This Article is written by Adarsh Singh Thakur, 3rd-year student, Indore Institute of Law. He discusses the provisions dealing with freedom of trade, commerce and intercourse under the Indian Constitution.

Introduction

In the Indian Constitution, the provisions regarding the freedom of trade, commerce and intercourse were adopted from the Constitution of Australia. According to Section 92 of the Australian Constitution, there should be freedom of trade, commerce and intercourse which may be carried out by ocean navigation or internal carriage.

While India had borrowed this provision, it also made sure to include the provision that the free flow of goods is allowed not only between different States but also within a State as well. Thus, in the Indian Constitution Inter-State trade as well as Intra-State trade is allowed in the country.

Trade, Commerce and Intercourse

Article 301 of the Indian Constitution provides that the trade, commerce and intercourse in the country should be free throughout the country.

In trade, goods and services are exchanged between the buyer and the seller and it also includes the transportation of these goods. In commerce, the focus is more towards the element of transmission of goods as well as that of men and animals. Thus in commerce, the element of profit is not the primary concern. The word “intercourse” was included to remove any ambiguity about the intention of the Constitution makers and thus it has been used to express the intention that, free flow of goods throughout the country is part of the freedom under Article 301 of the Indian Constitution.

Illustration

If A,  a seller lives in Maharashtra wants to sell his goods to B who lives in Madhya Pradesh, then under Article 301 of the Constitution, they have the freedom to do so and cannot be restricted from selling or buying the goods.

While the freedom under Article 301 is provided for carrying out trade and commerce freely, this right cannot be allowed to be exercised in those activities which do not fall within the category of trade or business.

In the case of State of Bombay v. RMDC, the Bombay Lotteries and Prize Competitions Control and Tax (Amendment) Act, 1952 was held to be valid and it was stated that it did not violate Article 301 of the Indian Constitution because the act was imposing restrictions on prize competition which was in the nature of gambling and therefore it did not require any skill and thus it could not be said that it was restricting trade.

In gambling, there is an element of chance and the person may either win or may not win but such a victory does not depends on his own ability or effort but only on his luck and therefore such an act is not covered under the protection of Article 301. There is a maxim for such activities which is res extra commercium which means the activities which are not part of trade or commerce or business and any act which is res extra commercium will not be protected under Article 301.

Also, any unlawful trade is not protected by the provisions of Article 301 and if the laws prohibit carrying out such trade, it cannot be said to be a violation of the freedom of trade. For e.g., if A is trading in illegal drugs and such an act is restricted by the State then he cannot claim that his right under Article 301 is being violated because such a trade is unlawful.

The object of Article 301

Article 301 has been included in the Constitution in order to ensure that the unity of the nation is maintained by removing the geographical barriers which exist in various parts of the country. Also, by removing the imposition of any restrictions which may be put up, it ensures the free flow of goods throughout the country.

So, the main objective of this provision is to bring the feeling of one nation among all the Indians which may not be possible if the economic activities face many barriers and which has already been facing problems due to the existence of regionalism and the language barrier.

Freedom of trade and taxation

While freedom on the free flow of goods is the objective behind Article 301 it does not mean that the State is barred from completely regulating aspects of the trade. The state has the right to regulate the trade and therefore if taxes are charged on the goods it does not automatically become a restriction on freedom of trade and therefore there is a criterion which is followed to understand whether a tax charged on the goods is a violation of Article 301 or not.

Compensatory tax

The Government charges tax on various goods and services but it does not mean that it is a restriction on freedom of trade. In many cases, it is necessary for the States to charge these taxes because they are providing many services which are facilitating the trade activities.

Illustration

A, a seller of goods, lives in Tamil Nadu and is selling his goods to B who lives in Karnataka. The goods are being delivered by A through a truck and when the truck reaches Karnataka, the driver is made to pay the toll tax. Here, A cannot challenge the validity of levying toll tax by the Government of Karnataka on the grounds that it has restricted the free flow of goods. The tax is charged in return for the maintenance of the roads by which the transportation of the goods has been made much easier. Therefore, it is not a restriction but instead a facility which is provided by the State and thus they have the right to charge the toll tax and it is not the violation of Article 301 of the Constitution.

In the above illustration, the tax was charged in exchange for providing services of maintaining roads to ensure smooth transportation of goods and it is an example of facilitation of trade and not of a direct restriction of it. Similar example can also be seen by the fact that the driver may stay in a hotel while being in Karnataka and therefore if he stays in a hotel and a tax is charged for the luxury which he has enjoyed from it, it will not be a restriction on the freedom of trade and intercourse but instead such an activity is a charge which has been made for providing the facility of staying in the State and it has helped in facilitating the trade. So, here in such situations the taxes being charged are fully justified.

