Patna High Court
M/S D E N Networks Limited And Ors vs The State Of Bihar And Ors on 17 April, 2019
Author: Jyoti Saran
Bench: Jyoti Saran, Arvind Srivastava
IN THE HIGH COURT OF JUDICATURE AT PATNA
Civil Writ Jurisdiction Case No.6413 of 2018
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M/s DEN Networks Limited, Aman Plaza, Patna through its Authorized
Signatory Shri Kunal Verma, son of Shri Vijay Verma, resident of Flat
No.201, CB 1, Supertech Capetown, Sector- 74, NOIDA, Uttar Pradesh,
Senior Manager, Finance and Accounts of DEN Networks Limited having its
registered office at 236, OKHLA Industrial Estate, Phase- III, New Delhi,
110020.
... ... Petitioner/s
Versus
1. The State of Bihar through the Principal Secretary, Commercial Taxes,
Bihar, Patna.
2. The Commissioner of Commercial Taxes, Patna.
3. The Deputy Commissioner of Commercial Taxes, Patna North Circle, Patna.
4. The Assistant Commissioner of Commercial Taxes, North, Patna.
... ... Respondent/s
======================================================
Appearance :
For the Petitioner/s : Dr. Krishna Nandan Singh, Sr. Adv. with
Mr. Jayant Ttripathi, Adv.
Mr. Sriram Krishna, Adv.
Mr. Tushar Vaibhav, Adv.
For the Respondent/s : Mr. Vikash Kumar, SC-11
Mr. Akash Chaturvedi, Adv.
Mr. Rewti Kant Raman, Adv.
Mr. D.K. Verma, Adv.
======================================================
CORAM: HONOURABLE MR. JUSTICE JYOTI SARAN
and
HONOURABLE MR. JUSTICE ARVIND SRIVASTAVA
ORAL JUDGMENT
(Per: HONOURABLE MR. JUSTICE JYOTI SARAN)
Date : 17-04-2019
The petitioner while questioning the vires of the
provisions of Section 3AA of the Bihar Entertainment Tax Act,
1948 (hereinafter referred to as 'the Act'), has alongside prayed for
issuance of an appropriate writ for quashing the assessment orders
pertaining to the 4th quarter of the Assessment Year 2015-16
(01.01.2016 to 31.03.2016), the Assessment Year 2016-17 (all four
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quarters) and the 1st quarter of the Assessment Year 2017-18
(01.04.2017 to 30.06.2017).
The petitioner is a company incorporated under the
Companies Act,1956 and also registered with the Registrar of
Companies, New Delhi. The petitioner is engaged in the business
of providing entertainment through cables and the procedure
which it follows is detailed at paragraph 4 of the writ petition
which runs under:
"A. The television channels uplink their encrypted content
to a satellite.
B. These encrypted signals of various television channels
are then downloaded by entities like the petitioner, who
are known as Multi System Operators (MSOs).
C. The MSOs decrypt the content of various channels, and
after converting them for transmission at a different
frequency, re-encrypt them for transmission through
cables to Local Cable Operators.
D. The cable network of the MSOs transmits the signals to
the Local Cable Operators (LCOs).
E. For the purpose of transmitting the signal to the
subscriber, the LCOs use their own cable network,
which is wholly and solely owned by them.
F. These subscribers have a contractual relationship with
the LCO. They do not have a contractual relationship
with the MSO.
G. The MSO does not directly provide any content to the
LCO's subscriber.
H. It is very relevant to note that both MSOs and LCOs, in
order to operate, have to be licensed under the
provisions of the Cable Television Network
(Regulation) Act, 1995 and the Rules made thereunder.
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It is the stand of the petitioner that as a Multi System
Operator ('MSO' for the sake of brevity) the petitioner sometimes
provides connection directly to the subscriber but mostly it is a
provider of entertainment through the local cable operators who in
turn provide entertainment to the subscriber. It is thus the case of
the petitioner that while he provides direct point entertainment to a
limited number of subscribers which may be a few hundred in the
State of Bihar, he is largely providing connections to the Local
Cable Operators, who in turn are providing connections to the
subscribers.
The complaint in this writ petition is that even though
Section 3AA was incorporated in 'the Act' in the year 1997 vide
Act 11 of 1997 and appropriate amendments were also carried out
in the Bihar Entertainment Tax Rules, 1984 (hereinafter referred to
as 'the Rules') vide rules 19A and 23A which were incorporated
vide S.O. 73 dated 05.09.2007 and S.O. 206 dated 17.12.1998
respectively but as until 3rd quarter of the Assessment Year 2015-
16 the concerned competent authorities under the Commercial
Taxes Department acting in purported exercise of jurisdiction
vested under 'the Act' were rightly realizing the tax admissible
under 'the Act' from the Local Cable Operators. It is the complaint
of the petitioner that on some misconception, mis-appreciation and
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misconstruction of the legal position that the respondents started
coercing the petitioner to taxation, with effect from the 4 th quarter
of the Assessment Year 2015-16 (01.01.2016 to 31.03.2016) and
under the assessment orders put to challenge they have realized
such amount which is even greater than the amount assessed for
the period in question.
