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M/s. KANJIRAPPILLY AMUSEMENT PARK AND HOTELS PVT. LTD. Versus UNION OF INDIA AND OTHERS

2016 (4) TMI 895 - KERALA HIGH COURT

Whether the removal of “admission and access to entertainment event and amusement facilities” from the Negative List of “Services” by an Amendment of 2012 and the consequent imposition of service tax on such activity would result in the Union Parliament trenching upon the exclusive field assigned to the State, under Entry 62 List II of the Seventh Schedule of the Constitution of India. - Petitioner submitted that Entry 62 List II having covered 'amusements'' the amusement parks set up by the .....

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ct of “service” involved, when the facilities for amusement is offered for a price cannot be ignored. The Union Parliament's power to levy such tax by an appropriate enactment cannot also be effaced merely for the reason that amusements are covered under Entry 62. - This Court, with due respect, is unable to agree with the extracted statement, since the Union Parliament quite aware of their power and the fields available under List I and List II would not have included “amusement” in the Neg .....

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er to “amusement”, but tax on admission on entry of such events quite understanding the power to levy service tax on such facilities offered by one to another for a consideration. The tax now levied on the admissions cannot also detract from the essential nature and character of the tax being one on the services; since it is only a measure and as has been held earlier, it would not determine the object of taxation. - The petitioners, maintaining an amusement park, are obliged to pay entertai .....

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ields of legislation. The two aspects taxed by the respective legislatures are the 'service' and the 'amusement'. The tax,imposed by the Union Parliament, in pith and substance, is also one on the service offered by the petitioners. This Court does not find any trenching of the Union Parliament on the power conferred on the State, in fact or in law, since the respective legislatures tax two different aspects. The incidental overlapping, if at all, is only to be ignored; going by the various prec .....

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T PLEADER SRI.BOBBY JOHN JUDGMENT Whether the removal of admission and access to entertainment event and amusement facilities [sub-clause (j) of Section 66D of the Finance Act, 1994] from the Negative List of Services by an Amendment of 2012 and the consequent imposition of service tax on such activity would result in the Union Parliament trenching upon the exclusive field assigned to the State, under Entry 62 List II of the Seventh Schedule of the Constitution of India is the question raised he .....

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any entertainment at a rate not less than 24% and not exceeding 48%. The measure applicable to amusement parks; is separately provided under Section 3B, a non-obstante clause; different from that provided under the charging section. The measure for levy of entertainment tax, annually, is based on the investment and area in which such park is situated, at the rates fixed by the local authority within the range of rates provided in the table,. The levy now imposed as service tax by the Amendment o .....

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n different situations, relying on the power of the Union Parliament to impose tax on services ; the levy has been upheld as coming under the residuary clause - Entry 97 of List I. 4. Service tax, as it was in its nascent stage, was tax levied on certain services provided by certain categories of persons including legal entities, like Corporations, Associations, etc:. As it evolved it encompassed, within its wide range, every aspect of transaction between human beings that has an element of cons .....

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r in List I and is not enumerated either in List II or List III. The Courts have always upheld the power to impose tax on services under the residuary Entry 97 of the Constitution of India. 5. The learned Counsel for the petitioners contend that resort to the residuary entry can be had only when it is found that the object of tax is not available in any of the other entries in List II and List III. The petitioners are all Corporate bodies carrying on amusement parks, which come within the ambit .....

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sement and entertainment, which clearly is covered by the field delineated under Entry 62. There is no activity carried on inside the premises of the petitioners other than the persons admitted, regaling themselves in various activities which tend to amuse and entertain those individuals. The bulwark of the submissions made by the petitioners is based on the decision of a learned Single Judge of this Court in Kerala Classified Hotels and Resorts Assn. & Ors. v. Union of India & Ors. [201 .....

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ct, 1994 as it stood then. The challenge was on the question of Union Parliament having trenched upon the power of the State Government to tax luxuries under Entry 62 of List II. The reasoning would be identical in the present case and, hence, the writ petitions are to be allowed, following the binding precedent of the judgment of the learned Single Judge as affirmed by the Division Bench, is the contention raised. 7. The learned Senior Standing Counsel for Central Board of Excise and Customs, h .....

