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
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SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
133. A recent news article published in 'The Hindu', titled "The 
gap between rich and poor States", delineates this economic disparity 
between the States. The authors propose that since contrary to global 
experiences, India continues to show trends of divergence among its 
large States, it is time to accept the country's economic diversity. Amid 
such economic disparity among States with varying future needs and 
priorities, the way forward is greater devolution of fiscal and legislative 
powers on the States to create a level playing field. Relevant portion of 
this article reads as under:-
" ... per capita net domestic productfiwn I960 to 20I4 
of India:~ I 2 largest States, that accounted for 85 per 
cent of the total population, shows that economic 
disparity within India :1· States is among the largest in 
the world. .. 
This gap of.four times between the richest and the 
poorest large State in India is among the highest in the 
world. 
A similar ratio in other federal polities such as 
the U.S., European Union and China is between two 
and three times. Our convergence analysis shows that 
this economic disparity among States is only widening 
and not narrowing. India is the only large country in 
the world today that is experiencing an economic 
divergence among its States am/ not convergence, as 
economic theory would posit. " 
" ... .. Pre-1990 and post-I 990 look like al must two 
different
eras in India s history of economic diversity 
among States. Economic themy would suggest that the 
poorer regions grow faster to catch up with the richer 
States to cause an eventual convergence, as is 
happening globally. Contrary to global experiences of 
narrowing disparity, hath across and within nations, 
India actually shows trends of an exacerbating 
divergence among its large States, implying the richer 
States will continue to grow faster. "
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
"Whatever he the reasons, it is quite evident that the 
priorities of a more prosperous State will he quite 
different from those that are still very pom: /lldia 's 
cultural and political diversity is a well-entrenched fact. 
It is time to accept its economic diversity too. Amid such 
economic disparity among States with varying future 
needs and priorities, a Delhi-based one-size-fits-all 
policy regime for all of India 
is 
entirely 
anachronistics ...... the struggles of the European Union 
in balancing common market policies for economicalZv 
diverse nations should serve as a gentle reminder for 
an even more diverse India. " [emphasis added} 
[By Pravee11 Chakravarty and Vivek Dehejia /New Delhi 
Edition dated 5'" September, 2016] 
134. Since economic unity of the nation is the underlying object 
for freedom in Art. 301, it would be necessaty to define the concept of 
economic unity adopted by the Constitution of India. Firstly, economic 
unity cannot but be federal in nature; it must involve the even development 
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of all the States. All States, particularly, the underdeveloped and far-
flung border-States have a right to develop themselves so as to secure 
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the welfare of their residents. Secondly, the object of freedom of trade, 
commerce and intercourse is to foster economic unity by contribution to 
the development of all the States. Thirdly, as per the Directive Principles 
of State
Policy, the States are to sub-serve common good; secure and 
protect a social order which stands for the welfare of the people; 
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endeavour to provide an adequate means oflivelihood; and also secure, 
within the limits of its economic capacity the right to work, education 
and public assistance. 
135. Re-organisation of States is yet another factor which has to 
be borne in mind. Creation of State ofUttarakhand from the undeveloped 
hilly area ofUttar Pradesh; State of Jharkhand from the predominantly 
tribal areas of the State of Bihar, State of Chhattisgarh from the State of 
Madhy~ Pradesh and the recent bifurcation of the State of Telangana 
from the State of Andhra Pradesh comes to mind. The newly bifurcated 
States have to develop their new capitals, create new State infrastructure 
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SUPREME COURT REPORTS 
[20 I 6] 10 S.C .R. 
including High Courts in due course. They have to develop their own 
industrial bases for manufacture and production and for creating job 
opportunities. To attract capital investment, they have to provide 
infrastructure like transport, communication, power and technology. Re-
organisation of States apart. as a Welfare State, a State is under an 
obligation to create job oppo1tunities and promote welfare of the people 
by securing standard of living and economic justice. Having regard to 
the multifarious activities of a Welfare State, it is necessary that the 
States must have leverage/flexibility in exercise of their power to levy 
taxes and, therefore, steps taken by the States that result in differentiation 
cannot amount to discrimination that impedes the free flow of trade. 
commerce and intercourse. 
136. Manufacturing activities within the State involve several 
activities right from sourcing of raw-materials. manul:idure of goods, 
marketing of the manufactured goods, and export of the manufactured 
goods. Manufacturing activities convert the State from a mere trade 
hub to a manufacturing hub, creating employment opportunities for the 
locals, thereby giving impetus to the growth of the State. Manufacturing 
is a giant step for boosting the economy of the State: it brings in 
opportunities and socio-economic benefits to the residents of the 
respective States. Per contra, goods coming in from
outside the State 
only tap the market potential of the State without creating any employment 
opportunities or boosting the economy of the State. Titus gra11ti11g 
e.xemptiom/set-offltax incentive.\' to locally produced good~· and not 
gra11ti11g .melt exemption to goods coming from outside ca11110t be 
said to be discriminatory. 
137. Furthermore, every differentiation is not necessarily 
discriminatory. The word 'discrimination' used in Art. 304(a) requires 
an element of intentional and purposeful differentiation that creates an 
economic barrier. It involves an element of an intentional difference 
between the treatment of locally produced goods and goods imported 
from other States. The distinction between "differentiation and 
discrimination" has been culled out in Kathi Ra11i11g Rawat"· The State 
o(Saura~11tra ( 1952) SCR 435, wherein the Constitution Bench held as 
under:-
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
"Patan.iali Shastri J: .... 
All legislative differentiation is not necessarily 
discriminatory. In fact, the word "discrimination'·' does 
not occur in Article 14. The expression "discriminate 
against" is used in Article 15(1) and Article 16(2), and 
it means, according to the Oxford Dictionary, "to make 
an adverse distinction with regard to; to distinguish 
unfavourably from others··. Discrimination thus 
involves an element of 11nfavo11rable bias and it is in 
that sense that the expression has to be 11nderstood in 
this context. If such bias is disclosed and is based on 
any of the grounds mentioned in Articles I 5 and 16, it 
may well be that the stat11e will, without more, incur 
condemnation as violating a ~pecific constitutional 
prohibition 11nless it is saved by one or other of the 
provisos to those article~~ But the position under Article 
14 is different. Equal protection claims under that 
Article are examined with the presumption that the State 
action is reasonable and justified. This presumption of 
constitutionality stems from the wide power of 
classification which the legislature must, of necessity, 
possess in making laws operating d/fferent~v as regards 
different groups of persons in order to give effect to its 
policies. The power of the State to regulate criminal 
trials by constituting different courts with different 
procedures according to the need~ of different parts of 
its
territory is an essential part of its police power -
(cf Missouri v. Lewis)(3). Though the differing (I) 
[1950] SCR 88 (3) 101 US 22 
(92) AIR 1951 
Hyderabad II. " 
"Fazl Ali, J.: 
... / think that a distinction should be drawn between 
"discrimination without reason" and "discrimination 
with reason". The whole doctrine of classification is 
based on this distinction and on the well-known fact 
that the circumstances which govern one set of persons 
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or ohjects may not necessarily he the same as those 
governing another set of persons or ohjects, so that 
the question o{ unequal treatment does not rea!Zy arise 
as between persons governed by d(fferent conditions 
and different sets of circumstances .... " [Emphasis 
added] 
138. The desired objective of economic integration through checks 
and balances to encourage less developed parts of the country, so that 
they may compete as equals with others, does not contravene Part Xlll 
of the Constitution. In Video Electronics, the three Judges Bench held 
as under: 
"20. The question as we see is, how to harmonise the 
construction of the several provisions of the 
Constitution, It is true that if a particular provision heing 
taxing provision or otherwise impedes directly or 
immediately the free flow of trade within the Union of 
India then it will he violative of Article 301 of the 
Constitution. It has further to he horne in mind that 
Article 301 enjoins that trade, commerce and intercourse 
throughout the territory of India shall he free. The .first 
question, therefore, which one has to examine in this 
case is, whether the sales tax provisio11s (exemption etc.) 
in these cases directly and immediate~v restrict the free 
flow of trade and commerce within the meaning of Article 
301 of the Constitution. We have examined the scheme 
of Article 301 of the Constitution read with Article 304 
and the
observations of this Court in A tiabari :1· case 
[1961} I SCR 809 (supra), as also the observations 
made hy this Court in Automohile Transport, Rajasthan :S 
case [ 1963} 1 SCR 491 (.rnpra). Jn our opinion Part 
XIII of the Constitution cannot be read in isolation. It is 
part and parcel of a single constitutional instrument 
envisaging a federal scheme and containing general 
scheme conferring legislative powers in respect of the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
matters relating to list II of the 7th 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. 
It must be so construed that it lives and adapts itself to 
the exigencies of the situation, in a growing and 
evolving society, economically, politically and socially. 
The meaning of the expressions used there must, 
therefore, be so .interpreted that it attempts to solve the 
present problem of distribution of power and rights of 
the d!IJ'erent States in the Union of India, and anticipate 
the .fi1ture contingencies that might arise in a developing 
organism. Constitution must be able to comprehend the 
present at the relevant time and anticipate the future 
which is natural and necessary corollmy for a growing 
and living organism. That must be part of the 
constitutional adjudication. Hence, the economic 
development of States to bring these into equality with 
all other States and thereby develop the economic unity 
of India i~· one of the major commitments or goals of 
the constitutional aspirations of this land. For working 
of an orderzy society economic equality of all the States 
is as much vital as economic unity. 
22. It has to be examined whether difference in rates 
per se discriminates so as to come within Articles 301
and 304(a) of the Constitution. It is manifest that free 
flow of trade between two States does not necessari(y 
or generally depend upon the rate of tax alone. Many 
factors including the cost of goods play an important 
rnle in the movement of good~ from one State to another. 
Hence the mere fact that there is a difference in the 
rate of tax on goods locally manufactured and those 
imported would not amount to hampering of trade 
between the two States within the meaning of Article 
301 of the Constitution. As is manifest, Article 304 is an 
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exception to Article 301 of the Constitution. The need 
of taking resort to exception will arise only !f the tax 
impugned is hit hy Articles 301 and 303 of the 
Constitution. if it is not then Article 304 of the 
Constitution will not come into picture at all. See the 
observations in Nataraja Mudaliad· case [1968} 3 SCR 
829 of the report. It has to be borne in mind that there 
may be differentiatiom based on comideration of 
natural or business factors which are more or less in 
force in different localities. A State might be allowed to 
impose a higher rate of tax on a commodity either when 
it is not consumed at all within the State or if it is felt 
that the burden falling 011 co11s111ners within the State, 
will be more than that and large benefit is derived by 
the revenue. The imposition of a rate of sales tax is 
influenced hy various political, economic and social 
factors. Prevalence of differential rate of tax on sales 
of the same commodity cannot he regarded in isolation 
as determinative of the ohject to discriminate between 
one State and another. Under the Constitution originally 
fi"amed revenue from sales tax was reserved for the 
Stales. 
2 4. The object is to prevent discrimination against the 
imported goods hy imposing tax on such goods at a 
rate higher than that horne hy local good~. 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 on which it is levied. Every differentiation is 
not discrimination. The word 'discrimination' is not med 
in Article 14 but is used bi Articles 16, 303 & 304(a). 
When used in Article 304(a), it involves an element of 
intentional and purposeful differeutiation thereby 
creating economic barrier and involves an element of 
an unfavourable bias. Discrimination implies an unfair 
classification. Reference may he made to the 
observations of this Court in Kathi Raning Rawat v.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
State of Saurashtra.1952 SCR 435 where Chief Justice 
Shastri at p. 442 of the report reiterated that all 
legislative 
differentiation 
is 
not necessarily 
discriminatory. At p. 448 of AIR) of the report, Justice 
F azal 
Ali 
noticed the, 
distinction 
between 
'discrimination without reason' and 'discrimination with 
reason'. The whole doctrine of classification is based 
on this and on the well-known fact that the 
circumstances covering one set of provisions or objects 
may not necessarily he the same as these covering 
another set of provisions and objects so that the 
question of unequal treatment does not arise as between 
the provisions covered by different sets of circumstances. 
28. Concept of economic barrier must be adopted in a 
dynamic sense with changing conditions. What 
constitutes an economic barrier at one point of time 
often cease to be so at another point of time. It will be 
wrong to denude the people of the State of the right to 
grant exemptions which flow from the plenary powers 
of legislative heads in List II of the 7rh Schedule of the 
Constitution. Jn a federal polity, all the States having 
powers to grant exemption to specified class for limited 
period, such granting of exemption cannot be held to 
be contrary to the concept of economic unity. The 
contents of economic unity by the people of India would 
necessarily include the power to grant exemption or to 
reduce the rate of
tax in special cases/or achieving the 
industrial development or to provide tax incentives to 
attain economic equality in growth and development. 
When all the States have such provisions to exempt or 
reduce rates the question of economic war between the 
States inter se or economic disintegration of the country 
as such does not arise. It is not open to any party to say 
that this should be done and this should not be done by 
either one way or the other. It cannot be disputed that it 
is open to the States to realise tax and thereafter remit 
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tile same or pay back to the local ma1111fact11rer.s in tile 
shape of sub.sidies and that would neither discriminate 
nor be //it by Article 304(a) of tile Constitution. 111 this 
case and as in all co11stitutional udiudicatio11s the 
substance of the matter has to be looked into to }ind 
out whether there is any discri111inatio11 in violation of 
the constitutional mandate." [Emphasis added) 
Thus while considering the scope of"discrimination .. under Art. 
304(a) in Video Electro11ics, this Court has carved out an exception that 
States have powers to grant exemption to specific class for limited period 
and that such grant of exemption cannot be held to be discriminatory. To 
reduce the rate of tax in special cases or to provide tax incentives is for 
achieving the industrial development and attainment ofeconomic equality 
in growth and development. 
139. In S//ri Ma//al'ir Oil Mills and Anr. v. State o(J&K and 
Others ( 1996) l I SCC 39, a Division Bench of this Court, however, 
struck a contrary note. The State of Jammu and Kashmir granted 
exemption to the edible oil produced by small scale industries within the 
State of Jammu and Kashmir from sales tax while subjecting the edible 
oil produced in other States to sales tax at 8 per cent. A subsequent 
Notification was issued on 20.12.1993 as a result of which the general 
rate of sales tax payable on edible oil became 8%. The manufacturers 
of
edible oil from the adjoining States claimed that the exemption granted 
from payment of tax to the local industries was discriminatory. The 
exemption given by the Government of Jammu and Kashmir to the 
manufacturers of the edible oil was absolute and the period of exemption 
was five years - which was later extended by another five years. The 
said legislation was struck down on the ground that the State has brought 
about discrimination prohibited by Art. 304(a) of the Constitution. The 
Court declined to apply the limited exception carved out in Video 
Electro11ics and observed that the said exception in Video Electro11ic.\· 
cannot be widened or expanded to cover cases of a different kind. This 
Court held that the unconditional exemption granted to edible oil industries 
within the State of Jammu and Kashmir for a period of ten years and at
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMAT'Hl, J.] 
the same time subjecting edible oil imported from other States to sales 
tax at 8% was discriminatory and violative of Art. 304(a) of the 
Constitution. 
140. The decision in Vtdeo Electronics was, however. approvingly 
referred to by the ConstitutionBeneh in Sri Digvijav Cement Compa11r 
Limited and Ors. v. State of Rajast!tan and Others ('.WOO) I SCC 
688. In Digl'ijay, Section 8 of the Central Sales Tax Act came up for 
consideration. Section 8 of the Central Sales Tax Act stipulates that the 
State Governments were empowered to either exempt any goods from 
Central Sales Tax or to prescribe a lower rate of tax. The State of 
Rajasthan had redu~ed the rate to seven percent though stipulated local 
sales tax was sixteen per cent. In consequence, cement in Rajasthan 
became cheaper in comparison to Gujarat and that increased the flow of 
cement from Rajasthan to other States. After referring to the cases 
Firm ATB Mehtab Majid & Co v. State of Madras & Anr. AIR 1963 
SC 928 and State of Madras '" N.K. Nataraja Mudaliar ( 1968) 3 
SCR 829, this Court held as under:-
"24. We are unable to agree with the contention of the 
learned counsel for the petitioners that the impugned 
11otificatio11 had the effect of prevc11ti11g or hinderi11g 
the free movement of goods from one State to another. 
As far as the State of Rajasthan is concerned, ii had 
the opposite effect. Mere(1' because local rate of tax i11 
the State
of Gu}arat 011 the sale of cement was higher 
than the inter-State .mies tax 011 the cement sold from 
Ra}astltllll ct111110t lead to the co11clusio11 that the 
impugned notification prevented or hindered the free 
11101•ement of goods from one State to 1111othe1: In fact 
the impugned notification had the opposite effect, 
namely, it increased the mo11eme11t of cement from 
Ra}astlum to other States. It is not as if the im1111g11ed 
notification created a barrier which may have had the 
effect of hindering free movement of goods but 011 the 
other hand, the sales tax barrier was lowered resulting 
in increased volume of inter-siate trade. " 
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141. It follows from the Constituent Assembly Debates and the 
decisions in Video Electronics and Digvijay that historical, cultural, 
geographical and other factors have an impact on trade and commerce. 
While insisting on economic integration of the nation, Courts are to keep 
in view the regional requirements so as to cater to the need of economic 
development of the nation as a whole. Government incentives to invest 
in backward areas granting subsidies or tax concessions for a certain 
period of time would be permissible and would fall outside the scope of 
Part XIII and Art. 304(a). Such action of the State Government is not 
discriminatory; rather it aims at ensuring economic equality. 
142. In Video Electronics and Digvijay, this Court held that it is 
constitutionally permissible for a State Legislature to make laws that 
promote and encourage local trade; a form of affinnative action to move 
beyond the concept of discrimination towards true and a stronger union 
which is the underlining objective of the Constitution. Although balanced 
growth and economic integration of the nation as a whole has been 
accepted as one of the major objectives of economic planning, it is to 
make a headway in achieving the object. The growing regional disparities 
have become a reality and hence may pose a barrier to India's future 
economic growth. 
143. India is a union of States with federalism as a basic
feature 
of the Constitution. However, revenue-wise Union has an edge over 
the States. All major taxes like income tax, wealth tax, service tax, 
excise duty etc. are with the Union. Taxes raised by the States are 
insufficient to discharge their mandate as a Welfare State. India still 
exists in villages and countryside. Substantial number of population is 
still below poverty level. Subjects like public order (entry 1, List II); 
public health and sanitation, hospital and dispensaries (entry 6, List II); 
Education (entry 25, List III); providing employment opportunities; roads, 
bridges etc. and other infrastructure (entry 30, List II) inter alia are 
subject matters for the State; and States have limited resources to provide 
for education, healthcare, civic amenities, infrastructure, communications, 
village industries, mral employment and technology and to ensure dignified 
human living of the people of the State, without access to an adequate 
source of revenue. 
144. As discussed earlier, development of the country is seemingly 
unbalanced and unequal. Despite the economic reforms initiated in the
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
469 
[R. BANUMATHI, J.] 
country about twenty five years ago, entrepreneurs are hesitant to invest 
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in backward States because of varied reasons like inadequacy of power, 
lack of infrastructure and transportation, quality of human resources 
etc. Resultantly, few States continue to be backward States. In order to 
have a planned development for the benefit of the people and overall 
growth of the country as a nation, regional imbalances are to be removed. 
While trade, commerce and intercourse is important for the economic 
unity of the nation, the Courts cannot be oblivious of the responsibilities 
of a Welfare State in raising its resources by levy of taxes to meet the 
challenges. Incentives to invest in backward areas, subsidies and tax 
concessions are some of the measures used by the State to guide the 
location of the industries in backward areas and to generate employment 
opportunities for the people of the State. While power of taxation is 
indispensable, State also has the power to grant tax concessions or 
incentives to indigenous manufacturers/producers. Such incentives/tax 
concessions would certainly create differentiation between the locally 
produced goods and the goods that are imported into the State from the 
sister States; but the same cannot be said to be discriminatory and 
falling foul of Art.304( a). 
145. I summarise my conclusion on this point as under:-
While I agree with the views of the Constitution
Bench in Digvijay 
and Video Electronics, I do not endorse the views of Mahavir Oil 
Mills. 
Accordingly, the law laid down in Laxmi Paper Mart which 
relies upon Mahavir Oils is also held bad in law. Moreover, Indian 
Cement needs no consideration as it has been specifically overruled in 
Digvijay. The conclusions in this regard could be summarized as 
under:-
• Any difference in the rate of tax on goods locally 
manufactured and those imported, such difference 
not being discriminatory does not fall foul of Art. 
304(a); 
• Any incentive/benefits of concession in the rate of 
tax given to the indigenous manufacturers in order 
to encourage the manufacture/produc_tion in the 
State cannot be said to be discriminatory. 
