Introduction

“Democracy is the art and science of mobilising the entire physical, economic and spiritual resources of various sections of the people in the service of the common good of all.” To an extent the Article 301 of the Indian Constitution could be said to the derived or influenced from such a philosophy with the objective to protect the National integrity and unity with the help of hassle free flow of trade throughout the country. An intention to unify different fields and different regions with the help of this freedom guaranteed in Art. 301 Even then for all practical purposes this freedom could not have remained absolute in order to ensure that a privatized market Grab economy does not further exploit the already starving population of India. Therefore this freedom was made subject to the other provisions of this Part (Part XIII). But as the researcher proceeds with the analysis of the position of inter-state trade it becomes clear that these provision which act as restrictions on this freedom bestowed by Article 301 is been severely hinders it . And therefore the Concept of Free Trade as envisaged by the constitution makers has remained a concept only with the amount of barriers and complications involved in interstate trade today. The free flow of trade and commerce are sine qua for the economic enhancement domestically as well as internationally has not given to the Indian Markets. The European Union is an amazing example of such a trade union which has opened up trade barriers among the countries of the union and has shown dramatic advancement in the field of trade and commerce. It is time for India to overhaul its current taxing system and central as well as state policy towards free trade.

Thus in this project the researcher will analyse the case laws which are responsible for the current position of the interstate trade and also the effect of Part XIII on them to determine how effective the provisions have been to strike a balance between the economic development and advancement of the country on one hand and the protection of the majority who were likely to the exploited and starved if the free market was allowed to thrive at the whims of capitalists.

An Analysis Of The Provisions And The Case Laws

The Constitution Makers have borrowed the concept of freedom of trade from the Australian constitution (Section 92) but the Indian version has a couple of changes in the scope of its application, and they are

1. that the freedom guaranteed is not limited to among the states but ‘throughout the territory of India’ and,
2. the privilege of trade being free is not qualified by the adverb ‘absolutely’ as in the Australian constitution.

And the reasons for these changes in the adaptation of this Article, from the Australian constitution, lies in the rest of the Articles of the Part XIII starting from Article 302 till 307. The Freedom is not absolute as the rest of the provisions impose several restrictions and exceptions to this freedom. Another very important aspect of the Part XIII of the Constitution is that it is not subject to any other part or provision of this constitution. In the simplest sense any kind of tax that is levied on any particular activity which involves interstate transaction can be taken to be a restriction on the freedom of trade. But as taxes are also necessary for the functioning of the Centre and the State all of them cannot be treated as restrictions violating the Article 301. This question was first brought up in the Atiabari case in which the Apex court held that tax laws are not outside the scope of ‘the Freedom’. And therefore the Assam State Legislature had to amend the provision as to meet the requirements of the exception in Article 304(b) so that the tax that it imposed did not amount to a direct and immediate impact of the movement of the goods. This case has also gone into the historical background of the Making of this constitution in which it discusses that the makers of the Constitution were fully aware of the fact that economic unity was an absolute prerequisite for the stability and progress of the federal polity. Considering the possibility that there might be several political parties in the future, unlike the only congress majority then, with different ideologies and following different ‘isms’ for pursuing socio-economic goals is likely to give rise to a mechanism wherein the regional pull (by regions with higher influence) will affect the economic policy which in turn will have negative impact on the overall development of the economy of the nation as a whole. Thus the object of Part XIII to avoid such a possibility and to ensure that the political freedom won and political unity which had been accomplished by the Constitution, had to be sustained and strengthened by the bond of economic unity. But this harsh approach towards the taxing power of the state was later review by a larger bench in the Automobiles case. Therefore to ensure that this freedom of trade did not evolve to be an absolute one legitimate restrictions like compensatory taxes or regulatory measures will not be taken into account as restrictions hampering the trade and thus would stay out of the purview of the Article 301. The court also dilated further on the issue raised in Atiabari about the problem of economic integration due to diversity in several fields. The two questions however stood out:

“ first that how to achieve a federal, economic and fiscal integration, so that economic policies affecting the interests of India as a whole could be carried out without putting an ever-increasing strain on the unity of India, particularly in the context of a developing economy. And 2nd that how to foster the development of areas which were under-developed without creating too many preferential or discriminative barriers”

“first, in the larger interests of India there must be free flow of trade, commerce and intercourse, both inter-State and inter-State; second, the regional interests must not be ignored altogether; and third, there must be a power of intervention by the Union in any case of crisis to deal with particular problems that may arise in any part of India.

Scope Of Articles 301, 302 & 304 Vis-A-Vis Compensatory Tax:

Considering the above doctrine dilated by court, it is clear that whenever a law is challenged on the ground of violation of Art. 301, the court has also to determine the effects of the operation of the impugned law on inter/intra state trade in addition to applying the doctrine of pith and substance to determine the basis of the Levy.The Vijayalakshmi Rice Mills Case is another recent case which deals with the ability of the state legislatures to the levy of cess without violating Art. 301. It was contended that the cess levied under the Act (Andhra Pradesh Rural Development Act, 1996) did not correspond to any of the entries in List II or III of the Seventh Schedule and this rendered the cess invalid andmoreover the there was no quid pro quo in the levy of cess, and hence could not be said to be a fee. On the argument of the respondent that it was in fact a fee and therefore it came under Entry 66 of List II. But the court on this ground made it clear that co-relationship between the totality of the fee and the totality of expenses of the services was indispensible even though mathematical precision wasn’t necessary between the service rendered and the fee realised. Thus a fee levied for rendering to the service of rural development was held viable and the validity of the act was upheld. Thus with this position of the case laws on the Freedom of trade and commerce, the following is the likely procedure to be followed while deciding a case. First is to check whether the law, be it taxation or non-taxation, violates the Freedom in Art. 301. And to do that first it is necessary to know the scope of operation of such law, whether the operation of the act of that law affects movement of trade, commerce or intercourse throughout the country.

If it is so then the next question is: What is the effect effect of operation of the law on the freedom guaranteed under Article 301? If the effect is to facilitate free flow of trade and commerce then it is regulation and if it is to impede or burden the activity, then the law is a restraint. After finding the law to be a restraint/restriction one has to see whether the impugned law is enacted by the Parliament or the State Legislature

GST: To Strengthen The Unified And Integrated Domestic Trade.

The Goods and Service Tax Bill which was supposed to be enacted by now is still pending as a bill due to various complications. The GST if enacted would have drastically impacted the inter-state trade and it is likely so that whenever in the future the GST will be enacted it will do its job. One of the several advantages of the GST is that it will not only replace the existing Sales tax by central and the state governments but also subsume most of the indirect taxes on the supply of goods and services. It includes central excise duties, additional custom duties, cesses levied by the union and surcharges in case of the Centre. And in case of the States it would replace purchase tax, state excise duty, luxury tax, octroi, entry tax in lieu of octroi. Under the GST regime the CST was to be reduced to zero by 1st April of this year! But the States have lobbied against it as after that the Centre alone would levy IGST and the exporting state will transfer to the centre the credit of SGST used in the payment of the IGST Purohit in his article says that the implementation of the IGST mechanism would prove to be a daunting task as all statewise exports and imports would have to be recorded. Moreover he says that “the importing state will have to give set-off as soon as the import takes place and will get it back only after a delay of a month or so. Given the fiscal scenario of the states today, the states exporting goods may not find it possible to fulfil their commitment to transfer the tax amount promptly to the central pool.”

Thus this model seems to be built on various assumptions which might require more time, efforts and planning than anticipated.