[Case Brief] Atiabari Tea Co. Ltd. v/s The State of Assam & Others – Supreme Court of India

Case Name Atiabari Tea Co. Ltd. v/s The State of Assam & Others
Case Number AIR 1961 SC 232
Court Supreme Court of India
Bench Chief Justice BP Sinha, Justice JC Shah, Justice KC Das Gupta, Justice KN Wanchoo, Justice PB Gajendragadkar
Author of the judgment Chief Justice BP Sinha
Decided On 26 September 1960
Relevant Act/Sections Constitution of India – Article 301 to 304
Author of the case brief Aditya Gor


The Constitutional validity of the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, (Assam Act XIII of 1954) (hereinafter referred to as Act) has been challenged under the present appeal before the Honourable Supreme Court through Article 32 of the Constitution.

As per facts, the appellants are the growers of tea in West Bengal or in Assam and carry their tea to the market in Calcutta from where the tea is sold for consumption in the country or is exported for sale out of the country. The sale of tea inside Assam bears a very small proportion to the tea produced and manufactured by the appellants.

The Assam legislature passed the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act which came into force on and from June 1, 1954. The purpose of the Act is to levy taxes on certain goods carried by road or inland waterways in the State of Assam.

On June 30, 1954, the second respondent, the Commissioner of Taxes, Assam, in exercise of the powers conferred upon him by section 7(3) of the Act, published a notification in the Assam Government Gazette bearing date June 21, 1954, by which he notified for general information that the return under the aforesaid Act and the rules made thereunder for the period commencing June 1, 1954 to September 30, 1954, should be furnished by October 30, 1954.

The competence of the Assam Legislature to legislate on the subject was also questioned in the present appeal. However, it was denied by the State that the Act or the rules made thereunder or the notifications issued thereunder were ultra vires the Constitution or that the Act contravened the provisions of Article 301 of the constitution.

It was also asserted that the Act was within the legislative competence of the Assam Legislature and was not within the terms of the prohibition contained in Article 301. These petitions were heard by a Special Bench of the Assam High Court, which, by its judgment and order dated June 6, 1955, dismissed them holding that the Act was not unconstitutional. Thus the matter reached before the Supreme Court.

It was contended on behalf of the appellants that the impugned Act imposed fetters on the free flow of trade and commerce in respect of tea and jute, the two commodities dealt with by the Act and, therefore, contravened the provisions of Article 301 of the Constitution; that the legislation was beyond the legislative competence of the Assam Legislature and was not authorised by entry 56 in List II; that the tea industry was a controlled industry as declared by Parliament and directly came under entry 52 of List I; that it was colourable piece of legislation which, in its true effect, was a levy of a duty of excise which could only be done by the Union Legislature, and finally, that it contravened Article 14 of the Constitution.

On the other hand, the state of Assam contended that the power to tax is a peculiar legislative function with which the courts are not directly concerned and that, therefore, the freedom contemplated by Article 301 of the Constitution. Moreover, the freedom envisaged by Article 301 does not include immunity from taxation.

The Honourable Supreme Court did not accept the argument of the State and allowed the appeal thereby holding the Act to be unconstitutional. It was observed that the sovereign State, in some cases the Union, in other cases the State, has the inherent power to impose taxes in order to raise revenue for purposes of State. This power of the State to raise finances for Government purposes has been dealt with by Part XII of the Constitution, which contains the total prohibition of levy or collection of tax, except by authority of law (Article 265).

It has to be remembered that trade, commerce, and intercourse include individual freedom of movement of every citizen of India from State to State, which is also guaranteed by Article 19(1)(d) of the Constitution.

If a law is passed by the Legislature imposing a tax which in its true nature and effect is meant to impose an impediment to the free flow of trade, commerce, and intercourse, for example, by imposing a high tariff wall, or by preventing imports into or exports out of a State, such a law is outside the significance of taxation, as such, but assumes the character of a trade barrier which it was the intention of the Constitution makers to abolish by Part XIII.

The legislative entries in the three Lists empowering the Union Government and the State Governments to impose certain taxations with reference to movements of goods and passengers would be rendered ineffective, if not otiose, if it were held that taxation simpliciter is within the terms of Article 301(3).

Article 304 while recognising the power of a State Legislature to tax goods imported inter-State, insists that a similar tax is imposed on goods manufactured or produced within the State. But that does not mean that State Legislatures derive their power of taxation by virtue of what is contained in Article 304. The Union and State Legislature, therefore, have the power to legislate by way of taxation in respect of trade, commerce and intercourse, so as to erect trade barriers, tariff walls or imposts, which have a deleterious effect on the free flow of trade, commerce and intercourse. That freedom has further been circumscribed by the power vested in Parliament or in the Legislature of a state to impose restrictions in the public interest. Article 301 is subject to non-discriminatory restrictions imposed by Parliament in public interest (Article 302).

