Important points
1. The word ‘luxuries’ in Entry 62 List II, Seventh Schedule to the Constitution refers to activities of indulgence, enjoyment or pleasure. Entry 62 of List II does not permit the levy of tax on goods or articles.
2. Imposition and levy of luxury tax on tobacco and tobacco products by treating them as ‘luxuries’ within the meaning of the word in Entry 62 of List II of Seventh Schedule of the Constitution is held liable to be set aside and the Uttar Pradesh Tax on Luxuries Act, 1955, the Andhra Pradesh Tax on Luxuries Act, 1987 and the West Bengal Tax on Luxuries Act, 1994 are declared to be legislatively incompetent.

Headnote:(i) Constitution of India—Articles 246, 286 and 301, Entry 62 List II, Entry 54 List I—Uttar Pradesh Tax on Luxuries Act, 1994—Sections 2(e), 2(h), 3—Andhra Pradesh Tax on Luxuries Act, 1987—Section 3A—West Bengal Luxury Tax Act, 1994—Sections 2(c), 4—Levy of Luxury tax on tobacco and tobacco products by treating them as ‘luxuries’—Challenged by manufacturers, dealers or sellers of tobacco and tobacco products—Writ petitions had been filed by assessees challenging the Ordinance on ground that it was ultra vires Articles 14, 19, 245, 286, 301 and 304 of the Constitution—Allegations that the levy was in substance, a tax on sales—High Court allowed the writ petitions impugning the levy of luxury tax—High Court held that the levy was intra vires the Constitution and was legislatively competent—However, it was held that the imposition of luxury tax impeded the freedom of trade and commerce and was violative of Article 301 of the Constitution—Levy of luxury tax was struck down on ground that it violated Articles 14 and 301 of the Constitution—There has been no luxury tax in State of UP since 1995—Whether Entry 62 of List II permits the levy of tax on goods or articles—(No)—Word ‘luxuries’ in the Entry refers to activities of indulgence, enjoyment or pleasure—None of the impugned statutes seek to tax any activity—They seek to tax goods described as luxury goods—They must be and are declared to be legislatively incompetent—However, any refund of taxes already paid under the impugned Acts is not liable to be refunded.
       Held : On an application of general principles of interpretation, we would hold that the word ‘luxuries’ in Entry 62 of List II means the activity of enjoyment of or indulgence in that which is costly or which is generally recognized as being beyond the necessary requirements of an average member of society and not articles of luxury. (Para 79)
       Historically therefore the tax on luxury goods was seen as a part of Entry 54 of List II or Entries 83 and 84 of List I but not as a tax leviable under Entry 62 of List II. The only exception was the Kerala Validating Statute which was the subject matter of Abdul Kadir where the assessee did not question that Entry 62 related to goods and articles and the sole point of protest was that tobacco was not an article of luxury. It was only in 1993 the State of Maharashtra enacted the Bombay Luxury Tax Act, 1993 directly imposing luxury tax on goods. This was withdrawn in 1994 but the other states soon followed suit culminating in a rash of such legislation some of which are now impugned before us where the question as to the leviability of Luxury tax on goods is squarely raised. Given the language of Entry 62 and the legislative history we hold that Entry 62 of List II does not permit the levy of tax on goods or articles. In our judgment, the word “luxuries” in the Entry refers to activities of indulgence, enjoyment or pleasure. In as much as none of the impugned statutes seek to tax any activity and admittedly seek to tax goods described as luxury goods, they must be and are declared to be legislatively incompetent. However, following the principles in Somaiya Organics (India) Ltd. vs. State of U.P. (2001) 5 SCC 519 while striking down the impugned Acts we do not think it appropriate to allow any refund of taxes already paid under the impugned Acts. Bank guarantees if any furnished by the assessees will stand discharged. (Paras 88 and 89)
       (ii) Words and Phrases—Word ‘luxury’—Meanings—Constitution of India—Entry 62, List II, Entry 54, List I.
       Held : The word luxury may possibly be susceptible of all three meanings. According to the Oxford English Dictionary (2nd Edn; Vol. IX) ‘luxury’ could among other meanings be defined as (1) abundance, sumptuous enjoyment (2) the habitual use of, or indulgence in what is choice or costly (3) refined and intense enjoyment; means of luxurious enjoyment (4) in a particularized sense; something which conduces to enjoyment or comfort in addition to what are accounted the necessaries. Hence, in recent use, something which is desirable but not indispensable and (5) as an attribute as luxury coach, cruise duty, edition, flat, liner, shop, tax, trade”. (Para 31)
       Theoretically ‘luxuries’ is capable of covering each of the several meanings ascribed to the word. The question is how the word is to be construed in the Constitutional entry. Neither the dictionary meaning nor the meaning ascribed to the word judicially (for the reasons stated) resolve the ambiguity. The solution must be found in the language of the Entry taking into consideration the Constitutional scheme with regard to the imposition of taxes and the collection of revenues. (Para 38)
       (iii) Interpretation of Statutes—Legislative entries—Rule of liberal interpretation—None of the items in the list is to be read in a narrow or restricted sense—Each general word should be held to extend to ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. (Para 46)
       (iv) Words and Phrases—Two or more words susceptible of analogous meaning when clubbed together—They are understood to be used in their cognate sense—They take, as it were, their colour from and are qualified by each other—Meaning of the general word being restricted to a sense analogous to that of the less general—Put in other words the included words may be clarificatory or illustrative of the general word. (Paras 71 and 72)
       (v) Interpretation of Statutes—Principle of ‘noscitur a sociis’—Applicability.
       Held : Where two or more words are susceptible of analogous meaning are clubbed together, they are understood to be used in their cognate sense. They take, as it were, their colour from and are qualified by each other, the meaning of the general word being restricted to a sense analogous to that of the less general. (Para 71)
       In the present context the general meaning of ‘luxury’ has been explained or clarified and must be understood in a sense analogous to that of the less general words such as entertainments, amusements, gambling and betting, which are clubbed with it. (Para 73)
       We are aware that the maxim of noscitur a sociis may be a treacherous one unless the ‘societas’ to which the ‘socii’ belong, are known. The risk may be present when there is no other factor except contiguity to suggest the ‘societas’. But where there is, as here, a term of wide denotation which is not free from ambiguity, the addition of the words such as ‘including’ is sufficiently indicative of the societas. As we have said the word ‘includes’ in the present context indicates a commonality or shared features or attributes of the including word with the included. (Para 77)
       Hence on an application of general principles of interpretation, we would hold that the word ‘luxuries’ in Entry 62 of List II means the activity of enjoyment of or indulgence in that which is costly or which is generally recognized as being beyond the necessary requirements of an average member of society and not articles of luxury. (Para 79)

