State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

State of Kerala vs. Asianet:

15. By the impugned order dated 28.06.2012 passed in W.P.(C) No. 33966/2006 (R), the Kerala High Court, while hearing the matter after it being remanded by this Court, held that the impugned provisions of The Kerala Tax on Luxuries Act, 1976(for short, ‘the Kerala Act of 1976’) which authorized the levy and collection of luxury tax on cable TV operators only with connections of 7500 or above was discriminatory and hence the impugned provision was struck down for being unconstitutional and invalid. 15.1 The proceedings in the first round of the same writ petition are germane to the impugned judgment. By judgment dated 27.08.2009 the High Court had initially dismissed the writ petition filed by Cable TV Operators challenging the constitutional validity of levy of luxury tax with effect from 01.04.2006. However, this Court by order dated 03.02.2011 in C.A. 1433-34/2011 had remanded the matter back to the Kerala High Court to consider the additional grounds under Article 14 raised by the Cable TV Operators. 15.2 While hearing the matter upon remand, the impugned judgment dated 28.06.2012 was passed. Pertinent to note is that by way of amendment dated 11.11.2011 all cable operators were deleted from the purview of the Kerala Act of 1976 w.e.f. 01.04.2011. Hence, the impugned judgment was only concerned with recovery of arrears of luxury tax for the period 2006-2010. 15.3 By way of the Kerala Finance Act, 2006, the State legislature amended the Kerala Act of 1976 and introduced luxury tax on cable TV operators @ Rs.5/- per connection to be collected and remitted from every subscriber of cable TV. Initially, the amendment made with effect from 01.04.2006 was challenged on several grounds: firstly, the service provided by the cable TV operators did not amount to “luxury” within the meaning of Entry 62 - List II as well as the definition of “luxury” contained in the Act. Secondly, the impugned provisions were discriminatory and violative of Article 14 of the Constitution in as much Direct to-Home operators providing the same service to consumers were not subjected to luxury tax. As the

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Kerala High Court dismissed the writ petition, the cable TV operators challenged the decision before this Court. During the pendency of the appeals in this Court, the Government of Kerala retrospectively amended the Kerala Act of 1976 by exempting cable TV operators who had less than 7500 connections w.e.f. 01.07.2006. As the writ petitioner therein came within the taxing net, this retrospective amendment was used as a new ground before this Court along with the argument that the Kerala High Court had not considered the challenge on the anvil of Article 14 of the Constitution with reference to Direct-to-Home operators who were also providing the same service. 15.4 In the second round of litigation before the High Court, the first contention raised by the cable TV operators was that Section 2(ee) of the Kerala Act of 1976 defines “luxury”, however, cable TV connection cannot be considered a “luxury” as it is subscribed by a large number of people in the State and monthly contribution is only around Rs.200/-. This argument was rejected by the High Court relying on the decision of this Court in Purvi Communication. It noted that even though “entertainment” as such is not specifically defined under the Kerala Act of 1976 and only the expression “luxury” is, the High Court noticed that Entry 62 - List II specifically covers “entertainments” separately and therefore the State can levy tax on “entertainments” as tax on “luxury” under the said entry of the Constitution. 15.5 Furthermore, relying on Bharat Sanchar Nigam Limited, the High Court held that the same transaction may attract liability as service tax as well as liability for tax under any other permissible in law. Therefore, the High Court held that the service rendered by cable TV operators involved “entertainment” to subscribers and attracted luxury tax as well as service tax. 15.6 However, the third contention raising an Article 14 challenge by the cable TV operators was accepted by the High Court. The High Court held that by way of the 2010 Amendment retrospectively exempting all cable TV operators who have less than 7500 connections from tax liability was an unreasonable classification made as the cable TV operators

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

who have above 7500 connections are discriminated by making them solely liable to pay luxury tax. After noting that the amendment puts more than 90% of the operators outside the taxing limit, it was observed that the classification defeats the intent of the legislation as the incidence of tax is intended to be on the subscribers for the entertainment they enjoy, and the cable TV operator is only a collecting agency by virtue of the charge on them under the Act. That the subscriber is agnostic to whether the facility enjoyed by him is provided by a cable TV operator serving above or below 7500 connections and that such a distinction enables the subscriber to avoid tax liability by joining an operator with less than 7500 connections. Finally, the High Court noted that the Amendment of 2011 had completely deleted cable TV operators from the purview of the Kerala Act of 1976 and that the matter only served the purpose of collecting arrears from the cable TV operators with connections above 7500 for the period from 2006 to 2010. 15.7 Although the High Court had already accepted the Article 14 argument, the Cable TV Operators requested the High Court to consider the additional ground of discrimination and violation of Article 14 with reference to the DTH operators, who provide the same service as cable TV operators to the subscribers. The High Court while rejecting this contention held the argument is academic in nature because during 2006 when luxury tax was introduced on cable TV operators, Direct-to-Home connections (DTH) were not in vogue and as and when the DTH operations became extensive, the Government introduced luxury tax on DTH operators. It was observed that the ground of discrimination cannot be considered hypothetically or theoretically and it has application only when the parties in relation to whose operations discrimination is alleged also are in actual and effective business. 15.8 Therefore, in sum and substance, the provisions of the state Act authorizing levy and collection on Cable TV Operators with connections of 7500 or above was declared as unconstitutional for being discriminatory and violative of Article 14 of the Constitution.

