Holding

Entry 62 of List II does not authorize a State to tax goods or articles; it only permits taxes on activities of indulgence, rendering the impugned luxury‑tax statutes unconstitutional.

Summary

The Supreme Court examined the constitutional validity of luxury‑tax statutes enacted by Uttar Pradesh (1995), Andhra Pradesh (1987) and West Bengal (1994) which imposed tax on the supply of tobacco and other goods described as "luxuries". The central issue was whether Entry 62 of List II of the Seventh Schedule permits a State to levy tax on goods or articles, or is limited to taxes on activities of indulgence such as entertainment, amusement, betting and gambling. The Court held that the entry refers only to activities of enjoyment and does not empower States to tax goods, making the three statutes ultra‑vires. Consequently, the statutes were struck down and no refund of taxes already paid was ordered, though any amounts collected after interim orders must be remitted to the States. The decision also clarified the interplay of Article 286, the Central Sales Tax Act, 1956 and the Additional Duties of Excise (Goods of Special Importance) Act, 1957, emphasizing that a tax on goods would encroach upon Union powers.

Issues considered

Does Entry 62 of List II of the Constitution allow a State to levy tax on goods or articles, i.e., luxury goods?
Are the Uttar Pradesh, Andhra Pradesh and West Bengal luxury‑tax statutes constitutionally competent?
Is a tax on the supply of tobacco a tax on sale/purchase subject to the restrictions of Article 286?
How should the term "luxuries" in Entry 62 be interpreted – as activities of indulgence or as goods?
Should taxes already paid under the impugned statutes be refunded to the assessees?

Legislation cited

Additional Duties of Excise (Goods of Special Importance) Act, 1957s. 3
Central Sales Tax Act, 1956s. 14, s. 15
Constitution of Indias. Art.246, s. Art.265, s. Art.286, s. Art.366(29A), s. Schedule VII List I Entries 83,84, s. Schedule VII List I Entry 92‑A, s. Schedule VII List II Entry 54, s. Schedule VII List II Entry 62

Subjects

Constitutional lawTaxationEntry 62 List IILuxury taxLegislative competenceFederalismInterpretation of statutesNoscitur a sociisArticle 286Central Sales Tax ActAdditional Duties of Excise ActTobacco

Judgment

{
A GODFREY PHILLIPS INDIA LTD. AND ANR.
V.

STATE OF U.P. AND ORS.

JANUARY 20, 2005

B [R.C. LAHOTI, CJ., RUMA PAL, ARUN KUMAR, G.P. MATHUR AND
C.K. THAKKER, JJ.]
-4.

Constitution of India :
c Schedule VII list II Ently 62-Scope of-Levy of luxury tax on goods
or articles under-Held, not contemplated- "'Luxuries "-Meaning of-
Discussed-None of the impugned statutes seek to tax any activity but seek to
tax goods described as luxury goods-Hence the statutes legislatively
incompetent-U.P. Tax on Luxuries Act, 1995-A.P. Tax on Luxuries Act,1987-
D West Bengal Tax on Luxuries Act,1994.

Schedule VII List I Entries 83 & 84, List II Entries 54 & 62 and Arts.286
& 366(29-A)-Luxury goods/articles-Taxation of-Permissible modes-Held, \...
method of taxing luxury goods has invariably been subjecting them to the
extent fiscal regimes ofexcise duties, sales tax, customs duties at heavier rates
E and not under List II Entry 62-No distinction made in Art.366(29-A) or
Art.286 or entries 83 and 84 of List I as to the nature of the goods which may
be subject matter of sale, excise or import, be they articles of necessity or
articles of luxury.

Art.265 and Schedule VII-Taxation entries-Subject of tax-Attributes
F ofan object/article, without mentioning the object/article, held not contemplated
as the subject matter of tax-Taxation. ~

Schedule VII list II Entries 62,54 & List I Entry 92-A and Arts.
286,366(29-A)-Power and Relative scope of List II entries 62 and 54-
Imposition of luxury tax on transfer, supply or delivery of article/goods, de
G
hors constitutional limits on power of States to levy sales tax-Held, all the
constitutional restrictions on power of States to levy sales tax under
Art.286(3)(a) rlwSs.14,15 CST Act,1956 and S.3 and Sch.2 proviso Additional
. '
Duties ofExcise (Goods ofSpecial Importance) Act, 1957 can not be bypassed,
allowing States to levy tax on supply of goods by describing them as luxury
H 732
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. 733

goods-Supply of luxury is nothing but supply of goods, since the goods A
themselves constitute luxury-Even if tobacco is an article of luxury, a tax on
its supply is within the exclusive competence of the Stales under List II Entry
54 rlw Art.366(29-A)(a), but subject to the constitutional Courts-Impugned
UP and AP Acts held ultra vires the power of States to levy sales tax-U.P.
Tax on Luxuries Act,1995-A.P. Tax on Luxuries Act,1987. B
Schedule VII Lisi II Enlly 62 and List I Entries 83 and 84 rlw. S.3 ADE
Act, 1957-Relative scope of-Imposition of luxury tax by Stales on items
~ covered by S.3 ADE Act, 1957-Held, impermissible-West Bengal Tax on
Luxuries Act,1994 held invalid.

