# ATIABARI TEA CO., LTD v. THE .STATE OF ASSAM AND OTHERS

- **Citation:** [1961] 1 S.C.R. 809
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Bench:** B. P. Sinha, P. B. Gajendragadkar, Ic N. Wanchoo, K. C. DAs GUPTA, J. c. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/atiabari-tea-co-ltd-v-the-state-of-assam-and-others-2172
- **Pages:** 75

## Headnote

Freedom of Trade-If includes freedom from laxation·-State
Law imposing tax on goods carried by road or inland waterways--
Constitutionaly of-Constitution of India, Arts. JOI and 304Assani Taxation (on goods carried by Roads and Inland Waterways)
Act, Ip54 (Ass. XIII of I954).
The Assam Taxation (on goods carried by Roads and Inland
Waterways) Act, 1954, was passed under Entry 56 of List II of
Seventh Schedule to the Constitution. The appellants contended that the "Act violated the freedom of trade guaranteed by
Art. 301 of the Constitution and as it was not passed after obtaining the previous sanction of the President as required by
Art. 304(b) it was ultra vires. The respondent urged that taxing
Jaws were not governed by Part XIII (which contained Arts. 301
and 304) but only by Part XII and in the alternative thatthe
provisions of Part XIII applied only to such legislative entries
in the Seventh Schedule as dealt specifically with trade, comraerce ·and intercourse.
Held, (per Gajendragadkar, Wanchoo and Das Gupta, JJ.)
that the Act violated Art. 301 and since it did not comply with
the provisions of Art. 304(b) it was ultra vires and void.
The
freedom of trade, con1metce and intercourse guaranteed by
Art. J.Ol was wider than that contained in s. 297 of the Government of India Act, 1935, and it included freedom from tax laws
also.
Article 3or provides that the flow of trade shall run
smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves; and if any Act imposes any direct restrictions on the
movetnent of goods it attracts the provisions of Art. 301, and its
validity can be sustained only if it satisfied the requirements of
Art. 302 or Art. 304. The operation of Art. 301 cannot be
restricted to legislation under the Entries dealing with trade
and commerce. The Assam Act directly affected the freedom
contemplated by Art. 3or.
Ramjilal v. Income-tax Officer, Mohindargarh, [1951] S.C.R.
127, M. P. V. Sundararamier G Co. v. The State of Andhra Pradesh, [r958] S.C.R. 1422, James v. Commonwealth of Aitstralia,
(1936) A.C. 578, The State of Bombay v. The United Motors (Indio)
Ltd., [1953] S C.R. 1069, Saghir Ahmed v. The State of U.P.,
September 26.
1960
At1abari Tea
Co., Ltd.
v.
The Stal~ of
· A ssan1 6- Others
810
SCPREME COURT REPORTS
[ 1961]
[1955] r S.C.R. 707, James v. Stale of South Australia, (1927) 40
C.L.R. land James v. Cowan, (1932) A.C. 542, referred to.
Per Sinha, C. ].-The Assam Act did not contravene
Art. 301 and was not ultra vires.
~either the one extreme position that Art. 301 included freedom from all taxation nor the
other that taxation was wholly outside the purview of Art. 301
was correct. The freedom conferred by Art. 301 did not mean
freedom from taxation simpliciter but only from the erection of
trade barriers, tariff walls and imposts which had a deleterious
effect on the free flow of trade, commerce and intercourse. The
Assam Act was a taxing statute simpliciter and did not suffer
from any of the vices against which Part XIII of the Constitution was intended.
Ramjilal v. Income-lax Officer, Mohi11dargarh, [1951] S.C.R.
127, referred to.
Further, the impugned Act was within the competence of
the State Legislature and fell directly within Entry 56 of
List II; it was not in conflict with the Tea Act of 1953 enacted
by Parliament; it did not contravene Art. 14 and it was not
extra-territorial in operation.
The Tata Iron & Steel Co. Ltd. v. The State of Bihar, [1958]
S.C.R. 1355, followed.
Per Shah, ].-The Assam Act infringed the guarantee of
freedom of trade and commerce under Art. 301 and as the Bill
was not moved with the previous sanction of the President as
required by Art. 304\b) nor was it validated by the assent of the
President under Art. 255(c), it was ultra vires and void. Article 301 guarantees freedom in its widest amplitude, freedom
from prohibition, control, burden or impediment in commercial
intercourse. The freedom inc

## Text

_Characters 0–39,228 of 171,221. This is a partial read: ask again with offset=39228 for what follows._

l S.C.R. SUPREME COURT REPORTS
809
ATIABARI TEA CO., LTD.
v.
THE .STATE OF ASSAM AND OTHERS.
(AND CO.~NECTED PETITION AND APPEALS)
(B. P. SINHA, c. J., P. B. GAJENDRAGADKAR,
IC N. WANCHOO, K. C. DAs GUPTA and
J. c. SHAH, JJ.)
Freedom of Trade-If includes freedom from laxation·-State
Law imposing tax on goods carried by road or inland waterways--
Constitutionaly of-Constitution of India, Arts. JOI and 304Assani Taxation (on goods carried by Roads and Inland Waterways)
Act, Ip54 (Ass. XIII of I954).
