9911796707
TMI Blog1996 (3) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... evision network for providing inexpensive home entertainment by way of educational, sports and cultural programmes, and feature films to viewers. The activity was recognised as a small-scale service and business enterprise and is eligible to benefits available to small-scale industrial units as per annexure A , letter No. 2(3)/93SSI Bd. Policy dated February 1, 1994 issued by the Director in the office of the Development Commissioner (SSI) of the Department of Small Scale Industries, etc., of the Ministry of Industry, Government of India. The applicant invested Rs. 75,000 by raising a major portion thereof at a high rate of interest. Apart from certain annual fixed expenditure, the applicant is required to incur recurring monthly expenditure for operating the network. Such monthly recurring expense aggregates to Rs. 4,250 per month approximately, excluding interest payable on the borrowed capital and the depreciation of the equipments. At the time of filing the application, he was not paying any licence fee but it would be a substantial amount if he was required to pay the same. Gradually, he obtained 96 customers for his network in the small town of Jhalda. The applicant foun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpugned Notification No. 2100-F.T. dated August 16, 1991 the State Government fixed a uniform flat rate of Rs. 1,000 per week payable by the operators in the Calcutta Metropolitan Area and also fixed the rate of Rs. 750 per week payable by operators in other areas of West Bengal. The West Bengal Finance Act, 1994 inserted the new sub-section (4a) in section 4A in order to make cable TV operators, who did not exhibit in-house films and did not possess VCR or VCP or TV sets, liable to pay the tax at such rate not exceeding Rs. 1,500 per set per week of satellite transmission receiver (STR) with dish antenna, as may be specified in a notification. The State Government was also authorised to specify different rates of tax for different areas. There is a proviso to the effect that an operator liable to pay tax under sub-section (4) shall not be liable to pay tax under sub-section (4a) or vice versa, if transmission is made through the same cable. By Notification No. 953-F.T. dated April 8, 1994 the State Government fixed a uniform flat rate of tax of Rs. 1,000 per week in the Calcutta Metropolitan Area and a uniform flat rate of Rs. 750 per week in other areas. After issuance of the not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to carry on the same. 4.. Hence, the applicant is challenging the constitutionality and validity of sub-sections (4) and (4a) of section 4A, the notifications dated August 16, 1991 and April 8, 1994 fixing rates of tax for different areas and also the communications dated August 1, 1994 and October 28, 1994. It is said that section 4A(4) is unintelligible and unworkable. No TV set is allegedly required to transmit any film, performance or other programme for exhibition through cable TV network. A TV set is used, if at all, only for assessment of the quality of the picture and to ascertain the programme available on different channels. A VCR or VCP is required in a cable TV network, only if in-house films are to be exhibited. Neither a VCR, nor a VCP, nor a TV set is required by a cable TV network for transmission of any programme, film or performance, if no in-house film is exhibited. Transmission of performance, film and other programme can be and is made to customers with the aid of dish antenna, receivers, modulators, channel mixers and control room amplifier. Hence, persons who transmit for exhibition of performances, films or other programmes through cable TV network, but wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s upon various factors including location and economic and other circumstances of the residents of particular localities. These factors have been ignored by the Government in fixing the rates of tax. No attempt has been made, according to the applicant, to make any classification on the basis of actual user of the sets, the number of viewers served by each control room and the income generated therefrom. Such lack of classification has created gross inequality, amounting to a hostile discrimination which is arbitrary and unreasonable, and violative of article 14 of the Constitution and also repugnant to the scheme of the Act of the relevant legislative entry. It is said to be a colourable legislation and a fraud on the legislative power of the State. It is also charged that in fixing the uniform flat rate of tax, the State Government took under consideration factors which are irrelevant, extraneous and perverse to the object of the Act. The State Government had disclosed the considerations taken into account by it in fixing the flat rate of tax in another proceeding before the High Court, to which the applicant intended to refer at the time of hearing, if necessary. Even in a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er cent of the total programme telecast through a cable. Around 95 per cent of time is allocated for news, sports and other socially beneficial programmes. The balance is devoted to entertainment programmes like cinema, plays and serials. The tax is an indirect levy on viewers. A viewer pays on monthly basis for the total programme telecast into his TV set, and no part of the subscription could be attributed as exclusively relatable to entertainment or amusement, and thus the tax is sought to be imposed, not on entertainment or amusement, but in respect of news, sports and other socially beneficial programmes, and that is repugnant to the scheme of the Act and the relevant legislative entry. 