2016 (4) TMI 895 - HC - Service Tax

Whether the removal of admission and access to entertainment event and amusement facilities from the Negative List of Services by an Amendment of 2012 and the consequent imposition of service tax on such activity would result in the Union Parliament trenching upon the exclusive field assigned to the State, under Entry 62 List II of the Seventh Schedule of the Constitution of India. Petitioner submitted that Entry 62 List II having covered amusements the amusement parks set up by the petitioners cannot at all be taxed by the Parliament, especially under the residuary clause. Held that - no such contention can be taken, since the Supreme Court has time and again, after the Finance Act, 1994 came into force, upheld the tax levied on services as being available to the Union Parliament under the residuary clause. In such circumstances, it cannot at all be said that the field is entirely covered by Entry 62 List II. Amusements are covered by Entry 62 List II and the aspect of service involved, when the facilities for amusement is offered for a price cannot be ignored. The Union Parliament s power to levy such tax by an appropriate enactment cannot also be effaced merely for the reason that amusements are covered under Entry 62. This Court, with due respect, is unable to agree with the extracted statement, since the Union Parliament quite aware of their power and the fields available under List I and List II would not have included amusement in the Negative List only for the reason that that is a field in which the State has the power to levy tax. This is because even dehors inclusion in the Negative List the Parliament would not be able to trench upon the field specifically set apart for the States under List II. Amusement facility, as defined under Section 65B(9), are facilities wherein exclusively rides, gaming devices, water and theme parks and so on and so forth are made available for fun or recreation. The Negative List also did not refer to amusement , but tax on admission on entry of such events quite understanding the power to levy service tax on such facilities offered by one to another for a consideration. The tax now levied on the admissions cannot also detract from the essential nature and character of the tax being one on the services; since it is only a measure and as has been held earlier, it would not determine the object of taxation. The petitioners, maintaining an amusement park, are obliged to pay entertainment tax to the State, whether or not there are entrants to the park. The Union Parliament has provided for a tax on admission to the parks, making it clear that the levy is only when the service is availed of. The service provided is the object of taxation and it is imposed on the admission fee which is a permissible measure of tax and the incidence is at the time when a person pays the admission fee to enter the park. It is seen that there is no conflict between the two entries, which are fields of legislation. The two aspects taxed by the respective legislatures are the service and the amusement . The tax,imposed by the Union Parliament, in pith and substance, is also one on the service offered by the petitioners. This Court does not find any trenching of the Union Parliament on the power conferred on the State, in fact or in law, since the respective legislatures tax two different aspects. The incidental overlapping, if at all, is only to be ignored; going by the various precedents of the Hon ble Supreme Court. - Decided against the petitioner

Issues Involved:
1. Legislative Competence of Union Parliament to Impose Service Tax on Admission and Access to Entertainment Events and Amusement Facilities.
2. Conflict Between Entry 62 of List II and Residuary Entry 97 of List I.
3. Application of the Aspect Theory.
4. Validity of the Amendment of 2012 in the Finance Act, 1994.
5. Impact of Previous Judicial Decisions on the Matter.

Analysis:

1. Legislative Competence of Union Parliament to Impose Service Tax on Admission and Access to Entertainment Events and Amusement Facilities:
The primary issue is whether the removal of "admission and access to entertainment event and amusement facilities" from the Negative List of "Services" by the Amendment of 2012 in the Finance Act, 1994, and the consequent imposition of service tax on such activities, infringes upon the State's exclusive power under Entry 62 of List II of the Seventh Schedule of the Constitution of India. Entry 62 of List II pertains to "taxes on luxuries, including taxes on entertainments, amusements, betting, and gambling." The petitioners argued that the State has the exclusive right to tax these activities, as they fall under the domain of amusement and entertainment.

2. Conflict Between Entry 62 of List II and Residuary Entry 97 of List I:
The Court examined whether the Union Parliament's imposition of service tax on amusement and entertainment activities encroaches upon the State's legislative domain under Entry 62 of List II. The Court noted that service tax, as it evolved, encompasses every aspect of transactions involving consideration. The Court referred to various judicial precedents to highlight that the power to impose service tax has been upheld under the residuary Entry 97 of List I, as "services" are not enumerated in List I, List II, or List III.

3. Application of the Aspect Theory:
The Union's defense was based on the "aspect theory," which allows for different aspects of the same transaction to be taxed by different legislative authorities. The Court cited the case of State of W.B. v. Kesoram Industries Ltd., which emphasized that the various entries in the three Lists are fields of legislation and not powers of legislation. The Court found that the Union Parliament's imposition of service tax on the service aspect of amusement and entertainment activities does not conflict with the State's power to tax the amusement aspect under Entry 62 of List II.

4. Validity of the Amendment of 2012 in the Finance Act, 1994:
The Court upheld the validity of the Amendment of 2012, which removed "admission and access to entertainment event and amusement facilities" from the Negative List, thereby empowering the Union Parliament to impose service tax on these activities. The Court noted that the definition of "service" under Section 65B(44) of the Finance Act, 1994, is all-encompassing, covering any activity carried out by a person for another for consideration.

5. Impact of Previous Judicial Decisions on the Matter:
The Court referred to several key judicial decisions, including Federation of Hotel & Restaurant Association of India v. Union of India, Express Hotels Pvt. Ltd. v. State of Gujarat, Gujarat Ambuja Cements Ltd. v. Union of India, Bharat Sanchar Nigam Ltd. v. Union of India, All-India Federation of Tax Practitioners v. Union of India, and Association of Leasing and Financial Service Companies v. Union of India. These decisions collectively supported the Union's power to impose service tax under the residuary entry and upheld the application of the aspect theory.

Conclusion:
The Court concluded that the Union Parliament has the legislative competence to impose service tax on the service aspect of admission and access to amusement parks. The petitioners' argument that the entire field is covered by Entry 62 of List II was rejected. The Court found no conflict between the two entries, as they pertain to different aspects of the same transaction. The writ petitions were dismissed, and the Amendment of 2012 in the Finance Act, 1994, was upheld as valid.

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