DTH companies welcomed the move. "This will have a positive impact on similar cases going on in various High Courts. The order takes care of the anamolies in the law and gives a clear message to the state governments that tax should not be charged for periods not backed by changes in the law," a senior executive of a leading DTH company said.
A bench headed by Justice Aftab Alam allowed a batch of appeals filed by DTH operators Tata Sky, Anil Ambani group firm DTH arm Reliance Big TV, Bharti Digital TV and Sun Direct among others challenging the imposition of entertainment tax under the Madhya Pradesh Entertainment Duty and Advertisements Tax Act, 1936, on DTH services.
However, the court clarified that the controversy in all the appeals related to the demand and realisation of entertainment tax under the 1936 Act, for the period between the issuance of the notification (May 5, 2008) and the coming into force of the new Act Madhya Pradesh Vilasita, Manoranjan, Amod Evam Vigyapan Kar Adiniyam, 2011 on April 1, 2011.
The state government has recently amended the Madhya Pradesh Entertainment Duties (Advertisement Tax) Act, 1936, and imposed entertainment tax of 20% on DTH services.
Earlier this month, the DTH operators had got relief from
the Madras High Court over a matter related to levying of entertainment tax.
Setting aside the Madhya Pradesh High Court 's judgment of August 2010 that held otherwise, the apex court said: The machinery for collection of duty provided under the 1936 Act has no application to DTH. It is well settled that if the collection machinery provided under the Act is such that it cannot be applied to an event, it follows that the event is beyond the charge created by the taxing statute.
The judgment stated that the provisions of the 1936 Act were inadequate to bring shows by video cassette recorder or video cassette and player cable TV operations within the taxing net and hence the legislature considered it necessary to amend the 1936 Act.
The DTH firms had contended that the state government cannot levy entertainment tax on their services, as they already pay service tax to the Centre.
They submitted that DTH services are a central government subject as per the Finance Act, 1994 and, hence, the entertainment tax imposed by the state was unconstitutional and liable to be struck down.
They further argued that the state government cannot impose tax on services on which the central government is already levying duty under the provisions of the Finance Act, 1994, and it is just like taxing the very same taxing event.