Open Access Research Article
Compensatory Tax And Freedom Of Trade,Commerce & Intercourse
Published Paper
Article Details
Compensatory Tax And
Freedom Of Trade,Commerce & Intercourse
Authored By- Siddharth Keswani
8109025052
Amity Law School, Noida
ABSTRACT
Free trade, one
of the greatest gifts a government can provide to a nation but is unpopular almost
everywhere.
The paper
discusses about freedom of trade in India. How this concept has evolved during
last few years, it has been elucidated in relevant case laws. it also contains
the concept of compensatory taxes. For better understanding, the meaning of
important terms that are used frequently in the paper is - the word ‘trade’
mean buying and selling of goods and services with an aim of earning profits, the
word trade is interchangeable with business in article 301 of Indian
constitution.
The term ‘commerce’ is conduct of trade among economics agents, commerce includes all forms of transportation included in executing the trade. There’s no profit or gain involved is not essential for commerce, the ac)on which is essential under article 301 is transportation or transmission of goods.
The term
‘intercourse’ means movement of goods from one place to another. It comprises
of all movements be it commercial or non- commercial. Intercourse shall cover
any actions that are outside of the scope of trade and commerce. Compensatory
tax is also discussed in later part of the paper. The aim and objective of the
paper is to elaborate the concept of freedom of trade and related tax, with
help of relevant case laws.
Keyword: trade; tax; freedom; goods
TABLE OF CASES
|
Name of the case
|
Citation
|
|
Pg. no.
|
|
Sur Ajmal Roopchand and Co. vs. State of Rajasthan
|
AIR 1967 Raj 104
|
5
|
|
|
A.B Abdul Kadir v. State of Kerala
|
1976 AIR 182, 1976 SCR (2) 690
|
6
|
|
|
State of Madhya Pradesh v. Bhailal bhai
|
1964 AIR 1006
|
6
|
|
|
Saghir Ahmad v. The State of UP
|
1954 AIR 728, 1955 SCR 707
|
6
|
|
|
Motilal v. State of U.P
|
[2009] SC 1772
|
7
|
|
|
State of Bombay v. R.M.D Chambaughwala
|
1957 AIR
699 1957 SCR
874
|
7
|
|
|
Atiabari Tea Co. Ltd. v. The
State of Assam (1961)
|
AIR 1961 SC 232
|
9
|
|
|
Automobile Transport Ltd. Vs. State of Rajasthan
|
1962 AIR 1406, 1963 SCR (1)
491
|
9
|
|
|
The state of Mysore Vs Sanjeeviah
|
1967 AIR 1189
|
10
|
|
|
G.K.Krishna vs. State of Tamil Nadu(1975
|
1975 AIR 583
|
10
|
|
INTRODUCTION
Meaning of the terms ‘trade’, ‘commerce’ and
‘intercourse’
Starting from what these terms mean the word ‘trade’ mean buying and
selling of goods and services with an aim of earning profits, the word trade is
interchangeable with business in article 301 of Indian constitution.
The term ‘commerce’ is conduct of trade among economics agents,
commerce includes all forms of transportation included in executing the trade.
There’s no profit or gain involved is not essential for commerce, the ac)on
which is essential under article 301 is transportation or transmission of
goods.
The term ‘intercourse’
means movement of goods from one place to another. It comprises of all
movements be it commercial or non-commercial. Intercourse shall cover any actions
that are outside of the scope of trade and commerce.
Constitutional provisions
Trade is an integral part of any economy, the reason
being that any country or any state cannot produce all the commodities it
needs. It becomes necessary for the state or country to import and export the
good it need and the good it has in surplus respectively. As a consequence it
is essential to have rules and regulations to regulate these trade activities.
Provisions related to the same are mentioned in part XIII of Indian constitution under article 301 to 307. Article 301 lays down the broad principles of
trade and commerce, where articles302 to 305 provides the trade limitations. In
India, the notion of free trade has been borrowed from the Australian
constitution.
