The Supreme Court on Friday cleared the decks for the Formula 1 race in Greater Noida, stipulating that the organisers deposit 25 per cent of sale proceeds from tickets in a separate account, which will not be operated without its permission.
A bench of justices D K Jain and A R Dave, in an interim order, directed that the amount would be subject to the final outcome of a plea challenging tax exemptions accorded to the organisers of the Formula 1 race.
The apex court rejected arguments of the organizers that the direction would act as a dampener and cause adverse publicity since it is an international event.
"How can it be a dampener or cause adverse publicity we do not understand?," the bench remarked while passing the order.
The apex court, however, clarified that it was not examining the legality or otherwise of the Formula 1 race, but confining itself only to examining the validity of the entertainment tax exemption granted by the Uttar Pradesh government.
"Yes, primacy has to be given to the event. We are not on that. In fact, we should not consider it," the bench remarked when senior counsel Mukul Rohatgi argued that the plea questioning the tax exemption was acting as a dampener to the event and any adverse order passed by the court would have an impact on holding of the prestigious event.
The apex court, however, put some searching questions to the state government and the organisers vis-a-vis the tax exemption.
India's first Formula 1 event is scheduled to be held in Greater Noida, near national capital, on October 30.
Former Solicitor General Gopal Subramanium, appearing for the UP government, sought to explain that the event is part of a special development zone project undertaken by the state for developing various infrastructural facilities for industrial, residential and sports activities.
The bench, however, said it is concerned as to what exactly was the special development zone aimed at and whether it caters to the needs of the common man, middle class, lower middle class or the elite.
"In Bombay, for example there are certain jhuggi jhopris which are part of a economic development zone. There you can say we will have a cricket or football stadium. But in the name of sports, you cannot have a motor race there.
"This special development zone has to be for a particular class, say the middle class, the poor or the elite. Definition of sports has to be considered in that light.
"What the sport is has to be considered in that light. Race is also a sport it has to be considered in that context. You can't pick it up in isolation," the bench remarked.
While UP government counsel Subramanium sought the bench's permission to file his reply on its queries, Rohatgi, counsel for Formula 1 organiser Jaypee Group, claimed the organisers have no commercial interest in the sport and said they have invested Rs 2,000 crore in the project.
"Even if we had put it in a bank we would have earned Rs 200 crore as interest," he submitted.
Responding to a query by the bench, the counsel said they were expecting about Rs 75 crore from the sale of tickets.
The bench earlier had issued notice to the UP government seeking explanation for granting tax exemption to the company organising the Formula 1 event.
It had also issued notice to Jaypee Group, asking them to file their response on why the event was given tax exemption.
"Formula 1 racing is an elitist and dangerous sport, there was no justification for the State Government of Uttar Pradesh to grant exemption from payment of entertainment tax to M/s Jaypee Sports International Ltd," the petitioner said.
The petitioner also submitted that the private company is politically well-connected with the present BSP government due to which it had been granted tax exemption.
"Because the aforesaid exemption from the payment of entertainment tax has been granted to the said private respondent purely because it is well known that the company is very close to the political leadership and the ruling Government in the State," the petitioner, Amit Kumar, claimed in its petition.