http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 18  

PETITIONER: EXPRESS HOTELS PRIVATE LIMITED

       Vs.

RESPONDENT: STATE OF GUJARAT & ANR.

DATE OF JUDGMENT02/05/1989

BENCH: VENKATACHALLIAH, M.N. (J) BENCH: VENKATACHALLIAH, M.N. (J) RANGNATHAN, S. PATHAK, R.S. (CJ) MUKHARJI, SABYASACHI (J) NATRAJAN, S. (J)

CITATION:  1989 AIR 1949            1989 SCR  (2) 893  1989 SCC  (3) 677        JT 1989 (3)    72  1989 SCALE  (1)1200

ACT:     Gujarat  Tax on Luxuries (Hotels & Lodging Houses)  Act, 1977/ Tamil Nadu Tax on Luxuries in Hotels & Lodging  Houses Act.  1981/  Karnataka  Tax on Luxuries  (Hotels  &  Lodging Houses)  Act, 1979/ West Bengal Entertainments and  Luxuries (Hotels & Restaurants) Tax Act, 1972: Tax on luxury provided in  hotels, lodging houses and  restaurants--State  Legisla- tions--Competency    of--Tax   on   means    of    providing luxury--Permissibility of.     Constitution  of  India,  1950: Articles  246,  301  and Schedule  VII. List 11 Entry 62. Tax on luxuries enjoyed  in hotels, lodging houses and restaurants--Validity of--Whether impedes freedom of trade.     Statutory   Interpretation:  Legislative  entry--To   be construed  widely  and liberally to  include  ancillary  and subsidiary matters.     Words and Phrases. ’Luxury’--Meaning and scope of.

HEADNOTE:     Clause  (a)  of  s. 2 of the  Gujarat  Tax  on  Luxuries (Hotels and Lodging Houses) Act, 1977, defines "charges  for lodging" to include charges for airconditioning,  telephone, television,  radio, music and extra beds, and the like.  The Explanation appended thereto makes the decision of the State Government  on any dispute in that behalf final. Clause  (e) defines  ’luxury provided in a hotel’ to mean  accommodation the charges for which, including charges for airconditioning etc. but excluding charges for food and other amenities,  is not less than thirty five rupees per person per day. Section 3  prescribes the rates of tax at certain percentage of  the lodging charges per person per day recovered by  proprietors of  hotels and lodging houses from persons lodging  therein. Sub-section (3) of s. 4 provides that where luxury  provided in  a  hotel  to any person, not being an  employee  of  the hotel, is not charged at all, or is charged at  concessional rate, then also there shall be levied and collected the  tax on such luxury, as if full charges for such luxury were paid to the proprietor of the hotel.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 18  

894     It  was  contended for the appellants that Entry  62  of List  II of Schedule VII to the Constitution  providing  for taxes on luxuries contemplates and takes within its sweep  a tax  on goods and articles in their aspect and character  as ’luxuries’, which does not include services and  activities, the levy on the services for lodging provided at the  hotels was,  therefore, ultra vires the State power under the  said entry; that the ’leaf criterion distinguishing luxury  being a  special  attribute  or quality of the  commodity  Or  the services,  as  the  case may be, and  not  the  quantitative difference  in the price, the impost has no relation to  the concept  of  luxuries  in the legislative  entry;  that  the scheme  of  the  Act in so far as it  makes  no  distinction between  the components of the services, which include  both necessities and comforts, as distinguishable from  luxuries, the levy on such composite subject matter was bad; that  the expression "and the like" in the definition of "charges  for lodging"  in s. 2(a) was vague and irrational and read  with the  explanation thereto, which renders the decision of  the State  Government  on  what  constitutes  "lodging  charges" final, was an unreasonable restriction. violative of Article 19(1)(g),  that  s.  4(3), which provides  that  the  luxury provided  free or at concessional rates be taxed as  if  the full charges were deemed to have been received was unreason- able  and offends Article 19(1)(g), and that the luxury  tax imposed on the charges for lodging has the direct and  imme- diate effect of restricting the freedom under Article 301 of the Constitution as it directly impedes the right of  inter- course throughout the territories of India.     Similar  contentions  were  raised  in  the  writ  peti- tions’challenging the analogous provisions of the Tamil Nadu Tax  on Luxuries in Hotels and Lodging Houses Act, 1981  and the  Karnataka Tax on luxuries (Hotels and  Lodging  Houses) Act, 1979.     In the writ petition challenging s. 4 of the West Bengal Entertainments  and  Luxuries (Hotels and  Restaurants)  Tax Act,  1972 which fixes the liability to pay tax on the  pro- prietor  of  the hotel anti restaurant on the basis  of  the floor  area  as  well, it was contended that  the  means  of providing  luxury by itself does not provide the  nexus  be- tween the taxing power and the subject of tax, and that  the power  to levy a tax on the mere existence of the  provision for  luxury without its actual and not merely a notional  or potential consumption or utilisation was beyond the scope of the legislative entry and also violative of the  fundamental right under Article 19(1)(g). Dismissing the appeals and writ petitions, 895     HELD: 1.1 The entries in the Legislative List should not be  read  in a narrow or pedantic sense but  must  be  given their  fullest meaning and the widest amplitude and be  held to extend to all ancillary and subsidiary matters which  can fairly  and reasonably be said to be comprehended  in  them. [906F]     1.2 So read, the concept of a tax on ’luxuries’ in Entry 62, List II cannot be limited merely to tax things  tangible and  corporeal  in  their aspect as  ’luxuries’.  The  entry encompasses all the manifestations or emanations, the notion of  ’luxuries’ can fairly and reasonably be said to  compre- hend. The element of extravagance or indulgence that differ- entiates  ’luxury’  from ’necessity’ cannot be  confined  to goods  and articles. It can also be found in the quality  of services and activities. An airconditioned space, whether in a  hotel or in a restaurant, is a luxury by  itself.  People

