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
Australian decisions when we are called upon to 
construe the provisions of our Constitution. " 
309. It is useful to refer to observations made by Lord Porter in 
Commonwealth of Australia & others(supra), which are in following 
words: 
"Jn this labyrinth there is no golden thread. But it see;ns 
that two general propositions may he accepted; (!.) that 
regulation of trade, commerce and intercourse among
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
823 
[ASHOK BHUSHAN, J.] 
the States is compatible with its absolute freedom, and 
A 
(2.) that s.92 is violated only when a legislative o,. 
executive act operates to restrict such trade, commerce 
and intercourse directly and immediately as distinct.from 
creating some indirect or consequential impediment 
which may fair~v be regarded as remote. " 
B 
310. Shri Rakesh Dwivedi, learned Senior Advocate has contended 
that the Australian cases laying down 'direct and immediate effect test', 
which were relied by this Court in Atiabari, having been subsequently c 
not followed by Australia High Court itself, the direct and immediate 
effect test should not be recognised for purposes of Article 301. Shri 
Dwivedi has referred to Cole Vs. Whitfield (1988) 78 ALR 42. He 
submits that 7-Judges Bench in Cole Vs. Whitfield has held that the 
operation test has failed to achieve unanimity. Shri Dwivedi submits that 
now the test which has been approved both by Australian High Court 
D 
and U.S. Supreme Court is non-discriminatory test. He submits that 
preventing preferences and discrimination is the main factor for achieving 
the goal of creating free trade as accepted in Cole Vs. Whitfield. He 
submits that in Cole Vs. Whitfield following observations were made 
by the Court: 
"Jn relation to hath fiscal and non~fiscal measures, 
history and context alike favour the approach that the 
freedom guaranteed to interstate trade and commerce 
E
under s. 92 is freedom from discriminatory burdens in 
F 
the protectionist sense already mentioned. ., 
311. James Vs. Commonwealth of Australia (supra) was treated 
to have provided support for the development of the doctrine of criteria 
of operation. Cole Vs. Whitfield gave various reasons for disapproving 
G 
the operation theory. Some of the reasons given are as follows: 
"First, in some respects the protection which it offers to 
interstate trade is too wide. Instead of placing interstate 
trade on an equal footing with intrastate trade, the 
H
824 
SUPREME C0URT REPORTS 
[2016] 10 S.C.R. 
A 
doctrine keeps interstate trade on a privileged or 
preferred.footing. immune from burdens to which other 
trade is subject. " 
B 
c 
D 
E 
"The second major reason for rejecting the doctrine as 
an acceptable interpretation of s. 92 is that it fails to 
make any accommodation for the need for laws 
genuinezy regulating intrastate and interstate trade. The 
history of the movement for abolition of colonial 
protection and for the achievement of intercolonial free 
trade does not indicate that it was intended to prohibit 
genuine non-protective regulation of intercolonial or 
interstate trade. The criterion of operation makes no 
concession to this aspect of the section '.I· history. Jn :he 
result there has been a continuing tension between the 
general application of the formula and the validity of 
laws which are purezy regulatory in character. Judged 
by reference to the doctrine, the validity of a regulatory 
law hinged on whether it imposed a burden on an 
essential attribute or on a mere incident of trade or 
commerce. 
312. As noted above, our Constitution framers were well aware 
of the provisions of the Australian Constitution and the difficulties which 
arose in the Australia and different views expressed on the interpretation 
F 
of Section 92, the Constitution framers though took inspiration from Section 
92 but they did not stop there, rather they expressly provided for 
qualification to the right and freedom
guaranteed under Article 30 I by 
Article 302 - 306. Learned counsel for the State also in their submissions 
have contended that the Australian judgments pertaining to Constitution 
of Australia as well as the judgments of the U. S. Supreme Court are not 
G 
directly applicable with regard to the interpretation of Part Xlll. However, 
now it is contended by Shri Dwivedi that since the Australian High 
Court has now abandoned the operation test, this Court may also review 
the test as was laid down in Atiabari. 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
825 
[ASHOK BHUSHAN, J.] 
313. We have already noticed that in Atiabari in all the three 
A 
opinions expressed by Sinha, C.J., and Gajendragadkar, J., and Shah, J., 
it was noted that in our Constitution, there is a departure from Australian 
Constitution and the Australian judgments are not relevant. Justice 
Gajendragadkar, has refen-ed to two Privy Council judgments dealing 
with Australian Constitution to know how judicial minds have responded 
to the challenge presented by similar provisions. In the above spirit, 
references of those two Privy Council judgments were made. Thus 
Gajendragadkar, J ., did not base his judgment on the test, which was laid 
down in the Australian judgments but found justification for his conclusion 
from the aforesaid judgments. Further, the primary reason why the 
Australian High Comi in Cole v.~. Whitfield rejected the 'trade and 
immediate effect test' is, that because the freedom guaranteed under 
Section 92 applies only "between the States" i.e. to the interstate trade, 
B 
c 
i.e., The doctrine accordingly ended up discriminating against intrastate 
trade as it provided some sort of immunity to interstate transactions 
which intrastate transaction did not enjoy. We have already extracted D 
the reasons given by Cole Vs. Whitfield, whereas in Part Xlll of the 
Constitution, the Constitution framers had provided for non-discriminatory 
taxation between the intrastate and interstate trade with
provision for 
dealing with all situation including a case whether restriction has to be 
imposed, on both interstate or intrastate trade that is Article 304(b ). 
Although the Australian High Court rejected the idea of 'direct and 
immediate effect test' as being artificial, this Court has continued to 
adopt the said doctrine whenever legislation is decided on the touchstone 
ofreasonable restriction and the doctrine has been applied consistently 
E 
in the vast number of cases for decades which have stood the test of 
time. 
314. Shri Dwivedi has also referred to American cases and 
contends that free trade immunity, which was propounded in Spector 
Motor Services, Inc. Vs. O'Connor 430 U.S. 289(1951) had been 
overruled in Complete Auto Transit Vs. Brady 430 U.S. 274(1977). 
F 
Shri Dwivedi submits that in Complete Auto, it was held that 'it was not 
G 
the purpose of the commerce class to relieve those engaged in interstate 
commerce from their just share of State tax burden even though it 
increases the cost of doing business'. Shri Dwivedi, further relies on 
State of Maryland v.~. State of Louisiana 451 U.S. 725 where it was 
observed, "one of the fundamental principles of commerce class 
H
826 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
jurisprudence is that no State, consistent with the commerce class, may 
B 
or impose tax which discriminates against interstate commerce ....... ". 
Shri Dwivedi submits that the U.S. Supreme Court has also moved to 
non-discriminatory test. He submits that even in Cole Vs. Whitfield, the 
Complete Auto Transit Vs. Brady was noticed. The commerce class 
of the American Constitution Article 1, Section 8, Clause 3 provides "to 
regulate commerce with foreign nations and among the several States 
and with the Indian tribes;" Part Xlll of the Constitution has not adopted 
the American model and the interpretation on the commerce class is 
hardly relevant for interpretation of Part Xlll. 
C 
315. Non-discriminatory taxation by State in reference to interstate 
and intrastate trade is ingrained in Atticle 304(a) itself, and no abstract 
theory needs to be referred to for following Non-discriminatory Theory. 
316. We are thus of the view, that the concept as evolved in 
Australia and America with regard to freedom of trade and commerce, 
D 
cannot be adopted in respect of interpretation of our Constitution, despite 
arguing against the relevance of foreign judgments, the States themselves 
are now relying on the foreign judgments in context of 'direct and 
immediate effect test theory'. The change in the legal position in Australia 
and America does not have any bearing on the Indian legal position as 
E 
F 
G 
H 
our Constitutional
framework is different from those countries. 
