K'taka HC quashes state's move to levy 2% cess on movie tickets. Here's why

The Karnataka High Court on Thursday quashed the state government's orders seeking to collect a 2 per cent cess on cinema tickets while holding that the law under which the levy was sought had not yet come into force, Live Law reported.

Justice H T Narendra Prasad passed the order on a petition filed by the Multiplex Association of India (MAI), PVR INOX Ltd and its shareholder Shantanu Pai. The petition challenged the 2 per cent cess and a series of circulars, office orders and notices issued to enforce it.

The state government had issued a circular on August 29, directing cinema theatres and multiplexes across Karnataka to collect an additional 2 per cent on ticket prices from September 1.

Why the cess was challenged

The cess was sought under the Karnataka Cine and Cultural Activists (Welfare) Act, 2024. The law in question provides for a “welfare cess” on cinema tickets, subscription fees and revenues of related establishments, including television channels and over-the-top (OTT) platforms.

The cess was meant to fund a social security and welfare fund for registered cine and cultural activists in Karnataka. Under the Act, proceeds from the welfare cess form part of the Karnataka Cine and Cultural Activists Social Security and Welfare Fund.

The petitioners argued that the state could not collect the cess through circulars and administrative orders because the said law had not formally come into force. Section 1(2) of the Act mandates the state government to notify the date of commencement in the Official Gazette.

“The Cess levied under sub-section (1) shall be at such rates as may be notified by the Government, and it shall not exceed two per cent but shall not be less than one per cent on cinema tickets, subscription fees and all revenue generated from the Related Establishments,” the Act said.

Senior Advocate Uday Holla, appearing for the petitioners, told the court on Wednesday: “The notification itself has not been passed. Now they have issued a circular demanding the amount without the Act coming into force.” He was quoted as saying by Bar and Bench.

State withdrew August 29 order

When the matter came up before the court, the government filed a memo stating that the Labour Department had withdrawn the August 29 office order on September 9. The state also told the court that the 2024 Act had not been notified in the Official Gazette to bring it into force.

The court then quashed the other measures issued to enforce the cess, as the Act had not been validly commenced through a notification under Section 1(2). The writ petition was allowed.