TMI Blog2014 (6) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for its members and in the nature of such facilities as is defined under the Act, it can undoubtedly be termed as an activity in the nature of a luxury. There is no doubt that the expression that luxury means an activity of enjoyment or indulgence which is costly, is suggestive of only availed or utilised of the activity or indulgence in the activity. To this extent, the observation here is clearly at variance with the observations of the Supreme Court in the case of Express Hotels Private Ltd. [1989 (5) TMI 52 - SUPREME Court], wherein the Supreme Court has observed that for constituting a luxury, it need not necessarily be availed of and has a comparing situation to levy of tax on notional concept. A particular example in the case is a notional income. It is also further linked to a measure of the levy, in the sense, that a levy on special matter when it is on actual person is termed as a measure of levy so long as there is some nexus between the levy and the subject-matter. The justification is that there cannot be any reasonableness in a levy under the taxing statute and even if the tax is on a notional basis, it is an aspect of measure of levy. If there is no scope fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociation of respectable persons of all casts, creeds and professions. (b) Opening libraries, reading rooms and arranging for cultural programmes and lecturers of non-political character. (c) Arranging for indoor and outdoor games and tournaments. All the petitioners-clubs claim that they have their own bye-laws for the purpose of interaction amongst the members of the club and for the purpose of managing the affairs of the club. The petitioner-clubs are before this court challenging the constitutional validity of the levy of what is known as luxury tax under the provisions of the Karnataka Tax on Luxuries Act, 1979 (for short, the Act ) and in particular as levied under section 3D of the Act which had been introduced into the parent Act by an amendment in terms of Karnataka Act No. 3 of 2004 which received the assent of the Governor on January 29, 2004 and became law from that date but is nevertheless given effect from April 1, 2003 in terms of the provisions of the very amending Act. It is questioning the levy of luxury tax in terms of section 3D of the parent Act as introduced by Act No. 3 of 2004, on the premise that a levy of this nature is beyond the compe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the management of a club or hospital, and includes, the person who for the time being is in charge of the management of the hotel or marriage hall or club or hospital. The petitioners have obtained registration in terms of section 4A of the Act which enables them to collect any amount by way of tax and lift the embargo under section 6A of the Act so long as such collection is not exceeding the rate specified under the Act and other procedural requirements are complied. The petitioners are all proprietors who are even now paying luxury tax under other provisions of the Act such as section 3B or 3C, but it is only in respect of the levy under section 3D as introduced by Karnataka Act No. 3 of 2004 that the petitioners are aggrieved and have questioned the legality of such levy in these petitions. Section 3D as introduced by Karnataka Act No. 3 of 2004 reads as under: 3D. Levy and collection of tax on luxury provided in a club. (1) There shall be levied and collected a tax on luxuries provided in a club to the members who are required to pay any amount as fee, deposit, donation or any other such charges by whatever name called, at the rate as specified in column (3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable person, the taxable facilities in the nature of luxury and the taxable event. The contention is that even without a taxable event taking place a liability is sought to be created under the provisions of the Act and such liability is clearly in the teeth of the requirements as enumerated in paragraph 85 of the said judgment and therefore the levy in terms of section 3D of the Act is bad in law. Writ petitions have all been admitted for examination and the State has been called upon to defend the validity of the legislation. The respondent-State and its officers are represented by Sri K.M. Shivayogiswamy, learned Government Pleader. Statement of objections have been filed in W.P. No. 15119 of 2004 and it is adopted in all other writ petitions. It is, inter alia, averred in the statement of objections filed on behalf of the State and its officers that the provisions of section 3D of the Act as introduced by Act No. 3 of 2004 is a valid piece of legislation; that it is well-within the competence of the State Legislature to enact such law and to levy the luxury tax as under section 3D of the Act; that it is within the scope of entry 62 of the State List; that action tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities provided in a club and which are sought to be subjected to tax as a luxury in terms of section 3D of the Act and as indicated therein are all in reality in the nature of luxury; that the argument that such facilities have become common features of all clubs and availed of even by the members of the general public is not an argument to take it out of the concept of perception of luxury as all these facilities are neither within the reach of an average person in the society nor are available as a matter of course to the average member of the society. The argument in some of the petitions that the petitioners being not a legal entity, there is no liability for tax is countered by pointing out that it is nevertheless a club of members registered