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FREEDOM OF TRADE AND COMMERCE: STUDY OF ARTICLE 301 OF INDIAN CONSTITUTION
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FREEDOM
OF TRADE AND COMMERCE: STUDY OF ARTICLE 301 OF INDIAN CONSTITUTION
AUTHOR- SUKRUT EPARI
BBA.LLB(H)
2ND YEAR
IILM UNIVERSITY,
GURUGRAM
Abstract
Article 301 is part of family of
articles enshrined in part XIII of Indian Constitution. This part deals with
trade and commerce. Taken from Australian law, this article is still shrouded
in vagueness and much confusion. This paper tries to understand the root cause
of such vagueness and confusion. It analyses the various interpretation of
section 92 of Australian constitution to understand the origins of the article
301. Various case laws have also been studied in order to understand the
current stance and scope of article 301.
Objective of study
One of the most amazing ability of
Indian Constitution is its ability to grow with the needs of the citizens. It
evolves and so does its interpretation. Hence the objective of this study is to
understand the scope of article 301, i.e. to know the extend of freedom
provided in Indian Constitution under freedom of trade and commerce.
Introduction
Article 301 of the Indian
Constitution provides that the trade, commerce and intercourse in the country
should be free throughout the country. However, the wide amplitude of the freedom granted by Article
301 is limited by restrictions imposed on it under Articles 302-305.
The intention behind the framing of
article 301 was desire to create India as one single economic unit without
barriers on internal trade. This was highly important as only economic unity
and integration of the country provided the main sustaining force for the
stability and progress of the political and cultural unity of our nation state.
The Constitutional framers were well aware that the State legislatures would be
subjected to local and regional pulls and in order to ensure that the vested
interest would not hamper the economic integrity of India, they had inserted
Article 301-305 to the Indian Constitutional provision. They were also cautious
of the fact that internal trade should not be entangled in the political
controversies of the vested interests.
The provisions regarding the freedom
of trade, commerce and intercourse were adopted from the Constitution of
Australia. According to Section 92 of the Australian Constitution, there should
be freedom of trade, commerce and intercourse which may be carried out by ocean
navigation or internal carriage. Hence, interpretation of article 301 is
heavily based on interpretation of section 92 of Australian constitution.
While India had borrowed this
provision, it also made sure to include the provision that the free flow of
goods is allowed not only between different States but also within a State as
well. Thus, in the Indian Constitution Inter-State trade as well as Intra-State
trade is allowed in the country.
Articles from part XIII of Indian
Constitution
Article 301- Freedom of trade, commerce and
intercourse Subject to the other provisions of this Part, trade, commerce and
intercourse throughout the territory of India shall be free.
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 of the territory of India as may be required in the public
interest.
Article 303- Restrictions on the legislative
powers of the Union and of the States with regard to trade and commerce
(1) 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 authorizing the making of, any discrimination
between one State and another, by virtue of any entry relating to trade and
commerce in any of the Lists in the Seventh Schedule
(2) Nothing in clause (1) 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
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 territories 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 shall be introduced or moved in the
Legislature of a State without the previous sanction of the President.
Article 305- Saving of existing laws and laws
providing for State monopolies Nothing in Articles 301 and 303 shall affect the
provisions of any existing law except in so far as the President may be order
otherwise direct; and nothing in Article 301 shall affect the operation of any
law made before the commencement of the Constitution (Fourth Amendment) Act,
1955 , in so far as it relates to, or prevent Parliament or the Legislature of
a State from making any law relating to, any such matter as is referred to in
sub clause (ii) of clause ( 6 ) of Article 19.
Article 306- Power of certain States in Part B
of the First Schedule to impose restrictions on trade and commerce Rep by the
Constitution (Seventh Amendment) Act, 1956, Section 29 and Schedule.
Meaning of ‘trade, commerce and
intercourse’
In trade, goods and services are
exchanged between the buyer and the seller and it also includes the
transportation of these goods. In commerce, the focus is more towards the
element of transmission of goods as well as that of men and animals. Thus, in
commerce, the element of profit is not the primary concern. The word “intercourse”
was included to remove any ambiguity about the intention of the Constitution
makers and thus it has been used to express the intention that, free flow of
goods throughout the country is part of the freedom under Article 301 of the
Indian Constitution. Trade and commerce also includes intangibles like
goodwill, trademark, copyright etc.
