CWP No.10992 of 2010 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CWP No.10992 of 2010 Date of decision: 25.10.2010 Tata Sky Limited -----Petitioner Vs. State of Punjab and another ----Respondents CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr.Aman Lekhi, Senior Advocate with Mr. D.K.Singh, Advocate for the petitioner. Mr. Piyush Kant Jain, Additional Advocate General, Punjab, for the State. Adarsh Kumar Goel,J. 1. This order will dispose of CWP Nos.10992,11929 and 12240 of 2010 as all the three petitions involve common question as to validity of levy of entertainment duty under section 3(3C) of the Punjab Entertainment Duty Act, 1955 (in short, ‘the 1955 Act’). According to the petitioners, the said levy was in substance levy of service tax referable to Entry 92C of List I of Seventh Schedule to the Constitution and was, thus, beyond the competence of the State legislature. The same does not fall in Entry 62 of List II providing for levy of entertainment tax. Activity carried on by 1 CWP No.10992 of 2010 the petitioner is covered by taxable service under section 65(105) (zk) to the Finance Act, 1994, as amended by Finance Act, 2001 providing for levy of service tax on service by a broadcasting agency in relation to broadcasting. The expression broadcasting has been defined under section 65(15) of the said Act as having same meaning as under section 2 ( c) of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 and includes receiving of signals through space or cables, direct to home (DTH) signals or other means as specified therein. 2. The petitioner in CWP No.10992 of 2010 has its broadcasting centre which downlinks signals from broad caster’s satellite and uplinks the same to its own satellite for transmission through dish antennas to the subscribers. The signals broadcasted by the petitioner are in encrypted format and are decrypted/decoded by Set Top Boxes and the viewing cards inside the Set Top Boxes for the customers to receive DTH broadcasting service. The Set Top Boxes are separately sold to the customers. The subscribers are required to pay subscription charges. 3. The petitioner has licence under the Indian Telegraph Act, 1885 and Indian Wireless Telegraphy Act, 1933 in accordance with the Government of India guidelines dated 5.3.2001 for providing direct to home (DTH) broadcasting service. The petitioner has also obtained permission to establish, maintain and operate uplinking hub as per guidelines notified on 2.12.2005. It 2 CWP No.10992 of 2010 has also entered into an agreement with the Government of India dated 24.3.2006 to pay annual fee which is a specified percentage of its gross revenue. As per DTH licence dated 24.3.2006, the petitioner is governed by legislation enacted in connection with broadcasting. It is liable to provide access to various content providers/channels. Under Article 268A read with Article 270 of the Constitution and recommendations of 12th Finance Commission, 30.5% of net proceeds of service tax is distributed amongst States. Broadcasting is covered by Entry 31 of List I. Predominant aspect of the activity of the petitioner is broadcasting service by carrying signals through electromagnetic waves in Ku Band, content of which is provided by third party and entertainment provided is incidental to the broadcasting. The same is not provided by the petitioner but by the channels whose signals are carried by the petitioner. 4. In reply filed on behalf of the State, the levy under the 1955 Act as amended by 2010 Act has been defended on the plea that tax on entertainment being expressly covered by Entry 62 of List-II cannot be held to be covered by Entry 92-C of List-I. The State tax was not on broadcasting service but on entertainment. 3 CWP No.10992 of 2010 Question for consideration: 5. The question which arises for consideration is whether levy of entertainment tax is covered by Entry 62 of List II or is tax on broadcasting service covered by Entry 92C of List I. Statutory provisions 6. Relevant provisions are as under:- Constitutional Entries: List I Entry 31. “Posts & Telegraph; telephones, wireless, broadcasting and other like forms of communications.” Entry 92C. “Taxes on services” List II Entry 62. “Taxes on luxuries, including taxes on entertainment, amusements, betting and gambling.” Punjab Entertainment Duty Act: “3.Duty on payment for admission to entertainment: (1) A person admitted to an entertainment shall be liable to pay an entertainment duty at a rate (not exceeding one hundred and twenty five per centum of the payment of admission) which the Government may specify, by a notification in this behalf and the said duty shall be collected by the proprietor and rendered to the Government in the manner prescribed. [(1-A) Not withstanding anything contained in sub- section (1), the Government may, by notification, levy lumpsum entertainment duty at a rate not exceeding: - 4 CWP No.10992 of 2010 (a) eight thousand rupees per annum in the local area of a City constituted as such under the Punjab Municipal Act, 1911; and (b) Six thousand rupees per annum in areas other than the local areas specified in clause (a); in respect of entertainments arranged by a proprietor by replay of video cassette player or video record player and the lumpsum duty so levied shall be recoverable from the proprietor.] (2) A draft of the proposed order specifying the rate of entertainments duty referred to in sub section (1) shall be notified for the information of all persons likely to be effected thereby and it shall take effect only after the Government haws considered all objections received within a period of thirty days from the date of such publications, and has