Facts of the Case-

The appellants were growers of tea in West Bengal or in Assam and carried their tea to the
market in Calcutta from where the tea was sold for consumption in the country or was
exported for sale out of the country. The sale of tea inside Assam bore a very small
proportion to the tea produced and manufactured by the appellants. Thus the bulk of tea
produced and manufactured was carried out of Assam, either for internal consumption in
India or for export abroad. Besides the tea carried by rail, a large quantity of tea was
carried by road or by inland waterways from Assam to Bengal and in some of these cases,
from one part of West Bengal to another part of the same State through inland waterways,
only a few miles of which passed through the territory of the State of Assam.
The Assam legislature passed the Act which received the assent of the Governor of Assam
on April 9, 1954, and came into force on and from June 1, 1954. The purpose of the Act
was 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 sub-s. (3) of sec. 7 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 said notification also demanded the furnishing of
quarterly returns before January 30, 1955 and April 30, 1955, for the quarters ending
December 31, 1954 and March 31, 1955, respectively.
The appellants in some of the cases, in pursuance of demand notices, submitted returns to
the third respondent, the Superintendent of Taxes. In the prescribed form in respect of tea
despatched and carried up to September 30, 1954, under protest. They also paid the tax
demanded under protest. The appellants moved the High Court of judicature in Assam
under Art. 226 of the Constitution challenging the validity of the said Act and praying for
the issue of a writ of mandamus directing the respondents to forbear from giving effect to
the provisions of the Act and the notification issued under the Act and/or a writ of
prohibition or any other appropriate writ restraining them from taking steps under the
provisions of the Act.
 The appellants challenged the validity of the Act mainly on the grounds that (1) the Act,
rules and the notifications under the Act were ultra vires the Constitution, because the Act
was repugnant to the provisions of Art. 301 of the Constitution as the tax on carriage of tea
through the State of Assam had the effect of interfering with the freedom of trade,
commerce and intercourse; (2) that tea being a controlled industry under the provisions of
the Tea Act XXIX of 1953, the Union Government alone had the power to regulate the
manufacture, production, distribution or transport of tea and the jurisdiction of the Assam
legislature was thus completely ousted; (3) that the tax under the Act was nothing but a
duty of excise, in substance, though not in form, and was thus an encroachment on the
Central legislative field within the meaning of entry 84 of the Union List.
The impugned Act Was also challenged on the ground that it was discriminatory and thus
void under Art. 14 of the Constitution. The competence of the Assam Legislature to
legislate on the subject was also questioned.

Main Idea of the Atiabari Case-

Trade, Commerce and intercourse may be domestic or foreign or international. Arts. 301-
305, deal with domestic trade and commerce, i.e., within the territory of India. Such
commerce may be of two types- (i) intra-State i.e., commerce within the territory of State
and (ii) inter-State i.e., commerce which overflows the boundary of One state and which
extends to two or more States.1
The scheme of Arts. 301-305 is complex. There is a mix-up of exceptions upon exceptions
in these provisions. Therefore to have an idea of the extent of freedom granted to trade and
commerce, and the limitations imposed thereon, all these constitutional provisions must be
considered together. According to the Supreme Court2, in evolving these provisions the
framers of the Constitution seem to have kept three main considerations in their view. One,
in the larger interests of the country, there must be free flow of trade, commerce and
intercourse, both inter-State and intra-State. Two, the regional interests must not be ignored
altogether. Three, the Centre should have power of intervention in any case of crisis to deal
without creating too many preferential or discriminative barriers.

