THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 05.09.2011
+ W.P.(C) 2194/2010
BHARTI TELEMEDIA LTD ... Petitioner
- versus -
GOVERNMENT OF NCT OF DELHI
AND ANR ... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr S. Ganesh, Sr Advocate with
Mr D.K. Singh and Mr Pradeep Shukla
For the Respondents : Mr Parag P. Tripathi, ASG with
Mr Jamal Akhtar for Mr N. Waziri
AND
+ W.P.(C) 1312/2010
TATA SKY LTD … Petitioner
versus
GOVERNMENT OF NCT OF DELHI
AND ANR … Respondents
Advocates who appeared in this case:
For the Petitioners : Mr Aman Lekhi, Sr Advocate with
Mr D.K. Singh and Mr pradeep Shukla
For the Respondents : Mr Parag P. Tripathi, ASG with
Mr Jamal Akhtar for Mr N. Waziri
AND
+ W.P.(C) 2718/2010
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.1 of 45
BHARAT BUSINESS CHANNEL LTD … Petitioner
versus
GOVERNMENT OF NCT OF DELHI
AND ANR … Respondents
Advocates who appeared in this case:
For the Petitioner : Mr Aman Lekhi, Sr Advocate with Mr Vivek Sarin
For the Respondents : Mr Parag P. Tripathi, ASG with
Mr Jamal Akhtar for Mr N. Waziri
AND
+ W.P.(C) 4621/2010
DISH TV INDIA LIMITED ... Petitioner
versus
GOVERNMENT OF NCT OF DELHI
AND ANR ... Respondent
Advocates who appeared in this case:
For the Petitioner : Mr Varun Sarin
For the Respondents : Mr Parag P. Tripathi, ASG with
Mr Jamal Akhtar for Mr N. Waziri
CORAM:
HON'BLE MR. JUSTICE BADAR DURREZ AHMED
HON'BLE MR. JUSTICE V.K. JAIN
1. Whether Reporters of local papers may be allowed to
see the judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the judgment should be reported in Digest? Yes
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.2 of 45
BADAR DURREZ AHMED, J
1. These petitions raise common issues and are, therefore,
being decided together. Briefly put, the challenge is to the Delhi
Entertainments and Betting Tax Act, 1996 (hereinafter referred to as
‘the said Act’) to the extent it imposes a tax on entertainment
through ‘direct-to-home (DTH) service’.
Rival Contentions
2. Mr Ganesh, senior advocate, appearing for Bharti
Telemedia Ltd and Mr Aman Lekhi, senior advocate, appearing for
Tata Sky Ltd and Bharat Business Channel Ltd, contented on behalf
of the petitioners that the DTH service is a broadcasting service
falling within the meaning of taxable service under section
65(105)(zk) of the Finance Act, 1994 and is amenable to service tax
@10.33% on the gross amount paid by a subscriber for providing
the DTH broadcasting service. The service tax is imposed by the
Finance Act, 1994 in exercise of Parliament’s exclusive power to
levy a tax on services under article 246(1) read with Entry 92C of
List I of the VIIth Schedule to the Constitution of India. It was also
contended on behalf of the petitioners that Parliament alone has the
exclusive power to tax DTH services and that the States do not have
any power to tax the said service by any name called. It is argued
that the State legislature cannot, in the guise of imposing a tax on
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.3 of 45
entertainments, in exercise of its powers under Entry 62 of List II of
the VIIth Schedule to the Constitution, impose a tax on the DTH
service. Consequently, it was submitted that the said Act, to the
extent it attempts at encompassing DTH services within the ambit of
entertainment tax, is unconstitutional. It is further argued on behalf
of the petitioners that the taxable event for the levy of service tax is
exactly the same as the taxable event for the levy of entertainment
tax, which is, the provision of DTH service by transmitting DTH
signals. And, therefore, there is a clear trespass into Parliament’s
exclusive domain. Mr Varun Sarin, appearing for Dish TV India
Ltd, adopted the arguments of Mr Ganesh and Mr Lekhi.
3. On the other hand, Mr Parag Tripathi, the learned
Additional Solicitor General of India, appearing on behalf of the
Government of National Capital Territory of Delhi based his
arguments on the “aspect theory”. He submitted that the same
transaction or activity may have more than one aspect and these
aspects may fall within entries of different lists. Thus, while one
aspect may be taxed under an entry in List I another aspect may be
taxed under an entry in List II. Therefore, both Parliament and the
State legislatures would be competent to make laws for taxing the
aspect relevant to them without impinging on each other’s domains.
According to Mr Tripathi, DTH service had two aspects – (1) a
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.4 of 45
service aspect; and (2) an entertainment aspect. The former is taxed
under the Finance Act, 1994 read with entry 92C of List I and the
latter is subjected to tax as an entertainment under the said Act read
with entry 62 of List II. He further submitted that there a two
separate and distinct taxable events in respect of the two aspects. It
was therefore contended by him that the said Act, by including DTH
service within the ambit of entertainment, had not transgressed the
Constitution.
4. In rejoinder, Mr Ganesh submitted that the “aspect
theory” can only be invoked and applied in order to justify the levy
of two taxes on one transaction if the transaction gives rise to two
distinct and different taxable events, such as manufacture and sale of
goods or holding a licence to practice and rendering professional
services and so on. He maintained that in the present case the event
for the service tax regime is the provision of the broadcasting service
and in the entertainment tax regime contemplated under the said Act
also the taxing event is the provision of DTH broadcasting service.
Thus, according to him, the taxable event being the same, the aspect
theory would have no application and, without that, the impost of
entertainment tax on DTH service would be unconstitutional.
Mr Lekhi added that “entertainment through DTH service” as used
in section 2(i) of the said Act refers to nothing but the pictures,
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.5 of 45
images and sounds transmitted through space and that is exactly
what is meant by broadcasting service. Consequently, Mr Lekhi
contended, what is sought to be included in entertainment is in fact a
“taxable service” under the service tax regime. He submitted that
the attempt on the part of the State legislature to bring in DTH
service within the ambit of “entertainment” is a disguised and
indirect transgression into a prohibited field.
5. In support of his contentions Mr Ganesh had placed
reliance on the following decisions:-
i) Godfrey Phillips India Ltd v. State of U.P.:
(2005) 2 SCC 51; and
ii) BSNL v. Union of India: (2006) 3 SCC 1.
6. Mr Aman Lekhi relied upon the following decisions:-
i) T.N. Kalyana Mandapam Assn. v. Union of India: (2004) 5 SCC 632; ii) State of West Bengal v. Purvi Communication (P) Ltd: (2005) 3 SCC 711; and iii) Imagic Creative (P) Ltd v. CCT: (2008) 2 SCC 614. WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.6 of 457. Mr Parag Tripathi referred to and relied upon the
following decisions:-
i) Federation of Hotel & Restaurant Assn of India v.
