States’ Power to tax DTH Providers

Hello everyone!

Welcome to another episode of SCO Explains.

Do you recall how about 15 years ago, flipping through the newspapers, circling movie showtimes on TV guides and using your DTH recorder, to tape films was a daily ritual. This was before over the top providers gave us entertainment at our fingertips.

A recent judgment on the taxes levied on direct to home providers stirred up some nostalgia about how different things used to be back then.

The Court was deciding if DTH providers were performing the “service” of disseminating the right TV signals to our screens or if they were providing “entertainment”.

The judgment was State of Kerala v Asianet Satellite Communications, a case I added to the Supreme Court Observer Law Reports, the SCO’s compilation where we report and summarize on the five most important judgements of the week.

Justice B.V. Nagarathna had written the judgement adding to her repertoire of decisions on the separation of powers between the Union Government and the States.

DTH providers like Tata Sky and DishTV had approached the Supreme Court challenging the levy of an entertainment tax by state governments. They argued that they were broadcasting signals to air channels as a ‘service,’ they were not providing ‘entertainment.’ DTH providers believe that state legislations incorrectly taxed them under Entry 62 of the State List.

The previous version of Entry 62 allows states to collect taxes for luxuries, entertainment and amusement. DTH providers already pay service tax to the Central Government under Entry 97 of the Union List.

States had a different approach. Invoking the Canadian doctrine of the double aspect theory, they argued that a single transaction can have two distinct elements which are both taxable. Most High Courts accepted this argument and found that DTH providers offer both a service and entertainment when they aired a show or a movie. As many as 42 appeals against the High Court decisions reached the Supreme Court.

The Supreme Court agreed with the High Courts. Justice Nagarathna wrote that by rendering the service of broadcasting, the assessees are entertaining the subscribers within the meaning of Entry 62 of List 2. The Court concluded that both the Union and State governments possess the legislative competence to tax DTH providers as they are different aspects of the same activity.

This judgement arrives at a time when the DTH market appears to be shrinking rapidly. The Telecom Regulatory Authority of India reported that in September 2024 there were 59.91 million DTH subscribers, a sharp fall from 62 million just three months before.

The financial burden on the DTH market is already substantial. For example, DishTV recently contested a demand for a licensing fee of over 6000 crores from the Ministry of Information and Broadcasting. This licensing fee is 8% of the provider’s adjusted gross revenue. TRAI proposed reducing it to 3%, an idea that DishTV has been pushing MIB to consider.⁸ The Ministry has yet to respond to TRAI’s proposal.

DTH providers are also in the middle of a battle for content parity with OTT platforms to allow streaming shows on television. The present judgement adds another component to the rising cost of being a DTH provider. The growth of OTT, increasing cost and a declining market may have rendered DTH on the verge of obsolescence.

For many like me, Sunday spent lounging in front of the TV watching an endless stream of action movies will remain the sacred beginning of a lifelong love for the craft.

Will the Supreme Court’s judgement be the straw that breaks the camel’s back?

Thank you for streaming in. We will catch you later. Follow scobserver.in for more and as always, don’t forget to subscribe. Obviously it goes without saying that there is no tax on that.