Holding

The Jammu & Kashmir Hotel (Amenities and Services) Tariff Taxation Act, 1980 is a valid exercise of the State Legislature’s power under Entry 62 of List II and does not constitute a tax on income.

Summary

The Jammu & Kashmir Hotel (Amenities and Services) Tariff Taxation Act, 1980 imposes a tax on amenities and services provided by hotels. East India Hotels Ltd. and others challenged its constitutional validity, arguing that the tax was effectively on the hotel keeper's gross receipts, i.e., income, which under the Constitution can only be taxed by Parliament under Entry 82 of List I. The High Court held that the tax was on the provision of services, not on income, and was within the State's power under Entry 62 of List II (luxury tax). On appeal, the Supreme Court, relying on the precedent set in Express Hotels Pvt. Ltd. v. State of Gujarat, affirmed that Entry 62 includes taxes on services and that price can be a rational indicator of luxury. The Court also examined Article 370 and the 1954 Presidential Order, concluding that the J&K Legislature retained residuary power to legislate on List II matters. Consequently, the Act was held to be within the legislative competence of the J&K State Legislature and the appeals were dismissed.

Issues considered

The legislative competence of the Jammu & Kashmir State Legislature to enact the Hotel (Amenities and Services) Tariff Taxation Act, 1980 under Entry 62 List II versus Entry 82 List I.
Whether the tax imposed by the Act is a tax on income (gross receipts) or a tax on amenities and services (luxury).
The effect of Article 370 and the Constitution (Application to Jammu & Kashmir) Order, 1954 on the State's legislative powers.

Legislation cited

Constitution (Application to Jammu & Kashmir) Order, 1954
Constitution of Indias. Article 246, s. Article 248, s. Article 370, s. Entry 62 List II, s. Entry 82 List I
Jammu & Kashmir Hotel (Amenities and Services) Tariff Taxation Act, 1980s. 13, s. 2(c), s. 2(j), s. 3

Subjects

constitutional validitylegislative competencestate taxationluxury taxArticle 370Jammu & Kashmirhotel taxList IIList ISupreme Court

Judgment

EAST INDIA HOTELS LTD. SRINAGAR AND ANR. ETC. ETC. A
v.
STATE OF JAMMU AND KASHMIR AND ANR. ETC. ETC.

JULY 12, 1994

[KULDIP SINGH AND K. RAMASWAMY, J.I.[ B

Co11stillltion of India-Ent1y 62 list II of Seventh Scliedu/~fanum1 &
Kashmir Hotel (Amenities and Services) Tariff Taxation Act, 1980-Sections
2(c), 2(j)3 and 13---Constinttional validity-Levy of tax on amenities and scr-
vicr.s-Wl1ether within legislative competence of State Legislatur~Held, Yes. c
Co11stitution of India-Article 370 (I j-Constitutio11 (Application to
Jammu & Kashmir) Order 195~Residuary powei-Legislative competence

- of J & K Legislature to enact laws on any subject which come within list II,
Seventh Schedule.

Jammu & Kashmir Hotel (Amenities and Services) Tariff Taxation Act,
D

1980-Constitutional Validity of

The constitutional validity of the Jammu & Kashmir Hotel (Amenities
and Services) Tariff Taxation Act, 1980 had been challenged on the ground
that the levy of tax was on the gross receipts of the 'hotel keeper' and as such E -
it was a tax on "income" which could only be imposed by the Parliament
under Entry 82 list I Schedule VII Constitution of India. The question for
consideration was whether the Jammu & Kashmir State Legislature had the
legislative competence to enact the Jammu & Kashmir Hotel (Amenities and
Services) Tariff Taxation Act, 1980. High Court answered the question in the F
affirmative. These appeals had been filed against the judgment of the High
Court. In the writ petition under Article 32 of the Constitution of India the
validity of the Act had been challenged on the same grounds.