or unregistered and it attracts liability under the provisions of the Act; that it matters little as to whether it is registered club or an unregistered club. It is also urged that the charging section itself is fully effectuated even without the aid of any rules to be framed under the section for implementing or enforcing the charge and therefore want of any rule to supplement the charging section is not a drawback nor the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g any bearing on the validity of the levy of luxury tax. It is also pointed out by the respondent-State that rules 2B, 4, 4B and 5B of the Act, which have been considerably amended fully supplementing the provisions of section 3D of the Act, that there is no impediment or difficulty as pleaded by the petitioners to comply with the requirement of section 3D for payment of luxury tax. It is also pointed out that a club is required to pay tax only on the basis of number of members at the beginning of every year and therefore the possibility of collection of tax even on senior citizens who become members in the middle of the year is not a factual situation as averred in the writ petitions. I have heard Sri G. Rabinathan, learned counsel for the petitioners and Sri K.M. Shivayogiswamy, learned Government Pleader appearing for the respondents. Appearing for the petitioner in W.P. No. 7017 of 2006, Sri G. Rabinathan, learned counsel, has put forth a two-fold contention. Firstly that the levy in terms of section 3D of the Act is a levy which is beyond the competence of the Legislature, as the levy permitted under entry 62 of List II of the Seventh Schedule to the Constitution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans the activity of enjoyment of or indulgence in that which is costly or which is generally recognised as being beyond the necessary requirements of an average member of society and not articles of luxury. is heavily relied upon by Sri G. Rabinathan, learned counsel for the petitioner, to make the submission that levy under section 3D is beyond the legislative competence. Referring to the provisions of section 3D, it is pointed out that the levy under the section is even on the mere existence of a facility of luxury in a club and the authority administering the Act as of now demanding and collecting luxury tax from the petitioner-clubs irrespective of the members enjoying the facility; that mere availability of the facility is taken as a criterion for raising the demand under this provision; that the section 3D creates a liability for payment of tax on mere existence of a facility, it is clearly a provision which is opposed to the requirement of luxuries for the purpose of entry 62 of List II, as pointed out by the Supreme Court in para 85 of the case in Godfrey Phillips [2005] 139 STC 537 (SC); [2005] 2 SCC 515; that the Supreme Court had examined and held that to constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4B) of the Act having been exhaustively defined as what is luxury, there cannot be any further additions in section 2(4B) of the Act in terms of section 3D and therefore the levy under section 3D being not in the nature of levy on luxury, is bad in law even in terms of the very definition in the Act. Sri Phanindra would also urge that when once the luxuries provided in a club are taxed, at 20 per cent of the value of luxury provided to a member in terms of section 3B of the Act, there cannot be a further levy on the very activity or on the very facility yet again under section 3D and it amounts to a double taxation and points out that the levy as envisaged under section 3D being in the nature of levy when it is or it cannot be levied under section 3B, i.e., when the luxury is not availed of and no payment is made, the levy is yet again not a levy on availment of any luxury but on the mere existence of a luxury in a club and therefore the levy is bad in terms of the judgment of the Supreme Court in the case of Godfrey Phillips [2005] 139 STC 537 (SC); [2005] 2 SCC 515. It is also pointed out, with reference to the facts of the particular writ petition, that the notice at anne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subscription fee and many a time running to several lakhs and by any stretch of imagination, it cannot be termed as a facility accessible by an average citizen of the country; that the club itself is a luxury and therefore the argument that some of the facilities which are termed as luxury under the provisions of the Act are not actually luxuries is an argument which is to be rejected at the threshold; that the facility when provided at such a place which are exclusively to the members of the club and their guests is undoubtedly a luxury, though in a common place and when available to general public, whether it constitutes a luxury or otherwise, may be a debatable point and therefore submits that insofar as levy under the Act even in terms of section 3D on an activity described as luxury in the very section is concerned, is undoubtedly a levy only on luxury and even within the meaning of this phrase as occurs or as is understood by the Supreme Court in the case of Godfrey Phillips [2005] 139 STC 537; [2005] 2 SCC 515 and therefore submits that levy is a valid levy. With regard to the argument that the levy can only be on the actual utilisation and not on the mere availability at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to comprehend in it, every aspect which can fairly and reasonably be said to be embraced by it, then, the taxing power cannot be limited to or conditioned in the manner suggested. Once the legislative competence and the nexus between the taxing power and the subject of taxation is established, the other incidents are matters of fiscal policy behind the taxing law. The measure, of the tax is not the same thing as, and must be kept distinguished from, the subject of the tax. 