IMPORTANT POINTS
1. Taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India. The word ‘Free’ used in Article 301 does not mean “free from taxation”.
2. Only such taxes as are discriminatory in nature are prohibited by Article 304(a). Levy of a non-discriminatory tax would not constitute an infraction of Article 301.
3. Clauses (a) and (b) of Article 304 have to be read disjunctively.
4. A levy that violates Article 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso thereunder is satisfied.
5. The compensatory tax theory evolved in Automobile Transport case and subsequently modified in Jindal’s case has no juristic basis and is therefore rejected.
6. Decisions of this Court in Atiabari, Automobile Transport and Jindal cases and all other judgments that follow these pronouncements are to the extent of such reliance overruled.
7. A tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing state.
8. Article 304 (a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation. Therefore, incentives, set-offs etc. granted to a specified class of dealers for a limited period of time in a non-hostile fashion with a view to developing economically backward areas would not violate Article 304(a).
9. States are well within their right to design their fiscal legislations to ensure that the tax burden on goods imported from other States and goods produced within the State fall equally. Such measures would not contravene Article 304(a).
10. Restrictions mentioned under Article 304(b) of the Constitution do not include tax.
11. It is not correct to say that since goods being taxed are not produced in the State the power to levy a tax gets obliterated, that is to say, that Article 304 (a) does not bar levy of tax if the goods are not manufactured or produced within the State.
12. Article 304(a) of the Constitution protects from discrimination (for protectionism) and not mere differentiation.
13. Any incentive/benefits of concession in the rate of tax given to the indigenous manufacturers in order to encourage the manufacture/production in the State cannot be said to be discriminatory.