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 18  

enter  into  these  spaces with a view to  enjoy,  amuse  or entertain themselves. [908CE, 906C]     A.B. Abdul Kadir & Ors. v. State of Kerala, [1976] 2 SCR 690;  Western India Theatres Ltd. v. The  Cantonment  Board, Poona Cantonment,  [1959] 2 Supp. SCR 63 and State of Bombay v. R.M.D. Chamarbaugwalia [1957] SCR 874, referred to.     Spences  Hotel  Private  Ltd. & Anr. v.  State  of  West Bengal, [1975] TLR 1890, approved. A.S. Bava v. State of Kerala, [1971] T.L.R. 512, overruled.     2.1  The  ideas of luxury or necessity  are  necessarily relative  ideas and require to be understood in the  context of contemporary standards of living. What might have been  a luxury  some  decades  ago might cease to  partake  of  that character  now. What is luxury today might be  considered  a necessity a decade or so later. A number of factors have  to be taken into account in adjudging a luxury. [911H, 912C]     A.B. Abdul Kadir & Ors. v. State of Kerala, [1976] 2 SCR 690, referred to.     2.2  In  the  instant case, legislature  has  chosen  to identify the luxury by the statutory standards prescribed by it.  According  to the legislative  assumption,  price  does become evidence of the special quality on the basis of which luxuries could be distinguished and that some special quali- ty  is attributable to goods and services through the  means of the price. Quality and price, in the legislative  assess- ment can thus be 896 assumed to have a logical interrelationship. This cannot  be held to suffer from the vice of irrationality. [912DE]     2.3  In  the context of lodging  accommodation  and  the services that go with it, the concept of luxury would neces- sarily  be  a  comprehensive idea taking  into  account  the various  components of the services. Differences  of  degree can  at  particular stage become differences  of  kind.  The composite  elements  of lodging accommodation  and  services associated with it cannot be broken into components so as to distinguish  some components as necessities, some others  as comforts  and yet others as luxuries. Even  necessities  and comforts which have to them the additional element of  undue elegance  to  a point of extravagance and  indulgence  might become luxuries. [912G-913A]     It  cannot, therefore, be said that there is nothing  in the  law  which identifies or distinguishes  luxury  on  the basis of any special attribute apart from the price  factor. [913B]     3.1 The mere absence of a corrective machinery by way of appeal  or revision, to rectify an adverse order made by  an authority  on whom power is conferred or the existence of  a provision  imparting  finality in a  statute  by  themselves would  not be conclusive so as to render the  conferment  of power per-se unreasonable and arbitrary rendering the provi- sion unconstitutional. [913F] Babu  Bhai v. State of Gujarat, [1985] 2 SCC  732,  referred to.     Corporation of Calcutta v. Calcutta Tramways Co., [1964] 5 SCR 25, distinguished.     3.2  In the instant case, there are in-built  checks  on the power under Explanation to s. 2(a). The expression  "and the  like" occurring in the section when  construed  ejusdem generis  indicates that the class of items envisaged by  the preceding words was not exhaustive of the genus. The  Legis- lature,  therefore, has supplied these words so as to  bring in  any  other  item of the same class of  genus.  This,  by itself,  is  a clear guide for the exercise  of  the  power. [914B]

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 18  

   3.3  Another relevant consideration is the identity  and status  of  the repository of the power. The  power  in  the instant  case  is given to a high authority like  the  State Government. It cannot, therefore, be said that the power  is an uncanalised power and is an arbitrary or unreasonable one so  as to fall under Article 19(1)(g). There  are  statutory guides 897 governing  its  exercise and the guidelines are  covered  by well-settled principles of interpretation. [914C]     4. The deeming provision in s. 4(3) of the Act does  not apply  to cases where accommodation is provided free  or  at concessional  rates  to  the employees of  the  hotel.  This provision, which merely states that where the usual  lodging charges are not collected for providing the lodging accommo- dation, tax shah be payable as if the usual charges had been collected is a provision against evasion. It cannot,  there- fore, be said to he unreasonable. [914EF]     5.1 Freedom under Article 301 is a great freedom, one of the  utmost  significance to economic unity of  the  nation. However, taxes can and do sometimes constitute  restrictions on  the said freedom. But such restrictions must  stem  from the  provisions of the law imposing the tax which  could  be said  to have a direct and immediate effect  of  restricting the free flow of trade, commerce and intercourse. [916F, E]     5.2 In the instant case, it has not been shown how a tax on  luxuries enjoyed by a person in a hotel was either  dis- criminatory or has the direct and immediate effect of imped- ing  the freedom of intercourse. It cannot thus be  said  to offend Article 301 of the Constitution. [916G]     Atiabari  Tea Co. v. State of Assam, [1961] 1  SCR  809; Firm  A.T.B. Mehtab Majid & Co. v. State of  Madras,  [1963] Supp.  2  SCR  435; Gratwick v. Johnson, [1945]  70  CLR  1; Baldwin v. GAF Inc., [1934] US 511 and Grannall v.  Marrick- ville Margarine Pty. Ltd., [1955] 93 CLR 55, referred to.     6.1  Section 4 of the West Bengal Act cannot be said  to be beyond the legislative entry. The taxable event need  not necessarily be the actual utilisation or the actual consump- tion,  as  the case may be, of the luxury. So  long  as  the legislation  has reasonable nexus with the concept of  "lux- uries"  in the broad and general sense in which the  expres- sions in legislative tests are comprehended, the legislative competence extends to all matters with respect to that field of topic of legislation. In the instant case, provision  for ’luxury’  in a hotel or restaurant amenable to  a  potential consumption does provide the nexus. [909C, 910F, E, H] Bhagwan  Dass Jain v. Union of India, AIR 1981 SC  907,  re- ferred to.     Ramesh  Waman Toke & Ors. v. The State  of  Maharashtra, AIR 1984 Bombay 345, overruled. 898     6.2 If the provider of the luxury is also  independently amenable  to the tax, the further restriction on  the  power would tend to cut into the plenitude of the field of  legis- lation. If the idea of ’luxuries’ is required to be .so wide as  to  comprehend in it every aspect which can  fairly  and reasonably  be  said  to be embraced by it,  then  the  said taxing  power  under the Entry cannot be limited  or  condi- tioned in any manner whatsoever. [911A]     6.3  Once the legislative competence and the  nexus  be- tween the taxing power and the subject of taxation is estab- lished  the  other incidents are matters  of  fiscal  policy behind the taxing law. The actual measure of the tax,  which is  a matter of legislative policy and convenience,  is  not the same thing as, and must be kept distinguished from,  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 18  

subject of the tax. [911B]     6.4 The mere excessiveness of a tax or the fact that  it affects the earnings cannot pre-se be held to violate  Arti- cle 19(1)(g). [911 C]

