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TMI Blog2010 (7) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... asting service in India on March 15, 2001. In the aforesaid guidelines, the conditions of eligibility were also prescribed. 2. In so far as the procedural aspect of the matter is concerned, interested parties were to be required to submit an application to the Secretary, Ministry of Information and Broadcasting. If the applicant was found eligible (for setting up a "direct-to-home" (DTH) platform in India) on the basis of the information furnished, the applicant was to be subjected to security clearance (in consultation with the Ministry of Health Affairs), and to clearance for satellite use (in consultation with the Department of Space). If an applicant was successful in obtaining the aforesaid clearances, the applicant was to be required to pay an initial non-refundable entry fee of Rs. 10 crores to the Ministry of Information and Broadcasting. Only upon the payment of the aforesaid non-refundable entry fee, an applicant would become eligible for further consideration. Having followed the aforesaid procedure, an applicant would be informed of the intent of the Ministry of Information and Broadcasting to issue the licence sought by it. Thereafter, an applicant had to obtain SACFA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual fee equivalent to 10 per cent of its gross revenue (reflected in the audited accounts of the company for that particular financial year) within one month of the end of the year. The petitioner-company has also been paying additional licence fee and royalty for spectrum used as prescribed by the wireless planning and coordination authority under the Department of Telecommunications. 4. The "direct-to-home" (DTH) broadcasting licence granted to the petitioner, operationally extends to the entire country. It is the case of the petitioner, that the petitioner-company having complied with the formalities of procedure expressed above, is not required to obtain any other permission or to pay any further cess/duty at the hands of any other authority, for carrying out the "direct-to-home" (DTH) broadcasting service in India. 5. It would be pertinent to mention, that the "direct-to-home" (DTH) broadcasting service, is an important medium for information dissemination. The service facilitates dissemination of news, current affairs, sports events, educational programmes, programmes related to public health, employment opportunities, consumer awareness, etc. All these facilities are in ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1979 was, not leviable. On the issue, it was sought to be pointed out, that the States of Karnataka and Maharashtra had carried out amendments in their respective enactments, so as to include the "direct-to-home" (DTH) service, within the meaning of the term "entertainment", and only thereafter, had commenced to charge entertainment tax on "direct-to-home" (DTH) service. It was pointed out, that the Uttarakhand Legislature had not carried out any such amendments in the Entertainments Act, 1979, so as to include "direct-to-home" (DTH) services, as amenable to entertainment tax under the provisions of the Entertainments Act, 1979. The claim of the petitioner-company therefore was, that entertainment tax could not be levied on it in terms of the existing provisions of the Entertainments Act, 1979. At the time when the aforesaid challenge was raised by the petitioner-company through Writ Petition (M/S) No. 2562 of 2007 Dish T.V. India Limited [2009] 26 VST 649 (Uttarakhand)) and Writ Petition (M/S) No. 353 of 2008 (Tata Sky [2009] 26 VST 649 (Uttarakhand)), the term "entertainment" was defined in section 2(g) of the Entertainments Act, 1979, as under: "2. De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was impermissible in law. 10. This court, while disposing of Writ Petition (M/S) No. 353 of 2008 (Tata Sky Limited v. State of Uttarakhand [2009] 26 VST 649 (Uttarakhand)), distinguished "cable services" from "direct-to-home services" by holding, that the technology used in the latter envisaged transmission of electromagnetic waves through beams, whereas the technology used in the former involved transmission of electromagnetic waves through cables. On the basis of the aforesaid conclusion, this court held, that the action of the State of Uttarakhand in treating "direct-to-home" (DTH) service providers, at par with cable operators for levy of entertainment tax, was unjustified. 11. This court, despite having recorded the conclusion noticed in the foregoing paragraph, pointed out that it was open to the Uttarakhand Legislature to amend the existing provisions of the Entertainments Act, 1979, so as to include "direct-to-home" (DTH) services within the ambit of the provisions of the Entertainments Act so as to levy entertainment tax thereon; in the same manner as earlier amendments were introduced into the Entertainments Act, 1979, for levying entertainment tax on exhibition of film ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : ". . . However, this court is of the opinion that a harmonious construction needs to be adopted in interpreting the field of legislation mentioned in entry 62 of State List and entry 92C of the Union List. Merely for the reason that a service tax is payable by certain broadcasting service operators, it cannot be said that no entertainment tax can be levied by the State. . ." In its ultimate conclusion, while disposing of Writ Petition (M/S) No. 353 of 2008, on November 26, 2008 (Tata Sky Limited v. State of Uttarakhand [2009] 26 VST 649 (Uttarakhand)), this court recorded as under (page 660 in 26 VST): "For the reasons as discussed above, this court is of the view that though, there is legislative competence of the State to levy entertainment tax on the entertainment provided by the petitioners (broadcasting agencies) to its subscribers, but the same cannot be levied without there being specific provision in such local Act (U.P. Entertainments and Betting Tax Act, 1979). As such, the notices issued by the respondent-District Magistrate for recovery of entertainment tax from the petitioners, being without authority of law, are l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, after going through all the provisions of the 1979 Act as it stood at the time the impugned judgment