Union of India: (1989) 3 SCC 634;
ii) Express Hotels (P) Ltd v. State of Gujarat: (1989)
3 SCC 677; andiii) All-India Federation of Tax Practitioners v. Union
of India: (2007) 7 SCC 527.Nature of service
8. As mentioned in the Bharti Telemedia Ltd petition, which
we are taking up as the representative case for facts, it has a single
broadcasting service at Manesar, Haryana for its operations which
were launched in August 2008. Under a licence/permission granted
by the Government of India, Ministry of Information and
Broadcasting, Bharti Telemedia had set up a Hub which enables it to
downlink signals from the satellites of various broadcasters of TV
channels and to then uplink the signals to its own Ku Band (INSAT
4CR satellite) designated transponders for transmission of the
signals in Ku band. These signals are received by the dish antennae
installed at the subscribers’ premises. Since these signals are in
encrypted form they are decrypted by the Set-Top Boxes and the
viewing cards inside these boxes to enable subscribers to view theWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.7 of 45
various TV channels on their TV sets. The subscribers have to
obtain a connection for which they pay monthly charges varying
from Rs 99/- to Rs 400/- depending on the choice of channels. The
set-top boxes are installed without any consideration and remain the
property of Bharti Telemedia.Provisions under challenge
9. The challenge is mainly to sections 2(a), 2(aa), 2(m)(vi),
7(1) and 8(2) of the said Act (The Delhi Entertainments and Betting
Tax Act, 1996) and to rules 12A, 26A and 31 of the Delhi
Entertainments and Betting Tax Rules, 1997 as amended by the
Delhi Entertainment and Betting Tax (Amendment) Rules, 2010.10. Sections 2(a), 2(aa), 2(m)(vi), 7(1) and 8(2) and other
relevant provisions of the said Act are as under:-“2. Definitions
In this Act, unless the context otherwise require, –(a) “addressable system” means an electronic device or
more than one electronic devices put in an integrated
system through which television signals and value
added services can be sent in encrypted or
unencrypted form, which can be decoded by the
device or devices at the premises of the subscriber
within limits of the authorization made, on the choice
and request of such subscriber, by the service
provider to the subscriber;WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.8 of 45
(aa) “admission to an entertainment” includes
admission to any place in with the entertainment is
held and in case of entertainment through cable
service and direct-to-home (DTH) service with or
without cable connection, each connection to a
subscriber shall be deemed to be an admission for
entertainment;xxxxx xxxxx xxxxx xxxxx
(ha) “direct-to-home (DTH) service” means distribution
of multi-Channel television and radio programmes
and similar content by using a satellite system, by
providing signals directly to subscriber’s premises
without passing through an intermediary or
otherwise;(i) “entertainment” means any exhibition, performance,
amusement, game, sport or race (including horse
race) or in the case of cinematograph exhibitions,
cover exhibition of news-reels, documentaries,
cartoons, advertisement shorts or slides, whether
before or during the exhibition of a feature film or
separately, and also includes entertainment
through cable service and direct-to-home (DTH)
service;xxxxx xxxxx xxxxx xxxxx (m) "payment for admission" includes - xxxxx xxxxx xxxxx xxxxx (vi) any payment made by a person by way ofcontribution, subscription, installation or connection
charges or any other charges collected in any mannerWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.9 of 45
whatsoever for entertainment through direct-to-home
(DTH) broadcasting service or distribution of
television signals and value-added services with the
aid of any type of addressable system, which
connects a television set, computer system at a
residential or non-residential place of subscriber’s
premises, directly to the satellite or otherwise;”xxxxx xxxxx xxxxx xxxxx (s) "subscriber" means a person who received thesignals of television network and value-added
services from multi – system operator or from cable
operator or from direct-to-home (DTH) broadcasting
service at a place indicated by him to the service
provider, without further transmitting it to any other
person.Explanation I: In case of hotels, each room or
premises where signals of cable television network
are received shall be treated as a subscriber.Explanation II: In case of direct-to-home (DTH),
every television set of computer set receiving the
signals shall be treated as a subscriber;”“7. Tax on cable, video service and direct-to-home
(DTH) service:-(1) Subject to the provisions of this Act, there shall be
levied and paid an entertainment tax on all payments
for admission to an entertainment through a
direct-to-home (DTH) or through a cable television
network with addressable system or otherwise, other
than entertainment to which section 6 applies, at suchWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.10 of 45
rates not exceeding rupees six hundred for every
subscriber for every year as the Government may,
from time to time, notified in this behalf, which shall
be collected by the proprietor and paid to the
Government in the manner prescribed.xxxxx xxxxx xxxxx xxxxx
8. Information before holding entertainment
(1) xxxxx xxxxx xxxxx xxxxx
(2) No proprietor of a cable television network or video
cinema or direct-to-home (DTH) shall provide
entertainment unless he obtains permission from the
Commissioner in the manner prescribed.xxxxx xxxxx xxxxx xxxxx." (emphasis added) Provisions of the Constitution of India11. The relevant provisions of the Constitution of India are as
under:-“246. Subject-matter of laws made by Parliament and
by the legislatures of states.-(1) Notwithstanding anything in clauses (2) and (3),
Parliament has exclusive power to make laws with
respect to any of the matters enumerated in list I in
the seventh schedule (in this Constitution referred to
as the “Union List”).WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.11 of 45
(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 eliminated 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 in the seventh schedule (in
this Constitution referred to as the “State list”).(4) Parliament has power to make laws in respect to any
matter for any part of the territory of India not
included in our state notwithstanding that such matter
is a matter enumerated in the State list.Entry 92C of list I (Union List) reads as under: –
“92C. Taxes on services.”
Entry 62 of list II (State List) reads as under: –
“62. Taxes on luxury, including taxes on entertainment,
amusements, betting and gambling.”The decisions cited
12. We shall take up the decisions cited at the bar in
chronological order. The first is the decision of a constitution bench
of the Supreme Court in Federation of Hotels (supra). The
challenge was to the constitutional validity of the Expenditure Tax
Act, 1987 which envisaged a 10% ad valorem tax on “chargeableWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.12 of 45
expenditure” in a particular class of hotels. One of the contentions
was that the Act was not one imposing an expenditure tax (which
was within the legislative competence of Parliament) but, in pith and
substance, was either a tax on luxuries falling within Entry 62 of List
II or a tax on the sale of goods within the ambit of Entry 54 of List II
(neither of which was within the legislative competence of
Parliament). While considering this contention, the majority view
(R.S. Pathak, CJ and M.N. Venkatachaliah, Sabyasachi Mukharji, S.
