TMI Blog2010 (7) TMI 946X X X X Extracts X X X X X X X X Extracts X X X X ..... vered by J.S. KHEHAR C.J.- After the decision of the Union Cabinet dated November 2, 2000, whereby direct-to-home (DTH) broadcasting was permitted in India, prohibition on the reception and distribution of television signals in Ku Band was withdrawn by the Department of Telecommunications, through a notification dated January 9, 2001. In order to give effect to the decision of the Cabinet, as also, the notification issued by the Department of Telecommunications, referred to above, guidelines dated March 15, 2001 were issued laying down the procedure for obtaining licences for providing direct-to-home (DTH) broadcasting service in India on March 15, 2001. In the aforesaid guidelines, the conditions of eligibility were also prescribed. 2. In so far as the procedural aspect of the matter is concerned, interested parties were to be required to submit an application to the Secretary, Ministry of Information and Broadcasting. If the applicant was found eligible (for setting up a direct-to-home (DTH) platform in India) on the basis of the information furnished, the applicant was to be subjected to security clearance (in consultation with the Ministry of Health Affairs), and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1885 and Indian Wireless Telegraphy Act, 1933 after it successfully followed the rigours of procedure noticed in the foregoing paragraph. The aforesaid licence was valid for a period of 10 years. While obtaining the aforesaid licence, the petitioner-company paid a sum of ₹ 10 crores to the Ministry of Information and Broadcasting as an initial non-refundable entry fee. The petitioner-company also furnished a bank guarantee for an amount of ₹ 40 crores valid for a period of 10 years (commensurate with the duration of the licence agreement). In terms of the licence granted to the petitioner-company, it has been paying an annual fee equivalent to 10 per cent of its gross revenue (reflected in the audited accounts of the company for that particular financial year) within one month of the end of the year. The petitioner-company has also been paying additional licence fee and royalty for spectrum used as prescribed by the wireless planning and coordination authority under the Department of Telecommunications. 4. The direct-to-home (DTH) broadcasting licence granted to the petitioner, operationally extends to the entire country. It is the case of the petitioner, tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T.V. India Limited v. State of Uttarakhand [2009] 26 VST 649 (Uttarakhand)) and thereafter, Writ Petition (M/S) No. 353 of 2008 (Tata Sky Limited v. State of Uttarakhand [2009] 26 VST 649 (Uttarakhand)). 7. The principal contention on behalf the petitioner, while assailing the action of the District Magistrates, in demanding entertainment tax for providing direct-to-home (DTH) service to its customers was, that the direct-to-home (DTH) service had not been included in the definition of the term entertainment under the Entertainments Act, 1979. As such, levy of entertainment tax on direct-to-home (DTH) service under the Entertainments Act, 1979 was, not leviable. On the issue, it was sought to be pointed out, that the States of Karnataka and Maharashtra had carried out amendments in their respective enactments, so as to include the direct-to-home (DTH) service, within the meaning of the term entertainment , and only thereafter, had commenced to charge entertainment tax on direct-to-home (DTH) service. It was pointed out, that the Uttarakhand Legislature had not carried out any such amendments in the Entertainments Act, 1979, so as to include direct-to-home (DTH) se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1979 to enable it to levy entertainment tax on exhibition of video in public service vehicles and hotels, and likewise, section 4C which was added by way of an amendment to the Entertainments Act, 1979 to levy entertainment tax on proprietors of cable television network providing cable services. It was however held, that there was no provision in the Entertainments Act, 1979, under which the State Government could recover entertainment tax from direct-to-home (DTH) broadcasting operators, and as such, it was concluded, that the levy of entertainment tax on the petitioner-company under the Entertainments Act, 1979, was impermissible in law. 10. This court, while disposing of Writ Petition (M/S) No. 353 of 2008 (Tata Sky Limited v. State of Uttarakhand [2009] 26 VST 649 (Uttarakhand)), distinguished cable services from direct-to-home services by holding, that the technology used in the latter envisaged transmission of electromagnetic waves through beams, whereas the technology used in the former involved transmission of electromagnetic waves through cables. On the basis of the aforesaid conclusion, this court held, that the action of the State of Uttarakhand in treating dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8A, as also, entries 92C of the Union List and 62 of the State List, contained in the Seventh Schedule to the Constitution of India, concluded by observing that entertainment tax was leviable on the petitioner-company at the hands of the State of Uttarakhand, even though service tax was payable by the petitioner-company to the Central Government on the same activity by the petitioner-company. In this behalf, learned single judge, while disposing of Writ Petition (M/S) No. 353 of 2008 (Tata Sky Limited v. State of Uttarakhand [2009] 26 VST 649 (Uttarakhand)), observed as under (pages 659-660 in 26 VST): . . . However, this court is of the opinion that a harmonious construction needs to be adopted in interpreting the field of legislation mentioned in entry 62 of State List and entry 92C of the Union List. Merely for the reason that a service tax is payable by certain broadcasting service operators, it cannot be said that no entertainment tax can be levied by the State. . . In its ultimate conclusion, while disposing of Writ Petition (M/S) No. 353 of 2008, on November 26, 2008 (Tata Sky Limited v. State of Uttarakhand [2009] 26 VST 649 (Uttarakhand)), this court recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned, the Division Bench, while disposing of Special Appeal No. 21 of 2009 dated March 