AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 1466
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....6D(j) of the Finance Act, 1994, under the negative list, was not liable to taxation. However, by the Finance Act, 2015, sub-clause (j) to Section 66D was omitted, on account of which "admission to entertainment events or access to amusement facilities" was no longer in the negative list of services, consequent to which they became a taxable activity under the Finance Act, 1994, with effect from 01.06.2015. The appellant contends that the Finance Act, 1994, is traceable to Entry 97 of List I of the Seventh Schedule to the Constitution of India and insofar as with reference to Entry 62 of List II of the Seventh Schedule to the Constitution of India dealing with 'taxes on luxuries, including taxes on entertainments, amusements, betting and gambling', the State Government has enacted the Kerala Local Authorities Entertainments Tax Act, 1961 (hereinafter referred to as "Entertainments Tax Act)", providing for levy of tax on the price for admission to entertainment in the facilities of the appellant, there cannot be any levy of service tax under the Finance Act, 1994. To put it otherwise, the appellant's case is that the omission of sub-clause (j) to Section 66D referred to above by the ....
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....rrier would contend that the two fields of legislation are independent of each other, and the learned Single Judge was justified in dismissing the writ petition. He would also state that Entry 62 of List II should be construed in such a manner that the State could only legislate to levy tax on "luxury" and not amusement or entertainment simpliciter. 7. We have considered the rival contentions as well as the connected records. 8. The issue arising for consideration, as framed and answered by the learned Single Judge against the appellant herein, is as to whether the imposition of service tax on the activities carried out by the appellant herein amounts to a transgression by the Union on the legislative powers of the State. 9. The residuary Entry 97 of List I provides for the exclusive power to the Union to make laws with reference to the matters enumerated thereunder. However, Entry 97 categorically excludes those matters which are enumerated in List II or III. In other words, it is only in a situation where a particular subject is not enumerated in List II or III, the question of the Parliament legislating on the particular subject under Entry 97 arises. 10. The content....
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.... is clear from Section 2(1) and (4) of the Entertainments Tax Act. This is further made clear by the definition of the term 'payment for admission' and 'price for admission', clarifying that both the 'admission' as well as 'actual entertainment' are brought to tax. True, Section 3B inserted by Act 26 of 2005, provides for a lump sum payment of tax by amusement parks, with reference to the investment and the area of the park. However, the alternative method of tax under Section 3B of the Entertainments Tax Act also requires to be read along with the charging Section 3 thereto. 12. As against the afore, the Finance Act, 1994, provides for the levy of tax on "services". The term "service" is defined under Section 65B(44) of the Finance Act, 1994, as under:- (44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include:- (a) an activity which constitutes merely- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of c....
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.... I. The afore entries are extracted below for ease of reference:- "List I 97. Any other matter not enumerated in List II or List III, including any tax not mentioned in either of those Lists. List II 62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling." (underlining supplied) 16. Entry 62 of List II provides for the levy of tax on luxuries, including taxes on entertainment/amusement, etc. The scope and ambit of Entry 62 of List II arose for consideration before the Apex Court in Godfrey Phillips India Ltd. and Another v. State of U.P. and Others [(2005) 2 SCC 515]. The Apex Court was called upon to consider the question as to whether under the afore entry, the levy of luxury tax on "goods or articles" was contemplated. The Apex Court, while holding that Entry 62 of List II only empowers taxation of "activities" and not "goods or articles of luxury," held as under: "74. ........ In the context of Entry 62 of List II this would not mean that the word "luxuries" would be restricted to entertainments, amusements, betting and gambling but would only emphasis the attribute which is common to t....
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....e legislative power of the Union under Entry 97 of List I. The matter was considered by the Constitution Bench in the afore circumstances. After referring to the legislative powers of the Parliament and the State Legislature as prescribed under Article 246 of the Constitution of India, the Apex Court held that the power of making any "laws imposing tax not mentioned in the Concurrent List or State List vests in the Parliament", being the residuary power. The Apex Court also referred to the principles summarised in Hoechst Pharmaceuticals Ltd. and Others v. State of Bihar and Others [(1983) 4 SCC 45], wherein it was found that the various entries in the three Lists were "fields of legislation" on account of which independent sources of taxation is extended to the Union and the State, that therefore they must receive a liberal construction prescribed by a broad and generous spirit and not a narrow pedantic sense, that when questions of the like nature where overlapping may occur arises, the doctrine of pith and substance requires to be applied to find out to which Entry a legislation relates, that the statute is to be analysed as a whole with reference to its main objects, scope and ....
