2025 (8) TMI 486 - HC - VAT / Sales Tax

State Can Tax Convenience Fees on Online Ticket Booking Under Entry 62, List II, Upholding Maharashtra Act XLII of 2014

The HC upheld the validity of the proviso inserted by Maharashtra Act XLII of 2014 in the Maharashtra Entertainments Duty Act, ruling that the State has ... Competency of State of Levy Tax when Service Tax (Union List) is levied - Challenge to insertion of the seventh proviso in Section 2(b) of the Maharashtra Entertainments Duty Act (MED) by the Maharashtra Act No. XLII of 2014 - service tax on the convenience fees charged on online ticket booking - applicability of principle of pith and substance - Legislative competence and the alleged infringement of Articles 14 and 19 of the Constitution. HELD THAT:- Section 3(1) of the MED Act, which is the charging section, contains the phrase “payment for admission” and the same read with Section 2(b)(iv) which defines “payment of admission” would mean not only the actual payment made by a person for entertainment but also what he pays to the proprietor for admission to entertainment. Entertainment duty is levied on what is paid by the person entertained for providing entertainment by the proprietor. Therefore, even from this perspective, convenience fees squarely fall within Section 2(b)(iv) read with Section 2(a) and Section 3(1) of the MED Act. Legislative competence and the alleged infringement of Articles 14 and 19 of the Constitution - HELD THAT:- The rendering of online ticket booking is regarded as a service and is taxed under the Finance Act, 1994 by the Union. Conversely, the act of entertainment involving films or movies is taxed by the State. When calculating the duty under the MED Act, the convenience fees paid are considered as part of “payment of admission” as defined under Section 2(b)(iv), which serves as the measure of tax on which the rate of duty is levied under Section 3 of the MED Act. The Union taxes services, while the State taxes entertainment. A key element in determining the entertainment duty is the charges levied for online ticket booking, but the State does not treat the act of online booking itself as entertainment. Merely because charges for online booking are included in the tax measure does not imply that the State has encroached upon the Union List. Therefore, there is no transgression by the State regarding the Union List, and both authorities are separate entities with the power to tax under their respective lists. The petitioners are not justified in claiming that the activity of online ticket booking is a separate activity intended to be taxed under Entry 62 of List II of the Seventh Schedule to the Constitution, and since this activity is already subject to service tax by the Union of India, the impugned proviso is ultra vires. First, what the impugned proviso seeks to do is to exclude convenience fee charges up to Rs. 10/- from the definition of payment of admission, while any amount charged above Rs. 10/- is to be regarded as payment of admission - the State has the authority to enact the impugned proviso under Entry 62, List II of the Seventh Schedule to the Constitution. The convenience fees paid for online ticket booking for entertainment purposes have a direct and immediate connection with the subject of the levy, which is entertainment. What is being taxed is not the activity of online ticket booking—on which the petitioners have already paid service tax under the Finance Act, 1994—but rather the act of entertainment itself, with the duty amount determined by considering measures of tax, including convenience fees. Therefore, in our view, the State does not encroach upon the Union List so as to render the impugned proviso ultra vires - the State has the legislative competency to enact the impugned proviso under Entry 62 of List II of the Seventh Schedule to the Constitution of India. The impugned proviso inserted by Maharashtra Act XLII of 2014 amending the Maharashtra Entertainment Duty Act is held to be intra vires and not unconstitutional or beyond the State’s legislative competence - Prayer for quashing of Circulars dated 31 January 2015 (Exhibit ‘G’) and 27 February 2015 (Exhibit ‘H’) is rejected. Petition dismissed. ISSUES: Whether the insertion of the seventh proviso to Section 2(b) of the Maharashtra Entertainments Duty Act (MED Act) 2014, taxing convenience fees charged for online ticket booking as part of 'payment of admission,' is intra vires the State Legislature under Entry 62, List II of the Seventh Schedule of the Constitution of India.Whether the convenience fee charged for online ticket booking constitutes a separate business activity distinct from entertainment and thus outside the scope of entertainment duty under the MED Act.Whether the impugned proviso violates constitutional provisions including Articles 14, 19, and 246(3) of the Constitution of India.Whether the proviso improperly amends the measure of tax without corresponding amendment to the charging section, thereby exceeding legislative competence or constituting a colourable