5.. In RN-66 of 1993, the applicant, Madhusudan Roy, is a cable TV network operator of Calcutta for providing inexpensive home entertainment by way of educational, sports, and cultural programmes and feature films to private viewers through their television sets . His case is that there are about 2,000 entrepreneurs like him operating in and around Calcutta and in the State of West Bengal. The network system involves setting up of a control room where centralised video equipment is installed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns by which the State Government fixed allegedly uniform flat rates of tax for Calcutta metropolitan planning area and the rest of West Bengal are also challenged. Such rates of tax have no reference to actual users of the sets, namely, the tax is not depending upon number of customers who use the system, and it is levied irrespective of revenue generated from the network and capacity to pay which is a relevant consideration. 6.. In RN-229 of 1995, Sukumar Pal is the applicant who runs with effect from June, 1995, a cable TV network system for the same purposes as in the other two cases for private viewers at Balarampur, a small town in the district of Purulia. His pleas are almost identical with those of the applicants in the other two cases. Like the applicant in RN-205 of 1994, he is also challenging the vires and constitutionality of sub-sections (4) and (4a) of section 4A of 1982 Act and the same impugned notifications, issued by the Government of West Bengal. The applicant made an investment of more than Rs. 30,000 for setting up his cable TV network system, and a major part of the money was borrowed at an exhorbitant rate of interest. He claims to make a monthly recurrin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to continue the business till final disposal of this application, if he fully complied with the interim order. In RN-66 of 1993 which is the application of Madhusudan Roy, no interim order was passed. In RN-229 of 1995 an interim order was made on November 8, 1995 directing the applicant Sukumar Pal to deposit current taxes according to prescribed rates by the prescribed dates. It was further directed that if such taxes were deposited, those would be treated as security to abide the ultimate result of the application, and respondents should not stop their business till final disposal of the application. 8.. In RN-205 of 1994, the case of the respondents is that though cable TV network was to be treated as a small-scale service and business enterprise, it was entitled to benefits available to other SSI units subject only to fulfilment of the terms and conditions. Respondents have denied knowledge of the quantum of investment and expenses incurred by the applicant, which are said to be disputed questions of fact. It is contended that the applicant cannot take the plea of high level of recurring expenditure, after going into the business upon consideration of all aspects of the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to the relevant legislative entry, or are violative of any provision in the Constitution. Reliance is placed by the respondents on the decision of the Calcutta High Court in the case of Midnapore District Video Owners Association decided on March 19, 1987 in C.O. No. 7205(W) of 1986 and on the case of Raja Jagannath Baksh Singh v. State of Uttar Pradesh [1962] 46 ITR 169 (SC). In the last mentioned case the Supreme Court laid down the principles to be applied in deciding the question of validity of a taxing statute. Cinema hall owners and video hall owners are, according to the respondents, not similarly situated. The object, it is claimed, is that tax will be levied on such cable operators who are making a gain or profit from transmission of films and other programmes through cable network against payment made by subscribers. It is denied that in fixing the uniform flat rate of tax, irrelevant and extraneous factors have been taken into consideration, or that there was excessive delegation of essential legislative functions, or that no policy framework or guideline was laid down on which the structure of the tax could be based. In the case of a cinema hall, the initial investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haitan said that TV set was not used for transmission of programmes, but was used as a monitor of programmes transmitted with the help of VCR or VCP set. The two notifications dated August 16, 1991 and April 8, 1994 lay down flat rates of tax, one for Calcutta metropolitan area and another for the other areas. Mr. Khaitan contended that by laying down