Punjab and Haryana High Court in a recent case namely Tata Sky Limited v State of Punjab and another (2011)38 PHT 160 (P&H) has held that levy of entertainment duty on providing entertainment by broadcasting signals on TV sets is intravires of the powers of the State Legislature. The Petitions of TATA Sky Limited challenging the levy of entertainment duty under Punjab Entertainment Duty Act 1955, has been dismissed.

The question which arose for consideration in this case was whether levy of entertainment tax on DTH service Provider is covered by Entry 62 of List II or is tax on broadcasting service covered by Entry 92C of List I.

The Hon’ble Court after considering the aspect and federal supremacy theory held that Aspect theory fully applies to this case and Federal theory cannot be applied to this case as there is no dispute between the powers of Parliament to levy tax in entry 92 of List I of Seventh Schedule to the constitution on broadcasting service and Power of State Legislature to levy tax on entertainment in entry 62 of List II of Seventh Schedule to the constitution in relation to the DTH service.

Contention of Tata Sky Ltd(Petitioners): The main contention of the Petitioner in this case was 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.

Contention of State Government: Whereas the contention of the respondent Sate was that the Central levies as well as the State levy are on different aspects and by applying principles of harmonious construction, the State levy could be held not to be in conflict with the Central levy. In pith and substance, the State levy is not on broadcasting service but on entertainment and falls under Entry 62 of List II. If entertainment duty is not allowed to be levied, power of the State legislature under Entry 62 will be nullified. Entertainment is the main activity for which charges are collected by the petitioner and broadcasting service is only a medium for the entertainment. Mere fact that content of signals is provided by third party is not enough to exclude levy of tax on provider of entertainment by carrying the signals to the customers for which charges are collected. Charges are not collected under a composite transaction but only for entertainment and expenditure on or in connection with broadcasting may be cost of the person providing entertainment.

The important Points from the Judgment are enumerated below:

Constitutional scheme of distribution of legislative powers between Union and the State legislatures under Article 246 of the Constitution is well known. While Parliament has exclusive power to legislate with respect to matters in List I, the State legislatures have exclusive power to make laws for matters in List II subject to exclusive power of the Parliament to legislate with respect to matters in List I. Both Parliament and State legislatures have concurrent power of legislation with respect to matters in List III subject to Central legislation prevailing in case of repugnancy.

Principle of Federal Supremacy can be invoked only if there is irreconcilable conflict in entries in Union and State lists. If two entries can be reconciled by harmonious construction or by applying principle of pith and substance, there is no occasion to apply the principle of federal supremacy. Concept of repugnancy under Article 254 relating to List III is different from repugnancy arising due to overlapping in List I and List II in which case principle of pith and substance is applied to determine legislative competence. Entries in the lists are not powers of legislation but fields of legislation. Taxation is distinct matter for legislative competence. Power to tax cannot be deduced from general entry. There is no overlapping in taxing power. Entries 82 to 92C and 97 of List I and Entries 45 to 63 of List II deal with taxes. There is no entry relating to tax in List III.

Every tax may be levied on an object or on an event of taxation. 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.

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.

Aspect Theory: The concept of Aspect theory is considered by Hon’ble High court by referring to various case laws, one of them is picked up here by me to explain the concept of Aspect theory as considered by the Hon’ble court.

In All-India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527, challenge was to the levy of service tax on service rendered by practicing chartered accounts, cost accountants and architects by the Central Legislature and objection thereto was based on Entry 60 List II providing for power of State Legislature to tax professions, trades, callings and employment.

Repelling the challenge, it was held that Entry 60 of List II did not include tax on services. Tax on profession was different from tax on professional service. It was observed:

“34. As stated above, Entry 60, List II refers to taxes on professions, etc. It is the tax on the individual person/firm or company. It is the tax on the status. A chartered accountant or a cost accountant obtains a licence or a privilege from the competent body to practise. On that privilege as such the State is competent to levy a tax under Entry 60. However, as stated above, Entry 60 is not a general entry. It cannot be read to include every activity undertaken by a chartered accountant/cost accountant/architect for consideration. Service tax is a tax on each activity undertaken by a chartered accountant/cost accountant or an architect. The cost accountant/chartered accountant/architect charges his client for advice or for auditing of accounts. Similarly, a cost accountant charges his client for advice as well as doing the work of costing. For each transaction or contract, the chartered accountant/cost accountant renders profession based services. The activity undertaken by the chartered accountant or the cost accountant or an architect has two aspects. From the point of view of the chartered accountant/cost accountant it is an activity undertaken by him based on his performance and skill. But from the point of view of his client, the chartered accountant/cost accountant is his service provider. It is a tax on “services”. The activity undertaken by the chartered accountant or cost accountant is similar to saleable or marketable commodities produced by the assessee and cleared by the assessee for home consumption under the Central Excise Act.”

Entertainment: After considering the definition of entertainment provided in dictionaries and various books the following observation is made by the Hon’ble court regarding meaning of entertainment:

“A perusal of the various shades, aspects, forms and implications of the word ‘entertainment’ as defined in the aforesaid books clearly leads to an irresistible inference that the word ‘entertainment’ has been used in a very wide sense so as to include within its ambit, entertainment of any kind including one which may be purely educative. Sub-section 3 itself by using the word ‘entertainment’ as “any exhibitional, performance, amusement, game or sport to which persons are admitted for payment” has extended the scope of entertainment to expressly include any kind of amusement, game or sport….”

The Verdict:

26. Levy under Section 3 is called entertainment duty calculated at a percentage of payment for admission to entertainment. It is collected from the provider of entertainment which includes person responsible for management thereof. Entertainment provided with the aid of dish relating to DHTV has been specifically included in the levy by amendment in the year 2010. Entry 62 of List II permits tax on entertainment. Thus, tax on entertainment which squarely falls under Entry 62 cannot be held to be encroachment of List I relating to tax on service. Levy of tax on service does not exclude State legislature from levying tax provided in List II. Transaction of broadcasting service and levy of tax thereon does not exclude levy of entertainment tax covered by Entry 62 of List II. Both the levies can co-exist and can be harmonized being on different aspects. Doctrine of pith and substance cannot be applied to exclude one from the other. Principle of federal supremacy cannot be applied to such a situation. Aspect theory fully applies.

27. The observations in concluding para 92 of BSNL relied upon by the learned counsel for the petitioner cannot be read in isolation so as to exclude aspect theory when a transaction clearly falls in legislative competence of the State.

28. We also cannot accept the contention that the transaction of providing broad-casting services and entertainment should be treated as indivisible contract so as to exclude the aspect of entertainment by holding that predominantly transaction is broadcasting and not entertainment. Nor alternative plea of transaction being composite for splitting up entertainment from broadcasting be accepted. Rather, aspect theory has to be applied and levy entertainment duty on entertainment aspect is fully justified independent of service tax on broadcasting service which is a different aspect of the transaction.

29. Thus, we hold that levy of entertainment duty falls under Entry 62 of List II and is not hit by Entry 92C of List I. We are unable to hold that levy of entertainment duty on providing entertainment by broadcasting signals on TV sets is ultravires the powers of the State Legislature.

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(Author – Amit Bajaj Advocate, Bajaj & Bajaj Advocates, 128, Sangam complex, Milap chowk, Jalandhar City (Punjab), Email: amit@amitbajajadvocate.com, M +919815243335)

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