Arts.265,246 and Schedule VII-Division ofpowers between Centre and
c
States-Nature of-Principles for interpretation of taxing entries in Schedule
VII-Held, mutual exclusivity is reflected in Art.246-Thus, taxing entries
must be construed with clarity and precision--A taxing entry which may lead
to overlapping must be eschewed-Elements of a tax-Subject of tax and
incidence of tax-Constitutional significance of such distinction-Discussed- D
Arts.265,246,248(2) & Taxation Entries in Schedule VII and Schedule VII List
I Entry 97-Power oftaxation under entries in lists in Schedule VII-Discussed
.,/.
Interpretation of the Constitulion-Noscitur a sociis-Application of the
principle-Caution to be exercised-Discussed
E
Luxuries Tax :

U.P. Tax on Luxuries Act 1995-A.P. Tax on Luxuries Act,1987-West
Bengal Tax on Luxuries Act, l 994-Constitutional validity of

Words & Phrases : F
"Luxuries "-Meaning of

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, G
betting and gambling". Several States have enacted legislation which they
claim are referable to the right to tax luxuries under this Entry. These
I .,,.. appeals and writ petition relate to 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 H
+
734 SUPREME COURT REPORTS [2005] 1 S.C.R.

A was challenged by the assessees before different fora - in some cases
partially successfully, and in others without success. To the extent the
assessees were unsuccessful, they have challenged the decisions ; in those
cases in which the assessees were successful the concerned State has filed
the appeals.

B 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 ~e defended as _.
legislatively competent. In these matters although the principal question
to be resolved is the ambit of Entry 62 of List-II, the nature of the tax
c sought to be levied by the three statutes on Luxuries Tax enacted by Uttar
Pradesh, Andhra Pradesh and West Bengal required determination.

Disposing of the matters, the Court

HELD: 1. Given the language of Entry 62 and the legislative history,
D Entry 62 of List II does not permit the levy of tax on goods or articles.
The word "luxuries" in the Entry refers to activities of indulgence,
enjoyment or pleasure. In as much as none of the impugned statutes seek I
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. while
E striking down the impugned Acts it is appropriate to allow any refund of
taxes already paid under the impugned Acts. Bank guarantees if any
furnished by the assessees will stand discharged. (779-F-G(

Somaiya Organics (India) Ltd v. State of U.P., (2001 J 5 SCC 519,
followed.
F
2. The earlier cases relating to tax on luxuries proceeded on the basis
.i,.
that Entry 62 of List II covered articles of luxury. In the earlier decisions,
this Court was not 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
G
costly. (761-C(

A.B.Abdul Kadir v. Union of India, (1962) 2 SCR 741; Federation of
~·
Hotel and Restaurant v. Union ofIndia, ( l 989J 3 SCC 634 and Express Hotels
v. State of Gujarat, (1989J 3 SCC 677, referred to.
H
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. 735
7· 3. Theoretically 'luxuries' is capable of covering each of the several A
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 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
B
taxes and the collection of revenues. 1761-F-G]

..
Corpus Juris Secundum Vol - IV p.887 and Black's Law Dictionary, (6th
..+-- Edition), referred to .

4.1. Whatever be the similarities between the Constitutions of other
countries with similar federal structures as this Country such as the United
c
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,
although they may be of some relevance in determining the true character
of particular legislation. [761-H; 762-A-B] D

ChhotabhaiJethabhai Patel v. The Union of India, (1962) Supp. 2 SCR
1; State of Bombay v. Chamarbaugwala, 11957] SCR 874; Atiabari Tea Co.
v. The State of Assam, (19611 1 SCR 809 and The Automobile Transport
(Rajasthan) v. The State of Rajasthan, (1963] 1 SCR 491, relied on.
E
Subrahmanyan Chettiar v. Muthuswami Gounder, (1940) FCR 188 and
Union of India v. H. S. Dhillon, (19711 1 SCC 779, 801-803, referred to.

5. The Indian Constitution is unique in that it contains an exhaustive
enumeration and division of legislative powers of taxation between the F
Centre and the States. Taxing entries must be construed with clarity and
precision so as to maintain such exclusivity, and a construction of a
I
..... 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 G
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
I~·
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. Both
these elements are distinct from the incidence of taxation. The law H
+
736 SUPREME COURT REPORTS [2005] I S.C.R.

A 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
B 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. (762-D; 763-C-Fl

-
Hoechst Pharmaceuticals Ltd. andAnr. v. State of Bihar and Ors., [1983)
3 SCR 130; The State of West Bengal v. Kesoram Industries Ltd. and Ors.,
C JT 2004 (I) 375; Mis. Chhotabhai Jethabhai Patel & Co. v. Union of India
and Anr., (1962] 2 Suppl. SCR 1 : AIR (1962) SC 1006 and State of
Karnataka v. Drive-in-Enterprises, (2001 I 4 sec 60, relied on.

