MODULE 5

The freedom of trade, commerce, and intercourse is provided under

Part XIII of the Indian Constitution in Articles 301 to 307.

OBJECT OF THESE PROVISIONS:

 To encourage the free flow of trade and commerce in India
without any barriers or obstacles in internal trade.
 It is essential to reduce the barriers (tariffs, non-tariffs, quotas,
etc.) between the states

FREEDOM OF TRADE, COMMERCE AND INTERCOURSE:

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

TRADE:
Trade means goods and services are exchanged between the buyer and
the seller for profit-making purposes and it also includes the
transportation of these goods. Under Article 301, trade means an
actual, organized & structured activity with a definite motive or
purpose.

COMMERCE:
Commerce means the transmission or movement by air, water,
telephone, telegraph or any other medium. Under Article 301,
commerce is transportation and not gain or profit.

INTERCOURSE:
It means the movement of goods from one place to another. It
includes both commercial and non-commercial movements and
dealings. 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.

ACTIVITIES WHICH ARE NOT TRADE:

 Article 301 gives the freedom of trade, commerce, and
intercourse but this right cannot be allowed to be exercised in
those activities which do not fall within the category of trade or
business.
 Any act which is res extra - commercium will not be protected
under Article 301.
 EXAMPLE: Illegal activities like lottery and gambling.

State of Bombay v. RMDC

The Bombay Lotteries and Prize Competitions Control and Tax 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 thus it could
not be said that it was restricting trade.

 Any unlawful trade is said to be a violation of the freedom of

trade. EXAMPLE: 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.

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.

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.

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:

 The amount of tax which is charged is so excessive that it has

become a setback in the free flow of goods.
 The tax which is charged is not in proportion to the cost of the
facilities which are provided against it.
 There are no services which are being provided by the state in
exchange for the tax being charged.
 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.
 The tax which is charged is discriminating between the goods
produced within the State and the goods which are produced
outside it.

Automobile Transport Ltd. v/s State of Rajasthan

State of Rajasthan imposed an annual tax on motor vehicles (Rs 60 on a
motor vehicle and Rs 2000 on a goods vehicle). The appellant
challenged the validity of the tax levied under Article 301. It was held
by the court that in the present case the tax imposed is valid as it is only
a regulatory measure or a compensatory tax for the facilitation of the
smooth running of trade, commerce, and intercourse.

State of Mysore v/s Sanjeeviah

The government under the Mysore Forest Act, 1900, made a law
banning the movement of forest produce between sunrise and sunset.
The Supreme Court held the law void. It remarked that such a law was
restrictive and not regulatory thus violative of the freedom provided
under Article 301.

Article 302: Power of Parliament to Impose Restrictions

This article gives power to the Parliament to impose restrictions on the
freedom of trade, commerce or intercourse carried on within a state or
across states anywhere in the territory of India. These restrictions can
solely be imposed taking into due consideration the interests of the
public.

Surajmal Roopchand and Co v/s the State of Rajasthan

This case was under the Defense of India Rules, in the interest of the
general public, restrictions were imposed on the movement of grain.

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.

Article 303: Restrictions on the Legislative Powers of the

Union and the States
This article prohibits Parliament and state legislatures from making laws
that give preference to one state over another or impose discrimination
between states regarding trade and commerce.

Exception: Parliament can override this restriction in cases of scarcity

of goods arising in any part of India. For example, in times of
emergency or economic crisis, the Parliament may impose
discriminatory measures to resolve shortages.

G.K Krishna v/s State of Tamil Nadu

A govt notification under Madras Motor Vehicles Act was issued,
increasing the motor vehicle tax on omnibuses from Rs 30 to Rs 100.
The government imposing this tax was that this was done to stop the
unhealthy competition between omnibuses and regular stage carriage
buses and to reduce the misuse of omnibuses. The Supreme Court held
that the tax on carriage charges was of compensatory or regulatory
nature and was not therefore violative of the freedom guaranteed
under Article 301.

Article 304: Restrictions on Trade, Commerce, and Intercourse

among States
Clause (a): States can impose taxes on goods imported from other
states as long as the tax rate is not more than the taxes imposed on
similar goods produced within the state. This is to prevent
discriminatory treatment between local and out-of-state goods.

Clause (b): States may also impose reasonable restrictions on trade,

commerce, and intercourse in the interest of public health, safety,
morality, or the environment, with the prior approval of the President
of India.

This article allows states some flexibility to regulate intra-state trade in

certain circumstances, but they cannot impede the free flow of trade
across state borders without valid reasons.

State of Madhya Pradesh v/s Bhailal Bhai

The State of Madhya Pradesh imposed taxes on imported tobacco
which was not even subject to tax in the very own State i.e., State of
Madhya Pradesh. The Court disapproved of the tax statement that it
was discriminatory in nature

Article 305: Existing Laws and Laws for State Monopolies

This article protects existing laws that impose restrictions on trade or
commerce as they were in effect before the commencement of the
Constitution, ensuring that old laws remain valid unless amended.

