2014 (9) TMI 109 - HC - VAT and Sales Tax

Levy of entertainment tax on entertainment content in DTH services Constitutional validity of Section 2 (l) (iii) of the U.P. Entertainment and Betting Tax Act, 1979 Held that - The entertainment tax is to be paid on payments for admission to an entertainment, which includes contribution, subscription, installation or connection charges or any other charges collected in any manner whatsoever. Clauses (i) to (v) with their Explanation under section 2(l) defining payment for admission have not undergone any change after amendment. A new sub-clause (vi) has been added, which includes the subscription or installation or charges or any other charges collected in any manner whatsoever by whatever name called for television, through cable television network or any such network of whatever name called, attached to television set or any other device at a residential or non-residential place. A further sub-clause (vii) has been added to make a clarification for any payment made by person to the proprietor of a direct-to-home service, by way of contribution or subscription or installation and connection charges, or any charges collected in any manner of whatever name called with aid of set top box or any other device at a residential or non-residential place of connection holder directly to the satellite without passing through an intermediary such as cable operator. For viewing channels through DTH connection by either prepaid or post-paid payments made through cash or credit cards, or by any other method, are all payments for admission to entertainment. The entertainment tax is to be collected by the proprietor and paid to the State Government in the manner prescribed. The proprietor includes in relation to the entertainment any person connected with the organisation of the entertainment, or charges with the work of admission to the entertainment or responsible for, or for the time being in charge of, the management thereof under section 2(m). In dealing with the challenge to the constitutional validity of the provisions of taxing statutes that it violates article 14 of the Constitution, the court, which exercises the power of judicial review should be conscious of the limitation of judicial intervention, particularly in matters relating to the legitimacy of economic or fiscal legislation. The Legislature is entitled to a great deal of latitude in fiscal legislation. The court would interfere only where a clear infraction of constitutional provision is established. The burden is all the heavier when the legislation under attack is a taxing statute, since the powers of the Legislature in classifying objects for the purposes of taxation are wide. The Legislatures possess the greatest freedom in classification and the burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it. The court must make every effort to uphold the constitutional validity of a statute, even if that requires giving the statutory provision a strained meaning, or narrower or wider meaning, than what appears on the face of it. It is only when all efforts to do so fail should the court declare a statute to be unconstitutional. Following decisions in Baldeo Singh v. Commissioner of Income-tax 1960 (8) TMI 6 - SUPREME Court , East India Tobacco Co. v. State of Andhra Pradesh 1962 (4) TMI 57 - SUPREME COURT OF INDIA , R. K. Garg v. Union of India 1981 (11) TMI 57 - SUPREME Court , State of Madhya Pradesh v. Indore Iron and Steel Mills Pvt. Ltd. 1998 (8) TMI 505 - SUPREME COURT OF INDIA and Government of Andhra Pradesh v. P. Laxmi Devi 2008 (2) TMI 850 - SUPREME COURT - Decided against assessee.

Summary

Issues Involved:
1. Constitutionality of imposing entertainment tax on Direct to Home (DTH) services.
2. Validity of the U.P. Entertainment and Betting Tax (Amendment) Ordinance, 2009.
3. Whether DTH services were covered under the U.P. Entertainment and Betting Tax Act, 1979 prior to the 2009 amendment.
4. Discrimination in the rate of entertainment tax between DTH services and cable services.
5. Validity of the assessment orders and the procedure followed by the District Magistrates.

Issue-wise Detailed Analysis:

1. Constitutionality of Imposing Entertainment Tax on DTH Services:
The court examined whether the State Legislature had the competence to levy entertainment tax on DTH services under Entry 62 of List II of the Seventh Schedule to the Constitution of India. The court held that the tax on entertainment through DTH services is a tax on entertainment and not on the service provided by the DTH service provider. The court relied on the "aspects theory" and held that the tax is on the entertainment provided to the subscriber and not on the service aspect. The court concluded that the entertainment tax on DTH services is within the legislative competence of the State Legislature.

2. Validity of the U.P. Entertainment and Betting Tax (Amendment) Ordinance, 2009:
The court analyzed the amendments introduced by the U.P. Entertainment and Betting Tax (Amendment) Ordinance, 2009, which included DTH services within the ambit of the Act. The court noted that the amendments were introduced to clarify and make the taxation more transparent, considering the new technology and methods of entertainment. The court held that the amendments were valid and within the legislative competence of the State Legislature.

3. Whether DTH Services Were Covered Under the U.P. Entertainment and Betting Tax Act, 1979 Prior to the 2009 Amendment:
The court examined the provisions of the U.P. Entertainment and Betting Tax Act, 1979, and the interpretation given by previous judgments. The court referred to the judgment in M/s Universal Communication System, which held that the Act covered entertainment provided by cable TV operators. The court concluded that the unamended Act included entertainment provided through DTH services, as the definition of "entertainment" and "payment for admission" was broad enough to cover such services. The amendments in 2009 were clarificatory in nature and did not introduce a new tax but clarified the existing provisions.

4. Discrimination in the Rate of Entertainment Tax Between DTH Services and Cable Services:
The petitioners argued that the rate of entertainment tax on DTH services was discriminatory compared to cable services. The court held that the legislature has wide latitude in fiscal legislation and classification for taxation purposes. The court found no clear infraction of constitutional provisions and held that the difference in tax rates was not discriminatory. The court emphasized that the burden of proving discrimination in fiscal legislation is heavy, and the petitioners failed to establish it.

5. Validity of the Assessment Orders and the Procedure Followed by the District Magistrates:
The petitioners challenged the assessment orders issued by the District Magistrates, arguing that the information collected regarding the number of subscribers and the amount charged was unreliable. The court held that the validity of the assessment orders and the procedure followed are questions of fact that should be addressed through the appellate mechanism provided under the Act. The court emphasized that the petitioners have the right to appeal against the assessment orders and should exhaust the available remedies.

Conclusion:
The court dismissed all the writ petitions, upholding the constitutionality of imposing entertainment tax on DTH services, the validity of the U.P. Entertainment and Betting Tax (Amendment) Ordinance, 2009, and the assessment orders issued by the District Magistrates. The court found no merit in the arguments regarding discrimination in tax rates and held that the amendments were clarificatory and did not introduce a new tax.