H.M Seervai's Constitutional Law of India, Fourth Edition, Volume
1 page 166 paragraph IA 25 referred to.
D
6.1. 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 >.
E to legislate on a particular ma!ter includes the power to legislate with
respect to that matter. Hence where the entry describes an object of tax,
all ta,xable 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
F entries in the legislative lists. The first of such settled principles is that
legislative entries should be liberally interpreted; 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. (764-B-E]
G United Provinces v. Mt. Atiqa Begam, AIR (1941) FC 16; Western India
Theatres Ltd. v. The Cantonment Board Poona, (1959] Suppl. 2 SCR 63, 69;
ELEL Hotels & Investments Ltd. and Ors. v. Union of India, [1989] 3 SCC
698; Express Hotels v. State of Gujarat, [1989] 3 SCC 677 and State of
Bombay v. RMD Chamarbaugwa/a, (1957) SC 874, relied on.
H
-+
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. 737
}- State of Bombay v. RMD Chamarbaugwala, AIR (1956) Bom.1, A
referred to.

6.2. 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.
[765-FJ B
Governor General in Council v. Province of Madras, (1945) FCR 179;
~ State of Bombay v. Narottamdas Jethabhai, [1951] 2 SCR 51; Bar Council
of U.P. v. State of U.P. and Anr., [1973] 1 SCC 261; D.G. Ghose & Co.
(Agents) (P) Ltd v. State of Kera/a and Anr., [1980] 2 SCC 410; Federation C
of Hotel and Restaurant v. Union of India, [1989[ 3 SCC 634, 657, 667-668;
State of West Bengal v. Kesoram Industries, (2004) 1 SCALE 425, 462. In
the matter ofCentral Provinces and Berar Sales ofMotor Spirit and Lubricants
Taxation Act, (1938) and AIR (1939) FC 1,8,40, relied on.

7.1. Parliament has been given the overriding power to limit the rates D
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 E
inter-state trade or commerce. This includes tobacco both in un-
manufactured and manufactured form. The States have been restricted
from imposfog 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
F
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 therefrom 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 G
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 H
738 SUPREME COURT REPORTS [2005] l S.C.R.

A 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
B 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. 1769-C-H; 770-A-B) ~

C Re: The Bill to Amend Section 20 of the Sea Customs Act, (19641 3
SCR 787; The Central Provinces and Berar Sales of Motor Spirit and
Lubricants Taxation Act, (1938) AIR (1939) FC 1 Federation of Hotel &
Restaurants v. Union of India, (1989( 3 SCC 634 and Madras Province v.
Boddu Paidanna, AIR (1942) FC 33, relied on.

D 7.2. 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. 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
E 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. 1770-8-E)

7.3. While widening the scope of Entry 54 of List II, the powers of
F 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
G is made subject to under the Constitution. The position is the same when
one looks 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
H
-+
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. 739
in Section 15 of the Central Sales Tax Act, 1956. No State can therefore A
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. [771-D-G)
B
7.4. 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.
'\ 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
c
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
011 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 D
the restraint on the States to levy sales tax in cases when the states can
levy tax on goods, it has to be determined whether Entry 62 of List II
covers taxes on goods at all. [771-H; 772-A-C)

7.5. That the entries on taxable events in the legislative lists are not
exhaustive is also recognised and provided for in Art. 248(2) which E
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, all taxable events have
been provided for in the different legislative heads, then by that token no F
object or goods could be taxable. This would render the various entries
..i. in the State List including entries 57 and 58 contentless. As this Court
cannot accept that the taxation entries exhaustively enumerate all taxable
events, it does not follow that Entry 62 of List II does not cover goolis. 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 G
not permit the States to levy tax on articles of luxury. [772-D-F)

Re : The Bill to Amend Section 20 of the Sea Customs Act, [1964) 3
SCR 787, referred to.

8.1. The juxtaposition of the different taxes within Entry 62 itself is H
+
740 SUPREME COURT REPORTS [2005) l S.C.R.
-'<:,
A 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 co .. tained 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
B as clarificatory of the whole. The word 'includes' may in certain contexts
be a word of limitation. 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. Tf luxuries is understood as meaning (
c 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
D 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. (772-H; 773-A-D)
~
South Gujarat Roofing Tiles Manufacturers v. State of Gujarat, 11976)
4 sec 601, referred to.
E
8.2. Where two or more words 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
F that of the less general. 1773-E)

Maxwell on the Interpretation of Statues, 12th Edn.; referred to. ~

8.3. 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
G
and betting, which are clubbed with it. (774-D(

U.P. State v. Raja Anand, (19671 l SCR 362; Rainbow Steels Ltd v. .r '
C.S. T, (19811 2 SCC 141 and State of Bombay v. Hospital Mazdoor Sabha,
AIR (1960) SC 610, referred to.
H
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. 741
;t..
-9.1. The maxim of noscitur a sociis may be a treacherous one unless A
th{ 'societas' to which the 'soc ii' 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. The word 'includes' in the present
B
context indicates a commonality or shared features or attributes of the
including word with the included. [775-F-G)

9.2. 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 c
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 Ieviable only with reference to an
attribute. An attribute as an object of taxation without reference to the D
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. On an application of general principles
of interpretation, it is held that the word 'luxuries' in Entry 62 of List II E
means the activity of enjoyment of or indulgence in that which is costly
or which is generally recognized as being beyond the neressary
requirements of an average member of society and not articles of luxury.
[775-G-H; 776-A-C)

