State legislative competence prevails over Union taxation on amusement activities per Entries 62 and 97 of List I and II of the Constitution; imposition of service tax deemed unconstitutional.

JUDGMENT :

HARISANKAR V. MENON, J.

1. This intra-court appeal is at the instance of the petitioner in the writ petition – a public limited company – stated to be engaged in running an ‘amusement park’, seeking to challenge the judgment of the learned Single Judge dated 22.03.2016, rejecting the challenge against the demand of ‘service tax’ on the activities carried out by the appellant.

2. The appellant points out that “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. However, by the FINANCE ACT , 2015, sub-clause (j) to Section 66D was omitted, on account of which “admission to entertainment events or access to amusement facilities” was no longer in the negative list of services, consequent to which they became a taxable activity under the FINANCE ACT , 1994, with effect from 01.06.2015. The appellant contends that 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 (hereinafter referred to as “Entertainments Tax Act)”, 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. To put it otherwise, the appellant’s case is that the omission of sub-clause (j) to Section 66D referred to above by the Union, amounts to trenching upon the legislative powers of the State and hence is ultra vires the Constitution of India. Taking this contention, the appellant instituted W.P(C) No.35646 of 2015. The learned Single Judge framed the following issue for consideration:

Whether the removal of "admission and access to entertainment event and amusement facilities" [sub-clause (j) of Section 66D of the FINANCE ACT , 1994] from the Negative List of "Services" by an Amendment of 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 List II of the Seventh Schedule of the Constitution of India.

Thereafter, the issue was considered at length by the learned Single Judge with reference to the rival contentions, ultimately, finding 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 appellant herein. Resultantly, the writ petition stood dismissed.

3. It is seeking to challenge the afore judgment that this intra-court appeal is filed by the appellant.

4. Heard Sri.Raja Kannan, the learned counsel for the appellant, as well as Sri.Sreelal N. Warrier, the learned counsel for the 2^nd respondent.

5. Sri.Raja Kannan, the learned counsel for the appellant, would contend 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, it is his submission that the learned Single Judge need not have applied the “aspects theory” to the case at hand. He would rely on the judgment of the Apex Court in State o