Convenience comes at a cost and now it’s court-approved

The judgment is expected to set a precedent for business models, beyond that offered by film exhibitors that provide various online services such as flight bookings, delivering groceries or even paying utility bills.

By Sweta Rajan and Kanika Birje

Over the past two decades, the rise of the internet age has marked a profound transition in how patrons consume entertainment, and multiplexes have been prompted to adapt by embracing online ticketing to draw patrons to theatres. Multiplexes have also grown to benefit from the internet with the reduced queues, larger access and efficiency in providing tickets to patrons.

The prices charged by multiplexes for these tickets per se constitute admission fee to the entertainment which was liable to entertainment duty under the Maharashtra Entertainment Duty Act, 1923 (ED Act), and after the introduction of GST, is liable to GST as a service by way of admission to cinematograph films. However, for the provision of online booking provided to patrons to book these tickets from the comfort of their homes, multiplexes charge an added convenience fee or a service fee to such patrons.

Such fee is reflective of the significant investments made by multiplexes in setting up infrastructure for operating the online platforms and is tailored depending on various factors including maintenance costs of the platform, location of the multiplexes, spending capacity of consumers in that locality etc.

The Maharashtra Government, through Government Orders, on one hand directed multiplexes to mandatorily set up the necessary infrastructure to offer online ticket booking while on the other hand prohibited multiplexes from charging a convenience fee for such service. The principal challenge of the Petitioners – PVR, FICCI-Multiplex Association of India, Book My Show - before the Bombay High Court was whether the Maharashtra Government has the power to regulate / prohibit such convenience fees charged by film exhibitors and intermediaries.

The Government’s position was that the power to prohibit the levy of convenience fee stems from the ED Act since such fee is an extension of the ticket price for entertainment. It was the case of the multiplexes that the fee charged for online booking was not payment for admission inasmuch as non-payment of such fee does not restrict patrons from purchasing a ticket at the box office to watch a film. It was also argued that the Government does not have executive power under Article 162 of the Constitution to issue such an order since there is no basis to regulate such fees in the case of booking tickets for entertainment, when other online booking portals are not similarly taxed, for instance, airline and railway booking etc.

The Bombay High Court struck down the aforesaid Government Orders to the extent that they prohibited collection of such fees by film exhibitors and intermediaries. It was observed that the Maharashtra Government, either under any statute or rules, does not have the necessary power to prohibit collection of such fees and the Government Orders violate the right to carry on business by seeking to regulate a commercial consideration agreed upon between two private parties. The executive power to control the price of commodities was to be exercised only in certain situations (e.g., for essential commodities) and the Court did not see occasion for exercise of such power in this case.

In passing this judgment, the High Court placed reliance on the judgment in the case of Indian School, Jodhpur and Anr. v. State of Rajasthan, (2021) 10 Supreme Court Cases 517 where during the Covid-19 pandemic, an Order was issued seeking to restrict the quantum of fees collected by private unaided schools. The said Order was held to be impermissible and was accordingly struck down as being in excess of the executive power of the State Government

The ruling of the Bombay High Court marks an important precedent in imposing checks and balances on the executive power of the State to denude a person offering services from his just claim to get fair compensation from its patrons. The right to determine consideration paid for services provided basis legitimate transactions between two private parties with which the State has not direct causal relationship has been strengthened by the Court. The State cannot choose to ignore the requirement of reasonableness of law by usurping its executive power to curtail the right to trade and commerce.

The judgment is expected to set a precedent for business models, beyond that offered by film exhibitors that provide various online services such as flight bookings, delivering groceries or even paying utility bills. As businesses learn to adjust and thrive in the internet age, the shift in the perspective of Indian courts towards platform economics and digital services provided by such businesses further facilitate the ease of doing business in the country.

(Sweta Rajan is Partner, Economic Laws Practice and Kanika Birje, Associate, Economic Laws Practice.)

Views are personal and do not represent the stand of this publication.