2017 (3) TMI 627 - HC - VAT and Sales Tax

Entertainment tax - who is liable to pay - the grievance of the petitioner (MSOs) is that by virtue of the circular dated 17.12.2012 they are being foisted with the liability to collect and pay entertainment tax when, according to them, such liability/responsibility is that of the cable operators - also it is contended that the circular dated 17.12.2012 is, in any event, without the authority of law and cannot be sustained in view of the provisions of the said Act and the said Rules - Held that - tax is levied on entertainment. It is not on the content provider or the content transporter or the person entertained. The subscriber may be the person on whom the incidence of the tax falls. But, that is not the subject matter of the tax. The tax is collected by the proprietor and paid to the Government in the manner prescribed. If there is any ambiguity or vagueness associated with any of the components of the tax which includes the person who is liable to pay the tax, then the validity of the tax/levy itself would be in jeopardy and if that was the case, then it would be for the Legislature to do the needful in the matter. Fortunately for us, the Legislative intent is clear as indicated above. It is only the circular dated 17.12.2012 which has brought in the ambiguity - Such ambiguity is impermissible in law particularly in the field of taxation. We do not understand as to how the Entertainment Tax Officer held the MSOs and LCOs jointly and severally responsible for payment of entertainment tax. It appears that because of the change over to the new system, the Entertainment Tax Officer was finding it difficult administratively to regulate the collection of taxes and it is perhaps for this reason that in the circular dated 17.12.2012, it is mentioned that it would be ideal for the Department in the changed situation to collect tax only through MSOs. The circular dated 17.12.2012 is without any authority of law. The respondents claim that the said circular has been issued in exercise of the powers u/s 46 of the said Act. That power is given to the Commissioner. We have not been shown any provision whereby the Entertainment Tax Officer derives its power from the Commissioner. In any event, the Commissioner can only issue directions which are not inconsistent with the provisions of the said Act or the Rules. MSOs to the extent that they directly provide cable service to the subscribers without the intervention of any LCO, would be regarded as the proprietors u/s 7(1) and would be liable to collect and pay the entertainment tax to the Government. However, where the MSOs provide the service through the LCOs, the individual LCOs having their own subscriber networks, would be regarded as the proprietors in respect of their individual networks and would be liable to collect the entertainment tax and pay the same to the Government. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Authority to demand entertainment tax from Multi-System Operators (MSOs).
2. Legality of imposing 'joint and several' liability on MSOs and Local Cable Operators (LCOs).
3. Responsibility for collecting and paying tax from LCOs.

Detailed Analysis:

1. Authority to Demand Entertainment Tax from MSOs:
The petitioners, all MSOs, challenged the circular dated 17.12.2012 and notices similar to the notice dated 08.01.2014, arguing that the liability to collect and pay entertainment tax was improperly shifted from LCOs to MSOs. The circular was claimed to be without authority and contrary to the Delhi Entertainments and Betting Tax Act, 1996, and its Rules.

On the other hand, the respondents contended that under the new Digital Addressable System (DAS) regime, MSOs were responsible for billing customers directly and thus liable to collect and pay the entertainment tax. They argued that the circular was issued under Section 46 of the Act, which grants the Commissioner the power to issue such directions.

The court examined the relevant provisions of the Act and the Rules, particularly Section 7 (the charging section) and Rule 26, which stipulate that the tax is to be collected by the 'proprietor' and paid to the government. The term 'proprietor' was defined broadly in Section 2(o) to include MSOs and LCOs. However, the liability to collect and pay tax was specifically on the 'proprietor of a cable television network', as per Rule 26 and the notification dated 01.04.1998.

The court concluded that the MSOs could be regarded as 'proprietors' when they directly provide cable services to subscribers without LCOs' intervention. However, when services were provided through LCOs, the LCOs were the 'proprietors' responsible for collecting and paying the tax.

2. Legality of Imposing 'Joint and Several' Liability:
The petitioners argued that the circular dated 17.12.2012, which imposed joint and several liability on MSOs and LCOs for the payment of entertainment tax, was unlawful. They contended that such liability could only be created by legislative action, not by a circular issued by the Entertainment Tax Officer.

The court agreed with the petitioners, stating that the Act did not provide for joint and several liability for the collection and payment of entertainment tax. The circular was found to be without jurisdiction and inconsistent with the provisions of the Act and Rules. The court emphasized that any ambiguity in the components of a tax, such as the person liable to pay, would be fatal to the levy itself, referencing Supreme Court decisions in Govind Saran Ganga Saran and Mathuram Agarwal.

3. Responsibility for Collecting and Paying Tax from LCOs:
The petitioners contended that the statutory duty to collect and pay the tax should remain with the LCOs, who were the service providers to subscribers. The respondents argued that after the implementation of DAS, MSOs had greater control over the network and subscriber data, making them the appropriate entities to collect and pay the tax.

The court analyzed the definitions and provisions under the Act and Rules, concluding that the MSOs were liable as 'proprietors' only when they directly provided cable services to subscribers. In cases where services were provided through LCOs, the LCOs were the 'proprietors' responsible for collecting and paying the tax.

Conclusion:
The court quashed the circular dated 17.12.2012 and the notice dated 08.01.2014, along with similar notices, as they were based on the circular. The court clarified that MSOs are liable to collect and pay the entertainment tax only when they directly provide services to subscribers. When services are provided through LCOs, the LCOs are responsible for the tax. The writ petitions were allowed to this extent.