Such taxes which are charged are known as compensatory taxes. For the validity of a compensatory tax, it is necessary to show the object behind the tax and the relation which such a tax has with the subject and object of it. Once such a relation or connection is shown then the tax can be validly upheld and it is not important to show the exact amount of benefit which is provided and the expenditure which has been done for providing such a service.

But if the tax is not in the nature of facilitation of trade and is in reality charged for restricting the trade, then such a tax cannot be upheld and it will become bound to be struck down by the Courts.

A compensatory tax can be turned as confiscatory which means that it is in violation of the freedom of trade under Article 301 if any of the following situations arise

1. The amount of tax which is charged is so excessive that it has become a setback in the free flow of goods.
2. The tax which is charged is not in proportion to the cost of the facilities which are provided against it.
3. There are no services which are being provided by the state in exchange for the tax being charged.
4. There is no fixed procedure which has been provided by the state levying the tax as to how are they assessing and levying the tax.
5. The tax which is charged is discriminating between the goods produced within the State and the goods which are produced outside it.

Freedom of trade, commerce and intercourse is not absolute

Even though Article 301 provides that trade, commerce and intercourse should be free throughout the territory India, this freedom is not absolute in nature. It means that certain restrictions can be imposed on this freedom and such restrictions will no be violative of the provisions under Article 301. These restrictions have been mentioned in Part XIII of the constitution and even Article 301 provides that this freedom is subjected to the provisions of this part.

Parliament has been provided with the power to impose some restrictions on the free flow of goods under Article 302 of the Indian Constitution and such a power is subject to the provisions of Article 303.

Under Article 302, the Parliament can restrict the freedom of trade between different states, if it is necessary for the public interest. This restriction can be applied on any State or it may also be placed in any part of the territory of India.

In the case of Prag Ice & Oil Mills v. Union of India, it was held by the Supreme Court that even though Article 302 does not speak about reasonable restrictions, but still the restrictions which can be imposed under this Article should have a reasonable nexus with the public interest for which the restriction is placed.

While the Parliament has the power to impose restrictions on the freedom of trade in any State or part of the territory of India, this power is subjected to the provisions of Article 303 of the Indian Constitution which provides that the Parliament cannot impose a restriction on any State in favour of another State. It means that no discriminatory restriction can be made by the Parliament which gives benefit to one State while the other States are excluded from such benefit.

But clause 2 of Article 303 provides that in case of scarcity in a State, the Parliament can be allowed to impose such discriminatory restrictions so that the State which is facing the problem of scarcity to overcome it.

Article 304 of the Indian Constitution provides some powers to the State Legislatures for imposing some restrictions on the freedom of trade. Under this Article, the legislature of a State can charge tax on the goods which are imported from other States, if such tax is charged on the similar goods which are produced in that State.

Illustration

If the state of Madhya Pradesh charges tax on X goods which are produced in the state itself and the same goods are imported from Maharashtra, then the State Legislature of Madhya Pradesh can also charge the tax on the imported goods because they were being charged on the same goods which were being produced in the State of Madhya Pradesh.

The State Legislature can also impose other reasonable restrictions in public interest, but a bill for the same can be brought only when the previous sanction of the President is taken.

In the case of State of Karnataka v. Hansa Corporation, it was held that even though under clause b of Article 304, the previous assent of the President is necessary for bringing a bill for imposing restrictions but in case it cannot be introduced to the President due to Article 255, then in such cases the Bill may be presented in the State Legislature and the assent of the President can be taken after the bill is presented.

The relation between Article 301 and 19(1)(g)

There is a complex relationship which exists between Article 301 and 19(1)(g). While both provide the right of trade and commerce, there have been arguments which state that the rights under Article 301 are for the trade as a whole whereas, the right under Article 19(1)(g) is provided only to the individual. But this view is wrong and it cannot be maintained because Article 301 is derived from Section 92 of the Australian Constitution which includes the rights of the individual as well.

So, the relation between the two cannot be explained, they both are interrelated because, during the proclamation of emergency, the rights under Article 19 are suspended and in such cases the Courts can look towards the provisions of Article 301 for finding out if any violation of freedom of trade has taken place or not. So, it can be said that both these articles are interrelated with each other.

Conclusion

In India, the provisions for the Freedom of Trade, Commerce and Intercourse are provided under Part XIII of the Indian Constitution. While there is a freedom of trade, such freedom is not absolute in nature and there are certain restrictions which can be placed on these freedoms. Thus, by these provisions, it is ensured that the freedom of trade, commerce and intercourse are given Constitutional status which is necessary to ensure that the geographical barriers and the unreasonable restrictions which are imposed on the free flow of trade can be overcome.