The Assam Taxation (on goods carried by Roads and Inland
Waterways) Act, 1954, was passed under Entry 56 of List II of
Seventh Schedule to the Constitution. The appellants contended that the "Act violated the freedom of trade guaranteed by
Art. 301 of the Constitution and as it was not passed after obtaining the previous sanction of the President as required by
Art. 304(b) it was ultra vires. The respondent urged that taxing
Jaws were not governed by Part XIII (which contained Arts. 301
and 304) but only by Part XII and in the alternative thatthe
provisions of Part XIII applied only to such legislative entries
in the Seventh Schedule as dealt specifically with trade, comraerce ·and intercourse.
Held, (per Gajendragadkar, Wanchoo and Das Gupta, JJ.)
that the Act violated Art. 301 and since it did not comply with
the provisions of Art. 304(b) it was ultra vires and void.
The
freedom of trade, con1metce and intercourse guaranteed by
Art. J.Ol was wider than that contained in s. 297 of the Government of India Act, 1935, and it included freedom from tax laws
also.
Article 3or provides that the flow of trade shall run
smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves; and if any Act imposes any direct restrictions on the
movetnent of goods it attracts the provisions of Art. 301, and its
validity can be sustained only if it satisfied the requirements of
Art. 302 or Art. 304. The operation of Art. 301 cannot be
restricted to legislation under the Entries dealing with trade
and commerce. The Assam Act directly affected the freedom
contemplated by Art. 3or.
Ramjilal v. Income-tax Officer, Mohindargarh, [1951] S.C.R.
127, M. P. V. Sundararamier G Co. v. The State of Andhra Pradesh, [r958] S.C.R. 1422, James v. Commonwealth of Aitstralia,
(1936) A.C. 578, The State of Bombay v. The United Motors (Indio)
Ltd., [1953] S C.R. 1069, Saghir Ahmed v. The State of U.P.,
September 26.
1960
At1abari Tea
Co., Ltd.
v.
The Stal~ of
· A ssan1 6- Others
810
SCPREME COURT REPORTS
[ 1961]
[1955] r S.C.R. 707, James v. Stale of South Australia, (1927) 40
C.L.R. land James v. Cowan, (1932) A.C. 542, referred to.
Per Sinha, C. ].-The Assam Act did not contravene
Art. 301 and was not ultra vires.
~either the one extreme position that Art. 301 included freedom from all taxation nor the
other that taxation was wholly outside the purview of Art. 301
was correct. The freedom conferred by Art. 301 did not mean
freedom from taxation simpliciter but only from the erection of
trade barriers, tariff walls and imposts which had a deleterious
effect on the free flow of trade, commerce and intercourse. The
Assam Act was a taxing statute simpliciter and did not suffer
from any of the vices against which Part XIII of the Constitution was intended.
Ramjilal v. Income-lax Officer, Mohi11dargarh, [1951] S.C.R.
127, referred to.
Further, the impugned Act was within the competence of
the State Legislature and fell directly within Entry 56 of
List II; it was not in conflict with the Tea Act of 1953 enacted
by Parliament; it did not contravene Art. 14 and it was not
extra-territorial in operation.
The Tata Iron & Steel Co. Ltd. v. The State of Bihar, [1958]
S.C.R. 1355, followed.
Per Shah, ].-The Assam Act infringed the guarantee of
freedom of trade and commerce under Art. 301 and as the Bill
was not moved with the previous sanction of the President as
required by Art. 304\b) nor was it validated by the assent of the
President under Art. 255(c), it was ultra vires and void. Article 301 guarantees freedom in its widest amplitude, freedom
from prohibition, control, burden or impediment in commercial
intercourse. The freedom includes not only freedom from discriminative tariffs and trade barriers hut also from all taxation
on commercial intercourse. Part XIII of the Constitution places
restrictions upon the legislati\'f power granted by Arts. 245,
246 and 248 and the Lists and these restrictions include burdens
in the nature of taxation.
James v. Commonwealth of Australia, L.R. (1936) A.C. 578,
referred to.
ORIGINAL JURISDICTION:
Petitions Nos. 246 of
1956 and 2 of 1959 (Under Article 32 of the Constitution of India for enforcement of Fundamental Rights)
with C. As. Nos. 126 to 128 of 1958.
1960. August 16, 17. N. C. Chatterjee, with N. C.
Chakravarti, Dipti Bose and S. C. Mazumdar for th~
petitioners in Petition No. 246 of 1956 and with P.
Chaudhuri, D. N. Mukherji and B. N. Ghose, for the
appellants in C. As. Nos. 126-128 of 1958. The Assam
1 S.C.R. SUPREME COURT REPORTS
811
Taxation (on goods carried by road and inland waterI960
ways) Act, contravenes Art. 301 of the Constitution.
Atiabari Tea
Article 301 means freedom from all restrictions includCo., Ltd.
ing tax laws.
Articles 245 aud 246 are subject to
v.
Art. 301. It is wrong to say that taxation is outside
The State of
the scope of Art. 301.
Article 304(a) itself contemAssam & Others
plates the imposition of tax.
Article 304(b) may also
refer to tax in certain circumstances, in cases other
than those covered by Art. 304(a). In enacting Art.
301 the Constituent Assembly rejected s. 297 of the
Government of India Act, 1935, and deliberately
adopted the Australian s. 92.