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Repercussions of Art. 304(a) wlte11 110 local goods are 
pro(/ueed: 
146. The State may by law impose any tax on imported goods to 
which similar goods manufactured or produced in the State arc subject. 
It is the submission of the assessees that when a State does not produce 
or manufacture goods within its territory then it cannot resort to the 
power conferred on it by Art.304(a) to impose a tax on similar imported 
goods. In support of their contentions, the assessees placed reliance 
upon Kal11ani Store.~· v. State o( Ori.\·sa ( 1966) I SCR 865, where no 
foreign liquor was produced or manufactured in the State of Orissa but 
tax was levied on foreign liquor imported into the State ofOrissa. When 
the levy was challenged as violative of Art.30 I. it was held that:-
''7 ..... The notification levJ'ing duty at the enhanced rate 
is purely a fiscal measure and cannot be said to be a 
reasonable restriction on. the freedom of trade in the 
public interest. Article 301 has declared freedom of 
trade, commerce and intercourse throughout the 
territory of India, anti restriction on that freedom may 
only be justified if ii falls wilhin Article 30-1. 
Reasonableness of the restriclio11 would have lo be 
adjudged i11 the light of the purpose for irhic/1 the 
restriction is imposed, that is. "a.1· may he rey11ired in 
the public interest". Without entering upon an exhaustive 
categorization of what may he
deemed "required in the 
public interest", ii may be said that restrictions which 
may validly be imposed under Article 304(b) are those 
which seek lo protect public health. safety, morals and 
property within the territorv. Exercise of/he power under 
Article 304(a) can only be effective if the tax or dulv 
imposed on goods imporled ti-om other States a11d the 
tax or dutv imposed on similar goods ma11uf(1ct11red or 
produced in that State are such that thae is 110 
discrimination against imported goods. As 1io foreign 
liquor is produced or manuf'acrured in !he State of
JINDAL STAINLESS Ll'D. v. STATE OF HARYANA 
471 
[R. BANUMATHI, J.] 
Orissa the power lo legislate given bv Arlicle 304 is 1101 
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available and !he restriction which is declared on the 
freedom of trade. commerce or intercourse by Article 
301 of/he Constitution remains unfettered." [Emphasis 
supplied] 
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Learned Counsel for the assesses have relied on Ka/yani Stores 
to contend that Art. 304(a) is the only avenue for the State to impose 
entry tax and the same can be availed of only when there are similar 
goods being manufactured within the State so as to prevent discrimi11ation. 
However, the law laid down in Kalyani Stores cannot be applied in the 
C 
case of entry tax levied under entry 52, List II. The dictum of Ka/yani 
Stores has a limited application to counterveiling duties imposed on sale 
ofliquor levied under entry 51, List II and that too to the limited extent it 
is actually in force as of now. Power to impose counterveiling duties of 
excise on alcoholic beverages etc. manufactured or produced in the 
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State and counterveiling duties at the same or higher rates on similar 
goods manufactured or produced elsewhere in India, under entry 51, 
List II is materially distinct from a levy under entry 52, List II and thus, 
an interpretation of the law relating to the former cannot be applied to 
the latter. 
14 7. Furthermore, Kalyani Stores does not appear to have noticed 
the non-obstante clause in Art. 304 ''Notwithsta11di11g anything in 
Article 301 or
Article 303 .... ". The non obs/ante clause should be 
understood in a manner appropriate to the substance of Articles 302 to 
304. The true source of power of the State Legislature remains in Part 
XI, in Atticle 245 read with Article 246 and entries of List II. Art.304 is 
not a source of power; it embodies a re-statement of powers conferred 
under Articles 245 and 246 read with the entries of List JI of Seventh 
Schedule with some limitations. 
148. The rigorous view taken in Ka(l'lini Stores was diluted in 
State of Kera/a '" Abdul Qadir mu/ Others· ( 1969) 2 SCC 363. The 
State of Kerala levied a tax on tobacco which was imported into the 
State from outside. No tobacco was manufactured or produced within 
the State of Kerala. The Court, upon a challenge to the tax law, upheld 
the levy of tax on tobacco and observed that the correct approach was 
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to see whether the impugned tax impeded the free flow of trade and 
commerce under Art.301. The Court stated that levy of tax on tobacco 
did not impede the free flow of trade and commerce. 
149. The first part of Art. 304(a) re-states the power of the State 
to impose a tax on goods imported from the other States. Second part of 
Art. 304(a) places a limitation on the power of the State Legislature. It 
provides that a State may only tax imported goods so as not to discriminate 
them with the locally produced or manufactured similar goods i.e. the 
limitation ofnon-discrimination vis-a-vis similar internal goods. When a 
situation arises where no similar goods are manufactured or produced in 
that State, the tax merely does not fall within the scope of Art.304(a); 
the limitation is taken away but the power to tax remains. The sovereign 
and plenary power of the State to tax cannot be emasculated and made 
subject to a limitation that a State can only tax those goods which are 
produced within its teJTitory also. 
150. This is better explained by way of an example: Zinc is an 
important mineral resource used in galvanization of iron and steel. It is 
also used in automotive, electrical and machinery industries. Haryana 
does not have zinc ore, however, it does have the industries mentioned 
above. If zinc is imported from Odisha or Rajasthan, then State of 
Haryana can impose a tax on it, even though
there is no local production 
of zinc. This does not mean that there is a discrimination against the 
imported zinc. Discrimination involves an element of intentional and 
purposeful differentiation; without a comparable good there cannot be a 
disparate treatment or discrimination of the imported zinc. Thus, a State 
law that imposes a tax on imported goods where similar goods are not 
manufactured or produced in that State, will meet the requirement of 
Art.304(a) and there would not arise any question of discrimination. 
151. It is true that when similar goods are not manufactured inside 
the State, there are chances of a higher rate of tax on such goods brought 
into the taxing State from other States but that does not mean that there 
should be a blanket protection of such goods from tax. Power of the 
State to tax the goods imported cannot be whittled down on the ground 
that there are no similar goods manufactured or produced within the 
taxing State. Exorbitant taxation of such goods will remain open to 
challenge under Part III in Art. 19(1 )(g) read with Art. 19( 6) and Art. 
14. With these observations, I hold that the power to impose a tax on
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
473 
[R. BANUMATHI, J.] 
imported goods is not taken away when no similar local goods are 
A 
manufactured within the State and thus, the law laid down in Kalyani 
Stores is not a good law. 
Levy of Entry Tax on Imported Goods 
152. Most of the States levy entry tax on the goods imported from 
outside the country when they enter into a local area for consumption, 
use or sale therein. The issue that arises is as to whether State Legislature 
is competent to levy entry tax on the goods imported from other countries 
when they enter into a local area for consumption, use or sale therein. 
153. Contention of the assessees is that import and export across 
the customs frontiers are covered by entry 41, List I; duties of customs 
including export duties are covered by entry 83, List I of the Seventh 
Schedule and thus transactions relating to "import/export across customs 
frontiers including duties of customs including export duties" fall 
within the exclusive domain of the Parliament. It is further contended 
that the mandate of Clause 1 ( d) of Art. 286 of the Constitution prevents 
the State from levying sales tax so as not to interfere with the Union's 
legislative power with respect to import and export across frontiers 
(entry 41, 
List I) and "the duties of customs including export duty" 
(entry 83, 
List I). It is contended that ifthe State is pennitted to levy 
entry tax under entry 52, List II on goods imported from outside
the 
country, the same would amount to levy of 'tax on imported goods' which 
is a clear transgression of powers of the Parliament under entry 41 and 
entry 83 of List I. 
154. Per contra, the States contend that once the imported goods 
are cleared on payment of customs duty, the goods are mixed with the 
mass of goods in India and when such imported goods enter into the 
local area, the States are well within their legislative competence to levy 
entry tax in exercise of their legislative power under entry 52, List II. 
Counsel for the States have submitted before us that the taxable event 
under entry 83, List I and that under entry 52, List II are distinct; 
taxable event with respect to entry 83, List I, is the act of import i.e. 
bringing of goods from a foreign country to India, whereas, the taxable 
event under entry 52, List 11 is the entry of goods into local area for 
consumption, use or sale therein. It was further argued that entry 41, 
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A 
List I which deals with trade and commerce with foreign countries, import 
and export across custom frontiers, and definition of custom frontiers 
has to be read along with entry 83, List I. 
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Meaning of the word "Import": 
155. "Import" means bringing or taking by sea or air across any 
customs frontier. Import is defined in Section 2(23) and imported goods 
in Section 2(25) of the Customs Act as under:-
"(23) "import", with its grammatical variations and 
cognate expressions, means bringing into India from a 
place outside India; 
(25) "imported goods" means any goods brought into 
India from a place outside India but does not include 
goods which have been cleared/or home consumption; 
156. The meaning of the word "import" has been explained in P. 
Ramanatha Aiyar's "The Major Law Lexicon", 4'h Edition 2010 
as under:-
"The term "import" means to bring into a country 
merchandise from abroad and is the direct converse of 
the term "export" which means to. carry from a state or 
country, as wares in commerce. The term "export" 
sign/fies etymological~v "to carry out" and "import" 
means to "bring in". Its commercial meaning is directly 
contrary to the term "export". Goods brought into the 
country from abroad. The importation of certain goods, 
as authorized reprints of copyright books, false coin 
and indecent or obscene prints, is express~y forbidden 
and with regard to certain other goods, such as
wine, 
spirits and tobacco, restrictions are imposed as to the 
place and manner of their importation. Goods or 
services brought into a country for sale, from abroad,
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
or to bring in such goods or services. " (Trade Finance 
& Banking) [Page 3207] 
157. Similarly, as per Section 2(e) of the Foreign Trade 
(Development and Regulation) Act (22of1992), "Import" and "export" 
means respectively bringing into, or taking out of India, any goods by 
land, sea or air. 
158. "Import" and "export" across customs frontiers and definition 
475 
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of 'customs frontiers' are covered by entry 41, List I and "duties of 
customs including export duties" are covered by entry 83, List I of C 
the Seventh Schedule. Entry 41 and entry 83 of List I of the Seventh 
Schedule read as under:-
"41. Trade and commerce with foreign countries; import 
and export across customs frontiers; definition of 
D 
customs frontiers. 
83. Duties of customs including export duties. " 
159. As per Section 2(28) of the Customs Act, 1962 read with 
Section 5(1) of the Territorial Waters Continental Shelf, Exclusive 
Economic Zone and other Maritime Zones Act, 1976, 'Indian Custo1ns 
Waters' mean water extending in sea upto the limit of contiguous zone, 
i.e., a line, every point of which is at a distance of 24 Nautical Miles 
from the nearest point of the base line. These definitions define the 
customs frontier. 
160. Goods imported in a vessel/aircraft require payment of 
customs duty before they are cleared into the country. Unless these are 
not meant for customs clearance at the port/airport of arrival by
particular 
vessel/aircraft and are intended for transit by the same vessel/aircraft 
or trans-shipment to another customs station or to any place outside 
India, detailed customs clearance fonnalities of the landed goods have 
to be followed by the importers. In respect of goods which are off-
loaded, importers have the option to clear them for home consumption 
after payment of the duties leviable or to clear them for warehousing 
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without immediate discharge of the duties leviable in terms of the 
warehousing provisions as provided in the Customs Act. Sections 45 to 
48 deal with clearance of imported goods for home consumption. In 
terms of Section 46. every impo1ier is required to file Bill of Entry for 
clearance of goods for home consumption or warehousing in the form 
as prescribed by regulations. In terms of Section 47 of the Customs Act, 
proper officer on being satisfied that the goods entered for home 
consumption are not prohibited goods and the importer has paid the imprni 
duty and on being satisfied that the prescribed formalities have been 
duly completed, passes an order for clearance of goods for home 
consumption. Evidently Chapter IX of the Customs Act is a facility for 
warehousing, deposit of imported goods and their clearance. Section 68 
provides for clearance of warehoused goods for home consumption by 
the importer. Under Section 68, the warehoused goods can be cleared 
for home consumption by presenting Bill of Entry, paying import duty 
etc. and obtaining an order for cleararn.:e. 
· 
161. The moment imported goods are cleared for home 
consumption either under Section 47 of the Act or under Section 68 of 
the Customs Act, the imported goods mix up with the mass of goods in 
the country and enter into the local area. Import of goods into the territory 
oflndia and transit of goods within the country arc not
integral. Import 
of goods and customs clearance and the entry of goods into the local 
areas are two distinct events. In the. case of customs duty, the taxable 
event is entry of goods into the territory of India. The taxable event 
under ent1y 52, List II is the entry of goods into local area for consumption, 
use or sale therein. Two taxable events are distinct in law and there is no 
overlap. 
162. Under the Indian Constitution, the distribution of power with 
regard to tax has been done in a mutually exclusive manner and in great 
detail with reference to different aspects of property or goods. 
Considering an issue with regard to excise duty and sales tax payable by 
a manufacturer upon manufacture and sale in Province o(Madra.\' v. 
Mis Boddu Paidamw and Sons AIR 1942 FC 33 = 1942 FCR 90, the 
Federal Court has held that:-
"'If the taxpayer who pays a sales tax is also a 
manufacturer or producer of commodities subject lo a 
central dutv of excise, there may no doubt be an
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHl, J.] 
overlapping in one sense: but there is no overlapping 
in law. The n+·o taxes which he is called on to pc~v are 
economically /wo separate and dis/incl imposts. There 
is in theory nothing to prevenl the Central Legislature 
from imposing a duty (!f excise on a commodity us soon 
as if comes into existence, no matter what happens lo ii 
afterwards, whether it be sold, consumed. destroyed, 
or given away ... It is the fact of manufacture which 
attracts the duty, even though it may be collected later ... 
Jn the case of a sales tax. the liability to tax arises on 
the occasion of a sale. and a sale has no necessary 
connection with manufacture or production." 
.... there are two comjJlementary powers, each expressed 
in precise and definite terms then there is no reason for 
extending the meaning of the expression 'duties of 
excise' at the expense of the provincial power to levy 
taxes on sale of goods. " [Page 101] 
163. Bod du Paidanna has been affirmed in Goveruor General 
of Co1111cil 11. Province of Madras AIR 1945 PC 98 = 58 LW 228 in 
following words:-
"Here again their Lordships.find themselves in complete 
accord with the reasoning and ocnslusions of !he 
Federal Court in the Boddu Paidanna Case (1). 
The 
tlvo laxes, the one levied upon a manufacturer in respect 
of his goods, the other upon a vendor in respect· of his 
sales. may, as is there pointed out, in 011e sense overlap. 
But in law there is no
overlapping. The taxes are 
separate and distinct imposts. If in fact they overlap, 
that may be because the taxing authority. imposi11g a 
duty of excise. finds it convenient to impose that duzv at 
the moment when the exciseable article leaves the factory 
or workshop for the first time upon the occasion of its 
sale. But that method of collecting the tax is an accident 
(~f administration, it is not of the essence of the duty (Jf 
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excise which is attracted by the manufacturer itself' " 
164. In Ram Krislwn Ram Natlt Agarwal v. Secretarv, 
Municipal Committee, Kamptee, Union of India A IR 1950 SC 11, a 
case relating to bidi manufacturer who was required to pay excise duty 
and octroi, the Supreme Court approved the Federal Court judgment 
and held that the 'excise duty' was tax on the 'manufacturer' while 
'octroi duty' was a 'tax' on the 'entry of goods' within a particular area. 
Tobacco becomes subject to excise duty when it reaches the stage of 
manufacture and it does not conflict with a levy on the entry of goods 
within a certain area. It was observed that "it is wrong to think that 
two independent impost arising from two different sets of 
circumstances were not permitted i11 law". 
165. In GujaratAmhuja Cement Ltd. v. Union oflndia (2005) 
4 sec 214, the levy of service tax on carriage of goods by transport 
operators was challenged as being legislatively beyond the competence 
of Parliament. This Court held that there is a distinction between the 
object of tax, the incidence of tax as well as collection machinery. The 
legislative competence is to be determined with reference to object of 
the levy. It was held that the service tax and the tax under entry 56, List 
II are distinct. 
166. As already noted, under our Constitution, there is no 
overlapping in the taxing power. The Constitution gives independent 
powers of
taxation to the Union and the States. The taxing power of 
the Union and of the States are mutually exclusive. This avoids the 
difficulties which have arisen underother Federal Constitutions as rightly 
observed in Hoechst Pltt1r111aceutica/5· v. State o(Bi//ar ( 1983) 4 SCC 
45 and State of West Bengal r. Kesoram Industries (2004) I 0 SCC 
201. 
167. The other contention of the appellants is that the doctrine of 
'Unbroken Package' should be applied in the context of entry 83, List 
I as was initially applied by US courts. Doctrine of' Unbroken Package· 
postulates that import of goods continues even after crossing customs 
barrier until the package imported is broken up at the importer's 
destination and the goods are taken out. This argument was pressed 
upon mainly to save the foreign goods from suffering entry tax at the
JfNDAL STAINLESS LTD. v. SlATE OF HARYANA 
479 
[R. BANUMATHL J.] 
instance of State authorities. The appellants contended that no entry 
A 
tax can be levied under entry 52, List II by the State authorities before 
the package is broken. 
t 68. Such a contention does not find force in the light of the fact 
that doctrine of' Unbroken Package' has not only been discredited by 
Indian Couits, but also by the American Courts. In the American context, 
B 
reference can be made to Prof. Tribe on American Constitutional 
Law States, in which the learned Professor has criticized the doctrine 
of 'Unbroken Package· in the following words: 
'"in the dormant commerce clause context. the court long 
ago disparaged the 'unbroken-package doctrine as 
applied to interstate commerce ........ as more artificial 
than sound· and·the court has concluded that taxes 
imposed on goods while in transit through the taxing 
state are in effect potentially repeatable taxes on 
interstate commerce itself and are thus barred by the 
commerce clause. But non-discriminatory taxes imposed 
on goods prior to their movement into interstate transit, 
or subsequent to the completion of such transit, are taxes 
incapable of multiple application and are thus 
s11jficientll' local to survive jurisdiction scrutiny." 
[Page. 1162-1163] 
169. Learned counsel on behalf of the States rightly contended 
that the 'original package doctrine' or 'unbroken package doctrine' 
as propounded in Brown v. State of Maryland
by Chief Justice M·arshall 
has been expressly disapproved by Indian courts as well. In this regard, 
reliance has been placed upon Province of Madras v. Bot/du Paidt11111a 
& Sons AIR 1942 FC 33 = 1942 FCR 90; State o[Bombav 1•. F.N. 
Balsara (CB) AIR I 95 l SC 318; State of Trava11core-Cocl1in 1•. 
S/1a11mugha Vilas Cashew Nut Factor!' (1954) SCR 53. 
170. In Gramophone Companv of India Ltd. v. Bire11dra 
Baltadur Pandev ( l 984) 2 SCC 534, this Court while interpreting the 
word "import" in Section 53 of the Copyright Act 1957, discredited the 
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'Doctrine of Unbroken/original Package' in the following tenns: 
"37. The Calcutta High Court thought that goods may 
be said to he imported into the country onzv if there is 
an incorporation or mixing up of the good~ imported 
with the mass of the property in the local area. In other 
words the High Court relied on the 'original package 
doctrine' as enunciated by the American Court. Reliance 
was placed by the High Court upon the decision of this 
Court in the Central India Spinning and Weaving and 
Manufacturing Co. Ltd. The Empress Mills, Nagpur v. 
Municipal Committee, Wardha [1958]1SCRJJ02. That 
was a case which arose under the C.P. and Berar 
Municipalities Act and the question was whether the 
power to impose 'a terminal tax on goods or animals 
imported into or exported from the limits of a 
municipali~v' included the right to levy tax on goods 
which 'were neither loaded or unloaded at Wardha hut 
were mere~)' carried across through the municipal area'. 
