SUBJECT: Constitutional law – 2

Project topic:
FREEDOM OF TRADE, COMMERCE AND
INTERCOURSE

Submitted By
Shikhar Neelkanth
Roll no. 1233
th
3 Year , 6 Semester, B.B.A. LL.B(Hons.)

Submitted to
Prof. (Dr.) A.Subrahmanyam
Faculty of Constitutional Law
 FREEDOM OF TRADE, COMMERCE AND INTERCOURSE

TABLE OF CONTENTS

ACKNOWLEDGEMENT.........................................................................................................3

RESEARCH METHODOLOGY...............................................................................................4

INTRODUCTION......................................................................................................................6

REMEDIES FOR INFRINGEMENT OF ARTICLE 301.......................................................15

LIMITATIONS ON POWER OF PARLIAMENT.................................................................18

STATES POWER TO REGULATE TRADE AND COMMERCE........................................21

CONCLUSION........................................................................................................................23

BIBLIOGRAPHY....................................................................................................................25

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ACKNOWLEDGEMENT

Any project completed or done in isolation is unthinkable. This project, although prepared by
me, is a culmination of efforts of a lot of people.

Firstly, I would like to thank my Professor for Constitution Law Dr. A. Subrahmanyam for
his valuable suggestions without which this wouldn’t have been possible.

Moving further, I would also like to express my gratitude to my seniors, the library staff and
my friends who were always there for me when I needed any sort of help regarding this
project.

Lastly, I would like to thank the almighty for making this happen.

-Shikhar Neelkanth

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RESEARCH METHODOLOGY

Method of research

The researcher has adopted a purely doctrinal method of research. The researcher has made
extensive use of the library at the Chanakya National Law University and also the internet
sources.

Aims and Objectives

The aim of this project is to present an overview of the Freedom of Trade, Commerce and
Intercourse with the help of relevant case laws.

Sources of Data

The following sources of data has been used in this project-

1) Books
2) Journals
3) Internet

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INTRODUCTION

In all Federations an attempt is made through constitutional provisions to create and preserve
a national economic fabric to remove and prevent local barriers to economic activity, to
remove impediments in the way of inter-State trade and commerce and thus to make the
country as one single economic unit so that economic resources of all the various units may
be utilized to the common advantage of all. The framers of the Indian Constitution were fully
conscious of the importance of maintaining the economic unity of the Union of India. Free
movement and exchange of goods throughout the territory of India was essential for the
economic unity of the country which alone could sustain the progress of the country. Free
flow of trade, commerce and intercourse within and across inter-State borders is an important
pre-requisite for ensuring economic unity, stability and prosperity of a country having a two-
tier polity.

Most federal constitutions contain special provisions to protect this freedom. The Indian
Constitution also contains provisions guaranteeing freedom of commerce, trade and
intercourse throughout the territory of India. However, no freedom can be absolute.
Limitations for the common good are inherent in such freedom. That is why, legitimate
regulatory measures are not considered to constitute restrictions on this freedom. Economic
unity is one of the constitutional aspirations and safeguarding its attainment and maintenance
of that unity are objectives of the Indian Constitution.

The Supreme Court, in the matter of Atiabari Tea Co. Ltd. V. State of Assam1, has explained
in detail the motivations of the Constitution makers in drafting the Article under Trade,
Commerce and intercourse in Indian Territory in the following words:

“In drafting the relevant Articles [Articles 301-305] the makers of the Constitution were fully
conscious that economic unity was absolutely essential for the stability and progress of the
federal polity which had been adopted by the Constitution for the governance of the country.
Political freedom had been won, and political unity which had been accomplished by the
Constitution, had to be sustained and strengthened by the bond of economic unity. Local or
regional fears or apprehensions raised by local or regional problems may persuade the State
legislatures to adopt remedial measures intended solely for the protection of regional interests
1
AIR 1961 SC 232.

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 FREEDOM OF TRADE, COMMERCE AND INTERCOURSE

without due regard to their effect on the economy. The object of the Constitution-makers was
to avoid such possibility. Free movement and exchange of goods throughout the territory of
India is essential for the economy of the nation and for sustaining and improving living
standards of the Country.”