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 a tax or that it affects the earnings cannot, per se, be held to violate article 19(1)(g). Contention (b) is not substantial either. The learned Government Pleader would submit that the observation of the Supreme Court in para 85 as extracted above, cannot be read in isolation, that it should be read in the context of para 74 of the very judgment; that the Supreme Court was merely seized of the question as to whether the levy on goods in the name of luxury, such as levy on tobacco an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities relied upon at the Bar. The levy is attacked mainly on the ground of legislative competence and secondly on the ground that it is misfit into the scheme of the Act; that it seeks to levy luxury tax more than once on the very facility; and thirdly on the premise that by seeking the levy on luxury not availed of or utilised, it renders itself unconstitutional in terms of the judgment of the Supreme Court in the case of Godfrey Phillips [2005] 139 STC 537 (SC); [2005] 2 SCC 515. In so far as the legislative competence is concerned, it is not in dispute that the State Government has legislative competence to levy tax on luxuries. In fact, it is only a levy in terms of section 3D, which is questioned and not the levy in terms of section 3, 3B or 3C. Even under section 3D, levy was earlier slightly different. It is so as in the present form in terms of the Karnataka Act No. 3 of 2004. While the legislative power undoubtedly is referable to entry 62 of State List, the question is as to whether a levy of this nature is beyond the scope of entry 62. The general prescription of the luxury apart, in its very nature, the concept of luxury being subjective concept, which can vary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Express Hotels Private Ltd. [1989] 74 STC 157 (SC); AIR 1989 SC 1949, wherein the Supreme Court has observed that for constituting a luxury, it need not necessarily be availed of and has a comparing situation to levy of tax on notional concept. A particular example in the case is a notional income. It is also further linked to a measure of the levy, in the sense, that a levy on special matter when it is on actual person is termed as a measure of levy so long as there is some nexus between the levy and the subject-matter. The justification is that there cannot be any reasonableness in a levy under the taxing statute and even if the tax is on a notional basis, it is an aspect of measure of levy. What is laid down in the case of Express Hotels Private Ltd. [1989] 74 STC 157 (SC); AIR 1989 SC 1949 is that the aspects amenable for a judicial review of the legislative action is only the legislative competence and nexus between the taxing power and the subject of taxation. If these two aspects are once made good, it is not for the courts to go beyond which are all described as matter of fiscal policy beyond the enactment of the taxing statute. If the levy is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder this section. Providing luxuries to a member of a club and the member being required to pay for such luxury, is the taxing event, which attracts levy under this section. The section does not stipulate any levy on the mere existence of a facility. The section while does make use of a member who uses or who is provided the facility and pays for the facility in the nature of luxury, which is more than one facility, enjoyed by a member as a measure, it is not on total membership of the club. The measure of levy is not on the total membership of the club, but is only at the rate per member. Such a luxury is provided and charged for the member in a club. The section as it stands in fact is, whether by design or accident in consonance even with the understanding or concept of luxury as indicated by the Supreme Court in para 85 in the case of Godfrey Phillips [2005] 139 STC 537 (SC); [2005] 2 SCC 515. The provisions of section 3D being challenged as being unconstitutional for want of legislative competence on the premise that it is seeking to levy tax on a non-luxury as even in terms of the description or understanding the word luxury by the Supreme Court in the case of Godfre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only effectuated but also does not violate any of provisions of the Constitution. Section 3D when understood in this manner in fact is free from any allegations of being bad either for want of legislative competence or on the ground of being discriminatory or as on imposing any unreasonable restrictions on any profession, trade or employment or such other grounds. The challenge to the validity of section 3D while fails on the grounds urged on behalf of the petitioners, the stand taken by the State Government in its counter and orders passed by the authorities under the Act to subject to tax, the petitioner-clubs on the premise that levy under section 3D is on the basis of total number of members in the club irrespective of the actual contents of section 3D is a clear wrong application and understanding of the provision and the assessment orders if have been passed on such understanding, are required to be redone to bring them, in conformity with section 3D as understood and interpreted in this decision. The writ petitions are disposed of in the above terms. While the proposition notice at annexure G in W. P. No. 992 of 2006 is quashed by issue of a writ of certiorari with libe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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