TMI Blog2010 (10) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... of service tax referable to Entry 92C of List I of Seventh Schedule to the Constitution and was, thus, beyond the competence of the State legislature. The same does not fall in Entry 62 of List II providing for levy of entertainment tax. Activity carried on by the petitioner is covered by taxable service under section 65(105) (zk) to the Finance Act, 1994, as amended by Finance Act, 2001 providing for levy of service tax on service by a broadcasting agency in relation to broadcasting. The expression broadcasting has been defined under section 65(15) of the said Act as having same meaning as under section 2 ( c) of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 and includes receiving of signals through space or cables, direct to home (DTH) signals or other means as specified therein. 2. The petitioner in CWP No.10992 of 2010 has its broadcasting centre which downlinks signals from broad caster s satellite and uplinks the same to its own satellite for transmission through dish antennas to the subscribers. The signals broadcasted by the petitioner are in encrypted format and are decrypted/decoded by Set Top Boxes and the viewing cards inside the Set Top Boxes for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty Act: 3.Duty on payment for admission to entertainment: (1) A person admitted to an entertainment shall be liable to pay an entertainment duty at a rate (not exceeding one hundred and twenty five per centum of the payment of admission) which the Government may specify, by a notification in this behalf and the said duty shall be collected by the proprietor and rendered to the Government in the manner prescribed. [(1-A) Not withstanding anything contained in subsection (1), the Government may, by notification, levy lump sum entertainment duty at a rate not exceeding: - (a) eight thousand rupees per annum in the local area of a City constituted as such under the Punjab Municipal Act, 1911; and (b) Six thousand rupees per annum in areas other than the local areas specified in clause (a); in respect of entertainments arranged by a proprietor by replay of video cassette player or video record player and the lumpsum duty so levied shall be recoverable from the proprietor.] (2) A draft of the proposed order specifying the rate of entertainments duty referred to in sub section (1) shall be notified for the information of all persons likely to be effected thereby an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns : - In this Act unless the context otherwise requires:- a) Admission to an entertainment includes admission to any place in which the entertainment is being held or is to be held and where television exhibition is being provided with the aid of any type of antenna with a cable networks attached to it or cable television in residential or nonresidential areas of which persons are required to make payment by way of contribution or subscription or installation and connection charges or any manner, whatsoever. (aa) 'antenna' means an apparatus which received television signals which enable views to tune into transmissions including national or international satellite transmissions and which is erected or installed for exhibition of films or moving pictures or series of pictures by means of transmission of television signal by wire where subscribers television sets at the residential or nonresidential place are linked by metallic coaxial cable or optio-fibre cable to a central system called the head-end, on payment by the connection charges or any other charges collected in any manner whatsoever. aaa) 'cable television' means a system organized on payment by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution or subscription of installation and connection charges or any other charges collected in any manner whatsoever for television exhibition with the aid of any type of antenna with a cable net work attached to it or cable television or a dish relating to DTH network. . g) 'proprietor' in relation to any entertainment includes the owner, partner or a person responsible for management thereof and any person responsible for or for the time being in charge of the management for providing cable connection from any type of antenna or cable television or for providing DTH service. Service Tax provisions: Section 65(105) (zk) taxable service means any service provided or to be provided to a client, by a broadcasting agency re-organization in relation to broadcasting, in any manner and, in the case of 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 obtainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cognate expressions shall be construed accordingly Rival contentions 7. Contention raised on behalf of the petitioner is that under Article 246(3) of the Constitution, legislative power of States is subject to legislative powers of the Centre under Article 246(1). Since the subject matter of broadcasting service is exclusively reserved for Central Legislative field, the same will stand excluded from List II on principle of federal supremacy and occupied field. In pith and substance, the levy is on broadcasting service as apart from broadcasting, no other taxing event has taken place and the event of broadcasting service itself has been covered in the definition of entertainment which is the basis of the levy for entertainment duty. When there is no separate taxing event, aspect theory cannot be invoked to justify State levy on an event which is covered by Central levy. In any case, if broadcasting service and entertainment are both covered in a composite transaction, entertainment duty could be only on part of charges recovered by the petitioner attributable to entertainment. 