TMI Blog2011 (9) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. - Decided against the assessee. - 1312, 2194, 2718 AND 4621 OF 2010 - - - Dated:- 5-9-2011 - BADAR DURREZ AHMED AND V.K. JAIN, JJ. JUDGMENT Badar Durrez Ahmed, J. 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 entertainm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect relevant to them without impinging on each other's domains. According to Mr. Tripathi, DTH service had two aspects (1) a 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 are 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 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form they are decrypted by the Set-Top Boxes and the viewing cards inside these boxes to enable subscribers to view the 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 such 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. ** ** ** 8. Information before holding entertainment (1)** ** ** (2) No proprietor of a cable television network or video cinema or direct-to-home (DTH) shall provide ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 into 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idering 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 generally 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a cable television network. The person who 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irly 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived 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 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 prov ..... X X X X Extracts X X X X X X X X Extracts X X X X
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