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CASE NO.: Writ Petition (civil)  567 of 1994

PETITIONER: Godfrey Phillips(I)Ltd.& Anr.                    

RESPONDENT: State of U.P.& Ors.                                      

DATE OF JUDGMENT: 20/01/2005

BENCH: R.C.LAHOTI CJI & RUMA PAL & ARUN KUMAR & G.P.MATHUR & C.K.THAKKER

JUDGMENT: JUDGMENT

With         W.P.(C) Nos. 568-569/94 and CA Nos. 123 -125/95         C. A. No. 6891/96, C.A. No. 7870/96,          C.A. Nos. 2123-2127/99, C.A. Nos. 2552-2553/99,         C.A. No. 6365/2000         

DELIVERED BY: RUMA PAL, J.  

RUMA PAL, J.

        The assessees/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 62 of List II. 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 fora - 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.   The States have differed in their interpretation of the word   "luxuries" of Entry 62  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.

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    Uttar Pradesh Tax on Luxuries Act 1995   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.          Section 3 of the Ordinance which provided for the levy of  luxury tax read as follows:-

       "Levy of luxury tax.\027Every 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)            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 who supplies tobacco  by way of  sale or otherwise and includes any

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person who for the purpose of business  gets the manufacturing done from any  other person, whether or not on job work  basis, but does not include any person  who manufactures tobacco only on job  work basis without obtaining any  proprietary right over it at any stage;

(ii)    any person who for the purposes of  business brings or causes to be brought  tobacco in the State or to whom any  tobacco is dispatched from any place  outside the State and who supplies such  tobacco by way of sale or otherwise;

(iii)   any person who supplies tobacco from a  place within the State to any place  outside the State by way of sale or  otherwise;

(iv)    any person who does not buy or  otherwise obtain unmanufactured  tobacco under a brand name but  supplies by way of sale or otherwise  such unmanufactured tobacco in a  sealed container under a brand name;

Explanation:-  For the removal of doubts, it is  clarified that a person:-

(1)     who exclusively supplies unmanufactured  tobacco whether or not in a sealed container  but not under a brand name; or

(2)     not being a person referred to in sub-clause (iii)  who exclusively obtains tobacco by way of  purchase or otherwise from a registered  tobacconist;

shall not be deemed to be a tobacconist for the  purposes or this clause;   Briefly therefore the UP Act provides for the levy of  luxury tax on the receipts from the supply of tobacco by a  tobacconist. It is the act of supply which is the taxable event.   Indeed the preamble of the UP Ordinance  as it originally stood  said that the object was to provide for "levy and collection of tax  on the supply  of tobacco".  Here we may briefly indicate the  core of the controversy between the parties :  If the act is in pith  and substance referable to Entry 54 of List II within the words  "taxes on the sale or purchase of goods" in that entry as the  assessees claim, then the tax would be subject to certain  constitutional curbs on the power of the State to levy sales tax  on tobacco.  If on the other hand it is referable to Entry 62 of  List II as a "tax on luxury" there would be no such restriction.  Writ petitions had been filed by the assessees in the High  Court of Allahabad challenging  U.P. Ordinance No.8/94 on the  ground that it was ultra vires Articles 14, 19, 245, 286, 301 and  304 of the Constitution. At the same time writ petitions under  Article 32 of the Constitution were filed in this Court for a  declaration that  U.P. Ordinance 8 of 1994 was ultra vires the

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Constitution, basically on the ground that the levy was in  substance, a tax on sales.  During the pendency of the proceedings, U.P. Ordinance  No.8 of 1994 was  amended by U.P. Ordinance No.22 of 1994  which was published in the Official Gazette on                        28th September, 1994. The preamble and the definition of  ’tobacconist’ were altered.  As far as the preamble was  concerned, the phrase tax on supply of tobacco was changed  to read " luxury tax on tobacco". But despite the change in the  preamble there was no corresponding change in the taxable  event in the body of the statute which continued to remain a tax  on supply.  The Explanation to the definition of tobacconist was  also substituted after deleting the earlier explanation. The  substitution is not material.  On 2nd November, 1994, the High Court allowed the writ  petitions impugning the levy of luxury tax.   The High Court held  that the levy was intra vires the Constitution and was  legislatively competent.        Following the decision of this  Court in A.B. Abdul Kadir and Ors. vs. State of Kerala (1976)  2 SCR 690  it was held that  tobacco was an article of luxury  and a tax on tobacco would be a luxury tax within the meaning  of Entry 62 of List II.  According to the High Court, tobacco  included all forms of tobacco as provided under the Ordinance  and could be taxed within the State whether it was sent from  outside  the  State  or  sent  outside the State and every   person dealing in luxury goods  such as tobacco would be liable  to luxury tax irrespective of where the tobacco may be  consumed.   However, the High Court held that the imposition  of luxury tax impeded the freedom of trade and commerce and  intercourse and was violative of Article 301 of the Constitution  and  since no prior assent of the President had been obtained  under Article 304(b), it was held that the State could not levy  the tax.        The argument of the State that tobacco was  hazardous to health and, therefore, there was no fundamental  right to trade in it was negatived.  It was held that tobacco could  not be put on par with liquor  which had been held by this Court  to be "res extra commercium".  It was also held that the  impugned levy was not in any way a regulatory measure.  The  High Court also came to the conclusion that classification for  the purpose of levy of the tax in respect of products of tobacco  had been made on an arbitrary basis.  The Writ petitions were  accordingly allowed and  the levy of luxury tax was struck down  on the ground that it violated Articles 14 and 301 of the  Constitution. Special Leave Petitions have been filed from the  decision of the Allahabad High Court both by the writ petitioner  (to the extent that the High Court held that the levy was  legislatively competent) as well as the State of Uttar Pradesh  which assailed the ultimate conclusion of the High Court.  Leave was granted in  the several special leave  petitions on 2nd January, 1995.  The appeals were directed to  be tagged with the writ petitions  under Art. 32. Interim relief  was granted to the effect that the dealers (tobacconists) would  file their returns with the competent authority in accordance  with the impugned Ordinance. No action on the returns so  filed would be taken by the authorities during the pendency of  the appeal.  In the event the challenge of the dealers failed,  the dealers would be liable for payment of the amounts due in  accordance with  the assessment made on the basis of the   returns so filed. On 14th May, 1995, U.P. Ordinance No.22/94 was  repealed and replaced by the Uttar Pradesh Luxury Tax Act  1995 which came into force on the said date.  The Act  reproduced Ordinance 22/94 without any material changes. The  pleadings before this Court were suitably amended.  On 17th September, 1995, the U.P. Tax on Luxuries Act

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1995 was repealed by U.P. Ordinance No.39 of 1995.  Therefore, there has been no luxury tax in the State of U.P.  since 1995 and as far as the State of U.P is concerned, the  issue is of relevance for the period 14th May, 1994 to 17th  September, 1995.  The Andhra Pradesh Tax on Luxuries Act, 1987           The Act is broadly similar to the UP Act both as to the  scope and operation with regard to the levy of luxury tax on  the sale and supply of commodities and in particular tobacco.   The Act initially provided for the levy of luxury tax on "luxuries  provided in a hotel and in a corporate hospital".  In 1996 the  Act was amended by the AP Act No. 28 of 1996 by which  luxury tax was sought to be levied on specified commodities "  for enjoyment over and  above the necessities of life" (S.2  (ggg)) The commodities specified are chewing tobacco in the  different forms and cigarettes.  The tax is leviable at the first  point of supply of the tobacco in the State " by sale or  otherwise".  Section 3-A which was introduced in 1996  provides for  "Tax on tobacconist".  It reads:

"3-A Tax on Tobacconist -  (1) Subject to  the provisions  of this Act, there shall be  levied and collected a tax, on the turnover  of receipts of a tobacconist relating to the  supply of luxuries, namely, tobacco  products, specified in the schedule by way  of sale or otherwise, at the rate of tax and  at the point of levy specified in the  schedule".  

   "Receipt" has been defined in Section 2(jj) as

"Receipt" in relation to a tobacconist means,-  

(a) in respect of supply of the Luxuries, like  tobacco products made by him or by others  by way of sale, the amount of valuable  consideration received or receivable by him  for such sale including any sum charged for  anything done by him in respect of the  tobacco products so sold at the time of or  before the delivery thereof and the price, if  charged separately, of any primary or  secondary packing; and                   (b) in respect of the supply of luxuries of  tobacco products made by him otherwise than   by way of sale, the normal price at which such  tobacco products are sold".       

       A tobacconist has been defined in S.2(kkk) as

"Tobacconist" means a person who  supplies whether by way of sale or  otherwise luxuries, like, tobacco products  manufactured by him or purchased from  other States or from other persons in this  State and includes any person who for the  purpose of Business gets the  manufacturing done from any person  whether or not on job work basis".  