SCOPE AND OBJECT OF ARTICLE 301

Article 301: Subject to the other provisions of this Part, trade, commerce and intercourse
throughout the territory of India shall be free. The main provision framed is Article 301.
According to this article “trade, commerce and intercourse throughout the territory of India
shall be free.” This constitutional provision imposes a general limitation on the exercise of
legislative power, whether of the Centre or of the States, to secure unhampered free flow of
trade, commerce & intercourse form one part of the territory to another. The purpose
underlying Article 301 is to promote economic unity of India and that there should not be any
regional or territorial economic barriers.

The scope and object of this article can be understood as:

1. Article 301 imposes a limitation upon the exercise of legislative power, whether by the
Union or by a State.

2. The object of the freedom declared by this Article is to ensure that the economic unity of
India may not be broken up by internal barriers.

3. Article 301 states that subject to the other provisions of Part XIII, trade, commerce and
intercourse throughout India shall be free. It is not freedom from all laws but freedom from
such laws which restrict or affect activities of trade and commerce amongst the States.

Article 301 of the Indian Constitution is modeled on section 92 of the Australian

Constitution. The origins of Art 301 may be traced directly to sec. 92 of the Australian
Constitution, but there are some significant differences between the two provisions like
Coverage under Article 301 is broader than that of Sec. 92 of the Australian Constitution. The
freedom in India is wider than that in Australia under Section 92. While Section 92 refers to
inter- State trade only, Article 301 includes both inter-State and intra-State Trade Activities.
The restrictions in Australia were spelled out by the Court whereas in India the Constitution
itself lays down restrictions on Article 301 which are contained in Articles 302 to 305.
Although Article 301 is positively worded, in effect, it is negative as freedom

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correspondingly creates general limitation on all legislative power to ensure that trade,
commerce and intercourse throughout India shall be free.

In Jindal Stainless Ltd. v. State of Haryana2, Article 301, refers to freedom from laws which
go beyond regulations which burden, restrict or prevent the trade movement between States
and also within the State

2
AIR 2006 SC 2550.

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RELATION AND DIFFERENCE BETWEEN ARTICLE 19 (1) (G) AND ARTICLE

301

Article 19(1)(g) in Part III guarantees to every Indian citizen a fundamental right to carry on
trade and business, subject to such reasonable restrictions as may be imposed in the interests
of the general public. Also Articles 301 to 307 of Part XIII of the Constitution are provisions
relating to trade, commerce and intercourse within the territory of India. Article 301
guarantees that trade; commerce and intercourse shall be free throughout the territory of
India. It imposes a general limitation on the exercise of legislative power, whether of the
Union or of the States, to secure unobstructed flow of trade, commerce and intercourse from
one part of the territory of India to another.

Prima face, it seems that there is some overlapping between Article 19(1)(g) and Article 301,
because both aim at the freedom of trade or business, and if either of the provisions is
infringed, the aggrieved individual can seek his remedy from the Court against the offending
legislative or executive action.

There are two obvious points of distinction, namely:

(a) While Article 19(1) (g) confers a fundamental right, Article 301 confers a justiciable right
but it is not fundamental right.

(b) While Article 19(1)(g) is confined to citizens, Article 301 extend to all individuals.

In case of emergency, Art 19(1)(g) remains suspended and so the Courts can take recourse to
Article 301, to adjudge the validity of a restriction on trade, commerce and intercourse. 8 In
some other situations, both provisions may be applicable and it may be possible to invoke
both. Economic situations and conditions being unpredictable, it is not necessary to evolve
any conceptualistic differentiation between the two Articles. Article 301 is mandatory
provision and any law contravening the same is ultra vires, but it is not a fundamental right
and hence is not enforceable under Article 32.

In the matter of S. Ahmad v. State of Mysore3, it was held that the three possible alternatives
where a petition will lie can be: -

1. A provision may be valid under Art 301-304, but may be invalid under Article 19(1) (g); or
3
1975 AIR 1443.

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2. It may be invalid under Article 301-304 as well; or

3. It may be invalid under Article 301-304, but not under Article 19(1)(g)

But still a common ground is left where the two articles are bound to overlap; some basis of
distinctions has, therefore, to be found out, particularly when the infringement of either
provision gives justiciable right to the individual.

The majority in the Automobile case, have held the distinction is not so simple. It was not
correct to say that while Article 19(1)(g) guaranteed an individual’s right to carry on his trade
Article 301 guaranteed a free flow of the volume of trade against geographical barriers.
Article 301 according to the majority, also aimed at the freedom of the individual from
restrictions, not necessarily geographical, but since regulatory measures were outside the
purview of Article 301, the scope of the two provisions was not identical.