was delivered, that this Act did not contain any provision which authorized or permitted the imposition or levy of entertainment tax qua DTH service providers. . ." While dealing with the second issue adjudicated upon by the learned single judge, the Division Bench observed as under: "In so far as the second issue is concerned, we are firmly of the opinion that even though the Constitutional Scheme is clear that the levy and imposition of the entertainment tax as covered by entry 62 of the State List is clearly distinct than the levy and imposition of service tax as originating from entry 92C of the Union List, both the legislations operate in different, distinct and independent fields and therefore, both the Legislatures, the State Legislature as well as the Union Parliament were competent to legislate in their respective fields. In the present case, there was no occasion for the learned single judge to have gone into that aspect because of the fact that he had himself concluded that the law as it stood at the relevant time did not authorize imposition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed by us today shall not come in their way in doing so. However, we also do wish to observe that any challenge to the aforesaid Amendment Act shall be dealt with and decided on its own merits and in accordance with law." 15. Dissatisfied with the order dated March 23, 2009 passed by the Division Bench dismissing Special Appeal No. 21 of 2009 (State of Uttarakhand v. Tata Sky Limited-decided on March 23, 2009), the State of Uttarakhand preferred Petition for Special Leave to Appeal (Civil) No. 14605 of 2009 (State of Uttarakhand v. Tata Sky Limited) before the Supreme Court. The aforesaid petition for special leave to appeal was summarily dismissed by the apex court on July 16, 2009. 16. The first contention advanced by the learned counsel for the petitioners during the course of hearing of the instant writ petition was, that the Uttarakhand Legislature was incompetent to levy entertainment tax on "direct-to-home" (DTH) broadcasting service, inasmuch as, the authority to legislate on the aspect of "direct-to-home" (DTH) broadcasting service, as also, the authority to impose tax on account of "service" rendered by the petitioner-company through the process of "direct-to-home" (D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 4 of the Indian Telegraph Act, 1885 and the Indian Wireless Telegraphy Act, 1933 for operating "direct-to-home" (DTH) broadcasting services in India. During the process of being granted the aforesaid licence, the petitioner-company was required to deposit a sum of Rs. 10 crores to the Ministry of Information and Broadcasting as an initial non-refundable entry fee and to furnish a bank guarantee for an amount of Rs. 40 crores for the duration of the licence. Additionally, in terms of the licence the petitioner-company was required to pay an annual fee equivalent to 10 per cent of its gross revenue (reflected in the audited accounts of the company for the financial year) within one month of the end of the year. It is also submitted, that the petitioner-company was required to pay, in addition to the aforesaid licence fee, royalty for spectrum use at the rates prescribed by the wireless planning and coordination authority under the Department of Telecommunications. It is therefore contended, that the entire regulation of the "direct-to-home" (DTH) broadcasting service is vested with the Parliament, and the execution thereof with the Central Government. 19(i) In so far as the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in relation to broadcasting, in any manner; ... And the term 'service provider' shall be construed accordingly;" Section 66(5) specifies the quantum of tax liability on a "service provider" providing broadcasting services. Section 66(5) is being reproduced hereunder: "66. Charge of service tax.-(5) With effect from the date notified under section 137 of the Finance Act, 2001, there shall be levied a service tax at the rate of five per cent of the value of the taxable services referred to in sub-clauses (za), (zb), (zc), (zd), (ze), (zf), (zg), (zh), (zi), (zj), (zk), (zl), (zm), (zn) and (zo) of clause (72) of section 65 and collected in such manner as may be prescribed." A perusal of the aforesaid provisions reveals, that for the first time under the Finance Act, 2001, tax at the rate of five per cent of the value of taxable services was levied on a broadcasting agency, (i.e., five per cent of the gross amount charged by the service provider). 19(ii). The term "broadcasting" was re-defined under section 65(14) of the Finance Act, 2002 as under: "65. Definitions.-In this Chapter, unless the context otherwise req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (90) 'taxable service' means any service provided,- (zk) to a client, by a broadcasting agency or organization in relation to broadcasting in any manner and, in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes service provided by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting broadcasting charges on behalf of the said agency or organization. Explanation.-For the removal of doubts, it is hereby declared that so long as the radio or television programme broadcast is received in India and intended for listening or viewing, as the case may be, by the public, such service shall be a taxable service in relation to broadcasting, even if the encryption of the signals or beaming thereof through the satellite might have taken place outside India; ... And the term 'service provider' shall be construed accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; (16) 'broadcasting agency or organization' means any agency or organization engaged in providing service in relation to broadcasting in any manner and, in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes its branch office or subsidiary or representative in India or any agent appointed in India or any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges on behalf of the said agency or organization;" Section 65(95) of the Finance Act, 2003, defines the term "service tax". Section 65(95) aforesaid is being reproduced hereunder: "65. Definitions.