Movement is an essential ingredient of trade and commerce and there must
be no fetter on it; any taxation would be a fetter.
Taxation is not outside the ambit of Art. 301; I.L.R.
1955 Born. 680, 683.
What is commerce· is brought
out in the following decisions : 6 L. Ed. 1, 68; [1952]
S.C.R. 572, 578; 93 C.L.R. 127; 1936 A.C. 573, 627;
A.LR. 1954 Raj. 217.
B. Sen and S. N. Mukherjee, for the petitioners in
Petn. No. 2/59.
Article 301 sets out the general freedom and Art. 302 the restrictions that can be placed
on this freedom.
Non-discrimination is one of the
aspects of the freedom in Art. 301.
Article 306 as it
stood before its deletion, spoke of taxation or duty on
import or export of goods between States. It postu.
lated 'taxes' in . Art. 301 ; ·but for the non.obstante
clause it would have been affected by Art. 301. . The
Supreme Court has discussed the scope of Art. 301 in
[1953] S.C.R. 1069, 1079, 1081, 1088. The decision of
Chagla, C. J., in I.L.R. 1955 Born. 680 regarding
scope of Art. 301 was not reversed by the Supreme
Court.
B. K. P. Sinha and A. G. Ratnaparkhi.-With
regard to the scope of Art. 301 reference is invited to
the decision in A.LR. 1954 Hyd. 207, A.LR. 1958
M.P. 33, A.LR. 1956 M.B. 214, LL.R. 1952 Mad. 933,
55 C.L.R. 1, 56 and regarding the meaning of export
to the decision in LL.R. 1955 Tr. Co. 123.
M. G. Setalvad, Attorney-General of India, with
S. M. Lahiri, Advocate-General of Assam a.nd Naunit
Atiaba1i Ita
Co., Ltd.
v.
1 he Stale of
A .1s11m 0- (Jtiirn•
812
SUPRE~IE COCRT llEPORTS
[ 1961]
Lal, for the respondents in Petition I\ o. 246 of 1956
and Civil Appeals Xos. 126-128 of 1958 and Petition
!\o. 2 nf 1959, and with T. M. Sen, for the Intervener,
Attorney-General of India.
Power to tax is an incident of so\·.,reignty.
The Power is divided lwtwe"n
th,· Union aud the States. Part Xll of the Constit11tio11 deals with taxatiou-sc1·eral aspects of it.
All
resuictions on the powers to tax are contaiued iu
Part XII which is self-contaiucd.
P,u'L Xlll deals
with something else.
Art. 301 deals with freedom of
inter-St.ate as well as intra.~tate trade and is different
from s. 92 of the Australian
Constitution.
In
Article 301 freedom of trade onlv
mean~ freedom from trade barriers-it does not: meari freedom
from taxation. Taxation simpliciter was not within
the terms of Art. 301.
Taxation is not a restriction wit.bin the meaning of .Part Xlll. Article 302
uses the words "in the public interest". If I he restriction:; contemplated there.in included t.ax, then
every tax will have to be justified tu be in the public
interest. Hestrictions do uot include taxing measures,
utherwise there will be a power of judicial review in
respect of a.II stH:h taxing measures.
Cooley's Cunstitutinnal Limitations, 8Lb Edition, Veil. II, p. 986-!J88.
Taxation is » peculiarly legislative activity. 1t is
likely that if the Constitution makors wanted to put
a bar on the taxation power, it would barn been
pl.-ced in P:~rt XI [ and not left to be inforred from
Art. 301; (19.'il] S.C.H. 127, 136-137: [1955] l 8.C.H.
765. The word "r"st.rict.io11" ia very inapt to describe
t:txatio11.
Apart from Part Ill all restrictions must
be found in l'art Xlll so far as taxatiun ia concerned.
Article 301 does not start witb the words "notwit,hsta.oc.Jing anything i11 this Constitution" because it is
eonccrned only with a small sphere of freedom of
trade and commerce and not with taxation.
Hestriction in these Articles means restriction on movement.
The rcstdt of holding ot berwisc would be that even
for intra-stale taxes the States will have to go to the
Prnsident. and the legislation will be subject to judicial
review. If Part 111 as well as Art. 301 apply to taxing measures, the question will arise which test would
1 S.C."j.'t.
SUPREME COURT REPORTS
813
the Court apply-" reasonable in the interest of the
general public " as en visaged by Part III or " in the
interest of the public" envisaged by Art. 302.
This
indicates that neither Part III nor Art. 301 applies to
taxiug measures.
Article 303 deals with preference
and discrimination between one State and another. It
is restricted to legislation with respect to the entries
regarding trade and commerce within the State, like
entry 26, list II and the entries 33 and 42 of list III.
Nothing in Art. 303 indicates that the freedom there
includes freedom from taxation. Article 304(a) deals
with discrimination and not with taxation simpliciter.
It lays no restriction on the State taxing goods in its
own territory: [1958] S.C.H. 1472.
Article 304(a)
cannot be interpreted as throwing any light on the
scope of Art.. 301. Section 297 of the Government of
India Act, 1935, was the predecessor ()f Art. 304,
Article 304(a) assumes that there is an existing tax on
goods which is not levied under 304(a).
There is an intermediate position also.
