacturers/producers in 
order to encourage the local manufacturers/production in the State 
cannot he said to be discriminatory. !Para 1771 1483-F-ll; 484-AI 
Video Electronics Pvt. Ltd. and Am: v. State of Pzmjah 
,111</ A111: 1989 (2) Suppl. SCR 731 : (1990) 3 sec 87; 
Sri Dip,vi;av Cement Company Limited and Ors. v. State 
of Rajasthan and Others 1999 (5) Suppl. SCR 428 : 
(2000) l sec 688 - affirmed. 
Shri Mahavir Oil Mills and 11111: v. State of J&K and 
Others 1996 (9) Suppl. SCR 356 : (1996) 11 sec 39; 
Stme of UP. and .1111:
v. La.rn1i Paper Marr and Ors. 
1997 (1) SCR 914 : (1997) 2 SCC 697 - not good law. 
Can a tax which is compensatory in nature also fall foul of 
Ar·ticle 301 of the Constitution of India'? What are the tests for 
determining whether the tax or levy is compensatory in nature? 
10.1 The concept of 'compensatory tax' is a judicially 
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evolved concept. Majority in Atiabari held that taxes may and do 
amount lo rcsl.rictions and hence tax legislation is subject. to 
scrutiny under Art. 301. In Atiabari, the test of "direct and 
immediate effect on trade, commerce and intercourse" was 
evolved. The majority in Atiabari had thus completely read down 
State's taxing power under Entry 52, List ll thereby holding that 
State's legislative power is subject to the freedom clause in Art. 
301. This had an adverse effect OI) the legislative power of the 
State to levy tax and its financial autonomy. (Para 178) (484-D-F( 
10.2 All the taxes arc intended for public purpose and are 
levied in public interest. Levy of tax is not to fill the State coffers 
but to perform various functions including public welfare for which 
said funds are required. Taxation is not a profit-making exercise 
for the St.ates; the States perform several functions for which 
they require funds and have the power to levy tax to raise 
revenues and thus virtually all taxes are monies paid for services 
or facilities provided by the State. Art. 266(1) provides that all 
revenue including that from taxes received by a State 
Government shall form one consolidated fund-the Consolidated 
Fund of the State. This fund is a reservoir and resources placed 
in it are a part of the whole. All revenue is subsumed in ii and 
cannot be delineated. The Consolidated Fund of a State is a single
unified account for the State and withdrawal of money from the 
same is protect.eel by the requirement of passing an Appropriation 
Act. Further, Art. 266(3) by stating that 'no money out of any 
Consolidated Fund shall be appropriated except in accordance 
with law - for the purposes and in the manner provided in the 
Constitution' provides another safeguard in lieu of ensuring 
legitimate use of public money. The manner of appropriation of 
money collected in the Consolidated Fund of the State falls under 
Part VI, Chapter Ill, ranging from Articles 202 to 206 of the 
Constitution. There are sufficient constitutional safeguards for 
the apprnpriation of money collected in Consolidated Fund. The 
revenue generated by the States in the form of entry tax has to 
necessarily form part of this Fund, and once it so subsumed, States 
cannot be asked to show a 'proximate quid pro quo' by furnishing 
'quantifiable data' as to their expenditure. It may not be possible 
for the States to show with mathematical precision a direct link
JINDAL STAINLESS LTD. v. STATE or HARYANA 
69 
between the expenditure incurred in individual cases and the 
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corresponding levy imposcd.[Para 18711492-D-H; 493-AI 
10.3 The entry tax levied by various States, falling within 
the domain of entry 52, List II, is a tax simpliciter, even though 
by nomenclature it is termed as a 'compensatory tax'. Subject to 
passing the muster of Art. 304(a), entry tax levied by the States 
B 
under entry 52, List JI even though termed as compensatory tax 
docs not fall foul of Art. 301. The narrnw approach in Jindal 
Stai11less Ud. (2) equating compensatory laxes to 'fee' and 
mandating the States to prove 'proximate quid pro quo' by 
'quanliliahk data approach' is not correct. Since taxes arc held 
C 
lo be outside the purview of Art. 301, taxes in the name of 
'compensatory taxes' arc also outside the purview of Art. 301. 
To uphold a regulatory or compensatory tax, comprehensive 
parameters cannot he laid down as they may vary depending upon 
the nature of the levy. Automobile case itself has laid down 
parameters of compensatory laxes. It is not necessary that the 
money so collected should be put into a separate fund or that the 
lev~' should be proportionate to the expenditure. Insofar as levy 
of entry tax is concerned, enactments of some Slates facial!)' 
declare that they are compensatory. The compensatory tax so 
levied is subsumed in the Consolidated Fund of the Slate~ Once 
there is intermingling in the Fund and money is spent
for public 
purposes of development of various local areas like construction, 
maintenance of roads and bridges, and for other amenities which 
facilitate trade, there will always be a link between the liability of 
the tax borne by the traders and benefits enjoyed by them either 
directly or indirectly. 1Parns 188-1901 1493-B, D-lll 
8/wgatram Rajeev Kumar v. 
Commissioner of Sales 
Tax. M.1' and Ors. 1994 (6) Sup1)l. SCR 91 : 1995 
Suppl. (1) SCC 673 - affirmed. 
State of" Tamil Nadu v. TVL South Indian Sugar Mill~ 
Association 2015 (9) SCR 148 : (2015) 13 SCC 748, 
Krishi Upaj Mandi Samiti and Others v. Orient Paper 
& Industries Jtd. 1994 (5) Suppl. SCR 392 : (1995) 1 
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SUPREME COURT REPORTS 
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SCC 655 and Krishna Das v. Town Area Committee, 
Chil;e,aon 1990 (2) SCR 13 : (1990) 3 SCC 645; GK. 
Krishnan v. State of Tamil Nadu 1975 (2) SCR 715 : 
(1975) l SCC 375; lntemational Tourists Corporation 
and Ors. v. Stale of Harvana and Ors. 1981 (2) SCR 
364 : (1981) 2 SCC 318; Governor General of Council 
\'. Provi11ce of Madras AIR 1945 PC 98 : 58 LW 228; 
Ram Krisha11 Ram Na!h Agarwal 1•. Secretan', Municipal 
Committee, Kamptce, Union of India 1950 SCR 15 : 
AIR 1950 SC 11 ·- referred to. 
