Author: Sushma Mannam , Student, School of Law, VIT Chennai
Abstract
The article discusses the 2025 decision by the Supreme Court in the case of Asianet Satellite Communications Ltd. v. State of Kerala, which addressed the complex issue of dual taxation related to broadcasting services. It explores whether both the Union and the State can levy taxes on the same broadcasting activity simultaneously and describes how the Court applied the doctrines of pith and substance and aspect theory to differentiate two separate taxable occurrences: the service component of broadcasting, which is governed by the Union’s residuary power under Entry 97 of List I, and the entertainment or luxury component, which falls under the State’s jurisdiction as per Entry 62 of List II prior to the GST implementation. The article further critiques the Court’s assessment of Kerala’s classification that imposed taxes on operators with more than 7,500 connections, which had previously been declared invalid by the High Court for breaching Article 14; however, the Supreme Court affirmed it as a valid legislative action. Additionally, it underscores the Court’s conscious decision to limit its ruling to the time before GST, thus confirming that States retained financial independence regarding entertainment taxation until the constitutional structure was altered by the 101st Amendment. Ultimately, the article engages with concepts of legislative authority, the legitimacy of dual taxation, and the balance of fiscal federalism within the evolving landscape of modern broadcasting services.
To the point
The Supreme Court has reinstated the tax levied by Kerala under the Kerala Tax on Luxuries Act, 1976 on cable and DTH service providers, reversing the High Court’s conclusion that this tax, which applies to operators with 7,500 or more connections, was unconstitutional.
Using pith and substance along with aspect theory, the Court concluded that the service tax on “broadcasting services” (Union—Entry 97, List I) and the entertainment/luxury tax for enjoying entertainment (State—Entry 62, List II, before the introduction of GST) are distinct taxable events that can legitimately exist simultaneously.
The challenge grounded in Article 14 was not successful: the High Court erroneously invalidated the tax by viewing the exemption for smaller operators as an irreparable classification issue. In fact, the proper approach should have involved analyzing or segregating the exemption rather than the charging provision.
This decision relates to the time before GST was enacted. After the 101st Amendment, the constitutional framework has changed; the Court limited its examination to the authority provided in the Seventh Schedule pertinent to the years in dispute.
Background in brief
Kerala updated its 1976 law to introduce a tax on the entertainment aspect of cable TV and DTH distribution. In the years leading up to the implementation of GST (2006–2010), operators with a subscriber count below a certain threshold were exempt, while those with 7,500 or more connections were required to pay the tax.
The Kerala High Court found the tax to be discriminatory and declared it invalid.
Nevertheless, the Supreme Court reversed this ruling on appeal, upholding the State’s powers under Entry 62 (List II) and clarifying that this matter is distinct from the Union’s service tax jurisdiction concerning broadcasting under Entry 97 (List I).
The legal tests (explained with this case)
Who is authorized to impose taxes?
Parliament and State governments operate in separate areas defined by Entries in the Lists. If a tax can be associated with a valid Entry, authority is established.
In this regard, the service tax on transmission/broadcasting services relates to Entry 97, List I; whereas the entertainment/luxury tax (for engaging in entertainment) pertains to Entry 62, List II (before GST).
Doctrine of core essence: When there appears to be an overlap in entries, courts strive to discern the true essence of the legislation. The State’s tax fundamentally targeted entertainment/luxury rather than governing telecommunications, while the Union’s tax primarily addressed service provision.
Aspect theory: A single transaction may possess multiple dimensions, each representing a distinct taxable event. Broadcasting can be perceived from at least two viewpoints:
(i) the provision of signal transmission to subscribers (Union) and
(ii) the entertainment experienced by consumers (State).
Thus, valid overlapping taxes do not create a conflict.
Residuary power (Entry 97, List I): Parliament was empowered to levy a service tax on broadcasting services as there was no specific tax entry addressing it at that time; Entry 97 fills that gap.
Colorable legislation: This does not apply. The State did not obscure a Union subject but openly taxed entertainment as a luxury, a matter within its pre-GST authority.
