Vol. 1 · pages 321–325

306 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES (4) Where by virtue of this section powers and duties have been conferred or imposed upon a Province or a Federated State or officers or authorities thereof, there shall be paid by the Federation to the Province or State such sum as may be agreed, or, in default of agreement, as may be determined by an arbitrator appointed by the Chief Justice of India, in respect of any extra cost of administration incurred by the Province or State in connection with the exercise of those powers and duties.” It is quite possible for States and Provinces to combine to rob the Federation of all administrative powers and make it only a law making body. A more staggering situation however is created by section 125. It is in the following terms: “125. (1 ) Notwithstanding anything in this Act, agreements may, and, if provision has been made in that behalf by the Instrument of Accession of the State, shall be made between the Governor-General and the Ruler of a Federated State for the exercise by the Ruler or his officers of functions in relation to the administration in his State of any law of the Federal Legislature which applies therein. (2) An agreement made under this section shall contain provisions enabling the Governor-General in his discretion to satisfy himself, by inspection or otherwise that the administration of the law to which the agreement relates is carried out in accordance with the policy of the Federal Government and, if he is not so satisfied, the Governor-General, acting in his discretion, may issue such directions to the Ruler as he thinks fit. (3) All courts shall take judicial notice of any agreement made under this section.”. This section means that a State by its Instrument of Accession may stipulate that the administration of Federal laws in the State shall be carried out by the State agency and not by the agency of the Federation and if it does so stipulate then the Federation shall have no administrative power inside the State. The benefit of a law depends upon its administration. A law may turn out to be of no avail because the administration is either inefficient or corrupt. To deprive the Federal Government of its administrative powers is really to cripple the Federal Government. There is no Federation in which some units of the Federation are permitted to say that the Federal Government shall have no administrative powers in their territory. The Indian Federation is an exception. Not only is there a difference between the Provinces and the States in this matter but they also differ in their liability to supervision and direction by the Federal

307 FEDERATION VERSUS FREEDOM Government in the matter of the exercise of their executive authority. That difference will be clear if you will compare section 126 with section 128. Section 126 enacts that the executive authority of every province shall be exercised as not to impede or prejudice the exercise of the executive authority of the Federation and the executive authority of the Federation shall extend to the giving of such directions to a Province as may appear to the Federal Government to be necessary for that purpose. Section 128 is a section which enacts a similar rule with respect to a Federated State, but there is a significant difference between the two sections. Section 126 says that the executive authority of the Federation extends to the giving of such directions to a province as may appear to the Federal Government to be necessary for that purpose, while section 128 does not give such a power. That means that the Federation does not possess the inherent executive authority to give a direction to the Ruler of a Federated State to prevent him from so exercising the executive authority of the State as to impede or prejudice the exercise of the executive authority of the Federation. That is one very significant difference. Such authority, instead of being given to the Federation, is given to the Governor-General, who, of course, under the law is distinct from the Federal Government and it is the Governor-General who is empowered to issue such directions to the Ruler as he thinks fit. A further distinction is also noticeable. When directions are issued to the Governor of a province under section 126 he is bound to carry them out. He has no right to question the necessity of the directions nor can he question the capacity of the Governor-General to issue such directions. With regard to the Ruler of a State, however, the position is entirely different. He can question such a direction, and have the matter adjudicated in the Federal Court, because the proviso to sub-section 2 of section 128 says that if any question arises under this section as to whether the executive authority under this section of the Federation is exercisable in a State with respect to any matter or as to the extent to which it is so exercisable, the question may at the instance either of the Federation or the Ruler be referred to the Federal Court for determination by that Court. (3) In the matter of Finance Coming to the question of Finance, the disparity between the Provinces and the States is a glaring disparity. Take the case of the taxing authority of the Federation over the Provinces and the States. It may be noted that the revenues of the Federation are derivable from sources which fall under two main heads—those derived from taxation and those not derived from taxation. Those not derived from taxation fall under six heads— (1) Fees in respect of matters included in the Federal List. (2) Profits, if any, on the work of the Postal Services, including Postal Savings Banks. (3) Profits, if any, on the operation of Federal Railways.

308 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES (4) Profits, if any, from Mint and Currency operations. (5) Profits, if any, from any other Federal enterprise, such as Reserve Bank, and (6) Direct contribution to the Crown from Federated or non-Federated States. As regards the revenues derived from taxation under the Government of India Act, they fall under two heads; Ordinary taxation and Extraordinary taxation. Ordinary taxation includes levy from following sources : (1) Customs duties; (2) Export duties; (3) Excise duties; (4) Salt; (5) Corporation tax; (6) Tax on income, other than agricultural; and (7) Property Taxes i.e., taxes on Capital value of the individual assets or a property. The extraordinary revenue falls under following heads : (1) Surcharges on Income-tax. (2) Surcharges on succession duties. (3) Surcharges on terminal taxes on goods or passengers carried by rail or air and all taxes on railway freights. (4) Surcharges on Stamp duties, etc. Now, while the provinces are liable to bear taxation under any of these heads whether the taxation is of an ordinary character or is of an extraordinary character, the same is not true of the States. For instance, the States are not liable in ordinary time to ordinary taxes falling under heads 6 and 7, while the Provinces are liable, With regard to extraordinary taxation, the States are not liable to contribute even in times of financial stringency the taxes levied under items 2, 3 and 4 and even where they are liable to contribute under head 1 of the extraordinary sources of revenue, it must be certified that all other economies have been made. There is another difference from the financial point of view between the States and the Provinces. The field of taxation for provincial Governments has been defined in the Act. A provincial Government cannot raise revenue from any source other than those mentioned in the Act. Such is not the case with the State. There is nothing in the Government of India Act, which defines the powers of a Federated State with regard to its system of taxation. It may select any source of taxation to raise revenue for the purpose of internal administration and may even levy customs duties upon articles entering its territory from a neighbouring province although that neighbouring province is a unit of the Federal Government of which the

