TaxTMI 
TaxTMI 
1989 (5) TMI 52
X X X X Extracts X X X X
X X X X Extracts X X X X
....M.N. Shorff, M. Veerappa, R. Mohan, R, Ayyamperumal and J.P. Misra, Advocates, with them), for the respondents. JUDGMENT The judgment of the court was delivered by VENKATACHALIAH J. -In these civil appeals and writ petitions, the 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. Civil Appeals Nos. 338 and 339 of 1981 and Writ Petitions Nos. 7990, 9119, 8338, 8339 of 1981 relate to the challenge to the legislation by the State of Gujarat, viz., the Gujarat Tax on Luxuries (Hotels and Lodging Houses) Act, 1977. Writ Petition No. 162 of 1982 pertains to the corresponding legislation of the State of Tamil Nadu, viz., the Tamil Nadu Tax on Luxuries in Hotels and Lodging Houses Act, 1981. Writ Petitions Nos. 1271 and 1272 of 1982 pertain to the challenge to the corresponding Karnataka legislation, viz., the Karnataka Tax on Luxuries (Hotels and Lodging Houses) Act, 1979. Writ Petition No. 5321 of 1985 pertains to the challenge to the West....
X X X X Extracts X X X X
X X X X Extracts X X X X
....io, music, or extra beds and the like but excluding charges for food, drink and other amenities) is not less than thirty-five rupees per person per day ;" Section 3 is the charging section which provides: " 3. (1) Subject to the provisions of this Act, with effect on and from the date on which this Act comes into force, there shall be levied and collected from every person a tax (to be known as 'luxury tax') in respect of any luxury provided to him in a hotel, at the following rates, namely: (a) Where the charges for lodging 10 per cent. of such charges are thirty five-rupees or more but not more than fifty rupees per day per person (b) Where the charges for lodging Rs. 5 plus 20 per cent. of such are more than fifty rupees but not more charges in excess of Rs. 50 per than one hundred rupees per day per person person per day (c) Where the charges for lodging are Rs. 15 plus 30 per cent. of such more than one hundred rupees per day per charges in excess of Rs. 100 per person person per day: Provided that where charges for lodging are levied otherwise than on daily basis or per person, then, for the purpose of determining the tax liability of any person under this sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing an employee of the hotel) is not charged at all, or is charged at a concessional rate, then also there shall be levied and collected the tax on such luxury, as if full charges for such luxury were paid to the proprietor of the hotel. (4) Where luxury provided in a hotel for a specified number of persons is shared by more than the number specified, then, in addition to the tax paid for luxury provided to the specified number of persons, there shall be levied and collected separately, the tax in respect of the charge made for the extra persons accommodated. (5) Where any proprietor fails or neglects to collect the tax payable under this Act, the tax shall be paid by the proprietor as if the tax was recovered by the proprietor from the person to whom the luxury was provided and who was accordingly liable to pay the same." Sections 5, 6, 7, 8, 9 and 10, respectively, refer to the returns to be filed by every proprietor liable to pay tax under the Act ; the assessment and collection of tax ; the imposition of penalty ; the payment of tax and penalty ; appeals and revision. Sections 13 and 14 speak of offences and offences by companies. Section 15 pertains to the compound....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a tax on the mere existence of the means of providing the luxury independently of its utilisation is outside entry 62 List II. (c) The real criterion distinguishing "luxury" is the special attribute or quality of the commodity or the services, as the case may be, and not the price-factor simpliciter. The essential distinguishing attribute is a qualitative one. Distinction based purely on the quantitative difference in the price is not a rational criterion to identify "luxuries". The impost based on the mere criterion of price which has no relation to the concept of luxuries, is ultra vires the State power under entry 62 List II. (d) The scheme of the Act in so far as it makes the price and not quality, the sole basis for identification of the subject of the tax, makes no distinction between the components of the services which include both necessities and comforts, as distinguishable, from "luxuries". Levy on such composite subject-matter is bad. (e) The expression "and the like" in the definition of "charges for lodging" in section 2 (a) is vague and irrational and read with the Explanation, which renders the decision of the State Government on what constitutes "lodgi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... tax on certain articles or goods constituting luxuries and not