2021 (10) TMI 762 - HC - VAT and Sales Tax

High Court rules educational facility not subject to entertainment tax

M/s. Manipal Academy Of Higher Education, Versus The State Of Karnataka, Bengaluru, The Joint Commissioner of Commercial Taxes (Appeals), Mangalore., Entertainment Tax – Officer, Udupi.

M/s. Manipal Academy Of Higher Education, Versus The State Of Karnataka, Bengaluru, The Joint Commissioner of Commercial Taxes (Appeals), Mangalore., ... Issues Involved:1. Levy of entertainment tax on charges collected from students for utilizing facilities of MARENA.2. Tribunal's authority to traverse beyond the allegations made in the Entertainment Tax Notice.3. Classification of MARENA as a place of entertainment and the petitioner as a proprietor.4. Confirmation of levy of interest and penalty under Sections 9 and 12 of the KET Act.Detailed Analysis:1. Levy of Entertainment Tax on Charges Collected from Students for Utilizing Facilities of MARENA:The primary issue is whether the Karnataka Appellate Tribunal was correct in upholding the levy of entertainment tax on the charges collected from students by the petitioner for utilizing the facilities of MARENA. The Tribunal concluded that MARENA provides entertainment to staff, students, dependents, and guests, and thus falls under the definition of 'entertainment' under Section 2(e)(iii) of the KET Act. The Tribunal relied on the fact that the facilities provided by MARENA are on payment and include various sports and recreational activities.2. Tribunal's Authority to Traverse Beyond the Allegations Made in the Entertainment Tax Notice:The Tribunal was questioned for confirming the demand based on the definitions of 'entertainment' and 'amusement,' rather than strictly adhering to the allegations in the Entertainment Tax Notice, which proposed to levy tax on collections from MARENA treating it as a 'recreation parlour' under Section 4F of the KET Act. The Tribunal's action of confirming the payment on a new ground for levy solely based on the definition of 'entertainment' was seen as an overreach beyond the original notice.3. Classification of MARENA as a Place of Entertainment and the Petitioner as a Proprietor:The Tribunal held that MARENA qualifies as a place of entertainment and the petitioner as a 'proprietor' for the purposes of levying entertainment tax. The Tribunal reasoned that the facilities provided by MARENA, including gymnasium, sports courts, and virtual games, constitute 'entertainment' and 'amusement' as defined under the KET Act. The Tribunal also stated that the petitioner, as an entity responsible for managing these facilities, fits the definition of 'proprietor' under the Act.4. Confirmation of Levy of Interest and Penalty under Sections 9 and 12 of the KET Act:The Tribunal upheld the orders of the First Appellate Authority and the Assessing Authority regarding the confirmation of levy of interest and penalty under Sections 9 and 12 of the KET Act. The Tribunal justified this by stating that the petitioner failed to declare the payment received towards admission to MARENA and did not discharge the admissible entertainment tax liability, which was only discovered due to an inspection.Court's Conclusion:The High Court found that the Tribunal failed to appreciate the specific facts of the case and erred in law by treating MARENA as a place of entertainment and the petitioner as a proprietor. The Court emphasized that MARENA is an educational facility aimed at improving the personality of students and is not open to the public at large. It concluded that the entertainment tax could not be imposed on the educational institution, as MARENA does not fit the definition of a 'recreation parlour' or 'place of entertainment' under the KET Act.Final Order:The High Court allowed the petitions, setting aside the judgments of the Karnataka Appellate Tribunal, the First Appellate Authority, and the Assessing Authority. The Court ruled in favor of the petitioner on all substantial questions of law, thereby negating the levy of entertainment tax, interest, and penalty on the petitioner.