In the Supreme Court of India Civil Appellate Jurisdiction Case No. 1962 AIR 1406, 1963 SCR (1) 491 Petitioner The Automobile Transport (Rajasthan) Ltd. Respondent The State of Rajasthan and Ors. Decided on 9 April 1962 Bench K Sarkar; Kapur; Mudholkar; Subba Rao; Hidayatullah; Rajagopala Ayyangar; K. Das
Indian Supreme Court faced a lot of cases where the statutes would be questioned for its constitutional validity and one such case is this. In this case, the constitutional validity of the State Law namely Rajasthan Motor Vehicles Taxation Act, 1951 was questioned. The court was presented with arguments that the rights of the business are affected especially, the impugned Act is in contradiction with Article 301 of Constitution of India. Now, let us look at the reasoning, references, findings and judgment given by the Hon’ble Supreme Court of India.
The first two appellants are private, limited liability companies registered under Indian Companies Act, 1913, having the registered offices at Ajmer. Framiji Motor Transport is the third appellant which is a registered Partnership Firm under Indian Partnership Act. The appellants were asked to pay taxes under State Tax. The second respondent issued certificates under §13 of the Act for recovery of taxes as arrears of land revenues. Here it is not only the conflict between Ajmer and State of Rajasthan but involves the business transactions of other states like Andhra Pradesh, Assam, Bihar, Gujarat, Madras, Maharashtra, Orissa, Punjab, Uttar Pradesh and West Bengal.
Since there was only one case pertaining to inter-state tax issue, the bench has taken recourse to American and Australian Jurisprudence, similar to that of the view taken in Atalbari tea case. It is also pertinent to note that the Hon’ble bench has effectively differentiated the position of India from that of those two countries and applied the cases only for the purpose of interpreting certain words and phrases.
This case also puts forth the reconsideration of Atalbari Tea Company Case. Moreover, the similar facts were already discussed by the Hon’ble Supreme Court. But new contentions and interpretations related to Part XII and III of Constitution of India were laid down in the present case which makes it unique from its precedent.
Constitution and Statutory Provisions
- § 4, 8, 9, 11, 13, 16 and 22 and Schedules I, II, III and IV of Rajasthan Motor Vehicles Taxation Act, 1951.
- Part XIII of Constitution of India and Article 19 and 26 of Constitution of India
The appellants were asked to pay tax under the State Act which they failed to pay and as a result of which under §13 of the Act, certificates where issues by the taxing authority to file tax. Appeal was filed before Transport Commissioner, Jaipur under §14 of the Act which was dismissed. Three separate writs were filed before Hon’ble High Court of Rajasthan.
The case was initially filed before the Hon’ble High Court of Rajasthan which was appealed before the Hon’ble Apex Court of India with the applications that were filed by the High Court. Moreover, the case was accepted as the situation involves substantial question of law. The case was initially decided by a five-judge constitutional bench but later the case was presented before the Chief Justice of India who directed the case to be handled by a longer constitutional bench and thus the case was presented before a Seven-judge bench.
Issues which were in Challenge
- Whether §§ 4 and 11 of the Rajasthan Motor Vehicles Taxation Act, 1951 infringe the right of freedom of trade, commerce or intercourse granted under Article 301 of Constitution of India, 1949?
Contention of the appellant
- The Act which imposes tax on motor vehicles was unconstitutional and void as they contravened the freedom of trade, commerce and intercourse throughout the territory of India declared by Article 301 of Constitution of India.
- The attempted collection of tax was illegal and should be prohibited. The state Act and corresponding rules must be declared invalid. The appropriate writs like mandamus must be issued to respondents not to realize any tax from appellants.
- The impugned Act contravenes Article 301 of Constitution of India and also it is not saved by Article 304(b) of the Constitution of India.
- 4 of the Act read with Schedules impose a pecuniary burden on motor vehicles entering with passengers and goods with and within Rajasthan which imposes a direct and immediate restriction on movement of trade and commerce and is against Article 301 which is not covered within Article 304(b) of the Constitution of India.