It also allows Parliament and state legislatures to establish monopolies

in trade or commerce in particular goods if it serves the public interest.

Article 307: Appointment of Authority for Trade and Commerce

This article allows Parliament to appoint an authority to ensure that
Articles 301,302,303,304 are carried out effectively, including resolving
disputes regarding trade and commerce between states.
Automobile Transport Ltd. v. State of Rajasthan
The Rajasthan government imposed a motor vehicles tax on transport
operators. The Court ruled that regulatory measures like vehicle taxes,
which are necessary for maintaining infrastructure (roads), are
permissible under Article 304(b), provided they do not impede the free
flow of trade beyond reasonable limits.

Goods and Services Tax (GST)

Goods and Services Tax (GST) is a significant tax reform in India aimed
at creating a unified indirect tax system across the country. The
introduction of GST was made through the Constitution in 2016.

Essential features of GST:

 It is a destination-based tax on consumption of goods and
services.
 It is levied at all stages till consumption. It means that GST would
be levied at all trading, manufacturing, storage, distribution,
wholesale/retail stages upto the final consumption but credit of
taxes paid at previous stages would be available as setoff.

Commodities/services have been kept outside the purview of GST and

the existing VAT and Central excise would continue to apply on the
following commodities:

 Alcohol for human consumption,

 Petroleum Products namely, petroleum crude, motor spirit
(petrol), high-speed diesel, natural gas and aviation turbine fuel;
 Electricity.
TYPES OF GST:
CGST:
The Centre would levy GST on the intra-state supply of goods and/or
services and it would be named Central GST.

IGST:
The Centre would also levy and administer an integrated GST (“IGST”)
on every interstate supply of goods and services. Such tax shall be
apportioned between the Union and the States in the manner as may
be provided by Parliament by law on the recommendations of the
Goods and Services Tax Council.

SGST:
The GST to be levied by the States would be called State GST.

FEATURES OF GST:
 Dual GST System: The GST structure in India is a dual GST system,
which means that both the Central and State governments have
the power to levy GST.
 One Nation, One Tax: GST has brought about the concept of “One
Nation, One Tax,” which means that a uniform tax rate is
applicable across the country.
 Multiple Tax Slabs: GST has a multi-tier tax structure, with
different tax rates for different goods and services. The tax slabs
are 5%, 12%, 18%, and 28%. The multiple tax slabs have been
introduced to ensure that essential goods are taxed at lower
rates, while luxury goods are taxed at higher rates.
  Electronic Filing and Payment: GST has introduced electronic
filing and payment of taxes, which has made the tax system more
efficient and transparent. Taxpayers can file returns and make
payments online, which has reduced the time and cost involved in
compliance.

Constitutional Provisions Related to GST:

 Article 246A: Special Provision for GST
 It was introduced to give both Parliament and State
Legislatures the power to make laws on GST.
 It grants exclusive power to Parliament to legislate on
interstate trade and commerce related to GST.
 This article allows for a dual system of GST, where both the
Centre and states can levy GST on goods and services within
their jurisdiction.
 Article 269A: GST on Inter-State Trade
 This article was added to regulate the GST on supplies in the
course of inter-state trade or commerce.
 It states that the GST on supplies in the course of inter-state
trade or commerce (including imports) shall be levied and
collected by the Government of India, and such tax shall be
apportioned between the Union and the states in the
manner prescribed by Parliament on the recommendations
of the Goods and Services Tax Council (GST Council).
 This provision is crucial for the administration of the
Integrated GST (IGST), which governs inter-state supplies.
 Article 279A: Goods and Services Tax Council (GST Council)
  This article provides for the constitution of a GST Council, a
constitutional body responsible for making
recommendations to the Union and states on matters
related to GST.
 The GST Council consists of:
o The Union Finance Minister (Chairperson)
o The Union Minister of State for Revenue (Member)
o The Finance Ministers of the states (Members)
 The GST Council plays a vital role in ensuring uniformity of tax
rates, policies, and administrative processes across India. It
recommends:
o GST rates and exemptions.
o Model GST laws.
o Special provisions during natural disasters or emergencies.
 Decisions in the Council require a three-fourths majority, with the
Centre holding one-third of the votes and the states holding two-
thirds.

Gujarat Chamber of Commerce and Industry v. Union of India

The High Court held that while the GST Council plays a crucial role in
making recommendations, its decisions are not binding on the
Parliament or state legislatures. The Council's role is advisory, but its
recommendations are given significant weight.

Union of India v. Mohit Minerals Pvt. Ltd

The Supreme Court ruled that GST cannot be levied on ocean freight for
goods imported on a Cost, Insurance, and Freight (CIF) basis because it
results in double taxation.