Automobile Transport (Rajasthan) Ltd v State of Rajasthan

Facts

• The State of Rajasthan imposed a tax on motor vehicles used or kept for use within the State, under its motor vehicles taxation legislation.
• The appellants were transport operators who plied vehicles carrying goods and passengers, including on inter-State routes.
• The proceeds of the tax were applied towards the construction and maintenance of roads and related facilities used by such vehicles.
• The operators contended that a tax on the use of vehicles is a direct and immediate burden on the movement of goods and passengers, and so fell within Art.301 on the reasoning in Atiabari Tea Co Ltd v State of Assam (1961).
• Since the State legislation had not received the previous sanction of the President under the proviso to Art.304(b), it was argued that it must fall as the Assam Act had done.

Issue

1. Whether every tax that touches the movement of trade falls within Art.301, or whether some classes of measure fall outside it altogether.

Held

• The levy was upheld. The Court accepted the test laid down in Atiabari but added an important qualification. Regulatory measures, and taxes which are compensatory in character, being levied for the use of facilities provided for the benefit of trade, do not fall within the purview of Art.301 at all, and therefore need no justification under Art.302 or Art.304. The reasoning was that such measures do not obstruct trade but assist it: a trader who uses roads maintained out of the proceeds of the levy receives a benefit corresponding to the burden, so the flow of trade is facilitated rather than impeded. A tax on motor vehicles, whose proceeds went towards the construction and maintenance of roads, was compensatory in that sense and was accordingly outside Art.301.

Ratio Decidendi

Article 301 is directed against barriers and impediments to trade, not against every fiscal or regulatory measure that touches it. A levy which returns to the trader in the form of the facilities he uses is not a barrier at all, and to treat it as one would leave a State unable to maintain the very infrastructure on which inter-State trade depends. Regulation in the true sense, such as rules of the road and licensing for safety, stands on the same footing, since orderly movement is a condition of movement rather than a restriction on it.