1
M.P. Jain, Indian Constitution Law, Sixth Edition, 2013, LexisNexis, Noida. Pg. 740.
2
Automobile Transport(Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406.
 The eminent jurist D.D. Basu while commenting on Article 301 has stated-
“The object of Part XIII is not to make inter-State trade, commerce or intercourse
absolutely free. Reasonable restrictions in public interest are permissible. The freedom
guaranteed by Art.301 is not an absolute freedom. It will be infringed only if-
(i) A ‘restriction’ is imposed, as distinguished from a regulation which in reality
facilitates trade, commerce or intercourse.
(ii) Such restriction must directly and immediately affect the free flow of trade,
commerce or intercourse
(iii) Such restriction must not be covered by any of the provisions in Arts. 302-
305.”3
The Atiabari case also elucidates on the point that as regards the State Legislature, apart
from the limitation imposed by Art. 301, cl.(1) of Art. 303 imposes an additional
limitation, namely, that it must not give preference or make discrimination between one
State and another in exercise of its power relating to trade and commerce under List II
(entry 26) or List III. Art. 301 of the Constitution guarantees freedom of trade, commerce
and intercourse not only between different States, but also between different parts of the
same State and between the residents of those different parts.
In this case, the Court held that the levy made on goods carried by road and inland
waterways under the Assam Taxation (on goods carried by Roads or Inland Waterways)
Act, 1954, contravened Art. 301 on the ground that it was levied solely on the ground that
the goods were carried by roads or waterways within the area of the State and thus imposed
a restriction upon the movement of goods within the State.
The judgment did not go in favour of the State, that is, the SC did not uphold the Act,
because it didn't satisfy the stipulation of Art. 304(b) and Art. 255(c) which obliged the
assent of the president before the bill is moved in the Governing body of a State. Generally
the way of the assessment was not unfair or irrational, as said by majority of the judges, to
refute the Act. In this situation, it was held that charges are not limitations on the flexibility
of exchange, business and intercourse; rather they help in the smooth running of the
economy and of the exchange, business of the nation. In any case this judgment was

3
D.D. Basu, Commentary On The Constitution Of India, Volume 8, 8th Edition, 2010, LexisNexis Butterworths
Wadhwa, Noida, pg 9718
 overturned or tweaked on account of Automobile Transport Ltd. 4, where it is said that the
way of the duty which is not a limitation on the flexibility of exchange and trade and is
sensible ought to be administrative and compensatory charges just. Other than this another
duty is an obstruction to the flexibility of exchange, business and intercourse. Therefore
even though the Act stood the test of Article 301, it fell to a procedural technicality. But
this procedural fault should not be taken lightly since the gaining the President’s assent is
all-important in the process of peace-time legislation.
Along with challenging the Act on basis of Article 301, the legislative competency of the
Assam legislature was also challenged on basis of the doctrine of ‘pith and substance’ and
‘colourable legislation’. Even though the words ‘colourable legislation’ were used only
once during the judgment it is essential that the issue was dealt with by the court albeit
summarily.
The doctrine of “pith and substance” is applied when the legislative competence of a
legislature with regard to a particular enactment is challenged with reference to the entries
in different legislative lists, because a law dealing with a subject in one list within the
competence of the legislature concerned is also touching on a subject in one list within the
competence of that legislature.5 In such a case, what has to be ascertained is the pith and
substance of the enactment- the true character and nature of the legislation. If, on
examination of the statute, it is found that the legislation is in substance on a mater
assigned to the legislature enacting that statute, then it must be held valid in its entirety
even though it may incidentally trench upon matters beyond its competence. 6 Legislative
matters in different lists are bound to overlap and, therefore, incidental encroachments
shall take place. In such cases, “the question must be asked,” said Lord Porter in Prafulla
Kumar Mukherjee v. Bank Of Commerce Ltd.7 “what in pith and substance is the effect of
the character to be found.”
The doctrine of pith and substance also applies to overlapping between State made laws in
State List and Central law in Concurrent List. The State law may be justified even if it