Article
301 stipulates that "trade, commerce, and intercourse shall be free
throughout the territory of India, subject to the other provisions of this
chapter.. This freedom
of trade is not absolute, there are restrictions and limitations as well. A
important point to note here is the meaning of the term ‘free’ as used in the
above article, it doesn’t imply freedom from law and rules governing the
country, there is a substantial difference between laws that hinder freedom and
laws which contain rules and regulations for the smooth and simple conduct
of commercial operations. The parliament is given the authority to
restrict the freedom of trade, business, and related activity under
Article 302. This means that the parliament may, by legislation, establish any
limits necessary for the good of the public on the freedom of trade, commerce,
and intercourse between different states or within any region of the Indian
subcontinent. These limitations should only be enforced when public
interest is at stake, and the parliament has exclusive authority to determine
whether something is in public interest or not. Here the case of Surajmal Roopchand and Co. vs. State of
Rajasthan can be cited as a reference, in which limitations on grain
transportation were imposed in the interest of the general public under the
defence of India rules. The power given to the parliament by article 302 is also not absolute, there is a article,
namely article 303, to keep a check on article 302.
According to article 303 (1), the parliament doesn’t
have authority to pass any law that will give a dominating position to one
state by a virtue of any entry in trade and commerce in any of the three lists
mentioned under article 246 in 7th schedule, (1) but on the other hand, clause (2) of the same
article provides that parliament can make any provision if declared by law that
such restrictions are necessary, the reason being there is scarcity of
commodities in many regions of the country.
Furthermore, article 304(a) established that the
state should impose taxes on any goods transported/imported from the other
state if similar items are taxes in that state too. This is done to make sure
that the good produced in the state are treated as equally as the goods
imported from the other state. This article can be further understood with help
of a case law which is A.B Abdul Kadir
v. State of Kerala, in this case the Kerala luxury tax on tobacco act,1964
provided regulation on sale and stocking of hazardous article, tobacco and was
contemplated as a luxury and hence a license fee was imposed thereon. This was
held to reasonable restriction because it was in public’s best interests and
within the meaning of article 304(a) of constitution of India. Another case
which can be referred for the same is State
of Madhya Pradesh v. Bhailal bhai, in this the state of Madhya Pradesh
levied tax on imported tobacco, the main catch was that the tobacco wasn’t even
subject to tax in Madhya Pradesh. The court rejected the tax statement and held
that it was discriminatory in nature.
Another related provision of the constitution is
saving of existing laws, and the same is covered under article 305, which saves laws that have already been enacted as
well as laws that provide for state monopolies. article 305 will be applicable
only till the president doesn’t order to reverse it or make any changes to it.
Regarding this, Supreme Court in the case of Saghir Ahmad v. The State of UP
brought into light a matter that whether an act that provides monopoly to the
state in a trade or commerce would amount to violation of article 301 of Indian
constitution.
Relation between Article 301 and
Article 19(1)(g) of Indian constitution
These
Two Articles Might Seem Similar In Nature And Scope, But There Are Few Basic
And Yet Significant Differences Between The Two, Those Are :
1. Article
19(1)(G) Is A Fundamental Right Whereas Article 301 Is A Constitutional Right.
2. As A Result
Of What Has Been Stated Previously, The Right To Freedom Under Article 19(1)(G)
Can Only Be Called Upon By Indian Citizens But On The Other Hand Article 301
Guarantees The Said Freedom Not Only To Indian Citizens But Also To
Non-Citizens And Corporate Person Or Private Entity.
3. Article 301
Can Be Used In Matter When There Is A Restriction On Trade But The Other One Is
Invoked In Matters Where Right To Carry On A Trade Or Profession Is
Concerned.
4. Moreover,
Article 19(1)(G) Is Automatically Gets Suspended During Emergency But Article
301 Still Remains Still In Effect.
There Are Two Cases Which Highlights The Scope Of The
Overlapping Articles Mentioned Above,
?
Motilal v.
State of U.P.
In
this case, the judge beheld that while the article 301 protects the right of
trade, business or intercourse in action, article 19(1)(g) secures the right of
occupation or business at rest. These both cover the matter to a degree till a
movement from one place to another is involved in business and here they
overlap each other
?
