Author: Anshita Jain, 3rd Semester, BBA LLB, Maharaja Agrasen Institute of Management Studies
India, with its rich history of trade and commerce, has always been a hub for merchants and traders. The Indian Constitution, recognizing the importance of trade, has dedicated an entire part to ensure its free flow. Drawing inspiration from the Australian Constitution, the framers of the Indian Constitution envisioned a nation where trade barriers would be minimal, and commerce would thrive.
The free flow of trade, commerce and intercourse within and across Inter-state borders is an important perquisite for ensuring economic unity, stability, and prosperity in a two-tier polity country. The Indian constitution includes provisions that guarantee freedom of inter -state trade and commerce through India’s territory. In a federation, it is essential to reduce the barriers (tariffs, non-tariffs, quotas, etc.) between the states as much as possible so that the people feel that they are members of the same country though living in different geographical areas of the nation.
Ex- if Mr. A lives in Gujarat and expands his business and sell his products in other states, let’s say he wants to do business in Punjab so he has freedom of trade, commerce and intercourse as per article 301 of the Constitution of India.
Constitutional Provisions: Part XIII
Part XIII of the Indian Constitution, spanning Articles 301 to 307, is a testament to the importance the framers placed on trade. These articles were not just legal mandates but were designed to foster unity, ensuring that India, despite its diverse states, functioned as a single economic entity.
Key Terminologies Explained
- Trade: Trade means buying and selling of goods for profit-making purposes. In the context of Article 301, trade isn’t limited to mere transactions but extends to organized activities that have a clear economic purpose. It’s synonymous with business, emphasizing its organized nature.
- Commerce: Commerce encompasses the entire spectrum of activities that facilitate trade. This includes transportation, communication, and any medium that aids the movement of goods and services. It’s the backbone that supports trade, ensuring that goods reach from producers to consumers.
- Intercourse: The term “intercourse” in Article 301 is used in juxtaposition with trade and commerce, implying “commercial-intercourse.” It doesn’t refer to purposeless motion but to meaningful commercial interactions. However, for the purpose of Article 301, the focus is primarily on commercial intercourse, ensuring a seamless flow of trade across states.
Freedom under Article 301 of Indian Constitution
Article 301 promises that, barring certain exceptions, trade, commerce, and intercourse will remain free throughout India. However, this freedom isn’t absolute. It doesn’t mean an absence of regulations but assures that these activities won’t face undue obstructions.
Restrictions and Regulations
While the Constitution promotes free trade, it also recognizes the need for regulations:
Parliamentary Oversight (Article 302):
The Parliament, understanding the diverse needs of the nation, can impose necessary restrictions on trade and commerce. These restrictions, though, must be in the public interest and not discriminate between states.
State’s Role (Article 303 and 304):
States, too, have a role in regulating trade. While they can’t discriminate against goods from other states, they can impose reasonable restrictions, especially if they are crucial for public order or health.
Discrimination and Preferential Treatment (Article 303)
Article 303 ensures that neither the Parliament nor the State Legislatures can give preferential treatment to any state or discriminate against any state by virtue of any entry related to trade and commerce. However, in cases of scarcity of goods in any part of India, the Parliament may make laws favoring that particular region.
- Prohibition on Discrimination: Article 303(1) prohibits both the Parliament and state legislatures from giving preference to one state over another or discriminating against any state.
- Exception: Article 303(2) provides an exception, allowing the Parliament to make any law giving preference to one state over another or discriminating against any state if it’s necessary for the country’s overall development.
Levy of Taxes and Freedom of Trade (Article 304)
Article 304 empowers states to impose taxes on goods imported from other states, provided similar goods within the state are also taxed. This ensures a level playing field and prevents discrimination against goods coming from outside the state.
- Taxation by States: States have the power to impose taxes on goods imported from other states. However, these taxes cannot discriminate between goods produced within the state and goods imported from other states.
