Directs State to exempt the service from entertainment tax

The Madras High Court has held that the imposition of 30 per cent entertainment tax on Direct-to-Home services in the State is unconstitutional and directed the State government to exempt DTH services from entertainment tax.

A Division Bench comprising justices Chitra Venkataraman and K. Ravichandra Baabu allowed batch of petitions challenging the levy imposed on DTH operators.

The State government amended the provisions of Tamil Nadu Entertainments Tax Act, 1939 in 2011 and issued a notification on October 12, 2011 through the Commercial Taxes and Registration Department seeking to levy 30 per cent Entertainment Tax on DTH operators.

Aggrieved over the tax, Tata Sky Network, Dish TV India Ltd, Bharti, Reliance, and Sun Direct filed writ petitions challenging the imposition of tax. They said such levy was discriminatory and in violation of Article 14 of the Constitution and sought a declaration that the amendments, and the relevant rules and notification was ultra vires and unconstitutional.

They also wanted the court to declare that the imposition of 30 per cent tax under Section 4(I) of the Tamil Nadu Entertainment Tax Act 2011 was “discriminatory and confiscatory”, and in violation of the equality clause of Article 14. They wanted a direction to the State government to exempt DTH services from Entertainment Tax and or the rate of tax to be reduced to nil in parity with cable networks as per a notification issued in 2008.

The petitioners also contended that the notice issued to them demanding the furnishing of security deposit of Rs. 46,50,000 was perverse and arbitrary.

R.Sivaraman, Special Government Pleader (Taxes), submitted that the State had the legislative competence to levy tax on entertainment as per the Constitution. The levy on DTH was not violative of the Constitution.

Allowing the petitions, the Bench held that “the State has the legislative competence to levy tax on entertainment. However, the impugned section 4(I) does not have a chargeable event. Hence it is a colourable piece of legislation and it is unconstitutional.”

They said: “In the absence of chargeable event, the impugned provision is unconstitutional. It is violation of Article 14 of the Constitution. Because there is no distinction between Cable Network and DTH.”

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