such flat rates, unequals have been treated equally. Capacity to pay was not considered in levying the tax. Persons with different capacities of payment are clubbed together. No attempt has been made to levy the tax according to number of connections or volume of business. The flat rates are made applicable to people who are not alike, who are not equally placed, though they fall within the same areawise classification. The tax is confiscatory. From day one, the business is not so viable as to be able to pay the tax. The tax is violative of article 19(1)(a) which guarantees the freedom of expression. What is transmitted is not entirely entertainment but a portion is information. In RN-205 of 1994, the Block Development Officer had stopped the business of applicant Bijon Ghosh. Mr. Khaitan contended that the Block Development Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant factors for making classifications should be applied. Relying on the case of New Manek Chowk Spinning and Weaving Mills Co. Ltd. v. Municipal Corporation of the City of Ahmedabad AIR 1967 SC 1801, Mr. Bhattacharjee submitted that the classification will be valid if it includes merely alike people. There is no restriction upon cable operators to run for twenty-four hours in a day. Since the tax is not on income, capacity to pay of individuals is no criterion. According to Mr. Bhattacharjee, while testing the reasonableness or rationality of classification in a taxing statute, what is to be seen is the generality of the provisions and not mere some inequities in particular cases. He also submitted that there is no question of infringement of article 19(1)(a), because the predominant object, quality and volume of transmission of programmes, etc., by cable operators are commercial, entertaining and profit-oriented. Cable operators do not run the business to serve the purpose of article 19(1)(a). 12.. In order to appreciate the controversy, we may in the first instance notice the scheme of 1982 Act and the provisions thereof and notifications issued thereunder which are impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s further amended by inserting sub-section (4) to the following effect: (4) Where a holder of a video cassette recorder set or a holder of a video cassette player set or a holder of a television set transmits from such set for exhibition of performances, films or any other programmes through cable television network to customers for payment received or receivable by such holder, he shall, in addition to the tax, if any, payable by him under section 4, be liable to pay a luxury-cum-entertainment and amusement tax at such rate not exceeding one thousand rupees per week per set as may be specified in a notification issued by the State Government in this behalf: Provided that the State Government may specify different rates of tax payable under this section according to the use of television set, video cassette recorder set or video cassette player set in different areas of West Bengal: Provided further that the provisions of this sub-section shall not apply to a holder of a video cassette recorder set or video cassette player set referred to in sub-section (3). By this amendment the tax was not only made applicable to holders of VCR and VCP sets but also to holders of TV set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt rates of tax for different areas subject to that limit. The proviso to sub-section (4a) allows an exemption from tax, where holders of STR s and holders of sets of instruments under sub-section (4) use the same cable for the twin purposes of sub-sections (4) and (4a). Thus, if the same cable network is used for the two kinds of transmission, the tax is payable only under sub-section (4). In sub-section (4), the upper limit of tax is Rs. 1,000. But the common feature in the two sub-sections is that the State Government may specify different rates of tax for different areas, of course, subject to the upper limits. In exercise of powers conferred by sub-section (4), the State Government issued Notification No. 2100-F.T. dated August 16, 1991 fixing the rate of tax in respect of use of a TV, VCR or VCP set for exhibition of performances, films or other programmes, through cable TV network per week per set at Rs. 1,000 for the Calcutta Metropolitan Planning area (C.M.P. area) as described in the First Schedule to the West Bengal Town and Country (Planning and Development) Act, 1979 ( 1979 Act , in short) and at Rs. 750 for other areas in West Bengal. This notification came into for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder article 19(1)(g) or 19(1)(f), although they were disabled from passing on the incidence of tax to the purchasers. In that case, the provisions of the Act under consideration had made classification of dealers on the basis of volume of turnover, namely, capacity to pay. The court upheld the classification. In D. Basu v. State of West Bengal 84 CWN 90 (Cal), Sabyasachi Mukharji, J., as His Lordship then was, held that capacity to pay (end of paragraph 29 of the judgment) is a relevant factor, but in what way that relevant factor would be taken cognizance of is a matter of