Dismi.ssing the appeals/writ petitions, this Court
G
HELD: 1.1. For the reasons and the conclu•ions reached by the Con·
stitution Bench of this Court in Express Hotels Pvt. Ltd. v. State of Gujarat and
Anr., (1989] 2 SCR 893, the challenge to the validity of the Jammu and
Kashmir Hotel (Amenities and Services) Tariff Taxation Act, 1980, on the
ground of legislative competence has to be rejected. It was held in that case
that the concept of a tax on 'luxuries' in Entry 62, List II cannot be limited H
421
422 SUPREME COURT REPORTS (1994] SUPP. 1 S.C.R.

A merely to tax things tangible and corporeal in their aspect as 'luxuries'. The
entry encompasses all the manifestations or emanations, the notion of
'luxuries' can fairly and reasonably be said to comprehend. The element of
extravagance or indulgence that differentiates 'luxuries' from 'necessity' can
not be confined to goods and articles. There can be elements of extravagance
or indulgence in the quality of services and activities. The question is
B whether the quality or standards of lodging accommodation in hotels can be
called luxurious by contemporary standards by reason of the higher stand-
ards of charges payable for the accommodation. Legislature has chosen to
identify the luxury by the statutory standards prescribed by it. According to
the legislative assumption, price does become evidence of the special quality
c on the basis of which 'luxuries' could be distinguished and that some special
quality is attributable to goods and services through the means of the price.
Quality and price, in the legislative assessment, can be assumed to have a
.j·
logical inter-relationship. This cannot be held to suffer from the vice of
irrationality. [426-A, H, 427-A-C) -
D Express Hotels Pvt. Ltd. v. State of Gujarat & Anr., (1989) 2 SCR 893,
relied on.

1.2. By the Presidential Order, made under Article 370 (1) of the Con-
E stitution of India, called the Constitution (Application to Jammu & Kash-
mir) Order, 1954, the provisions of the Constitution of India were extended
and made applicable to the State of Jammu & Kashmir with several excep-
!ions and modifications. The words "notwithstanding anything in clauses (2)
& (3)" occurring in clause (1), and clauses 2, 3 and 4 of Article 246 were
omitted. Article 248 and Entry 97 of List I, List II and List III (Concurrent
F List) of the Seventh Schedule were also omitted. Thus the Parliament was
vested with the power to make laws in respect of Jammu and Kashmir with
respect to the matters enumerated in Entries 1 to 96 of List I Schedule VII.
The residuary power was retained by the State of Jammu & Kashmir. It is
thus obvious that except the legislation relating to Entries 1to96 of List I the
legislature of Jammu and Kashmir can legislate on every other matter. The
G Jammn & Kashmir Legislature has, therefore; the legislative competence to
enact laws on any subject which comes within list II Schedule VII by virtue of
the residuary power it has been given by the Presidential order. In this case,
the name J & K Hotel (Amenities and Services) Tariff Taxation Act would
also be a legislation under Entry 62 List II and as such within the com-
H petence of the Jammu and Kashmir Legislature. [428-B-D,F)
EAST!NDIAHOTELS LTD. v. STATEOFJ &K[KULDIPS!NGH.J.] 423

CIVIL APPELLATE/ORIGINAL JURISDICTION: Civil Appeal A
Nos. 3069 & 3070 (NCT} of 1981 etc. etc.

From the Judgment and Order dated 7.9.81 of the Jammu & Kashmir
High Court in W.P. Nos. 286 & 343 of 1980.

Ms. Purnima Bhat, Anant Palli, Atul Sharma, Mahesh Agarwal, E.C. B
Agrawal, Ms. Rina Agarwal for the Appellants/Petitioners. In C.A. No.
188/92 & W.P.Nos. 1071/83, 8809-10/82 & 1142/84.

H.N. Salve for the Appellant in C.A.Nos. 3069-3070/81.

