Removal of sub-clause (j) of section 66D i.e. Negative List resulting in levy of service tax on “access to amusement facilities and admission to entertainment events” does not amount to parliament encroaching upon Entry 62 of List II of Constitution.
Facts
The issue before the High Court was whether the removal of “admission and access to entertainment event and amusement facilities” [section 66D(j) of the Finance Act, 1994] from the Negative List of ‘Services’ by an amendment made by Finance Act 2015 and the consequent levy of service tax on such activity would result in the Union Parliament trenching upon the exclusive field assigned to the State, under Entry 62 List II of the Seventh Schedule of the Constitution of India. It was argued that resort to the residuary entry can be had only when it is found that the object of tax is not available in any of the other entries in List II and List III. Further there can be no service element found, since what the petitioners offer is amusement and entertainment and what the recipients get is also amusement and entertainment, which clearly is covered by Entry 62. Under Kerala Local Authorities Entertainments Tax Act, 1961 the levy of tax is with reference to the price for admission to any entertainment at the prescribed rates. The measure applicable to amusement parks is also provided based on the investment and area in which such park is situated at the rates fixed by the local authority within the range of rates provided in the table. Hence the activity is already taxed by the States. Further before legislative competence of the Parliament can be traced to the residuary entry, the legislative incompetence of the State Legislature has to be clearly established. The Petitioners broadly relied upon the following decisions:
a. Single Judge of this Court in Kerala Classified Hotels & Resorts Association vs. Union of India [2013] 35 taxmann.com 568 (Ker.), which was affirmed by a Division Bench in Union of India vs. Kerala Bar Hotels Association [2014] 51 taxmann.com 365 (Ker.).
b. Decision of the High Court of Madras in Mediaone Global Entertainment vs. Chief CCE [2013] 36 taxmann.com 57. The respondents sought dismissal of the writ petitions on the ground of “aspect theory” and there being two distinguishable aspects involved, one the services offered by the petitioners and the other the amusements and entertainments enjoyed by the entrants.
Held
The fact that admission/access to entertainment events and amusement facilities are included in the negative list itself is a pointer that the same partakes a service and the Parliament initially exempted it from the levy. When it is argued that the amusement and entertainment is offered, the corollary is that what is offered for amusement for a fee is essentially a service offered for consideration. There is also definitely an element of service in providing a facility, which would result in the enjoyment of an activity capable of being termed as an amusement or entertainment for a fee. Union Parliament therefore has the legislative competence to tax the aspect of service in an amusement park. The argument that the field being entirely occupied by Entry 62 List II, as the Entertainments Tax Act of the State provides a measure of tax based on the investment made and the area covered; which takes in the entire facilities offered and the same having been taxed by the State and therefore there could be no further tax levied on the service i.e. the provision of such facilities, was not accepted by the Court. Relying upon State of W.B. vs. Kesoram Industries Ltd. [2004] 10 SCC 201, the Court held that the Courts have been cautioned not to mix up the object of taxation and the measure employed. Further Relying upon All-India Federation of Tax Practitioners vs. Union of India [2007] 7 SCC 527 and Federation of Hotel & Restaurant Association of India vs. UOI [1989] 46 Taxman 47 (SC,) the Court held that the Supreme Court has time and again, after the Finance Act, 1994 came into force, upheld the tax levied on ‘services’ as being available to the Parliament under the residuary clause. In such circumstances, it cannot at all be said that the field is entirely covered by Entry 62 List II. Amusements are covered by Entry 62 List II and the aspect of ‘service’ involved when the facilities for amusement are offered for a price cannot be ignored. The Decision of Single Bench and Division Bench in the case of Kerala Classified Hotels & Resorts Association (supra) to the extent they dealt with constitutional validity of service tax on supply of food in restaurant by way of service in the context of Article 366(29A)(f) was distinguished on the ground that there is no question of a deeming provision being employed in the present case. Also the Court did not concur with Madras High Court to the extent it expressed a view in Mediaone Global Entertainment’s case (supra) that what is not taxable under section 66B is “tax on admission to entertainment events or access to amusement facilities”, the reason being, “tax on admission or entry of such events is covered in the State List, which is subjected to Entertainment Tax”. In this regard the Court held that Parliament is quite aware of their power. This is because even dehors inclusion in the Negative List the Parliament would not be able to trench upon the field specifically set apart for the States under List II. Therefore, the Negative List also did not refer to ‘amusement’ but tax on admission on entry of such events quite understanding the power to levy service tax on such facilities offered by one to another for a consideration. However, the High Court refrained from referring the matter to a Division Bench on the ground that the issue dealt with in the said case and in the instant cases is on different subjects and distinct transactions.
Note:
In Godfrey Philips India Ltd., the Apex Court held that luxuries is an activity of enjoyment. It further held that tax on luxury could only be levied on an activity and cannot be on goods or items of luxury. ‘Service’ also refers to “an activity”. In the present case also, the High Court expressed a view that ‘amusements’ refer to ‘activities’. However, apparently it did not examine the proposition as to whether, activities of amusement can be said to fall under Entry 62 List II, on the same reasoning as given by Supreme Court in Godfrey’s case, stating that no such ground was raised before it.