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 338  and 339 of 1981.     From  the  Judgment  and Order dated  23.7.1980  of  the Gujarat  High Court in S.C.A. Nos. 405 of 1979 and  1263  of 1978.     Soli  J. Sorabjee, N.A. Palkhiwala, Lalit  Bhasin,  Bina Gupta, S.S. Shroff, Mrs. P.S. Shroff, Ms. Malvika  Rajkatia, R.F.  Nariman, P.H. Parekh, Sanjay Bhartari,  M.K.S.  Menon, R.K.  Dhillon,  Ms. Rohini Chhabra, Ms. Sunita  Sharma,  Ms. Ayesha  Misra,  Harish  N. Salve and Mukul  Mudgal  for  the Appellants.     K.  Parasaran,  Attorney General  B.  Datta,  Additional Solicitor  General P.S. Poti, G.A. Shah, Dr. V. Gauri  Shan- kar, S.K. Dholakia, V. Jagannatha Rao, K. Sudhakaran, Ms. A. Subhashini,  B.B.  Ahuja,  H.K. Puri,  A.  Subba  Rao,  A.S. Bhasme, K.R. Nambiar, M.N. Shroff, M. Veerappa, R. Mohan, R. Ayyamperumal and J.P. Misra for the Respondents. The Judgment of the court was delivered by     VENKATACHALIAH,  J.  In  these civil  appeals  and  writ petitions  the  constitutional validity of  legislations  of different  States  viz., State of Gujarat,  State  of  Tamil Nadu, State of Karnataka and State of West Bengal,  imposing a tax on ’luxuries’ under Entry 62 of List II of VII  Sched- ule to the Constitution of India is challenged. 899     Civil  Appeal  Nos. 338 and 339 of  1981,  writ-petition Nos. 7990, 9119, 8338, 8339 of 1981 relate to the  challenge to the legislation of the State of Gujarat viz., the Gujarat Tax  on Luxuries (Hotels & Lodging Houses) Act,  1977.  Writ Petition  No.  162  of 1982 pertains  to  the  corresponding legislation of the State of Tamil Nadu viz., Tamil Nadu  Tax on  Luxuries  in  Hotels & Lodging Houses  Act,  1981.  Writ petition Nos. 1271 and 1272 of 1982 pertain to the challenge to  corresponding Karnataka Legislation viz., the  Karnataka Tax on Luxuries (Hotels and Lodging Houses) Act, 1979.  W.P. No.  5321 of 1985 pertains to the challenge to  West  Bengal Entertainments  and  Luxuries (Hotels and  Restaurants)  Tax Act,  1972.  All these taxingstatutes,  except  for  certain aspects individual to them, are analogous and the scheme  of the legislation is substantially similar. The variations are in the differences in the criteria of classification of  the hotels  to which the Act is applied and the rates of  taxes. The  grounds  of challenge are substantially  the  same.  An examination  of  the  contentions urged in  support  of  the challenge to one statute would cover the cases of the  other statutes as well.     2. We might take up for consideration, the provisions of the Gujarat Act which may be considered as representative of the  legislations on the topic. The constitutional  validity of  the Gujarat Act had been assailed before the High  Court of Gujarat, which by its judgment dated 23.7.1980 upheld its constitutional  validity. The judgment of the High Court  is under appeal in C.A. Nos. 338 and 339 of 1981.     3.  The statement of objects and reasons in the  Gujarat Legislative Bill states:                         "With  a  view  to  augmenting   the               financial  resources of the State it  is  pro-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 18  

             posed  to  levy a tax on  luxury  provided  in               hotels  and  lodging  houses at  the  rate  of               certain percentages of lodging charges  recov-               ered  by  the proprietors of such  hotels  and               lodging  houses from persons lodging  therein.               Every   accommodation  provided  in  a   hotel               or  .lodging house the charges for  which  are               not  less than rupees thirty-five per day  per               person is, for the purposes of the tax, to  be               treated  as  a  luxury.  This  bill  seeks  to               achieve that object."     Section  2  is the interpretation  clause  and  defines, inter alia, the expressions "charges for lodging",  "hotel", "luxury  provided  in  hotel",  "proprietor"  occurring   in clauses  (a) (d) (e) and (g) respectively.  The  definitions are as follows: 900                     "(a)   "charges  for  lodging"   include               charges for airconditioning, telephone,  tele-               vision,  radio, music and extra beds  and  the               like but do not include any charges for  food,               drink or other amenities.                     (d) "hotel" means a building or part  of               a  building where lodging accommodation,  with               or  without board is, by way of business  pro-               vided  for a monetary consideration,  and  in-               cludes a lodging house;                     (e)  "luxury provided in a hotel"  means               accommodation for lodging provided in a hotel,               the  rate  of  charges  for  which  (including               charges for airconditioning, telephone,  tele-               vision,  radio, music, or extra beds  and  the               like but excluding charges for food, drink and               other amenities) is not less than thirty  five               rupees per person per day."               Section  3 is the charging section which  pro-               vides:               "3. (1) Subject to the provisions of this Act,               with effect on and from the date on which this               Act  comes into force, there shall  be  levied               and  collected from every person a tax (to  be               known  as  "luxury  tax") in  respect  of  any               luxury  provided  to him in a  hotel,  at  the               following rates, namely:       (a) Where the charges for    10 per cent of such                                       charges.            lodging  are  thirty  five            rupees or more but not            more than fifty rupees per            day per person.       (b) Where the charges for   Rs.5 plus 20 per cent of       lodging  are  more  than    such charges in excess of       fifty rupees but not more   Rs.50 per person per day.       than one hundred rupees       per day per person.       (c) Where the charges for    Rs. 15 plus 30 per cent      lodging are more than one    of such charges in  excess of      hundred rupees per day       Rs. 100 per person per day      per person. 901                        Provided   that  where  charges   for               lodging  are  levied otherwise than  on  daily               basis  or  person, then, for  the  purpose  of               determining  the tax liability of  any  person