317. It is further contended before us that sometimes, it becomes 
difficult to draw a line as and when, legislation/taxation shall impede 
freedom of trade, commerce and intercourse and it becomes difficult 
for Court to apply any objective criteria for finding out the demarcation 
line. No hard and fast fommla can be laid down to determine as to 
whether a particular legislation/taxation violates ,rights of freedom of 
trade and commerce under Article 301. It is for the Court to examine 
facts of each case and come to a conclusion. In this context, observation 
ofSubba Rao, J., is pertinent to be referred to. Referring to observation 
of Dixson, C.J., following was stated by Subba Rao, J.: 
"Dixon, C.J., in Commonwealth Freighters Proprietary 
Limited v. Sneddon, gives a very cogent answer to such 
an argument in a different context. The learned chief 
Justice said:
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
"Highly inconvenient as it may he, it is true of some 
legislative powers limited hy definition, whether 
according to subject-matter to purpose or otherwise, 
that the validity of the exercise of the power must 
sometimes depend on facts, facts which some how must 
he ascertained hy the court responsible for deciding 
the validity of the law ...... All that is necessary is to make 
the point that if a criterion of constitutional validity 
consists in matter of fact, the fact must he ascertained 
hy the court as hest it can, when the court is called 
upon to pronounce upon validity. " 
I entirely agree with these observations. It is common 
place to point out that intricate prohlems come he/ore a 
court involving decision on different and complicated 
a.1pects of human activity. Questions involving science, 
medicine, engineering, geology, biology, economics, 
Psychology, etc. all come for judicial scrutiny, and I 
have never heard any court saying that it is difficult to 
decide upon such a question and, there.fore, the 
proceeding raising such a question is outside the 
jurisdiction of such a court. Jn saying this, I am not 
ignoring the difficulties inherent in a problem offzxing 
the rate of taxes hy a court. Experience shows that the 
court applies certain presumptions, such as that of the 
wisdom, knowledge and the good intentions of the 
Legislature, and does not also meticulousZv go in to the 
question,
hut onzv looks at the hroad features. On the 
argument of learned counsel when it is permissible and 
possihle for a court to ascertain whether a tax is fiscal 
or regulatory, I do not see how it hecomes impossible, 
though it may he difficult, to hold whether a .fiscal tax 
is reasonahle or not. The distinction lies not in the nature 
of the enquiry hut -only in degree. That apart, no 
restriction, if it is unreasonahle, can be more deleterious 
to the freedom than the imposition of.fiscal burden on 
it, which may in certain circumstances destroy the very 
freedom." 
827 
A 
B 
c 
D 
E 
F 
G 
H
828 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] I 0 S.C.R. 
318. In view of foregoing discussion. we are of the view that 
submission raised on behalf of the learned counsel for the State that 
'direct and immediate effect test' is no longer a correct test, cannot be 
accepted. As observed above. each case has to be determined on facts 
of each case. The 'direct and immediate effect test' as laid down in 
Atiabari and approved in Automobile Tramport still holds good. 
J. COMPENSATORY TAX THEORY 
3 19. Two related issues pertaining to a tax which is compensatory 
in nature have been framed by us in the beginning of hearing. Those are 
a part of Question No.2, i.e., ''Can a tax which is compensatory in 
nature also fall foul Article 30 l of the Constitution?" and "What are the 
tests for determining whether the tax or levy is compensatory in nature''? 
Learned counsel appearing for the parties have made elaborate 
submissions on the concept of compensatory tax and either related issues. 
Most of the learned counsel appearing: for the petitioners as well as 
respondents-States have expressed their reservation. regarding 
compensato1y tax theory. Majority of counsel are at agreement that 
judicial evaluation of compensatory tax theory was uncalled for and the 
compensatory tax theory is not compatible with a constitutional provision 
of Part XIII. It is submitted that compensatory theory has been judicially 
evolved by Seven Judge Bench in Automobile Transport case
(supra) 
and the majority opinion had upheld the provisions of Rajasthan Motor 
Vehicles Taxation Act, 1951 holding it to be compensatory tax. In view 
of the serious reservation expressed by the learned counsel for the parties 
on the compensatory tax theory, it is necessa1y for us to examine the 
concept in some detail. 
320. The compensatory tax theory as evolved in Automobile 
Tra11spo11 was soon doubted by the Constitution Bench in Kflyerbari 
Tea Company Ltd. v. State of A.5.rnm, (1964) 5 SCR 975. 
Gajendragadkar, J. looking into the nature ofthe compensatory tax theory. 
opined that the same is required to be reconsidered by a larger Bench. 
he, however, noted that since the legislation was not tried to be saved on 
the basis of compensatory tax theory, the question was not further 
pursued. Gajendragadkar, J. made following observation:
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
" According to the majority view in the case of Atiabari 
Tea Co., if an Act is passed under Art. 304(h) and its 
validity is impeached, then the State may seek, to justify 
the Act 011 the ground that the restrictions imposed by it 
are reasonable and in the public interest, and in doing 
so, it may, for instance, re(v on the fact that the taxes 
levied by the impugned Act are compensatory in 
character. On the other hand, according to the majority 
decision in the Automobile Transport (Rajasthan) case, 
compensatory taxation would be outside Art.301 and 
cannot therefore, fall under Art.304(b). 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 hy 
constituting a larger Bench. " 
321. The question as to what are the tests for detennining whether 
a tax or levy is compensatory in nature becomes secondary when we 
have to examine sustainability of the compensatory theory itself. 
322. What is the tax ? What are the ingredients of taxation ? 
829 
A 
B 
c 
D 
Thomas M. Cooley in "A Treatise on the Constitutional Limitations" 
E 
defined the taxes in following words: 
"Taxes ar~ defined to he burdens or charges imposed 
hv the legislative power upon persons or property, to 
raise money for public purposes. The power to tax rests 
F 
upon necessity, and is inherent in every sovereignty.
The 
legislature of every .fi·ee State will possess it under the 
general grant of legislative power, whether particularly 
specified in the constitution among the powers to he 
exercised by it or not .. " 
G 
323. Chief Justice, Marshall in M'Culloch vs. State of Maryland, 
17 US 316 (1819) while examining the nature of taxing power stated: 
H
830 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
"It is admitted, that the power ol taxing the people and 
their property, is essential to the very existence of 
government, and may he legitimately government may 
choose to carry it. The only security against the abuse 
of this power, is found in the structure of the government 
itself In imposing a tax, the legislature acts upon its 
constituents. This is, in general, a sufficient security 
against erroneous and oppressive taxation. " 
324. A Seven Judge Bench of this Court in Commissioner, Hindu 
Religious Endowments, Madras vs. Sri Lakshmindra Thirtha 
Swamiar of Sri Shirur Mutt, 1954 SCR 1005: AIR 1954 SC 282 has 
given definition of tax which has been repeatedly quoted and relied by 
this Court in large number of subsequent judgments. In paragraph 45 
following was stated: 
"45. A neat definition of what "tax" means has been 
given hy Latham, C.J. of the High Court of Australia in 
Matthews v. Chicory Marketing Board. "A tax", 
according to the learned Chief'Justice, "is a compulsory 
exaction of money hy public authority for public 
purposes enforceable hy law and is not payment for 
services rendered''. This de;finition brings out, in our 
opinion. the essential characteristics of a tax as 
distinguished from other forms ol imposition which, in 
a general sense, are included within it. It is said that 
the essence of taxation is compulsion, that is to say, it is 
imposed under statutory power
without the taxpayer :s 
consent and the payment is enforced by law. The second 
characteristic of tax is that it is an imposition made for 
public purpose without ref'erence to any special benefit 
to he conferred on the payer of the tax. This is expressed 
hy saying that the levy of tax is for the purposes of 
general revenue, which when collected forms part of 
the public revenues ol the State. As the object of a tax 
is not to confer any special benefit upon any particular
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
831 
[ASHOK BHUSHAN, J.] 
individual, there is, as it is said, no element of quid pro 
A 
quo between the taxpayer and the public authority. 