The High Court’s treatment of the 7,500-connections cutoff faced criticism. The Supreme Court observed that thresholds established by policy can be valid if they have a reasonable connection to the statute’s purpose; instead of completely removing the levy, the appropriate step is to resolve the matter correctly.
For the service tax, the taxable event is the delivery of broadcasting service; for the entertainment/luxury tax, it is the enjoyment of entertainment by subscribers distinct occurrences within separate spheres.
The proof
Issues
Whether can “broadcasting service” be exclusively taxed by the Union under residuary power, ousting State entertainment tax?
Whether the ≥ 7,500 connections threshold arbitrary under Art. 14?
Whether do GST changes bar State levies?
Kerala High Court
Declared the state levy as unconstitutional dual taxation.
Determined that the regime is discriminatory due to the exemptions granted to smaller operators.
Supreme Court
Claimed that broadcasting creates unique taxable events. The Union has the authority to tax services while the State can levy taxes on entertainment, without any legal or factual overlap.
The High Court made a mistake; the assessment of classification and exemptions was done incorrectly, and it was improper to overturn the charging levy. The appeal was granted; the levy was restored.
Did not address. The Court confined its attention to the time before GST and the Seventh Schedule as it existed then.
How the court reasoned
The domain of Broadcasting as a service falls under the Union (Entry 97), while entertainment a form of luxury was previously situated within the State’s jurisdiction before GST (Entry 62). The Court reviewed State laws and the Finance Act to distinguish the respective fields.
The Union imposes taxes on the provider’s broadcasting service efforts. Meanwhile, the State taxes the enjoyment of the entertainment by the consumers. These are distinct incidents, representing different dimensions.
Apply pith and substance first; then aspect theory: Pith and substance identifies the domain of the legislation; aspect theory clarifies the ability to apply two levies when they target different dimensions of the same activity. The Court dedicated significant analysis to elucidate the correct application of aspect theory in India before applying it to the broadcasting context.
Article 14: The High Court annulled the charge due to a provision for smaller operators.. The Supreme Court pointed out that even if an exemption raises concerns, the appropriate constitutional remedy would be to sever or examine the exemption, rather than abolish the levy that applies to larger operators. Consequently, Kerala’s appeal was upheld.
Temporal limits: The Court highlighted the changes made to Kerala’s law in 2011 and the subsequent GST framework but decided to only consider the pre-GST years relevant to the case at hand.
Why “Dual Taxation” Here Isn’t Unconstitutional
There is no overarching prohibition against dual taxation. What the Constitution disallows is incompetence (a legislature imposing taxes beyond its authority) or arbitrariness (Article 14). When each legislature operates within its jurisdiction specifically, Entry 97 (service tax) and Entry 62 (entertainment/luxury) both taxes may rightfully coexist, even if they stem from the same real-world situation. The ruling emphasizes that the Lists are intended to prevent legal overlaps, rather than to ensure a single tax on any economic activity.
Case Law Touchstones The Court Leant On
1. The case of Western India Theatres Ltd. v. Cantonment Board, Poona, AIR 1959 SC 582
Represents one of the earliest judicial interpretations concerning the limits of entertainment tax as outlined in Entry 62 of the State List. The Cantonment Board imposed a tax on cinema screenings, which was contested on the basis that the Board lacked the power to enact such a levy. The Supreme Court affirmed the legitimacy of the tax, clarifying that “entertainment” represents a distinct taxable category within the Constitution, separate from other taxation forms such as property tax or income tax. This ruling is crucial as it established the treatment of entertainment as a unique segment, thus allowing States to exercise exclusive authority in this domain (at least until the GST framework changed the system).
2. The Federation of Hotel & Restaurant Assn. v. Union of India, (1989) 3 SCC 634 Addressed the constitutional legitimacy of the Expenditure Tax Act, 1987, which imposed a tax on spending incurred in hotels with room rates surpassing a specified amount. The petitioners contended that this constituted a tax on “income,” which would fall under the jurisdiction of Union taxation powers. Nevertheless, the Supreme Court upheld the legislation, clarifying that a luxury tax or expenditure tax is fundamentally distinct from income tax. While income tax is levied on earnings, luxury tax targets the use of amenities that exceed regular requirements. This explanation is significant as it aided in distinguishing various areas of taxation within the constitutional framework, demonstrating that even when the same activity occurs (such as lodging in a hotel), different “aspects” of that activity can be taxed separately by various authorities.
