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2025 (2) TMI 892 - HC - VAT / Sales TaxConstitutional validity of Section 3C of the Kerala Local Authorities Entertainments Tax Act 1961 - Section 5 of the Kerala High Court Act 1958 - levy of cess on cinema tickets to fund the Kerala Cultural Activists Welfare Fund - HELD THAT - The Cess levied under Section 3C of the Act of 1961 and collected is for the Kerala Cultural Activists Welfare Fund established under the Act of 2010. This Cess shall not exceed Rs. 3/- per cinema admission where the ticket price is more than Rs. 25/-. The local authority has to collect the Cess along with the tax on cinema admission and after deducting the collection charges at a rate specified by the Government has to transfer the proceeds to the Kerala Cultural Activists Welfare Fund Board. The Cess is levied on the cinema viewers and not on the theatre owners. The impugned provision seeks to levy a cess on the ticket purchased by cinema viewers for the purpose of entertainment and therefore it is clearly relatable to entertainment under Entry 62 of List II VII Schedule to the Constitution of India. In the case of M/s. Vijayalakshmi Rice Mill 2006 (8) TMI 307 - SUPREME COURT the Hon ble Supreme Court had an occasion to consider the term Cess . In this case a cess under the Andhra Pradesh Rural Development Act 1986 which was in addition to the purchase of sales tax was the subject matter of challenge. The contention was that the enactment does not fall in any of the entries in List II or List III of Schedule VII to the Constitution of India. The Supreme Court considered the question of whether the said impost was a fee or a tax. In that context the Supreme Court elaborated on the term Cess and held that ordinarily Cess is also a tax but is a special kind of tax. The Cess can also mean a tax levied for a special purpose or as an increment to the existing tax and in given circumstances a fee. In the case at hand entertainment tax is already levied under the Act of 1961 and the Cess under Section 3C is an additional levy. Thus the contention of the learned Senior Advocate for the Appellants that under Entry 62 of List II of Schedule VII to the Constitution of India only tax can be levied and Cess cannot be levied is without merit. The Cess is another term for the tax that is levied which is a special kind of tax. The levy of impugned Cess is traceable to Entry 62 of List II VII Schedule to the Constitution of India. If the levy of the impugned Cess on entertainment improves the quality of entertainment then a broad correlation will be established. We find a correlation between the Cess on entertainment levied on the cinema viewers as a fee and the utilisation of the Fund for the welfare of cultural activists. That is because the levy on cinema viewers contributes to the welfare of cultural artists in the State and the overall development of cultural and artistic ethos. When cultural activities relatable to art are supported and valued it fosters a culture that appreciates art. This then creates a positive cycle of creativity and appreciation. When society encourages and supports artists the overall artistic ethos strengthens leading to quality artistic output - the impugned Cess can be traced to the legislative power of the State Government to Entries 62 and 66 of List II Schedule VII to the Constitution of India and the levy of this Cess is relatable to the benefits received by the cinema viewers on whom the Cess is levied. Challenge to levy of impugned Cess on the grounds of violation of Articles 14 and 19 of the Constitution of India - HELD THAT - The Cess impugned is to be collected by the local authority. The proceeds of the Cess have to be remitted by the local authority to the account of the Kerala Cultural Activists Welfare Fund Board. There is no role for the theatre owners and the levy does not fall on them. No data has been provided to demonstrate how this levy amount per ticket has affected the functioning of the theatre owners business. This argument is not supported by adequate pleadings and cannot be accepted. Conclusion - i) The constitutionality of Section 3C upheld affirming the State s legislative competence under Entry 62 of List II. ii) The cess was a valid tax on entertainment serving a specific purpose of funding the welfare of cultural activists. There is no merit in the challenge. There is no error in the view taken by the learned Single Judge - Appeal dismissed.
The core legal question presented in this case was the constitutional validity of Section 3C of the Kerala Local Authorities Entertainments Tax Act, 1961, which imposes a cess on cinema tickets to fund the Kerala Cultural Activists' Welfare Fund. The appellants challenged this provision, arguing that it was unconstitutional and beyond the legislative competence of the State of Kerala.
**Issue-wise Detailed Analysis** 1. Legislative Competence: The primary issue was whether the State of Kerala had the legislative competence to enact Section 3C under the Constitution of India. The Court examined the relevant legal framework, particularly Article 246 and the Seventh Schedule of the Constitution, which delineates the legislative powers between the Union and the States. The Court noted that Entry 62 of List II (State List) allows the State to levy taxes on entertainments and amusements. The Court applied the doctrine of pith and substance to determine the true nature of the levy, concluding that the cess was indeed a tax on entertainment, falling squarely within the State's legislative competence under Entry 62. 2. Nature of the Cess: The appellants contended that the cess was not a tax but a fee, requiring a quid pro quo. The Court clarified that a cess is a special kind of tax, often levied for a specific purpose. It cited precedents, including the Supreme Court's decision in M/s. Vijayalakshmi Rice Mill, to support the view that a cess can be a tax levied for a special purpose, and the nomenclature is not determinative of its nature. The Court further explained that the cess was an additional levy on the existing entertainment tax, intended to fund the welfare of cultural activists, thus serving a specific purpose. Therefore, it was validly enacted under Entry 62. 3. Quid Pro Quo and Benefit to Cinema Viewers: The appellants argued that there was no direct benefit or quid pro quo for cinema viewers from the cess. The Court noted that the legal concept of quid pro quo for fees has evolved, and a direct benefit is not necessary. A general benefit suffices, and the promotion of cultural activities indirectly benefits cinema viewers by enhancing the quality of entertainment. The Court found a reasonable relationship between the levy and the services rendered, as the welfare of cultural activists contributes to the overall artistic environment, benefiting cinema viewers indirectly. 4. Repugnancy with Central Legislation: The appellants claimed that the field of legislation was occupied by the Central Cine-Workers Welfare Fund Act, 1981, and the State Act was repugnant to it. The Court examined the scope of the Central Act, which is limited to certain cine-workers, and found that the State Act had a broader scope, covering various cultural activists. The Court applied the doctrine of pith and substance, concluding that the impugned levy was primarily a tax on entertainment, not a measure of social security or welfare, thus avoiding repugnancy with the Central Act. 5. Violation of Articles 14 and 19: The appellants argued that the cess violated their rights under Articles 14 and 19 of the Constitution. The Court dismissed these claims, stating that the cess was collected from cinema viewers, not theatre owners, and there was no evidence of any adverse impact on the appellants' business. **Significant Holdings** The Court upheld the constitutionality of Section 3C, affirming the State's legislative competence under Entry 62 of List II. It held that the cess was a valid tax on entertainment, serving a specific purpose of funding the welfare of cultural activists. The Court emphasized the broad interpretation of legislative entries and the evolved understanding of quid pro quo for fees. The appeal was dismissed, and the Court found no error in the Single Judge's decision. The judgment reinforced the principle that legislative entries should be interpreted liberally, and the State's power to levy taxes on entertainment was upheld.
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