Another feature of the taxation is that as it is a part of 
the common burden, the quantum of imposition upon 
the taxpayer depends generally upon his capacity to 
pay. 
B 
325. It is an accepted proposition that one of the characteristics 
of tax is that it is an imposition made for public purpose without reference 
to any special benefit to be conferred on the payer of the tax. The taxes 
imposed by the Legislature, apart from being source of Revenue is also 
C 
expended for various public welfare measures and when it's object is in 
no way connected with the public interest or public welfare it loses its 
character of taxation, becomes a levy which is unconstitutional. 
326. Das, J. delivering majority opinion in Automobile Transport 
case, in his judgment has referred to Rajasthan Motor Vehicles Taxation 
D 
Act, 1951 as compensatory with whose opinion Subba Rao, J. also 
concurred. 
327. Das, J. for coming to the conclusion that 1951 Act is a 
compensatory in nature has refe1Ted to judgments of Australian High 
Court and the judgment of the Privy Council wherein validity of various 
E 
statutes in the context of freedom of trade and commerce granted under 
Section 92 of the Constitution of Australia were considered. 
Das, J. has referred to following judgments: 
(i) Duncan v. The State of
Queensland, (1916) 22 C.L.R. 556; 
(ii) Mc Carter v. Brodie, (1950) 80 C.L.R. 432; 
(iii) Hughes and Vale Proprietary Ltd. v. State of New South 
Wales, (1955)A.C. 241; 
(iv) Armstrong v. State of Victoria No.2, (1957) 99 C.L.R. 28; 
(v) Commonwealth of Australia v. Bank of New South Wales, 
(1950) A.C. 235; 
(vi) Commonwealth Freighters Property Ltd. v. Sneddon, 
(1959) 102 C.L.R. 280. 
F 
G 
H
832 
A 
B 
c 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
328. The Australian Constitution provides under Section 92 'trade, 
commerce and intercourse among the States, whether by means of 
internal carriage or ocean navigation, shall be absolutely free'. In the 
above cases, Australian High Court and Privy Council had occasion to 
examine the challenge to various statutes framed by the States on the 
ground that these statutes violate freedom of trade and commerce, as 
guaranteed under Section 92. Section 92 itself does not provide for any 
qualification or exception to the freedom, in Duncan and Others V. 
State of Queensland and Another (1916) 22 CLR 556. Chief Justice 
Griffith, while construing the expression free had made following 
observations: 
"But the word :free' does not mean extra legam and 
any more than freedom means 'anarchy' we boast of 
being absolutely free people, but that does not mean 
D 
that we are not subject to law. " 
329. The most of the cases of Australian High Court which have 
been referred to and relied by Das, J. were the transport cases wherein 
various sections were enacted for registration, licensing and realisation 
E 
of fee/charge from motor vehicles, goods carriages in course of inter-
State and intrastate trade and commerce. 
330. Justice Das has specifically referred to dissenting opinion of 
Fullagar, J. in McCarter and Another V. Brodie, (1950) 80 CLR 432, 
in which case the Parliament of Victoria had passed an Act, namely, 
F
Transport Regulation Act, 1933-47 which provided that a commercial 
goods vehicle should not operate on any public highway unless licensed 
in accordance with Act. A fee was to be paid for license, by an amendment 
further fee was imposed to be calculated at an annual rate determined 
from time to time by referring to the load capacity of the vehicle in 
G 
respect of which license was sought to. 
H 
331. Chief Justice Latham delivered his opinion for the Court, 
after referring to various earlier decision of Australian High Court and 
Privy Council. Chief Justice held that the regulation of trade, commerce 
and intercourse in the States is compatible with absolute freedom
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
envisaged under Section 92 and the freedom is violated only when statute 
operates to restrict such trade and commerce, directly and immediately, 
it was said:-
"This quotation follows an express statement that 
regulation of trade, commerce and intercourse among 
the States is compatible with absolute freedom and that 
s. 92 is violated on(v when a legislative or executive 
act operates to restrict such trade, commerce and 
i11tercourse directlv and immediately, as distinct fi'om 
.-
. 
' 
creating some i11direct or consequential impediment 
which mayfairzv he regarded as remote. Thus the Privy 
Council in the Banking Case expressly rejected the 
proposition that s. 
92 precluded Parliaments 
(Commo11wealth or State) from in any way regulating 
or controlling inter-State trade and commerce, and a 
statement of the lcnv was selected for approval which 
defined the relevant criterion as the distinction behveen 
regulation which was permitted, and prohibition, which 
was not permitted. The result is thats. 92 does not mean 
that inter-State trade and commerce is to be free from 
control hy law. 
In a passage to which I have just 
referred their Lord1·hips held that if laws have only an 
indirect effect in relation to inter-State trade and 
commerce they are not invalidated by s. 92. '·' 
332. Justice Fullagar, who delivered a dissenting opinion had 
examined in detail the nature of legislation which can be terined
as 
regulatory and those which cannot be held to be prohibiting the trade. In 
833 
A 
B 
c 
D 
E 
F 
his opinion, His Lordship has illustrated his point by giving various 
G 
examples. He was of the view that permitted regulations as explained 
do not impede freedom carrying out under Section 92, however, there 
may be circumstances when even regulatory statutes impede the 
freedom. Following was observed: 
H
834 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] lQ S.C.R. 
" .... The distinction hetween what is merely permitted 
regulation and what is a true inte1ference with freedom 
of trade and commerce must often, as their Lordships 
observed, present a problem of great difficulty, though 
it does not, in my opinion, present any real difficulty in 
the present case. We may hegin by taking a few 
examples, con.fining out attention to the suhject matter 
of transportation, which is now under consideration. 
The requirements of the Motor Car Acts o,f Victoria qfford 
very good examples of what is clearly permissible. Every 
motor car must be registered : we may note in passing 
that there is no discretionary power to refi1se 
registration. A fee, which is not on the face of it 
unreasonable, must be paid on registration. Every motor 
car must carry lamps of a specified kind in front and at 
the rear, and in the hours o,f darkness these lamps must 
be alight if the car is being driven on a road. Every 
motor car must cany a warning device, such as a horn. 
A motor car must not be driven at a speed or in a manner 
which is dangerous to the public having regard to all 
the circumstances o,f the case. Other legislation o,f the 
State-Parliamentary or subordinate-prescribes other 
rules. Jn certain localities a motor car must not be driven 
at more than a certain specified speed. The weight of 
the load which may be carried by a motor car on a 
public highway is limited. The
driver of a motor car 
must keep to the left in driving along a highway. He 
must not overtake another vehicle on a curve in the 
road which is marked hy a double line in the centre. He 
.must observe certain "rules of the road" at intersections: 
for example, the vehic!e•on the right has the right of 
way. 
Such examples might be multiplied indefinitely. Nobody 
would doubt that the application of such rules to an 
inter-State trader will not infringe s.92. And clear~v in 
such matters o,f regulation a very wide range of 
discretion must he allowed to the legislative body. When 
we ask why such rules do not infringes. 92, I think that
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
commonsense suggests a fairly clear and satisfactory 
answer. The reason is that they cannot fairly be said to . 
impose a burden on a trader or deter him from trading: 
it would be foolish. for example, to suggest that my 
freedom to trade between Melbourne and Albury is 
impaired or hindered by laws which require me to keep 
to the left of the road and not drive in a manner 
dangerous to the public. 
