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
550 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
79. The opinion of Justice Gajendragadkar in Khyerbari seems 
to indicate an element of reservation in regard to the concept of 
compensat01y taxes. Compensatory taxes, the judge noted, were evolved 
in conceptual tenns in Australia in the context of Section 92 which is 
"absolute in terms" and on its "literal construction, admits of no 
exceptions". Justice Gajendragadkar indicated that the constitutional 
compulsions which led to the notion of compensatory taxes not being a 
hindrance to freedom being adopted in Australia were absent in India. 
Articles 302 to 304 specifically provide for the imposition of restrictions 
on the freedom guaranteed by Article 301. Justice Gajendragadkar 
adverted to the minority view of Justice Hidayatullah in Automobile 
Transport on this aspect. His observations on the concept of 
compensatory taxes are as follows : 
"13... Section 92 is absolute in tenns and on its literal 
construction, admits of no exceptions. The Australian 
decisions, therefore, had to introduce distinctions, such as 
compensatory or regulatory tax laws in order to take laws 
answering the said description out of the purview of Section 
92. In our Constitution, however, though Article 30 I is 
worded substantially in the same way as Section 92,Articles 
302 and 304 provide for reasonable restrictions being 
imposed on the freedom of trade subject to the requirements 
of the said two articles, and so,
the problem facing judicial 
decisions in Aush·a!ia and in this country in regard to the 
freedom of trade and the restrictions which it may be 
permissible to impose on it, is not exactly the same. The 
minority view expressed by Hidayatullah, J. has pointedly 
refe1Ted to this aspect of the matter." 
80. In Khyerbari, the judgment of the Supreme Court noted in 
more than one place that the tax in question had not been supported by 
the State of Assam on the ground that it was compensatory. Justice 
Gajendragadkar held that ifthe enactment had been claimed by the state 
to be compensatory, it would have been necessary to constitute a larger 
Bench to reconsider the position. This was because the state law of 
1954 was enacted as a consequence of the earlier law having been
HNDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
invalidated in Atiabari. In Atiabari, the view of the majority was that 
such a tax (even if compensato1y) could be sustained only after complying 
with Article 304(b). The earlier law had been struck down 'though it 
was compensatory'. Justice Gajendragadkar found that it would be unfair 
to preclude the petitioners from contending that the compensatory 
character of the levy was not material to its validity under Part XIII. 
Justice Gajendragadkar accordingly held as follows: 
"14 .... If in the present case, it had been urged before us 
that the tax levied by the Act is compensatory in character, 
it would have been necessary to consider the question once 
again by constituting a larger Bench. It will be recalled that 
the Act with which we are concerned has been passed by 
the Assam Legislature directly as a result of the decision of 
this Court in Atiabari Tea Co. case [( 196 l) 1 SCR 809] ; 
that decision was that if the tax imposed by the Act was 
compensatory in character, then the Act could be sustained 
only if it was passed afrer complying with the provisions of 
Article 304(b ). The Assam Legislature has accordingly 
adopted the said procedure and passed the Act. If the Act 
had been compensatory in character, it would have become 
m:..:essary for us to consider the whole position once again, 
because it would obviously be unfair and unjust that the 
earlier Act should have been struck down
though it was 
compensatory in character and in testing the validity of the 
present Act, it should be open to the petitioners to contend 
that its compensatory character is irrelevant to the enquiry 
under Article 304(b).'' 
81. A reference to the larger bench was however obviated since 
the High Court had held that Act not to be compensatory and no submission 
to the contrary was urged by the state. The new enactment of the Assam 
Legislature was upheld against the challenge that it violated A1iicles 14, 
l9and301: 
"45. It is, of course. true that the validity of tax laws can be 
questioned the light of the provisions of Articles 14. 19 and 
551 
A 
B 
c 
D 
E 
F 
G 
H
552 
A 
B 
c 
D 
E 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
301 if the said tax direct and immediately imposes a 
restriction on the freedom of trade; but the power conferred 
on this Court to strike down a taxing statute if it contravenes 
the provisions of Articles 14, 19 or 301 has to be exercised 
with circumspection bearing in mind that the power of the 
State to levy taxes for the purpose, governance and for 
carrying out its welfare activities is a necessary attribute 
sovereignty and in that sense it is a power of paramount 
character. In what case a taxing statute can be struck down 
as being unconstitutional is illustrated in the decision of this 
Court in K.T. Moopil Nair v. State ofKerala. [(1961) 3 SCR 
77] ....... It is in regard to such a taxing statute which can 
properly be regarded a purely confiscatory that the power 
of the court can be legitimately invoked and exercised". 
The law enacted by the state legislature was upheld in Khyerbari 
not on the ground that it was compensatory- such a justification having 
not been pressed by the state - but on the ground that its provisions were 
not violative of Articles 14, 19 and 301. The Act was not confiscatory 
and was held to pass muster under Articles 14, 19 and 301. 
E.3 Subsequent applications 
82. Between 1962 and 1995, the working test adopted in 
Automobile Transport for detem1ining whether a tax is compensatory 
was adopted largely in the context of motor vehicle taxes. See in this 
F 
context the
decisions in S K Madar Saheb v. State of A P 18; 
Boiani 
Ores Ltd v. State of Orissa19; G K. Krishnan v. State of T N20; 
International Tourist Corpn. v. State of Haryana21 ; Malwa Bus 
Service (P) Ltd. v. State of Punjab 22 ; Meenakshi v. State of 
Karnataka 23 ; B.A. Jayaram v. Union of lndia24 and State of 
G 
"[1972] 4 sec 635 
"[1974] 2 sec 777 
'°[1975J 1 sec 375 
H 
"(1981] 2 sec 318, 1981 sec (Tax) 103 
"(1983] 3 sec 237, 1983 sec (Tax) 162 
"AIR (1983) sc 1283. (1984) Supp sec 326, (1984) sec (Tax) 206 
"(1984] I sec !68
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
Maharashtra v. Madhukar Balkrishna Badiya25. 
83. In International Tourist Corporation v. State of Haryana26, 
Justice 0. Chinnappa Reddy speaking for a Bench of two Judges of this 
Court refined the test of a regulatory and compensatory tax by stipulating 
that there must exist a specific or identifiable object behind the levy and 
a nexus between the subject and the object. This Court held: 
"9. While in the case of a fee it may be possible to precisely 
identify and measure the benefits received from the 
Government and levy the fee according to the benefits 
received and the expenditure incun-ed, in the case of a 
regulatory and compensatory tax it would ordinarily be well 
nigh impossible to identify and measure, with any exactitude, 
the benefits received and the expenditure incmTed and levy 
the tax according to the benefits received and the 
expenditure incurred. What is necessary to uphold a 
regulatory and compensatory tax is the existence of a 
specific, identifiable object behind the levy and a nexus 
between the subject and the object of the levy. If the object 
behind the levy is identifiable and ifthere is sufficient nexus 
between the subject and the object of the levy, it is not 
necessary that the money realised by the levy should be 
put into a separate fund or that the levy should be 
proportionate to the expenditure." 
(Id. at p. 328) 
Reading the nexus requirement into a
compensatory tax 
r,epresented the effo11 of this Court to bring clarity to the otherwise 
vague and uncertain core of a judicially evolved doctrine. 
553 
A 
B 
c 
D 
E 
F 
84. In GK Krishnan v. State of Tamil Nadu27, a tax on motor 
vehicles under the Motor Vehicle Taxation Act, 1931 was under challenge 
G 
on the ground of a violation of Article 301. By a notification, the rate of 
"(1988] 4 sec 290. ( 1988) sec (Tax) 506 
"(1981) 2 sec 318 
21 (1975] 1 sec 375 
H
554 
A 
B 
c 
D 
E 
F 
G 
• I 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
tax which was imposed on a quarterly basis was enhanced. Justice K K 
Mathew who delivered the judgment of a Bench of three Judges of this 
Court observed that the judgment in AutomolJile Transport ·'practically 
overruled" the decision in Atiabari: 
"13 .... .insofar as it held that if a State Legislature wanted 
to impose tax to raise moneys necessnry in order to maintain 
roads, that could only be done after obtaining the sanction 
of the President as provided in Article 304(b)". 
(Id. at p. 380) 
Justice Mathew held that there is a clear distinction between a 
Jaw which interferes with the freedom to trade and a law which merely 
regulates: 
"14 .... The word "free" in Article 30 I docs not mean 
freedom from regulation. There is a clear distinction 
between Jaws interfering with freedom to carry out the 
activities constituting trade and laws imposing on those 
engaged therein rules of proper conduct or other restraints 
directed to the due and orderly manner of carrying out the 
activities. This distinction is described as regulation. The 
word "regulation" has no fixed connotation. Its mening 
differs according to the nature of the thing to which it is 
applied. The true solution, perhaps, in any given case, could 
be found by distinguishing between features of the 
transaction or activity in vi11ue of which it fell within the 
category of trade, commerce and intercourse and those 
features
which, though invariably found to occur in some 
form or another in the transaction or action are not essential 
to the conception. What is relevant is the contrast between 
the essential attribute of trade and commerce and the 
incidents of the transaction which do not give it necessarily 
the character of trade and commerce. Such matters relating 
to hours, equipment, weight/size of load, lights, which form
JINDAL STAINLESS LTD. v. SlATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
the incidents of transportation, even if inseparable, do not 
give the transaction its essential character of trade or 
commerce. Laws for Government of such incidents 
"regulate". 
(Id. at p. 381) 
85. The Bench of three Judges, following the line of precedent in 
Automobile Transport held that for a law to become a prohibited tax, 
it has to be a direct tax, the effect of which is to hinder the movement 
part of trade. A tax which is compensatory or regulatory does not 
however operate as a restriction on the freedom under Atiicle 301. The 
nature of a compensatory tax was considered in the following 
observations : 
"17. Strictly speaking, a compensatory tax is based on the 
nature and the extent of the use made of the roads, as for 
example, a mileage or ton-mileage charge or the like, and if 
the proceeds are devoted to the repair, upkeep, maintenance 
and depreciation of relevant roads and the collection of the 
exaction involves no substantial interference with the 
movement. The expression "reasonable compensation" is 
convenient but vague. The standard of reasonableness can 
only lie in the severity with which it bears on traffic and 
such evidence of extravagance in its assessment as comes 
from general considerations. What is essential for the 
purpose of securing freedom of movement by road is that 
no pecuniary burden should be placed upon it which goes 
beyond a proper recompense to the
State for the actual use 
made of the physical facilities provided in the shape of a 
road. The difficulties are very great in defining this 
conception. But the conception appears to be based on a 
real distinction between remuneration for the provision of a 
specific physical service of which patiicular use is made 
and a burden placed upon transpmiation in aid of the general 
expenditure of the State. It is clear that the motor vehicles 
require, for their safe, efficient and economical use, roads 
of considerable width, hardness and durability: the 
555 
A 
B 
c 
D 
E 
F 
G 
H
556 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
maintenance of such roads will cost the government money. 
But, because the users of vehicles generally, and of public 
motor vehicles in particular, stand in a special and direct 
relation to such roads, and may be said to derive a special 
and direct benefit from them, it seems not unreasonable 
that they should be called upon to make a special contribution 
to their maintenance over and above their general 
contribution as taxpayers of the State. If, however, a charge 
is imposed, not for the purpose of obtaining a proper 
contribution to the maintenance and upkeep of the road, 
but for the purpose of adversely affecting trade or 
c0111111erce, then it would be a restriction on the freedom of 
trade, commerce or intercourse." 
(Id. at p. 382) 
86. The Bench of three Judges in G K Krishnan (supra) was 
bound by the view which was taken by a larger Bench of seven Judges 
in Automobile Transport. The above extract however, indicates the 
difficulties which the Court noticed in applying concepts such as 
"reasonable compensation", an expression, which however convenient, 
is but vague. The Court noticed the rationale for the doctrine of 
compensatory taxes: providing recompense to the state for the provision 
of services which facilitate trade. A compensatory tax is distinguished 
from a general measure of taxation. The state may impose the tax as a 
part of raising revenues in aid of the general
expenditure of the state. 
Though, all revenues of the state in the ultimate analysis are expended 
for public purposes, a burden imposed as a part of raising resources for 
meeting general expenditure is not compensatory. A compensatory tax 
in terms of the concept evolved by the Supreme Court in Automobile 
Transport is to provide a proper recompense to the state for the provision 
or use of all facilities made available to trade and commerce. 
87. Justice Mathew, observed that in such matters, a rough 
approximation rather than a mathematically accuracy is what is required. 
The law imposed by the state legislature was held to pass muster of 
judicial review. 
88. The judgment in GK Krishnan (supra) is also noteworthy 
because it raises the issue as to whether the restrictions contemplated
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
557 
[DR. D. Y. CHANDRACHUD, J.] 
by Article 304(b) would include the levy of a non-discriminatory tax. 
A 
Justice Mathew held that it was strange that the power to impose a tax 
conferred upon the states should yet depend upon the sanction of the 
President under the proviso to Article 304(b) : 
"27. 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 disc1imination 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 itself 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 of List II to pass a law imposing 
tax on sale of goods should depend upon the goodwill of the 
Union Executive. It is said that a tax on sale does not impede 
the movement of goods. But Shah, J. 
said 
in State v. Nataraja [AIR 1969 SC 147: (1968) 3 SCR 829 
:
(1968) 22 STC 3 76] : "that tax under Central sales tax on 
inter-State sale, it must be noticed, is in its essence a tax 
which encumbers movement of trade and commerce." 
(Id. at p. 385) 
Justice Mathew also observed that the Court was not called upon 
to make any pronouncement on whether there was any warrant to restrict 
Article 301 to the movement part of trade and commerce. However, as 
the court held, it was unnecessary to pursue the matter any further as 
the tax imposed under the notification of the state in that case was held 
to be compensatory in character and hence not restrictive of the freedom. 
E.4 
The breaking point 
89. The judgment in Automobile Transport held that 
compensatory taxes lie outside the purview of Article 301. Justice 
B 
c 
D 
E 
F 
G 
H
558 
A 
B 
c 
D 
SUPREME COURT REPORTS 
(2016] 10 S.C.R. 
Mathew while upholding that the Madras Motor Vehicles Taxation Act, 
l 931 had cautioned in G K Krishnan (supra) that the concept of 
reasonable compensation is "convenient but vague" and emphasized "very 
great" difficulties in defining it. The issue came to the fore in M/s 
Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, M. 
P28.An entry tax was imposed on goods such as sugar on which no sales 
tax is leviable, under the Madhya Pradesh Sthaniya Kshetra Me Mal Ke 
Pravesh Par Kar Adhiniyam, 1976. No sales tax could be levied on 
sugar since it is one of the goods on which additional excise duty is 
leviable under the Additional Duties of Excise Act, 1957. This Court 
held that though sugar was a commodity on which no sales tax is leviable 
because additional excise duty is payable, it was within the taxing 
provisions of the entry tax legislation. There was a challenge to the 
entry tax law on the ground that it violated A1iicle 301 and that it was not 
regulatory or compensatory. A Bench of three Judges of this Court held 
that the figures which had been disclosed by the state as justification for 
the levy as a compensatory tax were not disputed. However, the Bench 
reformulated the test of what constitutes a compensatory tax in the 
following observations : 
"8 ..... The concept of compensatory nature of tax has been 
widened and if there is substantial or even some link between 
E 
the tax and the facilities
extended to such dealers directly 
or indirectly, the levy cannot be impugned as invalid. The 
stand of the State that the revenue earned is being made 
over to the local bodies to compensate them for the loss 
caused, makes the impost compensatory in nature, as 
F 
G 
1-1 
augmentation of their finance would enable them to provide 
municipal services more efficiently, which would help or 
ease free flow of trade and commerce, because of which 
the impost has to be regarded as compensatory in nature, 
in view of what has been stated in the aforesaid decisions, 
more particularly in Hansa Corpn. Case." (Id. at p. 678) 
90. These observations made a marked departure from the test 
which was adopted in the judgment of seven Judges in Automobile 
"[1995 Supp (IJ sec 673)
JINDAL STAINLESS LTD. v. STATE OF l-IARYANA 
559 
[DR. D. Y. Cl-IANDRACl-IUD, J.] 
Transport. The test of a compensatory tax as formulated in Automobile 
A 
Transport is whether the trade has the use of facilities for the conduct 
of its business and is required to pay not patently much more than what 
is required for providing the facilities. In a substantially watered down 
redefinition of the test, Bhagatram required a "substantial or even some 
link" between the tax and the facilities extended "directly or indirectly". 
B 
The underlying basis or foundation for regarding a tax as compensatory 
was almost obliterated. The reference in Bhagatram to the earlier 
decision in State of Karnataka v. Hansa Corporation29, clearly 
overlooks that in that case the state had made no effort to sustain the 
validity of the tax on the ground that it was compensatory in character. 
Hence, the Bench in Hansa Corporation expressly clarified that it 
was not necessary for the Court to examine whether the tax was 
compensatory. Yet, the decision in Hansa Corporation was construed 
c 
in Bhagatram to be an authority for the proposition that even some link 
between the facilities provided and the payment demanded, whether 
direct or indirect, would suffice. 
91. The decision in Bhagatram was followed by another Bench 
of two judges in State of Bihar v. Bihar Chamber of Commerce"'. 
At issue was an entry tax imposed by the Bihar (Tax on Entry of Goods 
into Local Areas for Consumption, Use or
Sale therein), 1993. The 
High Court had held the Act to be invalid on the ground that the state 
had not disclosed material to justify that it was compensatory or 
regulatory nor had the state fulfilled the requirements of Article 304(b). 
The submission of the state in appeal was that the enactment was 
intended by the state legislature to offset at least in pa1t the loss of revenue 
caused to it, as a result of a decision of this Court in India Cement 
Ltd. v. State ofTamil Nadu". The state submitted that due to a loss of 
revenue from the cess on minerals, it was necessary for the state to find 
alternative sources ofrevenue to support its welfare schemes. The money 
raised would, it was asserted, be spent for the welfare of the state, 
which was divided into local areas. Moreover, it was urged that even if 
the levy was not compensatory, the assent of the President had been 
obtained under Article 304(b) read with Article 255. The enactment 
"(J980J 4 sec 697 
'" (!9'16) 9 sec 136 
" (l 990) 1 sec 12 
D 
E 
F 
G 
H
560 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
was held to be compensatory. The following tests were laid down: 
"12 ... .It is not and it cannot be stipulated that for the purpose 
of establishing the compensatory character of the tax, it is 
necessary to establish that every rupee collected on account 
of the entry tax should be shown to be spent on providing 
the trading facilities. It is enough if some connection is 
established between the tax and the trading facilities 
provided. The connection can be a direct one or indirect 
one, 
as 
held 
by 
this 
Court 
in Bhagatram 
Rajeevkumar v. CST [1995 Supp (1) SCC 673: (1995) 96 
STC 654] : (SCC p. 678, para 8) ...... " The concept of 
compensatory nature of tax has been widened and ifthere 
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" ..... Though not stated 
in the counter-affidavit, we can take notice of the fact that 
the State does provide several facilities to the trade including 
laying and maintenance of roads, waterways and markets, 
etc. As a matter of fact, since the levy is by the State, we 
must also look to the facilities provided by the State for 
ascertaining whether the State has established the 
compensatory character of the tax." 
(Id. at p. 14 7) 
The Court in Bihar Chamber of Commerce held that so long 
as "some connection is established between the tax and the trading
facilities provided" the levy would be held to be compensatory in 
character. 
92. These decisions were doubted by a Bench of two-Judges in 
Jindal Stripe Ltd. v. State of Haryana32 . 
93. Jindal Stripe involved a batch of appeals raising a challenge 
to the Haryana Local Area Development Tax Act, 2000 on the ground 
that it was "violative" of Article 301 and was not saved by Article 304. 
A Bench of two judges held that the decisions in Bhagatram and Bihar 
32 c2003 l 8 sec 60
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
561 
[DR. D. Y. CHANDRACHUD, J.] 
Chamber of Commerce seem to have deviated from the principles 
A 
underlying the imposition of a compensatory tax which had held the field 
from 1962 to 1995. ln the view of the refening Bench, if the test 
enunciated in the above two cases was to be accepted as the position in 
law, any tax could pass the test of a compensatory tax without infringing 
upon the freedom ordained by Article 301. The reference was heard by 
B 
a Constitution Bench in Jindal Stainless Ltd. (2) v. State of Haryana33, 
The Constitution Bench in Jindal Stainless elucidated the difference 
between regulatory and taxing powers. Taxing legislation, the Court 
ruled, is based on the concept of burden and on the principle of ability to 
pay. On the other hand, regulatory charges are a recompense for the 
costs or expenses incuned by the state for the provision of services or 
facilities: 
"31 ... Suffice it to state at this stage that the basis of special 
assessments, bettem1ent charges, fees, regulatory charges 
is "recompense/reimbursement" of the cost or expenses 
incuned or inclllTable for providing services/facilities based 
on the principle of equivalence unlike taxes whose basis is 
the concept of"burden" based on the principle of ability to 
pay. At this stage, we may clarify that in the above case 
of Automobile Transport[(l 963) 1 SCR 491 : AIR 1962 SC 
1406], this Court has equated regulatory charges with
compensatory taxes and since it is the view expressed by a 
Bench of seven Judges, we have to proceed on that basis. 
