GODFREY PHILLIPS INDIA LTD. AND ANR. v. STATE OF U.P. AND ORS.

However while widening the scope of Entry 54 of List II, the powers 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 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 comply with the restrictions mentioned Section 15 of the Central Sales Tax ~ Act, 1956.

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 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 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.

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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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.