Refund and unjust enrichment:-
11. It is well-seUlcd that a claim of refund can be allowed 
only when the claimant establishes that he has not passed on the 
tax burden to the consumers. No refund can be granted so as to 
cause windfall gain to any person when he has not suffered the 
burden of tax. The possibility of the tax burden having been passed 
on to the consumers by the assessees cannot be ruled out in the 
present case. In the present case, the assessees cannot claim 
refund irrespective of whether the impugned legislations are 
declared valid or unconstitutional. Unless the assessees establish 
that they have not passed 011 the tax burden to the consumers, 
they cannot make a claim for refund and unjustly enrich 
themselves. [Para 1981 [498-G-H; 499-A] 
Mafi11lal Industries Ltd v. Union of India 1996 (10) 
Suppl. SCR 585: (1997) 5 SCC 536; Godji·ey Philips 
India Ltd. v. Stale of UP 2005 (1) SCR 732 :
(2005) 2 
sec 515 -
relied on. 
S\'llthetics & Chemicals v. State of UP (1990) 1 SCC 
109; Belsund Sugar Co. Ltd. v. Slate of Bihar 1999 (1) 
Suppl. SCR 146: (1999) 9 SCC 620 -referred to.
JINDAL STAJNLESS ITD. v. STArE or HARYANA 
71 
PER DR. D. Y. CHANDRACIJUD, .I. (Partly dissenting) 
A 
Part XIII of the Constitution: Text and Context 
1.1 In framing Article 301, the framers of the Constitution 
made a deliberate departure from the text of the Australian and 
US Constitutions. One of the aspect of A1·ticle 301 in which a 
conscious departure was made from the US and Australian 
Constitutions is that the freedom of trade, commerce and 
intercourse extends, in our Constitution, throughout the territory 
of India and not merely among the states. The expression 'among 
B 
the states' would cover a movement inter-State or across State 
boundaries. In discarding the expression "among the states" 
C 
(which is used in Section 92 of the Australian Constitution) and 
"among several states'' (which is used in Article 1 Section 8 of 
the US Constitution), 
Article 301 guarantees a more 
comprehensive coverage to the freedom to include both intcr-
Stat e and intra-State trade, commerce and intercourse. 
D 
'Throughout the territory of India', means in every part of India. 
!Paras IO, 121 1507-C-D; 508-D-F] 
1.2 The provisions of Part XIII of the Constitution contain 
an elaboration of the freedom of trade, commerce and intercourse 
and the restrictions which the Constitution contemplates as being 
within the legislative powers of Parliament and the slate 
legislatures. The legislative power conferred upon Parliament 
can restrict the arnhit of the freedom to the extent
that is specified 
in Articles 302 and 303. Similarly, the slate legislatures arc subject 
to the limitations contained in Article 303 (1) and Article 304. 
Parliament as well as the state legislatures are subject lo 
constitutional limitations on the exercise of their law making 
power in restricting the freedom of trade, commerce and 
intercourse. The extent of the freedom under Article 301 has in 
this manner been made subject to the provisions of Part Xlll. 
Those provisions of Part XIII define the extent to which a 
1·estriction can be imposed by law as well as the limitations on 
the power of Parliament and the state legislatures while 
p1·cscribing a rcstTiction. [Paras 18, 19] [512-D-F] 
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A Consiitutional history as a guide 
2. The deliberations in the Constituent Assembly 
surrounding the introduction of Part XIII leave little ambiguity 
about the constitutional philosophy underlying the introduction 
of the guarantee of free trade, conunerce and intercourse. The 
H 
guarantee of that freedom was guided by the ob.iect of fostering 
economic development. Towards achieving that goal, the founding 
faH1ers recognised the need to weave the nation into one 
economic entity. At the same lime, regional interests representing 
the diversity prevalent within the states had to be recognised by 
c 
I) 
allowing a regulator~· role for the states. While recognising the 
importance of the state legislatures in relation to trade, commerce 
and intercourse, the founding fathers had evident concerns about 
what they described as parochial interests or narrow provincial 
policies posing a clanger to the economic development of the 
nation. Ileuce, the Union Government was conferred with a power 
of intervention which was qualitatively different from the 
regulatory power conferred upon the states. It was in that 
background that !he proviso to Article 304 (b) mandated the prior 
sanction of the President to a bill or amendment introduced in 
the state legislature for imposing reasonable restrictions in the 
E 
public interest on the freedom that was guaranteed by Part Xlll. 
!Paras 3311519-F-II; 520-A-C] 
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Fu11da111ental Rights by Dr. K.M. Munshi B. Shiva 
Rao, The Framing uf" India '.1· Constitution, Vol. II, p. 
69(1967) (B. Shiva Rao); Sir Alladi Krishnaswa111i 
l_ver, B. Shiva Rao, p.68.; Co11stituent Assemhly 
Debate. Vol. IX, 8th September 1949 - referred to. 
Compensatory Taxes 
3.1 Compensatory taxes which are in the nature of a charge 
for the use of trading facilities \\Ould not be regarded as being a 
hindrance to the freedom of trade, so long as they are reasonable. 
Ry first devising the concept and then placing it beyond the pale
JINDAL SlAINLESS I.TD. v. STAfE OF HARYANA 
of Article 301, the Court in Automobile Transport ensured that 
compensatory taxes would not be subject In the constitutional 
grind of Article 304(a). A class of tax legislation bearing a 
compensator.v character was carved out of Part XIII. 
The 
principle that Automohile Transport enunciates is that the freedom 
under 1\i-ticle 301 is consistent with facilitative regulations which 
('nhancc, rathe1· than hinder trade. Second, though the power to 
lax is an essential attrihute of government, it is subject to 
constitntional limitations including amongst them Part Xlll of the 
Constitution. As a consequence, tax laws are not as a matter of 
principle outside the ambit of Article 301. Third, the test to be 
applied in determining whether a law infringes the freedom 
guaranteed by Article 301 is whether the direct and immediate 
effect is to hinder the movement of trade. A law which has that 
effect, including a tax law must, where it has been enacted by the 
state legislature be subject to the provisions of Article 304. 
Fourth, compensatory taxes which are imposed in consideration 
of the facilities which are provided hy the state to trade and 
commerce are outside the ambit of Article 301. Fifth, a 
compcnsator.v tax does not hinder the freedom of trade and 
commerce and need not compl_v with the requirements of the 
proviso to Article 304(b) of the Constitution. !Paras 71, 7611544-
E-F; 549-H-El 
Khverhari Tea Co. Ltd. v. State
of Assam (1964) 5 
SCR 975; SK Madar Saheh 1·. State of AP 1972 (2) 
SCR 853 : 1972 (4) SCC 635; Boiani Ores J.td v. State 
of Orissa 1975 (2) SCR 138: 1974 (2) SCC 777; GK. 