Vineet Kumar for the Appellant in C.A.No. 29/82. c
Vimal Dave for the Appellant in C.A. No. 92/83.

A.K. Tiwari, E.M.S. Anam and S.K. Bhattacharya for the Appellants
in C.A. No. 3341/88.
D
R.P. Bhatt and Ashok Mathur for the Respondnet in C.A.Nos. 29/82,
. 3069-70/81, 188/82.

The Judgment of the Court was delivered by

KULDIP SINGH, J. The question for consideration is whether the E
Jammu & Kashmir State Legislature has theJegislative competence to
enact the Jammu & Kashmir Hotel (Amenities and Services) Tariff Taxa-
tion Act, 1980 (that Act). A Division Bench of the Jammu & Kashmir High
Court answered the question in the affirmative. These appeals are against
the judgment of the High Court. In the writ petitions under Article 32 of F
the Constitution of India the validity of the Act has been challenged on the
same grounds as was done by the appellants before the High Court.

The preamble to the Act seeks to provide for the levy of tax on the
amenities and services in a hotel in the State. Section 2 is the definition
clause and defines, inter alia, the expressions "amenities and services 11 and G
"hotel" occurring in clauses C and J respectively which are·as· follows:-

"( c) "Amenity and Service" includes lodging, boarding, massaging,
bathing, hair dressing, and beauty parlour facilities and providing
entertainment and other facilities, whether charged/chargeable
jointly or separately; H
424 SUPREME COURT REPORTS (1994) SUPP. 1 S.C.R.

'A G) "Hotel" means any premises or part of premises including a hut,
house-boat, tent, guest house, rest house or a club occupied by
resident or casual visitors with or without board, service and
amenities in consideration of a tariff and includes a restaurant
excluding the portion used as a bar for service or supply of liquor
as defined in J ammu and Kashmir Excise Act, Svt. 1958, attached
B or annexed thereto."

Section 3 read with Schedule annexed to the Act are the charging
provisions which provide:

"SCHEDULE
c
Rate of Tariff Rate of Tax

A. Resident Visitors

1. Upto Rupees 100 a day 5%
D
2. Rs. 101 to Rs. 200 a day 8%

3. Rs. 201 to Rs. 300 a day 12%

4. Rs. 301 and above a day 15%

E B. Casual (Non-resident) Visitors
full amount of tariff 8%,,

Section 13 of the Act which provides for collection of taxes by the assessee
is as under:-

F "13. Collection of tax by the assessee-(1) A registered hotel
keeper is authorised to charge the tax due on tariff under the
provisions of this Act.

(2) Notwithstanding anything contained in Sub-Section (1) -

G (a) if any persons other than a registered hotel keeper collects any
amount by way of tax leviable under this Act, or

(b) if any registered hotel keeper collects tax in excess of the
amount chargeable under this Act,

H such person or such registered hotel keeper, as the case may be,
FAST INDIA HOTELS LTD.». STATE OF J & K!KULDIP S!NGH.J.] 425

shall pay such sum to the Government within the period of thirty A
days from the expiry of each quarter and the provisions of Sub-
Section (1) of Section 12 and the provisions of this Act, relating
to recovery shall apply to the recoYcry of such sum."

The rcmain.ing Sections of the Act refer to the returns to be liled by every
"hotel keeper" and "person" liable to pay tax under the Act, the assessment B
and collection of tax, the imposition of penalty, the payment of tax and
penalty, appeals, revisions etc. etc.