legislative wisdom, and the West Bengal State Tax on Professions, Trades, Callings and Employments Act, 1979, having chosen one method in the context, it could not be said that the choice was irregular or having no nexus with the object. In the said Act of 1979, the income-tax assessees were made to pay or bear a greater burden or pay more tax. The learned Judge held that it was an indication that capacity to pay was taken into consideration, despite a possible argument that standing in the legal profession may not always be the measure of the capacity to earn. This judgment was affirmed by a Division Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the vice of inequality. The definition of multi-storeyed building in the said Act of 1975 was that the expression meant a building on any land in an urban area consisting of five storeys and above, and urban area was to be declared by the State Government by a notification. Thus, all buildings consisting of five storeys and above located in any urban area so declared, were subjected to a tax at uniform rate without taking into consideration the area where the building was situated, the year and cost of construction, the yield and capacity to yield income and the use and potentiality. The High Court held that to treat all multi-storeyed buildings alike, would be to treat unequals in their essential features as equals in respect of the burden of tax. In paragraph 19 of the judgment reference was made to the case of Murthy Match Works v. Assistant Collector of Central Excise AIR 1974 SC 497. In that case the Supreme Court had observed that bare equality of treatment regardless of the inequality of realities is neither justice nor homage to the constitutional principle, and that merely because there was room for classification, it did not follow that the legislation without cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at auction for non-payment of tax and may not fetch even the required amount for the realisation of which it may be proposed to be sold at public auction. In the absence of a bidder forthcoming to bid, the State ordinarily becomes the auction-purchaser for realisation of outstanding taxes. In those circumstances, the Act was held to be confiscatory. The other challenge to the Act was that it was violative of article 14, because the Act obliges every person who holds land to pay the tax at the flat rate whether or not he makes any income out of the property or whether or not the property is capable of yielding any income. The court upheld this contention too on the ground that there was no attempt at classification and it was one of those cases where the lack of classification created inequality. This finding of the court proceeded on the basis that ordinarily a tax on land or land revenue is assessed on the actual or potential productivity of the land sought to be taxed. 15.. The next case to which Mr. Khaitan, learned Advocate for the applicant referred, is the case of State of Andhra Pradesh v. Nalla Raja Reddy, also a judgment of a 5-Judge Bench, reported in AIR 1967 SC 1458 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing constitutional validity of a taxing statute: (12)..............It is, of course, true that the power of taxing the people and their property is an essential attribute of the Government and Government may legitimately exercise the said power by reference to the objects to which it is applicable to the utmost extent to which Government thinks it expedient to do so. The objects to be taxed so long as they happen to be within the legislative competence of the Legislature can be taxed by the Legislature according to the exigencies of its needs, because there can be no doubt that the State is entitled to raise revenue by taxation. The quantum of tax levied by the taxing statute, the conditions subject to which it is levied, the manner in which it is sought to be recovered, are all matters within the competence of the Legislature, and in dealing with the contention raised by a citizen that the taxing statute contravenes article 19, courts would naturally be circumspect and cautious. Where for instance it appears that the taxing statute is plainly discriminatory, or provides no procedural machinery for assessment and levy of the tax, or that it is confiscatory, courts, would be ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Wealthtax (Central) AIR 1994 SC 1355 held that a legislation cannot be struck down on the ground alone that there are some crudities and inequities resulting from complicated experimental economic legislation. The court must judge the constitutionality of a legislation by the generality of its provision and not by its crudities and inequities. It was further held that the courts cannot be converted into Tribunals for relief from such crudities and inequities. The next case on which reliance was placed on behalf of the respondents is the case of Sudarsan Jana v. State of West Bengal a judgment of this Tribunal dated December 18, 1991, reported in [1992] 25 STA 238. One of us was in that 3-Member Bench which decided that case. The challenge in that case was with respect to Notification Nos. 1768-F.T. dated