4
Id.
5
V. .N. Shukla, Constitution of India, Tenth Edition, 2006, Eastern Book Company, Delhi. Pg.545
6
Id.
7
AIR 1947 PC 60.
 incorporates some of the features of Central law on Concurrent list so long the former is in
pith and substance on State List.8
Gwyer CJ in Subrahmanyam Chettiar v. Muttuswami Goudan 9 in explaining the validity of
the doctrine of pith and substance said:
“it must inevitably happen from time to time that legislation, though purporting to deal
with a subject in one list, touches also on a subject in another list, and the different
provisions of the enactment may be so closely intertwined that blind adherence to a strictly
verbal interpretation would result in a large number of statutes being declared invalid
because the Legislature enacting them may appear to have legislated in a forbidden
sphere. Hence the rule has been evolved… whereby the impugned statute is examined to
ascertain its ‘pith and substance’ or its ‘true nature and character’, for the purpose of
determining whether it is legislation with respect to matters in this list or in that.”
If the Constitution of a State distributes the legislative powers amongst different bodies,
which have to act within their respective spheres marked out by specific legislative entries,
or if there are limitations on the legislative authority in the shape of fundamental rights,
questions do arise as to whether the legislature in a particular case has to has not, in respect
of the subject-matter of the statute, or in the method of enacting it, transgressed the limits
of its constitutional powers.
The idea conveyed by the expression, of ‘colourable legislation’, is that although a
legislature in passing a statute purports to act within the limits of its powers yet in
substance and in reality it transgresses those powers, the transgression being veiled by
what appears on proper examination to be a mere pretence or disguise. 10 The doctrine of
colourable legislation applies to taxation laws as well as other laws. But a challenge on the
basis of colourable legislation, which is not a legitimate exercise of power, but by
providing other relevant circumstances which justify the conclusion that the statute is
colourable and as such amounts to a fraud.11 The doctrine of colourable legislation has no
application if the legislature concerned has constitutional authority to pass a law in regard

8
Girnar Traders v. State of Maharashtra (2011) 3 SCC 1.
9
AIR 1941 FC 47, 51.
10
Ashok Kumar v. Union of India AIR 1991 SC 1792.
11
Jaganath Baksh Singh v. State of U.P. AIR 1962 SC 1563.
 to a particular subject, whatever the reasons behind it may be. 12 This was reaffirmed in
Bhairebendra Narayan v. State of Assam.13
The essence of the Atiabari case, was that the Supreme Court held that Art. 301 is not a
declaration of a mere platitude, or the expression of a pious wish of a declaratory character;
it is not also a mere State of a Directive Principles of State Policy, but it embodies and
enshrines a principle of paramount importance that the economic unity of the country will
provide the main sustaining force for the stability and progress of the political and cultural
unity of the country.
The Regulatory Regime
Distribution of goods and commodities from the manufacturer or the producer to the end
user is a complex phenomenon and this is further complicated with statutory regulations.
India is not a single market, each State treats goods produced in other States as equivalent
to imports.
As stated earlier, the regulatory regime is framed on the basis of mode of transport (that is,
truck operations) and there are also regulations that are goods-related and designed for
consumer protection. In varying degrees, all countries regulate the trucking industry. At the
same time, regulations related to goods and consumer protection are also present. The
Indian experience has not been any different. However, unlike Indian highways, one does
not find long queues of trucks on inter-State highways nor scattered checkpoints along the
highway in other places like the European Union and North America.
Quantity Regulation
At present, there is no quantity regulation for goods vehicles. As per Section 89 of the
Motor Vehicles Act, 1988, any person can apply for any kind of permit at any time and the
Regional Transport Authority shall not ordinarily refuse to grant the permit. With this
policy of liberalization of permits, the quantity regulation that existed in earlier Acts is no
longer relevant.
Quality Regulation
There are provisions in the MVA that deal with quality regulation. The existing quality
regulations include roadworthiness of vehicles (fitness certificate - Section 56 of the MV

