TaxTMI 
TaxTMI 
2011 (9) TMI 180
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....ing service. The service tax is imposed by the Finance Act, 1994 in exercise of Parliament's exclusive power to levy a tax on services under article 246(1) read with Entry 92C of List I of the VIIth Schedule to the Constitution of India. It was also contended on behalf of the petitioners that Parliament alone has the exclusive power to tax DTH services and that the States do not have any power to tax the said service by any name called. It is argued that the State legislature cannot, in the guise of imposing a tax on entertainments, in exercise of its powers under Entry 62 of List II of the VIIth Schedule to the Constitution, impose a tax on the DTH service. Consequently, it was submitted that the said Act, to the extent it attempts at encompassing DTH services within the ambit of entertainment tax, is unconstitutional. It is further argued on behalf of the petitioners that the taxable event for the levy of service tax is exactly the same as the taxable event for the levy of entertainment tax, which is, the provision of DTH service by transmitting DTH signals. And, therefore, there is a clear trespass into Parliament's exclusive domain. Mr. Varun Sarin, appearing for Dish T....
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.... a "taxable service" under the service tax regime. He submitted that the attempt on the part of the State legislature to bring in DTH service within the ambit of "entertainment" is a disguised and indirect transgression into a prohibited field. 5. In support of his contentions Mr. Ganesh had placed reliance on the following decisions:- (i) Godfrey Phillips India Ltd v. State of U.P. (2005) 2 SCC 51; and (ii) BSNL v. Union of India (2006) 3 SCC 1. 6. Mr. Aman Lekhi relied upon the following decisions:- (i) T.N. Kalyana Mandapam Assn. v. Union of India (2004) 5 SCC 632; (ii) State of West Bengal v. Purvi Communication (P) Ltd. (2005) 3 SCC 711; and (iii) Imagic Creative (P) Ltd. v. CCT (2008) 2 SCC 614. 7. Mr. Parag Tripathi referred to and relied upon the following decisions:- (i) Federation of Hotel & Restaurant Assn of India v. Union of India (1989) 3 SCC 634; (ii) Express Hotels (P) Ltd v. State of Gujarat (1989) 3 SCC 677; and (iii) All-India Federation of Tax Practitioners v. Union of India (2007) 7 SCC 527. Nature ....
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....l be deemed to be an admission for entertainment; ** ** ** (ha) "direct-to-home (DTH) service" means distribution of multi-Channel television and radio programmes and similar content by using a satellite system, by providing signals directly to subscriber's premises without passing through an intermediary or otherwise; (i) "entertainment" means any exhibition, performance, amusement, game, sport or race (including horse race) or in the case of cinematograph exhibitions, cover exhibition of news-reels, documentaries, cartoons, advertisement shorts or slides, whether before or during the exhibition of a feature film or separately, and also includes entertainment through cable service and direct-to-home (DTH) service; ** ** ** (m) "payment for admission" includes - ** ** ** (vi) any payment made by a person by way of contribution, subscription, installation or connection charges or any other charges collected in any manner whatsoever for entertainment through direct-to-home (DTH) broadcasting service or distribution of television signals and value-added services with the aid of any ....
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....g in clause (3), Parliament, and, subject to clause (1) the legislature of any State also, have power to make laws with respect to any of the matters eliminated in list III in the seventh schedule (in this Constitution referred to as the "Concurrent List"). (3) Subject to clauses (1) and (2), the legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in list in the seventh schedule (in this Constitution referred to as the "State list"). (4) Parliament has power to make laws in respect to any matter for any part of the territory of India not included in our state notwithstanding that such matter is a matter enumerated in the State list. Entry 92C of list I (Union List) reads as under: - "92C. Taxes on services." Entry 62 of list II (State List) reads as under: - "62. Taxes on luxury, including taxes on entertainment, amusements, betting and gambling." The decisions cited 12. We shall take up the decisions cited at the bar in chronological order. The first is the decision of a constitution bench of the Supreme Court in Federation of Hotels (supra) . The ....
