Supreme Court rules States can levy entertainment tax on DTH, cable services despite service tax by Union

The Supreme Court on Thursday upheld the constitutional validity of entertainment tax levied by State governments on cable and Direct-to-Home (DTH) television services..A Bench comprising Justices BV Nagarathna and N Kotiswar Singh held that States are competent to tax the “entertainment” aspect of such services even if the broadcasting function is already subject to service tax by the Union.Hence, it dismissed appeals filed by major DTH service providers including Tata Sky (now Tata Play), Dish TV, Sun Direct and others against various State entertainment tax laws."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," the Court stated in its 321-page judgment..The appeals arose from judgments delivered by various High Courts upholding the validity of State entertainment tax laws enacted under Entry 62 of the State List (List II) in the Seventh Schedule of the Constitution. The States involved included Kerala, Uttar Pradesh, Gujarat, Delhi, Tamil Nadu, Punjab, Assam, Jharkhand, Rajasthan, Odisha and Uttarakhand.In particular, the State of Kerala challenged a 2012 Kerala High Court judgment that struck down a provision of the Kerala Tax on Luxuries Act, 1976 which imposed luxury tax on cable operators with more than 7,500 connections, while exempting those with fewer.The High Court had held that this classification was arbitrary and violated Article 14 of the Constitution..The Supreme Court's decision hinged on the application of the "aspect theory," which allows different levels of government to tax different aspects of the same commercial activity."The activity of broadcasting is for the purpose of entertainment of the subscriber... 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... the effect of the decryption of the signals by the Set-Top Boxes," the judgment elaborated.The Court explained that while the Central government taxes the service aspect (broadcasting service) under Entry 97 of List I, States can tax the entertainment aspect under Entry 62 of List II. This theoretical framework resolves the apparent conflict between Central and State taxation powers by recognising that the same transaction can have multiple taxable aspects without creating legal overlapping..The DTH service providers had argued that they were merely conduits in the broadcasting chain and should not be liable for entertainment tax and that only service tax should apply to their operations since there are no two aspects to the service provided by them.However, the Supreme Court firmly rejected this argument. "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 held. It emphasised that DTH operators have a "direct and proximate nexus" with entertainment provision, as they provide the necessary apparatus (set-top boxes and viewing cards) to decrypt signals, making television content accessible to subscribers..Therefore, the judgment validated entertainment tax laws across multiple States, including Kerala, Uttar Pradesh, Rajasthan, Gujarat, Jharkhand, Punjab, Delhi, Assam and Odisha."The tax sought to be imposed by the State Legislatures by way of the impugned Acts, is traceable to the power conferred on the State Legislatures under Entry 62 - List II," the Court affirmed.The ruling clarified that entertainment through DTH services falls within the constitutional definition of "luxuries" that States can tax, regardless of whether such entertainment is consumed in private homes or public venues..The Court endorsed its 2005 decision in State of West Bengal vs. Purvi Communication Pvt. Ltd. which had allowed States to tax cable television operators for entertainment tax."We do not agree with this limited interpretation of the word 'entertainments'. We hold in line with the principle that words in entries must be given a broad, liberal and expansive interpretation," the court stated while rejecting arguments that entertainment tax should be limited to public entertainment only.The judgment also noted that technological advancement has expanded entertainment beyond traditional public venues and it has become possible for such entertainments to be experienced/enjoyed directly at home. .In view of the above, it allowed the appeal by the State of Kerala and overturned the Kerala High Court decision that had struck down luxury tax on cable operators with more than 7,500 connections as discriminatory."The High Court erred in holding that the classification was unreasonable and lacked any rational nexus with the objects of the Kerala Act of 1976," the Supreme Court ruled..The Court also partially allowed appeals against the Allahabad High Court regarding retrospective application of entertainment tax on DTH services in Uttar Pradesh."There needs to be a specific inclusion of DTH services within the ambit of entertainment in the charging provision of the relevant taxing statute. In the absence of specificity, the lacuna of a missing taxable event persists," the court ruled.The judgment clarified that States cannot impose entertainment tax on DTH services for periods before specific legislative amendments were enacted to include such services within the tax net..The Court also provided extensive guidance on constitutional interpretation of taxation entries, emphasizing the distinction between regulatory and taxation powers."Under the Constitution of India, the power to tax is not an incidental or ancillary power. The power to tax cannot be implied within a regulatory entry under our Constitution," the Bench made it clear.It clarified that Entry 31 of List I (dealing with broadcasting and communications) is purely regulatory and does not confer taxation powers on the Central government, while Entry 62 of List II specifically empowers States to tax entertainment as a luxury..The Court also outlined four essential parameters that any taxation law must satisfy as established in Govind Saran Ganga Saran vs. CST:(i) The taxable event which forms the basis of levy, (ii) The measure of the tax, (iii) The rate(s) of taxation; and (iv) The incidence of the tax.The judgment validated that most State entertainment tax laws meet these constitutional requirements for DTH services..The petitioners were represented by Senior Advocates KK Venugopal, Arvind P Datar, Tarun Gulati, SK Bagaria, Jaideep Gupta and Pallav Shisodia..The respondents were represented by Senior Advocates Manish Singhvi, RK Raizada, Arunabh Chowdhury (AAG), Preetesh Kapur, K Radhakrishnan, Shirin Khajuria, Nisha Bagchi, V K Khanna, Sanjay Kharde, Saurabh Mishra and KN Balgopal (Advocate General, Nagaland).The Union of India was represented by Additional Solicitor General KM Nataraj..[Read Judgment]