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Owners of multiplex chain move Rajasthan High Court over tax sops

The elimination of such exemption, the petition reads, has caused “undue financial hardship” to the petitioner and has also “affected the viability of business.”

, ET Bureau|
Mar 18, 2018, 11.53 PM IST
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The case is expected to come up for hearing by end of this month.
MUMBAI: A few months after PVR moved court over entertainment tax exemption issue in Uttar Pradesh, multiplex owners in other states are also taking similar action.

In the latest development, owners of one of the largest multiplex chains have filed a petition in the Rajasthan high courts seeking tax exemption promised under the Rajasthan Investment Promotion Scheme, 2014. The scheme, which was to promote investments and generate employment opportunities in Rajasthan, exempted multiplex players from payment of 50% entertainment tax for seven years upon investment in the state.

However, not only the tax sops promised by the state government have gone away under the Goods & Services Tax (GST) regime since July 1, 2017, the tax rate has also increased to 28% (18% for tickets under 100), from earlier entertainment tax of 15%.

“The Rajasthan government offered 50% entertainment tax exemption for seven years under its scheme. However, subsuming of entertainment tax into GST has resulted in undue hardship for the petitioners as the benefit has become redundant, thereby removing all the competitive advantage of the petitioners,” said Abhishek A Rastogi, partner at Khaitan & Co, who is an arguing counsel to the multiplex company. The petition notes that the withdrawal of the partial exemption granted under the scheme has added burden on the profitability as the petitioner had made huge investments considering the benefits expected to be reaped over the validity of the scheme.

The elimination of such exemption, the petition reads, has caused “undue financial hardship” to the petitioner and has also “affected the viability of business.” “Multiplexes have invested based on the promise of getting the tax benefits. As a corollary, arbitrariness under Article 14 of the Indian Constitution comes into play. The entire argument will be based on relevant provisions of Section 174 of the Rajasthan GST Act and the recommendations which should have been given by the GST Council as per article 279A of the Indian constitution,” Rastogi added.

The case is expected to come up for hearing by end of this month. Earlier in January, PVR had filed a similar case against the Uttar Pradesh government in the Allahabad High Court and its Lucknow bench. In UP, the Akhilesh Yadavled state government had doled out sops including a five-year tax exemption to multiplexes.

As part of the scheme of exemption, multiplex companies were allowed to retain 100% of entertainment tax charged in the first year, 75% in second and third year, and 50% charged in fourth and fifth year of operations, respectively.

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