9.3. Prior to the framing of the present Constitution the debates in F
the Constituent Assembly show that the suggestion that Entry 62 of List
-4. 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 being possibly excluded by the amendment. In fact "a tax on G
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 H
742 SUPREME COURT REPORTS [2005) 1 S.C.R.
-k;
A 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.
(777-G-H; 778-A-BI
B
9.4. After the Constitution came into force except for the decision
of this Court in Abdul Kadir in 1976, Entry 62 of List II was not invoked
save for the purpose of levying a tax on gambling and betting or for levying ""
tax on the provisions of enjoyment or indulgence of facilities in hotels and
c restaurants. 1778-CI

Western India Theatres Ltd. v. The Cantonment Board, Poona, (19591
Supp. 2 SCR 63, 69; A.B. Abdul Kadir v. State of Kera/a, (196212 SCR 741;
State ofBombay v. R.MD. Chamarbaugwala, 119571 SCR 874; Express Hotels
v. State of Gujarat, 1198913SCC677; ELEL Hotels & Investments Ltd. and
D Ors. v. Union of India, 119891 3 SCC 698; East India Hotels Ltd. v. State of
West Bengal, (19901 Supp. l SCC 755; Spences Hotels Pvt. Ltd. and Anr. v.
State of West Bengal and Ors., [1991[ 2 sec 154 and East India Hotels Ltd,
Srinagar v. State of J & K. and Anr., [19941 Supp. 2 sec 580, referred to. ..._

IO.I. The constitutional history of Entry 62 of List II would show
E 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.
F 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
G sales tax in 1953-54. (778-E-G I
A.B. Abdul Kadir v. Union of India, (19621 2 SCR 741, referred to.
~·
Report of the Taxation Enquiry Commission, (1953-54), Vol. IV Part
II I, referred to.
H
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. 743
~
10.2. Historically, the tax on luxury goods was seen as a part of Entry A
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 B
directly imposing luxury tax on goods. This was withdrawn in 1994 but
the other states soon followed suit culminating in a rash of such legislations.
> (779-D-E)

A.B. Abdul Kadir and Ors. v. State of Kera/a, (1976) 2 SCR 690,
referred to.
c
CIVIL ORIGINAL JURISDICTION : Writ Petition (C) No. 567 of
1994.

(Under Article 32 of the Constitution of India.)
D
WITH
W.P. (C) Nos. 568-569/94, C.A.Nos. 123-125/95, 6891, 7870/96, 2123-
2127, 2552-2553/99, 6365 of 2000.

Mohan Parasaran, Additional Solicitor General, Harish N. Salve, S.
Ganesh, Navroz Seervai, Sunil Gupta (Addi. Adovcate General, U.P.), K.K.
E
Venugopal (NP), M.N. Rao (NP), B.B. Ahuja, B. Sen, Rakesh Dwivedi,
Gopal Subramanium, R.F. Nariman, Pallav Shishodia, Ms. Kavita Dahiya,
Ms. Sushma Sharma, Sanjeev Dahiya, Ajay Aggarwal, Ms. Meghalee
Barthakur, Rajan Narain, Vivek Vishnoi, Arohi Bhalla, Gaurav Kejariwar,
Punit Dutt Tyagi, Mukesh Verma, Pavan Kumar, Ms. Promila, Tushar Rao, F
A. Ramesh, E.R. Kumar, Ms. Ranjeeta Rohatgi, for P.H. Parekh, Ajay K.
..... Jain, Nand Kishore, Pramod Dayal, Ms. Radha Rangaswamy, Dipayan
Choudhyry, Ms. Bharati, Pritesh Kapur, Rajiv Tyagi, Vishnu Sharma, Shail
Kumar Dwivedi (NP), B.V. Bairam Das, (NP), B. Krishna Prasad (NP), R.C.
Verma (NP), Dayan Krishnan, Ms. Niranjana Singh, Abhishek Chaudhury,
Janaranjan Das, Swetaketu Mishra, Ms. Moushumi Galilot, K.K. Saha, Manoj
G
Saxena, Mohan Prasad Meharia, Siddharth Aggarwal, Rajshekhar Rao,
I ~
Satyakam, Raghenth Basanth, Asheesh Jain, Arunabh Patnaik, Karan
Bharihoke, S.K. Mitra, Khem Chand, Bharat Singh for Kavita Wadia, Shrish
Kumar Misra (NP), E.R. Kumar and Ms. Ranjeeta Rohatgi for P.H. Parekh
for the appearing parties. H
744 SUPREME COURT REPORTS [2005) I S.C.R.
_..
A The Judgment of the Court was delivered by

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
B 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 entertaiiiments, amusements, betting
"
c 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
D 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
E of view of the particular statute sought to be defended as legislatively
competent. Thus although the principal question to be resolved would bi: 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.
F
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
G 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 :-
H
GODFREY PHILLIPS INDIA LTD. r. STATE OF U.P. [RUMA PAL, J.J 745
,~
"Levy of luxury tax. - Every tobacconist shall be liable to pay luxury A
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 .o p::iy tax on his turnover B
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 c
furnishes, in the manner prescribed, proof of payment of tax on such
tobacco."