- Restrictions for Public Interest: States can impose reasonable restrictions on the freedom of trade, commerce, or intercourse with other states for public interest. However, such laws require the President’s prior assent.
Saving of Existing Laws and Laws for Carrying Out International Agreements (Article 305)
Article 305 protects existing laws and laws made for implementing international agreements from being challenged on the grounds of contravening the freedom of trade provisions.
- Existing Laws: Despite the provisions of Articles 301 and 303, any existing law (a law in force before the commencement of the Constitution) will continue to be in effect unless amended or repealed by a competent legislature.
- International Agreements: The Parliament has the power to make laws that may be contrary to the provisions of Part XIII if they are necessary for implementing international treaties, agreements, or conventions.
Contemporary Challenges and Discussions
In today’s globalized world, the provisions of Part XIII are more relevant than ever. With the rise of e-commerce and digital trade, the definitions of trade and commerce are evolving. While the Constitution provides a robust framework, it’s essential to adapt to the changing times, ensuring that India remains a vibrant hub for trade and commerce.
Origin of Trade, Commerce, and Intercourse
The concept of free trade and commerce is not unique to India. Countries like the USA, Canada, and Australia have similar provisions in their constitutions, ensuring a seamless flow of trade and commerce.
Article 1, Section, 8 Clause 3 in US’s constitution is referred to as Commerce clause in the constitution of USA, which essentially lists the power of Congress, which by necessary implication has been interpreted to have robbed the states of their power to tax interstate commerce, while the Congress has the power to regulate commerce within states (also with foreign nations & Indian Tribes). This constitutes the freedom of commerce in the United States.
“Article 1 Section 8 Clause 3: The Congress shall have power to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”
Section 121 of the Constitution Act, 1867 (formerly the British North America Act, 1867: a part of Canadian Constitution) entitles the Canadian Manufactures to have their growth, produce or manufacture free admission into any of the provinces, thereby rendering the borders of the provinces within Canada totally permeable.
“Section 121- All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, he admitted free into each of the other Provinces.”
Section 92 of the Constitution of Australia ensures that the Trade, Commerce & interstate intercourse via internal carriage or ocean navigation shall be absolutely free except for imposition of Uniform duties of Customs. However newly created states have an additional liability regarding the above for a period of two years. It appears that Section 92 also extends to Exclusive Economic Zone (and possibly Continental Shelf) of Australia.
“Section 92: 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.
But notwithstanding anything in this Constitution, goods imported before the imposition of uniform duties of customs into any State, or into any Colony which, whilst the goods remain therein, becomes a State, shall, on thence passing into another State within two years after the imposition of such duties, be liable to any duty chargeable on the importation of such goods into the Commonwealth, less any duty paid in respect of the goods on their importation.”
The Constitution of India secures the freedom of Trade, Commerce and Intercourse within the Territory of India under Article 301, subject to reasonable restrictions & public interest ranging from Article 302- 307. It is worth mentioning that Part XIII (Art. 301-307) is in addition to Articles 14 & 19.
Since freedom of trade, commerce & intercourse is inextricable to the concept of federalism; it’s worthy to note similar laws in three of the most federal countries in the world- USA, Canada & Australia.
Activities Which Are Not Trade
Certain activities, though they might involve transactions, are not considered trade under Article 301. This includes illegal activities like lottery, gambling, and other criminal endeavors. The bar on these illegal activities was upheld by the Supreme Court in the case of State of Bombay v. R.M.D. Chamarbaugwala (1957). In this case, it was held that all activities of criminal nature or those activities which are undesirable would not be given any protection under Article 301. Some examples of such activities can be clicking obscene pictures for money, trafficking of women and children, hiring goondas or terrorists, etc. Though the forms, methods, and procedures of trade may be applied these activities are extra-commercial, and thus are not covered under Article 301.