23, 2009 (State of Uttarakhand v. Tata Sky Limited), upheld the decision rendered by the learned single judge by observing: By going through all the relevant provisions of the 1979 Act, learned single judge found himself of the view that no provision of the 1979 Act provided for imposition or levy of entertainment tax qua DTH service providers. We intend to fully agree with this view of the learned single judge because we ourselves are of the view, after going through all the provisions of the 1979 Act as it stood at the time the impugned judgment was delivered, that this Act did not contain any provision which authorized or permitted the imposition or levy of entertainment tax qua DTH service providers. . . While dealing with the second issue adjudicated upon by the learned single judge, the Division Bench observed as under: In so far as the second issue is concerned, we are firmly of the opinion that even though the Constitutional Scheme is clear that the levy and imposition of the entertainment tax as covered by entry 62 of the State List is clearly distinct than the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eature film or separately. In connection with the aforesaid amendment, the Division Bench, while disposing of Special Appeal No. 21 of 2009 (State of Uttarakhand v. Tata Sky Limited-decided on March 23, 2009), observed as under: We do wish to observe that it shall be open to the writ petitioners to challenge the aforesaid Amendment Act, if so advised and the judgment of the learned single judge impugned in these appeals as well as the judgment passed by us today shall not come in their way in doing so. However, we also do wish to observe that any challenge to the aforesaid Amendment Act shall be dealt with and decided on its own merits and in accordance with law. 15. Dissatisfied with the order dated March 23, 2009 passed by the Division Bench dismissing Special Appeal No. 21 of 2009 (State of Uttarakhand v. Tata Sky Limited-decided on March 23, 2009), the State of Uttarakhand preferred Petition for Special Leave to Appeal (Civil) No. 14605 of 2009 (State of Uttarakhand v. Tata Sky Limited) before the Supreme Court. The aforesaid petition for special leave to appeal was summarily dismissed by the apex court on July 16, 2009. 16. The first contention advanced by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph, it is contended, that the guidelines issued by the Government of India on March 15, 2001, prescribed not only the conditions of eligibility but also the procedure and the manner in which licences for operating direct-to-home (DTH) broadcasting services in India could be issued. It is pointed out, that having followed the prescribed procedure, the petitioner-company was granted a statutory licence on March 24, 2006 under section 4 of the Indian Telegraph Act, 1885 and the Indian Wireless Telegraphy Act, 1933 for operating direct-to-home (DTH) broadcasting services in India. During the process of being granted the aforesaid licence, the petitioner-company was required to deposit a sum of ₹ 10 crores to the Ministry of Information and Broadcasting as an initial non-refundable entry fee and to furnish a bank guarantee for an amount of ₹ 40 crores for the duration of the licence. Additionally, in terms of the licence the petitioner-company was required to pay an annual fee equivalent to 10 per cent of its gross revenue (reflected in the audited accounts of the company for the financial year) within one month of the end of the year. It is also submitted, that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovider . Section 65(72)(zk) is being extracted hereunder: 65. Definitions.-In this Chapter, unless the context otherwise requires,- (72) 'taxable service' means any service provided,- (zk) to a client, by a broadcasting agency or organization in relation to broadcasting, in any manner; ... And the term 'service provider' shall be construed accordingly; Section 66(5) specifies the quantum of tax liability on a service provider providing broadcasting services. Section 66(5) is being reproduced hereunder: 66. Charge of service tax.-(5) With effect from the date notified under section 137 of the Finance Act, 2001, there shall be levied a service tax at the rate of five per cent of the value of the taxable services referred to in sub-clauses (za), (zb), (zc), (zd), (ze), (zf), (zg), (zh), (zi), (zj), (zk), (zl), (zm), (zn) and (zo) of clause (72) of section 65 and collected in such manner as may be prescribed. A perusal of the aforesaid provisions reveals, that for the first time under the Finance Act, 2001, tax at the rate of five per cent of the value of taxable services was levied on a broadcasting agency, (i.e., five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Finance Act, 2002 is reproduced hereunder: 65. Definitions.-In this Chapter, unless the context otherwise requires,- (90) 'taxable service' means any service provided,- (zk) to a client, by a broadcasting agency or organization in relation to broadcasting in any manner and, in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes service provided by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting broadcasting charges on behalf of the said agency or organization. Explanation.-For the removal of doubts, it is hereby declared that so long as the radio or television programme broadcast is received in India and intended for listening or viewing, as the case may be, by the public, such service shall be a taxable service in relation to broadcasting, even if the encryption of the signals or beaming thereof through the satellite might have taken place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt otherwise requires,- (16) 'broadcasting agency or organization' means any agency or organization engaged in providing service in relation to broadcasting in any manner and, in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes its branch office or subsidiary or representative in India or any agent appointed in India or any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges on behalf of the said agency or organization; Section 65(95) of the Finance Act, 2003, defines the term service tax . Section 65(95) aforesaid is being reproduced hereunder: 65. Definitions.