Full Judgment Text
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PETITIONER:
STATE OF BIHAR & ORS.
Vs.
RESPONDENT:
HARIHAR PRASAD DEBUKA ETC.
DATE OF JUDGMENT21/02/1989
BENCH:
SAIKIA, K.N. (J)
BENCH:
SAIKIA, K.N. (J)
OZA, G.L. (J)
CITATION:
1989 AIR 1119 1989 SCR (1) 796
1989 SCC (2) 192 JT 1989 Supl. 34
1989 SCALE (1)464
ACT:
Constitution of India: Articles 301 and 304---Freedom of
trade, commerce and intercourse--Not absolute--Is subject to
reasonable, regulatory and compensatory measures in public
interest.
Reasonable restrictions--Whether can be imposed by
executive action--Reasonability of restrictions--How deter-
mined.
Legislature--Power of--To make laws--Also has ancillary
and incidental power to make that law effective.
Bihar Finance Act, 1981: Section 31(2-a) (As substituted
by Bihar Finance Act, 1984)--Notification No. S.O. 1432
dated 28.12.85-Adopting permits in Form XXVIII A or XXVIII
B--Validity of-Whether violative of Articles 301 and 304.
Words and Phrases: ’Free Trade’--’Trade and Business’"
Throughout the Territory of India"--’De Minimis Non Curat
Lex’-Meaning of.
HEADNOTE:
In exercise of the powers conferred by sub-section (2-a)
of section 31 of the Bihar Finance Act, 1981 the Commission-
er of Commercial Taxes, Bihar issued a Notification dated
28th December, 1985 adopting Forms XXVIII A and XXVIII B as
the declaration for the purposes of verification and assess-
ment of the sales-tax payable. Clause 1 of the Notification
provided that a person transporting goods, exceeding the
quantity notified under section 35, on a goods carrier or a
vessel shall carry Form XXVIII A or XXVIII B duly filled up
in respect of goods being brought into the State or being
sent out of the State. Clause 2 of the Notification provided
that in case a form is found blank or not containing all the
particulars, it shall be deemed to be a violation of the
provisions of sub-section (2-a) of section 31 of the Act.
The respondent, a registered dealer under the Bihar
Sales Tax Act and the Central Sales Tax Act purchased 165
bags of mustard in the State of Rajasthan and was transport-
ing the same therefrom to
797
Jamshedpur in the State of Bihar. The officers of the Inves-
tigation Bureau Jamshedpur Division seized the vehicle along
with the goods on the ground that in the road permit the
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bill number had not been mentioned in column No. 9 in Form
XXVIII B. On a representation by the Singhbhum Chamber of
Commerce and Industry the truck along with the goods was
released. The Inspecting Officer issued a demand notice to
the respondent imposing a penalty of Rs.8,330 and rejected
the contention of the respondent that no permit was neces-
sary because it was violative of the respondent’s Constitu-
tional right of freedom of inter-State trade and commerce.
The appellant filed a writ petition in the Patna High
Court challenging the validity of the Notification on the
ground of its being violative of Articles 301 and 304 and
also the demand notice imposing penalty.
The High Court held that the Notification imposed unwar-
ranted restrictions on the inter-State trade and commerce
and accordingly quashed the Notification as violative of
Articles 301 and 304 and set aside the penalty order with
demand notice.
In this appeal by special leave on the question whether
the impugned Notification and the adoption of Forms XXVIII A
and XXVIII B, for the purposes of preventing evasion of
sales-tax, was violative of Articles 301 and 304 of the
Constitution.
Allowing the appeals and setting aside the judgment of
the High Court,
HELD: 1. Article 301 mandates free trade, commerce and
intercourse-throughout the territory of India. The words
"throughout the territory of India" extends the freedom not
only to inter-State but also to inter-State transactions and
movements. The mobility of goods throughout the territory of
India has to be free. Free trade throughout the territory of
India would be one with no tariffs and no restrictions or
disadvantages of any kind of importing or exporting from the
different States. Free trade means complete freedom of
inter-State trade without any restrictions on the movement
of goods between the States. Anyone aggrieved by infringe-
ment of the provisions of Article 301 can seek his remedy
from the Court against the offending legislative or execu-
tive action. [808C-E]
2. The word ’trade’ has been used synonymously with the word
798
’business’. Trade or business would mean some real substan-
tial and systematic or organised course of activity or
conduct with a set purpose. [808E]
State of Bombay v. R.M.D. Chamarbaug-wala, [1957] S.C.R.
874, applied.
3. Freedom under Article 301 does not mean absolute
freedom but freedom from all restrictions and barriers
except those which are provided in other Articles of Part
XIII as well as regulatory and compensatory measures. The
object of Part XIII is not to make inter-State trade, com-
merce or intercourse absolutely free. Reasonable restric-
tions in public interest are permissible. The reasonable
restrictions contemplated in Part XIII have to be backed by
law and not by executive action provided the same are within
the limitations prescribed under the scheme of Part XIII.
The power of the Union or the State to exercise legitimate
regulatory control is independent of the restrictions im-
posed by Articles 302-305. [808F; 81 IG; 812B]
State of Madras v. Nataraja, [1968] 3 S.C.R. 829, applied.