Interrelation Between Article 301 and Article 19(1)g
Both articles play a pivotal role in ensuring the freedom of trade and commerce. While Article 301 focuses on the free flow of trade across the country, Article 19(1)(g) provides individuals the freedom to practice any occupation, trade, or business.
The right under Article 301 is constitutional and can be claimed by anyone.
The right under Article 19(1)(g) is fundamental and can be claimed only by citizens.
SEPARATE PROVISION FOR RESTRICTION
Article 301 is accompanied by Article 302-307 which lay down the restrictions to the free flow of trade in the country.
Article 19(1)(g) contains restrictions to the freedom of carrying an occupation or trade
The Modern Landscape: E-commerce and Digital Trade
With the advent of technology, the definition of trade and commerce has expanded. E-commerce platforms and digital trade have blurred state boundaries, making the provisions of Part XIII even more relevant. The Constitution, while drafted decades ago, provides a robust framework that can accommodate these modern trade forms.
- Changing Dynamics: With the rise of digital platforms, the very nature of trade and commerce is evolving. This section can delve into how the Constitution’s provisions apply to these new forms of trade.
- Challenges and Opportunities: E-commerce presents a new set of challenges, from taxation to regulation. Understanding how the constitutional provisions apply in this context is crucial for the modern trader.
Role of the Judiciary in Upholding Freedom of Trade
The Indian judiciary has played a pivotal role in interpreting and upholding the freedom of trade provisions. Through landmark judgments, the courts have ensured that the spirit of the Constitution is upheld, and trade and commerce flourish without undue restrictions.
- Judicial Interpretation: Over the years, the judiciary has played a pivotal role in interpreting the provisions of Part XIII, ensuring that the freedom of trade, commerce, and intercourse is upheld while balancing the need for regulations.
- Public Interest vs. Freedom of Trade: The courts have often been tasked with determining the fine line between what constitutes public interest and what might be an undue restriction on trade.
Atiabari Tea Co. vs the State of Assam (1961)
Assam Taxation Act imposed a tax on goods transported through Inland Waterways and road. The petitioner transported tea to Calcutta via Assam and was taxed under this Act.
The rationality of The Assam Taxation Act of 1954 was questioned on the grounds that:
● whether it is violative of Article 301 or not?
● whether it could be protected by making it fall under the ambit of Article 304 (b) or not?
The Supreme Court ruled that the tax directly infringed the movement of goods, making it violative of Article 301. The tax was deemed unconstitutional. A seminal case that emphasized the importance of Article 301. The court held that any restriction on trade and commerce would be unconstitutional unless it was justified by subsequent articles.
Automobile Transport Ltd. vs State of Rajasthan (1963)
Rajasthan imposed an annual tax on motor vehicles. The government argued this was to prevent unhealthy competition between omnibuses and regular buses.
The appellant challenged the validity of the tax levied under Article 301. Now whether the tax levied was constitutionality correct or not had to be checked.
The Supreme Court held the tax as compensatory and regulatory, not violating Article 301. This case further clarified the scope of restrictions, stating that regulatory measures or compensatory taxes would not violate Article 301.
State of Mysore vs Sanjeeviah (1967)
Under the Mysore Forest Act, 1900, a law was enacted prohibiting the movement of forest produce between sunrise and sunset.
Whether it was violative of the freedom guaranteed Article 301 of the Constitution?
The Supreme Court declared the law void, stating that it was restrictive and not merely regulatory. Such a restriction was in violation of the freedom provided under Article 301. The court, in this case, highlighted the state’s role, asserting that states could regulate trade if it was in the public interest.
G.K. Krishna vs State of Tamil Nadu (1975)
A government notification under the Madras Motor Vehicles Act increased the motor vehicle tax on omnibuses. The government justified this increase by stating it was to curb unhealthy competition between omnibuses and regular stage carriage buses.
The petitioner in his argument questioned:
● whether the tax was compensatory or regulatory?
● whether it was a barrier to the freedom of trade, commerce, and intercourse or not?