Headnote:Per T.S. THAKUR, CJI (for himself and A.K. Sikri and A.M. Khanwilkar, JJ.)
       (1) Interpretation of Constitution – Due regard to basic features of the Constitution – Constitution being a living and dynamic document, it ought to receive an equally dynamic and pragmatic interpretation that harmonizes and balances competing aims and objectives and promotes attainment of national goals and objectives – It must be read as a logical whole – A constitutional provision cannot be interpreted in a manner that renders another provision redundant – In case of the language of a provision being imprecise, protean or evocative or capable of reasonably bearing more than one meaning, Court can call in aid other well recognised rules of construction such as legislative history, the basic scheme and framework of the statute as a whole, the object sought to be achieved and the consequence flowing from the adoption of one in preference to the other possible interpretation – A narrow interpretation that might result in subverting the delicate balance in distributing legislative businesses including the sovereign power to levy taxes must be avoided – A construction that is most beneficial for a harmonious relationship between different limbs of the State including that between the Centre and the States or States inter se adopted. (Para 11, 12)
       (1992) Supp 2 SCC 651; (2002) 8 SCC 481; (1979) 2 SCC 34; (1973) 4 SCC 225 – Relied upon
       (2) Constitution of India – Article 245, 246 and 265 – Power to Tax – Inherent in the people – Meant to recover a contribution of money or other property in accordance with some reasonable rule or apportionment for the purpose of defraying public expenses – Power to levy taxes – An attribute of sovereignty – Parliament and State legislatures competent to enact laws for levy and recovery of taxes – However, exercise of the power is controlled by Constitution – Article 265 forbidding levy or recovery of any tax except by the authority of law. (Para 14, 15, 18)
       AIR 1962 SC 1563; (2000) 5 SCC 694; (2009) 10 SCC 755 – Relied upon
       (3) Constitution of India – Articles 245 and 246 – Complete separation of taxing powers of the Union and the States under Article 246 without any overlap – Sources of taxation clearly delineated – General subjects of legislation and taxation – Distinction – Former being dealt within one group – Later dealt with in a separate group – Power to tax cannot be deduced from a general legislative entry. (Para 19)
       (1983) 4 SCC 45; (2004) 10 SCC 201; (2012) 7 SCC 106 – Relied upon
       (4) Constitution of India – Article 246 – Law making power to levy taxes with respect to matters in List II and III, Seventh Schedule conferred on States under Article 246(2) and (3) – Power exercisable subject to constitutional limitations of Articles 265, 13, 249, 250, 251, 252, 253, 285, 286, 287, 288, and 366(2)(A) as also Article 304(a). (Para 20, 21, 27)
       (1990) 1 SCC 109 – Relied upon
       (5) Constitution of India – Article 246 and Part XIII – Constitutional limitations on power to make laws for levy and recovery of tax – Must be express. (Para 28, 29)
       AIR 1955 SC 540; AIR 1967 SC 40 – Relied upon
       (6) Interpretation of Constitution – Basic structure – While interpreting the constitution its quasi federal character with a strong bias towards the Centre must be kept in mind. (Para 30, 31, 32, 33)
       (1973) 4 SCC 225; (1994) 3 SCC 1; (2006) 7 SCC 1; AIR 1965 SC 745 – Relied upon
       (7) Interpretation of Constitution – Part XIII (Articles 301 to 307) – External Aid – Historical backdrop – Provisions of the Constitution must be read in the light of the provisions of the Government of India Act – Debates of the constituent assembly – The princely States in pre-independent era had created trade barriers – Article 301 therefore provided for the abolition of such trade barriers to facilitate free trade, commerce and intercourse in the interest of national solidarity and economic unity of the country – Section 297 of the Government of India Act, 1935. (Para 38, 44, 45, 47, 53)
       AIR 1958 SC 468; AIR 1961 SC 232; AIR 1962 SC 1406 – Referred
       (8) Constitution of India – Article 301 – Concept of compensatory taxes – Concept of compensatory taxes not recognised by Constitution – Tax and fee – Distinction – Tax has no element of quid pro quo – No question being compensatory unlike ‘fee’ which cannot be levied without the element of quid pro quo – Making tax compensatory fraught with serious difficulties – Concept of Compensatory tax rejected as unacceptable. (Para 63, 64, 65)
       AIR 1954 SC 282; AIR 1954 SC 400; AIR 1961 SC 459; AIR 1965 SC 1107; (1980) 1 SCC 416; (1995) 1 SCC 655; (2004) 5 SCC 155; (2004) 10 SCC 201 – Relied upon
       (2010) 4 SCC 595; 1995 Supp [1] SCC 673; (1996) 9 SCC 136; (2003) 8 SCC 60; (2009) 7 SCC 339; (2010) 4 SCC 595; AIR 1965 SC 1636 – Referred
       AIR 1961 SC 232; AIR 1962 SC 1406 – Overruled
       (9) Constitution of India – Article 301 – Free trade – Not absolute – Subject to Articles 302, 303 and 304 – Parliament may impose restrictions in public interest under Article 302 – Such restrictions, however, shall not be in the nature of giving preference or discrimination between one State or the other except when the law declares that scarcity of goods in any part of India necessitates such preference or discrimination – Article 304(a) specifically recognises State legislature’s power to impose tax on goods imported from other States or Union Territories – Levy of taxes on import of goods from other States not by itself an impediment under the scheme of Part XIII or Article 301 – A non-discriminatory tax does not per se constitute a restriction on the right to free trade, commerce and intercourse guaranteed under Article 301. (Para 66, 67, 68, 69, 126)
       AIR 1961 SC 232; AIR 1962 SC 1406; (2006) 7 SCC 241 – Overruled
       (10) Constitution of India – Article 304(a) and (b) – Clauses (a) and (b) deal with two distinct subjects – While Clause (a) deals entirely with imposition of taxes on goods imported from other States, Clause (b) deals with imposition of reasonable restriction in public interest – Law may simply impose a tax without any restriction – It may simply impose a reasonable restriction in public interest without imposing any tax whatsoever – It may also levy a tax and impose reasonable restriction if considered necessary in public interest – Non-discriminatory taxes do not constitute a restriction under Part XIII – Therefore Clause (b) must necessarily apply to restrictions other than those by way of taxes. (Para 71)
       (11) Interpretation of statute – Textual and contextual interpretation – Statutory provisions can be best understood if the text and the context are kept in view. (Para 73)
       (1987) 1 SCC 424 – Relied upon
       (12) Constitution of India – Part XIII – Articles 301 to 304 – Object underlying Part XIII – To make movement and exchange of goods free throughout the territory of India – Achieved by Article 301 to Article 304 – Textual interpretation gets support from contextual and historical perspective – No specific limitation on the State’s power to levy taxes on the import of goods from other States except the one referred to in Article 304(a) – State legislatures are free to levy non-discriminatory taxes – Federal structure one of the basic features of the Constitution –Constitution therefore should be interpreted in a manner that preserves and promotes the federal set-up instead of diluting or undermining the same. (Para 77, 78, 80, 81, 86)
       AIR 1958 SC 468; AIR 1961 SC 232, (2006) 7 SCC 1; (1994) 3 SCC 1; AIR 1965 SC 745; (2002) 9 SCC 232; (1973) 4 SCC 225; (2002) 9 SCC 232; (1975) 1 SCC 375 – Referred
       (13) Constitution of India – Article 301 and 304 – Non-obstante clause in Article 304 – Used only as a manner of abundant caution and showing that Article 301 is subordinate to Article 304 – No conflict between expressions ‘subject to other provisions of this Part’ in Article 301 and the non-obstante clause in Article 304 – Non-obstante clause in Article 304 not suggesting taxes as restrictions under Article 301 – Also not suggesting that levy of taxes may be permissible only in case the procedure provided under the proviso is followed. (Para 91)
       AIR 1962 SC 1406 – Overruled
       (14) Interpretation of statute – Fiscal statute – Open to challenge on touchstone of Article 14, Constitution of India – Limited grounds for challenging fiscal statutes does not make them a restriction on free trade and commerce guaranteed under Article 301 – Only discriminatory taxation being offensive to Article 304 (a) would be impediment under Article 301. (Para 96)
       AIR 1951 SC 97; AIR 1961 SC 552; AIR 1955 SC 3; AIR 1962 SC 1621 – Relied upon
       (15) Interpretation of statute – External Aids – Foreign judgment – Atiabari and Automobile cases decided relying upon Australian and American judgments to hold that the test of direct and immediate effect is correct test to judge validity of a taxing statute – “Direct and immediate” effect test watered down and diluted in Australia – Current view is that only such taxes as are discriminatory introduced by way of a protectionist measure operate as restrictions on the freedom of trade, commerce and intercourse – Section 92, Australian Constitution – Basis for Atiabari and Automobile cases fizzled out. (Para 105)
       (1936) A.C. 578; [1950] A.C. 235; (1988) 165 CLR 360 – Referred
       AIR 1961 SC 232; AIR 1962 SC 1406 – Overruled
       (16) Constitution of India – Articles 301, 304 and 306 (since repealed) – Tax Imposed by princely States on import into and export out of goods from their States in the nature of custom duties – Article 306 therefore treating them as restriction on free trade and commerce but allowing them for a limited period in the larger interest of revenue stability o those States – Similarly high rate of tax is no restriction on free trade – Levy of tax – Attribute of sovereignty as well as unavoidable necessity. (Para 108, 109, 110, 112, 113, 116)
       AIR 1969 SC 147 – Relied upon
       17 US 316 (1819); (1989) 3 SCC 634; AIR 1959 SC 894; (1980) 2 SCC 410; (1997) 1 SCC 319 – Referred
       (17) Constitution of India – Article 303 – Expression “by virtue of any entry relating to trade and commerce” – Not wide enough to include entries relating to levy of taxes also – Entries relating to Trade and commerce by themselves do not empower legislature to levy taxes – Levy of tax only possible under taxing entry – Secondly, taxes are our of purview of Part XIII including Article 303 – Article 303 is an exception to restricting law making power of Parliament. (Para 117, 118, 119, 120)