Yet, not every exchange with the
elements of trade can be considered to be a trade. For example, gambling,
prostitution, trafficking of drugs etc. cannot be considered as trade and hence
any act against them would not be considered to be violation of freedom of
trade and commerce. The Supreme Court has expressed that any illegal activity
which is against moral values of masses would not be considered under trade and
commerce. However, it later changed its proposition, stating, 'trade or
business' would depend upon, and vary with, the general standards of morality
accepted at a particular point of time in the country.
The words trade and commerce have
been broadly interpreted. In most of the cases, the accent has been on the
movement aspect. For example, in the Atiabari Tea Co. v. State of Assam case[1],
the court emphasized : "whatever else it (Art.301) may or may not include,
it certainly includes movement of trade which is of the very essence of all
trade and is its integral part," and, further, that "primarily it is
the movement part of the trade" which Article 301 has in its mind, that
"the movement or the transport of the trade must be free," and that
"it is the free movement or the transport of goods from one part of the
country to the other that is intended to be saved."
However, movement of goods does not
confine the definition of trade. It extends to transactions linked with
merchandise or flow of goods, the promotion of buying and selling, advances,
borrowings, discounting bills and mercantile documents, banking and other
forums of supply of funds. Money lending and trade financing also constitutes
trade.
Meaning of ‘free’
The objective of article 301 is
freedom of free flow of trade and commerce. However, ‘free’ in article 301 does
not mean absolute freedom, parliament can still regulate trade and commerce. As
has been observed by the supreme court: "there is a 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 restraints directed to the due and orderly manner of carrying out the
activities."[2]
Regulation of hours, equipment, weight, size of load, lights, traffic laws are
some examples of regulatory laws which are not hit by Article 301. Regulations like rules of traffic
facilitate freedom of trade and commerce whereas restrictions impede that
freedom. A tax levied by
Parliament on interstate sale would have offended Art. 301 as such a tax, in
its essence, encumbers movement of trade or commerce because by its very
definition an interstate sale is one which occasions movement of goods from one
state to another. Nevertheless, it was held valid because of Art. 302.
Throughout the territory of India
Throughout the territory of India
includes trade and commerce not only between states but also within a state. Therefore,
it means freedom of trade commerce and intercourse is there within the state
and/or outside the state and/or any part within the territory of India.
Inter-relation between article 301
and article 19(1)(g)
Article 19(1)(g), a fundamental
right, confers on the citizens the right to practice any profession or carry on
any occupation, trade or business. The question of inter-relationship between
Articles 19(1)(g) and 301 is somewhat uncertain.
One view is that while Article
19(1)(g) deals with the right of the individuals, Article 301 provides safeguards
for the carrying on trade as a whole distinguished from an individual’s right
to do the same. This view is hardly tenable. Article 301 is based on section 92
of the Australian constitution which has been held to compromise rights of the
individual as well, and the same should be the position in India. In actual
practice, the view has never been enforced and individuals have challenged
legislation on the ground of its effect on their right to carry on trade and
commerce. The supreme court has denounced the theory that Article 301
guarantees freedom "in abstract and not of the individuals."
A difference between Arts. 19(1)(g)
and 301, it has been said, is that Art. 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 Art. 19(1)(g) can be invoked when the
complaint is with regard to the right of an individual to carryon business
unrelated to, or irrespective of, the movement of goods, i.e., while Art. 301 contemplates
the right of trade in motion, Art. 19(1)(g) secures the right at rest.
Art. 301 covers many interferences
with trade and commerce which may not ordinarily come within Art. 19(1)(g),
Freedom of trade and commerce is a wider concept than that of an individual's
freedom to trade guaranteed by Art. 19(1)(g).
Art. 19(1)(g) can be taken advantage
of by a citizen, while Art. 301 can be invoked by a citizen as well as a
non-citizen. Also, while Art. 19(1)(g) is not available to a corporate person,
Art.301 may be invoked by a corporation and even by a state on complaints of
discrimination or preference which are outlawed by Art. 303, discussed below.
In emergency, Art. 19(1)(g) is
suspended and so courts may take recourse to Art. 301 to adjudge the validity
of a restriction on commerce.
