In a writ petition challenging the constitutional validity of imposition of service tax on amusement parks, filed by Corporates engaged in the business of amusement parks, the Single Bench of the Kerala High Court upheld its constitutionality.
The main question raised before the Court for consideration was that whether the removal of sub-clause (j) of section 66D of the Finance Act, 1994 i.e, admission and access to entertainment event and amusement facilities, from the Negative List of “service” through the amendment in 2012 and the consequent imposition of service tax on such activity would result in the Union Parliament trenching upon the exclusive field assigned to the State, under Entry 62 of List II of the seventh schedule of the Constitution of India.
The concept of “service tax” was introduced in India for the first time through the Finance Act, 1994. Though in 2003, the Parliament through the 80th amendment of the Constitution, incorporated art. 268A along with Item No. 92C, “Taxes on service” in List I, the same has not come into force for reason of it is not notified by the Central Government. Therefore, the category of “service” does not appear in any of the lists in the Seventh Schedule. However, the courts have always upheld the power to impose a tax on services under the residuary entry 97 of the Constitution of India.
The main contention of the Petitioners was that the residuary entry can resort only in a situation when it is found that the object of the tax is not available in any of the entries in List I and ListII. In this regard, it was contended that the petitioners, who are carrying on amusement parks are out of the purview of the service tax since the activity carried on by them are covered within the “amusement and entertainment” under entry 62 of List II. Such activities are already subject to taxation by the local bodies on the basis of valid legislation enacted by the State as per List II. Hence, it was submitted that there is no element of service in the amusement enjoyed by the persons who get admitted to the facilities with the sole intention of amusement and entertainment. 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 the field delineated under Entry 62.
On the other side, the Respondents sought for the dismissal of the petition by considering the “aspect theory” since there involve two different aspects such as the services offered by the petitioners and the amusements and entertainments enjoyed by the entrants. Such different aspects are liable to be taxed by the Union Parliament and State and hence, there is no overlapping of the power and trenching.
The Single bench decided the case in favor of the Respondent by accepting their averment which is relied upon the “aspect theory”. It was held that the petitioners, maintaining an amusement park, are obliged to pay entertainment tax to the State, whether or not there are entrants to the park. The Union Parliament has provided for a 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 and the incidence is at the time when a person pays the admission fee to enter the park. J. Vinod Chandran. K in this regard observed that “here we have to fall back on the test laid down by Kesoram Industries Ltd., extracted hereinabove. We have seen that 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 also one of the services offered by the petitioners. This Court does not find any trenching of the Union Parliament on the power conferred on the State, in fact, or in law, since the respective legislature’s tax two different aspects. The incidental overlapping, if at all, is only to be ignored; going by the above-cited precedents of the Hon’ble Supreme Court.
Read the full text of the Judgment here.
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