Several writ petitions were filed before the A.P. High  Court challenging the amendment to the Act claiming that the

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tax was a tax on the sale of goods and insofar as it violated the  constitutional discipline of Art. 286, 301, Art. 246 read with  Entry 52 List I and Art. 14, was ultra vires.  These were  dismissed  by a  common judgment dated 12th November,  1998.  The High Court upheld the validity of the AP Act and  held that the State was competent to enact the Act under Entry  62 of List II.  The High Court held that the Act was a tax on the  supply  of luxury goods namely; tobacco and tobacco products,  and it was not a tax on sale as had been contended by the writ  petitioners.  It was held that the incidence of sale was adopted  as a measure for the purpose of assessment and did not alter  the essential character of the levy.  It was held that  the State  had not encroached upon the field occupied by Parliament  under Entry 52 of the List by the Tobacco Board Act, 1975 and   that there was no violation of Article 301 because under the Act  inter-state transactions were exempted from the levy of luxury  tax. The challenge to the tax on the ground of Article 14 was  also negatived.           Leave was granted in several special leave petitions  which were filed from the decision of the AP High Court on 1st  April, 1999 and an interim order was  granted in the same  terms as had been granted in matters arising out of the  decision of the Allahabad High Court.            The West Bengal Luxury Tax Act, 1994  Section 2(C) of the Act, defines luxuries as meaning   "The commodities, as specified in the schedule, for enjoyment  over and above the necessaries of life".  Initially, the scheduled  items related to tobacco and tobacco products as well as pan  masala.  The schedule has been amended from time to time  and now contains 34 items, under the headings "luxuries".  The  original items are covered by  items 1 to 5 of the Schedule.   Items 6 and 8  to 21 deal with mill-made textile fabrics,  footwear, trousers and jeans, shirts and T-shirts, coat jackets,  blazer and suit, watches, bath-room fittings, electric switches,  sun-glasses, fountain pens and dot pens, home theatre  equipment, music system and Video camera. Each of these  items are classed as  luxury if their values exceed particular  rates specified against each item. Items 22 to 34  relate to  items not manufactured or made in India.  These items  which  do not refer to any value  are silk yarn, foreign liquor, toys,  electrical and electronic goods, cosmetics, umbrellas, tea,  glassware and crockery, soaps, chocolate and confectionery ,  readymade garments, motorcycles and motor vehicles.           Section 4 which is the charging Section provides:

"4. Incidence of luxury tax.--  Every stockist  shall be liable to pay a luxury tax on his  turnover of stock of luxuries at such rate, not  exceeding twenty per centum, as the State  Government may by notification fix in this  behalf, and different rates may be fixed for  different class or classes of luxuries.                    "Stockist" has been defined in Section 2(i) as:-

       " "stockist" means a person who has, in  customary  course of business, in his  possession of, or control over, a stock of  luxuries whether manufactured, made or  processed by him in West Bengal, or brought  by him into West Bengal, either on his own  account or on account of others, from any

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place outside  West Bengal, for stocking,  vending, supplying or distributing such  luxuries in West Bengal";

       The other relevant definition is contained in Section 2(h)  which defines ’stock of luxuries’ as meaning:-

"the quantity of luxuries that a stockist  receives in, or procures for, his stock, or  records or accounts for in his books of  account, in West Bengal during any  prescribed period for stocking, vending,  supplying or distributing to a wholesaler,  dealer, retailer, distributor or any other  person, but shall not include any  quantity or such luxuries held by him in  stock on the first day of such prescribed  period;"

       The luxury tax payable by a stockist under the Act is to be  levied under Section 5:

"Levy of luxury tax. -  The luxury tax  payable by a stockist under this Act shall  be levied on that part of his turnover of  stock of luxuries during any prescribed  period which remains after deducting  therefrom his such turnover during that  period representing \026

(a)     the value of such stock of  luxuries as shown to the  satisfaction of the prescribed  authority to have been  dispatched to places outside  West Bengal;

(b)      the value of stock of luxuries of      such class or classes or  description as may be prescribed".

               "Value of stock or luxuries" has been defined  in  Section 2 (m) as follows:

               ""value of stock of luxuries" means.\027 (i)     in respect of any stockist, being a  manufacturer  of any of the  luxuries, the value of such luxuries  calculated at the ex-factory price  at the time of receipt or entry  thereof in his stock, and ;

(ii)    in respect of any stockist, being an  importer of any of the luxuries, the  value of such luxuries calculated  at the price thereof as per  consignor’s bill, invoice or  consignment note or other  document of like nature.

And shall include\027

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(A)     excise duty and central sales tax, if  any, paid or payable on such  luxuries by the manufacturer or  importer thereof , as the case may  be, and

(B)     transport charges and insurance  charges, if any, for carrying such  luxuries to any premises, godown,  warehouse or any other  place for  delivery to a wholesaler, dealer,  retailer, distributor or any other  person;

The remaining Sections are not material for the purposes  of our decision in these appeals. The W.B. Act was challenged before the West Bengal  Taxation Tribunal inter alia on the grounds that it trespassed  into fields exclusively reserved for Parliament under Entries 83  and 84 of List I and was legislatively incompetent, that it  contravened Art. 301 of the Constitution and on other grounds  similar to those raised by the petitioners before the High Courts  of Allahabad and Andhra Pradesh.  However, the  applicants  conceded that in view of the decision of this Court in Abdul  Kadir  (supra), cigarettes could be treated as "luxuries" under  Entry 62 of List II. The challenge of the applicants to the Act  was negatived  by a majority of 2:1 on    20th December, 1995. In two matters special leave petitions were filed from the  decision of the Tribunal.  Leave was granted and the matters  tagged with pending Appeals and Writ Petitions arising out of  the decision of the Allahabad High Court.  No stay was granted.   One applicant challenged the decision of the Tribunal before  the Calcutta High Court under Art. 226 of the Constitution.  The  High Court, by its judgment dated 29th September, 2000,  dismissed the writ petition and upheld the validity of the Act.   The decision of the High Court is also impugned before us and  is listed as Civil Appeal No. 6365 of 2000.  According to Mr. Harish Salve, appearing for some of  the assessees, the word "luxuries" could not be construed to  mean goods and the State’s power to legislate in respect of  luxuries under Entry 62 of List II of the Seventh Schedule to  the Constitution did not extend to tax the sale, manufacture, or  import of any goods.  It is submitted that a tax on goods would  have to mean a tax on some facet of the goods commencing  with its manufacture and ending with its consumption.   Taxation on each and every facet of goods had been  specifically provided for in the legislative lists in the Seventh  Schedule. For example excise duty on the manufacture of  goods is covered under Entry 84 of List I, tax on the sale of  goods is covered by Entries 92-A and 92-B of List I and Entry  54 of List II and duties on import and export of goods were  referable to Entry 83 of List I.  In each of these cases higher  rates of tax were charged or duty levied when the  commodities in question were of higher value.   According to  Mr. Salve if the word ’luxuries’ in Entry 62 were construed to  include  goods, then it would allow the State to legislate on all  these several facets merely by describing the goods as  luxuries.  Similarly if the word ’luxuries’ was to be understood  as descriptive of goods it would mean that the entry would  give the State over-riding power to levy tax on all goods and  would disturb the scheme of distribution of power on taxation  and collection of revenue envisaged under the Constitution. It  is submitted that there is no over-lapping in fields of taxation.

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There may be an over-lapping on the subject matter of the  taxation but the taxable event must be different.  It is  contended that a  luxury tax on items of luxury would fail this  test unless the taxable event was the intangible act of  providing luxury. Therefore, Mr. Salve contends, the word  ’luxuries’ as used in Entry 62 of List II has been used in the  sense of an activity or service namely, the providing of luxury  and what could be taxed by the State under that entry would  be such service but not the goods themselves.  Both the U.P.  and A.P.  Acts have been challenged on the ground that the  luxury tax imposed under the two Acts was in fact a tax on the  sale of tobacco  which was beyond the legislative powers of  the States and was also violative of Articles 286 and  301 of  the Constitution.  It is the further submission of  Mr. Salve that  the U.P. and the A.P. Luxuries Tax Acts were a fraud on the  Constitution and a device to avoid operation of the Additional  Duties of Excise (Goods of Special Importance) Act, 1957   (referred hereafter as the ADE Act) under which  a State  Government which levies sales or purchase tax  on specified  goods including tobacco is  to be denied its share in the  proceeds of additional excise duties levied under the ADE Act  of 1957.        It is stated that both the States of U.P. and A.P.,  while taking full advantage  of the  enactment of the ADE Act  of 1957 and availing of the benefit  thereunder had sought to  levy sales tax under the guise of luxury tax in order to  continue to reap such benefit.  Mr. K.K. Venugopal also appearing for the assessees  submitted that the language in Entry 62 List II read "taxes on  luxuries including entertainment etc."  It is submitted that the  word "including" should, in the context, be interpreted as  illustrative.  Therefore, on the principle of noscitur a sociis,  "luxury" would have to mean something in the nature of  entertainments, amusements, betting and gambling. The  argument is also that Entry 62 of List II uses two phrases,  namely, ’tax on luxury’ and ’tax on entertainment,  amusements, betting and gambling’.  There are, therefore, two  kinds of taxes envisaged under the entry.  The clubbing  together of these two kinds of taxes would indicate that this  was done because of a common element in the nature of the  taxes to be imposed, the link being that both referred to a kind  of activity.  Mr. Venugopal also  submitted that the tax sought  to be imposed under the West Bengal Luxury Tax Act was in  certain applications in fact a duty of excise insofar as it sought  to levy tax on goods manufactured in India, it was in fact a tax  on the import of goods insofar as it sought to levy a tax on  goods manufactured outside India and brought into the State  and it was a sales tax insofar as it sought to tax the dispatch  of goods.  The mere fact that there is a provision for refund in  respect of interstate sales did not according to Mr. Venugopal,  change the character of the impost.          Mr. R. Nariman also representing the assesses,  submitted that the State Acts are violative of Art. 301 of the  Constitution. It is submitted by Mr. Nariman, that the only  exception to the right to free trade, commerce and intercourse  throughout the territory of India provided for under Article 301  related to articles which were res extra commercium.  This  exception did not apply to tobacco. The decision in State of  Punjab Vs. M/s. Devans Modern Breweries  2003(10) Scale  202, which held that liquor was res extra commercium  was  sought to be distinguished on the ground that tobacco, unlike  liquor, was not the subject matter of any privilege, but was the  subject matter of ordinary trade or commerce.  It is submitted  that it was recognized by Parliament that the trade in tobacco  was of national importance, and had been declared  to be of  national importance in interstate trade and commerce under

