2015 (2) TMI 1043 - HC - Indian Laws

Entertainment tax on Direct-to-home service providers (DTH) under provisions of the Jharkhand Entertainment Tax Act, 2012 - Taxable under service tax under category broadcasting service - Ultra virus provisions to the Constitution of India - Covered under entry 92C of the Union list or entry 62 of the State list - Doctrine of harmonious construction - Aspect theory - Held that - In our view, the respondents as a cable operator, for the purpose of levy and collection of tax under sub-section (4a) of section 4A of the Act have direct and close nexus with the entertainments made available to the viewer through their cable television network. The performance, film or programmes shown to the viewers through the cable television network come within the meaning of entertainments and therefore within the legislative competence of the State Legislature under entry 62 of List II of the Seventh Schedule to the Constitution of India to make law for the levy and collection of tax on such entertainments. We also see no substance in the submission that the impugned legislation impinges on the field occupied by the Central legislation. The aforesaid Central legislation has been enacted to regulate the operation of cable television network in the country and matters connected therewith or incidental thereto whereas the State legislation is for levy of entertainment tax on entertainment within the legislative field exclusively assigned to the State Legislature under entry 62 of List II of the Seventh Schedule to the Constitution. Thus the objects sought to be achieved by two different Acts enacted under two different legislative fields exclusively assigned to the respective Legislatures are entirely distinct and separate. The Cable Television Networks (Regulation) Act, 1995 of the Union Legislature does not denude the State Legislature for levying entertainment tax on entertainment. In this context, it is important to refer to the case of Express Hotels Private Ltd. 1989 (5) TMI 52 - SUPREME Court in which the Constitution Bench had dealt elaborately with Western India Theatres Ltd. 1959 (1) TMI 23 - SUPREME COURT . In the said case, with reference to entry 50 in Schedule VII of the Government of India Act, 1935, which is identical to entry 62, contention was raised that levy with respect to luxuries, entertainments or amusements can be made on person's receiving such luxuries or entertainment and that there can be no levy of tax on those who are givers or providers of such luxuries, entertainments, etc. While rejecting such a contention that it is only the receivers who can be taxed and not the giver, the learned judges observed that there can be no reason to 'differentiate between the giver and the receiver of entertainments and amusements and both may with equal propriety be made amenable to the tax'. Therefore, there is no substance in the contention that taxable event is entertainment and there can be no tax if there is no entertainment. As held by the Constitution Bench, existence of means of providing entertainment would be sufficient to support a law imposing tax thereon and that means of providing entertainment provides the nexus between the taxing power and the subject of tax. In the case of Kesoram Industries Ltd. 2004 (1) TMI 71 - SUPREME Court , the honourable Supreme Court referred to the aspect theory and pointed out that the transaction may involve two or more taxable events in its different aspects. Merely because they overlap, the same does not detract from the distinctiveness of the aspects. Thus, there could be no question of a conflict solely on account of two aspects of the same transaction being made a subject-matter of legislation by two Legislatures falling within two fields of legislation respectively available to them. So long as the essential character of the levy is not departed from within the four comers of the particular entry, the measure of tax or the manner of levying the tax would not have any vitiating effect. In the present case the question which is required to be determined is whether the levy of tax by the State Legislature was on the service aspect or the entertainment aspect. As has been held in the case of Federation of Hotel 1989 (5) TMI 50 - SUPREME Court by the honourable apex court, if the same transaction involved two or more taxable events in its different aspects, the fact that there is an overlapping does not detract from the distinctiveness of the aspect which can be subjected to legislation under different legislative power of the Union and the State Legislature. The distinction between the two aspects/spheres/profession on the one hand and service on the other hand, was considered by the honourable Supreme Court in the All India Federation of Tax Practitioners 2007 (8) TMI 1 - Supreme Court .The honourable Supreme Court drew distinction between the two aspects/spheres, i.e., profession on the one hand and service on the other hand and upheld the levy of service tax on chartered accountants or cost accountants. The validity of the levy of entertainment tax on DTH providers by the State of Uttarakhand was challenged before the High Court of Uttarakhand. Referring to the distinction drawn by the apex court between the two aspects/spheres, i.e., profession on one hand and service on the other hand in All India Federation of Tax Practitioners 2007 (8) TMI 1 - Supreme Court and treating the similar distinction between the two aspects/spheres on DTH broadcasting service, i.e., service on the one hand and entertainment on the other hand, the Uttarakhand High Court held. We fully agree with the view taken by the Uttarakhand High Court and we hold that there are two different aspects/spheres of direct-to-home (DTH). One is broadcasting service, for which service tax is levied and another one entertainment, for which entertainment tax is levied by the State of Jharkhand. Applying the doctrine of aspect theory in a similar case reported as Tata Sky Limited 2010 (10) TMI 930 - PUNJAB & HARYANA HIGH COURT , the Punjab and Haryana High Court held that levy of service tax on the providing of service vide entry 97 read with entry 92C of List I and levy of entertainment tax covered by entry 62, List II of the Seventh Schedule to the Constitution of India can co-exist and can be harmonized on being different aspects. In the case of Purvi Communication P. Ltd. 2005 (3) TMI 438 - SUPREME COURT OF INDIA , the honourable Supreme Court upheld the levy of entertainment tax on cable television by the State of West Bengal. Ratio of the decision in Purvi Communication upholding the levy of entertainment tax on cable operators by the West Bengal Legislature is squarely applicable. The contention of the petitioners is that the value of set top box or other equipments cannot be included in valuable consideration and gross collection. The learned senior counsel for the petitioner urged to segregate the cost of set top box or other equipments and other instruments of like nature from valuable consideration received by the assessee and from gross collection. By reading of section 2(aj), we do not think that the value of set top box is included as valuable consideration. What is stated as valuable consideration in section 2(aj)(ii) in respect to direct-to-home (DTH) broadcasting service means any cash, deferred payment by way of contribution, subscription, installation or rent or security or activation charges or connection charges or any other charges collected in any manner whatsoever for direct-to-home (DTH) broadcasting service with the aid of any type of set top box or any other instrument of like nature at a residential or non-residential place. We are of the view that the connection charges are integral part of entertainment and have to be taken into account for the valuable consideration received by the assessee for calculating the gross collection. Jharkhand Entertainment Tax Act, 2012 levying tax on entertainment through direct-to-home (DTH) in pith and substance, is on entertainment which falls under entry 62 of List II of the Seventh Schedule. The levy of entertainment tax is different from the levy of tax on broadcasting service which falls under entry 92C of List I of the Seventh Schedule to the Constitution of India. Entry 62 of State List and entry 92C of the Union List operate in two different spheres. There is no transgression or encroachment upon the field of Union legislation and the levy of tax on entertainment through direct-to-home (DTH) by the State Legislature is not ultra vires the power of the State Legislature provided under entry 62 of List II of the Seventh Schedule to the Constitution of India. In view of the fine distinction between direct-to-home service and cable T. V., levy of entertainment tax at the rate of 10 per cent. on direct-to-home (DTH) service vis-a-vis 7.5 per cent. on the entertainment through cable TV, is not discriminatory. Applying the R. M. D. Chamarbaugwalla 1957 (4) TMI 56 - SUPREME COURT the principle of severability, section 2(s)(v) read with section 2(aj)(ii) of Jharkhand Entertainment Tax Act shall not include the cost of set top box or any other instrument or equipment of like nature to levy entertainment tax. The impugned demand notices issued to the writ petitioners are in consonance with the provisions of the Jharkhand Entertainment Tax Act, 2012, the prayer sought for by the petitioners to quash the impugned notices is liable to be rejected. - Decided against the appellants.