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efence. 8. State of W.B. v. Kesoram Industries Ltd. [(2004) 10 SCC 201] reiterated that the various entries in the three Lists are not powers of legislation, but only fields of legislation. The source of legislative power has to be traced to Article 245. Article 246 of the Constitution, effects a complete separation of the taxing power of the Union and the States, wherein no overlapping can be found. The Constitution gives independent sources of power of taxation to the Union and the States. The .....

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s no conflict, an occasion for deriving assistance from non obstante clause subject to does not arise. If there is conflict, the correct approach is to find an answer to three questions step by step as under: One - Is it still possible to effect reconciliation between two entries so as to avoid conflict and overlapping? Two - In which entry the impugned legislation falls by finding out the pith and substance of the legislation? and Three - Having determined the field of legislation wherein the i .....

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ts being covered under Entry 62 of List II no power can be traced to the residuary power to tax the very same activity is the long and short of the petitioners argument. 9. Even before the concept of service tax was introduced, the question of both the Union and the States taxing the very same transaction arose with respect to the expenditure tax levied under Entry 97 of List I and the luxury tax levied under Entry 62 of List II. Federation of Hotel & Restaurant Association of India, Etc. v. .....

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ure tax was argued to be a misnomer and was contended to be in its true nature and character, nothing more or less than, a tax on luxuries coming under Entry 62 List II, on which already there was a tax imposed by the State. 10. Simultaneously the constitutional validity of legislation of various States imposing a tax on luxuries under Entry 62 of List II, to luxury provided in the hotels and lodging houses the charge of which is above ₹ 35/- per day per person [as found in the Gujarat leg .....

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he expenditure resorting to the principles of aspect theory . The question framed, as available in Federation case (supra), was the following [vide para 29]: The crucial questions therefore, are whether the economists' concept of such a tax qualifies and conditions the legislative power and, more importantly, whether expenditure laid out on what may be assumed to be luxuries or on the purchase of goods admits of being isolated and identified as a distinct aspect susceptible of recognition as .....

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re taxable events in its different aspects, then even if there was overlapping it would not detract from the essential distinctiveness of these two aspects (sic-para 31). 12. The argument that recourse to the residuary power under Article 248 read with Entry 97 of List I should be the last refuge and would be available only if the other entries in List II and List III do not cover the topic was answered in the following manner, in paragraph 39: 39. Petitioners' reference to legislative pract .....

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propriate legislature had limited the notion of a tax of this kind within any confines It is relevant to recall the words of Lord Uthwatt in Wallace Brothers case [AIR 1948 PC 118] quoted in State of Madras v. Gannon Dunkerley & Co. [AIR 1958 SC 560]: The point of the reference is emphatically not to seek a pattern to which a due exercise of the power must conform. The object is to ascertain the general conception involved in the words in the enabling Act . The expenditure tax was held to be .....

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the service or activity of providing an accommodation being covered under the definition of luxuries. According to the petitioners, it contemplated a tax only on goods and articles, which, by their nature and user can be termed to be luxuries. The contention was negatived and it was held that a luxury which can reasonably be said to be amenable to a potential conception does provide the nexus (sic-para 26). It was held so in para 27: Once the legislative competence and the nexus between the tax .....

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the Central enactment, then the person was liable to pay expenditure tax to the Central Government and luxury tax to the State Government. Both the levies were upheld, since the object of taxation was held to be on two different aspects of the very same transaction. One, the expenditure occasioned on such renting out by the individual, upon which the Union was held to have power to levy tax under the residuary entry, Entry 97, which is not an item enumerated either in List I, List II or List II .....

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C 1], All-India Federation of Tax Practitioners and Others v. Union of India and Others [(2007) 7 SCC 527] and Association of Leasing and Financial Service Companies. v. Union of India [(2011) 2 SCC 352]. 16. Gujarat Ambuja Cements Ltd. (supra) was a challenge against the services rendered, by a clearing and forwarding agent and a goods transporter, being treated as 'taxable services' under the Finance Act, 1994. The argument was that the tax levied under Entry 97 List I was in fact a ta .....

