FREEDOM OF TRADE, COMMERCE AND INTERCOURSE: INDIAN CONSTITUTIONAL LAW

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FREEDOM OF TRADE, COMMERCE AND INTERCOURSE- Prolawctor

Introduction

From the very beginning of its deliberations, the Constituent Assembly was keen to ensure the freedom of inter-state trade and commerce throughout the Indian Union. In fact, one of the primary purposes of a federal union itself is the establishment of freedom of trade and intercourse within the federal territory.

The framers of the Indian Constitution had this view at the time of drafting the provisions dealing with inter-state trade and commerce as embodied in the Constitution.

Part XIII of the Constitution contains provisions relating to the freedom of trade, commerce and intercourse within the territory of India.

Meaning of Freedom of Trade, Commerce and Intercourse

Freedom of trade, commerce and intercourse means the free movement and exchange of goods. It means that there shall be no prior restraint upon and commerce.

In Automobile Transport Ltd. v. State of Rajasthan, AIR 1962 SC 1406, the Supreme Court explained: “The freedom declared under Article 301 may be defined as a right to free movement of persons or things, tangible or intangible, commercial or non-commercial, unobstructed by barriers, inter-State or intra-State or any ether impediment operating as such barriers.”

SCOPE OF FREEDOM OF TRADE, COMMERCE & INTERCOURSE:

  • Freedom of trade, Commerce and intercourse has made trade, commerce and intercourse free throughout the territory of India, inter-State as well as intra-State. 
  • Article 301, thus, constitutes a general limitation on Legislative power and competence of Parliament as well as of the State Legislatures. The expression “throughout the territory of India”, in Article 301 means throughout the various regions comprising the territory of India.

CONCEPT OF FREEDOM OF TRADE, COMMERCE AND INTERCOURSE IN INDIAN CONSTITUTION

  • Article 301 declares that “trade, commerce and intercourse throughout the territory of India shall be free”.

This freedom is subject to the other provisions of this Part, i.e., Articles 302 to 305. The freedom provided in Article 301 is subject to–

  • Non-discriminatory restrictions imposed by Parliament in public interest [Articles 302, 303 (1)]
  • Discriminatory or preferential legislation by Parliament for the purpose of dealing with scarcity of goods in any part of India [Article 303 (2);
  • Reasonable restrictions imposed by the Legislature of a State in the public interest [Article 304 (b)];
  • Non of discriminatory taxes imposed by the Legislature of a State goods imported from other States [Article 304 (a): and
  • Restrictions imposed by pre-Constitution laws continued in force (Article 305).

ARTICLE- 301

Article 301 gives the freedom of trade, commerce, and intercourse but there are certain activities which may be covered under the ambit of the trade, commerce or intercourse activities but are not protected by the freedom guaranteed under Article 301 of the Indian Constitution.

Case :
  • Atiabari tea Co. v. the state of Assam AIR 1961 SC 232 –this case the validity of the Assam taxation act 1954 was challenged as it was said that it is violative of Article 301 of the Indian Constitution. Supreme Court held that this act was void as the movement of goods was directly taxed. Also held that freedom of trade and commerce guaranteed by article 301 is freedom from such restrictions as directly and immediately restrict the flow or movement of trade.
  • State of Bombay v. RMDC- this case Supreme Court held that gambling is not a trade but is extra commercial. Court also held that prize competition being of gambling nature could not be regarded as ad trade or commerce hence it is not protected under Article 19(1)(g) or 301 of the constitution.

REGULATORY TAX

Regulations like rules of traffic facilitate freedom of trade and commerce, whereas restrictions impede that freedom. Requirement of export permit pass for the removal of timber from the forest, the authorities being bound to permit transportation of timber covered by the pass, was held to be valid as regulatory and not restrictive in nature.

However, it is not that regulatory measures cannot, in any case, be challenged as interfering with the freedom guaranteed by article. 301. these can be challenged when they are colourable measures to restrict the flow of trade, commerce and intercourse. Thus, if the amount of a compensatory tax is unduly high or the regulatory measure is too burdensome or is discriminatory, it certainly would hamper trade.

