Express
Hotels Private Limited Vs. State of Gujarat & Anr [1989] INSC 171 (2 May 1989)
Venkatachalliah,
M.N. (J) Venkatachalliah, M.N. (J) Rangnathan, S. Pathak, R.S. (Cj) Mukharji, Sabyasachi (J)
Natrajan, S. (J)
CITATION:
1989 AIR 1949 1989 SCR (2) 893 1989 SCC (3) 677 JT 1989 (3) 72 1989 SCALE
(1)1200
ACT:
Gujarat Tax on Luxuries (Hotels &
Lodging Houses) Act, 1977/ Tamil Nadu Tax on Luxuries in Hotels & Lodging
Houses Act. 1981/ Karnataka Tax on Luxuries (Hotels & Lodging Houses) Act,
1979/ West Bengal Entertainments and Luxuries (Hotels & Restaurants) Tax
Act, 1972: Tax on luxury provided in hotels, lodging houses and
restaurants--State Legislations--Competency of--Tax on means of providing
luxury--Permissibility of.
Constitution
of India, 1950: Articles 246, 301 and
Schedule VII. List 11 Entry 62. Tax on luxuries enjoyed in hotels, lodging
houses and restaurants--Validity of--Whether impedes freedom of trade.
Statutory
Interpretation: Legislative entry--To be construed widely and liberally to include
ancillary and subsidiary matters.
Words
and Phrases. 'Luxury'--Meaning and scope of.
HEAD NOTE:
Clause
(a) of s. 2 of the Gujarat Tax on Luxuries (Hotels and Lodging Houses) Act,
1977, defines "charges for lodging" to include charges for airconditioning,
telephone, television, radio, music and extra beds, and the like. The
Explanation appended thereto makes the decision of the State Government on any
dispute in that behalf final. Clause (e) defines 'luxury provided in a hotel'
to mean accommodation the charges for which, including charges for airconditioning
etc. but excluding charges for food and other amenities, is not less than
thirty five rupees per person per day. Section 3 prescribes the rates of tax at
certain percentage of the lodging charges per person per day recovered by
proprietors of hotels and lodging houses from persons lodging therein.
Sub-section
(3) of s. 4 provides that where luxury provided in a hotel to any person, not
being an employee of the hotel, is not charged at all, or is charged at concessional
rate, then also there shall be levied and collected the tax on such luxury, as
if full charges for such luxury were paid to the proprietor of the hotel.
894 It
was contended for the appellants that Entry 62 of List II of Schedule VII to
the Constitution providing for taxes on luxuries contemplates and takes within
its sweep a tax on goods and articles in their aspect and character as
'luxuries', which does not include services and activities, the levy on the
services for lodging provided at the hotels was, therefore, ultra vires the
State power under the said entry; that the 'leaf criterion distinguishing
luxury being a special attribute or quality of the commodity Or the services,
as the case may be, and not the quantitative difference in the price, the
impost has no relation to the concept of luxuries in the legislative entry;
that the scheme of the Act in so far as it makes no distinction between the
components of the services, which include both necessities and comforts, as
distinguishable from luxuries, the levy on such composite subject matter was
bad; that the expression "and the like" in the definition of
"charges for lodging" in s. 2(a) was vague and irrational and read
with the explanation thereto, which renders the decision of the State
Government on what constitutes "lodging charges" final, was an
unreasonable restriction. violative of Article 19(1)(g), that s. 4(3), which
provides that the luxury provided free or at concessional rates be taxed as if
the full charges were deemed to have been received was unreasonable and offends
Article 19(1)(g), and that the luxury tax imposed on the charges for lodging
has the direct and immediate effect of restricting the freedom under Article
301 of the Constitution as it directly impedes the right of intercourse
throughout the territories of India.
Similar
contentions were raised in the writ petitions' challenging the analogous
provisions of the Tamil Nadu Tax on Luxuries in Hotels and Lodging Houses Act,
1981 and the Karnataka Tax on luxuries (Hotels and Lodging Houses) Act, 1979.
In the
writ petition challenging s. 4 of the West Bengal Entertainments and Luxuries
(Hotels and Restaurants) Tax Act, 1972 which fixes the liability to pay tax on
the proprietor of the hotel anti restaurant on the basis of the floor area as
well, it was contended that the means of providing luxury by itself does not
provide the nexus between the taxing power and the subject of tax, and that the
power to levy a tax on the mere existence of the provision for luxury without
its actual and not merely a notional or potential consumption or utilisation
was beyond the scope of the legislative entry and also violative of the
fundamental right under Article 19(1)(g).