The Supreme Court upheld the tax, deeming it compensatory and regulatory in nature. The tax was not seen as a direct impediment to the freedom of trade but rather a measure to facilitate organized and fair trade practices. A landmark judgment that delved deep into the meaning of ‘freedom’ in Article 301, emphasizing that it meant freedom from restrictive and not regulatory measures.
State of Bombay v. R.M.D. Chamarbaugwala (1957)
The case revolved around the legality of lotteries and gambling activities. The state of Bombay imposed restrictions on these activities.
The Supreme Court held that activities of a criminal nature or those deemed undesirable would not receive protection under Article 301. Thus, lotteries and gambling, being extra-commercial activities, were not protected.
The Indian Constitution, through its provisions, seeks to strike a balance between the freedom of trade and the power of the state to regulate it. These landmark judgments by the Supreme Court have played a pivotal role in shaping the interpretation and application of these constitutional provisions, ensuring that the spirit of economic unity and prosperity is upheld.
The Indian Constitution, with its foresight, has laid a strong foundation for trade and commerce. By ensuring freedom and at the same time allowing for necessary regulations, it strikes a perfect balance. As India marches forward, these provisions will play a pivotal role in shaping its economic landscape.
FAQs on Freedom of Trade, Commerce and Intercourse under the Indian Constitution, 1950
1. What is the purpose of Article 301 in the Indian Constitution?
- Article 301 ensures the freedom of trade, commerce, and intercourse throughout the territory of India. It’s designed to promote economic unity and reduce trade barriers between states.
2. Are there any restrictions to the freedom provided by Article 301?
- Yes, while Article 301 provides for freedom, subsequent articles (302-307) lay down conditions and exceptions under which this freedom can be restricted for public interest.
3. How does Article 303 protect against discrimination in trade?
- Article 303 ensures that neither the Parliament nor the State Legislatures can give preferential treatment to any state or discriminate against any state concerning trade and commerce.
4. What is the significance of Article 304?
- Article 304 empowers states to impose reasonable restrictions on trade and commerce with other states, ensuring that there’s no discrimination against goods coming from outside the state.
5. Can states impose taxes on goods from other states?
- Yes, under Article 304, states can tax goods imported from other states, provided similar goods within the state are also taxed.
6. What is the role of the judiciary in the context of freedom of trade?
- The judiciary plays a pivotal role in interpreting and upholding the provisions of Part XIII of the Constitution. Through landmark judgments, the courts ensure that trade and commerce flourish without undue restrictions.
7. Are e-commerce and digital trade covered under the Constitution’s provisions?
- While the Constitution was drafted before the advent of e-commerce, its provisions are robust enough to accommodate modern forms of trade. The principles of free trade apply to e-commerce as well.
8. What was the judgment in the Atiabari Tea Co. vs the State of Assam case?
- The Supreme Court ruled that the Assam Taxation Act, which imposed a tax on goods transported through Inland Waterways and road, directly infringed the movement of goods, making it violative of Article 301.
9. How does the Indian Constitution’s stance on trade compare to other countries?
- Similar to India, countries like the USA, Canada, and Australia have constitutional provisions ensuring the freedom of trade. However, the specifics and implementations might vary.
10. What is the difference between regulatory and restrictive measures concerning trade?
- Regulatory measures are designed to facilitate and organize trade, ensuring it operates smoothly. Restrictive measures, on the other hand, impede or limit the free flow of trade.
11. Are illegal activities protected under Article 301?
- No, activities of a criminal nature or those deemed undesirable, like lotteries and gambling, do not receive protection under Article 301.
12. How does Article 305 protect existing laws related to trade?
- Article 305 safeguards existing laws and laws made for implementing international agreements from being challenged on the grounds of contravening the freedom of trade provisions.
13. Can the Parliament appoint authorities to oversee trade provisions?
- Yes, under Article 307, the Parliament can appoint such authorities as it deems fit for carrying out the provisions laid down in Articles 301 to 304.