Natarajan, JJ) as to how potential overlap situations are to be dealt
with was as follows:-“Wherever legislative powers are distributed between the
Union and the States, situations may arise where the two
legislative fields might apparently overlap. It is the duty of
the courts, however difficult it may be, to ascertain to what
degree and to what extent, the authority to deal with
matters falling within these classes of subjects exists in
each legislature and to define, in the particular case before
them, the limits of the respective powers. It could not have
been the intention that a conflict should exist; and, in order
to prevent such a result the two provisions must be read
together, and the language of one interpreted, and, where
necessary modified by that of the other.” [at page 651]The majority view was that :-
“31. Indeed, the law “with respect to” a subject might
incidentally “affect” another subject in some way; but that
is not the same thing as the law being on the latter subject.There might be overlapping; but the overlapping must be in
law. The same transaction may involve two or moreWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.13 of 45
taxable events in its different aspects. But the fact that
there is an overlapping does not detract from the
distinctiveness of the aspects. Lord Simonds in Governor
General-in-Council v. Province of Madras [AIR 1945 PC
98] in the context of concepts of Duties of Excise and Tax
on Sale of Goods said:“… The two taxes, the one levied on a
manufacturer in respect of his goods, the other
on a vendor in respect of, his sales, may, as is
there pointed out, in one sense overlap. But in
law there is no overlapping. The taxes are
separated and distinct imposts. If in fact they
overlap, that may be because the taxing
authority, imposing a duty of excise, finds it
convenient to impose that duty at the moment
when the excisable article leaves the factory or
workshop for the first time on the occasion of
its sale….””(emphasis added)
The Supreme Court further observed as under:-
“37. It is trite that the true nature and character of the
legislation must be determined with reference to a question
of the power of the legislature. The consequences and
effects of the legislation are not the same thing as the
legislative subject-matter. It is the true nature and character
of the legislation and not its ultimate economic results that
matters.
38. Indeed, as an instance of different aspects of the same
matter, being the topic of legislation under different
legislative powers, reference may be made to the annual
letting value of a property in the occupation of a person forWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.14 of 45
his own residence being, in one aspect, the measure for
levy of property tax under State law and in another aspect
constitute the notional or presumed income for the purpose
of income tax.”
xxxxx xxxxx xxxxx xxxxx
“43. The subject of a tax is different from the measure of
the levy. The measure of the tax is not determinative of its
essential character or of the competence of the legislature.
In Sainik Motors v. State of Rajasthan [AIR 1961 SC
1480], the provisions of a State law levying a tax on
passengers and goods under Entry 56 of List I were assailed
on the ground that the State was, in the guise of taxing
passengers and goods, in substance and reality taxing the
income of the stage carriage operators or, at any rate, was
taxing the “fares and freights”, both outside of its powers. It
was pointed out that the operators were required to pay the
tax calculated at a rate related to the value of the fare and
freight. Repelling the contention, Hidayatullah, J., speaking
for the court said: (SCR p. 525)“We do not agree that the Act, in its pith and
substance, lays the tax upon income and not
upon passengers and goods. Section 3, in
terms, speaks of the charge of the tax ‘in
respect of all passengers carried and goods
transported by motor vehicles’, and though the
measure of the tax is furnished by the amount
of fare and freight charged, it does not cease to
be a tax on passengers and goods.””
The Supreme Court concluded that the tax in question was
essentially a tax on expenditure and not on luxuries or sale of goods
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.15 of 45
falling within the State power. Recognising the aspect theory, the
Supreme Court held that the “expenditure” aspect of the transaction
fell within the Union power and therefore sustained the legislative
competence of Parliament to impose a tax on that aspect.
13. The next decision in Express Hotels (supra) is also of the
same constitution bench of the Supreme Court as in the case of
Federation of Hotels (supra). In fact, both these decisions were
pronounced on the same day i.e., 02.05.1989. One of the
contentions raised in Express Hotels (supra) was that the taxation
entry in Entry 62 of List II providing for taxes on ‘luxuries’
contemplates, and takes within its sweep, a tax on goods and articles
in their aspect and character as luxuries and does not include
‘services’ or ‘activities’ and that, therefore, the levy on the services
for lodging provided at the hotels was beyond the scope of Entry 62
List II. While rejecting the said contention, the Supreme Court
made the following observations:-
“15. We are dealing with an entry in a Legislative List. The
entries should not be read in a narrow or pedantic sense but
must be given their fullest meaning and the widest
amplitude and be held to extend to all ancillary and
subsidiary matters which can fairly and reasonably be said
to be comprehended in them.”
“21. The concept of a tax on “luxuries” in Entry 62, List II
cannot be limited merely to tax things tangible and
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corporeal in their aspect as “luxuries”. It is true that while
frugal or simple food and medicine may be classified as
necessities; articles such as jewellery, perfume, intoxicating
liquor, tobacco, etc., could be called articles of luxury. But
the legislative entry cannot be exhausted by these cases,
illustrative of the concept. The entry encompasses all the
manifestations or emanations, the notion of “luxuries” can
fairly and reasonably (sic) can be said to comprehend the
element of extravagance or indulgence that differentiates
“luxury” from “necessity” cannot be confined to goods and
articles. There can be elements of extravagance or
indulgence in the quality of services and activities.”
In the same decision, the Supreme Court also observed that:-
“25…….. The concept of “luxuries” in the legislative entry
takes within it everything that can fairly and reasonably be
said to be comprehended in it. The actual measure of the
levy is a matter of legislative policy and convenience. So
long as the legislation has reasonable nexus with the
concept of “luxuries” in the broad and general sense in
which the expressions in legislative tests (sic lists) are
comprehended, the legislative competence extends to all
matters “with respect to” that field or topic of legislation.”
27. …. Once the legislative competence and the nexus
between the taxing power and the subject of taxation is
established, the other incidents are matters of fiscal policy
behind the taxing law. The measure of the tax is not the
same thing as, and must be kept distinguished from, the
subject of the tax.
14. The Supreme Court in Kalyana Mandapam (supra), inter
alia, held that:-
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.17 of 45
“58. A tax on services rendered by mandap-keepers and
outdoor caterers is in pith and substance, a tax on services
and not a tax on sale of goods or on hire-purchase
activities. Section 65 clause (41) sub-clause (p) of the
Finance Act, 1994, defines taxable service (which is the
subject-matter of levy of service tax) as any service
provided to a customer
“by a mandap-keeper in relation to the use of a
mandap in any manner including the facilities
provided to [a customer] in relation to such use
and also the services, if any, rendered as a
caterer”.
