Levy Of Service Tax On 'Access To Amusement Facilities' Unconstitutional: Kerala High Court

The Kerala High Court held that the levy of service tax on 'access to amusement facilities' is unconstitutional, as the entire activity squarely falls within the State's taxing power under Entry 62 of List II (entertainments and amusements) of the Constitution of India.Justices A. Muhamed Mustaque and Harisankar V. Menon stated that the provisions of the Entertainments Tax Act also seek to impose tax on the entire consideration received by the assessee from their clients/customers. The question of the Union imposing tax on the very same transaction in such a scenario would be unconstitutional. In the case at hand, the assessee/appellant was running an 'amusement park'. As per the assessee, “admission to entertainment events or access to amusement facilities”, by virtue of its inclusion under Section 66D(j) of the Finance Act, 1994, under the negative list, was not liable to taxation.The assessee contended the Finance Act, 1994, is traceable to Entry 97 of List I of the Seventh Schedule to the Constitution of India and insofar as with reference to Entry 62 of List II of the Seventh Schedule to the Constitution of India dealing with 'taxes on luxuries, including taxes on entertainments, amusements, betting and gambling', the State Government has enacted the Kerala Local Authorities Entertainments Tax Act, 1961, providing for levy of tax on the price for admission to entertainment in the facilities of the appellant, there cannot be any levy of service tax under the Finance Act, 1994. The Single Judge, while dismissing the petition, found that aspects of taxation by the Union and State - “service” and “amusement” - being different, there is no trenching upon the legislative powers of the State as contended by the assessee.The counsel for the assessee submitted that when Entry 62 of List II authorises the State to legislate, on levy of tax on luxuries, including taxes on entertainments, amusements, betting and gambling, the Union had no legislative competence with reference to residuary entry under Entry 97 of List I. Therefore, the Single Judge need not have applied the “aspects theory” to the case at hand. The department argued that the two fields of legislation are independent of each other, and the Single Judge was justified in dismissing the writ petition. Entry 62 of List II should be construed in such a manner that the State could only legislate to levy tax on “luxury” and not amusement or entertainment simpliciter. The issue before the bench was whether the imposition of service tax on the activities carried out by the assessee amounts to a transgression by the Union on the legislative powers of the State. The bench noted that the residuary Entry 97 of List I provides for the exclusive power to the Union to make laws with reference to the matters enumerated thereunder. However, Entry 97 categorically excludes those matters which are enumerated in List II or III. The bench, after examining the provisions of the Entertainments Tax Act, observed that it is a legislation for the imposition and collection of taxes on “amusements and other entertainments” in the State. Charging Section 3 thereto provides for the levy of tax on “price for admission” to any entertainment. The term “entertainment” includes an “amusement”. Therefore, there cannot be any dispute that the activity carried out in the premises of the appellant would partake of the character of “entertainment” being an amusement to which the entertainee is being admitted. The bench observed that, according to the provisions of the Entertainments Tax Act, what is collected and brought to tax thereunder includes both the price for admission to the venue and the payment for the actual entertainment.The bench opined that the taxation of entertainment/ amusement is specifically covered under Entry 62 of List II, and the residuary power of the Union under Entry 97 of List I would not have any application. In view of the above, the bench allowed the appeal and set aside the judgment of the Single Judge.Case Title: M/s Vengad Resorts & Retreats Ltd. v. Union of India Case Number: WA NO. 1106 OF 2016 Citation: 2025 LiveLaw (Ker) 841Counsel for Appellant/Assessee: M. Gopikrishnan Nambiar, K. John Mathai and Joson Manavalan and Kuryan Thomas Counsel for Respondent/Department: V. Girishkumar and Sreelal N. WarrierClick Here To Read/Download Order

Levy Of Service Tax On 'Access To Amusement Facilities' Unconstitutional: Kerala High Court

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Levy Of Service Tax On 'Access To Amusement Facilities' Unconstitutional: Kerala High Court

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