Above: A model walks the ramp during Bangalore Fashion Week 2012
In an unprecedented move, the Karnataka High Court has slapped entertainment tax on an event management firm, which held a fashion show in 2012, much to the chagrin of fashionistas and designers
By Stephen David in Bengaluru
Fashion shows in Karnataka are now dogged by tax issues. Dream merchants and fashionistas planning peppy haute couture or pret-a-porter events in the state are grappling with how to combat this new move by the state government.
On September 3, a division bench of the Karnataka High Court upheld a single-judge order which ruled that the Bangalore Fashion Week (BFW) was an entertainment event and hence entertainment tax was applicable on it. The Court’s “fine” has now empowered entertainment tax officers in Karnataka to levy fines on shows like these under the Karnataka Entertainment Tax Act, 1958 (Entertainment Act).
A Bengaluru event management firm – Dream Merchants – had battled the state government which had slapped a fine of Rs 9.5 lakh (Rs 4.75 lakh, plus an equal amount as penalty) on it for organizing the four-day BFW at a star hotel here in February 2012.
The six-year legal battle ended on September 3 when the division bench of Chief Justice Dinesh Maheshwari and Justice Krishna S Dixit, in their 16-page judgment, quoted extracts from the state entertainment tax act and a previous case to endorse the view taken by a single-judge bench earlier. The bench gave no room for ambiguity by observing that the February 2012 BFW organised by the appellant fell within the expression “entertainment” and there had been “payment for admission” which attracted relevant provisions of the Entertainment Act.
The bench observed: “In our considered view, a bare look at the definition of ‘entertainment’ in the Act of 1958 is sufficient to find that the expression has been defined in too wide and broad terms which undoubtedly take within their sweep an event like the one organised by the appellant, namely, a fashion show, which was sponsored by the interested manufacturers or business houses and which comprised of lifestyle parties, after-hour parties, press conferences, and exhibition of designer products/ apparels by live models walking on the ramp and on mannequins. The said event definitely falls within the expressions ‘exhibition’ as also ‘performance’, and would also fit the description of an ‘amusement for recreation and entertainment’ and even a ‘pageant’.”
The bench added: “It had been a ‘fashion show’, where there had been sponsorship and advertisements; where the apparels and dresses of various manufacturers were put in exhibition on mannequins as also on live models; and there had been lifestyle parties, after- hour parties too. In a cumulative effect of the activities of the event in question, we are in no doubt that they were of such exhibitions and performances, which indeed provide amusement and entertainment. Even if it served the business interests of the sponsors, the element of amusement and entertainment naturally woven in it cannot be taken out. The event organised by the appellant, therefore, clearly answers to the wide definition of ‘entertainment’ under sub-clause (iii) of clause (e) of Section 2 of the Act of 1958.”
However, this move of the High Court has not gone down well with event managers and the fashion industry in Bengaluru. “Every fashion show is a platform not just for a designer but creates many jobs behind the scenes too,” an event management executive told India Legal. “There are tailors, stage hands, decorators, florists and so on who depend on shows like this for their living. If the government levies extra tax on these shows, the organisers will end up passing that on to the end users or clients.” This means that one will end up shelling out extra bucks to attend these events.
So how did a fashion show end up in the Karnataka High Court? After the BFW concluded on February 5, 2012, the local entertainment tax officer slapped a levy on the event in August 2013, invoking relevant provisions of the Entertainment Act. The organisers challenged it two months later, claiming that they were organising a platform to nurture creativity and talent for young fashion designers. In effect, their appeal was that their activities were not in the ambit of attracting entertainment tax. Nevertheless, the organisers were slapped with an order to pay the fine, which is when the former sought relief from the Karnataka High Court.
Dream Merchants has been organising the BFW for nearly 18 years and had maintained that its Fashion Week was not a “pageant” for public entertainment. “It was a fashion show where there was no element of competition, awarding or rewarding. There were limited seating arrangements, only for designers, models, trade merchants and the like,” it contended in its submission to the Court.
On January 30, 2018, a single-judge order backed the views of the state government, forcing the organisers to appeal to the division bench. One of the contentions was that there was no “payment for admission” for the event as required under the Entertainment Act. To this, the High Court responded: “Coming to the question if there had been any element of ‘payment for admission’ we are again clearly of the view that from the facts projected, it remains rather indisputable that in relation to the event in question, the appellant received, inter alia, the sponsorship fees and advertisement charges. Therefore, the element of receiving ‘payment of admission’ is directly available.”
The tax amount of Rs 9.5 lakh is not big by industry standards, but the question in fashion circles is whether this will trigger similar moves by other states to start slapping fines and levies on similar shows held there. BFW’s website says it is a bi-annual fashion event held in Bengaluru since 2009 where it follows the international practice of christening the fashion week after the host city; it is a by-invitation-only event where each participating designer has to face a stringent jury before selection for participation.
As one budding fashionista told India Legal: “We are an emerging economy with a rich demographic dividend. We have dreams to emulate great fashion success stories like Gucci, Prada or Giorgio Armani or even replicate shows like Milan here in India. And government support in the form of tax holidays is the key to it.”
But for now, it is a taxing time for the fashion industry.