Krishnan v. State of TN 1975 (2) SCR 715: 1975 (1) 
sec 375 ; MA International Tourist Corporation & 
Ors. v. State of Harrana and Ors. 1981 (2) SCR 364 : 
(1981) 2 SCC 318 ; lvlalwa Bus Service (Private) Ltd. 
1•. State of Punjah and Others 1983 (2) SCR l 009 : 
(1983) 3 SCC 237; Meenakshi v. State of Karnataka 
1983 AIR 1283 : 1984 Suppl. SCC 326; B.A. Jayaram 
v. 
Union of India 1983 (3) sen. 624 : 1984 
(I) SCC 168; Mis. Bhagatram Rajeev Kumar v. 
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Commissioner of Sales Tax, M.P and Ors. 1994 (6) 
Suppl. SCR 91 : 1995 Supp ill SCC 673; State of 
Kamataka v. llan.1·a Corp. 1981 (1) SCR 823 : 1980 
(4) SCC 697; India Cement Ud i: State of Tamil Nadll 
1989 (I) Suppl. SCR 692 : 1990 (1) SCC 12; State of 
Maharashtra 1·. Jvladhukar Balkrishna Badiya 1988 (2) 
Suppl. SCR 482 : 1988 (4) SCC 290; Jindal Stripe Ltd. 
a11d Am: v. State ofHmyana and Ors. 2003 (4) Suppl. 
SCR 154 : (2003) 8 SCC 60; Jindal Stainless Ltd. (2) 
and .·lnr. v. State of Han·mw and Ors. 2006 (3) SCR 
1095 : (2006) 7 sec 241 -- referred to. 
Doctrinal concerns and inconsistencies 
3.2 The theory of compensatory taxes was evolved in 
Automohile Transport to assimilate doctrinal concerns at several 
D 
levels. Fr-cedom of trade and commerce under Article 301 of the 
Constitution is expressly made subject to the provisions of Part 
XIII. The deliberate use of the expr·cssion 'fr.cc' instead of 
"absolutely free" (the latter expression being adopted in the 
Australian Constitution) coupled 11 ith the language of Article 301 
E 
which subjects its 1>rovisions to Part Xlll is indicative of the fact 
that the freedom which is guaranteed is subject to legislative 
control. Articles 302, 303 and 304 are a part of the constitutional 
scheme which, while defining the ambit of the freedom in Article 
301 subjects it to restrictions under Articles 302 and 304. The 
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nature of the restrictions and the
limitations on the power of 
Parliament and of the state legislatures while legislating to impose 
restrictions is conditioned by constitutional parameters. The 
conditions are based on the fulfilment of substantive and 
pn1cedural norms: substantive such as the principle of non-
discrimination, the element of public interest and reasonableness; 
and procedural (if it can be regarded as a matter of procedure) by 
requiring the sanction of the President prior to the introduction 
of a Bill in the state legislature. Compensatory taxes were 
envisaged as a doct.-inal concept to prcser-ve an area where the 
sovereignty of the state legislatures in fiscal matters could operate 
without the constraining influence of a prior Presidential sanction.
JINDAL S1AINLESS U'D. v. STATE OF HARYANA 
75 
Such taxes would not fall within the ambit of Article 301. Their A 
position was reconciled with freedom on the ground that a 
compensatory tax for the use of facilities is not a hindrance to 
trade hut facilitates it. !Paras 96, 99]1563-F-ll; 564-A-B; 565-C-
ll] 
,11/ India Federation of fox Practitioners v. Union of' 
B 
India 2007 (9) SCR 147: 2007 (7) SCC 527; State of' 
A.P v. NTPC 2002 (3) SCR 278 : 2002 (5) sec 203; 
Sri Digvi;av Cemrnt Company Umited and Ors. v. State 
of Rajastlum and Others 1999 (5) Suppl. SCR 428 : 
(2000) l sec 688; State of Bihar and Ors. V. Bihar 
c 
C/wn1her of Commerce and Ors. 1996 (2) SCR 184 : 
(1996) 9 sec 136 - referred to. 
3.3 As this batch of appeals indicates, the state legislatures 
have amended their entry tax legislation to incorporate specific 
sfalul<ff)' prnvisions indicating the manner in which the proceeds 
of the tax would he utilized so as to enable the tax to approximate 
a compensatory tax. Once the state legislature has done so, by 
adopting statutory provisions, would the Court have either the 
expertise or the competence to second guess the basis which 
has been made by the state legislature? The answer to that would 
necessarily have to be in the negative. The Court cannot assume 
the character of an accountant overseeing the balance sheets of 
income and expenditure and enquiring into capital account 
investments made by the states. Such matters do not lie within 
the
competence or ken of judicial review. More fundamentally, 
all tax revenues are utilised by the state for public purposes. All 
taxation being in aid of lhe creation of conditions of social order, 
a compensatory element can never be disassociated from 
taxation. Equally insofar as fees are concerned, the payment which 
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is required to be made is not always voluntary. The contribution 
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exacted from trade and commerce may not always be for the actual 
use of a facility but may be for the provision of the facility which 
trade and commerce is entitled to use. The state expends large 
budgets on providing expenditure to maintain law and order and 
security. The distinction between a tax and a fee has become 
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blurred in 0111· jurisprndcnce and Courts have found it difficult to 
find a clear dividing line. !Para 1031f569-B-Fl 
3.4 
A doctrinal irrationality which the theory of 
compensatory taxes fails to meet is a discriminatory 
compensatory tax. Discriminatory taxes which single out goods 
B 
originating in other states to hostile discrimination violate Article 
304(a). If compensatory taxes as a class fall outside Part XIII, 
this would include even those compensatory taxes which are 
discriminatory. While holding that compensatory taxes fall outside 
Part XIII, the theory propounded by this Court did not account 
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for the position that discriminatory compensatory taxes constitute 
an impediment to trade and commerce, thereby violating Article 
301. Hence, the notion of compensatory taxes is beset with 
doctrinal problems. The concept has led to uncertainty and 
vagueness and has produced inconsistencies in constitutional 
adjudication. Constitutional adjudication must avoid these 
uncertainties which result in a multiplication of litigation and 
uncertainty both lo the revenue and to the tax payer. Uncertainty 
in the application of fisca'I legislation leads to a situation where 
tax compliance is beset with interprctational and practical 
difficulties. A concept which is replete with such evident problems 
is best eschewed. !Paras 104, 10511569-F-G; 570-A-BJ 
The content of freedom : goods, services, persons
and 
capital 
4. Article 301 has guaranteed the freedom of trade, 
commerce and intercourse (subject to the provisions of Parl XIIJ). 