This Court said that it did not. The word 'import', it was 
thought meant not merely the bringing into hut 
comprised something more, that is 'i11co1porating and 
mixing up of the goods with the mass of the property in 
local area', thus accepting the enunciation of the 
'Original Package Doctrine' by Chief Justice Marshall 
in Brown v. State of Maryland 6 L. Ed. 78. Another 
reason given hy the learned Judges to arrive at the 
conclusion that
they did, was that the very levy was a 
'terminal tax' and, therefore the words 'import and 
export', in the given context, had something to do with 
the idea of a terminus and not an intermediate stage of 
a journey. We are afraid the case is realZv not of any 
guidance to us since in the context of a 'terminal tax' 
the word1· 'imported and exported' could he construed 
in no other manner than was done hy the Court. We 
must however say that the 'original package doctrine' 
as enunciated by Chief Justice Marshall on which
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI, J.] 
reliance was placed was expressly disapproved first by 
the Federal Court in the Province of Madras v. Boddu 
Paidanna:l942 FCR 90 and again by the Supreme 
Court in State of Bombay v. F.N. Balsara,. Apparently 
these decisions were not hrought to the notice of the 
Court which decided the case of Central India Spinning 
and Weaving and Manufacturing Co. Ltd., The Empress 
Mills, Nagpur v. Municipal Committee, Wardha. So we 
derive no help .fi-om this case. As we said, we prefer to 
interpret the word 'import' as it is.found in the Copyright 
Act rather than search for its meaning by referring to 
other statutes where it has been used. " 
171. Chapter Vlll of Customs Act deals with goods in Transit. 
Section 54 deals with trans-shipment of goods without payment of duty 
upon presentation of bill of trans-shipment. The inland container depot 
and land custom station are creatures of Statute. They are not 
detenninative of the taxable event for imposition of custom duty on 
imports. Many of the provisions are facilitative and/or intended for 
purposes of valuation and fixation of rates. The crucial aspect is that 
according to entry 83, List I as well as the Customs Act, 1962 the taxable 
event is 'import' or 'hringing of the goods into India' and it is distinct 
from the taxable event of entry 52, List II. 
172. The assessees contended that a factory unit may have a 
warehouse where goods are deposited and are
kept under a bond which 
may even pennit sale or manufacture. It was even contended that the 
warehouse itself may be in the same local area, illustratively in Delhi/ 
Mumbai. 
173. Sections 2(43), 2(44) and 2(45) deal with warehouse, 
warehoused goods and warehousing station. Section 9 requires the Board 
to issue a Notification in the Official Gazette declaring places to be 
warehousing stations at which alone public warehouses may be appointed 
and private warehouses may be licensed. The public warehouses are 
appointed under Section 57 and private warehouses are licensed under 
Section 58. 
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174. On behalf of the States, it was submitted that there is no 
submission by any of the assessees that there is a warehousing station in 
their factory units or in the local area where they are located or that 
there is any public warehouse or private warehouse so located. Our 
attention was drawn to SLPs pertaining to Indian Oil Corporation, Vedanta 
and NALCO to contend that the assessees have not produced any 
evidence nor is there any pleading that the Bill of Entry is filed in the 
factory units or in a land custom station which is located in the same 
local area as the assessees' unit. Hence, it is submitted that the warehouse 
and warehouse bond based contentions have been advanced without 
any basis in pleadings and facts. 
175. A comparison of Sections 58 and 57 shows that a licensed 
private warehouse is different from a public warehouse. Section 58 
deploys the expression "dutiable goods imported by or on behalf of the 
licensee, or any other imported goods". Similar expression is not used in 
Section 57 with respect to public warehouses wherein dutiable goods 
may be deposited. It is clear that the goods deposited in private 
warehouses are considered to be goods which have already been 
imported. Further, 'warehousing bond' is dealt with in Section 59 which 
is issued where the goods have been entered for warehousing and after 
assessment of the duty, the bond is executed for a sum twice the
amount 
of the duty assessed. When the requirements in Section 59 are complied 
with then pennission to deposit the goods in warehouse is granted. This 
indicates that both in public warehouses and private warehouses the 
deposits are pennitted only for goods which are already imported. 
Stringent provision is made in Section 59(2) to pay all duties or interest 
on or before the date of demand. Under Section 62, the proper custom 
officer exercises control over all the warehoused goods and he may 
cause any warehouse to be locked. The owner of the goods can with 
the sanction of the proper officer deal with the goods, show the goods 
for sale and even carry on any manufacturing process or other operations 
in the warehouse in relation to such goods. 
176. Such warehousing or warehousing bond cannot prevent the 
levy of entry tax, especially where warehouse is established in a factory 
unit. On the basis of the law laid down above, I hold that the taxable 
events under entry 83, List I and entry 52, List II are distinct; any 
movement of the imported goods to the warehouse in the factory· unit
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
483 
[R. BANUMATHl, J.] 
would not prevent the State from levying and collecting entry tax when 
A 
such goods enter a local area of the State for consumption, use or sale 
therein. 
177. Summarily, the conclusion on question No.4 is as 
under:-
•Entry tax with reference to entry 52, List II of Seventh Schedule 
is not violative of A1i. 30 I subject to the levy being non-
discriminatory i.e. passing the muster of Art. 304(a). A levy 
sustainable under Art. 304(a), being non-discriminatory would 
ipso facto be out of the purview of Art. 30 I. 
8 
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• When the entry tax is levied by the Entry Tax Act enacted by 
the State Legislature, the term 'a local area' contemplated by 
Entry 52 may cover the 'Whole State' or ·a local area· as 
notified in the legislation. l agree with the view taken in 
Bihm· Cit amber of Commerce that from the point of view of 
D 
entry tax that the State is a compendium of local areas and 
where the local areas contemplated by the Act cover the entire 
State, the difference between the State and 'a local area' 
practically disappears. 
• Articles 304(a) and. 304(b) are to be read disjunctively; both 
E 
apply to different subject matters; while Art. 304(a) deals with 
tax, A1i. 304(b) deals only with non-fiscal matters. 
Conclusions on the incidental questions arising under Question 
No.4:-
• Where there is equivalence in terms of tax treatment between 
the locally produced goods and the ones imported from
other 
States, levy of entry tax on the goods imported from other States 
when there is no such levy on the locally produced goods is not 
discriminatory. 
• Every differentiation is not discrimination. Any difference in 
the rate of tax on goods locally manufactured and those imported, 
such difference hot being discriminatory does not fall foul under 
Art.304(a). Any incentive/benefits of concession in the rate of 
tax given to the local manufacturers/producers in order to 
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encourage the local manufacturers/production in the State 
cannot be said to be discriminatory. Digvijay and Video 
Electronics have laid down the correct law. Mahavir Oil 
Mills is not a con-ect view. 
• Levy of ent1y tax on the goods imported from the other States is 
not discriminatory merely on the ground that there are no similar 
goods manufactured or produced within the taxing State. The 
law laid down in Kalyani Stores is not a good law. 
• Levy of entry tax on the goods imported from outside India 
which enter into local area for consumption, use or sale therein 
is within the legislative competence of the State. 
QUESTION NO. 2: IF ANSWER TO QUESTION N0.1 IS 
IN THE AFFIRMATIVE, CAN A TAX WHICH IS 
COMPENSATORY IN NATURE ALSO FALL FOUL OF 
ARTICLE 301 OF THE CONSTITUTION OF INDIA? 
QUESTION NO. 3: WHAT ARE THE TESTS FOR 
DETERMINING WHETHER THE TAX OR LEVY IS 
E 
COMPENSATORY IN NATURE? 
178. The concept of 'compensatory tax' is a judicially evolved 
concept. Majority in Atiabari held that taxes may and do amount to 
restrictions and hence tax legislation is subject to scrutiny under Art. 
301. In Atiabari, the test of "direct and immediate effect on trade, 
F 
commerce and intercourse" was evolved. The majority in Atiabari had 
thus completely read down State's taxing power under entry 52, List II 
thereby holding that State's legislative power is subject to the freedom 
clause in Art. 301. This had an
adverse effect on the legislative power 
of the State to levy tax and its financial autonomy. 
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179. lnAutomobile, while the Supreme Court affinned the views 
H 
of Atiabari, compensatory taxes were carved out as an exception to 
Art. 301. In Automobile, this Court evolved the concept ofcompensatory 
taxes and held that "regulatory measures or measures imposing 
compe11sat01:v taxes for the use of trading facilities do not come
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
485 
[R. BANUMATHI, J.] 
within the purview of the restrictions contemplated by Article 301". 
A 
Compensatory taxes were held to be ones which did not hinder the· 
freedom of trade, commerce and intercourse, instead facilitated the same. 
Further, the Court laid down a "working test" to ascertain whether a tax 
is compensatory or not in the following tenns:-
"27 .... It seems to us that a working test for deciding 
whether a tax is compensatory or not is to enquire 
whether the trades people are having the use of certain 
facilities for the better conduct of their business and 
B 
paying not patently much more than what is required 
C 
for providing the facilities. It would be impossible to 
judge the compensatmy nature of a tax by a meticulous 
test, and in the nature of things that cannot be done." 
180. InAutomobile, the Bench negating the requirement of setting 
up a separate fund for the taxes collected in the name of compensatory 
tax, held that the State need not maintain a separate fund for the 
compensatory taxes so collected from the traders enjoying the benefit 
D 
of the services provided by the State; rather it is sufficient if the State 
provides certain facilities for better conduct of traders' business. This 
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Court held as under:-
"28. Nor do we think that it will make anv difference 
that the money collected from the tax is not put into a 
separate fund so long as facilities for the trades people 
who pay the
tax are provided and the expenses incurred 
in providing them are borne by the State out of whatever 
source it may he ... " 
Having observed so, in Automobile itself, this Court had ruled out 
the element of quid pro quo from the ambit of compensatory tax. While 
stressing on the need for ensuring that the assessees are not 'paying 
much more than what is required for providing the facilities', the 
Court merely intended to prohibit levy of an exorbitant tax. It was nowhere 
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intended by the Court to authorise levy of 'fee' in the name of 
'compensatory tax'. 
181. In various cases, this Court has repeatedly held that 
regulatory measures like licensing or price control or compensatory 
measures cannot be treated as violative of freedom of trade, commerce 
and intercourse within the territory of India. While upholding the 
enhancement of the motor vehicles tax, in GK. Kris/man 1>. State of 
Tamil Nadu (1975) I SCC 375, this Court held that a compensatory tax 
is not a restriction upon the movement part of trade and commerce. 
Neither should the tax go beyond a proper recompense to the State for 
the actual use made of the physical facilities provided in the shape of a 
road nor it is necessary that there should be a separate fund or express 
allocation of money for the maintenance of roads to prove the 
compensatory purpose, when such purpose is proved by alternative 
evidence. 
1 82. The decision in Krishnan 's case was reiterated in 
l11ter11ational Tourists Corporation and Or.~-. v. State of H arva11t1 
and Ors .. ( 1981) 2 SCC 318, in which levy of tax on passengers and 
goods under The Punjab Passengers and Goods Taxation Act, 1952 and 
similar other enactments of other States were under challenge. State of 
Haryana levied a tax on transporters plying motor vehicles between 
Delhi and Jammu and Kashmir. The transporters would use national 
highway, pass through Haryana,
without picking up or setting down 
passengers in the State. Since, the responsibility to construct and maintain 
the highways is with the National Highways Authority of India, it was 
contended by the transporters that the tax could hardly be regarded as 
compensatory. But the Court rejected this contention and held that if the 
taxes were to be proportionate to the expenditure on regulation and 
service, it would not be a tax but a fee. It was pointed out that in the 
case of a fee, it may be possible to precisely identify and measure the 
benefits received from the Government and in the case of regulatory 
and compensatory tax, it would be well-nigh impossible to identify and 
measure the benefits received and the expenditure incurred and to levy 
the tax in accordance with such benefits. It was held as under:-
"9. While in the case of a fee it may be possible to 
precisely identifji and measure the benefits received fi'om 
the Government and levy the fee according to the
HNDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMATHI. J.] 
benefits received and the expenditure incurred, in the 
case of a regulatory and compensatory tax it would 
ordinarily be wellnigh impossible to identify and 
measure, with any exactitude, the benefits received and 
the expenditure incurred and levy the tax according to 
the benefits received and the expenditure incurred. What 
is necessary to uphold a regulatory and compensatorv 
tax is the existence of a specific. identifiable object 
behind the levy and a nexus between the subject and 
the object o( the levv. If the object behind the levy is 
identifiable and i( there is su{ficient nexus between the 
subject and the object of the levy. it is not necessarv 
that the monev realised bv the levv should be put into a 
separate fund or that the levv should he proportionate 
to the expenditure. There can he no bar to an 
intermingling of the revenue realised ti-om regulatiwv 
and compensatorv taxes and from other taxes o( a 
general nature nor can there be anv objection to more 
or less expenditure being incurred on the object behind 
the compensatory and regulaton• levv than the 
realisation (rom the levv." [Emphasis added] 
183. In Mis. Bltagatram Rajeevkumar v. Commissioner of 
Sales Tax, M.P. and Ors. 1995 Supp ( 1) SCC 673, it was held that 
even if there is some link or some connection between the tax and the 
facilities extended to the trade directly or indirectly the levy cannot be 
487 
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challenged as invalid. 
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184. The same dictum was followed in State o{Bilwr and Ors. 
v. Bilwr Chamber of Commerce and Ors. ( 1996) 9 SCC 136, wherein 
this Court considered the challenge to a legislation in which the State of 
Bihar levied entry tax on the goods entering into a local area for 
consumption, use or sale therein. The Act was challenged as violative of G 
Art.301 of the Constitution. After referring to Blwgatram. it was held 
as under:-
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"18. In this connection. it is necessarr to notice a few 
decisions brought to our notice. 
Jn Bhagatram 
Rajeevkumar (1995) Suppl. 1 SCC 673. a three-judge 
Bench of this Court has rejected the argumem that to 
be compensatory, the tax must j(1cilitate the trade. The 
reason is obvious: (fa measure facilitates the trade, it 
would not be a restriction on trade but an 
encouragement to it. It was observed: [SCC Page 678, 
Para 8] 
" ... The submission of Shri As/10k Sen, leamed Senior 
Counsel that compensation is that which fi1cilitates the 
trade only does not appear to be so1111d. The concept <~f 
compensatO!y nature of tax has been widened and u· 
there is substantial or even some link between the tax 
and the facilities extended to such dealers directlv 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 
augmentation of their finance would enable them to 
provide mu11icipal services more efficiently, which would 
help or ease free flow of trade and commerce. because 
<!/which the impost has to be regarded as compensarory 
in nature, in view of what has been stated in the 
aforesaid decisions, more particularly in Hansa Corpn. 
Case (1980) 4 SCC 697". [Emphasis supplied) 
185. The Constitution Bench in Jindal Stainle.\·s Ltd.
(2) after 
placing reliance on A11to111obile concluded that there is difference 
between a taxing Statute whose purpose is collection ofrevenue, and a 
taxing Statute whose purpose is regulation. The Court formulated a 
working test to determine whether the impugned law is a product of the 
exercise of regulatory power or taxing power: "if the impugned law 
seeks to control the conditions under which an activity like trade is 
to take place then such law is regulatory.,. The Bench concluded that 
the only way to reconcile a compensatory tax Statute that chooses
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
489 
[R. BANUMATHI, J.] 
movement of trade and commerce as a criterion and in effect impedes 
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it, is by holding it as regulatory and, therefore, outside the scope of Articles 
301, 302 & 304. 
"38 .... If the 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 fi"om 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 301. However, if the law enacted is to 
enforce discipline or conduct under which the trade has 
to per/ orm or if the payment is for regulation of 
conditions or incidents of trade or manufacture then 
the levy is regulatory. This is the way of reconciling the 
concept of compensatory tax with the scheme of Articles 
301, 302 and 304 . ... " 
The Bench further held: 
"45. To sum up. the has is of every levy is the controlling 
factor. Jn the case of "a tax", the levy is a part of 
common hurden hased on the principle of abili~y or 
capacity to pay. In the case of "a fee", the basis is the 
special benefit to the payer (individual as such) based 
on the principle of equivalence. When the tax is imposed 
as a part of regulation or as a part of regulatory 
measure, its basis shifts from
the concept of "burden" 
to the concept of measurable/ quantifiable benefit and 
then it becomes "a compensatory tax" and its payment 
is then not for revenue but as reimbursement/ 
recompense to the service/facility provider. It is then a 
tax on recompense. Compensatory tax is by nature 
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hybrid but it is more closer to fees than to tax as both 
fees and compensatory taxes are based on the principle 
of equivalence and on the basis of reimbursement/ 
recompense. If the impugned law chooses an activi(Y 
like trade and commerce as the criterion o.f its operation 
and {f the effect o.f the operation of the enactment is to 
impede trade and commerce then Article 301 is violated. 
46. Burden on the State: Applying the above tests/ 
parameters, whenever a law is impugned as violative 
of Article 301 o.f the Constitution, the Court has to see 
whether the impugned enactment facially or patently 
indicates quantifiable data on the basis of which the 
compensato1:y tax is sought to be levied. The Act must 
facial~y indicate the benefit which is quantifiable or 
measurable. It must broadly indicate proportionaliry to 
the quantifiable benefit. If the provisions are ambiguous 
or even !f the Act does not indicate facially the 
quantifiable bene.fit, the burden will be on the State as 
a service(facility provider to show by placing the 
material before the Court, that the payment of 
compensatory tax is a reimbursement/recompense for 
the q11antifiable!meas11rable benefit provided or to be 
provided to its payer(s). As soon as it is shown that the 
Act invades freedom of trade it is necessary to enquire 
whether the State has proved that the restrictions 
imposed by it by way of taxation are reasonable and
in 
public interest within the meaning of Article 304(b) [see 
para 35 (o.f AIR) of the decision in Khyerbari Tea Co. 
Ltd. and Am: v. State of Assam]." 
For compensatory tax, Jindal Stainless Ltd. (2) thus ingrained 
G 
the tests of(i) facial declaration; and (ii) proportionality to the quantifiable 
benefits provided to its payers, as an essential element. It was held that 
compensatory taxes like fees always have to be proportionate to the 
benefits and the decisions rendered in Bhagatram and Bihar Chamber 
of Commerce were declared bad in law. 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
491 
[R. BANUMATHI, J.] 
I 86. Until Jindal Stainless Ltd. (2) compensatory taxes were 
dealt as taxes and only Jindal Stainless Ltd. (2) equated compensatory 
tax to 'a fee' and held that compensatory tax is based on the principle of 
"pay for the value" and that it is a sub-class of 'fee'. It was further 
held that compensatory tax is a recompense/reimbursement. The 
distinction between a 'tax' and a 'fee' lies primarily in the fact that a 
'tax' is levied as a part of common burden, while a ·fee' is for payment 
of a specific benefit or privilege rendered by some governmental agency. 
The distinction between 'tax' and 'fee' has been elucidated in Gujarat 
Ambuja Exports Limited amt Another v. State o( Uttaraklumd and 
Others (2016) 3 SCC 60 l as under: 
·-. ... it is necessm:v to consider the d(fference between 
the concept of tax and that of a fee. The neat and terse 
definition <i tax which has been given by Latham. C.J.. 
in Matthews v. Chicory Marketing Board (1938) 60 
C.L.R. 263 is <!ffen cited as a classic 011 this su~iect. 
"A tax". said Latham, C..!., .. is a c:o111p11lsory exaction 
of money by public authority for public purposes 
enforceable by law. and is not pavmenl .for serviced 
rendered". Jn bringing out the essential femures of a 
tax this dejlnition also assists in distinguishing a tax 
from a fee. It is true that hetween a tax and a fee there 
is no generic difference. Both are co111p11lso1J' exactions 
of
111011ey hy puhlic authorities; bw whereas a tax is 
imposed for public purposes and is 1101. and need not, 
be supported by any considera1io11 of service rendered 
in return. a fee is levied essenliall.i•.for services rendered 
and as such there is an element of quid pro quo between 
the person who pays the fee mzd the public authority 
which imposes ii .... In regard to fees there is, and mus/ 
always he, co-relation between !he fee collected a11d 
the service intended to he rendered .... The distinction 
between a lax and a fee is. howeve1; important. and it is 
recognized by the Constitution. Several Elnries in the 
Three Lists empower the appropriate Legislatures lo levy 
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taxes: but apart fi·om !he power ro /evv taxes thus 
conferred each List spec(ficallv refers lo the power to 
levy fee:,; in respect <!f any of the matters covered in the 
said Lisi excluding of course the fees taken i11 u11y 
Court." 
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The same view was reiterated in State o( Tamil Nadu 1·. TVL 
South Indian Sugar MillsAsmciatio11(2015) 13 SCC 748, Kris/ti Upaj 
Mandi Samiti and Otlter.v 1'. Orient Paper & Industries Ltd. ( 1995) 
I SCC 65 5 and .Krislt11a Da.v v. Town Area Committee, C/1irgao11 
(1990) 3 sec 645. 
