A division bench of the Kerala high court today upheld a single judge's finding that the levy of five percent luxury tax on cigarettes was unconstitutional.
Dismissing two writ appeals by the state government, the bench, comprising chief justice K.K.Usha and justice Kurian Joseph, observed that no material had been placed before the court to show that the luxury tax had been imposed as a charge for a convenience or service provided by the state on those who choose to avail the service or convenience. Hence, the impugned tax cannot be described as regulatory or compensatory in nature.
An attempt was made on behalf of the state to contend that the tax imposed was regulatory or compensatory in nature, hence not hit by article 301 of constitution. The bench did not find any merit in this contention.
The government had imposed the levy in 1994. Challenging the same, ITC Ltd and Hallmark Tobacco Company approached the court against the provisions of Kerala finance act, 1994, to the extent that it had amended the Kerala tax on luxuries in Hotels and Lodging Houses Act, 1976.
The single judge had found that the impugned provisions under sect 4a of the Kerala tax on luxuries act, 1976 and amended by the finance bill, 1994, were violative of articles 301 and 304 of the constitution and declared it unconstitutional, ultra vires and void. All the other contentions of the petitioners were rejected.
The single judge also found that the impugned act was not void for want of legislative competence of the state.
The government had filed appeals challenging the single judge's findings that the provisions of the impugned act were violative of articles 301 and 304 of the constitution.
The petitioners had also filed appeals challenging the rejection of their contentions against validity of the statute on other grounds. Their appeals were also 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 of supply and payable by the person who uses or consumes the same. The tax had to be collected by the stockist and paid to the government.
The bench, however, rejected the petitioners contention against the legislature competence.
The act had been stayed after it was imposed.