Constitution of India
Article 303: Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce
Part XIII — Trade, Commerce and Intercourse within the Territory of India
Clause (1)
WHAT IT SAYS: Neither Parliament nor any State Legislature can make a law giving preference to one State over another, or discriminating between States, using any trade-and-commerce entry in the Seventh Schedule. WHAT IT MEANS: 1. Absolute bar on both Union and State legislatures from enacting preferential or discriminatory trade laws. 2. Applies specifically to legislation made under trade-and-commerce entries (Entry 42 List I, Entry 26 List II, Entry 33 List III). 3. Overrides the power given to Parliament under Article 302. 4. Does NOT cover 'intercourse' — only 'trade and commerce' are mentioned. KEY DOCTRINE: Doctrine of Non-Discrimination in Inter-State Trade — no legislature may create economic favoritism between States via trade legislation.
Clause (2)
WHAT IT SAYS: Clause (1) does NOT prevent Parliament from making a preferential or discriminatory law if Parliament declares in that law itself that it is necessary to deal with scarcity of goods in any part of India. WHAT IT MEANS: 1. Only Parliament (not State Legislatures) gets this exception. 2. The law must contain an express declaration of necessity due to scarcity. 3. Scarcity must relate to 'goods' — not services or intercourse. 4. Enables emergency-type redistribution of goods across States during shortages (e.g., famine, drought). KEY DOCTRINE: Scarcity Exception Doctrine — Parliament's preferential trade laws are saved only when a self-contained declaration of scarcity necessity exists within the statute itself.
Constitutional Inspiration
SOURCE(S): 1. Australia — Section 92 of the Australian Constitution Original provision: Trade, commerce, and intercourse among the States shall be 'absolutely free.' What India kept: The broad guarantee of free trade and intercourse (Art. 301) and the non-discrimination framework (Art. 303). 2. USA — Article I, Section 8, Clause 3 (Commerce Clause) Original provision: Congress has power to regulate commerce among the several States. What India kept: The concept that the central legislature may regulate inter-state trade, but with explicit non-discrimination safeguards. 3. Government of India Act, 1935 — Section 297 Original provision: Prohibited discriminatory taxation and trade barriers between provinces. What India kept: The structural framework of restricting provincial discrimination in trade. INDIA'S SPECIFIC ADAPTATIONS: 1. Freedom is NOT 'absolute' (unlike Section 92 Australia) — Art. 301 uses 'Subject to other provisions of this Part,' allowing regulated restrictions. 2. Scarcity Exception (Art. 303(2)) — Unique Indian provision allowing Parliament to discriminate during goods shortages, reflecting post-Partition famine concerns. 3. Art. 303(1) binds BOTH Parliament and States — unlike the US Commerce Clause which restricts only States (dormant commerce clause); India chose to restrain Parliament too. 4. Reference to Seventh Schedule entries — India tied the prohibition to specific legislative entries, a precision absent in the Australian model.
Constituent Assembly Debate
DEBATED ON: 8 September 1949 (CAD Volume IX, pp. 1125–1143) DRAFT ARTICLE NUMBER: 274C (not included in original Draft Constitution of 1948; introduced as new article) KEY SPEAKERS: 1. Dr. B.R. Ambedkar — Introduced the new set of trade-and-commerce articles (274A–274E) as a consolidated scheme; defended the scarcity exception in Clause (2) as a practical necessity. 2. Pandit Thakur Das Bhargava — Moved amendments to whittle down Parliament's power; wanted Clause (2) restricted to temporary emergency situations only. 3. Shri B. Das (Orissa) — Proposed that Parliament should consult affected State Governments and Legislatures before invoking the scarcity exception under Clause (2). 4. Shri T.T. Krishnamachari — Praised the Drafting Committee's scheme as 'about as nearly perfect as human ingenuity could possibly make them'; supported the articles as drafted. 5. Another Member — Proposed prohibiting only State Legislatures (not Parliament) from discriminating, leaving Parliament free; suggested States could impose reasonable restrictions with Parliament's prior approval. MAJOR DISAGREEMENTS: 1. Scope of Clause (2) — Pandit Bhargava argued Parliament's scarcity power should be temporary and time-bound, to prevent abuse. Ambedkar defended it as drafted. 2. Who should be restricted — One member proposed removing the restriction on Parliament, binding only States. This was opposed as it would concentrate excessive power in the Centre. FINAL OUTCOME: Both proposed amendments were rejected by the Assembly; Draft Article 274C was adopted as drafted on 8 September 1949. AMBEDKAR'S KEY POSITION: The trade-and-commerce articles were originally scattered across the Draft Constitution (including Art. 16 in Fundamental Rights, and Arts. 243–245); they were consolidated into Part XIII for clarity and coherence.
Landmark Judgments
LANDMARK JUDGMENTS: 1. Atiabari Tea Co. Ltd. v. State of Assam (AIR 1961 SC 232) — Held that Art. 303 prohibits preference/discrimination only with reference to trade-and-commerce entries in the Seventh Schedule; laid down 7 propositions on Part XIII including that Parliament may make discriminatory laws under Art. 303(2) for scarcity. 2. Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan (AIR 1962 SC 1406) — Clarified that regulatory/compensatory taxes do not violate Art. 301 unless excessive; Art. 304's non-obstante clause lifts the ban of Art. 303(1) for State laws meeting specified conditions. 3. State of Madras v. N.K. Nataraja Mudaliar (AIR 1969 SC 147) — Upheld the Central Sales Tax Act against Art. 303(1) challenge; held that a tax collected and retained by States does not amount to giving preference or discrimination between States. 4. Jindal Stainless Ltd. v. State of Haryana (2016) 12 SCC 1 — 9-Judge Bench held that taxes simpliciter are not within the contemplation of Part XIII; Art. 303 entries relating to trade and commerce are not sufficient in themselves to cover taxing entries; rejected compensatory tax theory. 5. Kalyani Stores v. State of Orissa (1965) — Held that Art. 304(a) lifts the ban imposed by Arts. 301 and 303 subject to the condition of non-discrimination between imported and local goods. NOTABLE DISSENTS: 1. CJ Sinha in Atiabari Tea Co. (1961) — Dissented that the Assam Act did not contravene Art. 301; argued freedom under Art. 301 did not mean freedom from taxation simpliciter but only from erection of trade barriers. SCHOLARS & JURISTS: 1. Gonzalo Villalta Puig (SSRN, 2007) — Argued that Art. 301's interpretation was based on Section 92 of the Australian Constitution and wrongly decided Australian cases pre-dating Cole v. Whitfield (1988). 2. Niranjan Venkatesan (SSRN, 2010) — Analysed the interplay between Part XIII, compensatory taxes, and Section 92 of the Australian Constitution in the context of entry tax controversies.