Article 301 of the Indian Constitution allows one to carry out Trade, Commerce and Intercourse freely across the nation. This provision not only encourages inter-state trade but also emboldens intra-state Trade and Commerce. However, in order to maintain regulations and needs of the society, various restrictions are also put upon this provision. It is one of the most debatable issue across the nation, that imposing tax on these commercial entities restrain people from exercising trade, commerce and intercourse freely across the nation, and whether it violates the rights guaranteed by the Constitution. This issue was raised for the first time in the case of Atiabari Tea Co. v. State of Assam (AIR 1961 SC 232), followed by other leading cases like Automobile Transport v. Rajasthan (1962 AIR 1406), G.K Krishnan V. State of Tamil Nadu (1975 AIR 583). The issue which was raised here was whether the commercial taxes that are levied by the State Government are violating the provisions of the Indian Constitution or not.
Tax is obligatory for running every nation of the world, without which the duties and the responsibilities of the state will be not be accomplished and power will be unused. It is essential to understand that taxation is not necessarily a burden or restrain on conducting business, but it can also be utilized to provide people with various facilities like road, supplies etc. which can help them to grow their businesses. Until and unless the roads and transport facilities are not there, no business can expand and reach its customers. In a developing nation like India, where there is so much geographical diversity, we shall not forget that every state is dependent on each other for various needs. One State may be agriculturally developed while other is industrially sound. Hence in India, we need to ensure both inter-state and intra-state trade and commerce. The concept of regulatory and compensatory taxation has evolved with a notion to resolve the freedom of trade and commerce guaranteed by Art. 301 with the prerequisite to tax such trade at least to the amount of making it pay for the facilities provided to it by the state, e.g., a road net-work.
Hence, Compensatory or Regulatory Taxes are not a restriction to conduct Trade and Commerce, but a platform for the business entities to allow them to exercise their rights given to them by the Constitution and expand their commercial reach. Such taxes encourages trade and helps the economy to develop and flourish commercially.
