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TMI Blog2011 (1) TMI 1268X X X X Extracts X X X X X X X X Extracts X X X X ..... espite great care to be correct, and once a clear error in judgment is revealed, no sense of shame or infallibility complex obsesses us or dissuades this court from the anxiety to be ultimately right, not consistently wrong." We are happy to notice that we are saved of Homer's nod. Accordingly, the second question is also answered against the petitioners and in favour of the Revenue. - C.W.P. No. 9476 of 2009 - - - Dated:- 3-1-2011 - MUKUL MUDGAL C.J. AND KUMAR AND JASBIR SINGH M.M. , JJ. The judgment of the court was delivered by M.M. KUMAR J. A Division Bench of this court, of which one of us was a member (M. M. Kumar, J.), has made a reference in a bunch of petitions to this Full Bench raising significant and common questions of law concerning validity of the levy of entertainment duty on sports clubs under the Punjab Entertainment Duty Act, 1955 (as applicable to Haryana) (for brevity, the Act ) and the Punjab Entertainment Duty Rules, 1956 (as applicable to Haryana) (for brevity, the Rules ). It would be apposite to advert to the reference order dated August 3, 2009, which reads thus: Challenge in this bunch of three petitions is to the levy of entertainmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s included to be covered by entry 62 and, therefore, 'sports' can also be included. During the course of arguments, on a specific reference being made by one of us (Jaswant Singh, J.) that he is member of three golf clubs and occasionally plays golf, learned State counsel has expressed no objection to the hearing of the cases by this Bench nor learned counsel for the petitioners has raised any such objection. Heard. Admitted. Keeping in view the fact that imposition of entertainment duty is likely to affect the larger public interest and the Division Bench judgment in the case of Chrysalis International (P) Ltd. [2011] 37 VST 413 (P H) [App] would require a re-look, we are of the considered view that the matter requires consideration at length by a larger Bench. The constitutional validity of various provisions of the Punjab Entertainment Duty Act, 1955 (as applicable to Haryana) and the Rules framed thereunder has also been challenged. Accordingly, we direct that the papers be placed before the honourable Chief Justice for constituting a Larger Bench. In the meanwhile, the interim arrangement made by order dated May 30, 2009 shall continue and the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble by the clubs where members of the club play golf to entertain themselves (P2). On the basis of that communication the petitioner claimed that they did not collect any fee or pay any duty under the Act and/or the Rules. Even the respondents did not ever raised demand for entertainment duty from the petitioner for the last over 18 years. However, on March 31, 2009, Memo. dated May 16, 1991 has been withdrawn with retrospective effect (P3). On January 27, 2009, the officer of the State issued notices in form PED-4 as prescribed under rule 17 of the Rules in respect of assessment years 2004-05, 2005-06, 2006-07 and 2007-08. They have been asked to appear before the competent officer to answer the allegation that they have not been correctly paying the amount of entertainment duty. They have been called upon to explain cases of free, surreptitious, unauthorised and concessional entries (P4). Eventually, their reply has been rejected and they have been held liable to pay entertainment duty in respect of the assessment years 2004-05, 2005-06, 2006-07 and 2007-08 and the amount has been assessed. These orders further provide that penal action would be initiated separately (P5). Consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not been availed of and the writ petition would not be competent without availing of such alternative remedies. The respondents have also taken the stand that there is no lack of legislative competence and the State Legislature is fully competent by virtue of entry 62, List II of the Seventh Schedule. The communication dated May 16, 1991, rendered in the case of Meadows Golf and Country Club, Gurgaon, was against the statutory provisions and has been rightly withdrawn by them on March 31, 2009 (P2 Colly), especially when that communication was examined in the light of the Division Bench judgment rendered in the case of Chrysalis International (P) Ltd. [2011] 37 VST 413 (P H) [App]. The respondents have taken support of entry 62, List II of the Seventh Schedule under which the Act has been enforced by the State of Punjab and has later been adopted by the State of Haryana. On the basis of the judgments of the honourable Supreme Court rendered in the cases of R.K. Garg v. Union of India [1981] 4 SCC 675 and Government of Andhra Pradesh v. Smt. P. Laxmi Devi [2008] 4 SCC 720, it has been pleaded that greater latitude is given to the Legislature by the court in respect of fiscal or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the State of Haryana, amidst the arguments, has issued a notification dated September 17, 2010 exercising the power of exemption under sub-section (3) of section 11 of the Act and has consequently exempted them from payment of entertainment duty on admission fee. The exemption has been confined to those persons playing sports in registered clubs having sports activities as an item in their memorandum of association. We, therefore, pointed out to the learned counsel that the question which survives is concerning the payment of arrears of entertainment duty only up to September 17, 2010. They have submitted that the question of legislative competence of State Legislature and consequently correctness of Division Bench judgment would still survive. Mr. Soli Sorabjee, learned senior counsel appearing for the petitioner, has led the arguments and has raised some fundamental issues before us which we proceed to notice. The first argument raised by the learned senior counsel is that the State Legislature