(Emphasis supplied)

The words "receipt" and "tobacconist" which have been emphasized D
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 E
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 F
I ' or amount is separately charged; and
-"'
(ii) in respect of supply of tobacco by a tobacconist made otherwise
than by way ofsale, 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, G
1944;
j ~
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 H
+

746 SUPREME COURT REPORTS (2005] I S.C.R.

A and includes any 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;

B (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
c 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;
D Explanation: - For the removal of doubts, it is clarified that a person:-
(!) 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
E 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
F 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
G 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.

H Writ petitions had been filed by the assessees in the High Court of
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. [RUMA PAL, .I.] 747

I~ Allahabad challenging U.P. Ordinance No.8/94 on the ground that it was A
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
Constitution, basically on the ground that the levy was in substance, a tax on
sales.
B
During the pendency of the proceedings, U.P. Ordinance No.8of1994
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
c
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.
D
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. v. State of Kera/a, [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. E
According to the High Court, tobacco included all fonns 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 F
imposition of luxury tax impeded the freedom of trade and commerce and
_.... intercourse and was violative of Article 30 I 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 G
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
I ..... 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 H
748 SUPREME COURT REPORTS [2005] I S.C.R.

A accordingly allowed and the levy of luxury tax was struck down on the
ground that it violated Articles 14 and 30 l 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
B 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)
j.
would file their returns with the competent authority in accordance with the
C 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
D 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 1995 was
repealed by U.P. Ordinance No.39 of 1995. Therefore, there has been no
E 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

F 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 .J>.
levy ofluxury 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
G 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:
H
GODFREY PHILLIPS INDIA LTD. v. STATE OF UP [RUMA PAL, J ] 749
,~ "3-A Tax on Tobacconist - (I) Subject to the provisions of this Act, A
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 B
"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 c
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 D
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 E
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".
F
Several writ petitions were filed before the A.P. High Court challenging
..... the amendment to the Act claiming that the tax was a tax on the sale of goods
and insofar as it violated the constitutional discipline of Art. 286, 30 I, 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 G
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 H
750 SUPREME COURT REPORTS [2005) I S.C.R.

A 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 30 I 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.

B Leave was granted in several special leave petitions which were filed
from the decision of the AP High Court on !st 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.

C 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
D 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
E 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 yam, foreign liquor, toys, electrical and electronic goods,
cosmetics, umbrellas, tea, glassware and crockery, soaps, chocolate and
confectionery , readymade garments, motorcycles and motor vehicles.
F 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
G
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
H
GODFREY PHILLIPS INDIA LTD. "· STATEOFU P [RUMA PAL, J] 75 J

whether manufactured, made or processed by him in West Bengal, or A
brought by him into West Bengal, either on his own account or on
account of others, from any 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:- B
"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 C
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 D
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

(a) the value of such stock of luxuries as shown to the satisfaction
of the prescribed authority to have been dispatched to places E
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 F
follows:
)

""value of stock of luxuries" means. -

(i) in respect of any stockist, being a manufacturer of any of the
luxuries, the value of such luxuries calculated at the ex- G
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 H
752 SUPREME COURT REPORTS [2005] I S.C.R.

A or other document of like nature. ~,

And shall include -

(A) excise duty and central sales tax, if any, paid or payable on such
luxuries by the manufacturer or importer thereof , as the case
B 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;
c 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
D Parliament under Entries 83 and 84 of List I and was legislatively incompetent,
that it contravened Art. 30 I 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 IL The challenge of the applicants to the Act was
E 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
F
High Court under Art. 226 of the Constitution. The High Court, by its judgment r
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,
G 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
H facet of goods had been specifically provided for in the legislative lists in the
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. [RUMA PAL, J.] 753
-~
Seventh Schedule. For example excise duty on the manufacture of goods is A
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 ifthe word 'luxuries'
in Entry 62 were construed to include goods, then it would allow the State
B
to legislate on all these several facets merely by describing the goods as
>- luxuries. Similarly ifthe 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 ofrevenue envisaged under the Constitution. c
It is submitted that there is no over-lapping in fields of taxation. 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 D
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 E
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 F
..... excise duties levied under the ADE Act of 1957.lt 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. G
.,... 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, H
754 SUPREME COURT REPORTS [2005] I S.C.R.

A 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~ common element in the nature
of the taxes to be imposed, the link being that both referred to a kind of
B 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
C 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.
D Nariman, that the only exception to the right to free trade, commerce and
intercourse throughout the territory of India provided for under Article 30 I
related to articles which were res extra commercium. This exception did not
apply to tobacco. The decision in State of Punjab v. Mis. Devans Modern
Breweries, (2003) I 0 Scale 202, which held that liquor was res extra
E commercium was sought to be distinguished on the ground that tobacco,
unHke 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 Article 286 (3) read with Section 14 of the Central Sales Tax Act 1956.
F Reliance was placed on the recent decision of this Court in Godawat Pan
Masala Products v. 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
G 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 30 I. 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,
H contravene Article 301 since it would lead to a regional economic imbalance.
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. [RUMA PAL, J.] 755

~ The only way that such a State law could be validated would be through A
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 B
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, C
"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 D
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 v. 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 E
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 p
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 G
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 tobacco and aims at making H
756 SUPREME COURT REPORTS (2005] I S.C.R.

