RIGHT TO FREE TRADE AND COMMERCE

A) INTRODUCTION

Trade, commerce and intercourse may be domestic or foreign or international. Arts. 301-305,
discussed in this Chapter, deals 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 which is confined within the territory of a State;
(ii) inter- State, i.e., trade and commerce which overflows the boundary of one State and which
extends to two or more States.

No federal country has an even economy. Some of its constituent units may be agricultural while
others may be industrial. Some States may produce raw materials while the processing and
manufacturing industries may be located in other States because of several favourable factors,
like availability of cheap labour or electric energy. This circumstance creates the possibility that
the constituent units which have legislative powers of their own may, to serve their own narrow
and parochial interests, seek to create trade barriers by restricting the flow of commodities
either from outside or to other units.

Creation of such regional trade barriers may prejudicially affect national interests as it may
hamper the economic growth of the country as a whole, and this would be disadvantageous to all
the units in the long run. Besides, the resources and industries of the units may be
complementary to each other.

Free flow of trade, commerce and intercourse within a federal country having a two-tier polity is
a prerequisite for promoting economic unity of the country.

An attempt has, therefore, been made in all federations, through adopting of suitable
constitutional formulae, to create and preserve a national economic fabric, transcending State
boundaries, to minimise the possibility of emergence of local economic barriers, to remove
impediments in the way of inter-State trade and commerce and thus help in welding the whole
country into one single economic unit so that the economic resources of all the various regions
may be exploited, harnessed and pooled to the common advantage and prosperity of the country
as a whole.
 B) TRADE AND COMMERCE IN INDIA

The Constitution-makers desired to promote free flow of trade and commerce in India as they
fully realized that economic unity and integration of the country provided the main sustaining
force for the stability and progress of the political and cultural unity of the federal polity, and that
the country should function as one single economic unit without barriers on internal trade.

Atiabari Tea Co. Ltd. v. State of Assam, AIR 1961 SC 232, 247 : (1961) SCR 809.
(THE SCHEME OF ARTICLES 301-305)

“In drafting the relevant Articles [Arts. 301-305] the makers of the Constitution were fully
conscious that economic unity was absolutely essential for the stability and progress of the
federal polity which had been adopted by the Constitution for the governance of the country.
Political freedom had been won, and political unity which had been accomplished by the
Constitution, had to be sustained and strengthened by the bond of economic unity. It was realised
that in course of time different political parties believing in different economic theories or
ideologies may come in power in the several constituent units of the Union and that may
conceivably give rise to local and regional pulls and pressures in economic matters. Local or
regional fears or apprehensions raised by local or regional problems may persuade the State
legislatures to adopt remedial measures intended solely for the protection of regional interests
without due regard to their effect on the economy of the nation as a whole. The object of [Arts.
301-305] was to avoid such a possibility. Free movement and exchange of goods throughout the
territory of India is essential for the economy of the nation and for sustaining and improving
living standards of the country.”

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 with particular problems which may arise at times in any part of India.

ARTICLE 301

According to Art. 301, “trade, commerce and intercourse throughout the territory of India shall
be free.” This constitutional provision imposes a general limitation on the exercise of legislative
power, whether of the Centre or of the States, to secure unhampered free flow of trade,
commerce and intercourse from one part of the territory to another. The purpose underlying Art.
301 is to promote economic unity of India and that there should not be any regional or territorial
economic barriers.
Besides Art. 301, the concept of economic unity is also strengthened by the scheme of allocation
of powers between the Centre and the States. The Centre has been given broad powers in the
economic field. Inter-State trade and commerce is an exclusive Central matter and the States
have power only on intra- State trade and commerce which again is subject to entry 33, List III.
Further, inter-State sales tax belongs to the Centre and the States’ power is confined to levying
tax only on intra-State sales. The excise duties can also be levied largely by the Centre and not
the States.

19(1)(g) and 301

Article 19(1)(g), a fundamental right, confers on the citizens the right to practise any profession
or carry on any occupation, trade or business subject to reasonable restrictions in public interest.

Art. 301 could be invoked only when an individual is prevented from sending his goods
across the State, or from one point to another in the same State, while Art. 19(1)(g) can be
invoked when the complaint is with regard to the right of an individual to carry on business
unrelated to, or irrespective of, the movement of goods, i.e., while Art. 301 contemplates the
right of trade in motion, Art. 19(1)(g) secures the right at rest.