187. It must be reiterate.cl that all the taxes are intended for public 
purpose and are levied in public interest. Levy of tax is not to fi II the 
State coffers but to perform various functions including public welfare 
for which said funds are required. Taxation is not a profit-making ext:rcise 
for the States; as stated earlier, the States perform several functions for 
which they require fonds and have the power to levy tax to raise revenues 
and thus virtually all taxes are monies paid for services or facilities 
provided by the State. Art. 266( I) provides that all revenue including 
that from taxes received by a State Government shall form one 
consolidated fund-the Consolidated Fund of the State. This fund is a 
reservoir and resources placed in it are a part of the whole. All revenue 
is subsumed in it and cannot be delineated. The Consolidated Fund of a 
State is a single unified
account for the Stat<:: and withdrawal of money 
from the same is protected by th·· :quirement of passing an Appropriation 
Act. Further, Art. 266(3) by stating that ·110 mo11ey out of any 
Consolidated Fund shall be appropriated except in accordance with 
law -- for the purposes and in the manner provided in the 
Co11stit11tio11 'provides another safeguard in lieu of ensuring legitimate 
use of public money. The manner of appropriation of money collected in 
the Consolidated Fund of the State falls under Part VI. Chapter Ill. 
ranging from Articles 202 to 206 of the Constitution. There are sufficient 
constitutional safeguards for the appropriation of money collected in 
Consolidated Fund. The revenue generated by the States in the form of 
entry tax has to necessarily form pa1t of th is Fund, and once it so 
subsumed, States cannot be asked to show a 'proximate quid pro quo' 
by furnishing 'quantifiable data' as to their expenditure. It may not be
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
493 
[R. BANUMATHI, J.) 
possible for the States to show with mathematical precision a direct link 
A 
between the expenditure incurred in individual cases and the 
corresponding levy imposed. 
188. I hold that the entry tax levied by various States, falling within 
the domain of entry 52, List 11, is a tax simpliciter, even though by 
nomenclature it is tenned as a 'compensatory tax'. Subject to passing 
the muster of Art. 304(a), entry tax levied by the States under entry 52, 
List 11 even though tem1ed as compensatory tax does not fall foul of Art. 
301. The ratio laid down in Jindal Stainless Ltd. (2) equating 
compensatory taxes to fee had wide ramifications. Some High Courts 
viz., Orissa, Chhattisgarh and Madhya Pradesh upheld the levy of entry 
tax as compensatory. Many other High Courts struck down the levy 
applying the test laid down in Jindal Stainless Ltd. (2). In those cases 
where the levy was struck down, High Courts held that the State could 
not show what were the benefits provided to the traders who imported 
goods from outside the States to recompense the tax payer. 
189. I disagree with the narrow approach in Jindal Stainless 
Ltd. (2) equating compensatory taxes to 'fee' and mandating the States 
to prove 'proximate quid pro quo' by 'quantifiable data approach'. 
Since now we have held that taxes are outside the purview of Art. 301, 
taxes in the name of' compensatory taxes' are also outside the purview 
of
Art. 30 I. To uphold a regulatory or compensatory tax, comprehensive 
parameters cannot be laid down as they may vary depending upon the 
nature of the levy. Automobile case itself has laid down parameters of 
compensatory taxes (Das J. at Pages 536-537). It is not necessary that 
the money so collected should be put into a separate fund or that the 
levy should be proportionate to the expenditure. 
190. Insofar as levy of entry tax is concerned, enactments of 
some States facially declare that they are compensatory. The 
compensatory tax so levied is subsumed in the Consolidated Fund of the 
State. Once there is intenningling in the Fund and money is spent for 
public purposes of development of various local areas like construction, 
maintenance of roads and bridges, and for other amenities which facilitate 
trade, there will always be a link between the liability of the tax bome by 
the traders and benefits enjoyed by them either directly or indirectly. 
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SUPREME COURT REPORTS 
[2016] I 0 S.C.R. 
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191. To summarise the conclusions on question Nos. 2 
ancl 3:-
• In so far as compensatory taxes are concerned in the 
light of the conclusion on question No.1, I holcl that the 
nomenclature of 'compensatory' ascribed to the taxes 
B 
levied by the State Government under Entry 52, List II 
pursuant to Automobile is unwarranted. The concept of 
compensatory tax was evolved fifty years back through 
judicial pronouncements. It has withstood the test of 
time and thus, any subsequent juclicial pronouncement 
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like the present one should not prejudice the interest of 
the parties involved. The State Governments should not 
suffer any loss of revenue solely because of judicial 
interpretations and innovations in Automobile and the 
cases subsequent to it. 
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• Subject to passing the muster of Art. 304(a), entry tax 
levied by the States under entry 52, List II even though 
termed as compensatory tax docs not fall foul of Art. 301. 
It is not necessary that the money realized by the levy 
should be put into a separate .Fund or that the levy should 
be proportionate to the expenditure. There is no bar to 
subsumption of the revenue realized from regulatory/ 
compensatory taxes into the Consolidated Fund of the 
State as they arc no different from other taxes of a general 
nature. Moreover, the quantum of expenditure incurred 
in achieving the object behind a compensatory levy 
cannot be inquired into. 
•Jindal
Stainless Ltd. (2) & A11r. v. State o(Harvmw & Ors. 
(2006) 7 sec 241 is not a correct view in adopting 
quantifiable data approach; for a tax, there is no 
requirement of proximate quid pro quo an cl Jilulal Stainless 
Ltd. (2) is overruled. The view taken in Blwgatram and 
Billar Chamber of Commerce is correct as the same is in 
harmony with the original design of compensatory tax 
laid clown in Automobile.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[R. BANUMAnH. J.] 
REFUND AND UNJUST ENRICHMENT:-
192. Lastly, it is necessary to consider an important issue raised 
by the asscssees on the payment of tax/refund of tax in case the validity 
of the legislations is upheld or otherwise as the case may be. It has 
come on record that many Entry Tax legislations of the State arc t'tiacted 
pursuant to Blwgatram and Bi/tar Cltamber of Commerce. But Jindal 
Stai11less Ltd. (2) which we have now over-ruled, has led to a scenario 
of discordant judicial pronouncements, whereby some High Courts have 
struck down the impugned legislation as being non-compensatory, while 
the others have upheld the laws declaring them compensatory. In some 
States, the High Courts have passed interim orders directing petitioners 
to pay 33'% of the demand and in some cases 50% of the demand. 
When the matters were admitted by the Court, interim orders were passed 
directing the assessees to pay 50% of the demand. But, this Court 
cannot lose sight of the fact that assessees have not pleaded and produced 
evidence to establish that they have not passed on the tax burdens to the 
consumers. In absence of sui.:h a submission, the normal presumption is 
that they have passed on the tax burden. Had they contended otherwise, 
burden would have been on them to allege and establish the same. In the 
absence of any such allegation and proof, the claim of refund is not 
called for. 
193. Learned Senior Counsel Mr.
Giri has argued that the payment 
effected under the Entry Tax Act can be legitimately taken into account 
for the purpose of fixing the price of goods that can be collected by the 
same person as a dealer under the Sales Tax Act, just as in the case of 
Sales Tax. It is thus submitted that the burden suffered by the goods in 
question have actually been passed on to the consumer and that at any 
rate the assesses would not be entitled to any refund. 
194. Learned Senior Counsel Mr. Rakcsh Dwiwdi has submitted 
that the doctrine of unjust enrichment is invoked in cases where the 
States have acted on the basis of earlier Supreme Court judgments or 
where the laws have been operating for a very long time and the rights 
and liabilities of the people have crystallised on the basis of such laws, 
and where the laws are subsequently declared ultra vires and previous 
judgments are over-ruled. It is futther submitted that in such cases, 
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SUPREME COURT REPORTS 
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particularly in tax matters, law is declared prospectively and the reason 
behind such prospective application is to save the taxes which has been 
already collected. In order to support his contentions, he relied on the 
decisions of this Court in Sy11tlietics & Chemicals v. State of U.P. 
(1990) 1SCC109; Bel.rnnd Sugar Co. Ltd. "·State <dBi/tar (1999) 
9 SCC 620; Ma/at/al illdustries Ltd vs U11io11 of l11dit1 (1997) 5 
sec 536 etc. 
195. By catena of judicial pronouncements, this Court has fairly 
laid down the concept of'unjust enrichmenf in respect of tax laws. The 
doctrine of'unjust enrichment' is that no person can be allowed to enrich 
inequitably at the expense of another. A right of recovery/payment under 
the doctrine of'unjust enrichment' arises where retention ofa bent:fit is 
considered contrary to justice or against equity. The concept of' unjust 
enrichment' is applicable for the purpose of grant of refund. The concept 
provides that if a person pays tax/duty to the Government in terms of the 
prevailing tax Statutes and passes it on to the consumers and, 
subsequently, the tax/duty is found not payable. refund cannot be claimed 
from the Government authorities, as whatever liability he had incurred 
has already been recovered. And, if he gets the refund, he would be 
unjustly enriched. 
196. In Mafatlal l11d11Mries Ltd v. Union of India ( 1997) 5 SCC 
536. a nine-judge Bench of this Court
considered the scopt: and ambit of 
the s~ud doctrine in detail. The Court held that Central Excise and Salt 
Act is a self-contained Code which also provides for determination of 
claim of refund. The Act was found to have expressly declared that no 
refund shall be made except in accordance there\vith. The Court further 
held that even in regard to exercise of jurisdiction under Articles 32 and 
226, Court would certainly take note of the legislative intent manifested 
in the provision in the Act. The Court further dealt extensively with the 
scope of refund in a case where the burden of tax has been passed on to 
the consumers. An excerpt from the majority view reads as under: 
"108. A claim for refund. whether made under the 
provisions of the Act as contemplated in proposition ... 
(i) above or in a suit or writ petition in the situations 
contemplated by proposition (ii) ahove. can succeed
JINDAL STAINLESS LfD. v. STATE OF HARYANA 
[R. BANUMATHI. J.] 
u11/J' (f the petitioner/plaintiff' alleges an d establishes 
that he has not passed on the burden of duty to another 
person/other persons. His refund claim shall be a/1owed1 
decreed only when he establishes that he has 1101 passed 
011 the burden <i the duly or the extent he has not so 
passed on. as the case may be. Whether the cfaim for 
restitution is treated as a co11stitutional imperath'e or 
us a statutory requirement, it is neither m1 absolute right 
nor an unconditional obligation but is su~ject lo the 
ahove requirement. as explained in the body of' I he 
judgment. Where the burden of the duty has been possed 
on, the claimant ca1111ot .wv that he has s14Jer.;d any 
r.;al loss or prejudice. The real loss or prejudice is 
suffered in such a case by the persrm who has ultimately 
borne the burden and it is only that person who cm1 
legitimate~v claim its refund. But where such person does 
not come forward or where ii is 1101 possible to reji111d 
the amount to him jar one or the other reason. it is just 
a11d appropriate that amount is retained by the State, 
that is, by the people. There is no immorality or 
impropriety involved in such o proposition. 
The doctrine of unjust enrichment is a just and salutary 
doctrine. No person ca11 seek to collect the duty from 
both ends. In other words, he cannot collect the duty 
from the purchaser at one end and also collect the same 
duty from the State on the
ground that it has been 
collected from him contrary to !cm: The power of the 
court is 11ot 111ea111 to be exercised for u11j11stly enriching 
a person. The doctrine of unjust enrichment is, hou•eve1; 
inapplicable to the State. State represents the people <if 
the co11nt1:v. No one can speak of the people being 
unjustly enriched. " 
197. In Godfrey Philips India Ltd. r. State of U.P. (2005) 2 
sec 515, the constitutional validity of the Uttar Pradesh Tax Oil Luxuries 
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[2016] 10 S.C.R. 
Act, 1995 as also other State Acts was challenged inter alia on the 
ground of legislative competence of the State Legislatures. The Court 
allowed the petition and held that the State Legislatures were not 
competent to impose luxury tax on tobacco and tobacco products and 
the Acts were declared ultra vires and unconstitutional. In the intervening 
period, however, tax was collected by the appellants from consumers 
and also paid to the State Governments. The Court held as under: 
"94. It was stated on beha(f of the State Governments 
that after obtaining interim orders from this Court 
against recovery of luxury tax, the appellants continued 
to charge such tax from consumers/customers. It is 
alleged that they did not pay such tax to respective State 
Governments. It was, therefore, submitted that if the 
appellants are allov.·ed to retain the amounts collected 
by them towards luxury tax from consumers, it would 
amount to "unjust enrichment" by them. 
95. In our opinion, the submission is well founded and 
deserves to be upheld. If the appellants have collected 
any amount towards luxury tax from consumers/ 
customers after obtaining interim orders.from this Court, 
they will pay the said amounts to the respective State 
Governments." 
From the above decision in Godfrey Philips India Ltd., it is clear 
F 
that even when the legality of a tax has been challenged successfully, 
there can be no question of the
State tax being retained by the 
dealer/manufacturer notwithstanding its illegality. 
198. It is well-settled that a claim of refund can be allowed only 
when the claimant establishes that he has not passed on the tax burden 
G 
to the consumers. No refund can be granted so as to cause windfall gain 
to any person when he has not suffered the burden of tax. The possibility 
of the tax burden having been passed on to the consumers by the 
assessees cannot be ruled out in the present case. Applying the law laid 
down above to the present case, it emerges that the assessees cannot 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
499 
[R. BANUMAlTH, J.] 
claim refund irrespective of whether the impugned legislations arc 
A 
declared valid or unconstitutional. Unless the asscssees establish that 
they have not passed on the tax burden to the consumers, they cannot 
make a claim for refund and unjustly enrich the111selws. 
199. Summary of the conclusions on Question Nos. 1 to 4 
are as under:-
Question No. 1: 
Non-discriminatory taxes do not constitute infraction of Art. 30 I 
of the Constitution. With due respect, the view taken in Atiabari and 
approved in Automobile Transport that taxes do amount to restriction 
and that freedom of trade, commerce and intercourse cannot be subject 
to restriction in the form of taxes is not a correct view and are to be over 
ruled. However, I am agreeing with the theory of compensatory tax 
evolved in the Automobile case for the reasons indicated hereunder 
while answering Question Nos. 2 and 3. 
Question No.4:-
• Entry tax with reference to entry 52, List II of Seventh Schedule 
is not violative of Art. 30 I subject to the lt!vy bt!ing non-
discriminatory i.e. passing the muster of Art. 304(a). A levy 
sustainable under Art. 304(a), being non-discriminatory would 
ipso facto be out of the purview of Art. 30 I. 
• When the entry tax is levied by the Entry Tax Act enacted by 
the State Legislature, the term 'a local area' contemplated by 
Entry 52 may cover the 'Whole State' or ·a local area' as 
not/fled in the legislation.
I agree with the view taken in 
Bilmr Chamber of Commerce that from the point of view of 
entry tax that the State is a compendium of local areas and 
where the local areas contemplated by the Act cover the entire 
State, the difference between the State and 'a local area' 
practically disappears. 
•Articles 304(a) and 304(b) are to be read disjunctively: both 
apply to different subject matters; while Art. 304(a) deals with 
B 
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A 
tax, Art. 304(b) deals only with non-fisca I matters. 
•Where there is equivalence in terms of tax treatment between 
the locally produced goods and the ones imported from other 
States, levy ofcntry tax on the goods imported from other States 
when there is no such levy on the locally produced goods is not 
B 
discriminatory. 
•Every differentiation is not discrimination. Any difference in 
the rate of tax on goods locally manufactured and those imported, 
such difference not being discriminatory docs not fall foul under 
Art.304(a). Any incentive/benefits of concession in the rate of 
C 
tax given to the local manufacturers/producers in order to 
encourage the local manufacturers/production in the State 
cannot be said to be discriminatory. Digvijay and Video 
Electronics have laid down the correct law. Mal1t1vir Oil 
Mills is not a correct view. 
D 
• Levy of entry tax on the goods imported from the other States is 
not discriminatory merely on the ground that there are no similar 
goods manufactured or produced within the taxing State. The 
law laid down in Kalyani Stores is not a good law. 
• Levy of entry tax on the goods imported from outside India 
E 
which enter into local area for consumption. use or sale therein 
is within the legislative competence of the State. 
f 
G 
H 
Question Nos. 2 and 3:-
• In so far as compensatory taxes are concerned in the light of 
the conclusion on question No.1. I hold that the
nomenclature 
of 'compensatory' ascribed to the taxes levied by the State 
Government under Entry 52, List II pursuant to A11to111ohile is 
unwarranted. The concept of compensatory tax was evolved 
fifty years back through judicial pronouncements. It has 
withstood the test of time and tlrns. any subsequent judicial 
pronouncement like the present one should not prejudice the 
interest of the parties involved. The States should not suffer 
any loss of revenue solely because of judicial interpretations 
and innovations inAutonwhile and the decisions subsequent to 
it.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
• Subject to passing the muster of Art. 304(a), entry tax levied by 
the States under entry 52, List 11 even though termed as 
compensatory tax does not fall foul of Art. 3 0 l. It is not 
necessary that the money realized by the levy should be put 
into a separate Fund or that the kvy should be proportionate to 
the expenditure. There is no bar to subsumption of the revenue 
realized from regulatory/compensatory taxes into the 
Consolidated Fund of the State as they are no different from 
other taxes of a general nature. Moreover, the quantum of 
expenditure incurred in achieving the object behind a 
compensatory levy cannot be inquired into. 
•Jindal Stai11les·s Ltd. (2) & Anr. v. State o(Harpana & Ors. 
(2006) 7 sec 241 is not a correct view in adopting quantifiable 
data approach; for a tax, there is no requirement of proximate 
quid pro quo and Jindal Stainless Ltd. (2) is overruled. The 
view taken in Bhagatram and Bihar Chamber of Commerce 
is correct as the same is in harmony with the original design of 
compensatory tax laid down in Automobile. 
Unjust Enrichment: 
501 
A 
B 
c 
D 
The concept of unjust enrichment is applicable for considering 
E 
the question of refond. Unless the assessees establish that they have 
not passed on the tax burden to the consumers, they cannot make a 
claim for refund and unjustly enrich themselves. 
DR. D. Y. CHANDRACHUD, J. 
This judgment is structured to consist of the following parts: 
A
Introduction; 
B Part XIII of the Constitution: text and context; 
C Constitutional history as a guide; 
D The trend-setting decisions : Atiabari and Automobile 
Transport; 
F 
G 
H

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A 
D.1 Atiabari: Article 30 I and taxation 
B 
c 
D 
E 
F 
G 
H 
D.2 Automobile Transport 
E Compensatory taxes; 
E.1 Original understanding 
E.2 Khyerbari 
E.3 Subsequent applications 
E.4 The breaking point 
E.5 Doctrinal concerns and inconsistencies 
F The content of freedom : goods, services, persons and capital; 
G Taxation and Federalism; 
H Taxing powers; 
H.1 Article 245 and constitutional limitations 
H.2 Sovereignty and constitutional limitations 
H.3 Part XIII and taxation 
H.3.1 All taxes are not impediments 
H.3.2 A1ticles 302, 303 and 304 
H.3.3 ConstruingA1ticle 304 
H.3.4 Conjunctive or disjunctive: 'may'; 'and' 
H.3.5 Article 304(a) not the universe of taxation 
I Tax legislation : Judicial review and Part XIII; 
I. I Taxation and Part XII 
I.2 The standard ofjudicial review 
1.3 Limitations of Sinha CJ's view·inAtiabari 
1.4 Presidential Sanction: the proviso to Article 304(b) 
J Article 304(a): the principle of non-discrimination; 
J.1 Precedent - 1963 to 1980 
J.2 Exemptions and incentives: Video Electronics and 
Mahavir
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
503 
[DR. D. Y. Cl-IANDRACHUD. J.] 
J.3 Artick; 304(a) and reasonable classification 
A 
J .3. I Formal and substantive equality 
J.4 Production and manufacture within the home state 
K Entry tax; 
K. I Octrois and terminal taxes 
K.2 Entry taxes and Article 304(a) 
K.3 Meaning of 'Local area' 
K.4 Severability 
K.5 Equalising tax burdens 
K.6 Entry tax and imported goods 
M Direct and inevitable effect test: 
N Conclusion. 
A Introduction 
I. References to Benches of nine Judges, or at any rate decisions 
by nine, are a comparative rarity. Despite a prolific tradition of precedent 
in our judicial institutions, there have been only eight reported decisions 
by a Bench of nine Judges since the adoption of the Constitution'. The 
present reference traverses an area of constitutional law which is fraught 
with unresolved complexity. The draft-persons of the Constitution 
perceived the freedom of trade, commerce and intercourse to I ie at the 
heart of the economic unity of the nation. They were keenly aware that 
parochial pressures emanating from within the states could pose real 
1 l) Judg_es decisions: Ahmedabad St. Xavicrs College Sockty '. State ol"Gujarat ( 1974) 
B 
c 
D 
E 
F 
I SCC 717: Indra Sawhncy v. Union of India 1992 Supp (3) sec 217: Supreme Court 
Advocate.s-on-Rccord Association V, Union of India ( 1993) 4 sec 441: S.R.Btimmai 
G 
v. Union of India (1994) 3 SCC !:Attorney General of India v. Amratlal Prajivandas 
(
1994) 5 SCC 54: Mafatlal Industries Ltd v. Union oflndia ( 1997) 5 SCC 536: Special 
Rcfrrcncc No. I of 1998 ( 1998) 7 SCC 739: I. R. Coelho versus State of"fomil Nadu 
12001) 2 sec 1. 
