R. Kumar, B.Com. MBA (Finance)
Statutory Provisions:-
Sec. 65B (44) – “service” means any activity carried out by a person for another for consideration, and includes a declared service, ……………… .
Important ingredients of “service”:
a) any activity – The focus of the levy is shifted to an activity which has a wide coverage. The word, “activity” is not defined in the Act. Any execution of an act or operation carried out or provision of a facility will also be included. A single activity is also covered in its ambit and it is not necessary that such activity should be carried on a regular basis. Even a passive activity or forbearance to act or to refrain from an act or to tolerate an act or a situation, would be regarded as service.
b) Carried out by a person for another – For a transaction of service, there must be two parties, one, service provider and the other, service receiver. By implication, self service is outside the ambit of taxable service. However, certain exceptions are provided which are explained later.
c) For a Consideration – The term consideration is not defined in the Act. However, as per the Education Guide issued by the Tax Research Unit, the meaning assigned to it in the Indian Contract Act, 1872 is to be adopted. Under the Indian Contract Act, 1872, the definition of “consideration” is, “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise”. In simple terms, the word, “consideration” would mean everything received in return for a provision of service including consideration of monetary or non-monetary nature (in kind). Even deferred consideration would be included. It is to be noted that it is not necessary that the consideration should flow from the recipient of service only. The amount received will be considered as consideration, as long as there is a link between the provision of service and consideration. However, free gifts, donations, charities would be outside its scope. Any activity carried on free of charge or without any consideration is not covered here.
The definition of “service” thus appears to be all encompassing, subject to certain exclusions and inclusions explained herein below, the inclusion of words, “and includes a declared service” appears to be for abundant caution and the narrative of its importance.
Definition of service (contd.) – but does not include,
(a) an activity which constitutes merely
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be sale within the meaning of clause (29A) of article 366 of the Constitution;
or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or in relation to his employment;
(c) fees taken in any Court or tribunal established under any law for the time being in force.
Entertainment Duty:-
Sec. 3 of the 1936 Act which, insofar as relevant for the present, is extracted hereunder:
“Entertainment Duty payable by proprietor of an entertainment – (1) Every proprietor of an entertainment other than proprietor of an entertainment by Video Cassette Recorder (hereinafter referred to as V.C.R.) or Video Cassette Player (hereinafter referred to as V.C.P.) or a Cable Operator, shall in respect of every payment for admission to the entertainment pay to the State Government a duty at the rate as prescribed by the State Government not exceeding seventy five per centum thereof:
Provided …
Provided further …
Provided also ….
Explanation …
| (2)** | ** | ** |
(3) Where the payment for admission to an entertainment is made by means of a lump sum paid as a subscription or contribution to any person, or for a season ticket or for the right of admission to a series of entertainments or to any entertainment during a certain period of time, or for any privilege, right, facility or thing combined with the right of admission without further payment or at a reduced charge, the entertainments duty shall be paid on the amount of such lump sum:
Provided that where the State Government is of opinion that the payment of a lump sum represents payment for other privileges, rights, or purposes besides the admission to an entertainment, or covers admission to the entertainment during any period for which the duty has not been in operation, the duty shall be charged on such an amount as appears to the State Government to represent the right of admission to entertainment in respect of which the entertainment duty is payable.”
| (4), (i) and (ii)** | ** | **” |
Sec. 3-A deals with entertainment duty payable by proprietor of V.C.R. or V.C.P. and this provision was inserted in the Act with effect from May 1, 1999.
Sec. 3-B was inserted in the 1936 Act with effect from April 1, 2001. Sub-section (1) of Sec. 3-B deals with entertainment duty payable by cable operator and it makes a cable operator, providing access to entertainments through cable service to subscribers of such service, not being owner or occupants of rooms of hotel or lodging house, liable to pay duty at the rate of twenty rupees per month per subscriber in urban and cantonment areas. Sub-section (2) of Sec. 3-B makes every proprietor of hotel or lodging house, providing access to entertainments in the rooms of a hotel or lodging house through the cable service of his own or obtained through any cable operator liable to pay a consolidated amount of duty per month determined on the basis of number of rooms.
Sec. 3-C deals with levy of Advertisement Tax.
Facts and issues involved:-
Direct-to-Home (DTH) is a technology wherein various TV channels are directly delivered at the subscribers’ premises through satellite in a digital form, thus providing crystal clear picture quality along with various other benefits such as Movie-on-Demand, Electronic Programming Guide, Gaming etc to subscribers. The subscribers are required to install certain equipments such as Dish Antennae, LNB & Set Top Box (DTH equipments) to receive the DTH signals. The license for DTH service is granted by Central Government u/s 4 of Indian Telegraph Act, 1885.
The Tata Sky operates under a licence from the Government of India under Sec. 4 of the Indian Telegraph Act, 1885 and the Indian Telegraphy Act, 1933. The revenue department had demanded 20 per cent entertainment duty on subscription payment from the DTH operator, which had commenced services in August 2006 all over the country including Madhya Pradesh.
