✦ Supreme Court of India

THAKUR, C.ll, A. K. SIKRl, S. A. BOBDE, SHIVA KIRTI SINGH, N & Ors. v. RAMANA & Ors.

Case Details Supreme Court of India

Court

Supreme Court of India

Case No.

Civil Appeal No. 3453 of 2002

Bench

N. V Ramana R. Banumathi SA. Bohde Shirn Kirti Singh N. V. Ramana

Length

310,590 words

Acts & Sections

A added by the Sixth Amendment Act 1956 A B Act 1995 Act and enacted the Haryana Tax on Entry of Goods into Local Areas Act 2008 A enacted the Central Sales Tax Act 1956 Amendment Act 1956 Based on the historical developments decades before the enactment of Government oflndia Act 1935 Central Sales Tax Act 1956 Competition Act 2002 Constitution of India Copyright Act 1957 Customs Act 1962 Entry tax is levied by the State ofHaryana under the provisions ofHaryana tax on Entry of Goods into Local Areas Act 2008 Exclusive Economic Zone and other Maritime Zones Act 1976 Governmelll of India Act 1935 Government of India Act 1915 Government ofindia Act 1935 Government of India Act 1935

Cited in this judgment

Judgment

) An.304(a) - interpretation of'- Held: Art.304(a) should he 7 A B c D E F G H 8 A n C D I~ , .. Ci H SUPREME COURT REPORTS f2016] 10 S.C.R. interpreted keeping in mind the ha lanced ·development of the cou111rv. tt11ich is an impor/anf part o( economic integration - Art.3(M(a) is not a limitation on the legislature of a State to impose such tax 011 goods imported - The onlv condition envisaged under Art.304 (a) is, same tax is imposahle on the good1· importedfi'0711 other States as v.dl as good1· if manufaC!ured in that State It is not correct to say that since goods· heing taxed are not produced in the Slate, the power to levy a tax gets ohlitera/ed, that is lo say, that A rt. 3 () .. f (a) does nor lwr levr of tm· if the gooll.1· are not nwnufactured or prod11ced within the State. (Per N. V. Ramana, J.) Art. 30,1 - Wonil' "mav hy law" - lnrerpretation of- State\· pott·er ro levv tax · Held: The wordy "may hy lm..v" is an option ,f!,iven to the Sia/es in case it decides to levy any lax on the good1· importedfi·o111 other States ·· The source of legislalive poiver resides in Art.245 rlw Arl.246 - This power is not suhject to any implied limitation ·· The plain reading would show that in a given situatio11, the State may hy choice decide not to levv any tax imported from other Stares or opt to levv taxes 011 certain goods imported fi'om other States. (Per NV. Ramana, J.) Art.304(a) - Difference in the rate of tax 011 goodv locally 11w1111factured a11d those imported - Whether fall foul of Art.304(a} - Held: Every differentiation is not discrimination -'Any difference in the rate of tax on good1· locally manufactured and those imported, such difj{!rence nor heing discriminat01:v does not fall foul under Al't.30-i(a) - Any incentivelhenefits of concession in the rate of tax given to the local 11wmifact11rers/producers in order to encourage the local 111anufauurers/production in the State cannot he said to he discriminarorv - Any difference in the rate of'tax on goocf.1· locally nw1111/{1ctured and those imported. such difference not heing discriminatorv does not fall foul of Art. 304(a}. (Per R. Banumathi, .J.) Art.304 (a) and (h} - Whether Cl. (a) and (hj have to he read conjunctivelv - Held: Cl. (a) and (h) o/Art.304 deal with two distinct suhjects and mus/, thaefore, he u11derstood to he independent of each other ... While Cl. (a) deals entirelv vvith imposition of taxes on go(}(/.1· importedji·om othel' States, Cl. (h} deals with imposition of rcasonahle restriction in puhlic i11terest - The use of the word 'and' .TINDAi, STAINLESS r:rn. V, STATE Of HARYANA hl•t1we11 cl. (o) and (h) does 11ot admit of an interpretation that may impose an ol!ligation 11pon the legislat11re to necessarily impose a lax and a re.1·trie1ion together - The word 'and' can mean 'or' as irell as 'and· depemlin.~ upon the con/ext in which the law enacted In• the legisla!ure uses the some. (Per T S. Thakw; CJ! f(>r himself cmdji>r .1.K Sikri and .1.M. Kha11wil!a11: .!.!.) Art.301(a}, (h) - Use of 11·ord 'and' afier semicolon - ln!erpretation of: in the context o(Ar!.304 - Held: It ivifl have to he read as 'or· rTeatin,t; u disjunctive reading of' Art.304(a} und ,.Jr1.3M(h! indicminp, thar the State Legislature can exercise ils poH·er cilher under 11rl.304(a) or Art.3M(h! or hoth. (Per R. Bammwthi, ./) 9 A B c Ar!.30 1/(h). proviso - Requirement of' Presidential sanction in /erms u( pm1·i.1·0 - Held: Clause (h) dealing 1vith reaso11ah/e rcs1riuiom· mus/ 11ecessarilv applv to restriction.\· other tha11 those h1· 11·av of/axes - !tfi.Jl!ows that.for /e1y of't(LlCS prior Presidenlial D .1·m1c1io11 in rer111s u( proviso under Art.304(h) is whollv w111ecessarv. (Per 7: S. Thakur, C.JJ .for himself and/or A.K. Sikri and A.M. Klwnwilkm; JJ.) Art.304(h) - Restrictions mentioned u/Art.304(h} do not include tax. (Per N. V Ramano, .!.) E .1rt.304(h! ·- Applicahilitv ol- Held: Applica/Jle 011~v to 11011- fiscal laH·.1· ond nor 10 /ax laws - Arr.301(h) deals with 11011~/iscal i<'.~is/a1io11 i111posi11g rcaso1111h/e res1riclio11s i11 puhlic inreresl and lrn /a11·1· arl' 1101 included under //n.304(hi. (Per R. Banw11arhi, .!.) .·ln.3114(h) - Presiclenrial assent - .Judicial review - Held: F Art.3114(/J) re/ares 10 11011~/isca/ laws of' the Srares -- The assen/ of' !he f'residen/ envisaged in proviso ro Arr.304(h) v.,·011/cl he some1vhar akin to rhe assent conternplated in Art254 - Such assents are not judicial!v reviewahle. (Per R. 13a11umathi . .!.) Arls.304(a), (h} - l"ocal area - When the entry tax is levied In· the Entl)' Tax //ct enacted In· the State Legislature, the term 'a local area' co111emplated hy Entry 52 may cover the 'whole Srate' or 'a local area' as notified in the legislation - From the point of view of entn· tax. !he Sra1e is a compendium of local areas and 11·here the G H SUPREME COURT REPORTS [2016] 10 S.C.R. local areas contemplated hy the Act cover the entire State, the diffi:rence hctwee11 the State and 'a local area' practically disappears. (Per R. Ban11111athi, J.) Taxi11g power of the Unio11 and the States - Held: Are 11111t11alzv excl11si1•e - While the Parliament ca11no1 legislate 011 the sub;ects re.1·e1Tedfor the States. the States ca1111ot similarZv tre.1pass onto the taxil1g prrwers of the Union - If the Constitutional scheme does not al!mt· !he Parlia111e111 lo usurp the taxing powers of" the Slate f,L',t,:islat11re1·. such process of usurpation cannot also he permitted lo lake place in the garh of making U11ion executive :1· concurrence cm essential pre-req11isitefor any taxing !egis!ation.(Per 'l: S. 11wklll; CJ! for himself a11dfi1r A.K.Sikri and A. M. K!zanv.:ilkar, JJ.) Part XIII - Diffr;rence hetween Part XIJI and s.297 of Governmelll of India Act, 1935 - Held: 17ie essence offf"eedom of trade. commerce a11d intercourse as recognized in 1935 Act and in !he Co11slit11tio11 under !,art XIJJ is same - The onlv difference is that 1he principles enunciated in s.297 were extended to Union Govern111ent and Union Parlia111el7/ and to the territory IVhich had after 111e1y,er hecome port of India - Government of India Act, 1935 (Per T S. Thak111; CJI for himself and for A.K.Sikri and - s.]97. A. /If Kha1111·ilkw~ JJ.) Par! XII! - 'fo.r laH".\" - The co11111wn thread in Port XIII is the achievcmrnl ol economic 1111itv and paril}' which does not altogether preclude differentiation .fin· j11s1ifiahle and rational reasons wherever 11ece.1·rnn· - The heurt and soul of Part XIII is to dissolve hostile discri111inalio11 H"ilhin the territo1T ol India - Part Xlll does not contempla!e lax !mvs within i/.1· amhit except to the extent of Ar1.3(N(a) of" !he Constitution. (Per N. V Romana. J.) l'art Xi JI - There is a vital difference he tween mere "dif/erenliation' and 'discriminalion' - fr is discrimination not differentiarion that is sought to he prevented rhrough Part XIII - Ar1.304(a) prorects jimn discrimination (for protectionis111) and not (Per N. V Ramona. J.) mere diff'erentialion. Sevemh Schedule Ust ff Entrv 52 - Concept of Compensatory lax ewJ!ved in Automobile case - Held: The nomenclawre of ·cmnpensa10rv · ascri hed to the taxes levied hy the State Govemment 10 A Fl C D G H JINDAL STAINLESS Ll'D. v. STATE Of HARYANA 1111der E11trr 52 . .Ust II pursuant to Automobile is wnmrranted - The concept of' compensaton· tax was evolved 50 years hack through lt has withstood the test of" time and thus, judicial pronou11ceme11ts - any suhsc>quent judicial pro1101111cement like the instant case should 1101 prejudice the in1ere.1·t o(lhe parties inl'Olved - State Go1•erm11ents should not suffer mJV loss of revenue solely hecause <~/"judicial i11rerpre1ations and innovation.1· in Automobile case and the cases \'llhsequent lo ii·· Suhject ro passing the muster of .lrt.304(a), e11trv lax let"ied hv the States under Enll} 52. Ust 11 even though termed a.1· rnmpensatory lax docs notfall.fiml o/Art. 301 - ft is not neces.1·m)' tlzal the 111011ey realized hy the levy should he put into a separate Fund or that the lev1• should he proportionate to the expe11dit11re - There is no har to suhsumption ol the reve1n1e realized ji·om regulatorr!co111pensatorv taxes into the Consolidated Fund of' the Stiltc as thei· are 110 differenrfimn other taxes of a general nature - Mnrem·c1: the quantum of' expenditure incurred in achievi11g the ohjecl hehind a compensatorv le1•v ca11not he inquired into. (Per R. !Ja111111w1hi, J.) Seventh Schedule Ust fl EntrJ' 52 - Import of goods and customs clearance and the entry of good1· into the local areas - f-feld: The 11vn events are disti11c/ - ]11 the case o/' fo.Yah!e event r:11.1·101n.1· d11t1', the /Uxahle ei·ent is entrv of' good1· i11to the territorv of Indio .. 1he /a.rnhle e1·ent ullder Em1y 52, List JI is the entrv ol .!!.nods ill to !oral area ./or conswnplioll, use or sale therein - The 1n·o taxahle events are distinct in lavv and there is 110 overlap - Ullder our Constitution, there is no overlapping ill the taxing power J71e Constitution gives indepe11dellt powers o/ taxation to the Unioll and the Siates - The /axing power of' the Ullion and of' the States ill'!' mutually e.Yclusive ·· This avoid1· the dilficul1ie.1··which have arisell 1111der other Federal Constitutions. (Per R. Banumathi, .J.) Se1·enth Schedule List JI Enny 52 -- Entrv tax levied In· W1rious States termed as a 'co111pensatorv 1ax' 1vhe1herfa/l.fi)//l of'Art.301 - f-leld: EllflY lax ji1/li11p, wit hill the domain ol Entrr 52, List 11, is a /(fX simplicitcr. even though hy nome11clat11re it is termed as a ·compenrn1orv tax· - Suhiect to passing the muster of Art. 304(a), enn:r lax levied hv the States under Emrv 52, List JI even though lel"lned as C!il11pell.1·otm:i- tax does not fall.fi)U/ of' Art. 301. (Per 11 A B c D E F G H 12 SUPREME COURT REPORTS [20161 JO S.C.R. A R. Ba1111mathi, J.) Seventh Schedule List I a11d 11 -· Taxation entries are to he .fimnd 01111• in Usts I a11d II. indicating that in our Co11stilutio11al schcnw. ta.rntirm pm1•ers o/ the Centre and the States are 11111/uallv exclusi1·e - There are 110 Entries in the Concurrent List which gives This heing the case, the moment the levy contained in a !axing slalute transgresses inlo a prohihitedfield, it is liahle to he .1·truck down. (Per N. V Ramano, J.) B poi1·cr o/ la:rntion /17/erpretation of' Statutes: Interpretation which is hoth textual and c;ontextual has always heen found to he more acceptahle ~ An interpretation that makes the texlllal motch the contextual meaning of' the provision is preferred hy courts over one that prefers 011e at the cost of' tlze othe1: (Per 7'. S. Thak111: CJ.I.for himself' and.for A.K.Sikri and A.M. Kha11wilka1; .IJ) An i111e1pretation that supports and p11m10tes federalism tt'hile upholding the Central supremacy as contemplated hy some ol the :1rticles 11111st he prelerred. (Per T S. Thakw; CJ! for himself' and for ,LK.Sikri. and A.M. Khanwilkm; JJ.) Ce11/re-Sta1c relationship in legislative and fiscal matters - Harmonious relationship - Held: A narrow interpretation that may have the potential or tendency to subvert the delicate halance which the .fi"m11ers of' the Consritution had in mind while distrihuting legislatiFe husinesses including the sovereign power to levy taxes 11111st he amided and a construction that is most heneficial for a harmonious relationship between different limhs of' the State i1ll'l11di11.'-' that het1veen rhe Cemre and the States or Stales inter se adopred. (Per T S. lhalun; CJ! for himself' and for A.K.Sikri and . .J.M. Khanwilkw: ./J.J Constitution of India - fVhile interpreting the Constitution. the emphasis must he rm reading it as a whole. and in a manner that the intent and object of' no part ol the Co11stitlltio11 is defeated - In this regard. there 111u.1·t he a holistic approach toward~ the provisions of the Constiturion. ff'er R. Bammwthi, .!.) Proviso - Interpretation ol - Held: Proviso is i11fended to c D F G H JINDAL STAINLESS !TD. v. STATE OF 1-IARYANA 13 e.rploin rhe main op1n1rin.'.; /Jar! of rhc .·lrticle -- Jr is never used or A ifllcrprctcrl as expanding rlre operative part of" the provision. (Per .Y r-: /? m nwru. .!. ! .J11diciol Rei·iew· Poll er of Srate to erul("t tax laiu· l"egislatil'e p1H1·ers especial/\· taxin:' povt·crs cannot he tested hr implication - L'n/rss rlrcrc is nprcss li111itation 011 tl1c JHJ11·er of the State to enact the S111t1' hm, ir not the p1rn·i11ce of' the Courr to curtail the power of" rlw Srore hy i111erprctaril·c pmcess. (Per N. V Ramano, ./.) fo.ri!lr:wrion: !:"sscnlial chara!"fcristics of" a tux -- Jr is imposed undi'I" a ,·tofu/on poircr \\"i1ho111 rhe taxpayer\· <:onsent and the pav1111-'11f is rn/im·ed h1· /mr: it is an imposition nwdcfor puhlic purpose without 1cfi.'!"!'11r·c ro onr spi'l"iol hcm:fir lo he conferred rm the payer of" rhe lo.\"." ond ii is pon of the co111mon huf"den. (Per R. Bamonathi, .!.) fo_y,""J(1xotwn: Pwpose o( imposing la.\" and essenrial elcmenr.\· o/ tm lli,1·1 ·11ssed. r !-'er 1V V Rm1w11a, .J.) B c f fi.~lr1i'.rnrhi111nt r11le of tux l111pnsition o/: propriel\' - Held: //!/Jou.eh .\"111/<'s on' c:1np01n'n·d lo lox under 1he Constil//lion, it does no1 11ecc.1·1m·il1· 111ea11 rha1 tin"\" should la.\" al exorbitant rates -- A E rcsponsii>I<' gm·r.,.11111c111 in a demo1;rarT should ahw1vs strive lo keep raxes as low os possihlc so Iha! no hean' burden is placed 011 tire i11dh"iduals. (Per ;V. 1 '. l?m1w1w, J.) . . Unjust f'nrid11nenl The co11cep1 o( u11j11sl enric/r111c11r is applicahlc fiJr considering ( l11les.1· rhe assessees estahlish 1hat ther rhe 11uestio11 of refimd iwn' nor pusscd 1111 1he rax lmrden lo rhc cn11.rn1ne1"s, they ca111101 11/ukc a clai111 .for refinul and 1111j111·1h enrich 1/remselves. (Per I?. Hu1111111mlri . .!) fl>im/.1· and Plrrmes: "!Ji.1crimination' and 'difli'rel7liotion · - Distinction herii:een. u'i.1·1·11.1·sul. I fJeT" J: S. riwk.111; C:IJ /or himself' and.tin· A.K.Sikri and . I. M. l\ha1111·ilkar; .!.!.) H SUPREME COURT REPORTS [2016] 10 S.C.R. Import - Mea11i11g of discussed. (Per R. Banumathi . .!.) DISSENTING VIEW: Constitution of India: Arts.301. 30-1 - It is 1111/enable to postulate as a general pri11cip/e that it is 011/)1 a discriminatory tax falling withi11 the a111hit t!f Art.304(a) that is suhjecl lo Part X!ll of the Constitution - Art.304(a) elaborates that a particular form of taxalion. a 1w11- discrimina101:JJ lax on goods . .shall not be construed lo Fiolate Arl.301 - But Art.304(a) ca11110/ be a basis for holding that every fiscal measure (apart ji·om a discriminatorv Im) lies outside the pun:iew <~f Part XIII - For one thing. the rate of tax is bw 011e eleme111 of taxation - There are other eleme111s in a jiscal exaction i11c!udi11g assessment, the machinery for culleL·tiun and set offs and exemptions ·which can have a11 important hearing 011 whether the tax operates in a ma1111er that i111pedes the freedom of inter-State trade and commerce - Moreover, a discri111inatorv tax otherwise than 011 goods, does not a/tract the prol'isions of Arr. 304 (a) - Finally, a 11011- discri111i11alory lax may also become an impediment on the ji·eedom of trade and commerce where the lax is so high as tu render it cu11.fiscatury - Hence, a discri111i11atoryfiscal i111positiu11 of the nature which offends Art.304{a) is illustrative <if hut not exhaustive of.fiscal impediments mt the freedom of trade and co11imerce. (Per D1'. D. Y. Chandrachud. J.J Art.30./(b) - Reasonableness of restriction -- Held: A tax may amount to a restriction where its direct and inevitable effect is lo restrict the freed um of trade. c:ommerce and intercourse - The burden to establish this is on the person who seeks lo assail the validity (if a particular tax on the ground that it amounts to a restriction on the ji·eedom guaranteed by Art. 301 -- Unless this threslzo/d is crossed. the proviso to Arr.30./(b) will have no applicalion for, it is only whe11 there is a restriction that the question of its reaso11ahle11ess can arise. (Per Dr. D .. Y. Chandrachud, .!.) Formal and s11bstanti1•e equality - Art.3114(a) comprehemis both formal and substantive notiom of equality - Formal equality 'rvould be met when the same rare of tax is prescribed fur goods imported from other Stales as is levied 011 goods produced cmd 14 A B c D E F G H JINDAL STATNLESS !TD. v. STATE OF HARYANA 15 Suhstantive equality recognises the needfiJr A 11w11uf{1ctured 1rithin the develop111c111 of 1111derde1·eloped areas ol the cou11trv - A ha lance lws lo lw slmck he tween rite rn11eer11s ol hothfiJr111al and s11hs1antive equalitr. (!'er D1: JJ. Y Chamlrachud, J) Direct a11d immediale effecl lest - The States and the Union in the exercise o( their legislative pmrers, utilise taxation no/ onlv as B o means of raising rc1·e1111es to support their developmental activities h111 also as ll lll('llSllr!' or achieving social o/Jjecls - Whether the p11rsuil of 1ho1·c social ohiects or the pursuit o( social regulation in/ring.es 11po11 the area oj"ji-ee trade and commerce cannot he decided a priori - The pmrer o/ taxation is capoble ol heing used ill C a manner which can constitute, ill a given case, a restraint or impediment on the freedom ol trade and commerce - Jn determining as to when taxes can constitl//e a restriction on the fi"eedo111 ol !rade ond commerce, !he direct and immediate eflect test (as refined s11hse11ue11tlr) pro1·ides a judicially manageable ji-mnework - The tes/ of direc/ and immediate effect was enunciated in the judgments in i\liabari and ;\ulomobik Trnnsport - The test isfirmlv entrenched as a par/ of our j11rispmdence. (Per D1: D. }'. Chamlrachud, J.) D Art.301 J,evr of a 11on-discri111i11a101y tax 1nay constitute infi·uction of"Art.301 if ii impedes the fi"eedom u/ trade, commerce and intercourse A II taxes ll'hich contain restrictions to trade, commerce and intercourse. discriminator)' or non-discriminatory infi·in,c,e Arr.301 unless they are saved u!Arts.302 to 304 - Jn the event, the s11hmission is accep!ed that all taxes are outside Part Xlll except nm1-discrimina1on' taxes as pe11nitted u/Art.304(a}, the same ivill lead 10 giving righl ro the Parliament and State f,egisla!ure to pass f(1ciall.v 11011-discriminatmy lcrws but creating restrictions on trade and comnwrr·e hv other means hy providing arhitrary procedure and various other kind ol restraints - The taxation which can impede the trade. co111111erce and intercourse thus cannot he nmfined 011/r to 11011-di.1·1Tilni11aton· taxation. (Per Asl10k Bhushan, Ji .frrs 304(aJ and (h) - ls the Emrv Tax levied hy the States in the presem hatch of" cases violative of Arr.301 and in particular hm•e the i111p11gned State enac/rnents relating to ent1y tax to he tested irirh re/in·11ce to hoth Arts.304(a) and 304(h) for determining their E F G H SUPREME COURT REPORTS [2016] 10 S.C.R. A B c rn/iditr ·· Held: li>fi77d 0111 m· to whether F,'ntry Tax levied hy different Stales in !he presenl ha1ch of cases viola/es Ar!.301, each slat11te has lo he looked info - A law made hy Slate Legislature complying clause( a) of Art.301 and 77ot containing any restriction on the .fi·eedom of trade, commerce and inlercourse need not comply !lrt.304(h) - Howeve1; a law evell !hough complies with Art.304(a) Im! l'077tai77s reslriclions 011 fi·eedom o/ trade. commerce and intercourse has lo he routed through prMiso to clause (h) o/Art.301 The comp/ianr:c o/ Ari. 304(h) proviso whelher required or not shall depellll on !he 11alure and conlelll of the State legislation - The proFiso o{ Arl.301(h} is part of Constitutional Scheme which is neither agaim·t the fi'deral stmr·rure of the Constitution nor affi'Cts the State '.v sovercig77tr · Word 'reszriclion' used ill Art.304(h) is wide e17011gh to include restrictions placed hoth hy fiscal or non~/isca/ /m1·, (Per :ls/wk !Jh11shol7, J) Can a ta.\' 11·hich is compensatorv in nature also fcill foul . .Jrt.301 of the Consliflltion and what are the tests for determinillJ!. 1rhe1her the tax or /evv is cm!lpc11sui01T in nature -· Held: ft is an accepred proposition rlwt one of the charncteristics of tax is that it is an imposition made fi>r p11hlic purpose without reference to any The taxes special henefit lo he conferred on the payer of the tax - imposed hy the Legislature, apart fi-0111 heing source of Revenue is also expended for various p11hlic welfare measures and 11·hc11 it\· ohjccr is in no Wal' connected H'ilh the puhlic interest or puhlic welf{ire it loses its character of taxation and hecomes a levy which is 1mr·onstilW ional - The ji'amers of the Conslit11tion after pmviding fi1r.freedo111 oftrnde. wm111erce and imercourse in Art.301 laid dmn1 - The excep1io11s exceptions to the saidfi·eedmn in Art.302 to 31!() loid do11·11 in the constifl(/irmal scheme arc se/f~conrained and no ne11· exceprion can he added hy judicial interpretation "- Mere fan that a rm: stm111e compensates 1he paver of the 1m· does 1101 rake our the statute hewmd Parr Xiii. all laxes. heing ji;r one or other p11h/ic The tax legislation ,,.hich professes /0 co111pe11sare the J!lll'}JO\'CS paver cannot lake the lax /egis/a1ion m1 a higher pedestal heyond !he reach of Part XI//. 111akin5~ s11ch legislation "not suhject to !Vhen all legislative power is "sl(hjccl to Cons1i1111ion" - Constitution" as per Arts.215 and 24() of' the Constitution. a legislation, namelr. rn111pensato1:r tax legislation cannot be said to E c; H JINDAL STAINLESS !TD.\'. STATE or HARYANA he hevond Part )Off·- A1n- swh interpretation is clearly against the co11stitutio11al sche1ne · Howeve1; it is always open to scrutinize the tmc nature 1111d character or legislatio11 to decipher as to whether it contains any restriction on ji·eedom of trade, commerce and intercourse vio/atinp, Arr.301 -·A legislatio11 which is compensatmy i11 nature may shed light while determining whether it contains restriction 011 trade, co111111erce and intercourse orfacilitate the trade, co111111erce and intercourse - But all legislations he it a co111pe11sat01y tax legislation or otherwise has to he tested in accordance with prrwisions of Port XJIJ of the Constitution. (Per Ashok Bhushan, J.) Answering the reference, the Court HELD: 17 A B c PER T. S. THAKCR, C.JI (FOR UJMSELF AND A. K. SIKH.I AND A. M. KllANWILKAR •. J.J.) Whether non-discriminatory fiscal measures impede free trade, commerce and intercourse and thereby fall foul of Article 301 of the Constitution. D

