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CASE NO.:

Writ Petition (civil) 567 of 1994

PETITIONER:

Godfrey Phillips(I)Ltd.& Anr.

RESPONDENT:

State of U.P.& Ors.

DATE OF JUDGMENT: 20/01/2005

BENCH:

R.C.LAHOTI CJI & RUMA PAL & ARUN KUMAR & G.P.MATHUR & C.K.THAKKER

JUDGMENT:

JUDGMENT

With

W.P.(C) Nos. 568-569/94 and CA Nos. 123 -125/95

C. A. No. 6891/96, C.A. No. 7870/96,

C.A. Nos. 2123-2127/99, C.A. Nos. 2552-2553/99,

C.A. No. 6365/2000

DELIVERED BY:

RUMA PAL, J.

RUMA PAL, J.

The assessees/appellants are either manufacturers,

dealers or sellers of tobacco and tobacco products. They have

challenged the imposition and levy of a luxury tax on tobacco

and tobacco products by treating them as "luxuries" within the

meaning of the word in Entry 62 of List II.

Entry 62 of List II of the Seventh Schedule to the

Constitution relates to the exclusive power of State

Legislatures to make laws with respect to "Taxes on luxuries,

including taxes on entertainments, amusements, betting and

gambling". Several States have enacted legislation which

they claim are referable to the right to tax luxuries under this

Entry. We are concerned with the Uttar Pradesh Tax on

Luxuries Act, 1955, the Andhra Pradesh Tax on Luxuries Act,

1987 and the West Bengal Tax on Luxuries Act, 1994. The

legislative competence of these statutes was challenged by

the assessees before different fora - in some cases partially

successfully, in others not. To the extent the assessees were

unsuccessful, they have challenged the decisions before us.

In those cases in which the assessees were successful the

concerned State has filed the appeals.

The States have differed in their interpretation of the word

"luxuries" of Entry 62 List II since they have argued in the

context and from the point of view of the particular statute

sought to be defended as legislatively competent. Thus

although the principal question to be resolved would be the

ambit of Entry 62 of List-II, the arguments require a

determination of the nature of the tax sought to be levied by the

three statutes in dispute before us, before we resolve the

question.

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Uttar Pradesh Tax on Luxuries Act 1995

On 14th May, 1994 an Ordinance known as the Uttar

Pradesh Tax on Luxuries Act 1994 (being U.P. Ordinance

No.8/94) was promulgated. The object of the Ordinance as

stated in the preamble was to "provide for levy and collection of

tax on supply of tobacco and matters connected therewith or

incidental there to". It consisted of a few sections of which

relevant ones are quoted.

Section 3 of the Ordinance which provided for the levy of

luxury tax read as follows:-

"Levy of luxury tax.\027Every tobacconist shall

be liable to pay luxury tax on his turnover of

"receipts" at such rate, not exceeding twenty

five per cent, as the State Government may, by

notification, specify and different rates may be

specified for different classes of tobacco:

Provided that a "tobacconist" who does not

manufacture or receive tobacco from outside

the State shall be liable to pay tax on his

turnover of receipts from the date his turnover

of receipts exceeds two lakh rupees:

Provided further that in a chain of supply of

tobacco, the tax shall be realized from the

earliest of the "tobacconists" in the State and a

successive "tobacconist" shall be exempt from

payment of tax if he furnishes, in the manner

prescribed, proof of payment of tax on such

tobacco."

(Emphasis supplied)

The words "receipt" and "tobacconist" which have

been emphasized in the section by us had been respectively

defined in Section 2(e) and 2(h) as follows:-

2 (e) "receipt" means:-

(i) in respect of supply of tobacco by a

tobacconist made by way of sale, the

amount or valuable consideration

received or receivable by him for such

sale including any sum charged for

anything done by him in respect of the

tobacco so sold at the time of or before

the delivery thereof and the price if

charged separately, of any primary or

secondary packing, other than the cost of

freight or delivery or the amount realized

as luxury tax when such cost or amount is

separately charged; and

(ii) in respect of supply of tobacco by a

tobacconist made otherwise than by way

of sale, the normal price at which the

tobacco is sold, and the term "normal

price" shall have the same meaning as

assigned to it in Section 4 of the Central

Excise and Salt Act, 1944;

2 (h) "tobacconist" means:-

(i) a manufacturer whose turnover of

receipts in a year exceeds one lakh

rupees who supplies tobacco by way of

sale or otherwise and includes any

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person who for the purpose of business

gets the manufacturing done from any

other person, whether or not on job work

basis, but does not include any person

who manufactures tobacco only on job

work basis without obtaining any

proprietary right over it at any stage;

(ii) any person who for the purposes of

business brings or causes to be brought

tobacco in the State or to whom any

tobacco is dispatched from any place

outside the State and who supplies such

tobacco by way of sale or otherwise;

(iii) any person who supplies tobacco from a

place within the State to any place

outside the State by way of sale or

otherwise;

(iv) any person who does not buy or

otherwise obtain unmanufactured

tobacco under a brand name but

supplies by way of sale or otherwise

such unmanufactured tobacco in a

sealed container under a brand name;

Explanation:- For the removal of doubts, it is

clarified that a person:-

(1) who exclusively supplies unmanufactured

tobacco whether or not in a sealed container

but not under a brand name; or

(2) not being a person referred to in sub-clause (iii)

who exclusively obtains tobacco by way of

purchase or otherwise from a registered

tobacconist;

shall not be deemed to be a tobacconist for the

purposes or this clause;

Briefly therefore the UP Act provides for the levy of

luxury tax on the receipts from the supply of tobacco by a

tobacconist. It is the act of supply which is the taxable event.

Indeed the preamble of the UP Ordinance as it originally stood

said that the object was to provide for "levy and collection of tax

on the supply of tobacco". Here we may briefly indicate the

core of the controversy between the parties : If the act is in pith

and substance referable to Entry 54 of List II within the words

"taxes on the sale or purchase of goods" in that entry as the

assessees claim, then the tax would be subject to certain

constitutional curbs on the power of the State to levy sales tax

on tobacco. If on the other hand it is referable to Entry 62 of

List II as a "tax on luxury" there would be no such restriction.

Writ petitions had been filed by the assessees in the High

Court of Allahabad challenging U.P. Ordinance No.8/94 on the

ground that it was ultra vires Articles 14, 19, 245, 286, 301 and

304 of the Constitution. At the same time writ petitions under

Article 32 of the Constitution were filed in this Court for a

declaration that U.P. Ordinance 8 of 1994 was ultra vires the

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Constitution, basically on the ground that the levy was in

substance, a tax on sales.

During the pendency of the proceedings, U.P. Ordinance

No.8 of 1994 was amended by U.P. Ordinance No.22 of 1994

which was published in the Official Gazette on

28th September, 1994. The preamble and the definition of

'tobacconist' were altered. As far as the preamble was

concerned, the phrase tax on supply of tobacco was changed

to read " luxury tax on tobacco". But despite the change in the

preamble there was no corresponding change in the taxable

event in the body of the statute which continued to remain a tax

on supply. The Explanation to the definition of tobacconist was

also substituted after deleting the earlier explanation. The

substitution is not material.

On 2nd November, 1994, the High Court allowed the writ

petitions impugning the levy of luxury tax. The High Court held

that the levy was intra vires the Constitution and was

legislatively competent. Following the decision of this

Court in A.B. Abdul Kadir and Ors. vs. State of Kerala (1976)

2 SCR 690 it was held that tobacco was an article of luxury

and a tax on tobacco would be a luxury tax within the meaning

of Entry 62 of List II. According to the High Court, tobacco

included all forms of tobacco as provided under the Ordinance

and could be taxed within the State whether it was sent from

outside the State or sent outside the State and every

person dealing in luxury goods such as tobacco would be liable

to luxury tax irrespective of where the tobacco may be

consumed. However, the High Court held that the imposition

of luxury tax impeded the freedom of trade and commerce and

intercourse and was violative of Article 301 of the Constitution

and since no prior assent of the President had been obtained

under Article 304(b), it was held that the State could not levy

the tax. The argument of the State that tobacco was

hazardous to health and, therefore, there was no fundamental

right to trade in it was negatived. It was held that tobacco could

not be put on par with liquor which had been held by this Court

to be "res extra commercium". It was also held that the

impugned levy was not in any way a regulatory measure. The

High Court also came to the conclusion that classification for

the purpose of levy of the tax in respect of products of tobacco

had been made on an arbitrary basis. The Writ petitions were

accordingly allowed and the levy of luxury tax was struck down

on the ground that it violated Articles 14 and 301 of the

Constitution. Special Leave Petitions have been filed from the

decision of the Allahabad High Court both by the writ petitioner

(to the extent that the High Court held that the levy was

legislatively competent) as well as the State of Uttar Pradesh

which assailed the ultimate conclusion of the High Court.

Leave was granted in the several special leave

petitions on 2nd January, 1995. The appeals were directed to

be tagged with the writ petitions under Art. 32. Interim relief

was granted to the effect that the dealers (tobacconists) would

file their returns with the competent authority in accordance

with the impugned Ordinance. No action on the returns so

filed would be taken by the authorities during the pendency of

the appeal. In the event the challenge of the dealers failed,

the dealers would be liable for payment of the amounts due in

accordance with the assessment made on the basis of the

returns so filed.

On 14th May, 1995, U.P. Ordinance No.22/94 was

repealed and replaced by the Uttar Pradesh Luxury Tax Act

1995 which came into force on the said date. The Act

reproduced Ordinance 22/94 without any material changes. The

pleadings before this Court were suitably amended.

On 17th September, 1995, the U.P. Tax on Luxuries Act

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1995 was repealed by U.P. Ordinance No.39 of 1995.

Therefore, there has been no luxury tax in the State of U.P.

since 1995 and as far as the State of U.P is concerned, the

issue is of relevance for the period 14th May, 1994 to 17th

September, 1995.

