State of Kerala & Another vs Asianet Satellite Communications Ltd. & Others

Held: There are two aspects in the activity undertaken by the assessees – The first is the act of transmission of signals of the content to the subscribers – The second aspect here concerns not only the content of the signals, but the effect of the decryption of the signals by the Set-Top Boxes and the viewing cards inside these boxes provided by the assessees to the subscribers, which is providing and receiving of entertainment through the television – Without the apparatus provided for by the assessees to decrypt the signals, the subscriber would not be able to watch the content that is transmitted, the content being for the purpose of entertainment – The television entertainment provided by them through their modus operandi i.e., by broadcasting, is a luxury within the meaning of Entry 62 of List II – 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 of 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 – This is because by rendering the service of broadcasting, the assessees are entertaining the subscribers within the meaning of Entry 62 of List II –There is no overlapping in fact or in law, inasmuch as different aspects of the same activity are being taxed under two different legislations by two different legislatures – This is because the activity of broadcasting is a service and liable to service tax imposed by the Parliament (Entry 97 of List I) and the activity of entertainment is a subject falling under Entry 62 of List II and therefore, the assessees herein are liable to pay entertainment tax as well – Hence, 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. [Para 17.37] Doctrines – Aspect theory – Double aspect doctrine – A tool of constitutional interpretation used in Canada to resolve issues which arise when both the federal and provincial government have the right to legislate on a subject – Usage of aspect theory in the Indian context – Discussed:

Held: In India, there appears to be no clarity on the application of the aspect theory in the Canadian sense – One of the reasons being that in India, both the Parliament as well as the State Legislature do not have powers to levy tax on the same subject – The aspect theory has been applied in India essentially to ascertain whether an activity would fall within the scope and ambit of an enactment and whether the said enactment in pith and substance would fall within an Entry of a particular List of the Seventh Schedule so as to confer legislative competence to tax that aspect of the activity – Aspect theory has no relevance, as such, in determining the constitutionality of any provision on the ground of legislative competence in India – Aspect theory is however relevant to determine the applicability of a taxing statute on the activity or transaction sought to be taxed i.e., whether the statute covers an activity which falls within a specific taxation entry, either in List I or in List II – 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 – Thus, the aspect theory is used to determine if, in fact, there are different aspects within the activity sought to be taxed and whether the taxable event which forms the basis of the levy in a legislative enactment corresponds to any aspect in the activity sought to be taxed – This is in contrast to the applicability of this theory in Canada, where this theory is used therein to determine legislative competence of a federal or provincial legislature to enact a particular law. [Paras 17.27, 17.33-17.36]

Taxation – Activity of Broadcasting service – Application of Aspect theory – 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 – The two taxes are different aspects of the same activity which enable two different legislatures to impose tax under distinct taxation entries in two different Lists: Held: One aspect of an activity, say broadcasting service, can be amenable to service tax, while the other aspect of the same activity, namely, providing (of) entertainment to television viewers (as that is the object of broadcasting) can be amenable to “luxury tax” under Entry 62 List II of the Constitution which could be levied on the recipients of such entertainment or on the service providers who are essentially broadcasters – Broadcasting service being a taxable service under the provisions of the Finance Act, 1994, read along with the amendments made from time to time would enable both the Parliament to impose service tax on broadcasting service and the State Legislatures having the legislative competence to levy entertainment tax on those who provide entertainment to the recipients (television viewers) to impose a luxury tax – Entry 62 of List II contemplates a tax on entertainments or amusements as objects on which a tax can be imposed and therefore it is not possible to differentiate between an entertainment provider and an entertainment receiver – The principle is well settled that two taxes which are separate and distinct imposed on two aspects of an activity are permissible, as in law, there is no overlapping – This is because the taxes are relatable to distinct taxation entries in separate legislative Lists – In the instant case, the Parliament under the Finance Act, 1994 and its amendments is not imposing a tax on entertainment – Such a tax is being imposed by the State Legislatures as entertainment is a luxury within the meaning of Entry 62 of List II – In the same way, the Finance Act along with its amendments seeks to impose a tax on the service rendered by the broadcasting agency which is imposed under Entry 97 of List I – In the same vein, under Entry 62 of List II, the State Governments are not imposing any service tax on the assessees. [Paras 17.27, 17.28, 17.30, 17.31]

Constitution of India – Articles 246, 248 and Seventh Schedule, List I, II & III – Constitutional Scheme regarding distribution of Legislative Powers – Legislative competence to levy a tax – Expression “subject to” and “with respect to” in Article

246 – Applicability of doctrine of pith and substance: Held: 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 – 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 – Also, a power to legislate as to the principal matters specifically mentioned in the entries shall also include within its expanse, a legislation touching upon incidental and ancillary matters – This principle is derived from the use of the expression “with respect to” in Article

246 of the Constitution – Entry 97 of 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 – While interpreting taxation entries in List I or List II, i.e., while determining the legislative competence to levy a tax, all efforts must be made to interpret them in such a way as to give expansive content and meaning to the same having regard to the constitutional scheme under which the distribution of legislative powers has been envisaged in the Seventh Schedule and bearing in mind the object and intent behind them and also the advances made in human thought and technology – The expression “subject to” and “with respect to” in Article 246 of the Constitution aids the applicability of the doctrine of pith and substance to find out the true character of the enactment and the entry within which it would fall – The said doctrine is applied to resolve an issue regarding legislative competence of a legislature to enact a particular law in relation to a subject relatable to an Entry in a List under the Seventh Schedule of the Constitution – Any apparent conflict with respect to an entry in another List is resolved on the basis of the pith and substance doctrine. [Paras 17.7-17.10, 17.12, 17.13]