       AIR 1958 SC 468 – Relied upon
       AIR 1969 SC 147; AIR 1961 SC 232 – Distinguished
       (18) Constitution of India – Part XIII – Does not in terms forbid levy of discriminatory taxes on goods produced within the States – But mere absence of such prohibition does not necessarily mean that discriminatory taxation is constitutionally permissible – Question of hostile discrimination between goods from one part of the State and those from another part is to be judged on a case to case basis and on the touchstone of Article 14. (Para 121)
       (19) Constitution of India – Article 304(a) – Article 304(a) strikes at discriminatory taxation – Levying tax unequally as between goods produced or manufactured within the State and those being imported from outside – Impermissible – Essence of the guarantee in Article 304(a) lying in treating same or similar goods similarly in the matter of taxation – Guarantee in Article 304(a) not violated if the goods subjected to levy of entry tax are not produced or manufactured within the State levying the tax. (Para 122)
       AIR 1966 SC 1686 – Distinguished
       (20) Constitution of India – Article 304 – Article 304(b) does not deal with taxes as restrictions – Restrictions referred to therein are non-fiscal in nature – Constitutional validity of taxing statute to be tested on the anvil of Article 304(a) and not 304(b) – Accordingly, a law would be constitutionally valid if found to be non-discriminatory – A discriminatory law cannot be validated even if process stipulated in Article 304(b) has been followed, i.e., levy is in public interest and is reasonable – What is constitutionally impermissible in terms of Article 304(a) cannot be validated and sanctioned through the medium of Article 304(b). (Para 129)
       (21) Constitution of India – Article 304(a) – Discrimination – Different from differentiation – Every differentiation is not discrimination – Discrimination involves element of “intentional and unfavorable bias” – In absence of such bias evident from the measure adopted by the state, mere grant of exemption or incentives aimed at supporting local industries in their growth, development and progress did not constitute discrimination – Discrimination without reason would be unconstitutional whereas discrimination with reason may be legally acceptable – Power to grant exemption is part of the sovereign power to levy taxes – Cannot be taken away from the States. (Para 131, 132, 133)
       (1990) 3 SCC 87; AIR 1952 SC 123 – Relied upon
       (1996) 2 SCC 39 – Distinguished
       (22) Constitution of India – Article 304(a) – Grant of exemption – A difference in the rate of tax by itself cannot be considered to be discriminatory – Intention to equalize fall of fiscal burden on the goods from within the State and those from outside the State by granting exemption – Such exemption or set off will not amount to hostile discrimination offensive to Article 304(a). (Para 141)
       (1997) 5 SCC 536; AIR 1963 SC 591; (1977) 1 SCC 234; (1983) 3 SCC 237 – Relied upon
       Per S.A. BOBDE, J. (concurring)
       (23) Constitution of India – Article 301 – Tax and more particularly Entry tax is not restriction or impediment on free trade – It is the free trade that occasions levy of tax – It is like freedom of movement and cost of bus ticket for that movement – A tax cannot be construed as trade barrier merely because the rates are high. (Para 2, 3)
       AIR 1961 SC 232; 17 US 316 (1819) – Referred
       (24) Constitution of India – Article 304(a) – There should be no discrimination in taxing between imported goods and similar goods produced or manufactured by importing State – Reference point for tax on imported goods being the tax on locally manufactured goods – If there is no tax on similar goods manufactured locally, imported goods cannot be taxed – It follows that imported goods cannot be taxed where similar goods are not manufactured or produced in the importing State. (Para 7)
       Per Shiva Kirti Singh, J. (Concurring)
       (25) Interpretation of Constitution – Articles 301 to 304, Part XIII – Interpretation must be justified both by text as well as historical context – Must also strike a desired balance between the need of free movement of trade and commerce on one hand and the sovereign taxing powers of the States on the other – Limitation on such power must be explicit in the Constitution – Article 304(a). (Para 5)
       (26) Constitution of India – Articles 301 and 304(a) – Levy of tax not violative of Article 301, if it is non-discriminatory in terms of Article 304(a). (Para 6)
       Per N.V. RAMANA , J . (Concurring)
       (27) Constitutional law – Interpretation – Entry tax laws – Need to strike balance between freedom of trade and commerce under Article 301 and taxing power of the State under Article 246. (Para 2.2)
       (28) Interpretation of Constitution – In interpreting constitutional text Court may not feel shy of using all the tools and employing all the aids of construction – Apart from general principles of interpretations relevant provisions of the Constitution especially those relating to legislative powers, provisions limiting those powers, external aids like Constituent Assembly Debates, other documents and precedents are required to be considered – Generally Constitution must be construed in most beneficial manner giving widest possible amplitude and not in a narrow and pedantic manner. (Para 5.1, 5.2)
       AIR 1987 SC 1023; 1939 FCR 18 – Relied upon
       (29) Interpretation of Constitution – Limitations on Legislative powers especially taxing powers cannot be tested by implication – There must be express limitation on the power of the State to enact the State law – Courts cannot curtail power of the state by interpretative process – Every law must be tested with reference to Preamble and Directive Principles of State Policy contained in the Constitution – If Preamble is the guiding light, Directive Principles of State Policy is the book of interpretation (Para 5.3)
       (1986) 2 SCC 249; AIR 1980 SC 1789 – Relied upon
       (30) Interpretation of Constitution – India is a quasi-federal or hybrid federal State having federalism as the basic structure of its Constitution – Therefore every provision of the Constitution should be interpreted in the light of Directive Principles of State Policy – Secondly, an interpretation which preserves the State’s power should be preferred. (Para 8, 9)
       [1964] 1 SCR 371; (1994) 3 SCC 1; [1978] 2 SCR1; AIR 1965 SC 745; (2002)1 SCR 441; (1973) 4 SCC 225; AIR 2005 SC 1646 – Relied upon
       (31) Constitution of India – Directive Principles of State Policy – Sets normative and positive standards for the Government – Sovereignty is responsibility – Exercise of sovereignty also includes lawful taxation as its incident – In democracy, elected Governments being responsible to people cannot raise tax putting the public to inconvenience – All powers exercised by State are incidents of sovereignty but taxation is on a different pedestal being required to sustain the Government and to achieve Constitutional goals. (Para 6.1)
       (1963) 1 SCR 220; (2000) 5 SCC 694; (2009) 10 SCC 755 – Relied upon
       (32) Constitution of India – Articles 245 and 246 r/w Schedule seven, List I, II and III – Power to tax – Article 265 prohibits levy or collection of tax except by the authority of law – List III does not give any power to tax – Taxing powers are contained in Lists I and II which are mutually exclusive – A taxing statute would be liable to be struck down if it transgresses into prohibited field. (Para 6.2)
       (33) Constitution of India – Article 301 and 302 to 307 – Article 301 mandates that trade, commerce and intercourse, shall be free subject to Articles 302 to 307 – The Constitution guards and protects the State legislations under Article 304(a) and (b) from overemphasized effect on freedom of trade under Article 301. (Para 8.e, 8.f)
       (34) Constitution of India – Articles 301, 302, 303 and 304 – Article 302 is an exception to Article 301 – Limitation under Article 302 is subject to Article 303 – Articles 302 and 303 do not refer to laws under taxing entries – Article 304 can be an exception to be generally construed as dealing with non-discriminatory tax and restrictions. (Para 8.g)
       (35) Interpretation of Constitution – Part XIII – Freedom of trade and commerce throughout India – Constituent Assembly debates – Not a fundamental right – Not absolutely free – Discriminatory tax (like erstwhile custom duties imposed by certain independent states) harmful for the federation. (Para 8.q)
       AIR 1975 SC 583; 1995 Supp. (1) SCC 673; (1996) 9 SCC 136; AIR 2006 SC 2550 : (2006) 7 SCC 27; (2009) 7 SCC 339; (2010) 4 SCC 595; [2003] 129 STC 534 : (2003) 8 SCC 60; (2009) 21 VST 10 (P&H); AIR 1963 SC 1760; AIR 1963 SC 1811; AIR 1967 SC 1643; AIR 1967 SC 1; AIR 1967 SC 997; (1970) 1 SCC 248; (1971) 1 SCC 85; (1974) 1 SCC 717; 1992 Supp. (3) SCC 215; (1993) 4 SCC 441; (1994) 5 SCC 54; (1997) 5 SCC 536; (1997) 7 SCC 339; (2002) 8 SCC 481; (2007) 2 SCC 1 – Referred
       (36) Interpretation of Constitution – Part XIII – External Aids – Foreign judgments – Part XIII derived from American and Australian Constitutions and adopted to Indian conditions – Therefore judgments from those countries, being just indicative, cannot be relied upon, more so because they may be subject to change – They may have persuasive value – Our Constitution needs to be interpreted indigenously. (Para 8.s)
       (37) Constitution of India – Articles 301 and 304 – Courts in Australia and the United States of America interpreted the law as totally prohibiting the States from levying any tax or regulating on inter-State trade and commerce – Subsequently and currently States are not denied such powers – Entry 52, List II, Seventh Schedule – Entry tax – Entry of goods for consumption, use or sale in the State – Mere intention for sale is of no significance to the taxable event in law on the entry of goods – Tax law simpliciter not contemplated in Article 301 – Non-obstante clause in Article 304 (a) is not determinative in the interpretation of Article 301. (Para 8.bb, 8.kk, 8.mm, 8.oo)