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17. In Bharat Sanchar Nigam Ltd. (supra) the Hon'ble Supreme Court was concerned with the question of whether the facility of a mobile phone connection was a sale or service or both. There was no question of conflict as against the two legislative entries. The issue was whether the transaction had both components of service and sale, and if so the extent to which the respective legislatures could levy tax. It was held that the transaction involved in providing telephone connection, though a .....

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f which were held to be not goods under clause (d) of Article 366 (29-A) of the Constitution. The tax imposed was on the sale of SIM cards, which price included the activation charges. The goods in a telecommunication transaction were said to be limited to the handsets supplied by the service provider and as to the SIM cards, the issue was left to the decision of the authorities under the respective sales tax legislation. It is a fact that the sales tax authorities have not attempted to impose a .....

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id down have a definite correlation, but the decision does not specifically address the problem of overlapping or trenching, which is the issue to be decided in the present case. 18. All-India Federation of Tax Practitioners (supra) challenged the levy of service tax on practicing Chartered Accountants, Cost Accountants and Architects who were already taxed under Entry 60 List II, which tax was on their 'profession'. The Hon'ble Supreme Court considered the evolution of service tax a .....

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x in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax . Service tax was held to be an economic concept, evolved on account of the service industry becoming a major contributor to the GDP of an economy, which resource was sought to be tapped with the Finance Act, 1994; providing further legal back up by the introduction of Article .....

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d to. The term profession as defined under Entry 60, would not include services was the clear finding of the Hon'ble Supreme Court. The tax on professions etc., under Entry 60 List II, was held to be tax on the individual person/firm/Company and the status he enjoys as such professional. Entry 60 List II was not a general entry and being a taxing entry, cannot be read to include every activity of a Chartered Accountant, Cost Accountant or Architect for consideration, was the finding. Service .....

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client, when the Chartered Accountant provides him with certain services. The tax on profession was held to be tax levied on his status, as a registered professional within the local limits, whether or not he has any work. The tax levied on the service, on the other hand, is on the basis of the individual work done by the Accountant or Architect, for each of his clients. The Parliament's legislative competence to levy service tax on Chartered Accountants, Cost Accountants and Architects und .....

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tinct transactions were found to be in existence in leasing activities, a finance lease and an operating lease . The former was found to be one which transfers substantially all risks and rewards of ownership; and partakes the character of a mere funding of the purchase, bringing it within the definition of financial services. The income which the lessor earns by way of finance/interest charges in addition to the management fees, documentation charges etc. was the measure of tax, for the purpose .....

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service provider; which was the consideration for service provided on which service tax was payable, held the Hon'ble Supreme Court. 21. The importance of the aforesaid decision is insofar as a transaction which was deemed to be a sale under Article 366 (29-A), was held to be properly levied with service tax despite BSNL (supra) having found hire purchase transaction not being a composite one involving sale and service. The decision in BSNL (supra) was held to be of no application in decidi .....

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itions followed and eventually Section 65 and 65A were deleted with effect from the date on which the Central Government notified the Amendment of 2012. The method of inclusion of transactions which could be deemed to be taxable services has been done away with and there is a definition for service introduced as per the amendment. After the amendment of 2012, service and taxable service have been so defined under Section 65B (44) & (51) : (44) service means any activity carried out by a pers .....

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on 1. - For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to, - (A) the functions performed by the Members of Parliament, Members of State Legislature, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or (B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that ca .....

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ry and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Explanation 3.- A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory . (51) taxable service means any service on which service tax is leviable under section 66B . 23. The definition of service is all encompassing; bringing within it, any activity carried out by a per .....

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es from one to another and every such activity has the nature and character of a service,in the expanding horizons of service tax regime. The definition takes within its ambit only activity carried on by a person for another for consideration. The method of inclusion of taxable services has been done away with and the charging section under Section 66B, provides a uniform levy on all services other than that specified in the negative list, which is provided under Section 66D; from which admissio .....

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son of the entire activity being subsumed in the definition of 'amusement' leaving nothing else to be taxed by the Union. 25. The learned Single Judge and the Division Bench of this Court; were concerned with two issues in the afore-cited decisions:- whether (I) the service provided or to be provided to any person in relation to service of food and beverages and (ii) the service provided, in providing accommodation for a continuous period of less than three months could be brought under .....