1.1 While the power to levy taxes is an attribute of sovereignly, exercise of that power is col1trollecl by the Constitution. This is evident from the provisions of Article 265 which forbids levy or recovery of any tax except by the authority of law. The authority of law must be traceable to a provision in the Constitution especially where the legislative powers are shared by the Centre and the States as is the case with our Constitution which provides for what has been described as quasi federal system of governance. The source of power to enact laws is contained in Articles 245 and 246 of the Constitution. !Para 1811181-A-B, DJ Raja .Jagannath Baksh Singh v. State of UP & Am: 1963 SCR 220 : AlR 1962 SC 1563; Dena Bank v. Bhikhahhai Prahlmdas Parekh & Co. 2000 (3) SCR 509 : (2000) 5 SCC 694; Income Tax. Udiapur, Rajasthan v. MC dowel! and Co. Ltd. 2009 (8) SCR 983 : (2009) 10 SCC 755: State of West Bengal v. Kesoram E F G H l R A 13 c D E F G 1-1 SUPREME COT JRT REPORTS 12016J 10 S.C.R. Industries Ud. 2004 (1) SCR 564 : (2004) 10 SCC 201; State of Kera/a and ors. v. Mar Appraem Kuri Co. Ltd. and Am: 2012 (4) SCR 448 : (2012) 7 SCC 106 - relied on. Ta:w1io11 - ViJlu111e 1 (4'" Edition) Chapter 2 by Cooley -- re fer red to.

1.2 Exercise of sovereign power is, however, sub,ject to Constitntional limitations especially in a federal system like ours where the States also to the extent permissible exercise the power to make laws including laws that levy taxes, duties and fees. The powe1- to levy taxes, being a sovereign power controlled only by the Constitution, any limitation on that power must be express. f Paras 20, 2811184-D; 188-R-Ff Svnthetics and Chemicals Ltd. and Ors. v. State of U.P and Ors. 1989 (l) Suppl. SCR 623 : (1990) 1 SCC 109 - relied on. Mis. Hoechst Pharmaceuticals Ltd and Ors. v. State of Bihar and Ors. 1983 (3) SCR 130: (1983) 4 SCC 45; Maharaj Umeg Singh v. State of Bombay 1955 SCR 164 : AIR 1955 SC 540; Firm Bansidhar Premsukhdas v. State of Rajasthan 1966 Suppl. SCR 81 : AIR 1967 SC 40 - affirmed.

1.3 Before commencement of the Constitution nearly 2/3"0 of the country was rnled by the British while the remaining 1/3"" was ruled by the Princes also known as native States that enjoyed varying degrees of sovereignty over their respective territories. These rulers had the power to impose taxes and to regulate the flow of trade, commerce and intercourse. Some of them had erected trade barriers thereby impeding free flow of trade, commerce and intercourse. With the merger of these Princely States into the dominion of India to constitute one single political entity, that part of the country that was ruled by the British came JINDAi. STAJNLESS !TD. v. STATE Of HARYANA 19 to be known as Part A State while the native States became Part A I~ States. Even after the merger of these States, the Constitution had to acknowledge the existence of trade barriers and make transitional provisions with a view to eventually abolishing the same. It was in that background that the Constitution by Article 301 provided for the abolition of all such trade barriers consequent upon the entire geographical boundaries of .India being knit into one political unit. IP;ua 4411209-G-II; 210-A-C] B S. R. Bmnmai v. Union offndia 1994 (2) SCR 644 : 1994 (3) SCC I; Re: Under Article 143. Constitution olfndia (5/x'cia! Reference No. 1 of 1964) 1965 SCR 413 : AlR 1965 SC 745; M.P V S1111derara111ier v. State of Andhra Pradesh 1958 SCR 1422 : AIR 1958 SC 468 -- relied on. Constitutional validity of Compensatory Tax theory prnpoundcd by ma.iority judgment in Automobile Transport case.

1.4 Compensatory taxes would fall outside Part XIII of the Constitution only if tax payers receive benefits and facilities commensurate to the levy. Any and every benefit howsoever remote or distant, would not save the levy from an attack on the ground of violation of Article 301. Three distinct aspects touching the question whether the Compensatory Tax Theory is indeed sustainable arc: Firstly, the concept of compensatory taxes is not recognised by the Constitution. A tax is a compulsory exaction of money for general public good. If taxes are eventually meant to serve larger public good and for running the governmental machinery and providing to the people the facilities essential for civilized living, there is no question of a tax being non compensatory in character in the broader sense. Secondly, because the concept of compensatory tax. obliterates the distinction between a tax and a fee. The essential difference between a tax and a fee is that while a tax has no element of quid prfl quo, a fee without that element cannot be validly levied. Thirdly, and lastly, the concept of Compensatory taxes being outside Part C D E G l-1 20 SUPREME COURT REPORTS (2016] IO S.C.R. A XUI, is difficult to apply in actual practice. Most of the legislations enacted by the States in these cases have described the entry tax levied under the same to be compensatory in character. This may have been done to take the levy outside the mischief of .\rticle 301 of the Constitution. The question, however, is whether tax amount collected in terms of the said legislation is really used by the State for the purpose of providing or maintaining services and benefits to the tax payers and whether the Courts can follow the money trail to determine whether the State concerned has actually used the amount for the avowed purpose underlying the legislation. This prncess is fraught with serious difficulties. Actual application of the Compensatory Tax Theory, therefore, runs into difficulties to an extent that the theory at some stage breaks down. The Compensatory Tax Theory was legally unsupportable and deserved to be abandoned. [Paras 63, 64 and 65)[238-E; 239-B; 240-F-G; 241-C-Ei (' D E (I H Co111111issirme1: Hindu Religious Endoivments, Madras \'. Sri !.aksh111indra Thirtlw Swamiar of Sri Shirur Mutt 1954 SCR 1005 : AIR 1954 SC 282; Mahant Sri Ja,c,annalh Rama1111j Das & Am: v. Stale of Orissa & ilm: 1954 SCR 1046: AIR 1954 SC 400; 77ie Hingir Ramp11r Coal Co. Ltd. v. State of Orissa 1961 SCR 537 : AIR 1961 SC 459; Co1poratio11 of Calcutta and am: 1: !Jher1_1' Cinema 1965 SCR 477 : AIR 1965 SC 1107; Kewal Krishna Puri and Am: v. State of Punjah 197'> (3) SCR 1217: (1980) I SCC 416; Krishi Upaj Mandi Samili and Ors. v. Orient Paper and Industries Ltd. 1994 (5) Suppl. SCR 392 : (1995) 1 SCC 655; Stare of Gujarat and Anr. v. Akhil Gujarat Pravasi V.S. Mahamendal 2004 (3) SCR 956 : (2004) 5 SCC 155; Stale of' Wes/ Bengal v. Kesoram industries Ltd & Ors. 2004 (1) SCR 564 : (2004) 10 SCC 201 - referred to. l71e /,m1· of foxarion by Thomas M Cooley; The Major /,aw Lexicon by P. Ramanatha Aiyar - Vol. 6 - 4'h Edition - Page Nos.6678 and 6679; Blackwell on Tax llrles as cited in 'Tata Iron & Steel Co. Ltd. v. State JTNDAL STAJNLFSS LJ'D. v. STATE OF J-IARYANA of Bihar, AIR 1991 Patna 75, 81; Black'.\' Law Dictionmy, 7'" Edn., P. 1469; Seervai '.I' hook (Vol. 3, Page 2607) -· referred to. 21 A D B J .5. l A plain reading of Article 301 would show that freedom of trade, commerce and intercourse is by no means absolute, the same being subject to the other provisions of Part XIII of the Constitution. Amongst those provisions arc Articles 302, 303 and 304 which have a direct bearing on the nature and the extent of restrictions snhjcc.t to which only is the right to freedom of trade, commerce ancl intercourse referred to in Article 301 C exercisable. Reading Articles 301 and 302 together, it is evident, that freedom of trndc, commerce and intercourse is subject to restrictions which Parliament may hy law impose in public interest. The absolute character of the freedom of trade, commerce and intercourse is flrns lost by reason of Article 302 itself empowcl"ing Parliament to impose such restrictions as it may consider necessary in public interest. Article 303, in turn, places restrictions on the legislative powers of the Parliament and of the States. A careful reading of Article 303 would show that not withstanding the power vested in the Parliament under Article 302, it shall not 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. A conjoint reading of Clauses (1) and (2) of Article 303 would thus make it clear that F while Parliament/ Legislature of a State shall have no power to make a law imposing restriction on trade, commerce and intercourse, by giving or authorizing the giving of any preference to one State over the other, such limitation on the legislative power of Parliament shall not extend to giving of any preference or making or authorizing any discrimination if it is declared by law that a situation has arisen out of scarcity of goods that makes it necessary to do so. In other words, while the Parliament may impose restrictions in public interest under Article 302, the restriction so imposed shall not be in the nature of giving E G J-1 22 SUPREME COURT REPORTS [2016] 10 S.C.R. A preference or discrimination between one State or the other except when the law declares that scarcity of goods in any part of India necessitates such preference or discrimination. [Paras 66, 68][242-B-C, F; 243-D-ll; 244-A-BI I.5.2 Article 304 starts with a "no11-obsta11te" clause. Article 304(a) far from treating taxes as a restriction per se, specifically recognises the State legislature's power to impose the same on g,oods imported from other States or Union Territories. The expression 'may by law impose' is certainly not a restriction on the power to tax. That does not, however, mean that the power to tax goods imported from other States or Union Territories is unqualified or unrestricted. There are two restrictions on that power. The words "to which similar good.s manufactured or produced in that State are subject" impose the first restriction on the power of the State legislature to levy any such tax. These words would imply that a tax on import of goods from other States will be justified only if similar goods manufactured or produced in the State are also taxed. The second restriction comes from the expression "so, however, as not to discriminate between goods so imported and goods so manufactured or produced". The State legislature cannot in the matter of levying taxes discriminate between goods imported from other States and those manufactured or produced within the State levying such a tax. The net effect of Article 304(a), therefore, is that while levy of taxes on goods imported from others State and Union territories is clearly recognised as constitutionally permissible, the exercise of such power is subject to the two restrictive conditions. That does not however detract from the proposition that levy of taxes on goods imported from other States is constitutionally permissible so long as the State legislatures abide by the limitations placed on the exercise of that power. [Para 69] 1244- E-F, G-11; 245-A-EJ

1.6 Question is whether Clauses (a) and (b) have to be read conjunctively. Clauses (a) and (b) of Article 304 deal with two distinct subjects and must, therefore, be understood to be independent of each other. While Clause (a) deals entirely with imposition of B c D E G H .JINDAL STAINLESS LTD. '. STATE OF HARYANA 23 A B taxes on goods imported from other States, Clause (b) deals with imposition of reasonable restriction in public interest. It is trite that levy of a tax in terms of Article 304(a) may or may not be" accompanied by the imposition of any restriction whether reasonable or unreasonable. The use of the word 'and' between clauses (a) and (h) docs not admit of an interpretation that may impose an obligation upon the legislature to necessarily impose a tax and a 1·es!riction together. The law may simply impose a tax without any restriction reasonable or otherwise or it may simply impose a reasonable restriction in public interest without imposing any tax whatsoever. lt may also levy a tax and impose such reasonable restriction as may be considered necessary in public interest. All the three situations are fully covered and permissible under Article 304 in view of the phraseology used therein. The word 'and' can mean 'or' as well as 'and' depending upon the context in which the law enacted by the legislature uses the same. Levy of taxes do not constitute a restriction under Part XHI except D in cases where the same are discriminatory in nature. Once Article 304 (a) is understood in that fashion, Clause (b) dealing with reasonable restrictions must necessarily apply to restrictions other than those b~' way of taxes. It follows that for levy of taxes prior Presidential sanction in terms of the proviso under Article 304(h) will be wholly unnecessary. This view is reinforced on the plain language of proviso to Article 304(b ), which is limited lo law relating to reasonable restrictions referred to in clause (b). [Paras 70, 711[245-F-G; 246-C-HJ c E

2. An interpretation that makes the textual match the contextual meaning of the provision is preferred by Courts over one that prefers one at the cost of the other. The question is whether the textual interpretation placed on Articles 301 to 304 matches the contextual. The contextual interpretation of Part XIII must, out of necessity, start with the historical perspective of that Part. Part XIJI had a historical precursor in the form of Section 297 of the Government of India Act, 1935 that governed what was then called the British India comprising the territory of India subject to British Rule. The rest of the territories were at that time Princely States who claimed sovereign rights within th~ limitations imposed by the paramount power. The power to levy G H 24 A B c J) SUPREMF COURT RFPORTS [2016] 10 S.C.R. taxes was one such power wielded by the Princely States which led to erection of customs barriers impeding the flow of trade, commerce and intercourse. Section 297 aimed at removing such trade harriers. It provided for a prohibition against enactment of any law or taking of any executive action by the provincial legislature that restricted the entry into or export from the province goods of any class or description. More importantly, in terms of clause (b) of Section 297(1) of Government of India Act, 1935, no provincial legislature or Government could impose any tax, ccss, toll or due which discriminated between goods manufactured or produced in the provinces and goods not so manufactm·ed or produced or between goods manufactured or produced outside the province discriminated between goods manufactured or produced in one locality and similar goods manufaclu1·cd or produced in another locality. With India attaining its freedom, Part XIII of the Constitution adopted by it, was aimed at bl"inging about economic unity. The object underlying Part XIII was to make movement and exchange of goods free throughout the territory of India. This was achieved by Article 301 to Article 304 adopting substantially the scheme underlying the 1935 Ad. The only difference between the said provisions and Section 297 of the 1935 Act was that the principles enunciated in the latter were extended to the Union Government and the Union Parliament and to the territory which had after merger become a 1rnrt of India. The essence of the freedom of trade commc1·cc and intercourse as recognized in the 1935 Aet and in the Constitution under Part XIU remained the same. !Paras 73, F 76 and 77][248-C; 249-B-ll; 250-A-B) Reserve Bank o(Jndia \'. Peerless General Finance and lnvestmrnt Co. /Jd. 1987 (2) SCR 1 : (1987) 1 SCC 424 - relied on. Constit11rio11al Lmv ol lndia ( 4"' Edition) by H.M. Secrvai - referred to.