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Submissions: 15.9 On behalf of the State of Kerala, Sri Shishodia, learned senior counsel, has argued that the State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others, vide East India Tobacco Company vs. State of Andhra Pradesh, (1963) 1 SCR 404 (“East India Tobacco Company”).

Judgments relied upon by State of Kerala: 15.10 A few of the judgments relied upon by Sri Shishodia, learned Senior Counsel appearing for the State of Kerala, in support of his contentions, are discussed as follows: 15.10.1 As regards the applicability of tests of discrimination in a taxing law, this Court in East India Tobacco Company held that while taxation laws must also pass the test of Article 14, in deciding whether a taxation law is discriminatory or not, it is necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. This Court noted that it is only when the law operates unequally within a range of its selection and such inequality cannot be justified on the basis of any valid classification, that the law would be violative of Article 14 of the Constitution. 15.10.2 Further, this Court in P.M. Ashwathanarayana Setty vs. State of Karnataka, (1989) Supp. (1) SCC 696 (“P.M. Ashwathanarayana”) and in R.K. Garg vs. Union of India, (1981) 4 SCC 675 noted that the State enjoys the widest latitude where measures of economic regulation are concerned, and that courts give a larger discretion to the Legislature when it comes to matters of the latter’s preferences of economic and social policies. As further held in Federation of Hotel & Restaurant Association of India, the test of the vice of discrimination in a taxing law are, therefore, less rigorous.

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

15.11 On the question of the constitutionality of classification on the basis of criterion such as scale of operations, profits of businesses, etc., the following judgments were cited: (i) In Kodar vs. State of Kerala, (1974) 4 SCC 422, this Court rejected a contention that the impugned provision therein imposing different rates of tax upon different dealers depending upon their turnover which in effect meant that the rate of tax on the sale of goods would vary with the volume of the turnover of a dealer was violative of Article 14 of the Constitution. This Court held that a legislative classification making the burden of the tax heavier in proportion to the increase in turnover would be reasonable. As regards the reasoning for the same, this Court noted, “A classification, depending upon the quantum of the turnover for the purpose of exemption from tax has been upheld in several decided cases. By parity of reasoning, it can be said that a legislative classification making the burden of the tax heavier in proportion to the increase in turnover would be reasonable. The basis is that just as in taxes upon income or upon transfers at death, so also in imposts upon business, the little man, by reason of inferior capacity to pay, should bear a lighter load of taxes, relatively as well as absolutely, than is borne by the big one. The flat rate is thought to be less efficient than the graded one as an instrument of social justice. The large dealer occupies a position of economic superiority by reason of his greater volume of his business.” (emphasis supplied)

(ii) Similarly, in Kerala Hotel and Restaurant Association vs. State of Kerala, (1990) 2 SCC 502, the question before this Court was, whether, the taxing of only the sale of costlier cooked food in posh eating houses (determined

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on the basis of their annual turnover or as determined by Tourism Department of Government of India) while exempting cooked food sold in modest eating houses at lesser prices violates Article 14 of the Constitution. This Court held that the classification so made cannot be termed as arbitrary, as it was within the limits up to which the legislature is given a free hand for making classification in a taxing statute. (iii) Further, the question in Ganga Sugar Corporation Ltd. vs. State of Uttar Pradesh, (1980) 1 SCC 223 was, inter alia, whether the differential purchase tax imposed by weight, and not price, of sugarcane bought by factories and units, at one rupee 25 paise per quintal and 50 paise per quintal respectively, was discriminatory. This Court held that: “A classification based on scale of operations, product manufactured and other substantial differences bearing on production capacity, profits of business and ability to pay tax, is constitutionally valid and the feeble contention counsel put forward that there is discrimination between owners of factories and units must fail without much argument.” 15.12 That, this Court has held that it is for the State to decide what economic and social policy it should pursue and what factors advance those social and economic policies, vide P.M. Ashwathanarayana. 15.13 Reliance was also placed on the decision of this Court in Federation of Hotel & Restaurant Association of India wherein this Court, in the facts therein, held that the basis of classification in enactment cannot be said to be arbitrary or unintelligible, nor as being without a rational nexus with the object of law. In that case, a hotel where a unit of residential accommodation was priced at over Rs 400 per day per individual was classified as luxury in the legislative wisdom by virtue of the economic superiority of those who might enjoy its custom, comforts and services.