The Andhra Pradesh Tax on Luxuries Act, 1987

The Act is broadly similar to the UP Act both as to the

scope and operation with regard to the levy of luxury tax on

the sale and supply of commodities and in particular tobacco.

The Act initially provided for the levy of luxury tax on "luxuries

provided in a hotel and in a corporate hospital". In 1996 the

Act was amended by the AP Act No. 28 of 1996 by which

luxury tax was sought to be levied on specified commodities "

for enjoyment over and above the necessities of life" (S.2

(ggg)) The commodities specified are chewing tobacco in the

different forms and cigarettes. The tax is leviable at the first

point of supply of the tobacco in the State " by sale or

otherwise". Section 3-A which was introduced in 1996

provides for "Tax on tobacconist". It reads:

"3-A Tax on Tobacconist - (1) Subject to

the provisions of this Act, there shall be

levied and collected a tax, on the turnover

of receipts of a tobacconist relating to the

supply of luxuries, namely, tobacco

products, specified in the schedule by way

of sale or otherwise, at the rate of tax and

at the point of levy specified in the

schedule".

"Receipt" has been defined in Section 2(jj) as

"Receipt" in relation to a tobacconist means,-

(a) in respect of supply of the Luxuries, like

tobacco products made by him or by others

by way of sale, the amount of valuable

consideration received or receivable by him

for such sale including any sum charged for

anything done by him in respect of the

tobacco products so sold at the time of or

before the delivery thereof and the price, if

charged separately, of any primary or

secondary packing; and

(b) in respect of the supply of luxuries of

tobacco products made by him otherwise than

by way of sale, the normal price at which such

tobacco products are sold".

A tobacconist has been defined in S.2(kkk) as

"Tobacconist" means a person who

supplies whether by way of sale or

otherwise luxuries, like, tobacco products

manufactured by him or purchased from

other States or from other persons in this

State and includes any person who for the

purpose of Business gets the

manufacturing done from any person

whether or not on job work basis".

Several writ petitions were filed before the A.P. High

Court challenging the amendment to the Act claiming that the

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tax was a tax on the sale of goods and insofar as it violated the

constitutional discipline of Art. 286, 301, Art. 246 read with

Entry 52 List I and Art. 14, was ultra vires. These were

dismissed by a common judgment dated 12th November,

1998. The High Court upheld the validity of the AP Act and

held that the State was competent to enact the Act under Entry

62 of List II. The High Court held that the Act was a tax on the

supply of luxury goods namely; tobacco and tobacco products,

and it was not a tax on sale as had been contended by the writ

petitioners. It was held that the incidence of sale was adopted

as a measure for the purpose of assessment and did not alter

the essential character of the levy. It was held that the State

had not encroached upon the field occupied by Parliament

under Entry 52 of the List by the Tobacco Board Act, 1975 and

that there was no violation of Article 301 because under the Act

inter-state transactions were exempted from the levy of luxury

tax. The challenge to the tax on the ground of Article 14 was

also negatived.

Leave was granted in several special leave petitions

which were filed from the decision of the AP High Court on 1st

April, 1999 and an interim order was granted in the same

terms as had been granted in matters arising out of the

decision of the Allahabad High Court.

The West Bengal Luxury Tax Act, 1994

Section 2(C) of the Act, defines luxuries as meaning

"The commodities, as specified in the schedule, for enjoyment

over and above the necessaries of life". Initially, the scheduled

items related to tobacco and tobacco products as well as pan

masala. The schedule has been amended from time to time

and now contains 34 items, under the headings "luxuries". The

original items are covered by items 1 to 5 of the Schedule.

Items 6 and 8 to 21 deal with mill-made textile fabrics,

footwear, trousers and jeans, shirts and T-shirts, coat jackets,

blazer and suit, watches, bath-room fittings, electric switches,

sun-glasses, fountain pens and dot pens, home theatre

equipment, music system and Video camera. Each of these

items are classed as luxury if their values exceed particular

rates specified against each item. Items 22 to 34 relate to

items not manufactured or made in India. These items which

do not refer to any value are silk yarn, foreign liquor, toys,

electrical and electronic goods, cosmetics, umbrellas, tea,

glassware and crockery, soaps, chocolate and confectionery ,

readymade garments, motorcycles and motor vehicles.

Section 4 which is the charging Section provides:

"4. Incidence of luxury tax.-- Every stockist

shall be liable to pay a luxury tax on his

turnover of stock of luxuries at such rate, not

exceeding twenty per centum, as the State

Government may by notification fix in this

behalf, and different rates may be fixed for

different class or classes of luxuries.

"Stockist" has been defined in Section 2(i) as:-

" "stockist" means a person who has, in

customary course of business, in his

possession of, or control over, a stock of

luxuries whether manufactured, made or

processed by him in West Bengal, or brought

by him into West Bengal, either on his own

account or on account of others, from any

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place outside West Bengal, for stocking,

vending, supplying or distributing such

luxuries in West Bengal";

The other relevant definition is contained in Section 2(h)

which defines 'stock of luxuries' as meaning:-

"the quantity of luxuries that a stockist

receives in, or procures for, his stock, or

records or accounts for in his books of

account, in West Bengal during any

prescribed period for stocking, vending,

supplying or distributing to a wholesaler,

dealer, retailer, distributor or any other

person, but shall not include any

quantity or such luxuries held by him in

stock on the first day of such prescribed

period;"

The luxury tax payable by a stockist under the Act is to be

levied under Section 5:

"Levy of luxury tax. - The luxury tax

payable by a stockist under this Act shall

be levied on that part of his turnover of

stock of luxuries during any prescribed

period which remains after deducting

therefrom his such turnover during that

period representing \026

(a) the value of such stock of

luxuries as shown to the

satisfaction of the prescribed

authority to have been

dispatched to places outside

West Bengal;

(b) the value of stock of luxuries of

such class or classes or

description as may be prescribed".

"Value of stock or luxuries" has been defined in

Section 2 (m) as follows:

""value of stock of luxuries" means.\027

(i) in respect of any stockist, being a

manufacturer of any of the

luxuries, the value of such luxuries

calculated at the ex-factory price

at the time of receipt or entry

thereof in his stock, and ;

(ii) in respect of any stockist, being an

importer of any of the luxuries, the

value of such luxuries calculated

at the price thereof as per

consignor's bill, invoice or

consignment note or other

document of like nature.

And shall include\027

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(A) excise duty and central sales tax, if

any, paid or payable on such

luxuries by the manufacturer or

importer thereof , as the case may

be, and

(B) transport charges and insurance

charges, if any, for carrying such

luxuries to any premises, godown,

warehouse or any other place for

delivery to a wholesaler, dealer,

retailer, distributor or any other

person;

The remaining Sections are not material for the purposes

of our decision in these appeals.

The W.B. Act was challenged before the West Bengal

Taxation Tribunal inter alia on the grounds that it trespassed

into fields exclusively reserved for Parliament under Entries 83

and 84 of List I and was legislatively incompetent, that it

contravened Art. 301 of the Constitution and on other grounds

similar to those raised by the petitioners before the High Courts

of Allahabad and Andhra Pradesh. However, the applicants

conceded that in view of the decision of this Court in Abdul

Kadir (supra), cigarettes could be treated as "luxuries" under

Entry 62 of List II. The challenge of the applicants to the Act

was negatived by a majority of 2:1 on 20th December, 1995.

In two matters special leave petitions were filed from the

decision of the Tribunal. Leave was granted and the matters

tagged with pending Appeals and Writ Petitions arising out of

the decision of the Allahabad High Court. No stay was granted.

One applicant challenged the decision of the Tribunal before

the Calcutta High Court under Art. 226 of the Constitution. The

High Court, by its judgment dated 29th September, 2000,

dismissed the writ petition and upheld the validity of the Act.

The decision of the High Court is also impugned before us and

is listed as Civil Appeal No. 6365 of 2000.

According to Mr. Harish Salve, appearing for some of

the assessees, the word "luxuries" could not be construed to

mean goods and the State's power to legislate in respect of

luxuries under Entry 62 of List II of the Seventh Schedule to

the Constitution did not extend to tax the sale, manufacture, or

import of any goods. It is submitted that a tax on goods would

have to mean a tax on some facet of the goods commencing

with its manufacture and ending with its consumption.

Taxation on each and every facet of goods had been

specifically provided for in the legislative lists in the Seventh

Schedule. For example excise duty on the manufacture of

goods is covered under Entry 84 of List I, tax on the sale of

goods is covered by Entries 92-A and 92-B of List I and Entry

54 of List II and duties on import and export of goods were

referable to Entry 83 of List I. In each of these cases higher

rates of tax were charged or duty levied when the

commodities in question were of higher value. According to

Mr. Salve if the word 'luxuries' in Entry 62 were construed to

include goods, then it would allow the State to legislate on all

these several facets merely by describing the goods as

luxuries. Similarly if the word 'luxuries' was to be understood

as descriptive of goods it would mean that the entry would

give the State over-riding power to levy tax on all goods and

would disturb the scheme of distribution of power on taxation

and collection of revenue envisaged under the Constitution. It

is submitted that there is no over-lapping in fields of taxation.