Article 19(1 )(g) guarantees to every citizen the right to carry on 
any occupation trnde or business. At a certain level, a distinction 
can be drawn between the two sets of freedoms. Article 19(1)(g) 
guarantees individual freedom. Article 301, on the other hand, 
looks al trade, commerce and intercourse as a whole. Such a 
distinction however may have its own limitations. Individual rights 
of all citizens protected by Article 19 lead to the establishment of 
a constitutional democratic order governed by the rule of Jaw 
and based on human freedom. The dichotomy that Article 301 in 
its perspective looks at trade and commerce as a whole (as 
distinguished from an individual right) may also have its own
JINDAL STAJNIJ-:ss JTD. v. STATE OF HARYANA 
77 
limitations. The freedom recognised by Artidc 301 is enforceable. 
A 
Enforceability is a( the behest of an individual. The freedoms 
guaranteed by Article 301 arc enforceable at the inslance of 
individuals who arc aggrieved by state action. Thus, a distinction 
hctwcen Article I 9(1)(g) and Article 301 on the basis of the former 
reflecting an individual right as opposed to a collective entitlement 
nnder the latter may not be completely accurate. Though, one is 
B 
an enforceable fundamental right of a citizen while the other is a 
rccop.nition of the free. flow of trade, commerce and intercourse, 
hotb in essence are enforceable, and enforceable at the hehcst 
of aggrieved in!livid1t;1ls. ll'ara 106]1570-C-Ul 
Taxation :rnd Federalism 
S.1 
The doctrine ol' the basic structure of tht lndian 
c 
Constitution has evolved to incorporate federalism as one of its 
integral features. The guarantee that trade, commerce and 
intercourse shall he free throughout the territory of lndia is 
D 
subject to the provisions of Part Xlll. The meaning of the 
expression "thrnughout the territory of India" is elucidated by 
Article 1 of the Constitution which stipulate!; that "India, that is 
Bharat, shall be a lJnion of Sh!tes". The Union which the 
Constitution postuiatcs is .defined in terms of a pol;tic;.l union 
and an economic uniou which brought together the erstwhile 
1>rovinccs of British India and the princely states. Th;: fn.•edom
under Article 301 comprehends, the free movement of goods, 
sen ices, persons and capital. These are essential ingredients in 
E 
the creation of a common market as an incident of an economic 
union. The freedom under Article 301 is not absolute for, the 
F 
constitutional guarantee is subject to the provisions of Part XIII. 
The provisions of Article 302 to Article 304 bring about a balance 
hctwecn the guarantee of lrecdom on one hand and legislative 
control over trade and commerce on the other hand. While doing 
so, those articles define lhe powers of Parliament :md the ~tate 
legislatures. while subJecting then; to restraints that arc intended 
to preserw the power of rc1~uiating trade and commc1·ce. !Paras 
109, 1101[572-C-F] 
5.2 While the Constitution docs in that sense subordinate 
the freedom under Article 301 to the provisions of Part XIII, it 
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would not be correct to read the provisions of Part XIII in isolation. 
Part XIII is an integral element of the Constitution, but so are 
the other Parts under which executive and legislative powers 
are constitutionally conferred upon the structures of governance 
in the Union and the States. While construing the provisions of 
the Constitution it is necessary to construe the text in the context 
of the organic nature of the constitutional document. The linkages 
between various Parts of the Constitution contribute to the 
creation of a composite whole. No segment of the Constitution 
can he read in isolation. The scheme of the Constitution must 
hence be understood having regard to its history, text and context. 
Words of the Constitution "cannot be read in isolation and have 
to be read harmoniously to provide meaning and purpose". The 
judgment of Justice Gajendragadlrnr, speaking for the majority 
in Atillbari, however construed the language of Article 30 I to mean 
that the guarantee of freedom wus subject only lo the provisions 
of Purt XIII. This docs not constitute an appropriate approach to 
constitutional interpretation since it leads to a construction of 
Part XIII in isolation from other provisions which have a 
significant bearing on the nature of the freedom and its 
relationship with the structures of governance. To consider the 
guarantee under Article 301 as being subject only to Article
302 
to 304 overlooks the rclationshiIJ of Part XIII with other 
provisions of the Constitution. l<'n•cdom is integral to that 
relationship. [Paras Ill, 112, 1131[572-G-H: 573-A-B, F-G; 574-
AJ 
Kihoto Hollolwn v. Zadzill!w 1992 (I) SCR 686: (1992) 
Supp 2 SCC 651; T.lvf.A. Pai Foundation and others v. 
State of Karnataka 2002 (3) Suppl. SCR 587 : (2002) 
8 sec 481 - relied on. 
5.3 In interpreting the text of the Constitution, the Court 
must construe the text in a manner that would preserve the 
carefully crafted balance betwem the Union and the states. Where 
the language of the text permits, the effort of constitutional 
interpretation should be to ensure that the states arc not 
subordinated to the Union in an·as reserved to them. Yet it is 
equally a matter of constitutional doctrine that \Yherc a particular
JINDAL STAINLESS LID. v. STATE Of HARYANA 
79 
provision (such as the pro\'iso to Article 304(b) imposes a specific 
A 
requirement (assent of the President before a Bill is introduced 
in the state legislature) which subjects the legislative power of 
the states to constitutional limitations, it would not be open to 
the Court to ignore the plain meaning and effect of such a 
provision. The text of the Constitution cannot be subverted on 
the basis of an abstract notion or hypothesis. While creating a 
federal structure, the draftsmen of the Constitution were 
conscious of the need for preserving a political and economic 
Union. lf, as a part of that constitutional scheme, the text of the 
document has incorporated specific provisions, they must be 
given their plain meaning and effect. It would riot be open to the 
Court to dilute the meaning of the text on the basis of a priori 
considerations. !Para 120]1578-E-ll; 579-A] 
State of West Bengal v. Union of India [1964] 1 SCR 
371; Special Reference 1 of 1964 (1961) I SCR 413; 
S.R. Bommai 1·. Union of India 1994 (2) SCR 644 : 1994 
p) SCC 1; JTC Umited v. Agricultural Produce Market 
Commillee and Ors. 2002 (1) SCR 441 : (2002) 9 SCC 
232; Ku/dip ."lawU" 1·. Union of" Jndia 2006 (5) Suppl. 
