i

Project report

On

Constitutional Provisions Regarding Trade and

Commerce in India
Submitted to:

Dr. Archana S. Gharote

Faculty of Principles of Taxation Law

Submitted By:

Anant Ekka
Roll no. 26

Section A

Semester V, B.A. LLB (Hons.)

Submitted on: 28/11/2018

Hidayatullah National Law University

Uparwara, Abhanpur, New Raipur (C.G.)

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Acknowledgements
I feel elated to work on the project “Constitutional Provisions Regarding Trade and Commerce in
India”. Firstly I express my deepest gratitude towards Dr. Archana S. Gharote, Faculty of
Principles of Taxation Law, to provide me with the opportunity to work on this project. His able
guidance and supervision were of extreme help in understanding and carrying out the nuances of
this project.

Some printing errors might have crept in which are deeply regretted. I would be grateful to
receive comments and suggestions to further improve this project.

Anant Ekka

Roll No. 26

Section A, Semester V
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Contents
1. Acknowledgments ii

2. Introduction 1

3. Research Methodology 2

4. Freedom of trade, commerce and intercourse 3

5. Inter-relationship between article 301 and 19 (1) (g) 6

6. Restrictions on trade and commerce 7

7. Conclusion 9

8. Bibliography 10
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Introduction
A single, national, integrated, domestic market is necessary to make the Indian economy efficient
and competitive. Free flow of trade and commerce within and across inter-State borders is an
important pre-requisite for ensuring economic unity, stability and prosperity of a country.

Freedom of “trade, commerce and intercourse throughout the territory of India”, subject to the
other provisions of Part XIII, is assured and declared by Article 301 of the Constitution of India.
The object of this freedom is to disallow barriers between the States and within the boundaries of
States and make India a single unit with a view to creating an environment, conducive to trade
and commerce.

Economic unity is essential for the stability and progress of the country. Regional aspirations and
apprehensions may persuade the State Legislatures to adopt measures solely intended to benefit
local interests, the combined effect of which may be disastrous to the national economy and
when it so happens, the States will also suffer because they are part of the whole.

Explaining the purpose of enacting Article 301 of the Constitution of India the Supreme Court
has observed:

The provision contained in Article 301 guaranteeing the freedom of trade, commerce and
intercourse is not a declaration of a mere platitude, or the expression of a pious hope of a
declaratory character; it is not also a mere statement of a directive principle of a state policy, it
embodies and enshrines a principle of paramount importance that the economic unity of the
country will provide the main sustaining force for the stability and progress of the political and
cultural unity of the country
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Research Methodology

Objective:

The objectives of this project is

 To study the constitutional provisions regarding trade and commerce in India.

 To study inter-relationship between article 19(1) (g) and article 301.
 To study restrictions on Trade and Commerce.

Methodology:

This research project is descriptive in nature. Accumulation of the information on the topic
includes wide use of secondary sources like books, articles etc. The matter from these sources
have been compiled and analysed to understand the concept.
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Freedom of Trade Commerce and Intercourse

(Articles301-307)

The framers of the Indian Constitution were fully conscious of the importance of maintaining the
economic unity of 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 the country. Thus the main object of the Article 301 is to breakdown the border
barriers between the states and to create one unit with a view to encourage the free flow of
stream of trade and commerce throughout the territory of India.

Article 301 of the Constitution of India declares that trade, commerce and intercourse throughout
the territory of India Shall be free. It is to be noted that Article 19 (1) (g) also guarantees to
citizens the right to practise any profession or carry on any trade, business etc.

The “freedom” declared under article. 301 may be defined as a right to free movement of persons
or things (goods), tangible or intangible, commercial or non-commercial, unobstructed by
barriers, inter-state or intra-state or any other impediment operating as such barriers. Thus,
‘freedom of trade, commerce and intercourse’ means the free movement/transport and exchange
of goods. It means that there shall be no prior restraint upon trade and commerce.

Article 301 is an adaptation from section 92 of the Australian constitution, which reads: “…
trade, commerce and intercourse among the states, whether by means of internal carriage or
ocean navigation, shall be absolutely free.” it may be noted that, while section 92 guarantees the
freedom among the states i.e. at inter-state level, article 301 guarantee it throughout the territory
of India, inter-state as well as infra-state (within a state). Further, section 92 declares the freedom
“absolutely free” leaving it for the courts to import certain restrictions/limitations on the freedom
as dictated by common sense and the exigencies of changing society. Article 301, on the other
hand, secure the freedom subjected to restrictions/limitations which may be imposed under other
provisions of part XIII. In India the Constitution itself lays down restrictions on Article 301. The
restrictions are contained in Article 302-305. This is necessary because no freedom is absolute.
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The word trade means ‘buying’ or ‘selling’ of goods while the term ‘commerce’ includes all
forms of transportation such as by land, air or water. The term ‘intercourse’ means movement of
goods from one place to another place. Thus the words trade commerce and intercourse covers
all kinds of activities which are likely to come under the nature of commerce.