exercise of power.Whether the convenience fee charged for online ticket booking is a 'payment of admission' connected with entertainment and a condition for attending entertainment under Section 2(b)(iv) of the MED Act.Whether there exists adequate procedural machinery under the MED Act to assess, levy, and recover entertainment duty on convenience fees.Whether the impugned proviso and related Circulars dated 31 January 2015 and 27 February 2015 are liable to be quashed.Whether the levy of entertainment duty on convenience fees conflicts with the Union's taxation of services under the Finance Act, 1994, and whether there is impermissible overlap or encroachment on Union List entries. RULINGS / HOLDINGS: The impugned proviso inserted by Maharashtra Act XLII of 2014 amending Section 2(b) of the MED Act is intra vires the State Legislature under Entry 62, List II of the Seventh Schedule and does not transgress into the Union List; it validly amends the measure of tax without constituting a new levy or taxing a separate activity.The convenience fee charged for online ticket booking is not a separate business activity distinct from entertainment but forms part of the composite payment for admission to entertainment and is therefore taxable under the MED Act.The convenience fee satisfies the ingredients of Section 2(b)(iv) of the MED Act as a payment 'connected with an entertainment' and is a 'condition of attending' the entertainment, thus constituting 'payment of admission.'The proviso excludes convenience fees up to Rs. 10/- per ticket from the definition of payment of admission, while amounts exceeding Rs. 10/- are included, which aligns with the legislative objective to curb exorbitant charges and is not a colourable exercise of power.The procedural machinery under the MED Act, including assessment, collection, and recovery provisions, suffices for entertainment duty on convenience fees; no separate machinery is required.The impugned Circulars merely implement the proviso by calling for data and are not liable to be quashed.The petitioners' challenge based on alleged violation of Articles 14 and 19 and on the ground of lack of uniformity or arbitrariness is rejected as the proviso is reasonable and has a rational nexus with the subject matter of taxation.The levy of entertainment duty on convenience fees does not conflict with the Union's service tax under the Finance Act, 1994, as the two taxes are on distinct aspects-service tax on rendering of service and entertainment duty on admission to entertainment-and can coexist without overlap.The petitioners' reliance on decisions concerning new forms of entertainment or different statutory schemes (e.g., Tata Sky Ltd., PVR Ltd.) is distinguishable and does not apply to the facts of this case.The proviso is not a deeming fiction enlarging the charging section but an exception carved out within the definition of payment of admission. RATIONALE: The Court applied the doctrine of pith and substance to determine that the true nature of the levy is on entertainment under Entry 62, List II of the Seventh Schedule, which empowers the State Legislature to tax luxuries including entertainments.The MED Act's scheme defines 'entertainment,' 'payment of admission,' and 'proprietor,' with Section 3 as the charging section and Section 2(b)(iv) providing a wide definition of payment of admission including any payment connected with entertainment as a condition of attending.The proviso to Section 2(b) excludes convenience fees up to Rs. 10/- per ticket from payment of admission, while including amounts above that, reflecting legislative policy to curb excessive convenience charges without taxing a new form of entertainment.The Court relied on precedents holding that the measure of tax does not determine the nature of the tax and that legislative competence includes the power to amend the measure of tax without amending the charging section.The Court distinguished cases relied upon by petitioners where new forms of entertainment were sought to be taxed without corresponding amendments or where the statutory definitions differed materially.The Court emphasized the principle that two taxes on different aspects of the same transaction-service tax by the Union and entertainment duty by the State-are permissible and do not constitute unconstitutional overlap.The Court rejected the argument of colourable legislation, noting that the Statement of Objects and Reasons cannot restrict the plain language of the statute and that legislative motive is irrelevant if the legislature is competent.The Court observed that the convenience fee is integrally connected to the ticket purchase and admission to entertainment, satisfying the statutory definition and legislative intent.The Court upheld the validity of the proviso and related Circulars, finding no procedural or constitutional infirmity.The Court noted that challenges based on lack of uniformity or arbitrariness failed as the classification of persons paying convenience fees online constitutes a reasonable legislative classification.