Of course, even rules of the kind which I have taken as 
examples could be 1nade to operate as a burden or 
deterrent in a high degree. Let me take an example. The 
town of Wangaratta is in Victoria, some fifty miles by 
roadfrom the border between Victoria and New South 
Wales. It is on the Hume Highway, which is the busy 
main highway between Melbourne and Sydney. A law 
which provided that a motor car should not travel on 
that highway at greater speeds than thirty miles per hour · 
within the limits of towns and sixty miles per hour outside 
towns would not impede or interfere with the trade of 
persons carrying good1· for reward between Melbourne 
and Sydney; their trade would remain free. ·But let me 
suppose a law that no person should drive a motor car 
between Wangaratta and the border at a speed 
exceeding one mile per how: We should instant~y say 
that such a law interfered with the freedom of inter-
State trade. It would operate as a burden and a 
deterrent to the trader by making the journey
economically impossihle. The examples which I have 
taken seem clear. On which side of the line a particular 
case falls will, of course, be a question of.fact .... " 
333. The above opinion, expressed by Fullagar, J. was specifically 
approved by Privy Council in Hughes and Vale Proprietary Ltd. V. 
State of New South Wales and Others /1955/ A.C. 241. The Privy 
Council has noticed that the problem before the Australian High Court 
has bee:i to define the qualification in the Constitution which ~s left 
unqualified. It held that the expression free 'under Section 92 though 
835 
A 
B 
c 
D 
E 
F 
G 
H
836 
A 
B 
c 
D 
E 
F 
SUPREME COURT REPORTS 
[2016) 10 S.C.R. 
emphasized by the accompanying, absolutely must receive some 
qualification'. Privy Council laid down following two general propositions: 
"But it seems that two general propositions may he 
accepted: (1) that regulation of trade, commerce and 
intercourse among the States is compatible with its 
absolute freedom, and (2) that section 92 is violated 
on(v when a legislative or executive act operates to 
restrict such trade, commerce and intercourse directly 
and immediatezv as distinct fi'om creating some indirect 
or consequential impediment which may fairly he 
regarded as remote. In the application of these general 
propositions, in determining whether an enactment is 
regulatory or something more, or whether a restriction 
is direct or only remote or incidental, there cannot fail 
to he differences of opinion. The proh!em to he solved 
will often he not so much legal as political, social, or 
economic, yet it must he solved by a court of law. " 
334. In Armstrong and Others (supra), the provisions of 
Commercial Goods Vehicle Act, 1955 were under challenge on the ground 
that it violated Section 92. The provisions require the owner of every 
commercial goods vehicle of loading capacity exceeding four tonnes 
and not engaged in conveying certain specified classes of goods to pay 
contribution towards the compensation for wear and tear costs to public 
high ways. The High Court held that imposition of charge
for using the 
roads of State is not necessarily inconsistent with the freedom of interstate 
trade and commerce. 
335. The Chief Justice Dixson has held that a State can not single 
out inter-State transport or transport generally for particular charge, such 
G 
charge was held not to be compensatory for the use made of them. 
H 
Following observations were made: 
"ft appears to me that on a proper scrutiny of Pt. II of 
the Motor Car Acts 1951-56 (Viet.) and the second 
schedule it must be seen that no room exists for the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
grounds upon which it has heen sought to reconcile 
with s. 92 the imposition upon vehicles exclusively 
engaged in inter-State commerce of the rates contained 
in sub-par. (h) of par. B of the schedule. ( 1) The 
exaction cannot he regarded simp(v as a.fee contributing 
to the cost of registration a service in the interest of 
motor car owners and drivers and others so that it is 
nothing hut an incident or adjunct of the traffic. (2) It 
cannot he treated as another contribution to the 
maintenance of the highways compensatmy for the use 
made of them. (3) It cannot be justified as a tax upon 
the ownership or possession of a chattel considered 
independently of the use of the chattel in the carriage 
of persons or goods, including the inter-State carriage 
of persons or good~. (4) It cannot he treated as involving 
no appreciahle hurden upon the possession of a motor 
vehicle as a means of inter-State carriage and 
movement. " 
336. Referring to an earlier judgment of the High Court, William, 
J. in his concurring opinion has referred to indicia presence of which 
may prove a charge as truly compensatory: 
"Jn the joint judgment of Dixon C.J .. McTiernan and 
Webb JJ. in Hughes & Vale Pty. Ltd. v. State of New 
South Wales [No. 2] (3) the following passage appears: 
"Prima facie it" (that is the legislation imposing the 
charge" ''will present that appearance" (that is the 
appearance of a real attempt to fix
a reasonable 
recompense for the use of the highway) "if it is based 
on the nature and extent of the use made of the road~ 
(as for example if it is a mileage or ton-mileage charge 
or the like): if the proceeds are devoted to the repair, 
upkeep, maintenance and depreciation of relevant 
highways, if inter-State transportation bears no greater 
burden than the internal transport of the State and if 
837 
A 
B 
c 
D 
E 
F 
G 
H
838 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME CGJRT REPORTS 
[2016] 10 S.C.R. 
the collection of the exaction involves 110 substantial 
interference with the journey. The absence of one or 
all of these indicia need not necessarily prove fat.ii, 
but in the presence of them the conclusion would 
naturally be reached that the charge was truly 
compensatory. " 
337. From the above, it is clear that Australian High Court have 
read qualifications under Section 92 of the Act. The statutes r~gulating 
the trade which have no direct effect on trade and commerce and levying 
compensatory charge were held to be compatible with freedom under 
Section 92. 
338. Another judgment of the Privy Council which have been 
referred to by Das, J. was judgment in Commonwealth of A;istra/ian 
and Others V. Bank of New South Wales and Others /1950/ A.C. 
235. The Privy Council laid down as following: 
"But it appears to their Lordships that, if these two tests 
are applied: .first, whether the effect of the Act is in a 
particular respect direct or remote; and, secondly, 
whether in its true character it is regulatory, the area 
of dispute may be considerably narrower. It is beyond 
hope that it should be eliminated." 
339. After referring to above cases, Das, J. recorded the conclusion 
in following words: 
"We have, therefore, come to the conclusion that neither 
the wide interpretation nor the narrow interpretatiuns 
canvassed before us are acceptable. The interpretation 
which was accepted by the
majority in the Atiabari Tea 
Co. case is correct, hut subject to this clarification. 
Regulatory 
measures 
or 
measures 
imposing 
compensatory taxes for the use of trading facilities do
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
839 
[ASHOK BHUSHAN, J.] 
not come within the purview of the restrictions 
A 
contemplated hy Article 301 and such measures need 
not comp~v with the requireme4nts of the proviso to 
Article 304(h) of the Constitution." 
340. The law that if a statute is compensatory in nature, it is beyond 
Part XIII and does not violate Article 301, was consistently foEowed 
after the above pronouncement in Automobile Transport. All State 
Legislations, after the above pronouncement have been challenged and 
saved on many grounds including on the above exceptions, as laid down 
in Alltomobile Transport. There have been various tests laid down in 
different cases decided by this Court to find out as to whether State 
Legislation is compensatory in nature or not. In Messers Bliagatram 
Rajiv kumar, this Court had held that ifthere is some link betwe<;:n the 
tax and trading facility, directly or indirectly, the statute is compensatory 
B 
c 
and is not open to challenge under Article 301. State of Bihar and D 
Others (supra) following the earlier judgment again reiterated the test 
of some connection between the tax and trading facility provided: Both 
the above judgmer.ts were doubted and refened to a Constitution Bench. 
A Constitution Bench of this Court in Jindal Stainless Steel Ltd. Vs. 
State o/Haryana (supra) had already ovem1led the aforesaid two 
judgments. Even the test as laid down by the Constitution Bench in 
Jindal Stainless Steel
Ltd.(2) did not quell the controversy and in the 
reference made by the Constitution Bench in Jaiprakash 
Associates(Supra), one of the questions refened was with regard to 
the test to prove whether levy is compensatory levy. 
E 
341. At this juncture, it is also relevant to refer to concept of F 
"compensatory tax" as developed in United States of America. 