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Article 286 (3) read with Section 14 of the Central Sales Tax  Act 1956.  Reliance was placed on the recent decision of this  Court in Godawat Pan Masala Products vs. Union of India  2004 (6) Scale Page 388, which has held that tobacco was  not res extra commercium.   The further contention is that  Articles 301 and 286 form part of a common constitutional  scheme to preserve the economic unity of the country and that  although Article 286 was limited to sales but nevertheless  since there was a declaration under that Article in respect of  tobacco, it meant that imposition of any tax on the commodity  over and above the outer limit provided under Section 15 of  the Central Sales Tax Act would ipso facto amount to a  contravention of Article 301.  Any tax which would result in a  declared commodity, such as tobacco, being subjected to  higher taxes in a particular State would, according to Mr.  Nariman, contravene Article 301 since it would lead to a  regional economic imbalance.  The only way that such a State  law could be validated would be through Article 304 (b). It is  the accepted position that none of the State Acts have  received any Presidential assent under Article 304 of the  Constitution.   Mr. M. Parasaran, representing the Union of India,  supported the contentions of the assesses and has submitted   that the luxury tax in U.P., A.P. and W.B was in fact a tax on  the sale and purchase of tobacco and that the levy of the tax   was contrary to the scheme of collection and distribution of  taxes under which the Centre alone may levy taxes on goods  declared to be of special importance. Mr.  S. Gupta  representing the State of Uttar Pradesh  has submitted that the word ’luxury’ has been defined  authoritatively in Abdul Kadir (supra) as, "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".   It is submitted that this  definition should not be cast aside since it had held the field  for several decades.  According to Mr. Gupta, the object of a  luxury tax is the occurrence or event of luxury which itself  means, "the happening of indulgence, extravagance,  pleasure, comfort, gratification of the senses etc.".   It is  submitted that the word ’luxury’ was applicable both to  commodities and services and that this has been expressly  held in Express Hotels vs. State of Gujarat (1989) 3 SCC  677.   It is said that luxury tax is an indirect tax and is  ultimately collected from and its burden directly or indirectly  falls on the consumers who enjoy the luxury.  Responding to  the argument regarding the use of the word ’including’ in Entry  62 of List II, it is  submitted that tax on luxury has been  recognized for a long time as a separate and distinct kind of  tax and the principle of noscitur a sociis would not apply. As  far as the U.P. Act is concerned, it is submitted that it was  limited to tobacco and other such products.  It is said that   tobacco was inherently luxurious in the sense that it could not  be said to be necessary to a person’s health.  On the other  hand, it was recognized as having a harmful effect on health.  It is said that it is not a tax on sale but on the article, tobacco,  and articles made out of tobacco both of which give rise to  luxuries in the sense that they are taken for pleasure and  enjoyment and are wholly unnecessary for human health and  sustenance.  It is said that the luxury ’aspect’ or ’component’  which inheres in and arises on account of the article tobacco,  and the activity of supply of tobacco is by itself a ’matter’  under Article 246(3) which was distinct and independent of  other aspects of ’tobacco’ such as its manufacture, sale etc.  It  is said that the U.P. Act targets at the entire chain of supply of

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tobacco and aims at making its presence felt at the point of  supply by the earliest tobacconist in the State.   The mere fact  of the tobacconist \026 even the first tobacconist in the State \026  facilitating the act of consumption of tobacco by his act of  supply of tobacco, that is to say, by bringing about a state of  affairs which has the potential of the act and element of  luxury, namely, the act of consumption of tobacco is sufficient  to provide the requisite nexus between the levy and the  subject matter of the tax.    Apart from this, it is said that the  tax was not a tax on sale.  The reference to sale consideration  etc. in the Act was only for the purposes of fixing the value of  the element of luxury for the purposes of taxation.  This was  also supported by the use of phrase "or otherwise" in the  charging section of the Act.  It is submitted that it is not a tax  on the sale of goods within the meaning of Article 366 (29A)(f)   nor a tax on supply.  It is drawn to our attention that the  amendment to Article 366 (29A) (f) extending the definition of  sale of goods occurred subsequent to the incorporation of  luxury tax as a specific field of legislation by the States.   Therefore, what was taxable as luxury by the States under  Entry 62 List II from before remained so taxable even after the  amendment to Article 366(29A).  Thus the UP Act which was  framed within the legislative parameters of Entry 62 of List II  was not a tax on the aspect ’supply’.  It would follow that if the  tax imposed by the State was not actual sale or deemed sale,  there was no question of the infringement of Article 286 nor  was there any question of the Act being a device to avoid the  consequence of the ADE Act.  The State of West Bengal was represented by   Mr. R.  Dwivedi .  He endorsed the stand of the U.P. Government on  the scope of Entry 62 of List II and has said that the word  ’luxuries’ must be construed to include not only services but  also goods. According to Mr. Dwivedi, the legislative history of  the Entry starting with the Government of India Act, 1919  would show that betting, gambling, amusements and luxury  tax had been treated as distinct and separate items.  We were  referred to  Schedule I to the Tax Rules, 1920 and in particular  to Entry 6 which related to luxury tax and was the subject  matter of a report of the Tariff Commission of 1924-25.  The  question of imposition of tax on tobacco had been considered  in connection with this Entry.   All these Entries were clubbed  together under the Government of India Act, 1935 in Entry 52  of List II of that Act. It is said that this Court had repeatedly  construed the word "luxury".  In 1959,  the decision in  Western India Theatres vs. Cantonment Board AIR 1959  SC 582, 585 this Court had said that that the ordinary  meaning was to be given to the word "luxury". The decision in  Abdul Kadir in 1976 also proceeded on the basis that the  word ’luxury’ in Entry 62 List- II referred to goods.  Finally, in  1989 Express Hotels had construed the Entry  to hold that  the word ’luxuries’ covered goods both corporeal and  incorporeal and services.   It is submitted that there was no  reason why this Court should deviate from a well established  series of precedents which had held the field for over five  decades.  It is also submitted that the word ’including’ in the  Entry  indicated an expansion and was not illustrative  and  that neither the principle of noscitur a sociis nor abundante  cautela could be invoked in construing the objects of tax under  Entry 62.  As far as tobacco is concerned, it is submitted that  there has never been a dispute that it constitutes an article of  luxury.   It is further argued that reference to several entries in  List II which are subject to entries in either List I or List III, that  while certain aspects of a particular subject matter of taxation  may be taken out from List II nevertheless a taxing power in  respect of that subject remained with the State Governments