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challenges to the creation of a pan- India common market. The dangers 
of protectionist policies within the states had nonetheless to be balanced 
with the need to meet the aspirations for develooment of all areas within 
the country. Levels of economic attainment in the provinces and erstwhile 
princdy states were far from uniform at the eve oflndependence. Many 
of the erstwhile princely states had concerns about ceding their control 
over trade and commerce to a national entity. Part XIII was formulated 
in this background. lt represents the balancing vision of the framers and 
seeks to create an equilibrium between free trade and regulation, state 
and federal control and between provincial autonomy and national interests 
in an area closely related to economic growth and development. 
2. Yet, the semantics of the provisions adopted in framing all of 
six constitutional articles which comprised Part XIII-Articles 30 I to 306 
- attracted criticism within the Constituent Assembly. One member 
complained of several provisions threatening to become a "paradise 
for lawyers where there will be so many innumerable loopholes that we 
will be wasting years and years before we could come to the final and 
correct interpretation of many clauses'". Many years later, a distinguished 
Judge of this court spoke of the "mix up of exception upon exception in 
the series of articles in Part XIII that a purely textual
interpretation may 
not disclose the true intendment of the articles3".Those remarks continue 
to be relevant even now. The law in the area of free trade and commerce 
has remained in a state of flux despite successive decisions by Constitution 
benches of this cou1t. A similar judicial cri de coeur has found expression 
in Australia4.That this is so should not seem surprising: this is an area 
of the Constitution which cuts across major concerns about the federal 
structure, the states' power to tax and, the relationship between growth. 
development and free trade. 
3. Each of those concerns has a pointed contemporary 
relevance with the adoption of the constitutional amendment providing 
2 P.S. Dcshrnukh: Constituent Assembly Debates. Vol. IX. pp. 1131: sec also: B. 
G 
Shiva Rao. The Framing of India's Constitution -A study. p. 704 ( 1978) 
3 Justice SK Das: ( 1963) I SCR 491. Para 10. pg. 520 
H 
j Cri De Coeur: (iJ According to Merriam-Webster: passionate outcry (as of 
appeal or protest) 
(ii) According to Oxford Dictionary: t\ passionate appeal. 
complaint or prokst.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
505 
[DR. D. Y. CHANDRACHUD, J.] 
for a Goods and Services Tax. When the hearings began, many of the 
counsel had reservations on the continued relevance of the reference. 
With the passage of the one hundred and first constitutional amendment, 
the distribution of the legislative power to tax goods and services has 
undergone a significant change. The taxing entry for the levy of Entry 
tax (Entry 52 of List II of the Seventh Schedule), which lies at the core 
of the dispute in the present reference, stands deleted as part of a 
constitutional process by which several taxes are being subsumed under 
the GST. Yet, the reference has to be answered, not the least of the 
reasons for which is the detennination of past liabilities and entitlements. 
A 
B 
But more fundamentally, the reference raises important issues of 
constitutional principle about the relationship of the freedom of trade 
C 
and commerce· with the fiscal and regulatory concerns of the states 
over the need to bring growth and development within. The issues raised 
have a vital bearing on the intersection of the Constitution with free 
trade one hand and growth and development on the other. 
4. This judgment will explore the socio-economic and political 
D 
compulsions which led the founding fathers of the Constitution to adopt 
the guarantee under Article 301. The political backdrop of partition with 
its attendant social suffering provided a powerful rationale for a
constitutional structure which would knit the nation together as a cohesive 
unit. The instrumentalities of trade and commerce were conceived, in 
the vision of the draftsmen of the Constitution, as a means for bringing 
about economic integration. The economic integration of India into a 
common market was to be achieved by guaranting the freedom of trade 
throughout the te1Tit01y oflndia. Yet, at its birth the new nation comprised 
of different regions, with disparate social attainments and economic 
development. They had their own concerns, be they the erstwhile princely 
states or the states which fonned part of British India. Part Xlll reflected 
E 
F 
G 
an attempt by the framers to draw a balance between freedom on one 
hand and the need to regulate to protect diverse aspects of public interest 
both of a national and regional character, on the other. The regulatory 
power under Article 302 would enable the national legislative body to 
perceive and regulate aspects of public interest of a national character. 
Within the area ofregulation a distribution was envisaged between the 
Centre and the States to preserve the balance within the newly created 
federation. The attention that was bestowed to the regulatory 
requirements of the states in relation to trade and commerce reflected H
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A 
the need for bringing the states on board for producing a viable and 
acceptable social compact that the constitutional document embodies. 
5. Part Xlll of the Constitution reflects a consciously crafted 
constitutional superstructure which looks upon the freedom to trade and 
to engage in commerce not merely from the perspective of trade and 
B 
commerce itself, but from a wider national perspective that incorporates 
both the needs of the nation as reflected in regulatory powers of the 
centre and the concerns of the federating states to preserve their interests 
and obligations as well as their commitments to their people. 
c 
6. The debates of the Constituent Assembly provide a valuable 
insight, grounded in history, which helps us in illuminating the meaning 
and content of the text of Part Xlll. History constitutes a seminal value 
in interpreting the words of the Constitution since the events which were 
a forerunner to the adoption of the Constitution shed light on the concerns 
which led to the adoption of the text. Yet, as our contemporary 
0 
jurisprudence recognises, the text of the Constitution cannot be frozen 
by the context of history which produced the language of the text. The 
concerns that motivated the framers provide a historical context which 
is an aid to constitutional interpretation. But, it is important to realise that 
the Constitution as an organic document has to evolve with societal 
E 
change.
The challenges to governance which India has faced over the 
last seven decades cannot be ignored in giving present meaning to the 
constitutional text. The words of the Constitution cannot be frozen in 
their content with reference to the intent of its framers. To succeeding 
generations lies the task of imparting a meaning that would, while ensuring 
a sense of continuity, infuse the constitutional document with the ability 
F 
to meet the challenges of the present and foreseeable future. 
7. I have had the privilege of reading the draft of the judgment of 
the learned and distinguished Chief Justice. My judgment has been 
necessitated by my inability to agree with some of the crucial issues 
raised there, especially on its conclusion that taxes( except for 
G 
discriminatory taxes) can never be restrictions within the meaning of 
Part XIII. On the aspects on which we agree, I have adduced my own 
reasons. 
B Part XIIJ of the Constitution : Text and Context 
8. Part XIII of the Constitution has more than an abundant share 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
507 
[DR. D. Y. CHANDRACHUD, J.] 
of constitutional intricacies. Despite a judicial discourse of more than 
A 
five decades, the debate on the true meaning of its provisions continues 
to be devil academics, lawyers and judges who have had occasion to 
visit its provisions. 
9. The ambit of Part Xlll is trade, commerce and intercourse 
within the territory of India. Article 301 5 mandates that trade, commerce 
and intercourse throughout the territory of India shall be free, "subject to 
the other provisions" of Part XIII. The freedom thus conferred is subject 
to the restrictions that are contemplated in the provisions of Part XIII 
that follow. The sources of the restrictions, the extent of the restrictions 
and the limitations or qualifications upon the power to restr·ict are defined 
in Part XIII. 
10. In framing Article 301, the framers of the Constitution made 
a deliberate departure from the text of the Australian and US 
Constitutions. Article 1 Section 8 of the US Constitution confers upon 
Congress the power "to regulate commerce with foreign nations and 
among the several states" (besides the Indian tribes). Section 92 of the 
Australian Constitution stipulates that "on the imposition of unifonn duties 
of customs, trade, commerce and intercourse among the states whether 
by means of internal carriage or ocean navigation shall be absolutely 
free". The expression 'absolutely free' occurring in the Australian 
Constitution
was consciously not adopted in the framing of India's 
Constitution. A simpler expression, "free", was preferred to "absolutely 
free". 
11. Dr B R Ambeclkar while moving the introduction of draft 
Part XA of the Constitution ( c01Tesponding to Part XIII) emphasised 
the impact of the deletion of the qualification "absolutely" in defining the 
extent of the freedom. Dr Ambedkar observed that: 
"I should also like to say that according to the provisions 
contained in this part, it is not the intention to make trade 
and commerce absolutely free, that is to say, deprive both 
Parliament as well as the States of any power to depart 
'Article 301: Freedom of trade, commerce and intercourse : 
Subject to the other provisions of this Part, trade, commerce and intercourse 
B 
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E 
F 
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throughout the ten-it01y oflndia shall be free. 
H
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SUPREME COURT REPORTS 
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from the fundamental provision that trade and commerce 
shall be free throughout India." 
At a certain level, the expression"absolutely free" adds little by 
way of substantive content to 'free'. However, in the context of 
comparative constitutional history, the deletion of the word 'absolute' 
ca1Tied significance. Absolute freedom may carry the meaning that the 
freedom is not subject to restrictions. The use of the word 'absolute' 
was liable to give rise to an inference that the freedom was unqualified. 
The observations of Dr Ambedkar indicate that while trade, commerce 
and intercourse are to be free, that freedom is not unqualified but that it 
is subject to the provisions of Part Xlll. While conferring the freedom, 
the Constitution recognises expressly that the freedom which it confers 
would be subject to the provisions of Part Xlll. 
12. The second aspect of Article 301 in which a conscious 
departure was made from the US and Australian Constitutions is that 
the freedom of trade, commerce and intercourse extends, in our 
Constitution, throughout the territory ofindia and not merely among the 
states. The expression 'among the states' would cover a movement 
inter-State or across State boundaries. In discarding the expression 
"among the states" (which is used in Section 92 of the Australian 
Constitution) and "among several states"(which is used in Article I 
Section 8 of the US Constitution),
Article 301 guarantees a more 
comprehensive coverage to the freedom to include both inter-State and 
intra-State trade, commerce and intercourse. 'Throughout the territory 
of India', means in every part of India. In other words, the freedom that 
is conferred by Article 301 extends over but is not confined to inter-State 
movement across State boundaries. 
13. The Constitution, while recognising the freedom of trade, 
commerce and intercourse throughout the territory of India makes that 
freedom subject to the provisions of Part XIII. Article 3026 empowers 
"Article 302 : Power of Parliament to impose restrictions on trade, commerce and 
intercourse : 
Parliament may by law impose such restrictions on the freedom of trade, commerce or 
intercourse between one State and another or within any part or the tenitory of India 
H 
as may be required in the public interest.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
Parliament to impose restrictions on the freedom of trade, commerce 
and intercourse between one state and another or within any pa11 of the 
territory ofindia. This is subject to qualifications. First, restrictions have 
to be imposed by law. Second, they must be such as may be required in 
the public interest. However, the empowem1ent of Parliament under 
Atiicle 302 to impose restrictions on the freedom guaranteed by Article 
301 is subject to constitutional limitations prescribed in clause I of Article 
303. Under clause 1 of Atticle 3037, there is an absolute prohibition upon 
Parliament making any law giving or authorising the giving of preferences 
to one state over another or making a discrimination between one state 
and another, by vi11ue of any entry relating to trade and commerce in 
any of the lists of the Seventh Schedule. A similar limitation is imposed 
on the state legislatures. The non-obstante provision in clause I of Article 
303 is somewhat inapposite in its application to the legislature of a state. 
In its application to Parliament, the non-obstante provision which operates 
over Article 302 was intended to impose a constitutional limitation upon 
Parliament while legislating to impose a restriction in the public interest. 
Since Article 302 applies only to Parliament and not to the state 
legislatures, the non-obstante provision contained in Article 303 is to that 
extent in
artistic. Be that it is may, clause I of Article 303 imposes a 
constitutional limitation upon the law making power of Parliament and 
the state legislatures while enacting a law by virtue of any entry relating 
to trade and commerce in the lists of the Seventh Schedule. The 
constitutional limitation prevents the grant of preferences or the making 
of discrimination between one state and another while enacting a law by 
virtue of any of the entries relating to trade and commerce in the lists of 
the Seventh Schedule. However, the constitutional limitation upon the 
1 Article 303: Restrictions on the legislative powers of the Union and of the States with 
regard to trade and commerce : (i) Notwithstanding anything in article 302, neither 
Parliament nor the Legislature of a State shall have power to make any law giving, or 
authorizing the giving of, any preference to one State over another, or making, or 
authoring the making of, any discrimination between one State and another, by virtue of 
509 
A 
B 
c 
D 
E 
F 
any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. 
G 
(ii) Nothing in clause (I) shall prevent Parliament from making any law giving, or 
authorizing the giving of, any preference or making, or authorizing the making of, any 
discrimination if it is declared by such law that it is necessary to do so for the purpose 
of dealing with a situation arising from scarcity of goods in any part of the territory of 
India. 
H
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power of Parliament under clause 1 of Article 303 is lifted in clause 2 
where Parliament enacts a law for dealing with a situation arising from 
the scarcity of the goods in any part of the territory oflndia. The freedom 
under Article 301 is thus subject to Parliamentary restrictions under Article 
302. The power to impose restrictions is subject to the limitations in 
clause I of A1iicle 303. However, those limitations can be relaxed in the 
situation contemplated by clause 2 of Article 303. The prohibition on the 
enactment oflaw which has the effect of granting preferences or making 
discrimination between states is, in relation to Parliament, lifted by clause 
2 when it is necessary to deal with a situation of the scarcity of goods in 
any part of India. 
14. Article 304' commences with a non-obstante provision, 
"notwithstanding anything in Article 301 or Article 303". Under clause 
(a), a state legislature may by law impose on goods impo1ied from other 
states, a tax to which similar goods manufactured or produced in that 
state are subject. This has to be done in a manner that does not discriminate 
between the goods so imported and goods so manufactured or produced 
in the state which imposes the tax. Clause (a) of Article 304 subjects the 
taxing power of a state with reference to goods imported from other 
states to a constitutional limitation of non-discrimination. The prohibition 
of
non-discrimination is in regard to the tax which is imposed on goods 
imported from another state. The equality of treatment is with reference 
to the tax imposed on goods manufactured or produced in the state. The 
non-obstante provision which refers to Article 301 carries the clear 
intendment that a tax of the nature within the contemplation of clause 
(a) of Article 304 would, but for that provision have fallen within the 
ambit of Article 30 l. The effect of the non-obstante provision is that 
notwithstanding Article 301 (which would otherwise bring within its 
'Article 304 : Restrictions on trade commerce and intercourse among states : 
Notwithstanding anything in article 301 or article 303, the Legislature of a State may by 
law-(a) impose on goods imported from other States [or the Union ten-itories] any tax 
to which similar goods manufactured or produced in that State are subject, so, however, 
as not to discriminate between goods so imported and goods so manufactured or 
produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce 
or intercourse with or within that State as may be required in the public interest: 
provided that no Bill or amendment for the purposes of clause (b) shall be introduced 
or moved in the Legislature or a State without the previous sanction of the President.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
purview a tax of this nature),clause (a) of Article 304 enables the 
imposition by a state of a tax on imported goods subject to the constitutional 
limitation of non-discrimination between the goods that are imported into 
the state with goods that are manufactured or produced within the state. 
Both clause (1) of Article 303 and clause (a) of A1ticle 304 embody 
principles of non-discrimination, though with different facets. 
15. Clause (1) of Article 303 deals with preferences or 
discrimination between one state and another. Article 304 (a) deals with 
a non-discriminatory tax imposed on goods imported into a state when a 
similar tax is imposed on goods produced or manufactured in the state. 
Article 302 refers to restrictions in general without any qualification as 
regards the fiscal or non-fiscal nature of the restrictions. The 
constitutional limitation imposed by A1ticle 303 on the power to impose a 
restriction under Article 302 is also not defined with reference to a fiscal 
or non-fiscal provision. Article 304 (a) is a species ofrestriction namely, 
a non-discriminatory levy of tax. Clause (b) of Article 304 enables the 
legislature of a state to impose by law reasonable restrictions as may be 
required in the public interest on the freedom of trade, commerce or 
intercourse with or within that state. The expression "with or within that 
state" indicates that the state legislature in
exercise of its power can 
impose restrictions both in regard to inter-State as well as intra-State 
trade, commerce and intercourse. The power of the state to do so is, 
however, conditioned by three limitations: the first is that the restriction 
must be reasonable; the second is that the restriction should be required 
in the public interest; and the third which is spelt out in the proviso, is 
that the Bill or an amendment for the purpose of clause (b) shall not be 
introduced or moved in the legislature of a state without the previous 
sanction of the President. 
16. A plain construction of the provisions of clause (a) and clause 
(b) of Article 304 would indicate that clause (a) is not exhaustive of the 
universe of taxing legislation insofar as the state legislatures are concerned. 
Clause (a) of Article 304 embodies the principle of non-discrimination 
and prescribes it as a limitation subject to which a state may by law 
impose a tax on goods which are imported into the state. Clause (a) lifts 
the embargo arising from Article 301 on the power of a state to impose 
a tax on goods imported from other states subject to a condition: the 
State may impose any tax to which similar goods manufactured or 
511 
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SUPREME COURT REPORTS 
[2016] 10 S.C.R. 
A 
produced in that state are subject. Clause( a), in other words deals only 
with the taxation of goods which are imported from other states or union 
territories. 
B 
c 
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E 
F 
G 
H 
17. Clause (b) of Article 304 refers to reasonable restrictions on 
the freedom of trade, commerce or intercourse with or within the state. 
An intra-State restriction is within the purview of clause (b) but not 
within clause (a). Clauses (a) and (b) are separated by the conjunctive 
'and'. The use of the expression 'and' must however be read together 
with the prefatory part of Article 304. Article 304 provides that the 
legislature ofa state 'may' by Jaw impose a tax on goods imported from 
other states, subject to the principle ofnon-discrimination [embodied in 
clause (a)]. The state legislature may also impose such reasonable 
resttictions as are required in the public interest [under clause (b )]. Clause 
(b) is, however, subject to the proviso. 
18. The provisions of Part XIII of the Constitution contain an 
elaboration of the freedom of trade, commerce and intercourse and the 
restrictions which the Constitution contemplates as being within the 
legislative powers of Parliament and the state legislatures. The legislative 
power conferred upon Parliament can restrict the ambit of the freedom 
to the extent that is specified in Articles 302 and 303. Similarly, the state 
legislatures are subject to the limitations contained in Article 303
( 1) and 
Article 304. Parliament as well as the state legislatures are subject to 
constitutional limitations on the exercise of their law making power in 
restricting the freedom of trade, commerce and intercourse. 
19. The extent of the freedom under Article 301 has in this manner 
been made subject to the provisions of Part XIII. Those provisions of 
Part XIII define the extent to which a restriction can be imposed by law 
as well as the limitations on the power of Parliament and the state 
legislatures while presc1ibing a restriction. 
C Constitutional history as a guide 
20. The Constitution was enacted in a historical and comparative 
framework. Historically, there was the presence in India prior to 
independence of the British Indian territories on the one hand and the 
princely states on the other. The founding fathers intended while enacting 
Part Xlll to wield India into an economically integrated entity. In adopting 
Part XIII, the founding fathers did not intend to elaborate as much on
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
513 
[DR. D. Y. CHANDRACHUD, J.] 
the notion of lassiez~/Crire as on the integration oflndia into an economic 
A 
entity. 
21. The Constitution was framed in the context of a social, 
economic and political.upheaval. The Constituent Assembly debates 
provide an enrichir g insight into the problems and concerns that were 
present to the mimb of the draftsmen of the Constitution, as they adopted 
B 
what became Part XIII. Dr B Shiva Rao in his seminal work titled 'The 
Framing oflndia's Constitution '9 explains the historical perspective which 
led to the attention of the Constituent Assembly being engaged towards 
the freedom of trade and commerce within the territories of the Union: 
"Under the British Rule, freedom of trade was the 
established practice in British India, with no inter-provincial 
duties or other trade barriers. With the advent of provincial 
autonomy in April, 1937. it was considered necessary to 
c 
place this mater on a statutory basis. Accordingly, section 
D 
297 of the Government of India Act, 1935, prohibited 
Provincial Governments from imposing barriers on trade 
within the country; nor could they levy any tax, cess, toll or 
other due wl1ich discriminated between goods manufactured 
in one locality and similar goods manufactured elsewhere. 
E 
But this was far from ensuring freedom of internal trade 
throughout the sub-continent. Indian States could, and very 
often did, levy export and impoti duties at
their frontiers 
and some of them derived considerable revenue from this 
source." 