The word free in Article 301 does not mean freedom from laws or regulations. There is a clear
distinction between laws interfering with freedom to carry out the activities constituting trade
and law imposing rules of proper conduct or other restraints for the due and orderly manner of
carrying out the activities. The distinction is known as regulations.

A pure regulatory and compensatory1 law cannot be regarded as violative of the freedom of trade
and commerce. Such laws are intended merely to regulate trade and commerce, they tend to
facilitate and not restrict or restraint freedom of trade. Thus such measures are traffic regulations,
licensing of vehicles, charging of maintenance of the roads marketing and health regulations,
price control, economic and social planning, prescribing minimum wages are purely regulatory
measures.

Likewise a law which levies a tax or toll for the use of a road or bridge is not a barrier or burden
on a trade but in reality helps the free flow of trade by enabling the provision of a more
convenient and less expensive route. Such compensatory taxes are no hindrance to any such
freedom of trade so long as they are within reasonable limits; if the amount of such taxes are
unduly high it certainly would hamper trade. In thus connection court has pointed out the
distinction between ‘freedom’ in Article 301 and ‘restriction’ in Articles 302 and 304

In Atiabari Tea Co. v. State of Assam,2 the validity of the Assam Taxation (on Goods Carried by
Roads or Inland Waterways) Act of 1954 was challenged on the ground that it violated Article
301 of the Constitution and was not saved by Article 304 (b). The petitioner carried on the
business of growing tea and exporting it to Calcutta via Assam. While passing through Assam
the tea was liable to tax under the said Act. The Supreme Court held that the impugned law
undoubtedly levied a tax directly and immediately on the movements of goods and therefore
came within the purview of Article 301. The Act was, therefore, held void. The Court said that
taxes may and do amount to restrictions if they directly and immediately restrict trade. In the
1
G. K. Krishanan v. State of T.N., AIR 1975 SC 583
2
AIR 1951 SC232
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instant case, the tax undoubtedly affected the free flow of trade. Imposition of a duty or tax to
every would not amount per se to an infringement of Article 301. Only such taxes or restrictions
which directly affected of trade, commerce and intercourse would fall within the purview of
Article 301. A tax may in certain cases, directly or immediately, restrict or hamper the flow of
trade, but every imposition of tax does not do so. Every case must be judged on its own facts and
in its own setting of times and circumstances.

Such taxes could only be validly levied if the requirements of Article 304 (b) are satisfied, i.e.,
the previous sanction of the President before the state enacts such a law. "This is a safeguard to
ensure that the economic unity of the country is not disrupted by the State Legislature. In the
present case, the requirements of Article 304 (b) had not been_ complied with. The Court said
that the freedom guaranteed by Article 301 would become illusory in the movement, transport or
the carrying of goods was allowed to be impeded, obstructed or hampered by taxation without
satisfying the requirements of Articles 302 to 304.

In State of Mysore v. Sanjeeviah,3 the Government made a rule under the Forest Act, 1900
banning movement of forest produce between sunset and sunrise. The Supreme Court held the
rule void as it was not a 'regulatory' but restrictive' measure which infringed the right guaranteed
under Article 301.

In Automobile Transport Ltd. v. State of Rajasthan,4 the validity of the Rajasthan Motor Vehicles
Taxation Act, 1951 was challenged. This Act imposes a tax on all motor vehicles used and kept
within the State of Rajasthan. The Court held the tax as valid as they are only regulatory
measures imposing compensatory taxes for facilitating trade, Commerce and intercourse.

The majority judgment in the Atiabari Tea Co. case read with a majority judgment in the
Automobile’s case lead to the following principles relating of Article 301:
1. Article 301 assures both inter-state and inter-state trade, commerce and intercourse.
2. Trade, commerce and intercourse include both movement of goods and persons.
3. The freedom is not from all the tax laws.

3
AIR 1967 SC 1189
4
AIR 1962 SC 1906
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4. Only those laws which directly and immediately impede the free-flow of the trade are
void.
5. Law which are merely regulatory or compensatory and facilitate freedom of trade are out-
side the scope of Art. 301.

Inter-Relationship between Article 301 and article 19(1)

(g)
The word trade means buying or selling of the goods while the tem commerce includes all forms
of transportation by land air or by water. The term intercourse means the movement of goods
from one place to another. Intercourse will cover all those activities which might not be included
in the ambit of trade and commerce.

