Constitution of India
Article 306: Power of certain States in Part B of the First Schedule to impose restrictions on trade and commerce
Part XIII — Trade, Commerce and Intercourse within the Territory of India
Article 306 (Main provision — no sub-clauses)
WHAT IT SAID: Part B States that were levying import/export duties on inter-state goods before the Constitution's commencement could continue to do so under a central agreement, for up to 10 years. WHAT IT MEANT: 1. Transitional carve-out from the free-trade guarantee of Article 301. 2. Princely states (e.g. Hyderabad, J&K, Mysore) retained their pre-existing trade taxation powers temporarily. 3. Required a bilateral agreement between the state and the Government of India. 4. Maximum duration: 10 years from 26 January 1950. PROVISO: The President could terminate or modify any such agreement after 5 years, upon consideration of the Finance Commission's report (Art. 280). KEY DOCTRINE: Transitional accommodation doctrine — temporary constitutional carve-outs to facilitate the integration of formerly sovereign entities into a unified federal structure.
Constitutional Inspiration
SOURCE(S): 1. Australia — Section 92, Constitution of Australia (1901) Original provision: Trade, commerce, and intercourse among the States shall be absolutely free. What India kept: The guarantee of free trade under Article 301, but India used 'shall be free' instead of 'absolutely free' to allow reasonable restrictions. 2. Government of India Act, 1935 — Section 297 Original provision: Prohibited discriminatory trade barriers between provinces. What India kept: The basic framework was expanded in Part XIII (Arts. 301–307). 3. United States — Article I, Section 8, Clause 3 (Commerce Clause) Original provision: Congress has power to regulate commerce among the several states. What India kept: Parliament's regulatory power over inter-state trade (Article 302). INDIA'S SPECIFIC ADAPTATIONS: 1. Article 301 covers both inter-state AND intra-state trade — unlike Section 92 of Australia which covers only inter-state trade. 2. Article 306 was an original Indian provision — no foreign parallel exists — designed specifically to accommodate 500+ princely states with pre-existing trade taxation systems. 3. India avoided 'absolutely free' language to prevent judicial overreach seen in Australian jurisprudence (James v. Commonwealth, 1936). 4. Built-in sunset clause (10-year limit) and presidential oversight (Finance Commission review after 5 years) ensured phased integration rather than abrupt disruption.
Constituent Assembly Debate
DEBATED ON: 8 September 1949 (CAD Volume IX) — as part of the broader debate on new Part X-A (Trade, Commerce and Intercourse within the Territory of India), Draft Articles 274A–274E. CONTEXT: Dr. Ambedkar moved that the earlier Articles 243–245 (scattered in different parts) be omitted and replaced with a consolidated Part X-A (Articles 274A onwards). Article 306 was introduced as a new provision during this restructuring to deal specifically with Part B States' pre-existing trade duties. KEY SPEAKERS: 1. Dr. B.R. Ambedkar — Explained the need to assemble all trade-related provisions into one Part for clarity; justified transitional provisions for princely states. 2. Pandit Thakur Das Bhargava (East Punjab) — Advocated that trade freedom should be enforceable as a fundamental right via Supreme Court (proposed Art. 274E/274F). 3. Prof. K.T. Shah — Argued that trade freedom should be absolute, restricted only during emergencies or scarcity. 4. Shri C. Subramaniam (Madras) — Questioned whether trade freedom provisions belonged under Fundamental Rights. MAJOR DISAGREEMENTS: 1. Fundamental Right vs. Part XIII provision — Several members wanted free trade to remain a justiciable fundamental right (Art. 16 of Draft); Ambedkar preferred a self-contained Part with built-in exceptions. 2. Scope of state power — Whether princely states should retain trade taxation powers at all, given the goal of economic integration. FINAL OUTCOME: Trade freedom provisions were moved out of Fundamental Rights into Part X-A (later Part XIII), with Article 306 providing a 10-year transitional window for Part B States. AMBEDKAR'S KEY QUOTE (paraphrased): The provisions in this Part do not intend to make trade absolutely free; the Drafting Committee assembled all scattered articles to give a complete picture of trade and commerce provisions at one glance.
Landmark Judgments
LANDMARK JUDGMENTS: Note: No Supreme Court case directly interpreted Article 306, as it was repealed in 1956 before significant litigation could arise. However, the broader Part XIII principles that Article 306 qualified have been extensively adjudicated: 1. Atiabari Tea Co. Ltd. v. State of Assam (1961 AIR 232) — Tax laws that directly and immediately restrict the free flow of trade violate Article 301; freedom under Art. 301 is wider than Section 297 of the Government of India Act, 1935. 2. Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan (1962 AIR 1406) — Regulatory and compensatory taxes do not violate Article 301; only taxes that directly impede trade are unconstitutional. 3. State of Madhya Pradesh v. Bhailal Bhai (1964 AIR 1006) — Sales tax imposed by former Part B State (Madhya Bharat) on tobacco was examined under Articles 301 and 304. 4. Jindal Stainless Ltd. v. State of Haryana (2017) — Nine-judge bench revisited the Atiabari and Automobile Transport tests for balancing trade freedom with state taxation power. NOTABLE DISSENTS: 1. CJ Sinha in Atiabari Tea Co. (1961) — Dissented, arguing that Article 301 freedom does not mean immunity from all taxation, only from discriminatory trade barriers. SCHOLARS & JURISTS: 1. D.D. Basu — Described Article 306 as a transitional safeguard recognising the fiscal realities of princely states during integration. 2. V.N. Shukla — Noted that Article 306's repeal symbolised the completion of India's economic unification, eliminating the last vestiges of princely state fiscal autonomy. 3. Gonzalo Villalta Puig (SSRN, 2007) — Argued that India's Part XIII jurisprudence, including the transitional provisions like Art. 306, was built on wrongly decided Australian precedents predating Cole v. Whitfield (1988).