1989 (5) TMI 52 - SC - VAT and Sales Tax

Luxury Tax Laws Valid: Court Defines Luxuries, Allows Tax on Unutilized Services

The court upheld the constitutional validity of luxury tax legislations imposed by various states on accommodations in hotels and lodging houses. It ... Constitutional validity of legislations of different States, viz., the State of Gujarat, State of Tamil Nadu, the State of Karnataka and the State of West Bengal, imposing a tax on 'luxuries' under entry 62 of List II of the Seventh Schedule to the Constitution of India is challenged. Held that:- High Court was not in error in its understanding of the import of the concept of 'luxuries' in entry 62 as a subject of tax.The concept of a tax on 'luxuries' in entry 62, List 11, 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 notion of 'luxuries' can fairly and reasonably be said to comprehend and the element of extravagance or 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. So far as the argument that fundamental rights under article 19(1)(g) are violated by a levy on a mere provision for luxury, without its actual utilisation, is concerned, it is settled law that the mere excessiveness of tax or that it affects the earnings cannot, per se, be held to be violative of article 19(1)(g). The composite elements of lodging accommodation and services associated with it cannot be broken into components so as to distinguish some components as necessities, some others as comforts and yet others as luxuries. Even necessities and comforts which have to them the additional element of undue elegance to a point of extravagance and indulgence might become luxuries. Though the arguments on these contentions were not without their interesting facets, We must, however, express our inability to accept them as valid arguments against the constitutionality of the provisions. Another relevant consideration is the identity and status of the repository of the power. The power is given to a high authority like the State Government. In these circumstances, it cannot be said that the power is an uncanalised power and is an arbitrary or unreasonable one. There are statutory guides governing its exercise and the guidelines are governed by well-settled principles of interpretation. No fault can be found with this provision in section 4(3) which merely states that where the usual lodging charges are not collected for providing the lodging accommodation, tax shall be payable as if the usual charges had been collected. This is a provision against evasion. There is no merit in the challenge to the validity of this provision. n the present case, it has not been pointed out how a tax on 'luxuries' enjoyed by a person in a hotel is either discriminatory or has the direct and immediate effect of impeding the freedom of intercourse. It is no reason for extending the freedom which section 92 confers upon trade and commerce among the States to something which precedes it and is outside the freedom conferred. Appeal dismissed. Issues Involved:1. Constitutional validity of legislations imposing a tax on 'luxuries' under entry 62 of List II of the Seventh Schedule to the Constitution of India.2. Scope of entry 62 of List II regarding taxes on 'luxuries.'3. Validity of Section 4 of the West Bengal Act imposing tax on the mere existence of luxury provision.4. Criteria for distinguishing 'luxury' based on price.5. Legitimacy of taxing composite services that include necessities, comforts, and luxuries.6. Vagueness and arbitrariness of the phrase 'and the like' in Section 2(a) of the Gujarat Act.7. Reasonableness of taxing accommodation provided free or at concessional rates under Section 4(3) of the Gujarat Act.8. Impact of luxury tax on the freedom of 'trade, commerce, and intercourse' under Article 301 of the Constitution.Detailed Analysis:Issue 1: Constitutional Validity of LegislationsThe judgment addresses the constitutional validity of luxury tax legislations enacted by the States of Gujarat, Tamil Nadu, Karnataka, and West Bengal. These legislations impose a tax on luxury accommodations in hotels and lodging houses. The Gujarat High Court had upheld the constitutional validity of the Gujarat Act, which was under appeal.Issue 2: Scope of Entry 62 of List IIThe court analyzed whether 'luxuries' under entry 62 of List II includes services or is limited to goods and articles. The court held that the term 'luxuries' should be given a broad interpretation, encompassing both goods and services. The court cited previous judgments and dictionaries to support that luxury can include extravagant services, not just tangible goods.Issue 3: Validity of Section 4 of the West Bengal ActSection 4 of the West Bengal Act imposes a tax on the mere provision of luxury, even if not utilized. The court held that the taxable event need not be actual utilization but can include potential provision. The court rejected the argument that such a tax is an unreasonable restriction on the freedom under Article 19(1)(g).Issue 4: Criteria for Distinguishing 'Luxury' Based on PriceThe court examined whether price alone can be a criterion for identifying luxury. It held that price can be evidence of quality and that legislative assessment of luxury based on price does not suffer from irrationality. The court noted that what constitutes luxury can change over time and context.Issue 5: Taxing Composite ServicesThe court addressed the argument that taxing composite services, which include necessities and comforts, is unconstitutional. It held that in the context of lodging, the concept of luxury is comprehensive and includes various components of services. The court rejected the argument that the tax should distinguish between necessities, comforts, and luxuries.Issue 6: Vagueness and Arbitrariness of 'and the like'The phrase 'and the like' in Section 2(a) of the Gujarat Act was challenged as vague and arbitrary. The court held that the phrase should be construed ejusdem generis, meaning it includes items of the same class as those listed. The court found that the power to define 'charges for lodging' is not arbitrary as it is conferred on a high authority like the State Government.Issue 7: Taxing Free or Concessional AccommodationSection 4(3) of the Gujarat Act taxes accommodation provided free or at concessional rates as if full charges were received. The court upheld this provision, stating it is a measure against evasion and does not violate Article 19(1)(g).Issue 8: Impact on Freedom of Trade, Commerce, and IntercourseThe court addressed the argument that luxury tax restricts the freedom under Article 301. It held that only taxes that directly and immediately restrict trade, commerce, and intercourse fall within Article 301. The court found no evidence that the luxury tax on hotel accommodations restricts this freedom.ConclusionThe court dismissed the writ petitions and appeals, upholding the constitutional validity of the luxury tax legislations. It found no merit in the arguments that the legislations were beyond the scope of entry 62, List II, or that they imposed unreasonable restrictions on fundamental rights. The court emphasized that the legislative entries should be given the widest possible interpretation to include all ancillary matters.