notified the same again with or without modification: Provided that if the Government consider that such an order should be brought into force at once, the final notification may issue without previous publication. Provided further that Government may impose an entertainments duty on complimentary tickets at a from that imposed on other kinds of payment for admission subject to the maximum specified in sub section (1). (3) Until such time as the duty referred to in sub sections (1) and (2) has been finally notified, the entertainments duty shall be levied at the rates in force in this behalf immediately before the commencement of this Act. 5 CWP No.10992 of 2010 [(3-A) Notwithstanding anything in this section, the amount of duty shall be calculated to the nearest multiple of 5 naye paise by ignoring 2 naye paise or less and counting more than 2 naye paise as 5 naye paise]. [3-A. Entertainment duty is not leviable in case tax is paid under Punjab Act 8 of 1954. Notwithstanding anything contained in this Act, no entertainment duty shall leviable on the proprietor who is able to pay entertainment tax under the Punjab Entertainment Tax (Cinematograph Shows) Act, 1954] [(3-B) Notwithstanding anything contained in subsection (1), (1A), (2) and (3), in the case of entertainment provided with the aid of antenna or cable television to a connection holder, the proprietor of such entertainment shall pay entertainment duty at such rate per connection per month as the State Government may specify from time to time by a notification in the Official Gazette but not exceeding seventy-five rupees per month per connection. {(3-C)} Notwithstanding anything contained in this section, the case of entertainment provided with the aid of dish relating to DTH Television, the proprietor of such entertainment shall pay entertainment duty at the rate of 10% of the charges received by such proprietor from the subscribers. The Entertainment Duty shall be paid by the proprietor by the 10th day, commencing from the close of the concerned calendar month. (4) The final notification specifying the rates of entertainment duty shall be laid before the[-] Legislature at the session immediately following its publication. 6 CWP No.10992 of 2010 2. Definitions: - In this Act unless the context otherwise requires:- a) Admission to an entertainment includes admission to any place in which the entertainment is being held or is to be held and where television exhibition is being provided with the aid of any type of antenna with a cable networks attached to it or cable television in residential or non- residential areas of which persons are required to make payment by way of contribution or subscription or installation and connection charges or any manner, whatsoever. (aa) 'antenna' means an apparatus which received television signals which enable views to tune into transmissions including national or international satellite transmissions and which is erected or installed for exhibition of films or moving pictures or series of pictures by means of transmission of television signal by wire where subscribers television sets at the residential or non- residential place are linked by metallic coaxial cable or optio-fibre cable to a central system called the head-end, on payment by the connection charges or any other charges collected in any manner whatsoever. aaa) 'cable television' means a system organized on payment by a connection holder of any contribution or subscription or installation and connection charges or any other charges collected in any manner whatsoever, for exhibition of films 7 CWP No.10992 of 2010 or moving picture or series of pictures by means of transmission of television signals by wire where subscriber's television set is linked by metallic coaxial cable or optio-fiber cable to a central system called the head-end, by using a video cassette or disc or both, recorder or player or similar such apparatus on which prerecorded vide cassettes or discs or both are played or replayed and the films or moving pictures or series of pictures which are viewed and heard on the television receiving set at a residential or non- residential place of a connection holder. b) Commissioner means the Excise and Taxation Commissioner, Punjab for the time being. c) Entertainment Tax Officer means the Excise and Taxation Officer appointed as such under this Act.' d) 'entertainment' includes any exhibition, performance, amusement, game, sport, or race to which persons are ordinarily admitted on payment for exhibition of films, or moving pictures or series of pictures which are shown on the television receiving set, with the aid of any type of antenna with a cable network attached to it or cable television for which persons are reuired to make payment by way of contribution or subscription or installation and connection charges or any other charges collected in any manner whatsoever. e) 'payment for admission' includes- 8 CWP No.10992 of 2010 i) any payment made by a person admitted to any part of a place entertainment and in a case where such person is subsequently admitted to another part thereof for admission to which an additional payment is required, such additional payment, whether actually made or not. ii) in case of free, surreptitious, unauthorized or concessional entry, whether with or without the knowledge of proprietor, the payment which would have been made it the person concerned had been admitted on payment of the full charges ordinarily chargeable for such admission. iii) Any payment for any purpose whatsoever connected with an entertainment which a person is required to make as a condition of attending or continuing to attend the entertainment in