Law and You > Constitutional Law > Interstate Trade and Commerce in India
The free flow of trade, devoid of geographical obstruction, is a sine qua non for economic affluence, on a national scale as well as globally. ย The seamless exchange of goods and services across different regions of a nation is not merely a commercial activity, it is the lifeblood of economic growth and prosperity. It plays a pivotal role in driving economic unity, fostering national integration, and promoting the overall well-being of the population. Interstate trade and commerce in India are governed by the Constitution of India, primarily under Part XIII (Articles 301 to 307). These provisions ensure the free flow of trade, commerce, and intercourse across the country while allowing for reasonable restrictions.
Terminology:
The terms trade, commerce, and intercourse each relate to the exchange of goods, services, or information, but they have distinct nuances:
- Trade: This refers to the exchange of goods and services, typically for money. It can happen on a local, national, or international level. Trade often involves the buying and selling of products or commodities. It also includes transport or merchandise from one place to another.ย It is basically an exchange of commodities.ย
- Commerce: This is a broader term that encompasses all the activities involved in the buying and selling of goods and services, including transportation, marketing, and banking. It refers to the entire system of trade and business activities that facilitate economic exchange.
- Intercourse: It includes both the trade and the commerce. Historically, โintercourseโ has been used to describe communication or exchange between people, groups, or countries. It refers to the act of interaction, which could be economic, social, or cultural. It is a more formal or old-fashioned term, particularly in legal or diplomatic contexts. When used today, it may be viewed in the context of โtrade and intercourseโ, meaning trade relations and diplomatic exchanges. It also includes activities like the movement of people for friendly association with one another.ย
In modern usage, commerce and trade are often used interchangeably, though commerce generally refers to a wider scope of activities involved in business. Intercourse is now mostly associated with interaction but was more commonly used in historical or legal contexts.
Article 301:
Freedom of Trade, Commerce and Intercourse
According to Article, 301, subject to the other provisions of the Part XIII, trade, commerce and intercourse throughout the territory of India shall be free.
Article 301 of the Constitution of India deals with freedom of trade, commerce, and intercourse within the territory of India. It ensures that there shall be no restrictions on the free flow of trade and commerce across the country, allowing for a unified national market. However, it also recognizes that certain restrictions may be imposed in the interest of public policy.
While enacting Article 301, the Constituent Assembly deliberately tried to adopt Section 92 of the Australian Constitution. Movement is an essential ingredient of trade and commerce and there must be no fetter on it; any taxation would be a fetter. The Article 301 ensures that the trade, commerce and interstate intercourse via internal carriage or ocean navigation shall be absolutely free except for imposition of uniform duties of customs. It applies to both interstate and intrastate trade.
In essence, Article 301 is a provision that supports the concept of a single national market and aims to prevent economic fragmentation between different states in India.
Article 302:
Power of Parliament to Impose Restrictions on Trade, Commerce and Intercourse
According to Article 302 of the Constitution of India, the Parliament may by law 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.
Article 302 of the Constitution of India gives the Parliament the power to make laws that can impose restrictions on trade and commerce in the interest of public welfare. This Article allows Parliament to impose taxes or enact laws that might limit the freedom of trade, commerce, or intercourse between states, even though Article 301 guarantees the freedom of trade, commerce, and intercourse. Article 302 enables Parliament to impose restrictions on the freedom, commerce and intercourse on the ground of public interest. While, Article 303 prohibits the Parliament and the State legislatures to make preferential and discriminatory law.
In Atiabari Tea Co. v. State of Assam, AIR 1961 SC 232 case, where the Assam State enacted a law called Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, 1954 imposing taxes on goods carried by road or inland waterways in the state of Assam. The appellants moved to the High Court praying for a writ of mandamus or any other writ restraining the respondents from taking any steps under the provisions of this Act. The Supreme Court took the view that if the movement, transport or the carrying of goods is allowed to be impeded, obstructed or hampered by taxation without satisfying the requirements of Part XIII the freedom of trade on which so much emphasis is laid by Article 301 would turn to be illusory. When Article 301 provides that trade shall be free throughout the territory of India primarily it is the movement part of the trade that it has in mind and the movement or the transport part of trade must be free subject of course to the limitations and exceptions provided by the other Articles of Part XIII. The Court fail to take into consideration the quantum of tax burden, which by no means was excessive but the tax was levied on โmovementโ of goods, from one place to another, it was held to offend Article 301. The view propounded in Atiabari case was bound to have great adverse effect upon the financial autonomy of the states. Thus, โfreedom of trade, commerce and intercourse from lawsโ became โfreedom of movement of trade from direct and immediate restrictions imposed by lawsโ.
Article 302 enables Parliament to impose restrictions, by law, on the freedom of trade, commerce and intercourse between one State and another or within any part of the territory of India as may be required in public interest. ย But, this power to place restrictions cannot be used by Parliament to make any law which discriminates between one State and another or gives preference to one State over another, โby virtue of any Entry in the Seventh Schedule relating to trade and commerceโ [Article 303(1)].
In essence, Article 302 balances the freedom of trade and commerce with the need for public welfare and allows Parliament to enact laws that impose temporary or necessary restrictions on commerce for the broader interests of the country.
Article 303:
Restrictions on the Legislative Powers of The Union and of the States with Regard to Trade and Commerce
According to Article 303(1) of the Constitution of India, notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising 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 relating to trade and commerce in any of the Lists in the Seventh Schedule.
According to Article 303(2) of the Constitution of India, nothing in clause (1) shall prevent Parliament from making any law giving, 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.