SCR 1 : (2006) 7 SCC 1 - referred to. 
Taxing powers 
Article 245 and constitutional limitations 
6.1 Article 245 of the Constitution provides for the extent 
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of laws made h:v Parliament and the legislatures of the states.
Clause 1 of Article 245 enables Parliament. "subject to the 
F 
pn1visio11s of this Constitution" to make laws for the whole or 
an;. part of the territory of India and for the legislature of a state 
to make laws fm- the whole or any part of the state. Article 245 is 
the fountainhead of legislative power. It makes legislative powers 
subject to constitutional limitations. The distribution of legislative 
powers is embodied in Article 246 which deals with the subject 
matter of laws made by the Parliament and by the state 
legislatures. Parliament has exclusive powers to make laws with 
n:specl to mattc.-s cnnrnerntcd in List I of the Seventh Schedule. 
Subject to the law making powers of Parliament in List .I, the 
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Icgisl:.it urc of a state has exclusive power to enact Jaw for the 
state with respect to any of the mat1ers enumerated in List 11. 
Parliament and the state legislatures have concurrent powers to 
enact legislation in i-cspecl of matters enumerated in List Ill. 
Article 245 is the source of legislative power. Article 246 
distributes legislative powers between Parliament and the state 
legislatures on the basis of the Lists in the Seventh Schedule. 
Article 245, in the conferment of legislative powers upon 
Parliament and the state legislatures makes them subject to the 
provhions of the Constitution. The power to enact laws is a 
manifestation of sovereignty. The Constitution while conferring 
legislative powers upon the Union and the states makes them 
subject to constitutional limitations. The sovereignty of the 
legislature is subject to the norms of the written constitution. 
The power to tax is subsumed in legislative power. Like all 
legislative power, fiscal legislation is subject to the mandate of 
the written constitution. This is the plain consequence of the 
opening words of Article 245(1) under which the conferment of 
legislative powers is made subject to the provisions of the 
Constitution. [Paras 121, 122]1579-B-Il; 580-AI 
6.2 The entries in the legislative lists of the Seventh 
Schedule arc not sources of legislative power but only define the 
subjects or heads of legislation entrusted to the
law making 
competence of Parliament and the state legislatures. Read 
together, Articles 245 and 246 confer legislative power upon the 
Union and the states in the first place and distribute that powe1· 
between them to enact legislation on the fields of legislation 
entrusted to their competence. Though Article 245 is made 
expressly subject to the provisions of the Constitntion while there 
arc no such similar words in Article 246, both Articles arc subject 
to the other provisions of the Constitution. The language of Article 
245 which subjects the conferment of legislative power to 
constitutional provisions is a recognition of the doctrinal principle 
that all constitutional power vesting in the organs of the state is 
subject to const.itutional limitations. The Constitution which 
entrusts power conditions the entrustment to the. observance of 
constitutional safeguards and limitations. All legislative power 
is subject to constitutional limitations. The limitations on the
JINDAL STAlNLESS l:l'D. v. STATE OF HARYANA 
81 
exercise of k ;,:islativc power emanate from (i) guarantees of A 
freedom under l'arl IJJ of the Constitulion containing fundamental 
rights; (ii) the requirement that the law making authorily must 
possess legislative competence to enact a law on the subject on 
which it legislates; and (iii) other constitutional limitations. Part 
XIIJ of the Comlitulion is one of those constitutional limitations. 
B 
The constitutional limitation emanating from Part XIII arises from 
the recognition which it contains of the guarantee of free trade, 
commerce and intercourse. Hence the first premise upon which 
legislative powers are conferred upon and distributed between 
the Centre and the states is that though the enactment of law is a 
manifestation of sovereignty, law making authority under the 
Indian Constitutior. is subject to constitutional restraints. 
Absolute power does not dwell in any constitutional authority 
which is subject to a written constitution. The legislative entries 
in the Lists of the Seve11th Schedule to the Constitution delineate 
general fields of legislation separately from taxing heads. In the 
Union List taxing entries are contained from Entries 82 to 92C. 
The residual entry, Entry 97 deals with m"atte1·s not enumerated 
in the state or concurrent lists, including any tax not mentioned 
in either of those lists. In the state list taxes are comprised in 
Ii:ntrics 46 to 62. Fees are dealt with under separate
heads: in 
Entry 96 of List I, Entry 66 of Lisi II and Entry 47 of List UI. 
!Paras 123, 125, 126][580-B-D; 581-B-F] 
StatP of' Kera/a and ors. v. Mar Appraem Kuri Co. Ltd 
and Anr. 2012 (4) SCR 448 : (2012) 7 SCC 106 -
referred to. 