Article 301
should be restricted to legislation which is directly
with respect to trade and commerce and not to legislation, which is in pith and substance not with respect to trade but only incidentally or indirectly
affects trade and commerce. The Assam Act passed
under entry 56 is not a legislation with respect to trade
and commerce.
Mahabir Prasad, Advocate-General for the State of
Bihar, B. K. Saran and K. L. Mehta for the Intervener, State of Bihar.-Article 301 merely concerns
itself with the restrictions on the free flow of trade
and commerce. It deals with policy of protection.
Article 302 also contemplates movement and passage
of goods. Restriction does not as a rule imply taxation. If taxation is imposed with a view to restrict
goods passing from one State to another, it will
become a restriction under Art. 301. Article 304(a)
permit.s tax on entry of goods equal to the tax on
such goods which are in the State. Octroi may be hit
by Art. 301 if it is not saved by other provisions. It
104
1960
.d t iabari Tea
Co., Lid.
v.
The State. of
Assam &- Others
Alialuri Te1i
Co., Ltd.
v.
TJ,e State o/
A.i:s1011 6- Others
814
SUPRE::IIE COl'RT REPORTS
[1961]
is a. restriction "ithin Art. 301 when it obstructs the
movement of trnde.
S. M: Sikri, Advocate.General for the State of Punjab,
N. S. Bindra awl T .• V. Sen for the Intervener, the
State of Pu11jab. It is impossible lo determine whether a panicular tax places reaso11able restrictions
and whether it is in-tho public interrst.
Article 301
is coucerned with the right of pas•age ge.nerally with
respect to tradl' and c<,mmerce and Art. l9(l)(g) with
the right. of au individual: 1955 P.L.R. 304: l.L.H. 7
Haj. 7!!4; A.LR. 1960 Andhra 234.
Article 302
assumes legislation of Parliament under the entries
r~l.i.ting to trade and commerce.
R. Ganapathi Iyer and T. 1l1. Sen, for Intcr\'Cncr
No. 3, the State of Madras adopted the submissio11s
rnad<J by the Attorney -General.
G. C. Kasliwal, Adi:ocate-General for the Stale of
Raja.sthan and 1'. M. Sen for the Intcrveuer, the State
of Hajasthan adopted the submissions mac.le by the
Attorney-General.
G. C. li!athur and C. P. Lal, for the Intervener
No. 6, the State of Uttar Prac..lesh, adoptec..I the submissions made by t h11 Attorney -General.
N. C. Chatterjee i11 reply.
Article 301 is an overriding provision over all other provisions.
It is much
wider than R. 297 of the Government of India Act. It
applies to all pecuni1~ry burc..lsns and commauc..ls that
trade shall be free from all pecuniary burdens: 22
C.L.R. 566; 1936 A.C. 573, 629-630.
1960. September 26. The ,Judgment of Sinha,
C. J., was dcliverec..I by Sinha, C. J. The judgment of
Gajendragadkar, \Vanchoo and Das Gupta, JJ., was
dMiv«red by Ga.jendraga.dkar, J. and Shah, ,J., delivered his own judgment.
Si"h" c. J.
SINHA C. J.-These appeals on certificates granted
under Art. 132 of the Constitution by the High Court
of Judicature in Assam and Writ Petitions under
Art. 32 of the Constitution impugn the constituf ionality of the Assam Taxation (on Gooc..ls Carried hy
Roads or Inland Waterways) Act, (Assam Act XIII
1 S.C.R.
SUPREME COURT REPORTS
815
of 1954), which hereinafter will be referred to as the
Act. The appellants moved the High Court under
Art. 226 of the Constitution challenging the validit.y
of the Act. ·The High Court by its judgment and
order dated June 6, 1955, dismissed the writ petitions.
Thereupon, the appellants obtained the certificates
that the cases involved substantial questions of law
as to the interpretation of tbe Constitution. Tbe peti.
tions under Art. 32 of the Constitution were moved in
this Court for the same purpose of challenging the
vires of the Act.
Tbe appellants and the petitioners
will, in the course of this judgment, be referred to, for
tbe sake of convenience, as the appellants: The State
of Assam, the Commissioner of TaxeP, appointed
under s. 6 of the Act, and the Superintendent of Taxes
are the respondents to the appeals and the writ peti-
~m,
.
.
It appears that the appellants are growers of tea in
West Bengal or in Assam and carry their tea to the
market in Calcutta fi;.om where the tea is sold for consumption in the country or is exported for sale out of
the country. The sale of tea inside Assam bears a
very small proportion to the tea produced and manufactured by the appellants. ThuR the. bulk of tea
produced atid manufactured is carri~ out of Assam,
either for internal consumption in I dia or for export
abroad. Besides the tea carried by ail,·a large quantity of tea is carried by road or by inland waterwavs
from Assam to Bengal and in some of these cas;s,
from one part of West Bengal to another part of the
same State through inland waterways, only a few
miles of which pass through the territory of the State
·of Assam. The Assam Legislature passed the Act
which received the assent of the Governor of Assam
on April 9, 1954, and came into force on and from
June 1, 1954. The purpose of the Act is to levy taxes on certain goods carried by road or inland waterways in the State of Assam.· On June 30, 1954, the
second respondent, the Commissioner of Taxes, Assam,
in exercise of the powers conferred upon him by sub.
s. (3) of s. 7 of the Act, published a notification in the
Assam Government Gazette bearing date June 21,
Atiabari Tea
Co., Ltd.
v.