Dr. Krishna Nandan Singh, learned senior counsel
appearing for the petitioner submits that as against the assessed
amount of Rs.12.78 crores for the period in question as manifest
from the composite demand notice dated 26.03.2019 impugned at
Annexure 16 to the writ petition which relates to the period in
question, a recovery by attachment of Bank Account has been
made to the tune of more than Rs.12.82 crores.
Dr. Singh, learned senior counsel appearing for the
petitioner has chosen not to press the relief prayed at paragraph
1(a) to the writ petition to the extent it questions the vires of
Section 3AA of 'the Act' and submits that the petitioner would be
pressing the other reliefs so prayed in the writ petition which
questions the assessment orders for the period 2015-16 (4 th
quarter), 2016-17 (all quarters) and 2017-18 (1 st quarter) not only
on merits but also on the exercise of jurisdiction for according to
Dr. Singh, the petitioner is not exigible to tax in so far as it is
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providing entertainment indirectly through Local Cable Operators
to the subscribers.
Learned counsel in support of his submission has relied
upon a judgment of the Delhi High Court rendered in the case of
SITI Cable Networks Limited vs. Government of NCT of Delhi
and others arising from W.P.(C) 427 of 2014 and C.M. No.851
of 2014 which was heard analogous with other writ petitions to
submit that it is raising identical issues that the 'MSO' in Delhi
had approached the Delhi High Court and when on a similar
grievance being raised and the order of assessment being
questioned as against pari materia statutory provisions, the
contention of the 'MSO' was upheld and the demand was set aside.
According to Dr. Singh, the judgment of the Delhi High
Court has also taken note of contrary view expressed in reference
to the statutory provisions prevalent in West Bengal which was a
subject matter of consideration in a matter reported in (2005)3
SCC 711 (State of W.B. vs. Purvi Communication (P) Ltd.) and
(2011)15 SCC 294 (Indusind Media and Communication
Limited vs. Mamlatdar and others) as also the opinion
expressed by the Madhya Pradesh High Court and Rajasthan High
Court on the statutory provisions in force in the said States, to
conclude in favour of the 'MSO' of Delhi and which opinion of the
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Delhi High Court would squarely apply to the case of the
petitioner herein.
The arguments of Dr. Singh has been seriously opposed
by Mr. Vikash Kumar, learned Standing Counsel No.11 appearing
for the State and who by placing strong reliance on the opinion
expressed by the Supreme Court in the case of Purvi
Communication (P) Ltd. (supra) has stated that it is proceeding
on the expression of the Supreme Court that the assessment orders
in question have been passed and that the petitioner cannot escape
the financial liability in question.
We have heard learned counsel for the parties and
perused the records. Though learned counsel appearing for the
petitioner and the State have been exhaustive in their arguments
but in the nature of the order that we propose to pass considering
the manner in which the assessment orders in question have been
passed by the Assessing Authority we do not deem it necessary to
discuss the arguments advanced on inter-party merits for the
present.
Section 3AA of 'the Act' opens with a non-obstante
clause to have an overriding effect over the other provisions of 'the
Act' to levy a consolidated amount of tax not exceeding Rs. One
hundred and not below Rs. Ten, payable every month for each
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connection given to a subscriber by the proprietor of any cable
service or cable television network and which amount of tax is to
be paid by the proprietor of an entertainment to the State
Government.
The enabling power vested in the Assessing Authority
under 'the Act' is to be exercised in the manner prescribed by 'the
Rules' and which have since been framed vide rules 19A and 23A
of 'the Rules'. Perhaps Dr. Singh, learned senior counsel appearing
for the petitioner has been wisely instructed not to press the relief
questioning the vires of the provisions because even though the
language of Section 3AA of 'the Act' is not very happily worded
but the import is loud and clear and there is no confusion about the
nature of impost. Perhaps the confusion as regarding the identity
of the 'proprietor' has led to the challenge because while
according to Dr. Singh, it would be 'MSO' when it provides
entertainment to the subscriber through the cables directly and not
when such 'MSO' would be providing entertainment through the
Local Cable Operators to the subscriber, in which situation, it
would be the Local Cable Operators, the position is contested by
Mr. Vikash Kumar, learned State Counsel to canvass that in either
of the situation it would be 'MSO' who would be treated to be the
proprietor for the purpose of levy.
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We would reserve our opinion for the present and leave
it open for the parties contesting to advance these arguments
before the authority concerned because in the nature of the order
passed by the Assessing Authority for the periods in question, we
definitely intend to remit the matter back to the Assessing
Authority not because, we have recorded our satisfaction on the
inter-party merits but because of the manner of exercise by the
Assessing Authority, which is de-hors the statutory provisions.
