WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.1 of 45 THE HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 05.09.2011 + W.P.(C) 2194/2010 BHARTI TELEMEDIA LTD ... Petitioner - versus - GOVERNMENT OF NCT OF DELHI AND ANR ... Respondents Advocates who appeared in this case: For the Petitioner : Mr S. Ganesh, Sr Advocate with Mr D.K. Singh and Mr Pradeep Shukla For the Respondents : Mr Parag P. Tripathi, ASG with Mr Jamal Akhtar for Mr N. Waziri AND + W.P.(C) 1312/2010 TATA SKY LTD ... Petitioner versus GOVERNMENT OF NCT OF DELHI AND ANR ... Respondents Advocates who appeared in this case: For the Petitioners : Mr Aman Lekhi, Sr Advocate with Mr D.K. Singh and Mr pradeep Shukla For the Respondents : Mr Parag P. Tripathi, ASG with Mr Jamal Akhtar for Mr N. Waziri AND + W.P.(C) 2718/2010 WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.2 of 45 BHARAT BUSINESS CHANNEL LTD ... Petitioner versus GOVERNMENT OF NCT OF DELHI AND ANR ... Respondents Advocates who appeared in this case: For the Petitioner : Mr Aman Lekhi, Sr Advocate with Mr Vivek Sarin For the Respondents : Mr Parag P. Tripathi, ASG with Mr Jamal Akhtar for Mr N. Waziri AND + W.P.(C) 4621/2010 DISH TV INDIA LIMITED ... Petitioner versus GOVERNMENT OF NCT OF DELHI AND ANR ... Respondent Advocates who appeared in this case: For the Petitioner : Mr Varun Sarin For the Respondents : Mr Parag P. Tripathi, ASG with Mr Jamal Akhtar for Mr N. Waziri CORAM: HON'BLE MR. JUSTICE BADAR DURREZ AHMED HON'BLE MR. JUSTICE V.K. JAIN 1. Whether Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in Digest? Yes WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.3 of 45 BADAR DURREZ AHMED, J 1. These petitions raise common issues and are, therefore, being decided together. Briefly put, the challenge is to the Delhi Entertainments and Betting Tax Act, 1996 (hereinafter referred to as ‘the said Act’) to the extent it imposes a tax on entertainment through ‘direct-to-home (DTH) service’. Rival Contentions 2. Mr Ganesh, senior advocate, appearing for Bharti Telemedia Ltd and Mr Aman Lekhi, senior advocate, appearing for Tata Sky Ltd and Bharat Business Channel Ltd, contented on behalf of the petitioners that the DTH service is a broadcasting service falling within the meaning of taxable service under section 65(105)(zk) of the Finance Act, 1994 and is amenable to service tax @10.33% on the gross amount paid by a subscriber for providing the DTH broadcasting 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 WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.4 of 45 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 TV India Ltd, adopted the arguments of Mr Ganesh and Mr Lekhi. 3. On the other hand, Mr Parag Tripathi, the learned Additional Solicitor General of India, appearing on behalf of the Government of National Capital Territory of Delhi based his arguments on the “aspect theory”. He submitted that the same transaction or activity may have more than one aspect and these aspects may fall within entries of different lists. Thus, while one aspect may be taxed under an entry in List I another aspect may be taxed under an entry in List II. Therefore, both Parliament and the State legislatures would be competent to make laws for taxing the aspect relevant to them without impinging on each other’s domains. According to Mr Tripathi, DTH service had two aspects – (1) a WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.5 of 45 service aspect; and (2) an entertainment aspect. The former is taxed under the Finance Act, 1994 read with entry 92C of List I and the latter is subjected to tax as an entertainment under the said Act read with entry 62 of List II. He further submitted that there a two separate and distinct taxable events in respect of the two aspects. It was therefore contended by him that the said Act, by including DTH service within the ambit of entertainment, had not transgressed the Constitution. 4. In rejoinder, Mr Ganesh submitted that the “aspect theory” can only be invoked and applied in order to justify the levy of two taxes on one transaction if the transaction gives rise to two distinct and different taxable events, such as manufacture and sale of goods or holding a licence to practice and rendering professional services and so on. He maintained that in the present case the event for the service tax regime is the provision of the broadcasting service and in the entertainment tax regime contemplated under the said Act also the taxing event is the provision of DTH broadcasting service. Thus, according to him, the taxable event being the same, the aspect theory would have no application and, without that, the impost of entertainment tax on DTH service would be unconstitutional. Mr Lekhi added that “entertainment through DTH service” as used in section 2(i) of the said Act refers to nothing but the pictures, WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.6 of 45 images and sounds transmitted through space and that is exactly what is meant by broadcasting service. Consequently, Mr Lekhi contended, what is sought to be included in entertainment is in fact 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. WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.7 of 45 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 of service 8. As mentioned in the Bharti Telemedia Ltd petition, which we are taking up as the representative case for facts, it has a single broadcasting service at Manesar, Haryana for its operations which were launched in August 2008. Under a licence/permission granted by the Government of India, Ministry of Information and Broadcasting, Bharti Telemedia had set up a Hub which enables it to downlink signals from the satellites of various broadcasters of TV channels