Bishamber Dayal Chandra Mohan v. State of U.P., 4 the freedom under both Article 19(1)(g)
and 301 is subject to restrictions imposed by the State in the collective interest, which must
also be reasonable and not arbitrary or excessive. These limitations are inherent in both the
freedoms. Regulatory measures do not constitute restrictions under either provision.

In the matter of Saghir Ahmad v. State of U.P., Mukherjea J. was of the view that while
Article 19(1)(g) deals with the rights of the individuals, Article 301 provide safeguards for
the carrying on trade as a whole distinguished from an individual’s right to do the same.

However in the matter of Dist. Collector, Hyderabad v. Ibrahim 5, the Supreme Court
denounced the theory that Article 301 guarantees freedom in the abstract and not of the
individual.

In the matter of Motilal v. State of U.P.6 there was a view that the difference between Article
19(1)(g) and Article 301 is that Article 301 could be invoked only when an individual is
prevented from sending his goods across the State, or from one point to another in the same
state, while Article 19(1)(g) can be invoked only when the complaint is with regard to the
right of an individual to carry on business unrelated to, or irrespective of, the movement of
goods, i.e. while Art 301 contemplates the right of trade motion, Art 19(1)(g) secures the
right at rest.

4
1982 SCR (1)1137.
5
1970 SCR (3) 493.
6
1979 SCR (2) 641.

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Subject to the other provisions of this Article- This means that while the general rule of
freedom of trade and intercourse is enunciated in Article 301, it may be subjected to
restrictions imposed by law.

Trade, Commerce and Intercourse: -

The words trade and commerce have been broadly interpreted. In most cases the accent has
been given on the movement aspect.

Trade, commerce: Though the word ‘business’ is ordinarily more comprehensive than the
word ‘trade’, they are synonymous with the other. So used, trade or business would mean
some real, substantial and systematic or organized course of activity or conduct with a set
purpose.

Intercourse: This word is used to give the freedom declared by Article 301 the largest import.
It thus includes the freedom to import things for personal or commercial use. In the matter of
Koteshwar v. K.R.B. & Co. 7, the Supreme Court held that ‘a power conferred on the state
Government to make an order providing for regulating or prohibiting any class of commercial
or financial transactions relating to any essential article, clearly permits imposition of
restrictions on freedom of trade and commerce and, therefore, its validity has to be assessed
with reference to Article 304(b)’.

In Fatehchand v. State of Mahararshtra8, the Supreme Court considered the question whether
the Maharashtra Debt Relief Act, 1976, was constitutionally valid vis-à-vis Article 301. This
depended on the further question whether money-lending to the poor villagers which was
sought to be prohibited by the Act could be regarded as trade, commerce and intercourse. The
Court answered in the negative although it recognized that money-lending amongst the
commercial community is integral to trade and is, therefore trade. The Court thus stated:

“In short, State action defending the weaker sections from social injustice and all forms of
exploitation and raising the standard of living of the people, necessarily imply that economic
activities, attired as trade or business, can be de-recognized as trade or business.”

In State of Bombay v. Chamarbaugwala 9 , the Supreme Court held that the protection offered
by Article 301 is confined to such activities as may be regarded a lawful trading activity and

7
1969 AIR 504.
8
1977 SCR (2) 828.
9
AIR 1957 SC 699.

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does not extend to an activity which is res extra commercial and cannot be said to be ‘trade’.
It cannot include activities which are inherently pernicious, such as trafficking in women;
hiring of goons for committing crimes, gambling. And that, accordingly, there is no question
of the application of Article 301 or 304 to laws made for the suppression of such activities.

Free

‘Shall be free’ ‘Freedom’ in this Article does not mean absolute freedom but freedom for
all restrictions except those which are provided in other articles of Part XIII, as well as
regulatory and compensatory measures. The power of the Union of the State to exercise
legitimate regulatory control is independent of the restrictions imposed by Article 302-305.
Now, since restrictions under the latter provisions can be imposed only by law the freedom
under Article 301 cannot be taken away by mere executive action. The Supreme Court
emphasized in Atiabari case that Article 301 provide that the flow of trade shall run smooth
and unhampered by any restriction either at the boundaries of the State or at any other point
inside the State themselves. The majority judgment emphasized that free movement and
exchange of goods throughout the territory of India is essential for sustaining the economy
and living standards of the Country.