Article 19(1)(g) can be taken advantage of by a citizen, while Art. 301 can be invoked by a
citizen as well as a non-citizen. Also, while Art. 19(1)(g) is not available to a corporate person,
Art. 301 may be invoked by a corporation and even by a State on complaints of discrimination or
preference which are outlawed by Art. 303, discussed below. In an emergency, Art. 19(1)(g) is
suspended and so Courts may take recourse to Art. 301 to adjudge the validity of a restriction on
commerce. In certain situations, only one of the two may be relevant, as for example, when there
is no direct burden on a trade but it may be a restriction in terms of Art. 19(1)(g) read with Art.
19(6).

Writ under Article 32 ( Article 19(1)(g) and 301)

There are three alternative situations:

(i) A provision may be valid under Arts. 301 to 304, but may be invalidunder Art. 19(1)(g); or
(ii) it may be invalid under Arts. 301 to 304 as well; or
(iii) it may be invalid under Arts. 301-304, but not under Art. 19(1)(g) situations.

Article 32 petition will lie in situations (i) and (ii), but not in situation (iii).
COMMERCE CLAUSE AND 301

Explaining the word ‘commerce’ in the Commerce Clause of the U.S. Constitution,
MARSHALL, C.J., Stated as early as 1824 in Gibbons v. Ogden that, “commerce, undoubtedly,
is traffic but it is something more; it is intercourse”. The framers of the Indian Constitution,
instead of leaving the idea of ‘intercourse’ to be implied by the process of judicial interpretation,
expressly incorporated the same in Art. 301.

The Commerce Clause, which provides inter alia that the Congress shall have power to
regulate commerce among the several States. The clause does not in terms restrict State
protectionism, but by a process of judicial interpretation, it has come to have a restrictive effect
on the States in those matters in which the Supreme Court considers that uniformity is necessary
for national economic well being, and, thus, the capacity of the States to interfere with interState
commerce has been very much restricted.

The Commerce Clause has also bestowed on the Central Government necessary power to
regulate the country’s economy. The Courts have interpreted the words ‘inter-State commerce’ in
a broad sense, and have held that the Congress can regulate not only inter-State commerce but
even those intra-State activities which so affect interState commerce as to make their regulation
appropriate.

Commerce clause, provision of the U.S. Constitution (Article I, Section 8) that authorizes
Congress “to regulate Commerce with foreign Nations, and among the several States, and with
Indian Tribes.

THROUGHOUT THE TERRITORY OF INDIA

Art. 301 applies not only to inter-State, but also to intra-State, trade and commerce as well, i.e.,
trade within a State. This view is also supported by the wordings of Arts. 302 and 304. The
words ``territory of India '' in Art. 301 removes all interState or intraState barriers, and brings out
the idea that for the purpose of the freedom of trade and commerce, the whole country is one
unit. Trade cannot be free throughout India if barriers exist in any part of India, be it interState or
intraState.

EXCEPTIONS TO ARTICLE 301

No freedom can be absolute as absolute freedom of trade, commerce and intercourse may lead to
economic confusion and it may degenerate into a self defeating licentiousness in trade and
commerce. The framers of the Constitution realised that under some circumstances freedom of
trade and commerce may have to be curbed or curtailed. Therefore, the wide amplitude of the
freedom granted by Art. 301 is expressly limited by Arts. 302 to 305. The exceptions to
Art. 301 are:

(1) Parliament is given power to regulate trade and commerce in public interest under Art. 302
subject to Art. 303.
(2) The State Legislatures are given power to regulate trade and commerce under Art. 304
subject to Art. 303.
(3) Art. 305 protects existing laws from the operation of Arts. 301 and 303.
(4) Art. 305 also saves nationalization laws from the operation of Art. 301. The purport of these
provisions is two-fold. One, Parliament is entitled by itself to impose restrictions on trade and
commerce. Two, the power of the States to do so is restricted. The Centre can prevent a State
from imposing a restriction if it is against national interest.

TEST OF REASONABLENESS AND TEST OF PUBLIC INTEREST

A State may validly impose restrictions under Art. 304(b) which seek to protect public health,
safety, morals and property within the State. Thus, a tax on liquor is in public interest as it seeks
to protect the health and morals of the people. Similarly, a levy of luxury tax relating to tobacco
may be regarded in public interest as consumption of tobacco involves a health hazard. In this
instance , even if no tobacco was grown within the State still it can be taxed by the state.