3.1 Legislative competence of the State legislatures can H JlNDAL STAINLESS r:rD. v. STATE or HARYANA 25 be circumscribed only by exp1·ess provisions or the Constitution A and unless lhei-e is an express limitation on the plenary taxing power of the States. there is no other feHcr on the exercise of n1al power. Applyint: this principle to the case at hand, there is no specific limitation on the State's power to levy taxes on the import of goods from other States except the one referred to in Article 304(a) of the Constitution. That limitation is confined lo levy of disc.-iminatory taxes within the comprehension of Article 304(a). The power to levy a tax in terms of A.rticles 245 and 246 read with Entry 52 of list ll not being in dispnte in the cases at hand, the absence of any specific limitation forbidding the exercise of such power whether for the sake of free trade, commerce and intercourse or otherwise simply means that the State legislatures arc free to levy taxes that arc non-discriminatory in nature. [Paras 79, 80]!251-D-G] B c D

3.2 The provisions of our Constitution are aimed at vesting and maintaining with the States substantial and significant powers in the kgislalivc and cxccntive fields so that Slates enjoy their share of autonomy and sovereignty in their sphere of governance. This e1n in turn be done by interpreting the prnvisions of the Constitution including those found in Part XIII in a manner that preserves and promotes the federal set-up instead of diluting or E undermining the same. An approach which tends to dilute the federal characte1· of our Constitutional scheme must·. therefore, he avoided and one that supports and promotes the concept of federalism preferred hy the courts while interpreting the provisions of the Constitution. Taxing power of the Union and the States arc mutually exclusive. While the Parliament cannot kgislatc on the subjects reserved for the States, the States cannot similarly trespass onto the taxing powers of the Union. If the Constitutional scheme docs not allow the Parliament to us111·p the taxing powers of the State Lcgislatun:s, such process of usurpation cannot also be permilled to take place in the garb of Ci making Union executive's concurrence an essential p1·c-rcquisitc for an~· taxing lq!i~latinn. [Paras 81. 83 and 841 1252-B-C; 254-E, C-H: 2:'i5-AI F ;\./1» lnremutio110/ fo11rist Corpom1i1m & ors. v. Sww H SUPREME COUR!' REPORTS [2016] IO S.C.R. of Harvana a11d Ors. 1981 (2) SCR 364: (1981) 2 SCC 318; ITC Umited ''· ilgricultuml Produce Market Co1111nittce and Ors. 2002 (1) SCR 441 : (2002) 9 SCC 232 ·- relied on. Constirutirm Assemblv Debates (Vol. IX Page 1131) - rcfen-ed to.

3.3 The expression 'subject to other provisions of this Part' appearing in Article 301 and the non-obstante clause appearing in Article 304 do not traverse in different directions. There is no conllict in the two provisions on account of the use of the said expressions. Interpreted individnally or conjointly, the two expressions simply mean that Article 304 takes precedence over Article 301. [Para 9111260-F-Gl

3.4 It is fairly well settled by now that Courts show considerable deference to the legislature in the matter of quantum of tax that may be levied as also the subjects and individuals upon whom the same may be levied. .Just because room for challenge to a fiscal statute is limited is no reason to hold that levy of taxes otherwise within the competence of the legislature imposing the same should be seen as a restriction on free trade and commerce guaranteed under Article 301 which Article does not either textually or contextually recogn'ize levy of taxes as impediments except in cases where the same are discriminatory in nature thereby being offensive to Article 304 (a) of the Constitution. [Para 9611264-C-E] Ramjilal v. IT7come fox Officer, Mohindargarh 1951 SCR 127: AIR 1951 SC 97: Kunnathat Thathu11ni Moo pi/ Nair v. 17ze State of' Kera/a & Anr. 1961 SCR 77: AIR 1961 SC 552; Laxmanappa Hanumantappa Jomkhandi v Union of India AIR 1955 SC 3 - relied on. v. Commissioner of 1\!l/1-. Bhugatrnm Rajee1' Kumar Sales Tax, MP and Ors. 1994 (6) Suppl. SCR 91 : 26 A B c I) E F G l-l JINDAL STAINLESS ITD. v. STATE OF IIARYANA 27 1995 Suppl. (l) SCC 673; State of Bihar and Ors. v. Rihar Cham her of Commerce and Ors. 1996 (2) SCR 184 : (1996) 9 SCC 136; Jindal Stripe !JJ. and Am: v. State of Hwyana and Ors. 2003 (4) Suppl. SCR 154 : (2003) 8 sec 60: Jaiprakash Associates Limited v. State of /\i!adhya Pradesh and Ors. 2008 (17) SCR 1282 : (2009) 7 sec 339; Jindal Stainless Limited and Am: v. Stale off-Jarrana and Ors.2010 (4) SCR 743: (2010) 4 SCC 595; Keshav Mills Co. Ltd. v. CIT 1965 SCR 908: AlR 1965 SC 1636; GK. Krishnan v. State of fomil Nadu 1975 (2) SCR 715 : (1975) 1 SCC 375; Kihoto Hollo/um v. Zachillhu 1992 (1) SCR 686 : (1992) Supp 2 SCC 651; Tlv!A. Pai Foundation and others 1-: Stale of Karnataka 2002 (3) Suppl. SCR 587 : (2002) 8 SCC 481; Chi el.Justice of Andhra Pradesh and others. v. L V A. Dixi111/11 and others 1979 (1) SCR 26 : (1979) 2 SCC 34; Ke.rn\'Gnanda Bharati v. State ol Kera/a 1973 Suppl. SCR 1 : (1973) 4 SCC 225; Ku/deep Nair v. Union of India and Ors. 2006 (5) Suppl. SCR 1 : (2006) 7 SCC l; Smt. U1)a111 Bai " State of Uttar Pradesh 1963 SCR 778: AlR 1962 SC 1621 - referred to.

3.5 The ''direct and immediate" effect test evolved by the pronouncement of the Australian High Court has itself been watered down and diluted. The current view in Australia is that only such taxes as are discriminatory introduced by way of a protectionist measure operate as restrictions on the freedom of trade, commerce and intercourse. !Para 102]1268-B-Ci .James r. Cmmnmni:ealth o(Ausrralia (1936) A.C. 578; Cmmnomi:eallh of /1 l!Stralia and others F. Bank of Nnv South I-Vales m1d others 119501 A.C. 235; Co111mrm11'calth ol Australia and Ors. v. Bank ol New South Wales and Ors. [1950] A.C. 235; McCulloch v. Marv/and, 17 US 316 (1819) - referred to. A B c D E (.! H SUPRRME COURT FF!'ORTS [20l6l l0 S.C.R. " I freatise 011 the Co11stit11/io11al J,imitation.1·" (8'" Edn. 1927 Vol. II Page 986) by Thomas M Cooley referred to.

3.6 Simpl,v because the tax is high is no reason for it to change its character and take the form of a restriction within the meaning •tf Part XI 11, no matter any one aggrieved of such heavy burden shall have the liberty to assail the same on all such grounds a' may be available to him under Part Ill of the Constitution. !Para 1l6J J278-BJ St{{/e o/ lvf{{dru.1· 829 : A IR 1 %9 SC 147 - relied on. '" J\'. K. i\'{{/{{raja Mudalior l 968 SCR Rojo .Joganno!h Hoksh Singh v. Stale of' UP 1963 SC R 220 : A I H. l 962 SC 1563; Federa1io11 o( Hotel & Rc.1·taura11/ .·l.\·sn. of Indio etc. 1·. U11io11 ol l11dia & Ors. 198'l (2) scR 918: (1989) 3 sec 634; Y v Sri11i1·asa11111rtln· and ors. 1·. Stoic of' 1'vlrsore and /lm: AIR 1959 SC 894; 0 G Gose & Co. (Agents) (P! Ltd v. Stole of Kera/a {//Id am: 1980 (I) SCR 804 : (1980) 2 SCC 410; A S11resh and olilt'rs 1·. State o/11V and another 1996 (8) Suppl. SCR 947: (1997) l SCC 319- referred to.

4.1 Whether the use of the expression "by virtue of any entry 1·clating to trade and commc1·cc" appearing in Article 303 arc wide enough to include entries relating to lev:v of taxes also. The entries relating to Trade and Commerce by themselves are no! snfficicnl to cmpowc1· till' legislature lo levy taxes. The constitutional scheme is such that a taxing entry is distinct from other entries and a levy of tax is possible on!~· if there is an entry which authorises lhP cornpcknt legislature to levy the same. :\rticle 303 is an exception lo Article 302, inasmuch as it limits the po\\ er conceded to the Parliament under Article 302 to impose restrictions on freedom of Trade, Commerce and Intercourse in public interest. The power exercised by Article 302 cannot be 28 ;\ I l I) I' (i II JJNDAL STAINLESS !TD. v. STATE Of HARYANA so exercised as to give preference to one state over another except under a situation covered by Article 303(2) namely situation arising from scarcity of goods in any part of the territory of India. !Paras 117-11911278-E, G-H; 279-A; 280-E-F] M. P V Sunderammier \·'. State of Andhra Pradesh 1958 SCR 1422 : AlR 1958 SC 468 - relied on. 29 A B

4.2 Whether the levy of entry tax on import of goods from outside the local area i11 the State will be per sc discriminatory if C goods so imported or similar arc not produced or manufactured within the State. 1\t-ticlr 304(a) strikes at discriminatory taxation implying thereby that the levy falls unequally as between goods produced or manufactured within the State and those being imported from outside. The essence of the guarantee in Article 304(a) lies in the same or similar goods being treated similarly in the matter of taxation. The question, therefore, is whether that guarantee is violated if the goods .rnbjected to levy of ei1try tax arc not produced or manufactured within the State levying the tax.Answer is in the negative. This is because there is no question of any discrimination if goods from outside the State are not at a disadvantage vis-a-vis goods produced or manufactured within that State. His true that a levy on goods that arc not produced or manufactured in the State is likely to make such goods costlier but that is not enough for the levy to be considered unconstitutional. A responsive Government aware of the needs of its constituents will be under tremendous pressure to keep such taxes low enough for its constituents to be able to afford the same. Dcmocrat.ic processes and pressures within the system of governance that we have will itself take care of any aberration in this regard. What is absolutely clear, however, is that Article 304(a) will not frown at a levy simply because same or similar goods as are taxed are not produced or manufactured in the State. !Para 1221[282-C-G] D E F G H SUPREME COURT REPORTS [2016] 10 S.C.R. 30 ;\ Ka!rani Stores v. State of' Orissa (1966) 1 SCR 865 - held inapplicable. c

4.3 The Central Sales Tax Act, 1956 was enacted pursuant to the Sixth Amendment Act, 1956 whereby taxes on sale and purchase of goods in the course of inter-state trade and commerce were expressly brought within the purview of the legislative competence of Parliament. This included the 1wwcr to impose rcst.-ictions upon the power of the State legislature insofar as levy of taxes of sale or purchase of goods of special importance is concerned. F:ntry 92-A added by the Sixth .\mendment Act 1956 empowered the Parliament to levy taxes on the sale and purchase of the goods other than newspapers in the course of trade and commerce. Entry 54 of the State List by the same D amendment was redrawn to make the taxes on the sale and purchase of goods subject to Entry 92-A of List I. The States' power is made subservient to the powers of the Parliament under Entry 92-A. Section 15 of the Central Sales Tax Act, t.herefore, has overriding effect vis-a-vis any State Law authorizing imposition E of taxes on sale/purchase of declared goods. In t.his perspective, Parliament has limited the legislative power of the Stat.c insofar as taxes on declared goods arc concerned. The imposition of restrictions on the State's power of taxation in regard to declared goods is not suggestive of taxes themselves being restrictions for purposes of Part XIII oft he Constitution. Not only that, Article 286(3) provides the source of power for the Parliament to impose any restriction on the State authority t.o leV)' a tax on goods of special importance declared by Parliament. A non-discriminatory tax does not per se constitute a rest1·iction on the right to free trade, commerce and intercourse guaranteed under Article 301. !Paras 124-12611283-D-J•'; 284-A-C; 285-A-B] (i \'. Srare of'Assam & Ors. 1961 Atiuhari Tea Co. Ltd. SCH 809 : Am 1961 SC 232; Automohile 1/'a11.1porf (Rajasrhan; Lrd. ere. v. Swre of' Rajastlwn & Ors.1963 II JlNDAI. STAINl .FSS lTD. v. STATF OF HARYANA SC R 491 : A IR 1962 SC 1406; Jindal Swinless Ltd ( J) and ,.Jnr. 1·. Swre ol Harvana and Ors. 2006 (3) SCR 1095: (2006) 7 SCC 241 - overruled.

5.1 ls the Entry Tax levied by the States in the present hatch of cases yiolativc of Article 301 of the Constitution and in particular have the impugned State enactments relating to entry tax lo be tested with reference to both Articles 304(a) and 304(b) of the Con.~titution for determining their validity? 31 A B c The restrictions referred to in Article 304(b) arc non-fiscal in nature. Constitutional validity of any taxing statute has, therefore, to he tested only on the anvil of Article 304(a) and if the law is found to be non-discriminatory, it can be declared to be constitutionally valid without the legislation having to go through I.he test or the process envisaged by Article 304(b ). Should, however, the statute fail the test of non-discrimination under D Article 304(a) it must he struck down for the same cannot be sustained even if it had gone through the process stipulated by Article 304(b). That is because what is constitutionally impermissible in terms of Article 304(a) cannot be validated and sanctioned through the medium of Article 304(b). A fiscal statute shall be open to challenge only under Article 304(a) of the Constitution without being subjected to the test of Article 304(b) either in terms of the existence of public interest or rcasonah!rness of the lcv~·. !Para 12911174-C; 285-F-II; 286-A- BJ E Video t.'lectronics v. State of Punjab 1989 (2) Suppl. SCR 731 : (1990) 3 SCC 87 - affirmed.

5.2 The Court ought to examine whether the differentiation made is intended or inspired by an element of unfavourable bias in favour of the good~ produced or manufactured in the State as against those impor1ecl from outside. Sn long as the differentiation made b~· the States is not intended lo create an unfavourable bias and so long as the differentiation is intended to benefit a distinct G H SUPREME COURT REPORTS [2016] 10 S.C.R. class of industries and the life of the benefit is limited in terms of period, the benefit must be held to flow from a legitimate desire to promote industries within its territory. Grant of exemptions and incentives in such cases must be deemed to have been inspired by considerations which in the larger context help achieve the Constitutional goal of economic unity. !Pam 133] [289- D; 290-C-DI Shree Mahavir Oil Mills and Anr. v. Stale of Jammu and Kashmir and Ors. (1996) 2 SCC 39 - distinguished. Kathi Raninp, Rawat l'. The State of Saurashtra 1952 SCR 435: AJR 1952 SC 123 - affirmed. Mk Bhagatram Rajeev Kumar v. Commissioner of Sales Tax, MP. and Ors. 1994 (6) Suppl. SCR 91 : 1995 Suppl. (1) sec 673; State of Bihar and Ors. V. Bihar Chamber of Commerce and Ors. 1996 (2) SCR 184 : (1996) 9 sec 136; Ji11dal Stripe Ltd and Am: V. State of' Hwyana and Ors. 2003 ( 4) Suppl. SCR 154 : (2003) 8 SCC 60; Jaiprakash Associates Limited v. Stale of Madhva Pradesh and Ors. 2008 (17) SCR 1282 : (2009) 7 SCC 339; Jindal Stainless Limited and Am: v. State of Harvana and Ors. 2010 (4) SCR 743: (2010) v. CIT 1965 4 SCC 595; [<eshav ivlil!.1· Co. Ltd. SCR 908 : AIR 1965 SC 1636: GK Krishnan v. State of fomil Nadu 1975 (2) SCR 715 : (1975) 1 SCC 375; Kihoto Hollo/um v. Zachi/lhu 1992 (1) SCR 686 : (1992) Sup1>l. 2 SCC 651; TM.Ii. Pai Foundation and others l'. State ofKamataka 2002 (3) Suppl. SCR 587 : (2002) 8 SCC 481; Chief Justice of Andhra Pradesh and others. v. L. V. A. Dixitulu a11d others 1979 (1) SCR 26 : (1979) 2 SCC 34; Kesavananda Blwrati v. State of Kera/a 1973 Suppl. SCR l : (1973) 4 SCC 225; Ku/deep Nair v. Union ojlndia and Ors. 2006 (5) Suppl. SCR 1 : (2006) 7 SCC l; S1111. Ui/am Bai v. Stale uf U1tar Pradesh 1963 SCR 778 : AIR 1962 SC 1621 - referred to. 32 A B D E F H .JJNDAL STAINLESS LTD. \'. STATE or HARYANA

5.3 Courts have almost universally accepted the principle that keeping in view the inherent complexities of fiscal adjustments and the diverse elements and inputs that go into such exercise a greater latitude is due to the legislature in taxation ·related legislations. So long as the intention behind the grant of exemption/adjustment/credit is to equalize the fall of the fiscal burden on the goods from within the State and those from outside the State such exemption or set off will not amount to hostile rliscrirninati.on offensive to Article 304(a). Whether the impugned enactment achieve the object of such equalization or lead to a sit nation that exposes goods from outside the state to suffer any disadvantage vis-a-vis those produced or manufactured in the taxing State is left open for examination by the regular benches hearing the matters. !Paras 137, 1411[291-G; 297-E] Ma/i1tlal i: Union of India 1996 (10) Suppl. SCR 585: l 997 (5) SCC 536; Khandige Sham Bhat v. Agrl. /JV 1963 SCR 809 : AIR 1963 SC 591; V Gun1viah Naidu and Sons and Ors. v. State of Tamil Nadu and Ors.1977 (1) SCR 1065 : (1977) 1 SCC 234; Malwa /3111· Se111ice (Private) Ltd. v. State of P.unjah and Others 1983 (2) SCR 1009: (1983) 3 SCC 237; Maharaj Umeg Singh v. State of !3omhav, 1955 SCR I 64 : AIR 1955 SC 540 - referred to. Cole v. Whitfield (1988) 165 CLR 360 - referred to. 33 A B c D E F PER S. A. BOBDE, .J. (Concurring) Taxes arc not restrictions on Trade.