       (1988) 165 C.L.R 360; (1990) 169 CLR 436; (2008) 234 C.L.R 418; (1949) 79 C.L.R 497; 25 US (12 Wheat) 419 (1827); 329 US 249 (1946); 430 U.S. 274 (1977); 486 U.S. 24 (1988); 453 U.S. 609 (1981); (1921) 62 S.C.R 424; AIR 1961 SC 232; AIR 1962 SC 1406; (1964) 5 SCR 975 : AIR 1964 SC 925; AIR 2006 SC 2550 : (2006) 7 SCC 27; (1980) 4 SCC 463; AIR 1955 SC 540; AIR 1958 SC 468 – Referred
       (38) Constitutional law – Validity of law – A law abridging fundamental rights is void – Article 13 – Similarly law enacted outside scope of Article 245 and 246 and relevant legislative entries in the Seventh Schedule would be ultra vires as legislatively incompetent – That apart, Article 304(a) and (b) also act as a limitation on the legislative jurisdiction of the Union and the States – Part XII deals with tax whereas Part XII deals with trade, commerce and intercourse – Although all law are subject to all provisions of the Constitution, it does not mean that every tax law made by the State must be in consonance with the general provisions relating to trade, commerce and intercourse. (Para 8.nn)
       (39) Constitution of India – Article 304(a) and (b) – Interpreted textually and contextually Article 304(a) and 304(b) held disjunctive in nature – Levy of tax need not be tested with reference to Article 304 (b). (Para 8)
       Per R. BANUMATHI, J. (Concurring)
       (40) Constitution of India – Article 301 – Non-discriminatory tax does not per se constitute a restriction on the right to free trade, commerce and intercourse – Abandoning concept of compensatory tax might prejudice the interest of the concerned States – However, nomenclature of ‘compensatory’ under Entry 52, List II held unwarranted – Entry tax levied under entry 52, List II even though termed as compensatory tax not violative of Article 301 – For a tax, there is no requirement of proximate quid pro quo. (Para 1)
       1995 Supp [1] SCC 673; (1996) 9 SCC 136 – Relied upon
       AIR 1961 SC 232; AIR 1962 SC 1406; (2006) 7 SCC 241 – Overruled
       (2003) 8 SCC 60; (2006) 7 SCC 271; (2009) 7 SCC 339; (2010) 4 SCC 595 – Referred
       (41) Constitution of India – Article 301 and 304 – Entry 52, List II, Seventh Schedule – ‘Local area’ – May cover ‘Whole State’ or ‘a local area’ as notified in the legislation – States competent to levy entry tax on the goods imported from other countries upon entering a local area for use, consumption or sale therein – Tax concessions/benefits/subsidies granted by State for locally manufactured goods need not necessarily be limited for a specific period of time. (Para 1)
       (1996) 9 SCC 136 – Relied upon
       (42) Constitution of India – Article 245 and 246 r/w Seventh Schedule, List I, II and III – List I has superiority over Lists II and III – List III has superiority over List II – The Scheme of legislative relations between the Union and the State is inviolable. (Para 10)
       AIR 1950 SC 27; (1955) 2 SCR 164; (2011) 9 SCC 1; (2012) 7 SCC 106 – Relied upon
       (43) Constitution of India – Article 301, Part XIII – Article 301 provides for freedom of trade, commerce and intercourse subject to reasonable restrictions/limitations under Articles 302-305 of Part XIII – Provisions to ensure free flow of trade without any internal barriers – Thus the law putting limitations on free trade must be in public interest (Article 302) and non-discriminatory (Article 303 and 304(a)). (Para 15, 17, 18, 19)
       (44) Constitution of India – Article 301 – Not a restriction on plenary power of taxation of State – It only prohibits use of plenary taxation power to create trade barriers or to discriminate between “goods manufactured within the State” and “goods imported”. (Para 29)
       Constitution of India – Article 301 – Expression ‘subject to’ – Interpretation of Constitution – In interpreting any provision the Constitution should be read as a whole harmoniously – Free trade, commerce and intercourse in Article 301 is subject to other provisions of Part XIII as well as other Parts – The word “free” cannot be held to employ freedom from giving minimum wage, gratuity, provident fund etc. to the workers employed. (Para 31, 33)
       (2011) 9 SCC 1; (1973) 4 SCC 225; (1992) Supp 2 SCC 651; (2002) 8 SCC 481 – Relied upon
       AIR 1961 SC 232; AIR 1962 SC 1406 – Distinguished
       (45) Constitution of India – Taxation and levy of tax – Seventh Schedule, List II, Entry 46-62 and List III, Entries 35, 43 and 44 – Power to tax a sovereign right – And legislative in character – Necessary for the purpose of governance and carrying out State’s welfare activities – To be exercised within the constitutional limitations – These limitations must be express – Cannot be applied by implication or interpretation. (Para 36, 39, 40, 41, 43, 44)
       (1963) 1 SCR 220; (2004) 10 SCC 201; (1989) 3 SCC 698; AIR 1955 SC 540 – Relied upon
       (46) Constitution of India – Seventh Schedule – List II, Entry 52 – Entry tax – Levied for ‘Entry of goods into a local area’ for the purpose of consumption, use or sale therein – States and only States empowered to enact legislation under List II levying taxes and raise revenue – Article 265; Articles 110, 199; Articles 109 and 198; and, Articles 114 and 204. (Para 44, 45, 46)
       (47) Interpretation of Constitution – Article 301 should be interpreted in the light of its object of “economic integration of the nation” – It does not forbid any or every action which can possibly have an impact on trade, commerce and intercourse – “Free” in Article 301 does not mean freedom from taxation – Taxation simpliciter not within the purview of Article 301 – Every State tax may have an indirect effect on the flow of trade, commerce and intercourse – Holding power of State to enact tax law subject to the limitation under Article 301, the legislative power of State to levy taxes would be rendered ineffective – Limitations on States’ power to tax and exemptions therefrom are expressly provided in the Constitution – Article 286, Article 276, Article 288 and List II [entries 50, 51, 54, 55 and 57]; Articles 285, 287, 288 and 289 – Even taxation on fundamental rights has not been held a restriction – Therefore trade, commerce and intercourse cannot claim immunity from taxation. (Para 47, 48, 50, 51)
       (1985) 1 SCC 641; (1988) 1 SCC 206 – Relied upon
       (48) Constitution of India – Articles 301 and 304 – Article 304(a) restricts tax powers of States not to discriminate between goods imported into the State with similar goods manufactured or produced within the taxing State – Article 301 therefore ought not to be read as freedom from tax laws. (Para 53, 54)
       (49) Constitutional law – Validity of Tax statute – Can be challenged on ground of legislative competence as well as violation of Fundamental Rights – That does not mean that there is freedom from taxation or that tax is per se a restriction on Fundamental Rights or freedom of trade, commerce and intercourse. (Para 56, 57)
       (1964) 1 SCR 897; AIR 1966 SC 619 – Relied upon
       (50) Constitution of India – Article 301 – Does not envisage freedom from taxation but only freedom from trade barriers – Validity of non-discriminatory tax cannot be judged under Article 301 – Mere excessiveness of a tax or even diminution of profits of certain persons thereby does not, per se and without more, constitute violation of Art. 19(1)(g) – Tax simpliciter not a restriction on freedom of trade and commerce and is outside the purview of Art. 301. (Para 58, 61, 63, 89)
       1954 SCR 1005; (1995) 6 SCC 651; (2004) 5 SCC 155; (1989) 3 SCC 634; (1989) 3 SCC 677 – Relied upon
       (1988) 78 ALR 42; (2008) 244 ALR 32; 329 U.S. 249 (1946); [1977] USSC 54: (1977) 430 US 274 – Referred
       AIR 1961 SC 232; AIR 1962 SC 1406 – Overruled
       (51) Interpretation of Constitution – Article 304 – Marginal Note – Use of the word “restrictions” suggesting plurality of powers – Indicative of Clauses (a) and (b) conferring distinct powers – Clause (a) dealing with tax and clause (b) dealing with restrictions – Use of word ‘and’ after semi-colon between the two clauses – Makes them disjunctive. (Para 90, 92)
       (2013) 15 SCC 677; AIR 1950 SC 27 – Relied upon
       (52) Constitution of India – Article 304(b) – Deals with non-fiscal legislation imposing reasonable restrictions in public interest and not tax laws – Presidential sanction not required for tax laws – Articles 274 and 288. (Para 94, 102, 103)
       (2002) 8 SCC 182 – Referred
       (53) Constitution of India – Article 301 and Entry 52, List II, Seventh Schedule – Entry Tax – Levied on entry of goods into local area; for consumption, use or sale therein – “Octroi” – Local area – Entry tax levied by the State and spent for common welfare activities of the State – Distinction between State and local area practically disappears. (Para 104, 105, 110)
       (1996) 9 SCC 136 – Relied upon
       1963 SCR Suppl. (2) 216; [1961] 3 SCR 242; (1995) 3 SCC 351 – Referred
       (54) Constitution of India – Seventh Schedule, List II, Entry 52 – Entry tax – Leviable on entry of goods in local area for use, consumption or sale – Goods entering into a local area and moving on to another destination beyond the local area – Not liable to Entry tax – Entry tax thus not restricting flow of trade, commerce or intercourse – Not violative of Article 301. (Para 112)
       (55) Constitution of India – Article 304(a) – Discrimination between goods imported and produced within the State – Goods are subjected to more than one tax viz sales tax and entry tax etc. – If cumulative burden of all taxes on both types of goods remains the same, there is no discrimination – Principle of equivalence and non-discrimination – Contention that levy of entry tax only on goods imported from other States and not on indigenous goods is discriminatory and violative of Art. 304(a) rejected. (Para 118, 122)
       (1988) 1 SCC 743; (1988) 2 SCC 568; (1997) 2 SCC 697 – Relied upon
       (56) Constitution of India – Article 304(a) – Discrimination – Difference in rates of taxes or granting tax incentive or concession to local manufacturer – Cannot amount to discrimination – Part XIII aiming at facilitation of a common market by removal of barriers; and economic development – A code of checks and balances on inter-State trade, commerce and intercourse – “Differentiation and discrimination” – Distinction – Every differentiation is not necessarily discriminatory – Government incentives, subsidies or tax concessions for a certain period of time would be permissible and not discriminatory. (Para 126, 128, 141)
       (1990) 3 SCC 87; (1952) SCR 435; (2000) 1 SCC 688 – Relied upon
       AIR 1963 SC 928; (1968) 3 SCR 829 – Referred