Dismissing
the appeals and writ petitions, 895
HELD:
1.1 The entries in the Legislative List should not be read in a narrow or
pedantic sense but must be given their fullest meaning and the widest amplitude
and be held to extend to all ancillary and subsidiary matters which can fairly
and reasonably be said to be comprehended in them. [906F]
1.2 So
read, the concept of a tax on 'luxuries' in Entry 62, List II cannot be limited
merely to tax things tangible and corporeal in their aspect as 'luxuries'. The
entry encompasses all the manifestations or emanations, the notion of
'luxuries' can fairly and reasonably be said to comprehend. The element of
extravagance or indulgence that differentiates 'luxury' from 'necessity' cannot
be confined to goods and articles. It can also be found in the quality of
services and activities. An airconditioned space, whether in a hotel or in a
restaurant, is a luxury by itself. People enter into these spaces with a view
to enjoy, amuse or entertain themselves. [908CE, 906C] A.B. Abdul Kadir &
Ors. v. State of Kerala, [1976] 2 SCR 690; Western India
Theatres Ltd. v. The Cantonment Board, Poona Cantonment, [1959] 2 Supp. SCR 63
and State of Bombay v. R.M.D. Chamarbaugwalia [1957] SCR 874, referred to.
Spences
Hotel Private Ltd. & Anr. v. State of West Bengal, [1975] TLR 1890, approved.
A.S. Bava
v. State of Kerala, [1971] T.L.R. 512, overruled.
2.1
The ideas of luxury or necessity are necessarily relative ideas and require to
be understood in the context of contemporary standards of living. What might
have been a luxury some decades ago might cease to partake of that character
now. What is luxury today might be considered a necessity a decade or so later.
A number of factors have to be taken into account in adjudging a luxury. [911H,
912C] A.B. Abdul Kadir & Ors. v. State of Kerala, [1976] 2 SCR 690, referred to.
2.2 In
the instant case, 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 thus be 896 assumed to have a logical
interrelationship. This cannot be held to suffer from the vice of
irrationality. [912DE]
2.3 In
the context of lodging accommodation and the services that go with it, the
concept of luxury would necessarily be a comprehensive idea taking into account
the various components of the services. Differences of degree can at particular
stage become differences of kind. 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. [912G-913A] It cannot, therefore, be said
that there is nothing in the law which identifies or distinguishes luxury on
the basis of any special attribute apart from the price factor. [913B]
3.1
The mere absence of a corrective machinery by way of appeal or revision, to
rectify an adverse order made by an authority on whom power is conferred or the
existence of a provision imparting finality in a statute by themselves would
not be conclusive so as to render the conferment of power per-se unreasonable
and arbitrary rendering the provision unconstitutional. [913F] Babu Bhai v.
State of Gujarat, [1985] 2 SCC 732, referred to.
Corporation
of Calcutta v. Calcutta Tramways Co., [1964] 5
SCR 25, distinguished.
3.2 In
the instant case, there are in-built checks on the power under Explanation to
s. 2(a). The expression "and the like" occurring in the section when
construed ejusdem generis indicates that the class of items envisaged by the
preceding words was not exhaustive of the genus. The Legislature, therefore,
has supplied these words so as to bring in any other item of the same class of
genus. This, by itself, is a clear guide for the exercise of the power. [914B]
3.3
Another relevant consideration is the identity and status of the repository of
the power. The power in the instant case is given to a high authority like the
State Government. It cannot, therefore, be said that the power is an uncanalised
power and is an arbitrary or unreasonable one so as to fall under Article 19(1)(g).
There are statutory guides 897 governing its exercise and the guidelines are
covered by well-settled principles of interpretation. [914C]
4. The
deeming provision in s. 4(3) of the Act does not apply to cases where
accommodation is provided free or at concessional rates to the employees of the
hotel. This provision, which merely states that where the usual lodging charges
are not collected for providing the lodging accommodation, tax shah be payable
as if the usual charges had been collected is a provision against evasion. It
cannot, therefore, be said to he unreasonable. [914EF]
5.1 Freedom
under Article 301 is a great freedom, one of the utmost significance to
economic unity of the nation.
However,
taxes can and do sometimes constitute restrictions on the said freedom. But
such restrictions must stem from the provisions of the law imposing the tax
which could be said to have a direct and immediate effect of restricting the
free flow of trade, commerce and intercourse. [916F, E]
5.2 In
the instant case, it has not been shown how a tax on luxuries enjoyed by a
person in a hotel was either discriminatory or has the direct and immediate
effect of impeding the freedom of intercourse. It cannot thus be said to offend
Article 301 of the Constitution. [916G] Atiabari Tea Co. v. State of Assam, [1961] 1 SCR 809; Firm A.T.B. Mehtab
Majid & Co. v. State of Madras, [1963]
Supp. 2 SCR 435; Gratwick v. Johnson, [1945] 70 CLR 1; Baldwin v. GAF Inc.,
[1934] US 511 and Grannall v. Marrickville
Margarine Pty. Ltd., [1955] 93 CLR 55, referred to.