22. On 29 March 1947, the Sub-committee on Fundamental Rights 
discussed and adopted the draft provisions submitted by B N Rau on the 
freedom of trade and commerce, which read thus: 
''Subject to regulation by the law of the Union, trade, 
F 
commerce and intercourse among the units, whether by 
G 
means of internal carriage or by ocean navigation, shall be 
free: Provided that any unit may by law impose reasonable 
' (Chapter 22 Part 699) 
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restrictions thereon in the interest of public order, morality 
or health." (Id. at p.699) 
23. While discussing the report of the Sub-committee Alladi 
Krishnaswami Ayvar opined that: (i) goods which enter a particular unit 
from other units of the of the union should not escape duties and taxes to 
which goods produced in the concerned unit itself were subject; (ii) in an 
emergency a unit should be able to place restrictions on inter-State trade 
and commerce; (iii) the right should extend to non-citizens; and (iv) the 
freedom of trade should cover coastal trade specifically. After these 
suggestions were accepted, the Advisory Committee took up the issue 
for discussion. Commenting on these developments. B Shiva Rao (supra) 
specifically adverts to the view of l:;_Rajagopalachari which was that 
the units of the Union must have the power to impose customs duties 
and other taxes for raising revenue. A contrary view was, however, 
expressed inter-alia by Alladi Krishnaswami Avvar. Shiva Rao·s 
statement of what transpired is extracted below: 
"During the discussions, Rajagopalachari expressed the 
view that units should be given power to impose customs 
duties and other taxes for genuine revenue purposes; if this 
was not conceded, the clause would wrest from them a 
substantial means of increasing their revenues and hamper 
the progress of the comparatively poorer ones amongst them. 
Alladi
Krishnaswami Ayyar and K M Panikkar feared, on 
the other hand, that the grant of such taxing power to the 
. Provinces or States might encourage competition between 
them and thus weaken the federal idea and should. therefore, 
be prevented. The committee accepted the provisions as 
recommended by the sub-committee with one change; the 
sub-clause providing for central regulation of trade by or 
with non-citizens was dropped as being vague and 
unnecessary.'' 
(Id. at p.700) 
24. The clause was debated in the Constituent Assembly. B N 
Rau incorporated the following clauses in the draft constitution of October 
1947:
JINDAL STAINLESS LfD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
"Subject to the provisions of any Federal law. trade, 
commerce and intercourse among the units shall, if between 
the citizens of the Federation, be free: Provided that nothing 
in this section shall prevent any unit from imposing on goods 
imported from other units any tax to which similar goods 
manufactured or produced in that unit are subject, so, 
however, as not to discriminate between goods so 
manufactured or produced: Provided further that no 
preference shall be given by any regulation of trade, 
commerce or revenue to one unit over another: Prvvided 
also that nothing in this section shall predude the Federal 
Parliament from imposing by Act restrictions on tht! freedom 
of trade, commerce and intercourse among the units in the 
interests of public order, morality or health or in cases of 
emergency.·· 
(Id. at p.70 I) 
25. The Drafting Committee thereafter redrafted the above 
provisos which came to be included as ind~pendent articles under the 
heading of "Inter-State Trade and Commerce'' in Part IX of the draft 
constitution. Article 16 (which formed a part of the Chapter on 
Fundamental Rights) provided that subject to the provisions of Article 
244 and of any law made by Parliament. trade, commerce and intercourse 
throughout the territory of India would be free. Article 243 prohibited 
preferences and discrimination between one state and another. Articles 
244 permitted the imposition
of a non-discriminatory tax by a state on 
goods imported from another state similar to a tax which goods 
manufactured in the state arc subject. 
26. A lladi Krishnaswami ;\\var had strong reservations to allowing 
the imposition of reasonable restrictions on inter-State trade, on the ground 
that this \\'Ould practically nullify the freedom of trade secured under 
draft Article 16, the expression ·•in the public interest" being vague. When 
draft Article 16 was taken up in the Constituent Assembly, objections 
were raised to it being adopted as an A1iicle under the Fundamental 
Rights. Subjecting the freedom of trade under Article 16 to a law made 
by Parliament and to the power of the state to impose taxes and restrictions 
was in this view destroying the fundamental character of the freedom 
conferred and no residue would be left which could not be curtailed by 
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Parliament or the states. 
27. Dr B R Ambedkar while responding to the inclusion of Article 
16 drew attention to the history surrounding the article. The Indian states 
had initially agreed to join the Union only in respect of foreign affairs, 
defence and communications. They were unwilling to allow the Union 
Parliament to have legislative authority over trade and commerce by its 
inclusion in the Union List of the Seventh Schedule. Shiva Rao"' states 
that on the other hand it was believed that the formation of an All-India 
Union would be without meaning if trade and commerce throughout the 
Union was not free. After the speech by Dr Ambedkar, draft Article 16 
was adopted to be added to the Constitution. 
28. Subsequently, the Constituent Assembly accepted the view of 
Dr Ambedkar that a separate part, Part XA, exclusively devoted to trade. 
commerce and intercourse within the territory oflndia be adopted. Part 
XA was to consist of Articles 274A to 274E. Eventually, A1iicle 16 was 
deleted from the Chapter on Fundamental Rights on the ground that 
with the inclusion of the right in Article 274A (corresponding to present 
Article 30 I), the retention of A1iicle 16 was rendered superfluous. Dr 
Ambedkar explained that different articles which were scattered in various 
parts were brought together in one part dealing with the freedom of 
trade, commerce and intercourse. Shiva Rao adverts to the
observations 
ofAlladi Krishnaswami Ayyar, which are significant: 
"Alladi Krishnaswami Ayyar replied that the transfer of a 
provision in regard to freedom of inter-State trade from 
one part of the Constitution to another did not alter or affect 
the nature of the right embodied in it: the mere placing of a 
provision in the chapter on fundamental rights did not carry 
with it any patticular sanctity, nor did its j usticiability depend 
on such placement." 
(Id. at p.706) 
Moreover, with the integration of the Indian states and with the 
strong federation having materialised there was no need felt to retain 
the provision for freedom of inter-State trade in the chapter on 
'" (supra at page 703)
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
Fundamental Rights. 
29. Partition and the immense human suffering inflicted upon large 
segments of the population provided a strident political backdrop for the 
need to preserve the unity of the nation. In assigning the role of a strong 
centre in the federal polity, the founding fathers had a constitutional vision 
for preserving the political unity of free and democratic India. The 
economic history of both the British and Indian states was marred by 
famines and scarcity. Present to the minds of the founding fathers were 
the inequalities of resources and disparities in development between 
various provinces, including those that constituted British India on one 
hand and Indian states on the other. The framers of the Constitution 
contemplated that the provisions of draft Part XA (present Part XIII) 
should be an instrument for achieving economic progress under the rubric 
of one nation. Part XIII was the comer stone for fostering the economic 
development of the nation. In the vision of the founding fathers, India 
had to be· knit together in terms of an economic and fiscal union. 
30. In the social and political milieu that preceded the adoption of 
the Constitution, the emphasis in Part Xlll was not as much upon creating 
a market economy: laissez.faire was not an attractive political doctrine. 
In fact, responding to an amendment that was proposed by Pandit Thakur 
Das Bhargava that the
freedom of trade should be absolute, T T 
Krishnamachari, responded by stating that the extent of freedom which 
was allowed "is about the maximum amount ofliberty that we can give 
for trade and commerce, the maximum amount of concession that we 
can give to trade and commerce consistent with the future economic 
improvement of this country". He observed: 
"Even as it was originally suggested, that we should make 
it a matter of fundamental right, and even without the 
restrictions that have been put in Article 16, I am afraid the 
economic progress of the country will become well-nigh 
impossible. There is absolutely no use in the honourable 
Member trying to confuse a matter of civil liberty with a 
matter or rights in respect of trade and commerce. The 
world has well-nigh come to a position when trade and 
commerce cannot be run without control and some kind of 
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direction by the Government. lfmy honourable friends think 
that we are in the days of the nineteenth century when the 
laissez faire enthusiast had practically the ordering of 
everything in the world. I am afraid they are mistaken.'' 
In his address to the Constituent Assembiy, TT Krishnamachari 
emphasised the need to restrain the exen:ise of state powers which, it 
was apprehended. may be deployed to pursue narrow provincial interests: 
"A certain amount of freedom of trade and commerce has 
to be permitted. No doubt, restrictions by the State have to 
be prevented so that the particular idiosyncrasy of some 
people in power or narrow provincial policies of certain 
States should not be allowed to come into play and affect 
the general economy of the country.'' 
31. Yet regional concerns could not be ignored. Addressing the 
Constituent Assembly, Alladi Krishnaswami Avvar spoke about the 
diversity of interests, geographical position and economic attainments of 
various regions of the country. They required attention as well: 
"My friend, Dr Ambedkar in the scheme has evolved and 
has taken into account the larger interests of India as well 
as the interest of particular states and the wide geography 
of this country in which the interests of one region differ 
from the interests of another region. There is no need to 
mention that famine may be raging in one part of the country 
while there is
plenty in another part. It may be that manurt! 
and other things are required in one part of the country 
while profiteers from another part of the country may try 
to transport the goods from the part affected. At the same 
time, in the interests of the larger ecomm1y and the future 
prosperity of our country, a certain degree of freedom of 
trade must be guaranteed."
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
519 
[DR. D. Y. CHANDRACHLJD. J.] 
Consistent with the concern about enabling the country to achieve 
economic prosperity, he spelt out the following priorities underlying Pait 
Xlll: 
"Therefore in a federation what you have to do is, first you 
will have to take into account the larger interests of India 
and permit freedom of trade and intercourse as far as 
possible. Secondly, you cannot ignore altogether regional 
interests. Thirdly, there must be the power of intervention 
of the Centre in any case of crisis to deal with peculiar 
problems that might arise in any part of India. All these 
three factors are taken into account in the scheme that has 
been pl·aced before you." 
32. The introduction of the proviso to draft Article 274 (D) 
[corresponding to the proviso to the present Artide 304 (b )] was justified 
as being necessary "if on a..:count of parochial patriotism or separntism 
without consulting the larger interest of India as a whole,'' a bill or 
amendment was introduced by a state legislature. This was regarded by 
Alladi Krishnaswami Avyar as "a very restricted power that is conferred 
on the legislation of a state'' to impose reasonable restrictions on the 
freedom of trade, commerce and intercourse with or within that state as 
may be required in the public interest. Therefore, it was envisaged that 
the President who had to grant sanction will have the opportunity to see 
that the legislation is in the public
interest and that the restriction imposed 
is reasonable. Moreover,hc observed "it is not possible to devise a 
watertight formula for defining these restrictions.'' 
33. The deliberations in the Constituent Assembly surrounding 
the introduction of Pait Xlll leave little ambiguitv about the constitutional 
. 
~ . 
philosophy underlying the introduction of the guarantee of free trade, 
commerce and intercourse. The guarantee of that freedom was guided 
by the object of fostering economic development. Towards achieving 
that goal, the founding fathers recognised the need to weave the nation 
into one e..:onomic entity. At the same time. regional interests representing 
the diversity prevalent within the states had to be recognised by allowing 
a regulatory role for the states. While recognising the impoitance of the 
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state legislatures in relation to trade, commerce and intercourse, the 
founding fathers had evident concerns about what they described as 
parochial interests or naiww provincial policies posing a danger to the 
economic development of the nation. Hence, the Union Government 
was conferred with a power of intervention which was qualitatively 
different from the regulatory power conferred upon the states.To the 
Union Government was assigned the role of ensuring that the goal of 
pursuing economic development of the nation as one economic entity 
was not destroyed by the pursuit of parochial interests. It was in that 
background that the proviso to Alticle 304 (b) mandated the prior sanction 
of the President to a bill or amendment introduced in the state legislature 
for imposing reasonable restrictions in the public interest on the freedom 
that was guaranteed by Pait XIII. 
34. The founding fathers were careful when they noted that it 
was not possible to elucidate by a watertight fonnula,the fom1 in which 
such restrictions may take. The nature of the Indian economy on the 
eve of the adoption of the Indian Constitution was radically different 
from the economy which has emerged in the era of trade liberalism and 
beyond. I shall deal with the impact of those changes in a subsequent 
part of this judgment. At this stage, it would suffice to note that the 
guarantee of freedom for trade, commerce and
intercourse which the 
Constitution adopted in Pait XIII was an instrument of fostering economic 
progress as an important facet of national policy. 
D. The trend-setting decisions : Atiabari and Automobile 
Transport 
35. Two decisions rendered over five decades ago have shaped 
constitutional jurisprudence under Part XIII. They form the fulcrum of 
the reference in these proceedings. The first is the decision of a 
Constitution Bench in Atiabari Tea Company Ltd. v. The State of 
Assam 11 • The second is a decision of seven Judges in the The 
Automobile Transport (Rajasthan) Ltd. v. The State ofRajasthan 12 . 
II (1961) I SCR 809 
'°(1963) 1 SCR 491
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
36. In Atiabari, the Assam Taxation (on goods carried by roads 
and inland waters ways) Act,1954 was enacted by the state legislature 
under entry 56 of the State List to the Seventh Schedule. The law 
provided for the levy of a tax on manufactured tea in chests carried by 
motor vehicles (except by railways and airways) at a specified rate per 
pound. 
3 7. A Special Bench of the High Court dismissed the petitions 
challenging the validity of the Act. By a judgment of the Supreme Court 
rendered by a majority, the appeals and petitions filed under A1iicle 32 
by producers of tea were allowed. The majority held the Act to Qe ultra-
vires. 
38. Justice P B Gajendragadkar delivered the leading majority 
judgment on behalf of Justices KN Wanchoo and KC Dasgupta, while 
Justice JC Shah delivered a separate judgment. Justice Gajendragadkar 
held that the Act imposed a direct restriction on the freedom of trade 
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and in the absence of compliance with the provisions of Article 304(b ), it 
D 
was unconstitutional. Justice Shah held that Part Xlll imposes restrictions 
on the legislative powers of Parliament and state legislatures under Articles 
245, 246 and 248 read with the lists of the Seventh Schedule. According 
to this view, restrictions on freedom of trade and commerce include 
burdens in the nature of taxation. The Act was held as having infringed 
A1iicle 301 and failing compliance with
the proviso to Article 304 (b ), it 
was found to be unconstitutional. Chief Justice BP Sinha differed with 
the majority on the grou.nd that Part Xlll of the Constitution did not 
justify the inference that taxation simpliciter is within Article 301 of the 
Constitution. 
39. The c01Tectness of the view in Atiabari was reconsidered by 
a larger bench of seven Judges in Automobile Transport (supra). The 
Rajasthan Motor Vehicles Taxation Act, 1951 provided for the levy of a 
tax on motor vehicles used in any public places or kept for use in 
Rajasthan. The Rajasthan High Court, in view of a judgment rendered 
by its Full Bench negatived a challenge to the provisions of the Act. The 
decision of the Rajasthan High Court had been. rendered before the 
judgment in Atiabari was pronounced.When a Bench of seven Judges 
considered the matter in this Court, Justice SK Das, delivered the leading 
majority judgment on behalf of himself and Justices Kapoor and Sarkar. 
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40. The view of the three judges was that the Act did not violate 
the provisions of Article 301 because the taxes imposed were 
compensatory in nature which did not hinder the freedom of trade, 
commerce and intercourse. The interpretation placed by the majority in 
Atiabari was held to be "correct, but subject to this clarification" that 
regulatory measures or measures imposing compensatory taxes for the 
use of trading facilities do not fall within the purview of the restrictions 
contemplated by Article 30 I and need not comply with the requirements 
of the proviso to Article 304(b) of the Constitution. Justice B Subba Rao 
agreed with the view of Justice S K Das, in a concurring judgment. 
41. Justice M Hidayatullah delivered a dissenting judgment for 
and on behalf of himself and Justices Rajagopala Ayyangar and 
Mudholkar. In the view of the minority a tax which is made a condition 
precedent to the right to enter upon and carry on business is a restriction 
on the right to caITy on trade and commerce. The tax, it was held, was 
not a fee for administrative purposes, its object being to raise revenue.The 
judgment of the minority held that the tax was directly upon trade and on 
its movement. 
42. In order to facilitate an analysis of the varying and divergent 
lines of thought in the three judgments in Atiabari and the three judgments 
in Automobile Transport (supra), it would be necessary to consider 
the
views expressed under the following heads: 
D.1 Atiabari : Article 301 and taxation 
43. Chief Justice Sinha in his judgment inAtiabari held that freedom 
F 
under Article 301 could not be constrned in such a comprehensive manner 
asto include freedom from all impediments, restraints and barriers, 
including freedom from all taxes: 
G 
"I 3. Learned counsel for the appellants vehem.:ntly argued 
that the freedom contemplated by Article 30 I must be 
construed in its most comprehensive sense of freedom from 
all kinds of impediments, restraints and trade barriers, 
including freedom from all taxation. In my opinion, there is 
no warrant for such an extreme position." (Id. at p. 826) 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
523 
[DR. D. Y. C'HANDRACHUD. J.] 
Defining the expressions trade, commerce and intercourse. Chief A 
Justice Sinha held that: 
'' 13 ..... The three terms used in Article 30 I include not only 
free buying and selling, but also the freedom ofbargainand 
contract and transmission of information relating to such 
bargains and contracts as also transport of goods and 
commodities for the purposes of production, distribution and 
consumption in all their aspects, that is to say, transpo1iation 
by land, air or water. They must also include commerce not 
only in goods and commodities, but also transportation of 
men and animals by all means of transportation. Commerce 
would thus include dealings over the telegraph, telephone 
or wireless and every kind of contract relating to sale. 
purchase, exchange etc. of goods and commodities.'' 
(Id. at p. 826-827) 
44. In the view of Chief Justice Sinha, in this comprehensive sense, 
taxation of trade, commerce and intercourse would cover almost the 
entire field of public taxation both in the Union and in the State lists. 
Hence, ''it is almost impossible to think that the makers of the Constitution 
intended to make trade, commerce and intercourse free from taxation in 
that comprehensive sensc".(emphasis supplied) 
45. The first reason adduced in Chief Justice Sinha"s judgment 
for not adopting such a comprehensive definition of the freedom under 
Article 30 I is that the power to tax in
order to raise revt:nue is a 
manifestation of sovereignty. Being a sovereign power, it is not ordinarily 
justiciable. Second, the power of the states to raise finances for the 
purpose of government is elucidated in Part XII of the Constitution. 
Article 265 imposes a prohibition on the levy or collection of a tax except 
by authority of law. Pati XII of the Constitution which deals with finances 
and Part Xlll are self-contained provisions, one not being subject to the 
other: 
"Hence, both Parts Xll and XIII arc meant to be self~ 
. contained in their respective fields. It cannot. therefore, be 
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said that the one is subject to the other." 
(Id. at p. 824) 
The third reason adduced in the judgment of Chief Justice Sinha 
for not adopting such a comprehensive definition of the freedom conferred 
by Article 301 is the dilution of the power of the states to impose taxes, 
which would result from adopting such a construction : 
"14 .. .It is almost impossible to think that the makers of the 
Constitution intended to make trade, commerce and 
intercourse free from taxation in that comprehensive sense. 
If that were so, all laws of taxation relating to sale and 
purchase of goods on carriage of goods and commodities, 
men and animals, from one place to another, both inter-
State and intra-State, would come within the purview of 
Article 30 I and the proviso to A1ticle 304(b) would make it 
necessary that all Bills or Amendments of pre-existing laws 
shall have to go through the gamut prescribed by that proviso. 
That will be putting too great an impediment to the power 
of taxation vested in the States and reduce the States' limited 
sovereignty under the Constitution to a mere fiction. That 
extreme position has, therefore, to be rejected as unsound." 
(Id. at p. 827) 
Fourthly, Chief Justice Sinha held that Article 304 is divided into 
two parts:(i) clause( a) which deals with the imposition of discriminatory 
taxes by a state legislature; and (ii) clause(b) which relates to the 
imposition
ofreasonable restrictions. This, in the view of the Chief Justice, 
indicates that the imposition of taxes is not within the fold of reasonable 
restrictions on the freedom of trade, commerce and intercourse: 
"12 ..... But a close examination of the provisions of A1ticle 
304 would show that it is divided into two parts viz. (1) 
dealing with imposition of discriminatory taxes by a State 
Legislature; and (2) relating to imposition of reasonable 
restrictions, thus showing that imposition of taxes,
JfNDAL STAINLESS LT'D. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
discriminatory or otherwise, is a class apart from imposition 
of reasonable restrictions on freedom of trade, commerce 
and intercourse.'' 
(Id. at p. 824) 
Fifthly, Chief Justice Sinha opined that "not all taxes constitute 
necessarily an impediment or restraint in the matter of trade, commerce 
and intercourse'': 
"15 ..... all taxation is not necessarily an impediment or a 
restraint in the matter of trade, commerce and intercourse. 