The word ‘free’ in Article 301 cannot mean absolute freedom or that each and every
restriction on trade and commerce is invalid. The Supreme Court has held in Atiabari that
freedom of trade and commerce guaranteed by Article 301 is freedom from such restrictions
as directly and immediately restrict or impede the free flow or movement of trade. In the
matter of Amrit Banaspati Co. Ltd. V. Union of India10, the Supreme Court observed that:

“Suffice it to say that it is only when the intra-state or inter-state movement of the persons or
goods are impeded directly and immediately as distinct from creating some indirect or
consequential impediment, by any legislative or executive action, infringement of the
freedom envisaged by Article 301 can arise. Without anything more, a tax law, per se may
not impair such freedom. At the same time, it should be stated that a fiscal measure is not
outside the purview of Article 301 of the Constitution.

The Supreme Court has ruled that the imposition of sales tax on goods sold within the State
cannot be considered as contravening Article 301.

10
1995 AIR 1340.

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A tax may, in certain cases, directly and immediately impede the movement or flow of trade,
but the imposition of a tax does not do so in every case. It depends on the context and
circumstances. Measures impeding the freedom of trade, commerce and intercourse may be
legislative or executive and may be fiscal or non-fiscal. Freedom may be impeded by
impediments on the individuals carrying on trade or business, on the business itself, or on the
vehicles, carriers, instruments and labour used in trade and commerce.

Any person aggrieved by infringement of Article 301 can seek his remedy from the court
against the offending legislative or executive action.

Throughout The Territory Of India

‘Throughout the territory of India’, these words extend the freedom not only to inter-State but
also in intra-State transactions and movements.

As according to State of Bombay v. R.M.D.C11, Article 302 and 304 state the words “territory
of India” in Article 301 remove all inter-State or intra-State barriers, and bring out the idea
that for the purpose of the freedom of trade and commerce, the whole country is one unit.
Trade cannot be free throughout India if barriers exist in any part of India, be it inter-State or
intra-State.

Regulatory Measures

Measures which impose compensatory taxes, or, are purely regulatory, do not come within
the purview of 'restrictions' contemplated in Article 301 because they facilitate flow of trade,
rather than hampering it. Such measures, therefore, need not comply with the requirement of
the provisions of Article 304(b). Thus, a State law imposing a tax, for vehicle, on the owners
of motor vehicles does not directly affect the freedom of trade or commerce even though it
indirectly imposes a burden on the movement of passengers and goods within the territory of
the taxing State.

Regulatory measures are not regarded as violative of the freedom guaranteed by Article 301.
The word ‘free’ in Article 301 does not mean freedom from such regulation as is necessary
for an orderly society. Regulatory measures do not fall within the purview of the restrictions
contemplated by Article 301.

11
AIR 1957 SC 699.

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In the matter of G.K. Krishnan v. State of Tamil Nadu12, the Supreme Court observed: “there
is clear distinction between laws interfering with freedom to carry out the activities
constituting trade and laws imposing on those engaged therein rules of proper conduct or
other restraint directed to the due and orderly manner of carrying out the activities.”

The word ‘regulation’ does not have any fixed or inflexible meaning. It is difficult to define
this word as it has no precise meaning. It is a word of broad import, having a broad meaning
and is very comprehensive in scope. Every case has to be judged on its own fact and its own
facts and in its own setting of time and circumstances. It may be that in some situations even
a ‘prohibition’ may be regarded as being regulatory in nature and not hit by Article 301.

In the matter of the State of Tamil Nadu v. Sanjeetha Tarding Co., 13 the Supreme Court
observed: “According to us, the expression ‘free trade’ cannot be interpreted in an
unqualified manner. Any prohibition on movement of any article from one State to another
has to be examined with reference to the facts and circumstances of that particular case-
whether it amounts to regulation only, taking into consideration the local conditions
prevailing, the necessity for such prohibition and what public interest is sought to be served
by imposition thereof.”

12
1975 SCR (2) 715.
13
AIR 1993 SC 237.

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REMEDIES FOR INFRINGEMENT OF ARTICLE 301

Not being a fundamental right, the infringement of Article 301 cannot be challenged by a
petition under Article 32. This does not mean, however, that the individual has no remedy if
Article 301 if infringed. Either an individual or a State can challenge any legislative or
executive action which offends against this Article, by other proceedings e.g. under Article
226.