       (1996) 11 SCC 39; (1997) 2 SCC 697 – Bad in law
       (1988) 1 SCC 743 – Specifically overruled in (2000) 1 SCC 688
       (57) Constitution of India – Article 304(a) – Article 304 is not a source of power – It embodies a re-statement of powers conferred under Articles 245 and 246 r/w the entries of List II of Seventh Schedule with some limitations – Article 304(a) places limitation of non-discrimination vis-à-vis similar internal goods – In case of non-production of similar goods in importing State, the limitation of non-discrimination is taken away but the power to tax remains. (Para 147, 149)
       (1969) 2 SCC 363 – Relied upon
       (1966) 1 SCR 865 – Not a good law
       (58) Constitution of India – Seventh Schedule – Entry 41 and entry 83 of List I and Entry 52 of List II – Import of goods and customs clearance and the entry of goods into the local areas are two distinct events – Taxable event under entry 52, List II is the entry of goods into local area for consumption, use or sale therein – The two taxable events are distinct in law and there is no overlap – Taxing power of the Union and of the States are mutually exclusive. (Para 161, 166)
       AIR 1942 FC 33 : 1942 FCR 90; AIR 1945 PC 98 : 58 LW 228; AIR 1950 SC 11; (2005) 4 SCC 214; (1983) 4 SCC 45; (2004) 10 SCC 201 – Relied upon
       (59) Constitution of India – Seventh Schedule, List I, Entry 83 and List II, Entry 52 – ‘Unbroken package doctrine’- Specifically disapproved by Indian courts – Crucially, according to entry 83, as well as the Customs Act, 1962 the taxable event is ‘import’ or ‘bringing of the goods into India’ and it is distinct from the taxable event of entry 52, List II – Movement of imported goods to the warehouse in the factory unit attracts entry tax when such goods enter a local area of the State for consumption, use or sale therein. (Para 169, 171, 176)
       AIR 1942 FC 33 : 1942 FCR 90; AIR 1951 SC 318; (1954) SCR 53; (1984) 2 SCC 534 – Relied upon
       (60) Constitution of India – Articles 301 and 304 r/w Entry 52, List II, Seventh Schedule – Nomenclature of entry tax as compensatory tax is unwarranted – There is no requirement of proximate quid pro quo – Subject to passing the muster of Art. 304(a), entry tax levied by the States under entry 52, List II even though termed as compensatory tax does not fall foul of Art. 301. (Para 191)
       (1996) 9 SCC 136 – Relied upon
       (1975) 1 SCC 375; (1981) 2 SCC 318; 1995 Supp (1) SCC 673; (2016) 3 SCC 601; (2015) 13 SCC 748; (1995) 1 SCC 655; (1990) 3 SCC 645 – Referred
       AIR 2006 SC 2550 : (2006) 7 SCC 241 – Overruled
       (61) Entry tax – Refund of tax in case validity of the legislations is not upheld – Assessees neithr pleading nor adducing evidence to show that they did not pass the burden of tax on the consumers – In the absence of any such allegation and proof, the claim of refund is not called for. (Para 192)
       (62) Unjust enrichment – The Doctrine – No person can be allowed to enrich inequitably at the expense of another – Applicable for purpose of grant of refund – A person paying tax/duty to the Government under prevailing tax Statutes, passing it on to consumers – Subsequently, the tax/duty held not payable – The person paying tax cannot claim refund as he has already recovered the same from consumers – If he gets the refund, he would be unjustly enriched.
       (Para 195, 198)
       (1990) 1 SCC 109; (1999) 9 SCC 620; (1997) 5 SCC 536; (2005) 2 SCC 515 – Relied upon
       Per D. Y. CHANDRACHUD, J. (Partly Dissenting)
       (63) Administration of justice – Precedent – Nine Judge Bench – Despite prolific number of precedents reference to nine Judge Bench or decisions by nine Judges is a comparative rarity – There have been only eight reported decisions by a Bench of nine Judges since the adoption of the Constitution – Reference to the present nine Judge Bench shows the importance and significance of the issues involved. (Para 1)
       (1974) 1 SCC 717; 1992 Supp (3) SCC 217; (1993) 4 SCC 441; (1994) 3 SCC 1; (1994) 5 SCC 54; (1997) 5 SCC 536; (1998) 7 SCC 739; (2007) 2 SCC 1 – Referred
       (64) Interpretation of Constitution – Part XIII – Legislative drafting – Mix up of exception upon exception in the series of articles in Part XIII – Rendering disclosure of true intendment of the articles difficult by a purely textual interpretation. (Para 2)
       (1963) 1 SCR 491 – Relied upon
       (65) Administration of justice – Relevance of reference in view of subsequent developments – Instant reference with regard to Entry tax under Entry 52, List II, Seventh Schedule of the Constitution – Entry 52 stands deleted as part of a constitutional process by which several taxes are being subsumed under the GST – Yet, the reference has to be answered for it raises important issues of constitutional principle about the relationship of the freedom of trade and commerce with the fiscal and regulatory concerns of the states over the need to bring growth and development within – The issues having a vital bearing on the intersection of the Constitution with free trade on one hand and growth and development on the other. (Para 3)
       (66) Interpretation of Constitution – External aid – Debates of Constituent Assembly – The Debates provide a valuable insight, grounded in history – Nevertheless, the Constitution being an organic document, its text cannot be frozen by the context of history which produced the language of the text – Presently and in future it would be necessitated to impart a meaning to the Constitution that would, while ensuring a sense of continuity, infuse it with the ability to meet the challenges of the present and foreseeable future. (Para 6)
       (67) Constitution of India – Article 301 – Freedom of trade, commerce and intercourse throughout the territory of India – Subject to other provisions, albeit restrictions and limitations, of Part XIII. (Para 9)
       (68) Constitution of India – Part XIII – Freedom of trade, commerce and intercourse – Extent of freedom made subject to provisions of Part XIII – Provisions of Part XIII define the extent of restrictions imposable by law – These provisions also define limitations on the power of Parliament and the state legislatures while prescribing a restriction. (Para 19)
       (69) Constitution of India – Article 301 – Concept of compensatory taxes – Beset with doctrinal problems – Leading to uncertainty and vagueness and producing inconsistencies in constitutional adjudication – Resulting in multiplication of litigation and uncertainty both to the revenue and to the tax payer – A concept replete with such evident problems is best eschewed. (Para 105)
       (1961) 1 SCR 809; (1963) 1 SCR 491; (1964) 5 SCR 975; (1972) 4 SCC 635; (1974) 2 SCC 777; (1975) 1 SCC 375; (1981) 2 SCC 318: 1981 SCC (Tax) 103; (1983) 3 SCC 237: 1983 SCC (Tax) 162; AIR (1983) SC 1283: (1984) Supp SCC 326: (1984) SCC (Tax) 206; (1984) 1 SCC 168; (l988) 4 SCC 290: (1988) SCC (Tax) 506; (1981) 2 SCC 318; (1975) 1 SCC 375; 1995 Supp (1) SCC 673; (1980) 4 SCC 697; (1996) 9 SCC 136; (1990) 1 SCC 12; (2003) 8 SCC 60; (2006) 7 SCC 241 – Referred
       (70) Constitution of India – Articles 19(1)(g) and 301 – Both granting freedom – Former guaranteeing the right to carry on any occupation trade or business – Latter guaranteeing freedom of trade, commerce and intercourse – Former an enforceable fundamental right of a citizen, latter a recognition of the free flow of trade, commerce and intercourse – Both in essence enforceable, and enforceable at the behest of aggrieved individuals. (Para 106)
       (71) Constitution of India – Article 301 – Freedom of movement of goods, persons, services and capital between the states – Provide foundation for guarantee under Article 301. (Para 108)
       (72) Interpretation of Constitution – No segment of the Constitution can be read in isolation – Part XIII also cannot be read in isolation. (Para 111)
       (1992) Supp 2 SCC 651; (2002) 8 SCC 481 – Relied upon
       (73) Interpretation of Constitution – Federal structure – Constitution has created a federal structure, though asymmetric as regards powers of the Centre and the States – Both are sovereign within their competence, subject to constitutional limitations – Text of the Constitution must be construed in a manner that would preserve the balance between the Union and the states – Nonetheless the specific provisions incorporated in the text must be given their plain meaning and effect. (Para 116, 120)
       (1964) 1 SCR 371; (1964) 1 SCR 413; (1994) 3 SCC 1; (2002) 9 SCC 232 – Relied upon
       (74) Constitution of India – Articles 245 and 246 – Article 245 is the fountainhead of legislative power – Making legislative powers subject to constitutional limitations – Article 246 embodies distribution of legislative powers – Read together, Articles 245 and 246 confer legislative power upon the Union and the states, and distribute that power between them to enact legislation on the fields of legislation entrusted to their competence under the Lists in the Seventh Schedule – Like all legislative power, fiscal legislation is also subject to the provisions of the constitution like Part XIII. (Para 121, 122, 123, 125)
       (2012) 7 SCC 106 – Relied upon
       (75) Constitution of India – Seventh Schedule, List I, II and III – Entries in the Lists are not source of legislative power – They merely define and delineate general fields of legislation separately from taxing heads. (Para 123, 126)
       (76) Constitution of India – Seventh Schedule – Entry 54, List II and Entry 92(A), List I – Containment of legislative power of State under Entry 54 – (i) Abstraction – Limitations under Entry 92(A) – Also express bar under Article 286(3) and sections 14 and 15, Central Sales Tax Act, 1956 enacted in exercise of powers under Article 269(3) – (ii) Eclipse – Enactment of law by Parliament for the entire territory of India under Article 253 – (iii) Constitutional limitations or restrictions – Illustrated by Article 286(3) – Also Part XIII – However the containments must be express and cannot be implied. (Para 131, 132, 133, 134, 135, 137)
       (1953) 1 BLJR 48; (1997) 7 SCC 339 – Referred
       (77) Constitution of India – Article 301 and 19(1)(g) – Freedoms under Article 19(1)(g) do not confer an immunity from taxation – Notion that every law imposing a tax is to be regarded as a hindrance to trade, commerce and intercourse is unsustainable – An increase in the rate of tax on a particular commodity does not per se impede free trade and commerce in that commodity. (Para 139, 140, 142)