- The freedom of trade under Article 301 is applicable to the whole territory of India and thus the geographic restrictions must not be allowed.
Contention of the respondent
- The tax is not a direct and immediate restriction imposed as the tax rates are fixed depending upon the seating capacity and also on the size of the vehicle. It is only a consolidated tax that is levied on the motor vehicles. The tax is levied for the purpose of raising the revenue of the state and for the maintenance of the roads.
- The tax is levied indirectly on the trade and commerce as the tax is levied as a consolidated one and not dependent on trade or commerce.
- Article 301 is applicable only to inter-state barriers and custom barriers which existed in British Indian territory among Indian states.
- The restrictions for Article 301 may come in any legislative or executive form or action which is not only pertaining to entries in Seventh Schedule but also pertaining to other entries.
- Article 19(1)(d) guarantees to all citizens of India, the right to move freely throughout the territory of India.
- The tax imposed falls within the ambit of reasonable restrictions and it is for purpose of rising of funds for maintenance of roads and for construction of new roads in the state of Rajasthan.
- The first part of Article 305 deals with existing laws and since the state Act is formed in 1955 i.e., after commencement of the Constitution, the first part is not applicable to the present case. The second part of Article 305 also no bearing to the questions that the court have to consider in this case.
- The Indian Constitution must be interpreted by considering the historical background of the Constitution and by analysing the problems which the Constitution sought to solve and similar approach is adopted here.
- By textual interpretation of Articles 301 to 304 it was held that parliament is having power to make restrictions in case of public interest and also differential treatment in case of scarcity of goods. Moreover, the taxes can be levied by sister-states similar to taxation in American tax scenarios like use tax and gross receipts tax.
- There is a difference in the language used in Articles 302 and 304 as the restrictions under former section need not be reasonable but for later section, the restrictions must be reasonable.
- Similarly full freedom to do trade, commerce does not mean that a person can do anything he wants. No right is absolute and everything is fixed by some limitations.
- If the state government wants to regulate the trade then the law must be enacted as per Article 304(b) which mandates the assent of president for further protection.
- The freedom guaranteed by Article 301 does not mean freedom from taxation, because taxation is not a restriction within the meaning of the relevant articles of Part XIII.
- The Court has failed to accept neither wide nor the narrow interpretation and held that provisions of part XIII are related only to entries said in Seventh Schedule. Moreover, the regulatory measures mentioned in the part do not impede trade, commerce or intercourse but actually facilitates it. This shows that the court has followed only textual interpretation.
- Through the examination of provisions, it is held clearly that taxes imposed are really taxes on motor vehicles which use the roads in Rajasthan or are kept for the use therein, either throughout whole area or part of it. The tax is also payable by all owners and traders. The question arises on determining the nature of the tax as if the tax is compensatory or not. Here the statute fixes the charge for a convenience or service provided by State or an agency of State and such charges are imposed on people who chose to avail such services, the freedom of trade, commerce and intercourse is unimpaired. In such a case, the character of tax is remuneration or consideration charged in respect of advantage sought. Moreover, here the taxes are still compensation and charge for regulation.
- The impugned Act does not violate the provisions of Article 301 of the Constitution and the taxes imposed under the Act are compensatory in nature which does not hinder the freedom of trade, commerce and intercourse assured under Part XIII.
- The barrier mentioned in Article 301 can be of different forms. The restrictions can be made before or after movement, may be prior restraint or subsequent burden but the essential idea is an obstacle put across trade in motion in particular point or different points. The expression “shall be free” declares in a mandatory form a freedom of such transport or movement from such barriers.
- No rights are absolute as the restrictions contemplated are exceptions to the rights conferred under Constitution.
- Article 301 declares a right of free movement of trade without any obstructions by way of barriers, inter-state or intra-state or other impediments operating as such barriers.
