Case: - State of Karnataka V.

Drive-in Enterprises AIR 2001 SC 1328

Facts of the case:-

Proprietor of a Drive-in- Theatre, Bangalore had challenged the charging of entertainment tax on the charges of entry of cars inside the theatre. It was alleged that State government has power to charge entertainment tax from the persons being entertained, and has no power to charge on entry of cars in such theatres.

The drive-in theatre is a cinema with an open air- theatre into which admissions are given to persons desiring to see cinema while sitting in their motor cars taken inside the theatre. It has also an auditorium wherein other persons who are without cars, view the film exhibited therein either standing or sitting.

Persons who are admitted to view the film exhibited in the auditorium were required to pay Rs. 3/- for admission. If any person desires to take his car inside the theater- with a view to see the exhibition of the films while sitting in his car, he was further required to pay a sum of Rs.2/- to the proprietor.

The levy was challenged by means of writ petitions before High Court of Karnataka which were allowed and levy was struck down by a single judge of
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the High Court and affirmed by a Division Bench. The judgment of the Karnataka High Court passed in the writ petition filed held that sub-clause (v) of Clause (i) of Section 2 of the Karnataka Entertainment Tax Act and was beyond the legislative competence of the State Legislature.

The High Court held that levy being not on a person entertained, the same was ultra vires.

After the decision, the Karnataka Legislature amended the said Act in 1985. By the said amendment, sub clause (v) was added to Clause (i) of Section 2 of the said Act, and levy of entertainment tax on entry of cars was legalized. Simultaneously, Sections 4A and 6 of the said Act were also amended. After the aforesaid amendments, the state again levied entertainment tax on admission of cars into Drive-in- Theatre.

The judgment of the Karnataka High Court and levy of entertainment tax was challenged by State in Civil Appeal No. 4319 of 1991 before Supreme Court, under article 226 of the constitution. The petition was decided vide judgment dated 13.03.2001.

Supreme Court reversed the judgment of the High Court and held that subclause (i) of Section 2 of the Karnataka Entertainment Tax is constitutionally valid and within the legislative competence of the State Legislature.

Principle laid down:-

As long as in pith and substance, the levy satisfies the character of levy i.e entertainment, it is wholly immaterial in what name and form it is imposed. Once it is found that there is nexus between the legislature competence and subject of taxation, the levy is justified and valid.

Issues:-

Whether the State legislature is competent to enact law to levy tax under entry 62 of list (ii) of seventh schedule on admission of cars/ motor vehicles inside the drive in Theatre?

Whether the levy charged on entry of cars was part of the entertainment ?

Judgment:-

Supreme Court hold that view of the High Court holding that sub-clause (v) of clause (i) of Section 2 of the Act is ultra vires Entry 62 of List II of Seventh Schedule is an error. Honble Supreme Court remarked that the word ``entertainment'' is wide enough to comprehend in it, the luxury or comfort with which a person entertains himself. Once it is found there is a nexus between the legislative competence and subject of taxation, the levy is justified and valid.

Critical Analysis:-

The judgment discussed that while arriving at the nature of legislation, the important thing is not the nomenclature, but what is important is the real nature and character. In cases related to taxes, generally litigants challenge the legislature by the nomenclature. In such cases the courts rely on the doctrine of pith and substance. This is the test of the true nature of the levy. In this particular case, the levy was challenged as fees for the entry of cars in the drive in cinema is not related to entertainment. Supreme Court hold that for deciding under
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which entry a particular legislation falls the theory of 'pith and substance has been used. If in pith and substance a legislation falls within one list or the other but some portion of the subject-matter of that legislation incidentally trenches upon and might come to fall under another list, the Act as a whole would be valid notwithstanding such incidental trenching. Thus incidental trenching cannot decide the actual nature of levy. This doctrine has been used in a number of cases. When there is a challenge to the legislative competence, the courts try to ascertain the pith and substance of such enactment on a scrutiny of the Act in question. The courts go into nature of levy and examine the true character of the enactment, its object, its scope and effect to find out whether the enactment in question is genuinely referable to a field of the legislation allotted to the respective legislature under the constitutional scheme. This doctrine is an established principle of law in India .In this case it was found that in the pith and substance, the levy falls under an entry in the State List and its only incidental going out of the definition do not make it invalid.