Sovereignty and constitutional limitations 
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7.1 The legislative power of the states to impose taxes is 
subject, in general, to the same constitutional parameters which 
govern the exercise of all legislative power. The containment of 
legislative power follows from three constitutional precepts. First, 
G 
legislation is valid if it is enacted by a legislature which has 
competence to enact law on the subject Second, the enumeration 
of fundamental rights by Part Ill of the Constitution operates as 
a restraint on the sovereign power vesting in the legislatures to 
enact law. Article 13. of the Constitution stipulates that the state 
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shall not cnad law which violates the freedoms guaranteed by 
the Chapter on fundarnental rights. A law whether made before 
or after the advent of the Constitution is void to the extent of its 
inconsistenc\ with Part XIII. Third, other constitutional limitations 
or restrictions may contain the law making power including in 
ll 
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the field of taxation. f Para 1301f585-E-F, G-H; 586-A-B] 
7.2 
ln the field of taxation, I.he containment of legislative 
powers vesting in the states may take place through provisions 
which are in the nafure or: (i) abstraction; (ii) eclipse; and (iii) 
limitations or rest1·ictions. These categories arc convenient 
reference points for understanding the source of constitutional 
restrictions. An illustration of an abstn1ctio11 of legislative power 
is contained in Entry 54 of the State List which provides for taxes 
on the sale or purchase of goods other than newspapers, subject 
to the provisions of Entry 92(A) of the Union List. Entry 92(A) of 
the U11ion List was introduced hy the Sixth amendment to the 
Constitution in 1956 to provide for taxes on the sale or purchase 
of goods other than newspapers, where such sale or puHhase 
takes place in the course of inter-state trade or commerce. Under 
U'.nt1·y 54 of the State List as it originally stood, the states 
possessed an unfctlered area for imposing taxes on till' sale or 
purchase of goods othc1· than newspapers. Article 286 stipulates
that a state law shall not impose or authorize the imposition of a 
tax on the sale or purchase of goods, where the sale or purchase 
takes place outside the state or in the course of import or export 
from or outside the territoi-y of India. Arlicle 286(1) provides an 
express har. Article 269(3) empowers Parliament by law to 
formulate principles for determining when a sale or purchase or 
consignment of goods takes place in the course of inter-state 
trade or c1immercc. Parliament, in exercise of its powers under 
Article 269(3) enacted the Central Sales Tax Act 1956. Sections 
14 and 15 of that Act provide a list of goods of special importance, 
the manner of imposing taxes and the restrictions on the power 
of imposing taxes. The second source of eontainment on the 
legislative powers of the states in the area of taxation is Article 
253 of the Constitution under which Parliament, notwithstanding 
anything contained in the earlie1· provisions of Chapter 1 of Part 
XI is entrusted with the power to enact legislation for the entire
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
83 
territory of 1.ndia for implementing a treaty, agreement or A 
convention with one or more countries or to implement a decision 
at an international conference association or other body. The non-
nhstanlc provision of A1·ticlc 253 operates in relation to Articles 
245 to 252. Hence, the legislative powers of the stales including 
in the area of taxation may be eclipsed where Parliament has 
enacted a law to effectuate India's international obligations in 
pursuance of Article 253. The third source of constitutional 
containment on the legislative power of a state is in the form of 
limitations of which Clause 3 of Article 286 provides an 
illustration. Under Clause 3, Parliament provides the restrictions 
and conditions in regai·d to "the system of levy, rates and other 
incidents of tax" upon which a law enacted by a state providing 
for a tax of the nature specified in sub-clause (a) and (b) is subject. 
Sub-clause (a) deals with a tax on the sale or purchase of goods 
declared to be of special importance in inter-state trade or 
commerce by a law enacted b)' Parliament. Sub-claus~ (b) deals 
with a tax on the sale or purchase of goods falling under sub-
clauses (b), (c) and (d) of Article 366(29A). Among other things, 
a tax on contracts for hire purchase and involving transfer of the 
righ1 to use goods is subject to the restrictions and conditions 
which arc provided by a law enacted by Parliament in regard to 
the system
of levy rates and other incidents of tax. The 
constitutional containment of the legislative powers of the states 
also originates in the provisions of Part Xlll which enable 
Parliament and the state legislatures to impose restrictions on 
inle1·-state trade or commerce subject to defining parameters. 
!Paras 131-135H586-C-E, G-ll; 587-A-Gl 
Rai Ramkrislrna v. State of Bihar 1963 AIR 1667: 
1964 SCR 897; Raja Jagannath Baksh Singh v. State 
of UP & Am: 1963 SCR 220: AIR 1962 SC 1563; 
Amrit Ban{/.\pati Co. Ltd. and Anr. v. State of Punjab 
and Anr. 1992 (2) SCR 13 : (1992) 2 SCC 411; Dena 
Bank v. Bhikhahhai Prahhudas Parekh & Co. and Ors. 
2000 (3) SCR 509 : (2000) 5 SCC 694 ; Maharaj Umeg 
Singh v. State of Bomhay, 1955 SCR164 : AIR 1955 
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SC 540; Finn Bansidhar Premsukhdas v. State of 
Rajasthan 1966 Suppl. SCR 81 : AIR 1967 SC 40; 
Thakur Jagmmath Baksh Sinp,h v. United Provinces 
(1946) FCR 111 - referred to. 
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All taxes are not impediments 
8. The free movement of goods, services, persons and 
capital requires the existence of public order and conditions which 
allow for trade and commerce to take place unhindered. Neither 
trade nor commerce can flourish amidst violence, unrest and social 
disorder. Taxes provide revenue for the state to sustain manifold 
activities which are geared to providing conditions of social order. 
Tax revenues form an essential part of the requirements 
necessary for states to govern. Taxes are required by Article 
265 to be imposed by a law enacted by Parliament or the state 
legislatures. Without the power to raise revenues, the ability of 
the state to create conditions requisite for trade and commerce 
to exist would be denuded. Hence, as a matter of first principle it 
cannot be postulated that taxation in whatever form is a burden 
on trllde, commerce and intercourse and that every tax necessarily 
F 
hinders trade. Such a wide construction cannot be accepted simply 
because by raising revenues through the means of taxation, the 
state provides a political and legal order based on the rule of law 
where contractual transactions can be executed effectively. fPara 
13911589-G-IJ; 590-A-C] 
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Indian Express Newspapers
(Bomhay) Pvt. Ltd. and Ors. 
etc. v. Union of India and Ors. etc. 1985 (2) SCR 287 
: (1985) I sec 641; Government of Tamil Nadu v. 
A!w/Jilo Matam 1987 (1) SCR 232: 1987 (1) SCC 38; 
A II Bihar Christian Schools 'Association v. State of Bihar 
(1988) l SeC 266; Federation of Hotel & Restaurant 
Assn. of India etc. v. Union of India & Ors. 1989 (2) 
SCR 918 : (1989) 3 sec 634; Express Hotels Private 
Lim ired 1·. State of Gujarat and Anr. 1989 (2) SCR 893 : 
(1989) 3 sec 677; Pankaj Jain Agencies V. Union of
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
India 1994 (1) Suppl. SCR 602: 1994 (5) SCC 198; 
Vrajlal Manila/ & Co. v. State of M.P (1986) Suppl. 1 
SCC 201; 7/Je Bengal Immunity Company v The State 
of Bihm· (1953) 1 BL.JR 48; NMDC v. State of 
1'11l1jah 1996 (10) Suppl. SCR 472: (1997) 7 SCC 339 
- referred to. 
Articles 302, 303 and 304 
9. Articles 302, 303 and 304 provide for restrictions on 
trade and commerce. The marginal note to each of the three 
articles specifically contemplates restrictions on or with regard 
to trade and commerce. The marginal note to Article 302 refers 
to the power of Parliament to impose restrictions on trade, 
commerce and intercourse. Under Article 302, Parliament is 
empowered by law to impose restrictions in the public interest 
on the freedom of trade, commerce and intercourse between one 
state and another or within any part of the territory of the India. 