completely lacks legislative competence to tax sports because taxing entry 62 of the State List of the Seventh Schedule does not expressly include the subject of sports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (section 2(a)), entertainment (section 2(b)), payment for admission (section 2(e)) and ticket (section 2(i)), read with section 3 and it has been submitted that when a member enters the portals of a golf club then he does not make any payment for entertainment. Such a member simply goes to the club to play his game of golf. It is maintained that under section 4 a lump sum payment which is made by a member of the club is not correct. It is not comparable to what a person pays to view a video show. According to the learned counsel section 2(i) defines the expression ticket . It shows that on entry to an entertainment a ticket is issued like entry to cinema or one day cricket match. However, in a club such as the petitioner's no such thing happens. A specific reference has also been made to section 3A to submit that a proprietor of a video set exhibiting shows on payment is also under obligation to pay entertainment duty because it is exhibited to public on payment against a ticket. Mr. Sorabjee has also placed heavy reliance on the circular dated May 16, 1991 issued by the respondent-State contemplating that no tax is leviable on the golf clubs or such other sports club ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment of the Constitution Bench of the honourable Supreme Court rendered in the case of Geeta Enterprises [1983] 4 SCC 202; AIR 1983 SC 1098 would not be attracted to the facts of the present case because in that case the owners of the video parlour who charged fee for playing video games, were to be taxed and levy of such tax on the players of the games was upheld. According to the learned counsel, the Division Bench in Chrysalis International (P) Ltd. [2011] 37 VST 413 (P H) [App] did not correctly apply the ratio of the judgment of the honourable Supreme Court in Geeta Enterprises' case [1983] 4 SCC 202; AIR 1983 SC 1098. Firstly, the judgment in Geeta Enterprises [1983] 4 SCC 202; AIR 1983 SC 1098 proceeded entirely on a different plane, secondly assuming the judgment is applicable then four tests laid down in para 12 thereof have to apply cumulatively. It is laid down in the case of Geeta Enterprises [1983] 4 SCC 202; AIR 1983 SC 1098 that a video parlour show must pass the said tests to come within the ambit of the provisions of the charging section. The learned counsel has submitted that the Division Bench has taken incorrect view by opining that if one of the four test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Godfrey Phillips India Ltd. v. State of U.P. [2005] 139 STC 537; [2005] 2 SCC 515, and has referred us to the observations made in para 37 to argue that the expression luxury used in entry 62 of List II of the Seventh Schedule to the Constitution would refer to the activities of indulgence, enjoyment or pleasure. It has been pointed out that only such activities could be subjectmatter of tax under entry 62, List II and not goods or articles of luxuries. In other respect Mr. Nigam has adopted the argument of Mr. Sorabjee. Mr. Anil Diwan, learned senior counsel, has at the outset stated that he would adopt all the arguments advanced by Mr. Soli Sorabjee. In addition, learned senior counsel has argued that he would like to adopt as his argument the view of the Division Bench of the Bombay High Court expressed in the case of State of Bombay v. R.M.D. Chamarbaugwalia AIR 1956 Bom 1. In para 24 of the judgment, the Division Bench has observed that entertainment and amusement contemplated by entry 33 of List II with regard to legislation and entry 62 of List II with regard to taxes is not to cover the subjective entertainment or amusement which a person may receive by solvi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to para 12 of the judgment that in order to bring any event within the sweep of expression entertainment , it must pass four tests, namely, (1) the show/ performance, game or sport must contain a public colour, inasmuch as, it should be open to public in a hall where members of the public are invited to attend the show; (2) such a show may provide some kind of amusement whether sport, game or even a performance which requires some amount of skill; (3) admission to the hall may be free but if the exhibitor derives some benefit in terms of money then it would be deemed to be an entertainment; and (4) the duration of the show or the identity of the person who operates the machine and derives pleasure is wholly irrelevant in judging the actual meaning of the expression entertainment . According to the learned counsel the judgment in Geeta Enterprises case [1983] 4 SCC 202; AIR 1983 SC 1098 revolves around the interpretation of expression payment for admission to entertainment and it has been held that merely because payment is not made at the time of entering the premises is irrelevant. As long as payment is made although at a later stage by inserting a coin in the video game machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the parties, noticing the facts from their pleadings and bestowing our consideration on various aspects we proceed to answer two substantive questions of law framed in para 2 of this judgment. Re: Question (A) Our Constitution has adopted a distinctive federal form of polity. This peculiar federal pattern of distribution of legislative powers could assume unitary character in order to cope with a situation like an emergency. When a declaration of emergency is in operation in pursuance of article 352 or article 356 then by virtue of article 250 of the Constitution, the Parliament is expressly clothed with the power to make laws with respect to any of the matter enumerated in the State List. A random look at articles 249 to 252 would establish that the Parliament has been accorded primacy in framing of laws. It is trite to observe that various fields of legislation exhaustively stand demarcated, allocated