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

High Court rules educational facility not subject to entertainment tax

The High Court overturned the Karnataka Appellate Tribunal's decision to levy entertainment tax on charges collected from students for utilizing MARENA ... Levy of entertainment tax - charges collected from students by the petitioner for utilizing facilites of MARENA - transversal beyond the allegations made in the Entertainment Tax Notice, which proposed to levy tax on collections from MARENA treating the same as a 'recreation parlour' - MARENA qualifies as a place of entertainment and the petitioner is a 'proprietor', for the purposes of levying entertainment tax or not - levy of interest and penalty under Sections 9 and 12 of KET Act - HELD THAT:- It is evident that the Tribunal has dismissed the petitioner-University appeals upholding the orders of the First Appellate Authority and the Assessing Authority by holding that the facilities provided at MARENA qualify as 'entertainment' under Section 2(e)(iii) of the KET Act and fall under the definition of 'amusement' as well. In the considered opinion of this Court, the Tribunal has failed to appreciate the fact involved in the matter i.e., notice issued in the first instance to the appellant/ present petitioner wherein it has proposed to levy tax collections from MARENA treating the same as recreation parlour and a demand was made under section 4F of the KET Act. The Tribunal has gone beyond the notice issued to the petitioner in the matter by confirming the payment on a new ground for levy solely based on the definition of 'entertainment' as per Section 2(e)(iii) of the KET Act and meaning of the word 'amusement' meaning thereby the Tribunal has travelled beyond the entertainment tax notice. In the present case, the petitioner is an Educational Institution and not a 'recreation parlour'. The provision of amenities and facilities, such as MARENA are being provided with an intention to improve the personality of the students. Another important aspect of the case is that the Entertainment Tax can be levied in respect of charges collected for admissions or participation to a 'recreation parlour' as defined under Section 2(1) of the KET Act. 'Recreation Parlour' means any place where a game such as bowling, billiards, snooker or the like by whatever name called is provided for which persons are required to make payment for admission or participation. The petitioner is neither a 'recreation parlour' nor the petitioner has set up the MARENA with an intention to provide recreation or amusement - in the considered opinion of this Court, by no stretch of imagination the Entertainment Tax could have been imposed upon the educational institution. In the present case also we are dealing with an educational institution, which has been set up by a Trust, wherein the students and the faculty members are provided facilities in relation to sports, health and fitness. It is certainly true that the parents who visit the students and other persons who visit the University are permitted to use the sports facilities - this Court is of the opinion that the order passed by the Assessing Authority, the order passed by the First Appellate Court and the order passed by the Karnataka Appellate Tribunal are bad in law. Scope of SCN - HELD THAT:- The question is answered in favour of the assessee as the Tribunal has travelled beyond the allegations made in the entertainment tax notices which proposed levy of tax by treating MARENA as a recreational parlour and a demand was made under Section 4F of the KET Act. Whether the Karnataka Appellate Tribunal is correct in holding that MARENA qualifies as a place of entertainment and the petitioner is a 'proprietor', for the purposes of levying entertainment tax? - HELD THAT:- The Tribunal has erred in law and in facts in holding that the MARENA is a sports complex which provides recreational facilities to the students which amounts to entertainment and the petitioner is a proprietor for the purposes of levying the entertainment tax, the question is again answered in favour of the assessee and against the revenue. Whether, in the facts and circumstances of the case, the Karnataka Appellate Tribunal is right in upholding the orders of the First Appellate Authority and the Assessing Authority, insofar as the confirmation of levy of interest and penalty under Sections 9 and 12 of KET Act, respectively? - HELD THAT:- The Tribunal has erred in law and in facts upholding the order of the First Appellate Court and the Assessing Authority in so far as the confirmation of tax under Sections 9 and 12 of the KET Act. The issue is again answered in favour of the assessee and against the revenue. The petitions are allowed. 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.