-In this Chapter, unless the context otherwise requires,- (95) 'service tax' means tax leviable under the provisions of this Chapter;" Section 65(105)(zk) of the Finance Act, 2003 again while defining the term "taxable service", it included therein a "broadcasting agency" as a "service provider". Section 65(105)(zk) aforesaid is bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Finance Act, 2003. 19(iv). The provisions of the Finance Act, 2004 on the subject-matter of the controversy in hand were identical to the ones incorporated under the Finance Act, 2002, and as such, the relevant provisions of the Finance Act, 2004 are not being reproduced here. 19(v). In so far as the Finance Act, 2005 is concerned, it re-defined the term "broadcasting" under section 65(16). Section 65(16) of the Finance Act, 2005 is being reproduced hereunder: "65. Definitions.-In this Chapter, unless the context otherwise requires,- (15) 'broadcasting' has the meaning assigned to it in clause (c) of section 2 of the Prasar Bharti (Broadcasting Corporation of India) Act, 1990 (25 of 1990) and also includes programme selection, scheduling or presentation of sound or visual matter on a radio or a television channel that is intended for public listening or viewing, as the case may be; and in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ganization in relation to broadcasting, in any manner and, in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes service provided by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means to cable operator, including multisystem operator or any other person on behalf of the said agency or organization. Explanation.-For the removal of doubts, it is hereby declared that so long as the radio or television programme broadcast is received in India and intended for listening or viewing, as the case may be, by the public, such service shall be a taxable service in relation to broadcasting, even if the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution referred to as 'the Union List'). (2) Notwithstanding anything in clause (3), Parliament and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as 'the Concurrent List'). (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as 'the State List'). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List." Having relied on article 246 of the Constitution of India, learned counsel for the petitioners placed vehement emphasis on clause (1) thereof, which vested in the Parliament overriding effect notwithstanding anything in the provisions, contained in clauses (2) and (3) of article 246 of the Constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... List III. ... 41. The words 'notwithstanding anything contained in clauses (2) and (3)' in article 246(1) and the words 'subject to clauses (1) and (2)' in article 246(3) lay down the principle of federal supremacy, viz., that in case of inevitable conflict between Union and State powers, the Union power as enumerated in List I shall prevail over the State power as enumerated in Lists II and III, and in case of overlapping between Lists II and III, the former shall prevail. But the principle of federal supremacy laid down in article 246 of the Constitution cannot be resorted to unless there is an 'irreconcilable' conflict between the entries in the Union and State Lists. In the case of a seeming conflict between the entries in the two Lists, the entries should be read together without giving a narrow and restricted sense to either of them. Secondly, an attempt should be made to see whether the two entries cannot be reconciled so as to avoid a conflict of jurisdiction. It should be considered whether a fair reconciliation can be achieved by giving to the language of the Union Legislative List a meaning which, if less wide than it mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... significance that the concurrent legislative List contains no entry relating to taxation but provides only for "fees" in respect of matters contained in the List but not including fees taken in any court. List I and List II of Schedule VII thus avoid overlapping powers of taxation and proceed on the basis of allocating adequate sources of taxation for the federation and the provinces, with the result that few problems of conflicting or competing taxing powers have arisen under the Government of India Act, 1935. This scheme of the legislative Lists as regards taxation has been taken over by the Constitution of India with like beneficial results." Accordingly, it is the vehement contention of the learned counsel for the petitioners, that the field levying tax in respect of "direct-to-home" (DTH) broadcasting services, must be deemed to vest exclusively in the Parliament. In view of the enactments, referred to by the learned counsel for the petitioner-company, it is submitted that regulation of the service of "directto-home" (DTH) broadcasting, as also, levy of "service tax" thereon, it stands established that the field of regulations, as also, taxability on "direct-to-home" (DTH) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to invalidate the legislation on the ground of legislative incompetence of State Legislature. If, on the other hand, the State legislation in question is relatable to an entry in List III applying the rule of pith and substance, then also the legislation would be valid, subject to a Parliamentary enactment inconsistent with it, a situation dealt with by article 254. Any incidental trenching, as already pointed out, does not amount to encroaching upon the field reserved for Parliament, though as pointed out by T.L. Venkatarama Iyer, J. in A.S. Krishna v. State of Madras [1957] SCR 399; AIR 1957 SC 297, the extent of trenching beyond the competence of the legislating body may be an element in determining whether the legislation is colourable. No such question arises here." In addition to the aforesaid, reference has also been made to the decision rendered by the Supreme Court in State of West Bengal v. Purvi Communication P. Ltd. [2005] 140 STC 154 (SC); [2005] 4 RC 543; [2005] 3 SCC 711, wherefrom reference has been made to the following conclusion (pages 169-176 in 140 STC): "34. In the instant case, respondent No. 1 engaged in receiving and providing T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62 of List II of the Seventh Schedule to the Constitution, and the two statutes apply admittedly to levy of tax on amusements, entertainments and luxuries in their respective area but the area of application of the said 1982 Act is