4. While examining whether there is a violation of the
freedom guaranteed by Article 301, one has to scrutinise
whether the impugned legislative or executive act operates
to restrict or barricade trade, commerce or intercourse
directly and immediately, as distinct from creating some
indirect or inconsequential impediment which may be regarded
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as remote. In other words, regulatory or compensory measures
cannot be regarded as violative of the freedom. Such meas-
ures cannot be challenged as interfering with the freedom
guaranteed by Article 301 unless they are shown to be co-
lourable measures to restrict the free flow of trade, com-
merce and intercourse. [808H; 809A-B]
5. Measures impeding the freedom of trade, commerce and
intercourse may be legislative or executive and may be
fiscal or non-fiscal. Taxing laws could be restrictions on
trade, commerce and intercourse, if they hamper the flow of
trade and if they were not what could be termed to be com-
pensatory taxes or regulatory measures. He who assails such
a measure has to show that it is not regulatory but it
directly and immediately interferes with the free flow of
inter-State trade or business. Freedom may be impeded by
impediments on the individuals carrying on trade or busi-
ness, on the business itself or on the vehicles, carriers,
instruments and labour used in the trade or business.
[809B-C]
799
Atiabari Tea Co. Ltd. v. State of Assam and others,
[1961] 1 S.C.R. 809; Automobile Transport (Rajasthan) Ltd.
v. State of Rajasthan and others, [1963] 1 S.C.R. 491;
Western Electronics v. State of Gujarat, A.I.R. 1988 S.C.
2038 and Indian Cement v. State of Andhra Pradesh, A.I.R.
1988 S.C. 567 applied.
6. When the legislature had the power to make a law with
respect to any subject it had all the ancillary and inciden-
tal power to make that law effective. In the instant case
the notification ex facie shows the purpose, namely, to
prevent evasion and facilitate assessment of sales tax. The
permits will indirectly help assessment by ascertaining
whether tax would be payable or not. The permit would enable
the carrier to cross the State territory by producing it if
and when needed and thus would promote rather than impede
inter-State trade. A declaration may also serve the public
purpose by finding out unauthorised trade or business to
which freedom of trade, commerce and intercourse would not
apply. Thus, the impugned notification is a measure in
exercise of a power incidental to the levy of sales tax and
it could not be said to have been a colourable exercise of
power to impede, restrict or barricade inter-State trade in
respect of which Bihar State Legislature has no power to
legislate. [813B-E]
6.1 Article 304(b) clearly permits the State Legislature
to impose such a reasonable restriction on the freedom of
trade, commerce and intercourse with or within that State as
may be required in the public interest. The word ’with’
involves an element having its situs in another State. It
cannot be, therefore, said ’that the insistence on the
disclosure in respect of goods entering Bihar from another
State if otherwise legitimate would not be protected by
Article 304(b). [815C]
6.2 To decide whether the notification impeded inter-
State trade, the concept of inter-State trade and its conti-
nuity has also to be taken into consideration. In the in-
stant case the notification clearly states that the declara-
tion in the permit is indeed for the purpose of verification
and assessment of tax payable and there is no imposition of
any tax. The notification only prescribed the declaration
forms to be carried on a goods carrier or vessel for trans-
porting goods through the State of Bihar. It does not pro-
hibit transportation of the goods. Therefore, there is no
direct and immediate restriction of inter-State trade,
commerce or intercourse as a result of the requirement to
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fill up and carry the forms. In other words, the continuity
of the transport will not be obstructed or interrupted.
Therefore, the notification and the adoption of the forms
are reasonable and in public interest and not ultra vires
the Articles 301 and 304 of the Constitution of India.
[815F, 816F]
800
Hans Raj Bagrecha v. State of Bihar and others, [1971] 2
SCR 412; 1971 1 SCC 59, distinguished.
Sodhi Transport Co. v. State of U. P., [1986] 1 SCR939,
held applicable.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 346347
of 1988.
From the Judgment and Order dated 18.11.1986 of the
Patna High Court in C.W.J.C. Nos. 990 and 991 of 1986 (R).
G. Ramaswamy, Additional Solicitor General and Ranjit
Kumar for the Appellants.
Nemo for the Respondents.
The Judgment of the Court was delivered by
K.N. SAIKIA, J. These appeals by special leave are from
a full bench judgment of the Patna High Court in two writ
petitions under Articles 226 and 227 of the Constitution of
India allowing the petitions and quashing the Bihar Govern-
ment’s Notification No. S.O. 1432 dated 28th December 1985
as violative of Articles 301 and 304 of the Constitution of
India.
Sub-section (2-a) of section 31 of the Bihar Finance
Act, 1981 was substituted by Bihar Finance Act, 1984 as
follows:
"(2-a) A person transporting goods shall carry
a declaration in such form as may be pre-
scribed by the commissioner supported by
either a cash memo, bill or a challan, in case
the movement is otherwise than as a result of
sale, in respect of goods which is being
transported on a goods carrier, or a vessel
and shall produce such challan, cash memo or
bill along with the aforesaid form of declara-
tion on demand before the prescribed authori-
ty:
Provided that the Commissioner, by notifica-
tion in this respect, may prescribe a form of
declaration or adopt a form of declaration or
permit prescribed for the purpose of Sections
34 & 35 of this part, and, he may also pre-
scribe in the said notification, the manner in
which such declaration
801
or permit shall be utilised for verification
and assessment of tax payable under this part.
Provided further that the Commissioner may
exempt any person or dealer or class of regis-
tered dealers from the requirement of this
sub-section."
Under the aforesaid amended provision the following
Notification was issued:
The 28th December, 1985.