342. The first case to be noticed is Hinson v. Lott, 8 Wr.11, 75 
U.S. 148 (1869). The State of Alabama passed a statute by Section 13 
of whicn all dealers on sale of liquor within the limit of the State were 
required to pay tax of 50 cent per gallon. A merchant of another state 
against whom collection of tax was sought to be enforced, questioned 
the tax. Tax was held to be valid by Supreme Court of Alabama and the 
matter was taken by the merchant to the Supreme Court of the United 
States. The Supreme Court held that tax is not violative of inter-State 
G 
H
• 840 
SUPREMF COURT REPORTS 
[2016] IO S.C.R. 
A 
trade and commerce. It was noticed that no greater tax is held on the 
liquor brought into the State than on those manufactured out of the State 
and the tax on the liquor brought in from other State was only 
comjJlimentary provision necessary to make tax equal on all liquors sold 
in the States. Following was laid down: 
B 
c 
D 
E 
F 
G 
H 
"A tax is imposed by the previous sections of the same 
act of.fifty cents per gallon on all whiskey and all 
brandy from fruits manufactured in the State. In order 
to collect this tax, everv distiller is compelled to tcke 
' 
.. 
our a license and to make regular returns of the amount 
of distilled spirits manufactured by him. On this he pays 
fifty cents per gallon. So that when we come in the 
light of these earlier sections of the act. to examine the 
J J'h, J 41h. and l 51h sections. it is found that no greater 
tax is laid on liquors brought into the State than on 
those manufactured within it. And it is clear that whereas 
collecting the tax of the distiller was supposed to he the 
most expedient mode of securing its payment, as to 
liquors manufactured within the State, the tax on those 
who sold liquors brought in from other States was only 
the complementary provision necessary to make the tax 
equal on all liquors sold in the State. As the effect of 
the act is such as we have described, and it institu:es 
no legislation which discriminates against the products 
of sister
States, hut merely subjects them to the same 
rate of taxation which similar articles pay that are 
manufactured within the State, we do not see in it an 
attempt to regulate commerce, hut an appropriate and 
legitimate exercise of the taxing power of the States. " 
343. The next case needs to be noted is judgment of the U.S. 
Supreme Court in Harold H. Henneford et al., V. Silas Mason 
Company, Inc., 300 U.S. 577.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
841 
[ASHOK BHUSHAN, J.] 
344. Justice Cardozo delivered the opinion of the Court and 
A 
upheld the compensatory tax. The facts of the case had been noted in 
the judgment which reads as follows: 
"A statute of Washington taxing the use of chattels in 
that state is assailed in this suit as a violation of the 
crJTnmerce clause (Constitution of the United States, 
article I, 8) in so far as the tax is applicable to chattels 
purchased in another state and used in Washington 
thereafie1: " 
"OnZv two o{ these taxes are important for the purposes 
of the case at hand, the 'tax on retail sales, ' imposed by 
title Ill and the 'compensating tax, ' imposed hy title IV 
on the privilege of use. Title Ill provides that after May 
1, 1935, every retail sale in Washington, with a few 
enumerated exceptions, shall he subject to a tax of 2% 
of the selling price. Title IV with the heading 
'compensating tax, 'provides that there shall he collected 
from evelJ' person in the state 'a tax or excise for the 
privilep;e of using within this state any article o.l tangible 
personal property purchased subsequent to April 30, 
1935, 'at the rate of 2% o{ the purchase price, including 
in such price the cost of transportation fi'Om the place 
vvhere the article was purchased. '·' 
B 
c 
D 
E 
F 
345. However, there were several exceptions. Sub Division(b) 
provides that the use tax shall not be laid unless the property has been 
·brought at retail
and ( c) tax shall not apply to the use of any article of 
tangiblt personal ·property, the sale or use of which had already been 
subject to a tax equal to or in excess of that imposed. Those users of the 
G 
State who have produced in the State were thus not to pay the me tax 
whereas use tax was always payable where the user had acquired the 
property by retail purchase in or from another State, Unless he has paid 
sales or use tax elsewhere before bringing it to Washington. Challenge 
H
842 
A 
B 
c 
D 
E 
F 
G 
SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
was made on the ground that it violates the commerce class of the U.S. 
Constitution. Justice Cardozo held that the equality is a theme that runs 
through the above sections. Following are the reasons which were given 
for l'pholding the above compensating tax: 
"Equality is the theme that runs through all the sections 
of the statute. There shall he a tax upon the use, hut 
subject *to an offset !f another use or sales tax has 
been paid for the same thing. This is true where the 
offsetting tax hecame payable to Washington by reason 
of purchase or use within the state. It is true in exact~y 
the same measure where the offsetting tax has been paid 
to another state hy reason of use or purchase there. No 
one who uses proper(y in Washington after buying it at 
retail is to be exempt from a tax upon the privilege of 
enjoyment except to the extent that he has paid a use or 
sales tax somewhere. Every one who has paid a use or 
sales tax anywhere, or, more accurately, in any state, is 
to that extent to he exempt from the payment of another 
tax in Washington. 
When the account is made up, the stranger from afar is 
subject to no greater burdens as a consequence of 
ownership than the dweller within the gates. The one 
pays upon one activity or incident, and the other upon 
another, hut the sum is the same when the reckoning is 
closed. Equality exists when the chattel subjected to the 
use tax is bought in
another state and then carried into 
Washington. It exists when the imported chattel is 
shipped.from the state of origin under an order received 
directly from the state of destination. In each situation 
the burden borne by the owner is balanced by an equal 
burden where the sale is strictly local. " 
346. The contents of the compensatory tax doctrine were 
reiterated by the U.S. Supreme Court in Associated Industries Of 
Missouri, et al., V. Janette M. Lohman 128 L Ed 2d639. ln the above 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
cases State of Missouri imposed a unifom1 state-wide use tax on all 
goods purchased outside the State and stored, used or consumed within 
the State. The tax was purportedly designed to compensate for sales tax 
imposed by local jurisdiction on sales of goods in the State. Local sales 
tax varied very widely, on several occasions the use tax exceeded the 
sales tax. The tax was challenged, as violating interstate commerce on 
the gromd that it placed greater burden on interstate trade, referring to 
judgment of Justice Cardozo in Silas Mason; Following was stated: 
''Jn Silas Mason, Justice Cardozo was explicit in 
explaining for the Court that the compensat01y tax 
doctrine requires precision to ensure that, upon the 
''.reckoning" of "account(s)," the "sum" on the 
interstate side of the ledger is "the same" as that on the 
intrastate side. 300 US, at 584, 81 L Ed 814, 57 S Ct 
524. More recent~v. we have reiterated that strict parity 
is demanded by the co111pensat01y tax doctrine as we 
have explained that a compensatory tax leaves a 
consumer .free to make choices "without regard to the 
fox consequences"; !f he purchases within the State he 
may pay a tax, hut if he purchases from outside the State 
he will pay a "tax of the same amount. " 
347. Another case which needs to be noted is Oregon Waste 
Systems V. Department of Environmental Quality of the State of 
Oregon 511 U.S. 93 (1994). The U.S. Supreme
Court noticed that 
compensatory tax doctrine has been recognised at least since 1869. 
Following was stated by the U.S. Supreme Court: 
"At least since our .decision in Hinson V. Lott, 8 Wall. 
148 (1869), these principles have found expression in· 
the "compensatory'' or "complementary" tax doctrine. 
Though our cases sometimes discuss the concept of the 
compensatory tax as if it were a doctrine unto itself. it 
is merely a spec(fic way of just(fving a facially 
843 
A 
B 
c 
D 
E 
F 
G 
H
844 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016) 10 S.C.R. 
discri111inatory tax as achieving a legitimate local 
purpose that cannot he achieved through non-
discriminatory means. See Chemical Waste, supra, at 
346, 11. 9 (referring to the compensatory tax doctrine 
as a "justification" for a facially discriminatory tax). 