different as would be evident from the provisions of the 1922 Act and the 1972 Act as aforesaid. The said 1982 Act was, for the first time, enacted by the State Legislature in 1982 and its area of application was initially confined to levy and collection of tax from the holders of television set or sets under section 4 of that Act. Thereafter, under section 4A of that Act, inserted by the West Bengal Taxation Laws (Second Amendment) Act, 1983, the area of its application was extended to levy and collection of tax from the holders of video cassette recorder. The purpose of sub-section (4a) of section 4A of the Act is to levy and collection of tax from any person who provides cable service directly to consumers or transmits to a sub-cable operator through a cable television network and otherwise controls or is responsible for the management and operation of a cable television network and such person has been defined as 'cable operator' being a taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on/communication in the TERRITORY on the terms and conditions set out in this agreement. PRICE The PRICE payable by the FRANCHISEE for access to the signals provided by the NETWORK shall be as follows: (a) Rs. 25 per subscriber per month to be paid before the 7th day of the month. (b) The FRANCHISEE will keep an interest-free deposit of Rs. 50 per subscriber with the network. (c) The price mentioned in (a) above is liable to change depending upon the market conditions and by mutual understanding between the parties of the area. TERMS AND CONDITIONS (a) The NETWORK shall not provide any connections direct-tohome in the territory where the FRANCHISEE is operating. (b) The FRANCHISEE would provide a list of subscribers within seven days of signing this agreement with full name, address and other information of relevance as required by the NETWORK. Subsequently any change in the subscriber list would be communicated to the network within seven days. The FRANCHISEE would submit complete information and not withhold the name of subscribers or declare less number of subscribers to the NETWORK. ... (d) The FRANCHISEE is authorised to receive and immediately retransmit and/or comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceiving and sending visual images and audio and other information for preparation of the subscribers and/or viewers; without the communication network service of the respondents, no entertainments can be offered or provided to the subscribers and/or viewers. 39. In tax matters, the State Legislature is free to, if it has legislative competence, to choose the persons from whom the tax levied on entertainments is to be collected. In other words, what are taxed are the entertainments, which is very much within the ambit of entry 62 of List II of the Seventh Schedule. It is the respondents who as cable operator for the purpose of the said 1982 Act are engaged in the business of providing or offering entertainments which include showing of films, various serials, cricket matches and dramatic performances to the subscribers, and the tax is imposed on the act of offering such entertainments in this way to such subscribers and/or viewers. The entire communication network service is built up and controlled by the respondents. Whatever amount is received or receivable by the respondent in respect of providing such entertainments is taxable under sub-section (4a) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement), it will be clear that the service rendered by respondent 1 is not restricted only to receiving signals but also extends to sending visual images and audio and other information by means of telecommunication network for presentation to members of the public. In the present case, respondent 1 sends visual images and audio signals for presentation to the individual subscribers at various homes through their feeder line, i.e., coaxial cable or any other device used for transmitting audio and visual signals in terms of clause 2 of the said agreement. The franchisee has access to the signals provided by respondent 1. Therefore, it cannot be disputed that the price or prices received or receivable by respondent 1 is the amount received or receivable by him for transmitting the signal for exhibition of any performance, film or any other programme telecast and the aggregate of such prices or amounts is the gross receipt of respondent 1 in relation to any month or part thereof." 23. We have given our thoughtful consideration to the first contention advanced by the learned counsel for the petitioner-company. In fact, the first contention advanced at the hands of the learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, 1979, to the effect, that there was no provision therein, whereby entertainment tax could be levied on "direct-to-home" (DTH) broadcasting service, stood remedied by an amendment made in the definition of the term "entertainment" under section 2(g) of the Entertainments Act, 1979 (which was notified on March 16, 2009). In carrying out the aforesaid exercise the Uttarakhand Legislature had abided by the advice and liberty tendered to it by this court. Thus, having made up the deficiency in the same manner as had been done by the States of Karnataka and Maharashtra by carrying out amendments in their respective enactments, it was, therefore, not open to the petitioner to re-agitate the matter, specially when, the petitioner's only objection stood dealt with and remedied by the amendment notified on March 16, 2009. But then, the primary consideration seems to be monetary. Even though the petitionercompany started to transmit TV programmes to its customers in the State of Uttarakhand soon after it obtained its statutory licence on March 24, 2006, it successfully avoided paying any "entertainment" tax thereon through the legal process which had culminated in favour of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate List, contained in the Seventh Schedule to the Constitution of India, rests the jurisdiction and authority to levy tax on "entertainment" with the State Legislature. Entry 62 of the State List is being extracted hereunder: "62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling." During the course of hearing, we repeatedly asked the learned counsel for the petitioner-company, whether or not, the petitioner-company had assailed the validity of the