Reliance Industries Limited, Bangalore and Another vs State of Karnataka and Others

This writ petition is filed under Article 226 of the Constitution of India challenging the validity of provisions of Sl. No. 5(ii) of the Schedule as inserted in the Karnataka Tax on Luxuries Act, 1979 (for short, ''the Act'') purporting to impose luxury tax on telephone and cellular phones imported from outside the country along with Sections 4-B, 4-C, 5 and Section 5-A of the Act read with Rule 5-B of the Karnataka Tax on Luxuries Rules, 1979 (for short, ''the Rules'').

It is averred in the petition that the inclusion of the said entry is beyond legislative competence of the respondent-State and Sl. No. 62 of the State List II of the Seventh Schedule besides being ultra vires Sl. Nos. 41 and 83 of the Union List of India, and Articles 265, 301 and 304 and void as offending Articles 14 and 19(1)(g) of the Constitution of India. The statement of objections have been filed by the respondent-State averring that the inclusion of item at Sl. No. 5(ii) of the Schedule as inserted by the Karnataka Taxation Laws (Amendment) Act, 2002 (Act No. 5 of 2002) which has come into effect from 1-4-2001 is constitutional as the respondent-State has legislative competence in view of Entry 62 of State List II, Seventh Schedule to the Constitution.

I have heard the learned Counsel appearing for the petitioner.

The learned Counsel appearing for the petitioner submitted that the contentions raised in the petition is not now covered in favour of the petitioner in view of the decision of the Hon''ble Supreme Court in Godfrey Phillips India Limited and Another v State of Uttar Pradesh and Others, 2005(58) Kar. L.J. 171 (SC),wherein Hon''ble Supreme Court has clearly held that the 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 never sought to be imposed on goods till 1993 and the method of taxing luxury goods invariably was by subjecting them to the extent fiscal regimes of excise duties, sales tax, customs duties etc., at heavier rates and said Entry 62 of List II does not permit levy on goods or articles and the word "luxury" in the entry refers to activities of indulgence, enjoyment or pleasure.

Learned Government Advocate fairly submitted that this case is covered by the decision of the Hon''ble Supreme Court in Godfrey Phillips India Limited''s case, relied upon by the learned Counsel for the petitioner.

I have considered the contention of the learned Counsel appearing for the parties.

It is clear from the perusal of the judgment of the Hon''ble Supreme Court in Godfrey Phillips India Limited''s case that the Supreme Court has held in para 93 as follows.-

"93. 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. Inasmuch as none of the impugned 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 Somaiya Organics (India) Limited v State of Uttar Pradesh, (2001)123 STC 623 (SC): AIR 2001 SC 1723, 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".

In the present case by including Entry 5(ii) of the Schedule, the telephones of every description including cellular phones in the Schedule to the Act, the respondent-State is imposing tax on the goods that is electronic goods imported from outside the country viz., telephones of every description including the cellular phones and in view of the decision of the Hon''ble Supreme Court that the Entry 62 of List II does not enable the State Government to levy tax on goods or articles, it is clear that the inclusion of the said entry is unconstitutional as the State has no jurisdiction to levy tax on goods or articles under Entry 62 of List II of the Constitution of India and the decision of the Hon''ble Supreme Court referred to above applies on all fours to the facts of the present case. Accordingly, I hold that the Entry 5(ii) of the Schedule as inserted into the Schedule to the Act by Amendment Act 5 of 2002 which has come into effect from 1-4-2001 is held to be unconstitutional and consequently the demand notices issued to the petitioner are quashed.

Accordingly, the writ petition is disposed of.