Under that doctrine, a facially discriminatory tax that 
imposes on interstate commerce the rough equivalent 
of an identifiahle and "substantial~v similar" tax 011 
intrastate commerce does not offend the negative 
Commerce Clause. Maryland, supra, at 758-759. See 
also 1.J;ler Pipe Industries. Inc. v. Washington State Dept. 
of Revenue, MANUIUSSC/005811987: 483 U.S. 232, 
242-243(1987); Armco, U.S .. AT 643. 
To just!fv a charge on interstate com111erce as a 
compensatory tax, a State must, as a threshold matter, 
"identify ... the [intrastate tax] burdenfor which the State 
is attempting to compensate. " Maryland, supra, at 7 58. 
Once that hurden has been identified, the tax 011 
interstate commerce must be shown roughly to 
approximate - hut not exceed - the amount of the tax 
on intrastate commerce. See. e.g .. Alaska v. Arctic Maid, 
MANUIUSSC/006211961 : 366 U.S. 199, 204-205 
(1961). Finally, the events on which the interstate and 
intrastate taxes are imposed must he "substantially 
equivalent"; that is. they must be sufficient~v similar in 
substance to serve as mutually exclusive "proxies" for 
each other. Ar111co, supra, at 643. As
Justice Cardozo 
explained for the Court in Henneford, under a truly 
compensatory tax scheme, "the stranger from afar is 
suhject to no greater burdens as a consequence of 
ownership than the dweller within the gates." 
348. Another judgment which needs to be noted is Fulton 
Corporation V. Jenice H. Folkner, Secretary of Revenue of North 
Carolina 516 US 325, 133 L Ed 2d 796. For valid compensatory tax 
three conditions were noticed by the U.S. Supreme Court in following 
worcls:
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
"Since Silas Mason, our cases have distiled three conditions 
necessary for a valid compensatory tax. First, "a State 
must, as a threshold matter, 'identify ... the [intrastate tax] 
burden for which the State is attempting to compensate."' 
Oregon Waste, supra, at 103 .. 128 L Ed 2d 13, 114 S Ct 
1345 (quoting Maryland v Louisiana, 451US725, 758, 68 L 
Ed 2d 576, 101 S Ct 2114 (1981 ). Second, "the tax on 
interstate commerce must be shown roughly to approximate-
but not exceed-the amount of the tax on intrastate [ 516 US 
333] commerce." Oregon Waste, 511 US, at 1103, 128 L 
Ed 2d 13, 114 S Ct 1345. "Finally, the events on which the 
interstate and intrastate taxes are imposed must be 
'substantially equivalent'; that is, they must be sufficiently 
similar in substance to serve as mutually exclusive 'proxies· 
for each other." 
349. The above cases of Supreme Corn1 give different concept 
of compensatory tax as compared to cases in Australia as well as in 
Automobile Tramport. In U.S., The compensatory tax doctrine was 
invoked to save facially discriminatory taxes imposed on interstate trade, 
to make interstate commerce bear a burden already borne by intrastate 
commerce. In Automobile Transport compensatory tax has been refen-ed 
to a tax or charge to provide for trade facilities like construction of road, 
bridges etc. which was treated as recompense to the traders who were 
required to pay tax. 
350. Law
of compensatory charge as developed in Australia was 
due to the fact that Section 92 did not contain any qualification to the 
absolute freedom of trade and commerce granted therein. Various 
qualifications and restrictions to the above freedom were culled out by 
judicial decisions of the High Court of Australia and Privy Council to 
justify the said qualifications and restrictions. The ratio contained in 
various judgments of the High Court of Australia and the Privy Council 
on Section 92 of the Constitution of Australia cannot be a guiding factor 
for interpreting Part XIII of the Constitution of India. 
3 51. The Constitution Bench of this Court in State of Bombay v. 
R.M.D. Chamarbaugwala and another, AIR 1957 SC 699 had 
845 
A 
B 
c 
D 
E 
F 
G 
H
846 
A 
B 
c 
D 
E 
F 
G 
H 
SUPREME COURT REPORTS 
[2016] J.() S.C.R. 
sounded a caution in paragraph 35: 
"35. In construing the provisions of our Constitution 
the decisions of the American Supreme Court on the 
commerce clause and the decisions of the Australian 
High Court and of the Privy Council on Section 92 of 
the Australian Constitution should, for reasons pointed 
out hy this Court in State of Travancore-Cochin v. 
Bombay Co. Ltd. he used with caution and 
circumspection. Our Constitution differs from hoth 
American and Australian Constitutions. There is nothing 
in the American Constitution corresponding to our 
Article 19(l)(g) or Article 301. 
In the United States the problem was that if gambling 
did not come within the commerce clause, then neither 
the Congress nor any State Legislature could interfere 
with or regulate inter- State gambling. Our Constitution, 
however, has provided adequate safeguards in clause 
(6) of Article 19 and in Articles 302-305. The scheme 
of the Australian Constitution also is different from that 
of ours, for in the Australian Constitution there is no 
such provision as we have in Article 19(6) or Articles 
302-304 of our Constitution. 
The provision of Section 92 of the Australian 
Constitution heing in terms unlimited and unqualified 
the judicial authorities interpreting the same had to 
import certain restrictions and limitations dictated hy 
common sense and the exigencies of modern society. 
This they did, in some cases,
hy holding that certain 
activities did not amount to trade, commerce or 
intercourse and, in other cases, by appZving the doctrine 
of pith and substance and holding that the impugned 
law was not a law with respect to trade, commerce or 
intercourse. 
The difficulty which faced the judicial authorities 
interpreting Section 92 of the Australian Constitution
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
cannot arise 11nder our Constitution, for our 
Constitution did not stop at declaring by Article 19(J)(g) 
a fimdamental right to cany on trade or business or at 
declaring hy Article 301 the freedom of trade, commerce 
and intercourse but proceeded to make provision by 
Article 19(6) and Articles 302-305 for imposing in the 
interest of the general public reasonable restrictions on 
the exercise of the rights guaranteed and declared by 
Article 19(l)(g) and Article 301." 
352. Hidayatullah, J. in Automobile Transport itself held that the 
technique justifying laws as regulatory as evolved in Australia is not 
applicable while interpreting Article 301 of Constitution. Following 
observations were made by Hidayatullah, J. at page 639: 
"The techniq11e ofjustifying laws as regulatory was 
evolved in Australia in view of the intractable language 
of s. 92 without any indication of the circumstances in 
which the absolute freedom could he curtailed. The 
detailed provisions contained in Part XJll render such 
a construction of Art. 301 at once unnecessary and 
impermissible. " 
353. Gajendragadkar, J. inKhyerbari Tea Company Ltd.(s11pra) 
had also expressed opinion that compensatory or regulatory tax theory 
as introduced in the Australian decisions is not to be made applicable in 
Part XIII. Following· was observed: 
"The majori~v view in the Atiabari case proceeded on 
the hasis that the Australian decisions which
dealt with 
the scope and effect of s. 9 2 of the A11stralian Constitution 
would he of no assistance in constructing the effect of 
the provisions in Part Xlll of our Constit11tion, because 
the legislative, historical and political background, the 
structure and the effect of the relevant provisions 
847 
A 
B 
c 
D 
E 
F 
G 
H
848 
SUPREME COURT REPORTS 
[2016] 10 S.C.K 
A 
contained in Part XIII were in material particulars 
different from those of s. 92 of the Australian 
Constitution; s. 92 is absolute in terms and on its literal 
construction, admits of no exceptions. The Australian 
decisions, therefore, had to introduce distinctions, such 
B 
c 
D 
E 
r 
G 
H 
as compe11sato1y or regulatory tax laws in order to take 
laws answering the said description out of the purview 
o{ s. 92. Jn our Constitution, howeve1; though Art. 301 
is 1rnrded suhstantial(v in the same way ass. 92, Art.302 
and 304 provide for reasonahle restrictions being 
imposed 011 the freedom of. trade subject to the 
requirements of the said two Articles, and so, the problem 
facing of the said two Articles, and so, the problem 
facing judicial decisions in Australia and in this cou1111y 
in regard to the freedom of trade and the restrictions 
which it may he per111issihle to impose on it, is not exactly 
the same." 