The doctrine of severability applies where a statutory provision or order violate the provision
of Article 301 or 304.

Restrictions upon the freedom.- 1- The limitation imposed upon inter-State freedom of
trade, commerce and intercourse, by the other provisions of Part XIII are –

 It is subject to non-discriminatory restrictions imposed by Parliament, in the public

interest (Article 302).
 Even discriminatory or preferential provisions may be made by Parliament, for the
purpose of dealing with a scarcity of goods arising in any part of India (Article
302(2).
 Non-discriminatory taxes may be imposed by States on imported goods similarly as in
intra-State goods. (Article 304(a).
 Reasonable restriction may be imposed by a State in the public interest (Article
304(b).
 Restrictions imposed by existing law to continue except insofar as provided otherwise
by order of the President [Article 305]. Existing laws relating to any matter referred to
in Article 19(6).

2. The freedom cannot be restricted by mere executive order.

PARLIAMENTARY POWER TO REGULATE TRADE & COMMERCE:

Article 302. Parliament may by law impose such restrictions on the freedom of trade,
commerce or intercourse between one State and another or within any part of the territory of
India as may be required in the public interest.
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Therefore, Article 302 empowers Parliament to impose by law such restrictions on the
freedom of trade, commerce and intercourse between one state and another, or within any
part of the territory of India, as may be required in the public interest.

By virtue of Article 302, Parliament is, notwithstanding the protection conferred by Article
301, authorized to impose restrictions on the freedom of trade, commerce and intercourse in
the public interest. Thus, Article 302 relaxes the restriction imposed by Article 301 in favor
of Parliament.

The Sarkaria Commission14 justified the present position in the following words as:

“The need for empowering Parliament to place restrictions on trade and commerce even
within a State is obvious. Ours is a vast country with varying economic potentiality and
considerable differences in regard to existing levels of development. The Unions
responsibility in respect of certain matters may, therefore, entail regulating trade and
commerce even within a State for achieving national objectives. For example there is the
need to protect the interests of the poor and weaker sections of our community like the tribal
people etc. Indiscriminate exploitation of natural resources in one State, for example
denudation of forests, may have far reaching implications for other States which may be
affected by floods, silting up of reservoirs etc. Such situations may require imposition of
restrictions on trade even within the State. The importance of Parliamentary control over
intra-State trade is also significant where centers of production of certain commodities are
situated entirely within a State but the centers of consumption are located outside the State.”

The requirement of ‘public interest’ in Article 302 would not present any serious problem in
the way of parliament regulating trade and commerce because of the strong presumption in
favor of parliamentary legislation being in public interest.

The majority judgment in Atiabari case even suggested that prima facie the question of public
interest underlying a Parliamentary law imposing restrictions on the freedom of trade ‘may
not be justiciable’. If this be the correct approach, then Parliament’s power to decide what
restrictions need be imposed under Article 302 may be said to be practically unlimited.

But the correctness of the view was doubted in the matter of Kheyerbari by the Supreme
Court. In the case of Article 19(1) (g), the concept of public interest is justiciable and there
appears to be no reason why Article 302 should be treated differently. From a practical point
14
SARKARIA COMMISSION REPORT, 502 (1988)

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of view, however, to hold ‘public interest’ as justiciable may not mean much for it is rare for
a Court to hold that legislation lacks public interest. A person challenging the law will have
to show to the Court why it is not required in public interest, and this, is a difficult task
except in the rare case where the law is seen on its face to have been passed for a private
purpose.

In another turn, Parliament enacted the Municipal Corporation Act, 1957, and empowered the
Corporation to levy terminal tax on all goods carried by railway or road in the Union territory
of Delhi from any place outside thereof. The Supreme Court declared the levy valid on two
grounds, viz.

 It does not impose any direct and immediate impediment on the inter-State movement
of goods and so was not hit by Article 301 which only hits direct and immediate
impediments on intra-State or inter-State movements of goods or persons. It is true
that a tax may in certain cases, directly and immediately impede the movement or
flow of trade, but the imposition of the tax does not do so in every case.
 Even if the act ‘directly and immediately’ impedes the movement of the goods, the
statutory provision is saved by Article 302. There is a presumption that the imposition
of a tax is in public interest.

