The Delhi High Court today held that multi-system operators and local cable operators distributing TV signals directly to subscribers are liable to collect and pay entertainment tax to the government.
A bench of justices Badar Durrez Ahemed and Sanjeev Sachdeva, however, quashed the Delhi government's December 2012 circular and show cause notices served by its Department of Entertainment Tax asking multi-system operators (MSOs) to to pay entertainment tax or face action.
Terming the circular as "without any authority of law", the bench said, "To be clear, MSOs to the extent that they directly provide cable service to the subscribers without the intervention of any LCO (local cable operator), would be regarded as the proprietors under Section 7(1) and would be liable to collect and pay the entertainment tax to the government.
"However, where the MSOs provide the service through the LCOs, the individual LCOs having their own subscriber networks, would be regarded as the proprietors in respect of their individual networks and would be liable to collect the entertainment tax and pay the same to the government."
The court made it clear that as far as the assessments related to deposition to tax to the department are concerned, the MSOs "would have to take their own remedies against the assessment orders and/or appellate orders in view of the decision arrived at in this case".
The court's verdict came on pleas filed by four MSOs --DEN Networks Ltd, Hathway Cable and Datacom Ltd, IndusInd Media and Communications and SITI Cable Network Ltd.
They had moved the high court challenging the levy of entertainment tax and vires of the Delhi Entertainment and Betting Tax Rules.
They had also sought quashing of the Delhi government's December 17, 2012 circular and show cause notices issued in January 2014 directing them to deposit the entertainment tax beginning April 2013.
The Delhi government had threatened to stop cable TV transmission of the MSOs by shutting off their headends.
The government had said that the assessment of the MSO revealed that it had been indulging in major entertainment tax fraud in crores since April 2013.
The MSOs have earned the wrath of the Delhi government for evading entertainment tax during 2013-14 and 2014-15.
The government had told the court that by virtue of the provisions of the said act and the said rules, the MSOs are liable to collect and pay the entertainment tax to the government. This is because under the new regime, they are required to bill the customers directly.
It had submitted that the circular was not issued without authority and had been issued under the powers given to them under the rules.
The court, however, observed that it "do not understand as to how the Entertainment Tax Officer held the MSOs and LCOs jointly and severally responsible for payment of entertainment tax.
"...The argument of the respondents (Delhi government) that the changed system was brought about by the regulations and the directions of TRAI and, therefore, MSOs were liable to collect and pay entertainment tax, is an argument which is stated to be rejected," the bench observed.