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 18  

             under  this  section,  the  charges  shall  be               computed as for a day and per person, based on               the  period of lodging for which  charges  are               payable  and  the number of  persons  actually               lodging or permitted to lodge according to the               rule or custom of the hotel:                        Provided   further  that  where   any               charges  for  lodging are paid by  any  person               other  than a citizen of India in any  foreign               exchange,  then  such  person  or  where  such               charges  are  paid by any person or  class  of               persons as the State Government may, by order,               direct such as foreigners staying as guests in               India of any Government or of any  Corporation               or Company owned or controlled by  Government,               or such other person as in the opinion of  the               State Government it is expedient in the public               interest  to exempt, then such person or  per-               sons  shall be exempt from the payment of  the               tax.               (2)  Where  luxury is provided in a  hotel  to               representatives  or employees of  any  company               and charges for such luxury are to be borne by               the  company, there shall be levied  and  col-               lected the tax from such company.               Explanation:  In  this  sub-section  "Company"               means  any body corporate and includes a  firm               or other association of persons.               (3)  The tax payable under this section  shall               be  collected  by the proprietor and  be  paid               into a Government treasury within the time and               in the manner provided in the Act.               (4)  In  computing the amount of  tax  payable               under this section, the amount shall, if it is               not a multiple of five paise, be increased  to               the next higher multiple of five paise."               Section 4 provides for the mode of  collecting               of tax. It provides:               "4.  (1) Where the rate of charges for  luxury               provided  in  a  hotel  is  inclusive  of  the               charges for food or drink or other  amenities,               if any (being amenities referred to in  clause               (e)               902               of  section (2), then the Collector may,  from               time  to time, after giving the proprietor  an               opportunity of being heard, fix separate rates               of  charges  for such luxury and for  food  or               drink or other amenities, if any, being ameni-               ties  referred to in clause (e) of  section  2               for  the purpose of calculating the tax  under               this Act.               (2)  Where,  in addition to  the  charges  for               luxury  provided in a hotel,  service  charges               are levied and appropriated to the  proprietor               and not paid to the staff, then, such  charges               shall be deemed to be part of the charges  for               luxury provided in the hotel.               (3)  Where luxury provided in a hotel  to  any               person (not being an employee of the hotel) is               not charged at all, or is charged at a conces-               sional  rate, then also there shall be  levied               and  collected the tax on such luxury,  as  if               full charges for such luxury were paid to  the               proprietor of the hotel.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 18  

             (4)  Where  luxury provided in a hotel  for  a               specified number of persons is shared by  more               than  the number specified, then, in  addition               to  the  tax paid for luxury provided  to  the               specified  number of persons, there  shall  be               levied  and collected separately, the  tax  in               respect  of  the  charge made  for  the  extra               persons accommodated.               (5) Where any proprietor fails or neglects  to               collect  the tax payable under this  Act,  the               tax shall be paid by the proprietor as if  the               tax  was recovered by the proprietor from  the               person to whom the luxury was provided and who               was accordingly liable to pay the same." Section  5,  6, 7, 8, 9, and 10, respectively refer  to  the returns  to be filed by every proprietor liable to  pay  tax under  the  Act;the assessment and collection  of  tax;  the imposition  of  penalty;  the payment of  tax  and  penalty; appeals and revision.     Sections  13  and 14 speak of offences and  offences  by companies. Sec. 15 pertains to the compounding of  offences. Sec.  17 confers power of inspection of accounts  and  docu- ments  and of search and seizure. Sec. 21 confers the  power to make Rules. 903     4.  The Gujarat Act seeks to levy a tax at certain  per- centages of the lodging charges recovered by the proprietors of the hotels and lodging houses from persons lodging there- in  treating the lodgingaccommodation for which  charges  of Rs.35  or more per day per person as a taxable  luxury.  The scheme  of  the  West Bengal Act is  slightly  different  in regard  to  the scope of the charge to be  given  effect  to under  that  ’Act’. The levy there is not  confined  to  the lodging  charges recovered from persons lodging in  the  ho- tels, but on the basis of the provision for luxury and  not, as  in  the case of the other legislation, as  the  lodging- charges actually paid by the lodgers. Section 4 of the  West Bengal Act provides:               "4.  Liability for luxury tax. There shall  be               charged, levied and paid to the State  Govern-               ment  a luxury tax by the proprietor of  every               hotel and restaurant in which there is  provi-               sion  for luxury and such tax shall be  calcu-               lated-                        (a)  in the case of a  restaurant  at               the  rate  of an annual sum  of  rupees  three               hundred  for every ten square metres  or  part               thereof  in  respect of so much of  the  floor               area  of  restaurant which  is  provided  with         X       X luxury, and                        (b)  in the case of a hotel  at  such               rate  not exceeding fifteen per centum on  the               daily  charges of a room provided with  luxury               as may be notified by the State Government  in               the Official Gazette." One of the contentions, which is peculiar to the West Bengal Act is that the impost on the mere possibility of  enjoyment of a ’luxury’ cannot be taxed. 5.  We  have heard Shri Soli J. Sorabjee,  Senior  Advocate, Shri F. Nariman, Shri Harish Salve, Advocates for  petition- ers and Shri P.S. Poti, and Shri Shah, learned Senior  Advo- cates, for the respondents.     On  the contentions urged at the hearing in  support  of the challenge, the following points arise for consideration:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 18  

      (a)  The Taxation-Entry 62 of List 1I  providing  for taxes  on  "luxuries"  contemplates, and  takes  within  its sweep,  a  tax  on goods and articles in  their  aspect  and character as luxuries and 904 dose not include "services" or "activities". The levy on the services for lodging provided at the-hotels, is,  therefore, beyond the scope of Entry 62 List II.       (b) Section 4 of the West Bengal Act which envisages a tax  on  the mere existence of the means  of  providing  the luxury-independently of its utilisation--is outside Entry 62 List II.       (c) The real criterion distinguishing ’luxury’ is  the special  attribute or quality of the commodity or the  serv- ices, as the case may be, and not the price-factor  simplic- iter.  The essential distinguishing attribute is a  qualita- tive  one.  Distinction  based purely  on  the  quantitative difference  in  the  price is not a  rational  criterion  to identify ’luxuries’. The impost based on the mere  criterion of  price which has no relation to the concept of  luxuries, is ultra-vires the State power under Entry 62 List II.       (d)  The scheme of the Act in so far as it  makes  the price and not quality, the sole basis for identification  of the  subject  of the tax, makes no distinction  between  the components  of the services which include  both  necessities and  comforts, as distinguishable, from ’luxuries’. Levy  on such composite subject-matter is bad.        (e)  The expression ’and the like’ in the  definition of "charges for lodging" in sec. 2(a) is vague and irration- al and read with the explanation, which renders the decision of  the  State  Government  on  what  constitutes  "lodging- charges" final, is an unreasonable restriction, violative of Article 19(1)(g).       (f)  Sec. 4(3) which provides that tax in  respect  of accommodation  provided  free or at  concessional  rates  be taxed  as if the full charges were deemed to have  been  re- ceived, is unreasonable and offends Article 19(1)(g).       (g) The "luxury" tax imposed on the charges for  lodg- ings has the direct and immediate effect of restricting  the freedom under Article 301 of the Constitution as it directly impedes the right of "intercourse" through out the  territo- ries of India. 5. Re: Contention (a) The arguments of learned counsel on the first three  conten- tions 905 require  to  be  considered together  as  these  contentions themselves  have  certain over-lapping areas  amongst  them. Basically, the question is as to what constitutes ’luxuries’ as the subject of a tax under Entry 62, List II, and second- ly, whether providing of accommodation for lodging in hotels or  lodging-houses, even if the accommodation could be  said to be ’luxuries’ in a colloquial sense, could be the subject of a tax under Entry 62 of List II. Shri Sorabjee  contended that  the concept of a tax on ’luxuries’ contemplates a  tax on  articles and goods, like jewellery,  perfumes,  liquors, tobacco  etc., in their character and attribute as  articles of luxury. The idea, it is urged, does not include  services or activities as falling within the concept of luxuries as a subject  of  taxation. The Gujarat High Court  dealing  with this contention held that the contention, if accepted, would diminish the content of the Entry and reduce its scope  from "taxes on luxuries" to "taxes on articles of luxuries". Shri Sorabjee,  however,  submitted that the High  Court  was  in error  in its understanding of the import of the concept  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 18  

