Kerala High Court Declares Service Tax on Amusement Parks Unconstitutional The imposition of service tax on amusement facilities encroaches upon the State's legislative power, violating the Constitution's Seventh Schedule.
In a landmark judgment, the Kerala High Court has ruled that the imposition of service tax on "access to amusement facilities" is unconstitutional. The Division Bench, comprising Justices A. Muhamed Mustaque and Harisankar V. Menon, upheld the appeal filed by M/s. Vengad Resorts & Retreats Limited against the Union of India, challenging the levy of service tax under the Finance Act, 1994.
The court found that the taxation on entertainments and amusements falls exclusively under Entry 62 of List II of the Seventh Schedule of the Constitution, which is within the legislative competence of the State. The Union's attempt to levy service tax on such activities was deemed an unconstitutional encroachment on the State's powers. The court emphasized that the residuary power of Parliament under Entry 97 of List I cannot be invoked for matters specifically enumerated in List II.
The case arose after the Finance Act, 2015 removed "admission to entertainment events or access to amusement facilities" from the negative list, making them taxable activities. M/s. Vengad Resorts contended that this amendment encroached upon the State's legislative domain, as the Kerala Local Authorities Entertainments Tax Act, 1961 already provided for taxation on such activities.
The judgment highlighted the doctrine of pith and substance, asserting that the State Legislature has exclusive competence to impose tax on entertainments and amusements. It was noted that the provisions of the Entertainments Tax Act provide for an all-inclusive levy on both admission to and actual entertainment, leaving no room for the Union to impose service tax on the same transaction.
The court's decision is expected to have significant implications for the taxation of amusement facilities across India, reaffirming the constitutional division of powers between the State and Union legislatures.
Bottom Line:
The imposition of service tax on "access to amusement facilities" is unconstitutional as it encroaches upon the State's legislative power under Entry 62 of List II, which exclusively provides for taxation on entertainments and amusements.
Statutory provision(s): Constitution of India - Seventh Schedule - Entry 62 of List II, Entry 97 of List I; Finance Act, 1994; Kerala Local Authorities Entertainments Tax Act, 1961
M/s. Vengad Resorts & Retreats Limited v. Union of India, (Kerala)(DB) : Law Finder Doc Id # 2825303