       (1985) 1 SCC 641; (1987) 1 SCC 38; (1988) 1 SCC 266; (1989) 3 SCC 634; (1989) 3 SCC 677; (1994) 5 SCC 198; (1986) Supp. 1 SCC 201 – Relied upon
       (78) Constitution of India – Articles 302, 303 and 304 – Specifically contemplate restrictions on or with regard to trade and commerce – Article 303 specifically prohibits discrimination by law made under any entry of Seventh Schedule – Cannot be confined to Entries 41 and 42, List I; Entries 26 and 27, List II; Entry 33, List III. (Para 143, 144, 148, 149)
       AIR 1950 SC 468; (1968) 3 SCR 829; (1974) 4 SCC 408 – Relied upon
       (79) Interpretation of Constitution – Internal Aids – Marginal notes – Provide some guidance as to the meaning of a provision. (Para 153)
       AIR 1955 SC 661 : (1955) 2 SCR 603; AIR 1967 SC 1643:1967 (2) SCR 762 – Relied upon
       (80) Constitution of India – Article 301 – Expression ‘subject to’ – has a well-known legal connotation which conveys the idea of a provision yielding place to another provision or to other provisions to which it is made subject. (Para 153)
       (1964) 4 SCR 280; (1953) 4 SCR 1069 – Relied upon
       (81) Constitution of India – Article 304 – Begins with non obstante clause, notwithstanding – Phrase “notwithstanding anything in the Constitution” equivalent to stating ‘inspite of the other Articles of the Constitution’ or that the other Articles shall not to be an impediment to the operation of that particular Article. (Para 154, 155)
       (1986) 4 SCC 447; (1964) 4 SCR 280 – Relied upon
       (82) Constitution of India – Article 304 – Non obstante clause – Effect in application of Article 304 to Articles 301and 303 – Non-obstante provision of Article 304 governs both Clauses (a) and (b) – It would permit what is contemplated by Article 304(a) and (b) even though it would otherwise be within the ambit of the freedom guaranteed by Article 301 – Though a tax may constitute a restriction within the meaning of Article 301, its imposition would be permissible if it is non-discriminatory. (Para 156)
       (83) Constitution of India – Article 304(b), Proviso r/w Article 255 – Requirement of previous sanction of the President of India – Deficiency of not obtaining previous sanction curable under Article 255 by assent of the President of India. (Para 157)
       (84) Constitution of India – Article 304 – Use of word ‘and’ between clause (a) and (b) – The word ‘and’ has to be read as ‘and/or’ and with the prefatory word ‘may’ – Thus read, Article 304 permits the States to take recourse to both clauses (a) and (b) of Article 304, or either of them, or none of them. (Para 159, 160)
       (85) Constitution of India – Article 304(a) and 301– Not the only provision under which States can impose tax for the purposes of Part XIII – Article 304(a) covers only a tax on goods imported from other states – A tax otherwise than on goods would be outside Article 304(a) but may infringe Article 301 – A discriminatory tax on goods not traversing the state boundaries would not fall within the ambit of Article 304(a) but would offend Article 301 – This can be done under Article 304(b) – Despite Article 301, a legislative measure is permissible in view of Article 304(a) – A tax which fails to meet the ingredients of Article 304(a) will violate Article 301 – But Article 304(a) cannot be a basis for holding that every fiscal measure (apart from a discriminatory tax) like the rate of tax, assessment, collection and set offs and exemptions lies outside the purview of Part XIII – A discriminatory fiscal imposition offending Article 304(a) is illustrative of but not exhaustive of fiscal impediments on the freedom of trade and commerce – In conclusion it cannot be postulated as a general principle that it is only a discriminatory tax falling within the ambit of Article 304(a) that is subject to Part XIII (Para 162, 163, 165, 170)
       (86) Constitution of India – Articles 301 and 304 – Interpretation – Expression ‘subject to’ in Article 301 and non obstante clause in Article 304(a) – Incongruity in the expressions “subject to the other provisions of this Part” in Article 301 and “notwithstanding anything in Article 301” in Article 304(a) – Can be harmonised – Thus non-discriminatory tax on goods imported from other States would not offend Article 301. (Para 167)
       (87) Interpretation of Constitution – Internal aids – Marginal note – A broad indicator of constitutional intent – Though a marginal note cannot override constitutional text nor can it control the specific meaning of the words used in the text, it is a broad indicator or pointer to the meaning intended. (Para 171)
       (88) Taxing law – Judicial review – Despite taxation being manifestation of sovereign power, presumption of tax being in public interest, taxing law no immune from constitutional challenge – Taxing legislation can be challenged like any other statute on grounds of legislative competence, the guarantees of fundamental freedoms contained in Part III, and other constitutional limitations. (Para 176)
       (1961) 3 SCR 77; (1962) 2 SCR 983; (1962) Supp. (2) SCR 1; (1963) 1 SCR 220 – Relied upon
       (1951) 2 SCR 127 – Referred
       (89) Taxing statutes – Validity – Judicial review – A taxing statute cannot be challenged merely on the ground of high rate of taxation – The standard of judicial review in relation to fiscal statutes recognizes that the legislature must possess a wide latitude to classify persons or objects for the purposes of the levy. (Para 178)
       (1989) 3 SCC 634 – Relied upon
       (90) Taxing statute – Ambit and scope – Power to tax is a manifestation of sovereign power – But this power must be subject to constitutional limitations – Presumption of constitutionality or of legislation being in the public interest – Does not confer a protection or immunity against a specific challenge on the ground that it violates a constitutional limitation. (Para 180, 183)
       AIR 1961 SC 232 – Referred
       (91) Constitution of India – Articles 304(b), Proviso and 303(1) and (2) – Article 303(1) prohibits granting preference or discrimination between one State and another – Article 303(2) making an exception and permitting Union legislation to discriminate in situation of scarcity of gods in any part of the country – A State intending to enact a discriminating tax law must comply with Article 304(b) by obtaining previous sanction of the President. (Para 186)
       (92) Constitution of India – Article 304(a) – Exemption whether discrimination – A classification granting incentives to local industry of a specified class of units, with reference to a specific category of manufactured goods and for a stipulated period – Not discriminatory – Does not violate Article 304(a). (Para 203)
       (1990) 3 SCC 87; (1996) 11 SCC 39 – Relied upon
       (1988) 2 SCC 568 – Referred
       (93) Constitution of India – Article 14 – Equality – Formal and substantive – Uniform application of law fulfils the norm of formal equality – Formal equality may not necessarily result in just outcomes – Substantive equality is premised on the foundation that in order to produce just outcomes and a real equality between individuals who are unequally situated, the legal regime must comprehend an understanding of their past histories of discrimination, disability and injustice. (Para 209)
       (94) Constitution of India – Article 304(a) – Article 304(a) is an amalgam of formal as well as substantive norms of equality – While Article 304(a) cannot be read to prohibit a classification, it cannot be read to allow states to pursue policies of protectionism that destroy the essential freedom of trade and commerce. (Para 212)
       (1996) 11 SCC 39 – Relied upon
       (1990) 3 SCC 87 – Referred
       (95) Constitution of India – Article 304(a) and Seventh Schedule, Entry 51 – Tax imposed under Article 304(a) – Not in the nature of a countervailing duty – Article 304(a) does not preclude a state from imposing a duty on imported goods where it does not actually produce or manufacture goods of that description. (Para 213)
       (1966) 1 SCR 865 : AIR 1966 SC 1686 – Distinguished
       (96) Constitution of India – Seventh Schedule, List II, Entry 52 – Local area – Not any area – Area administered by a local authority – Octroi and entry tax – Distinction – A local area cannot be defined with reference to the entire state but will comprehend within the state, an area that is administered by a local body constituted under the law – "Local area" is not the entire state – Local area postulates an area within a state administered by a local body under relevant state legislation. (Para 219, 225, 232, 286)
       (1961) 3 SCR 242; (1961) 3 SCR 707; (1963) Supp. 2 SCR 216; (1995) 1 SCC 351 – Referred
       (97) Constitution of India – Article 304(a) – Entry tax – For entry tax since the charging event is the entry of the goods into the local area for consumption, use or sale – Article 304(a) aims to ensure no discrimination between the goods “so imported” and the goods “so produced or manufactured” – Legislation imposing a tax only upon the entry of goods originating outside the state into the state, and not subjecting goods produced and manufactured within the state to the levy would constitute hostile discrimination prohibited by Article 304 (a). (Para 227, 228, 229)
       (98) Constitution of India – Article 304(a) – Covers all taxes imposable by state under Articles 245 and 246 read with entries in List II, Seventh Schedule – Prohibits discrimination between goods imported and produced within the state – A law enacted by the state imposing a fiscal levy may cover more than one subject of legislation – “Rag-bag” legislation constitutionally permissible – Differentiation and differentiation – Distinction. (Para 240, 241, 245)
       (1989) 3 SCC 488; (2007) 7 SCC 527; (2002) 5 SCC 203; (2000) 1 SCC 688 – Referred
       (99) Constitution of India – Seventh Schedule – Entry 83, List I and Entry 52, List II – Both have separate and distinct fields of operation – Distribution of powers with reference to the taxing entries in List I and II is mutually exclusive – Taxable event for the imposition of customs duty is distinct from the taxable event in respect of an entry tax. (Para 250, 256, 259)
       1942 F.C.R. 90; AIR 1945 PC 98; AIR 1950 SC 11; (1962) Supp. 1 SCR 282; (1980) 2 SCC 410; (1971) 2 SCC 779; (1996) 3 SCC 105; (1980) 3 SCC 330; (2005) 2 SCC 515; (1983) 4 SCC 45; (2004) 10 SCC 2011; (1963) 3 SCR 787 – Relied upon