S.O. 1432.--In exercise of the powers con-
ferred by subsection (2-a) of section 31 of
the Bihar Finance Act, 1981 (Bihar Act 5 of
1981) Part I, the Commissioner adopts Forms
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XXVIII A and XXVIII B as the declaration for
the purpose of the aforesaid sub-section which
a person shall carry in respect of goods being
transported for the purposes of verification
and assessment of tax payable and prescribes
the following manners in which such permit
shall be utilised for verification and assess-
ment of tax payable under Part I of the said
Act:
(i) A person transporting goods, exceeding the
quantity notified under section 35, on a goods
carrier or a vessel shall carry Form XXVIII A
or XXVIH B duly filled up in respect of goods
being brought into the State or being sent out
of the State;
(ii) In case a form is found blank, or not
containing all the particulars, it shall be
deemed to be a violation of the provisions of
sub-section (2-a) of section 31 of the said
Act.
(iii) The prescribed authority, after verifi-
cation of the consignment, shall make appro-
priate endorsement in respect of the result of
verification on both the copies/counterfoils
of Form XXVIII A or XXVIII B, as the case may
be, and retain one copy of original counter-
foil and return the other copy or duplicate
counterfoil to the person transporting the
goods;
(iv) The copy of the original counterfoil
retained by
802
the inspecting authority shall be forwarded
for verification and for assessment of tax to
the circle in which the dealer is registered
or has his place of business.
(v) ,The concerned dealer shall preserve the
other copy or duplicate counterfoil of Form
XXVIII A or XXVIII B, as the case may be, for
production before the assessing ’authority or
for inspection at any time before or after the
assessment.
This notification shall come into force with effect from
the 1st January, 1986.
/Bikrikar/vividh/12 1-308/85
By order of the Governor of Bihar
MUKUND PRASAD
Commissioner of Commercial Taxes
and Special Secretary to Government."
The respondent as proprietor of M/s Jai Durga Industries
of Jamshedpur town, which was registered under the Bihar
Sales Tax Act and the Central Sales Tax Act, purchased 165
bags of mustard (sarso) from M/s Kanpur Chand Girish Chand
Jain at Dhaulpur, in the State of Rajasthan, and was trans-
porting the same therefrom to Jamshedpur in the State of
Bihar in Truck No. RSG 533. On the 13th of February, 1986,
the officers of the Investigation Bureau Jamshedpur Divi-
sion, inspected the said truck and all necessary papers
including a road permit in Form XXVIII B for the 165 bags of
mustard (sarso) were produced at the time of inspection. In
the road permit the bill number had not been mentioned in
Column No. 9 in Form No. XXVIII B. On that ground the In-
specting Officers seized the goods loaded in the aforesaid
truck and detained it at Mango Mufassil Police Station at
Jamshedpur. A notice was issued to the petitioner to show
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cause as to why penalty should not be imposed under section
31(3) of the Act. He was directed to appear before the
Inspecting Officer on the 14th February, 1986. The Petition-
er being a member of the Singhbhum Chamber of Commerce and
Industry, moved the said organisation to agitate the matter
before the authority and on a representation by the said
Chamber the truck with the goods therein were released on
the 15th February 1986. In reply to the show cause notice
the appellant took the stand that no permit in the required
Form was necessary and in any case it was violative of the
petitioner’s Constitutional right of freedom of inter-State
trade and commerce. The contention was re-
803
jected and a penalty of Rs.8,330 was imposed by Order dated
29th May 1986; and thereafter the consequential demand
notice No. 986 dated 2nd June 1986 was issued. Aggrieved,
the appellant filed a writ petition in the Patna High Court
under Articles 226 and 227 of the Constitution of India
challenging, inter alia, the Notification No. S.O, 1432
dated 28th December 1985 as ultra vires the Articles 30 1
and 304 of the Constitution of India, and also the order
imposing penalty and the consequential demand notice.
The High Court held, inter alia, that the impugned
Notification imposed unwarranted restrictions on inter-State
trade and commerce the freedom whereof stood guaranteed;
that the decision of this Court in Hans Raj Bagrecha v.
State of Bihar & Ors., reported in [1971] 2 S.C.R. 412:1971
1 S.C.R. 59 squarely covered this case; that the impugned
Notification was not of regulatory character; and that the
decision in Sodhi Transport Co. v. State of U.P., reported
in [1986] 1 S.C.R. 939 did not apply as that case dealt with
the question of transit pass only. The Notification was
accordingly quashed and the penalty order with demand notice
set aside.
Mr. Ranjit Kumar the learned counsel for the appellant
State submits that the amendment of sub-section (2-a) of
section 31, the impugned Notification No. S.O. 1432, herein-
after referred to as ’the Notification’, and the adoption of
Forms XXVIII A and XXVIII B thereby were made with a view to
preventing evasion of Sales Tax and in pith and substance it
is a regulatory measure which in no way affected freedom of
inter-State trade; and that the High Court erroneously held
the Notification to be violative of Articles 301 and 304 of
the Constitution of India. Counsel further submits that the
particulars to be disclosed in the prescribed Forms XXVIII A
and XXVIII B and the carrying of the Forms by the carriers
would promote rather than hinder freedom of inter-State
trade.