8. On the other hand, contention on behalf of the State is that the Central levy as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Subject of tax is distinct from incidence of taxation. Tax on property has been described as direct tax and tax on taxable event in respect of property is described as indirect tax. The distinction is based on difference in impact. While considering any particular levy, mere description of the subject matter of tax is not conclusive. 12. Subjects of tax which fall in power of a particular legislature in one aspect and purpose may fall within the legislative power of the another in other aspect and purpose. Such overlapping is not considered to be overlapping in law as the same transaction may involve two or more events in different aspects. Overlapping does not detract from distinctness of the aspects. The aspect theory, however, cannot be applied to justify encroachment in legislative fields. 13. Some of the leading judgments on the subject are M/s Hochst Pharmaceuticals Ltd. and another Vs. State of Bihar and others AIR 1983 SC 1019, Godfrey Phillips India Ltd. and another Vs. State of U.P. and others (2005) 2 SCC 515, Bharat Sanchar Nigam Ltd. and another Vs. Union of India and others (2006) 3 SCC 1 and State of W.B. v. Kesoram Industries Ltd.,(2004) 10 SCC 201 . 14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and shall have to give way to the Union law. (3) Taxation is considered to be a distinct matter for purposes of legislative competence. There is a distinction made between general subjects of legislation and taxation. The general subjects of legislation are dealt with in one group of entries and power of taxation in a separate group. The power to tax cannot be deduced from a general legislative entry as an ancillary power. (4) The entries in the lists being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The words and expressions employed in drafting the entries must be given the widest-possible interpretation. This is because, to quote V. Ramaswami, J., the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeration 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 questi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax would not be liable to be struck down. The test laid down in Sir Byramjee Jeejeebhoy case, AIR 1940 Bom 65 by the Full Bench of the Bombay High Court was approved. 44. In Asstt. Commr. of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. (1969) 2 SCC 55 for the purpose of attracting the applicability of Entry 49 in List II, so as to cover the impugned levy of tax on lands and buildings, the Constitution Bench laid down twin tests, namely: (i) that such tax is directly imposed on lands and buildings, and (ii) that it bears a definite relation to it. Once these tests were satisfied, it was open for the State Legislature, for the purpose of levying tax, to adopt the annual value or the capital value of the lands and buildings for determining the incidence of tax. Merely, on account of such methodology having been adopted, the State Legislature cannot be accused of having encroached upon Entry 86, 87 or 88 of List I. Entry 86 in List I proceeds on the principle of aggregation and tax is imposed on the totality of the value of all the assets. It is quite permissible to separate lands and buildings for the purpose of taxation under Entry 49 in List II. There is no reason for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the federalism in the Indian Constitution is not a matter of administrative convenience, but one of principle the outcome of our own historical process and a recognition of the ground realities. (SCC p. 217, para 276) Quoting from Setalvad, M.C.: Tagore Law Lectures, Union and State Relations under the Indian Constitution (Eastern Law House, Calcutta, 1974), Jeevan Reddy, J. observed: (SCC p. 217, para 276) It is enough to note that our Constitution has certainly a bias towards Centre vis- -vis the States.... It is equally necessary to emphasise that courts should be careful not to upset the delicately crafted constitutional scheme by a process of interpretation. Xx xx xx xx In a nutshell 129. The relevant principles culled out from the preceding discussion are summarised as under: (1) In the scheme of the lists in the Seventh Schedule, there exists a clear distinction between the general subjects of legislation and heads of taxation. They are separately enumerated. (2) Power of regulation and control is separate and distinct from the power of taxation and so are the two fields for purposes of legislation. Taxation may be capable of being comprised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titutional merely because it may have an effect on the price of the commodity. A State legislation, which makes provisions for levying a cess, whether by way of tax to augment the revenue resources of the State or by way of fee to render services as quid pro quo but without any intention of regulating and controlling the subject of the levy, cannot be said to have encroached upon the field of regulation and control belonging to the Central Government by reason of the incidence of levy being permissible to be passed on to the buyer or consumer, and thereby affecting the price of the commodity or goods. Entry 23 in List II speaks of regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union. Entries 52 and 54 of List I are both qualified by the expression declared by Parliament by law to be expedient in the public interest . A reading in juxtaposition shows that the declaration by Parliament must be for the control of industries in Entry 52 and for regulation of mines or for mineral development in Entry 54. Such control, regulation or development must be expedient in the publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue resources of the State or a fee for rendering services by the State and it does not impinge upon regulation of mines and mineral development or upon control of industry by the Central Government, it is not unconstitutional. The Aspect Theory 15. Aspect theory has been subject matter of several decisions. In Federation of Hotel Restaurant Assn. of India v. Union of India, (1989) 3 SCC 634, (1989) 3 SCC 634, the levy considered was expenditure tax under Central law with reference to the contention that the same was in substance tax on luxury under Entry 62 of List II. Stand of the Central Government was that expenditure aspect was different from luxury aspect and expenditure aspect could be held to be excluded from the luxury aspect. The plea was upheld. It was observed:- 26 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a tax qualifies and conditions the legislative power and, more importantly, whether expenditure laid out on what may be assumed to be luxuries or on the purchase of goods admits of being isolated and identified as a distinct aspect susceptible of recognition as a distinct field of tax legislation. 30. In Lefroy s Canada s Federal System the learned Author referring to the aspects of legislation under Sections 91 and 92 of the Canadian Constitution i.e. British North America Act, 1867 observes that one of the most interesting and important principles which have been evolved by judicial decisions in connection with the distribution of legislative power is that subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power . Learned Author says: ... that by aspect must be understood the aspect or point of view of the legislator in legislating the object, purpose, and scope of the legislation that the word is used subjectively of the legislator, rather than objectively of the matter legislated upon. In Union Colliery Co. of British Columbia v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the composite nature of a statute, one as regards the preclusory impact of federal law on provincial measures bearing on constituents of federally regulated conduct, the other to identify what parts of the whole making up a matter bring it within a class of subjects. . .'. (page 117). 16. By way of instance of different aspects of the same matter, illustration was also given of tax on property under the State law and tax on income under the Central law:- 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 for 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. 17. In All India Federation of Tax Practitioners v. Union of India [2007] 9 VST 126 (SC) ; [2007] 7 SCC 527, challenge was to the levy of service tax on service rendered by practising chartered accountants, cost accountants and architects by the Central Legislature and objection thereto was base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istinct entries vis-avis the general entries. It is for this reason that the doctrine of pith and substance has an important role to play while deciding the scope of each of the entries in the three Lists in the Seventh Schedule to the Constitution. This doctrine of pith and substance flows from the words in article 246(1), quoted above, namely, 'with respect to any of the matters enumerated in List I'. The bottom line of the said doctrine is to look at the legislation as a whole and if it has a substantial connection with the entry, the matter may be taken to be legislation on the topic. That is why due weightage should be given to the words 'with respect to' in article 246 as it brings in the doctrine of 'pith and substance' for understanding the scope of legislative powers. Xx xx xxx xxx 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of those Lists. We do not dispute the above proposition. That proposition is well-settled. This court is concerned with the application of the said principle in this case. In the present matter, as stated herein-above, the State Legislature is empowered to levy tax on professions, trades, callings, etc., as such and, therefore, the word 'services' cannot be read as synonymous to the word 'profession' in entry 60. Therefore, tax on services does not fall under entry 60, List II. That, service tax would fall under entry 92C/entry 97 of List I. Xx xx xxx xxx 48. In Tamil Nadu Kalyana Mandapam Assn. v. Union of India [2005] 1 VST 180 (SC) ; [2004] 135 STC 480 ; [2004] 5 SCC 632, the Division Bench of this court held that service tax is an indirect tax and is to be paid on all the services notified by the Government of India. It has been further held that the said tax is on 'service' and not on the service provider. In para 58 (in paragraph 56 of 135 STC) it has been observed that under article 246(1) of the Constitution, Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not presume that the constitutional amendment was loosely drawn and must proceed on the basis that the parameters of 'sale' were carefully defined. But having said that, it is sufficient for the purposes of this judgment to find, as we do, that a telephone service is nothing but a service. There is no sales element apart from the obvious one relating to the handset, if any. That and any other accessory supplied by the service provider in our opinion remain to be taxed under the State sales tax laws. We have given the reasons