addition to the payment, if any, for admission to the entertainment. iv) Any payment made by a person by way of contribution or subscription of installation and connection charges or any other charges collected in any manner whatsoever for television exhibition with the aid of any type of antenna with a cable net work attached to it or cable television or a dish relating to DTH network. . g) 'proprietor' in relation to any entertainment includes the owner, partner or a person responsible for management thereof and any person responsible for or for the time being in charge of the 9 CWP No.10992 of 2010 management for providing cable connection from any type of antenna or cable television or for providing DTH service. Service Tax provisions: Section 65(105) (zk) “taxable service” means any service provided or to be provided to a client, by a broadcasting agency ro organization in relation to broadcasting, in any manner and, in the case of broadcasting agency or organization, having its head office situated in any place outside India, includes service provided by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programmes or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means to cable operator, including multisystem operator or any other person on behalf of the said agency or organization. Explanation: For the removal of doubts, it is hereby declared that so long as the radio or television programme broadcast is received in India and intended for listening or viewing, as the case may be, by the public, such service shall be taxable service in relation to broadcasting, even if the encryption of the signals or 10 CWP No.10992 of 2010 beaming thereof through the satellite might have taken place outside India.” Section 65(15) “broadcasting has the meaning assigned to it in clause (c ) of section 2 of the Prasar Bharati (Broadcasting Corporation of India) Act, 1990 (25 of 1990) and also includes programme selection, scheduling or presentation or sound or visual matter on a radio or a television channel that is intended for public listening or viewing, as the case may be; and in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means to cable operator including multisystem operator or any other person on behalf of the said agency or organization, by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner.” Section 2 Prasar Bharati Act, 1990 ‘broadcasting’ means the dissemination of any form of communication like signs, signals, writing, pictures, images and sounds of all kinds by transmission of electro-magnetic waves through space or through cables intended to be received by the general public either 11 CWP No.10992 of 2010 directly or indirectly through the medium of relay stations and all its grammatical variations and cognate expressions shall be construed accordingly” Rival contentions 7. Contention raised on behalf of the petitioner is that under Article 246(3) of the Constitution, legislative power of States is subject to legislative powers of the Centre under Article 246(1). Since the subject matter of broadcasting service is exclusively reserved for Central Legislative field, the same will stand excluded from List II on principle of federal supremacy and occupied field. In pith and substance, the levy is on broadcasting service as apart from broadcasting, no other taxing event has taken place and the event of broadcasting service itself has been covered in the definition of entertainment which is the basis of the levy for entertainment duty. When there is no separate taxing event, aspect theory cannot be invoked to justify State levy on an event which is covered by Central levy. In any case, if broadcasting service and entertainment are both covered in a composite transaction, entertainment duty could be only on part of charges recovered by the petitioner attributable to entertainment. 8. On the other hand, contention on behalf of the State is that the Central levy as well as the State levy are on different aspects and by applying principles of harmonious construction, the State levy could be held not to be in conflict with the Central levy. In pith and substance, the State levy is not on broadcasting service 12 CWP No.10992 of 2010 but on entertainment and falls under Entry 62 of List II. If entertainment duty is not allowed to be levied, power of the State legislature under Entry 62 will be nullified. Entertainment is the main activity for which charges are collected by the petitioner and broadcasting service is only a medium for the entertainment. Mere fact that content of signals is provided by third party is not enough to exclude levy of tax on provider of entertainment by carrying the signals to the customers for which charges are collected. Charges are not collected under a composite transaction but only for entertainment and expenditure on or in connection with broadcasting may be cost of the person providing entertainment. Settled law on interpretation of scope of taxing entries 9. Before proceeding further, we may notice the settled legal position. Constitutional scheme of distribution of legislative powers between Union and the State legislatures under Article 246 of the Constitution is well known. While Parliament has exclusive power to legislate with respect to matters in List I, the State legislatures have exclusive power to make laws for matters in List II subject to exclusive power of the Parliament to legislate with respect to matters in List I. Both Parliament and State legislatures have concurrent power of legislation with respect to matters in List III subject to Central legislation prevailing in case of repugnancy. 