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.... avoid any conflict. If there is no conflict, an occasion for deriving assistance from non obstante clause "subject to" does not arise. If there is conflict, the correct approach is to find an answer to three questions step by step as under: One - Is it still possible to effect reconciliation between two entries so as to avoid conflict and overlapping? Two - In which entry the impugned legislation falls by finding out the pith and substance of the legislation? and Three - Having determined the field of legislation wherein the impugned legislation falls by applying the doctrine of pith and substance, can an incidental trenching upon another field of legislation be ignored? ............... (9) The heads of taxation are clearly enumerated in Entries 83 to 92-B in List I and Entries 45 to 63 in List II. List III, the Concurrent List, does not provide for any head of taxation. Entry 96 in List I, Entry 66 in List II and Entry 47 in List III deal with fees. The residuary power of legislation in the field of taxation spelled out by Article 248(2) and Entry 97 in List I can be applied only to such subjects as are not included in Entries....
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....on entertainments and amusements by the State legislature. Applying the doctrine of pith and substance, as held by the Supreme Court, it has to be noticed with reference to the provisions of the Entertainments Tax Act, as a whole, that the State legislation provides for imposing tax on the entertainment/amusement, for which the entertainee is admitted. In the light of the afore, we are of the opinion that the question of imposition of tax on the activities of the appellants herein can only be with reference to Entry 62 of List II. 21. We would also notice the judgment of the Division Bench of this Court in Kerala Bar Hotels Association (supra), which considered the challenge against the imposition of service tax by the air-conditioned restaurants and the service provided by hotels providing accommodations to their guests. The imposition as above was challenged mainly contending that the levy encroaches on the legislative power of the State Government under Entry 54 (taxes on sales) and Entry 62 (taxes on luxuries etc.) of List II. The Division Bench of this Court, with reference to the provisions of Entry 54, found that after the 46th Amendment of the Constitution, tax could onl....
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....". The Court accepted this contention, essentially because it was the aspect of "expenditure" of the particular transaction that was sought to be assessed by the Union. But in the case at hand, the principles laid down in the afore judgment cannot be applied to repel the challenge against the constitutionality, since the "aspect" that is now sought to be assessed under the Finance Act, 1994, and the Entertainments Tax Act, is one and the same - the aspect of entertainment/amusement. The aspect of "amusement" or "entertainment" to the extent of imposition of tax is within the domain of the State legislature under Entry 62 of List II. Therefore, the residuary power cannot be applied to the case at hand. 24. The judgment of the Apex Court in All-India Federation of Tax Practitioners and Others v. Union of India & Others [(2007) 7 SCC 527], also requires to be noticed. The afore case considered the challenge against the imposition of service tax on practising Chartered Accountants, Cost Accountants, etc. The challenge was with reference to the incompetency of the Union under Entry 97 of List I, pointing out the levy of tax by the State under Entry 60 of List II on "profession, trade....
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.... the "income" of the operator. The Apex Court found that tax is being collected on the fares and freights, which is only a measure of tax, and the subject of taxation is passengers only, thus upholding the levy. Here, the subject of taxation in the Finance Act and the Entertainments Tax Act being one and the same, the challenge raised requires to be accepted. We also note that the measure of tax is also one and the same under the two enactments. 26. The Apex Court in State of Karnataka and Others v. Drive-in Enterprises [(2001) 4 SCC 60] considered the imposition of entertainment tax with reference to the provisions of the Karnataka Entertainments Tax Act, 1958, which was struck down by the Karnataka High Court as being beyond the legislative competence of the State legislature. The contention taken was that the imposition of entertainment tax on 'admission of cars' inside the theater was ultra vires to the Constitution of India. The Apex Court held that in such circumstances, the true nature and character of an enactment can be ascertained by examining the whole enactment, its objects, scope, and effects of its provisions. The Apex Court also noticed the provisions of the Karna....
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...."entertainment", it is wholly immaterial 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." (underlining supplied) Thus, applying the doctrine of pith and substance, the Apex Court found that the levy is actually on the person who is being entertained and not merely on the admission of the vehicle inside the drive-in-theater. The Court also found that it is the variation in the comfort offered to the person entertained which is being assessed to entertainment tax. Therefore, it is clear that it is the service being offered that is assessed to the entertainment tax. We also notice that the provisions of the Kerala Act and the Karnataka Act are in pari materia. Hence, the Kerala Act would be within the legislative competence of the State legislature under Entry 62 o....
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.... leviable on the activity of the assessees herein. This is because by rendering the service of broadcasting, the assessees are entertaining the subscribers within the meaning of entry 62-List II. There is no overlapping in fact or in law, inasmuch as different aspects of the same activity are being taxed under two different legislations by two different Legislatures. This is because the activity of broadcasting is a service and liable to service tax imposed by the Parliament (entry 97-List I) and the activity of entertainment is a subject falling under entry 62-List II and therefore, the assessees herein are liable to pay entertainment tax as well. Hence, the State Legislatures as well as the Parliament, both have the legislative competence to levy entertainment tax as well as service tax respectively on the activity carried out by the assessees herein." (underlining supplied) Thus, the Apex Court held that both service tax and luxury tax can be imposed since there are two aspects in the activities concerned, 'transmission of signals', and 'decryption of the signal by the set-top boxes', and hence both service tax as well as luxury tax could be levied, and ther....