TaxTMI 
TaxTMI 
2025 (2) TMI 892
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.... Film Exhibitors Federation. Appellant No. 2 is a theatre owner. Respondents are the State of Kerala, Ministry of Culture, Department of Cultural Affairs, Kerala Cultural Activists' Welfare Fund Board, the local authorities, Kerala Poorakkali Kala Academy, Kerala Drama Workers' Welfare Association, Pallassana Social Development Society, National Association of Malayalam Artists; and Kerala Cine Exhibitors Association. 3. The Kerala Local Authorities Entertainments Tax Act, 1961 (Act of 1961) received the assent of the Governor on 1 July 1961. The Act of 1961 unifies and amends the law relating to the imposition and collection of taxes on amusements and other entertainments by the local authorities in the State of Kerala. Section 3 is the charging provision for the levy of tax and the rate of tax. Under this provision, a local authority, as defined under Section 2 (6) of the Act of 1961, may levy entertainment tax at the prescribed rate. Section 3A of the Act of 1961 levies entertainment tax on seating capacity and Section 3B for amusement parks. 4. Under the Kerala Cultural Activists' Welfare Fund Act, 2010 (Act of 2010), a Fund is constituted to grant relief to cultural ....
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....n Special Leave to Appeal No. 12797 of 2016, and the Hon'ble Supreme Court disposed of the appeal with a direction to take up the pending writ appeal early. 9. When the present Appeal, along with W.A. Nos. 2311 of 2015 and 2661 of 2015 filed by the Petitioners/viewers had come up before the Division Bench on 27 June 2019; Appellant - film viewer in W.A. No. 2661 of 2015 sought time to take instructions as to whether the impugned levy on cinema ticket was subsumed into Goods and Services Tax (GST) regime. Thereafter, the Division Bench, by order dated 27 June 2019 in W.A. No.2311 of 2015, recording the statement of the learned counsel Mr. V.A. Vinod appearing for the Appellant therein that in view of the imposition of the GST regime, the Appellant was not interested in pursuing the matter, dismissed the appeal as not pressed. 10. Since one of the appeals was disposed of with reference to the GST regime, we called upon the learned Advocate General to explain the position. The learned Advocate General pointed out that after the Constitution (One Hundred and First Amendment) Act, 2016, a new regime of Goods and Services Tax was introduced, and Entry 62 in List II - State List....
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....h is the subject matter of challenge in this Appeal, reads as follows: "3C. Levy and collection of cess.-(1) There shall be levied and collected a cess for the purposes of the Kerala Cultural Activists' Welfare Fund constituted under the Kerala Cultural Activists' Welfare Fund Act, 2010 (6 of 2011) at such rate not exceeding three rupees on each admission to cinema, the price of admission to which exceed twenty five rupees, as the Government may, by notification in the Gazette, specify, from time to time. (2) The cess levied under sub-section (1) shall be collected by the local authority along with the tax on each price for admission to cinema and the proceeds of the cess, less collection charges at such rate as may be specified by the Government by notification in the Gazette from time to time shall be paid to the Kerala Cultural Activists' Welfare Fund Board constituted under the Kerala Cultural Activists' Welfare Fund Act, 2010. (3) The proceeds of the cess collected under sub-section (2) for each calendar month shall be remitted by the Secretary of the local authority to the account of the Kerala Cultural Activists' Welfare Fund Board on or before the....
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....of cinema, electronic media, drama, music, kathakali, ganamela, mimics, literature, painting, sculpture, folklore, ritual arts, semi classical arts, folk songs, makeup, percussion arts, magic, circus, margamkali, chavittu nadakam, cartoon, poetic story presentation. They include those who recite Holy Books, Bible recitation, Koran recitation and Mappilakalakal. All these include the ones engaged in stage decoration, light and sound, costume design, art of advertising, painting, compeering, photography or any person working as a librarian or any person working in connection with any such other form of art, literature, culture, or cultural speech. Section 2(e) of the Act of 2010 defines cultural activity as an activity performed by a cultural activist and recognised by the respective Academy or Organisation. Under Section 3 of the Act of 2010, the Kerala Cultural Activists' Welfare Fund Scheme is framed. The sources to be credited to the Fund under the schemes are specified in this Section. These include contributions to the Fund, specified in Section 6 of the Act. Those are grants, loans, advances or donations made by the Central or State Government; amount borrowed by the Board....
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.... are referred to, the learned Advocate General primarily has traced its legislative competence to enact Section 3C of the Act of 1961 to Entries 62 and 66 of List II, Schedule VII to the Constitution of India. Firstly, we take up the aspect of Entry 62, a tax on entertainment, of List II, VII Schedule to the Constitution of India. 19. Entry 62 of List II, VII Schedule to the Constitution of India relied upon by the State prior to its amendment by the Constitution (One Hundred and First Amendment) Act, 2016 reads as follows: "62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling." After the amendment, the Entry reads as follows: "62. Taxes on entertainments and amusements to the extent levied and collected by a Panchayat or Municipality or a Regional Council or a District Council." As pointed out by the learned Advocate General, though there is a substantial change in the language of Entry 62 of List II, VII Schedule to the Constitution of India, this change is not relevant to the legislative power of the State. In view of the advent of the GST regime, the levy of taxes was fundamentally altered, and the tax on entertainment ....