The nature and character of this service tax is evident from
the fact that the transaction between a mandap-keeper and
his customer is definitely not in the nature of a sale or hire-
purchase of goods. It is essentially that of providing a
service. In fact, as pointed out earlier, the manner of service
provided assumes predominance over the providing of food
in such situations which is a definite indicator of the
supremacy of the service aspect. The legislature in its
wisdom noticed the said supremacy and identified the same
as a potential region to collect indirect taxes. Moreover, it
has been a well-established judicial principle that so long
as the legislation is in substance, on a matter assigned to a
legislature enacting that statute, it must be held valid in its
entirety even though it may trench upon matters beyond its
competence. Incidental encroachment does not invalidate
such a statute on the grounds that it is beyond the
competence of the legislature (Prafulla Kumar v. Bank of
Commerce [AIR 1947 PC 60])…..”
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.18 of 45
15. Next, is another constitution bench decision of the
Supreme Court in the case of Godfrey Phillips (supra). The
imposition and levy of a luxury tax on tobacco and tobacco products
by treating them as “luxuries” within the meaning of the word in
Entry 62 of List II was the subject matter of challenge. While
construing provisions of the Constitution of India and the relevant
entries in the Seventh Schedule, the Supreme Court sounded a
warning that opinions expressed by courts of countries like United
States of America, Canada or Australia may not be of any help. In
this context, the Supreme Court observed as follows:-
“43. Before we proceed further we would like to clear the
ground. Whatever be the similarities between the
Constitutions of other countries with similar federal
structures as this country such as the United States, Canada
or Australia, this Court has, as a general rule held that the
opinions expressed by the courts of those countries may not
be helpful in construing the allocation of legislative heads
in our Constitution ….. Given the wealth of authority on the
question of interpretation of legislative heads in this
country, we deem it sufficient to restrict our opinion based
on the views expressed by this Court.
44. The Indian Constitution is unique in that it contains an
exhaustive enumeration and division of legislative powers
of taxation between the Centre and the States. This mutual
exclusivity is reflected in Article 246(1) and has been noted
in H.M. Seervai’s Constitutional Law of India, 4th Edn.,
Vol. 1 at p. 166 in para 1A.25 where, after commenting on
the problems created by the overlapping powers of taxation
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.19 of 45
provided for in other countries with federal structures such
as the United States, Canada and Australia, the learned
author opined:
“The lists contained in Schedule VII to the
Government of India Act, 1935, provided for
distinct and separate fields of taxation, and it is
not without 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.”
45. This view has also been reiterated in Hoechst
Pharmaceuticals Ltd. v. State of Bihar [(1983) 4 SCC 45]:
(SCC pp. 92-93, paras 75 & 76)
“A scrutiny of Lists I and II of the Seventh
Schedule would show that there is no
overlapping anywhere in the taxing power and
the Constitution gives independent sources of
taxation to the Union and the States. Following
the scheme of the Government of India Act,
1935, the Constitution has made the taxing
power of the Union and of the States mutually
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.20 of 45
exclusive and thus avoided the difficulties
which have arisen in some other Federal
Constitutions from overlapping powers of
taxation.
… Thus, in our Constitution, a conflict of the
taxing power of the Union and of the States
cannot arise.”
(See also State of W.B. v. Kesoram Industries Ltd [(2004)
10 SCC 201])”
16. In view of the above, the Supreme Court held that taxing
entries must be construed with clarity and precision so as to maintain
such exclusivity, and a construction of a taxation entry which may
lead to overlapping must be eschewed. “If the taxing power is within
a particular legislative field, it would follow that other fields in the
legislative lists must be construed to exclude this field so that there
is no possibility of legislative trespass.”
17. The Court also reiterated the well established principle
that incidence of a tax is not relevant in determining the subject
matter of a tax. In this regard, the Supreme Court noted as follows:-
“47. Classically, a tax is seen as composed of two elements:
the person, thing or activity on which the tax is imposed
and the incidence of tax. Thus every tax may be levied on
an object or an event of taxation. The distinction between
the two may not, ultimately, be material in the context of
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.21 of 45
the Indian Constitution as we will find later. But for the
time being we may note that both these elements are
distinct from the incidence of taxation. For example, the tax
may be imposed on goods on the event of their
manufacture, sales, import, etc. The law imposing the tax
may also prescribe the incidence or the manner in which
the burden of the tax would fall on any person and would
take within itself the amount and measure of tax. The
importance of this distinction lies in the fact that in India,
the first two have been given a constitutional status,
whereas the incidence of tax would be a matter of statutory
detail. The incidence of tax would be relevant in construing
whether a tax is a direct or an indirect one. But it would be
irrelevant in determining the subject-matter of the tax. (See
Chhotabhai Jethabhai Patel & Co. v. Union of India [AIR
1962 SC 1006].)”
48. An illustration of this distinction is nicely brought out
in State of Karnataka v. Drive-in-Enterprises [(2001) 4
SCC 60]. Entertainment tax was levied by the Karnataka
Cinemas (Regulation) Act, 1964 and the Rules framed
thereunder by the State in respect of a film show. A higher
rate of tax was levied on persons who drove their cars in to
view the film from the comfort of their cars. The challenge
to the Act was that entertainment tax could be levied only
on human beings and not on any inanimate object, namely,
motor vehicles. The challenge was negatived on the ground
that the State was competent to levy tax on entertainment
under Entry 62 List II. That was the subject-matter of the
tax. The incidence of the tax was on the persons
entertained. Clearly the manner in which the burden would
fall viz. on persons either with or without motor vehicles
would not affect either the object or the nature of the tax.
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.22 of 45
Motor vehicles were neither the object of taxation nor the
taxable event but were part of the incidence of the tax.
18. The Supreme Court, in Godfrey Phillips (supra) further
noted that a taxation entry in a legislative list may be with respect to
an object or an event or may be with respect to both and that Article
246 makes it clear that the exclusive powers conferred on Parliament
or the States to legislate on a particular matter includes the power to
legislate with respect to that matter. Hence, the Court held that
where the entry describes an object of tax, all taxable events
pertaining to the object are within that field of legislation unless the
event is specifically provided for elsewhere under a different
legislative head. The Supreme Court noticed that where there is the
possibility of legislative overlap, courts have resolved the issue
according to settled principles of construction of entries in the
legislative lists. The first such principle being that legislative
entries should be liberally interpreted and the second being that
competing entries must be read harmoniously. In this regard the
Supreme Court observed as under:-
“50. The first of such settled principles is that legislative
entries should be liberally interpreted, that none of the
items in the list is to be read in a narrow or restricted sense
and that each general word should be held to extend to
ancillary or subsidiary matters which can fairly and
reasonably be said to be comprehended in it (United
Provinces v. Atiqa Begam [AIR 1941 FC 16], WesternWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.23 of 45
India Theatres Ltd. v. Cantonment Board [AIR 1959 SC
582=1959 Supp 2 SCR 63], SCR at p. 69 and Elel Hotels &
Investments Ltd. v. Union of India [(1989) 3 SCC 698).