The fallout is that compensatory tax becomes a sub-class 
of fees". 
(Id. at p. 264) 
Based on this distinction, the Constitution Bench held that if a law, 
fiscal or otherwise, operates upon the movement of trade or commerce 
and its effect is to impede that activity, the law would constitute a 
restriction under A1ticle 301. However, if the law seeks to enforce a 
payment for regulation of conditions or incidents of trade, it is regulatory 
in character: 
.u (2006 J 7 sec 241 
• 
c 
D 
E 
F 
G 
H
562 
A 
B 
c 
D 
E 
F 
G 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
"38 ..... Jfthe impugned law seeks to control the conditions 
under which an activity like trade is to take place then such 
law is regulatory. Payment for regulation is different from 
payment for revenue. If the impugned taxing or non-taxing 
law chooses an activity, say, movement of trade and 
commerce as the criterion of its operation and if the effect 
of the operation of such a law is to impede the activity, then 
the law is a restriction under Article 30 I. However, if the 
law enacted is to enforce discipline or conduct under which 
the trade has to perform or if the payment is for regulation 
of conditions or incidents of trade or manufacture then the 
levy is regulatory." 
(Id. at p. 266) 
94. The Constitution Bench held that taxes are levied as a part of 
the common burden. While the foundation ofa fee is "the principle C)f 
equivalence", the basis of a tax is ability to pay. The main basis of a fee 
or a compensatory tax is an equivalence and a "quantifiable measurable 
benefit". A compensatory tax has to be broadly proportional: 
"42 ... Compensatory tax is based on the principle of''pay 
for the value''. It is a sub-class of "a fee". From tile point 
of view of the Government, a compensatory tax is a charge 
for offering trading facilities. It adds to the value of trade 
and commerce which does not happen in the case of a tax 
as such. A tax may be progressive or proportional to income,
property, expenditure or any other test of ability or capacity 
(principle of ability). Taxes may be progressive rather than 
proportional. Compensatory taxes, like fees, arc always 
proportional to benefits. They are based on the principle of 
equivalence. However, a compensatory tax is levied on an 
individual as a member of a class, whereas a fee is levied 
on an individual as such. If one keeps in mind the "principle 
of ability" vis-a-vis the "principle ofequivalence'', then the 
difference between a tax on one hand and a fee or a 
compensatory tax on the other hand can be easily spelt 
H 
out." 
(Id. at p. 267)
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
95. The Constitution Bench held that a compensatory tax is a 
compulsory contribution levied broadly in proportion to the special benefits 
derived to meet the costs ofregulation or an outlay which is incurred to 
provide a special advantage to trade, commerce and intercourse. 
Whenever a law is impugned as being violative of Article 301, the Court 
must detem1ine whether the enactment facially or patently indicates 
quantifiable data on the basis of which the compensatory tax is sought to 
be levied. The statute must broadly indicate a proportionality to a 
quantifiable benefit. Even if the statute were not to indicate this, the 
state may discharge the burden cast upon it by producing material to 
indicate that the payment of the compensatory tax is a reimbursement 
or recompense for a quantifiable/measurable benefit provided or to be 
provided to the payer of the tax. The reference was answered by the 
Constitution Bench by holding that the test of what constitutes a 
compensatory tax had been substantially altered by the decisions in 
Bhagatram and Bihar Chamber of Commerce in a manner which 
was inconsistent with the judgment of seven Judges in Automobile 
Transport. In holding that 'some connection' or 'some link' between 
the tax and the facilities extended would suffice, 'whether direct or 
indirect', the judgments in the Bhagatram and Bihar Chamber of 
Commerce were held to have deviated from
the settled concept of 
compensatory taxes and were hence overruled. 
E.5 Doctrinal concerns and inconsistencies 
96. The theory of compensatory taxes was evolved in Automobile 
Transport to assimilate doctrinal concerns at several levels. Freedom 
of trade and commerce under Article 301 of the Constitution is expressly 
made subject to the provisions of Part Xlll. The deliberate use of the 
expression 'free' instead of"absolutely free" (the latter expression being 
adopted in the Australian Constitution) coupled with the language of 
A1ticle 301 which subjects its provisions to Part Xlll is indicative of the 
fact that the freedom which is guaranteed is subject to legislative control. 
Articles 302, 303 and 304 are a part of the constitutional scheme which, 
while defining the ambit of the freedom in Article 301 subjects it to 
restrictions under Articles 302 and 304. The nature of the restrictions 
and the limitations on the power of Parliament and of the state legislatures 
while legislating to impose restrictions is conditioned by constitutional 
563 
A 
B 
c 
D 
E 
F 
G 
H
564 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] I 0 S.C.R. 
parameters. The conditions arc based on the fulfilment of substantive 
and procedural norms: substantive such as the principle of non-
discrimination, the element of publk intaest and reasonableness; and 
proeedural (if it ean be regarded as a matter of procedure) by requiring 
the sanction of the President prior to the introduction of a Bill in the state 
legislature. 
97. At a doctrinal level, the Court in Automobile Transport was 
cognizant of the fact that regulation of trade and commerce may, in fact 
facilitate trade rather than impede its freedom. As the Court postulated, 
the freedom to trade does not mean a freedom to trade in chaos. 
Conditions of chaos are destructive of an orderly society. Conditions 
which ensure a disciplined and orderly conduct of trade and commerce 
facilitate trade. Trade also pre-su pposcs the existence of infrastructure 
and the provision of facilities for pursuing the avenues of commerce and 
trade. The state which pr1wides those facilities has a legitimate interest 
in recovering the costs which it incurs. In the absence of resources 
generated by charges levied for the use of facilities, the state may not 
have the wherewithal to provide the facilities in the first place. Hence, 
when the concept of compensatory taxes was devised. Justice SK Das, 
in Automobile Transport adverted to collections made for the use of 
trading facilities, such as roads, bridges and
airports. ''Such 
compensato1y taxes" as the judgment held, were not a hindrance to 
anyone 'sfreedom so long as they remain reasonable. So long as the tax 
was compensatory or regulatory, it did not operate as a hindrance. In 
another part of the judgment, Justice Das held that a regulatory measure 
or measures imposing compensatory tax.es for the use of trading facilities 
did not fall within the purview of restrictions contemplated by Article 
30 l and did not have to comply with the requirements of the proviso to 
Article 304(b). 
98. The judgment in Automobile Transport indicates that a 
second doctrinal concern which weighed with the Court was a dilution 
of the sovereign power to tax conferred upon the states if all fiscal 
legislation was required to pass muster of a Presidential sanction under 
the proviso to Atiicle 304(b). This concern was present to the mind of 
the Court in Automobile Transport, when Justice Das observed that 
if all legislation of the state legislatures which has a repercussion on 
tariffs, licensing. marketing regulation and price control was required to
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
~65 
[DR. D. Y. CHANDRACHUD, J.] 
proceed through a prior Presidential sanction, the plenary power of the 
A 
states in the fields oflegislation allocated to them would be meaningless. 
The theory of compensatory taxes was an answer to this conundrum. 
So long as the tax retained a compensatory character, it did not fall 
within the fold of Article 30 I. If a compensatory tax does not offend 
Article 301, the provisions of Article 304(b) are not attracted. In the 
B 
same vein, Justice Subba Rao cautioned against a construction of Part 
Xlll that would render the states as ·'the handmade of the central 
executive". Besides the ·direct and immediate' test which the karned 
judge considered to be a "reasonable solvent", Justice Subba Rao also 
adverted to a tax which is compensatory or regulatory not operating as 
a restriction on the free movement of trade. 
C 
99. Compensatory taxes were envisaged as a doctrinal concept 
to preserve an area where the sovereignty of the state legislatures in 
fiscal matters could operate without the constraining influence of a prior 
Presidential sanction. Such taxes would not fall within the ambit of 
Article 30 l. Their position was reconciled with freedom on the ground 
that a compensatory tax for the use of facilities is not a hindrance to 
trade but facilitates it. 
I 00. The difficulties that the concept of compensatory taxes would 
encounter had their seeds in the formulation in Automobile
Transport 
itself. The judgment of Justice Das used the concept in varying contexts 
as a tax for the use of facilities and, in other places, as a tax to provide 
facilities. Use relates to the availment of a facility. Providing for facilities 
emphasises the role of the state in terms of the investment which it 
incurs and the expenditure required for upkeep and maintenance. Use 
and provision may be two shades of the same coin but they have their 
own distinctions. The concept of compensatory taxes was by its very 
nature formulated in terms which were vague and not capable of precise 
definition. The judgment of the majority in Automobile Transport 
speaks of compensatory taxes not being a hindrance, so long as they are 
reasonable. Moreover, the working test that was adopted in the judgment 
made it clear that it was not the precise or specific amount that is collected 
that is required to be expended for providing facilities. The working test 
is that the trade which has the use of facilities for the better conduct of 
business does not pay ·patently much more' than what is rcqui1·ed for 
providing the facilities. ·Paying not patently much more' is a concept 
D 
E 
F 
G 
H
566 
A 
B 
c 
D 
E 
F 
G 
1-1 
SUPREME COURT REPORTS 
[1016] J 0 S.C.R. 
which suffers from vagueness. How much more is within the ambit of 
the phrase 'not patently much more' introduces an element of subjectivity. 
A standard which is subjective becomes uncertain and indefinite in its 
practical application. The lack of precision about what constitutes a 
compensatoty tax undoubtedly did furnish to the Court and to the process 
of judicial review a measure of flexibility to preserve the sovereignty of 
the state legislatures. The difficulties which would be encountered 
however became evident, when the three judge Bench in Bhagatram 
and the two judge Bench in Bihar Chamber of Commerce rested the 
decision on a "some connection'' or ''some link" requirement. If some 
connection or some link were to suffice, the whole notion of compensatory 
taxes being a means of recouping the states for the cost of providing 
facilities to the trade would tend to disappear. ln fact, as the decision in 
Bhagatram indicated, the compensatory aspect of the tax which was 
upheld in that case was a loss which was sustained by the state as a 
result of sugar not being amenable to sales tax (being a commodity on 
which an additional duty of excise was leviable). Similarly, in Bihar 
Chamber of Commerce, the state had sought to sustain the tax as 
compensatoty on the ground that the loss of revenue sustained from the 
cess upon minerals, as a result of a judgment of the Supreme Court, had 
to be
made up by tapping an alternative source of revenue. These two 
decisions showed that the concept ofcompensatoty ta,'\.es was understood 
by the states not as a method of compensating a state for the provision 
of infrastructure and facilities to the trade but as a measure to recover a 
loss of revenue under another head. If compensatory taxes were to 
mean compensation for the loss of state revenue under some other head, 
the theory which found acceptance in the two decisions of this Court 
had travelled far beyond the domain that was contemplated in 
Automobile Transport. Correctly, therefore. both the decisions in 
Bhagatram and in Bihar Chamber of Commerce were ovt:rruled in 
.Jindal Stainless. However, both the decisions led to subjectivity, 
uncertainty and vagueness. 
I 0 I. A close reading of the decision in .Jindal Stainless indicates 
that while the earlier decisions in Bhagatram and in Bihar Chamber 
of Commerce were overruled, the pendulum had swung to the other 
extreme. The Constitution Bench in Jindal Stainless proceeded to 
explain the basis of the ·~udicially evolvt:d concept" of compensatory 
taxes by distinguishing a tax which is based on the principle of ability to
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD. J.] 
pay from a fee which is based on the principle of equivalence. 
Compensatory taxes, the Constitution Bench held, constitute a sub-class 
of a fee and are based on the principle of "pay for value". In holding 
that the collection on account of a compensatory tax must be "broadly in 
proportion" to the special benefits derived to defray the costs of regulation 
or to meet the outlay incurred, the Constitution Bench was restating the 
working test of Automobile Transport. But the subsequent 
observations in .Jindal Stainless make it evident that the Constitution 
Bench introduced a near mathematical formulation which would not be 
consistent with the test which was propounded in Automobile 
Transport. The judgment of the Constitution Bench requires that the 
enactment which imposes a compensatory tax must facially or patently, 
indicate quantifiable data and a benefit which is quantifiable or 
measurable. The Court held that however, where a statute did not to do 
so, the burden would lie on the state as a service provider to produce 
material indicating that the payment of the tax is a reimbursement or 
recompense for a quantifiable/measurable benefit. These observations 
bring the concept of a compensatory tax in line with a fairly strict 
application of a quid pro quo principle which had not been accepted in 
Automobile Transport. In fact, the Bench of seven Judges in 
Automobile Transport had
specifically clarified that the precise amount 
that is realized need not be spent on the provision of facilities and the 
only requirement is that the trade should not be made to pay patently 
much more than what is incurred for the provision of the facilities. The 
observations in Jindal Stainless requiring the establishment ofa nexus 
or relationship between a quantifiable or measurable benefit and a 
reimbursement/recompense to the state are contrary to and inconsistent 
with the law which was laid down in Automobile Transport. 
l 02. Evidently, both Justice Gajendragadkar in Khycrbari and 
Justice Mathew in GK. Krishnan had reservations about the concept 
of compensatory taxes. Justice G<\iendragadkar recorded his reservations 
because the predecessor of the enactment of the state legislature of 
Assam in issue in Khyerbari had been struck down in the decision in 
Atiabari. The majority in Atiabari had held the tax to be invalid for 
want of compliance with the proviso to Article 304(b) despite its 
compensatory character. Justice Gajendragadkar held that if the new 
enactment, which had been brought into force after complying with the 
proviso to Article 304(b) was to be supported by the state as being 
567 
A 
B 
c 
D 
E 
F 
G 
H
568 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
compensatory in character, a reference to a larger Bench would have 
been necessitated. That, however, did not become necessary because 
the State of Assam did not support the enactment as being compensatory 
before the Supreme Court. These observations of Justice Gajendragadkar 
were in the decision rendered in 1964 in Khyerbari. Eleven years later, 
Justice Mathew in an eloquent judgment in G.K. Krishnan spoke about 
the expression 'reasonable' being convenient but vague. The judge 
stressed th~t that were very difficulties in defining this conception. The 
Constitution Bench in Jindal Stainless was bound by the doctrine of 
compensatory taxes which had been fomrnlated by a larger Bench of 
seven Judges in Automobile Transport. The validity of the 
compensatory tax theory was not under challenge. 
103. The judicially evolved concept of compensatory taxes has 
created in its wake new problems in its search for solutions. If a strict 
reading of the doctrine of compensatory taxes in tenns of the 'quantifiable/ 
measurable benefits' approach is adopted (as did the Constitution Bench 
in Jindal Stainless) the formulation assumes the character of a strict 
application of a quid pro quo test. A compensatory tax is then a fee 
properly so called. The Constitution, in the legislative entries contained 
in the Lists in the Seventh Schedule classifies taxes and fees under 
distinct heads. If a compensatory tax
were to assume the character of 
a fee, that raises the question as to whether the concept has any utility in 
the first place. lf, on the other hand, the concept of compensatory taxes 
were to have a loose and undefined ambit, by the application of the 
'some link' or 'some connection' test (as was adopted in Bhagatram 
and Bihar Chamber of Commerce), then any connection would suffice 
for a tax to be called compensatory. Both these approachc<> which are 
extreme in their own way are contrary to the law laid down by seven 
Judges in Automobile Transport. Bhagatram and Bihar Chamber 
of Commerce render the conceptso loose and undefined as to denude 
it of its rationale. Jindal Stainless while overruling these decisions 
adopted a strict standard which was not contemplated by Automobile 
Transport. Bhagatram and Bihar Chamber of Commerce were 
overruled in Jindal Stainless as being contrary to the test laid down in 
Automobile Transport. But as we have seen, the quantifiable/ 
measurable benefit test laid down in Jindal Stainless by the Constitution 
Bench is itself replete with doctrinal problems, besides its patent 
inconsistency with Automobile Transport. lfboth these extremes are
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
569 
[DR. D. Y. CHANDRACHUD, J.] 
to be avoided, we are left with the middle ground which the decision in 
Automobile Transport sought to adopt. However, the basic conception 
of compensat01y taxes as propounded in Automobile Transport is vague 
A 
and indefinite and has produced a maze of doctrinal uncertainty, if not 
chaos in constitutional litigation. As this batch of appeals indicates, the 
state legislatures have amended their entry tax legislation to incorporate .8 
specific statutory provisions indicating the manner in which the proceeds 
of the tax would be utilized so as to enable the tax to approximate a 
compensatory tax. Once the state legislature has done so, by adopting 
statutory provisions, would the Court have either the expertise or the 
competence to second guess the basis which has been made by the 
state legislature? The answer to that would necessarily have to be in 
the negative. The Court cannot assume the character of an accountant 
overseeing the balance sheets of income and expenditure and enquiring 
into capital account investments made by the states. Such matters do 
not lie within the competence or ken of judicial review. More 
fundamentally, all tax revenues are utilised by the state for public purposes. 
All taxation being in aid of the creation of conditions of social order, a 
compensatory element can never be disassociated from taxation. Equally 
insofar as fees are concerned, the payment which is
required to be made 
is not always voluntary. The contribution exacted from trade and 
commerce may not always be for the actual use of a facility but may be 
for the provision of the facility which trade and commerce is entitled to 
use. The state expends large budgets on providing expenditure to maintain 
law and order and security. The distinction between a tax and a fee has 
become blmTed in our jurisprndence and Courts have found it difficult to 
find a clear dividing line. 
104. A doctrinal irrationality which the theory of compensatory 
taxes fails to meet is a discriminatory compensatory tax. Discriminatory 
taxes which single out goods originating in other states to hostile 
discrimination violate Article 304(a). lf compensatory taxes as a class 
fall outside Part Xlll, this would include even those compensatory taxes 
which are discriminatory. While holding that compensatory taxes fall 
outside Part Xlll, the theory propounded by this Court did not account 
for the position that discriminatory compensatory taxes constitute an 
impediment to trade and commerce, thereby violating Article 301. 
105. Hence, the notion of compensatory taxes is beset with 
c 
D 
E 
F 
G 
H
570 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
doctrinal problems. The concept has led to uncertainty and vagueness 
and has produced inconsistencies in constitutional adjudication. 
Constitutional adjudication must avoid these uncertainties which result 
in a multiplication of litigation and uncertainty both to the revenue and to 
the tax payer. Unce11ainty in the application of fiscal legislation leads to 
a situation where tax compliance is beset with interpretational and 
practical difficulties.A concept which is replete with such evident 
problems is best eschewed. 
F The content of freedom :goods, services, persons and 
capital 
106. A11icle 301 has guaranteed the freedom of trade, commerce 
and intercourse (subject to the provisions of Pai1 XIII). Article 19(1 )(g) 
guarantees to every citizen the right to carry on any occupation trade or 
business. At a certain level, a distinction can be drawn between the two 
sets of freedoms. A11icle 19( 1 )(g) guarantees individual freedom. Article 
301, on the other hand, looks at trade, commerce and intercourse as a 
whole. Such a distinction however may have its own limitations. Individual 
rights of all citizens protected by Article 19 lead to the establishment of 
a constitutional democratic order governed by the rule oflaw and based 
on human freedom. The dichotomy that A11icle 301 in its perspective 
looks at trade and commerce as a whole (as distinguished from an 
individual right) may also have its
own limitations. The freedom 
recognised by Article 301 is enforceable. Enforceability is at the behest 
of an individual. In the constitutional recognition of freedom dwells the 
constitutional right of the individual to enforce it and to secure remedies 
for enforcing wrongs. The real content of freedom lies in the right which 
inheres in it and in the protection of the individual to enforce the right. 
The freedoms guaranteed by Article 301 are enforceable at the instance 
of individuals who are aggrieved by state action. Thus, a distinction 
between Article 19( I )(g) and Article 301 on the basis of the fom1er 
reflecting an individual right as opposed to a collective entitlement under 
the latter may not be completely accurate. Though, one is an enforceable 
fundamental right of a citizen while the other is a recognition of the free 
flow of trade, commerce and intercourse, both in essence are enforceable, 
and enforceable at the behest of aggrieved individuals. A more nuanced 
perspective with regard to both sets ofrights recognises that both reflect
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
shades of the same universe of freedom. 
107. Indian society and the economy have evolved between the 
advent of the Constitution and the present in a manner that would appear 
unrecognisable between 1950 and now. The entrepreneurial spirit of the 
nation has resulted in a diversification of the economy. A predominantly 
agricultural economy at the birth of the Constitution has increasingly 
found change in the last seven decades with the enhancement of the 
manufacturing base, and in more recent times to the diversification into 
services, especially financial services. The age of the internet was yet 
to dawn when the Constitution was adopted. The internet with its 
powerful tools for the dissemination of knowledge and infornrntion has 
provided new avenues for business, trade and commerce. The ambit of 
A11icle 301 must in a contemporary context incorporate all avenues of 
trade, commerce and intercourse and the instrumentalities by which they 
flourish. 