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....he whole enactment, its object, scope and effect of its provision. What is to be found out is the real nature of the levy, its pith and substance, and it is in this light that the competency of the State Legislature is to be adjudged. After expounding the concept of pith and substance, the Supreme Court, while examining Entry 62 of List II in Schedule VII to the Constitution of India, held that the incidence of the tax was on entertainment itself, and since entertainment necessarily implies the persons entertained, the incidence of the tax was on the persons entertained. The observations from this judgment, relevant to this case, are as follows: "13. Entry 62 List II of the Seventh Schedule empowers the State Legislature to levy tax on luxuries, entertainment, amusements, betting and gambling. Under Entry 62, the State Legislature is competent to enact law to levy tax on luxuries and entertainment. The incidence of tax is on entertainment. Since entertainment necessarily implies the persons entertained, therefore, the incidence of tax is on the person entertained. Coming to the question whether the State Legislature is competent to levy tax on admission of cars / motor veh....
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....aterial in what name and form it is imposed. The word "entertainment" is wide enough to comprehend in it, the luxury or comfort with which a person entertains himself. Once it is found there is a nexus between the legislative competence and subject of taxation, the levy is justified and valid. We, therefore, find that the State Legislature was competent to enact sub clause (v) of Clause (i) of Section 2 of the Act. We accordingly hold that the impugned levy is valid." (emphasis supplied) Thus, the Supreme Court, applying the doctrine of pith and substance, held that the entertainment tax is on the person entertained. Thus, Entry 62 in List II, as regards entertainment, pertains to tax on the person being entertained - in the case at hand, the film viewer. 22. Turning now to the decision of the Constitution Bench relied upon by the Appellants in the case of Koluthara Exports Ltd. This decision is distinguished by the learned Single Judge and held not applicable. In this case, the appeal before the Hon'ble Supreme Court arose from the decision of the Division Bench of the Kerala High Court upholding the constitutional validity of Section 4 (2) r/w. Section 2(d) of ....
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....mitted that without amending the definition of admission fee, no charge on the admission is sought to be levied through the impugned Cess. There cannot be contradictory statutory provisions. The decision in the case of Padmanabhan also cannot be of any assistance to the Appellants. The learned Single Judge was considering a limited question as to whether the amount received for advance reservation of seats is liable to be included in the price of tickets on which tax is leviable under the Act of 1961. The learned Single Judge held that tax can only be levied on the price of admission and that advance reservation charges cannot be included. The argument before the learned Single Judge was solely based on the definition of the price of admission for the purpose for which the amount was liable to tax. Therefore, this decision is not relevant to the case at hand. 24. It is clear that the impugned levy is on entertainment. The Cess levied under Section 3C of the Act of 1961 and collected is for the Kerala Cultural Activists' Welfare Fund, established under the Act of 2010. This Cess shall not exceed Rs. 3/- per cinema admission where the ticket price is more than Rs. 25/-. The lo....
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.... 13. Hence ordinarily a cess is also a tax, but is a special kind of a tax. Generally tax raises revenue which can be used generally for any purpose by the State. For instance, the Income Tax or Excise Tax or Sales Tax are taxes which generate revenue which can be utilized by the Union or State Governments for any purpose, e.g. for payment of salary to the members of the armed forces or civil servants, police, etc. or for development programmes, etc. However, cess is a tax which generates revenue which is utilized for a specific purpose. For instance, health cess raises revenue which is utilized for health purposes e.g. building hospitals, giving medicines to the poor etc. Similarly, education cess raises revenue which is used for building schools or other educational purposes. 14. However, in such matters nomenclature is not very important and we have to see the nature of the levy. Hence, what is called a cess may be in reality a fee depending on its nature." (emphasis supplied) In the case of Union of India and Another v. Mohit Mineral Private Limited (2019) 2 SCC 599, the Supreme Court elaborated on the levy of Cess and its meaning. The Supreme Court obs....
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....e can be in respect of any of the matters in the List, which would include Entries 5, 33, and 62 of List II-the State List. The reliance placed by the State is more on Entry 66, read with Entry 62 of List II of the VII Schedule to the Constitution of India. 28. The main contention of the Appellants in this regard is that the impugned Cess cannot be justified as a fee under Entry 66 of List II of the VII Schedule to the Constitution of India, as there is no quid pro quo between the payment of Cess by cinema viewers and any corresponding benefits. There is no quid pro quo, and a direct nexus between the person from whom the Fund is collected and the person who is intended to benefit from the Fund must be established. The Appellants contend that charging Cess from the cinema viewers through theatre owners has no nexus to the welfare measures of cultural activists, whose definition is broad and sweeping. It was contended that this definition includes even those who recite holy books such as the Bible and Quran recitations, which are religious activities and have nothing to do with cinema. It is submitted that since a cess or a fee can be charged only if there is a quid pro quo and n....