1. Tax is predicated on freedom of trade and commerce. It is pa1·ticularly true of entry tax. Entry tax is an impost levied on G transactions which are entered into in the course of that freedom. In fact, but for such freedom of trade, there would be no transaction and no occasion for the levy of a tax. The levy of a tax is a distinct event from the transaction. Trade and commerce must take place to attract a tax. Undoubtedly a tax may make H SUPREME C()LJRT REPORTS [2016] 10 S.C.R. the transacHon less profitable to the extent of the tax. Bnt that is rar from being an impediment on the transaction which is part of trade, the freedom which is guaranteed under Article 301. It is not possible to readily conceive of a tax, which in itself, restricts or impedes the freedom of trade. !Para 2] [298-C-D]

2. Article 304(a). The levy of entry tax on import of goods from outside the local area in the State will be per se discriminatory if goods similar to those imported are not produced or manufactm·ed within the State. Article 304 recognizes the power of a Legislature to a State to impose the tax on the imported goods so, however, as not to discdminatc between goods so imported and goods so manufactured or produced. The Article imposes two conditions: firstly. that a law may impose a tax on goods imported from other States, "any tax' to which "similar goods manufactured or produced' in that Stale are subject. This clearly implies that the goods imported from other States may be subjected to a tax where simib1r goods a1·c in fact, manufactured or produced in the imporfing State and arc subjected to tax. In other words, (a) the goods imported from other States must be similar to (b) the goods manufactured or produced in the importing State and (c) the goods so locally manufactured or produced must be subject to tax. The second condition is the tax that is imposed on imported goods should not discriminate between the imported goods and goods manufactured or produced in the importing State. The intention of the Article thus, clearly is that where a tax exists on goods impot"ted into a State, there should be no discrimination between such a tax and a tax on similar goods manufactured or produced in the importing State. The reference point for tax on imported goods is the tax on locally manufactured goods. It is not possible to construe the prohibition against discrimination where there is no tax upon similar goods manufactured or produced in the importing State. Undoubtedly, the effect of such a construction is that the imported goods cannot be taxed where similar goods are not manufactured or produced in the importing State and arc therefo1·e, not subjected to similar tax and that seems to be the clear· intention of this Article. !Paras 4, 6 and 711299-C; 300-D- 34 /\ c I) G H JINDAL STAINLESS LTD. v. STA.TE OF HARYA.NA. 3) II; 301-A-BI

3. Jn the normal course, a State in which certain goods arc not manufactured would rely on the supply of such goods from other States and the effect of this provision would he to make the goods so imported available without the additional burden of tax. In sum, the premise on which lax can be imposed is the existence of no! mere taxes on goods produced or manufactured locally, or the thcon:tical possibility of taxation, to avoid the prohibition under Article 304 (a), hut the actual production or manufacture of similar goods, that are subject to like or similar tax. Absent this condition, the levy would fall foul of Article 304 (a) since it would constitute an additional burden (the goods already having suffered some form of taxation in the producing state). This interpretation would also further economic progress and the unhindered availahili!y of goods in states which do not have manufacturing capacities and may not be able to develop it, having regard to lack of natural resources or other geographical limitations. I! also furthers the aims underlying Article 301 of the Constitution of India. (Para 8]1301-C-F] f1riahari ](,a Co. Ud. SCR 809 : AIR 1961 SC 232 - 1: Stall' of'Assam & Ors. 1961 referred to. McC11lloch v. Mwyla11d. 17 lJS 316 (1819) - referred to. PER SHIVA KIRTI SINGH, .I. (Concurring) Challenge to various taxing statutes enacted by several States to impose Entry Tax on goods in exercise of specific power available lo the State legislature under· Entry 52 of List II in the 7th Schedule of the Constitution. I. Since, in the matter of levy of taxes the compensatory theory is no more relevant, the State Legislatures are free to ('Xercise their taxing powers without the need of declaring and showing that taxes imposed by them oi1 outside goods arc for the benefit of concerned traders or manufacturers. But such tax must A B c D E r G H SUPREME COURT REPORl'S 12016] I 0 S.C.R. be, in essence, non-discriminatory, both, in the ultimate tax burden and in machinery provisions. To muster compliance with Part XIII of the Constitution, the lax must pass the twin tests embodied in Article 304(a) - (i) Similar goods produced locally must also be subjected lo similar tax and (ii) such state action should not attract the vice of discrimination between the two varieties of goods. I Para 611303-0-Fl

2. The entire discussion leads to a fair conclusion that the views summarized by Sinha, CJI in paragraph 18 of his judgment in Atiabari case depict the law emanating from Part XIII of the Constitution in the correct perspective. However same cannot he said of observations in paragraph 16 where His Lordship used the expression - "If a law is passed by the legislature ...... . imposing a high tariff wall----------assumes the character of a trade barrier which it was the intention of the Constitution makers to abolish by Part XUJ." These observations do create practical difficulties of insurmountable proportions. Hence these deserve to be treated as obiter or interpreted in the light of the entire passage, to mean such taxes which impose an impediment to the free flow of trade, commerce and intercourse by creating discriminatory tariff wall/trade barrier (emphasis supplied). For Part Xlll there can be no real impediment through tax unless the so called wall or barrier is one of hostile discrimination between local goods aud outside goods. !Para 711303-G-ll; 304- A-Bl v. State of Assam & Ors. 1961 Atiahari Tea Co. Ltd. SCR 809 : AIR 1961 SC 232; Auromobi!e Transport v. State of Rajasthan & Ors. 1963 (Rajasthan) Ud etc. SCR 491 : AIR 1962 SC 1406 - not good law. PER N. V. RAMANA, J. (Concurring)

1.1 It is a settled proposition that generally the construction of the Constitution must be most beneficial and widest possible amplitude. The court must gather from the spirit of the A 13 c D r' F G II .JINDAL STAINLESS !TD. v. STATE OF HARYANA 37 Constitution and 1he language must not be construed in a narrow and pedantic manner. Equally important point is that legislative powers especially taxing powers cannot be tested by implication. Unless there is express limitation on the power of the State to enact the State law, it is not the province of the court to curtail the power of the slate by interpretative process. Every law must he tested with reference to preamble and Directive Principles of State Policy. !Paras 5.2, 5.3]1316-D-E, G; 317-A] A B Kesavananda Bharti v. State o( Kera/a 1973 Suppl. SCR l : 1973 (4) SCC 225 · relied on. RH/ v. Pearle.1·.1· General Finance AIR 1987 SC 1023: 1987 (2) SCR 1: In re CP and Berar Act, 1938, 1939 FCR 18; Aram Prakash v. State of Harvana 1986 (1) SCR 399 : 1986 (2) SCC 249; State o( 11/est Bengal v. Kesoram Industries Ltd. 2004 (1), SCR 564 : AIR 2005 S.C. 1646; Ci. K. Krishnan v. State of Tamil Nadu 1975 (2) SCR 715: AIR 1975 S.C 583; RC Cooper v. UOJ, 1970 (3) SCR 530 : (1970) l SCC 248; Madho Rao .Jimii Scimlia l'. Cnion oflndia 1971 (3) SCR 9: (1971) 1 sec 85 - referred to. Constituent Asscmhly Dehote Vol. IX, September 8, 1949 - referred to.

1.2 In a democratic system, the elected Governments are always responsible for its people. If there is any high taxation which is affecting their life, this puts pressure on the Governments lo reduce taxes and elected Governments are answerable to public every five years. No Government can raise tax which would cause public inconvenience. In this context, Sovereignty is no more endless power, rather it is responsibility. A responsible government in a democracy should always strive to keep taxes as low as possible, so that no heavy burden is placed on tbe individuals. Although States arc empowered to tax under the Constitution. it does not necessarily mean that they should tax at c D E G H SUPREME COURT REPORTS [2016110 S.C.R. exorbitant rates. Tax is a way uf apportioning the cost of government among those who in some measure are privileged to enjoy the benefits and must therefore bear its burdens. A tax is a burden or charge imposed by a competent legislature upon persons or property, to raise money for public purposes. Important clements of a tax may be said to be first, that it is a compulsory exaction; secondly, it is payable to the State or to some public authority on its behalf; and thirdly, that it is an exaction . for purposes of public interest. Our Constitution has demarcated the taxing powers between the Center and States. Taxing power of the Union as well as the States resides in Article 245 read with 246 of the Constitution. Article 246 of the Constitution, lays down that Parliament has exclusive power to make laws with respect to any matter enumerated in Union List (List I of schedule VII). The States have complete power to make laws with respect to ~my matter enumerated in the State List (List II of schedule VII) and both Parliament and State Legislature have power to make laws with respect to any matter enumerated in the Concurrent List (List IU of schedule VU). As per Article 265, no taxes shall be levied or collected except by the authority of law. Taxation entries are to be found only in lists I and II, indicating that in our Constitutional scheme, taxation powers of the Centre and the States are mutually exclusive. There ar·c no Entries in the Concurrent List which gives power of taxation. This being the case, the moment the levy contained in a taxing statute transgresses into a prohibited field, it is liable to be struck down. !Paras 6.1, 6.211324-C-F; 325-A-E) Raja .!agannath Baksh Singh v. State of U.P & Am: 1963 SCR 220: AIR 1962 SC 1563; Dena Bank v. Bhikhahhai Prahhudas Parekh & Co. 2000 (3) SCR 509 : (2000) 5 sec 694; c.rr.. Udaipur Rajasthan V. McdoH·e!l & Co. Lrd. 2009 (8) SCR 983 : 2009 (10) sec 755 - referred to. Coole1' on taxation Vol. 1, 4'" ed., Ch.2 - referred to. 38 A B c D F 0 1-1 JINDAL STATNLESS ITD. v. STATE Of HARYANA 39

2.1 The freedom of tniclc, commerce and intercourse A throughout the territory of India is assured, but such freedom of trade is subject to Part XIII of the Constitution. 'When evaluating the impact of Article 301 on the plenary taxing power of the Sovereign State, the opening words become significant. The dissi;ct.ion of A1·tielc 301 shows that it bas three significant parts or p h rascs. T hcse are, 's ul~iect to other provisions of this part', and 'Trade, Commerce and intercourse throughout territory (}( India', '.~hall befi·ee'. \Vhichever way one r·eads, the plain meaning of this is that trade, commerce and intercourse, shall be free, subject to Articles 302 to 307 of the Constitution. The two sets or the provisions which are mainl:o-· contemplated in the phrase 'subject to other provisions' are Articles 302, 303 and 304 (a) and (h). The Pl1rliamcnt may by law restrict the freedom of trade in puhlic interest and such law would lJe free from Article 301. Article 301 of the Constitution begins with the phrase 'Subject tn othl'r prnvisions of this Part'. This phrase gins an initial indication as lo what to expect? The position of this phrase should be taken into consideration. Even before the declaration of freedom of Trade, Commerce and Lntercourse, it is being sub.iected to limitations. Further the opening words of Article 301, namely, 'sub.ice! to the provisions of this part' require that all the Articles of the Part XIII have to be read together so as to understand the width and meaning of the Part Xlll. 'Subject to' is the dominant expression so far as Article 301 is concerned. It indicates subservience to at least Articles 302, 303 and 304. Articles 302 to 304 embody a restatement of powers under Article 246 r/w the State List under the VII Schedule. Each restated power by itself overrides the freedom of trade in Article 301. [Paras 7.3-7.511328-D, E-H; 329-A-BI B c D E F

2.2 A1·ticlc 301 loses its prime place, if States make laws under any of the taxing entries, erecting reasonable restrictions or imposing tax on the free trade. Such power oYer-ridcs freedom G of trade and commerce. Thus, the general declaration by Article 301 is relaxed in favor of Parliament by Article 302 and in favor of the States by Articles 303 and 304. Article 304 starts with a 11011-ohstallle clause whereas Article 302 does not have a non obstanle clause. As the freedom of trade in Article 301 is itself H 40 /\ SUPREME COURT REPORTS

1.2016] 10 S.C.R. subjecl to 302 and 304, the intention of the framers appears to be clear. The Constitution guards and protects the State legislations under Arliclc 304(a) and (b) from overemphasized effect on freedom of trade under Article 301.IPara 7.6] 1329-C-DJ C

3. It is a sound principle of jurisprudence that entire statute R has to be construed as a whole and not in isolation. While doing so, no clause in any provision can be ignored especially when interpreting the Constitution which is 's11pre111a lex'. The difference between the power of the Union and the States vis-a-vis Article 301 is that Article 302 does not have application to tax laws like Article 304(a), but under Article 304(a), tax can be imposed on the goods imported from other States. From the legislative history and Constituent Assembly Debates, propositions that emerge arc: It is clear from a comparison of Clause 16, 243, 244 and 245 of the draft Constitution with Articles in Part XA (now Part XIII) that they were not merely arranged in seriatim but were substantially altered. That freedom of trade, commerce and intercourse is not a fundamental right. That trade, commerce and intercourse in India is not absolutely free. That the discriminatory tax (like erstwhile custom duties imposed by certain independent states) is harmful for the federation. [Paras 7.7, 7.1711329-E-F; 335-B-EJ D F1111dame11tal Rights by Dr. K. M. Munshi B. Shiva Rao. The Fmming of India :1· Co11stit111ion, Vol. II, p. 69 (1967) (B. Shiva Rao); Sir Alladi Krislmaswami Jye1; B. Shiva Rao, p.68; Co11stitue111 Assemhlv Dehate, Vol. IX, 8th September 1949 - referred to.

4. The main inspiration for Part XIII has been American and Austrnlian models. These models present before the Constituent Assembly were re-designed and expanded by the framers of the Constitution in India according to the needs of Indians. The interpretation provided by other countries are Just indicative. They may have persuasive value because the context and history has been quite different as compared to India. At r f-l JINDAL STAINLESS LTD. v. STATE Of HARYANA least in relation to Part XUJ of the Constitution an indigenous interpretation should be provided without placing heavy reliance on the foreign cases as they may be subject to change which will inevitably stir !he matter once again. Moreover, our constitutional ~tructm·e is quite different from those provided under Australian and American Constitutions. ln Australia and the U nitcd States of America, giving textual meaning to the applicable Constitutional provisions, the Courts interpreted the 'commerce clause' or 'free trade clause' in such a manner that the (federal units) were completely barred lo levy any taxes o·n inter-state trade and commerce. Fortunately off late, in these jurisdictions, the law has been dilutl'd to enable the· federal units to regulate inter-state trade and commerce even by imposing levies. This would be clear by bi-icf reference lo !he case law governing inter state trade in Australia, Canada and the United States of America. !Paras 7.19, 7.201[336-B-Ej Gold Seal Ud. 1·. Alherta AG (1921) 62 SCR 424 - referred to. Cole 1·. Whitfield (1988) I 63 CLR 360; Castlemaine foohey.1· Ud v. South A 1.11·tralia ( 1990) 169 CLR 436; Bct/(1ir Pty Ud v. Western Australia (2008) 234 CLR 418; Common wealth\'. Bank ofrww South H'ltlcs, (1949) 79 CLR 497; Brmvn v. Mw).Zand 25 lJ.S. (12 Wheat.) 419 (1827); i'vicCulloch 4 Wheal. 316 (1819); Freeman 1·. Hc11·irt. 329 U.S. 249 (1946); Comp/Pie Auto fransit '" Hrndr 430 U.S. 274 (I 977); D.H. Holmes C01npa11v Lid. 1·. Shirln Mc1Vamara 486 lJ.S. 24 (1988); C11111111om1·ealrh Edison Company '" Srate of lvlontana 453 U.S. 609 (1981) - referred to. Constitutiomt! /,aw of Canada, Peter rV Hogg. Vol.l, pg. 857 referred lo.

5. There is no gainsaying that the law made by Parliament or State legislature is subject to Constitutional limitations. A law 41 A B c D E F c; H SUPREME COURT REPORTS j2016j IO S.C.R. which abridges fundamental rights is rendered void by reason of Article 13. ;\ law hy the Union or the States relating to a sub.ice! matter outside the powers assigned under Articles 245 read with Article 246 and relevant legislative entries in the Seventh Schedule would be ultra vires as legislatively incompetent. Apart from these limitations, the law of the Union or the States is also subject to other Constitutional limitations. The provisions of Part XIII, especially, Article 304(a) and (b) also act as a limitation on the legislative .i uriscliction of the Union and the States. The power endowed under Articles 245 and Article 246 to a competent legislature to make laws is 'subject to the provisions of the Constitution'. Nonetheless, if a State makes law under Article 245( 1) read with A1·ticle 246(3) in respect of the subjects enumerated in Entries 45 to 63 of List II in the Seventh Schedule, it is doubtful whether it can be invalidated only on the ground that it does not comply with Articles 301 and 304(a). Indeed various provisions of the Constitution dealing with fiscal measures in Part XII, for instance Articles 265, 269, 276 and 286, spccilically deal with taxes, but in Part XJJI, except A1·ticle 304(a), no other Article deals with taxes. Further Chapter I of Part XII of the Constitution specifically deals with provisions regarding •Finance', whereas Part XIII deals with ·Tracie, Commerce and Intercourse' within the territory of India. Thus, these two Parts are kept distinctly separate. Though every law is made subject to all provisions of the Constitution, it does not mean that every tax law made by the State must be made answerable to the general provisions relating to trnde, commerce and intercourse. The JJro,·isions of the Constitution, the Constituent Assembly Debates and the p1·eccdents, lead to such a conclusion.IPara 7.40]1351-F ll; 352-A-C I Maharaj Umeg Singh and Others v. The State al Bomhar and Others 1955 (2) SCR 164; Khverbari Tea Company v. State of'Assam (1964) 5 SCR 975 : AIR 1964 SC 925 - referred to. Concise OxfiJrd Dictionarv, p. 474 (10th Ed.) - referred to. -l2 A B c D r·: F G H JINDAL STAlNLFSS LTD. v. S IArE OF HARYANA 43 PART-VIII : ARTICLE 304 OF THE CONSTITUTION A

6.1 Whether a law levying tax on cntr~· of goods needs to he test.ed with reference to Article 304(a) and (b) of the Constitution'? In order to appreciate the implication of Article :104 of the Constitution, it is necessary to hear in mind the historical background of these provisions. The Government of B l ndia Act. 1935 envisaged a federal Constitution for the whole of British India. The Government imposed restriction on the legislature of the States to legislate in relation to internal trade 1111de1· Section 297. The prohibition contained in section 297 applied only to I'n>Vincial Governments and Provincial C legislatures with reference to entries in the legislative list relating lo trnde and commerce and to production, supply and distribution of commodities. This section dealt with prohibitions or restrictions in respect of import into or export from a Province, of goods generally. It also dealt with the power lo impose laxes etc. and prohibited discrimination against goods manufactured or produced outside a Province or goods produced in different localities. The proviso empowered the 'Unit' to impose by Jaw, reasonable restrictions in the interest of the public order, morality or health. !Paras 8.1, 8.2 and 8.4] [354-G-IJ; 355-A, F-G; 356-C] D

6.2 Another important question is whether State enactments relating lo levy of entry tax have to be tested with reference to both clauses (a) and (b) of Article 304 or only with reference to clause (a) of Article 304 of the Constitution'! The history, the context and the plain words indicate that Article 304 (a) and (h) an'. disjunctive in nature. A levy of tax need not be tested with reference lo Article 304 (b) of the Constitution. The n~asons for reading Article 304 (a) and (b) of the Indian Constitution disjunctively arc: First, the legislative history and the intention of the framers clearly point out that taxes were never treated as restrictions in the first place. Secondly, Article 304(a) docs not bar or limit State power to levy non-discriminatory taxes on the goods imported from other States. What is restricted is levy of discriminatory tax only, so to say, similar goods manufactured or produced in that State are also subjected to tax, so as not to discriminate between the goods imported and goods E G !-I SUPREME COURT Rf~PORTS 12016110 S.C.R. manufactured or produced in the State. Thirdly, the two clauses of Article 304 are connected by the word 'and'. Sub-clause (a) puts a restriction on the State to not impose a discriminatory tax, whereas sub-clause (b) deals with other restrictions relating to trade, commerce and intercourse. Fourthly, Article 304 (a) and (b), on a careful reading would show that Article 304 (a) and (b) are disjunctive. This is made clear by the proviso, which is to the effect that a Bill for the purpose of Article 304 (b) can be moved by the Legislature of the States, only by the previous sanction of the President. If Clauses (a) and (b) are not disjunctive, then the language of the proviso would have been certainly different and the Bill for the purpose for Clause (a) would have been mentioned. Conspicuous absence of reference to 304(a) in the proviso would certainly lend support to the view that Clause (a) and (b) of Article 304 are distinct and dis,junctivc. The proviso, it is well settled, is intended to explain the main operating part of the Article. lt is never used or interpreted as expanding the operative part of the provision. Fifthly, if one reads Clauses (a) and (b) of Article 304 conjunctively, then it would not subserve the federal nature of the Constitution which is a basic structure. [Para 8.141 [364-B ll; 365-A-B] B. Shiva Rao. Fmming of Jndia :\' Constitution, A Study (2"" Ed.), p. 699 to 707; R. Shiva Rao, Fm111ing of India :1· Co11sri111tio11, Vol. Ill, p.9 (2"" Ed.); R. Shiva Rao, Frn111i11g of Jndia '.\· Constitution, Vol. IV, p.329 - refetTcd to.