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

15.14 It was also contended that the High Court erred in relying on statistics regarding the cable TV operators and their subscribers to hold that more than 90% of the operators being outside the scope of taxation detracts from the intent of the legislation. It was contended that such an exercise is one only within the executive domain. In the same vein, it was also argued that economic legislation is empirical in nature as well as based on experimentation and therefore, ordinarily must allow for greater latitude to be given to the legislature. Reliance was also placed on TwyFord Tea Co. vs. State of Kerala, 1970 (1) SCC 189 to contend that in matters of classification for taxation the burden of proof is on the person alleging discrimination and such burden is heavier when a taxing statute is challenged. 15.15 In our view, the facts of this case, C.A. No 9301/2013, and the issues raised herein stand on a different footing from other cases in this batch of appeals, which is concerned with the imposition of levy on DTH operators. After the 2010 amendments, the structure of charging section i.e. Section 4 qua cable operators stood as such: (i) Sub-clause(ii) to sub-Section (1) to Section 4 provided for levy of luxury tax in respect of any luxury provided by cable operators; (ii) Sub-clause(iv) to the first proviso to sub-Section (1) to Section 4 provided that sub-Section(1) would not apply to cable operators with seven thousand and five hundred or connections or less; and (iii) Second Proviso to sub-Section (1) to Section 4 provided that cable operators with seven thousand and five hundred or less connections shall not be liable to tax from 1st July, 2006. 15.16 Pertinently, the Finance Act, 2011(Act No. 16 of 2011) deleted all cable operators from the purview of the Kerala Act of 1976. Therefore, the impugned judgment dated 28.06.2012 is only concerned with the levy of luxury tax on only on cable TV operators from 2006-2010.

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15.17 In our view, the High Court erred in holding that the classification was unreasonable and lacked any rational nexus with the objects of the Kerala Act of 1976. Indeed, the intent of a taxing statute is to broaden the tax base and raise revenue for the State, however it is also settled law that the judiciary will ordinarily allow for greater latitude to be given to the legislature and defer to its economic wisdom in taxing statutes. In Income Tax Officer, Shillong vs. R. Takin Roy Rymbai, (1976) SC 670, this Court had usefully held that: “… Given legislative competence, the legislature has ample freedom to select and classify persons, districts, goods, properties, incomes and objects which it would tax, and which it would not tax. So long as the classification made within this wide and flexible range by a taxing statute does not transgress the fundamental principles underlying the doctrine of equality, it is not vulnerable on the ground of discrimination merely because it taxes or exempts from tax some incomes or objects and not others. Nor the mere fact that tax falls more heavily on some in the same category is by itself a ground to render the law invalid. It is only when within the range of its selection, the law operates unequally and cannot be justified on the basis of a valid classification, that there would be a violation of Article 14.” 15.18 Further in M/s Hoechst Pharmaceuticals Ltd. vs. State of Bihar, AIR 1983 SC 1019, it was observed that:- “….On questions of economic regulations and related matters, the Court must defer to the legislative- judgment. When the power to tax exists, the extent of the burden is a matter for discretion of the law- makers. It is not the function of the Court to consider the propriety or justness of the tax or enter upon the reality of Legislative policy. If the evident intent and general operations of the tax legislation is to adjust the burden with a fair and reasonable degree of equality, the constitutional requirement is satisfied. ...”

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

15.19 We find that the aforesaid observations of this Court squarely exposit the fallacy in the reasoning of the High Court. Even if the statistics presented before the High Court regarding the cable TV operators and their subscribers evinced that the exemption given by the amendment and retrospective exemption granted by the proviso pushed 90% of the operators outside the scope of taxation, the High Court ought to have taken note of the apparent intent of the legislature to tax only those with more than 7500 connections. The High Court was obligated to glean the intent of the legislation by accounting for the exemption provided and not by masking it. The exemption and the proviso, inserted by way of an amendment, was clearly a statutory tool employed by the legislature to give effect to its conscious decision to levy tax only on the cable operators with more than seven thousand and five hundred connections. Furthermore, there is no reason for striking down a law as unconstitutional merely on the premise that the subscriber could evade or avoid tax liability simply by taking services of an operator with less than seven thousand and five hundred connections. Where the legislation is passed in accordance with constitutional prescriptions, a good faith presumption is accorded to the legislature. Similarly, it is presumed that the legislature acted with due and elaborate understanding of the societal context for which it legislates. Herein, the legislature perhaps factored that operators with more than 7500 connections ordinarily give add-on features that closely relate to the character of luxury. Be that as it may. Unless a violation of fundamental rights or lack of legislative competence is proved, Courts must be circumspect in interfering with the validity of legislations. It is trite law that this threshold is even stricter in economic legislations. 15.20 In any event, if the High Court was of the view that the exemption created was unconstitutional then the correct course would have been to strike down the exemption and direct recovery of tax payable from all assessees for the relevant time period in accordance with sub-section (1) of Section 4. Instead, the High Court has done the opposite. It declared as unconstitutional the provisions of the Kerala Act of 1976 authorizing levy and collection on Cable TV Operators with