6.1
Section 4 of the West Bengal Act cannot be said to be beyond the legislative
entry. The taxable event need not necessarily be the actual utilisation or the
actual consumption, as the case may be, of the luxury. So long as the
legislation has reasonable nexus with the concept of "luxuries" in
the broad and general sense in which the expressions in legislative tests are
comprehended, the legislative competence extends to all matters with respect to
that field of topic of legislation. In the instant case, provision for 'luxury'
in a hotel or restaurant amenable to a potential consumption does provide the
nexus. [909C, 910F, E, H] Bhagwan Dass Jain v. Union of India, AIR 1981 SC 907,
referred to.
Ramesh
Waman Toke & Ors. v. The State of Maharashtra, AIR 1984 Bombay 345, overruled.
898
6.2 If
the provider of the luxury is also independently amenable to the tax, the
further restriction on the power would tend 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 said taxing power under the Entry cannot be limited or
conditioned in any manner whatsoever. [911A]
6.3
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 actual measure of the tax, which is a matter
of legislative policy and convenience, is not the same thing as, and must be
kept distinguished from, the subject of the tax. [911B]
6.4
The mere excessiveness of a tax or the fact that it affects the earnings cannot
pre-se be held to violate Article 19(1)(g). [911 C]
CIVIL
APPELLATE JURISDICTION: Civil Appeal Nos. 338 and 339 of 1981.
From
the Judgment and Order dated 23.7.1980 of the Gujarat High Court in S.C.A. Nos.
405 of 1979 and 1263 of 1978.
Soli
J. Sorabjee, N.A. Palkhiwala, Lalit Bhasin, Bina Gupta, S.S. Shroff, Mrs. P.S. Shroff,
Ms. Malvika Rajkatia, R.F. Nariman, P.H. Parekh, Sanjay Bhartari, M.K.S. Menon,
R.K. Dhillon, Ms. Rohini Chhabra, Ms. Sunita Sharma, Ms. Ayesha Misra, Harish
N. Salve and Mukul Mudgal for the Appellants.
K. Parasaran,
Attorney General B. Datta, Additional Solicitor General P.S. Poti, G.A. Shah,
Dr. V. Gauri Shankar, S.K. Dholakia, V. Jagannatha Rao, K. Sudhakaran, Ms. A. Subhashini,
B.B. Ahuja, H.K. Puri, A. Subba Rao, A.S. Bhasme, K.R. Nambiar, M.N. Shroff, M.
Veerappa, R. Mohan, R. Ayyamperumal and J.P. Misra for the Respondents.
The
Judgment of the court was delivered by VENKATACHALIAH, J. In these civil
appeals and writ petitions the constitutional validity of legislations of
different States viz., State of Gujarat, State of Tamil Nadu, State of
Karnataka and State of West Bengal, imposing a tax on 'luxuries' under Entry 62
of List II of VII Schedule to the Constitution of India is challenged.
899
Civil Appeal Nos. 338 and 339 of 1981, writ-petition Nos. 7990, 9119, 8338,
8339 of 1981 relate to the challenge to the legislation of the State of Gujarat
viz., the Gujarat Tax on Luxuries (Hotels & Lodging Houses) Act, 1977. Writ
Petition No. 162 of 1982 pertains to the corresponding legislation of the State
of Tamil Nadu viz., Tamil Nadu Tax on Luxuries in Hotels & Lodging Houses
Act, 1981. Writ petition Nos. 1271 and 1272 of 1982 pertain to the challenge to
corresponding Karnataka Legislation viz., the Karnataka Tax on Luxuries (Hotels
and Lodging Houses) Act, 1979. W.P. No. 5321 of 1985 pertains to the challenge
to West Bengal Entertainments and Luxuries (Hotels and Restaurants) Tax Act,
1972. All these taxingstatutes, 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 are substantially the same. An examination of the
contentions urged in support of the challenge to one statute would cover the
cases of the other statutes as well.
2. We
might take up for consideration, the provisions of the Gujarat Act which may be
considered as representative of the legislations on the topic. The
constitutional validity of the Gujarat Act had been assailed before the High
Court of Gujarat, which by its judgment dated 23.7.1980
upheld its constitutional validity. The judgment of the High Court is under
appeal in C.A. Nos. 338 and 339 of 1981.
3. The
statement of objects and reasons in the Gujarat Legislative Bill states:
"With
a view to augmenting the financial resources of the State it is proposed to
levy a tax on luxury provided in hotels and lodging houses at the rate of
certain percentages of lodging charges recovered by the proprietors of such
hotels and lodging houses from persons lodging therein.