354. The answer to the question as to whether a compensatory 
tax is out ofreach of Article 30 I has to be found out from the Scheme of 
Part XIII of the Constitution itself and not from the theory of 
compensatory charge as evolved in Australia or United States of America. 
Two fundamental principles of taxes are: 
(i) that it is an imposition made for public purpose, 
(ii) without reference to any special benefit to be confeJTed on 
the payer of the tax. 
355. The compensatory doctrine evolved in Automobile
Transport 
is that compensatory tax is to compensate for facility extended, for 
example, wear and tear of the Road. The compensatory tax can be 
imposed only for public purpose which fact is not denied by any of the 
parties before us. Can it be said that a tax which is a compensatory in 
nature need not to be subject to restriction as contained in part Xlll? lf 
it is accepted that once a tax is held compensatory tax it goes out of
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
reach of Part XIII, it will be carving a new exception to Article_ 301 
which is not contemplated in the constitutional scheme. The framers of 
the Constitution after providing for freedom of trade, commerce and 
intercourse in Article 301 laid down exceptions to the said freedom in 
Article 302 to 306. The exceptions laid down in the constitutional scheme 
are self-contained and no new exception can be added by judicial 
interpretation. Can a compensatory tax not impede trade, commerce 
and intercourse even if it is a non-discriminatory tax? We take an example 
to illustrate the point. Entry Tax is imposed on vehicles carrying goods 
in a local area to the extent of 50% of the value of goods, the statute 
further declares that entire amount received from tax will be expended 
for providing facilities to the entrants in the local area, i.e., on roads, 
lights, free footling, free lodging, facility for free servicing, repairs of the 
vehicles, etc.etc. Can the mere fact that entire amount collected is 
expended for providing facilities shall take out the statute from the scrntiny 
of Pati Xlll ? Answer has to be in negative. The fact that a tax statute 
compensates the payer of the tax does not take out the statute beyond 
Part Xlll, all taxes, being for one or other public purposes. The tax 
legislation which professes to compensate the payer cannot take the tax 
legislation on a higher pedestal beyond the reach
of Part Xlll, making 
such legislation "not subject to Constitution". When all legislative power 
is "subject to Constitution" as per Article 245 and 246 of the Constitution, 
a legislation, namely, compensatory tax legislation cannot be said to be 
beyond Part Xlll. Any such interpretation is clearly against the 
constitutional scheme. 
356. Thus the judgments of the High Co mi of Australia and the 
Privy Council relied in Automobile Transport did not furnish a foundation 
for evaluation of compensatory tax theory in part Xlll of the Constitution. 
357. The scheme of Constitution oflndia indicates that wherever 
it was contemplated to insulate any provision from challenge, expressed 
provisions have been made to provide for such insulation. Article 31 B is 
one of such examples which provides that none of the Acts and 
Regulations specified in IXth Schedule shall be deemed to be void or 
ever to have become void on the ground of such Act, Regulation or 
provision is inconsistent with or takes away or abridges any of the rights 
conferred by Part lll. The Constitutional Scheme as delineated by Part 
Xlll does not indicate that a particular type of legislation, i.e., 
849 
A 
B 
c 
D 
E 
F 
G 
H
850 
A 
B 
c 
D 
E 
F 
SUPREME COURT REPORTS 
[2016] I 0 S.C.R. 
compensatory tax is out of Paii X llJ. Reading any such protection to 
compensatory tax legislation is against the constitutional provision. We, 
thus, are of the opinion that the compensatory theory as evolved in 
Automobile Transport (rnpra) is not compatible to the constitutional 
scheme and a compensatory tax legislation cannot be insulated from 
challenge under Part Xl!I of the Constitution. 
358. We may, however. observe that it is always open to scrutinize 
the true nature and character of legislation to decipher as to whether it 
contains any restriction on freedom of trade, commerce and intercourse 
violatingArticle 30 I. A legislation which is compensatory in nature may 
shed light while determining whether it contains restriction on trade. 
commerce and intercourse or facilitate the trade. commerce and 
intercourse. But all legislations be it a compensatory tax legislation or 
otherwise has to be tested in accordance with provisions of Part XIII of 
the Constitution. The ratio of judgment of Automobile Transport is 
overruled in so far as it lays down that the compensatory tax legislations 
are out of part Xlll of the Constitution. 
PARTV 
"OUR CONCLUSIONS" 
I. All legislative powers of the State are "subject to the 
Constitution" as per article 245 of the Constitution of India. Legislative 
power of the State is also subject to the limitation as provided in Part 
XIII of the Constitution. 
2. Pa1i
XUl of the Constitution covers tax legislation which restrict 
freedom of trade, commerce and intercourse. 
3. Word 'restriction' as used in Pan XIII as well as in Article 
304(b) of the Constitution includes tax legislation also. 
4. For enabling a State to make a law under Article 304(a) following 
G 
two pre-conditions which are independent of each other have to be 
satisfied:-
H 
(i) It may impose on goods imported from other States or the 
Union Territory any tnx to which similar goods manufactured 
or produced in that State are subject.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
851 
[ASHOK BHUSHAN, J.) 
(ii) So, however, as not to discriminate between goods so imported 
A 
and goods so manufactured and produced. 
5. Word "and" between Clause( a) and Clause(b) of Article 304 
has to be read as joint and several. Both the meaning can be assigned, 
as per requirement of State legislation. 
6. A law made by State legislature exercising the power under 
Clause( a) in Article 304, which does not impose any restriction on the 
freedom of trade, commerce and intercourse need not comply with Article 
304(b), however, a Jaw even though complying with Article 304(a) 
containing restriction on freedom of trade, commerce and intercourse is 
to obtain sanction of the President, as contemplated by proviso to 
Clause(b ). The requirement of obtaining the previous sanction of the 
president has to be decided in accordance with the nature and content 
of the State Legislation. 
· 
B 
c 
7. The proviso of A1ticle 304(b) is part of Constitutional Scheme 
which is neither against the federal structure of the Constitution nor 
D 
affects the State's sovereignty. 
8. Word 'restriction' used in Article 304(b) is wide enough to 
include restrictions placed both by fiscal or non-fiscal law. 
9. State Legislature in exercise of its taxing power can grant 
exemption\set off to locally produced and manufactured goods only to a 
limited extent based on intelligible differentia which is not in nature of 
general\unspecified exemption.
10. The ratio of judgment of Video Electro11ics(s11pra) has to be 
read as justifying only exemption limited to specified category for a short 
period. Exemption in general terms for unlimited period cannot be 
approved. Any exemption can not be used as measure of discrimination 
between goods imported from other States and goods manufactured or 
produced in the State. 
11. A law passed by State Legislature imposing tax only on the 
imported goods coming from other States and Union Territories and there 
being no similar tax imposed to the locally produced\manufactured goods, 
the law is not saved by Article 304(a) and violates Atticle 301. 
12. A Jaw imposing tax on goods imported from other States and 
Union TelTitories, facially taxing goods locally manufactured and produced 
E 
F 
G 
H
852 
SUPREME COLRT REPORTS 
[2016] I 0 S.C.R. 
A 
but granting set off\excmption in general terms is discriminatory and 
violates A1ticle 30 I. 