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There may be an over-lapping on the subject matter of the

taxation but the taxable event must be different. It is

contended that a luxury tax on items of luxury would fail this

test unless the taxable event was the intangible act of

providing luxury. Therefore, Mr. Salve contends, the word

'luxuries' as used in Entry 62 of List II has been used in the

sense of an activity or service namely, the providing of luxury

and what could be taxed by the State under that entry would

be such service but not the goods themselves. Both the U.P.

and A.P. Acts have been challenged on the ground that the

luxury tax imposed under the two Acts was in fact a tax on the

sale of tobacco which was beyond the legislative powers of

the States and was also violative of Articles 286 and 301 of

the Constitution. It is the further submission of Mr. Salve that

the U.P. and the A.P. Luxuries Tax Acts were a fraud on the

Constitution and a device to avoid operation of the Additional

Duties of Excise (Goods of Special Importance) Act, 1957

(referred hereafter as the ADE Act) under which a State

Government which levies sales or purchase tax on specified

goods including tobacco is to be denied its share in the

proceeds of additional excise duties levied under the ADE Act

of 1957. It is stated that both the States of U.P. and A.P.,

while taking full advantage of the enactment of the ADE Act

of 1957 and availing of the benefit thereunder had sought to

levy sales tax under the guise of luxury tax in order to

continue to reap such benefit.

Mr. K.K. Venugopal also appearing for the assessees

submitted that the language in Entry 62 List II read "taxes on

luxuries including entertainment etc." It is submitted that the

word "including" should, in the context, be interpreted as

illustrative. Therefore, on the principle of noscitur a sociis,

"luxury" would have to mean something in the nature of

entertainments, amusements, betting and gambling. The

argument is also that Entry 62 of List II uses two phrases,

namely, 'tax on luxury' and 'tax on entertainment,

amusements, betting and gambling'. There are, therefore, two

kinds of taxes envisaged under the entry. The clubbing

together of these two kinds of taxes would indicate that this

was done because of a common element in the nature of the

taxes to be imposed, the link being that both referred to a kind

of activity. Mr. Venugopal also submitted that the tax sought

to be imposed under the West Bengal Luxury Tax Act was in

certain applications in fact a duty of excise insofar as it sought

to levy tax on goods manufactured in India, it was in fact a tax

on the import of goods insofar as it sought to levy a tax on

goods manufactured outside India and brought into the State

and it was a sales tax insofar as it sought to tax the dispatch

of goods. The mere fact that there is a provision for refund in

respect of interstate sales did not according to Mr. Venugopal,

change the character of the impost.

Mr. R. Nariman also representing the assesses,

submitted that the State Acts are violative of Art. 301 of the

Constitution. It is submitted by Mr. Nariman, that the only

exception to the right to free trade, commerce and intercourse

throughout the territory of India provided for under Article 301

related to articles which were res extra commercium. This

exception did not apply to tobacco. The decision in State of

Punjab Vs. M/s. Devans Modern Breweries 2003(10) Scale

202, which held that liquor was res extra commercium was

sought to be distinguished on the ground that tobacco, unlike

liquor, was not the subject matter of any privilege, but was the

subject matter of ordinary trade or commerce. It is submitted

that it was recognized by Parliament that the trade in tobacco

was of national importance, and had been declared to be of

national importance in interstate trade and commerce under

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Article 286 (3) read with Section 14 of the Central Sales Tax

Act 1956. Reliance was placed on the recent decision of this

Court in Godawat Pan Masala Products vs. Union of India

2004 (6) Scale Page 388, which has held that tobacco was

not res extra commercium. The further contention is that

Articles 301 and 286 form part of a common constitutional

scheme to preserve the economic unity of the country and that

although Article 286 was limited to sales but nevertheless

since there was a declaration under that Article in respect of

tobacco, it meant that imposition of any tax on the commodity

over and above the outer limit provided under Section 15 of

the Central Sales Tax Act would ipso facto amount to a

contravention of Article 301. Any tax which would result in a

declared commodity, such as tobacco, being subjected to

higher taxes in a particular State would, according to Mr.

Nariman, contravene Article 301 since it would lead to a

regional economic imbalance. The only way that such a State

law could be validated would be through Article 304 (b). It is

the accepted position that none of the State Acts have

received any Presidential assent under Article 304 of the

Constitution.

Mr. M. Parasaran, representing the Union of India,

supported the contentions of the assesses and has submitted

that the luxury tax in U.P., A.P. and W.B was in fact a tax on

the sale and purchase of tobacco and that the levy of the tax

was contrary to the scheme of collection and distribution of

taxes under which the Centre alone may levy taxes on goods

declared to be of special importance.

Mr. S. Gupta representing the State of Uttar Pradesh

has submitted that the word 'luxury' has been defined

authoritatively in Abdul Kadir (supra) as, "something which

conduces enjoyment over and above the necessaries of life.

It denotes something which is superfluous and not

indispensable and to which we take with a view to enjoy,

amuse or entertain ourselves". It is submitted that this

definition should not be cast aside since it had held the field

for several decades. According to Mr. Gupta, the object of a

luxury tax is the occurrence or event of luxury which itself

means, "the happening of indulgence, extravagance,

pleasure, comfort, gratification of the senses etc.". It is

submitted that the word 'luxury' was applicable both to

commodities and services and that this has been expressly

held in Express Hotels vs. State of Gujarat (1989) 3 SCC

677. It is said that luxury tax is an indirect tax and is

ultimately collected from and its burden directly or indirectly

falls on the consumers who enjoy the luxury. Responding to

the argument regarding the use of the word 'including' in Entry

62 of List II, it is submitted that tax on luxury has been

recognized for a long time as a separate and distinct kind of

tax and the principle of noscitur a sociis would not apply. As

far as the U.P. Act is concerned, it is submitted that it was

limited to tobacco and other such products. It is said that

tobacco was inherently luxurious in the sense that it could not

be said to be necessary to a person's health. On the other

hand, it was recognized as having a harmful effect on health.

It is said that it is not a tax on sale but on the article, tobacco,

and articles made out of tobacco both of which give rise to

luxuries in the sense that they are taken for pleasure and

enjoyment and are wholly unnecessary for human health and

sustenance. It is said that the luxury 'aspect' or 'component'

which inheres in and arises on account of the article tobacco,

and the activity of supply of tobacco is by itself a 'matter'

under Article 246(3) which was distinct and independent of

other aspects of 'tobacco' such as its manufacture, sale etc. It

is said that the U.P. Act targets at the entire chain of supply of

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tobacco and aims at making its presence felt at the point of

supply by the earliest tobacconist in the State. The mere fact

of the tobacconist \026 even the first tobacconist in the State \026

facilitating the act of consumption of tobacco by his act of

supply of tobacco, that is to say, by bringing about a state of

affairs which has the potential of the act and element of

luxury, namely, the act of consumption of tobacco is sufficient

to provide the requisite nexus between the levy and the

subject matter of the tax. Apart from this, it is said that the

tax was not a tax on sale. The reference to sale consideration

etc. in the Act was only for the purposes of fixing the value of

the element of luxury for the purposes of taxation. This was

also supported by the use of phrase "or otherwise" in the

charging section of the Act. It is submitted that it is not a tax

on the sale of goods within the meaning of Article 366 (29A)(f)

nor a tax on supply. It is drawn to our attention that the

amendment to Article 366 (29A) (f) extending the definition of

sale of goods occurred subsequent to the incorporation of

luxury tax as a specific field of legislation by the States.

Therefore, what was taxable as luxury by the States under

Entry 62 List II from before remained so taxable even after the

amendment to Article 366(29A). Thus the UP Act which was

framed within the legislative parameters of Entry 62 of List II

was not a tax on the aspect 'supply'. It would follow that if the

tax imposed by the State was not actual sale or deemed sale,

there was no question of the infringement of Article 286 nor

was there any question of the Act being a device to avoid the

consequence of the ADE Act.

The State of West Bengal was represented by Mr. R.

Dwivedi . He endorsed the stand of the U.P. Government on

the scope of Entry 62 of List II and has said that the word

'luxuries' must be construed to include not only services but

also goods. According to Mr. Dwivedi, the legislative history of

the Entry starting with the Government of India Act, 1919

would show that betting, gambling, amusements and luxury

tax had been treated as distinct and separate items. We were

referred to Schedule I to the Tax Rules, 1920 and in particular

to Entry 6 which related to luxury tax and was the subject

matter of a report of the Tariff Commission of 1924-25. The

question of imposition of tax on tobacco had been considered

in connection with this Entry. All these Entries were clubbed

together under the Government of India Act, 1935 in Entry 52

of List II of that Act. It is said that this Court had repeatedly

construed the word "luxury". In 1959, the decision in

Western India Theatres vs. Cantonment Board AIR 1959

SC 582, 585 this Court had said that that the ordinary

meaning was to be given to the word "luxury". The decision in

Abdul Kadir in 1976 also proceeded on the basis that the

word 'luxury' in Entry 62 List- II referred to goods. Finally, in

1989 Express Hotels had construed the Entry to hold that

the word 'luxuries' covered goods both corporeal and

incorporeal and services. It is submitted that there was no

reason why this Court should deviate from a well established

series of precedents which had held the field for over five

decades. It is also submitted that the word 'including' in the

Entry indicated an expansion and was not illustrative and

that neither the principle of noscitur a sociis nor abundante

cautela could be invoked in construing the objects of tax under

Entry 62. As far as tobacco is concerned, it is submitted that

there has never been a dispute that it constitutes an article of

luxury. It is further argued that reference to several entries in

List II which are subject to entries in either List I or List III, that

while certain aspects of a particular subject matter of taxation

may be taken out from List II nevertheless a taxing power in

respect of that subject remained with the State Governments

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under List II. Reference has been made to Entries, 26,27, 50,

53 and 60 of List II. According to Mr. Dwivedi, the

constitutional scheme showed that certain aspects in respect

of the same subject matter would fall in List II whereas other

aspects would fall in either List I or List III. The further

submission is that luxury tax is a tax directly on goods

whereas customs duty, excise duty and sales tax are in

respect of goods. Thus excise duty is a levy on the

manufacture or production of goods but was not a tax directly

on goods. It is argued that the fact that the tax was levied on

luxury goods with reference to the manufacture or sale of

goods would not mean that it was a tax on the manufacture or

sale of the goods. The manufacture or sale are only

measures of the luxury tax leviable. With particular reference

to the West Bengal Act, it was submitted that the tax was on

luxury goods or commodities although it was with reference to

the value of the commodities as stocked or as imported. The

tax is merely levied when the commodity is stocked. In

response to the assessees' arguments that the excise duty,

sales tax, custom duty etc. all provide for higher rates in

respect of luxury goods is that the same did not detract from

the fact that those taxes remained taxes on activities in

respect of goods and were not taxes on the goods

themselves.