legislation controlling an activity which may not be a necessary activity but may be necessary and in that sense a luxury." (emphasis supplied) It is to be noticed that the decision of the Bombay High Court in which the above observation occurs was overruled by this court in State of Bombay v. R. M. D. Chamarbaugwala [1957] SCR 874. The impugned State legislation which the High Court had struck down was held to be a valid piece of legislation under entry 62, List II. In the light of the decision of this court in the case, the observations of the learned Chief Justice of the Bombay High Court excerpted are rendered inapposite. Indeed, a view similar to the one taken by the Bombay High Court as to the concept of "luxuries" in entry 62 of List 11 was taken by the Kerala High Court in A. S. Bava v. State of Kerala [1971] Tax LR 512. However, the views of the Bombay and Kerala High Courts were referred to and dissented from by the Calcutta High Court. In Spences Hotel P. Ltd. v. State of Bengal [1975] Tax LR 1890, 1892 (Cal), it is held : "In these premises, we are of opinion that 'luxuries' in entry 62 of List 11 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icted meaning so as to confine the operation of the law to be made thereunder only to taxes on persons receiving the luxuries, entertainments, or amusements. The entry contemplates luxuries, entertainments, and amusements as objects on which the tax is to be imposed. If the words are to be so regarded, as we think they must, there can be no reason to differentiate between the giver and the receiver of the luxuries, entertainments, or amusements and both may, with equal propriety, be made amenable to the tax . . . " (emphasis supplied) The concept of "luxuries" as a subject of tax was not confined to those who received or enjoyed the luxury. It could be also on those who provided it. In the Encyclopaedia Britannica, the meaning of the word "luxury tax" is set out thus: "Luxury tax A tax on commodities or services that are considered to be luxuries rather than necessities. Modern examples are taxes levied on the purchase of jewellery, perfume and tobacco. " In Webster's Comprehensive Dictionary, International Edition, the word "luxury" is defined: "Luxury : 1. A free indulgence in the pleasures that gratify the senses. 2. Anything that ministers to comfort or pleasure ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ri Sorabjee, if accepted, will unduly restrict the scope of the legislative entry which should otherwise have the widest and the most liberal meaning and connotation given to it. Contention (a), in our opinion, is unacceptable. Re: Contention (b) : This contention pertains to a provision particular to the West Bengal legislation. It is urged that in so far as section 4 of the West Bengal Act envisages a tax on the mere existence for the provision of the luxury and is levied even if the luxury is not utilised by any person. It was beyond the scope of the legislative entry. It was submitted that there must be both giving and receiving of the luxury and that a tax on the mere existence of the means of providing the luxury would be insufficient to support a law imposing a tax thereon. It would, in any event, it is urged, constitute an unreasonable restriction on the freedom under article 19(1)(g). Reliance was also placed on certain observations in Western India Theatres Ltd.'s case [1959] Supp. 2 SCR 63. The passage in the judgment relied upon by Shri Sorabjee merely says that both the giver and the receiver of the luxuries are amenable to be taxed. The decision cannot be und....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion has reasonable nexus with the concept of "luxuries" in the broad and general sense in which the expressions in legislative tests are comprehended, the legislative competence extends to all matters "with respect to" that field or topic of legislation. The taxable event need not necessarily be the actual utilisation or the actual consumption, as the case may be, of the luxury. The contention, in substance, is that the means of providing luxury, by itself, does not provide the nexus between the taxing power and the subject of tax and there must be an actual, and not merely a notional or potential, consumption or utilisation of the luxury. As an instance of what can be said to be fairly and reasonably comprehended in a legislative entry, reference may be made to the "notional" income, for purposes of a tax on income, of a person, from a house property in his own personal occupation or a property not actually let. In that context, this court said "that which can be converted into an income can be reasonably regarded as giving rise to income". See Bhagwan Dass Jain v. Union of India [1981] 128 ITR 315 (SC) ; AIR 1981 SC 907. A luxury which can reasonably be said to be amenable