2016 (4) TMI 1059 - HC - VAT and Sales Tax

Levy of entertainment tax - Water sport activities offered by Polo Amusement - Polo amusement contended that levy of ET under the ET Act is conditional upon the activity being amusement where people are given admission to an entertainment as defined under Section 2(a) - Held that - the charging provision, Section 6 (1) enacts that tax is to be levied and paid on all payments for admission to any entertainment. Section 2 (m)(iv), in the Court s opinion, covers the payment made by visitors to the petitioner s club as charges since they are connected with the entertainment, the water sports activities (and not mere swimming) provided in the petitioner s premises. Section 2 (m)(iv), in effect, is that payment should be connected with an entertainment; the nomenclature of the payment is irrelevant. The only condition is that the payment should be connected with the entertainment, which are water sport activities in the present case. The added condition is that the payment should be one that an individual has to make as a condition of attending the entertainment. This condition is satisfied in the case of all those entering inside the Petitioner s club. If they want to use the water sports facilities, they have to make the payment for the entrances. Thus the requisite conditions are fulfilled. It is consequently held that there is no merit in the petitioners argument that participation in the activities provided by Polo Amusement to its subscribers guest, i.e. Sea Wave, Lazy River, Fun Slide, Kiddies Pool, Aqua Shute, Aqua Ball, Super slide, are not covered within the definition entertainment or that its facilities do not constitute places of entertainment, for the entry of which the amounts collected are liable to ET. Whether the order of the Appellate Authority (not the FC) could have resulted in imposition of liability greater than what was found by the ET Department at the stage of assessment - The assessing authority held that As such the Entertainment Tax constitutes 20% of the total gate money received for any determination of ticket.. and directed that Entertainment Tax is levied on the facility @ 20% of the gross proceeding of gate money. Held that - The Court does not see how the GNCTD can justify the additional imposition by the Commissioner. It is true that the Deputy Commissioner (i.e. the authority named as the appellate official under Section 15 (3)) is empowered suo motu revision to modify, annul, reverse or otherwise revise the assessment authority s decision. However, that power-to modify or revise any assessment or demand can be invoked only if a separate show cause notice is issued, by virtue of proviso to Section 42 of the ET Act. That apart, the Deputy Commissioner could not have enlarged the scope of the proceedings before him, which was an appeal from the decision seeking to recover a much smaller amount. In this respect the submission of the petitioner and its reliance on State of Kerala v. Vijaya Stores 1978 (9) TMI 2 - SUPREME Court is well founded. Validity of the notification dated 07.06.2007 - Petitioner argued that no distinction can be made between swimming as a sporting event, swimming as an activity undertaken in a hotel or such establishment and swimming in a facility like the one owned by the petitioner, and its Fun Club - Held that - the Court finds this argument insubstantial. It is firstly well settled that in economic and fiscal matters, the legislative judgment is given greater deference than in areas where fundamental liberties are involved. Polo Amusement is here mixing two issues the correctness of the decision of the FC on the one hand and the vires of the notification. So long as the order of the FC stood there is no dispute that Polo Amusement could not- in the absence of any decision in W.P.(C) 1896/2002, have been subjected to taxation for the period covered in that writ petition. However, whether the activities in question were eligible or not for taxation were certainly a matter for the State to decide, in the exercise of its statutory power. There was no impediment of any kind, whatsoever, for the State to exercise that power. Thus, the issuance of the notification could not have been faulted. Demand of tax, interest and penalties - Held that - there is some substance in the argument of Polo Amusement that assessment was made in respect of all days including holidays. To facilitate a better inquiry, the assessing authorities are directed to give one opportunity to Polo Amusement to establish the actual collections, based on their gate receipts and related books of account. If for any reason, the petitioner is unable to or does not produce complete records, the assessing authority can use any reasonable method, to estimate the receipts, and issue demands. It is clarified that the Court is not quashing the assessments and demands impugned; they shall be kept in abeyance and, having regard to the decision of the assessing authority, be appropriately modified or altered, while working out the final demands. Therefor, the order of the FC, holding that the assessee s activity was not entertainment and not liable to Entertainment Tax, is set aside. At the same time, the Court holds that without properly invoking power under Section 42, the Deputy Commissioner (first appellate authority) could not have enhanced the demand made by the assessing officer. Accordingly, the order of the assessing authority is restored. - Decided partly in favour of revenue