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connections of seven thousand and five hundred and above. As a result, the revenue payable by a category of assessees who do not fall within the exemption clause is stalled. This not only affects the State’s exchequer but also does not further the plea of equality pressed into service by the assessees. The High Court could have struck down the exemption and directed all cable TV Operators to pay the tax. Instead, while holding that there was a discrimination and violation of Article 14 of the Constitution the High Court has granted an exemption to even the assessee who was liable to pay the entertainment tax under the Kerala Act. By placing the assessee on par with those exempted from payment of entertainment tax, the principle of equality is not applied in its true spirit to the facts of the case. Rather, the High Court has treated unequals as equals, which is in fact a detriment to the plea of equality raised by the petitioner assessee. Rather than striking down the proviso, if the High Court was of the opinion there was a violation of the equality clause under the Constitution, the High Court has extended the exemption clause to the assessee also, which is impressible. As a result, no cable TV operator would have to pay any entertainment tax. This lacuna in the judgment requires a course connection and hence that portion and particularly paragraph No.6 of the judgment of Kerala High Court dated 28.06.2012 is set aside. The writ petition filed by the assessee is dismissed and the civil appeal filed by the State of Kerala is liable to be allowed and is allowed. 15.21 For the aforesaid reasons, the judgment of the Kerala High Court is liable to be set aside only on the question of holding that the levy of luxury tax on cable TV operators above 7500 connections being discriminatory and violative of Article 14 of the Constitution of India and thereby declaring it to be unconstitutional.

Jharkhand High Court’s Ruling:

16. The Jharkhand Entertainment Tax Act, 2012 was published in the Gazette on 27.04.2012. It was however, under Section 1(3), to come into force on such date as the State Government might, by notification, direct. The Act was notified by the State Government only on 14.05.2012 with effect from 27.04.2012 i.e. the date of publication.

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

We do not find any merit in the argument of the appellants that the State Government could not have directed the Act, a taxing statute, to come into force with effect from a date anterior to the date of the notification. 16.1 It was contended before the High Court that the Notification dated 14.05.2012 issued by the State Government under Section 1(3) of the Jharkhand Entertainment Tax Act, 2012 appointing 27.04.2012 as the date of implementation of the Act suffers from the vice of imposing retrospective taxation in the absence of any express legislative provision providing for it. This argument was rejected by the High Court vide the impugned judgment. The High Court speaking through Bhanumati, C.J. (as Her Ladyship then was), vide the impugned judgment, has relied on the decision of this Court in A. Thangal Kunju Musaliar vs. M. Venkatachalam Potti, (1956) 29 ITR 349 (“A. Thangal Kunju Musaliar”), wherein the controversy concerned The Travancore Taxation on Income (Investigation Commission) Act, 1949 (“Travancore Act”) passed by the Travancore legislature on 07.03.1949. The Act was, under Section 1(3), to come into force on such date as the Travancore Government might have by notification in the Government Gazette appointed. No notification was issued by the Travancore Government up to 01.07.1949 when the Travancore State and the Cochin State integrated into the United State of Travancore and Cochin. On 01.07.1949, the United State of Travancore and Cochin promulgated an ordinance whereby all existing laws of Travancore were continued in force till altered, amended or repealed by competent authority and the “existing law of Travancore” was therein defined to mean any law in force in the State of Travancore immediately prior to 01.07.1949. On 26.07.1949, a notification was issued under Section 1(3) bringing the Travancore Act into force retrospectively from 22.07.1949. It was contended before the Constitution Bench of this Court that the notification dated 26.07.1949 could not be given retrospective effect from 22.07.1949, in absence of any express provision. 16.2 We are conscious the enactment concerned therein did not impose a tax. However, the question herein simply is, whether, the Notification dated 14.05.2012 was bad in law for bringing

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the Act into operation with effect from the date of publication. In A. Thangal Kunju Musaliar, this Court had repelled a similar argument observing that in exercise of the power conferred by Section 1(3), the Government had the power to issue the notification bringing the Act into force on any date subsequent to the passing of the Act. To give retrospective operation would be to commence the Act from a date prior to the date of its passing which was not the case in either A. Thangal Kunju Musaliar or is before us. For these reasons, we find that the High Court was correct in observing that even though the date of commencement as fixed in the notification might be anterior to the date of notification, the State Government had the power to bring into force the Act from the date of Gazette publication.