A its presence felt at the point of supply by the earliest tobacconist in the State.
The mere fact of the tobacconist - even the first tobacconist in the State -
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
B 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
C 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
D 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.
E 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, thi: legislative history of
the Entry starting with the Government of India Act, 1919 would show that
F 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
G India Act, 1935 in Entry 52 of List II of that Act. It is said that this Court
had repeatedly construed the word "iuxury". In 1959, the decision in Western
India Theatres v. 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 J 976 also proceeded on the basis that the word
..., -
H 'luxury' in Entry 62 List- II referred to goods. Finally, in 1989 Express
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. [RUMA PAL, J.] 757
Hotels had construed the Entry to hold that the word 'luxuries' covered A
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 B
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 C
subject remained with the State Governments 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 Ill. The further submission is that luxury tax is a tax
directly on goods whereas customs duty, excise duty and sales tax are in D
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. E
With particular reference to the West Bengal Act, it was submitted that the
tax was on luxury goods or commodities although it was with referen~e 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 F
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 G
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 H
758 SUPREME COURT REPORTS [2005) I S.C.R.

A 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
B 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,
C 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
D 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
E 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 30 I, it is submitted that the levy does not
impact on the movement of tobacco or trade in tobacco as interstate
transactions were exempt.

F In this background, the competing contentions as to the meaning of the
word "luxury" in Entry 62 of List JI 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,
G 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
H jurisdiction of the State to levy a tax on such component or aspect
GODFREY PHILLIPS INDIA LTD. v. STATE OF Li.I'. [RUMA PAL. ll 759

- ;"T'·
of the goods. On the other hand it was contended that luxury may A
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 whicb liave an element of B
enjoyment, extravagance and which are not necessaries. Therefore,
the State can tax goods which are per se "iuxury 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".
c
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 (I) 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 D
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 E
the fourth meaning that the tax is on luxury goods or articles on the basis of
the decision in Abdul Kadir v. State of Kera/a (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 F
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 v. 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 G
by the erstwhile licensees for refund of the fees collected. The Act was then
passed by the States to validate 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 H
760 SUPREME COURT REPORTS (2005] I S.C.R.
""'\
A tobacco was not an article of luxury. The argument was !legatived. 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,
B 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
c 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)
D
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
E considered in Abdul Kadir.

The concept of "luxuries" in Entry 62 of List II was also considered in
the Federation of Hotel and Restaurant v. 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
F 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 (vi de
G 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 v. State of Gujarat, [1989] 3 SCC 677. In that case
H Legislations of different States, namely, the States of Gujarat, Tamil Nadu,
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. [RUMA PAL, J.] 76 J
;r· Karnataka and West Bengal which imposed a tax on 'luxuries' was challenged A
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 B
did not include "services" or "activities". The argument was rejected and it
was held thatthe 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 C
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; D
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 E
'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.
F
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 judicia\ly (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 G
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 H
762 SUPREME COURT REPORTS [2005] 1 S.C.R.

A by the Courts of those countries may not be helpful in construing the allocation
of legislative heads in our Constitution. [See : Chhotabhai Hethabhai Patel
v. The Union of India, (1962] Supp. 2 SCR 1; Province of Madras v. Mis.
Boddu Paidanna, (supra); State of Bombay v. Chamarbaugwala, [ 1957] SCR
874; Atiabari Tea Co. v. The State of Assam, (1961] I SCR 809 and The
B Automobile Transport (Rajasthan) v. The State of Rajasthan, [1963] I SCR
491 ] although they may be of some relevance in determining the true character
of particular legislation (Subrahmanyan Chettiar v. Muthuswami Gounder,
(1940) FCR 188 and Union of India v. 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
C 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,
D Volume I at page 166 in paragraph IA 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 conta.ined in the Schedule VII to the G.I. Act, 35, provided
E for distinct and separate fields of taxation and it is not without
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
F
and the provinces, with the result that few problems of conflicting or
competing taxing powers have arisen under the G.l. Act, 35. This
scheme of the legislative lists as regards taxation has been taken over
by the Constitution of India with like beneficial results".

G This view has also been reiterated in Hoechst Pharmaceuticals /.r.; .ud
anr. v. 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
H the States. Following the scheme of the Government of India Act,
GODFREY PHILLIPS INDIA LTD. r. STATE OF U.P. [RUMA PAL, J.] 763

1935, the Constitution has made the taxing power of the Union and A
of the States mutually exclusive and thus avoided the difficulties
which have arisen in some other Federal Constitutions from
overlapping powers of taxation ...... 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 v. Kesoram Industries Ltd., and B
Ors., JT (2004) l 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 C
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 D
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 E
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 F
a tax is a direct or an indirect one. But it would be irrelevant in determining
the subject matter of the tax. [See: Mis. Chhotabhai Jethabhai Patel & Co.
v. Union of India and Anr., AIR (I 962) SC 1006].