In certain situations, only one of
the two may be relevant, as for example when there is no direct burden on a
trade but it may be a restriction in terms of Art. 19(1)(g) read with Art.
19(6). In some other situations, both provisions may become applicable and it
may be possible to invoke them both.
Art. 301 is a mandatory provision and
a law contravening the same is ultra vires, but it is not a fundamental right
and hence is not enforceable under Article 32. But if the right under Article
19(1)(g) is also infringed, then Article 32 petition may lie.[3]
The doctrine of Dixon
As stated previously, interpretation
of article 301 depends heavily on interpretation of section 92 of Australian
constitution. Hence Dixon doctrine which is a validity test for any legislation
in restriction or regulation of trade is basically an Australian test. So, to
understand this doctrine we require to understand the interpretation of section
92 of Australian Constitution predating Cole v Whitfield[4]. Sir Owen Dixon led the High Court to develop
the doctrine that, unless the law under challenge directly and immediately
restricted an activity of interstate trade and commerce, section 92 would not
be breached[5]. The
Dixon doctrine set precedent in Commonwealth v Bank of New South Wales, best
known as the Bank Nationalisation case[6]. Hence,
under this test, the legislation has to answer- “does the impugned restrictions
operate directly or immediately on trade or its movement?”. What is prohibited
is a tax whose direct effect is to hinder the movement of trade. Hence, it can
be understood that restrictions having impact which is indirect or remote on
the free flow or movement of trade would be permissible.
Cole v Whitfield
Dixon doctrine is today considered
outdated as Cole v Whitfield has caused High Court of Australia to re-interpret
section 92. This reinterpretation has swept away all the confusion previously
caused by the vague language of the constitution.
Facts- Mr. David Whitfield was charged with
the unlawful possession of undersized crayfish.
While he lived in Tasmania, the crayfish had been purchased in South
Australia and then shipped to Tasmania.
In SA, the crayfish were of a legal
size. However, they were not under
Tasmanian laws.
Mr. Robert Cole, an inspector,
charged Whitfield with breaching the Sea Fisheries Regulations 1962 (Tas).
Whitfield argued that section 92 of
the Constitution protected his rights by enforcing a freedom of interstate
trade
To give a slight background to this
case, I would like to specify that sea fisheries regulations 1962 is an act
which aims to conserve aqua life. Regulation 31(1)(d) of the Sea Fisheries
Regulations 1962 (Tas) declared that no person “shall take, buy, sell, offer or
expose for sale, or have in his possession, or under his control,” a male
crayfish below 11 cm in size, or a female crayfish below 10.5 cm, “whether or
not the fish was taken in the State fishing waters”. In South Australia, from
where the crayfish were purchased, the size specified under regulation act
differed.
Judgement- The freedom guaranteed to
interstate trade and commerce under section 92 is freedom from discriminatory
burden of a protectionist kind. The limitation on the size of the crayfish
sold or possessed in Tasmania was a burden on interstate trade and commerce in
crayfish, but no discriminatory protectionist purpose appeared on the face of
the law. The Court looked to the purpose of the Tasmanian regulations and found
that their objectives were to encourage conservation. The laws applied to all
crayfish and were not of a protectionist nature. Hence, the regulations were
not in breach of Section 92.
With respect to Commonwealth laws,
the Court stated that commonwealth laws under section 51(i) will not ordinarily
be discriminatory if they apply to all transactions of a given kind within the
reach of Parliament.
Cole v Whitfield has given better and
clear test for validity of any legislation act regulating or restricting any
respect of trade and commerce. The reason I specially included this case law is
due to the fact that India relies on the interpretation of Australia of section
92 of Australian constitution for article 301 and this case law gives the most
updated version of interpretation of section 92 by High Court of Australia.
Atiabari Tea Co., Ltd. v. The State
of Assam and Others
Facts- A tax levied by the State of Assam on
the carriage of tea by road or inland waterways was held bad for the transport
or movement of goods is taxed solely on the basis that the goods are thus
carried or transported, and thus "directly affects the freedom of trade as
contemplated by Art. 301."
Judgement- The Supreme Court took the view that
the freedom guaranteed by Art. 301 would become illusory if the movement,
transport, or the carrying of goods were allowed to be impeded, obstructed or
hampered by the taxation without satisfying the requirements of Art. 302 to
304.