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under List II.   Reference has been made to Entries, 26,27, 50,  53 and 60 of List II.  According to Mr. Dwivedi, the  constitutional scheme showed that certain aspects in respect  of the same subject matter would fall in List II whereas other  aspects would fall in either List I or List III.  The further  submission is that luxury tax is a tax directly on goods  whereas customs duty, excise duty and sales tax are in  respect of goods.  Thus excise duty is a levy on the  manufacture or production of goods but was not a tax directly  on goods.  It is argued that the fact that the tax was levied on  luxury goods with reference to the manufacture or sale of  goods would not mean that it was a tax on the manufacture or  sale of the goods.    The manufacture or sale are only  measures of the luxury tax leviable.  With particular reference  to the West Bengal Act, it was submitted that the tax was on  luxury goods or commodities although it was with reference to  the value of the commodities as stocked or as imported. The  tax is merely levied when the commodity is stocked.  In  response to the assessees’ arguments that the excise duty,  sales tax, custom  duty etc. all provide for higher rates in  respect of luxury goods is that the same did not detract from  the fact that those taxes remained taxes on  activities in  respect of goods and were not taxes on the goods  themselves.            Mr. Gopal Subramanium appearing for the State of  Andhra Pradesh has submitted that Entry 62 of List II should be  construed bearing in mind that there were no restrictive words  in the entry itself nor was there any restrictive content in any  other entry which would  modify or impact on Entry 62.  It is  submitted that the word ’consumption’ used elsewhere in the  Constitution had not been used in the Entry.  This indicated that  the Entry was not limited to the ’consumption’ aspect of  luxuries, entertainment etc.  It is said that Entry 62 can be read  harmoniously with Entry 54 and Entry 54 is the aggregate Entry  and that Entry 62 relates to an element/component of such  aggregation.  The substance of Entry 62, according to Mr.  Subramanium, is luxury,  the form of the luxury either as goods  or services is immaterial.  It is finally submitted that tobacco  squarely falls under Entry 62.  It is further submitted that the  actual presence of a consumer is inessential to the concept of  luxury tax.  It is also submitted that the Constitution provides for  legislation in respect of taxation of different taxable events in  respect of the same subject and for taxation in respect of  different aspects of the subject itself.    It is said that unless the  aspect was common for two entries, there was no question of  harmonious construction nor of federal supremacy.  The  expression, ’luxuries’ refers to goods and services which foster  ’luxury’, a sense of abundance, enjoyment and gratification.     There are two aspects of luxury, the first being objects and  services which are intrinsically capable of fostering a sense of  luxury and second, the recipient of such articles or services  who consumes or experiences such gratification.  The  argument is that the capacity to foster ’luxury’, which labels  goods as ’luxuries’ within Entry 62, is an aspect of the goods  entitling the objects to be taxed and that  this is relatable to  Entry 62  which aspect is distinct from taxes on manufacture or  sale per se.  Since ’luxuries’ can be both goods and services,  what is relevant is the common denominator of the luxury  element/potential of goods and services.  According to            Mr. Subramanium since the tax under Entry 62 is on luxuries, it  can legitimately be levied even where there is no actual  consumption of the luxury.      Coming to the Andhra Pradesh  Act, it is submitted that the primary purpose of the Act was to  levy tax on tobacco and not on the sale or manufacture of it.   On Article 301, it is submitted that the levy does not impact on

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the movement of tobacco or trade in tobacco as interstate  transactions were exempt.    In this background, the competing contentions as to the  meaning of the word "luxury" in Entry 62 of List II are  considered:

a)      According to the learned counsel for the  assessees the word ’luxury’ is distinct from an  article of luxury and for the purpose of Entry 62  of List II means the activity of indulgence,  comfort, enjoyment.   

b)      The argument of learned counsel for the State of  U.P. and A.P. as to the meaning of ’Luxury’ is  somewhat ambivalent. On the one hand it was  contended that ’luxury’ is a component and  aspect of the goods and that Entry 62 relates to  the exclusive jurisdiction of the State to levy a  tax on such component or aspect of the goods.   On the other hand it was contended that luxury  may arise from the use or consumption of  certain kinds of goods or services or  indulgence  in certain kind of activities which are luxurious in  nature.

c)      According to counsel for the State of West  Bengal, ’luxuries’ comprehends both goods and  services which have an element of enjoyment,  extravagance and which are not necessaries.   Therefore, the State can tax goods which are  per se "luxury goods in the absolute sense like  tobacco, liquor, jewellery etc. or other goods by  imposing a sufficiently high price limit, the  sufficiency being determined according to  standards of the middle class".   

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". The High Courts and the West Bengal Taxation Tribunal  have accepted the fourth meaning that the tax is on luxury  goods or articles on the basis of the decision in Abdul Kadir    vs.  State of Kerala (supra),  in which this Court had upheld  the constitutional validity of the Kerala Luxury Tax on Tobacco  (Validation) Act, 1964. The Act had sought to validate the  collection of licence fees by the State under a statutory  provision which had been struck down as unconstitutional.  The invalidated Rules had required licences to be taken out  for storage and sale of tobacco and for payment of licence fee  in respect thereof.  This Court had in A.B. Abdul Kadir vs.  Union of India (1962) 2 SCR 741 held the Rules were law  corresponding to the provisions of the Central Excise & Salt  Act, 1944 and were superseded by the Finance Act, 1950.  Consequent upon the invalidation of the Rules, applications  were filed by the erstwhile licensees for refund of the fees  collected.  The Act was then passed by the States to validate

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the levy as luxury tax.  The Act was challenged on the ground  that it was in fact a duty of excise referable to the exclusive  power of the Union under Entry 84 of List I.  This was  negatived on the ground that there was no provision in the  impugned Act which was concerned with the production or  manufacture of tobacco.  The next argument was that tobacco  was not an article of luxury.  The argument  was negatived.  It  was in that context that this Court held that the Act was  referable to Entry 62 of List II and said:-

"According to that entry,  the State  legislatures can make laws in respect of ’taxes  on luxuries, including taxes on entertainments,  amusements, betting and gambling".   Question therefore, arises as to whether  tobacco can be considered to be an article of  luxury.  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."(p. 227)

It appears to have been assumed that the phrase "tax on  luxuries" in Entry 62 of List II meant a tax on articles of luxury  and the only question was whether tobacco was such an article.  The assessees in the present case do not dispute that tobacco  is an article of luxury but contend that articles of luxury are not  covered by Entry 62. That was an argument neither raised nor  considered in Abdul Kadir.   The concept of "luxuries" in Entry 62 of List II was also  considered in the Federation of Hotel & Restaurant  vs.   Union of India (1989) 3 SCC 634. In that case the hotel  industry challenged the constitutional validity of the Expenditure  Tax Act 1987 (Central Act 35 of 1987). The Union of India  sought to sustain the legislative competence to enact the  impugned law under Article 248 read with Entry 97 of List I of   the Seventh Schedule.  The hoteliers urged that the legislation  was squarely within Entry 62 of List II since it imposed a tax on  ’Luxuries". Counsel for the hoteliers argued on the basis that a  tax on luxuries was a tax on the price paid for the sale of goods  (vide para 29 of the report).  This Court rejected the challenge  to the Act and upheld it saying that the subject matter of the  impugned Act was in pith and substance a tax on expenditure  and not on luxuries or sale of goods.   Another decision on the words ’tax on luxuries’ in Entry 62  is the case of Express Hotels  vs. State of Gujarat: (1989) 3  SCC 677.  In that case Legislations of different States, namely,  the States of Gujarat, Tamil Nadu, Karnataka and West Bengal  which imposed a tax on ’luxuries’ was challenged as being  constitutionally invalid.  The Acts provided for levy of ’tax on  luxuries provided in Hotels’. The argument of the appellants in  that case was that the taxation entry in Entry 62 of List II  provided for taxes on "Luxuries" and took within its sweep, a tax  on goods and articles like jewellery perfumes, liquor, tobacco  etc. in their aspect and character as articles of luxuries and did  not  include "services" or "activities".  The argument was

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rejected and it was held that   the levy was valid.  In this case also arguments proceeded on the basis that  Entry 62 of List II covered articles of luxury. In none of these  decisions therefore was this Court called upon to address the  question whether Entry 62 did not cover articles of luxury and  ought to be restricted to things incorporeal such as enjoyment  or indulgence in what is either choice or costly.   It appears that ’luxury’ has been defined by courts in the  United States of America as " An entirely relative term; a free  indulgence in costly food, dress, furniture or anything expensive  which gratifies the appetites or tastes; also a mode of life  characterized by material abundance and gratification of  expensive tastes’. (Corpus Juris Secundum Vol- IV p.887).  According to this definition, American Courts appear to have  opted for the definition of the word as submitted by the  assessees and have held that it is an activity.  However we  have also been referred by counsel for the States to other  authoritative works such as Black’s Law Dictionary (6th Edition)  in which a ’luxury tax’ is said to be a generic term for excise  imposed on purchase of items which are not necessaries e.g.  tax on liquor or cigarettes. This definition is inconclusive as it  merely defines what may have in fact been the subject matter  of tax in a particular statute. But 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.   Before we  proceed further we would like to clear the  ground.  Whatever be the similarities between the Constitutions  of other countries with similar federal structures as this Country  such as the United States, Canada or Australia, this Court has,  as a general rule held that the opinions expressed by the  Courts of those countries may not be helpful in construing the  allocation of legislative heads in our Constitution.                        [See : Chhotabhai Hethabhai Patel   vs.   The Union  of India  (1962)  Supp. 2 SCR 1; Province of Madras vs.   M/s. Boddu  Paidanna (supra); State of Bombay vs. Chamarbaugwala :   (1957) SCR 874; Atiabari Tea Co. vs. The State of Assam :  (1961) 1 SCR 809; The Automobile Transport (Rajasthan)  vs. The State of Rajasthan (1963)  1 SCR 491 ] although they  may be of some relevance  in   determining the true character  of particular legislation (Subrahmanyan Chettiar vs.  Muthuswami Gounder 1940 FCR 188; Union of India vs. H.  S. Dhillon (1971) 1 SCC 779, 801-803 ).  Given the wealth of  authority on the question of interpretation of legislative heads in  this country, we deem it sufficient to restrict our opinion based  on the views expressed by this Court. The Indian Constitution is unique in that it contains an  exhaustive enumeration and division of legislative powers of  taxation between the Centre and the States. This mutual  exclusivity is reflected in Article 246 (1) and has been noted in  H.M. Seervai’s Constitutional Law of India. Fourth Edition,  Volume 1 at page 166 in paragraph 1A 25 where, after  commenting on the problems created by the overlapping  powers of taxation provided for in other countries with federal  structures such as the United States, Canada and Australia, the  learned author opined :-