and distributed between Parliament and Legislatures of States . Both the institutions reflect the will of the people, but yet they derive their competence to make laws from the fountainhead, i.e., article 245 of the Constitution. It categorically provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. If there is a repugnancy due to overlapping found between List II on the one hand and List I and List III on the other, the State law will be ultra vires and shall have to give way to the Union law. (3) Taxation is considered to be a distinct matter for purposes of legislative competence. There is a distinction made between general subjects of legislation and taxation. The general subjects of legislation are dealt with in one group of entries and power of taxation in a separate group. The power to tax cannot be deduced from a general legislative entry as an ancillary power. (4) The entries in the Lists being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The words and expressions employed in drafting the entries must be given the widest-possible interpretation. This is because, to quote V. Ramaswami, J., the allocation of the subjects to the Lists is not by way of scientific or logical definition but by way of a mere simplex enumeratio of broad categories. A power to legislate as to the principal matter specifically mentioned in the entry shall also include within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being allowed to the Legislature because it has to deal with complex problems which do not admit of solution through any straitjacket formula. The Constitution Bench approved the following dictum of Frankfurter, J. in Morey v. Doud 354 US 457: In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The Legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events selflimitation can be seen to be the path to judicial wisdom and institutional prestige and stability. The Constitution Bench has approved the view of the Federal Court of United State dealing with a federal polity which is somewhat akin to the federal structure adopted by our Constitution. It appears to us that the rationale for the aforesaid approach in respect of law concerning tax is that any intervention by the court would affect the collection o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in section 2 in a rising scale according to the availability of seating accommodation and the cities where the cinematograph show was held. The dispute was whether the State Legislature has competence under taxing entry 62 to frame such a law as the expression cinemas used in entry 33 was omitted in the taxing entry 62. Their Lordships' of the Constitution Bench noticed and rejected the aforesaid argument in para 3, which reads as under: 3. It is only necessary here to refer to an additional argument that was advanced by learned counsel for the appellants before us in support of his contention. He drew our attention to entry 33 of List II of the Seventh Schedule to the Constitution which runs as follows: 'Theatres and dramatic performances; cinemas subject to the provisions of entry 60 of List I; sports, entertainments and amusements.' He contends that that entry covers laws made with respect to each of the items as a separate subject, but points out that entry 62, which has been quoted above, permits imposition of tax only on luxuries including taxes on entertainments, amusements, betting and gambling. The learned counsel concludes that that law made wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... things, as they signify according to their natural import, but also those things which the interpretation clause declares that they should include. In State of Maharashtra v. Labour Law Practitioners' Association [1998] 2 SCC 688, the inclusive definition of District Judge in article 236(a) of the Constitution has been very widely construed to include hierarchy of specialised Civil Court, viz., Labour Courts and Industrial Courts, which are not expressly included in the definition. Likewise, while construing the provisions of article 129 of the Constitution in the case of Delhi Judicial Service Association, Tis Hazari Court, Delhi v. State of Gujarat [1991] 4 SCC 406, a three-Judge Bench of the honourable Supreme Court observed that the expression including has been interpreted by courts to extend and widening the scope of power and in para 29 proceeded to observe as under: 29. Article 129 declares the Supreme Court a court of record and it further provides that the Supreme Court shall have all the powers of such a court including the power to punish for contempt of itself (emphasis(1) supplied). The expression used in article 129 is not restrictive instead it is extensive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ramanlal Bhailal Patel v. State of Gujarat [2008] 5 SCC 449 (para 23) and Karnataka Power Transmission Corporation v. Ashok Iron Works Private Limited [2009] 3 SCC 240 (paras 15 to 17). In Kesoram Industries Ltd. [2004] 2 RC 298; [2004] 10 SCC 201, the Constitution Bench in proposition No. 5 has observed that where the legislative competence of the Legislature of State is questioned on the grounds that it encroaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether legislation relates to any of the entries in List I or III. If it does, no further question need be asked. In a situation like the one in hand the answer to the aforesaid question would be that there is no entry in List I and List III dealing with taxes on sports or sports club . There is no overlapping which may necessitate the application of the doctrine of pith and substance . It would not be possible to sweep the field of taxation on sports or sports club under the residuary entry 97 of List I particularly when such a field is covered by the expression entertainment used in entry 62 of List II. On that score also the arguments advanced by learned senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Constitution Bench in the case of Kesoram Industries Ltd. [2004] 2 RC 298; [2004] 10 SCC 201. Therefore, we hold