The State of
Assani & Others
Sinha C. ].
Atirr: .. ~; 1'ra
Ct· .. Lid.
'"
Slfi
SUPRE~!E COCRT HEPORT~
[191ll]
1954, by which he notifird for general information
that the return uuder the aforesaid Act and the rules
made tl1ereunder for tho period commencing June 1,
1954 to September 30, 1954, Rbould be furnishrd hy
,.,,, s""' nf
Or.tobor 30, 1954. The said notifil'ation also dema11dA""'" 1~ Oihm ed the furnishing of quarterly returns before ,January
Si11h11 C . .f.
30, 1955 and April 30, 1955, for t.hP qnarters Pnding
Dect>mber 31, 1954 and Mareh 31, 1!155, resp•·ctirdy.
The appellants in some of the casPs, in pursuance of
demand noticeR, submittPd returns to the third rPspondent, the Superintf·ndent of Taxes, in the pn~scrib
ed form in respect of tea dcspat.ched a11d <'n.rried up to
September 30, 1954, under protest. They alsn paid
the tax demanded undn protl'st.
The apprllar.t~
moved the High Court of Judicature in A~sam_ undrr
Art. 226 of the Constitution challenging the \'alidit.y
of the said Act. and praying for tht>. i;sue of a writ of
mandamus directing the respondents to forbear from
iriving elfei:~ to the prO\·isionH of the Act and the notification issued under the Act anq/or a writ of prohibition or any other appropriate writ restraining t\\i;m
from taking steps under the provision" of the Aet.
The appellants challenged the validity of the Act
mainly on the grounds that (l) the Act, rult-s and the
notifications under the Act were ultra vires the Constitution, b<,ca.use the Act was repugnant to the pro,·i-
~ions of Art. 301 of the Constitution as the tax on
carriage of tea through the State of Assam ha<l the
effect of interfering with the freedom of trade, commerce and intercourse; (2) tbat tea being a controlled
industry under the provisions of the Tea Act XXIX
of 1953, tho Union Government alone had the power
to regulate the manufacture, production, distribution
or transport of tea and the jurisdiction of the Assam
Legislature was thus completely ousted; (3) that the
tax under the Act was nothing but a duty of excise,
in substance, though not in form, and was thus an
encroachment on the Cent.ral legislative field within
the meaning of entry 84 of thP Union List. The impugned Act was also challenged on the ground that it
was discriminatory and thus void under Art. 14 of
l S.C.R. SUPREME COURT REPORTS
817
the Constitution. The competence of the Assam Legislature to legislate on the subject was also questioned.
The respondents opposed those petitions under
Art. 226 of the Constitution in the High Court. It was
denied by the State that the Act or the rules made
thereunder or the notifications issued thereunder were
ultra vires the Constitution or that the Act contravened the provisions of Art. 301 of the Constitution or
that it was an encroachment on the sphere of the
Union Legislature or was in a.ny way in conflict with
the provisions of the Tea Act XXIX of 1953. The
case of the respondents was that the Act was in pith
a.nd substance, a legislation to levy tax on certain
classPs and types of goods carried by road or inland
waterways, strictly within entry 110. 56 of the State
List. It was also asserted that the Act was within
the legislative competence of the Assam Legislature
and wa.s not within the terms of the prohibition contained in Art. 301 of the Constitution.
These petitions were heard by a Special Bench of
the Assa.m High Court, which, by its judgment and
order dated June 6, 1955, dismissed them holding that
the A6t was not unconst.itut.ional.
Two separate, but
concurring judgments, were delivered by Sarjoo Prasad, C. J. and Ram Labhaya, J. The learned Chief
Justice, in the course of his judgment,, held that the
Act contem11lated imposition of a tax on transport or
c<1rriage of goods within the meaning of entry 56 <>f
List II and did not amount to interference with the
freedom of t.radc and commerce within the meaning
of Art. 301 of the Constitution ; that the pith iwd
substance of the impugned Act was that it was a taxing legislation which was not directly concerned with
trade and commerce, though it might indirect'ly entrench on the field of trade and commerce and that
Art. 301 was not directly concerned with taxing laws.
He also held that the impost levied by the A-ct was
not in the nature of an excise duty and that there was
no substance in the contention ,that it encroached
upon entry 84 of the Union List I. It was also held
that the impugned Act did not, in any way, come
in conflict with the control of the tea industry
.r960
Atiaba1'i Tea
Co., .Ltd.
v.
The Slate of
Assatt1 0-- Others
.5inha· C. ].
Atiaba-rr 'le(t
Co, Ltd.
v.
The Stalt of
Assam &- Othos
SiPJ!ta C. }.
818
SUPREJ\lE COCRT REPORTS
[ 1961]
introduced by the Central Legislation, namely, the
Tea Act XX IX of 1953.
Ram Labhaya, J., examined t.he provisions of the
impugned Act in great detail and came to the conclusion that the element of C"arriage was expressly made
a condition of liability to tax under the impugned
Act and it was, therefore, distinguishabhi from a duty
of cxci'e and came directly under l•nt.ry 56 of Li8t II.
