Commercial Tax Officer Vs Nac Jewellery (Madras High Court)
Summary: The Madras High Court dismissed the Writ Appeals filed by the Commercial Taxes Department against orders of the Writ Court concerning luxury tax assessments of M/s. Nac Jewellery, an entity engaged in the manufacture and sale of jewellery. The assessments related to the years 2002-03, 2003-04 and 2004-05 and had been challenged on the ground that luxury tax ought not to have been levied on the purchase value of gold, silver and platinum jewellery and precious stones. The assessee had also sought refund of the tax paid.
The appeals comprised WA No. 3457 of 2019, WA No. 3458 of 2019 and WA No. 3472 of 2019, along with connected miscellaneous petitions. The appeals were filed under Clause 15 of the Letters Patent against the order dated 11.12.2009 in WP Nos. 24569 to 24571 of 2009.
Before the Division Bench comprising Dr. Justice Anita Sumanth and Mr. Justice Sunder Mohan, both sides concurred that the issue concerning the levy of luxury tax itself had already been decided against the Revenue in Godfrey Phillips India Ltd. v. State of U.P., (2005) 139 STC 537. The Court reproduced paragraphs 96 to 99 of that judgment. In those paragraphs, the Supreme Court held that Entry 62 of List II did not permit levy of tax on goods or articles and that the expression “luxuries” referred to activities of indulgence, enjoyment or pleasure. The Supreme Court consequently held the impugned legislation seeking to tax luxury goods to be legislatively incompetent. However, following the principles in Somaiya Organics (India) Ltd. vs. State of U.P., (2001) 5 SCC 519, it did not consider it appropriate to permit refund of taxes already paid under the impugned Acts.
The Supreme Court had further considered the issue of amounts collected by assessees from consumers as luxury tax. It held that where such amounts had been collected from consumers after obtaining interim orders against recovery of luxury tax, those amounts were required to be paid to the respective State Governments on the ground that retention would amount to unjust enrichment. The Supreme Court also left other issues open after deciding the scope of Entry 62 of List II.
In the present proceedings, the issue that remained before the Madras High Court was therefore the assessee’s entitlement to refund of the luxury tax already paid. The matter had been adjourned to enable the learned Special Government Pleader appearing for the Revenue to ascertain whether the burden of the luxury tax had been passed on to customers.
The Court noted that the Writ Petitions had originally been disposed of without the benefit of a counter. Consequently, the statement in the Writ affidavits that the entire luxury tax had been paid by the petitioner from its own resources and had not been passed on to customers, and that the petitioner had not collected luxury tax from customers, had not been controverted.
At the request of the Special Government Pleader, the Division Bench had nevertheless adjourned the matter to obtain specific instructions on whether the tax burden had been passed on, since such passing on would have a bearing on the refund. The Court observed that if the burden had indeed been passed on, the question of refund would not arise as it would amount to unjust enrichment.
A written instruction dated 24.08.2026 was subsequently obtained from the jurisdictional Assessing Officer, namely the State Tax Officer, Mandaveli Assessment Circle. The Assessing Officer confirmed that, for assessment years 2003-03, 2003-04 and 2004-05, the assessee had paid the luxury tax from its own account and had not passed the burden of tax to customers; in other words, the tax had not been collected from customers.
On the basis of that confirmation, the Division Bench held that the respondent assessee was entitled to refund of the tax. The Court directed that the refund be paid by the Department within eight weeks.
Accordingly, the Madras High Court dismissed the Writ Appeals and the connected Miscellaneous Petitions, with no order as to costs. The judgment was delivered on 25.08.2026 and records that it is a speaking order with Index and Neutral Citation available.
Cases Discussed
- Godfrey Phillips India Ltd. v. State of U.P., (2005) 139 STC 537 — considered on the levy of luxury tax under Entry 62 of List II; the Court noted that the issue of the levy itself had already been decided against the Revenue and reproduced the relevant paragraphs of the Supreme Court judgment.
- Somaiya Organics (India) Ltd. vs. State of U.P., (2001) 5 SCC 519 — referred to in the reproduced Godfrey Phillips decision in relation to the treatment of taxes already paid and the question of refund.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
In these Writ Appeals, the challenge is by the Commercial Taxes Department to orders of the Writ Court where luxury tax assessments had been assailed. The respondent/assessee is an entity engaged in the manufacture and sale of jewellery. Assessments for 2002-03, 2003-04 and 2004-05 had been challenged in the Writ Petitions on the ground that there ought not to be levy of luxury tax on the purchase value of gold silver and platinum jewelleries and precious stones and seeking refund of the tax paid.
2. We have heard Mrs.G.Dhanamadhri, learned Special Government Pleader for the appellant and Mr.Jawahar Surya, learned counsel appearing for Mr.N.Murali, learned counsel for the respondent.
3. Both learned counsel concur on the position that the issue as far as the levy of luxury tax is itself concerned has been decided adverse to the revenue in Godfrey Phillips India Ltd. v. State of U.P. (2005) 139 STC 537. Paragraphs 96 to 99 are relevant and are extracted below:
96. 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 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) Ltd. vs. 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.
97. It was stated on behalf of the State Governments that after obtaining interim orders from this Court against recovery of luxury tax, the appellants 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.
98. 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.
99. In view of our opinion on the scope of Entry 62 List II, we do not think it necessary to answer the other issues raised in these appeals which are left open.
4. What remains is as to the entitlement of the assessee for refund of the tax paid by them. The matter was adjourned to enable the learned counsel for the appellant to ascertain whether the burden of luxury tax had been passed on to the customers.
5. The Writ Petitions had been disposed without the benefit of a counter and hence the statement in the Writ affidavits to the effect that ‘the petitioner submits that the entire luxury tax was paid from the petitioner only from its resources and was not passed on to the customers. In other words, the petitioner did not collect luxury tax from its customers.’ is hence not been controverted.
6. In any event, and at request of the learned Special Government Pleader, we had adjourned this matter to enable her to obtain specific instruction on the aspect of whether the burden of tax had been passed on as that would have a bearing on the refund now sought. If the burden had, indeed, been passed on, then the question of refund would not arise as it would amount to unjust enrichment.
7. A written instruction dated 24.08.2026 had been obtained, wherein the jurisdictional Assessing Officer, viz., State Tax Officer, Mandaveli Assessment Circle, has confirmed that for assessment years 2003-03, 2003-04 and 2004-05, the assessee has paid the luxury tax from their own account and has not passed on the burden of tax to the customers or in other words, tax has not been collected from the customers. The respondent assessee is thus entitled to the refund of the tax that shall be paid over within eight weeks by the Department.
8. With this, these Writ Appeals and the connected Miscellaneous Petitions are dismissed. No costs.