inclusion of "direct-to-home" (DTH) broadcasting service, in the definition through the term "entertainment" under section 2(g) of the Entertainments Act, 1979 by an amendment carried out by the Uttarakhand Legislature and duly notified on March 16, 2009. In response, learned counsel acknowledged, that the definition of the term "entertainment" under section 2(g), which had been incorporated "directto-home" (DTH) broadcasting service as one of the modes of entertainment, was not a subject-matter of challenge at the hands of the petitionercompany. It is however sought to be clarified, that the legislative competence of the Uttarakhand Legislature, to levy tax on "direct-to-h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India, on cable television network operators, it was held as under (page 173 in 140 STC): "36. Therefore, the respondents as a cable operator have direct and proximate nexus with the entertainments provided by them through their cable television network and, as such, they are the taxable person in respect of their gross receipts in relation to any month for providing entertainments to the individual viewers. Therefore, the respondents have a direct and proximate nexus with the entertainments presented to the viewers inasmuch as in terms of the respondent's agreement vide clause 4(d) 'Recording and then retransmission of the signals by the franchisee is not allowed'. That apart, the name of every subscriber having connection with the respondent's network must be on their records and the franchisee must furnish information of business honestly and completely to the respondents pursuant to clause 4(c) of the said agreement. In the event, any charge received from a subscriber is not paid to the respondent, the franchisee shall pay a sum equivalent to three times of the amount that the franchisee has saved by not paying the requisite amount to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e" (DTH) broadcasting as a "service" under the provisions of the different Finance Acts relied upon by the petitioner-company, to our mind, will not have any effect on the legislative competence of State Legislature either to regulate or to levy tax on "direct-to-home" (DTH) broadcasting services as an "entertainment", under entries 33 and 62 of the State List, contained in the Seventh Schedule to the Constitution of India, respectively. To our mind, even the judgments relied upon by the learned counsel for the rival parties, lead to the same conclusion. In State of A.P. v. Mcdowell & Co. [1996] 3 SCC 709, it was held, that the sole exercise that needed to be carried out was to determine, whether the legislation under reference was within the scope of legislative competence of a State Legislature? According to the conclusions recorded in the aforesaid case, it was held, that for finding the correct answer, it is necessary to determine, whether the subject of the legislation in question, falls under one of the entries of the State List, contained in the Seventh Schedule to the Constitution of India. If, while carrying out the aforesaid exercise, it can be concluded that the subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the State List. The subject of "service" in entry 92C of the Union List, and the subject of "entertainment", contained in entry 62 of the State List, are separate and distinct subjects, with no overlapping or grey areas. For exactly the same reasons, the judgment in Godfrey Phillips India Ltd.'s case [2005] 139 STC 537 (SC); [2005] 4 RC 186; [2005] 2 SCC 515 relied upon by the learned counsel for the petitioner, has no relevance to controversy being adjudicated upon by us. We are satisfied, that the conclusion drawn by us hereinabove is also in consonance with the principles laid down in State of West Bengal's case [2005] 140 STC 154 (SC); [2005] 4 RC 543; [2005] 3 SCC 711. The petitioner-company having not contested the inclusion of "direct-to-home" (DTH) broadcasting service within the definition of the term "entertainment"; and the subject of "entertainment" being within the area of legislation ear-marked for State Legislatures, both for purposes of regulation, as also, for levy of tax, there can be no doubt that the action of making a provision for levy of entertainment tax on "direct-to-home" (DTH) broadcasting service under the Entertainments Act, 1979 was fully jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of any other force subject to the control of the Union or of any contingent or unit thereof in aid of the civil power). 2. Police (including railway and village police) subject to the provisions of entry 2A of List I 12. Libraries, museums and other similar institutions controlled or financed by the State; ancient and historical monuments and records other than those declared by or under law made by Parliament to be of national importance. 13. Communications, that is to say, roads, bridges, ferries, and other means of communication not specified in List I; municipal tramways; ropeways; inland waterways and traffic thereon subject to the provisions of Lists I and III with regard to such waterways; vehicles other than mechanically propelled vehicles. 17. Water, that is to say, water supplies, irrigation and canals, drainage and embankments, water storage and water subject to the provisions of entry 56 of List I. 22. Courts of wards subject to the provisions of entry 34 of List I; encumbered and attached estates. 23. Regulation of mine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c liquors for human consumption; (b) Opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry." The aforesaid entry deserves to be compared with entry 51 of the State List, contained in the Seventh Schedule to the Constitution of India. Entry 51 of the State List is also being reproduced hereunder: "51. Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India:- (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics; but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry." On comparison between entry 84 of the Union List and entry 51 of the State List, a clear and definite conclusion can be drawn, i.e., which part of the same subject-matter falls in the Union List, as also, which part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first contention from any of the different view points. For the reasons recorded by us in the foregoing paragraphs, we find no merit in the first contention advanced by the learned counsel for the petitioner. 