On the crucial g11eHtion arising in t.his c:ise, his conclusion was I hat taxation per se has not the effpct of
abridgi11g or curtailing thB freedom con tern plated by
Art. 301; that Arts. 302 and 304 restrict the powers
of Parliament and the State Ll·gislatures in the matter
of legislation under cntriPs 42 of List I, 26 of List II
and 33 of List III and that restrictionR properly AO
called on the movement of goods and traffic must find
their justification from t.he provisions of Part XIII of
the Constitution; that the impugned Act made prod~
sion for taxation which did not directly impinge upon
the freedom of trade, commerce and intercom>'e within.
the meaning of Art. 301.
His view also was that in
some casrs taxation may have the effect. of placing
restrictions 011 m1wement of goods Qnd traffic, and if
it has that effect, it comes within the mischief of
Art. 301.
In the result., his conclusion was that the
impugned Act in its pith and substance fell within
the ambit of entry 56 of List II.
Ile also examined
the terms of the Union logislation, Tea A<·t Xo. XXlX
of 1953, and came to the conclusion that the impugned Act did not trespass upon the field of the controlled in<lutitry of tt·a.
His conclusion with reference to
the argument of discrimination based on Art. 14 was
that there was no proof forthcoming of any real discrimination between persons and t.hiugs.
With tb<>se
conclusions Deka, J., the third Judge, entirely agreed.
From the judgment of the High Court the appellants
have come up in appeal on certificates granted by the
High Court. The two petitions under Art. 32 of the
Constitution were filed on behalf of two other producers of tea. They raise the same questions a.s a.rise
for determination in the three appeals from the decision of the Assam High Court. They ba.ve all been
I
1 S.C.R. SUPREME COURT REPORTS
819
heard together and will be dealt with by a common
judgment.
Mr. Chatterjee, on behalf of the appellants, contended that the impugned Act imposed fetLers on the
free flow of trade and commerce in respect of tea and
jute, the two commodities dealt with by the Act and,
therefore, .contravened the provisions of Art. 301 of
the Constitution ; that the legislation was .ieyond the
legislative competence of the Assam Legislatnre and
was not authorised by entry 56 in List lI; that the
tea industry was a controlled industry as declared by
Parliament and directly came under entry 52 of
List I; that it was a colourable piece of legislation
which, in its true effect, was a levy of a duty of excise
which could only be done by the Union Legislature,
and finally, that it contravened Art. 14 of the
Constitution.
·
The learned Attorney General on behalf of the State
of Assam as also of the Union contended, on the other
hand, that taxation simpliciter was not within the
terms of Art. 301. Taxation as such is not a restriction
within the meaning of Part XIII. It is an attribute
of so~ereignty, which is not justiciable. The power
to tax is a peculiar legislative function with which the
courts are not directly concerned and that, therefore,
the freedom contemplated by Art. 301 does not mean
freedom from taxation and that taxation is not included within the connotation of the term. " Restriction "
in the context of Part XIII meant legislation which
had the effect of impeding the free flow of goods
and traffic by erection of tariff walls, for example,
a tariff wall, if erected by a Legislature, may be
justiciable, hut not legislation simply imposing a tax
for purposes of revenue.
He further contended that
Part XII of the Constitution is a self-contained part
dealing with finance etc., even as Part XIII is a self.
contained part dealing with trade, commerce and
intercourse within the territory of India. He emphasised that the American and Australian decisions are no
guide to the decision of the points in controversy in
the present case, as the framework of their respective
constitutions was entirely different from the Indian
I960
Atiabari Tea
Co., Ltd.
·v.
The State of
Assa11i 0- Others
Sinha C. J.
Atiabari Tea
Co., Ltd.
v.
The State of
Assani &- Others
Sinha C. ].
820
SUPREME COURT REPORTS
[1961]
Constitution. Particularly, the Australiau Constitution did not contain anything corresponding to Parts
III and XII of our Constitution. According to his
contention" freedom" in Part XIII meant freedom
from discriminatory taxation and freedom from trade
barriers. The Advocate-General of the several States
who appea.red in this case supported the viewpoint
stressed by the learned Attorney General.
The most important question that falls to be determined in this batch of cases is whether the impugned
Act infringes the provisions of Part XIII of the Constitution, with particular reference to Art. 301. Part
XIII is headed "Trade, Commerce and Intercourse
within.the Territory of India". Article 301, which is
the opening Article in this Part is in very general
terms, which are as under:-
"Subject to the other provisions of this part,
trade, commerce and intercourse throughout the territory of India shall be free".
It is clear that this Part is not subject to the other
provisions of the Constitution and the generality of
the words used in Art .. 301 is cut down only by the
provisions of the other Articles of this Part ending
with Art. 307. It has not been and it could not be
contended that the generality of the expressions used
in Art. 301 admit of any exceptions or explanations
not occurring in this Part itself, nor has it been contended that trade, commerce and intercourse are
subject to any other fetters.
All parties are agreed
that trade, commerce and intercourse throughout the
territory of India have been emphatically declared by
the Constitution to be free, but there is a wide divergence of views on the answer to the question "free
from what?" It has been contended on behalf of the
appellants that the answer to this question must be
that trade, commerce and intercourse throughout
India, shall be free from everything including taxation. On the other hand, the contention on behalf of
the Union Government and the State Government is
that the freedom. envisaged by Art. 301 does not
include immunity from taxation and that freedom
means that there shall be no trade barriers or tariff
1 S.C.R. SUPREME COURT REPORTS
821
walls shutting out commodities, traffic and intercourse
between individuals, and no shutting in.
