What did the Court decide about Article 301 in Jindal Stainless?

The Court held that the proper tests are the direct and immediate effect test and the working test. Non-discriminatory, service-linked entry taxes can be valid.

What happened to Bhagatram and Bihar Chamber precedents?

They were overruled. The loose 'some connection' standard was rejected for compensatory tax analysis under Article 301.

What is a compensatory tax?

It is a charge that pays for facilities or services that help trade, such as roads. The levy must be linked to cost and benefit to traders.

Does every entry tax violate free trade?

No. A neutral, non-discriminatory levy tied to services can pass Article 301 when read with Article 304.

What do courts check to see if a tax is compensatory?

Purpose, linkage to facilities, non-discrimination, and whether the effect on trade is indirect rather than a direct barrier.

Jindal Stainless Ltd. & Anr v. State of Haryana & Ors.

Supreme Court of India Constitution Bench (Reference) Appeal (Civil) 3453/2002 Author: Gulzar Hashmi India Article 301 ~7 min read

This case shaped how courts read Article 301 and the compensatory tax idea. The Court rejected the “some connection” test and restored clear standards for checking if an entry tax blocks free trade.

Slug: jindal-stainless-ltd-anr-v-state-of-haryana-ors Gulzar Hashmi India Constitutional Law

Quick Summary

The Court reset the law on entry tax and Article 301. It rejected the easy “some connection” rule and brought back two strict checks: the direct and immediate effect test and the working test. A levy can survive if it is non-discriminatory and truly compensatory—that is, it pays for facilities that help trade.

Issues

Does a non-discriminatory entry tax violate Article 301?
Can a levy with a compensatory character still offend Article 301?

Rules

Compensatory Tax Doctrine: A tax is valid if it funds facilities that make trade easier and has a real link to the cost and the users.
Article 301 with Article 304: Trade is free, but reasonable, non-discriminatory levies can pass if they meet constitutional checks.
Tests Restored: Direct & Immediate Effect (Atiabari) and Working Test (Automobile Transport) guide the inquiry.

Facts — Timeline

Timeline illustration for Jindal Stainless entry tax case

Business: Jindal Strips (Haryana) imported inputs and exported finished goods; no local sales tax on these movements.

New Law: From 5 May 2000, Haryana levied entry tax on goods entering local areas for use/consumption; applied to carrying vehicles.

Exemption Design: Those paying Haryana sales tax were exempt; others (paying CST to other States) faced entry tax.

Challenge: Petitioners said the levy hit Article 301 and was beyond State power. The referral addressed Article 301 only.

Allocation Change: Section 22 first sent revenue to local area development; a 2003 change said funds support free trade flow.

Arguments

Appellants

Entry tax blocks free movement; offends Article 301.
Design benefits local taxpayers and targets inter-State traders—in effect discriminatory.
No tight link between levy and facilities used by traders.

State

Levy funds roads and trade-related facilities—compensatory.
Any burden is incidental; not a direct barrier to trade.
Structure is neutral and tied to local use/benefit.

Judgment

The Court rejected the Bhagatram “some connection” test for compensatory taxes and restored the classic tests from Atiabari and Automobile Transport. Earlier rulings in Bhagatram and Bihar Chamber were overruled.

Courts must check direct and immediate effect on trade.
Apply the working test: does the levy truly fund facilities that aid trade?
Matters were sent back so High Courts could apply these tests afresh.

Ratio Decidendi

A levy passes Article 301 only if it does not directly obstruct trade and if it works as a genuine compensatory charge for facilities used by traders. Loose linkage is not enough.

Why It Matters

Clarifies how to judge entry taxes under Part XIII.
Sets a high bar for calling a levy “compensatory.”
Protects free inter-State trade from disguised barriers.

Key Takeaways

Article 301 ≠ freedom from all taxes.
Compensatory = service-linked + cost-linked.
Look for direct impact on trade.

Neutrality matters: no hidden discrimination.
Purpose and design must match facilities.
Courts apply working test in practice.

Mnemonic + 3-Step Hook

Mnemonic: “TRADE WORKS”

Test the Target: Is the impact direct on trade?
Real Link: Does money fund real trade facilities?
Wide Neutrality: Is the levy non-discriminatory?

IRAC Outline

Issue: Do non-discriminatory entry taxes and compensatory levies violate Article 301?

Rule: Apply direct & immediate effect and the working test; read Article 301 with Article 304.

Application: Levy must fund facilities for traders; effect on trade must be indirect; structure must be neutral.

Conclusion: Only truly compensatory, non-discriminatory levies survive Article 301 review.

Glossary

Article 301: Guarantees freedom of trade, commerce, and intercourse across India.
Compensatory Tax: A levy that recovers the cost of facilities that assist trade (e.g., roads, check-posts).
Direct Effect: An immediate barrier to trade; presumptively invalid.
Working Test: Practical check: does the levy actually fund trade-facilitating services used by payers?

FAQs

No. A neutral levy that funds facilities and has only an indirect effect on trade can pass Article 301 with Article 304.

Courts now use the direct & immediate effect test and the working test to see if a levy is truly compensatory.

Check for a real link between the tax and facilities that aid trade, fair distribution among users, and no discrimination.

Yes, within Part XIII. Measures must be reasonable, neutral, and service-linked when they take the form of levies.

Case Card

CASE_TITLE: Jindal Stainless Ltd. & Anr v. State of Haryana & Ors.
PRIMARY_KEYWORDS: Article 301; entry tax; compensatory tax
SECONDARY_KEYWORDS: Articles 302 & 304; Part XIII; Atiabari; Automobile Transport
PUBLISH_DATE: 25 Oct 2025
AUTHOR_NAME: Gulzar Hashmi
LOCATION: India
Slug (auto): jindal-stainless-ltd-anr-v-state-of-haryana-ors
Canonical: https://thelaweasy.com/jindal-stainless-ltd-anr-v-state-of-haryana-ors/