6.3 There is a vital difference between mere 'differentiation' and "discrimination. It is discrimination not differentiation that is sought to he prevented through Part XIII. . The principle laid down in Video Electronics is that. if a backward area in a State needs impetus for the development, and in such circumstances incentives are given for the industry to develop whether by way of subsidies or tax exemptions for a certain period of time as desi1·ed by the competent legislature, the same would be 44 A B (' j) !' I' G H JINDAL STAINLESS LTD. v. STATE OF HARYANA permissible and would fall outside the scope of Article 304 (a). Such State enactment is not inherently discriminatory, but rather aims to ensure economic equality which is a facet of economic unity. A State law directed towards development of a particular region is permissible under Part XIII. The common thread in Part XII.I is the achievement of economic unity and parity which does not altogether preclude differentiation for justifiable and rational reasons wherever necessary. The heart and soul of Part XIII is to dissolve hostile discrimination within the territory of India. T!Je second facet is that Article 304 (a) is a limitation to impose any tax on goods imported from other States. This power is subject to the condition that the goods manufactured or produced within the State are also subjected to tax, so as not to discriminate between the goods imported from outside the State. Article 304(a) is not a limitation on the legislature of a State to impose such tax on goods imported. The only condition envisaged under Article 304 (a) is, same tax is imposable 011 the goods imported from other States as well as goods if manufactured in that State. (Paras 8.17, 8.19, 8.20, 8.21 and 8.22] (368-A; 369-F ll; 370-A; 371-A-C] Video Electronics (2) Suppl. SCR 731 : (1990) 3 SCC 87 - affirmed. State of Punjah 1989 v. Constituent Assemh/y Dehates, 1949. Vol. IX, Pages 1125, 1145 - referred to.

6.4 Taxing power lies in Article 245 read with 246. The words "may by law'' appearing in Article 304 is not source of legislative power. ll is an option given to the Stales in case it decides to levy any tax on the goods imported from other States. The source of legislative power resides in Article 245 read with Article 246 which is indisputable. This power is not subject to any implied limitation. The 1>lain reading would show that in a given situation, the State may by choice decide not to levy any tax imported from other States or, 'opt to levy taxes on certain goods imported from other States. Indeed in all the entry tax laws, the charging section enables the·levy'of entry tax only 45 A B c D E F G H SUPREME COURT REPORTS [2016] 10 S.C.R. A on the scheduled goods. The scheduled goods are goods declared as attracting entry tax. [Para 8.23) [371-D-F'I B C D

6.5 Discrimination is a relative concept; in order to discriminate a reference point is required. Article 304(a) rather than being an enabling provision to allow the State to impose tax, is a restricting provision, which prevents such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. The object is to p1·cvent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the difference between the two rates would constitute a tariff wall or fiscal barrier and thus impede the free flow of inter-State trade and commerce. It does not prohibit levy of tax as such in the situation wherein the goods are not produced or manufactm·ed in the Stale itself and does not affect the authority of the State to tax the imported goods. It only bars discrimination on the basis of taxing the products manufactured within the Slate v;s-1i-vis imported goods which will only occur if the precondition of manufacturing in the taxing State is satisfied. [Para 8.24] (371-G-ll; 372-A-B]

7. There was good amount of debate on the doctrine of compensatory tax evolved by this Court in Automobile. The concept of compensatory tax has neithe1· any juristic basis nor a part of Indian Constitutional law. At the stage of drafting, at the stage of consideration by the Sub-Commillcc as well as Advisory Committee and when lhe Part XA (now Part XIII) was adopted F by the Constituent Assembly, never even for a moment, the principle of compensatory tax was thought of. f Para 8.26] (372- C-E] 1 v. Srate of Assam & Ors. 1961 .lriahari Tea Co. J.td. .SCR 809 : AIR 1961 SC 232; Automohile Transport v. _\·1ate pf Rajas1ha11 & Ors. 1963 r1?(1j{;,·th111iJ L1d. ·s~:R 491 :. Ali{ '1962 ~f 1406'- not good ~~~v. Blwgatram Rajee1· Kumar v. en: .MP 1994 (6)·SuppL. SCR 91 : 1995 Suppl. (l) SCC 1636; State of Bihar E H JINDAL STAINLESS !TD. v. STATE OF HARYANA Bihar Chamher oj' Commerce and Ors. 1996 (2) SCR 184: (1996) 9 SCC 136; Jindal Stainless Ltd. And Am: v. SI ale of Haryana and Ors. 2006 (3) SCR 1095 : AIR 2006 SC 2550; Jaiprakash Associates v. Slate of MP 2008 (17) SCR 1282 : 2009 (7) sec 339; Jindal Stainless Ud. and .Im: v. Slate of J-farvana 2010 (4) SCC 595; Jindal S1rips Lrd. v. Srare of Ha1Jana 12003 j 129 S.'J'.C 534; .Jindal S1ripe Ud. v. Slate of Harvana 2003 (4) Suppl. SCR 154: 2003 (8) SCC 60; Jindal S1rip.1· Limited 1·: Stale of Har)'ana 2006 (3) Suppl. SCR 569 : 2006 (7) SCC 271; Indian Oil Cmporation 1: Stale of' Harvana (2009) 21 V.S.T 10 (P&ll); A. Laksluninarh, PrecC'denl in India (3"• Ed.} p.178 (2009); In re Sea Customs 1lct 1964 SCR 787 : AIR 1963 SC J 760; Stale Trading, Corp. o( India Ltd. v. CTO 1964 SCR 99 : AIR .1963 SC 1811; Golaknath v. State of P1111jah 1967 SCR 762: AIR 1967 SC 1643; Naresh Shridhar Mirajkar v. Stale of Maharastra 1966 SCR 744 : AIR 1967 SC 1; S11ptd. And Remembrancer o(' f,e,'..!,al Affc1ir v. Corp. of Calculla 1967 SCR 170 : AIR 1967 SC 997; Ahmedahad Sr. Xavier College Sociclv v. State of Gujarat 11)75 (1) SCR 173 : (1974) 1 SCC 717; Indira Sa11 hney 1.: UOJ 1992 Supp. (3) SCC 215; Supreme Co11rl Advocalc.1· on Record Association \'. UOI 1993 (3) SCR 669 : (1993) 4 sec 441; SR Ho111111ai v. UOJ (1994) 3 SCC I; Attorney General of India 1.: Amritlal Pmjvandm· (1994) 5 SCC 54; Mafatlal llld11stries v. UOJ 1996 (10) Suppl. SCR 585 : 1997 (5) SCC 536; <Vi'v!DC v. Stare of Punjab 1996 (10) Suppl. SCR 472 : (1997) 7 sec 339; TMA Pai Foundation Case 2002 (3) Suppl. SCR 587 : (2002) 8 SCC 481 (11 .iudge bench); J.R. Coelho v. State of TN 2007 (1) SCR 706 : (2007) 2 SCC 1; Central Board of DaV1·oodi Bohra Community & ,Jnr. v. State of !vlaharashtrn & Am: 2004 (6) Suppl. SCR 1054 : 2005 (2) SCC 673: Keshav .\!fills Co. Ltd. v. CIT 1965 SCR 908 : A.IR I 965 SC I 636; Minerva Mills Ltd. & Ors. 1'. Union Of India & Ors. 1980 AIR 1789: 1981 47 A B c D E f G H SUPREME COURT REPORTS [2016] 10 S.C.R. (1) SCR 206; State of West Bengal v. U11ion of India 119641 1 SCR 371; S.R. Bommai v. Union of India 119781 2 SCR 1; Special Reference No.I of 1964) 1965 SCR 413: AIR 1965 SC 745; ITC Limited v. Agricultural Produce Market Committee and Ors. 2002 (1) SCR 441 : (2002) 9 SCC 232 - referred to. J,ord De1111i11g, Familv Storv, p. 207 (1999) - referred lo. PER R. HANUMATill, .J. (Concurring)

1.1 The underlining idea in making trade, commerce and intercourse throughout lhe territory of India free is to emphasize on the economic unity of India and to ensure that unity of the country may no! be broken by internal barriers. In order to ensure that the Slate Legislatures sub.jected to local and regional pulls did no! create trade barriers in future, Art. 301 was incorporated in !he Constitution. Art. 301 in general enacls that "subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free". After having declared the general nature of the freedom of trade and commerce, Part XIII of the Constitution sets out the limitations to this freedom, in Articles 302 to 304 which re-state the powers of the Parliament and the State Legislatures in imposing restrictions on the freedom of trade, commerce and intercourse. !Paras 15, 161 1382-A-H, D-EI Ji11dal Stai11/ess Ltd. (2) and Am'. v. State of Haryana and Ors. 2006 (3) SCR 1095 : (2006) 7 SCC 241 - overruled. K. T Plantation Private Limited and Another v. State of Karnataka 2011 (13) SCR 636 : (2011) 9 SCC 1; State of Kera/a a11d Ors. v. ivlar Appraem Kuri Company Limited and .for. 2012 (4) SCR 448 : (2012) 7 SCC 106; Ma hara; Umeµ; Singh and Ors. v. The State of Bomhay a11d Ors. 1955 SCR 164: AIR 1955 SC 540 - referred to. 48 A 8 c I) f G H JINDAL STAINLESS r;rD. v. STATE or HARYANA 49

1.2 Ar!.302 empowers the Parliament to impose restrictions A on the freedom of trade, commerce and intercourse provided 1 hey arc required in pnhlic interest The purpose of this provision is lo allow !he Government of India to restrict the movement of goods so as to safeguard a well-balanced economy and for proper organization or supply of goods and services. Famine may be B raging in one par! of the country while there is plenty in another part, as has been the past experience of the country in regard to food. If Parliament has no effective powers to impose restrictions in such situations on freedom of trade and commerce, then it will undermine the unity of nation. It is reasonable to presume that !he Parliament, people's representative is a bet!er judge of public interest and that its Judgment must have primacy over any other judgment, including that of the courts. !Para 17] [382-G-H; 383- Al c ]) E

1.3 Ar!. 303(1) of the Constitution prohibits Parliament and the Slate Legislature from making "any law giving or authorizing the giving of, any preference to one State over another, or making or authorizing the making or, any discrimination het ween Slate and another, by virtue of any entry relating to trade and commerce in any of the Usts in Seventh Schedule". P1·cfcrence or discrimination amounts to a restriction on the freedom guaranteed under Ar!. 301 of the Constitution only if it is a law made by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. Application of Art. 303(1) is to specific entries on trade and commerce and not to be confused with the general application of Art. 301 to all the legislative entries other than the entries relating to trade and commerce. But when any part of the country is suffering from scarcity of goods, Parliament may, to meet such a situation; pass even a discriminatory law [Art. 303(2)]. Art. 303(2) is an exception to Art. 303(1) inasmuch that the limitations of Art. 303(1) lose operation when aforesaid preference and discrimination is made G for the purpose of dealing with situation arising from scarcity of goods, and the Parliament may in these situations enact a law that gives or authorises giving preference or makes or authorises making of any discrimination. [Para 18] [383-C-E] H 50 SUPREME CDURT REPORTS [2016110 S.C.R.

1.4 As per Art. 304(a), a State Legislature may impose any tax on goods imported from other States or Union Territories to which similar goods produced in that State are also subject, so as not to discriminate between the goods so imported and goods so manufactured or produced within the Stale. A State Legislature is also authorised to impose reasonable restrictions on the freedom of trade and commerce with or within that State as may be required in public interest, subject to the condition that no Hill or Amendment shall be moved in the Legislature of a State without previous sanction of the President !Art. 304(b)I. Art. 304 begins with non-obstantc clause and is intended to override both Art. 30 I and Art. 303. Art. 304(a) does not prevent taxation of goods; it only prohibits taxes that discriminate between the goods imported from other States and similar goods that are manufactured or produced within the taxing State. [Para 19] [383- F-ll; 384-Al

1.5 Part XII and Part XIII of the Constitution lay down the parameters within which State Governments can exercise their right to enact laws/impose tax, restricting the freedom of trade, commerce and intercourse. Puq>0se of including Part XIII (as it stands today) in the Constitution as emerges from Section 297 of the Government of India Act, 1935 was to confer a freedom of trade, commerce and intercourse, subject to restrictions and non discriminatory tax laws. In this respect, Art.301 does not confer any higher right. Even the Constitutional Assembly Debates show that the framers did not intend to confer any absolute freedom of trade, commerce and intercourse. They did not adopt the expression "absolutely free" as found in the Australian Constitution. The purpose of including Part XIII in the Constitution as emerges frqm the Constituent Assembly Debates was to ensure the interest of the larger economy of the nation and to prevent unreasonable trade barriers in the free flow of trade, commerce and intercourse, impeding economic growth. Framers of the Constitution considered flow of trade, commerce and intercourse throughout the territory of India as important for economic unity, but they did not deify trade, commerce and intercourse nor they entertained any fetish for it. In fact, freedom of trade, commerce and intercourse was initially meant to be a c D E F G H JlNDAL STAINLESS LTD. v. STATE OF HARYANA 51 fundamental right but was removed from the part pertaining to A 'Fundamental Rights' as it was considered that it did not have any great content as a fundamental right. !Paras 21, 25]1384-E- F; 387-U; 388-A-B] Jindal Stripe Ltd. and Am: v. State of Haryana and Ors. 2003 (4) Suppl. SCR 154 : (2003) 8. sec 60; Jaiprakash Associates Limited v. State of Madhya Pradesh and Ors. 2008 (17) SCR 1282 : (2009) 7 SCC 339; Jindal Stainless Limited and Anr. v. State of Harvana and Ors. 2010 (4) SCR 743: (2010) 4 SCC 595 - referred to. "'Constituent Assemhly De hates 30. 07. 1949 18. 09. 19,19 " - referred to. Freedom under Art. 301 is sub.iect to Part Xlll and other parts of the Constitution Parts viz. III, IV and XII etc.:

2.1 Interpretation of the Constitution should emerge from a reading of the whole of the Constitution to ensure that the overall objectives are achieved. Part XIII as a whole is based on a balanced scheme and it should be interpreted with reference to other parts of the Constitution including Part Ill, Part XII and Articles 38 and 39 of the Directive Principles of State Policy. Each of these Parts must be read not in isolation or as water tight compartments but harmoniously as a logical whole. The Constitution must be treated as a logical whole and provisions are not to be read in isolation. !Para 31 I [392-G-H; 393-A)

2.2 Object of Part Xlll is not to make inter-State trade, commerce and intercourse absolutely free. Part XIII will have to be rcl!d along with other Parts of the Constitution namely, Parts Ill, IV and XII along with the basic features of sovereignty and federalism. Free trade, commerce and intercourse is subject to the other provisions of Part XIII as well as other constitutional provisions. A1·t. 301 does not use the word subject 'only' to Part XIII. The word "free" in Art. 301 is to be read not in isolation or in the limited context of Part XIII, but has to be read as part of B c D E F G H 52 A B c D SUPREME r::)lJRT REPOR!'S [2016] 10 S.C.R. the Constitution as a whole. The word "free" cannot be given a meaning which renders the legislative powers of the State ineffective. Articles 302 to 304 are neither exceptions nor provisos to Art. 301 and therefore, the principles of interpreting a proviso cannot be applied to them. But both Atiabari and A utomohile proceeded on the footing that Art. 302 is in the nature of exception to Art. 301. [Paras 33, 34] J394-D-E, G] Kesavananda Bharati v. State of Kera/a 1973 Suppl. SCR 1 : (1973) 4 SCC 225 - followed. Kihoto Hollohan v. Zachillhu 1992 (1) SCR 686 : (1992) Suppl. 2 SCC 651; TM.A. Pai Foundation and others F. State of Karnataka 2002 (3) Suppl. SCR 587: (2002) 8 sec 481 - relied on. Can the levy of a non-discriminatory tax per se constitute infraction of Article 301 of the Constitution of India? Power to Tax is an incident of State Sovereignty:- E

3.1 Entries relating to taxation and levy of duty under the State List, Seventh Schedule are Ent.ries 46-62 and under the Concurrent List, Seventh Schedule arc Entries 35, 43 and 44. The power to tax is a sovereign right of the State and is essent.ial to the very existence of a Government. Any fetters on the power of the State to generate revenue through taxes have a direct r · impact on the autonomy and governance of the State. The term 'tax' is ordinarily used to express the exercise of the sovereign power to raise revenue for the expenses of the Government. Subject t.o the Constitution and its inherent restrictions, the power of taxation is regarded as political and supreme. Without taxes, for lack of source of revenue, the Government would become· paralyzed. How much revenue is to be drawn and from which source is a matter of fiscal policy and wholly depends on the needs of a State. [Paras 36, 37 and 40) J397-B-C; 399-F) G H .JINDAL STAINLESS LfD. v. STATE or HARYANA Raja Jagamwth Baldi Singh v. The State of U.P and Anr. (1963) 1 SCR 220; State of WB. v. Kesoram Industries Ltd. and Others 2004 (1) SCR 564 : (2004) 10 SCC 201; Yadlapati Ve11kateswarl11 v. State of A.P. 1990 (1) Suppl. SCR 381 : 1992 Suppl. (1) SCC 74, Stale of U. I' & Am: v. Synthetics and Chemicals Ltd. & ,Jnr. ( 1991) 4 SCC 139; Amrit Banaspmi Co. Ltd. and Anr. v. State of Pun/ah and .1nr. 1992 (2) SCR 13 : (1992) 2 sec 411; Dena Bank V, Bhikhahhai Prahhudas Parekh & Co. and Ors. 2000 (3) SCR 509 : (2000) 5 sec 694 - relied on. Constilutional Law of India. 4'h Edition, Volume 3; Coole_\', fo.wlion (4'h E(lition) Pages. 72, 149, 150; Referred to in the Article Power to Tax by Herman M. Knoellcr reported in Market Law Review Volume 22 Issue 3 April, 1938 - referred to. 53 A B c D

3.2 Parts XI and XII of the Constitution deal with "Relations between the Union and the States" and "Finance, Property, Contracts and Suits" respectively. Part XII dealing with finance etc. has been treated as Part dealing with the sovereign power of E the States to impose taxes, which must always mean imposing hurden on citizens and others in public interest. The power of taxation is vested in a sovereign State to carry on with the affairs of the Government. Our Constitution had laid the foundation of a Welfare State, very much extending the activities of the Government and the administration thus making it necessary for the State to impose taxes on a large scale and in much wider fields. The legislative competence of the Parliament or of the State Legislatures can only be circumscribed by express prohibition contained in the Constitution itself. The plenary powers of legislation vested in the Union and State Legislatures by the Constitution are not subject to any limitations other than those imposed by the Constitution itself. !Para 42] 1400-D-F] G H 54 A B c D E SUPREME COURT REPORTS [2016] 10 S.C.R. Elel Hotels & Investments Lrd. and Others v. Union of 117dia J 989 (2) SCR 880 : (1989) 3 SCC 698 - referred to. Freedom in Art. 301 does not mean freedom from taxation.