53. The argument of Mr Salve is in fact that the breadth of
an entry is curtailed by the second principle of
construction. The second principle is that competing entries
must be read harmoniously. The proper way to avoid a
conflict would be to read the entries together and to
interpret the language of one by that of the other Governor
General in Council v. Province of Madras [1945 FCR 179
= AIR 1945 PC 98], FCR at pp. 191-92, State of Bombay v.
Narothamdas Jethabhai [AIR 1951 SC 69], Bar Council of
U.P. v. State of U.P. [(1973) 1 SCC 261], D.G. Gose & Co.
(Agents) (P) Ltd. v. State of Kerala [(1980) 2 SCC 410],
Federation of Hotel and Restaurant v. Union of India
[(1989) 3 SCC 634], SCC at pp. 657, 667-68, State of W.B.
v. Kesoram Industries [(2004) 10 SCC 201, SCC at p. 289,
para 50 : Scale at p. 462 and Central Provinces and Berar
Sales of Motor Spirit and Lubricants Taxation Act, 1938,
Re [AIR 1939 FC 1], AIR at pp. 8, 40.”
19. While considering the meaning to be ascribed to the word
“includes” appearing in Entry 62 List II, the Supreme Court made an
important observation that “entertainments, amusements, betting
and gambling are all activities”. In the context of the case before it,
the Supreme Court concluded as under:-
“83. Hence on an application of general principles of
interpretation, we would hold that the word “luxuries” in
Entry 62 of List II means the activity of enjoyment of or
indulgence in that which is costly or which is generallyWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.24 of 45
recognised as being beyond the necessary requirements of
an average member of society and not articles of luxury.”
“93. Given the language of Entry 62 and the legislative
history we hold that Entry 62 of List II does not permit the
levy of tax on goods or articles. In our judgment, the word
“luxuries” in the entry refers to activities of indulgence,
enjoyment or pleasure. Inasmuch as none of the impugned
statutes seek to tax any activity and admittedly seek to tax
goods described as luxury goods, they must be and are
declared to be legislatively incompetent.”
20. Purvi Communication (supra) is a decision of a three-
judge bench of the Supreme Court. Sub-section (4-a) of Section 4-A
of the West Bengal Entertainment-cum-Amusement Tax Act, 1982
was the subject matter of consideration before the Supreme Court.
The said provision was as under :-
“(4-a) Where any owner, or any person for the time being
in possession, of any electrical, electronic or mechanical
device, is a cable operator and receives through such device
the signal of any performance, film or any other
programme telecast, and thereafter such owner or person,
against payment received or receivable,–
(i) exhibits such performance, film or programme
through cable television network directly to
customers, or
(ii) transmits such signal to a sub-cable operator, who in
turn provides cable service for exhibition of such
performance, film or programme to the customers,
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.25 of 45
such owner or person shall be liable to pay tax from the
month in which he exhibits such performance, film or
programme or transmits such signal to a sub-cable operator
on the basis of his monthly gross receipt at such rate, not
exceeding twenty-five per centum of the monthly gross
receipt, as may be specified by the State Government by
notification published in the Official Gazette.”
21. One of the questions for consideration before the Supreme
Court was whether clause (ii) of sub-section (4-a) of Section 4-A of
the said West Bengal Act was beyond the legislative competence of
the State Legislature? The Supreme Court held that the State
Legislature was competent in enacting the said provision. The
Court, inter alia, observed :-
“35. … The purpose of sub-section (4-a) of Section 4-A of
the Act is the 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 taxable person exclusively for the purpose of levy and
collection of entertainment tax only when a cable operator
so defined receives through any electrical, electronic and
mechanical device the signal of any performance, film or
any other programme telecast and provides cable service
directly to consumers or transmits signals 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. The person whoWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.26 of 45
has been defined as cable operator exclusively for the
purpose of levy and collection of entertainment tax has a
direct and proximate nexus with the amusements and
entertainments to the viewers at every home or place
inasmuch as he is the person directly connected with
presentation of entertainments to the subscribers. A person
is also a “cable operator” for the purpose of sub-section (4-
a) of Section 4-A of the said 1982 Act when he receives the
signal of any performance, film, or any other programme
telecast and transmits such signal to a sub-cable operator
through cable television network or otherwise controls or is
responsible for the management and operation of cable
television network against payment received or receivable
by him. Therefore, a cable operator is the source of
entertainment to the individual subscribers because, it is he
who receives the signal of performance, film, and any
programme which is transmitted or given to a large number
of sub-cable operators (although they call them as cable
operator). The viewers enjoy, or are entertained by such
performance, film, or programme because of receiving and
transmitting video or audio-visual signals through coaxial
cable or any other device by the respondents. No
entertainment can be presented to the viewers unless a
cable operator transmits the video and audio signals to a
sub-cable operator for instantaneous presentation of any
performance, film or any programme on their TV screen.
The sub-cable operators are mere franchisees who receive
signals for transmission to the viewers only on payment of
price promised or paid in terms of agreements entered by
and between them….”
In this backdrop, the Supreme Court held as under:-
“37. In our view, the respondents as a cable operator, for
the purpose of levy and collection of tax under sub-section
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.27 of 45
(4-a) of Section 4-A of the Act have direct and close nexus
with the entertainments made available to the viewer
through their cable television network. The performance,
film or programmes shown to the viewers through the cable
television network come within the meaning of
entertainments and therefore within the legislative
competence of the State Legislature under Entry 62 of List
II of the Seventh Schedule to the Constitution to make law
for the levy and collection of tax on such entertainments.
38. A tax under Entry 62 of List II of the Seventh Schedule
to the Constitution may be imposed not only on the person
spending on entertainment but also on the act of a person
entertaining, or the subject of entertainment. It is well
settled by this Court that such tax may be levied on the
person offering or providing entertainment or the person
enjoying it. The respondents are admittedly engaged in the
business of receiving broadcast signals and then
instantaneously sending or transmitting such visual or
audio-visual signals by coaxial cable, to subscribers’ homes
through their various franchisees. It has been made possible
for the individual subscribers to choose the desired
channels on their individual TV sets because of cable
television technology of the respondents and of sending the
visual or audio-visual signals to sub-cable operators, and
instantly retransmitting such signals to individual
subscribers for entertaining them through their franchisees.
