Tobacco companies like ITC, Godfrey Phillips and VST can heave a sigh of relief with the Supreme Court on Thursday ruling that states cannot impose luxury tax on goods. The luxury tax can, however, be levied if the goods are linked to services as in the case of massage parlours.Several states including West Bengal, Karnataka and Maharashtra impose a luxury tax on cigarettes and ghutkas. The mop-up by all states from the luxury tax is estimated to be about Rs 2,500 crore.The five bench constitution bench headed by Chief Justice R.C. Lahoti said companies cannot recover the luxury tax so far paid to states. Further, tax already collected from companies should be deposited with the respective states, it said. Bank guarantees provided by companies to states against the tax component would stand “discharged” with this ruling, the apex court said.Reacting to the verdict, Kothari Products (that makes Pan Parag) Managing Director Deepak Kothari said the luxury tax had presented a very complex problem for the guthka industry. “In states like UP, there is no luxury tax but in Andhra Pradesh, ghutka attracts a luxury tax of 50 per cent. So far we have paid luxury tax only in Karnataka some two years ago and from what we understand from the SC ruling, we will not get any refund of this.”Added Godfrey Phillips’ spokesperson Sandeep Kumar: “We never actually got down to really paying the tax as tobacco companies secured a stay order in 1992.”
