Constitutional Validity
When negative list under Section 66D was introduced vide Finance Bill, 2012 the first draft concept paper justified the inclusion of these activities under negative list on the ground that these activities fall within the domain of the State. Entry 62 of the State List provides for “Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.” Accordingly, entertainment tax is levied on all such entertainment events by the State. The first issue that merits consideration in this regardis the Constitutional validity of imposition of service tax simultaneously on the very same transaction on which entertainment tax is already being levied by the State.
Similar issue arose for consideration in the matter of M/s Bharati Telemedia Ltd 2014 (70) VST 126 (Jhar) . While dealing with the issue of power of state legislature to levy tax on “entertainment” through direct-to-home service as “entertainment tax” and simultaneous levy of service tax under broadcasting service, the High Court held that entertainment tax is different from levy of service tax on broadcasting service. The High Court relied on the aspect theory and held that the portion of consideration which relates to entertainment, entertainment tax would be levied and the portion of consideration which relates to service, service tax would be levied. Similar view was also taken by the Punjab and Haryana High Court inthe case of Tata Sky Limited (2011) 37 VST 1 (P&H) .
Implications of Omission of Section 66D(j)
By virtue of omission of clause (j) of Section 66D any activity in relation to admission to an entertainment event or amusement facility would be taxable. This change shall get incorporated in the Finance Act, 1994 when the Finance Bill, 2015 is enacted. The implication of this change brought about in section 66D(j) would be as follows:
(a) Service Tax would be levied on the services provided by way of access to amusement facility providing fun or recreation by means by rights, gaining advances or providing of facilities in any amusements park, amusement arcades, water parks and theme parks.
(b) Service tax would be levied on service by way of admission to entertainment event of concerts, pageants, musical performance concerts, awards functions and sporting events other than the recognized sporting event .
For services by way of admission to an entertainment event, threshold limit Rs. 500/- is proposed. If the amount charged for admission to such an event is upto Rs.500/-, then it does not attract service tax. As stated earlier, Section 66D (j) is being omitted from the negative list and a new Entry No. 46 is proposed to be inserted in mega exemption Notification No. 25/2012-ST to grant exemption by way of admission to entertainment event where the consideration charged is not more than Rs.500/-.
Valuation for the purposes of levy of service tax
The second issue arising for consideration is as to what would constitute consideration for the purposes of determining the threshold limit of Rs. 500. That is to say that whether the consideration charged would include both the cost of admission to an entertainment event and entertainment tax as well; or would it only include the consideration charged for such admission. Further, entertainment tax is levied on entertainment events wherever consideration is charged. To illustrate, if the cost of admission to an entertainment event is Rs.450/- and entertainment tax is Rs.150 over and above the cost of such entertainment event, would it include only the cost of entertainment for the purpose of determining the threshold limit (Rs. 450) or would it include the entertainment tax as well (Rs. 600). The Finance Bill, 2015 is silent on this issue and this is the second issue which needs consideration.
It is quite likely that the Department may dispute the valuation and while calculating the threshold limit and may include the cost of admission to an entertainment event plus the entertainment tax.
The third issue which remain unanswered in the present Finance Bill, 2015 is that whether the amount over and above the threshold limit of Rs.500/- is only leviable to service tax or the entire consideration charged for such admission to an entertainment event is leviable to service tax. This is so, because the new Entry 46 as proposed in Finance Bill, 2015 states that the exemption is being granted to service by way of right to admission where the consideration for such admission is upto Rs.500/-per person. Therefore, it creates an iota of doubt as to whether the consideration charged over and above Rs.500/- is leviable to service tax or the entire consideration in total charged where it exceeds Rs. 500/-.
Conclusion
It appears that the above changes proposed in the Finance Bill, 2015 is an after-effect of the judgments as pronounced in Bharati Telemedia Ltd and Tata Sky Limited (supra). However, the constitutional validity of imposition of service tax must be examined. It would also result in double taxation and would also increase the cost of such services which is definitely not a welcome move for the assessees. Therefore, since the introduction of imposition of service tax on entertainment event as well as on amusement facilities, it would no more continue to entertain or amuse the assessees.
[The Author is working as Senior Associate with Lakshmi Kumaran & Sridharan, Hyderabad]