Instead of being such impediments or restraints, they may, 
on the other hand, provide the wherewithals to improve 
different kinds of means of transport, for example, in cane 
growing areas, unless there are good roads, facility for 
transport of sugarcane from sugarcane fields to sugar mills 
may be wholly lacking or insufficient. In order to make new 
roads as also to improve old ones, cess on the grower of 
cane or others interested in the transport of this commodity 
has to be imposed, and has been known in some parts of 
India to have been imposed at a certain rate per maund or 
ton of sugarcane transported to sugar factories. Such an 
imposition is a tax on transport of sugarcane from one place 
to another, either intra-State or inter-State. It is the tax thus 
realised that makes it feasible for opening new means of 
communication or for improving old ones. It cannot, 
therefore, be said that taxation in every case must mean an 
impediment or restraint against
free flow of trade and 
commerce. Similarly. forthe facility of passengers and goods 
by motor transport or by railway, a surcharge on usual fares 
or freights is levied, or may be levied in future. But for such 
a surcharge, improvement in the means of communication 
may not be available at all. Hence, in my opinion, it is not 
correct to characterise a tax on movement of goods or 
passengers as necessarily connoting an impediment, or a 
restraint, in the matter of trade and commerce. That is 
another good reason in support of the conclusion that 
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taxation is not ordinarily included within the tenns of Article 
301 of the Constitution." 
(ld. at p. 827-828) 
Sixthly, in the view of the Chief Justice Sinha "taxation simpliciter" 
is not within the terms of Article 301 since the very purpose underlying 
the taxing power is the ability of the state to raise money for public 
8 
purposes by compelling the payment by those who are taxed of moneys 
earned or possessed by them, by virtue of the facilities and protection 
offered by the state. A public purpose is implicit in every taxation. Part 
Xlll when it refers to 'reasonable restrictions in the public interest' could 
not have intended to include taxation within the ambit of the expression. 
C 
46. At the same time, Chief Justice Sinha rejected the 'extreme 
proposition' that taxation would be wholly outside the purview of Article 
30 I. That position was rejected on the ground that firstly, Article 304 
contains a specific reference to taxation and secondly, Article 305 prior 
to its repeal made a specific reference to taxation for certain purposes. 
D 
Chief Justice Sinha made a distinction in the following observations: 
"17 ..... The Article thus brings out the clear distinction 
between taxation as such for the purpose of revenue and 
taxation for the purpose of making discrimination or giving 
E 
preference, both of which are treated by the C~mstitution 
as impediments to free trade and commerce. In other 
words, so
long as the impost was not in the nature of an 
impediment to the free flow of goods and commodities 
between one State and another, including in this expression 
F 
Union tenitories also, its legality was not subject to an attack 
based on the provisions of Part XIII." 
(Id. at p. 830) 
4 7. In this view, a Jaw which imposes an impediment to the free 
G 
flow of trade, commerce and intercourse such as by a high tariff wall is 
not a measure of taxation but assumes a character of a h·ade banier : 
H 
"16 .... .If a Jaw is passed by the Legislature imposing a tax 
which in its true nature and effect is meant to impose an 
impediment to the free flow of trade, commerce and
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
intercourse, for example, by imposing a high tariff wall, or 
by preventing imports into or exports out of a State, such a 
law is outside the significance of taxation, as such, but 
assumes the character of a trade barrier which it was the 
intention of the Constitution-makers to abolish by Pait XIII." 
(Id. at p. 829) 
The conclusions of the Chief Justice are restated in the following 
propositions : 
"16 .... The objections against the contention that taxation 
was included within the prohibition contained in Part Xlll 
may thus be summarised: (1) Taxation, as such, always 
implies that it is in public interest. Hence, it would be the 
outside particular restrictions, which may be characterised 
by the courts as reasonable and in public interest. (2) The 
power is vested in a sovereign State to carry on Government. 
Our Constitution has laid the foundations of a welfare State, 
which means very much expanding the scope of the activities 
of Government and administration, thus making it necessary 
for the State to impose taxes on a much larger scale and in 
much wider fields. The legislative entries in the three Lists 
referred to above empowering the Union Government and 
the State Governments to impose ce1tain taxations with 
reference to the movement of goods and passengers would 
be rendered ineffective, if not otiose, if it were held that 
taxation simpliciter is within the terms of Article 301.
(3) If 
the argument on behalf of the appellants were accepted, 
many taxes, for example, sales tax by the Union and by the 
States, would have to go through the gamut prescribed in 
Articles 303 and 304, thus very much detracting from the 
limited sovereignty of the States, as envisaged by the 
Constitution. ( 4) Laws relating to taxation, which is 
essentially a legislative function of the State, will become 
justiciable and every time a taxation law is challenged as 
unconstitutional, the State will have to satisfy the courts -
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a course which will seriously affect the division of powers 
on which modern constitutions, including ours, are based. 
( :i) Taxation on movement of goods and passengers is not 
necessarily an impediment." 
(Id. at p. 829-830) 
The basic principle which is enunciated in the judgment of the 
Chief Justice Sinha is that: 
"I 8 ..... (2) the freedom declared by Article 30 I does not 
mean freedom from taxation simpliciter, but does mean 
freedom from taxation which has the effect of directly 
impeding the free flow of trade. commerce and 
intercours<~." 
(Id. at p. 83 I) 
48. The test, in the view of Chief Justice Sinha, is whether a tax 
has the effect of directly impeding the free flow of trade, commerce and 
intercourse. If it does. it falls within the ambit of Article 30 l. The test is 
of the true nature and effect of the tax. Does it impose an impediment 
to the free flow of trade, commerce & intercourse? An illustration of 
such an impediment is a high tariff wall which then assumes the character 
of a trade barrier. A high tariff wall is an example of an impediment 
under taxing laws to the freedom of trade, not an exhaustive elaboration. 
Those taxes which impede the free flow of trade and commerce are 
within Article 30 l. 
49. The judgment of Justice Gajcndragadkar, for the majority holds 
that the power of taxation is subject to constitutional provisions: 
"35 ... Basing himself on this character
of the taxing power 
of the State. the learned Attorney General has asked us to 
hold that Part XIII that can have no application to any statute 
imposing a tax. In our opinion, this contention is 'not' well-
founded .... .''therefore. the true position appears to be that, 
though the power of levying tax is essential for the very 
existence of the government, its exercise must inevitably
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
be controlled by the constitutional provisions made in that 
behalf. It cannot be said that the power of taxation per se is 
outside the purview of any constitutional limitations." 
(ld. at p. 846) 
50. Justice Gajendragadkar noted first, that the power under Article 
265 of the Constitution to levy a tax under the authority oflaw is referable 
to Article 245 read with the corresponding legislative entries in the 
Seventh Schedule. Since Article 245 is subject to the provisions of the 
Constitution, the power of Parliament and of the state legislatures to 
impose taxes is subject to the application of constitutional provisions, 
which must include Pa11 Xlll: 
"37 .... Now, if we look atArticle 245 which deals with the 
extent of laws made by Parliament and by the Legislatures 
of States, it begins with the words "subject to the provisions 
of this Constitution"; in other words, the power of 
Parliament and the Legislatures of the States to make laws 
including laws imposing taxes is subject to the provisions of 
this Constitution and that must bring in the application of 
the provisions of Part Xlll." 
(ld. at p. 847-848) 
Second, in this view, the freedom of trade, commerce and 
intercourse under A11icle 301 is subject only to the provisions of Part 
Xlll which means that the amplitude of the freedom cannot be controlled 
outside Pai1 Xlll. Thirdly, in the view of Justice Gajendragadkar,the 
freedom
guaranteed by A11icle 301 is a freedom from all restrictions 
except those which are contemplated under Part Xlll: 
"42 .... Stated briefly trade even in a narrow sense would 
include all activities in relation to buying and selling, or the 
interchange or exchange of commodities and that movement 
from place to place is the very soul of such trading activities. 
When Article 301 refers to the freedom of trade, it is 
necessary to enquire what freedom means. Freedom from 
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what? is the obvious question which falls to be dete1111ined 
in the context. At this stage, we would content ourselves 
with the statement that the freedom of trade guaranteed by 
Article 30 l is freedom from all restrictions except those 
which are provided by the other Articles in Part XIII." 
(Id. at p. 853) 
Fourthly, Justice Gajendragadkar adverts to the effect of the non-
obstante clause in Article 304 which enables the imposition of a tax 
notwithstanding the provisions of Article 30 l: 
"46 ..... How a tax can be levied on internal goods is, 
however, provided by Article 304(b ). The non-obstante 
clause referring to Article 301 would go with A11icle 304( a), 
and that indicates that tax on goods would not have been 
permissible but for Article 304(a) with the non-obstante 
clause. This incidentally helps to determine the scope and 
width of the freedom guaranteed under Article 30 l; in other 
words, Article 304(a) is another exception to Article 301." 
(Id. at p. 856) 
In this view, Article 304(a) and Article 304(b) have to be read 
together.That tax legislation is included in A1iicle 301 is an inference 
from the use of the non-obstante clause in Article 304. Finally, Justice 
Gajendragadkar held that movement of trade is the essence of the 
freedom guaranteed by Article 301. If transport or movement of goods 
is taxed solely on the basis that goods are carried or transported, that 
would affect
directly the freedom of trade under Article 30 I: 
"49 ..... it certainly includes movement of trade which is of 
the very essence of all trade and its integral part. If the 
transport or the movement of goods is taxed solely on the 
basis that the goods are thus caiTied or transported that, in 
our opinion, directly affects the freedom of trade as 
contemplated by Article 301. lfthe movement, transport or
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
531 
[DR. D. Y. CHANDRACHUD, J.] 
the carrying of goods is allowed to be impeded, obstructed 
A 
or hampered by taxation without satisfying the requirements 
of Part XIII, the freedom of trade on which so much 
emphasis is laid by Article 301 would tum to be illusory. 
When Article 301 provides that trade shall be free 
throughout the territory of India, primarily it is the movement 
B 
part of the trade that it has in mind and the movement or 
the transport pa11 of trade must be free subject of course to 
the limitations and exceptions provided by the other Articles 
of Part Xlll." 
(Id. at p. 859) 
51. Justice Gajendragadkar did notice the need to draw a balance 
for preserving the powers of the states in a federal constitution. The test 
which he fommlated is that the restrictions which fall within Article 301 
are those which directly and immediately restrict or impede the free 
flow or movement of trade: 
"50 ..... Thus considered we think it would be reasonable 
and proper to hold that restrictions freedom from which is 
guaranteed by Article 301, would be such restrictions as 
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directly and immediately restrict or impede the free flow or 
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movement of trade. Taxes may and do amount to 
restrictions; but it is only such taxes as directly and 
immediately restrict trade that would fall within the purview 
of Article 301. The argument that all taxes should be 
governed by Article 301 whether or not their impact on 
F
trade is immediate or mediate, direct or remote, adopts, in 
our opinion, an extreme approach which cannot be upheld." 
(ld. at p. 860) 
52. Justice Gajendragadkar, in the ultimate analysis also shuns an 
interpretation under which all taxes would be brought within the ambit of 
Article 301. The principle which the learned judge adopts is that taxing 
laws are not excluded from the operation of Article 301 and that they 
can and do amount to restrictions on freedom. Yet, tax laws which directly 
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and immediately restrict trade or its movement are alone within the ambit 
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of Article 301. 
53. Justice Shah joined the conclusion of the majority in holding 
that the Assam enactment violated the guarantee of freedom under Article 
30 I and had not passed muster under the proviso to Article 304(b ). But 
Justice Shah agreed with the conclusion oflhe majority on a much wider 
B 
premise that all laws of taxation fall within the purview of Article 30 I. In 
his view, trade and commerce comprehends traffic in goods and much 
more. In this view, while movement of goods may be an important 
ingredient of effective commerce, movement itself is not an essential 
ingredient of commerce. In his view: 
c 
"66 ..... What is guaranteed is freedom in its widest am pl itudc 
-freedom fron1 prohibition, control, burden or impedirncntin 
commercial intercourse. Not merely discriminative tariffs 
restricting movement of goods which arc included in the 
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restrictions and are hit by Article 30 I, but all taxation on 
commercial intercourse, even imposed as a measure for 
collection ofrevenue is so hit. Between discriminatory tariffs 
and trade barriers on the one hand and taxation for raising 
revenue on commercial intercourse, the difference is one 
E 
of purpose and not of quality. Both these forms of burden 
on commercial intercourse trench upon the freedom 
guaranteed by Article 30 I." 
(Id. at p. 874-875) 
The freedom under Article 30 I, in the judgment of Justice Shah, 
F 
connotes freedom from tax burdens as
well as other impediments but is 
subject to Part Xlll of the Constitution. 
54. The distinction between the judgment of the miijority and the 
view of Justice Shah is precisely in the extent to which tax laws are held 
to fall within the ambit of Article 30 I. For the majority, movement 
G 
constitutes the soul of trade whereas for Justice Shah, it is not an essential 
ingredient in all situations. For the majority, it is the movement or the 
transport part of trade that must be free subjcet to thc limitations in Part 
Xlll. However, it was only such taxes as directly and immediately impede 
trade that fall within the purview of Article 30 I. Justice Gajendragadkar 
H
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
533 
[DR. D. Y. CHANDRACHUD, J.] 
rejected the contention that all taxes should be governed by Article 301 
A 
whether or not their impact on trade is immediate and direct on the one 
hand or whether it is remote and "mediate "on the other. For Justice 
Shah every law of taxation of commercial intercourse, even when it is a 
measure for the collection of revenue is hit by Article 301. 
55. Having said this, it is necessary also to note that there was at 
the same time an agreement on principle on certain crucial aspects of 
Part Xlll between the views expressed in the judgment of the majority 
and the views of Justice Shah. Firstly, the majority (as noted earlier) 
spoke of constitutional restrictions and limitations on the legislative powers 
of Parliament and the state legislatures, a11d emphasised that Part Xlll 
is a source of such a limitation. Justice Shah agreed with this premise in 
the following observations: 
''64 .... On the exercise of the legislative power to tax trade, 
commerce and intercourse, restrictions are prescribed by 
certain provisions contained in Part Xll, e.g., Articles 276, 
286, 287, 288 and 289: but these restrictions do not 
exhaustively delimit the periphery of that power. The 
legislative power to tax is restricted also by the fundamental 
freedoms contained in Part III, e.g., Articles 14, 15(1), 
19( 1 )(g) and 31 (I) and is further restricted by Part Xlll. 
Article 245, clause (1 ), of the
Constitution expressly 
provides that the legislative powers of the Parliament and 
the State Legislatures to make laws are subject to the 
provisions of the Constitution; andArticle 301 is undoubtedly 
one of the provisions to which the legislative powers are 
subject." 
(ld. at p. 873) 
Secondly, Justice Shah like the majority emphasized the non-
obstante provision of Article 304 which operates with reference to Article 
301. In his view, if Article 301 did not deal with the burdens of taxation, 
there was no reason to incorporate a non-obstante provision in Article 
304: 
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"74 .... If Article 301 and Article 303 did not deal with the 
restrictions or burdens in the nature of tax, the reason for 
incorporating the non-obstante clause to which Article 304, 
clause (1 ), is subject, cannot be appreciated. Undoubtedly, 
the provisions of Part XIII of the Constitution do not impose 
additional or independent powers of taxation; the powers 
of taxation are to be found conferred by Articles 245, 246 
and 248 read with the Lists in the Seventh Schedule, and 
the provisions of Part XIII are !imitative of the exercise of 
legislative power. The circumstance that the Constitution 
has chosen to deal with a specific field of taxation as an 
exception to Articles 301 and 303 (which should really be 
Article 303(1 )) strongly supports the inference that taxation 
was one of the restrictions from the imposition of which by 
the guarantee of Article 301, trade, commerce and 
intercourse are declared free." 
(Id at p. 881) 
Thirdly, Justice Shah adopts the same position as the majority did 
in holding that the expression 'restrictions' in clause (b) of Article 304 
includes a restriction in the nature of a tax: 
"75 ..... Clause (b) deals with a general restriction which 
includes a restriction by the imposition of a burden in the 
nature of tax. Clause (a) deals with a specific burden of 
taxation in a limited field." 
(ld. at p. 881) 
56. The basic difference between the judgment of the
majority 
and the decision of Justice Shah lies in the extent to which the taxing 
power is regarded as being within or outside the purview of Article 301. 
For the majority every taxing legislation is not within the ambit of Article 
301. The guarantee under Article 301 is against such restrictions as 
directly and immediately restrict or impede the free flow or movement 
of trade. Only those taxes which directly and immediately restrict trade 
would fall within Article 301. For Justice Shah all taxation on c01m11ercial 
intercourse would attract the provisions of Article 30 I.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
535 
[DR. D. Y. CHANDRACHUD, J.] 
57. A comparison of the view that was adopted by the majority 
with the judgment of ChiefJustice Sinha would indicate differences of 
substance on some issues and essentially of degree on other aspects. 
Chief J usticc Sinha prefaced his discussion with the premise that taxation 
is governed by Part XII and that Part XII and Part XIII are self-contained 
and independent provisions. Moreover, Chief Justice Sinha held that 
taxation being an essential attribute of sovereignty, it would not be 
appropriate in a federal structure to make the state power of taxation 
subservient by the application of Article 304 (b) to all taxing legislation. 
However, Chief Justice Sinha ultimately accepts the position that not all 
but some tax legislation is subject to the mandate of Article 30 l. In his 
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view, so long as a tax imposition is not an impediment to the free flow of 
trade, commerce and intercourse, it must pass muster and would not fall 
within Article 301. Justice Gajendragadkar also held (speaking for the 
majority) that a tax law which directly and immediately restricts trade 
will fall within the ambit of Article 30 I. The test in the judgment of Chief 
Justice Sinha is whether a tax law "has the effect of directly imposing 
the free flow of trade". The test adopted by the majority of"such taxes 
as directly and immediately restrict trade" find a broad co-relation to the 
test adopted by
Chief Justice Sinha. The difference in the view of the 
majority from that of the learned Chief Justice on this aspect was 
essentially a difference of degree. Chief Justice Sinha noted that he 
differed with the majority on the ground that the Constitution does not 
justify the inference that taxation simpliciter is with in the terms ofA1tic le 
30 l. In his view, the Assam legislation in that case was a taxing statute 
simpliciter without any discrimination against dealers or producers outside 
the state. The majority held the tax to be unconstitutional since its object 
was to collect taxes on goods solely on the ground that they are carried 
by road or by inland waterways within the area of the state. This,for the 
majority, was a restriction within the ambit of Article 301 which could 
have been achieved lawfully only by satisfying the requirements ofArticle 
304 (b). On the other hand, Chief Justice Sinha would regard only a 
discriminatory tax as a restriction on trade. 
D.2 Automobile Transport 
58. The seven Judge bench in Automobile Transport dealt, in 
the three judgments which were delivered, with: (i) the nature and extent 
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A 
of the freedom guaranteed by A1ticle 301; (ii) the power to impose taxes; 
(iii) constitutional limitations or restrictions on the power to tax; (iv) the 
necessity of interpreting the provisions of Pait XIII so as not to eviscerate 
the sovereignty of the states; and(v) whether, and if so, the extent to 
which Part XIII controls fiscal legislation. 
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D.2.1 Freedom and regulation 
59. Justice SK Das, in the leading judgment of the majority held 
that though Article 301 "runs unqualified", the freedom must necessarily 
be delimited by considerations of social orderliness : 
"10 .... As the language employed in Article 301 runs 
unqualified the Court, bearing in mind the fact that that 
provision has to be applied in the working of an orderly 
society, has necessarily to add ce1tain qualifications subject 
to which alone that freedom may be exercised." 
(Id. atp. 521) 
60. Justice Subba Rao in a concurring judgment held that the 
freedom conferred by Article 30 l is a freedom of trade across borders. 
The freedom is to trade unrestricted by barriers : 
"35 ..... the said composite expression means trade across 
the borders: what is free is that trade. It is implicit in the 
concept of freedom that there will be obstructions to it. 
Such obsh·uctions or ba1Tiers may be, in the present context, 
to the freedom to trade across the borders. Article 301 
provides for freedom from the said barriers or impediments
in effect operating as barriers. This freedom from barriers 
cannot operate in vacuum and must be limited by space. A 
barrier may be put up between two States at the boundary 
of the States or between two districts, two taluks, two towns 
or between two parts of a town. The barrier may be at a 
paiticular point, at a boundary or might take the form of a
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
continuous impediment till the boundary is crossed. It may 
take different fon11S. The restrictions may be before or after 
movement. It may be a prior restraint or a subsequent 
burden. But the essential idea is that a barrier is an obstacle 
put across trade in motion at a particular point or different 
points. The expression "shall be free" declares in a 
mandatory fonn a freedom of such transport or movement 
from such barriers." 