Summary of Discussion and Conclusions:

17. We summarise our discussion and conclusions as under: 17.1 The Civil Appeals filed by the appellants/assessees arising from the judgments of the High Courts of Delhi, Gauhati, Gujarat, Jharkhand, Madras, Orissa, Punjab & Haryana, Rajasthan and Uttarakhand are dismissed. The appeal filed by the State of Kerala is allowed. The appeals arising out of the judgments of Allahabad High Court are allowed in part. 17.2 The provisions relevant to this case under the Kerala Tax on Luxuries Act, 1976; Uttar Pradesh Entertainment and Betting Tax Act, 1979; Rajasthan Entertainments & Advertisements Tax Act, 1957 and the Rules thereunder; Gujarat Entertainment Tax Act, 1977 and Gujarat Entertainment Tax (Exhibition by means of Direct-to-Home Broadcasting Services) Rules, 2010; Jharkhand Entertainment Tax Act, 2012 and Jharkhand Entertainment Tax Rules, 2013; Punjab Entertainment Duty Act, 1955 (Amendment in 2010); Delhi Entertainment and Betting Tax Rules, 1997; Assam Amusements and Betting Tax Act, 1939; Orissa Entertainment Tax Rules, 2006, along with the Orissa Entertainment Tax (Amendment) Tax Rules, 2010 are upheld. The correctness of the findings of the High Court of Madras with regard to the charging section in the State enactment being defective is assailed by the State of Tamil

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

Nadu in separate appeals which are not part of this batch of appeals, and accordingly have not been taken up for our consideration herein. Insofar as the Andhra Pradesh Entertainment Tax Act, 1939 (as adopted by State of Telangana) is concerned, we do not express any opinion as the challenge and applicability of the same is pending before the High Court of Andhra Pradesh. All contentions regarding the assessment orders arising under the Andhra Pradesh State enactment are kept open to be advanced before the appropriate forum. 17.3 The Writ Petitions filed before this Court under Article 32 of the Constitution of India are accordingly disposed of.

Constitutional Scheme regarding distribution of Legislative Powers: 17.4 Article 246 of the Constitution of India emphasises on Parliamentary supremacy. Also, the residuary powers of making laws or imposing a tax on any matter not mentioned under the Concurrent List or State List vest with the Parliament (vide Article 248 read with Entry 97 - List I). 17.5 Entry 31 – List I deals with various forms of communications including broadcasting. The said Entry does not deal with entertainments or amusements as luxuries. Entry 97 – List I deals with any other matter not enumerated in List II or List III including any tax not mentioned in either of those lists. Entry 31 - List I is a regulatory entry while Entry 97 - List I, inter alia, can be the basis for imposition of any tax such as service tax as per the provisions of the Finance Act, 1994 and its subsequent amendments. 17.6 Entry 33 - List II, inter alia, deals with entertainments and amusements which is a regulatory entry. Taxes on luxuries including taxes on entertainments and amusements can be levied by the State under Entry 62 - List II. While Entry 33 - List II is a regulatory entry, Entry 62 – List II is a taxation entry, both dealing, inter alia, with entertainments and amusements. 17.7 Having regard to the judgments of this Court in MPV Sundararamier and H.S. Dhillon, we observe that under

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the Constitution of India, the power to tax is not an incidental or ancillary power. The power to tax cannot be implied within a regulatory entry under our Constitution. There is also a distinction between the power to regulate and control and the power to tax. However, occasionally a levy may be imposed as a regulatory measure. Thus, the taxation entries under List I and List II (there being no taxation entry in the Concurrent List) are clearly demarcated within the scope of the entries in the aforesaid respective Lists. The effect of this principle is that the subject of taxation is considered to be a distinct matter for the purposes of legislative competence and the power to tax cannot be deduced from the general legislative entry as an ancillary power. 17.8 Also, a power to legislate as to the principal matters specifically mentioned in the entries shall also include within its expanse, a legislation touching upon incidental and ancillary matters. This principle is derived from the use of the expression “with respect to” in Article 246 of the Constitution. 17.9 As a sequitur, reliance can be placed on the dictum of this Court (majority opinion) in H.S. Dhillon to observe that Entry 97 - List I which is a residuary entry relatable to Article 248 of the Constitution cannot be invoked or pressed into service when a particular entry empowering the Parliament or the Legislature of a State to pass laws regarding the taxation on any subject is specifically enumerated either in List I or List II. 17.10 Consequently, as there is no taxation entry in List III, both the Parliament as well as the Legislature of the State cannot have competence to levy tax on any one subject of a List. 17.11 Fee in respect of any of the matters in the three Lists does not include the power to levy tax. The distinction between the levy of fee and levy of tax is clear and it is not necessary to go into that aspect in these cases, except to reiterate that there is no entry for taxation in the Concurrent List - List III. 17.12 While interpreting taxation entries in List I or List II, i.e., while determining the legislative competence to levy a tax, all efforts must be made to interpret them in such a way as to give expansive content and meaning to the same

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

having regard to the constitutional scheme under which the distribution of legislative powers has been envisaged in the Seventh Schedule and bearing in mind the object and intent behind them and also the advances made in human thought and technology. 17.13 The expression “subject to” and “with respect to” in Article 246 of the Constitution aids the applicability of the doctrine of pith and substance to find out the true character of the enactment and the entry within which it would fall. The said doctrine is applied to resolve an issue regarding legislative competence of a legislature to enact a particular law in relation to a subject relatable to an Entry in a List under the Seventh Schedule of the Constitution. Any apparent conflict with respect to an entry in another List is resolved on the basis of the pith and substance doctrine.

