2019 (7) TMI 1198 - HC - VAT and Sales Tax

Requirement with the compliance of security deposit - HELD THAT - In the light of the undisputed position as far as the seven writ petitioners are concerned, this Court has no difficulty in accepting the submission of learned Standing Counsel for Salem City Municipal Corporation that the fiscal authority has taken 15% as the tax payable for the purpose of computing security deposit under by-law 6, which has been extracted and reproduced - A further careful and close reading of by-law 6 reveals that the method of computation contemplated in 6.2 of the by-laws is that the security deposit is based on 'full capacity of the auditorium for a period of seven days'. Security deposit is for the purpose of ensuring that if there is any default in payment of tax, the exchequer is not left high and dry. Therefore, this Court finds no illegality in the second respondent adopting 1 half times of tax payable i.e., 15% in this scenario for arriving at the security deposit that has been demanded. Mode of deposit - HELD THAT - Though a part of the security deposit has been received by way of a cheque drawn in favour of the second respondent, in the light of the submissions made on instructions by Standing Counsel that the cheques have since been encashed and the monies have been deposited to Municipal Fund of cash, which is a permitted mode of deposit, this Court finds no infirmity or illegality in the mode of deposit also. Petition dismissed.

Issues Involved:
1. Central theme/core issue of security deposit for tax payable under the Tamil Nadu Local Authorities Entertainments Tax Act, 2017.
2. Methodology for computing the quantum of security deposit.
3. Mode of deposit for the security amount.
4. Legality of the impugned demand notices issued by the second respondent.

Issue-wise Detailed Analysis:

1. Central Theme/Core Issue of Security Deposit:
The primary issue in these seven writ petitions pertains to the security deposit that the petitioners, who are in the business of cinematograph exhibition (cinema theatres), have to pay under the Tamil Nadu Local Authorities Entertainments Tax Act, 2017 (Act 20 of 2017). The petitioners are liable to pay entertainment tax under this Act, which was initially set at 30% but later scaled down to various rates depending on the type of film and its language. The core issue is the demand for a security deposit by the respondents, which the petitioners have challenged.

2. Methodology for Computing the Quantum of Security Deposit:
The methodology for computing the security deposit is detailed in by-law 6 of the Tamil Nadu Local Authorities Entertainments Tax By-Laws, 2017. According to by-law 6, the security deposit for permanent theatres is based on 75% to 1.5 times the tax payable for a week, calculated on the full capacity of the auditorium. The tax rates vary between 7% and 20% depending on the film's language and whether it is new or old. The second respondent has taken 15% as the tax payable for computing the security deposit, considering that the theatres screen films across all categories. The court found no illegality in this computation method and upheld the security deposit demand based on 1.5 times the tax payable.

3. Mode of Deposit for the Security Amount:
The permissible modes of deposit are outlined in by-law 6, which include cash deposits to the Municipal Fund, Government Promissory Notes, Post Office Savings Bank Deposits, deposits with Nationalized or Scheduled Banks, and certain loan bonds or debentures. The petitioners had already paid ?11.40 lakhs out of the total ?31.40 lakhs demanded, using cheques, which were encashed and deposited as cash to the Municipal Fund. The court found this mode of deposit permissible and stated that the petitioners could make the remaining deposit using any of the acceptable forms mentioned in by-law 6.

4. Legality of the Impugned Demand Notices:
The impugned demand notices dated 14.06.2019, issued by the second respondent, were challenged by the petitioners. The court noted that prior to these notices, there had been several communications and a circular from the District Collector, which were not challenged by the petitioners. The petitioners had also participated in meetings and paid part of the demanded security deposit. The court found no grounds to interfere with the demand notices, as the petitioners had subjected themselves to the process and methodology of computation. Consequently, the writ petitions were dismissed.

Conclusion:
The court dismissed the writ petitions and upheld the impugned demand notices for the security deposit. The petitioners were given three months to pay the remaining ?20 lakhs, during which no coercive action would be taken against them. If the balance is not paid within this period, the respondents are free to proceed according to law.

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