It may be noted that the vires of sub-section (2-a) of
Section 31 of the Bihar Finance Act, hereinafter referred to
as ’the Act’, whereunder the Notification was issued and the
Forms were adopted by the Commissioner and of the relevant
Rules referred to in the Forms, namely, Rule 41 and 42(2)
were not challenged before the High Court or before this
Court.
To decide the question whether the Notification and
adoption of the two aforesaid Forms would be ultra vires
Articles 301 and 304 of the Constitution of India, it would
be relevant to refer to the Forms
804
and the Articles. The following are the Forms:
FORM XXVIII A
Permit
(See Rule 41)
NO.
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I hereby permit the transport of the consignment detailed
overleaf. This permit will be valid for one month from the
date of issue.
Place ................. Signature
Date .................. Designation
Details OF Consignment Permitted to be Transported
Description Dated signature of the
of goods quantity issuing the permit
1 2 3
Result of Checking on the Route
Designation and Description Quantity of Dated signature
head quarters of of goods the goods of the authority
the authority by actually mentioned in
by whom transport transported column-1.
of consignment
was checked.
1 2 3 4
FORM XXVIII B
Form of Permit
(See Rule 42(2) of the Bihar Sales Tax Rules 1983)
(Original--Not transferable)
Serial No.
(To be filled in by the permit-holder before transport of
goods).
1. Name of dealer to whom the permit is granted with
registration certificate numbers.
805
2. Name and address of the consignor.
3. Name and address of the consignee.
4. Place of despatch.
5. Destination.
6. Name of notified railway station/other places from where
delivery is to be taken.
7. Number and date of:
(i) Railway receipt
(ii) Other document.
8. Description of consignment:
Name of goods Value Quantity.
9. Seller’s invoice, forwarding note, number and date.
10. Mode of transport (vehicle No.)
I/We hereby declare that the above statements are cor-
rect and complete in the best of my/our knowledge and be-
lief.
Signature of dealer/declared Manager.
Date ..........
Result of Checking on the Route
Designation and Description Quantity Dated signature
headquarters of of goods. of the of the authority
the authority by goods mentioned in
whom the trans- actually column-1 and
port of the transported place of check-
ing.
806
Note: (1) Separate form should be used
for each consignment.
(2) (a) In case of transport across
or beyond checkpost, a copy of the form should
accompany the consignment.
(b) In case of delivery of consignment from
any notified railway station/other such place
the original copy of the form shall accompany
the consignment in transit and thereafter
shall be sent to the appropriate authority of
the Commercial Taxes.
Article 301 which deals with freedom of trade, commerce
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and intercourse provides:
"Subject to the other provisions of this Part,
trade, commerce and intercourse throughout the
territory of India shall be free."
Article 304 which deals with restrictions on trade,
commerce and intercourse among States provides:
"Notwithstanding anything in Article 301 or
Article 303, the Legislature of a State may by
law;
(a) impose on goods imported from other
States or the Union Territories any tax to
which similar goods manufactured or produced
in that State are subject, so, however, as not
to discriminate between goods so imported and
goods so manufactured or produced; and
(b) impose such reasonable restrictions
on the freedom of trade, commerce or inter-
course with or within that State as may be
required in the public interest:
Provided that no Bill or amendment for the
purposes of clause (b) shall be introduced or
moved in the Legislature of a State without
the previous sanction of the President."
The right to carry on any occupation, trade or business
conferred
807
by Article 19(1)(g) on citizens is subject to reasonable
restrictions, and in so far as trade or commerce involves
the buying and selling of goods, restrictions on the right
to trade can be put in the public interest. As regards the
right of free movement, the power to legislate on the free-
dom of trade, commerce and intercourse is restricted by
Article 19(1)(g) and the provisions of Articles 302 to 306.
Under Article 302 Parliament may by law impose such restric-
tions 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 inter-
est. Article 303(1) provides that notwithstanding anything
in Article 302 neither Parliament nor the Legislature of a
State shall have power to make any law giving, or authoris-
ing the giving of, any preference to one State over another,
or making, or authorising the making of, any discrimination
between one State and another, by virtue of any entry relat-
ing to trade and commerce in any of the Lists in the Seventh
Schedule. Under clause (2) nothing in clause (1) shall
prevent Parliament from making any law, or authorising the
giving of, any preference or making, or authorising the
making of, any discrimination if it is declared by such law
that it is necessary to do so for the purpose of dealing
with a situation arising from scarcity of goods in any part
of the territory of India. Thus Article 303(1) expressly
forbids discrimination relating to trade and commerce apart
from Article 14. Trade, commerce and intercourse may be
domestic or foreign or international. Part XIII of the
Constitution deals with trade, commerce and intercourse
within the territory of India i.e. domestic or internal.
This again is sub-divided into trade, commerce or inter-
course between one State and another i.e. inter-state and
within the same State i.e. intraState.
In Atiabari Tea Co. Ltd. v. The State of Assam and Ors.