"The lists contained in the Schedule VII to the  G.I. Act, 35, provided for distinct and separate  fields of taxation and it is not without

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significance that the concurrent legislative list  contains no entry relating to taxation but  provides only for "fees" in respect of matters  contained in the list but not including fees  taken in any court. List I and List II of  Schedule 7 thus avoid overlapping powers of  taxation and proceed on the basis of  allocating adequate sources of taxation for the  federation and the provinces, with the result  that few problems of conflicting or competing  taxing powers have arisen under the G.I. Act,  35. This scheme of the legislative lists as  regards taxation has been taken over by the  Constitution of India with like beneficial   results".

This view has also been reiterated in Hoechst  Pharmaceuticals Ltd. and anr. vs. State of Bihar and Ors.  (1983) 3 SCR 130 :-

"A scrutiny of Lists I and II of the Seventh  Schedule would show that there is no  overlapping anywhere in the taxing power and  the Constitution gives independent sources of  taxation to the Union and the States.  Following the scheme of the Government of  India Act, 1935, the Constitution has made the  taxing power of the Union and of the States  mutually exclusive and thus avoided the  difficulties which have arisen in some other  Federal Constitutions  from overlapping  powers of taxation \005\005\005\005\005. Thus, in our  Constitution, a conflict of the taxing power of  the Union and of the States cannot arise."

(See also The State of West Bengal vs. Kesoram  Industries Ltd., And Ors. JT 2004 (1) 375 ). Therefore, taxing entries must be construed with clarity  and precision so as to maintain such exclusivity, and a  construction of a taxation entry which may lead to overlapping  must be eschewed. If the taxing power is within a particular  legislative field it would follow that other fields in the legislative  lists must be construed to exclude this field so that there is no  possibility of legislative trespass. Classically, a tax is seen as composed of two elements:  the person, thing or activity on which the tax is imposed and the  incidence of tax. Thus every tax may be levied on an object or  an event of taxation. The distinction between the two may not,  ultimately, be material in the context of the Indian Constitution  as we will find later. But for the time being we may note that  both these elements are distinct from the incidence of taxation.  For example the tax may be imposed on goods on the event of  their manufacture, sales, import etc. The law imposing the tax  may also prescribe the incidence or the manner in which the  burden of the tax would fall on any person and would take  within itself the amount and measure of tax. The importance of  this distinction lies in the fact that in India, the first two have  been given a Constitutional status, whereas the incidence of tax  would be a matter of statutory detail. The incidence of tax would  be relevant in construing whether a tax is a direct or an indirect  one. But it would be irrelevant in determining the subject matter  of the tax. [ See: M/s. Chhotabhai Jethabhai Patel & Co. vs.  Union of India & Another : AIR 1962 SC 1006 ] An illustration of this distinction is nicely brought out in

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State of Karnataka v. Drive-in-Enterprises [ ( 2001) 4 SCC  60 ] . Entertainment tax was levied by the Karnataka Cinemas  (Regulations) Act, 1964 and the Rules framed thereunder by  the State in respect of a film show. A higher rate of tax was  levied on persons who drove their cars in to view the film from  the comfort of their cars. The challenge to the Act was that  entertainment tax could be levied only on human beings and  not on any inanimate object, namely motor vehicles. The  challenge was negatived on the ground that the State was  competent to levy tax on entertainment under Entry 62 List II.  That was the subject matter of the tax. The incidence of the tax  was on the persons entertained. Clearly the manner in which  the burden would fall viz. on persons either with or without  motor vehicles would not affect either the object or the nature of  the tax. Motor vehicles were neither the object of taxation nor  the taxable event but were part of the incidence of the tax.  Under the three lists of the Seventh Schedule to the  Indian Constitution a taxation entry in a legislative list may be  with respect to an object or an event or may be with respect to  both. Article 246 makes it clear that the exclusive powers  conferred on the Parliament or the States to legislate on a  particular matter includes the power to legislate with respect to  that matter. Hence where the entry describes an object of tax,  all taxable events pertaining to the object are within that field of  legislation unless the event is specifically provided for  elsewhere under a different legislative head. Where there is the  possibility of legislative overlap, courts have resolved the issue  according to settled principles of construction of entries in the  legislative lists.  The first of such settled principles is that legislative  entries should be liberally interpreted, that none of the items in  the list is to be read in a narrow or restricted sense and that  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 (United Provinces vs. Mt. Atiqa  Begam : AIR 1941 FC 16, Western India Theatres ltd. vs.  The Cantonment Board Poona (1959) Suppl. (2) SCR 63, 69  and ELEL Hotels & Investments Ltd., & Ors. vs. Union of  India (1989) 3 SCC 698). In Express Hotels vs. State of Gujarat (supra) it was  noted that the view of the Bombay High Court in State of  Bombay vs. RMD Chamarbaugwala AIR 1956 Bom. 1 that  what was contemplated in Entry 62 was "a tax on certain  articles or goods constituting luxuries and not legislation  controlling an activity which may not be a necessary activity",  was overruled by this Court in State of Bombay vs. RMD  Chamarbaugwala ((1957) SCR 874). The view of the Calcutta  High Court in Spences Hotel Private Ltd., vs. State of West  Bengal 1975 Tax LR 1890 (Cal) to the effect that A tax levied  under Entry 62 cannot be restricted to certain articles only but  may also be extended to things incorporeal" was affirmed, it  was said :-

"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

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notion of ’luxuries’ can fairly and  reasonably (sic) can be said to  comprehend the element of extravagance  of 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." (p.690).

It was also held that :-

"The concept of ’luxuries’ in the legislative  entry takes within it everything that can  fairly and reasonably be said to be  comprehended in it\005\005\005\005\005 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 (sic lists) are  comprehended, the legislative competence  extends to all matters ’with respect to’ that  field or topic of legislation." (p-692).

But as we have already noted and as is abundantly clear  from the passages quoted, the decision was given on the  assumption that articles of luxury are covered by Entry 62 List II  and cannot be held to be an authority for the proposition that  articles or goods are, as a matter of construction, fairly and  reasonably includible in that entry. The argument of Mr. Salve is in fact that the breadth of an  entry is curtailed by the second principle of construction. The  second principle is that competing entries must be read  harmoniously. The proper way to avoid a conflict would be to  read the entries together and to interpret the language of one  by that of the other (Governor General in Council vs.  Province of Madras (1945) FCR 179 at pg. 191-192 ); State  of Bombay vs. Narottamdas Jethabhai 1951 SCR 51; Bar  Council of U.P. vs. State of U.P. & Anr. (1973) 1 SCC 261;  D.G. Ghose & Co. (Agents) (P) Ltd. vs. State of Kerala &  Anr. (1980) 2 SCC 410; Federation of Hotel and Restaurant  vs. Union of India (1989) 3 SCC 634, 657, 667-668; State of  West Bengal vs. Kesoram Industries 2004 (1) SCALE 425,  462; in the matter of Central Provinces and Berar Sales of  Motor Spirit and Lubricants Taxation Act, 1938; AIR (1939)  FC 1,8,40 ). The argument of the assessees is that the tax leviable  under Entry 62 List II cannot be a tax on goods as that would  not only allow the State to levy sales tax in contravention of Art.  286 but would permit trespass onto the Union’s Legislative  fields under Entries 83 and 84 of List I. Indeed the contention of  the assesses is that the States have by the impugned  legislations, done just that.  Entry 83 demarcates the Union’s  power to legislate with respect to "Duties of customs including  export duties". Entry 84 speaks of "Duties of excise on tobacco  and other goods manufactured or produced in India except ( a )  alcoholic liquors for human consumption ( b) opium, Indian  hemp and other narcotic drugs and narcotics but including  medicinal and toilet preparations containing alcohol or any  substance included in sub-paragraph (b) of this entry". The States have countered this by contending that Entry  62 List II envisaged a tax on luxury goods. Whereas duties of  Excise, Customs and Sales Tax are not directly on the goods  but with reference to goods and that the taxes are leviable on  the events of manufacture, import/export and sale. According to  the States this Court has held so while construing Article 289

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(1)  in Re : The Bill to Amend Section 20 of the Sea  Customs Act, (1964) 3 SCR 787. In the language of the   Court: "The taxable event in the case of duties of  excise is the manufacture of goods and the  duty is not directly on the goods but on the  manufacture thereof. We may in this  connection contrast sales tax which is also  imposed with reference to goods sold,  where the taxable event is the act of sale.  Therefore, though both excise duty and  sales tax are levied with reference to  goods, the two are very different imposts;  in one case the imposition is on the act of  manufacture or production while in the  other it is on the act of sale. In neither case  therefore can it be said that the excise duty  or sales tax is a tax directly on the goods  for in that event they will really become the  same tax. It would thus appear that duties  of excise partake of the nature of indirect  taxes as known to standard works on  economics and are to be distinguished  from direct taxes like taxes on property and  income.