3.3 Exemption from tax power of Parliament /State Legislature must be provided expressly and unambiguously. Art.289(2) shows that the trade and business carried on by or on behalf of the Government of the State can also be subjected to tax and the tax could be "to such an extent'', if any, as Parliament may by law provide. When even the trade or business carried on by or on behalf of the Government of the State can also be subjected to tax, it would be erroneous to hold trade, commerce and intercourse carried on by private individuals and companies in the country free from tax; and that too, by implication. Even Fundamental Rights in Part HI of the Constitution are not immune from taxation and taxation has been held to be "not a restriction". [Paras 49, 50] [403-A-C] Indian Express Newspapers (Bomhay) Pvt. Ltd and Ors. etc. v. Union of India and Ors. etc. 1985 (2) SCR 287 : (1985) 1 sec 641 - relied on. r:

3.4 While the States have legislative power to levy taxes on goods imported from other States, Art. 304(a) imposes restrictions on this power of the States to levy a tax on goods that would result in discrimination between goods imported from other States and similar goods manufactured or produced within the States. The non-obstante clause in Art. 304 with respect to G Art. 301, actually indicates that since tax does not fall within the purview of Art. 301, therefore, Art. 304(a) was brought in to provide against discrimination based on source or destination of goods. Art. 304(a) is thus a restriction on the tax powers of the States, not to discriminate between the goods imported into the State with similar goods manufactured or produced within the H .TlNDAL STAINLESS ITD. v. STATE Of HARYANA 55 taxing State. [Para 531 1405-E-FI A

3.5 The Constituent Assembly Debates indicate that the framers of the Constitution while intending to guarantee free flow of trade, commerce and intercourse did not deify it. At the time nf drafting Constitution, provision containing freedom of trade, commerce and intercourse which was initially shown as B Fundamental Rights; but after debates, it was shifted to a separate Part !Part XIII!. The framers of the Constitution did not intend that trade, commerce and intercourse is free from taxation. Art. 304 provides for the power of the States to impose taxes, subject of course, the levy is not discriminatory. Hence, Art. 301 ought not to be read as freedom from tax laws. A tax legislation could be challenged on the ground of legislative competence as well as violation of Fundamental Rights guaranteed under Part Ill of the Constitution. Tax legislations can be challenged on the ground that they infringe the Fundamental Rights under Part Ill but that docs not however mean that there is freedom from taxation or that tax is per sc a restriction on Fundamental Rights or freedom of trade, commerce and intercourse. !Paras 54, 56 and 57] [405- G, II; 406-A; 407-B; 409-DJ c D All Bihar Schools Association and Am: v. State of Bihar and Ors. 1988 (2) SCR 49 : (1988) l SCC 206; Printers (Mrsore) Ltd. and Am: 1.: Asstt. Commercial Tax Officer and Ors. 1994 (1) SCR 682 : (1994) 2 SCC 434 - affirmed. Tax is not a restriction per sc. E r

4. Under Art. 246(3) of the Constitution, a State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List 11 of the Seventh Schedule. Art. 246(3) is subject to clauses (1) and (2) of G Art. 246 i.e. matters enumerated in Lists l and Ill of the Seventh Schedule. As per Art. 265, a tax can be imposed only under authority of law and there is no role of the Executive. It is a sovereign power of compulsory exaction as a part of any burden hy public authority for public purposes enforceable by law. The H SUPREME COURT REPORTS [2016] JO S.C.R. taxing power of the State stands independently fortified by Parts XI and XII of the Constitution of India and can only be challenged on the ground of reasonableness. Power of States to levy taxes for the purpose of governance and carrying out its welfare activities is a necessary attribute of State's sovereignty and in that sense it is a power of supreme attribute. It is well-settled that taxes are levied in public interest and hence, cannot be considered a restriction per se on the enjoyment of any freedom contemplated by the Constitution. The essential characteristics of a tax arc that: (i) it is imposed under a statutory power without the taxpayer's consent and the payment is enforced by law; (ii) it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax; and (iii) it is part of the common burden. [Paras 58-60] [409-F-G, H; 410-A-DJ Commissioner Hindu Religious Endowments, Madras v. Sri f,akshmindra l71irtha Swamiar of Sri Shirur Mutt 1954 SCR 1005; Indian Medical Association v. VP Santha and Ors. 1995 (5) Suppl. SCR 110 : (1995) 6 SCC 651; State of Gujarat and Ors. v. Akhil Gujarat Pravasi VS. Mahama11da! and Ors. 2004 (3) SCR 956 : (2004) 5 SCC 155; Federation of Hotel a11d Restaurant Association of Jndia. Etc. v. Union of India and Ors. J 989 (2) SCR 918 : (1989) 3 SCC 634; Express Hotels Private Umited v. State of Gujarat and Am: 1989 (2) SCR 893: (1989) 3 SCC 677; Hari Krishna Bhargav v. Union of India and Anr. 1966 SCR 22 : AIR 1966 SC 619; Rai Ramkrislma and Ors. V. me State of Bihar (1964) 1 SCR 897 - relied on. MaJority view in Atillbari and Automobile: Need of re-appreciation.

5.1 Art. 301 guarantees freedom of trade and commerce from "restrictions" and not freedom from all "laws". In Atiabari, by application of "direct and immediate test", rather than 56 A B c D E F H JINDAL STAlNLESS !TD. v. STATE Of HARYANA 57 examining the powers of the State Legislature to enact legislation with reference to the entries in List II, the majority has gone into the effects of the Iegislat.ion. As per ma.iority view of Atiabari, Art. 301 is a limitation upon the exercise of legislative powers of the State, which negates or limits the legislative power of the States expressly granted under various entries in List ll of the In Atiabari and A11tomobile, there was no Seventh Schedule. detailed n'ference lo Constituent Assembly Debates which throw considerable light on the scope of Part XIU. The view taken in Atiabari and A11to111obile that taxes may and do amount to restriction, is flawed. Taxing power of the State stands independently fortified by Part XII of the Constitution and can be challenged only on the ground of reasonableness.[Paras 72, 731[420-C-E] Freedom in Art. 301 is not freedom from taxation non-discriminatory taxes are outside the purview of Art. 301.

5.2 The views taken in Atiabari and Automobile in the light of the Australian cases represent a mechallical implantation of a foreign concept into the Indian legal system, not keeping in view the distinct features of Indian Polity and the Constituent Assembly Debates. Majority view in Atiabari and A11to111obile do not appear to have taken note of the historical background of merger of 'i'<ative States' with their individualities, with British India, and the federal nat111·e of the Indian Constitution while discussing the fundamental question as lo whether 'Freedom' in Art. 301 meant freedom from tax. The majority appears to have begun with the presumption of tax laws being subservient to Art. 301 and later concluded that if all the tax laws are hr.ought in Art. 301, State's legislative power to tax would be destroyed. Thereafter, in an attempt to save the taxing power of the State, they borrowed 1 he concepts of 'direct and immediate test' and 'compensatory tax' from the Australian and American Cases. [Para 82] [426-C li:I Com111omveal1h of Australia v. Bank of New South Wales (1949) 79 CLR 497 : 119501 AC 235: James v Stale of So1//h llustralia (1927) 40 CLR 1; James v. Cou.·m1 (1932) AC 542; James v. Commo1rwealth o('Australia A B c D E F G H SUPREME COURT REPORTS [2016] 10 S.C.R. (1936) AC 578; Cole v. Whitfield (1988) 78 ALR 42; Betfc1ir Pty Ud v We.item Australia (2008) 244 ALR 32; Freeman v. Hewit 329 US 249 (1946), Complete Auto Transit. Inc. v. Charles R. Brady [19771 USSC 54: · referred to. (1977) 430 lJS 274 Constitutional Assembly Debates, Volume IX,· I'agc.1142, dated 30.07.1949- 18.09.1949 - referred to. Art.304 (a) and (b) must be read disjunctively.

5.3 As the word "restrictions" in the marginal note of Art. 304 suggests plurality of powers and indicates that Clauses (a) and (b) of Art. 304 confer distinct powers. Art. 304(a) deals with tax; Art. 304(b) deals with restrictions that are reasonable and in public interest. Constitution framers could not have intended to include tax in Art. 304(b ); since the elements of "reasonableness" and "public interest". are inhe1·cnt in a tax. The use of the word "and" does not assist the interpretation that the provisions are conjunctive. It only means that:- (i) the State can impose taxes on goods coming from outside so as not to discriminate between the goods imported and goods manufactured or produced within the State [Art. 304 (a)I -and- (ii) It can also in addition impose other restrictions that arc reasonable and in public interest [Art. 304 (b) I subject to the assent of the President. That Articles 304(a) and (b) are dis,junctive, is also clear from the fact that the proviso to A1·t. 304(b) i.e. the p1·csidential sanction· is referable to Art. 304(b) only and nol to a law imposing tax on goods imported from other States contemplated under Art. 304(a). This is because, Art. 304(a) has an inbuilt safcguanl, inasmuch the taxes imposed on the goods coming from another State cannot be discriminatory and, therefore, no presidential sanction is required. The word "and" is used after semi colon in Art. 304(a}. While it is correct to say that the word "and" normally is conjunctive, it is also often constrned as disjunctive on the basis of the legislative intent as gathc1·ed from the wm·ds of the prnviso under context in which it was used. Since the expression ·and' is used in Art. 58 A H (' D E F c; II .11NDAL STAINLESS LTD. v. STATE Of HARYANA 59 304 after semi-colon, it will have to be read as 'or' creating a A disjunctive reading of Art. 304(a) and Art. 304(b) indicating that the State Legislature can exercise its power either under Art.304 (a) or Art. 304 (b) or both. [Paras 90-92] [430-F-H; 431-A-D; 433-G-U] lvfalwrishi Mahesh Yogi Vedic Vislrwavidvalaya v. State of Afadhya Pradesh and Others 2013 (13) SCR 464 : (2013) 15 SCC 677; A.K. Gopa/011 v. State of Madras 1950 SCR 88 : AIR 1950 SC 27 - relied on. Whether A1·t. 304(b) coupled with the proviso is applicable to tax laws-.! udicial Approach.

5.4 In Atiabari, majority held that "tax laws" fall within the comprehension of Art. 301 and, therefore, any legislation whether taxing or otherwise which imposes any direci restriction on the movement or transport of goods attracts the provisions of Art. 301, and its validity can be sustained only if it satisfies the requirements of Art. 302 or Art. 304. According to the above view in Atiabari, it is not possible for the State Legislature to pass any law at all with respect to some of the tax entries viz. sales tax (entry 54, List II); law relating to gambling (entry 34, List 11) or tax on betting and gambling (entry 62, List 11); and tax on the can-iage of goods or passengers by road or inland waterways (entry 56, List II). If the legislations under the above entries arc challenged on the ground that they operate as a direct restriction on the freedom of trade, commerce and intercourse, as per the view in Atiabari, these legislations may have to be justified under Art. 304(b). Atiabari approach would totally take away the sovereign powers of the State Legislature to enact laws in exercise of its powers under various taxing entries of List II, which could not have been the intention of the framers of the Constitution. [Para 93] 1434-B-D] Art.304(b) is applicable only to non-fiscal laws and not to lax la,vs. B c D E f G H SUPREME COURf REPORTS [2016] I 0 S.C.R.

6. Art.304(a) and Art.304(b) are two distinct powers and freedom of trade, commerce and intercourse is sub,jcct to them. Art. 304(b) relates to reasonable restrictions imposed in public interest. Art. 304(b) deals with non-fiscal legislation imposing reasonable restrictions in public interest and tax laws are not included under Art. 304(b). Levy of taxes is the economic lifeline of the State. Framers of the Constitution never intended to include tax within the fold of Art. 304(b). To give the Centre a veto over the plenary power of the State to levy the tax would completely distort the Centre-State balance and cooperative federalism. Such an interpretation has no basis in the Constitutional Assembly Debates and is liable to be rejected. The rationale for the sanction of President contemplated by proviso to Art. 304(b) is apparent from the fact that trade and commerce with foreign countries and inter-State trade and commerce are subject matters in List I of the Seventh Schedule (entries 41 and 42, List I). Further, trade and commerce in production, supply and distribution of industry controlled by the Union, food stuffs, including edible oils, seeds and oils; cattle fodder; raw cotton, cotton seed; and raw jute are subject matters in entry 33, List HI. Entry 34, List Ill deals with price control. Only intra-State trade and commerce is in List II (entry 26, List II) subject to entry 33, List III, as stated therein. Parliament has thus occupied an overwhelming space with respect to trade and commerce within the State also. It is in this backdrop that the State has been given power to impose reasonable restrictions on the freedom of trade, commerce and intercourse with or within that State with the proviso requiring presidential assent. before the Bill is introduced. The rationale, therefore, is that a non-fiscal law of the State with respect to freedom of trade, commerce and intercourse would be entrenching upon either the exclusive legislative field of the Parliament in List I or the occupied field of the Parliament in List Ill. It follows that Art. 304(b) relates to non-fiscal laws of the States. In the above context, the assent of the President envisaged in proviso to Art.304(b) would be somewhat akin to the assent contemplated in Art. 254. Such assents are not judicially reviewablc. IParns 94, 99 and 1001 1434-E-F; 438-F-H; 439-A-H] 60 A B c D E f Ci H JINDAL STAINLESS Ll'D. \'.STATE or HARYANA Kaiser-i-l!i11d (P) Ud. a11d A111: v. National Textile Corp11. (Maharashtrn North) Ltd. and Others (2002) 8 sec 182 - affirmed. Atiahari Tea Co. Ud. v. State ofAssam & Ors. 1961 SCR 809 : AIR 1961 SC 232; Auto111ohil.e Transport (Rajasthan) Ud. etc. v. State of Rajasthan & Ors. 1963 SCR 491 : AIR 1962 SC 1406; Jindal Stainless Ltd. (2) & A11r. v. State of Harvana & Ors. 2006 (3) SCR 1095: (2006) 7 SCC 241 - overruled. Consti111tional Law o( India. 4th Edition, Volume 3 - referred to. ls the entry tax levied by the States in the present batch of cases violative of Ari. 301 of the Constitution and in particular have the impugned slate enactments relating to entry tax to be tested with reference to both Articles 304(a) and 304(b) of the constitution for determining their validity?

7.1 A bare reading of Entry 52, List ll would show that entry tax can be levied only on the satisfaction of the conditions in l~ntry 52 of List II namely: (i) the tax to be levied on the entry of goods into local area; (ii) entry of goods into the local area is for consumption, use or sale therein. Entry tax is not collected at the behest of municipality or a panchayat attached to a checkpost. It is payable by the assesses by filing their returns. Ent.ry tax is a Stale level levy, levied by Slate Legislature upon entry of goods into a local area for consumption, use or sale therein. The local authorities themselves cannot levy the tax. The power is that of State Legislature and of no one. Imposition of entry tax is not n1crcly "on movement or transport of goods"; consideration of Entry 52, Lisi II of Seventh Schedule shows that taxable event in lhe case of entry tax is entry of goods into the local area where it is to be used, consumed or sold therein. If the goods merely enter into a local area and then move to another destination beyond that local area, no tax can be levied under Entry 52. Since lhc taxable event under Entry 52 is not the mere entry of the goods into the local area, but the fact that the ·goods are also to 61 A B c D E F G H 62 SUPREME COURT REPORTS [2016] 10 S.C.R. A be used, consumed or sold, the necessary sequiter is that the movement of goods is terminated in that local area. Power to levy entry tax lies within the competence of a State Legislature. Since entry tax is leviable at the termination· of the movement of trade and the goods have entered the local area for the purpose of use, consumption or sale, the levy of entJ·y tax does not restrict flow of trade, commerce or intercourse and is not violative of Article 301 of the.Constitution. [Paras 104, 110 and 1121 1440-G ll: 441-A, C; 443-G-II; 445-H; 446-A-Cj B Diamond Sugar Mills Limited v. State of U.P 1961 (3) SCR 242; M. 0. Sha111sudhi11 v. State of' Kera/a 1995 (2) SCR 900 : (1995) 3 SCC 351; Bzmnah Shell Oil Storage and Disturhing Co. of' India Ltd. Belgaum v. Belgaum Borough M1111ir:ipalitv Helga11111 Ce/11963 SCR Suppl. (2) 216 - referred to. c D Rn try Tax levied only on goods imported from other States: No levy of Entry Tax on the goods manufactured inside the State - Whether discriminatory.

7.2 The term 'any tax' means any exaction by any impost F or levy. The effect of all the taxes levied on the goods imported from other States and the ones manufactured within the State must be such that no discrimination is caused either to the imported goods or locally manufactured goods. Unlike Section 92 of t.he Australian Constitution, Art. 304(a) does not talk of F uniformity. Section 92 of the Australian Constitution reads as follows:- "On the imposition of uniform duties of customs, trade, commerce, and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free." No such restr-iction is imposed on the legislative power of the States in India to ensure uniformity in levy of a particular tax. The raison cl' etre for use of the expression "so, however, as not to discriminate" is to prohibit protectionism. Moreover, Constitution of India does not contain a provision similar to Section 55 of the Australian Constitution which mandates one tax law on one subject. In India, the State Legislature is nowhere H JINDAL STAINLESS !TD. v. STAl'E Of HARYANA 63 obligated by the Constitution to ensure that the.law imposing tax deals with one subject of taxation only. !Paras 114, 116] 1447-C, G-H; 448-A-B] A J11dia11 Cnnent and Ors. v. State of".1.ndhra Pradesh and Ors. 1988 (2) SCR 574 : (1988) 1 SCC 743; Western Electronic and Am: v. State al Gujarat and Ors. 1988 (3) SCH 768 : (1988) 2 SCC 568 - referred to.

7.3 The chai·gcablc event in the case of entry tax is entry of goods into a local area. By its very nature, entry tax does not contemplate impost on indigenous goods. Goods imported into a local area from another State are subjected to entry tax but goods entering into a local area from another local area of the same State do not attract entry tax. In this way, it may appear that goods imported from outside the State are put to a disadvantageous position but in terms of tax treatment the1·e is no discrimination. The essence of Art. 304(a) lies in ensuring equality of fiscal burden and absence of discrimination. In terms of Art. 304(a), the only requirement is that the goods imported into the local area should not be discriminated against. In tax treatment there is no discrimination between the goods. !Para 117][448-C-E]

7.4 The expression 'any tax' used in Art. 304(a) is generic in nature and covers all taxes on goods which a State is competent to impose by virtue of Articles 245 and 246 read with List II of Seventh Schedule. A Scheme adopted by a State Legislature whereby several taxes are levied on the goods (either locally Jlroduced or imported from other States) under different heads, cannot be faulted with if it conforms to the principle of equivalence and non-discrimination. For e.g., both sales tax levied under Entry 54, List II and entry tax levied under Entry 52, List II are taxes on goods. It is the burden of the tax which can discriminate and not the form. States are free to equalise the burden of entry tax on the goods imported from other States by giving them set-off against the sales tax paid by them in the exporting State. In such B c D E G H SUPREME COURT REPORTS [2016] 10 S.C.R. a manner, equivalence can be hrought about in the tax burden borne by the goods imported from other States and the locally manufactured/produced goods. The contention of the assessees that the term 'any tax' used in Art. 304(a) refers to every tax distinctly, thereby prohibiting imposition of entry tax on imported goods unless, entry tax is imposed on locally manufactured/ (Hoduced goods, does not lead to just and reasonable interpretation of Art. 304(a). The wholesome effect of the laxes levied under distinct heads needs to be taken into account. The lax burden borne by the goods form a part of the price of the goods and if both, locally manufactured/produced goods and imported goods are subjected lo similar tax burdens, irrespective of the heads under which the taxes are levied, say entry tax or sales tax etc., then no discrimination can be said to have been caused. In case if entry tax not levied to equalize tax burden on the local goods and goods imported from outside, there will be huge trade diversion to low-rate tax State, causing loss of revenue to the high-rate tax Stales, where the goods are used or consumed. !Paras 118, 119] 1448-F-H; 449-A-C] 7 .5 Any difference in the rate of tax on goods locally manufactured and those imported, such difference not being discriminatory does not fall foul of Art. 304(a). Any incentive/ benefits of concession in the rate of tax given to the indigenous manufacturers in order to encourage the manufacture/production in the State cannot be said to be discriminatory.f Para 1451 1469- G! Kathi Ra11i11g Rawat v. 777e State ol Saurashtra (1952) SCR 435 - affirmed. Firm ATB Mehtah Majid & Co v. State of Madras & Am: I 963 Suppl. SCR 435 : AIR 1963 SC 928; State of Madras v. N.K. Nataraja Muda!iar (1968) 3 SCR 829; State ol Kera/a v. Ahdul Qadir and Others 1970 (1) SCR 700 : (1969) 2 SCC 363 - referred to. Prof: D.D. Basu in Comparative Federalism. Prentice Hall of India, 1987 ·-referred to. 64 /\ B c D E F H JINDAL STAINLESS TTD. v. STA.TE OF HARYANA 65 Repercussions of Art. 304(a) when no local goods are A produced.

8. A State law that imposes a tax on imported goods where similar goods arc not manufactured or produced in that State, will meet the requirement of Art.304(a) and there would not arise any question or discrimination. lt is true that when similar goods B arc not manufactured inside the State, there are chances of a higher rate of lax on such goods brought into the taxing State from other States but that docs not mean that there should be a blanket protection of such goods from tax. Power of the State to lax the goods imported cannot be whittled down on the ground C that there are no similar goods manufactured or produced within the taxing State. Exorbitant taxation of such goods will remain open to challenge under Part Ill in Ari. 19(1)(g) read with Art. 19(6) and Art. 14. !Paras 150, 1511 1470-A; 472-F-ll] Kolwmi Stores v. State of' Grisso and Others 1966 1 SCR 865 - not good law. Levy of Entry Tax on lm1Jorted Goods.