The court did not take into
consideration the quantum of tax burden which by no means was excessive. Simply
because the tax was levied on 'movement' of goods, from one place to another,
it was held to offend Art. 301.
The view propounded in Atiabari was
bound to have great adverse effect upon the financial autonomy of the states.
It would have rendered their taxing power under entries 56 and 57, List II.
Automobile Transport v. Rajasthan
Facts- The State of Rajasthan had levied a
tax on motor vehicles (Rs. 60 on a motor car and Rs. 2000 on a goods vehicle
per year) used within the state in any public place or kept for use in the
state. The validity of the tax was challenged.
Taking the view that freedom of trade
and commerce under Art. 301 should not unduly cripple state autonomy, and that
it should be consistent with an orderly society, the Supreme Court now ruled
that regulatory measures and compensatory taxes for the use of trading
facilities were not hit by Art. 301 as these did not hamper, but rather
facilitated, trade, commerce and intercourse.
Issue- A working test to decide whether a
tax is compensatory or not would be 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? A tax does not cease to be compensatory because the precise or
specific amount collected is not actually used in providing facilities.
The concept of compensatory tax
evolved in this case was something new as in Atiabari, the court had dismissed
the argument that the money realized through the tax would be used to improve
roads and waterways rather curtly by saying that there were other ways, apart
from the tax in question, to realize the money, and that if the said object was
intended to be achieved by levying a tax on the carriage of goods, the same
could be done only by satisfying Art. 304(b)
Judgement- The court ruled that the tax was not
hit by Art. 301, as it was a compensatory tax having been levied for use of the
roads provided for and maintained by the state.
Thus, to this extent, the majority
view in Atiabari was now overruled by Automobile.
Since then the concept of regulatory
and compensatory taxes has become established in India with reference to
entries 56 and 57, List II, and the concept has been applied in several cases,
and progressively the courts have liberalised the concept so as to permit state
taxation at a higher level.
Bolani Iron Ores v. State of Orissa
A compensatory tax is levied to raise
revenue to meet the expenditure for making roads, maintaining them and for
facilitating the movement and regulation of traffic. The Supreme Court held
that taxation under entry 57, List II, cannot exceed the compensatory nature
which must have some nexus with the vehicles using the roads. The regulatory
and compensatory nature of the tax is that taxing power should be used to
impose taxes on motor vehicles which use the roads in the state or are kept for
use thereon.
Conclusion
The amount of freedom may not be
absolute, but it is obvious that the restrictions have been continuously fought
against in courts. Supreme Court has stated “it is evident that restrictions
contemplated by it must bear a reasonable nexus with the need to serve the
public interest.”[7] However,
it is felt that interpretation of the article 301 is not up to par. Any
restriction made by state legislative body seems to require assent of president
and hence state does not seem to have much power to even regulate trade and
commerce. Yet, part XIII which deals with trade and commerce is subject to
various exceptions making the scope of freedom much slimmer. Finally, I would
like to say that, the vagueness Atiabari Tea case and Automobile Transport case
has become less yet there is a lot of work that is required in this particular
area.
References
[1] Supreme
court, 26 September, 1960. Bench: B S Shah, K Dasgupta, K Wanchoo, P
Gajendragadkar
[2]
Atiabari tea co. v state of Assam
[3] Written
by: Raghvendra Singh Raghuvanshi - III Yr, NLIU, Bhopal- Are Trade, Commerce
and Intercourse Free?
[5]
Australian National Airways Pty Ltd v Commonwealth (1945) 71 CLR 29;
Commonwealth v Bank of New South Wales [1950] AC 235; Grannall v Marrickville
Margarine Pty Ltd (1955) 93 CLR 55.
[6]
Commonwealth v Bank of New South Wales [1950] AC 235 (‘Bank Nationalisation’).
Please note that this case should not be confused with a case decided years
later by the Supreme Court of India, which is known by the same abbreviated
name (Cooper v Union of India AIR 1970 SC 564 (‘Bank Nationalisation’)) but
which bears no relation to Art 301.
[7] Prag
Ice & Oil Mills v. India,
Article Information
FREEDOM OF TRADE AND COMMERCE: STUDY OF ARTICLE 301 OF INDIAN CONSTITUTION
Authors: SUKRUT EPARI
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/05/30
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
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