2013 (6) TMI 586 - HC - Service Tax

Constitutional validity of Levy of entertainment tax and service tax on DTH Service - simultaneous levy - whether DTH services is not entertainment - Held that - even though we have held that by reason of the imperfections pointed out as to the absence of chargeable event not being specified in explicit, unambiguous and clear terms in Section 4-I, the charge cannot be effectuated, yet, on the grounds of violation of Article 14 and the imperfection in the Section creating the impression as though the charge is in the nature of service tax and hence, colourable in character, we have no hesitation in declaring the provision as unconstitutional. As far as the contentions on Article 19(1)(a) and 19(1)(g) are concerned, we do not find any good ground to accept the plea of the petitioners that levying tax on entertainment is a tax on the premium of expression. On the question of the chargeable event not specified in Section 4-I of the Act, as to the colourable character of Section 4-I, and on the violation of Article 14, we allow the writ petitions holding Section 4-I of the Tamil Nadu Entertainments Tax Act as unconstitutional. Regarding levy of Service Tax - Held that - the petitioners have also challenged Section 4-I, stated in the affidavit in paragraph No.4, that the questions raised as to whether the activity of the petitioner would attract service tax liability and whether the levy by the State under the Tamil Nadu Entertainments Tax Act would amount to transgression of powers under Entry 62 List II of Seventh Schedule to the Constitution of India. When the contrary stand taken as regards the challenge on service tax was pointed out to the attention of the learned senior counsel, initially, we were informed that the petitioner had filed a Writ Petition before the Delhi High Court in July, 2012 questioning the levy of service tax. When the petitioner was asked to file an affidavit explaining their conduct in not disclosing the above-said facts of taking diametrically opposite stand from the one conceded before the Delhi High Court, the petitioner had filed an affidavit stating that realising that 88th Constitution Amendment introducing Entry 92C of List I of VII Schedule to the Constitution of India was not notified, the imposition of service tax thus not valid, after obtaining advice from the senior counsels in Delhi, the petitioner has filed the Writ Petition in W.P.No.4302 of 2012 before the Delhi High Court also. Thus the petitioners made the plea that in the absence of Entry 92C List I of VII Schedule to the Constitution of India notified, the Union cannot impose service tax. Before this Court, the petitioner conceded that being a subject falling under Entry 62 List II of VII Schedule to the Constitution of India to tax entertainment, the exclusive power to tax entertainment rested with the State, and the Centre cannot levy service tax. As already seen from the extract from the judgment of the Delhi High Court, the petitioner conceded about its liability to service tax and all that it challenged was the levy of entertainment tax under the Delhi Entertainments and Betting Tax Act. Regarding non information of case in Delhi High Court - The affidavit states that the lapse in not specifically referring to the stand taken before the Delhi High Court was unintentional and bona fide. The petitioner further states that during the course of the arguments, earnest attempts were made by the petitioner to demonstrate the error in the judgments of the High Court and lapse was there in the affidavit in not specifically referring to the inconsistent stand and there was no intention to suppress the material. We do not appreciate the attitude shown by the petitioner in suppressing the material fact about its conceding a particular state of affairs on its liability under the Service tax levy. Even though learned counsel appearing for the petitioner submitted that there was no intention, the question is not one of intention, but a question of fairness to the Court in the matter of placing statement of facts truthfully, which, we think, is the basis of the justice delivery system. We may once again point out that but for the State s argument pointing out to the different stand taken, the case would have gone for further argument from the petitioners side. We wish that the petitioners do not repeat the same tactics before other High Courts. In the light of the material suppression made, we do not find that the petitioners would be justified in advancing its argument further on its challenge on the levy of service tax. We may also point out that when this Court pointed out to the appeal filed before the Supreme Court challenging the levy of entertainment tax, there is no direct answer explaining the conduct of the petitioners. The petitioners cannot speak in two tongues. Writ petitions challenging levy of service tax dismissed for suppression of facts from the High Court. - Decided against the assessee.

Summary

Issues Involved:
1. Competency of the State to levy entertainment tax on Direct to Home (DTH) services.
2. Validity of Section 4-I of the Tamil Nadu Entertainments Tax Act, 1939.
3. Levy of service tax on DTH services.
4. Violation of Articles 14, 19(1)(a), and 19(1)(g) of the Constitution of India.
5. Overlapping of Entries 62 List II and 92C List I of the Seventh Schedule to the Constitution of India.

Detailed Analysis:

Competency of the State to Levy Entertainment Tax on DTH Services:
The petitioners argued that DTH services are essentially services and should only be subject to service tax under Entry 92C List I of the Seventh Schedule to the Constitution of India. They contended that Entry 62 List II of Seventh Schedule is confined to taxing public entertainment and cannot be extended to include private entertainment provided through DTH services. The court, however, upheld the State's competence to levy entertainment tax on DTH services under Entry 62 List II, stating that the tax is on the entertainment content and not the service aspect. The court referenced similar judgments from other High Courts and the Supreme Court, which had upheld the State's power to levy entertainment tax on cable television and other forms of entertainment.

Validity of Section 4-I of the Tamil Nadu Entertainments Tax Act, 1939:
The petitioners challenged Section 4-I on the grounds that it failed to clearly specify the taxable event and the incidence of tax, making it an imperfect charging provision. The court agreed with this contention, noting that the section did not explicitly state the chargeable event or the person on whom the tax incidence falls. The court held that the absence of these essential components rendered the provision unconstitutional and unenforceable. The court emphasized that a charging section must be clear and unambiguous, and the imperfections in Section 4-I could not be rectified by judicial interpretation.

Levy of Service Tax on DTH Services:
The petitioners also challenged the levy of service tax on DTH services, arguing that it overlaps with the entertainment tax and is beyond the competence of the Parliament. The court rejected this contention, stating that service tax and entertainment tax are levied on different aspects of the same transaction. The service aspect is taxed under the service tax regime, while the entertainment aspect is taxed under the entertainment tax. The court referenced the aspect theory, which allows for different aspects of the same transaction to be taxed under different legislative entries.

Violation of Articles 14, 19(1)(a), and 19(1)(g) of the Constitution of India:
The petitioners argued that the differential treatment of DTH services compared to cable TV services was arbitrary and discriminatory, violating Article 14 of the Constitution. They also contended that the high rate of tax on DTH services infringed on their rights under Articles 19(1)(a) and 19(1)(g). The court upheld the challenge under Article 14, stating that the classification lacked a rational basis and did not have a nexus to the object sought to be achieved by the law. The court noted that the content of entertainment provided through DTH and cable TV is the same, and the differential tax treatment based on the mode of delivery was unjustified. However, the court rejected the challenge based on Articles 19(1)(a) and 19(1)(g), following the Supreme Court's reasoning that the business aspect of providing entertainment can be taxed.

Overlapping of Entries 62 List II and 92C List I of the Seventh Schedule to the Constitution of India:
The petitioners contended that the levy of entertainment tax on DTH services encroached upon the Parliament's exclusive domain to tax services under Entry 92C List I. The court rejected this contention, stating that the two entries operate in different fields. The entertainment tax is levied on the entertainment aspect, while the service tax is levied on the service aspect. The court referenced the aspect theory and previous judgments to support this conclusion.

Conclusion:
The court declared Section 4-I of the Tamil Nadu Entertainments Tax Act, 1939, as unconstitutional due to its failure to specify the taxable event and the incidence of tax. The court upheld the State's competence to levy entertainment tax on DTH services but rejected the differential tax treatment compared to cable TV services as violative of Article 14. The court also upheld the levy of service tax on DTH services, stating that it does not overlap with the entertainment tax.