Mr. Gopal Subramanium appearing for the State of

Andhra Pradesh has submitted that Entry 62 of List II should be

construed bearing in mind that there were no restrictive words

in the entry itself nor was there any restrictive content in any

other entry which would modify or impact on Entry 62. It is

submitted that the word 'consumption' used elsewhere in the

Constitution had not been used in the Entry. This indicated that

the Entry was not limited to the 'consumption' aspect of

luxuries, entertainment etc. It is said that Entry 62 can be read

harmoniously with Entry 54 and Entry 54 is the aggregate Entry

and that Entry 62 relates to an element/component of such

aggregation. The substance of Entry 62, according to Mr.

Subramanium, is luxury, the form of the luxury either as goods

or services is immaterial. It is finally submitted that tobacco

squarely falls under Entry 62. It is further submitted that the

actual presence of a consumer is inessential to the concept of

luxury tax. It is also submitted that the Constitution provides for

legislation in respect of taxation of different taxable events in

respect of the same subject and for taxation in respect of

different aspects of the subject itself. It is said that unless the

aspect was common for two entries, there was no question of

harmonious construction nor of federal supremacy. The

expression, 'luxuries' refers to goods and services which foster

'luxury', a sense of abundance, enjoyment and gratification.

There are two aspects of luxury, the first being objects and

services which are intrinsically capable of fostering a sense of

luxury and second, the recipient of such articles or services

who consumes or experiences such gratification. The

argument is that the capacity to foster 'luxury', which labels

goods as 'luxuries' within Entry 62, is an aspect of the goods

entitling the objects to be taxed and that this is relatable to

Entry 62 which aspect is distinct from taxes on manufacture or

sale per se. Since 'luxuries' can be both goods and services,

what is relevant is the common denominator of the luxury

element/potential of goods and services. According to

Mr. Subramanium since the tax under Entry 62 is on luxuries, it

can legitimately be levied even where there is no actual

consumption of the luxury. Coming to the Andhra Pradesh

Act, it is submitted that the primary purpose of the Act was to

levy tax on tobacco and not on the sale or manufacture of it.

On Article 301, it is submitted that the levy does not impact on

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the movement of tobacco or trade in tobacco as interstate

transactions were exempt.

In this background, the competing contentions as to the

meaning of the word "luxury" in Entry 62 of List II are

considered:

a) According to the learned counsel for the

assessees the word 'luxury' is distinct from an

article of luxury and for the purpose of Entry 62

of List II means the activity of indulgence,

comfort, enjoyment.

b) The argument of learned counsel for the State of

U.P. and A.P. as to the meaning of 'Luxury' is

somewhat ambivalent. On the one hand it was

contended that 'luxury' is a component and

aspect of the goods and that Entry 62 relates to

the exclusive jurisdiction of the State to levy a

tax on such component or aspect of the goods.

On the other hand it was contended that luxury

may arise from the use or consumption of

certain kinds of goods or services or indulgence

in certain kind of activities which are luxurious in

nature.

c) According to counsel for the State of West

Bengal, 'luxuries' comprehends both goods and

services which have an element of enjoyment,

extravagance and which are not necessaries.

Therefore, the State can tax goods which are

per se "luxury goods in the absolute sense like

tobacco, liquor, jewellery etc. or other goods by

imposing a sufficiently high price limit, the

sufficiency being determined according to

standards of the middle class".

The word luxury may possibly be susceptible of all three

meanings. According to the Oxford English Dictionary (2nd

Edn; Vol. IX) 'luxury' could among other meanings be defined

as (1) abundance, sumptuous enjoyment (2) the habitual use

of, or indulgence in what is choice or costly (3) refined and

intense enjoyment; means of luxurious enjoyment; (4) in a

particularized sense: something which conduces to enjoyment

or comfort in addition to what are accounted the necessaries.

Hence, in recent use, something which is desirable but not

indispensable and (5) as an attribute as luxury coach, cruise

duty, edition, flat, liner, shop, tax, trade".

The High Courts and the West Bengal Taxation Tribunal

have accepted the fourth meaning that the tax is on luxury

goods or articles on the basis of the decision in Abdul Kadir

vs. State of Kerala (supra), in which this Court had upheld

the constitutional validity of the Kerala Luxury Tax on Tobacco

(Validation) Act, 1964. The Act had sought to validate the

collection of licence fees by the State under a statutory

provision which had been struck down as unconstitutional.

The invalidated Rules had required licences to be taken out

for storage and sale of tobacco and for payment of licence fee

in respect thereof. This Court had in A.B. Abdul Kadir vs.

Union of India (1962) 2 SCR 741 held the Rules were law

corresponding to the provisions of the Central Excise & Salt

Act, 1944 and were superseded by the Finance Act, 1950.

Consequent upon the invalidation of the Rules, applications

were filed by the erstwhile licensees for refund of the fees

collected. The Act was then passed by the States to validate

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the levy as luxury tax. The Act was challenged on the ground

that it was in fact a duty of excise referable to the exclusive

power of the Union under Entry 84 of List I. This was

negatived on the ground that there was no provision in the

impugned Act which was concerned with the production or

manufacture of tobacco. The next argument was that tobacco

was not an article of luxury. The argument was negatived. It

was in that context that this Court held that the Act was

referable to Entry 62 of List II and said:-

"According to that entry, the State

legislatures can make laws in respect of 'taxes

on luxuries, including taxes on entertainments,

amusements, betting and gambling".

Question therefore, arises as to whether

tobacco can be considered to be an article of

luxury. The word 'luxury' in the above context

has not been used in the sense of something

pertaining to the exclusive preserve of the

rich. The fact that the use of an article is

popular among the poor sections of the

population would not detract from its

description or nature of being an article of

luxury. The connotation of the word 'luxury' is

something which conduces enjoyment over

and above the necessaries of life. It denotes

something which is superfluous and not

indispensable and to which we take with a

view to enjoy, amuse or entertain

ourselves."(p. 227)

It appears to have been assumed that the phrase "tax on

luxuries" in Entry 62 of List II meant a tax on articles of luxury

and the only question was whether tobacco was such an article.

The assessees in the present case do not dispute that tobacco

is an article of luxury but contend that articles of luxury are not

covered by Entry 62. That was an argument neither raised nor

considered in Abdul Kadir.

The concept of "luxuries" in Entry 62 of List II was also

considered in the Federation of Hotel & Restaurant vs.

Union of India (1989) 3 SCC 634. In that case the hotel

industry challenged the constitutional validity of the Expenditure

Tax Act 1987 (Central Act 35 of 1987). The Union of India

sought to sustain the legislative competence to enact the

impugned law under Article 248 read with Entry 97 of List I of

the Seventh Schedule. The hoteliers urged that the legislation

was squarely within Entry 62 of List II since it imposed a tax on

'Luxuries". Counsel for the hoteliers argued on the basis that a

tax on luxuries was a tax on the price paid for the sale of goods

(vide para 29 of the report). This Court rejected the challenge

to the Act and upheld it saying that the subject matter of the

impugned Act was in pith and substance a tax on expenditure

and not on luxuries or sale of goods.

Another decision on the words 'tax on luxuries' in Entry 62

is the case of Express Hotels vs. State of Gujarat: (1989) 3

SCC 677. In that case Legislations of different States, namely,

the States of Gujarat, Tamil Nadu, Karnataka and West Bengal

which imposed a tax on 'luxuries' was challenged as being

constitutionally invalid. The Acts provided for levy of 'tax on

luxuries provided in Hotels'. The argument of the appellants in

that case was that the taxation entry in Entry 62 of List II

provided for taxes on "Luxuries" and took within its sweep, a tax

on goods and articles like jewellery perfumes, liquor, tobacco

etc. in their aspect and character as articles of luxuries and did

not include "services" or "activities". The argument was

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rejected and it was held that the levy was valid.

In this case also arguments proceeded on the basis that

Entry 62 of List II covered articles of luxury. In none of these

decisions therefore was this Court called upon to address the

question whether Entry 62 did not cover articles of luxury and

ought to be restricted to things incorporeal such as enjoyment

or indulgence in what is either choice or costly.

It appears that 'luxury' has been defined by courts in the

United States of America as " An entirely relative term; a free

indulgence in costly food, dress, furniture or anything expensive

which gratifies the appetites or tastes; also a mode of life

characterized by material abundance and gratification of

expensive tastes'. (Corpus Juris Secundum Vol- IV p.887).

According to this definition, American Courts appear to have

opted for the definition of the word as submitted by the

assessees and have held that it is an activity. However we

have also been referred by counsel for the States to other

authoritative works such as Black's Law Dictionary (6th Edition)

in which a 'luxury tax' is said to be a generic term for excise

imposed on purchase of items which are not necessaries e.g.

tax on liquor or cigarettes. This definition is inconclusive as it

merely defines what may have in fact been the subject matter

of tax in a particular statute.

But theoretically 'luxuries' is capable of covering each of

the several meanings ascribed to the word. The question is how

the word is to be construed in the Constitutional entry. Neither

the dictionary meaning nor the meaning ascribed to the word

judicially ( for the reasons stated ) resolve the ambiguity. The

solution must be found in the language of the Entry taking into

consideration the Constitutional scheme with regard to the

imposition of taxes and the collection of revenues.

Before we proceed further we would like to clear the

ground. Whatever be the similarities between the Constitutions

of other countries with similar federal structures as this Country

such as the United States, Canada or Australia, this Court has,

as a general rule held that the opinions expressed by the

Courts of those countries may not be helpful in construing the

allocation of legislative heads in our Constitution.