       (100) Constitution of India – Article 304(a) – Taxes may under certain circumstances amount to a restriction on the freedom of trade and commerce – Taxes are not only source of revenue but also a powerful instrument of social control – Whether a law providing for the imposition of a tax constitutes a restriction on the freedom of trade, commerce and intercourse – Direct and immediate effect test – Entry tax by itself is not an impediment of trade and commerce. (Para 261, 262, 265, 267, 269)
       (1989) 3 SCC 677; (1970) 1 SCC 248; (1972) 2 SCC 788; (1978) 1 SCC 248 – Relied upon
       AIR 1961 SC 232; AIR 1962 SC 1406; (1950) 1 SCR 88 – Referred
       Per ASHOK BHUSHAN, J. (Partly dissenting)
       (101) Interpretation of Constitution – Freedom of trade and commerce – Goal of Constitution is to eliminate internal custom duties (trade barriers) – States permitted to impose limited restrictions – Restrictions include taxes of entry of goods. (Para 152, 154, 155)
       (1936) 55 CLR (1) : (1936) AC 578; (1988)78 ALR (41); 430 U.S. 274 – Referred
       (102) Constitutional Law – Federalism in India – A Federal Constitution cannot but be a written Constitution – Legal sovereignty and political sovereignty – Legal sovereignty vests in the people of India – Political sovereignty distributed between Union and the States with a leaning towards centre – Supremacy of Constitution fundamental to existence of the Federal Constitution – Federalism is one of the basic features of Indian Constitution – Indian Constitution is basically federal in form and has marked traditional characteristics of a federal system, suitably modified – Thus it has supremacy of the Constitution, division of power between the Union and States and existence of an independent judiciary. (Para 156, 160, 164, 165, 167, 173)
       (1965) 1 SCR 413; (1973) 4 SCC 225; (1977) 3 SCC 592; (1994) 3 SCC 1 – Relied upon
       (2006) 7 SCC 1 – Referred
       (103) Constitution of India – Article 13(2), 245 and 246 – Articles 245 and 246 both cover law making by the Parliament and the Legislature – Article 245 deals with the extent whereas Article 246 deals with the subject-matter of laws – Both the Articles together define and demarcate the legislative powers to be exercised by the Parliament and the States – Legislative power is derived from Article 245 and entries in the Seventh Schedule of the Constitution only demarcate the legislative fields of the respective legislatures – Law making power, fiscal or non-fiscal, is fettered by Constitutional limitations – Validity of taxing statutes is also to be tested in the light of the fundamental freedoms guaranteed under Part III. (Para 179, 180, 182, 184, 185)
       (1955) 2 SCR 164; (2012) 7 SCC 106; (1961) 3 SCR 77 – Relied upon
       (104) Constitution of India – Part XIII – Article 301 contains a general limitation on all legislative power – Article 303 expressly restricts legislative power of the Union and the States with regard to trade and commerce – Similarly Article 304 is also a limitation on legislative power of the State – Held, all legislative powers of the state are subject to provisions of the Constitution including Part XIII. (Para 188, 189, 191, 192)
       (1980) 4 SCC 697; (1974) 4 SCC 408 – Relied upon
       (105) Constitution of India – Part XIII – Articles 302-304 use the word ‘law’ – The word law is wide enough to include both fiscal and non-fiscal legislations – Held, Part XIII covers all tax legislations which impede the freedom of trade, commerce and intercourse – Further held, the word 'restriction' used in Part XIII includes tax legislations also. (Para 199, 200)
       (106) Constitution of India – Article 304 – By non obstante clause, Article 304 overrides restrictions under Article 301 and 303 – In view of Article 304(a) no tax can be levied on import of goods, when there was no taxes levied by State on the goods locally manufactured or produced or those goods were not locally available – Imposition of tax only on imported goods and not levying such tax on local goods violates Article 304(a). (Para 218, 227, 234)
       1964 6 SCR 261; 1966 1 SCR 865 – Relied upon
       [2007] 7 VST 367 – Cited with approval
       (107) Interpretation of Constitution – Article 304 – Word ‘and’ between clause (a) and (b) – Whether conjunctive or disjunctive – Word ‘and’ is normally used conjunctively and word ‘or’ is normally used disjunctively but at times they are used as vice versa to give effect to the manifest intention of the Legislation – Law under Article 304(a) not imposing any restriction on the freedom of trade, commerce and intercourse need not comply with Article 304(b) – However, a law even though complying with Article 304(a) but containng restrictions on the freedom of trade, commerce and intercourse has to obtain sanction of the President as contemplated by proviso to clause (b). (Para 236, 240)
       (108) Constitution of India – Article 304(b) – Requirement of previous sanction of President – Contention that it impinges upon sovereign power of the state, rejected – Held, the provision is in consonance with the federal structure of the Constitution – a (Para 243,
       (2002) 8 SCC 182 – Relied upon
       (109) Constitution of India – Article 304(b) – Article 304(a) only deals with goods imported from other States – Article 30(b) provides route for imposing reasonable restrictions on local goods – In view of use of word ‘law’ in Article 304(a) which includes both fiscal and non-fiscal law, legislative power under Article 304(b) cannot be confined to non-fiscal law – Held, word 'restriction' in Article 304(b) includes taxation – a (Para 249, 251, 253)
       (110) Constitution of India – Article 304 – Exemptions – Not violative of Article 304 if granted for economic encouragement and growth to specified class for limited period – The exemption/set off which tend to become general exemption violates Article 304(a). (Para 263, 264, 280)
       (1990) 3 SCC 87; 1990 (Suppl.) SCC 617; (1996) 11 SCC 39; (1990) 4 SCC 256 – Relied upon
       (1988) 2 SCC 568; (1988) 1 SCC 743; AIR 1963 SC 1237 – Distinguished
       (111) Constitution of India – Seventh Schedule, List II, Entry 52 – Entry tax – A tax on movement of goods – Falls within the inhibition of Article 301 – Such legislation can be saved under Article 304. (Para 286, 288, 289)
       (1961) 1 SCR 809; (1980) 4 SCC 697 – Referred
       (112) Constitution of India – Part XIII – Restrictions – Taxing laws can be restrictions if they hamper the flow of trade – Preferences and discrimination both are treated as restriction – However State can impose restrictions under Article 304(b) in public interest – Restriction is not complete prohibition – Incurring of the loss in trade is not a ground to hold trade restrictions as unreasonable – Selection of persons, subject matter, events etc. for taxation does not violate Article 14 – Likewise, some excessiveness of taxation or its imposition tending towards diminution of earnings or profits does not violate rights under Article 19(1)(g). (Para 293, 295, 296, 299, 300, 302, 304)
       (1963) 2 SCR 435; (1988) 1 SCC 743; (1964) 6 SCR 261; (1996) 11 SCC 39; 1952 SCR 607; (1981) 3 SCR 92; (1975) 1 SCC 375; (1989) 3 SCC 634 – Relied upon
       (113) Interpretation of Constitution – External Aids – Change in the legal position in foreign countries – Does not have any bearing on the Indian legal position as our Constitutional framework is different from those countries. (Para 316)
       (114) Constitution of India – Article 301 – Entry tax whether impeding free trade and commerce and hence violative of Article 301 – Direct and immediate effect test – Still holds good. (Para 318)
       AIR 1961 SC 232; AIR 1962 SC 1406 – Relied upon
       (1936) A.C. 578; (1950) A.C. 235; (1988) 78 ALR 42; 430 U.S. 274(1977); 451 U.S. 725 – Referred
       (115) Words and Phrases – Tax – A compulsory exaction of money by public authority – For raising revenue and for public purpose – Without public purpose it becomes a levy which is unconstitutional. (Para 325)
       (116) Constitution of India – Article 301 – Compensatory tax – Ratio contained in judgments on Section 92 of the Constitution of Australia cannot be a guiding factor for interpreting Part XIII of the Constitution of India – The compensatory doctrine evolved in Automobile Transport not founded on judgments of High Court of Australia or the Privy Council. (Para 350, 356)
       (1963) 1 SCR 491; AIR 1957 SC 699; (1964) 5 SCR 975 – Relied upon
       (1916) 22 C.L.R. 556; (1950) 80 C.L.R. 432; (1955) A.C. 241; (1957) 99 C.L.R. 28; (1950) A.C. 235; (1959) 102 C.L.R. 280; (1916) 22 CLR 556; (1950) 80 CLR 432; (1995) Supp. (1) SCC 673; (1996) 9 SCC 136; (2010) 4 SCC 595; (2006) 7 SCC 241; (2009) 7 SCC 339; 75 U.S. 148 (1869); 300 U.S. 577; 128 L Ed 2d 639; 511 U.S. 93 (1994); MANU/USSC/0058/1987: 483 U.S. 232, 242-243 (1987); Armco, U.S., AT 643; MANU/USSC/0062/1961 : 366 U.S. 199, 204-205 (1961); 516 US 325, 133 L Ed 2d 796 – Referred
       (117) Constitution of India – Article 301 – Compensatory doctrine – Compensatory tax is levied to compensate for facility extended – It can be imposed only for public purpose – All taxes are levied for one or other public purposes – Therefore a tax statute compensating the tax payer cannot be taken beyond Part XIII. (Para 355)
       (1963) 1 SCR 491 – Relied upon
       Facts of the case:
       In exercise of their legislative powers under Entry 52 of List II of the Seventh Schedule to the Constitution several States in the country, at least 14 of whom are parties to these proceedings, have enacted laws that provide for levy of a tax on the “entry of goods into local areas comprising the States”. The constitutional validity of these levies was questioned in different High Courts by assesses/dealers aggrieved of the same, inter alia, on the ground that the same were violative of the constitutionally recognised right to free trade commerce and intercourse guaranteed under Article 301 of the Constitution of India. The levies were also assailed on the ground that the same were discriminatory and, therefore, violative of Article 304(a) of the Constitution of India. Absence of Presidential sanction in terms of Article 304(b) of the Constitution of India was also set-up as a ground of challenge to the levies imposed by the respective State legislatures.
       Finding of the Court:
       Findings of the majority of the Court to which other Judges also concurred either fully or partially are given in the Important Points.
       Result: Reference answered in the negative.