Atiabari Tea
Co., Ltd.
v.
ln order fully to appreciate tho implications of the
provisions of Part XIII of the Constitution, it is necessary to bear in mind the history and background of
The State of
those provisions. The Constitution
Act of 1935 Assam & Othm
(Government of India Act, 26 Geo. 5, Ch. 2) which
envisaged a federal constitution for the whole of India,
including what was then Indian India in contradistinction to British India, which could not be folly
implemented and which also introduced full provincial
autonomy enacted s. 297 prohibiting certain restrictions on internal trade in these terms:-
" 297.-(1) No Provincial Legislature or Government shal!-
(a) by virtue of the entry in the Provincial Legislative List relating to trade and commerce within the
Province, or the entry in that list relating to the production, supply, and distribution of commodities, have
power to pass any law or take any executive action
prohibiting or restricting the entry into, or export
from the Province of goods of any class or description; or
· (b) by virtue of anything in this Act have power
to impose any t.ax, cess, toll or due which, as between
goods manufactured or produced in the Province and
similar goods not so manufactured or produced,
discriminates in favour of the former, or which, in the
case of goods manufactured or produced outside the
Province, discriminates between goods manufactured
or produced in one locality and similar goods manufactured or produced in another locality.
(2) Any law passed in contravention of this sec.
tion shall, to the extent of the contravention, be
invalid."
It will be noticed that the prohibition contained in
the section quoted above applied only to Provincial
Governments and Provincial Legislatures with reference to entries in. the
1 Provincial Legislative List
relating to trade and commerce within the Province
and to productiqn, supply and distribution of commodities.
That' section dealt with pi:ohibitions or
I05
Sinha C. ].
1960
Aliabari Tea
Co., Ltd.
v.
822
SUPREME COt:RT REPORTS
(1961)
restrictions in respect of import into or export from a
Province, of goods generally. It also dealt with the
power to impose taxes etc. and prohibited discrimination against goods manufactured or produced outside
n,, Stat• of
a Province or goods produced in different localities.
Assam b Othm Part Xlll of the Constitution has introduced all thoso
Sinha C. J.
prohibitions, not only in respect of Stato Legislatures,
hut of Parliament also. In other words, Part XIII
enlarges the scope of tho inhibitions and lays down
the limits within which the Union Parliament or a
State Legislature ma.y legislate with reference to trade,
commerce and intercourse inter-State, int.ra-State and
throughout tho territory of India.
In this connection it has got to bo remembered that
before the commencement of the Const.it ution about
two-thirds of India was directly under British rule
and was called ' British India; and the remaining
about one.third was being directly ruled by the Princes and was known as' Native States'. There were a.
large number of them with var_ying degrees of sovereignty vested in them. Thoso rulers had, broadly
speaking, the trappings of a Sovereign Stato with
power to impose taxes and to regulate the flow of
trade, commerce and intercourse. It is a notorious
fa.ct that many of them had erected trade barriers
seriously impeding the free flow of trade, commerce
and intercourse, not only shutting out but also
shutting in commodities meant for mass consumption.
Between the yea.rs 1947 and 1950 almost
all the Indian States entered into engagements with
the Government of India and ultimately merged
their individualities into India as one political unit,
with the result that what was ca.lied British India,
broadly speaking, became, undor the Constitution,
Pa.rt A Stat.es, and subject tc» certain exceptions not
relevant to our purpose, the Xa.tive States became
Pa.rt B States. We also kuow that before the Constitution introduced the categories of Pa.rt A States, Part
B States and Part C States (excluding Part D relating
to other territories), Pa.rt B States themselves, before
their being constituted into so many units, contained
many small . States, which formed themselves into
I S.C.R. SUPREME COURT REPORTS
823
Unions of a number of States, and had such trade
barriers and custom posts, even inter se~ But even
after the merger, the Constitution had to take notice
of the existence of trade barriers and therefore had to
make transitional provisions with the ultimate objective of abolishing them all.
Most of those Native
States, big or small, had their own taxes, ceases, tolls
and other imposts and duties meant not only for raising revenue, but also as trade barriers and tariff walls.
It was in the background of these facts and circumstances that the Constitution by Art. 301 provided for
the abolition of all those trade barriers and tariff
walls.
When for the first time in the history of India
the entire territory within the geographical boundaries
of India, minus what became Pakistan, was knit into
one political unit, it was necessary to abolish all those
trade barriers and custom posts in the interest of
national solidarity, economic and cultural unity as also
of freedom of trade, commerce and intercourse.
It is in the background of these facts and circumstances that we have- to determine the ambit of the
freedom contemplated by Art. 301.
That Article
envisages freedom of trade and commerce with reference to different parts of India as also freedom of
movement of individuals in relation to their trade
and other activities.
