[BREAKING] No Intention Attributable to Evade Tax on Debatable Issues: Bombay HC deletes Entertainment Duty Penalty against FPGI [Read Order]

A Division Bench of the Bombay High Court has deleted the penalty against the Film & Television Producers Guild of India ( FPGI ), while holding that no intention is attributable to evasion of tax, when the issues are debated.

Reliance Communications, vide letter dated 29th December 2005, informed Respondents that they had entered into an agreement with petitioner for sponsorship containing details of offer and monetary value in relation to the said award function. The total monetary value worked out to Rs. 4.90 crores which was attributable to Free Commercial Time on NDTV channels, Press Advertisement, Internet, Venue Branding, and Collateral Branding etc. Reliance also informed that the sponsorship amount was Rs.2,87,50,000/-.  However no tickets were sold but only guild members were invited to attend the function. 

On the day of the award function, the flying squad of respondents visited the function and observed that there were banners of Reliance and other companies which advertised the brand name of ‘Reliance’ and other corporates and their products. The squad also, inter alia, reported dance being performed to Hindi cinema tunes. The report of the flying squad is not disputed by the petitioner.

On 7th March 2006, Respondent No.2, Additional Collector, passed an order directing  petitioner to pay entertainment duty of Rs.71,87,500/- and fine of Rs.1,43,75,000/- being two times the duty. The said order was challenged in appeal and the Appellate Authority on 17th April 2007 passed an order confirming the entertainment duty but reduced the penalty from Rs.1,43,75,000/- to Rs.71,87,500/-. 

Against the said appellate order, the present Writ Petition was filed before the Bombay High Court.

The original order did not specify as to under which Section of the Act fine of Rs.1,43,75,000/- is imposed. In the absence of the same in the original order the imposition is bad-in-law.

The appellant submitted that the original authority ought to have referred to the Section of the Act which empowers levy of fine and how the ingredients of that Section are satisfied in a particular case. In the absence of such a discussion, imposition of fine is without application of mind.

The Appellate authority in his order while reducing the fine has referred to Section 9A(a) and observed that said provision levies penalty. In our view Section 9A is a provision for compounding of offences and not for levy of fine or penalty and therefore the Appellate Authority has misdirected in referring to Section 9A of the Maharashtra Entertainments Duty Act and proceeded on a wrong footing that it is penalty.

Section 5 of the Maharashtra Entertainments Duty Act provides for levy of penalty for each of the non compliance of Section 4. This provision, however, is not invoked in the original or appellate order.

It was further submitted that, even otherwise, insofar as levy of penalty is concerned, it is important to note that the Adjudicating Authority had levied fine of 200% of the duty demanded, which was reduced by the Appellate Authority to 100% on the basis that it is penalty and petitioner is promoting Indian film and is a not for profit organisation.

“It is important to note that the issue raised by petitioner is based on the interpretation of various definitions of the said Act which we have analysed above and, therefore, one cannot say that petitioner had any intention to evade the duty and was not under the bonafide belief that its award function is not covered by the said Act”, the Bombay High Court Bench noted.

It was thus held that, “The issue is purely on questions of law and it being a debatable issue certainly one cannot attribute any intention on the part of petitioner to evade duty. Therefore, in our view, this is not a fit case where the Authorities ought to have imposed the fine/penalty.”

The Bombay High Court Division Bench of Justices Jitendra Jain and K R Shriram thus deleted the Fine / Penalty of Rs.71,87,500/- confirmed by the Appellate Authority.

However, the High Court also upheld the entertainment duty while deleting the penalty due to lack of proper statutory reference for the penalty in the original order and the debatable nature of the issue; further, no evidence suggested that the FPGI intentionally evaded tax.

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