Levy of Luxury tax on DTH operators while exempting cable operators is discriminatory

Brief of the case:

• The Hon’ble Kerala HC in the above cited case held that exempting cable operators from luxury tax while making DTH operators to pay the same is a case of discriminatory levy of luxury tax merely because of technological differences in the system of deliveryof entertainment in both the services.
• Therefore, such levy bring violative of Article 14 of the Constitution of India was struck down.

Facts of the case:

• W.e.f 01.04.2011 the luxury tax on cable operators was done away with while the said levy was made applicable to Direct to Home (DTH) Operators. The said levy was challenged by the petitioner company on several grounds.

Grounds on which levy challenged:

• The providing of broadcasting service through DTH is a taxable service under the Finance Act, 1994, as amended, and hence the State Legislature cannot subject the same service to a levy of luxury tax through legislation traceable to Entry 62 of List II of the VIIth Schedule to the Constitution of India.
• Even assuming that the State Legislature has the competence to levy a tax on the element of luxury flowing from a provision of DTH services, there are no rules framed that provide for a segregation of such charges for the purposes of the levy.
• If the tax is on the provision of broadcasting services that are viewed as a luxury, then there is no justification in excluding cable operators from the levy since they are essentially providing the same service as DTH operators. The levy, it is contended, is discriminatory and hence violative of Article 14 of the Constitution of India.
  

Held by Hon’ble High Court:

• The High court observed that as per the aspect of theory of taxation explained by Hon’ble Supreme court in the case of Federation of Hotel & Restaurant Association of India v. Union of India, the two aspects of an activity may trigger levy of more than one tax on the same activity provided the respective aspect is taxable under the respective statute. Rendering of service by DTH operators has two aspects viz luxury & service covered under different entries of the constitution one entry legislated by state govt for imposing luxury tax and other by central govt for service tax.
• Further, challenge of levy for reason that its burden cannot be transferred to customers is unacceptable as it is not a necessary concomitant of an indirect tax (in those cases, sales tax) that it should necessarily be passed on to the buyer.
• Merely because the statute concerned provides for the levy to be borne by the service provider, the nature of the tax as a tax on luxuries is not altered. For determining the legislative competence of the State Legislature, one needs look only at the nature of the tax levied and whether the said tax can be traced to any of the specified fields of legislation under List II of the VIIth Schedule to the Constitution.
• The levy was also challenged on the ground that it is discriminatory and against the spirit of equality of Article 14 of the Constitution of India. The thrust of the arguments of counsel for the petitioners isthat the service provided by the DTH operators is substantially the same as that provided by cable operators and, when the State legislature had considered it fit to do away with the levy in respect of cable operators, it was not open to continue the levy only in respect of DTH operators.
• On this issue , court observed that there are a lot of similarities between cable TV services and DTH services when it comes to provision of entertainment/luxury to subscribers/customers. Both are involved in distributing TV Channels, both charge subscription charges from the customers, both provide digital quality pictures, both provide as many channels in the packages offered to customers, the digital services in both, including High Definition channels, are provided through a set top box that is installed in the customers premises.
• The differences in the technology involved or number of intermediaries involved in the delivery of entertainment/luxury content to a subscriber cannot be the basis of a classification for the purposes of the levy under the Kerala Tax on Luxuries Act.The object of the levy being to tax a luxury, and it being established that the luxury, of the same content, is provided by both cable operators and DTH operators, there cannot be a further sub-classification among persons who come within the ambit of the levy based solely on technological differences in the system of delivery of entertainment in both the services.A classification based on microscopic and insignificant differences is not good, and overdoing classification would tantamount to undoing equality.
• Therefore, the removing of levy on cable operators while making DTH operators liable to pay luxury tax is discriminatory and violative of Article 14 of the Constitution of India.
• Therefore, the levy on DTH operators were also struck down by the court. In result petition was allowed.