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
A state legislature can have a legitimate interest, in the exercise of its 
law making power, to ensure balanced development and growth of its 
industry, paiticularly, in the nascent stage of industrial development. Yet, 
while doing so and granting incentives the legislature or as its delegate, 
the state government must ensure that the grant of incentives is carefully 
structured so as not to defeat the underlying spirit and object of Article 
304(a). Moreover, when the grant of such an incentive is challenged, it 
is for the state to justify it with reference to circumstances which have 
a bearing on legitimate state interest. 
J.3.1 Formal and substantive equality 
209. Equality and non-discrimination are elements of the same 
universe. Equality has both a fo1mal and substantive content. In a formal 
sense, equality perceives of governance under the same legal regime 
and the application of the same legal principles. Unifonn application of 
law fulfils the nonn of fonnal equality. Substantive equality looks beyond 
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fonnal equality. That which may satisfy the requirements of formal 
equality may be inadequate and insufficient to meet the vision of 
substantive equality. Substantive equality recognises that there are histories 
of discrimination based on social background, gender and access to 
resources. They detennine the pursuit of opportunity. Hence, formal 
equality may not necessarily result in just outcomes. Treating all individuals 
alike may perpetuate deprivation and denial of economic opportunity to 
those for whom the social order has not provided equal access to education 
or to the resources necessary for economic advancement. Hence, 
substantive equality is premised on the foundation that in order to produce 
just outcomes and a real equality between individuals who are unequally 
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situated, the legal regime must comprehend ml understanding of their 
past histories of discrimination, disability and injustice. 
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210. Regions within a nation are not equal in a real sense in tem1s 
of economic advancement and social development. Typically, economic 
development has spread along areas which developed around the 
availability of infrastructure and resources. As ports and railways 
developed over the last century and a half, the benefits of development 
permeated to regions where economic opportunity was available. Yet, 
other areas of the country have remained in a state of comparative 
under-development as a
result of circumstances such as geographical 
isolation and the absence of developed means of communication. Many 
regions have suffered from the absence of education and unavailability 
of access to health and sanitation. Social deprivation and discrimination 
have been the defining characteristic of large swathes of the nation. In 
this background, substantive equality like its mirror image-non-
discrimination-construes the need for development in ten11S of mitigating 
regional histories of suffering and strife, and of denial, deprivation and 
discrimination. 
211. Article 304(a) is an amalgam of fonnal as well as substantive 
nom1s of equality. At a formal level, the provision requires that when a 
state imposes a tax on imported goods, the tax must likewise be imposed 
on similar goods which are manufactured or produced in the state. Parity 
of tax between domestic goods produced and manufactured in a state 
with those which are imported from other states is the first and fonnal 
requirement. But beyond this, Article 304(a) brings into focus substantive 
principles by embodying a norm of non-discrimination in its latter
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
stipulation. Non-discrimination in a substantive sense requires a level 
playing-field. Two states in the nation may not be comparable in tenns 
of social development and economic advancement. One state may be 
industrialised with a growth of capital investment in urban infrastructure 
while another state may be predominantly agricultural. Article 304(a) 
does not prohibit a state from taking steps that are necessary for 
development and growth within its tenitories. But the submission is that 
while a state is at libe1ty to adopt policies which lead to its own economic 
advancement, it cannot utilise tax treatment as a measure to do so in a 
manner that would be forbidden by Article 304(a). This submission 
undoubtedly carries a degree of weight. But equally, parity of tax 
treatment between goods produced and manufactured in a state and 
those which are imported from other states must be balanced with the 
need to produce a state of non-discrimination in a substantive as opposed 
to fonnal sense. Hence, the judgment of this Court in Shree Mahavir 
Oil Mills v. State of J & K~
0
, while construing the earlier decisions in 
Video Electronics, held that the limited exception carved out in the 
latter decision should not consume the rule. Video Electronics was a 
situation where a rebate of sales tax was carefully structured to cover 
industrial units of a well-defined class over a measurable period of
time 
and for rational reasons. This was not an unrestricted or blanket 
preference to domestic goods. A1ticle 304(a) was intended to protect 
freedom of trade and commerce from protectionism and parochial 
demands in the interest of the economic unity of the nation. Hence, 
while Article 304(a) cannot be read to prohibit a classification, it cannot 
be read to allow states to pursue policies of protectionism that destroy 
the essential freedom of trade and commerce. 
J.4 Production and manufacture within the home state 
212. Another aspect which needs close analysis is whether under 
Article 304(a), it is necessary that a state must actually produce or 
manufacture goods similar to goods imported from other states which 
are sought to be taxed. The crucial words are "any tax to which similar 
goods manufactured or produced in that state are subject". Article 304(a) 
is not in the nature of a countervailing duty. Entry 51 of List II of the 
"(1996) 11sec39 
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Seventh Schedule on the other hand, provides for countervailing duties 
and is as follows : 
"51. Duties of excise on the following goods manufactured 
or produced in the State and countervailing duties at the 
same or lower rates on similar goods manufactured or 
produced elsewhere in India-
( a) Alcoholic liquors for human consumption; 
(b) Opium, Indian hemp and other narcotic drugs and 
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narcotics; 
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But not including medicinal and toilet preparations containing 
alcohol or any substance included in sub-paragraph (b) of 
this entry." 
213. The words "similar goods manufactured or produced" are 
common to both Article 304(a) and Entry 51. However, the notion of a 
countervailing duty under Entry 51 (as the judgment in Kalyani Stores 
explains) is intended to counter balance the duty of excise levied on 
articles which are produced or manufactured in the state. The 
countervailing duty is imposed on articles which are produced or 
manufactured elsewhere in India. In the context of a countervailing duty, 
this Court in Kalyani Stores held that it postulates the actual production 
or manufacture of goods. This principle cannot be extrapolated to Article 
304(a) where the tax which is imposed is not in the nature of a 
countervailing duty. Article 304(a), when it refers to a tax on goods, 
covers taxes on any aspect of goods which fall within the legislative 
competence of the state legislature. The latter
part of Article 304(a) 
which contains the words "so however as not to discriminate between 
goods so imported and goods so manufactured and produced" is not a 
surplusage. The object of the latter part is to ensure that there is no 
discrimination between goods which are produced or manufactured in 
the state and goods which are imported from other states. If a particular 
rate of duty is levied on goods which are produced or manufactured in a 
state, a higher rate of duty cannot be levied on goods imported from 
other states. This, however, does not preclude a state from imposing a
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
duty on imported goods where it does not actually produce or manufacture 
goods of that description. The observations of this Court in Kalyani 
Stores were made in the context of a countervailing duty under Entry 
51 of List 11 which is distinguishable. A state, in other words, is not 
confind by Atticle 304(a) to impose a tax on imported goods, confined 
only to the basket of goods actually produced or manufactured within 
that state. To take an example, if motor vehicles are manufactured in six 
states, Article 304(a) does not restrict the power of the state legislatures 
of the other states to impose a tax (in the exercise of the legislative 
power) with respect to motor vehicles. Any other construction would 
lead to the unintended, if not absurd, consequence that a tax on goods 
which are impo1ted from other states can be levied only by those states 
which actually manufacture similar goods within the state. If a state 
does not manufacture or produce goods similar to the imported goods on 
which a tax is imposed, no question of discrimination will arise. The 
object of A1ticle 304(a) is to prevent disparity of treatment between 
goods that are produced or manufactured in a state and goods which a 
state imports from other states. Where a state does not actually produce 
onnanufacture goods of that description. no issue of discrimination qua 
Article 304(a) would arise. 
K Entry Tax 
214. Entry 52
of List II to the Seventh Schedule of the Constitution 
provides for : 
"52. Taxes on the entry of goods into a local area for 
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consumption, use or sale therein." 
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Entry 89 of List I provides for terminal taxes on goods or 
passengers, cauied by railway, sea or air; taxes on railway fares and 
freights. 
K.1 Octrois and Terminal taxes 
215. The legislative history suuounding the incorporation of Entry 
52 is a significant guide to interpreting its provisions. Section 80A of the 
Government of India Act, 1915 defined the powers of the provincial 
legislatures. Under the Devolution Rules, the following provisions were 
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contained in Item Nos. 7 and 8 of the Second Schedule : 
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"Item No. 7. An octroi 
Item No. 8. A Terminal tax on goods imported into or 
expo1ied from a local area save where such tax is first 
imposed in a local area in which an octroi was not levied on 
or before 6 July, 1917." 
In the Government oflndiaAct, 1935, Entry 49 of the legislative 
lists (list II) provided as follows : 
"49.Cesses on entry of goods into a local area for 
consumption, use or sale therein. Tern1inal taxes were placed 
in List I." 
216. In the Government oflndia Act, 1935, Entry 49 used the 
expression "entry of goods into a local area for consumption, use or sale 
therein", instead and in place of"octroi" (as contained in the Devolution 
Rules under the Act of 1915). The Constitution incorporated Entry 52 in 
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List II in language which corresponds to Entry 49 of List II under the 
Government oflndiaAct, 1935 but with the difference that the expression 
'taxes' is used instead of 'cesses'. 
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217. The imposition of octroi has a historical significance both in 
India and elsewhere. Tracing its history, a Constitution Bench of this 
CoUli in Diamond Sugar Mills Ltd. v. The State of Uttar Pradesh90 , 
explained the meaning of octroi thus : 
"Octroi is an old and well known tenn describing a tax on 
the entry of goods into a town or a city or a similar area for 
consumption, sale or use therein. According to the 
Encyclopaedia Britannica
octroi is an indirect or 
consumption tax levied by a local political unit, nomrnlly the 
00(1961) 3 SCR 242
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
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[DR. D. Y. CHANDRACHUD, J.] 
commune or municipal authority, on certain categories of 
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goods on their entry into its area." 
(Id. at p. 252) 
218. Octroi was a tax levied on the entry of goods into areas 
which were administered by local bodies. When the draftsmen of the 
Constit~ition incorporated Entry 52 in List II, it was with the knowledge 
that the expression 'local area' had been used in the Government of B 
India Act, 1935. Moreover, it could not but have been present to the 
minds of the framers that the expression 'octroi' which was used in the 
Devolution Rules had been replaced subsequently in Entry 49 of List II 
in the Government of India Act of 1935 with a description rather than 
label : the label being descriptive of the entry of goods into a local area; 
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the purpose being consumption, use or sale therein. The expression 
'therein' also indicates that the goods enter for the purpose of being 
used, consumed or sold within the local area. 
219. The situation that fell for consideration before the Constitution 
Bench in Diamond Sugar Mills arose under Section 3 of the UP Sugar D 
Cane Cess Act, 1956 under which the State Government was empowered 
to impose a cess not exceeding a stipulated amount on the entry of 
sugarcane into the premises of a factory for use, consumption or sale 
therein. The legislative competence of the state legislature was questioned 
on the ground that the premises of a factory did
not constitute a local 
area within the meaning of Entry 52. The Constitution Bench held thus: 
"The etymological meaning of the word "local" is "relating 
to" or "pertaining to" a place. It may be first observed that 
whether or notthe whole of the State can be a "local area", 
for the purpose of Entry 52, it is clear that to be a "local 
area" for this purpose it must be an area within the State. 
On behalf of the respondents, it is argued that "local area" 
in Entry 52 should therefore be taken to mean "any part of 
the State in any place therein". So, the argument runs, a 
single factory being a part of the State in a place in the 
State is a "local area". In other words, "local area" means 
"any specified area inside the State". The obvious fallacy 
of this argument is that it draws no distinction between the 
word "area" standing by itself and the phrase "local area". 
Ii the Entry had been "entry of goods into any area of the 
State ......... " some area would be specified for the purpose 
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of the law levying the cess on enhy. If the Constitution 
makers were empowering the State Legislatures to levy a 
cess on entry of goods into any specified area inside the 
state, the proper words to use would have been "entry of 
goods into any area .......... " It would be meaningless and 
indeed incorrect to use the words they did use "entry of 
goods into a local area". The use of the words "local area" 
instead of the word "area" cannot but be due to the intention 
of the Constitution-makers to make sure that the power to 
make laws relating to levy on entry of goods would not 
extend to cases of entry of goods into any and every part 
of the state from outside that part but only to entry from 
outside into such portions of the state as satisfied the 
description of"local area". 
(Id. at p. 250) 
In holding that a factory could not be a local area, the Constitution 
Bench observed that : 
"It was with the knowledge of the previous history of the 
legislation that the Constitution-makers set about their task 
in preparing the lists in the seventh Schedule. There can be 
little doubt therefore that in using the words "tax on the 
entry of goods into a local area for consumption, use or 
sale therein", they wanted to express by the words "local 
area" primarily area in respect of which an octroi was 
leviable under item 7 of the Schedule tax rules, 1920-that 
is, the area administered by a local
authority such as a 
municipality, a district Board, a local Board or a Union Board, 
a Panchayat or some body constituted under the Jaw for 
the governance of the local affairs of any part of the State. 
Whether the entire area of the State, as an area administered 
by the State Government, was also intended to be included 
in the phrase "local area", we need not consider in the 
present case." 
(Id. at p. 253)
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
220. These observations indicate that Entry 52 having used the 
expression "local area" rather than "area", the Con:stitution did not intend 
that the entry of goods into just any area in the state would attract the 
entry. The entry had to be into a local area. A local area is an area 
administered by a local authority such as a municipality, a district or a 
local board or a panchayat or some other body constituted by law for 
administering the governance of local affairs in any part of the state. 
Whether the entire state could be declared as a local area was, however, 
kept open in Diamond Sugar Mills. 
221. In another judgment of a Constitution Bench in Bangalore 
Woollen Cotton and Silk Mills Co. Ltd. v. Corporation of the City 
of Bangalore91 , there was a challenge to the constitutional validity of 
the imposition of octroi duty on cotton and wool by the Bangalore 
Municipal Corporation Act, 1949 inter alia under the provisions of Article 
30 I. The octroi duty was, in the submission of the state, saved by Article 
305 which stipulated that nothing in Articles 301 and 303 shall affect the 
provisions of any existing law except in so far as the President may by 
order otherwise direct. The Constitution Bench accepted the submission 
and held that there was no contravention of Article 301. 
222. In Burmah Shell Oil Storage and Distribution Co. India 
Ltd. v. The Belgium Borough Municipality9",the
appellant had 
unsuccessfully moved the High Court for a writ seeking to prohibit the 
municipality from charging octroi on its products which were brought 
inside octroi limits for sale. The goods brought into octroi limits by the 
appellant comprise of four categories : 
(i) Goods consumed by the appellant; 
(ii) Goods sold by the appellant itself or through dealers and 
consumed within octroi limits by others; 
(iii) Goods sold by the appellant itself or through dealers within 
octroi limits but consumed outside; and 
(iv) Goods sent by the appellant from its depot within octroi limits 
to points outside the municipality where they were produced 
and consumed by others. 
"'(1961) 3 SCR 707 
"(1963) Supp. 2 SCR 216 
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223. Under Section 73 of the Bombay Municipal Boroughs Act, 
1925, the municipality was empowered to impose an octroi on animals 
or goods brought within the octroi limits for consumption, use or sale 
therein. The Constitution Bench took note of the legislative history relating 
to tem1inal taxes and octroi. Tenninal Taxes were concerned only with 
the entry of goods into a local area irrespective of whether or not they 
were used there. Octrois were taxes on goods brought into the local 
area for consumption, use or sale. When the Constitution was adopted, 
the expression octroi was avoided and instead a description was used. 
Expounding the ambit of Entry 52, the Constitution Bench observed as 
follows: 
"21.It is not the immediate person who brings the goods 
into a local area who must consume them himself, the act 
of consumption may be postponed or may be perfonned by 
someone e!se but so long as the goods have been brought 
into the local area for consumption in that sense, no matter 
by whom, they satisfy the requirements of the Boroughs 
Act and octroi is payable. Added to the word "consumption" 
is the word "use" also. There may be certain commodities 
which though put to use are not 'used up' in the process. A 
motor-car brought into an area for use is not used up in the 
same sense as food-stuffs. The two expressions use and 
consumption together therefore, connote the bringing in of 
goods and
animals not with a view to taking them out again 
but with a vie•.v to their retention either for use without 
using them up or for consumption in a manner which 
destroys, wastes or uses them up." 
(ld. at p. 230-231) 
224. The Constitution Bench ruled that so long as goods are brought 
inside the area for sale within the area to an ultimate consumer, it makes 
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no difference that the consumer does not consume them in the area but 
takes them out for consumption elsewhere : 
"22 ...... The word "therein" does not mean that all the act 
of consumption must take place in the area of the 
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JINDAL STAINLESS LTD. v. STATE OF HARYANA 
647 
[DR. D. Y. CHANDRACHUD, J.] 
the area to be delivered to the ultimate consumer in that 
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area because the taxable event is the entry of goods which 
are meant to reach an ultimate user or consumer in the 
area." 
(Id. at. P. 233) 
Hence, the appellant was held to be liable to pay octroi duty on 
goods brought into a local area : 
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(i) To be consumed by itself or sold directly by it to consumers; 
(ii) For sale to dealers who in their tum sold the goods to consumers 
within the municipal area irrespective of whether. such 
consumers bought them for use inside or outside the area. 
However, the appellant was not liable to octroi in 1·espect of goods 
which it brought into a local area for re-export. 
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225. For many years after the adoption of the Constitution, local 
bodies across the country continued to levy octroi, which was an important 
source of revenue. Octroi was levied under state legislation, enacted D 
with reference to Entry 52 of List II (read with Articles 244, 245 and 
246). Octroi, however, assumed an obnoxious character and was a 
subject of comment by this Court in Hausa Corporation (supra). Octroi 
duty became associated with check posts installed by local bodies. The 
octroi balTiers became notorious for long queues of fully laden vehicles 
awaiting entry into local limits. Worse still, octroi became a vexed symbol 
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of the misdeeds oflocal officials or contractors tasked with the collection 
of octroi
duty. Over a period of time, accepting the clamour of the trade, 
octroi was gradually phased out and replaced by entry tax legislation in 
the states. Noteworthy, among the changes made, was that the tax would 
be leviable upon a dealer. Moreover, the tax would be collected not at 
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the octroi or municipal limit but subsequently after the submission of 
returns. 
K.2 Entry taxes and Article 304(a) 
226. For the purposes of this reference, it is necessary to clarify 
at the outset that the detailed provisions of each state legislation pertaining 
to entry tax do not fall for consideration. It is sufficient for the purposes 
of the present reference to consider some of the important aspects of 
entry tax legislation vis-a-vis Part Xlll which are of common cor.cem. 
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227. The first significant aspect of the matter is the inter-play 
between entry tax legislation and Article 304 (a). The interface between 
the two arises because entry tax is levied on the entry of goods into a 
local area for consumption, use or sale therein. If the goods originate in 
any other state, the imported goods would upon entry into a local area be 
liable to entry tax since the charging event is the entry of the goods into 
the local area for consumption, use or sale. Issues of discrimination arise 
on whether similar goods produced or manufactured within the state are 
subject to entry tax. 
228. Article 304 permits the state legislature to impose on goods 
impo1ted from another state any tax to which similar goods produced or 
manufactured in the state are subject. The object is to ensure that there 
is no discrimination between the goods "so imported" and the goods "so 
produced or manufactured". The critical requirement of Artic!e 304 (a) 
is that the tax must be origin neutral. Hence, where the state legislature 
levies an entry tax on goods entering a local area (without making any 
discrimination based on whether or not the goods originate in the state or 
are imported from outside) the mandate of Article 304(a) would be met. 
229. The issue is whether Article 304 (a) would be breached by 
imposing an entry tax only upon goods that are imported from other 
states. Plainly, if a tax is
imposed on goods which are imported from 
other states without subjecting similar goods produced or manufactured 
within the state to the tax, there would be a violation of Article 304(a).This 
would coi1stitute an unconstitutional discrimination between goods 
imported from other states which are subject to tax and goods produced 
or manufactured within the state which are not subject to the levy. Such 
an act of discrimination may take place, for instance, in a situation where 
state law defines the entire area of the state as a local area or by 
inco:-porating a specific definition of the expression dealer or importer to 
mean an importer of goods from outside the state. For instance, goods 
may be subject to entry tax only when they cross the state boundary. 
Movement of goods exclusively within the state, is not subject to entry 
tax. Alternatively, the expression local area may be defined with reference 
to the entire state. If the legislation imposes a tax only upon the entry of 
goods originating outside the state into the state, while goods produced 
and manufactured within the state are not subject to the levy, this would 
constitute a hostile discrimination prohibited by Article 304 (a).
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACl-IUD, J.] 
K.3 Meaning of 'Local area' 
230. The issue as to whether the entire area of a state can be 
treated as a local area for the purposes of Entry 52 of List 11, was 
specifically kept open for consideration in the judgment of the Constitution 
Bench in Diamond Sugar Mills. The issue was, however, dealt with in 
a judgment of three learned Judges of this Court in Shaktikumar M. 