and to then uplink the signals to its own Ku Band (INSAT 4CR satellite) designated transponders for transmission of the signals in Ku band. These signals are received by the dish antennae installed at the subscribers’ premises. Since these signals are in encrypted form they are decrypted by the Set-Top Boxes and the viewing cards inside these boxes to enable subscribers to view the WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.8 of 45 various TV channels on their TV sets. The subscribers have to obtain a connection for which they pay monthly charges varying from Rs 99/- to Rs 400/- depending on the choice of channels. The set-top boxes are installed without any consideration and remain the property of Bharti Telemedia. Provisions under challenge 9. The challenge is mainly to sections 2(a), 2(aa), 2(m)(vi), 7(1) and 8(2) of the said Act (The Delhi Entertainments and Betting Tax Act, 1996) and to rules 12A, 26A and 31 of the Delhi Entertainments and Betting Tax Rules, 1997 as amended by the Delhi Entertainment and Betting Tax (Amendment) Rules, 2010. 10. Sections 2(a), 2(aa), 2(m)(vi), 7(1) and 8(2) and other relevant provisions of the said Act are as under:- “2. Definitions In this Act, unless the context otherwise require, – (a) “addressable system” means an electronic device or more than one electronic devices put in an integrated system through which television signals and value added services can be sent in encrypted or unencrypted form, which can be decoded by the device or devices at the premises of the subscriber within limits of the authorization made, on the choice and request of such subscriber, by the service provider to the subscriber; WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.9 of 45 (aa) "admission to an entertainment" includes admission to any place in with the entertainment is held and in case of entertainment through cable service and direct-to-home (DTH) service with or without cable connection, each connection to a subscriber shall be deemed to be an admission for entertainment; xxxxx xxxxx xxxxx xxxxx (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; xxxxx xxxxx xxxxx xxxxx (m) “payment for admission” includes – xxxxx xxxxx xxxxx xxxxx (vi) any payment made by a person by way of contribution, subscription, installation or connection charges or any other charges collected in any manner WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.10 of 45 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;” xxxxx xxxxx xxxxx xxxxx (s) “subscriber” means a person who received the signals of television network and value-added services from multi – system operator or from cable operator or from direct-to-home (DTH) broadcasting service at a place indicated by him to the service provider, without further transmitting it to any other person. Explanation I: In case of hotels, each room or premises where signals of cable television network are received shall be treated as a subscriber. Explanation II: In case of direct-to-home (DTH), every television set of computer set receiving the signals shall be treated as a subscriber;” “7. Tax on cable, video service and direct-to-home (DTH) service:- (1) Subject to the provisions of this Act, there shall be levied and paid an entertainment tax on all payments for admission to an entertainment through a direct-to-home (DTH) or through a cable television network with addressable system or otherwise, other than entertainment to which section 6 applies, at such WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.11 of 45 rates not exceeding rupees six hundred for every subscriber for every year as the Government may, from time to time, notified in this behalf, which shall be collected by the proprietor and paid to the Government in the manner prescribed. xxxxx xxxxx xxxxx xxxxx 8. Information before holding entertainment (1) xxxxx xxxxx xxxxx xxxxx (2) No proprietor of a cable television network or video cinema or direct-to-home (DTH) shall provide entertainment unless he obtains permission from the Commissioner in the manner prescribed. xxxxx xxxxx xxxxx xxxxx.” (emphasis added) Provisions of the Constitution of India 11. The relevant provisions of the Constitution of India are as under:- “246. Subject-matter of laws made by Parliament and by the legislatures of states.– (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in list I in the seventh schedule (in this Constitution referred to as the "Union List"). WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.12 of 45 (2) Notwithstanding anything 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 challenge was to the constitutional validity of the Expenditure Tax Act, 1987 which envisaged a 10% ad valorem tax on “chargeable WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.13 of 45 expenditure” in a particular class of hotels. One of the contentions was that the Act was not one imposing an expenditure tax (which was within the legislative competence of Parliament) but, in pith and substance, was either a tax on luxuries falling within Entry 62 of List II or a tax on the sale of goods within the ambit of Entry 54 of List II (neither of which was within the legislative competence of Parliament). While considering this contention, the majority view (R.S. Pathak, CJ and M.N. Venkatachaliah, Sabyasachi Mukharji, S. Natarajan, JJ) as to how potential overlap situations are to be dealt with was as follows:- “Wherever legislative powers are distributed between the Union and the States, situations may arise where the two legislative fields might apparently overlap. It is the duty of the courts, however difficult it may be, to ascertain to what degree and to what extent, the authority to deal with matters falling within these classes