TMI Blog1989 (5) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Bengal Entertainments and Luxuries (Hotels and Restaurants) Tax Act, 1972. All these taxing statutes, except for certain aspects individual to them, are analogous and the scheme of the legislation is substantially similar. The variations are in the differences in the criteria of classification of the hotels, to which the Act is applied and the rates of taxes. The grounds of challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nown 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 section, the charges shall be computed as for day and per person, based on the period of lodging for which charges are payable and the number of persons actually lodging or permitted to lodge according to the rule or custom of the hotel Provided further that where any charges for lodging are paid by any person other than a citizen of India in any foreign exchange, then such person or where such cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 compounding of offences. Section 17 confers power of inspection of accounts and documents and of search and seizure. Section 21 confers the power to make rules. The Gujarat Act seeks to levy a tax at certain percentages of the lodging charges recovered by the proprietors of the hotels and lodging houses from persons lodging therein treating the lodging accommodation for which charges of Rs. 35 or more per day per p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 "lodging charges" final, is an unreasonable restriction, violative of article 19(1)(g). (f) Section 4(3) which provides that tax in respect of accommodation provided free or at concessional rates be taxed as if the full charges were deemed to have been received, is unreasonable and offends article 19(1)(g). (g) The "luxury" tax imposed on the charges for lodgings has the direct and immediate effect of restricting the freed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 should not be confined to articles or objects of luxury alone. In view of the social and economic structure of our country, there can be no doubt that an air-conditioned space whether in a hotel or in a restaurant is a luxury by itself. People enter into these spaces for enjoyment of a luxury. In fact, the ambit of entry 62 which includes taxes on entertainments, amusements, betting and gambling, shows that a tax levied under e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 that is expensive or rare, but is not necessary to life, health, subsistence, etc. ; a delicacy." Luxury connotes extravagance or indulgence, as distinguished from the needs and necessities of life. "The New Dictionary of Thoughts" has these thoughtful things to say of "Luxury". "On the soft bed of luxury, most kingdoms have expired." - Young "Unless we are accustomed to them from early youth, splendid chambers and elegant furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision 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 understood as laying down the proposition that if there is no actual utilisation of the luxury, no tax can be levied on the mere existence of the provisions made for the prospective or potential utilisation of the luxury. In support of the proposition that a tax on luxuries must relate to and be based on an actual utilisation of the luxury and not on the mere existence of the means of providing "luxury", Sri Sorabjee placed strong reliance on the ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 a potential conception does provide the nexus. If the provider of the luxury is also independently amenable to the tax, the further restriction on the power suggested by the argument tends to cut into the plenitude of the field of legislation. If the idea of "luxuries" is required to be so wide as 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 or conditioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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 higher standards of charges payable for the accommodation. The Legislature has chosen to identify the luxury by the statutory standards prescribed by it. According to the legislative assumption, price does become evidence of the special quality on the basis of which "luxuries" could be distinguished and that some special quality is attributable to goods and services through the means of the price. Quality and price, in the legislative assessment, can be assume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 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 arbitrary rendering the provision unconstitutional. In Babubhai and Co. v. State of Gujarat [1985] 2 SCC 732, 736 ; AIR 1985 SC 613, 615, this court said "... in other words, mere absence of a corrective machinery by way of appeal or revision by itself would not make the power unreasonable or arbitrary, much less would it render the provision invalid. Regard will have to be had to several factors, such as, on whom the power is conferred, whether on a high officia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse" 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 Constitution Act, 1901, comments of a learned author may be recalled "The lengthy series of judicial decisions on the meaning and scope of the immunity afforded by section 92 is ample testimony to the difficulty involved in giving some precise meaning to a provision which, in reality, expresses a political slogan rather than a legal precept. Rich J., once pithily described the lot of the High Court in relation to section 92 as being 'to explain the elliptical and expou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 division" and that "the ultimate principle is that one State, in dealing with another, may not place itself in a position of economic isolation". But, in 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. In Grannal v. Marrickville Margarine (P.) Ltd. [1955] 93 CLR 55, a New South Wales statute which prohibited the manufacture ..... X X X X Extracts X X X X X X X X Extracts X X X X
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