[See : Chhotabhai Hethabhai Patel vs. The Union of India

(1962) Supp. 2 SCR 1; Province of Madras vs. M/s. Boddu

Paidanna (supra); State of Bombay vs. Chamarbaugwala :

(1957) SCR 874; Atiabari Tea Co. vs. The State of Assam :

(1961) 1 SCR 809; The Automobile Transport (Rajasthan)

vs. The State of Rajasthan (1963) 1 SCR 491 ] although they

may be of some relevance in determining the true character

of particular legislation (Subrahmanyan Chettiar vs.

Muthuswami Gounder 1940 FCR 188; Union of India vs. H.

S. Dhillon (1971) 1 SCC 779, 801-803 ). Given the wealth of

authority on the question of interpretation of legislative heads in

this country, we deem it sufficient to restrict our opinion based

on the views expressed by this Court.

The Indian Constitution is unique in that it contains an

exhaustive enumeration and division of legislative powers of

taxation between the Centre and the States. This mutual

exclusivity is reflected in Article 246 (1) and has been noted in

H.M. Seervai's Constitutional Law of India. Fourth Edition,

Volume 1 at page 166 in paragraph 1A 25 where, after

commenting on the problems created by the overlapping

powers of taxation provided for in other countries with federal

structures such as the United States, Canada and Australia, the

learned author opined :-

"The lists contained in the Schedule VII to the

G.I. Act, 35, provided for distinct and separate

fields of taxation and it is not without

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significance that the concurrent legislative list

contains no entry relating to taxation but

provides only for "fees" in respect of matters

contained in the list but not including fees

taken in any court. List I and List II of

Schedule 7 thus avoid overlapping powers of

taxation and proceed on the basis of

allocating adequate sources of taxation for the

federation and the provinces, with the result

that few problems of conflicting or competing

taxing powers have arisen under the G.I. Act,

35. This scheme of the legislative lists as

regards taxation has been taken over by the

Constitution of India with like beneficial

results".

This view has also been reiterated in Hoechst

Pharmaceuticals Ltd. and anr. vs. State of Bihar and Ors.

(1983) 3 SCR 130 :-

"A scrutiny of Lists I and II of the Seventh

Schedule would show that there is no

overlapping anywhere in the taxing power and

the Constitution gives independent sources of

taxation to the Union and the States.

Following the scheme of the Government of

India Act, 1935, the Constitution has made the

taxing power of the Union and of the States

mutually exclusive and thus avoided the

difficulties which have arisen in some other

Federal Constitutions from overlapping

powers of taxation \005\005\005\005\005. Thus, in our

Constitution, a conflict of the taxing power of

the Union and of the States cannot arise."

(See also The State of West Bengal vs. Kesoram

Industries Ltd., And Ors. JT 2004 (1) 375 ).

Therefore, taxing entries must be construed with clarity

and precision so as to maintain such exclusivity, and a

construction of a taxation entry which may lead to overlapping

must be eschewed. If the taxing power is within a particular

legislative field it would follow that other fields in the legislative

lists must be construed to exclude this field so that there is no

possibility of legislative trespass.

Classically, a tax is seen as composed of two elements:

the person, thing or activity on which the tax is imposed and the

incidence of tax. Thus every tax may be levied on an object or

an event of taxation. The distinction between the two may not,

ultimately, be material in the context of the Indian Constitution

as we will find later. But for the time being we may note that

both these elements are distinct from the incidence of taxation.

For example the tax may be imposed on goods on the event of

their manufacture, sales, import etc. The law imposing the tax

may also prescribe the incidence or the manner in which the

burden of the tax would fall on any person and would take

within itself the amount and measure of tax. The importance of

this distinction lies in the fact that in India, the first two have

been given a Constitutional status, whereas the incidence of tax

would be a matter of statutory detail. The incidence of tax would

be relevant in construing whether a tax is a direct or an indirect

one. But it would be irrelevant in determining the subject matter

of the tax. [ See: M/s. Chhotabhai Jethabhai Patel & Co. vs.

Union of India & Another : AIR 1962 SC 1006 ]

An illustration of this distinction is nicely brought out in

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State of Karnataka v. Drive-in-Enterprises [ ( 2001) 4 SCC

60 ] . Entertainment tax was levied by the Karnataka Cinemas

(Regulations) Act, 1964 and the Rules framed thereunder by

the State in respect of a film show. A higher rate of tax was

levied on persons who drove their cars in to view the film from

the comfort of their cars. The challenge to the Act was that

entertainment tax could be levied only on human beings and

not on any inanimate object, namely motor vehicles. The

challenge was negatived on the ground that the State was

competent to levy tax on entertainment under Entry 62 List II.

That was the subject matter of the tax. The incidence of the tax

was on the persons entertained. Clearly the manner in which

the burden would fall viz. on persons either with or without

motor vehicles would not affect either the object or the nature of

the tax. Motor vehicles were neither the object of taxation nor

the taxable event but were part of the incidence of the tax.

Under the three lists of the Seventh Schedule to the

Indian Constitution a taxation entry in a legislative list may be

with respect to an object or an event or may be with respect to

both. Article 246 makes it clear that the exclusive powers

conferred on the Parliament or the States to legislate on a

particular matter includes the power to legislate with respect to

that matter. Hence where the entry describes an object of tax,

all taxable events pertaining to the object are within that field of

legislation unless the event is specifically provided for

elsewhere under a different legislative head. Where there is the

possibility of legislative overlap, courts have resolved the issue

according to settled principles of construction of entries in the

legislative lists.

The first of such settled principles is that legislative

entries should be liberally interpreted, that none of the items in

the list is to be read in a narrow or restricted sense and that

each general word should be held to extend to ancillary or

subsidiary matters which can fairly and reasonably be said to

be comprehended in it (United Provinces vs. Mt. Atiqa

Begam : AIR 1941 FC 16, Western India Theatres ltd. vs.

The Cantonment Board Poona (1959) Suppl. (2) SCR 63, 69

and ELEL Hotels & Investments Ltd., & Ors. vs. Union of

India (1989) 3 SCC 698).

In Express Hotels vs. State of Gujarat (supra) it was

noted that the view of the Bombay High Court in State of

Bombay vs. RMD Chamarbaugwala AIR 1956 Bom. 1 that

what was contemplated in Entry 62 was "a tax on certain

articles or goods constituting luxuries and not legislation

controlling an activity which may not be a necessary activity",

was overruled by this Court in State of Bombay vs. RMD

Chamarbaugwala ((1957) SCR 874). The view of the Calcutta

High Court in Spences Hotel Private Ltd., vs. State of West

Bengal 1975 Tax LR 1890 (Cal) to the effect that A tax levied

under Entry 62 cannot be restricted to certain articles only but

may also be extended to things incorporeal" was affirmed, it

was said :-

"The concept of a tax on 'luxuries' in Entry

62, List II cannot be limited merely to tax

things tangible and corporeal in their

aspect as 'luxuries'. It is true that while

frugal or simple food and medicine may be

classified as necessities; articles such as

jewellery, perfume, intoxicating liquor,

tobacco, etc., could be called articles of

luxury. But the legislative entry cannot be

exhausted by these cases, illustrative of

the concept. The entry encompasses all

the manifestations or emanations, the

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notion of 'luxuries' can fairly and

reasonably (sic) can be said to

comprehend the element of extravagance

of indulgence that differentiates 'luxury'

from 'necessity' cannot be confined to

goods and articles. There can be elements

of extravagance or indulgence in the

quality of services and activities." (p.690).

It was also held that :-

"The concept of 'luxuries' in the legislative

entry takes within it everything that can

fairly and reasonably be said to be

comprehended in it\005\005\005\005\005 so long as

the legislation has reasonable nexus with

the concept of 'luxuries' in the broad and

general sense in which the expressions in

legislative tests (sic lists) are

comprehended, the legislative competence

extends to all matters 'with respect to' that

field or topic of legislation." (p-692).

But as we have already noted and as is abundantly clear

from the passages quoted, the decision was given on the

assumption that articles of luxury are covered by Entry 62 List II

and cannot be held to be an authority for the proposition that

articles or goods are, as a matter of construction, fairly and

reasonably includible in that entry.

The argument of Mr. Salve is in fact that the breadth of an

entry is curtailed by the second principle of construction. The

second principle is that competing entries must be read

harmoniously. The proper way to avoid a conflict would be to

read the entries together and to interpret the language of one

by that of the other (Governor General in Council vs.

Province of Madras (1945) FCR 179 at pg. 191-192 ); State

of Bombay vs. Narottamdas Jethabhai 1951 SCR 51; Bar

Council of U.P. vs. State of U.P. & Anr. (1973) 1 SCC 261;

D.G. Ghose & Co. (Agents) (P) Ltd. vs. State of Kerala &

Anr. (1980) 2 SCC 410; Federation of Hotel and Restaurant

vs. Union of India (1989) 3 SCC 634, 657, 667-668; State of

West Bengal vs. Kesoram Industries 2004 (1) SCALE 425,

462; in the matter of Central Provinces and Berar Sales of

Motor Spirit and Lubricants Taxation Act, 1938; AIR (1939)

FC 1,8,40 ).

The argument of the assessees is that the tax leviable

under Entry 62 List II cannot be a tax on goods as that would

not only allow the State to levy sales tax in contravention of Art.

286 but would permit trespass onto the Union's Legislative

fields under Entries 83 and 84 of List I. Indeed the contention of

the assesses is that the States have by the impugned

legislations, done just that. Entry 83 demarcates the Union's

power to legislate with respect to "Duties of customs including

export duties". Entry 84 speaks of "Duties of excise on tobacco

and other goods manufactured or produced in India except ( a )

alcoholic liquors for human consumption ( b) opium, Indian

hemp and other narcotic drugs and narcotics but including

medicinal and toilet preparations containing alcohol or any

substance included in sub-paragraph (b) of this entry".