Tata Sky in their appeals had contended that DTH broadcast is a notified service under the Finance Act and it is chargeable to service tax. For the purpose of levy of service tax, “broadcasting” has been defined specifically under Sec. 65(15) of the Finance Act. The broadcasting services were brought within the purview of the service tax under Sec. 65(105)(zk) of the Finance Act 1994 as amended with effect from 16 July 2001. Later on, DTH service was brought within the purview of the service tax with effect from 16 June 2006.Tata Sky contended that it does not use any infrastructure from the State for its DTH broadcasts.
On 5 May 2008, the State Government (Madhya Pradesh) issued a gazette notification fixing 20 per cent entertainment duty in respect of every payment made for admission to an entertainment other than cinemas, videos cassette recorders and cable service.
The State on 1 August 2009 passed the Madhya Pradesh Entertainment Duty and Advertisements Tax (Amendment) Act, 2009. By the Amendment Act, the failure to produce accounts and documents as required by the Excise Commissioner or any officer authorized by the State Government was made a penal offence.
However, the apex court noted that this amendment ‘did not introduce any provision in the Parent Act with respect to levy of entertainment duty on DTH broadcasting.’
Referring to the notification of 5 May 2008, the Court said ‘it is elementary that a notification issued in exercise of powers under the Act cannot amend the Act. Moreover, the notification merely prescribes the rate of entertainment duty at 20 per cent in respect of every payment for admission to an entertainment other than cinema, video cassette recorder and cable service. The notification cannot enlarge either the charging section or amend the provision of collection under section 4 of the Act read with the 1942 Rules. It is therefore clear that the notification in no way improves the case of the State.’
Courts Observations:-
Supreme Court held that DTH is not covered by the provisions of Sec. 3 read with Sec. 2(a), 2(b) and 2(d) of the 1936 Act. The issue gets further settled on reference being made to the mechanism of collection of the charge as provided under Sec.4 of the 1936 Act. Sec. 4(1) mandates that no person shall be admitted to any entertainment other than entertainment by V.C.R. except with a ticket stamped with an impressed, embossed, engraved or adhesive stamp issued by the State Government of nominal value equal to the duty payable under Sec. 3; sub-sec.(2) of sec. 4 provides for different modes specified there under for payment of the amount of duty due on the entertainment. Neither the provision of Sec. 4(1) nor any of the modes provided under Sec. 4(2) can be made applicable for collection of duty on DTH operation.
Final Verdict/Supreme Court Judgement:-
The Supreme Court held that the Madhya Pradesh government cannot demand entertainment tax on DTH services provided to customers of Tata Sky under the state Entertainment Duty and Advertisements Tax Act. Supreme Court further held that the 1936 Act does not cover DTH operations on an interpretation of the provisions of 1936 Act itself. The notification cannot enlarge either the charging section or amend the provision of collection under section 4 of the Act read with the 1942 Rules.
Conclusion:-
FICCI in its pre-budget 2013 presentation said that the multiple taxes include license fee, service tax, entertainment tax, VAT on customer premises equipment (STB, Dish Antenna etc.). These tax liabilities cumulatively add up to as high as 56%. These levies are acting as an impediment to the growth and development of these services. Further FICCI Stated that both DTH and cable services are reeling under the ‘heavy burden’ of multiple taxation and levies. This verdict by Supreme Court (Supra.) will help companies to mange their business well and they will be able to pass the this reduce cost to consumer.
In another case Madras High Court has also held that the imposition of 30 per cent entertainment tax on Direct-to-Home services in the State is unconstitutional and directed the State government to exempt DTH services from entertainment tax.
The State government amended the provisions of Tamil Nadu Entertainments Tax Act, 1939 in 2011 and issued a notification on October 12, 2011 through the Commercial Taxes and Registration Department seeking to levy 30 per cent Entertainment Tax on DTH operators. Aggrieved over the tax, Tata Sky Network, Dish TV India Ltd, Bharti, Reliance, and Sun Direct filed writ petitions challenging the imposition of tax. Court said such levy was discriminatory and in violation of Article 14 of the Constitution and sought a declaration that the amendments, and the relevant rules and notification was ultra-vires and unconstitutional.
The High Court declared that the imposition of 30 per cent tax under Section 4(I) of the Tamil Nadu Entertainment Tax Act 2011 was “discriminatory and confiscatory”, and in violation of the equality clause of Article 14.
Further the Court held that “the State has the legislative competence to levy tax on entertainment. However, the impugned section 4(I) does not have a chargeable event. Hence it is a colourable piece of legislation and it is unconstitutional.” Court finally held that: “In the absence of chargeable event, the impugned provision is unconstitutional. It is violation of Article 14 of the Constitution….”
Author can be reached @ sunraj.18@rediffmail.com
