2024 (8) TMI 391 - HC - VAT and Sales Tax

Challenge to assessment orders - whether sponsorship receipts constitute payment for admission to entertainment ? Did the pre-amended Section 2 (m) of the Delhi Entertainment and Betting Tax Act, 1966 cover sponsorship of fashion shows and sporting events so as to extend the incidence of tax under Section 6? - HELD THAT - Section 6 of the Entertainment Tax Act is the charging provision. There is also no dispute that sub-Section (1) of Section 6 gives a clue as to the nature of the tax, i.e., the taxable event. Thus, the expression payments for admission to any entertainment characterises what would be a taxable event for levy of Entertainment tax, save and except those services referred to in Section 7 which are accessed for entertainment. Section 7, amongst other things, refers to cable network, video, and DTH services - A careful perusal of Section 2 (m) of the Entertainment Tax Act would show that it is an inclusive definition and adverts to payments made by a person to gain access to either the seats or other accommodation in any form made available in a place of entertainment or payments made to gain access to entertainment or even payments made in connection with entertainment as a condition for attending or continuing to attend the entertainment event. The modes of payment are illustrative as the definition is inclusive and not exhaustive. Therefore, a circumstance where a person gets physical access to a place of entertainment by paying money for seats or accommodation provided therein is an aspect covered in sub-Clause (i) of Clause (m) of Section 2. The contention put forth on behalf of GNCTD that Explanation 2 appended to Section 2 (m) was clarificatory, which is why it was triggered retrospectively, has no merit. Whether the introduction of Explanation 2, with retrospective effect by the amendment in 2012, is contrary to Article 14 of the Constitution, or is it merely clarificatory? - HELD THAT - Explanation 2 was not clarificatory, imposition of Entertainment Tax on goods supplied, services rendered, and amounts paid by sponsors, that too since 01.04.1998 almost the date when Entertainment Tax Act was first brought into force , for which no provision was made, by the organisers/proprietors, would indeed, be burdensome and onerous. This is especially so when seen against the backdrop of the admitted fact that entities such as FDCI were given a 100% exemption from tax levy from 2002-2007, while for 2008-2009, the exemption was 50%. Does the levy of tax (on sponsorship) under the Act fail by reason of the absence of a specific charging provision? - HELD THAT - Section 6 of the Entertainment Tax Act remained unamended after the introduction of Explanation 2 - Unlike the amendments made for DTH, video service, and cable TV network, no such attempt was made for sponsorships. The imposition of a tax on sponsorship under the Entertainment Tax Act must fail in the absence of a specific charging provision. Does the Act contain a mechanism for assessment and collection of tax on such sponsorships, if it validly levies the tax, or is such mechanism absent? - HELD THAT - Rule 11 of the 1997 Rules prescribes Forms 5 and 6 for ticketed and non-ticketed events, respectively. Form 5 does not reference sponsors or sponsorships, while Form 6 seeks information on sponsors for non-ticketed events - the requirement to disclose information about sponsors in Form 6 does not imply that sponsorship receipts are subject to Entertainment Tax. The Act does not provide a separate machinery for assessing and collecting tax on sponsorships. The Entertainment Tax Act does not contain a mechanism for assessing and collecting tax on sponsorships. Petition allowed.

Summary

Issues Involved:
1. Did the pre-amended Section 2(m) of the Delhi Entertainment and Betting Tax Act, 1966 cover sponsorship of fashion shows and sporting events to extend the incidence of tax under Section 6?
2. Whether the introduction of Explanation 2, with retrospective effect by the amendment in 2012, is contrary to Article 14 of the Constitution, or is it merely clarificatory?
3. Does the levy of tax (on sponsorship) under the Act fail by reason of the absence of a specific charging provision?
4. Does the Act contain a mechanism for assessment and collection of tax on such sponsorships if it validly levies the tax, or is such mechanism absent?

Issue-wise Detailed Analysis:

1. Coverage of Sponsorship under Pre-amended Section 2(m):
- The court examined whether the pre-amended Section 2(m) of the Delhi Entertainment and Betting Tax Act, 1966, covered sponsorships for fashion shows and sporting events, thereby extending the tax incidence under Section 6.
- It was concluded that sponsorship amounts could not be construed as "payment for admission" as these amounts are paid not for being entertained but in lieu of the right to advertise products, brands, logos, etc., while the entertainment activity is on. The focus of sponsorship is to further business interests, not to attend or continue to attend the entertainment event.
- The court noted that the expression "other accommodation" in Section 2(m)(i) should take color from the expression "seats," and thus, the literal meaning of "accommodation" cannot be applied to include places allocated for advertising a sponsor's product.
- Therefore, the unamended Act did not implicitly include sponsorships within its ambit.

2. Introduction of Explanation 2 and its Constitutionality:
- Explanation 2, introduced by the amendment in 2012, was argued to be clarificatory and thus given retrospective effect.
- The court found that Explanation 2 introduced a new element in the definition of "payment for admission," which was not previously included. Therefore, it could not be considered merely clarificatory.
- The retrospective application of Explanation 2 was deemed arbitrary, harsh, and unreasonable, violating Article 14 of the Constitution. The imposition of tax on sponsorships from 01.04.1998, almost the date when the Act was first brought into force, was considered burdensome and onerous.

3. Absence of a Specific Charging Provision:
- The court emphasized the necessity of a specific charging provision for a valid tax levy. Section 6 of the Entertainment Tax Act remained unamended after the introduction of Explanation 2.
- The court noted that the Legislature did not carry out necessary amendments to bring sponsorship amounts within the remit of the Act. Unlike the amendments made for DTH, video service, and cable TV network, no such attempt was made for sponsorships.
- Consequently, the imposition of tax on sponsorship receipts must fail due to the absence of a specific charging provision.

4. Mechanism for Assessment and Collection of Tax:
- The court examined whether the Act contained a mechanism for assessing and collecting tax on sponsorships.
- Rule 11 of the 1997 Rules prescribes Forms 5 and 6 for ticketed and non-ticketed events, respectively. Form 5 does not reference sponsors or sponsorships, while Form 6 seeks information on sponsors for non-ticketed events.
- The court concluded that the requirement to disclose information about sponsors in Form 6 does not imply that sponsorship receipts are subject to Entertainment Tax. The Act does not provide a separate machinery for assessing and collecting tax on sponsorships.
- Therefore, the Act lacks a mechanism for the assessment and collection of tax on sponsorships.

Conclusion:
- The court allowed the writ petitions, concluding that the unamended Section 2(m) did not cover sponsorships, the retrospective application of Explanation 2 was unconstitutional, the imposition of tax on sponsorships failed due to the absence of a specific charging provision, and the Act did not contain a mechanism for assessing and collecting tax on sponsorships.
- The reliefs granted by Bhat J. in paragraphs 82(4) and (5) of the judgment were sustained.