State of
Bombay v. R.M.D Chambaughwala
In
this case, the SC observed and held that Art 19(1)(g) are two facts of the same
principle of freedom of trade, article 19(1)(g) examines the issue from a
perspective of an individual’s right to profess their trade but on the other
Article 301 examines the issue from the perspective of country’s trade and
commerce as a whole.
COMPENSATORY TAX
There’s
no precise definition or proper legislature for it, but it is recognised in the
sense that it expedites trade, commerce and intercourse.
Compensating
tax is a tax levied by a state on firms and individuals domiciled in another
state or nation in order to balance the tax burden on domestic enterprises and
citizens who are already taxed by the state. For instance, many states have
sales tax and this would lead to people and enterprise purchasing goods and
services from the vendors in state without sales tax. Therefore to compensate
for this competitive disadvantage, all the state acquire taxes from the state
from where the goods are imported. Now the most debatable question is that
whether these taxes restrain people from exercising trade, commerce freely?
This issue came into light for the first time in the case of Atiabari Tea co.
v. State of Assam and then in the case of Automobile Transport v. Rajasthan,
these cases will be discussed in the next part of the paper.(2)
It
is important to understand that taxation is required to operate every nation around
the globe, or else obligations and responsibilities of the state won’t be
fulfilled and their power would be of no use. It is crucial to recognise that
taxation is not always a hardships or a stumbling block to the business, it can
also be used to give individuals with various services such as roads, supplies,
and other resources that may help them expand their enterprises. No firm can
expand and reach its consumers unless and until roads and transportation
infrastructure are available. India being a developing country with so much
geographical diversity have states which are dependent on each other for some
or other commodity. One state may be agriculturally sound and other may be
economically good. Accordingly, it is vital to ensure both inter-state and
intra state trade in India. The concept of compensating taxes arose from a
desire to reconcile the freedom of trade and commerce granted by article 301
with the requirement of taxing such trade at least to the extent necessary to
make it pay for the state’s infrastructure like road network.
Moreover, the basic idea
behind the concept of compensatory tax is that trade, commerce and intercourse
ought to pay for the amenities provided by the state, namely, constructing,
maintaining and regulating infrastructure like roads and bridges which are very
essential for proper flow of trade, commerce and intercourse. The toll tax
which is usually paid when a vehicle changes state while travelling, this toll
tax is compensatory tax, which used for improving and maintaining the
conditions of road. The main purpose of this tax is free flow of trade and
these taxes are never for creating hinderance in freedom of trade. It is just a
fabrication that these taxes are used as trade barriers.
LANDMARK JUDGEMENTS
?
Atiabari
Tea Co. Ltd. v. The State of Assam
(1961)
Facts of the case – In this case Assam taxation Act, 1954 imposes a tax on goods passing through
inland waterways. The petitioner ( Atiabari tea co.) carried on shipping tea to
Calcutta(now Kolkata) through Assam. Now while passing through Assam tea was
subjected to tax under the above act.
Now the issues that arose in this case were that
whether this imposition of tax is violative of article 301 or not. And the
other question was if it could be protected by making it fall under the purview
of article 304 (b).
Judgement
– The Supreme Court beheld that the disputed law undoubtedly imposed a tax
which directly infringed the transmission of goods and hence it falls within
the ambit of article 301. SC further elucidated that these taxes can only be
levied after fulfilling the conditions of article 304 (b) which provides that
the sanction by the president is required before enacting any such law in any
state. And in the present case at hand, the conditions weren’t met. SC also
mentioned that freedom guaranteed under article 301 would become fictional if
the transmission of goods is hindered without satisfying the conditions
outlined in article 302 to 304 of Indian constitution.
?
Automobile
Transport Ltd. Vs. State of Rajasthan
Facts
of the case – in this case, the state of Rajasthan levied an annual tax on
motor vehicles ( Rs. 60 on motor
vehicles and Rs 2000 on goods vehicle)
The
issue in this case was that the Appellant challenged validity of the imposed
tax under article 301 of Indian constitution and the question that arose was
whether tax levied was constitutionally correct or not that had to be checked.