’luxuries’  in  Entry 62 as a subject of  tax.  The  learned counsel  also referred to the following observations of  the High  Court of Bombay in State of Bombay v.  R.M.D.  Chamar- baugwalia & Ors., AIR 1956 Bom. 1 at page 11:               "With regard to luxuries it is significant  to               note  that the plural and not the singular  is               used,  and the luxuries in respect of which  a               tax can be imposed under entry 62 is a tax  on               goods  or articles which constitute  luxuries,               and  it is again significant to note that  the               topic  of  luxuries, only is to  be  found  in               entry  62  in the taxation power  and  not  in               either  entry  33 or 34.  That  clearly  shows               that,  what  was  contemplated was  a  tax  on               certain  articles or goods  constituting  luxuries and not legislation  controlling  an activity  which may not be a necessary activity but  may  be necessary and in that sense a luxury."                                        (Emphasis supplied)     It is to be noticed that the decision of the Bombay High Court  in which the above observation occurs was  over-ruled by this Court in State of Bombay v. R.M.D.  Chamarbaugwalia, [1957]  SCR  874. The impugned State Legislation  which  the High  Court had struck down was held to be a valid piece  of legislation  under  Entry 62, List II. In the light  of  the decision of this Court in the case, the observations of  the learned Chief Justice of the Bombay High Court excerpted are rendered inapposite. Indeed, a view similar to the one taken by the Bombay High Court as to the concept of ’luxuries’  in Entry 62 of List 906 II was taken by the Kerala High Court in A.S. Bava v.  State of  Kerala, [1971] Tax L.R. 512. However, the views  of  the Bombay and Kerala High Courts were referred to and dissented from by the Calcutta High Court.     In  Spences Hotel Private Ltd. and another v.  State  of West Bengal, [1975] TLR 1890 at 1892 it is held:          "In  these premises, we are of opinion  that  ’lux- uries’  in  Entry 62 of List II should not  be  confined  to articles  or objects of luxury alone. In view of the  social and economic structure of our country there can be no  doubt that  an  air-conditioned space whether in a hotel or  in  a restaurant  is a luxury by itself. People enter  into  these spaces  for  enjoyment of a luxury. In fact,  the  ambit  of Entry 62 which includes taxes on entertainments, amusements, betting and gambling, shows that a tax levied under Entry 62 cannot  be restricted to certain articles only but may  also be extended to things incorporeal. The comfort that a person derives in a hot summer day in an airconditioned space is  a luxury  ’particularly  in the context of the  conditions  in which  the masses live in India today. In our  opinion,  the State  legislature  is  competent to impose a  tax  on  this luxury." For  reasons we shall state presently, we approve  the  view taken by the Calcutta High Court.     6.  We are dealing with an Entry in a Legislative  List. The entries should not be read in a narrow or pedantic sense but  must  be  given their fullest meaning  and  the  widest amplitude and be held to extend to all ancillary and subsid- iary  matters which can fairly and reasonably be said to  be comprehended in them.     In  the  Western India Theatres Ltd. v.  The  Cantonment Board,  Poona Cantonment, [1959] 2 Supp. SCR 63, this  court was  dealing with the scope of the power of  the  Provincial Legislature under Sec. 100 of the Govt. of India Act,  1935,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 18  

with respect to Entry 50 in Schedule VII of the said Act, to make laws with respect to "taxes on luxuries including taxes on  entertainments, amusements, betting and  gambling".  The contention of the appellant in that case was that the  entry authorised  a law imposing taxes on persons who received  or enjoyed the luxuries etc. and that no law made with  respect to that Entry could impose a tax on persons who provide  the luxuries, entertainment or amusements. It 907 was  contended that those who provide the  luxury-etc.,  did not themselves receive or enjoy the luxury or  entertainment or  amusement, but were simply carrying on their  profession or trade and were not amenable to be taxed under that Entry. Rejecting the argument it was said: "  .....  In view of this well established rule of interpre- tation, there can be no reason to construe the words  ’taxes on luxuries or entertainments or amusements’ in entry 50  as having  a restricted meaning so as to confine the  operation of  the law to be made thereunder only to taxes  on  persons receiving  the luxuries, entertainments, or amusements.  The entry contemplates luxuries, entertainments, and  amusements as  objects on which the tax is to be imposed. If the  words are  to be so regarded, as we think they must, there can  be no reason to differentiate between the giver and the receiv- er  of the luxuries, entertainments, or amusements and  both may,   with  equal  propriety,  be  made  amenable  to   the tax  .....  "                                        (Emphasis supplied) The  concept of ’luxuries’ as a subject of tax was not  con- fined to those who received or enjoyed the luxury. It  could be on those who provided it.     In  Encyclopaedia  Britannica the meaning  of  the  word ’luxurytax’ is set-out thus: "Luxury  tax:  A  tax on commodities or  services  that  are considered  to be luxuries rather than  necessities.  Modern examples  are taxes levied on the purchase of jewelry,  per- fume and tobacco."     In  Webster’s  Comprehensive  Dictionary,  International Edition, the word ’luxury’ is defined: "Luxury: 1. A free indulgence in the pleasures that  gratify the senses. 2. Anything that ministers to comfort or  pleas- ure that is expensive or rare, but is not necessary to life, health subsistence, etc; a delicacy."     Luxury  connotes extravagance or indulgence, as  distin- guished from the needs and necessities of life. 908     ’The  New Dictionary of Thoughts’ has  these  thoughtful things to say of "luxury":          "On  the  soft  bed of luxury  most  kingdoms  have expired.--Young.          Unless we are accustomed to them from early  youth, splendid chambers and elegant furniture had best be left  to people who neither have nor can have any thoughts.--Goethe."          "War  destroys men, but luxury destroys mankind  at once, corrupts the body and the mind."--Crown.     The concept of a tax on ’luxuries’ in Entry 62, List  II cannot  be limited merely to tax things tangible and  corpo- real  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, intoxicat- ing-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  encom- passes  all the manifestations or emanations, the notion  of ’luxuries’ can fairly and reasonably be said to  comprehend.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 18  