It was argued that the tea industry was a controlled one within the competence of the Union Legislature. The Tea Act declared that it was expedient in the public interest that the Union should take the tea industry under its control. Out of that Fund, called the Tea Fund, the expenses of the establishment created by the Tea Act have to be met. It was also urged that tea was a controlled industry under the provisions of Act 29 of 1953, and so it was the Union Government alone which was competent to regulate the manufacture, production, distribution transport of the said commodity; that being so the Assam Legislature was not competent to pass the Act.

Contrary to this argument, the Court observed that after India attained political freedom in 1947 and before the Constitution was adopted the process of the merger and integration of the several Indian states with the rest of the country was speedily accomplished with the result that when the Constitution was first passed the territories of India can State of Part A States which broadly stated represented the provinces in British India, and Part B states which were made up of Indian States.

Article 245 which deals with the extent of laws made by Parliament and by the Legislatures of States begins with the words “subject to the provisions of this Constitution”; in other words, the power of Parliament and the Legislatures of the States to make laws including laws imposing taxes is subject to the provisions of this Constitution and that must bring in the application of the provisions of Part XIII.

The power to levy taxes is ultimately based on Article 245. The doctrine of the freedom of trade, commerce, and intercourse enunciated by Article 301 is not subject to any other part of the Constitution but is only subject to other provisions in Part XIII.

Article 302 confers on the Parliament power to impose restrictions on trade, commerce, and intercourse. Restrictions on the freedom of trade can be imposed by Parliament if they are required in the public interest so that the generality of freedom guaranteed by Article 301 is subject to the exception provided by Article 302 of the Constitution.

It is likely that having authorised Parliament to impose restrictions by Article 303(1) to the said entries was to introduce a corresponding limitation on the power of Parliament to discriminate under Article 302. However, it was opined that the limitation thus introduced in Article 303(1) cannot circumscribe the scope of Article 301 or otherwise affect its construction.

Article 304(a) is another exception to Article 301. Article 304(b) empowers the State Legislature to impose reasonable restrictions on the freedom trade with other States or within its own territory. Again, the reference to the territory within the State supports the conclusion that Article 301 covers the movement of trade both inter-state. Article 304(b) is to be read with the non-obstante clause relating to Article 301 as well as Article 303 and in substance, it gives power to the State Legislature somewhat similar to the power conferred on the Parliament under Article 302. Article 305 saves existing laws and laws providing for State monopolies.

Thus considered the Court opined 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.

The present Act in question has been passed by the Assam Legislature under Entry 56 in List II and naturally, it purports to be a tax on goods carried by roads or by inland waterways. It may be that one of the objects in passing the Act was to enable the State Government to raise money to keep its roads and waterways in repairs; but that object may and can be effectively achieved by adopting another course of legislation; if the said object is intended to be achieved by levying a tax on the carriage of goods it can be so done only by satisfying the requirements of Article 304(b). It is a common ground that before the bill was introduced or moved in the State Legislature the previous sanction of the President has not been obtained; nor has the said infirmity been cured by recourse to Article 255 of the Constitution.

It was held that such a restriction can be imposed by the State Legislature only if the relevant Act is passed in the manner prescribed by Article 304(b). When a State Legislature passes an Act under Entry 56 of List II its initial legislative competence is not in dispute.

Item 56 of List II of the seventh schedule to the Constitution authorises the State Legislature to impose taxes on goods and passengers carried by road or on inland waterways. But the exercise of legislative power of the Parliament and the State Legislatures conferred by the legislative lists is restricted by diverse provisions of the Constitution.

Article 245, clause (1), of the Constitution, expressly provides that the legislative powers of the parliament and the State Legislatures to make laws are subject to the provisions of the Constitution; and Article 301 is undoubtedly one of the provisions to which the legislative powers are subject.

The power of taxation has, therefore, to be exercised by the Legislature strictly within the limits prescribed by the Constitution, and any alleged transgression either by Parliament or the State Legislature of the limits imposed by the Constitution is justiciable. The freedom guaranteed by our Constitution is more pervasive: it is freedom of trade, commerce and intercourse intra-State as well as inter-State.

The legislative power of the Parliament imposing restrictions on the freedom of trade, commerce and intercourse may, therefore, be validly exercised if the restrictions are required in the public interest.

Even though the Assam Legislature had by item 56 of the seventh schedule legislative authority to impose this tax, the State could not exercise this authority in the absence of the previous sanction of the President and the invalidity of the Act imposing the tax on goods and passengers is not cured, the President not having assented to the Act at any time after it was passed by the Assam Legislature.

Even a cursory review of our constitutional provisions clearly shows that the primary object of the Constituent Assembly was to erect a Governmental machinery with a strong Central Government, with the object of building up a healthy economy, and unifying the various component State, consisting of the former British Indian Provinces and the merged Indian States, by subordinating local on parochial interest to the wider national interest.

In that view, the Assam Taxation (on Goods carried by Roads or Inland Waters) Act, 1954, must be regarded as an infringement to the guarantee of freedom of trade and commerce under Article 301 because the bill moved in the assembly had not received the assent of the president as required under Article 304(b) proviso, and the Act has not been validated by the assent of the president under Article 255(c). The appeal was thus allowed.

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