Broadcasters liable to pay both service & luxury taxes: Supreme Court

New Delhi: The Supreme Court on Thursday ruled that broadcasters are liable to pay service tax as well as entertainment tax on their activity as both Parliament and the state legislatures have the legislative competence to impose such a levy.

A bench of Justices B V Nagarathna and N Kotiswar Singh held the two taxes are different aspects of the same activity which enabled two different legislatures to impose tax under distinct taxation entries in two different Lists.

Dealing with a batch of petitions, the court noted, 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 - 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 List – I. In the same vein, under Entry 62 List – II, the state governments are not imposing any service tax on the assesses,” Justice Nagarathna wrote for the bench in the 321-page judgment.

The court found 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 – List I of the Seventh Schedule of the Constitution) and the activity of entertainment is a subject falling under Entry 62 - List II and therefore, the assessees herein are liable to pay entertainment tax as well," the bench said

Hence, the State Legislatures as well as 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, the bench declared.

The bench pointed out 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 court noted there are two aspects in this activity, 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 bench said.

The television entertainment provided by them through broadcasting, is a luxury within the meaning of Entry 62 - 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 - List II as being a specie of luxuries, the court added.

A batch of cases arose out of different high courts, with the lead case being Kerala Vs Asianet Satellite Communications, in which entertainment tax was charged from broadcasters by various states.

The broadcasters claimed that they were not liable to pay entertainment tax or luxury tax under the respective state enactments. They contended since they were engaged in broadcasting of signals through television channels to subscribers, hence, they were liable to pay only service tax to the central government.

The court held the 2012 Kerala High Court's judgment as incorrect.

The HC had declared the levy and collection of luxury tax on cable television operators with connections of 7,500 or more as unconstitutional for being discriminatory.