After the 101st Amendment, the Bihar Entertainment Tax Act of 1948 would not stand: HC

Fact and issue of the case

The petitioner is a Multi System Operator (“MSO” for brevity) who is mulcted with the liability to pay Entertainment Tax under the Bihar Entertainment Tax Act, 1948 (for brevity “Act of 1948”), as the proprietor who has the ultimate control in the transmission of programs; which he receives from a satellite and through the Local Cable Operators (“LCO” for brevity), broadcasts to the subscribers. Earlier the petitioner was before this Court when an assessment order was passed, based on the number of set-top boxes recorded in the register of the petitioner. This Court by Annexure P-5 judgment in CWJC No. 6413 of 2018 dated 17.04.2019 found that the Assessing Officer has resorted to a short cut method to extract money from the petitioner by resorting to a special mode of recovery without even identifying the subscribers for the purpose of such levy. The assessment orders were quashed and the Assistant Commissioner, Commercial Taxes, Patna North Circle, Patna was directed to redo the assessment for the 4th quarter of the Assessment Year 2015-16 (01.01.2016 to 31.03.2016), the full Assessment Year of 2016-2017 and the 1st quarter of the Assessment Year 2017-18 (01.04.2017 to 30.06.2017). The learned Judges while remanding the matter, clearly observed that there is no expression on the inter party merits and all issues would be left open for consideration before the Assessing Authority. The Assessing Authority after notice to the petitioner carried out a fresh assessment which is produced as Annexure P-1 and impugned in the present writ petition.

Shri Sujit Ghosh, learned counsel for the petitioner challenged the impugned order as perverse to boot; for non-application of mind, wrong application of precedents, reliance placed on irrelevant facts & materials as also the relevant facts & the decision on the point, placed on record by the assessee, having been completely ignored. The learned counsel would first take us to Section 3A of the Act of 1948 which is the charging section and point out that the charge is at the time of ‘connection given to the subscriber’; which is the taxable event from which the petitioner – MSO is once removed. The MSO does not give connections to subscribers and it is the LCO who does it, making the latter the taxable person going by the charging section. The taxable event does not occur at the hands of the MSO, who has no privity of contract with the subscriber. Rule 19AC of the Bihar Entertainment Tax Rules, 1984 (for brevity (‘Rules of 1984’) is specifically pointed out to again emphasize on the machinery provisions also having reckoned the taxable event as the point at which a connection is given to the subscriber. It is pointed out that earlier when there was transmission of programs through cables, it was the LCO who was taxed under the Act of 1948 and in the present scenario of technical advancement, which removes the MSO and keeps it apart from the act of giving connection to the subscriber, there are no corresponding amendments made to the charging Section to enable the levy on the MSO, who has absolutely no connection with the taxing event.

The impugned order at Annexure P-1 was copiously read, to point out the factually incorrect assumptions made by the Assessing Officer which makes the order a perverse one and legally unsustainable. The distinction drawn between the analog signal system and the present digital signaling system to find a pervasive control on the MSO is not supported by the facts on the ground. There is no marketing or innovation work done by the MSO as has been presumed by the Assessing Officer and there is no right of exclusive transmission conferred on the LCO within the area of its operation, as found in the impugned order. The finding that the LCOs have been reduced to repairing agents carrying out the repairs of set-top boxes and networks cannot be countenanced going by the relationship between the MSO and the LCO, as coming out from the agreement. The Assessing Officer even goes to the extent of faulting the petitioner for not having produced the registers of the LCO; which definitely is not their obligation. The Assessing Officer even at this point has not made any inquiry regarding the subscribers and has merely proceeded on the basis of the set-top boxes supplied; which action was deprecated as a short cut to extract money and set aside, in the earlier litigation. The impugned order is vitiated for the error in facts and of law, as is evident from the facts emanating from the decisions relied on by the Assessing Officer; which have no application to the present system of transmission of programs by the MSO, through the LCOs to the ultimate subscriber. The specific charging Sections, dealt with by the Hon’ble Supreme Court in The State of W.B. and others v. Purvi Communication (P) Ltd., (2005) 3 SCC 711, the High Court of Rajasthan in Sky Media (P) Ltd. v. Asstt. Commissioner, Commercial Taxes, Circle ‘A’, Jodhpur, 2015 SCC OnLine Raj 3271 and Indusind Media and Communications Limited and another v. Mamlatdar and other, (2011) 15 SCC 294, the last with reference to the Gujrat Entertainments Tax Act, 1977, were specifically pointed out to draw a distinction from the charging provision in the enactment which is the subject matter of consideration in this writ petition. It is pointed out that the charging section, in the State of West Bengal, imposed the liability to tax on both the persons dealing with a direct and indirect transmission of programs while the Rajasthan levy was on the admission to an entertainment through a Direct to Home broadcasting service or through a cable service with addressable system or otherwise; which ‘otherwise’ is not available in the Bihar enactment. In the Gujrat Entertainments Tax Act, the levy was on ‘every’ proprietor providing entertainment by way of maintenance or operation of cable connections. The charging Section in the Bihar Act of 1948 falls short of such a levy being imposed on the MSO who has, (i) no direct contact with the subscriber, (ii) does not make any transmission directly to the subscriber or (iii) even does not deliver the set-top box to the subscriber. The petitioner before the Assessing Officer had specifically relied on the decision of the Delhi High Court in Siti Cable Networks Limited v. Government of NCT of Delhi & Ors. in WP(C) 427/2014 & CM No. 851/2014 judgment dated 09.03.2017; which though referred to in the impugned order was not at all taken up for discussion. The learned counsel for the petitioner fairly concedes that the decision of the Delhi High Court has now been stayed by the Hon’ble Supreme Court, but however, the reasoning is relevant, to the point and identical to the present factual situation of transmission of programs through set-top boxes in which the MSOs were absolved from the liability to Entertainment Tax.