       Similarly in the case of duties of  customs including export duties though  they are levied with reference to goods, the  taxable event is either the import of goods  within the customs barriers or their export  outside the customs barriers. They are also  indirect taxes like excise and cannot in our  opinion be equated with direct taxes on  goods themselves"

Therefore according to the States, the argument of the  assessees that the existing entries on taxation indicated that  Entry 62 of List II could not cover goods was without substance. The submission of the assessees proceeds on two  premises : the first that taxation of an object can only be with  reference to a taxable event and second \026 that all taxable  events have been covered by the legislative entries. As far as  the first premise is concerned, it may be that a tax on a thing or  goods can only be with reference to a taxable event, but there  is a distinction between such a tax and a tax on the taxable  event. In the first case the subject matter of tax is the goods  and the taxable event is within the incidence of the tax on the  goods. In the second the taxable event is the subject matter of  tax itself. The first premise paraphrased is that even a tax on goods  is really a tax on a taxable event. The decision in the Sea  Customs Act case (supra) which was rendered by this Court in  its advisory capacity under Art. 143 was concerned with the  construction of Art. 289 of the Constitution. The nature and  incidence of the taxation entries in the legislative tests was  directly in issue and it was on the determination of this issue  that the power of the Union to levy tax on property of the States  under Art. 289 was considered (p. 822-823 of the report). A tax  on property was described as a direct tax and taxes on the  taxable events in respect of property as indirect taxes based on  the impact on the property. However even in respect of ’direct  taxes" ( in the sense used by the Court in that decision ) it was  held by Ayyangar, J. in his concurring opinion, that it was  ultimately a question of degree of impact. He said ( at pg. 917

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of the report ) "for in the ultimate analysis the distinction  between a direct and an indirect tax is a distinction based upon  the difference in impact which is also expressed as a distinction  based upon its being not on property but on a taxable event in  relation to property. If the taxable event is merely the  ownership of the property and on the beneficial interest  therein, it would be a direct tax,  whereas if the connection  between the property and the tax payer is not merely  ownership but something else such as a transaction in relation  to it, then it would be an indirect tax." In other words it is the  taxable event of ownership which survives for taxation in all  entries levying tax on goods, articles or objects. It is true that  this Court in The Central Provinces and Berar Sales of  Motor Spirit and Lubricants Taxation Act, 1938; AIR 1939  FC 1 has held the excise duty is a tax on goods. This was  because ordinarily the power to impose a tax on goods would,  by virtue of Article 246 encompass the power to levy a tax in  respect of goods. Thus there appears to be no doubt that the  first premise contended for by Mr. Salve is correct. The logical corollary of holding that taxes are imposed  only on taxable events is that even when an entry speaks of a  levy of a tax on goods it does not include the right to impose  taxes on taxable events which have been separately provided  for under other taxation entries. The tax in respect of goods has  sometimes been referred to as a tax on an aspect of the goods  and sometimes as the taxable event ( See : Federation of  Hotel & Restaurants vs. Union of India (1989) 3 SCC 634 ).  Whatever the terminology, because there can be no  overlapping in the field of taxation, such a tax if specifically  provided for under one legislative entry effectively narrows the  fields of taxation available under other related entries. It is also  natural ’when considering the ambit of an express power in  relation to an unspecified residuary power, to give a broad  interpretation of the former at the expense of the latter’.   (Madras Province vs. Boddu Paidanna AIR 1942 FC 33,37  per Gwyer C.J.). For example the State cannot under the garb  of luxury tax under Entry 62 List II impinge on the exclusive  power of the Union under Entries 83 and 84 of List I by merely  describing an article as a luxury. Ofcourse the States do have  the exclusive power under Entry 54 of List II to legislate with  respect to "Taxes on the sale and purchase of goods other than  newspapers", but that power has been explicitly made "subject  to the provisions of Entry 92A of List I".          Entry 92A of List I speaks of  

"Taxes on the sale or purchase of goods  other than newspapers, where such sale  or purchase takes place in the course of  inter-state trade or commerce "

Apart from this limitation on the States’ jurisdiction to levy  sales tax, are the restrictions placed by Article 286. Article  286(1) prohibits the States from imposing or authorizing the  imposition of tax on the sale or purchase of goods where such  sale or purchase takes place (a) outside the State, or (b) in the  course of the import of the goods into, or export of the goods  out of, the territory of India. In addition Article 286 (3) provides  that : "Any sale of a State shall, in so far as it imposes, or  authorizes the imposition of \026

(a)     a tax on the sale or purchase of goods  declared by Parliament by law to be of special  importance in inter-State trade or commerce;  or

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 (b)     a tax on the sale or purchase of goods, being  a tax of the nature referred to in sub-clause  (b), sub-clause (c) or Sub-clause (d) of clause  (29A) of Article 366,

be subject to such restrictions and conditions in  regard to the system of levy, rates and other  incidents of the tax as Parliament may by law  specify".

Thus Parliament has been given the overriding power to  limit the rates of sales taxes which are otherwise within the  exclusive competence of the States in respect of certain items  of sale and purchase. The relevant clause for our purpose is  clause (a) of Art. 286(3) which allows Parliament to enact a law  declaring goods to be of special importance in inter-state trade  or commerce. In exercise of this power, Section 14 of the Central Sales  Tax Act. 1956 has declared certain goods to be of special  importance in inter-state trade or commerce. This includes  tobacco both in un-manufactured and manufactured form. The  States have been restricted from imposing or authorizing the  imposition of tax on the sale or purchase of the declared goods  within the State upto a maximum limit of 4 per cent of the sale  or purchase price under Section 15 of the Central Sales Tax  Act, 1956. In December, 1956, the National Development Council,  Planning Commission, Government of India, and the States  agreed that the sales tax in respect of inter alia tobacco should  be replaced by a surcharge on the Central Excise Duties, the  income derived there from being distributed amongst States on  the basis of consumption, subject to the income from the States  being assured. Pursuant to this and the recommendation of the  Finance Commission in its report dated 30th September, 1957,  the Additional Duties of Excise (Goods of Special Importance )  Act 1957 was passed by Parliament. The object of the Act was  to impose additional duties of excise in replacement of the  sales tax levied by the Union and the States on sugar, tobacco  and millmade textiles and to distribute the net proceeds of  these taxes, except the proceeds attributable to Union  territories, to the States. Provision was made that the State  which levy a tax on the sale or purchase of these commodities  after the 1st April, 1958 could not participate in the distribution of  the net proceeds of the additional levy under the ADE Act.  Provision was also being made in the Act for including specified  goods in the category of goods declared to be of special  importance in inter-State trade or commerce so that, following  the imposition of uniform duties of excise on them, the rates of  sales tax if levied by any State were subject from 1st April, 1958  to the restrictions in Section 15 of the Central Sales Tax Act,  1956. Section 3 of the ADE Act is the charging section under  which additional excise duties are leviable on specified goods  manufactured or lying in stock. Sub-section (1) of Section 3  reads :-

"3. Levy and collection of additional duties  \026 (1) There shall be levied and collected  in respect of the following goods, namely,  sugar, tobacco, cotton fabrics, rayon or  artificial silk fabrics and woolen fabrics

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produced or manufactured in India and on  all such goods lying in stock within the  precincts of any factory, warehouse or  other premises where the said goods  were manufactured, stored or produced,  or in any premises appurtenant thereto,  duties of excise at the rate of rates  specified in the First Schedule to this Act."  (Emphasis added).

