2002 (8) TMI 813 - HC - VAT and Sales Tax

Issues Involved:
1. Constitutional validity of the Maharashtra Tax on Luxuries Act, 1987, as amended by Maharashtra Tax Laws (Levy and Amendment) Act, 2001.
2. Whether the levy of luxury tax on pan masala containing tobacco (gutkha) is a tax on sales or on luxuries.
3. Compliance with Article 301 of the Constitution and whether the levy is saved by Article 304(b).

Detailed Analysis:

Issue 1: Constitutional Validity of the Amended Luxury Tax Act
The petitioners challenged the constitutional validity of the Maharashtra Tax on Luxuries Act, 1987, as amended by Maharashtra Tax Laws (Levy and Amendment) Act, 2001. They argued that the levy of luxury tax at the rate of 25% on pan masala containing tobacco (gutkha) was, in effect, a tax on sales and not on luxuries, making it a colourable legislation beyond the legislative competence of the State Legislature. The court examined the historical background and structure of the legislation, including various provisions under the Central Excise Tariff Act, 1985, and the Bombay Sales Tax Act, 1959.

Issue 2: Tax on Sales or Luxuries
Contention (A):
The petitioners argued that the levy of luxury tax was essentially a tax on sales, falling under legislative entry No. 54, and not a tax on supply of luxury under entry No. 62 of List II of the Seventh Schedule to the Constitution of India. They contended that the State, aware of the Supreme Court's ruling in Kothari Products Ltd. v. Government of Andhra Pradesh, which barred sales tax on pan masala containing tobacco, imposed the luxury tax as a guise to levy sales tax.

Court's Analysis:
The court referred to various judgments to determine the nature of the tax. It emphasized that the essential character of the levy is a tax on supply of luxury (gutkha) and not on sales. The court noted that the term "luxury" in entry 62 should be given its widest possible meaning, encompassing all manifestations of extravagance or indulgence. The court upheld that tobacco is an article of luxury and the levy of luxury tax on gutkha is within the legislative competence of the State Legislature under entry 62 of List II of the Seventh Schedule to the Constitution.

Issue 3: Compliance with Article 301 and Article 304(b)
Contention (C):
The petitioners argued that the impugned Act violated Article 301 of the Constitution, which ensures freedom of trade, commerce, and intercourse throughout India, and was not saved by Article 304(b). They cited judgments from the Allahabad and Kerala High Courts, which held similar levies unconstitutional.

Court's Analysis:
The court held that taxation simpliciter is not within the sweep of Article 301. It stated that the impugned levy is regulatory in nature, aimed at discouraging the consumption of tobacco products harmful to public health, and does not directly and immediately impede trade, commerce, and intercourse. The court noted that the luxury tax is imposed on the supply of luxury (gutkha) within the State and does not discriminate between goods imported from other States and those manufactured locally. The court distinguished the present case from the cited judgments and concluded that the levy of luxury tax is valid, legal, and within the legislative competence of the State Legislature.

Conclusion
The court dismissed the petitions, upholding the constitutional validity of the Maharashtra Tax on Luxuries Act, 1987, as amended by the Maharashtra Tax Laws (Levy and Amendment) Act, 2001. The levy of luxury tax on pan masala containing tobacco (gutkha) was deemed a tax on luxuries, not on sales, and was found to be compliant with Articles 301 and 304(b) of the Constitution. The petitions were dismissed with no order as to costs.

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