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....y be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time on the occasion of its sale...."" [Emphasis supplied] The Supreme Court further observed as under:- "37. It is trite that the true nature and character of the legislation must be determined with reference to a question of the power of the legislature. The consequences and effects of the legislation are not the same thing as the legislative subject-matter. It is the true nature and character of the legislation and not its ultimate economic results that matters. 38. Indeed, as an instance of different aspects of the same matter, being the topic of legislation under different legislative powers, reference may be made to the annual letting value of a property in the occupation of a person for his own residence being, in one aspect, the measure for levy of property tax under State law and in another aspect constitute the notional or presumed income for the purpose of income tax." ** ** ** "43. The subject of a tax is different from the measure of the levy. The measure of....
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....edantic sense but must be given their fullest meaning and the widest amplitude and be held to extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in them." "21. The concept of a tax on "luxuries" in Entry 62, List II cannot be limited merely to tax things tangible and corporeal in their aspect as "luxuries". It is true that while frugal or simple food and medicine may be classified as necessities; articles such as jewellery, perfume, intoxicating liquor, tobacco, etc., could be called articles of luxury. But the legislative entry cannot be exhausted by these cases, illustrative of the concept. The entry encompasses all the manifestations or emanations, the notion of "luxuries" can fairly and reasonably (sic) can be said to comprehend the element of extravagance or indulgence that differentiates "luxury" from "necessity" cannot be confined to goods and articles. There can be elements of extravagance or indulgence in the quality of services and activities." In the same decision, the Supreme Court also observed that:- "25... The concept of "luxuries" in the legislative entry takes within it everything that can fairly....
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....60]). . . . " 15. Next, is another constitution bench decision of the Supreme Court in the case of Godfrey Phillips (supra). The imposition and levy of a luxury tax on tobacco and tobacco products by treating them as "luxuries" within the meaning of the word in Entry 62 of List II was the subject-matter of challenge. While construing provisions of the Constitution of India and the relevant entries in the Seventh Schedule, the Supreme Court sounded a warning that opinions expressed by courts of countries like United States of America, Canada or Australia may not be of any help. In this context, the Supreme Court observed as follows:- "43. Before we proceed further we would like to clear the ground. Whatever be the similarities between the Constitutions of other countries with similar federal structures as this country such as the United States, Canada or Australia, this Court has, as a general rule held that the opinions expressed by the courts of those countries may not be helpful in construing the allocation of legislative heads in our Constitution . . . . Given the wealth of authority on the question of interpretation of legislative heads in this country, we deem it suffici....
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.... exclusivity, and a construction of a taxation entry which may lead to overlapping must be eschewed. "If the taxing power is within a particular legislative field, it would follow that other fields in the legislative lists must be construed to exclude this field so that there is no possibility of legislative trespass." 17. The Court also reiterated the well established principle that incidence of a tax is not relevant in determining the subject-matter of a tax. In this regard, the Supreme Court noted as follows:- "47. Classically, a tax is seen as composed of two elements: the person, thing or activity on which the tax is imposed and the incidence of tax. Thus every tax may be levied on an object or an event of taxation. The distinction between the two may not, ultimately, be material in the context of the Indian Constitution as we will find later. But for the time being we may note that both these elements are distinct from the incidence of taxation. For example, the tax may be imposed on goods on the event of their manufacture, sales, import, etc. The law imposing the tax may also prescribe the incidence or the manner in which the burden of the tax would fall on any person ....
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....eing that legislative entries should be liberally interpreted and the second being that competing entries must be read harmoniously. In this regard the Supreme Court observed as under:- "50. The first of such settled principles is that legislative entries should be liberally interpreted, that none of the items in the list is to be read in a narrow or restricted sense and that each general word should be held to extend to ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it (United Provinces v. Atiqa Begam [AIR 1941 FC 16], Western India Theatres Ltd. v. Cantonment Board [AIR 1959 SC 582=1959 Supp 2 SCR 63], SCR at p. 69 and Elel Hotels & Investments Ltd. v. Union of India [(1989) 3 SCC 698). 53. The argument of Mr. Salve is in fact that the breadth of an entry is curtailed by the second principle of construction. The second principle is that competing entries must be read harmoniously. The proper way to avoid a conflict would be to read the entries together and to interpret the language of one by that of the other Governor General in Council v. Province of Madras [1945 FCR 179 = AIR 1945 PC 98], FCR at pp. 191-92, State of Bombay v.....