10. Principle of Federal Supremacy can be invoked only if there is irreconcilable conflict in entries in Union and State lists. 13 CWP No.10992 of 2010 If two entries can be reconciled by harmonious construction or by applying principle of pith and substance, there is no occasion to apply the principle of federal supremacy. Concept of repugnancy under Article 254 relating to List III is different from repugnancy arising due to overlapping in List I and List II in which case principle of pith and substance is applied to determine legislative competence. Entries in the lists are not powers of legislation but fields of legislation. Taxation is distinct matter for legislative competence. Power to tax cannot be deduced from general entry. There is no overlapping in taxing power. Entries 82 to 92C and 97 of List I and Entries 45 to 63 of List II deal with taxes. There is no entry relating to tax in List III. 11. Every tax may be levied on an object or on an event of taxation. Subject of tax is distinct from incidence of taxation. Tax on property has been described as direct tax and tax on taxable event in respect of property is described as indirect tax. The distinction is based on difference in impact. While considering any particular levy, mere description of the subject matter of tax is not conclusive. 12. Subjects of tax which fall in power of a particular legislature in one aspect and purpose may fall within the legislative power of the another in other aspect and purpose. Such overlapping is not considered to be overlapping in law as the same 14 CWP No.10992 of 2010 transaction may involve two or more events in different aspects. Overlapping does not detract from distinctness of the aspects. The aspect theory, however, cannot be applied to justify encroachment in legislative fields. 13. Some of the leading judgments on the subject are M/s Hochst Pharmaceuticals Ltd. and another Vs. State of Bihar and others AIR 1983 SC 1019, Godfrey Phillips India Ltd. and another Vs. State of U.P. and others (2005) 2 SCC 515, Bharat Sanchar Nigam Ltd. and another Vs. Union of India and others (2006) 3 SCC 1 and State of W.B. v. Kesoram Industries Ltd.,(2004) 10 SCC 201. 14. We may extract observations from Kesoram Industries: “31. Article 245 of the Constitution is the fountain source of legislative power. It provides — subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the legislature of a State may make laws for the whole or any part of the State. The legislative field between Parliament and the legislature of any State is divided by Article 246 of the Constitution. Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule, called the “Union List”. Subject to the said power of Parliament, the legislature of any State has power to make laws with respect to any of the matters enumerated in List III, called the “Concurrent List”. 15 CWP No.10992 of 2010 Subject to the abovesaid two, the legislature of any State has exclusive power to make laws with respect to any of the matters enumerated in List II, called the “State List”. Under Article 248 the exclusive power of Parliament to make laws extends to any matter not enumerated in the Concurrent List or State List. The power of making any law imposing a tax not mentioned in the Concurrent List or State List vests in Parliament. This is what is called the residuary power vesting in Parliament. The principles have been succinctly summarised and restated by a Bench of three learned Judges of this Court on a review of the available decision in Hoechst Pharmaceuticals Ltd. v. State of Bihar, (1983) 4 SCC 45. They are: (1) The various entries in the three lists are not “powers” of legislation but “fields” of legislation. The Constitution effects a complete separation of the taxing power of the Union and of the States under Article 246. There is no overlapping anywhere in the taxing power and the Constitution gives independent sources of taxation to the Union and the States. (2) In spite of the fields of legislation having been demarcated, the question of repugnancy between law made by Parliament and a law made by the State Legislature may arise only in cases when both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List and a direct conflict is seen. If there is a repugnancy due to overlapping found 16 CWP No.10992 of 2010 between List II on the one hand and List I and List III on the other, the State law will be ultra vires and shall have to give way to the Union law. (3) Taxation is considered to be a distinct matter for purposes of legislative competence. There is a distinction made between general subjects of legislation and taxation. The general subjects of legislation are dealt with in one group of entries and power of taxation in a separate group. The power to tax cannot be deduced from a general legislative entry as an ancillary power. (4) The entries in the lists being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The words and expressions employed in drafting the entries must be given the widest-possible interpretation. This is because, to quote V. Ramaswami, J., the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeratio of broad categories. A power to legislate as to the principal matter specifically mentioned in the entry shall also include within its expanse the legislations touching incidental and ancillary matters. (5) Where the legislative competence of the legislature of any State is questioned on the ground that it encroaches upon the legislative competence of Parliament to enact a law, the 17 CWP No.10992 of 2010 question one has to ask is whether the legislation relates to any of the entries in List I or III. If it does, no further question need be asked and Parliament’s legislative competence must be upheld.