The Hindu Business Line : `Luxury' on the lap of law

LAP of luxury is what most people would wish for, but recently it was luxury that ended up on the lap of law. The Godfrey Philips India Ltd vs State of Uttar Pradesh case that was decided upon by a five-judge Bench of the apex court a few weeks ago related to luxury tax on tobacco by States such as Uttar Pradesh, Andhra Pradesh and West Bengal. The key issue before the court was the interpretation of luxury.

For those who don't have the luxury of leisure to read the entire judgment running into more than a 100- paragraphs, here is a grab of a few interesting portions.

First point of interest is the Section number. The AP Tax on Luxuries Act has Sec 2(ggg) that talks of tax on commodities "for enjoyment over above the necessities of life." In its earlier avatar, the Act had provided for the levy of luxury tax on "luxuries provided in a hotel and in a corporate hospital." Another section is 2(jj) defining `receipt' and 2(kkk) explaining who a tobacconist is.

The WB Luxury Tax Act has a list of luxuries that includes footwear, trousers and jeans, shirts and T-shirts, coat jackets, watches, bathroom fittings, electric switches, sunglasses, fountain pens, dot pens, home theatre equipment, music system and video camera, "if their values exceed particular rates specified against each item". I wish they had sections numbered 2(lux).

Entry 62 of List II of the Seventh Schedule to the Constitution confers power on State Legislatures to make laws with respect to "taxes on luxuries, including taxes on entertainments, amusements, betting and gambling." But this wouldn't include `goods', argued Harish Salve, representing the company; else the State could describe the goods as luxuries and start taxing them. Luxury has to be understood as "an activity or service, namely, the providing of luxury," he said.

K.K. Venugopal and R. Nariman too argued for the assessees, submitting that luxury tax should not assume the garb of excise duty.

Interestingly, M. Parasaran, representing the Union of India, also supported the company's contention and said that the luxury tax in the three states was "contrary to the scheme of collection of distribution of taxes," because only the Centre could levy tax on `goods declared to be of special importance' as was in the case of tobacco.

Then came the counsels of the States who gave their definitions of luxury. "It denotes something which is superfluous and not indispensable and to which we take with a view to enjoy, amuse or entertain ourselves," is a quote from Abdul Kadir case of 1976. It was also argued on behalf of the State governments that tobacco was not necessary to a person's health; and that Entry 62 did not differentiate between goods and services and so would include those that fostered luxury, that is, created "a sense of abundance, enjoyment and gratification."

The court looked at the definition of luxury in Oxford Dictionary and also in previous decisions such as the Express Hotels case. Views of the US courts too came in for study; there, luxury is a relative term; it is "a free indulgence in costly food, dress, furniture, or anything expensive which gratifies the appetites or tastes," as in Corpus Juris Secundum. Theoretically, there can be many meanings, said the apex court, but added that the solution must be found in the language of the Entry.

Applying general principles of interpretation, the court held that `luxuries' in Entry 62 means "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." Therefore, the challenged legislations of the States were declared to be legislatively incompetent.

Text of the judgment refers to the discussion on the evolution of Entry 62 in the Constituent Assembly. Frightening, it may seem in retrospect, but as the draft of the Entry stood at one time, there was the risk that "tax on menials and domestic servants" too may get the `luxury' tag!

Count yourself blessed if such a `service' is not on the radar of the FM.

ExParte@TheHindu.co.in

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