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The second submission raises the point whether tax in question is a restriction on the freedom of trade, commerce and intercourse guaranteed by Article 301 of the Constitution.

In Atiabari Tea Co. v. State of Assam(1) (hereinafter referred to as 'Atiabari Case'), the appellants challenged the validity of the Assam Taxation (on Goods carried by Roads and Inland Waterways) Act, 1954, on the ground that it violated Article 391 and was not saved by Article 304(b). By a majority of 4 to 1, this Court upheld the challenge and declared the Act to be void. The majority said that it would be reasonable and proper to hold that restrictions, freedom from which is guaranteed by Article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade and that taxes may and do amount to restrictions, but it is only such taxes as directly and immediately restrict trade hat would fall with in the purview of Article 301. Sinha, C.J. dissented. He held that taxation simpliciter, as opposed to discriminatory taxation, was not within Article 301. Shah, J. who delivered a separate judgment said that Article 301 guaranteed freedom in its widest amplitude-freedom from prohibition, control, burden or impediment in commercial intercourse.

(2) [1963] 1 S.C.R. 491.

maintain roads, that could only be done after obtaining the sanction of the President as provided in Article 304(b). In Khverbari Tea co. Ltd. v. The State of,, Assam(1), it was said that the decision in Atiabar.; case was affirmed in Automobile Case with a clarification that-regulatory measures or measures imposing compensatory tax do not come within the purview of restrictions contemplated in Article 301 and that such measures need not comply with the requirement of the provisions of Article 304(b). In whatever way one may choose to put it, the effect of the majority decision in the Automobile Case is that a compensatory tax is not a restriction upon the movement part of trade and commerce.

Article 301 imposes a general limitation on all legislative power in order to secure that trade, commerce and intercourse throughout the territory of India shall be free. Article 302 gave power to Parliament to impose general restrictions upon that freedom. But a restriction is put on this relaxation by Article 303(1) which prohibits Parliament from giving preference to one State over another or discriminating between one State and another by virtue of the entries relating to trade and commerce in Lists I and III of Seventh Schedule and a similar restriction is placed on the states, though the reference to the states is inappropriate. Each of the clauses of Article 304 operates as a proviso to Articles 301 and 303. Article 304(a) places goods imported from sister-states on a par with similar goods manufactured or produced inside the state in regard to state taxation within the allocated filed. Article 304(b) is the State analogous to Article 302, for it makes the state's power contained in Article 304(b) expressly free from the prohibition contained in Article 303(1) by reason of the opening words of Article 304. Whereas in Article 302 the restrictions are not subject to the requirement of reasonableness, the restrictions under Article 304(b) are so subject. The word 'free' in Article 301 does not mean freedom from regulation. There is a clear distinction between laws interfering with freedom to carry out the activities constituting trade and laws imposing on those engaged therein rules of proper conduct or other restraints directed to the due and orderly manner of carrying out the activities. This distinction is described as regulation. The word 'regulation' has no fixed connotation. Its meaning differs according to the nature of the thing to which it is ,applied. The true solution, perhaps, in any given case, could be found by distinguishing between features of the transaction or activity in virtue of which it fell within the category of trade, commerce and intercourse and those features which, though invariably found to occur in some form or another in the transaction or action are not essential to the conception. What is relevant is the contrast between the essential attribute of trade and commerce and the incidents of the transaction which do not give it necessarily the character of trade and commerce. Such matters relating to hours, equipment, weight/size of load, lights, which form the incidents of transportation, even if inseparable, do not give the transaction its essential character of trade or commerce. Laws for government of such incidents 'regulate'(2). (1) [1964] 5 S.C.R.975.

(2) 102 Commonwealth Law Reports 280.

charging from the users of motor vehicles something in the neighbourhood of 50% of the cost it has to incur in maintaining and making roads".

The approach of this Court is supported by the decisions of the Supreme Court of U.S.A. In Interstate Transit, Inc. v. Lindscy(1), it is observed that while a state may not lay a tax on the privilege of engaging in interstate commerce it may impose even upon motor vehicles engaged exclusively in interstate commerce a charge, as compensation for the use of the public highways which is a fair contribution to the cost of constructing and maintaining them and of regulating the traffic thereon. In Capital Greyhound Lines v. Brice ( 2) , the state tax was upheld even though the attorney for the state had conceded that the tax was allocated to the construction and maintenance of the state highways. Whether the restrictions visualized by Article 304(b) would include the levy of a non-discriminatory tax is a matter on which there is scope for difference of opinion. Article 304(a) prohibits only imposition of a discriminatory tax. It is not clear from the article that a tax simpliciter ran be treated as a restriction on the freedom of internal trade. Article 304(a) is intended to prevent discrimination against imported goods by imposing on them tax at a higher rate than that borne by goods produced in the state. A discriminatory tax against outside goods is not a tax simpliciter but is a barrier to trade and commerce. Article 304 itself makes a distinction between tax and restriction. That apart, taxing powers of the Union and States are separate and mutually exclusive. It is rather strange that power to tax given to states, say for instance, under Entry 54 of List II to pass a law imposing tax on sale of goods should depend upon the goodwill of the Union executive. It is said that a tax on sale does not impede the movement of goods. But Shah, J. said in State v. Natarajan "that tax under Central sales tax on inter-state sale, it must be noticed, is in its essence a tax which encumbers movement of trade and commerce". However, Bachawat, J. in his separate judgment in that case said that Article 301 makes no distinction between movement from one part of the state to another part of the same state and movement from one state to another, that if a tax on intrastate sale does not offend Article 301, equally, a tax on inter-state sale cannot do so, and that, neither tax operate directly or immediately on the free flow of trade or free movement as the tax is on the sale, the movement being incidental or consequential. What is guaranteed by Article 301 is freedom of trade, commerce and intercourse. Freedom of movement of goods from one place to another is a very important facet of freedom of trade and commerce. That is perhaps the reason why the Court, in the Automobile Case (supra) restricted the freedom of trade and commerce guaranteed under Article 301 to the movement part of it. Whether there is any warrant for restricting the concept of freedom of trade and commerce to the movement part of it is a matter upon which we are not called upon to make any pronouncement. A tax on (1)283 U. S. 183, at 185.