2017 (12) TMI 1238 - HC - VAT and Sales Tax

Vires of the second explanation to Section 2(m) of the Delhi Entertainment and Betting Tax Act - The GNCT of Delhi amended Section 2 (m) of the Entertainment Tax Act by adding two explanations and took the position that these provisions were clarificatory; the amendments were inserted on 1 October 2012 but brought into force with effect from 01 April 1998. These amendments are the subject matter of challenge in the present writ proceedings - FDCI challenges the impugned amendment to the Explanation on the ground that the power of a state is to impose taxes under Entry 62 of list II on luxuries including entertainment and consequently the impugned explanation is ultra vires the Constitution and is beyond the scope of Entertainment Tax Act - petitioners argue that entertainment is an activity by which one person provides entertainment to another; organizers such as the petitioner, through sponsorship funding organize or create events. Whether an event is an entertainment or not would depend on the facts and as such entertainment could not be defined in a straitjacket formula. Whether as a fashion development and promotion society, which conducts fashion shows provides entertainment by hosting such shows? - Whether payment for admission includes sponsorship? - the events are non-ticketed events where entry is by special invite of the organizers Dissent Decision - Both the Judges delivers different judgments. In one view, no entertainment tax can be collected and allowed the writ petitions. Another view is that entertainment tax can was rightly demanded and dismissed the appeal of the writ petitions.

Summary

Issues Involved:
1. Constitutional Validity of the second explanation to Section 2(m) of the Delhi Entertainment and Betting Tax Act (DEBT Act).
2. Retrospective Operation of the amendment.
3. Nature of Sponsorship Payments and whether they constitute "payment for admission."
4. Legislative Competence of the state to levy tax on sponsorship amounts.
5. Adequacy of Machinery for collecting the tax.
6. Estoppel and Waiver regarding the challenge to the levy.

Detailed Analysis:

1. Constitutional Validity:
The petitioners challenged the vires of the second explanation to Section 2(m) of the DEBT Act, arguing it was beyond the legislative competence of the state legislature under Entry 62 of List II of the Seventh Schedule of the Constitution. The court analyzed whether the amendment was merely clarificatory or if it introduced a new levy. The court held that the amendment did not result in a valid levy of entertainment tax because mere amendment to the definition of "payment for admission" under Section 2(m) could not, in the absence of an amendment to the charging section, introduce a levy.

2. Retrospective Operation:
The petitioners argued that the retrospective operation of the amendment was unconstitutional. The court held that granting retrospective effect to the amendment would impose onerous and harsh conditions that could never have been provisioned for by the event proprietors. Therefore, the retrospective effect given to the impugned amendment was void as violative of Articles 14 and 265 of the Constitution of India.

3. Nature of Sponsorship Payments:
The petitioners contended that sponsorship amounts were not "payment for admission" and should not be taxed as such. The court examined the nature of sponsorship payments and concluded that sponsors do not make payments for gratification or amusement but for business purposes. Therefore, sponsorship amounts do not fall within the classification under Section 6(6) as "payment for admission."

4. Legislative Competence:
The court analyzed whether the state legislature had the competence to levy tax on sponsorship amounts. It was held that the state legislature could not impose a tax burden merely by adding an explanation without amending the charging section. The court cited precedents like M/s Tata Sky Ltd v State of Madhya Pradesh and M/s Martin Lottery Agencies Ltd to support this conclusion.

5. Adequacy of Machinery:
The petitioners argued that there was no clear mechanism for collecting the tax on sponsorship amounts. The court found that the existing forms and rules under the DEBT Act did not provide a coherent mechanism for assessing, collecting, and recovering the tax on sponsorship amounts. Therefore, the levy failed for the absence of a defined and valid collection mechanism.

6. Estoppel and Waiver:
The revenue argued that the petitioners were estopped from challenging the levy as they had previously sought exemptions and deposited amounts pursuant to demands. The court rejected this argument, holding that there can be no waiver of fundamental or other statutory rights, nor can procedural hurdles bar the inquiry into the validity of statutes or rules.

Conclusion:
The court summarized its findings and issued the following directions:
1. The impugned amendment does not result in a valid levy of entertainment tax.
2. The levy fails due to the absence of a separate machinery for collection.
3. The retrospective effect given to the amendment is void.
4. The petitioners cannot be said to have waived their right to challenge the levy.
5. The amounts collected by the respondents from the petitioners are directed to be refunded with interest.

Separate Opinion by Deepa Sharma, J.:
Justice Deepa Sharma held a different view, concluding that the sponsorship amounts are payments for entry to a place of entertainment if they fulfill the requirements of Section 2(m) of the Act. The impugned amendment was held to be explanatory and clarificatory in nature, not adding any new regime of taxation. The petitions in Group 'A' and Group 'B' were dismissed, and the assessment orders and notices issued by the authorities were upheld.