108. Trade and commerce do not exist in a vacuum. The channels 
of trade and commerce require a stable social order for business 
transactions to be concluded, for contracts to be fulfilled and for 
commercial dealings to be enforced in law. The sanctity of contracts, 
secure conditions for trade and commerce and conditions which ensure 
an ease of doing business are supported by the state which has a vital 
role in the preservation of the rule
oflaw. The meaning of the guarantee 
under Article 301 must in a modem context accommodate the needs 
and aspirations of business that would allow for economic development 
and growth to take place in the nation. Fundamentally the creation of a 
common market for goods and services requires the removal of obstacles 
to the free movement of goods, persons, services and capital between 
the states which constitute the Union of India. These four fundamental 
freedoms are the foundation of Article 301. The free movement of goods 
constitutes the traditional domain of trade and commerce. Our 
Constitution in its recognition of the freedom of intercourse protects the 
movement of persons engaging in commercial intercourse. Trade and 
commerce has diversified into services which constitute a vital element 
in the economic life of the nation. The movement of capital is the 
foundation for trade and commerce. Capital provides the foundation for 
business. These four freedoms guaranteeing the free movement of goods, 
services, persons and capital between the states, form the basis of the 
571 
A 
B 
c 
D 
E 
F 
G 
H
572 
A 
B 
c 
D 
E 
F 
SUPREME COURT REPORTS 
[2016) 10 S.C.R. 
guarantee under Article 301. Commercial transactions by which the free 
movement of each constituent element takes place fall within the ambit 
of the freedom. 
G Taxation and Federalism 
109. In detennining an interpretation that would bring a balance 
between the diverse strands of Part Xlll, it is necessary for the Court 
equally to bear in mind the needs of the federal structure. The doctrine 
of the basic structure of the Indian Constitution has evolved to incorporate 
federalism as one of its integral features. 
110. The guarantee that trade, commerce and intercourse shall 
be free throughout the territory of India is subject to the provisions of 
Part XIII. The meaning of the expression "throughout the territory of 
India" is elucidated by Article 1 of the Constitution which stipulates that 
"India, that is Bharat, shall be a Union of States". The Union which the 
Constitution postulates is defined in terms of a political union and an 
economic union which brought together the erstwhile provinces of British 
India and the princely states. The freedom under Article 301 
comprehends, as we have seen, the free movement of goods, services, 
persons and capital. These are essential ingredients in the creation of a 
common market as an incident of an economic union. The freedom under 
Article 301 is not absolute for, the constitutional guarantee is subject to 
the provisions of Part XIII. The provisions of
Article 302 to Article 304 
bring about a balance between the guarantee of freedom on one hand 
and legislative control over trade and commerce on the other hand. While 
doing so, those articles define the powers of Parliament and the state 
legislatures, while subjecting them to restraints that are intended to 
preserve the power of regulating trade and commerce. 
111. While the Constitution does in that sense subordinate the 
freedom under Article 301 to the provisions of Part Xlll, it would not be 
G 
c01Tect to read the provisions of Part Xlll in isolation. Part Xlll is an 
integral element of the Constitution, but so are the other Parts under 
which executive and legislative powers are constitutionally conferred 
upon the structures of governance in the Union and the States. While 
construing the provisions of the Constitution it is necessary to construe 
H 
the text in the context of the organic nature of the constitutional document.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
573 
[DR. D. Y. Cl-IANDRACHUD. J.] 
The linkages between various Parts of the Constitution contribute to the 
A 
creation of a composite whole. No segment of the Constitution can be 
read in isolation. The scheme of the Constitution must hence be 
understood having regard to its history, text and context. 
112. A Constitution Bench of this Court in Kihoto Hollohan v. 
Zachillhu1", emphasised the essential oneness of the Constitution when 
it held that: 
"26. In expounding the processes of the fundamental law, 
the Constitution must be treated as a logical whole. Westel 
Woodbury Willoughby in The Constitutional Law o/ the 
United Stales (2nd Edn. Vol. I, p.65) states: 
"The Constitution is a logical whole, each provision of which 
is an integral part thereof; and it is, therefore. logically prope1~ 
and indeed imperative, to construe one part in the light of 
the provisions of the oth..:r parts" ..... 
27. A constitutional document outlines only broad and general 
principles meant to endure and be capable of flexible 
application to changing circumstances- a distinction which 
differentiates a statute from a Charter under which all 
statutes are made ..... " 
(Id. at p.676) 
Words of the Constitution '·cannot be read in isolation and have to 
be read harmoniously to provide meaning and purpose" (T.M.A Pai 
B 
c 
D 
E 
Foundation v. State of Karnataka35 ). 
F 
113. The judgment of Justice Gajendragadkar, speaking for the 
majority in
Atiabari, however construed the language of Article 30 I to 
mean that the guarantee of freedom was subject onlv to the provisions 
of Part XIH. With respect, this does not constitute an appropriate 
approach to constitutional interpretation since it leads to a construction 
G 
of Part X[[l in isolation from other provisions which have a significant 
bearing on the nature of the freedom and its relationship with the 
"(1992) Supp 2 sec 651 
u (2002) s sec 481 
H
574 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
structures of governance. To consider the guarantee under Article 301 
as being subject only to Article 302 to 304 overlooks the relationship of 
Part XIII with other provisions of the Constitution. Freedom is integral 
to that relationship. 
114. The issue as to whether the Constitution creates a federal 
B 
structure was debated upon in the Constituent Assembly. When the Draft 
Constitution was being discussed, TT Krishnamachari while supporting 
the view that the Constitution was to establish a federal structure 
observed thus: 
c 
D 
E 
F 
G 
H 
"the first criterion is that the State must exercise compulsive 
power in the enforcement of a given political order, the 
second is that these powers must be regularly exercised 
over all the inhabitants of a given territory, and the third is 
the most impo11ant and that is that the activity of the State 
must not be completely circumscribed by orders handed 
down for execution by the superior unit. The important words 
are 'must not be completely circumscribed', which envisage 
some powers of the State are bound to be circumscribed 
by the exercise of federal authority. Having all these factors 
in view, I will urge that our Constitution is a federal 
Constitution." 
(Id. at p.21) 
Dr. Ambedkar gave expression to the same thought in the following 
observations: 
"The basic principle of federalism is that the legislative and 
executive authority is partitioned between the Centre
and 
the States not by any law to be made by the Centre but by 
the Constitution itself. This is what the Constitution does. 
The States under our Constitution are in no way dependent 
upon the Centre for their legislative or executive authority. 
The Centre and the States are coequal in this matter. It is 
difficult to see how such a Constitution can be called 
centralism. It may be that the Constitution assigns to the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
Centre too large a field for the operation of its legislative 
and executive authority than is to be found in any other 
federal Constitution. It may be that the residuary powers 
are given to the Centre and not to the States. But these 
features do not form the essence of federalism. The chief 
mark of federalism as I said lies in the partition of the 
legislative and executive authority between the Centre and 
the units by the Constitution. This is the principle embodied 
in our Constitution." (Id. at p.22) 
115. A Bench of six Judges of this Court in State of West Bengal 
v. Union of lndia36 dealt with whether the property of a state in coal 
bearing areas is immune from acquisition by the Union. This Court held 
that in the structures of constitutional governance that are created by 
the Constitution full sovereignty does not reside in the states. Moreover, 
the Constitution contains a marked tilt in favour of the powers of the 
Union. Chief Justice BP Sinha adverted to the provisions of Part Xlll 
"which seek to make India a single economic unit for purposes of trade 
and commerce under the overall control of the Union Parliament and 
the Union Executive37" Our Constitution, the Court held "was not true 
to any traditional pattern offederalism38." Legal sovereignty is vested in 
the people oflndia while political sovereignty is distributed between the 
Union and the States, with greater weightage in
favour of the Union. In 
that context, this Court held that: 
"35. The non11al corporate existence of States entitles them 
to enter into contracts and invests them with power to carry 
on trade or business and the States have the right to hold 
property. But having regard to certain basic features of the 
Constitution, the restrictions on the exercise of their powers 
executive and legislative and on the powers of taxation, 
and dependence for finances upon the Union Government, 
it would not be correct to maintain that absolute sovereignty 
36 (1964) 1 SCR 371 
"(Id at p. 396) 
" (Id at p.396) 
575 
A 
B 
c 
D 
E 
F 
G 
H
576 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
remains vested in the States ..... 
36. The Parliamentary power of legislation to acquire 
property is, subject to the express provisions of the 
Constitution, unrestricted. To imply limitations on that power 
on the assumption of that degree of political sovereignty 
which makes the States coordinate with and independent 
of the union, is to envisage a Constitutional scheme which 
does not exist in law or in practice. On a review of the 
diverse provisions of the Constitution, the inference is 
inevitable that the distribution of powers-both legislative 
and executive does not support the theory of full sovereignty 
in the States so as to render it immune from the exercise of 
legislative power of the Union Parliament particularly in 
relation to acquisition of property of the States." 
116. The evolution of constitutional doctrine in the five decades 
that have elapsed since the judgmentin State of West Bengal (supra) 
indicates a recognition that the Constitution does indeed create a federal 
structure. Though the federal structure is asymmetric in the powers 
assigned to the states as compared to those assigned to the Centre ·this 
does not render the Constitution unitary. The Constitution is federal and 
in the working of a democratic Constitution, judicial review has stepped 
in to restore the balance despite the asymmetries of distribution and 
powers. The provisions of the Constitution which
indicate a tilt in favour 
of the Union do not detract from the principle that in the fields which are 
assigned to them, the states are intended to be integral elements of a 
federal structure. They are sovereign within their competence, subject 
to constitutional limitations. 
117. This principle was set forth in the following terms in Special 
Reference 1 of 196430 under A1iicle 143 of the Constitution: 
"The supremacy of the Constitution is fundamental to the 
existence of a federal State in order to prevent either the 
legislature of the federal unit or those of the member States 
"(1%1) I SCR 413
JINDAL STAINLESS LTD. v. STATE OF 1-IARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
from destroying or impairing that delicate balance of power 
which satisfies the particular requirements of States which 
are desirous of union, but not prepared to merge their 
individuality in a unity. This supremacy of the Constitution 
is protected by the authority of an independent judicial body 
to act as the interpreter of a scheme of distribution of 
powers. Nor is any change possible in the Constitution by 
the ordinary process of federal or State legislation. "(para 
38) 
118. The constitutional position is authoritatively set forth in the 
judgment in S. R. Bommai v. Union of India'". Justice K. Ramaswami 
construed federalism to be a basic feature, in the following observations: 
"24 7. Federalism envisaged in the Constitution of India is a 
basic feature in which the Union oflndia is pennanent within 
the territorial limits set in Article 1 of the Constitution and is 
indestructible ...... Neither the relative importance of the 
legislative entries in Schedule Vil, Lists I and II of the 
Constitution, nor the fiscal control by the Union per se are 
decisive to conclude that the Constitution is unitary. The 
respective legislative powers are traceable to Articles 245 
to 254 of the Constitution. The Srate qua the Constitution is 
federal in structure and independent in its exercise of 
legislative and executive power. However, being the 
creature of the Constitution the State has no right
to secede 
or claim sovereignty. Qua the Union, State is quasi-federal. 
Both are coordinating institutions and ought to exercise their 
respective powers with adjustment, understanding and 
accommodation to render socio-economic and political 
justice to the people, to preserve and elongate the 
constitutional goals including secularism. "(Id. at p. 205) 
Justice B. P. Jeevan Reddy accepted the same doctrinal position 
in the following tenns: 
"276. The fact that under the scheme of our Constitution, 
greater power is confened upon the Centre vis-a-vis the 
States does not mean that States are mere appendages of 
----
'" (1994) J sec 1 
577 
A 
B 
c 
D 
E 
F 
G 
I-I
578 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
(2016] 10 S.C.R. 
the Centre. Within the sphere allotted to them, States are 
supreme. The Centre cannot tamper with their powers. 
More particularly, the courts should not adopt an approach, 
an interpretation, which has the effect of or tends to have 
the effect of whittling down the powers reserved to the 
States ...... must put the Court on guard against any 
conscious whittling down of the powers of the States." 
(Id. at p. 216-217) 
Justice P. B. Sa want, similarly held that though there are provisions 
under which the Centre has overriding powers over the states, our 
Constitution does create a federal structure. The states are sovereign in 
the fields which are left to them. 
119. In ITC v. Agricultural Produce Market Committee41 , 
this Court emphasised that in interpreting the text of the Constitution the 
Court should ensure, where the language pem1its that the powers of the 
state legislatures are not diluted and that the principles offederalism are 
preserved (See also in this context Kuldip Nayar v. Union of India41) 
120. The federal constitutional doctrine has consequences for 
interpretation. In interpreting the text of the Constitution, the Court must 
construe the text in a manner that would preserve the carefully crafted 
balance between the Union and the states. Where the language of the 
text pem1its, the effort of constitutional interpretation should be to ensure 
that the states are not subordinated
to the Union in areas reserved to 
them. Yet it is equally a matter of constitutional doctrine that where a 
particular provision (such as the proviso to Article 304(b) imposes a 
specific requirement (assent of the President before a Bill is introduced 
in the state legislature) which subjects the legislative power of the states 
to constitutional limitations, it would not be open to the Court to ignore 
the plain meaning and effect of such a provision. The text of the 
Constitution cannot be subverted on the basis of an abstract notion or 
hypothesis. While creating a federal structure, the draftsmen of the 
Constitution were conscious of the need for preserving a political and 
economic Union. If, as a part of that constitutional scheme, the text of 
the document has incorporated specific provisions, they must be given 
" c2002) 9 sec n2 
" c2006 l 1 sec 1
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
579 
[DR. D. Y. CHANDRACHUD, J.] 
their plain meaning and effect. It would not be open to the Court to 
A 
dilute the meaning of the text on the basis of a priuri considerations. 
H Taxing powers 
H. l Article 245 and constitutional limitations 
12 l. Article 245 of the Constitution provides for the extent of 
laws made by Parliament and the legislatures of the states. Clause l of 
Article 245 enables Parliament "subject to the provisions of this 
Constitution" to make laws for the whole or any part of the territory of 
India and for the legislature of a state to make laws for the whole or any 
part of the state. Implicit in Article 245, which defines the territorial 
extent of laws enacted by Par I iament and the state legislatures, is the 
power to enact laws. Defining the extent of the law making power with 
reference to territorial coverage presupposes the existence of a power 
to frame legislation in the first place. Hence Article 245 is the fountainhead 
of legislative power.lt makes legislative powers subject to constitutional 
limitations. The distribution oflegislative powers is embodied in Article 
246 which deals with the subject matter of laws made by the Parliament 
and by the state legislatures. Parliament has exclusive powers to make 
laws with respect to matters enumerated in List I of the Seventh 
Schedule. Subject to the law making powers of Parliament in List I, the 
legislature of a state has exclusive power to
enact law for the state with 
respect to any of the matters enumerated in List II. Parliament and the 
state legislatures have concurrent powers to enact legislation in respect 
of matters enumerated in List Ill. Article 245 is the source of legislative 
power. Article 246 distributes legislative powers between Parliament 
and the state legislatures on the basis of the Lists in the Seventh Schedule. 
Article 245, in the conferment of legislative powers upon Parliament 
and the state legislatures makes them subject to the provisions of the 
Constitution. 
122. The power to enact laws is a manifestation ofsovcreignty.The 
Constitution while conferring legislative powers upon the Union and the 
states makes them subject to constitutional limitations. The sovereignty 
of the legislalun: is subject to the norms of the written constitution. The 
power to tax is subsumed in legislative power. Like all legislative power, 
fiscal legislation is subject to the mandate of the written constitution. 
This is the plain consequence of the opening words of Article 245( 1) 
B 
c 
D 
E 
F 
G 
H
580 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
under which the conferment of legislative powers is made subject to the 
provisions of the Constitution. 
123. The entries in the legislative lists of the Seventh Schedule 
are not sources of legislative power but only define the subjects or heads 
of legislation entrusted to th.: law making competence of Parliament and 
the state legislatures. Read together, Articles 245 and 246 confer legislative 
power upon the Union and the states in the first place and distribute that 
power between them to enact legislation on the fields of legislation 
entrusted to their competence. Though Article 245 is made expressly 
subject to the provisions of the Constitution while there are no such 
similar words in Article 246, both Articles arc subject to the other 
provisions of the Constitution. The language of Article 245 which subjects 
the conferment of legislative power to constitutional provisions is 
arecognition of the doctrinal principle that all constitutional power vesting 
in the organs of the state is subject to constitutional limitations. The 
Constitution which entrusts power conditions the entrustrnent to the 
observance of constitutional safeguards and limitations. All legislative 
power is subject to constitutional limitations. 
124. ln State of Kera la v. Mar Appraem Kuri Co. Ltd'3, th is 
Court construed the relationship between Articles 245 and 246 in the 
following observations: 
"35 ... While the
legislative power is derived from Article 
245, the entries in the Seventh Schedule of the Constitution 
only demarcate the legislative fields of the respective 
legislatures and do not confer legislative power as such ..... . 
36. A1iicle 246 deals with the subject-matter of laws made 
by Parliament and by the legislatures of States. The verb 
"made" once again finds place in the Head Note to Article 
246. This article deals with distribution of legislative 
powers as between the Union and the State Legislatures, 
with reference to the different Lists in the Seventh 
Schedule. 
" (201 2 J 7 sec 1 06
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
581 
[DR. D. Y. CHANDRACl-IUD, J.] 
37.Article 246. thus. provides for distribution. as between 
Union and the States. of the legislative powers which are 
conferred by Article 245. Article 245 be!!ins with the 
expression "subject to the provisions of this Constitution". 
·1"11ercfore, Article 246_ must be read as "subject to other 
provisions of the Constitution". 
(Id. at p. 128) 
125. The limitations on the exercise of legislative power emanate 
from(i) guarantees of freedom under Part Ill of the Constitution 
co11tai11i11g fundamental rights; (ii) the requirement that the law making 
authority must possess legislative competence to enact a law on the 
subjl'ct on which it legislates; and (iii) other constitutional I imitations.Part 
XIII of the Constitution is one of those constitutional limitations. The 
constitutional limitation emanating from Part XIII arises from the 
recognition which it contains of the guarantee of free trade, commerce 
and intercourse. Hence the first premise upon which legislative powers 
are conferred upon and distributed between the Centre and the states is 
that though the enactment of law is a manifestation of sovereignty, law 
making authority under the Indian Constitution is subject to constitutional 
restraints. Absolute power does not dwell in any constitutional authority 
which is subject to a written constitution. 
126. The legislative entries in the Lists of the Seventh Schedule to 
the
Constitution delineate general fields of legislation separately from 
taxing heads. In the Union List taxing entries are contained from Entries 
82 to 92C. The residual entry, Entry 97 deals with matters not enumerated 
in the state or concurrent lists, including any tax not mentioned in either 
of those lists. In the state list taxes are comprised in Entries 46 to 62. 
Fees are dealt with under separate heads: in Entry 96 of List I, Ent1y 66 
of List II and Entry 4 7 of List III. 
H.2 
Sovereignty and constitutional limitations 
127. The power to tax has been considered to be an essential 
attribute of government and a sovereign pO\ver vesting in the state. 
Thomas Cooley in his "Treatise on the Constitutional Limitations which 
rest upon the Legislative power of the States of the American Union"'" 
provides a jurisprudential foundation to the taxing power in the following 
observations: 
''(Indian Rerrinl 2005) 
A 
B 
c 
D 
E 
F 
G 
1-1
582 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
"Taxes are defined to be burdens or charges imposed by 
the legislative power upon persons or property, to raise 
money for public purposes. The power to tax rests upon 
necessity, and is inherent in every sovereignty. The 
legislature of every free State will possess it under the 
general grant of legislative power, whether particularly 
specified in the constitution among the powers to be 
exercised by it or not. No constitutional government can 
exist without it, and no arbitrary government without regular 
and steady taxation could be anything but an oppressive 
and vexatious despotism, since the only alternative to taxation 
would be a forced extortion for the needs of government 
from such persons or objects as the men in power might 
select as victims. In the language of Chief Justice Marshall: 
"The power of taxing the people and their property is 
essential to the very existence of government, and may be 
legitimately exercised on the objects to which it is applicable 
to the utmost extent to which the government may choose 
to caITy it. The only security against the abuse of this power 
is found in the strncture of the govenunent itself. In imposing 
a tax, the legislature acts upon its constituents. This is, in 
general, a sufficient security against erroneous and 
oppressive taxation. The people of a State, therefore, give 
to thdr government a right of taxing themselves and their 
property;
and as the exigencies of the government cannot 
be limited, they prescribe no limits to the exercise of this 
right, resting confidently on the interest of the legislator, 
and on the influence of the constituents over their 
representative, to guard them against its abuse." 