Service Tax: 17.14 The expression “broadcasting” has been assigned the meaning as per clause (c) of Section 2 of the Prasar Bharti (Broadcasting Corporation of India) Act, 1990 in terms of definition clause in Section 65(13) of the Finance Act, 1994 as amended by the Finance Act, 2001. Under the Prasar Bharti (Broadcasting Corporation of India) Act, 1990, the expression “broadcasting” includes dissemination of any form of communication by transmission of electro-magnetic waves through space or through cables intended to be received by the general public either directly or indirectly through the medium of relay stations. 17.15 The expression “broadcasting” and “broadcasting agency or organization” has been re-defined with the object of expanding the same. A television program broadcast in India for the general public is a taxable service in relation to broadcasting, even if the encryption of the signals and beaming thereof through the satellite might have taken place outside India. 17.16 With the passage of time, the expression “broadcasting” has included transmission of electro-magnetic waves through space or through cables, Direct to Home signals or by any means to cable operator, including multi-system operator

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or any other person acting on behalf of the said agency or organisation through its branch office, agent, representative appointed in India or by any person who acts on its behalf. 17.17 Section 65(72) (zk) defines “taxable service” to include broadcasting agency as a service provider. Thus, if any service is provided to a client by a broadcasting agency or organization in relation to broadcasting in any manner, it would be a taxable service. 17.18 The expression “broadcasting agency or organization” means any agency or organization engaged in providing service in relation to broadcasting in any manner either having its place of business in India or outside India, through its branch office, subsidiary or representative in India or any agent appointed in India or any person acting on their behalf. 17.19 Section 66 provides for the charge of service tax which is a charging section. The service tax on a broadcasting agency is at the rate of five per cent of the value of taxable services i.e., five per cent of the gross amount charged by the service provider. Broadcasting service is a taxable service and the broadcasting service provider is required to pay service tax under the provisions of the Finance Act, 1994 as amended from time to time.

Tax on Luxuries: Entertainments & Amusements 17.20 Bearing in mind the meaning of “entertainments” and “amusements” and since they come within the scope of “luxuries”, therefore, the State legislature has legislative competence to impose entertainment tax under Entry 62 - List II as a tax on luxuries. 17.21 The expression “tax on luxuries” has been discussed, inter alia, in Express Hotels, A.B. Abdul Kadir, Godfrey Phillips, Western India Theatres, Federation of Hotels and Restaurant Associations of India. 17.22 The expression “entertainments/ entertainment” has been discussed in the cases of Geeta Enterprises, Drive-in Enterprises and Purvi Communications. The expression “entertainments/entertainment” includes within its scope and

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

ambit not only the provider of entertainment but also the receiver, inter alia, through the medium of television. Thus, entertainment through television network either through cable television or DTH through set-top box with the object of providing entertainment to the viewer can be taxed in terms of Entry 62 - List II.

Parameters of Taxation under State Enactments: 17.23 The four parameters of taxation as enumerated by this Court in Govind Saran Ganga Saran with respect to various provisions of the State enactments under consideration have been dissected in the form of a tabulation in para 8.29 of this judgement which is extracted as under:

Taxable Event S. Measure Rate of Incidence States or subject of No. of Tax Tax of Tax taxation Assam Section Section 3C Amusements Section 3C read 1 read with Section 3C and Betting 3C with S.2(4) Tax Act, 1939 S.3C(4) Delhi Entertainments 2 Section 7 Section 7 Section 7 Section 7 and Betting Tax Act, 1996 Gujarat Section Section Section 3 Entertainments Section 6E(1) 6E(1) 6E(1) 6E(1) Tax Act, 1977 Jharkhand Section 3 Proviso to 4 Entertainment Section 3 Section 3 & Section Section 3 Tax Act, 2012 4 Orissa 5 Entertainment Section 7 Section 7 Section 7 Section 7 Tax Act, 2006 Punjab Section Section 6 Entertainment Section 3C Section 3C 3C 3C Duty Act, 1955

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Taxable Event S. Measure Rate of Incidence States or subject of No. of Tax Tax of Tax taxation Rajasthan Notification Entertainments Section 4AAA Section S.O.443 Section 7 and read with 4AAA dt. 4AAA Advertisements Section 5 and 6 25.02.2008 Tax Act, 1957 Uttar Pradesh Entertainment and Betting Tax Act, 1979 Section 3 Section 3 as amended Section 3 read 8 read with Section 3 read with by U.P. with S.2(a) S.2(l)(vii) S. 2(v) Ordinance No. 4 of 2009 w.e.f. 16.06.2009 Uttar Pradesh Entertainment and Betting Tax Act, 1979, Section 3 Section 3 Section Section 3 read 9 as amended read with read with read with with S. 2(g) by Uttarakhand S. 2(g) S. 2(g) S. 2(g) (Amendment) Act, 2009 dt. 16.03.2009

Geeta Enterprises and Purvi Communications: 17.24 We do not find any contradiction in the judgments of this Court in Geeta Enterprises and Purvi Communications as the judgement in Geeta Enterprises has to be restricted to payment of tax on video games under the provisions of the 1937 Act of Uttar Pradesh in which there has been no discussion under Entry 62 - List II. For ease of reference, paragraph 10.10 of this judgment is extracted as under: 10.10 There are other substantial differences between Geeta Enterprises and Purvi Communication as the table below enumerates due to which Geeta Enterprises and Purvi Communication cannot be compared.