12
M.P. Jain, Indian Constitution Law, Sixth Edition, 2013, LexisNexis, Noida. Pg. 740
13
AIR 1956 SC 503.
Act), competence in driving (driver licensing – Section 9 of the MV Act), control of
emissions (emission norms, inspection and maintenance programme of vehicles, pollution
under control certificates) and observance of other regulations. As far as the fitness test is
concerned, it is based on visual inspection systems, which leaves much to be desired. For
pollution control, the law was not stringent till 1996. As a result, pollution control for a
large number of old vehicles does not exist. In general, quality regulations have too many
loopholes, and are not strictly enforced.
Safety Regulation
Safety depends upon the condition of vehicles in the hands of competent and skilled
drivers. The other prerequisites of road safety are well-designed roads and strict
enforcement of provisions of the MV Act. Most truck drivers do not receive proper training
from motor driving schools. The mechanism to regulate motor driver training schools
provided in the MV Act is neither implemented, nor is attention given to upgradation of
such schools as are licensed by State governments. The condition of vehicles is also poor.
The design of vehicles is not upgraded and preventive maintenance is neglected to save
money. In fact, the maintenance of trucks is entrusted to roadside mechanics who are by
and large illiterate and ill-equipped and do not appreciate the importance of fuel efficiency,
pollution control or safety aspects. On road infrastructure, this is in bad shape since this
sector has been starved of funds for a long time. Road deficiencies and lack of enforcement
of safety regulations endanger road safety.
Regulation of Brokers/Agents
Section 93 of the MV Act provides for licensing inter alia of any agent or canvasser
engaged in the business of collecting, forwarding or distributing goods by trucks. The
wording of the section seems ambiguous. Any interpretation would imply that this section
does not cover brokers and booking agents. There has been mushrooming of unscrupulous
brokers/booking agents. There is a need to include brokers/booking agents within the scope
of this section explicitly.
Labour Regulation
The hours of work of any person engaged in operating a transport vehicle shall be such as
stipulated in the Motor Transport Workers (MTW) Act, 1961. Based on this provision,
Section 91 of the MV Act provides for 8 hours of work for drivers. However, these
provisions are not enforced strictly. They are not enforced by the Motor Vehicles
Department and it is presumed that this is the responsibility of the Labour Department.
Lack of co-ordination between the Labour Department and Transport Departments of
States is responsible for poor implementation of both Acts. Truck owners do not maintain
any record of duty hours of drivers and other employees.
Regulatory Regime: Goods
The regulatory regime for goods is more complicated than regulating trucking operations.
A truck can have a single commodity despatched by a single supplier to a single receiver.
On the other hand, a truck may carry multiple commodities despatched by different
suppliers to different buyers at different points for delivery. The regulatory regime for
goods is commodity and location specific. The fiscal obligation is common to both
commodity and location. The situation is complicated further because the regulatory
regime for commodity specific statutory obligations requires a different type of
administrative enforcement measures. In the event of any missing link in the multiple
commodity carrier, detention of the carrier is inevitable.
This is a major irritant in the flow of trade and commerce. The Centre, along with State
governments, is empowered to enact laws pertaining to goods. In doing so, duplication in
work done by the government machinery leads to confusion in the minds of those who
have to comply with provisions of legislation. Internal trade in goods is subjected to a
multiple licensing system from a number of authorities. Besides, all licenses have to
periodically checked and renewed, which entails submission of returns, display of stocks
and prices. All such unproductive work involves a great deal of administrative work,
leading to corruption and harassment. Unrealistic provisions make it even more difficult.
Moreover, lack of uniformity in implementation is another form of distortion. While some
States are very vigorous in implementing the laws scrupulously, others are not. For
instance, sale of Kesari Dal in any form is banned under Rule 44 (a) of the Prevention of
Food Adulteration Rules in some States. In some States where Kesari Dal is produced in
large quantities, sales are allowed. As a result, in one State, the accidental admixture of
Kesari Dal with other pulses may lead to punitive action. In a neighbouring State, it may be
allowed. This should not be the spirit of the law.