(Id. at p.2-3) 
Under the Indian Constitution the confem1ent oflegislative power 
to impose, collect and enforce the realization of taxes is specifically 
spelt out from and enumerated under constitutional provisions. Taxing 
entries in Lists I and 11 are specifically enumerated and their ambit 
defined. Article 366(28) of the Constitution defines the expression taxation 
to include "the imposition of any tax or impost, whether general or local
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
583 
[DR. D. Y. CHANDRACHUD, J.] 
or special" and provides that the expression tax ''shall be construed 
A 
accordingly". 
128. Several decisions of this Court have regarded the taxing 
power as an essential attribute of government and sovereignty. In Rai 
Ramkrislma v. State of Bihar45, it was held that : 
"It is, of course, true that the power of taxing the people 
and their property is an essential attribute of the Government 
and Government mav legitimately exercise the said power 
by reference to the objects to which it is applicable to the 
utmost extent to which Government thinks it expedient to 
do so. The objects to be taxed so long as they happen to be 
within the legislative competence of the legislature can be 
taxt.::d by the legislature according to the exigencies of its 
needs, because there can be no doubt that the State is 
entitled to raise revenue by taxation." 
In Raja Jagannath Baksh Singh v. State of U.P.46, this principle 
was stated as follows: 
"15 ... The power of taxation is, no doubt, the sovereign right 
of the State; as was observed by Chief Justice Marshall 
in M"Culloch v. Maryland [ 4 Law Edn. 579 p. 607]: "The 
power of taxing the people and their property is essential to 
the very existence of Government, and may be legitimately 
exercised on the objects to which it is applicable to the 
utmost extent to which the Government may choose to carry 
it." 
In Amrit Banaspati Co. Ltd. v. State of
Punjab", this Court 
held that: 
B 
c 
D 
E 
F 
"10 .... taxation is a sovereign power exercised by the State 
G 
to realise revenue to enable it to discharge its obligations.'' 
,; AIR (!963) SC 1667 
"' ( 1963) l SCR 220 
n (1992) 2 sec 411 
(Id. at page 424 ). 
H
584 
A 
B 
c 
D 
E 
F 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
ln Dena Bank v. Bhikhabhai Prabhudas Parekh & Co.4\ this 
Court held thus: 
"8 .... .the State is entitled to raise money by taxation because 
unless adequate revenue is received by the State, it would 
not be able to function as a sovereign Government at all. It 
is essential that as a sovereign, the State should be able to 
discharge its primary governmental functions and in order 
to be able to discharge such functions efficiently, it must be 
in possession of necessary funds and this consideration 
emphasises the necessity and the wisdom of conceding to 
the State, the right to claim priority in respect of its tax 
dues." 
(Id. at p. 702) 
129. The limitation on the states' power to tax must as a 
consequence be found in constitutional limitations.This follows the 
constitutional principle that all legislative powers conferred upon the Union 
Parliament and the state legislatures are an attribute of sovereignty. 
Hence the limitations on the exercise of those powers are such as have 
been crafted by the Constitution. These limitations which impose a fetter 
on the exercise of legislative powers may arise as a result of the 
guarantees of freedom in Part IIl; restraints arising from legislative 
competence and constitutional limitations imposed by other provisions of 
the Constitution. Hence in Maharaj Umeg Singh v. State ofBombay49, 
this Court held that the power of legislation that is vested in the state
is 
plenary and the fetters or limitations on the exercise oflegislative powers 
could only be imposed by the Constitution itself. The Court recognized 
that the Constitution may itself lay down fetters or limitations on the 
exercise of the power such as in Article 303 or Article 286(2). The 
fetter or limitation must however be traceable to the Constitution. In 
Firm Bansidhar Premsukhdas v. State of Rajasthan50, this Com1 
G 
adverted to the decision in Thakur Jagannath Baksh Singh v. United 
Provinces51 , and held that the limitation on the plenary powers of the 
" c20ooi 5 sec 694 
"AIR (1955) SC 540 
'° (1966) Supp SCR 81 
H 
"(1946) FCR 111
JINDAL STAINLESS LTD. v .. STATE OF HARYANA 
585 
[DR. D. Y. CHANDRACHUD, J.] 
legislature to enact law must be traced to an express provision in the 
A 
Constitution: 
·' ... It is well-established that Parliament or the State 
Legislatures are competent to enact a law altering the terms 
and conditions of a previous contract or of a grant under 
which the liability of the Government oflndia or of the State 
Governments arises.The legislative competence of 
Parliament or of the State Legislatures can only be 
circumscribed by express prohibition contained in the 
Constitution itself and unless and until there is any provision 
in the Constitution expressly prohibiting legislation on the 
subject either absolutely or conditionally, there is no fetter 
or limitation on the plenary powers which the legislature is 
endowed with for legislating on the topics enumerated in 
the relevant lists. This view is borne out by the decision of 
the Judicial Committee in Thakur Jagannath Baksh Singh 
v. United Provinces."' 
(Id. at p. 19) 
130. The legislative power of the states to impose taxes is subject 
in general, to the same constitutional parameters which govern the 
exercise of all legislative power. The containment of legislative power 
follows from three constitutional precepts. First, legislation is valid if it is 
enacted by a legislature which has competence to enact law on the 
subject. This is the consequence of the distribution of legislative power 
between the Union and
the States under Articles 245 and 246 read with 
the lists contained in the Seventh Schedule. The legislatures, whether at 
the national or the state level, are entrusted with the power of legislation 
in exercise of which they must confine themselves to the boundaries 
allocated by the Constitution. These boundaries are defined wfrh 
reference to the competence to enact law governing a particular subject 
matter. Parliamentary legislative power has a residuary or catch all area: 
subjects not enunciated elsewhere fall in its ambit. Second, the 
enumeration offundamental rightsby Part !II of the Constitution operates 
as a restraint on the sovereign power vesting in the legislatures to enact 
law. Article 13 of the Constitution stipulates that the state shall not 
B 
c 
D 
E 
F 
G 
H
586 
A 
B 
c 
D 
E 
F 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
enact law which violates the freedoms guaranteed by the Chapter on 
fundamental rights. A law whether made before or after the advent of 
the Constitution is void to the extent of its inconsistency with Part XIII. 
Third, other constitutional limitations or restrictions may condition or 
contain the law making power including in the field of taxation. These 
constitutional provisions are a manifestation of the doctrine of 
constitutional limitations under which every organ of the state which is a 
creation of the Constitution operates in the field assigned to it. 
131. In the field of taxation, the containment of legislative powers 
vesting in the states may take place through provisions which are in the 
nature of: (i) abstraction; (ii) eclipse; and (iii) limitationsor restrictions. 
These categories, it must be noted are convenient reference points for 
understanding the source of constitutional restrictions. An illustration of 
an abstraction of legislative power is contained in Entry 54 of the State 
List which provides for taxes on the sale or purchase of goods other 
than newspapers, subject to the provisions of Entry 92(A) of the Union 
List. Entry 92(A) of the Union List was introduced by the Sixth 
amendment to the Constitution in 1956 to provide for taxes on the sale or 
purchase of goods other than newspapers, where such sale or purchase 
takes place in the course of inter-state trade or commerce.
Under Entry 
54 of the State List as it originally stood, the states possessed an unfettered 
area for imposing taxes on the sale or purchase of goods other than 
newspapers. Arguably, this could extend to the exercise of taxing powers 
on inter-state trade on the strength of the explanation to Article 286. For 
the purposes of this judgment, it is not necessary to burden the record by 
refe1Ting to the judgment in The Bengal Immunity Company v The 
State of Bihar
5 ~. As a result of the sixth amendment, the ambit of Entry 
54 is now expressly subject to the power of the Union under Entry 92(A) 
of List I. 
132. Article 286 stipulates that a state law shall not impose or 
authorize the imposition of a tax on the sale or purchase of goods, where 
G 
the sale or purchase takes place outside the state or in the course of 
import or export from or outside the territory of India. Article 286(1) 
provides an express bar. Article 269(3) empowers Parliament by law to 
formulate principles for determining when a sale or purchase or 
consignment of goods takes place in the course of inter-state trade or 
; 2 (1953) I BLJR 48 
H
JINDAL STAINLESS LTD. v. S"IATE OF HARYANA 
587 
[DR. D. Y. Cl-IANDRACHUD. J.] 
commerce. Parliament, in exercise of its powers under Article 269(3) 
A 
enacted the Central Sales Tax Act 1956. Sections 14 and 15 of that Act 
provide a list of goods of special importance, the manner of imposing 
taxes and the restrictions on the power of imposing taxes. 
133. The second source of containment on the legislative powers 
of the states in the area of taxation is A1ticle 253 of the Constitution 
under which Parliament, notwithstanding anything contained in the earlier 
provisions of Chapter I of Part XI is entrusted with the power to enact 
legislation for the entire territory of India for implementing a treaty, 
agreement or convention with one or more countries or to implement a 
decision at an international conference association or other body. The 
non-obstante provision of Article 253 operates in relation to A1ticles 245 
to 252. Hence, the legislative powers of the states including in the area 
of taxation may be ioclipsed where Parliament has enacted a law to 
effe<.:tuate India ·s international obligations in pursuance of Article 253. 
134. The third source of constitutional containment on the kgislative 
power of a state is in the form oflimitations of which Clause 3 of Article 
286 provides an illustration. Under Clause 3, Parliament provides the 
restrictions and conditions in regard to ''the system of levy, rates and 
other incidents of tax'' upon which a law enacted
by a state providing 
for a tax of the nature specified in sub-clause (a) and (b) is subject. Sub-
clause (a) deals with a tax on the sale or purchase of goods declared to 
be of special importance in inter-state trade or commerce by a law 
enacted by Parliament. Sub-clause (b) deals with a tax on the sale or 
purchase of goods falling under sub-clauses ( b ), ( c). and ( d) of Article 
366(29A). Among other things, a tax on contracts for hire purchase and 
involving transfer of the right to use goods is subject to the restrictions 
and conditions which are provided by a law enacted by Parliament in 
regard to the system of levy rates and other incidents of tax. 
135. The constitutional-,;ontainment of the legislative powers of 
the states also originates in the provisions of Part XIII which enable 
Parliament and the state legislatures to impose restrictions on inter-state 
trade or commerce subject to defining parameters. Whether, and if so, 
the extent to which taxes arc within the purview of Part XIII is bei112 
dealt with separately below. 
B 
c 
D 
E 
F 
G 
H
588 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
H.3 Part XIII and taxation 
136. The basic submission on the part of the states is that freedom 
under Article 301 is not freedom from taxation. This submission has 
been adduced primarily on the foundation that the Indian Constitution 
contemplates the position of the states as constitutional units of a federal 
structure, each of whom is sovereign within the fields allotted. Taxation, 
it has been urged is a manifestation of sovereign power which is 
foundational to the existence of government. Tax revenues are required 
for welfare and developmental activities. Hence, it has been submitted 
that these are st·ong reasons for not construing the freedom under Article 
301 as freedom from taxation. 
137. The next limb of the submission is that under Article 265, 
taxes can only be imposed under a law enacted by the competent 
legislature and the executive has no role to play in the levy and collection 
of tax, except under delegated legislative power. Under various A11icles 
of Part Xll [for instance Articles 276(2), 286(1) and 288(2)] the 
Constitution provides for limitations on the taxing powers of the states or 
powers are conferred upon Parliament to provide for limitations by law 
(Clauses 2 and 3 of Article 286). There are atleast five entries in the 
State List of the C:cventh Schedule (Entries 50, 51, 54, 55 and 57) which 
are specifically subject to limitations or principles presc1ibed by
Parliament 
by a law made under List 1 and List Ill. In other words, it has been 
urged that wherever an exemption from taxes or a limitation on states' 
taxing powers is contemplated by the Constitution, this has been expressly 
provided under Articles 285, 287, 288 and 289. Consequently, it has been 
urged that exemption from the taxing power cannot be a matter of 
inference or implication and must be provided expressly and 
unambiguously. Moreover, under A1ticle 289(2), a trade or business carried 
on by or on behalf of the government of a state can be subjected to tax 
"to such extent" as Parliament may by law provide. 
Based on this and the judgment of a nine Judge Bench of this 
Court in NDMC v. State of Punjab53 , it has been urged that in a situation 
where the Constitution subjects even the trade or business of a state to 
tax, an exemption in favour of trade, commerce and intercourse carried 
s1 (1997) 7 sec 339
JINDAL STAlNLESS LTD. v. STATE or HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
on by private individuals cannot be contemplated particularly by 
implication. 
138. While evaluating this submission, it would at the outset be 
necessary to notice that there are two extreme positions which lie at 
opposing ends of the spectrum. The first is the position adopted by Justice 
JC Shah in Atiabari that all taxation falls within the ambit and purview 
of Part Xlll. This submission postulates that every tax constitutes a 
restraint on the freedom of trade, commerce and intercourse. The 
opposing end of the spectrum is that taxes per se can never be a restraint 
on free trade since it is through the raising of revenues that a state 
provides ordered conditions for the safe, secure and efficient means for 
transacting trade and commerce. In this view, only a discriminatory tax 
would run afoul of Part Xlll [being violative of Article 304(a)] and, so 
long as a tax is non-discriminatory, it cannot be contrary to the provisions 
of Pa1tXlll. This position would broadly cotrespond to the view espoused 
by Chief Justice Sinha. The middle ground which was sought to be 
advanced in the decision in Automobile Transport was that 
compensatory taxes would lie outside Part XIII since they facilitate rather 
than restrict trade. Taxes which are not compensatory and which in 
their direct and immediate effect restrict trade would be subject to the 
rigours of A1ticle 304(b) of the Constitution. 
H.3.1 All
taxes are not impediments 
139. While evaluating the merits of the rival viewpoints, it cannot 
be gainsaid that an orderly society is a condition precedent for an 
environment in which trade, commerce and intercourse can flourish. 
Trade and commerce survive and flourish on the foundation of the rule 
of law. The sanctity of contracts must be recognized, protected and 
enforced through a legal system which creates rights and provides 
remedies for redressal. Again, the free movement of goods, services, 
persons and capital requires the existence of public order and conditions 
which allow for trade and commerce to take place unhindered. Neither 
trade nor commerce can flourish amidst violence, unrest and social 
disorder. Taxes provide revenue forthe state to sustain manifold activities 
which are geared to providing conditions of social order. The state 
provides infrastructure both tangible and intangible. Tax revenues form 
an essential part of the requirements necessary f01: states to govern. 
589 
A 
B 
c 
D 
E 
f' 
G 
H
590 
A 
B 
c 
D 
E 
F 
G 
1-1 
SUPREME COURT REPORTS 
[:?.016J JO S.C.R. 
Taxes are required by Article 265 to be imposed by a lg}cv enacted by 
Parliament or the state legislatures. Without the power to raise revenues, 
the ability of the state to create conditions requisite for trade and 
commerce to exist would be denuded. Hence. as a matter of first principle 
it cannot be postulated that taxation in whatever form is a burden on 
trade, commerce and intercourse and that every tax necessarily hinders 
trade. Such a wide construction cannot be accepted simply because by 
raising revenues through the means of taxation, the state provides a 
political and legal order based on the rule of law where contractual 
transactions can be executed effectively. The extreme position that every 
law which imposes a tax is to be regarded as a hindrance to trade. 
commerce and intercourse is unsustainable. 
140. In the context of the relationship between the freedom 
guaranteed by Part Ill of the Constitution and the taxing power, it has 
been the consistent position of this Court that fundamental rights 
[particularly, the freedom of trade and business under Article 19( 1 )(g)] 
do not confer an immunity from taxation. In Indian Express 
Newspapers v. Union of India 54, this Court held that the rights 
guaranteed by Article 19( l )(a) and Article 19( I )(glare subject to clauses 
(2) and (6) and the newspaper industry has not been granted an exemption 
from taxation in express terms. On
the other hand, Entry 92 of the 
Union List of the Seventh Schedule empowers Parliament to make laws 
for levying taxes on sale or purchase of newspapers and on 
advettisements published therein. The police power, taxation and eminent 
domain were held to be a form of social control essential for peace and 
good governance. Newspapers were held not to be free from the 
requirement of bearing a common fiscal burden, like others: 
·'43 .... Their newspapers have to be transported by roads, 
railways and air services. Arrangements for security of their 
property have to be made. The Government has to provide 
many other services to them. All these result in a big drain 
on the financial resources of the State as many of these 
services are heavily subsidized. Naturally such big 
newspaper organizations have to contribute their due share 
to the pub! ic exchequer. They have to bear the common 
fiscal burden like all others." 
(Id. at p. 671) 
"{1985J 1 sec 641
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
This Court held that in the case of an ordinary taxing statute, a 
law may be questioned ifit is openly confiscatory or a colourable device 
to confiscate. On the other hand, in the case of a tax on newsprint, it 
would be sufficient to show a "distinct and noticeable burdensomeness, 
clearly and directly attributable to the tax". While therefore holding that 
it was <ejecting the submission that no tax could be levied on the 
newspaper industry, this Court held that any such levy was subject to 
judicial review under the provisions of the Constitution. 
141. In Government of Tamil Nadu v. Ahobila Matam55 , this 
Court held that the imposition of an assessment on lands held by a religious 
denominational institution would not attract the right guaranteed by Article 
26 of the Constitution. Jn All Bihar Christian Schools' Association 
v. State ofBihar"', this Court held that an unaided minority institution is 
not immune from the operation of the general laws of the land and cannot 
claim an immunity, inter alia, from measures of taxation. Apart from 
these decisions, there are judgments of this Court holding that a taxing 
statute is not per se a restriction on the freedom under Article 19( 1 )(g). 
In Federation of Hotel & Restaurant Association of India v. Union 
of lndia57, this Court while laying down the above principle held that the 
mere excessiveness of a tax or a diminution of profit earnings
does not 
per se without more constitute a violation ofrights under Article 19(1 )(g). 
(See also in this context :Express Hotels (P) Ltd. v. State ofGujarat58, 
and Pankaj Jain Agencies v. Union of lndia59). 
142. In Vrajlal Manila! & Co. v. State of M. PM', this Court held 
that an increase in the rate of tax on a particular commodity cannot per 
591 
A 
B 
c 
D 
E 
se be said to impede free trade and commerce in that commodity. The 
Court reaffirmed the principle that in order to be a restriction or 
F 
impediment a legislative measure must directly or immediately impede 
the free flow of trade, commerce and intercourse so as to fall within the 
prohibition of Article 30 I. A tax may in certain cases directly and 
immediately restrict or hamper the flow of trade. Whether the imposition 
,, (1987) 1 sec 38 
" (1988) 1 sec 266 
"(1989) 3 sec 634 
"(1989) 3 sec 677 
"(1994) s sec 198 
''" (1986) Supp. 1 sec 201 
G 
H
592 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
of a tax does so in each case has to be judged on its own facts and in its 
own setting of time and circumstance. 
H.3.2 Articles 302, 303 and 304 
B 
143. Articles 302, 303 and 304 provide for restrictions on trade 
c 
D 
E 
F 
G 
and commerce. The marginal note to each of the three articles specifically 
contemplates restrictions on or with regard to trade and commerce. The 
marginal note to Article 302 refers to the power of Parliament to impose 
restrictions on trade, commerce and intercourse. Under Article 302 
Parliament is empowered by law to impose restrictions in the public 
interest on the freedom of h·ade, commerce and intercourse between 
one state and another or within any part of the te1Titory of the India. 
Consequently, Parliamentary power under Article 302 to impose 
restrictions is not only confined to inter-state trade but extends to 
restrictions within any part of the tetTitory of India. However, Article 
303 imposes a limitation both on Parliament and the state legislatures. 
Under Article 303, neither Parliament nor the legislature of a state can 
enact a law giving or authoring the giving of a preference to one state 
over another or making or authorising the making of discrimination 
between one state and another, by virtue of any entry relating to trade 
and commerce in any of the lists in the Seventh Schedule. A11icle 303 
has a non-obstante provision which overrides Article 302. The non-
obstante
clause in Article 303 is evidently inapposite in relation to the 
legislature of a state because Article 302 does not apply to a state 
legislature in the first instance. Evidently the non-obstante provision can 
have meaning only in relation to Parliament because it has the effect of 
stipulating that the power of Parliament to impose restrictions in the 
public interest under Article 302 is subject to the principle of non-
discrimination and non-grant of preferences to one state over another 
under Article 303. 
144. Be that it is may, the effect of the nonn which Article 303 
enunciates is that neither Parliament nor the legislature of a state can 
-
grant preferences while enacting law to one state over another or make 
any discrimination. Article 303 concludes with the words "by virtue of 
any entry relating to trade and commerce in any of the lists in the Seventh 
Schedule." These words were held by Justice Subba Rao in Automobile 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
Transport to have the widest import. The entries which specifically 
refer to trade arid commerce in the Seventh Schedule are entries 41 and 
42 of the Union List, entries 26 and 27 of the State List and Entry 33 of 
the Concurrent list. Entries 41 and 42 of the Union List are as follows : 
41. Trade and Commerce with foreign countries; import 
and export across customs frontiers; definition of customs 
frontiers ..... . 