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

Geeta Enterprises Purvi Communication Impugned Provision Definition of ‘entertainment’ Amended section 4A(4a) of under section 2(3) of the the 1982 Act (West Bengal 1937 Act (UP Act) Act) Activity subject to taxation Video game operated on Transmission of signals by payment, in a parlour whose MSOs of any performance, admission is free to public film or any other programme telecast. Date of Enactment of the provision impugned therein 1937 1998 Discussion on Entry 62 - List II No Yes

17.25 The discussion on the content and meaning, scope and ambit of the expression ‘entertainments’ in Geeta Enterprises is not comprehensive. This is because, having regard to the advances in technology resulting in varied forms of entertainments through various media and in a variety of ways, not only in a public place but also in the confines of private space such as a home, through mobile or a cell phone or smart watch and other personal devices etc., the expression ‘entertainments’ must be given a broad, liberal and expansive meaning than what has been discussed in Geeta Enterprises by this Court.

Aspect Theory: 17.26 Aspect theory or double aspect doctrine is a tool of constitutional interpretation used in Canada to resolve issues which arise when both the federal and provincial government have the right to legislate on a subject. This Court has applied the aspect theory in Federation of Hotel and Restaurants Associations of India, Elel Hotels & Investments, All India Federation of Tax Practitioners and cases such as Mohit Minerals Pvt. Ltd. and in Bharat Sanchar Nigam Limited. (in a different way).

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17.27 In India, there appears to be no clarity on the application of the aspect theory in the Canadian sense. One of the reasons being that in India, both the Parliament as well as the State Legislature do not have powers to levy tax on the same subject. The aspect theory has been applied in India essentially to ascertain whether an activity would fall within the scope and ambit of an enactment and whether the said enactment in pith and substance would fall within an Entry of a particular List of the Seventh Schedule so as to confer legislative competence to tax that aspect of the activity. As a result it can be said that one aspect of an activity, say broadcasting service, can be amenable to service tax, while the other aspect of the same activity, namely, providing (of) entertainment to television viewers (as that is the object of broadcasting) can be amenable to “luxury tax” under Entry 62 List – II of the Constitution which could be levied on the recipients of such entertainment or on the service providers who are essentially broadcasters. Broadcasting service being a taxable service under the provisions of the Finance Act, 1994, read along with the amendments made from time to time would enable both the Parliament to impose service tax on broadcasting service and the State Legislatures having the legislative competence to levy entertainment tax on those who provide entertainment to the recipients (television viewers) to impose a luxury tax. 17.28 We follow the judgment of this Court in Western India Theatres Ltd. in observing that Entry 62 - List II contemplates a tax on entertainments or amusements as objects on which a tax can be imposed and therefore it is not possible to differentiate between an entertainment provider and an entertainment receiver. 17.29 If the above reasoning is applied, then both entertainment tax as well as service tax can be imposed on the activity of broadcasting through television for the purpose of entertainment of the subscriber or the receiver thereof. The two taxes are different aspects of the same activity which enable two different legislatures to impose tax under distinct taxation entries in two different Lists.

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

17.30 The principle is well settled that two taxes which are separate and distinct imposed on two aspects of an activity are permissible, as in law, there is no overlapping. This is because the taxes are relatable to distinct taxation entries in separate legislative Lists. 17.31 In the instant case, the Parliament under the Finance Act, 1994 and its amendments is not imposing a tax on entertainment. Such a tax is being imposed by the State Legislatures as entertainment is a luxury within the meaning of Entry 62 - List II. In the same way, the Finance Act along with its amendments seeks to impose a tax on the service rendered by the broadcasting agency which is imposed under Entry 97 List – I. In the same vein, under Entry 62 List – II, the State Governments are not imposing any service tax on the assessees. 17.32 While applying the aspect theory on any activity from the point of view of two legislatures (Parliament and State Legislature), in the instant case, imposing tax on an activity, the following well established principles of interpretation of tax may as stated in paragraph 11.18 be borne in mind: “11.18 To appreciate the extent and the context of the use of ‘aspect theory’ in India, it would be instructive to reiterate some well-established principles of interpretation of taxation entries. Some of the relevant principles are reiterated as follows: i. In interpreting expressions in the Legislative Lists of the Seventh Schedule of the Constitution, a wide meaning should be given to the entries. ii. In the scheme of the Lists in the Seventh Schedule, there exists a clear distinction between the general subjects of legislation and heads of taxation. They are separately enumerated. iii. As the fields of taxation are to be found clearly enumerated in Lists I and II, there can be no overlapping in law. There may be overlapping in fact, but there can be no overlapping in law.