3. In the landmark case Bharat Sanchar Nigam Ltd. v. Union of India, (2006) 3 SCC 1, The issue was whether the Union could impose a service tax on telephone services while States could concurrently impose sales tax on the identical transaction. The Court introduced what is known as the “dominant nature test” and the “aspects doctrine” to differentiate the service element from the sales element in composite transactions. It determined that service tax (a power of the Union) and sales tax (a power of the State) can coexist as long as they target different aspects of the transaction. This ruling has had a significant impact not only in telecommunications but also in broadcasting and digital services, offering a conceptual framework later utilized in cases such as Asianet Satellite Communications Ltd. v. State of Kerala (2025).
Practical Takeaways
Courts should first determine competence by examining the core nature of taxation; subsequently, they can employ aspect theory to clarify the coexistence of various taxes on different activities.
There is no inherent prohibition on “double taxation”, The criterion is competence combined with non-arbitrariness, rather than whether taxpayers are subjected to multiple levies.
States maintained jurisdiction over luxury and entertainment until the constitutional framework was reorganized by GST. This decision does not disrupt the established GST structure.
Conclusion
The Supreme Court’s ruling in the Asianet case extends beyond a mere tax issue; it serves as a reaffirmation of cooperative federalism in fiscal matters. By distinctly separating the service component from the entertainment component, the Court reinforced the idea that different legislative bodies are justified in taxing various aspects of the same economic activity. In doing so, it dismissed a simplistic view of double taxation and highlighted competence and fairness as key criteria for validity.
Essentially, Asianet reaffirms that constitutional principles remain strong even amid technological advancements, ensuring that India’s federal tax system evolves without undermining the fiscal independence of either level of government.
FAQS
Q1. Does this ruling protect pre-GST entertainment taxes from GST?
A. No. The Court only addressed disputes arising before GST. The 101st Amendment and GST regulations now govern most transactions; Entry 62 has been redefined. States must operate within the new framework established by GST moving forward.
Q2. Is the imposition of both service tax and entertainment tax considered “double taxation” prohibited by Article 265?
A. No. Article 265 necessitates legal authority. If each tax is linked to a legitimate constitutional entry, the existence of two taxes does not render it unconstitutional.
Q3. What is the situation for operators with fewer than 7,500 connections?
A. The case before the Court involved a situation where smaller operators were exempt from taxes, while larger operators were charged. The Supreme Court overturned the High Court ruling that annulled the tax on larger operators; it did not declare that Kerala had entirely abolished all exemptions or that a uniform tax was in effect. The emphasis was on rectifying the Article 14 error and reinstating the State’s tax.
Q4. Can other States use this ruling to uphold similar pre-GST taxes?
A. Yes, if their statutes specifically address the entertainment component and meet Article 14 requirements. The reasoning in this judgment regarding distinct aspects and legislative competence is generally applicable to pre-GST issues. (Several State laws were reviewed and generally confirmed.)
Q5. What distinguishes pith and substance from aspect theory in this context?
A. Pith and substance identifies the primary area governed by a law (whether it pertains to “service” or “entertainment”). Aspect theory allows both legislatures to impose taxes on different facets of the same activity, provided that each tax fits appropriately within its designated field.
Sources Referred
https://www.scconline.com/blog/post/2025/06/11/supreme-court-entertainment-tax-service-tax-judgment/
Supreme Court Affirms Broadcasters’ Liability for State Luxury Tax, in Addition to Central Service Tax – Convergence Now
sc-upholds-co-existence-of-both-entertainment-tax-and-service-tax-levy.pdf
Dual Tax Dilemma: State of Kerala v Asianet Satellite Communications Ltd – IndiaCorpLaw
nearlaw.com/PDF/MumbaiHC/1959/1959 ALLMR ONLINE 8 (S.C.).html
https://www.casemine.com/search/in/western%252Bindia%252Btheatres
