The Supreme Court has upheld states’ right to levy entertainment tax on cable TV and OTT services. This means platforms like Netflix and Prime may now face both state and central taxes.
New Delhi: Today, on May 02, in an important legal decision, the Supreme Court of India has confirmed that state governments have the power to impose taxes on broadcasting services and digital streaming platforms like Netflix, Amazon Prime Video, and Disney+ Hotstar.
The court said that entertainment services are considered a “luxury” as per the Constitution of India, and therefore, states can levy taxes on them under their own laws.
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This judgment means that companies offering cable TV or OTT (Over-the-Top) content will now have to pay both a service tax to the central government and an entertainment tax to the state governments.
As per a report by LiveLaw, a bench of the Supreme Court consisting of Justice BV Nagarathna and Justice N Kotiswar Singh made it clear that entertainment is listed under Entry 62 of List II (State List) in the Seventh Schedule of the Constitution.
This part of the Constitution gives state governments the authority to make laws on various subjects like public order, police, healthcare, and also luxury taxes like those on entertainment.
At the same time, communication services such as broadcasting fall under the Union List (List I), which is handled by the central government.
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However, the court said that even though broadcasting is a form of communication, entertainment delivered through it is a state subject. So, states can tax the entertainment part of it.
“The television entertainment provided by them (assesses-operators) through their modus operandi i.e., by broadcasting, is a luxury within the meaning of Entry 62 – List II.”
The court clarified that there is no overlap or conflict between the Union List and State List in this matter. States are not interfering in the central government’s power over communication services.
Instead, the court explained that both levels of government can tax different parts of the same service. The center can tax the service part (broadcasting), and the states can tax the entertainment part (luxury).
“The assessees who are engaged in the activity of providing entertainment are liable to pay service tax on the activity of broadcasting under the provisions of the Finance Act, 1994 read with relevant amendments and are also liable to pay entertainment tax in terms of Entry 62 – List II as being a specie of luxuries.”
This observation by the court came during a case that questioned the constitutional validity of the Kerala Tax on Luxuries Act, 2006, which imposed a luxury tax on cable TV services.
The Supreme Court supported the Kerala government’s law and said it was valid. It also stated that different aspects of the same service (broadcasting and entertainment) can be taxed by different governments.
“The television entertainment provided by them (assesses-operators) through their modus operandi i.e., by broadcasting, is a luxury within the meaning of Entry 62 – List II. The assessees who are engaged in the activity of providing entertainment are liable to pay service tax on the activity of broadcasting under the provisions of the Finance Act, 1994 read with relevant amendments and are also liable to pay entertainment tax in terms of Entry 62 – List II as being a specie of luxuries.”
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