Bansal Talkies v. Entertainment Tax Commissioner — 1979 DIGILAW 1324 (ALL)

JUDGMENT : SATISH CHANDRA, CJ. 1. On November 27, 1977, at 4-45 P.M. the Entertainment Tax Commissioner, U.P. paid a surprise inspection visit to Bansal Talkies at Sikandrabad in the district of Bulandshahr, the Petitioner. He, inter-alia found that in the balcony class three persons were witnessing the show without paying entertainment tax. On December 2, 1977, he issued a show cause notice to the proprietor of the Bansal Talkies in respect of three charges, (a) that return in Form 'B' was produced after ten minutes of being asked for; (b) that three persons were witnessing the show in balcony class without payment of entertainment tax and (c) the counter-foils of the used tickets of the noon show of that day were demanded but not shown. The Petitioner was required to show cause why, under Rules 13, 14, the security deposit of the Petitioner be not forfeited. The Petitioner submitted a detailed explanation and pleaded that be had not committed any violation of the rules. The Entertainment Tax Commissioner passed an order on March 14, 1978. He found that the explanation was not satisfactory. He held that by admitting three persons in the balcony class without payment of entertainment tax there has been evasion of entertainment tax. Under Rule 14, a sum of Rs. 500/- was liable to be forfeited. He directed that the amount of the security be increased from Rs. 3,000/- to Rs. 10,000/- He ordered accordingly. Aggrieved by this order, the Petitioner has come to this Court under Article 226 of the Constitution. 2. The main thrust of the learned Counsel for Petitioner's submission was that Rule 14 under which the impugned action has been taken, was ultra vires of the U.P. Entertainments and Betting Tax Act, 1937. We are, however, satisfied that Rule 14, if properly understood, is inter vires, but the action of the Entertainment Tax Commissioner was not within the purview of Rule 14. 3. The U.P. Entertainments and Betting Tax Act, 1937 consists of two chapters. Chapter I relates to entertainments tax, while Chapter II deals with taxes on certain forms of betting. Chapter I consists of Sections 3 to 10. Section 3 deals with tax on payment for admission of entertainments, while Section 4 provides for manner of admission and payment. Section 5 lays down the penalty for non-payment of tax. Section 9 confers rule making power on the State Government. Chapter I consists of Sections 3 to 10. Section 3 deals with tax on payment for admission of entertainments, while Section 4 provides for manner of admission and payment. Section 5 lays down the penalty for non-payment of tax. Section 9 confers rule making power on the State Government. Section 9-A speaks of revocation and suspension of licence for an entertainment. This chapter speaks of penalty in Sections 5(2), 5(3), 8(2), 9(2) and 9-B(2). Section 5(2) says that any person who enters or obtains admission to an entertainment in contravention of the provision of Sub-section (1) (i.e. without payment of entertainment tax) shall, on conviction before a magistrate, be liable to pay a fine not exceeding two hundred rupees and shall in addition be liable to pay the tax which should have been paid by him. Under Sub-section (3), the proprietor of the entertainment is liable to a fine not exceeding Rs. 500/- on conviction before a magistrate for admitting any one to a place of entertainment without paying entertainment tax. u/s 8(2), if any person prevents or obstructs the entry of any officer authorised to inspect, he shall, in addition to any other punishment, be liable on conviction before a Magistrate to a fine not exceeding two hundred rupees. 4. Section 9 confers rule making power on the State Government. Section 9(2) provides:- (2) If any person acts in contravention of, or fails to comply with, any such rules, he shall, on conviction before a Magistrate, be liable in respect of each such offence to a fine not exceeding two hundred rupees. 5. Section 9-A authorises the District Magistrate to cancel the licence for an entertainment if the proprietor of such entertainment is convicted under the provisions of this Act. Section 9-B prohibits resale of tickets. Its Sub-section (2) says that whoever resells any ticket for admission to an entertainment for profit shall be punishable with a fine not exceeding Rs. 200/-. 6. In exercise of the powers conferred by Section 9 of the Act, the State Government has framed rules. Rule 14 provides for security. It reads: 14. Section 9-B prohibits resale of tickets. Its Sub-section (2) says that whoever resells any ticket for admission to an entertainment for profit shall be punishable with a fine not exceeding Rs. 200/-. 