No Service Tax on Amusement Parks: Kerala High Court

In a significant ruling with wide implications for the entertainment and amusement industry, the Kerala High Court has held that the Union Government cannot levy service tax on admission to amusement parks where the State already imposes entertainment tax under its legislative competence. The bench of Justice A.Muhamed Mustaque and Justice Harisankar V. Menon ruled that the attempt to impose service tax on access to amusement facilities is unconstitutional and amounts to encroachment on the State’s exclusive taxing powers. The case arose from a demand of service tax raised against an amusement park operator in Kerala. The assessee challenged the levy contending that “admission to entertainment events or access to amusement facilities” was earlier placed in the negative list under Section 66D(j) of the Finance Act, 1994. Although this exclusion was removed with effect from 1 June 2015, the assessee argued that taxation of entertainment and amusement squarely falls within the State’s domain under Entry 62 of List II of the Seventh Schedule to the Constitution. The State of Kerala already levies entertainment tax under the Kerala Local Authorities Entertainments Tax Act, 1961, which covers admission to amusements and entertainments, including participation in such activities. The assessee maintained that once the State has exercised its taxing power over this field, the Union could not invoke its residuary power under Entry 97 of List I to impose service tax on the same activity. A Single Judge of the High Court had earlier dismissed the challenge, holding that the State and the Union were taxing different “aspects” of the same activity. This led to the present intra-court appeal. The central question before the Division Bench was whether the removal of amusement and entertainment services from the negative list and the consequent levy of service tax amounted to the Union Parliament trenching upon the exclusive legislative field of the State under Entry 62 of List II. The Bench undertook an extensive examination of constitutional provisions, the Kerala Entertainments Tax Act, and the Finance Act, 1994. It noted that the State law provides for a comprehensive levy on admission to entertainment, which includes both entry to the venue and the actual enjoyment of amusement facilities. The Court observed that the State Act brings the entire consideration paid by the customer for entertainment within its tax net. In contrast, the Finance Act defines “service” broadly as any activity carried out for consideration. The Union sought to justify service tax on the footing that it was taxing the “service” aspect of amusement park operations. The Court held that in the present case, the “aspect” being taxed under both enactments was the same—entertainment or amusement. Applying the doctrine of pith and substance, the Bench concluded that the subject matter of taxation clearly falls within Entry 62 of List II, leaving no scope for the Union to invoke its residuary power under Entry 97. The High Court placed strong reliance on landmark Supreme Court judgments, including State of West Bengal v. Kesoram Industries, Godfrey Phillips India Ltd. v. State of U.P., and State of Karnataka v. Drive-in Enterprises. These decisions reaffirm that taxing entries must be strictly construed and that where a specific taxing power is assigned to the State, Parliament cannot resort to residuary powers to impose a parallel tax. The Bench also distinguished cases where the “aspect theory” permitted dual taxation, noting that such doctrine applies only when genuinely different aspects of an activity are taxed. In the present case, no such distinction existed. The Court categorically held that taxation of entertainment and amusement is a field exclusively reserved for the State Legislature. Since the Kerala Entertainments Tax Act already provides for an all-encompassing levy on admission and entertainment, there is nothing further left to be taxed by the Union under the guise of service tax. The court set aside the judgment of the Single Judge and declared the levy of service tax on access to amusement facilities as unconstitutional. The Court ruled that the Union’s attempt to tax such activities amounts to an impermissible encroachment into the State’s legislative domain. Case Details Case Title: M/S. Vengad Resorts & Retreats Limited Versus Union Of India Case No.: WA NO. 1106 OF 2016 Date: 18/12/2025 Counsel For Petitioner: M.GOPIKRISHNAN NAMBIAR Counsel For Respondent: V.GIRISHKUMAR Click Here To Read Order Read More: Gold Smuggling Operations | Statements Recorded Can’t Be Relied Upon Without Satisfying Mandatory Requirements U/S 138B Of Customs Act: Kerala HC

No Service Tax on Amusement Parks: Kerala High Court

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