The main contention raised by the appellants before the High Court
was that the levy of tax is on the gross receipts of the 'hotel keeper' and as
such it is a tax on "income" which could only be imposed by the Parliament
c
under Entry 82 List I Schedule VII Constitution of India. The High Court
referred to Section 13 of the Act which authorised the 'hotel keeper' to
charge the tax due from the customers. It further noticed that the taxing
event under the Act is not the receipt of gross income by a 'hotel keeper' but
is in fact the provision of amenities and services by him to his customers. The D
gross income of a 'hotel keeper' has been merely used as a measure to
quantify the tax payable under the Act. Interpreting the relevant provisions
of the Act the High Court found that the tax is leviablc irrespective of the
consideration whether the 'hotel keeper' earns any income in the sense of the
Income Tax Act. All that is necessary is the occupancy of the hotel by the E
customers and their availing the amenities and services envisaged under the
Act. On appreciation of all these factors the High Court came to the con-
clusion that the levy, being on amenities and services provided by the 'hotel
keeper' to his customers, it was not a tax on income and as such was within
the legislative competence of the State Legislature.
F
It is not necessary for us to go into the merits of the conirovcrsy
raised before the High Court because the matter is no longer res-imegra.
The constitutional validity of The Gujarat Tax on Luxuries (Hotels and
Lodging Houses) Act, 1977, Tamil Nadu Tax on Luxuries in Hotels and
Lodging Houses Act, 1981. The Karnataka Tax on Luxuries (Hotels and G
Lodging Houses) Act, 1979 and The West Bengal Entertainments and
Luxuries (Hotels and Restaurants) Tax Act, 1972 which are legislations
similar to the Act, was challenged before this Court in Express. Hotels Pvt.
Ltd. v. State of Gujarat & Anr., [1989) 2 SCR 893, on the ground that the
imposition of tax on "luxury" was beyond the legislative competence of the
State Legislatures under Entry 62 List II of Vllth Schedule to the Constitu- H
..i26 SUPREME COURT REPORTS [1994] SUPP.1 S.C.R.

A tion of India. This Court dismissed the writ petitions of the Hotel owners
and u ph e ld the validity of the State legislations. All the four taxing statutes
before this Court in Express Hotels case (supra) were analogous to the Act
and the scheme of the legislations was substantially similar. The following
cont ention s inter alia, \Vere raised before this Court in £\press Hotels case
1

(supra):-
B
"(a) The Taxation-Entry 62 of List fl providing for taxes on
"luxuries" contemplates, and takes within its sweep, a tax on goods
and articles in their aspect and character as luxuries and does not
include "services" or "activities". The levy on the services for lodging
provided at the hotels, is, therefore, beyond the scope of Entry 62
c List II.

(c) The real criterion distinguishing "luxury" is the special attribute
or quality of the commodity or the services, as the c ase may be,
and not the price-factor simpliciter. The essential distingu ishi ng
D
attribute is a qualitat ive one. Distinction base d purely on the
quantitative difference in the pric e is. not a rational Criterion to
identify "luxuries". The impost based on the mere criterion of price
which has no re lation to the concept of luxuries, is ultra-vires the
State power under Entry 62 List II..

E (d) The scheme of the Act in so far as it makes the price and not
quality, the sole basis for identification of the subject of the tax,
makes no distinction between the components of the services which
include both necessities and comforts, as distinguishable, from
'luxuries'. Levy on such composite subject-matter is bad."

F M.N. Venkatchaliah, J. (as the Learned CJ! then was) speaking for the
Constitution Bench rejected the contentions on the following reasoning:·

''The concept of a tax on 'luxuries' in Entry 62 List II cannot be
limited merely to tax things tangible and corporeal in their aspect
as 'luxuries'. It is true that while frugal or simple good and
G
medicine may be classified as necessities; articles such as jewellery,
perfume, intoxicating liquor, tobacco etc. could be called articles
of luxury. But the legislative entry cannot be exhausted by the�e
cases, illustrative of the concept. The entry encompasses all the
manifestations or emanations, the notion of 'luxuries' can fairly and
H reasonably be said to comprehend, The element of extravagance
EAST INDIA HOTELS LIB. v. STATE OF J & K jKULDIP SINGH.J.J 427