Hence, Art. 301 has reference
not only to trade _and commerce, as ordinarily under-
. stood in common parlance, but also in relation to
individuals who have to move with their goods and
commodities throughout the length and breadth of the
country. Movement of traffic in goods and commodities as also of persons can be by railway or airways,
by road or by inland waterways etc., etc. Carriage of
goods and passengers by rail way, by sea or by air
or by national waterways is covered by entry 30
of List I and taxes on rail way fares and freights and .
terminal taxes on goods or passengers carried by railway, sea or air come under the purview of entry 89 in
the same List. On the other hand, taxes on goods and
passengers carried by" road or inland waterways come
under entry 56 of List II (State List). It will thus be
seen that the Constitution makers contemplated taxes
Atiabari Tea
Co., Ltd.
v.
The State of
Assam &,. Others
Sinha C. J.
Aliahan [ta
Co., Ltd.
v.
Tht Sia/a of
Assan1 6- Others
Sinha C. ).
824
SCPHE:IIE COURT HEPORTS
[ l!J(i I J
on goods and passengers to bo imposed by the Parliament on journeys covt>red by railway or by sra or by
a.ir; and by State Legislatures on journeys by road or
inland waterways. Tho powPr to tax is inl.ierent in
sovereignty. The sovereign Stato, in Aome cases the
Union, in other ca.sea the Stat~'• has the inherent power
to impose taxes in order to raise re\"e11ue for purposes
of State. Such a. sovereign power ordinarily is not
justiciable, simply because the State in its legislative
department has to determine the policy and incidence
of taxation. It is the State which dotermincs, through
the Legislature, what taxes to impose, on whom and
to what extent. The judicial department of the State
i• not expected to deal wit.h such u1attern, because it
is not for the courts to determine the policy and
incidence of taxation. This power of the Stat~ to raise
finances for Government purposes ha.s been dealt wit.h
by Part XII of the Constitution, which contains the
total prohibition of levy or collection of tax, except by
authority of law (Art. 265). This Part also deals with
the distribution of revenue between the Union and the
States. It does not clearly demarcate the taxing
authority as bet weon the Union and t.he States a.nd
therefore bad to indicate in great detail what taxes
shall be levied for the benefit of the l:nion or for tho
benefit of tho Statrs and what taxes may be levied
and collected by the union for the benefit of tho
States and the principle according to w bi ch those
revenue8 have to he distributed amongst the constituent States of the Union. In short, Pa.rt X ll is a
self.contained series of provisions relating to tho
tina.ncoH of the Union and of tho Statl'B and their
inttir-relation and adju;tments (ignoring the provisions
in Chapter 2 of that Part relating tu borrowing and
Chapter 3 relating to property cont mets etc.).
Like
Pa.rt XllI, Part XII also is not expressed to be subject
to the other provisions of the Constitution.
Houce,
both Parts XII and XIII are meant to be self contain.
ed in their respective fields.
It cannot, therefore, be
said that the one is subject to the other.
But it lias
been argued on behalf of the appellants that tho provisions of Art. 30! indicate that taxation is within
'
1 S.C.R. SUPREME COURT REPORTS
825
the purview of the overriding provisions, as they have
been characterised, of Art. 301. But a close examination of the provisions of Art. 304 would show that it
is divided into two parts, viz., (1) dealing with imposition of discriminatory taxes by a State Legislature;
and (2) relating to imposition of reasonable restrictions, thus showing that imposition of taxes, discriminatory or otherwise, is a class apart from imposition
of reasonable restrictions on freedom of trade, commerce and intercourse. The second part of Art. 304
dealing with imposition of reasonable restrictions on
freedom of trade, commerce and intercourse by a State
Legislature is on a line with the imposition by Parliament of such restrictions between one State and
another or within any part of the territory of India in
public interest, contained in Art. 302. The provisions
of Art. 303 further make it clear that the giving of
preference to one State over another or discrimination
between one State and another are clearly within the
purview of Part XIII, that is to say, they are calculated to impede the freedom of trade, commerce and
intercourse. There is a prohibition against Parliament
as also against the Legislature of a State making any
law giving preference to one State over another or
making or authorising the making of any discrimination between one State and another. Bnt the most
significant words in connection with giving preference
or making discri,mination as envisaged in Art. 303 are
with reference to " any entry relating to trade and
commerce in any of the Lists in the Seventh Schedule'',
that is to say, entry 42 in List I, entry 26 in List II
and entry 33 in List III of the Seventh Schedule.
Hence, any legislation nnder those entries wbicb has
the effect of directly interfering with trade, commerce
and intercourse being free throughout the territory of
India has to be struck down as infringing the provisions of Art. 301.
But in this matter also the Constitution makers bad before them situations of emergency, say for example, created by drought or overflooding resulting in .scarcity of commodities like food grains
etc. In such a situation,. Parliament has bet'n armed
with the power to grant preference to one State over
19·60
Atiaba~i Tea
Co., Ltd.
v.
The State o-f
Assani 6- Others
Sinha C. ].
Atia'"1a1i Tra
Co., Ltd.
v.
The State of
Assa1n 6- Othrrs
Sinha C. }.
826
SCPRE:\IE COCRT REPORTS
[1961]
another or to mako a discrimination as between two
and more States if the Law dealing with such a situation declares that it is necessary tu do so in order tu
deal with an emergency like the one referred to above.
In this connect ion it may not be ompha.sised that Art.
303 has not been rnry accurately worded inasmuch as
the non obs/ante clause, with which the Article opens,
has reference only to Art.