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UP government cannot impose entertainment tax on water parks over rented swimming costumes: Allahabad High Court

The Lucknow bench of the Allahabad High Court has ruled that the state government cannot impose entertainment tax on water parks providing swimming costumes for a fixed fee.

A Single Bench of Justice Pankaj Bhatia passed this order while hearing a petition filed by Anandi Water Park Resorts And Club Pvt Ltd through Director Amit.

The petition has been filed challenging the order dated 31.08.2010 whereby the entertainment tax of Rs 3,17,378.04/- was imposed in exercise of powers conferred under Section 12 of the Uttar Pradesh Entertainment and Betting Tax Act, 1979 along with penalty of Rs 20,000/-.

The petitioner also challenges the order dated 21.01.2016 whereby the statutory appeal preferred by him was rejected as well as the order dated 30.03.2017 whereby the application for recall of the appellate order was also rejected.

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The facts of the case are that the petitioner is a Company incorporated under The Companies Act, 1956 and is a Proprietor of a water park situated at Faizabad Road, Lucknow and runs a water park in the said premises in accordance with the permission obtained from the requisite authorities.

The contention of the Counsel for the petitioner is that the entertainment tax levied on the water park was exempted vide order dated 22.05.1998, however, the said issue need not detain us as the issue in the case arises out of a survey conducted at the premises of the petitioner on 21.04.2010 and on the basis of the said survey, a show cause notice was issued to the petitioner on 05.05.2010 stating therein that on the date of the survey as conducted at the premises, on an inquiry, it was found that Rs 30/- per male and Rs 60/- per female was being charged towards costume and despite notice, the assessee has not come forward to disclose the said fact.

It is further stated that the costume would also be subject to levy of entertainment tax in view of the provisions contained in Section 2(l)(iii) of the 1979 Act, thus it was proposed in the said show cause notice as to why the assessment may not be done at Rs 3,17,378.04/- and a penalty of Rs 20,000/- may not be imposed.

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The petitioner preferred a reply to the said show cause notice denying all the allegations and also requesting that the petitioner may be provided with the copy of the survey report, proposed to be relied upon against the petitioner during the course of assessment proceedings, however, without giving any opportunity of hearing and without providing the said survey report, an order came to be passed on 31.08.2010. Assessing the entertainment tax on the renting of the costume at Rs 3,17,378.04/- and further a penalty of Rs 20,000/- was imposed upon the petitioner in purported exercise of powers under Section 12 of the 1979 Act.

The petitioner preferred an appeal against the said order and took specific ground with regard to the non providing of the survey report, however, the appeal was dismissed without granting opportunity of hearing and ex-parte in the absence of the petitioner.

The petitioner preferred an order recall application which too was dismissed. The said three orders are under challenge before the Court.

The contention of the Counsel for the petitioner is that very foundation for charging entertainment tax on the ‘costume’ as alleged against the petitioner is wholly illegal, inasmuch as, in terms of the mandate of Section 2(l)(iii) of the 1979 Act, the costume would not come within the meaning as described, as such, very foundation based upon which the order has been passed is without any authority of law.

He further argued that the petitioner had opened a separate counter at the park and has authorized a special contractor to give costumes on rent to whosoever desires and the said facility was not being managed by the petitioner and thus the petitioner was in any case not liable.

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The Counsel for the petitioner also argued that taking off the costume was voluntary and was not a part of the ‘payment for admission’ and thus, the petitioner cannot be made liable even if for the sake of argument, all the allegations are treated to be correct.

He said that the manner in which the quantum has been fixed is wholly arbitrary, inasmuch as, it is common knowledge that in winter months, the water park remains closed whereas the assessment has been made for the period 13.03.2009 to 21.04.2010 which is contrary to the powers conferred upon the authorities under Section 12 of the 1979 Act.

The Counsel for the petitioner further said that even otherwise in terms of the mandate of Section 12 of the 1979 Act, it is incumbent that an opportunity of hearing be granted prior to passing of the order which has not been done.

On the other hand, the Standing Counsel argued that the survey was conducted at the premise of the petitioner. He further refers to an earlier survey conducted on 05.08.2009 wherein, as per the said survey the petitioner had accepted the charging of Rs 30/- per costume per male and Rs 60/- per costume per female.

In the light of the said, he thus argued that the authorities has not exceeded its jurisdiction to access in terms of the mandate of Section 12 and thus argues that the writ petition is liable to be dismissed.

On the basis of the submissions made at the bar the Court is to consider the scope of Section 2(l)(iii) of the 1979 Act and as to whether the orders impugned which are without any opportunity of hearing, satisfies the tax under Section 12 of the 1979 Act?

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The Court said that,

The payment for admission, includes any payment made for loan or use of any ‘instrument’ or ‘contrivance’ which enables a person to get a normal or a better view or hearing or enjoyment of the entertainment which without the aid of such instrument or contrivance such person would not get. Thus to include any amount under Section 2(l)(iii), it is essential that there should be a use of ‘instrument’ or ‘contrivance’ which enables the person to use the benefits and without which such entertainment or enjoyment is not possible. A costume used in the water park, as stated by the Counsel for the petitioner, is provided to the persons who want to take it on rent. There is no material on record to suggest that the costumes would be an ‘instrument’ or ‘contrivance’.

Further there is no material to state that such costume enhances the enjoyment of the persons to enjoy the entertainment of the water park and further there is no material on the record to state that without such costume being provided, the person entering into the water park would not be in a position to enjoy the entertainment.

The words ‘instrument’ or ‘contrivance’ have not been defined under the Act, as such, the dictionary meaning of the said two words is to be resorted to. The Cambridge Dictionary defines the word ‘Contrivance’ as “the act of intentionally arranging for something to happen by clever planning, or something that is arranged in this way” and “a clever device or object that has been invented for a particular purpose”.

Similarly the ‘Instrument’, which has not been defined under the Act, under the Cambridge Dictionary, it is defined as “an object such as a piano, guitar, or drum, that is played to produce musical sounds” or “a tool or other device, especially one without electrical power, used for performing a particular piece of work” and also defines the ‘Instrument’ as “a way of achieving or causing something”.

“In the case, the costume used in the water park would neither fall within the definition of words ‘instrument’ or ‘contrivance’, thus I am inclined to accept the submission of the Counsel for the petitioner that the renting on ‘costumes’ cannot be included in the term ‘payment for admission’ as defined under Section 2(l), thus on that score alone, the assessment order is beyond the authority of law and is violative of Article 265 of the Constitution of India.

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It is well settled that the tax can be levied only when specially provided for and not by intendment. If the legislation was of the view that the renting of the costume should be included for the purpose of determination of the taxes, it could have specifically provided for under the Act which has not been done, thus, I have no hesitation in holding that demand of levy of tax as well as the penalty is without authority of law.

I am not going into the second question as I have already held that levy itself is without authority of law”, the Court observed while allowing the petition.

“The orders dated 31.08.2010, 21.01.2016 and 30.03.2017 are set aside. The amount deposited by the petitioner as pre-condition of appeal shall be refunded to the petitioner within a period of three months”, the Court ordered.

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