May 2013

NO RETROSPECTIVE ET FOR TATA SKY IN MP - SUPREME COURT

In a ruling the Supreme Court has held that the MP government could not levy Entertainment tax in a specific case of demand made by the Government on Tata Sky.

Madhya Pradesh imposes a 20 per cent entertainment tax. The State Government asked Tata Sky to pay entertainment tax of 20 per cent on subscriptions collected from DTH subscribers of Madhya Pradesh on the ground that it was offering entertainment.

But the Supreme Court pointed out that Tata Sky had no place of entertainment within Madhya Pradesh. All it did was to make available a mix of entertainment, spiritual, sport and newsbased channels to households and others through satellite. Those who subscribed to its services installed a dish that received the signals and enabled them to view the channels. Tata Sky, therefore, was not entertaining the subscribers at their homes; it was merely a facilitator, the service provider. Tata Sky’s role was limited to carry the digitalised signals to the rooftops of households. It was by no means a content provider so as to be cast in the role of an entertainer.

One of the several grounds on which the demand of entertainment tax by the State Government on DTH broadcasting was challenged by Tata Sky was that DTH broadcasting is one of the notified services under the Finance Act, 1994 and is chargeable to service tax by the Central Government. They also claimed that they do not use any infrastructure from the State for its DTH broadcasts.

The MP state government said that on 5th May 2008, the State Government issued a gazette notification fixing 20 percent entertainment duty in respect of every payment made, under the Madhya Pradesh Entertainment Duty and Advertisements Tax Act 1936 (“the 1936 Act”) on DTH (direct to home) broadcast, for admission to an entertainment other than cinemas, videos cassette recorders and cable service.

The Court said that they agreed with Tata Sky that the provisions of 1936 Act are applicable only to place-related entertainment. In other words, the provisions of the 1936 Act cover an entertainment which takes place in a specified physical location to which persons are admitted on payment of some charge as defined under clause (d) of section 2 of the 1936 Act. The legislative history and the amendments introduced in the 1936 Act also show that it was how the scheme of the 1936 Act was viewed by the State itself. It was earlier found that the provisions of the 1936 Act were inadequate to bring shows by video cassette recorder or video cassette and cable T.V. operations within the taxing net and hence, the legislature considered it necessary to amend the 1936 Act and to insert new sections applicable with retrospective with effect from May 1, 1999 and April 1, 2001.

On behalf of the State the imposition of levy on DTH was sought to be justified on the basis of a subclause which said that “any payment made by a person by way of contribution or subscription or installation and connection charges or any other charges, by whatever name called, for providing access to any entertainment, whether for a specified period or on a continuous basis;”

In the view of the Court, the submission was untenable since the section was only the measure of tax and it does not create the charge which is created by the original section. The charge or levy of tax is attracted only if an entertainment takes place in a specified place or locations and persons are admitted to the place on payment of a charge to the proprietor providing the entertainment. In the present case, as DTH operation is not a place-related entertainment, it is not covered by the charging section 3 read with section 2(a) and 2(b) of the 1936 Act.

The Court held that DTH is not covered by the provisions of section 3 read with other sections of the 1936 Act. The issue got further confirmed on sections in the Act that state that no person shall be admitted to any entertainment except with a ticket stamped with an impressed, embossed, engraved or adhesive stamp issued by the State Government of nominal value equal to the duty payable. Neither this provision nor any of the modes provided under other sections could be made applicable for collection of duty on DTH operation.

The machinery for collection of duty provided under the 1936 Act had no application to DTH. The Court judged that if the collection machinery provided under the Act is such that it could not be applied to an event, it follows that the event is beyond the charge created by the taxing statute.

In light of the discussions made above, the Supreme Court has ruled that the 1936 Act cannot be extended to cover DTH operations being carried out by the appellants.

Regarding the notification dated May 5, 2008, it was seen as elementary that a notification issued in exercise of powers under the Act cannot amend the Act itself. Moreover, the notification merely prescribes the rate of entertainment duty at 20% in respect of every payment for admission to an entertainment other than cinema, video cassette recorder and cable service. The notification cannot enlarge either the charging section or amend the provision of collection. Therefore if no duty could be levied on DTH operation under the 1936 Act prior to the issuance of the notification dated May 5, 2008 as fairly stated by the State, the Court said that any duty cannot be levied under the 1936 Act after the issuance of the notification.

Going on the same rationale, Cable TV networks in the state can also move the Courts for a refund of the tax levied on them in the period prior to 5th May 2008, since no tickets are sold and no revenue stamps of the duty / tax value are affixed on any entry fee. Also no admission is provided by the same of tickets to the place of entertainment, ie. the customers home…

So who’ll bell the cat? n