- The said freedom is not impeded but promoted by regulations creating conditions for the free movement of trade such as police regulations, provision for services, maintenance of roads, provisions for aerodromes, Wharffs etc., with or without compensation.
- Parliament may by law impose restrictions on freedom in the public interest and the said law can be made by virtue of any entry with respect to which the parliament has power to make law.
- State legislature is also having the power to make such laws but it is subject to 2 conditions mentioned in Article 304(b) of Constitution of India.
- Neither Parliament nor State Legislature is having the power to make laws that is giving preference to one state or discriminating one state and thus infringing the freedom. But the preferential treatment is allowed in case of Parliament to deal with scarcity of goods.
- The state can impose a non-discriminatory tax on goods imported from other states or the Union Territory to which similar goods manufactured or produced in that state are subject.
- The interpretation of Part XIII is crucial as it discloses an integrated scheme of freedom of trade, commerce and intercourse maintaining a balance between federalism and provincial autonomy.
- A law substantially in its pith and substance under an Entry in one list may touch incidentally on topic of legislation in a rival list without being void or ultra vires. Similarly, in the present case the pith and substance of the Act is the regulation of motor vehicles in Rajasthan and going though Rajasthan. Even if the legislation is said to touch inter-state trade or commerce, it is not a legislation in respect of inter-state trade or commerce.
- The provisions of the impugned Act are regulatory in nature and do not infringe Article 301 of Constitution of India.
- A small criticism was placed on Atalbari Tea Company by quoting that it is not very safe to rely only on American and Australian case laws to interpret the provisions of our Constitution.
- It was difficult to unite a country with under-developed provinces and thus we relied on Government of India Act, 1935 and then Constitution was adopted which was slowly spread to whole of nation. Similarly trade barriers and rights are introduced so that it will not be a discriminatory measure.
- Due consideration was not given to the state autonomy to raise revenues by taxing relevant heads. This curtails the legislative power.
The position has changed with the Jindal Steel Mills case (regrettably the 11-judge bench judgment was nullified by GST). Here the balance was made between state autonomy and central’s power to make legislations but later in Jindal Steel Mills case, the importance shifted to state autonomy and power of states to impose barrier tax.
From the above discussion we were able to understand the nature of Part XIII of Constitution of India. The judgment was drafted in detail which gives interpretation to every word. We can also witness the hard work taken by the Hon’ble Supreme Court of India to interpret every word and also rejected a particular type of interpretation by citing appropriately. The reliance has been heavily made on American and Australian jurisprudence and the bench has explained on to what extent the foreign jurisprudence applies. It is also pertinent to note that all judges held the opinion unanimously. The petition was dismissed and held that the impugned Act is in consonance with the Constitution of India.
1. Thakur Amar Singhji v. State of Rajasthan,  2 SCR 303.
2. Atiabari Tea Company Ltd. v. The State of Assam, AIR 1961 SC 232.
3. State of Bombay v. united Motors,  4 SCR 1069.
4. Commonwealth of Australia v. Bank of New South Wales, A.C. 235
5. Duncan v. State of Queensland  22 CLR 556.
6. Mc Carter v. brodie  80 Cri. L. R. 432.
7. Hughes and Vale Proprietary Ltd v. State of New South Wales  A.C. 241.
8. Armstrong v. State of Victoria
9. Commonwealth freighters property Ltd. V. Sneddon, (1959) 102 Cri. L.R. 280
10. Carter v. Carter Coal Company (1936) 298 U.S. 238.
11. Kidd v. Pearson (1888)128 US 1.
12. Welton v. State of Mussouri (1976) 91 U.S. 275.
13. Public Utilities Commission v. Landon, (1919) 249 U.S. 236.
14. Thathunni Moopil nair v. State of Kerala,  3 SCR 77
15. Balaji v. IT Officer,  43 ITR 393.
16. The King v. vizzard (1935) 50 Cri. L.R. 30
17. James v. Commonwealth (1936) A.C.578.