2014 (7) TMI 741 - HC - VAT and Sales Tax

Validity of amendments to rule 41G of the Karnataka Entertainments Tax Rules - Declaration of Notification dated November 8, 2006 as being arbitrary, discriminatory, illegal, ultra vires and without authority of law; to quash annexure D dated February 15, 2010 passed by the second respon dent authority - declaration of amendment of section 4D carried out by Karnataka Act No. 5 of 2005 denying, inter alia, the MSOs the right to seek compounding of tax under section 4D as arbitrary, unreasonable and violative of articles 14, 19(1) (g) and article 300A of the Constitution and also to declare rule 41G as unconstitutional, illegal, without authority of law and having no rationale or nexus to the Scheme and scope of sections 4D and 4E of the Karnataka Entertainments Tax Act, by virtue of amend ment by Karnataka Act No. 5 of 2006 - Distinction between Sections 4C, 4D and 18(3A) of the KET Act - Held that - The distinction made is only to see that large number of operators would pay based on the number of connections and giving a sort of concession to small operators asking them to pay composition tax at the fixed rate for various places in the State of Karnataka. In any way, this fixation of the slab at different places in respect of small-scale operators who have less than 500 connections is to encourage the trade/profession among the small cable operators. So far as multi-system operators are concerned, as their area of operation is big and they earn more income, it has decided to impose tax based on the number of connections at the rate of ₹ 15 or ₹ 20 per connection if the number of connections is more than 500 depending upon the area, which cannot be said to be arbitrary or illegal or in violation of article 14 of the Constitution. In that view of the matter, the challenge made to the amendment brought into the Act and Rules are not maintainable. - Decided against Petitioner.

Summary

Issues:
Challenge to amendments to rule 41G of Karnataka Entertainments Tax Rules, Declaration of amendments as arbitrary, discriminatory, illegal, ultra vires, and without authority of law, Challenge to denial of right to seek compounding of tax under section 4D, Declaration of rule 41G as unconstitutional, illegal, without authority of law, Grievance regarding withdrawal of compounding benefit due to amendments, Allegation of discrimination against multi-system operators (MSOs) with more than 500 connections, Violation of section 18(3)(a) of the KET Act, Allegation of harassment and extracting more tax, Contention of illegal, discriminatory, and violative of article 19(1)(g) and article 300A of the Constitution, Challenge to changing permission for composition from section 4D to section 4C, Allegation of arbitrary distinction between small operators and MSOs, Dispute over tax payment under section 4C and section 4D, Argument on reasonable classification to protect small operators, Compliance with legislative process for rule amendments, Interpretation and application of sections 4C, 4D, and 18(3A) of the KET Act.

Analysis:
The petitioners, MSOs under section 4D of the KET Act, challenged the amendments to rule 41G and the denial of compounding benefit post-amendment. The amendments withdrew the compounding benefit for MSOs with over 500 connections, leading to tax demands under section 4C instead of section 4D, sparking the petitions. The petitioners argued the amendments were arbitrary, discriminatory, and unconstitutional, violating articles 14, 19(1)(g), and article 300A of the Constitution. They contended the amendments were introduced to harass and extract more tax from them, alleging non-compliance with legislative procedures for rule changes.

The respondents argued that section 4C is a charging provision, while section 4D offers discretion to operators with fewer than 500 connections. They defended the classification as reasonable, aiming to bring all cable operators under the tax net uniformly. The distinction aimed to protect small operators, with the exemption for operators with fewer than 500 connections not deemed discriminatory or arbitrary. The respondents highlighted compliance with legislative processes for rule amendments, asserting the changes were policy decisions.

The Court examined sections 4C, 4D, and 18(3A) of the KET Act, emphasizing the different tax rates and provisions for operators based on the number of connections. The Court upheld the classification, noting the differentiation between large-scale operators and small operators was to encourage trade among the latter. The Court found the imposition of tax based on connections for MSOs reasonable, considering their larger operations and income. The challenge to the amendments was deemed not maintainable, suggesting petitioners seek extension of benefits or upper limits through proper channels.

In conclusion, the petitions were disposed of, with the Court emphasizing the need for petitioners to engage with authorities for any necessary adjustments or clarifications regarding tax provisions under the KET Act.