The Court has stated that only when the intra-State or inter-State movement of the persons or
goods are impeded directly and immediately as distinct from creating some indirect or
inconsequential impediment by any legislative or executive action, infringement of the
freedom envisaged by Article 301 can arise, without anything more, a tax law, may not
impair the said freedom. At the same time, it should be stated that a fiscal measure is not
outside the purview of Article 301 of the Constitution.

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LIMITATIONS ON POWER OF PARLIAMENT

This guarantee of freedom is expressly subject to the other provisions of Part XIII (Articles
302 to 305) of the Constitution. Article 302 enables Parliament to impose restrictions, by law,
on the freedom of trade, commerce and intercourse between one State and another or within
any part of the territory of India as may be required in public interest. But, this power to place
restrictions cannot be used by Parliament to make any law which discriminates between one
State and another or gives preference to one State over another, “by virtue of any Entry in the
Seventh Schedule relating to trade and commerce” [Article 303(1)]. Clause (2) of the Article
engrafts an exception to the limitation contained in clause (1), in as much as it permits
Parliament to make a law giving preference, or making discrimination between one State and
another, 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.

It was argued in State of Madras v. Nataraja Mudaliar15 that as it hampered trade and
commerce by giving preference to one State over another, or by making discrimination
between one State and another, Articles 301 and 303(1) were infringed. The Court rejected
the argument holding that an act enacted for the ‘purpose of imposing tax which is to be
collected and retained by the State’ does not amount to a law giving preference to one State
over another, or making any discrimination between one State and another, merely because of
varying rates of tax prevailing in different States. Several reasons adduced in support of the
view stated:

1. The flow of trade does not necessarily depend upon the rates of sales tax and various other
factors also are relevant.16

2. Referring to Australian cases17, the Court derived the principle applicable in the Nataraja
case, viz. ‘where differentiation is based on considerations not dependent upon natural or
business factors which operate with more or less force in different localities that the
Parliament is prohibited from making a discrimination’.

15
1975 SCR (2) 715.
16
Ibid.
17
King v. Barger, 6 CLR 41

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Article 302 thus authorize Parliament to mitigate the effect of Article 301 and Article 303
does not cut into Art 302 much. In the end result, Parliament is left with an abundant capacity
to regulate trade and commerce and it is more akin to the American congress in this respect
than to the Australian Parliament. Article 301 is worded on the model of Sec. 92 of the
Australian Constitution, and both provisions restrict Parliament, but then Article 302, to a
very large extent, free the Indian Parliament from the restraints of Article 301.

Instances of legislation under Article 302:

(i) Essential Commodities Act, 1955, and Orders made there under.

(ii) Defence of India Act, 1962, and the Rules made there under.

(ii) Central Sales Tax Act, 1956, 8(2)(b).

(iv) Mines & Minerals (Regulation & Development) Act, 1957.

Regulation and Restriction

1. It is now established that even apart from the specific provisions in Articles 302 -305, the
Union as well as State Legislatures have the power to exercise legitimate regulatory control 18
over the freedom of trade and commerce, which does not amounts to a restriction. In fact,
legitimate regulation does not infringe the freedom declared by Article 30119.

It is therefore necessary to distinguish a regulation from restriction, which term is used in

Articles 302, 304(b): While restrictions obstruct the freedom of movement of inter-State
transactions, regulations promote it20.

The following measures have thus been held to be regulatory:

a) Police regulations, such as provisions for lighting, rules of the road, etc., which
facilitate the movement rather than retard it.
b) Licensing provisions with compensatory fees21.
c) Provision for necessary services to enable the free movement, whether charged for or
not.

18
Manick Chand Paul v. Union of India, AIR 1984 SC 1249
19
Malwa bus services Ltd. v. State of Punjab, AIR 1983 SC 634
20
Automobile transport Rajasthan Ltd. v. State of Rajasthan, AIR 1962 SC 1406
21
State of Mysore v. Sanjeeviah, AIR 1967 SC 1189

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On the other hand, the following have been held to be restriction rather than regulation:

(i) A rule which totally prohibits movement of certain goods during a specified period22.

(ii) Anything which directly hinders the free flow of trade, commerce and intercourse
between any two parts of India, constitutes a restriction within the meaning of Articles 302,
304.

