2015 (9) TMI 779 - HC - VAT and Sales Tax

Constitutional validity of levy of entertainment tax on the Direct To Home (DTH) Broad Casting Services - legislative competence of the State - Gujarat Entertainment Tax (Amendment) Act, 2009 - Held that - Applying the ratio of the law laid down by the Hon ble Supreme Court in the case of Purvi Communication (P) Ltd. and Ors. 2005 (3) TMI 438 - SUPREME COURT OF INDIA to the facts of the case on hand, providing Direct-To-Home (DTH) Broadcasting Service in the aid of set top box would certainly fall within the meaning of entertainment , the provisions contained in Section 2(j)(iiia) read with section 6E of the Act. A plain reading of the said provision makes it clear that the tax or levy is on the receipt of entertainment i.e. the receipt of radio frequency signals for exhibition of films or moving pictures or series of pictures with the aid of a set top box or any other apparatus attached to it for securing the transmission through DTH Broadcasting services. The contention on behalf of the petitioners that the State cannot impose entertainment tax on DTH services, the field having been occupied by the Entry 97 read with Entry 31 of List I of the Constitution of India cannot be accepted. Regarding double taxation on the same transaction - Held that - There seems to be some misconception on the part of the petitioners to assume that there is only one event involved in the present case i.e. the Direct-To-Home (DTH) Broadcasting Service. It is the entertainment derived from the content that is the subject matter of tax - entertain tax under the Act and not the service of enabling the flow of content to Direct-To-Home (DTH) system. In a given case two concepts may be intertwined, the strands can easily be separated by employing the Aspect Theory and in respect of the service aspect, the taxable event is entertainment from the content. The ration of the decision in the case of Bharat Sanchar Nigam Limited 2006 (3) TMI 1 - Supreme court , shall not be applicable in the context of entertainment and service , which are present in the instant case. While applying the Aspect Theory in the present case, the subjects which in one aspect and for one purpose fall within the powers of a particular Legislature, may in another aspect and for another purpose, fall within another legislative power. Thus, the decision of the Hon ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. 2006 (3) TMI 1 - Supreme court would have no applicability of whatsoever nature. Challenge to Gujarat Entertainment Tax (Exhibition by means of Direct-To-Home (DTH) Broadcasting Service) Rules, 2010 particularly Rules 3, 4, 5, 6, 7, 11, 12, 13, 14 and 16 and levy of entertainment tax on Direct-To-Home (DTH) Broadcasting services fail. - Decided against the assessee.

Summary

Issues Involved:
1. Constitutionality of the Gujarat Entertainment Tax (Amendment) Act, 2009.
2. Legislative competence of the State of Gujarat to levy entertainment tax on Direct-To-Home (DTH) Broadcasting Services.
3. Validity of the Gujarat Entertainment Tax (Exhibition by means of Direct-To-Home (DTH) Broadcasting Service) Rules, 2010.
4. Alleged violation of Articles 14, 19(1)(g), and 21 of the Constitution of India.
5. Double taxation concerns.
6. Discrimination in tax rates between DTH operators and cable operators.

Issue-wise Detailed Analysis:

1. Constitutionality of the Gujarat Entertainment Tax (Amendment) Act, 2009:
The petitioners challenged the Gujarat Entertainment Tax (Amendment) Act, 2009, claiming it was ultra vires the Constitution of India. The court noted that the Act was intended to levy entertainment tax on DTH Broadcasting Services, which was within the legislative competence of the State Legislature under Entry 62 of List II of the Seventh Schedule to the Constitution. The court referenced the Supreme Court's decision in Purvi Communications (P) Ltd., which upheld the legislative competence of the State to levy entertainment tax on cable services.

2. Legislative Competence of the State of Gujarat:
The petitioners argued that DTH services fall under Entry 31 of List I (Union List) and thus within the exclusive domain of the Union Legislature. The court rejected this argument, stating that the power to regulate and control broadcasting services under Entry 31 is distinct from the power to levy taxes on entertainment under Entry 62 of List II. The court reiterated that the State Legislature was competent to levy entertainment tax on DTH services as they fall within the definition of "entertainment."

3. Validity of the Gujarat Entertainment Tax (Exhibition by means of Direct-To-Home (DTH) Broadcasting Service) Rules, 2010:
The petitioners challenged several rules under the 2010 Rules, claiming they were arbitrary and violative of Articles 14, 19(1)(g), and 21 of the Constitution. The court upheld the validity of these rules, stating that they were in consonance with the provisions of the Act and necessary to ensure compliance. The court found no merit in the arguments that the rules were arbitrary or violated constitutional rights.

4. Alleged Violation of Articles 14, 19(1)(g), and 21:
The petitioners argued that the levy of entertainment tax on DTH services was discriminatory and violated Article 14 due to the different tax rates for DTH operators and cable operators. The court held that the classification was reasonable and based on distinct differences between the two services, such as technology, quality, and customer base. The court also found no violation of Articles 19(1)(g) and 21, as the rules and tax provisions were within the legislative competence and did not infringe upon the right to trade or privacy.

5. Double Taxation Concerns:
The petitioners contended that the levy of entertainment tax on DTH services amounted to double taxation, as they were already paying service tax. The court rejected this argument, stating that the service aspect and entertainment aspect are separate taxable events. The court applied the "Aspect Theory," which allows different legislatures to tax different aspects of the same transaction. The court emphasized that the entertainment tax was on the entertainment derived from the content, not the service of enabling the flow of content.

6. Discrimination in Tax Rates:
The petitioners argued that the higher tax rate for DTH operators compared to cable operators was discriminatory. The court found that the classification was justified based on differences in technology, quality of service, and customer base. The court referenced several Supreme Court decisions, which upheld the legislative competence to classify and levy different tax rates based on reasonable distinctions.

Conclusion:
The court dismissed all the petitions, upholding the constitutionality of the Gujarat Entertainment Tax (Amendment) Act, 2009, and the validity of the 2010 Rules. The court found that the State Legislature was competent to levy entertainment tax on DTH services and that the tax provisions did not violate constitutional rights. The court also rejected the arguments of double taxation and discrimination in tax rates. The ad-interim relief granted earlier was continued till 30.04.2015 to enable the petitioners to approach a higher forum.