Summary

Issues Involved:
1. Liability of Polo Amusement to pay Entertainment Tax (ET) for activities offered in its amusement park and club.
2. Validity of the notification dated 07.06.2007 issued by the Government of NCT of Delhi (GNCTD).
3. Enhancement of tax liability by the appellate authority.
4. Assessment and demand of ET, interest, and penalties for various periods.

Issue-wise Detailed Analysis:

1. Liability of Polo Amusement to pay Entertainment Tax (ET):
The court examined whether the activities offered by Polo Amusement, such as Sea Wave, Lazy River, Fun Slide, Kiddies Pool, Aqua Shute, Aqua Ball, and Super Slide, constituted "entertainment" under the Delhi Entertainment and Betting Tax Act. The court held that the activities provided by Polo Amusement were indeed entertainment, as defined under Section 2(i) of the ET Act, which includes "exhibition, performance, amusement, game, sport or race." The court emphasized that the term "entertainment" encompasses both passive and active participation, rejecting Polo Amusement's argument that entertainment requires a spectator separate from the participant. The court cited the Supreme Court's decision in Geeta Enterprises, which established that activities providing amusement or enjoyment, even if involving participant engagement, qualify as entertainment.

2. Validity of the Notification dated 07.06.2007:
The notification exempted swimming activities in licensed swimming pools and sports activities organized by schools, colleges, or gymnasiums from ET but excluded pools within amusement parks. Polo Amusement argued that this differentiation was discriminatory. The court upheld the validity of the notification, stating that the GNCTD's classification was justified. The court recognized the state's broader latitude in economic and fiscal matters and noted that the exemption aimed to promote sports and public health. The court found no irrationality in distinguishing between commercial establishments like amusement parks and institutions promoting sports.

3. Enhancement of Tax Liability by the Appellate Authority:
The appellate authority had enhanced the tax liability of Polo Amusement beyond what was determined by the assessing officer. The court held that the Deputy Commissioner, acting as the appellate authority, could not have enlarged the scope of the proceedings without issuing a separate show cause notice, as required by Section 42 of the ET Act. The court cited the Supreme Court's decision in State of Kerala v. Vijaya Stores, which established that appellate authorities cannot enhance tax liability without proper notice and procedure. Therefore, the court set aside the appellate authority's order and restored the assessing officer's original determination.

4. Assessment and Demand of ET, Interest, and Penalties:
The court addressed the assessment and demand of ET, interest, and penalties for various periods, as challenged by Polo Amusement. The court found that the assessments were not based on a detailed investigation of facts and records. The court directed the assessing authorities to provide Polo Amusement with an opportunity to establish actual collections based on their gate receipts and related books of account. If Polo Amusement failed to produce complete records, the assessing authority could use a reasonable method to estimate receipts and issue demands accordingly. The court clarified that the assessments and demands would be kept in abeyance, and Polo Amusement was directed to deposit 15% of the total amounts demanded within six weeks. The assessments were to be finalized within four months, and Polo Amusement could challenge the decisions before the concerned appellate authorities.

Conclusion:
The court concluded that the activities offered by Polo Amusement were liable to ET and upheld the validity of the notification dated 07.06.2007. The court set aside the appellate authority's enhancement of tax liability and restored the assessing officer's original determination. The court directed a re-assessment of ET demands based on a detailed examination of records and provided Polo Amusement with an opportunity to challenge the final assessments. The GNCTD's writ petition was allowed in part, and Polo Amusement's writ petitions were disposed of with specific directions for completing the assessments.