that the State Legislature is competent to impose entertainment duty/tax on entertainments and amusements, which include sports and accordingly question (A) is answered in favour of the Revenue and against the assessee. Re: Question (B) Does the Homer nod In the preceding paras the competence of the State Legislature to impose tax in the field of entertainment, which includes sports , has been upheld. The other question which has been posed for the Full Bench to answer is whether the Division Bench of this court in the case of Chrysalis International (P) Ltd. [2011] 37 VST 413 (P H) [App], has correctly adopted and applied the judgment of the honourable Supreme Court rendered by a three-Judge Bench in Geeta Enterprises' case [1983] 4 SCC 202; AIR 1983 SC 1098. The question Does the Homer nod . The Division Bench view has been challenged principally by urging that it has wrongly applied the principles of law as laid down in Geeta Enterprises' case [1983] 4 SCC 202; AIR 1983 SC 1098. In that case the honourable Supreme Court was dealing with the confl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urer who had installed the machine. After the show, a representative of the manufacturer would come, open the box, collect the money and pay the share of the enterprise out of the total sale proceeds. The enterprise claimed that no admission or entry fee at the gate was charged from anyone to enter the parlour. The shows in the video parlour were operated by one of the participant from the audience and the charges of 50 paise for a show of 30 seconds was realised only from those who wanted to play. The honourable Supreme Court rejected the argument advanced by the enterprise that the manner in which the game was shown to the participants and operated by person playing the game was not entertainment within the meaning of section 2(3) of the United Provinces Act. It was held that the word 'entertainment' has been used in a very wide sense so as to include within its ambit, entertainment of any kind including one which may be purely educative. Sub-section (3) itself by using the word 'entertainment' as 'any exhibitional, performance, amusement, game or sport to which persons are admitted for payment' has extended the scope of entertainment to expressly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same fate because the argument, necessarily emerges from the same premise. In that regard propositions of law laid down in para 12 of the judgment in Geeta Enterprises' case [1983] 4 SCC 202; AIR 1983 SC 1098 need to be kept in view. In para 12, the honourable Supreme Court went into the general meaning of the expression entertainment as defined in various books as also on true interpretation of the word as defined in section 2(3) of the United Provinces Act and has held that the show must pass four tests to fall within the ambit of that section. The four tests are as under: (1) that the show, performance, game or sport, etc., must contain a public colour in that the show should be open to public in a hall, theatre or any other place where members of the public are invited to attend the show; (2) that the show may provide any kind of amusement whether sport, game or even a performance which requires some amount of skill; in some of the cases, it has been held that even holding of a tombola in a club hall amounts to entertainment although the playing of tombola does, to some extent, involve a little skill; (3) that even if admission to the hall may be free but if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own performance and that it is not the exhibition, performance, amusement or any sport offered by the assessee. The honourable Supreme Court also did not find any merit in the submission that payment made to derive pleasure from his own performance with the help of the hired tools was not to be regarded as admission to entertainment. The para quoted with disapproval makes an interesting reading which reads as under: Therefore, what entertains a person in the video games parlour is his own performance and not the exhibition, performance, amusement, game or any sport offered by the petitioners. The payment made by a person to another to provide him with tools for deriving pleasure from his own performance with the help of the tools cannot be held to be payment to that another for 'admission to entertainment' as contemplated by the Act. In our opinion, therefore, it cannot be held that the petitioners receive 'payment for admission to entertainment', when they collect amounts inserted by the persons in the slot. In the process, the honourable Supreme Court also overruled the judgment of the Gujarat High Court rendered in the case of H.T. Gursahaney [1982] (2) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inment duty would be payable by any such artist or player. The learned Division Bench in our view has correctly decided the issue, namely, that the entertainment tax is leviable on sport as it is included in the expression entertainment . It is a wholly misplaced argument that all the four tests were not satisfied in the case of Chrysalis International (P) Ltd. [2011] 37 VST 413 (P H) [App]. It is a different matter that the learned judges did not discuss every test individually in the case of Chrysalis International (P) Ltd. [2011] 37 VST 413 (P H) [App]. For example, the first test provides that the show should be open to public in a hall, theatre or any other place where members of the public are invited or general public attends the show. This test stand satisfied when members of the general public are invited to enroll themselves as member of the club. It is well-settled that in taxing statute any pedantic approach needs to be avoided. (see Kesoram Industries case [2004] 2 RC 298; [2004] 10 SCC 201). The Lists in the Seventh Schedule merely provide the fields of legislation which are capable of being construed by enveloping even other areas. Therefore, public nature of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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