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....fficient if there is a reasonable relationship between the levy of fees and the services rendered. Establishing that those who pay the fee receive a direct or special benefit or advantage is not necessary. If the one who is liable to pay the fees receives a general benefit, the element of quid pro quo is satisfied. Thus, the contention of the Appellants that there must be a direct nexus between the fee levied and the benefits rendered is incorrect. Services rendered are not a condition precedent nor confined to the contributors alone. A broad co-relation is all that is required. 31. At this stage, a reference to the relevant provisions of the Act of 2010 is necessary. As referred to earlier, the Act of 2010 constitutes a Fund to grant relief to cultural activists, to promote their welfare and to pay pensions to those who engaged in various forms of arts, literature and cultural activities in the State of Kerala and for matters connected therewith or incidental thereto. The definition of "Cultural activist" under the Act of 2010 is wide. The definition reads as follows: "(d) "Cultural activist" means any person engaged in any of the activities relating to the field of ci....
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....ademy, Folklore Academy, Kalamandalam, Lalithakala Academy, Nadaka Academy, and Sahithya Academy. Thus, the State has included all those within the ambit of Section 2(d) of the Act of 2010 engaged in artistic expression and those instrumental in bringing about a culture of appreciation for arts in the State. 33. It is for the benefit of these Cultural Activists that Section 3 of the Act of 2010 constitutes the Kerala Cultural Activists' Welfare Fund Scheme. Section 3(2) provides the sources to be credited to the Fund under the Schemes. These include contributions made to the Fund, specified under Section 6 of the Act; grants, loans, advances or donations made by the Central or State Government; amounts borrowed by the Board constituted under Section 14 of the Act; fees, etc. Section 3(4) of the Act of 2010 provides for utilising the Fund to implement the welfare schemes. The Welfare Fund has to be utilised to pay pensions to a Cultural Activist who has completed 60 years of age and opted for membership as per Section 7 of the Act, as well as other financial assistance. The relevant portion of Section 3 reads as follows: "3. The Kerala Cultural Activists' Welfare....
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.... may be specified in the Scheme, (5) xxxxx (6) xxxxx (7) xxxxx" Thus, this Kerala Cultural Activists' Welfare Fund, managed by the Board, is used for welfare schemes, including pensions for cultural activists aged sixty and above, family pensions, financial aid for medical treatment, disability benefits, maternity assistance, marriage assistance, death benefits, educational loans for members' children, and loans for cultural activities. The conditions for these payments are specified in the Scheme, which has to be presented before the Legislative Assembly for approval. 34. Now, we turn to the aspect of co-relation between the impugned Cess levied on entertainment and the utilisation of the Fund. The Hon'ble Supreme Court in the case of Municipal Committee, Patiala v. Model Town Residents Assn. and Others (2007) 8 SCC 669 has held that, to sustain the presumption of constitutionality, the Court can consider matters of common knowledge and that the Legislature understands and correctly appreciates the needs of its people. 35. To demonstrate the lack of quid pro quo, the Appellants relied upon the definition of cultural activist to stres....
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....g cinema, benefitting the cinema viewers by enhancing the quality of entertainment. Thus, the welfare of cultural activists for which impost is being levied by way of Cess has a connection with the benefit received by the cinema viewers in the form of better entertainment. As stated earlier, the legal position is that it is not necessary to establish a direct benefit, but a general benefit is sufficient to establish a correlation. This test is satisfied in the present case. 37. Therefore, we hold that the impugned Cess can be traced to the legislative power of the State Government to Entries 62 and 66 of List II, Schedule VII to the Constitution of India, and the levy of this Cess is relatable to the benefits received by the cinema viewers on whom the Cess is levied. 38. The Appellants then contended that the field of legislation, that is, the welfare of the artists, is already occupied by the Central legislation, the Cine - Workers Welfare Fund Act, 1981 (Act of 1981), which provides for the welfare of Cinema workers. It is submitted that since the Parliament has already legislated with respect to cine-workers under Entry 23 of List III - Concurrent List, the State is delude....
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....unts in the Fund. Section 4 lays down the measures and facilities, which according to the Central Government, are necessary to promote the welfare of cine workers, such as defraying the cost of such welfare measures or facilities, providing assistance in the form of grants or loans, sanctioning money in aid of any scheme, etc. This Fund under the Central Act is for certain cine - workers who are defined under Section 2(b) of the Act of 1981. Section 2(b) defines cine - workers as follows: "(b) "Cine-worker" means an individual- (i) who has been employed, directly or through any contractor or in any other manner, in or in connection with the production of not less than five feature films to work as an artist (including actor, musician or dancer) or to do any work, skilled, unskilled, manual, supervisory, technical, artistic or otherwise; and (ii) whose remuneration with respect to such employment in or in connection with the production of each of any five feature films, not being less than the monthly remuneration or lump sum remuneration stipulated prior to the commencement of the Cine-workers Welfare Fund (Amendment) Act, 2001, does not exceed s....