An illustration of this distinction is nicely brought out in State of
Karnataka v. Drive-in-Enterprises, [2001] 4 SCC 60. Entertainment tax was G
levied by the Kamataka 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 H
764 SUPREME COURT REPORTS [2005] I S.C.R.

A 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
B 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
C 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.
D
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 v. Mt. Atiqa Begam, AIR (1941) FC
E 16, Western India Theatres ltd. v. The Cantonment Board Poona, [1959]
Suppl. 2 SCR 63, 69 and ELEL Hotels and Investments Ltd, and Ors. v.
Union of India, [1989] 3 SCC 698).

Jn Express Hotels v. State of Gujarat (supra) it was noted that the view
F of the Bombay High Court in State of Bombay v. RMD Chamarbaugwala,
AIR (1956) Born. I 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 v. RMD Chamarbaugwala, (1957] SCR 874. The
view of the Calcutta High Court in Spences Hotel Private Ltd., v. State of
G 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
H 'luxuries'. It is true that while frugal or simple food and medicine
GODFREY PHILLIPS INDIA LTD. v. STATE OF UP. [RUMA PAL, J] 765

may be classified as necessities; articles such as jewellery, perfume, A
intoxicating liquor, tobacco, etc,, could be called articles of luxury.
But the legislative entry cannot be exhausted by these cases, illustrative
of the concept. The entry encompasses all the manifestations or
emanations, the notion of 'luxuries' can fairly and reasonably (sic)
can be said to comprehend the element of extravagance of indulgence
that differentiates 'luxury' from 'necessity' cannot be confined to B
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 C
everything that can fairly and reasonably be said to be comprehended
in it ........ , 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 D
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, E
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 F
of one by that of the other (Governor General in Council v, Province of
Madras, (1945) FCR 179 at pg. 191-192 ); State of Bombay v. Narottamdas
Jethabhai, (1951] SCR 51; Bar Council of UP. v, State of UP. and Anr.,
(1973] I SCC 261; D.G. Ghose & Co. (Agents) (P) Ltd. v. State of Kera/a
and Anr., (1980] 2 SCC 410; Federation oj Hotel and Restaurant v. Union G
of India, (1989] 3 SCC 634, 657, 667-668 and State of West Bengal v.
Kesoram Industries, (2004) 1 SCALE 425, 462; in the matter of Central
Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act,
(1938) and AIR (1939) FC I, 8, 40.

The argument of the assessees is that the tax leviable under Entry 62 H
766 SUPREME COURT REPORTS [2005) I S.C.R.

A 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
B 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".
c 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 ieviable on the events of manufacture, import/export and sale.
According to the States this Court has held so while construing Article 289
D (I) 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
E 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
F 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.
G
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
H themselves"
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. [RUMA PAL. J.] 767
Therefore according to the States, the argument of the assessees that A
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 - that all taxable events have been covered by the legislative entries. B
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 C
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 D
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 E
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 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 p
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 G
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 I 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 H
768 SUPREME COURT REPORTS [2005) I S.C.R.

A there appears to be no doubt that the first premise contended for by Mr. Salve
is correct.
C·

...
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
B 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 v.
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
c 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 v. Boddu Paidanna, AIR (1942) FC 33,37
per Gwyer C.J.). For example the State cannot under the garb of luxury tax
D 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".
E
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"
F
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
ffom 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,
G
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 . .,,, j.

imposition of -
(a) a tax on the sale or purchase of goods declared by Parliament by
H
GODFRE'v PHILLlrs INDIA LTD. 1·. STATE OF U.P. [RUMA PAL, J.] 769

.
J law to be of special importance in inter-State trade or commerce; A
or
(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 B
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 C
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
Jaw 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 D
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. E
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 F
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 G
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 I st April, 1958 could not participate in the distribution of the net
proceeds of the additional levy under the ADE Act. Provision was also being H
770 SUPREME COURT REPORTS [2005] I S.C.R.
-i•'
A 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 Ist April, 1958 to the
restrictions in Section 15 of the Central Sales Tax Act, 1956.

B 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 (I) of Section 3 reads :-

"3. Levy and collection of additional duties-( I) There shall be levied
and collected in respect of the following goods, namely, sugar, tobacco,
c cotton fabrics, rayon or artificial silk fabrics and woolen fabrics
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
D 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
E 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
F introduction of Clause 29A in Article 366. It reads :-

"(29A) 'tax on the sale or purchase of goods' includes -
(a) a tax on the transfer, otherwise than in pursuance of a contract,
of property in any goods for cash deferred payment or other
G 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; I

(c) a tax on the delivery of goods on hire purchase or any system of
payment by instalments;
H
GODFREY PHILLIPS INDIA LTD. v. STATE OF UP [RUMA PAL, J.] 771
.~
(d) a tax on the transfer of the right to use any goods for any purpose A
(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; B
(t) 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, c
and such transfer, delivery or supply of any goods shall be dee111ed
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
D
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 E
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 Art::Ie
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 F
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,
G
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 H
772 SUPREME COURT REPORTS [2005] 1 S.C.R.

A States to levy tax on the supply of goods by describing them as luxury goods. 1- •
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
B 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.
c 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.

