A recent Supreme Court verdict allowing dual taxation on television broadcasting services may have significant ripple effects across over-the-top (OTT) platforms, subscription-based digital content services, and online gaming apps, according to experts. The ruling is expected to increase the overall tax burden and reintroduce uncertainty into an industry that has so far operated under the uniform Goods and Services Tax (GST) framework.
Court Permits Separate Taxes for Service and Entertainment
In its May 22 ruling in the case of Asianet Satellite Communications and Others, a bench comprising Justices B V Nagarathna and N K Singh concluded that broadcasting consists of two distinct components: the provision of the service and the entertainment value of the content. This interpretation enables the Centre to impose service tax on the broadcasting act, while states can levy entertainment tax on the content itself.
Saloni Roy, Partner at Deloitte India, said the ruling rests on the idea that these are separate aspects of a single activity, and therefore both can be taxed independently. Though the case is from the pre-GST era, Roy warned the judgment could have “significant implications” for the current digital ecosystem and reintroduce legal and tax ambiguity.
“Aspect Theory” and Its Broader Impact
The Supreme Court’s endorsement of the “aspect theory”—which permits different authorities to tax different aspects of a single activity—could open the door for states to impose entertainment taxes on digital platforms, including OTT services, social media, and gaming applications.
“This ruling contradicts the core purpose of GST, which was to unify multiple indirect taxes including entertainment tax,” said Saurabh Agarwal, Partner at EY. He also warned that the judgment could encourage local governments to revive entertainment levies under Entry 62 of the Constitution, potentially creating a fragmented tax landscape once again.
Legal Frameworks Already in Place
Some states have already taken legislative steps to enable such taxation. For example
- Haryana has enacted the Municipal Entertainment Duty Act, 2019, which empowers local bodies to impose entertainment duties.
- Maharashtra included DTH services under its Entertainments Duty Act, 2023.
- Tamil Nadu continues to apply both GST and entertainment tax on Indian Premier League (IPL) match tickets.
This precedent could serve as a template for other states to follow, further complicating tax compliance for digital service providers.
Industry Reaction: Renewed Uncertainty
The digital sector had largely adjusted to the GST regime, which consolidated various indirect taxes. However, experts warn that the Supreme Court’s ruling reintroduces the risk of multiple, overlapping levies on the same transaction.
“There are several factors—like the non-territorial nature of digital service delivery—that argue against the imposition of state-level entertainment taxes,” said Shashank Mishra, Partner at Shardul Amarchand Mangaldas & Co. “Nevertheless, the ruling creates a grey area that could embolden states to push for new revenue streams from digital platforms.”
What Lies Ahead
While the Supreme Court ruling pertains to legacy cases, its interpretation could influence how digital services are taxed moving forward. The decision may also prompt discussions in the GST Council to address potential conflicts between national and state-level tax policies to maintain consistency and ease of doing business.