The States have countered this by contending that Entry

62 List II envisaged a tax on luxury goods. Whereas duties of

Excise, Customs and Sales Tax are not directly on the goods

but with reference to goods and that the taxes are leviable on

the events of manufacture, import/export and sale. According to

the States this Court has held so while construing Article 289

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(1) in Re : The Bill to Amend Section 20 of the Sea

Customs Act, (1964) 3 SCR 787. In the language of the

Court:

"The taxable event in the case of duties of

excise is the manufacture of goods and the

duty is not directly on the goods but on the

manufacture thereof. We may in this

connection contrast sales tax which is also

imposed with reference to goods sold,

where the taxable event is the act of sale.

Therefore, though both excise duty and

sales tax are levied with reference to

goods, the two are very different imposts;

in one case the imposition is on the act of

manufacture or production while in the

other it is on the act of sale. In neither case

therefore can it be said that the excise duty

or sales tax is a tax directly on the goods

for in that event they will really become the

same tax. It would thus appear that duties

of excise partake of the nature of indirect

taxes as known to standard works on

economics and are to be distinguished

from direct taxes like taxes on property and

income.

Similarly in the case of duties of

customs including export duties though

they are levied with reference to goods, the

taxable event is either the import of goods

within the customs barriers or their export

outside the customs barriers. They are also

indirect taxes like excise and cannot in our

opinion be equated with direct taxes on

goods themselves"

Therefore according to the States, the argument of the

assessees that the existing entries on taxation indicated that

Entry 62 of List II could not cover goods was without substance.

The submission of the assessees proceeds on two

premises : the first that taxation of an object can only be with

reference to a taxable event and second \026 that all taxable

events have been covered by the legislative entries. As far as

the first premise is concerned, it may be that a tax on a thing or

goods can only be with reference to a taxable event, but there

is a distinction between such a tax and a tax on the taxable

event. In the first case the subject matter of tax is the goods

and the taxable event is within the incidence of the tax on the

goods. In the second the taxable event is the subject matter of

tax itself.

The first premise paraphrased is that even a tax on goods

is really a tax on a taxable event. The decision in the Sea

Customs Act case (supra) which was rendered by this Court in

its advisory capacity under Art. 143 was concerned with the

construction of Art. 289 of the Constitution. The nature and

incidence of the taxation entries in the legislative tests was

directly in issue and it was on the determination of this issue

that the power of the Union to levy tax on property of the States

under Art. 289 was considered (p. 822-823 of the report). A tax

on property was described as a direct tax and taxes on the

taxable events in respect of property as indirect taxes based on

the impact on the property. However even in respect of 'direct

taxes" ( in the sense used by the Court in that decision ) it was

held by Ayyangar, J. in his concurring opinion, that it was

ultimately a question of degree of impact. He said ( at pg. 917

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of the report ) "for in the ultimate analysis the distinction

between a direct and an indirect tax is a distinction based upon

the difference in impact which is also expressed as a distinction

based upon its being not on property but on a taxable event in

relation to property. If the taxable event is merely the

ownership of the property and on the beneficial interest

therein, it would be a direct tax, whereas if the connection

between the property and the tax payer is not merely

ownership but something else such as a transaction in relation

to it, then it would be an indirect tax." In other words it is the

taxable event of ownership which survives for taxation in all

entries levying tax on goods, articles or objects. It is true that

this Court in The Central Provinces and Berar Sales of

Motor Spirit and Lubricants Taxation Act, 1938; AIR 1939

FC 1 has held the excise duty is a tax on goods. This was

because ordinarily the power to impose a tax on goods would,

by virtue of Article 246 encompass the power to levy a tax in

respect of goods. Thus there appears to be no doubt that the

first premise contended for by Mr. Salve is correct.

The logical corollary of holding that taxes are imposed

only on taxable events is that even when an entry speaks of a

levy of a tax on goods it does not include the right to impose

taxes on taxable events which have been separately provided

for under other taxation entries. The tax in respect of goods has

sometimes been referred to as a tax on an aspect of the goods

and sometimes as the taxable event ( See : Federation of

Hotel & Restaurants vs. Union of India (1989) 3 SCC 634 ).

Whatever the terminology, because there can be no

overlapping in the field of taxation, such a tax if specifically

provided for under one legislative entry effectively narrows the

fields of taxation available under other related entries. It is also

natural 'when considering the ambit of an express power in

relation to an unspecified residuary power, to give a broad

interpretation of the former at the expense of the latter'.

(Madras Province vs. Boddu Paidanna AIR 1942 FC 33,37

per Gwyer C.J.). For example the State cannot under the garb

of luxury tax under Entry 62 List II impinge on the exclusive

power of the Union under Entries 83 and 84 of List I by merely

describing an article as a luxury. Ofcourse the States do have

the exclusive power under Entry 54 of List II to legislate with

respect to "Taxes on the sale and purchase of goods other than

newspapers", but that power has been explicitly made "subject

to the provisions of Entry 92A of List I".

Entry 92A of List I speaks of

"Taxes on the sale or purchase of goods

other than newspapers, where such sale

or purchase takes place in the course of

inter-state trade or commerce "

Apart from this limitation on the States' jurisdiction to levy

sales tax, are the restrictions placed by Article 286. Article

286(1) prohibits the States from imposing or authorizing the

imposition of tax on the sale or purchase of goods where such

sale or purchase takes place (a) outside the State, or (b) in the

course of the import of the goods into, or export of the goods

out of, the territory of India. In addition Article 286 (3) provides

that :

"Any sale of a State shall, in so far as it imposes, or

authorizes the imposition of \026

(a) a tax on the sale or purchase of goods

declared by Parliament by law to be of special

importance in inter-State trade or commerce;

or

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(b) a tax on the sale or purchase of goods, being

a tax of the nature referred to in sub-clause

(b), sub-clause (c) or Sub-clause (d) of clause

(29A) of Article 366,

be subject to such restrictions and conditions in

regard to the system of levy, rates and other

incidents of the tax as Parliament may by law

specify".

Thus Parliament has been given the overriding power to

limit the rates of sales taxes which are otherwise within the

exclusive competence of the States in respect of certain items

of sale and purchase. The relevant clause for our purpose is

clause (a) of Art. 286(3) which allows Parliament to enact a law

declaring goods to be of special importance in inter-state trade

or commerce.

In exercise of this power, Section 14 of the Central Sales

Tax Act. 1956 has declared certain goods to be of special

importance in inter-state trade or commerce. This includes

tobacco both in un-manufactured and manufactured form. The

States have been restricted from imposing or authorizing the

imposition of tax on the sale or purchase of the declared goods

within the State upto a maximum limit of 4 per cent of the sale

or purchase price under Section 15 of the Central Sales Tax

Act, 1956.

In December, 1956, the National Development Council,

Planning Commission, Government of India, and the States

agreed that the sales tax in respect of inter alia tobacco should

be replaced by a surcharge on the Central Excise Duties, the

income derived there from being distributed amongst States on

the basis of consumption, subject to the income from the States

being assured. Pursuant to this and the recommendation of the

Finance Commission in its report dated 30th September, 1957,

the Additional Duties of Excise (Goods of Special Importance )

Act 1957 was passed by Parliament. The object of the Act was

to impose additional duties of excise in replacement of the

sales tax levied by the Union and the States on sugar, tobacco

and millmade textiles and to distribute the net proceeds of

these taxes, except the proceeds attributable to Union

territories, to the States. Provision was made that the State

which levy a tax on the sale or purchase of these commodities

after the 1st April, 1958 could not participate in the distribution of

the net proceeds of the additional levy under the ADE Act.

Provision was also being made in the Act for including specified

goods in the category of goods declared to be of special

importance in inter-State trade or commerce so that, following

the imposition of uniform duties of excise on them, the rates of

sales tax if levied by any State were subject from 1st April, 1958

to the restrictions in Section 15 of the Central Sales Tax Act,

1956.

Section 3 of the ADE Act is the charging section under

which additional excise duties are leviable on specified goods

manufactured or lying in stock. Sub-section (1) of Section 3

reads :-

"3. Levy and collection of additional duties

\026 (1) There shall be levied and collected

in respect of the following goods, namely,

sugar, tobacco, cotton fabrics, rayon or

artificial silk fabrics and woolen fabrics

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produced or manufactured in India and on

all such goods lying in stock within the

precincts of any factory, warehouse or

other premises where the said goods

were manufactured, stored or produced,

or in any premises appurtenant thereto,

duties of excise at the rate of rates

specified in the First Schedule to this Act."

(Emphasis added).

No State can levy luxury tax on items covered by Section

3 of the ADE Act in respect of goods for the same taxable event

i.e. goods stored on manufacture, just by describing the goods

as luxury goods. The overlapping of the powers exercised

under Entry 84 of List I and Entry 62 of List II would then be

evident. Similarly storage or stocking of imported goods is

covered by Entry 83 of List I and cannot be made the subject of

levy by the States.