Article 19 (1) (g), a fundamental right confers on the citizens the right to carry any profession or
carry on any occupation trade or business. The question of relationship between article 301 and
art. 19 are somewhat uncertain. One view that while Article 19 (1) (g) deals with the rights of the
individual, whereas art. 301 provide safeguards for carrying trade as a whole distinguished from
individuals right to do the same. But this view is hardly tenable. Article 301 is based section 92
of the Australian Constitution which has been held to compromise rights of individuals as well,
and the same should be position in India. The Supreme Court has denounced then theory that
Article 301 guarantees freedom “in abstract and not on the individuals”.

Freedom of trade commerce and intercourse is a wider concept than that of an individual’s
freedom to trade guaranteed by Article 19(1) (g). Art. 19(1) (g) can be taken advantage by the
citizens whereas the freedom of trade commerce and intercourse enshrined under art. 301 can be
invoked by a corporation and even by State on complaints of discrimination as under Art. 303. In
Emergency Art. 19(1) (g) is suspended and so the courts may take recourse to Article 301 to
adjudge the validity of restriction on Trade and Commerce. There appears to be no satisfactory
way to explain the relationship between the two articles.
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Restrictions on Trade and Commerce

Article 301 is subject to the restrictions imposed under article 302 to 305.

1. Parliament power to regulate trade and commerce in the public interest:-

Article 302 authorizes Parliament to 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. The question whether a restriction imposed by Parliament by
law is in the public interest or not is a justifiable issue. In that case Parliament is given sole
power to decide what restrictions can be imposed in the public interest as authorized by Article
302.5 It has been held that restrictions imposed on the movement of grain under the Defence of
India Rules are in the interest of general public.6

The power of Parliament under Article 302 is limited by Article 303(1). Article 303(1) provides
that Parliament shall not have the power to make any law giving any preference to any one State
over another by virtue of an Entry relating to trade and commerce in any one of the List in the
Seventh Schedule. But under clause (2) of this Article the Parliament may however discriminate
among States if it is declared by a 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.

2. State’s power to regulate trade and commerce:-

Article 304(a) empowers the State to impose any tax on goods imported from other State if
similar goods in the State are subject to similar tax so as not to discriminate between goods so
imported and goods manufactured or produced in the State.

In State of Madhya Pradesh v. Bhailal Bhai,7 a State of law imposed sales tax on imported
tobacco but locally produced tobacco was not subject to such sales tax. The court invalidated the
tax as discriminatory.

5
Atiabari Tea Co. v. State of Assam, AIR 1961 SC 232
6
Surajmal Roopchand and Co. v. State of Rajasthan, AIR 1967 Raj. 104
7
AIR 1964 SC 1006
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Clause (2) of this Article authorizes the state to impose such reasonable restrictions on the
freedom of trade, commerce and intercourse as may be required in the public interest. But no bill
or amendment for this purpose can be introduced in the Legislature of State without the previous
sanction of the President. A law passed by a state to regulate inter-state trade and commerce
must satisfy the following conditions under Article 304 (b):-

(1) Previous sanction of the President must be obtained

(2) The law must be in the public interest
(3) Restrictions imposed by such law must be reasonable

From the above it is obvious that the Parliament has been vested with wide powers to regulate
trade and commerce.

3. Saving of Existing Laws:-

Article 305 saves existing laws and laws providing for State monopolies in so far as the President
may by order otherwise direct. Article 307 empowers Parliament to appoint such authority as it
considers appropriate for carrying out purposes of Articles 301 to 304. It can confer on such
authority such powers and duties as it think necessary.

Thus, the general idea inspiring Part XIII of the Indian Constitution is the removal or prevention
of local barriers to economic activity as well as to passage of persons and goods from region to
another. But at the same time the framers of the Constitution did not intend to restrict the power
of the States to regulate purely intra-state commerce. The object was to remove geographical
barriers.

Conclusion
Free movement and exchange of goods throughout the territory of the country is essential for the
economic unity of the nation which alone could sustain the progress of the country. This has
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become more important after the globalisation of the economy. Therefore in all federation 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 the impediments in
the way of inter-state trade and commerce and thus to make the country as one single economic
resources of all the various units may be utilized to the common advantage of all. In other words,
proper regulations of the trade promote equality and unity among the regions

Bibliography
Books:
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 V. N Shukla, Constitution of India, by MP Singh, Eastern Book Company, Reprinted,

March 2007 with supplement
 M.P. Jain’s, Indian Constitutional Law, 5th Edition, Wadhwa Nagpur,Reprint,2007
 Dr. J. N. Pandey, The Constitutional Law of India, 50th Edition

Webliography
 https://www.legalbites.in/freedom-trade-commerce-intercourse
 http://www.legalservicesindia.com/article/148/Freedom-of-Trade-&-Commerce.html
 http://www.legalservicesindia.com/article/2009/Trade,-Commerce-and-Intercourse.html
 http://notesforfree.com/2017/12/20/freedom-trade-commerce-intercourse-indian-
constitution