B.N. Chobe and Others vs M.S. Palnitkar and Another

These two Writ petitions have been filed to challenge the constitutionality of the Hyderabad Customs Act, No. 2 of 1.356 F under which the Applicant alter the inauguration of the Constitution has been lined for getting or bringing within the State territory taxable commodities without paying the tux under the Act.

The facts of the case in which B.N. Chobe, an advocate of this Court, is the Applicant are that some sweet churan was sent to him by some one in Lucknow and the Respondent to this application fined him Rs. 52/- for failure to pay the customs duty of Rs. 0-13-0. In the other case 90 bulls from the Madras State were sold in Mahbubnagar District and the Applicant in the case was arrested by a Sub-Inspector of the Customs Department, ''Flying Squad, his documents were seized and the Deputy Commissioner of Customs, Warrangal, levied a customs duty of Rs. 547-8-4 on the cattle and fined him Rs. 2,500/-. Both the applications challenge the constitutionality of the Hyderabad Customs Act as being repugnant to Article 301 and therefore void.

Mrichobe in his Writ application has further challenged the jurisdiction of the officer to impose a fine on him.

It was argued before us that under Article 301 of the Constitution, trade, commerce and intercourse throughout the territory of India is to be free and as the Hyderabad Customs Act makes certain commodities brought into the State territory from outside liabe to payment of customs duty, the Act was void after 26th January 1950. It was further argued that although under Article 306 of the Constitution an agreement has been entered between the Governments of India and of this State to continue the levying and collecting of the duty under the Act the agreement was entered into on 25-2-1950 only after the coming into force of the Constitution. In view of the hiatus between 26-1-1950 & the date of the agreement, it is contended that the customs duty leviable under the Hyderabad Customs Act which had already lapsed could not be revived by the said agreement. It was further argued that because of the failure to publish the agreement in the Gazette, the penalties under the Hyderabad Customs Act if it be held to have been so revived by the agreement, cannot be imposed.

In this connection reliance was placed on the observations of their Lordships of the Supreme Court in the case reported in- Harla Vs. The State of Rajasthan, and Fatma Haji Ali Mohammad Haji and Others Vs. The State of Bombay, . Lastly the Applicant argued that in any event as, the sweet churan was not a commercial commodity, but only a present received by him, it is not a taxable commodity and its despatch and receipt in Hyderabad could not be regarded as transportation in the nature of trade, commerce or intercourse.

Dealing with the last argument, first it is necessary to examine whether the words "trade and commerce" in Article 301 would cover a case of this nature where a commodity is imported for personal use. This Article is similar to Section 92 of the Commonwealth of Australia Act. The word "commerce" which appears in Article 1, Section 8(3) of the Constitution of the United States of America conferring authority on the Congress of the United States to regulate commerce with foreign nations and among the several States and with Indian tribes has been given its widest import. In the famous case of--Gibbons v. Ogden 9 Wheat 1 (C), which was decided in 1824, Chief Justice Marshal said "commerce undoubtedly is traffic, but it is something more, it is intercourse". The word "intercourse" has been specifically used in Article 301 of our Constitution which clearly demonstrates that the framers of our Constitution intended to give the largest import to the popular conception of the term "commerce" by using the words "trade, commerce and intercourse". In our view these words cover the case of importation for personal use, as such importation is traffic and intercourse between citizens involving movement of property from one place to another.

A similar construction has been placed by the courts in the United States. In--United States v. Simpson (1919) 252 US 465 (D), it has been held that importation of a commodity for personal consumption is also commerce. In Australia, Section 92 of the Commonwealth of Australian Act has been held to confer a right on every owner of chattels in the Commonwealth to remove them across from one State to another without interference. It has been further observed that the right of the owner of property to use the property for the purposes of commerce and intercourse between one State and another without interference is a constitutional guarantee. We are therefore of the opinion that the particular transactions which are the subject matter of these applications, come under the purview of "trade, commerce and intercourse", used in Article 301 and would have been free had it not been for the other provisions in the said part viz., Article 305.

It appears to us that the argument advanced by the learned Advocate of the Applicants that trade, commerce and intercourse throughout the territory of India is absolutely free after the inauguration of the Constitution, states the constitutional position too widely. There is in our view no liberty which is absolute, unfettered and without restriction. The framers of our Constitution acknowledge that this was so when they placed limitations both on the fundamental freedoms J enumerated in Part 3 as well as on trade, commerce and intercourse in Part 13 of the Constitution. In America it has been held that the authority vested in the Centre to regulate commerce is object to the police and taxing powers of the state. The Australian Courts have applied the doctrine of pith and substance when any Act other of the Commonwealth or of the State has been challenged on the ground of its being viola of Section 92 of the Commonwealth of Australia Act. Similarly when Article 301 declares that the freedom of trade, commerce and intercourse throughout the territory of India is to be free it is not a declaration of absolute freedom. We will have to examine the subsequent provisions to see the limitations imposed or restrictions placed on the provisions of Article 301. The first ''restriction on it is contained in Article 302, which provides that Parliament may restrict the freedom in the public interest. So also State Legislatures may impose such restrictions under Article 304(b), as may be required in public interest. The next limitations contained in Article 303 is that notwithstanding anything contained in Article 302 no preferential treatment is to be given by any Acts of the Parliament or of the State Legislatures if such legislation be justified by any Entry relating to trade or commerce in any of the several Lists in the Seventh Schedule of the Constitution with one exception namely that such legislations must not be discriminatory except where Parliament enacts a law to meet a situation arising out of scar city of goods in any part of the territory of India. A third limitation on the freedom given by Article 301 is contained in Article 304(a) which authorises the imposition of a tax by the State Legislature on goods imported in the State subject to the taxation not being discriminatory between goods so imported and those manufactured or produced in the State. This limitation has been held by the ''Supreme'' Court in-- The State of Bombay and Another Vs. The United Motors (India) Ltd. and Others, , as authorising tax on goods imported into State subject to certain qualifications in the following words:

It will be seen that the principle of freedom I of inter-State trade and commerce declared in Article 301 is expressly subordinated to the State power of taxing goods imported from sister States provided only no discrimination is made in favour of similar goods of local origin. Thus the States in India have full power of imposing I what in American State Legislation is called the use tax, gross receipts tax, etc., not to speak of the familiar property tax, subject only to the condition that such tax is imposed on all goods of the same kind produced or manufactured in the taxing State, although such taxation is undoubtedly calculated to fetter inter-State trade and commerce. In other words, the commercial unity of India is made to give way before the State-power of imposing "any" non-discriminatory tax on goods imported from sister States.

There are two other limitations placed on inter-State freedom by Articles 305 and 306 of the Constitution. Article 305 which saves existing laws even if they are against the provisions of Articles 301 and 303 is as follows:

Nothing in Articles 301 & 303 shall affect the provisions of any existing law except in so far as the President may by order otherwise provide.

Article 306 saves certain old taxes and duties levied in Part "B" States and provides for the continuance of such duties and taxes on the import of goods into the State from other States or on the export of goods from the State to other States for a period not exceeding 10 years by agreement between the Government of India and of that State subject to modification by the President at the end of 5 years according to the report of the Finance Commission. The reason for these limitations is obvious in that the economic structure and the budgetary position in the Part "B" States before the inauguration of the Constitution was to a very great extent based on the income derived from certain duties and taxes. Many States before independence derived substantial revenues from customs duties levied at their frontiers on goods entering the States from other parts of India. In some of the smaller States these duties were akin to octroi and terminal taxes. While in some of the larger States the right to impose customs duty was specifically limited by treaty.

It may be observed that the Joint Select Committee on Constitutional Reforms in their report (1933) recognized that it was impossible to deprive Indian States of revenue upon which they have to depend for balancing their budget. While so recognizing it they were of the view that the internal customs barriers were in principle inconsistent with the freedom of interchange of a fully developed federation, and that every effort should be made to substitute other forms of taxation though the change must however be left to the discretion of the States concerned as and when alternative sources of revenue become available. It is therefore natural that in any set up on the inauguration of the Constitution the economic and financial stability of all the, units had to be taken into consideration and provided for against its being up set by any sudden change. Consequently, the framers of the Constitution in their practical wisdom took into consideration the factual existence of these vital matters by giving some time for a smooth change over. In this context the continuance of a tax or duty which was being levied before the commencement of the Constitution could be understood.

It has been very strenuously urged before us that the agreement which has been entered into between the Government of Hyderabad and the Government of India is ineffective because:

(a), it was not published in the Gazette and,

(b) that there was a hiatus between the inauguration of the Constitution on the 26th of January 1950 and the execution of the agreement on the 25th of February 1950.

Whatever be the force of these contentions, since the agreement is not the only source authorising the levy of the customs duty under Article 306 of the Constitution, we do not feel called upon to express any opinion on the contentions urged before us.

In our view the matter is concluded by the provisions of Article 305 which saves an existing law notwithstanding the provisions of Articles 301 & 303, but only in so far as the President may by order otherwise provide it has been held in-- Moti Lal and Others Vs. The Government of the State of Uttar Pradesh and Others, at P. 270 (F), that the Motor Vehicles Act of 1939 is not invalidated by virtue of Article 305. It is further contended that Article 305 is only applicable to Part "A" States whereas Article 306 deals with Part "B" States. In our view there is no validity for this assumption. An ''existing law'' has been defined in Clause (10) of Article 366 as any law, ordinance, order, bye-law, rule or regulation passed or made before the commencement of the Constitution by any legislative authority or person having power to make such law, ordinance, order, bye-law rule or regulation.

The Hyderabad Customs Act, 2 of 1356F., is an existing law within the meaning of Clause (10) of Article 366 of the Constitution which was passed by a duly constituted Legislative Assembly having received the assent of His Exalted Highness the Nizam on the 12th Bahman 1356 F. It is therefore clear that the Hyderabad Customs Act being an existing law is not invalidated on the ground of its being contrary to the provisions contained in Article 301 unless otherwise directed by the President which it is not the case of the Applicant that it has been so directed. Nothing has been said in the application that sweet churan manufactured within the State is free from taxation so as to render the collection of tax on the commodity imported by the Applicant discriminatory and therefore invalid. Even if the allegation of discrimination was made the provisions of Article 303 of the Constitution relating to discrimination would not affect to invalidate an existing law by virtue of Article 305.

The last ground urged in the application for the grant of a Writ is that the officer acted without jurisdiction. We think that Section 52 of the Hyderabad Customs Act is wide enough to confer jurisdiction on the Respondent to the application to impose a fine. Section 52 of the Hyderabad Customs Act is as follows:

52(1) If any person abets in the import or export of goods without payment of duty or revenues or conceals unlawfully any goods for which duty has not been paid, he shall be punished by a customs officer not below the rank of Superintendent with fine which may extend to Rs. 500/-. (2) If any person removes or conceals any non-dutiable goods without obtaining an exemption certificate in accordance with the provisions of Section 13 or abets in committing such offence, he shall be punished by a Customs Officer not below the rank of Superintendent with fine which may extend to Rs. 50/-.

In the result, the two applications for Writ fail and are dismissed with costs.

This judgment will govern the other application.