No State can levy luxury tax on items covered by Section  3 of the ADE Act in respect of goods for the same taxable event  i.e. goods stored on manufacture, just by describing the goods  as luxury goods. The overlapping of the powers exercised  under Entry 84 of List I and Entry 62 of List II would then be  evident. Similarly storage or stocking of imported goods is  covered by Entry 83 of List I and cannot be made the subject of  levy by the States. By the Constitution (Forty-sixth Amendment ) Act, 1982  the phrase "tax on the sale or purchase of goods" was  extensively defined by the introduction of Clause 29A in Article  366. It reads :-

"(29A) ’tax on the sale or purchase of goods’     includes \026

(a)     a tax on the transfer, otherwise than in  pursuance of a contract, of property in any  goods for cash deferred payment or other  valuable consideration;

(b)     a tax on the transfer of property in goods  (whether as goods or in some other form)  involved in the execution of a works contract;

(c)     a tax on the delivery of goods on hire  purchase or any system of payment by  instalments;

(d)     a tax on the transfer of the right to use any  goods for any purpose (whether or not for a  specified period) for each, deferred payment  or other valuable consideration’;

(e)     a tax on the supply of goods by any  unincorporated association or body of persons  to a member thereof for cash, deferred  payment or other valuable consideration;

(f)     a tax on the supply by way of or as part of any  service or in any other manner whatsoever, of  goods, being food or any other article for  human consumption or any drink (whether or  not intoxicating), where such supply or  service, is for cash, deferred payment or other  valuable consideration,

and such transfer, delivery or supply of any goods

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shall be deemed to be a sale of those goods by the  person making the transfer, delivery or supply and a  purchase of those goods by the person to whom  such transfer delivery or supply is made";

However while widening the scope of Entry 54 of List II,  the powers of the State to levy such tax are subjected to a  corresponding restriction as a consequence of the constitutional  curbs imposed on sales tax under Article 286 read with  Sections 14 and 15 of the Central Sales Tax Act, 1956 and the  ADE Act, 1957. "The tax leviable by virtue of sub-clause (b) of  clause (29-A) of Article 366 of the Constitution thus becomes  subject to the same discipline to which any levy under Entry 54  of the State List is made subject to under the Constitution. The  position is the same when we look at Article 286 of the  Constitution. If any declared goods which are referred to in  Section 14 of the Central Sales Tax Act, 1956 are involved in  such transfer, supply or delivery, which is referred to in clause  (29-A) of Article 366, the sales tax law of a State which  provides for levy of sales tax thereon will have to comply with  the restrictions mentioned Section 15 of the Central Sales Tax  Act, 1956. No State can therefore by describing an item as a luxury,  seek to levy tax on its supply. It cannot be disputed that as far  as UP and AP are concerned, were it not for their Interpretation  of Entry 62 of List II, the tax would be referable only to Entry 54  List II. If Entry 62 List II does not allow the taxation of goods,  the levy would not be constitutionally sustainable. In our opinion to read Entry 62 List II as including articles  of luxury cannot allow all these constitutional restrictions to be  by-passed allowing States to levy tax on the supply of goods by  describing them as luxury goods. As has been rightly  contended by Mr. Parasaran appearing for the Union of India,  the supply of luxury is nothing but the supply of goods since the  goods themselves constitute the luxury. So even if tobacco is an article of luxury, a tax on its  supply is within the exclusive competence of the State but  subject to the constitutional curbs prescribed under Article 286  read with Sections 14 and 15 of the Central Sales Tax Act,  1956 and most importantly the ADE Act of 1957 under which no  sales tax can be levied on tobacco at all if the State was to take  the benefits under that Act. Despite the subtraction of the rights to levy excise or  customs duties and the restraint on the States to levy sales tax  in cases when the states can levy tax on goods we still have to  determine whether Entry 62 of List II covers taxes on goods at  all. In view of the decision in the Sea Customs Act case, the  second premise propounded by Mr. Salve is unacceptable. As  we have seen, in that case this Court held that the taxable  event of ownership is implicit in the concept of taxes on goods.  That the entries on taxable events in the legislative lists are not  exhaustive is also recognised and provided for in Art. 248 (2)  which provides for the power of Parliament to make any law  imposing a tax not mentioned in either the Concurrent or State  lists. This residuary power is reflected in Entry 97 of List I.  Furthermore if an article or goods are taxable only with respect  to a taxable event, and if, as contended by Mr. Salve, all  taxable events have been provided for in the different legislative  heads, then by that token no object or goods could be taxable.  This would render the various entries in the State List including  entries 57 and 58 contentless. As we cannot accept that the  taxation entries exhaustively enumerate all taxable events, it

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does not follow that Entry 62 of List II does not cover goods. It  is not possible therefore to hold merely on such a construction  of the legislative lists and the taxation entries therein, that Entry  62 List II does not permit the States to levy tax on articles of  luxury. Having rejected the second premise contended for by Mr.  Salve, the next question is whether the language of Entry 62  List II would resolve the issue. The juxtaposition of the different  taxes within Entry 62 itself is in our view of particular  significance. The entry speaks of "taxes on luxuries including  taxes on entertainments, amusements, betting and gambling".  The word "including" must be given some meaning. In ordinary  parlance it indicates that what follows the word "including"  comprises or is contained in or is a part of the whole of the  word preceding. The nature of the included items would not  only partake of the character of the whole, but may be  construed as clarificatory of the whole. It has also been held that the word ’includes’ may in  certain contexts be a word of limitation ( South Gujarat  Roofing Tiles Manufacturers vs. State of Gujarat (1976) 4  SCC 601). In the context of Entry 62 of List II this would not  mean that the word ’luxuries’ would be restricted to  entertainments, amusements, betting and gambling but would  only emphasise the attribute which is common to the group. If  luxuries is understood as meaning something which is purely  for enjoyment and beyond the necessities of life, there can be  no doubt that entertainments, amusements, betting and  gambling would come within such understanding.  Additionally,  entertainments, amusements, betting and gambling are all  activities.  ’Luxuries’ is also capable of meaning an activity and  has primarily and traditionally been defined as such. It is only  derivatively and recently used to connote an article of luxury.  One can assume that the coupling of these taxes under one  entry was not fortuitous but because of these common  characteristics. 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. As said in Maxwell on the Interpretation  of Statues   12th Edn. P.289. "Words, and particularly general words,  cannot be read in isolation; their colour  and their content are derived from their  context ."

Put in other words the included words may be clarificatory  or illustrative of the general word. Thus in U.P. State v. Raja  Anand; (1967) 1 SCR 362, while construing Art. 31A (2) as  enacted by the Constitution (Seventeenth Amendment ) Act,  1964 the relevant excerpt of which read as:-  "31A(2) In this article\027 (a)     the expression ’estate’ shall in  relation to any local area, have the  same meaning as that expression  or its local equivalent has in the  existing law relating to land tenures  in force in that area and shall also  include\027 (i)     xxx   xxx     xxx    xxx    xxx

(ii)    xxx   xxx           xxx    xxx    xxx             iii)     any land held or let for

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purposes of agriculture or for  purposes ancillary thereto,  including waste land, forest  land, land for pasture or sites of  buildings and other structures  occupied by cultivators of land,  agriculture labourers and village  artisans;

this Court said:-

"In our opinion the word "including"  is intended to clarify or explain the  concept of land held or let for purposes  ancillary to agriculture.  The idea seems  to be to remove any doubts on the point  whether waste land or forest land could  be held to be capable of being held or  let for purposes ancillary to agriculture."

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.  This principle of interpretation known as  ’noscitur a sociis’  has received approval in Rainbow Steels  Ltd. vs. C.S.T.: (1981) 2 SCC 141,145 although doubted in its  indiscriminate application in State of Bombay vs. Hospital  Mazdoor Sabha : AIR 1960 SC 610.  In the latter case this  Court was required to construe Section 2(j) of the Industrial  Disputes Act which read:

"Section 2(j) provides that ’industry’  means any business, trade, undertaking,  manufacture or calling of employers and  includes any calling, service, employment,  handicraft or industrial occupation or  avocation of workmen".  

It was found that the words in the definition were of very  wide and definite import.  It was suggested that these words  should be read in a restricted sense having regard to the  included items on the principle of ’noscitur a sociis’. The  suggestion was rejected in the following language:

"It must be borne in mind that noscitur a  sociis is merely a rule of construction  and it cannot prevail in cases where it is  clear that the wider words have been  deliberately used in order to make the  scope of the defined word  correspondingly wider.  It is only where  the intention of the Legislature in  associating wider words with words of  narrower significance is doubtful, or  otherwise not clear that the present rule  of construction can be usefully applied.   It can also be applied where the  meaning of the words of wider import is  doubtful; but, where the object of the  Legislature in using wider words is clear  and free of ambiguity, the rule of  construction in question cannot be  pressed into service". (p.614)

