MARCH 20, 2015

By Manoj Gupta

BUDGET 2015 proposes to levy Service tax on services provided by way of right to admission to entertainment or amusement event. As already discussed elaborately in public domain, there are issues relating to constitutional validity of such tax on entertainment or amusement event, tax on entertainment as such being a State subject [covered under Entry 33 in List II of Schedule VII of the Constitution of India]. But, there are other issues as well relating to this subject which beg answer in the absence of clarification from the CBEC. This article highlights a few such questions including the relating to relevance of the difference or discrimination created by the tax authorities between 'dance' and 'music'.

Finance Bill, 2015 proposes to omit, from a date to be notified, clause (j) of Section 66D of the Finance Act, 1994. This clause in the negative list presently covers 'admission to entertainment events or access to amusement facilities'. Further, 'amusement facility' and 'entertainment event'as defined for the purpose under Section 65B of the Finance Act would also be omitted from a date to be notified. Accordingly, admission to entertainment event or access to amusement facility would be liable to Service tax soon. However, some of the services which are presently covered under this clause would be granted exemption either conditionally or without any condition.

According to the amendment in Notification No. 25/2012-S.T. by Notification No. 6/2015-S.T., which will also come into effect from the date to be notified, services by way of right to admission to exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet and recognized sporting event, would be exempted without any condition. However the same Entry 47 in the notification grants exemption to services by way of right to admission to award function, concert, pageant, musical performance or any sporting event (other than recognized)subject to a condition that the consideration of admission is not more than Rs.500 per person.In other words, while dance or theatrical performance including drama or ballet are exempted without any condition as to amount charged for entry, exemption to concert and musical performance is available only where the admission ticket costs uptoRs.500 i.e. high value events where right to admission costs more than Rs.500per person would be taxable at the new proposed rate of 14%.

Discrimination within entertainment

The above amendment is part of the proposals contained in the Finance Bill, 2015 and the definition of entertainment event as it stands today [under Section 65B(24)] includes dance, musical or theatrical performance including drama, ballets or any such event or performance. Accordingly, both music and dance are in the negative list and hence are not liable to Service tax. But, now as per Budget proposals, discrimination is being introduced between music and dance. Commercial value or nature of award functions, pageants or sporting events (other than recognized) is understandable and it makes perfect economic sense for the Government to ask for its share of the pie from the consideration received, however bias towards placing high value musical performances in the tax bracket and all dance, ballet, theatre in the exempted category defies logic.

Though the exact reason for this differential treatment is not known, it may be noted that there is no discrimination between the artistes performing folk or classical forms of these arts. Service by an artiste by way of a performance in folk or classical art form of music, dance or theatre is exempt if the consideration charged for performance is up to Rs.1 lakh. Considering the policy of the government for promotion of folk dance and music, the exemption on right to admission should have also covered folk music performances without any condition while big ticket dance (other than folk) performances should have been taxed based on the consideration for the right to admission.Here, it will not be out of context to mention a recent Madras High Court Order upholding the difference between folk/classical artistes and other artistes when absence of exemption to film artistes was assailed on the ground of discrimination vis-à-vis theatre artistes. [Siddharth Suryanarayan v. Union of India - 2015-TIOL-561-HC-MAD-ST]

What about activities consisting of dancing performed out in clubs or discotheques? Will right to admission to a discotheque be exempted from Service Tax while music lovers would have to pay more on their already high priced tickets?

Whether dance with music exempted?

So far so good, except for the discrimination. However, in an event involving both music and dance performances, how to determine whether the same is a dance performance or a musical performance?Since dance in most of the cases will be accompanied by music whether live or not (though some musical performers also prefer to have a dancer on the stage), whether 'essential character test' for the purpose of classification of this bundled service would be helpful if both music and dance are performed?Whether incidental dancing to the live musical performance by a band or orchestra, would be covered under dance or will remain part of musical performance? Whether, amount of visible stage space occupied by the musicians as compared to the dancers will play any role in determining whether the event is a dance event or a musical performance? Will the marketing strategy of the event organizer play any part in the classification of the performance?

What if the event has one music concert and one dance show both separately performed at different times, i.e. one after another?There is a long list of such questions which need to be answered before we can earnestly put in black and white as to what and when is taxable.

Conclusion

With so many other questions looming on the horizon of this new levy on right to admission to an entertainment or amusement event, such discrimination between 'music' and 'dance' should have been avoided to give a clearer picture to the honest taxpayer. Clarity on scope of tax levy is always required and it is more compelling now because of the impending Goods and Service Tax system.Do the European VAT laws or the GST system prevalent in Canada and Australia allow such discrimination? Let us wait for the Budget proposals to take shape after assent of the Finance Bill, 2015. If the provisions are enacted as such then the humble taxpayer would have no option but to dance to the music of the tax administration.

[The author is associated with Lakshmi kumaran & Sridharan, New Delhi and the views expressed are personal]