Sancheti v. State of Maharashtra°'. In that case an entry tax was 
levied under Section 3 of the Maharashtra Tax on Entry of Motor Vehicles 
into Local Areas Act, 1987. The Act was challenged by contractors or 
dealers of motor vehicles who had purchased them outside the state and 
had brought them within the state of Maharashtra as being a colorable 
exercise oflegislative power under Entry 52 of List ll as well as violating 
Article 30 I. Taking note of the fact that the issue of what constitutes a 
local area had not been decided in Diamond Sugar Mills, the Bench of 
three Judges held as follows: 
"4 .... The expression 'local area' has been used in various 
Articles of the Constitution, namely, l, l2, 245( I). 246, 277, 
321, 323A and 37 l([)). They indicate that the constitutional 
intention was to understand the 'local area· in the sense of 
any area which is administered by a local body, may be 
corporation, municipal board, district board etc. The High 
Court on this aspect held, and in our opinion rightly that the
definition does not comprehend entire State as local area 
as the use of the word ·a· before 'local area' in the Section 
is significant. The ta-.;able event according to the High Court, 
is not the entry of vehicle in any area of the State but in a 
local area. The High Court explained it by giving an 
illustration that if a motor vehicle was brought from Jabalpur 
(Madhya Pradesh) for being used or sold at Amravati (in 
Nagpur District of Maharashtra), which was the border 
area, taxable event was not the entry in Nagpur District 
but entry in area ofAmravati Municipal Corporation. The 
levy, therefore. is not, as urged by the learned Counsel for 
"] (1995) 1 sec 351 
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appellant, on entry of vehicle in any part of the State but in 
any local area in the State. It cannot, therefore, be stn•ck 
down on this ground." 
(Id. at p. 355) 
231. The Seventy-third amendment to the Constitution has 
incorporated Pait IX which deals with Panchayats while the Seventy 
fourth amendment has incorporated Part IXA which deals with 
Municipalities. Article 243( d) defines Panchayats as institutions of self-
government constituted under Article 243(b) for the rural areas. Article 
243(b) requires the constitution in every state of Panchayats at the village, 
intennediate and district levels. Article 243H (a) empowers the legislature 
of a state by law to authorize a Panchayat to levy, collect and appropriate 
such taxes, duties, tolls and fees in accordance with such procedure and 
subject to such limits. A1ticle 243Q provides for the constitution of a 
Nagar Panchayat, a Municipal Council and a Municipal Corporation. 
Article 243X empowers the legislature of a state by law to authorize a 
Municipality to levy, collect and appropriate such taxes duties, tolls and 
fees in accordance with such procedure and subject to such limits. With 
these amendments, local areas now have assumed a constitutional context 
and significance. 
232. In the judgment in Diamond Sugar Mills, the Constitution 
Bench emphasized that in using the expression local area, the framers 
of the Constitution were aware
of the previous legislative history and 
meant an area administered by a body (such as Municipalities, Panchayats 
or local board) constituted under the law for the governance of local 
affairs in any part of the state. This statement of principle in the decision 
in Diamond Sugar Mills now stands fortified in view of the constitutional 
amendments brought by the insertion of Parts IX and IXA. into the 
Constitution. A local area cannot be defined with reference to che entire 
state but will comprehend within the state, an area tliat is administered 
by a local body constituted under the law. 
K.4 Sever.ability 
233. On behalf of the states, it has been urged that where a state 
legislature provides for the levy of an entry tax only upon goods brought 
from outside the state, the offending words may be treated as severable
JINDAL STArNLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, .J.] 
and struck down so as to allow for the imposition on goods entering a 
local area both from within or outside the state. Such an exercise would 
clearly be impermissible. Where the state legislature has evinced a clear 
intent to levy a tax only upon the entry of goods originating from outside 
the state, it would be impermissible, by a process of interpretation as 
suggested to excise the offending words. Such an excise would not fall 
within the permissible scope of reading down the statute. The effect of 
such a judicial exercise would be to impose a levy upon goods moving 
into a local area from within the state, though, thi.s has not been done by 
the state legislature. Whether such a levy should be imposed is a matter 
for the state legislature to determine in its law making authority. This 
Court in the exercise of its power of judicial review can hold that a 
discrimination between goods imported from outside the state and goods 
produced or manufactured within the state for the levy of a tax would be 
violative of Article 304(a). Where the state legislature has committed an 
act of hostile discrimination by imposing a tax only upon goods originating 
outside the state upon their entry within it, the court must strike down 
such a provision which violates Article 304(a). The provision cannot be 
re-written by judicial interpretation to mean that the tax will be levied 
both on goods originating
outside the state and goods originating within 
the state and entering a local area. Re-writing a legislative provision is 
impermissible in the exercise of judicial review. 
K.5 E<1uality of tax burdens 
234. At first impression A1iicle 304(a) presents a fairly simple 
application. If a tax at the rak of five percent is imposed by a taxing 
state on goods imported from other states, similar goods which are 
produced or manufactured within the taxing state must be subjected to a 
five per cent tax. If a higher rate of tax is imposed on goods originating 
in other stateswhich are imported into the taxing state, this would result 
in a discrimination against impo1ted goods. Such a discrimination is sought 
to be obviated by the requirement that the rate of tax should be the same 
as between similar goods produced or manufactured within the taxing 
state and goods imported from other states. This furnishes the rationale 
for several decisions of this Court, which hold that Article 304(a) 
mandates the same rate of tax and once that requirement is fulfi lied, the 
application of the provision is at an end. 
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235. The submission of the petitioners, however, which falls for 
close examination is that Article 304(a) requires that the very tax which 
is imposed by a taxing state on imported goods must be imposed on 
domestic goods. In the context of entry tax, the submission is that unless 
the taxing state imposes it on similar local goods, an entry tax cannot be 
imposed on goods imported from other states. If goods manufactured or 
produced in the taxing state are not subject to entry tax, that will result in 
a discrimination if imported goods of other states are so subject. 
236. The example which has been set out above of the application 
of differential rates of tax, for the same tax imposed on domestic as 
opposed to imported goods presents a simple application of Article 304(a). 
The example is simple in the sense that a discrimination is then effected 
in the imposition of the same tax by subjecting domestic and imported 
goods to differing treatment. The picture may, however, become more 
nuanced. Different states have adopted varying models while framing 
legislation in a manner which, according to them, fulfils the mandate of 
Article 304(a). Whether it in fact, does so is for the court to determine. 
23 7. A state may have a single legislative enactment providing for 
both entry tax and sales tax at equal rates. Some other states provide for 
set offs and statutory exemptions to goods paying local sales
ta:~. Certain 
states provide a similar set off for goods imported from another state, if 
they are sold in the taxing state. The legislation of some states provides 
for a reduction of tax liability under the sales tax law by the amount of 
ently tax paid while in other cases, state legislation provides for a reduction 
of entry tax by the amount of tax paid under the General Sales Tax Act. 
Similarly, state enactments provide for the reduction of liability under 
entry tax legislation by the amount of tax which is paid under the sales 
tax law of that state. Contrariwise, such a reduction has not been made 
available to imp01ted goods in ce1tain state legislation. The state legislation 
may have excluded from entry tax those local goods which are liable to 
pay sales tax under the State Act. However, an importer of scheduled 
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goods who incurs liability under value added tax legislation, by vi1tue of 
the sale of imported goods or the sale of goods manufactured by consuming 
such imp01ted scheduled goods, is entitled to a set off. State legislation 
in certain cases exempts goods from entry tax if after entry in a local 
area, the goods are sold there and become liable to pay value added tax. 
In other cases, manufacturers in a local area are exempt from paying 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
653 
[DR. D. Y. CHANDRACHUD, J.] 
entry tax on raw material imported from another local area or another 
A 
state. In some cases, manufacturers in a local area are required to pay 
the same entry tax on raw material imported from another local area or 
another state. 
238. These examples furnish illustrations of different patterns and 
approaches adopted by state legislation. It is necessary to clarify that in 
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this reference the nuances of each state law are not being considered 
since the cases would have to be placed for disposal before the 
appropriate Bench after the reference is answered. For the purpo5es of 
this reference, it is sufficient for the court to lay down broad principles 
governing the area without going into individual facts or detailed provisions 
C 
covering each case in relation to the period at issue in the respective 
states. 
239. Article 304(a), in so faras is material, authorises the legislature 
of a state to impose on "goods imported" from other states "any tax to 
which similar goods manufactured or produced in that state are subject". 
Several aspects of Article 304(a) merit emphasis: 
240. The first is that Article 304(a) refers to the imposition of any 
tax on goods. The provision is not either a source of legislative power 
nor does it prescribe fields of legislation. The expression "any tax on 
goods" is of a generic nature and covers all taxes which a state is 
competent to impose on any
aspect of goods under Articles 245 and 246 
read with List II of the Seventh Schedule. The expression 'any tax' 
would mean any exactionin the nature of an impost or levy which the 
state legislature is competent to enact by virtue of its legislative powers. 
The expression 'any tax' must mean what itsays: it means any levy 
which the state is constitutionally competent to legislate. 
The second aspect of Article 304(a) is the latter part which provides 
that the state shall act : 
"so, however, as not to discriminate between goods so 
imported or goods so manufactured or produced." 
24 I. The fundamental reason for the incorporation of this provision 
is to prohibit discrimination being practiced by the state against imported 
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gooGs by embarking upon protectionist policies. The discrimination which 
the constitutional provision is intended to rule out is discrimination which 
is protectionist in nature. A state cannot impose taxes in a manner that 
would make the goods of another state non-competitive so as to 
effectively bar the inflow of trade by utilizing fiscal exactions. 
Thirdly, the latter part of Article 304(a) is prefaced by the 
expression "so however". In Words and Phrases94,the expression 
however has been explained as indicating "an alternative intention, a 
contrast with a previous clause and a modification of it under 
circumstances"95 • The Oxford dictionary defines the expression 
'however' to mean "in any case, at all events, at any rate." Another 
meaning attributed to the phrase is "used by itself, or follov!ed by points 
of suspension, as an inte1jection or as a fonnula concluding, introducing 
or modifying an utterance in some contextual way". P Ramanatha 
Aiyar's Law Lexicon96 states that the word 'however' in a deed or will 
indicates an alternative intention, a contrast with a previous clause and a 
modification of itunder certain circumstances. The latter part of Article 
304(a) follows upon the first which enables the state to impose on goods 
which are imp01ted from other states any tax to which the goods produced 
or manufoctur<!d within the state are subject. The latter part constitutes 
a positive
re-affirmation that in any case, at all events and at any rate 
there shall be no discrimination between goods manufactured or produced 
within the taxing state and goods imported from other states. This 
narrative is the dominant theme of Article 304 (a). 
Fourthly, an expression of some significance that is used in the 
latter part of Article 304(a) is "between". That expression has been 
F 
employed so as to mandate that there shall be no discrimination between 
gooc!s imported into the taxing state from other states and goods that are 
manufactured and produced within. The use of the expression "so" in 
the latter part is an obvious reference to the imported goods and the 
goods manufactured or produced within, referred to in the first part. The 
G 
expression 'between' postulates that imported goods and local goods 
must be allowed a level playing field in the taxing state. Imported goods 
from another state cannot be placed at a comparative disadvantage. 
H 
" (Pennanent Ed. Vol. i 9A) 
" (II"' Ed. Vol. II, p. 59) 
"(4'" Ed. Vol. III, Id. at p. 3134)
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
655 
[DR .. D. Y. CHANDRACHUD, J.] 
The expression 'between' also signifies that goods produced or A 
manufactured within the taxing state should also not be discriminated 
against. In seeking parity of treatment, it is as much the obligation of the 
taxing state to ensure that there is no discrimination against goods 
originating in other states, as much as it is its concern to ensure that 
domestic goods are not discriminated against. The former is a matter of B 
constitutional obligation. However, it does not exclude a similar obligation 
and concern of the taxing state in respect of goods produced and 
manufactured within its territorial limits. Both must go hand in hand. 
Discrimination both in a positive manner against imported goods and a 
reverse discrimination against domestic goods are within the ambit of 
Article 304(a). 
c 
The fifth important principle which requires emphasis is that our 
Constitution does not embody a requirement that the state legislature 
while enacting ;!_legislation must legislate separately in respect of each 
subject of legislation contained in List II. A law enacted by the state 
legislature imposing a fiscal levy may cover more than one subject of D 
legislation falling within its legislative competence in List II. In contrast, 
Section 55 of the Australian Constitution mandates that there shall be 
one tax law on one subject. Article 55 of the Australian Constitution 
reads as follows:
"Article55 : Laws imposing taxation shall deal only with the 
imposition of taxation and any provision therein dealing with 
any other matter shall be of no effect. Laws imposing 
taxation except laws imposing duties of customs or of excise 
shall deal with one subject of taxation only; but laws imposing 
duties of customs shall deal with duties of customs only, 
and laws imposing duties of excise shall deal with duties of 
excise only." 
242. The Indian Constitution does not impose such a restriction 
on the states. Considered from a different perspective, '"rag-bag" 
legislation is constitutionally permissible under the Indian Constitution 
and it is open to a single enactment to draw sustenance from more than 
one entry which falls within the legislative competence of the enacting 
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legislature. [See in this context: Ujagar Prints (II) v. Union oflndia97, 
All India Federation of Tax Practitioners v. Union of lndia98,and 
State of A. P. v. NTPC99]. 
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243. As a matter of constitutional doctrine, there is no restraint on 
the plenary powers of Parliament as well as the state legislatures which 
rcqu;res the legislative body enacting a statute to legislate only upon one 
head of legislation falling within its competence. The legislature can 
distribute or allocate its regulatory or law making requirements (both 
fiscal and non-fiscal) in a manner which best sub-serves its needs and 
concerns. Once this be the position, its impact upon the interpretation of 
Article 304( a) is that it is open to the state legislature to have due regard 
to the equality of tax burdens, when it legislates to impose "any tax" so 
long as it does not breach the notion of non-discrimination as between 
goods that are imp01ied from other states and goods which are produced 
or manufactured within. It is legitimately entitled to ensure that the tax 
burden should not discriminate between locally produced or manufactured 
goods of that state and goods originating in other states. The substance 
must prevail over fonn. Once there is no constitutional necessity that 
the form in which legislation is enacted in India must cover only one 
legidative entry, the legislature is entitled to devise a law in a suitable 
manner which
while being consistent with the norm of non-discrimination 
also preserves a parity of tax burden between goods imported and 
domestic goods. This is the foundation of the theory of equivalence. 
244. The burden of establishing that there is a discrimination against 
goods which are imported from other states lies on the person who sets 
up such a plea. In answering a plea of discrimination, it would be open to 
F 
the state to establish that the legislative provision which it has enacted 
maintains the principle of non-discrimination between goods produced 
and manufactured within the state and goods imported from other states 
while at the same time bringing about parity in ten11S of tax burden 
between domestic and imported goods. Sales tax is referable to Entry 
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54 of List 11 ("taxes on the sale or purchase of goods other than 
newspapers, subject to the provisions of Entry 92A of List I"). Entry tax 
is referable to Entry 52 of List II ("taxes on the entry of goods into a 
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"' (1989) 3 sec 488 
"(2007) 7 sec s21 
'" (2002) s sec 203
JINDAL STAfNLESS LfD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD. J.] 
local area for consumption. use or sale therein"). Both sets of taxes fall 
within the competence of the state legislature. Ta:-rnblc events under 
entries both entries are distinct :in the case of one the sale of goods and 
in the case of the other, entry of goods into a local area for consumption, 
use or sale therein. Both deal with separate aspects of the taxation of 
goods: the ta\.able events being proximate though distinct. The expression 
"any tax'' recognises the full panoply of taxes on goods falling within 
List II. If a law can cover Entry 52 and Entry 54 of List II, there is no 
reason to prohibit the state law making authority from having due regard 
to the wx burdens imposed on domestic goods and goods imported from 
other states under entry tax and sales tax legislation, taken as a composite 
whole. "Any tax'' does not mean n tax under one entry of List II as a 
discrete and isolakd legislation independent of any another entry. Any 
adjustment, exemption or set offbased on the payment of sales tax may 
be intended to avoid double taxation and discrimination. \Vheth~r this 
object has been legitimately achieved by the enacting law is· a matter to 
be determined on its interpretation and application. 
245. lt is trite law that every discrimination involves a differentiation 
but every differentiation does not implicate discrimination. (Digvijay 
Cement v. State of Rajasthan""'). The cnqui1y
into whether a stak 
has practiced discrimination against goods imported from other states 
will commence with an investigation into whether the state legislation 
has made any differentiation between the two sets of goods.This is not 
merely in terms of the rate of tax but there are other important aspects 
including: 
(i) procedures and machinery including aspects such as Iiccncing, 
recognition and compliance: 
(iii) Measure of the tax; and 
(iv) Exemptions or set offs; 
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Beyond this enquiry, the court would need to analyse the reasons 
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for the differentiation and then to determine as to whether there has 
been a discrimination violative of Article 304(a). 
""'(2000J 1 sec 688 (Pr. 24J 
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K.6 Entry tax and imported goods 
246. Entry 83 of List I provides for "duties of customs including 
export duties". The submission of the petitioners is that there being no 
over-lapping oflegislative entries, the field of Entry 52 of List II would 
begin where that of Entry 83 of List I ends. Hence, while considering 
whether entry tax can be imposed in relation to goods imported into 
India, it is urged that until the goods become a part of the landmass, they 
can be subjected to a law under Entry 83 of List I and to a duty of 
import. It is only where a Bill of entry for home consumption is. filed that 
the goods cease to be imported goods. Until then, it is urged, no entry tax 
would be leviable. 
247. The taxable event referable to a law enacted under Entry 83 
of List I (in relation to an import customs duty) is the act of import by 
which goods miginating in a foreign country are brought into India. Section 
2 (23) of the Customs Act, 1962 defines the expression import to mean 
"bringing into India from a place outside India''. The expression imported 
goods is defined to mean "any goods brought into India from a place 
outside India" but so as not to include goods which have been cleared 
for home consumption. Section 2 (26) defines the expression importer in 
relation to any goods at any time between their importation and the time 
whea they are cleared for home consumption, to include any owner or 
any
person holding himself out to be an importer. 
248. Section 46 provides that the importer of any goods (other 
than goods for transit or transhipment) shall present to the proper officer 
F 
a bill of entry for home consumption or warehousing in the prescribed 
fonnat. The bill of entry can be presented at any time after the delivery 
of the imp011 manifest or import report. Section 4 7 provides for clearance 
of goods for home consumption upon the satisfaction of the officer that 
the goods entered for home consumption are not prohibited goods and 
the importer has paid the import duty assessed thereon together with the 
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charges payable under the Act. Section 48 provides for the sale of 
goods by the person having custody if they are not cleared for home 
consumption or warehousing or transhipped within 30 days from the 
date of unloading. Chapter IX provides for warehousing. Section 57 
provides for public warehouses where dutiable goods may be deposited. 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
Section 58 provides for the licencing of private warehouses where dutiable 
goods !'1rny be deposited. Section 59 provides for the execution of a 
warehousing bond. Section 60 deals with the grant of pennission to deposit 
goods in a warehouse. Section 61 provides for the period during which 
goods can remain in a warehouse. Under Section 64, the owner's right 
to deal with warehoused goods has been statutorily recognized to the 
extent mentioned therein. Section 65 enables the owner of any 
warehoused goods with due permission to carry on any manufacturing 
process or operations in the warehouse, relating to the goods. Section 68 
provides for the clearance of warehoused goods for home consumption 
subject to the presentation of a bill of entry, payment of import duty and 
all penalties and charges and upon the passing of an order of clearance 
for home consumption. Section 73 provides for the cancelation and the 
return of a warehousing bond. 
249. The Constitution distributes subjects oflegislation including, 
amongst them, those covering fiscal matters between the Union and the 
States. The fields or subjects oflegislation are elaborately defined so as 
to exclude the possibility of overlapping between entries in List I and 
those in List II. Even where the fields may appear to overlap, they must 
be construed to be mutually exclusive. The submission of the petitioners 
proceeds on the basis that if
entry into any part of India from outside 
India is an entry into a local area, it1 would nonetheless be necessary to 
eannark the ambit of Entry 83, List I and Entry 52 List 11 respectively. 
Both, according to the petitioners cover taxes on the movement of goods. 
According to the petitioners, Entry 52 should cover an entry into a local 
area after the importation of the goods is complete since the field of 
Entry 83 continues to subsist until the goods have been imported by filing 
of a Bill of entry for home consumption. 
250. Entry 83 of List I and Entry 52 of List II have separale and 
distinct fields of operation. Entry 41 of List I deals with trade and 
commerce with foreign countries; import and export across customs 
frontiers; and definition of customs frontiers. The distribution of powers 
with reference to the taxing entries in List I and 11 is mutually exclusive. 