JUDGMENT

Ruma Pal, J.

1. The assesses/appellants are either manufacturers, dealers or sellers of tobacco and tobacco products. They have challenged the imposition and levy of a luxury tax on tobacco and tobacco products by treating them as "luxuries" within the meaning of the word in Entry 82 of List It.

2. Entry 62 of List II of the Seventh Schedule to the Constitution relates to the exclusive power of State Legislatures to make laws with respect to "Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling". Several States have enacted legislation which they claim are referable to the right to tax luxuries under this Entry, We are concerned with the Uttar Pradesh Tax on Luxuries Act, 1955, the Andhra Pradesh Tax on Luxuries Act, 1987 and the West Bengal Tax on Luxuries Act, 1994. The legislative competence of these statutes was challenged by the assessees before different for a - in some cases partially successfully, in others not. To the extent the assessees were unsuccessful, they have challenged the decisions before us. in those cases in which the assessees were successful the concerned State has filed the appeals.

3. The States have differed in their interpretation of the word "luxuries" of Entry 82 List II since they have argued in the context and from the point of view of the particular statute sought to be defended as legislatively competent. Thus although the principal question to be resolved would be the ambit of Entry 62 of List-II, "the arguments require a determination of the nature of the tax sought to be levied by the three statutes in dispute before us, before we resolve the question.

Uttar Pradesh Tax on Luxuries Act 1995

4. On 14th May, 1994 an Ordinance known as the Uttar Pradesh Tax on Luxuries Act 1994 (being U.P. Ordinance No. 8/94) was promulgated. The object of the Ordinance, as stated in the preamble was to "provide for levy and collection of tax on supply of tobacco and matters connected therewith or incidental there to". It consisted of a few sections of which relevant ones are quoted.

5. Section 3 of the Ordinance which provided for the levy of luxury tax read as follows:-

"Levy of luxury tax.--Every tobacconist shall be liable to pay luxury tax on his turnover of "receipts" at such rate, not exceeding twenty five per cent, as the State Government may, by notification, specify and different rates may be specified for different classes of tobacco:

Provided that a "tobacconist" who does not manufacture or receive tobacco from outside the State shall be liable to pay tax on his turnover of receipts from the date his turnover of receipts exceeds two lakh rupees:

Provided further that in a chain of supply of tobacco, the tax shall be realized from the earliest of the "tobacconists" in the State and a successive "tobacconist" shall be exempt from payment of tax if he furnishes, in the manner prescribed, proof of payment of tax on such tobacco."

(Emphasis supplied)

6. The words "receipt" and "tobacconist" which have been emphasized in the section by us had been respectively defined in Section 2(e) and 2(h) as follows:-

2 (e) "receipt" means:-

(i) in respect of supply of tobacco by a "tobacconist" made by way of sale, the amount or valuable consideration received or receivable by him for such sale including any sum charged for anything done by him in respect of the tobacco so sold at the time of or before the delivery thereof and the price if charged separately, of any primary or secondary packing, other than the cost of freight or delivery or the amount realized as luxury tax when such cost or amount is separately charged; and

(ii) in respect of supply of tobacco by a tobacconist made otherwise than by way of sale, the normal price at which the tobacco is sold, and the term "normal price" shall have the same meaning as assigned to it in Section 4 of the Central Excise and Salt Act, 1944;

2 (h) "tobacconist" means:-

(i) a manufacturer whose turnover of receipts in a year exceeds one lakh rupees