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-clause (f) of Article 366 (29-A) was brought in, by reason of Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi [(1978) 4 SCC 36] and State of Punjab v. Associated Hotels of India Ltd. [(1972) 1 SCC 472] having held that the supply of food and beverages in a hotel is a part of service. It was held in BSNL(supra) that of the transactions covered under Article 366(29-A); only works contract and the supply of food and beverages; could have, within the same transaction an element of sup .....

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of this Court. 26. The issue herein stands on a totally different footing. There is no question of a deeming provision being employed herein. Here, the challenge is on the basis of the field having been covered by Entry 62 List II comprehensively leaving no room for any other aspect to be ferreted out. In the present case, what is sought to be taxed is the access to amusements and entertainment, which are also taxed by the State under Entry 62 List II. The argument is that what the petitioners .....

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times and the concept itself has diversified for reason of man's continuous quest for novelty. The entertainment offered by solo art performances, evolved into group performances, and eventually to organized theater, then to cinema and now the numerous variants termed the visual media. Parallel to Art, was the development of another area of entertainment devised by man - sport - which originated with individual competitions and now has acquired professional proportions with competitions betw .....

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g in peril the life,limb and property of the public, while the parks offer simulated seats and screens to experience the very same adrenalin rush. All for a price, which makes it a 'service for consideration'. 28. The petitioners would urge this Court to go by the definition of 'Amusements', for example as found in the Wharton's Law Lexicon (15th Edition), which is as follows: Amusements, words 'entertainments' and 'amusements' are wide enough to include theat .....

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efinition mandates that there should be a consideration passed from one to another. Swimming could, for some, be an amusement and if carried out in a natural river or stream, there would not be any element of service nor would be there, passing of consideration. But, when a swimming pool is offered or the current in a river is simulated in an artificial water body and the person who owns and built it provides and offers the facility for a fee, then the partaking of the facility would result in t .....

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, which; is respectively on the Union Parliament and the State Legislature. This Court is definitely of the opinion that the Union Parliament has the legislative competence to tax the aspect of service in an amusement park. 29. The argument of the field being entirely occupied by Entry 62 List I is also based on the Entertainments Tax Act, of the State, more specifically Section 3B. Section 3B, a non-obstante clause, provides a measure of tax based on the investment made and the area covered; wh .....

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tax but never determine it. Then again, the legislation enacted cannot decide the field of taxation, as the power to tax is to be sourced to the Constitution; to Article 245 and the fields of taxation determined from the three lists under the Seventh Schedule, as demarcated by Article 246. 30. The table provided under Section 3B of the Entertainments Tax Act, provides the measure on which the tax is to be assessed and the rates at which it has to be done. Apposite would be reference to para 33 .....

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ovince of East Punjab [1948 FCR 207] and treading through the law as it has developed through judicial pronouncements one after the other, this Court has made subtle observations therein. It has been long recognised that the measure employed for assessing a tax must not be confused with the nature of the tax. A tax has two elements: first, the person, thing or activity on which the tax is imposed, and second, the amount of tax. The amount may be measured in many ways; but a distinction between t .....

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ow light on the general character of the tax . 31. A brief reference to the various decisions relied on by the Constitution Bench also would be apposite. The measure, of annual value of building, adopted for the purposes of levying building tax by the State and determining income from property under the Income Tax Act , were upheld holding that the identical measure did not detract from the fact of the levies were separate imposts {Ralla Ram Vs. Province of East Punjab 1948 FCR 207, D.G. Ghose & .....

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ch spell out the character of the levy itself (sicpara 34). In Hingir Rampur Coal Co. (supra), it was further held: In this connection it is always necessary to bear in mind that where an impugned statute passed by a State Legislature is relatable to an Entry in List II it is not permissible to challenge its vires only on the ground that the method adopted by it for the recovery of the impost can be and is generally adopted in levying a duty of excise [para 22]. 32. Kesoram Industries Ltd.(supra .....

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, and must be kept distinguished from, the subject of tax (sic-para 27). 33. Yet another contention raised by the petitioners is that before legislative competence of the Parliament can be traced to the residuary entry, the legislative incompetence of the State Legislature has to be clearly established. The submission is that, Entry 62 List II having covered 'amusements'' the amusement parks set up by the petitioners cannot at all be taxed by the Parliament, especially under the resi .....