Observation of the court

The Bihar Entertainment Tax Act, 1948 was one enacted when the field of legislation in Entry 62 to List II of Seventh Schedule, existed as it did prior to the 101st Amendment. It is clear from the provisions of the said Act & Rules and the notification issued thereunder that the levy and collection of such tax was also the responsibility of the Commercial Tax Officers, the collected amounts going into the consolidated fund of the State. While retaining the tax on entertainments in the 101st Amendment it was specifically indicated that taxes on entertainments & amusements can be sustained; i.e. under Articles 245, 246 & 265 of the Constitution of India, only to the extent levied and collected by a Local Self Government Institution i.e. a Panchayat, Municipality, Regional Council or a District Council. Hence, the tax as it was levied on entertainments under the Bihar Entertainment Tax Act, 1948 cannot survive after the 101st Amendment since it is not levied and collected by a local self-government institution.

That the State could now bring out an enactment taxing entertainments, also levying tax on Cable TV Networks, by permitting such levy and collection to be made by the local self-government institutions, cannot at all be disputed. However, it is a moot question as to whether a repeal and saving clause as in the Bihar Goods and Services Tax Act, in such a new enactment brought under Entry 62 as it exists now in the Constitution, can provide for a repeal and saving as available under Sections 173 and 174 of the BGST Act, to sustain the levy and collection after the 101st Amendment. This is because the transitional provisions under Section 19 does not make the same applicable to tax on entertainments and confines it to tax on goods or services or on both. We need not dwell into the same since neither is there existing a repeal or saving clause in such an enactment nor even was such an enactment brought in. It could have been done only if there was a foundational empowerment by a transition clause, in the nature of Section 19 permitting the survival of such entertainment tax levied and collected under the unamended Entry 62, as was permitted in the case of goods or services and the legislation was brought in, within one year from the commencement of the 101st amendment.

The periods we are concerned with are 01.01.2016 to 31.03.2016, the full Assessment Year of 2016-2017 and 01.04.2017 to 30.06.2017, prior to the amendment and after the amendment. If we understand the levy to have been made on the taxable event having occurred, that is the giving of connection and the collection being deferred to every month, when the subscription is paid, then as per the Act of 1948; it occurs on the giving of the set-top boxes, creating a liability on the taxable person to pay tax determined at a definite quantum, from the fees generated from the subscribers. But, it cannot be collected after the 101st Amendment, for even a period of one year, since there is no transition provision to save the taxes levied on entertainment by a legislation under the un-amended Entry 62 and there could be no question of a collection too, raised validly.

The Act of 1948 in the State of Bihar, by which the State, through its Commercial Tax Officers collect entertainment tax inter alia from the proprietors of cable television networks cannot survive the 101st Amendment, since the field of taxation available to the State under the amended Entry 62 of List II is confined to those levied and collected by the local self-government institutions. The tax for the period prior to the amendment, though levied on the taxable event occurring, cannot also be collected since there is no transition provision available under the 101st Amendment making such collection of entertainment tax permissible for one year or by way of a repeal; by an enactment, consistent with the amendment, with a saving clause for continuance of the levy and collection under the old Act as it was never repealed. Despite our finding that the Act of 1948 levies the tax on the MSO, the petitioner as the proprietor, prior to the 101st amendment, such levy and also collection as indicated in the impugned orders have to be set aside since post amendment neither the levy nor the right to collect tax, as it existed earlier, survives.

The impugned orders are hence set aside, only on the ground of the authorities under the Act of 1948 having been denuded of the power to levy and collect the tax as per the enactment, after the 101st amendment. The State also is denuded of the power to make an enactment in the nature of the Bihar Entertainment Tax Act, 1948 after the 101st Amendment. The repeal and the saving clause provided under the BGST Act does not inure to the benefit of the State since the enactment and the levy made by it cannot be sustained after the 101st amendment. We hence, allow the writ petition, setting aside the impugned order.