2013 (3) TMI 155 - HC - Service Tax

Constitutional validity of Entertainment tax on MSO at the rate of 20 per cent of the turnover - Their main contention is that imposition of entertainment tax on them is beyond the legislative competence of the State Government as they are already subjected to service tax for their services under section 65(105)(zs) of the Finance Act, 1994. - According to them, entertainment tax is also contrary to the settled law and violative of Articles 14, 19(1)(g), 246 and 265 of the Constitution of India. - held that - In State of West Bengal v. Purvi Communication Pvt. Ltd. (2005 (3) TMI 438 - SUPREME COURT OF INDIA) the Supreme Court has held that the State Government has legislative competence to levy entertainment tax through cable television network on MSOs as they have direct and close nexus with entertainment provided to viewers and they are the providers of entertainment. The Supreme Court has also held that levy of such entertainment tax on MSOs is neither discriminatory nor violative of Article 19(1)(g) of the Constitution. This decision was later followed by the Supreme Court in Indusind Media & Commun. Ltd. v. Mamlatdar (Supra) which was a matter from the State of Gujarat and an entertainment tax was levied on the MSOs. In this case, the Supreme Court has held that since such MSOs are connected to an organization of entertainment, they fall within the meaning of proprietor and the issue that MSOs are liable to pay entertainment tax is not longer res integra.

Summary

Issues:
Challenge to the vires of sections of the Adhiniyam 2011 regarding entertainment tax imposition on Multi-System Operators (MSOs) - Legislative competence of State Government, violation of settled law and constitutional provisions.

Analysis:
The petitioners, Multi-System Operators (MSOs), contested the imposition of entertainment tax under specific sections of the Madhya Pradesh Vilasita, Manoranjan, Amod Evam Vigyapan Kar Adhiniyam, 2011 (Adhiniyam 2011). They argued that the State Government exceeded its legislative competence as they were already subject to service tax under the Finance Act, 1994. The petitioners claimed that the entertainment tax imposition was against established legal principles and contravened Articles 14, 19(1)(g), 246, and 265 of the Constitution of India.

The State Government, in response, defended the validity of the Adhiniyam 2011 provisions that levied entertainment tax on MSOs. They cited the Supreme Court's decision in State of West Bengal v. Purvi Communication Pvt. Ltd. and subsequent rulings, supporting the State's authority to impose entertainment tax on MSOs and cable operators.

The Adhiniyam 2011 defined key terms related to entertainment tax, including "cable operator," "entertainment," and "proprietor." Section 6(1) of the Adhiniyam outlined the charges and rate of tax, specifying a 20% tax on entertainment turnover for proprietors.

Referring to the Supreme Court decisions in Purvi Communication Pvt. Ltd. and Indusind Media & Commun. Ltd. cases, the High Court concluded that MSOs, being integral to providing entertainment to viewers, were liable to pay entertainment tax. The Court upheld the State's legislative competence to levy such taxes on MSOs, emphasizing their role as providers of entertainment.

In light of the Supreme Court precedents and the direct nexus between MSOs and entertainment provision, the High Court found no grounds to deem the challenged provisions as ultra vires the Constitution. The Court rejected the argument that service tax liability exempted MSOs from entertainment tax obligations under the State Act, dismissing the petitions without costs.