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We do not read this passage as excluding the application  of the principle of noscitur a sociis to the present case since it  has been amply demonstrated with reference to authority that  the meaning of the word "luxury" in Entry 62 is doubtful and has  been defined and construed in different senses. In Black Diamond Beverages vs. Commercial Tax  Officer (1998) 1 SCC 458,  the definition of ’sale price’ with  respect to notified commodities under Section 2(d) of the West  Bengal Sales Tax Act, 1954 was sought to be restricted with  reference to the specific inclusion of sums charged for  containers etc.  The argument was that since freight charges  were not expressly included they must  be taken to have been  excluded from the ’sale price’.  In that context  this Court said  that the inclusive part of the definition cannot prevent the main  provision from receiving its natural meaning and that according  to the natural meaning ’sale price’ included freight charges.  It  was said that by the inclusion sale price was extended to  mean  something which  would not ordinarily come within its definition.  The decision is not of relevance as it is nobody’s contention  that luxuries in the sense of enjoyment would not naturally  cover entertainments, amusements, betting and gambling. 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.  Furthermore where articles have been made the object of  taxation,  either directly or indirectly, the entries in the  legislative lists have specifically said so or the impost is such  that the subject matter of tax follows by necessary implication.   In List II itself, the State legislature has been given the right to  levy taxes  on the entry of goods under Entry 53, on ’carriage of  goods and passengers’ under Entry 56, on ’vehicles’ under  Entry 57 and on ’animals and boats under Entry 58.  There is  no instance in any of the legislative lists of a tax being leviable  only with reference to an attribute.  An attribute as an object of  taxation without reference to the object it qualifies would lead to  legislative mayhem, blur the careful demarcation between  taxation entries and upset the elaborate scheme embodied in  the Constitution for the collection and distribution of revenue  between the Union and the States.  For example would a   luxury vehicle be subjected to tax under Entry 62 or Entry 57 of  List II?  In the latter case, the levy would be subject to  provisions of Entry 35 of List III and hence capable of being  over-ridden by Parliament.  If it is referable to Entry 62 there  would be no such concurrent power in Parliament.   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. Lest we be accused of a blind adherence to a strictly  verbal interpretation we may note that the legislative history  behind Entry 62 of List-II does not militate against the  conclusion reached by us on a pure question of interpretation.    The Government of India Act, 1915 Act (as amended by the  Government of India Acts 1916 and 1919) provided for the

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division of the country into provinces including the two  Presidencies of Bengal and Madras (Section 46).  The local  legislature of each province was empowered to make laws  under S. 80-A of the 1915-19 Act "for the peace and good  government" of that province.  On 16th December, 1920 the  Scheduled Taxes Rules  were made which permitted  the  Legislative Council of a province for the purpose of the local  government to impose taxes listed in Schedule I to the Rules.   These included inter alia:

       S.No.3 .  A tax on any form of betting or gambling        permitted by law.

       Sl.No.5   A tax on amusements         Sl.No.6. A tax on any specified luxury.

       It was noted by the Indian Taxation Enquiry Committee in  its report in 1924-25 that tobacco was not subjected to tax.  It  was recommended that a regular excise system should be put  in place on the manufacture of tobacco products or a levy of  sales tax or licensing fee on retail vendors of tobacco. It is of  significance that there was no suggestion of a levy being  imposed on tobacco under List I Sl.No.6.         Between the Government of India Act 1915-1919 and the  Government of India Act, 1935, these lists underwent a change.  Under the 1915-1919 Act there was indication only of the  provincial powers of legislation thereby leaving every other  subject within the legislative powers of the Centre. In 1921, the  Devolution Rules came into force. Schedule I to the Rules  contained two parts.  Part I of Schedule I contained the subjects  which could be legislated or by the Indian Legislature.   Provincial subjects were classified under Part II.  The sources  of provincial revenue included in the Schedules to the  Scheduled Taxes Rules were retained in Part II with the  provinces.         Schedule VII of the Government of India Act, 1935  which  repealed the 1915-1919 Act also classified the legislative  powers between the Federation and the Provinces.  It  contained two exclusive lists and one concurrent list.  List I of  the Schedule was the Federal Legislative List and comprised   matters exclusively assigned to the Federation.  Entry 45 read  "Duties on excise on tobacco and other goods manufactured or  produced in India".   List II which was the Provincial Legislative  List contained an Entry No. 48 "Taxes on the sale of goods"  and on advertisements.   Entry 50 read:  "Taxes on luxuries  including tax on entertainment, amusement, betting and  gambling".  Here too there is no evidence of any tax being  imposed by the State under this entry on any goods. On the  other hand the imposition of tax on tobacco was brought under  Entry 45 of List I.  Entry 50 of the Provincial List (now Entry 62 of List II) was  resorted to impose entertainment tax on cinema houses under  the Cantonments Act, 1924 by the State of Bombay.  The tax  was upheld on the ground that the entry contemplated a law  which imposed tax on the act of entertaining \026 Western India  Theatres Ltd. vs. The Cantonment Board, Poona (1959)  Supp. (2) SCR 63, 69.  Prior to the framing of the present Constitution the  debates in the Constituent Assembly show  that the suggestion  that  Entry 62 of List II should read as "taxes on entertainments,  amusements, betting and gambling, racing and other such  luxuries" was negatived on the ground that it would cut down  the scope of the entry.  The example of a tax on servants which  "should probably be within the unamended entry" was cited as

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being possibly excluded by the amendment.  In fact "a tax on  menials and domestic servants" was, under Schedule II of the  Taxes Rules framed under the 1915-1919 Act, within the  competence of the Provincial Legislative Council to impose, or  with the authority of the State Legislative Council within the  competence of any local authority.  It was an entry distinct from  the authority conferred on the State Legislative Council to  impose a ’tax on any specified luxury’ under Schedule I of the  Taxation Rules.  In any event ’servants and menials’ could  hardly be equated with "goods".  It was probably their  employment which was considered as a possible luxury.  It is  again to be emphasized that the rejection of the suggestion was  not  because of the possible exclusion of luxury goods.            After the Constitution came into force, except for the  decision of this Court in A.B. Abdul Kadir vs. State of Kerala  (supra), in 1976, Entry 62 of List II was not invoked save for the  purpose of levying a tax on gambling and betting (State of  Bombay vs. R.M.D. Chamarbaugwala (1957) SCR 874) or for  levying tax on the provisions of enjoyment or indulgence of  facilities in hotels and restaurants (Express Hotels vs. State of  Gujarat (1989) 3 SCC 677;  ELEL Hotels & Investments Ltd.  & Ors. vs. Union of India  (1989) 3 SCC 698; East India  Hotels Ltd. vs. State of West Bengal (1990) Supp. SCC 755;  Spences Hotels Pvt. Ltd. and Anr. vs. State of West Bengal  and Ors.. (1991) 2 SCC 154 and  East India Hotels Ltd,  Srinagar vs. State of J & K. and Anr.  (1994) Supp. 2 SCC  580). Thus the constitutional history of Entry 62 of List II would  show that despite the existence of an entry pertaining to ’luxury  tax’ in all the Constitutional Acts, from 1915 onwards, the tax  was never sought (save in the case of Abdul Kadir) to be  imposed on goods till 1993. The method of taxing luxury goods  invariably was by subjecting them to the extant fiscal regimes of  excise duties, sales tax, customs duties etc. at heavier rates.  No distinction is made in Article 366 (29A) or Article 286 or  Entries 83 and 84 of List I as to the nature of the goods which  may be the subject matter of sale  excise or import be they  articles of necessity or articles of luxury.  This is also the sense  in which States have all along understood the word as indicated  in their evidence given in response to the question posed by the  Taxation Enquiry Commission with reference to the levy of  sales tax in 1953-54 . The question was "should there be  special rates of levy, higher than the ordinary rate for certain  articles ? If so, for which types of articles?". The response to  this question by all the States was in the affirmative.  It would  suffice for our purposes to note the response of the two States  whose statutes are impugned viz. AP and UP. Andhra Pradesh  said:

"In this State, special rates of tax at a  higher rate are levied on articles  mentioned in Section 3(2) of the Act,  which are luxury goods.  It is proposed  to increase the number of articles in this  list by incorporating certain other items  brought to notice by the lists of the other  States."

Similarly Uttar Pradesh said:

"Special rates of levy, higher than the

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ordinary rates are justified in respect of  many luxury goods, needs on which  unduly high profits are being made by   the producers or dealers and goods of  which are consumption should be  discouraged."

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.         It was stated on behalf of the State Governments that  after obtaining interim orders from this Court against recovery  of luxury tax, the appellants continued to charge such tax from  consumers/customers.  It is alleged that they did not pay such  tax to respective State Governments.  It was, therefore,  submitted that if the appellants are allowed to retain the  amounts collected by them towards luxury tax from consumers,  it would amount to "unjust enrichment" by them.          In our opinion, the submission is well founded and  deserves to be upheld.  If the appellants have collected any  amount towards luxury tax from consumers/customers after  obtaining interim orders from this Court, they will pay the said  amounts to the respective State Governments.

In view of our opinion on the scope of Entry 62 List II, we  do not think it necessary to answer the other issues raised in  these appeals which are left open.

       Accordingly, W.P. No. 567 of 1994; W.P. Nos. 568-569 of  1994 are allowed.  C.A Nos. 123-125 of 1995 are dismissed  albeit for different reasons.  C.A. No. 2123 of 1999, C. A. Nos.  2124-25 of 1999, C.A. No. 2126 of 1999, C.A. No. 2127 of 1999  and C.A. Nos. 2552-2553 of 1999, C.A.No.7870 of 1996, C.A.  No. 6891 of 1996, and C.A. No. 6365 of 2000 are allowed.   There will be no order as to costs.