By the Constitution (Forty-sixth Amendment ) Act, 1982

the phrase "tax on the sale or purchase of goods" was

extensively defined by the introduction of Clause 29A in Article

366. It reads :-

"(29A) 'tax on the sale or purchase of goods'

includes \026

(a) a tax on the transfer, otherwise than in

pursuance of a contract, of property in any

goods for cash deferred payment or other

valuable consideration;

(b) a tax on the transfer of property in goods

(whether as goods or in some other form)

involved in the execution of a works contract;

(c) a tax on the delivery of goods on hire

purchase or any system of payment by

instalments;

(d) a tax on the transfer of the right to use any

goods for any purpose (whether or not for a

specified period) for each, deferred payment

or other valuable consideration';

(e) a tax on the supply of goods by any

unincorporated association or body of persons

to a member thereof for cash, deferred

payment or other valuable consideration;

(f) a tax on the supply by way of or as part of any

service or in any other manner whatsoever, of

goods, being food or any other article for

human consumption or any drink (whether or

not intoxicating), where such supply or

service, is for cash, deferred payment or other

valuable consideration,

and such transfer, delivery or supply of any goods

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shall be deemed to be a sale of those goods by the

person making the transfer, delivery or supply and a

purchase of those goods by the person to whom

such transfer delivery or supply is made";

However while widening the scope of Entry 54 of List II,

the powers of the State to levy such tax are subjected to a

corresponding restriction as a consequence of the constitutional

curbs imposed on sales tax under Article 286 read with

Sections 14 and 15 of the Central Sales Tax Act, 1956 and the

ADE Act, 1957. "The tax leviable by virtue of sub-clause (b) of

clause (29-A) of Article 366 of the Constitution thus becomes

subject to the same discipline to which any levy under Entry 54

of the State List is made subject to under the Constitution. The

position is the same when we look at Article 286 of the

Constitution. If any declared goods which are referred to in

Section 14 of the Central Sales Tax Act, 1956 are involved in

such transfer, supply or delivery, which is referred to in clause

(29-A) of Article 366, the sales tax law of a State which

provides for levy of sales tax thereon will have to comply with

the restrictions mentioned Section 15 of the Central Sales Tax

Act, 1956.

No State can therefore by describing an item as a luxury,

seek to levy tax on its supply. It cannot be disputed that as far

as UP and AP are concerned, were it not for their Interpretation

of Entry 62 of List II, the tax would be referable only to Entry 54

List II. If Entry 62 List II does not allow the taxation of goods,

the levy would not be constitutionally sustainable.

In our opinion to read Entry 62 List II as including articles

of luxury cannot allow all these constitutional restrictions to be

by-passed allowing States to levy tax on the supply of goods by

describing them as luxury goods. As has been rightly

contended by Mr. Parasaran appearing for the Union of India,

the supply of luxury is nothing but the supply of goods since the

goods themselves constitute the luxury.

So even if tobacco is an article of luxury, a tax on its

supply is within the exclusive competence of the State but

subject to the constitutional curbs prescribed under Article 286

read with Sections 14 and 15 of the Central Sales Tax Act,

1956 and most importantly the ADE Act of 1957 under which no

sales tax can be levied on tobacco at all if the State was to take

the benefits under that Act.

Despite the subtraction of the rights to levy excise or

customs duties and the restraint on the States to levy sales tax

in cases when the states can levy tax on goods we still have to

determine whether Entry 62 of List II covers taxes on goods at

all.

In view of the decision in the Sea Customs Act case, the

second premise propounded by Mr. Salve is unacceptable. As

we have seen, in that case this Court held that the taxable

event of ownership is implicit in the concept of taxes on goods.

That the entries on taxable events in the legislative lists are not

exhaustive is also recognised and provided for in Art. 248 (2)

which provides for the power of Parliament to make any law

imposing a tax not mentioned in either the Concurrent or State

lists. This residuary power is reflected in Entry 97 of List I.

Furthermore if an article or goods are taxable only with respect

to a taxable event, and if, as contended by Mr. Salve, all

taxable events have been provided for in the different legislative

heads, then by that token no object or goods could be taxable.

This would render the various entries in the State List including

entries 57 and 58 contentless. As we cannot accept that the

taxation entries exhaustively enumerate all taxable events, it

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does not follow that Entry 62 of List II does not cover goods. It

is not possible therefore to hold merely on such a construction

of the legislative lists and the taxation entries therein, that Entry

62 List II does not permit the States to levy tax on articles of

luxury.

Having rejected the second premise contended for by Mr.

Salve, the next question is whether the language of Entry 62

List II would resolve the issue. The juxtaposition of the different

taxes within Entry 62 itself is in our view of particular

significance. The entry speaks of "taxes on luxuries including

taxes on entertainments, amusements, betting and gambling".

The word "including" must be given some meaning. In ordinary

parlance it indicates that what follows the word "including"

comprises or is contained in or is a part of the whole of the

word preceding. The nature of the included items would not

only partake of the character of the whole, but may be

construed as clarificatory of the whole.

It has also been held that the word 'includes' may in

certain contexts be a word of limitation ( South Gujarat

Roofing Tiles Manufacturers vs. State of Gujarat (1976) 4

SCC 601). In the context of Entry 62 of List II this would not

mean that the word 'luxuries' would be restricted to

entertainments, amusements, betting and gambling but would

only emphasise the attribute which is common to the group. If

luxuries is understood as meaning something which is purely

for enjoyment and beyond the necessities of life, there can be

no doubt that entertainments, amusements, betting and

gambling would come within such understanding. Additionally,

entertainments, amusements, betting and gambling are all

activities. 'Luxuries' is also capable of meaning an activity and

has primarily and traditionally been defined as such. It is only

derivatively and recently used to connote an article of luxury.

One can assume that the coupling of these taxes under one

entry was not fortuitous but because of these common

characteristics.

Where two or more words are susceptible of analogous

meaning are clubbed together, they are understood to be used

in their cognate sense. They take, as it were, their colour from

and are qualified by each other, the meaning of the general

word being restricted to a sense analogous to that of the less

general. As said in Maxwell on the Interpretation of Statues

12th Edn. P.289.

"Words, and particularly general words,

cannot be read in isolation; their colour

and their content are derived from their

context ."

Put in other words the included words may be clarificatory

or illustrative of the general word. Thus in U.P. State v. Raja

Anand; (1967) 1 SCR 362, while construing Art. 31A (2) as

enacted by the Constitution (Seventeenth Amendment ) Act,

1964 the relevant excerpt of which read as:-

"31A(2) In this article\027

(a) the expression 'estate' shall in

relation to any local area, have the

same meaning as that expression

or its local equivalent has in the

existing law relating to land tenures

in force in that area and shall also

include\027

(i) xxx xxx xxx xxx xxx

(ii) xxx xxx xxx xxx xxx

iii) any land held or let for

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purposes of agriculture or for

purposes ancillary thereto,

including waste land, forest

land, land for pasture or sites of

buildings and other structures

occupied by cultivators of land,

agriculture labourers and village

artisans;

this Court said:-

"In our opinion the word "including"

is intended to clarify or explain the

concept of land held or let for purposes

ancillary to agriculture. The idea seems

to be to remove any doubts on the point

whether waste land or forest land could

be held to be capable of being held or

let for purposes ancillary to agriculture."

In the present context the general meaning of 'luxury' has

been explained or clarified and must be understood in a sense

analogous to that of the less general words such as

entertainments, amusements, gambling and betting, which are

clubbed with it. This principle of interpretation known as

'noscitur a sociis' has received approval in Rainbow Steels

Ltd. vs. C.S.T.: (1981) 2 SCC 141,145 although doubted in its

indiscriminate application in State of Bombay vs. Hospital

Mazdoor Sabha : AIR 1960 SC 610. In the latter case this

Court was required to construe Section 2(j) of the Industrial

Disputes Act which read:

"Section 2(j) provides that 'industry'

means any business, trade, undertaking,

manufacture or calling of employers and

includes any calling, service, employment,

handicraft or industrial occupation or

avocation of workmen".

It was found that the words in the definition were of very

wide and definite import. It was suggested that these words

should be read in a restricted sense having regard to the

included items on the principle of 'noscitur a sociis'. The

suggestion was rejected in the following language:

"It must be borne in mind that noscitur a

sociis is merely a rule of construction

and it cannot prevail in cases where it is

clear that the wider words have been

deliberately used in order to make the

scope of the defined word

correspondingly wider. It is only where

the intention of the Legislature in

associating wider words with words of

narrower significance is doubtful, or

otherwise not clear that the present rule

of construction can be usefully applied.

It can also be applied where the

meaning of the words of wider import is

doubtful; but, where the object of the

Legislature in using wider words is clear

and free of ambiguity, the rule of

construction in question cannot be

pressed into service". (p.614)

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We do not read this passage as excluding the application

of the principle of noscitur a sociis to the present case since it

has been amply demonstrated with reference to authority that

the meaning of the word "luxury" in Entry 62 is doubtful and has

been defined and construed in different senses.

In Black Diamond Beverages vs. Commercial Tax

Officer (1998) 1 SCC 458, the definition of 'sale price' with

respect to notified commodities under Section 2(d) of the West

Bengal Sales Tax Act, 1954 was sought to be restricted with

reference to the specific inclusion of sums charged for

containers etc. The argument was that since freight charges

were not expressly included they must be taken to have been

excluded from the 'sale price'. In that context this Court said

that the inclusive part of the definition cannot prevent the main

provision from receiving its natural meaning and that according

to the natural meaning 'sale price' included freight charges. It

was said that by the inclusion sale price was extended to mean

something which would not ordinarily come within its definition.

The decision is not of relevance as it is nobody's contention

that luxuries in the sense of enjoyment would not naturally

cover entertainments, amusements, betting and gambling.

We are aware that the maxim of noscitur a sociis may be

a treacherous one unless the 'societas' to which the 'socii'

belong, are known. The risk may be present when there is no

other factor except contiguity to suggest the 'societas'. But

where there is, as here, a term of wide denotation which is not

free from ambiguity, the addition of the words such as

'including' is sufficiently indicative of the societas. As we have

said the word 'includes' in the present context indicates a

commonality or shared features or attributes of the including

word with the included.

Furthermore where articles have been made the object of

taxation, either directly or indirectly, the entries in the

legislative lists have specifically said so or the impost is such

that the subject matter of tax follows by necessary implication.

