Article 301 states that subject to other provisions of part XIII, trade, commerce and intercourse throughout the territory of India shall be free. So article 301 provides for freedom of trade throughout the territory of India. Even though the objective of Article 301 is free flow of goods, it does not mean an absolute freedom. State can impose certain restrictions on freedom of trade and Constitution itself provides for these restrictions and it is included in Article 302 to 305.
Tax is a compulsory contribution. A compensatory tax is levied to raise revenue to meet the expenditure for making roads maintaining them and for facilitating the movement. State is providing many services like roads, which facilitate trade activities. So my imposing compensatory taxes, state is making them pay for the facilities provided by the state.
The government charges taxes on various goods and service but it does not mean that it as a restriction on freedom of trade. It is necessary for the state to charge there taxes, because they are providing many services which facilitate trade activities. Regulatory and compensatory laws are intended merely to regulate trade and commerce. They tend to facilitate, rather than restricting or restraining freedom of trade. So regulatory and compensatory taxes are outside the scope of Article 301 and it does not violate the same.
Such compensatory taxes are no hindrance to any such freedom of trade as long as they are within reasonable limits. If the amount is unduly high, it would hamper trade. Regulations which in reality facilitates trades cannot be a restriction, while that which actually hampers trade will be a restriction.
Atiabari Tea Co. v. State of Assam 1is a landmark case related to Art-301. In this case the validity of Assam Taxation (on goods carried by Road or inland waterways) Act of 1954 was challenged. The petitioner carried on the business of growing tea and exporting it to Calcutta via Assam, and the tea was liable to tax while passing through Assam. Petitioner challenged the said act on the ground that it violated Art-301 and was not protected by Article 304(b). (provision for reasonable restriction for public interest). The Supreme Court held that, the impugned law undoubtedly levied a tax directly and immediately on the movements of goods and therefore, held void. Supreme Court held that only such taxes or restrictions which directly or immediately impede the free flow of trade, commerce and intercourse would fall within the purview of Art 301.
In Automobile Transport Ltd v. State of Rajasthan 2Court affirmed the test laid down in Atiabari Case and made a clarification that, regulatory measures imposing compensatory tax do not come with in the purview of the restrictions contemplated to Art. 301. The effect of majority decision in this case is that a compensatory tape is not a restriction upon the movement part of trade and commerce.
In G.K. Krishna v. State of Tamil Nadu 3, Supreme Court held that the motor vehicles require, for their safe movement, roads of considerable width, durability and hardness, and the maintainability of such roads cost huge money. Therefore it is not unreasonable to called upon for the contribution.
So only those laws which directly and immediately restrict the free flow of trade amount to violation of Article 301. Compensatory taxes are imposed in order to facilitate trade, rather than restricting them. It is outside the scope of Article 301 and therefore not violative of the same.
1Atiabari Tea Co. v. State of Assam, AIR 1961 SC 232, 1961 1 SCR 809
2Automobile Transport Ltd v. State of Rajasthan,1962 AIR 1406, 1963 SCR (1) 491
3G.K. Krishna v. State of Tamil Nadu,1975 AIR 583, 1975 SCR (2) 715
The Constitution of India, Bare Act, Lexis Nexis publication, 2021
Constitutional Law of India, Dr.J.N. Pandey, Central Law Agency, 2020
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