Clause (2) of the Article 303 engrafts an exception to the limitation contained in clause (1) of the Article, in as much as it permits Parliament to make a law giving preference, or making discrimination between one State and another, 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. Effectively managing scarcity situations and ensuring equitable distribution of goods under Article 303(2) requires a delicate balance between the need for intervention and the preservation of trade freedom.
For example, if a state tries to impose a tax on goods coming from another state in a way that only benefits local producers, it would likely be against the spirit of Article 303, as it would create a restriction or preference that interferes with the free flow of trade between states.
In short, Article 303 ensures that laws made by Parliament or State Legislatures do not favour one state over another in a manner that would harm the freedom of trade and create barriers between states, unless itโs justified for public interest.
Article 304:
Restrictions on Trade, Commerce and Intercourse among States
According to Article 304(1)(a) of the Constitution of India, notwithstanding anything in article 301 or article 303, the Legislature of a State may by law 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
According to Article 304(1)(b) of the Constitution of India, notwithstanding anything in article 301 or article 303, the Legislature of a State may by law impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest.
The proviso attached to the Article, lays down 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.
Article 304 of the Constitution of India deals with the power of the States to impose restrictions on trade, commerce, and intercourse, even though Article 301 guarantees the freedom of trade across India. This article provides specific conditions under which states can impose restrictions on trade for public interest or other justified reasons.
Article 305
Saving of Existing Laws and Laws Providing for State Monopolies
According to Article 305 of the Constitution of India, nothing in articles 301 and 303 shall affect the provisions of any existing law except in so far as the President may by order otherwise direct; and nothing in article 301 shall affect the operation of any law made before the commencement of the Constitution (Fourth Amendment) Act, 1955 , in so far as it relates to, or prevent Parliament or the Legislature of a State from making any law relating to, any such matter as is referred to in sub-clause (ii) of clause ( 6 ) of article 19 .
Article 305 allows existing laws that were in force prior to the adoption of the Constitution to continue without being invalidated by the provisions of Articles 301 and 302. This ensures that laws that were made under earlier legal systems or agreements can continue to operate without disruption.
The article also provides that laws made to give effect to international treaties, agreements, or conventions (particularly with foreign countries) will remain valid, even if they seem to be inconsistent with the provisions of Article 301 (which guarantees freedom of trade) or Article 302 (which gives Parliament the power to restrict trade in the public interest). These laws are exempted from the restrictions imposed by the Articles related to free trade and commerce.
For example, if a state or the Union Government had entered into an agreement with a foreign country before the Constitution came into effect, the law that was made to honour or enforce that agreement would still hold, even if it imposes restrictions or conditions on trade or commerce between states within India.
In essence, Article 305 safeguards the continuation of pre-existing laws that might impose restrictions on trade and commerce, particularly if those laws were made to fulfill international obligations or agreements.
Article 306:
Repealed
Article 307:
Appointment of Authority for Carrying out the Purposes of Articles 301 to 304:
According to Article 307 of the Constitution of India, the Parliament may by law appoint such authority as it considers appropriate for carrying out the purposes of articles 301, 302, 303 and 304, and confer on the authority so appointed such powers and such duties as it thinks necessary.
Article 307 empowers Parliament to create an authority whose primary responsibility is to oversee and implement the provisions related to trade, commerce, and intercourse between states, as outlined in Articles 301, 302, 303, and 304. This authority is meant to ensure that the restrictions or regulations are applied fairly and uniformly.
The appointed authority will also resolve disputes that may arise concerning the application or enforcement of the trade and commerce laws between states. This ensures that there is a mechanism for handling disagreements or challenges related to the implementation of such provisions, thereby fostering smooth interstate commerce.
The article ensures that there is a uniform approach to the enforcement of trade regulations across the country, preventing arbitrary or inconsistent application of laws across different states.
For example, if a dispute arises between two states regarding the imposition of taxes on goods traded between them, or if one state is perceived to be imposing unlawful restrictions on trade, the authority appointed under Article 307 would intervene and resolve such matters in a manner that aligns with the Constitutionโs vision of free trade within India.
In essence, Article 307 allows the creation of an authority to ensure the smooth functioning of trade laws across states, helping to address disputes and inconsistencies that may arise in the context of interstate commerce.
Examples of Interstate Trade Issues:
- GST (Goods and Services Tax) has replaced many indirect taxes to create a unified market.
- Disputes like state entry taxes (e.g., Kerala imposed a tax on goods entering from Tamil Nadu).
- E-commerce regulations affecting state-wise sales and movement of goods.
Conclusion:
The provisions related to interstate trade and commerce in the Constitution of India are primarily designed to ensure the free movement of goods and services across state boundaries, fostering a unified national market. Article 301 guarantees the freedom of trade, commerce, and intercourse throughout the territory of India, aiming to eliminate barriers to interstate trade and ensure a seamless economic flow between states. However, this freedom is not absolute, as Article 302 empowers Parliament to impose restrictions in the public interest, such as for public health or safety, and Article 303 prohibits discriminatory laws that may favor one state over another.
While states can regulate trade within their territories, Article 304 allows them to impose reasonable restrictions, such as taxes or regulations, provided these do not discriminate against goods from other states. Article 305 protects existing laws that may restrict interstate trade if they were enacted prior to the Constitution. Additionally, Article 307 allows Parliament to create an authority to oversee the smooth implementation of these provisions and resolve disputes.
Together, these articles aim to balance the freedom of trade with the need for public welfare, enabling the government to regulate and manage interstate commerce while ensuring a cohesive and integrated economy. The system ensures fair competition, facilitates economic growth, and strengthens national unity by reducing trade barriers across states.