42. Inter-State trade and Commerce. 
Ent1y 26 of the State List is as follows : 
26. Trade and commerce within the State subject to the 
provisions of Entry 33 of List III. 
27. Production, supply and distribution of goods subject to 
the provisions of Entry 33 of List Ill. 
Entry 33 of the Concurrent list is as follows: 
33. Trade and commerce in and the production, supply and 
distribution of -
(a) the products of any industry where the control of such 
industry by the Union is declared by Parliament by law 
to be expedient in the public interest, and imported goods 
of the same kind as such products; 
(b) foodstuffs, including edible oilseeds and oils; 
593 
A 
B 
c 
D 
E 
( c) cattle fodder, including oilcakes and other concentrates; 
F 
( d) raw cotton, whether ginned or unginned, and cotton seed; 
and 
( e) raw jute. 
145. In Automobile Transport it was urged that the expression 
"by virtue of the entries relating to trade and commerce in any of the 
lists in the Seventh Schedule"
are of wider import than the words "by 
virtue of the said entries". Therefore, any law under Article 303 made 
by virtue of any entry in any of the lists in the Seventh Schedule, if it 
G 
H
594 
SUPREME COURT REPORTS 
[2016] IO S.C.R. 
A 
relates to trade and commerce, would be covered by the exception. 
B 
c 
D 
E 
F 
G 
H 
Accepting the submission, Justice Subba Raoheld as follows : 
"42 .... The words "any entry relating to trade and commerce 
in any of the Lists" are of the widest import and they yield 
to a very liberal interpretation. The phraseology used 
suppo1is this interpretation. The reason of the exception 
also sustains it. There cannot be any distinction on principles, 
from the standpoint of the mischief sought to be averted, 
between a law made by virtue of an entry ex-facie referring 
to trade and commerce and that made by virtue of any 
entry affecting trade and commerce. For instance, a law 
may be made by Parliament under entries relating to 
railways, highways, shipping etc. These entries do not 
expressly refer to trade and commerce, though they may 
directly affect trade a.nd commerce. If a law made under 
entJy 26 of List II giving preference or making discrimination 
among the states is objectionable, it should also be 
objectionable, if made by virtue of any other entry. I would, 
therefore, hold that any law made by Parliament by virtue 
of any entry imposing the said discrimination restrictions 
would be under the said article." 
(Id. at p. 559- 560) 
146. Justice Hidayatullah who delivered a dissenting judgment for 
and on behalf ofhimself and Justices RajagopalaAyyangar and Mudholkar 
adopted a similar interpretation of the
language of Article 303. The learned 
Judge held that in the Seventh Schedule there are many other entries 
aparc from entries 41 and 42 of List 1, entries 26 and 27 of List II and 
Entry 3 3 oflist III regulating inter-state trade. In that context, he observed 
that: 
"103 .... By the words of Article 303 'by virtue ofany entry 
relating to trade and commerce' is meant not the five Entries 
last named by us but others also, e.g., Entry 8 of List II, 
Entries 29, 30, 81 of List I, Entry 29, 15 of List III (to mention 
only a few from each List). Thus, is achieved one purpose 
which is paramount viz., that the exercise of the commerce
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
powers, however derived is not to be exercised to create 
preferences and discrimination between one state and other 
State Legislature or both acting in union. No question of 
the content of the power or its source can arise in this 
context, because the prohibition is absolute. The article 
makes a great advance upon Section 297 of the Government 
of India Act 1935. In the section, the inhibition was only 
against a Provincial Legislature or Government. Here the 
inhibition embraces not only these but is also against 
Parliament and the Central executive. The executive limb 
has been made powerless, because the source ofrestrictions 
must be 'law' and if a law cannot be made, executive action 
per se would be ineffective without more. Further, Section 
297 was concerned only with goods and their taxation 
differentially. The Article takes in its stride not only the 
passage of goods or their taxation but all other matters 
inherent in free trade, commerce and intercourse." 
14 7. However, it has been urged that this interpretation would be 
contrary to the position which has been adopted since the judgment in 
MPV Sundararamier v. State of Andhra Pradesh61 : In support, it has 
been submitted that the taxing entries in the lists of the Seventh Schedule 
are indicated separately from non-taxing entries. Hence, it is urged, the 
words of Article 303 cannot be interpreted to include taxing entries. This
submission cannot be accepted as a matter of first principle. What the 
judgment in MPV Sundararamier lays down is that in the lists of the 
Seventh Schedule, the subjects of taxation are dealt with under distinct 
heads. Hence, the subject of a tax cannot be traced to a non-taxing 
entry. It was held that : 
"51. In List I, Entries I to 81 mention the several matters 
over which Parliament has authority to legislate. Entries 82 
to 92 enumerate the taxes which could be imposed by a 
law of Parliament. An examination of these two groups of 
" AIR (I 950) SC 468 
595 
A 
B 
c 
D 
E 
F 
G 
H
596 
A 
B 
c 
D 
E 
SUPREME COURT REPORTS 
[2016] l 0 S.C.R. 
Entries shows that while the main subject of legislation 
figures in the first group, a tax in relation thereto is separately 
mentioned in the second ..... Construing Entry 42 in the light 
of the above scheme, it is difficult to resist the conclusion 
that the power of Parliament to legislate on inter-State trade 
and commerce under Ently 42 does not include a power to 
impose a tax 011 sales in the course of such trade and 
commerce." 
148. This principle would have no bearing on the interpretation of 
the words in Article 303 which restrain Parliament and the state 
legislatures from granting preferences to one state over another and 
from discriminating between one state and another "by virtue of any 
entry relating to trade and commerce" in any of the lists in the Seventh 
Schedule. These words namely "entry relating to trade and commerce'' 
are of the widest import. The expression "relating to"' has a well-known 
connotation in law extending its ambit to all 111atters which are reasonably 
proximate or connected to the subject. While the constitution mandates 
the principle ofnon-<liscrimination between one state over another and 
the non-grant of preferences under Attic le 303, there is 110 basis to confine 
those words merely to the entries noted earlier (entries 41 and 42 of List 
I, entries 26 and 27 of List II and entry 33 of List Ill). 
149. To recapitulate, the submission that the scope ofArticle 303
is restricted only to the four entries noted above cannot conummd itself 
for acceptance of the following reasons : 
F 
(i) the key expressions in Article 303 are ·'shall have the power 
to make any law" 111aki11g any discrimination between one state and 
another and "by virtue of any entry relating to trade and commerce"; 
(ii) the expression ''power to make any law'' would on its plain 
and literal meaning include tax laws. There is no justification to read this 
G 
as "any law other than a tax legislation; 
(iii) the expression "any entry relating to trade and commerce has 
a comprehensive significance, meaning something that is associated with 
or having a nexus to. The words ·any entry relating to trade and 
commerce· are words of amp! itude and cannot be construed in a 
H 
restrictive sense.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
597 
[DR. D. Y. CHANDRACHUD, J.] 
150. In State of Madras v. N K Nataraja Mudaliar6\ a 
A 
Constitution Bench of this Court, while construing the provisions of the 
Central Sales Tax Act, 1956 dealt with the submission that entries relating 
to trade and commerce in the legislative lists, within the meaning of 
A11icle 303 would not include entries with respect to the levy of a tax on 
trade and commerce. It was also urged that the words in A11icle 303 
must be confined to entries 41 and 42 of List I, entries 26 and 27 of List 
11 and ent1y 33 of List Ill. This issue was however kept open by the 
Constitution Bench, as is evident from the following extracts : 
"12. It was contended on behalf of the State that the power 
under Article 303 could only be exercised so as to restrict 
the authority of the Parliament which arises by vi11ue of an 
entry relating to trade and commerce in the legislative lists 
and it was urged that an entry with respect to the levy of 
tax on trade and commerce and is not an entry relating to 
trade and commerce and therefore there is no prohibition 
against the Parliament exercising power or authorising the 
giving of any preference to one State over another or making 
or authorising the making of any discrimination between on 
State and another by exercise of taxing power. Reliance in 
support of that contention was placed upon the judgment in 
Sundararamier and Company v. State of Andhra Pradesh
MANU/SC/0151/1958: [1958] 1 SCR 1422 in which 
Venkatarama Aiyar, J., pointed out that under the scheme 
of entries in List I & II of the Seventh Schedule, the power 
of taxation exercisable in respect of any matter is a power 
distinct from the power to legislate in respect of that matter. 
It was also urged that the expression "an entry relating to 
trade and commerce in any of the Lists in the Seventh 
Schedule i.e. entries 41 & 42 of List I, entries 26 & 27 of 
List Ill and entry 33 of List Ill in the Seventh Schedule, 
and extended to no others. On the other hand, it was 
contended that all legislative entries which directly affect 
trade and commerce are also within the expression "entry 
relating to trade and commerce ...... 
"(1968) 3 SCR 829 
B 
c 
D 
E 
F 
G 
H
598 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
13. We need to express no opinion on the two questions 
argued before us. The question whether entries relating to 
trade and commerce in the Lists in the Seventh Schedule 
are restricted to entries 41 & 42 of List I, entries 26 & 27 
of List II and entry 33 of List III, or relate to all general 
entries which affect trade and commerce, is academic in 
the present case. Nor do we think it necessary to decide 
whether for the purpose of Article 303 entries relating to 
tax on sale or purchase of goods i.e, entry 92A of List I, 
and entry 54 of List II are entries relating to trade and 
commerce, for, in our opinion, an Act which is merely 
enacted for the purpose of imposing tax which is to be 
collected and to be retained by the State does not amount 
to law giving, or authorising the giving of any preference to 
one State over another, or making, or authorising the making 
of, any discrimination between one State and another, merely 
because of varying rates of tax prevail in different States." 
151. In a subsequent judgment of a Constitution Bench in State 
of Tamil Nadu v. Sitolakshmi Mills63, the assesse had claimed before 
the Madras High Court that it was not liable to be taxed at the higher 
rate under Section 8(2)(b) of the Central Sales Tax Act, 1956 on the 
turnover of sales in the course of inter-state trade to government or to 
unregistered dealers even though they had not obtained the C and D
fonns because Section 2(B) violates Articles 301 and 303(1) of the 
Constitution. The High Court accepted those claims. In appeal, the 
Constitution Bench observed: 
"8 .... Nonnally, a tax on sale of goods does not directly 
interfere with the free flow or movement of trade. But a 
tax can be such that because of its rate or other features, it 
might operate to impede the free movement of goods. The 
majority judgment delivered by Shah, J., in State of 
Madras v. N. K. Nataraja Mudaliar proceeds on the basis 
" (1974 J 4 sec 408
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
that tax under the Central Sales Tax Act is in its essence a 
tax which encumbers movement of trade and commerce, 
but the tax imposed in the case in question was saved by 
the other provisions of Part XIII. The Court then said that 
the.exercise of the power to tax would nonnally be presumed 
to be in the public interest and as Parliament is competent 
under Article 302 to impose restrictions on the freedom of 
trade, commerce and intercourse between one State and 
another or within any part of the territory oflndia as may 
be required in the public interest, the tax was saved .... 
9. Bachawat, J., in his judgment in the case said that if a 
tax on intra-State sales does not offend Article 301, logically, 
a tax on inter-State sales also cannot do so, that a tax does 
not operate directly or immediately on the free flow of trade 
or the free movement or transport of goods from one part 
of the country to the other, that the tax is on the sale, and 
that the movement is incidental and a consequence of the 
sale. He observed further that even assuming that the 
Central Sales Tax is within the mischief of Article 301, it is 
certainly a law made by Parliament in the public interest 
and is saved by Article 302 ..... . 
10. As already stated, Section 8(2)(b) deals with sale of 
goods other than declared goods and it is confined to inter-
State sale of goods to persons other than registered dealers 
or
governments. The rate of tax prescribed is 10 per cent 
or the rate of tax imposed on sale or purchase of goods 
inside the appropriate State, whichever is higher. The report 
of the Taxation Inquiry Committee would indicate that the 
main reason for enacting the provision was to canalize inter-
State trade through registered dealers, over whom the 
appropriate government has a great deal of control and thus 
to prevent evasion of tax: 
"Where transactions take place between registered dealers 
in one State and unregistered dealers or consumers in 
another, this low rate of levy will not be suitable, as it is 
599 
A 
B 
c 
D 
E 
F 
G 
H
600 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] IO S.C.R. 
likely to encourage avoidance of tax on more or less the 
same scale as the present provisions of Article 286 have 
done. If this is to be prevented, it is necessary that 
transactions of this type should be taxable at the same rates 
which exporting States impose on similar transactions within 
their own territories. The unregistered dealers and 
consumers in the importing State will then find themselves 
be unable to secure any advantage over the consumers of 
locally purchased aiiicles, nor of course will they, under 
this system, be able to escape the taxation altogether, as 
many of them do at present." [See Report of the Taxation 
Enquiry Commission, 1953-54, Vol. 3, p. 57] ....... 
In other words, it was to discourage inter-State sale to un-
registered dealers that Parliament provided a high rate of 
tax, namely I 0 per cent. But even that might not serve the 
purpose if the rate applicable to intra-State sales of such 
goods was more than I 0 per cent. The rate of I 0 per cent 
would then be favourable and they would be at an advantage 
compared to local consumers. It is because of this that 
Parliament provided, as a matter oflegislative policy that 
the rate of tax shall be I 0 per cent or the rate applicable to 
intra-State sales whichever is higher. .... 
11.lf prevention of evasion of tax is a measure in the public 
interest, there can be no doubt that Parliament is competent 
to make a
provision for that purpose under Article 302, even 
if the p,rovision would impose restrictions on the inter-State 
trade or commerce." 
(Id. at 413-414) 
The statutory provision was consequently upheld on the ground 
that as a measure for preventing the evasion of tax in the public interest, 
Parliament was competent to enact it under Article 302 even if it restricted 
inter-state trade and commerce. 
H.3.3 Construing Article 304 
152. The area which assumes a great deal of importance in the 
present case is whether it would be correct to postulate that taxes, save
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
and except for discriminatory taxes under Article 304( a) would lie outside 
the pale and purview of Part Xlll. lfthis submission was to be accepted, 
the necessary consequence would be that only a discriminatory tax of 
the nature contemplated by Article 304(a) would offend the guarantee 
of freedom under A1iicle 301. A non-discriminatory tax would lie outside 
the purview of Part Xlll. Once a tax meets the parameters of A1iicle 
304(a), it would not breach the freedom of trade and commerce. Clauses 
a and b of Article 304 would- in the line of argument have to be treated 
in a disjunctive manner and a tax which is consistent with Clause (a) 
would not need to meet the requirements of Clause (b ). 
601 
A 
B 
153. Justice G P Singh in his seminal treatise, 'Principles of C 
Statutory interpretation '04 states that marginal notes to constitutional 
provisions are, as a matter of interpretation, treated as being a part of 
the Constitution and as providing some guidance as to the meaning of a 
provision: 
"Marginal notes appended to Articles of the Constitution 
have been held to constitute pait of the Constitution as passed 
by the Constituent Assembly and therefore they have been 
made use of in construing the A1ticles, e.g. A1ticle 286, as 
D 
furnishing 'prima facie', 'some clue as to the meaning and 
E 
purpose of the A1ticle'." 
While Article 301 stipulates that trade, commerce and intercourse
throughout the territory of India shall be free, this guarantee is made 
subject to the other provisions of Part Xlll. Part Xlll has employed 
F 
both the expressions "subject to" on the one hand and "notwithstanding 
anything" on the other. The expression "subject to" has a well-known 
legal connotation which conveys the idea of a provision yielding place to 
another provision or to other provisions to which it is made subject. This 
principle has been enunciated in the judgment of this Court in South 
G 
Indian Corporation (P) Ltd. v Board of Revenue65 . 
"14•" Edition, page 190- in foot note 91. Bengal Immunity Co.Ltd.v. State of Bihar, 
AIR 1955 SC 661, p.676: (1955) 2 SCR 603. See also Golaknath v. State of Punjab, 
AIR 1967 SC 1643, p. 1658: 1967 (2) SCR 762, where marginal note to Article 368 
was refen-ed. 
,,, (1964) 4 SCR 280 
H
602 
A 
B 
c 
D 
E 
SUPREME COURT REPORTS 
[2016) 10 S.C.R. 
154. In State of Bombay v. The United Motors (India) Ltd66 , 
Chief Justice Patanjali Sastri, speaking for a Constitution Bench spoke 
of the subordination of the freedom under Article 301 to the powers of 
the states to levy non-discriminatory taxes. The learned Judge held : 
"11 ... .It will be seen that the principle of freedom ofinter-
State trade and commerce declared in Article 301 is 
expressly subordinated to the State power of taxing goods 
imported from sister States, provided only no discrimination 
is made in favour of similar goods oflocal origin. Thus the 
states in India have full power ofimposing what in American 
State Legislation is called the use tax, gross receipts tax, 
etc. not to speak of the familiar property tax, subject only 
to the condition that such tax is imposed on all goods of the 
same kind produced or manufactured in the taxing State, 
although such taxation is undoubtedly calculated to fetter 
inter-State trade and commerce. In other words, the 
commercial unity oflndia is made to give way before the 
State-power of imposing "any" non-discriminatory tax on 
goods imported from sister Sates." 
(Id. at p. I 081) 
155. Article 304 begins with a non-obstante provision which takes 
effect notwithstanding what is contained in Articles 301 or 303. A non-
obstante provision of this nature has a distinctive meaning. In 
Chandavarkar Sita Ratna Rao v. Ashalata S. Guram67, this Court 
F
held that: 
"68 .. .It is well settled that the expression 'notwithstanding' 
is in contradistinction to the phrase 'subject to', the latter 
conveying the idea of a provision yielding place to another 
G 
provision or other provisions to which it is made subject." 
(Id. at p. 478) 
"(1953) 4 SCR 1069 
H 
07 (1986) 4 sec 447
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
In South India Corporation v. Board of Revenue68 , while 
interpreting Articles 372 and 278 of the Constitution, this Court emphasised 
that the phrase "notwithstanding anything in the Constitution" is equivalent 
to stating 'inspite of the other articles of the Constitution' or that the 
other articles shall not to be an impediment to the operation of that 
particular article. 
156. The use of the non-obstante clause in Article 304 in its 
application to Article 301 has been debated. That is because while Article 
301 makes the guarantee of freedom of trade and commerce subject to 
the other provisions of Part Xlll, Article 304 commences with a non-
obstante provision which operates notwithstanding what is contained in 
Article 301. A reasonable construction or meaning would have to be 
attributed to these two provisions. So construed, Article 304, in its non-
obstante provision, must mean that it would permit what is contemplated 
by Clauses (a) and (b) even though it would otherwise be within the 
ambit of the freedom guaranteed by Article 301. Similarly, in its application 
603 
A 
B 
c 
to Article 303, the non-obstante clause in Article 304 indiCates that despite 
D 
the prohibition that is contained in Article 303, the state legislature is 
empowered to do something of the nature that falls within the ambit of 
the provision. The non-obstante provision of Article 304 governs both 
Clauses (a) and
(b) that follow. By virtue of Clause (a), the legislature of 
a State can, despite the provisions of Article 301, impose a non-
discriminatory tax. The power to impose a tax, it must be noted, is not 
conferred by Clause (a) of Article 304 but is a power which is traceable 
to the legislative power of the states under Articles 245 and 246 of the 
Constitution read with the legislative entries in the State List. Article 
304(a) is a clear indication that though a tax may constitute a restriction 
within the meaning of Article 30 I, the imposition of a non-discriminatory 
tax is pennissible to the state legislature. Article 304(a) lifts an embargo 
that would otherwise have existed but for the non-obstante provision. 
Article 304(a), however, mandates that a tax which is being imposed on 
goods imported from other States or Union territories must be a tax to 
which similar goods manufactured or produced in that state are subject. 
Moreover, the tax shall not discriminate between goods that are imported 
and goods so manufactured and produced. 
" (1964) 4 SCR 280 
E 
F 
G 
H
604 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
H.3.4 Conjunctive or disjunctive: 'may'; 'and' 
157. Clauses (a) and (b) of Article 304 are separated by the use 
of the expression "and". The issue is whether the expression "and" is to 
be construed as conjunctive or disjunctive. Clause (b) contemplates 
reasonable restrictions being imposed under a law enacted by the state 
legislature on the freedom of trade, commerce and intercourse with or 
within that state as are required in the public interest. The proviso operates 
only in relation to clause (b) and not clause (a). It stipulates that no bill or 
amendment for the purposes of clause (b) shall be introduced or moved 
in the legislature of a state without the previous sanction of the President. 
The mandate of the proviso can however be cured under Article 255 
which provides as follows : 
"Article 255 : No Act of Parliament or of the Legislature of 
a State and no provision in any such Act, shall be invalid by 
reason only that some recommendation or previous sanction 
required by this Constitution was not given, if assent to that 
Act was given-
( a) where the recommendation required was that of the Governor, 
either by the Governor or by the President; 
(b) where the recommendation or previous sanction required was 
that of the President, by the President." 