The  element of extravagance or indulgence that  differenti- ates ’luxury’ from ’necessity’ can not be confined to  goods and  articles.  There  can be elements  of  extravagance  or indulgence in the quality of services and activities.     In A.B. Abdul Kadir & Ors. v. State of Kerala, [1976]  2 SCR 690 at 699-700 Khanna J. said: "  ....  The word "luxury" in the above context has not been used  in the sense of something pertaining to the  exclusive preserve of the rich. The fact that the use of an article is popular among the poor sections of the population would  not detract  from its description or nature of being an  article of luxury. The connotation of the word "luxury" is something which  conduces enjoyment over and above the necessaries  of life.  It  denotes something which is  superfluous  and  not indispensable  and  to which we take with a view  to  enjoy, amuse  ’or entertain ourselves. An expenditure on  something which  is  in excess of what is required  for  economic  and personal well-being would be expenditure on luxury  although the expenditure may be of a nature which 909 is incurred by a large number of people, including those not economically well-off  ....  " The  submission of Shri Sorabjee, if accepted,  will  unduly restrict  the  scope of the legislative-Entry  which  should otherwise  have the widest and the most-liberal meaning  and connotation given to it. Contention (a), in our opinion,  is unacceptable. 8. Re: Contention (b):     This  contention pertains to a provision  particular  to the  West Bengal legislation. It is urged that in so far  as Section 4 of the West Bengal Act envisages a tax on the mere existence of the provision for the luxury and is levied even if  the luxury is not utilised by any person, it was  beyond the  scope of the legislative entry. It was  submitted  that there must be both a giving and receiving of the luxury  and that  a tax on the mere existence of the means of  providing the luxury would be insufficient to support a law imposing a tax thereon. It would, in any event, it is urged, constitute an  unreasonable  restriction on the freedom  under  Article 19(1)(g).     Reliance  was  also placed on  certain  observations  in Western India Theatres Ltd.’s  case (supra). The passage  in the  judgment relied upon by Shri Sorabjee merely says  that both the giver and the receiver of the luxuries are amenable to  be  taxed. The decision cannot be understood  as  laying down the proposition that if there is no actual  utilisation of the luxury, no tax can be levied on the mere existence of the provisions made for the prospective or potential  utili- sation of the luxury.     In  support  of the proposition that a tax  on  luxuries must relate to and be based on an actual utilization of  the luxury and not on the mere existence of the means of provid- ing  ’luxury’  Sri Sorabjee placed strong  reliance  on  the observations  of  the High Court of Bombay in  Ramesh  Waman Toke and others v. The State of Maharashtra, AIR 1984 Bombay 345, which while dealing with the legislation under Entry 62 List II imposing a tax on entertainment held: "  .....  In our opinion, this is not a tax on entertainment at  all  which the State Legislature is  entitled  to  .levy under  item 62 of the State List. In order that  the  enter- tainment  duty  should amount to a tax on  entertainment  it should be levied on entertainment which is actually held and not on enter- 910 tainment  which  is  theoretically capable  of  being  held.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 18  

Looking to the provisions which have been examined in detail it is clear to us that the said provisions do not take  into account entertainment that is actually held by the owner  of the touring cinema or the owner of the video exhibition. The basis  on  which tax can be validly levied is  the  fact  of entertainment.  The  taxing event is the  entertainment.  If there  is no entertainment at all, the question  of  levying entertainment  tax  in exercise of  the  legislative  powers conferred upon the State Legislature does not arise at  all. If  the Act purports to levy tax on  notional  entertainment then  the exercise of that taxing power must be held  to  be ultra  vires  the  Constitution. This is  exactly  what  has happened in the instant case." There  might possibly be some distinction between the  ideas of  ’entertainment’ and ’luxuries’. With due respect to  the High Court, the interpretation that commended itself to  the High  Court would unduly restrict the scope of the  legisla- tive Entry. On such an interpretation, it might be  possible for a person to go further and also contend that no  ’enter- tainment’ was actually derived. The concept of ’luxuries’ in the  legislative Entry takes within it everything  that  can fairly and reasonably be said to be comprehended in it.  The actual measure of the levy is a matter of legislative policy and  convenience. So long as the legislation has  reasonable nexus with the concept of ’luxuries’ in the broad and gener- al  sense in which the expressions in legislative tests  are comprehended.  the  legislative competence  extends  to  all matters  ’with respect to’ that field of topic  of  legisla- tion.     The  taxable  event need not necessarily be  the  actual utilisation  or the actual consumption, as the case may  be, of  the  luxury. The contention, in substance, is  that  the means  of providing luxury, by itself, does not provide  the nexus  between the taxing power and the subject of  tax  and there must be an actual and not merely a notional or  poten- tial,  consumption or utilisation of the luxury. As  an  in- stance  of  what  can be said to be  fairly  and  reasonably comprehended  in a legislative Entry, reference may be  made to  the "notional" income, for purposes of a tax on  income, of  a  person,  from a house-property in  his  own  personal occupation  or a property not actually let. In that  context this COurt said "that which can be converted into an  income can  be reasonably regarded as giving rise to income"  (See: Bhagwan  Dass  Jain v. Union of India, AIR 1981 SC  907).  A luxury  which  can reasonably be said to be  amenable  to  a potential conception does provide the nexus. 911     If  the  provider of the luxury  is  also  independently amenable  to the tax, the further restriction on  the  power suggested by the argument tends to cut into the plenitude of the  field  of  legislation. If the idea  of  "luxuries"  is required to be so wide as to comprehend in it, every  aspect which  can fairly and reasonably be said to be  embraced  by it,  then, the taxing power cannot be limited to  or  condi- tioned in the manner suggested. Once the legislative  compe- tence and the nexus between the taxing-power and the subject of taxation is established, the other incidents are  matters of  fiscal policy behind the taxing law. The measure of  the tax  is  not the’ same thing as, and must  be  kept  distin- guished from, the subject of the tax.     .  So far as the argument that fundamental rights  under Article 19(1)(g) are violated by a levy on a mere  provision for luxury, without its actual utilisation, is concerned  it is  settled law that the mere excessiveness of a tax or  the fact that it affects the earnings cannot, per-se, be held to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 18  