[1961] 1 S.C.R. 809 it has been held that the freedom of
trade, commerce and intercourse guaranteed by Article 301
was wider than that contained in Section 297 of the Govern-
ment of India Act, 1935, and it included freedom from tax
laws also. Article 301 provides that the flow of trade shall
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run smooth and unhampered by any restriction either at the
boundaries of the State or at any other points inside the
States themselves; and if any Act imposes any direct re-
strictions on the movement of the goods it attracts the
provisions of Article 301 and its validity can be sustained
only if it satisfies the requirements of Article 302 or
Article 304. Further the operation of Article 301 cannot be
restricted to legislation under entries dealing with the
trade and commerce. Gajendragadkar, J., as he then was, in
the majority judgment, observed that free movement and
exchange of goods throughout the
808
territory of India was essential for sustaining the economy
and improving living standards of the country and that
Article 301 guaranteeing freedom of trade and commerce and
intercourse embodied and enshrined a principle of paramount
importance that the economic unity of the country would
provide the main sustaining force for the stability and
progress of the political and cultural unity of the country
and it was based on the theory that the peoples of the
several States may sink or swim together It was also held
that though the power of levying tax was essentially for
existence of the Government, its exercise’ must inevitably
be controlled by the Constitutional provisions and the power
was not outside the purview of any constitutional limita-
tions.
Article 301 mandates free trade, commerce and inter-
course throughout the territory of India. Inter-State trade
has, therefore, to be free from trade barriers. The mobility
of goods throughout the territory of India has to be free.
Free trade throughout the territory of India would be one
with no tariffs and no restrictions or disadvantages of any
kind of importing or exporting from the different States.
Free trade means complete freedom of inter-State trade
without any restrictions on the movement of goods between
the States. Anyone aggrieved by infringement of the provi-
sions of Article 301 can seek his remedy from the court
against the offending legislative or executive action. The
word ’trade’ has been used synonymously with the word ’bus-
iness’. Trade or business would mean some real substantial
and systematic or organised course of activity or conduct
with a set purpose. In State of Bombay v. Chamarbaugwala,
[1957] S.C.R. 874 this Court has held that the protection
afforded by Article 301 is confined to such activities as
may be regarded as lawful trading activity and does not
extend to activity which is ’res extra commerciurm’ and
cannot be said to be trade. The words "throughout the terri-
tory of India" extends the freedom not only to inter-State
but also to intraState transactions and movements. Freedom
under Article 301 does not mean absolute freedom but freedom
from all restrictions and barriers except those which are
provided in other Articles of Part XIII as well as regulato-
ry and compensatory measures. The power of the Union or the
State to exercise legitimate regulatory control is independ-
ent of the restrictions imposed by Articles 302-305 as was
held in State of Madras v. Natraja, [1968] 3 S.C.R. 829.
While examining whether there is a violation of the
freedom guaranteed by Article 301, one has to scrutinise
whether the impugned legislative or executive act operates
to restrict or barricade trade, commerce or intercourse
directly and immediately, as distinct from
809
creating some indirect or inconsequential impediment which
may be regarded as remote. In other words, regulatory or
compensatory measure cannot be regarded as violative of the
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freedom. Such measures may be of diverse nature or various
kinds such as traffic regulation, making of declarations and
filing of returns within reasonable limits. Such measures
cannot be challenged as interfering with the freedom guaran-
teed by Article 301 unless they are shown to be colourable
measures to restrict the free flow of trade, commerce and
intercourse. Measures impeding the freedom of trade, com-
merce and intercourse may be legislative or executive and
may be fiscal or non-fiscal. He who assails such a measure
has to show that it is not regulatory but it directly and
immediately interferes with the free flow of inter-State
trade or business. Freedom may be impeded by impediments on
the individuals carrying on trade or business, on the busi-
ness itself or on the vehicles, carriers, instruments and
labour used in the trade or business. In Atiabari (supra)
tax on goods carried by roads outside State was struck down.
In the Automobile Transport (Rajasthan) Ltd. v. State of
Rajasthan & Ors., [1963] 1 S.C.R. 491 sub-section (1) of
Section 4 of the Rajasthan Motor Vehicles Taxation Act which
provided that no motor vehicle should be used in any public
place or kept for use in Rajasthan unless the owner thereof
had paid in respect of it, a tax at the appropriate rate
specified in the Schedule to the Act within the time allowed
was challenged on the ground that it constituted a direct
and immediate restriction on the movement of trade and
commerce with and within Rajasthan inasmuch as motor vehi-
cles which carried passengers and goods within or through
Rajasthan had to pay the tax which imposed a pecuniary
burden on a commercial activity and was, therefore, hit by
Article 301 of the Constitution of India and was not saved
by Article 304(b). The Rajasthan High Court dismissed the
Writ Petition and the appeals were dismissed by Supreme
Court in accordance with the opinion of the majority. Thus
both Atiabari (supra) and Automobile (supra) dealt with
fiscal measures.
In Hansraj Bagrecha v. State of Bihar & Ors., (supra)
under section 5A of the Bihar Sales Tax Act 1959 as amended
by the Bihar Finance Act, 1966 the purchase tax on goods
declared under section 3A was to be levied at the point of
purchase made from a person other than a registered dealer.
By a Notification dated September 14, 1966 the Governor of
Bihar declared jute as a commodity liable to purchase tax at
the rate specified in the Notification. The appellant car-
ried on business in jute. In the course of his business he
purchased raw jute from producers in West Bengal, transport-
ed it to Kishenganj Railway Station in Bihar and then re-
exported it to purchasers in West Bengal.
