The Constitution of India
Article 304
Restrictions on trade, commerce and intercourse among States
Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law —
(a) impose on goods imported from other States 1 [or the Union territories] any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and
(b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest:
Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President
Why this exists
India's Constitution wanted one big common market (Article 301) so goods, people, and trade could move freely across State lines, boosting national economic unity. But the framers also recognized States needed some flexibility — to protect local industries from unfair tax disadvantages and to regulate trade for genuine public interest reasons (like health, safety, or local economic planning). Article 304 balances these two goals: it permits limited, non-discriminatory State interference with trade, while requiring central oversight (via presidential sanction) to prevent States from turning restrictions into protectionist barriers that fragment the national market.
How courts read it
The Supreme Court has shaped this Article significantly. In Atiabari Tea Co. v. State of Assam (1961), the Court held that taxes directly impeding free trade violate Article 301 unless saved by Article 304. In Automobile Transport (Rajasthan) v. State of Rajasthan (1962), the Court introduced the idea of 'compensatory taxes' (taxes that merely pay for services like roads) as not violating Article 301 at all. This created decades of confusion about what counts as compensatory versus discriminatory. Finally, a nine-judge bench in Jindal Stainless Ltd. v. State of Haryana (2016) overruled the compensatory tax doctrine, clarifying that only genuinely discriminatory taxes need to satisfy Article 304, and that non-discriminatory State taxes on goods don't need the President's prior sanction at all.
Common misconceptions
- Myth: States can freely block or over-tax goods from other states to protect local businesses.
Fact: Article 304(a) specifically forbids discriminatory taxation — a State must tax outside goods the same as it taxes its own similar goods. - Myth: Every State tax on goods needs the President's approval.
Fact: After the Supreme Court's 2016 Jindal Stainless ruling, only restrictions under clause (b) — not ordinary non-discriminatory taxes under clause (a) — require presidential sanction before the bill is introduced.