Every
accommodation provided in a hotel or .lodging house the charges for which are
not less than rupees thirty-five per day per person is, for the purposes of the
tax, to be treated as a luxury. This bill seeks to achieve that object."
Section 2 is the interpretation clause and defines, inter alia, the expressions
"charges for lodging", "hotel", "luxury provided in
hotel", "proprietor" occurring in clauses (a) (d) (e) and (g)
respectively. The definitions are as follows:
900
"(a) "charges for lodging" include charges for airconditioning,
telephone, television, radio, music and extra beds and the like but do not
include any charges for food, drink or other amenities.
(d)
"hotel" means a building or part of a building where lodging
accommodation, with or without board is, by way of business provided for a
monetary consideration, and includes a lodging house;
(e)
"luxury provided in a hotel" means accommodation for lodging provided
in a hotel, the rate of charges for which (including charges for airconditioning,
telephone, television, radio, music, or extra beds and the like but excluding
charges for food, drink and other amenities) is not less than thirty five
rupees per person per day." Section 3 is the charging section which
provides:
"3.
(1) Subject to the provisions of this Act, with effect on and from the date on
which this Act comes into force, there shall be levied and collected from every
person a tax (to be known as "luxury tax") in respect of any luxury
provided to him in a hotel, at the following rates, namely:
(a)
Where the charges for 10 per cent of such charges.
lodging
are thirty five rupees or more but not more than fifty rupees per day per
person.
(b)
Where the charges for Rs.5 plus 20 per cent of lodging are more than such
charges in excess of fifty rupees but not more Rs.50 per person per day.
than
one hundred rupees per day per person.
(c)
Where the charges for Rs. 15 plus 30 per cent lodging are more than one of such
charges in excess of hundred rupees per day Rs. 100 per person per day per
person.
901
Provided that where charges for lodging are levied otherwise than on daily
basis or person, then, for the purpose of determining the tax liability of any
person under this section, the charges shall be computed as for a 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
charges are paid by any person or class of persons as the State Government may,
by order, direct such as foreigners staying as guests in India of any
Government or of any Corporation or Company owned or controlled by Government,
or such other person as in the opinion of the State Government it is expedient
in the public interest to exempt, then such person or persons shall be exempt
from the payment of the tax.
(2)
Where luxury is provided in a hotel to representatives or employees of any
company and charges for such luxury are to be borne by the company, there shall
be levied and collected the tax from such company.
Explanation:
In this sub-section "Company" means any body corporate and includes a
firm or other association of persons.
(3)
The tax payable under this section shall be collected by the proprietor and be
paid into a Government treasury within the time and in the manner provided in
the Act.
(4) In
computing the amount of tax payable under this section, the amount shall, if it
is not a multiple of five paise, be increased to the next higher multiple of
five paise." Section 4 provides for the mode of collecting of tax. It
provides:
"4.
(1) Where the rate of charges for luxury provided in a hotel is inclusive of
the charges for food or drink or other amenities, if any (being amenities
referred to in clause (e) 902 of section (2), then the Collector may, from time
to time, after giving the proprietor an opportunity of being heard, fix
separate rates of charges for such luxury and for food or drink or other
amenities, if any, being amenities referred to in clause (e) of section 2 for
the purpose of calculating the tax under this Act.
(2)
Where, in addition to the charges for luxury provided in a hotel, service
charges are levied and appropriated to the proprietor and not paid to the
staff, then, such charges shall be deemed to be part of the charges for luxury
provided in the hotel.
(3)
Where luxury provided in a hotel to any person (not being an employee of the
hotel) is not charged at all, or is charged at a concessional rate, then also
there shall be levied and collected the tax on such luxury, as if full charges
for such luxury were paid to the proprietor of the hotel.
(4)
Where luxury provided in a hotel for a specified number of persons is shared by
more than the number specified, then, in addition to the tax paid for luxury
provided 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." Section 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. Sec. 15 pertains to the
compounding of offences.
Sec.
17 confers power of inspection of accounts and documents and of search and
seizure. Sec. 21 confers the power to make Rules.
903
4. 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 lodgingaccommodation
for which charges of Rs.35 or more per day per person as a taxable luxury. The
scheme of the West Bengal Act is slightly different in regard to the scope of
the charge to be given effect to under that 'Act'. The levy there is not
confined to the lodging charges recovered from persons lodging in the hotels,
but on the basis of the provision for luxury and not, as in the case of the
other legislation, as the lodging charges actually paid by the lodgers. Section
4 of the West Bengal Act provides:
"4.