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....ator, who in turn provides cable service for exhibition of such performance, film or programme to the customers, such owner or person shall be liable to pay tax from the month in which he exhibits such performance, film or programme or transmits such signal to a sub-cable operator on the basis of his monthly gross receipt at such rate, not exceeding twenty-five per centum of the monthly gross receipt, as may be specified by the State Government by notification published in the Official Gazette." 21. One of the questions for consideration before the Supreme Court was whether clause (ii) of sub-section (4-a) of section 4-A of the said West Bengal Act was beyond the legislative competence of the State Legislature? The Supreme Court held that the State Legislature was competent in enacting the said provision. The Court, inter alia, observed :- "35. ... The purpose of sub-section (4-a) of section 4-A of the Act is the levy and collection of tax from any person who provides cable service directly to consumers or transmits to a sub-cable operator through a cable television network and otherwise controls or is responsible for the management and operation of a cable television netw....
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....er sub-section (4-a) of section 4-A of the Act have direct and close nexus with the entertainments made available to the viewer through their cable television network. The performance, film or programmes shown to the viewers through the cable television network come within the meaning of entertainments and therefore within the legislative competence of the State Legislature under Entry 62 of List II of the Seventh Schedule to the Constitution to make law for the levy and collection of tax on such entertainments. 38. A tax under Entry 62 of List II of the Seventh Schedule to the Constitution may be imposed not only on the person spending on entertainment but also on the act of a person entertaining, or the subject of entertainment. It is well-settled by this Court that such tax may be levied on the person offering or providing entertainment or the person enjoying it. The respondents are admittedly engaged in the business of receiving broadcast signals and then instantaneously sending or transmitting such visual or audio-visual signals by coaxial cable, to subscribers' homes through their various franchisees. It has been made possible for the individual subscribers to choose t....
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....upra) wherein one of the issues which arose for consideration was :- "(E) Would the "aspect theory" be applicable to the transaction enabling the States to levy sales tax on the same transaction in respect of which the Union Government levies service tax?" (para 32) The Supreme Court was required to determine the nature of the transaction by which mobile phone connections are enjoyed. The question was whether it was a sale or a service or both a sale and a service? As observed by the Supreme Court, if it was a sale then the States had the legislative competence to levy sales tax on the transaction under Entry 54 List II of the Seventh Schedule to the Constitution. On the other hand, if it was a service, then, Parliament alone could levy service tax under Entry 97 List I (now, Entry 92-C of List I, after 2003). If the nature of the transaction had elements of both sale and service, the question which arose was whether both the State legislature and Parliament could levy their separate taxes together or only one of them. The Court, inter alia, held:- "The nature of the transaction involved in providing the telephone connection may be a composite contract of service and sale.....
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.... levy tax on services..." 34. As stated above, Entry 60, List II refers to taxes on professions, etc. It is the tax on the individual person/firm or company. It is the tax on the status. A chartered accountant or a cost accountant obtains a licence or a privilege from the competent body to practise. On that privilege as such the State is competent to levy a tax under Entry 60. However, as stated above, Entry 60 is not a general entry. It cannot be read to include every activity undertaken by a chartered accountant/cost accountant/architect for consideration. Service tax is a tax on each activity undertaken by a chartered accountant/cost accountant or an architect. The cost accountant/chartered accountant/architect charges his client for advice or for auditing of accounts. Similarly, a cost accountant charges his client for advice as well as doing the work of costing. For each transaction or contract, the chartered accountant/cost accountant renders profession based services. The activity undertaken by the chartered accountant or the cost accountant or an architect has two aspects. From the point of view of the chartered accountant/cost accountant it is an activity undertaken by ....