June 1, 1990 and 2252-F.T. dated July 3, 1987 both issued under sub-section (3) of section 4A of 1982 Act. The difference is that in the present cases, the challenges are related to sub-sections (4) and (4a) of section 4A of the same Act and the notifications issued thereunder. It was held in paragraph 16 of the judgment that the mere fact that the tax was levied a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... radesh [1962] 46 ITR 169 (SC) it was held by the High Court in that case that a citizen has the fundamental right to carry on any business of his choice, but there is no right to carry on business without payment of tax. Therefore, there is no doubt that levy of tax for use of only one set is permissible in law and in fixing rate of tax, the State Government can treat it as one of the guidelines, if necessary. In our view, a legislation cannot be faulted on the ground that it authorises imposition of tax on the use of only one set. The impugned sub-sections (4) and (4a) were attacked by Mr. J.P. Khaitan, learned advocate for the applicants, on the ground that they do not lay down any guideline as they simply say that different rates of tax may be levied for different areas. We have already seen that in sub-section (4) the tax is on a holder of a VCR, VCP or TV set if he transmits for exhibition from such set performances, films, or other programmes through cable TV network to customers against payment either received or receivable. The first proviso to sub-section (4) authorises the State Government to specify different rates of tax according to use of a set of any of the instrum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guideline is the areawise classification, even then it cannot be said that the impugned provisions are unconstitutional because only one guideline has been prescribed. Mere number of guidelines is no yardstick for measurement of constitutionality. Moreover, we will presently see that this guideline comprehends many vital aspects. 18.. Mr. Khaitan contended that by laying down flat rates of tax for C.M.P. area and other areas, unequals have been treated equally, and relevant factors have been ignored in the matter of fixation of rate of tax. According to him, the relevant factors are capacity to pay and number of connections or volume of business. Several decisions have been relied on (already discussed) by Mr. Khaitan to support this contention. But Mr. Bhattacharjee contended that the classification on the basis of area is quite reasonable and rational. All the people engaged in the business use identical or common instruments or equipments. The areawise classification has been made so that the area of a city and its fringes have been grouped in one class and the rest of the areas of the State have been grouped in another class. Mr. Bhattacharjee said that this classification ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der one class or group possess certain common features and those features are absent in the others who are excluded from that class or group. Reference may be made to some of the cases relied on by Mr. Khaitan and also the case of Federation of Hotel Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC). Capacity of the tax-payer to pay has been accepted as a relevant factor in making classification in the matter of levy of tax. But from that premise alone, one cannot jump to the conclusion that the capacity to pay is either the conclusive measure of classification or it must necessarily be adopted as a measure of classification in all taxing statutes. There are many factors which can be or which requires to be considered for the purpose of classification among possible taxpayers. In fact, the courts have recognised that in performing this legislative duty, the Legislature is required to take into consideration numerous complex social, economic and other factors, which are normally out of bounds to the judiciary. Reverting to the instant cases, we are clearly of the opinion that the classification on the basis of area (C.M.P. area forming one class and the rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be indolent and another may be enterprising. One may depend on his employee with little personal supervision and another may be so diligent as to personally supervise the business. Equipments of one operator may not be well maintained, and those of another may be carefully maintained. Thus, there is no substance in invoking in these cases the doctrine of resultant inequality for treating unequal individuals equally. Individual inequalities do not really matter. The provisions which are challenged, ought to be judged by the generality of their application and effect. Mr. Khaitan, appearing for the applicants, did not urge anything on the question of rational nexus with the object sought to be achieved by the impugned sub-sections (4) and (4a). The object of 1982 Act is to raise additional revenue for the State. So, the object of these sub-sections is to levy taxes on the basis of areawise classification. The classification bears rational nexus, in our view, to the object which the impugned provision sought to achieve. We hold, therefore, that