251. In a decision rendered in 1942 by the Federal Court in 
Province of Madras v. Messrs. Boddu Paidanna & Sons 101 , it was 
IOI 1942 F.C.R. 90 
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held that if a tax payer who pays sales tax is also a manufacturer subject 
to excise duty "there may no doubt be overlapping in one sense, but 
there is no overlapping in law". The two taxes which he is called upon to 
pay-excise duty and sales tax were held to be "economically two separate 
and distinct imposts". There was, in the view of the Federal Comt no 
reason to expand the meaning of the expression 'duties of excise' at the 
expense of the provincial power to levy taxes on the sale of goods. The 
judgment of the Federal Cornt was affirmed by the Privy Council in 
Governor General in Council v. Province of Madras' 0". The Privy 
Council held that : 
"The two taxes, the one levied upon a manufacturer in 
respect of his goods, the other upon a vendor in respect of 
his sales, may, as is there pointed out, in one sense overlap. 
But in Jaw there is no overlapping. The taxes are separate 
and distinct imposts. If in fact they overlap, that may be 
because the taxing authority, imposing a duty of excise, finds 
it convenient to impose that duty at the moment when the 
exciseable article leaves the factory or workshop for the 
first time upon the occasion of its sale. But that method of 
collecting the tax is an accident of administration, it is not 
of the essence of the duty of excise which is attracted by 
the manufacture itself." 
252. Applying the same principle, this Court held in Ram Krishan 
Ram
Nath Agarwal v. Secretary, Municipal Committee, 
Kamptee 103 that a Bidi manufacturer was liable to pay excise duty and 
octroi on two distinct taxing events : whereas excise duty is a tax on 
manufacture, octroi duty is a tax on the entry of goods into a local area. 
In The Jiyajeerao Cotton Mills Ltd. v. State of Madhya Pradesh 104, 
a textile mill which was generating electricity for running the mill (and 
not for sale) questioned the levy of electricity duty on the ground that 
this would amount to a levy of excise duty which fell exclusively within 
'"' AIR (1945) PC 98 
1oi AIR (1950) SC II 
'°' (1962) Supp. I SCR 282
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
the competence of Parliament under Entry 84 of List I. Rejecting the 
submission, this Court held that : 
"6. lt is difficult to see how the levy of duty upon 
consumption of electrical energy can be regarded as duty 
of excise falling within Entry 84 of List I. Under that Entry, 
what is permitted to Parliament is levy of duty of excise on 
manufacture 01' production of goods (other than those 
excepted expressly by that entry). The taxable event with 
respect to a duty of excise is "manufacture" or 
"production". Here the taxable event is not production 
generation of electrical energy but its consumption. If a 
producer generates electrical energy and stores it up, he 
would not be required to pay any duty under the Act. It is 
only when he sells it or consumes it that he would be 
rendered liable to pay the duty prescribed by the Act. The 
Central Provinces and Berar Electricity Act was enacted 
under Entry 48-B of List II of the Government of India 
Act, 1935. The relevant portion of that Entry read thus: 
"Taxes on the consumption or sale of electricity" 
Entry 53 of List 11 of the Constitution is to the same 
effect ... '' 
(Id. at p. 286-287) 
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253. In D G Gose v. State of Kerala105, this Court held that a tax 
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on buildings imposed under the Kerala Building Tax Act, 1961 was 
referable to Entry 49 of List 11 and was not a tax on the capital value of 
assets under Entry 86 of
List I. In that context, it was held that : 
"7 .... So if a tax is levied on all that one owns, or his total 
assets, it would fall within the purview of Entry 86 of List I, 
and would be outside the legislative competence of a State 
'"' (1980) 2 sec 4to 
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legislature, e.g. a tax on one's entire wealth. That entry 
would not authorise a tax imposed on any of the components 
of the assets of the assessee. A tax directly on one's lands 
and buildings will not therefore be a tax under Entry 86 ..... 
8 ... .lf, therefore, a tax is directly imposed on 'buildings', it 
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will bear a direct relation to the buildings owned by the 
assessee. It may be that the building owned by an assessee 
may be a component of his total assets; but a tax under 
Enny 86 will not bear any direct or definable relation to his 
building. A tax on 'buildings' is therefore a direct tax on the 
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assessee's buildings as such, and is not a personal tax without 
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reference to any particular property." 
(Id. at. p. 421) 
254. This decision has been affinned in Union of lndfa v. H S 
Dhillon 106.While reiterating this position in Lt. Col. Sawai Bhawani 
Singh v. State of Rajasthan 107, this Court held that: 
"7 ..... These two taxes are separate and distinct in nature 
and it cannot be said that there was any overlapping, or 
that the State Legislature was not competent to levy such 
tax on lands and buildings merely on the ground that they 
have been subjected to another tax as a component of the 
total assets of the person concerned." 
(Id. at p. 111) 
255. In Mis RR Engineering Co. v. Zila Parishad Bareilly108, 
a tax was imposed on "circumstances and property" under the U P 
Kshettra Samitis &
Zila Parishad Adhiniyam, 1961. This composite tax 
was questioned on the ground that this was essentially a tax on income 
under Entry 82 of List I and therefore outside the legislative competence 
of the state legislature. Rejecting this submission, this Court held that: 
'°'(1971) 2 sec 779 
'"' o 996) J sec 10s 
'""(I 980) 3 sec 330
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
"17. The Full Bench decision under appeal in the instant 
case, R.R. Engineering Co. [R.R. Engineering Co. v. Zila 
Parishad, Bareilly, AIR 1970 All 316], has taken the same 
view of the nature of the tax on circumstances and property 
by holding that it is not a tax on income but is a tax on a 
man's financial position, his status as a whole, depending 
upon his income from trade or business. Earlier, another 
Full Bench of the Allahabad High Court had held in Zila 
Parishad, Muzaffar Nagar v. Jugal Kishore that the tax on 
circumstances and prope11y is fundamentally distinct from 
and cannot be equated with income tax, that it is not covered 
by item 82, List I, Schedule VII, of the Constitution and 
that it is essentially a tax on status or financial position 
c0mbined with a tax on property. These decisions correctly 
describe the nature of the tax on circumstances and 
property. We affirm the view taken therein, especially that 
the aforesaid tax is not a tax on income." 
(Id at p. 337) 
The constitutional principle has been enunciated by a Constitution 
Bench in Godfrey Phillips India Ltd. v. State of U P109 thus : 
"The logical corollary of holding that taxes are imposed only 
on taxable events is that even when an ently speaks of a 
levy of a tax on goods, it does not include the right to impose 
taxes on taxable events which have been separately provided 
for under other taxation entries. The
tax in respect of goods 
has sometimes been referred to as a tax on an aspect of 
the goods and sometimes as the taxable income. (See 
Federation of Hotel Restaurant v. Union oflndia (1989) 3 
sec 634=AIR 1990 SC 1637, (Pr. 13, 14, 16)." 
(Id. at p. 544) 
256. The principle oflaw is hence well-settled: the taxing powers 
of the Union and the states are mutually exclusive. (See in this context 
'°' (2005) 2 sec 515 
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the decisions in Hoechst Pharmaceuticals v. State of Bihar110 ; and 
State of West Bengal v. Kesoram lndustries 111). 
257. A Bench of nine Judges of this Court in Re Sea Customs112, 
distinguished the taxable event in the case of a duty of excise, which is 
the manufacture of goods, with a sales tax where thetaxable event is the 
act of sale. Dealing with customs duties, the Bench of nine Judges 
speaking through Sinha, CJ held as follows : 
"Similarly in the case of duties of customs including export 
duties though they are levied with reference to goods; the 
taxable event is either the import of goods within the customs 
barriers or their export outside the customs barriers. They 
are also indirect taxes like excise and cannot in our opinion 
be equated with direct taxes on goods themselves. Now, 
what is the true nature of an import of an import duty? 
Truly speaking, the imposition of an import duty, by and 
large, results in a condition which must be fulfilled before 
the goods can be brought inside the customs barriers, i.e. 
before they form part of the mass of goods within the 
country." 
(Id. at. p. 543) 
Entry of goods into a local area for consumption, use or sale therein 
attracts the charging provision of entry tax legislation. The levy which is 
referable to Entry 52 of List II is attracted the moment the goods enter 
a local area for consumption, use or sale. The Customs Act, 1962 has 
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made a
beneficial provision for allowing goods to be deposited in public 
or private warehouses and for the clearance of goods for home 
consumption. These provisions cannot and do not detract from the power 
of the state legislatures under Entry 52 nor do they denude the states 
from levying an entry tax once the taxable event under state law has 
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occurred. 
258. In the present case, the grievance of the states is that the 
""(1983) 4 sec 45 
'" (2004) 10 sec 2011 
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112 (1963) 3 SCR 787
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
665 
[DR. D. Y. CHANDRACHUD, J.] 
petitioners have not stated in the pleading that there is any warehousing 
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station in their factory units or in the local area where they are located. 
Hence, the contentions are stated to have been advanced without any 
basis in the pleadings or facts. Moreover, it has been submitted that the 
petitioners have not produced any evidence that the bill of entry is filed 
in the factory units or in a land customs station located in the same local 
area as the petitioner's units. 
259. For the purposes of this reference, it is not appropriate for 
the court to conclusively adjudicate upon the issues raised relating to the 
facts of the above cases. Hence, it is only appropriate and proper that all 
the facts are fully established before the regular bench adjudicating upon 
the cases relating to goods imported from abroad. However, the 
constitutional position in respect of Entry 83 of List I and Entry 52 of 
List 11 has been clarified above. The taxable event for theimposition of a 
duty of customs is distinct from the taxable event in respect of an entry 
tax, which is the entry of goods into a local area for consumption, use 
and sale therein. 
M Direct and inevitable effect test 
2'50. Whether taxes per se constitute an impediment upon the 
freedom of trade, commerce and intercourse is an issue which has 
resulted in two contrary positions, neither of which has been subscribed 
to in this
judgment. At one end of the spectrum is the theory that all 
taxes impede the freedom of .h·ade, commerce and intercourse. If this 
theory were to be accepted, the entire tax regime and the state taxing 
power would be controlled by Part Xlll of the Constitution. The states 
which are sovereign within their own sphere would in the exercise of 
their constitutional power to raise revenues by way of taxation be subject 
to the rigours of Part XIII. Such an extreme view is not acceptable 
either from the stand point of textual construction or from its consequence 
for the federal structure of the Constitution. All taxes do not impede the 
freedom of trade, commerce and intercourse. lnfact, as discussed earlier, 
taxes provide the means by which revenues can be raised under a regime 
oflaw made by law making bodies at the federal and state level. Absent 
a taxing power, the states would be bereft of revenues needed for 
maintaining order and governance. Trade, commerce and intercourse 
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cannot survive in the abstract and without conditions of stability and 
order created by the state. Moreover, the revenues which are made 
available to the state provide the basis for creating infrastructure and 
amenities, both direct and incidental, through which trade and commerce 
can effectively be transacted and can flourish. Hence, the extreme 
proposition that all taxes constitute a restriction or impediment upon trade 
has been eschewed. 
261. At the other end of the spectrum lies the view that taxes do 
not constitute a restriction upon the freedom of trade, commerce and 
intercourse. If this view were to be accepted, Part XIII would have no 
role as a constitutional limitation on taxing legislation save and except 
for discriminatory taxes of the kind that are prohibited by Article 304(a). 
The position thatArticle 304(a) constitutes the entire universe of taxation 
for the purpose of Part XIII has been rejected by this judgment on the 
ground that it suffers from fundamental fallacies and is contrary to the 
text of Part XIII.To recapitulate, the grounds for so holding are : 
(i) Laws for the purposes of Paii XIII must mean all laws and not 
to the exclusion of taxing legislation; 
(ii) TI1e constitutional validity of Parliamentary legislation imposing 
E 
sales tax has been upheld on the basis of the provisions of 
Atiicle 302 which enables Parliament to impose restrictions 
on the freedom of trade and
commerce in the public interest. 
If taxing legislation is regarded as a restriction for the purposes 
of Article 302, there is no reason to exclude the same 
F 
interpretation for the purposes of Article 304; 
(iii) Atiicle 304(a) deals with a specific area of taxation-taxation 
of goods. The legislative powers of the state legislatures in 
List II of the Seventh Schedule enables them to tax persons, 
activities or things (Godfrey Phillips India Ltd. v. State of 
G 
U P113). Article 304(a) covers only the last category namely a 
tax on goods. It does not cover taxes on persons (profession 
taxes or luxury tax) or taxes on activities (betting a11d gambling); 
(iv) Article 30 I guarantees free trade, commerce and intercourse 
H 
"'Supra note 109
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
667 
[DR. D. Y. CHANDRACHUD, J.] 
throughout the territory of India. Inter-state trade as well as 
A 
trade and commerce within a state is guaranteed. Aiticle 304(a) 
covers only taxes imposed on goods imported from other states. 
Article 304(a) in other words does not cover imposts on goods 
traversing within a state; 
(v) Aiticle 306 of the Constitution, as it stood prior to its repeal 
B 
contemplated that restrictions could take the fonn of duties 
and imposts; and 
(vi) The expression 'restrictions' has been utilized in Part Xlll of 
the Constitution, as the provisions of Articles 302, 303, 304 and 
306 would indicate in a manner that would not exclude taxing 
C 
legislation. The consistent view of Constitution Benches of this 
Court has been that taxes may under certain circumstances 
amount to a restriction on the freedom of trade and commerce. 
The position has been lucidly summarized in the erudite 
judgment of Justice MN Venkatachaliah (as the learned Chief D 
Justice then was) in Express Hotels Pvt. Ltd. v. State of 
Gujarat 114 • After reviewing the position of law, the learned 
judge held thus: 
"Taxes can and do sometimes, having regard to their effect 
E 
and impact on the free flow of trade constitute restrictions 
on the freedom under Article 301. But the restriction must 
stamp from the provisions of the law imposing the tax which 
could be said to have a direct and immediate effect of 
restricting the free flow of
"trade, commerce and 
F 
intercourse". lt is not all taxes that have this effect." 
(Id. at p. 697) 
262. Nearly, five decades of jurisprudence having developed in 
support of the above principle, there is neither any rationale of G 
constitutional principle or law that should leave this Court to make a 
departure from the position and to hold that taxes can in no circumstances 
constitute a restriction on the freedom of trade and commerce. Moreover, 
"' (1989) 3 sec 677 
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it has been accepted even as a matter ofjudicial precedent that taxation 
serves not only the purpose of raising revenues but is also a powerful 
instrument of social control. The states and the Union in the exercise of 
their legislative powers, utilise taxation not only as a means of raising 
revenues to support their developmental activities but also as a measure 
of achieving social objects. Whether the pursuit of those social objects 
or the pursuit of social regulation infringes upon the area of free trade 
and commerce cannot be decided a priori. The power of taxation is 
capable of being used in a manner which can constitute, in a given case, 
a restraint or impediment on the freedom of trade and commerce. 
263. In determining as to when taxes can constitute a restriction 
on the freedom of trade and commerce, the direct and immediate effect 
test (as refined subsequently) provides a judicially manageable 
framework. The test of direct and immediate effect was enunciated in 
the judgments in Atiahari and Automobile Transport. The test is firmly 
entrenched as a part of our jurisprudence. In RC Cooper v. Union of 
lndia 115, a Bench of eleven Judges of this Court while adjudicating upon 
the validity of a law providing for bank nationalization overruled the 
judgment in AK Gopalan v. The State of Madras' 10 which had taken 
the view that it was the object of the action of the state in relation to the
fundamental right of the individual and not the effect of the action that 
was relevant. This Court held that: 
"49 ..... But it is not the object of the authority making the 
law impairing the right of a citizen, nor the form of action 
that determines the protection he can claim: it is the effect 
ofthe law and of the action upon the right which attracts 
the jurisdiction of the Court to grant relief. If this be the 
true view, and we think it is, in determining the impact of 
State action upon constitutional guarantees which are 
fundamental, it fol lows that the extent of protection against 
impairment of a fundamental right is determined not by the 
object of the Legislature nor by the form of the action, but 
by its direct operation upon the individual ·s rights:' 
(Id at p. 288) 
'" (1970J 1 sec 248 
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"'·(1950) I SCR88
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
669 
[DR. D. Y. CHANDRACHUD, J.) 
In Bennett Coleman & Co. v. Union of lndia 117,the same A 
principle was formulated in the following statement oflaw: 
" .. First, it is not the object of the authority making the law 
impairing the right ofthe citizen nor the form of action that 
detem1ines the invasion of the light. Secondly, it is the effect 
of the law and the action upon the right which attracts the 
jurisdiction of the court to grant relief. The direct operation 
of the Act upon the rights fonns the real test." 
(Id at p. 799) 
264. In Maneka Gandhi v. Union of Indiarn, this Court refined 
this test to mean the "direct and inevitable effect" of the action impugned. 
The direct and inevitable effect is that which necessarily must be intended 
by the state legislature, or, in other words, what may be described as the 
doctrine of intended and real effect. 
This Court held that : 
"20. It may be recalled that the test fonnulated in R.C. 
Cooper case merely refers to "direct operation" or 'direct 
consequence and effect' of the State action on the 
fundamental right of the petitioner and does not use the 
word "inevitable" in this connection. But there can be no 
doubt, on a reading of the relevant observations of Shah, J., 
that such was the test really intended to be laid down by 
the Court in that case. If the test was merely of direct or 
indirect effect, it would be an open-ended concept and in 
the absence of operational
criteria for judging "directness", 
it would give the Court an unquantifiable discretion to decide 
whether in a given case a consequence or effect is direct 
or not. Some other concept-vehicle would be needed to 
quantify the extent of directness or indirectness in order to 
apply the test. And that is supplied by the criterion of 
"inevitable" consequence or effect adumbrated in the 
'" (1972) 2 sec 788 
"' (1978) 1 sec 248 
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Express Newspapers case. This criterion helps to quantify 
the extent of directness necessary to constitute infringement 
ofa fundamental right. Now, if the effect of State action on 
fundamental rights is direct and inevitable, then a fortiori it 
must be presumed to have been intended by the authority 
taking the action and hence this doctrine of intended and 
real effect." 
· 
(Id. at p. 299) 
265. ln order to determine whether a law providing for the 
imposition of a tax constitutes a restriction on the freedom of trade, 
commerce and intercourse, the principle that must be applied is whether 
the direct and inevitable effect or consequence of the law is to impede 
trade and commerce. The burden must lie on the person who alleges 
that such is the effect of the tax to plead and establish to the satisfaction 
of the com1 that the consequence which is alleged does in fact exist. The 
direct and inevitable consequence for the purposes of Part Xlll of the 
Constitution is not the same as an infringement of the fundamental right 
to carry on an occupation trade or business under Article 19( 1 )(g). Under 
Article 19 ( 1 )(g), it is the individual's right to carry on trade or business 
which is guaranteed as a fundamental freedom. When a legislative 
measure seeks to cm1ail that freedom, the test is whether the right of 
the individual has been infringed or eviscerated. In the context of Part 
Xlll,the
matter is looked at from the perspective of trade and commerce 
as a whole. Henc'e, in a case which falls under Part Xlll of the Constitution 
it is for the petitioner to demonstrate and establish that the direct and 
inevitable effect of the law imposing a tax is to impede or restrict the 
flow of trade and commerce. 
266. The mere fact that the activity which is taxed is related to 
the flow or movement of trade and commerce is not sufficient in itself to 
lead to the inference that a tax on that activity impedes or restricts it. 
Businessmen and traders must and do necessarily factor in the 
requirement of tax compliance as a part of an ,overall business plan. 
Hence, the mere fact that the tax is imposed with reference to an activity 
or thing which constitutes an aspect of trade or commerce is not sufficient 
in itselflead to the consequence that it is a restriction or impediment of 
trade and commerce. The petitioner with such a grievance must cross 
the threshold of establishing in cogent tenns before the Court that the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
671 
[DR. D. Y. CHANDRACHUD, J.] 
direct and inevitable effect of the tax law is to constitute an impediment 
A 
of trade and commerce. 
267. In the context of entry tax, it is said on behalf of the petitioners 
that, there cannot be an entry into alocal area of goods for consumption, 
use or sale unless the tax is paid. If the tax is not paid there can be no 
entry of goods. This is the basis for urging that entry tax constitutes a 
B 
direct impediment or restriction on the freedom of trade and commerce. 
This approach to the issue cannot be accepted. In the regulatory sphere, 
adhc;ence to a regulatory statute may be made a condition precedent to 
engaging in a particular line of activity involving business, trade or 
commerce. However, the requirement of compliance does not by itself C 
render the statute an impediment of trade and commerce. Similarly,in 
the fiscal arena,the fact that a tax liability has to be discharged as an 
incident of or a pre-condition for engaging in a line of activity does not 
by itself-and without actual proof of impediment or restraint-constitute a 
restriction. A conclusion that the inevitable consequence and effect of 
the legislation is to impede or restrict trade and commerce can be drawn 
D 
only on the basis of demonstrable material that establishes that the impact 
of the tax is to result in that consequence. The burden to establish this is 
on the person who seeks to do so as a ground for
relief. 