(Id. at p. 547-548) 
61. Freedom under Article 301, being throughout the territory of 
India, Justice Subba Rao held that Article 301 removes both inter-State 
and intra-State barriers, making the country as a whole into one unit : 
"36 ..... The freedom declared under Article 301 may be 
defined as a right to free movement of persons or things, 
tangible or intangible, commercial or non-commercial, 
unobstructed by barriers, inter-State or intra-State or any 
other impediment operating as such barriers. "(Id. at p. 548) 
62. Yet, the judgment of the majority posits that freedom under 
Article 301 is not impaired by facilitative regulations. Such regulations 
are facilitative because they promote trade and are not restrictive of it. 
The concept of facilitative regulations is in tandem with the view that 
the right under Article 301 is capable of regulation so as to preserve an 
orderly society. Regulations such as those defining limits of speed for 
transport vehicles,
permissible loads or requiring the registration of 
vehicles do not impede trade. Adverting to these examples Justice S K 
Das held: 
"10 ..... that the application of rules like the above does not 
really affect the freedom of trade and commerce; on the 
contrary they facilitate the free flow of trade and c01m11erce. 
The reason is that these rules cannot fairly be said to impose 
a burden on a trader or deter him from trading: it would be 
absurd, for example, to suggest that freedom of trade is 
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impaired or hindered by laws which require a motor vehicle 
to keep to the left of the road and not drive in a manner 
dangerous to the public. If the word "free" in Article 301 
means "freedom to do whatever one wants to do", then 
chaos may be the result." 
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Justice Subba Rao adopted the same position. Facilitative 
regulations, in his view, do not restrict trade : 
"37 ... Before a particular law can be said to infringe the 
said freedom, it must be ascertained whether the impugned 
provision operates as a restriction impeding the free 
movement of trade or only as a regulation facilitating the 
same. Restrictions obstruct the freedom, whereas 
regulations promote it. Police regulations, though they may 
superficially appear to restrict the freedom of movement, 
in fact provide the necessary conditions for the free 
movement. Regulations such as provision for lighting, speed, 
good condition of vehicles, timings, rule of the road and 
similar others, really facilitate the freedom of movement 
rather than retard it. So too, licensing system with 
compensatory fees would not be restrictions but regulatory 
provisions; for without it, the necessary lines of 
communication, such as roads, water-ways and air-ways, 
cannot effectively be maintained and the freedom declared 
may in practice turn out to be an empty one. So too, 
regulations providing for necessary services to enable the 
free
movement of traffic, whether charged or not, cannot 
also be described as restrictions impeding the freedom." 
(Id. at p. 549) 
Significantly, these observations of Justice Subba Rao indicate 
that fees for the use of facilities or as charges for regulations which 
facilitate trade do not hinder or obstruct the free flow of trade. For,
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
539 
[DR. D. Y. CHANDRACHUD, J.] 
without those facilities, trade would be rendered difficult. 
A 
D.2.2 Taxation and constitutional limitations 
63. Justice S K Das held that the power to impose taxes is essential 
for the existence of government. Yet, in his view, it can be controlled by 
constitutional provisions. Part XII of the Constitution controls the power 
to levy taxes. But, Part XII does not exhaust the limitations on the power 
to tax: 
"13 .... though the power of levying tax is essential for the 
very existence of government, its exerdse may be controlled 
by constitutional provisions made in that behalf. It cannot 
be laid down as a general proposition that the power to tax 
is outside the purview of any constitutional limitations. We 
have carefully examined the provisions in Part Xll of the 
Constitution and are unable to agree that those provisions 
exhaust all the limitations on the power to impose a tax." 
(Id. at p. 527) 
64. Justice Subba Rao dealt with the issue from the perspective 
of whether the power of taxation is subject to limitation. Justice Subba 
Rao analysed the legal presumption that taxation is in the public interest 
and that it is not possible for a court to detennine whether a particular 
rate of tax is reasonable. Considering the matter, Justice Subba Rao 
observed thus: 
"39 ..... A law of taxation is made by Parliament or the 
Legislature of a State, as the case may be, in exercise of 
the
power conferred under the Constitution by virtue of the 
entries found therein. Ihs a law just like any other law 
made under the Constitution. This Court, in K. Thathunni 
Moopil Nairv. State ofKerala [AIR (1962) SC 552] and 
in Balaji v. LT. Officer [AIR (1962) SC 123] , held that a 
law of taxation would be void if it infringed the fundamental 
right guaranteed under Article 19 of the Constitution. 
'Therefore, the law of taxation also should satisfy the two 
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tests laid down inArticle 19(6) of the Constitution. It is said 
that a law of taxation is always in public interest. Ordinarily, 
it may be so, but it cannot be posited that there cannot be 
any exceptions to it. A taxing law may be in public interest 
in the sense that the income realised may be used for public 
good, but there may be occasions, when the rate or the 
mode of taxation may be so abhorrent to the principles of 
natural justice or even to the well settled principles of taxation 
that it may cause irremediable hann to the public rather 
than promote public good, that the court may have to hold 
that it is not in public interest. Nor can I agree with the 
contention that it is impossible for a court to hold in any 
case that a rate of taxation is reasonable or not". 
(Id. at p. 553) 
In this view, no restriction, if it is unreasonable, can be more 
deleterious to freedom than the imposition of a fiscal burden on it, which 
may in certain circumstances destroy the very freedom. Consequently, 
Justice Subba Rao rejected the notion that laws of taxation are outside 
the scope of the freedom guaranteed by Article 30 I. The presumption 
of the fiscal law being in the public interest does not exclude judicial 
review where the law has transgressed those boundaries. 
65. Justice Hidayatullah was explicit in holding that "taxation is 
within the prohibition contained in Part XIII 13." 
66. The basic premise of
the majority is that tax legislation is 
F 
subject to constitutional limitations or restrictions. Under Article 265, a 
tax can be levied only with the authority of law. Article 245 which 
empowers Parliament to enact legislation for the territory of India and 
the state legislatures, for the territories of the respective states, is "subject 
to the provisions of this Constitution." This expression would include 
Parts XII and XIII. Justice S K Das held thus : 
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"13 .... Article 245 which deals with the extentoflaws made 
by Parliament and by the Legislatures of States expressly 
states that the power of Parliament and of the State 
13 Id. at p-637
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
Legislatures to make laws is "subject to the provisions of 
this Constitution". The expression "subject to the provisions 
of this Constitution" is surely wide enough to take in the 
provisions of both Part XII and Part Xlll. In view of the 
provisions of Article 245, we find it difficult to accept the 
argument that the restrictions in Part XIII of the Constitution 
do not apply to the taxation laws." 
(Id. at p. 527-528) 
67. Having held that the power of taxation is subject to constitutional 
limitations which include Part XIII, Justice S K Das rejected what he 
described as a "narrow interpretation" which postulates that save and 
except for Article 304(a), none of the other provisions of Part XIII extend 
to taxing statutes. That submission was also not accepted by Justice 
Subba Rao. 
D.2.3 State sovereignty 
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68. The majority was conscious of the need to preserve the 
sovereignty of the states. State autonomy would be impaired by an 
extensive construction of Article 301 and if all measures of taxation were 
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brought within its ambit. Adopting such a view would lead to a situation 
where every law passed by the state legislature would be subject to the 
proviso to Article 304(b ). Justice S K Das observed that a construction 
which would bring about such a result must be avoided : 
"11 ..... Such an interpretation would, in our opinion, seriously 
affect the legislative power of
the State Legislatures which 
power has been held to be plenary with regard to subjects 
in List II. The States must also have revenue to carry out 
their administration and there are several items relating to 
the imposition of taxes in List II. The Constitution-makers 
must have intended that under those items, the States will 
be entitled to raise revenue for their own purposes. If the 
widest view is accepted, then there would be for all practical 
purposes, an end of State autonomy even within the fields 
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allotted to them under the distribution of powers envisaged 
by our Constitution. An examination of the entries in the 
Lists of the Seventh Schedule to the Constitution would 
show that there are a large number of entries in the State 
List (List II) and the Concurrent List (List III) under which 
a State Legislature has power to make laws. Under some 
of these entries, the State Legislature may impose different 
kinds of taxes and duties, such as property tax, profession 
tax, sales tax, excise duty etc., and legislation in respect of 
any one of these items may have an indirect effect on trade 
and commerce. Even laws other than taxation laws, made 
under different entries in the Lists referred to above, may 
indirectly or remotely affect trade and commerce. If it be 
held that every law made by the Legislature of a State which 
has a repercussion on tariffs, licencing, marketing regulations, 
price-control etc. must have the previous sanction of the 
President, then the Constitution insofar as it gives plenary 
power to the States and State Legislatures in the fields 
allocated to them would be meaningless". 
(Id. at p. 524-525) 
69. Justice Subba Rao in the concurring judgment also noted that 
conceivably,every law enacted by a state legislature in pursuance of its 
legislative power may remotely affect trade. If every Bill introducing 
such a legislation were to be subjected to the prior sanction of
the President 
under the proviso to Article 304 (b) that would result in a serious dilution 
of the autonomy of the states: 
"38. The Constitution confers on the Parliament and the 
State Legislatures extensive powers to make laws in respect 
of various matters. A glance at the entries in the Lists of 
the Seventh Schedule to the Constitution would show that 
every law so made may have some repercussion on the 
declared freedom. Property tax, profession tax, sales tax, 
excise duty and other taxes may all have an indirect effect 
on the free flow of trade. So too, laws, other than those of
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
[DR. D. Y. CHANDRACHUD, J.] 
taxation, made by virtue of different entries in the Lists, 
may remotely affect trade. Should it be held that any law 
which may have such repercussion must either be passed 
by the Parliament or by the State Legislature with the 
previous consent of the President, there would be an end 
of provincial autonomy, for in that event, with some 
exceptions, all the said laws should either be made by the 
Parliament or by the State Legislature with the consent of 
the Central Executive Government. By so construing, we 
would be making the Legislature of a State elected on adult 
franchise the handmaid of the Central executive." 
(Id. at p. 550) 
70. Justice Hidayatullah was also concerned about the consequence 
on state autonomy of the adoption of a view which subjugated all state 
legislations having a conceivable, if even remote, impact upon trade to 
Presidential sanction : 
"124 ... the financial independence of the States was 
secured by an elaborate division of heads of taxation, which 
were well thoughtout to provide the States with the means 
of independent existence and the wherewithal of nation-
building activities. There is hardly any tax which the States 
are authorised to collect which could not be said to fall on 
traders. Property tax, sales tax, municipal taxes, electricity 
taxes (to mention only a few) are paid by traders as well as 
by non-traders. To say that all these taxes are so many,
restrictions upon the freedom of trade, commerce and 
intercourse is to make the entire Constitutional document 
subordinate to trade and commerce. Since it is axiomatic 
that all taxes which a tradesman pays must burden him, 
any tax which touches him must fall within Article 304, if 
the word "restriction" is given such a wide meaning, every 
such legislation will then be within the pleasure of the 
President, and this could not have been intended. 
"Restriction" must, therefore, mean something more than 
a mere tax burden." 
(Id. at p. 633-634) 
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Every burden of tax, in this view would not be a restriction of 
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trade and commerce. 
Justice Hidayatullah too shared this concern when he observed : 
"125 ... To bring all taxes within the reach of Article 301 
and thus to bring them also within the reach of Article 304 
is to overlook the concept of a Federation, which allows 
freedom of action to the States, subject, however, to the 
needs of the unity of India. Just as unity cannot be allowed 
to be frittered away by insular action. The existence of 
separate States is not to be sacrificed by a fusion beyond 
what the Constitution envisages." 
(Id. at p. 634-635) 
E.Compensatory Taxes 
E.1 Original understanding 
71. The judgment of the majority evolved the concept of 
compensatory taxes in response to its felt concern to preserve state 
autonomy. Compensatory taxes which are in the nature of a charge for 
the use of trading facilities would not be regarded as being a hindrance 
to the freedom of trade, so long as they are reasonable. By first devising 
the concept and then placing it beyond the pale of Article 301, the Court 
in Automobile Transport ensured that compensatory taxes would not 
be subject to the constitutional grind of A11icle 304(a). A class of tax 
legislation bearing a compensatory character was carved out of Part 
Xlll. 
72. What are compensatory taxes? Explaining the concept, Justice 
S K Das in the judgment of the majority held
that : 
"10 ... Another class of examples relates to making a charge 
for the use of trading facilities, such as, roads, bridges, 
· aerodromes etc. The collection of a toll or a tax for the use 
of a road or for the use of a bridge or for the use of an 
aerodrome is no ba1Tier or burden or deterrent to traders 
who, in their absence, may have to take a longer or less
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
545 
[DR. D. Y. CHANDRACHUD, J.] 
convenient or more expensive route. Such compensatory 
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taxes are no hindrance to anybody's freedom so long as 
they remain reasonable; but they could of course be 
converted into a hindrance to the freedom of trade." 
(Id. at p. 522) 
In this view, for a tax to become prohibited, it has to be a tax, the 
effect of which is to directly hinder "the movement part oftrade"14. So 
long as a tax remains compensatory or regulatory, it does not operate as 
a hindrance. Again, this was elaborated in the following observations : 
"14 .... But we must advert here to one exception which we 
have already indicated in an earlier part of this judgment. 
Such regulatory measures as do not impede the freedom of 
trade, commerce and intercourse and compensatory taxes 
for the use of trading facilities are not hit by the freedom 
declared by A1ticle 301." 
(Id. at p. 528) 
In the view of the majority : 
"17 .... Regulatory measures or measures imposing 
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compensatory taxes for the use of trading facilities do not 
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come within the purview of the restrictions contemplated 
by Article 30 I and such measures need not comply with 
the requirements of the proviso to Article 304 (b) of the 
Constitution." 
(Id. at p. 533) 
Compensatory taxes were held to lie outside Article 301. Not 
being 'restrictions' which hamper the freedom of trade, compensatory 
taxes would not fall within the ambit of Article 30 I and
were not subject 
to the rigours of the proviso to Article 304(b ). 
73. The tax imposed by the State of Rajasthan was held to be 
compensatory since it facilitated trade and commerce : 
"Id. at p-523 
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"19 .... The taxes are compensatory taxes which instead of 
hindering trade, commerce and intercourse facilitate them 
by providing roads and maintaining the roads in a good state 
of repairs." 
(ld. at p. 536) 
A tax would not cease to be compensatory merely because the 
precise or specific amount which is calculated is not actually used to 
provide facilities. TI1e test on whether a tax is compensatory is fonnulated 
thus: 
"19 ... It seems to us that a working test for deciding whether 
a tax is compensatory or not is to enquire whether the trades 
people are having the use of certain facilities for the better 
conduct of their business and paying not patently much more 
than what is required for providing the facilities." 
(ld. at p. 536) 
Even if the proceeds from the tax are not credited to a separate 
fund that would make no difference so long as facilities are provided for 
trades' people who pay the tax. In his concurring judgment, Justice Subba 
Rao also adopted the 'direct and immediate effect' test. Justice Subba 
Rao held that : 
"38 .. .If a law directly and immediately imposes a tax for 
general revenue purposes on the movement of trade, it would 
be violating the freedom. On the other hand, ifthe impact is 
indirect and remote, it would be unobjectionable. The Court 
will have to ascertain whether the impugned law in a given 
case affects directly the said movement or indirectly and
remotely affects it." 
(ld. at p. 550-551) 
A law which directly and immediately affects the free movement 
of trade in this view is a restriction on freedom. However, a measure
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
547 
[DR. D. Y. CHANDRACHUD, J.] 
which is compensatory or regulatory does not hinder trade : 
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"40 .... Of all the doctrines evolved, in my view, the doctrine 
of "direct and immediate effect" on the freedom would be 
a reasonable solvent to the difficult situation that might arise 
under our Constitution. If a law, whatever may have been 
its source, directly and immediately affects the free 
movement of trade, it would be restriction on the said 
freedom. But a law which may have only indirect and remote 
repercussions on the said freedom cannot be considered to 
be a restriction on it. Taking the illustration from taxation 
law, a law may impose a tax on the movement of goods or 
persons by a motor-vehicle; it directly operates as a 
restriction on the free movement of trade, except when it is 
compensatory or regulatory. On the other hand, a law may 
tax a vehicle as property, or the garage wherein the vehicle 
used for conveyance is kept. The said law may have indirect 
repercussions on the movement, but the said law is not one 
directly imposing restrictions on the free movement." 
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74. Justice Hidayatullah adopted the position that a tax would 
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amount to a restriction when it is placed upon trade directly and 
immediately. But, in his view, a distinction would have to be drawn 
between a tax which is paid by tradesmen in common with non-tradesmen 
and a tax upon trade. A tax which is imposed upon trade, as such,
must 
be distinguished from general taxes imposed for the purposes of revenue. 
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The latter are nomrnlly not within the reach of Part Xlll : 
"125. That a tax is a restriction when it is placed upon a 
trade directly and immediately may be admitted. But there 
is difference between a tax which burdens a trader in this 
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manner and a tax, which being general, is paid by tradesmen 
in common with others. The first is a levy from the trade by 
reason of its being trade, the other is levied from all, and 
tradesmen pay it because everyone has to pay it. There is 
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a vital difference between the two, viewed from the angle 
of freedom of trade and commerce. The first is an impost 
on trade as such, and may be said to restrict it; the second 
may burden the trader, but it is not a restriction' of the trade. 
To refuse to draw such a distinction would mean that there 
is no taxing entry in Lists I and II which is not subject to 
Articles 301 and 304, however general the tax and 
however non-discriminatory its imposition." 
75. Justice Hidayatullah accepted the notion of facilitative 
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regulations such as traffic rules and rules of the road. Such regulatory 
provisions, in his view, are not restrictions at all since they do not hamper 
trade or impair its freedom. Consequently, a fee for rendering services 
to the trade would not hamper or restrict it. Similarly, an administrative 
fee may also be viewed as a part of regulation and would not fall to be 
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classified as a restriction. A tax however, which is a condition precedent 
to the right to enter upon and carry on business stands on a different 
footing: 
"131. Let us now see whether the validity of taxation laws 
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directly impinging on trade and commerce can be upheld 
on the ground that they are regulatory. Here, a distinction 
must be made between fees and taxes. Fees charged 
as quid pro quo for services rendered or as representing 
administrative charges are quite different from taxes, pure 
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and simple. Fees may partake
of regulation when they are 
demanded to enable Government to meet the cost of 
administration. But the tax, with which we are concerned, 
is hardly a fee in that narrow sense. It is a tax for raising 
revenue." 
Justice Hidayatullah dissented from the judgment of the majority 
on the ground that the tax in question was evidently not a fee for 
administrative purposes nor could it be justified as representing a payment 
for services. The object of the tax was to raise revenue, which 
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distinguished it from a fee.
JINDAL STAINLESS LTD. v. STATE OF HARYANA 
549 
[DR. D. Y. CHANDRACHUD, J.] 
76. The correctness of the decision in Automobile Transport -
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as indeed of the earlier decision in Atiabari - lies at the heart of this 
reference. At this stage, it would be necessary to recapitulate the basic 
principles which emerged from Automobile Transport. The decision 
and the principles which it proceeds to fommlate have their own logic. 
First, Automobile Transport enunciates that the freedom under Article 
301 is consistent with facilitative regulations which enhance, rather than 
hinder trade. Second, though the power to tax is an essential attribute of 
government, it is subject to constitutional limitations including amongst 
them Part Xlll of the Constitution. As a consequence, tax laws are not 
as a matter of principle outside the ambit of Article 301. Third, the test to 
be applied in detem1ining whether a law infringes the freedom guaranteed 
by Article 30 I is whether the direct and immediate effect is to hinder the 
movement of trade. A law which has that effect, including a tax law 
must, where it has been enacted by the state legislature be subject to the 
provisions of A1ticle 304. Fourth, compensatory taxes which are imposed 
in consideration of the facilities which are provided by the state to trade 
and commerce are outside the ambit ofA1ticle 30 I. Fifth, a compensatory 
tax does not hinder the freedom of trade and commerce and need not 
comply with the requirements of
the proviso to A1ticle 304(b) of the 
Constitution. 
E.2 Khyerbari 
77. In Atiabari, an enactment of 1954 legislated by the State of 
Assam was found to be invalid. The state legislature then obtained the 
previous sanction of the President under A1ticle 304(b) and proceeded 
to enact the Assam Taxation (on goods carried by road or on inland 
wate1ways) Act - 1961. A Constitution Bench dealt with the challenge 
to the new law in Khyerbari Tea Co. Ltd. v. State of Assam". 
78. Justice Gajendragadkar who delivered the judgment of the 
maj01ity held that the judgment in Automobile Transport introduced a 
"clarificatory rider" to the majority view in Atiabari16 and that it had 
"substantially accepted" the earlier decision 17• 
"(1964) 5 SCR 975 
"' Id. at p-985 
17 Id. at p. 986 
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