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r the residuary clause could have been levied only by the Parliament and not by the State. The Hon'ble Supreme Court negatived such contention, finding that tax on goods and passengers were covered under Entry 56 List II and the nondescript residuary clause cannot be relied on to hold the State to have no competence under that entry. It was in that context that it was held: The federal nature of the constitution demands that an interpretation which would allow the exercise of legislative pow .....

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entirely covered by Entry 62 List II. Amusements are covered by Entry 62 List II and the aspect of service involved, when the facilities for amusement is offered for a price cannot be ignored. The Union Parliament's power to levy such tax by an appropriate enactment cannot also be effaced merely for the reason that amusements are covered under Entry 62. Reference also can be made to paragraph 39 of the Federation case (supra); extracted herein above. The enactment made by the State legislat .....

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r, according to Section 66D(j), admission to entertainment event or access to amusement facilities arte non-taxable Negative List services. What is not taxable is tax on admission to entertainment events or access to amusement facilities , the reason, being, tax on admission or entry of such events is covered in the State List, which is subjected to Entertainment Tax . This Court, with due respect, is unable to agree with the extracted statement, since the Union Parliament quite aware of their p .....

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and so on and so forth are made available for fun or recreation. The Negative List also did not refer to amusement , but tax on admission on entry of such events quite understanding the power to levy service tax on such facilities offered by one to another for a consideration. The tax now levied on the admissions cannot also detract from the essential nature and character of the tax being one on the services; since it is only a measure and as has been held earlier, it would not determine the obj .....

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ence of the duty It will not change and does not affect the essential nature of the tax. Subject to the legislative competence of the taxing authority a duty can be imposed at the stage which the authority finds to be convenient and the most effective, whatever stage it may be. The Central Government is therefore legally competent to evolve a suitable machinery for collection of the service tax subject to the maintenance of a rational connection between the tax and the person on whom it is impos .....

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r was referred to: A person who undertakes such activity belongs to the profession of Event Management and as long as he is in the business or calling or profession of an Event Manager, he is liable to pay the tax on profession, calling or trade under Entry 60 of List II. However, that tax under Entry 60 of List II will not cover his activity of organising shows for consideration which provide entertainment to the connoisseurs. For each show he plans and creates events based on his skill, experi .....

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ara 24). The reasoning applies squarely in the present case. 38. In the teeth of the binding precedents it cannot be said that the measure employed by the State legislature would take away the power granted by the Constitution to the Union Parliament to tax 'services' covered under Entry 97 of List I. It could also be recapitulated that Federation (supra) upheld the levy of expenditure tax on the provision for accommodation and in the same breath, by another decision of the same bench on .....

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of service tax in respect of hotel, inn, guest house, club or camp site etc., the contention of the petitioners is based on Entry 62 of List II. What exactly is the meaning of the expression luxuries in Entry 62 of List II has been held by the Constitution Bench judgment of the Supreme Court in Godfrey Philips India Ltd. (supra), wherein it is held that luxuries is an activity of enjoyment or indulgence which is costly or which is generally recognised as being beyond the necessary requirements o .....

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ndment now made to the service tax trenches upon the legislative function of the State under Entry 62 of List II . The Division Bench affirmed the said view and having extracted the definition of 'luxury' in the Kerala Tax on Luxuries Act, 1976 [for brevity Act of 1976 ]; held that the power exercised by the Parliament is in a matter covered under Entry 62 List I. Both the Courts have relied on Godfrey Phillips India Ltd. v. State of U.P. [(2005) 2 SCC 515] to find that luxury is an acti .....

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provided under Entry 54 of List II. Tobacco is 'declared' to be goods of 'special importance in interstate trade and commerce', under Section 14 of the Central Sales Tax Act,1956; as permitted by Article 286 (3) of the Constitution. Tobacco was also subject to additional duties of excise levied by the Centre, under the Additional Duties of Excise (Goods of Special Importance) Act,1957; a proportionate portion of which was shared by the States, which prohibited the States from lev .....

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