to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....priced above a certain level could reasonably be held to be of a particular quality distinguishing it from others. These ideas of luxury or necessity are necessarily relative ideas and are required to be understood in the context of the contemporary standards of living. What might have been a "luxury" some decades ago might cease to partake of that character now. What is luxury today might be considered a necessity decade or so later In Abdul Kadir's case, AIR 1976 SC 182, it was observed (at p. 190): "It may be added that there is nothing static about what constitutes an article of luxury. The luxuries of yesterday can well become the necessities of today. Likewise, what constitutes necessity for citizens of one country or for those living in a particular climate may well be looked upon as an item of luxury for the nationals of another country or for those living in a different climate. A number of factors may have to be taken into account in adjudging a commodity as an article of luxury. . . " We are presently concerned with the question whether the quality or standards of lodging accommodation in hotels can be called luxuries by contemporary standards by reason of the h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....x an undefined entity. It is further contended that the Explanation appended to section 2(a) to the effect that the decision of the State Government on any dispute in that behalf is final and shall not be called in question in any court aggravates the arbitrariness and constitutes an unreasonable restriction and is violative of article 19(1)(g). Reliance was placed on the decision of this court in Corporation of Calcutta V. Calcutta Tramways Co. Ltd. [1964] 5 SCR 25. We are afraid the argument overlooks certain relevant factors bearing on the point. It is, no doubt, true that it has been held in several cases that the absence of a provision for a corrective machinery, by way of appeal or revision, to rectify an adverse order made by an authority on whom power is conferred, might indicate that the power so conferred is unreasonable or arbitrary. But the corrective machinery may itself take several forms and be inherent or found in the provisions for conferment of the power themselves. The mere absence of a corrective machinery or the existence of provision imparting finality, by themselves, would not be conclusive so as to render the conferment of power per se unreasonable and ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hri R. F. Nariman, learned counsel, who addressed arguments with particular emphasis on this contention submitted that tax laws are not outside the purview of Part XIII of the Constitution and that the present tax on lodgings and accommodations in hotels is violative of the freedom of "trade, commerce and intercourse" and offends article 301. Learned counsel submitted "that business undoubtedly is commerce but is something more, it is intercourse". The word "intercourse" specifically occurs in article 301 intending to give the largest connotation to the concept of commerce. The question is whether the impugned tax imposes a restriction on the freedom under article 301. If it does, the further questions whether the restriction is reasonable and is required in public interest and whether Presidential sanction had been obtained for the introduction of the legislative measure arose for consideration. It has been held that only such taxes as are directly and immediately restrictive of trade, commerce and intercourse that fall within the purview of article 301. On the several facets of the similar-some say deceptively similar-provisions of section 92 of the Commonwealth of Australia Cons....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g any trade or a compensatory tax levied for the use of trading facilities ; sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against article 301 . . . " Taxes can and do sometimes, having regard to their effect and impact on the free flow of trade, constitute restrictions on the freedom under article 301. But the restriction must stem from the provisions of the law imposing the tax which could be said to have a direct and immediate effect of restricting the free flow of "trade, commerce and intercourse". It is not all taxes that have this effect. Freedom under article 301 is, by all reckoning, a great freedom, one of the utmost significance to economic unity of the nation. Underlying the need for and the recognition of the freedom of inter-State trade, commerce and intercourse, one is tempted to refer to the lofty sentiments of Justice Cardozo in Charles H. Baldwin v. GAF Seeling [1934] 294 US 511, that "it was framed upon the theory that peoples of several States must sink or swim together and that in the long-run prosperity and salvation are in union and not in divis....