268. In a regulatory area as well as in a fiscal context, the legislature 
may prescribe the fulfilment of certain requirements subject to which a 
line of business, trade or commerce may be pursued. The fulfilment of 
those requirements may be set down as a condition precedent. A statutory 
regulator may for instance stipulate requirements of licencing or 
registration before a commercial activity which it regulates can be 
undertaken. Licencing or registration nom1s may stipulate financial and 
other requirements which need to be fulfilled as a pre-condition for 
carrying on an activity or business. The fact that a statute allows for or 
prescribes such nonns which constitute a condition precedent is not reason 
enough to hold that they constitute restrictions in themselves or an 
impediment of trade and commerce. The right to carry on trade and 
commerce is not a right to be free from regulation that ensures orderly 
conditions for the pursuit of the activity. Nor can a right be exercised in 
such a manner as would create chaos through unregulated actions of 
numerous participants. In other words, the fact that a requirement 
operates as a pre-condition is not sufficient in itself to hold that it impedes 
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or restricts trade. In order to constitute an impediment, the condition 
must be demonstrated to cause, as a direct and inevitable consequence 
of its operation a restriction of trade or commerce. Every regulatory 
requirement does not restrict or impede trade and commerce even if at 
the threshold, its fulfilment is a condition enabling a person or entity to 
engage in a regulated activity. 
269. ln a fiscal context, the payment ofan impost or levy is attracted 
when the taxing event occurs. The tax may be on persons, activities or 
things.It is the taxing event which incurs the charge or liability to tax. 
The charge may be associated with an aspect of an activity or thing. 
The mere fact that this aspect is connected with the flow or movement 
of trade or commerce does not in itself lead to the conclusion that the. 
tax constitutes an impediment or restriction. The impediment does not 
lie in the aspect of the activity or thing which is the subject of the tax but 
in its consequence. Every tax or movement on entry does not impede 
trade or commerce. The volume of trade in a commodity is detem1ined 
by numerous variables including the nature of the product, availability of 
raw material, transportation and infrastructure, the nature and extent of 
competition, market cycles as well as the elasticity of demand and supply. 
The tax structure is one ingredient which has a bearing on the allocation 
of
resources. For a tax to constitute a restriction, there must be 
demonstrable material to indicate that its direct and inevitable effect or 
consequence is to obstruct or impede trade or commerce. Before the 
tax is held to be a restriction, the threshold must be crossed by 
demonstrating that the immediate and necessary consequence is to restrict 
impede or obstruct trade as a whole. Unless the impact of the financial 
levy is demonstrated, in tenns ofits direct and inevitable consequence, to 
restrict trade or commercethe provisions of Article 304 (b) would not be 
attracted. For, there has to a restriction in the first place before the issue 
of its reasonableness arises. Consequently, it is not possible to hold that 
the mere fact that the charge of the tax is associated with an aspect of 
the movement of trade and commerce indicates that it is a restriction in 
every case. The burden lies upon the individual or entity asserting the 
existence of a restriction to demonstrate its impact in tenns of the direct 
and inevitable effect test as adopted abo~e. Hence, there canbe no a 
priori assumption that an entry tax constitutes a restriction or impediment 
to trade and commerce.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
673 
[DR. D. Y. CHANDRACHUD, J.] 
N Conclusion 
A 
The conclusions of this judgment are, in summation, fonnulated 
below: 
270. The freedom guaranteed by Article 301 enables goods, 
services, persons and capital to engage in trade, commerce and 
commercial intercourse throughout the territory of India. The expression 
'throughout' extends the ambit of the freedom across and within state 
boundaries. Article 301 subserves the constitutional goal of integrating 
the nation into an economic entity comprising of a common market for 
goods and services. 
271. The freedom guaranteed by Article 301 is not absolute but is 
subject to legislative control by Parliament and the state legislatures. 
A1ticles 302, 303 and 304 define the ambit of the restrictions which 
Parliament and the state legislatures may impose by laws enacted in 
pursuance of their legislative powers under Articles 245 and 246. Besides 
providing for pennissible restrictions, those aiticles lay down the limits 
which govern the law making authority. 
2·72. Articles 245 and 246 together constitute the source of the 
legislative power of Parliament and the state legislatures. Article 245 is 
subject to the provisions of the Constitution. Every constitutional authority 
is subject to its provisions. No arm of the Constitution is vested with 
absolute power. Every institution created by the constitution operates 
subject to the governing piinciples of the written constitution
and is subject 
to the limitations which it prescribes. Constitutional limitations on 
legislat:vepower originate in the necessity that the enacting body must 
possess legislative competence on the subject on which it enacts law, 
that the law which it enacts must not infringe fundamental rights and 
that it must abide by other norms prescribed by the Constitution. 
273. Part Xlll of the Constitution enunciates a set of constitutional 
limitations on the legislative power to regulate trade, commerce and 
commerce. 
274. The federal structure is one of the basic features of the 
Constitution. Judicial interpretation of Part XIII must factor in the 
necessity of ensuring that the carefully crafted balance between the 
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Union and the States is preserved. 
275. Taxation is a sovereign power entrusted by the Constitution 
to the Union and the States. The Seventh Schedule distributes legislative 
power, including the power to tax, between Parliament and the state 
legislatures. The interpretation of Part Xlll must ensure that the 
B 
autonomy of the states in the fields assigned to them is not eroded. 
276. While recognising sovereignty in the fields assigned to the 
centre and the states, the Constitution subjects its sovereign arms to 
constitutional limitations which are designed to preserve the balance which 
it has created. Hence all legislative power, including of a fiscal nature 
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has to abide by the norms of the written constitution. Judicial review of 
fiscal legislation however recognises the wide latitude which inheres in 
the legislatures both at the national and state level to classify persons, 
objects and things for the purpose of raising revenues. 
277. The concept of compensatory taxes was judicially evolved 
D 
in the decision in Automobile Transport to exclude certain regulatory 
measures and fiscal exactions from the operation of Part Xlll. The 
concept has created doctrinal inconsistencies and uncertainty in the 
application of legal standards. The decision in Automobile Transport 
is to that extent overruled. 
E 
278. The proposition that taxes do not constitute a restriction on 
the freedom of trade and commerce (save
and except for a discriminatory 
tax which violates A1iicle 304(a)) does not reflect a valid constitutional 
principle. Article 304(a) does not constitute the entire universe of taxation 
for the purpose of Part XIII. Aiiicle 304(a) deals with a species ofnon-
F 
discriminatory taxes : non-discriminatory taxes on goods imported from 
other states. 
279. As a statement of constitutional principle, neither of the two 
positions which lie at the extreme ends of the spectrum is valid : at one 
end is the position that all taxes are restrictions and at the other end, is 
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the position that no tax (except a discriminatory tax on goods) is a 
restriction. All taxes do not constitute restrictions. Some taxes may 
impede trade and commerce. 
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280. A tax may amount to a restriction where its direct and 
inevitable effect is to restrict the freedom of trade, commerce and
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
intercourse. The burden to establish this is on the person who seeks to 
assail the validity of a particular tax on the ground that it amounts to a 
restriction on the freedom guaranteed by Article 301. Unless this threshold 
is crossed, the proviso to Article 304(b) will have no application for, it is 
only when there is a restriction that the question of its reasonableness 
can arise. 
281. The expression 'may' in Article 304 has to be read in 
conjunction with the expression 'and' which separates clauses (a) and 
(b ). The true construction of the expressions is in the sense of a joint and 
several "and/ or". 
282. Article 304(a) does not require that in order to impose a tax 
on goods imported from other states, similar goods must be actually 
produced or manufactured within the taxing state. The object of the 
provision is to prevent states from following protectionist policies by 
discriminating against goods produced or manufactured by other states. 
Article 304(a) does not import the concept of a countervailing duty. 
283. Article 304(a) does not prevent a reasonable classification. 
The provision comprehends both formal and substantive notions of 
equality. Formal equality would be met when the same rate of tax i.s 
prescribed for goods imported from other states as is levied on goods 
produced and manufactured within. Apart from the rate of tax, other 
significant aspects include procedural
provisions such as licensing and 
registration, the machinery for assessment and set-offs and exemptions. 
Substantive equality recognises the need for the development of 
underdeveloped areas of the country. A balance has to be struck between 
the concerns of both formal and substantive equality. The decisions in 
Video Electronics and Mahavir must be understood in that context. 
284. The expression "any tax" in Article 304(a) does not mean a 
tax which is referable to only one subject of legislation falling under a 
taxing entry in List 11 of the Seventh Schedule. When a legislature 
legislates, the full range of its plenary powers is available to it. ln India, 
the legislatures are not confined to imposing a tax under one entry while 
fonnulating a fiscal law. Hence, Article 304(a) does not fetter the state 
legislatures from ensuring an equality of tax burden between goods that 
are imported from other states and goods manufactured or produced 
within. 
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285. While enacting entry tax legislation referable to Entry 52 of 
List II, it is pennissible for the state legislature to have regard to the 
equalisation of tax burdens between goods imported from other states 
and goods manufactured or produced within. The legislature may have 
regard to the tax burden under value added tax/sales tax law as well as 
entry tax, considered as a composite whole. Whether the scheme of 
exemptions and set offs has achieved an equalisation of tax burdens as 
between goods domestic to a state and those imported from other states 
is an issue to be considered in each case having due regard to the 
provisions of state legislation. 
286. A "local area" for the purposes of Entry 52 of List II is not 
the entire state. Local area postulates an area within a state administered 
by a local body under relevant state legislation. 
ASHOK BHUSHAN, J. 1. Before this Constitution Bench of 
Nine Judges of the Apex Court of this country which have time and 
again, when there arose serious debates and doubts on the Constitutional 
provisions of our country, authoritatively concluded the debates and 
quenched the doubts, a galaxy oflawyers by their illuminating arguments 
engaged the Court for long twenty one days hearing. Now, it is our tum 
to respond. 
2. In preparing my judgment I had advantage of going through 
thoughtful & well reasoned judgment of My Lord the Chief Justice. I 
deeply
regret my inability to share the views ofleamed Chief Justice on 
Question No. I & 4 as framed by us, although I agree with the conclusion 
of His Lordship on Question No. 2 & 3. The views of Dr. Justice D. Y. 
Chandradmd in his scholarly judgment are fairly near my own except 
on few subjects on which I have expressed different opinion. Looking 
to the vital Constitutional issues having a far reaching impact on economic 
unity of the country, I consider it my duty to express my views in my 
own way on all issues raised before us. I begin my task in following 
manner. 
3. This larger Bench has been constituted on a reference made 
by a Constitution Bench of this Court in Jindal Stainless Ltd & another 
Vs. State of Haryana & Other, 2010 (4) SCC 595, expressing doubts 
on correctness of Constitution Bench Judgment in Atiabari Tea Co. 
Ltd, 1961 (1) SCR 809 and 7 Judges Bench Judgment in Automobile
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
677 
[ASHOK BHUSHAN, J.] 
Transport case, 1963 (1) SCR 491, on interpretation of Pait XIII of A 
the Constitution of India. Part Xlll of the Constitution was engrafted by 
framers of the Constitution to attain the goal of economic unity of the 
country. Large number of issues ranging from principles of constitutional 
interpretation, federalism, sovereignty of states, limitation on legislative 
powers of the States, freedom of trade, commerce and intercourse as 
envisaged by Constituent Assembly, to the interpretation of various 
articles of Constitution including Article 301 - 306 contained in Part 
XIII, have arisen before us in this bunch of cases. 
B 
4. For answering the questions which have arisen before us, various 
aspects related to the issues noticed above are to be deliberated with 
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reference to relevant precedents. We have thus identified certain broad 
steps for our discussion before attempting to answer the specific 
questions. 
5. On the above subjects, learned eminent counsel appearing before 
us have thrown different shades oflight to illuminate the topics, which 
we are sure, shall make our task easy to discharge our constitutional 
responsibility of interpreting the Constitution. The Constitution, not only, 
contains the goals and aspirations set by Constituent Assembly for our 
country, but it is also a guiding star for the future generations to attain 
the highest standards of social, political, economic and
individual life. 
We have divided our discussion into parts which are; firstly, the facts 
leading to this reference. Secondly, two Constitution Bench judgments 
in Atiabari Tea Company and Automobile Transport. Thirdly, 
submissions made before us by learned counsel appearing for various 
parties. Fourthly, the discussion on the subjects relevant on questions 
falling for our considerations. Fifthly, our conclusions, and sixthly, our 
answers. Fourth part contains following subjects:-
A. LEGISLATIVE HISTORY AND DEBATES IN 
CONSTITUENT ASSEMBLY ON FREEDOM OF 
TRADE, COMMERCE AND INTERCOURSE. 
B. NATURE OF FEDERALISM IN CONSTITUTION OF 
INDIA. 
C. LIMITATIONS ON THE LEGISLATIVE POWER OF 
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THE STATE UNDER THE CONSTITUTION. 
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D. WHETHER PART XIII O.F THE CONSTITUTION 
INCLUDES "TAX LEGISLATION'' AN]) WORD 
"RESTRICTION" USED 
THEREIN 
INCLUDES 
TAX LEGISLATION. 
E. LEGISLATIVE HISTORY AND CONSTITUENT 
ASSEMBLY DEBATES RELATING TO ARTICLE 
304(a) AND ARTICLE 304(b). 
F. INTERPRETATION, SCOPE AND AMBIT OF ARTICLE 
304(a) AND ARTICLE 304(b). 
G. ENTRY 52, LIST II OF VIITH SCHEDULE. 
H. MEANING OF RESTRICTION AS USED IN PART XIII. 
I. WHETHER DIRECT AND IMMEDIATE EFFECT TEST 
AS LAID DOWN IN ATIABARI & APPROVED IN 
A UTOMOB/LE TRANSPORT IS NO LONGER A 
CORRECT TEST. 
J. COMPENSATORY TAX THEORY. 
PART I 
FACTS ANn EVENTS LEADING TO REFERENCE TO THIS 
NINE .JUDGES BENCH 
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6. For fully appreciating the issues and questions raised in this 
batch of cases, certain facts and events preceding the Reference to this 
larger Bench need to be noted. The challenges to various State 
Legislations were laid before different High Courts on various grounds 
including the ground that levy of Entry Tax violates the freedom of trade, 
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commerce and intercourse as guaranteed by Article 30 I of the 
Constitution oflndia and Legislations are not saved under Article 304. 
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7. One of the State Legislations, namely, Haryana Local Area 
Development Tax Act, 2000 came to be challenged before Punjab and 
Haryana High Court. The High Court by its judgment dated 21.12.200 l
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
679 
[ASHOK BHUSHAN, J.] 
upheld the validity of the Act which judgment came to be challenged in 
A 
Civil Appeal No.3453 of2002 with connected matters; Jindal Stainless 
Ltd. &Am: vs. StateofHaryana & Ors. In the above appeals, appellants 
were Industries or Association oflndustries manufacturing their products 
within the State of Haryana. T\le raw materials for their respective 
products were brought from outside the State. The above 2000 Act was 
enacted to provide for levy and collection of tax on the entry of goods 
into the local area of the State of Haryana for consumption and use 
therein and matters incidental thereto and connected thereto. One of the 
grounds of challenge was that 2000 Act is violative of Article 301 and 
B 
not saved under Article 304. The Pubjab and Haryana High Court repelled 
the challenge holding that Entry Tax being compensatory in nature is 
outside the purview of Article 301 as has been held by the Constitution 
Bench judgment in Atiabari Tea Co. Ltd. vs.The State of Assam& 
Ors., (1961) 1 SCR 809, and larger Bench judgment of Seven Judges 
in Automobile Transport (Rajasthan) Ltd. vs. The State of Rajasthan 
and Ors., (1963) 1 SCR 491. 
8. In Atiabari Tea Co.Ltd.(supra) the Assam Taxation( on goods 
carried by Roads and Inland Waterways) Act, 1954 was challenged. 
The Assam High Court upheld the validity of that Act against which the 
matter was taken to this Court, the appellant contended that
Act violated 
the freedom of trade and it was without previous President's Sanction 
as required by A11icle 304(b ). The majority rejected the argument raised 
on behalf of the State that Tax Laws are outside Part XIII. It was held 
that the Tax Laws can and do amount to restriction freedom from which 
is guaranteed to trade under Part Xlll. It was held that a rational and 
workable test to be applied for finding out is; whether the impugned 
restrictions operate directly and immediately on trade or its movement. 
9. The above decision of the Constitution Bench came for 
consideration before larger Bench in Automobile Transport (supra). 
ln which case Rajasthan Motor Vehicles Taxation Act, 1951 came to be 
challenged on the ground that it violates Article 301. The Rajasthan High 
Court has upheld the validity of that Act. The larger Bench in the 
Automobile Tramport case by majority approved the ratio of Atiabari 
Tea Co.Ltd. Subject to an exception which was judicially crafted that 
compensatory taxes are not hindrance to any body's freedom. It was 
held that regulatory measures or measures imposing compensatory taxes 
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for the use of trading facilities do not come within the purview of the 
restrictions contained inArticle 301 and such measures need not comply 
with the requirement of the proviso to Article 304(b ). 
10. It was further held that a working test for deciding whether a 
tax is compensatory or not is to enquire whether the traders people are 
having the use of certain facilities for the better conduct of their business 
and paying not much more than what is required for providing the 
facilities. 
11. The above two judgments, around which discussion before us 
has centered shall be noted hereinafter in some detail including the views 
expressed by the majority and minority. 
12. What is compensatory tax came for consideration by this Court 
in the context of M.P. Sthaniya Kshetra Me Mal Ke Pravesh Par Kar 
Adhiniyam, 1976 in Mis. Bhagatram Rajeevkumar vs. Commissioner 
of Sales Tax, M.P. and others, (1995) Supp.(1) SCC 673. The Three 
Judge Bench in the above case held. that the concept of compensatory 
nature of tax has been widened and if there is substantial or even some 
link between the tax and the facilities extended to such dealers directly 
or indirectly the levy cannot be impugned as invalid. The above Three 
Judge Bench judgment was followed by a Two Judge Bench in State of 
Bihar and others vs. Bihar Chamber of Commerce and others, 
(1996) 9 SCC 136, which was in the context ofBihar (Tax on Entry of
Goods into Local Areas for Consumption, Use or Sale Therein) Act, 
1993. Two Judge Bench reiterated the position that "some connection" 
between the tax and the trading facilities is sufficient to mention it as 
compensatory tax. 
13. Now reverting back to Jindal Stripe Ltd.and another vs. 
State of Hayana and others, (2003) 8 SCC 60, before the Two Judge 
Bench of this Court, submissions on behalf of State ofHaryana that tax 
is compensatory in nature and submissions by the appellant that the Act 
violates Article 301 was noted. The Two Judge Bench also referred to 
G Aitabari Tea Co. Ltd. And Automobile Transport (Rajasthan) Ltd. 
and noted the working test for finding out a compensatory tax as laid 
down in Automobile Transport. Two Judge Bench expressed its doubt 
regarding the correctness of tests laid down by Bhagatram 
Rajeevkumar and Bihar Chamber of Commerce to find out whether 
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JINDAL STAINLESS LTD. v. STATE OF HARYANA 
681 
[ASHOK BHUSHAN, J.] 
the tax is compensatory or not. Two Judge Bench expressed its doubt 
A 
and observed that interpretation of Article 301 vis-a-vis compensatory 
tax need to be laid down by a Constitution Bench. Following was laid 
down in paragraph 26 and 27: 
"26.The decisions in Bhagat Ram and Bihar Chamber 
of Commerce now say that even if the purpose of 
imposition of the tax is not merezv to confer a special 
advantage on the traders but to benefit the public in 
general including the traders, that levy can still he 
considered to he compensatory. According to this view, 
an indirect or incidental benefit to traders by reason of 
stepping up the developmental activities in various local 
areas of the State can he legitimate~v brought within 
the concept of compensatory tax, the nexus between 
the tax known as compensatory tax and the trading 
facilities not being necessarily either direct or specific. 
27.Since the concept of compensatory tax has been 
judicialzv evolved as an exception to the provisions of 
Article 301 and as the parameters of this judicial 
concept are blurred particularly by reason of the 
decisions in Bhagat Ram(rnpra) and Bihar Chamber 
of Commerce(supra), we are of the view that the 
interpretation of Article 301 vis-a-vis compensatory tax 
should be authoritatively laid down with certitude by 
the Constitution Bench under Articlel45(3)." 
14. Consequent to Reference made to the Constitution
Bench in 
Jindal Stripe Ltd.(supra), a Five Judges Bench answered the Reference 
by its judgment dated 13 'h April, 2006 reported in Jindal Stainless Ltd. (2) 
and another vs. State of Haryana and others, (2006) 7 SCC 241, 
the Constitution Bench overruled judgments of Bhagatram Rajeev 
kumar and Bihar Chamber of Commerce and recorded their views 
in paragraph 52-53 to the following effect: 
"52. In our opinion, the doubt expressed by the 
referring Bench about the correctness of the decision 
in Bhagatram's case.followed by the judgment in the 
case of Bihar Chamber of Commerce was well-
.founded. 
