Taxing Two Aspects, One Activity: Supreme Court validates State Entertainment Tax on DTH

Ashwarya Sharma, Advocate | Co-Founder & Legal Head, RB LawCorp

A. The Controversy

At the heart of the dispute was whether cable and DTH service providers,
already subject to service tax under the Finance Act, 1994, could also be made
liable to entertainment tax under respective State legislations enacted pursuant
to Entry 62, List II (popularly knowns as the ‘State List’) of the Seventh
Schedule to the Constitution of India. The assessees argued against such dual
taxation, contending that it violates principles of legislative competence and
constitutional separation of powers.

B. Taxpayers’ Arguments

1. Public vs. Private Entertainment: The assessees distinguished between
   entertainment in public spaces (cinemas, theatres) which States may tax,
   and private entertainment (via DTH) which, being part of broadcasting, falls
   solely under Union jurisdiction under entry no 31 and 97 of List-1
   (popularly known as the Union List).
2. Limitation of Aspect Theory: It was argued that the aspect theory is
   inapplicable where the Centre has unambiguously expressed its intent to
   tax an activity (like broadcasting services under DTH) through service tax
   laws since 2001.
3. Lack of Valuation Machinery: Except in a few States (Delhi, Gujarat,
   Assam), the State laws did not contain machinery to distinguish service
   value from entertainment value, thereby making the imposition arbitrary
   and excessive.

C. Government’s Counter

1. True Nature of Activity: The State’s contended that regardless of
   nomenclature, the end use of DTH services is for entertainment, which falls
   within State legislative competence.
2. Broad Interpretation of Entry 62 of State List: The term
   “entertainments” must be construed widely, encompassing all modes of
   receiving amusement, whether in public or private spaces.
3. Doctrine of Pith and Substance: The States’ power to impose
   entertainment tax stems from Entry 62 of State List, and the existence of a
   parallel service tax regime does not derogate from this authority.
4. Dual Aspect: DTH services have two aspects – service delivery (taxable by
   the Centre) and entertainment consumption (taxable by the State), both of
   which can be taxed independently.
5. Aspect Theory Supports Taxation: Far from conflicting with pith and
   substance, the aspect theory complements it, especially in taxation where a
   single activity may attract multiple levies under different heads.

D. Constitutional & Legal Framework

Relevant Constitutional Provisions: Articles 245, 246, 248, 265; Entries 31,
62, 97 of List I & II
Central Legislation: Finance Act, 1994 (Service Tax on Broadcasting Services)
State Acts Involved: Entertainment Tax legislations of Kerala, Assam, Delhi,
Gujarat, Punjab, Rajasthan, Tamil Nadu, and Uttar Pradesh.

E. Key Judicial Findings

Interpretation of Legislative Entries:

• Entries in the Seventh Schedule must be interpreted broadly and harmoniously.
• In case of conflict, pith and substance doctrine prevails: the core object of the legislation determines its validity, not incidental overlap.
• Entry 97 of Union List (residuary entry) cannot override specific entries like Entry 62 (entertainments) in List II (State List).

Scope of Entertainments

• The term “entertainments” in Entry 62 is not limited to public amusements; it extends to all forms of amusement, including private, personal, or digital formats.
• Technological progress cannot restrict the scope of this term; entertainment is entertainment, regardless of delivery medium.

Legislative Competence of States

• Entry 62 of State List is a specific taxation entry, unlike Entry 31 of Union List (broadcasting), which is regulatory in nature.
• It is settled law in Indian constitutional jurisprudence that taxation powers must be construed independently and not implied from general regulatory must be construed independently and not implied from general regulatory entries.
• Service tax on broadcasting and entertainment tax on DTH services are distinct levies justified under separate entries and objectives.

Reaffirmation of Aspect Theory

• Originating in Canadian law, aspect theory is valid in Indian taxation jurisprudence, not to validate legislative competence, but to justify multiple levies on different aspects of the same activity.
• While the doctrine of pith and substance determines legislative power, the aspect theory protects laws from invalidation where there is overlap in practical operation.
• The application of the ‘aspect theory’ in Indian jurisprudence is a domestically evolved principle, tailored specifically to the taxation context and it is not used to determine legislative competence per se,

Application to the Present Case

• The entertainment component falls squarely within Entry 62 of State List making State-imposed entertainment tax valid.
• The broadcasting/service aspect is rightly taxed by the Centre under Entry 97 of Union List.
• There is no legal overlap, though the same activity may give rise to multiple taxable aspects.

F. Conclusion

The Supreme Court’s judgment not only clarifies the contours of legislative
competence in the realm of taxation but also breathes renewed life into the
Indianized version of the aspect theory. By upholding the simultaneous validity
of entertainment tax by States and service tax by the Centre, the Court has
reaffirmed that overlapping factual situations can be addressed through
constitutionally distinct legislative powers. While GST has largely subsumed
entertainment-related State levies post-2017, the residual power of local bodies under Entry 62 of State List – covering taxes by Panchayats and Municipalities
remains untouched, leaving scope for the aspect theory’s continued relevance.
Looking ahead, this case may well set the stage for broader judicial reliance on
the aspect theory, not just as a tool to uphold tax laws, but as a doctrinal bridge
to reconcile federal tensions in India’s evolving constitutional landscape.

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[Date: 02/06/2025]

(The author is a practicing advocate, Co-Founder and Legal Head of RB LawCorp.
He specializes in GST law. Suggestions or queries can be directed to
ashsharma@rblawcorp.in. The views expressed in this article are strictly
personal.)