of subjects exists in each legislature and to define, in the particular case before them, the limits of the respective powers. It could not have been the intention that a conflict should exist; and, in order to prevent such a result the two provisions must be read together, and the language of one interpreted, and, where necessary modified by that of the other.” [at page 651] The majority view was that :- “31. Indeed, the law “with respect to” a subject might incidentally “affect” another subject in some way; but that is not the same thing as the law being on the latter subject. There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.14 of 45 taxable events in its different aspects. But the fact that there is an overlapping does not detract from the distinctiveness of the aspects. Lord Simonds in Governor General-in-Council v. Province of Madras [AIR 1945 PC 98] in the context of concepts of Duties of Excise and Tax on Sale of Goods said: “... The two taxes, the one levied on a manufacturer in respect of his goods, the other on a vendor in respect of, his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separated and distinct imposts. If in fact they overlap, that may 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 added) 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 WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.15 of 45 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.” xxxxx xxxxx xxxxx xxxxx “43. The subject of a tax is different from the measure of the levy. The measure of the tax is not determinative of its essential character or of the competence of the legislature. In Sainik Motors v. State of Rajasthan [AIR 1961 SC 1480], the provisions of a State law levying a tax on passengers and goods under Entry 56 of List I were assailed on the ground that the State was, in the guise of taxing passengers and goods, in substance and reality taxing the income of the stage carriage operators or, at any rate, was taxing the “fares and freights”, both outside of its powers. It was pointed out that the operators were required to pay the tax calculated at a rate related to the value of the fare and freight. Repelling the contention, Hidayatullah, J., speaking for the court said: (SCR p. 525) “We do not agree that the Act, in its pith and substance, lays the tax upon income and not upon passengers and goods. Section 3, in terms, speaks of the charge of the tax ‘in respect of all passengers carried and goods transported by motor vehicles’, and though the measure of the tax is furnished by the amount of fare and freight charged, it does not cease to be a tax on passengers and goods.”” The Supreme Court concluded that the tax in question was essentially a tax on expenditure and not on luxuries or sale of goods WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.16 of 45 falling within the State power. Recognising the aspect theory, the Supreme Court held that the “expenditure” aspect of the transaction fell within the Union power and therefore sustained the legislative competence of Parliament to impose a tax on that aspect. 13. The next decision in Express Hotels (supra) is also of the same constitution bench of the Supreme Court as in the case of Federation of Hotels (supra). In fact, both these decisions were pronounced on the same day i.e., 02.05.1989. One of the contentions raised in Express Hotels (supra) was that the taxation entry in Entry 62 of List II providing for taxes on ‘luxuries’ contemplates, and takes within its sweep, a tax on goods and articles in their aspect and character as luxuries and does not include ‘services’ or ‘activities’ and that, therefore, the levy on the services for lodging provided at the hotels was beyond the scope of Entry 62 List II. While rejecting the said contention, the Supreme Court made the following observations:- “15. We are dealing with an entry in a Legislative List. The entries should not be read in a narrow or pedantic 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 WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.17 of 45 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 and reasonably be said to be comprehended in it. The actual measure of the levy is a matter of legislative policy and convenience. So long as the legislation has reasonable nexus with the concept of “luxuries” in the broad and general sense in which the expressions in legislative tests (sic lists) are comprehended, the legislative competence extends to all matters “with respect to” that field or topic of legislation.” 27. .... Once the legislative competence and the nexus between the taxing power and the subject of taxation is established, the other incidents are matters of fiscal policy behind the taxing law. The measure of the tax is not the same thing as, and must be kept distinguished from, the subject of the tax. 14. The Supreme Court in Kalyana Mandapam (supra), inter alia, held that:- WP (C) 2194/2010, 1312/2010, 2718/2010 & 4621/2010 Page No.18 of 45 “58. A tax on services rendered by mandap-keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire-purchase activities. Section 65 clause (41) sub-clause (p) of the Finance Act, 1994, defines taxable service (which is the subject-matter of levy of service tax) as any service provided to a customer “by a mandap-keeper in relation to the use of a mandap in any manner including the facilities provided to [a customer] in relation to such use and also the services, if any, rendered as a caterer”. The nature and character of this service tax is evident from the fact that the transaction between a mandap-keeper and his customer is definitely not in the nature of a sale or hire- purchase of goods. It is essentially that of providing a service. In fact, as pointed out