[Surya Gayathri is a 2nd year BA.LLB student at NALSAR University of Law, Hyderabad]
On May 22, 2025, a division bench of the Supreme Court comprising Justice B.V. Nagarathna and Justice N. Kotiswar Singh delivered a significant ruling in State of Kerala v. Asianet Satellite Communications Ltd., addressing the constitutionality of dual taxation on broadcasting services. The case arose when the State of Kerala imposed an entertainment tax on Asianet’s Direct-to-Home (DTH) broadcasting services, despite those services being subject to service tax under the Finance Act, 1994. The central question was whether the Centre and States could levy separate taxes, service tax and entertainment tax, on different aspects of the same activity. Upholding the State’s power, the Court applied the “aspect theory” to justify that the two taxes operate in separate legislative domains under Entry 97 (Union List) and Entry 62 (State List) of the Seventh Schedule.
Widened Interpretation of “Entertainment”
One of the primary contentions raised by the assessees is that, as they are engaged in broadcasting signals to subscribers via television channels, their activity falls under Entry 97, List I of the Seventh Schedule, making them liable only for service tax under central law, not entertainment tax under state enactments.
This was rejected by the Bench, which interpreted the expressions “entertainments” and “amusements” to be included within the ambit of “luxuries”, and hence upheld the legislative competence to levy entertainment tax under Entry 62, List II as a tax on luxuries. This position was reaffirmed in Western India Theatres, where the Court upheld the validity of taxing the act of providing entertainment, irrespective of whether the burden falls on the provider or recipient. Similarly, in Express Hotels, the Court held that Entry 62 empowers States to tax all activities reasonably falling under the concept of “luxuries”. As held in Godfrey Phillips, even applying the principle of noscitur a sociis, the term “luxury” should be interpreted in a manner analogous to “entertainment”.
The Court broadened the scope of the term “entertainment,” holding that technological advancements enable entertainment through various media (extending to even private spaces like homes or personal devices) and due to which the term must be interpreted in a broad, liberal, and expansive manner, beyond the narrow, “public place focused” view adopted in Geeta Enterprises. The Court observed that with the widespread use of technology enabling access to entertainment even on mobile phones, the term “entertainment” can no longer be construed in a “narrow, myopic or pedantic view.”
Constitutional Interpretation Post-Asianet
As the case explains, how broadcasting services are taxed in India reflects how carefully the Constitution balances the powers of regulation and taxation between the Centre and the States in India’s federal system. Entry 31 of List I, which regulates communications, including broadcasting, is a regulatory provision and does not inherently confer taxation powers. Similarly, entries 33 and 62 of List II address entertainment and amusements, with the former being a regulatory entry and the latter a taxation entry.
The Supreme Court in MPV Sundararamier and H.S. Dhillon has ruled that the power to tax is not implicit in regulatory entries and must be traced to taxation entries specifically. The “power to tax is not an incidental or ancillary power”. Therefore, as levied under the Finance Act, 1994, the service tax on broadcasting finds constitutional legitimacy not under Entry 31 (as it does not have an accompanying taxation entry in List I or List II) but under the residuary Entry 97, reinforced by Article 248. This residuary entry provides legislative competence over any matter not listed under List II or List III, including taxes not specified in those Lists.
The “Pith and Substance” Doctrine
The Court’s ruling on the constitutional validity of the state-imposed entertainment tax on broadcasting services such as DTH and cable transmission hinges on carefully applying the doctrine of “pith and substance”. This doctrine allows a court to uphold legislation that falls substantially within a legislature’s constitutionally conferred domain, but it cannot be declared invalid merely because it “incidentally” encroaches on matters assigned to another legislature. This doctrine is applied to determine to which entry a specific legislation could be related, or, as held in Subrahmanyan Chettiar, its “true nature and character.”
Here, applying this principle, the Court ruled that in pith and substance, the subject of the state legislation imposing an entertainment tax on broadcasting services was not “entertainment” but “transmission of signals of the content to subscribers”, a matter dealt with Entry 31 of List I. This also means the same tax cannot be levied under the State’s taxing power in Entry 62 of List II. While broadcasting may facilitate entertainment, its dominant (or, in fact, true) character is one of transmission of content via signals, a topic that the state is not constitutionally empowered to tax. This absence of a specific taxation entry in List II, combined with the residuary character of Entry 97 of List I, led the Court to uphold the Central Government’s power to impose a service tax.
This judgment reaffirms two critical constitutional principles: first, taxation is not an incidental or ancillary power and cannot be implied within a regulatory entry under the Constitution. Second, when any conflict arises between entries in List I or II, the two powers need to be reconciled, and Parliament’s legislative power will only take supremacy when this conflict cannot be reconciled. While applying the pith and substance doctrine, the Court reaffirmed Calcutta Gas Co., urging that overlapping entries be harmonised so one interpretation does not render the other entry nugatory.