D 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
E mentioned in either the Concurrent or State lists. This residuary power is
reflected in Entry 97 of List I. Furthennore 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
F 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 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.
G
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
H "including" must be given some meaning. In ordinary parlance it indicates
GODFREY PHILLIPS INDIA LTD. v. STATE OF U.P. [RUMA PAL, J.] 773
that what follows the word "including" comprises or is contained in or is a 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 v. State B
oi Gujarat, [ 1976] 4 SCC 60 I. 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 C
be no doubt that entertainments, amusements, betting and gambling would
come within such understanding. Additionally, entertainmen;s, 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 D
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 E
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 .1"

Put in other words the included words may be clarificatory or illustrative F
of the general word. Thus in UP. State v. Raja Anand, [1967] I SCR 362,
~· while construing Art. 3 IA (2) as enacted by the Constitution (Seventeenth
Amendment ) Act, 1964 the relevant excerpt of which read as:-

"31 A(2) In this article -
G
(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

I. A-G v. Prince Ernest Augustus of Hanover (195 7) AC 436, per Viscount Simonds, at 461. II
774 SUPREME COURT REPORTS [2005) I S.C.R.

A also include -
(i) xxx xxx xxx xxx xxx
(ii) xxx xxx xxx xxx xxx
(iii) any land held or let for purposes of agriculture or for purposes
B 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
c 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."

D 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 v. C.S.T., [1981] 2
SCC 141,145 although doubted in its indiscriminate application in State of
E Bombay v. 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
F 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
G 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
H of the defined word correspondingly wider. It is only where the
GODFREY PHILLIPS INDIA LTD. 1·. STATE OF U.P. [RUMA PAL, J.] 775
intention of the Legislature in associating wider words with words of A
narrower significance is doubtfitl, 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 B
pressed into service". (p.614)
>
We do not read this passage as excluding the applicatiP'.1 of the principle
> of noscitur a sociis to the present case since it has been adipiy 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 sense~. C
In Black Diamond Beverages v. Commercial Tax Officer, [I998]
SCC 458, the definition of 'sale price' with respect to notified commodities
under Section 2(d) of the West Bengal Sales Tax Act, I 954 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 D
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 E
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 F
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. G
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 H
776 SUPREME COURT REPORTS [2005] I S.C.R.

A 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
B 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.
c 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.
D
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 division of the
E 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
F of the local government to impose taxes listed in Schedule I to the Rules.
These included inter a/ia:

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

SI. No. 5 A tax on amusements
G SI. 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
H products or a levy of sales tax or licensing fee on retail vendors of tobacco.
GODFREY PHILLIPS !NOIA LTD. 1·. STATE OF U.P. [RUMA PAL, .I] 777

It is of significance that there was no suggestion of a levy being imposed on A
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 .Jf the Centre. In B
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. c
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 D
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 E
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 F
entry contemplated a law which imposed tax on the act of entertaining -
Western India Theatres ltd v. 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 G
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 being possibly excluded
by the amendment. In fact "a tax on menials and domestic servants" was,
H
778 SUPREME COURT REPORTS [2005] I S.C.R.

A 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
B 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.

C After the Constitution came into force, except for the decision of this
Court in A.B. Abdul Kadir v. State of Kera/a, (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 v. R.M.D. Chamarbaugwa/a, [1957] SCR 874)
or for levying tax on the provisions of enjoyment or indulgence of facilities
in hotels and restaurants (Express Hotels v. State of Gujarat, [ 1989] 3 SCC
D 677; ELEL Hotels & Investments ltd. and Ors. v. Union of India, [1989] 3
SCC 698; East India Hotels ltd v. State of West Bengal, [1990) Supp. SCC
755; Spences Hotels Pvt. ltd. and Anr. v. State of West Bengal and Ors.,
[ 1991] 2 SCC 154 and East India Hotels ltd, Srinagar v. State ofJ & K. and
Anr., [1994) Supp. 2 SCC 580).

E 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
F 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 al~o
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
G Commission with reference to the levy of sales tax in 1953-542• 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 affinnative. It would suffice for our

H 2. Report oflhc Taxation Enquiry Commission 1953-54 Vol. IV Part Ill pp.22
GODFREY PHILLIPS INDIA LTD. 1•. STATE OF U.P. [RUMA PAL, J] 779
.,.
' purposes to note the response of the two States whose statutes are impugned A
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." B
Similarly Uttar Pradesh said:
)-
"Special rates of levy, higher than the 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 c
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 D
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
E
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 F
indulgence, enjoyment or pleasure. In as much as none of the impugned
.A- 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 Som!liya Organics (India) Ltd v. 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 G
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
H
780 SUPREME COURT REPORTS [2005] I S.C.R.

A 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.

B 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
C 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. 123-125of1995 are dismissed albeit for different reasons.
D C.A. No. 2123of1999, C. A. Nos. 2124-25of1999, C.A. No. 2126of1999,
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.
G.N. W.P. No. 567 and 568-69/94 allowed.
C.A. Nos. 123-25/95 dismissed.
C.A. Nos. 2124-25/99, 2126/99, 2127/99, 2552-53/99, 7870/96.
6891/96 and C.A. No. 6365/2000 allowed.