30. The second contention advanced by the learned counsel for the petitioners was, that legislative competence of a taxing statute has to be determined by keeping in mind the taxable event. If the taxable event falls within the legislative competence of the Legislature, which has enacted the same, it would be valid; otherwise not. In order to explain his point of view, it is submitted, that tax can be levied on a particular taxing event falling in particular taxing entry. The aforesaid submission, stated in other words would mean, that one taxing event cannot be subjected to tax under two taxing entries. In the present controversy, it is submitted, that the taxing event is "direct-to-home" (DTH) broadcasting service. The aforesaid taxing event can be subjected to tax, either under entry 92C of the Union List, or under entry 62 of the State List, but never under both. In so far as the present controversy is concerned, it is the case of the learned counsel for the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 79 do not, in any manner, transgress into the subject of "service", exclusively earmarked for the Parliament under the Union List, contained in the Seventh Schedule to the Constitution of India. In order to substantiate the instant contention, learned counsel for the respondents also placed reliance on another judgment rendered by the apex court in State of West Bengal v. Kesoram Industries Ltd. [2004] 266 ITR 721 (SC); [2004] 2 RC 298; [2004] 10 SCC 201, wherefrom our attention has been invited to the following observations (pages 751-754 in 266 ITR): "31. Article 245 of the Constitution is the fountain source of legislative power. It provides-subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. The legislative field between Parliament and the Legislature of any State is divided by article 246 of the Constitution. Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule, called the 'Union List'. Subject to the said power of Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slation, 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 its expanse the legislations touching incidental and ancillary matters. (5) Where the legislative competence of the Legislature of any State is questioned on the ground that it encroaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether the legislation relates to any of the entries in Lists I or III. If it does, no further question need be asked and Parliament's legislative competence must be upheld. Where there are three Lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation the doctrine of pith and substance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.' Their Lordships further observed that the courts ought to adopt a pragmatic approach in solving problems rather than measuring the propositions by abstract symmetry. The exact wisdom and nice adaptations of remedies may not be possible. Even crudities and inequities have to be accommodated in complicated tax and economic legislations." 32. We have given our thoughtful consideration to the second contention advanced by the learned counsel representing the petitioner-company. The petitioner-company, in our considered view, has caused a confusion by intertwining the incidence by levy of "service" tax with the incidence of levy of "entertainment" tax, to make out that the same are not two separate incidents but a common incident. "Service" tax can be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sold, at the hands of a cinema theatre, has a component of entertainment tax. The same principle has obviously been followed for levying "entertainment" tax on "direct-tohome" (DTH) broadcasting service, under the impugned legislation. It, therefore, emerges that the taxing event for levying tax on "direct-tohome" (DTH) broadcasting services under the Entertainment Act is based on the contractual agreements executed with customers for transmitting TV channels to its customers. Providing T.V. channels to its customers, can certainly be described as a means of "entertainment", and as such, there can hardly be any cause to dispute the levy of "entertainment" tax on the same. It clearly emerges from the aforesaid analysis that the incidence of "service" tax and that of "entertainment" tax are separate and distinct. The contention advanced on behalf of the petitioner-company that the incidence of levy of the two taxes, i.e., "service tax" and "entertainment tax" as one, seems to have been wrongly drawn from the common terminology used in the provisions for levying both the said taxes. Thus viewed there is hardly any merit even in the second contention advanced by the learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the aforesaid analysis that the incidence of "service" tax and that of "entertainment" tax are separate and distinct. The contention advanced on behalf of the petitioner-company that the incidence of levy of the two taxes, i.e., "service tax" and "entertainment tax" as one, seems to have been wrongly drawn from the common terminology used in the provisions for levying both the said taxes. Thus viewed there is hardly any merit even in the second contention advanced by the learned counsel for the petitioner-company. The third contention advanced by the learned counsel for the petitioners was, that the substance of the contract in the present case, as is evident from the licence agreement dated March 24, 2006 entered into between the Government of India and the petitioner-company, is for "service" and not for "entertainment". It is submitted, that the Government of India had granted the aforesaid licence under Central legislations (which fall under entry 31 of the Union List, contained in the Seventh Schedule to the Constitution of India) to provide "direct-to-home" (DTH) broadcasting services in the whole of the country. It is submitted, that individual State(s) cannot, by def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reflected in article 246(1) means that taxing entries must be construed so as to maintain exclusivity. Although generally speaking, a liberal interpretation must be given to taxing entries, this would not bring within its purview a tax on subject-matter which a fair reading of the entry does not cover. If in substance, the statute is not referable