Hence even though the previous sanction which is required under 
the proviso to Article 304(b) before the introduction of a bill has not
been 
obtained, this deficiency can be cured if assent to the Act passed by a 
legislature is given by the President. 
158. Article 304 provides that the legislature of a state may by 
law (a) impose a non-discriminatory tax as provided in clause (a); and 
(b) impose reasonable restrictions on the freedom .of trade, commerce 
or intercourse. The expression 'may' in the prefatory part of Article 
304 has to be read together with the expression 'and' which separates 
clause~ (a) and (b). The use of the expression 'may' is indicative of the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
605 
[DR. D. Y. CHANDRACHUD, J.] 
intent that the legislature of a state is not bound to levy an impost on 
goods imported from other states ( thot.gh if it does so, the tax has to be 
non-discriminatory). Similarly, the state legislature has an enabling power 
to impose restrictions under clause (b). The legislature ·may' do so. It 
has the discretion whether to impose a tax or to impose a restriction and 
is not bound to do so. 
159. The word 'and' is normally used in the conjunctive sense (G 
P Singh 011 Interpretation of Statutes00). However, this is not always the 
case. Coupled with the use of the expression 'may, the expression ·and' 
A 
B 
in Article 304 should be construed to mean and/or. In other words, the 
legislature of a state may take recourse to both clauses (a) and (b) of C 
Article 304 or either of them. 
160. The nuances of statutory interpretation when the expressions 
'may' and 'and' are used together, have been succinctly summarised in 
"Statutory Interpretation" by Ruth Sullivan. The statement of legal 
position is thus: 
D 
"2) ''And" and "Or" 
a) Joint or Joint and Several "'and" 
Both "and'' and "or" are inherently ambiguous. "And" is 
always conjunctive in the sense that it always signals the 
cumulation of the possibilities listed before and after the 
"and". However, ''and" is ambiguous in that it may be joint 
or joint and several. In the case of a joint ''and", every 
listed possibility must be
included: both (a) and (b); all of 
(a), (b), and (c). In the case of a joint and several "and", all 
the possibilities may be, but need not be, included: (a) or (b) 
or both; (a) or (b) or (c), or any two, or all three. In other 
words, the joint and several "and'' is equivalent to "and/ 
or" ..... 
Which meaning is appropriate depends on the context. When 
E 
F 
"and" is used before ihe final item in a list of powers, for 
G 
example, it is joint and s.:1 era!: 
To carry out the purposes of this Act, the Governor in Council 
"
9 
ld. at p. 530 
H
606 
SUPREME COURT REPORTS 
(2016] 10 S.C.R. 
A 
may make regulations respecting 
B 
c 
D 
E 
F 
(a) the conditions on which licences may be issued; 
(b) the infonnation and fees that fireann vendors may 
be required to furnish; and 
( c) the annual fees that firearm owners may be 
charged ...... . 
In this provision the Governor in Council is empowered to 
make regulations on any one or more of the listed subjects. 
However, notice what happens if "may" is replaced by 
"shall". If the Governor in Council is obliged to make 
regulations respecting (a) conditions (b) information and 
(c) fees, the joint and several "and" becomes joint". 
In the context of Article 304(a) the use of the expression 'may' in 
the prefatory part together with 'and' which separates clauses (a) and 
(b) indicates that the true meaning and intent is conveyed by the joint 
and several and/or. The state legislature may impose a tax falling under 
clause (a) as well as a reasonable restriction falling under clause (b). 
Alternately it may impose one of them. These being enabling provisions, 
the legislature may not take recourse to either. However, when it imposes 
a tax and/or a restriction, the state legislature has to abide by the 
conditions of clauses (a) and (b) respectively. 
H.3.S Article 304(a) not the universe of taxation 
161. The submission of the states is that Article 304(a) is the only 
provision which deals expressly with a tax measure and that clause (b) 
can never be construed to cover
the imposition of a tax. This submission 
has been founded on more than one rationale. First, it has been submitted 
G 
that when Article 304 uses separate expressions, taxes and restrictions, 
there is no reason or justification to bring taxes within the ambit of 
restrictions. Second, it has been submitted that clause (b) of Article 
304(a) contemplates the imposition of a reasonable restriction in the 
public interest. Taxation, it has been urged is presumed to be in the 
public interest. Third, it has been submitted that in the context of Article 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
607 
[DR. D. Y. CHANDRACHUD. J.] 
19, judgments of this Court which have held that the guarantee under 
Article 19( l )(g) does not confer an immunity from taxation. 
162. A discriminatory tax is prohibited by Artie le 304(a). There is 
intrinsic material in the constitutional text to indicate that Article 304(a) 
does not exhaust the universe of taxation for the purposes of Part Xlll. 
First, Article 304(a) provides that the legislature of a state may by law 
impose on goods imported from other states or union territories any tax 
to which similar goods manufactured or produced in that state are subject. 
The ambit of clause (a) is a tax on goods, the origin of the goods being a 
state other than the state which is imposing the tax. Article 30 I (over 
vvhich the non-obstante clause contained in Article 304 operates) has a 
geographical coverage which extends throughout the territory of India. 
Article 3 0 I guarantees the freedom of trade and commerce not only 
across state boundaries but equally freedom within any part of the territory 
of India. If the freedom of trade and commerce is restricted by a 
discriminatory tax-as Article 304(a) postulates is the case-the imposition 
of a discriminatory tax on internal movement within a state must by the 
same logic breach the freedom guaranteed by Article 301. Since Article 
304(a) covers only a tax on goods imported from other states, a 
discriminatory tax on goods which do not
traverse state boundaries would 
not fall within the ~mbit of Article 304(a). Yet it would offend Article 
30 l. A state may conceivably have a justification in the public interest in 
doing so or for imposing such a tax and if it were to do so, it must meet 
the requirements of Article 304(b ). If Article 304 (b) were to be construed 
to not include taxes, such a course of action would be barred, however 
legitimate be the state interest. 
A 
B 
c 
D 
E 
163. There is a second reason why the language and scheme of 
F 
Part XIll must lead to the conclusion that it is not only discriminatory 
taxes of the nature contemplated by Article 304(a) which fall within the 
ambit of the Part. Article 304(a) only covers a tax on goods (goods 
imported from other states as seen above). A tax imposed by the state 
legislature otherwise than on goods, does not fall within the ambit of G 
Article 304(a). The taxing entries of List ll of the Seventh Schedule 
include various taxes that fall within the legislative competence of the 
state legislatures other than a tax on goods. Among the -taxing entries of 
List II (entries 46 to 62) are several which deal with aspects of taxation 
of goods. They include Entry 51 (providing for duties of excise on (i) 
I-I
608 
A 
B 
c 
D 
E 
F 
SUPREME COURT REPORTS 
[2016J 10 S.C.R. 
alcoholic liquors for human consumption: and (ii) opium. hemp and oth.:r 
narcotics drugs and narcotic manufactured and prndueed in the state 
and countervailing duties on similar goods manufactun:d or produced 
elsewhere in India): Entry 52 (taxes on the entry of goods into a local 
area for consumption, use or sale); Entry 53 (taxes on the consumption 
and sale of electricity); Entry 54 (taxes on the sale or purchase of goods 
other than newspapers subject to Entry 92A of List I); Entry 56 (taxes 
on goods carried by road or on inland waterways); Entry 57 (taxes on 
vehicles, whether mechanically propelled or not, suitable for use on 
roads subject to Entry 35 of List Ill) and Entry 58 (taxes on boats). 
Entries which deal with taxes other than on goods arc Entry 56 (taxes 
inter alia on passengers carried by road or on inland waterways): Entry 
59 (tolls): Entry 60 (tax on profe;,sions, trades, callings and employments): 
Entry 61 (capitation taxes) and Entry 62 (taxes on luxuries. including: 
taxes on entertainments. arnu~:ernents, betting and gambling). Artide 
304(a) applies only to taxes on goods. A tax which is not on goods or on 
aspects bearing on goods is not governed by Article 304(a). A 
discriminatory tax which is not on goods is not within the prohibition of 
that article. For instance, a discriminatory tax on luxuries. entertainments, 
amusements, betting and gambling will not be governed by
Article 304(a). 
Similarly, Article 304(a) will not apply to a tax on passengers carried on 
roads or inland wakrways under Entry 56. Since the ambit of Article 
304(a) is a non-discriminatory tax on goods imported from other states, 
it is evident that !his provision is not exhaustive even of those discriminatory 
taxes which will olfend Article 301. There are taxes which fall within 
the legislative competence of the states, other than on goods, which are 
outside the purview of Article 304(a). lfthose taxes impede the freedom 
of trade, commerce and intercourse they would infringe Article 30 I 
though they do not fall within Article 304(a). 
164. Third, Article 302 has been held to enable Parliament to 
impose Central Sales 'fox (Sitolakshmi Mills) (supra). The expression 
"restrictions'' in Article 302 has been construed not to exclude a restriction 
G 
by way of a taxing measure. If the expression ·restriction' for the 
purposes ofA1ticle 302 does not exclude a legislative measure by way 
of a fiscal imposition, it cannot evidently be excluded from the ambit of 
the phrase 'restrictions· in Article 304. 
1-1
JINDAL STAINLESS LT'D. v. S"TATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
165. Fourth, this condusion is buttressed by the non-obstante 
provision contained in Article 304. The plain meaning of the non-obstante 
provision is that state legislal.urc.; m.·.i cn~1ct legislation in exercise of 
their law making authority u:1der Articles 245 and 246, of the nature 
contemplated by clauses (a) and (b) of Article 304, despite the fact that 
such a legislative measure \r<iuld otherwise fall within the ambit and 
purview of Atticle 301. The non-obstante provision in Article 304(a) 
refers to Article 30 I. Obviously, unless something falls within the ambit 
of Article 30 I, there is no reason to incorporate the non-obstante clause 
in Article 304(a). In other words, what Article 304(a) does is to indicate 
that despite the fact that a legislative measure falls under Article 30 I, it 
is permissible if it adheres to Article 304. Despite Article 30 I, it is 
permissible in view of Article 304(a). Artide 304(a) lifts the embargo. 
166. The use of the dause ofsubjection in Artick 30 l and the 
non-obstante provision in Article 304 liavl: been criticised as a case of 
inartistic draftsmanship. A clause which makes a constitutional provision 
or, for that matter, a statutory provision subject to another makes the 
provision in which that clause is contained subordinate to the provision 
to which it is subjected. On the other hand, a non-obstante provision 
commencing with the word
'notwithstanding' is intended to indicate that 
the text in which the provision is contained overrides another. The criticism 
is that the expressions "subject to the other provisions of this Part'' in 
Article 301 and "notwithstanding anything in Article 30 \ '' in Article 304(a) 
are incongruous. For, the former expression subjects Article 30 I to the 
other provisions of Part XIII [including Article 304(a)]. Hence, it was 
unnecessary to use a non-obstante clause in Article 304(a). 
167. Having noticed this er;ticism, it is necessary to harmonise 
the text of Article 301 with Article 304. The guarantee of freedom 
under Article 30 I is subject to Part XIII. Attic le 304 enables a state 
legislature in the exercise of its legislatiYe power (under Articles 245 
and 246) to enact a law despite the fact that it may otherwise fall within 
the ambit of Articles 30 I or 303. Article 303 contains the mandate that 
neither Parliament nor the legislature of the state can grant preferences 
to one state over another or discriminate between one state and another 
by virtue of the entries relating to trade and commerce in the lists of the 
Seventh Schedule. Article 303 postulates (in relation to Parliament) that 
609 
A 
B 
c 
D 
E 
F 
G 
H
610 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
(2016] 10 S.C.R. 
the power conferred upon Parliament under Article 302 to impose 
restrictions on the freedom of trade, commerce or intercourse, in the 
public interest between one state and another or over any part of the 
territory of India cannot be exercised so as to grant preferences or to 
discriminate between one state and another. However, this embargo is 
lifted by clause (2) of Article 303 when Parliament is dealing with a 
situation of scarcity of goods in any part of the territory of India. In 
relation to the legislature of the state, Article 303(1) imposes the same 
mandate against the grant of preferences between states or the making 
of any discrimination. However, clause (2) of Article 303 does not apply 
to the state legislatures. Clause (1) of Article 303 is a restraint on 
discriminating between one state over another or from granting 
preferences between them. In other words, the treatment which is 
extended to one state has to be extended to every other state. The grant 
of preferences or the making of discrimination is proscribed. Article 
303(1) is akin to a provision in international trade parlance conferring a 
'most favoured nation' treatment. Under such an 'mfn 'clause, treatment 
extended to one nation state has to be extended to the other. Article 
303(1) embodies a similar principle inter se between the states so as to 
ensure a unifonnity of treatment between states when Parliament or the
state legislatures enact a law in exercise of their law making power. A 
state legislature which enacts a law is required to confer a parity of 
treatment to other states and is prevented from granting preferences to 
one state over another or from making discrimination between one state 
and another, by the operation of Article 303(1). Article 304(a), however, 
allows the legislature of a state to impose a tax on goods imported from 
other states or union territories so long as the tax is one which is imposed 
on similar goods manufactured or produced in that state. Article 304 (a) 
in other words has the effect of lifting an embargo which would arise 
under Article 30 I. The clause of subjection in Article 30 I and the non-
obstante clause of A11icle 304 can hence be hannonised. 
168. Article 306 of the Constitution (prior to its repeal by the 
Constitution (Seventh Amendment) Act, 1956) dealt with the power of 
certain states in Part B of the First Schedule to impose restrictions on 
trade and commerce. Article 306 before its deletion provided as follows: 
"306. Notwithstanding anything in the foregoing provisions 
of this Part or in any other provisions of this Constitution,
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD. J.] 
any State specified in Part B of the First Schedule which 
before the commencement of this Constitution was levying 
any tax or dutv on the import of goods into the State from 
other States or on the export of goods from the State to 
other States may, if an agreement in that behalf has been 
entered into between the Government of India and the 
Government of that State, continue to levy and collect such 
tax or duty subject to the terms of such agreement and for 
such period not exceeding ten years as may be specified in 
the agreement :Provided that the President may at any time 
after the expiration of five years from such eomrneneernent 
terminate or modify any such agreement if, after 
consideration of the report of the Finance Commission 
constituted under Article 280, he thinks it necessary to do 
so .. r 
The above provision clearly envisages that taxes and duties which 
were being levied on imports into and exports from Patt B states were 
restrictions. Hence, a specific provision was incorporated, to provide 
for their continuance for a stipulated period. That such taxes and duties 
would otherwise have infringed Article 301 is evident from the non-
obstante provision permitting their continuance. 
169. Article 306 as it was originally incorporated into the 
Constitution provided a clear indicator that the founding fathers did not 
intend to use the expression ·restrictions· in
contradistinction to taxes or 
duties on the import or export of goods between states. 
170. Article 304(a) elaborates that a particular form of taxation-. 
a non-discriminatory tax on goods - shall not be construed to violate 
Article 301. But Article 304(a) is not exhaustive of the universe of 
taxation. Article 304(a) has three defining characteristics. The first is 
that the tax is a tax on goods. The second is that it is a tax on goods 
imported from other states. The third is the non-discrimination norm in 
relation to similar goods produced or manufactured in the state. A tax. 
which fails to meet the yardstick embodied in Atticle 304(a) will violate 
Article 301. But Article 304(a) cannot be a basis for holding that every 
611 
A 
B 
c 
D 
E 
F 
G 
H
612 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
(2016] 10 S.C.R. 
fiscal measure (apait from a discriminatory tax) lies outside the purview 
of Part XIII. For one thing, the rate of tax is but one element of taxation. 
There are other elements in a fiscal exaction including assessment, the 
machinery for collection and set offs and exemptions which can have an 
important bearing on whether the tax operates in a manner that impedes 
the freedom of interstate trade and commerce. Moreover, as we have 
noticed earlier, a discriminatory tax otherwise than on goods, does not 
attract the provisions of Article 304(a). Finally, a non-discriminatory tax 
may also become an impediment on the freedom of trade and commerce 
where the tax is so high as to render it confiscatory. Hence, a 
discriminatory fiscal imposition of the nature which offondsArticle 304(a) 
is illustrative of but not exhaustive of fiscal impediments on the freedom 
of trade and commerce. 
171. The Constituent Assembly, while adopting Article 304 
incorporated a marginal note which describes the ambit of the provision 
as : ;'restrictions on trade, commerce and intercourse amongst states". 
The marginal note is a broad indicator of constitutional intent. lt is a 
constitutional indicator of the position that a restriction on the freedom 
of trade and commerce can be fiscal or non-fiscal in origin. The marginal 
note evidently utilizes the expression ';restrictions" in relation to the entirety 
of the article.
Though a marginal note cannot override constitutional 
text nor can it control the specific meaning of the words used in the text, 
it is a broad indicator or pointer to the meaning intended. 
l 72. For these reasons, it would be untenable to postulate as a 
general principle that it is only a discriminatory tax falling within the 
ambit of Article 304(a) that is subject to Part XIII of the Constitution. 
I Tax legislation - Judicial review and Part XIII 
1.1 Taxation and Part XII 
173. In early decisions of this Court, the issue as to whether the 
legislative power to tax was subject to constitutional control independent 
of Article 265 was analysed. The initial view was that the power of 
taxation was subject to exclusively to Article 265 under which a tax can 
be imposed only with the authority of law. Consequently, a Constitution 
Bench of this Court in Ramjilal v. Income Tax Officer,
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
613 
[DR. D. Y. CHANDRACHUD, J.] 
Mohindargarh70, held that the protection against imposition and 
A 
collection of taxes save by authority of law directly comes from Article 
265 and is not secured by clause (I) of Article 31: 
"l l ... If collection of taxes amounts to deprivation of 
property within the meaning of Article 31 (I), then there 
was no point in making a separate provision again as has 
B 
been made in Article 265. It, therefore, follows that clause 
( l) of Article 31 must be regarded as concerned with 
deprivation of property otherwise than by the imposition or 
collection of tax, for otherwise Article 265 becomes wholly 
redundant. In the United States of America, the power of 
C 
taxation is regarded as distinct from the exercise of police 
power or eminent domain. Our Constitution evidently has 
also treated taxation as distinct from compulsory acquisition 
of prope1ty and has made independent provision giving 
protection against taxation save by authority of law.'' 
l 74. However, in Kunnathat Thathunni Moopil Nair v. The 
State ofKerala71 , Chief Justice Sinha speaking for a Constitution Bench 
rejected the submission that Article 265 of the Constitution was "a 
complete answer" to the validity of a state taxing law (The Travanc.ore-
Cochin Land Tax, 1955).The Constitution Bench held that Article 265 
imposes a limitation by which a tax cannot be levied or collected by a 
mere executive fiat. Under Article 265,
a tax can be imposed only with 
the authority oflaw which, it was held, must mean a valid law. For a law 
to be valid, it must be enacted by a legislature which possesseslegislative 
competence and the tax must accord with Article 13. Hence, the 
Constitution Bench ruled that if the enactment imposing a tax violates 
Article 14, it would have to be struck down since the guarantee of equal 
protection of law must extend even to taxing statutes. Another 
Constitution Bench in Balaji v. Income Tax Officer, Special 
Investigation Officer72 , rejected the submission that taxing legislation 
was immune to a challenge on the ground ofa violation of Article 19. In 
Chhotabhai Jethabhai Patel & Co. v. Union ofindia73 , a Constitution 
Bench ruled that the judgment in Ramjilal could not have meant that if 
70(1951)2 SCR 127 
11 1961 (3) SCR 77 
" 1962 (2) SCR 983 
1.1 (1962) Supp. (2) SCR I 
D 
E 
F 
G 
H
614 
A 
B 
c 
D 
E 
F 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
a law imposing a tax is outside the legislative competence of the legislature 
enacting it, it could be a law under which a person could be deprived of 
property under A11icle 31 or regarding which the Supreme Court could 
not be approached for relief under Article 32. The Constitution Bench 
held that it was also not possible to accept a more limited proposition 
that once a tax law is covered by an entry in the legislative lists and does 
not contravene a direct prohibition such as Article 276(2) or Article 286, 
such a law is immune from a challenge under Part lll of the Constitution. 
A taxing legislation could be impugned on the ground of: (i) lack of 
legislative competence; (ii) violation of a prohibition under a specific 
article of the Constitution; or (iii) repugnancy to the fundamental rights 
guaranteed by Pai1 JJl. 
175. In Raja Jagannath Baksh Singh v. State of U. P.74,the 
Constitution Bench held that though inRamjilal (supra) there were general 
observations which indicated that the fundamental rights guaranteed in 
Part 1Il could not be invoked in respect of a taxing statute, a consensus 
had emerged in subsequent decisions of this Court that a law imposing a 
tax could be challenged not only for want oflegislative competence but 
also on the ground of its violating the freedoms contained in Part Ill. 