Liability for luxury tax. There shall be charged, levied and paid to the State
Government a luxury tax by the proprietor of every hotel and restaurant in
which there is provision for luxury and such tax shall be calculated(a) in the
case of a restaurant at the rate of an annual sum of rupees three hundred for
every ten square metres or part thereof in respect of so much of the floor area
of restaurant which is provided with X X luxury, and (b) in the case of a hotel
at such rate not exceeding fifteen per centum on the daily charges of a room
provided with luxury as may be notified by the State Government in the Official
Gazette." One of the contentions, which is peculiar to the West Bengal Act
is that the impost on the mere possibility of enjoyment of a 'luxury' cannot be
taxed.
5. We
have heard Shri Soli J. Sorabjee, Senior Advocate, Shri F. Nariman, Shri Harish
Salve, Advocates for petitioners and Shri P.S. Poti, and Shri Shah, learned
Senior Advocates, for the respondents.
On the
contentions urged at the hearing in support of the challenge, the following
points arise for consideration:
(a)
The Taxation-Entry 62 of List 1I providing for taxes on "luxuries"
contemplates, and takes within its sweep, a tax on goods and articles in their
aspect and character as luxuries and 904 dose not include "services"
or "activities". The levy on the services for lodging provided at
the-hotels, is, therefore, beyond the scope of Entry 62 List II.
(b)
Section 4 of the West Bengal Act which envisages a tax on the mere existence of
the means of providing the luxury-independently of its utilisation--is outside
Entry 62 List II.
(c)
The real criterion distinguishing 'luxury' is the special attribute or quality
of the commodity or the services, as the case may be, and not the price-factor simpliciter.
The essential distinguishing attribute is a qualitative one. Distinction based
purely on the quantitative difference 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 sec. 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)
Sec. 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 freedom under Article 301 of the
Constitution as it directly impedes the right of "intercourse"
through out the territories of India.
5. Re:
Contention (a) The arguments of learned counsel on the first three contentions
905 require to be considered together as these contentions themselves have
certain over-lapping areas amongst them.
Basically,
the question is as to what constitutes 'luxuries' as the subject of a tax under
Entry 62, List II, and secondly, whether providing of accommodation for lodging
in hotels or lodging-houses, even if the accommodation could be said to be
'luxuries' in a colloquial sense, could be the subject of a tax under Entry 62
of List II. Shri Sorabjee contended that the concept of a tax on 'luxuries'
contemplates a tax on articles and goods, like jewellery, perfumes, liquors,
tobacco etc., in their character and attribute as articles of luxury. The idea,
it is urged, does not include services or activities as falling within the concept
of luxuries as a subject of taxation. The Gujarat High Court dealing with this
contention held that the contention, if accepted, would diminish the content of
the Entry and reduce its scope from "taxes on luxuries" to
"taxes on articles of luxuries". Shri Sorabjee, however, submitted
that the High Court was in error in its understanding of the import of the
concept of 'luxuries' in Entry 62 as a subject of tax. The learned counsel also
referred to the following observations of the High Court of Bombay in State of
Bombay v. R.M.D. Chamarbaugwalia & Ors., AIR 1956 Bom. 1 at page 11:
"With
regard to luxuries it is significant to note that the plural and not the
singular is used, and the luxuries in respect of which a tax can be imposed
under entry 62 is a tax on goods or articles which constitute luxuries, and it
is again significant to note that the topic of luxuries, only is to be found in
entry 62 in the taxation power and not in either entry 33 or 34. That clearly
shows that, what was contemplated was a tax on certain articles or goods
constituting luxuries and not legislation controlling an activity which may not
be a necessary activity but may be necessary and in that sense a luxury."
(Emphasis supplied) It is to be noticed that the decision of the Bombay High
Court in which the above observation occurs was over-ruled by this Court in
State of Bombay v. R.M.D. Chamarbaugwalia, [1957] SCR 874. The impugned State
Legislation 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 906 II was taken by the Kerala High Court in A.S. Bava v. State of Kerala,
[1971] Tax L.R. 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 Private Ltd. and another v. State of West Bengal, [1975] TLR 1890 at 1892
it is held:
"In
these premises, we are of opinion that 'luxuries' in Entry 62 of List II 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 Entry 62 cannot be restricted to
certain articles only but may also be extended to things incorporeal. The
comfort that a person derives in a hot summer day in an airconditioned space is
a luxury 'particularly in the context of the conditions in which the masses
live in India today. In our opinion, the State legislature is competent to
impose a tax on this luxury." For reasons we shall state presently, we
approve the view taken by the Calcutta High Court.
6. We
are dealing with an Entry in a Legislative List.
The
entries should not be read in a narrow or pedantic sense but must be given
their fullest meaning and the widest amplitude and be held to extend to all
ancillary and subsidiary matters which can fairly and reasonably be said to be
comprehended in them.