to a field given to the State, the court will not by any principle of interpretation allow a statute not covered by it to intrude upon this field." The apex court, also in the matter of Bharat Sanchar Nigam Ltd. v. Union of India [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 6 RC 276; [2006] 3 SCC 1, in (para 88 in SCC; paras 86 and 87 in VST) has held as under (page 131 in 3 VST): ". . . No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow State to entrench upon the Union List and tax services by including the cost of such service in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subject. The aforesaid contention was sought to be repudiated by the respondents by asserting, that if a subject is not shown to fall within the fields of legislation in the State List or the Concurrent List, no further inquiry was necessary, to support the legislative competence of the Parliament to legislate on the subject. It was pointed out, that since "expenditure" as a subject was not provided for in either the State List or in the Concurrent List, as such, there could be no dispute, that the Parliament could legislate thereon. It was further contended, that the measures adopted for the levy of the tax would not necessarily determine its essential character, and that, the object on which the "expenditure" was laid out might be an item of "luxury" or it might not be one, or the "expenditure" might constitute the price of the goods, but if what was taxed keeping in mind the "expenditure" aspect, the legislative competence of the Parliament could not be questioned. The question posed for adjudication was summarized by the apex court as under (page 119 in 74 STC): "The position in the present case assumes a slightly different complexion. It is not any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r (Dead) v. Expenditure Tax Officer case [1972] 83 ITR 92 (SC); [1971] 3 SCC 621-is to discourage expenditure which the Legislature considers lavish or ostentatious. The object of the first would be to discourage certain types of living or enjoyment while that of the second would be to discourage people from incurring expenditure in unproductive or undesirable channels. If a general Expenditure-tax Act, like that of 1957, had been enacted, no challenge to its validity could have been raised because it incidentally levied the tax on expenditure incurred on luxuries. The fact that there will be some overlapping then or that here there is a good deal of such overlapping, because the States have chosen to tax only some types of luxuries and the Centre to tax, at least for the time being, only expenditure which results in such luxuries, should not be allowed to draw a curtain over the basic difference between the two categories of imposts. For instance, if the conflict alleged had been between the present State Acts and an Act of Parliament taxing expenditure incurred in the construction of theatres or the maintenance of race horse establishments or the like, there would have been no ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 113 STC 203 (AP) and the third rendered by the Punjab and Haryana High Court in Union of India v. State of Haryana [2001] 123 STC 539 (P&H), wherein it was held, that no component of sale was involved in providing SIM cards to customers. All the aforesaid three judgments came to be assailed before the apex court. The judgment rendered by the Supreme Court in the matter stands reported as State of Uttar Pradesh v. Union of India [2003] 130 STC 1 (SC); [2003] 3 SCC 239. Suffice it to notice that the judgments rendered by the High Courts, were set aside. Despite the aforesaid determination, on a similar matter which came up for consideration before the Kerala High Court in Escotal Mobile Communications Ltd. v. Union of India [2002] 126 STC 475 (Ker), the High Court took the view that activation charges of a SIM card formed a part of consideration, and as such, could be subjected to sales tax. Besides the aforesaid, it was also held, that the act of selling SIM cards and the process of activation thereof were both services and fell within the definition of "taxable service" under the provisions of the Finance Act, 1994. It is therefore apparent, that the Kerala High Court held, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slative power'. They might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects." A perusal of the aforesaid conclusion leads to the inference, that although tax could be levied, as a "service" on a mobile cellular telephone company for providing SIM cards to a customer, the question, whether sales tax could also be levied by the State Government, was a question of fact depending on whether a SIM card was a separate object of "sale", and in case the answer to the aforesaid factual aspect of the matter was in the affirmative, then the concerned State Government could also levy sales tax thereon. The aforesaid determination at the hands of the Supreme Court therefore leaves no room for any doubt, that the same transaction can involve two or more taxable aspects/events. When the aspects are distinct and separate, the State Legislature would be competent to levy tax, in addition to the levy of tax by the Parliament on a distinct taxable event, which falls within the sphere of its legislative competence. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CC 167, the question that fell for consideration of the Constitution Bench of this court was, whether the service of meals to casual visitors in the restaurant was taxable as a 'sale', (i) when the charges were lump sum per meal, or (ii) when they were calculated per dish? It was held that in both the above situations it would be 'service'. On an application filed to review the said judgment while dismissing the review petition it was observed that the judgment had rested on the factual foundation and must be understood in that light. Rejecting the contention that the respondent therein as well as the States were apprehensive that the judgment would be invoked by the restaurant-owners in cases where there was a sale of food and title in the food passes to the customers, as one which could not be reasonably entertained, it was held (page 218 in 45 STC; SCC page 173, para 12): '. . . Indeed, we have no hesitation in saying that where food is supplied in an eating-house or restaurant, and it is established upon the facts that the substance of the transaction, evidenced by its dominant object, is a sale of food and the rendering of services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Having given our anxious consideration to the submissions made in regard to the composite contract of service of goods and the classification, above referred, we are of the view that they will not apply to the present case. Here the service of telephone connection cannot be artificially split into various categories-supply of instruments and accompaniment on the one hand and supply of telegraphic line/connection on the other, to name the former as 'sale' and the latter as 'service'. The analogy of composite contract will apply where 'sale' and 'service' are two different independent objects. 