2005 (1) TMI 391 - SC - VAT and Sales Tax

Whether tobacco can be considered to be an article of luxury?

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?

Held that:- 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.

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. Inasmuch 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.