176. A law which imposes a tax is not immune from constitutional 
challenge merely because
taxation is a manifestation of the sovereign 
power of the state or because there is a presumption that a tax is imposed 
by the legislature in public interest. Taxing legislation is subject to 
constitutional restraints originating in the legislative competence of the 
legislature to enact the law, the guarantees of fundamental freedoms 
contained in Part Ill and constitutional limitations originating in the 
provisions of the Constitution. 
1.2 The standard of judicial review 
177. The standard of judicial review in relation to taxing legislation 
G 
however recognizes that there inheres in the legislature the power to 
determine the objects on which a tax should be levied and to classify 
persons or properties for the purposes of the levy. If the classification is 
rational, a taxing statute cannot be challenged merely because different 
" (I 963) I SCR 220 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
rates of taxation are prescribed for different categories of persons or 
objects. The validity of a taxing statute cannot be challenged merely on 
the ground that the rate of taxation is excessive. However, if the statute 
is a colourable piece of legislation or a fraud on legislative power, it 
would be open to challenge on the ground that while enacting the law, 
the legislature has adopted a cloak or devise to confiscate the property 
of a citizen who is taxed. But such a conclusion cannot be reached 
merely on a finding that the tax which is imposed is unreasonably high or 
excessive. 
615 
A 
B 
178. Conceptually, the availability of judicial review in regard to 
taxing legislation is distinct from the standard of judicial review. Taxing 
C 
legislation is not immune from constitutional challenges based on a lack 
oflegislative competence, a breach of fundamental rights or a violation 
of a constitutional limitation or provision. But the standard of judicial 
review in relation to fiscal statutes recognizes that the legislature must 
possess a wide latitude to classify person§ or objects for the purposes of 
ilie~~ 
D 
179. ln Federation of Hotel and Restaurant Association of 
India v. Union of India 75, the Constitution Bench applied the test of 
palpable arbitrariness when a fiscal statute is challenged on the ground 
of Article 14. The Court held: 
"46. It is now well settled though taxing laws
are not outside 
Article 14, however, having regard to the wide variety of 
diverse economic criteria that go into the formulation of a 
fiscal policy, the legislature enjoys a wide latitude in the matter 
of selection of persons, subjectmatter, events, etc., for 
taxation. The tests of the vice of discrimination in a taxing 
law are, accordingly, less rigorous. In examining the 
allegations of a hostile, discriminatory treatment what is 
looked into is not its phraseology, but the real effect of its 
provisions. A legislature does not, as an old saying goes, 
have to tax everything in order to be able to tax something. 
If there is equality and uniformity within each group, the 
" (I 989) 3 sec 634 
E 
F 
G 
H
616 
A 
B 
c 
D 
SUPREME COURT REPORTS 
[20 l 6) l 0 S.C.R. 
law would not be discriminatory. Decisions of this Court on 
the matter have permitted the legislatures to exercise an 
extremely wide discretion in classifying items for tax 
purposes, so long as it refrains from clear and hostile 
discrimination against particular persons or classes.·· 
(Id. at p. 658-659) 
1.3 Limitations of Sinha CJ's view in Atiabari 
l 80. Part XIII of the Constitution uses the expression '"law"' in 
Articles 302, 303 and 304, among others. There is no reasonable basis 
for holding that Pat1 Xlll includes all laws enacted by Parliament or the 
State legislatures except laws falling under Entries 82 to 96C of the 
Union List and Entries 46 to 62 of the State List. The judgment of Chief 
Justice Sinha in Atiabari broadly enunciated four reasons for excluding 
taxes from Part XIII of the Constitution: 
i) imposition of taxes is a manifestation of the sovereign power of 
the state which possess the inherent power to impose taxes to 
raise revenues; 
E 
ii) taxation is specifically governed by Part XII which is a self-
F 
G 
H 
contained code and the validity of a taxing statute cannot be 
assessed with reference to a provision outside Pat1 XII; 
iii) taxes provide for resources to improve facilities for trade and 
do not constitute a restriction on the movement of trade; and 
iv) the concept of public purpose being implicit in every tax law, it 
cannot form a part of Article 30 I. 
With the
greatest of deference to the view of the learned Chief 
Justice, it is difficult to subscribe to the general proposition that tax laws 
per se lie outside the ambit of Pm1 XIII. Taxation is indeed a manifestation 
of the sovereign power of the state to raise revenues for public purposes. 
But the exercise of sovereignty is subject to the constitutional limitations 
of a written constitution. Enactment of law by a law making body which 
possess a legislative competence over the subject matter upon which it
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
legislates is one of the constitutional limitations. The Constitution distributes 
legislative powers between the Union and States. While doing so it carves 
out fields oflegislation which are reserved to the Union and the States 
respectively. Legislative powers in relation to taxation are also distributed 
between the Union and the States. Hence, all legislative power (of 
which the legislative power to impose a tax is a part) is subject to the 
distribution provided in the Constitution. Exercise of sovereign power is 
governed by the norms of a written Constitution. Taxing statutes, like 
other legislation, are subject to constitutional limitations including those 
contained in Part XIII. Hence, the general notion that taxation is a 
manifestation of sovereign powers must also comprehend within that 
conceptualisation, the limitations which the Constitution imposes upon 
all legislative power of which the taxing power is a part. 
181. The second ground which weighed in the decision of Chief 
Justice Sinha in Atiabari has been considered earlier. Article 245 
mandates that all laws are subject to the provisions of the Constitution. 
From that basic premise, it must follow that the limitations on the taxing 
power are not only those which are referable to Pait Xll.Asubject such 
as taxation may be referable to a specific part of the Constitution, such 
as Part XII. This does not mean that its validity
must be assessed only 
with reference to the provisions of that Part. The provisions of the 
Constitution are not isolated or watertight compartments. Constitutional 
provisions do not rest in silos. 
182. As regards the third rationale undoubtedly, the revenues which 
the state raises from fiscal exactions generate resources which are also 
utilized to augment trade and commerce. This, however, does not confer 
an immunity from a challenge that a law which is enacted in pursuance 
of the taxing power breaches specific provisions of the Constitution. 
183. While the concept of public purpose is implicit in tax law, it IS 
also implicit in all legislation which is presumed to be in the public interest. 
Yet the presumption of constitutionality or oflegislation being in the public 
interest does not confer a protection or immunity against a specific 
challenge on the ground that it violates a constitutional limitation such as 
that originating in legislative competence, the fundamental rights or 
constitutional provisions. 
617 
A 
B 
c 
D 
E 
F 
G 
H
618 
A 
B 
c 
D 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
1.4 Presidential sanction : the proviso to Article 304(b) 
184. There is an aspect of the submission of the states bearing on 
the impact of the requirement of Presidential sanction under the proviso 
to Article 304(b ), which requires close scrutiny. The submission is that 
if "reasonable restrictions" on the freedom of trade, commerce or 
intercourse with or within a state are construed to include a legislative 
measure imposing a tax, this would constitute a substantial encroachment 
on the power of the states to impose taxes. The requirement of obtaining 
prior Presidential sanction to a bill which is to be introduced or moved in 
the legislature of a state it is urged will, it is urged dilute the sovereign 
power of the states to impose taxes in the fields reserved for them and 
make them subservient to the Union. 
185. While evaluating this submission, it must be emphasised.that 
the proviso attaches to clause b of Article 304. Article 303 prohibits 
both Parliament and the legislature of a state from enacting laws granting 
preferences to one state over another or making discrimination between 
one state over another. 
186. Article 303(2) makes an exception in respect of Union 
legislation enacted to deal with a situation of scarcity of goods in any 
E 
part of the territory of India. The prohibition contained in clause l of 
Article 303 is, hence, lifted in the case of Parliament by clause 2. In the 
case of a
state legislature, Article 303(1) is attracted where it grants 
preferences or makes adiscrimination between one state and another. 
Article 304 in its non-obstante clause refers inter alia to Article 303. 
F 
Consequently, where a state legislature seeks to enact legislation granting 
a preference to one state over another or to make a discrimination of the 
nature referred to in Article 303(1 ), it must comply with the requirements 
of a Presidential sanction under the proviso to Article 304(b ). Where the 
law enacted by the state legislature would result in a preference or 
discrimination prohibited under Article 303(1 ), the embargo can be lifted 
G 
upon obtaining the previous sanction of the President under the proviso 
to Article 304(b ). 
J Article 304(a) ; The principle of non-discrimination 
187. Article 304(a) has been analysed and applied in judicial 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
precedent over the last six decades. The context in which each of the 
decided cases arose for decision has undoubtedly shaped and refined 
the jurisprudence on the subject. Successive Benches have fleshed out 
the content of its language. While understanding Article 304 (a), this 
Court has to analyse the meaning of the expressions (i) 'goods imported 
from other states'; (ii) 'any tax to which similar goods manufactured or 
produced in that state are subject'; and (iii) 'so, however, as not to 
discriminate between goods so imported and goods so manufactured'. 
While defining the meaning of these expressions, judicial review is 
confronted with the basic question of when Article 304(a) would apply 
and the situations in which the requirement of a non-discriminatory tax 
is fulfilled. An important aspect of Aiticle 304(a) is whether it pem1its a 
classification by the state legislature based on the need to achieve the 
economic development of the state. 
If development is a legitimate 
priority, to what extent does A1ticle 304(a) condition the power of the 
state legislature to encourage the growth of its own industries by the 
grant of incentives, rebates and exemptions through fiscal legislation? 
J.1 Precedent : 1963 to 1980 
188. An early decision arose in State of Madhya Pradesh v. 
619 
A 
B 
c 
D 
Abdeali76 . The state government issued a notification under the Madhya 
E 
Bharat Sales Tax Act,
1950, exempting the sale of footwear from the 
payment of sales tax subject to three conditions: 
(i)The foot-wear had to be hand-made and not manufactured on 
a power machine; 
(ii) The sale price should not exceed a stipulated amount; and 
(iii)The sale must be by a manufacturer or a member of his family. 
189. A Constitution Bench of this Court held that the notification 
F 
did not discriminate between foot-wear manufactured or produced in 
G 
the state and that which was imported from other states since the three 
conditions of the notification equally applied to all foot-wear irrespective 
of its origin. A notification granting an exemption for the benefit of small 
"AIR (1963) SC 1237 
H
620 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016) IO S.C.R. 
manufacturers making hand-made shoes of a small value who may be 
unable to compete with large manufacturers was valid. Sigi1ificantly, in 
relation to Article 304(a) it was held that the exemption notification made 
no discrimination between out-of state manufacturers and in-state 
manufacturers since its conditions applied equally to both. A manufacturer 
situated outside the state could also claim the benefit of the exemption 
upon fulfilling the conditions of the exemption. Hence Article 304(a) 
was held not to have been breached. 
190. In Firm A.T.B. Mehtab Majid v. State of Madras77, the 
validity of Rule 16 of the rules framed under the Madras General Sales 
Tax Act, 1939 was challenged by the petitioner who was a dealer in 
hides and skins. The petitioner sold material which was tanned outside 
the state as well as what was tanned inside. The contention was that 
tanned hides and skins imported from outside the state and sold within 
were subject to a higher rate of tax than the tax imposed on hides and 
skins tanned and sold within the state. Moreover, hides or skins imported 
from outside the state after purchase in a raw condition and then tanned 
inside the state were subject to higher taxes than those purchased in a 
raw condition within the state and tanned there. The Constitution Bench 
rejected the submission that Article 304(a) is attracted only when the 
goods enter the state while
crossing its border. In other words, the 
imposition provided under clause (a) must not be only at the point of 
entry. The plea of discrimination was upheld by this Court since the 
sale of hides or skins which had been purchased in the state and then 
tanned within the state was not subject to any further tax. This Court 
found that there was a breach of Article 304( a) for the following reasons: 
"17 .... .If the dealer has purchased the raw hide or skin in 
the State; he does not pay on the sale price of the tanned 
hides or skins; he pays on the purchase price only. If the 
dealer purchases raw hides or skins from outside the State 
and tans them within the State, he will be liable to pay sales 
tax on the sale price of the tanned hides or skins. He too 
will have to pay more for tax even though the hides and 
skins are tanned within the State, merely on account of his 
11 (1963) Suppl.(2) SCR 435
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
621 
[DR. D. Y. CHANDRACHUD, J.] 
having imported the hides and skins from outside and having 
A 
not therefore paid any tax under sub-rule (1 ). " 
Significantly, the Constitution Bench also dealt with the submission 
of the state that the circumstance of hides or skins tanned within the 
state and on which tax had been paid earlier at the time of their purchase 
in a raw condition was sufficient to consider them to be different from 
B 
hides or skins tanned outside the state. This Court held that: 
"18 ... The similarity contemplated by Article 304(a) is in 
the nature of the quality and kind of the goods and not with 
respect to whether they were subject of a tax already or 
not." 
191. In a subsequent decision in A Hajce Abdul Shakoor v. 
State of Madras78, this Court held that Section 2(1) of the Madras 
General Sales Tax (Special Provisions) Act, 1953 discriminated against 
imported hides and skins sold upto 1August1957. The rate of tax on the 
sale of tanned hides and skins was: 
"10 ..... 2 per cent on the purchase price of those hides and 
skins in the untanned condition, while the rate of tax on the 
sale of raw hides and skins in the State during 1955 to 1957 
is 3 pies per rupee." 
Referring to the judgment in Mehtab Majid, this Court held that: 
"10. In the earlier case, discrimination was brought about 
on account of sale price of tanned hides and skins to be 
higher than the sale price of untanned hides arid skins,
though 
the rate of tax was the same, while in the present case, the 
discrimination does not arise on account of difference of 
the price on which the tax is levied as the tax on the tanned 
c 
D 
E 
F 
hides and skins is levied on the amount for which those 
G 
hides and skins were last purchased in the untanned 
condition, but on account of the fact that the rate of tax on 
the sale of tanned hides and skins is higher than that on the 
"AIR (1964) SC l 729 
H
622 
SUPREME COURT REPORTS 
(2016] 10 S.C.R. 
A 
sale of untanned hides and skins. The rate of tax on the 
sale of tanned hides and skins is 2% on the purchase price 
of those hides and skins in the untanned condition while the 
rate of tax on the sale of raw hides and skins in the State 
during 1955 is 3 pies per rupee. The difference in tax works 
B 
c 
D 
E 
out to 7 /l 600th of a rupee, i.e. a little less than, Y, naya 
paise per rupee. Such a discrimination would affect the 
taxation upto the 1st of August 1957 when the rate of tax 
on the sale of raw hides and skins was raised to 2% of the 
sale price." 
192. Another judgment ofa Constitution Bench in State of Madras 
v. N. K. Nataraja Mudaliar79 , involved a case where the provisions of 
the Central Sales Tax Act, 1956 were challenged on the ground that the 
Act pennitted the levy of tax at varying rates in different states. This 
challenge was accepted by the High Court on the ground that the 
imposition of varying rates of tax in different states on similar inter-state 
transactions constituted an impediment, thereby offending Article 301. 
While tracing the history of the legislation Justice J.C. Shah speaking on 
behalf of three judges held that the enactment encumbered the movement 
of trade and commerce for the following reasons: 
"10. Tax under the Central Sales Tax Act on inter-State 
sales, it must be noticed, is in its essence a tax which 
encrn1.1bers movement of trade or commerce, since by the 
F
definition in Section 3 of the Act, a sale or purchase of 
goods is deemed to take place in the course of inter-State 
trade or commerce, if it- (a) occasions the movement of 
goods from one State to another; (b) is effected by a transfer 
of documents of title to the goods during their movement 
from one State to another." 
G 
H 
However, the judgment held that the Central Sales Tax Act which 
was enacted for imposing a tax to be collected and retained by the state 
"(1968) 3 SCR 829
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
did not either grant a preference to one state or another or make any 
discrimination merely because varying rates of tax prevailed in different 
states. This Court rejected the view which had prevailed in the High 
Court that different rates of tax on the sale of the same or similar 
commodities by different states placed an unequal burden on inter-state 
trade: 
'' 14 ... The flow of trade does not necessarily depend 
upon the rates of sales tax: it depends upon a variety 
of factors, such as the source of supply, place of 
consumption, existence of trade channels, the rates 
of freight, trading facilities, availability of efficient 
transport and other facilities for carrying on trade. 
Instances can easily be imagined of cases in which 
notwithstanding the lower rate of tax in a particular part of 
the country and goods may be purchased from another part, 
where a higher rate of tax prevails. Supposing in a paiiicular 
State in respect of a commodity, the rate of tax is 2 per 
cent but ifthe benefit of that low rate is offset by the freight 
which a merchant in another State may have to pay for 
carrying that commodity over a long distance, the merchant 
would be willing to purchase the goods from a nearer State, 
even though the rate of tax in that State may be higher. 
Existence of long-standing business relations, 
availability of communications, credit facilities and a 
host of other factors -
natural and business -
enter 
into the maintenance of trade relations and the free 
flow of trade cannot necessarily be deemed to have 
been obstructed merely because in a particular State 
the rate of tax on sales is higher than the rates 
prevailing in other States."(emphasis supplied) 
The object of enacting a central legislation on the subject was 
explained thus:-
" 17 ..... But since the power of taxation could be exercised 
in a manner prejudicial to the larger public interests by the 
623 
A 
B 
c 
D 
E 
F 
G 
H
624 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
States, it was found necessary to restrict the power of 
taxation in respect of transactions which had an inter-State 
content. Amendment of Article 286 and the enactment of 
the Sales Tax Validation Act 1956, and the Central Sales 
Tax Act, 1956, were all intended to serve a dual purpose: to 
maintain the source ofrevenue from sales tax to the States 
and at the same time to prevent the States from subjecting 
transactions in the course of inter-State trade so as to 
obstruct the free flow of trade by making commodities 
unduly expensive." 
193. The leading judgment held that Article 304 prohibits the 
imposition of differential rates of tax by the same state on goods 
manufactured or produced in the state and similar goods imported into 
the state. But where the rates of tax imposed on imported goods by a 
taxing state are not different from the rates of tax on goods manufactured 
or produced within, Article 304(a) has no application. Consequently, the 
prevalence of different rates of sales tax in the states under the Central 
Sales Tax Act, was held not to be determinative of the giving of a 
preference or making of a discrimination. Justice R. S. Bachawat while 
agreeing with the order passed by the leading majority judgment, however, 
held that just as a sales tax on intra-state sales would not nom1ally offend 
Article 301, similarly a tax on inter-state sale would not do so. In his 
view, a tax on
sale did not directly or immediately operate on the free 
flow of trade or the free movement of the transport of goods from one 
part of the country to another. Justice K. S. Hegde concurred with the 
majority the ground that the provisions of the Central Sales Tax Act had 
no direct or immediate impact on inter-state trade or commerce since 
sufficient safeguards were provided - firstly, by providing for the levy of 
sales tax in the state in which the goods are produced and secondly, by 
placing restrictions on the power of the states in fixing the rates. 
194. The judgment of the Constitution Bench in Kalyani Stores 
v. The State of Orissa80, involved a challenge to a levy imposed by the 
state of Orissa under the Bihar and Orissa Excise Act, 1915 at a rate of 
Rs. 40/- per L. P. Gallon on foreign liquor oflndian manufacture imported 
'" (1966) I SCR 865
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
625 
[DR. D. Y. CHANDRACHUD, J.] 
into the state from other parts of the country. Subsequently, acting under 
A 
the Bihar and Orissa Excise Act, 1915, the duty was enhanced to Rs.70/-
per L.P. Gallon. Under Section 27 of the Bihar and Orissa Excise Act, 
1915, a countervailing duty was provided on an excisable article imported 
into the state. Countervailing duties are provided for'in Entry 51 of List 
II to the Seventh Schedule to the Constitution. This Court noted that 
countervailing duties can only be levied if similar goods are actually 
produced or manufactured in the state on which excise duties are being 
levied: 
"4 ..... The fact that countervailing duties may be imposed 
at the same or lower rates suggests that they are meant to 
counterbalance the duties of excise imposed on goods 
manufactured in the State. They may be imposed at the 
same rate as excise duties or at a lower rate, presumably 
to equalise the burden after taking into account the cost of 
transport from the place of manufacture to the taxing State. 
lt seems therefore that countervailing duties are meant to 
equalise the burden on alcoholic liquors imported from 
outside the State and the burden placed by excise duties on 
alcoholic liquors manufactured or produced in the State. If 
no alcoholic liquors similar to those produced or 
manufactured imported into the State are produced or 
manufactured, the right to impose counterbalancing duties 
of excise
levied on the goods manufactured in the State 
will not arise. It may therefore be accepted that 
countervailing duties can only be levied if similar goods are 
actually produced or manufactured in the State on which 
excise duties are being levied." 
During the course of discussions, the Constitution Bench held that 
the restriction on the freedom guaranteed by Article 301 could only be 
justified ifit fell within Article 304. The reasonableness of the restriction 
had to be adjudged having regard to the purpose for imposing the 
restriction in the public interest. In that case, it was held that since no 
foreign liquor was produced or manufactured in the State of Orissa the 
B 
c 
D 
E 
F 
G 
H
626 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
power to legislate under Article 304 (a) is not available: 
"7 ... Without entering upon an exhaustive categorization of 
what may be deemed "required in the public interest", it 
may be said that restrictions which may validly be imposed 
under Article 304(b) are those which seek to protect public 
health, safety, morals and property within the territory. 
