1991 (4) TMI 386 - HC - VAT and Sales Tax

Issues Involved:

1. Constitutionality of Section 4 under Article 14.
2. Constitutionality of Section 4-A under Article 14.
3. Discrimination against non-regional films under Sections 4 and 4-A.
4. Discrimination between regional films produced within and outside Karnataka under Section 4-A.
5. Violation of Article 304(b) due to lack of Presidential assent.
6. Special consideration for mini-theatres under Article 14.

Issue-wise Detailed Analysis:

I. Constitutionality of Section 4 under Article 14:

(a) Unequal Treatment of Exhibitors:
The petitioners argued that Section 4 of the Karnataka Entertainments Tax Act, 1958, violates Article 14 as it treats unequals as equals by not classifying exhibitors based on area, population, size, and nature of the theatre. The court noted that the Act levies a tax on the giver of the entertainment, not the receiver, and the tax is calculated based on the highest rate of admission in the theatre, irrespective of its location or size.

(b) Uniform Tax Rates:
The table in Section 4 provides different rates based on the highest admission fee, treating all theatres with admission fees of Rs. 2.50 and above alike. Petitioners argued this results in almost all theatres being taxed similarly, disproportionately impacting smaller theatres. The court upheld the classification based on admission rates, emphasizing that the legislative wisdom in choosing this method should not be questioned unless it is patently arbitrary.

(c) Greater Impact on Smaller Theatres:
Petitioners contended that smaller theatres face a greater tax burden compared to larger theatres. The court reiterated the need for clear evidence of discrimination and harsh realities of the tax's impact, which the petitioners failed to provide.

II. Constitutionality of Section 4-A under Article 14:

(a) Tax on Composition Basis:
Petitioners argued that Section 4-A's levy based on "gross collection capacity" is unrelated to realities and oppressive. The court found that Section 4-A simplifies the tax procedure by allowing a lump sum payment based on full theatre capacity, thus avoiding the need for elaborate accounts.

(b) Tax on Income or Capacity:
Petitioners claimed that Section 4-A results in a tax on income or capacity, not entertainment. The court held that the tax is still on entertainment and the method of calculation does not change its nature.

III. Discrimination against Non-Regional Films:

Petitioners argued that concessions to regional films under Sections 4 and 4-A violate Article 14. The court upheld the concessions, stating they aim to encourage regional languages and culture, which is a legitimate state interest.

IV. Discrimination between Regional Films Produced Within and Outside Karnataka:

The proviso to Section 4-A applies different rates to regional films based on their production location. The court justified this as a measure to promote local production and cultural growth, aligning with the state's economic and cultural policies.

V. Violation of Article 304(b) Due to Lack of Presidential Assent:

Petitioners contended that the tax under Sections 4 and 4-A restricts trade freedom and requires Presidential assent under Article 304(b). The court found that the tax does not directly impede the free flow of trade and is not excessive or prohibitive.

VI. Special Consideration for Mini-Theatres:

A mini-theatre owner argued that the provisions ignore the unique features of mini-theatres, violating Article 14. The court found no substantial difference in the provisions' impact on mini-theatres compared to other theatres and dismissed the contention.

Conclusion:

The court dismissed the writ petitions, upholding the constitutionality of Sections 4 and 4-A of the Karnataka Entertainments Tax Act, 1958. The court emphasized the legislative discretion in tax matters and the need for clear evidence of discrimination or arbitrariness to challenge such provisions.

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