Interstate Trade and Commerce under Indian Constitution

The Concept of Inter State Trade, Commerce and Intercourse has occupied an important position for the free movement of trade between two states and within the States. Under Part XIII Articles 301 to 307 of the Indian constitution deals with interstate trade, commerce and intercourse. The Seventh Schedule which consists of three Lists deals with tax provisions under central List entries 89 and 92A in List 1, entries 52, 54, 56 to 60 in List II of state and entry 35 in concurrent Listconfers power to levy tax on centre and state. To reconcile the freedom of trade and commerce and the power of taxation, the Supreme Court has evolved the concept of regulatory and compensatory tax which is not hit by Art.301. Further the concept of Compensatory and Regulatory tax imposed by the State is to provide various facilities for the transport of the goods in the form of maintenance of roads, lighting, water, traffic signals, construction of bridges and other infrastructural facilities which. lead to the free movement of goods and the tax imposed in not a barrier to the free movement of goods. Imposition of tax on goods from other states is also said to be a Regulatory and compensatory measure which is upheld by the SupremeCourt, thereby clearing the constitutional deadlock on Entry Tax In Jindal Stainless Steel Ltd vs. State of Haryana, (AIR 2016 SC, Haryana) upheld the validity of entry tax legislation. It laid down test of working proportionality in determining compensatory nature ofIn Atiabari Tea co v. State of Assam (AIR 1951 SC 232) In this case the validity of the Assam Taxation (On Goods carried by Roads or Inland Waterways) Act of 1954, under Entry 56, List II was challenged on the ground that it violated Article 301 of the Constitution and was not saved by Article 304 (b). The court held that the impugned law undoubtedly levied a tax directly and immediately on the movements of goods and therefore came within the purview of article 301. In this case the validity of the Assam Taxation ( On Goods carried by Roads or Inland Waterways) Act of 1954, under Entry 56, List II was challenged on the ground that it violated Article 301 of the Constitution and was not saved by Article 304 (b). tax. In order to overcome the hurdle presented by Part XIII, the Supreme Court in Automobile Transport (Rajasthan) Ltd. vs State of Rajasthan propounded a judicial doctrine of compensatory taxes. The court held that this imposition is not hit by Article 301 as it is not in the nature of a tax, but rather a compensatory levy which is nothing but a regulatory measure for the use of trading facilities. Which does not violate Article 301 of the Constitution of India, and is also saved by Article 304. In this paper it is proposed to discuss imposition of tax with regard to inter-state and intra State trade in the form of Compensatory and regulatory measures with decided case laws which does not hit Art.301.