violate Article 19(1)(g). Contention (b) is not  substantial either. 8. Re: Contentions (c) and (d):     These  contentions were somewhat attractively  presented and  bear close scrutiny. Shri Sorabjee urged that the  con- cept  of "luxuries" is a relative or comparative idea,  dis- tinguishable from "necessities" by the special attribute  or quality  of  distinction inherent in them. The  articles  or activities  of  luxury could be identified as such  only  by reason  of that inherent distinguishing  special-quality  or attribute. The price factor, says learned counsel, might be, prima facie, an index of that special quality or  attribute; but  the  price is not itself a substitute for  the  special quality  or attribute. Therefore, if what  is  legislatively classed  as luxury is on the sole basis of the price  alone, then the legislative definition or the means of  identifica- tion  of the luxury becomes irrational as it has the  effect of  substituting price in place of the special quality.  The two  are not the something. There is nothing in the law,  it is urged, which identifies or distinguishes ’luxury’ on  the basis of any special attribute apart from the price-factor.     This argument itself recognises that price might be, and very often is, evidence of quality. The statute proceeds  on the  premise  that  any accommodation in a  hotel  which  is priced above a certain level could reasonably be held to  be of a particular quality distinguishing it from others. These ideas of luxury or necessity are necessarily relative  ideas and require to be understood in the context of the contempo- rary 912 standards  of living. What might have been a  ’luxury’  some decades  ago  might cease to partake of the  character  now. What  is  luxury  today might be considered  a  necessity  a decade or so later. In Abdul Kadir’s case (supra) it was observed:           "It  may  be added that there  is  nothing  static about what constitutes an article of luxury. The luxuries of yesterday  can well become the necessities of  today.  Like- wise, what constitutes necessity for citizens of one country or  for  those living in a particular climate  may  well  be looked upon as an item of luxury for the nationals of anoth- er  country  or for those living in a different  climate.  A number  of  factors may ’have to be taken  into  account  in adjudging a commodity as an article to luxury  ......  "     We are presently concerned with the question whether the quality or standards of lodging accommodation in hotels  can be  called luxurious by contemporary standards by reason  of the  higher standards of charges payable for the  accommoda- tion.  Legislature has chosen to identify the luxury by  the statutory  standards  prescribed  by it.  According  to  the legislative  assumption, price does become evidence  of  the special  quality on the basis of which ’luxuries’  could  be distinguished and that some special quality is  attributable to goods and services through the means of the price. Quali- ty and price, in the legislative assessment, can be  assumed to have a logical inter-relationship. This cannot be held to suffer from the vice of irrationality. 9.  The further contention is that when the price factor  is made the sole criterion for imparting the quality of  luxury to the lodging accommodation, the means of identification so adopted cease to distinguish areas in the services which are not luxuries but are really necessities and comforts and the subject  of the tax would come to include, not  merely  lux- uries but necessities and comforts also. The answer is  that in  the  context of lodging accommodation and  the  services

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 18  

that go with it, the concept of luxury would necessarily  be a comprehensive idea taking into account the various  compo- nents of the services. Differences of degree can at particu- lar stage become differences of kind. The composite elements of  lodging  accommodation and services associated  with  it cannot  be broken into components so as to distinguish  some components  as necessities, some others as comforts and  yet others as luxuries. Even necessities and comforts which have to them the additional element of undue elegance to a 913 point of extravagance and indulgence might become  luxuries. Though  the arguments on these contentions were not  without their  interesting  facets, we must,  however,  express  our inability  to  accept them as valid  arguments  against  the constitutionality of the provisions.     Contentions  (c)  and (d) are accordingly held  and  an- swered against the petitioners and the appellants. 10. Re: Contention (e):     The  point  sought to be put across arises  out  of  the definition  of the expression ’charges for lodging’ in  sec. 2(a)  read with the Explanation to the provision. Sec.  2(a) defines  "charges for lodging" to include ’charges for  air- conditioning,  telephone,  television, radio,  music,  extra beds"  and  the like". It is contended that  the  expression ’and  the like’ is vague and confers an arbitrary  power  to bring  to tax an undefined entity. It is  further  contended that the Explanation appended to Section 2(a) to the  effect that the decision of the State Government on any dispute  in that behalf is final and shall not be called in question  in any  court aggravates the arbitrariness and  constitutes  an unreasonable   restriction  and  is  violative  of   Article 19(1)(g). Reliance was placed on the decision of this  Court in Corporation of Calcutta v. Calcutta Tramways Co.,  [1964] 5 SCR 25.     We  are afraid, the argument overlooks certain  relevant factors bearing on the point. It is, no doubt, true that  it has been held in several cases that the absence of a  provi- sion  for a correctivemachinery, by way of appeal  or  revi- sion,  to rectify an adverse order made by an  authority  on whom  power is conferred, might indicate that the  power  so conferred is unreasonable or arbitrary. But the  corrective- machinery  may itself take several forms and be inherent  or found  in the provisions for conferment of the  power  them- selves.  The mere absence of a corrective machinery  or  the existence of a provision imparting finality, by  themselves, would  not be conclusive so as to render the  conferment  of power per-se unreasonable and arbitrary rendering the provi- sion  unconstitutional.  In Babu Bhai v. State  of  Gujarat, [1985] 2 SCC 732 at 736 this Court said: "   .....  in other words mere absence of a  corrective  ma- chinery  by  way  of  appeal or  revision  by  itself  would not  .make  the power unreasonable or arbitrary,  much  less would  render the provision invalid. Regard will have to  be had to several factors, such as, on whom the power is 914 conferred--whether  on a high official or a  petty  officer, what is the nature of the power--whether the exercise there- of depends upon the subjective satisfaction of the authority or  body  on whom it is conferred or is it to  be  exercised objectively   by  reference  to  some  existing   facts   or tests  ......  "     There are in-built checks on the power under Explanation to sec. 2(a). The expression ’and the like’ would require to be  construed  ejusdem-generis. The genus or  the  class  of items  envisaged  by  the preceding words  not  having  been

