Sales Tax does not directly affect free movement of goods :
It has been held that mere imposition of a duty or tax is not infringement of Article 301 – Kalyani Stores v. State of Orissa – AIR 1966 SC 1686 = (1966) 1 SCR 865. Freedom under Article 301 does not mean freedom simpliciter, but it only means freedom from taxation, which has the effect of directly impeding the free flow of trade, commerce and intercourse – . – Taxes may and do amount to restrictions, but it is only such taxes as directly and immediately restrict the trade would fall within the purview of Article 301- Atiabari Tea Co. Ltd. v. State of Assam – AIR 1961 SC 232 = 1961(1) SCR 809 (SC Constitution Bench).
In Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan 1963 (1) SCR 491 = AIR 1962 SC 1406 (SC 7 member bench – majority decision), it was held that decision in Atiabari is correct, but regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of restrictions contemplated by Article 301, and such measures need not comply with the requirements of the proviso to Article 304(b) of the Constitution.
In Sodhi Transport Co. v. State of UP – (1986) 62 STC 381 (SC) = (1986) 2 SCC 486 = AIR 1986 SC 1099, the restrictions placed on movement of goods by way of transit pass was held as reasonable restrictions which do not unduly hamper trade and are imposed in public interest. In Tripura Goods Transport Association v. Commissioner of Taxes 1999 AIR SCW 184 = AIR 1999 SC 719 = (1999) 2 SCC 253 = 112 STC 609, it was held that every statute can provide mechanism to check evasion of taxes. In doing so, some obligation is cast upon consignor or consignee in relation to such goods. [In this case, provision of making declaration of goods by transporter at check post was held valid]. – followed in State of Rajasthan v. D P Metals AIR 2001 SC 3076 = (2002) 1 SCC 279 = 2001 AIR SCW 4091 = 124 STC 611 (SC 3 member bench) * State of West Bengal v. EITA India 2003 AIR SCW 2114 * CTO v. Swastik Roadways (2004) 3 SCC 640 = 135 STC 1 (SC) * ABC (India) Ltd. v. State of Assam (2005) 6 SCC 424 = AIR 2005 SC 3215 = 142 STC 88 (SC).
In Guljag Industries v. CTO (2007) 9 VST 1 (SC), provision of requiring person transporting goods to carry with him prescribed declaration form was held valid. It was also held that no mens rea is required to impose penalty for contravention of provisions of a Civil Act.
In Saral Kumar v. State of Haryana (2000) 118 STC 17 (SC), provision of production of prescribed documents at the check post or barrier was held valid.
In UOI v. State of Rajasthan (2003) 129 STC 484 (Raj HC DB), provision that transporter should provide information relating to goods carried in a vehicle was held valid. It was held that provision applies to railways also and they should carry necessary papers connected with goods.
Supreme Court has also held that regulatory measures or measures imposing compensatory taxes for use of trading facilities do not come within the purview of restrictions contemplated under Article 301. Similarly, establishment of ‘check posts’ or barriers and inspection of goods while in transit, is merely a check on evasion of tax and is not a restriction on free flow of trade and commerce.
Regulatory fee is compensatory tax – In Jindal Stainless Ltd. v. State of Haryana (2006) 7 SCC 241 = 152 561 = 145 STC 544 (SC 5 member bench), it has been held that regulatory fees can be only compensatory in nature.