2011 (9) TMI 180 - HC - Service Tax

Direct-to-home (DTH) service - Levy of entertainment tax or service tax - Legislative powers of State Govt - Broadcasting service falling within the meaning of taxable service under section 65(105)(zk) of the Finance Act, 1994 - It contended on behalf of the petitioners that Parliament alone has the exclusive power to tax DTH services and that the States do not have any power to tax the said service by any name called. - Held that - The petitioners have provided the infrastructure for downlinking signals of TV channels and of up-linking them to their Ku Band designated transponders and so on till the signals are viewable by a subscriber on his TV set or display monitor. By allowing the flow of content through their infrastructural setup they are providing a service. For doing so they are subjected to service tax under the service tax regime put in place by Parliament in exercise of its legislative power under article 246 of the Constitution read with Entry 92C of List I of the VIIth Schedule thereto. Under the said Act, the subject matter of the tax is the entertainment provided by the content that flows through the petitioners system. The DTH service provider, in a sense only acts as a conduit between the content providers (i.e., TV Channels) and the content viewers (i.e., subscribers). It is the entertainment derived from the content that is the subject-matter of the tax under the said Act and not the service of enabling the flow of content through the DTH system. There is no scope of confusing one for the other. The conclusion is clear that the State Legislature had (and has) the legislative competence to levy an entertainment tax on all payments for admission to an entertainment through a direct-to-home (DTH) as contemplated in section 7 and other provisions of the said Act. - Decided against the assessee.

Summary

Issues Involved:
1. Legislative competence to impose tax on Direct-to-Home (DTH) services.
2. Nature of the tax under the Delhi Entertainments and Betting Tax Act, 1996.
3. Applicability of the "aspect theory".
4. Overlap between service tax and entertainment tax.

Detailed Analysis:

1. Legislative Competence to Impose Tax on DTH Services:
The petitioners contended that the DTH service is a broadcasting service and falls under the taxable service category as per section 65(105)(zk) of the Finance Act, 1994, subject to service tax by Parliament. They argued that only Parliament has the exclusive power to tax DTH services and that the State Legislature cannot impose a tax on DTH services under the guise of entertainment tax, as this would be unconstitutional.

2. Nature of the Tax under the Delhi Entertainments and Betting Tax Act, 1996:
The court examined whether the tax on DTH services under the said Act is, by its nature and character, a tax on entertainment or a tax on services. The charging section, Section 7(1), indicates that the tax is on "entertainment" through DTH service. The definition of "entertainment" in Section 2(i) includes entertainment through DTH service. The court concluded that the tax is on the activity of entertainment and not on the service itself.

3. Applicability of the "Aspect Theory":
The "aspect theory" allows for the same transaction or activity to be taxed under different aspects by different legislative bodies. The court noted that DTH service has two aspects: a service aspect taxed under the Finance Act, 1994, and an entertainment aspect taxed under the said Act. The court held that these are distinct taxable events and that the aspect theory justifies the levy of both taxes without any constitutional transgression.

4. Overlap Between Service Tax and Entertainment Tax:
The petitioners argued that the taxable event for service tax and entertainment tax is the same, i.e., the provision of DTH service, leading to an unconstitutional overlap. The court, however, distinguished between the taxable events: the service aspect (flow of content through DTH) and the entertainment aspect (entertainment derived from the content). The court emphasized that the measure of a tax or its incidence does not determine the subject matter of the tax.

Conclusion:
The court concluded that the tax on DTH services under the Delhi Entertainments and Betting Tax Act, 1996, is a tax on entertainment and not on services. This falls within the legislative competence of the State Legislature under Entry 62 of List II of the Seventh Schedule to the Constitution. The petitions were dismissed, and the parties were left to bear their respective costs.