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

Case Title: JINDAL STAINLESS STEEL LTD. & ANR V. STATE OF HARYANA

Citation: AIR 2016 SC 5617 | Court: Supreme Court of India (Nine-Judge Bench)

The Court held that trade is free under Article 301, but not tax-free. States may levy non-discriminatory entry taxes. The old “compensatory tax” idea is not the main test. The key check is no favour to local goods over goods coming from other States and compliance with Article 304.

1. Does an entry tax on goods from outside the local area violate Article 301?
2. Do such taxes disturb the powers of States or harm the federal scheme?

• Article 301: freedom of trade, commerce, and intercourse across India.
• Articles 302 & 304: reasonable restrictions in public interest (subject to conditions).
• Taxes must be non-discriminatory; they cannot prefer local goods or burden outside goods.
• Compensatory tax theory is not the deciding test; the focus is on impact and equality.

The Court held that “free” in Article 301 does not mean tax-free. States may levy non-discriminatory entry tax. A levy cannot be saved only because Article 304 procedures are followed; it must also pass the Article 304(a) non-discrimination test. Policies must not prefer intra-State trade over inter-State trade.

The controlling test is non-discrimination. Entry tax is valid if it treats out-of-State and in-State goods equally and does not impede trade. The compensatory tax theory is not the universal yardstick; constitutional equality and trade freedom are.

• Clarifies States’ power to tax without harming the national market.
• Re-centres the test on trade impact and equality, not revenue use claims.
• Guides future fiscal design to protect inter-State commerce.

Mnemonic: “Free but Fair.”

1. Free: Article 301 protects trade movement.
2. But: Taxes can exist if they do not hinder trade.
3. Fair: Treat outside and local goods equally.

Issue: Constitutionality of entry tax vis-à-vis Articles 301 and 304.

Rule: Trade is free; taxes allowed if non-discriminatory and reasonable under Part XIII.

Application: Examine if levy prefers local goods or burdens outside goods; mere “compensation” claims do not cure discrimination.

Conclusion: Entry tax can be valid when neutral and non-discriminatory; otherwise it fails Article 304(a).

Entry Tax

A tax on goods entering a local area for use, sale, or consumption.

Article 301

Guarantees freedom of trade, commerce, and intercourse throughout India.

Article 304(a)

Bars discriminatory taxes on goods from other States.