2010 (10) TMI 930 - HC - Service Tax

Whether levy of entertainment tax is covered by Entry 62 of List II or is tax on broadcasting service covered by Entry 92C of List I? Held that - Levy of entertainment duty falls under entry 62 of List II and is not hit by entry 92C of List I. We are unable to hold that levy of entertainment duty on providing entertainment by broadcasting signals on TV sets is ultra vires the powers of the State Legislature. Petition dismissed.

Summary

Issues Involved:

1. Validity of levy of entertainment duty under section 3(3C) of the Punjab Entertainment Duty Act, 1955.
2. Whether the levy is a service tax under Entry 92C of List I or an entertainment tax under Entry 62 of List II.
3. Legislative competence of the State Legislature in imposing the levy.
4. Application of the aspect theory and the doctrine of pith and substance.

Detailed Analysis:

1. Validity of Levy of Entertainment Duty:

The petitions questioned the validity of the entertainment duty levied under section 3(3C) of the Punjab Entertainment Duty Act, 1955. The petitioners argued that the levy was essentially a service tax under Entry 92C of List I, beyond the competence of the State Legislature, and not an entertainment tax under Entry 62 of List II. The petitioners contended that their activities were covered by taxable service under section 65(105)(zk) of the Finance Act, 1994, which provides for service tax on broadcasting.

2. Service Tax vs. Entertainment Tax:

The primary question was whether the levy of entertainment tax is covered by Entry 62 of List II or if it is a tax on broadcasting service covered by Entry 92C of List I. The petitioners argued that the predominant aspect of their activity was broadcasting service, with entertainment being incidental. The State defended the levy, stating that it was not on broadcasting service but on entertainment, which is expressly covered by Entry 62 of List II.

3. Legislative Competence:

The court examined the legislative competence of the State Legislature under Article 246 of the Constitution, which delineates the distribution of legislative powers. The principle of federal supremacy and the doctrine of pith and substance were considered. The court noted that taxation is a distinct matter for legislative competence, and there is no overlapping in taxing power between the Union and the State.

4. Aspect Theory and Doctrine of Pith and Substance:

The court discussed the aspect theory, which allows for different aspects of the same matter to fall within the legislative competence of different legislatures. The court referred to several judgments, including Federation of Hotel & Restaurant Assn. of India v. Union of India and Bharat Sanchar Nigam Limited, to illustrate the application of the aspect theory. The court concluded that the levy of entertainment duty on the aspect of entertainment is justified, independent of the service tax on broadcasting service.

Conclusion:

The court held that the levy of entertainment duty falls under Entry 62 of List II and is not hit by Entry 92C of List I. The levy of entertainment duty on providing entertainment by broadcasting signals on TV sets is within the legislative competence of the State Legislature. The petitions were dismissed, upholding the validity of the entertainment duty under the Punjab Entertainment Duty Act, 1955.