1999 (12) TMI 832 - SC - VAT and Sales Tax

Supreme Court Upholds Validity of Cinema Tax Classification

The Supreme Court upheld the Full Bench's judgment, confirming the validity of the proviso to sub-section (1) of Section 3-A of the U.P. Cinemas and ... Whether the proviso appended to sub-section (1) of Section 3-A reproduced hereinabove suffers from the vice of invidious discrimination by carving out an artificial classification by dividing the cinema houses into two based on the criterion whether they receive or do not receive benefit of incentive scheme propounded by the State Government? Whether such classification has no nexus with the object sought to be achieved? Held that:- In the case at hand it will be seen that at the point of time when the impugned provision was enacted, that is in the year 1992, there existed two classes of cinema owners: one, those who were receiving grant-in-aid under some incentive scheme enunciated by the State Government; and two, such cinema owners as were not receiving such grant-in-aid. The Full Bench has during the course of its judgment observed, and rightly in our opinion, that if the benefit conferred by the impugned amendment was made general, i.e., available to all the cinema owners then the cinema owners operating in rural area would have secured double benefit-one by way of grant-in-aid and other by way of recovering maintenance charges from the cinema-goers exempt from payment of entertainment tax and there is nothing wrong in the Legislature having chosen not to confer such double benefit on the cinema owners already enjoying benefit of an incentive scheme of the State Government, Moreover, it cannot be lost sight of mat the incentive schemes releasing the grant-in-aid were optional. There was no compulsion on the cinema owners to opt for the incentive scheme and have grant-in-aid released to them. Such option was available at the commencement of the scheme and remained available throughout. Such of the cinema owners as felt that the fixation of Rs. 2.50 or Rs.5 as a ceiling on fee for admission was not beneficial to them and they would stand to benefit by opting out from the incentive scheme and availing the benefit of recovering charges for maintenance conferred by the 1992 amendment were always and at any time free to do so. For the foregoing reasons we are of the opinion that the Division Bench was not right in passing the order dated 10.7.1995 striking down the amendment impugned before it. Issues Involved:1. Validity of the proviso to sub-section (1) of Section 3-A of the U.P. Cinemas and Taxation laws Amendment Act, 1989.2. Alleged discrimination under Article 14 of the Constitution.3. Classification of cinema houses based on receipt of grant-in-aid.4. Review of the Division Bench's judgment by the Full Bench.5. Condonation of delay in filing the review application.Issue-wise Detailed Analysis:1. Validity of the proviso to sub-section (1) of Section 3-A:The U.P. Cinemas and Taxation laws Amendment Act, 1989, introduced Section 3-A, allowing cinema proprietors to charge extra for maintenance and air-conditioning. The proviso to sub-section (1) of Section 3-A prohibited cinema owners receiving grant-in-aid from the State Government from charging this extra amount. The validity of this proviso was challenged by cinema owners on the grounds that it was discriminatory and violated Article 14 of the Constitution.2. Alleged discrimination under Article 14 of the Constitution:Cinema owners argued that the proviso created an artificial classification between cinemas receiving grant-in-aid and those not receiving it, which had no nexus with the objective of maintaining cinema premises. They contended that all cinemas required maintenance regardless of whether they received grant-in-aid. The Division Bench of the Allahabad High Court initially found the proviso discriminatory and declared it ultra vires of the Constitution.3. Classification of cinema houses based on receipt of grant-in-aid:The Full Bench of the Allahabad High Court overruled the Division Bench's decision, holding that the classification was reasonable. The State argued that cinemas receiving grant-in-aid were subject to conditions, such as capping admission rates, which distinguished them from other cinemas. The classification was aimed at preventing double benefits for cinemas already receiving state incentives.4. Review of the Division Bench's judgment by the Full Bench:The Division Bench's judgment was reviewed by a Full Bench after another Division Bench expressed doubts about its correctness. The Full Bench upheld the validity of the proviso, finding the classification reasonable and related to the objective of the legislation. The Supreme Court agreed with the Full Bench, stating that the Legislature has the discretion to create classes for taxation and incentives based on substantial distinctions.5. Condonation of delay in filing the review application:The State of U.P. filed a review application against the Division Bench's judgment, which was delayed by 241 days. The Division Bench dismissed the application for condonation of delay and the review application itself. The Supreme Court found this issue redundant after upholding the Full Bench's judgment.Conclusion:The Supreme Court upheld the Full Bench's judgment, confirming the validity of the proviso to sub-section (1) of Section 3-A. The classification between cinemas receiving grant-in-aid and those not receiving it was deemed reasonable and related to the legislative objective. The appeals challenging the Division Bench's judgment were allowed, while those against the Full Bench's judgment were dismissed. The Supreme Court emphasized the Legislature's broad discretion in economic and taxation matters, provided the classification is reasonable and not arbitrary.