The Hindu : Front Page : States cannot levy luxury tax on goods: Court

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Friday, Jan 21, 2005

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States cannot levy luxury tax on goods: Court

By Our Legal Correspondent

NEW DELHI, JAN. 20. The states have no power to levy luxury tax on goods, including tobacco products such as cigarettes, gutkas and pan masalas, the Supreme Court ruled today.

A five-judge Constitution Bench comprising the Chief Justice, R.C. Lahoti, Justice Ruma Pal, Justice Arun Kumar, Justice G.P. Mathur and Justice C.K. Thakker said that under Entry 62 of List II of the Constitution, the State Legislatures were not competent to impose luxury tax on goods, including cigarettes. Luxury tax could be levied only on services.

The Bench was disposing of petitions from Godfrey Philips India Limited and other tobacco companies questioning the levy of luxury tax on tobacco products by West Bengal, Haryana, Andhra Pradesh and Uttar Pradesh.

The petitioners argued that their products were taxed under Central Excise laws and the revenue collected was shared by the Centre with the States on the condition that the States would not impose sales tax on these products. But many States imposed luxury tax though they had no power to do so.

The Bench agreed that the States had no legislative competence to enact a law to impose luxury tax under Entry 62 of List II. However, it held that luxury tax could be imposed on a firm rendering services such as massage parlours, casinos and the hotel industry. Since no service was attached to the sale of tobacco products, such a levy could not be imposed.

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