Article 303
Article 303 of the Constitution of India imposes constitutional restrictions on both Parliament and State Legislatures regarding their power to legislate on matters related to trade and commerce. Its primary purpose is to prevent discrimination or preference among States in economic matters, thereby safeguarding the principle of equality and economic unity within the Indian Union.
Constitutional Scope and Application
Article 303 applies equally to the Union and the States, ensuring that neither Parliament nor any State Legislature enacts laws that favour or disadvantage particular regions in trade-related matters. The provision serves as a safeguard against regional economic inequalities and ensures that India functions as a single economic unit.
The Article covers all legislative entries relating to trade and commerce contained in the Seventh Schedule of the Constitution, including:
- Entry 42 of List I (Union List): Inter-State trade and commerce.
- Entries 26 and 27 of List II (State List): Trade and commerce within the State and production, supply, and distribution of goods.
By covering these entries, Article 303 ensures that both Union and State legislative powers remain non-discriminatory and uniform in their application.
Prohibition of Discrimination
Under Clause (1) of Article 303, both Parliament and the State Legislatures are barred from enacting any law that:
- Gives preference to one State over another, or
- Discriminates between one State and another in any matter concerning trade, commerce, or intercourse.
This prohibition extends to all legislative and fiscal measures, including taxation, licensing, distribution controls, and quotas. The restriction applies to both direct and indirect discrimination, ensuring that even laws that appear neutral but have a discriminatory effect are unconstitutional.
The objective of this clause is to prevent the emergence of economic barriers that could divide the Indian market and undermine the unity of the Republic.
Exception under Clause (2) of Article 303
While the restriction under Clause (1) is absolute, Clause (2) provides a narrow and exceptional exemption—available only to Parliament—to deviate from the general prohibition under specific circumstances.
According to Article 303(2):
- Parliament may enact a law that gives preference to one State or discriminates between States if it declares within that law that such action is necessary to address the scarcity of goods in any part of India.
- This power is exclusive to Parliament; State Legislatures cannot exercise it.
- The declaration of necessity must be explicitly stated in the legislation itself.
This exception ensures that temporary economic measures can be taken to restore supply equilibrium in times of crisis, such as during famines, shortages, or natural calamities. However, the exception cannot be applied indefinitely or for reasons other than scarcity.
Nature and Extent of the Restriction
The restriction under Article 303(1) is absolute in nature, meaning that Parliament and State Legislatures are completely prohibited from making discriminatory or preferential laws, unless justified under Clause (2).
Key characteristics of the restriction include:
- It applies to both fiscal measures (such as taxes, duties, and tariffs) and non-fiscal measures (such as licensing systems or quotas).
- It covers both direct and indirect discrimination, ensuring that even apparently neutral laws are invalid if their effect is discriminatory.
- The exception under Clause (2) is strictly temporary and must be confined to the period of scarcity.
Thus, Article 303 preserves the economic balance among States by preventing the concentration of trade benefits or disadvantages in particular regions.
Relationship with Other Constitutional Provisions
Article 303 operates in close conjunction with other provisions in Part XIII (Articles 301–305):
- Article 301: Guarantees the freedom of trade, commerce, and intercourse throughout India.
- Article 302: Grants Parliament the power to impose restrictions on trade and commerce in the public interest.
- Article 304: Allows State Legislatures to impose reasonable restrictions, provided such laws do not discriminate against goods from other States.
However, Article 303(1) serves as a limiting clause on the powers conferred by Articles 302 and 304. Even when acting in the public interest, neither Parliament nor a State may enact discriminatory or preferential laws unless the conditions of Article 303(2) are satisfied.
Judicial Interpretation and Key Case Laws
Indian courts have played a vital role in interpreting the meaning and scope of Article 303. The Supreme Court, in particular, has elaborated on its constitutional significance through several landmark judgments:
- Atiabari Tea Co. Ltd. v. State of Assam (1961): The Court held that Article 303(1) constitutes an absolute prohibition against discrimination, except as specifically allowed under Article 303(2). Any trade restriction favouring one State over another without legislative declaration of necessity would be invalid.
- State of Madhya Pradesh v. Bhailal Bhai (1964): Reaffirmed that both Parliament and State Legislatures are bound by Article 303(1), and that the exception under Clause (2) must be invoked only in cases of genuine scarcity.
- Kalyani Stores v. State of Orissa (1966): The Supreme Court struck down a law that restricted the issue of licences for the sale of goods in a way that favoured certain States, holding that it amounted to discrimination under Article 303(1).
- Video Electronics Pvt. Ltd. v. State of Punjab (1981): Clarified that both direct and indirect discrimination are prohibited, reinforcing that laws producing unequal economic effects among States violate the spirit of Article 303.
Through these decisions, the judiciary has consistently upheld the principle of economic equality among States as a foundational element of India’s federal structure.
Judicial Review and Enforcement
The courts have the power to review and scrutinise whether a law invoking Article 303(2) genuinely meets the constitutional requirement of scarcity. The declaration of necessity made by Parliament is not beyond judicial examination; courts can determine whether such a declaration is bona fide and whether the law satisfies the conditions laid down in the Constitution.
This ensures a robust system of checks and balances, preventing the misuse of Article 303(2) for political or economic advantage.
Practical and Legislative Implications
In practical terms, Article 303 affects laws relating to:
- Taxation of goods moving between States.
- Licensing and quotas for production and distribution.
- Import and export controls within India.
- Preferential allocation of goods or services during shortages.
Any law that differentiates between States in these areas must explicitly satisfy the conditions under Article 303(2). Additionally, such laws must be temporary and narrowly tailored to the specific issue of scarcity.