Karnataka High Court to consider plea to stay 2% cinema ticket cess, asks State to respond tomorrow

The Karnataka High Court on Tuesday said it will consider on Wednesday the interim prayer seeking a stay on the enforcement of the 2 percent cess on cinema tickets, while asking the State government to respond to the petitions challenging the levy [Multiplex Association of India & others v. State of Karnataka]..Justice HT Narendra Prasad was hearing petitions filed by the Multiplex Association of India (MAI), PVR INOX and PVR INOX shareholders Prateek Chauhan and Vinayaka Chitramandira challenging the constitutional validity of the recent amendments to the Karnataka Cine and Cultural Activists (Welfare) Act, 2024 and the relevant rules that allow the levy of cess.The Court said that the constitutional challenge would require a response from the State and that the Advocate General would have to be given an opportunity to respond to the challenge to the validity of the legislation.The bench also indicated that it would examine whether the consequences flowing from the legislation ought to be kept in abeyance pending consideration of the constitutional challenge..The Court also questioned the State's authority to issue notices demanding compliance before the legislation had come into force.“Where is your power? The Act itself has not come into force. Where is the power to issue the notice?,” the Bench observed..The petitions in particular challenge the September 10 notification appointing September 30 as the date on which the amended provisions of the law come into force.Vinayaka Chitramandira has sought a declaration that Sections 9(1), 9(2) and 11 of the Karnataka Cine and Cultural Activists (Welfare) Act, 2024 (Karnataka Act 46 of 2024), as amended by Karnataka Act 13 of 2026, and Rule 8(1) of the Karnataka Cine and Cultural Activists Social Security and Welfare Rules, 2025, insofar as they levy and provide for collection of a cess on the sale of cinema tickets, are unconstitutional.The MAI plea challenges the legislative competence of the State, contending that the levy is, in substance, a tax and that the constitutional legislative entries relied upon by the State do not confer the requisite taxing power.The petitions additionally challenge the statutory and regulatory framework governing the identification of persons liable to pay the cess, assessment, collection, recovery and penalties.The petitioners have contended that Section 9(2) of the Act provides for a cess ranging between 1 and 2 percent, and that the State could not have mechanically imposed the maximum rate without following the statutory mechanism prescribed for determining the rate.Pending adjudication of the constitutional challenge, the petitioners have sought a stay on enforcement of the 2026 amendment, the rules and the commencement notification insofar as they require them to collect, deposit or pay the 2 percent cess.They have also sought protection against recovery proceedings, penalties, prosecution, inspection and other coercive measures under the legislation..Advocate Dhananjay KV, appearing for Vinayaka Chitramandira, argued that the State was attempting to impose a tax without possessing the requisite legislative competence.“This is not a fee; this is a tax,” the counsel submitted, arguing that the levy amounted to a compulsory fiscal exaction and could not be sustained merely by describing it as a cess.He further argued that the Act itself did not clearly provide that a cinema theatre was required to collect the 2% amount from customers.“There is nothing in the law that 2% is to be paid by the cinema theatre. There is no such clause in the Act itself,” he submitted.The counsel submitted that the State has directed movie theatres to commence collection of the cess from September 30 despite an earlier round of litigation in which the High Court had quashed show-cause notices issued to multiplexes.He also argued that the legislation did not provide an adequate assessment mechanism.“If the statute does not have an assessment mechanism, there cannot be a detailed enquiry,” the counsel argued..Senior Advocate Uday Holla, appearing for MAI, submitted that the amount collected from multiplexes is proposed to be utilised towards the welfare of persons associated with cinema and cultural activities, including beneficiaries of institutions such as the Karnataka Nataka Academy and Yakshagana Academy.“We have challenged the entire Act. It cannot be a cess; it is a tax. There is no provision to tax under the Act,” he added.Pertinently, the petitioners questioned the alleged lack of a rational nexus between the persons made liable to bear the levy and the beneficiaries of the proposed welfare measures.The petitioners raised a repugnancy challenge, relying on the Code on Social Security, 2020, and contended that parliament has occupied the field relating to social security and welfare of workers, including cine-workers..The State's counsel informed the Court that the commencement notification has already taken effect, and that he would seek instructions on the interim prayer.The bench, however, distinguished the position of notices issued before the Act was in force and observed that such notices stood on a different footing.The Court thereafter said it would hear the parties on the interim relief on Wednesday and directed the State counsel to obtain instructions..The MAI petition was filed through Khaitan & Co LLP.