By TIOL News Service

GUWAHATI, SEPT 08, 2016: THE Issue is - Whether the Revenue Authorities have the jurisdiction to realise the entertainment tax collected by an exhibitor during the period when he was availing exemption benefit, merely on the ground that such tax is ultimately borne by the movie-goers, when the scope of such exemption benefit is limited to the exhibitor only and not cine-goers. NO is the answer.

Facts of the case:

The assessee operates multiples/mini cinema halls. During the subject year, it was noticed by the Superitendent of Taxes that the Exhibitors were unauthorisedly collecting tax from the movie-goers. Accordingly, a demand was made for deposit of the collected amount or else, tax would be assessed under the Assam Act. In response, the first group i.e., M/s PVR Ltd. contended that no entertainment tax was collected and therefore pleaded for recall of the tax demand notice. Dissatisfied with the reply, a show cause notice for assessment u/s 5-A(2) of Assam Act was issued, wherein it was alleged that tax was being illegally collected from the movie-goers, in spite of the exemption notification issued u/s 8(2) of the Act, as the tickets issued for certain films reflected charging of tax. In response, the exhibitor offered to submit their books of account to support their contention. However, rejecting the same, an assessment was made on the basis of total turnover and interest was added to the assessed amount. On appeal, the appellate authority opined that when the tax was collected, the same should be deposited in the Govt. exchequer or else, it would amount to unjust enrichment. It was also concluded that objective of exemption by the Government was to provide relief to the movie-goers and it was impermissible for the exhibitor to retain the collected tax. On the basis of such conclusion, consequential direction was issued to realize the assessed tax and interest, from the exhibitor.

As far as the other group i.e., M/s. Mridul Properties (P) Ltd. was concerned, it had admitted that entertainment tax was collected on the entry tickets but denied their corresponding obligation to deposit the collected sum on account of the exemption notification. Confronted with similar assessment and demand like the first group, the exhibitors filed revision petitions against the assessment order passed by the Superintendent of Taxes, which were however rejected by the common order.

After hearing the parties, the High Court has held that,

1. It is noted that the charging section of the Assam Act refers to charge, levy and payment of entertainment tax and the taxable event is on admission to entertainment. U/s 3(6), the proprietor of the entertainment is made liable to pay the tax. While the charge and the levy is on the exhibitors, the taxable event is on admission to entertainment. Hence the submission of the Revenue that tax here is on the person entertained appears to be illogical as this is not found in the charging Section 3 of the Assam Act. In the enactment we are considering, the payment is on admission to entertainment. Thus there is clear distinction in the manner, the legislative intent is expressed in the Act. The words used in the charging section doesn't say that the levy is on the person entertained and only through an interpretive exercise, the expression may be understood in that manner. But the question here is what was the intention of the law maker and whether there is any scope for an interpretative exercise. In the present case, the AO has levied entertainment tax only on the ground that the assessees in spite of the exemption having been granted, charged and collected entertainment tax and appropriated the same to itself. But even if the notification concerned is construed to be exemption from charge and levy of entertainment tax, then also, in case any unauthorized collection was made, the AO has no power and/or jurisdiction to levy the entertainment tax during the period of exemption. In the above context, the Apex Court in M/s Pine Chemicals Ltd. Vs. Assessing Authority, declared that whether any amount has been collected unauthorisedly in spite of the exemption, what is the amount and whether it has been collected as tax etc., cannot be scrutinized, in a normal assessment proceeding. In a similar situation, where the assessment was completed by levying tax during the period of exemption on the ground that in spite of the exemption being granted, the assessee charged and collected tax, this Court in Mahabir Coke Industries Pvt. Ltd. Vs. Commissioner of Taxes, quashed the orders of assessment by holding that if any allegation of unauthorized collection of tax is established, the consequences as provided in Section 65A of Assam GST Act which related to forfeiture of the unauthorized collection of tax and/or Section 10 of the CST Act, as case may be, would follow.

2. The words used in the statute should ordinarily be understood in their natural and grammatical meaning except when it is found to be inconsistent with the rest of the enactment. Departure from the golden rule of construction is impermissible unless there be something in the context, which warrants a deviation to avoid absurdity. But admission to entertainment is not the same as the person entertained. Hence if we construe the expression with its natural and common sense meaning, the levy is upon admittance to entertainment. Such construction does not clash in any manner even if we read the Assam Act as a whole and no incongruity or absurdity is discernible, if ordinary meaning is attributed to the expression used in the charging section. Therefore merely because entertainment tax is borne ultimately by the cine-goers will not permit us to import the words person entertained, when such words are missing in the enactment. The key words is admission in Section 3 of Assam Act and admission may refer to not only the person admitted (cine-goer) but also the one who admits (exhibitor). The scheme of the Assam Act is that notwithstanding the collection of tax from the cine-goers, the liability to pay the tax remains with the exhibitors. Thus in the event of exemption, since the entertainment tax liability is on the exhibitor, the target of exemption notification needn't be the cine-goers, merely because, tax is borne by him under the Assam Act. It is important to keep in mind that charge and levy and the incidence of taxation are conceptually different. Under the exemption notification, charge and levy is not absolved and therefore it is difficult to accept that charging of tax is exempted by the State. This indirect tax is to be borne by the cine-goers on admission to entertainment but the liability to pay the tax to the State under the Assam Act, is on the exhibitors. So when the liability from payment of tax is exempted, the benefit in our understanding, should go to the entity which is made liable to pay the tax. Merely because the tax is ultimately borne by the cine-goers, exemption is not intended for them particularly when, the notification targets those exhibitors, who commenced commercial operation between 1st April 2007 to 1st Feb 2008. The concept of cineplex is new in Assam and the state has obviously tried to encourage establishment of cineplexes through incentives by way of exemption from the liability to pay entertainment tax. The mere fact that incidence of tax is on the cine-goers, the exemption notification in the face of clear words can't be understood to target those, who pay to be admitted for entertainment.

3. Next submission of the counsel is that the exemption notification shouldn't be construed in favour of the assessees since mode and manner of disbursal of incentives is not prescribed here unlike in the Govt. notification issued under the State's Industrial Policy. The context in which tax incentive was granted by the Govt. notification are clearly distinguishable from the present situation. In our perception, elaborate mechanism is unnecessary here since the exhibitors are simply made free of their obligation to pay to the State, the collected tax. Therefore the argument on this issue do not aid the Revenue. Consequently the tax recovered by the exhibitors, in our view is not collected illegally and therefore we declare that they have no obligation u/s 172 of the Contract Act, to refund any entertainment tax for the exempted period. As earlier noted, the charge and levy of tax was never exempted and therefore the cine-goers were not provided any relief under the exemption notification. On the other hand, the exhibitor was freed of their obligation from the liability to the entertainment tax, through the notification issued u/s 8(2) of Assam Act. Therefore we have no hesitation to hold that incentive was intended for the investors on cineplexes and consequently for the relevant period, the exhibitors can't be forced to discharge their obligation under Section 3(6) of the Assam Act. Since in the present case, entertainment tax has been levied only on the ground that in spite of the exemption having been granted by the notification, assessees allegedly collected entertainment tax, the impugned orders of assessment are declared to be illegal, without jurisdiction and therefore the same are set aside and quashed.

(See 2016-TIOL-2029-HC-GUW-MISC)