-In this Chapter, unless the context otherwise requires,- (95) 'service tax' means tax leviable under the provisions of this Chapter; Section 65(105)(zk) of the Finance Act, 2003 again while defining the term taxable service , it included therein a broadcasting agency as a service provider . Section 65(105)(zk) aforesaid is being extracted hereunder: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troversy in hand were identical to the ones incorporated under the Finance Act, 2002, and as such, the relevant provisions of the Finance Act, 2004 are not being reproduced here. 19(v). In so far as the Finance Act, 2005 is concerned, it re-defined the term broadcasting under section 65(16). Section 65(16) of the Finance Act, 2005 is being reproduced hereunder: 65. Definitions.-In this Chapter, unless the context otherwise requires,- (15) 'broadcasting' has the meaning assigned to it in clause (c) of section 2 of the Prasar Bharti (Broadcasting Corporation of India) Act, 1990 (25 of 1990) and also includes programme selection, scheduling or presentation of sound or visual matter on a radio or a television channel that is intended for public listening or viewing, as the case may be; and in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and soun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive in India or any agent appointed in India or by any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means to cable operator, including multisystem operator or any other person on behalf of the said agency or organization. Explanation.-For the removal of doubts, it is hereby declared that so long as the radio or television programme broadcast is received in India and intended for listening or viewing, as the case may be, by the public, such service shall be a taxable service in relation to broadcasting, even if the encryption of signals or beaming thereof through the satellite might have taken place outside India; ... and the term 'service provider' shall be construed accordingly; The quantum of service tax under the Financial Act, 2005, on service providers, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hedule (in this Constitution referred to as 'the Concurrent List'). (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as 'the State List'). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List. Having relied on article 246 of the Constitution of India, learned counsel for the petitioners placed vehement emphasis on clause (1) thereof, which vested in the Parliament overriding effect notwithstanding anything in the provisions, contained in clauses (2) and (3) of article 246 of the Constitution of India. The submissions noticed hereinabove constitute the foundation of the first contention advanced by the learned counsel for the petitioner. 21. In order to substantiate his first contention, learned counsel for the petitioner placed emphatic reliance on the judgment rendered by the Supreme Court in Hoechst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enumerated in Lists II and III, and in case of overlapping between Lists II and III, the former shall prevail. But the principle of federal supremacy laid down in article 246 of the Constitution cannot be resorted to unless there is an 'irreconcilable' conflict between the entries in the Union and State Lists. In the case of a seeming conflict between the entries in the two Lists, the entries should be read together without giving a narrow and restricted sense to either of them. Secondly, an attempt should be made to see whether the two entries cannot be reconciled so as to avoid a conflict of jurisdiction. It should be considered whether a fair reconciliation can be achieved by giving to the language of the Union Legislative List a meaning which, if less wide than it might in another context bear, is yet one that can properly be given to it and equally giving to the language of the State Legislative List a meaning which it can properly bear. The non obstante clause in article 246(1) must operate only if such reconciliation should prove impossible. Thirdly, no question of conflict between the two Lists will arise if the impugned legislation, by the application of the doctri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers have arisen under the Government of India Act, 1935. This scheme of the legislative Lists as regards taxation has been taken over by the Constitution of India with like beneficial results. Accordingly, it is the vehement contention of the learned counsel for the petitioners, that the field levying tax in respect of direct-to-home (DTH) broadcasting services, must be deemed to vest exclusively in the Parliament. In view of the enactments, referred to by the learned counsel for the petitioner-company, it is submitted that regulation of the service of directto-home (DTH) broadcasting, as also, levy of service tax thereon, it stands established that the field of regulations, as also, taxability on direct-to-home (DTH) broadcasting services must be deemed to be occupied and vested in the Parliament, and therefore, cannot be encroached upon by State Legislatures. 22. As against the contention advanced by the learned counsel for the petitioners, it is the submission of Shri S.N. Babulkar, learned AdvocateGeneral of the State of Uttarakhand, that the contentions advanced by the learned counsel for the petitioners are not justified specially in the background of the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the field reserved for Parliament, though as pointed out by T.L. Venkatarama Iyer, J. in A.S. Krishna v. State of Madras [1957] SCR 399; AIR 1957 SC 297, the extent of trenching beyond the competence of the legislating body may be an element in determining whether the legislation is colourable. No such question arises here. In addition to the aforesaid, reference has also been made to the decision rendered by the Supreme Court in State of West Bengal v. Purvi Communication P. Ltd. [2005] 140 STC 154 (SC); [2005] 4 RC 543; [2005] 3 SCC 711, wherefrom reference has been made to the following conclusion (pages 169-176 in 140 STC): 34. In the instant case, respondent No. 1 engaged in receiving and providing TV signals to individual cable operators is liable to pay tax under sub-section (4a) of section 4A of the Act. The expression 'cable operator' has been defined by the Explanation to sub-section (4a) of