2010 (3) TMI 999 - HC - VAT and Sales Tax

Whether Section 11 of the 1979 Act gives power to the State Government to exempt any entertainment or class of entertainments from liability to pay tax under the said Act? Held that - Proviso to sub-section (3) of section 11 of the 1979 Act, inter alia, provides that the State Government may cancel such exemption if it is satisfied that . . . the proprietor of such entertainment has failed to comply with any of the terms or conditions imposed or directions issued in this behalf and thereafter the proprietor shall be liable to pay the tax which would have been payable had not the entertainment been so exempted . As considered in detail above, the word proprietor as used at two places in the above proviso has the same meaning as in section 3 of the 1979 Act, i.e., the cinema hall owner/licensee. Therefore, irrespective of the fact that the violation of the terms and conditions has been committed by the distributor or the producer of the film, the failure to comply with the terms and conditions would be attributed to the proprietor, i.e., the cinema hall owners/licensees, and the cinema hall owners/licensees would be liable to pay the entertainment tax for the period of exemption. Even if the liability to pay entertainment tax as contemplated in the proviso to sub-section (3) of section 11 may be imposed on the producer and/or the distributor as they are also covered within the meaning of the word proprietor , still it was open to the State Government to fix the liability on the cinema hall owner/ licensee, who is also covered within the meaning of the word proprietor .This is what has been done by the State Government while granting exemption by the Government order dated October 16, 2003 by including clause (3) in the said Government order wherein it was, inter alia, provided that in case of violation of any of the conditions contained in the said Government order, the entertainment tax would be imposed and realized in accordance with the Rules from the concerned cinema halls in respect of the entertainment tax exempted exhibition. W.P. dismissed.

Issues Involved:
1. Imposition of entertainment tax due to withdrawal of exemption.
2. Compliance with conditions for tax exemption.
3. Liability of cinema hall owners/licensees for tax payment.
4. Role of the licensing authority in informing about violations.
5. Interpretation of the term "proprietor" under the U.P. Entertainments and Betting Tax Act, 1979.

Issue-wise Detailed Analysis:

1. Imposition of Entertainment Tax Due to Withdrawal of Exemption:
The petitioners, owners/licensees of cinema halls, challenged the imposition of entertainment tax following the withdrawal of a tax exemption granted by the State Government of Uttar Pradesh for the film "Zamin." The exemption was initially granted under a government order dated October 16, 2003, for 90 days, subject to certain conditions, including the restriction that a maximum of 12 prints of the film could be exhibited at one time in the entire state. This condition was violated, leading to the withdrawal of the exemption by a subsequent government order dated November 24, 2004. The court upheld the withdrawal, stating it was justified under the given conditions.

2. Compliance with Conditions for Tax Exemption:
The court found that the petitioners did not dispute the fact that the film "Zamin" was exhibited in violation of the conditions laid down in the government order. Specifically, more than 12 prints were exhibited simultaneously in the state, and the film was shown in multiple cinema halls within the same districts. The court concluded that the violation of condition No. 1 led to the lawful withdrawal of the tax exemption.

3. Liability of Cinema Hall Owners/Licensees for Tax Payment:
The court addressed the petitioners' argument that they should not be liable for the tax as the violation was committed by the distributor or producer of the film. The court rejected this argument, stating that under the U.P. Entertainments and Betting Tax Act, 1979, the liability to pay entertainment tax is on the cinema hall owners/licensees, who are considered "proprietors" under the Act. The court emphasized that the cinema hall owners/licensees enjoyed the benefit of the exemption and were therefore bound by its conditions. Consequently, they were liable to pay the tax once the exemption was withdrawn.

4. Role of the Licensing Authority in Informing About Violations:
The court dismissed the petitioners' claim that the licensing authority should have informed them about the violation of the conditions by the distributor or producer. It held that it was the responsibility of the cinema hall owners/licensees to ensure compliance with the exemption conditions. The court stated that there was no duty on the licensing authority to inform the petitioners or permit them to collect entertainment tax while the exemption was still in effect.

5. Interpretation of the Term "Proprietor" Under the U.P. Entertainments and Betting Tax Act, 1979:
The court interpreted the term "proprietor" as defined in the Act to include any person connected with the organization of the entertainment, charged with the work of admission, or responsible for the management of the entertainment. This definition includes cinema hall owners/licensees, distributors, and producers. The court held that the liability to pay entertainment tax, in case of violation of exemption conditions, falls on the cinema hall owners/licensees, who are responsible for collecting and paying the tax under the Act.

Conclusion:
The court dismissed all five writ petitions, holding that the cinema hall owners/licensees were liable to pay the entertainment tax for the period of exemption, despite not collecting it from the public during that period. The court emphasized that the responsibility for compliance with the exemption conditions rested with the cinema hall owners/licensees, and they could not shift this responsibility to the distributor, producer, or licensing authority. The petitions were dismissed with no order as to costs.

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