309 FEDERATION VERSUS FREEDOM Federated State is also a unit. This is a most extraordinary feature of this Indian Federation and also one of its worst features. One of the results of a Federation, if not its primary object, has been the freedom of trade and commerce inside the territory of the Federation. There is no federation known to history which has permitted one unit of the Federation to levy customs duties or raise other barriers with a view to prevent inter-State commerce. The Indian Federation is an exception to that rule and this is a feature of the Indian Federation which makes it stand out in glaring contrast with other federations with which people are familiar today. One of the characteristics of a Federal Constitution is that although the territory comprised in the Federation is distributed or held by different units, still they constitute one single territory. At any rate for customs purposes the territory is treated as a single unit. Every Federal Constitution contains powers and prohibitions to prevent trade and customs barriers being erected by one unit against another. The American constitution by Section 9 of Article II prohibits a State from preventing the import or export of goods or from levying import or export duties upon goods passing in or out of the State boundary. Section 8( 3) of Article II gives the Federal Government the power of regulating trade or commerce between the States of the Union. In Australia by virtue of Section 92 of its Constitution both the States and the Federal Government are bound so to exercise their power of regulation as not to transgress the fundamental guarantee of the Constitution embodied in Section 92 that “trade and commerce among the States whether by means of internal carriage or ocean navigation shall be absolutely free”. In Canada section 121 enacts that “all articles of the growth, produce or manufacture of any one Province shall, from and after the Union, be admitted free into each of the other Provinces.” In the Indian Constitution the provision relating to freedom of trade and commerce within the Federation is contained in Section 297. It reads as follows : “297. (1) No Provincial Legislature or Government shall— ( a) by virtue of the entry in the Provincial Legislative List relating to trade and commerce within the Province, or the entry in that list relating to the production, supply, and distribution of commodities, have power to pass any law or take any executive action prohibiting or restricting the entry into, or export from, the Province of goods of any class or description ; or ( b) by virtue of anything in this Act have power to impose any tax, cess, toll, or due which, as between goods manufactured or produced in the Province and similar goods not so manufactured or produced, discriminates in favour of the former, or which, in the case of goods manufactured or produced outside the Province, discriminates between

310 DR. BABASAHEB AMBEDKAR : WRITINGS AND SPEECHES goods manufactured or produced in one locality and similar goods manufactured or produced in another locality. (2) Any law passed in contravention of this shall, to the extent of the contravention, be invalid.” Now it will be clear from the terms of this section that the freedom of trade and commerce is confined only to the provinces. That means the Indian States are free to prohibit the entry of goods from the Provinces absolutely or subject them to duty. This is quite contrary to the fundamental idea underlying a federal union. To allow one unit of the Federation to carry on commercial warfare against another unit is nothing but negation of federation. (4) Relationship of the People under the Federation Before I enter into this question it is necessary to clear the ground by pointing out certain distinctions. The words ‘State’ and ‘Society’ are often presented as though there was a contrast between the two. But there is no distinction of a fundamental character between a State and a society. It is true that the plenary powers of the State operate through the sanction of law while society depends upon religious and social sanctions for the enforcement of its plenary powers. The fact, however, remains that both have plenary powers to coerce. As such, there is no contrast between state and society. Secondly, the persons composing society are persons who are also members of the State. Here again, there is no difference between State and Society. There is, however, one difference, but it is of another kind. Every person, who is a member of society and dwells in it, is not necessarily a member of the State. Only those who dwell within the boundary of the State do not necessarily belong to the State. This distinction between those, who belong to the State and those who do not, is very crucial and should not be forgotten because it has important consequences. Those who belong to State are members and have the benefits of membership which consists of the totality rights and duties which they possess over against the State. From the side of duty the relation is best indicated by the word subject, from the side of rights it is best designated by the word citizen. This difference involves the consequence that those who dwell in the State without belonging to it have no benefit of membership which means that they are foreigners and not citizens. Theoretically, the task of differentiating the foreigners from the citizens of a State would seem to be an easy task, in fact, almost a mechanical task. This is particularly true of an Unitary State. Here there is a simple question : What is the relation of this State as against any and all foreign States ? In a Federal State the matter is complicated by the fact that every individual stands in a dual relationship. On the one hand, he sustains certain relations to the Federal State as a whole ; and on the other he sustains certain relations to the State in which he may reside. The moment an attempt is