6. In exercise of the powers conferred by Section 9 of the Act, the State Government has framed rules. Rule 14 provides for security. It reads: 14. Security-Every proprietor required to pay the tax under the provisions of Clauses (b), (c) and (d) of Sub-section (2) of Section 4 of the Act shall furnish such security to the officer prescribed by Government in this behalf as that officer may require and execute a bond in that respect in Form 'E' appended hereto the amount of security fixed by the officer prescribed shall not, however, be more than the amount of the total entertainment tax chargeable for the full seating capacity of the hall for one full week as calculated with reference to, the number of shows during the week. Provided that the said officer shall be authorised to vary the amount of security, if he considers that to be necessary and to forfeit in whole or part the security, if any evasion of the entertainment tax is proved. The said officer shall be entitled to deduct the amount of arrears of entertainment tax from the amount of security and if the proprietor does not make good the amount of security before the tax for next week falls due he shall have the power to suspend the licence or the permission for holding of the entertainment and shall realise the tax due as arrears of land revenue, as provided in Section 7 of the Act, Provided further that non-preparation of the return in Form 'B' within the time prescribed shall, unless proved to the contrary, be deemed to have as its object the evasion of entertainment tax. 7. This rule prescribes the maximum limit of security and authorises the Prescribed Officer to (a) vary the amount of security if he considers this to be necessary (b) to forfeit the whole or in part the security if any evasion of entertainment tax is proved. The security can also be used for adjusting the arrears of entertainment tax. 7. This rule prescribes the maximum limit of security and authorises the Prescribed Officer to (a) vary the amount of security if he considers this to be necessary (b) to forfeit the whole or in part the security if any evasion of entertainment tax is proved. The security can also be used for adjusting the arrears of entertainment tax. The second proviso lays down that non -preparation of the return in Form 'B' within the prescribed time shall, unless proved to the contrary, be deemed to have as its object the evasion of entertainment tax. 8. Properly read, Rule 14 confers n discretion on the Prescribed Officer to require furnishing of security in an amount which he may fix and the proprietor to execute a bond in that respect in Form-B. The amount that he can fix cannot, however, exceed the maximum laid down 1 in the rule. The power conferred by the proviso to vary the 'amount of security, if thought necessary cannot in any case exceed the maximum prescribed by the main rule. If the officer had required the proprietor to furnish security which was less than the maximum, he can, if he considers it necessary, increase it to the prescribed maximum. He can, of course, reduce the amount if he considers that to be necessary. In the present case, the security has been increased from Rs. 3,000/- to Rs. 10,000/- with-out a finding as to what was the maximum according to the method laid down in Rule 14. In order to be a valid order, the prescribed maximum should have been mentioned. That is one flaw in the impugned order. 9. We now come to the power of forfeiture conferred by the proviso to Rule 14. The power of forfeiture arises if any evasion of the entertainment tax is proved. The security bond which has to be executed by the proprietor is in Form 'E' appended to the rules. That is one flaw in the impugned order. 9. We now come to the power of forfeiture conferred by the proviso to Rule 14. The power of forfeiture arises if any evasion of the entertainment tax is proved. The security bond which has to be executed by the proprietor is in Form 'E' appended to the rules. Its Clause (1) provides: It is hereby agreed and declared as follows: That in the event of any loss being caused to the Governor of Uttar Pradesh as a result of any neglect or breach of the said proprietor in the due accounting for all moneys on account of entertainment tax which shall come into his possession or control by reason of his being the proprietor of the said Entertainment, it shall be lawful for the District Officer to confiscate and/or to withdraw from the, said security deposit the said deposit or any such portion thereof as may be sufficient to indemnify the said Governor of Uttar Pradesh in respect of the loss so caused as aforesaid and of the fact of such loss and the amount thereof a certificate signed by the District Officer shall be sufficient proof. 10. The bond clarifies that the security is liable to be confiscated, or a portion thereof withdrawn in order to indemnify the loss caused to the Government. The District Officer has to issue a certificate of the fact of such loss and the amount thereof. The certificate is sufficient proof. 