Section 3AA of 'the Act' read alongside rules 19A and
23A of 'the Rules' makes the taxing event at the point where the
entertainment reaches a subscriber through the cables. Now
whether it is the 'MSO' like the petitioner who not only is
providing such entertainment to the subscriber directly but also
through the Local Cable Operators or the Local Cable Operators,
when providing such service to the subscribers, is to be termed as
a 'proprietor', is a matter of adjudication in the backdrop of the
statutory provisions.
We do not intend to record our opinion at this stage on
the issue but would allow the Assessing Authority to apply his
mind on the issue raised in the backdrop of the statutory provisions
underlying 'the Act' as well as the legal position settled by the
Courts, relied upon by the contesting parties herein because while
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the legislation in question creates a liability of taxation where the
connection reaches the subscriber, in so far as the present
assessment orders put to challenge are concerned it is resting on
the number of set top boxes recorded in the register of the
petitioner. The assessment orders indicate that it is the details of
the set top boxes recorded in the register of the petitioner, which
has been treated as a subscribed connection for the purpose of
levy.
Now, while it is the case of the petitioner herein that
these set top boxes were imported by the petitioner for its
distribution to the subscribers through the Local Cable Operators,
who obtain connection from them, even though a few of the
subscribers have been provided connection directly by the writ
petitioner, it is canvassed by Mr. Vikash Kumar that the moment
the petitioner admits to the procurement of the 'set top boxes'
which is identifiable to a subscriber, it succinctly explains the tax
exigibility and the petitioner cannot escape.
Having heard learned counsel for the parties we are in
no confusion that the assessment orders passed for the assessment
years put to question in this writ petition lacks foundation because
it is not based on the number of subscribers rather is based upon
the number of set top boxes, the details of which was available in
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the register of the petitioner. This fact situation that the assessment
orders are based on set top boxes and are not relatable to the
subscribers as mandated under section 3AA of 'the Act' read
alongside the 'Rules' framed thereunder, is not in contest rather is
an admitted position.
As we have noted above, the taxing event happens when
such connection reaches the 'subscriber' who is defined under
section 2(q) of 'the Act' and means a person who receives the
signal of cable television network at a place indicated by him to
the cable operator without further transmitting it to any other
person. The definition of a 'subscriber' is self eloquent and
literally means the 'consumer' i.e. the end user of the connection
because he does not further transmit the signal to any other person.
The definition of a 'subscriber' as found in section 2(q)
of 'the Act' is thus identifiable by a person and not by a 'set top
box' as has been done in the present case by the Assessing
Authority, to pass the orders put to challenge.
In our opinion the assessment orders having been passed
on the basis of the details of the set top boxes found available in
the record register of the petitioner and not the subscribers of such
set top boxes, is grossly illegal and is de-hors the statutory
provisions underlying Section 3AA of 'the Act' which levies
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consolidated tax on the connection given to a subscriber and not
on the set top box itself.
In our opinion the Assessing Authority has failed in his
discharge of functions as a quasi-judicial authority to assess the tax
in the manner provided under 'the Act' rather he has taken a short
route to extract money from the petitioner by resorting to special
mode of recovery without even identifying the subscribers for the
purpose of such levy. We cannot but express our anguish on the
manner of discharge by the Assessing Authority because what we
find is that simply because an exercise to identify the subscriber is
time consuming that the Assessing Authority has chosen to take a
short route of imposing tax on the basis of set top boxes in
complete violation of the legislative intent.
We accordingly quash the assessment orders passed by
the Assistant Commissioner, Commercial Taxes, Patna North
Circle, Patna for the Assessment year 2015-16 (4th quarter i.e.
01.01.2016to 31.03.2016), Assessment year 2016-17 (all 4 quarters) and for the 1st quarter of the Assessment year 2017-18 (01.04.2017 to 30.06.2017) some of which are impugned at Annexure 2 series together with the demand notice bearing No.298 dated 26.03.2019 impugned at Annexure 16 to the writ petition.
Patna High Court CWJC No.6413 of 2018 dt.17-04-2019 12/12 The matter is remitted to the Assistant Commissioner, Commercial Taxes, Northern Circle, Patna to proceed afresh and for its disposal in accordance with law within a period of four weeks of receipt/production of a copy of this judgment. It goes without saying that since we have not expressed ourselves on the inter-party merits, the parties contesting are at liberty to raise all issues, which they seek to raise including those raised in this writ petition, before the Assessing Authority.
As a consequence while all the attachment notices stands quashed, the recovery of tax to the tune of about Rs.12.82 crores, shall be governed by the outcome of the proceedings.
The petitioner would appear before the Assessing Authority on or before 3rd of May, 2019 at 11.00 AM and whereafter he shall proceed to dispose of the matter in the manner stipulated above.
The writ petition is allowed with direction above.
(Jyoti Saran, J) (Arvind Srivastava, J) skpathak/-
AFR/NAFR AFR CAV DATE NA Uploading Date 24.04.2019 Transmission Date NA