Freedom of Trade, Commerce and Intercourse: Articles 301 to

307 of the Indian Constitution

Introduction 
Trade has always been important because no country or state can produce all the products it needs. For this
reason, we need regulations and laws governing, managing and facilitating trade. The freedom of trade,
commerce, and intercourse is provided under Part XIII of the Indian Constitution in Articles 301 to 307. Article
301 lays down the general principles of trade and commerce whereas Article 302 to 305 enunciates the
restrictions which trade is subjected to. The source for adopting these provisions was the Australian
Constitution. 

Freedom of trade, commerce, and intercourse

Article 301 talks about the freedom of trade, commerce, and intercourse throughout the country. It states that
subject to other provisions under Part XIII, the freedom to carry on these activities shall be free. Freedom here
means the right to freedom of movement of persons, property, things that may be tangible or intangible,
unobstructed by barriers within the state (intra-scale) or across the states (inter-scale).

The three main words used in this article are:

Trade

Trade means buying and selling of goods for profit-making purposes. Under Article 301, the word trade means
an actual, organized & structured activity with a definite motive or purpose. For the motive of Article 301, the
word trade is interchangeably used with business.

Commerce

Commerce means transmission or movement by air, water, telephone, telegraph or any other medium; what is
essential for commerce under Article 301 is transportation or transmission 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 would include travel and all forms of dealing with others. However, it is argued
that the freedom guaranteed in Article 301 does not reach out to intercourse in its broadest meaning. There
are two reasons for this. First of all, the word “intercourse” is used in juxtaposition with the words ‘trade and
commerce’ and hence this word here will mean “commercial-intercourse” and not purposeless motion. The
second reason being that though Article 301 imposes a limitation on the power of Legislature and Parliament
(provided to them under Article 245 and 246) but the word intercourse is not included as a subject of
legislation under the Seventh Schedule (as the words trade and commerce have been) and so the word
intercourse cannot be implied to have the widest of the meaning when used here.

The use of the word ‘free’ in Article 301 does not mean freedom from laws and rules governing the country.
There is a clear distinction between the laws obstructing freedom and laws containing rules and regulations for
the proper conduction of trade activities in a smooth and easy manner.

Restrictions to trade and commerce

Parliament’s power to regulate trade and commerce in the public interest 

Article 302 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. The power to decide whether
something is in the interest of the public or not is solely given to the Parliament. It can be seen as in the case
of Surajmal Roopchand and Co v/s the State of Rajasthan (1967) were under the Defence of India Rules , in the
interest of the general public, restrictions were imposed on the movement of grain.

States power to regulate trade and commerce 

The power of the Parliament in Article 302 is kept in check by Article 303. Article 303(1) states that the
Parliament does not have the power to make any law which will keep one State at a more preferable position
than the other State, by virtue of any entry in trade and commerce in any one of the lists in 7th Schedule.
However, Clause (2)  states that the Parliament can do so if it is proclaimed by law that it is essential to make
such provisions or regulations, as there is indeed a scarcity of goods in some parts of the country. The power
to decide whether there is a scarcity of goods in some parts of the territory or not is vested in the hands of the
Parliament.

Article 304(a) further says that the State should impose taxes on any goods transported/imported from other
States if alike goods are taxed in the State too. It is done so that there is no discrimination between goods
produced within the State and goods imported from some other states. In the case o f State of Madhya
Pradesh v/s Bhailal Bhai,(1964)  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.

Restrictions on trade, commerce, and intercourse among States 

Clause (2) of Article 304 guides the States to impose certain reasonable restrictions on the freedom of trade,
commerce, and intercourse as may suit the public interest. But no Bill or Amendment for such shall be put
forward in the State Legislature without the prior approval of the President.  A law passed by the State to
regulate interstate trade must thus fulfill the following conditions-

 An approval from the President must be taken beforehand,

 The restriction must be sensible and rational,
 It must be in the interests of the public.

These conditions make it clear that the Parliament’s power to regulate trade and commerce is superior to the
State’s power.

Appointment of authority for carrying out the purposes of Articles 301 to

304 

Article 307 under Part XIII permits the Parliament to designate such authority as it deems fit for carrying out
the provisions laid down in Articles 301, 302, 303 and 304. The Parliament can also bestow such authorities
with functions and powers as it feels are required.

Atiabari Tea Co. v. State of Assam,

Facts: A tax levied by the State of Assam on the carriage of tea by road or inland waterways was held bad for
"the transport or movement of goods is taxed solely on the basis that the goods are thus carried or
transported, and thus "directly affects the freedom of trade as contemplated by Art. 301."
The Supreme Court took the view that the freedom guaranteed by Art. 301 would become illusory if the
movement, transport, or the carrying of goods were allowed to be impeded, obstructed or hampered by the
taxation without satisfying the requirements of Art. 302 to 304. The court did not take into consideration the
quantum .of tax burden which by no means was excessive. Simply because the tax was levied on 'movement'
of goods, from one place to another, it was held to offend Art. 301.
Automobile Transport v. Rajasthan.
Facts: The State of Rajasthan had levied a tax on motor vehicles (Rs. 60 on a motor car and Rs. 2000 on a goods
vehicle per year) used within the state in any public place or kept for use in the state. The validity of the tax
was challenged.