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53. We reiterate that the doctrine of "direct and 
immediate effect" of the impugned law on trade and 
commerce under Article 301 as propounded in Atiabari 
Tea Co. Ltd. v. State of Assam and the working test 
enunciated in Automobile Transport (Rajasthan) Ltd. 
v. State of Rajasthan for deciding whether a tax is 
compensatory or not vide para 19 of the report, will 
continue to apply and the test of "some connection" 
indicated in para 8 of the judgment in Bhagatram 
Rajeevkumar v. Commiss.ioner of Sales Tax, M.P. and 
followed in the case of State of Bihar v. Bihar Chamber 
of Commerce, is, in our opinion, not good law. 
According(v, the constitutional validity of various local 
enactments which are the subject matters of pending 
appeals, special leave petitions and writ petitions will 
now he listed.for heing disposed of in the light of this 
judgment." 
' 
15. After judgment of the Constitution Bench all the matters 
including the matters of Jindal were again listed before a Two Judge 
Bench. Two Judge Bench noticed that basic issues revolve around the 
concept of compensatory tax and the High Courts concerned had not 
examined the issues in the proper perspective as they were bound by 
the judgments of Bhagatram Rajeevkumar and Bi/tar Chamber of 
Commerce. Referring to the Constitution Bench judgment in Jindal 
Stainless Ltd.(2) (supra) this Court in Jindal Stainless Ltd.(3) and 
another vs. State of
Haryana and others, (2006) 7 SCC 271, 
permitted the parties to place the data in the writ petitions before the 
High Court and the High Courts were requested to decide the aforesaid 
issues within five months. Following was stated in paragraphs 5 & 6: 
"5. Since relevant data do not appear to have heen 
placed he/ore the High Courts, we permit the parties to 
place them in the concerned Writ Petitions within two 
months. The concerned High Courts shall deal with the 
hasic issue as to whether the impugned levy was 
compensatory in nature. The High Courts are requested 
to decide the aforesaid issue within .five months from
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.) 
the date of receipt of our order. The judgment in the 
respective cases shall he placed on record by the 
concerned parties within a month from the date of the 
decision in each case pursuant to our direction. 
"6. Place these matters for further hearing in third 
week of January, 2007." 
16. Different High Courts in consequence to directions by this 
Court in Jindal Stainless Ltd.(3) (supra) decided the matter one or 
other way. Some of the High Courts held the Act, which were under 
challenge, compensatory in nature whereas other High Courts relying 
on the Constitution Bench judgment in Jindal Stainless Ltd.(2), held 
the respective Acts as not compensatory. The judgments of the different 
High Courts consequent to directions in Jindal Stainless Ltd.(3) came 
to be challenged by different assessees and the State before this Court. 
A batch of SLPs came for consideration before Two Judge Bench. Two 
Judge Bench observed that though some of the factors have been 
addressed to by the Constitution Bench in Jindal Stainless (2)(supra) 
whereas certain other constitutional issues are involved. Two Judge 
Bench opined that considering the importance of the issues relating to 
Articles 301 and 304 and Part Xlll of the Constitution, it is necessary to 
refer the matter to a larger Bench in tenns of Article 145(3) of the 
Constitution. In Reference order following was stated in paragraphs 8 
and9: 
"8. The concept of
compensatory tax is judicially 
evolved and in a way provides a balancing factor 
between federal control and State Taxing Board. The 
concept really had its matrix in transportation cases 
and does not apply to general notion of Entry Tax. 
Therefore, considering the importance of the issues 
relating to Articles 301 and 304 and Part XIII of the 
Constitution, we consider it necessary to refer the matter 
to a larger Bench in terms of Article 145(3) of the 
Constitution. 
9. The .following questions are referred for the 
aforesaid purpose: 
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SUPREME COURT REPORTS 
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(1) Whether the State enactments relating to levy of Entry 
Tax have to he tested with reference to hath Clauses (a) 
and (h) of Article 304 of the Constitution for 
determining their validity and whether Clause (a) of 
Article 304 is conjunctive with or separate from Clause 
(h) of Article 304? 
(2) Whether imposition of Entry Tax levied in terms of 
Entry 52 List II of 7th Schedule is violative of 
Article 301 of the Constitution? if the answer is in the 
affirmative whether such levy can he protected if Entry 
Tax is compensatory in character and if the answer to 
the aforesaid question is in the affirmative what are the 
yard~tich to he applied to determine the compensatory 
character of the Entry Tax. 
(3) Whether Entry 52, List II, 7th Schedule of the 
Constitution like other taxing entries in the Schedule, 
merely provides a taxing .field for exercising the power 
to levy and whether collection of Entry tax which 
ordinarizy would he credited to the Consolidated Fund 
of the State being a revenue received by the Government 
of thi' State and would have to be appropriated in 
accordance with law and for the purposes and in the 
manner provided in the Constitution as per 
Article 266 and there is nothing express or explicit in 
Entry 52. List 11, 7th Schedule which would compel the 
State to spend the tax collected within the local area in 
which it was collected? 
(4) Will the principles of quid pro
quo relevant to a fee 
apply in the matter of taxes imposed under Part XIII? 
(5) Whether the Entry Tax may he levied at all where 
the goods meant.for heing sold, used or consumed come 
to rest (standstill) after the movement of the goods 
ceases in the 'local area'? 
(6) Whether the Entry Tax can be termed a tax on the 
movement of good1· when there is no bar to the entry of
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
685 
[ASHOK BHUSHAN, J.] 
good5 at the State harder or when it passes through a 
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local area within which they are not sold, used or 
consumed? 
(7) Whether inte1pretation of Articles 301 to 304 in the 
context of Tax on vehicles (commonly known as 
'transport') cases in A ti a hart '.s case (supra) and 
Automohile Transport :1· case (.mpra) app~y to Entry Tax 
cases and i/so, to what extent. 
(8) Whether the non discriminatory indirect State Tax 
·which is capable of being passed on and has been 
passed on hy traders to the consumers infringes 
Article 301 of the Constitution? 
(9) Whether a tax on goods within the State which directly 
impedes the trade and thus violates Article 301 of the 
Constitution can he saved hy reference to Article 304 of 
the Constitution alone or can he saved hy any other 
Article? 
(10) Whether a levy under Entry 52, List II, even if held 
to be in the nature of a compensatory levy, it must, on 
the principle of equivalence demonstrate that the value 
of the quantifiable benefit is represented hy the costs 
incurred in procuring the facility/services (which costs 
in turn become the basis of re- imbursementlrecompense 
for the provider of the services/facilities) to he provided 
in the concerned 'local area' and whether the entire 
State or a part thereof can he comprehended as local 
area for the purpose of Entry Tax?" 
17. Consequent to the above Reference order dated 18'h 
December, 2008 in
Jaiprakash Associates Limited vs. State of Madhya 
Pradesh and others, (2009) 7 SCC 339, the matter again came to be 
listed before a Constitution Bench of Five Judges. The Constitution Bench 
again heard the entire batch of cases including the appeals against the 
judgment dated 21.12.2001 of the Punjab and Haryana High Court where 
the validity of2000 Act was upheld. The Constitution Bench by its order 
dated April 16, 2010, reported in Jindal Stainless Ltd. and another vs. 
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SUPREME COURT REPORTS 
[2016] IO S.C.R. 
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State of Haryana and others, (2010) 4 SCC 595, decided to make a 
Reference for constituting a suitable larger Bench for reconsideration 
of the judgments of this Court in Atiabari Tea Co. Ltd. and Automobile 
Tranposrt (Rajasthan) Ltd. The Constitution Bench in its order noted 
the following in paragraphs 1, 2 and 3: 
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"]. On l81h December. 2008, when some of the cases 
in the present hatch came for hearing before a Division 
Bench of this Court to which one of us, Kapadia, J., 
was a party, the Division Bench of this Court found 
that some of the High Courts before which the State 
Entry Tax stood challenged had taken the view that 
Clause (a) and Clause (h) of Article 304 of the 
Constitution of India are independent of each other and 
that if the impugned law stood saved under 
Article 304(a) then it need not be tested with reference 
to Clause (b) for determining its validity. 
2. Accordingly, on l 8
1h December, 2008, the Division 
Bench of this Court referred to the Constitution Bench 
I 0 questions, the most important of which being -
whether the State enactments relating to levy of entry 
tax have to be tested with reference to both 
Article 304(a) and Article 304(b) of the Constitution and 
whether Article 304(a) is conjunctive with or separate 
from Article 304(b)? Consequently, the matter stood 
referred to the Constitution Bench of this Court. 
3. Accordingly, on l 6
1h March, 2010, the entire
hatch 
of cases caine for hearing before the Constitution Bench 
in which the lead matter is Jindal Stainless Ltd. and 
Anr. v. State of Haryana and Ors. When the hearing 
commenced before the Constitution Bench, we found 
that the assessees (original petitioners in the High 
Courts) are heavily reZving upon the tests propounded 
by a 5-Judge Bench of this Court in Atiabari Tea Co. 
Ltd. v. The State of Assam and Ors •. which tests subject 
to the clar(fication, stood reiterated in the subsequent
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
687 
[ASHOK BHUSHAN, J.] 
judgment delivered by a larger Bench of this Court in 
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the case of 111e Automobile Tran~port (Rajasthan) Ltd. 
v. The State of Rajasthan and Ors. " 
18. The Constitution Bench was of the view that on a number of B 
aspects a larger Bench of this Court needs to revisit the interpretation of 
Part XIII of the Constitution including the various tests propounded in 
the judgments of the Constitution Bench of this Court in Atiabari Tea 
Co. and Automobile Transport (Rajasthan) Ltd. Some of these aspects 
which need consideration by a larger Bench of this Court were 
enumerated in Paragraphs 11, 12 and 13 & 14 which are relevant, are to 
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the following effect: 
"11. Some of these aspects which need consideration 
by larger Bench of this Court may he briefly enumerated. 
Interplay/interrelationship between Article 304(a) and 
Article 304(h). The sign(ficance of the word "and" 
between Article 304(a) and 304(h). The significance of 
the non obstante clause in Article 304. The balancing 
of.freedom of trade and commerce in Article 301 vis-a-
vis the States' authority to levy taxes under Article 245 
and Article 246 of the Constitution read with the 
appropriate legislative Entries in the Seventh Schedule, 
particularly in the context of movement of trade and 
commerce. 
12. Whether Article 304(a) and Article 304(h) deal 
with different subjects? Whether the impugned taxation 
law to he valid under Article
304(a) must also fu(fil the 
conditions mentioned in Article 304(b}, including 
Presidential assent? Whether the word "restrictions" in 
Article 302 and in Article 304(b) includes tax laws? 
Whether validity of a law impugned as violative of 
Article 301 should be judged only in the light of the test 
of non-discrimination? Does Article 303 circumscribe 
Article 301? Whether "internal goods" would come 
under Article 304(b) and ''external goods" under Article 
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SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
304(a)? Whether "per se test" propounded in Atiabari:~ 
case (rnpra) should or should not be rejected? Whether 
tax simpliciter constitutes a restriction under Part XIII 
of the Constitution? Whether the word "restriction" in 
Article 304(b) includes tax laws? Is taxation justiciable? 
Whether the "working test" laid down in Atiabari makes 
a tax law per se violative of Article 301? Inter-
relationship between Article 19(J)(g) and Article 301 of 
the Constitution? These are some of the questions which 
warrant reconsideration of the judgments in Atiabari 
Tea Co. Ltd and Automobile Transport (Rajasthan) Ltd. 
(supra) by a larger Bench of this Court. 
13. Jn conclusion, we may also mention that though 
the judgments in Atiabari Tea Co. Ltd. and Automobile 
Transport (Rajasthan) Ltd. (supra) came to be delivered 
49 years ago, a doubt was expressed about the tests 
laid down in those two judgments even in the year 1975 
in the case of G.K. Krishnan and Ors. v. State of Tamil 
Nadu and Ors. by Mathew, J., vide para 27, which reads 
as under: 
"2 7. Whether the restrictions visualized by 
Article 304(b) would include the levy of a non-
discriminatory tax is a matter on which there is scope 
for difference of opinion. Article 304(a) prohibits 
only imposition of a discriminatory tax. It is not clear 
from the article that a tax simpliciter can be treated 
as a restriction on the freedom of internal trade.
Article 304(a) is intended to prevent discrimination 
against imported goods by imposing on them tax at 
a higher rate than that borne by goods produced in 
the State. A discriminatory tax against outside 
goods is not a tax simpliciter but is a barrier to trade 
and commerce. Article 304 itse(f makes a distinction 
between tax and restriction. That apart, taxing 
powers of the Union and States are separate and 
mutually exclusive. It is rather strange that power to 
tax given to States, say, for instance, under Entry 54
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
689 
[ASHOK BHUSHAN, J.] 
of List II to pass a law imposing tax on sale of goods 
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should depend upon the goodwill of the Union 
Executive. " 
(emphasis supplied) 
14. For the aforestated reasons, let this batch of cases 
he put before Hon 'hie Chief Justice of India for 
constituting a suitable larger Bench for reconsideration 
of the judgments of this Court in Atiabari Tea Co. and 
Automobile Transport (Rajasthan) Ltd. (rnpra). " 
19. In pursuance of Reference made by the Constitution Bench 
by its order dated 16'h April, 2010 Hon'ble the Chief Justice has 
constituted this Nine Judges Bench to hear the matter. 
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20. Although in paragraphs 11 and 12, as extracted above, certain 
questions were noted by the Constitution Bench, when the hearing began 
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in the present batch of cases this Bench with the assistance of learned 
counsel appearing for the parties have re-framed the questions to be 
considered. Four main issues which have been framed by this Bench 
are as follows: 
I. Can the levy of a non-discriminatory tax per se 
constitute infraction of Article 301 of the Constitution 
of India? 
2. If answer to Question No. I is in the affirmative, can 
a tax which is compensatory in nature also fall foul of 
Article 30I of the Constitution of India. 
3. What are the tests for determining whether the tax or 
levy is compensatory in nature? 
4. Js the Entry Tax levied by the States in the present 
hatch of cases violative of
Article 30I of the Constitution 
and in particular have the impugned State enactments 
relating to Entry Tax to he tested with reference to both 
Articles 304(a) and 304(h) of the Constitution for 
determining their validity? 
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21. With regard to Question No. l nine incidental questions have 
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also been framed which are as follows: 
1. Is levy of taxes an attribute of a sovereign State? 
2. ff the answer to Question No. I is in the affirmative, 
does Article 246 of the Constitution of India recognise 
the sovereign power of States to make laws including 
laws levying taxes on subject matters enumerated in 
Entry JI of 7'h Schedule? 
3. l5 the power to make laws and levy taxes reserved in 
favour of the States under Article 246 read with List-fl 
subject to Part-XllJ of the Constitution? 
4. Jn case answer to Question No.3 is in the negative, 
would any interpretation of provisions of Article 301 of 
the Constitution that makes the power to make laws and 
levy taxes subservient to Article 301 have the effect of 
denuding the States of their sovereign power and 
affecting the federal structure envisaged by the 
Constitution? 
5. ls levy of taxes presumed to he in public interest? 
6. If answer to Question No.5 is in the affirmative, can 
levy of taxes he justified as reasonable restrictions 
imposed in public interest? 
7. If levy of taxes under Article 304(h) were permissible 
onzy with the previous sanction of the President, would 
such levies not come under judicial scrutiny for 
determining whether the levy is reasonable and in public 
interest? 
8. If answer to the Question No. 7 is in the affirmative, 
would it not affect the
separation of powers between 
the legislature on the one hand and the judiciary on 
the other? 
9. In the absence of anything to show that Article 301
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
691 
[ASl-IOK BHUSHAN. J.] 
excludes only such taxes as are compensatory in nature, 
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would the compensatory tax theory not bring about a 
dichotomy that is inconsistent with the language 
employed in Article 301? 
22. Learned counsel for the parties have made their respective 
submissions in reference to the above questions framed by this Bench. 
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PART II 
ATIABARI TEA CO. LTD. 
23. The Constitution Bench of this Court, by majority opinion, 
delivered by P.B. Gajendragadkar J. had considered various aspects of C 
Part Xlll of the Constitution oflndia. especially Article 301. The challenge 
before this Court was to the provisions of Assam Taxation (on goods 
carried by Roads and Inland Waterways) Act, 1954 (hereinafter referred 
to as "the Assam Act. 1954''). Under the Assam Act. 1954, appellants 
who were growers of tea in the West Bengal or in Assam and carried 
out their tea to the market in Calcutta were asked to pay tax on goods in 
their journey in part of territory of Assam. 
24. The appellant had challenged the vires of the Assam Act, 
1954 before the Assam High Court on various grounds including the 
ground that provisions of the Assam Act, 1954 are violative of rights 
given under Article 301 of Constitution oflndia. The Assam High Court 
repelled the challenge by dismissing the writ petition. Three appeals 
were filed on certificate granted by the High Court: two writ petitions 
were directly filed under Article 32,
challenging the vires of the Assam 
Act, 1954. Both the appeals and the writ petitions were heard by the 
Constitution Bench. The majority opinion was expressed by P.B. 
Gajendragadkar J.: B.P. Sinha, C.J. and J.C. Shah, J. delivered separate 
opinions. Before the Constitution Bench, the principal submission which 
was made by the appellants/petitioners was. that Article 30 I of the 
Constitution of India grants the freedom of trade, commerce and 
intercourse throughout the territory of India and the Assam Act, 1954 
levies tax on carrying out the tea throughout the State of Assam, and it 
had the effect of interfering with the above freedom. The respondent 
contended that the Act in pith and substance, a legislature to levy tax on 
certain classes of types of goods carried by road or inland. waterways 
strictly within entry of the State List, the Assam Act, 1954 was not 
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SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
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within the prohibition contained under Article 301 of the Constitution of 
India. One of the submissions pressed before the Constitution Bench 
was that taxing power having been conferred on the State by Article 
245 to 248 read with relevant Entries in List II, Part XIII cannot be held 
to be attracted on the taxing statue. 
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25. P.B. Gajendragadkar J. rejected the arguments that the tax 
laws are outside Part XIII. Following was observed as under:-
" ....... Thus the intrinsic evidence furnished by some of 
the Articles of Part XIII shows that taxing laws are not 
excluded.from the operation of Art.301; which means 
that tax laws can and do amount to restrictions freedom 
from which is guaranteed to trade under the said 
part ..... " 
26. Further, question posed by P.B. Gajendragadkar J. was that 
whether all tax laws attract the provisions of Part XIII? Whether their 
impact on trade or its movement is direct and immediate or indirect and 
remote? Answering the said questions, it was observed as under:-
" ....... Thus considered we think it would be reasonable 
and proper to hold that restrictions freedom from which 
is guaranteed by Article 301, would he such restrictions 
as direc#y and immediately restrict or impede the free 
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flow or movement of trade. Taxes may and do amount 
to restrictions; but it is on~y such taxes as directly and 
immediately restrict trade that would fall within the 
purview of
Article 301. The argument that all taxes 
should he governed by Article 301 ·whether or not their 
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impact on trade is immediate or mediate, direct or remote, 
adopts, in our opinion, an extreme approach which 
cannot be upheld ..... " 
Further, it was observed that:-
......... We are, therefore, satisfied that in determining the 
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JINDAL STAINLESS LTD. v. STATE OF HARYANA 
693 
[ASHOK BHUSHAN, J.] 
limits of the width and amplitude of the freedom 
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guaranteed by Article 30i a rational and workable test 
to apply would be: Does the impugned restriction 
operate directly or immediately on trade or its 
movement? ..... " 
27. After laying down the relevant proposition on interpretation 
of Part Xlll and after applying the said propositions to the Assam Act, 
1954, following was observed in the majority opinion:-
" ...... . it purports to put a restraint in the.form of taxation 
on the movement of trade. and if the movement of trade 
is regarded as an integral part of trade itself. the Act in 
substance puts a restriction on trade itself The effect 
of the Act on the movement of trade is direct and 
immediate; it is not indirect or remote; and so legislation 
under the said Entry must be held to fall directly under 
Article 30i as legislation in respect of trade and 
commerce ... .. . 
28. B.P. Sinha, C.J. in his minority opinion held that freedom 
declared by Article 30 I does not mean freedom of taxation simpliciter 
but it does mean freedom from taxation which has the effect of directly 
impeding the free flow of trade, commerce and intercourse. 
29. Sinha J. also held that iflegislature imposes a tax, which is an 
impediment to the free flow of trade, commerce and intercourse, such 
law assumes character of trade barrier which is contrary to freedom 
granted under Article 301. Following was observed
by Sinha J. 
" ...... if a law is passed by the Legislature imposing a 
tax which in its true nature and effect is meant to impose 
an impediment to the free flow of trade, commerce and 
intercourse, for example, by imposing a high tar!ff wall, 
or by preventing imports into or exports out of a State. 