section 4A as aforesaid for the purpose of the sub-section only. Similarly, the meaning of sub-cable operator is given in the said Explanation. There is no dispute that respondent No. 1 being a cable operator within the meaning assigned by the Explanation to sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax from the holders of television set or sets under section 4 of that Act. Thereafter, under section 4A of that Act, inserted by the West Bengal Taxation Laws (Second Amendment) Act, 1983, the area of its application was extended to levy and collection of tax from the holders of video cassette recorder. The purpose of sub-section (4a) of section 4A of the Act is to levy and collection of tax from any person who provides cable service directly to consumers or transmits to a sub-cable operator through a cable television network and otherwise controls or is responsible for the management and operation of a cable television network and such person has been defined as 'cable operator' being a 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions and by mutual understanding between the parties of the area. TERMS AND CONDITIONS (a) The NETWORK shall not provide any connections direct-tohome in the territory where the FRANCHISEE is operating. (b) The FRANCHISEE would provide a list of subscribers within seven days of signing this agreement with full name, address and other information of relevance as required by the NETWORK. Subsequently any change in the subscriber list would be communicated to the network within seven days. The FRANCHISEE would submit complete information and not withhold the name of subscribers or declare less number of subscribers to the NETWORK. ... (d) The FRANCHISEE is authorised to receive and immediately retransmit and/or communicate the signals of the NETWORK. Recording and then retransmission of the signals by the FRANCHISEE is not allowed. However for any such intentions the FRANCHISEE will have to take written permission from the network. ... (j) The franchisee shall not transmit or restraint any signals to his subscribers which are not transmitted by the NETWORK without the prior written consent of the NETWORK. ... (m) The FRANCHISEE shall be liable to pay a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxed are the entertainments, which is very much within the ambit of entry 62 of List II of the Seventh Schedule. It is the respondents who as cable operator for the purpose of the said 1982 Act are engaged in the business of providing or offering entertainments which include showing of films, various serials, cricket matches and dramatic performances to the subscribers, and the tax is imposed on the act of offering such entertainments in this way to such subscribers and/or viewers. The entire communication network service is built up and controlled by the respondents. Whatever amount is received or receivable by the respondent in respect of providing such entertainments is taxable under sub-section (4a) of section 4A of the said 1982 Act which has a direct and sufficient nexus with the entertainments. ... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of clause 2 of the said agreement. The franchisee has access to the signals provided by respondent 1. Therefore, it cannot be disputed that the price or prices received or receivable by respondent 1 is the amount received or receivable by him for transmitting the signal for exhibition of any performance, film or any other programme telecast and the aggregate of such prices or amounts is the gross receipt of respondent 1 in relation to any month or part thereof. 23. We have given our thoughtful consideration to the first contention advanced by the learned counsel for the petitioner-company. In fact, the first contention advanced at the hands of the learned counsel for the petitioner-company, in the strict sense, does not even lie in the mouth of the petitioner-company. When the petitioner-company had earlier approached this court by filing Writ Petition (M/S) No. 353 of 2008 (Tata Sky Limited v. State of Uttarakhand [2009] 26 VST 649 (Uttarakhand)) the principal contention advanced at the hands of the petitioner-company was, that directto-home (DTH) broadcasting service having not been included in the term entertainment under section 2(g) of the Entertainment Act, 1979, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been done by the States of Karnataka and Maharashtra by carrying out amendments in their respective enactments, it was, therefore, not open to the petitioner to re-agitate the matter, specially when, the petitioner's only objection stood dealt with and remedied by the amendment notified on March 16, 2009. But then, the primary consideration seems to be monetary. Even though the petitionercompany started to transmit TV programmes to its customers in the State of Uttarakhand soon after it obtained its statutory licence on March 24, 2006, it successfully avoided paying any entertainment tax thereon through the legal process which had culminated in favour of the petitionercompany on November 16, 2008 when Writ Petition (M/S) No. 353 of 2008 (Tata Sky Limited v. State of Uttarakhand [2009] 26 VST 649 (Uttarakhand)) filed by the petitioner was allowed in its favour. Although the issue of legislative competence was raised by the petitioner-company during the first round of litigation, the same had been decided against the petitioner by the learned single judge (in his judgment dated November 16, 2008, rendered in Writ Petition (M/S) No. 353 of 2008 (Tata Sky Limited v. State of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect-to-home (DTH) broadcasting service, in the definition through the term entertainment under section 2(g) of the Entertainments Act, 1979 by an amendment carried out by the Uttarakhand Legislature and duly notified on March 16, 2009. In response, learned counsel acknowledged, that the definition of the term entertainment under section 2(g), which had been incorporated directto-home (DTH) broadcasting service as one of the modes of entertainment, was not a subject-matter of challenge at the hands of the petitionercompany. It is however sought to be clarified, that the legislative competence of the Uttarakhand Legislature, to levy tax on direct-to-home (DTH) broadcasting service, is the basis of