In List II itself, the State legislature has been given the right to

levy taxes on the entry of goods under Entry 53, on 'carriage of

goods and passengers' under Entry 56, on 'vehicles' under

Entry 57 and on 'animals and boats under Entry 58. There is

no instance in any of the legislative lists of a tax being leviable

only with reference to an attribute. An attribute as an object of

taxation without reference to the object it qualifies would lead to

legislative mayhem, blur the careful demarcation between

taxation entries and upset the elaborate scheme embodied in

the Constitution for the collection and distribution of revenue

between the Union and the States. For example would a

luxury vehicle be subjected to tax under Entry 62 or Entry 57 of

List II? In the latter case, the levy would be subject to

provisions of Entry 35 of List III and hence capable of being

over-ridden by Parliament. If it is referable to Entry 62 there

would be no such concurrent power in Parliament.

Hence on an application of general principles of

interpretation, we would hold that the word 'luxuries' in Entry 62

of List II means the activity of enjoyment of or indulgence in that

which is costly or which is generally recognized as being

beyond the necessary requirements of an average member of

society and not articles of luxury.

Lest we be accused of a blind adherence to a strictly

verbal interpretation we may note that the legislative history

behind Entry 62 of List-II does not militate against the

conclusion reached by us on a pure question of interpretation.

The Government of India Act, 1915 Act (as amended by the

Government of India Acts 1916 and 1919) provided for the

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division of the country into provinces including the two

Presidencies of Bengal and Madras (Section 46). The local

legislature of each province was empowered to make laws

under S. 80-A of the 1915-19 Act "for the peace and good

government" of that province. On 16th December, 1920 the

Scheduled Taxes Rules were made which permitted the

Legislative Council of a province for the purpose of the local

government to impose taxes listed in Schedule I to the Rules.

These included inter alia:

S.No.3 . A tax on any form of betting or gambling

permitted by law.

Sl.No.5 A tax on amusements

Sl.No.6. A tax on any specified luxury.

It was noted by the Indian Taxation Enquiry Committee in

its report in 1924-25 that tobacco was not subjected to tax. It

was recommended that a regular excise system should be put

in place on the manufacture of tobacco products or a levy of

sales tax or licensing fee on retail vendors of tobacco. It is of

significance that there was no suggestion of a levy being

imposed on tobacco under List I Sl.No.6.

Between the Government of India Act 1915-1919 and the

Government of India Act, 1935, these lists underwent a change.

Under the 1915-1919 Act there was indication only of the

provincial powers of legislation thereby leaving every other

subject within the legislative powers of the Centre. In 1921, the

Devolution Rules came into force. Schedule I to the Rules

contained two parts. Part I of Schedule I contained the subjects

which could be legislated or by the Indian Legislature.

Provincial subjects were classified under Part II. The sources

of provincial revenue included in the Schedules to the

Scheduled Taxes Rules were retained in Part II with the

provinces.

Schedule VII of the Government of India Act, 1935 which

repealed the 1915-1919 Act also classified the legislative

powers between the Federation and the Provinces. It

contained two exclusive lists and one concurrent list. List I of

the Schedule was the Federal Legislative List and comprised

matters exclusively assigned to the Federation. Entry 45 read

"Duties on excise on tobacco and other goods manufactured or

produced in India". List II which was the Provincial Legislative

List contained an Entry No. 48 "Taxes on the sale of goods"

and on advertisements. Entry 50 read: "Taxes on luxuries

including tax on entertainment, amusement, betting and

gambling". Here too there is no evidence of any tax being

imposed by the State under this entry on any goods. On the

other hand the imposition of tax on tobacco was brought under

Entry 45 of List I.

Entry 50 of the Provincial List (now Entry 62 of List II) was

resorted to impose entertainment tax on cinema houses under

the Cantonments Act, 1924 by the State of Bombay. The tax

was upheld on the ground that the entry contemplated a law

which imposed tax on the act of entertaining \026 Western India

Theatres Ltd. vs. The Cantonment Board, Poona (1959)

Supp. (2) SCR 63, 69.

Prior to the framing of the present Constitution the

debates in the Constituent Assembly show that the suggestion

that Entry 62 of List II should read as "taxes on entertainments,

amusements, betting and gambling, racing and other such

luxuries" was negatived on the ground that it would cut down

the scope of the entry. The example of a tax on servants which

"should probably be within the unamended entry" was cited as

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being possibly excluded by the amendment. In fact "a tax on

menials and domestic servants" was, under Schedule II of the

Taxes Rules framed under the 1915-1919 Act, within the

competence of the Provincial Legislative Council to impose, or

with the authority of the State Legislative Council within the

competence of any local authority. It was an entry distinct from

the authority conferred on the State Legislative Council to

impose a 'tax on any specified luxury' under Schedule I of the

Taxation Rules. In any event 'servants and menials' could

hardly be equated with "goods". It was probably their

employment which was considered as a possible luxury. It is

again to be emphasized that the rejection of the suggestion was

not because of the possible exclusion of luxury goods.

After the Constitution came into force, except for the

decision of this Court in A.B. Abdul Kadir vs. State of Kerala

(supra), in 1976, Entry 62 of List II was not invoked save for the

purpose of levying a tax on gambling and betting (State of

Bombay vs. R.M.D. Chamarbaugwala (1957) SCR 874) or for

levying tax on the provisions of enjoyment or indulgence of

facilities in hotels and restaurants (Express Hotels vs. State of

Gujarat (1989) 3 SCC 677; ELEL Hotels & Investments Ltd.

& Ors. vs. Union of India (1989) 3 SCC 698; East India

Hotels Ltd. vs. State of West Bengal (1990) Supp. SCC 755;

Spences Hotels Pvt. Ltd. and Anr. vs. State of West Bengal

and Ors.. (1991) 2 SCC 154 and East India Hotels Ltd,

Srinagar vs. State of J & K. and Anr. (1994) Supp. 2 SCC

580).

Thus the constitutional history of Entry 62 of List II would

show that despite the existence of an entry pertaining to 'luxury

tax' in all the Constitutional Acts, from 1915 onwards, the tax

was never sought (save in the case of Abdul Kadir) to be

imposed on goods till 1993. The method of taxing luxury goods

invariably was by subjecting them to the extant fiscal regimes of

excise duties, sales tax, customs duties etc. at heavier rates.

No distinction is made in Article 366 (29A) or Article 286 or

Entries 83 and 84 of List I as to the nature of the goods which

may be the subject matter of sale excise or import be they

articles of necessity or articles of luxury. This is also the sense

in which States have all along understood the word as indicated

in their evidence given in response to the question posed by the

Taxation Enquiry Commission with reference to the levy of

sales tax in 1953-54 . The question was "should there be

special rates of levy, higher than the ordinary rate for certain

articles ? If so, for which types of articles?". The response to

this question by all the States was in the affirmative. It would

suffice for our purposes to note the response of the two States

whose statutes are impugned viz. AP and UP. Andhra Pradesh

said:

"In this State, special rates of tax at a

higher rate are levied on articles

mentioned in Section 3(2) of the Act,

which are luxury goods. It is proposed

to increase the number of articles in this

list by incorporating certain other items

brought to notice by the lists of the other

States."

Similarly Uttar Pradesh said:

"Special rates of levy, higher than the

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ordinary rates are justified in respect of

many luxury goods, needs on which

unduly high profits are being made by

the producers or dealers and goods of

which are consumption should be

discouraged."

Historically therefore the tax on luxury goods was seen as

a part of Entry 54 of List II or Entries 83 and 84 of List I but not

as a tax leviable under Entry 62 of List II. The only exception

was the Kerala Validating Statute which was the subject matter

of Abdul Kadir where the assessee did not question that Entry

62 related to goods and articles and the sole point of protest

was that tobacco was not an article of luxury. It was only in

1993 the State of Maharashtra enacted the Bombay Luxury Tax

Act, 1993 directly imposing luxury tax on goods. This was

withdrawn in 1994 but the other states soon followed suit

culminating in a rash of such legislation some of which are now

impugned before us where the question as to the leviability of

Luxury tax on goods is squarely raised.

Given the language of Entry 62 and the legislative history

we hold that Entry 62 of List II does not permit the levy of tax on

goods or articles. In our judgment, the word "luxuries" in the

Entry refers to activities of indulgence, enjoyment or pleasure.

In as much as none of the impugned statutes seek to tax any

activity and admittedly seek to tax goods described as luxury

goods, they must be and are declared to be legislatively

incompetent. However following the principles in Somaiya

Organics (India) Ltd. vs. State of U.P. (2001) 5 SCC 519

while striking down the impugned Acts we do not think it

appropriate to allow any refund of taxes already paid under the

impugned Acts. Bank guarantees if any furnished by the

assessees will stand discharged.

It was stated on behalf of the State Governments that

after obtaining interim orders from this Court against recovery

of luxury tax, the appellants continued to charge such tax from

consumers/customers. It is alleged that they did not pay such

tax to respective State Governments. It was, therefore,

submitted that if the appellants are allowed to retain the

amounts collected by them towards luxury tax from consumers,

it would amount to "unjust enrichment" by them.

In our opinion, the submission is well founded and

deserves to be upheld. If the appellants have collected any

amount towards luxury tax from consumers/customers after

obtaining interim orders from this Court, they will pay the said

amounts to the respective State Governments.

In view of our opinion on the scope of Entry 62 List II, we

do not think it necessary to answer the other issues raised in

these appeals which are left open.

Accordingly, W.P. No. 567 of 1994; W.P. Nos. 568-569 of

1994 are allowed. C.A Nos. 123-125 of 1995 are dismissed

albeit for different reasons. C.A. No. 2123 of 1999, C. A. Nos.

2124-25 of 1999, C.A. No. 2126 of 1999, C.A. No. 2127 of 1999

and C.A. Nos. 2552-2553 of 1999, C.A.No.7870 of 1996, C.A.

No. 6891 of 1996, and C.A. No. 6365 of 2000 are allowed.

There will be no order as to costs.