In the
Western India Theatres Ltd. v. The Cantonment Board, Poona Cantonment, [1959] 2
Supp. SCR 63, this court was dealing with the scope of the power of the
Provincial Legislature under Sec. 100 of the Govt. of India Act, 1935, with
respect to Entry 50 in Schedule VII of the said Act, to make laws with respect
to "taxes on luxuries including taxes on entertainments, amusements,
betting and gambling". The contention of the appellant in that case was
that the entry authorised a law imposing taxes on persons who received or
enjoyed the luxuries etc. and that no law made with respect to that Entry could
impose a tax on persons who provide the luxuries, entertainment or amusements.
It 907 was contended that those who provide the luxury-etc., did not themselves
receive or enjoy the luxury or entertainment or amusement, but were simply
carrying on their profession or trade and were not amenable to be taxed under
that Entry.
Rejecting
the argument it was said:
"
..... In view of this well established rule of interpretation, there can be no
reason to construe the words 'taxes on luxuries or entertainments or
amusements' in entry 50 as having a restricted meaning so as to confine the
operation of the law to be made thereunder only to taxes on persons receiving
the luxuries, entertainments, or amusements. The entry contemplates luxuries,
entertainments, and amusements as objects on which the tax is to be imposed. If
the words are to be so regarded, as we think they must, there can be no reason
to differentiate between the giver and the receiver of the luxuries,
entertainments, 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 on those who provided it.
In Encyclopaedia
Britannica the meaning of the word 'luxurytax' 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 jewelry,
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.
908
'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
furniture had best be left to people who neither have nor can have any
thoughts.--Goethe." "War destroys men, but luxury destroys mankind at
once, corrupts the body and the mind."--Crown.
The concept
of a tax on 'luxuries' in Entry 62, List II cannot be limited merely to tax
things tangible and corporeal in their aspect as 'luxuries'. It is true that
while frugal or simple food and medicine may be classified as necessities;
articles such as jewellery, perfume, intoxicating-liquor, tobacco, etc., could
be called articles of luxury. But the legislative entry cannot be exhausted by
these cases, illustrative of the 'concept. The entry encompasses all the
manifestations or emanations, the notion of 'luxuries' can fairly and
reasonably be said to comprehend.
The
element of extravagance or indulgence that differentiates 'luxury' from
'necessity' can not be confined to goods and articles. There can be elements of
extravagance or indulgence in the quality of services and activities.
In
A.B. Abdul Kadir & Ors. v. State of Kerala, [1976] 2 SCR 690 at 699-700 Khanna
J. said:
"
.... The word "luxury" in the above context has not been used in the
sense of something pertaining to the exclusive preserve of the rich. The fact
that the use of an article is popular among the poor sections of the population
would not detract from its description or nature of being an article of luxury.
The connotation of the word "luxury" is something which conduces
enjoyment over and above the necessaries of life. It denotes something which is
superfluous and not indispensable and to which we take with a view to enjoy,
amuse 'or entertain ourselves. An expenditure on something which is in excess
of what is required for economic and personal well-being would be expenditure
on luxury although the expenditure may be of a nature which 909 is incurred by
a large number of people, including those not economically well-off .... "
The submission of Shri Sorabjee, if accepted, will unduly restrict the scope of
the legislative-Entry which should otherwise have the widest and the
most-liberal meaning and connotation given to it. Contention (a), in our
opinion, is unacceptable.
8. Re:
Contention (b):
This
contention pertains to a provision particular to the West Bengal legislation.
It is urged that in so far as Section 4 of the West Bengal Act envisages a tax
on the mere existence of the provision for 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 a 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
(supra). 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 utilization of the luxury and not on the mere existence of the
means of providing 'luxury' Sri Sorabjee placed strong reliance on the
observations of the High Court of Bombay in Ramesh Waman Toke and others v. The
State of Maharashtra, AIR 1984 Bombay 345, which while dealing with the
legislation under Entry 62 List II imposing a tax on entertainment held:
"
..... In our opinion, this is not a tax on entertainment at all which the State
Legislature is entitled to .levy under item 62 of the State List. In order that
the entertainment duty should amount to a tax on entertainment it should be
levied on entertainment which is actually held and not on enter910 tainment
which is theoretically capable of being held.
Looking
to the provisions which have been examined in detail it is clear to us that the
said provisions do not take into account entertainment that is actually held by
the owner of the touring cinema or the owner of the video exhibition. The basis
on which tax can be validly levied is the fact of entertainment. The taxing
event is the entertainment. If there is no entertainment at all, the question
of levying entertainment tax in exercise of the legislative powers conferred
upon the State Legislature does not arise at all.