Consequently, Parliamentary power under Article 302 to impose 
restrictions is not only confined to inter-state trade but extends 
to restrictions within any part of the territory of India. However, 
Article 303 imposes a limitation both on Parliament and the state 
legislatures. Under Article 303, neither Parliament nor the 
legislatu1·e of a state can enact a law giving or authoring the giving 
of a preference to one state over another or making or authorising 
the making of 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. Article 303 has a non-obstante 
provision which overrides Article 302. The non-obstante clause 
in Article 303 is evidently inapposite in relatioJJ' to the legislature 
of a state because Article 302 does not apply to a state legislature 
in the first instance. Evidently the non-obstante provision can 
have meaning only in relation to Parliament because it has the 
effect of stipulating that the power of Parliament to impose 
restrictions in the public interest under Article 302 is subJect to 
the principle of non-discrimination and non-grant of preferences 
to one state over another under Article 303. The effect of the 
norm which Article 303 enunciates is that neither Parliament nor 
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the legislature of a state can grant preferences while enacting 
law to one state over another or make any discrimination. Article 
303 concludes with the words "by virtue of any entry relating to 
trade and commerce in any of the lists in t.he Seventh Schedule." 
I Paras 143, 14411592-B-Hi 
M.P V Su11deroramia i.: Stale of Andhra Pradesh 1958 
SCR 1422: AIR 1958 SC 468; State o/iv!adras 1·. N.K. 
:Vataraja 1v!mlaliar 1968 SCR 829: AIR 1969 SC 147; 
State o/ Jli111i! Nadu and Others l'. Sitolaxmi Mills and 
C 
Others 1974 (3) SCR 1 : 1974 ( 4) SCC 408 - referred 
to. 
Construing A1·ticle 304 
D 
10. The use of the non-obstantc clause in Article 304 in its 
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application to Article 301 has been debated. That is because while 
Article .:rn1 makes the guarantee of freedom of trade and 
commerce subject to the other provisions of Part XIII, Article 
304 commences with a non-obstantc provision which operates 
notwithstanding what is contained in Article 301. A reasonable 
construction or meaning would have to he attributed to these 
two prnvisions. So construed, Article 304, in its non-ohstante 
prn,·ision, must mean that it would permit what is contemplated 
by Clauses (a) and (h) even though it would otherwise be within 
the ambit of the freedom guaranteed hy Article 301. Similarly, in 
its application to Article 303, the 11011-obstante clause in Article 
304 indicates that despite the prohibition that is contained in
Article 303, the state legislature is empowered to do something 
of the nature that falls within the ambit of the provision. The 11011-
obstantc provision of A1·ticlc 304 governs both Clauses (a) and 
(h) that follow. By virtue of Clause (a), the legislature of a State 
can, despite the provisions of Article 301, impose a non-
discriminatory tax. The power to impose a tax is not conferred 
h~· Clause (a) of A1·ticle 304 hut is a power which is traceable to 
the legislative power of the states under Articles 245 and 246 of 
the Constitution read with the legislative entries in the State List.
.JINDAL STAINLESS !TD. v. STATE OF HARYANA 
87 
Article 304(a) is a clear indication that though a tax may constitute 
A 
a restriction within the meaning of Article 301, the imposition of 
a non-discriminatory tax is permissible to the state legislature. 
Article 304(a) lifts an embargo that would otherwise have existed 
hut for the non-obstantc provision. Article 304(a), however, 
mandates that a tax which is being imposed on goods imported 
from other States or Union territories must be a tax to which 
similar goods manufactured or produced in that state arc subject. 
Moreover, the tax shall not discriminate between goods that are 
imported and goods so manufactured and produced. !Para 
15611603-B-C] 
So11rh !11diu11 Cmporation (P) Ud. v Board of" Revenue 
(1964) 4 SCR 280; State of' Bomhay v. The united 
Alo/ors (India) Ltd. (1953) 4 SCR 1069; Clwndavarkar 
B 
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Sita Raina Rao v. Asha/ala S. Guram 1986 (3) SCR 
D 
866 : 1986 (4) SCC 447; South India Corporation v. 
Board of Revenue (1964) 4 SCR 280 - referred to . 
.Justice G P Singh in his seminal treatise, 'Principles 
of S10111101:r Interpretation' 14th Edition - referred to. 
Conjunctive or dis_junctive : 'may'; 'and' 
11. l Article 304 provides that the legislature of a state may 
by law (a) impose a non-discriminatory tax as provided in clause 
(a); and (b) impose reasonable restrictions on the freedom of 
t.radc, commerce or intercourse. The npression 'may' in the 
prefatory part of Article 304 has to be read
together with the 
expression 'and' which separates clauses (a) and (b). The use of 
the expression ·may' is indicative of the intent that the legislature 
of a state is not bound to levy an impost on goods imported from 
other states (though if it does so, the tax has to be non-
discriminatory). Similarly, the state legislature has an enabling 
power to impose restrictions under clause (b). The legislature 
'may' do so. It has the discretion whether to impose a tax or to 
impose a rcsfriction and is not bound to do so. The word 'and' is 
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normally used in the conjunctive sense. However, this is not 
always the case. Coupled with the use of the expression 'may, 
the expression 'and' in Article 304 should be construed to mean 
and/or. In other words, the legislature of a state may take recourse 
to both clauses (a) and (h) of Article 304 or either of them. In the 
context of Article 304(a) the use of the expression 'may' in the 
prefatory part together with 'and' which separates clauses (a) 
and (b) indicates that the true meaning and intent is conveyed by 
the joint and several and/or. The state legislature may impose a 
tax falling under clause (a) as well as a reasonable restriction 
falling under clause (b). Alternately it may impose one of them. 
These being enabling provisions, the legislature may not take 
recourse to either. However, when it imposes a tax and/or a 
restriction, the state legislature has to abide by the conditions of 
clauses (a) and (b) respectively. [Paras 158, 159, 160][604-G-Il; 
605-A-C; 606-D-EJ 
.. Statutorv /1Jte17Jretation ·· by Ruth Sullivan - referred 
to. 
Article 304(a) not the universe of taxation 
11.2.J A discriminatory tax is prohibited by Article 304(a). 
There is intrinsic material in the constitutional text to indicate 
that Article 304(a) does not exhaust the universe of taxation for 
the purposes of Part XIII. First, Article 304(a) provides that the 
legislature of a state may by law impose on goods
imported from 
other states or union territories any tax to which similar goods 
manufactured or produced in that state are subject. 