14. What is the relationship between Articles 301 and 19(1)(g)?
- While both articles deal with trade, Article 301 focuses on the free flow of trade throughout the country, whereas Article 19(1)(g) provides citizens the freedom to practice any occupation, trade, or business.
15. Why is the freedom of trade crucial for a federal structure like India?
- In a federation, reducing barriers between states is essential to ensure economic unity and prosperity. It ensures that people, despite living in different states, can trade and conduct business without undue restrictions.
16. How does Article 301 promote national integration?
- By ensuring free trade across states, Article 301 fosters economic interdependence and unity, indirectly promoting national integration.
17. Can a state ban a product citing health reasons?
- Yes, if a state can prove that a product is detrimental to public health, it can impose restrictions, even if it affects trade.
18. How do the provisions of Part XIII align with the concept of ‘One Nation, One Market’?
- Part XIII aims to create a seamless market across India, ensuring that goods and services flow freely, resonating with the ‘One Nation, One Market’ vision.
19. Are digital services like online streaming or e-learning platforms covered under these trade provisions?
- While the Constitution doesn’t explicitly mention digital services, the principles of free trade can be extended to them, given the evolving nature of commerce.
20. How do these articles impact startups and e-commerce platforms?
- By ensuring a free market, startups and e-commerce platforms can operate and expand across states without facing discriminatory trade practices.
21. Can states impose a ‘Green Tax’ on goods to promote sustainability?
- Yes, states can impose taxes for environmental reasons, provided they don’t discriminate against goods from other states and adhere to the broader principles of free trade.
22. How do these constitutional provisions impact India’s international trade agreements?
- While these provisions primarily focus on inter-state trade, they set a precedent for the country’s stance on free trade, influencing international trade negotiations.
23. Can a state give preferential treatment to its indigenous products?
- Direct preferential treatment would violate Article 303. However, states can promote local products through other means, like marketing campaigns, without imposing trade restrictions.
24. How do these trade provisions impact consumer choices?
- By ensuring a free market, consumers benefit from a wider range of products, competitive prices, and better quality due to inter-state competition.
25. Can a state restrict the sale of alcohol citing public health and morality?
- Yes, states have the power to regulate the sale and consumption of alcohol. Such restrictions, even if they affect trade, can be justified on public health and morality grounds.
26. How do the courts determine if a restriction is ‘reasonable’ under Article 304?
- The courts weigh the state’s reasons for the restriction against its impact on trade. If the restriction serves a significant public interest and is not excessive, it’s deemed reasonable.
27. Are services like healthcare, education, and legal consultancy covered under these trade provisions?
- While these are primarily services, any trade or commerce aspect related to them, like the sale of medical equipment or educational materials, would fall under these provisions.
28. How do these articles impact agricultural trade?
- Farmers can sell their produce across states without facing undue trade barriers, promoting competitive pricing and wider market access.
29. Can a state impose higher tolls on trucks from other states?
- Such a practice would be discriminatory and violate the principles of free trade unless the tolls are justified for a specific, non-discriminatory reason.
30. How do these provisions impact the digital economy and fintech services?
- The principles of free trade can be applied to the digital economy, ensuring fintech and other digital services operate seamlessly across states.
Topics Covered: Introduction to Article 301, Origin of Trade, Commerce and Intercourse Provisions, The Modern Landscape: E-commerce and Digital Trade, Role of the Judiciary in Upholding Freedom of Trade, Article 302 of Indian Constitution, Discrimination and Preferential Treatment (Article 303), Levy of Taxes and Freedom of Trade (Article 304), Saving of Existing Laws and Laws for Carrying Out International Agreements (Article 305), Landmark Judgments, Inter-relation between Article 301 and Article 19(1)G, Restrictions and Appointment of Authority, Objective of Freedom of Trade Provisions, Activities Not Considered Trade, Comparison with International Provisions, and Conclusion.