9.1 "Import" means bringing or taking by sea or air across any customs frontier. Goods imported in a vessel/aircraft require payment of customs duty before they are cleared into the country. I mporl of goods and customs clearance and the entry of goods into the local areas are two distinct events. In the case of customs duty, the taxable event is entry of goods into the territory of India. The taxable event under Entry 52, List 11 is the entry of goods into local area for consumption, use or sale therein. Two taxable t'venh are distinct in law and there is no overlap. Under our Constitution, there is no overlapping in the taxing power. The Constitution gives independent powers of taxation to the Union and the States. The taxing power of the Onion and of the States are mutually cxclusin. This avoids the difficnlties which have arisen under other J•'edcral Constitutions. !Paras 155, 160, 161 and 1661 [473-B; 474-H; 475-F-G; 476-E-F; 478-.FI D E f G H 66 A Fl c D F F SUPREME CC>LIRT REPORTS [2016] 10 S.C.R. Hoechst Pharmaceuticals v. Stale of Bihar l 983 (3) SCR 130 : (1983) 4 sec 45; Stale of rVi:st Bengal V. Kesoram !11d11slries 2004 (1) SCR 564 : (2004) IO SCC 201; G11jara1 /lni/111/a Ce111e11t J,td. v. Union of India 2005 (2) SCR 1038: (2005) 4 sec 214 - relied on. P Ramanatha Aivar \· "17ze Major J,aw Lexicon", 4'" l<:dition 2010 - referred to.

9.2 According to F:ntry 83, List I as well as the Customs Act, 1962 the taxable event is 'import' or 'bringing of the goods into India' and it is distinct from the taxable event of Entry 52, List IL The taxable events under F:nlry 83, List I and I<:ntry 52, List II are distinct; any movement of the imported goods to the warehouse in the factory unit would not prevent the State from levying and collecting entry tax when such goods enter a local area of the Slate for consumption, use or sale therein. !Paras 171, 1761 1481-F:; 482-G-II; 483-AI Province of Madras v. Bodd11 Paidanna & Sons AIR 1942 FC 33 : l 942 FCR 90; State of Bomhay v. FN. Balsam (CB) AIR 1951 SC 318; State of Travancore Cochin v. S!za111n11gha Vilas Cashew Nut Facton' (1954) SCR 53; Gramophone Company of India Ltd. v. Birendra Bahad11r Pander 1984 (2) SeR 664 : (1984) 2 sec 534 - relied on. Prol frihe 011 American Co11stitutio11al Law States - referred to.

9.3 When the entry tax is levied by the Entry Tax Act G enacted by the State Legislature, the term 'a local area' contemplated by Entry 52 may cover the 'Whole State' or 'a local area' as notified in the legislation . . From the point of view of entry tax that the Stale is a compendium of local areas and whe1·c the local areas contemplated by the Acl cover the entire State, the diffei-cncc between lhe State and 'a local area' practically H JINDAL STAINLESS LTD. v. STATE Of I-IARYANA disappears. Articles 304(a) and 304(h) are to be read dis.iunctivcly; both apply to different sub.ice! matters; while Art . .104(a) deals with tax, Ar!. 304(b) deals only with non-fiscal matters. !Para 1771 1483-C-EI State of fJihar and Ors. v. Bihm· Chamber of Commerce and Ors. 1996 (2) SCR 184 : (1996) 9 SCC 136 - affirmed. 67 A B

9.4 Where there is equivalence in terms of tax treatment between the locally produced goods and the ones imported from other States, levy of entry tax on the goods imported from other States when there is no such levy on the locally produced goods is not discriminatory. Every differentiation is not discrimination. Any difference in the rate of tax on goods locally manufactured and those imported, such difference not being discriminatory does not fall foul under Art.304(a). Any incentive/benefits of concession D in the rate of tax given to the local manufacturers/producers in order to encourage the local manufacturers/production in the State cannot he said to be discriminatory. !Para 1771 1483-F-ll; 484-AI c Video Electronics Pvt. Ltd. and Am: v. State of Pzmjah ,111</ A111: 1989 (2) Suppl. SCR 731 : (1990) 3 sec 87; Sri Dip,vi;av Cement Company Limited and Ors. v. State of Rajasthan and Others 1999 (5) Suppl. SCR 428 : (2000) l sec 688 - affirmed. Shri Mahavir Oil Mills and 11111: v. State of J&K and Others 1996 (9) Suppl. SCR 356 : (1996) 11 sec 39; Stme of UP. and .1111: v. La.rn1i Paper Marr and Ors. 1997 (1) SCR 914 : (1997) 2 SCC 697 - not good law. Can a tax which is compensatory in nature also fall foul of Ar·ticle 301 of the Constitution of India'? What are the tests for determining whether the tax or levy is compensatory in nature?

10.1 The concept of 'compensatory tax' is a judicially E f H 68 A c I) c; 1-1 SUPREME r'OlJRI' REPORTS [2016] LO S.C.R. evolved concept. Majority in Atiabari held that taxes may and do amount lo rcsl.rictions and hence tax legislation is subject. to scrutiny under Art. 301. In Atiabari, the test of "direct and immediate effect on trade, commerce and intercourse" was evolved. The majority in Atiabari had thus completely read down State's taxing power under Entry 52, List ll thereby holding that State's legislative power is subject to the freedom clause in Art. 301. This had an adverse effect OI) the legislative power of the State to levy tax and its financial autonomy. (Para 178) (484-D-F(

10.2 All the taxes arc intended for public purpose and are levied in public interest. Levy of tax is not to fill the State coffers but to perform various functions including public welfare for which said funds are required. Taxation is not a profit-making exercise the States perform several functions for which for the St.ates; they require funds and have the power to levy tax to raise revenues and thus virtually all taxes are monies paid for services or facilities provided by the State. Art. 266(1) provides that all revenue including that from taxes received by a State Government shall form one consolidated fund-the Consolidated Fund of the State. This fund is a reservoir and resources placed in it are a part of the whole. All revenue is subsumed in ii and cannot be delineated. The Consolidated Fund of a State is a single unified account for the State and withdrawal of money from the same is protect.eel by the requirement of passing an Appropriation Act. Further, Art. 266(3) by stating that 'no money out of any Consolidated Fund shall be appropriated except in accordance with law - for the purposes and in the manner provided in the Constitution' provides another safeguard in lieu of ensuring legitimate use of public money. The manner of appropriation of money collected in the Consolidated Fund of the State falls under Part VI, Chapter Ill, ranging from Articles 202 to 206 of the Constitution. There are sufficient constitutional safeguards for the apprnpriation of money collected in Consolidated Fund. The revenue generated by the States in the form of entry tax has to necessarily form part of this Fund, and once it so subsumed, States cannot be asked to show a 'proximate quid pro quo' by furnishing 'quantifiable data' as to their expenditure. It may not be possible for the States to show with mathematical precision a direct link JINDAL STAINLESS LTD. v. STATE or HARYANA 69 between the expenditure incurred in individual cases and the A corresponding levy imposcd.[Para 18711492-D-H; 493-AI

10.3 The entry tax levied by various States, falling within the domain of entry 52, List II, is a tax simpliciter, even though by nomenclature it is termed as a 'compensatory tax'. Subject to passing the muster of Art. 304(a), entry tax levied by the States B under entry 52, List JI even though termed as compensatory tax docs not fall foul of Art. 301. The narrnw approach in Jindal Stai11less Ud. (2) equating compensatory laxes to 'fee' and mandating the States to prove 'proximate quid pro quo' by 'quanliliahk data approach' is not correct. Since taxes arc held C lo be outside the purview of Art. 301, taxes in the name of 'compensatory taxes' arc also outside the purview of Art. 301. To uphold a regulatory or compensatory tax, comprehensive parameters cannot he laid down as they may vary depending upon the nature of the levy. Automobile case itself has laid down parameters of compensatory laxes. It is not necessary that the money so collected should be put into a separate fund or that the lev~' should be proportionate to the expenditure. Insofar as levy of entry tax is concerned, enactments of some Slates facial!)' declare that they are compensatory. The compensatory tax so levied is subsumed in the Consolidated Fund of the Slate~ Once there is intermingling in the Fund and money is spent for public purposes of development of various local areas like construction, maintenance of roads and bridges, and for other amenities which facilitate trade, there will always be a link between the liability of the tax borne by the traders and benefits enjoyed by them either directly or indirectly. 1Parns 188-1901 1493-B, D-lll ]) E 8/wgatram Rajeev Kumar v. Commissioner of Sales Tax. M.1' and Ors. 1994 (6) Sup1)l. SCR 91 : 1995 Suppl. (1) SCC 673 - affirmed. State of" Tamil Nadu v. TVL South Indian Sugar Mill~ Association 2015 (9) SCR 148 : (2015) 13 SCC 748, Krishi Upaj Mandi Samiti and Others v. Orient Paper & Industries Jtd. 1994 (5) Suppl. SCR 392 : (1995) 1 G H SUPREME COURT REPORTS [2016J 10 S.C.R. SCC 655 and Krishna Das v. Town Area Committee, Chil;e,aon 1990 (2) SCR 13 : (1990) 3 SCC 645; GK. Krishnan v. State of Tamil Nadu 1975 (2) SCR 715 : (1975) l SCC 375; lntemational Tourists Corporation and Ors. v. Stale of Harvana and Ors. 1981 (2) SCR 364 : (1981) 2 SCC 318; Governor General of Council \'. Provi11ce of Madras AIR 1945 PC 98 : 58 LW 228; Ram Krisha11 Ram Na!h Agarwal 1•. Secretan', Municipal Committee, Kamptce, Union of India 1950 SCR 15 : AIR 1950 SC 11 ·- referred to. Refund and unjust enrichment:-

11. It is well-seUlcd that a claim of refund can be allowed only when the claimant establishes that he has not passed on the tax burden to the consumers. No refund can be granted so as to cause windfall gain to any person when he has not suffered the burden of tax. The possibility of the tax burden having been passed on to the consumers by the assessees cannot be ruled out in the present case. In the present case, the assessees cannot claim refund irrespective of whether the impugned legislations are declared valid or unconstitutional. Unless the assessees establish that they have not passed 011 the tax burden to the consumers, they cannot make a claim for refund and unjustly enrich themselves. [Para 1981 [498-G-H; 499-A] Mafi11lal Industries Ltd v. Union of India 1996 (10) Suppl. SCR 585: (1997) 5 SCC 536; Godji·ey Philips India Ltd. v. Stale of UP 2005 (1) SCR 732 : (2005) 2 sec 515 - S\'llthetics & Chemicals v. State of UP (1990) 1 SCC 109; Belsund Sugar Co. Ltd. v. Slate of Bihar 1999 (1) Suppl. SCR 146: (1999) 9 SCC 620 -referred to. relied on. 70 A c D F F G II JINDAL STAJNLESS ITD. v. STArE or HARYANA 71 PER DR. D. Y. CHANDRACIJUD, .I. (Partly dissenting) A Part XIII of the Constitution: Text and Context B

1.1 In framing Article 301, the framers of the Constitution made a deliberate departure from the text of the Australian and US Constitutions. One of the aspect of A1·ticle 301 in which a conscious departure was made from the US and Australian Constitutions is that the freedom of trade, commerce and intercourse extends, in our Constitution, throughout the territory of India and not merely among the states. The expression 'among the states' would cover a movement inter-State or across State boundaries. In discarding the expression "among the states" C (which is used in Section 92 of the Australian Constitution) and "among several states'' (which is used in Article 1 Section 8 of the US Constitution), Article 301 guarantees a more comprehensive coverage to the freedom to include both intcr Stat e and intra-State trade, commerce and intercourse. D 'Throughout the territory of India', means in every part of India. !Paras IO, 121 1507-C-D; 508-D-F]

1.2 The provisions of Part XIII of the Constitution contain an elaboration of the freedom of trade, commerce and intercourse and the restrictions which the Constitution contemplates as being within the legislative powers of Parliament and the slate legislatures. The legislative power conferred upon Parliament can restrict the arnhit of the freedom to the extent that is specified in Articles 302 and 303. Similarly, the slate legislatures arc subject to the limitations contained in Article 303 (1) and Article 304. Parliament as well as the state legislatures are subject lo constitutional limitations on the exercise of their law making power in restricting the freedom of trade, commerce and intercourse. The extent of the freedom under Article 301 has in this manner been made subject to the provisions of Part Xlll. Those provisions of Part XIII define the extent to which a 1·estriction can be imposed by law as well as the limitations on the power of Parliament and the state legislatures while p1·cscribing a rcstTiction. [Paras 18, 19] [512-D-F] E G H 72 SUPREME COURT REPORTS [2016] I 0 S.C.R. A A Consiitutional history as a guide c

2. The deliberations in the Constituent Assembly surrounding the introduction of Part XIII leave little ambiguity about the constitutional philosophy underlying the introduction of the guarantee of free trade, conunerce and intercourse. The H guarantee of that freedom was guided by the ob.iect of fostering economic development. Towards achieving that goal, the founding faH1ers recognised the need to weave the nation into one economic entity. At the same lime, regional interests representing the diversity prevalent within the states had to be recognised by allowing a regulator~· role for the states. While recognising the importance of the state legislatures in relation to trade, commerce and intercourse, the founding fathers had evident concerns about what they described as parochial interests or narrow provincial policies posing a clanger to the economic development of the nation. Ileuce, the Union Government was conferred with a power of intervention which was qualitatively different from the regulatory power conferred upon the states. It was in that background that !he proviso to Article 304 (b) mandated the prior sanction of the President to a bill or amendment introduced in the state legislature for imposing reasonable restrictions in the E public interest on the freedom that was guaranteed by Part Xlll. I) !Paras 3311519-F-II; 520-A-C] Fu11da111ental Rights by Dr. K.M. Munshi B. Shiva Rao, The Framing uf" India '.1· Constitution, Vol. II, p. 69(1967) (B. Shiva Rao); Sir Alladi Krishnaswa111i l_ver, B. Shiva Rao, p.68.; Co11stituent Assemhly Debate. Vol. IX, 8th September 1949 - referred to. Compensatory Taxes

3.1 Compensatory taxes which are in the nature of a charge for the use of trading facilities \\Ould not be regarded as being a hindrance to the freedom of trade, so long as they are reasonable. Ry first devising the concept and then placing it beyond the pale F G H JINDAL SlAINLESS I.TD. v. STAfE OF HARYANA of Article 301, the Court in Automobile Transport ensured that compensatory taxes would not be subject In the constitutional grind of Article 304(a). A class of tax legislation bearing a compensator.v character was carved out of Part XIII. The principle that Automohile Transport enunciates is that the freedom under 1\i-ticle 301 is consistent with facilitative regulations which ('nhancc, rathe1· than hinder trade. Second, though the power to lax is an essential attrihute of government, it is subject to constitntional limitations including amongst them Part Xlll of the Constitution. As a consequence, tax laws are not as a matter of principle outside the ambit of Article 301. Third, the test to be applied in determining whether a law infringes the freedom guaranteed by Article 301 is whether the direct and immediate effect is to hinder the movement of trade. A law which has that effect, including a tax law must, where it has been enacted by the state legislature be subject to the provisions of Article 304. Fourth, compensatory taxes which are imposed in consideration of the facilities which are provided hy the state to trade and commerce are outside the ambit of Article 301. Fifth, a compcnsator.v tax does not hinder the freedom of trade and commerce and need not compl_v with the requirements of the proviso to Article 304(b) of the Constitution. !Paras 71, 7611544- E-F; 549-H-El Khverhari Tea Co. Ltd. v. State of Assam (1964) 5 SCR 975; SK Madar Saheh 1·. State of AP 1972 (2) SCR 853 : 1972 (4) SCC 635; Boiani Ores J.td v. State of Orissa 1975 (2) SCR 138: 1974 (2) SCC 777; GK. Krishnan v. State of TN 1975 (2) SCR 715: 1975 (1) sec 375 ; MA International Tourist Corporation & Ors. v. State of Harrana and Ors. 1981 (2) SCR 364 : (1981) 2 SCC 318 ; lvlalwa Bus Service (Private) Ltd. 1•. State of Punjah and Others 1983 (2) SCR l 009 : (1983) 3 SCC 237; Meenakshi v. State of Karnataka 1983 AIR 1283 : 1984 Suppl. SCC 326; B.A. Jayaram v. Union of India 1983 (3) sen. 624 : 1984 (I) SCC 168; Mis. Bhagatram Rajeev Kumar v. 73 A B c D E F G H 74 A B c SUPREME COURT REPORTS [2016] IO S.C.R. Commissioner of Sales Tax, M.P and Ors. 1994 (6) Suppl. SCR 91 : 1995 Supp ill SCC 673; State of Kamataka v. llan.1·a Corp. 1981 (1) SCR 823 : 1980 (4) SCC 697; India Cement Ud i: State of Tamil Nadll 1989 (I) Suppl. SCR 692 : 1990 (1) SCC 12; State of Maharashtra 1·. Jvladhukar Balkrishna Badiya 1988 (2) Suppl. SCR 482 : 1988 (4) SCC 290; Jindal Stripe Ltd. a11d Am: v. State ofHmyana and Ors. 2003 (4) Suppl. SCR 154 : (2003) 8 SCC 60; Jindal Stainless Ltd. (2) and .·lnr. v. State of Han·mw and Ors. 2006 (3) SCR 1095 : (2006) 7 sec 241 -- referred to. Doctrinal concerns and inconsistencies D

3.2 The theory of compensatory taxes was evolved in Automohile Transport to assimilate doctrinal concerns at several levels. Fr-cedom of trade and commerce under Article 301 of the Constitution is expressly made subject to the provisions of Part XIII. The deliberate use of the expr·cssion 'fr.cc' instead of "absolutely free" (the latter expression being adopted in the Australian Constitution) coupled 11 ith the language of Article 301 E which subjects its 1>rovisions to Part Xlll is indicative of the fact that the freedom which is guaranteed is subject to legislative control. Articles 302, 303 and 304 are a part of the constitutional scheme which, while defining the ambit of the freedom in Article 301 subjects it to restrictions under Articles 302 and 304. The nature of the restrictions and the limitations on the power of Parliament and of the state legislatures while legislating to impose restrictions is conditioned by constitutional parameters. The conditions are based on the fulfilment of substantive and pn1cedural norms: substantive such as the principle of non discrimination, the element of public interest and reasonableness; and procedural (if it can be regarded as a matter of procedure) by requiring the sanction of the President prior to the introduction of a Bill in the state legislature. Compensatory taxes were envisaged as a doct.-inal concept to prcser-ve an area where the sovereignty of the state legislatures in fiscal matters could operate without the constraining influence of a prior Presidential sanction. F H JINDAL S1AINLESS U'D. v. STATE OF HARYANA 75 Such taxes would not fall within the ambit of Article 301. Their A position was reconciled with freedom on the ground that a compensatory tax for the use of facilities is not a hindrance to trade hut facilitates it. !Paras 96, 99]1563-F-ll; 564-A-B; 565-C- ll] ,11/ India Federation of fox Practitioners v. Union of' India 2007 (9) SCR 147: 2007 (7) SCC 527; State of' A.P v. NTPC 2002 (3) SCR 278 : 2002 (5) sec 203; Sri Digvi;av Cemrnt Company Umited and Ors. v. State of Rajastlum and Others 1999 (5) Suppl. SCR 428 : (2000) l sec 688; State of Bihar and Ors. V. Bihar C/wn1her of Commerce and Ors. 1996 (2) SCR 184 : (1996) 9 sec 136 - referred to. B c D E

3.3 As this batch of appeals indicates, the state legislatures have amended their entry tax legislation to incorporate specific sfalul<ff)' prnvisions indicating the manner in which the proceeds of the tax would he utilized so as to enable the tax to approximate a compensatory tax. Once the state legislature has done so, by adopting statutory provisions, would the Court have either the expertise or the competence to second guess the basis which has been made by the state legislature? The answer to that would necessarily have to be in the negative. The Court cannot assume the character of an accountant overseeing the balance sheets of income and expenditure and enquiring into capital account investments made by the states. Such matters do not lie within the competence or ken of judicial review. More fundamentally, all tax revenues are utilised by the state for public purposes. All taxation being in aid of lhe creation of conditions of social order, a compensatory element can never be disassociated from taxation. Equally insofar as fees are concerned, the payment which is required to be made is not always voluntary. The contribution G exacted from trade and commerce may not always be for the actual use of a facility but may be for the provision of the facility which trade and commerce is entitled to use. The state expends large budgets on providing expenditure to maintain law and order and security. The distinction between a tax and a fee has become F H 76 SUPREME COURT REPORTS [2016] 10 S.C.R. A blurred in 0111· jurisprndcnce and Courts have found it difficult to find a clear dividing line. !Para 1031f569-B-Fl c

