1993 (5) TMI 157 - SC - VAT and Sales Tax

Whether the alteration in the said mode of levy of tax by Act 24 of 1984 has the effect of altering the nature of the tax in a way that it has ceased to be a tax on entertainments and falls beyond the field of legislative competence conferred on the State Legislature by entry 62 of List II? Held that - Appeal dismissed. The said provision for enhancement contained in sub-section (6) of section 5 relates to the cases where the proprietor of a cinema theatre opts for payment of weekly consolidated amount. Since the proprietor has the option to opt for the said scheme he cannot complain that the scheme suffers from inequality on account of absence of a corresponding provision for reduction of amount of tax. In any event the said grievance has now been removed by the introduction of sub-section (6-A) in section 5 by amendments, introduced in the Act by A.P. Act 23 of 1988 and A.P. Act 16 of 1991.

Summary

Issues Involved:
1. Legislative competence of the State Legislature under entry 62 of List II of the Seventh Schedule of the Constitution.
2. Violation of the right to equality under Article 14 of the Constitution.
3. Unreasonable restriction on the right guaranteed under Article 19(1)(g) of the Constitution.

Detailed Analysis:

Legislative Competence under Entry 62 of List II:
The primary issue was whether the impugned provisions of sections 4 and 5 of the Andhra Pradesh Entertainments Tax Act, 1939, as amended by Act 24 of 1984, fell within the ambit of the legislative power conferred on the State Legislature under entry 62 of List II of the Seventh Schedule of the Constitution. The court noted that a tax has two distinct elements: the subject of the tax and the measure of the tax. The competence of the Legislature to enact a law imposing a tax under a particular head of the legislative List must be examined in the context of the subject of the tax. Entry 62 of List II covers "taxes on luxuries, including taxes on entertainments, amusements, betting and gambling."

The court referenced the Western India Theatres Ltd. v. Cantonment Board [1959] Supp 2 SCR 63 case, which clarified that the entry contemplates luxuries, entertainments, and amusements as objects on which the tax is to be imposed. The court held that the alteration in the mode of levy of tax by Act 24 of 1984, which shifted from a tax based on each payment for admission to a tax based on the gross collection capacity per show, did not alter the nature of the tax or the subject matter of the tax. The tax continued to be a tax on entertainment, falling within the ambit of entry 62 of List II.

Violation of Right to Equality under Article 14:
The appellants argued that the impugned provisions violated Article 14 of the Constitution by treating unequals as equals, thus resulting in discrimination. The court reiterated that Article 14 ensures equality before the law and equal protection of the laws, which means all persons similarly circumstanced shall be treated alike. However, the State must possess the power to classify persons or things to be subjected to such laws.

In the field of taxation, the Legislature is permitted to exercise wide discretion in classifying items for tax purposes, as long as it refrains from clear and hostile discrimination against particular persons or classes. The court found that the Legislature had classified theatres into different categories (air-conditioned, air-cooled, ordinary, permanent, semi-permanent, touring, and temporary) and further categorized them based on the type of local area in which they are situated. The court held that the classification was not perfect but was not arbitrary or discriminatory. The court rejected the contention that the impugned provisions were violative of Article 14 on the basis that unequals were being treated equally.

Unreasonable Restriction under Article 19(1)(g):
The appellants also challenged the provisions on the ground that the levy of entertainment tax under section 4 was expropriatory and amounted to an unreasonable restriction on the right guaranteed under Article 19(1)(g) of the Constitution. The court noted that the High Court had taken into account a letter from the Andhra Pradesh Film Chamber of Commerce to the Chief Minister, where the exhibitors suggested the rates of tax, which the Government accepted with certain modifications. The court observed that the rates of tax prescribed under section 4, based on an average expected occupancy rate of less than 50 to 66 percent, could not be said to be either unreasonable or expropriatory.

The court also addressed the absence of a provision for the reduction of the composition amount in case of a reduction of seating capacity, which was later rectified by the introduction of sub-section (6-A) in section 5 by amendments in 1988 and 1991. The court held that since the proprietor had the option to opt for the scheme under section 5, he could not complain about the inequality in the scheme.

Conclusion:
The court found no merit in the appeals and the special leave petition, holding that the impugned provisions were within the legislative competence of the State Legislature under entry 62 of List II, did not violate the right to equality under Article 14, and did not impose an unreasonable restriction under Article 19(1)(g). The appeals and special leave petitions were dismissed, with parties bearing their own costs.