PVR INOX, Multiplex Association challenge 2% cinema cess: Karnataka High Court seeks State's reply

The Karnataka High Court today sought the Karnataka government's response to a plea challenging the levy of a 2 percent cess on cinema ticket revenues under the Karnataka Cine and Cultural Activists (Welfare) Act, 2024 [Multiplex Association of India & others Vs State of Karnataka]..Justice H T Narendra Prasad issued the State notice on a plea filed by the Multiplex Association of India (MAI), PVR INOX Ltd and its shareholder Shantanu Pai.The plea was filed following a series of office orders, enforcement notices and circulars issued recently that sought to enforce provisions of the 2024 Act which provided for the levy of a cess on cinema revenues and revenues of "related establishments." The petitioners have argued that the State cannot demand such a cess through circulars and notices as the parent Act is yet to come into force..The Court today said that it will go into the relevant provisions of the 2024 Act only after examining whether the Act itself has come into force.The State government's counsel was directed to take notice for respondent authorities. The matter is listed for hearing tomorrow. .The petitioners have challenged the 2024 Act, the Karnataka Cine and Cultural Activists Social Security and Welfare Rules, 2025, the 2026 amendment to the Act, and various notifications, office orders and enforcement notices issued by the State Labour Department.Appearing for the petitioners, Senior Advocate Uday Holla submitted that although the Karnataka Legislature had passed the Act, Section 1(2) specifically provides that it would come into force only on a date appointed by the State government through a notification in the Official Gazette.Holla argued that no such commencement notification has been issued till date. He proceeded to question how the State could have issued a circular demanding a cess provided for under the Act, without the law formally coming into force. “The notification itself has not been passed. Now they have issued a circular demanding the amount without the Act coming into force,” Holla submitted..The petitioners pointed out that the Act received the Governor's assent on September 23, 2024 and was subsequently published in the Gazette. However, they contend that publication of the Act is distinct from a notification appointing the date on which it comes into force.A notification dated March 10, 2026 appointed authorities under the Act and Rules, while an April 8 office order directed officials to create awareness and collect the 2 per cent cess from cinema halls, including multiplexes.Subsequently, enforcement notices were issued to multiplexes demanding the payment of the cess, which is meant to be used for the welfare of cine workers. An August 29 circular was also issued, directing cinema theatres and multiplexes across Karnataka to collect an additional 2 per cent amount on cinema ticket prices from September 1.The petitioners have challenged these developments, contending that administrative circulars and orders cannot substitute the statutory requirement of a commencement notification..On the merits of the levy, the petitioners contended that the State Legislature lacks competence to impose the cess since the parliament has already enacted the Code on Social Security, 2020. This Code, according to the petitioners, occupies the field relating to social security and welfare of workers, including cine and cultural workers.The petitioners, therefore, contended that the State legislation operates in a field already occupied by the parliament and is consequently, repugnant to the central legislation..They further argued that the 2 percent levy is, in substance, a tax, even though it is described by the State to be a welfare cess. The petitioners added that the levy does not satisfy the constitutional requirements governing taxation.The petitioners have also questioned whether it is reasonable to impose the cess on multiplexes, when they have no employment or direct relationship with the cine and cultural workers who are supposed to benefit from the move.The petitioners have further submitted that the cumulative burden of GST and the additional cess could adversely affect the commercial viability of multiplexes..They have, therefore, urged the Court to quash circulars, office orders and enforcement notices issued for the levy and collection for such a cinema caess.They have also sought a declaration that the 2024 Act has not come into force in the absence of a valid commencement notification.Moreover, they have sought interim protection by urging the Court to restrain the collection and enforcement of the 2 per cent cess until their petition is finally decided..Multiplex Association of India and PVR Inox Limited were represented by Senior Advocates Uday Holla, and V Srinivas Raghavan along with Khaitan & Co advocates Sahil Narang, Nikhilesh Rao, Madhavam Sharma, Ayushman Kacker, Harsh Gupta, Swati Panda and Haritaa Nair.