assailing the action of levying tax on the petitioner-company, and if the said challenge is accepted by this court, the inclusion of the term direct-to-home (DTH) broadcasting service, in section 2(g) of the Entertainments Act, 1979 will also have to be declared unconstitutional. This response, to our mind, blows the wind out of the submission of the learned counsel for the petitioner. Having not assailed the definition of the term entertainment wherein direct-tohome (DTH) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inasmuch as in terms of the respondent's agreement vide clause 4(d) 'Recording and then retransmission of the signals by the franchisee is not allowed'. That apart, the name of every subscriber having connection with the respondent's network must be on their records and the franchisee must furnish information of business honestly and completely to the respondents pursuant to clause 4(c) of the said agreement. In the event, any charge received from a subscriber is not paid to the respondent, the franchisee shall pay a sum equivalent to three times of the amount that the franchisee has saved by not paying the requisite amount to the respondents in respect of such subscriber. 37. In our view, the respondents as a cable operator, for the purpose of levy and collection of tax under sub-section (4a) of section 4A 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mcdowell Co. [1996] 3 SCC 709, it was held, that the sole exercise that needed to be carried out was to determine, whether the legislation under reference was within the scope of legislative competence of a State Legislature? According to the conclusions recorded in the aforesaid case, it was held, that for finding the correct answer, it is necessary to determine, whether the subject of the legislation in question, falls under one of the entries of the State List, contained in the Seventh Schedule to the Constitution of India. If, while carrying out the aforesaid exercise, it can be concluded that the subject of the legislation under reference, falls within one of the entries of the State List, contained in the Seventh Schedule to the Constitution of India; it would be correct to conclude, that the State Legislature had the jurisdiction and authority to enact the legislation in question. In so far as the present controversy is concerned, the subject of entertainment is in the area of legislative competence of State Legislatures, not only on the aspect of regulation (entry 33 of the State List), but also on the aspect of levy of tax (entry 62 of the State List). The petitionerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciples laid down in State of West Bengal's case [2005] 140 STC 154 (SC); [2005] 4 RC 543; [2005] 3 SCC 711. The petitioner-company having not contested the inclusion of direct-to-home (DTH) broadcasting service within the definition of the term entertainment ; and the subject of entertainment being within the area of legislation ear-marked for State Legislatures, both for purposes of regulation, as also, for levy of tax, there can be no doubt that the action of making a provision for levy of entertainment tax on direct-to-home (DTH) broadcasting service under the Entertainments Act, 1979 was fully justified and in consonance with law. 28. The proposition sought to be projected by the learned counsel for the petitioner-company, in advancing his first contention, can be examined from another perspective. The instant consideration involves the examination of a number of entries, contained in the Seventh Schedule of the Constitution of India. While dealing with the relevant entries, they have been divided into three sets. Each set of relevant entries, has been examined separately to draw inferences, eventually leading to a definite conclusion. In the first set, refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s; ropeways; inland waterways and traffic thereon subject to the provisions of Lists I and III with regard to such waterways; vehicles other than mechanically propelled vehicles. 17. Water, that is to say, water supplies, irrigation and canals, drainage and embankments, water storage and water subject to the provisions of entry 56 of List I. 22. Courts of wards subject to the provisions of entry 34 of List I; encumbered and attached estates. 23. Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union. 24. Industries subject to the provisions of entries 7 and 52 of List I. 32. Incorporation, regulation and winding up of corporation, other than those specified in List I, and universities, unincorporated trading, literacy, scientific, religious and other societies and associations; cooperative societies. 33. Theaters and dramatic performances; cinemas subject to the provisions of entry 60 of List I; sports, entertainments and amusements. 37. Elections to the Legislature of the State subject to the provisions of any law made by Parliament ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preparations containing alcohol or any substance included in sub-paragraph (b) of this entry. On comparison between entry 84 of the Union List and entry 51 of the State List, a clear and definite conclusion can be drawn, i.e., which part of the same subject-matter falls in the Union List, as also, which part of the same subject-matter falls in the State List. The distinction has been clear, so as to leave no room for any ambiguity. The inference that deserves to be drawn from the third set is, that there are even entries on the same subjectmatter in the two different Lists, but each entry is so defined to leave no room for any doubt. It is in the background of the aforesaid three inferences, that entry 92C of the Union List deserves to be compared with entry 62 of the State List. An examination of the aforesaid two entries reveals nothing common or overlapping therein. The aforesaid two entries are on distinct subjects, in respect whereof there can be no confusion or overlapping. Herein there is no room for the applicability of the rule of pith and substance, applied in case of overlapping entries or in grey areas. Entry 62 of the State List has not been made subservient to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the taxing event is direct-to-home (DTH) broadcasting service. The aforesaid taxing event can be subjected to