Dual Aspects, One Tax: The Aspect Theory
The Court in this case applied the “aspect theory” to justify double taxation. This theory, also known as “double aspect doctrine”, is a constitutional doctrine that originates in Canadian jurisprudence, which recognises that a single transaction or activity may possess multiple dimensions or “aspects”, each of which can be validly regulated or taxed by different levels of government under their respective legislative powers. The theory has been applied in India to determine whether a particular activity could be brought within an enactment and whether that enactment in its pith and substance falls under an Entry of a particular List of the 7th schedule to confer legislative competence to impose a tax on that specific facet of the activity.
Indian courts have applied this theory in cases such as Federation of Hotel & Restaurant Associations and Mohit Minerals, and it is most often used to validate dual taxation by state and union legislatures when distinct aspects of an activity fall under two separate constitutional entries. In this case, the same principle was used to broadcasting services to reconcile the levy of service tax by the Central Government and entertainment tax by the States.
The Court held that broadcasting involves two distinct aspects: first, the transmission of signal content and, second, the decryption of these signals through set-top boxes and viewing cards provided by the assessors, which enable subscribers to entertain themselves. The Court held that the activity of broadcasting entails the “transmission of signals” (which is a service rendered by the broadcaster to the subscriber, and thus subject to service tax under Entry 97 of List I), and results in the “provision of entertainment” (viewed as a luxury, hence subject to entertainment tax under Entry 62 of List II). These aspects give rise to distinct taxable events, which justify dual taxation.
Overlap in Fact, but No Overlap in Law
As the fields of taxation are enumerated in Lists I and II, there can be an overlap in fact, but not in law. Entertainment and service taxes are imposed on different taxable events, despite arising from the same transaction. It held that “a transaction may involve two or more taxable events in different aspects. Merely because the aspects overlap, such overlapping does not detract from the distinctiveness of the aspects.” This distinction (between consumption of entertainment (taxed under Entry 62 List II) and service of broadcasting (taxed under Entry 97 List I)) ensured that there is no double taxation in the constitutional sense and hence no overlap in law.
Decoding the Ruling: Future Impact
The recent Supreme Court ruling in State of Kerala v. Asianet Satellite Communications Ltd. reflects a critical development in India’s fiscal federalism. On a positive note, the judgment reaffirms the aspect theory, bringing clarity to the legal framework and helping prevent future Centre–State disputes over taxing powers.
Fragmenting the GST Uniformity
However, on the other hand, it potentially destabilises India’s post-GST fiscal architecture. While the Court upheld the legislative competence of States via Entry 62, List II to impose an entertainment tax on DTH services, it did so in a manner that interrupts the spirit of the 101st Constitutional Amendment and Article 246A. By affirming double taxation, the judgment dilutes the GST’s exclusivity and uniformity envisaged by the GST Council. By allowing States to levy an entertainment tax on DTH services, although those services are already taxed under the GST regime as “telecommunication services” or “broadcasting services”, the Court appears to have revived a model of taxation that GST sought to eliminate, namely, overlapping levies, fragmented landscape of indirect taxation, and compliance confusion. The judgment effectively reopens the door to “jurisdictional dualism” by allowing the state and centre to tax various aspects of the same economic activity.
OTT Platforms and Dual Taxation
The shifting of taxing powers to local bodies under Entry 62 could lead to a confusing mix of entertainment taxes across different regions. Although the Court did not directly rule on OTT platforms, its reasoning also leaves it open for States to impose levies on them. By widening the idea that entertainment can occur in private spaces and through digital means, the judgment greenlights States to argue that streaming content delivered through OTT is a distinct “entertainment aspect” that they are constitutionally empowered to tax. This could raise compliance burdens, particularly for OTT platforms already subject to GST under Online Information Database Access and Retrieval (OIDAR). While GST was meant to simplify taxes, the Supreme Court’s reasoning might encourage states to bring in their own rules, like Karnataka’s OTT cess. This complicates the uniformity of GST and goes against the idea of “one nation, one tax”.
Consequences of Expanding Entertainment
Moreover, the Court went a step ahead. It expanded the ambit of “entertainment” by including private digital consumption, suggesting that even streaming on mobile phones or smartwatches could attract entertainment tax. This move blurs the distinction between service and content and lays the foundation for dual taxation of the same activity being taxed by two different authorities.
Conclusion
The Supreme Court’s ruling in the State of Kerala v Asianet Satellite Communications reaffirms the aspect theory, recognising that service tax and entertainment tax can apply to different aspects of broadcasting activity. This brings constitutional clarity and resolves an enduring Centre-State conflict by affirming the state’s authority to legislate under Entry 62. The expanded definition of “entertainment” reflects the Court’s adaptive approach to evolving digital realities.
On the other hand, this could lead to state-level levies and fragmented taxation, threatening GST’s goal of uniformity. Aspect theory could pave the way for dual taxation on digital platforms like OTT services, gaming apps, and social media. This raises concerns about the judgment potentially destabilising the unified national tax framework envisioned under Article 246A and the 101st Constitutional Amendment. Going forward, the GST Council and States should work harmoniously to ensure digital entertainment is taxed uniformly within the GST framework, avoiding fragmented and conflicting levies.
– Surya Gayathri