The respondents’ act is, no doubt, an act of offering
entertainment to the subscribers and/or viewers. The
respondent is very much directly and closely involved in
the act of offering or providing entertainment to
subscribers who are on his record. For the fact of offering
or providing entertainment to the subscribers and/or
viewers, the respondents receive charges, which are
realised or collected by their franchisee from the ultimate
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.28 of 45
subscribers. Their franchisee, called as sub-cable operator
under the said 1982 Act having no independent role to
offer or provide entertainments to the subscribers inasmuch
as franchisees have to depend entirely on the respondents’
communication network and this communication network
of the respondents consists of receiving 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 the tax matters, the State Legislature is free, 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 (4-a) of Section
4-A of the said 1982 Act which has a direct and sufficient
nexus with the entertainments.”
22. We now come to the Supreme Court decision in BSNL
(supra) wherein one of the issues which arose for consideration
was :-
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.29 of 45
“(E) Would the “aspect theory” be applicable to the
transaction enabling the States to levy sales tax on the same
transaction in respect of which the Union Government
levies service tax?” (para 32)
The Supreme Court was required to determine the nature of the
transaction by which mobile phone connections are enjoyed. The
question was whether it was a sale or a service or both a sale and a
service? As observed by the Supreme Court, if it was a sale then the
States had the legislative competence to levy sales tax on the
transaction under Entry 54 List II of the Seventh Schedule to the
Constitution. On the other hand, if it was a service, then, Parliament
alone could levy service tax under Entry 97 List I (now, Entry 92-C
of List I, after 2003). If the nature of the transaction had elements of
both sale and service, the question which arose was whether both the
State legislature and Parliament could levy their separate taxes
together or only one of them. The Court, inter alia, held:-
“The nature of the transaction involved in providing the
telephone connection may be a composite contract of
service and sale. It is possible for the State to tax the sale
element provided there is a discernible sale and only to the
extent relatable to such sale.”
The Supreme Court also observed:-
“88. 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 theWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.30 of 45
sale is distinctly discernible in the transaction. This does
not however allow the State to entrench upon the Union
List and tax services by including the cost of such service
in the value of the goods. Even in those composite
contracts which are by legal fiction deemed to be divisible
under Article 366(29-A), the value of the goods involved in
the execution of the whole transaction cannot be assessed
to sales tax. …”
It was however clarified that:-
“The ‘aspect theory’ would not apply to enable the value of
the services to be included in the sale of goods or the price
of goods in the value of the service.”
23. In All India Federation of Tax Practitioners (supra), the
issue was whether Parliament was competent to impose a service tax
on practising chartered accountants and architects in the wake of
Entry 60, List II of the Seventh Schedule to the Constitution which
enabled the State Legislatures to exclusively enact laws with regard
to “taxes on professions, trades, callings and employments”. The
Court answered in the affirmative by applying the ‘aspect theory’ in
the following manner:-
“33. Applying the above tests laid down in the aforestated
judgments to the facts of the present case, 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 whichWP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.31 of 45
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…”
34. As stated above, Entry 60, List II refers to taxes on
professions, etc. It is the tax on the individual person/firm
or company. It is the tax on the status. A chartered
accountant or a cost accountant obtains a licence or a
privilege from the competent body to practise. On that
privilege as such the State is competent to levy a tax under
Entry 60. However, as stated above, Entry 60 is not a
general entry. It cannot be read to include every activity
undertaken by a chartered accountant/cost
accountant/architect for consideration. Service tax is a tax
on each activity undertaken by a chartered accountant/cost
accountant or an architect. The cost accountant/chartered
accountant/architect charges his client for advice or for
auditing of accounts. Similarly, a cost accountant charges
his client for advice as well as doing the work of costing.
For each transaction or contract, the chartered
accountant/cost accountant renders profession based
services. The activity undertaken by the chartered
accountant or the cost accountant or an architect has two
aspects. From the point of view of the chartered
accountant/cost accountant it is an activity undertaken by
him based on his performance and skill. But from the point
of view of his client, the chartered accountant/cost
accountant is his service provider. It is a tax on “services”.
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.32 of 45
The activity undertaken by the chartered accountant or cost
accountant is similar to saleable or marketable commodities
produced by the assessee and cleared by the assessee for
home consumption under the Central Excise Act.”
The following observations of the Supreme Court are also relevant:-
“44. Competence to legislate flows from Articles 245, 246
and the other articles in Part XI. A legislation like the
Finance Act can be supported on the basis of a number of
entries. In the present case, we are concerned with the
constitutional status of the levy, namely, service tax. The
nomenclature of a levy is not conclusive for deciding its
true character and nature. For deciding the true character
and nature of a particular levy, with reference to the
legislative competence, the court has to look into the pith
and substance of the legislation. The powers of Parliament
and the State Legislatures are subject to constitutional
limitations. Tax laws are governed by Part XII and Part
XIII. Article 265 takes in Article 245 when it says that the
tax shall be levied by the authority of law. To repeat,
various entries in the Seventh Schedule show that the
power to levy tax is treated as a distinct matter for the
purpose of legislative competence. This is the underlying
principle to differentiate between the two groups of entries,
namely, general entries and taxing entries. We are of the
view that taxes on services is a different subject as
compared to taxes on professions, trades, callings, etc.
Therefore, Entry 60 of List II and Entries 92-C/97 of List I
operate in different spheres.”
24. Finally, we are left with the decision of the Supreme
Court in Imagic (supra). The question for determination before the
Supreme Court was whether the charges collected towards the
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.33 of 45
services for evolution of prototype conceptual design (i.e., creation
of concept), on which service tax had been paid under the Finance
Act, 1994 (as amended from time to time) were liable to tax under
the Karnataka Value Added Tax Act, 2003. While considering this
question the Court observed that:-
“28. ….. In the matter of interpretation of a taxing statute,
as also other statutes where the applicability of Article 246
of the Constitution of India, read with the Seventh
Schedule thereof is in question, the Court may have to take
recourse to various theories including “aspect theory”, as
was noticed by this Court in Federation of Hotel &
Restaurant Assn. of India v. Union of India [(1989) 3 SCC
364]”.
“31. The court, while interpreting a statute, must bear in
mind that the legislature was supposed to know law and the
legislation enacted is a reasonable one. The court must also
bear in mind that where the application of a parliamentary
and a legislative Act comes up for consideration;
endeavours shall be made to see that provisions of both the
Acts are made applicable.
32. Payments of service tax as also VAT are mutually
exclusive. Therefore, they should be held to be applicable
having regard to the respective parameters of service tax
and the sales tax as envisaged in a composite contract as
contradistinguished from an indivisible contract. It may
consist of different elements providing for attracting
different nature of levy. It is, therefore, difficult to hold that
in a case of this nature, sales tax would be payable on the
value of the entire contract, irrespective of the element of
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.34 of 45
service provided. The approach of the assessing authority,
to us, thus, appears to be correct.”
