SC upholds co-existence of both entertainment tax and service tax levy on broadcasting activities applying Aspect theory

This Tax Alert summarizes a recent judgement of the Supreme Court (SC)^[1] on validity of both State levy (entertainment tax) and Central levy (service tax) w.r.t. same broadcasting activities.

The key observations of the SC are:

• Article 246 of the Constitution distributes legislative powers between the Union and States which requires a liberal interpretation of entries under the lists to determine competence based on the substance of the law rather than its form.
  
  
• List I and II of the Seventh Schedule separately enumerate legislative and taxation powers, preventing overlap. Power to tax is not incidental or ancillary and cannot be implied within a regulatory entry. Entry 31 of List I and Entry 32 of List II are regulatory entries and Entry 62 of List II is a taxation entry.
  
  
• The expression “entertainments” is of wide import and is commonly understood to include cinema, drama, and similar performances. With technological advancement, “entertainments” must be interpreted broadly to include content accessed in private spaces, such as homes, through television or digital devices, and not confined to traditional or public forms.
  
  
• State Legislatures have the competence to levy entertainment tax under Entry 62 of List II. Broadcasting via cable networks primarily serves entertainment and falls within this entry. While broadcasting is a mode of communication, its incidental overlap with Entry 31 of List I does not affect the validity of the State’s taxing power.
  
  
• As per Aspect theory, the activity of broadcasting can be subject to service tax under the Finance Act, 1994 for the service aspect, while its entertainment aspect can attract entertainment tax as per the State laws.
  
  Accordingly, the SC upheld the simultaneous levy of entertainment tax and service tax on broadcasting services.

Comments:

• Earlier, SC in case of Bharti Telemedia [TS-427-SC-2024-ST] had upheld the levy of service tax on broadcasting services.
  
  
• Following the Constitution (One Hundred and First Amendment) Act, 2016, Entry 62 of List II was amended to restrict the levy and collection of entertainment and amusement taxes by Panchayats, Municipalities, Regional Councils, or District Councils. 
  
  
• Patna HC in case of Den Network Limited [TS-233-HC-2023(PAT)-VAT] had held the levy of entertainment tax by State Government under the Bihar Entertainment Tax Act as ultra vires post the above Constitutional amendment.
  
  
• The Karnataka Government recently enacted the Karnataka Cine and Cultural Activist Welfare Act, 2024 [Karnataka Act No. 46 of 2024], imposing a cess on movie tickets, TV channels and OTT platforms. In light of the 101st Constitutional Amendment, it remains to be seen whether such levy can be challenged before the courts.

^[1]TS-442-SC-2025-NT