The ambit 
of dause (a) is a tax on goods, the origin of the goods being a 
state other than the state which is imposing the tax. Article 301 
(over which the 11011-obstante clause contained in Article 304 
operates) has a geographical coverage which extends throughout 
the territory of India. Article 301 guarantees the freedom of trade 
and commerce not only across state boundaries but equally 
freedom within any part of the territory of India. If the freedom 
of trade and commerce is restricted by a discriminatory tax - as 
Article 304(a) postulates is the case - the imposition of a 
discriminatory tax on internal movement within a state must by 
the same logic breach the freedom guaranteed by Article 301.
JINDAL STAINLESS TTD. v. STAfE or HARYANA 
89 
Since Article 304(a) covers only a tax on goods imported from 
A 
other states, a discriminatory tax on goods which do not traverse 
state ho11nda1·ies would not fall within the ambit of Article 304(a). 
Yet it would offend Article 301. A state may conceivably have a 
.iustifica!ion in the public interest in doing so or for imposing such 
a tax and if it were to do so, it must meet the requirements of 
B 
Article 304(b ). lf Article 304 (b) were to be construed to not 
include taxes, such a course of action would be barred, however 
legitimate be the state interest. !Paras 162][607-B-E] 
11.2.2 There is a second reason why the language and 
scheme of Part XI ll must lead to the conclusion that it is not only 
discriminatory taxes of the nature contemplated by Article 304(a) 
which fall within the ambit of the Part. Article 304(a) only covers 
a tax on goods (goods imported from other states as seen above). 
A tax imposed by the state legislature otherwise than on goods, 
docs not fall within the ambit of Article 304(a). The taxing entries 
of List II of the Seventh Schedule include various taxes that fall 
within the legislative competence of the state legislatures other 
than a tax on g,oods. Among the taxing entries of List II (entries 
46 to 62) are several which deal with aspects of taxation of goods. 
Article 304(a) applies only to taxes on goods. A tax which is not 
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on goods or on aspects bearing on goods is not
governed by 
E 
Article 304(a). A discriminatory tax which is not on goods is not 
within the prohibition of that article. Similarly, Article 304(a) will 
not apply to a tax on passengers carried on roads or inland 
waterways under Entry 56. Since the ambit of Article 304(a) is a 
non-discriminatory tax on goods imported from other states, it is 
evident that this provision is not exhaustive even of those 
discriminatory taxes which will offend Article 301. There are 
taxes which fall within the legislative competence of the states, 
other than on goods, which are outside the purview of Article 
304(a). If those taxes impede the freedom of trade, commerce 
and intercourse they would infringe Article 301 though they do 
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not fall within Article 304(a). Third, Article 302 has been held to 
enable Parliament to impose Central Sales Tax. The expression 
"restrictions" in Article 302 has been construed not to exclude a 
restriction by way of a taxing measure. If the expression 
'restriction' for the purposes of Article 302 does not exclude a 
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legislative measure by way of a fiscal imposition, i1 cannot 
evidently be excluded from the ambit of the phrase 'restrictions' 
in Article 304. [Paras 163, 164JJ607-F-II; 608-D-IIJ 
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11.2.3 Fourth, this conclusion is buttressed by the non-
obstantc provision contained in Article 304. The plain meaning 
of the non-obstante provision is that state legislatures may enact 
legislation in exercise of their law making authority under A1·ticles 
245 and 246, of the nature contemplated by clauses (a) and (b) of 
Article 304, despite the fact that such a legislative measure would 
otherwise fall within the ambit and purview of Article 301. The 
non-obst:inte provision in Article 304(a) refers to Article 301. 
Obviously, unless something falls within the ambit of Article 301, 
there is no reason to incorporate the non-obstante clause in Article 
304(a). Despite Article 301, it is permissible in view of Article 
304(a). Article 304(a) lif1s the embargo. The use of 1he clause of 
s11hjeclio11 in Article 301 and the non-obstante provision in Article 
304 have been criticised as a case of inartistic draftsmanship. A 
clause which makes a conslitutional provision or, for that maHe1·, 
a statutory provision subject to another makes the provision in 
which that clause is contained subordinate to the provision to 
whi.ch it is subjected. On the other hand, a non-obstante provision 
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commencing with the word 'notwithstanding' is
intended to 
indicate that the text in which the provision is contained overrides 
another. JI'aras 165, 16611609-A-E] 
11.2.4 The guarantee of freedom under Article 301 is 
subject to Part XII I. Article 304 enables a state legislature in 
F 
the exercise of its legislative power (under Articles 245 and 246) 
to enact a law despite the fact that it may otherwise fall within the 
ambit of Articles 301 or 303. Article 303 contains the mandate 
that neither Parliament nor the legislature of the state can grant 
prcfc1·cnces to one state over another or discriminate between 
(; 
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one slate and another hy virtue of the entries relating to trade 
and commerce in the lists of the ScYcnth Schedule. Article 303 
poslulales (in n~lation lo Parliament) that the power confert"ed 
upon Padiarncnt under Article 302 to impose restrictions on the 
freedom of trade, commerce or intercourse, in the public interest 
between one state and another or over any part of the teuitory of
JINDAL STAINLESS LJ'D. v. STATE OF l-lARYANA 
91 
India cannot he exercised so as to grant preferences or to 
A 
discriminate between one state and another. However, this 
embargo is lifted by clause (2) of Article 303 when Parliament is 
dealing wilh a situation of scarcity of goods in any part of the 
territory of India. ln relation to the legislature of the state, Article 
303(1) imposes the same mandate against the grant of preferences 
between states or the making of any discrimination. However, 
clause (2) of Article 303 docs not apply to the state legislatures. 
Clause (1) of Article 303 is a restraint on discriminating between 
one state over another or from granting preferences between 
them. Article 303(1) is akin to a provision in international trade 
parlance conferring a 'most favoured nation' treatment. Under 
such an • mfn' clause, treatment extended to one nation state has 
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to be extended to the other. Article 303(1) embodies a similar 
pl"ineiple inter .1·e bdween the states so as to ensure a uniformity 
of treatment between states when Parliament or the state 
legislatures enact a l:iw in exercise of their law making power. A 
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state legislature which enacts a law is required to confer a parity 
of treatment to other states and is prevented from granting 
preferences to one state over another or from making 
discrimination between one slate and another, by the operation 
of Article 303(1). Article 304(:i), however, allows the legislature 
nf a state