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such a law is outside the sign(jlcance of taxation, as 
such. but assumes the character of a trade barrier which 
it was the intention of the Constitution- makers to abolish 
by Part XIJJ ... ... " 
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30. Sinha J. upheld the Assam Act, 1954. The third opinion of the 
Constitution Bench was expressed by Shah J. Shah J. held that taxation 
was one of the restrictions from the imposition of which by the guarantee 
of Article 30 I trade, commerce and intercourse was declared free. Shah 
J. expressed his conclusion in following words:-
" ....... On a careful review of the various Articles, in my 
judgment, by Part XIII, restrictions have been imposed 
upon the legislative power granted by Articles 245, 246 
and 248 and the lists in the seventh schedule to the 
Parliament and the Stale Legislatures and those 
restrictions inc/tide burdens (?f the nature of taxation. 
Therefore. the power to tax commercial intercourse 
vested by the legislative fists in the Parliament or the 
State Legislatures, is circumscribed by Part Xlll of the 
Constitution and {f the exercise of that power does not 
conform to the requirements of Part XI!l. it would be 
regarded as invalid ...... " 
31. As noted above, by the majority opinion expressed by 
G~jendragadkar, J. with whom Shah J. concurred, the provisions of Assam 
Act, l 954 were held to be infringing the Article 30 I and since the Bill 
had not received the assent of President
as required under Article 304(b) 
proviso, the Act was declared void. 
The Automobile Transport (Rajasthan) Ltd. 
32. The writ petitions were filed before the Rajasthan High Court 
challenging the demand of payment of tax due on their registered motor 
vehicles under the Rajasthan Motor Vehicles Taxation Act, l 951 
(hereinafter referred to as 'the Act').
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
695 
[ASHOK BHUSHAN, J.] 
33. In the writ petitions, principal contention raised before the 
A 
High Court was that the provision of the Act imposing tax on their motor 
vehicles was unconstitutional and void as they contravened the freedom 
of trade, commerce and intercourse throughoutthe territory oflndia as 
guaranteed by A1ticle 301 of the Constitution oflndia. 
34. The Division Bench of the High Court referred the matter to 
B 
the Full Bench. The Full Bench took the view that taxation under the 
aforesaid Act cannot be said to offend Article 30 I for its effect on trade, 
commerce is only indirect and consequential and it may be regarded 
only as remote. 
35. The matter was taken to this Court and heard by a Constitution 
C 
Bench of five Judges which felt that having regard to the importance of 
the Constitutional issues involved and the views expressed by this Court 
in case "Atiabari Tea Co. Ltd. Vs. The State of Assam and Others" 
reported in (1961) 1 SCR 809, the appeals should be heard by a larger 
Bench. The appeals were consequently placed for hearing before the 
D 
Bench of seven Judges. Three opinions came to be delivered in the 
larger Bench. S.K. Das, J. delivered the judgment for himself, J.L. Kapur, 
J., A.K. Sarkar J. and K. Subba Rao, J. delivered separate opinion 
concurring with the opinion expressed by Das J. 
36. Justice M. Hidayatullah delivered minority judgment on behalf 
of himself and N. Rajagopala
Ayyangar, J., J.R. Mudholkar, J., Dass J. 
and SubbaRao J. Das, J. upheld the provisions of the Act, upholding the 
provisions of the Act as regulatory and compensatory. However, while 
upholding the provisions of the Act, the majority judgment approved the 
earlier Constitution Bench Judgment in Atiabari Tea Co. Ltd (supra) 
with one clarification, in following words: 
"The interpretation which was accepted by the majority 
in the Atiabari Tea Co. case is correct, but subject to 
this clarification. Regulatory measures or measures 
imposing compensatory taxes for the use of trading 
facilities do not come within the purview of the 
restrictions contemplated by Art.301 and such measures 
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need not compZv with the requirements of the proviso to 
Art.304(h) of the Constitution." 
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3 7. Das, J. held that tax for use of a road or for the use of bridge 
is not ba1Tier or burden or deterrent to traders. It was held that such 
taxes are compensatory taxes which do not hinder anybody's freedom. 
Following was observed by Das, J.:-
" ...... The collection of a toll or a tax for the use of a 
road or for the use of a bridge or for the use of an 
aerodrome is no harrier or burden or deterrent to traders 
who, in their absence, may have to take a longer or 
less convenient or more expensive route. Such 
compensatory taxes are no hindrance to anybody s 
freedom so long as they remain reasonable: hut they 
could of course be converted into a hindrance to the 
freedom of trade. If the authorities concerned really 
wanted to hamper anybody '.1· trade, they could easily 
raise the amount of tax or toll to an amount which would 
be prohibitive or deterrent or create other impediments 
which instead offacilitating trade and commerce would 
hamper them. It is here that the contrast, between 
''.freedom" (Article 301) and "restrictions"' (Articles 302 
and 304) clearly appears: that which in reality facilitates 
trade and commerce is not a restriction, and that which 
in reality hampers or burdens trade and commerce is a 
restriction. It is the reality or substance of the matter 
that has to be determined. It
is not possible a priori to 
drqw a dividing line between that which would really 
be a charge for a facili~v provided and that which would 
really he a deterrent to a trade: hut the distinction: !fit 
has to be drawn, is real and clear. For the tax to become 
a prohibited tax it has to he a direct tax the effect of 
which is to hinder the movement part of trade. So long 
as a tax remains compensatory or regulatory it cannot 
operate as a hindrance ..... "
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
697 
(ASHOK BHUSHAN, J.] 
38. Das, J. did not accept the arguments that restrictions in Part A 
Xlll of the Constitution do not apply to taxation laws. 
39. After laying down the relevant test for examining the validity 
of taxing statue, Das J. noted various provision of the Act. It was held 
that Section 4 of the Act makes it clear that tax is imposed on a motor 
vehicle which is to be used in any public place or kept to be used for in 
the State ofRajasthan. What should be the test to enquire as to whether 
a tax is a compensatory or not, following was stated as under:-
" ..... It seems to us that a working test for deciding 
whether a tax is compensatory or not is to enquire 
whether the trades people are having the use of certain 
facilities for the helter conduct of their husiness and 
paying not patently much more than what is required 
for providing the facilities. ft would he impossible to 
judge the compensatory nature of a tax hy a meticulous 
test, and in the nature of things that cannot be done ..... '·' 
40. Ultimately, Das, J. held that the Act does not violate the provision 
of Article 301 and the tax imposed under the Act are compensato1y 
taxes which did not hinder the freedom of trade, commerce and 
intercourse assured by Article 301. Taxes imposed were legal and High 
Court had rightly dismissed the writ petitions. Subba Rao J., agreed with 
the conclusion arrived by Das, J. 
41. It was held, that the arguments
cannot be accepted that law 
of taxation is outside the scope of freedom enshrined under Article 30 I 
of the Constitution. Subba Rao, J. also laid down that the doctrine of 
"direct and immediate effect" is the most important doctrine to find out 
whether there is restriction on the free movement of trade. It was further 
held that compensatory or regulatory tax cannot be treated as restriction. 
42. Hidyatullah, J. also expressed a view that all taxes or taxing 
laws are not outside the reach of Part XIII. It was further held that tax 
is a restriction when it is placed upon a trade directly and immediately. 
But the tax being generally paid by tradesman in common with others, 
cannot be held to be infringing freedom of trade under Article 301. 
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Following observations were made as under:-
" ...... That a tax is a restriction when it is placed upon a 
trade direct~y and immediately may he admitted. But 
there is a difference between a tax which burdens a 
trader in this manner and a tax, which being general, 
is paid hy tradesmen in common with others. The.first is 
a levy from the trade hy reason of its being trade, the 
other is levied from all, and tradesmen pay it because 
every one has to pay it. There is a vital d([ference 
hetween the two, viewed from the angle of freedom of 
trade and commerce. The first is an impost on trade as 
such, and may he said to restrict it; the second may 
burden the trader, but it is not a ''restriction " of the 
trade. To refuse to draw such a distinction would mean 
that there is no taxing ent1y in Lists I and JI which is not 
subject to Articles 301 and 304, however general the 
tax and however non-discriminatory its imposition. To 
bring all the taxes within the reach of Article 301 and 
thus to bring them also within the reach of Article 304 
is to overlook the concept of a Federation, which allows 
freedom of action to the States, subject, however, to the 
needs of the unity of India. Just as unity cannot he 
allowed to he frittered away hy insular action, the 
existence of separate States is not to he sacrificed hy a 
fusion beyond what the Constitution envisages. No 
doubt, Part XIII ensures economic
unity to India and 
combines the federating States into the larger State 
called India. The Constitution also permits independent 
powers of taxation. What the Constitution does not 
permit is that trade, commerce and intercourse should 
be rendered "urifree ". Trade and commerce remain free 
even when general taxes are paid hy tradesmen in 
common with non-tradesmen ...... " 
43. Hidyatullah, J. held that taxes which are imposed by the Act 
by Schedules II, III and IV operates restriction on trade and commerce
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
directly. Hence, the provisions have to be held offending Article 30 I and 
resort to the procedure prescribed by Article 304(b) having not been 
taken, the Act is ultra vires to the Constitution of India. 
PART III 
SUBMISSIONS 
44. The arguments on behalf of the petitioners. who have 
challenged various Entry Tax Legislations, have been led by Shri Harish 
Salve, learned senior counsel. For the petitioners, we have also heard 
several other eminent Senior Advocates and other counsel who have 
additionally made substantial submissions, however, to avoid repetition 
of submissions while referring to the submissions of other counsel we 
have not noted the submissions which have already been covered by 
Shri Harish Salve. 
45. The arguments on behalfofdifferent States have been led by 
Shri P.P. Rao and Shri Rakesh Dwivedi, Senior Advocates. Several other 
counsel have also made submissions, however. to avoid repetition, we 
have noted only those submissions which were not covered by Shri P.P. 
Rao and Shri Rakesh Dwivedi. Shri Mukul Rohatagi, learned Attorney 
General has also made his submissions. 
46. Shri Harish Salve, learned senior counsel leading the 
arguments on behalf of the petitioner made elaborate submissions on 
various aspects of Part XIII of the Constitution of India. Shri Salve 
traced the legislative history of Part XIII of Constitution by referring to 
the Government of India Act 1919 and
Government of India Act, 1935. 
It is submitted by Shri Salve that a Tax commonly known as "Octroi" 
was enforced in 190 l even before the. Government of India Act, 1935. 
47. It is contended that Article 301 of the Constitution of India 
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was originally framed as Draft Article 16 which was included in the 
Chapter of Fundamental Rights which clearly indicates that framers of G 
the Constitution intended to guarantee freedom of trade, commerce and 
intercourse as a fundamental right. He has taken us to the discussion in 
the Constituent Assembly. He submitted that provisions of Article 304 
Sub-clause (b) was thread-ware discussed and the constituent assembly 
consciously decided not to make any change in the scheme as delineated 
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by Article 304 Sub-clause (b) proviso. In our Constitution we avoided 
American pattern which only declared rights, rather our constitution has 
a strict balance between powers granted to Parliament and State to 
frame law. It is contended that there is a clear federal slant in favour of 
Union which is clear from the scheme of the Constitution. 
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48. Shri Salve contended that tax legislations were also 
contemplated to be covered by Part XIII of the Constitution. He submitted 
that textual reading of various articles in Part XIII indicate that framers 
of the Constitution clearly intended that Part XIII shall also operate on 
tax legislation. He contended that had tax legislation was not included in 
Part XIII there was no occasion for specific mention of tax in Article 
304(a) andArticle 306 [as it was before the Constitution (7'11 Amendment) 
Act 1956] of the Constitution oflndia. He, however, contended that the 
freedom from the tax law or any other law was guaranteed under the 
Article 301 only to the extent when the tax legislation or any other law 
impeded trade, commerce and intercourse throughout the territory. He 
submitted that historically there were various tax barriers in different 
independent states prior to enforcement of the Constitution and to remove 
the barriers, the freedom of trade, commerce and intercourse was 
included in Part XIII. 
49. Referring to majority view in Atiabari case (supra)
he 
contended that the tax laws are covered by Part XIII of the Constitution. 
He submitted that above majority view in Atiabari was not doubted by 
subsequent 7 Judges Bench in Automobile Transport (supra). Shri Salve 
however submitted that various statutes regulating trade and commerce 
may not impede trade and commerce like laws pe1taining to traffic rules. 
Taxes, regulatory in nature may not be hit by Article 301. However, it is 
contended that taxes which have effect directly and immediately on the 
trade, commerce and intercourse violates Article 301. He contended 
that Entry Tax under Entry 52 of List II of VII'h Schedule of the 
Constitution is one subject which directly impede Freedom of trade and 
G 
commerce. 
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50. Answering Question No. 1, Shri Salve contends that in a set 
of circumstances non-discriminatory tax may violate Article 301. Shri 
Salve coming to incidental questions contended that taxation is an attribute 
of the sovereignty however differences lie in a case where legislative 
power is limited by Constitution. He contends that source oflegislative
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
power is Article 245 (1) which is "subject to the provisions of the 
Constitution''. It is contended that express constitutional limitation is 
clearly laid down in Article 245 (I), and the legislative powers have to be 
exercised by Parliament or State subject to the provisions of this 
Constitution. Article 246 is division of legislative powers between the 
Parliament and the State which shall always be subject to general limitation 
as contained in Article 245 Sub-article (I). 
51. Answering to subsidiary Question No. 2, Shri Salve submits 
that A1iicle 246 of the Constitution recognizes the sovereign powers of 
the State to make laws including laws levying taxes on such matters 
elaborated in List 11 of Vll'h Schedule. 
52. Answering to subsidiary Question No. 3, he contends that 
powers to make laws and levying of taxes reserved in favour 9f the 
State under A1iicle 246 read with List ll ofVIl'h Schedule are subject to 
Part Xlll of the Constitution. 
53. Replying to the incidental Question 4, he contends that freedom 
guaranteed under Article 301 is a limitation envisaged in the Constitutional 
Scheme and the States are free to legislate as contemplated by Article 
301 and the limitation contained in 304(b) is with larger object to achieve 
the economic unity of the country. There is no question of surrender of 
sovereign power by the State but legislative power can always be limited 
by the express
provision of the Constitution. Referring to provision of 
A1iicle 285 and 286 of the Constitution, Shri Salve contended that those 
are provisions of the Constitution which work as limitation on the legislative 
power of the State. There are various provisions in the Constitution which 
work as limitation on the legislative power of the state and limitation 
envisaged by different provisions of the Constitution being part of the 
Constitutional scheme it cannot be said that States are denuded with 
their sovereign power. 
54. Answering to incidental Question No. 5 and 6 Shri Salve 
contends that taxes are always presumed to be in public interest, but 
however, the levy of taxes are restrictions imposed in public interest is a 
question which has be decided by considering the individual legislation. 
Levy of taxes may or may not be reasonable restrictions. 
55. Answering to incidental Question No. 7, Shri Salve contends 
that under Article 304(b) a State is empowered to legislate imposing 
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reasonable restriction on the freedom of trade and commerce and 
intercourse in the public interest subject to obtaining previous sanction 
of the President. The State thus is free to legislate with one limitation 
that the Bill is to be moved with the previous sanction of the President. 
State autonomy is in no manner affected. The judicial review being a 
basic structure of the Constitution, the Court is fully empowered to 
examine whether a law framed by State complies with Part XIII of the 
Constitution. He submits that there is no question of affecting separation 
of powers merely on the ground that State Legislation can be judicially 
scrutinized regarding compliance of Part XIII of the Constitution. 
56. Answering to the subsidiary Question No. 9, Shri Salve 
contends that Comp6nsatory Tax Theory is not consistent with the 
language implied in Article 301. He submits that Compensatory Ta,\. 
Theory is a theory which has been judicially evolved in A11tomobile 
Transport case (rnpra). However, Compensatory Tax Theory is not 
consistent with the Scheme of Part XIII of the Constitution nor it can be 
said that if a tax is compensatory, it goes beyond the purview of Article 
301. 
57. Shri Salve answering Question Nos.2 and 3 contends that 
tax which is said to be compensatory may also fall foul of Article 301. It 
is contended that compensatory theory has not worked well and it has 
created more problem
than solved. All States ·have picked up 
compensatory theory and have made statements in the statute that Entry 
Tax collected shall be spent for the benefit of the trader. The statutes 
have only made facial compliance. The test as approved by A11tomobile 
Transport that is "direct and immediate effect" has to be applied to find 
out as to whether a particular statute impedes the trade. Compensatory 
tax is mixing of two constitutional concepts namely tax and fee. 
58. Coming to Question No.4, Shri Salve contends that Article 
304(a) is not a source of power of the statute, rather it is one of the 
exceptions carved out to Article 301 where the State can legislate. He 
further submits that Article 304 sub-clause (a) only covers inter-State 
trade and does not cover intra-State trade. The provision of Article 304 
sub-clause (b) proviso was limitation which was consciously put in the 
larger interest by the economic unity of India. The President nonnally 
does not veto any tax proposed by the State under Article 304(b) nor 
any such instances before the Court has come, to come the conclusion
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
703 
[ASHOK BHUSHAN, J.] 
that a State's autonomy in legislation has in any manner affected. Power 
A 
given under Article 304(b) proviso is the power to oversee the restrictions 
put 'by the State viz larger object and purpose. Although Article 304(b) 
uses the words restrictions on the freedom of trade, commerce or 
intercourse, the said restrictions may also include restriction by way of 
taxing statute. He submits that movement of goods from one local area 
B 
of a State to local area of another State does not fall under Article 304( a) 
but it falls under A1ticle 304(b ). 
59. Justice Hidyatullah 's views in Automobile Transport case be 
accepted that tax to be compensatory is not the way out from Article 
301. He further submitted that any tax viz. by its legal structure and 
practical effect may impede the trade and have a immediate and direct 
effect. Shri Salve also posed a question as to whether goods imported 
from other countries entering into a local area are liable to pay Entry 
Tax under legislation covered by Entry 52 List II ? He submits that in 
the above case the Entry Tax, if any, has to be justified under Article 
304(b ). Goods not covered by Article 304(a) should satisfy Article 304(b ). 
The pre-condition pennitting Entry Tax under Article 304(a) is that similar 
goods of that very State have to be taxed first. 
60. Shri Salve in support of his submissions has also placed reliance 
on various judgments of
this Court as well as judgments of the Australian 
High Court, Privy Council and US Supreme Court which shall be referred 
to while considering the submissions in detail. 
61. Shri A.K.Ganguly, learned senior counsel, submitted at very 
outset that reference to this larger bench to reconsider the decisions in 
Atiabari and Automobile is not warranted. 
62. Relying on Constitution Bench judgment in Keshav Mills 
case(Keshav Mills Vs. Commissioner of Income Tax 1965 (2) SCR 
908) he submits that when this court decides questions oflaw which are 
binding under Article 141 on all courts, it must be constant endeavor and 
concern of this court to introduce and maintain an element of certainty 
and continuity. ln the interpretation oflaw in the continuity, he submits 
that review excise is to be undertaken only when earlier decision was 
clearly erroneous. The Constitution Bench in Jindal Stainless 
.Ltd(supra) without any appropriate reason has made a reference for 
constituting a larger bench for reconsideration of the judgment of this 
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Court in Atiabari Tea Co. and Automobile Transport, Rajasthan 
ltd.(supra). 
63. He further submitted that reliance on observation of Mathew 
Jin GK.Krishnan Vs. State of Tamil Nadu 1975 (1) SCC 375 which 
was only an Obiter could not have been basis for making a reference to 
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64. The compensatory theory as evolved by Automobile Transport. 
has worked well and need not be touched. However, he submits that 
there should be broad co-relation between the compensatory tax and 
facilities extended to traders. 
65. Referring to Article 304( a) and 304(b ), Shri Ganguly submits 
that both the above sub-clauses of Article 304 are gateway to go out 
from the clutches of Article 301.Article 304(b) is a federal check and 
has come due to the historical reasons. Sh. Ganguly has also referred to 
'Sarkaria Commission's Report' which rejected the demand of certain 
State for omission of Article 304(b) from the Constitution. He further 
submitted that the procedure on referring to State bills to the President 
as contemplated by Article 304(b) ensures that the obligation oflndia 
that it owes international com1mmity are met. 
66. Shri T.R. Andhyarujina, learned senior counsel submits that 
sub-clauses (a) and (b) of Article 304 are not disjunctive. Hence, even if 
a State law is not discriminatory under Article 304(a), it is still required 
to comply with the requirement of Article 304(b ). 
67. Shri
Andhyarujina submitted that one of the tests to be applied 
for finding out as to whether the tax poses any tariff barrier is that when 
the tax is more than the value of the goods, it is a tariff barrier which is 
hit by Article 301. 
68. Shri S.K. Bagaria, learned senior counsel submits that under 
Article 304(a) tax can be imposed on inter-State trade, whereas when 
goods move from one local area to other local area within a State, tax 
can be covered only under Article 304(b ). He submits that the question 
whether a tax is a tariff barrier or not cannot be decided quantitatively 
but can be decided qualitatively. 