Principles
25. From the above decisions of the Supreme Court, the following
principles concerning interpretation of taxing entries in the Union List
and State List from the standpoint of legislative competence can be set
down:-
1. The entries should not be read in a narrow or pedantic
sense but must be given their fullest meaning and the
widest amplitude and be held to extend to all ancillary
and subsidiary matters which can fairly and reasonably
be said to be comprehended in them. [Express Hotels
(supra)].
2. A scrutiny of Lists I and II of the Seventh Schedule
would show that there is no overlapping anywhere in the
taxing power and the Constitution gives independent
sources of taxation to the Union and the States. [Godfrey
Phillips (supra)].
3. Whenever an apparent overlap has occurred the Supreme
Court has adopted the following two settled principles to
resolve the conflict:-
(i) Legislative entries should be liberally interpreted;
(ii) Competing entries must be read harmoniously.
The proper way to avoid a conflict would be to
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.35 of 45
read the entries together and to interpret the
language of one by that of the other. [Godfrey
Phillips (supra)].
4. Classically, a tax is seen as composed of two elements:-
(i) the person, thing or activity on which the tax is
imposed; and
(ii) the incidence of tax.
The incidence of tax would be relevant in construing
whether a tax is a direct or an indirect one. But it would
be irrelevant in determining the subject-matter of the tax.
[Godfrey Phillips (supra)].
5. It is the true nature and character of the legislation and
not its ultimate economic results that matters.
Corollary 1: The subject of a tax is different from the
measure of the levy.
Corollary 2: The measure of the tax is not determinative
of its essential character or of the
competence of the legislature. [Federation
of Hotels (supra)]
6. The same transaction may involve two or more taxable
events in its different aspects. But the fact that there is an
overlapping does not detract from the distinctiveness of
the aspects. [Federation of Hotels (supra)].
7. For deciding the true character and nature of a particular
levy, with reference to the legislative competence, the
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.36 of 45
court has to look into the pith and substance of the
legislation. [All India Federation of Tax Practitioners
(supra)].
8. The court must also bear in mind that where the
application of a parliamentary and a legislative Act
comes up for consideration; endeavours shall be made to
see that provisions of both the Acts are made applicable.
[Imagic (supra)].
9. The performance, film or programmes shown to the
viewers through the cable television network come
within the meaning of entertainments and therefore
within the legislative competence of the State Legislature
under Entry 62 of List II of the Seventh Schedule to the
Constitution to make law for the levy and collection of
tax on such entertainments. [Purvi Communications
(supra)].
Analysis of the Tax in question
26. Keeping the above principles in mind, the first thing is to see
as to whether there is any overlap insofar as Entry 92C of List I and
Entry 62 of List II are concerned? Entry 92C of List I provides for “taxes
on services” while Entry 62 of List II relates to “taxes on luxury,
including taxes on entertainment, amusements, betting and gambling”.
The two entries clearly operate on entirely different fields. As there
should not be, there is no overlapping insofar as the two entries per se
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.37 of 45
are concerned. Therefore, the next question would be whether the said
Act, to the extent it imposes an “entertainment tax” on ‘direct-to-home
(DTH) service’, falls within Entry 62 List II or not? This requires the
determination of the true nature and character of the tax. If we come to
the conclusion that the tax on DTH service contemplated under the said
Act is, by its nature and character, irrespective of its nomenclature, a tax
on entertainment and not a tax on services, then, it cannot be said that
there is any trespass into Parliament’s exclusive domain of legislating on
the field of “taxes on services” under Entry 92C of List I. However, if
we come to the conclusion that the tax on DTH service as envisioned
under the said Act is, by its nature and character, a tax on a service, then,
clearly, it would also have to be held that the said Act has encroached
upon the power of Parliament to tax services.
27. Clearly, then, the key question is what is the true nature and
character of the tax under the said Act in respect of DTH service? At this
juncture it would be appropriate to clear the ground that the measure of a
tax or the incidence of a tax or the economic effects of a tax are not
material in determining the true nature and character of the impost. So,
the argument that the petitioners have already been subjected to service
tax on broadcasting services and therefore the impost under the said Act
is nothing but another tax on the same “amount” twice over, is of no
consequence. The only thing that needs to be seen is – what is the true
nature and character of the tax on DTH service under the said Act? Is it
in reality a tax on entertainment or is it a tax on a service?
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.38 of 45
28. Insofar as this case is concerned, the charging section is
section 7 of the said Act. Sub-section (1) of the said section 7, inter alia,
stipulates that there shall be levied and paid an entertainment tax on all
payments for admission to an entertainment through a direct-to-home
(DTH) at such rates not exceeding rupees six hundred for every
subscriber for every year as the Government may, from time to time,
notify in this behalf, which shall be collected by the proprietor and paid
to the Government in the manner prescribed. A plain reading of the
provision makes it clear that the tax or levy is on “entertainment”
through a DTH service. Now, “entertainment” as defined in section 2(i)
of the said Act includes “entertainment through cable service and direct-
to-home (DTH) service”. The emphasis is on “entertainment” and not on
the vehicle for such entertainment. We have already seen in the case of
Purvi Communications (supra) that the Supreme Court held the
performances, films or programmes shown to the viewers through the
cable television network (cable service) as falling within the meaning of
“entertainments” and therefore within the legislative competence of the
State Legislature under Entry 62 of List II of the Seventh Schedule to the
Constitution to make law for the levy and collection of tax on such
entertainments. Clearly, then, the same performances, films or
programmes shown to the viewers through the DTH service would also
fall within the meaning of “entertainments” and therefore the tax in
question would be within the legislative competence of the State
Legislature under Entry 62 of List II of the Seventh Schedule to the
Constitution.
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.39 of 45
29. Arguments were advanced on the part of the petitioners that
there were material differences between cable service and DTH service
and therefore Purvi Communications (supra) did not provide an
applicable analogy. But such arguments cannot be sustained inasmuch
as, it is not material as to whether it is the cable service or the DTH
service which is the vehicle for transporting the content which provides
entertainment to the subscribers. The tax is on the entertainment and not
the manner in which the content of entertainment reaches the actual
persons entertained. The tax is not on the content provider or the content
transporter or the person entertained – it is on the entertainment. The
subscriber may be the person on whom the incidence of the tax falls and
the measure of the tax may be based on the subscription money but, as
we have already seen, the incidence of a tax or the measure of a tax ought
not to be confused with the subject matter of the tax.