2. A restriction may be valid only if it conforms to the terms of Article 302 or 304(b), as the
case may be.
3. In determining whether a State Act imposing tax amounts to restriction on trade,
commerce and inter-course among the States, the Court should examine whether the
impugned provisions amounted to a restriction directly or indirectly on the movement of
trade and commerce23.

In the public interest

1) This means that even where a restriction imposed by law imposes a direct burden on the
freedom of trade under Article 301, it may be constitutionally valid, if it is required in the
public interest, e.g., to prevent evasion of tax, to canalize inter-State trade through registered
or licensed dealers.

2. Article 302 is, however, subject to the condition in Article 303 that such Union law should
not be discriminatory as between different States except where it is necessary for dealing with
a situation of scarcity of goods [Article 303(2)].

3. In order to be protected by Article 302, the nexus of the law with public interest must be
reasonable, even though that word is not used in Article 302. This does not, however, imply
any quasi-judicial obligation or compliance with the rules of natural justice24.

4. If the condition of public interest is satisfied, Article 302 would authorize both inter-State
or intra-State restriction.25

22
Koteswar Vittal Kamath v. K. Rangappa Balig & Co., AIR 1969 SC 504
23
State of H.P. v. Yash Pal Garg, (2003) 9 SCC 92
24
Saraswati Industrial syndicate Ltd. v. Union of India, AIR 1975 SC 460
25
Ibid.

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STATES POWER TO REGULATE TRADE AND COMMERCE

Limitations imposed by Article 303(1) on the legislative power of Parliament apply to that of
the State Legislatures, also. But, the State Legislatures do not have the exceptional power to
enact discriminatory laws, which is available to Parliament by virtue of Article 303(2).
Article 304 carves out two exceptions in favor of the State Legislatures, to the freedom
guaranteed under Article 301.

A State legislature may by law impose on goods imported from other States or the Union
Territories, any tax to which similar goods manufactured or produced in that State are
subject, however, not so as to discriminate between goods so imported and goods so
manufactured or produced. [Clause (a) of Article 304].

Article 304(a) imposes no ban, but lifts the ban imposed by Articles 301 and 303, subject to
one condition. Article 304(a) is thus enabling and prospective. According to Article 304(a), a
State legislature may by law impose on goods imported from other States any tax to which
similar goods manufactured or produced within that State are subject, as not to discriminate
between goods so imported and goods so manufactured or produced.26

For application of Article 304(b) to a tax on trade, three conditions need to be fulfilled:

1. The Bill has to be introduced or moved in the State legislature with the prior sanction of
the president, or that the Bill has been assented to by the President.

2. The tax in question constitutes a reasonable restriction.

3. The tax has been levied in public interest.

Although Article 302 does not speak of reasonable restrictions yet it is evident that the
restrictions contemplated by it must bear a reasonable nexus with the need to serve public
interest. In several recent decisions where the constitutional validity of a law imposing
restrictions under Article 302 was challenged, the Supreme Court did apply the test of
reasonableness to uphold the validity of those ‘restrictions’.27

26
http://www.legalservicesindia.com/article/article/indian-parliament-&-states-powering-regulation-in-the-
trade-&-commerce-industry-98-1.html, last seen on 24/4/2017.
27
Supra 23.

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 FREEDOM OF TRADE, COMMERCE AND INTERCOURSE

NEED FOR AN AUTHORITY UNDER ARTICLE 307

Article 307 empowers Parliament to appoint such authority as it considers appropriate for
carrying out the purposes of Articles 301, 302, 303 and 304. It can confer on such authorities
such powers and duties as it think necessary.

Several State Governments are in favour of setting up an authority contemplated in Article

307. Some of them consider that such an 'authority' may be useful in the context of
enforcement of laws relating to essential commodities and settling questions of taxation,
cesses, duties, etc. One of them has also referred to the need for continuous appraisal of the
various fiscal laws as well as executive decisions and measures which the Union and the 26
States took from time to time on trade, commerce and intercourse within the country. The
Chambers of Commerce have also emphasized the need for setting up of an authority
contemplated by Article 307, especially for recommending measures to rationalise or modify
restrictions imposed by the different States. The Government of India does not consider it
necessary to set up such an authority.28

Trade, Commerce and intercourse cover a multitude of activities. Actions of the Union and
State Governments have wide-ranging impact on them. Legislative and executive actions in
the field of licencing, tariffs, taxation, marketing regulations, price controls, procurement of
essential goods, channelization of trade, and controls over supply and distribution, all have a
direct and immediate bearing on trade and commerce. Innumerable laws and executive orders
occupy the field today. This has led to an immensely complex structure. Many issues of
conflict of interests arise every day.