Judgement Key Points

(!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!) (!)

ORDER :

By majority the Court answers the reference in the following terms:

1. Taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India. The word ‘Free’ used in Article 301 does not mean “free from taxation”.

2. Only such taxes as are discriminatory in nature are prohibited by Article 304(a). It follows that levy of a non-discriminatory tax would not constitute an infraction of Article 301.

3. Clauses (a) and (b) of Article 304 have to be read disjunctively.

4. A levy that violates 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso there under is satisfied.

5. The compensatory tax theory evolved in Automobile Transport case and subsequently modified in Jindal’s case has no juristic basis and is therefore rejected.

6. Decisions of this Court in Atiabari, Automobile Transport and Jindal cases (supra) and all other judgments that follow these pronouncements are to the extent of such reliance over ruled.

7. A tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing state.

8. Article 304 (a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation. Therefore, incentives, set-offs etc. granted to a specified class of dealers for a limited period of time in a non-hostile fashion with a view to developing economically backward areas would not violate Article 304(a). The question whether the levies in the present case indeed satisfy this test is left to be determined by the regular benches hearing the matters.

9. States are well within their right to design their fiscal legislations to ensure that the tax burden on goods imported from other States and goods produced within the State fall equally. Such measures if taken would not contravene Article 304(a) of the Constitution. The question whether the levies in the present case indeed satisfy this test is left to be determined by the regular benches hearing the matters.

10. The questions whether the entire State can be notified as a local area and whether entry tax can be levied on goods entering the landmass of India from another country are left open to be determined in appropriate proceedings.

T.S. THAKUR, CJI (for himself and A.K. Sikri and A.M. Khanwilkar, JJ.)

1. These appeals bring to fore for our determination vexed questions touching the interpretation of Articles 301 to 307 comprising Part XIII of the Constitution which have been the subject matter of several Constitution Bench decisions of this Court, all but one, decided by majority. The questions assume in a great measure considerable public importance not only because the same deal with the powers of the State legislatures to levy taxes but also because any pronouncement of this Court is bound to impact the federal character of our polity and the Centre-State relationship in legislative and fiscal matters. There is no gainsaying that it is the importance of the questions that lies at the bottom of the present reference to a larger Bench made in the following circumstances.

2. In exercise of their legislative powers under Entry 52 of List II of the Seventh Schedule to the Constitution several States in the country, at least 14 of whom are parties to these proceedings, have enacted laws that provide for levy of a tax on the “entry of goods into local areas comprising the States”. The constitutional validity of these levies was questioned in different High Courts by assesses/dealers aggrieved of the same, inter alia, on the ground that the same were violative of the constitutionally recognised right to free trade commerce and intercourse guaranteed under Article 301 of the Constitution of India. The levies were also assailed on the ground that the same were discriminatory and, therefore, violative of Article 304(a) of the Co

Click Here to Read the rest of this document

2016 Supreme(SC) 888

Cases Referred (170)

Related Judgments

Plastikos Packaging VS Commissioner of Central Excise, Allahabad

SYSTEMS MANUFACTURING LTD VS SYSTEMS EMPLOYEES ASSOCIATION - 2000 Supreme(Kar) 665

JOGENDRA SINGH VS SURESH MANJULAPUR - 2000 Supreme(Kar) 662

MYSORE WINE PRODUCTS AND ALLIED CO. LTD. , BANGALORE VS PRESIDING OFFICER, INDUSTRIAL TRIBUNAL, BANGALORE - 2000 Supreme(Kar) 663

Bose VS State, rep. by Inspector of Police, Salaikiramam P. S. , - 2000 Supreme(Mad) 1273

Jain Construction Company VS State of Rajasthan - 2000 Supreme(Raj) 912

Voltas Limited VS Joint Collector, Medak - 2000 Supreme(AP) 945

STATE OF BIHAR VS SURENDRA SINGH RAUTELA ALIAS BENGALI - 2000 Supreme(Jhk) 45

Krishna Kumar VS Gulab Khan - 2000 Supreme(Raj) 1546

KARSANBHAI DAHYABHAI PARMAR VS DISTRICT SUPERINTENDENT OF POLICE - 2000 Supreme(Guj) 1009