3.4 A doctrinal irrationality which the theory of compensatory taxes fails is a discriminatory to meet compensatory tax. Discriminatory taxes which single out goods B originating in other states to hostile discrimination violate Article 304(a). If compensatory taxes as a class fall outside Part XIII, this would include even those compensatory taxes which are discriminatory. While holding that compensatory taxes fall outside Part XIII, the theory propounded by this Court did not account for the position that discriminatory compensatory taxes constitute an impediment to trade and commerce, thereby violating Article 301. Hence, the notion of compensatory taxes is beset with doctrinal problems. The concept has led to uncertainty and vagueness and has produced inconsistencies in constitutional adjudication. Constitutional adjudication must avoid these uncertainties which result in a multiplication of litigation and uncertainty both lo the revenue and to the tax payer. Uncertainty in the application of fisca'I legislation leads to a situation where tax compliance is beset with interprctational and practical difficulties. A concept which is replete with such evident problems is best eschewed. !Paras 104, 10511569-F-G; 570-A-BJ I) The content of freedom : goods, services, persons and capital

4. Article 301 has guaranteed the freedom of trade, commerce and intercourse (subject to the provisions of Parl XIIJ). Article 19(1 )(g) guarantees to every citizen the right to carry on any occupation trnde or business. At a certain level, a distinction can be drawn between the two sets of freedoms. Article 19(1)(g) guarantees individual freedom. Article 301, on the other hand, looks al trade, commerce and intercourse as a whole. Such a distinction however may have its own limitations. Individual rights of all citizens protected by Article 19 lead to the establishment of a constitutional democratic order governed by the rule of Jaw and based on human freedom. The dichotomy that Article 301 in its perspective looks at trade and commerce as a whole (as distinguished from an individual right) may also have its own F G 1-1 JINDAL STAJNIJ-:ss JTD. v. STATE OF HARYANA 77 limitations. The freedom recognised by Artidc 301 is enforceable. A Enforceability is a( the behest of an individual. The freedoms guaranteed by Article 301 arc enforceable at the inslance of individuals who arc aggrieved by state action. Thus, a distinction hctwcen Article I 9(1)(g) and Article 301 on the basis of the former reflecting an individual right as opposed to a collective entitlement nnder the latter may not be completely accurate. Though, one is an enforceable fundamental right of a citizen while the other is a rccop.nition of the free. flow of trade, commerce and intercourse, hotb in essence are enforceable, and enforceable at the hehcst of aggrieved in!livid1t;1ls. ll'ara 106]1570-C-Ul B c Taxation :rnd Federalism S.1 The doctrine ol' the basic structure of tht lndian Constitution has evolved to incorporate federalism as one of its integral features. The guarantee that trade, commerce and intercourse shall he free throughout the territory of lndia is D subject to the provisions of Part Xlll. The meaning of the expression "thrnughout the territory of India" is elucidated by Article 1 of the Constitution which stipulate!; that "India, that is Bharat, shall be a lJnion of Sh!tes". The Union which the Constitution postuiatcs is .defined in terms of a pol;tic;.l union and an economic uniou which brought together the erstwhile 1>rovinccs of British India and the princely states. Th;: fn.•edom under Article 301 comprehends, the free movement of goods, sen ices, persons and capital. These are essential ingredients in the creation of a common market as an incident of an economic union. The freedom under Article 301 is not absolute for, the F constitutional guarantee is subject to the provisions of Part XIII. The provisions of Article 302 to Article 304 bring about a balance hctwecn the guarantee of lrecdom on one hand and legislative control over trade and commerce on the other hand. While doing so, those articles define lhe powers of Parliament :md the ~tate legislatures. while subJecting then; to restraints that arc intended to preserw the power of rc1~uiating trade and commc1·ce. !Paras 109, 1101[572-C-F] E G

5.2 While the Constitution docs in that sense subordinate the freedom under Article 301 to the provisions of Part XIII, it H SUPREME COURT REPORTS [2016] I 0 S.C.R. would not be correct to read the provisions of Part XIII in isolation. Part XIII is an integral element of the Constitution, but so are the other Parts under which executive and legislative powers are constitutionally conferred upon the structures of governance in the Union and the States. While construing the provisions of the Constitution it is necessary to construe the text in the context of the organic nature of the constitutional document. The linkages between various Parts of the Constitution contribute to the creation of a composite whole. No segment of the Constitution can he read in isolation. The scheme of the Constitution must hence be understood having regard to its history, text and context. Words of the Constitution "cannot be read in isolation and have to be read harmoniously to provide meaning and purpose". The judgment of Justice Gajendragadlrnr, speaking for the majority in Atillbari, however construed the language of Article 30 I to mean that the guarantee of freedom wus subject only lo the provisions of Purt XIII. This docs not constitute an appropriate approach to constitutional interpretation since it leads to a construction of Part XIII in isolation from other provisions which have a significant bearing on the nature of the freedom and its relationship with the structures of governance. To consider the guarantee under Article 301 as being subject only to Article 302 to 304 overlooks the rclationshiIJ of Part XIII with other provisions of the Constitution. l<'n•cdom is integral to that relationship. [Paras Ill, 112, 1131[572-G-H: 573-A-B, F-G; 574- AJ Kihoto Hollolwn v. Zadzill!w 1992 (I) SCR 686: (1992) Supp 2 SCC 651; T.lvf.A. Pai Foundation and others v. State of Karnataka 2002 (3) Suppl. SCR 587 : (2002) 8 sec 481 - relied on. 5.3 In interpreting the text of the Constitution, the Court must construe the text in a manner that would preserve the carefully crafted balance betwem the Union and the states. Where the language of the text permits, the effort of constitutional interpretation should be to ensure that the states arc not subordinated to the Union in an·as reserved to them. Yet it is equally a matter of constitutional doctrine that \Yherc a particular 78 A B c D E F G H JINDAL STAINLESS LID. v. STATE Of HARYANA 79 provision (such as the pro\'iso to Article 304(b) imposes a specific A requirement (assent of the President before a Bill is introduced in the state legislature) which subjects the legislative power of the states to constitutional limitations, it would not be open to the Court to ignore the plain meaning and effect of such a provision. The text of the Constitution cannot be subverted on the basis of an abstract notion or hypothesis. While creating a federal structure, the draftsmen of the Constitution were conscious of the need for preserving a political and economic Union. lf, as a part of that constitutional scheme, the text of the document has incorporated specific provisions, they must be given their plain meaning and effect. It would riot be open to the Court to dilute the meaning of the text on the basis of a priori considerations. !Para 120]1578-E-ll; 579-A] B c State of West Bengal v. Union of India [1964] 1 SCR 371; Special Reference 1 of 1964 (1961) I SCR 413; S.R. Bommai 1·. Union of India 1994 (2) SCR 644 : 1994 p) SCC 1; JTC Umited v. Agricultural Produce Market Commillee and Ors. 2002 (1) SCR 441 : (2002) 9 SCC 232; Ku/dip ."lawU" 1·. Union of" Jndia 2006 (5) Suppl. SCR 1 : (2006) 7 SCC 1 - referred to. Taxing powers Article 245 and constitutional limitations D E

6.1 Article 245 of the Constitution provides for the extent of laws made h:v Parliament and the legislatures of the states. Clause 1 of Article 245 enables Parliament. "subject to the F pn1visio11s of this Constitution" to make laws for the whole or an;. part of the territory of India and for the legislature of a state to make laws fm- the whole or any part of the state. Article 245 is the fountainhead of legislative power. It makes legislative powers subject to constitutional limitations. The distribution of legislative powers is embodied in Article 246 which deals with the subject matter of laws made by the Parliament and by the state legislatures. Parliament has exclusive powers to make laws with n:specl to mattc.-s cnnrnerntcd in List I of the Seventh Schedule. Subject to the law making powers of Parliament in List .I, the G H 80 /\ B c D r 11 SUPREME COURT REPORTS 12016] 10 S.C.R. Icgisl:.it urc of a state has exclusive power to enact Jaw for the state with respect to any of the mat1ers enumerated in List 11. Parliament and the state legislatures have concurrent powers to enact legislation in i-cspecl of matters enumerated in List Ill. Article 245 is the source of legislative power. Article 246 distributes legislative powers between Parliament and the state legislatures on the basis of the Lists in the Seventh Schedule. Article 245, in the conferment of legislative powers upon Parliament and the state legislatures makes them subject to the provhions of the Constitution. The power to enact laws is a manifestation of sovereignty. The Constitution while conferring legislative powers upon the Union and the states makes them subject to constitutional limitations. The sovereignty of the legislature is subject to the norms of the written constitution. The power to tax is subsumed in legislative power. Like all legislative power, fiscal legislation is subject to the mandate of the written constitution. This is the plain consequence of the opening words of Article 245(1) under which the conferment of legislative powers is made subject to the provisions of the Constitution. [Paras 121, 122]1579-B-Il; 580-AI

6.2 The entries in the legislative lists of the Seventh Schedule arc not sources of legislative power but only define the subjects or heads of legislation entrusted to the law making competence of Parliament and the state legislatures. Read together, Articles 245 and 246 confer legislative power upon the Union and the states in the first place and distribute that powe1· between them to enact legislation on the fields of legislation entrusted to their competence. Though Article 245 is made expressly subject to the provisions of the Constitntion while there arc no such similar words in Article 246, both Articles arc subject to the other provisions of the Constitution. The language of Article 245 which subjects the conferment of legislative power to constitutional provisions is a recognition of the doctrinal principle that all constitutional power vesting in the organs of the state is subject to const.itutional limitations. The Constitution which entrusts power conditions the entrustment to the. observance of constitutional safeguards and limitations. All legislative power is subject to constitutional limitations. The limitations on the JINDAL STAlNLESS l:l'D. v. STATE OF HARYANA 81 (i) guarantees of A exercise of k ;,:islativc power emanate from freedom under l'arl IJJ of the Constitulion containing fundamental rights; (ii) the requirement that the law making authorily must possess legislative competence to enact a law on the subject on which it legislates; and (iii) other constitutional limitations. Part XIIJ of the Comlitulion is one of those constitutional limitations. B The constitutional limitation emanating from Part XIII arises from the recognition which it contains of the guarantee of free trade, commerce and intercourse. Hence the first premise upon which legislative powers are conferred upon and distributed between the Centre and the states is that though the enactment of law is a manifestation of sovereignty, law making authority under the Indian Constitutior. is subject to constitutional restraints. Absolute power does not dwell in any constitutional authority which is subject to a written constitution. The legislative entries in the Lists of the Seve11th Schedule to the Constitution delineate general fields of legislation separately from taxing heads. In the Union List taxing entries are contained from Entries 82 to 92C. The residual entry, Entry 97 deals with m"atte1·s not enumerated in the state or concurrent lists, including any tax not mentioned in either of those lists. In the state list taxes are comprised in Ii:ntrics 46 to 62. Fees are dealt with under separate heads: in Entry 96 of List I, Entry 66 of Lisi II and Entry 47 of List UI. !Paras 123, 125, 126][580-B-D; 581-B-F] E c D StatP of' Kera/a and ors. v. Mar Appraem Kuri Co. Ltd and Anr. 2012 (4) SCR 448 : (2012) 7 SCC 106 - referred to. Sovereignty and constitutional limitations F

7.1 The legislative power of the states to impose taxes is subject, in general, to the same constitutional parameters which govern the exercise of all legislative power. The containment of legislative power follows from three constitutional precepts. First, G legislation is valid if it is enacted by a legislature which has competence to enact law on the subject Second, the enumeration of fundamental rights by Part Ill of the Constitution operates as a restraint on the sovereign power vesting in the legislatures to enact law. Article 13. of the Constitution stipulates that the state H SUPREME C:Ol 'RT REPORTS /2016] 10 S.C.R. A I) H shall not cnad law which violates the freedoms guaranteed by the Chapter on fundarnental rights. A law whether made before or after the advent of the Constitution is void to the extent of its inconsistenc\ with Part XIII. Third, other constitutional limitations or restrictions may contain the law making power including in the field of taxation. f Para 1301f585-E-F, G-H; 586-A-B]

7.2 ln the field of taxation, I.he containment of legislative powers vesting in the states may take place through provisions which are in the nafure or: (i) abstraction; (ii) eclipse; and (iii) limitations or rest1·ictions. These categories arc convenient reference points for understanding the source of constitutional restrictions. An illustration of an abstn1ctio11 of legislative power is contained in Entry 54 of the State List which provides for taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92(A) of the Union List. Entry 92(A) of the U11ion List was introduced hy the Sixth amendment to the Constitution in 1956 to provide for taxes on the sale or purchase of goods other than newspapers, where such sale or puHhase takes place in the course of inter-state trade or commerce. Under U'.nt1·y 54 of the State List as it originally stood, the states possessed an unfctlered area for imposing taxes on till' sale or purchase of goods othc1· than newspapers. Article 286 stipulates that a state law shall not impose or authorize the imposition of a tax on the sale or purchase of goods, where the sale or purchase takes place outside the state or in the course of import or export from or outside the territoi-y of India. Arlicle 286(1) provides an express har. Article 269(3) empowers Parliament by law to formulate principles for determining when a sale or purchase or consignment of goods takes place in the course of inter-state trade or c1immercc. Parliament, in exercise of its powers under Article 269(3) enacted the Central Sales Tax Act 1956. Sections 14 and 15 of that Act provide a list of goods of special importance, the manner of imposing taxes and the restrictions on the power of imposing taxes. The second source of eontainment on the legislative powers of the states in the area of taxation is Article 253 of the Constitution under which Parliament, notwithstanding anything contained in the earlie1· provisions of Chapter 1 of Part XI is entrusted with the power to enact legislation for the entire JINDAL STAINLESS LTD. v. STATE OF HARYANA 83 B territory of 1.ndia for implementing a treaty, agreement or A convention with one or more countries or to implement a decision at an international conference association or other body. The non nhstanlc provision of A1·ticlc 253 operates in relation to Articles 245 to 252. Hence, the legislative powers of the stales including in the area of taxation may be eclipsed where Parliament has enacted a law to effectuate India's international obligations in pursuance of Article 253. The third source of constitutional containment on the legislative power of a state is in the form of limitations of which Clause 3 of Article 286 provides an illustration. Under Clause 3, Parliament provides the restrictions and conditions in regai·d to "the system of levy, rates and other incidents of tax" upon which a law enacted by a state providing for a tax of the nature specified in sub-clause (a) and (b) is subject. Sub-clause (a) deals with a tax on the sale or purchase of goods declared to be of special importance in inter-state trade or commerce by a law enacted b)' Parliament. Sub-claus~ (b) deals with a tax on the sale or purchase of goods falling under sub clauses (b), (c) and (d) of Article 366(29A). Among other things, a tax on contracts for hire purchase and involving transfer of the righ1 to use goods is subject to the restrictions and conditions which arc provided by a law enacted by Parliament in regard to the system of levy rates and other incidents of tax. The constitutional containment of the legislative powers of the states also originates in the provisions of Part Xlll which enable Parliament and the state legislatures to impose restrictions on inle1·-state trade or commerce subject to defining parameters. !Paras 131-135H586-C-E, G-ll; 587-A-Gl F c E D Rai Ramkrislrna v. State of Bihar 1963 AIR 1667: 1964 SCR 897; Raja Jagannath Baksh Singh v. State of UP & Am: 1963 SCR 220: AIR 1962 SC 1563; Amrit Ban{/.\pati Co. Ltd. and Anr. v. State of Punjab and Anr. 1992 (2) SCR 13 : (1992) 2 SCC 411; Dena Bank v. Bhikhahhai Prahhudas Parekh & Co. and Ors. 2000 (3) SCR 509 : (2000) 5 SCC 694 ; Maharaj Umeg Singh v. State of Bomhay, 1955 SCR164 : AIR 1955 G 1-1 SUPREME ('OURT REPORTS [2016] 10 S.C.R. /\ SC 540; Finn Bansidhar Premsukhdas v. State of Rajasthan 1966 Suppl. SCR 81 : AIR 1967 SC 40; Thakur Jagmmath Baksh Sinp,h v. United Provinces (1946) FCR 111 - referred to. All taxes are not impediments D c

8. The free movement of goods, services, persons and capital requires the existence of public order and conditions which allow for trade and commerce to take place unhindered. Neither trade nor commerce can flourish amidst violence, unrest and social disorder. Taxes provide revenue for the state to sustain manifold activities which are geared to providing conditions of social order. Tax revenues form an essential part of the requirements necessary for states to govern. Taxes are required by Article 265 to be imposed by a law enacted by Parliament or the state legislatures. Without the power to raise revenues, the ability of the state to create conditions requisite for trade and commerce to exist would be denuded. Hence, as a matter of first principle it cannot be postulated that taxation in whatever form is a burden on trllde, commerce and intercourse and that every tax necessarily F hinders trade. Such a wide construction cannot be accepted simply because by raising revenues through the means of taxation, the state provides a political and legal order based on the rule of law where contractual transactions can be executed effectively. fPara 13911589-G-IJ; 590-A-C] F G H Indian Express Newspapers (Bomhay) Pvt. Ltd. and Ors. etc. v. Union of India and Ors. etc. 1985 (2) SCR 287 : (1985) I sec 641; Government of Tamil Nadu v. A!w/Jilo Matam 1987 (1) SCR 232: 1987 (1) SCC 38; A II Bihar Christian Schools 'Association v. State of Bihar (1988) l SeC 266; Federation of Hotel & Restaurant Assn. of India etc. v. Union of India & Ors. 1989 (2) SCR 918 : (1989) 3 sec 634; Express Hotels Private Lim ired 1·. State of Gujarat and Anr. 1989 (2) SCR 893 : (1989) 3 sec 677; Pankaj Jain Agencies V. Union of JINDAL STAINLESS LTD. v. STATE OF HARYANA ORDER By majority the CoU11 answers the reference in the following terms: I. Taxes simpliciter are not within the contemplation of Pat1 XIII of the Constitution of India. The word 'Free' used in A1ticle 30 I does not mean "free from taxation".

2. Only such taxes as arc discriminatory in nature arc prohibited by A11iclc 304(a). It follows that levy of a non-discriminatory tax would not constitute an infraction of Article 30 J.

3. Clauses (a) and (b) of Article 304 have to be read disjunctively.

4. A levy that violates 304(a) cannot be sawd even if the procedure under Article 304(b) or the proviso there under is satisfied.

5. The compensatory tax theory evolved in Automobile Tramport case and subsequently modified in Jindal '.5 case has no juristic basis and is therefore rejected.

6. Decisions of this Cou11 in Atiabari. A11to111obile Tramport a11d Jindal cases (supra) and all other judgments that follow these pronouncements are to the extent of such reliance over ruled. A B c D

7. A tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing state. E

8. A11icle 304 (a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation. Therefore, incentives, set-offs etc. granted to a specified class of dealers for a limited period of time in a non-hostile fashion with a view to developing economically backward areas would not violate Article 304(a). The question whether the ievies in the present case indeed satisfy this test is left to be determined by the regular benches hearing the matters.

9. States are well within their right to design their fiscal legislations to ensure that the tax burden on goods im po11ed from other States and goods produced within the State fall equally. Such measures if taken would not contravene A1ticle 304(a) of the Constitution. The question whether the levies in the present F G H /' 856 SUPREME COUKf REPORTS [2016] 10 S.C.R. A B case indeed satisfy this test is left to be determined by the regular benches hearing the matters.

10. The questions whether the entire State can be notified as a local area and whether entry tax can be levied on goods entering the landmass of India from another country are left open to be detennined in appropriate proceedings. Devika Gujral Referred question answered.

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