tax, either under entry 92C of the Union List, or under entry 62 of the State List, but never under both. In so far as the present controversy is concerned, it is the case of the learned counsel for the petitioner-company, that the taxable event ( direct-to-home (DTH) broadcasting service), must be deemed to be covered under entry 92C of the Union List, contained in the Seventh Schedule to the Constitution of India. It is therefore asserted, that entry 62 of the State List, contained in the Seventh Schedule to the Constitution of India, cannot be relied upon to levy tax on the same taxable event. It is accordingly sought to be explained that, direct-to-home (DTH) broadcasting service having been subjected to tax under the different Finance Acts, enacted by the Parliament, cannot be subjected to tax yet again by a State Legislature. By the act of levying tax on direct-to-home (DTH) broadcasting service, it is contended, the Uttarakhand Legislature has entrenched upon the legislative field occupied by the Union. As such, it is submitted, that the Entertainments Act 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The legislative field between Parliament and the Legislature of any State is divided by article 246 of the Constitution. Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule, called the 'Union List'. Subject to the said power of Parliament, the Legislature of any State has power to make laws with respect to any of the matters enumerated in List III, called the 'Concurrent List'. Subject to the abovesaid two, the Legislature of any State has exclusive power to make laws with respect to any of the matters enumerated in List II, called the 'State List'. Under article 248 the exclusive power of Parliament to make laws extends to any matter not enumerated in the Concurrent List or the State List. The power of making any law imposing a tax not mentioned in the Concurrent List or the State List vests in Parliament. This is what is called the residuary power vesting in Parliament. The principles have been succinctly summarized and restated by a Bench of three learned judges of this court on a review of the available decision in Hoechst Pharmaceuticals Ltd. v. State of Bihar [1984] 55 STC 1 (SC); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arliament's legislative competence must be upheld. Where there are three Lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other Legislature is of no consequence. The court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of ascertaining the true character of legislation. The name given by the Legislature to the legislation is immaterial. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. Incidental and superficial encroachments are to be disregarded. (6) The doctrine of occupied field applies only when there is a clash between the Union and the State Lists within an area common to both. There the doctrine of pith and substance is to be applied and if the impugned legislation substantially falls within the power expressly conferred upon the Legislature which enacted it, an incident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y levy of service tax with the incidence of levy of entertainment tax, to make out that the same are not two separate incidents but a common incident. Service tax can be imposed only by Parliament by enacting a law under entry 92C of the Union List, contained in the Seventh Schedule to the Constitution of India. The incidence of the aforesaid tax liability, in our considered view, is the licence agreement, which the petitioner-company obtained from the Ministry of Information and Broadcasting, Government of India, on March 24, 2006. It is this incidence of operating direct-to-home (DTH) broadcasting, as a service that required the petitioner to pay charges and deposits including guarantees as well as fee under the regulatory provisions contained in the Indian Telegraph Act, 1885 and the Indian Wireless Telegraphy Act, 1933, and under the orders passed by the Central Government. All the aforesaid regulatory measures were permissible under entry 31 of the Union List, contained in the Seventh Schedule to the Constitution of India. In addition thereto, tax on the direct-to-home (DTH) broadcasting, as a service rendered by the petitioner-company was imposed at different ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the common terminology used in the provisions for levying both the said taxes. Thus viewed there is hardly any merit even in the second contention advanced by the learned counsel for the petitioner-company. 33. The third contention advanced by the learned counsel for the petitioners was, that the substance of the contract in the present case, as is evident from the licence agreement dated March 24, 2006 entered into between the Government of India and the petitioner-company, is for service and not for entertainment . It is submitted, that the Government of India had granted the aforesaid licence under Central legislations (which fall under entry 31 of the Union List, contained in the Seventh Schedule to the Constitution of India) to provide direct-to-home (DTH) broadcasting services in the whole of the country. It is submitted, that individual State(s) cannot, direct-to-home (DTH) broadcasting service, as is the contention of the learned counsel for the petitioner. In contradistinction to the aforesaid incidence on levy of service tax, in our considered view, the incidence for the levy of entertainment tax is to be deciphered from the basis on which entertainmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Seventh Schedule to the Constitution of India) to provide direct-to-home (DTH) broadcasting services in the whole of the country. It is submitted, that individual State(s) cannot, by defining the same service differently through a State legislation, impose tax thereon. It is submitted that tax is being levied on the same aspect/sphere of activity by the Parliament, as also, by the State Legislature. It is pointed out that this is clearly impermissible in law in view of the separation of the subjects of legislation expressed in article 246 of the Constitution of India. It is accordingly asserted, that such a regulation and imposition of tax through the hands of the State legislation would amount to an encroachment on the