Judgment
- It was held by the court that in the present case at hand the tax imposed is
valid as it is only a regulatory measure or compensatory tax for the
facilitation of smooth running of trade, and intercourse. The court mentioned
that the taxes are the only source with its preserve the financial health of
the state at large. The concept of compensatory or regulatory taxes has been
brought up to make sure to that the state will levy such taxes that are set as
an object in a form of compensation that is for public interest as well as for
regulatory purposes if necessary. . If the same is challenged in the court as
being an infringement of or as being violated of the freedom under article 301
then that would not be considered as a infringement and such tax does not even
need the validation of the provisions under article 304(b).
Facts of the case – in this case, the government
under the Mysore Forest Act, 1990 made a law restricting transmission of forest
produce between sunrise and sunset.
The issue at hand was whether it was violative of
freedom of trade, commerce and intercourse granted by article 301 of the
constitution. (3)
Judgement – The Supreme Court beheld the law
invalid. It also mentioned that such a law was restrictive and not regulatory,
hence violative of the freedom provided in article 301 of the constitution.
·
G.K.Krishna
vs. State of Tamil Nadu(1975
Facts of the case – in this case, a government notice
was issues under Madras Motor Vehicles Act, raising the motor vehicle tax on
omnibuses from Rs 30 to Rs 100. The government’s reasoning for this implement
was that it was done to prevent unhealthy rivalry between omnibuses and
conventional stage carriage buses, also to decrease misuse of omnibuses.
The petitioner in the
present case the raised issues that whether this tax was compensatory or
regulatory, also whether it was a barrier to trade, commerce and intercourse or
not.
Judgement – the Supreme
Court ruled that tax on carriage was compensatory in nature and hence wasn’t
violative of article 301’s protection of freedom. While explaining its
reasoning behind the decision, the court state that these taxes are not
obstacles but rather a medium that helps and supports commerce. To become a
forbidden tax, the tax must be a direct tax in the first place. A direct tax is
the one that obstructs the exchange of products or services in a commerce or
enterprise.
CONCLUSION
The free movement and
exchange of goods across the country's territory is crucial for the nation's
economic unity, which is the only way to ensure the country's progress. This
has become increasingly crucial as the economy has gotten more globalised. As a
result, in every federation, constitutional provisions are used to try to
create and preserve a national economic fabric, to remove and prevent local
barriers to economic activity, to remove impediments to inter-state trade and commerce,
and to make the country as a single economic resource that can be used to the
benefit of all. To put it another way, proper trade regulations
promulgate.
The Supreme Court
developed the notion of regulatory and compensating tax to balance the freedom
of trade and commerce with the authority of taxing. This means that Article 301
cannot prevent a regulatory or compensating tax from being imposed. Indian
courts have mostly applied the idea of regulatory and compensating tax to state
taxes under List II Entries 56 and 57. The necessity for such a tax is to levy
a charge on trade and commerce, at least to the degree of making it pay for
state-provided services, such as a road network and other infrastructural
facilities. The rationale for this is that such taxes help, rather than hinder,
the economy.
Hence, it can now be
concluded that the freedom of trade guaranteed by the Constitution cannot be
absolute. As a result, Articles 302 to 305 establish limitations on commerce
and guarantee that it is done lawfully throughout the states and the country.
All of these clauses work together to give trade, commerce, and intercourse
constitutional protection. At the very least, there would be no unjustified
obstacles to trade and commerce based on regional differences or other factors.
REFERENCES
(1)
hGps://blog.ipleaders.in/freedom-trade-commerce-intercourse-ar)cles-301-307-indian-cons)tu)on/ #Restric)ons_to_trade_and_commerce
(2)
hGps://www.legalserviceindia.com/ar)cles/taxes_int.htm hGps://bizfluent.com/info-12085624-compensatory-tax-laws.html.
(3)
hGps://www.lawyerservices.in/State-of-Mysore-Versus-H-Sanjeeviah-1967-01-16
Others V.N.Shukla’s Constitution of India 13th edition
The
constitution of India Bare Act, 2021
Article Information
Compensatory Tax And Freedom Of Trade,Commerce & Intercourse
Authors: Siddharth Keswani
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/03/15
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
All research articles published in International Journal for Legal Research and Analysis are open access and available to read, download and share, subject to proper citation of the original work.
Disclaimer: The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of International Journal for Legal Research and Analysis.