A division bench of the Kerala high court today upheld a single judge'sfinding that the levy of five percent luxury tax on cigarettes wasunconstitutional.
Dismissing two writ appeals by the state government, the bench, comprisingchief justice K.K.Usha and justice Kurian Joseph, observed that no material hadbeen placed before the court to show that the luxury tax had been imposed as acharge for a convenience or service provided by the state on those who choose toavail the service or convenience. Hence, the impugned tax cannot be described asregulatory or compensatory in nature.
An attempt was made on behalf of the state to contend that the tax imposedwas regulatory or compensatory in nature, hence not hit by article 301 ofconstitution. The bench did not find any merit in this contention.
The government had imposed the levy in 1994. Challenging the same, ITCLtd and Hallmark Tobacco Company approached the court against the provisions ofKerala finance act, 1994, to the extent that it had amended the Kerala tax onluxuries in Hotels and Lodging Houses Act, 1976.
The single judge had found that the impugned provisions under sect 4a of theKerala tax on luxuries act, 1976 and amended by the finance bill, 1994, wereviolative of articles 301 and 304 of the constitution and declared itunconstitutional, ultra vires and void. All the other contentions of thepetitioners were rejected.
The single judge also found that the impugned act was not void for want oflegislative competence of the state.
The government had filed appeals challenging the single judge's findings thatthe provisions of the impugned act were violative of articles 301 and 304 of theconstitution.
The petitioners had also filed appeals challenging the rejection of theircontentions against validity of the statute on other grounds. Their appeals werealso dismissed by the bench.
Cigarettes are classified as a luxury item. Under clause (ee) of section 2,luxury tax was levied on the basis of the value of the commodity at the point ofsupply and payable by the person who uses or consumes the same. The tax had tobe collected by the stockist and paid to the government.
The bench, however, rejected the petitioners contention against thelegislature competence.
The act had been stayed after it was imposed.
(PTI)