13. What have been expressly prohibited under Article 302, 303 
and 304 are restrictions in the freedom of trade and commerce violating 
A1ticle 30 I. A law containing restriction impeding freedom oftrndc and 
B 
commerce and intercourse which is not saved by Article 302, 303 and 
304 violates A1ticle 30 I. 
14. The compensatory tax theory as judicially evolved in 
Automobile Tmmport is not compatible with the Constitutional provisions 
contained in Patt Xlll. The ratio in judgment of this Coutt in Automobile 
C 
Transport to the extent that the legislation which is compensatory in 
nature is out of Article 30 l, cannot be approved and is overruled 
15. All legislation. including a compensatory or regulatory has to 
be examined in accordance with Constitutional Scheme. as contained in 
Pait Xlll of the Constitution. The nature and content of legislatioi1 at 
D 
best may shed light on the aspect as to whether it impede/restrict the 
freedom of trade, commerce and intercourse or facilitate the same. 
E 
F. 
G 
H 
QUESTION NO.l 
PART VI 
OUR ANSWERS 
Levy of a non-discriminatory tax may constitute infraction of 
Article 30 l of the Constitution of India if it impedes the freedom of 
trade, commerce and intercourse. All taxes which contain restrictions to 
trade, commerce and intercourse, discriminatory or non-discriminatory 
infringe
A1ticle 30 I unless they are saved under Article 302- 304. 
Question N0.2 and Question No.3 
The compensatory tax theory as judicially evolved in Automobile 
Tramport is not compatible to constitutional scheme as delineated by 
Part Xlll of the Constitution. The Automobile Transport case in so far 
as it lays down that compensatory taxes are out of the reach of Article 
30 l cannot be approved.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[ASHOK BHUSHAN, J.] 
The nature and content of taxation at best may throw light on the 
aspect as to whether it contains restriction on freedom of trade, commerce 
and intercourse. The compensatory tax theory being not compatible with 
the Constitution, it is not necessary to answer Question No.3. 
Question No.4 
To find out as to whether Entry l~1x levied by different States in 
the present batch of cases violates Article 30 l of the Constitution, each 
statute has to be looked into and examined as per our discussions and 
conclusions as above. 
A law made by State Legislature complying clause( a) of Article 
304 and not containing any restriction on the freedom of trade, ccimmerce 
and intercourse need not comply Article 304(b). However, a law even 
though complies with Article 304(a)but contains restrictions on freedom 
of trade, commerce and intercourse has to be routed through proviso to 
clause (b) of Article 304 of the Constitution. The compliance of Article 
304(b) proviso whether required or not shall depend on the nature and 
content of the State legislation. 
Answer to incidental g uestions. 
( l) Levy of taxes is an attribute of a sovereign State as per 
Constitutional scheme and limited to the extent as provided in the 
Constitution. 
(2) Article 245 read with Article 246 recognises the exclusive 
power of the State to make laws including law oflevying taxes on subject 
matter enumerated in List II of VI!th Schedule in
accordance with 
limitations and restrictions contained in the Constitution of India. 
(3) The power to make law and levy taxes reserved in favour of 
the State under Article 246 read with List II ofV!lth Schedule is subject 
to Part XIII of the Constitution. Article 245 has to be read along with 
Article 246 for finding out the source of the legislative power. 
(4) Part XIII (including Article 30 l) of the Constitution to which 
legislative power of State is subject, does not have effect of denuding 
any sovereign power of the State or effecting the federal structure of 
853 
A 
B 
c 
D 
E 
F 
G 
H
854 
SUPREME COURT REPORTS 
(2016] 10 S.C.R. 
A 
the Constitution. 
B 
c 
D 
E 
F 
(5) The levy of taxes is presumed to be in public interest. 
(6) Levy of taxes which may be presumed to be in public interest 
still has to comply with Part Xlll of the Constitution for it to be justified 
as reasonable restriction. 
(7) Imposition ofrestriction by way of tax legislation under Article 
304(b) is paii of constitutional scheme and Presidential sanction has 
been provided to keep a check on the legislative power of the State 
impeding freedom of trade, commerce and intercourse. All legislative 
powers under the Constitution are subject to judicial review and the 
mere fact that a legislation passed under Article 304(b) is also subject to 
judicial review, in no manner, militants against the Constitutional scheme. 
(8) There is no question of affecting the separation of power 
between the Legislature and judiciary on the ground that levy of taxes 
under Article 304(b) which contains restriction to the freedom of trade, 
commerce and intercourse have to be routed through the President of 
India as per the Constitutional scheme. The Constitution contains large 
number of provisions including A11icle 304(b) where a State legislation is 
subject to Presidential sanction which provisions are in accordance with 
the Constitutional scheme and does not affect the separation of power 
between the Legislature and judiciary. Article 304(b) enables the State 
Legislature to frame legislations
containing restriction on freedom of 
trade, commerce and intercourse after routing the legislation through 
proviso to Article 304(b ). The question of judicial review arises only 
when there is challenge to such legislation. Judicial review of such 
legislation in no manner affects the separation of power. 
(9) The compensatory tax theory as propounded in A11tomobile 
Transport is not compatible with the Constitutional scheme as delineated 
in the Part Xlll of the Constitution. Framers of the Constitution have 
provided for all exceptions under which freedom of trade, commerce 
G 
and intercourse guaranteed under Article 30 I can be overridden, the 
compensatory tax not being included as one of the exceptions, the same 
cannot be added as an exception by any judicial interpretation. The 
compensatory tax theory brings dichotomy which is inconsistent with 
the language employed in Article 30 I. 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
855 
ORDER 
A 
By majority the CoU11 answers the reference in the following terms: 
I. Taxes simpliciter are not within the contemplation of Pat1 XIII 
of the Constitution of India. The word 'Free' used in A1ticle 
30 I does not mean "free from taxation". 
2. Only such taxes as arc discriminatory in nature arc prohibited 
by A11iclc 304(a). It follows that levy of a non-discriminatory 
tax would not constitute an infraction of Article 30 J. 
3. Clauses (a) and (b) of Article 304 have to be read disjunctively. 
4. A levy that violates 304(a) cannot be sawd even if the procedure 
under Article 304(b) or the proviso there under is satisfied. 
5. The compensatory tax theory evolved in Automobile Tramport 
case and subsequently modified in Jindal '.5 case has no juristic 
basis and is therefore rejected. 
6. Decisions of this Cou11 in Atiabari. A11to111obile Tramport 
a11d Jindal cases (supra) and all other judgments that follow 
these pronouncements are to the extent of such reliance over 
ruled. 
7. A tax on entry of goods into a local area for use, sale or 
consumption therein is permissible although similar goods are 
not produced within the taxing state. 
8. A11icle 304 (a) frowns upon discrimination (of a hostile nature 
in the protectionist sense) and not on mere differentiation. 
Therefore, incentives, set-offs etc. granted to a specified class 
of dealers for a limited period of time in a non-hostile fashion 
with a view to
developing economically backward areas would 
not violate Article 304(a). The question whether the ievies in 
the present case indeed satisfy this test is left to be determined 
by the regular benches hearing the matters. 
9. States are well within their right to design their fiscal legislations 
to ensure that the tax burden on goods im po11ed from other 
States and goods produced within the State fall equally. Such 
measures if taken would not contravene A1ticle 304(a) of the 
Constitution. The question whether the levies in the present 
/' 
B 
c 
D 
E 
F 
G 
H

856 
A 
SUPREME COUKf REPORTS 
[2016] 10 S.C.R. 
case indeed satisfy this test is left to be determined by the 
regular benches hearing the matters. 
10. The questions whether the entire State can be notified as a 
local area and whether entry tax can be levied on goods entering 
the landmass of India from another country are left open to be 
B 
detennined in appropriate proceedings. 
Devika Gujral 
Referred question answered.