powers of the Parliament, and would have to be declared as unconstitutional. In this behalf, it is submitted, that the predominant element in the licence given to the petitioner under section 4 of the Indian Telegraph Act, 1885 is one of service and not entertainment . It is also submitted, that taxing direct-to-home (DTH) broadcasting services as entertainment through a State legislation purportedly enacted under entry 62 of the State List, contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This does not however allow State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods . . . The apex court, in the aforesaid judgment, further held as under (page 137 in 3 VST): The licence clearly manifest that it is one for providing telecommunication service and not for supply of any goods or transfer of right to use any goods. It expressly prohibits transfer or assignment. The integrity of the licence cannot be broken into pieces nor can the telecommunication service rendered by them be so mutilated. . . Based on the aforesaid it is emphasised that action of the Uttarakhand Legislature is totally unacceptable. 35. The third contention raised by the petitioner can easily be resolved through existing judicial precedent. In this behalf, reference may first of all be made to Federation of Hotel Restaurant Association of India v. Union of India [1989] 74 STC 102 (SC); [1989] 178 ITR 97 (SC); [1989] 3 SCC 634. In the aforesaid case the appellants were engaged in the hotel/ industry. The appellants were subjected to tax at the rate of 10 per cent ad valorem on chargeable expenditure under the Expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the present case assumes a slightly different complexion. It is not any part of the petitioners' case that 'expenditure tax' is one of the taxes within the States' power or that it is a forbidden field for the Union Parliament. On the contrary, it is not disputed that a law imposing 'expenditure tax' is well within the legislative competence of Union Parliament under article 248 read with entry 97 of List I. But the specific contention is that the particular impost under the impugned law, having regard to its nature and incidents, is really not an 'expenditure tax' at all as it does not accord with the economists' notion of such a tax. That is one limb of the argument. The other is that the law is, in pith and substance, really one imposing a tax on luxuries or on the price paid for the sale of goods. The crucial questions, therefore, are whether the economists' concept of such 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 susceptibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se establishments or the like, there would have been no overlapping at all and the pith and substance of the Central tax could well be described as 'expenditure' and not 'luxuries'. This distinction is not obliterated merely because of the circumstance that both Legislatures have chosen to attack the same area of vulnerability, one with a view to keep a check on 'luxuries' and the other with a view to curb undesirable 'expenditure'. It is therefore apparent, that the apex court clearly opined that the issue arising for consideration has to be examined by keeping in mind the aspect which was the basis of the legislation. In the matter, which was subjectmatter of consideration, the question to be determined was, whether the object of the legislation was expenditure or luxuries . As in the present case, wherein the question to be determined is, whether the levy of tax by the Uttarakhand Legislature was on the service aspect, or the entertainment aspect. The apex court arrived at the conclusion that the object, while enacting the Expenditure-tax Act, 1987, was expenditure and accordingly arrived at the conclusion that the legislation in ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Kerala High Court held, that the transaction between the mobile cellular telephone company and its customers was a sale as well as a service . The judgment rendered by the Kerala High Court was taken in appeal to the Supreme Court which disposed of the same in Bharat Sanchar Nigam Ltd.'s case [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 6 RC 276; [2006] 3 SCC 1. The apex court concluded in paragraph 84, that a telephone service is nothing but a service . It also concluded, that no sales element is involved in the transaction providing telephone services. Yet in (paragraph 87 in SCC; paragraph 86 in VST) the court opined as under (page 131 in 3 VST): 87. It is not possible for this court to opine finally on the issue. What a SIM card represents is ultimately a question of fact as has been correctly submitted by the States. In determining the issue, however the assessing authorities will have to keep in mind the following principles: If the SIM card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t therefore goes without saying, that on separate and distinct taxable events, it is open to the Parliament to levy tax based on a subject contained in one of the entries of the Union List, and simultaneously, it is also open to the State Legislatures to levy tax thereon on a subject which falls within one of the entries of the State List. On the aforesaid issue, the judgment rendered in Bharat Sanchar Nigam Ltd.'s case [2006] 3 VST 95 (SC); [2006] 145 STC 91 (SC); [2006] 282 ITR 273 (SC); [2006] 6 RC 276; [2006] 3 SCC 1, affirmed the earlier decision rendered by the Supreme Court in State of Uttar Pradesh v. Union of India [2003] 130 STC 1 (SC); [2003] 3 SCC 239 (even though on another aspect, not relevant to the present controversy, the judgment rendered in State of Uttar Pradesh's case [2003] 130 STC 1 (SC) was overruled). It is therefore also necessary to refer to the judgment rendered in State of Uttar Pradesh v. Union of India [2003] 130 STC 1 (SC); [2003] 3 SCC 239. In this behalf the following observations recorded in different parts of the said judgment, which are relevant to the present controversy, are being extracted hereunder (pages 17, 18 and 20-24 in 130 STC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would undoubtedly be exigible to sales tax. . .' ... 27. It may be mentioned that during the relevant period (1988) no service tax was enforced. It was in 1994 that service tax was levied for the first time as per Chapter V of the Finance Act, 1994. Section 66 thereof created charge of service tax in regard to taxable services. 