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iv. In the first instance, the pith and substance or true nature and character of the legislation must be determined with reference to the legislative subject matter and the charging section; v. The measure of tax is not a true test of the nature of tax; vi. The same transaction may involve two or more taxable events in its different aspects. Merely because the aspects overlap, such overlapping does not detract from the distinctiveness of the aspects.” 17.33 The doctrine of pith and substance is applied to consider the vires of a legislation impugned on the basis of the principle of legislative competence in the context of legislative relationship between the Centre and the State. We observe that the aspect theory has no relevance, as such, in determining the constitutionality of any provision on the ground of legislative competence in India. Thus, the constitutional validity of a taxing statute on the ground of legislative competence has to be examined in the context of the doctrine of pith and substance as envisaged under Article 246 of the Constitution of India read with the respective entries in the List. Once the contours of an entry under which a legislation is sought to be made is ascertained, the next step is to study the legislation in question in order to ascertain whether it falls within the contours of that Entry. If it does fall within the contours of a particular entry in a particular List, then that particular legislature which has enacted it would have the legislative competence to enact such a legislation. But a legislation incidentally touching upon an entry in another List does not render it invalid, it means that so long as a piece of legislation is in pith and substance falling within an entry in a particular List, it would be valid as the legislature which has enacted it, has the legislative competence to do so. 17.34 On the other hand, the aspect theory is relevant to determine the applicability of a taxing statute on the activity or transaction sought to be taxed i.e., whether the statute covers an activity which falls within a specific taxation entry, either in List I or

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

in List II. Thus, an activity could be taxed by two different legislatures on the basis of the entries in the respective Lists without there being a clash and within their legislative competence. However, the aspect of the activity which is being taxed must be relatable to the legislation under a specific entry of a particular List so as to be within the legislative competence of a particular legislature. 17.35 Thus, the aspect theory is used to determine if, in fact, there are different aspects within the activity sought to be taxed and whether the taxable event which forms the basis of the levy in a legislative enactment corresponds to any aspect in the activity sought to be taxed. 17.36 This is in contrast to the applicability of this theory in Canada, where this theory is used therein to determine legislative competence of a federal or provincial legislature to enact a particular law. 17.37 While applying the aspect theory to the present case, it is noted that the activity of broadcasting is for the purpose of entertainment of the subscriber as held in Purvi Communications. No entertainment can be presented to the viewers unless the broadcaster transmits the signals for instantaneous presentation of any performance, film or any programme on their television. Thus, there are two aspects in this activity; the first is the act of transmission of signals of the content to the subscribers. The second aspect here concerns not only the content of the signals, but the effect of the decryption of the signals by the Set-Top Boxes and the viewing cards inside these boxes provided by the assessees to the subscribers, which is providing and receiving of entertainment through the television. Without the apparatus provided for by the assessees to decrypt the signals, the subscriber would not be able to watch the content that is transmitted, the content being for the purpose of entertainment. The television entertainment provided by them through their modus operandi i.e., by broadcasting, is a luxury within the meaning of Entry 62 - List II. The assessees who are engaged in the activity of providing entertainment are liable to pay service tax on the activity of broadcasting under the provisions of the Finance Act, 1994 read with relevant

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amendments and are also liable to pay entertainment tax in terms of Entry 62 - List II as being a specie of luxuries. Therefore, both the taxes, one by the State Legislature and the other, by the Parliament are leviable on the activity of the assessees herein. This is because by rendering the service of broadcasting, the assesses 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. 17.38 As far as the judgment of the Allahabad High Court dated 20.07.2012 is concerned, we observe that the High Court could not have construed the amendments made to the UP Act of 1979 as a clarification to include the DTH service which is a new technology, within the purview of the original Act. Hence, to that limited extent, the appeal filed against the judgment of the Allahabad High Court is allowed in part. 17.39 The judgment dated 28.06.2012 passed by the Kerala High Court which declared the levy and collection of luxury tax on cable TV operators with connections of 7500 or above as unconstitutional for being discriminatory is incorrect. 17.40 The Kerala High Court could have struck down the exemption granted and directed all cable TV operators to pay the tax instead of holding that there is discrimination and violation of Article 14 of the Constitution against the assessees herein. As a result, the High Court has granted an exemption to the assessee who is liable to pay entertainment tax under the Kerala Act. As a result, unequals have been treated as equals which is detrimental to the plea of equality sought to be raised by the assessee.

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State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others

17.41 In the circumstances, paragraph 6 of the judgment of the Kerala High Court dated 28.06.2012 is set aside. The Writ Petition filed by the assessee before the High Court is dismissed and the Civil Appeal filed by the State of Kerala is allowed. Parties to bear their respective costs.

Result of the case: Matters disposed of.