Doctrines – Doctrine of pith and substance – If a law is in its pith and substance within the competence of the Legislature which has made it, it will not be invalid because it incidentally touches upon the subject lying within the competence of another Legislature:

Held: Where there is an apparent overlapping between two legislative entries in the Lists of Seventh Schedule of the Constitution, the doctrine of pith and substance is applied to find out the true character of the enactment concerned and the entry within which it would fall – The doctrine of pith and substance, in short, means, if an enactment substantially falls within the powers expressly conferred by the Constitution upon the legislature which enacted it, the same cannot be held to be invalid merely because it incidentally encroaches on matters assigned to another legislature – Also, in a situation where there is overlapping, the said doctrine has to be applied to determine to which entry, a piece of legislation could be related to by examining the true character of the enactment or a provision thereof – Due regard must be had to the enactment as a whole and to its scope and objects – Question of invasion into another legislative territory has to be determined by substance and not by degree – The doctrine of pith and substance is applied to consider the vires of a legislation impugned on the basis of the principle of legislative competence in the context of legislative relationship between the Centre and the State – 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 –Once the contours of an entry under which a legislation is sought to be made is ascertained, the next step is to study the legislation in question in order to ascertain whether it falls within the contours of that Entry – If it does fall within the contours of a particular entry in a particular List, then that particular legislature which has enacted it would have the legislative competence to enact such a legislation – But a legislation incidentally touching upon an entry in another List does not render it invalid, it means 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. [Paras 8.2.2, 17.33]

Taxation – Parameters of Taxation, as enumerated by Supreme Court in Govind Saran Ganga Saran, discussed:

Held: A legislative enactment which provides for the imposition of a tax must specify the following parameters of taxation: (i) The taxable event which forms the basis of levy, also referred to as “subject” of a tax; (ii) The measure of the tax; (iii) The rate(s) of taxation; and (iv) The incidence of the tax – The said parameters are each distinct and must not be conflated with the others – The components of tax, as stated above have been characterised in Govind Saran Ganga Saran case– In the said case, it was also laid down that a legislative scheme which seeks to impose a tax, ought to define each of the aforestated components with certainty and precision. [Paras 8.26, 17.23]

Taxation – Taxation on Luxuries: Entertainments & Amusements – Words and Expressions – “Luxuries” – Meaning of – Bearing in mind the meaning of “entertainments” and “amusements” and since they come within the scope of “luxuries”, therefore, the State legislature has legislative competence to impose entertainment tax under Entry 62 of List II as a tax on luxuries – Constitution of India – Seventh Schedule, List II, Entry 33 & 62. [Paras 8.6-8.12, 17.20]

Words and Phrases – “Entertainments” and “Amusements” – Meaning of – Expressions “entertainments and amusements” have to be read ejusdem generis – Constitution of India – Seventh Schedule, List II, Entry 62:

Held: The expression “entertainments” is a word of general import and in common parlance, it includes cinema shows, dramatic performances, etc. – The expression ‘entertainments’ used in Entry

62 of List II does not draw a distinction between one who derives amusement and one who caters to it – It covers both categories – Expression “entertainments” cannot be interpreted in a narrow, pedantic or in a myopic way – With the advancement in technology, there can be several modes in which the activity of entertainment can be provided or received – However, what is essential is the object of providing or receiving signals etc. which must be for the purpose of entertainment – 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 of List II – The expression “amusement” in Entry 62 of List II would mean diversion, pass time or enjoyment or a pleasurable occupation of the senses or that which furnished it – The expressions “entertainments and amusements” would have to be read ejusdem generis. [Paras 8.20-8.23, 17.22] Words and Phrases – “Entertainment” – Interpretation of – Geeta Enterprises case versus Purvi Communication case – Discussed:

Held: There is no contradiction in the judgments of Supreme Court in Geeta Enterprises and Purvi Communications – Judgment in Geeta Enterprises can never be a binding precedent for the question raised before this Court in Purvi Communication – Discussion on the content and meaning, scope and ambit of the expression ‘entertainments’ in Geeta Enterprises is not comprehensive – This is because, having regard to the advances in technology resulting in varied forms of entertainments through various media and in a variety of ways, not only in a public place but also in the confines of private space such as a home, through mobile or a cell phone or smart watch and other personal devices etc., the expression ‘entertainments’ must be given a broad, liberal and expansive meaning than what has been discussed in Geeta Enterprises by this Court – Purvi Communication is not per incuriam and need not be referred to a larger Bench. [Paras 10.6, 10.14, 17.24, 17.25] Words and Phrases – “Broadcasting” and “Broadcasting agency or organization” – Prasar Bharti (Broadcasting Corporation of India) Act, 1990 – Section 2(c) – Finance Act, 1994 as amended by the Finance Act, 2001 – Section 65(13). [Para 17.14-17.18]

Constitution of India – Seventh Schedule, Lists I, II & III – Fee in respect of any of the matters in the three Lists – Does not include the power to levy tax – Distinction between levy of fee and levy of tax. [Para 17.11]

Service Tax – Service tax on broadcasting agency – Finance Act, 1994 as amended by the Finance Act, 2001 – Sections 65(72)(zk) and 66.

Held: 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. [Para 17.19]