COMPENSATORY TAX

The very idea of a ‘compensatory tax’ is service more or less commensurate with the tax levied. Trade, commerce and intercourse must pay for the facilities provided by the state by way of constructing, maintaining and regulating roads, bridges and other means of transportation necessary for such trade, commerce or intercourse. All that is necessary to uphold a tax as compensatory is the ‘existence of a specific, identifiable object behind the levy and a nexus between the subject and object of levy’, though the exact determination of benefit received and expenditure incurred and levying the tax accordingly is not necessary. Once the nexus between the levy and service is seen, the levy must be upheld, unless the compensatory character is shown to be wholly or partly, a mere mockery and in truth restrictive of the freedom of trade.

EXCEPTION TO FREEDOM OF TRADE, COMMERCE AND INTERCOURSE

Under the Indian Constitution Article 301 declares the freedom of trade and commerce throughout the whole territory of India. This freedom is not the absolute freedom as certain restriction has been made which are enumerate between article 302 – 305 of the Indian Constitution.

  1. RESTRICTIONS ON FREEDOM OF TRADE UNDER PARLIAMENTARY LAW (Article 302)

Article 302 provides that “Parliament may impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest.”

Restrictions under Article 302 may be imposed by Parliament by law in the exercise of its Legislative power. Thus, no restrictions can be imposed upon the freedom by a mere executive action. However, restrictions may be imposed by an executive action if taken in the exercise of power delegated by the Parliament.

Case law:

Surajmal Roopchand and Co. vs. State of Rajasthan

In this case, it was held that restrictions imposed on the movement of grain under the Defence of India Rules are in the interest of general public. The power of Parliament under Article 302 is limited by 303(1). Article 303(1) provides that Parliament shall not have power to make any law giving any preference to any one State over another by virtue of any Entry relating to trade and commerce in any one of the List in the 7th Schedule.

  1. LIMITATION UPON POWER OF PARLIAMENT UNDER ARTICLE 302(ARTICLE 303)

 Article 303(1) states that the Parliament does not have the power to make any law which will keep one State at a more preferable position than the other State, by virtue of any entry in trade and commerce in any one of the lists in 7th Schedule. However, Clause (2) states that the Parliament can do so if it is proclaimed by law that it is essential to make such provisions or regulations, as there is indeed a scarcity of goods in some parts of the country. The power to decide whether there is a scarcity of goods in some parts of the territory or not is vested in the hands of the Parliament.

  1. RESTRICTION ON FREEDOM OF TRADE AND COMMERCE UNDER A STATE LAW (ARTICLE-304)

Clause (2) of Article 304 guides the States to impose certain reasonable restrictions on the freedom of trade, commerce, and intercourse as may suit the public interest. But no Bill or Amendment for such shall be put forward in the State Legislature without the prior approval of the President. 

Case law-

A.B. Abdul Kadir v. State of Kerala:

The Kerela Luxury Tax on Tobacco Act,1964 provided for the regulation of the sale and stocking of an article like tobacco, which was hazardous to the health and was considered to be an article of luxury, by imposing a license fee for the same. It was held to be permissible restriction in public interest within the meaning of article 304(b).

  1. SAVING OF EXISTING LAW: (ARTICLE 305)

Article 305 of the Indian constitution saves already formed laws and laws providing for State monopolies. Article 305 can only do so until the President is not ordering something opposite to it or otherwise to the law already formed.

Case law:

Saghir Ahmad v. The State of UP (1954)

In this case, the Supreme Court raised the query that whether an Act that provides for State monopoly in a specific trade or commerce would be held violative of the Constitution of India under Article 301. 

Conclusion

Under the Indian constitution though the Freedom of Trade, Commerce and intercourse have been provided but they are not absolute as certain restrictions can be placed on these rights. Free movement and exchange of goods throughout the territory of the country are important for the economic unity in the nation. This freedom helps to retain the progress in the country. These provisions create and preserve a national economic fabric to remove the barrier between the states and to lead the country towards development.

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