Supreme Court Upholds Constitutional Validity of Dual Taxation on Cable TV, OTT Platforms: Report

The Supreme Court recently upheld the authority of state governments to levy taxes on broadcasting and digital streaming services, according to a report. The verdict allows states to impose a tax on entertainment services, which are categorised as a luxury under the seventh schedule of the Constitution of India. This means that cable TV broadcasters and OTT platform operators are liable to pay a service tax to the central government and an entertainment tax to the state government.

Entertainment Provided by Broadcasting to Be Considered a Luxury

According to a recent LiveLaw report, a Supreme Court bench of Justices BV Nagarathna and N Kotiswar Singh held that entertainment is categorised as a luxury under Entry 62 in the seventh schedule of the Constitution of India (List II). This list contains all the subjects that are governed by states in India, under the constitution, from topics like public order to rates of stamp duty.

List I, under the seventh schedule of the Constitution of India covers subjects under the central government, which includes communication. However, the court held that entertainment, which is a state subject, can be delivered via communication. As a result, broadcasting would be incidental to it, as per the report.

The Supreme Court also held that entertainment via broadcasting does not encroach on the topics under the Union List. The verdict effectively upholds a state's right to impose an entertainment tax on broadcasting services, while the central government can levy a service tax concurrently.

"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," the court observed, while upholding the constitutional validity of Kerala's luxury tax law.

The case was related to the constitutional validity of the Kerala Tax on Luxuries Act, 2006, which levied a luxury tax on cable TV services. The court held that different aspects (broadcasting and entertainment) could be taxed at different levels, by the central and state governments.

Over-the-top (OTT) platforms like Netflix, JioHotstar, and Prime Video, which offer access to digital content, could face an additional tax burden in the future. Previously, state governments were empowered to impose taxes on entertainment before the introduction of the Goods and Services Tax (GST).