New Delhi, Jan. 20: What Bengal thought in 2001, others thought later. Today the Supreme Court thought otherwise.
Therefore, Asim Dasgupta stands to lose a hefty amount from the tax he has been collecting since 2001 from the sale of goods that he thinks reeks of luxury, such as cigarettes and crystal.
The Supreme Court has ruled that states cannot impose luxury tax on goods but continue to do so on services.
It means a hole of Rs 2,500 crore a year in the wallets of state finance ministers like Dasgupta, most of whom find it hard to make ends meet. Revenue from the tax for Dasgupta is about Rs 100 crore.
Bad news for him. The good news for those with the money to spend on products like home theatres, video cameras and watches that cost over Rs 4,000 is that, if manufacturers translate the court order into action, prices would drop.
In Bengal, the three products mentioned above are charged a luxury tax of 5 per cent (see chart).
The court said states had no legislative competence and power to impose a luxury tax on 'goods that have no service component'.
The tax already paid would not be returned, though. If the companies making the goods have already collected the tax, it would have to be paid to the respective state governments.
The bench also said bank guarantees of the companies to states against the tax component would stand 'discharged' with this ruling.
Luxury tax on goods was first imposed by Dasgupta in June 2001 to protect local companies from the growing tide of goods coming in from other states.
Initially, he had imposed a tax of 10 per cent on cigarettes and other tobacco products and as high as 20 per cent on high-end home theatre systems. Subsequently, the 20 per cent tax slab was scaled back. Bengal levies luxury tax on 19 manufactured goods.
The levy proved a big earner also for other states like Uttar Pradesh, Haryana and Andhra Pradesh.
Industry, especially tobacco companies, had been contesting the legitimacy of luxury tax. The petitioners contended that their products were already taxed under central excise laws and the revenue collected was shared by the Centre with the states with the rider that they would not impose a sales tax on these products.