810
He also bought raw jute in Bihar and exported it to mer-
chants and mill owners in West Bengal by rail from Kishen-
ganj Railway Station. After the enactment of Ss. 3A and 5A
the State Government issued a Notification dated December
26, 1967 purporting to exercise power under s. 42 of the
Bihar Sales Tax Act, 1959 read with R. 31 B of the Bihar
Sales Tax Rules, 1959 notifying that no person shall tender
at any railway station mentioned in Sch. II any consignment
of goods mentioned in Sch. 1 exceeding the quantity speci-
fied for transport to any place inside the State of Bihar
and no person shall accept such tender in accordance with
the conditions laid down in the said R. 31B. Under Sch. I
jute exceeding 800 kg could not be tendered for transport
without a despatch permit and Kishenganj was one of the
railway stations mentioned in Sch.II. In July 1967 The
Superintendent of Commercial Taxes prohibited the railway
authorities from loading and despatching jute goods from any
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station in Purnea District without the production of a
registration certificate. For non-production of such certif-
icate the railway authorities refused to despatch from
kishenganj the jute goods booked by the appellant. The
appellant moved a writ petition in the High Court of Patna
challenging, inter alia, the validity of Ss. 3A and 5A of
the Bihar Sales Tax Act and of R. 3lB. The High Court dis-
missed the petition. With certificate the appeal was filed.
In support of the petition it was urged (i) that Ss. 3A and
5A infringed the guarantee of freedom of trade under Article
301 of the Constitution and since the amendment by the
Finance Act, 1966 introducing these sections did not receive
the assent of the President under Art. 304(b) the amendment
was not save; (ii) that Ss. 3A and 5A were contrary to s. 15
of the Central Sales Tax, 1956 and accordingly void; (iii)
that R. 31B framed by the State Government and the Notifica-
tion issued on December 26, 1967 was unauthorised and liable
to be struck down. While striking down Rule 31B of the Bihar
Sales Tax Rules 1959 and the Notification issued on December
26, 1967 as ultra vires, their Lordships observed that the
Bihar Sales Tax Act was enacted by the legislature to con-
solidate and amend the law relating to the levy of tax on
the sales and purchase of goods in Bihar. The State legisla-
ture was competent in enacting sales tax legislation to make
a provision which was ancillary or incidental to any provi-
sion relating to levy, collection and recovery of Sales tax
and Purchase tax. A provision which was made by the Act or
by the rules which sought to prevent evasion of liability of
tax on intrastate sale or purchase would, therefore, be
within the competence of the legislature or the authority
competent to make the rules. But the State legislature had
no power to legislate for the levy of tax on transactions
which were carried on in the course of inter-State trade or
commerce or in the course of export.
811
Section 42 of the Bihar Sales Tax Act, 1949 prevented any
person from transporting from any railway stations, steamer
station, airport, post office or any other place any con-
signment of such goods exceeding the quantity specified with
a view to ensuring that there was no evasion of tax payable
under the Act. But the power under section 42 could only be
exercised in respect of levy, collection and recovery of
intrastate Sales or Purchase tax. It could not be utilised
for the purpose of ensuring effective levy on inter-State
Sales or Purchase Tax. When rule 3lB prohibited transport of
goods to any place outside the State of Bihar unless a
certificate was obtained from the appropriate authority, it
sought to prohibit transport of goods pursuant to transac-
tions which might not even be of the nature of sale or
purchase transaction; in any case it restricted transport
pursuant to transactions in the course of inter-State trade
and commerce. The operation of the rule was not restricted
only to transactions in the course of intrastate trade and
commerce but it authorised restrictions on inter-State
transactions and on that account it was ultra vires and
consequently the Notification issued on December 26, 1967
was also declared ultra vires. It would thus be seen that
rule 3 lB and the Notification issued thereunder were struck
down on the ground that they impeded inter-State trade,
commerce and intercourse. It would also be clear that the
Notification issued was shown to be a measure for preventing
evasion of Sales Tax. In the instant case the Notification
dated 28th December, 1985 clearly states that the declara-
tion in the permit is indeed for the purpose of verification
and assessment of tax payable.
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In Indian Cement v. State of A.P., A.I.R. 1988 S.C. 567
it was held that the restriction provided for in Article 301
can within the ambit be limited by law made by the Parlia-
ment and the State legislature and that no power is vested
in the executive authority to act in any manner which af-
fects or hinders the essence-and thesis contained in the
scheme of Part XIII of the Constitution which is against
creation of economic barriers and/or pockets which would
stand against the free flow of trade, commerce and inter-
course. There could be no dispute that taxation was a deter-
rent against free flow. The reasonable restrictions contem-
plated in Part XIII have to be backed by law and not by
executive action provided the same are within the limita-
tions prescribed under the scheme of Part XIII. In Weston
Electronics v. State of Gujarat, A.I.R. 1988 S.C. 2038 it
was reiterated that while a State legislature may enact a
law imposing a tax on goods imported from other States as is
levied on similar goods manufactured in that State the
imposition must not be such as to discriminate between goods
so imported and goods so manufactured and that taxing laws
could be
812
restrictions on trade, commerce and intercourse, if they
hamper the flow of trade and if they were not what could be
termed to be compensatory taxes or regulatory measures.
It is by now settled law that the object of Part XIII is
not to make inter-State trade, commerce or intercourse
absolutely free. Reasonable restrictions in public interest
are permissible. Mandate against discrimination dictates the
placing of inter-State trade, commerce and intercourse under
no greater disadvantage than that borne by intraState trade,
commerce and intercourse. The primary object is to avoid
barriers around the State borders. Fractionalisation of the
country’s trade, commerce and intercourse is to be avoided.
However, this could not mean supporting trader’s hostility
towards regulations.