If the
Act purports to levy tax on notional entertainment then the exercise of that
taxing power must be held to be ultra vires the Constitution. This is exactly
what has happened in the instant case." There might possibly be some
distinction between the ideas of 'entertainment' and 'luxuries'. With due
respect to the High Court, the interpretation that commended itself to the High
Court would unduly restrict the scope of the legislative Entry. On such an
interpretation, it might be possible for a person to go further and also
contend that no 'entertainment' was actually derived. The concept of 'luxuries'
in the legislative Entry takes within it everything that can fairly and
reasonably be said to be comprehended in it. The actual measure of the levy is
a matter of legislative policy and convenience. So long as the legislation has
reasonable nexus with the concept of 'luxuries' in the broad and general sense
in which the expressions in legislative tests are comprehended. the legislative
competence extends to all matters 'with respect to' that field of topic of
legislation.
The
taxable event need not necessarily be the actual utilisation or the actual
consumption, as the case may be, of the luxury. The contention, in substance,
is that the means of providing luxury, by 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, AIR 1981 SC 907). A luxury which can reasonably be said to be amenable
to a potential conception does provide the nexus.
911 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 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 the fact
that it affects the earnings cannot, per-se, be held to violate Article
19(1)(g). Contention (b) is not substantial either.
8. Re:
Contentions (c) and (d):
These
contentions were somewhat attractively presented and bear close scrutiny. Shri Sorabjee
urged that the concept of "luxuries" is a relative or comparative
idea, distinguishable from "necessities" by the special attribute or
quality of distinction inherent in them. The articles or activities of luxury
could be identified as such only by reason of that inherent distinguishing
special-quality or attribute. The price factor, says learned counsel, might be,
prima facie, an index of that special quality or attribute; but the price is
not itself a substitute for the special quality or attribute. Therefore, if
what is legislatively classed as luxury is on the sole basis of the price
alone, then the legislative definition or the means of identification of the
luxury becomes irrational as it has the effect of substituting price in place
of the special quality. The two are not the something. There is nothing in the
law, it is urged, which identifies or distinguishes 'luxury' on the basis of
any special attribute apart from the price-factor.
This
argument itself recognises that price might be, and very often is, evidence of
quality. The statute proceeds on the premise that any accommodation in a hotel
which is priced above a certain level could reasonably be held to be of a
particular quality distinguishing it from others. These ideas of luxury or
necessity are necessarily relative ideas and require to be understood in the
context of the contemporary 912 standards of living. What might have been a
'luxury' some decades ago might cease to partake of the character now.
What
is luxury today might be considered a necessity a decade or so later.
In
Abdul Kadir's case (supra) it was observed:
"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 to luxury ...... " We are presently concerned with the
question whether the quality or standards of lodging accommodation in hotels
can be called luxurious by contemporary standards by reason of the higher
standards of charges payable for the accommodation. 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 assumed to have a
logical inter-relationship. This cannot be held to suffer from the vice of
irrationality.
9. The
further contention is that when the price factor is made the sole criterion for
imparting the quality of luxury to the lodging accommodation, the means of
identification so adopted cease to distinguish areas in the services which are
not luxuries but are really necessities and comforts and the subject of the tax
would come to include, not merely luxuries but necessities and comforts also.
The answer is that in the context of lodging accommodation and the services
that go with it, the concept of luxury would necessarily be a comprehensive
idea taking into account the various components of the services. Differences of
degree can at particular stage become differences of kind. 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 913
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.
Contentions
(c) and (d) are accordingly held and answered against the petitioners and the
appellants.
10.
Re: Contention (e):
The
point sought to be put across arises out of the definition of the expression
'charges for lodging' in sec.
2(a)
read with the Explanation to the provision. Sec. 2(a) defines "charges for
lodging" to include 'charges for airconditioning, telephone, television,
radio, music, extra beds" and the like". It is contended that the
expression 'and the like' is vague and confers an arbitrary power to bring to
tax an undefined entity. It is further contended that the Explanation appended to
Section 2(a) to the effect that the decision of the State Government on any
dispute in that behalf is final and shall not be called in question in any
court aggravates the arbitrariness and constitutes an unreasonable restriction
and is violative of Article 19(1)(g). Reliance was placed on the decision of
this Court in Corporation of Calcutta v. Calcutta Tramways Co., [1964] 5 SCR
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 a 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 Babu
Bhai v. State of Gujarat, [1985] 2 SCC 732 at 736 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 render the provision invalid. Regard will have to be had to several
factors, such as, on whom the power is 914 conferred--whether on a high
official or a petty officer, what is the nature of the power--whether the
exercise thereof depends upon the subjective satisfaction of the authority or
body on whom it is conferred or is it to be exercised objectively by reference
to some existing facts or tests ...... " There are in-built checks on the
power under Explanation to sec. 2(a). The expression 'and the like' would
require to be construed ejusdem-generis. The genus or the class of items
envisaged by the preceding words not having been exhaustive of the genus or the
class, the legislature, therefore, has supplied the words 'and the like' so as
to bring in any other item of the same class or genus. This, by itself, is a
clear guide for the exercise of the power.
