In a significant order that could affect the cable TV industry, the Supreme Court on Wednesday ruled that states were legally competent to levy entertainment tax on Multi System Operators distributing TV signals leaving out from the tax net those providing household cable links.

A Bench comprising Justice S N Variava, Justice AR Lakshmanan and Justice S H Kapadia [ Images ] gave this ruling while upholding the validity of a provision of West Bengal [ Images ] Entertainment-cum-Amusement Tax Act providing for such levy on MSOs and not the cable operators.

Justice Lakshmanan, said the centrally enacted Cable TV Network (Regulation) Act, 1995 "does not fetter the legislative power or competence of the state to levy tax on luxuries including taxes on entertainments, amusements, betting and gambling....".

The MSOs had challenged the levy of entertainment tax on them before the High Calcutta Court, which had held that the levy should be on the cable operators who give the link to households for viewing of different TV programmes.

Setting aside the High Court order, the Bench said it was the MSO, engaged in the business of providing entertainment, including showing films, serials, cricket matches and dramatic performances, to the subscribers and the tax was imposed for providing such entertainment to viewers.