Coming to the impugned Notification and the two adopted
Forms, namely Form XXVIII A and XXVIII B we find that there
is no imposition of any tax by them. It is, therefore,
pertinent to ask what this measure actually does. Does it
directly and immediately restrain inter-State trade, com-
merce and intercourse? Does it place the intraState carrier
in a superior or advantageous position to that occupied by
inter-State carrier? Does it restrict inter-State trade,
commerce and intercourse? What are the direct and indirect
effects of this measure and whether it amounts to a prohibi-
tion or a mere regulation? If it is a mere regulation then
only the motive, purpose or policy of the State Government
would be relevant. However, if it amounts to a prohibition
that would not be relevant. If it has any effect on inter-
State trade, we have to ascertain the essence or incidence
thereof.
The Notification only prescribed the declaration Forms
to be carried on a goods carrier or vessel for transporting
goods through the State of Bihar. It does not prohibit
transportation of the goods. Before the High Court it was
not disputed that the Notification and the Forms were ap-
plicable in respect of goods being brought into the State
and being sent out of the State in excess of the quantity
notified under section 35 of the Act on every goods carrier
or vessel. Thus, it would be applicable to the transport of
all goods carried intra-State in Bihar, and inter-State to
and through the State of Bihar. Further, clause (ii) of the
Notification states that if the prescribed Form is found
blank or does not contain all the required particulars it
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would be deemed to be a violation of the provisions of sub-
section (2-a) of section 31 of the Act entailing penalties
for the infraction thereof. Counsel for the State submits
that Form XXVIII A (Permit) is meant for those who are not
registered as dealers and it has to be obtained from office,
while Form
813
XXVIII B (Permit) can be filled up by the registered dealer
himself. It is further submitted that the particulars are to
be furnished by the persons and this would not affect the
freedom of movement of the goods carried, and that it would
facilitate transportation across and throughout the State of
Bihar by showing the permit wherever required and thus,
instead of hindering, it will promote free movement of the
goods. We find no reason to disbelieve these statements. We
are of the view that the permits will indirectly help as-
sessment by ascertaining whether tax would be payable or
not. The permit would enable the carrier to cross the State
territory by producing it if and when needed and thus would
promote rather than impede inter-State trade. A declaration
may also serve the public purpose by finding out unautho-
rised trade or business to which freedom of trade, commerce
and intercourse would not apply. Thus, the impugned Notifi-
cation has to be held to be a measure in exercise of a power
incidental to the levy of Sales Tax and it could not be said
to have been a colourable exercise of power to impede,
restrict or barricade inter-State trade in respect of which
Bihar State legislature has no power to legislate., It is,
to our mind, clearly distinguishable from the facts in
Bagrecha’s case (supra). The commonness between the two is
in insistence of despatch certificate in Bagrecha and a
permit in the instant case, But there the similarity ends.
While there was an ex facie purpose disclosed in the Bagre-
cha prohibitory Notification, in the instant case the Noti-
fication ex facie shows the purpose, namely, to prevent
evasion and facilitate assessment of Sales Tax. The insist-
ence on a permit in respect of goods entering the State in
course of inter-State trade Could also be necessary. to
distinguish the goods that would be transported across the
territory of State and those which would reach the consump-
tion point within the State, and to ascertain whether tax
would be payable in the latter category. We are, therefore,
of the view that the ratio decidendi of the Bagrecha case
would not be applicable to the facts of the instant case. We
are also of the view that the facts in Sodi Transport Co. v.
State of U.P. & Ant., (supra) would be nearer to the facts
of the instant case. In this case Section 28 of the Uttar
Pradesh Sales Tax Act,. 1948 authorised the State Government
to establish check-posts and barriers with a view to pre-
venting evasion of tax or other dues payable under the Act
in respect of sale of goods in the State. Section 28-B,
added by the U.P. Act 1 of 1973, makes provision for the
procedure to be followed by persons who intend to transport
goods from outside the State by road through the State to
destinations outside the State. It provides that when a
vehicle coming from any place outside the State and bound
for any other place outside the State passes through the
State, the driver or the other person in-charge of such
vehicle shall
814
obtain in the prescribed manner a transit pass from the
officer in charge of the first check post or barrier after
his entry into the State and deliver it to the officer in
charge of the check post or barrier before exit from the
State. If he fails to do so it shall be presumed that the
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goods carried thereby have been sold within the State by the
owner or person in-charge of the vehicle. Rule 87 of the
Uttar Pradesh Sales Tax Rules 1948, inserted by the U.P.
Sales Tax (First Amendment) Rules, 1977 provides that a
person who wishes to obtain a transit pass shall make an
application in the prescribed form to the officer in charge
of the check post concerned. It also provides for the issue
of private pass in triplicate and for inspection of the
documents, consignments and goods to ensure that the state-
ments are true.
The appellants who claimed to be engaged in the business
of transport of goods belonging to others for hire and who
in the course of their business had to carry goods from one
State to another State along roads lying in the State of
Uttar Pradesh, questioned the validity of section 28B of the
Act and Rule 87 of the Rules by filing writ petitions before
the High Court. Their contentions were (i) that section 28B
and Rule 87 were outside the scope of entry 54 of the Sev-
enth Schedule of the Constitution; (ii) that they infringed
freedom of trade, commerce and intercourse guaranteed under
Article 30 1 of the Constitution; and (iii) that they im-
posed unreasonable restrictions on the freedom of trade
guaranteed under Article 19(1)(g) of the Constitution. The
High Court having upheld the constitutional validity of the
impugned provisions appeals were preferred to this court by
special leave.