or indulgence that differentiates 'luxury' from 'necessity' can not A
be confined to goods and articles. There can be elements of
extravagance or indulgence in rhe quality of services and ac~
tivities .............. We are presently concerned with the question
whether the quality or standards of lodging accommodation in
hotels c.:an be cJllt:<l luxurious by contemporary stand<irds by
reason of the higher standards of charges payable for the accom- B
modation. Legislature has chosen to identify the luxury by the
statutory standards prescribed by it, According to the legislative
assumption, price does become evidence of the special quality on
the basis of which 'luxuries' could be distinguished and that some
special quality is attributable to goods and services through the
means of the price. Quality and price, in the legislative assessment,
c
cail be assumed to have a logical inter~relationship. This cannot
be held to suffer from the vice of irrationality."

The provisions of the Act are similar to the legislations of the four States
mentioned above and the scheme of the Act is also substantially the same. D
Therefore, for the reasons and the conclusions reached by the Constitution
Bench of this Court in Express Hotels case the challenge to ti:e validity of
the Act on the ground of legislative competence has to be rejected.

We may briefly notice the constitutional provision5 under which the
legislature of the State of Jammu & Kashmir has the competence to E
legislate the Act. Article 370 of the Constitution of India, to the extent
relevant, is as under : -
11
Temporary provisions with respect to the State of Jammu and
Kashmir (1) Notwithstanding anything in this Constitution,-
' F
(b) the power of Parliament to make laws for the said State shall
be limited to -

(i) those matters in the Union List and the Concurrent List which,
in consultation with the Government of the State, are declared by
the President to correspond to matters specified in the Instrument G
of Accession governing the accession of the State to the Dominion
of India as the matters with respect to which the Dominion Legis-
lature may make laws for that State; and

(ii) such other matters in the said Lists as, with the concurrence
of the Government of the State, the President may by order specify. H
428 SUPREME COURT REPORTS 11994) SUPP.1 S.C.R.

A ( d) such of the other provisions of this Constitution shall apply in
relation to that State subject to such exceptions and modifications
as the President may by order specify."

By the Presidential Order, made under Article 370{1) called the
B Constitution (Application to Jammu & Kashmir) Order 1954, the
provisions of the Constitution of India were extended and made applicable
to the State of Jammu & Kashmir with several exceptions and modifica-
tions. The words "notwithstanding anything in clauses (2) & (3)" occurring
in clause (1), and clauses 2, 3 and 4 of Article 246 were omitted. Article
248 and Entry 97 of List I, List II and List III (Concurrent List) of the
C Vllth Schedule were also omitted. Thus the Parliament was vested with the
power to make laws in respect of Jammu & Kashmir with respect to the "
matters enumerated In Entries 1 to 96 of List I Schedule VII. The residuary
power was retained by the State of Jammu & Kashmir. It is thus obvious
that except the legislation relating to Entries 1 to 96 of List I the legislature
of Jammu & Kashmir can legislate on every other matter. Section 5 of the
D J ammu & Kashmir Constitution reads as under: -

"Extent of executive and legislative power of the State. The execu-
tive and legislative power of the State extends to all matter except
those with respect to which Parliament has power to make laws
E for the State under the provisions of the Constitution of India."

The Jammu & Kashmir Legislature has, therefore, the legislative com-
petence to enact laws on any subject which comes within List II Schedule
VII by virtue of the residuary power it has been given by the Presidential
Order mentioned above. The Constituti~n Bench in Express Hotels case has
F
held that the four legislations dealt with therein were under Entry 62 List
II Schedule VII Constitution of India. On similar reasoning the Act would
also be a legislation under the same Entry 62, and as such within the
competence of the Jammu & Kashmir Legislature. We also agree with the
reasoning and the conclusions reached by the High Court. There is no
G force in the contention that the Act is a legislation under Entry 82 List 1
Schedule VII Constitution of India. We, therefore, see no ground to
interfere with the Divisions Bench judgment of the High Court. The
appeals/writ petitions are dismissed. No costs.

A.G. Petitions dismissed.