2004 (5) TMI 570 - HC - VAT and Sales Tax

Summary

Issues:
1. Entertainment tax calculation based on seating capacity.
2. Application for reduction in seating capacity under section 3D of the 1954 Act.
3. Authority to approve reduction in seating capacity.
4. Grounds for rejecting the application for reduction in seating capacity.

Entertainment Tax Calculation Based on Seating Capacity:
The petitioner, running a Cinema Hall, was granted a license under the Punjab Cinemas (Regulation) Act, 1952, with specified conditions including seating capacity restrictions. The State of Punjab amended the Punjab Entertainment Tax (Cinematographic Shows) Act, 1954, imposing entertainment tax on a lump-sum basis calculated on the gross collection capacity, defined as the admission fee receivable for the total number of seats prescribed in the license. The petitioner's business was affected by various factors leading to reduced attendance below the prescribed seating capacity, prompting a request for reduction in seats.

Application for Reduction in Seating Capacity under Section 3D of the 1954 Act:
The petitioner applied for a reduction in seating capacity under section 3D of the 1954 Act, which states that no proprietor of a cinema house can reduce the seating capacity without prior approval of the Commissioner. The District Magistrate, as the licensing authority, rejected the application citing reasons such as prior seat enhancements and potential revenue loss. The petitioner contested these grounds, arguing that section 3D does not disqualify a person from applying for a reduction based on past enhancements or revenue concerns.

Authority to Approve Reduction in Seating Capacity:
The court analyzed section 3D of the Act, emphasizing that the application for reducing seating capacity should be made to the licensing authority, i.e., the District Magistrate, who can seek prior approval from the Commissioner if necessary. The court dismissed the argument that the application was invalid due to not being filed before the Commissioner, stating that the first instance application should indeed be made to the licensing authority, i.e., the District Magistrate.

Grounds for Rejecting the Application for Reduction in Seating Capacity:
The court found the District Magistrate's reasons for rejecting the petitioner's request for seat reduction unsound. It clarified that section 3D does not impose restrictions based on past seat adjustments or revenue considerations. Rejecting the order dated December 5, 2002, the court directed the District Magistrate to reconsider the petitioner's claim within two months, emphasizing that the recovery of the disputed amount should remain stayed until the decision.

In conclusion, the High Court allowed the writ petitions, setting aside the impugned order and instructing the District Magistrate to review the petitioner's request for seat reduction in line with the court's observations. The judgment clarified the application process for seat reductions, the authority responsible for approval, and invalidated the grounds used to reject the petitioner's request.