In the writ petition under Article 32 of the Constitu-
tion in addition to the contentions raised in the High
Court, it was submitted that the rule of presumption con-
tained in section 28B of the Act virtually made a person,
who had not actually sold the goods liable to pay Sales Tax,
and that a transporter being just a transporter could not be
treated as a dealer within the meaning of that expression as
it was defined in the Act at its commencement.
It was held, that the decision of the High Court uphold-
ing the constitutionality of section 28B of the U.P. Sales
Tax Act, 1948 and rule 87 of the U.P. Sales Tax Rules, 1948
did not call for any interference. It was observed that the
Act was traceable to entry 54 in List II of the Seventh
Schedule to the Constitution. Section 28B of the Act and
Rule 87 of the rules were enacted to make the law workable
and to prevent evasion of tax. They fell within the ambit
and scope of the
815
power to levy the tax itself. When the legislature had the
power to make a law with respect to any subject it had all
the ancillary and incidental power to make that law effec-
tive.
We have seen that in Bagrecha what was insisted was a
despatch certificate; in Sodhi Transport what was insisted
was a transit pass while in the instant case what is being
insisted is a permit disclosing particulars of the goods to
be transported. While in Bagrecha it was not protected by
304(b) in Sodhi Transport it was. Article 304(b) clearly
permits the State legislature to impose such a reasonable
restriction on the freedom of trade, commerce and inter-
course with or within that State as may be required in the
public interest. The word ’with’ involves an element having
its situs in another State. It cannot be therefore said that
the insistence on the disclosure in respect of goods enter-
ing Bihar from another State if otherwise legitimate would
not be protected by Article 304(b). The question, therefore,
arises whether the insistence on the permit in Forms XXVIII
A or XXVIII B, as the case may be, pursuant to the impugned
Notification can be said to be a reasonable measure adopted
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by the State legislature for the express purpose of prevent-
ing evasion and facilitating assessment of tax. The reasona-
bility has to be considered in the context of the effective-
ness of the State’s powers and the erosion, if any, of the
powers of the Parliament in respect of inter-State trade,
commerce and intercourse. In so far as carriage of goods
vis-a-vis Sales Tax, it has also to be considered keeping in
mind the fact that at some point goods imported from outside
shall become assimilated with the general mass of property
in a State and be subject to State taxation and the problem
of determination as to when and where that point is reached.
The motive of State regulation in exercise of incidental
power to tax has to be scrutinised and laissez faire hostil-
ity towards trade regulations or taxation has to be kept
within limits. The peculiarity of the local situation of a
State may not also be entirely ignored. To decide whether
the Notification impeded inter-State trade we have also to
take into consideration the concept of inter-State trade and
its continuity.
The High Court has taken the view that an importer has
to send the form in advance to the consignor so that it
could be filled up to accompany the goods and that would
amount to a blockade placed on the free movement of goods in
inter-State commerce. It should, however, be noted that the
Notification has been issued and the Forms have been adopted
by the State of Bihar and would be enforced in that State.
There is nothing to indicate that the carrier would be
penalised for not having filled up Forms XXVIII A or XXVIII
B, as the case may
816
be, while the goods were being carried through other States.
They are to be tilled up only when the carrier is within the
territory of the State of Bihar. There is no provision to
the effect that those who had not filled up the appropriate
form at the earlier stages of the transit would not be
allowed to fill up with the State. The particulars required
are not such as would be impossible or difficult for the
cartier to furnish. There is no prohibition on transporta-
tion of the goods themselves. We are accordingly of the view
that there is no direct and immediate restriction of inter-
State trade, commerce or intercourse as a result of the
requirement to fill up and carry the Forms. In other words,
the continuity of the transport will not be obstructed or
interrupted. Stoppage of the transporting vehicle for the
purpose of obtaining and filling in the appropriate Form
would, in our opinion, not amount to interruption but only a
stoppage. A mere stoppage of the movement of the vehicle
will not have any direct or immediate effect on the trade.
The checking of documents or the filling in and submission
of Forms and returns, detour to a public weigh-bridge and
the like may be an inconvenience, and unless they are shown
to be unreasonable and not in public interest the court may
apply the maxim ’de minimise non curat lex’. A stoppage of
the vehicle for roadside repair, for taking petrol, for
allowing the driver to take rest or his meals would not
naturally amount to interruptions of trade, commerce and
intercourse. Public interest also will not allow transit
regulations and allied measures to be violated, thwarted or
evaded through the channel of inter-State trade, commerce
and intercourse, unless of course the measures are shown to
be unreasonable. In this view of the matter this case would
squarely be covered by the decision in Sodhi Transport Co.,
(supra). We accordingly hold the Notification and adoption
of the Forms to have been validly made in exercise of powers
incidental to the power of levying Sales Tax, and that they
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are reasonable and in public interest, and not ultra vires
the Articles 30 1 & 304 of the Constitution of India.
In the result, the impugned judgment of the High Court
is set aside, and the appeals are allowed, but without any
orders as to costs. Learned counsel for the appellant states
that the State in these appeals was interested in the law
being laid down, and that even if the validity of the Noti-
fication is upheld it will not revive the proceedings
against the respondent to realise the penalty. We have no
doubt that the State will abide by it.
T.N.A. Appeals allowed.
817