Levy & Collection Of Luxury Tax On Cable TV Operators With Connections Of 7500 Or Above Not Unconstitutional: Supreme Court

The Supreme Court held that the levy and collection of luxury tax on Cable TV (Television) operators with connections of 7,500 or above is not unconstitutional.

The Court held thus in a batch of Civil Appeals arising from the Judgments of the High Courts of Allahabad, Delhi, Gauhati, Gujarat, Jharkhand, Kerala, Madras, Orissa, Punjab & Haryana, Rajasthan and Uttarakhand. While the two Writ Petitions were filed before the Court under Article 32 of the Constitution by M/s Tata Play Ltd.

The two-Judge Bench of Justice B.V. Nagarathna and Justice N. Kotiswar Singh observed, “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. … 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.”

The Bench said that 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 are liable to pay entertainment tax as well.

Senior Advocates Arvind P. Datar, S.K. Bagaria, Tarun Gulati, and Shirin Khajuria appeared for the Appellants while Senior Advocates Jaideep Gupta, R.K. Raizada, Preetesh Kapur, K. Radhakrishnan, Manish Singhvi, Farasat, K. Enatoli Sema, Nisha Bagchi, and Advocate Sahel appeared for the Respondents.

Factual Background

The assessees filed the Appeals assailing the provisions of the respective State Acts under which tax on entertainment has been charged on them on the premise that their activity is relatable to the field of entertainment as envisaged under Entry 62 – List II of the Seventh Schedule to the Constitution. It was their contention that they are not liable to pay entertainment tax (or luxury tax) under the respective provisions of the State enactments. It was further case of the assessees that they are engaged in broadcasting of signals etc. through television channels to the subscribers of those channels; hence, possibly they are liable to pay service tax to the Central Government under Entry 97 – List I of the Seventh Schedule of the Constitution. There were however two Writ Petitions filed by certain assessees who also ventilated their grievance that they are not liable to pay service tax as well.

The question whether the Appellants-assessees are liable to pay entertainment tax under the provisions of the respective State enactments which are relatable to Entry 62 – List II of the Seventh Schedule of the Constitution and are also liable to pay service tax under the provisions of the Finance Act, 1994 as amended from time to time as a provider of a taxable service namely broadcasting service within the scope and ambit of Entry 97 – List I which is a residuary entry for the relevant purpose of assessment, was the moot question which arose in these Appeals. The State of Kerala being aggrieved by the striking down of the sub-section (iv) of proviso to Section 4 under which the cable operators who have less than 7,500 connections are being exempt from payment of entertainment tax and whereas those who have over and above 7,500 connections are liable to pay the same tax being discriminatory in nature and being strike down by the Kerala High Court was questioned by the State of Kerala in its Appeal before the Apex Court.

Reasoning

The Supreme Court in the above regard, noted, “… under 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 Court added 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.

“… 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. … 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”, it enunciated.

The Court further said that 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.

“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”, it elucidated.

Tax on Luxuries: Entertainments & Amusements

The Court was of the view that the State legislature has legislative competence to impose entertainment tax under Entry 62 - List II as a tax on luxuries.

“The expression “entertainments/entertainment” includes within its scope and 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”, it held.

The Court further observed that 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.

Doctrine of Pith & Substance

“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”, the Court remarked.

The Court also explained 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.

“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”, it added.

Court’s Important Remarks

The Court observed that 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.

“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 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”, it held.

The Court further held that 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.

“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”, it remarked.

Accordingly, the Apex Court dismissed the Writ Petition before the High Court, allowed State of Kerala’s Civil Appeal, and set aside the Judgment of the Kerala High Court.

Cause Title- State of Kerala & Another v. Asianet Satellite Communications Ltd. & Others (Neutral Citation: 2025 INSC 757)

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