earlier why we have reached this conclusion. Xx xx xxx xxx 88. ...No one denies the legislative competence of 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 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(29A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sign and production; (2) the amount of Karnataka sales tax on the specified item on the first sale; and (3) when certain items are outsourced, the tax payable on resale of the said goods in terms of section 6(4) of the Kamataka Sales Tax Act. 17. The Tribunal as also the High Court opined that the contract was an indivisible one. The effect of such an indivisible contract, visa-vis works contract came up for consideration before this Court in State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. [1958] 9 STC 353 (SC) ; AIR 1958 SC 560 wherein it was clearly held (at page 387 of STC ; AIR page 578, para 48):- '48. To avoid misconception, it must be stated that the above conclusion has reference to works contracts, which are entire and indivisible, as the contracts of the respondents have been held by the learned Judges of the court below to be. The several forms which such kinds of contracts can assume are set out in Hudson on Building Contracts, at page 165. It is possible that the parties might enter into distinct and separate contracts, one for the transfer of materials for money consideration, and the other for payment of remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h can it be said that there is a sale of goods when a doctor writes out and hands over a prescription or a lawyer drafts a document and delivers it to his/her client ? strictly speaking, with the payment of fees, consideration does pass from the patient or client to the doctor or lawyer for the documents in both cases. 45. The reason why these services do not involve a sale for the purposes of entry 54 of List II is, as we see it, for reasons ultimately attributable to the principles enunciated in Gannon Dunkerley and Co. (Madras) Ltd. case [1958] 9 STC 353 (SC) ; AIR 1958 SC 560, namely, if there is an instrument of contract which may be composite in form in any case other than the exceptions in article 366(29A), unless the transaction in truth represents two distinct and separate contracts and is discernible as such, then the State would not have the power to separate the agreement to sell from the agreement to render service, and impose tax on the sale. The test therefore for composite contracts other than those mentioned in article 366(29A) continues to be : Did the parties have in mind or intend separate rights arising out of the sale of goods? If there was no such i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or amusements. The entry contemplates luxuries, entertainments, and amusements as objects on which the tax is to be imposed. If the words are to be so regarded, as we think they must, there can be no reason to differentiate between the giver and the receiver of the luxuries, entertainments, or amusements and both may, with equal propriety, be made amenable to the tax. . . The above observations have been reiterated in Express Hotels Private Ltd. v. State of Gujarat [1989] 74 STC 157 (SC) ; [1989] 3 SCC 677. 23. In State of West Bengal v. Purvi Communication P. Ltd. [2005] 140 STC : 154 ; [2005] 3 SCC 711, it was observed (at page 170 of STC):- 35. ....Under the legislative field exclusively reserved for the State Legislature, the levy of tax by more than one statute on different taxable objects and taxable persons is not prohibited by the Constitution of India. The Bengal Amusements Tax Act, 1922 and the West Bengal Entertainments and Luxuries (Hotels and Restaurants) Tax Act, 1972 are two statutes which have been enacted under the same legislative field, i.e., entry 62 of List II of the Seventh Schedule to the Constitution of India, and the two statutes apply admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce 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 Xx xx xxx xxx 41. We also see no substance in the submission that the impugned legislation impinges on the field occupied by the Central legislation. The aforesaid Central legislation has been enacted to regulate the operation of cable television network in the country and matters connected therewith or incidental thereto whereas the State legislation is for levy of entertainment tax on entertainment within the legislative field exclusively assigned to the State Legislature under entry 62 of List II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnishes it, as dancing, sports, or music.' Likewise, in Reader's Digest Family Word Finder at page 264, 'entertainment' has been denned thus:- 'Entertainment amusement, diversion, distraction, recreation, fun, play, good time, pastime, novelty, pleasure, enjoyment, satisfaction.' In Webster's Third New International Dictionary the word 'entertainment' has been defined at page 757 thus:- ' Entertainment the act of diverting, amusing or causing someone's time to pass agreeably. Something that diverts, amuses, or occupies the attention agreeably. A public performance designed to divert or amuse. Similarly in the Concise English Dictionary by Hayward and Sparkes the word 'entertainment' has been defined thus:- 'the art of entertaining, amusing or diverting, the pleasure afforded to the mind by anything interesting, amusement, other performance intended to amuse.' 7. A perusal of the various shades, aspects, forms and implications of the word 'entertainment' as defined in the aforesaid books clearly leads to ..... 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