2022 (1) TMI 443 - HC - VAT and Sales Tax

Levy of Entertainment tax - Valuation - consideration towards the services excluding the service tax component or on both - entertainment tax can be levied on the transaction of service which is so characterized under the Finance Act, 1994 or not? - legislative competence of State of Karnataka to levy tax under KET Act, 1958 on the transaction which is exclusively reserve for Union Parliament for the purposes of service tax under Entry 92C of the List I of Schedule VII of the Constitution of India - prohibition under constitutional discipline of Article 246 to adopt the sources of revenue which are exclusive received for the Union Parliament - applicability of judgement of ANAND SWARUP MAHESH KUMAR VERSUS THE COMMISSIONER OF SALES TAX 1980 (9) TMI 238 - SUPREME COURT - validity to proceed with the appeals while the question of legislative competence of State of Karnataka are pending consideration before this Hon'ble Court? HELD THAT - The Tribunal referring to various provisions of the Finance Act, 1994, as well as the Service Tax Rules, 1994, has observed that it is not possible or permissible to segregate the service tax component for the purpose of levy of entertainment tax in the case of the appellant as the service tax component is not indicated separately in the bills or invoices issued to the customers. No proof is available on records to show that service tax has been separately collected. It was further observed that the charging Section 4-G of the Act uses the expression 'on the amounts received or receivable' is liable for entertainment tax at 6%, and therefore, the assessing authority is correct in levying entertainment tax on service tax component, and the appellate authority is correct in confirming the same. The Hon'ble Supreme Court in ALL INDIA FEDERATION OF TAX PRACTITIONERS ORS VERSUS UNION OF INDIA ORS 2007 (8) TMI 1 - SUPREME COURT , has held that service tax is levied on the service and not on the service provider. It has been held in the said case that service tax is a value added tax which in turn is both a general tax as well as destination based consumption tax, in the sense, it is levied on commercial activities and is not a charge on the business, but on the consumer and it would, logically, be levied only on the service provided. It would meet the ends of justice if the order passed by the Tribunal is set aside and the matter is remitted to the Tribunal to consider the appeals afresh after giving an opportunity to the petitioner to produce all the relevant documents in support of his case including the invoices raised by it as against the subscribers, and thereafter, the appeals shall be heard and disposed of - Petition allowed in part.

Summary

Issues:
Challenge to common order of Karnataka Appellate Tribunal under Karnataka Entertainment Tax Act, 1958 regarding levying of entertainment tax on DTH services.

Analysis:
The petitioner, a DTH service provider, challenged orders passed against them for not collecting entertainment tax despite paying service tax. The petitioner argued that service tax is a consumption tax borne by customers, making entertainment tax redundant. Citing a Supreme Court judgment, the petitioner contended that service tax is mandatory, and no provision allows levying entertainment tax on service component. The respondent argued that the petitioner failed to provide invoices proving non-collection of service tax separately. The Tribunal noted the absence of proof of separate service tax collection and upheld the orders.

The petitioner raised questions on the applicability of entertainment tax, legislative competence, and disintegration of composite contracts for tax purposes. The Tribunal observed that due to lack of separate indication of service tax in invoices, segregating service tax for entertainment tax levy was not feasible. The Tribunal agreed with the assessing authority's decision to levy entertainment tax on the service tax component.

The Court, considering the petitioner's request to present relevant invoices, referred to a Supreme Court ruling stating service tax is levied on services, not providers. The Court highlighted that service tax is consumer-based and should be levied only on the service provided. The Court noted that certain government notifications and circulars were not adequately considered by the lower authorities. Consequently, the Court set aside the Tribunal's order, remanding the matter for fresh consideration with an opportunity for the petitioner to present necessary documents.

In conclusion, the Court partially allowed the petition, setting aside the Tribunal's order and remanding the case for reevaluation. The Tribunal was directed to reconsider the matter, considering the petitioner's submissions and relevant government notifications. Both parties were instructed to appear before the Tribunal without further notice.