Service Tax and Entertainment Tax on DTH Services Must Be Levied Separately: Karnataka HC Remands Case to Appellate Tribunal [Read Order]

The Karnataka High Court recently remanded a case involving the inclusion of service tax while levying the  entertainment tax to the Karnataka Appellate Tribunal for reconsideration. The court ruled in favour of the petitioner observing that entertainment tax and service tax must be taxed separately.

The petitioner, Dish TV challenged the Tribunal's earlier decision, which upheld the inclusion of service tax in the taxable amount under Section 4G of the Karnataka Entertainment Tax Act. The issue centered on whether the service tax collected under the Finance Act, 1994, should be included in the "amounts received or receivable" for computing entertainment tax.

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The petitioner argued that service tax, being a separate tax levied by the central government under a distinct statutory framework, should not form part of the taxable consideration for entertainment tax.

The petitioner further contended that including service tax would result in double taxation, which is constitutionally impermissible. Additionally, the absence of a statutory definition of "invoice" was raised as a concern, as the authorities allegedly failed to consider itemized bills submitted by the petitioner showing separate collection of service tax.

The Revenue, on the other hand, defended the inclusion of service tax, stating the clear language of Section 4G, which does not explicitly exclude service tax from the taxable amount.

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It was also argued that the legislature's intent to include all amounts received or receivable was evident from the statutory text and that levying tax on tax is not inherently unconstitutional. The Tribunal had previously ruled against the petitioner, noting the absence of sufficient evidence to demonstrate separate collection of service tax.

The bench of Justices Krishna S. Dixit and G. Basavaraja  observed that the principles of statutory interpretation in fiscal matters require clarity and precision, and any ambiguity must be resolved in favor of the taxpayer. It also found merit in the petitioner’s claim that itemized billing had not been adequately considered by the authorities or the Tribunal.

The High Court held that entertainment tax applies to the amounts received by Multi System Operators or DTH providers for providing television signals. These payments include both entertainment and service components, which are separately taxable. Entertainment tax falls under the Karnataka Entertainment Tax Act, 1958, while service tax is governed by the Finance Act, 1994. The court emphasized that both components are distinct and independently taxable.

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It was observed that “The text, content & intent of section 4G leaves no manner of doubt that for the purpose of levy of entertainment tax, the ‘amount received or receivable’ cannot include service tax component. Had the legislature intended inclusion, the text of this provision would have been a bit different.”

The Court set aside the Tribunal's order and remanded the case for fresh consideration, directing the Tribunal to address the petitioner’s claims, including the treatment of invoices and the constitutional implications of taxing service tax. The Tribunal was instructed to conclude the matter within three months, ensuring all parties are heard.

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