Bombay High Court upholds entertainment duty on convenience fees for online movie tickets

The Bombay High Court on Wednesday upheld the constitutional validity of a 2014 amendment to the Maharashtra Entertainments Duty Act which allows the State to levy entertainment duty on convenience fees exceeding ₹10 charged by cinema owners or ticketing platforms to facilitate online booking of movie tickets [FICCI-Multiplex Association of India and anr v State of Maharashtra and Ors]

A Bench of Justice MS Sonak and Justice Jitendra Jain said that duty would apply since convenience fee is an 'inextricable part' of buying a ticket online for entertainment.

Hence, it dismissed two petitions filed by the Multiplex Association of India and BookMyShow.

"Making payment of convenience fees is an inextricable part of buying the ticket online for entertainment. The composite price paid does go a long way in enhancing the experience of the entertainment, i.e., watching the film or gaining seamless admission to the place of entertainment. Splitting the transaction or styling it as a separate activity having no nexus or connection with payment for admission, or calling it by some other name, cannot be grounds to either strike down the levy or declare that it would not be attracted. Therefore, in our view, the “convenience fees” charged would squarely fall within section 2(b)(iv) which defines “payment of admission” and which forms the measure of tax on which rate of duty is to be paid under Section 3 of the MED Act," the Court said.

The petitions challenged the seventh proviso inserted into Section 2(b) of the Maharashtra Entertainments Duty Act.

This proviso carved out an exemption for online booking charges up to ₹10 per ticket but brought any amount beyond that within the definition of “payment for admission”, thus making it subject to entertainment duty.

The petitioners contended that convenience fees were charged for a distinct service unrelated to the entertainment itself.

They submitted that online ticketing is a separate business activity that was already being taxed under the Finance Act, 1994, and that the State legislature lacked the competence to tax it under Entry 62 (List II) of the Constitution.

The counsel for the petitioners argued that the provision was violative of Articles 14 and 300A of the Constitution, was a colourable exercise of power and lacked any machinery for assessment and collection.

They maintained that convenience fees are not a condition for entertainment but merely a facility for purchasing tickets online and cannot be equated with admission charges. They also argued that the amendment changed the tax base without amending the charging section and that such a change via a proviso was impermissible.

The Court rejected these arguments and held that the amendment merely altered the measure of tax and did not create a new levy.

“The character of the levy remains unchanged by the rate imposed or by the measure of tax. The method of recovery for a levy cannot influence its character,” the bench said.

The Court also held that the MED Act, through its broad definitions in Sections 2(a) and 2(b)(iv), was wide enough to encompass convenience fees as it covered any payment made in connection with entertainment.

On the issue of legislative competence, the Court applied the “pith and substance” doctrine and held that the levy was squarely within the State’s powers under Entry 62 of List II.

Addressing the overlap with Union taxation on services, the bench stated,

“Merely because charges for online booking are included in the tax measure does not imply that the State has encroached upon the Union List.”

The Court also rejected the petitioners’ claim that the amendment was colourable legislation.

“Once the impugned proviso is held to be constitutionally valid and has a direct nexus with the subject matter of tax, the legislature should be given a free hand to determine the measure of tax,” it said.

Hence, the Court dismissed both petitions.

“The impugned proviso inserted by Maharashtra Act XLII of 2014 amending the Maharashtra Entertainment Duty Act is held to be intra vires and not unconstitutional or beyond the State’s legislative competence,” the Court ruled.

Advocate Naresh Thacker along with advocates Chakrapani Misra, Sameer Bindra abd Ananya Misra instructed by Khaitan & Co. appeared for FICCI.

Advocate Rohan Rajadhyaksha along with advocates Rajendra Barot, Dhaval Vora, Dhirajkumar Totala and Tejas Raghav instructed by AZB & Partners appeared for BookMyShow.

Additional Government Pleader Milind More appeared for the State

Last month, the Court had upheld the right of multiplexes to charge convenience fee on online ticket bookings.

[Read Judgment]