Another
relevant consideration is the identity and status of the repository of the
power. The power is given to a high authority like the State Government. In
these circumstances, it cannot be said that the power is an uncanalised power
and is an arbitrary or unreasonable one. There are statutory guides governing
its exercise and the guide-lines are governed by well settled principles of
interpretation. There is no substance in contention (e).
11.
Re: Contention (f):
What
is assailed here is the deeming provision in sec.
4(3)
which brings to charge at the normal rates cases where no charge is collected
at all for lodging or where concessional rates are charged. The deeming
provision does not apply to cases where accommodation is provided free or at
commercial rates to the employees of the hotel. No fault can be found with this
provision which merely states that where the usual lodging charges are not
collected for providing the lodging accommodation, tax shall be payable as if
the usual charges had been collected. This is a provision against evasion.
There is no merit in the challenge to the validity of this provision.
Contention (f) requires to be rejected.
12
Re.' Contention (g):
Shri
R.F. Nariman, learned counsel, who addressed arguments with particular emphasis
on this contention submitted that tax laws are not outside the purview of Part
XIII of the Constitution and that the present tax on lodgings and
accommodations in hotels is violative of the freedom of "trade, commerce
and inter-course" and offends Art. 915 301. Learned counsel submitted
"that business undoubtedly is commerce but is something more, it is
intercourse". The word "intercourse" specifically occurs in Art.
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 Art. 301. On the several facets of the similar--some say deceptively
similar--provisions of sec. 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 s. 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 s. 92 as being "to explain the elliptical and expound
the unexpressed", and he emphasized that the practical necessity of
determining precisely what impediments were no longer to obstruct inter-State
trade "obliged the court to attempt the impossible task of supplying an
exclusive and inclusive definition of a conception to be discovered only in the
silences of the Constitution." On the significance of the word
'intercourse' in sec. 92 of the Australian Constitution, it was held by the
Australian High Court in Gratwick v. Johnson, [1945] 70 CLR 1 that an order
which provided that no person should travel by rail or commercial passenger
vehicle from any State in the commonwealth to any other State without a permit
from a commonwealth official would violate the freedom of 'intercourse' under
sec. 92. It was held that the prohibition showed "an indifference to, if
not a disdain of, the terms of sec. 92".
In Atiabari
Tea Co. v. State of Assam, [1961] 1 SCR 809 at 860-61 this Court said:
"
..... in determining the limits of the width and amplitude of the freedom
guaranteed by Art. 301 a rational and work916 able test to apply would be: Does
the impugned restriction operate directly or immediately on trade or its
movement? ... It is the free movement of the transport of goods from one part of
the country to the other that is intended to be saved, and if any Act imposes
any direct restrictions on the very movement of such goods it attracts the
provisions of Art. 301 ...... " In Mehtab Majid & Co. v. State of Madras, [1963] Supp. 2 SCR 435 this Court
said:
"It
is now well settled that taxing laws can be restrictions on trade, commerce and
intercourse, if they hamper the flow of trade and if they are not what can be
termed to be compensatory taxes or regulating measures.
Sales
tax, of the kind under consideration, cannot be said to be a measure regulating
any trade or a compensatory tax levied for the use of trading facilities, sales
tax, which has the effect of discriminating between goods of one State and
goods of another, may affect the free flow of trade and it will then offend
against Art. 301 ...... " Taxes can and do sometimes, having regard to
their effect and impact on the free flow of trade, constitute restrictions on
the freedom under Art. 301. But the restriction must stem from the provisions
of the law 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 Baldwin v.
GAF Inc., [1934] US 511 that "it was flamed upon the theory that peoples
of several States must sink or swim together and that in the long run the
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 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 inter917 course. In Grannall v. Marrickville
Margarine Pty. Ltd., [1955] 93 CLR 55 a New South Wales statute which
prohibited the manufacture of margarine without a licence which, if granted,
would contain a condition limiting the quantity to be manufactured was assailed
on the ground of its violation of sec. 92 of the Australian Constitution.
Repelling the challenge, it was held:
"It
is of course obvious that without goods there can be no inter-State or any
other trade in goods. In that sense manufacture or production within, or
importation into, the Commonwealth is an essential preliminary condition to
trade and commerce between the States in merchandise. But that does not make
manufacture production or importation trade and commerce among the States. It
is no reason for extending the freedom which s. 92 confers upon trade and
commerce among the State, to something which precedes it and is outside the
freedom conferred." We find no substance in contention (g).
13. In
the result, for the foregoing reasons, the writ petitions and the appeals are
dismissed. But, in the circumstances, there will be no order as to costs.
P.S.S.
Appeals dismissed.
Back