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 18  

exhaustive  of  the  genus or the  class,  the  legislature, therefore,  has supplied the words ’and the like’ so  as  to bring in any other item of the same class or genus. This, by itself,  is  a clear guide for the exercise  of  the  power. Another relevant consideration is the identity and status of the  repository of the power. The power is given to  a  high authority like the State Government. In these circumstances, it cannot be said that the power is an uncanalised power and is  an  arbitrary or unreasonable one. There  are  statutory guides  governing its exercise and the guide-lines are  gov- erned by well settled principles of interpretation. There is no substance in contention (e).     11. Re: Contention (f):     What  is assailed here is the deeming provision in  sec. 4(3) which brings to charge at the normal rates cases  where no  charge is collected at all for lodging or where  conces- sional  rates  are charged. The deeming provision  does  not apply  to cases where accommodation is provided free  or  at commercial rates to the employees of the hotel. No fault can be found with this provision which merely states that  where the  usual lodging charges are not collected  for  providing the  lodging accommodation, tax shall be payable as  if  the usual  charges  had  been collected.  This  is  a  provision against  evasion. There is no merit in the challenge to  the validity  of this provision. Contention (f) requires  to  be rejected.     12 Re.’ Contention (g):     Shri R.F. Nariman, learned counsel, who addressed  argu- ments with particular emphasis on this contention  submitted that  tax laws are not outside the purview of Part  XIII  of the  Constitution and that the present tax on  lodgings  and accommodations  in  hotels is violative of  the  freedom  of "trade, commerce and inter-course" and offends Art. 915 301. Learned counsel submitted "that business undoubtedly is commerce but is something more, it is intercourse". The word "intercourse"  specifically occurs in Art. 301 intending  to give the largest connotation to the concept of commerce. The question  is whether the impugned tax imposes a  restriction on  the freedom under Article 301. If it does,  the  further questions  whether  the  restriction is  reasonable  and  is required  in public interest and whether Presidential  sanc- tion had been obtained for the introduction of the  legisla- tive measure arose for consideration. It has been held  that only such taxes as are directly and immediately  restrictive of  trade,  commerce and intercourse that  fall  within  the purview   of  Art.  301.  On  the  several  facets  of   the similar--some say deceptively similar--provisions of sec. 92 of  the  Commonwealth  of Australia  Constitution  Act  1901 comments of a learned author may be recalled:           "The  lengthy series of judicial decisions on  the meaning and scope of the immunity afforded by s. 92 is ample testimony to the difficulty involved in giving some  precise meaning to a provision which in reality expresses a  politi- cal slogan rather than a legal precept. Rich J once  pithily described the lot of the High Court in relation to s. 92  as being  "to  explain  the elliptical and  expound  the  unex- pressed", and he emphasized that the practical necessity  of determining  precisely  what impediments were no  longer  to obstruct inter-State trade "obliged the court to attempt the impossible  task  of supplying an  exclusive  and  inclusive definition  of  a conception to be discovered  only  in  the silences of the Constitution."     On the significance of the word ’intercourse’ in sec. 92 of the Australian Constitution, it was held by the Australi-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 18  

an  High Court in Gratwick v. Johnson, [1945] 70 CLR 1  that an order which provided that no person should travel by rail or  commercial passenger vehicle from any State in the  com- monwealth to any other State without a permit from a common- wealth  official would violate the freedom of  ’intercourse’ under  sec. 92. It was held that the prohibition showed  "an indifference to, if not a disdain of, the terms of sec. 92".     In Atiabari Tea Co. v. State of Assam, [1961] 1 SCR  809 at 860-61 this Court said: "  .....  in determining the limits of the width and  ampli- tude  of the freedom guaranteed by Art. 301 a  rational  and work- 916 able  test to apply would be: Does the impugned  restriction operate   directly   or   immediately  on   trade   or   its movement?  ... It is the free movement of the  transport  of goods  from  one part of the country to the  other  that  is intended  to  be saved, and if any Act  imposes  any  direct restrictions on the very movement of such goods it  attracts the provisions of Art. 301  ......  "     In Mehtab Majid & Co. v. State of Madras, [1963] Supp. 2 SCR 435 this Court said:           "It  is now well settled that taxing laws  can  be restrictions  on  trade, commerce and intercourse,  if  they hamper  the  flow of trade and if they are not what  can  be termed  to  be compensatory taxes  or  regulating  measures. Sales  tax, of the kind under consideration, cannot be  said to  be a measure regulating any trade or a compensatory  tax levied  for the use of trading facilities, sales tax,  which has the effect of discriminating between goods of one  State and goods of another, may affect the free flow of trade  and it will then offend against Art. 301  ......  "     Taxes  can  and  do sometimes, having  regard  to  their effect  and  impact on the free flow  of  trade,  constitute restrictions on the freedom under Art. 301. But the restric- tion  must stem from the provisions of the law imposing  the tax  which  could  be said to have a  direct  and  immediate effect of restricting the free flow of "trade, commerce  and intercourse". It is not all taxes that have this effect.     Freedom under Article 301 is, by all reckoning, a  great freedom, one of the utmost significance to economic unity of the  nation. Underlying the need for and the recognition  of the freedom of inter-State trade, commerce and  intercourse, one  is tempted to refer to the lofty sentiments of  Justice Cardozo  in Baldwin v. GAF Inc., [1934] US 511 that "it  was flamed  upon the theory that peoples of several States  must sink or swim together and that in the long run the prosperi- ty and salvation are in union and not in division" and  that "the  ultimate principle is that one State in  dealing  with another may not place itself in position of economic  isola- tion".     But in the present case it has not been pointed out  how a tax on "luxuries" enjoyed by a person in a hotel is either discriminatory  or  has the direct and immediate  effect  of impeding the freedom of inter- 917 course.  In  Grannall v. Marrickville Margarine  Pty.  Ltd., [1955] 93 CLR 55 a New South Wales statute which  prohibited the  manufacture  of margarine without a licence  which,  if granted, would contain a condition limiting the quantity  to be manufactured was assailed on the ground of its  violation of  sec.  92 of the Australian Constitution.  Repelling  the challenge, it was held: "It is of course obvious that without goods there can be  no inter-State  or  any  other trade in goods.  In  that  sense

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 18  

manufacture  or production within, or importation into,  the Commonwealth is an essential preliminary condition to  trade and  commerce  between the States in merchandise.  But  that does  not make manufacture production or  importation  trade and commerce among the States. It is no reason for extending the  freedom  which s. 92 confers upon  trade  and  commerce among  the  State,  to something which precedes  it  and  is outside the freedom conferred." We find no substance in contention (g).     13.  In the result, for the foregoing reasons, the  writ petitions and the appeals are dismissed. But, in the circum- stances, there will be no order as to costs. P.S.S.                              Appeals dismissed. 918