69. Shri Bagaria submits that he appears for Steel Authority of 
India in some cases. He stated that Bhilai is maintained by Steel Authority
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
oflndia and all expenditures for maintaining it and all civic amenities in 
township are being provided by Steel Authority of India. In township in 
Bhilai, there are no facilities being provided by the State. He referred to 
the details of expenditures spent by Steel Authority of India during the 
years 1995-96 to 2008-2009. He submits that the State Government do 
not provide any facility and expenditure currently is more than 200 crores 
every year. He submits that the State not providing municipal/civil 
facilities is not entitled to levy Entry Tax as a tax compensatory in nature. 
70. Shri Arvind P. Datar, learned senior counsel contends that 
the concept of compensatory tax as judicially evolved in Automobile 
Transport has to go. He submits that concept of compensatory tax is 
anomalous, tax being compulsory extraction and all taxes are to be utilized 
for public good. He suggests that proper test is whether there is 
'Appreciable Adverse Effect' on trade and commerce, which can be 
determined by the manner in which trade and commerce was carried 
out before the impugned law and the manner in which it is carried on 
after the impugned enactment. He submits that the restrictions as referred 
to in Part Xlll can be of multiple applications. They can be fiscal, 
environmental, commercial and in the forn1 of labour law. Entry Tax 
cannot be levied on entry of the goods in the State. Referring to the 
word
'and' used in Article 304(a) and 304(b), he submits that 'and' be 
interpreted as joint and several. He submits that a non-discriminatory 
tax which does not violate Article 304(a) may still violate Article 304(b) 
if it has discriminatory procedural provisions. 
71. The ultimate effect on trade and commerce has to be seen 
even if it is not direct and immediate. No State is an Island, law in one 
State has its effect on other States also. The State is not the final Judge 
of restriction which is contained in the statute framed by it. Hence, 
Presidential assent is required. There are various provisions in the 
Constitution like A1ticle 3 lA, 200, 201, 213, 254, 361 and Sixth Schedule 
where Presidential assent is required. In Article 204, 255, 304 and 349 
the Presidential sanction is required. 
72. Mr. V. Laxmikumaran, learned senior counsel, contends 
that free trade, commerce and intercourse means free movement of 
goods, services, persons and capital(investment). Article 304(a) relates 
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to tax on goods and Article 304(b) relates to other taxes and measures. 
Article 304(a) mandates that a state can impose tax on goods imported 
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[2016] IO S.C.R. 
from other states less than or equal to taxes imposed on like-goods 
manufactured or produced in that state. The tax referred to in Article 
304(a) should be read with general exceptions, set-off, credit etc available 
to goods as manufactured or produced in that state. Learned counsel 
has also referred to General Agreement of Tariff and Trade, 194 7 (GATT, 
1947) of which India is a founding member. The whole purpose ofGATT, 
194 7 was to encourage free trade among the GATT members by 
eliminating tariff and non-tariff barriers. Learned counsel further 
submitted that even if a tax levied by the state is non-discriminatory, it 
may impede right guaranteed under Article 301. Learned counsel supports 
his submission by giving an illustration. In a state laptops and I-pads are 
manufactured. A State which wants to encourage the manufacturing of 
laptop has put only 0.5 % tax on laptop but has imposed 50 % tax on I-
pad with an intent to discourage the import of 1-pad. The said state's 
above action may not be violating Article 304(a), however, procedure 
prescribed in Article304(b) has to be applied with. Another example 
where state, although, complies with Article 304(a) but violates Article 
304(b) given by learned counsel is; the State of Maharashtra imposed 
Entry Tax exactly equal to the local taxes but puts conditions: (i) All 
goods to Maharashtra should enter only through Balharshah; (ii) Finished 
goods
manufactured in Maharashtra should have at least 75% local 
content. Learned counsel thus contends that while imposing tax by the 
state both the Articles 304(a) and 304(b) have to be complied with. 
73. Shri Jagdeep Dhankar, learned senior counsel, contends 
that Part Xlll of the Constitution is a basic structure of the Constitution. 
He contends that nothing can be more basic than economic unity of the 
country. Learned senior counsel submitted that compensatory theory 
cannot be supported which shall only lead to right to litigate. Words 
"tax" and "restrictions" are employed in Part Xlll separately. These are 
not interchangeable and there can be no component of tax in the 
restrictions adverted in Part Xlll. He submitted that the Preamble of 
the Constitution is to be relied and looked into while interpreting the 
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constitutional question. 
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7 4. Shri Ravindra Srivastava, learned senior counsel, submitted 
that as a concept compensatory tax cannot be supported. Compensatory 
tax is a misnomer and it was unnecessary. He submitted that taxes 
which have direct and immediate effect are hit by Article 301. Relying
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
707 
[ASHOK BHUSHAN, J.] 
on opinion of Justice Hidayatullah in A11tomobile case, he contended A 
that if a tax is imposed solely on the basis of movement of goods, it is 
violative of Article 301, however, ifit is a common burden it does not 
violate Article 301. Elaborating the concept of tax he submitted that 
there are two concepts for imposition of tax that are (i) "Ability-to-Pay 
Principle" and (ii) "Benefit Principle". He submitted that examination of B 
each legislation I tax legislation is necessary having regard to the 
provisions of a particular Act to arrive at conclusion whether the tax 
amounts to restriction and if so, whether it is saved under Article 304. 
Learned counsel for the petitioner referring to SLP(C) No. 23990 of 
2009 Steel Authority of India Ltd. contends that the quantum of Entry 
Tax varies from 0.5% to 50% which clearly demonstrate that it is an 
impediment in the trade and hit by Article 301. 
c 
75. Shri N. Venkataraman, learned senior counsel, submits that 
Constitution of India is designed in such a way that State's power to 
legislate is restricted in many ways. Legislative power in different entries 
of List II are subject to legislative power of the Union under List I. He 
has referred to power under Entry 54 List II, which is made subject to 
the power of the Union under Entry 92A, List I. 
76. He further submits that Article 254 clarifies State's power of 
taxation. Further, Article 286
sub-clause (3)(a) and (3)(b) restricts the 
State's power of taxation. Similarly, Part Xlll is restriction on the State 
legislative power. Articles 302 to 304 also contain various restrictions on 
the powers of Parliament and the States in making laws. 
77. Referring to the Constitution (One Hundred and Twenty Second 
Amendment)Bill, 2014 he submits that Union and State have reached to 
a conversion where both are entitled to legislate. He has referred to 
Article 246A of the Bill. There is consensus between Union and the 
States to abolish all the taxes including Entry Tax and is now to be 
subsumed in two taxes that is services and goods. The above Bill indicates 
that we have now moved to real economic unity. 
78. Shri Dhruv Agrawal, learned senior counsel, submits that 
freedom of trade, commerce and intercourse is a basic structure of the 
Constitution. Referring to the Preamble of the Constitution learned senior 
counsel submits that the unity and integrity of the Nation is a basic 
feature of the constitutional structure. Part XIII has been inserted in the 
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Constitution to achieve the economic unity of the country. ShriAgrawal 
has also referred to the Constituent Assembly Debates. 
79. Shri Gopal Jain, learned senior counsel appearing for the 
appellants in C.A.No.3453 of2002 submits thatthe Constitutional Scheme 
is a well crafted architecture which must be read holistically. A 
B 
Constitutional provision has to be interpreted from the reading of the 
whole of the Constitution to ensure that overall objectives are achieved. 
80. Shri Dilip Tandon, learned counsel referring to judgment of 
this Court in Automobile Transport contended that the opinion expressed 
by Justice Hidayatullah be accepted. Shri Tandon submitted that he adopts 
C 
the arguments ofShri Harish Salve and Shri Ravindra Srivastava, learned 
senior counsel. 
81. Smt. Suruchi Aggarwal, learned counsel submitted that 
Article 301 is a restriction on the legislative power of the State. Referring 
to Article 304(a) she contends that Article 304(a) is resorted since it is 
D 
presumed that the law would be a restriction under A11icle 301. She 
refe1Ting to provisions of the Haryana Local Area Development Tax 
Act, 2000 contends that manner of collecting Entry Tax violates Article 
286. She submits that liability and pay-ability of Entry Tax is different 
which is nothing but a discrimination. 
E 
82. Shri Tushar Mehta, learned Additional Solicitor General 
appearing on behalf of the Indian Oil Corporation submits
that judgment 
in Automobile Tramport case has held the field since 1964 and need 
not be disturbed. He submits that Entry Tax would invariably impede 
inter-State trade. Hence,they must, therefore, pass the test of clause (a) 
F 
and clause (b) cumulatively. Article 304(a) does not apply to goods 
imported into India and not manufactured or produced in any other State. 
83. Coming to the Entry Tax levied to Indian Oil Corporation, Shri 
Mehta submits that Indian Oil Corporation transports crude oil from its 
own underground pipelines from A to B State. The States are not 
G 
manufacturing crude oil but they are still demanding Entry Tax. The 
States where Indian Oil Corporation has its own refinery have levied the 
Entry Tax. Referring to Mathura refinery situated in the State of U .P., 
. he contends that the State ofU.P. does not produce any crude oil hence, 
H 
Entry Tax cannot be demanded under Article 304(a). Demand of Entry 
Tax is clearly discriminatory. Learned ASG, however, fairly conceded
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
709 
[ASHOK BHUSHAN, J.] 
that there is no pleading to the above effect taken before the High Court 
A 
by the Indian Oil Corporation. He further submits that during the course 
of the submission he will bring on record necessary pleading on behalf 
of the Indian Oil Corporation in the appeal before this Court. 
84. Shri Mukul Rohatgi, learned Attorney General has made 
his submissions. Shri Rohatgi submitted that power to tax in List II is 
Sovereign and Plenary Power which can be curtailed only by express 
provisions of the Constitution oflndia. Part XIII of the Constitution does 
not deal generally with tax except, in so far as, it makes reference under 
Article 304(a). Entire ethos of Part XIII of the Constitution is a 
discrimination and that too a deliberate discrimination. A1ticle 304(a) 
and A1ticle 304(b) are disjunctive. Article 304(a) applies to taxes whereas 
Article 304(b) applies to non-fiscal measures. Taxes are assumed to be 
in public interest and are reasonable. Under sub-clause(b) of Article 
304, President cannot be made super adjudicator. India is a Federation 
and the sovereign power of the State cannot be subjected to an implied 
control. 
85. Shri Rohatgi submitted that federal stmcture is a basic feature 
of our Constitution. Though India is described as a Quasi-Federal or a 
Federation with strong central bias, this does not militate from the fact 
that states are sovereign in the field which is left to
them under the 
Constitution. Shri Rohatgi submitted that Constitution is to be read as a 
whole. Part XIII of the Constitution must be interpreted with reference 
to other parts of the Constitution, including Part Ill of the Constitution, 
Part XII and Article 38 and Article 39 of the Directive Principles of 
State Policy. 
86. Referring to A1ticle 245 and Article 246 learned Attorney 
General submitted that Article 245 is the source of legislative power, 
whereas, Article 246 provides for distribution of legislative functions 
between the Union and the states. He submitted that Article 245 begins 
with the express provision 'subjects to the provisions of this Constitution' 
which phrase has also to be read under A1ticle 246. Learned Attorney 
General submitted that GST Bill having been passed on 3rd August, 2016 
in the Raj ya Sabha, after ratification by the states, the only issue relevant 
in the present batch of cases shall be with regard to Entry Tax as was 
enforced in past. Entry 52 List II providing for Entry Tax shall stand 
deleted after Bill becomes a Law. He submitted that passing of the GST 
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Bill indicates that we have proceeded to economic unity. 
8 7. What is prohibited by Part XIII is pernicious or hostile 
discrimination by or between States. Freedom of trade, commerce and 
intercourse is not absolute as is evident from various provisions of Part 
Xlll of the Constitution. Restrictions on the power of Parliament and 
the State Legislature as referred to in Article 303, is confined to the 
powers under the entries relating to trade and commerce only. The 
restrictions thus do not include tax. Entries relating to tax in List II that 
is Entries 46 to 63 were never contemplated under Article 303. 
88. Part Xlll deals with "Restrictions" and "Taxes" differently. A 
clear dichotomy was intended between taxes on the one hand and 
restrictions on the other hand. Article 302 does not refer to tax, whereas, 
concept of tax is well known to the Constitution and has been used in 
Part XII in several articles. Article 304(b) does not refer to taxes, word 
"Tax" is found in Ai1icle 304(a) which cannot be imported in Article 
304(b ). It is obvious that reference under Article 304(b) is to "restrictions" 
other than tax. Coming to the Compensatory Tax learned Attorney 
General submits that since we are at the fag end of Entry Tax Regime, 
it shall be appropriate to stick with Compensatory Tax Theory. 
89. Shri P. P. Rao, learned senior counsel, has made his 
submissions on behalf of States of Madhya Pradesh
and Andhra Pradesh. 
Shri Rao submits that it is well settled that a Constitution must not be 
construed in any narrow and pedantic sense and the construction which 
is most beneficial to the widest possible amplitude of its power must be 
adopted. He further submits that no entry in the Vll'1' Schedule of the 
Constitution should be so read as to rob the entry of its content. He 
submits that in a federal system of governance, the power to levy tax is 
an inherent attribute of a sovereign function of a State. 
90. Clause( a) and Clause(b) of Article 304 are mutually exclusive. 
Taxes are c0vered in Clause(a) whereas restrictions other than taxes 
are covered in Clause(b ). It is only discriminatory taxes vis-a-vis goods 
G 
of other States and Union Territories which restrict the freedom of trade 
in Article 30 I and all other taxes do not obstruct the said freedom. The 
federal character of the Constitution is a part of the basic structure. The 
power to levy Entry tax under Entry 52 of the State is not subject to any 
restriction. 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
91. The framers of the Constitution never intended that the 
exclusive power of State to levy tax on the entry of goods be subject to 
requirement of obtaining the previous sanction of the President mention 
in proviso of Aiiicle 304(b ). For imposing a tax on goods coming from 
other State, it is not essential that similar goods produced and 
manufactured in the State should be taxed. The only restriction is that 
the tax shall not be discriminatory. Taxes per se are not restrictions. 
Only taxes which suffer from the vice of protectionist discrimination 
·vis-a-vis goods imported from other States and Union Territories interfere 
with the freedom of trade, commerce and intercourse mentioned inArticle 
30 I. The whole scheme of Part XIII is that the discriminatory tax 
interferes with the trade, commerce and intercourse. A Non-
discriminatory tax does not interfere with the freedom of trade, commerce 
and intercourse. 
92. The framers of the Constitution intended minimum inroads in 
power of taxation in the State. Learned Counsel has referred to various 
passages from Atiabari and Automobile Tramport case. Referring to 
observations made by Gajendragadkar J. that "how a tax can be levied 
on internal goods is, however, provided by Article 304(b ) .... ",he submits 
that the above observations cannot be said to laying down a law since 
the issue never arose in the above case. He submits that the above
observations are not the ratio decidendi and do not constitute a 
precedent. Shri Rao further submits that the concept of compensatory 
taxes as laid down in Automobile Transport case is alien to the 
Constitution and is unsustainable. The discrimination which is referred 
to in Article 304(a) is hostile discrimination. 
93. Shri Shyam Divan, learned senior counsel has appeared on 
behalf of the State of Haryana. Shri Divan submitted that the core 
constitutional value of Part XIII of the Constitution is creating an economic 
unity across India. 
94. Article 302 - 305 are in the nature of exceptions to Article 
301. Article 304 being an exception to Article 301 ought to be read, 
narrowly. He gives an example of protectionist barrier i. e. a State 
wants to protect the agriculture of its own State for which, a restriction 
is imposed that all agriculture-based industries shall take raw-materials 
only from within the State. He submitted that this is an example of 'trade 
barrier' by a protectionist measure. Article 304(a) has a limited scope 
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and ambit. 
95. Power both in (a) and (b) can be exercised or either (a) or (b) 
can be exercised or none can be exercised. There is no necessity that 
powerunder 304(a) and 304(b) are to be exercised necessarily together. 
Shri Divan further submitted that there is difference between 
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differentiation and discrimination. 
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Lastly, he contended that in tenns of 2000 Act and 2008 Act, the 
entire tax collected by the State under the respective statute would be 
utilized for the development of trade, commerce and industry in the 
state. 
96. Shri Rakesh Dwivedi, learned senior counsel has advanced 
his submissions on behalf of the States ofOrissa, Bihar, Madhya Pradesh, 
Tamil Nadu and West Bengal. Shri Dwivedi submits that petitioners' 
arguments are that the judgments of this Court in Atiabari and 
Automobile Transport be not revisited. Shri Dwivedi submits that there 
were fundamental errors in both the above decisions. He submits that 
following fundamental errors are, in the above two cases : 
I. (i) Both the cases confined on economic unity as sole factor 
for trade, commerce and intercourse; 
(ii) whereas, a perusal of various provisions of the Constitution 
indicates that economic unity depends on the continuity of 
political unit; and 
(iii) Territory of Union is nothing but States and Union 
Territories. 
II. This Court completely ignored the concept of 'Federalism' 
which has now been accepted as
basic feature of the Constitution after 
judgment of this Court in Kesavanand Bharati's case (supra). 
III. Each of their Lordships in aforesaid cases draw support from 
various Australian and US cases, whereas, there is no comparison of 
Part XIII with Australian and US Constitution. In US, States have no 
power to legislate except law and order, good governance and peace. 
These differences in our Constitution and the Constitutions of Australia 
and US have been completely overlooked.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
713 
[ASHOK BHUSHAN, J.] 
Law as developed in Australia and US i.e. "direct and immediate 
A 
effect" for finding out impediment in the trade has now been given a go 
by both by Australian and US Courts. Both the Courts have moved to a 
"discriminatory" test. 
IV. In both the above cases one does not find any detailed 
consideration of history of Part XIII as emerging from Constituent 
B 
Assembly Debates specifically regarding economic unity. 
V. All the judgments considered history from the point view of 
Section 297 of the Government of India Act, 1935 and they conclude 
that it was all about trade barriers. 
VI. In Part Xlll "subject to the provision of this Part" was read 
as "subject to only the provisions of this Part''. 
VII. This Court in both the above cases did not examine fully the 
nature of taxation. 
(i) Tax is an incident of sovereignty. 
(ii) Tax is necessary for carrying out the welfare activities by 
the State. 
(iii) Tax can neither be imposed by implication 
power can be limited by implication. 
nor 
taxing 
(iv) The tax can only be for a public purpose which has its roots 
in Attic le 265 of the Constitution. 
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( v) Taxing powers of the State and the Union are mutually 
exclusive except to the extent as mentioned in the respective Entries in 
List II and any other provision of Constitution. Even Parliament cannot 
F 
restrict the taxing power of a State flowing from Entries of List II. 
(vi) Atticle
289(2)- Even, a State doing business is not exempted 
from tax. Trade and business never were treated as exempted from tax. 
97. Shri Dwivedi further submits that tax per se is not covered by 
Part Xlll. Tax is not a trade barrier and unless it is discriminatory it shall 
not be treated as a barrier. The right of trade, commerce and intercourse 
cannot be exalted as a basic feature of the Constitution. 
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98. Shri Dwivedi submits that "Free" in Article 301 does not mean 
free from tax. State's power, despite the limited width of its field is 
plenary in nature. Wherever,exemption from taxes were contemplated 
they were expressly provided as under Articles 285, 287,288 and 289. 
Referring to Part III of the Constitution, he submits that Part III does 
not confer freedom from taxation. A.fortiori, Article 301, which is not a 
fundamental right cannot result in conferring a freedom of trade, 
commerce and intercourse from tax. He submits that there are inherent 
limitations on taxation by a State. The imposition of tax is always for 
public purpose and various inherent limitations in taxation operate as 
limitation in taking any discriminatory or any other unreasonable 
measures. Article 302 to 304 are not exceptions or provisos to Article 
301. Coming to Article 304, it is submitted that both clauses (a) and (b) 
of Article 304 are disjunctive and freedom of trade, commerce and 
intercourse is subject to them. The word 'and' nonnally is conjunctive 
but it is often construed as disjunctive where the legislative intent as 
gathered from the words of the provision and the context indicate that it 
was used in the disjunctive sense. Learned counsel elaborating his 
submissions contends that Article 304 relates to inter-State trade which 
is apparent from marginal heading. 
99. He submits that by use of the words "within
that State" 
E 
alongwith "with", it is clearly meant that the words "within that State" 
was used in relation to inter-State trade. He submits that inter-State 
does not come to an end after the entering into the State. It may have 
some effect and operation within the State also. 
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100. Shri Dwivedi further submits that the Presidential Sanction 
as contemplated in Article 304(b) proviso was due to the reason that 
Article 304 is related to inter-State trade and it falls in Entry 42 List I. 
He submits that justification for requirement of obtaining Presidential 
sanction in proviso to Article 304(b) is the restriction which may touch 
the inter-State trade, which is not within the legislative power of the 
State. 