30. The charging section itself makes it clear that the levy is on
entertainment and it is paid on all payments for admission to an
entertainment. There are three very important words used in section 7(1)
of the said Act and they are – “levied” (or levy), “paid” and “collected”.
These words are used in distinct and different senses and must not be
confused with each other. The tax is “levied” on “entertainment”, it is
“paid” on all “payments for admission to an entertainment” and it is
“collected” by “the proprietor” and “paid” to the Government in the
manner prescribed. It is clear from this scheme that the tax is neither on
provider of the DTH service nor on the DTH service nor on the person
WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.40 of 45
entertained. Though the incidence of the tax may fall on the ultimate
subscriber and the tax may have to be collected by the DTH service
provider and paid to the government but, those are matters concerning
incidence and measure of the tax, which, we have seen, is irrelevant for
determining the subject-matter of a tax.
31. Let us consider the provisions of section 7(1) in further detail.
The entertainment tax is to be “paid” on “payments for admission to an
entertainment”. Section 2(m) defines the expression “payment for
admission” to, inter alia, include [s.2(m)(vi)] any payment made by a
person by way of contribution, subscription, installation or connection
charges or any other charges collected in any manner whatsoever for
entertainment through direct-to-home (DTH) broadcasting service or
distribution of television signals and value-added services with the aid of
any type of addressable system, which connects a television set,
computer system at a residential or non-residential place of subscriber’s
premises, directly to the satellite or otherwise. Let us compare this with
the traditional concept of “payment for admission” as contemplated in
section 2(m)(i) of the said Act to mean “any payment made by a person
for seats or other accommodation in any form in a place of
entertainment”. This brings to fore the classical concept of payment for a
cinema ticket or a theatre ticket. Without the ticket you cannot enter the
place of entertainment and, therefore, cannot receive the entertainment.
Times have changed, technology has changed and this has brought about
a complete upheaval in the manner of delivering entertainment. Our
drawing rooms have taken the place of the cinema hall or theatre and the
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cable TV or DTH connection has taken the place of the paper ticket.
Similarly, money paid for the ticket has been substituted by subscription
money paid for the relevant connection (i.e., cable or DTH, as the case
may be). Just as there could be no admission to a place of entertainment
without a ticket, there cannot be admission to entertainment provided
through a cable service or DTH service without a connection. Section
2(aa) of the said Act, inter alia, stipulates that in the case of
entertainment through cable service and direct-to-home (DTH) service,
each connection to a subscriber shall be deemed to be an admission for
entertainment. In this sense the DTH connection is the “virtual ticket”
and the payments for it including subscription money are the payments
for admission to entertainments.
32. The entertainment tax is to be “collected” by the “proprietor”
and paid to the government in the manner prescribed. The word
“proprietor” as used in section 7(1) of the said Act is a term of art and
has been defined in section 2(o). In relation to entertainment through a
DTH system, section 2(o)(iv) of the said Act defines the word
“proprietor” to include any person having licence to provide direct-to-
home (DTH) service, by the Central Government under section 4 of the
Indian Telegraph Act, 1885 and the Indian Wireless Telegraphy Act,
1933 and also includes the service provider of cable television signals
and value added services, registered or licensed under the Cable
Television Network (Regulation) Act, 1995. So, the licensed DTH
service provider is only a “collector” of the entertainment tax on behalf
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of the government. He is not the subject matter of the tax, nor is the
service provided by him the subject-matter of the entertainment tax. At
the cost of repetition but, for the sake of clarity, we state that the tax in
question is neither on a person nor on a thing but on the activity of
entertainment. This is the true nature and character of the tax and is,
therefore, within the legislative field of Entry 62 of List II of the VIIth
Schedule to the Constitution.
33. Let us understand the role played by the petitioners in
delivering entertainment directly into the homes of individual subscribers
or rooms of hotel guests. The petitioners downlink the signals from
various satellites of various TV channels at their hub stations. From
there they uplink the signals to their own Ku Band designated
transponders which are then transmitted in Ku Band through satellites.
Dish antennae installed by the petitioners at their subscribers’ premises
pick up these Ku Band signals which are then decrypted by the set-top
boxes and viewing cards provided by the petitioners. These decrypted
signals are then viewed by the subscribers on their TV sets. Apart from
installation charges, the subscribers have to pay a monthly subscription
ranging from Rs 99/- to Rs 400/- depending on their choice of channels.
The payment for subscription is like the payment for a cinema ticket or a
theatre ticket. Since the “admission” to entertainment in the case of
entertainment through DTH service is continuous (i.e., 24 x 7 x 365), the
subscription charge is on a monthly basis. The DTH connection is a
“ticket” to continual entertainment at any time of the day or night. This
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has been made possible because of advancement in technology. But,
conceptually, the DTH connection which enables admission to
entertainment is no different from the traditional cinema ticket which
permits entry into a cinema hall for viewing a film.
34. The petitioners have provided the infrastructure for down-
linking signals of TV channels and of up-linking them to their Ku Band
designated transponders and so on till the signals are viewable by a
subscriber on his TV set or display monitor. By allowing the flow of
content through their infrastructural setup they are providing a service.
For doing so they are subjected to service tax under the service tax
regime put in place by Parliament in exercise of its legislative power
under article 246 of the Constitution read with Entry 92C of List I of the
VIIth Schedule thereto. Under the said Act, the subject matter of the tax
is the entertainment provided by the content that flows through the
petitioners’ system. The DTH service provider, in a sense only acts as a
conduit between the content providers (i.e., TV Channels) and the
content viewers (i.e., subscribers). It is the entertainment derived from
the content that is the subject matter of the tax under the said Act and not
the service of enabling the flow of content through the DTH system.
There is no scope of confusing one for the other.
35. Even if we assume that the concepts are intertwined, the
strands can easily be separated by employing the aspect theory. The
DTH system had two aspects – (1) a service aspect; and (2) an
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entertainment aspect. The former is taxed as a service under the service
tax regime and the latter is subjected to tax as an entertainment under the
said Act read with entry 62 of List II. They are two separate and distinct
taxable events in respect of each of the two aspects. In respect of the
service aspect, the taxable event is flow of content through the DTH
system, whereas, in respect of the entertainment aspect, the taxable event
is the entertainment from the content.
Conclusion
36. Thus, in whichever way the matter at hand is looked at, the
conclusion is clear that the State Legislature had (and has) the legislative
competence to levy an entertainment tax on all payments for admission to
an entertainment through a direct-to-home (DTH) as contemplated in
Section 7 and other provisions of the said Act. Consequently, the
petitions are dismissed. The parties are left to bear their respective costs.
BADAR DURREZ AHMED, J
V.K. JAIN, J
SEPTEMBER 05, 2011
HJ
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