Summary

Issues Involved:
1. Legislative competence to levy entertainment tax on DTH services.
2. Validity of retrospective implementation of the Jharkhand Entertainment Tax Act, 2012.
3. Discrimination in tax rates between DTH services and cable TV.
4. Inclusion of set-top box costs in the taxable amount.

Issue-wise Detailed Analysis:

1. Legislative Competence to Levy Entertainment Tax on DTH Services:
The petitioners argued that the Jharkhand Entertainment Tax Act, 2012, which imposes an entertainment tax on DTH services, encroaches upon the Union List entries, specifically entry 92C (taxes on services) and entry 31 (broadcasting). They contended that DTH services fall under broadcasting services, which are already taxed under service tax by the Union Government, and thus, the state legislature has no competence to levy an additional entertainment tax.

The court held that the Jharkhand Entertainment Tax Act, 2012, in pith and substance, levies a tax on entertainment, which falls under entry 62 of List II of the Seventh Schedule. The court applied the doctrine of pith and substance and aspect theory, concluding that while the Union List entry 92C covers service tax on broadcasting, the state can levy entertainment tax on the entertainment aspect of DTH services. The court emphasized that the two taxes are distinct and can coexist.

2. Validity of Retrospective Implementation:
The petitioners challenged the retrospective effect of the Jharkhand Entertainment Tax Act, 2012, which was notified on May 14, 2012, but made effective from April 27, 2012. They argued that the delegated legislation did not have the power to give retrospective effect unless specifically empowered.

The court upheld the retrospective application, stating that the Act itself was enacted on April 27, 2012, and the notification merely brought it into force from that date. The court found that the retrospective effect was within the legislative competence and did not prejudice the petitioners, as they had not demonstrated any specific harm caused by the short retrospective period.

3. Discrimination in Tax Rates Between DTH Services and Cable TV:
The petitioners argued that the different tax rates for DTH services (10%) and cable TV (7.5%) were discriminatory, arbitrary, and violated Article 14 of the Constitution of India. They contended that both services provide similar entertainment and should be taxed equally.

The court rejected this argument, noting the qualitative differences between DTH and cable TV services. DTH provides better picture and sound quality, more channels, and the convenience of viewing at any time, which justifies the higher tax rate. The court found that the classification was reasonable and not arbitrary.

4. Inclusion of Set-Top Box Costs in the Taxable Amount:
The petitioners contended that the cost of set-top boxes or other equipment should not be included in the taxable amount for entertainment tax purposes. They argued that these costs are related to the provision of service and not the entertainment itself.

The court agreed with the petitioners on this point, applying the principle of severability. It held that while the Jharkhand Entertainment Tax Act, 2012, could levy tax on the entertainment provided through DTH services, it could not include the cost of set-top boxes or similar equipment in the taxable amount. The court read down the provisions to exclude these costs from the taxable amount.

Conclusion:
The court upheld the validity of the Jharkhand Entertainment Tax Act, 2012, in levying entertainment tax on DTH services, distinguishing it from service tax on broadcasting services. The retrospective application of the Act was deemed valid. The court found no discrimination in the different tax rates for DTH and cable TV services. However, it excluded the cost of set-top boxes from the taxable amount under the principle of severability. The writ petitions were dismissed, and the interim orders were vacated.