Exercise of the power under Article 304(a) can only be 
effective ifthe tax or duty imposed on goods impotted from 
other States and the Tax or duty imposed on similar goods 
manufactured or produced in that State are such that there 
is no discrimination against imported goods. As no foreign 
liquor is produced or manufactured in the State of Orissa. 
The power to legislate given by Article 304 is not available 
and the restriction which is declared on the freedom of trade, 
commerce or intercourse by Article 301 of the Constitution 
remains unfettered." 
195. The notification enhancing the duty was held to violate Article 
301 and was found not to have complied with Articles 304(a) and (b). 
The judgment in Kalyani Stores was explained and confined to the 
facts of the case in a subsequent decision in State of Kcrala v. A. B. 
Abdul Khadir81 . In Abdul Khadir this Court held that the earlier decision 
did not intend to lay down a proposition of universal applicability that the 
imposition of a duty or tax in every case would per se be an infringement
of Article 301 and only such restrictions which directly or immediately 
impede the free flow of trade fall within the prohibition of Article 301. 
I 96. A Constitution Bench of this Court in Rattan Lal & Co. v. 
The Assessing Authority8', applied the test formulated in N.K. 
Nataraja Mudaliar(supra) in the context of a challenge to the Punjab 
General Sales Tax (Amendment and Validation)Act, I 967 and the Punjab 
Sales Tax (Haryana Amendment and Validation) Act, I 967. The 
Co1istitution Bench held that so long as the rate of tax is the same between 
goods imported from other states and similar goods, produced or 
manufactured within the state, Article 304 is satisfied. 
" (1970) 1 SCR 700 
"' (1969) 2 SCR 544
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
197. In V. Guruviah Naidu and Sons v. State of Tamil Nadux3, 
a Bench of two Judges of this Court repelled a challenge to the validity 
of a tax imposed under the Madras General Sales Tax Act, 1959 on raw 
hides and skins and on dressed hides and skins. In that case the rate of 
sales tax for raw hides and skins was three per cent, whereas for dressed 
hides and skins it was one and a half per cent. The Court held that a 
· lower rate of tax in the case of dressed hides and skins was prescribed 
to offset the difference between the higher price of dressed hides and 
skins and the lower price of raw hides and skins. No material was 
shown to indicate that despite this lower rate of tax, imported hides and 
skins were subjected to discrimination. Upholding the levy, the Division 
Bench held as follows:-
"9 .... The question as to when the levy of tax would 
constitute discrimination would depend upon a variety of 
factors including the rate of tax and the item of goods in 
respect of the sale of which it is levied. The scheme of 
Items 7(a) and 7(b) of the Second Schedule to the State 
Act is that in case of raw hides and skins which are 
purchased locally in the State, the levy of tax would be at 
the rate of 3 per cent at the point of last purchase in the 
State. When those locally purchased raw hides and skins 
are tanned and are sold locally as dressed hides and skins, 
no levy would be made on such
sales as those hides and· 
skins have already been subjected to local tax at the rate of 
3 per cent when they were purchased in raw form. As 
against that, in the case of hides and skins which have been 
imported from other States in raw fonn and thereafter tanned 
and then sold inside the State as dressed hides and skins, 
the levy of the tax is at the rate of 11/2 per cent at the point 
of first sale in the State of the dressed hides and skins. This 
levy cannot be considered to be discriminatory as it takes 
into account the higher price of dressed hides and skins 
compared to the price ofraw hides and skins. It also further 
takes note of the fact that no tax under the State Act has 
been paid in respect of those hides and skins. The legislature, 
" (1977) 1 sec 234 
627 
A 
B 
c 
D 
E 
F 
G 
H
628 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
it seems, calculated the price of hides and skins in dressed 
condition to be doubled the price of such hides and skins in 
raw state. To obviate and prevent any discrimination or 
differential treatment in the matter of levy of tax, the 
legislature therefore prescribed a rate of tax for sale of 
dressed hides and skins which was half of that levied under 
Item 7(a) in respect of raw hides and skins." 
(Id. at p. 239-240) 
198. A subsequent judgment of a Bench of two Judges in State of 
Karuataka v. Hausa Corporation84, involved a challenge to the 
constitutional validity of an entry tax legislation, namely, the Kamataka 
Tax on Entry of Goods Into Local Areas for Consumption, Use or Sale 
Therein Act, 1979. The law was enacted under Articles 245 and 246 
read with Entry 52 of the State List. Explaining the ambit of Article 
304(a), this Court held that: 
"30. Article 304 lifts the embargo placed on the legislative 
power of State to enact law which may infringe the freedom 
of inter-State trade and commerce if its requirements are 
fulfilled. Ar1icle 304(a) imposes a restriction on the power 
of legislature of a State to levy tax which may be 
discriminatory in character by according discriminatory 
treatment to goods manufactured in the State and identical 
goods imported from outside the State. The effect of Article 
304(a) is to treat imported goods on the same basis as goods 
manufactured or produced
in a State. This Article further 
enables the State to levy tax on such imported goods in the 
same manner and to the same extent as may be levied on 
the goods manufactured or produced inside the State. If a 
State tax law accords identical treatment in the matter of 
levy and collection of tax on the goods manufactured within 
the State and identical goods imported from outside the State, 
Article 304(a) would be complied with. There is an 
underlying assumption in A11icle 304( a) that such a tax when 
.. (1980) 4 sec 697
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
levied within the constraints of Article 304( a) would not be 
violative ofA1ticle 301 and State legislature has the power 
to levy such tax." 
(Id. at p. 712) 
The Court considered whether the Act being leviable on the entry 
of goods into a local area, it had a direct and immediate impact on the 
movement of goods thereby infringing the freedom of inter-state trade 
guaranteed in Article 301. In that context, the Cou1t observed thus: 
"32 .... To the extent, the impugned tax is levied on the entry 
of goods in a local area it cannot be gainsaid that its 
immediate impact would be on movement of goods and the 
measure would fall within the inhibition of Article 301. Can 
it, however, be said that this tax imposes restrictions which 
in the facts and circumstances of the case could not be 
said to be reasonable?" 
(Id. at p. 713) 
The Court held that the petitioners were unable to establish before 
the High Court that the burden of the tax was so heavy as to constitute 
an unreasonable restriction on the freedom of trade and commerce. 
The Court held that a levy which was reasonable in its impact on the 
movement of goods and was imposed for augmenting municipal finances 
which had been adversely affected due to the abolition of octroi could 
not be held to be an impediment to Inter-state trade and commerce. 
Even if the tax imposed an economic impediment to the activity taxed, it 
was held not to be
unreasonable or against public interest. The Court 
observed that though the Bill had not received the sanction of the President 
under clause (b) of Article 304, this was cured under Article 255 by the 
grant of Presidential assent and hence the legislation fell within the purview 
of Article 304(b ). Being not discriminatory, it was held thatArticle 304(a) 
was not breached. The constitutional validity of the legislation was thus 
analysed on both the anvil of clauses (a) and (b) of Article 304 by the 
Bench of two Judges. 
J.2 Exemptions and incentives : Video Electronics and 
Mahavir 
199. A Bench of two Judges of this Court in Weston Electroniks 
629 
A 
B 
c 
D 
E 
F 
G 
H
630 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
v. State of Gujarat'5, dealt with the validity of an exemption granted 
under the Gujarat Sales Tax Act, 1969. A notification was issued under 
Section 49(2) of the Act by which sales tax on television sets imported 
from outside the state was fixed at 10 per cent, whereas it was one per 
cent for goods manufactured within the state. Adverting to the judgment 
of the Constitution Bench in Mehtab Majid, a Bench of two learned 
Judges noted the defence of the state that the rate of tax was reduced 
for locally manufactured goods by way of an incentive, placing reliance 
on clauses (b) and ( c) of Article 39 of the Constitution. This in the view 
of the Court did not provide a justification for a discrimination between 
imported goods and goods which were locally manufactured or produced. 
The prescription of a lower rate of tax for the latter was held to be 
invalid. This Court held: 
" ... An exception to the mandate declared in Article 301 
and the prohibition contained in clause (1) of Article 303 
can be sustai~ed on the basis of clause (a) of Article 304 
only if the conditions contained in the latter provision are 
satisfied. In the result, the discrimination effected by 
applying different rates of tax between goods imported into 
the State of Gujarat and goods manufactured within the 
State must be struck down." 
200. The judgment in Weston Electroniks was considered but 
distinguished by a larger
Bench of three Judges of this Court in Video 
Electronics Pvt. Ltd. v. State of Punjab86 . The judgment of this Court, 
inter alia, dealt with a challenge to the constitutional validity of 
notifications issued under the Uttar Pradesh Sales Tax Act, 1948, as 
well as under the Punjab General Sales Tax Act. Under the notification 
issued under the Uttar Pradesh legislation, an exemption from the payment 
of sales tax was granted for goods manufactured in new industrial units, 
where the date of commencement of production fell between two 
stipulated dates. The exemption was for a stipulated period reckoned 
from the date of first sale if such sale to9k place not later than six months 
" (1988) 2 sec 568 
" (1990) 3 sec 87
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
from the commencement of production.The period of exemption was 
confined for a specified period of three to seven years. Insofar as the 
State of Pu1~ab was concerned, sales tax at the rate of 12 per cent was 
provided on electronic goods sold within the state irrespective of their 
manufacture. In pursuance of a notification issued under the sales tax 
law, the rate of sales tax payable by electronic manufacturing units 
producing goods specified thereunder was brought down from 12 per 
cent to 1 per cent. The reduction in sales tax was defended on the 
ground that it was an incentive to a backward industrial state.While 
affinning the legality of the exemption notifications, a Bench of three 
learned Judges observed that this was not a case involving "a naked 
blanket preference in favour of locally manufactured goods, as against 
goods coming from outside the state87". The Court held that the both 
under the notifications issued in Uttar Pradesh and in Punjab there was 
no discrimination against goods manufactured outside the state for the 
following reasons: 
"35 ... .In case of Punjab, an overwhelmingly large number 
oflocal manufacturers of similar goods are subject to sales 
tax and, therefore, the general statement that the 
manufacturers within the State are favoured against the 
manufacturers outside the State, is incorrect. Under the 
notifications in case of U .P., only newly set up units
are 
eligible to claim the benefits thereunder for a limited period 
of5 years and that also only if they strictly comply with the 
tenns and conditions set out in the notification." 
(ld. at p. 113) 
631 
A 
B 
c 
D· 
E 
F 
201. A close reading of the judgment in Video Electronics would 
thus indicate that both sets of notifications involving the States ofUttar 
Pradesh and Punjab were carefully structured to cover one or more of 
the following circumstances: 
G 
(i) Availability of a reduced rate of sales tax to new industrial 
units; 
"(Id. at p. 112, Para 35) 
H
632 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
(ii) Applicability of a reduced rate of sales tax to producers of 
B 
c 
D 
E 
F 
G 
H 
certain specified goods, such as electronic goods; 
(iii) Limitation of the period during which the reduced rate of tax 
could operate; and 
(iv) Applicability of the general rate of sales tax to an 
overwhelmingly large number of local manufacturers, at par 
with imported goods. 
202. While sustaining the grant of a reduced rate of sales tax, this 
Court distinguished, inter alia, the judgment in Weston Electroniks 
(supra) and similar cases in the following observations: 
"30 ...... These cases were not at all concerned with 
granting of exemption to a special class for a limited period 
on specific conditions of maintaining the general rate of tax 
on the goods manufactured by all those producers in the 
State who do not fall within the exempted category at par 
with the rate applicable to imported goods as we have read 
these cases. Hence, it was not necessary in those decisions 
to consider the problem in its present aspect. If, however, 
the said power is exercised in a colourable manner 
intentionally or purposely to create unfavourable bias 
by prescribing a general lower rate on locally 
manufactured goods either in the shape of general . 
exemption to locally manufactured goods or in the 
shape of lower rate of tax, such an exercise of power 
can always be struck down by the courts. That is not 
the situation in the instant
cases." (Id. at p. 110) 
(emphasis supplied) 
However, in the same judgment, the following observations have 
been made: 
"20 ..... In our opinion, Part Xlll of the Constitution cannot 
be read in isolation. It is part and parcel of a single
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
633 
[DR. D. Y. CHANDRACHUD, J.] 
constitutional instrument envisaging a federal scheme and 
containing general scheme conferring legislative powers in 
respect of the matters relating to List II of the Seventh 
Schedule on the States. It also confers plenary powers on 
States to raise revenue for its purposes and does not require 
that every legislation of the State must obtain assent of the 
President. Constitution of India is an organic 
document. ...... . 
Hence, the economic development of States to bring these 
into equality with all other States and thereby develop the 
economic unity of India is one of the major commitments 
or goals of the constitutional aspirations of this land. For 
working of an orderly society, economic equality of all the 
State is as much vital as economic unity." 
(Id at p. 104) 
203. The substratum of the judgment in Video Electronics, clearly 
is that Article 304(a) would not be breached by a classification brought 
about by a carefully structured notification which grants incentives to 
local industry of a specified class of units, with reference to a specific 
category of rnanufactured goods and for a stipulated period.If the 
observations in paragraph 20 (quoted above) are however, construed to 
set a broad principle, that would defeat the primary objective underlying 
Article 304( a) of the Constitution. This was noticed in a subsequent 
decision in Shrec Mahavir Oil Mills v. State of J & K88 .
In that case, 
under the J & K General Sales Tax Act, 1962, sales tax on edible oil was 
prescribed at 4 per cent. However, in order to protect the local edible oil 
industry, the state government issued a notification directing that the 
goods manufactured by a dealer operating as a small-scale industrial 
unit in the state would be exempted from the payment of tax to the 
extent and for the period specified. Subsequently, edible oils in general 
were shifted from Schedule D to Schedule C attracting tax at 8 per 
cent. There were in fact no large industries in Jammu and Kashmir 
producing edible oil. Out-of state manufacturers unsuccessfully impugned 
the notification before the High Court. Explaining the ambit of Article 
304, the Bench of two learned Judges observed thus: 
"(1996) 11 sec 39 
A 
B 
c 
D 
E 
F 
G 
H
634 
A 
B 
c 
D 
E 
F 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
"8 .... The idea was not really to empower the State 
Legislatures to levy tax on goods imported from other States 
and Union Territories -
that they are already empowered 
by other provisions in the Constitution -
but to declare 
that that power shall not be so exercised as to discriminate 
against the imported goods vis-a-vis locally manufactured 
goods. The clause, though worded in positive language has 
a negative aspect. It is, in truth, a provision prohibiting 
discrimination against the imported goods. In the matter of 
levy of tax -
and this is important to bear in mind -
the 
clause tells the State Legislatures -
"tax you may the 
goods imported from other States/Union Territories but do 
not, in that process, discriminate against them vis-a-vis 
goods manufactured locally". In short, the clause says: levy 
of tax on both ought to be at the same rate. This was and is 
a ringing declaration against the States creating what may 
be called "tax barriers" -
or "fiscal barriers", as they may 
be called -
at or along their boundaries in the interest of 
freedom of trade, commerce and intercourse throughout 
the territory of India, guaranteed by Article 301. As we 
shall presently point out, this clause does not prevent in any 
manner the States from encouraging or promoting the local 
industries in such manner as they think fit so long as they 
do not use the weapon of taxation to discriminate against 
the
imported goods vis-a-vis the locally manufactured goods. 
To repeat, the clause bars the States from creating tax 
barriers -
or fiscal barriers, as they can be called -around 
themselves and/or insulate themselves from the remaining 
.territories of India by erecting such "tariff walls." 
(Id. at p. 45) 
G 
204. The judgment in Video Electronics was distinguished on 
the ground that in that case the notifications of the States ofUttar Pradesh 
and Punjab were carefully circumscribed: 
H 
"22 ..... So far as the Uttar Pradesh notification was 
concerned, it was held that in as much as it was a case of 
grant of exemption "to a special class for a limited period
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
on specific conditions" and was not extended to all the 
producers of those goods, it does. not offend the freedom 
guaranteed by Article 301. Similarly, in the case of Punjab 
notification, it was held that since the exemption is for certain 
specified goods and also because "an overwhelmingly large 
number oflocal manufacturers of similar goods are subject 
to sales tax", it cannot be said that local manufacturers 
were favoured as against the outside manufacturers." 
(Id. at p. 51) 
Again, it was held that: 
"23 .All the above observations were made to justify ( 1) 
grant of incentives and subsidies and (2) exemption granted 
to new industries, ofa specified type (small-scale industries 
commencing production within the two specified dates) and 
for a short period. They were not meant to nor can they be 
read as justifying a blanket exemption to all small-scale 
industries in the State irrespective of their date of 
establishment. The case before us clearly falls within the 
ratio of the Constitution Bench decision in A.T.B. Mehtab 
Majid and the decisions in Indian Cement, W.B. Hosiery 
Assn. and Weston Electroniks.The limited exception created 
in Video Electronics does not help the State herein for the 
reason that exemption concerned herein is neither confined 
to "new industries", nor is circumscribed by other conditions 
of the nature stipulated in the Uttar Pradesh notification. It 
is not
possible to go on extending the limited exception 
created in the said judgment, by stages, which would have 
the effect of robbing the salutary principle underlying Part 
Xlll of its substance. Indeed, it has been the contention of 
Shri Salve that, on principle, the exception carved out in 
Video Electronics is unsustainable. For the purpose of this 
case, it is not necessary for us to say anything about the 
correctness of Video Electronics. Suffice it to say that the 
limited exception carved out therein cannot be widened or 
expanded to cover cases of a different kind. It must be 
held that the total exemption granted in favour of small-
scale industries in Jammu and Kashmir producing edible oil 
635 
A 
B 
c 
D 
E 
F 
G 
H
636 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
(there are no large-scale industries in that State producing 
edible oil) is not sustainable in law." 
(Id. at p. 52) 
205. The Court cautioned that a limited exception which had beeri 
B 
carved out in Video Electronics should not be enlarged "lest it eat up 
the main provision." An unconditional exemption in the case of edible oil 
produced within the state from sales tax while subjecting similar goods 
produced in other states to sales tax at 8 per cent was held to violate 
Article 304(a) of the Constitution. 
C 
206. The judgment in Shree Mahavir Oil Mills expressly left 
open the correctness of the view in Video Electronics. In Shree 
Mahavir Oil Mills an exemption from the payment of sales tax 
altogether granted to local industry was set aside as violating Article 
304(a). The earlier decision in Video Electronics was distinguished on 
D 
the ground that it related to a case not involving a blanket preference. 
E 
F 
J.3 Article 304(a) and reasonable classification 
207. Does Article 304( a) prohibit a state from making a reasonable 
classification? Article 303 contains a prohibition on the legislature of a 
state granting a preference to one state over another and for making a 
discrimination. Article 304 operates, inter alia, as an exception to the 
norm contained in Article 303 as a result of its non-obstante provision. 
Under clause (a) of Article 304 a state may impose on goods which are 
imported from other states
"any tax" to which similar goods manufactured 
or produced in that state are subject. This is followed by the further 
requirement that the imposition of such a tax shall "so however" not 
discriminate between goods so imported and goods so manufactured or 
produced. The principle which underlies clause (a) of Article 304 is 
non-discrimination between goods imported from another state and goods 
G 
produced or manufactured within. Clause (a) enables the state legislature 
to impose a tax on goods imported, in the exercise ofits legislative power, 
so long as that tax is imposed also on similar goods manufactured or 
produced within. The latter part of clause (a) which contains a mandate 
against discrimination must have some meaning. In drafting the provision, 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
637 
[DR. D. Y. CHANDRACHUD, J.] 
the founding fathers evidently did not confine it merely to a nonn providing 
A 
a parity of taxes between imported goods and similar goods produced or 
manufactured within.While stipulating that "any tax" to which similar 
goods produced or manufactured in the state are subject can be imposed 
on goods imported into the state from other states, clause (a) contains 
the mandate that there should be no discrimination between goods, that 
are imported and goods that are manufactured within. The judgment in 
Video Electronics construed Article 304(a) as not precludin·g a state 
from taking steps to promote the growth of its own nascent industry. In 
the case of the State of Punjab, the defence of the State was that a 
reduced rate of sales tax was imposed to boost the electronics 
manufacturing industry and to stop existing industrial units shifting to 
neighbouring states, particularly having regard to "the prevailing peculiar 
circumstances of Punjab". Moreover, while states, such as Gujarat and 
Maharashtra were fully developed industrial states, Punjab at that stage 
was backward in ten11S of industrial growth. These factors undoubtedly 
weighed with this Court in sustaining the notification. 
208. A state does have a legitimate concern and interest in ensuring 
the growth and development of its own industry. Levels of industrial 
growth and economic development are not uniform across the country.