sub-sections (4) and (4a) and the impugned notifications issued thereunder are constitutional and valid from the standpoint of article 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the tax, the grievance must come from the person who suffers from such curtailment. The present applicants are not the sufferers, even if it can be said that the impugned taxes amount to any such curtailment. Moreover, it is difficult to agree with Mr. Khaitan, for the applicants, that the predominant object of starting such commercial ventures by the applicants is to feed the customers against payment made by them, with mostly news, sports and other socially beneficial programmes. It is common knowledge that cable TV networks feed the customers mostly with amusement and entertainment of different varieties. Nor did the applicants take care to establish that 95 per cent of the contents of programmes transmitted are actually other than amusement or entertainment. Hence, the argument of the violation of article 19(1)(a) is without substance. In Tata Press Ltd. v. Mahanagar Telephone Nigam Limited AIR 1995 SC 2438, it was held that commercial speech is also entitled to the protection of article 19(1)(a) of the Constitution at the ends of both the speaker and the recipient of the speech . It is a part of the freedom of speech and expression guaranteed under article 19(1)(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stomer. But Madhusudan Roy, a cable operator in C.M.P. area, in RN-66 of 1993, says that he charges Rs. 100 per month per customer. 23.. Mr. J.P. Khaitan argued on behalf of the applicants at a certain stage that a new cinema hall owner is provided some tax exemption in the initial years, whereas the tax is payable by a cable operator under sub-sections (4) and (4a) right from day one of his business, even before the break-even stage is reached. Mr. Bhattacharjee, appearing for the respondents, submitted that giving of exemption is a matter of policy of the State Government, and a cinema hall owner is required to make a much higher investment in starting a cinema hall. According to him, running a cinema hall and a cable operation are not comparable at all. We have to agree with him, and in our view, this is a question which is really administrative in nature and the giving of exemption from tax is truly a matter of policy for the Government concerned. If there is no contravention of article 14, no court can say that somebody else should also be given exemption from tax in the same manner as exemption has been provided to another. Reference may be made to the ratio of the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customers or the number of connections, or the quantity and nature of exhibition or transmission, the applicants cannot complain that payment of tax is becoming confiscatory or causing a restriction on his freedom of profession or occupation under article 19(1)(g). If other recurring expenses cannot be curtailed, payment of tax cannot also be curtailed. They have to live with the tax and to get it reimbursed, if necessary, from the customers, since the ventures are purely commercial and optional. Further, we find from the application in RN-66 of 1993 that in this trade there is also a system of charging an initial one-time amount from each customer. It is said that in RN-66 of 1993 that amount was Rs. 400 per customer. Any tax in a sense, operates as hindrance to the free pursuit of a commercial venture. But merely for that reason, a tax cannot be termed as either confiscatory or violative of article 19(1)(g). That question may arise in a case where the statutory regulations are such that the tax-payer cannot recoup the expense of tax or reimburse himself for the amount of tax. But in the instant cases, the applicants are at liberty to raise their charges and enlarge their connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the matter, it cannot be said that the tax levied by sub-section (4) or (4a) is confiscatory or violative of article 19(1)(g). Though not argued at the hearing, it was hinted in the application that there is a difference in the upper limits of tax imposable under sub-sections (4) and (4a). In the former, it is Rs. 1,000, while in sub-section (4a) it is Rs. 1,500. Of course, while issuing the impugned notifications, the upper limit in both the cases was maintained at Rs. 1,000. Be that as it may, there was enough justification for this action of the Legislature. Persons falling under sub-section (4a) who invest in STR, dish antenna, etc., are economically superior to those governed by sub-section (4), since the former are required to make much higher capital investment and the scope for providing variety of amusement and entertainment to customers is wider in their case. 25.. In the case of Bijan Ghosh in RN-205 of 1994, his case is that on October 28, 1994 the local Block Development Officer communicated to him a message from the relevant Sub-Divisional Officer to the effect that he would not be allowed to carry on the business which should remain closed until further inst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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