3 May 2016
EY Tax Alert
2012
Kerala HC upholds the constitutional validity of levy of Service tax on
admission and access to entertainment event & amusement facilities
Executive summary
This Tax Alert gives an update on the recent decision1 of the Kerala High Court
(‘HC’).
Tax Alerts cover
significant tax news,
developments and
changes in legislation
that affect Indian
businesses. They act
as technical summaries
to keep you on top of
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For more information,
please contact your EY
advisor.
The issue before the HC was whether deletion of the entry “admission and access
to entertainment event and amusement facilities” from the negative list of
services and consequent imposition of service tax on such activity could be
considered to 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).
Kerala HC held that:
►
The facility for the provider is not amusement, but it is a service offered for a
fee. The carrying on of an amusement park is an activity undertaken for
another, the admittance to which is regulated by fees. It partakes two distinct
and different aspects. The power to tax their distinct aspects is with the
Union Parliament and the State Legislature respectively.
►
There is no conflict between the two entries (Entry 97 of List I and Entry 62
of List II), which are fields of legislation. The two aspects taxed by the
respective legislatures are the 'service' and the 'amusement'.
►
The tax, imposed by the Union Parliament, in pith and substance, is on the
service offered by the petitioners.
Accordingly, Kerala HC has upheld the constitutional validity of levy of Service tax
on admission and access to entertainment event & amusement facilities.
___________________
1
2016-TIOL-856-HC-KER-ST
Background
►
Petitioners are corporate bodies carrying
on amusement parks, which come within
the ambit of ‘amusement and
entertainment’ as contained in Entry 62
of List II of the seventh schedule of the
Constitution of India.
►
Entry 62 of List II (i.e State List) deals
with “taxes on luxuries, including taxes
on entertainments, amusements, betting
and gambling.”
►
Charging section 3 of Kerala Local
Authorities Entertainments Tax Act,
1961 (‘State Act’) provides for levy and
rate of tax levied on the price for
admission to any entertainment.
►
Section 3B of the State Act provides the
measure for levy of annual
entertainment tax based on the
investment, area in which such park is
situated and at the rates fixed by the
local authority.
►
Section 66D of The Finance Act, 1994
(‘Act’) lists down services on which
Service tax is not leviable. Admission to
entertainment events or access to
amusement facilities was included in
negative list of services under section
66D(j) w.e.f 1 July 2012.
►
However, the above clause was deleted
from 1 June 2015 and thus, admission
to entertainment events or access to
amusement facilities was made liable to
Service tax.
►
Aggrieved by the levy of Service tax on
the admission and access to such
amusement parks, petitioners filed a writ
petition contending that such a levy
encroaches upon the State’s power to
levy entertainment tax.
►
2
Accordingly, the issue before the HC was
whether removal of “admission and
access to entertainment event and
amusement facilities” from the negative
list of services and consequent
imposition of service tax on such activity
would result in the Union Parliament
2015 (1) ILR Kerala 267
trenching upon the exclusive field
assigned to the State (under Entry 62 of
List II of the seventh schedule of the
Constitution of India).
Petitioner’s contentions
►
Petitioners contended that resort to
residuary entry (Entry 97 of Union List)
can be taken 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.
►
Local bodies are taxing the petitioners
on the basis of Entry 62. Thus, there can
be no service element, since what the
petitioners offer is amusement and
entertainment and what the recipients
get is also amusement and
entertainment. This is clearly covered
under Entry 62 and nothing remains to
be taxed by the Union since no service is
offered.
►
There is no activity carried on inside the
premises of the petitioners other than
the persons admitted, regaling
themselves in various activities which
tend to amuse and entertain those
individuals.
►
Petitioner relied on Division Bench
decision in the case of UOI vs. Kerala Bar
Hotels Association2 wherein Kerala HC
held that levy of Service tax on services
provided by air conditioner restaurants,
hotels, guest house, etc. in relation to
providing of accommodation is
unconstitutional.
►
Amusements being covered under Entry
62 of List II, no power can be traced to
the residuary power, to tax the very
same activity.
Respondent’s contentions
►
CBEC sought dismissal of writ petitions
on the ground of application of ‘aspect
theory’ and there being two
distinguishable aspects involved, which
are liable to be taxed by the Union
Parliament and the State.
►
The respondent contended that there is
no overlapping of power and the
trenching, if at all, is incidental, which
does not take away the power of the
Union Government.
►
It partakes two distinct and different
aspects. The power to tax, which, is
respectively on the Union Parliament and
the State Legislature and the Union
Parliament has the legislative
competence to tax the aspect of service
in an amusement park.
►
The measure of tax may at times provide
an indication as to the nature of tax but
it can never determine it.
►
In this regard, HC relied upon the judicial
precedent in the case of State of WB vs.
Kesoram Industries Ltd3 wherein it was
concluded that any standard which
maintains a nexus with the essential
character of the levy can be regarded as
a valid basis for assessing the measure
of the levy.
►
It also relied on various other caselaws4
wherein it was held that identical
measure does not detract from the fact
that the levies were separate imposts.
►
Amusements are covered by Entry 62 of
List II and the aspect of ‘service’
involved, when the facilities for
amusement is offered for a price cannot
be ignored.
►
Entry 62 of List II covers ‘amusements’
as an object of taxation while Entry 97 of
List I seeks to levy tax on provision of
services.
►
Negative list does not refer to
‘amusement’ but tax on admission on
entry of such events, understanding the
power to levy service tax on such
facilities offered by one to another for a
consideration.
►
The Union Parliament has provided for
tax on admission to the parks, making it
clear that the levy is only when the
service is availed of.
►
The “service” provided is the object of
taxation and it is imposed on the
admission fee which is a permissible
measure of tax. The incidence of which is
High Court ruling
►
►
►
►
►
►
3
HC observed that definition of service is
all encompassing bringing within it, “any
activity carried out by a person for
another for consideration.” The method
of inclusion of taxable services has been
done away with and the charging section
66B has been introduced.
Section 66B provides a uniform levy on
all services other than those specified in
the negative list (provided under section
66D). Admission and entrance to
entertainment and amusement facilities
are now omitted from section 66D.
The fact that admission to entertainment
events and access to 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. The exclusion
of such activity from the negative list
empowers the Union Parliament to tax
the said services.
The issue to be decided is whether the
activity can only be taxed by the State
for reason of the entire activity being
subsumed in the definition of
‘amusement’ leaving nothing else to be
taxed by the Union.
There is definitely an element of service
in providing a facility, which would result
in enjoyment of an activity capable of
being termed as an amusement or
entertainment.
The facility for the provider is not
amusement, but it is a service offered
for a fee. The carrying on of an
amusement park is an activity carried
out for another, the admittance to which
park is regulated by fees.
2004 (10) SCC 201
1948 FCR 207
1980 (2) SCC 410
4
at the time when a person pays the
admission fee to enter the park.
►
There is no conflict between the two
entries, which are fields of legislation.
The two aspects taxed by the respective
legislatures are the 'service' and the
'amusement'.
►
The tax, imposed by the Union
Parliament, in pith and substance, is on
the service offered by the petitioners.
There is no trenching of the Union
Parliament on the power conferred on
the State, in fact or in law, since the
respective legislatures tax two different
aspects.
Comments
The controversy related to the
application of the ‘aspect theory’
for determining the vires of the
Union and the State Governments
continues.
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