101. Learned counsel further submits that mere excessiveness 
of rate of taxes does not violate Article 14 and 19 as has been held by 
this Court in a large number of cases which principle has also to be 
applied for examining the challenge that high quantum of tax impedes 
the trade.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
102. Shri Dwivedi further submits that in the event submission is 
not accepted that tax is out of Article 301, alternatively tax simpliciter is 
outside the Article 301. He submits that this Court held in large number 
of cases that in the context of Part Ill of the Constitution tax per se 
does not violate the fundamental rights. Tax simplicitor being out of reach 
of Article 30 I only those taxes which substantially destroy\impede the 
Trade can fall foul to Article 301. He contends that framers of the 
Constitution were conscious that freedom of Trade and Commerce, and 
Intercourse does not include freedom from tax. The tax can become a 
barrier if imposed preferentially and discriminately. That is why, they 
separately provided forrestricting the taxing power under Article 304(a). 
He, however, submits that there shall be an onerous burden on the 
petitioner to prove that the tax is an impediment. 
103. Coming to the Australian cases relied by this Court inAtiabari 
Tea Company Ltd and Automobiles, he submits that 'direct and 
immediate effect test' which was propounded in above two cases based 
on earlier cases of Australian High Court, including James Vs. 
Commonwealth (1936) 55 CLR (1), a 7 Judges Bench of High Court 
of Australia in Cole Vs. Whitfield and Another reiterated in (1988)78 
ALR (41) have rejected the 'direct immediate effect test' and has 
preferred to discriminatory test. The 7 Judges
Bench held that the various 
interpretations of Section 92 which have attracted any support over the 
years only the Fiscal Charges Theory and the Anti-Discrimination 
Interpretation have been favoured. 
104. Coming to cases of U.S. Supreme Court, learned counsel 
submits that trend of cases indicates that effort is on shifting the test of 
discrimination. He submits that in the Complete Auto Transit Vs. Charles 
R Brady 430 U.S. 274, it was held that it was not the purpose of 
commerce clause to relieve those engaged in interstate commerce from 
their just share of State tax burden, even though, it increases the cost of 
doing business. 
105. Coming to Entry 52 List II, learned counsel contends that, 
even if, we apply the Test laid down in the Automobile, the goods coming 
from other states come to repose in a local area and the Entry Tax is not 
tax on border or a tax on movement of goods. The legislative scheme of 
different states for which he appears indicates that no tax is collected at 
border and only a transit pass is given and the Entry Tax is to be paid 
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based on self-assessment. Article 304(a) protects this type of Entry Tax. 
106. Shri Dinesh Dwivedi, learned senior counsel has made his 
submissions on behalf of the State ofU. P. Shri Dwivedi, answering the 
Question No. I submits that levy of Non-Discriminatory Tax per se 
does not constitute infraction of Article 301. He further submits that the 
B 
question regarding the Compensatory Tax need not be answered since 
compensatory nature of tax is outside the Constitutional Scheme and 
has to be struck down. Learned counsel submits that the Constitution is 
a living organism and ea_ch part of it throws light on other part of the 
Constitution. Every part of the Constitution has to be looked into and no 
c part has to be interpreted de horse the other provisions of the Constitution. 
107. Shri V.Giri, learned senior counsel has appeared on behalf 
of the State ofKerala. He submits that 383 Appeals have been filed by 
the State ofKerala against the Judgment ofKerala High Court striking 
down the Kerala Tax On Entry Of Goods Into Local Areas Act, 1994. 
D 
He submits that the High Court has struck down the Act on the ground 
that tax imposed is not Compensatory and it violates Article 301 of the 
Constitution. 
108. Shri Giri submits that at the time of payment of Sales Tax, 
the credit of Entry Tax is to be given. He submits that with regard to 
E 
goods produced and manufactured within the State and manufactured 
from outside
the State the tax burden is almost similar and tax being 
non-discriminatory does not fail foul to Article 301. 
109. Shri Ajit Kumar Sinha, learned senior counsel has made 
his submissions on behalf of State of Jharkhand. Shri Sinha submits that 
F 
the Bihar Entry Tax Act, 1993, as enacted by State ofBiharwas adopted 
by State of Jharkhand after reorganization of the State in the year 2000. 
llO. He submits that although Patna High Court upheld the Act 
1993 but Jharkhand High Court has struck down the enactment. One of 
the grounds taken by Jharkhand is that for amendments made by the 
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State of Jharkhand in the 1993 Act, no Presidential Sanction was obtained. 
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He submits that for carrying out the amendments, no Presidential sanction 
was required. 
111. Shri J ugal Kishore Gilda, learned Advocate General of 
the State of .Chhattisgarh has addressed his submissions on behalf of
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
717 
[ASHOK BHUSHAN, J.] 
State of Chhattisgarh. Learned Advocate General has at the very outset 
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stated that he adopts the submission made by Sh. P.P.Rao and Shri Rakesh 
Dwiwedi. 
112. Shri Dev Dutt Karnath, learned Additional Advocate 
General has raised submissions on behalf of State of Karnataka. He 
submits that Constitution validity of Karnataka(Tax on entry of goods) 
B 
Act 1979 has already been upheld by this Court in 'State of Karnataka 
Vs. Hansa Corporation' 1980 (4) SCC 697. 
113. He submits that in fact in three Civil Appeals being Civil 
Appeal No. 4476 of 2000, SLP(Civil) No. 16786-16788 of 2009 and 
SLP(Civil) No. 12789 of2009, the questions referred to this larger Bench 
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do not arise and he adopts the submissions made by Sh. P.P.Rao and Sh. 
Rakesh Dwiwedi. 
114. Shri Saurabh Shyam Shamshery, learned Additional 
Advocate General has appeared for the State of Rajasthan. He submits 
that Rajasthan Tax on Entry Of Goods Into Local Areas Act, 1999 had 
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been upheld against which Special Leave Petition had been filed by 
Assesses in the year 2001. Subsequently, after the judgment of this Comi 
in Jindal Stainless Steel (2) division Bench dated 21" August, 2007, 
declared Act 1999 as 'ultra vi res· to Article 301 against which judgment 
the appeal has been filed by the State which is pending. 
E 
115. Shri Harish Salve, learned senior counsel in rejoinder to the 
submissions made by learned Attorney General,
learned counsel appearing 
for different States and other parties, contends that submission that taxing 
power is some sort of sovereignty, is not a correct preposition. 
116. The earlier view that tax is out of Part Ill has been reversed. 
F 
When it is said that Part Xlll includes tax no one is asking to emasculate 
State's sovereignty. What is prohibited by Part Xlll is the impediment to 
trade and commerce, 'direct and immediate'. The sanction of President, 
as contemplated in Article 304(b) does not mean that such sanction 
affects the sovereignty of the State. The proviso to 304(b) operates in a 
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very narrow field. 
117. Shri Salve fmiher contends that Sinha, J developed Tariff 
Wall The01y, as impediment of trade since he was of the opinion that 
taxing legislation can not be challenged under Part UL Shri Salve referring 
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[2016] 10 S.C.R. 
to judgment of this Court in K. K. Kochuni and Others Vs. State of 
Madras and Others, (1960) 3 S.C.R. 887 and K. T. Moopil Nair Vs. 
State of Kera/a and Others(J961) 3 S.C.R. 77, and few subsequent 
cases contends that taxing statute can very well be challenged on the 
ground of violating provisions of Part III of the Constitution. He submits 
that when taxing statute can be challenged under Part III, there is no 
inhibition from entertaining the challenge to a taxing statute for violation 
of Part XllI. 
118. Shri Salve to point out difference between challenge under 
Article 19 and Article 301, gives an example. An oil company carrying 
out trade in entire country is faced with an exorbitant rate of Entry Tax 
in one State, the company cannot contend that freedom to carry out its 
profession as guaranteed under Article 19(l)(g) have been affected. 
Whereas a trader carrying on business in that State may be affected by 
an exorbitant tax and can contend that the exorbitant tax impedes the 
trade under Article 301. 
119. Shri Salve submits that entry tax legislations of different 
States in the country can be characterized in different groups. He submits 
that one group of the legislations which consists of States ofTamil Nadu, 
Andhra Pradesh, Kerala is the legislation in which Entry Tax is imposed 
only on the goods which are imported from different State and no tax is 
imposed on locally
produced/manufactured goods which is clearly 
discriminatory and violative of Article 304(a). He submits that second 
category oflegislation consists of cases where in the enactment facially 
Entry Tax is imposed on the goods i.e. goods coming from out of State 
and local goods, but legislation contains a devise by which there is set-
off\exemptions to the local goods which result in non-imposition of Entry 
Tax on the local goods, leading to another kind of discrimination which 
also violates Article 304(a). In the second category, State of Assam, 
Bihar, Jharkhand and few other States are included. There is third 
category of legislation where discrimination is practiced in several 
G manners, for example, manufacturers are given set-off of Entry Tax on 
raw-materials like State ofOrissa and Madhya Pradesh. There is fourth 
category oflegislation where Entry Tax is imposed by creating a special 
area like State of Chhattisgarh. , 
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120. Shri Salve contends that the submission raised on behalf of 
the States that question of discrimination under Article 304(a) is to be
JINDAL STAlNLESS LTD. v. STATE OF HARYANA 
719 
[ASHOK BHUSHAN, J.] 
decided based upon the totality of burden of taxes and not the impact of A 
a particular tax, is contrary to the plain language of A1iicle 304(a) and 
would defeat the underlying object of Part XIII of the Constitution. Shri 
Salve futiher submits that Atiicle 304(a) has two parts. Under first pati 
of the Act 'State by law may impose on goods imported from other 
States, any tax to which similar goods manufactured or produced in that 
State are subject.' He submits that the second part provides for non-
discrimination, which is indicated by words 'as not to discriminate'. 
B 
12 l. Lastly, Shri Salve replying to the submission of unjust 
enrichment contends that presumption that tax has been passed on is a 
rebutable presumption and whether tax has been passed or not is a 
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question of fact and has to be considered by assessing authorities. He 
has also referred to judgment of this Court re po tied in (2005) 2 SCC 
215 Godfrey Phillips lndia Ltd Vs·. State of U.P. With regard to capital 
goods he contends that there cannot be passing on of any tax. 
122. Shri A. K. Ganguly, learned senior counsel, making his 
submission in rejoinder contends that Constitutional histo1yand Debates 
of the Constituent Assembly clearly indicates that Pati XIII of the 
Constitution contemplated taxation to be a 'restriction' on the freedom 
D 
of trade, commerce and intercourse and restrictions were permitted 
only to a
limited exemption in the form of Article 302-306. Coming to 
Entry 52 list II, Shri A. K. Ganguly submits that contemplated entry of E 
goods into a local area, the framers of the Constitution were well aware 
of the State boundaries and did not deliberately choose entry into a State 
boundary. Entry 52 does not contemplate State as a unit. Incidence of 
levy is different from provisions relating to machinery to collect Entry 
Tax. Coming to Article 304(a), Shri Ganguly submits that provisions 
contemplate fulfillment of two conditions i.e. similar goods manufactured 
and produced in the State are subject to tax and further non-discriminatory 
taxes between the imported goods and the local goods. He further 
contends that other varieties of taxes not covered under 304(a) shall fall 
in 304(b). 
123. Shri S. K. Bagaria, Shri Arvind P. Datar, Sri Ravindra 
Srivastava, Sri B. Laxmikumaran and Shri N. Venkataraman have also 
made their submissions in rejoinder. 
124. Shri S. K. Bagaria, learned senior counsel, in his rejoinder 
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submits that Article 304(a) has two conditions. He further submits that 
Entry 92(a) and 92(b) of List II cover the entire interstate trade and all 
facets of interstate movement. 
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125. Shri Arvind P. Datar, learned senior counsel, in his 
submissions reiterated that tax laws per se are not outside the purview 
of Part XIII. He further contends that Article 304(b) includes taxation. 
He submits that Article 304(a) refers to goods alone whereas taxes can 
be levied on persons, activities and things also. Article 304(a) shall not 
cover other parts of the taxes which necessarily has to go under Article 
304(b). Entry Tax only on the goods imported from outside States and 
not levying them on entry into local areas from within the State is not 
pern1issible. Such taxes are violative of Entry 52 List II which permits 
Entry Tax only on entry into "local areas". Article 304(b) could also 
include taxes when rate of tax is same but there were other features 
which are restrictions. High rate of tax may not militate Article 19( 1 )(g) 
but it may violate Article 304(b ). He submits that the question of tax 
barrier, as propounded in Atiabari has to be left to case to case. 
Restrictions contemplated under Part XIII can both be fiscal and non-
fiscal. As on date 42 per cent of taxes of Union go to the State. 
126. Coming to Video Electronics, learned counsel submits that 
if the object of a State is economic
development, the State cannot levy 
different taxes with regard to imported goods and local goods, the State 
is free to give subsidies, and other assistance to any kind of industry but 
providing for discriminatory taxes in the name of economic development 
is in the teeth of Article 304(a). Any discrimination between local goods 
and imported goods is per se hostile. Coming to question of unjust 
enrichment, learned counsel submits that the issue has to be left to be 
considered by the assessing authorities. He submits that the States have 
different laws and facts which in each case are different and have to be 
examined for applying the theory ofunjust enrichment. Learned counsel 
submits that in the event of this Court overrulingAtiabari and Automobile 
today, overruling of the judgments has to be prospective so that position 
regarding tax settled already be not disturbed. Learned counsel has also 
referred to certain interim orders passed by this Court wherein it was 
specifically mentioned that State shall not be entitled to press unjust 
enrichment. He submits that any amount deposited under the Court's 
order is not an unjust enrichment.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
721 
[ASHOK BHUSHAN, J.] 
127. Shri B. Laxmikumaran, learned senior counsel in his 
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rejoinder reiterates that tax per se is covered under Article 30 I. Referring 
to Article 304(a), learned counsel submits that same tax is to be levied 
when the goods enter into the local areas from the other States and the 
local goods within the States. Equalising the total quantum of the Entry 
Tax levied on imported goods and some other local taxes within the 
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States which is not in the nature of Entry Tax, is not permissible. Various 
parameters are to be looked into for the purposes of understanding 
discrimination. He further contends that Article 304(b) can cover tax 
law in addition to other law. 
128. Shri N. Venkataraman,learned senior counsel in his rejoinder 
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contends that legislative powers of both the Union and the States are 
subject to the provisions of the Constitution including limits thereupon 
and enacted therein. 
129. In the end, we have again heard Shri P. P. Rao and Shri 
Rakesh Dwivedi in reply to some additional submissions made in rejoinder. 
0 
PART IV 
A. 
LEGISLATIVE 
HISTORY 
AND 
DEBATES 
IN 
CONSTITUENT ASSEMBLY ON FREEDOM OF TRADE, 
COMMERCE AND INTRECOURSE 
130. The discussion on the above subject needs to be focused on 
following three aspects, namely: 
a. Legislative history of freedom of trade, 
b. Freedom of trade as it emerges from the debates in the 
Constituent Assembly, 
c. Tax, whether was
treated as 'restriction' on the freedom of 
trade by Constituent Assembly. 
131. During the British Rule, by the end of 19'" Century efforts 
for drafting a Constitution for India had begun. Under the inspiration of 
Shri Bal GangadharTilak, the Swaraj Bill. 1885 was the first non-official 
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attempt of drafting the Constitution. The dominion status as achieved 
by Australia and passing of Australian Constitution Act 1900 was noticed 
by those associated with National Movement. Indian leaders including 
Members and Ex-Members of Central and Provincial Legislature had 
framed a Bill, namely, 'Commonwealth oflndia Bill, 1925' which was 
read in House of Commons in December, 1925, contained a clause on 
freedom of trade to the following effect: 
"25. Trade, commerce and intercourse among the 
provinces shall be free, and there shall be no preference 
given to any province or provinces. " 
132. In the British India, freedom of trade was in practice with no 
internal provincial duties or other trade barriers whereas in the Indian 
States internal custom and other trade barriers were there. The above 
practice took statutory forn1 in Section 297 of Government of India Act, 
1935 which prohibited provincial Government from imposing barriers on 
trade within country. Section 297 reads as under: 
"297. "(I) No Provincial Legislature or Government 
shall -
(a) by virtue of the entry in the Provincial Legislative 
List relating to trade and commerce within the Province, 
or the entry in that list relating to the production, 
supp~y. and distribution of commodities, have power to 
pass any law or take any executive action prohibiting 
or restricting the entry into, or exportfrom, the Province 
of goods of
any class or description; or 
(h) hy virtue of anything in this Act have power to impose 
any tax, cess, toll, or due which. as between goods 
manufactured or produced in the Province and similar 
goods not so manufactured or produced, 
discriminates in favour of the former, or which, in the 
case of goods manufactured or produced outside the 
Province, discriminates between good~ mam(factured 
or produced in one locality and similar goods
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
723 
[ASHOK BHUSHAN, J.] 
manl!factured or produced in another locality. 
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(2) Any law passed in contraverrtion of this section shall. 
to the extent of the contravention, he invalid. " 
133. Declaration of Cabinet Mission Plan on May 16, 1946 by 
British Prime Minister was to ensure that India attains freedom and 
. decide as to what form of Government is to replace the existing regime. 
The Cabinet Mission Plan laid foundation for Constitution, functioning 
and procedure of Constituent Assembly. 
134. The Constituent Assembly was well aware of the Constitution 
B 
of Australia, USA and other Constitutions of world. On the freedom of C 
trade the Constituent Assembly preferred the Australian model from 
Sections 92 and 99 of the Australian Constitution, which were to the 
following effect: 
"92. Trade within the Commonwealth to be free 
On the imposition of un(form duties of customs, trade, 
commerce, and intercourse among the States, whether 
by means of internal carriage or ocean navigation, shall 
he absolutely free .... " 
"99. Commonwealth not to give preference 
The Commonwealth shall not, by ai~y law or regulation 
of trade, commerce, or revenue, give preference to 
one State or any part thereof over another State or 
any part thereof " 
135. The Privy Council in James vs. Commonwealth of 
Australia, (1936) AC 578, had occasion to consider the freedom of 
trade as granted under Section 92 of the Constitution of the
Australia. 
Following was stated by the Privy Council: 
"Thus reference may he made to the sections dealing in 
the mid~t of which s.92 is placed. It is well known that 
one of the objects which the.federation sought to achieve 
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was the abolition of restrictions on trade between the 
Colonies, and of the diversity in the different States of 
tar!ff~ and border regulations; this was described as 
"the old inter-colonial trade war. " 
136. Section 92 was interpreted as to mean "free trade means,in 
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ordinary parlance freedom from tariffs". 
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Professor David P. Derham, of Melbourne University dealing on 
the subject; "Some Constitutional problems arising under Part Xlll of 
the Indian Constitution" has expressed his views on Section 92 of the 
Australian Constitution in following manner: 
"Jn its Australian origins there is no doubt whatever 
that freedom of trade, commerce and intercourse means 
at least.freedom.from taxation. One of the 
main 
motives of the federal movement in Australia was the 
desire to do away with what had become knowii as 
"border barbarism "-the operation of customs harriers 
on the State borders. Section 92 of the Australian 
Constitution was one of the provisions drawn to achieve 
this purpose, to ensure the economic unity of Australia, 
to prevent the continuance of competing State fiscal 
.1ystems. " 
13 7. The framers of the lndian Constitution although took inspiration 
from Section 92 above, but even at initial stages the freedom of trade 
was contemplated with restriction and with pennission to levy only certain 
taxes. The Sub-Committee on fundamental rights submitted a report 
dated 16.04.1947 to the
Advisory C01mnittee in Para 6 of which following 
was stated: 
"6. 
We are of the opinion that every citizen is entitled 
to free trade, commerce and intercourse within the 
territories of the Union unburdened by any internal 
duties or taxes of customs. At the same time, we realise 
that many Indian States depend upon such duties and
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
taxes for a considerahle part of their revenue and 
cannot do without it all at once. Similar difficulties have 
arisen in the framing of the constitutions of other 
countries and unless there is a scheme for a smooth 
transition to free trade in the Union friction will 
inevitab(v arise. Some agreement will therefore have to 
he made with those States in the light of their existing 
rights with a view to their ultimate elimination within a 
period to be prescribed hy the Constitution. Thereafter, 
there will he untrammeled free trade within the Union." 
138 .. The Advisory Committee considered the report of the sub-
committee on fundamental rights. Shri Sardar Vallabhbhai Patel, 
Chainnan Advisory Committee sent report dated 23'a April, 194 7 to the 
Constituent Assembly, in paragraph 5 of which following was stated: 
"5. Clause JO deals with the freedom, throughout the 
Union, of trade, commerce and intercourse hetween the 
citizens. Jn dealing with this clause we have taken into 
accoum the fact that several Indian States depend upon 
internal customs.for a considerable part of their revenue 
and it may not be easy for them to abolish such duties 
immediately on the coming into force of the Constitution 
Act. We, therefore, consider that it would be reasonahle 
for the Union to enter into agreements with such States, 
in the light of their existing rights, with a view to giving 
them time, up to a maximum
period to be prescribed hy 
the Constitution, hy which internal customs could he 
eliminated and complete free trade estahlished within 
the Union." 
139. Constituent Assembly on 1" May 1947 considered the report 
on fundamental rights. 
140. Shri K. M. Munshi made following statement with regard to 
Custom Duties and Taxes: 
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