39. Inasmuch as we have found that DoT is a "dealer" as defined in Section 2(c) of the U.P. Act and it collects rentals for the supply of transfer of use of telephone connection, which is compendiously called "service" and that the supply of telephone satisfies the requirements of a transfer of the right to use the goods within the meaning of "sale" in Section 2(h); it also receives consideration, therefore, the requirements of charging Section 3 read with Section 3(f) are satisfied. The judgments and orders under challenge in these appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would include tax on "service". It was cont ended that a "profession" cannot exist without "service", as "service" was the core of every profession. In fact, it was suggested, as noticed above, that the two words were interchangeable. Since tax on "profession" could only be levied by the State legislature, according to the appellants, there was no question of levying "service" tax on any "profession" through the Finance Act, 1998. The case sought to be set up by the appellants before the Supreme Court was, that there could not be a "profession" without "service", and therefore, "service" rendered by a professional to his client was nothing but "service" rendered as a "professional". The argument thus sought to be advanced was, that since tax in the instant case was being levied on a "profession", it could only be levied by a State legislature under entry 60 of the State List, contained in the Seventh Schedule of the Constitution of India. On the aforesaid analogy, it was asserted on behalf of the appellants, that the source of power could not be traced to entry 97 of the Union List, contained in the Seventh Schedule of the Constitution of India, so as to enable the Parliament to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, that since tax in the instant case was being levied on a "profession", it could only be levied by a State Legislature under entry 60 of the State List, contained in the Seventh Schedule to the Constitution of India. On the aforesaid analogy, it was asserted on behalf of the appellants, that the source of power could not be traced to entry 97 of the Union List, contained in the Seventh Schedule to the Constitution of India, so as to enable the Parliament to levy tax on a "profession" by treating it as "service". In other words, it was contended, that tax on "profession" under entry 60 of the State List, contained in the Seventh Schedule to the Constitution of India would include tax on "service". While adjudicating upon the controversy, the Supreme Court in All India Federation of Tax Practitioners v. Union of India [2007] 9 VST 126 (SC); [2007] 293 ITR 406 (SC); [2007] 7 SCC 527, categorized entries in the Union List of the Seventh Schedule to the Constitution of India in two groups, i.e., general entries and taxing entries. So as to distinguish general entries from taxing entries, it observed as under (pages 163 and 164 in 9 VST): "30. . . . there are two groups of entries in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra 51 in AIR; page 340 in STC)." Having made the aforesaid distinction, the apex court, relying on a number of judgments, then recorded the following conclusion (pages 165 and 166 in 9 VST): "33. . . . we find that entry 60 of List II, mentions 'Taxes on professions, trades, callings and employments'. Entry 60 is a taxing entry. It is not a general entry. Therefore, we hold that tax on professions, etc., has to be read as a levy on professions, trades, callings, etc., as such. Therefore, entry 60 which refers to professions cannot be extended to include services. This is what is called as an aspect theory. If the argument of the appellants is accepted, then there would be no difference between interpretation of a general entry and interpretation of a taxing entry in List I and List II of the Seventh Schedule to the Constitution. Therefore, "professions" will not include services under entry 60. For the above reasons, we hold that Parliament had absolute jurisdiction and legislative competence to levy tax on services. While interpreting the legislative heads under List II, we have to go by schematic interpretation of the three Lists in the Seventh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; "52. For the above reasons, we find no merit in Civil Appeal No. 7128 of 2001 filed by All India Federation of Tax Practitioners. We hold that Parliament has legislative competence to levy service tax by way of the impugned Finance Act, 1994 and Finance (No. 2) Act, 1998 under entry 97 of List I on chartered accountants, cost accountants and architects. We further hold that the above position now stands fortified by the Constitution (Eighty-eighth Amendment) Act, 2003 which has inserted article 268A and entry 92C which clearly indicates that entry 60 of List II and entry 92C of List I operate in different spheres. However, we make it clear that before us there is no challenge to the Constitutional validity of the said Constitution (Eighty-eighth Amendment) Act, 2003." The distinction drawn by the apex court between two different aspects/ spheres, i.e., "professions", on the one hand, and "services" on the other in All India Federation of Tax Practitioners v. Union of India [2007] 9 VST 126 (SC); [2007] 293 ITR 406 (SC); [2007] 7 SCC 527 is a distinction, similar to the one which has been drawn by us between two different aspects/spheres of "direct-to-home" (DTH) broadc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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