'Service tax' is defined in clause (34) of section 65 to mean tax chargeable under the provisions of that Chapter. 'Taxable service' is defined (under sub-clause (b) of clause (41) of section 65) to mean any service provided to, inter alia, a subscriber by the telegraph authority in relation to a telephone connection. No provision of the U.P. Act or the said Finance Act, 1994 or the Constitution of India is brought to our notice to hold that rentals collected by DoT from the subscriber cannot be subjected to tax as is done under the U.P. Act. Merely because service tax is imposed by the Parliament under the said Finance Act in respect of telephone connection to a subscriber, is no ground to hold that the State cannot levy tax under the U.P. Act. ... 31. Whether a given contract falls under one or the other category ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome (DTH) broadcastting service, it is open to the Parliament, as also, the State Legislature to levy tax simultaneously. Our aforesaid conclusion is based on the fact, that the taxable sphere for levy of taxes at the hands of the two legislatures was based on two separate and distinct aspects, wherein one of the events falls within the legislative competence of the Parliament, and the other falls in the legislative competence of the State Legislature. 37. Lastly reference may be made to the decision In All-India Federation of Tax Practitioners versus Union of India. Herein the legislative competence of the Parliament in levying tax on services rendered by practicing chartered accountants, cost accountants and architects was questioned by the appellants. The aforesaid tax was levied through the Finance Act, 1998, whereby Sections 65, 66 and 68 of the Finance Act, 1994 were sought to be substituted, and Section 67 of the Finance Act, 1994 was sought to be amended. By the aforesaid substitution/amendment, service tax was levied on services rendered by a practising chartered accountant, cost accountant and architect, in his professional capacity, at the rate of 5% of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State List, contained in the Seventh Schedule of the Constitution of India would include tax on service . While adjudicating upon the controversy, the Supreme Court in AllIndia Federation of Tax Practitioners and others versus Union of India and others, (2007) 7 Supreme Court Cases 527 categorized entries in the Union List of the Seventh Schedule of the Constitution of India in two groups i.e., general entries and taxing entries. So as to distinguish general entries from taxing entries, it observed as under:- 30. . . . there are two groups of entries in each of the three Lists in the Seventh Schedule. In List I, entries 1 to 81 refer to several matters over which Parliament has authority to legislate. But entries 82 to 92 enumerates the taxes which could be imposed by a law of Parliament. An examination of these two groups of entries shows that while the main subject of legislation finds place in the first group, a tax in relation thereto is separately mentioned in the second group. For example, entry 22 in List I refers to 'railways' whereas entry 89 refers to 'terminal taxes on goods or passengers, carried by railway'. If entry 22 is construed as inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. But entries 82 to 92 enumerates the taxes which could be imposed by a law of Parliament. An examination of these two groups of entries shows that while the main subject of legislation finds place in the first group, a tax in relation thereto is separately mentioned in the second group. For example, entry 22 in List I refers to 'railways' whereas entry 89 refers to 'terminal taxes on goods or passengers, carried by railway'. If entry 22 is construed as involving taxes to be imposed, then entry 89 would be superfluous. Similarly, entry 41 of List I refers to 'Trade and commerce with foreign countries; import and export across customs frontiers', however, entry 83 refers to 'Duties of customs including export duties'. If entry 41 of List I, which refers to trade and commerce with foreign countries and which refers to import and export, is to be interpreted as including duties of customs under that entry, then entry 83 would be rendered superfluous. Similarly, entries 43 and 44 of List I relate to incorporation, regulation and winding up of corporations whereas entry 85 provides for 'corporation tax'. If entries 43 and 44 are to cover taxes th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the distinction between general entries and taxing entries under the three Lists would stand obliterated. The words 'in relation to' and the words 'with respect to' are no doubt words of wide amplitude but one has to keep in mind the context in which they are used. (iv) Meaning of the words taxes 'on' professions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Uttarakhand Legislature to levy tax on direct-to-home (DTH) broadcasting services. And that, the legislative competence for the same emerged from entry 62 of the State List, contained in the Seventh Schedule to the Constitution of India. Service tax levied on direct-to-home (DTH) broadcasting services under the different Finance Acts (referred to above) was based on a totally distinct aspect, namely, services . And the legislative competence for the same emerged from entry 92C of the Union List, contained in the Seventh Schedule to the Constitution of India. The aforesaid determination at our hands, while negating the contention of the petitioners under the aspect theory, also negates the contention of the petitioners, that tax has been levied on the same aspect by the Parliament, as also, the State Legislature. We, therefore, find no justification in the contention advanced, that tax was being levied on the same aspect/sphere of activity by the Parliament, as also, by the State Legislature. In view of the above, we find no merit even in the third contention advanced by the learned counsel for the petitioners. 39. During the course of disposal of the present controversy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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