Issue: A working test to decide whether a tax is compensatory or not would be to enquire whether the trades
people are having the use of certain facilities for the better conduct of their business and paying not patently
much more than what is required for providing the facilities? A tax does not cease to be compensatory
because the precise or specific amount collected is not actually used in providing facilities.

Decision: The court ruled that the tax was not hit by Art. 301, as it was a compensatory tax having been levied
for use of the roads provided for and maintained by the state.

Bolani Iron Ores v. State of Orissa

A compensatory tax is levied to raise revenue to meet the expenditure for making roads, maintaining them
and for facilitating the movement and regulation of traffic. The Supreme Court held that taxation under entry
57, List II, cannot exceed the compensatory nature which must have some nexus with the vehicles using the
roads. The regulatory and compensatory nature of the tax is that taxing power should be used to impose taxes
on motor vehicles which use the roads in the state or are kept for use thereon.

G.K. Krishnan v. State of Tamil Nadu

Facts: The State of Tamil Nadu increased the motor vehicles tax from Rs. 30 to 100 per seat per quarter and
this was challenged as being violative of Art. 301.

Issue: whether a non-discriminatory tax levied by a state should be regarded as a restriction on trade and
commerce because of the feeling that this would curtail state autonomy to levy taxes falling in the state
legislative sphere?
But the Supreme Court upheld the tax. The court stated, "A compensatory tax is not a restriction upon the
movement part of trade and commerce." The tax should not go beyond "a proper recompense to the State for
the actual use made of the physical facilities provided in the shape of a road." In the instant case, the tax
collections amounted to over Rs. 16 crores while the expenditure for the year amounted to Rs. 19.51 crores
and this amount did not include the grants to local governments for the repair and maintenance of roads
within their jurisdiction. The tax was thus held to be compensatory and hence valid.
The Supreme Court further liberalised the state taxing power by upholding a state tax on passengers and
goods carried on national highways.

International tourist corporation v. State of Haryana

Facts: The state of Haryana levied a tax on transporters plying motor vehicles between Delhi and Jammu &
Kashmir. They use national highway, pass through Haryana without picking up or setting down any passenger
in the state. The responsibility for constructing and maintaining of national highways rests on the Centre. It
was therefore argued by the transporters that the tax could hardly be regarded as compensatory, but the
court rejected the contention.

Decision: the tax was held to be valid.

Malwa Bus Service v. State of Punjab

Facts: In this case, in the year 1981, the State of Punjab substantially increased the rate of tax on every stage
carriage plying for hire and transport of passengers. The rates adopted were Rs. 500 per seat per year subject
to a maximum of Rs. 35,000 per bus irrespective of the distance over which it operated daily. According to the
budget figures for 1981-82, the revenue receipts of the government from motor vehicles tax was Rs. 50 crores
as against the expenditure of Rs. 34 crores. The tax was challenged on the ground that it was not
compensatory as the government was using it for augmenting its general revenues
Decision: Therefore the tax imposed by the state of Punjab was held to be valid.

 Inter-relation between Article 301 and Article 19(1)(g)

 Article 301 under Part XIII empowers the free flow of the stream of trade throughout the country
whereas Article 19(1)(g) under Part III provides the freedom to practice any occupation, trade or
business in the interest of the general public. The right under Article 301 is constitutional and can be
claimed by anyone. The right under Article 19(1)(g) is fundamental and can be claimed only by
citizens. Thus, this aspect of limitation of Article 19 is dealt with under Article 301 which gives the
right to both citizens and non-citizens to move the court if their right has been infringed. 

 Article 19(1)(g) contains restrictions to the freedom of carrying an occupation or trade while Article
301 is accompanied by Article 302-307 which lay down the restrictions to the free flow of trade in the
country. However, the restrictions specified in Article 302-307 should have indirect results and should
not directly reduce the freedom laid down in Article 19(1)(g). Article 301 is thus considered an
explanatory provision to Article 19(1)(g) and also has a more limited scope than Article 19(1)(g)
because it is only concerned about the flow of goods and services.  

 It is also often argued that Article 301 is the right available for trade as a whole whereas Article 19(1)
(g) is the right for individuals. However, this is not true. Article 301 is derived from Section 92 of the
Australian Constitution and hence this right is available to individuals as well.

 Thus both of them can be said to be interrelated in some aspects. They also can be seen as
interrelated concepts at the time of emergency. At the time of emergency, rights under Article 19(1)
(g) are suspended. At that time the court looks forward to the rights provided under Article 301 to
check whether any violation has occurred or not.

Conclusion
When the Constitution provides the freedom of trade, such freedom cannot be absolute. Thus Article 302 to
305 impose restrictions and ensures that trade is conducted in a lawful manner throughout the states and the
country. All these provisions together ensure the provision of Constitutional status to the freedom of trade,
commerce, and intercourse. Now at least there would be no unreasonable interference with trade and
commerce based upon geographical variations or any other such barriers.

BIBLIOGRAPHY
blog.ipleaders.in
www.hellocounsel.com
www.legalservicesindia.com