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....e Constitution of India, read with the Seventh Schedule thereof is in question, the Court may have to take recourse to various theories including "aspect theory", as was noticed by this Court in Federation of Hotel & Restaurant Assn. of India v. Union of India [(1989) 3 SCC 364]". "31. The court, while interpreting a statute, must bear in mind that the legislature was supposed to know law and the legislation enacted is a reasonable one. The court must also bear in mind that where the application of a parliamentary and a legislative Act comes up for consideration; endeavours shall be made to see that provisions of both the Acts are made applicable. 32. Payments of service tax as also VAT are mutually exclusive. Therefore, they should be held to be applicable having regard to the respective parameters of service tax and the sales tax as envisaged in a composite contract as contradistinguished from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract, irrespective of the element of service pr....
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....supra)]. 7. For deciding the true character and nature of a particular levy, with reference to the legislative competence, the court has to look into the pith and substance of the legislation. [All India Federation of Tax Practitioners (supra)]. 8. The court must also bear in mind that where the application of a parliamentary and a legislative Act comes up for consideration; endeavours shall be made to see that provisions of both the Acts are made applicable. [Imagic (supra)]. 9. The performance, film or programmes shown to the viewers through the cable television network come within the meaning of entertainments and therefore within the legislative competence of the State Legislature under Entry 62 of List II of the Seventh Schedule to the Constitution to make law for the levy and collection of tax on such entertainments. [Purvi Communications (supra)]. Analysis of the Tax in question 26. Keeping the above principles in mind, the first thing is to see as to whether there is any overlap insofar as Entry 92C of List I and Entry 62 of List II are concerned? Entry 92C of List I provides for "taxes on services" whi....
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.... notify in this behalf, which shall be collected by the proprietor and paid to the Government in the manner prescribed. A plain reading of the provision makes it clear that the tax or levy is on "entertainment" through a DTH service. Now, "entertainment" as defined in section 2(i) of the said Act includes "entertainment through cable service and direct-to-home (DTH) service". The emphasis is on "entertainment" and not on the vehicle for such entertainment. We have already seen in the case of Purvi Communications (supra) that the Supreme Court held the performances, films or programmes shown to the viewers through the cable television network (cable service) as falling within the meaning of "entertainments" and therefore within the legislative competence of the State Legislature under Entry 62 of List II of the Seventh Schedule to the Constitution to make law for the levy and collection of tax on such entertainments. Clearly, then, the same performances, films or programmes shown to the viewers through the DTH service would also fall within the meaning of "entertainments" and therefore the tax in question would be within the legislative competence of the State Legislature under Entr....
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....ion or connection charges or any other charges collected in any manner whatsoever for entertainment through direct-to-home (DTH) broadcasting service or distribution of television signals and value-added services with the aid of any type of addressable system, which connects a television set, computer system at a residential or non-residential place of subscriber's premises, directly to the satellite or otherwise. Let us compare this with the traditional concept of "payment for admission" as contemplated in section 2(m)(i) of the said Act to mean "any payment made by a person for seats or other accommodation in any form in a place of entertainment". This brings to fore the classical concept of payment for a cinema ticket or a theatre ticket. Without the ticket you cannot enter the place of entertainment and, therefore, cannot receive the entertainment. Times have changed, technology has changed and this has brought about a complete upheaval in the manner of delivering entertainment. Our drawing rooms have taken the place of the cinema hall or theatre and the cable TV or DTH connection has taken the place of the paper ticket. Similarly, money paid for the ticket has been substit....
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....e installed by the petitioners at their subscribers' premises pick up these Ku Band signals which are then decrypted by the set-top boxes and viewing cards provided by the petitioners. These decrypted signals are then viewed by the subscribers on their TV sets. Apart from installation charges, the subscribers have to pay a monthly subscription ranging from Rs. 99 to Rs. 400 depending on their choice of channels. The payment for subscription is like the payment for a cinema ticket or a theatre ticket. Since the "admission" to entertainment in the case of entertainment through DTH service is continuous (i.e., 24 x 7 x 365), the subscription charge is on a monthly basis. The DTH connection is a "ticket" to continual entertainment at any time of the day or night. This has been made possible because of advancement in technology. But, conceptually, the DTH connection which enables admission to entertainment is no different from the traditional cinema ticket which permits entry into a cinema hall for viewing a film. 34. The petitioners have provided the infrastructure for downlinking signals of TV channels and of up-linking them to their Ku Band designated transponders and so on ti....