11. Reading the proviso of Rule 14 and the security bond in Form 'E', it is evident that the Prescribed Officer has to give a finding, that the evasion of the entertainment tax has been proved and of the amount of the loss caused to the Government, then the security can be utilized to indemnity the Government of the loss so caused. In the present case, the finding is that three persons were found in the balcony class witnessing the show without payment of entertainment tax. This proved the factum of evasion of entertainment tax and so of the fact of loss having been caused to the Government. But there is no finding as to the amount of loss. The amount of loss evidently will be the quantum of the entertainment tax that those persons were liable to pay and no more. This proved the factum of evasion of entertainment tax and so of the fact of loss having been caused to the Government. But there is no finding as to the amount of loss. The amount of loss evidently will be the quantum of the entertainment tax that those persons were liable to pay and no more. In the present case there is no finding as to the actual amount of loss. 12. The proviso to Rule 14 does not authorise forfeiture of the security or any part thereof at the whim of the Prescribed Officer. Only so such amount as will be sufficient to indemnify the loss caused because of evasion of entertainment tax having been proved, can be taken from the security deposit. In the present case, the finding is that three persons were witnessing the show without payment of entertainment tax. The mount of loss has not been found but the order is forfeiture of Rs. 500/- from the security. The Entertainment Tax Commissioner had no power to forfeit any part of the security in excess of the actual loss caused to the Government. 13. If Rule 14 is read as conferring a power to forfeit the security irrespective of the amount of loss caused to the Government by evasion of entertainment tax, then this rule will come in conflict with Section 5(3) of the Act u/s 5 (3), the proprietor, on conviction by a Magistrate for admitting any person to an entertainment without payment of entertainment tax is liable to a fine upto Rs. 500/. The fine need not be go-extensive with the amount of entertainment tax evaded. The fine is imposed as a measure of punishment. Rule 14, if interpreted as suggested by the learned Advocate General would, in that event, be usurping the jurisdiction conferred on the magistrate by Section 5 (3) as well as by Section 9(2), which confers power to punish for contravention of the rules, on the Magistrate. If so read, Rule 14 may become ultra vires. But, as indicated above, on a reasonable construction, Rule 14 does not go that far. 14. Under the second proviso to Rule 14, non-preparation of the return in Form B within the time prescribed shall, unless proved to the contrary, be deemed to have as its object the evasion of entertainment tax. But, as indicated above, on a reasonable construction, Rule 14 does not go that far. 14. Under the second proviso to Rule 14, non-preparation of the return in Form B within the time prescribed shall, unless proved to the contrary, be deemed to have as its object the evasion of entertainment tax. Here the charge was that the return in Form 'B' was produced ten minutes late. From this the Entertainment Tax Commissioner could, if he so felt, have inferred that the evasion of entertainment tax was sought to be achieved. But that is not enough to penalise the proprietor. It must further be found that an evasion is proved and the quantum of the loss caused. The second proviso lays down a presumption which may lead to the conclusion that evasion of entertainment tax is proved. But, in the present case, there is no finding that because of delay in showing the return in Form 'B' evasion is proved. 15. The opening sentence of the first proviso may be read again. It says: Provided that the said officer shall be authorised to vary the amount of security, if he considers this to be necessary and to forfeit the whole or in part the security, if any evasion of the entertainment tax is proved. 16. The condition precedent for varying the amount of security and for forfeiting it in whole or in part is "if any evasion of the entertainment tax is proved." Then there has to be some co-relation between the amount of evasion and the variation in the amount of security. There must be some reasonable nexus between the two. It will be an abuse of the power if for an evasion of say Rs. 7/- the security is enhanced by Rs. 7,000/-. 17. If the opening sentence of the first proviso is read as entitling the prescribed officer to vary the amount of security if he considers it to be necessary without the condition precedent that the evasion of entertainment tax is proved, in that event this part of the proviso would be valid if it assumes or implies the recording of a finding as to the reason for the necessity to vary the amount of security. Further the increase in the amount of security must bear some reasonable relation to the reason because of which it was thought necessary to vary the amount. Further the increase in the amount of security must bear some reasonable relation to the reason because of which it was thought necessary to vary the amount. This part of the proviso does not confer an arbitrary power on the prescribed officer. He cannot act merely on his whim. He cannot act capriciously. In the present case, there is no finding as to the quantum of evasion for which an increase in the security by Rs. 7,000/- was considered necessary. Without such a finding the order of increase was clearly outside the purview of the proviso and so invalid. 18. In the result, the petition succeeds and is allowed. The impugned order of the Entertainment Tax Commissioner is quashed. He will be at liberty to pass a fresh order if he so likes in accordance with law. The Petitioner will be entitled to costs.