The majority are of the view that it would be advantageous to constitute an authority under
Article 307 and it should be an expert body. Being removed from the pressures of day to day
administration it would be able to formulate objective views, taking into account the long
term perspective, in regard to various intricate problems relating to trade, commerce and
intercourse. Being an expert constitutional body it would also inspire confidence among the
various States and other interests. Such an expert body would be eminently suited to strike a

28
http://www.legalservicesindia.com/article/article/indian-parliament-&-states-powering-regulation-in-the-
trade-&-commerce-industry-98-1.html, last seen on 27/2/2017. -

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 FREEDOM OF TRADE, COMMERCE AND INTERCOURSE

proper balance between freedom of trade and the need for restrictions in order to foster
development with social justice.

CONCLUSION

Free flow of trade, commerce and intercourse within and across inter-State borders is an
important pre-requisite for ensuing economic unity, stability and prosperity of a country.
Limitations for the common good are inherent in such freedom, least it should de-generate
into a self-defeating license. Notwithstanding the fact that the word 'reasonable' is not used in
Article 302, a low imposing restrictions under Article 302 would be open to judicial review
on the ground that it has no reasonable nexus with the public interest alleged. The proposal
for insertion of the word 'reasonable' before the world 'restriction' in Article 302 is thus
merely of theoretical significance and cannot be supported. Intra-State trading activities often
have a close and substantial relation to inter-State trade and commerce. State laws though
purporting to regulate intra-State trade may have implications for inter-State trade and
commerce. These may impose discriminatory taxes or unreasonable restrictions impeding the
freedom of inter-State trade and commerce. If clause 8 (b) of Article 304 is deleted, the
commercial and economic unity of the country may be broken up by State laws setting up
barriers to free flow of trade and intercourse through parochial or discriminatory use of their
powers. The scheme of the Articles in Part XIII, considered as a whole, is well-balanced. It
reconciles the imperative of economic unity of the Nation with interests of State autonomy by
carving out in clauses (a) and (b) of Article 304, two exceptions in favour of State legislatures
to the freedom guaranteed under Article 301. Considering the intricate nature and the need
for objective examination of the wide-ranging issue connected with the freedom of trade,
commerce and intercourse, it is recommended, that an expert authority should be constituted
under Article 307. Among other things, such an authority may be enabled to: (a) Survey and
bring out periodically a report on the restrictions imposed on intra-State and inter-State trade
and commerce by different governments and their agencies; (b) Recommend measures to
rationalize or modify the restrictions imposed to facilitate free trade and commerce; (c)
Examine complaints from the public and the trade in this regard; and (d) Suggest reforms in
the matter of imposition, levying and sharing of taxes for purposes of Part XIII of the
Constitution. The ambit of Article 307 is wide enough to bring all matters relevant to freedom
and regulation of trade, commerce and intercourse within the purview of such an authority

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 FREEDOM OF TRADE, COMMERCE AND INTERCOURSE

'for carrying out the purposes of Articles 301, 302, 303 and 304'. It is entirely left to the
judgment of parliament to clothe the 'authority' under Article 307 with such powers and
duties as may 9 be considered necessary. Such an 'authority' may have both an advisory and
executive, role with decision-making powers. To begin with such an authority may be
assigned an advisory role. In course of time in the light of experience gained, such additional
powers as may be found necessary can be conferred on it. Therefore we can say that Articles
in the Part XIII of the Indian Constitution make a complete package to look after the
activities of Trade, Commerce and Intercourse in all respects.

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BIBLIOGRAPHY

Statutes

 The Constitution of India, 1950.

Books Referred

 Dr.J.N.Pandey, Constitutional Law of India, 5st Ed, Central Law Agency, 2013.
 Durga Das Babu, Shorter Constitution of India, Vol 1, 14th Ed, Lexis Nexis
Butterworths Wadhwa, 2011.
 H.M.Seervai, Constitutional Law of India, Vol 1, 4th Ed, Universal Law Publishing,
2010.
 M.P.Jain, Indian Constitutional law, 7th Ed, Lexis Nexis, 2014.

Websites referred

 Manupatra
 SCC Online
 Legal Services

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